<PAGE>
As filed with the Securities and Exchange Commission on February 1, 2000
Registration No. [ ]
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
MATTRESS DISCOUNTERS CORPORATION
(Exact name of Registrant as specified in charter)
Delaware 5712 52-1710722
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification
organization) Code Number)
9822 Fallard Court
Upper Marlboro, MD 20772
(301) 856-6755
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
----------------
c/o Stephen A. Walker
Chief Executive Officer
9822 Fallard Court
Upper Marlboro, MD 20772
(301) 856-6755
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
----------------
Copy to:
Lance C. Balk
Kirkland & Ellis
153 East 53rd Street
New York, New York 10022-4675
Telephone: (212) 446-4800
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
----------------
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Proposed
Proposed Maximum
Title of Each Class of Amount Maximum Aggregate Amount of
Securities to be to be Offering Price Offering Registration
Registered Registered Per Unit(1) Price(1) Fee
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mattress Discounters
Corporation 12 5/8%
Senior Subordinated
Notes due 2007......... $140,000,000 $1,000 $140,000,000 $36,960
- -------------------------------------------------------------------------------
Guarantees(2)........... N/A N/A N/A N/A
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(f)(2) based upon the book value of the securities
as of , 1999.
(2) The guarantee by each of T.J.B., Inc. and The Bedding Experts, Inc. of the
payment of principal and interest on the notes is being registered hereby.
Pursuant to Rule 457(g), no registration fee is required with respect to
the guarantees.
----------------
The Registrant hereby amends this Registration Statement on 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>
T.J.B., INC.
(Exact name of Registrant as specified in charter)
Maryland 5712 52-1127365
(Primary Standard (I.R.S. Employer
(State or other Industrial Identification No.)
jurisdiction of Classification Code
incorporation or Number)
organization)
THE BEDDING EXPERTS, INC.
(Exact name of Registrant as specified in charter)
Illinois 5712 36-3392513
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification Code
organization) Number)
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+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. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion, dated , 2000
Prospectus
, 2000
Mattress Discounters Corporation
Exchange Offer for $140,000,000
12 5/8% Series A Senior Subordinated Notes due 2007 in exchange for
$140,000,000 12 5/8% Series B Senior Subordinated Notes due 2007.
. The exchange offer expires at 5:00 p.m. New York City time on , 2000,
unless we extend this date.
. If you decide to participate in this exchange offer, the exchange notes you
receive will be the same as old notes, except the exchange notes will be
registered with the Securities and Exchange Commission and you will be able
to offer and sell them freely to any potential buyer. This is beneficial to
you since your old notes are not registered with the Securities and Exchange
Commission and may not be offered or sold without registration or an
exemption from registration under federal securities laws.
. There is no public market for the old notes or the exchange notes. However,
the old notes and the exchange notes can be traded in the Portal Market.
This investment involves risk. See "Risk Factors" beginning on page 11.
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>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.................. 1
Risk Factors........................ 11
Use of Proceeds..................... 18
Capitalization...................... 18
Unaudited Pro Forma Financial Data.. 19
Selected Historical Combined
Financial Data..................... 24
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 26
Business............................ 36
Management.......................... 46
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Principal Shareholders............. 49
Certain Relationships and Related
Transactions...................... 51
Description of Capital Stock of
Holdings.......................... 53
Description of Senior Credit
Facility.......................... 54
Description of the Notes........... 56
Exchange Offer..................... 93
Federal Income Tax Considerations.. 101
Plan of Distribution............... 102
Legal Matters...................... 103
Experts............................ 103
Available Information.............. 104
Index to Financial Statements...... F-1
</TABLE>
----------------
In this prospectus, unless otherwise indicated, (1) "we," "our" and "us"
refer to Mattress Discounters Corporation, T.J.B., Inc. and The Bedding
Experts, Inc. as a combined entity, (2) "MDC" refers to the combined
operations of Mattress Discounters Corporation and T.J.B., Inc. for periods
prior to Heilig-Meyers' acquisition of those entities on July 2, 1997, (3)
"Bain Capital" refers to Bain Capital, Inc. and its affiliates and (4) "equity
investors" refers to Bain Capital and certain other investors. All references
to "mattresses" refer to conventional mattresses, box springs and foundations.
All references to mattress market size and historical growth are derived from
wholesale dollar shipments in the United States, as gathered by International
Sleep Products Association or ISPA. Unless otherwise indicated, all references
to market share data for retailers and retail channels reflect United States
data as gathered by Furniture Today. Where necessary, wholesale data is
converted into retail data by dividing by 55%, which assumes a 45% gross
margin for mattresses at retail. Use of the term "markets" represent regional
marketing areas as defined by ISPA. All references to a "fiscal" year refer to
our fiscal year ending on the last day of February of that year. However, on
November 5, 1999, Mattress Discounters elected to change its fiscal year end
from the last day in February to the closest Saturday to December 31,
beginning with the year ended January 1, 2000.
i
<PAGE>
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 and warrants to purchase
common stock of our parent to Chase Securities,
Inc., CIBC World Markets Corp. and BancBoston
Robertson Stephens Inc., the initial purchasers,
on August 6, 1999. They subsequently resold the
old notes and warrants to qualified institutional
buyers under Rule 144A of the Securities Act of
1933. The price to the public of the old notes
and warrants was 96.377% of the principal amount
of the old notes.
Exchange and Registration
Rights Agreement...........
We, Chase Securities, Inc., CIBC World Markets
Corp. and BancBoston Robertson Stephens Inc.,
entered into a registration rights agreement on
August 6, 1999. The registration rights agreement
granted Chase Securities, Inc., CIBC World
Markets Corp. and BancBoston Robertson Stephens
Inc. 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 $140,000,000 of 12 5/8% series B senior
subordinated notes due 2007. 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 , 2000, 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.
1
<PAGE>
Conditions to the Exchange Based on an interpretation by the staff of the
Offer....................... 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,
. 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.............. State Street Bank and Trust Company is serving as
the exchange agent in connection with our
exchange offer.
Federal Income Tax
Consequences...............
We have received an opinion from Kirkland & Ellis
that 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 "Federal Income Tax
Considerations."
2
<PAGE>
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.
Notes
Total Amount of Exchange
Notes Offered..............
Up to $140,000,000 aggregate principal amount of
12 5/8% Series B Senior Notes due 2007.
Maturity.................... July 15, 2007.
Interest Payment Dates...... January 15 and July 15 of each year, commencing
January 15, 2000.
Sinking Fund................ None.
Note Guarantees............. The notes will be guaranteed on a senior
unsecured basis by our existing and future
restricted subsidiaries.
Optional Redemption......... Except as discussed below, we may not redeem the
exchange notes prior to July 15, 2004. We may
redeem the exchange notes, in whole or in part,
on or after July 15, 2004, at the redemption
prices set out in this prospectus, plus accrued
and unpaid interest, if any, to the date of
repurchase. In addition, any time prior to July
15, 2002, we may redeem up to 35% of the notes at
a redemption price equal to 112.625% of the
principal amount, plus accrued and unpaid
interest, with the net proceeds of equity
issuances; provided that at least 65% of the
aggregate principal amount of the notes
originally issued remains outstanding immediately
after each such redemption. See "Description of
the Notes--Optional Redemption."
Ranking..................... The exchange notes will be senior unsecured
obligations and will rank:
. equally with all of our senior unsecured
indebtedness
. senior to all of our subordinated indebtedness
. effectively subordinated to our secured
indebtedness to the extent of the value of the
assets securing such indebtedness.
See "Description of the Notes--Ranking."
Change of Control........... Upon the occurrence of a "Change of Control," we
will be required to make an offer to repurchase
each holder's Notes at a price equal to 101% of
the principal amount thereof, plus
3
<PAGE>
accrued and unpaid interest, if any, to the date
of repurchase. In addition, upon the occurrence
of a "Change of Control" occurring prior to July
15, 2004, we may redeem all of the exchange notes
at the redemption price set forth in this
prospectus, plus accrued and unpaid interest, if
any, to the date of repurchase. See "Description
of the Notes--Change of Control" and "--Optional
Redemption."
Restrictive Covenants....... The indenture relating to the exchange notes
contains specific covenants, including, but not
limited to, covenants with respect to the
following matters:
. limitation on additional indebtedness and
preferred stock
. limitation on restricted payments
. limitation on transactions with affiliates
. limitation on liens
. limitation on dividends and other payment
restrictions affecting subsidiaries
. restrictions on consolidations, mergers and the
sale of assets.
These covenants are subject to a number of
important exceptions. See "Description of the
Notes--Certain Covenants."
Risk Factors
See "Risk Factors" beginning on page 11 and the other information in this
prospectus prior to deciding to invest in the exchange notes.
4
<PAGE>
Mattress Discounters Corporation
We believe we are the largest retailer of mattresses in the United States.
Founded in 1978, we are considered the pioneers of the "specialty sleep shop"
mattress retailing concept. Since our founding, we have grown our business into
a nationwide network of 250 stores in 15 markets. We believe that we hold the
leading market position in nine of these markets. Of the top 15 markets in the
United States, which accounted for approximately 33% of 1998 mattress sales, we
believe we are the largest mattress retailer in six of these markets. For the
twelve months ended November 30, 1999, we generated net sales of $258.7
million.
Through our exclusive purchase contract with Sealy Mattress Company, we are
the largest retailer of Sealy products. According to ISPA, Sealy is the largest
manufacturer of mattresses in North America, with a 22% U.S. market share.
Sealy products accounted for approximately 64% of our retail mattress sales for
the nine months ended November 30, 1999 and include such well-known brand names
as Sealy(R), Sealy Posturepedic(R), Sealy Posturepedic Crown Jewel(R), Sealy
Correct Comfort(R) and Stearns & Foster(R).
In addition to selling Sealy mattresses, we sell Comfort Source(R) brand
mattresses that are produced at our three manufacturing facilities. We believe
that we are the only conventional mattress retailer with significant captive
manufacturing capacity. This vertical integration allows us to execute a
private brand strategy with attractive margins. Sales of our Comfort Source
brand mattresses accounted for 36% of our retail mattress sales for the nine
months ended November 30, 1999.
The Transactions
Through a series of transactions that closed on August 6, 1999, the equity
investors and some members of our management acquired approximately 93% of
outstanding shares of common stock of Mattress Holding Corporation, or
Holdings. The consideration for these transactions, together with the payment
of fees and expenses, totalled approximately $239.8 million. The transactions
involved the following steps:
. a contribution by Heilig-Meyers of all the issued and outstanding capital
stock of Mattress Discounters Corporation, T.J.B., Inc. and The Bedding
Experts, Inc., comprising the sleep shop business of Heilig-Meyers, to
Heilig-Meyers Associates, Inc., or HMA, a wholly owned subsidiary of
Heilig-Meyers
. an equity investment made by the equity investors in Mattress Discounters
Holding, LLC, a limited liability company that owns 100% of the stock of
MD Acquisition Corporation, totaling approximately $76.2 million in cash
. the merger of MD Acquisition Corporation into HMA, with HMA surviving and
changing its name to Holdings
. a rollover of equity by Heilig-Meyers of approximately $6.0 million,
consisting of a portion of the existing common stock that was converted
into new Holdings common stock
. the establishment of T.J.B. and Bedding Experts as wholly owned
subsidiaries of Mattress Discounters Corporation
. the borrowing by us of approximately $5.2 million under a new $20.0
million senior revolving credit facility
. the issuance by Holdings of a $10.0 million principal amount 10% junior
subordinated promissory note and a $7.5 million principal amount 12%
junior subordinated promissory note to Heilig-Meyers
5
<PAGE>
. the granting by Holdings of immediately exercisable stock options to some
members of management that represented 4.2% of its fully diluted common
stock immediately following the transactions
. the issuance by us of 140,000 units consisting of $140,000,000 12 5/8%
senior notes due 2007 and warrants to purchase 679,000 shares of class A
of our common stock and 75,460 shares of class L of our common stock.
Subsequent to the closing of the transactions, Holdings submitted its claim
for a working capital adjustment to Heilig-Meyers under the transaction
agreement. In connection with the working capital adjustment, on December 22,
1999, Heilig-Meyers agreed to pay to Holdings $1,953,135, which Holdings
advanced to Mattress Discounters. In addition, Heilig-Meyers agreed to reduce
the outstanding principal amount of its $7.5 million 12% Junior Subordinated
Promissory Note of Holdings to $5.875 million, and to discharge certain lease
obligations of Mattress Discounters aggregating approximately $42,000.
In accordance with generally accepted accounting principles, the merger was
accounted for as a leveraged recapitalization of HMA.
The Sponsor
Bain Capital, Inc., the financial sponsor of the transactions, is one of the
most experienced and successful private equity investors in the United States.
Bain Capital's principals have extensive experience working with companies on a
wide range of strategic and operational challenges across many industries. Bain
Capital maintains specific operational experience in the mattress industry,
having been the largest shareholder of Sealy since December 1997. Bain Capital
also maintains extensive experience in the retail industry, with investments
including Staples, The Sports Authority, Brookstone, Duane Reade, Stage Stores
and Domino's. Bain Capital's investment strategy is to seek to acquire
businesses in partnership with exceptional management teams and improve the
long-term value of those businesses. The firm typically seeks to identify
companies with strong strategic positions and significant opportunities for
growth. Since its founding, Bain Capital has invested in more than 120
companies and currently manages more than $4 billion of capital.
Sources and Uses
The following table shows the sources and uses of funds at the closing of
the transactions.
<TABLE>
<CAPTION>
(dollars in millions)
<S> <C>
Sources of Funds:
Senior credit facility(/1/)............................. $ 5.2
Units, including the old notes.......................... 134.9
Holdings junior subordinated notes(/2/)(/5/)............ 17.5
New equity investment in Mattress Discounters Holding,
LLC..................................................... 76.2
Heilig-Meyers' rollover equity in Holdings(/3/)......... 6.0
------
Total................................................... $239.8
======
Uses of Funds:
Cash merger consideration(/4/)(/5/)..................... $204.2
Heilig-Meyers' rollover equity in Holdings(/3/)......... 6.0
Holdings junior subordinated notes(/2/)(/5/)............ 17.5
Estimated fees and expenses............................. 12.1
------
Total................................................... $239.8
======
</TABLE>
6
<PAGE>
- --------
(1) The senior credit facility has total availability of $20.0 million, of
which $5.2 million was borrowed at closing (excluding the rollover of
outstanding letters of credit totaling approximately $1.7 million). See
"Description of Senior Credit Facility."
(2) The Holdings junior subordinated notes were issued to Heilig-Meyers by
Holdings as a non-cash portion of the consideration due to Heilig-Meyers at
closing. See "Certain Relationships and Related Transactions."
(3) Represents common stock held by Heilig-Meyers before the transactions that
was exchanged in a non-cash transaction for new common stock after the
transactions. Heilig-Meyers' retained equity investment represented
approximately 7% of the outstanding Holdings common stock.
(4) Represents the cash portion of the consideration paid by Holdings to
Heilig-Meyers in the transactions.
(5) In December 1999, pursuant to the transaction agreement, Heilig-Meyers
agreed to pay to Holdings approximately $2.0 million, which Holdings
advanced to the capital of Mattress Discounters Corporation. In addition,
Heilig-Meyers agreed to reduce the outstanding principal amount of its $7.5
million 12% Junior Subordinated Promissory Note from Holdings to $5.875
million.
7
<PAGE>
Summary Unaudited Pro Forma Combined Financial Data
Our summary unaudited pro forma combined financial data set out below give
effect in the manner described under "Unaudited Pro Forma Combined Financial
Data" and the notes thereto to the transactions as if they occurred on March 1,
1998. The unaudited pro forma combined statements of operations do not purport
to represent what our results of operations would have been if the transactions
had occurred as of the date indicated or what such results will be for future
periods. The information contained in this table should be read in conjunction
with "Unaudited Pro Forma Combined Financial Data," "Selected Historical
Combined Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," our audited combined financial statements
and our unaudited condensed consolidated interim financial statements and the
accompanying notes thereto included elsewhere in this prospectus.
<TABLE>
<CAPTION>
Pro Forma
-----------------------------------------------------------------------------
Fiscal Year
Ended Nine Months Ended Twelve Months
February 28, --------------------------------------------- Ended November 30,
1999(/1/) November 30, 1998(/1/) November 30, 1999(/1/) 1999(/2/)
------------ ---------------------- ---------------------- ------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Operating Data:
Net sales............... $246,551 $185,863 $198,053 $258,741
Gross profit............ 90,273 70,580 70,723 90,416
Income from operations.. 22,601 19,501 15,090 18,190
Interest expense, net... (19,548) (14,720) (14,888) (19,716)
Other income (expense),
net.................... 322 285 -- 37
Income (loss) before
provision for income
taxes.................. 3,375 5,066 202 (1,489)
Net income (loss)....... 1,480 2,566 (605) (1,691)
Other Financial Data:
Depreciation and
amortization........... $ 4,541 $ 3,364 $ 3,695 $ 4,872
Capital expenditures.... 5,162 4,079 2,107 3,190
Cash interest
expense(/3/) .......... 17,775 13,331 13,374 17,818
Ratio of earnings to
fixed charges(/4/)..... 1.13x 1.26x 1.01x 0.94x
</TABLE>
- --------
(1) See "Unaudited Pro Forma Combined Financial Data" and notes thereto.
(2) Information for the twelve months ended November 30, 1999 represents the
summation of the pro forma fiscal year ended February 28, 1999 and the pro
forma nine months ended November 30, 1999 data, less the pro forma nine
months ended November 30, 1998 data.
(3) Excludes amortization of deferred financing fees and original issue
discount.
(4) For purposes of calculating the pro forma ratio of earnings to fixed
charges, earnings represent pro forma income before income taxes plus pro
forma fixed charges. Fixed charges consist of pro forma interest expense
(net), and the portion of operating rental expense which our management
believes is representative of the interest component of rental expense.
Fixed charges exclude common area maintenance costs related to our lease
agreements.
8
<PAGE>
Summary Historical Combined Financial Data
Below is our summary historical combined financial data at the dates and for
the periods indicated. Our summary historical combined statement of operations
data for the fiscal year ended February 28, 1999 and the summary historical
combined balance sheet data as of February 28, 1998 and February 28, 1999 were
derived from our combined financial statements that were audited by Deloitte &
Touche LLP, whose report appears elsewhere in this prospectus. Our summary
historical aggregated statement of operations data for the fiscal year ended
February 28, 1998 was derived by aggregating statement of operations data from
(1) our combined financial statements for the eight months ended February 28,
1998 that were audited by Deloitte & Touche LLP, whose report appears elsewhere
in this prospectus, plus (2) the unaudited statement of operations for Bedding
Experts for the four months ended July 1, 1997 plus (3) the unaudited combined
statement of operations data for MDC (Mattress Discounters Corporation and
T.J.B.) for the four months ended July 1, 1997. The summary historical combined
statement of operations data of MDC for the year ended December 28, 1996 and
the summary historical combined balance sheet data as of December 28, 1996 were
derived from the combined financial statements of MDC that were audited by KPMG
LLP, whose report appears elsewhere in this prospectus. Our summary historical
combined financial data as of and for the nine months ended November 30, 1998
and 1999, are derived from our unaudited condensed consolidated interim
financial statements which, in the opinion of our management, include all
adjustments necessary for a fair presentation.
We have presented summary historical combined financial data for MDC for the
year ended December 28, 1996 because MDC currently constitutes a major portion
of our business and our assets and is our most substantive business entity. We
believe the inclusion of summary historical combined financial data for MDC is
a more informative presentation. Bedding Experts' summary historical financial
data for the year ended December 31, 1996 has not been presented due to the
absence of reliable accounting and financial records during this period.
The financial position and operating results of the entities as of dates and
for periods ended subsequent to July 2, 1997, but prior to August 5, 1999 were
combined in the financial statements as each entity was under common ownership
and control by Heilig-Meyers through August 5, 1999. Effective August 6, 1999
the financial statements have been prepared on a consolidated basis pursuant to
the transactions discussed elsewhere in this prospectus.
On November 5, 1999, Mattress Discounters elected to change its fiscal year
end from the last day of February to the closest Saturday to December 31,
beginning with the year ended January 1, 2000.
The summary historical combined financial data set forth below should be
read in conjunction with, and is qualified by reference to, "Selected
Historical Combined Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," the audited combined financial
statements and our unaudited condensed consolidated interim financial
statements and accompanying notes thereto included elsewhere in this
prospectus.
9
<PAGE>
Summary Historical Combined Financial Data
(dollars in thousands)
<TABLE>
<CAPTION>
MDC MDC/Company Company
------------ -------------- ------------------------------------------------
Aggregated
Fiscal Year Fiscal Year
Year Ended Ended Ended Nine Months Ended
December 28, February 28, February 28, -----------------------------------
1996(/1/) 1998(/1/)(/2/) 1999 November 30, 1998 November 30, 1999
------------ -------------- ------------ ----------------- -----------------
<S> <C> <C> <C> <C> <C>
Operating Data:
Net sales............... $170,690 $231,123 $246,551 $185,863 $198,053
Gross profit............ 57,055 80,421 89,703 70,210 70,478
General and
administrative
expenses............... 51,900 62,843 67,261 50,770 54,730
Non-recurring operating
expenses............... -- -- -- -- 4,556
Income from operations.. 5,155 17,578 22,442 19,440 11,192
Interest income
(expense), net......... 548 316 128 131 (6,319)
Other income (expense),
net.................... (471) 71 322 285 (97)
Income before provision
for income taxes....... 5,232 17,965 22,892 19,856 4,776
Net income(/3/)......... $ 5,232 $ 12,238 $ 13,190 $ 11,440 $ 2,139
Other Financial Data:
Depreciation and
amortization........... $ 2,214 $ 3,569 $ 4,541 $ 3,364 $ 3,695
Capital expenditures.... 1,823 3,183 5,162 4,079 2,107
Balance Sheet Data (end
of period):
Working capital......... 1,327 (8,748) 2,207 (11,809) 6,109
Total assets............ 35,340 95,824 99,678 91,126 198,515
Other Data (end of
period):
Number of stores........ 162 227 236 231 250
Same store sales
growth................. (3.4%) 2.0% 1.5% 3.8% (0.7%)
</TABLE>
- --------
(1) Heilig-Meyers employed the purchase method of accounting for its July 2,
1997 acquisition of MDC. Accordingly, historical financial and other data
for the year ended December 28, 1996 may not be comparable to such data for
subsequent periods. The primary differences result from the amortization of
goodwill recorded by Heilig-Meyers as a result of the purchase on July 2,
1997 and the provision for income taxes.
(2) Represents the aggregation of (1) our audited combined financial statements
for the eight months ended February 28, 1998 plus (2) the unaudited
statement of operations data for Bedding Experts for the four months ended
July 1, 1997 plus (3) the unaudited combined statement of operations data
for MDC for the four months ended July 1, 1997. This presentation is not in
accordance with generally accepted accounting principles and has been
presented for informational purposes only. If this financial data were
presented on a pro forma basis assuming (1) Heilig-Meyers' acquisition of
MDC had taken place on March 1, 1997 and (2) Bedding Experts and MDC were
"C" corporations during the full period from March 1, 1997 to February 28,
1998, amortization expense and the provision for income taxes would have
increased $570 and $1,990, respectively. Income from operations and net
income would have been $17,008 and $9,678, respectively.
(3) Prior to its acquisition on July 2, 1997, MDC filed as an "S" Corporation
for federal and state income tax purposes. Accordingly, no provision for
federal income taxes is included in the statement of operations for the
year ended December 28, 1996 and the four months ended July 1, 1997.
Provisions were made for state income taxes in those states which do not
recognize "S" Corporation elections. These provisions have been included in
general and administrative expenses for the periods referred to above.
10
<PAGE>
RISK FACTORS
You should carefully consider the following factors in addition to the
other information in this prospectus before making an investment in the
exchange notes.
Substantial Leverage--Our substantial indebtedness could make it more
difficult to pay our debts, including the exchange notes, divert our cash flow
from operations for debt payments, limit our ability to borrow funds and
increase our vulnerability to general adverse economic and industry
conditions.
We have a significant amount of indebtedness as shown in the following
chart:
<TABLE>
<CAPTION>
At
November 30, 1999
---------------------
(dollars in millions)
(unaudited)
<S> <C> <C>
Total debt, including the exchange notes and
capital lease obligations...................... $133.4
Total shareholder's equity...................... 29.3
</TABLE>
Our substantial indebtedness could have important consequences to you. For
example, it could:
. make it more difficult to pay our debts, including the exchange notes
. increase our vulnerability to general adverse economic and industry
conditions
. require us to dedicate a substantial portion of our cash flow from
operations to payments on our indebtedness, thereby reducing the
availability of our cash flow to fund working capital, capital
expenditures and other general corporate purposes
. limit our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate
. place us at a competitive disadvantage compared to our competitors that
have less debt
. limit our ability to borrow additional funds.
Possible Additional Borrowings--Despite current indebtedness levels, we may
still be able to incur more debt under the senior credit facility and the
indenture governing the notes. This could further exacerbate the risks
described above.
We may be able to incur additional indebtedness in the future. The terms of
the senior credit facility and the indenture governing the notes do not fully
prohibit us from doing so. Under some conditions, the senior credit facility
permits borrowings of up to $20.0 million to fund operations and to finance
the cost of future expansion after completion of this offering. All of the
borrowings under the senior credit facility are secured by substantially all
of our assets and the assets of our domestic subsidiaries. See "Description of
Senior Credit Facility" and "Description of the Notes."
Subordination--Your claims are effectively subordinated.
As of November 30, 1999, we and the guarantors have outstanding
approximately $133.4 million of indebtedness (excluding unused commitments
under the senior credit facility and the rollover of letters of credit,
together totaling $20.0 million). Substantially all of our and the guarantors'
assets have collateralized the senior credit facility. Under some
circumstances, such as where we satisfy the debt tests and baskets under the
indenture and the senior credit facility, we may incur additional secured debt
in the future. Secured debt effectively ranks senior to the notes to the
extent of the value
11
<PAGE>
of the collateral. Thus, if we default on the notes, become bankrupt,
liquidate or reorganize, our secured creditors could foreclose on the
collateral to satisfy the secured debt before you would receive any payment on
the notes. If the value of the collateral is insufficient to pay all of the
secured debt, our secured creditors would share equally in the value of our
other assets, if any, with you and any other creditors whose claims against us
rank equally with the notes.
Original Issue Discount--The notes will be considered to be issued with
original issue discount.
The exchange notes will be considered to be issued with original issue
discount. Holders of the notes will be required to include the accretion of
the original issue discount in gross income for U.S. federal income tax
purposes in advance of receipt of the cash payments to which such income is
attributable. If a bankruptcy case is commenced by or against us under the
United States Bankruptcy Code after the issuance of the notes, the claim of a
holder of notes with respect to the principal amount thereof may be limited to
an amount equal to the sum of (i) the purchase price, and (ii) that portion of
the original issue discount which has been amortized as of the date of any
such bankruptcy filing.
Ability to Service Debt--We require a significant amount of cash to service
our indebtedness. Our ability to generate cash depends on many factors beyond
our control.
Our ability to make interest and principal payments on our indebtedness,
including the exchange notes, and to fund planned capital expenditures depends
on our ability to generate cash in the future and our ability to refinance our
indebtedness when necessary. This, to some extent, is subject to general
economic, financial, competitive, legislative, regulatory and other factors
that are beyond our control. We cannot assure you that our business will
generate sufficient cash flow from operations or that future borrowings will
be available to us under the senior credit facility in an amount sufficient to
enable us to make scheduled payments on our indebtedness, including the notes.
If we do not generate sufficient cash, we may be required to refinance all or
a part of our existing indebtedness, reduce or delay capital expenditures,
sell assets or borrow additional funds. We cannot assure you that we will be
able to refinance any of our indebtedness, including the senior credit
facility and the notes, sell assets or borrow additional funds on commercially
reasonable terms or at all.
Our cash flow, and consequently our ability to service our debt, including
our obligations under the indenture governing the notes, is dependent in part
upon the cash flows of our subsidiaries and the payment of funds by our
subsidiaries to us in the form of loans, distributions or otherwise. Our
subsidiaries are separate legal entities that have no obligation to pay any
amounts due pursuant to the notes other than through the note guarantees or to
make any funds available for that purpose, whether by dividends, interest,
loans, advances or other payments. In addition, their ability to pay dividends
and make loans, advances and other payments to us depends on any statutory or
contractual restrictions, which may include requirements to maintain minimum
levels of working capital and other assets.
Restrictive Covenants--The senior credit facility and the indenture governing
the notes contain various covenants which limit our management's discretion in
the operations of our business.
The senior credit facility and the indenture governing the exchange notes
contain various provisions that limit our management's discretion by
restricting our and our subsidiaries' ability to among other things:
. incur additional debt and issue preferred stock
. pay dividends and make other distributions
. prepay subordinated debt, including the exchange notes
. make investments and other restricted payments
12
<PAGE>
. enter into sale and leaseback transactions
. create liens
. sell assets
. enter into certain transactions with affiliates.
In addition, the senior credit facility requires us to meet financial tests
which include a maximum total debt ratio and a minimum interest coverage
ratio.
If we fail to comply with the restrictions of the senior credit facility or
the indenture governing the notes or any other subsequent financing
agreements, a default may occur. This default may allow the creditors to
accelerate the related indebtedness. Such acceleration could also result in an
acceleration under the financing agreements related to our other indebtedness
which have a cross-acceleration or cross-default provision. In addition, the
lenders under our financing agreements (including the senior credit facility)
may be able to terminate any commitments they had made to supply us with
further funds upon an event of default. See "Description of Senior Credit
Facility" and "Description of the Notes."
Lease Consents--The transactions may result in termination of leases.
In connection with the transactions which resulted in a change of control,
we are required to obtain consents from a majority of our landlords. We have
already obtained consents from a number of our landlords and intend to seek
consents from some or all of the remaining landlords. If we seek such further
consents, we may be required to make payments to obtain those consents. If
landlord consents are not obtained, the landlords may terminate some of those
leases or seek to increase the rents they charge. If landlords terminate our
leases or increase our rents on a large number of stores or on stores in key
areas and if we are unable to relocate these stores on attractive terms, our
business, financial condition and results of operations could be materially
and adversely affected.
Dependence on Sealy--We depend upon one supplier for a significant percentage
of our business.
We maintain an exclusive purchase agreement with Sealy whereby Sealy is our
exclusive third-party supplier of mattresses, box springs and foundations. The
agreement is scheduled to expire on June 30, 2004. Approximately 62% of our
total retail purchases in fiscal 1999 were sourced from Sealy. If this
agreement is terminated for any reason, or if it is not renewed, we cannot
assure you that we could replace these products on equally favorable terms. A
failure to do so would have a material adverse effect on our profitability.
Future Transactions--We may engage in transactions which could subject us and
you to a number of risks.
In order to grow our business and maintain our competitive position, we may
acquire other businesses in the future. We cannot predict whether or when any
acquisitions will occur. We cannot assure you that we will make any
acquisitions or that any acquired business will be successfully integrated
into our operations or will perform as expected. Our ability to finance such
acquisitions may be constrained by our high leverage. We may also enter into
joint venture transactions. Joint ventures have the added risk that the other
joint venture partners may have economic, business or legal interests or
objectives that are inconsistent with our interests and objectives. We may
also have to fulfill our joint venture partners' economic or other obligations
if they fail to do so.
In addition, the equity investors, the indirect beneficial owners of
approximately 93% of our parents' common stock, may have an interest in
pursuing acquisitions, divestitures or other transactions that, in their
judgment, could enhance their equity investment, even though such transactions
might involve risks to the holders of the exchange notes.
13
<PAGE>
Competition--Our business is very competitive and increased competition could
make it difficult for us to generate sufficient cash flow to service our debt.
The mattress industry in the United States is very competitive. Our retail
competitors include a variety of national and regional chains of retail
furniture stores such as Jordan's Furniture in Massachusetts, department store
chains with bedding departments such as The May Company and the Macy's and
Bloomingdale's stores of Federated Department Stores, Inc., sleep shops such
as Sleepy's and Mattress Giant, regional and local independent furniture
stores carrying bedding and other regional and local specialty retailers of
bedding. Some of our competitors have substantially greater financial and
other resources than we have and may be less leveraged than us and accordingly
may be better able to withstand a change of market conditions in the bedding
industry. We may face periods of intense competition in the future that could
negatively affect our profitability. See "Business--Competition."
Possible Fluctuations in the Cost of Raw Materials; Possible Loss of
Suppliers--Our future financial condition and results may be affected by
fluctuations in the cost of raw materials and the loss of suppliers.
The major raw materials that we purchase for production of our private-
brand bedding products are cotton, insulator pads, innersprings, 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 negatively affected by increases
in raw material costs to the extent we are unable to pass on such higher costs
to our customers.
Leggett & Platt is our primary vendor, supplying us with approximately 35%
of our raw materials in fiscal 1999. Although we attempt to reduce the risks
of dependence on a single external source, if Leggett & Platt or any other
supplier were to discontinue or delay supplying our raw materials for any
reason, such discontinuance or delay could have a negative affect on our
profitability. See "Business--Manufacturing."
Dependence on Senior Key Management--The loss of key members of our management
team 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.
We are dependent on the continued services of our senior management team.
Although we believe we could replace key employees in an orderly fashion
should the need arise, the loss of such key personnel could materially
adversely affect us and seriously impair our ability to implement our
strategy. Our success also depends in part on our ability to manage, attract
and retain qualified sales personnel. Competition for such personnel is
intense. We cannot assure you that we will be successful in attracting and
retaining the personnel we require to conduct our operations successfully. If
we were unable to attract, manage and retain these personnel it could have a
significant negative affect on our profitability and ability to successfully
compete in our industry. See "Management--Directors and Executive Officers."
Reliance on Trademarks and Other Intellectual Property--Our inability to
protect our trademarks, service marks and trade names could make it more
difficult to compete in the mattress industry.
We own trademark registrations in the U.S. with respect to many of our
products and have numerous trademark applications pending in the U.S. and
common law rights for certain unregistered trademarks that are used in our
business. We cannot assure you that the actions we have taken to protect our
trademarks, service marks and trade names will be adequate to protect their
value or prevent imitation by others. Moreover, others may assert rights in,
or claim ownership of, these marks
14
<PAGE>
and names, and we may not be able to successfully resolve such conflicts. The
loss or limitation of our right to use these marks and names could
significantly negatively affect our ability to compete effectively with other
companies in the mattress industry. See "Business--Trademarks, Trade Names and
Copyrights."
Potential Conflict of Interest--The outside interests of our principal
stockholders could lead to conflicts of interest.
The equity investors are the indirect beneficial owners of approximately
93% of Holdings' common stock. The equity investors or related parties are
also the beneficial owners of approximately 93% of the voting common stock of
the mattress manufacturer Sealy Mattress Company and effectively control both
companies. Accordingly, there is a potential for a conflict of interests. If
we are presented with a business opportunity that could also be of interest to
Sealy, we may not be able to take advantage of that opportunity.
Economic and Market Conditions--Our business depends on the local economic
conditions and consumer spending levels.
The retail business is dependent upon the level of consumer spending, which
may be adversely affected by an economic downturn or a decline in consumer
confidence. An economic downturn could significantly negatively affect our
profitability.
Government Regulation--We are subject to extensive government regulation.
Our operations are subject to state and local consumer protection and other
regulation relating to the mattress industry. These regulations vary among the
states in which we do business. The regulations generally impose requirements
as to the proper labeling of bedding merchandise, restrictions regarding the
identification of merchandise as "new" or otherwise, controls as to hygiene
and other aspects of product handling and sale and penalties for violations.
Although we believe that we are in substantial compliance with these
regulations and currently are implementing a variety of measures to promote
continuing compliance, we cannot assure you that we will not be required in
the future to incur expense and/or modify our operations in order to ensure
such compliance which could negatively affect our profitability.
Fraudulent Conveyance Matters--Federal and state laws 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.
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 the debts of our
subsidiary guarantors if, among other things:
. we incurred such indebtedness with the intent of hindering, delaying or
defrauding current or future creditors; or
. we received less than reasonably equivalent value or fair consideration
for incurring such indebtedness and, at the time of the incurrence of
the indebtedness, we:
.were insolvent or rendered insolvent by reason of any of the
transactions;
. were engaged, or about to engage, in a business or transaction
for which the assets remaining with such entity constituted
unreasonably small capital to carry on its business; or
. intended to incur, or believed that we would incur, debts beyond
our ability to pay as such debts matured.
15
<PAGE>
In addition, any payment 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, we or a
subsidiary guarantor would be considered insolvent if:
. the sum of our or its debts, including contingent liabilities, were
greater than the fair saleable value of all of our or its assets; or
. the present fair saleable value of our or its assets were less than the
amount that would be required to pay our or its probable liability on
existing debts, including contingent liabilities, as they become absolute
and mature.
Based on historical financial information, recent operating history and
other factors, we believe that neither we nor any of the subsidiary
guarantors, after giving effect to the indebtedness incurred in connection
with the transactions, will be insolvent, will have unreasonably small capital
for the business in which we or it is engaged or will have incurred debts
beyond our or their ability to pay such debts as they mature. We cannot assure
you, 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. In addition, we have received a solvency opinion from an independent
third party that the redemption of our common stock will not render us
insolvent, leave us with inadequate or unreasonably small capital or result in
the incurrence of debt beyond our ability to repay such debt as it matures.
There can be no assurance, however, that a court considering such issues would
agree with such conclusions or opinions.
To the extent the note guarantee was voided as a fraudulent conveyance or
held unenforceable for any other reason, holders of notes would cease to have
any claim in respect of the guarantors and would be solely our creditors. In
such event, the claims of holders of notes against the guarantors would be
subject to the prior payment of all liabilities and preferred stock claims of
the guarantors. There can be no assurance that, after providing for all prior
claims and preferred stock interests, if any, there would be sufficient assets
to satisfy the claims of holders of notes relating to any voided portions of
the note guarantees.
Change of Control--We may not have the ability to raise the funds necessary to
finance the repurchase offer contained in the indenture.
Upon the occurrence of specific kinds of change of control events described
in "Description of the Notes--Change of Control", we must offer to repurchase
all outstanding exchange notes for a price equal to 101% of the notes'
principal amount, plus any interest which has accrued and remains unpaid as of
the repurchase date. We cannot assure you that there will be sufficient funds
available for any required repurchases of the exchange notes when a change of
control occurs. In addition, the occurrence of a change of control will result
in an event of default under the senior credit facility, which will also
prohibit us from repurchasing the exchange notes after a change of control
until we first repay our indebtedness under the senior credit facility in
full. If a change of control occurs, we cannot assure you that we will have
sufficient funds to satisfy all of our indebtedness. These repurchase
requirements may also delay or make it harder for others to obtain control of
us. In addition, certain important corporate events, such as leveraged
recapitalizations that would increase the level of our indebtedness, would not
necessarily constitute a change of control under the indenture. See
"Description of Senior Credit Facility" and "Description of the Notes--Change
of Control."
16
<PAGE>
No Prior Market for Exchange Notes--An active trading market for the exchange
notes may not develop which could limit the liquidity of the exchange notes.
Prior to this offering, there was no public market for these exchange
notes. The initial purchasers have informed us that they currently intend to
make a market in the exchange notes after this offering is completed. However,
the initial purchasers are not obligated to do so and any such market-making
may be discontinued at any time without notice, at the sole discretion of the
initial purchasers. In addition, there can be no assurance as to the
development or liquidity of any market for the exchange notes.
----------------
This prospectus includes forward-looking statements. We have based these
forward-looking statements on our current expectations and projections about
future events. Although we believe that our assumptions made in connection
with the forward-looking statements are reasonable, we cannot assure you that
our assumptions and expectations will prove to have been correct. These
forward-looking statements are subject to various risks, uncertainties and
assumptions about us, including, among other things:
. our anticipated growth strategies and pursuit of potential acquisition
opportunities
. our dependence upon our senior management team
. increased future competition
. possibility of fluctuations in the cost of raw materials and loss of
suppliers
. changes in economic and market conditions
. our dependence on Sealy
. the transactions may result in the termination of some of our leases
. our reliance on certain trademarks and other intellectual property
. our ability to return our stores in the Chicago market to profitability.
We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or
otherwise. In light of these risks, uncertainties and assumptions, the
forward-looking events discussed in this prospectus might not occur.
17
<PAGE>
USE OF PROCEEDS
We will not receive any proceeds from this exchange offer.
CAPITALIZATION
The following table sets forth our unaudited capitalization as of November
30, 1999. The information in the following table should be read in conjunction
with the "Management's Discussion and Analysis of Financial Condition and
Results of Operations," our audited combined financial statements and our
unaudited condensed consolidated interim financial statements and the notes
accompanying them appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
Unaudited
---------------------
As of
November 30, 1999
---------------------
(dollars in millions)
<S> <C>
Cash and cash equivalents................................. $ 8.6
======
Debt:
Old notes(/1/).......................................... $132.9
Senior credit facility(/2/)............................. --
Other debt and obligations, including current portion... 0.5
------
Total debt............................................ 133.4
Stockholder's equity...................................... 29.3
------
Total capitalization.................................. $162.7
======
</TABLE>
- --------
(1) Net of unamortized discount of $7.0 million.
(2) The senior credit facility has total availability of $20.0 million,
(excluding the rollover of outstanding letters of credit totaling
approximately $1.7 million). See "Description of Senior Credit Facility."
18
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The unaudited pro forma combined financial data at the dates and for the
periods indicated are based on our historical combined financial statements
appearing elsewhere in this prospectus and adjustments described in the
accompanying notes.
The following unaudited pro forma combined statements of operations for the
fiscal year ended February 28, 1999, the nine months ended November 30, 1998
and 1999 give effect to the transactions as if they had occurred on March 1,
1998. The historical financial position and operating results of the entities
as of dates and for periods ended subsequent to July 2, 1997, but prior to
August 5, 1999 were combined in the historical financial statements as each
entity was under common ownership and control by Heilig-Meyers through August
5, 1999. Effective August 6, 1999 the financial statements have been prepared
on a consolidated basis pursuant to the transactions discussed elsewhere in
this prospectus.
The unaudited pro forma combined financial data and accompanying notes are
provided for informational purposes only and do not purport to represent what
our results of operations would have been if the transactions had occurred as
of the date indicated nor are they necessarily considered indicative of our
future results of operations.
The pro forma adjustments are described in the accompanying notes and are
based upon the available information and upon certain assumptions that our
management believes are reasonable. The unaudited pro forma combined financial
data and accompanying notes should be read in conjunction with our audited
combined financial statements and our unaudited condensed consolidated interim
financial statements and related notes, and other financial information
pertaining to us, including "Capitalization" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere
in this prospectus.
19
<PAGE>
Unaudited Pro Forma Combined Statement of Operations
For the Fiscal Year Ended February 28, 1999
(dollars in thousands)
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ---------
<S> <C> <C> <C>
Net sales................................... $246,551 $ -- $246,551
Cost of sales............................... 156,848 (570)(a) 156,278
-------- -------- --------
Gross profit.............................. 89,703 570 90,273
General and administrative expenses......... 67,261 (589)(b) 67,672
1,000 (c)
-------- -------- --------
Income from operations.................... 22,442 159 22,601
Interest income (expense), net.............. 128 (19,676)(e) (19,548)
Other income (expense), net................. 322 -- 322
-------- -------- --------
Income before provision for income taxes.. 22,892 (19,517) 3,375
Provision for income taxes.................. 9,702 (7,807)(g) 1,895
-------- -------- --------
Net income................................ $ 13,190 $(11,710) $ 1,480
======== ======== ========
</TABLE>
See Notes to Unaudited Pro Forma Combined Statement of Operations.
20
<PAGE>
Unaudited Pro Forma Combined Statement of Operations
For the Nine Months Ended November 30, 1998
(dollars in thousands)
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ---------
<S> <C> <C> <C>
Net sales................................... $185,863 $ -- $185,863
Cost of sales............................... 115,653 (370)(a) 115,283
-------- -------- --------
Gross profit.............................. 70,210 370 70,580
General and administrative expenses......... 50,770 (441)(b) 51,079
750 (c)
-------- -------- --------
Income from operations.................... 19,440 61 19,501
Interest income (expense), net.............. 131 (14,851)(e) (14,720)
Other income (expense), net................. 285 -- 285
-------- -------- --------
Income before provision for income taxes.. 19,856 (14,790) 5,066
Provision for income taxes.................. 8,416 (5,916)(g) 2,500
-------- -------- --------
Net income................................ $ 11,440 $ (8,874) $ 2,566
======== ======== ========
</TABLE>
See Notes to Unaudited Pro Forma Combined Statement of Operations.
21
<PAGE>
Unaudited Pro Forma Combined Statement of Operations
For the Nine Months Ended November 30, 1999
(dollars in thousands)
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ---------
<S> <C> <C> <C>
Net sales.................................. $198,053 $ -- $198,053
Cost of sales.............................. 127,575 (245)(a) 127,330
-------- ------- --------
Gross profit............................. 70,478 245 70,723
General and administrative expenses........ 54,730 (262)(b) 54,902
434 (c)
Non-recurring operating expenses........... 4,556 (3,825)(d) 731
-------- ------- --------
Income from operations................... 11,192 3,898 15,090
Interest income (expense), net............. (6,319) (8,569)(e) (14,888)
Other income (expense), net................ (97) 97 (f) --
-------- ------- --------
Income before provision for income
taxes................................... 4,776 (4,574) (202)
Provision for income taxes................. 2,637 (1,830)(g) (807)
-------- ------- --------
Net income............................... $ 2,139 $(2,744) $ (605)
======== ======= ========
</TABLE>
See Notes to Unaudited Pro Forma Combined Statement of Operations.
22
<PAGE>
Notes to Unaudited Pro Forma Combined Statements of Operations
For the Fiscal Year Ended February 28, 1999 and the Nine Months Ended November
30, 1998 and November 30, 1999
(dollars in thousands)
(a) In conjunction with the transactions, we obtained an agreement from a key
supplier to secure a purchase discount on certain material purchases of
4.5%, consistent with a discount arrangement the supplier has with an
affiliated company. The adjustment reflects the 4.5% discount applied to
purchases made from the supplier during the fiscal year ended February 28,
1999, the nine months ended November 30, 1998 and the nine months ended
November 30, 1999, respectively.
(b) Reflects the elimination of corporate overhead expense allocations from
Heilig-Meyers representing general corporate overhead and other fees which
relate to Heilig-Meyers' operations and corporate oversight costs which
are being replaced by the shareholder advisory fee as discussed in note
(c).
(c) Reflects the annual shareholder advisory fee payable by us to Bain Capital
for management and advisory services.
(d) Reflects the elimination of compensation expense of $3,825 associated with
the granting of "in-the-money" stock options of Holdings amounting to
$2,869 and deferred compensation benefits of $956 which were provided at
the closing of the transaction to certain members of our management.
(e) The increase in pro forma interest expense as a result of the transactions
is as follows:
<TABLE>
<CAPTION>
Fiscal Year Nine Nine
Ended Months Months
February 28, Ended Ended
1999 November 30, 1998 November 30, 1999(/2/)
------------ ----------------- ----------------------
<S> <C> <C> <C>
Elimination of
historical interest
income, net............ $ 128 $ 191 $ 160
------- ------- ------
Interest on new
borrowings:
Senior credit
facility--unused
commitment fee at
0.50% on $20,000...... 100 75 43
Old notes--$140,000 at
12.625% fixed......... 17,675 13,256 7,603
------- ------- ------
Cash interest expense.. 17,775 13,331 7,646
Accretion of discount on
notes offered hereby
(using an effective
rate of 13.714%)....... 527 395 227
Amortization of deferred
financing costs(/1/)... 1,246 934 536
------- ------- ------
Total interest from
the debt requirements
of the transactions.. 19,548 14,660 8,409
------- ------- ------
Net increase in
interest expense..... $19,676 $14,851 $8,569
======= ======= ======
</TABLE>
--------
(1) Represents annual amortization expense utilizing a weighted average
maturity on all borrowings of 7.91 years.
(2) Represents pro forma adjustments to interest expense for the period
prior to the consummation of the transactions.
(f) Reflects the elimination of directors and officers insurance premiums
incurred as a direct result of the transaction.
(g) Represents the income tax adjustment required to result in a pro forma
income tax provision based on: (1) our historical tax provision using
historical amounts and (2) the direct tax effects of the pro forma
adjustments described above at an estimated 40% effective tax rate.
23
<PAGE>
SELECTED HISTORICAL COMBINED FINANCIAL DATA
Set forth below are our selected historical combined financial data and the
selected historical financial data of Bedding Experts and of MDC at the dates
and for the periods indicated (some periods of which are less than one year
due to accounting requirements for acquisition transactions). The selected
historical combined statement of operations data of Bedding Experts for the
six months ended July 1, 1997, and our selected historical combined statements
of operations data for the eight months ended February 28, 1998, and the
fiscal year ended February 28, 1999, and the selected historical combined
balance sheet data as of February 28, 1998, and February 28, 1999, were
derived from our combined financial statements that were audited by Deloitte &
Touche LLP, whose report appears elsewhere in this prospectus. The selected
historical combined statement of operations data of MDC for the six months
ended July 1, 1997, and the selected combined historical balance sheet data as
of July 1, 1997, were derived from the combined financial statements of MDC
that were audited by Deloitte & Touche LLP, whose report appears elsewhere in
this prospectus. The selected historical combined financial data of MDC for
the years ended December 31, 1994, December 30, 1995, and December 28, 1996,
are derived from the combined financial statements of MDC that were audited by
KPMG LLP, whose report on the December 28, 1996 combined financial statements
appears elsewhere in this prospectus. The selected historical combined
financial data for the nine months ended November 30, 1998 and 1999, were
derived from our unaudited condensed consolidated interim financial statements
which, in the opinion of our management, include all adjustments necessary for
a fair presentation.
On July 2, 1997, Heilig-Meyers acquired MDC in a business combination
accounted for as a purchase. On January 3, 1998, Heilig-Meyers acquired
Bedding Experts in a business combination accounted for as a pooling of
interests. Bedding Experts historical financial data has been presented
consistent with a business combination accounted for as a pooling of
interests; however, historical financial data prior to December 29, 1996 has
not been presented in our selected historical combined financial data due to
the absence of reliable accounting and financial records during such periods
of time. We have presented the selected historical combined financial data for
MDC for the years ended December 28, 1996, December 30, 1995 and December 31,
1994 because MDC currently constitutes a major portion of our business and our
assets and is our most substantive business entity. We believe the inclusion
of historical combined financial data for MDC is a more informative
presentation of our historical combined financial data. Due to the required
purchase accounting adjustments relating to the MDC acquisition, the selected
historical combined financial data reflected in the following table prior to
July 2, 1997 are stated using its predecessor basis of accounting and may not
be comparable to such data for subsequent periods.
The financial position and operating results of the entities as of dates
and for periods ended subsequent to July 2, 1997, but prior to August 5, 1999
were combined in the financial statements as each entity was under common
ownership and control by Heilig-Meyers through August 5, 1999. Effective
August 6, 1999 the financial statements have been prepared on a consolidated
basis pursuant to the transactions discussed elsewhere in this prospectus.
On November 5, 1999, the Company elected to change its fiscal year end from
the last day of February to the closest Saturday to December 31, beginning
with the year ended January 1, 2000.
The selected historical combined financial data set forth below should be
read in conjunction with, and is qualified by reference to, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our audited combined financial statements and our unaudited condensed
consolidated interim financial statements and accompanying notes thereto
included elsewhere in this prospectus.
24
<PAGE>
Selected Historical Combined Financial Data
(dollars in thousands)
<TABLE>
<CAPTION>
Bedding
MDC(/1/) Experts
------------------------------------------ ----------
Years Ended December Six Months Six Months
----------------------------- Ended July Ended July
31, 1994 30, 1995 28, 1996 1, 1997 1, 1997
-------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Operating Data:
Net sales............... $160,264 $170,261 $170,690 $ 84,334 $20,738
Gross profit............ 57,525 57,830 57,055 27,633 6,995
General and
administrative
expenses............... 50,416 53,581 51,900 27,102 5,292
Non-recurring operating
expenses............... -- -- -- -- --
Income from operations.. 7,109 4,249 5,155 531 1,703
Interest income
(expense), net......... 661 624 548 328 9
Other income (expense),
net.................... 330 (1,262) (471) (554) 1,202
Income before provision
for income taxes....... 8,100 3,611 5,232 305 2,914
Net income(/3/)......... 8,100 3,611 5,232 305 2,914
Other Financial Data:
Depreciation and
amortization........... $ 1,464 $ 2,003 $ 2,214 $ 1,007 $ 108
Capital expenditures.... 2,954 3,038 1,823 1,592 424
Ratio of earnings to
fixed charges(/4/)..... 3.06x 1.83x 2.09x 1.13x 7.24x
Balance Sheet Data (end
of period):
Working capital
(deficit).............. $ 6,762 $ (1,156) $ 1,327 $(13,202) $ (972)
Total assets............ 34,247 30,772 35,340 23,326 3,694
Long term debt and
capital lease
obligations............ -- 2,220 363 268 29
Total debt and capital
lease obligations...... -- 2,378 543 453 119
Other Data (end of
period):
Number of stores........ 143 150 162 170 53
Same store sales
growth................. 9.8% (3.8%) (3.4%) --(/5/) --(/5/)
<CAPTION>
Company(/2/)
--------------------------------------------
Eight Fiscal
Months Year Nine Months Ended
Ended Ended November 30,
Feb. 28, Feb. 28, --------------------
1998 1999 1998 1999
------------- --------- --------- ----------
<S> <C> <C> <C> <C>
Operating Data:
Net sales............... $159,952 $246,551 $185,863 $198,053
Gross profit............ 56,686 89,703 70,210 70,478
General and
administrative
expenses............... 40,527 67,261 50,770 54,730
Non-recurring operating
expenses............... -- -- -- 4,556
Income from operations.. 16,159 22,442 19,440 11,192
Interest income
(expense), net......... 88 128 131 (6,319)
Other income (expense),
net.................... (532) 322 285 (97)
Income before provision
for income taxes....... 15,715 22,892 19,856 4,776
Net income(/3/)......... 9,988 13,190 11,440 2,139
Other Financial Data:
Depreciation and
amortization........... $ 2,648 $ 4,541 $ 3,364 $ 3,695
Capital expenditures.... 2,122 5,162 4,079 2,107
Ratio of earnings to
fixed charges(/4/)..... 4.57x 4.76x 5.49x 1.42x
Balance Sheet Data (end
of period):
Working capital
(deficit).............. $ (8,748) $ 2,207 $(11,808) $ 6,109
Total assets............ 95,824 99,678 91,126 198,515
Long term debt and
capital lease
obligations............ 629 425 424 133,298
Total debt and capital
lease obligations...... 920 655 717 133,381
Other Data (end of
period):
Number of stores........ 227 236 231 250
Same store sales
growth................. --(/5/) 1.5% 3.8% (0.7%)
</TABLE>
- -------
(1) Heilig-Meyers employed the purchase method of accounting for its July 2,
1997 acquisition of MDC. Accordingly, historical financial and other data
for the years ended December 31, 1994, December 30, 1995 and December 28,
1996 and the six months ended July 1, 1997, may not be comparable to such
data for subsequent periods. The primary differences result from the
amortization of goodwill recorded by Heilig-Meyers as a result of the
purchase on July 2, 1997 and the provision for income taxes.
(2) Includes the combined results of Mattress Discounters Corporation, T.J.B.,
and Bedding Experts. Bedding Experts was acquired on January 3, 1998 by
Heilig-Meyers in a transaction accounted for as a pooling of interests.
(3) Prior to their acquisitions by Heilig-Meyers, MDC and Bedding Experts
filed as "S" Corporations for federal and state income tax purposes.
Accordingly, no provision for federal income taxes is included in the
statement of operations for the years ended December 31, 1994, December
30, 1995 and December 28, 1996 and the six months ended July 1, 1997.
Provisions were made for state income taxes in those states which do not
recognize "S" Corporation elections. These provisions have been included
in general and administrative expenses.
(4) For purposes of calculating the ratio of earnings to fixed charges,
earnings represent income before income taxes plus fixed charges. Fixed
charges consist of interest income (expense), net, and the portion of
operating rental expense which our management believes is representative
of the interest component of rental expense. Fixed charges exclude common
area maintenance costs related to our lease agreements.
(5) Our same store sales growth when aggregated with MDC for the 12 months
ended February 28, 1998 was 2.0%.
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
We believe we are the largest retailer of mattresses in the United States.
We operate in two segments: mattress retailing and mattress manufacturing. We
currently operate our retail business through a nationwide network of 250
stores in 15 markets. Our manufacturing segment consists of three
manufacturing facilities that produce mattresses for sale in our retail stores
under the Comfort Source brand and for Heilig-Meyers under separate brands. In
fiscal 1999, our manufacturing facilities provided product accounting for 30%
of the cost of our retail purchases. The sales from our manufacturing segment
to our retail operation are eliminated in our combined results of operations.
Our business is currently conducted through three legal entities: Mattress
Discounters Corporation, consisting of retail and manufacturing operations;
Bedding Experts, our retail store operations in the Chicago metropolitan area;
and T.J.B., our retail store operations in Washington, D.C., Virginia, and
Maryland. Bedding Experts and T.J.B. became wholly owned subsidiaries of
Mattress Discounters Corporation, effective August 6, 1999 pursuant to the
transactions discussed elsewhere in this prospectus.
MDC (Mattress Discounters Corporation and T.J.B.) was acquired by Heilig-
Meyers on July 2, 1997 in a business combination accounted for as a purchase.
Bedding Experts was acquired by Heilig-Meyers on January 3, 1998 in a business
combination accounted for as a pooling of interests. Bedding Experts'
financial data has been included in the aggregated fiscal year ended February
28, 1998. However, Bedding Experts historical financial data prior to December
29, 1996 has not been presented herein due to the absence of reliable
accounting and financial records during such periods.
On August 6, 1999, our parent company, Mattress Holding Corporation or
Holdings, consummated a merger and recapitalization pursuant to a transaction
agreement, dated as of May 28, 1999, among Heilig-Meyers, Heilig-Meyers
Associates, Inc. and MD Acquisition Corporation, a Virginia corporation owned
by various Bain Capital investment funds and affiliates and other
institutional investors.
The following discussion and analysis of financial condition and results of
operations relates substantially to periods prior to the completion of the
transactions contemplated by the transaction agreement. As a result of
consummating a merger and recapitalization of our parent, we entered into a
financing arrangement and accordingly, have a different capital structure.
Accordingly, the results of operations subsequent to the consummation of the
transactions contemplated by the transaction agreement will not necessarily be
comparable to prior periods.
Results of Operations
The financial position and operating results of the entities as of dates
and for periods ended subsequent to July 2, 1997, but prior to August 5, 1999
were combined in the financial statements as each entity was under common
ownership and control by Heilig-Meyers through August 5, 1999. Effective
August 6, 1999 the financial statements have been prepared on a consolidated
basis pursuant to the transactions discussed elsewhere in this prospectus.
The following discussion also compares our combined results of operations
and financial condition for the fiscal year ended February 28, 1999 with the
aggregated fiscal year ended February 28, 1998. The aggregated fiscal year
represents the aggregation of (1) our audited combined results of operations
for the eight months ended February 28, 1998 plus (2) the unaudited statement
of operations of Bedding Experts for the four months ended July 1, 1997 plus
(3) the unaudited combined results of operations of MDC (using its predecessor
basis of accounting) for the four months ended July 1, 1997. Such aggregation
has been performed to aid our discussion and analysis of the results of
operations between fiscal 1998 and fiscal 1999.
26
<PAGE>
Our results of operations for the aggregated fiscal year ended February 28,
1998 are then compared to the results of operations of MDC (using its
predecessor basis of accounting), for the year ended December 28, 1996.
Subsequent to Heilig-Meyers' acquisition of MDC on July 2, 1997, MDC changed
its financial year end to February 28. The principal differences between MDC's
predecessor basis of accounting and the basis of accounting following Heilig-
Meyers' acquisition of MDC are goodwill amortization and provisions for income
taxes. We have presented the results of operations of MDC for the year ended
December 28, 1996 because MDC currently constitutes a major portion of our
business and our assets and is our most substantive business entity. We
believe the inclusion of summary historical combined financial data for MDC is
a more informative presentation to aid our discussion and analysis of the
results of operations between fiscal 1998 and 1996.
The following table sets forth our combined statement of operations line
items as a percentage of net sales for the periods indicated and should be
read in conjunction with the "Summary Historical Combined Financial Data," the
"Selected Historical Combined Financial Data," and the audited combined
financial statements and unaudited condensed consolidated interim financial
statements and the accompanying notes thereto included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
MDC /
MDC Company Company
---------- ------------ ------------------------------------------------
Aggregated
Fiscal Year Fiscal Year
Year Ended Ended Ended Nine Months Ended
December February 28, February 28, -----------------------------------
28, 1996 1998 1999 November 30, 1998 November 30, 1999
---------- ------------ ------------ ----------------- -----------------
<S> <C> <C> <C> <C> <C>
Net sales............... 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit............ 33.4 34.8 36.4 37.8 35.6
General and
administrative
expenses............... 30.4 27.2 27.3 27.3 27.6
Non-recurring operating
expenses............... -- -- -- -- 2.3
----- ----- ----- ----- -----
Operating income........ 3.0 7.6 9.1 10.5 5.7
Interest income
(expense), net......... 0.3 0.1 0.0 0.1 (3.3)
Other income (expense),
net.................... (0.3) 0.0 0.1 0.1 --
----- ----- ----- ----- -----
Income before provision
for income taxes....... 3.0 7.7 9.2 10.7 2.4
Provision for income
taxes.................. 0.0 2.4 3.9 4.5 1.3
----- ----- ----- ----- -----
Net income.............. 3.0% 5.3% 5.3% 6.2% 1.1%
===== ===== ===== ===== =====
</TABLE>
Nine Months Ended November 30, 1999 Compared to Nine Months Ended November 30,
1998
Net Sales: Our net sales for the nine months ended November 30, 1999
increased $12.2 million or 6.6% to $198.1 million from $185.9 million for the
nine months ended November 30, 1998. The increase represents an increase in
our retail net sales of $5.0 million and an increase in the external net sales
of our manufacturing operation of $7.2 million. Our net sales from retail
operations, our manufacturing sales to our retail operations, and our
manufacturing sales to external retailers were $189.5 million, $31.1 million,
and $8.6 million, respectively, in the nine months ended November 30, 1999,
and $184.5 million, $29.9 million and $1.4 million, respectively, in the nine
months ended November 30, 1998.
Excluding the New Jersey and Chicago markets, our retail sales for the nine
months ended November 30, 1999 increased $17.4 million or 12.0%. We have
experienced significant sales and operational issues in the Chicago market
after the business was acquired in January, 1998 and we exited the New Jersey
market in 1998 as a result of our decision to discontinue an unprofitable
strategy of operating significantly larger stores.
27
<PAGE>
The increase in our retail sales for the nine months ended November 30,
1999 is attributable to (1) a $6.1 million net increase resulting from net
store openings since November 30, 1998 offset by (2) a $1.1 million decrease
in comparable store sales. The decrease in comparable store sales is comprised
of a 5.1% increase in our markets excluding Chicago for the nine months ended
November 30, 1999, more than offset by a 25.8% decrease in comparable store
sales in Chicago for the nine months ended November 30, 1999. The decline in
Chicago was primarily attributable to high sales force and management turnover
at these stores and related operational issues. Management continues to drive
key initiatives to improve Chicago's operating performance, including adding
key management and support staff to the region, hiring new salestaff and
deploying additional training personnel.
The increase in our retail net sales for the nine months ended November 30,
1999 was partially offset by a $4.0 million decrease in net sales due to the
closure of our stores in, and exit from, the New Jersey market in September
1998. We exited the New Jersey market as a result of our decision to
discontinue an unprofitable strategy of operating significantly larger stores
with higher operating costs relative to our other stores.
Net sales generated by our manufacturing operations during the nine months
ended November 30, 1999 increased $8.5 million to $39.7 million from $31.2
million for the nine months ended November 30, 1998. The majority of our
manufacturing output is consumed by our retail operations. The output related
to our retail sales increased by $1.2 million due primarily to overall growth
in our retail sales which was offset by a shift in mix from Comfort Source to
Sealy products. We also increased our net sales to external retailers by $7.2
million to $8.6 million from $1.4 million due to supplier relationships with
Heilig-Meyers and another party.
Gross Profit: Gross profit for the nine months ended November 30, 1999
increased $0.3 million or 0.4% to $70.5 million from $70.2 million for the
nine months ended November 30, 1998. As a percentage of net sales, gross
profit was 35.6% in the nine months November 30, 1999 compared to 37.8% in the
nine months ended November 30, 1998. Our retail gross profit for the nine
months ended November 30, 1999 was $60.8 million, a decrease of $3.1 million
or 4.9%, while our manufacturing gross profit was $9.7 million, an increase of
$3.3 million or 51.1% over last year.
Our retail gross profit expressed as a percentage of net retail sales was
32.1% in the nine months ended November 30, 1999 compared to 34.5% in the nine
months ended November 30, 1998. The decrease in the gross profit percentage is
primarily due to inventory shrinkage, the write-off of obsolete/slow moving
inventory in the second quarter of fiscal year 2000 and lower margins in the
Chicago market due to sales of a less favorable product mix, inventory
shrinkage, and negative leverage of our occupancy expense due to lower sales
versus the nine month period ended November 30, 1998. In markets other than
Chicago, our retail margins as a percentage of sales were 33.6% in the nine
months ended November 30, 1999 compared to 34.5% in the nine months ended
November 30, 1998.
Our manufacturing gross profit expressed as a percentage of manufacturing
sales was 24.4% in the nine months ended November 30, 1999 compared to 20.8%
in the nine months ended November 30, 1998. This increase in gross profit
percentage is primarily due to a more favorable product mix, to lower
materials costs and to the greater overhead absorption due to higher
production volume during the nine months ended November 30, 1999 compared to
the nine months ended November 30, 1998.
General and administrative expenses: General and administrative expenses
for the nine months ended November 30, 1999 increased $4.0 million or 7.8% to
$54.7 million from $50.8 million for the nine months ended November 30, 1998.
As a percentage of net sales, general and administrative expenses were 27.6%
in the nine months ended November 30, 1999 compared to 27.3% in the nine
months ended November 30, 1998. The increase in expenses is partially a result
of consulting and
28
<PAGE>
other resources focusing primarily on Year 2000 issues and the operational
redesign in preparation for the POS rollout. The increase is also a result of
a second quarter reevaluation and write-off of accounts receivable, an
increase in workers compensation reserves and increased payroll expense,
offset by a reduction in our net advertising expense as a percent of net sales
due to a shift in mix in the Sealy vs. Comfort Source product line. The write-
off of accounts receivable resulted in a $0.8 million charge related primarily
to the Company's reevaluation of certain customer deductions, chargebacks from
credit card companies, and unrecoverable funds from providers of third party
finance. The increase in workers compensation liabilities of $0.5 million was
the result of a change in the estimated liability due to the utilization of
actuarial methods used to calculate the liability.
Nonrecurring Operating Expenses: Nonrecurring operating expenses, net, for
the nine months ended November 30, 1999 was $4.6 million. This expense is
primarily a result of a $3.8 million non-cash charge for the intrinsic value
of in-the-money stock options granted and deferred compensation for management
in connection with the Transaction Agreement, a $0.4 million write-off of
future operating lease payments associated with obsolete POS system hardware
and a $0.2 million reserve established for expected losses on three subleased
properties and the establishment of a reserve given that future lease costs
will not be fully recovered.
Other Income (Expense), net: Other income (expense), net, for the nine
months ended November 30, 1999 decreased $0.4 million to a net expense of
($0.1) million from $0.3 million other income, net, for the nine months ended
November 30, 1998. The primary reason for this decrease was a one-time expense
for D&O insurance purchased for prior period coverage related to the
consummation of the transactions contemplated by the Transaction Agreement.
Interest Income (Expense): Interest expense for the nine months ended
November 30, 1999 increased to ($6.5) million from $0.1 million for the nine
months ended November 30, 1998, due to interest expense on the Senior Notes.
Provision for Income Taxes: Our effective income tax rate for the nine
months ended November 30, 1999 was 55.2% compared to 42.4% for the nine months
ended November 30, 1998. Our effective tax rate differs from the federal
statutory corporate rate primarily as a result of non-deductible goodwill and
state income taxes. The increase in the effective income tax rate during the
nine months ended November 30, 1999, resulted from increased nondeductible
expenses as a percentage of income before the provision for income taxes.
Net Income: Primarily as a result of the reasons discussed above, net
income decreased to $2.1 million or 1.1% of net sales in the nine months ended
November 30, 1999 from $11.4 million or 6.2% of net sales in the nine months
ended November 30, 1998.
Fiscal Year Ended February 28, 1999 Compared to the Aggregated Fiscal Year
Ended February 28, 1998
Net Sales: Our net sales for fiscal 1999 increased $15.4 million or 6.7% to
$246.5 million from $231.1 million for fiscal 1998. The increase represents an
increase in our retail net sales of $9.6 million and an increase in the
external net sales of our manufacturing operation of $5.8 million. Our net
sales from retail operations, our manufacturing sales to our retail
operations, and our manufacturing sales to external retailers were $238.1
million, $38.2 million, and $8.4 million, respectively, for fiscal 1999 and
$228.5 million, $30.1 million, and $2.6 million, respectively, for fiscal
1998. Manufacturing sales to our retail operations are eliminated in the
consolidation of our segments.
The increase in our retail net sales is attributable to (1) a 1.5% increase
in comparable store sales, (2) a $2.4 million increase resulting from net
store openings during fiscal 1999 and (3) a $4.1 million net increase
resulting from having a full year's worth of sales during fiscal 1999 for
stores that we
29
<PAGE>
opened during fiscal 1998. The increase in comparable store sales is comprised
of a 3.7% increase in our markets excluding Chicago and a 6.7% decrease in
comparable store sales in Chicago. The comparable store sales decline in
Chicago was primarily attributable to high sales force and management turnover
at these stores in the latter part of fiscal 1999.
The increase in our retail net sales was partially offset by a $6.0 million
decrease in net sales due to the closure of our stores in the New Jersey
market. Excluding the effect of the New Jersey market closing, we increased
our retail net sales in fiscal 1999 by $15.6 million or 6.8%.
Sales generated by our manufacturing operation during fiscal 1999 increased
$13.9 million or 42%, to $46.6 million. Sales to our retail operations
increased by $8.1 million to $38.2 million from $30.1 million, primarily due
to (1) the introduction of our Comfort Source branded products into Bedding
Experts stores during fiscal 1999, (2) the impact of expanding retail sales
and (3) an expansion in our product offering to include higher priced
mattresses. Net sales to external retailers increased by $5.8 million to $8.4
million from $2.6 million due to new supply arrangements with Heilig-Meyers
and its affiliates. See "Business--Supply Contract with Heilig-Meyers."
Gross Profit: Gross profit for fiscal 1999 increased $9.3 million or 11.5%
to $89.7 million from $80.4 million in fiscal 1998. As a percentage of net
sales, gross profit was 36.4% in fiscal 1999 compared to 34.8% in fiscal 1998.
Our retail gross profit for fiscal 1999 was $80.4 million, an increase of $5.7
million or 7.6% from fiscal 1998, while our manufacturing gross profit was
$9.3 million, an increase of $3.6 million or 63% from $5.7 million in fiscal
1998.
Our retail gross profit expressed as a percentage of net retail sales was
33.8% in fiscal 1999 compared to 32.7% in fiscal 1998. This increase in gross
profit percentage is due primarily to a reduction in our occupancy expense in
both dollars and as a percentage of net retail sales between fiscal 1999 and
fiscal 1998. Occupancy expense dropped primarily due to exiting the high cost
New Jersey market.
Our manufacturing gross profit expressed as a percentage of manufacturing
sales was 19.9% in fiscal 1999 compared to 17.4% in fiscal 1998. This increase
in gross profit percentage is primarily due to reduced material costs, more
favorable product mix and greater overhead absorption due to higher production
volumes.
General and Administrative Expenses: General and administrative expenses
for fiscal 1999 increased $4.5 million or 7.1% to $67.3 million from $62.8
million in fiscal 1998. As a percentage of net sales, general and
administrative expenses were 27.3% in fiscal 1999 compared to 27.2% in fiscal
1998. This increase was partially due to the corporate overhead allocations
from Heilig-Meyers in fiscal 1999 of $1.9 million. No such allocations
occurred in fiscal 1998. General and administrative expenses would have
decreased as a percentage of net sales to 26.5% in fiscal 1999, excluding
corporate overhead allocations. This effective decrease is primarily due to a
reduction in our net advertising costs largely resulting from the inclusion of
Bedding Experts under our existing co-operative advertising arrangements and
the full year benefit of the cooperative advertising agreement with a major
vendor.
Other Income (Expense), Net: Other income (expense), net, for fiscal 1999
increased $0.2 million to $0.3 million from $0.1 million for fiscal 1998.
Other income decreased to $0.3 million in fiscal 1999 as compared to $1.4
million in fiscal 1998. The primary reason for this decrease was a one-time
payment received from a vendor in fiscal 1998 related to the signing of a
long-term supply contract. Other expense also decreased from $1.3 million in
fiscal 1998 to zero in fiscal 1999. Other expense in fiscal 1998 consisted
primarily of losses on abandonment of leased property and fees related to the
January 3, 1998 acquisition of Bedding Experts.
Provision for Income Taxes: Our effective income tax rate was 42.4% in
fiscal 1999 as compared to 31.9% in fiscal 1998. The increase in effective
income tax rate was attributable to the change in tax status during fiscal
1998 of MDC and Bedding Experts upon their acquisition by Heilig-Meyers. Prior
30
<PAGE>
to the acquisitions, both entities filed as "S" Corporations for both federal
and state income tax purposes. Our effective tax rate in fiscal 1999 differs
from the federal statutory corporate rate primarily as a result of non-
deductible goodwill and state income taxes.
Net Income: Primarily as a result of the reasons discussed above, net
income increased to $13.2 million or 5.3% of net sales in fiscal 1999 from
$12.2 million, or 5.3% of net sales in fiscal 1998.
Aggregated Fiscal Year Ended February 28, 1998 Compared to the Year Ended
December 28, 1996
Net Sales: Our net sales for fiscal 1998 increased $60.4 million or 35.4%
to $231.1 million from $170.7 million in 1996. The increase represents an
increase in our retail net sales of $57.8 million and an increase in the
external net sales of our manufacturing operation of $2.6 million. Our net
sales from retail operations, our manufacturing sales to our retail
operations, and our manufacturing sales to external retailers were $228.5
million, $30.1 million, and $2.6 million, respectively in fiscal 1998 and
$170.7 million, $22.5 million, and $0 million, respectively, in 1996.
Manufacturing sales to our retail operations are eliminated in the
consolidation of our segments.
The increase in our retail net sales is attributable to the following
factors: (1) the impact of Heilig-Meyers' acquisition of Bedding Experts,
pursuant to which our fiscal 1998 results of operations include $46.4 million
of net sales compared to zero net sales being included in 1996; (2) an
increase in comparable store sales of 2.0%; (3) an additional $5.3 million of
net sales resulting from the net 11 stores opened during fiscal 1998; and (4)
an additional $2.8 million due to a full year's worth of net sales from stores
opened in 1996.
Net sales generated by our manufacturing operation during fiscal 1998 were
$32.7 million, an increase of $10.2 million or 45.3% from 1996. This increase
in manufacturing sales is attributable to (1) an increase of $7.6 million in
sales to our retail operations and (2) $2.6 million of net sales sold to
Heilig-Meyers during fiscal 1998. Prior to fiscal 1998 we generated no
manufacturing sales to external retailers.
Gross Profit: Gross profit in fiscal 1998 increased $23.3 million or 40.9%
to $80.4 million from $57.1 million in 1996. As a percentage of net sales
gross profit was 34.8% in fiscal 1998 compared to 33.4% in 1996. Our retail
gross profit for fiscal 1998 was $74.7 million, an increase of $21.1 million
or 39.3% from 1996, while our manufacturing gross profit was $5.7 million, an
increase of $2.3 million or 67.6% over the prior year.
Our retail gross profit expressed as a percentage of net retail sales was
32.7% in fiscal 1998 compared to 31.4% in 1996. This increase in gross profit
percentage is due primarily to (1) the inclusion of Bedding Experts'
operations which generated higher gross margins relative to MDC; and (2)
improved mix/pricing due in part to a new incentive pay program for store
managers and sales personnel.
Our manufacturing gross profit expressed as a percentage of manufacturing
sales was 17.4% in fiscal 1998 compared to 15.1% in 1996. This increase in
gross profit percentage is primarily due to reduced material costs, more
favorable product mix and greater overhead absorption due to higher production
volumes.
General and Administrative Expenses: General and administrative expenses
for fiscal 1998 increased $10.9 million or 21.1% to $62.8 million from $51.9
million for 1996. As a percentage of net sales, general and administrative
expenses were 27.2% in fiscal 1998 compared to 30.4% in 1996. The absolute
increase in these expenses relates to the impact of the Bedding Experts
acquisition. Bedding Experts' general and administrative expenses included in
fiscal 1998 were approximately $11.2 million. Excluding the impact of Bedding
Experts, general and administrative expenses, on a
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comparable basis, were 27.9% in fiscal 1998 compared to 30.4% in 1996. This
decrease in general and administrative expenses, as a percentage of net sales,
is primarily attributable to a reduction in our net advertising costs.
Although gross advertising spending increased in fiscal 1998 from 1996, it was
more than offset by increased cooperative advertising benefits from a new
supply agreement entered into with a major vendor in fiscal 1998. This
reduction in net advertising costs was offset by (1) goodwill amortization of
$0.9 recorded in fiscal 1998 as a result of the acquisition of MDC by Heilig-
Meyers; and (2) an increase in payroll costs as a percent of net sales due to
a new incentive pay program implemented for store managers and sales personnel
in early 1997.
Other Income (Expense), Net: Other income (expense), net, for fiscal 1998
increased $0.6 million to $0.1 million from an expense of ($0.5 million) for
1996. Other income increased to $1.4 million in fiscal 1998 as compared to
$0.2 million in 1996. The primary reason for this increase was a one-time
payment received from a vendor in fiscal 1998 related to the signing of a
supply contract. The increase in other expense from ($0.7 million) in 1996 to
($1.3 million) in fiscal 1998 consisted primarily of fees related to the
January 3, 1998 acquisition of Bedding Experts.
Provision for Income Taxes: Our effective income tax rate was 31.9% in
fiscal 1998 as compared to zero in 1996. The increase in effective income tax
rate was attributable to the change in tax status of MDC and Bedding Experts
upon their acquisition by Heilig-Meyers. Prior to the acquisitions, both
entities filed as "S" Corporations for both federal and state income tax
purposes. State income taxes of $0.3 million are included in general and
administrative expenses in 1996.
Net Income: Primarily as a result of the reasons discussed above, net
income increased to $12.2 million, or 5.3% of net sales in fiscal 1998 from
$5.2 million, or 3.0% of net sales in 1996.
Liquidity and Capital Resources
Prior to the leveraged recapitalization, our principal source of funds had
been cash flows from operations and our use of funds has been capital
expenditures for new store openings. Beginning in fiscal 1999, a significant
use of our funds has been the funding of accounts receivable to Heilig-Meyers
and non-interest bearing loans to Heilig-Meyers. Our cash and cash equivalents
at November 30, 1999 and February 28, 1999 were approximately $8.6 million and
$1.4 million, respectively.
In connection with the leveraged recapitalization, we incurred significant
amounts of debt requiring interest payments on the notes and interest payments
and principal payments under the Senior Credit Facility. Our liquidity needs
relate to working capital, capital expenditures and potential acquisitions.
We intend to fund our working capital, capital expenditures and debt
service requirements through cash flow generated from operations and
borrowings under the senior credit facility.
In addition, the senior credit facility requires that we maintain specified
financial ratios. At November 30, 1999, we were in full compliance with the
financial covenants in the senior credit facility and we expect to remain in
compliance for the foreseeable future.
We believe that cash from operating activities, together with available
revolving credit borrowings under the senior credit facility, will be
sufficient to permit us to meet our financial obligations and fund our
operations for the foreseeable future.
Net cash provided by operating activities for the nine months ended
November 30, 1999 was $17.0 million, a $17.6 million increase from the ($0.6)
million of cash used in operating activities for the nine months ended
November 30, 1998. The net income component of cash flows from operating
activities was $2.1 million for the nine months ended November 30, 1999, and
$11.4 million for the nine months ended November 30, 1998. Significant
components of cash flows from operating activities
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during the nine months ended November 30, 1999 included non-cash charges for
stock option grants and deferred compensation of $3.8 million and increases in
accrued expenses because of accrued interest on the senior notes. Whereas the
significant component of cash flows from operating activities during the nine
month period ended November 30, 1998 included net advances to Heilig-Meyers of
$16.7 million.
Net cash provided by operating activities for fiscal 1999 was $1.8 million,
a $13.3 million decline from the $15.1 million generated in fiscal 1998. This
decrease resulted primarily from an increase in working capital partially
offset by an increase in earnings before depreciation and amortization. The
net increase (decrease) in working capital, excluding cash, was $15.1 million
and $(2.6) million for fiscal years ended 1999 and 1998, respectively. This
increase resulted from (1) an increase in accounts receivable from Heilig-
Meyers for the sale of mattresses and the funding of non-interest bearing
loans, net of settlement of income taxes, to Heilig-Meyers, of approximately
$13.7 million, and (2) a decrease in deferred income resulting from the timing
of the receipt of initial cooperative advertising funds from a new vendor
arrangement during fiscal 1998, offset by a reduction in the absolute rate of
working capital growth in fiscal 1999 versus fiscal 1998. Excluding the impact
of the funding of the non-interest bearing loans, net of settlement of income
taxes, to Heilig-Meyers, cash flows from operations would have been $8.3
million and $9.4 million for the fiscal years ended 1999 and 1998,
respectively.
Net cash provided by operations for fiscal 1998 increased by $2.9 million
to $15.1 million from $12.2 million in 1996. This increase is primarily the
result of an increase in earnings before depreciation and amortization in part
due to the inclusion of Bedding Experts in fiscal 1998.
Our principal use of cash for investing activities has historically been
capital expenditures for new store openings. The initial capital investment to
open a new store is approximately seventy thousand dollars, which includes
leasehold improvements, furniture, fixtures, and point of sale computer
equipment. Total capital expenditures for each of the nine months ended
November 30, 1999 and November 30, 1998 were $2.1 million and $4.1 million,
respectively. During the nine months ended November 30, 1999, capital
expenditures included approximately $1.6 million for leasehold improvements,
furniture and fixtures for new and existing stores, and $0.5 million for
corporate, MIS and manufacturing additions.
Our estimated capital expenditures for fiscal 2000 are approximately $2.9
million of which approximately $2.1 million has been spent as of November 30,
1999. Capital expenditures for fiscal 2000 will include approximately $1.9
million for improvements, furniture and fixtures for new and existing stores,
$0.5 million for manufacturing operations, and $0.5 million for corporate
additions and MIS.
During fiscal 1999, cash capital expenditures were approximately $5.2
million, including approximately $2.3 million for leasehold improvements,
furniture and fixtures for new and existing stores, $0.8 million for
manufacturing machinery and equipment, $0.8 million for land, building and
equipment for a new manufacturing plant, and $1.3 million for corporate
additions.
During fiscal 1998 and 1996, our capital expenditures were $3.2 million and
$1.8 million, respectively.The increase in capital expenditures in fiscal 1998
from 1996 is primarily attributable to the net increase in retail stores and
purchase of land and buildings for approximately $0.6 million. In 1996 we had
net cash proceeds from the sale and maturities of investment securities of
$3.6 million.
Net cash used for financing activities for the nine months ended November
30, 1999 increased $6.7 million to $6.9 million from $0.2 million for the nine
months ended November 30, 1998. The cash used by financing activities
primarily related to the recapitalization as described in detail in Note 2 of
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the financial statements for the nine months ended November 30, 1999. The
principle components of the recapitalization included:
. the deemed settlement and contribution to capital of the note receivable
from Heilig-Meyers of approximately $6.0 million, the elimination and
distribution of current taxes payable to Heilig-Meyers of approximately
$4.3 million and the distribution of excess cash at the closing date of
approximately $1.7 million to Heilig-Meyers;
. the payment of deferred financing fees of approximately $10 million,
which have been deferred in the consolidated balance sheet;
. the contribution of capital from Holdings representing the granting of
the Management Stock Options and the Warrants in Holdings' common stock;
and
. the dividend distribution of approximately $130.1 million from Mattress
Discounters to Holdings to partially fund the Recapitalization of
Holdings.
For fiscal 1999, net cash used by financing activities was $0.3 million
compared to $19.4 million and $4.2 million in fiscal 1998 and 1996,
respectively. The significant cash used by financing activities in fiscal 1998
and 1996 relate to distributions paid to "S" Corporation shareholders. No such
distributions were made after July 2, 1997 when MDC was acquired by Heilig-
Meyers. In December 1999, pursuant to the transaction agreement, Heilig-Meyers
agreed to pay to Holdings approximately $2.0 million, which Holdings advanced
to the capital of Mattress Discounters Corporation.
Year 2000
During the fiscal year 1999, we established a team to oversee our Year 2000
date conversion project. The project was comprised of the following stages:
(1) assessment of our Year 2000 compliance, (2) prioritization of systems, (3)
remediation activities, and (4) compliance testing. A plan of corrective
action using both internal and external resources to enhance or replace our
systems for Year 2000 compliance was developed during fiscal year 1999 and
completed by December 31, 1999.
We incurred approximately $0.7 million of expenses in addressing the Year
2000 issue. We have not experienced any significant Year 2000 issues from the
change in the calendar year from 1999 to 2000.
Seasonality
Our operations are not seasonal in nature. In the fiscal year ended
February 28, 1999 we generated 24.3%, 26.6%, 24.5% and 24.6% of our net sales
in the first through the four fiscal quarters, respectively.
Impact of Recently Issued Accounting Standards
During fiscal 1999 we adopted Statement of Financial Accounting Standards
(SFAS) No. 130 "Reporting Comprehensive Income," which became effective for
fiscal years beginning after December 15, 1997. Comprehensive income and net
income were the same for the periods presented.
During fiscal year 1999, we also adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information," which redefines how
operating segments are determined and requires disclosure of certain financial
and descriptive information about a company's operating segments. The adoption
of this statement did not affect our combined financial position, result of
operations, and cash flows, and is limited to the form and content of
disclosures.
In June 1998 the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities," which
is effective for fiscal years beginning after June 15, 2000. The new statement
requires that every derivative instrument (including
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certain derivative instruments embedded in contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. SFAS
No. 133 requires the changes in the derivative's fair value to be recognized
currently in earnings unless specific hedge accounting criteria are met. We
have not yet determined the effect this statement will have in the combined
financial position, results of operations, or cash flows.
In March 1998 the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position ("SOP") 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use," which we adopted
on March 1, 1999. SOP 98-1 requires certain software development costs to be
capitalized. The adoption of this SOP has not had a material effect on our
combined financial position, results of operations, or cash flows.
In April 1998 the AICPA issued SOP 98-5, "Reporting on the Costs of Start-
Up Activities," which we adopted on March 1, 1999. SOP 98-5 requires costs of
start-up activities and organization costs to be expensed as incurred. The
adoption of this SOP has not had a material effect on our combined financial
position, results of operations, or cash flows.
35
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BUSINESS
Our Company
We believe we are the largest retailer of mattresses in the United States.
Founded in 1978, we are considered the pioneers of the "specialty sleep shop"
mattress retailing concept. Specialty sleep shops are stores focused
exclusively on selling mattresses and are one of the mattress industry's
fastest growing retail distribution channels. Since our founding, we have
grown our business into a nationwide network of 250 stores in 15 markets. We
believe that we hold the leading market position in nine of these markets. Of
the top 15 markets in the United States, which accounted for approximately 33%
of 1998 mattress sales, we believe we are the largest mattress retailer in six
of these markets. For the twelve months ended November 30, 1999, we generated
net sales of $258.7 million.
Our stores generate average annual sales of approximately $1.0 million, and
average approximately 4,000 square feet in size. In fiscal 1999, our stores
derived 89% of their revenue from the sale of mattresses and 11% from the sale
of bedding accessories (e.g., headboards and frames). Through our exclusive
purchase contract with Sealy Mattress Company, we are the largest retailer of
Sealy products. According to ISPA, Sealy is the largest manufacturer of
mattresses in North America, with a 22% U.S. market share. Sealy products
accounted for approximately 64% of our retail mattress sales for the nine
months ended November 30, 1999 and include such well-known brand names as
Sealy(R), Sealy Posturepedic(R), Sealy Posturepedic Crown Jewel(R), Sealy
Correct Comfort(R) and Stearns & Foster(R).
In addition to selling Sealy mattresses, we sell Comfort Source(R) brand
mattresses that are produced at our three manufacturing facilities. We believe
that we are the only conventional mattress retailer with significant captive
manufacturing capacity. This vertical integration allows us to execute a
private brand strategy with attractive margins. Sales of our Comfort Source
brand mattresses accounted for 36% of our retail mattress sales for the nine
months ended November 30, 1999.
We have expanded rapidly through organic growth and one strategic
acquisition. Since 1995, we have added 90 stores to our retail network,
including the 1998 acquisition of Bedding Experts, the leading sleep shop in
the Chicago metropolitan area. Our disciplined approach to new store openings,
coupled with this acquisition, has resulted in strong financial performance.
Since 1993, our net sales and EBITDA have grown at compound annual rates of
13.4% and 34.4%, respectively.
Industry Overview
The mattress industry is a mature and stable industry that has grown
consistently at a compound annual rate of approximately 6.6% over the past 20
years. 1998 retail mattress sales were approximately $6.9 billion. Industry
dollar sales have declined only once during the past 20 years (1.9% in 1982).
The market is highly fragmented, with the top ten retailers only accounting
for approximately 20% of total sales.
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The following chart illustrates the historical growth in the domestic
bedding industry:
[BAR CHART APPEARS HERE]
--------
Source: International Sleep Products Association
Industry Growth
The market for mattresses has consistently grown in both units and average
selling prices over the last 20 years. The growth in unit sales is primarily
due to population growth, an increase in the number of homes, and an increase
in the number of beds per home. The growth in average selling prices is a
result of a shift to both larger and more expensive beds. This is caused by a
demographic shift to an older population that spends more per bedding unit
than younger consumers, an increase in the product and merchandising education
level among retailers and industry advertising efforts relating to the health
benefits of more supportive bedding.
Industry Stability
Over the last 20 years, the mattress industry has been relatively insulated
from cyclical swings. In the same period, the industry has experienced only
one year of declining sales, when, in 1982, sales decreased by 1.9%. The
industry has remained stable largely due to the following characteristics:
. replacement sales account for approximately 70% of mattress sales, as the
average household replaces a mattress every eleven years
. low inventory levels, given that mattresses are generally manufactured
and distributed based on customer orders, mitigate the cyclical swings
experienced by furniture and appliance industries
. mattress manufacturing costs are largely variable, which limits the
impact of economic downturns on margins
. mattress manufacturers fund a substantial portion of co-operative
advertising expenditures, which allows retailers to continue to advertise
mattresses during weak economic periods.
Retail Channel Overview
Mattresses are sold to consumers through a variety of channels including
furniture stores, specialty sleep shops, department stores and mass merchants.
Historically, furniture stores, department stores and mass merchants have
accounted for the largest share of mattress sales. These retailers typically
carry mattresses in order to offer a broad line of products to their customers
and capture joint purchases of mattresses, frames, bedding accessories,
furniture and other products. Over
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the last five years, these retailers have lost significant market share to
specialty sleep shops and other distribution channels, such as factory direct
outlets and warehouse clubs. Retail mattress sales between 1993 to 1998 at
furniture stores, department stores and mass merchants grew at compound annual
rates of 0.6%, 2.4% and -7.2%, respectively.
Specialty sleep shops are 3,000 to 6,000 square feet in size and focus
exclusively on selling mattresses. Sleep shops are one of the mattress
industry's fastest-growing retail distribution channels having grown at a
compound annual rate of 16.0% from 1993 to 1998 versus the overall market
growth rate of 6.6%. In 1998, the specialty sleep shop channel generated $2.0
billion of retail sales, representing 29% of total industry sales. The
dramatic growth of this channel is a result of specialty sleep shops taking
significant market share from traditional channels.
The sleep shop's market share gains are due to the numerous advantages this
channel offers to consumers versus traditional mattress retailers, including:
. specialized sales force with improved mattress knowledge and customer
service levels
. wide selection of mattress styles and price ranges
. more convenient locations compared to furniture and department stores
. lower prices.
Competitive Strengths
We have built our business based on certain consumer purchasing patterns we
believe fundamental to selling mattresses:
. consumers replace a mattress once every 11 years
. the typical consumer is in the market for only 30 days
. over 60% of consumers purchase a mattress at the first or second store
they visit.
Our competitive strengths allow us to capitalize on these industry
fundamentals.
Leading Market Share. We are the largest specialty sleep shop in the United
States, and we believe we are the largest retailer of mattresses in the United
States. We have a 10.6% share of total 1998 specialty sleep shop sales and are
approximately 55% larger than our nearest specialty sleep shop competitor. We
believe that we are the leading mattress retailer in nine of our 15 markets,
and have an average market share that is almost twice that of our next largest
competitor in these nine markets. Our size and leading market positions offer
several advantages, including (1) higher levels of consumer awareness, (2) the
ability to leverage local advertising, distribution and corporate overhead
expenses, and (3) the ability to negotiate favorable vendor supply agreements
that include attractive co-operative advertising support.
Strong Brand Recognition. We have a well-established and widely recognized
brand name. We believe that brand recognition and promotion are critical
drivers of store traffic. As a result, we aggressively market our brand using
newspaper, radio and television advertising in order to maintain high consumer
awareness, reinforce our value pricing image and promote the name brand Sealy
mattresses offered in our stores. Our jingle, "Have a Good Night's Sleep On
Us!"(R), is a widely recognized and powerful tool in the markets in which we
operate.
Largest Retailer of Sealy Products. The strength of the Sealy, Sealy
Posturepedic and Stearns & Foster brands is an important part of our retailing
business, as customers are more inclined to visit stores that carry well-
recognized brand names. Sealy is the most recognized mattress brand,
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according to American Research Group, and is the largest manufacturer of
mattresses in North America. Through our exclusive purchase contract with
Sealy, we offer a broad line of Sealy products, from Sealy promotional
mattresses that sell for less than $200 per set to Sealy premium products,
such as the Stearns & Foster brand, that sell for over $3,000 per set. As part
of our relationship with Sealy, we receive significant co-operative
advertising funds to support our marketing program.
Vertical Integration. We believe that we are the only conventional mattress
retailer with significant captive manufacturing capacity. Our vertical
integration enables us to pursue a private brand strategy with attractive
margins and helps to ensure a consistent product supply at low to medium price
points. This private brand capability is a significant strength as it allows
us to offer a unique product not found in our competitors' stores. Comfort
Source mattresses produced in our three manufacturing facilities accounted for
approximately 36% of our retail mattress sales for the nine months ended
November 30, 1999.
Attractive Retail Locations. Our stores are strategically located to
capture consumer traffic due to their convenient and highly visible locations
and attractive store fronts. We follow a disciplined approach to selecting our
store locations and employ an analytical site selection process to maximize
the likelihood of successfully introducing new stores. Our store-opening
protocols have been instrumental to our organic growth in recent years and we
expect them to support our continued expansion in the future.
Experienced Management Team and Strong Sponsorship. We believe that we have
one of the most experienced management teams in the bedding industry, with an
average of 13 years of industry experience among our top nine executives. Bain
Capital, our largest shareholder, also maintains extensive experience in the
mattress and retail industries, having been the largest shareholder of Sealy
since December 1997 and having invested in numerous retailers including
Staples, The Sports Authority, Brookstone, Duane Reade, Stage Stores and
Domino's. Going forward, our management team own new stock and options
together representing up to approximately 13% of Holdings' fully diluted
common stock.
Business Strategy
Our business model is focused on maximizing market share in local markets.
We believe maximizing local market share enables us to drive revenue and
profitability in those markets for several reasons. Maximizing local market
share enables us to:
. generate higher traffic per store
. generate higher sales conversion rates
. leverage local operating expenses over a greater number of stores.
Operating Strategy
Increase Store Traffic. We attempt to maintain and increase store traffic
by:
Creating top-of-mind awareness. We use a mix of print, radio and TV
advertising to create top-of-mind brand awareness so that we are the first
mattress retailer chosen by consumers. We seek to establish leading market
positions that allow us to conduct extensive advertising programs cost
efficiently.
Advertising the Sealy brand name. Customers are more likely to visit a
store that carries brand name mattresses, and Sealy is the most recognized
brand name in the mattress industry. We prominently position the Sealy brand
in our advertising and intend to continue to leverage the strength of the
Sealy brand.
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Offering convenient locations. Customers' desire for convenient store
locations is one of the driving forces behind the growth of the sleep shop
channel. We have strategically located an average of 17 stores in each of our
markets in convenient and highly visible locations.
Convert Traffic into Sales. We seek to maintain high sales closing ratios
by:
Maintaining a highly effective sales organization. We believe that we
maintain, and will continue to develop, the most sales-oriented business
practices in the mattress retailing industry. Sales associates use our eight-
step selling process to close sales and are compensated entirely on
commission. We maintain high staffing levels in our stores to maximize sales-
oriented contact with our customers.
Offering differentiated merchandise and pricing. Our product merchandising
is designed to offer customers a broad product mix along a wide-range of price
points that differentiate us from our competitors. By offering 22 different
Sealy models, many of which have features not found in other stores, along
with our Comfort Source brand, we believe we are able to meet the needs of a
broad range of customers. Additionally, given our scale, we can position
ourselves as the most price-competitive mattress retailer in the industry and
offer customers the lowest prices in our markets.
Providing convenient delivery. We are one of the few specialty shops to
offer customers the option of take home purchases of popular mattresses. We
also offer one to three day home delivery, free removal of old mattresses and
free mattress set-up at customers' homes.
Leverage Local and National Scale. We seek to generate cost efficiencies on
a local and national level by:
Clustering stores in local markets. Our store clustering strategy is
designed to maximize local market penetration and generate cost efficiencies
in each of our local markets. Cost efficiencies are created by leveraging
local advertising, distribution and overhead expenses across a large number of
stores in a given market.
Leveraging national purchasing. We have chosen to source our branded
products from one manufacturer. This arrangement has enabled us to leverage
our buying power and receive attractive co-operative advertising support.
Additionally, our single vendor focus simplifies our distribution process and
minimizes our inventory requirements.
Growth Strategy
Continue Organic Growth. We will continue to strategically open new stores
in existing markets to establish or expand a leadership position. We believe
that local market leadership, and well-positioned stores create strong brand
awareness and significantly influence both customer visits and purchase
decisions. There are also significant opportunities to expand our store base
into new markets. We believe that opening new stores in new markets typically
increases the overall awareness and market share of the sleep shop channel. We
have identified a number of markets within the top 30 U.S. markets in which we
believe the sleep shop channel is under-represented. We believe that our
disciplined approach to new store openings will enable us to profitably pursue
growth in new markets.
Pursue Strategic Acquisitions. We will selectively pursue strategic
acquisitions in new and overlapping markets. The economics of acquisitions can
be very attractive for us given the incremental profit generated in our
manufacturing facilities and the benefit of shifting additional volume to our
mattress purchase agreement. We intend to pursue acquisitions selectively and
prudently.
Evaluate E-Commerce. We continue to explore the potential for internet-
based mattress sales. There are currently limited mattress sales over the
internet given the significant complexities of shipping a mattress and the
desire of customers to touch and feel the product prior to making a
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purchase. However, we are currently developing a website that will allow us to
process customer orders over the internet and are positioning ourselves to
capture future mattress sales from this channel should it become a significant
means of distribution.
Store Locations and Development
We currently operate 250 stores in 15 markets. Our average store is
approximately 4,000 square feet. Our stores are generally located in highly
visible, high-traffic commercial areas, including strip shopping centers,
major regional shopping areas and freestanding sites. Each store typically has
at least 40 feet of readily identifiable signage/frontage, easy access from
major roads and adequate customer parking.
The following table sets forth our store count by market as of November 30,
1999:
<TABLE>
<CAPTION>
Market Stores Year Entered
------ ------ ------------
<S> <C> <C>
Chicago, IL....................... 55 1998(/1/)
Washington, DC.................... 33 1978
Los Angeles, CA................... 27 1994
San Francisco, CA................. 26 1992
Boston, MA........................ 22 1989
Detroit, MI....................... 15 1994
Baltimore, MD..................... 12 1981
San Diego, CA..................... 12 1994
Denver, CO........................ 9 1998
Pittsburgh, PA.................... 9 1994
Sacramento, CA.................... 8 1997
Richmond, VA...................... 7 1983
Miami, FL......................... 7 1998
Orlando, FL....................... 3 1999
Tampa, FL......................... 5 1998
---
Total........................... 250
===
</TABLE>
- --------
(1) This market was entered in connection with Heilig-Meyers' acquisition of
Bedding Experts.
Our store clustering strategy is designed to maximize local market
penetration and generate cost efficiencies in each of our local markets. The
clustering concept enables us to leverage local advertising, distribution and
overhead expenses across a large number of stores in a given market. We follow
a disciplined approach to store selection, employing analytical criteria to
maximize the likelihood of introducing new stores successfully. We use scoring
techniques, drive time studies, existing store penetration analysis and other
quantitative tools to identify and evaluate new store opportunities.
The initial capital expenditure to open a new store is approximately
$70,000, which includes the cost of leasehold improvements, furniture,
fixtures and point-of-sale computer equipment. The average initial inventory
investment, which is financed primarily through vendor payables, is
approximately $30,000 per store. Store revenue increases quickly, with a new
store typically generating 70% of the net monthly sales of our average store
within three months.
Products and Pricing
Mattress sales currently account for approximately 91% of our store
revenues. Our stores offer an average of 32 SKUs of Sealy and Comfort Source
mattresses. We also offer a variety of other bedding products, including brass
and iron beds, futons, headboards, footboards, bed frames and related items.
41
<PAGE>
We offer a broad selection of brand name products from our exclusive third
party manufacturer, Sealy. These brands include Sealy, Sealy Posturepedic,
Sealy Posturepedic Crown Jewel, Sealy Correct Comfort and Stearns & Foster.
These Sealy brands each offer distinct product characteristics and are
marketed to (and perceived by) consumers as separate brands at a broad range
of price points. These products, along with the Comfort Source brand, satisfy
the consumer's desire to see a wide range of models before making a purchase.
We offer several features on our Sealy products that are unique to us,
including a proprietary cover selection on all Sealy Posturepedic and Sealy
Correct Comfort models, and "Edge Guard Plus" in our Sealy Posturepedic models
except Crown Jewel. These differentiated product features allow us to compete
effectively with retailers who offer similar products at these price points.
The Comfort Source product line produced in our manufacturing factories
complements the Sealy products at mid-price ranges and satisfies customer
needs at lower price points (name brand products typically do not meet our
gross margin targets at the lower price points). Our vertical integration
allows us to offer more product features and quality at lower prices, while
maintaining attractive margins.
We merchandise products at a broad range of retail price points, with
mattresses that sell for less than $200 per set to our premium products that
sell for over $3,000 per set. We have a flexible pricing structure that allows
our store managers and sales associates to meet most customers' price demands
by matching or beating any competitor's price. This structure is designed with
a multi-tier selling commission rate on each product that takes into account
our realized gross margins and selling commissions. Our buying power and
vertical integration enable us to offer competitive pricing on all of our
products while protecting our gross margins.
Sales Force and Training
Company studies show that over 60% of mattress consumers visit only one to
two stores before making a purchase. Our strategy is to convert as many of our
store shoppers into customers as possible. To do so, we employ an eight-step
sales approach designed to ascertain bedding preferences and price sensitivity
by directing the customer through a series of questions and bed tests. We
average over 2.5 sales personnel per store, including the store manager. We
believe our staffing levels are higher than our competitors, and when combined
with our extensive sales training, generate superior closing ratios. Sales
associates are compensated entirely on commission and have discretion to lower
price (within pre-set parameters) in return for a lower commission. Managers
are compensated with a base salary and incentive payments based on gross
margin and other store performance criteria.
Our sales personnel receive extensive sales and product training prior to
assignment and receive continuing education. We maintain an in-house training
program conducted by experienced sales personnel and management dedicated to
the sales training process. Sealy representatives also participate in the
product-oriented portion of the program. Our initial two-week sales training
includes extensive education regarding the mattress market and our merchandise
offering. At the end of initial training, each sales associate is required to
pass a sales and product knowledge test to ensure maximum retention of
information and to standardize our level of interaction with customers. After
initial training, each sales associate is assigned a mentor to facilitate
further training while on the sales floors.
Marketing and Advertising
Our marketing program is designed to generate high store traffic, maintain
high consumer awareness of our name, reinforce our value-pricing image and
promote our name brand mattresses. We believe that consumer awareness and
brand name recognition are critical to mattress retailing, as
42
<PAGE>
over 60% of consumers purchase a mattress at the first or second store they
visit. Our marketing message emphasizes our position as the lowest price and
best value in our markets, the largest bedding retailer in the United States,
and the world's largest Sealy retailer.
All of our advertising is created by an in-house, full-service advertising
department. We manage the entire marketing process from layout through
production and placement. Our in-house capability gives us a competitive
advantage because we are more focused on the industry than an outside agency
would be, have the ability to react quickly to changing market conditions or
sales trends, and operate more economically because we only have to pay net
media rates and avoid outside agency commissions.
Our advertising program uses a multimedia approach. While print ads and
inserts in Sunday newspapers constitute a large portion of our advertising
spending, we have recently devoted an increasing percentage of our marketing
expenditures to radio and television advertising. Our jingle, "Have a Good
Night's Sleep On Us!", has been cited as the most recognizable in the
Washington, DC area in a marketing survey conducted by an independent firm.
Distribution
We operate ten sales support centers, each of which services an average of
25 stores. Merchandise flows through these centers from Sealy and our
manufacturing facilities on a daily basis before going to our stores or our
customers. Customers receive their products either through home delivery
(approximately 60% of total fiscal 1999 retail sales volume) or take home
(approximately 40% of total fiscal 1999 retail sales volume). Merchandise is
delivered from our sales support centers to our customers' homes five days a
week, and to our stores once or twice a week. We currently operate over 70
home delivery trucks. Most customer deliveries are made on a three-day lead-
time, with next day delivery available upon request.
The following sets forth our sales support centers, all of which are
leased:
<TABLE>
<CAPTION>
Square
Location Footage
-------- -------
<S> <C>
Upper Marlboro, MD................... 88,304
Carol Stream, IL..................... 47,218
Anaheim, CA.......................... 44,700
Hayward, CA.......................... 43,580
Sharon, MA........................... 42,000
Taylor, MI........................... 39,215
Pittsburgh, PA....................... 33,000
Miami, FL............................ 24,140
Denver, CO........................... 13,136
Lakeland, FL......................... 10,200
-------
Total.............................. 385,493
=======
</TABLE>
Manufacturing
Our manufacturing operations consist of three factories, located in
Maryland, California and Alabama. Mattress manufacturing is largely an
assembly operation with minimal fixed costs. We believe we have achieved high
productivity and efficiencies due to a relatively small SKU base. We produce
57 SKUs compared to an estimated SKU base of over 1,000 for other major
mattress manufacturers. We believe our manufacturing operations achieve
production rates that are twice the industry average. Our ability to
manufacture long runs of a single product minimizes down time and
43
<PAGE>
change-over costs. We believe we maintain sufficient capacity to increase our
manufacturing capabilities as product demand from our store base grows.
The following sets forth our manufacturing facilities:
<TABLE>
<CAPTION>
Square
Location Footage Ownership Status
-------- ------- ----------------
<S> <C> <C>
Upper Marlboro, MD...................... 108,000 Leased--expires 1/31/2012
Montgomery, AL.......................... 72,000 Owned
Fontana, CA............................. 58,000 Leased--expires 11/30/2004
-------
Total................................. 238,000
=======
</TABLE>
We centrally purchase many of our raw materials and supplies for our
manufacturing operations, including spring components, wire, foam and covers
to ensure product quality and maximize volume discounts. We purchase our raw
materials and certain components from a variety of vendors, including Leggett
& Platt, Incorporated. Leggett & Platt is our primary vendor, supplying us
with approximately 35% of our raw materials in fiscal 1999.
Competition
The mattress industry in the United States is very competitive. Our store
competitors include a variety of national and regional chains of retail
furniture stores such as Jordan's Furniture in Massachusetts, department store
chains such as The May Company and Federated Department Stores, Inc., and
sleep shops such as Sleepy's and Mattress Giant.
Employees
At November 30, 1999, we employed 1,465 people, none of whom are
represented by a labor union. We employed 212 people in our three factories:
111 people in Maryland, 53 people in California and 48 people in Alabama. We
employed 1,060 people in our retail operation, including distribution and home
delivery. In addition, we employed 193 people in our corporate offices.
On July 30, 1999, the National Labor Relations Board held a union election
at our Hayward, California sales support center in which the union failed to
obtain a majority of ballots. The union challenged the results of the election
in whose favor a judgment was made and which we are currently appealing.
Trademarks, Trade Names and Copyrights
We own trademark registrations in the United States with respect to many of
our products, including our Comfort Source(R) and Royal Comfort Collection(R)
product lines, and hold various trade name and service mark registrations
including, for example, registrations of Mattress Discounters(R), The Bedding
Experts(R) and the jingle "Have a Good Night's Sleep on Us!"(R). We also have
numerous trademark applications pending in the United States and common law
rights for certain unregistered trademarks that are used in our business. In
addition, we own several U.S. copyright registrations.
Legal and Environmental
We have no known environmental, legal or other liabilities, the resolution
of which could reasonably be expected to have a material adverse effect on us
or our operations. We are a party to litigation from time to time in the
ordinary course of business. No pending or threatened litigation exists where
the resolution could reasonably be expected to have a material adverse effect
on us or our operations.
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<PAGE>
Supply Contract with Sealy
We are a party to a letter agreement with Sealy for the supply of Sealy and
Stearns & Foster products. Under an amendment to this agreement, to be entered
into in connection with the transactions, Sealy will be our exclusive supplier
of name brand beds until June 30, 2004.
Supply Contract with Heilig-Meyers
In connection with the transactions, we entered into an agreement for the
supply of mattresses manufactured by us to Heilig-Meyers. Under this
agreement, Heilig-Meyers is required to purchase a minimum amount of
mattresses from us, which amount is based on current supply levels. This
agreement is for an initial term of three years and continues unless
terminated by either party with prior written notice of not less than six
months.
Advertising Services Agreement with Heilig-Meyers
In connection with the transactions we entered into an agreement to perform
for Heilig-Meyers certain advertising services. This agreement is for an
initial term of three years and continues unless terminated by either party
with prior written notice of not less than six months. Under this agreement we
receive a commission for all media time we place for Heilig-Meyers.
45
<PAGE>
MANAGEMENT
Directors and Executive Officers
The following table sets forth certain information about our directors and
the executive officers.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Steven M. Lytell........... 39 Vice Chairman and Director
Stephen A. Walker.......... 50 Chief Executive Officer and Director
James B. Hirshorn.......... 33 Chief Financial Officer and Director
Raymond T. Bojanowski...... 44 Executive Vice President
Richard L. Branch.......... 43 Senior Vice President--Advertising and Marketing
Deborah Boyd............... 31 Vice President--Human Resources
Robert D. Gorney........... 56 Vice President--Manufacturing
Michael Mauler............. 38 Vice President--Operations
Michael T. Lee............. 45 Director of Information Systems
Josh Bekenstein............ 41 Director
Michael Krupka............. 34 Director
Andrew S. Janower.......... 30 Director
Joe L. Gonzalez............ 43 Director
</TABLE>
Steven M. Lytell has been Vice Chairman since August 1999. Mr. Lytell was
one of the original employees and managers of Mattress Discounters when it was
founded in 1978. He became a shareholder in the mid 1980's. Since 1997, Mr.
Lytell has held the title of Executive Vice President. From 1992 until the
business was sold to Heilig-Meyers in 1997, Mr. Lytell served as Chief
Executive Officer. From 1987 to 1993 Mr. Lytell was an Executive Vice
President and was responsible for the company's expansion into new regions.
From 1980 to 1987, he was an Executive with broad operational responsibilities
including sales, marketing, and merchandising.
Stephen A. Walker has been Chief Executive Officer since December 1999.
Prior to joining Mattress Discounters, he spent most of 1999 consulting for
M.F.I. Plc, the UK's largest, vertically integrated furniture retailer. From
February 1988 to December 1998, Mr. Walker worked for WH Smith Plc. Most
recently Mr. Walker was President of WH Smith USA, a retailer specializing in
airport, hotel, resort and gaming properties. From August 1990 to November
1995, Mr. Walker was President of The Wall Music, Inc., a mall-based retailer
of music stores owned by WH Smith Plc.
James B. Hirshorn has been Chief Financial Officer since 1999. Mr. Hirshorn
has been a Vice President at Bain Capital since 1998 working with portfolio
companies on a variety of operational and strategic issues. From 1993 to 1998,
he was a Manager and Consultant at Bain & Company focusing in the areas of
consumer products and technology. From 1988 to 1991, Mr. Hirshorn was with
Procter & Gamble in their Product Development Group. He received his MBA from
the Harvard Business School in 1993.
Raymond T. Bojanowski has been Executive Vice President--Sales since August
1999. Mr. Bojanowski has overall responsibility for operation of stores, sales
staff, and merchandising. From 1992 until the business was sold to Heilig-
Meyers in 1997 Mr. Bojanowski served as Executive Vice President. From 1990 to
1992 Mr. Bojanowski was General Manager of the New York/New Jersey operations.
From 1988 to 1989 he was District Manager and from 1987 to 1988 he was a sales
associate.
Richard L. Branch has been Senior Vice President--Advertising and Marketing
since 1999. From 1992 to 1999 Mr. Branch was Vice President--Advertising and
Marketing. From 1989 to 1992 he was Director of Advertising, and from 1986 to
1989 he was Director of Marketing at the Maryland Science Center. From 1979 to
1986, Mr. Branch worked in various capacities within the theme park and
amusement industries.
46
<PAGE>
Deborah Boyd has been Vice President--Human Resources since 1999. Ms. Boyd
joined us in 1994 as Director of Human Resources. From 1993 to 1994 she was
Assistant Director of Operations at Reliable Stores, Inc., and from 1985 to
1993 she held various Human Resources positions at both the store and
corporate levels for Woodward & Lothrop/John Wanamakers.
Robert D. Gorney has been Vice President--Manufacturing since 1991. Mr.
Gorney served in various manufacturing capacities for Simmons Mattress Company
from 1961 to 1990 including plant manager, and was Assistant General Manager
from 1985 to 1990.
Michael Mauler has been Vice President--Operations since January 2000.
Prior to joining Mattress Discounters he was the Vice President of Worldwide
Logistics for Fisher Scientific. From 1988 to 1998 Mr. Mauler held various
management positions at Dade-Berehing Inc., including Vice President--Global
Logistics.
Michael T. Lee has been Director of Information Systems since 1997. From
1990 to 1997 Mr. Lee was Director of Information Systems for EIL Instruments,
Inc. (a distributor and service organization of test and measurement
equipment) from 1990 to 1997, and from 1981 to 1990 he was Director of
Computer Operations for MEMTEC America Corporation (a distributor of
filtration systems and media).
Josh Bekenstein is a Managing Director of Bain Capital. He has been with
Bain Capital since its inception in 1984, and has been involved in numerous
investments during the past 15 years. Mr. Bekenstein serves as a director of
Sealy, Totes/Isotoner, Waters, and Bright Horizons Family Solutions. He is
also a director of the Dana Farber Cancer Institute and the Horizons
Initiative.
Michael Krupka joined Bain Capital in 1991 and has been a Managing Director
since 1997. Prior to joining Bain Capital, Mr. Krupka spent several years as a
management consultant at Bain & Company where he focused on technology and
technology-related companies. In addition, he has served in several senior
operating roles at Bain Capital portfolio companies. Mr. Krupka serves on the
Board of Directors of Sealy, J Tech, Inc., Integrated Circuit Systems, Inc.
and TravelCLICK.
Andrew S. Janower is a Vice President of Charlesbank Capital Partners, LLC,
which manages the private equity and real estate portfolios of the Harvard
University endowment fund. Prior to joining Charlesbank in July 1998, at the
time of the firm's inception, Mr. Janower was an Associate at Harvard Private
Capital Group, Inc. Mr. Janower serves on the Board of Directors of Sealy.
Joe L. Gonzalez is a Limited Partner of Chase Capital Partners. He joined
Chase Capital in 1998, and prior to that spent over twenty years in the
Mergers and Acquisitions practice of KPMG Peat Marwick. He currently serves as
a director of M2 Automotive and the United States-Mexico Chamber of Commerce.
Employment Agreements
We have entered into an employment agreement with each of the following
people: Steven Lytell--Vice Chairman, Stephen A. Walker--Chief Executive
Officer, and Raymond Bojanowski--Executive Vice President. The agreements,
other than for Mr. Walker, have an initial 18 month term and perpetual 18
month terms thereafter unless terminated by either party. Mr. Walker's
agreement has an initial one year term and perpetual 12 month terms thereafter
unless terminated by either party. Mr. Lytell's agreement provides for an
annual base salary of $500,000, subject to annual increase by the
board of directors of Holdings, plus a performance bonus of up to 60% of the
base salary. Mr. Walker's agreement provides for an annual base salary of
$300,000, subject to annual increase by the board of directors of Holdings,
plus a performance bonus of up to 67% of the base salary. Mr. Bojanowski's
agreement provides for an annual base salary of $275,000, subject to annual
increase by the board of directors of Holdings, plus a performance bonus of up
to 60% of the base salary. Each of the employment agreements, other than Mr.
Walker's, provide that if we terminate the executive's employment without
cause, we will continue to pay executive's base salary for a period of 18
months from termination, and in the case of Mr. Walker we will continue to pay
his base salary for a period of 12 months from termination.
47
<PAGE>
In addition we have entered into an employment agreement with Richard
Branch--Senior Vice President--Advertising and Marketing. Mr. Branch's
agreement has an initial 12 month term and perpetual 12 month terms thereafter
unless terminated by either party. Mr. Branch's agreement provides for an
annual base salary of $200,000, plus a performance bonus based on a percentage
of the base salary. The agreement provides that if we terminate Mr. Branch's
employment without cause, we will continue to pay his base salary for a period
of 12 months from termination.
Management Equity Participation
To provide financial incentives for Messrs. Lytell, Bojanowski, Branch and
Gornery, they have been issued options to acquire shares of Holdings' common
stock. Such options will be immediately exercisable. In addition, to provide
additional financial incentives, we will grant options to purchase shares of
Holdings' common stock to those employees, as well as to certain other key
employees. Such options will vest and become exercisable (i) in increments on
certain threshold dates or (ii) upon a sale of Mattress Discounters
Corporation. When an employee's employment with us is terminated for any
reason, such employee's unvested options will automatically expire, the
exercise period for the vested options will be reduced to a period ending no
later than 180 days after the date of termination, and, if such termination
occurs prior to a qualified initial public offering of Holdings' common stock,
Holdings will have the right to repurchase any of its common stock then held
by such employee. Our management team owns new stock and options together
representing up to approximately 13% of Holdings' common stock on a fully
diluted basis.
Executive Compensation
Summary Compensation Table
The following table sets forth, for the fiscal year ended February 28,
1999, the compensation paid to Steven M. Lytell, who performed the functions
of chief executive officer, and our next most highly compensated executive
officers whose total annual salary and bonus was in excess of $100,000 for
fiscal 1999.
<TABLE>
<CAPTION>
Annual Compensation
----------------------
Fiscal Salary Bonus
Name and Principal Position Year ($) ($)
- --------------------------- ------ ------- -------
<S> <C> <C> <C>
Steven M. Lytell........................................ 1999 400,000 272,000
Executive Vice President
Jon M. Studner(/1/)..................................... 1999 265,000 180,200
Senior Vice President
Raymond T. Bojanowski................................... 1999 215,000 63,425
Senior Vice President--Sales
Steve Bergman(/2/)...................................... 1999 180,000 53,100
Regional Vice President--Sales
Richard L. Branch....................................... 1999 180,000 53,100
Vice President--Advertising and Marketing
</TABLE>
- --------
(1) Mr. Studner's employment terminated on January 31, 2000.
(2) Mr. Bergman's employment terminated on March 31, 1999.
Qualified 401(k) and Profit Sharing Plan
We maintain a qualified 401(k) and profit sharing plan. All employees of 21
years of age and over and employed for at least one year are eligible to
participate in the plan. Employees are permitted to contribute up to 15% of
their annual compensation, subject to the IRS limits. Under the plan, we have
discretion to make matching contributions. We currently anticipate making
matching contributions equal to 2% of gross compensation.
48
<PAGE>
PRINCIPAL SHAREHOLDERS
We are a wholly-owned subsidiary of Holdings. The outstanding equity
securities of Holdings consist of 12,326,250 shares of Class A common stock
and 1,369,583 shares of Class L common stock. The Class L common stock is
senior in right of payment to the Class A common stock. The holders of Class A
common stock and Class L common stock are entitled to one vote per share on
all matters to be voted upon by the stockholders of Holdings, including the
election of directors. Holdings also has authorized Class B common stock and
Class M common stock.The Class B common stock and Class M common stock are
identical to the Class A common stock and Class L common stock, respectively,
except that they have no voting rights except as required by law. The Board of
Directors of Holdings is authorized to issue preferred stock, par value $0.01
per share, with such designations and other terms as may be stated in the
resolutions providing for the issue of any such preferred stock adopted from
time to time by the Board of Directors.
The following tables set forth certain information regarding the
approximate beneficial ownership of: (1) the Class A common stock and Class L
common stock by each person known to us to own more than 5% of any class of
our outstanding voting securities and (2) the Class A common stock and Class L
common stock by each of our directors and named executive officers and all of
the directors and executive officers as a group (assuming, for each such
person, the exercise of options exercisable within 60 days of August 6, 1999).
Unless otherwise noted, to our knowledge, each of the following shareholders
have sole voting and investment power as to the shares shown.
<TABLE>
<CAPTION>
Shares Beneficially Owned(/1/)
------------------------------------------
Class A Common Stock Class L Common Stock
--------------------- --------------------
Number of Percentage Number of Percentage
Name and Address Shares of Class Shares of Class
---------------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Principal Shareholders:
Mattress Discounters Holding
L.L.C.(/2/)(/3/)................. 11,423,250 92.7% 1,269,250 92.7%
c/o Bain Capital, Inc.
Two Copley Place
Boston, MA 02116
Heilig-Meyers Company............. 903,000 7.3 100,333 7.3
12560 West Creek Parkway
Richmond, VA 23238
Directors and Named Executive
Officers:
Steven M. Lytell(/4/)............. 300,000 2.4 33,333 2.4
Jon M. Studner(/4/)(/5/).......... 150,000 1.2 16,667 1.2
Raymond T. Bojanowski(/4/)........ 67,500 * 7,500 *
Richard L. Branch(/4/)............ 26,250 * 2,917 *
Josh Bekenstein(/6/).............. 4,597,606 37.3 510,845 37.3
Michael Krupka(/6/)............... 4,597,606 37.3 510,845 37.3
James B. Hirshorn(/7/)............ 1,213,768 9.8 134,863 9.8
Andrew S. Janower(/8/)............ 1,827,361 14.8 203,040 14.8
Joe L. Gonzalez(/9/).............. -- -- -- --
Directors and Executive Officers
as a group (13 persons).......... 6,998,717 54.3 777,635 54.3
</TABLE>
- --------
* represents less than 1%
(1) As used in this table, beneficial ownership means the sole or shared power
to vote, or to direct the voting of, a security, or the sole or shared
power to dispose, or direct the disposition of, a security and includes
options and warrants exercisable within sixty days. This table does not
include the warrants.
(2) The members of Mattress Discounters Holding L.L.C. ("Holdings LLC") are
Bain Capital Fund VI, L.P. ("Bain Fund VI"), BCIP Associates II ("BCIP"),
BCIP Associates II-B ("BCIP-B"), BCIP Associates II-C ("BCIP-C"), BCIP
Trust Associates II ("BCIP Trust"), BCIP Trust Associates II-B ("BCIP
Trust-B" and, together with BCIP, BCIP-B, BCIP-C and BCIP Trust, the
"BCIPs"), PEP Investment PTY Ltd. ("PEP"), Harvard Private Capital
Holdings, Inc. ("HPC"), Mattress Discounters Investors 1, LLC ("MDLLC 1"),
Mattress Discounters Investors 2, LLC ("MDLLC 2"), Mattress Discounters
Investors 3, LLC ("MDLLC 3" and collectively, with MDLLC 1 and MDLLC 2,
the "LLCs"), and certain other investors. Accordingly, the LLCs may be
deemed to beneficially own certain shares owned by Holdings LLC, although
the LLCs disclaim such beneficial ownership.
49
<PAGE>
(3) The members of MDLLC 1 are Chase Equity Associates, L.P. ("Chase Equity")
and Bain Capital Partners VI, L.P. ("BCP"). The members of MDLLC 2 are
affiliates of Canadian Imperial Bank of Commerce ("CIBC"), and BCP. The
members of MDLLC 3 are BancBoston Capital Inc. ("BancBoston") and BCP. BCP
is the administrative member of each LLC and beneficially owns 1% of the
equity of each LLC. By virtue of their investment in the LLCs, Chase
Equity, CIBC and BancBoston will indirectly own approximately 22.5%, 11.2%
and 3.7%, respectively, of the Class A common stock and the Class L common
stock.
(4) Represents shares of Class A common stock and Class L common stock
issuable upon exercise of options exercisable within 60 days from the date
of issuance.
(5) Mr. Studner left Mattress Discounters on January 31, 2000. Under the terms
of his termination, he has agreed to transfer on February 29, 2000 his
shares in Holdings to Holdings LLC.
(6) Excludes 4,615,486 shares of Class A common stock and 512,832 shares of
Class L common stock indirectly owned by the LLCs, which BCP may be deemed
to beneficially own by virtue of its right to vote such shares. Mr.
Bekenstein and Mr. Krupka are Managing Directors of Bain Capital, Inc.,
limited partners of BCP, the sole general partner of Bain Fund VI, and
Managing Directors of Bain Capital Investors VI, Inc., the sole general
partner of BCP. In addition, (i) Bain Capital, Inc., of which each of
Messrs. Bekenstein and Krupka is a Managing Director, is the managing
general partner of each of the BCIPs and has voting and investment power
with respect to the shares indirectly owned by PEP and (ii) Messrs.
Bekenstein and Krupka (or affiliated entities) are general partners of one
or more of the BCIPs. Accordingly, each of Mr. Bekenstein and Mr. Krupka
may be deemed to beneficially own some or all of the shares indirectly
owned by Bain Fund VI and the BCIPs through their interest in Holdings
LLC. Each of Mr. Bekenstein and Mr. Krupka disclaims beneficial ownership
of any such shares.
(7) Mr. Hirshorn is a Vice President of Bain Capital, Inc. and he (or an
affiliated entity) is a general partner of one or more of the BCIPs.
Accordingly, Mr. Hirshorn may be deemed to own some or all of the shares
indirectly owned by the BCIPs through their interest in Holdings LLC. Mr.
Hirshorn disclaims beneficial ownership of any such shares.
(8) Mr. Janower is a Vice President of Charlesbank Capital Partners, LLC which
serves as investment adviser to HPC. Accordingly, Mr. Janower may be
deemed to beneficially own some or all of the shares indirectly owned by
HPC through its interest in Holdings LLC. Mr. Janower disclaims beneficial
ownership of any such shares.
(9) Excludes 2,769,053 shares of Class A common stock and 307,673 shares of
Class L common stock indirectly owned by MDLLC 1, which shares BCP has the
right to vote. Mr. Gonzalez is a Limited Partner of Chase Capital
Partners, an affiliate of Chase Equity.
50
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Stockholders Agreement
Holdings and all holders of shares of its common stock entered into a
Stockholders Agreement on August 6, 1999.
The Stockholders Agreement provides (i) that the Boards of Directors of
Holdings will consist of five members, four of whom shall be selected by Bain
Capital and one of whom shall be selected by HPC, (ii) for restrictions on
transfer of the common stock, including provisions providing that other
holders of common stock will have rights of first offer and participation
rights in any proposed sale of common stock, (iii) that if Holdings authorizes
the issuance or sale of any common stock to any holder of its common stock
(other than as a dividend on the outstanding common stock), Holdings will
first offer to sell to the other holders of common stock their percentage of
the shares of such issuance equal to the percentage of common stock held by
such person at the time of such issuance, (iv) that upon the Board of
Directors of Holdings and holders of a majority of outstanding shares of
common stock approving a sale of substantially all the assets of Holdings or
substantially all the outstanding capital stock of Holdings, each holder of
common stock will consent to such sale and sell their common stock as so
requested, and (v) in the event that the Board of Directors of Holdings and
holders of a majority of outstanding shares of common stock approves an
initial public offering, each holder of common stock will be required to take
all necessary or desirable actions in connection with the consummation of the
initial public offering, including consenting to and voting for a
recapitalization, reorganization and/or exchange of their common stock into
other securities.
Registration Rights Agreement
Mattress Holding Corporation and the holders of its common stock entered
into a Registration Rights Agreement on August 6, 1999. The Registration
Rights Agreement provides that Bain Capital has the right to three long-form
demand registrations and unlimited short-form demand registrations under the
Securities Act of shares of common stock held by them.
The Registration Rights Agreement also provides for piggyback registration
rights, allowing the holders of common stock to include their common stock in
any registration. However, if the piggyback registration is an underwritten
primary registration on behalf of Holdings, and the managing underwriters
advise Holdings that in their opinion the aggregate number of shares of common
stock which Mattress Holding Corporation and the holders of its common stock
elect to include in such offering exceeds the number which can be sold in such
offering without adversely affecting the marketability of such offering, the
number of such shares sold in such offering shall be allocated: (i) first, the
securities Holdings proposed to sell, (ii) second, the shares of common stock
requested to be included in such registration, pro rata among the holders of
such shares on the basis of the number of shares owned by each such holder,
and (iii) third, other securities requested to be included in such
registration.
In addition, the holders of common stock are prohibited from selling their
shares seven days prior to and within 180 days after the effectiveness of any
demand registration or piggyback registration (except as part of such
underwritten registration) unless the underwriters managing the registered
offering otherwise agree.
Advisory Agreement
In connection with the transactions, we entered into an advisory agreement
with Bain Capital pursuant to which it provides financial advisory and
consulting services. In exchange for such services, Bain Capital is entitled
to an aggregate annual shareholder advisory fee of $1.0 million (to be
adjusted
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upon the occurrence of future acquisitions) and their out-of-pocket expenses.
In addition, Bain Capital will receive an aggregate fee not to exceed 1.0% of
the aggregate value of any acquisition, divestiture or financing transaction
of Mattress Holding Corporation and all its subsidiaries (including Mattress
Discounters) in which it is involved. In connection with the transactions,
Bain Capital received a fee of approximately $2.6 million. The advisory
agreement will remain in effect for an initial term of ten years, and shall be
automatically extended thereafter on a year-to-year basis, subject to
termination by Bain Capital or us upon written notice 90 days prior to the
expiration of the initial term or any extension thereof. The advisory
agreement includes customary indemnification provisions in favor of Bain
Capital.
Holdings Junior Subordinated Notes
Holdings junior subordinated notes were issued to Heilig-Meyers as a non-
cash portion of the consideration due to Heilig-Meyers at closing. The
principal amount of these notes were $10.0 million and $7.5 million and
interest will accrue at the rates of 10% and 12% per annum, respectively,
payable quarterly. At the option of Holdings, interest may be paid in cash or
by increasing the amount of principal due under these notes, but the indenture
governing the exchange notes and the senior credit facility limits the payment
of cash interest, either directly or through the restricted payments test. The
Holdings junior subordinated notes are scheduled to mature one year after the
scheduled maturity of the exchange notes. The Holdings junior subordinated
notes are structurally subordinate to the exchange notes and contractually
subordinated to the indebtedness under the senior credit facility. In
connection with the settlement of the transactions, the $7.5 million 12%
Junior Subordinated Promissory Note was reduced to $5.875 million.
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DESCRIPTION OF CAPITAL STOCK OF HOLDINGS
Set forth below is certain information concerning Holdings' capital stock
and a brief summary of certain significant provisions of its Articles of
Incorporation and the Stock Corporation Act of the Commonwealth of Virginia.
This description does not purport to be complete and is qualified in its
entirety by reference to the Articles of Incorporation of Holdings (a copy of
which is available from Holdings) and the Virginia Act. See "Available
Information."
Common Stock
The common stock of Holdings consists of four classes of shares, par value
$.01 per share: Class L Common Stock, Class M Common Stock, Class A Common
Stock and Class B Common Stock. There are 4 million authorized shares of Class
L, 2 million authorized shares of Class M, 300 million authorized shares of
Class A, and 100 million authorized shares of Class B, and 1,433,333 shares of
Class L and 12,900,000 shares of Class A issued and outstanding (including
management options exercisable within 60 days of the closing of the
transactions) and no shares of Class M or Class B are issued and outstanding.
In the event of any distribution (including those made in connection with a
liquidation of Holdings), holders of the Class L are entitled to first
priority with respect to distributions up to an amount which would generate an
internal rate of return on the unreturned cost of a share of Class L
(initially $54 per share) of 12% per year. After such preference has been
satisfied, holders of Class L are entitled to first priority with respect to
distributions up to an amount of the unreturned cost of the Class L. After
such preference has been satisfied, holders of Class A and Class L shares
share in any remaining amounts based on the number of shares of common stock
held by each shareholder as of the applicable record date.
Upon a public offering of shares of Class A, each share of Class L shall
automatically convert into a number of shares of Class A equal to (a) 1.0,
plus (b) the quotient obtained by dividing (x) the unreturned cost of a share
of Class L plus an amount sufficient to generate an internal rate of return on
$54 of 12% per year, by (y) the price per share received by Holdings for its
Class A issued in the public offering.
The Class L and Class A vote together as a single class on all matters,
with each share of Class L and Class A entitled to one vote. The holders of
Class L and Class A are not entitled to cumulate their votes in the election
of directors, which means that holders of more than a majority of the total
outstanding Class L and Class A can elect all the directors of Holdings.
Except as described above, the holders of shares of the common stock of
Holdings are not entitled to any preemptive, subscription or conversion
rights. There are no redemption or sinking fund provisions applicable to any
of the classes of Holdings's common stock. The holders of shares of common
stock are not subject to further calls or assessments by Holdings.
Class B is identical in all respects to Class A, and Class M is identical
in all respects to Class L, except that Class B and Class M have no right to
vote on any matter to be voted on by holders of Holdings' capital stock, other
than in limited circumstances or as required by law. At any time and from time
to time, Class B shares may be converted into Class A shares and Class M
shares may be converted into Class L shares, subject to limited restrictions,
and holders who are subject to certain bank holding regulations may convert
Class A shares into Class B shares and Class L shares into Class M shares.
See "Certain Relationships and Related Transactions--Stockholders
Agreement" for a description of certain contractual rights (including
contractual preemptive rights) and obligations (including voting obligations)
of holders of Holdings' common stock and warrants.
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Preferred Stock
There are 10 million shares of preferred stock, par value $.01 per share,
of Holdings authorized for issuance, and no shares of preferred stock have
been issued and are outstanding. Holdings' Board of Directors may issue from
time to time, in one or more series, shares of preferred stock, with such
rights and preferences as permitted by law.
In connection with the issuance of the old notes, Holdings also issued to
the holders thereof warrants to acquire an aggregate of 679,000 shares of
Class A common stock and 75,460 shares of Class L common stock, representing
approximately 5% of Holdings' fully diluted common stock. The warrants expire
on July 15, 2007.
Each warrant entitles the holder to acquire, on or after the exercisability
date and prior to the expiration date, 4.850 shares of Class A common stock
and 0.539 shares of Class L common stock at a price equal to $0.01 per share,
subject to adjustment from time to time upon the occurrence of changes in the
Class A common stock and Class L common stock and issuances of Class A common
stock and Class L common stock, options or convertible securities of Holdings.
Holders of warrants do not, by virtue of being such holders, have any
rights of stockholders of Holdings, except that holders are entitled to
receive distributions in respect of any Class A common stock or Class L common
stock of Holdings as though the warrants had been exercised.
Liability and Indemnification
Holdings's articles of incorporation provides that Holdings shall, to the
fullest extent permitted by the provisions of the Virginia Act, as the same
may be amended and supplemented, indemnify any and all persons whom it shall
have power to indemnify under said provisions from and against any and all of
the expenses, or other matters referred to in or covered by said provisions.
Such indemnification is not exclusive of other indemnification rights arising
under any bylaw, vote of disinterested directors or shareholders or otherwise.
DESCRIPTION OF SENIOR CREDIT FACILITY
The senior credit facility provides for revolving loans of up to $20.0
million, including letters of credit of up to $5.0 million. Subject to
restrictions, we may use the senior credit facility for our working capital
and general corporate purposes.
Repayment. The revolving loans under the senior credit facility are due by
August 5, 2005.
We may repay any of our borrowings under the senior credit facility without
paying a premium or penalty, other than payment of breakage costs and
reimbursement of the lenders' actual re-employment costs provided the
repayments are in an aggregate principal amount of $1,000,000 or a whole
multiple thereof.
Also, it is mandatory that we reduce our commitments under the senior
credit facility out of net cash proceeds we receive from the following events:
. 100% of the net proceeds of any incurrence of indebtedness subject to
exceptions
. 100% of sales of assets, except for sales in the ordinary course of
business, intercompany sales (including stock) and other sales below a
specified threshold and subject to exceptions, including the right to
reinvest the proceeds to acquire assets useful in our business.
. 50% of permitted equity issuances, with a smaller amount of commitment
required to be reduced when the leverage ratio is 3.5:1 or less, subject
to exceptions
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We are also required to repay outstanding revolving loans with 50% of
annual excess cash flow with a reduced amount required to be repaid when the
leverage ratio is 3.5:1 or less, but such repayments do not result in
corresponding commitment reductions.
Security; Guaranty. Each of our direct and indirect domestic subsidiaries
and Holdings (and, if at some point in the future there are no adverse tax
consequences, foreign subsidiaries), guarantee our obligations under the
senior credit facility. The following secures our obligations under the senior
credit facility and each of the guarantors under the guarantee of the senior
credit facility:
. a security interest in substantially all of our assets and the assets of
the subsidiary guarantors
. a pledge of all of our capital stock and the capital stock of each our
direct and indirect domestic subsidiaries
. a pledge of 65% of the capital stock of each of our direct foreign
subsidiaries.
Interest. At our option, the interest rates under the senior credit
facility will be either: (1) the base rate, which is the higher of the prime
lending rate, 1% in excess of the secondary market rate for three-month
depository certificates or 0.5% in excess of the Federal funds effective rate,
plus a margin or (2) Eurodollar rate plus a margin. The margins of the loans
under the senior credit facility was initially set and will vary according to
a pricing grid based upon the achievement of performance targets.
Fees. We paid some fees in connection with the senior credit facility,
including: (1) letter of credit fees; and (2) commitment fees. Commitment fees
are payable at a rate per annum of 0.5% on the undrawn amounts of the
revolving loans but may reduce depending upon the achievement of performance
targets.
Covenants. The senior credit facility requires that we meet financial tests
which include a maximum total debt ratio and a minimum interest coverage
ratio. The senior credit facility also contains covenants which, among other
things, restrict our ability, subject to exceptions, to do the following:
. incur liens
. engage in transactions with affiliates
. prepay subordinated debt and the notes
. incur indebtedness
. declare dividends or redeem or repurchase capital stock
. make loans and investments
. engage in mergers, acquisitions, consolidations and asset sales
. make capital expenditures.
The senior credit facility also requires that we satisfy certain customary
affirmative covenants and make certain customary indemnifications to our
lenders and the administrative agent under the senior credit facility.
Events of Default. The senior credit facility contains customary events of
default, including, without limitation, payment defaults, material inaccuracy
of representations and warranties, covenant defaults, certain events of
bankruptcy and insolvency, ERISA violations, material judgment defaults,
cross-defaults to certain other indebtedness and a change in control.
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DESCRIPTION OF THE NOTES
You can find the definitions of some of the capitalized terms used in this
description under the subheading "Definitions". In this description, the words
"we," "us," and "our" refer only to Mattress Discounters Corporation and not
to any of our subsidiaries.
We will issue the exchange notes under an indenture dated August 6, 1999
among Mattress Discounters Corporation, our subsidiary guarantors and State
Street Bank and Trust Company, as trustee. The terms of the exchange notes
include those stated in the indenture and those made part of the indenture by
reference to the Trust Indenture Act of 1939, as amended.
The following description is a summary of the significant provisions of the
indenture. It does not restate that agreement in its entirety, and sections of
this description which correspond to similar sections of the indenture have
been redrafted for clarity in this description in terms substantively the same
as those of indenture. We urge you to read the indenture because it, and not
this description, defines your rights as a holder of these exchange notes.
Copies of the indenture are available as set forth in the section entitled
"Additional Information."
General
The exchange notes will be issued only in registered form, without coupons,
in denominations of $1,000 and integral multiples of $1,000. We have appointed
the trustee to serve as registrar and paying agent under the indenture. No
service charge will be made for any registration of transfer or exchange of
the notes, except for any tax or other governmental charge that may be imposed
in connection therewith.
Ranking
The exchange notes will be senior unsecured obligations of Mattress
Discounters Corporation. The exchange notes will rank equally with all our
senior unsecured indebtedness, senior in right of payment to all our
subordinated indebtedness and effectively subordinated to our secured
indebtedness to the extent of the value of the assets securing such
indebtedness. At November 30, 1999,there were no amounts outstanding under the
senior credit facility. Unused commitments under the senior credit facility
and the rollover of outstanding letters of credit total $20.0 million. All
debt incurred under the senior credit facility will be secured indebtedness of
Mattress Discounters Corporation and our subsidiaries.
Maturity, Interest and Principal of the Notes
We will issue the exchange notes initially in the principal amount of
$140.0 million. We will issue the exchange notes in denominations of $1,000
and any integral multiple of $1,000. The notes will mature on July 15, 2007.
Subject to our compliance with the covenant described under the caption "--
Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred
Stock," we are permitted to issue more notes under the indenture in an
unlimited principal amount. Any such additional notes subsequently issued will
be treated as issued and outstanding notes for all purposes of the indenture
and this "Description of the Notes," unless the context indicates otherwise.
Cash interest on the exchange notes will accrue at a rate of 12 5/8% per
annum and will be payable semi-annually in arrears on each January 15 and July
15, commencing January 15 , 2000, to the holders of record of notes at the
close of business on January 1 and July 1, respectively, immediately preceding
such interest payment date. Cash interest will accrue from the most recent
interest payment date to which interest has been paid or, if no interest has
been paid, from August 6, 1999. Interest will be computed on the basis of a
360-day year of twelve 30-day months.
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Optional Redemption
The exchange notes are redeemable at our option, in whole or in part, at
any time on or after July 15, 2004. The exchange notes will be redeemed during
the 12-month period beginning on July 15 of the years indicated below at the
redemption prices expressed as a percentage of principal amount plus accrued
and unpaid interest:
<TABLE>
<CAPTION>
Redemption
Year Price
---- ----------
<S> <C>
2004............................................................ 106.313%
2005............................................................ 103.156%
2006 and thereafter............................................. 100.000%
</TABLE>
In addition, at any time prior to July 15, 2002, we may redeem in the
aggregate up to 35% of the aggregate principal amount of the exchange notes
originally issued (including the original principal amount of any Additional
Notes) with the net cash proceeds of one or more Equity Offerings. The
redemption price will be in cash equal to 112.625% of the principal amount of
the exchange notes, plus accrued and unpaid interest, if any, to the date of
redemption, provided, however, that at least 65% of the aggregate principal
amount of the exchange notes originally issued, including any additional notes
must remain outstanding immediately after giving effect to each such
redemption. Notice of any such redemption must be given within 60 days after
the date of the closing of the relevant Equity Offering.
In addition, at any time prior to July 15, 2004, the exchange notes may be
redeemed, as a whole but not in part, at our option upon a Change of Control.
We must give not less than 30 nor more than 60 days prior notice mailed by
first-class mail to each exchange note holder's registered address. The
redemption price will be equal to 100% of the principal amount plus the
Applicable Premium, and accrued and unpaid interest, if any, to, the date of
redemption.
Selection and Notice of Redemption
If less than all of the exchange notes are to be redeemed pursuant to an
optional redemption, the trustee will select the exchange notes to be redeemed
in compliance with the requirements of the principal national securities
exchange, if any, on which the exchange notes are listed. If the exchange
notes are not then listed on a national securities exchange, the trustee will
select the exchange notes to be redeemed on a pro rata basis, by lot or by
such method as the trustee shall deem fair and appropriate. Exchange notes
redeemed in part must be redeemed only in integral multiples of $1,000. If a
partial redemption is made with the net cash proceeds of an Equity Offering,
selection of the exchange notes for redemption must be made by the trustee
only on a pro rata basis or on as nearly a pro rata basis as is practicable,
subject to the procedures of The Depository Trust Company, unless such method
is otherwise prohibited. Notice of redemption must be mailed by first-class
mail at least 30 but not more than 60 days before the redemption date to each
holder of notes to be redeemed at its registered address. If any note is to be
redeemed in part only, the notice of redemption that relates to such note
shall state the portion of the principal amount thereof to be redeemed. A new
note in a principal amount equal to the unredeemed portion thereof will be
issued in the name of the holder thereof upon cancellation of the original
note. On and after the redemption date, interest will cease to accrue on notes
or portions thereof called for redemption as long as we have deposited with
the paying agent for the notes funds in satisfaction of the applicable
redemption price pursuant to the indenture.
Note Guarantees
Payment of the exchange notes will be guaranteed by each of the guarantors
unconditionally on a joint and several basis including our obligation to pay
principal, premium, if any, and interest with respect to the notes. The
guarantees will be senior unsecured obligations of the guarantors. The
obligations of each guarantor under its guarantee will rank equally with all
senior unsecured
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indebtedness of such guarantor, senior in right of payment to all subordinated
indebtedness of such guarantor and effectively subordinated to such
guarantor's secured indebtedness to the extent of the value of the assets
securing such indebtedness. The guarantors are also guaranteeing all our
obligations under the senior credit facility. Each guarantor is also granting
a security interest in all or substantially all of its assets to secure the
obligations under the senior credit facility. The obligations of each
guarantor are limited to the maximum amount which, after giving effect to all
their other contingent and fixed liabilities and to any collections from or
payments made by or on behalf of any other guarantor in respect of its
obligations under the 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 a guarantee shall be entitled to a contribution from each
other guarantor in a pro rata amount, based on the net assets of each
guarantor determined in accordance with GAAP.
We will cause each Restricted Subsidiary issuing a guarantee after the
Issue Date to execute and deliver to the trustee a supplemental indenture in
form reasonably satisfactory to the trustee pursuant to which such Restricted
Subsidiary shall become a party to the indenture and thereby unconditionally
guarantee all of our obligations under the notes and the indenture on the
terms set forth therein. Thereafter, such Restricted Subsidiary shall (unless
released in accordance with the terms of this indenture) be a guarantor for
all purposes of the indenture.
The indenture provides that if, subject to the requirements of the first
paragraph under "--Certain Covenants--Merger, Consolidation, or Sale of
Assets," all or substantially all of the assets of any guarantor or all of the
Equity Interests of any guarantor are sold (including by issuance or
otherwise) by us in a transaction constituting an Asset Sale, and if
(x) the Net Cash Proceeds from such Asset Sale are used in accordance
with the covenant described under "Certain Covenants--Disposition of
Proceeds of Asset Sales" or
(y) we deliver to the trustee an Officers' Certificate to the effect
that the Net Cash Proceeds from such Asset Sale shall be used in accordance
with the covenant described under "Certain Covenants--Disposition of
Proceeds of Asset Sales" and within the time limits specified by such
covenant,
then such guarantor (in the event of a sale or other disposition of all of the
Equity Interests of such guarantor) or the corporation acquiring such assets
(in the event of a sale or other disposition of all or substantially all of
the assets of such Guarantor) shall be released and discharged of its
guarantee obligations in respect of the indenture and the notes. The note
guarantees will also be subject to release as described under "--Certain
Covenants--Limitation on Guarantees by Restricted Subsidiaries."
Any guarantor that is designated an Unrestricted Subsidiary pursuant to and
in accordance with the terms of the Indenture shall upon such designation be
released and discharged of its guarantee obligations in respect of the
indenture and the notes.
Offer to Purchase upon Change of Control
Upon the occurrence of a Change of Control, each holder of exchange notes
will have the right to require us to repurchase all or any part in amounts of
$1,000 or an integral multiple thereof (the "Change of Control Offer") the
offer price will be in cash equal to 101% of the aggregate principal amount
thereof plus accrued and unpaid interest thereon, if any, to the date of
purchase. Within 30 days following any Change of Control, we will mail a
notice to each holder describing the transaction or transactions that
constitute the Change of Control and offering to repurchase notes on the date
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specified in such notice, which date shall be no earlier than 30 days and no
later than 60 days from the date such notice is mailed (the "Change of Control
Payment Date"), pursuant to the procedures required by the indenture and
described in such notice. We will comply with the requirements of Rule 14e-1
under the Exchange Act and any other securities laws and regulations
thereunder to the extent such laws and regulations are applicable in
connection with the repurchase of the notes as a result of a Change of
Control.
On the Change of Control Payment Date, we will, to the extent lawful,
(1) accept for payment all notes or portions thereof properly tendered
pursuant to the Change of Control Offer,
(2) deposit with the paying agent an amount equal to the Change of
Control Payment in respect of all portions thereof so tendered and
(3) deliver or cause to be delivered to the trustee the notes so
accepted together with an Officers' Certificate stating the aggregate
principal amount of the notes or portions thereof being purchased by us.
The paying agent will promptly mail each holder of notes so tendered the
Change of Control Payment for such notes. The trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each
holder a new note equal in principal amount to any unpurchased portion of the
notes surrendered, if any; provided that each such new note will be in a
principal amount of $1,000 or an integral multiple thereof. We will publicly
announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
The senior credit facility restricts our ability to prepay debt, including
the notes, and also provides that certain change of control events with
respect to the Company would constitute a default thereunder. In the event a
Change of Control occurs at a time when we are prohibited from purchasing
notes, we could seek the consent of our lenders under the senior credit
facility to the purchase of notes or could attempt to refinance the borrowings
under the senior credit facility. If we do not obtain such a consent or repay
such borrowings, we will remain prohibited from purchasing notes. In such
case, our failure to purchase tendered notes would constitute an Event of
Default under the indenture which would, in turn, constitute a default under
the senior credit facility.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the indenture are applicable. Except as
described above with respect to a Change of Control, the indenture does not
contain provisions that permit the holders of the notes to require us to
repurchase or redeem the notes in the event of a takeover, recapitalization or
similar transaction.
We will not be required to make a Change of Control Offer upon a Change of
Control
(1) if a third party makes the Change of Control Offer in the manner, at
the times and otherwise in compliance with the requirements set forth in
the Indenture applicable to a Change of Control Offer made by us and
purchases all notes validly tendered and not withdrawn under such Change of
Control Offer or
(2) We exercise our option to purchase all the notes upon a Change of
Control as described above under the caption "--Optional Redemption."
Certain Covenants
The indenture contains, among others, the following covenants:
Restricted Payments. We will not, and will not permit any of our Restricted
Subsidiaries to, directly or indirectly:
(1) declare or pay any dividend or make any other payment or
distribution on account of our Equity Interests including any payment in
connection with any merger or consolidation involving,
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or to the direct or indirect holders of our Equity Interests in their
capacity as such other than dividends or distributions payable in our
Qualified Capital Stock;
(2) purchase, redeem or otherwise acquire or retire for value including
in connection with any merger or consolidation, any of our Equity Interests
or any of our direct or indirect parent;
(3) purchase, repurchase, redeem, defease or otherwise acquire or retire
for value, prior to scheduled maturity, scheduled repayment or scheduled
sinking fund payment, any Subordinated Indebtedness; or
(4) make any Restricted Investment
(all such payments and other actions described in clauses (1) through (4)
above being collectively referred to as "Restricted Payments"), unless, at the
time of and after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof; and
(b) We would, at the time of such Restricted Payment and after giving
pro forma effect thereto as if such Restricted Payment had been made at the
beginning of the applicable Four-Quarter Period, have been permitted to
incur at least $1.00 of additional Indebtedness pursuant to the
Consolidated Fixed Charge Coverage Ratio test described in the first
paragraph of the covenant described below under caption "--Incurrence of
Indebtedness and Issuance of Preferred Stock"; and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by us and any of our Restricted Subsidiaries
after the date of the indenture (excluding Restricted Payments permitted by
clauses (2)(i), (3), (4), (6), (7), (8) and (9) of the next succeeding
paragraph), is less than the sum, without duplication, of
(i) 50% of our Consolidated Net Income for the period (taken as one
accounting period) from the beginning of the first fiscal quarter
commencing after the date of the indenture to the end of our most
recently ended fiscal quarter for which internal financial statements
are available at the time of such Restricted Payment (or, if such
Consolidated Net Income for such period is a deficit, less 100% of such
deficit), plus
(ii) 100% of the aggregate net proceeds (including the fair market
value of property other than cash as determined in good faith by our
Board of Directors that would constitute Marketable Securities or a
Permitted Business) received by us since the date of the indenture as a
contribution to our common equity capital (other than from a Subsidiary
or that were financed with loans from us or any Restricted Subsidiary)
or from the issue or sale of our Qualified Capital Stock (including
Capital Stock issued upon the conversion of convertible Indebtedness or
in exchange for outstanding Indebtedness) (excluding any net proceeds
from an Equity Offering or capital contribution to the extent used to
redeem notes in accordance with the optional redemption provisions of
the notes) or from the issue or sale of our Disqualified Stock or debt
securities that have been converted into Qualified Capital Stock (other
than Qualified Capital Stock (or Disqualified Stock or convertible debt
securities) sold to our Subsidiary), plus
(iii) 100% of the aggregate net proceeds (including the fair market
value of property other than cash that would constitute Marketable
Securities or a Permitted Business) of any
(A) sale or other disposition of Restricted Investments made by
us and any of our Restricted Subsidiaries or
(B) dividend from, or the sale of the stock of, an Unrestricted
Subsidiary.
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Notwithstanding the foregoing, the provisions described in the immediately
preceding paragraph will not prohibit:
(1) the payment of any dividend or the consummation of any irrevocable
redemption within 60 days after the date of declaration of such dividend or
notice of such redemption if the dividend or payment of the redemption
price, as the case may be, would have been permitted on the date of
declaration or notice;
(2) if no Default or Event of Default shall have occurred and be
continuing or shall occur as a consequence thereof, the acquisition of any
shares of our Capital Stock (the "Retired Capital Stock") or Subordinated
Indebtedness, either
(i) solely in exchange for shares of our Qualified Capital Stock
(the "Refunding Capital Stock"), or
(ii) through the application of the net proceeds of a substantially
concurrent sale for cash (other than to our Subsidiary) of shares of
our Qualified Capital Stock.
and, in the case of subclause (i) of this clause (2), if immediately prior
to the retirement of the Retired Capital Stock the declaration and payment
of dividends thereon was permitted under clause (3) of this paragraph, the
declaration and payment of dividends on the Refunding Capital Stock in an
aggregate amount per year no greater than the aggregate amount of dividends
per annum that was declarable and payable on such Retired Capital Stock
immediately prior to such retirement; provided that at the time of the
declaration of any such dividends on the Refunding Capital Stock, no
Default or Event of Default shall have occurred and be continuing or would
occur as a consequence thereof;
(3) if no Default or Event of Default shall have occurred and be
continuing or shall occur as a consequence thereof, any purchase,
repurchase, redemption, defeasance or other acquisition or retirement for
value of Subordinated Indebtedness, either
(i) solely in exchange for Subordinated Indebtedness which is
permitted to be incurred pursuant to the covenant described under
"Incurrence of Indebtedness and Issuance of Preferred Stock"; or
(ii) through the application of the net proceeds of a substantially
current sale for cash (other than to our Subsidiary) of our
Subordinated Indebtedness permitted to be incurred pursuant to the
covenant described under "'Incurrence of Indebtedness and Issuance of
Preferred Stock";
(4) if no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof, the declaration and
payment of dividends to holders of any class or series of Designated
Preferred Stock (other than Disqualified Stock) issued after the date of
the indenture (including, without limitation, the declaration and payment
of dividends on Refunding Capital Stock in excess of the dividends
declarable and payable thereon pursuant to clause (2) of this paragraph).
However, at the time of such issuance, we, after giving effect to such
issuance on a pro forma basis, must have had a Consolidated Fixed Charge
Coverage Ratio of at least 2.0 to 1.0 for the most recent Four-Quarter
Period;
(5) payments to Parent for the purpose of permitting, and in an amount
equal to the amount required to permit, Parent to redeem or repurchase
Parent's common equity or options in respect thereof, in each case in
connection with the repurchase provisions of employee stock option or stock
purchase agreements or other agreements to compensate management employees.
However, all redemptions or repurchases pursuant to this clause (5) must
not exceed $7.5 million (which amount shall be increased by the amount of
any net cash proceeds received from the sale since the date of the
indenture of Equity Interests (other than Disqualified Stock) to our
members'
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management team that have not otherwise been applied to the payment of
Restricted Payments pursuant to the terms of the preceding paragraph (c)
and by the cash proceeds of any "key-man" life insurance policies which are
used to make such redemptions or repurchases) in the aggregate since the
date of the indenture. The cancellation of indebtedness owing to us from
members of our management or any of our Restricted Subsidiaries in
connection with such a repurchase of Capital Stock of Parent will not be
deemed to constitute a Restricted Payment under the indenture;
(6) the making of distributions, loans or advances to Parent in an
amount not to exceed $750,000 per annum in order to permit Parent to pay
the ordinary operating expenses of Parent (including, without limitation,
directors' fees, indemnification obligations, professional fees and
expenses, but excluding any payments on or repurchases of the Seller Note);
(7) payments to Parent in respect of taxes pursuant to the terms of the
Tax Allocation Agreement as in effect on the date of the indenture and as
amended from time to time pursuant to amendments that do not increase the
amounts payable by us or any of our Restricted Subsidiaries thereunder;
(8) 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;
(9) payments in connection with the transactions made on the date of the
indenture;
(10) if no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof and we would be
permitted to incur at least $1.00 of additional Indebtedness (other than
Permitted Indebtedness) in compliance with the covenant described below
under the caption "--Incurrence of Indebtedness and Issuance of Preferred
Stock," other Restricted Payments in an aggregate amount not to exceed $5.0
million since the date of the indenture; and
(11) if no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof, payments to Parent to
allow Parent to contemporaneously redeem, repurchase or otherwise retire
the Seller Note. However, immediately after giving effect to such payment
on a pro forma basis, we must have had a Consolidated Fixed Charge Coverage
Ratio of at least 2.75 to 1.0.
In determining the aggregate amount of Restricted Payments made subsequent
to the date of the indenture in accordance with clause (c) of the immediately
preceding paragraph, (a) amounts expended pursuant to clauses (1), (2)(ii),
(5), (10) and (11) shall be included in such calculation. However, such
expenditures pursuant to clause (4) shall not be included to the extent of the
cash proceeds received by us from any "key man" life insurance policies and
(b) amounts expended pursuant to clauses (2)(i), (3), (4), (6), (7), (8) and
(9) shall be excluded from such calculation.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default. For
purposes of making such determination, all outstanding Investments by us and
our Restricted Subsidiaries (except to the extent repaid in cash) in the
Subsidiary so designated will be deemed to be Restricted Payments at the time
of such designation and will reduce the amount available for Restricted
Payments under the first paragraph of this covenant. All such outstanding
Investments will be deemed to constitute Investments in an amount equal to the
fair market value of such Investments at the time of such designation. Such
designation will only be permitted if such Restricted Payment would be
permitted at such time and if such Restricted Subsidiary otherwise meets the
definition of an Unrestricted Subsidiary.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by the Company or such
Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment.
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Incurrence of Indebtedness and Issuance of Preferred Stock. We will not,
and will not permit any of our Restricted Subsidiaries to, directly or
indirectly, create, incur, issue, assume, guarantee or otherwise become
directly or indirectly liable, contingently or otherwise, with respect to
(collectively, "incur") any indebtedness. In addition we will not issue any
Disqualified Stock and will not permit any of our Restricted Subsidiaries to
issue any shares of preferred stock. However, we and any Restricted Subsidiary
that is a guarantor may incur Indebtedness (including Acquired Indebtedness)
and we may issue shares of Disqualified Stock if
(i) no Default or Event of Default shall have occurred and be continuing
at the time or as a consequence of the incurrence of any such Indebtedness
or the issuance of any such Disqualified Stock and
(ii) the Consolidated Fixed Charge Coverage Ratio would have been at
least 2.0 to 1.0, determined on a pro forma basis (including the pro forma
application of the net proceeds therefrom), as if the additional
Indebtedness had been incurred, or the Disqualified Stock had been issued,
at the beginning of such Four-Quarter Period.
The provisions of the first paragraph of this covenant will not apply to
the incurrence of any of the following items of Indebtedness (collectively,
"Permitted Indebtedness"):
(i) the exchange notes (other than Additional Notes) and the guarantees
(other than in respect of Additional Notes) in an aggregate principal
amount not to exceed $140.0 million;
(ii) Indebtedness incurred pursuant to the senior credit facility in an
aggregate principal amount at any time outstanding (with letters of credit
being deemed to have a principal amount equal to our maximum potential
liability and our Subsidiaries thereunder) not to exceed $20.0 million. The
amount of Indebtedness permitted to be incurred pursuant to the senior
credit facility in accordance with this clause (ii) shall be in addition to
any Indebtedness permitted to be incurred pursuant to the senior credit
facility in reliance on, and in accordance with, clauses (vii), (ix) and
(xv) below or pursuant to the first paragraph hereof;
(iii) our other Indebtedness and that of our Subsidiaries outstanding on
the date of the Indenture for so long as such Indebtedness remains
outstanding;
(iv) Interest Swap Obligations covering our Indebtedness. However, any
Indebtedness to which any such Interest Swap Obligations correspond must
otherwise be permitted to be incurred under the indenture, and that such
Interest Swap Obligations are entered into, in our judgment, to protect us
from fluctuation in interest rates on its outstanding Indebtedness;
(v) our Indebtedness under Currency Agreements;
(vi) the incurrence by us or any of our Restricted Subsidiaries of
intercompany Indebtedness between or among us and any of our Restricted
Subsidiaries. However,
(A) if we are the obligor on such Indebtedness, such Indebtedness
must be expressly subordinated to the prior payment in full in cash of
all Obligations with respect to the exchange notes and
(B) any subsequent issuance or transfer of Equity Interests that
results in any such Indebtedness being held by a Person other than us
or our Restricted Subsidiary thereof and any sale or other transfer of
any such Indebtedness to a Person that is not either us or our
Restricted Subsidiary thereof shall be deemed, in each case, to
constitute an incurrence of such Indebtedness by us or such Restricted
Subsidiary, as the case may be, that was not permitted by this clause
(vi);
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(vii) with respect to any incurrence prior to February 28, 2001.
(A) Indebtedness incurred by us or any of our Restricted
Subsidiaries that is a guarantor to consummate an Asset Acquisition of
a Person engaged in, or assets consisting of, a Permitted Business or
(B) the incurrence of Acquired Indebtedness by us or any of our
Restricted Subsidiaries in respect of a Person engaged in a Permitted
Business in the aggregate principal amount for (A) and (B) above not to
exceed $15.0 million, in each case so long as immediately after giving
effect to such incurrence on a pro forma basis, we would have had a
Consolidated Fixed Charge Coverage Ratio that is not less than our
Consolidated Fixed Charge Coverage Ratio immediately prior to such
incurrence. In no event can our Consolidated Fixed Charge Coverage
Ratio immediately after giving effect to such incurrence on a pro forma
basis be less than our Consolidated Fixed Charge Coverage Ratio on the
date of the indenture. However, if the Consolidated EBITDA relating to
any such Asset Acquisition for the most recently ended four fiscal
quarters prior to the consummation of such Asset Acquisition is in
excess of $8.0 million of Consolidated EBITDA and our Consolidated
Fixed Charge Coverage Ratio immediately after giving effect to such
incurrence on a pro forma basis would have been greater than 1.8 to
1.0, then the $15.0 million limitation above shall not apply to such
incurrence. When calculating the Consolidated Fixed Charge Coverage
Ratio for purposes of this clause (vii) only, Pro Forma Cost Savings
shall only mean those cost savings that are directly attributable to
such Asset Acquisition and that are calculated on a basis that is
consistent with Regulation S-X under the Securities Act.
(viii) guarantees by us and the guarantors of each other's Indebtedness.
However such Indebtedness must be permitted to be incurred under the
indenture;
(ix) Indebtedness (including Capitalized Lease Obligations) incurred by
us or any of our Restricted Subsidiaries to finance the purchase, lease or
improvement of property (real or personal) or equipment (whether through
the direct purchase of assets or the Capital Stock of any Person owning
such assets) in an aggregate principal amount outstanding not to exceed the
greater of (A) $5.0 million or (B) 10% of Total Tangible Assets at the time
of any incurrence thereof (including any Refinancing Indebtedness with
respect thereto) (which amount may, but need not, be incurred in whole or
in part under the senior credit facility);
(x) Indebtedness incurred by us or any of our Restricted Subsidiaries
constituting reimbursement obligations with respect to letters of credit
issued in the ordinary course of business, including, without limitation,
letters of credit in respect of workers' compensation claims or self-
insurance, or other Indebtedness with respect to reimbursement type
obligations regarding workers' compensation claims;
(xi) Indebtedness arising from agreements by us or a Restricted
Subsidiary providing for indemnification, adjustment of purchase price,
earn out or other similar obligations, in each case, incurred or assumed in
connection with the disposition of any business, assets or a 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. The maximum
assumable liability in respect of all such Indebtedness shall at no time
exceed the gross proceeds actually received by us and our Restricted
Subsidiaries in connection with such disposition;
(xii) obligations in respect of performance and surety bonds and
completion guarantees provided by us or any Restricted Subsidiary in the
ordinary course of business;
(xiii) any refinancing, modification, replacement, renewal, restatement,
refunding, deferral, extension, substitution, supplement, reissuance or
resale (collectively, "Refinancings" and the
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term "Refinanced" shall have a correlative meaning) of existing or future
Indebtedness (other than Indebtedness incurred pursuant to clauses (ii),
(iv), (v), (vi), (viii), (ix), (x), (xi), (xii), (xiv) and (xv) of this
paragraph), including any additional Indebtedness incurred to pay interest
or premiums required by the instruments governing such existing or future
Indebtedness as in effect at the time of issuance thereof ("Required
Premiums") and fees in connection therewith ("Refinancing Indebtedness").
However, any such event must not
(1) directly or indirectly result in an increase in the aggregate
principal amount of our and our restricted subsidiaries' Permitted
Indebtedness (except to the extent such increase is a result of a
simultaneous incurrence of additional Indebtedness (A) to pay Required
Premiums and related fees or (B) otherwise permitted to be incurred
under the Indenture) and
(2) create Indebtedness with a Weighted Average Life to Maturity at
the time such Indebtedness is incurred that is less than the Weighted
Average Life to Maturity at such time of the Indebtedness being
refinanced, modified, replaced, renewed, restated, refunded, deferred,
extended, substituted, supplemented, reissued or resold;
provided, that
(x) Refinancing Indebtedness shall not include
(1) Indebtedness of a Restricted Subsidiary that is not a
guarantor that Refinances Indebtedness of ours, or
(2) Indebtedness of us or a Restricted Subsidiary that Refinances
Indebtedness of an Unrestricted Subsidiary,
(y) if the Indebtedness being Refinanced is Subordinated
Indebtedness, then such Refinancing Indebtedness shall be at least as
subordinated in right of payment to the Notes as the Indebtedness being
Refinanced, and
(z) Refinancing Indebtedness shall be secured only by assets of a
similar type and in a similar amount to those that secured the
Indebtedness so refinanced;
(xiv) the incurrence by a Securitization Entity of Indebtedness in a
Qualified Securitization Transaction that is Non-Recourse Debt with respect
to us and our other Restricted Subsidiaries (except for Standard
Securitization Undertakings); and
(xv) the incurrence of additional Indebtedness by us or any of our
Restricted Subsidiaries and/or the issuance of Permitted Domestic
Subsidiary Preferred Stock by our U.S. Subsidiaries, which together with
the aggregate principal amount of other indebtedness incurred pursuant to
this clause (xv) and the aggregate liquidation value of all other Permitted
Domestic Subsidiary Preferred Stock issued pursuant to this clause (xv),
does not exceed $10.0 million at any one time outstanding (which amount, in
the case of Indebtedness, may, but need not, be incurred in whole or in
part under the senior credit facility).
Notwithstanding the prior two paragraphs, neither we nor any of the
guarantors may incur any Indebtedness that is subordinated to any other
Indebtedness unless such Indebtedness is expressly subordinated in right of
payment to the notes and/or the guarantees, as the case may be.
For purposes of determining compliance with this covenant, in the event
that an item of indebtedness meets the criteria of more than one of the
categories of Permitted Indebtedness described in clauses (i) through (xv)
above or is entitled to be incurred pursuant to the first paragraph of this
covenant, we shall, in our sole discretion, classify such item of Indebtedness
in any manner that complies with this covenant. In addition, we 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
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we 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. Accrual of interest, accretion or
amortization of original issue discount, the payment of interest on any
Indebtedness in the form of additional Indebtedness with the same terms and
the payment of dividends on Disqualified Stock in the form of additional
shares of the same class of Disqualified Stock will not be deemed to be an
incurrence of Indebtedness or an issuance of Disqualified Stock for purposes
of this covenant; provided, in each such case, that the amount thereof is
included in Consolidated Fixed Charges of the Company as accrued. For purposes
of determining whether the requirement in clause (ii) of the first paragraph
hereof has been met, all Indebtedness incurred or permitted to be incurred
under a revolving facility shall be deemed to have been incurred on the date
such facility becomes available and not on the date of any borrowing under
such facility.
Liens. We will not, and will not permit any of our Restricted Subsidiaries
to, create, incur, assume or suffer to exist any Liens of any kind against or
upon any of our property or assets, or any proceeds therefrom, unless (i) in
the case of Liens securing Indebtedness that is expressly subordinate or
junior in right of payment to the exchange notes, the notes are secured by a
Lien on such property, assets or proceeds that is senior in priority to such
Liens and (ii) in all other cases, the notes are equally and ratably secured,
except for
(A) Liens existing as of the date of the indenture and any extensions,
renewals or replacements thereof,
(B) Liens securing (x) indebtedness incurred under the senior credit
facility and (y) Hedging Obligations so long as the only assets securing
such Hedging Obligations are assets securing the senior credit facility,
(C) Liens securing the notes and the note guarantees,
(D) Liens securing our intercompany indebtedness or of any of our
Restricted Subsidiaries on assets of any of our Subsidiaries,
(E) Liens securing indebtedness that is incurred to refinance
indebtedness that was secured by a Lien permitted under the Indenture that
was incurred in accordance with the provisions of the indenture; provided,
however, that such Liens do not extend to or cover any of our property or
assets or any of our Restricted Subsidiaries not securing the Indebtedness
so refinanced, and
(F) Permitted Liens.
Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries. We will not, and will not permit any of our Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or permit
to exist or become effective any consensual encumbrance or consensual
restriction on the ability of any Restricted Subsidiary to
(a) pay dividends or make any other distributions on or in respect of
our Capital Stock,
(b) make loans or advances or to pay any Indebtedness or other
obligation owed to us or any of our Restricted Subsidiaries or
(c) transfer any of its property or assets to us or any of our
Restricted Subsidiaries,
except for such encumbrances or restrictions existing under or by reason of:
(1) applicable law;
(2) the indenture;
(3) non-assignment provisions of any contract or any lease entered into
in the ordinary course of business;
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(4) any instrument governing Acquired Indebtedness, which encumbrance or
restriction is not applicable to any Person, or the properties or assets of
any Person, other than the Person or the properties or assets of the Person
so acquired;
(5) agreements existing on the date of the Indenture (including, without
limitation, the senior credit facility);
(6) restrictions on the transfer of assets subject to any Lien permitted
under the indenture imposed by the holder of such Lien;
(7) restrictions imposed by any agreement to sell assets or Capital
Stock permitted under the indenture to any Person pending the closing of
such sale;
(8) any agreement or instrument governing Capital Stock of any Person
that is in effect on the date such Person is acquired by us or any of our
Restricted Subsidiaries;
(9) any Purchase Money Note, or other indebtedness or other contractual
requirements of a Securitization Entity in connection with a Qualified
Securitization Transaction; provided that such restrictions apply only to
such Securitization Entity;
(10) indebtedness incurred after the date of the indenture in accordance
with the terms of the indenture; provided that the restrictions contained
in the agreements, governing such new indebtedness are ordinary and
customary with respect to the type of indebtedness being incurred (under
the relevant circumstances);
(11) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of business;
(12) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions on the property so acquired of
the nature described in clause (c) above;
(13) provisions with respect to the disposition or distribution of
assets or property in joint venture agreements and other similar agreements
entered into in the ordinary course of business;
(14) any encumbrances or restrictions imposed by any amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings of the contracts, instruments or obligations
referred to in clauses (1) through (13) above; provided that such
amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings are, in the good faith judgment of
our Board of Directors, no more restrictive with respect to such dividend
and other payment restrictions than those contained in the dividend or
other payment restrictions prior to such amendment, modification,
restatement, renewal, increase, supplement, refunding, replacement or
refinancing.
Disposition of Proceeds of Asset Sales. We will not, and will not permit
any of our Restricted Subsidiaries to, consummate an Asset Sale unless:
(i) we or our applicable Restricted Subsidiary, as the case may be,
receives consideration at the time of such Asset Sale at least equal to the
fair market value of the assets sold or otherwise disposed of (as
determined in good faith by our Board of Directors);
(ii) at least 75% of the consideration received by us or any of our
Restricted Subsidiaries, as the case may be, from such Asset Sale shall be
cash or Cash Equivalents; provided that the amount of
(a) any liabilities (as shown on our or such Restricted Subsidiary's
most recent balance sheet) of our or any such Restricted Subsidiary
(other than liabilities that are by their terms subordinated to the
notes) that are assumed by the transferee of any such assets,
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(b) any notes or other obligations received by us or any of our
Restricted Subsidiaries from such transferee that are immediately
converted by us or any of our Restricted Subsidiaries into cash (to the
extent of the cash received); and
(c) any Designated Noncash Consideration received by us or any of
our Restricted Subsidiaries in such Asset Sale having an aggregate fair
market value, taken together with all other Designated Noncash
Consideration received pursuant to this clause (c) that is at that time
outstanding, not to exceed 10% of Total Assets at the time of the
receipt of such Designated Noncash Consideration (with the fair market
value of each item of Designated Noncash Consideration being measured
by our Board of Directors in good faith at the time received and
without giving effect to subsequent changes in value)
shall be deemed to be cash for the purposes of this provision; and
(iii) upon the consummation of an Asset Sale, we shall apply, or cause
such Restricted Subsidiary to apply, the Net Cash Proceeds relating to such
Asset Sale within 365 days of receipt thereof either
(A) to repay any Indebtedness of ours or a Restricted Subsidiary
(other than Disqualified Stock or Subordinated Indebtedness) and, in
the case of any indebtedness under any revolving credit facility,
effect a commitment reduction under such revolving credit facility,
(B) to reinvest in Productive Assets, or
(C) a combination of prepayment, repurchase and investment permitted
by the foregoing clauses (iii)(A) and (iii)(B).
Pending the final application of any such Net Cash Proceeds, we or such
Restricted Subsidiary may temporarily reduce Indebtedness under a revolving
credit facility, if any, or otherwise invest such Net Cash Proceeds in Cash
Equivalents. On the 366th day after an Asset Sale or such earlier date, if
any, as our Board of Directors or of such Restricted Subsidiary determines not
to apply the Net Cash Proceeds relating to such Asset Sale as set forth in
clauses (iii)(A), (iii)(B) or (iii)(C) of the next preceding sentence (each, a
"Net Proceeds Offer Trigger Date"), the aggregate amount of Net Cash Proceeds
that have not been applied on or before such Net Proceeds Offer Trigger Date
as permitted in clauses (iii)(A), (iii)(B) and (iii)(C) of the next preceding
sentence (each a "Net Proceeds Offer Amount") shall be applied by us or such
Restricted Subsidiary to make an offer to purchase (the "Net Proceeds Offer")
on a date (the "Net Proceeds Offer Payment Date") not less than 30 nor more
than 45 days following the applicable Net Proceeds Offer Trigger Date, from
all Holders on a pro rata basis that amount of Notes equal to the Net Proceeds
Offer Amount at a price equal to 100% of the principal amount of the Notes to
be purchased, plus accrued and unpaid interest thereon, if any, to the date of
purchase; provided, however, that if at any time any non-cash consideration
received by us or any of our Restricted Subsidiaries, as the case may be, in
connection with any Asset Sale is converted into or sold or otherwise disposed
of for cash (other than interest received with respect to any such non-cash
consideration), then such conversion or disposition shall be deemed to
constitute an Asset Sale hereunder and the Net Cash Proceeds thereof shall be
applied in accordance with this covenant.
Notwithstanding the foregoing, if a Net Proceeds Offer Amount is less than
$10.0 million, the application of the Net Cash Proceeds constituting such Net
Proceeds Offer Amount to a Net Proceeds Offer may be deferred until such time
as such Net Proceeds Offer Amount plus the aggregate amount of all Net
Proceeds Offer Amounts arising subsequent to the Net Proceeds Offer Trigger
Date relating to such initial Net Proceeds Offer Amount from all Asset Sales
by us and any of our Restricted Subsidiaries aggregates at least $10.0
million, at which time we or such Restricted Subsidiary shall apply all Net
Cash Proceeds constituting all Net Proceeds Offer Amounts that have been so
deferred to make a Net Proceeds Offer (the first date the aggregate of all
such deferred Net Proceeds Offer Amounts is equal to $10.0 million or more
shall be deemed to be a "Net Proceeds Offer Trigger Date").
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Notwithstanding the two immediately preceding paragraphs, we and any of our
Restricted Subsidiaries will be permitted to consummate an Asset Sale without
complying with such paragraphs to the extent
(i) at least 75% of the consideration for such Asset Sale constitutes
Productive Assets, cash, Cash Equivalents and/or Marketable Securities and
(ii) such Asset Sale is for fair market value (as determined in good
faith by our Board of Directors);
provided that any consideration not constituting Productive Assets received by
us or any of our Restricted Subsidiaries in connection with any Asset Sale
permitted to be consummated under this paragraph shall be subject to the
provisions of the two preceding paragraphs.
Each Net Proceeds Offer will be mailed to the record Holders as shown on
the register of Holders within 25 days following the Net Proceeds Offer
Trigger Date, with a copy to the trustee, and shall comply with the procedures
set forth in the indenture. Upon receiving notice of the Net Proceeds Offer,
Holders may elect to tender their notes in whole or in part in integral
multiples of $1,000 in exchange for cash. To the extent Holders properly
tender notes in an amount exceeding the Net Proceeds Offer Amount, notes of
tendering Holders will be purchased on a pro rata basis (based on amounts
tendered). A Net Proceeds Offer shall remain open for a period of at least 20
(but not more than 30) business days or such longer period as may be required
by law. To the extent that the aggregate amount of notes tendered pursuant to
a Net Proceeds Offer is less than the Net Proceeds Offer Amount, we may use
any remaining Net Proceeds Offer Amount for general corporate purposes. Upon
completion of any such Net Proceeds Offer, the Net Proceeds Offer Amount shall
be reset at zero.
We will comply with the requirements of Rule 14e-1 under the Exchange Act
and any other securities laws and regulations thereunder to the extent such
laws and regulations are applicable in connection with the repurchase of notes
pursuant to a Net Proceeds Offer. To the extent that the provisions of any
securities laws or regulations conflict with the Asset Sale provisions of the
indenture, we shall comply with the applicable securities laws and regulations
and shall not be deemed to have breached its obligations under the Asset Sale
provisions of the Indenture by virtue thereof.
Merger, Consolidation, or Sale of Assets. We may not consolidate or merge
with or into (whether or not we are the surviving corporation), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially
all of its properties or assets in one or more related transactions, to
another corporation, Person or entity unless:
(i) we are the surviving corporation or the entity or the Person formed
by or surviving any such consolidation or merger (if other than us) or to
which such sale, assignment, transfer, lease, conveyance or other
disposition shall have been made is a corporation organized or existing
under the laws of the United States, any state thereof or the District of
Columbia;
(ii) the entity or Person formed by or surviving any such consolidation
or merger (if other than us) or the entity or Person to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have
been made assumes all our obligations under the Registration Rights
Agreement, the notes and the indenture pursuant to a supplemental indenture
in a form reasonably satisfactory to the trustee;
(iii) immediately after such transaction no Default or Event of Default
exists; and
(iv) except in the case of our merger with or into our Wholly Owned
Restricted Subsidiary and except in the case of a merger entered into
solely for the purpose of reincorporating us in another jurisdiction, we or
the entity or Person formed by or surviving any such consolidation or
merger (if other than us), or to which such sale, assignment, transfer,
lease, conveyance or other disposition
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shall have been made will, at the time of such transaction and after giving
pro forma effect thereto as if such transaction had occurred at the
beginning of the applicable Four-Quarter Period, either
(A) be permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Consolidated Fixed Charge Coverage Ratio test described
in the first paragraph of the covenant above under the caption "--
Incurrence of Indebtedness and Issuance of Preferred Stock" or
(B) have a Consolidated Fixed Charge Coverage Ratio that is not less
than the Consolidated Fixed Charge Coverage Ratio of the Company
immediately prior to such transaction;
provided that this clause (B) shall not apply if such Consolidated
Fixed Charge Coverage Ratio is less than our Consolidated Fixed Charge
Coverage Ratio as of the date of the indenture.
The indenture provides that no guarantor (other than a guarantor whose note
guarantee is to be released in accordance with the terms of its note guarantee
and the indenture as provided in the third paragraph under "Note Guarantees"
above) may consolidate with or merge with or into (whether or not such
guarantor is the surviving Person) another corporation, Person or entity
whether or not affiliated with such guarantor unless:
(i) the Person formed by or surviving any such consolidation or merger
(if other than such guarantor) assumes all the obligations of such
guarantor pursuant to a supplemental indenture in form and substance
reasonably satisfactory to the trustee, under the notes, the indenture and
the Registration Rights Agreement;
(ii) immediately after giving effect to such transaction, no Default or
Event of Default exists; and
(iii) either (A) we would be permitted by virtue of our pro forma
Consolidated Fixed Charge Coverage Ratio, immediately after giving effect
to such transaction on a pro forma basis, to incur at least $1.00 of
additional Indebtedness pursuant to the Consolidated Fixed Charge Coverage
Ratio test described in the covenant above under the caption "--Incurrence
of Indebtedness and Issuance of Preferred Stock" or (B) we, immediately
after giving effect to such transaction on a pro forma basis, would have a
Consolidated Fixed Charge Coverage Ratio that is not less than our
Consolidated Fixed Charge Coverage Ratio immediately prior to such
transaction; provided that this clause (B) shall not apply if such
Consolidated Fixed Charge Coverage Ratio is less than our Consolidated
Fixed Charge Coverage Ratio as of the date of the indenture.
Except as described in the immediately preceding paragraph, the indenture
will not prohibit the merger of two of any of our Restricted Subsidiaries or
the merger of a Restricted Subsidiary into us.
Transactions with Affiliates. We will not, and will not permit any of our
Restricted Subsidiaries to, directly or indirectly, enter into or permit to
occur any transaction or series or related transactions (including, without
limitation, the purchase, sale, lease or exchange of any property or the
rendering of any service) with, or for the benefit of, any of its Affiliates
involving aggregate consideration in excess of $2.0 million (an "Affiliate
Transaction"), other than
(x) Affiliate Transactions permitted under the following paragraph and
(y) Affiliate Transactions on terms that are not materially less
favorable than those that might reasonably have been obtained in a
comparable transaction at such time on an arm's-length basis from a Person
that is not an Affiliate of ours;
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provided, however, that for a transaction or series of related transactions
with an aggregate value of $5.0 million or more, at our option, either
(i) a majority of the disinterested members of our Board of Directors
shall determine in good faith that such Affiliate Transaction is on terms
that are not materially less favorable than those that might reasonably
have been obtained in a comparable transaction at such time on an arm's-
length basis from a Person that is not an Affiliate of ours or
(ii) our Board of Directors or any such Restricted Subsidiary party to
such Affiliate Transaction shall have received an opinion from a nationally
recognized investment banking firm that such Affiliate Transaction is on
terms not materially less favorable than those that might reasonably have
been obtained in a comparable transaction at such time on an arm's-length
basis from a Person that is not an Affiliate of ours;
provided, further, that for an Affiliate Transaction or series of related
Affiliate Transactions with an aggregate value of $10.0 million or more, our
Board of Directors or any such Restricted Subsidiary party to such Affiliate
Transaction shall have received an opinion from a nationally recognized
investment banking firm that such Affiliate Transaction is on terms not
materially less favorable than those that might reasonably have been obtained
in a comparable transaction at such time on an arm's-length basis from a
Person that is not an Affiliate of ours.
The foregoing restrictions shall not apply to:
(i) reasonable fees and compensation paid to and indemnity provided on
behalf of our, officers, directors, employees or consultants or any
Subsidiary as determined in good faith by our Board of Directors or senior
management;
(ii) transactions exclusively between or among us and any of our
Restricted Subsidiaries or exclusively between or among such Restricted
Subsidiaries; provided such transactions are not otherwise prohibited by
the indenture;
(iii) transactions effected as part of a Qualified Securitization
Transaction;
(iv) any agreement as in effect as of the date of the indenture or any
amendment or replacement thereto or any transaction contemplated thereby
(including pursuant to any amendment or replacement thereto) so long as any
such amendment or replacement agreement is not more disadvantageous to the
Holders in any material respect than the original agreement as in effect on
the date of the indenture;
(v) Restricted Payments permitted by the indenture;
(vi) the payment of customary management, consulting and advisory fees
and related expenses made pursuant to any financial advisory, financing,
underwriting or placement agreement or in respect of other investment
banking activities, including, without limitation, in connection with
acquisitions or divestitures which fees are approved by our Board of
Directors or such Restricted Subsidiary in good faith;
(vii) payments or loans to employees or consultants that are approved by
our Board of Directors in good faith;
(viii) the existence of, or the performance by us or any of our
Restricted Subsidiaries of our obligations under the terms of, any
stockholders agreement (including any registration rights agreement or
purchase agreement related thereto) to which we are a party as of the date
of the indenture and any similar agreements which we may enter into
thereafter; provided, however, that the existence of, or the performance by
us or any of our Restricted Subsidiaries of obligations under, any future
amendment to any such existing agreement or under any similar agreement
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entered into after the date of the indenture shall only be permitted by
this clause (viii) to the extent that the terms of any such amendment or
new agreement are not disadvantageous to the Holders of the notes in any
material respect;
(ix) transactions permitted by, and complying with, the provisions of
the covenant described under "--Merger, Consolidation, or Sale of Assets";
(x) transactions with customers, clients, suppliers, joint venture
partners or purchasers or sellers of goods or services, in each case in the
ordinary course of business (including, without limitation, pursuant to
joint venture agreements) and otherwise in compliance with the terms of the
indenture which are fair to us or any of our Restricted Subsidiaries, in
the reasonable determination of our Board of Directors or our senior
management, or are on terms at least as favorable as might reasonably have
been obtained at such time from an unaffiliated party; and
(xi) any transaction with Bain Capital, Inc. or its Affiliates where the
only consideration paid by us or any Restricted Subsidiary is our Capital
Stock (other than Disqualified Stock) or of the Parent.
Limitation on Guarantees by Restricted Subsidiaries. We will not cause or
permit any of our Restricted Subsidiaries (whether existing as of the date of
the indenture or created or acquired thereafter), directly or indirectly, to
guarantee the payment of any indebtedness of ours ("Other Indebtedness") or
become a primary obligor under any senior credit facility unless such
Restricted Subsidiary (A) is a guarantor or (B) simultaneously executes and
delivers a supplemental indenture to the indenture pursuant to which it will
become a guarantor under the indenture; provided that if such Other
Indebtedness is (i) pari passu in right of payment with the notes, the note
guarantee of such Restricted Subsidiary shall be pari passu in right of
payment with the guarantee of the Other Indebtedness; or (ii) Subordinated
Indebtedness, the note guarantee of such Restricted Subsidiary shall be senior
in right of payment to the guarantee of the Other Indebtedness (which
guarantee of such Subordinated Indebtedness shall provide that such guarantee
is subordinated to the note guarantee of such Restricted Subsidiary to the
same extent and in the same manner as the Other Indebtedness is subordinated
to the notes); provided, further, that each guarantor as of the date of the
indenture and each Restricted Subsidiary issuing a note guarantee after the
date of the indenture will be automatically and unconditionally released and
discharged from its obligations under such note guarantee upon the release or
discharge of, in the case of guarantors as of the date of the indenture, the
guarantee of such guarantor of the senior credit facility, and in the case of
any of our Restricted Subsidiaries issuing a note guarantee after the date of
the indenture, the guarantee of the Other Indebtedness or the primary
obligations under any senior credit facility, as applicable, that resulted in
the creation of such note guarantee; provided, however, that any such release
of a note guarantee shall only be effective if after giving effect to such
release of a note guarantee such Restricted Subsidiary will have no
Indebtedness outstanding other than (i) Indebtedness permitted to be incurred
pursuant to clause (ix) of the second paragraph of the "Incurrence of
Indebtedness and Issuance of Preferred Stock" covenant and (ii) other
Indebtedness not to exceed $5.0 million in aggregate principal amount
outstanding. We may, at any time, cause a Restricted Subsidiary to become a
Guarantor by executing and delivering a supplemental indenture providing for
the Guarantee of payment of the notes by such Restricted Subsidiary on the
basis provided in the indenture.
Conduct of Business. We will not, and will not permit any of our Restricted
Subsidiaries to, engage in any businesses a majority of whose revenues are not
derived from the same or reasonably similar, ancillary or related to, or a
reasonable extension, development or expansion of, the businesses in which we
and our Restricted Subsidiaries are engaged on the date of the indenture.
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Reports. Whether or not required by the rules and regulations of the
Commission, so long as any notes are outstanding, we will furnish to the
holders of notes
(i) all quarterly and annual financial information that would be
required to be contained in a filing with the Commission on Forms 10-Q and
10-K if we were required to file such Forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
that describes our financial condition and results of operations and that
of our consolidated Subsidiaries (showing in reasonable detail, either on
the face of the financial statements or in the footnotes thereto and in
Management's Discussion and Analysis of Financial Condition and Results of
Operations, the financial condition and our results of operations of the
Company and that of our Restricted Subsidiaries separate from the financial
condition and results of operations of our Unrestricted Subsidiaries) and,
with respect to the annual information only, a report thereon by our
certified independent accountants and
(ii) all current reports that would be required to be filed with the
Commission on Form 8-K if we were required to file such reports, in each
case within the time periods specified in the Commission's rules and
regulations.
In addition, following the consummation of the exchange offer contemplated by
the Registration Rights Agreement, whether or not required by the rules and
regulations of the Commission, we will file a copy of all such information and
reports with the Commission for public availability within the time periods
specified in the Commission's rules and regulations (unless the Commission
will not accept such a filing) and make such information available to
securities analysts and prospective investors upon request. In addition, we
and the guarantors have agreed that, for so long as any notes remain
outstanding, they will furnish to the holders and to securities analysts and
prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act.
Events of Default and Remedies.
The following events will be defined in the indenture as "Events of
Default":
(i) the failure to pay interest on any notes when the same becomes due
and payable if the default continues for a period of 30 days;
(ii) the failure to pay the principal on any notes when such principal
becomes due and payable, at maturity, upon redemption or otherwise
(including the failure to make a payment to purchase notes tendered
pursuant to a Change of Control Offer or a Net Proceeds Offer);
(iii) a default in the observance or performance of any other covenant
or agreement contained in the Indenture if the default continues for a
period of 30 days after we receive written notice specifying the default
(and demanding that such default be remedied) from the trustee or the
holders of at least 25% of the outstanding principal amount of the notes;
(iv) the failure to pay at final stated maturity (giving effect to any
extensions thereof) the principal amount of any Indebtedness of us or any
Restricted Subsidiary (other than a Securitization Entity), which failure
continues for at least 10 days, or the acceleration of the maturity of any
such Indebtedness, which acceleration remains uncured and unrescinded for
at least 10 days, if the aggregate principal amount of such Indebtedness,
together with the principal amount of any other such Indebtedness in
default for failure to pay principal at final maturity or which has been
accelerated, aggregates $5.0 million or more at any time;
(v) one or more judgments in an aggregate amount in excess $5.0 million
shall have been rendered against us or any of our Significant Subsidiaries
and such judgments remain undischarged, unpaid or unstayed for a period of
60 days after such judgment or judgments become final and non-appealable;
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(vi) except as permitted by the indenture, any note guarantee of a
Significant Subsidiary shall be held in any judicial proceeding to be
unenforceable or invalid or shall cease for any reason to be in full force
and effect or any guarantor that is a Significant Subsidiary, or any Person
acting on behalf of any guarantor, shall deny or disaffirm its obligations
under its note guarantee; and
(vii) certain events of bankruptcy affecting us or any of our
Significant Subsidiaries.
If an Event of Default with respect to the notes (other than an Event of
Default with respect to us described in clause (vii) of the preceding
paragraph) occurs and is continuing, the trustee or the holders of at least
25% in aggregate principal amount of the outstanding notes, by notice in
writing to us, may declare the unpaid principal of (and premium, if any) and
accrued interest to the date of acceleration on all the outstanding notes to
be due and payable immediately and, upon any such declaration, such principal
amount (and premium, if any) and accrued interest, notwithstanding anything
contained in the indenture or the notes to the contrary, will become
immediately due and payable. If an Event or Default specified in clause (vii)
of the preceding paragraph with respect to us occurs under the indenture, the
notes will ipso facto become immediately due and payable without any
declaration or other act on the part of the trustee or any holder of the
notes.
Subject to the provisions of the indenture relating to the duties of the
trustee, in case an Event of Default shall occur and be continuing, the
trustee will be under no obligation to exercise any of its rights or powers
under the indenture at the request or direction of any of the holders of
notes, unless such holders shall have offered to the trustee reasonable
indemnity. Subject to such provisions for the indemnification of the trustee,
the holders of a majority in aggregate principal amount of the outstanding
notes will have the right to direct the time, method and place of conducting
any proceeding for any remedy available to the trustee, or exercising any
trust or power conferred on the trustee.
Any such declaration with respect to the notes may be annulled by the
holders of a majority in aggregate principal amount of the outstanding notes
upon the conditions provided in the indenture. For information as to waiver of
defaults, see "Modification and Waiver" below.
The indenture provides that the trustee shall, within 30 days after the
occurrence of any Default or Event of Default with respect to the notes
outstanding, give the holders of the notes notice of all uncured Defaults or
Events of Default thereunder known to it; provided, however, that, except in
the case of a Default or an Event of Default in payment with respect to the
notes or a Default or Event of Default in complying with "--Certain
Covenants--Merger, Consolidation, Sale of Assets" above, the trustee shall be
protected in withholding such notice if and so long as a committee of its
trust officers in good faith determines that the withholding of such notice is
in the interest of the holders of the notes.
No holder of any note will have any right to institute any proceeding with
respect to the indenture or for any remedy thereunder, unless such holder
shall have previously given to the trustee written notice of a continuing
Event of Default thereunder and unless the holders of at least 25% of the
aggregate principal amount of the outstanding notes shall have made written
request, and offered reasonable indemnity, to the trustee to institute such
proceeding as the trustee. Also the trustee must not have received from the
holders of a majority in aggregate principal amount of such outstanding notes
a direction inconsistent with such request and shall have failed to institute
such proceeding within 60 days. However, such limitations do not apply to a
suit instituted by a holder of such a note for enforcement of payment of the
principal of and premium, if any, or interest on such note on or after the
respective due dates expressed in such note.
We will be required to furnish to the trustee annually a statement as to
the performance by it of certain of its obligations under the indenture and as
to any default in such performance.
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No Personal Liability of Directors, Officers, Employees, Incorporator and
Stockholders
No director, officer, employee, incorporator or stockholder of us or any of
our Affiliates, as such, shall have any liability for any of our obligations
or any of our Affiliates under the notes or the indenture or for any claim
based on, in respect of, or by reason of, such obligations or their creation.
Each holder of notes by accepting a note waives and releases all such
liability. The waiver and release are part of the consideration for issuance
of the notes.
Satisfaction and Discharge of Indenture; Defeasance
We may terminate our and the guarantors' substantive obligations in respect
of the notes by delivering all outstanding notes to the trustee for
cancellation and paying all sums payable by it on account of principal of,
premium, if any, and interest on all notes or otherwise. In addition, we may,
provided that no Default or Event of Default has occurred and is continuing or
would arise therefrom (or, with respect to a Default or Event of Default
specified in clause (vii) of "Events of Default" above, occurs at any time on
or prior to the 91st calendar day after the date of such deposit (it being
understood that this condition shall not be deemed satisfied until after such
91st day)) under the indenture, terminate our and the guarantors' substantive
obligations in respect of the notes (except for our obligations to pay the
principal of (and premium, if any, on) and the interest on the notes and the
guarantors' note guarantee thereof) by:
(i) depositing with the trustee, under the terms of an irrevocable trust
agreement, money or United States Government Obligations sufficient
(without reinvestment) to pay all remaining Indebtedness on such notes;
(ii) delivering to the trustee either an Opinion of Counsel or a ruling
directed to the trustee from the Internal Revenue Service to the effect
that the holders of the notes will not recognize income, gain or loss for
Federal income tax purposes as a result of such deposit and termination of
obligations;
(iii) delivering to the trustee an Opinion of Counsel to the effect that
our exercise of the option under this paragraph will not result in any of
us, the trustee or the trust created by our deposit of funds pursuant to
this provision becoming or being deemed to be an "investment company" under
the Investment Company Act of 1940, as amended (the "Investment Act"); and
(iv) complying with certain other requirements described in the
indenture.
In addition, we may, provided that no Default or Event of Default has occurred
and is continuing or would arise therefrom (or, with respect to a Default or
Event of Default specified in clause (vii) of "Events of Default" above,
occurs at any time on or prior to the 91st calendar day after the date of such
deposit (it being understood that this condition shall not be deemed satisfied
until after such 91st day)) under the indenture, terminate all of our and the
guarantors' substantive obligations in respect of the notes (including its
obligations to pay the principal of (and premium, if any, on) and interest on
the notes and the guarantors' note guarantee thereof) by:
(i) depositing with the trustee, under the terms of an irrevocable trust
agreement, money or United States Government Obligations sufficient
(without reinvestment) to pay all remaining Indebtedness on the notes;
(ii) delivering to the trustee either a ruling directed to the trustee
from the Internal Revenue Service to the effect that the holders of the
notes will not recognize income, gain or loss for federal income tax
purposes as a result of such deposit and termination of obligations or an
Opinion of Counsel addressed to the trustee based upon such a ruling or
based on a change in the applicable federal tax law since the date of the
indenture, to such effect;
(iii) delivering to the trustee an Opinion of Counsel to the effect that
our exercise of the option under this paragraph will not result in any of
us, the trustee or the trust created by our deposit of
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funds pursuant to this provision becoming or being deemed to be an
"investment company" under the Investment Act; and
(iv) complying with certain other requirements described in the
indenture.
Governing Law
The indenture, the notes and the note guarantees are governed by the laws
of the State of New York without regard to principles of conflicts of laws.
Modification and Waiver
Modifications and amendments of the indenture may be made by us, the
guarantors and the trustee with the consent of the holders of a majority in
aggregate principal amount of the outstanding Notes (including consents
obtained in connection with a tender offer or exchange offer for the notes);
provided, however, that no such modification or amendment to the indenture
may, without the consent of the holder of each note affected thereby,
(a) change the maturity of the principal of or any installment of
interest on any such note or alter the optional redemption or repurchase
provisions of any such note or the indenture in a manner adverse to the
holders of the notes;
(b) reduce the principal amount of (or the premium) of any such note;
(c) reduce the rate of or extend the time for payment of interest on any
such note;
(d) change the place or currency of payment of principal of (or premium)
or interest on any such note;
(e) modify any provisions of the indenture relating to the waiver of
past defaults (other than to add sections of the indenture or the notes
subject thereto) or the right of the holders of notes to institute suit for
the enforcement of any payment on or with respect to any such note or any
note guarantee in respect thereof or the modification and amendment
provisions of the indenture and the notes (other than to add sections of
the indenture or the notes which may not be amended, supplemented or waived
without the consent of each holder therein affected);
(f) reduce the percentage of the principal amount of outstanding notes
necessary for amendment to or waiver of compliance with any provision of
the indenture or the notes or for waiver of any Default in respect thereof;
(g) waive a default in the payment of principal of, interest on, or
redemption payment with respect to, the notes (except a rescission of
acceleration of the notes by the holders thereof as provided in the
indenture and a waiver of the payment default that resulted from such
acceleration);
(h) modify the ranking or priority of any note or the note guarantee in
respect thereof of any guarantor in any manner adverse to the holders of
the notes; or
(i) release any Significant Subsidiary that is a guarantor from any of
its obligations under its note guarantee or the indenture otherwise than in
accordance with the indenture.
Notwithstanding the foregoing, without the consent of any holder of notes,
we and the trustee may amend or supplement the indenture or the notes to
(i) cure any ambiguity, defect or inconsistency,
(ii) provide for uncertificated notes in addition to or in place of
certificated notes,
(iii) provide for the assumption of our obligations to holders of notes
in the case of a merger or consolidation or sale of all or substantially
all of our assets,
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(iv) make any change that would provide any additional rights or
benefits to the Holders of Notes or that does not adversely affect the
legal rights under the indenture of any such Holder, or
(v) comply with requirements of the Commission to effect or maintain the
qualification of the indenture under the Trust Indenture Act.
The holders of a majority in aggregate principal amount of the outstanding
notes, on behalf of all holders of notes, may waive compliance by us and the
Guarantors with certain restrictive provisions of the indenture. Subject to
certain rights of the trustee, as provided in the indenture, the holders of a
majority in aggregate principal amount of the notes, on behalf of all holders,
may waive any past default under the indenture (including any such waiver
obtained in connection with a tender offer or exchange offer for the notes),
except a default in the payment of principal, premium or interest or a default
arising from failure to purchase any notes tendered pursuant to a Change of
Control Offer or a Net Proceeds Offer, or a default in respect of a provision
that under the indenture cannot be modified or amended without the consent of
the holder of each note that is affected.
The Trustee
Except during the continuance of a Default, the trustee will perform only
such duties as are specifically set forth in the indenture. During the
existence of a Default, the trustee will exercise such rights and powers
vested in it under the indenture and use the same degree of care and skill in
its exercise as a prudent person would exercise under the circumstances in the
conduct of such person's own affairs.
The indenture and provisions of the Trust Indenture Act incorporated by
reference therein contain limitations on the rights of the trustee, should it
become a creditor of us, any guarantor or any other obligor upon the notes, to
obtain payment of claims in certain cases or to realize on certain property
received by it in respect of any such claim as security or otherwise. The
trustee is permitted to engage in other transactions with us or an Affiliate
of us; provided, however, that if it acquires any conflicting interest (as
defined in the Indenture or in the Trust Indenture Act), it must eliminate
such conflict or resign.
Certain Definitions
Described below are certain defined terms used in the indenture. Reference
is made to the indenture for a full definition of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.
"Acquired Indebtedness" means Indebtedness of a Person or any of its
Subsidiaries existing at the time such Person becomes our Restricted
Subsidiary or that is assumed by us or any of our Restricted Subsidiaries in
connection with the acquisition of assets from such Person, in each case
excluding any Indebtedness incurred by such Person in connection with, or in
anticipation or contemplation of, such Person becoming our Restricted
Subsidiary or such acquisition.
"Affiliate" means a Person who directly or indirectly through one or more
intermediaries controls, or controlled by, or is under common control with us.
The term "control" means the possession directly or indirectly, of the power
to direct or cause the direction of the management and policies of a Person
whether through the ownership of voting securities, by contract or otherwise.
Notwithstanding the foregoing, (i) no Person (other than us or any Subsidiary
of ours) in whom a Securitization Entity makes an Investment in connection
with a Qualified Securitization Transaction shall be deemed to be an Affiliate
of ours or any of our Subsidiaries solely by reason of such Investment and
(ii) neither Chase Securities Inc. nor any of its Affiliates shall be our
Affiliates.
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"all or substantially all" shall have the meaning given such phrase in the
Revised Model Business Corporation Act.
"Applicable Premium" means, with respect to any note on any redemption
date, the greater of (i) 1.0% of the principal amount of such note or (ii) the
excess of (A) the present value at such redemption date of (1) the redemption
price of such note at July 15, 2004 (such redemption price being set forth
under "--Optional Redemption") plus (2) all required interest payments due on
such note through July 15, 2004 (excluding accrued but unpaid interest),
computed using a discount rate equal to the Treasury Rate at such redemption
date plus 50 basis points over (B) the principal amount of such note, if
greater.
"Asset Acquisition" means
(a) an Investment by us or any Restricted Subsidiary of ours in any
other Person if, as a result of such Investment, such Person shall become
our Restricted Subsidiary, or shall be merged with or into us or any of our
Restricted Subsidiaries, or
(b) the acquisition by us or any of our Restricted Subsidiaries of all
or substantially all of the assets of any other Person or any division or
line of business of any other Person.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, lease (other than operating leases entered into in the ordinary
course of business), assignment or other transfer for value by us or any of
our Restricted Subsidiaries to any Person other than us or our Restricted
Subsidiaries of
(a) any Capital Stock of our Restricted Subsidiary or
(b) any other property or assets of ours or our Restricted Subsidiary
other than in the ordinary course of business;
provided, however, that Asset Sales shall not include
(i) a transaction or series of related transactions for which we or our
Restricted Subsidiaries receive aggregate consideration of less than $1.0
million;
(ii) the sale, lease, conveyance, disposition or other transfer of all
or substantially all of our assets as permitted under the provisions
described above under the caption "--Certain Covenants--Merger,
Consolidation, or Sale of Assets" or any disposition that constitutes a
Change of Control;
(iii) the sale or discount, in each case without recourse, of accounts
receivable arising in the ordinary course of business, but only in
connection with the compromise or collection thereof;
(iv) the factoring of accounts receivable arising in the ordinary course
of business pursuant to arrangements customary in the industry;
(v) the licensing of intellectual property in the ordinary course of
business;
(vi) disposals or replacements of obsolete, uneconomical, negligible,
wornout or surplus property in the ordinary course of business;
(vii) the sale, lease, conveyance, disposition or other transfer by us
or any Restricted Subsidiary of assets or property to one or more
Restricted Subsidiaries in connection with Investments permitted by the
covenant described under the caption "--Restricted Payments"; or
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(viii) sales of accounts receivable, equipment and related assets
(including contract rights) of the type specified in the definition of
"Qualified Securitization Transaction" to a Securitization Entity for the
fair market value thereof, including cash in an amount at least equal to
75% of the fair market value thereof.
For the purposes of clause (viii), Purchase Money Notes shall be deemed to be
cash.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" means
(i) in the case of a corporation, corporate stock;
(ii) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock;
(iii) in the case of a partnership or limited liability company,
partnership or membership interests (whether general or limited); and
(iv) any other interest or participation that confers on a Person the
right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
"Cash Equivalents" means:
(i) marketable direct obligations issued by, or unconditionally
guaranteed by, the United States Government or issued by any agency thereof
and backed by the full faith and credit of the United States, in each case
maturing within one year from the date of acquisition thereof;
(ii) marketable direct obligations issued by any state of the United
States of America or any political subdivision of any such state or any
public instrumentality thereof maturing within one year from the date of
acquisition thereof and, at the time of acquisition, having one of the two
highest ratings obtainable from either S&P or Moody's;
(iii) commercial paper maturing no more than one year from the date of
creation thereof and at the time of acquisition, having a rating of at
least A-1 from S&P or at least P-1 from Moody's;
(iv) certificates of deposit or bankers' acceptances (or, with respect
to foreign banks, similar instruments) maturing within one year from the
date of acquisition thereof issued by any bank organized under the laws of
the United States of America or any state thereof or the District of
Columbia, Japan or any member of the European Economic Community or any
U.S. branch of a foreign bank having at the date of acquisition thereof
combined capital and surplus of not less than $200.0 million;
(v) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clause (i) above entered
into with any bank meeting the qualifications specified in clause (iv)
above; and
(vi) investments in money market funds which invest substantially all
their assets in securities of the types described in clauses (i) through
(v) above.
"Change of Control" means the occurrence of one or more of the following
events:
(i) any sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all or substantially all of our assets
to any Person or group of related Persons, as defined in Section 13(d) of
the Exchange Act (a "Group"), whether or not otherwise in compliance with
the provisions of the indenture, other than Bain Capital, Inc. and its
Affiliates and members of the Permitted Group;
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(ii) the approval by the holders of our Capital Stock of any plan or
proposal for our liquidation or dissolution (whether or not otherwise in
compliance with the provisions of the indenture);
(iii) any Person or Group (other than Bain Capital, Inc. and its
Affiliates and members of the Permitted Group) shall become the owner,
directly or indirectly, beneficially or of record, of shares representing
more than 50% of the aggregate ordinary voting power represented by the
issued and outstanding our Voting Stock or any successor to all or
substantially all of our assets; or
(iv) the first day on which a majority of the members of our Board of
Directors of the Company or Parent are not Continuing Directors.
"Consolidated EBITDA" means, with respect to any Person, for any period,
the sum (without duplication) of such Person's
(i) Consolidated Net Income and
(ii) to the extent Consolidated Net Income has been reduced thereby,
(A) all income taxes and foreign withholding taxes of such Person
and its Restricted Subsidiaries paid or accrued in accordance with GAAP
for such period,
(B) Consolidated Interest Expense,
(C) Consolidated Noncash Charges, and
(D) any payments related to (x) addressing our or any of our
Subsidiaries' "Year 2000" information systems issues expensed in
accordance with GAAP or (y) "reengineering" efforts relating to the
installation of our point of sale system expensed in accordance with
GAAP and pursuant to the Financial Accounting Standards Board's (FASB)
Emerging Issues Task Force (EITF) Issue No. 97-13: "Accounting for
Costs Incurred in Connection with a Consulting Contract or an Internal
Project that Combines Business Process Re-engineering and Information
Technology Transformation"; provided, however, that the aggregate
amount of such payments shall not exceed $2.4 million and shall be made
on or prior to December 31, 2001.
With respect to the calculation of Consolidated EBITDA for any period prior
to the expiration of the first Four-Quarter Period subsequent to the date of
the indenture, Consolidated EBITDA shall be calculated on a pro forma basis
for the transactions in accordance with Article 11 of Regulation S-X under the
Securities Act as if the transactions were consummated on the first day of the
relevant Four-Quarter Period.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to any
Person, the ratio of Consolidated EBITDA of such Person during the most recent
four full fiscal quarters for which internal financial statements are
available (the "Four-Quarter Period") ending on or prior to the date of the
transaction giving rise to the need to calculate the Consolidated Fixed Charge
Coverage Ratio (the "Transaction Date") to Consolidated Fixed Charges of such
Person for the Four-Quarter Period. In addition to and without limitation of
the foregoing, for purposes of this definition, Consolidated EBITDA and
Consolidated Fixed Charges shall be calculated after giving effect on a pro
forma basis for the period of such calculation to
(i) the incurrence of any Indebtedness or the issuance of any preferred
stock of such Person or any of its Restricted Subsidiaries (and the
application of the proceeds thereof) and any repayment of other
Indebtedness or redemption of other preferred stock occurring during the
Four-Quarter Period or at any time subsequent to the last day of the Four-
Quarter Period and on or prior to the Transaction Date, as if such
incurrence, repayment, issuance or redemption, as the case may be (and the
application of the proceeds thereof), occurred on the first day of the
Four-Quarter period; and
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(ii) any Asset Sale or Asset Acquisition (including, without limitation,
any Asset Acquisition giving rise to the need to make such calculation as a
result of such Person or one of its Restricted Subsidiaries (including any
Person who becomes a Restricted Subsidiary as a result of the Asset
Acquisition) incurring, assuming or otherwise being liable for Acquired
Indebtedness and also including any Consolidated EBITDA (including any Pro
Forma Cost Savings) associated with any such Asset Acquisition) occurring
during the Four-Quarter Period or at any time subsequent to the last day of
the Four-Quarter Period and on or prior to the Transaction Date, as if such
Asset Sale or Asset Acquisition (including the incurrence of, or assumption
or liability for any such Indebtedness or Acquired Indebtedness) occurred
on the first day of the Four-Quarter Period.
If such Person or any of its Restricted Subsidiaries directly or indirectly
Guarantees Indebtedness of a third Person, the preceding sentence shall give
effect to the incurrence of such guaranteed Indebtedness as if such Person or
any Restricted Subsidiary of such Person had directly incurred or otherwise
assumed such guaranteed Indebtedness. Furthermore, in calculating Consolidated
Fixed Charges for purposes of determining the denominator (but not the
numerator) of this Consolidated Fixed Charge Coverage Ratio,
(1) interest on outstanding Indebtedness determined on a fluctuating
basis as of the Transaction Date and which will continue to be so
determined thereafter and shall be deemed to have accrued at a fixed rate
per annum equal to the rate of interest on such Indebtedness in effect on
the Transaction Date;
(2) if interest on any Indebtedness actually incurred on the Transaction
Date may optionally be determined at an interest rate based upon a factor
of a prime or similar rate, a eurocurrency interbank offered rate, or other
rates, then the interest rate in effect on the Transaction Date will be
deemed to have been in effect during the Four-Quarter Period; and
(3) notwithstanding clause (1) above, interest on Indebtedness
determined on a fluctuating basis, to the extent such interest is covered
by agreements relating to Interest Swap Obligations, shall be deemed to
accrue at the rate per annum resulting after giving effect to the operation
of such agreements.
"Consolidated Fixed Charges" means, with respect to any Person for any
period, the sum, without duplication, of
(i) Consolidated Interest Expense (before amortization or write-off of
debt issuance costs and before amortization of original issue discount
relating to this offering),
(ii) the amount of all dividend payments on any series of preferred
stock or Disqualified Stock of such Person (other than dividends paid in
Qualified Capital Stock), and
(iii) the amount of all dividend payments on
(x) any series of preferred stock of any Restricted Subsidiary of
such Person, and
(y) any Refunding Capital Stock of such Person, to the extent paid
pursuant to the terms of clause (2) of the second paragraph of the
covenant described under "--Certain Covenants--Restricted Payments."
"Consolidated Interest Expense" means, with respect to any Person for any
period, the sum of, without duplication,
(i) the aggregate of all cash and non-cash interest expense with respect
to all outstanding Indebtedness of such Person and its Restricted
Subsidiaries, including the net costs associated with Interest Swap
Obligations, for such period determined on a consolidated basis in
conformity with GAAP,
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(ii) the consolidated interest expense of such Person and its Restricted
Subsidiaries that was capitalized during such period, and
(iii) the interest component of Capitalized Lease Obligations paid,
accrued and/or scheduled to be paid or accrued by such Person and its
Restricted Subsidiaries during such period as determined on a consolidated
basis in accordance with GAAP.
"Consolidated Net Income" means, for any period, our aggregate net income
(or loss) and that of our Restricted Subsidiaries for such period on a
consolidated basis, determined in accordance with GAAP, provided that there
shall be excluded therefrom
(a) gains and losses from Asset Sales (without regard to the $1.0
million limitation set forth in the definition thereof) or abandonments or
reserves relating thereto and the related tax effects according to GAAP,
(b) gains and losses due solely to fluctuations in currency values and
the related tax effects according to GAAP,
(c) items classified as a cumulative effect accounting change or as
extraordinary, unusual or nonrecurring gains and losses (including, without
limitation, severance, relocation and other restructuring costs), and the
related tax effects according to GAAP,
(d) the net income (or loss) of any Person acquired in a pooling of
interests transaction accrued prior to the date it becomes our Restricted
Subsidiary or is merged or consolidated with us or our Restricted
Subsidiary,
(e) the net income of any of our Restricted Subsidiaries to the extent
that the declaration of dividends or similar distributions by that
Restricted Subsidiary of that income is restricted by contract, operation
of law or otherwise,
(f) the net loss of any Person, other than our Restricted Subsidiaries,
(g) the net income of any Person, other than any of our Restricted
Subsidiaries, except to the extent of cash dividends or distributions paid
to us or any of our Restricted Subsidiaries by such Person,
(h) only for purposes of clause (c)(i) of the first paragraph of the
covenant described under the caption "--Certain Covenants--Restricted
Payments," any amounts included pursuant to clause (c)(iii) of the first
paragraph of such covenant, and
(i) one-time non-cash compensation charges, including any arising from
existing stock options resulting from any merger, acquisition or
recapitalization transaction.
For purposes of clause (c)(i) of the first paragraph of the covenant
described under the caption "--Certain Covenants--Restricted Payments,"
Consolidated Net Income shall be reduced by any cash dividends paid with
respect to any series of Designated Preferred Stock.
"Consolidated Noncash Charges" means, with respect to any Person for any
period, the aggregate depreciation, amortization and other non-cash expenses
of such Person and its Restricted Subsidiaries reducing Consolidated Net
Income of such Person for such period, determined on a consolidated basis in
accordance with GAAP, excluding any such non-cash charge constituting an
extraordinary item or loss or any such non-cash charge which requires an
accrual of or a reserve for cash charges for any future period.
"Continuing Directors" means, as of any date of determination, any member
of our Board of Directors who (i) was a member of such Board of Directors on
the date of the indenture or (ii) was nominated for election or elected to
such Board of Directors by any of the Principals or with the approval of a
majority of the Continuing Directors who were members of such Board at the
time of such nomination or election.
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"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect us or
any of our Restricted Subsidiaries against fluctuations in currency values.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Designated Noncash Consideration" means any noncash consideration received
by us or one of our Restricted Subsidiaries in connection with an Asset Sale
that is so designated as Designated Noncash Consideration pursuant to an
Officers' Certificate executed by the principal executive officer and our
principal financial officer or of such Restricted Subsidiary. Such Officers'
Certificate shall state the basis of such valulation, which shall be a report
of a nationally recognized investment banking firm with respect to the receipt
in one or a series of related transactions of Designated Noncash Consideration
with a fair market value in excess of $10.0 million.
"Designated Preferred Stock" means Preferred Stock that is so designated as
Designated Preferred Stock, pursuant to an Officers' Certificate executed by
our principal executive officer and principal financial officer, on the
issuance date thereof, the cash proceeds of which are excluded from the
calculation set forth in clause (c) (ii) of the first paragraph of the
covenant described under the caption '"--Certain Covenants--Restricted
Payments."
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable, at the option of the holder thereof), or upon the happening of
any event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable at the option of the holder thereof, in
whole or in part, on or prior to the date that is 91 days after the date on
which the notes mature; provided, however, that any Capital Stock that would
constitute Disqualified Stock solely because the holders thereof have the
right to require us to repurchase such Capital Stock upon the occurrence of a
Change of Control or an Asset Sale shall not constitute Disqualified Stock if
the terms of such Capital Stock provide that we may not repurchase or redeem
any such Capital Stock pursuant to such provisions unless such repurchase or
redemption complies with the covenant described above under the caption "--
Certain Covenants--Restricted Payments."
"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 Offering" means any offering of Parent's or our Qualified Capital
Stock; provided that, in the event of any Equity Offering by Parent, Parent
contributes to our common equity capital (other than as Disqualified Stock)
the portion of the net cash proceeds of such Equity Offering necessary to pay
the aggregate redemption price (plus accrued interest to the redemption date)
of the notes to be redeemed.
"Four-Quarter Period" has the meaning specified in the definition of
Consolidated Fixed Charge Coverage Ratio.
"GAAP" means generally accepted accounting principles described in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date of the indenture.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without
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limitation, by way of a pledge of assets or through letters of credit or
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Guarantor" means (i) each Restricted Subsidiary in existence on the date
of the indenture and (ii) each other Restricted Subsidiary, formed, created or
acquired before or after the date of the indenture, required to become a
Guarantor after the date of the indenture, in each case subject to the
covenant described under "--Certain Covenants--Limitation on Guarantees by
Restricted Subsidiaries" above.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under
(i) interest rate swap agreements, interest rate cap agreements and
interest rate collar agreements (including Interest Swap Obligations) and
(ii) other agreements or arrangements designed to protect such Person
against fluctuations in interest rates (including Currency Agreements).
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced
by bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of
the purchase price of any property or representing any Hedging Obligations,
except any such balance that constitutes an accrued expense or trade payable,
if and to the extent any of the foregoing (other than letters of credit and
Hedging Obligations) would appear as a liability upon a balance sheet of such
Person prepared in accordance with GAAP. In addition, all Indebtedness of
others secured by a Lien on any asset of such Person (whether or not such
Indebtedness is assumed by such Person) and, to the extent not otherwise
included, the Guarantee by such Person of any indebtedness of any other
Person. Indebtedness shall also include all Disqualified Stock issued by such
Person with the amount of Indebtedness represented by such Disqualified Stock
being equal to the greater of its voluntary or involuntary liquidation
preference and its maximum fixed repurchase price, but excluding accrued
dividends, if any. The amount of any Indebtedness outstanding as of any date
shall be
(i) the accreted value thereof, in the case of any Indebtedness issued
with original issue discount, and
(ii) the principal amount thereof, together with any interest thereon
that is more than 30 days past due, in the case of any other Indebtedness.
For purposes of calculating the amount of Indebtedness of a Securitization
Entity outstanding as of any date, the face or notional amount of any interest
in receivables or equipment that is outstanding as of such date shall be
deemed to be Indebtedness but any such interests held by Affiliates of such
Securitization Entity shall be excluded for purposes of such calculation. For
purposes of this definition, the "maximum fixed repurchase price" of any
Disqualified Capital Stock which does not have a fixed repurchase price shall
be calculated in accordance with the terms of such Disqualified Capital Stock
as if such Disqualified 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
Disqualified Capital Stock, such fair market value shall be determined
reasonably and in good faith by the Board of Directors of the issuer of such
Disqualified Stock.
"Interest Swap Obligations" means the obligations of any Person, pursuant
to any arrangement with any other Person, whereby, directly or indirectly,
such Person is entitled to receive from time to time periodic payments
calculated by applying either a floating or a fixed rate of interest on a
stated notional amount in exchange for periodic payments made by such other
Persons calculated by applying a fixed or a floating rate of interest on the
same notional amount.
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"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If we or any of our Subsidiaries sells or otherwise disposes of any Equity
Interests of any of our direct or indirect Subsidiaries such that, after
giving effect to any such sale or disposition, such Person is no longer our
Subsidiary, we shall be deemed to have made an Investment on the date of any
such sale or disposition equal to the fair market value of the Equity
Interests of such Subsidiary not sold or disposed of in an amount determined
as provided in the final paragraph of the covenant described above under the
caption "--Restricted Payments."
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease
in the nature thereof, any option or other agreement to sell or give a
security interest in and any
filing of or agreement to give any financing statement under the Uniform
Commercial Code (or equivalent statutes) of any jurisdiction).
"Marketable Securities" means publicly traded debt or equity securities
that are listed for trading on a national securities exchange and that were
issued by a corporation whose debt securities are rated in one of the three
highest rating categories by either S&P or Moody's.
"Moody's" means Moody's Investors Service, Inc.
"Net Proceeds" means the aggregate cash proceeds received by us or any of
our Restricted Subsidiaries in respect of any Asset Sale (including, without
limitation, any cash received upon the sale or other disposition of any non-
cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions) and any relocation
expenses incurred as a result thereof, taxes paid or payable as a result
thereof (after taking into account any available tax credits or deductions and
any tax sharing arrangements) and any reserve for adjustment in respect of the
sale price of such asset or assets established in accordance with GAAP.
"Non-Recourse Debt" means Indebtedness
(i) as to which neither we nor any of our Restricted Subsidiaries
(a) provides credit support of any kind (including any undertaking,
agreement or instrument that would constitute Indebtedness),
(b) is directly or indirectly liable (as a guarantor or otherwise),
or
(c) constitutes the lender;
(ii) no default with respect to which (including any rights that the
holders thereof may have to take enforcement action against an Unrestricted
Subsidiary) would permit (upon notice, lapse of time or both) any holder of
any of our other Indebtedness or any of our Restricted Subsidiaries to
declare a default on such other Indebtedness or cause the payment thereof
to be accelerated or payable prior to its stated maturity; and
(iii) as to which the lenders have been notified in writing that they
will not have any recourse to our stock or assets or of any of our
Restricted Subsidiaries.
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"Obligations" means any principal, interest (including, without limitation,
Post-Petition Interest), penalties, fees, indemnifications, reimbursement
obligations, damages and other liabilities payable under the documentation
governing any Indebtedness.
"Parent" means Mattress Discounters Holding Corporation, a Virginia
corporation.
"Permitted Business" means any business (including stock or assets) that
derives a majority of its revenues from the manufacture, distribution and sale
of mattresses, foundation and other bedding products and activities that are
reasonably similar, ancillary or related to, or a reasonable extension,
development or expansion of, the businesses in which we and our Restricted
Subsidiaries are engaged on the date of the indenture.
"Permitted Domestic Subsidiary Preferred Stock" means any series of
Preferred Stock of a U.S. Subsidiary of ours that constitutes Qualified
Capital Stock and has a fixed dividend rate, the liquidation value of all
series of which, when combined with the aggregate amount of our Indebtedness
and that of our Restricted Subsidiaries incurred pursuant to clause (xvi) of
the definition of Permitted Indebtedness, does not exceed $10.0 million.
"Permitted Group" means any group of investors deemed to be a "person" (as
such term is used in Section 13(d)(3) of the Exchange Act) by virtue of the
Shareholders Agreement, as the same may be amended, modified or supplemented
from time to time, provided that
(i) Bain Capital, Inc. or one of its Affiliates is a party to such
Shareholders Agreement,
(ii) no Person party to the Shareholders Agreement as so amended,
supplemented or modified from time to time (other than Bain Capital, Inc.
and its Affiliates), together with its Affiliates, owns, directly or
indirectly, beneficially or of record, shares representing more than 50% of
the aggregate ordinary voting power represented by our issued and
outstanding Voting Stock or any successor to all or substantially all of
our assets, and
(iii) no Person party to the Shareholders Agreement as so amended,
supplemented or modified from time to time (other than Bain Capital, Inc.
and its Affiliates), together with its Affiliates, has the right, pursuant
to the Shareholders Agreement (as so amended, supplemented or modified) or
otherwise to designate more than 50% of the members of our Board of
Directors or of the Parent.
"Permitted Investments" means
(i) Investments by us or our Restricted Subsidiary in any of our
Restricted Subsidiaries that is a Guarantor for so long as it remains a
Guarantor, or any Wholly Owned Restricted Subsidiary for so long as it
remains a Wholly Owned Restricted Subsidiary (whether existing on the date
of the indenture or created thereafter), or in any other Person (including
by means of any transfer of cash or other property) if as a result of such
Investment such Person shall become our Restricted Subsidiary that is a
Guarantor or a Wholly Owned Restricted Subsidiary and Investments in us by
our Restricted Subsidiary;
(ii) cash and Cash Equivalents;
(iii) Investments existing on the date of the indenture;
(iv) loans and advances to our employees and officers and those of our
Restricted Subsidiaries in the ordinary course of business;
(v) accounts receivable created or acquired in the ordinary course of
business;
(vi) Currency Agreements and Interest Swap Obligations entered into in
the ordinary course of our businesses and otherwise in compliance with the
indenture;
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(vii) Investments in securities of trade creditors or customers received
pursuant to any plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of such trade creditors or customers;
(viii) Guarantees by us of Indebtedness otherwise permitted to be
incurred by our Restricted Subsidiaries that are Guarantors under the
indenture;
(ix) additional Investments having an aggregate fair market value, taken
together with all other Investments made pursuant to this clause (ix) that
are at that time outstanding, not to exceed 5.0% of Total Assets at the
time of such Investment (with the fair market value of each Investment
being measured at the time made and without giving effect to subsequent
changes in value);
(x) any Investment by us or any of our Subsidiaries in a Securitization
Entity or any Investment by a Securitization Entity in any other Person in
connection with a Qualified Securitization Transaction; provided that any
Investment in a Securitization Entity is in the form of a Purchase Money
Note or an equity interest;
(xi) Investments the payment for which consists exclusively of our
Qualified Capital Stock; and
(xii) Investments received by us or our Restricted Subsidiaries as
consideration for asset sales, including Asset Sales; provided that in the
case of an Asset Sale, such Asset Sale is effected in compliance with the
covenant described under the caption "--Certain Covenants--Disposition of
Proceeds of Asset Sales."
"Permitted Liens" means the following types of Liens:
(i) Liens for taxes, assessments or governmental charges or claims
either
(a) not delinquent or
(b) contested in good faith by appropriate proceedings and as to
which we or any of our Restricted Subsidiaries shall have set aside on
its books such reserves as may be required pursuant to GAAP;
(ii) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for sums not yet delinquent or
being contested in good faith, if such reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made in
respect thereof;
(iii) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
types of social security, including any Lien securing letters of credit
issued in the ordinary course of business consistent with past practice in
connection therewith, or to secure the performance of tenders, statutory
obligations, surety and appeal bonds, bids, leases, government contracts,
performance and return-of-money bonds and other similar obligations
(exclusive of obligations for the payment of borrowed money);
(iv) judgment Liens not giving rise to an Event of Default;
(v) easements, rights-of-way, zoning restrictions and other similar
charges or encumbrances in respect of real property not interfering in any
material respect with the ordinary conduct of our business or that of our
Restricted Subsidiaries;
(vi) any interest or title of a lessor under any Capitalized Lease
Obligation;
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(vii) purchase money Liens to finance our property or assets or those of
our Restricted Subsidiary acquired in the ordinary course of business;
provided, however, that
(A) the related purchase money Indebtedness shall not exceed the
cost of such property or assets and shall not be secured by any of our
property or assets or of any of our Restricted Subsidiaries other than
the property and assets so acquired and
(B) the Lien securing such Indebtedness shall be created with 90
days of such acquisition;
(viii) Liens upon specific items of inventory or other goods and
proceeds of any Person securing such Person's obligations in respect of
bankers' acceptances issued or created for the account of such Person to
facilitate the purchase, shipment, or storage of such inventory or other
goods;
(ix) Liens securing reimbursement obligations with respect to commercial
letters of credit which encumber documents and other property relating to
such letters of credit and products and proceeds thereof;
(x) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual, or warranty requirements of us or any
of our Restricted Subsidiaries, including rights of offset and set-off;
(xi) Liens securing Interest Swap Obligations or Currency Agreement
which Interest Swap Obligations or Currency Agreement relate to
Indebtedness that is otherwise permitted under the indenture;
(xii) Liens securing Indebtedness incurred in reliance on clause (vii)
of the second paragraph of the covenant described above under the caption
"--Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred
Stock" so long as such Lien extends to no assets other than the assets
acquired;
(xiii) Liens incurred in the ordinary course of our business or any of
our Restricted Subsidiaries with respect to obligations that do not in the
aggregate exceed $5.0 million at any one time outstanding;
(xiv) Liens on assets transferred to a Securitization Entity or on
assets of a Securitization Entity, in either case incurred in connection
with a Qualified Securitization Transaction;
(xv) leases or subleases granted to others that do not materially
interfere with the ordinary course of our business and any of our
Restricted Subsidiaries;
(xvi) Liens arising from filing Uniform Commercial Code financing
statements regarding leases;
(xvii) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customer duties in connection with the
importation of goods;
(xiii) Liens on assets of Unrestricted Subsidiaries that secure Non-
Recourse Debt of Unrestricted Subsidiaries; and
(xix) Liens existing on the date of the Indenture, together with any
Liens securing Indebtedness incurred in reliance on clause (xiii) of the
definition of Permitted Indebtedness in order to refinance the Indebtedness
secured by Liens existing on the date of the Indenture; provided that the
Liens securing the refinancing Indebtedness shall not extend to property
other than that pledged under the Liens securing the Indebtedness being
refinanced.
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"Pro Forma Cost Savings" means, with respect to any period, the reduction
in costs that would have been achieved during the Four-Quarter Period or after
the end of the Four-Quarter Period and on or prior to the Transaction Date
that are
(i) directly attributable to an Asset Acquisition and calculated on a
basis that is consistent with Regulation S-X under the Securities Act or
(ii) implemented or to be implemented within six months of the date of
the Asset Acquisition and that are supportable and quantifiable by the
underlying accounting records of such business,
as if, in the case of each of clause (i) and (ii), all such reductions in
costs had been effected as of the beginning of such period.
"Productive Assets" means assets (including Capital Stock) that are used or
usable by us and our Restricted Subsidiaries in Permitted Businesses.
"Purchase Money Note" means a promissory note of a Securitization Entity
evidencing a line of credit, which may be irrevocable, from us or any of our
Restricted Subsidiaries in connection with a Qualified Securitization
Transaction, which note shall be repaid from cash available to the
Securitization Entity, other than amounts required to be established as
reserves pursuant to agreements, amounts paid to investors in respect of
interest, principal and other amounts owing to such investors and amounts paid
in connection with the purchase of newly generated receivables or newly
acquired equipment.
"Qualified Capital Stock" means any Capital Stock that is not Disqualified
Stock.
"Qualified Securitization Transaction" means any transaction or series of
transactions pursuant to which we or any of our Restricted Subsidiaries may
sell, convey or otherwise transfer to (a) a Securitization Entity (in the case
of a transfer by us or any of our Restricted Subsidiaries) and (b) any other
Person (in case of a transfer by a Securitization Entity), or may grant a
security interest in, any accounts receivable or equipment (whether now
existing or arising or acquired in the future) of ours or any of our
Restricted Subsidiaries, and any assets related thereto including, without
limitation, all collateral securing such accounts receivable and equipment,
all contracts and contract rights and all Guarantees or other obligations in
respect such accounts receivable and equipment, proceeds of such accounts
receivable and equipment and other assets (including contract rights) which
are customarily transferred or in respect of which security interests are
customarily granted in connection with asset securitization transactions
involving accounts receivable and equipment.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"S&P" means Standard & Poor's.
"Securitization Entity" means our Wholly Owned Subsidiary (or another
Person in which we or our Subsidiary makes an Investment and to which we or
any of our Subsidiaries transfer accounts receivable or equipment and related
assets) that engages in no activities other than in connection with the
financing of accounts receivable or equipment and that is designated by our
Board of Directors (as provided below) as a Securitization Entity
(a) no portion of the Indebtedness or any other Obligations (contingent
or otherwise) of which
(i) is guaranteed by us or any Restricted Subsidiary of ours
(excluding guarantees of Obligations (other than the principal of, and
interest on, Indebtedness)) pursuant to Standard Securitization
Undertakings,
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(ii) is recourse to or obligates us or any Restricted Subsidiary of
ours in any way other than pursuant to Standard Securitization
Undertakings or
(iii) subjects any property or asset of ours or any Restricted
Subsidiary of ours directly or indirectly, contingently or otherwise,
to the satisfaction thereof, other than pursuant to Standard
Securitization Undertakings,
(b) with which neither we nor any Restricted Subsidiary of ours has any
material contract, agreement, arrangement or understanding other than on
terms no less favorable to us or such Restricted Subsidiary than those that
might be obtained at the time from Persons that are not our Affiliates,
other than fees payable in the ordinary course of business in connection
with servicing receivables of such entity, and
(c) to which neither we nor any Restricted Subsidiary of ours has any
obligation to maintain or preserve such entity's financial condition or
cause such entity to achieve certain levels of operating results. Any such
designation by our Board of Directors shall be evidenced to the trustee by
filing with the trustee a certified copy of the resolution of our Board of
Directors giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing conditions.
"Seller Note" means the Junior Subordinated Promissory Notes issued by
Parent to the sellers in the Recapitalization.
"Senior Credit Facility" means that certain Credit Agreement, dated as of
the date of the indenture, by and among the Company, Parent, the Guarantors,
BankBoston, N.A. and Canadian Imperial Bank of Commerce, as Co-Agents, The
Chase Manhattan Bank, as Administrative Agent, and the financial institutions
party thereto, including any related notes, guarantees, collateral documents,
instruments and agreements executed in connection therewith, and in each case
as amended (including any amendment and restatement thereof), modified,
renewed, refunded, replaced, refinanced or restructured (including, without
limitation, any amendment increasing the amount of available borrowing
thereunder) from time to time and whether with the same or any other agent,
lender or group of lenders.
"Shareholders Agreement" means, collectively that certain shareholders
agreement and that certain voting agreement, each dated as of the date of the
indenture, among Bain Capital, Inc. and the other shareholders of Parent named
as parties therein from time to time.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Act, as such Regulation is in effect on the date of the
indenture.
"Standard Securitization Undertakings" means representations, warranties,
covenants and indemnities entered into by us or any of our Subsidiaries that
are reasonably customary in an accounts receivable or equipment transactions.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations
to repay, redeem or repurchase any such interest or principal prior to the
date originally scheduled for the payment thereof.
"Subordinated Indebtedness" means, with respect to us or any Guarantor, any
Indebtedness of ours or such Guarantor, as the case may be, which is expressly
subordinated in right of payment to the notes or such Guarantor's Note
Guarantee, as the case may be.
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"Subsidiary" means, with respect to any Person,
(i) any corporation, association or other business entity of which more
than 50% of the total voting power of shares of Capital Stock entitled
(without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by such Person or one or more of the
other Subsidiaries of that Person (or a combination thereof) and
(ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or
(b) the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof), but shall not
include any Unrestricted Subsidiary.
"Tax Allocation Agreement" means the tax allocation agreement among the
Parent, any holding company of the Parent, us and our Subsidiaries dated as of
the date of the indenture.
"Total Assets" means the total consolidated assets of us and our Restricted
Subsidiaries, as described on our most recent consolidated balance sheet,
adjusted to give effect to any acquisitions or dispositions since the date of
such balance sheet (including any acquisitions for which Indebtedness is
proposed to be incurred).
"Total Tangible Assets" means Total Assets minus goodwill and other
intangibles and deferred tax assets.
"Treasury Rate" means, as of any redemption date, the yield to maturity as
of such redemption date of United States Treasury securities with a constant
maturity (as compiled and published in the most recent Federal Reserve
Statistical Release H. 15 (519) that has become publicly available at least
two Business Days prior to such redemption date (or, if such Statistical
Release is no longer published, any publicly available source of similar
market data)) most nearly equal to the period from such redemption date to
July 15, 2004; provided, however, that if the period from such redemption date
to July 15, 2004 is less than one year, the weekly average yield on actually
traded United States Treasury securities adjusted to a constant maturity of
one year shall be used.
"Unrestricted Subsidiary" means any Subsidiary that is designated by the
Board of Directors as an Unrestricted Subsidiary pursuant to a Board
Resolution, but only to the extent that such Subsidiary:
(a) has no Indebtedness other than Non-Recourse Debt;
(b) is not party to any agreement, contract, arrangement or
understanding with us or any Restricted Subsidiary of ours unless the terms
of any such agreement, contract, arrangement or understanding are no less
favorable to us or such Restricted Subsidiary than those that might be
obtained at the time from Persons who are not our Affiliates;
(c) is a Person with respect to which neither we nor any of our
Restricted Subsidiaries has any direct or indirect obligation (x) to
subscribe for additional Equity Interests or (y) to maintain or preserve
such Person's financial condition or to cause such Person to achieve any
specified levels of operating results;
(d) has not guaranteed or otherwise directly or indirectly provided
credit support for any Indebtedness of our or any of our Restricted
Subsidiaries; and
(e) has at least one director on its board of directors that is not a
director or executive officer of us or any of our Restricted Subsidiaries
and has at least one executive officer that is not a director or executive
officer of us or any of our Restricted Subsidiaries.
Any such designation by the Board of Directors shall be evidenced to the
trustee by filing with the trustee a certified copy of the Board Resolution
giving effect to such designation and an Officers'
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Certificate certifying that such designation complied with the foregoing
conditions and was permitted by the covenant described above under the caption
"Certain Covenants--Restricted Payments." If, at any time, any Unrestricted
Subsidiary would fail to meet the foregoing requirements as an Unrestricted
Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for
purposes of the indenture and any Indebtedness of such Subsidiary shall be
deemed to be incurred by our Restricted Subsidiaries as of such date (and, if
such Indebtedness is not permitted to be incurred as of such date under the
covenant described under the caption "--Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock," we shall be in default of such
covenant). Our Board of Directors may at any time designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; provided that such designation shall
be deemed to be an incurrence of Indebtedness by our Restricted Subsidiaries
of any outstanding Indebtedness of such Unrestricted Subsidiary and such
designation shall only be permitted if
(i) such Indebtedness is permitted under the covenant described under
the caption "--Certain Covenants--Incurrence of Indebtedness and Issuance
of Preferred Stock," calculated on a pro forma basis as if such designation
had occurred at the beginning of the Four-Quarter Period,
(ii) such Subsidiary shall execute a Note Guarantee and deliver an
Opinion of Counsel, in each case, if required by the terms of the Indenture
and
(iii) no Default or Event of Default would be in existence following
such designation.
"U.S. Subsidiary" means any of our Restricted Subsidiaries that is
incorporated in a State in the United States or the District of Columbia.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing
(i) the sum of the products obtained by multiplying
(a) the amount of each then remaining installment, sinking fund,
serial maturity or other required payments of principal, including
payment at final maturity, in respect thereof, by
(b) the number of years (calculated to the nearest one-twelfth) that
will elapse between such date and the making of such payment, by
(ii) the then outstanding principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall
at the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person and one or more Wholly Owned Restricted
Subsidiaries of such Person.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person and one or
more Wholly Owned Subsidiaries of such Person.
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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, $140.0 million aggregate principal
amount of notes was outstanding. We have fixed the close of business on
[ ], 2000 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
[ ], 2000, 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 [ ], 2000.
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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.
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 January 15, 2000. 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 January 15
and July 15, commencing on January 15, 2000.
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.
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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.
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.
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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.
By the authority granted by The Depository Trust Company, any The
Depository Trust Company participant which has notes credited to its The
Depository Trust Company account at any time (and held of record by The
Depository Trust Company's nominee) may directly provide a tender as though it
were the registered holder by completing, executing and delivering the
applicable letter of transmittal to the Depositary. Delivery of documents to
The Depository Trust Company does not constitute delivery to the Depositary.
All questions as to the
. validity,
. form,
. eligibility (including time of receipt),
. acceptance of tendered notes and
. withdrawal of tendered notes
will be determined by us in our sole discretion. Our determination will be
final and binding. We reserve the absolute right to reject any and all notes
not properly tendered. We reserve the absolute right to reject any notes which
would be unlawful if accepted, in the opinion of our counsel. We also reserve
the right in our sole discretion to waive any defects, irregularities or
conditions of tender as to particular notes. Our interpretation of the terms
and conditions of the exchange offer, including the instructions in the letter
of transmittal, will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of notes must be cured
within such time as we shall determine. We intend to notify holders of defects
or irregularities with respect to tenders of notes. However, neither we, the
exchange agent nor any other person shall incur any liability for failure to
give such notification. Tenders of notes will not be deemed to have been made
until such defects or irregularities have been cured or waived. Any notes
received by the exchange agent that are not properly tendered and as to which
the defects or irregularities have not been cured or waived will be returned
by the exchange agent to the tendering holders, unless otherwise provided in
the letter of transmittal, as soon as practicable following the expiration
date.
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Guaranteed Delivery Procedures
Holders who wish to tender their notes and:
(1) whose notes are not immediately available;
(2) who cannot deliver their notes, the letter of transmittal or any
other required documents to the exchange agent; or
(3) who cannot complete the procedures for book-entry transfer, prior to
the expiration date may effect a tender if:
(1) they tender through an institution that is a member firm of the
Medallion system;
(2) prior to the expiration date, the exchange agent receives from an
institution that is a member firm of the Medallion system a properly
completed and duly executed notice of guaranteed delivery (by facsimile
transmission, mail or hand delivery) setting forth the name and address of
the holder, the certificate number(s) of such notes and the principal
amount of notes tendered, stating that the tender is being made and
guaranteeing that, within five New York Stock Exchange trading days after
the expiration date, the letter of transmittal (or facsimile thereof)
together with the certificate(s) representing the notes (or a confirmation
of book-entry transfer of such notes into the exchange agent's account at
the book-entry transfer facility), and any other documents required by the
letter of transmittal will be deposited by the firm with the exchange
agent; and
(3) the exchange agent receives
(A) such properly completed and executed letter of transmittal (of
facsimile thereof),
(B) the certificate(s) representing all tendered notes in proper
form for transfer (or a confirmation of book-entry transfer of such
notes into the exchange agent's account at the book-entry transfer
facility), and
(C) all other documents required by the letter of transmittal upon
five New York Stock Exchange trading days after the expiration date.
Upon request to the exchange agent, we will send a notice of guaranteed
delivery to holders who wish to tender their notes according to the guaranteed
delivery procedures 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
on the letter of transmittal by which such notes were tendered (including
any required signature guarantees) or be accompanied by documents of
transfer sufficient to have the trustee with respect to the notes register
the transfer of notes into the name of the person withdrawing the tender;
and
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(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
(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
State Street Bank and Trust Company 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
98
<PAGE>
to the exchange agent addressed as follows:
By Overnight Courier and by Hand By Registered or Certified Mail:
State Street Bank and Trust Company State Street Bank and Trust Company
Two Avenue de Lafayette 5th Floor, P.O. Box 778 Boston, MA 02102-0078
Corporate Trust Window Boston, MA Attn: Kellie Mullen
02111-1724 Attn: Kellie
Mullen/MacKenzie Elijah
----------------
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 old
notes. The carrying value is face value net of unamortized discount, as
reflected in our accounting records on the date of exchange. Accordingly, we
will recognize 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
99
<PAGE>
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.
100
<PAGE>
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 Internal Revenue Service has been or
will be sought. Legislative, judicial or administrative changes or
interpretations may be forthcoming that could alter or modify the following
statements and conditions. Any changes or interpretations may or may not be
retroactive and could affect the tax consequences to holders. Some holders,
including insurance companies, tax-exempt organizations, financial
institutions, broker-dealers, foreign corporations and persons who are not
citizens or residents of the United States, may be subject to special rules
not discussed below. We recommend that each holder consult that holder's own
tax advisor as to the particular tax consequences of exchanging that holder's
old notes for exchange notes, including the applicability and effect of any
state, local or foreign tax laws.
Kirkland & Ellis, our counsel, 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 that
holder. Accordingly, there will be no federal income tax consequences to
holders solely as a result of the exchange of the old notes for exchange notes
under the exchange offer.
101
<PAGE>
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 [ ], 2000, 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 Mattress Discounters 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.
102
<PAGE>
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 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 issuance of the exchange notes
will be passed upon for us by Kirkland & Ellis, New York, New York, including
(1) our existence and good standing under our state of incorporation
(2) our authorization of the sale and issuance of the exchange notes and
(3) the enforceability of the exchange notes.
Certain partners of Kirkland & Ellis indirectly own a portion of the equity
of Holdings.
EXPERTS
The combined financial statements of Mattress Discounters Corporation,
T.J.B., Inc. and Bedding Experts, Inc. as of February 28, 1999 and 1998, and
for the year ended February 28, 1999, the period from July 2, 1997 to February
28, 1998, and the period from December 29, 1996 to July 1, 1997, appearing in
this prospectus have been included in the exchange offer registration
statement in reliance on the report of Deloitte & Touche LLP, independent
certified public accountants (which contains an explanatory paragraph that
describes that the combined financial statements have been prepared from the
separate records maintained by the Company and may not necessarily be
indicative of the conditions that would have existed or the results of
operations if the Company had been operated as an unaffiliated entity and
describes that portions of certain income and expenses represent allocations
made from Heilig-Meyers Company applicable to the Company) appearing herein,
upon the authority of that firm as experts in accounting and auditing.
The combined financial statements of Mattress Discounters Corporation and
T.J.B., Inc. as of July 1, 1997 and for the period from December 29, 1996 to
July 1, 1997, appearing in this prospectus have been included in the exchange
offer registration statement in reliance on the report of Deloitte & Touche
LLP, independent certified public accountants, as stated in their report
appearing herein, upon the authority of that firm as experts in accounting and
auditing.
103
<PAGE>
The combined financial statements of MDC as of December 28, 1996 and for
the year then ended, appearing in this prospectus have been included in the
exchange offer registration statement in reliance on the report of KPMG LLP,
independent certified public accountants, upon the authority of that firm as
experts in accounting and auditing.
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
Mattress Discounters 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.
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.
As a result of the filing of the exchange offer registration statement, we
will become subject to the informational requirements of the Securities
Exchange Act of 1934, 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 we file 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,"
104
<PAGE>
"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 11 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, market research reports regarding
consumer habits, analyst reports and other publicly available information.
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.
Comfort Source(R), Royal Comfort Collection(R), Mattress Discounters(R),
The Bedding Experts(R) and the jingle "Have a Good Night's Sleep on Us"(R) are
trademarks used by us. Trademarks and tradenames of other companies appearng
in this prospectus are the property of their respective holders.
105
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Mattress Discounters Corporation and Subsidiaries
Condensed Consolidated Interim Financial Statements (unaudited):
Condensed Consolidated Balance Sheets as of November 30, 1999
(unaudited) and February 28, 1999 ..................................... F-2
Condensed Consolidated Statements of Operations for the nine months
ended November 30, 1999 and 1998 (unaudited)........................... F-3
Condensed Consolidated Statements of Cash Flows for the nine months
ended November 30, 1999 and 1998 (unaudited)........................... F-4
Condensed Consolidated Statement of Stockholder's Equity for the nine
months ended November 30, 1999 (unaudited)............................. F-5
Notes to Condensed Consolidated Financial Statements (unaudited)........ F-6
Mattress Discounters Corporation, T.J.B., Inc., and The Bedding Experts,
Inc.
Combined Financial Statements:
Independent Auditors' Report............................................ F-12
Combined Balance Sheets as of February 28, 1999 and 1998................ F-13
Combined Statements of Operations and Retained Earnings for the year
ended February 28, 1999, the period from July 2, 1997 to February 28,
1998, and the period from December 29, 1996 to July 1, 1997............ F-14
Combined Statements of Cash Flows for the year ended February 28, 1999,
the period from July 2, 1997 to February 28, 1998, and the period from
December 29, 1996 to July 1, 1997...................................... F-15
Notes to Combined Financial Statements.................................. F-16
Mattress Discounters Corporation and T.J.B., Inc.
Combined Financial Statements:
Independent Auditors' Report............................................ F-28
Combined Balance Sheet as of July 1, 1997............................... F-29
Combined Statement of Operations and Retained Earnings for the period
from December 29, 1996 to July 1, 1997................................. F-30
Combined Statement of Cash Flows for the period from December 29, 1996
to July 1, 1997........................................................ F-31
Notes to Combined Financial Statements.................................. F-32
Combined Financial Statements:
Independent Auditors' Report............................................ F-37
Combined Balance Sheet as of December 28, 1996.......................... F-38
Combined Statement of Earnings and Comprehensive Income for the year
ended December 28, 1996................................................ F-39
Combined Statement of Changes in Stockholders' Equity for the year ended
December 28, 1996...................................................... F-40
Combined Statement of Cash Flows for the year ended December 28, 1996... F-41
Notes to Combined Financial Statements.................................. F-42
</TABLE>
F-1
<PAGE>
MATTRESS DISCOUNTERS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
As of November 30, 1999 and February 28, 1999
<TABLE>
<CAPTION>
November 30, February 28,
1999 1999
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................ $ 8,595,656 $ 1,365,805
Accounts receivable.............................. 5,908,824 5,681,413
Inventories...................................... 14,750,553 13,780,944
Prepaid expenses and other current assets........ 789,066 308,583
Due from affiliate............................... -- 7,251,161
Deferred tax asset - current..................... 6,948,326 970,394
------------ -----------
Total current assets........................... 36,992,425 29,358,300
PROPERTY AND EQUIPMENT, NET........................ 10,344,348 10,839,814
DEBT ISSUE COSTS AND OTHER ASSETS.................. 10,237,774 641,223
GOODWILL AND OTHER INTANGIBLES, NET................ 56,324,622 58,464,190
DEFERRED TAX ASSET................................. 84,615,852 374,852
------------ -----------
Total Assets................................... $198,515,021 $99,678,379
============ ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt and capital
lease obligations............................... $ 83,212 $ 229,838
Accounts payable................................. 16,889,321 $17,474,386
Accrued expenses................................. 13,910,368 9,446,587
------------ -----------
Total current liabilities...................... 30,882,901 27,150,811
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS,
EXCLUDING CURRENT PORTION......................... 133,297,887 425,883
OTHER NONCURRENT LIABILITIES....................... 5,032,446 4,967,462
------------ -----------
Total liabilities.............................. 169,213,234 32,544,156
------------ -----------
STOCKHOLDER'S EQUITY:
Common Stock..................................... 29,050 29,050
Additional paid-in capital....................... 30,685,645 46,047,515
Retained earnings (accumulated deficit).......... (1,412,908) 21,057,658
------------ -----------
29,301,787 67,134,223
------------ -----------
Total Liabilities and Stockholder's Equity..... $198,515,021 $99,678,379
============ ===========
</TABLE>
See notes to condensed consolidated financial statements.
F-2
<PAGE>
MATTRESS DISCOUNTERS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Nine Months Ended November 30, 1999 and 1998
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
November 30, November 30,
1999 1998
----------------- -----------------
(Unaudited) (Unaudited)
<S> <C> <C>
NET SALES.................................. $198,053,337 $185,863,404
COST OF SALES.............................. 127,575,238 115,652,588
------------ ------------
GROSS PROFIT............................... 70,478,099 70,210,816
GENERAL AND ADMINISTRATIVE EXPENSES........ 54,729,905 50,770,049
NONRECURRING OPERATING EXPENSES............ 4,556,313 --
------------ ------------
INCOME FROM OPERATIONS..................... 11,191,881 19,440,766
OTHER INCOME (EXPENSE):
Interest income.......................... 159,911 190,524
Interest expense......................... (6,478,970) (59,039)
Other, net............................... (97,500) 285,132
------------ ------------
INCOME BEFORE PROVISION FOR INCOME TAXES... 4,775,322 19,857,383
PROVISION FOR INCOME TAXES................. 2,636,933 8,415,568
------------ ------------
NET INCOME................................. $ 2,138,389 $ 11,441,815
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
F-3
<PAGE>
MATTRESS DISCOUNTERS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended November 30, 1999 and 1998
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
November 30, November 30,
1999 1998
----------------- -----------------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................... $ 2,138,389 $11,441,815
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities:
Compensation expense in connection with
the Recapitalization................... 3,825,000 --
Depreciation and amortization.......... 3,695,209 3,364,177
Accretion of discount on Senior Notes.. 197,352 --
Amortization of debt issue costs....... 415,380 --
Deferred income taxes.................. (1,915,932) 409,999
Loss on disposition of property and
equipment.............................. 40,926 470,723
Changes in operating assets and
liabilities:
Accounts receivable.................. 1,788,622 1,395,210
Inventories.......................... (969,609) (395,744)
Prepaid expenses and other assets.... (480,483) 27,928
Due to/from parent/affiliate......... (16,658,562)
Accounts payable..................... (585,065) (6,730,902)
Accrued expenses..................... 8,830,337 7,203,248
Other noncurrent liabilities......... 64,984 (1,106,744)
------------ -----------
Net cash provided by (used in)
operating activities............... 17,045,110 (578,852)
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment expenditures...... (2,107,411) (4,079,048)
Proceeds from sale of property and
equipment............................... 17,189 20,528
Expenditures for intangible assets; (10,880) (297,508)
Due to/from parent/affiliate............. (741,661) --
Other.................................... (46,933) --
------------ -----------
Net cash used in investing
activities........................ (2,889,696) (4,356,028)
------------ -----------
CASH FLOWS FROM FINANCIAL ACTIVITIES:
Payments on long-term debt............... (94,139) (102,490)
Long-term debt borrowings................ 132,727,800 35,133
Payments on capital lease obligations.... (105,635) (135,794)
Revolving line of credit borrowings...... 5,204,900 --
Payments on revolving line of credit
borrowings.............................. (5,204,900) --
Payment of debt issue costs.............. (9,964,998) --
Distribution to Heilig in connection with
Recapitalization........................ (1,675,587) --
Dividend to Holdings..................... (130,001,035) --
Capital contributions from Holdings...... 2,200,000 --
Other, net............................... (11,969) --
------------ -----------
Net cash used in financing
activities........................ (6,925,563) (203,151)
------------ -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS............................... 7,229,851 (5,138,031)
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD.................................... 1,365,805 5,503,230
------------ -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD... $ 8,595,656 $ 365,199
============ ===========
</TABLE>
See notes to condensed consolidated financial statements.
F-4
<PAGE>
MATTRESS DISCOUNTERS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
For the Nine Months Ended November 30, 1999 (unaudited)
<TABLE>
<CAPTION>
Additional Total
Common Paid-In Retained Stockholder's
Stock Capital Earnings Equity
------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Balances as of February
28, 1999................. $29,050 $ 46,047,515 $ 21,057,658 $ 67,134,223
Distribution to Heilig-
Meyers Company........... (3,341,790) (3,341,790)
Capital Contribution from
Mattress Holding
Corporation.............. 2,200,000 2,200,000
Stepped-up tax basis
related to the
recapitalization......... 88,303,000 88,303,000
Compensatory stock
options, net of tax
benefits................. 2,869,000 2,869,000
Dividend to Mattress
Holding Corporation...... (105,392,080) (24,608,955) (130,001,035)
Net income................ 2,138,389 2,138,389
------- ------------- ------------ -------------
Balances as of November
30, 1999................. $29,050 $ 30,685,645 $ (1,412,908) $ 29,301,787
======= ============= ============ =============
</TABLE>
See notes to condensed consolidated financial statements.
F-5
<PAGE>
MATTRESS DISCOUNTERS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements at
November 30, 1999, and the periods presented herein include the accounts of
Mattress Discounters Corporation ("Mattress Discounters"), and its wholly
owned subsidiaries T.J.B., Inc. ("T.J.B."), and The Bedding Experts, Inc.
("Bedding Experts") (collectively referred to as the "Company"). All
significant intercompany accounts and transactions of the Company have been
eliminated. The financial position and operating results of the entities for
periods prior to August 5, 1999, were combined in the financial statements as
each entity was under common ownership and control by Heilig-Meyers Company
("Heilig-Meyers") through August 5, 1999. Immediately prior to the closing of
the recapitalization of the Company's parent (see Note 2) on August 6, 1999,
Heilig-Meyers contributed all of the issued and outstanding stock of Mattress
Discounters, T.J.B. and Bedding Experts to the capital of Heilig-Meyers
Associates, Inc., a Virginia corporation ("HMA"). Immediately after this
capital contribution, Mattress Discounters, T.J.B. and Bedding Experts became
wholly owned subsidiaries of HMA. Immediately after the recapitalization of
the Company's parent (see Note 2), the issued and outstanding stock of T.J.B.
and Bedding Experts was contributed to the capital of Mattress Discounters.
Accordingly, subsequent to August 6, 1999, the financial statements have been
consolidated. For consistency of presentation, the combined financial
statements throughout this quarterly report are referred to as consolidated,
rather than combined financial statements. However, the existence of common
ownership and control of the entities through August 5, 1999, could have
resulted in operating results or financial position of the entities that would
be significantly different from those that would have been achieved if the
enterprises were autonomous.
The accompanying unaudited condensed consolidated financial statements
should be read together with the audited combined financial statements for the
year ended February 28, 1999.
The accompanying unaudited condensed consolidated financial statements
contain all adjustments which, in the opinion of management, are necessary to
present fairly the financial position of the Company at November 30, 1999, and
its results of operations and cash flows for the periods presented herein. All
adjustments in the periods presented herein are normal and recurring in
nature.
On November 5, 1999, the Company elected to change its fiscal year end from
the last day of February to the closest Saturday to December 31, beginning
with the year ended January 1, 2000.
2. Parent's Recapitalization
On May 28, 1999, Heilig-Meyers entered into a transaction agreement (the
"Transaction Agreement") with HMA and MD Acquisition Corporation, a transitory
Virginia merger corporation ("MDAC"). Heilig-Meyers owned 100% of the stock of
Mattress Discounters, T.J.B. and Bedding Experts. Pursuant to the Transaction
Agreement, upon the satisfaction of certain conditions, and after all of the
issued and outstanding shares of Mattress Discounters, T.J.B. and Bedding
Experts had been contributed to the capital of HMA, MDAC was merged with and
into HMA, with HMA being the surviving corporation, subsequently changing its
name to Mattress Holding Corporation ("Holdings"), effective on August 6, 1999
(the "Closing Date"). HMA was recapitalized (the "Recapitalization") whereby
certain equity investors acquired an approximate 92.7% economic and voting
equity stake in HMA. Pursuant to the merger, the issued and outstanding shares
of common stock of HMA were converted into the right to receive (i) a number
of shares of fully paid and nonassessable shares of Holdings, the surviving
corporation, that immediately following the Closing Date represented
approximately 7.3% of each class of the issued and outstanding common stock of
Holdings; (ii) $204.2 million in cash and (iii) a $10.0 million principal
amount 10% junior subordinated promissory note and a $7.5 million principal
amount 12% junior subordinated promissory note issued by Holdings.
F-6
<PAGE>
MATTRESS DISCOUNTERS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Concurrent with the Recapitalization of Holdings the Company issued 140,000
units consisting of $140 million of Mattress Discounters Corporation senior
notes due 2007 (the "Senior Notes") and warrants to purchase 679,000 shares of
Class A common stock and 75,460 shares of Class L common stock of Holdings
(the "Warrants"); and entered into a $20 million senior credit facility (the
"Senior Credit Facility") of which approximately $5.2 million was drawn at the
Closing Date (see Note 4).
In connection with the Transaction Agreement, certain of the Company's
management were granted "in the money" stock options to purchase shares of
Class A and Class L common stock of Holdings with an intrinsic value of
approximately $2.9 million ("Management Stock Options") together with deferred
compensation benefits of approximately $0.9 million. This resulted in a pretax
charge of $3.8 million that was recognized by the Company during the three
month period ended August 31, 1999.
In addition to the above pretax charge, the Company has recorded the
following transactions resulting from the consummation of the Transaction
Agreement:
(i) The deemed settlement and net distribution from capital of the note
receivable from Heilig-Meyers of $5,976,790, the elimination and
distribution of current taxes payable to Heilig-Meyers of $4,322,556,
and the distribution of excess cash at the Closing Date of $1,675,587
to Heilig-Meyers
(ii) The establishment of deferred income taxes and additional paid in
capital of approximately $88.3 million resulting from a new basis in
the Company's assets for income tax reporting purposes as a result of
the parties to the Transaction Agreement electing to treat the
transactions as a taxable event pursuant to section 338(h)(10) of the
Internal Revenue Code;
(iii) The payment of financing fees of approximately $10 million, which
have been deferred in the consolidated balance sheet;
(iv) The contribution of capital from Holdings representing the granting of
the Management Stock Options and the Warrants in Holdings' common
stock; and
(v) The dividend distribution of approximately $130.0 million from the
Company to Holdings to partially fund the Recapitalization of Holdings.
As a result of the recapitalization, $1.165 million of receivables from
Heilig-Meyers have been included in accounts receivable as of November 30,
1999.
Subsequent to the Closing, Holdings submitted its claim for a working
capital adjustment to Heilig-Meyers under the Transaction Agreement. In
connection with the working capital adjustment, on December 22, 1999, Heilig-
Meyers agreed to pay to Holdings $1,953,135, which Holdings advanced to the
Company. In addition, Heilig-Meyers agreed to reduce the outstanding principal
amount of its $7.5 million 12% Junior Subordinated Promissory Note of Holdings
to $5.875 million, and to discharge certain lease obligations of the Company
aggregating approximately $42,000.
3. Inventories
Inventories are summarized as follows:
<TABLE>
<CAPTION>
February
November 30, 28,
------------ -----------
1999 1999
------------ -----------
<S> <C> <C>
(Unaudited)
Finished Goods........................................ $ 12,818,470 $12,251,925
Work In Process....................................... 301,888 283,192
Raw Materials......................................... 1,630,195 1,245,827
------------ -----------
$14,750,553 $13,780,944
============ ===========
</TABLE>
F-7
<PAGE>
MATTRESS DISCOUNTERS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4. Senior Credit Facility
On August 6, 1999, the Company entered into a new credit agreement with a
consortium of banks (the "Senior Credit Facility"), to finance a portion of
the Recapitalization and to provide available borrowings for use in the normal
course of business. The Senior Credit Facility provides for revolving loans
for up to $20.0 million, including letters of credit of up to $5.0 million.
The interest rate under the Senior Credit Facility is either: (1) the base
rate, which is the higher of the prime lending rate, 1% in excess of the
secondary market rate for three-month depository certificates or 0.5% in
excess of the Federal funds effective rate, plus a margin or (2) Eurodollar
rate plus a margin. The margins of the loans under the Senior Credit Facility
will be established and then will vary according to a pricing grid based upon
the achievement of performance targets. Commitment fees are payable at a rate
per annum of 0.5% on the undrawn amounts of the revolving loans but may be
reduced depending upon the achievement of performance targets, as defined by
the Senior Credit Facility.
The Senior Credit Facility requires that the Company meet certain financial
covenants which include a maximum total debt ratio and a minimum interest
coverage ratio. In addition, the Senior Credit Facility contains restrictions,
subject to certain exceptions, including, but not limited to engaging in
transactions with affiliates; prepaying subordinated debt and the Senior
Notes; incurring indebtedness and liens; declaring dividends or redeeming or
repurchasing capital stock; making loans and investments; engaging in mergers,
acquisitions, consolidations and asset sales; and making capital expenditures.
The revolving loans under the Senior Credit Facility are due in August 2005.
The Senior Credit Facility is subject to mandatory prepayment in a variety
of circumstances, including upon certain asset sales and financing
transactions, and, also from excess cash flow (as defined in the Senior Credit
Facility).
Mattress Discounters' direct and indirect subsidiaries and Holdings have
guaranteed the Company's obligations under the Senior Credit Facility. The
Senior Credit Facility is collateralized by substantially all assets of the
Company.
5. Long-Term Debt
On August 6, 1999, the Company issued 140,000 Units consisting of $140
million aggregate principal amount of 12 5/8% Senior Notes ("Senior Notes")
due 2007 of Mattress Discounters and separately transferable warrants (the
"Warrants") to purchase an aggregate of 679,000 shares of Class A common stock
and 75,460 shares of Class L common stock of Holdings.
The Senior Notes require interest payments on January 15 and July 15 of
each year, starting on January 15, 2000. The notes are guaranteed on a senior
uncollateralized basis by T.J.B. and Bedding Experts and, to the extent
applicable, future domestic subsidiaries of the Company.
Except as discussed below, the Company may not redeem the Senior Notes
prior to July 15, 2004. The Company may redeem the Senior Notes, in whole or
in part, on or after July 15, 2004, at redemption prices of 106.313%,
103.156%, and 100%, if redeemed during the 12-month period beginning on July
15, 2004, 2005 and 2006, respectively, plus accrued and unpaid interest, if
any, to the date of repurchase. In addition, any time prior to July 15, 2002,
the Company may redeem up to 35% of the Senior Notes at a redemption price
equal to 112.625% of the principal amount, plus accrued and unpaid interest,
with the net proceeds of equity issuances, provided that at least 65% of the
aggregate principal amount of the Senior Notes originally issued remains
outstanding immediately after each such redemption.
F-8
<PAGE>
MATTRESS DISCOUNTERS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Upon the occurrence of a "Change of Control," as defined by the indenture
related to the Senior Notes, the Company will be required to make an offer to
repurchase each holder's Senior Notes in whole or in part at a price equal to
101% of the principal amount thereof, plus accrued and unpaid
interest, if any, to the date of repurchase. In addition, upon occurrence of a
"Change of Control" occurring prior to July 15, 2004, the Company may redeem
all of the Senior Notes at a redemption price equal to 100% of the principal
amount thereof plus the Applicable Premium, as defined, plus accrued and
unpaid interest, if any, to the date of repurchase.
The Senior Notes contain certain restrictions, including, but not limited
to, limits on additional indebtedness and preferred stock; limits on
restricted payments; limits on transactions with affiliates; limits on liens;
limits on dividends and other payment restrictions affecting subsidiaries; and
restrictions on consolidations, mergers and the sale of assets.
The Warrants will entitle the holders thereof to acquire an aggregate of
679,000 shares of Holdings' Class A common stock and 75,460 shares of
Holdings' Class L common stock, representing approximately 5% of Holdings'
fully diluted common stock immediately after giving effect to the consummation
of the Transaction Agreement. The Warrants will expire on July 15, 2007 (the
"Expiration Date"). Each Warrant will entitle the holder to acquire, on or
after the Exercisability Date (as defined below) and prior to the Expiration
Date, 4.850 shares of Holdings' Class A common stock and 0.539 shares of
Holdings' Class L common stock at a price equal to $0.01 per share, subject to
adjustment from time to time upon the occurrence of certain changes in the
Class A common stock and Class L common stock and certain issuances of Class A
common stock and Class L common stock, options or convertible securities of
Holdings.
The "Exercisability Date" means the first day that any of the following has
occurred: (i) upon the closing of an Initial Public Offering; (ii) a class of
equity securities of Holdings is listed on a national securities exchange or
authorized for quotation on the Nasdaq National Market or is otherwise subject
to registrations under the Exchange Act, or (iii) the date at which the
Warrants become separately transferable.
The net proceeds from the sale of the Notes and Warrants was $134.9
million. Holdings and the Company have determined that approximately $2.2
million of the net proceeds should be allocated to the Warrants, based on the
relative fair values of the Notes and Warrants. Accordingly, this amount has
been reflected in the Company's financial statements as a contribution of
capital from Holdings.
6. Income Taxes
Mattress Discounters and Heilig-Meyers entered into a Tax Agreement in
conjunction with the Transaction Agreement. The Tax Agreement requires Heilig-
Meyers to be responsible for and to pay all taxes resulting from pre-August 6,
1999 operations, including any federal and state income tax attributable to
the making of an Internal Revenue Code section 338(h)(10) election. The
Company shall be responsible for and pay all taxes resulting from post-August
5, 1999 operations.
As a result of the 338(h)10 election, the Company stepped up its tax basis,
which resulted in recognition of a deferred tax asset of $88.3 million,
comprised primarily of future tax goodwill amortization deductions and
differences between the tax and book basis for inventory. Management believes
that it is more likely than not that the tax benefit will be realized. The
total amount of future taxable income necessary to realize the asset is
approximately $220.0 million. The Company expects to realize this asset by
generating future taxable income. Failure to achieve forecasted taxable income
might affect the ultimate realization of the net deferred tax assets.
F-9
<PAGE>
MATTRESS DISCOUNTERS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The provision for income taxes in the consolidated financial statements
reflects tax calculations on a separate company basis and does not reflect
actual taxes owed by the Company on the Heilig-Meyers consolidated tax return
through August 5, 1999.
The provision for income taxes for the nine months ended November 30, 1999
increased compared to the nine months ended November 30, 1998, due to
increased state income taxes and nondeductible goodwill as a percentage of
income before the provision for income taxes.
7. Segment Information
The Company evaluates performance based on the operating earnings of the
following two business segments:
Retail - Sale of mattresses and bedding products through 250 and 231 retail
locations as of November 30, 1999 and 1998, respectively.
Manufacturing - Manufacture and sale of mattresses, box springs and
foundations to the retail segment and to Heilig-Meyers and affiliates at
current market prices.
Summarized financial information concerning the Company's reportable
segments is shown in the following table (amounts in thousands):
<TABLE>
<CAPTION>
Retail Manufacturing Consolidated
-------- -------------------------------- ------------
Retail Third Interco.
Period Segment Parties Total Elim
------ ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues
9 months ended 11/30/99........... $189,477 $31,110 $8,576 $39,686 $(31,110) $198,053
9 months ended 11/30/98........... 184,467 29,853 1,396 31,249 (29,853) 185,863
</TABLE>
<TABLE>
<CAPTION>
Period Retail Manufacturing Corporate/Other Consolidated
------ ------- ------------- --------------- ------------
<S> <C> <C> <C> <C>
Segment profit (1)
9 months ended 11/30/99.......... $ 2,492 $8,602 -- $11,094
9 months ended 11/30/98.......... 14,010 5,716 -- 19,726
Depreciation and Amortization
9 months ended 11/30/99.......... 2,931 764 3,695
9 months ended 11/30/98.......... 2,752 612 3,364
Capital expenditures
9 months ended 11/30/99.......... 1,762 345 -- 2,107
9 months ended 11/30/98.......... 2,751 1,328 -- 4,079
Identifiable assets (2)
November 30, 1999................ 20,562 4,651 $173,302 198,515
February 28, 1999................ 20,466 4,155 75,057 99,678
</TABLE>
F-10
<PAGE>
MATTRESS DISCOUNTERS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) Segment profit represents earnings before interest and the provision for
income taxes.
(2) Identifiable assets represent only inventories and net property and
equipment in the retail and manufacturing segments. All other assets are
included in Corporate/Other. For management purposes, depreciation and
amortization of corporate identifiable assets are allocated to the retail
and manufacturing segments.
8. ACCRUED ACQUISITION LIABILITIES
In August 1999, the Company decided not to close 8 stores which had been
identified for closure in connection with the July 1997 acquisition of
Mattress Discounters by Heilig-Meyers. The reversal of the original store
closure accrual of $1.0 million related to these stores has been recognized as
a reduction to accrued liabilities and goodwill in August 1999. The remaining
acquisition reserve of approximately $0.3 million is for future lease payments
on stores that have been closed, net of anticipated sublease income.
F-11
<PAGE>
Independent Auditors' Report
To the Stockholder and Board of Directors
Mattress Discounters
Richmond, Virginia
We have audited the accompanying combined balance sheets of Mattress
Discounters Corporation, TJB, Inc., and The Bedding Experts, Inc. (the
"Company") (as described in Note 1 to the combined financial statements) as of
February 28, 1999 and 1998, and the related combined statements of operations
and retained earnings and cash flows for the year ended February 28, 1999, the
period from July 2, 1997 to February 28, 1998, and the period from December
29, 1996 to July 1, 1997. 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, such combined financial statements present fairly, in all
material respects, the combined financial position of the Company as of
February 28, 1999 and 1998, and the combined results of their operations and
their combined cash flows for the year ended February 28, 1999, the period
from July 2, 1997 to February 28, 1998, and for the period from December 29,
1996 to July 1, 1997, in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the combined financial statements, the
accompanying combined financial statements have been prepared from the
separate records maintained by the Company and may not necessarily be
indicative of the conditions that would have existed or the results of
operations if the Company had been operated as an unaffiliated entity. As
discussed in Note 13 to the combined financial statements, portions of certain
income and expenses represent allocations made from Heilig-Meyers Company
applicable to the Company.
Deloitte & Touche LLP
June 5, 1999
F-12
<PAGE>
MATTRESS DISCOUNTERS CORPORATION, TJB, INC., AND THE BEDDING EXPERTS, INC.
(WHOLLY-OWNED SUBSIDIARIES OF HEILIG-MEYERS COMPANY)
COMBINED BALANCE SHEETS
February 28, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................ $ 1,365,805 $ 5,503,230
Accounts receivable.................................. 5,681,413 5,137,790
Inventories.......................................... 13,780,944 12,625,412
Prepaid expenses and other current assets............ 308,583 567,589
Due from parent...................................... 7,251,161 2,428,925
Deferred tax asset--current.......................... 970,394 3,220,230
----------- -----------
Total current assets............................... 29,358,300 29,483,176
PROPERTY AND EQUIPMENT, NET............................ 10,839,814 9,338,843
DEPOSITS AND OTHER ASSETS.............................. 641,223 610,394
GOODWILL AND OTHER INTANGIBLES, NET.................... 58,464,190 56,181,152
DEFERRED TAX ASSET..................................... 374,852 210,059
----------- -----------
$99,678,379 $95,823,624
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable..................................... $17,474,386 $19,880,851
Accrued expenses..................................... 9,446,587 12,404,794
Current portion of capital lease obligations......... 129,650 182,647
Long-term debt....................................... 100,188 108,095
Due to parent........................................ -- 5,654,954
----------- -----------
Total current liabilities.......................... 27,150,811 38,231,341
LONG-TERM DEBT, EXCLUDING CURRENT PORTION.............. 411,453 502,313
NONCURRENT PORTION OF CAPITAL LEASE OBLIGATIONS........ 14,430 127,235
OTHER NONCURRENT LIABILITIES........................... 4,967,462 6,193,382
----------- -----------
Total liabilities.................................. 32,544,156 45,054,271
----------- -----------
COMMITMENTS AND CONTINGENCIES.......................... -- --
STOCKHOLDER'S EQUITY:
Common stock......................................... 29,050 29,050
Additional paid-in capital........................... 46,047,515 42,872,915
Retained earnings.................................... 21,057,658 7,867,388
----------- -----------
Total stockholder's equity......................... 67,134,223 50,769,353
----------- -----------
$99,678,379 $95,823,624
=========== ===========
</TABLE>
See notes to combined financial statements.
F-13
<PAGE>
MATTRESS DISCOUNTERS CORPORATION, TJB, INC., AND THE BEDDING EXPERTS, INC.
(WHOLLY-OWNED SUBSIDIARIES OF HEILIG-MEYERS COMPANY)
COMBINED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
Year Ended February 28, 1999, Period from July 2, 1997 to February 28, 1998,
and Period from December 29, 1996 to July 1, 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ -----------
<S> <C> <C> <C>
SALES................................. $246,550,833 $159,952,386 $20,737,886
COST OF SALES......................... 156,848,163 103,266,763 13,743,017
------------ ------------ -----------
GROSS PROFIT.......................... 89,702,670 56,685,623 6,994,869
GENERAL AND ADMINISTRATIVE EXPENSES... 67,261,355 40,526,938 5,291,768
------------ ------------ -----------
INCOME FROM OPERATIONS................ 22,441,315 16,158,685 1,703,101
OTHER INCOME (EXPENSE):
Interest income, net of interest
expense............................ 128,324 88,361 9,480
Other income........................ 322,207 157,218 1,226,694
Other expense....................... -- (689,273) (24,622)
------------ ------------ -----------
EARNINGS BEFORE TAXES................. 22,891,846 15,714,991 2,914,653
PROVISION FOR INCOME TAXES............ 9,701,576 5,726,992 --
------------ ------------ -----------
NET EARNINGS.......................... 13,190,270 9,987,999 2,914,653
RETAINED EARNINGS (DEFICIT), BEGINNING
OF PERIOD............................ 7,867,388 260,118 (45,786)
DISTRIBUTION TO STOCKHOLDERS.......... -- (2,380,729) (2,608,749)
------------ ------------ -----------
RETAINED EARNINGS, END OF PERIOD...... $ 21,057,658 $ 7,867,388 $ 260,118
============ ============ ===========
</TABLE>
See notes to combined financial statements.
F-14
<PAGE>
MATTRESS DISCOUNTERS CORPORATION, TJB, INC., AND THE BEDDING EXPERTS, INC.
(WHOLLY-OWNED SUBSIDIARIES OF HEILIG-MEYERS COMPANY)
COMBINED STATEMENTS OF CASH FLOWS
Year Ended February 28, 1999, Period from July 2, 1997 to February 28, 1998,
and Period from December 29, 1996 to July 1, 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------ ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings......................... $ 13,190,270 $ 9,987,999 $ 2,914,653
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization...... 4,540,875 2,648,484 108,058
Loss on disposition of property and
equipment......................... 476,567 22,437 24,622
Changes in operating assets and
liabilities, net of the effects of
the acquisition:
Accounts receivable.............. (543,623) (2,942,130) (521,841)
Due to/from parent............... (10,477,190) 3,226,029 --
Inventories...................... (1,155,532) (3,202,262) (329,421)
Prepaid expenses and other
assets.......................... 259,006 (289,711) 86,150
Other noncurrent assets.......... (30,829) (54,307) 440,885
Deferred tax assets.............. 2,085,043 (409,999) --
Accounts payable................. (2,406,465) (6,502,866) 644,571
Accrued expenses................. (2,958,207) 1,558,317 (123,949)
Other noncurrent liabilities..... (1,225,919) 510,421 --
------------ ----------- -----------
Net cash provided by operating
activities.................... 1,753,996 4,552,412 3,243,728
------------ ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment expenditures.. (5,162,137) (2,121,853) (423,681)
Proceeds from sale of property and
equipment........................... 132,794 3,982 --
Net cash acquired through
acquisition......................... 3,733,154
Expenditures for intangible assets... (597,508) -- --
------------ ----------- -----------
Net cash (used in) provided by
investing activities.......... (5,626,851) 1,615,283 (423,681)
------------ ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to stockholders........ -- (2,380,729) (2,608,749)
Payments on debt..................... (138,769) (83,042) (34,858)
Payments on capital lease
obligations......................... (165,801) (114,947) --
Borrowings........................... 40,000 545,000 --
------------ ----------- -----------
Net cash used in financing
activities.................... (264,570) (2,033,718) (2,643,607)
------------ ----------- -----------
NET (DECREASE) INCREASE IN CASH........ (4,137,425) 4,133,977 176,440
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD................................ 5,503,230 1,369,253 1,192,813
------------ ----------- -----------
CASH AND CASH EQUIVALENTS, END OF
PERIOD................................ $ 1,365,805 $ 5,503,230 $ 1,369,253
============ =========== ===========
</TABLE>
See notes to combined financial statements.
F-15
<PAGE>
MATTRESS DISCOUNTERS CORPORATION, TJB, INC., AND THE BEDDING EXPERTS, INC.
(WHOLLY-OWNED SUBSIDIARIES OF HEILIG-MEYERS COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS
Year Ended February 28, 1999, Period from July 2, 1997 to February 28, 1998,
and Period from December 29, 1996 to July 1, 1997
1. Organization and Basis of Financial Statement Combination
Nature of Operations--The Company as described below is engaged in the
manufacture and retail sale of mattresses and bedding products.
<TABLE>
<CAPTION>
State of No. of
Name of Entity Incorporation Business Market Locations
-------------- ------------- ------------ ----------------------- ---------
<S> <C> <C> <C> <C>
Mattress Discounters Delaware Retail Sales New England, 132
Corporation............ and Manu- California, Pittsburgh,
facturing Detroit, Colorado, and
Florida
TJB, Inc................ Maryland Retail Sales Washington, D.C., 52
Baltimore, and
Richmond
The Bedding Experts, Illinois Retail Sales Chicago 55
Inc. ..................
</TABLE>
The combined financial statements for the year ended February 28, 1999, and
the period from July 2, 1997 to February 28, 1998, include the accounts of all
three entities. All significant inter-entity accounts and transactions of the
Company have been eliminated in the combination. The financial position and
operating results of the corporations for such periods are combined in the
financial statements and are under common ownership and control by Heilig-
Meyers Company. The existence of common ownership and control of the entities
could result in operating results or financial position of the entities that
could be significantly different from those that would have been achieved if
the enterprises were autonomous.
The financial statements for the period from December 29, 1996 to July 1,
1997, include only the results of operations and cash flows of The Bedding
Experts, Inc.
Prior to the July 2, 1997 acquisitions of Mattress Discounters Corporation
and TJB, Inc., and the January 3, 1998 acquisition of The Bedding Experts,
Inc., the companies were structured as S corporations for federal and state
income tax purposes.
On July 2, 1997, Heilig-Meyers Company acquired all of the outstanding
capital stock of Mattress Discounters Corporation and TJB, Inc. The initial
purchase price was valued at approximately $42,900,000 based on the fair
market value of the stock at that date. Heilig-Meyers Company issued 2,269,839
shares of its common stock at the time of closing and placed 264,550 shares of
common stock in escrow to be paid to the former shareholders of Mattress
Discounters if the acquired stores met certain earnings targets in the twelve
months following the closing. On July 8, 1998, these shares were released to
the former shareholders, resulting in an increase to the purchase price of
approximately $3,175,000. The transaction was accounted for as a purchase. The
unamortized excess of purchase price over the fair value of the net assets
acquired as of February 28, 1999 and 1998, was $60,540,760 and $57,101,152,
respectively (see Note 5).
On January 3, 1998, Heilig-Meyers Company acquired all of the outstanding
capital stock of The Bedding Experts, Inc. Heilig-Meyers Company issued
2,019,182 shares of its common stock in the
F-16
<PAGE>
MATTRESS DISCOUNTERS CORPORATION, TJB, INC., AND THE BEDDING EXPERTS, INC.
(WHOLLY-OWNED SUBSIDIARIES OF HEILIG-MEYERS COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
transaction valued at $25,000,000 based on the fair market value of the stock
at that date. The transaction was accounted for as a pooling of interests. The
combined statements of operations and retained earnings, and cash flows
include the results of The Bedding Experts, Inc. for all periods presented
herein.
Common stock of the Company consists of the following as of February 28,
1999 and 1998:
<TABLE>
<CAPTION>
Shares Par Shares Shares
Name of Entity Authorized Value Issued Outstanding
-------------- ---------- ----- ------ -----------
<S> <C> <C> <C> <C>
Mattress Discounters Corporation........ 3,000 $.01 1,000 1,000
TJB, Inc................................ 5,000 None 4,500 4,500
The Bedding Experts, Inc................ 1,000 None 1,000 1,000
</TABLE>
2. Summary of Significant Accounting Policies
Combined Statements of Operations and Retained Earnings and Combined
Statements of Cash Flows--The accompanying financial statements for the fiscal
year ended February 28, 1999, and the eight-month period from July 2, 1997 to
February 28, 1998, represent the Company's results of operations under the
common ownership and control by Heilig-Meyers Company. The financial
statements for the six-month period from December 29, 1996 to July 1, 1997,
represent the results of operations of The Bedding Experts, Inc. prior to the
acquisition by Heilig-Meyers Company.
Fiscal Year--On July 2, 1997, pursuant to the acquisition of the Company by
Heilig-Meyers Company, the Company's reporting period changed from a 52-53
week fiscal year ending on the Saturday nearest December 31, to a fiscal year
ending February 28. Accordingly, results for fiscal year 1999 represent the
year ended February 28, 1999. The results of operations and of cash flows for
1998 represent the eight-month period from July 2, 1997 to February 28, 1998,
and the results of operations and cash flows for 1997 represent the six-month
period from December 29, 1996 to July 1, 1997. Due to the various acquisitions
and the periods presented, the financial statements presented herein are not
fully comparable.
Use of Estimates in the Preparation of Financial Statements--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.
Fair Value of Financial Instruments--SFAS No. 107, "Disclosure About Fair
Value of Financial Instruments," requires certain disclosures regarding the
fair value of financial instruments. The amounts reported in the combined
balance sheets for cash and cash equivalents, accounts receivable, accounts
payable, accrued liabilities, amounts due from and to parent and current
portions of long-term debt approximate fair value because of the short-term
maturity of these instruments. In addition, the fair value of long-term debt
approximates its carrying value.
Cash and Cash Equivalents--Cash equivalents include time deposits with
maturities of three months or less when purchased.
F-17
<PAGE>
MATTRESS DISCOUNTERS CORPORATION, TJB, INC., AND THE BEDDING EXPERTS, INC.
(WHOLLY-OWNED SUBSIDIARIES OF HEILIG-MEYERS COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Accounts Receivable--Accounts receivable are primarily comprised of amounts
due to the Company pursuant to vendor cooperative advertising and rebate
agreements, and bank-financed customer sales.
Due from Parent--Due from parent represents sales to Heilig-Meyers Company
for mattresses, boxsprings and foundations manufactured by the Company, and
noninterest-bearing loans to Heilig-Meyers Company.
Inventories--Inventories are valued at the lower of cost or market value.
Cost is determined by the first-in, first-out method. Manufactured inventories
include raw materials, direct labor and manufacturing overhead.
Property and Equipment--Property and equipment is valued at cost.
Depreciation is provided on the straight-line method at rates based on the
estimated useful lives of individual assets or classes of assets. Improvements
to leased property are amortized over their estimated useful lives or lease
period, whichever is shorter. Leased property meeting certain criteria is
capitalized and the present value of the related lease payments is recorded as
a liability. Amortization of capitalized leased assets is computed on the
straight-line method over the term of the lease. Normal repairs and
maintenance are expensed as incurred. Expenditures which materially increase
values, change capacities or extend useful lives are capitalized. The
estimated useful lives are 30 to 31.5 years for buildings, 3 to 7 years for
furniture, fixtures, equipment and vehicles, and 2 to 15 years for leasehold
improvements.
Goodwill and Other Intangibles--The Company amortizes goodwill on a
straight-line basis over forty years. Other intangibles, including its
trademark and copyright, are amortized over their economic lives, which range
from 3 to 20 years. Intangible assets are reviewed for impairment whenever the
facts and circumstances indicate that the carrying amounts may not be
recoverable. Impairment, should any occur, would be recognized by a charge to
operating results and a reduction in the carrying value of the intangible
asset.
Due to Parent--Due to parent represents amounts paid by Heilig-Meyers
Company for taxes, acquisition expenses and certain operating expenses for the
benefit of the Company.
Revenues and Costs of Sales--Sales revenue is recognized upon receiving
payment in full, or if applicable, upon approval of customer third-party
credit. Sales are presented net of returns. Cost of sales includes occupancy
and delivery expenses.
Advertising Costs--Cost incurred for advertising are expensed when the
initial advertising takes place.
Income Taxes--Income taxes are recognized during the year in which
transactions enter into the determination of financial statement income, with
deferred taxes being provided for temporary differences between the amounts of
assets and liabilities for financial reporting purposes and such amounts as
measured by tax laws. The Bedding Experts, Inc., was structured as an S
corporation until the January 3, 1998 date of its acquisition by Heilig-Meyers
Company. Accordingly, no provision for taxes for The Bedding Experts, Inc., is
included in the combined statement of operations for the period from July 2,
1997 to January 2, 1998, and the period from December 29, 1996 to July 1,
1997.
F-18
<PAGE>
MATTRESS DISCOUNTERS CORPORATION, TJB, INC., AND THE BEDDING EXPERTS, INC.
(WHOLLY-OWNED SUBSIDIARIES OF HEILIG-MEYERS COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Earnings Per Share--Earnings per share have been omitted from the combined
statements of operations and retained earnings for the year ended February 28,
1999, and for the period from July 2, 1997 to February 28, 1998, as the
Company was a wholly-owned subsidiary of Heilig-Meyers Company. Earnings per
share have also been omitted from the combined statement of operations and
retained earnings for the period from December 29, 1996 to July 1, 1997, as
The Bedding Experts, Inc. was structured as an "S" corporation.
New Accounting Standards--During fiscal year 1999, the Company adopted SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related
Information," which redefines how operating segments are determined and
requires disclosure of certain financial and descriptive information about a
Company's operating segments. The adoption of this statement did not affect
the Company's combined financial position, result of operations, and cash
flows, and is limited to the form and content of disclosures.
In June 1998 the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is effective for fiscal years
beginning after June 15, 2000. The new statement requires that every
derivative instrument (including certain derivative instruments embedded in
contracts) be recorded in the balance sheet as either an asset or liability
measured at its fair value. SFAS No. 133 requires the changes in the
derivative's fair value to be recognized currently in earnings unless specific
hedge accounting criteria are met. The Company has not yet determined the
effect this statement will have in the combined financial position, results of
operations, or cash flows.
In March 1998 the AICPA issued Statement of Position ("SOP") 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use," which is effective for fiscal years beginning after December
15, 1998. SOP 98-1 requires certain software development costs to be
capitalized. Generally, once the capitalization criteria of the SOP have been
met, external direct costs of materials and services used in development of
internal-use software, payroll, and payroll-related costs for employees
directly involved in the development of internal-use software, and interest
costs incurred when developing software for internal use are to be
capitalized. Management does not expect the adoption of the SOP to have a
material effect on the Company's combined financial position, results of
operations, or cash flows.
In April 1998 the AICPA issued SOP 98-5, "Reporting on the Costs of Start-
Up Activities", which is effective for fiscal years beginning after December
15, 1998. SOP 98-5 requires costs of start-up activities and organization
costs to be expensed as incurred. Management does not expect the adoption of
the SOP to have a material effect on the Company's combined financial
position, results of operations, or cash flows.
3. Inventories
Inventories are summarized as follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Finished goods....................................... $12,251,925 $11,628,871
Work in process...................................... 283,192 175,985
Raw materials........................................ 1,245,827 820,556
----------- -----------
$13,780,944 $12,625,412
=========== ===========
</TABLE>
F-19
<PAGE>
MATTRESS DISCOUNTERS CORPORATION, TJB, INC.,
AND THE BEDDING EXPERTS, INC.
(WHOLLY-OWNED SUBSIDIARIES OF HEILIG-MEYERS COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
The Company purchases the majority of its mattress, boxspring and
foundation inventory from one supplier. In fiscal year 1999, the Company
purchased approximately 62% of its inventory from this supplier.
4. Property and Equipment
Property and equipment consist of the following:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Land and buildings.................................. $ 1,122,468 $ 663,022
Furniture, fixtures, equipment, and vehicles........ 14,384,258 12,355,208
Leasehold improvements.............................. 7,028,717 5,859,146
----------- -----------
22,535,443 18,877,376
Less: Accumulated depreciation...................... 11,695,629 9,538,533
----------- -----------
$10,839,814 $ 9,338,843
=========== ===========
</TABLE>
Depreciation expense for the year ended February 28, 1999, the period from
July 2, 1997 to February 28, 1998, and the period from December 29, 1996 to
July 1, 1997, was $3,051,805, $1,727,484, and $108,058, respectively.
5. Goodwill and Other Intangibles
Goodwill and other intangibles consist of the following:
<TABLE>
<CAPTION>
Straight-line
Amortization
Description Period (Years) 1999 1998
----------- -------------- ----------- -----------
<S> <C> <C> <C>
Goodwill............................. 40 $60,540,760 $57,101,152
Trademark............................ 20 300,000 --
Copyright............................ 3 32,500 --
----------- -----------
60,873,260 57,101,152
Less: Accumulated amortization....... 2,409,070 920,000
----------- -----------
$58,464,190 $56,181,152
=========== ===========
</TABLE>
The following is a reconciliation of the goodwill balance as of February
28, 1999 and 1998 (amounts in thousands):
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Market value of shares issued.............................. $42,900 $42,900
Acquisition costs.......................................... 600 600
------- -------
Total consideration...................................... 43,500 43,500
Tangible equity of Mattress Discounters.................... (8,673) (8,673)
------- -------
Premium before fair value adjustments...................... 52,173 52,173
Fair value adjustments..................................... (5,193) (4,928)
------- -------
57,366 57,101
Contingent shares issuance--market value................... 3,175 --
------- -------
Total goodwill........................................... $60,541 $57,101
======= =======
</TABLE>
F-20
<PAGE>
MATTRESS DISCOUNTERS CORPORATION, TJB, INC.,
AND THE BEDDING EXPERTS, INC.
(WHOLLY-OWNED SUBSIDIARIES OF HEILIG-MEYERS COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Amortization expense for the year ended February 28, 1999, the period from
July 2, 1997 to February 28, 1998, and the period from December 29, 1996 to
July 1, 1997, was $1,489,070, $921,000, and $-0-, respectively.
6. Accrued Liabilities
Current accrued expenses consist of the following:
<TABLE>
<CAPTION>
1999 1998
---------- -----------
<S> <C> <C>
Accrued salaries and taxes........................... $2,496,877 $ 2,123,389
Accrued sales tax.................................... 1,001,485 973,784
Accrued retail store expenses........................ 847,382 1,418,670
Acquisition reserve.................................. 1,866,898 2,816,500
Accrued income taxes................................. 1,271,187 1,029,829
Advance payment from vendor.......................... -- 1,800,000
Customer deposits and layaway........................ 907,939 1,138,697
Other................................................ 1,054,819 1,103,925
---------- -----------
Total.............................................. $9,446,587 $12,404,794
========== ===========
</TABLE>
Noncurrent accrued expenses consist of the following:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Accrued rent.......................................... $3,648,450 $4,376,675
Workers compensation reserve.......................... 967,727 967,727
Market value lease reserve............................ 351,285 848,980
---------- ----------
Total............................................... $4,967,462 $6,193,382
========== ==========
</TABLE>
7. Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Notes payable to lessor, maturing 6/8/01, interest at
10%...................................................... $ 32,115 $ --
Notes payable to bank, maturing 7/01/02, interest at
9.50%, secured by land and building...................... 451,154 522,985
Notes payable to banks, maturing through 9/11/99, interest
ranging from 2.79% to 8.5%, secured by vehicles.......... 28,372 87,423
Capital lease obligations, maturing through fiscal year
2001, interest ranging from 3% to 11%.................... 144,080 309,882
-------- --------
655,721 920,290
Less: Amount due within one year.......................... 229,838 290,742
-------- --------
$425,883 $629,548
======== ========
</TABLE>
F-21
<PAGE>
MATTRESS DISCOUNTERS CORPORATION, TJB, INC.,
AND THE BEDDING EXPERTS, INC.
(WHOLLY-OWNED SUBSIDIARIES OF HEILIG-MEYERS COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Principal payments due for the four years after February 28, 1999, are as
follows:
<TABLE>
<CAPTION>
Year Amount
---- --------
<S> <C>
2000................................................................ $229,838
2001................................................................ 67,106
2002................................................................ 47,356
2003................................................................ 311,421
</TABLE>
Interest payments of $55,938, $53,294, and $12,961 net of capitalized
interest of $19,631, $19,913 and $-0- were made during the year ended February
28, 1999, the period from July 2, 1997 to February 28, 1998, and the period
from December 29, 1996 to July 1, 1997, respectively.
At February 28, 1999 and 1998, the Company had approximately $1,800,000 of
outstanding letters of credit secured by a bank facility agreement with
Heilig-Meyers Company.
8. Income Taxes
The provision for income taxes in the combined financial statements reflect
tax calculations on a stand-alone basis and do not reflect actual taxes owed
by the Company on the Heilig-Meyers Company consolidated tax return.
The provision for income taxes consists of the following:
<TABLE>
<S> <C> <C>
Current:
Federal............................................. $6,183,875 $5,075,607
State............................................... 1,432,659 1,166,476
---------- ----------
7,616,534 6,242,083
---------- ----------
Deferred:
Federal............................................. 1,830,131 (452,118)
State............................................... 254,911 (62,973)
---------- ----------
2,085,042 (515,091)
---------- ----------
$9,701,576 $5,726,992
========== ==========
</TABLE>
The income tax effects of temporary differences that gave rise to
significant portions of the net deferred tax assets as of February 28, 1999
and 1998, consist of the following:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Deferred tax assets:
Depreciation........................................ $ 428,917 $ 214,459
Excess cost over net assets acquired................ 1,177,489 2,888,345
Other assets........................................ 12,521 --
---------- ----------
1,618,927 3,102,804
---------- ----------
Deferred tax liabilities:
Accrued liabilities................................. 139,844 (540,517)
Inventory........................................... 133,837 213,032
---------- ----------
273,681 (327,485)
---------- ----------
$1,345,246 $3,430,289
========== ==========
</TABLE>
F-22
<PAGE>
MATTRESS DISCOUNTERS CORPORATION, TJB, INC.,
AND THE BEDDING EXPERTS, INC.
(WHOLLY-OWNED SUBSIDIARIES OF HEILIG-MEYERS COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
A reconciliation of the statutory federal income tax rate to the Company's
effective rate is provided below:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Statutory federal income tax rate................................ 35.0% 35.0%
State income taxes, net of federal income tax benefit............ 5.2 5.2
Goodwill amortization............................................ 2.1 2.3
Income taxed to S-Corp shareholders.............................. -- (5.8)
Other, net....................................................... 0.1 (0.3)
---- ----
42.4% 36.4%
==== ====
</TABLE>
Federal and state income tax payments of $2,152,247 and $1,276,148 were
made to Heilig-Meyers Company during fiscal year 1999 and the period from July
2, 1997 to February 28, 1998, respectively.
Prior to January 3, 1998, The Bedding Experts, Inc. had elected to be
treated as an "S" corporation for federal and state income tax purposes. Under
terms of that election, The Bedding Experts, Inc. did not pay federal and
certain state income taxes on its earnings, since the earnings were allocated
to its stockholders. Accordingly, no provision for taxes is included in the
combined statement of operations and retained earnings for the period from
December 29, 1996 to July 1, 1997 and the period from July 2, 1997 to January
2, 1998.
9. Retirement Plans
As of January 1, 1999 the Company began participating in the Heilig-Meyers'
qualified profit-sharing and retirement savings plan, which includes a cash or
deferred arrangement under Section 401(k) of the Internal Revenue Code and
covers substantially all of the Company's employees. Eligible employees may
elect to contribute specified percentages of their compensation to the plan.
Heilig-Meyers Company guarantees a dollar-for-dollar match on the first two
percent of the employee's compensation contributed to the plan. Heilig-Meyers
Company will make an additional matching contribution if and to the extent
that four percent of the Company's estimated consolidated income before taxes
exceeds the two percent dollar-for-dollar match described above. Heilig-Meyers
Company may, at the discretion of its Board of Directors, make additional
matching contributions subject to certain limitations. The plan may be
terminated at the discretion of the Board of Directors. If the plan is
terminated, Heilig-Meyers Company will not be required to make any further
contributions to the plan and participants will become 100% vested in any
Heilig-Meyers Company contributions made to the plan. The plan expense for the
Company participants recognized in fiscal 1999 was $17,751 and is reflected in
the combined statement of operations and retained earnings.
In addition, the Company sponsors two other qualified deferred compensation
plans in accordance with Internal Revenue Code Section 401(k) covering
substantially all employees. These plans do not allow for any employee or
Company contributions as of January 1, 1999. The plan assets are available for
benefit or loans under the terms of the plan. The plan expense recognized in
the year ended February 28, 1999, the period from July 2, 1997 to February 28,
1998, and the period from December 29, 1996 to July 1, 1997, was $105,962,
$67,999 and $5,737, respectively and is reflected in the combined statements
of operations and retained earnings.
F-23
<PAGE>
MATTRESS DISCOUNTERS CORPORATION, TJB, INC.,
AND THE BEDDING EXPERTS, INC.
(WHOLLY-OWNED SUBSIDIARIES OF HEILIG-MEYERS COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
As of January 1, 1999, the Company began participating in the Heilig-Meyers
Company nonqualified supplemental profit-sharing and retirement savings plan
that was established as of March 1, 1991, for the purpose of providing
deferred compensation for certain employees whose benefits and contributions
under the qualified plan are limited by the Code. The deferred compensation
expense recognized in fiscal 1999 was $6,817 and is reflected in the combined
statement of operations and retained earnings.
As of November 7, 1997, the Company began participating in the Heilig-
Meyers Company executive income continuation plan, which covers certain
executive officers. The plan is intended to provide certain supplemental pre-
retirement death benefits and retirement benefits to its key executives. In
the event an executive dies prior to age 65 in the employment of the Company,
the executive's beneficiary will receive annual benefits of 100% of salary for
a period of one to two years and/or 50% of salary for a period of eight years.
If the executive retires at age 65, either the executive or his beneficiary
will receive an annual retirement benefit of 20% to 25% of the executive's
salary increased 4% annually for a period of 15 years. This plan has been
supported through the purchase of life insurance contracts covering the
executives and owned by the Company. For all periods presented herein, there
was no charge to earnings.
10. Commitments and Contingencies
Leases--The Company has entered into noncancellable lease agreements with
initial terms ranging from 1 to 15 years for certain stores, warehouses and
the corporate office. Certain leases include renewal options ranging from 1 to
10 years which may be exercised at the Company's option. Most of the leases
are net leases under which the lessees pay their proportionate share of the
taxes, insurance and maintenance costs.
The following capital leases are included in the accompanying combined
balance sheets:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Equipment................................................. $776,910 $776,910
Less: Accumulated amortization............................ 670,785 499,521
-------- --------
$106,125 $277,389
======== ========
</TABLE>
Capitalized lease amortization is included in depreciation expense within
general and administrative expenses in the Company's combined statements of
operations and retained earnings.
F-24
<PAGE>
MATTRESS DISCOUNTERS CORPORATION, TJB, INC.,
AND THE BEDDING EXPERTS, INC.
(WHOLLY-OWNED SUBSIDIARIES OF HEILIG-MEYERS COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Future minimum lease payments under capital and operating leases having
initial or remaining noncancellable lease terms in excess of one year at
February 28, 1999, are as follows:
<TABLE>
<CAPTION>
Capital Operating
Fiscal Years Leases Leases
------------ -------- -----------
<S> <C> <C>
2000................................................... $141,666 $20,542,875
2001................................................... 9,814 17,767,638
2002................................................... -- 14,887,236
2003................................................... -- 12,240,015
2004................................................... -- 8,905,482
After 2004............................................. -- 24,227,825
-------- -----------
Total minimum lease payments....................... 151,480 $98,571,071
===========
Less:
Imputed interest..................................... 7,400
--------
Present value of minimum lease payments................ $144,080
========
</TABLE>
Total rental expense under operating leases for the year ended February 28,
1999, the period from July 2, 1997 to February 28, 1998, and the period from
December 29, 1996 to July 1, 1997, was $18,638,827, $13,475,219, and
$1,428,943, respectively.
Certain leases include escalation clauses for adjusting rentals to reflect
changes in price indices or to reflect normal step increases with the passage
of time. Rent expense is calculated on straight-line basis with the difference
between actual cash rental payments and straight-line rental expense recorded
as accrued rent (see Note 6). Certain leases provide for contingent rentals
which are based on sales volumes.
Certain properties are subleased under operating leases providing for
future annual rental income through 2008, minimum sublease rental income is:
$1,446,480 in fiscal 2000, $1,475,230 in fiscal 2001, $1,304,662 in fiscal
2002, $1,260,971 in fiscal 2003, $614,088 in fiscal 2004, and $637,699
thereafter.
In connection with the store closings in the New York and New Jersey
regions, the Company subleased certain locations in which the Company is
obligated for future rentals with respect to such leases if the sublease
defaults on their commitment. Future minimum contingent rents are $1,686,682
in fiscal 2000, $1,722,890 in fiscal 2001, $1,603,680 in fiscal 2002, $934,116
in fiscal 2003, $701,793 in fiscal 2004, and $2,620,606 thereafter.
Legal Matters--The Company is party to various lawsuits and actions arising
in the course of its business. In the opinion of management, based on a number
of factors, including advice of outside legal counsel in certain instances,
the ultimate resolution of these matters will not have a material adverse
effect on the financial position or results of operations of the Company.
Employment Contracts and Separation Agreements--The Company has employment
agreements with certain executive officers, the terms of which expire at
various dates through February 28, 2001. In addition, certain agreements
automatically extend for one-year periods if not canceled before the
expiration dates. Such agreements provide for certain minimum salary levels,
adjusted annually for cost-of-living changes, fringe benefits and performance
bonuses, as defined in the agreements.
F-25
<PAGE>
MATTRESS DISCOUNTERS CORPORATION, TJB, INC.,
AND THE BEDDING EXPERTS, INC.
(WHOLLY-OWNED SUBSIDIARIES OF HEILIG-MEYERS COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
The Company is obligated to pay certain severance benefits to two former
executives under separation agreements, the terms of which expire on December
31, 1999, and June 30, 2000.
11. Stock Option and Performance Stock Award Plans
Certain key employees of the Company have been granted Heilig-Meyers
Company common stock options in fiscal year 1999 (at an exercise price of no
less than fair market value at the date of grant) under the Heilig-Meyers
Company 1998 stock option plan. Accordingly, no compensation expense has been
recognized in the combined statements of operations and retained earnings. All
options granted have ten-year terms. Options granted are immediately vested
and become exercisable when granted.
12. Segment Information
In fiscal 1999 the Company adopted SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information," which establishes
standards for reporting information about operating segments using the
management approach. The Company operates in the following two business
segments:
Retail--Sale of mattresses and bedding products through 239 retail
locations as of February 28, 1999.
Manufacturing--Manufacture and sale of mattresses, box springs and
foundations to the retail segment and to Heilig-Meyers Company and
affiliates at current market prices.
The accounting policies of these segments are the same as those described
in the summary of significant accounting policies. All intersegment sales
prices are market-based. The Company evaluates performance based on the
operating earnings of the respective business units.
Summarized financial information concerning the Company's reportable
segments is shown in the following table (amounts in thousands):
<TABLE>
<CAPTION>
Manufacturing
--------------------------
Retail Interco.
Period(/1/) Retail Segment Affiliates Total Elim. Combined
----------- -------- ------- ---------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues..... 1999 $238,147 $38,147 $8,404 $46,551 $38,147 $246,551
1998 157,354 20,697 2,598 23,295 20,697 159,952
</TABLE>
<TABLE>
<CAPTION>
Corporate/
Period(/1/) Retail Manufacturing Other Combined
----------- ------- ------------- ---------- --------
<S> <C> <C> <C> <C> <C>
Segment profit(/2/)..... 1999 $14,669 $8,094 $ -- $22,763
1998 12,490 3,137 -- 15,627
Depreciation and........ 1999 3,654 887 -- 4,541
amortization............ 1998 2,198 449 -- 2,647
Capital expenditures.... 1999 4,380 782 -- 5,162
1998 1,996 294 -- 2,290
Identifiable
assets(/3/)............ 1999 20,466 4,155 75,057 99,678
1998 19,305 2,659 73,860 95,824
</TABLE>
- --------
(1) Periods are as follows: 1999--Year ended February 28, 1999 1998--Period
from July 2, 1997, to February 28, 1998
(2) Segment profit represents earnings before interest and the provision for
income taxes.
(3) Identifible assets represent only inventories and net property and
equipment in the retail and manufacturing segments. All other assets are
included in Corporate/Other.
F-26
<PAGE>
MATTRESS DISCOUNTERS CORPORATION, TJB, INC.,
AND THE BEDDING EXPERTS, INC.
(WHOLLY-OWNED SUBSIDIARIES OF HEILIG-MEYERS COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
13. Related Party
Revenues from sales to Heilig-Meyers Company of mattresses, box spring and
foundations were approximately $8,404,000 for the year ended February 28,
1999, and approximately $2,598,000 for the period from July 2, 1997 to
February 28, 1998. The sales were at market prices.
The Company provided noninterest-bearing loans in fiscal year 1999 to
Heilig-Meyers Company in the gross amount of approximately $19,500,000 which
does not include Mattress Discounters share of intercompany federal tax
allocation. The balance at February 28, 1999, was $803,265.
Heilig-Meyers Company made payments for the Company for acquisition
expenses and certain operating expenses of approximately $270,000 for the year
ended February 28, 1999 and $540,000 for the period from July 2, 1997 to
February 28, 1998. These costs have been reflected in the combined financial
statements.
Heilig-Meyers Company allocates costs to the Company for certain services
including cash management, real estate, tax and accounting, and information
technology support. In addition, Heilig-Meyers Company allocates other
corporate overhead costs including executive management and the treasury
department based on the Company's budgeted sales and bonuses. Amounts
allocated to the Company were approximately $1,900,000 for fiscal year 1999.
These costs have been reflected in the combined financial statements.
Heilig-Meyers Company made income tax payments for the Company of
approximately $2,200,000 for the year ended February 28, 1999, and $1,300,000
for the period July 2, 1997 to February 28, 1998. In addition, Heilig-Meyers
Company charged the Company approximately $5,100,000 for the year ended
February 28, 1999, and $4,400,000 for the period from July 2, 1997 to February
28, 1998, to reflect tax calculations based on a stand-alone basis.
14. Subsequent Event
On May 28, 1999, Heilig-Meyers Company entered into a definitive agreement
to sell 93% of its interest in the Company (as described in Note 1 to the
combined financial statements) to an investment group, including certain key
managers of Mattress Discounters, led by Bain Capital, a Boston-based capital
investment group.
* * * * * *
F-27
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholder and Board of Directors
Mattress Discounters
Richmond, Virginia
We have audited the accompanying combined balance sheet of Mattress
Discounters Corporation and TJB, Inc. (the "Company") (as described in Note 1
to the combined financial statements) as of July 1, 1997, and the related
combined statements of operations and retained earnings, and cash flows for
the period from December 29, 1996 to July 1, 1997. These combined financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these combined financial statements
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, such combined financial statements present fairly, in all
material respects, the combined financial position of the Company as of July
1, 1997, and the combined results of its operations and its combined cash
flows for the period from December 29, 1996 to July 1, 1997, in conformity
with generally accepted accounting principles.
Deloitte & Touche LLP
June 5, 1999
F-28
<PAGE>
MATTRESS DISCOUNTERS CORPORATION
AND TJB, INC.
COMBINED BALANCE SHEET
July 1, 1997
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................................ $ 3,732,189
Accounts receivable.............................................. 1,458,590
Inventories...................................................... 8,744,613
Prepaid expenses and other current assets........................ 215,311
-----------
Total current assets........................................... 14,150,703
PROPERTY AND EQUIPMENT, NET........................................ 8,241,814
DEPOSITS AND OTHER ASSETS.......................................... 296,746
GOODWILL AND OTHER INTANGIBLES, NET................................ 637,200
-----------
$23,326,463
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................................. $22,418,541
Accrued expenses................................................. 4,748,218
Current portion of capital lease obligations..................... 174,415
Long-term debt................................................... 11,440
-----------
Total current liabilities...................................... 27,352,614
LONG-TERM DEBT, EXCLUDING CURRENT PORTION.......................... 17,798
NONCURRENT PORTION OF CAPITAL LEASE OBLIGATIONS.................... 250,414
OTHER NONCURRENT LIABILITIES....................................... 4,378,948
-----------
Total liabilities.............................................. 31,999,774
-----------
STOCKHOLDERS' DEFICIT:
Common stock..................................................... 28,050
Additional paid-in capital....................................... 550,975
Retained deficit................................................. (9,252,336)
-----------
Total stockholders' deficit.................................... (8,673,311)
-----------
$23,326,463
===========
</TABLE>
See notes to combined financial statements.
F-29
<PAGE>
MATTRESS DISCOUNTERS CORPORATION
AND TJB, INC.
COMBINED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
Period from December 29, 1996 to July 1, 1997
<TABLE>
<S> <C>
SALES............................................................ $ 84,333,892
COST OF SALES.................................................... 56,701,152
------------
GROSS PROFIT..................................................... 27,632,740
GENERAL AND ADMINISTRATIVE EXPENSES.............................. 27,101,876
------------
INCOME FROM OPERATIONS........................................... 530,864
OTHER INCOME (EXPENSE):
Interest income, net of interest expense....................... 328,336
Other income................................................... 91,022
Other expense.................................................. (644,854)
------------
NET EARNINGS..................................................... 305,368
RETAINED EARNINGS, BEGINNING OF PERIOD........................... 5,565,001
DISTRIBUTION TO STOCKHOLDERS..................................... (15,122,705)
------------
RETAINED DEFICIT, END OF PERIOD.................................. $ (9,252,336)
============
</TABLE>
See notes to combined financial statements.
F-30
<PAGE>
MATTRESS DISCOUNTERS CORPORATION
AND TJB, INC.
COMBINED STATEMENT OF CASH FLOWS
Period from December 29, 1996 to July 1, 1997
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings................................................... $ 305,368
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization................................ 1,007,125
Loss on disposition of property and equipment................ 29,599
Gain on investment securities................................ (80,365)
Changes in operating assets and liabilities:
Accounts receivable........................................ 944,248
Inventories................................................ 678,829
Prepaid expenses and other assets.......................... (96,448)
Other noncurrent assets.................................... 193,587
Accounts payable........................................... 66,785
Accrued expenses........................................... 2,273,434
Other noncurrent liabilities............................... 485,506
------------
Net cash provided by operating activities................ 5,807,668
------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment expenditures............................ (1,592,034)
Proceeds from sale of property and equipment................... 192,916
Proceeds from disposal of investments.......................... 1,119,010
------------
Net cash used in investing activities.................... (280,108)
------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to stockholders.................................. (15,122,705)
Payments on debt............................................... (5,377)
Payments on capital lease obligations.......................... (82,844)
------------
Net cash used in financing activities.................... (15,210,926)
------------
NET DECREASE IN CASH............................................. (9,683,366)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD................... 13,415,555
------------
CASH AND CASH EQUIVALENTS, END OF PERIOD......................... $ 3,732,189
============
</TABLE>
See notes to combined financial statements.
F-31
<PAGE>
MATTRESS DISCOUNTERS CORPORATION
AND TJB, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
Period from December 29, 1996 to July 1, 1997
1. Summary of Significant Accounting Policies
Nature of Operations and Basis of Combination--The Company as described
below is engaged in the manufacture and retail sale of mattresses and bedding
products. The financial position and operating results of the corporations are
combined in the financial statements and are under common ownership and
control.
<TABLE>
<CAPTION>
Name of State of No. of
Entity Incorporation Business Market Locations
- ------- ------------- ---------------- ------------------------ ---------
<S> <C> <C> <C> <C>
Mattress
Discounters Delaware Retail Sales and New England, New Jersey, 117
Corporation Manufacturing California, Pittsburgh,
and Detroit
TJB, Inc. Maryland Retail Sales Washington, D.C., 55
Baltimore, and Richmond
</TABLE>
The combined financial statements include the accounts of both entities.
All significant inter-entity accounts and transactions of the Company have
been eliminated in the combination. The existence of common ownership and
control of the entities could result in operating results or financial
position of the entities that could be significantly different from those that
would have been achieved if the enterprises were autonomous.
Common stock of the Company consists of the following as of July 1, 1997:
<TABLE>
<CAPTION>
Shares Par Shares Shares
Name of Entity Authorized Value Issued Outstanding
- -------------- ---------- ----- ------ -----------
<S> <C> <C> <C> <C>
Mattress Discounters Corporation............ 3,000 $.01 1,000 1,000
TJB, Inc.................................... 5,000 None 4,500 4,500
</TABLE>
Fiscal Year--The Company operates on a 52-53 week fiscal year ending on the
Saturday nearest December 31. The results of operations and cash flows for
1997 represent the six-month period from December 29, 1996 to July 1, 1997,
the day prior to the acquisition by Heilig-Meyers Company. See footnote 9 for
a description of the audit period for the financial statements herein.
Use of Estimates in the Preparation of Financial Statements--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.
Fair Value of Financial Instruments--SFAS No. 107, "Disclosure About Fair
Value of Financial Instruments," requires certain disclosures regarding the
fair value of financial instruments. The amounts reported in the combined
balance sheets for cash and cash equivalents, accounts receivable, accounts
payable, accrued liabilities, and current portions of long-term debt
approximate fair value because of the short-term maturity of these
instruments. In addition, the fair value of long-term debt approximates its
carrying value.
Cash and Cash Equivalents--Cash equivalents include time deposits with
maturities of three months or less when purchased.
F-32
<PAGE>
MATTRESS DISCOUNTERS CORPORATION
AND TJB, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Accounts Receivable--Accounts receivable are primarily comprised of amounts
due to the Company pursuant to vendor cooperative advertising and rebate
agreements, and bank-financed customer sales.
Inventories--Inventories are valued at the lower of cost or market value.
Cost is determined by the first-in, first-out method. Manufactured inventories
include raw materials, direct labor and manufacturing overhead.
Property and Equipment--Property and equipment is valued at cost.
Depreciation is provided on the straight-line method at rates based on the
estimated useful lives of individual assets or classes of assets. Improvements
to leased property are amortized over their estimated useful lives or lease
period, whichever is shorter. Leased property meeting certain criteria is
capitalized and the present value of the related lease payments is recorded as
a liability. Amortization of capitalized leased assets is computed on the
straight-line method over the term of the lease. Normal repairs and
maintenance are expensed as incurred. Expenditures which materially increase
values, change capacities or extend useful lives are capitalized. The
estimated useful lives are 3 to 7 years for furniture, fixtures, equipment and
vehicles, and 2 to 15 years for leasehold improvements.
Goodwill and Other Intangibles--The Company amortizes goodwill on a
straight-line basis over twenty-five years. Intangible assets, which include
covenants not to compete and copyrights, are reviewed for impairment whenever
the facts and circumstances indicate that the carrying amounts may not be
recoverable. Impairment, should any occur, would be recognized by a charge to
operating results and a reduction in the carrying value of the intangible
asset.
Revenues and Costs of Sales--Sales revenue is recognized upon receiving
payment in full, or if applicable, upon approval of customer third-party
credit. Sales are presented net of returns. Cost of sales includes occupancy
and delivery expenses.
Advertising Costs--Cost incurred for advertising are expensed when the
initial advertising takes place.
Income Taxes--The corporations comprising the Company for the period from
December 29, 1996 to July 1, 1997 elected to be treated as S corporations for
federal and state income tax purposes. Under terms of that election, the
corporations did not pay federal and state income taxes on its earnings.
Accordingly, no provision for taxes is included in the combined statement of
operations and retained earnings for such period.
Earnings Per Share--Earnings per share have been omitted from the combined
statement of operations and retained earnings for the period from December 29,
1996 to July 1, 1997, as the Company was structured as an S corporation.
2. Inventories
Inventories are summarized as follows:
<TABLE>
<S> <C>
Finished goods.................................................... $8,294,346
Work in process................................................... 98,003
Raw materials..................................................... 352,264
----------
$8,744,613
==========
</TABLE>
F-33
<PAGE>
MATTRESS DISCOUNTERS CORPORATION
AND TJB, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
3. Property and Equipment
Property and equipment consist of the following:
<TABLE>
<S> <C>
Computer equipment and software................................. $ 2,616,480
Furniture, fixtures, equipment and vehicles..................... 7,162,000
Leasehold improvements.......................................... 5,748,468
-----------
15,526,948
Less accumulated depreciation................................... (7,285,134)
-----------
$ 8,241,814
===========
</TABLE>
Depreciation expense for the period from December 29, 1996 to July 1, 1997,
was $972,276.
4. Goodwill and Intangible Assets
Intangible assets and related amortization periods are summarized as
follows:
<TABLE>
<CAPTION>
Amortization
Description Period
----------- ----------------
<S> <C> <C>
Covenants not to compete......................... $ 836,000 24 to 108 months
Copyright........................................ 100,000 50 years
License rights................................... 23,510 24 to 36 months
Goodwill......................................... 669,000 25 years
----------
1,628,510
Less accumulated amortization.................... 991,310
----------
$ 637,200
==========
</TABLE>
5 Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<S> <C>
Note payable to bank, maturing through 11/1/99, interest at
8.25%, secured by vehicles...................................... $ 29,238
Capital lease obligations, maturing through 3/1/00, interest
ranging from 3% to 11%.......................................... 424,829
--------
Less current portion............................................. 185,855
--------
Total Long-Term Debt........................................... $268,212
========
</TABLE>
Principal payments due for the four fiscal years after July 1, 1997, are as
follows:
<TABLE>
<CAPTION>
Year Amount
---- --------
<S> <C>
1997................................................................ $ 91,313
1998................................................................ 192,461
1999................................................................ 141,349
2000................................................................ 28,944
</TABLE>
Interest payments of $1,337, net of capitalized interest of $18,294, were
made during the period from December 29, 1996 to July 1, 1997, respectively.
F-34
<PAGE>
MATTRESS DISCOUNTERS CORPORATION
AND TJB, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
At July 1, 1997, the Company had approximately $1,800,000 of outstanding
letters of credit secured by a bank facility agreement.
6. EMPLOYEE BENEFIT PLAN
The Company sponsors a deferred compensation plan in accordance with
Internal Revenue Code Section 401(k) covering substantially all employees.
Employees are permitted within limitations imposed by tax law to make pre-tax
contributions to the plan pursuant to salary reduction agreements.
Contributions to the plan by the Company are discretionary. Deferred
compensation plan expense for the period from December 29, 1996 to July 1,
1997 was $21,714.
7. COMMITMENTS AND CONTINGENCIES
Leases--The Company has entered into noncancellable lease agreements with
initial terms ranging from 1 to 15 years for certain stores, warehouses and
the corporate office. Certain leases include renewal options ranging from 1 to
10 years which may be exercised at the Company's option. Most of the leases
are net leases under which the lessees pay their proportionate share of the
taxes, insurance and maintenance costs.
The following capital leases are included in the accompanying combined
balance sheet:
<TABLE>
<S> <C>
Equipment.......................................................... $776,910
Less: Accumulated amortization..................................... 384,632
--------
$392,278
========
</TABLE>
Capitalized lease amortization is included in depreciation expense within
general and administrative expenses in the Company's combined statement of
operations and retained earnings.
Future minimum lease payments under capital and operating leases having
initial or remaining noncancellable lease terms in excess of one year at July
1, 1997, are as follows:
<TABLE>
<CAPTION>
Capital Operating
Fiscal Years Leases Leases
------------ -------- -----------
<S> <C> <C>
1997................................................... $101,000 $ 8,503,300
1998................................................... 202,000 16,931,732
1999................................................... 139,000 16,429,514
2000................................................... 29,000 14,383,881
2001................................................... -- 11,415,684
After 2001............................................. -- 30,592,403
-------- -----------
Total minimum lease payments........................... 471,000 $98,256,514
===========
Less:
Imputed interest..................................... 46,171
--------
Present value of minimum lease payments................ $424,829
========
</TABLE>
Total rental expense under operating leases for the period from December
29, 1996 to July 1, 1997, was $7,983,666.
Certain properties are subleased under operating leases providing for
future annual rental income through 2008; minimum sublease rental income is:
$379,886 in fiscal 1997, $823,033 in fiscal 1998, $818,026 in fiscal 1999,
$835,651 in fiscal 2000, $771,810 in fiscal 2001, and $1,100,730 thereafter.
F-35
<PAGE>
MATTRESS DISCOUNTERS CORPORATION
AND TJB, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Concluded)
In connection with the store closings in the New York and New Jersey
regions, the Company subleased certain locations in which the Company is
obligated for future rentals with respect to such leases if the sublease
defaults on their commitment. Future minimum contingent rents are $424,316 in
fiscal 1997, $802,507 in fiscal 1998, $793,158 in fiscal 1999, $799,308 in
fiscal 2000, $824,491 in fiscal 2001, and $2,731,232 thereafter.
Legal Matters--The Company is party to various lawsuits and actions arising
in the course of its business. In the opinion of management, based on a number
of factors, including advice of outside legal counsel in certain instances,
the ultimate resolution of these matters will not have a material adverse
effect on the financial position or results of operations of the Company.
Employment Contracts--The Company has employment agreements with certain
executive officers, the terms of which expire upon the earliest of the
officers' sixty-fifth birthday, December 31 of the second calendar year after
any calendar year in which the Company provides the officers with written
notice of termination, or the third anniversary of the date on which a change
in Company control occurs, as defined in the agreement. Such agreements
provide for minimum salary levels, adjusted annually for cost-of-living
changes, fringe benefits, and performance bonuses as defined in the
agreements.
8. STOCK OPTION AND PERFORMANCE STOCK AWARD PLANS
On June 30, 1997, the Company made equity rights and stock option
termination payments to certain officers in the total amount of $1,750,000,
which is included in distribution to stockholders' in the Company's combined
statement of operations and retained earnings. The payments were settlement
for equity rights and options pursuant to agreements dated as of April 1,
1996. In consideration of the payments, all equity rights and options have
been canceled. The cancellations were a condition to the acquisition of the
Company by Heilig-Meyers Company in July 1997.
9. SUBSEQUENT EVENTS
On July 2, 1997, Heilig-Meyers Company acquired all of the outstanding
capital stock of Mattress Discounters Corporation and TJB, Inc. The initial
purchase price was valued at approximately $42,900,000 based on the fair
market value of the stock at that date. Heilig-Meyers Company issued 2,269,839
shares of its common stock at the time of closing and placed 264,550 shares of
common stock in escrow to be paid to the former shareholders of Mattress
Discounters if the acquired stores met certain earnings targets in the twelve
months following the closing. On July 8, 1998, these shares were released to
the former shareholders, resulting in an increase to the purchase price of
approximately $3,175,000. The transaction was accounted for as a purchase.
On May 28, 1999, Heilig-Meyers Company entered into a definitive agreement
to sell 93% of its interest in the Company and The Bedding Experts, Inc.,
another Heilig-Meyers Company subsidiary, to an investment group, including
certain key managers of Mattress Discounters, led by Bain Capital, a Boston
based capital investment group.
The Company is obligated to pay certain severance benefits to two former
executives under separation agreements dated September 30, 1997 and March 31,
1999, the terms of which expire on December 31, 1999 and June 30, 2000,
respectively.
* * * * * *
F-36
<PAGE>
Independent Auditors' Report
To the Stockholders
Mattress Discounters:
We have audited the accompanying combined balance sheet of Mattress
Discounters (as defined in note 1 to the combined financial statements) as of
December 28, 1996, and the related combined statements of earnings and
comprehensive income, changes in stockholders' equity and cash flows for the
year then ended. These combined financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
combined financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the combined financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Mattress
Discounters as of December 28, 1996 and the results of their operations and
their cash flows for the year then ended in conformity with generally accepted
accounting principles.
KPMG LLP
Baltimore, Maryland
April 9, 1997
F-37
<PAGE>
MATTRESS DISCOUNTERS
(As Defined in Note 1)
COMBINED BALANCE SHEET
December 28, 1996
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents....................................... $13,415,555
Investment securities (note 4).................................. 971,901
Accounts receivable............................................. 2,339,179
Due from affiliate.............................................. 63,659
Inventories (note 3)............................................ 9,423,442
Prepaid expenses and other current assets....................... 118,863
-----------
Total current assets.......................................... 26,332,599
Property and equipment, net (note 5).............................. 7,844,571
Intangible assets, net (note 6)................................... 672,049
Deposits and other assets......................................... 490,333
-----------
$35,339,552
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (note 7)...................... $ 10,979
Accounts payable................................................ 22,351,756
Due to stockholder.............................................. 76,808
Accrued salaries and payroll taxes.............................. 885,235
Other accrued expenses.......................................... 1,512,741
Current portion of capital lease obligations (notes 5 and 9).... 168,555
-----------
Total current liabilities..................................... 25,006,074
Long-term debt, excluding current portion (note 7)................ 23,635
Noncurrent portion of capital lease obligations (notes 5 and 9)... 339,119
Other noncurrent liabilities...................................... 3,893,442
-----------
Total liabilities............................................. 29,262,270
-----------
Stockholders' equity (notes 8, 10 and 11):
Common stock.................................................... 28,050
Additional paid-in capital...................................... 550,975
Retained earnings............................................... 5,565,001
Accumulated other comprehensive loss............................ (66,744)
-----------
Total stockholders' equity........................................ 6,077,282
Commitments and contingencies (notes 9 and 13)
-----------
$35,339,552
===========
</TABLE>
See accompanying notes to combined financial statements.
F-38
<PAGE>
MATTRESS DISCOUNTERS
(As Defined in Note 1)
COMBINED STATEMENT OF EARNINGS AND COMPREHENSIVE INCOME
Year ended December 28, 1996
<TABLE>
<S> <C>
Sales............................................................ $170,690,380
Cost of sales, delivery and occupancy............................ 113,635,380
------------
57,055,000
General and administrative expenses.............................. 51,899,921
------------
Income from operations........................................... 5,155,079
------------
Other income (expense):
Interest income, net of interest expense of approximately
$50,000....................................................... 548,463
Other income................................................... 220,722
Other expense.................................................. (692,123)
------------
77,062
------------
Net earnings..................................................... 5,232,141
Other comprehensive income:
unrealized gain on investment securities available for sale,
net (note 4).................................................. 19,957
------------
Comprehensive income............................................. $ 5,252,098
============
</TABLE>
See accompanying notes to combined financial statements.
F-39
<PAGE>
MATTRESS DISCOUNTERS
(As Defined in Note 1)
COMBINED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Year ended December 28, 1996
<TABLE>
<CAPTION>
Accumulated
Additional other
Common paid-in Retained comprehensive
stock capital earnings loss Total
------- ---------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Balance at December
30,1995................ $28,050 $550,975 $ 2,687,226 $ (86,701) $ 3,179,550
Net earnings............ -- -- 5,232,141 -- 5,232,141
Distributions to
stockholders........... -- -- (2,354,366) -- (2,354,366)
Other comprehensive
income................. -- -- -- 19,957 19,957
------- -------- ----------- --------- -----------
Balance at December 28,
1996................... $28,050 $550,975 $ 5,565,001 $(66,744) $ 6,077,282
======= ======== =========== ========= ===========
</TABLE>
See accompanying notes to combined financial statements.
F-40
<PAGE>
MATTRESS DISCOUNTERS
(As Defined in Note 1)
COMBINED STATEMENT OF CASH FLOWS
Year ended December 28, 1996
<TABLE>
<S> <C>
Cash flows from operating activities:
Net earnings.................................................... $ 5,232,141
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization on property and equipment....... 2,113,800
Other amortization............................................ 99,925
Realized loss on investment securities........................ 28,347
Loss on disposition of property and equipment................. 109,607
Changes in operating assets and liabilities:
Accounts receivable......................................... (607,264)
Due from affiliate.......................................... 1,716,634
Inventories................................................. (392,668)
Prepaid expenses and other assets........................... 357,825
Accounts payable............................................ 2,911,507
Accrued salaries, payroll taxes and other accrued expenses.. 84,259
Due to stockholder.......................................... (268,853)
Other noncurrent liabilities................................ 777,380
-----------
Net cash provided by operating activities................. 12,162,640
-----------
Cash flows from investing activities:
Property and equipment expenditures............................. (1,822,820)
Proceeds from sale of property and equipment.................... 52,946
Expenditures for intangible asset............................... (7,158)
Proceeds from sales and maturities of investment securities..... 3,595,974
-----------
Net cash provided by investing activities......................... 1,818,942
-----------
Cash flows from financing activities:
Repayments under line of credit................................. (1,711,794)
Payments on capital lease obligations........................... (157,435)
Distributions to stockholders................................... (2,354,366)
Borrowings of long-term debt.................................... 34,614
-----------
Net cash used in financing activities............................. (4,188,981)
-----------
Net increase in cash.............................................. 9,792,601
Cash and cash equivalents at beginning of year.................... 3,622,954
-----------
Cash and cash equivalents end of year............................. $13,415,555
===========
</TABLE>
See accompanying notes to combined financial statements.
F-41
<PAGE>
MATTRESS DISCOUNTERS
(As Defined in Note 1)
NOTES TO COMBINED FINANCIAL STATEMENTS
December 28, 1996
(1) Organization and Principles of Combination
In March 1996, the following corporations merged with and into Mattress
Discounters Corporation of New Jersey in a business reorganization: Mattress
Discounters, Inc., Mattress Discounters West Coast Corporation, Mattress
Discounters of Southern California, Inc., Mattress Discounters of Pittsburgh,
Inc., Mattress Discounters of Michigan, Inc., W.S. Manufacturing Corporation
(MD), W.S. Manufacturing Corporation (MA), and W.S. Manufacturing of
California, Inc. Concurrently, the surviving corporation merged into Mattress
Discounters Corporation.
The combined financial statements include the accounts of the following
corporations (collectively, the "Company") which are engaged in the
manufacture or retail sale of mattresses and bedding products. The financial
position and operating results of the corporations are combined in the
financial statements and are under common ownership and control.
<TABLE>
<CAPTION>
State of No. of
Name of Entity Incorporation Business Market Locations
- -------------- ------------- -------- ------ ---------
<S> <C> <C> <C> <C>
T.J.B., Inc............. Maryland Retail Sales Washington, D.C., 55
Baltimore and Richmond
Mattress Discounters
Corporation............ Delaware Retail Sales and New England, New Jersey, 109
Manufacturing California, Pittsburgh and Detroit
</TABLE>
All significant inter-entity accounts and transactions of the Company have
been eliminated in the combination. The existence of common ownership and
control of the entities could result in operating results or financial
position of the entities that could be significantly different from those that
would have been achieved if the enterprises were autonomous.
(2) Summary of Significant Accounting Policies and Other Matters
Fiscal Year
The Company operates on a 52-53 week fiscal year ending on the Saturday
nearest December 31. The fiscal year ended December 28, 1996 contained 52
weeks.
Cash and Cash Equivalents
The Company classifies all highly liquid investments with original
maturities of three months or less to be cash equivalents.
Investment Securities
The Company classifies its debt and equity securities in one of three
categories: held-to-maturity, trading, or available-for-sale. "Held-to-
maturity securities" are debt securities that the Company has the positive
intent and ability to hold to maturity. These securities are reported at
amortized cost. "Trading securities" are debt and equity securities that are
bought and held principally for the purpose of selling them in the near term
and are reported at fair value, with unrealized gains and losses included in
operations. "Available-for-sale securities" are debt and equity securities
that are not classified as either "held-to-maturity securities" or "trading
securities" and are reported at fair value, with unrealized gains and losses
excluded from operations and reported as a separate component of stockholders'
equity. Fair values are based on quoted market prices. Upon purchase,
management considers the maturity and other characteristics of each investment
and designates each investment into one of the three categories. The
appropriateness of the classification is periodically reassessed.
F-42
<PAGE>
MATTRESS DISCOUNTERS
(As Defined in Note 1)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Inventories
Inventories are stated at the lower of first-in, first-out cost or market
value.
Property and Equipment
Property and equipment are stated at cost. Equipment under capital leases
is stated at the present value of minimum lease payments.
Depreciation on property and equipment is calculated on the straight-line
method over the estimated useful lives of the assets. Equipment under capital
leases and leasehold improvements are amortized, straight-line basis over the
shorter of the lease term or estimated useful life of the asset.
Income Taxes
The corporations comprising the Company have elected to be treated as "S"
corporations for federal and state income tax purposes. Under terms of that
election, the Company does not pay federal and certain state income taxes on
its earnings, since the earnings are allocated to the stockholders of the
Company. Accordingly, no provision for federal income taxes is included in the
combined statement of earnings for 1996. Provisions are made for applicable
state income taxes for those states that do not recognize the "S" corporation
election. These provisions are included in general and administrative expenses
in the accompanying combined statement of earnings. The Company paid state
income taxes of approximately $255,000 in 1996.
Intangible Assets
Intangible assets are amortized on a straight-line basis over the periods
benefited by the expenditures.
Advertising Expenses
The Company recognizes advertising expenses the first time the advertising
takes place. Advertising expense was approximately $15,700,000 during 1996.
Accounting for Stock-Based Compensation
The Company measures compensation costs for stock options using the
intrinsic value based method of accounting prescribed by APB Option No. 25
with pro forma disclosure of net income as if the fair value based method
accounting prescribed by SFAS No. 123 had been applied.
Comprehensive Income
Comprehensive income includes all changes in stockholders' equity during a
period except those related to investments by and distributions to
stockholders. The Company's comprehensive income consists of net earnings and
net unrealised gains on investment securities available-for-sale and is
presented in the combined statement of earnings and comprehensive income in
the combined financial statements.
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 contingencies at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from these estimates.
F-43
<PAGE>
MATTRESS DISCOUNTERS
(As Defined in Note 1)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(3) Inventories
Inventories are summarized as follows:
<TABLE>
<S> <C>
Finished goods.................................................... $8,938,547
Work in process................................................... 106,470
Raw materials..................................................... 378,425
----------
$9,423,442
==========
</TABLE>
The Company purchases the majority (60%) of its mattress inventory from two
suppliers.
(4) Investments in Securities
The carrying value, which represents fair value, of investment securities at
December 28, 1996 was $971,901 and was classified by the Company as
available for sale.
The fair values of the Company's investment securities are summarized as
follows:
<TABLE>
<CAPTION>
Gross
unrealized
Amortized holding Fair
cost losses value
---------- ---------- -------
<S> <C> <C> <C>
Available-for-sale:
Equities..................................... $ 538,645 (66,744) 471,901
Municipal obligations........................ 500,000 -- 500,000
---------- ------- -------
$1,038,645 (66,744) 971,901
========== ======= =======
</TABLE>
The maturity dates or interest-reset dates of municipal obligations occur
principally within one year.
(5) Property and Equipment
Property and equipment are summarized as follows:
<TABLE>
<S> <C>
Leasehold improvements.......................................... $ 5,454,856
Furniture and fixtures.......................................... 3,850,986
Automobiles and delivery equipment.............................. 712,685
Computer equipment and software................................. 2,747,232
Machinery and equipment......................................... 1,780,718
-----------
14,546,477
Less accumulated depreciation and amortization.................. 6,701,906
-----------
$ 7,844,571
===========
</TABLE>
The Company is obligated under capital leases for certain computer hardware
and software (computer equipment) that expire during the year 2000. The
gross amount of the computer equipment and related accumulated amortization
related to the capital leases was approximately $777,000 and $299,000,
respectively, at December 28, 1996. Amortization of assets held under the
capital leases is included with depreciation expense.
F-44
<PAGE>
MATTRESS DISCOUNTERS
(As Defined in Note 1)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(6) Intangible Assets
Intangible assets are summarized as follows:
<TABLE>
<CAPTION>
Description
-----------
<S> <C>
Covenants not to compete......................................... $ 836,000
Copyright for Company jingle..................................... 100,000
License rights................................................... 18,195
Goodwill......................................................... 669,000
----------
1,623,195
Less accumulated amortization.................................... 951,146
----------
$ 672,049
==========
</TABLE>
(7) Long-term Debt
Long-term debt at December 28 1996 represents an 8.25% note payable to a
bank maturing November 1, 1999. The aggregate annual maturities of long-term
debt are: $10,979 in 1997; $11,920 in 1998 and $11,715 in 1999.
The Company has a $5,000,000 revolving line-of-credit with a bank expiring
January 1, 1998. Borrowings under the line-of-credit bear interest at 200
basis points over the London Interbank Offered Rate (LIBOR), are unsecured and
are repayable at expiration of the line of credit. The line-of-credit
agreement contains various financial covenants and limits the payment of
distributions to stockholders. There were no outstanding borrowings at
December 28, 1996; however, the available line of credit is reduced by
approximately $1,800,000 for outstanding letters of credit.
The Company paid interest of approximately $40,000 in 1996.
(8) Related Party Transactions
During the period from December 29, 1996 through March 31, 1997,
distributions aggregating approximately $600,000 were paid to the
stockholders.
(9) Commitments
Leases and Letters of Credit
At December 28, 1996, the Company was committed under noncancellable
operating leases for warehouse, store and office facilities and equipment
expiring at various dates through 2008. Certain leases contain options to
renew, as well as provisions for rent increases based on the consumer price
index and other rent escalation methods. The Company leases several store
locations and its home office, warehouse and distribution center from a
stockholder or entities controlled by the stockholder (collectively, "related
parties"). Certain leased store locations are subleased and generate rental
income. In addition, the Company is obligated under capital leases for certain
computer equipment expiring in 2000.
F-45
<PAGE>
MATTRESS DISCOUNTERS
(As Defined in Note 1)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Future minimum lease payments under the noncancelable operating leases, due
to related parties and others, and future minimum capital lease payments as of
December 28, 1996 are approximately:
<TABLE>
<CAPTION>
Operating leases
--------------------
Capital Related
leases parties Others
-------- --------- ----------
<S> <C> <C> <C>
1997......................................... $202,000 1,311,000 15,825,000
1998......................................... 202,000 1,196,000 15,197,000
1999......................................... 139,000 1,171,000 14,283,000
2000......................................... 29,000 1,159,000 12,190,000
2001......................................... -- 1,132,000 8,886,000
Thereafter................................... -- 3,176,000 21,249,000
-------- --------- ----------
Total minimum lease payments............... 572,000 9,145,000 87,630,000
========= ==========
Less amount representing interest (at rates
ranging from approximately 3% to 10%)..... 64,326
--------
Present value of net minimum capital lease
payments.................................. 507,674
Less current portion of capital lease
obligations............................... 168,555
--------
Obligations under capital leases excluding
current portion........................... $339,119
========
</TABLE>
Certain properties are subleased under operating leases providing for
future annual rental income through 2003. Minimum sublease rental income is
approximately: $978,000 in 1997; $1,011,000 in 1998; $931,000 in 1999;
$953,000 in 2000; $905,000 in 2001; and $1,150,000 thereafter.
Rent expense for 1996 was approximately $16,000,000, including
approximately $1,400,000 to the related parties.
At December 28, 1996, the Company had outstanding letters of credit with a
bank of approximately $1,800,000.
Employment Contracts
The Company has employment agreements with certain executive officers, the
terms of which expire upon the earlier of the officers' sixty-fifth birthday,
December 31 of the second calendar year after any calendar year in which the
Company provides the officers with written notice of termination, or the third
anniversary of the date on which a change in Company control occurs, as
defined in the agreement. Such agreements provide for minimum salary levels,
adjusted annually for cost-of-living changes, fringe benefits and performance
bonuses, as defined in the agreements.
(10) Stockholders' Equity
At December 28, 1996, common stock includes the following:
<TABLE>
<CAPTION>
Shares Shares issued
Name of entity Par value authorized and outstanding
-------------- --------- ---------- ---------------
<S> <C> <C> <C>
T.J.B., Inc............................ No 5,000 4,500
Mattress Discounters Corporations...... $.01 3,000 1,000
</TABLE>
F-46
<PAGE>
MATTRESS DISCOUNTERS
(As Defined in Note 1)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
The Boards of Directors of T.J.B., Inc. and Mattress Discounters
Corporation have also authorized the issuance of 450 and 100 shares,
respectively of Class B (nonvoting) common stock. No Class B stock has been
issued.
(11) Stock Option and Performance Stock Award Plans
In 1996, the Company adopted two stock option plans (Mattress Discounters
Corporation and T.J.B., Inc. Employee Stock Option Plans, collectively the
"Plans") pursuant to which the Company's Board of Directors may grant stock
options to officers and key employees. The Plans authorize grants of options
to purchase up to 100 and 450 shares of authorized but unissued Class B
(nonvoting) common stock, respectively. Stock options are granted with an
exercise price equal to fair value at the date of grant. All stock options
have ten-year terms and vest and become fully exercisable after one year from
the date of grant, or immediately upon a change in control, as defined in the
Plans.
During 1996, options to purchase 50 shares of MDC and 225 shares of T.J.B.,
Inc. with exercise prices at $18,800 and $4,712, respectively, were granted to
certain key employees. No other options have been granted under the option
award plans. At December 28, 1996, no options were exercisable.
At December 28, 1996, there were 275 shares available for grant under the
Plans. The per share weighted-average fair value of stock options granted
during 1996 was approximately $2,000 on the date of grant using the Black
Scholes option-pricing model with the following weighted-average assumptions:
risk-free interest rate of 6.5%, and an expected life of 5 years.
The Company uses the intrinsic value method in accounting for stock option
awards under its Plans and, accordingly, no compensation cost has been
recognized for its stock options in the combined financial statements. Had the
Company determined compensation cost based on the fair value at the grant date
for its stock options under SFAS No. 123, the Company's net earnings would
have been approximately $5,100,000.
In April 1996, the board of directors adopted two performance stock award
agreements (Mattress Discounters Corporation and T.J.B., Inc. Performance
Stock Agreements, collectively the "agreements") pursuant to which certain
officers earn rights to receive common stock of the entities for nominal
amounts upon completion of a defined service period. No expense was recorded
in 1996 related to awards under the agreements.
(12) Employee Benefit Plan
The Company sponsors a deferred compensation plan in accordance with
Internal Revenue Code Section 401(k) covering substantially all employees.
Employees are permitted within limitations imposed by tax law to make pre-tax
contributions to the plan pursuant to salary reduction agreements.
Contributions to the plan by the Company are discretionary. Deferred
compensation plan expense for 1996 was approximately $100,000.
(13) Contingencies
Legal Matters
The Company is a party to various lawsuits and actions arising in the
course of its business. In the opinion of management, based on a number of
factors, including advice of outside counsel in certain instances, the
ultimate resolution of these matters will not have a material adverse effect
on the financial position or results of operations of the Company.
F-47
<PAGE>
MATTRESS DISCOUNTERS
(As Defined in Note 1)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Concluded)
Rentals
In 1995, the Company closed 14 retail store locations in the New York area.
In connection with those store closings, the Company subleased certain store
locations in which the Company is obligated for future rentals with respect to
such subleases if the subleasee defaults on their sublease commitment. Future
minimum contingent rents are approximately: $1,600,000 in 1997; $1,607,000 in
1998; $1,617,000 in 1999; $1,640,000 in 2000; $1,681,000 in 2001 and
$4,169,000 thereafter.
(14) Segment Information
The Company operates in two business segments: retail and manufacturing.
Retail involves the sale of mattresses and bedding products through retail
locations. Manufacturing involves the manufacture and sale of mattresses, box
springs and foundations to the Company's retail segment.
The accounting policies of the two business segments are the same as those
described in the summary of significant accounting policies. The Company
evaluates performance based on the operating earnings of the respective
business segments.
Financial information of the Company's reportable business segments as of
and for the year ended December 28, 1996 is summarized below (amounts are in
thousands):
<TABLE>
<CAPTION>
Manu- Corporate Inter-entity
Retail facturing Other Eliminations Combined
-------- --------- --------- ------------ --------
<S> <C> <C> <C> <C> <C>
Sales................... $170,690 22,456 -- (22,456) 170,690
Segment profit.......... $ 1,862 2,822 -- -- 4,684
Depreciation and
amortization........... $ 1,914 300 -- -- 2,214
Capital expenditures.... $ 1,363 460 -- -- 1,823
Identifiable assets..... $ 15,800 1,468 18,072 -- 35,340
</TABLE>
Segment profit represents earnings before interest income, net of interest
expense. Identifiable assets represent only inventories and net property and
equipment in the retail and manufacturing segments. All other assets are
included in Corporate Other.
F-48
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
Mattress Discounters 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 or investigative (other
than an action by or in the right of such corporation) (hereinafter, a
"proceeding"), 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 Mattress Discounters 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 proceeding by reason of the fact that he
is or was a director or officer of Mattress Discounters Corporation or is or
was serving at the request of Mattress Discounters Corporation as a director,
officer, employee or agent of another corporation or of a partnership, joint
venture, trust or other enterprise shall be indemnified by Mattress
Discounters Corporation to the fullest extent permitted by the General
Corporation Law of the State of Delaware against all expense, liability and
loss (including attorneys' fees), actually and reasonably incurred by such
person in connection with such proceeding.
T.J.B., Inc. is a Maryland corporation. Section 2-418 of the Maryland
General Corporation Law provides that, in general, a corporation may indemnify
each director to the corporation or its stockholders for judgments, penalties,
fines, settlements and reasonable expenses actually incurred by the director
in connection with the proceeding, except for liability (1) where the act or
omission of the director was material to the matter giving rise to the
proceeding and was committed in bad faith or involved active and deliberate
dishonesty; (2) for any transaction from which the director derived an
improper personal benefit; and (3) in the case of a criminal proceeding, the
director had reasonable cause to believe that the act or omission was
unlawful.
The bylaws of T.J.B. provide that any person who is serving or has served
as a director or officer of T.J.B., or at its request as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise in which it owns a capital interest or of which it is a
creditor, shall
II-1
<PAGE>
be indemnified by T.J.B. against judgments, fines, liabilities, costs, amounts
paid in settlement, and expenses (including attorneys' fees) actually and
reasonably incurred by him in connection with the defense of any proceeding,
except in relation to matters as to which such person is adjudged in such
proceeding to be liable for negligence or misconduct in the performance of
duty. The bylaws of T.J.B. require the determination as to whether such
director or officer had not been negligent in the performance of duty by a
majority of the members of the board of directors who are not parties to such
proceeding, or by the stockholders.
The Bedding Experts Inc. is an Illinois corporation. Section 8.75 of the
Illinois Business Corporation Act provides that a corporation may indemnify
any person (or his or her personal representatives) who, by reason of the fact
that such person is or was a director or officer of such corporation, is made
(or threatened to be made) a party to any pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, other
than one brought on behalf of the corporation, against reasonable expenses
(including attorneys' fees), judgments, fines and settlement payments, if such
person acted in good faith and in a manner he or she reasonably believed to be
not opposed to the best interests of such corporation and, in criminal
actions, in addition, had no reasonable cause to believe his or her conduct
was unlawful. In the case of actions on behalf of the corporation,
indemnification may extend only to reasonable expenses (including attorneys'
fees) and only if such person acted in good faith and in a manner he or she
reasonably believed to be not opposed to the best interests of the
corporation, provided that no such indemnification is permitted in respect of
any claim, issue or matter as to which such person is adjudged to be liable
for negligence or misconduct in the performance of his or her duty to the
corporation except to the extent that the adjudicating court otherwise
provides. To the extent that such person has been successful in defending any
action, suit or proceeding (even one on behalf of the corporation) or in
defense of any claim, issue or matter therein, such person is entitled to
indemnification for reasonable expenses (including attorney's fees) incurred
by such person in connection therewith.
The bylaws of Bedding Experts provide that any person who was or is a party
or is threatened to be made a party to any proceeding by reason of the fact
that he is or was a director, officer, employee or agent of Bedding Experts
shall be indemnified against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by such
person in connection with such proceeding, provided, however, he acted in good
faith and in a manner he reasonably believed to be in the best interests of
Bedding Experts, and, with respect to any criminal proceeding, he had no
reasonable cause to believe such conduct was unlawful. The bylaws of Bedding
Experts require the determination as to whether any indemnification is proper
in the circumstances to be made by a majority vote of the board of directors
excluding directors who were party to any proceeding, or by the shareholders.
Bedding Experts is empowered to purchase and maintain insurance on behalf of
any person who is or was a director, officer, employee or agent of Bedding
Experts, or is or was serving at the request of Bedding Experts as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, any liability incurred by such person in such
capacity.
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.
II-2
<PAGE>
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;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) 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;
(iii) 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.
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-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Upper
Marlboro, State of Maryland, on February 1, 2000.
Mattress Discounters Corporation
By: /s/ Stephen A. Walker
----------------------------------
Name:Stephen A. Walker
Title: Chief Executive Officer
and Director
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Stephen A. Walker and James B. Hirshorn and
each of them, as true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for him and in his name, place and stead,
in any and all capacities (including his capacity as a director and/or officer
of Mattress Discounters Corporation), to sign any or all amendments (including
post-effective amendments) to this registration statement and any subsequent
registration statement filed pursuant to Rule 462(b) under the Securities Act
of 1933, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-4 has been signed by the following persons in
the capacities indicated on February 1, 2000.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Stephen A. Walker Chief Executive Officer and
___________________________________________ Director (principal
Stephen A. Walker executive officer)
/s/ James B. Hirshorn Chief Financial Officer and
___________________________________________ Director
James B. Hirshorn (principal financial
officer)
/s/ Joshua Bekenstein Director
___________________________________________
Joshua Bekenstein
/s/ Michael Krupka Vice President and Director
___________________________________________
Michael Krupka
Director
___________________________________________
Steven M. Lytell
Director
___________________________________________
Andrew S. Janower
Director
___________________________________________
Joe L. Gonzalez
</TABLE>
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Upper
Marlboro, State of Maryland, on February 1, 2000.
The Bedding Experts, Inc.
By: /s/ Stephen A. Walker
----------------------------------
Name:Stephen A. Walker
Title: Chief Executive Officer
and Director
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Stephen A. Walker and James B. Hirshorn and
each of them, as true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for him and in his name, place and stead,
in any and all capacities (including his capacity as a director and/or officer
of The Bedding Experts, Inc.), to sign any or all amendments (including post-
effective amendments) to this registration statement and any subsequent
registration statement filed pursuant to Rule 462(b) under the Securities Act
of 1933, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-4 has been signed by the following persons in
the capacities indicated on February 1, 2000.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Stephen A. Walker Chief Executive Officer and
___________________________________________ Director (principal
Stephen A. Walker executive officer)
/s/ James B. Hirshorn Vice President, Secretary,
___________________________________________ Treasurer and Director
James B. Hirshorn (principal financial
officer)
/s/ Joshua Bekenstein Director
___________________________________________
Joshua Bekenstein
/s/ Michael Krupka Vice President and Director
___________________________________________
Michael Krupka
Director
___________________________________________
Steven M. Lytell
Director
___________________________________________
Andrew S. Janower
Director
___________________________________________
Joe L. Gonzalez
</TABLE>
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Upper
Marlboro, State of Maryland, on February 1, 2000.
T.J.B., Inc.
By: /s/ Stephen A. Walker
----------------------------------
Name:Stephen A. Walker
Title: Chief Executive Officer
and Director
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Stephen A. Walker and James B. Hirshorn and
each of them, as true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for him and in his name, place and stead,
in any and all capacities (including his capacity as a director and/or officer
of T.J.B., Inc.), to sign any or all amendments (including post-effective
amendments) to this registration statement and any subsequent registration
statement filed pursuant to Rule 462(b) under the Securities Act of 1933, and
to file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-4 has been signed by the following persons in
the capacities indicated on February 1, 2000.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Stephen A. Walker Chief Executive Officer and
___________________________________________ Director (principal
Stephen A. Walker executive director)
/s/ James B. Hirshorn Vice President, Secretary,
___________________________________________ Treasurer and Director
James B. Hirshorn (principal financial
officer)
/s/ Joshua Bekenstein Director
___________________________________________
Joshua Bekenstein
/s/ Michael Krupka Vice President and Director
___________________________________________
Michael Krupka
Director
___________________________________________
Steven M. Lytell
Director
___________________________________________
Andrew S. Janower
Director
___________________________________________
Joe L. Gonzalez
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<C> <S>
2.1 Transaction Agreement, dated May 28, 1999 by and among Heilig-Meyers
Company, Heilig-Meyers Associates, Inc., and Mattress Discounters
Acquisition Corporation.*
2.2 Amendment No. 1 to the Transaction Agreement, dated July 15, 1999 by and
among Heilig-Meyers Company, Heilig-Meyers Associates, and Mattress
Discounters Acquisition Corporation.*
2.3 Amendment No. 2 to the Transaction Agreement, dated July 27, 1999 by and
among Heilig-Meyers Company, Heilig-Meyers Associates, and Mattress
Discounters Acquisition Corporation.*
2.4 Articles of Merger merging Mattress Discounters Acquisition Corporation
into Heilig-Meyers Associates, Inc., dated as of August 6, 1999 as filed
with the Commonwealth of Virginia State Corporation Commission.*
3.1 Articles of Incorporation of Mattress Discounters Corporation, dated
March 4, 1996.*
3.2 By-laws of Mattress Discounters Corporation dated March 5, 1996.*
3.3 Articles of Incorporation of The Bedding Experts, Inc. dated July 1,
1984.*
3.4 By-laws of The Bedding Experts, Inc. dated July 1, 1984.*
3.5 Articles of Incorporation of T.J.B., Inc. dated April 3, 1980.*
3.6 By-laws of T.J.B., Inc. dated April 3, 1980.*
3.7 By-laws of Mattress Discounters Acquisition Corporation, dated August 6,
1999.*
4.1 Indenture, dated as of August 6, 1999 by and among Mattress Discounters
Corporation, as the Issuer, the Guarantors named therein and State Street
Bank and Trust Company, as the Trustee.*
5.1 Opinion of Kirkland & Ellis.*
8.1 Opinion of Kirkland & Ellis with respect to Federal tax consequences.*
9.1 Stockholders Agreement, dated August 6, 1999 by and among Mattress
Discounters Corporation ( previously Mattress Discounters Holding
Corporation), Mattress Discounters Holding L.L.C., Heilig-Meyers Company,
and certain other stockholders of Mattress Holding Corporation who are
from time to time a party thereto.*
10.1 Registration Rights Agreement, dated August 6, 1999 by and among Mattress
Holding Corporation, Mattress Holding L.L.C., Heilig-Meyers Corporation,
and certain other stockholders of Mattress Discounters Holding
Corporation who are from time to time a party thereto.*
10.2 Common Stock Registration Rights Agreement, dated as of August 6, 1999 by
and among Mattress Discounters Corporation, Mattress Discounters Holding
L.L.C., and Chase Securities, Inc, CIBC World Markets Corp., and
BancBoston Robertson Stephens, Inc.*
10.3 Purchase Agreement, dated August 3, 1999 by and among Mattress
Discounters Corporation, Mattress Discounters Corporation, the Guarantors
and the Initial Purchasers.*
10.4 Supply Agreement, dated March 17, 1997 by and among Mattress Discounters
Corporation and Sealy, Inc.**
10.5 Amendment No. 1 to the Supply Agreement, dated March 17, 1997 by and
among Mattress Discounters Corporation and Sealy, Inc.**
10.6 Amendment No. 2 to the Supply Agreement, dated March 17, 1997 by and
among Mattress Discounters Corporation and Sealy, Inc.**
10.7 Amendment No. 3 to the Supply Agreement dated March 17, 1997 by and among
Mattress Discounters Corporation and Sealy, Inc.**
10.8 Amendment No. 4 to the Supply Agreement dated March 17, 1997 by and among
Mattress Discounters Corporation and Sealy, Inc.**
10.9 Supply Agreement, dated August 6, 1999 by and among Heilig-Meyers
Company, Mattress Discounters Corporation, and Mattress Holding
Corporation (previously MD Acquisition Corporation.)**
</TABLE>
II-7
<PAGE>
<TABLE>
<C> <S>
10.10 Amendment No. 1 to the Supply Agreement, dated August 6, 1999 by and
among Heilig-Meyers Company, Mattress Discounters Corporation, and
Mattress Holding Corporation.**
10.11 Indemnity Agreement, dated May 28, 1999 by and among Heilig-Meyers
Company, Bain Capital, Inc., and Mattress Discounters Acquisition
Corporation.*
10.12 Amendment No. 1 to the Indemnity Agreement, dated July 29, 1999 by and
among Heilig-Meyers Company, Bain Capital, Inc., and Mattress
Discounters Acquisition Corporation.*
10.13 Assignment and Assumption Agreement, dated August 6, 1999 by and between
Heilig-Meyers Company and mattress Discounters Corporation.*
10.14 Tax Agreement, dated August 6, 1999 by and among Heilig-Meyers Company,
Heilig-Meyers Associates, Inc., Mattress Discounters Acquisition
Corporation, T.J.B., Inc., and The Bedding Experts, Inc.*
10.15 Tax Sharing Agreement, dated August 6, 1999 by and among Mattress
Discounters Holding, LLC, Mattress Holding Corporation, Mattress
Discounters Corporation, The Bedding Experts, Inc., T.J.B., Inc., and
Comfort Source Mattress Company.*
10.16 Landlord Agreement, dated July 27, 1999 by O.J.B./ Mid Atlantic Realty
IV, LLC.*
10.17 Management Services Agreement, dated August 6, 1999 by and among
Mattress Holding Corporation, Mattress Discounters Corporation, and Bain
Capital, Inc.*
10.18 Executive Stock and Option Agreement, dated August 6, 1999 between
Mattress Holding Corporation and Steven M. Lytell.*
10.19 Executive Stock and Option Agreement, between Mattress Holding
Corporation and Stephen A. Walker.**
10.20 Executive Stock and Option Agreement, dated August 6, 1999 between
Mattress Holding Corporation and Raymond T. Bojanowski.*
10.21 Executive Stock and Option Agreement, dated August 6, 1999 between
Mattress Holding Corporation and Richard L. Branch.*
10.22 Executive Stock and Option Agreement, between Mattress Holding
Corporation and Michael Mauler.**
10.23 Executive Stock and Option Agreement, dated August 6, 1999 between
Mattress Holding Corporation and Robert D. Gorney.*
10.24 Employment Agreement, dated August 6, 1999 between Mattress Discounters
Corporation and Steven M. Lytell.*
10.25 Employment Agreement, dated December 6, 1999 between Mattress
Discounters Corporation and Stephen A. Walker.*
10.26 Employment Agreement, dated August 6, 1999 between Mattress Discounters
Corporation and Raymond T. Bojanowski.*
10.27 Employment Agreement, dated August 6, 1999 between Mattress Discounters
Corporation and Richard L. Branch.*
10.28 Employment Agreement, between Mattress Discounters Corporation and
Michael Mauler.**
10.29 Warrant Agreement, dated August 6, 1999 between Mattress Discounters
Holding Corporation and State Street Bank and Trust Company.*
10.30 Credit Agreement, dated August 6, 1999 by and between Mattress
Discounters Holding Corporation, Mattress Discounters Corporation,
BancBoston, N.A., Canadian Imperial Bank of Commerce, and the Chase
Manhattan Bank.*
10.31 Guarantee and Collateral Agreement, dated August 6, 1999 by and between
Mattress Holding Corporation, Mattress Discounters Corporation, and
Chase Manhattan Bank.*
12.1 Statement of Ratio of Earnings to Fixed Charges.*
21.1 Subsidiaries of the Registrant.*
23.1 Consent of Kirkland & Ellis (included in Exhibit 5.1).*
</TABLE>
II-8
<PAGE>
<TABLE>
<C> <S>
23.2 Consent of Deloitte & Touche LLP.**
23.3 Consent of KPMG 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.*
</TABLE>
*Filed herewith.
**To be filed by amendment.
II-9
<PAGE>
EXHIBIT 2.1
EXECUTION COPY
TRANSACTION AGREEMENT
AMONG
HEILIG-MEYERS COMPANY,
HEILIG-MEYERS ASSOCIATES, INC.
AND
MD ACQUISITION CORPORATION
Dated as of May 28, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. THE MERGER AND RECAPITALIZATION
-------------------------------
1.1 The Merger and Recapitalization.................. 2
-------------------------------
1.2 Adjustment to the Purchase Price................. 4
--------------------------------
1.3 Related Agreements............................... 6
------------------
2. REPRESENTATIONS AND WARRANTIES
------------------------------
2.1 Representations and Warranties of Seller......... 6
----------------------------------------
2.2 Representations and Warranties of Buyer.......... 24
---------------------------------------
3. CONDUCT AND TRANSACTIONS BEFORE CLOSING
---------------------------------------
3.1 Access to Records and Properties................. 28
--------------------------------
3.2 Operation of Business of the Companies........... 28
--------------------------------------
3.3 Forebearances by Seller.......................... 29
-----------------------
3.4 Senior Sub Note Offering......................... 30
------------------------
3.5 Efforts to Consummate............................ 31
---------------------
4. CONDITIONS TO CLOSING
---------------------
4.1 Conditions to Obligations of Buyer............... 32
----------------------------------
4.2 Conditions to Obligations of Seller.............. 35
-----------------------------------
5. CLOSING
-------
5.1 The Closing...................................... 37
-----------
5.2 Deliveries by Seller............................. 37
--------------------
5.3 Deliveries by Buyer.............................. 38
-------------------
5.4 Deliveries by Seller and Buyer................... 39
------------------------------
6. SURVIVAL OF REPRESENTATIONS
---------------------------
AND WARRANTIES AND INDEMNIFICATION
----------------------------------
6.1 Survival of Representations and Warranties....... 39
------------------------------------------
6.2 Indemnification.................................. 40
---------------
7. TERMINATION
-----------
7.1 Termination...................................... 46
-----------
7.2 Effect of Termination............................ 46
---------------------
8. EMPLOYEES AND EMPLOYEE MATTERS
------------------------------
8.1 General.......................................... 46
-------
8.2 Seller's Section 401(k) Plan..................... 48
----------------------------
8.3 COBRA............................................ 50
-----
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
8.4 Administration................................... 50
--------------
9. MISCELLANEOUS COVENANTS AND OTHER PROVISIONS
--------------------------------------------
9.1 Access to Records................................ 50
-----------------
9.2 Hart-Scott-Rodino Filings........................ 50
-------------------------
9.3 Expenses......................................... 51
--------
9.4 Public Announcements............................. 51
--------------------
9.5 Further Assurances............................... 51
------------------
9.6 Descriptive Headings, Schedules and Exhibits..... 51
--------------------------------------------
9.7 Counterparts..................................... 52
------------
9.8 Notices.......................................... 52
-------
9.9 Successors and Assigns........................... 53
----------------------
9.10 Law Applicable................................... 53
--------------
9.11 Entire Agreement................................. 54
----------------
</TABLE>
SCHEDULES
Schedule 1.2 - Working Capital Adjustment
Schedule 1.2(a) - Working Capital Calculation Example
Schedule 2.1(b) - Non-Contravention
Schedule 2.1(d) - Litigation
Schedule 2.1(e) - Material Contracts
Schedule 2.1(g) - Employee Benefit Plans
Schedule 2.1(h) - Labor and Employment Matters
Schedule 2.1(i) - Environmental and Safety Matters
Schedule 2.1(k) - Intellectual Property
Schedule 2.1(o) - Tax Matters
Schedule 2.1(r) - Subsidiaries
Schedule 2.1(s) - Undisclosed Liabilities
Schedule 2.2(f) - Commitment Letters
Schedule 4.1(l) - Employment Agreements
Schedule 6.2(a)(iv) - Lease Consents and Indemnifications
Schedule 6.2(a)(v) - Litigation Matters
EXHIBITS
Exhibit - A Plan of Merger
Exhibit - B Junior Subordinated Notes
Exhibit - C Tax Agreement
Exhibit - D Mattress Supply Agreement
Exhibit - E Advertising Agreement
Exhibit - F Indemnity Agreement
Exhibit - G Opinion of McGuire, Woods, Battle & Boothe LLP
ii
<PAGE>
Exhibit - H Opinion of Kirkland & Ellis
Exhibit - I Terms of Stockholders Agreement
iii
<PAGE>
TRANSACTION AGREEMENT
THIS AGREEMENT ("Agreement") made as of the ___ day of May, 1999, by and
among Heilig-Meyers Company, a Virginia corporation ("Seller"), Heilig-Meyers
Associates, Inc., a Virginia corporation ("Oldco"), and MD Acquisition
Corporation, a Virginia corporation ("Buyer"), provides:
RECITALS
--------
A. Seller owns all of the issued and outstanding shares of common stock
of Oldco ("Oldco Shares").
B. Seller owns all of the issued and outstanding shares (the "Shares") of
common stock of Mattress Discounters Corporation, a Delaware corporation
("Mattress Discounters"), T.J.B., Inc., a Maryland corporation ("TJB") and The
Bedding Experts, Inc., an Illinois corporation ("Bedding Experts") (Mattress
Discounters, TJB and Bedding Experts, collectively, with the subsidiary set
forth on Schedule 2.1(r) the "Companies"). The business and operations of the
Companies as currently conducted is referred to herein as the "Business."
C. Seller has agreed to contribute all of the Shares to the capital of
Oldco prior to the Effective Time (as defined in the Plan of Merger attached
hereto as Exhibit A).
D. Seller, Buyer and Oldco have agreed to consummate a merger (the
"Merger") pursuant to which Buyer would merge with and into Oldco and Seller
would receive cash and a promissory note in exchange for a portion of the Oldco
Shares currently owned by Seller and the remainder of the Oldco Shares currently
owned by Seller will become shares of common stock of the Surviving Corporation.
<PAGE>
E. It is intended that the Merger be recorded as a recapitalization for
financial reporting purposes.
1. THE MERGER AND RECAPITALIZATION
-------------------------------
1.1 The Merger and Recapitalization. Subject to the terms and conditions
-------------------------------
set forth herein, at the Closing (as defined in Section 5.1), the following
transactions shall occur:
(a) Seller shall contribute all of the Shares to Oldco (the
"Contribution").
(b) Subject to the terms and conditions set forth herein, on the
Closing Date (as defined in Section 5.1), immediately after the Contribution and
the Borrowings (described below), Buyer shall merge with and into Oldco pursuant
to the Plan of Merger attached hereto as Exhibit A (the "Merger") in accordance
with the Virginia Stock Corporation Act and Oldco shall be the surviving
corporation (the "Surviving Corporation"). Pursuant to the Merger, and without
any action on the part of the holders thereof;
(i) each share of Class A Common Stock, $.01 par value per
share, of Buyer, issued and outstanding immediately prior to the Effective
Time, shall, at the Effective Time, be converted into one fully paid and
nonassessable share of Class A Common Stock, $.01 par value per share, of
the Surviving Corporation (the "Class A Stock"), and each share of Class L
Common Stock, $.01 par value per share, of Buyer, issued and outstanding
immediately prior to the Effective Time, shall, at the Effective Time, be
converted into one fully paid and nonassessable share of Class L Common
Stock, $.01 par value per share, of the Surviving Corporation (the "Class L
Stock" and together with the Class A Stock, the "Surviving Corporation
Common Stock"); and
2
<PAGE>
(ii) the aggregate of the Oldco Shares (representing all of the
issued and outstanding capital stock of Oldco immediately prior to the
Effective Time) shall, at the Effective Time, be converted into the right
to receive (A) that number of fully paid and nonassessable shares of
Surviving Corporation Common Stock such that, immediately following the
Effective Time, Seller will own 7% of each class of the issued and
outstanding Surviving Corporation Common Stock; (B) $218 million cash,
subject to a working capital adjustment as provided in Section 1.2; and (c)
junior subordinated notes in the principal amount of $7.5 million (the
"Junior Subordinated Notes"), in the form attached hereto as Exhibit B
((A), (B) and (c) are collectively referred to in this Agreement as, the
"Merger Consideration").
(c) Subject to the terms and conditions set forth herein, at the
Closing, Oldco and the Companies will collectively borrow (the "Borrowings"),
and certain providers of financing (the "Lenders") as described in the
Commitment Letters (as defined in Section 2.2(f)) will lend to Oldco and the
Companies with respect to such Borrowings, such amount so that sufficient cash
is available at the Effective Time (net of any fees, expenses or other costs
required to be paid by Oldco in connection with the Transactions (as defined
below)) for $138.5 million of the cash component of the Merger Consideration.
The Contribution, Merger, and Borrowings are hereinafter referred to
collectively as the "Transactions."
3
<PAGE>
(d) The parties agree that immediately following the Merger Oldco
will contribute all of the issued and outstanding capital stock of TJB and
Bedding Experts to the capital of Mattress Discounters.
(e) If, at any time after the Effective Time, the Surviving
Corporation shall consider or be advised any deeds, bills of sale, assignments,
assurances or any other actions or things are necessary or appropriate to (i)
vest, perfect or confirm, of record or otherwise, in the Surviving Corporation,
its right, title or interest in, to or under, any of the rights, properties or
assets of Oldco or Buyer acquired or to be acquired by the Surviving Corporation
as a result of, or in connection with, the Merger or (ii) otherwise carry out
the purposes of this Agreement, Oldco and its officers and directors and Buyer
shall take all reasonable steps necessary to execute and deliver all such deeds,
bills of sale, assignments and assurances and to take and do all such other
reasonable actions and things as may be necessary or appropriate to vest,
perfect or confirm any and all rights, title, properties or assets in the
Surviving Corporation or to otherwise carry out the purposes of this Agreement.
1.2 Adjustment to the Purchase Price.
--------------------------------
(a) As promptly as practical, but in no event more than 75 days after
the Closing, the Surviving Corporation shall prepare and deliver to Seller a
calculation of Working Capital of the Companies ("Preliminary Working Capital
Statement") as of the Closing. Working Capital shall mean current assets less
current liabilities, subject to the adjustments set forth on Schedule 1.2. The
Preliminary Working Capital Statement will be prepared on a basis consistent
with the manner in which the Financial Statements were prepared. Schedule 1.2(a)
sets
4
<PAGE>
forth an example (based on financial information dated as of February 28, 1999)
of how the preliminary working capital statement shall be prepared.
(b) Within thirty days after receipt of the Preliminary Working
Capital Statement, Seller shall give written notice of any objections to the
Preliminary Working Capital Statement (which must describe in reasonable detail
the basis of such objection) (the "Objection Letter"). Seller and its
accountants or auditors shall be given access to the Surviving Corporation's
working papers and such other information, including without limitation, a
review of and participation in, any inventory count, which were used in
preparation of the Preliminary Working Capital Statement as reasonably
necessary. If no such notice is given with respect to any item, then such items
shall be deemed agreed upon and deemed final and conclusive for purposes of
determining the "Final Working Capital Statement."
(c) As soon as practicable but not later than fifteen days after the
receipt of the Objection Letter, the parties shall attempt to resolve any
disputed items. If the parties are able to resolve all such disputed items, the
Preliminary Working Capital Statement so agreed upon shall become the "Final
Working Capital Statement." If such objections cannot be resolved between the
Surviving Corporation and Seller within the 15 days after delivery of the
Objection Letter by Seller, the question or questions in dispute shall then be
submitted, as soon as practicable, to a mutually acceptable firm of independent
public accountants of recognized standing that is not rendering (and has not
rendered in the past two years) audit services to either Buyer or Seller, the
decision of which as to such question or questions in dispute shall be final and
binding upon Seller and the Surviving Corporation.
5
<PAGE>
(d) If the Final Working Capital Statement, after the resolution of
all disputes, indicates that the amount of Working Capital of the Companies was
greater than $873,915, the Surviving Corporation shall promptly pay to Seller,
in immediately available funds, with interest at 7% per annum, the amount of
such excess. If the Final Working Capital Statement, after the resolution of all
disputes, indicates that the amount of Working Capital of the Companies was less
than $873,915, Seller shall promptly pay to the Surviving Corporation, in
immediately available funds, with interest at 7% per annum, the amount of such
deficiency.
(e) Each party shall bear its own expenses in connection with
preparation and analysis of the Preliminary and Final Working Capital Statement.
The fees of any independent accounting firm appointed pursuant to Section 1.2(d)
shall be borne equally by Seller and the Surviving Corporation; provided,
however, that all costs shall be borne by a party if more than 50% of a dispute
is resolved against them.
(f) At or before submission to Seller of the Preliminary Working
Capital Statement, Buyer shall submit to Seller a schedule setting forth any
indebtedness, including capital lease obligations, of the Companies not included
on the Preliminary Working Capital Statement (the "Closing Debt"). Subject to
the same dispute resolution mechanisms set forth in Sections 1.2(b) through (d)
above, Seller shall promptly remit to Buyer funds in an amount equal to the
Closing Debt.
1.3 Related Agreements. In connection with the sale and purchase of the
------------------
Shares contemplated by this Agreement, (i) Seller and Buyer will enter into an
agreement in substantially the form attached hereto as Exhibit C pursuant to
which Seller and Buyer will agree how certain tax matters which may arise will
be handled, (ii) Seller, Buyer and the Companies
6
<PAGE>
will enter into a purchase agreement in substantially the form attached hereto
as Exhibit D with respect to the purchase of mattresses by Seller from the
Companies and (iii) Seller, Buyer and the Companies shall have entered into the
advertising agreement in substantially the form attached hereto as Exhibit E.
The foregoing agreements are hereinafter collectively referred to as the
"Related Agreements".
2. REPRESENTATIONS AND WARRANTIES
------------------------------
2.1 Representations and Warranties of Seller. Seller represents and
----------------------------------------
warrants to Buyer that the following statements are true and correct as of the
date hereof (it being agreed that for purposes hereof, the term "knowledge"
means the actual knowledge after reasonable investigation of the elected
officers of Seller who are elected officers of the Companies and the elected
officers of the Companies).
(a) Organization; Qualification. Seller, Oldco and each of the
---------------------------
Companies is a corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation, and is duly qualified
to do business and in good standing in each jurisdiction where the character of
its properties or the nature of its activities make such qualification
necessary, except where the failure to qualify would not (i) have a material
adverse effect on Seller or (ii) have a Material Adverse Effect (as defined
below). "Material Adverse Effect" means a material adverse affect on the
business, assets, results of operations or financial condition of the Companies
taken together as a whole.
(b) Authority Relative to this Agreement.
------------------------------------
(i) Seller and Oldco each has the corporate power and authority
to enter into this Agreement and the Related Agreements and to consummate
the
7
<PAGE>
transactions contemplated hereby and thereby. This Agreement has been duly
executed and delivered by Seller and Oldco and is, and each of the Related
Agreements when executed and delivered by Seller and Oldco will be, a valid
and binding agreement of each of Seller and Oldco, enforceable against each
of Seller and Oldco in accordance with its terms. Each of Seller and Oldco
has taken all corporate action necessary to approve this Agreement, the
Related Agreements and the transactions contemplated hereby and thereby.
(ii) The execution, delivery and performance of this Agreement
and the Related Agreements by Seller and Oldco and the consummation of the
transactions contemplated hereby and thereby will not:
(a) conflict with or result in a violation or breach of any
of the terms, conditions or provisions of the certificate or
articles of incorporation or bylaws (or other comparable
corporate charter documents) of Seller, Oldco or any of the
Companies;
(b) conflict with or result in a violation or breach of any
term or provision of any law, statute, ordinance, code or
regulation ("Law") or any rule, order, judgment, decree,
standard, requirement or procedure ("Order") enacted,
adopted, promulgated, applied or followed by any federal,
state, municipal, local or other government (domestic or
foreign), governmental agency, commission, court, authority,
tribunal, arbitrator, agency, commission, official, body or
other instrumentality ("Governmental Authority") applicable
to Seller, Oldco or the Companies
8
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or any of their respective assets and properties, except
where such violation or breach would not have a Material
Adverse Effect or a material adverse effect on the ability
of Seller, Oldco or the Companies to consummate the
transactions contemplated hereby; or
(c) except as disclosed in Schedule 2.1(b), (A) conflict
with or result in a violation or breach of, (B) constitute
(with or without notice or lapse of time or both) a default
under, (c) result in or give to any Person any right of
termination, cancellation, acceleration or modification in
or with respect to, (D) result in or give any person any
additional rights or entitlement to increased, additional,
accelerated or guaranteed payments under, or (E) result in
the creation or imposition of any mortgage, pledge, security
interest, lien, charge or other encumbrance ("Lien") upon
any of the Companies, Oldco or any of their respective
assets and properties under, any Material Contract (as
hereinafter defined) or license, permit, certificate of
authority, authorization, approval, registration, franchise
or similar consent granted or issued by any Governmental
Authority to which Seller, Oldco or any Company is a party
or by which any of their respective assets and properties is
bound, except where such conflict, violation, breach, or
default, termination, cancellation, acceleration,
modification or Lien would not have a Material Adverse
Effect or a material adverse effect on the ability of
Seller, Oldco or the Companies to consummate the
transactions contemplated hereby.
9
<PAGE>
(c) Capitalization of the Company; Validity of Shares. The authorized
-------------------------------------------------
capital of Mattress Discounters consists solely of 3,000 shares of common stock,
$.01 par value, of which, as of the date hereof, 1,000 shares are validly issued
and outstanding, fully paid and nonassessable. The authorized capital of TJB
consists solely of 5,000 shares of common stock, no par value, of which, as of
the date hereof, 4,500 shares are validly issued and outstanding, fully paid and
nonassessable. The authorized capital of Bedding Experts consists solely of
1,000 shares of common stock, no par value, of which, as of the date hereof,
1,000 shares are validly issued and outstanding, fully paid and nonassessable.
The authorized capital of the subsidiary described on Schedule 2.1(r) consists
solely of the shares set forth thereon and all the outstanding shares of such
subsidiaries set forth thereon are validly issued and outstanding, fully paid
and nonassessable and are owned beneficially and of record by Mattress
Discounters. The authorized capital of Oldco consists solely of 5,000 shares of
common stock, $1.00 par value, of which, as of the date hereof, 100 shares are
validly issued and outstanding, fully paid and nonassessable. Seller owns the
Shares and the Oldco Shares beneficially and of record. The Shares constitute
all of the outstanding shares of capital stock of the Companies. The Oldco
Shares constitute all of the outstanding shares of capital Stock of Oldco.
Seller has good title to the Oldco Shares and the Shares, free and clear of
encumbrances and upon the transfer of the Shares to Oldco pursuant to this
Agreement Oldco will have good title to the Shares, free and clear of
encumbrances. None of the Companies or Oldco have any commitment to issue or
sell any shares of their capital stock or any securities or obligations
convertible into or exchangeable for, or giving any person or entity any right
to acquire from them, any shares of their capital stock and no such securities
or obligations are issued or outstanding. The Shares and the Oldco Shares have
been offered,
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issued and sold in compliance with all applicable laws. Seller has full voting
power over the Shares and the Oldco Shares, subject to no proxy, shareholders'
agreement, voting trust or other agreement relating to the voting of any of the
Shares. Other than this Agreement, there is no agreement between Seller and any
Person with respect to the disposition of the Shares or the Oldco Shares or
otherwise relating to the Shares or the Oldco Shares.
(d) Litigation. Except as listed on Schedule 2.1(d), none of Seller,
----------
Oldco or any of the Companies is involved in, or the subject of, any pending or,
to Seller's knowledge, threatened suit, action, claim, investigation, or
proceeding in or by any Governmental Authority, or any legal, administrative,
arbitration, condemnation or eminent domain proceeding, which if determined
adversely to Seller, Oldco or any of the Companies, (i) could reasonably be
expected to have a Material Adverse Effect, or (ii) could reasonably be expected
to have a material adverse effect on the ability of Seller or Oldco to
consummate the transactions contemplated by this Agreement. Except as listed on
Schedule 2.1(d), there is no outstanding order, writ, injunction or decree of or
settlement enforceable by any Governmental Authority against or affecting any of
the Companies or Oldco which would have a Material Adverse Effect.
(e) Material Contracts. Schedule 2.1(e) contains a true and accurate
------------------
list of each of contract, agreement or commitment of the Companies:
(i) upon which any substantial part of the Business is
dependent or which, if breached, could reasonably be expected to have a
Material Adverse Effect or a material adverse effect on the ability of
Seller, Oldco or the Companies to consummate the transactions contemplated
hereby;
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<PAGE>
(ii) which provides for aggregate future payments by or to any
of the Companies of more than $100,000 in any calendar year;
(iii) relating to any indebtedness of the Companies;
(iv) containing any provision or covenant prohibiting or
limiting the ability of the Companies to engage in any business activity or
compete with any Person or prohibiting or limiting the ability of any
Person to compete with the Companies;
(v) relating to any arrangement with a distributor, dealer,
sales agent or manufacturer representative which is not terminable without
penalty on 60 days' or less notice by the Companies;
(vi) which is an agreement relating to employment or severance
that is not terminable at will by the applicable Company; or
(vii) under which any Company is a lessor or lessee of (i) real
property or (ii) personal property, and which requires annual payments in
excess of $100,000 in any year from or to any Company in the case of (ii).
Each of the foregoing is referred to in this Agreement as a "Material
Contract." All of the Material Contracts are in full force and effect; no
Material Contracts have been breached by the Companies, in any material respect,
or to Seller's knowledge, by any other party thereto; and, to Seller's
knowledge, no event has occurred with respect to any Material Contract which,
with the giving of notice or the passage of time or both, would constitute a
breach thereof by any party thereto, excluding any breaches which would not have
a Material Adverse Effect. To Seller's knowledge, no other party has asserted a
default by any of the Companies or Seller under any Material Contracts. Complete
copies of all Material Contracts have been delivered or made
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<PAGE>
available to Buyer. Except as set forth on Schedule 2.1(e), no consent or
approval is required under the terms of any of the Material Contracts in
connection with the consummation of the transactions contemplated by the
Agreement. Other than this Agreement, neither Oldco nor the subsidiary listed on
Schedule 2.1(r) is a party to any other agreement.
(f) Licenses and Permits and Compliance with Laws. The Companies
---------------------------------------------
have, and are in compliance with, all governmental licenses, permits and other
authorizations, and have made all filings, necessary to conduct the Business,
except where the failure to have, or be in compliance with, such license,
permits and other authorizing actions or to make such filings could not
reasonably be expected to have a Material Adverse Effect. The Companies are
operating, and since the date of their acquisition by Seller have been operated,
in compliance in all material respects with all Laws and Orders, applicable to
the Business, except where failure to be in compliance could not reasonably be
expected to have a Material Adverse Effect.
(g) Employee Benefit Matters.
------------------------
(i) Schedule 2.1(g) lists all "employee benefit plans" within
the meaning of Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA") including, without limitation, all
retirement, savings and other pension plans, all health, severance,
insurance, disability and other employee welfare plans and all incentive,
vacation and other similar plans, all bonus, stock option, stock purchase,
incentive, deferred compensation, supplemental retirement, severance and
other employee benefit plans, programs or arrangements, and all employment
or compensation agreements, in each case for the benefit of, or relating
to, employees of the Companies ("Employees"), whether or not written,
whether or not subject to ERISA, and whether
13
<PAGE>
covering one person or more than one person (collectively, the "Employee
Plans"). Schedule 2.1(g) also includes all contracts, agreements or
commitments of the Companies which relate to the employment, retirement or
termination of the services of any officer, former officer or key employee
of the Companies. For purposes of this Section 2.1(g) only, the term
"Employee Plans" also includes the contracts, agreements and commitments
described in the preceding sentence.
(ii) None of the Employee Plans is a "multiemployer plan" as
defined in Section 3(37) of ERISA. No Employee Plan is subject to Title IV
or Section 302 of ERISA or Section 412 or 4971 of the Internal Revenue Code
of 1986, as amended (the "Code"). None of the Companies has any liability
under Title IV of ERISA nor, to Seller's knowledge, do circumstances exist
which could reasonably be expected to result in such a liability of the
Companies.
(iii) Seller and the Companies have made available to Buyer
complete and correct copies of each Employee Plan and any amendments
thereto and any related trust agreement, funding agreement and insurance
contract relating thereto, copies of all Employee Plans and, where
applicable, summary plan descriptions and annual reports required to be
filed within the last three years pursuant to ERISA or the Code, if
applicable, with respect to the Employee Plans.
(iv) Except as set forth on Schedule 2.1(g), the Companies have
not made any commitment to establish any new Employee Plan or to modify any
Employee Plan, nor has any intention to do so been communicated to any
employee.
14
<PAGE>
(v) All Employee Plans are in compliance in all material
respects with their terms and with the requirements prescribed by
applicable statutes, orders or governmental rules or regulations currently
in effect with respect thereto, and the Companies have performed all
material obligations required to be performed by them under, and are not in
any material respect in default under or in violation of, any provision of
the Employee Plans. With respect to each Employee Plan, all required
payments, premiums, contributions, distributions and reimbursements for all
periods ending prior to or as of the Closing Date have been made or
properly accrued.
(vi) Except as set forth in Schedule 2.1(g), each Employee Plan
intended to be qualified under Section 401(a) of the Code has heretofore
been determined by the Internal Revenue Service to so qualify, and each
trust created thereunder has heretofore been determined by the Internal
Revenue Service to so qualify, and each trust created thereunder has
heretofore been determined by the Internal Revenue Service to be exempt
from tax under the provisions of Section 501(a) of the Code and nothing has
occurred since the date of the most recent determination that would be
reasonably likely to cause any such Employee Plan or trust to fail to
qualify under Section 401(a) or 501(a) of the Code.
(vii) No prohibited transaction, as defined in Section 4975 of
the Code, that is not exempt has occurred with respect to any Employee
Plan.
(viii) Except as set forth on Schedule 2.1(g), there are no
actions, suits or claims pending, or, to Seller's knowledge, threatened or
anticipated (other than routine claims for benefits) with respect to any
Employee Plan.
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<PAGE>
(ix) Oldco has no employees.
(h) Labor and Employment Matters. Except as set forth in Schedule
----------------------------
2.1(h) hereto, (i) none of the Companies, Oldco or Seller (as with respect to
employees of the Companies) is a party to or bound by any collective bargaining
agreement or relationship with any labor organization; (ii) no labor
organization or group of employees has filed any representation petition or made
any written or oral demand for recognition; (iii) to Seller's knowledge, no
union organizing or decertification efforts are underway or threatened and no
other question concerning representation exists; (iv) no labor strike, work
stoppage, slowdown, or other material labor dispute, is underway, or, to
Seller's knowledge, threatened; (v) to Seller's knowledge, as of the date
hereof, no executive, key employee or group of employees has any present
intention to terminate their employment with the Companies; and (vi) there is no
employment-related charge, complaint, grievance, investigation, inquiry or
obligation of any kind, pending or, to Seller's knowledge, threatened in any
forum, relating to an alleged violation or breach by Seller or the Companies (or
any of their respective officers or directors) of any law, regulation or
contract which could reasonably be expected to have a Material Adverse Effect.
With respect to the Business, Seller has not implemented any plant closing or
mass layoff of employees as those terms are defined in the Worker Adjustment and
Retraining Notification Act of 1988, as amended (the "WARN Act"), or any similar
foreign, state, or local law, regulation or ordinance.
(i) Environmental and Safety Matters. Except as set forth on Schedule
--------------------------------
2.1(i):
(i) Each of the Companies and their respective predecessors has
materially complied and is in material compliance with all Environmental
Laws,
16
<PAGE>
including without limitation all material permits, licenses and other
authorizations required pursuant to Environmental Laws for the occupation
of its facilities and the operation of the Business. "Environmental Laws"
shall mean as enacted and amended from time to time, all applicable
federal, state, local and foreign statutes, regulations, ordinances and
similar provisions having the force or effect of law, all judicial and
administrative orders and determinations, and all common law concerning
public health and safety, worker health and safety, and pollution or
protection of the environment, including without limitation all those
relating to hazardous materials, substances or wastes, or petroleum.
(ii) Neither Seller (with respect to the Business), nor any of
the Companies, nor any of their respective predecessors has received any
written or oral notice, report or other information regarding any actual or
alleged material violation of Environmental Laws, or any material
liabilities or potential material liabilities arising under Environmental
Laws relating to any of the Companies, any of their respective
predecessors, or the Business.
(iii) None of the following exists at any property or facility
owned or operated by the Companies or in connection with the Business: 1)
underground storage tanks which are not in material compliance with the
Environmental Laws or from which a release of a reportable quantity of a
substance has not been remediated as required under the Environmental Laws;
2) friable asbestos-containing materials requiring abatement at the time of
closing under the Environmental Laws; 3) transformers owned by any of the
Companies containing polychlorinated biphenyls in amounts above those
allowed under
17
<PAGE>
the Environmental Laws; or 4) landfills, surface impoundments, or disposal
areas in material violation of Environmental Laws.
(iv) Neither Seller (with respect to the Business), nor any of
the Companies, nor any of their respective predecessors has treated,
stored, disposed of, arranged for or permitted the disposal of,
transported, handled, or released any substance, including without
limitation any hazardous substance, or owned or operated any property or
facility (and no such property or facility is contaminated by any such
substance) in a manner that has given or would give rise to liabilities,
including any liability for response costs, corrective action costs,
personal injury, property damage, natural resources damages, or any
investigative, corrective or remedial obligations, pursuant to the
Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended ("CERCLA") or the Solid Waste Disposal Act, as amended
("SWDA") or any other Environmental Laws.
(v) None of the Companies have assumed, undertaken or otherwise
become subject to any liability, including without limitation any
obligation for corrective or remedial action, of any other person or entity
relating to Environmental Laws.
(j) [Intentionally Omitted].
-----------------------
(k) Intellectual Property. Schedule 2.1(k) sets forth a complete and
---------------------
accurate list of all: (i) patented or registered Intellectual Property, and
pending patent applications or other applications for registration of
Intellectual Property, owned or filed by or on behalf of any Company; (ii) all
trade names, domain names and material unregistered trademarks, service marks
and copyrights owned or used by the Companies; and (iii) all licenses or similar
18
<PAGE>
agreements or arrangements concerning Intellectual Property to which any of the
Companies is a party, either as licensee or licensor. The Companies own or are
licensed or otherwise have the right to use the Intellectual Property (as
hereinafter defined) necessary for the operation of the Business. There is no
claim, suit, action or proceeding, pending or, to Seller's knowledge, threatened
against the Companies asserting that their use of any such Intellectual
Property, or that the operation of business, infringes upon or constitutes a
misappropriation of the rights of any third party or otherwise contesting the
Companies' rights with respect to any such Intellectual Property, including, but
not limited to, contesting the validity or enforceability of any such
Intellectual Property. Except as set forth on Schedule 2.1(k), the Companies
have not received notice of, and are not aware of any facts which indicate a
likelihood of, any infringement or misappropriations by any third party with
respect to the Companies' Intellectual Property. All Intellectual Property owned
or used by the Companies as of the date hereof will be owned or available for
use by the Companies on identical terms and conditions immediately following the
Closing. All letters, patents, registrations and certificates issued by any
governmental agency to the Companies relating to the Companies' Intellectual
Property are valid and subsisting and have been properly maintained. The term
"Intellectual Property" means trade names, domain names, trademarks and service
marks, patents, patent rights, copyrights, whether domestic or foreign (as well
as applications, registrations or certificates for any of the foregoing),
inventions, trade secrets, know-how, proprietary processes, software and other
industrial and intellectual property rights. The Companies have conducted an
inventory and assessment of the hardware, software and embedded microcontrollers
in noncomputer equipment (collectively, the "Computer Systems") used in the
Business and have used, and will continue to use, their
19
<PAGE>
reasonable efforts to enable all such computer systems, by December 31, 1999, to
recognize the advent of year 2000 and correctly recognize and manipulate date
information relating to dates on or after January 1, 2000.
(l) Financial Statements. The Companies will, within 14 days of the
--------------------
date hereof, furnish to Buyer audited combined financial statements for the
fiscal year ended February 28, 1999, for the period from July 2, 1997 to
February 28, 1998 and for the period from December 29, 1996 to July 1, 1997 (the
"Financial Statements"). The Financial Statements will be prepared in accordance
with the Companies books and records, will fairly present in all material
respects the financial position of the Companies as of such dates and the
results of operations and changes in stockholders' equity and in financial
position for such periods, will be prepared in accordance with generally
accepted accounting principles ("GAAP") applied on a consistent basis.
(m) Conduct of Business Since February 28, 1999. Between February
-------------------------------------------
28, 1999 and the Closing, the Companies (i) have conducted the Business only in
the usual, regular and ordinary manner consistent with past practice; (ii) have
used commercially reasonable efforts to preserve intact the present business
organization and operations of the Business and have preserved their respective
relationships with persons or entities having business dealings with the
Companies; and (iii) have not had any material adverse change in their financial
assets, properties, prospects or liabilities.
(n) Regulatory Approvals. Except for notification under the
--------------------
Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended (the "HSR Act"),
if required, there is no requirement applicable to Seller or the Companies to
make any filing with, or to obtain any
20
<PAGE>
permit, authorization, consent, order or approval of any Governmental Authority
as a condition to the lawful consummation of the transactions contemplated by
this Agreement and the Related Agreements.
(o) Tax Matters. The Companies and Oldco (or Seller on their
-----------
behalf) have filed for all dates and periods of time through the Closing, all
Tax Returns required by applicable law to be filed on or before the Closing, and
have paid or made provision for the payment of all Taxes (including, without
limitation, income, sales, use, occupation, property, withholding, excise and
employment taxes, and interest and penalties thereon) which have or may become
due (whether or not such amounts were shown as due on such Tax Returns). Except
as disclosed on Schedule 2.1(o), neither Seller, Oldco nor any of the Companies
has received any assessment for unpaid Taxes with respect to the Companies or
Oldco or has agreed to any extension of time for the filing of any Tax Returns
or for the assessment of any Taxes with respect to the Companies or Oldco.
Adequate provisions on the books of the Companies and Oldco have been made for
the payment of all current Taxes and no amounts will be due to the Seller as of
the Closing pursuant to the intercompany tax sharing agreement. The Companies
and Oldco (or Seller on their behalf ) have 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. Except as disclosed on Schedule 2.1(o), no foreign, federal, state or
local tax audits or administrative or judicial proceedings are pending or being
conducted with respect to the Companies and Oldco and the Companies and Oldco
have not received from any foreign, federal, state or local taxing authority
(including, but not limited to, jurisdictions where the Companies have filed Tax
Returns) any (a) notice indicating an intent to open an audit or other
21
<PAGE>
review, (b) request for information related to Tax matters or (c) notice of
deficiency or proposed adjustment for any amount of Tax proposed, asserted or
assessed by any taxing authority against any Company. Neither the Companies nor
Oldco have ever been a member of an Affiliated Group or filed or been included
in a combined, consolidated or unitary income Tax Return with any other
corporation, other than the Affiliated Group of which Seller is the common
parent. None of the Companies nor Oldco have made an election under Section
341(f) of the Code. Buyer will not be required to deduct and withhold any amount
pursuant to Code Section 1445(a) upon the purchase of the Shares. Neither the
Companies nor Oldco have made any payments, and are not and will not become
obligated (under any contract entered into on or before the Closing Date) to
make any payments, that will be non-deductible under Section 280G of the Code
(or any corresponding provision of state, local or foreign income Tax law).
Neither the Companies nor Oldco will be required as a result of a change in
method of accounting or as a result of any "closing agreement," as described in
Section 7121 of the Code (or any corresponding provision of state, local or
foreign income Tax law), to include any item of income in, or exclude any item
of deduction from, taxable income for any taxable period (or portion thereof)
ending after the Closing Date. As used in this Agreement, the following terms
shall have the following respective meanings:
(i) "Affiliated Group" means an affiliated group as defined in
Section 1504 of the Code (or any analogous combined, consolidated or
unitary group defined under state, local or foreign income Tax law) of
which any Company is or has been a member.
22
<PAGE>
(ii) "Tax" means any (A) federal, state, local or foreign
income, gross receipts, franchise, estimated, alternative minimum, add-on
minimum, sales, use, transfer, registration, value added, excise, natural
resources, severance, stamp, occupation, premium, windfall profit,
environmental, customs, duties, real property, personal property, capital
stock, social security, unemployment, disability, payroll, license,
employee or other withholding, or other tax, of any kind whatsoever,
including (i) any interest, penalties or additions to tax or additional
amounts in respect of the foregoing, (ii) any fines, costs, penalties or
amounts due in respect of the foregoing relating to the misstatement of any
kind of tax whatsoever (whether under a fraud or criminal claim or
otherwise); (B) liability of any Company for the payment of any amounts of
the type described in clause (A) arising as a result of being (or ceasing
to be) a member of any Affiliated Group (or being included (or required to
be included) in any Tax Return relating thereto); and (C) liability of any
Company for the payment of any amounts of the type described in clause (A)
as a result of any express or implied obligation to indemnify or otherwise
assume or succeed to the liability of any other person.
(iii) "Tax Returns" means returns, declarations, reports, claims
for refund, information returns or other documents (including any related
or supporting schedules, statements or information) filed or required to be
filed in connection with the determination, assessment or collection of
Taxes of any party or the administration of any laws, regulations or
administrative requirements relating to any Taxes.
(p) Warranty or Product Liability Claims. The Companies in the
------------------------------------
aggregate have experienced less than $700,000 in claims for (i) all products
manufactured by them and
23
<PAGE>
returned to them because of warranty or other problems during each of the last
two fiscal years and (ii) all credits, discounts, concessions, offsets or
allowances made with respect to all warranty and other claims or problems with
respect to products manufactured by them during each of the last two fiscal
years. Adequate provision for all such claims will have been made as of the
Closing Date balance sheet and such provision will not differ significantly from
the provision made in the February 28, 1999 balance sheet, except with respect
to changes in volume of sales. No product liability claims have been made
against the Companies for products manufactured by them in connection with the
business during the last two fiscal years or the current fiscal year to date.
(q) Broker; Finder. Except for Goldman Sachs & Co. and NationsBanc
--------------
Montgomery Securities LLC whose fees will be the sole responsibility of Seller,
neither Seller nor any of the Companies has employed any broker or finder or
incurred any responsibility for paying any brokerage fees, commissions or
finders' fee in connection with the transactions contemplated herein.
(r) Subsidiaries. Except as set forth in Schedule 2.1(r), there
------------
are no subsidiaries of the Companies or Oldco, and, except for this Agreement,
none of the Companies or Oldco are a partner in any partnership or are a party
to any agreement to acquire or own, nor have they the right to acquire, any
subsidiary or shares, units of partnership or any other ownership interest in
any corporation, limited liability company, joint venture, partnership or other
legal entity.
(s) Undisclosed Liabilities. Except as disclosed on Schedule 2.1(s),
----------------------- ---------------
to Seller's knowledge the Companies have no material liability or obligation
that is not reflected or
24
<PAGE>
adequately reserved against in the Financial Statements (including the notes
thereto), other than liabilities incurred in the ordinary course of business
since February 28, 1999 in a manner consistent with past practice. Except for
the transactions contemplated hereby, neither Oldco nor the subsidiary listed on
Schedule 2.1(r) has any liabilities or assets.
(t) Compliance with Settlement Agreements. The Companies have been
-------------------------------------
and are in compliance in all material respects with all Orders, Settlement
Agreements, and Assurances of Discontinuance to which they are subject,
including but not limited to the Assurance of Discontinuance dated December 9,
1992 in Commonwealth of Massachusetts v. Mattress Discounters, Inc., the Final
Judgment and Consent Decree dated June 30, 1994 in People of the State of
Illinois v. The Bedding Experts, Inc. and Robert J. D'Amico, No. 94 CH 4180, the
Settlement Agreement dated February 28, 1995 In re T.J.B., Inc. t/a Mattress
Discounters, Inc., the Settlement Agreement dated November, 1993 in Simmons Co.
v. The Bedding Experts, Inc., No. 92 C 5465 and the Class Action Settlement
Agreement dated February 9, 1999 in Guittierez et al. v. Mattress Discounters,
Inc. No. C-97-03945.
2.2 Representations and Warranties of Buyer. Buyer represents and warrants
---------------------------------------
to Seller that the following statements are true and correct as of the date
hereof (it being agreed that the term "knowledge" means the actual knowledge
after reasonable investigation of the elected officers of Buyer):
(a) Organization; Qualification. Buyer is a corporation duly
---------------------------
organized, validly existing and in good standing under the laws of Virginia and
is duly qualified to do business and in good standing in each jurisdiction where
the character of its properties or the nature of its activities make such
qualification necessary, except where the failure to qualify
25
<PAGE>
would not have a Buyer Material Adverse Effect (as defined below). "Buyer
Material Adverse Effect" means a material adverse affect on the business,
assets, results of operations or financial condition of the Buyer.
(b) Authority Relative to this Agreement. Buyer has the corporate
------------------------------------
power and authority to enter into this Agreement and the Related Agreements and
to consummate the transactions contemplated hereby and thereby. This Agreement
has been duly executed and delivered by Buyer and is, and each of the Related
Agreements when executed and delivered by Buyer will be, a valid and binding
agreement of Buyer, enforceable against Buyer in accordance with its terms.
Buyer has taken all corporate action necessary to approve this Agreement, the
Related Agreements and the transactions contemplated hereby and thereby. The
execution, delivery and performance of this Agreement and the Related Agreements
by Buyer and the consummation of the transactions contemplated hereby and
thereby will not:
(i) conflict with or result in a violation or breach of any of
the terms, conditions or provisions of the certificate or articles of
incorporation or bylaws (or other comparable corporate charter documents)
of Buyer;
(ii) conflict with or result in a violation or breach of any
term or provision of any Law enacted, adopted, promulgated, applied or
followed by any Governmental Authority applicable to Buyer or any of its
assets and properties, except where such violation or breach would not have
a Buyer Material Adverse Effect or have a material adverse effect on the
ability of Buyer to consummate the transactions contemplated hereby; or
26
<PAGE>
(iii) (A) conflict with or result in a violation or breach of,
(B) constitute (with or without notice or lapse of time or both) a default
under, (C) result in or give to any Person any right of termination,
cancellation, acceleration or modification in or with respect to, or (D)
result in the creation or imposition of any Lien upon the Buyer or any of
their respective assets and properties under, any material contract of
Buyer or license, permit, certificate of authority, authorization,
approval, registration, franchise or similar consent granted or issued by
any Governmental Authority to which the Buyer is a party or by which any of
its respective assets and properties is bound, except where such conflict,
violation, breach, or default, termination, cancellation, acceleration,
modification or Lien would not have a Buyer Material Adverse Effect or have
a material adverse effect on the ability of Buyer to consummate the
transactions contemplated hereby.
(c) Requirements Relative to this Agreement. Except for notification
---------------------------------------
under the HSR Act, if required, there is no requirement applicable to the Buyer
to make any filing with, or to obtain any permit, authorization, consent, order
or approval of any governmental or regulatory authority as a condition to the
lawful consummation of the transactions contemplated by this Agreement. There is
no requirement contained in any agreement or instrument to which Buyer is a
party that any person or entity consent to the transaction contemplated hereby,
except where the failure to obtain such consent would not have a Buyer Material
Adverse Effect or a material adverse effect on Buyer's ability to consummate the
transactions contemplated hereby.
(d) Litigation. The Buyer is not involved in, or the subject of, any
----------
pending or, to Buyer's knowledge, threatened suit, action, claim, investigation,
or proceeding in or by any Governmental Authority, or any legal, administrative,
arbitration, condemnation or eminent
27
<PAGE>
domain proceeding, which if determined adversely to Buyer, (i) could reasonably
be expected to have a Buyer Material Adverse Effect, or (ii) could reasonably be
expected to have a material adverse effect on the ability of Buyer to consummate
the transactions contemplated by this Agreement. There is no outstanding order,
writ, injunction or decree of or settlement enforceable by any Governmental
Authority against or affecting Buyer which would have a Buyer Material Adverse
Effect.
(e) Investment Representation. Buyer is acquiring the Shares for
-------------------------
investment and not with a view to their sale or distribution other than in a
sale or distribution which is registered under the applicable securities laws or
is exempt from such registration, and will accept certificates for the Shares
with a legend thereon indicating this fact, it being understood that the right
to dispose of such Shares shall be entirely within the discretion of Buyer.
(f) Financing. The Buyer has delivered to Seller true and complete
---------
copies of the commitment letters (the "Commitment Letters") set forth on
Schedule 2.2(f). The aggregate net proceeds of the capital contributions, credit
facilities and debt described in the Commitment Letters will be sufficient for
Buyer to consummate the transactions contemplated hereby and to pay all related
fees and expenses.
3. CONDUCT AND TRANSACTIONS BEFORE CLOSING
---------------------------------------
3.1 Access to Records and Properties. From the date hereof through the
--------------------------------
Closing Date (as hereinafter defined), Seller will cause the Companies to give
Buyer, its financing sources and its representatives and agents reasonable
access to all books and records of the Companies during normal business hours
and upon reasonable notice, and will cause the officers, employees and
accountants and other representatives of Seller and the Companies to furnish to
Buyer such
28
<PAGE>
financial and operating data and other information with respect to the Companies
respective assets and Business as Buyer shall from time to time reasonably
request, including all information reasonably necessary to satisfy closing
conditions for obtaining financing for the transactions contemplated hereby. In
addition, the Seller shall use its commercially reasonable best efforts to
obtain from Deloitte & Touche (Seller's independent public accountants) its
consent to the inclusion of their audit report on the Financial Statements in
any public or private filings related to Buyer's financing in connection with
the purchase of the Shares.
3.2 Operation of Business of the Companies. Seller agrees to cause the
--------------------------------------
Companies to, from the date hereof through the Closing Date, except for
transactions contemplated by this Agreement and transactions to which Buyer
shall otherwise consent in writing, and the Companies shall, (x) operate the
Business substantially as presently operated and only in the ordinary course;
and (y) use their commercially reasonable efforts to preserve intact the present
business organization and operations of the Business and their relationship with
persons or entities having business dealings with the Companies.
3.3 Forebearances by Seller. Except as contemplated by this Agreement
-----------------------
(including without limitation, Section 3.2 hereof), Seller will not allow the
Companies to, from the date hereof until the Closing, without the written
consent of Buyer:
(i) sell, dispose of, transfer, mortgage, pledge, encumber, or
license any of their respective assets (tangible or intangible), except
inventory in the ordinary course of business;
29
<PAGE>
(ii) except in accordance with the ordinary and usual course of
their business and in a manner consistent with past practices, enter into,
amend, modify or cancel any Material Contract;
(iii) declare, set aside or pay any dividend (whether in cash or
property) with respect to their capital stock;
(iv) issue or sell any shares of their capital stock or any
securities or obligations convertible into or exchangeable for, or giving
any person or entity any right to acquire any shares of their capital stock
or split, reclassify, combine or reorganize any existing capital stock;
(v) amend their Articles of Incorporation or Bylaws;
(vi) purchase or acquire any assets or property other than in
the ordinary and usual course of their business and in a manner consistent
with past practices;
(vii) announce or institute any personnel changes, other than in
the ordinary course of business, or employee commitments or contracts,
including granting any increase in the compensation of any Employee;
(viii) implement any employee layoffs that could implicate the
Workers Adjustment and Retraining Notification Act of 1988, as amended; and
(ix) enter into, cancel or amend or modify (in any manner
adverse to the Companies) any leases relating to real property currently
leased by the Companies;
(x) enter into an agreement to do any of the things described
in clauses (i) through (ix) above.
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<PAGE>
3.4 Senior Sub Note Offering.
------------------------
(a) The Companies, with the full assistance of Seller, its outside
accountants and Buyer, shall use all commercially reasonable efforts to, as
requested by and at the direction and under the control of Buyer and subject to
the provisions of Section 3.6, (1) prepare, print and circulate to potential
investors a preliminary offering memorandum relating to the Senior Subordinated
Notes of Mattress Discounters (the "Senior Sub Notes") containing such
disclosure and financial statements as may be required by the Securities Act and
other applicable laws and such other disclosures as are customary and
appropriate for such a document, and supplementing and updating such memorandum
as may be required by the Securities Act, (2) actively participate in marketing
the Senior Sub Notes, including making senior management available during the
roadshow period, which shall be for a customary period or such shorter period
that is needed to successfully place the Senior Sub Notes, (3) in the event of a
successful placement (i.e., a placement which Mattress Discounters either (a) is
required to consummate pursuant to subsection (b) below, or (b) elects to
consummate), execute a purchase agreement with the Initial Purchasers of the
Senior Sub Notes (the "Initial Purchasers") in a form customary for high yield
debt offerings under Rule 144A, (4) in the event of a successful placement
(i.e., a placement which Mattress Discounters either (a) is required to
consummate pursuant to subsection (b) below, or (b) elects to consummate),
deliver a final offering memorandum to be used by the Initial Purchasers for
confirmation of sales of the Senior Sub Notes within 24 hours after the pricing
of the Senior Sub Notes, (5) execute a purchase agreement, with Bain Capital,
Inc. or an affiliate thereof ("Bain") pursuant to which Bain will purchase
Senior Sub Notes (which agreement shall be substantially similar to the purchase
agreement entered into (or proposed to
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<PAGE>
be entered into) with the Initial Purchasers pursuant to (3) above) and
satisfying all representations, warranties and conditions set forth therein and
(6) satisfying such other conditions to be agreed upon between the parties.
Seller acknowledges that the provisions of this Section 3.4 shall equally apply
to the sale of any non-cash pay notes of Oldco or other mezzanine securities
which are required to be and are issued at Closing pursuant to the Commitment
Letters. Before Seller or any of the Companies shall be obligated to take any
action under this Section, Bain shall have executed and delivered the Indemnity
Agreement attached hereto as Exhibit F.
(b) Seller and Buyer agree that, if Mattress Discounters is able to
place the Senior Sub Notes in a Rule 144A Offering with a yield less than or
equal to the amount set forth in that certain letter between Bain and Chase
Securities, Inc. dated May 10, 1999 and with terms which are not materially less
favorable to Mattress Discounters than the terms contained in the Commitment
Letters, then it will place such Senior Sub Notes.
(c) Notwithstanding anything in this Agreement to the contrary, the
actions of Seller or any of the Companies in connection with the transactions
contemplated by this Section 3.4 shall not constitute, or be deemed to be, a
breach of any other covenant of Seller contained elsewhere in this Agreement or
any representation or warranty of Seller contained in this Agreement.
3.5 Efforts to Consummate. Subject to the terms and conditions herein
---------------------
provided, each of the parties hereto agrees to 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 necessary, proper or advisable to consummate, as promptly as
practicable, the transactions contemplated hereby, including, but not limited
to, the obtaining of all necessary consents, waivers, authorizations, orders and
approvals
32
<PAGE>
of third parties, whether private or governmental, required of it to enable it
to comply with the conditions precedent to consummating the transactions
contemplated by this Agreement. Each party agrees to cooperate fully with the
other party in assisting it to comply with this Section. Notwithstanding the
foregoing, none of the parties shall be required to initiate any litigation,
make any payment or incur any obligation or material economic burden, to obtain
any consent, waiver, authorization, order or approval. Buyer agrees and it shall
cause its Subsidiaries to take all action reasonably appropriate to effectuate
the financings under the Commitment Letters. At Closing, Seller will cause there
to be no Liens which materially interfere with the operation of the Business or
with the financing described in the Commitment Letters.
3.6 In connection with the transactions contemplated by Section 3.4,
Seller will use its commercially reasonable best efforts to provide Buyer
financial statements as reasonably required by Buyer and which are necessary to
complete the offering memorandum for the Senior Sub Notes, including audited
financial statements and selected financial data. Notwithstanding anything
contained herein to the contrary, the parties agree and acknowledge that
Seller's obligation to provide financial statements pursuant to this Agreement
shall only include the Financial Statements together with periods for Mattress
Discounters prior to December 29, 1996, and related selected financial data (it
being understood that such selected financial data shall not include data with
respect to Bedding Experts before December 29, 1996) (the "Existing Financial
Statements"). Buyer agrees and acknowledges that the Existing Financial
Statements are the only historical financial information required for it to meet
its financing condition contained in Section 4.1(j). The Existing Financial
Statements may be used for any non-cash pay notes of Oldco or other mezzanine
securities which are required to be and are issued at Closing pursuant
33
<PAGE>
to the Commitment Letters. Seller agrees that, in addition to the Existing
Financial Statements, at Buyer's request prior to Closing (and after Closing to
the extent such information is retained by Seller), Seller will use its
commercially reasonable best efforts to provide to Buyer unaudited financial
statements for Bedding Experts for periods prior to December 29, 1996 and
unaudited financial information for any period subsequent thereto as reasonably
requested by Buyer.
4. CONDITIONS TO CLOSING
---------------------
4.1 Conditions to Obligations of Buyer. The obligations of Buyer to be
----------------------------------
performed under this Agreement at the Closing are subject to the satisfaction of
each of the following conditions on or before the Closing, unless waived in
writing by Buyer:
(a) The representations and warranties of Seller made herein shall be
true and correct in all material respects on the date of this Agreement, and on
the Closing Date as though made at and as of such time, and Seller shall have
performed and complied with in all material respects all covenants and
agreements and satisfied all conditions required to be performed or complied
with by it under this Agreement on or before the Closing Date.
(b) Buyer shall have received copies of the resolutions approved and
adopted by the Board of Directors of Seller and Oldco authorizing the execution,
delivery and performance of this Agreement and the Related Agreements, and the
Certificate or Articles of Incorporation of each Company and Oldco and Bylaws of
each Company and Oldco, all certified by the Seller's, Oldco's and each
Company's, as applicable, Secretary or Assistant Secretary.
(b) Buyer shall have received a certificate, dated as of the Closing
Date, executed by Seller certifying that (i) the representations and warranties
of Seller contained in this Agreement are true and correct in all material
respects as of the Closing Date as though made at
34
<PAGE>
and as of such time, and (ii) it has duly performed and complied with, in all
material respects, all covenants and agreements and satisfied all conditions
required by this Agreement to be performed or complied with by it prior to or on
the Closing Date.
(d) Buyer shall have received an opinion of McGuire, Woods, Battle &
Boothe LLP, legal counsel for Seller, dated as of the Closing Date,
substantially in the form of the opinion attached hereto as Exhibit G.
(e) All corporate and other proceedings to be taken by Seller
necessary to carry out this Agreement, and all documents incident thereto shall
be reasonably satisfactory in form and substance to Buyer and its legal counsel.
(f) All consents, authorizations, orders and approvals of
governmental or regulatory authorities and of individuals or business entities
reasonably required for the consummation of the transactions contemplated by
this Agreement (other than those required under leases of real property
described in Schedule 2.1(b)) shall have been obtained, and all waiting periods
specified by law with respect thereto shall have passed.
(g) No order of any court or governmental agency shall be in effect
which restrains or prohibits the consummation of the transactions contemplated
by this Agreement, and there shall not have been threatened, nor shall there be
pending, any action or proceeding by or before any such court or governmental
agency which is likely to prohibit or delay or successfully challenge the
validity of the transactions contemplated by this Agreement.
(h) Such directors and officers of the Companies as Buyer shall
request shall have tendered written resignation to the applicable Company, to be
effective immediately prior to the Closing.
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<PAGE>
(i) Seller shall have delivered to Buyer the deliveries described in
Section 5.2.
(j) Buyer shall have obtained the financing contemplated by the
Commitment Letters; provided, however that this provision shall not apply if
Buyer does not obtain such financing due to its failure to fulfill any
obligations which are reasonably within its control.
(k) All intercompany accounts payable and receivable between the
Seller, on the one hand, and the Companies, on the other, including intercompany
Taxes payable, will be deemed settled by the Seller and contributed to the
capital of the applicable Company, except that the intercompany trade
receivables of the Companies from the Seller for sales of mattresses, box
springs and foundations manufactured by the Companies shall be paid in cash
after the Closing Date in accordance with the terms of the Mattress Supply
Agreement, which is attached hereto as Exhibit D.
---------
(l) The Companies shall have entered into employment arrangements
with the persons set forth on Schedule 4.1 (l) which are mutually satisfactory
to the Seller and Buyer (provided that this condition may be waived by Buyer).
4.2 Conditions to Obligations of Seller. The obligations of Seller to be
-----------------------------------
performed under this Agreement at the Closing are subject to the satisfaction of
each of the following conditions on or before the Closing unless waived in
writing by Seller:
(a) The representations and warranties of Buyer made herein shall be
true and correct in all material respects on the date of this Agreement and on
the Closing Date, as though made at and as of such time, and Buyer shall have
performed and complied with in all material respects all covenants and
agreements and conditions required to be performed or complied with by it under
this Agreement on or before the Closing Date.
36
<PAGE>
(b) Seller shall have received copies of resolutions approved and
adopted by the Board of Directors of Buyer authorizing the execution, delivery
and performance of this Agreement and the Related Agreements.
(c) Seller shall have received the Merger Consideration.
(d) The receipt of an officer's certificate from Buyer in form and
substance reasonably satisfactory to Seller that after giving effect to the
transactions contemplated hereby and in the Commitment Letters, none of Buyer,
Oldco or Mattress Discounters will be insolvent or will be rendered insolvent
thereby, will be left with unreasonably small capital with which to engage in
its business or will have incurred debts beyond its ability to pay such debts as
they mature.
(e) Seller shall have received an opinion of Kirkland & Ellis, legal
counsel for Buyer, and of Virginia counsel for Buyer, reasonably satisfactory to
Buyer, each dated as of the Closing Date, substantially in the form of the
opinion attached hereto as Exhibit H.
(f) Seller shall have received a certificate, dated as of the Closing
Date, executed by Buyer certifying that (i) the representations and warranties
of Buyer contained in this Agreement are true and correct in all material
respects as of the Closing Date as though made at and as such time, and (ii) it
has duly performed and complied with, in all material respects, all covenants
and agreements and satisfied all conditions required by this Agreement to be
performed or complied with by it prior to or on the Closing Date.
(g) All corporate and other proceedings to be taken by Buyer
necessary to carry out this Agreement, and all documents incident thereto shall
be reasonably satisfactory in form and substance to Seller and its legal
counsel.
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<PAGE>
(h) All consents, authorizations, orders and approvals of
governmental or regulatory authorities and of individuals or business entities
reasonably required for the consummation by Seller of the transactions
contemplated by this Agreement (other than those which may be waived by Buyer)
shall have been obtained, and all waiting periods specified by law with respect
thereto shall have passed.
(i) No order of any court or governmental agency shall be in effect
which restrains or prohibits the consummation of the transactions contemplated
by this Agreement, and there shall not have been threatened, nor shall there be
pending, any action or proceeding by or before any such court or governmental
agency which is likely to prohibit or delay or successfully challenge the
validity of any of the transactions contemplated by this Agreement.
(j) The Surviving Corporation shall have executed and delivered a
stockholders agreement with Seller and other stockholders containing the terms
set forth on Exhibit I.
5. CLOSING
-------
5.1 The Closing. The consummation of the purchase and sale of the Shares
-----------
and of all other related transactions hereunder (the "Closing"), shall, unless
another time, date and place be agreed to in writing by Buyer and Seller, take
place at the offices of Kirkland & Ellis, New York, New York at 10:00 a.m. on
the 5th business day following the satisfaction or, if permissible, waiver in
accordance with this Agreement, of the closing conditions set forth in Sections
4.1 and 4.2 (the actual date of Closing is referred to herein as the "Closing
Date"). Subject to the terms and conditions contained herein, the parties shall
use all commercially reasonably efforts to close on or before July 30, 1999. The
effective date of the Closing shall be the Closing Date.
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<PAGE>
5.2 Deliveries by Seller. At the Closing, Seller shall deliver to Buyer
--------------------
the following:
(a) certificates representing the common stock of Oldco together with
the certificates representing the Shares and the minute books and stock ledgers
of Oldco and the Companies;
(b) certified copies of the resolutions, charter and Bylaws described
in Section 4.1(b);
(c) the certificate required by Section 4.1(c);
(d) a certificate from the appropriate governmental agency of the
good standing of Seller, Oldco and each of the Companies in the state of its
incorporation as of a recent date, together with a certified (by the Seller's
Secretary or Assistant Secretary) copy of their charters;
(e) the opinion of counsel required by Section 4.1(d);
(f) copies of the consents required by Section 4.1(f); and
(g) resignations of all directors and officers of Oldco serving in
office immediately prior to the Closing to be effective as of the Closing; and
(h) such additional documents as Buyer may reasonably request.
5.3 Deliveries by Buyer. At the Closing, Buyer shall deliver to Seller the
-------------------
following:
(a) the cash portion of the Merger Consideration by wire transfer in
accordance with Section 1.2 hereof to an account designated by Seller in writing
to Buyer at least three business days prior to the Closing Date;
39
<PAGE>
(b) the Junior Subordinated Notes;
(c) certified copies of the resolutions described in Section 4.2(b);
(d) the opinion of counsel required by Section 4.2(d);
(e) the certificate required by Section 4.2(e);
(f) copy of the resolutions adopted by the Board of Directors of
Buyer authorizing the transactions contemplated by this Agreement, certified by
appropriate authorized officers Buyer;
(g) copies of the consents required by Section 4.2(g); and
(h) such additional documents as Seller may reasonably request.
5.4 Deliveries by Seller and Buyer. At the Closing, Seller, the Companies
------------------------------
and Buyer shall each execute and deliver to the appropriate party copies of the
Related Agreements to which they are parties.
6. SURVIVAL OF REPRESENTATIONS
---------------------------
AND WARRANTIES AND INDEMNIFICATION
----------------------------------
6.1 Survival of Representations and Warranties. All of the
------------------------------------------
representations, warranties and covenants made by Seller and Buyer in this
Agreement shall be continuing and shall survive the Closing and the purchase and
sale of the Shares hereunder, (i) indefinitely with respect to the
representations and warranties contained in Sections 2.1(b)(i) and 2.1(c), (ii)
until sixty (60) calendar days after the expiration of all applicable statutes
of limitation (including all periods of extension, whether automatic or
permissive) with respect to matters covered by Section 2.1(o), (iii) until the
earlier of 18 months after the Closing or 60 days after the delivery of the
first audited financial statements of the Companies (or consolidated financial
statements of the Buyer
40
<PAGE>
including the Companies) for the first full year following the Closing in the
case of all other representations and warranties and any covenant or agreement
to be performed in whole or in part on or prior to the Closing or (iv) with
respect to each other covenant or agreement contained in this Agreement, until
60 days after the delivery of the first audited financial statements of the
Companies (or consolidated financial statements of the Buyer including the
Companies) for the first full year following the last date on which such
covenant or agreement is to be performed or, if no such date is specified,
indefinitely. Notwithstanding the foregoing, any representation or warranty in
respect of which indemnification may be sought under Section 6.2 shall survive
the date specified for the termination of its effectiveness, if written notice
thereof, given in good faith, of the specified breach thereof is given to the
indemnifying party before such date, whether or not liability has actually been
incurred.
6.2 Indemnification. If the transactions contemplated by this Agreement
---------------
are consummated in accordance with Section 5.1 hereof:
(a) Indemnification of the Surviving Corporation. Without in any way
--------------------------------------------
limiting or diminishing the warranties, representations or agreements herein
contained, Seller agrees to indemnify, defend and hold harmless the Surviving
Corporation, its officers, directors, agents, representatives and affiliates
from and against all Losses (as hereinafter defined) arising out of or relating
to:
(i) the breach of any representation or warranty of Seller
contained in this Agreement;
(ii) the breach of any covenant or agreement of Seller contained
in this Agreement (but not the Related Agreements, each one of which will
stand on its own);
41
<PAGE>
(iii) any liability or obligation of Oldco that arises as a
result of events which occur before the Closing other than those relating to the
Borrowings;
(iv) the failure to obtain those consents listed on Schedule
6.2(a)(iv) up to certain maximum thresholds as stated therein; or
(v) the litigation matters set forth on Schedule 6.2(a)(v) up
to certain maximum thresholds as stated therein.
Notwithstanding the foregoing, Seller shall not be required to
indemnify the Surviving Corporation for liabilities arising solely from changes
in law after the Closing.
(b) Indemnification of Seller. Without in any way limiting or
-------------------------
diminishing the warranties, representations or agreements herein contained,
Buyer (and after the Merger, the Surviving Corporation) hereby agrees, with
respect to this Agreement, to indemnify, defend and hold harmless Seller, its
officers, directors, agents, representatives and affiliates from and against all
Losses arising out of or relating to:
(i) the breach of any representation or warranty of Buyer
contained in this Agreement;
(ii) the breach of any covenant or agreement of Buyer contained
in the Agreement (but not the Related Agreements, each one of which will
stand on its own);
(iii) any liabilities of Seller expressly assumed by the
Companies or the Surviving Corporation pursuant to this Agreement; or
(iv) any liabilities or obligations arising after the Closing
related to any guarantees granted by Seller of lease obligations of the
Companies, which guarantees are not released.
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<PAGE>
Notwithstanding the foregoing, the Surviving Corporation shall not be
required to indemnify Seller for liabilities arising solely from changes in law
after the Closing.
(c) Indemnification Procedure for Claims of Third Parties.
-----------------------------------------------------
Indemnification, with respect to claims resulting from the assertion of
liability by those not parties to this Agreement (including without limitation
governmental claims for penalties, fines and assessments), shall be subject to
the following terms and conditions:
(i) The party seeking indemnification (the "Indemnified Party")
shall give prompt written notice to the party or parties from which it is
seeking indemnification (the "Indemnifying Party") of any assertion of
liability by a third party, including, without limitation, the commencement
of any action, suit or proceeding (each, a "Legal Action"), which might
give rise to a claim for indemnification based on the foregoing provisions
of this Article, which notice shall state the nature and basis of the Legal
Action and the amount thereof, to the extent known, and shall include a
copy of any written claim or assertion or related process or legal
proceeding; provided, however, that no delay on the part of the Indemnified
Party in giving notice shall relieve the Indemnifying Party of any
obligation to indemnify unless (and then solely to the extent that) the
Indemnifying Party is materially prejudiced by such delay.
(ii) If any Legal Action is brought against an Indemnified Party
with respect to which an Indemnifying Party may have an obligation to
indemnify the Indemnified Party, the Legal Action shall be defended
vigorously and diligently to a final conclusion or settled by the
Indemnifying Party, with counsel reasonably satisfactory to
43
<PAGE>
the Indemnified Party, and such defense to include all proceedings for
appeal or review which counsel for the Indemnified Party shall reasonably
deem appropriate.
(iii) Notwithstanding the provisions of the previous subsection
of this Agreement, until the Indemnifying Party shall have assumed the
defense of the Legal Action, the defense shall be handled by the
Indemnified Party. Furthermore, if the Indemnified Party shall have
reasonably concluded that there are likely to be defenses available to it
that are different from or in addition to those available to the
Indemnifying Party, the Indemnified Party shall so notify the Indemnifying
Party, and in such case, the Indemnifying Party shall not be entitled to
assume the defense of such Legal Action, but shall remain responsible for
its obligation as an indemnitor.
(iv) In any Legal Action initiated by a third party and
defended by the Indemnifying Party: (w) the Indemnified Party shall have
the right, at its sole cost and expense, to participate in such defense,
and in connection therewith, to be represented by advisory counsel and
accountants, it being acknowledged and agreed that control of such defense
and its settlement and resolution (subject to Sections 6.2(c)(iii) and (v)
hereof) shall rest with the Indemnifying Party; (x) the Indemnifying Party
shall keep the Indemnified Party fully informed as to the status of such
Legal Action at all stages thereof, whether or not the Indemnified Party is
represented by its own counsel; (y) each of the Indemnifying Party and the
Indemnified Party shall make available to each other and its attorneys,
accountants and other representatives, all books and records relating to
such Legal Action; and (z) the Indemnified Party and the Indemnifying Party
shall render
44
<PAGE>
to each other such assistance as may be reasonably required in order to
ensure the proper and adequate defense of such Legal Action.
(v) In any Legal Action initiated by a third party and defended
by the Indemnifying Party, the Indemnifying Party shall not make settlement
of such Legal Action without the written consent of the Indemnified Party,
which consent shall not be unreasonably withheld. Without limiting the
generality of the foregoing, it shall not be deemed unreasonable to
withhold consent to a settlement involving injunctive or other equitable
relief against the Indemnified Party or its assets, employees or business,
or relief which the Indemnified Party reasonably believes could establish a
custom or precedent which will be adverse to the best interests of its
continuing business.
(d) Definition of Loss. For purposes of this Section 6, "Losses"
------------------
shall mean direct losses, damages, penalties and expenses incurred by an
Indemnified Party entitled to indemnification hereunder as a result of a matter
giving rise to a claim for indemnification hereunder, including, without
limitation, (i) reasonable expenses of investigation and reasonable attorneys'
fees and expenses incurred in connection with Legal Action instituted against
the Indemnified Party determined, and (ii) for any costs or expenses of contests
or controversies relating to the payment of any Taxes which result from a breach
of the representations contained in 2.1(o) and are not otherwise covered by the
Tax Agreement, net of the:
(i) tax savings, if any, actually realized by the Indemnified
Party in respect of such matter;
(ii) insurance proceeds to which the Indemnified Party is
entitled in respect of such matter net of resultant increases in insurance
premiums; and
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<PAGE>
(iii) indemnity payments received by the Indemnified Party from
parties other than the Indemnifying Party hereunder in respect of such
matter.
Notwithstanding any provision of this Section 6, consequential
damages or any damages to the extent attributable to a failure to mitigate
damages shall not constitute Losses.
(e) Limitations. The indemnification provided for in this Section
-----------
6.2 shall be subject to the following provisions:
(i) Seller shall not be obligated to make indemnification
payments pursuant to this Section 6.2 for breach of representations or
warranties set forth herein until the aggregate amounts for indemnification
hereunder exceed $3.0 million (the "Deductible"), whereupon Seller shall be
obligated to pay in full all such amounts for indemnification in excess of
the Deductible, subject to clause (iii) below; provided that this
subsection shall not apply to a misrepresentation or breach of warranty by
Seller contained in Sections 2.1(b) (i), (c) and (q) and shall not apply to
the indemnification obligations set forth in Sections 6(a)(ii) through (v);
(ii) Buyer shall not be obligated to make indemnification
payments for breach of representations or warranties pursuant to this
Section 6 until the aggregate amounts for indemnification hereunder exceed
the Deductible, whereupon Buyer shall be obligated to pay in full all such
amounts for indemnification in excess of the Deductible, subject to clause
(iii) below; provided that this subsection shall not apply to the
indemnification obligations set forth in Sections 6(b)(ii) through (iv).
46
<PAGE>
(iii) Neither Buyer nor Seller shall be obligated to make
indemnification payments pursuant to this Section 6.2 for Losses arising
out of or related to breaches of representations or warranties set forth
herein in excess of $100 million in the aggregate.
(iv) For purposes of determining the aggregate amount of Loss
suffered by an Indemnified Party, each representation and warranty
contained in this Agreement for which indemnification is sought hereunder
shall be read (including for purposes of determining whether a breach of
such representation or warranty has occurred) without regard to
qualifications as to materiality that may be contained therein.
(f) Remedies Exclusive. The foregoing indemnification provisions are
------------------
in lieu of any statutory, other contractual, equitable or common law remedy any
party may have for a breach of a representation, warranty, covenant or agreement
contained herein, and all such other rights and remedies are hereby irrevocably
waived.
7. TERMINATION
-----------
7.1 Termination. This Agreement may be terminated at any time before
-----------
Closing:
(a) by the mutual written consent of all parties hereto;
(b) by Buyer or Seller if the Closing fails to occur on or before
December 31, 1999, so long as Buyer or Seller, as the case may be, is not in
breach of its obligations hereunder; or
(c) by Seller or Buyer, as the case may be, if there has been a
material breach by the other of a representation, warranty or agreement
contained herein (and such breach, if
47
<PAGE>
capable of being cured, is not cured within ten days following written notice
from the nonbreaching party specifying the nature of such breach);
7.2 Effect of Termination. If this Agreement is validly terminated
---------------------
pursuant to Section 7.1 hereof, it shall become null and void and have no
further effect, without liability on the part of any party or such party's
directors, officers, employees, agents, representatives or shareholders;
provided, however, that (i) such termination shall not constitute a waiver by
- -------- -------
any party of any claim it may have for damages caused by reason of a breach of a
representation, warranty, covenant or agreement made by any other party hereto,
and (ii) the provisions of Sections 9.3 and 9.4 and the confidentiality
agreement, dated as of March 9, 1999 (the "Confidentiality Agreement"), among
Buyer and Seller shall remain in full force and effect in accordance with their
respective terms.
8. EMPLOYEES AND EMPLOYEE MATTERS
------------------------------
8.1 General. (a) From and after the Closing, subject to applicable law
-------
and except as contemplated hereby, Buyer will honor, in accordance with their
terms, all Employee Plans that are sponsored solely by the Companies (and not by
Seller) (the "Company Plans"). Notwithstanding the foregoing, and subject to
the terms of the Company Plans, nothing herein shall preclude Buyer from
changing or terminating, on a prospective basis, any Company Plan. On and after
the Closing Date, Seller shall retain and have sole responsibility for all
liabilities, obligations or commitments arising under or pertaining to all
Employee Plans that are not Company Plans (including, without limitation, the
Heilig-Meyers Company Executive Income Continuation Plan and the Heilig-Meyers
Company Severance Plan).
48
<PAGE>
(b) Buyer and/or Buyer's subsidiaries (including, after the Closing,
the Companies) will provide to Employees who remain employed by the Companies
following the Closing, for a period of at least one year following the Closing,
benefits that are generally comparable in the aggregate to the benefits provided
by the Companies immediately prior to Closing; provided, that none of Buyer,
Buyer's Subsidiaries, or any of the Companies shall be obligated to maintain the
Heilig-Meyers Company Severance Plan or to provide any comparable benefit.
Employees who remain employed by the Companies following the Closing will
receive credit for years of service with the Companies or predecessors prior to
the Closing for purposes of determining eligibility to participate and vesting
under employee benefit plans maintained by Buyer and its subsidiaries ("Buyer
Employee Plans"), and shall not be subject to pre-existing conditions or
actively-at-work exclusions under Buyer Employee Plans that provide medical or
dental welfare benefits. Medical and dental expenses incurred by such employees
on or before the Closing shall be taken into account under deductible,
coinsurance and maximum out-of-pocket provisions of Buyer Employee Plans. It
is understood and agreed that notwithstanding any of the foregoing, except as
otherwise expressly set forth in this Agreement, nothing herein shall require
Buyer to maintain any particular plan or arrangement following the Closing or
shall be construed to obligate Buyer to issue to employees of any Company, or
adopt any plans or arrangements to provide for the issuance of, any shares of
its capital stock or any options, warrants, stock appreciation rights or other
rights in respect of any shares of its capital stock or any securities
convertible into or exchangeable for such shares.
8.2 Seller's Section 401(k) Plan. (a) As soon as practicable following
----------------------------
the Closing, Buyer shall establish a defined contribution plan and trust (or
amend an existing defined
49
<PAGE>
contribution plan) for Employees, which shall be qualified under Sections 401
and 501 of the Internal Revenue Code and which shall provide for salary
reduction contributions pursuant to Section 401(k) of the Internal Revenue Code
("Buyer's 401(k) Plan"). Buyer's 401(k) Plan shall provide that each Employee
be given credit for the Employee's service with the Companies, their affiliates
and their predecessor companies for purposes of determining the Employee's
eligibility to participate, eligibility for benefits and vesting under Buyer's
401(k) Plan. The Buyer shall ensure that all "section 411(d)(6) protected
benefits" (as defined in Treasury Regulation 1.411(d)-4) provided by Seller's
401(k) Plan (as defined below) are preserved in the Buyer's 401(k) Plan.
Employees will not accrue additional benefits after the Closing under defined
contribution plans maintained by the Seller. The Companies shall cease to
participate in the Seller's 401(k) Plan as of the Closing Date.
(b) Assets of the Seller Employees' Profit Sharing and Retirement
Savings Plan ("Seller's 401(k) Plan") equal to the account balances (whether or
not vested) of Employees under Seller's 401(k) Plan will be transferred to
Buyer's 401(k) Plan as soon as practicable after the Closing. The transfer will
be made in cash. Any outstanding plan loans to Employees shall be transferred
with the underlying accounts. The account balances of Employees in Seller's
401(k) Plan will be valued as of the date on which the transfer is made. The
account balances of Employees in Seller's 401(k) Plan shall share in the
earnings, appreciation and depreciation of Seller's 401(k) Plan for the period
between the Closing and the date on which the transfer is made.
(c) Any benefits that are payable to Employees from Seller's 401(k)
Plan after the Closing and before the assets are transferred shall be paid from
Seller's 401(k) Plan in the
50
<PAGE>
ordinary course. The amount to be transferred to Buyer's 401(k) Plan shall be
reduced by the amount of such payments.
(d) The account balances to be credited for Employees under Buyer's
401(k) Plan shall not be less than the account balances of Employees under
Seller's 401(k) Plan as of the date on which the transfer is made. Effective on
the date of the transfer of Seller's 401(k) Plan assets, (i) Buyer and Buyer's
401(k) Plan shall assume all liabilities in connection with the account balances
of Employees under Seller's 401(k) Plan, and (ii) Seller, its affiliates and
Seller's 401(k) Plan shall have no further liability with respect to the account
balances of Employees. Seller and its affiliates shall have no liability with
respect to Buyer's 401(k) Plan.
(e) Buyer shall request that the Internal Revenue Service issue a
favorable determination letter with respect to the qualification under Sections
401 and 501 of the Internal Revenue Code of Buyer's 401(k) Plan and its related
trust. Buyer shall make such changes to Buyer's 401(k) Plan as may be required
by the Internal Revenue Service in order for the Internal Revenue Service to
issue a favorable determination letter. Buyer shall provide Seller with a copy
of the determination letter received from the Internal Revenue Service with
respect to Buyer's 401(k) Plan as soon as the determination letter is received.
8.3 COBRA. Buyer shall be responsible for providing group health plan
-----
coverage pursuant to Section 4980B of the Code and Sections 601 through 609 of
ERISA ("COBRA") for each person who is entitled to receive COBRA coverage under
a Company Plan as a result of a "qualifying event" (as defined under COBRA) that
occurs prior to, on or after the Closing Date.
51
<PAGE>
8.4 Administration. Buyer and Seller shall each make their appropriate
--------------
employees available to the other at such reasonable times as may be necessary
for the proper administration by the other of any and all matters relating to
employee benefits affecting Employees.
9. MISCELLANEOUS COVENANTS AND OTHER PROVISIONS
--------------------------------------------
9.1 Access to Records. For a period of five years after the Closing Date,
-----------------
Buyer shall have and retain possession of all of the files, documents, papers,
agreements, records and correspondence of the Companies (collectively, the
"Records"). During such period, Buyer agrees to permit Seller and its
representatives to have reasonable access to, and the right to copy, such
Records, at the expense of Seller, during normal business hours upon reasonable
prior written notice. Upon termination of such five year period, Buyer agrees
not to destroy such Records unless Buyer gives Seller 30 days notice thereof,
during which period Seller may request that Buyer deliver such Records to
Seller, at Seller's expense.
9.2 Hart-Scott-Rodino Filings. Seller and Buyer, if required, will each
-------------------------
file, or cause to be filed as soon as possible, with the United States Federal
Trade Commission and the Antitrust Division of the United States Department of
Justice, pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, all requisite documents and notifications in connection with the
transactions contemplated by this Agreement. Each party agrees to cooperate in
responding to any request from the United States Federal Trade Commission or
Department of Justice for additional information with respect to these filings.
Buyer shall determine whether HSR Act filings are required within 30 days after
the date hereof. If Buyer has not made any HSR Act filing within such 30 day
period, then Buyer represents and warrants on such date and as of Closing that
Buyer has fully investigated the applicability of the HSR Act
52
<PAGE>
and the rules promulgated thereunder, and that no premerger notification or
other filing is required by it concerning any of the transactions contemplated
by this Agreement. The Deductible set forth in Section 6.2(e) shall not be
applicable to Buyer's indemnity obligation under Section 6.2(b) with respect to
the foregoing representation
9.3 Expenses. Whether or not the transactions contemplated hereby are
--------
consummated, each party hereto shall pay its own legal and other expenses
separately incurred in connection herewith.
9.4 Public Announcements. The parties will consult with each other before
--------------------
issuing any press releases or making any public statements (including to
employees of the Companies) with respect to this Agreement and the transactions
contemplated hereby, and will not issue any such press release or make any such
public statement without the consent of the other, unless such action is
required by law or by the New York Stock Exchange.
9.5 Further Assurances. Each of the parties will use reasonable efforts
------------------
to implement the provisions of this Agreement, and for such purpose, at the
request and expense of the other, will, at or after the Closing, without further
consideration, promptly execute and deliver, or cause to be executed and
delivered, such additional documents as may be necessary to implement any
provision of this Agreement.
9.6 Revenue Contracts. Seller and one or more of the Companies are
-----------------
parties to certain newspaper revenue contracts listed on Schedule 2.1(e) (the
"Revenue Contracts") which provide for favorable advertising rates. Buyer
agrees that it shall, or after Closing shall cause the Companies, to use all
reasonable efforts to allow Seller to continue to enjoy the benefits of such
Revenue Contracts, and any extensions, renewals or replacements thereof, in
substantially the
53
<PAGE>
same manner as is currently conducted; provided, however, that Buyer shall be
under no obligation to continue, replace or extend any particular Revenue
Contract.
9.7 Descriptive Headings, Schedules and Exhibits. Descriptive headings
--------------------------------------------
are for convenience only and shall not control or affect the meaning or
construction of any provision of this Agreement. All Schedules and Exhibits
attached hereto are hereby incorporated into this Agreement and form a part
hereof as fully as if set forth in the body of the Agreement.
9.8 Counterparts. For the convenience of the parties, any number of
------------
counterparts of this Agreement may be executed by one or more parties hereto and
each such executed counterpart shall be deemed to be an original, but all of
which taken together shall constitute one and the same instrument.
9.9 Notices. All notices and other communications provided for herein
-------
shall be validly given, made or served, if in writing and shall be deemed
received by a party (i) on the date delivered if delivered in person, with
receipt acknowledged, or by facsimile during normal business hours with
confirmation of transmission, (ii) one business day after being sent by a
generally recognized overnight courier service (e.g., Federal Express) with all
delivery charges or fees prepaid, or billing therefor arranged to the sender, or
(iii) three business days after being mailed by registered or certified mail,
return receipt requested, addressed in each such case, as follows:
If to Buyer: MD Acquisition Corporation
c/o Bain Capital, Inc.
Two Copley Place
Boston, MA 02116
Attention: Michael Krupka
Facsimile: (617) 572-3274
54
<PAGE>
with a copy to:
Kirkland & Ellis
Citicorp Center
153 East 53rd Street
New York, New York 10022
Attention: Lance C. Balk
Facsimile: (212) 446-4900
If to Seller: Heilig-Meyers Company
12560 West Creek Parkway
Richmond, Virginia 23238
Attention: William C. DeRusha
Facsimile: (804) 784-7901
with a copy to: McGuire, Woods, Battle & Boothe LLP
One James Center
Richmond, Virginia 23219
Attention: Robert L. Burrus, Jr.
Facsimile: 804-698-2152
or to such other addresses or person as any party hereto may, from time to time,
designate in writing delivered in a like manner.
9.10 Successors and Assigns. This Agreement shall be binding upon and
----------------------
shall inure to the benefit of the parties hereto and their respective permitted
successors and assigns. No party may assign this Agreement by operation of law
or otherwise without the written consent of the other parties; provided,
however, that Buyer (and after the Merger, the Surviving Corporation) may, upon
notice and without releasing Buyer (and after the Merger, the Surviving
Corporation) from its obligations hereunder, assign, directly or indirectly, any
or all of its rights and obligations hereunder to any affiliate of Buyer (and
after the Merger, the Surviving Corporation), including one which acquires all
or substantially all of the assets of the Companies from the Surviving
Corporation or to any Person which provides financing to Buyer, the Surviving
Corporation or the Companies. Unless written notice is given to the Seller that
any such
55
<PAGE>
collateral assignment has been foreclosed upon, the Seller shall be entitled to
deal exclusively with Buyer as to any matters arising under this Agreement or
any of the Related Agreements.
9.11 Law Applicable. This Agreement shall be governed by and construed and
--------------
enforced in accordance with the laws of the State of Virginia.
9.12 Entire Agreement. This Agreement, its Schedules and Exhibits, the
----------------
Related Agreements, the additional written agreements called for herein and the
Confidentiality Agreement together contain the entire agreement between the
parties with respect to the subject matter hereof and supersede all prior
arrangements or understandings with respect thereto, whether written or oral.
The provisions of the Confidentiality Agreement with respect to the Evaluation
Material (as defined herein) shall terminate on Closing.
56
<PAGE>
IN WITNESS WHEREOF, the parties have hereunto set their hands.
SELLER:
------
Heilig-Meyers Company, a Virginia corporation
By: /s/ William C. DeRusha
-----------------------------------
William C. DeRusha
Chairman; Chief Executive Officer
OLDCO:
-----
Heilig-Meyers Associates, Inc., a Virginia corporation
By:/s/ William C. DeRusha
-----------------------------------
William C. DeRusha
President
BUYER:
-----
MD Acquisition Corporation, a Virginia corporation
By: /s/ Michael A. Krupka
-----------------------------------
Michael A. Krupka
Vice President
58
<PAGE>
EXHIBIT 2.2
AMENDMENT NO. 1 TO THE TRANSACTION AGREEMENT
THIS AMENDMENT NO. 1 (the "Amendment") to the Transaction Agreement dated
as of May 28, 1999 (the "Agreement") by and among Heilig-Meyers Associates,
Inc., a Virginia corporation and a wholly-owned subsidiary of Heilig-Meyers
Company ("Oldco"), HEILIG-MEYERS COMPANY, a Virginia corporation ("Seller") and
MD Acquisition Corporation, a Virginia corporation ("Buyer") is entered into as
of July 15, 1999.
The parties desire to amend the Agreement and hereby agree as follows:
1. Section 1.1(b)(ii) of the Agreement is deleted in its entirety and the
following inserted in lieu thereof:
"(ii) the aggregate of the Oldco Shares (representing all of the issued
and outstanding capital stock of Oldco immediately prior to the Effective Time)
shall, at the Effective Time, be converted into the right to receive (A) that
number of fully paid and nonassessable shares of Surviving Corporation Common
Stock such that, immediately following the Effective Time, Seller will own 7% of
each class of the issued and outstanding Surviving Corporation Common Stock; (B)
$214,175,000 cash, subject to a working capital adjustment as provided in
Section 1.2; and (c) junior subordinated notes in the principal amount of $7.5
million (the "Junior Subordinated Notes"), in the form attached hereto as
Exhibit B ((A), (B) and (c) are collectively referred to in this Agreement as,
the "Merger Consideration")."
2. Section 8.1(a) of the Agreement is deleted in its entirety and the
following inserted in lieu thereof:
"From and after the Closing, subject to applicable law and except as
contemplated hereby, Buyer will honor, in accordance with their terms, all
Employee Plans that are sponsored solely by the Companies (and not by Seller)
(the "Company Plans"). The term "Company Plans" shall include the obligation of
Mattress Discounters to pay special bonuses to certain Employees, as described
in the agreement set forth on Schedule 8.1 (the "Special Bonus Program").
Notwithstanding the foregoing, and subject to the terms of the Company Plans,
nothing herein shall preclude Buyer from changing or terminating, on a
prospective basis, any Company Plan (including the Special Bonus Program after
all payments have been made or otherwise satisfied). On and after the Closing
Date, Seller shall retain and have sole responsibility for all liabilities,
obligations or commitments arising under or pertaining to all Employee Plans
that are not Company Plans (including, without limitation, the Heilig-Meyers
Company Executive Income Continuation Plan and the Heilig-Meyers Company
Severance Plan)."
<PAGE>
3. Except as expressly set forth in this Amendment, all other terms and
conditions of the Agreement shall remain in full force and effect. Capitalized
terms used herein and not otherwise defined shall have the meaning assigned to
such terms in the Agreement.
4. This Amendment may be executed in any number of counterparts, each of
which shall be deemed an original but all of which together shall constitute one
instrument.
5. This Amendment shall be governed by and construed in accordance with
its laws of the Commonwealth of Virginia without regard to the conflict of laws
rules thereof.
6. This Amendment shall be effective as of July 15, 1999.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the day and year first above written.
Buyer:
-----
MD Acquisition Corporation,
a Virginia corporation
By:/s/ Michael A. Krupka
______________________________
Title: Vice President
Oldco:
-----
Heilig-Meyers Associates, Inc.
a Virginia corporation
By:/s/ R. B. Goodman
______________________________
Roy B. Goodman
Executive Vice President and
Chief Financial Officer
<PAGE>
Seller:
------
HEILIG-MEYERS COMPANY,
a Virginia corporation
By:/s/ R. B. Goodman
______________________________
Roy B. Goodman
Executive Vice President and
Chief Financial Officer
<PAGE>
EXHIBIT 2.3
AMENDMENT NO. 2 TO THE TRANSACTION AGREEMENT
THIS AMENDMENT NO. 2 ("Amendment No. 2") to the Transaction Agreement
dated as of May 28, 1999 and amended by Amendment No. 1 thereto dated July 15,
1999 (as amended, the "Agreement") by and among Heilig-Meyers Associates, Inc.,
a Virginia corporation and a wholly-owned subsidiary of Heilig-Meyers Company
("Oldco"), HEILIG-MEYERS COMPANY, a Virginia corporation ("Seller") and MD
Acquisition Corporation, a Virginia corporation ("Buyer") is entered into as of
July 29, 1999.
The parties desire to amend the Agreement and hereby agree as follows:
1. Section 1.1(b)(ii) of the Agreement is deleted in its entirety and the
following inserted in lieu thereof:
"(ii) the aggregate of the Oldco Shares (representing all of the
issued and outstanding capital stock of Oldco immediately prior to the
Effective Time) shall, at the Effective Time, be converted into the right
to receive (A) that number of fully paid and nonassessable shares of
Surviving Corporation Common Stock such that, immediately following the
Effective Time, Seller will own 7% of each class of the issued and
outstanding Surviving Corporation Common Stock; (B) $204,212,700 cash,
subject to a working capital adjustment as provided in Section 1.2; (C)
junior subordinated notes in the principal amount of $7.5 million (the
"Junior Subordinated Notes"), in the form attached hereto as Exhibit B;
and (D) junior subordinated notes in the principal amount of $10 million
(the "10% Junior Subordinated Notes"), in the form attached as Exhibit B,
except that the interest rate in Section 2 thereof shall be ten percent
(10%) per annum, ((A), (B), (C), and (D) are collectively referred to in
this Agreement as, the "Merger Consideration")."
2. Exhibit A to the Agreement is deleted in its entirety and Exhibit A
attached hereto is inserted in lieu thereof.
3. Section 1.2(f) of the Agreement is deleted in its entirety and the
following inserted in lieu thereof:
"(f) At or before submission to Seller of the Preliminary Working
Capital Statement, Buyer shall submit to Seller a schedule setting forth
any indebtedness, including capital lease obligations, of the Companies
not included on the Preliminary Working Capital Statement (the "Closing
Debt"). Subject to the same dispute resolution mechanisms set forth in
Sections 1.2(b) through (d) above, Seller shall promptly remit to
<PAGE>
Buyer funds in an amount equal to the Closing Debt less the amount
deducted from cash on hand at the Closing pursuant to Section 3.7."
4. Section 2.1(c) of the Agreement is deleted in its entirely and the
following inserted in lieu thereof:
(c) Capitalization of the Company; Validity of Shares. The authorized
capital of Mattress Discounters consists solely of 3,000 shares of
common stock, $.01 par value, of which, as of the date hereof, 100
shares are validly issued and outstanding, fully paid and
nonassessable. The authorized capital of TJB consists solely of
5,000 shares of common stock, no par value, of which, as of the date
hereof, 100 shares are validly issued and outstanding, fully paid
and nonassessable. The authorized capital of Bedding Experts
consists solely of 1,000 shares of common stock, no par value, of
which, as of the date hereof, 100 shares are validly issued and
outstanding, fully paid and nonassessable. The authorized capital of
the subsidiary described on Schedule 2.1(r) consists solely of the
shares set forth thereon and all the outstanding shares of such
subsidiaries set forth thereon are validly issued and outstanding,
fully paid and nonassessable and are owned beneficially and of
record by Mattress Discounters. The authorized capital of Oldco
consists solely of 5,000 shares of common stock, $1.00 par value, of
which, as of the date hereof, 100 shares are validly issued and
outstanding, fully paid and nonassessable. Seller owns the Shares
and the Oldco Shares beneficially and of record. The Shares
constitute all of the outstanding shares of capital stock of the
Companies. The Oldco Shares constitute all of the outstanding shares
of capital stock of Oldco. Seller has good title to the Oldco Shares
and the Shares, free and clear of encumbrances and upon the transfer
of the Shares to Oldco pursuant to this Agreement Oldco will have
good title to the Shares, free and clear of encumbrances. None of
the Companies or Oldco have any commitment to issue or sell any
shares of their capital stock or any securities or obligations
convertible into or exchangeable for, or giving any person or entity
any right to acquire from them, any shares of their capital stock
and no such securities or obligations are issued or outstanding. The
Shares and the Oldco Shares have been offered, issued and sold in
compliance with all applicable laws. Seller has full voting power
over the Shares and the Oldco Shares, subject to no proxy,
shareholders' agreement, voting trust or other agreement relating to
the voting of any of the Shares. Other than this Agreement, there is
no agreement between Seller and any Person with respect to the
disposition of the Shares or the Oldco Shares or otherwise relating
to the Shares or the Oldco Shares."
5. Section 3.4(a) of the Agreement is amended by adding the following at
the end thereof:
"Seller acknowledges that the provisions of this Section 3.4 shall
equally apply to
2
<PAGE>
warrants to acquire Surviving Corporation Common Stock attached to the
Senior Sub Notes. In the event senior notes of Mattress Discounters are
offered in lieu of senior subordinated notes of Mattress Discounters, all
references to "Senior Sub Notes" shall be deemed to be reference to senior
notes of Mattress Discounters."
6. The Agreement is amended by adding the following new section after
Section 3.6:
"Section 3.7 Cash on Hand at Closing. Notwithstanding anything
contained in the Transaction Agreement to the contrary, the Companies'
cash on hand at the Closing less $543,750 (representing the Closing Debt
estimated as of the Closing) and less book overdrafts as of the Closing
shall be distributed as follows (provided, however, that cash in store
accounts and cash in transit and not available for immediate payment as of
the Closing shall be paid to Seller within 15 days of the Closing): (i)
the first $250,000 thereof shall be paid to Seller in satisfaction of
accrued return allowances and rebates for mattress sold to Seller or its
affiliates and (ii) the remainder as a dividend.
7. Section 4.1(k) of the Agreement is deleted in its entirety and the
following inserted in lieu thereof:
(k) All intercompany accounts payable and receivable between the
Seller, on the one hand, and the Companies, on the other, including (other
than accrued return allowances and rebates for mattresses sold to Seller
or its affiliates paid pursuant to Section 3.7) intercompany Taxes
payable, will be deemed settled by the Seller and contributed to the
capital of the applicable Company, except that the intercompany trade
receivables of the Companies from the Seller for sales of mattresses, box
springs and foundations manufactured by the Companies and accrued return
allowances and rebates related thereto in excess of $250,000 shall be paid
in cash after the Closing Date in accordance with the terms of the
Mattress Supply Agreement, which is attached hereto as Exhibit D.
8. Section 5.3(b) of the Agreement is deleted in its entirety and the
following inserted in lieu thereof:
"(b) the Junior Subordinated Notes and the 10% Junior Subordinated
Notes."
9. Section 8.1 of the Agreement is amended by adding the following new
subsection at the end thereof:
"(c) After the Closing, Seller shall pay to Employees who were
participating in Seller's Annual Performance Based Bonus Plan immediately
prior to the Closing the bonuses to which such Employees would be entitled
to receive as if the Closing occurred at the end of Seller's current
fiscal year, based on performance through July 1999 and based on
performance through July 1999 and pro rated for the portion of
3
<PAGE>
Seller's current fiscal year through July 1999."
10. Except as expressly set forth in this Amendment, all other terms and
conditions of the Agreement shall remain in full force and effect. Capitalized
terms used herein and not otherwise defined shall have the meaning assigned to
such terms in the Agreement.
11. This Amendment may be executed in any number of counterparts, each of
which shall be deemed an original but all of which together shall constitute one
instrument.
12. This Amendment shall be governed by and construed in accordance with
its laws of the Commonwealth of Virginia without regard to the conflict of laws
rules thereof.
13. This Amendment shall be effective, as of July 29, 1999, upon receipt
by Seller of all necessary consents of its lenders under its credit facilities.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the day and year first above written.
Buyer:
MD Acquisition Corporation,
a Virginia corporation
By:/s/ Michael A. Krupka
_____________________________________
Title: Vice President
Oldco:
Heilig-Meyers Associates, Inc.
a Virginia corporation
By: R. B. Goodman
_____________________________________
Roy B. Goodman
Executive Vice President
Seller:
Heilig-Meyers Company,
a Virginia corporation
By: R. B. Goodman
_____________________________________
Roy B. Goodman
Executive Vice President
5
<PAGE>
EXHIBIT 2.4
COMMONWEALTH OF VIRGINIA
STATE CORPORATION COMMISSION
August 6, 1999
The State Corporation Commission finds the accompanying articles submitted on
behalf of
MATTRESS DISCOUNTERS HOLDING CORPORATION
to comply with the requirements of law. Therefore, it is ORDERED that this
CERTIFICATE OF MERGER AND RESTATEMENT
be issued and admitted to record with the articles in the office of the Clerk of
the Commission. Each of the following:
MD ACQUISITION CORPORATION
is merged into MATTRESS DISCOUNTERS HOLDING CORPORATION (formerly HEILIGMEYERS
ASSOCIATES, INC.), which continues to exist under the laws of VIRGINIA with the
name MATTRESS DISCOUNTERS HOLDING CORPORATION. The existence of each
nonsurviving entity ceases, according to the plan of merger.
The certificate is effective on August 6, 1999.
STATE CORPORATION COMMISSION
By /s/ T.V. Morrison, Jr.
--------------------------
Commissioner
<PAGE>
ARTICLES OF MERGER
for the merger of
MD ACQUISITION CORPORATION, a Virginia Corporation
into
HEILIG-MEYERS ASSOCIATES, INC., a Virginia Corporation
The undersigned, pursuant to Title 13.1, Chapter 9, Article 12 of the Code
of Virginia, hereby execute the following Articles of Merger and set forth:
1. The Plan of Merger (the "Plan"), attached as Exhibit A and made a part
---------
of these Articles of Merger, provides for the merger (the "Merger") of MD
Acquisition Corporation, a Virginia corporation, and Heilig-Meyers Associates,
Inc., a Virginia corporation. Heilig-Meyers Associates, Inc. will be the
surviving corporation. The Plan constitutes the "plan of merger" for the
purposes of Article 12 of the Virginia Stock Corporation Act. The Board of
Directors of each corporation which is a party to the Merger adopted the Plan
and recommended its approval to its shareholders.
2. The Plan was adopted by the unanimous consent of the shareholders of
MD Acquisition Corporation.
3. The Plan was adopted by the unanimous consent of the shareholders of
Heilig-Meyers Associates., Inc,
Dated: August 6, 1999
HEILIG-MEYERS ASSOCIATES, INC.
by /s/ William C. DeRusha
------------------------------
William C. DeRusha, President
MD ACQUISITION CORPORATION
by /s/ Michael Krupka
------------------------------
Michael Krupka, President
<PAGE>
Exhibit A
PLAN OF MERGER
Merging
MD Acquisition Corporation, a Virginia Corporation
Into
Heilig-Meyers Associates, Inc., a Virginia Corporation
1. Parties to the Merger; Effective Date. Pursuant to the provision of
the Virginia Stock Corporation Act, MD Acquisition Corporation ("MD"), a
Virginia corporation, shall be merged into Heilig-Meyers Associates, Inc. ("HMY
Associates"), a Virginia Corporation. HMY Associates will be the surviving
corporation (the "Surviving Corporation") and will change its name as described
in Section 2 below. The merger (the "Merger") shall become effective at such
time (the "Effective Time") on the date (the "Effective Date") that the State
Corporation Commission of Virginia issues a certificate of merger (the
"Certificate of Merger").
2. Effect of the Merger. By virtue of the Merger, as of the Effective
Time, all rights, privileges, immunities, powers and purposes of HMY Associates
and MD, and all the property, real and personal, including, without limitation,
causes of action, and every other asset of HMY Associates and MD, shall vest in
the surviving Corporation, without any further act or deed, and the separate
existence of MD shall cease and the corporate existence of HMY Associates as the
Surviving Corporation shall continue unaffected and unimpaired by the Merger.
From and after the Effective Time (i) HMY Associates shall change its name to
Mattress Discounters Holding Corporation and continue its corporate existence as
a Virginia corporation and the separate existence of MD shall cease; (ii) the
Amended and Restated Articles of
A-1
<PAGE>
Incorporation, in the form attached hereto as Exhibit 1, shall become the
Amended and Restated Articles of Incorporation of the Surviving Corporation
until amended or repealed in a manner provided by law; (iii) the Bylaws of MD in
effect immediately prior to the Effective Time shall become the Bylaws of the
Surviving Corporation until amended or repealed in a manner provided by law;
(iv) each of the officers and directors of MD in office immediately prior to the
Effective Time shall become the officers and directors of the Surviving
Corporation, until their respective successors are duly elected or appointed;
and (v) the former holders of the shares of HMY Associates Common Stock and MD
Common Stock shall only be entitled to the rights provided in this Plan of
Merger.
3. Conversion of Securities. By virtue of the Merger and without any
action on the part of the holder thereof, each share of Class A Common Stock of
MD, issued and outstanding immediately prior to the Effective Time, shall, at
the Effective Time, be converted into one fully paid and nonassessable share of
Class A Common Stock, $.01 par value per share, of the Surviving Corporation
(the "Class A Stock"), and each share of Class L Common Stock, $.01 par value
per share, of MD, issued and immediately prior to the Effective Time, shall, at
the Effective Time, be converted into one fully paid and nonassessable share of
Class L Common Stock, $.01 par value per share, of the Surviving Corporation
(the "Class L Stock" and together with the Class A Stock, the "Surviving
Corporation Common Stock") ; and the aggregate of the shares of Common Stock of
HMY Associates (representing all of the issued and outstanding capital stock of
HMY Associates immediately prior to the Effective Time) (the "HMY Associates
Stock") shall, at the Effective Time, be converted into the right to receive (A)
903,000 shares of Class A Stock and 100,333 shares of Class L Stock; (B)
$204,175,000 in cash, subject to a working capital adjustment as provided in the
Transaction Agreement, dated as
A-2
<PAGE>
of May 28, 1999, among Heilig-Meyers Company, Heilig-Meyers Associates, Inc. and
MD Acquisition Corporation, as amended (the "Transaction Agreement"); (C) junior
subordinated notes in the form attached to the Transaction Agreement in the
principal amount of $7.5 million; and (D) the junior subordinated notes in the
form attached to the Transaction Agreement in the principal amount of $10
million and bearing interest at 10% per annum, ((A), (B), (C), and (D) are
collectively referred to in this Plan of Merger as the "Merger Consideration").
4. Exchange of Shares. Upon receipt by the Surviving Corporation of
certificates representing shares of HMY Associates stock, together with a duly
executed stock power, the HMY Associates Stock Certificate shall be cancelled
and the Surviving Corporation shall deliver to the former holder of such HMY
Associates Stock Certificate a certificate representing the of shares of
Surviving Corporation Common Stock to which such shareholder is entitled as a
result of the Merger.
5. Transfer of Shares. (a) If any shares of Surviving Corporation Common
Stock are to be issued in a name other than that in which the HMY Associates
Stock surrendered in exchange therefor was registered, it shall be a condition
of the issuance that the certificate or certificates representing such HMY
Associates Stock be in proper form for transfer, and that the person requesting
the exchange shall (i) pay to the Surviving Corporation any transfer or other
taxes required by reason of the issuance of shares of Surviving Corporation
Common Stock in a name other than that of the registered holder of the HMY
Associates Stock surrendered or (ii) establish to the satisfaction of the
Surviving Corporation that such tax has been paid or that no such tax is
payable.
A-3
<PAGE>
(b) After the Effective Time, there shall be no transfers on the stock
transfer books of the Surviving Corporation of the shares of HMY Associates
Stock which were issued and outstanding immediately prior to the Effective Time.
6. Termination of Merger. The Boards of Directors of MD and HMY
Associates may terminate and abandon the Merger at any time prior to the
issuance of the Certificate of Merger, subject to any contractual rights,
without further shareholder action, in such manner as shall be agreed upon by
such Boards of Directors.
A-4
<PAGE>
EXHIBIT 3.1
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 ARE TRUE AND CORRECT COPIES OF ALL DOCUMENTS ON FILE OF
"MATTRESS DISCOUNTERS CORPORATION" AS RECEIVED AND FILED IN THIS OFFICE.
THE FOLLOWING DOCUMENTS HAVE BEEN CERTIFIED:
CERTIFICATE OF INCORPORATION, FILED THE FOURTH DAY OF MARCH, A.D. 1996, AT
3:30 O'CLOCK P.M.
CERTIFICATE OF CORRECTION, CHANGING ITS NAME FROM "MATTRESS DISCOUNTERS,
INC." TO "MATTRESS DISCOUNTERS CORPORATION", FILED THE FIFTH DAY OF MARCH, A.D.
1996, AT 4:30 O'CLOCK P.M.
CERTIFICATE OF MERGER, FILED THE NINETEENTH DAY OF MARCH, A.D. 1996, AT 11
O'CLOCK A.M.
CERTIFICATE OF MERGER, FILED THE TWENTY-SEVENTH DAY OF MARCH, A.D. 1996, AT
10 O'CLOCK A.M.
CERTIFICATE OF MERGER, FILED THE FIRST DAY OF JULY, A.D. 1997, AT 9 O'CLOCK
A.M.
CERTIFICATE OF CHANGE OF REGISTERED AGENT, FILED THE THIRD DAY OF APRIL,
A.D. 1998, AT 9 O'CLOCK A.M.
/s/ Edward J. Freel
----------------------------------------
Edward Freel, Secretary of State
AUTHENTICATION: 9879148
DATE: 7/22/99
<PAGE>
CERTIFICATE OF INCORPORATION
OF
MATTRESS DISCOUNTERS, INC.
FIRST: The Corporation's name (hereinafter sometimes referred to as the
"Corporation") is:
MATTRESS DISCOUNTERS, INC.
SECOND: The address of the Corporation's registered office in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle
County, Delaware 19801. The name of the Corporation's registered agent at such
address is The Corporation Trust Company.
THIRD: The purposes of the Corporation are to engage in, promote and
carry on any lawful act or activity for which corporations may be organized
under the General Corporation Law of the State of Delaware.
FOURTH: The total number of shares of capital stock that the Corporation
shall have authority to issue is 3,000 shares of common stock having a par value
of $.01 per share.
FIFTH: The Incorporator's powers shall terminate upon the filing of this
Certificate of Incorporation, The Incorporator's name and address are as
follows:
Carter Strong
1050 Connecticut Avenue, N.W.
Washington, D.C. 20036-5339
SIXTH: Upon the termination of the Incorporator's powers In accordance
with Article FIFTH of this Certificate of Incorporation, Warren S. Teitelbaum
and Steven M, Lytell, both of 9822 Fallard Court, Upper Marlboro, Maryland
20772, shall serve as the Corporation's initial directors and shall have and
exercise any and all rights, powers, privileges and discretionary authority
granted or permitted by this Certificate of Incorporation, the Corporation's
bylaws, or the General Corporation Law or other statutes of the State of
Delaware, until the final annual meeting of stockholders or until their
successors are duly elected and shall qualify.
SEVENTH: The provisions for the regulation of the Corporation's internal
affairs are to be stated in the Corporation's bylaws, as the same may be amended
from time to time.
EIGHTH: The Corporation's books may be kept (subject to any provision
contained in the statutes) outside the State of Delaware at such place or places
as may be designated from time to time by the Corporation's board of directors
(the "Board of Directors") or in the Corporation's bylaws. Elections of the
Corporation's directors need not be by written ballot unless the Corporation's
bylaws shall so provide.
-2-
<PAGE>
NINTH: In addition to the rights, powers, privileges and discretionary
authority expressly conferred by statute upon the Board of Directors, it is
hereby authorized and empowered to adopt, amend or repeal the Corporation's
bylaws and to exercise any and all powers and privileges and to do any and all
acts and things as may at any time or from time to time be exercised or done by
the Corporation; subject, nevertheless, to the provisions of the statutes of the
State of Delaware, of this Certificate of Incorporation, and of the
Corporation's bylaws from time to time made, provided, however, that no bylaw so
made shall serve to invalidate any prior action of the Board of Directors, which
would have been valid if such bylaw had not been made.
TENTH: The Corporation shall indemnify each of the individuals which may be
indemnified pursuant to Section 145 of the General Corporation Law of the State
of Delaware, as amended from time to time, to the fullest extent permitted, (i)
in each and every situation where the Corporation is obligated to make such
indemnification pursuant to the aforesaid statutory provisions, and (ii) in each
and every situation where, under the aforesaid statutory provisions, the
Corporation is not obligated, but is nevertheless permitted or empowered, to
make such indemnification, it being understood, with respect to any situation
under this clause (iii), that the Corporation shall promptly make or cause to be
made any determination which the aforesaid statutory provisions require be made
prior to indemnifying an individual.
ELEVENTH: A director of the Corporation shall not be personally liable to
the Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived any improper
personal benefit. If the Delaware General Corporation Law hereafter is amended
to further eliminate or limit the liability of a director of a corporation, then
a director of the Corporation, in addition to the circumstance in which a
director ii not personally liable as W forth in the preceding sentence, shall be
not be liable to the fullest extent permitted by the Delaware General
Corporation Law as so amended. Any repeal or modification of the foregoing
provisions of this Article ELEVENTH by the Corporation's stockholders shall not
adversely affect any right or protection of a director of the Corporation
existing at the time of such repeal or modification.
TWELFTH: Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class or them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under the
provisions of Section 291 of Title 8 of the Delaware Code or on the application
of trustees in dissolution or of any receiver or receivers appointed for the
Corporation under the provisions of Section 279 of Title 8 of the Delaware Code
order a meeting of the creditors or class of creditors, and/or the stockholders
or class of stockholders of the Corporation, as the case may be, to he summoned
in such manner as the said court directs. If a majority in number representing
three-fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the case may be,
agree to any
-3-
<PAGE>
compromise or arrangement and to any reorganization of the Corporation as a
consequence of such compromise or arrangement, the said compromise or
arrangement and the said reorganization shall, if sanctioned by the court to
which the said application has been made, be binding on all the creditors or
class of creditors, and/or on all the stockholders or class of stockholders, of
the Corporation, as the case may be, and also on the Corporation,
THIRTEENTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights, powers,
privileges and discretionary authority granted or conferred upon stockholders or
directors herein are granted subject to this reservation.
I. the undersigned, being the Incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of the
State of Delaware, do make this Certificate of Incorporation, hereby declaring
and certifying that this is my act and deed and the facts herein stated are
true, and accordingly have hereunto set my hand this fourth day of March 1996.
/s/ Carter Strong
------------------
Carter Strong
-4-
<PAGE>
CERTIFICATE OF CORRECTION BEING FILED TO
CORRECT A CERTAIN ERROR IN THE
CERTIFICATE OF INCORPORATION
OF
MATTRESS DISCOUNTERS, INC.
MATTRESS DISCOUNTERS, INC., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (the
Corporation), does hereby certify the following:
FIRST: The name of the Corporation is:
MATTRESS DISCOUNTERS, INC.
SECOND: The Certificate of Incorporation (the Certificate) was filed-by the
Secretary of State of Delaware on March 4, 1996 under the name
MATTRESS DISCOUNTERS, INC. and the Certificate requires correction as
permitted by Section 103(f) of the General Corporation Law of the
State of Delaware.
THIRD: The Certificate incorrectly stated Article FIRST as follows-
FIRST: The corporation's name (hereinafter sometimes referred to
as the "Corporation") is:
MATTRESS DISCOUNTERS, INC.
The foregoing Article FIRST was erroneously stated.
FOURTH: The inaccuracy of the Certificate is hereby corrected, by deleting the
present Article FIRST and inserting a new Article FIRST, as follows:
FIRST: The corporation's name (hereinafter sometimes referred to
as the "Corporation") is:
Mattress Discounters Corporation
IN WITNESS WHEREOF, this Certificate of Correction is executed by the
Incorporator in accordance with Section 103(l) of the General Corporation Law of
the State of Delaware.
DATED: Match 5, 1996 /s/ Carter Strong
------------------------------------
Carter Strong, Incorporator
-5-
<PAGE>
CERTIFICATE OF MERGER OF
MATTRESS DISCOUNTERS CORPORATION OF NEW JERSEY INTO
MATTRESS DISCOUNTERS CORPORATION
The undersigned corporation
DOES HEREBY CERTIFY:
FIRST: That the name and state of incorporation of each of the
constituent corporations of the merger is as follows:
NAME STATE OF INCORPORATION
- ----------------------------------- -----------------------------------
Mattress Discounters Corporation of New New Jersey
Jersey
Mattress Discounters Corporation Delaware
SECOND: That an Agreement of Merger has been approved, adopted,
certified, executed and acknowledged by each of the constituent corporations in
accordance with the requirements of Section 252 of the General Corporation Law
of Delaware.
THIRD: That the name of the surviving corporation of the merger is
Mattress Discounters Corporation, a Delaware corporation.
FOURTH: That the Certificate of Incorporation of Mattress Discounters
Corporation, a Delaware corporation which is surviving the merger, shall be the
Certificate of Incorporation of the surviving corporation.
FIFTH: That the executed Agreement of Merger is on file at the principal
place of business of the surviving corporation, the address of which is 9822
Fallard Court, Upper Marlboro, Maryland 20772.
SIXTH: That a copy of the Agreement of Merger will be furnished by the
surviving corporation, on request and without cost, to any stockholder of any
constituent corporation.
SEVENTH: The authorized capital stock of each foreign corporation which is
a party to the merger is as follows:
<TABLE>
<CAPTION>
Number of Par value per share or statement
Corporation Class Shares that shares are without par value
- ------------------------------ --------- ------------ ------------------------------------
<S> <C> <C> <C>
Mattress Discounters Common 5,000 without par value
Corporation of New Jersey
</TABLE>
-6-
<PAGE>
DATED: March 18, 1996 Mattress Discounters Corporation
By: /s/ John Studner
------------------------------------
Executive Vice President and Chief
Operating Officer
-7-
<PAGE>
CERTIFICATE OF MERGER OF
MATTRESS DISCOUNTERS OF PITTSBURGH, INC.,
MATTRESS DISCOUNTERS OF ALLEGHENY, INC.,
MATTRESS DISCOUNTERS CORPORATION OF CALIFORNIA
MATTRESS DISCOUNTERS OF SOUTHERN CALIFORNIA, INC.
INTO
MATTRESS DISCOUNTERS CORPORATION
The undersigned corporation
DOES HEREBY CERTIFY:
FIRST: That the name and state of incorporation of each of the
constituent corporations of the merger is as follows:
NAME STATE OF INCORPORATION
- ---- ----------------------
Mattress Discounters of Pittsburgh, Inc. Pennsylvania
Mattress Discounters of Allegheny, Inc. Pennsylvania
Mattress Discounters Corporation of California California
Mattress Discounters of Southern Ca1ifornia. Inc. California
Mattress Discounters Corporation Delaware
SECOND: That an Agreement of Merger has been approved, adopted,
certified, executed, and acknowledged by each of the constituent corporations in
accordance with the requirements of Section 252 of the General Corporation Law
of Delaware.
THIRD: That the name of the surviving corporation of the merger is
Mattress Discounters Corporation, a Delaware corporation.
FOURTH: That the Certificate of Incorporation of Mattress Discounters
Corporation, a Delaware corporation which is surviving the merger, shall be the
Certificate of Incorporation of the surviving corporation.
FIFTH: That the executed Agreement of Merger is on file at the principal
place of business of the surviving corporation, the address of which is 9822
Fallard Court, Upper Marlboro, Maryland 20772.
SIXTH: That a copy of the Agreement of Merger will be furnished by the
surviving corporation, on request and without cost, to any stockholder of any
constituent corporation.
-8-
<PAGE>
SEVENTH: The authorized capital stock of each foreign corporation which is
a party to the merger is as follows:
<TABLE>
<CAPTION>
Number of Par value per share or statement
Corporation Class Shares that shares are without par value
- ---------------------------- --------- ------------ -------------------------------------
<S> <C> <C> <C>
Mattress Discounters of Common 5,000 without par value
Pittsburgh, Inc.
Mattress Discounters of Common 5,000 $.01
Allegheny, Inc.
Mattress Discounters Common 100,000 without par value
Corporation of California
Mattress Discounters of Common 5,000 $.01
Southern California, Inc.
</TABLE>
DATED:March 25, 1996
Mattress Discounters Corporation
By: /s/ John Studner
------------------------------------
Executive Vice President
-9-
<PAGE>
CERTIFICATE OF MERGER OF
MDC MERGER SUBSIDIARY CORPORATION INTO
MATTRESS DISCOUNTERS CORPORATION
The undersigned corporation
DOES HEREBY CERTIFY:
FIRST: That the name and state of incorporation of each of the
constituent corporations of the merger are as follows:
NAME STATE OF INCORPORATION
----- ----------------------
MDC Merger Subsidiary Corporation Delaware
Mattress Discounters Corporation Delaware
SECOND: That a Merger Agreement and Plan of Reorganization (the "Merger
Agreement") has been approved, adopted, certified, executed and acknowledged by
each of the constituent corporations in accordance with the requirements of
Section 251 of the General Corporation Law of Delaware.
THIRD: That the name of the surviving corporation of the merger is
Mattress Discounters Corporation, a Delaware corporation.
FOURTH: That the Certificate of Incorporation of Mattress Discounters
Corporation, a Delaware corporation which is surviving the merger, shall be the
Certificate of Incorporation of the surviving corporation.
FIFTH: That the executed Merger Agreement is on file at the principal
place of business of the surviving corporation, the address of which is 9822
Fallard Court, Upper Marlboro, Maryland 20772.
SIXTH: That a copy of the Merger Agreement will be furnished by the
surviving corporation, on request and without cost, to any stockholder of any
constituent corporation.
SEVENTH: That the effective time of the merger is 11:59 p.m., eastern
time, on July 1, 1997.
DATED: July 1, 1997 Mattress Discounters Corporation
By: /s/ Jon M. Studner
---------------------------------------------
Name: Jon M. Studner
Title: Executive Vice President and Chief Operating
Officer
-10-
<PAGE>
CERTIFICATE OF CHANGE OF LOCATION OF
REGISTERED OFFICE AND OF REGISTERED AGENT
It is hereby certified that:
1. The name of the corporation (hereinafter called the "corporation") is:
MATTRESS DISCOUNTERS CORPORATION
2. The registered office of the corporation within the State of Delaware is
hereby changed to 1013 Centre Road, City of Wilmington 19805, County of New
Castle.
3. The registered agent of the corporation within the State of Delaware is
hereby changed to Corporation Service Company, the business office of which
is identical with the registered office of the corporation as hereby
changed.
4. The corporation has authorized the changes hereinbefore set forth by
resolution of its Board of Directors.
DATED: March 26, 1998 /s/ J. Sniffen
_________________________________________
J. Sniffen
President
-11-
<PAGE>
EXHIBIT 3.2
MATTRESS DISCOUNTERS CORPORATION
OFFICER'S CERTIFICATE
Pursuant to Section 5.2(b) of that certain Transaction Agreement dated as of May
28, 1999, as amended (the "Transaction Agreement"), by. and among Heilig-Meyers
Company, Heilig-Meyers Associates, Inc. and MD Acquisition Corporation, the
undersigned officer of Mattress Discounters Corporation (the "Company") does
hereby certify that annexed hereto as Exhibit A is a true, accurate and complete
copy of the bylaws of the Company.
Mattress Discounters Corporation
By: /s/ Paige H. Wilson
-----------------------------------
Name: Paige H. Wilson
Title: Secretary
Dated: August 6, 1999
<PAGE>
MATTRESS DISCOUNTERS CORPORATION***
BYLAWS
ARTICLE I
OFFICES
Section 1. The Corporation's principal office in the State of Delaware
shall be in the City of Wilmington, County of New Castle.
Section 2. The Corporation may also have offices at such other places
both within and without the State of Delaware as the Corporation's board of
directors (the "Board") may from time to time determine or the Corporation's
business may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Subject to Section 2 of this Article, all meetings of the
stockholders for the election of directors shall be held at such time and place,
within or without the State of Delaware, as may be fixed from time to time by
the Board. Meetings of stockholders for any other purpose may be held at such
time and place, within or without the State of Delaware, as shall be stated in
the notice of the meeting or in a duly executed waiver of notice thereof.
Section 2. Annual meetings of stockholders shall be held on such date
in the month of April of each year and at such place (within or without the
State of Delaware) as is designated from time to time by the Board and stated in
the notice of the meeting. At each annual meeting, the stockholders shall elect
the Board and shall transact such other business as may properly be brought
before the meeting.
Section 3. Written notice of the annual meeting shall be given to each
stockholder entitled to vote at such meeting not fewer than 10 nor more than 60
days prior to the meeting.
Section 4. The officer who has charge of the Corporation's stock ledger
shall prepare and make, at least 10 days before every election of directors, a
complete list of the stockholders entitled to vote at said election, arranged in
alphabetical order, showing the address of and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination of
any stockholder, during ordinary business hours, for a period of at least 10
days prior to the election, either at a place within the city, town or village
where the election is to be held and which place shall be specified in the
notice of the meeting, or, if not specified, at the
__________________________________
* As adopted by the Board on March 5, 1996.
** [Handwritten note: name changed by Certificate of Correction 3/5/96]
-2-
<PAGE>
place where said meeting is to be held, and the list shall be produced and kept
at the time and place of election during the whole time thereof, and subject to
the inspection of any stockholder who may be present.
Section 5. Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the Corporation's
certificate of incorporation (the "Charter"), may be called by the Chairman of
the Board ("Chairman") or the President and shall be called by the Chairman or
the President or Secretary at the request in writing of a majority of the Board,
or at the request in writing of stockholders owning at least 35% of the
Corporation's capital stock outstanding and entitled to vote at such meeting.
Such request shall state the purpose or purposes of the proposed meeting.
Section 6. Written notice of a special meeting of stockholders, stating
the time, place and purposes thereof, shall be given to each stockholder
entitled to vote at such meeting not fewer than 10 nor more than 60 days prior
to the meeting.
Section 7. Business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice.
Section 8. The holders of a majority of the Corporation's capital stock
and outstanding, and entitled to vote thereat, present in person or represented
by proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified.
Section 9. When a quorum is present at any meeting, the vote of the
holders of a majority of the Corporation's capital stock outstanding and having
voting power present in person or represented by proxy shall decide any question
brought before such meeting, unless the question is one upon which by express
provision of the statutes or of the Charter, a different vote is required in
which case such express provision shall govern and control the decision of such
question.
Section 10. Each stockholder shall at every meeting of the stockholders
be entitled to one vote in person or by proxy for each share of the capital
stock having voting power held by such stockholder, but no proxy shall be voted
on after three years from its date, unless the proxy provides for a longer
period, and, except where the Corporation's transfer books have been closed or a
date has been fixed as a record date for the determination of its stockholders
entitled to vote, no capital stock shall be voted on at any election for
directors which has been transferred on the Corporation's books within 20 days
next preceding such election of directors.
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Section 11. Whenever the vote of stockholders at a meeting thereof is
required or permitted to be taken in connection with any corporate action by any
provisions of the statutes or of the Charter, the meeting and vote of
stockholders may be dispensed with, if all the stockholders who would have been
entitled to vote upon the action if such meeting were held, shall consent in
writing to such corporate action being taken.
ARTICLE III
DIRECTORS
Section 1. The number of directors of the Corporation shall be at least
one, or such other number as shall be determined from time to time by the Board.
The directors shall be elected at the annual meeting of the stockholders, except
as provided in Section 2 of this Article, and each director elected shall hold
office until his successor has been duly elected and has qualified. Directors
need not be stockholders nor residents of the State of Delaware.
Section 2. Vacancies and newly created directorships resulting from any
increase in the authorized number of directors may be filled by a majority of
the directors then in office, though less than a quorum, or by the sole
remaining director, and the directors so chosen shall hold office until the next
annual meeting of the stockholders or until their successors are duly elected
and shall qualify, unless sooner displaced.
Section 3.
(a) Except as otherwise provided by law, the Charter or these
Bylaws, at any meeting of the stockholders called expressly for such purpose,
any director may be removed, with or without cause, by a vote of the
stockholders holding a majority of the capital stock outstanding and entitled to
vote at an election of directors.
(b) Any director may resign at any time by giving written notice
to the Board, the Chairman, the President or the Secretary of the Corporation.
Unless otherwise specified such written notice, a resignation shall take effect
upon delivery thereof to the Board or the designated officer. A resignation need
not be accepted for it to be effective.
Section 4. The Corporation's business shall be managed by the Board
which may exercise all such powers of the Corporation and do all such lawful
acts and things as are not by statute or by the Charter or by these Bylaws
directed or required to be exercised or done by the stockholders.
BOARD MEETINGS
Section 5. The Board may hold meetings, both regular and special,
either within or without the State of Delaware.
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Section 6. The first meeting of each newly elected Board shall be held
at such time and place as shall be fixed by the vote of the stockholders at the
annual meeting and no notice of such meeting shall be necessary to the newly
elected directors to constitute legally the meeting, provided a quorum shall be
present. If the stockholders fail to fix the time or place of such first meeting
of the newly elected Board, or if such meeting is not held at the time and place
so fixed by the stockholders, the meeting may be held at such time and place as
shall be specified in a notice given as hereinafter provided for special
meetings of the Board, or as shall be specified in a written waiver signed by
all of the directors.
Section 7. Regular meetings of the Board may be held without notice at
such time and at such place as shall from time to time be determined by the
Board.
Section 8. Special meetings of the Board may be called by the Chairman
or the President on two days prior written notice to each director, either
personally, by mail or by telegram; special meetings may be called by the
Chairman or the President or Secretary in like manner and on like notice upon
the written request of two directors.
Section 9. At all meetings of the Board, a majority of the directors
shall constitute a quorum for the transaction of business and the act of a
majority of the directors present at any Board meeting at which there is a
quorum shall be the act of the Board, except as may be otherwise specifically
provided by statute or by the Charter. If a quorum shall not be present at any
Board meeting, 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. The Chairman shall preside at all meetings of the Board.
Section 10. Unless otherwise restricted by the Charter or these Bylaws,
any action required or permitted to be taken at any meeting of the Board, or of
any committee thereof, may be taken without a meeting, if prior to such action a
written consent thereto is signed by all Board members or of such committee as
the case may be, and such written consent is filed with the minutes of
proceedings of the Board or such committee.
Section 11. The Board may participate in meetings by means of conference
telephone or similar communications equipment, whereby all directors
participating in the meeting can hear each other at the same time, and
participation in any such meeting shall constitute presence in person by such
director at such meeting. A written record shall be made of all actions taken at
any meeting conducted by means of a conference telephone or similar
communications equipment.
BOARD COMMITTEES
Section 12. The Board may, by resolution passed by a majority of the
whole Board, designate one or more committees, each committee to consist of two
or more of the directors of the Corporation, which, to the extent provided in
the resolution, shall have and may exercise the powers of the Board in the
management of the Corporation's business and affairs and may authorize the
Corporation's seal to be affixed to all papers which may require it. Such
committee
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or committees shall have such name or names as may be determined from time to
time by resolution adopted by the Board.
Section 13. Each committee shall keep regular minutes of its meetings
and report the same to the Board when required.
COMPENSATION OF DIRECTORS
Section 14. The directors may be paid their expenses, if any, of
attendance at each Board meeting and may be paid a fixed sum for attendance at
each Board meeting or a stated salary as director. No such payment shall
preclude any director from serving the Corporation in any other capacity and
receiving compensation therefor. Members of special or standing committees may
be allowed like compensation for attending committee meetings.
ARTICLE IV
NOTICES
Section 1. Notices to directors and stockholders shall be in writing
and delivered either personally or by first class mail with postage prepaid, in
either case addressed to the directors or stockholders at their addresses
appearing on the Corporation's books. Notice delivered personally shall be
deemed to be given at the time when the same shall be received by the addressee,
and notice by mail shall be deemed to be given at the time when the same shall
be deposited in the United States mail. Notice to directors may also be given by
telegram and shall be deemed to be given at the time when the same shall be
received by the addressee.
Section 2. Whenever any notice is required to be given under the
provisions of the statutes or of the Charter or of these Bylaws, a waiver
thereof in writing, signed by the person or persons entitled to said notice,
whether before or after the time stated therein, shall be deemed equivalent
thereto.
ARTICLE V
OFFICERS
Section 1. The Corporation's officers shall be chosen by the Board and
shall consist of a Chairman (if the Board both deems it advisable that the
Chairman shall be an officer of the Corporation and selects one), a President,
one or more Executive Vice Presidents and Vice Presidents (if and to the extent
required by law or if not required, if the Board from time to time appoints a
Vice President or Vice Presidents), a Secretary and a Treasurer. The Board also
may choose one or more Assistant Secretaries and/or Assistant Treasurers and
such other officers and/or agents as the Board from time to time deems necessary
or appropriate. The Board may delegate to the Chairman and/or the President of
the Corporation the authority to appoint any officer or agent of the Corporation
and to fill a vacancy other than the Chairman, President, Secretary or
Treasurer. The election or appointment of any officer of the Corporation in
itself
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shall not create contract rights for any such officer. All officers of the
Corporation shall exercise such powers and perform such duties as from time to
time shall be determined by the Board.
Section 2. Each officer of the Corporation shall hold office at the
Board's pleasure, and any officer may be removed, with or without cause, at any
time by the affirmative vote of a majority of the directors then in office,
provided that any officer appointed by the Chairman or the President pursuant to
authority delegated to the Chairman or the President by the Board may be
removed, with or without cause, at any time whenever the Chairman or the
President in his absolute discretion shall consider that the Corporation's best
interests shall be served by such removal. Removal of an officer by the Board,
the Chairman or the President, as the case may be, shall not prejudice the
contract rights, if any, of the person so removed. Vacancies (however caused) in
any office may be filled for the unexpired portion of the term b% the Board (or
by the Chairman or the President in the case of a vacancy occurring in an office
to which the Chair-man or the President has been delegated the authority to make
appointments).
Section 3. The salaries of all officers of the Corporation shall be
fixed from time to time by the Board, and no officer shall be prevented from
receiving a salary by reason of the fact that he also receives from the
Corporation compensation in any other capacity.
PRESIDENT
Section 4. The President, subject to the Board's direction, shall have
general charge of the Corporation's business, affairs and property and general
supervision over its other officers and agents. In general, the President shall
perform all duties incident to the office of the chief executive officer of a
stock corporation and shall see that all orders and resolutions of the Board are
carried into effect. Unless otherwise prescribed by the Board, the President
shall have full power and authority on the Corporation's behalf to attend, act
and vote at any meeting of security holders of other corporations in which the
Corporation may hold securities. At any such meeting, the President shall
possess and may exercise any and all rights and powers incident to the ownership
of such securities that the Corporation possesses and has the power to exercise.
The Board from time to time may confer like powers upon any other person or
persons. The President (or, in his absence, the Chairman if present) shall
preside at all meetings of the Corporation's stockholders.
EXECUTIVE VICE PRESIDENTS
Section 5. Each Executive Vice President of the Corporation, subject to
the President's and Board's direction, shall perform such executive, supervisory
and management functions and duties as from time to time may be assigned to him
by the Board. Unless the President is present at such meeting (in person or by
proxy), the Executive Vice President - Chief Operating Officer shall have the
same power and authority as the President to attend, act and vote on the
Corporation's behalf at any meeting of security holders of other corporations in
which the Corporation may hold securities. Also, in the absence of the
President, the Executive Vice President - Chief Executive Officer shall perform
the duties and exercise the powers of the President.
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VICE PRESIDENT
Section 6. The Vice President(s) shall also generally assist the
President and Executive Vice Presidents and shall perform such other duties and
have such other powers as from time to time may be prescribed by the President,
Executive Vice President or the Board.
SECRETARY AND ASSISTANT SECRETARY
Section 7. The Secretary shall attend all meetings of the Board and of
the stockholders and shall record all votes and the proceedings of all meetings
in a book to be kept or such purposes. The Secretary also shall perform like
duties for the executive committee or other committees, if required by any such
committee. The Secretary shall give (or cause to be given) notice of all
meetings of the stockholders and all special Board meetings and shall perform
such other duties as from time to time may be prescribed by the Board, the
Chairman, the President or any Executive Vice President. The Secretary shall
have custody of the Corporation's seal, shall have authority (as shall any
Assistant Secretary) to affix the seal to any instrument requiring it, and to
attest the seal by his signature. The Board may give general authority to
officers other than the Secretary or any Assistant Secretary to affix the
Corporation's seal and to attest the affixing thereof by his signature.
Section 8. The Assistant Secretary, if any (or if there is more than
one, the Assistant Secretaries in the order designated, or in the absence of any
designation, in the order of their election), in the absence or disability of
the Secretary, shall perform the duties and exercise the powers of the
Secretary. The Assistant Secretary(ies) shall perform such other duties and have
such other powers as from time to time may be prescribed by the Board, the
Chairman, the President or any Executive Vice President.
TREASURER AND ASSISTANT TREASURER
Section 9. The Treasurer shall have the custody of the corporate funds,
securities, other similar valuable effects, and evidences of indebtedness, shall
keep full and accurate accounts of receipts and disbursements in books belonging
to the Corporation and shall deposit all moneys and other valuable effects in
the name and to the credit of the Corporation in such depositories as from time
to time may be designated by the Board. The Treasurer shall disburse the funds
of the Corporation in such manner as may be ordered by the Board from time to
time and shall render to the Chairman, the President, Executive Vice President -
Chief Operating Officer and the Board, at regular meetings of the Board or
whenever any of them may so require, an account of all transactions and of the
financial condition of the Corporation.
Section 10. The Assistant Treasurer, if any (or if there is more than
one, the Assistant Treasurers in the order designated, or in the absence of any
designation, in the order of their election), in the absence or disability of
the Treasurer, shall perform the duties and exercise the powers of the
Treasurer. The Assistant Treasurer(s) shall perform such other duties and have
such other powers as from time to time may be prescribed by the Board, the
Chairman, the President or any Executive Vice President.
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ARTICLE VI
INDEMNIFICATION AND EXCULPATION; TRANSACTIONS WITH AFFILIATED PERSONS
Section 1. Indemnification and Exculpation. Reference is hereby made to
Section 145 of the General Corporation Law of the State of Delaware (or any
successor provision thereto). The Corporation shall indemnify each person who
may be indemnified (the "Indemnitees") pursuant to such section, to the full
extent permitted thereby. In each and every situation where the Corporation may
do so under such section, the Corporation hereby obligates itself to so
indemnify the Indemnitees, and in each case, if any, where the Corporation must
make certain investigations on a case-by-case basis prior to indemnification,
the Corporation hereby obligates itself to pursue such investigation diligently,
it being the specific intention of these Bylaws to obligate the Corporation to
indemnify each person whom it may indemnify to the fullest extent permitted by
law at any time and from time to time. To the extent not prohibited by Section
145 of the General Corporation Law of the State of Delaware (or any other
provision of the General Corporation Law of the State of Delaware), the
Indemnitees shall not be liable to the Corporation except for their own
individual will fill misconduct or actions taken in bad faith.
Section 2. Common or Interested Officers and Directors. The
Corporation's directors and officers shall exercise their powers and duties in
good faith and with a view to the Corporation's best interests. No contract or
other transaction between the Corporation and one or more of its directors or
officers, or between the Corporation and any corporation, firm, association or
other entity in which one or more of the Corporation's directors or officers are
directors or, or are pecuniarily or otherwise interested, shall be either void
or voidable because of such common directorate, officership or interest, because
such directors or officers are present at the meeting of the Board or any
committee thereof which authorizes, approves or ratifies the contract or
transaction, or because his, her or their votes are counted for such purpose, if
(unless other-wise prohibited by law) any of the conditions specified in the
following paragraphs exist:
(a) the material facts of the common directorate or interest or
contract or transaction are disclosed or known to the Board or committee thereof
and the Board or committee authorizes or ratifies such contract or transaction
in good faith by the affirmative vote of a majority of the disinterested
directors, even though the number of such disinterested directors may be less
than a quorum; or
(b) the material facts of the common directorate or interest or
contract or transaction are disclosed or known to the stockholders entitled to
vote thereon and the contract or transaction is specifically approved in good
faith by vote of the stockholders; or
(c) the contract or transaction is fair and commercially
reasonable to the Corporation at the time it is authorized, approved or ratified
by the Board, a committee thereof, or the stockholders, as the case may be.
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Common or interested directors may be counted in determining whether a
quorum is present at any meeting of the Board or committee thereof which
authorizes, approves or ratifies any contract or transaction, and may vote
thereat to authorize any contract or transaction with like force and effect as
if he, she or they were not such directors or officers of such other corporation
or were not so interested.
ARTICLE VII
CERTIFICATE OF STOCK
Section 1. Every holder of capital stock in the Corporation shall be
entitled to have a certificate, signed by, or in the Corporation's name by, the
Chairman, the President, Executive Vice President or a Vice President and the
Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary
of the Corporation, certifying the number of shares of the Corporation's capital
stock owned by him.
Section 2. Where a certificate is signed (1) by a transfer agent or an
assistant transfer agent or (2) by a transfer clerk acting on the Corporation's
behalf and a registrar, the signature of any such Chairman, President, Executive
Vice President, Vice President, Treasurer, Assistant Treasurer, Secretary or
Assistant Secretary may be facsimile. 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 adopted by the Corporation and
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.
LOST CERTIFICATES
Section 3. The Secretary or Treasurer may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the Corporation alleged to have been lost or destroyed
upon the making of an affidavit of that fact by the person claiming the
certificate of stock to be lost or destroyed. When authorizing such issue of a
new certificate or certificates, the Secretary or Treasurer may, in such
officer's discretion and as a condition precedent to the issuance thereof,
require the owner of such lost or destroyed certificate or certificates, or his
legal representative, to advertise the same in such manner as such officer shall
require and/or to give the Corporation a bond in such sum as such officer may
direct as indemnity against any claim that may be made against the Corporation
with respect to the certificate alleged to have been lost or destroyed.
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TRANSFERS OF STOCK
Section 4. Upon surrender to the Corporation or the Corporation's transfer
agent of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, it shall be the
Corporation's duty to issue a new certificate to the person entitled thereto,
cancel the old certificate and record the transaction upon its books.
CLOSING OF TRANSFER BOOKS
Section 5. The Board may close the Corporation's stock transfer books for
a period not fewer than 10 nor more than 60 days preceding the date of any
meeting of stockholders or the date for payment of any dividend or the date for
the allotment of rights or the date when any change or conversion or exchange of
capital stock shall go into effect or for a period not fewer than 10 nor more
than 60 days in connection with obtaining the consent of stockholders for any
purpose. In lieu of closing the stock transfer books as aforesaid, the Board may
fix in advance a date, not fewer than 10 or more than 60 days preceding the date
of any meeting of stockholders, or the date for the payment of any dividend, or
the date for the allotment of rights, or the date when any change or conversion
or exchange of capital stock shall go into effect, or a date in connection with
obtaining such consent, as a record date for the determination of the
stockholders entitled to notice of, and to vote at, any such meeting, and any
adjournment thereof, or entitled to receive payment of any such dividend, or to
any such allotment of rights, or to exercise the rights in respect of any such
change, conversion or exchange of capital stock, or to give such consent, and in
such case such stockholders and only such stockholders as shall be stockholders
of record on the date so fixed shall be entitled to such notice of, and to vote
at, such meeting and any adjournment thereof, or to receive payment of such
dividend, or to receive such allotment of rights, or to exercise such rights, or
to give such consent, as the case may be notwithstanding any transfer of any
stock on the Corporation's books after any such record date fixed as aforesaid.
REGISTERED STOCKHOLDERS
Section 6. The Corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of its capital stock to
receive dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of the Corporation's
capital stock, and 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, except as otherwise
provided by the laws of Delaware.
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ARTICLE VIII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the Corporation's capital stock, subject to the
provisions of the Charter, if any, may be declared by the Board at any regular
or special meeting, pursuant to law. Dividends may be paid in cash, in property,
or in capital stock, subject to Charter provisions.
Section 2. 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 for such purpose as
the directors shall think conducive to the Corporation's interest and the
directors may modify or abolish any such reserve in the manner in which it was
created.
ANNUAL STATEMENT
Section 3. The Board shall present at each annual meeting, and at any
special meeting of the stockholders when called for by vote of the stockholders,
a full and clear statement of the Corporation's business and condition.
CHECKS
Section 4. All checks or demands for money and notes of the Corporation
shall be signed by such officer or officers or such other person or persons as
the Board may from time to time designate.
FISCAL YEAR
Section 5. The Corporation's fiscal year shall be as determined from time
to time by the Board.
SEAL
Section 6. If the Board elects to adopt a corporate seal, the corporate
seal shall have inscribed thereon the name of the Corporation, the year of its
organization and the words "Corporate Seal, State of Delaware." The seal may be
used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise.
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STOCK OPTION PLAN
Section 7. The Board shall have the power to administer in accordance with
the respective terms thereof, such stock option plan as may from time to time be
approved by the Board or the stockholders and to take such action as the Board
may deem fit to carry out the purposes of such plan.
ARTICLE IX
AMENDMENTS
Section 1. These Bylaws may be altered or repealed at any regular meeting
of the stockholders or of the Board or at any special meeting of the
stockholders or of the Board if notice of such alteration or repeal be contained
in the notice of such special meeting.
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MATTRESS DISCOUNTERS, INC.*
BYLAWS
ARTICLE I
OFFICES
Section 1. The Corporation's principal office in the State of Delaware
shall be in the City of Wilmington, County of New Castle.
Section 2. The Corporation may also have offices at such other places both
within and without the State of Delaware as the Corporation's board of directors
(the "Board") may from time to time determine or the Corporation's business may
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Subject to Section 2 of this Article, all meetings of the
stockholders for the election of directors shall be held at such time and place,
within or without the State of Delaware, as may be fixed from time to time by
the Board. Meetings of stockholders for any other purpose may be held at such
time and place, within or without the State of Delaware, as shall be stated in
the notice of the meeting or in a duly executed waiver of notice thereof.
Section 2. Annual meetings of stockholders shall be held on such date in
the month of April of each year and at such place (within or without the State
of Delaware) as is designated from time to time by the Board and stated in the
notice of the meeting. At each annual meeting, the stockholders shall elect the
Board and shall transact such other business as may properly be brought before
the meeting.
Section 3. Written notice of the annual meeting shall be given to each
stockholder entitled to vote at such meeting not fewer than 10 nor more than 60
days prior to the meeting.
Section 4. The officer who has charge of the Corporation's stock ledger
shall prepare and make, at least 10 days before every election of directors, a
complete list of the stockholders entitled to vote at said election, arranged in
alphabetical order, showing the address of and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination of
any stockholder, during ordinary business hours, for a period of at least 10
days prior to the election, either at a place within the city, town or village
where the election is to be held and which place shall be specified in the
notice of the meeting, or, if not specified, at the place where said meeting is
to be held, and the list shall be produced and kept at the time and
_________________________
* As adopted by the Board on March 5, 1996.
<PAGE>
place of election during the whole time thereof, and subject to the inspection
of any stockholder who may be present.
Section 5. Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the Corporation's
certificate of incorporation (the "Charter"), may be called by the Chairman of
the Board ("Chairman") or the President and shall be called by the Chairman or
the President or Secretary at the request in writing of a majority of the Board,
or at the request in writing of stockholders owning at least 35% of the
Corporation's capital stock outstanding and entitled to vote at such meeting.
Such request shall state the purpose or purposes of the proposed meeting.
Section 6. Written notice of a special meeting of stockholders, stating
the time, place and purposes thereof, shall be given to each stockholder
entitled to vote at such meeting not fewer than 10 nor more than 60 days prior
to the meeting.
Section 7. Business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice.
Section 8. The holders of a majority of the Corporation's capital stock
and outstanding, and entitled to vote thereat, present in person or represented
by proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified.
Section 9. When a quorum is present at any meeting, the vote of the
holders of a majority of the Corporation's capital stock outstanding and having
voting power present in person or represented by proxy shall decide any question
brought before such meeting, unless the question is one upon which by express
provision of the statutes or of the Charter, a different vote is required in
which case such express provision shall govern and control the decision of such
question.
Section 10. Each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder, but no proxy shall be voted on
after three years from its date, unless the proxy provides for a longer period,
and, except where the Corporation's transfer books have been closed or a date
has been fixed as a record date for the determination of its stockholders
entitled to vote, no capital stock shall be voted on at any election for
directors which has been transferred on the Corporation's books within 20 days
next preceding such election of directors.
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Section 11. Whenever the vote of stockholders at a meeting thereof is
required or permitted to be taken in connection with any corporate action by any
provisions of the statutes or of the Charter, the meeting and vote of
stockholders may be dispensed with, if all the stockholders who would have been
entitled to vote upon the action if such meeting were held, shall consent in
writing to such corporate action being taken.
ARTICLE III
DIRECTORS
Section 1. The number of directors of the Corporation shall be at least
one, or such other number as shall be determined from time to time by the Board.
The directors shall be elected at the annual meeting of the stockholders, except
as provided in Section 2 of this Article, and each director elected shall hold
office until his successor has been duly elected and has qualified. Directors
need not be stockholders nor residents of the State of Delaware.
Section 2. Vacancies and newly created directorships resulting from any
increase in the authorized number of directors may be filled by a majority of
the directors then in office, though less than a quorum, or by the sole
remaining director, and the directors so chosen shall hold office until the next
annual meeting of the stockholders or until their successors are duly elected
and shall qualify, unless sooner displaced.
Section 3.
(a) Except as otherwise provided by law, the Charter or these
Bylaws, at any meeting of the stockholders called expressly for such purpose,
any director may be removed, with or without cause, by a vote of the
stockholders holding a majority of the capital stock outstanding and entitled to
vote at an election of directors.
(b) Any director may resign at any time by giving written notice
to the Board, the Chairman, the President or the Secretary of the Corporation.
Unless otherwise specified such written notice, a resignation shall take effect
upon delivery thereof to the Board or the designated officer. A resignation need
not be accepted for it to be effective.
Section 4. The Corporation's business shall be managed by the Board which
may exercise all such powers of the Corporation and do all such lawful acts and
things as are not by statute or by the Charter or by these Bylaws directed or
required to be exercised or done by the stockholders.
BOARD MEETINGS
Section 5. The Board may hold meetings, both regular and special, either
within or without the State of Delaware.
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Section 6. The first meeting of each newly elected Board shall be held at
such time and place as shall be fixed by the vote of the stockholders at the
annual meeting and no notice of such meeting shall be necessary to the newly
elected directors to constitute legally the meeting, provided a quorum shall be
present. If the stockholders fail to fix the time or place of such first meeting
of the newly elected Board, or if such meeting is not held at the time and place
so fixed by the stockholders, the meeting may be held at such time and place as
shall be specified in a notice given as hereinafter provided for special
meetings of the Board, or as shall be specified in a written waiver signed by
all of the directors.
Section 7. Regular meetings of the Board may be held without notice at
such time and at such place as shall from time to time be determined by the
Board.
Section 8. Special meetings of the Board may be called by the Chairman or
the President on two days prior written notice to each director, either
personally, by mail or by telegram; special meetings may be called by the
Chairman or the President or Secretary in like manner and on like notice upon
the written request of two directors.
Section 9. At all meetings of the Board, a majority of the directors
shall constitute a quorum for the transaction of business and the act of a
majority of the directors present at any Board meeting at which there is a
quorum shall be the act of the Board, except as may be otherwise specifically
provided by statute or by the Charter. If a quorum shall not be present at any
Board meeting, 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. The Chairman shall preside at all meetings of the Board.
Section 10. Unless otherwise restricted by the Charter or these Bylaws,
any action required or permitted to be taken at any meeting of the Board, or of
any committee thereof, may be taken without a meeting, if prior to such action a
written consent thereto is signed by all Board members or of such committee as
the case may be, and such written consent is filed with the minutes of
proceedings of the Board or such committee.
Section 11. The Board may participate in meetings by means of conference
telephone or similar communications equipment, whereby all directors
participating in the meeting can hear each other at the same time, and
participation in any such meeting shall constitute presence in person by such
director at such meeting. A written record shall be made of all actions taken at
any meeting conducted by means of a conference telephone or similar
communications equipment.
BOARD COMMITTEES
Section 12. The Board may, by resolution passed by a majority of the
whole Board, designate one or more committees, each committee to consist of two
or more of the directors of the Corporation, which, to the extent provided in
the resolution, shall have and may exercise the powers of the Board in the
management of the Corporation's business and affairs and may authorize the
Corporation's seal to be affixed to all papers which may require it. Such
committee
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<PAGE>
or committees shall have such name or names as may be determined from time to
time by resolution adopted by the Board.
Section 13. Each committee shall keep regular minutes of its meetings
and report the same to the Board when required.
COMPENSATION OF DIRECTORS
Section 14. The directors may be paid their expenses, if any, of
attendance at each Board meeting and may be paid a fixed sum for attendance at
each Board meeting or a stated salary as director. No such payment shall
preclude any director from serving the Corporation in any other capacity and
receiving compensation therefor. Members of special or standing committees may
be allowed like compensation for attending committee meetings.
ARTICLE IV
NOTICES
Section 1. Notices to directors and stockholders shall be in writing and
delivered either personally or by first class mail with postage prepaid, in
either case addressed to the directors or stockholders at their addresses
appearing on the Corporation's books. Notice delivered personally shall be
deemed to be given at the time when the same shall be received by the addressee,
and notice by mail shall be deemed to be given at the time when the same shall
be deposited in the United States mail. Notice to directors may also be given by
telegram and shall be deemed to be given at the time when the same shall be
received by the addressee.
Section 2. Whenever any notice is required to be given under the
provisions of the statutes or of the Charter or of these Bylaws, a waiver
thereof in writing, signed by the person or persons entitled to said notice,
whether before or after the time stated therein, shall be deemed equivalent
thereto.
ARTICLE V
OFFICERS
Section 1. The Corporation's officers shall be chosen by the Board and
shall consist of a Chairman (if the Board both deems it advisable that the
Chairman shall be an officer of the Corporation and selects one), a President,
one or more Executive Vice Presidents and Vice Presidents (if and to the extent
required by law or if not required, if the Board from time to time appoints a
Vice President or Vice Presidents), a Secretary and a Treasurer. The Board also
may choose one or more Assistant Secretaries and/or Assistant Treasurers and
such other officers and/or agents as the Board from time to time deems necessary
or appropriate. The Board may delegate to the Chairman and/or the President of
the Corporation the authority to appoint any officer or agent of the Corporation
and to fill a vacancy other than the Chairman, President, Secretary or
Treasurer. The election or appointment of any officer of the Corporation in
itself
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<PAGE>
shall not create contract rights for any such officer. All officers of the
Corporation shall exercise such powers and perform such duties as from time to
time shall be determined by the Board.
Section 2. Each officer of the Corporation shall hold office at the
Board's pleasure, and any officer may be removed, with or without cause, at any
time by the affirmative vote of a majority of the directors then in office,
provided that any officer appointed by the Chairman or the President pursuant to
authority delegated to the Chairman or the President by the Board may be
removed, with or without cause, at any time whenever the Chairman or the
President in his absolute discretion shall consider that the Corporation's best
interests shall be served by such removal. Removal of an officer by the Board,
the Chairman or the President, as the case may be, shall not prejudice the
contract rights, if any, of the person so removed. Vacancies (however caused) in
any office may be filled for the unexpired portion of the term b% the Board (or
by the Chairman or the President in the case of a vacancy occurring in an office
to which the Chairman or the President has been delegated the authority to make
appointments).
Section 3. The salaries of all officers of the Corporation shall be
fixed from time to time by the Board, and no officer shall be prevented from
receiving a salary by reason of the fact that he also receives from the
Corporation compensation in any other capacity.
PRESIDENT
Section 4. The President, subject to the Board's direction, shall have
general charge of the Corporation's business, affairs and property and general
supervision over its other officers and agents. In general, the President shall
perform all duties incident to the office of the chief executive officer of a
stock corporation and shall see that all orders and resolutions of the Board are
carried into effect. Unless otherwise prescribed by the Board, the President
shall have full power and authority on the Corporation's behalf to attend, act
and vote at any meeting of security holders of other corporations in which the
Corporation may hold securities. At any such meeting, the President shall
possess and may exercise any and all rights and powers incident to the ownership
of such securities that the Corporation possesses and has the power to exercise.
The Board from time to time may confer like powers upon any other person or
persons. The President (or, in his absence, the Chairman if present) shall
preside at all meetings of the Corporation's stockholders.
EXECUTIVE VICE PRESIDENTS
Section 5. Each Executive Vice President of the Corporation, subject to
the President's and Board's direction, shall perform such executive, supervisory
and management functions and duties as from time to time may be assigned to him
by the Board. Unless the President is present at such meeting (in person or by
proxy), the Executive Vice President - Chief Operating Officer shall have the
same power and authority as the President to attend, act and vote on the
Corporation's behalf at any meeting of security holders of other corporations in
which the Corporation may hold securities. Also, in the absence of the
President, the Executive Vice President - Chief Executive Officer shall perform
the duties and exercise the powers of the President.
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<PAGE>
VICE PRESIDENT
Section 6. The Vice President(s) shall also generally assist the
President and Executive Vice Presidents and shall perform such other duties and
have such other powers as from time to time may be prescribed by the President,
Executive Vice President or the Board.
SECRETARY AND ASSISTANT SECRETARY
Section 7. The Secretary shall attend all meetings of the Board and of
the stockholders and shall record all votes and the proceedings of all meetings
in a book to be kept or such purposes. The Secretary also shall perform like
duties for the executive committee or other committees, if required by any such
committee. The Secretary shall give (or cause to be given) notice of all
meetings of the stockholders and all special Board meetings and shall perform
such other duties as from time to time may be prescribed by the Board, the
Chairman, the President or any Executive Vice President. The Secretary shall
have custody of the Corporation's seal, shall have authority (as shall any
Assistant Secretary) to affix the seal to any instrument requiring it, and to
attest the seal by his signature. The Board may give general authority to
officers other than the Secretary or any Assistant Secretary to affix the
Corporation's seal and to attest the affixing thereof by his signature.
Section 8. The Assistant Secretary, if any (or if there is more than
one, the Assistant Secretaries in the order designated, or in the absence of any
designation, in the order of their election), in the absence or disability of
the Secretary, shall perform the duties and exercise the powers of the
Secretary. The Assistant Secretary(ies) shall perform such other duties and have
such other powers as from time to time may be prescribed by the Board, the
Chairman, the President or any Executive Vice President.
TREASURER AND ASSISTANT TREASURER
Section 9. The Treasurer shall have the custody of the corporate funds,
securities, other similar valuable effects, and evidences of indebtedness, shall
keep full and accurate accounts of receipts and disbursements in books belonging
to the Corporation and shall deposit all moneys and other valuable effects in
the name and to the credit of the Corporation in such depositories as from time
to time may be designated by the Board. The Treasurer shall disburse the funds
of the Corporation in such manner as may be ordered by the Board from time to
time and shall render to the Chairman, the President, Executive Vice President -
Chief Operating Officer and the Board, at regular meetings of the Board or
whenever any of them may so require, an account of all transactions and of the
financial condition of the Corporation.
Section 10. The Assistant Treasurer, if any (or if there is more than
one, the Assistant Treasurers in the order designated, or in the absence of any
designation, in the order of their election), in the absence or disability of
the Treasurer, shall perform the duties and exercise the powers of the
Treasurer. The Assistant Treasurer(s) shall perform such other duties and have
such other powers as from time to time may be prescribed by the Board, the
Chairman, the President or any Executive Vice President.
-7-
<PAGE>
ARTICLE VI
INDEMNIFICATION AND EXCULPATION; TRANSACTIONS WITH AFFILIATED PERSONS
Section 1. Indemnification and Exculpation. Reference is hereby made to
Section 145 of the General Corporation Law of the State of Delaware (or any
successor provision thereto). The Corporation shall indemnify each person who
may be indemnified (the "Indemnitees") pursuant to such section, to the full
extent permitted thereby. In each and every situation where the Corporation may
do so under such section, the Corporation hereby obligates itself to so
indemnify the Indemnitees, and in each case, if any, where the Corporation must
make certain investigations on a case-by-case basis prior to indemnification,
the Corporation hereby obligates itself to pursue such investigation diligently,
it being the specific intention of these Bylaws to obligate the Corporation to
indemnify each person whom it may indemnify to the fullest extent permitted by
law at any time and from time to time. To the extent not prohibited by Section
145 of the General Corporation Law of the State of Delaware (or any other
provision of the General Corporation Law of the State of Delaware), the
Indemnitees shall not be liable to the Corporation except for their own
individual will fill misconduct or actions taken in bad faith.
Section 2. Common or Interested Officers and Directors. The
Corporation's directors and officers shall exercise their powers and duties in
good faith and with a view to the Corporation's best interests. No contract or
other transaction between the Corporation and one or more of its directors or
officers, or between the Corporation and any corporation, firm, association or
other entity in which one or more of the Corporation's directors or officers are
directors or, or are pecuniarily or otherwise interested, shall be either void
or voidable because of such common directorate, officership or interest, because
such directors or officers are present at the meeting of the Board or any
committee thereof which authorizes, approves or ratifies the contract or
transaction, or because his, her or their votes are counted for such purpose, if
(unless other-wise prohibited by law) any of the conditions specified in the
following paragraphs exist:
(a) the material facts of the common directorate or interest or
contract or transaction are disclosed or known to the Board or committee thereof
and the Board or committee authorizes or ratifies such contract or transaction
in good faith by the affirmative vote of a majority of the disinterested
directors, even though the number of such disinterested directors may be less
than a quorum; or
(b) the material facts of the common directorate or interest or
contract or transaction are disclosed or known to the stockholders entitled to
vote thereon and the contract or transaction is specifically approved in good
faith by vote of the stockholders; or
(c) the contract or transaction is fair and commercially reasonable
to the Corporation at the time it is authorized, approved or ratified by the
Board, a committee thereof, or the stockholders, as the case may be.
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<PAGE>
Common or interested directors may be counted in determining whether a
quorum is present at any meeting of the Board or committee thereof which
authorizes, approves or ratifies any contract or transaction, and may vote
thereat to authorize any contract or transaction with like force and effect as
if he, she or they were not such directors or officers of such other corporation
or were not so interested.
ARTICLE VII
CERTIFICATE OF STOCK
Section 1. Every holder of capital stock in the Corporation shall be
entitled to have a certificate, signed by, or in the Corporation's name by, the
Chairman, the President, Executive Vice President or a Vice President and the
Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary
of the Corporation, certifying the number of shares of the Corporation's capital
stock owned by him.
Section 2. Where a certificate is signed (1) by a transfer agent or an
assistant transfer agent or (2) by a transfer clerk acting on the Corporation's
behalf and a registrar, the signature of any such Chairman, President, Executive
Vice President, Vice President, Treasurer, Assistant Treasurer, Secretary or
Assistant Secretary may be facsimile. 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 adopted by the Corporation and
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.
LOST CERTIFICATES
Section 3. The Secretary or Treasurer may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the Corporation alleged to have been lost or destroyed
upon the making of an affidavit of that fact by the person claiming the
certificate of stock to be lost or destroyed. When authorizing such issue of a
new certificate or certificates, the Secretary or Treasurer may, in such
officer's discretion and as a condition precedent to the issuance thereof,
require the owner of such lost or destroyed certificate or certificates, or his
legal representative, to advertise the same in such manner as such officer shall
require and/or to give the Corporation a bond in such sum as such officer may
direct as indemnity against any claim that may be made against the Corporation
with respect to the certificate alleged to have been lost or destroyed.
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<PAGE>
TRANSFERS OF STOCK
Section 4. Upon surrender to the Corporation or the Corporation's
transfer agent of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignment or authority to transfer, it shall be
the Corporation's duty to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
CLOSING OF TRANSFER BOOKS
Section 5. The Board may close the Corporation's stock transfer books
for a period not fewer than 10 nor more than 60 days preceding the date of any
meeting of stockholders or the date for payment of any dividend or the date for
the allotment of rights or the date when any change or conversion or exchange of
capital stock shall go into effect or for a period not fewer than 10 nor more
than 60 days in connection with obtaining the consent of stockholders for any
purpose. In lieu of closing the stock transfer books as aforesaid, the Board may
fix in advance a date, not fewer than 10 or more than 60 days preceding the date
of any meeting of stockholders, or the date for the payment of any dividend, or
the date for the allotment of rights, or the date when any change or conversion
or exchange of capital stock shall go into effect, or a date in connection with
obtaining such consent, as a record date for the determination of the
stockholders entitled to notice of, and to vote at, any such meeting, and any
adjournment thereof, or entitled to receive payment of any such dividend, or to
any such allotment of rights, or to exercise the rights in respect of any such
change, conversion or exchange of capital stock, or to give such consent, and in
such case such stockholders and only such stockholders as shall be stockholders
of record on the date so fixed shall be entitled to such notice of, and to vote
at, such meeting and any adjournment thereof, or to receive payment of such
dividend, or to receive such allotment of rights, or to exercise such rights, or
to give such consent, as the case may be notwithstanding any transfer of any
stock on the Corporation's books after any such record date fixed as aforesaid.
REGISTERED STOCKHOLDERS
Section 6. The Corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of its capital stock to
receive dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of the Corporation's
capital stock, and 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, except as otherwise
provided by the laws of Delaware.
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<PAGE>
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the Corporation's capital stock, subject to
the provisions of the Charter, if any, may be declared by the Board at any
regular or special meeting, pursuant to law. Dividends may be paid in cash, in
property, or in capital stock, subject to Charter provisions.
Section 2. 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 for such purpose as
the directors shall think conducive to the Corporation's interest and the
directors may modify or abolish any such reserve in the manner in which it was
created.
ANNUAL STATEMENT
Section 3. The Board shall present at each annual meeting, and at any
special meeting of the stockholders when called for by vote of the stockholders,
a full and clear statement of the Corporation's business and condition.
CHECKS
Section 4. All checks or demands for money and notes of the Corporation
shall be signed by such officer or officers or such other person or persons as
the Board may from time to time designate.
FISCAL YEAR
Section 5. The Corporation's fiscal year shall be as determined from
time to time by the Board.
SEAL
Section 6. If the Board elects to adopt a corporate seal, the corporate
seal shall have inscribed thereon the name of the Corporation, the year of its
organization and the words "Corporate Seal, State of Delaware." The seal may be
used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise.
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<PAGE>
STOCK OPTION PLAN
Section 7. The Board shall have the power to administer in accordance
with the respective terms thereof, such stock option plan as may from time to
time be approved by the Board or the stockholders and to take such action as the
Board may deem fit to carry out the purposes of such plan.
ARTICLE IX
AMENDMENTS
Section 1. These Bylaws may be altered or repealed at any regular
meeting of the stockholders or of the Board or at any special meeting of the
stockholders or of the Board if notice of such alteration or repeal be contained
in the notice of such special meeting.
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<PAGE>
EXHIBIT 3.3
File Number 5398-538-6
STATE OF ILLINOIS
OFFICE OF THE SECRETARY OF STATE
To all to whom these Presents Shall Come, Greeting:
I, Jesse White, Secretary of State of the State of Illinois, do hereby certify
that THE BEDDING EXPERTS, INC., A DOMESTIC CORPORATION, INCORPORATED UNDER THE
LAWS OF THIS STATE SEPTEMBER 18, 1985, APPEARS TO HAVE COMPLIED WITH ALL THE
PROVISIONS OF THE BUSINESS CORPORATION ACT OF THIS STATE RELATING TO THE FILING
OF ANNUAL REPORTS AND PAYMENT OF FRANCHISE TAXES, AND AS OF THIS DATE, IS IN
GOOD STANDING AS A DOMESTIC CORPORATION IN THE STATE OF ILLINOIS.
In Testimony Whereof, I, hereto set my hand and cause to be affixed the Great
Seal of the State of Illinois, this 22ND day of JULY A.D. 1999.
/s/ Jesse White
-------------------------------
Secretary of State
<PAGE>
File Number 5398-538-6
STATE OF ILLINOIS
OFFICE OF THE SECRETARY OF STATE
Whereas, ARTICLES OF INCORPORATION OF THE BEDDING EXPERTS, INC. INCORPORATED
UNDER THE LAW OF THE STATE OF ILLINOIS HAVE BEEN FILED IN THE OFFICE OF THE
SECRETARY OF STATE AS PROVIDED BY THE BUSINESS CORPORATION ACT OF ILLINOIS, IN
FORCE JULY 1, A.D. 1984.
NOW, THEREFORE, I, Jim Edgar, Secretary of State of the State of Illinois, by
virtue of the powers vested in me by law, do hereby issue this certificate and
attach hereto a copy of the Application of the aforesaid corporation.
In Testimony Whereof, I hereto set my hand and cause to be affixed the Great
Seal of the State of Illinois, at the City of Springfield, this 18th day of
September AD 1985 and of the Independence of the United States the two hundred
and 10th.
/s/ Jim Edgar
-------------------------------
Secretary of State
<PAGE>
BCA 2.[??] Rev. July 1984
[Illinois Form of Articles of Incorporation]
Pursuant to the provisions of "The Business Corporation Act of 1983", the
undersigned incorporator(s) hereby adopt the following Articles of
Incorporation.
ARTICLE ONE: The name of the corporation is THE BEDDING EXPERTS, INC.
-------------------------
ARTICLE TWO: The name and address of the initial registered agent and its
registered office are: (Registered Agent) Salvatore Joseph LaBarbera
--------------------------
(Registered Office) 1102 Morse Avenue, Schaumburg 60193 Cook (County)
-------------------------------------------------
ARTICLE THREE: The purpose or purposes for which the corp is organized are:
To conduct the sale and purchase of bedding products including mattresses, box
- ------------------------------------------------------------------------------
springs, frames, head boards, bedroom furniture, bedding related materials and
- ------------------------------------------------------------------------------
products and to perform any and all functions necessary to conduct such a
- -------------------------------------------------------------------------
business including the purchase, sale and/or leasing of property and the
- ------------------------------------------------------------------------
procurement of loans and finances necessary to operate such a business and to
- -----------------------------------------------------------------------------
transact any or all lawful purposes for which corporations may be incorporated
- ------------------------------------------------------------------------------
under the Illinois Business Corporation Act of 1983.
- ----------------------------------------------------
ARTICLE FOUR: The authorized shares shall be: Class: COMMON Par Value per
------
share: NO PAR Number of shores authorized: 1,000
------ -----
ARTICLE FIVE: The number of shares to be issued initially, and the
consideration to be received by the corporation therefor, are: Class: COMMON,
------
Par Value per share: NO PAR, Number of shares proposed to be issued: 1,000,
------ -----
Consideration to be received therefor: $1,000.00.
---------
ARTICLES SIX THROUGH EIGHT: [no entries]
Names and Addresses of Incorporators
------------------------------------
The undersigned incorporator(s) hereby declare(s), under penalties of perjury,
that the statements made in the foregoing Articles of Incorporation are true.
Dated: September 18, 1985
Signatures and names: /s/ Salvatore Joseph LaBarbera
1102 Morris Avenue
Schaumburg, IL 60193
<PAGE>
STATE OF ILLINOIS
OFFICE OF THE SECRETARY OF STATE
Whereas, ARTICLES OF MERGER OF THE BEDDING EXPERTS, INC. INCORPORATED UNDER THE
LAW OF THE STATE OF ILLINOIS HAVE BEEN FILED IN THE OFFICE OF THE SECRETARY OF
STATE AS PROVIDED BY THE BUSINESS CORPORATION ACT OF ILLINOIS, IN FORCE JULY 1,
A.D. 1984.
NOW, THEREFORE, I, George H. Ryan, Secretary of State of the State of Illinois,
by virtue of the powers vested in me by law, do hereby issue this certificate
and attach hereto a copy of the Application of the aforesaid corporation.
In Testimony Whereof, I hereto set my hand and cause to be affixed the Great
Seal of the State of Illinois, at the City of Springfield, this 2nd day of
January AD 1998 and of the Independence of the United States the two hundred and
22nd.
/s/ George H. Ryan
-------------------------------
Secretary of State
<PAGE>
Form BCA 11.25
Articles of Merger, Consolidation or Exchange
File # D5398-538-6
1. Names of the corporations proposing to merge, and the state or country of
their incorporation:
State or Country
of
Name of Corporation Incorporation Corporation File No.
- ------------------------- ------------------
The Bedding Experts, Inc. Illinois D5398-538-6
Bedding Experts Merger Illinois 5973-039-8
Sub., Inc.
2. The laws of the state or country under which each corporation is
incorporated permit such merger, consolidation or exchange.
3. (a) Name of the surviving corporation: The Bedding Experts, Inc.
-------------------------
(b) it shall be governed by the laws of: Illinois
--------
4. Plan of merger is as follows: See attachment
--------------
5. Plan of merger was approved . . . by written consent of all the
shareholders entitled to vote on the action in accordance with (S)7.10 and
(S)11.20.
[X] The Bedding Experts, Inc.
[X] Bedding Experts Merger Sub, Inc.
Items 6 and 7: no entry
8. The undersigned corporations have caused these articles to be signed by
their duly authorized officers, each of who affirms under penalties of perjury
that the facts stated herein are true.
THE BEDDING EXPERTS, INC.
By: Robert J. D'Amico, President
Attested by: Chris Dantona, Secretary
BEDDING EXPERTS MERGER SUB, INC.
By: Troy A. Peery, Jr., President
Attested by: Paige H. Wilson, Secretary
<PAGE>
Exhibit A
---------
PLAN OF MERGER
PLAN OF MERGER approved on December 29, 1997 by The Bedding Experts, Inc.,
a corporation of the State of Illinois, and approved on January 1, 1998 by
Bedding Experts Merger Sub, Inc., a corporation of the State of Illinois.
1. At the Effective Time, Bedding Experts Merger Sub, Inc. shall,
pursuant to the provisions of the Business Corporation Act of 1983 of the State
of Illinois, be merged with and into The Bedding Experts, Inc,, which shall be
the surviving corporation of the merger and which is sometimes hereinafter
referred to as the "Surviving Corporation," and which shall continue to exist as
said surviving corporation under its present name pursuant to the provisions of
the Business Corporation Act of 1983 of the State of Illinois. The separate
existence of Bedding Experts Merger Sub, Inc. which is sometimes hereinafter
referred to as the "Terminating Corporation", shall cease upon said Effective
Time in accordance with the provisions of the said Business Corporation Act of
1983 of the State of Illinois.
2. The Articles of Incorporation of The Bedding Experts, Inc., as in
force and effect upon the Effective Time of the merger, shall continue in full
force and effect as the Articles of Incorporation of the Surviving Corporation,
until amended and changed in the manner prescribed by the provisions of the
Business Corporation Act of 1983 of the State of Illinois.
3. The bylaws of The Bedding Experts, Inc., as in force and effect upon
the Effective Time of the merger, shall be the bylaws of said Surviving
Corporation and shall continue in full force and affect [sic] until changed,
altered or amended as therein provided and in the manner prescribed by the
provisions of the business [sic] Corporation Act of 1993 of the State of
Illinois.
4. The directors and officers in office of the Terminating Corporation
upon the effective date of the merger shall become the members of the Board of
Directors and the officers of the Surviving Corporation, all of whom shall hold
their directorships and offices until the election and qualification of their
respective successors or until their tenure is otherwise terminated in
accordance with the bylaws of the Surviving Corporation.
5. The Bedding Experts, Inc. currently has 1,000 shares of common stock,
no par value, issued and outstanding. Bedding Experts Merger Sub, Inc. currently
has 100 shares of common stock issued and outstanding. At the Effective Time,
(a) each issued and outstanding share of the common stock, no par value, of The
Bedding Experts, Inc. shall be canceled and convened into the right to receive
2,019.1822312 shares of the common stock of Heilig-Meyers Company, a Virginia
corporation, and $0.00286 in cash in lieu of fractional shares, and (b) each
issued and outstanding share of the common stock, par value, of Bedding Experts
Merger Sub, Inc. shall be canceled and converted into one share of the common
stock of the The [sic] Bedding Experts, Inc.
6. The Plan of Merger herein made and approved shall be submitted to the
shareholders of Bedding Experts Merger Sub, Inc. and of The Bedding Experts,
Inc. for their
<PAGE>
approval or rejection in the manner prescribed by the provisions of the Business
Corporation Act of 1983 of the State of Illinois.
7. In the event that the Plan of Merger shall have been approved by the
shareholders of Bedding Experts Merger Sub, Inc. and The Bedding Experts, Inc.
in the manner prescribed by the provisions of the Business Corporation Act of
1983 of the State of Illinois, The Bedding Experts, Inc. and Bedding Experts
Merger Sub, Inc. hereby stipulate that they will cause to be executed and filed
and/or recorded any document or documents prescribed by the laws of the State of
Illinois, and that they will cause to be performed all necessary acts therein
and elsewhere to effectuate the merger.
8. The Board of Directors and the proper officers of Bedding Experts
Merger Sub, Inc. and of The Bedding Experts, Inc., respectively, are hereby
authorized, empowered and directed to do any and all acts and things, and to
make, execute, deliver, file, and/or record any and all instruments, papers, and
documents which shall be or become necessary, proper, or convenient to carry out
or put in to effect any of the provisions of this Plan of Merger or of the
merger herein provided for.
9. Notwithstanding the full approval of the merger herein provided for,
the merger may be abandoned at any time prior to the filing of the Articles of
Merger by the Secretary of State of the State of Illinois in the event that the
Board of Directors of The Bedding Experts, Inc. and Bedding Experts Merger Sub,
Inc. terminate and abandon the merger.
10. (a) Shareholders of either the Terminating Corporation or the
Surviving Corporation who dissent from the merger shall be entitled, pursuant to
Sections 11.65 and 11.70 of the Illinois Business Corporation Act of 1983, to be
paid the fair value of their shares upon compliance with the statutory
procedures therein.
(b) The Surviving Corporation agrees to promptly pay to the dissenting
Shareholders of either the Terminating Corporation or the Surviving Corporation,
if any, the amount, if any, which they shall be entitled to receive and at such
time as they are entitled to receive same under the provisions of the BCA.
11. The merger herein provided for shall become effective in the State of
Illinois on the date of issuance of a Certificate of Merger by the Secretary of
State of Illinois.
<PAGE>
Form BCA-5.1 0
NFP-105.10
(Rev. Jan. 1995)
STATEMENT OF CHANGE
OF REGISTERED AGENT
AND/OR REGISTERED OFFICE
1. CORPORATE NAME: THE BEDDING EXPERTS, INC.
-------------------------
2. STATE OR COUNTRY OF INCORPORATION: ILLINOIS
--------
3. Name and address of the registered agent and registered office as they appear
on the records of the office of the Secretary of State (before change):
Registered Agent SALVATORE J. LABARBERA
----------------------
Registered Office 205 W. RANDOLPH ST. #2222, CHICAGO, IL 60606 COOK (County)
-----------------------------------------------------------
4. Name and address of the registered agent and registered office shall be
(after all changes herein reported):
Registered Agent Illinois Corporation Service Company
------------------------------------
Registered Office 700 South Second Street, Springfield, Illinois 62704 Sangamon
-------------------------------------------------------------
(County)
- --------
5. The address of the registered office and the address of the business office
of the registered agent, as changed, will be identical.
6. The above change was authorized by: ("X" one box only)
a. [X] By resolution duly adopted by the board of directors.
b. [_] By action of the registered agent.
7.
NOTE: When the registered agent changes, the signatures of both president and
secretary are required.
7 (If authorized by the board of directors, sign here. See Note 5)
The undersigned corporation has caused this statement to be signed by its duly
authorized officers each of whom affirms, under penalties of perjury, that the
facts stated herein are true.
Dated 2-26, 1998
----------
THE BEDDING EXPERTS, INC.
By: Thomas F. Crump, Vice President - Controller
Attested by: Page H. Wilson, Vice President - Secretary/Treasurer
<PAGE>
STATE OF ILLINOIS Office Of the Secretary of State
I hereby certify that this a true and correct copy, consisting of eleven pages,
------
as taken from the original on file in this office.
JESSE WHITE
SECRETARY OF STATE
Dated: July 22, 1999
By: Michelle Choses
<PAGE>
EXHIBIT 3.4
THE BEDDING EXPERTS, INC.
OFFICER'S CERTIFICATE
---------------------
Pursuant to Section 5.2(b) of that certain Transaction Agreement dated as
of May 28, 1999, as amended (the "Transaction Agreement"), by and among Heilig-
---------------------
Meyers Company, Heilig-Meyers Associates, Inc. and MD Acquisition Corporation,
the undersigned officer of The Bedding Experts, Inc. (the "Company") does hereby
-------
certify that annexed hereto as Exhibit A is a true, accurate and complete copy
of the bylaws of the Company.
The Bedding Experts, Inc.
By: /s/ Paige H. Wilson
--------------------------
Name: Paige H. Wilson
Title: Secretary
Dated: August 6, 1999
<PAGE>
BY-LAWS
-------
OF
THE BEDDING EXPERTS, INC.
ARTICLE I
---------
OFFICES
-------
The corporation shall continuously maintain in the State of Illinois a
registered office and a registered agent whose business office is identical with
such registered office, and may have other offices within or without the state.
ARTICLE II
----------
SHAREHOLDERS
------------
SECTION 1. ANNUAL MEETING. An annual meeting of the shareholders shall
be held on the first day in October of each year or at such time as the board
of directors may designate for the purpose of electing directors and for the
transaction of such other business as may come before the meeting. If the day
fixed for the annual meeting shall be a legal holiday, such meeting shall be
held on the next succeeding business day.
SECTION 2. SPECIAL MEETINGS. Special meetings of the shareholders may
be called either by the president, by the board of directors or by the holders
of not less than one-fifth of all the outstanding shares of the corporation
entitled to vote, for the purpose or purposes stated in the call of the meeting.
SECTION 3. PLACE OF MEETING. The board of directors may designate any
place, as the place of meeting for any annual meeting 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 at
_______________________.
SECTION 4. NOTICE OF MEETINGS. Written notice stating the place, date,
and hour of the meeting and, in the case of a special meeting, the purpose or
purposes for which the meeting called, shall be delivered not less than 10 nor
more than 60 days before the date of the meeting, or in the case of a merger,
consolidation, share exchange, dissolution or sale, lease or exchange of assets
not less than 20 nor more than 60 days before the date of the meeting, either
personally or by mail, by or at the direction of the president, or the
secretary, or the officer or persons calling the meeting, to each shareholder of
record entitled to vote at such meeting. If mailed, such notice shall be deemed
to be delivered when deposited in the United States mail addressed to the
shareholder at
<PAGE>
his or her address as it appears on the records of the corporation, with postage
thereon prepaid. When a meeting is adjourned to another time or 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.
SECTION 5. FIXING OF RECORD DATE. For the purpose of determining the
shareholders entitled to notice of or to vote at any meeting of shareholders, or
shareholders entitled to receive payment of any dividend, or in order to make a
determination of shareholders for any other proper purpose, the board of
directors of the corporation may fix in advance a date as the record date for
any such determination of shareholders, such date in any case to be not more
than 60 days and for a meeting of shareholders, not less than 10 days, or in the
case of a merger, consolidation, share exchange, dissolution or sale, lease or
exchange of assets, not less than 20 days before the date of such meeting. If
no record date is fixed for the determination of shareholders entitled to notice
of or to vote at a meeting of shareholders, or shareholders entitled to receive
payment of a dividend, the date on which notice of the meeting is mailed or the
date on which the resolution of the board of directors declaring such is
adopted, as the case may be, shall be the record date for such determination of
shareholders. A determination of shareholders shall apply to any adjournment of
the meeting.
SECTION 6. VOTING LISTS. The officer or agent having charge of the
transfer book for shares of the corporation shall make, within 20 days after the
record date for a meeting of shareholders or 10 days before such meeting,
whichever is earlier, a complete list of the shareholders entitled to vote at
such meeting, arranged in alphabetical order, with the address of and the number
of shares held by each, which list, for a period of 10 days prior to such
meeting, shall be kept on file at the registered office of the corporation and
shall be subject to inspection by any shareholder, and to copying at the
shareholder's expense, at any time during usual business hours. Such list shall
also be produced and kept open at the time and place of the meeting and shall be
subject to the inspection of any shareholder during the whole time of the
meeting. The original share ledger or transfer book, or a duplicate thereof
kept in this State, shall be prima facie evidence as to who are the shareholders
entitled to examine such list or share ledger or transfer book or to vote at any
meeting of shareholders.
SECTION 7. QUORUM. The holders of a majority of the outstanding shares
of the corporation entitled to vote on a matter, represented in person or by
proxy, shall constitute a quorum for consideration of such matter at any meeting
of shareholders, but no event shall a quorum consist of less than one-third of
the outstanding shares entitled so to vote; provided that if less than a
majority of the outstanding shares are represented at said meeting, a majority
of the shares so represented may adjourn the meeting at any time without further
notice. If a quorum is present, the affirmative vote of the majority of the
shares represented at the meeting shall be the act of the shareholders unless
the vote of a greater number or voting by classes is required by the Business
Corporation Act, the articles of incorporation or these by-laws. At any
adjourned meeting at which a quorum shall be present, any business may be
transacted which might have been transacted at the
2
<PAGE>
original meeting. Withdrawal of shareholders any meeting shall not cause failure
of a duly constituted quorum at that meeting.
SECTION 8. PROXIES. Each shareholder may appoint a proxy to vote or
otherwise act for him or her by signing an appointment form and delivering it to
the person so appointed, months from the date of its execution, unless otherwise
provided in the proxy.
SECTION 9. VOTING OF SHARES. Each outstanding share, regardless of
class, shall be entitled to one vote in each matter submitted to vote at a
meeting of shareholders, and in all elections for directors, every shareholder
shall have the right to vote the number of shares owned by such shareholder for
as many persons as there are directors multiplied by the number of such shares
or to distribute such cumulative votes in any proportion among any number of
candidates. Each shareholder may vote either in person or by proxy as provided
in SECTION 8 hereof.
SECTION 10. VOTING OF SHARES BY CERTAIN HOLDERS. Shares held by the
corporation in a fiduciary capacity may be voted and shall be counted in
determining the total number of outstanding shares entitled to vote at any given
time.
Shares registered in the name of another corporation, domestic or foreign,
may be voted by any officer, agent, proxy or other legal representative
authorized to vote such shares under the law of incorporation of such
corporation.
Shares registered in the name of a deceased person, a minor ward or a
person under legal disability, may be voted by his or her administrator,
executor or court appointed guardian, either in person or by proxy without a
transfer of such shares into the name of such administrator, executor or court
appointed guardian. Shares registered in the name of a trustee may be voted by
him or her, either in person or by proxy.
Shares registered in the name of a receiver may be voted by such receiver,
and shares held by or under the control of a receiver may be voted by such
receiver without the transfer thereof into his or her name if authority to do so
is contained in an appropriate order of the court by which such receiver was
appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Any number of shareholders may create a voting trust for the purpose of
conferring upon a trustee or trustees the right to vote or otherwise represent
their shares, for a period not to exceed 10 years, by entering into a written
voting trust agreement specifying the terms and conditions of the voting trust,
and by transferring their shares to such trustee or trustees for the purpose of
the agreement. Any such trust agreement shall not become effective until a
counterpart of the agreement is deposited with the corporation at its registered
office. The counterpart of the voting trust
3
<PAGE>
agreement so deposited with the corporation shall be subject to the same right
of examination by a shareholder of the corporation, in person or by agent or
attorney, as are the books and records of the corporation, and shall be subject
to examination by any holder of a beneficial interest in the voting trust,
either in person or by agent or attorney at any reasonable time for any proper
purpose.
Shares of its own stock belonging to this corporation shall not be voted,
directly or indirectly, at any meeting and shall not be counted in determining
the total number of outstanding shares at any given time, but shares of its own
stock held by it in a fiduciary capacity may be voted and shall be counted in
determining the total number of outstanding shares at any given time.
SECTION 11. CUMULATIVE VOTING. In all elections for directors, every
shareholder shall have the right to vote in person or by proxy, the number of
shares owned by him/her, for as many persons as there are directors to be
elected, or to cumulate such votes, and give one candidate as many votes as the
number of directors multiplied by the number of his/her shares shall equal, or
to distribute them on the same principle among as many candidates as he/she
shall think fit.
The articles of incorporation may be amended to limit or eliminate
cumulative voting rights in all or specified circumstances, or to limit or deny
voting rights or to provide special voting rights as to any class or classes or
series of shares of the corporation.
SECTION 12. INSPECTORS. At any meeting of shareholders, the presiding
officer may, or upon the request of any shareholder, shall appoint one or more
persons as inspectors for such meeting.
Such inspectors shall ascertain and report the number of shares represented
at the meeting, based upon their determination of the validity and effect of
proxies; count all votes and report the results; and do such other acts as are
proper to conduct the election and voting with impartiality and fairness to all
the shareholders.
Each report of an inspector shall be in writing and signed by him or her or
by a majority of them if there be more than one inspector acting at such
meeting. If there is more than one inspector, the report of a majority shall be
the report of the inspectors. The report of the inspector or inspectors on the
number of shares represented at the meeting and the results of the voting shall
be prima facie evidence thereof.
SECTION 13. INFORMAL ACTION BY SHAREHOLDERS. Any action required to be
taken at a meeting of the shareholders, or any other action which may be taken
at a meeting of the shareholders, or any other action which may be taken at a
meeting of the shareholders, may be taken without a meeting and without a vote,
if a consent in writing, setting forth the action so taken shall be signed (a)
if 5 days prior notice of the proposed action is given in writing to all of the
shareholders entitled to vote with respect to the subject matter hereof, by the
holders of outstanding shares having not less than the minimum number of votes
that would be necessary to authorize or
4
<PAGE>
take such action at a meeting at which all shares entitled to vote thereon were
present and voting or (b) by all of the shareholders entitled to vote with
respect to the subject matter thereof.
Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given in writing to those
shareholders who have not consented in writing. In the event that the action
which is consented to is such as would have required the filing of a certificate
under any section of the Business Corporation Act if such action had been voted
on by the shareholders at a meeting thereof, the certificate filed under such
section shall state, in lieu of any statement required by such section
concerning any vote of shareholders, that written consent has been given in
accordance with the provisions of SECTION 7.10 of the Business Corporation Act
and that written notice has been given as provided in such SECTION 7.10.
SECTION 14. VOTING BY BALLOT. Voting on any question or in any election
may be by voice unless the presiding officer shall order or any shareholder
shall demand that voting be by ballot.
ARTICLE III
-----------
DIRECTORS
---------
SECTION 1. GENERAL POWERS. The business of the corporation shall be
managed by or under the direction of its board of directors. A majority of the
board of directors may establish reasonable compensation for their services and
the services of other officers, irrespective of any personal interest.
SECTION 2. NUMBER, TENURE AND QUALIFICATIONS. The number of directors
of the corporation shall be two (2). Each director shall hold office until the
next annual meeting of shareholders; or until his successor shall have been
elected and qualified. Directors need not be residents of Illinois or
shareholders of the corporation. The number of directors may be increased or
decreased from time to time by the amendment of this section. No decrease shall
have the effect of shortening the term of any incumbent director.
SECTION 3. REGULAR MEETINGS. A regular meeting of the board of
directors shall be held without other notice than this by-law, immediately after
the annual meeting of shareholders. The board of directors may provide, by
resolution, the time and place for holding of additional regular meetings
without other notice than such resolution.
SECTION 4. SPECIAL MEETINGS. Special meetings of the board of
directors may be called by or at the request of the president or any two
directors. The person or persons authorized special meetings of the board of
directors may fix any place as the place for holding any special meeting of the
board of directors called by them.
5
<PAGE>
SECTION 5. NOTICE. Notice of any special meeting shall be given at least
ten days previous thereto by written notice to each director at his business
address. If mailed, such notice shall be deemed to be delivered when deposited
in the United States mail so addressed, with postage thereon prepaid. If notice
be given by telegram, such notice shall be deemed to be delivered when the
telegram is delivered to the telegram company. The attendance of a director at
any meeting shall constitute a waiver of notice of such meeting, except where a
director attends a meeting for the express purpose of objecting to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the board of directors need be specified in the
notice or waiver of notice of such meeting.
SECTION 6. QUORUM. A majority of the number of directors fixed by these
by-laws shall constitute a quorum for transaction of business at any meeting of
the board of directors, provided that if less than a majority of such number of
directors are present at said meeting, a majority of the directors present may
adjourn the meeting at any time without further notice.
SECTION 7. MANNER OF ACTING. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the board
of directors, unless the act of a greater number is required by statute, these
by-laws, or the articles of incorporation.
SECTION 8. VACANCIES. Any vacancy on the board of directors may be
filled by election at the next annual or special meeting of shareholders. A
majority of the board of directors may fill any vacancy prior to such annual or
special meeting of shareholders.
SECTION 9. RESIGNATION AND REMOVAL OF DIRECTORS. A director may resign
at any time upon written notice to the board of directors. A director may be
removed with or without cause, by a majority of shareholders if the notice of
the meeting names the director or directors to be removed at said meeting.
SECTION 10. INFORMAL ACTION BY DIRECTORS. The authority of the board of
directors may be exercised without a meeting if a consent in writing, setting
forth the action taken, is signed by all of the directors entitled to vote.
SECTION 11. COMPENSATION. The board of directors, by the affirmative
vote of a majority of directors then in office, and irrespective of any personal
interest of any of its members, shall have authority to establish reasonable
compensation of all for services to the corporation as directors, officers
otherwise notwithstanding any director conflict of interest. By resolution of
the board of directors, the directors may be paid their expenses, if any, of
attendance at each meeting of the board. No such payment previously mentioned in
this section shall preclude any director from serving the corporation in any
other capacity and receiving compensation therefor.
SECTION 12. PRESUMPTION OF ASSENT. A director of the corporation who is
present at a meeting of the board of directors at which action on any corporate
matter is taken shall be
6
<PAGE>
conclusively presumed to have assented to the action taken unless his or her
dissent shall be entered in the minutes of the meeting or unless he or she shall
file his or her written dissent to such action with the person acting as the
secretary of the meeting before the adjournment thereof or shall forward such
dissent by registered or certified mail to the secretary of the corporation
immediately after the adjournment of the meeting. Such right to dissent shall
not apply to a director who voted in favor of such action.
SECTION 13. COMMITTEES. A majority of the board of directors may create
one or more committees of two or more members to exercise appropriate authority
of the board of directors. A majority of such committee shall constitute a
quorum for transaction of business. A committee may transact business without a
meeting by unanimous written consent.
ARTICLE IV
----------
OFFICERS
--------
SECTION 1. NUMBER. The officers of the corporation shall be a president,
one or more vice-presidents, a treasurer, a secretary and such other officers as
many be elected or appointed by the board of directors. Any two or more offices
may be held by the same person.
SECTION 2. ELECTION AND TERM OF OFFICE. The officers of the corporation
shall be elected annually by the board of at the first meeting of the board of
directors held after each annual meeting of shareholders. If the election of
officers shall not be held at such meeting, such election shall be held as soon
thereafter as conveniently may be. Vacancies may be filled or new offices
created and filled at any meeting of the board of directors. Each officer shall
hold office until his successor shall have been duly elected and shall have
qualified or until his death or until he shall resign or shall have been removed
in the manner hereinafter provided. Election of an officer shall not of itself
create contract rights.
SECTION 3. REMOVAL. Any officer elected or appointed by the board of
directors may be removed by the board of directors whenever in its judgment the
best interest 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. PRESIDENT. The president shall be the principal executive
officer of the corporation. Subject to the direction and control of the board
of directors, he/she shall be in charge of the business of the corporation; he
shall see that the resolutions and directions of the board of directors are
carried into effect except in those instances in which that responsibility is
specifically assigned to some other person by the board of directors; and, in
general, he/she shall discharge all duties incident to the office of president
and such other duties as may be prescribed by the board of directors from time.
He shall preside at all meetings of the shareholders and of the board of
directors. Except in those instances in which the authority to execute is
expressly delegated to another officer or agent of the corporation or a
different mode of execution is expressly prescribed
7
<PAGE>
by the board of directors or these by-laws, he may execute for the corporation
certificates for its shares, and any contracts, deeds, mortgages, bonds, or
other instruments which the board of directors has authorized to be executed,
and he may accomplish such execution either under or individually or without the
seal of the corporation and either individually or with the secretary, any
assistant secretary, or any other officer thereunto authorized by the board of
directors, according to the requirements of the form of the instrument. He may
vote all which the corporation is entitled to vote except as and to the extent
such authority shall be vested in a different or agent of the corporation by the
board of directors.
SECTION 5. THE VICE-PRESIDENTS. The vice-president (or in the event
there be more than one vice-president, each of the vice-presidents) shall assist
the president in the discharge of his/her duties as the president may direct and
shall perform such other duties as from time to time may be assigned to him/her
by the president or by the board of directors. In the absence of the president
or in the event of his/her inability or refusal to act, the vice-president (or
in the event there be more than one vice-president, the vice-presidents in the
order designated by the board of directors, or by the president if the board of
directors has not made such a designation, or in the absence of any designation
in the order of seniority of tenure as vice-president) shall perform the duties
of the president, and when so acting, shall have all the powers of and be
subject to all the restrictions upon the president. Except in those instances
in which the authority to execute is expressly delegated to another officer or
agent of the corporation or a different mode of execution is expressly
prescribed by the board of directors or these by-laws, the vice-president (or
each of them if there are more than one) may execute for the corporation
certificates for its shares and any contracts, deeds, mortgages, bonds or other
instruments which the board of directors has authorized to be executed, and
he/she accomplish such execution either under or without the seal of the
corporation and either individually or with the secretary, any assistance
secretary, or any other officer thereunto authorized by the board of directors,
according to the requirements of the form of the instrument.
SECTION 6. THE TREASURER. The treasurer shall be the principal accounting
and financial officer of the corporation. He shall: (a) have charge of and be
responsible for the maintenance of adequate books of account for the
corporation; (b) have charge and custody of all funds and securities of the
corporation, and be responsible therefor and for the receipt and disbursement
thereof; and (c) perform all the duties incident to the office of treasurer and
such other duties as from time to time may be assigned to him by the president
or by the board of directors. If required by the board of directors, the
treasurer shall give a bond for the faithful discharge of his duties in such sum
and with such surety or sureties as the board of directors may determine.
SECTION 7. THE SECRETARY. The secretary shall: (a) record the minutes
of the shareholders' and of the board of directors' meetings in one or more
books provided for that purpose; (b) see that all notices are duly given in
accordance with the provisions of these by-laws or as required by law; (c) be
custodian of the corporate records and of the seal of the corporation; (d) keep
a register of the post-office address of each shareholder which shall be
furnished to the secretary by such shareholder; (e) sign with the president or a
vice-president, or any other officer thereunto authorized by the board of
directors, certificates for shares of the corporation, the issue of which
8
<PAGE>
shall have been authorized by the board of directors, and any contracts, deeds,
mortgages, bonds, or other instruments which the board of directors has
authorized to be executed according to the requirements of the form of the
instrument, except when a different mode of execution is expressly prescribed by
the board of directors or these by laws; (f) have general charge of the stock
transfer books of the corporation; (g) have authority to certify the by-laws,
resolutions of the shareholders and board of directors and committees thereof,
and other documents of the corporation as true and correct copies thereof; and
(h) perform all duties incident to the office of secretary and such other duties
as from time to time may be assigned to him/her by the president or by the board
of directors.
SECTION 8. ASSISTANT TREASURERS AND ASSISTANT SECRETARIES. The assistant
treasurers and assistant secretaries shall perform such duties as shall be
assigned to them by the treasurer or the secretary, respectively, or by the
president or the board of directors. The assistant secretaries may sign with the
president, or a vice-president or any other officer thereunto authorized by the
board of directors, certificates for shares of the corporation, the issue of
which shall have been authorized by the board of directors, and any contracts,
deeds, mortgages, bonds, or other instruments which the board of directors has
authorized to be executed, according to the requirements of the form of the
instrument, except when a different mode of execution is expressly prescribed by
the board of directors or these by-laws. The assistant treasurers shall
respectively, if required by the board of directors, give bonds for the faithful
discharge of their duties in such sums and with such sureties as the board of
directors shall determine.
SECTION 9. SALARIES. The salaries of the officers shall be fixed from time
to time by the board of directors and no officer shall be prevented from
receiving such salary by reason of the fact that he is also a director of the
corporation.
ARTICLE V
---------
CONTRACTS, LOANS, CHECKS AND DEPOSITS
-------------------------------------
SECTION 1. CONTRACTS. The board of directors may authorize any officer or
officers, agent or agents, to enter into any contract or 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 2. LOANS. No loans shall be contracted on behalf of the
corporation and no evidences of indebtedness shall be issued in its name unless
authorized by a resolution of the board of directors.
SECTION 3. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for the
payment of money, notes or other evidences 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 from time to time be determined by
resolution of the board of directors.
9
<PAGE>
SECTION 4. DEPOSITS. All funds of the corporation not otherwise employed
shall be deposited from time to time to the credit of the corporation in such
banks, trust companies or other depositaries as the board of directors may
select.
ARTICLE VI
----------
SHARES AND THEIR TRANSFER
-------------------------
SECTION 1. SHARES REPRESENTED BY CERTIFICATES AND UNCERTIFICATED SHARES.
Shares either shall be represented by certificates or shall be uncertificated
shares.
Certificates representing shares of the corporation shall be signed by the
appropriate officers and may be sealed with the seal or a facsimile of the seal
of the corporation. If a certificate is countersigned by a transfer agent or
registrar, other than the corporation or its employee, any other signatures may
be facsimile. Each certificate representing shares shall be consecutively
numbered or otherwise identified, and shall also state the name of the person to
whom issued, the number and class of shares (with designation of series, if
any), the date of issue, and that the corporation is organized under Illinois
law. If the corporation is authorized to issue shares of more than one class or
of series within a class, the certificate shall also contain such information or
statement as may be required by law.
Unless prohibited by the articles of incorporation, the board of directors
may provide by resolution that some or all of any class or series of shares
shall be uncertificated shares. Any such resolution shall not apply to shares
represented by a certificate until the certificate has been surrendered to the
corporation. Within a reasonable time after the issuance or transfer of
uncertificated shares, the corporation shall send the registered owner thereof a
written notice of all information that would appear on a certificate. Except as
otherwise expressly provided by law, the rights and obligations of the holders
of uncertificated shares shall be identical to those of the holders of
certificates representing shares of the same class and series.
The name and address of each shareholder, the number and class of shares
held and the date on which the shares were issued shall be entered on the books
of the corporation. The person in whose name shares stand on the books of the
corporation shall be deemed the owner thereof for all purposes as regards the
corporation.
SECTION 2. LOST CERTIFICATES. If a certificate representing shares has
allegedly been lost or destroyed the board of directors may in its discretion,
except as may be required by law, direct that a new certificate be issued upon
such indemnification and other reasonable requirements as it may impose.
SECTION 3. TRANSFERS OF SHARES. Transfer of shares of the corporation
shall be recorded on the books of the corporation. Transfer of shares
represented by a certificate, except in the case of a lost or destroyed
certificate, shall be made on surrender for cancellation of the
10
<PAGE>
certificate for such shares. A certificate presented for transfer must be duly
endorsed and accompanied by proper guaranty of signature and other appropriate
assurances that the endorsement is effective. Transfer of an uncertificated
share shall be made on receipt by the corporation of an instruction from the
registered owner or other appropriate person. The instruction shall be in
writing or a communication in such form as may be agreed upon in writing by the
corporation.
ARTICLE VII
-----------
FISCAL YEAR
-----------
The fiscal year of the corporation shall be fixed by resolution of the
board of directors.
ARTICLE VIII
------------
DISTRIBUTIONS
-------------
The board of directors may authorize, and the corporation may make,
distributions to its shareholders, subject to any restrictions in its articles
of incorporation or provided by law.
ARTICLE IX
----------
SEAL
----
The corporate seal shall have inscribed thereon the name of the corporation
and the words "Corporate Seal, Illinois." The seal may be used by causing it or
a facsimile thereof to be impressed or affixed or in any other manner
reproduced, provided that the affixing of the corporate seal to an instrument
shall not give the instrument additional force or effect, or change the
construction thereof, and the use of the corporate seal is not mandatory.
ARTICLE X
---------
WAIVER OF NOTICE
----------------
Whenever any notice is required to be given under the provisions of these
by-laws or under the provisions of the articles of incorporation or under the
provisions of The Business Corporation Act of the State of Illinois, a waiver
thereof in writing, signed by the person or persons entitled to such notice,
whether before or after the time stated therein, shall be deemed equivalent to
the giving of such notice. Attendance at any meeting shall constitute waiver of
notice thereof unless the person at the meeting objects to the holding of the
meeting because proper notice was not given.
11
<PAGE>
ARTICLE XI
----------
INDEMNIFICATION OF OFFICERS,
DIRECTORS, EMPLOYEES AND AGENTS
-------------------------------
SECTION 1. The corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that such person is or was a director, officer, employee or
agent of the corporation, partnership, joint venture, trust or other enterprise,
against 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 if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. The termination of
any action, suit or proceeding by judgment or settlement, conviction or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
or she reasonably believed to be in or not opposed to the best interest of the
corporation, and with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
SECTION 2. The corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that such person is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred by
such person in connection with the defense or settlement of such action or suit
if he or she acted in good faith and in a manner he or she reasonably believed
to be in or not opposed to the best interests of the corporation and except that
no indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his duty to the corporation unless and only to
the extent that the court in which such action or suit was brought shall
determine upon application that despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the court shall deem proper.
SECTION 3. To the extent that a director, officer, employee or agent of a
corporation has been successful, on the merits or otherwise, in the defense of
any action, suit or proceeding referred to in sections 1 and 2, or in defense of
any claim, issue or matter therein, such person shall be indemnified against
expenses actually and reasonably incurred by such person in connection
therewith.
SECTION 4. Any indemnification under sections 1 and 2 shall be made by the
corporation only as authorized in the specific case upon a determination that
indemnification of the director,
12
<PAGE>
officer, employee or agent is proper in the circumstances because he or she has
met the applicable standard of conduct set forth in sections 1 and 2. Such
determination shall be made (a) by the board of directors by a majority vote of
a quorum consisting of directors who were not parties to such action, suit or
proceeding, or (b) if such a quorum is not obtainable, or, even if obtainable, a
quorum of disinterested directors so directs, by independent legal counsel in a
written or (c) by the shareholders.
SECTION 5. Expenses incurred in defending a civil or criminal action, suit
or proceeding may be paid by the corporation in advance of the final disposition
of such action, suit or proceeding, as authorized by the board of directors in
the specific case, upon receipt of an undertaking by or on behalf of the
director, employee or agent to repay such amount, unless it shall ultimately be
determined that he or she is entitled to be indemnified by the corporation as
authorized in this article.
SECTION 6. The indemnification provided by this article shall not be
deemed exclusive of any other rights to which those seeking indemnification may
be entitled under any by-law, agreement vote of shareholders or disinterested
directors or otherwise, both as to action in his or her official capacity and as
to action in another capacity while holding such office, and shall continue as
to a person who has ceased to be a director, officer, employee or agent and
shall inure to the benefit of the heirs, executors and administrators of such a
person.
SECTION 7. The corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
such person and incurred by such person in any such capacity, or arising out of
his or her status as such, whether or not the corporation would have the power
to indemnify such person against such liability under the provisions of these
sections.
SECTION 8. If the corporation has paid indemnity or had advanced expenses
to a director, officer, employee or agent, the corporation shall report the
indemnification or advance in writing to the shareholders with or before the
notice of the next shareholders' meeting.
SECTION 9. References to "the corporation" shall include, in addition to
the surviving corporation, any merging corporation, including any corporation
having merged with a merging corporation, absorbed in a merger which otherwise
would have lawfully been entitled to indemnify its directors, officers, and
employees or agents.
13
<PAGE>
ARTICLE XII
-----------
AMENDMENTS
----------
Unless the power to make, alter, amend or repeal the by-laws is reserved to
the shareholders by the articles of incorporation, the by-laws of the
corporation may be made, altered, amended or repealed by the shareholders or the
board of directors, but no by-law adopted by the shareholders may be altered,
amended or repealed by the board of directors if the by-laws so provide. The by-
laws may contain any provisions for the regulation and management of the affairs
of the corporation not inconsistent with the law or the articles of
incorporation.
14
<PAGE>
2. Officers: The following persons are elected to the offices set
opposite their names, to serve for the term provided in the By-Laws:
ROBERT J. D'AMICO President
JOSEPH GRAZIANO, JR. Vice-President
JOSEPH GRAZIANO, JR. Secretary
ROBERT J. D'AMICO Treasurer
3. Seal: The seal making an impression as show below:
is hereby adopted as the seal of this corporation.
4. Certificate: The certificates to represent the shares of this
corporation shall be in the form of the specimen certificate inserted in the
minute book immediately following the end of this memorandum.
5. Payment of Expenses: The reasonable charges and expenses of organizing
this corporation shall be paid by the officers out of the consideration received
for its shares, as provided in Section 6.45 of the Illinois Business Corporation
Act.
6. Resolution Fixing Salaries: The salary of ROBERT J. D'AMICO as
President of this corporation is hereby fixed at the sum of $1,200.00 per month
beginning with the month of October, 1985.
The salary of JOSEPH GRAZIANO, JR. as Secretary of this corporation is
hereby fixed at the sum of $1,200.00 per month beginning with the month of
October, 1985.
Such salaries shall be as fixed above until further action of this Board of
Directors.
7. Leases: It is further resolved that the President and Secretary of
this corporation be and are hereby authorized to execute any or all leases that
may become necessary to transact business for the corporation, on behalf of this
corporation, and that all existing leases from:
GIANNI CORPORATION, Lessor, covering the premises known as 189 East Lake
Street in Bloomingdale, Illinois, for the term of three (3) years, beginning in
September, 1984 and provides for a term rental sum of $41,655.50; AND
VILLA PARK VENTURE, Lessor, covering the premises known as 345 East North
Avenue in Villa Park, Illinois, for the term of three (3) years, beginning in
November, 1984, and provides for a term rental sum of $30,600.00; AND
15
<PAGE>
UNITED INVESTORS, INC., Lessor, covering the premises known as 3044 N.
Central Avenue in Chicago, Illinois, for the term of three (3) years beginning
in February, 1985, and provides for a term rental sum of $61,200.00; AND
CHRIST AND BASELEKY BANTSOLAS, Lessor, covering the premises known as 4717
W. 98th Street in Oak Lawn, Illinois, for the term of three (3) years beginning
in July of 1985, and provides for a term rental sum of $30,600.00; AND
DROVER'S BANK OF CHICAGO, as Trustee under Trust No. U/T#83141, Lessor,
covering the premises known as 620 East Golf Road in Arlington Heights,
Illinois, for the term of three (3) years beginning in September of 1985 and
provides for a term rental sum of $60,372.00.
That the aforementioned leases are hereby adopted by the Board of Directors
of this corporation and the corporation shall be fully responsible for the
payment and/or balance of said leases.
8. Contracts: Be it further resolved that the President and/or Secretary
may execute and/or deliver any instrument in the name of and on behalf of the
corporation, and such authority may be general or confined to specific
instruments.
9. Checks, Drafts, Notes, Etc.: All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the corporation, shall be signed and executed by the President of the
corporation. If the president of this corporation shall become incapable, for
any reason, to perform the duties related to the execution of any checks,
drafts, notes, etc., then the Secretary of the corporation shall have the
authority to execute and sign the same until such time as the President shall
become capable again or until a new President is elected so that the corporation
may continue to operate and transact its affairs.
EFFECTIVE DATE: October 1, 1985
AGREED:
/s/ Robert J. D'Amico /s/ Joseph Graziano, Jr.
- ----------------------------- ---------------------------------
ROBERT J. D'AMICO JOSEPH GRAZIANO, JR.
16
<PAGE>
EXHIBIT 3.5
ARTICLES OF MERGER
THESE ARTICLES OF MERGER, dated this 28 day of January, 1980, pursuant to
-- ------- ----
Section 3-109 of the Corporations and Associations Article of the Annotated Code
of Maryland, as amended (hereinafter referred to as the "Code"), are entered
into by and between the corporations named in Article SECOND below, which are
referred to herein collectively as the Constituent Corporations.
FIRST: The Constituent Corporations have agreed to merge, and the terms
and conditions of said merger, the mode of carrying the same into effect and the
manner and basis of converting or exchanging the shares of issued stock of each
of the Constituent Corporations into different stock or other consideration
pursuant to Section 3-103 of the Code, and the manner of dealing with any issued
stock of the Constituent Corporations not to be so converted or exchanged, are
and shall be as set forth herein.
SECOND: The parties to these Articles of Merger are T.J.B., Inc., a
Maryland Corporation, (hereinafter referred to as "T.J.B., Inc."), and Lanham
Carpets, Inc., a Maryland corporation, (hereinafter referred to as "Lanham
Carpets, Inc.").
THIRD: T.J.B., Inc. shall be the successor corporation (hereinafter
sometimes referred to as "Successor").
FOURTH: The principal office of T.J.B., Inc. in the State of Maryland is
7430 Annapolis Road, Landover Hills located in Prince Georges County. The
principal office of Lanham Carpets, Inc. in the State of Maryland is 7430
Annapolis Road, Landover Hills , located in Prince Georges County. Neither of
the Constituent Corporations owns property in any county in Maryland, the title
to which could be affected by the recording of an instrument among the land
records.
FIFTH: The board of directors of Lanham Carpets, Inc., on January 28,
-----------
1980, by majority vote of the entire Board of Directors, duly adopted a
resolution, declaring that a merger substantially upon the terms and conditions
set forth in these Articles of Merger was advised, authorized and approved and
directing their submission to a special meeting of stockholders held on January
-------
28, 1980. A notice stating that a purpose of the said meeting of stockholders
- --------
would be to take action upon these Articles of Merger was mailed to each
stockholder on January 10, 1980, a date at least ten days in advance of the said
----------------
meeting of stockholders. The Articles of Merger were duly submitted to and
approved by the affirmative vote to two-thirds of all of the votes entitled to
be cast thereon at the said meeting of stockholders, as required by the Charter
of Lanham Carpets, Inc. and the laws of the State of Maryland.
SIXTH: The board of directors of T.J.B., Inc., on January 28, 1980, by
----------------
majority vote of the entire Board of Directors, duly adopted a resolution
declaring that a merger substantially upon the
<PAGE>
terms and conditions set forth in these Articles of Merger was advised,
authorized and approved and directing their submission to a special meeting of
stockholders held on January 28, 1980. A notice stating that a purpose of the
----------------
said meeting of stockholders would be to take action upon these Articles of
Merger was mailed to each stockholder on January 10, 1980, a date at least ten
----------------
in advance of the said meeting of stockholders. The Articles of Merger were duly
submitted to and approved by the affirmative vote of two-thirds of all of the
votes entitled to be cast thereon at the said meeting of stockholders, as
required by the Charter of T.J.B., Inc and the laws of the State of Maryland.
SEVENTH: The Articles of Incorporation of the Successor are hereby amended
to be as set forth in Exhibit A hereto and as amended, all of the terms and
provisions thereof are hereby incorporated in these Articles and made a part
hereof with the same force and effect as if herein set forth in full; and, from
and after the Effective Date, as hereinafter defined, and until said Exhibit A,
separate and apart from these Articles shall be, and may be separately certified
as the Articles of Incorporation, as amended, of the Successor.
EIGHTH: Lanham Carpets, Inc. has authority to issue shares of one class of
stock, namely one hundred (100) shares of Common Stock without par value (the
"Lanham Carpets, Inc. Common Stock").
NINTH: T.J.B., Inc. has authority to issue shares of one class of stock,
namely one thousand (1,000) shares of Common Stock without par value (the
"T.J.B., Inc. Common Stock").
TENTH: The manner and basis of converting or exchanging the issued stock
of each of the Constituent Corporation into different stock or other
consideration and the treatment of any issued stock of the Constituent
Corporations not to be so converted or exchanged on the Effective Date shall be
as follows:
(a) Each share of Lanham Carpets, Inc. Common Stock, if any, which
remains unissued on the Effective Date of this merger shall be canceled.
(b) Each share of T.J.B., Inc. Common Stock which is issued and
outstanding on the Effective Date shall remain issued and outstanding as
one share of T.J.B., Inc. Common Stock.
(c) Each share of Lanham Carpets, Inc. Common Stock which is issued
and outstanding on the Effective Date shall be converted or exchanged by
Successor into one hundred percent (100%) of one share of T.J.B., Inc.
Common Stock.
(d) No scrip or fractional share certificates of T.J.B., Inc. shall be
issued as a result of the merger transaction described hereinabove, but in
lieu of each fractional interest, a Lanham Carpets, Inc. stockholder
entitled to a fractional share equal to one-half or more of one share of
T.J.B., Inc. Common Stock shall receive
2
<PAGE>
a full share of T.J.B., Inc. Common Stock and one-half of any fractional
share equal to less than one share of T.J.B., Inc. Common Stock shall be
eliminated.
(e) After the merger transaction described above shall become
effective, except as otherwise provided by the Code with respect to
dissenting stockholders, each holder of an outstanding certificate or
certificates theretofore representing Lanham Carpets, Inc. Common Stock
shall surrender the same to Successor and each such holder thereupon shall
be entitled to receive in exchange therefor a certificate or certificates
representing the number of shares of T.J.B., Inc. Common Stock into which
the Lanham Carpets, Inc., Common Stock represented by the certificate or
certificates so surrendered shall have been converted or exchanged by the
provisions hereof.
Until such surrender, Lanham Carpets, Inc- Common Stock shall be
deemed for all corporate purposes, other than the payment of dividends, to
evidence ownership of the number of full shares of T.J.B., Inc. Common
Stock to be delivered with respect to such shares of such capital stock.
Unless and until any such outstanding certificates shall be so surrendered,
no dividend payable to the holders of record of T.J.B., Inc. Common Stock
as of any date subsequent to the Effective Date shall be paid to the
holders of such outstanding certificates, but upon surrender of any such
certificates or certificates, there shall be paid to the record holder of
the certificate or certificates of T.J.B., Inc. Common Stock delivered with
respect to the shares represented by the surrendered certificate or
certificates, without interest, the amount of such dividends which shall
have theretofore become payable to then with respect to such shares of
T.J.B., Inc. Common Stock.
If any holder of an outstanding certificate or certificates
representing Lanham Carpets, Inc. Common Stock shall deliver to Successor
such affidavits, indemnity agreements or surety bonds as T.J.B., Inc. shall
reasonably require in conformity with its customary procedure with respect
to lost stock certificates of T.J.B., Inc., Successor shall treat such
delivery as surrender of any lost or misplaced or destroyed certificate or
certificates representing Lanham Carpets, Inc. Common Stock.
ELEVENTH: Upon the Effective Date:
(a) the assets and liabilities of Lanham Carpets, Inc. shall be taken
up on the books of the Successor at the amount at which they shall at that
time be carried on the books of Lanham Carpets, Inc., subject to such
adjustment, if any, as may be necessary to conform to the Successor's
accounting procedures, and
(b) all of the rights, privileges, immunities, powers, purposes, and
franchises of Lanham Carpets, Inc. and all property, real, personal and
mixed, and all debts due to Lanham Carpets, Inc. on whichever account shall
be vested in the
3
<PAGE>
Successor, and all property rights, privileges, immunities, powers,
purposes and franchises, and all and every other interest shall be
thereafter as effectually the property of the Successor as they were of
Lanham Carpets, Inc., and all debts, liabilities, obligations and duties of
Lanham Carpets, Inc. shall thenceforth attach to the Successor and may be
enforced against it to the same extent as if said debts, liabilities,
obligations and duties had been incurred or contracted by it.
The Constituent Corporations, by mutual consent of their respective
Board of Directors, may amend, modify and supplement these Articles of
Merger in such manner as may be agreed upon by them in writing at any time
before of after approval or adoption thereof the stockholders of any of the
Constituent Corporations or all of them; provided, however, that no such
amendment, modification or supplement shall affect the rights of the
stockholders of any of the Constituent Corporations in a manner which is
materially adverse to such stockholders in the judgement of their
respective Board of Directors.
The merger proved for by these Articles of Merger shall for internal
use become effective February 1, 1980, and the separate existence of Lanham
Carpets, Inc., except insofar as continued by statute, shall cease on the
date that these Articles of Merger, duly advised, approved, signed,
acknowledged, sealed and verified by Lanham Carpets, Inc. and Successor as
required by the laws of the State of Maryland, are filed for record with
the State Department of Assessments and Taxation of Maryland, as required
by the laws of the State of Maryland, or on the date specified by the
parties hereto as provided by the laws of the State of Maryland, whichever
is later.
IN WITNESS WHEREOF, LANHAM CARPETS, INC. AND T.J.B., INC. the corporations
parties to the merger, have caused these Articles of Merger to be signed in
their respective corporate names and on their behalf by the respective
Presidents and witnessed or attested by their respective Secretaries as of the
28th day of January, 1980.
ATTEST: Lanham Carpets, Inc.
/s/ JoAnn Teitelbaum /s/ Warren Teitelbaum
_______________________________ By: _______________________________
ATTEST: T.J.B., Inc.
/s/ JoAnn Teitelbaum /s/ Warren Teitelbaum
_______________________________ By: _______________________________
4
<PAGE>
THE UNDERSIGNED, President of Lanham Carpets, Inc., who executed on behalf
of said corporation the foregoing Articles of Merger, of which this certificate
is made a part, hereby acknowledges, in the name and on behalf of said
corporation, the foregoing Articles of Merger, to be the corporate act of said
corporation and further certifies that, to the best of his knowledge,
information and belief, the matters and facts set forth therein with respect to
the approval thereof are true in all material respects, under the penalties of
perjury.
/s/ Warren Teitelbaum
__________________________________________
THE UNDERSIGNED, President of T.J.B., Inc., who executed on behalf of said
corporation the foregoing Articles of Merger, of which this certificate is made
a part, hereby acknowledges, in the name and on behalf of said corporation, the
foregoing Articles of Merger to be the corporate act of said corporation and
further certifies that, to the best of his knowledge, information and belief,
the matters and facts set forth therein with respect to the approval thereof are
true in all material respects, under the penalties of perjury.
/s/ Warren Teitelbaum
__________________________________________
5
<PAGE>
ARTICLES OF INCORPORATION
EXHIBIT A OF
- ---------
T. J. B., INC.
approved and received for record by the State Department of Assessments and
Taxation of Maryland October 10, 1978 at 8:30 o'clock A.M. as in conformity with
law and ordered recorded.
____________________
Recorded in Liber 2428, folio 00040, one of the Charter Records of the
State Department of Assessments and Taxation of Maryland.
____________________
Bonus tax paid $20.00 Recording fee paid $20.00 Special Fee paid
$______________________
____________________
To the clerk of Circuit Court of [_________________________].
IT IS HEREBY CERTIFIED, that the within instrument, together with all
indorsements thereto, has been received, approved and recorded by the State
Department of Assessments and Taxation of Maryland.
AS WITNESS my hand and seal of the said Department at Baltimore.
<PAGE>
ARTICLES OF INCORPORATION
OF
T. J. B., INC.
THIS IS TO CERTIFY:
FIRST: That we, the subscribers, WARREN TEITELBAUM, whose post office
-----
address is 14700 Baugher Drive, Centerville, Virginia; SAM KATZ, whose post
office address is 7708 Keppel Place, Clinton, Maryland, 20735; and JOANN
TEITELBAUM, whose post office address is 14700 Baugher Drive, Centerville,
Virginia, all being at least twenty-one (21) years of age, do, under and by
virtue of the General Laws of Maryland, authorizing the formation of
corporations, associate ourselves with the intention of forming a corporation.
SECOND: That the name of the corporation (which is hereinafter referred to
------
and called the "Corporation") is:
T. J. B., INC.
THIRD: The purposes for which the Corporation is formed and the business
-----
or objects to be carried on and promoted by it are as follows:
a) To create, manufacture, buy, sell, lease, trade, wholesale or
retail, bedding supplies, including but not limited to mattresses, bedsprings,
sheets and other household furnishings of all forms, shapes and uses.
b) To manufacture, purchase or otherwise acquire, hold, mortgage,
pledge, sell, transfer, or in any manner encumber or dispose of goods, wares,
merchandise, implements, and other personal property or equipment of every kind.
c) To purchase, lease or otherwise acquire, hold, develop, improve,
mortgage, sell, exchange, let or in any manner encumber of dispose of real
property wheresoever situated.
d) To carry on and transact for itself or for account of other, the
business of general merchants, general brokers, general agents, manufacturers,
buyers and sellers of, dealers in, importers and exporters of natural products,
raw materials, manufactured products and marketable goods, wares and merchandise
of every description.
<PAGE>
e) To purchase, lease or otherwise acquire, all or part of the
property, rights, businesses, contracts, goodwill, franchises and assets of
every kind, or any corporation, co-partnership or individual (including the
estate of a decedent), carrying on or having carried on in whole or in part of
any of the aforesaid businesses that the Corporation may be authorized to carry
on, and to undertake, guarantee, assume and pay the indebtedness and liabilities
thereof, and to pay for any such property, rights, businesses, contracts,
goodwill, franchises or assets by the issue, in accordance with the laws of
Maryland, of stocks, bonds, or other securities of the Corporation, or
otherwise.
f) To apply for, obtain, purchase, or otherwise acquire any patents,
copyrights, licenses, trademarks, tradenames, rights, processes, formulae, and
the like, which might be used for any of the purposes of the Corporation; and to
use, exercise, develop, grant licenses in respect of, sell and otherwise turn to
account, the same.
g) To purchase or otherwise acquire, hold and re-issue shares of its
capital stock of any class; and to purchase, hold, sell, assign, transfer,
exchange, lease, mortgage, pledge or otherwise dispose of, any shares of stock,
or voting trust certificates for any shares of stock of, or any bonds or other
securities or evidences of indebtedness issued or created by, any other
corporation or association, organized under the laws of the State of Maryland or
of any other state, territory, district, colony or dependency of the United
States of America, or of any foreign country; and while the owner or holder of
any shares of stock, voting trust certificates, bonds or other obligations to
possess and exercise in respect hereof and all rights, powers and privileges of
ownership, including the right to vote on any shares of stock so held or owned;
and upon a distribution of the assets or a division of the profits of the
Corporation to distribute any such shares of stock, voting trust certificates,
bonds, or other obligations, or the proceeds thereof, among the stockholders of
this Corporation.
h) To guarantee the payment of dividends upon any shares of stock of
or the performance of any contract by, any other corporation or association in
which the Corporation has an interest, and to endorse or otherwise guarantee the
payment of the principal and interest, or either, of any bonds, debentures,
notes, securities or other evidence of indebtedness created or issued by any
such corporation or association.
2
<PAGE>
i) To loan or advance money with or without security, without limit
as to amounts and to borrow or raise money for any of the purposes of the
Corporation and to issue shares, debentures, notes or other obligations of any
nature, and in any manner permitted by law, for money so borrowed or in payment
for property purchased, or for any other lawful consideration, and to secure the
payment thereof and of the interest thereon, by mortgage upon, or pledge or
conveyance of assignment in trust of, the whole of any part of the property of
the Corporation, real or personal, including contract rights, whether of the
Corporation or thereafter requested, and to sell, pledge, discount or otherwise
dispose of such bonds, notes, or other obligations of the Corporation for its
corporate purposes.
j) To carry on any of the businesses heretofore enumerated for
itself, or for account of others, or through others for its own account, and to
carry on any other business which may be deemed by it to be calculated, directly
or indirectly, to effectuate or facilitate the transactions of the aforesaid
objects or businesses, or any of them, or any part thereof, or to enhance the
value of its property, business or rights.
k) To carry out all or any part of the aforesaid purposes, and to
conduct its business in all or any of its branches in any or all states,
territories, districts, colonies and dependencies of the United States of
America and in foreign countries; and to maintain offices and agencies, in any
or all states, territories, districts, colonies and dependencies of the United
States of America and in foreign countries.
FOURTH: The post office address of the principal office of the Corporation
------
in this State is 7430 Annapolis Road, Landover Hills, Maryland 20784. The name
and post office address of the Resident Agent of this Corporation in this State
are Sam Katz, 7340 Annapolis Road, Landover Hills, Maryland 20784. Said
Resident Agent is an individual actually residing in the State of Maryland.
FIFTH: The total number of shares of stock which the Corporation has
-----
authority to issue is 1,000 all of which shares are of one class and are
designated common stock, with no par value.
SIXTH: The preferences, qualifications, limitations, restrictions, and
-----
special or relative rights in respect of the shares of each class are as
follows:
3
<PAGE>
The shares of stock of this Corporation are to be held by each holder
thereof upon condition that he will not sell, assign or transfer all or any part
of such shares without first, in writing, offering the same for sale to this
Corporation, and the Corporation shall have the right to purchase the same,
provided it shall give notice in writing to the person offering the same for
sale within thirty (30) days after the receipt of such written offer, or if no
such offer is made, then the Corporation will have the right to purchase such
stock within thirty (30) days after the Corporation has notice of such attempted
sale, assignment or transfer. Such offer, notice and acceptance may be given by
depositing the same in the post office properly registered and addressed to the
Corporation or to such stockholder or his personal representative at his address
as it appears upon the books of the Corporation.
The price to be paid for the stock by the Corporation in the happening
of the event or things as prescribed above, shall be the book value of the stock
as it appears on the books of the Corporation, as of the time of the last
preceding inventory date.
In case any dispute arises between the stockholder or his legal
representative and the Corporation as to the book value of such stock as herein
before provided, then such book value shall be ascertained in accordance with
the provisions of this Article of the Certificate of Incorporation by a
committee of three (3): one to be appointed by the Board of Directors of the
Corporation, one by the person whose stock is the question of the sale or
dispute (or by his legal representative), and the third, a Certified Public
Accountant, to be appointed by the two members appointed. The decisions of two
members of such committee shall be conclusive and binding upon the Corporation
and the stockholder or his legal representative.
Compliance with the foregoing terms and conditions with regard to the
issuance, holding, sale, assignment or transfer of the shares of stock shall be
construed as a condition precedent to the continued ownership or transfer of
such shares of stock, and as a limitation upon the holders of capital stock of
the Corporation, any future laws of the State of Maryland in any way to the
contrary notwithstanding.
SEVENTH: The number of Directors of the Corporation shall be three (3),
-------
which number may be increased pursuant to the By-Laws of the Corporation, but
shall never by less than three (3).
4
<PAGE>
The names of the Directors who shall act until the first annual meeting or until
their successors are duly chosen and qualified are:
Warren Teitelbaum
Sam Katz
Joann Teitelbaum
EIGHTH: The following provisions are hereby adopted for the purpose of
------
defining, limiting, and regulating the powers of the Corporation and of the
Directors and Stockholders:
a) The Board of Directors of the Corporation is hereby empowered to
authorize the issuance from time to time of shares of its stock, for such
consideration as said Board of Directors may deem advisable, irrespective of the
value or amount of such consideration, but subject to such limitations and
restrictions, if any, as may be set forth in the By-Laws of the Corporation.
b) No contract or other transaction between this Corporation and any
other corporation, and no act of this Corporation shall in any way be affected
or invalidated by the fact that any of the Directors of this Corporation are
pecuniarily or otherwise interested in, or are directors or officers of, such
other corporation; any directors, individually, or any firm of which any
directors may be a member, may be a party to, or may be pecuniarily or otherwise
interested in, any contract or transactions of this Corporation, provided that
the fact that he or such firm is so interested shall be disclosed or shall have
been known to the Board of Directors or a majority thereof; and any Director of
this Corporation who is also a director or officer of such other corporation or
who is so interested may be counted in determining the existence of a quorum at
any meeting of the Board of Directors of this Corporation, which shall authorize
any such contract or transaction, with like force and effect as if he were not
such Director or officer of such other corporation or not so interested.
c) The Board of Directors shall have power, subject to any
limitations or restrictions herein set forth or imposed by laws to classify or
re-classify any unused shares of stock, whether now or hereafter authorized, by
fixing or altering any one or more respects, from time to time before issuance
of such shares, the preferences, rights, voting powers, restrictions and
qualifications of the dividends on, the times and prices of redemptions of, and
the conversion of rights of such shares.
5
<PAGE>
d) The Board of Directors shall have power to declare and authorize
the payment of stock dividends, whether or not payable in stock of one class to
holders of another class or classes; and shall have authority to exercise,
without a vote of stockholders, all powers of the Corporation, whether conferred
by law or by these Articles to purchase, lease or otherwise acquire the
business, assets, or franchises, in whole or in part, of other corporations or
unincorporated business entities.
NINTH: The Corporation reserves the right from time to time to make any
-----
amendment of its charter, new or hereafter authorized by law, including any
amendment which alters the contract rights, as expressly set forth in the
charter, of any outstanding stock.
IN WITNESS WHEREOF, we have signed these Articles of Incorporation on this
25th day of August, 1978.
WITNESS:
/s/ /s/ Warren Teitelbaum
_______________________________ __________________________________ (SEAL)
Warren Teitelbaum
/s/ /s/ Sam Katz
_______________________________ __________________________________ (SEAL)
Sam Katz
/s/ /s/ Joann Teitelbaum
_______________________________ __________________________________ (SEAL)
Joann Teitelbaum
6
<PAGE>
STATE OF MARYLAND )
: SS:
COUNTY OF PRINCE GEORGE'S )
I HEREBY CERTIFY that on this 25th day of August, 1978 before me, the
subscriber, a Notary Public in and for the State and County aforesaid,
personally appeared WARREN TEITELBAUM, who made oath in due form of law that the
matters and facts contained in the foregoing Articles of Incorporation are true
and correct to the best of his knowledge, information and belief.
/s/
__________________________________________
Notary Public
My Commission Expires:
(SEAL)
STATE OF MARYLAND )
: SS:
COUNTY OF PRINCE GEORGE'S )
I HEREBY CERTIFY that on this 25th day of August, 1978 before me, the
subscriber, a Notary Public in and for the State and County aforesaid,
personally appeared SAM KATZ, who made oath in due form of law that the matters
and facts contained in the foregoing Articles of Incorporation are true and
correct to the best of his knowledge, information and belief.
/s/
__________________________________________
Notary Public
My Commission Expires:
(SEAL)
7
<PAGE>
STATE OF MARYLAND )
: SS:
COUNTY OF PRINCE GEORGE'S)
I HEREBY CERTIFY that on this 25th day of August, 1978 before me, the
subscriber, a Notary Public in and for the State and County aforesaid,
personally appeared JOANN TEITELBAUM, who made oath in due form of law that the
matters and facts contained in the foregoing Articles of Incorporation are true
and correct to the best of her knowledge, information and belief.
/s/
__________________________________________
Notary Public
My Commission Expires:
(SEAL)
8
<PAGE>
NOTICE OF CHANGE OF RESIDENT AGENT AND AGENT'S ADDRESS
OF
T.J.B., INC.
received for record March 4, 1982, at 8:30 A.M. and recorded on Film No. 2533,
Frame No. C1798, one of the charter records of the State Department of
Assessments and Taxation of Maryland.
To the clerk of the Circuit court of Prince Georges County
AA No. 20125A
Special Fee Paid $5.00
Recording Fee Paid $3.00
-----
Total $8.00
Mr. Clerk Mail to: Hodes & Kaplan
110-112 East Madison Street
Baltimore, Maryland 21202
<PAGE>
T.J.B., INC.
------------
INFORMAL ACTION OF THE BOARD OF DIRECTORS
-----------------------------------------
The undersigned, being the Directors of T.J.B., INC., a Maryland
corporation, (hereinafter referred to as the "Corporation"), in accordance with
Section 2-408(c) of the Corporations and Associations Article of the Annotated
Code of Maryland, do hereby take the actions below set forth, and to evidence
their waiver of any right to dissent from such actions, do hereby consent as
follows:
RESOLVED: That the Corporation's resident agent in the State of Maryland
--------
be changed to Paul Bloomberg, an individual actually residing in this State
and whose post office address is 110 E. Madison Street, Baltimore,
Maryland, 21202; and
RESOLVED FURTHER: That the proper officers of the Corporation be and they
----------------
are hereby authorized and directed in the name and on behalf of the
Corporation to file with the State Department of Assessments and Taxation
of Maryland and any and all instruments and documents deemed necessary or
proper in connection therewith; and
This Informal Action of Directors, where applicable, may be executed in
counterparts.
WITNESS the execution hereof the 2nd day of March, 1982.
WITNESS AS TO ALL: BOARD OF DIRECTORS:
/s/ /s/ Warren S. Teitelbaum
_______________________________ ______________________________
Warren S. Teitelbaum
/s/ Jerry Lytell
______________________________
Jerry Lytell
<PAGE>
NOTICE OF RESIGNATION OF RESIDENT AGENT
OF
T.J.B., INC.
received for record July 12, 1983, at 3:02 P.M. and recorded on Film No. 2593,
Frame No. 02782, one of the charter records of the State Department of
Assessments and Taxation of Maryland.
To the clerk of the Circuit court of Prince Georges County/66.
AA No. 18795
Special Fee Paid $5.00
Recording Fee Paid $3.00
-----
Total $8.00
70/75
Mr. Clerk Mail to: Kaplan, Freeland & Schwartz
800 N. Charles Street
Baltimore, Maryland 21201
<PAGE>
[LETTERHEAD OF KAPLAN, FREELAND & SCHWARTZ, P.C.]
July 12, 1983
CERTIFIED MAIL - RETURN RECEIPT REQUESTED
- -----------------------------------------
Mr. Warren S. Teitelbaum,
President
T.J.B., Inc.
623 S. Pickett Street
Alexandria, Virginia 22304
Dear Mr. Teitelbaum:
Please be advised that I hereby resign as Resident Agent of T.J.B., Inc., a
Maryland Corporation. Pursuant to Maryland Annotated Code, Corporations and
Associates Article Section 2-108(d)(2)(ii), this resignation is effective ten
(10) days after today's date, since by copy of this letter this resignation has
been filed with the Maryland State Department of Assessments and Taxation. You
should make arrangements immediately to have another Resident Agent noted for
the files of T.J.B., Inc. at the Department of Assessments and Taxation for
Maryland.
Sincerely,
KAPLAN, FREELAND & SCHWARTZ, P.C.
Paul Bloomberg
PB:rab
cc: Maryland State Department of Assessments & Taxation
<PAGE>
NOTICE OF CHANGE OF PRINCIPAL OFFICE AND DESIGNATION
OF RESIDENT AGENT AND AGENT'S ADDRESS
OF
T.J.B., INC.
received for record July 27, 1984, at 8:30 A.M. and recorded on Film No. 2660,
Frame No. 002669, one of the charter records of the State Department of
Assessments and Taxation of Maryland.
To the clerk of the Circuit court of Baltimore City/74.
AA No. 20454
Special Fee Paid $5.00
Recording Fee Paid $3.00
-----
Total $8.00
70/75
Return to: Burke, Gerber, Wilen, Francomano & Redding
9 West Mulberry Street
Baltimore, Maryland 21201
<PAGE>
T.J.B., INC.
------------
RESOLUTION OF THE BOARD OF DIRECTORS
------------------------------------
The undersigned, being the Directors of T.J.B., Inc., a Maryland
corporation (hereinafter referred to as the "Corporation") in accordance with
Section 2-108 of the Corporation and Association Article of the Annotated Code
of Maryland, do hereby pursuant to resolutions hereinafter set forth designate
and 9 West Mulberry Street, Baltimore, Maryland, 21201, which address shall be
designated as the principal office of the Corporation in the State and as
evidence their waiver of any right to dissent do hereby consent to the
following:
RESOLVED: That the Corporation does hereby designate
John R. Francomano as Resident Agent of the Corporation and
9 West Mulberry Street, Baltimore, Maryland 21201 as the
post office address of the Resident Agent and the principal
place of business of the Corporation in the State of
Maryland, and
RESOLVED: That a copy of this Resolution shall be
executed and filed with the Department of Assessments and
Taxation of Maryland and notice of such filing shall be
given in writing to the Corporation.
Witness the execution hereof, this ___ day of July, 1984.
WITNESS: BOARD OF DIRECTORS:
/s/ /s/ Warren S. Teitelbaum
_____________________________ _______________________________
Warren S. Teitelbaum
/s/ /s/ Jerry Lytell
_____________________________ _______________________________
Jerry Lytell
being all of the members of the Board of
Directors of T.J.B., Inc.
<PAGE>
ARTICLES OF AMENDMENT
OF
T. J. B., INC.
Approved and received for record by the State Department of Assessments and
Taxation of Maryland October 17, 1985 at 11:00 o'clock A.M. as in conformity
with law and ordered recorded.
_________________________
Recorded in Liber 2754, Folio 0003453 on the records of the State
Department of Assessments and Taxation of Maryland.
_________________________
<TABLE>
<CAPTION>
Organization & Recording Fee Paid Special Fee Paid
Capitalization Paid
<S> <C> <C>
$ 20.00 $20.00 $---------------
</TABLE>
To the Clerk of the Circuit Court of Baltimore City:
It is hereby certified, that the within instrument, together with all
indorsements thereon, has been received, approved and recorded by the State
Department of Assessments and Taxation of Maryland.
As witness my hand and seal of the Department at Baltimore:
/s/
______________________________________
<PAGE>
T.J.B., INC.
ARTICLES OF AMENDMENT
T.J.B., Inc., a Maryland corporation having its principal office in Prince
George's County, Maryland (hereinafter called the "Corporation"), hereby
certifies to the State Department of Assessments and Taxation of Maryland that:
ARTICLE FIRST
The Charter of the Corporation is hereby amended by striking out Article
FIFTH and inserting in lieu thereof the following:
"FIFTH: The total number of shares of stock of all classes which the
Corporation has authority to issue is Thirty Thousand (30,))) shares having an
aggregate par value of Thirty Thousand Dollars ($30,000) divided into Ten
Thousand (10,000) shares of Class A Common stock of the par value of One Dollar
($1.00) per share having an aggregate par value of Ten Thousand Dollars
($10,000); and Twenty Thousand (20,000) shares of Class B Common stock of the
par value of One Dollar ($1.00) per share having an aggregate par value of
Twenty Thousand Dollars ($20,000)."
ARTICLE SECOND
The charter of the Corporation is hereby further amended by striking out
Article SIXTH and inserting in lieu thereof the following:
"SIXTH: A description of each class of stock of the Corporation with the
preferences, voting powers, dividends, qualifications, restrictions, and other
rights is as follows:
(a) Preferences Upon Liquidation. In the event of the liquidation,
----------------------------
dissolution, or winding up of the affairs of the Corporation (whether voluntary
or involuntary):
(1) The holders of the issued and outstanding shares of the Class A
common stock shall be entitled to receive out of the assets available for
distribution, before any distributions to the holders of any other lass of
stock, a sum equal to one one-hundredth of one percent (0.01%) of the fair
market value of the Corporation, determined as of June 30, 1985, per share, and
no more. The fair market value of the Corporation as of June 30, 1985 shall be
determined by the Board of Directors, by means of a resolution to be filed with
the records of this Corporation. Once made, the determination of the Board of
Directors shall be final and conclusive, and binding on all persons interested
herein.
<PAGE>
(2) The holders of the issued and outstanding shares of the Class B
Common stock shall be entitled to receive the remaining assets and share in them
pro rata.
(b) Voting Rights.
-------------
(1) Unless otherwise provided herein or required by applicable law,
each share of Class A Common stock shall entitle the holder thereof to one (1)
vote in all proceedings in which action shall be taken by stockholders of the
Corporation.
(2) Unless otherwise provided herein or required by applicable law,
the Class B Common stock shall be non-voting.
(c) No Other Differences. Except as hereinbefore provided, the Class A
--------------------
Common stock and the Class B Common stock of the Corporation shall be identical
in all respects."
ARTICLE THIRD
The amendment of the charter of the Corporation as hereinabove set forth
has been duly advised by the Board of Directors and approved by the stockholders
of the Corporation.
ARTICLE FOURTH
(a) The total number of shares of stock of the Corporation heretofore
authorized was One Thousand (1,000) shares consisting of Common stock with no
par value.
(b) The total number of shares of all classes of the stock of the
Corporation authorized, as increased, is Thirty Thousand (30,000) shares having
an aggregate par value of Thirty Thousand Dollars ($30,000) divided into Ten
Thousand (10,000) shares of Class A Common stock of the par value of One Dollar
($1.00) per share having an aggregate par value of Ten Thousand Dollars
($10,000); and Twenty Thousand (20,000) shares of Class B Common stock of the
par value of One Dollar ($1.00) per share having an aggregate par value of
Twenty Thousand Dollars ($20,000). A description of each class of stock of the
Corporation, as amended, with the preferences, voting powers, dividends,
qualifications, restrictions, and other rights is contained in Articles SECOND
and THIRD hereof.
ARTICLE FIFTH
After the effective date of the amendment contained in Articles SECOND and
THIRD hereof, each holder of an outstanding certificate or certificates
theretofore representing shares of the Corporation's previously authorized
Common stock shall surrender the same to the Corporation and shall receive for
each such share of Common stock in exchange therefor certificates representing
shares of the Corporation's stock as follows:
2
<PAGE>
(i) one hundred (100) shares of Class A Common stock, and
(ii) ninety-six (96) shares of Class B Common stock.
Upon the surrender and exchange of the Corporation's previously authorized
Common stock, all such Common stock then held by the Corporation shall be
canceled.
IN WITNESS WHEREOF, T.J.B., Inc. has caused these presents to be signed in
its name and on its behalf by its President and attested by its secretary on
this 2nd day of October, 1985.
ATTEST: T.J.B., INC.
/s/ Warren S. Teitelbaum
________________________________ --------------------------------
Warren S. Teitelbaum,
Secretary President
THE UNDERSIGNED, President of T.J.B., Inc., who executed on behalf of said
Corporation, the foregoing Articles of Amendment, of which this certificate is
made a part, hereby acknowledges, in the name and on behalf of said Corporation,
the foregoing Articles of Amendment to be the corporate act of said Corporation
and further certifies that, to the best of his knowledge, information and
belief, the matters and facts set forth therein with respect to the approval
thereof are true in all material respects, under the penalties of perjury.
/s/ Warren S. Teitelbaum
--------------------------------
Warren S. Teitelbaum,
President
3
<PAGE>
ARTICLES OF AMENDMENT AND RESTATEMENT
OF
T. J. B., INC.
Approved and received for record by the State Department of Assessments and
Taxation of Maryland March 13, 1987 at 10:59 o'clock A.M. as in conformity with
law and ordered recorded.
________________________
<TABLE>
<CAPTION>
Organization & Recording Fee Paid Special Fee Paid
Capitalization Paid
<S> <C> <C>
$ 20.00 $ 20.00 $----------------
</TABLE>
To the Clerk of the Circuit Court of Baltimore City:
It is hereby certified, that the within instrument, together with all
indorsements thereon, has been received, approved and recorded by the State
Department of Assessments and Taxation of Maryland.
<PAGE>
T.J.B., INC.
ARTICLES OF AMENDMENT AND RESTATEMENT
-------------------------------------
T.J.B., INC., a Maryland corporation (hereinafter referred to as the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland as follows:
FIRST: The Corporation desires to amend and restate its Article of
Incorporation as currently in effect. The provisions set forth in these
Articles of Amendment and Restatement are all the provisions of the Articles of
Incorporation of the Corporation currently in effect.
SECOND: The Articles of Incorporation of the Corporation are amended by
these Articles of Amendment and Restatement by deleting, in their entirety, all
of the provisions of the Articles of Incorporation and by inserting, in lieu
thereof, the following provisions:
"FIRST: The name of the Corporation (which is hereinafter called the
"Corporation") is "T.J.B., INC.".
"SECOND: The purposes for which the Corporation is formed are:
(a) To create, manufacture, buy, sell, lease and trade,
wholesale or retail, bedding supplies, including but not limited to
mattresses, bedsprings, sheets and other household furnishings of all
forms, shapes and uses.
(b) To engage in any other lawful purpose and/or business;
(c) and to have all powers permitted by Section 2-103 of the
Corporations and Associations Articles of the Maryland Annotated Code,
--------------
as amended from time to time".
"THIRD: The address of the principal office of the Corporation in
this State is 9 West Mulberry Street, Baltimore, Maryland 21201. The name
and address of the resident agent of the Corporation are John R.
Francomano, 9 West Mulberry Street, Baltimore, Maryland 21201; and the said
resident agent is a citizen of the State and actually resides therein.
"FOURTH: The total number of shares of capital authorized stock which
the Corporation has authority to issue is five thousand (5,000) shares, all
of one class. The shares of capital stock are without par value.
<PAGE>
"FIFTH: The corporation shall have three (3) directors, and Warren
Teitelbaum, Sam Katz and Steven Lytell shall act as such until their
successors are chosen and qualified. The number of directors of the
Corporation may be increased or decreased pursuant to the By-Laws of the
Corporation but shall never be less than three (3).
"SIXTH: The Board of Directors of the Corporation is hereby empowered
to authorize the issuance from time to time of fully paid and non-
assessable shares, whether now or hereafter authorized, for such
consideration as the Board of Directors may deem advisable. The Board of
Directors by resolution, shall state its opinion of the actual value of any
consideration other than money for which it authorizes shares of stock of
the Corporation to be issued.
"SEVENTH: The duration of the Corporation shall be perpetual."
THIRD: By written informal action, unanimously taken by the Board of
Directors of the Corporation, pursuant to Section 2-408(c) of the Corporations
and Associations Article of the Maryland Annotated Code, the Board of Directors
--------------
of the Corporation approved this Amendment and Restatement of the Articles of
Incorporation of the Corporation. By written informal action, unanimously taken
by the stockholders of the Corporation, pursuant to Section 2-505 of the
Corporations and Associations Article of the Maryland Annotated Code, the
--------------
stockholders of the Corporation approved this Amendment and Restatement of the
Articles of Incorporation of the Corporation.
IN WITNESS WHEREOF, the Corporation has caused these presents to be signed
in its name and on its behalf by its President and its corporate seal to be
hereunder affixed and attested by its Secretary on December 1, 1986, and the
President acknowledges that these Articles of Amendment and Restatement are the
act and deed of the Corporation and, under the penalties of perjury, that the
matters set forth herein with respect to authorization and approval are true in
all material respects to the best of his knowledge, information and belief.
ATTEST: T.J.B., INC.
/s/ Steven Lytell /s/ Warren S. Teitelbaum
- ---------------------------- ---------------------------------------
Steven Lytell, Secretary Warren S. Teitelbaum, President
Corporate Seal
2
<PAGE>
CHANGE OF RESIDENT AGENT'S ADDRESS
OF
T. J. B., INC.
Approved and received for record by the State Department of Assessments and
Taxation of Maryland October 29, 1992 at 10:39 o'clock A.M. as in conformity
with law and ordered recorded.
________________________
<TABLE>
<CAPTION>
Organization & Recording Fee Paid Special Fee Paid
Capitalization Paid
<S> <C> <C>
$ $ 10.00 $-------------
</TABLE>
________________________
D0984435
To the Clerk of the Court of Baltimore City:
It is hereby certified, that the within instrument, together with all
indorsements thereon, has been received, approved and recorded by the State
Department of Assessments and Taxation of Maryland.
RETURN TO:
FRANCOMANO KARPOOK & SIEMS
ATTN: JOHN FRANCOMANO
20 SOUTH CHARLES ST.
BALTIMORE, MD. 2120-1-1217
<PAGE>
[LETTERHEAD OF FRANCOMANO, KARPOOK & SIEMS]
October 27, 1992
CERTIFIED MAIL, RETURN
RECEIPT REQUESTED
State of Maryland
Department of Assessment & Taxation
301 West Preston Street
Baltimore, Maryland 21201
Re: Change of Address for
Resident Agent for T.J.B., Inc.
Dear Sir:
Notice is hereby given by the undersigned of the change of his post office
address from a West Mulberry Street, Baltimore, Maryland as resident agent of
T.J.B., Inc. to address on this stationery take effect on September 1, 1992.
Very truly yours,
John R. Francomano
JRF:rm
<PAGE>
Written Consent in Lieu of a Special Meeting
of The Board of Directors of
T.J.B., Inc.
The undersigned, being all the members of the Board of Directors of T.J.B.,
Inc. (the Company), a Maryland corporation, acting by written consent in
accordance with the Maryland General Corporation Law, hereby approve the
following resolutions:
Resolved, That the name and address of the resident agent
[and the principal office address] of the Corporation in the
State of Maryland (formerly John R. Francomano, 20 South
Charles Street, Baltimore, Maryland 21201) shall henceforth
be The Corporation Trust Incorporated, 32 South Street,
Baltimore, Maryland 21202, [resident agent, and 4822 Fallard
Ct., Upper Marlboro, MD 20772, principal office].
Resolved Further, That the officers and agents of the
Corporation are hereby authorized and directed to take all
actions required to effectuate the foregoing resolutions,
including filing of the proper form or forms with the
Maryland State Department of Assessments and Taxation.
Dated: 4/25/97 /s/ Warren S. Tietelbaum
____________________, 1997 -----------------------------------
Warren S. Teitelbaum
Dated: 4/25/97 /s/ Steven Lytell
____________________, 1997 -----------------------------------
Steven Lytell
<PAGE>
CHANGE OF RESIDENT AGENT & ADDRESS AND PRINCIPAL OFFICE
OF
T.J.B., INC.
Approved and received for record by the State Department of Assessments and
Taxation of Maryland May 9, 1997 at 8:00 o'clock A.M. as in conformity with law
and ordered recorded.
_______________________
<TABLE>
<CAPTION>
Organization & Recording Fee Paid Special Fee Paid
Capitalization Paid
<S> <C> <C>
$ $ 10.00 $-------------
</TABLE>
_______________________
D0984435
It is hereby certified, that the within instrument, together with all
indorsements thereon, has been received, approved and recorded by the State
Department of Assessments and Taxation of Maryland.
ARENT FOX KITNER PLOTKIN & KAHN
BETH MCCARTNEY
1050 CONNECTICUT AVENUE, NW
WASHINGTON DC 20036-5339
<PAGE>
ARTICLES OF MERGER
OF
T.J. MERGER SUBSIDIARY CORPORATION
(A MD CORP.)
INTO
T.J.B., INC.
(A MD CORP.) SURVIVOR
Approved and received for record by the State Department of Assessments and
Taxation of Maryland July 1, 1997 at 3:01 o'clock P.M. as in conformity with law
and ordered recorded.
_______________________
<TABLE>
<CAPTION>
Organization & Recording Fee Paid Special Fee Paid
Capitalization Paid
<S> <C> <C>
$ $ 20.00 $-------------
</TABLE>
_______________________
D0984435
It is hereby certified, that the within instrument, together with all
indorsements thereon, has been received, approved and recorded by the State
Department of Assessments and Taxation of Maryland.
MCGUIRE, WOODS, BATTLE & BOOTHE
CECIL E. MARTIN, III
BLAUSTEIN BLDG.,
ONE NORTH CHARLES ST.
BALTIMORE MD 21201-3793
<PAGE>
ARTICLES OF MERGER
Merging
TJB MERGER SUBSIDIARY CORPORATION,
(a corporation of the State of Maryland),
into
T.J.B., INC.
(a corporation of the State of Maryland)
ARTICLE I
The terms and conditions of the Merger Agreement and Plan of Reorganization
(the "Merger Agreement") are as follows:
1. The name of each party to the merger (a "Constituent Corporation") or
collectively, the "Constituent Corporations") and the place of its incorporation
are as follows:
Name of Corporation Jurisdiction
- ------------------------------------- ------------------------------------
TJB Merger Subsidiary Maryland
Corporation ("Merger Sub")
T.J.B., Inc. ("TJB") Maryland
2. Merger Sub and TJB agree that Merger Sub shall be merged into TJB, and
that TJB shall be the successor corporation of the merger.
3. The effective time of the merger is 11:59 p.m., eastern time, on July
1, 1997 (the "Effective Time").
4. TJB's Articles of Incorporation and By-laws as they exist on the
Effective Time shall be and remain the Articles of Incorporation and By-laws of
the surviving corporation until such Articles of Incorporation or By-laws shall
be amended as therein provided.
5. Upon the Effective Time, each outstanding share of the common stock of
Merger Sub shall be canceled and converted into the right to receive one share
of the common stock of TJB, and each outstanding share of the common stock of
TJB shall be canceled and converted into the right to receive 75.0937778 shares
of the common stock of Heilig-Meyers Company, a Virginia corporation, and $18.90
cash in lieu of fractional shares.
<PAGE>
ARTICLE TWO
The total number of shares of all classes that each of the Constituent
Corporations has authority to issue, the number of shares of stock of each
class, the par value of the shares of stock of each class or a statement that
the shares are without par value, the aggregate par value of all the shares of
all classes where the shares of stock have par value, and the designation and
number of outstanding shares entitled to vote, are as follows:
<TABLE>
<CAPTION>
===============================================================================
Total No.
Authorized No. Shares
Shares, All Par Aggregate Outstanding and
Corporation Classes Value/Share par Value Entitled to Vote
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Merger Sub 5000 $.01 $50.00 100
one class
- -------------------------------------------------------------------------------
TJB 5000 no par value -- 4,500
one class
===============================================================================
</TABLE>
ARTICLE THREE
The terms and conditions of the Merger Agreement were advised, authorized,
and approved by each Constituent Corporation in the manner and by the vote
required by its charter and the laws of the State of Maryland, and the merger is
permitted by the laws of the State of Maryland. The manner of approval was as
follows:
The Merger Agreement was duly adopted by resolutions of the
boards of directors and shareholders of each of the Constituent
Corporations by unanimous written consent in lieu of special
meetings, dated as of June 20, 1997 with respect to Merger Sub's
Board of Directors, July 1, 1997 with respect to Merger Sub's
Shareholders, and June 30, 1997 with respect to TJB's Board of
Directors and Shareholders. Such written consents are filed with
the records of the meetings of the Boards of directors and the
shareholders, respectively, of Merger Sub and TJB.
ARTICLE FOUR
1. TJB's principal office within the State of Maryland is located at 9822
Fallard Court, Upper Marlboro, Maryland 20772. The name and address of TJB's
resident agent in the State of Maryland is John R. Francomano, Francomano,
Karpook & Siems, 20 South Charles Street, Sun Life Building, Baltimore, Maryland
21201.
2
<PAGE>
2. Merger Sub's principal office within the State of Maryland is located
at c/o McGuire, Woods, Battle & Boothe, L.L.P., 1300 Blaustein Building, One
North Charles Street, Baltimore, Maryland 21201. The name and address of Merger
Sub's registered agent in the State of Maryland is Cecil F. Martin, III,
McGuire, Woods, Battle & Boothe, L.L.P., 1300 Blaustein Building, One North
Charles Street, Baltimore, Maryland 21201. Merger Sub does not own an interest
in land in Maryland the title to which could be affected by the recording of an
instrument among the land records.
3
<PAGE>
IN WITNESS WHEREOF, each of the corporations party to this merger has
caused these Articles of Merger to be executed in its name by its President, and
attested by its Secretary, dated as of the [1st] day of [July], 1997.
TJB MERGER SUBSIDIARY CORPORATION
a Maryland corporation
ATTEST:
/s/ Paige H. Wilson /s/ William E. Helms
By: ------------------------ By: -------------------------
Name: [Paige H. Wilson] Name: [William E. Helms]
Title: [Secretary] Title: [Sr. Vice Pres.]
T.J.B., INC.
a Maryland corporation
ATTEST:
/s/ Jon M. Studner /s/ Thomas J. Budsock
By: ________________________ By: ________________________
Name: Jon M. Studner Name: Thomas J. Budsock
Title: Secretary Title: Vice President-Finance and
Treasurer
4
<PAGE>
THE UNDERSIGNED, Senior Vice President of TJB Merger Subsidiary
Corporation, a Maryland corporation, who executed on behalf of such corporation
the foregoing Articles of Merger of which this certificate is made a party,
hereby acknowledges in the name of and on behalf of such corporation, the
foregoing Articles of Merger to be the corporate act of such corporation and
hereby certificates that to the best of his knowledge, information and belief
the matters and facts set forth therein with respect to the authorization and
approval thereof are true in all material respects under the penalties of
perjury.
/s/ William E. Helms
By: ------------------------------------
William E. Helms
Senior Vice President
THE UNDERSIGNED, Vice President-Finance and Treasurer of T.J.B., Inc., a
Maryland corporation, who executed on behalf of such corporation the foregoing
Articles of Merger of which this certificate is made a party, hereby
acknowledges in the name of and on behalf of such corporation, the foregoing
Articles of merger to be the corporate act of such corporation and hereby
certifies that to the best of his knowledge, information and belief the matters
and facts set forth therein with respect to the authorization and approval
thereof are true in all material respects under the penalties of perjury.
/s/ Thomas J. Budsock
By: ------------------------------------
Thomas J. Budsock
Vice President-Finance and Treasurer
5
<PAGE>
CHANGE OF ADDRESS OF RESIDENT AGENT
The Corporation Trust Incorporated hereby submits the following for the purpose
of changing the address of the resident agent for the business entities on the
attached list:
1. The name of the resident agent is The Corporation Trust Incorporated.
2. The old address of the resident agent is:
32 South Street
Baltimore, Maryland 21202
3. The new address of the resident agent is:
300 East Lombard Street
Baltimore, Maryland 21202
4. Notice of the above changes are being sent to the business entities on the
attached list.
5. The above changes are effective when this document is filed with the
Department of Assessments and Taxation.
/s/ Kenneth J. Uva
- -------------------------
Kenneth J. Uva
Assistant Secretary
<PAGE>
ARTICLES OF INCORPORATION
OF
T. J. B., INC.
approved and received for record by the State Department of Assessments and
Taxation of Maryland October 10, 1978 at 8:30 o'clock A.M. as in conformity with
law and ordered recorded.
________________________
Bonus tax paid $ 20.00 Recording fee paid $26.00 Special Fee paid $_____________
________________________
To the clerk of the Circuit Court of Prince Georges County
IT IS HEREBY CERTIFIED, that the within instrument, together with all
indorsements thereon, has been received, approved and recorded by the State
Department of Assessments and Taxation of Maryland.
AS WITNESS my hand and seal of the said Department at Baltimore.
<PAGE>
ARTICLES OF INCORPORATION
OF
T. J. B., INC.
THIS IS TO CERTIFY:
FIRST: That we, the subscribers, WARREN TEITELBAUM, whose post office
-----
address is 14700 Baugher Drive, Centerville, Virginia; SAM KATZ, whose post
office address is 7708 Keppel Place, Clinton, Maryland, 20735; and JOANN
TEITELBAUM, whose post office address is 14700 Baugher Drive, Centerville,
Virginia, all being at least twenty-one (21) years of age, do, under and by
virtue of the General Laws of Maryland, authorizing the formation of
corporations, associate ourselves with the intention of forming a corporation.
SECOND: That the name of the corporation (which is hereinafter referred to
------
and called the "Corporation") is:
T. J. B., INC.
THIRD: The purposes for which the Corporation is formed and the business
-----
or objects to be carried on and promoted by it are as follows:
a) To create, manufacture, buy, sell, lease, trade, wholesale or
retail, bedding supplies, including but not limited to mattresses, bedsprings,
sheets and other household furnishings of all forms, shapes and uses.
b) To manufacture, purchase or otherwise acquire, hold, mortgage,
pledge, sell, transfer, or in any manner encumber or dispose of goods, wares,
merchandise, implements, and other personal property or equipment of every kind.
c) To purchase, lease or otherwise acquire, hold, develop, improve,
mortgage, sell, exchange, let or in any manner encumber of dispose of real
property wheresoever situated.
d) To carry on and transact for itself or for account of other, the
business of general merchants, general brokers, general agents, manufacturers,
buyers and sellers of, dealers in, importers and exporters of natural products,
raw materials, manufactured products and marketable goods, wares and merchandise
of every description.
e) To purchase, lease or otherwise acquire, all or part of the
property, rights, businesses, contracts, goodwill, franchises and assets of
every kind, or any corporation, co-
<PAGE>
partnership or individual (including the estate of a decedent), carrying on or
having carried on in whole or in part of any of the aforesaid businesses that
the Corporation may be authorized to carry on, and to undertake, guarantee,
assume and pay the indebtedness and liabilities thereof, and to pay for any such
property, rights, businesses, contracts, goodwill, franchises or assets by the
issue, in accordance with the laws of Maryland, of stocks, bonds, or other
securities of the Corporation, or otherwise.
f) To apply for, obtain, purchase, or otherwise acquire any patents,
copyrights, licenses, trademarks, tradenames, rights, processes, formulae, and
the like, which might be used for any of the purposes of the Corporation; and to
use, exercise, develop, grant licenses in respect of, sell and otherwise turn to
account, the same.
g) To purchase or otherwise acquire, hold and re-issue shares of its
capital stock of any class; and to purchase, hold, sell, assign, transfer,
exchange, lease, mortgage, pledge or otherwise dispose of, any shares of stock,
or voting trust certificates for any shares of stock of, or any bonds or other
securities or evidences of indebtedness issued or created by, any other
corporation or association, organized under the laws of the State of Maryland or
of any other state, territory, district, colony or dependency of the United
States of America, or of any foreign country; and while the owner or holder of
any shares of stock, voting trust certificates, bonds or other obligations to
possess and exercise in respect hereof and all rights, powers and privileges of
ownership, including the right to vote on any shares of stock so held or owned;
and upon a distribution of the assets or a division of the profits of the
Corporation to distribute any such shares of stock, voting trust certificates,
bonds, or other obligations, or the proceeds thereof, among the stockholders of
this Corporation.
h) To guarantee the payment of dividends upon any shares of stock of
or the performance of any contract by, any other corporation or association in
which the Corporation has an interest, and to endorse or otherwise guarantee the
payment of the principal and interest, or either, of any bonds, debentures,
notes, securities or other evidence of indebtedness created or issued by any
such corporation or association.
i) To loan or advance money with or without security, without limit
as to amounts and to borrow or raise money for any of the purposes of the
Corporation and to issue shares,
2
<PAGE>
debentures, notes or other obligations of any nature, and in any manner
permitted by law, for money so borrowed or in payment for property purchased, or
for any other lawful consideration, and to secure the payment thereof and of the
interest thereon, by mortgage upon, or pledge or conveyance of assignment in
trust of, the whole of any part of the property of the Corporation, real or
personal, including contract rights, whether of the Corporation or thereafter
requested, and to sell, pledge, discount or otherwise dispose of such bonds,
notes, or other obligations of the Corporation for its corporate purposes.
j) To carry on any of the businesses heretofore enumerated for
itself, or for account of others, or through others for its own account, and to
carry on any other business which may be deemed by it to be calculated, directly
or indirectly, to effectuate or facilitate the transactions of the aforesaid
objects or businesses, or any of them, or any part thereof, or to enhance the
value of its property, business or rights.
k) To carry out all or any part of the aforesaid purposes, and to
conduct its business in all or any of its branches in any or all states,
territories, districts, colonies and dependencies of the United States of
America and in foreign countries; and to maintain offices and agencies, in any
or all states, territories, districts, colonies and dependencies of the United
States of America and in foreign countries.
FOURTH: The post office address of the principal office of the Corporation
------
in this State is 7430 Annapolis Road, Landover Hills, Maryland 20784. The name
and post office address of the Resident Agent of this Corporation in this State
are Sam Katz, 7340 Annapolis Road, Landover Hills, Maryland 20784. Said
Resident Agent is an individual actually residing in the State of Maryland.
FIFTH: The total number of shares of stock which the Corporation has
-----
authority to issue is 1,000 all of which shares are of one class and are
designated common stock, with no par value.
SIXTH: The preferences, qualifications, limitations, restrictions, and
-----
special or relative rights in respect of the shares of each class are as
follows:
The shares of stock of this Corporation are to be held by each holder
thereof upon condition that he will not sell, assign or transfer all or any part
of such shares without first, in writing, offering the same for sale to this
Corporation, and the Corporation shall have the right to
3
<PAGE>
purchase the same, provided it shall give notice in writing to the person
offering the same for sale within thirty (30) days after the receipt of such
written offer, or if no such offer is made, then the Corporation will have the
right to purchase such stock within thirty (30) days after the Corporation has
notice of such attempted sale, assignment or transfer. Such offer, notice and
acceptance may be given by depositing the same in the post office properly
registered and addressed to the Corporation or to such stockholder or his
personal representative at his address as it appears upon the books of the
Corporation.
The price to be paid for the stock by the Corporation in the happening
of the event or things as prescribed above, shall be the book value of the stock
as it appears on the books of the Corporation, as of the time of the last
preceding inventory date.
In case any dispute arises between the stockholder or his legal
representative and the Corporation as to the book value of such stock as herein
before provided, then such book value shall be ascertained in accordance with
the provisions of this Article of the Certificate of Incorporation by a
committee of three (3): one to be appointed by the Board of Directors of the
Corporation, one by the person whose stock is the question of the sale or
dispute (or by his legal representative), and the third, a Certified Public
Accountant, to be appointed by the two members appointed. The decisions of two
members of such committee shall be conclusive and binding upon the Corporation
and the stockholder or his legal representative.
Compliance with the foregoing terms and conditions with regard to the
issuance, holding, sale, assignment or transfer of the shares of stock shall be
construed as a condition precedent to the continued ownership or transfer of
such shares of stock, and as a limitation upon the holders of capital stock of
the Corporation, any future laws of the State of Maryland in any way to the
contrary notwithstanding.
SEVENTH: The number of Directors of the Corporation shall be three (3),
-------
which number may be increased pursuant to the By-Laws of the Corporation, but
shall never by less than three (3). The names of the Directors who shall act
until the first annual meeting or until their successors are duly chosen and
qualified are:
Warren Teitelbaum
4
<PAGE>
Sam Katz
Joann Teitelbaum
EIGHTH: The following provisions are hereby adopted for the purpose of
------
defining, limiting, and regulating the powers of the Corporation and of the
Directors and Stockholders:
a) The Board of Directors of the Corporation is hereby empowered to
authorize the issuance from time to time of shares of its stock, for such
consideration as said Board of Directors may deem advisable, irrespective of the
value or amount of such consideration, but subject to such limitations and
restrictions, if any, as may be set forth in the By-Laws of the Corporation.
b) No contract or other transaction between this Corporation and any
other corporation, and no act of this Corporation shall in any way be affected
or invalidated by the fact that any of the Directors of this Corporation are
pecuniarily or otherwise interested in, or are directors or officers of, such
other corporation; any directors, individually, or any firm of which any
directors may be a member, may be a party to, or may be pecuniarily or otherwise
interested in, any contract or transactions of this Corporation, provided that
the fact that he or such firm is so interested shall be disclosed or shall have
been known to the Board of Directors or a majority thereof; and any Director of
this Corporation who is also a director or officer of such other corporation or
who is so interested may be counted in determining the existence of a quorum at
any meeting of the Board of Directors of this Corporation, which shall authorize
any such contract or transaction, with like force and effect as if he were not
such Director or officer of such other corporation or not so interested.
c) The Board of Directors shall have power, subject to any
limitations or restrictions herein set forth or imposed by laws to classify or
re-classify any unused shares of stock, whether now or hereafter authorized, by
fixing or altering any one or more respects, from time to time before issuance
of such shares, the preferences, rights, voting powers, restrictions and
qualifications of the dividends on, the times and prices of redemptions of, and
the conversion of rights of such shares.
d) The Board of Directors shall have power to declare and authorize
the payment of stock dividends, whether or not payable in stock of one class to
holders of another class or classes; and shall have authority to exercise,
without a vote of stockholders, all powers of the Corporation,
5
<PAGE>
whether conferred by law or by these Articles to purchase, lease or otherwise
acquire the business, assets, or franchises, in whole or in part, of other
corporations or unincorporated business entities.
NINTH: The Corporation reserves the right from time to time to make any
-----
amendment of its charter, new or hereafter authorized by law, including any
amendment which alters the contract rights, as expressly set forth in the
charter, of any outstanding stock.
IN WITNESS WHEREOF, we have signed these Articles of Incorporation on this
25th day of August, 1978.
WITNESS:
/s/ Warren Teitelbaum
- --------------------------------- ----------------------------------(SEAL)
Warren Teitelbaum
/s/ Sam Katz
- --------------------------------- ----------------------------------(SEAL)
Sam Katz
/s/ Joann Teitelbaum
- --------------------------------- ----------------------------------(SEAL)
Joann Teitelbaum
6
<PAGE>
STATE OF MARYLAND )
: SS:
COUNTY OF PRINCE GEORGE'S )
I HEREBY CERTIFY that on this 25th day of August, 1978 before me, the
subscriber, a Notary Public in and for the State and County aforesaid,
personally appeared WARREN TEITELBAUM, who made oath in due form of law that the
matters and facts contained in the foregoing Articles of Incorporation are true
and correct to the best of his knowledge, information and belief.
/s/
________________________________________
Notary Public
My Commission Expires:
(SEAL)
STATE OF MARYLAND )
: SS:
COUNTY OF PRINCE GEORGE'S )
I HEREBY CERTIFY that on this 25th day of August, 1978 before me, the
subscriber, a Notary Public in and for the State and County aforesaid,
personally appeared SAM KATZ, who made oath in due form of law that the matters
and facts contained in the foregoing Articles of Incorporation are true and
correct to the best of his knowledge, information and belief.
/s/
________________________________________
Notary Public
My Commission Expires:
(SEAL)
7
<PAGE>
STATE OF MARYLAND )
: SS:
COUNTY OF PRINCE GEORGE'S )
I HEREBY CERTIFY that on this 25th day of August, 1978 before me, the
subscriber, a Notary Public in and for the State and County aforesaid,
personally appeared JOANN TEITELBAUM, who made oath in due form of law that the
matters and facts contained in the foregoing Articles of Incorporation are true
and correct to the best of her knowledge, information and belief.
/s/
________________________________________
Notary Public
My Commission Expires:
(SEAL)
8
<PAGE>
EXHIBIT 3.6
T.J.B., INC.
OFFICER'S CERTIFICATE
---------------------
Pursuant to Section 5.2(b) of that certain Transaction Agreement dated as
of May 28, 1999, as amended (the "Transaction Agreement"), by and among Heilig-
---------------------
Meyers Company, Heilig-Meyers Associates, Inc. and MD Acquisition Corporation,
the undersigned officer of T.J.B., Inc. (the "Company") does hereby certify that
-------
annexed hereto as Exhibit A is a true, accurate and complete copy of the bylaws
of the Company.
T.J.B., INC.
By: /s/ Paige H. Wilson
--------------------
Name: Paige H. Wilson
Title: Secretary
Dated: August 6, 1999
<PAGE>
BY-LAWS
OF
T.J.B., INC.
------------
ARTICLE I
---------
Stockholders
------------
Section 1. The Annual Meeting of the Stockholders of the Corporation shall
---------
be held at such time as may be designated by the Board of Directors and such
annual meeting shall be held not before the expiration of thirty (30) days nor
more than sixty (60) days after the close of the fiscal year of the Corporation.
Notice of all annual meetings shall be given in the same manner as provided for
with respect to special meetings, as set out in the next Section of these By-
Laws. The business to be transacted at the annual meeting shall include the
election of Directors, consideration and action upon the reports of the
Directors and Officers and any other business within the power of the
Corporation. All annual meetings shall be general meetings.
Section 2. At any time in the interval between regular meetings, special
---------
meetings of the Stockholders may be called by the President or Vice-President,
or by a majority of the Board of Directors, upon ten (10) days written notice
from the Secretary of the Corporation, stating the place, day and hour of such
meeting and the business proposed to be transacted thereat; such notice shall be
given to each Stockholder by leaving same with him or at his residence or usual
place of business, or by mailing it, postage prepaid, and addressed to him at
his address as it appears on the books of the Corporation and no business shall
be transacted at said meetings except that especially named in the notice.
Section 3. Upon the request, in writing, delivered to the President,
---------
Secretary or any Director by the holders of the majority of all shares of stock
outstanding and entitled to vote, it shall be the duty of such President,
Secretary or Director to forthwith call a meeting of the Stockholders.
Section 4. At any special meeting of the Stockholders called in the manner
---------
provided for by this ARTICLE, any officer, director or directors may, by a vote
of a majority of all shares of stock outstanding and entitled to vote, be
removed from office, and another or others appointed in his or their place to
serve for the remainder of his or their terms.
Section 5. At each meeting of Stockholders, a full, true and complete
---------
list, in alphabetical order of the names of all Stockholders entitled to vote at
such meeting shall be provided or made available by the Secretary of the
Corporation for use in connection with the conduct of such meeting.
1
<PAGE>
Section 6. At all meetings of Stockholders, any Stockholder shall be
---------
entitled to vote by proxy. Such proxy shall be in writing, dated and witnessed,
but need not be sealed or acknowledged.
Section 7. If, at any annual or special meeting of Stockholders a quorum
---------
shall fail to attend, a majority interest, attending in person or by proxy, may
adjourn the meeting, and reconvene from time to time, not exceeding ninety (90)
days in all, and thereupon any business may be transacted, which might have been
transacted at the meeting originally called, and had the same been held at the
time so called.
Section 8. At all meetings of Stockholders, the proxies shall be filed
---------
with and be verified by the Secretary of the Corporation, or if the meeting
shall so decide, by the Secretary of the meeting.
Section 9. All meetings of the Stockholders shall be held at the principal
---------
office of the Corporation, in the State of Maryland, or at any other place
within or without the State of Maryland, as may be fixed by the party or parties
making the call and stated in the notice thereof. An affirmative vote of a
majority of all stock outstanding and entitled to vote shall be required at all
meetings for all votes or the transaction of any business, unless otherwise
required by these By-Laws or by law.
Section 10. If the entire Board of Directors becomes vacant, any
----------
Stockholder may call a Special Meeting of the Stockholders, in the same manner
that the President may call such meeting, and directors for the unexpired term
may be elected at the said special meeting, in the manner provided for their
election at annual meetings.
Section 11. At all meetings of Stockholders, the order of business shall
----------
be, as far as practicable, as follows:
(a) Organization;
(b) Proof of Notice of Meeting;
(c) Reading of list of Stockholders;
(d) Reading of minutes of preceding meeting;
(e) Election of Directors;
(f) Unfinished business; and
(g) New business.
Section 12. In lieu of a formal meeting, any action of the Stockholders
----------
may be taken pursuant to Section 2-505 of the Corporations and Associations
Article of the Annotated Code of Maryland.
2
<PAGE>
ARTICLE II
Board of Directors
Section 1. The Board of Directors shall have the control and management of
---------
the affairs, business and properties of the Corporation. They shall have and
exercise, in the name of the Corporation and on behalf of the Corporation, all
the rights and privileges legally exercisable by the Corporation, except as
otherwise provided by law, by the Articles of Incorporation or by these By-Laws.
Section 2. The number of Directors of the Corporation shall be two (2) or
---------
such greater or lesser number, as the Board of Directors may, from time to time
within the limits permitted by law, determine. The first Directors of the
Corporation shall hold their office until the first annual meeting, or until
their successors are elected and qualified, and thereafter the Directors shall
hold the office for the term of one year or until their successors are elected
and qualified.
Section 3. If the office of a Director becomes vacant, the remaining
---------
Directors shall elect a successor to hold office for the unexpired portion of
the term of the Director whose place shall become vacant and until his successor
shall have been duly chosen and qualified.
Section 4. The Board shall meet for the election of officers and for any
---------
other business immediately after the adjournment of the annual meeting of the
Stockholders.
Section 5. Regular meetings of the Board of Directors may be held on such
---------
dates as may be fixed from time to time by the Board of Directors, and special
meetings of the Board may be called by the President or by any two (2)
Directors. At least three (3) days' notice shall be given of all special
meetings; with the consent of the majority of the Directors, a shorter notice
may be given.
Section 6. Notices of all meetings of Directors may be left at their
---------
residences or usual places of business, or be sent by mail or telegram, and such
notices by mail or telegram shall be deemed to have been given when sent or
mailed at the principal office of the Corporation.
Section 7. Regular or special meetings of the Board of Directors may be
---------
held at such place, within or without the State of Maryland, as the Board may,
from time to time, determine. The time and place of meetings may be fixed by
the party making the call.
Section 8. The Board of Directors may adopt such rules and regulations
---------
(not inconsistent with the laws of the State of Maryland or these By-Laws or the
Articles of Incorporation) as it deems proper for the conduct of its meetings
and the management of the affairs of the Corporation.
Section 9. The Board of Directors may appoint an Executive Committee which
---------
shall possess and exercise all the powers which the Board itself may exercise.
3
<PAGE>
Section 10. By resolution of the Board of Directors, a fixed sum and
----------
expense of attendance may be allowed to Directors for attendance at each regular
or special meeting of the Board of Directors of the Committees thereof, but
Directors as such shall not receive any compensation for their services except
such as may be authorized or permitted by vote of the Stockholders. A Director
who serves the Corporation in any other capacity, however, may receive
compensation therefor without vote of the Stockholders.
Section 11. In lieu of a formal meeting, any action of the Board of
----------
Directors or of any committee of the Board may be taken pursuant to Section
2-408(c) of the Corporations and Associations Article of the Annotated Code of
Maryland.
ARTICLE III
Section 1. The officers of the Corporation shall consist of a President,
---------
Vice-President, a Secretary and a Treasurer, and such additional Vice-
Presidents, Assistant Secretaries and Assistant Treasurers and other officers as
the Board may from time to time, deem advisable. All of said officers shall be
chosen by the Board and shall hold office during the pleasure of the Board, or
until their successors are chosen and qualified. The President shall be chosen
from among the Directors. Any two offices, except those of President and Vice-
President, or Secretary and Assistant Secretary, or Treasurer and Assistant
Treasurer, may be held by the same person. The Board of Directors, from time to
time, may appoint such other agents or employees, with such powers and duties as
they may deem proper.
President
---------
Section 2. The President shall be the Chief Executive officer of the
---------
Corporation; he shall preside at all meetings of the Board of Directors and,
subject to the direction and control of the Board of Directors, shall have the
general management and direction of the Corporation's business in all
departments. He shall require proper officers and employees to keep books of
account containing a complete record of the transactions of the Corporation, so
that at the end of each fiscal year, or more frequently, upon the order of the
Board of Directors or Stockholders, the true financial condition of the
Corporation may he accurately ascertained. He shall sign all special contracts
of the Corporation. He shall perform such other duties as the Board of Directors
may direct.
Vice-President
--------------
Section 3. The Vice-President, as so designated by the Board of Directors,
---------
shall have all powers and perform all the duties of the President in case of his
absence or inability to act. He shall perform such other duties as the Board of
Directors may direct.
4
<PAGE>
Treasurer
---------
Section 4. of the Corporation and shall have general supervision over its
---------
finances. He shall perform such other duties as may be assigned to h 7 m by the
Board of Directors.
Secretary
---------
Section 5. The Secretary snail Keep the minutes of one meeting of the
---------
Stockholders and of the Board of Directors. He shall attend to the giving of
and service of notices of the Corporation required by law or these By-Laws. He
shall perform such other duties as may be assigned to him by the Board of
Directors.
Assistant Treasurers
and
Assistant Secretaries
---------------------
Section 6. The Assistant Treasurers and Assistant Secretaries and other
---------
officers shall perform such duties as may, from time to time, be assigned to
them by the Board of Directors or by the President.
Section 7. The Board of Directors may, from time to time, in the absence
---------
of any one of said officers or at any other time, designate any other person or
persons, on behalf of the Corporation, to sign any contracts, deeds, or other
instruments, in the place or stead of any one of said officers, and may
designate any person to fill any one of said offices temporarily or for any
particular purpose; and any instrument so signed, in accordance with a
resolution of the Board, shall be the valid act of this Corporation as fully as
if executed by any regular officer.
ARTICLE IV
----------
Resignation
-----------
Section 1. Any Director or officer may resign his office at any time.
---------
Such resignation shall be made in writing and shall take effect from the time of
its receipt by the Corporation, unless some other time be fixed in the
resignation, and then from that date. The acceptance of a resignation shall not
be required to make it effective.
5
<PAGE>
ARTICLE V
---------
Checks, Drafts, Loans, Etc.
---------------------------
Section 1. The President or Treasurer shall have authority to borrow money
---------
on behalf of the Corporation, to sell, discount or otherwise dispose of notes,
drafts and commercial paper of all kind and to cause the Corporation to make and
endorse promissory notes, to draw, accept or endorse drafts and generally to
execute and accept commercial paper either as maker or acceptor or endorser. The
execution and signing on behalf of this Corporation either as maker, acceptor,
endorser or otherwise of all notes, drafts, acceptances or other commercial
paper shall be by the signature of the President or Treasurer or executed in
such other manner as a majority of the Board of Directors may from time to time
determine.
All endorsements for collections or deposit may be made by the President,
or the Treasurer. All checks on the Corporation's bank account shall be signed
by the President, or the Treasurer, or executed in such other manner as the
Board of Directors may designate.
The Board of Directors may, from time to time, and at any time, designate
any person or persons, either alone or with others, to sign checks on any of
this Corporation's bank accounts and may also designate the manner in which said
checks shall be signed.
Section 2. No officer of this Corporation shall, except as otherwise
---------
provided by the Board of Directors, in the name of the Corporation, sign,
endorse, or otherwise make the Corporation a party to any accommodation paper.
This prohibition shall not, however, be construed to include the discount or
endorsement of customers' commercial paper.
ARTICLE VI
----------
Fiscal Year
-----------
Section 1. The Fiscal Year of the Corporation shall be as designated by
---------
the Board of Directors.
Section 2. The Board of Directors shall, from time to time, fix and vary
---------
the amount of working capital of the Corporation and determine what portion of
the surplus or net profits shall be reserved as working capital or declared as
dividends and distributed to the Stockholders.
6
<PAGE>
ARTICLE VII
-----------
Contracts, Deeds, Etc.
----------------------
Section 1. All contracts made in the conduct of the ordinary business of
---------
the Corporation for purchases and sales may be signed by the officer having
authority to transact the business or within the scope of whose duties the
transaction may, in each particular instance, fall.
Section 2. The President or the Vice-President, together with the
---------
Secretary or Treasurer, is authorized to sign and affix the seal of the
Corporation to and deliver any contracts, deeds or other instruments in writing
to be executed by or on behalf of the Corporation.
The Board of Directors may, at any time, authorize or designate any other
officer of this Corporation to execute and deliver on behalf of the Corporation
any contract of any character whatever and such person shall be as fully
authorized and the contract shall he as obligatory upon the Corporation as if
signed by the appropriate permanent officer of the Corporation.
ARTICLE VII
-----------
Section 1. The Seal of the Corporation shall be a disc inscribed with the
---------
words: T.J.B., INC. - MARYLAND - 1978 - as per specimen affixed hereto.
ARTICLE IX
----------
Issue, Transfer and the Redemption of Stock
-------------------------------------------
Section 1. All certificates of Stock shall be signed by the President or
---------
Vice-President, and by the Treasurer or the Secretary, and sealed with the seal
of the Corporation.
Section 2. All transfers of stock shall be made on the books of the
---------
Corporation by the holder of the shares in person or by his attorney upon
surrender and cancellation of certificates for a like number of shares.
Section 3. The Board of Directors shall have the power and authority to
---------
make all such rules and regulations as they may deem expedient concerning the
issue, transfer and registration of certificates of stock, and may appoint a
transfer agent and a registrar of transfer.
Section 4. The Corporation shall be entitled to treat the holder of record
---------
of any share or shares of stock as the holder in fact thereof, and accordingly,
shall not be bound to recognize any equitable or other claim to or interest in
such share on the part of any other person, whether or not it shall have express
or other notice thereof, except as otherwise provided by law.
7
<PAGE>
Section 5. The stock transfer books shall be closed for the payment of
---------
dividends during such period, if any, as from time to time may be fixed by the
Board of Directors, and during such period no stock shall he transferable.
Section 6. The Board of Directors may fix the time, not exceeding twenty
---------
(20) days preceding the date of any meeting of Stockholders, any dividend
payment date or any date for the allotment of rights, during which the books of
the Corporation shall be closed against transfers of stock, or the Board of
Directors may fix a date not exceeding twenty (20) days preceding the date of
any meeting of Stockholders, any dividend payment or any date for the allotment
of rights, as a record date for the determination of the Stockholders entitled
to notice of and to vote at such meeting, or entitled to receive such dividends
or rights, as the case may be, and only Stockholders of record on such dates
shall be entitled to notice and to vote at such meeting or to receive such
dividends or rights, as the case may be.
Section 7. In case any certificates of stock are lost, mutilated or
---------
destroyed, the Board of Directors may issue a new certificate in place thereof
upon indemnity to the Corporation against loss and upon such other terms and
conditions as the Board of Directors may deem advisable.
ARTICLE X
---------
Section 1. Whenever by law or these By-Laws notice is required to be
---------
given to any director, officer or Stockholder it shall not be construed to mean
personal notice, but such notice may be given by telegram or in writing by
depositing the same in the post office or in a letter box, in a postpaid, sealed
wrapper, addressed to such director, officer or stockholder at his or her
address as the same appears on the books of the Corporation; and the time when
the written notice shall be mailed or the telegram sent shall be deemed to be
the time of the giving of such notice.
Section 2. Any notice of a Stockholders' meeting or of a meeting of the
---------
Board of Directors shall be considered to have been given when the Secretary
files a certificate to that effect, and the said certificate of the Secretary
shall be conclusive evidence that such notice was given in the absence of a
fraudulent intent on the part of the Secretary.
Section 3. Any Stockholder or Director may waive in writing any notice
---------
required to be given under these By-Laws.
ARTICLE XI
----------
Amendments
----------
Section 1. These By-Laws may be added to, altered, amended, repealed or
---------
suspended by a majority vote of the entire Board of Directors at any regular
meeting of the Board or at any special meeting called for that purpose. Any
action of the Board of Directors in adding to, altering, amending, repealing or
suspending these By-Laws shall be reported to the Stockholders at the next
8
<PAGE>
meeting of the Stockholders and may be changed or rescinded by a majority of the
votes entitled to be cast at any such meeting. In no event shall the Board of
Directors have any power to amend this Article. These By-Laws may also be added
to, altered, amended, repealed or suspended by a majority of the votes of
Stockholders entitled to be cast at any annual or special meeting of
Stockholders called for that purpose.
ARTICLE XII
-----------
Indemnification
---------------
Section 1. Any person who is serving or has served as a director or
---------
officer of the Corporation, or at its request as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise in which it owns a capital interest or of which it is a creditor,
shall be indemnified by the Corporation against judgments, fines, liabilities,
costs, amounts paid in settlement, and expenses (including attorney's fees)
actually and reasonably incurred by him in connection with the defense of any
action, suit or proceeding in which he is made a party by reason of being or
having been a director or officer of the Corporation, or a director, officer,
employee or agent of such other corporation except in relation to matters as to
which such person is adjudged in such action, suit or proceeding to be liable
for negligence or misconduct in the performance of duty. For purposes of the
preceding sentence:
(a) "Action, suit or proceeding" shall include every action, suit
or proceeding, civil, criminal, administrative, investigative, or other, and
shall include any action, suit or proceeding that shall be settled or otherwise
terminated as against such director or officer without a final determination of
the merits, if it shall be determined that such director or officer had not been
negligent in the performance of duty, such determination to be made by a
majority of the members of the Board of Directors who are not parties to such
action, suit or proceeding, though less than a quorum, or by any one or more
disinterested persons to whom the question may be referred by the Board of
Directors or by the Stockholders;
(b) the right of indemnification conferred thereby shall extend to
any threatened action, suit or proceeding and the failure to institute it shall
be deemed its final determination;
(c) the termination of an action, suit or proceeding by a plea of
nolo contendere or other like plea shall not constitute a final determination on
the merits;
(d) a judgment of conviction in any criminal action, suit or
proceeding shall not constitute a determination that the person so convicted has
been negligent in the performance of his duties it if is determined by a
majority of the members of the Board of Directors who were not a party thereto,
though less than a quorum, or by one or more disinterested persons to whom the
question may be referred by the Board of Directors that the person so convicted
acted in good faith, for a purpose which he reasonably believed to be in the
best interests of the Corporation and that he had no reasonable cause to believe
that his conduct was unlawful; and
9
<PAGE>
(e) advances may be made by the Corporation against costs, expenses
and fees as, and upon the terms, determined by the Board of Directors. The
Corporation shall indemnify an employee who is not an officer to the same extent
that it does an officer. The foregoing right of indemnification shall not be
exclusive of any other rights to which any director or officer may be entitled
as a matter of law or which may be lawfully granted to him; and the
indemnification hereby granted by the Corporation shall be in addition to and
not in restriction or limitation of any other privilege or power which the
Corporation may lawfully exercise with respect to the indemnification or
reimbursement of directors, officers or employees.
10
<PAGE>
EXHIBIT A
ARTICLE III
OFFICERS
Section 1. Positions. The Corporation's officers shall be chosen by the
Board of Directors and shall consist of a Chairman of the Board (Chairman), a
President, one or more Vice Presidents, a Secretary and a Treasurer. The Board
of Directors may elect two Co- Chief Executive Officers and a Chief Financial
Officer and also may choose such other officers and/or agents as the Board of
Directors from time to time deems necessary or appropriate. The election or
appointment of any officer of the Corporation in itself shall not create
contract rights for any such officer. All officers of the Corporation shall
exercise such powers and perform such duties as from time to time shall be
determined by the Board of Directors. Any two or more offices may be held by the
same person except the offices of President and Vice President.
Section 2. Term of Office; Removal. Each officer of the Corporation shall
hold office at the pleasure of the Board and any officer may be removed, with or
without cause, at any time by the affirmative vote of a majority of the
directors then in office. Removal of an officer by the Board shall not prejudice
the contract rights, if any, of the person so removed. Vacancies (however
caused) in any office may be filled for the unexpired portion of the term by the
Board of Directors.
Section 3. Compensation. The salaries of all officers of the Corporation
shall be fixed from time to time by the Board of Directors, and no officer shall
be prevented from receiving a salary by reason of the fact that he or she also
receives from the Corporation compensation in any other capacity.
Section 4. Chairman of the Board of Directors. The Chairman shall preside
at all meetings of the stockholders and the Board of Directors. Except where, by
law, the signature of the President is required, the Chairman shall possess the
same power as the President to sign all certificates, contracts, and other
instruments of the Corporation which may be authorized by the Board of
Directors.
Section 5. Co-Chief Executive Officer. Each of the Co-Chief Executive
Officers (a) shall have general active management of the business of the
Corporation, (b) shall see that all orders and resolutions of the Board of
Directors are carried into effect, and (c) shall perform such other duties as
are incident to the office and have such other powers as are prescribed by the
Board of Directors from time to time.
Section 6. President. The President shall act for and on behalf of the
Chairman in his absence. The President shall have general supervision of the
affairs of the Corporation, shall sign or countersign all certificates,
contracts or other instruments of the Corporation as authorized by the Board of
Directors, and shall perform and carry out such other duties as are incident to
the office or are assigned to him by the Board of Directors.
<PAGE>
Section 7. Chief Financial Officer. The Chief Financial Officer, if
any, shall be responsible for all financial operations of the Corporation,
including the maintenance of the financial records of the Corporation, tax
planning and filing of tax returns, budgeting and oversight of corporate
expenditures and planning and analysis. The Chief Financial Officer shall be
responsible for the accurate reporting of financial results of operations to the
Board of Directors and stockholders.
Section 8. Vice Presidents. The Vice Presidents shall perform such
duties and have such powers as from time to time may be prescribed by the Board
of Directors.
Section 9. Secretary. The Secretary shall give (or cause to be given)
notice of all meetings of the Stockholders and all special meetings of the Board
of Directors and shall perform such other duties as from time to time may be
prescribed by the Board of Directors. The Secretary shall record all votes and
proceedings of all meetings of the Board of Directors and of the stockholders in
a book to be kept for such meetings of the Board of Directors and of the
stockholders in a book to be kept for such purpose. The Secretary shall have
custody of the seal of the Corporation and shall have authority (as shall the
Assistant Secretary) to affix the same to any instrument requiring it, and to
attest the seal by his or her signature. The Board of Directors may give
general authority to officers other than the Secretary or the Assistant
Secretary to affix the seal of the Corporation and to attest the fixing thereof
by his or her signature.
Section 10. Treasurer. The Treasurer shall have the custody of the
corporate funds, securities, other similar valuable effects and evidences of
indebtedness and shall deposit all moneys and other valuable effects in the name
and to the credit of the Corporation in such depositories as from time to time
may be designated by the Board of Directors. The Treasurer shall disburse the
funds of the Corporation in such manner as may be ordered by the Board of
Directors from time to time and shall render reports to the Chairman and the
Board of Directors, at regular meetings of the Board or whenever either may
require.
Section 11. Assistant Secretary. The Assistant Secretary, if any, in
the absence or disability of the Secretary, shall perform the duties and
exercise the powers of the Secretary. The Assistant Secretary shall perform
such other duties and have such other powers as from time to time may be
prescribed by the Board of Directors or the Chairman.
Section 12. General Counsel. The General Counsel, if any, shall perform
such legal duties as are incident to such office, and have such other powers as
from time to time may be prescribed by the Board of Directors.
<PAGE>
EXHIBIT 3.7
BYLAWS
OF
MD ACQUISITION CORPORATION
BYLAW I - OFFICES
-----------------
The principal office of the Corporation shall be located at 12560 West
Creek Parkway, Richmond, Virginia 23238. The Corporation may have such other
offices, within or without the Commonwealth of Virginia, as the Board of
Directors may designate or as the business of the Corporation may from time to
time require.
BYLAW II - SHAREHOLDERS
-----------------------
1. ANNUAL MEETING.
--------------
The annual meeting of the Shareholders shall be held during the month of
April each year at such hour, on such day, and at such place, within or without
the Commonwealth of Virginia, as fixed by the Board of Directors, for the
purpose of electing Directors and for the transaction of such other business as
may come before the meeting.
2. SPECIAL MEETINGS.
----------------
Unless otherwise required by law, special meetings of the Shareholders may
be called for any purpose or purposes, by the Chairman of the Board of
Directors, by the President or by the Board of Directors, or by the President or
Secretary at the request of a majority of the Board of Directors or the
holder(s) of not less than ten percent (10%) of all outstanding shares of the
Corporation entitled to vote at such meeting.
3. PLACE OF MEETINGS.
-----------------
Unless otherwise required by law, the Board of Directors or the President
may designate in the notice of meeting any place within or without the
Commonwealth of Virginia as the place of meeting for any annual meeting or for
any special meeting. A waiver of notice signed by all Shareholders entitled to
vote at a meeting may designate any place, within or without the Commonwealth of
Virginia, as the place for holding such meeting. If no designation is made or
if a special meeting be otherwise called, the place of meeting shall be the
principal office of the Corporation.
<PAGE>
4. NOTICE OF MEETINGS.
------------------
(a) Unless otherwise required by law, written or printed notice stating
the place, day and hour of the meeting and, in case of a special meeting, the
purpose or purposes for which the meeting is called, shall be delivered not less
than ten (10) nor more than sixty (60) days prior to the date of the meeting,
personally, by mail, or by telegraph, teletype, or other form of recorded
communication, by or at the direction of the President or the Secretary to each
Shareholder of record entitled to vote at such meeting. Notwithstanding the
foregoing, however, notice of a Shareholders' meeting to act on an amendment of
the Articles of Incorporation, a plan of merger or share exchange, a proposed
sale of all or substantially all of the Corporation's assets, or the dissolution
of the Corporation shall be delivered not less than twenty-five (25) nor more
than sixty (60) days prior to the date of the meeting. If mailed, notice of any
Shareholders' meeting shall be deemed to be delivered when deposited in the
United States mail, addressed to the Shareholder at his address as it appears on
the stock transfer books of the Corporation, with postage thereon prepaid.
(b) Waiver of Notice. A Shareholder's attendance at a meeting (1) waives
----------------
objection to lack of notice or defective notice of the meeting, unless the
Shareholder at the beginning of the meeting objects to holding the meeting or
transacting business at the meeting and does not thereafter vote for or assent
to business transacted at such meeting; and (2) waives objection to
consideration of a particular matter at the meeting that is not within the
purpose or purposes described in the meeting notice, unless the Shareholder
objects to considering the matter when it is presented and does not thereafter
vote for or assent to such particular matter.
5. FIXING OF RECORD DATE.
---------------------
For the purpose of determining Shareholders entitled to notice of or to
vote at any meeting of Shareholders or any adjournment thereof, or to receive
payment of any dividend, or in order to make a determination of Shareholders for
any other proper purpose, the Directors of the Corporation may fix in advance a
date as the record date for any such determination of Shareholders, such date in
any case to be not more than seventy (70) days and, in case of a meeting of
Shareholders, not less than ten (10) days prior to the date on which the
particular action requiring such determination of Shareholders is to be taken.
If no record date is fixed for the determination of Shareholders entitled to
notice of or to vote at a meeting of Shareholders, or Shareholders entitled to
receive payment of a dividend, the date on which notice of the meeting is mailed
or the date on which the resolution of the Directors declaring such dividend is
adopted, as the case may be, shall be the record date for such determination of
Shareholders. When a determination of Shareholders entitled to vote at any
meeting of Shareholders has been made as provided in this Paragraph 5 of Bylaw
II, such determination shall apply to any adjournment thereof unless the Board
of Directors fixes a new record date, which it shall do if the meeting is
adjourned to a date more than one hundred twenty (120) days after the date fixed
for the original meeting.
-2-
<PAGE>
6. VOTING LISTS.
------------
The officer or agent having charge of the stock transfer books for shares
of the Corporation shall make, at least ten (10) days before such meeting of
Shareholders, a complete list of the Shareholders entitled to vote at such
meeting, or any adjournment thereof, arranged in alphabetical order, with the
address of and the number of shares held by each, which list, for a period of
ten (10) days prior to such meeting, shall be kept on file at the principal
office of the Corporation and shall be subject to inspection by any Shareholder
at any time during usual business hours. Such list shall also be produced and
kept open at the time and place of the meeting and shall be subject to the
inspection of any Shareholder during the whole time of the meeting. The original
stock transfer book shall be prima facie evidence as to who are the Shareholders
entitled to examine such list or transfer books or to vote at the meeting of
Shareholders. In the event that the requirements of this Section 6 of Bylaw II
are not substantially complied with, the meeting shall, on the demand of any
Shareholder in person or by proxy, be adjourned until the requirements are
complied with.
7. QUORUM.
------
At any meeting of Shareholders 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 Shareholders. If less than said number of
the outstanding shares are represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time without further notice. At
such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted that might have been transacted at the meeting as
originally notified; provided that the day, hour and place of the adjourned
meeting is announced at the meeting before adjournment. If a new record date for
the adjourned meeting is or shall be fixed, pursuant to the terms of these
Bylaws, however, notice of the adjourned meeting shall be given to persons who
are Shareholders as of the new record date. The Shareholders present at a duly
organized meeting may continue to transact business for the remainder of the
meeting and for any adjournment of the meeting, notwithstanding the withdrawal
of enough Shareholders to leave less than a quorum, unless a new record date is
or shall be set for the adjourned meeting.
8. PROXIES.
-------
At all meeting of Shareholders, a Shareholder may vote by proxy executed in
writing by the Shareholder or by his duly authorized attorney-in-fact. Such
proxy shall be filed with the Secretary of the Corporation, or other officer or
agent authorized to tabulate votes before or at the time of the meeting, and
shall be effective when received by the Secretary or such other officer or agent
authorized to tabulate votes.
-3-
<PAGE>
9. VOTING.
------
Each Shareholder entitled to vote in accordance with the terms and
provisions of the Articles of Incorporation and these Bylaws shall be entitled
to one (1) vote, in person or by proxy, for each share of stock entitled to vote
and held by such Shareholder. Upon the demand of any Shareholder, the vote for
Directors and the vote upon any question before the meeting shall be by ballot.
All elections for Directors shall be decided by a plurality of votes cast by the
shares entitled to vote in the election at a meeting at which a quorum is
present; all other questions shall be decided by majority vote of the total
votes cast, except as otherwise provided by the Articles of Incorporation or the
laws of the Commonwealth of Virginia, or by contractual voting agreement by and
among Shareholders.
10. ORDER OF BUSINESS.
-----------------
The order of business at all meetings of the Shareholders shall be as
follows:
1. Roll call.
2. Proof of notice of meeting or waiver of notice.
3. Reading of minutes of preceding meeting.
4. Reports of officers.
5. Reports of Committees.
6. Election of Directors.
7. Unfinished Business.
8. New Business.
11. INFORMAL ACTION BY SHAREHOLDERS.
-------------------------------
Unless otherwise provided by law, any action required or permitted by
Virginia law to be taken at a Shareholders meeting may be taken without a
meeting if the action is taken by all shareholders entitled to vote on the
action. The action shall be evidenced by one or more written consents
describing the action taken, signed by all the Shareholders entitled to vote on
the action, and delivered to the Secretary of the Corporation for inclusion in
the minutes or filing with the corporate records of the Corporation. This
consent in writing may be in the form of a single copy signed by all such
Shareholders or in the form of counterparts signed by any number of Shareholders
provided that all counterparts together shall include all Shareholders entitled
to vote on such action. Any action taken by unanimous written consent shall be
effective according to its terms when all consents are in possession of the
Corporation. A Shareholder may withdraw consent only by delivering a written
notice of withdrawal to the Corporation prior to the time that all consents are
in the possession of the Corporation. Action taken under this Section is
effective as of the date specified therein provided the consent states the date
of execution by each Shareholder.
-4-
<PAGE>
12. INSPECTION RIGHTS.
-----------------
(a) Any Shareholder of the Corporation shall be entitled to inspect and
copy, during regular business hours at the Corporation's principal office, any
of the records of the Corporation described in Bylaw VIII, Section 2 herein
below, provided that he gives the Corporation written notice of his demand at
least five (5) business days before the date on which he wishes to inspect and
copy. The Corporation may impose a reasonable charge, covering the cost of
labor and material, for copies of any documents provided to the Shareholder
pursuant to this Section 12(a) of Bylaw II, provided that such charge may not
exceed the estimated cost of production or reproduction of the records.
(b) A Shareholder of the Corporation may inspect and copy the records of
the Corporation described in Bylaw VIII, Section 2 herein below only if that
Shareholder: (i) has been a Shareholder of record for at least six (6) months
immediately preceding his demand to inspect and copy records of the Corporation,
or is a holder of record of at least five percent (5%) of all of the outstanding
shares of stock of the Corporation, (ii) makes his demand in good faith and for
a proper purpose, (iii) describes with reasonable particularity his purpose and
the records he desires to inspect, (iv) demands to inspect and copy records that
are directly connected with his purpose, and (v) gives the Corporation written
notice of his demand at least five (5) business days before the date on which he
wishes to inspect and copy, then such Shareholder is entitled to inspect and
copy, during regular business hours at a reasonable location specified by the
Corporation, any of the following records of the Corporation: excerpts from
minutes of any meeting of the Board of Directors, records of any action of a
committee of the Board of Directors, while acting in place of the Board of
Directors on behalf of the Corporation, minutes of any meeting of the
Shareholders, records of action taken by the Shareholders or Board of Directors
without a meeting, accounting records of the Corporation, and the record of
Shareholders.
BYLAW III - BOARD OF DIRECTORS
------------------------------
1. GENERAL POWERS.
--------------
The business and affairs of the Corporation shall be managed under the
direction of its Board of Directors. The Directors shall in all cases act as a
Board, and they may adopt such rules and regulations for the conduct of their
meetings and the management of the Corporation as they may deem proper, so long
as the rules and regulations adopted by the Board are not inconsistent with
these Bylaws and the laws of the Commonwealth of Virginia.
2. NUMBER AND TENURE.
-----------------
The Corporation shall initially have one (1) Director. Each Director shall
hold office until the next annual meeting of the Shareholders and until his
successor shall have been elected and shall qualify, or until there is a
decrease in the number of Directors. No individual shall be named or elected as
a Director without his prior consent.
3. REGULAR MEETINGS.
----------------
Regular meetings of the Directors shall be held without other notice than
this Bylaw III immediately after, and at the same place as, each annual meeting
of Shareholders. The Directors may provide, by resolution, the time and place
for the holding of additional regular meetings without other notice than that
provided in such resolution.
-5-
<PAGE>
4. SPECIAL MEETINGS.
----------------
(a) Special meetings of the Directors may be called by or at the request
of the President or any Director. The person or persons authorized to call
special meetings of the Directors may fix the place for holding any special
meeting of the Directors called by them.
(b) Notice of any special meeting shall be given at least twenty-four (24)
hours previously thereto by: (1) written notice delivered personally, or by
telegram, or mailed to each Director at his business address, or (2) oral notice
communicated in person or by telephone. Written notice, if in a comprehensible
form, shall be effective at the earliest of the following: (i) when received,
(ii) five (5) days after its deposit in the United States mail, as evidenced by
the postmark, if mailed postpaid and correctly addressed, or (iii) on the date
shown on the return receipt, if sent by registered or certified mail, return
receipt requested, and the receipt is signed by or on behalf of the addressee.
Oral notice is effective when communicated if communicated in a comprehensible
manner.
(c) Waiver of Notice. The attendance of or participation by a Director at
----------------
a meeting shall constitute a waiver of notice of such meeting, unless the
Director at the beginning of the meeting or promptly upon his arrival objects to
holding the meeting or transacting business at the meeting and does not
thereafter vote for or assent to action taken at the meeting.
5. TELECONFERENCE MEETINGS.
-----------------------
The Board of Directors shall permit any or all Directors to participate in
a regular or special meeting by, or conduct the meeting through the use of, any
means of communication by which all Directors participating may simultaneously
hear each other during the meeting. A Director participating in a meeting by
this means shall be deemed to be present in person at the meeting.
6. QUORUM.
------
At any meeting of the Directors a majority of the Directors shall
constitute a quorum for the transaction of business.
7. MANNER OF ACTING.
----------------
Provided that a quorum is present when a vote is taken, the affirmative
vote of a majority of the Directors present at a meeting shall be the act of the
Board of Directors.
-6-
<PAGE>
8. NEWLY CREATED DIRECTORSHIPS AND VACANCIES.
-----------------------------------------
Newly created directorships resulting from an increase in the number of
Directors and vacancies occurring in the Board for any reason may be filled by a
vote of the Shareholders or by a majority of the Directors then in office, and
if the Directors remaining in office constitute less than a quorum of the Board,
they may fill the vacancy by the affirmative vote of a majority of the Directors
remaining in office. A Director elected to fill a vacancy caused by
resignation, death, or removal shall be elected to hold office until the next
meeting of Shareholders at which Directors are elected. A vacancy that will
occur at a later date, may be filled before the vacancy occurs, but the new
Director may not take office until the vacancy occurs.
9. REMOVAL OF DIRECTORS.
--------------------
Any or all of the Directors may be removed with or without cause by a vote
of the Shareholders holding a majority of the Shares at a meeting of the
Shareholders called expressly for that purpose.
10. RESIGNATION.
-----------
A Director may resign at any time by giving written notice to the Board,
the Board's Chairman, the President or the Secretary of the Corporation. Unless
otherwise specified in the notice, the resignation shall take effect upon
receipt thereof by the Board or such officer, and the acceptance of the
resignation shall not be necessary to make it effective.
11. COMPENSATION.
------------
No compensation shall be paid to Directors, as such, for their services,
but by resolution of the Board a fixed sum and expenses for actual attendance at
each regular or special meeting of the Board may be authorized. Nothing herein
contained shall be construed to preclude any Director from serving the
Corporation in any other capacity and receiving compensation therefor.
12. PRESUMPTION OF ASSENT.
---------------------
A Director of the Corporation who is present at a meeting of the Directors
or a committee of the Board of Directors at which action on any corporate matter
is taken shall be presumed to have assented to the action taken unless he
objects at the beginning of the meeting, or promptly upon his arrival, to
holding the meeting or transacting specified business at the meeting, or he
votes against, or abstains from, the action taken. A Director's right to dissent
to action taken on any corporate matter at a meeting of the Directors or a
committee of the Board of Directors at which the Director is present shall not
apply to a Director who voted in favor of such action.
-7-
<PAGE>
13. EXECUTIVE AND OTHER COMMITTEE.
-----------------------------
If the number of Directors is fixed at more than two (2), then the Board,
by resolution, may designate from among its members an Executive Committee and
other committees, each consisting of two (2) or more Directors. Each such
committee shall serve at the pleasure of the Board.
14. INFORMAL ACTION BY DIRECTORS OR COMMITTEES.
------------------------------------------
Unless otherwise provided by law, any action required to be taken at a
Directors' meeting, or any action that may be taken at a Directors' meeting or a
committee meeting, may be taken without a meeting if each and every Director
entitled to vote on the matter signs one or more written consents setting forth
the action, signed either before or after such action, and such consent is
included in the minutes or is filed with the Corporation records. Action taken
under this Section 14 of Bylaw III is effective when the last Director signs the
consent unless the consent specifies a different effective date, in which event
the action taken is effective as of the date specified therein, provided the
consent states the date of execution by each Director. Such a consent in writing
may be in the form of a single copy signed by all Directors or in the form of
counterparts signed by any number of Directors provided that all counterparts
together shall include the signatures of all of the Corporation's Directors.
15. TRANSACTIONS WITH INTERESTED DIRECTORS.
--------------------------------------
(a) Any transaction with the Corporation in which a Director of the
Corporation has a direct or indirect personal interest (a "conflict of interests
transaction") shall be valid if: (1) the material facts of the transaction and
the Director's interest were disclosed or known to the Board of Directors, or a
committee thereof, and the Board of Directors or such committee authorized,
approved, or ratified the transaction; or (2) the material facts of the
transaction and the Director's interest were disclosed to the Shareholders
entitled to vote and they authorized, approved, or ratified the transaction; or
(3) the transaction was fair to the Corporation.
(b) For the purposes of Section 15(a) of this Bylaw III, the following
definitions shall apply: (1) a Director of the Corporation has an indirect
personal interest in a transaction if: (i) another entity in which he has a
material financial interest or in which he is a General Partner is a party to
the transaction, or (ii) another entity of which he is a Director, officer, or
trustee is a party to the transaction, and the transaction is or should be
considered by the Board of Directors of the Corporation; (2) a conflict of
interest transaction is authorized, approved, or ratified by the Board of
Directors, or a committee thereof, if it receives the affirmative vote of a
majority of the Directors on the Board of Directors, or on such committee, who
have no direct or indirect personal interest in the transaction, provided that
no transaction can be authorized, approved or ratified under this Section 15 of
Bylaw III by a single Director; (3) a quorum of the Board of Directors is
present for the purpose of taking action if a majority of the Directors who have
no direct or indirect
-8-
<PAGE>
personal interest in the transaction vote to authorize, approve, or ratify the
transaction; (4) a conflict of interest transaction is authorized, approved, or
ratified by the Shareholders of the Corporation entitled to vote if the
transaction receives the vote of a majority of the shares entitled to be
counted, provided that shares owned by or voted under the control of a Director
who has a direct or indirect personal interest in the transaction, and shares
owned by or voted under the control of an entity in which such Director has a
material financial interest or in which he is a General Partner may not be
counted in a vote of Shareholders to determine whether to authorize, approve, or
ratify the conflict of interest transaction described in this Section 15 of
Bylaw III; and (5) a quorum of the Shareholders is present for the purpose of
taking action if a majority of the shares, whether or not present, which are
entitled to be counted in a vote on the transaction, is represented.
15. STATEMENT OF BUSINESS AND CONDITION.
-----------------------------------
The Board of Directors shall present at each annual meeting, and, when
called for by the Shareholders at Special Meetings of the Shareholders, a
complete statement of the business and condition of the Corporation.
BYLAW IV - OFFICERS
-------------------
1. NUMBER.
------
The officers of the Corporation shall be a President, any number of Vice
Presidents as shall be deemed advisable, a Secretary and a Treasurer, each of
whom shall be appointed by the Directors. Such other officers and assistant
officers as may be deemed necessary may be appointed by the Directors. Any duly
appointed officer may appoint one (1) or more officers or assistant officers.
The same individual may simultaneously hold more than one office in the
Corporation.
2. ELECTION AND TERM OF OFFICE.
---------------------------
The officers of the Corporation to be appointed by the Directors shall be
appointed annually at the first meeting of the Directors held after each annual
meeting of the Shareholders. Each officer shall hold office until his successor
shall have been duly appointed, or until his death, or until he shall resign, or
shall have been removed in the manner hereinafter provided.
3. REMOVAL.
-------
Any officer or agent appointed by the Directors or by another officer may
be removed by the Directors at any time, with or without cause, when in their
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. Any officer or assistant officer, if appointed by another officer,
may likewise be removed by such officer.
-9-
<PAGE>
4. VACANCIES.
---------
A vacancy in any office because of death, resignation, removal,
disqualification, or otherwise, may be filled by the Directors for the unexpired
portion of the term.
5. CHAIRMAN OF THE BOARD.
---------------------
The Chairman of the Board of Directors, if one be elected, shall preside at
all meetings of the Board of Directors and he shall have and perform such other
duties as from time to time may be assigned to him by the Board of Directors.
6. PRESIDENT.
---------
The President shall be the principal executive officer of the Corporation
and, subject to the control of the Directors, shall in general supervise and
control all of the business and affairs of the Corporation. The President shall
preside at all meetings of the Shareholders and of the Directors (unless, in the
case of the Directors, a Chairman of the Board shall be elected and shall be
present at the meeting). He may sign, with the Secretary or any other proper
officer of the Corporation thereunto authorized by the Directors, certificates
for Shares of the Corporation, any deeds, mortgages, bonds, and contracts, or
other instruments that the Directors have authorized to be executed, except in
cases where the signing and execution thereof shall be expressly delegated by
the Directors or by these Bylaws to some other officer or agent of the
Corporation, or shall be required by law to be otherwise signed or executed; and
in general shall perform all duties incident to the office of President and such
other duties as may be prescribed by the Directors from time to time.
7. VICE PRESIDENT(S).
-----------------
The Board of Directors is authorized to name any number of Vice Presidents
as it shall deem advisable. The Vice Presidents shall perform such duties as
from time to time may be assigned to them by the President or by the Directors.
8. SECRETARY.
---------
The Secretary shall keep the minutes of the Shareholders' and of the
Directors' meetings in one or more books provided for that purpose; see that all
notices are duly given in accordance with the provisions of these Bylaws or as
required; be custodian of the corporate records and of the seal of the
Corporation and keep a register of the post office address of each Shareholder
that shall be furnished to the Secretary by such Shareholder; have general
charge of the stock transfer books of the Corporation; and in general perform
all duties incident to the office of Secretary and such other duties as from
time to time may be assigned to him by the President or by the Directors.
-10-
<PAGE>
9. TREASURER.
---------
If required by the Directors, the Treasurer shall give a bond for the
faithful discharge of his duties in such sum and with such surety or sureties as
the Directors shall determine. He shall have charge and custody of and be
responsible for all funds and securities of the Corporation; receive and give
receipts for moneys due and payable to the Corporation from any source
whatsoever, and deposit all such moneys in the name of the Corporation in such
banks, trust companies, or other depositories as shall be selected in accordance
with these Bylaws; and in general perform all of the duties incident to the
office of Treasurer and such other duties as from time to time may be assigned
to him by the President or by the Directors.
10. SALARIES.
--------
The salaries of the officers shall be fixed form time to time by the
Directors, and no officer shall be prevented from receiving such salary because
he is also a Director of the Corporation.
BYLAW V - CONTRACTS, CHECKS AND DEPOSITS
----------------------------------------
1. CONTRACTS.
---------
The Directors may authorize any officer or officers, agent or agents, to
enter into any contract or 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.
2. CHECKS, DRAFTS, ETC.
-------------------
All checks, drafts, or other orders for the payment of money, notes, or
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 from time to time be determined by resolution of the
Directors.
3. DEPOSITS.
--------
All funds of the Corporation not otherwise employed shall be deposited from
time to time to the credit of the Corporation in such banks, trust companies, or
other depositories as the Directors may select.
-11-
<PAGE>
BYLAW VI - CERTIFICATES FOR SHARES AND THEIR TRANSFER
-----------------------------------------------------
1. CERTIFICATES FOR SHARES.
-----------------------
Certificates representing shares of the Corporation shall be in such form
as shall be determined by the Directors. Such certificates shall be signed by
the President and by the Secretary or by such other officers authorized by law
and by the Directors. All certificates for shares shall be consecutively
numbered or otherwise identified. The name and address of the Shareholders, the
number of shares, and the date of issue shall be entered on the stock transfer
books of the Corporation. All certificates surrendered to the Corporation for
transfer shall be canceled, and no new certificate shall be issued until the
former certificate for a like number of shares shall have been surrendered and
cancelled, except that in case of a lost, destroyed, or mutilated certificate a
new one may be issued therefor upon such terms and indemnity to the Corporation
as the Directors may prescribe.
2. TRANSFERS OF SHARES.
-------------------
(a) Upon surrender to the Corporation or the transfer agent of the
Corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignment, or authority to transfer, it shall be the
duty of the Corporation to issue a new certificate to the person entitled
thereto and to cancel the old certificate; every such transfer shall be entered
on the transfer book of the Corporation, which shall be kept at its principal
office.
(b) The Corporation shall be entitled to treat the holder of record of any
share as the holder in fact thereof, and, accordingly, shall not be bound to
recognize any equitable or other claim to or interest in such share on the part
of any other person whether or not it shall have express or other notice
thereof, except as expressly provided by Virginia law.
BYLAW VII - FISCAL YEAR
-----------------------
The fiscal year of the Corporation shall begin on the first day of January
in each year, or as designated by the Board of Directors.
BYLAW VIII - CORPORATE RECORDS
------------------------------
1. PERMANENT RECORDS, ACCOUNTING RECORDS, SHAREHOLDER RECORDS.
----------------------------------------------------------
The Corporation shall keep at its principal place of business unless
decided otherwise by the Directors of the Corporation, as permanent records,
minutes of all meetings of its Shareholders and Board of Directors, a record of
all actions taken by the Shareholders or Board of Directors without a meeting,
and a record of all actions taken by a committee of the Board of Directors in
place of the Board of Directors on behalf of the
-12-
<PAGE>
Corporation. The Corporation shall maintain appropriate accounting records. The
Corporation or its Registered Agent shall maintain a record of the Shareholders
of the Corporation in a form that permits preparation of a list of the names and
addresses of all Shareholders, in alphabetical order, showing the number of
shares of stock held by each.
2. ADDITIONAL RECORDS.
------------------
In addition to the foregoing records and reports, the Corporation shall
keep a copy of the following records: its Articles of Incorporation or restated
Articles of Incorporation, if any, and any amendments thereto, these Bylaws and
restated Bylaws, if any, and any amendments hereto, resolutions adopted by the
Board of Directors creating one (1) or more classes or series of shares, and
fixing their relative rights, preferences, and limitations, if shares issued
pursuant to such resolutions are outstanding, the minutes of all Shareholders'
meetings and records of all action taken by Shareholders without a meeting for
the past three (3) years, all written communications to Shareholders generally
within the past three (3) years, including the financial statements furnished
for the past three (3) years, a list of the names and business addresses of the
Corporation's current Directors and officers, and its most recent annual report
delivered to the Virginia State Corporation Commission.
BYLAW IX - DIVIDENDS
--------------------
The Directors may from time to time declare, and the Corporation may pay,
dividends on its outstanding shares in the manner and upon the terms and
conditions provided by law.
BYLAW X - SEAL
--------------
The Directors shall provide a corporate seal. The seal will be circular
and inscribed with the name of the Corporation, the state of incorporation, year
of incorporation, and the words, "Corporate Seal."
BYLAW XI - WAIVER OF NOTICE
---------------------------
Unless otherwise provided by law, whenever any notice is required to be
given to any Shareholder or Director of the Corporation under the provisions of
these Bylaws or under the provisions of the Articles of Incorporation, a waiver
thereof in writing, signed by the person or persons entitled to such notice,
whether before or after the time stated therein, shall be deemed equivalent to
the giving of such notice.
BYLAW XII - AMENDMENTS
----------------------
These Bylaws may be altered, amended, or repealed and new Bylaws may be
adopted by a vote of the Shareholders representing a majority of all the voting
shares issued and outstanding, at any annual Shareholders' meeting, at any
special Shareholders'
-13-
<PAGE>
meeting when the proposed amendment has been set out in the notice of such
meeting, or by a majority vote of the total number of Directors then in office.
BYLAW XIII - VOTING OF STOCK IN OTHER CORPORATIONS
--------------------------------------------------
Any stock in other corporations, which may from time-to-time be held by the
Corporation, may be represented and voted at any meeting of shareholders of such
other corporation by the President, Vice President, Secretary or Treasurer, or
by proxy or proxies appointed by the President, Vice President, Secretary or
Treasurer, or otherwise pursuant to authorization thereunto given by a
resolution of the Board of Directors adopted by a vote of the Directors,
BYLAW XIV - INTERPRETATION OF BYLAWS
------------------------------------
All words, terms and provisions of these Bylaws shall be interpreted and
defined by and in accordance with the Virginia Stock Corporation Act, Virginia
Code Section 13.1-601 et. seq., as amended, and as amended from time to time
hereafter.
-14-
<PAGE>
EXHIBIT 4.1
================================================================================
INDENTURE
Dated as of August 6, 1999
Among
MATTRESS DISCOUNTERS CORPORATION, as Issuer,
The GUARANTORS named herein
and
STATE STREET BANK AND TRUST COMPANY, as Trustee
__________________
12 5/8% Senior Notes due 2007, Series A
12 5/8% Senior Notes due 2007, Series B
================================================================================
<PAGE>
CROSS-REFERENCE TABLE
Trust Indenture Indenture
Act Section Section
----------- -------
(S) 310(a)(1).............................................. 7.10
(a)(2)............................................... 7.10
(a)(3)............................................... N.A.
(a)(4)............................................... N.A.
(a)(5)............................................... N.A.
(b).................................................. 7.08; 7.10; 13.02
(c).................................................. N.A.
(S) 311(a)................................................. 7.11
(b).................................................. 7.11
(c).................................................. N.A.
(S) 312(a)................................................. 2.05
(b).................................................. 11.03
(c).................................................. 11.03
(S) 313(a)................................................. 7.06
(b)(1)............................................... N.A.
(b)(2)............................................... N.A.
(c).................................................. 7.06; 11.02
(d).................................................. 7.06
(S) 314(a)................................................. 4.10; 4.11; 11.02
(b).................................................. N.A.
(c)(1)............................................... 11.04
(c)(2)............................................... 11.04
(c)(3)............................................... N.A.
(d).................................................. N.A.
(e).................................................. 11.05
(f).................................................. N.A.
(S) 315(a)................................................. 7.01(b)
(b).................................................. 7.05; 11.02
(c).................................................. 7.01(a)
(d).................................................. 7.01(c)
(e).................................................. 6.11
(S) 316(a)(last sentence).................................. 2.09
(a)(1)(A)............................................ 6.05
(a)(1)(B)............................................ 6.04
(a)(2)............................................... N.A.
(b).................................................. 6.07
(c).................................................. 9.04
(S) 317(a)(1).............................................. 6.08
(a)(2)............................................... 6.09
(b).................................................. 2.04
(S) 318(a)................................................. 12.01
- ----------------
N.A. means Not Applicable.
NOTE: This Cross-Reference Table shall not, for any purpose, be deemed to be a
part of the Indenture.
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions...................................................1
SECTION 1.02. Incorporation by Reference of Trust Indenture Act............30
SECTION 1.03. Rules of Construction........................................31
ARTICLE TWO
THE NOTES
SECTION 2.01. Form and Dating..............................................31
SECTION 2.02. Execution and Authentication.................................32
SECTION 2.03. Registrar and Paying Agent...................................33
SECTION 2.04. Paying Agent To Hold Assets in Trust.........................34
SECTION 2.05. Holder Lists.................................................34
SECTION 2.06. Transfer and Exchange........................................34
SECTION 2.07. Replacement Notes............................................35
SECTION 2.08. Outstanding Notes............................................35
SECTION 2.09. Treasury Notes...............................................36
SECTION 2.10. Temporary Notes..............................................36
SECTION 2.11. Cancellation.................................................37
SECTION 2.12. Defaulted Interest...........................................37
SECTION 2.13. CUSIP Number.................................................37
SECTION 2.14. Deposit of Moneys............................................38
SECTION 2.15. Book-Entry Provisions for Global Securities..................38
SECTION 2.16. Registration of Transfers and Exchanges......................39
SECTION 2.17. Issuance of Additional Notes.................................44
ARTICLE THREE
REDEMPTION
SECTION 3.01. Notices to Trustee...........................................45
SECTION 3.02. Selection of Notes To Be Redeemed............................45
SECTION 3.03. Notice of Redemption.........................................46
SECTION 3.04. Effect of Notice of Redemption...............................46
SECTION 3.05. Deposit of Redemption Price..................................47
SECTION 3.06. Notes Redeemed in Part.......................................47
-i-
<PAGE>
ARTICLE FOUR
COVENANTS
SECTION 4.01. Payment of Notes.............................................47
SECTION 4.02. Maintenance of Office or Agency..............................48
SECTION 4.03. Transactions with Affiliates.................................48
SECTION 4.04. Incurrence of Indebtedness and Issuance of Preferred
Stock......................................................50
SECTION 4.05. Disposition of Proceeds of Asset Sales.......................55
SECTION 4.06. Limitation on Restricted Payments............................58
SECTION 4.07. Corporate Existence..........................................62
SECTION 4.08. Conduct of Business..........................................63
SECTION 4.09. Notice of Defaults...........................................63
SECTION 4.10. Compliance Certificate.......................................63
SECTION 4.11. Provision of Financial Information...........................64
SECTION 4.12. Change of Control............................................64
SECTION 4.13. [Intentionally Omitted]......................................66
SECTION 4.14. Limitation on Dividend and Other Payment Restrictions
Affecting Restricted Subsidiaries..........................66
SECTION 4.15. Limitation on Liens..........................................67
SECTION 4.16. Limitation on Guarantees by Restricted Subsidiaries..........68
SECTION 4.17. Payment of Taxes and Other Claims............................68
SECTION 4.18. Maintenance of Properties and Insurance......................69
SECTION 4.19. Compliance with Laws.........................................69
SECTION 4.20. Waiver of Stay, Extension or Usury Laws......................70
ARTICLE FIVE
MERGERS; SUCCESSOR CORPORATION
SECTION 5.01. Mergers, Sale of Assets, etc.................................70
SECTION 5.02. Successor Corporation Substituted............................72
ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01. Events of Default............................................72
SECTION 6.02. Acceleration.................................................74
SECTION 6.03. Other Remedies...............................................74
SECTION 6.04. Waiver of Past Default.......................................75
-ii-
<PAGE>
SECTION 6.05. Control by Majority..........................................75
SECTION 6.06. Limitation on Suits..........................................76
SECTION 6.07. Rights of Holders To Receive Payment.........................76
SECTION 6.08. Collection Suit by Trustee...................................76
SECTION 6.09. Trustee May File Proofs of Claim.............................77
SECTION 6.10. Priorities...................................................77
SECTION 6.11. Undertaking for Costs........................................77
ARTICLE SEVEN
TRUSTEE
SECTION 7.01. Duties of Trustee............................................78
SECTION 7.02. Rights of Trustee............................................79
SECTION 7.03. Individual Rights of Trustee.................................80
SECTION 7.04. Trustee's Disclaimer.........................................80
SECTION 7.05. Notice of Defaults...........................................81
SECTION 7.06. Reports by Trustee to Holders................................81
SECTION 7.07. Compensation and Indemnity...................................81
SECTION 7.08. Replacement of Trustee.......................................83
SECTION 7.09. Successor Trustee by Merger, etc.............................84
SECTION 7.10. Eligibility; Disqualification................................84
SECTION 7.11. Preferential Collection of Claims Against Company............84
ARTICLE EIGHT
DISCHARGE OF INDENTURE
SECTION 8.01. Termination of Company's Obligations.........................84
SECTION 8.02. Application of Trust Money...................................86
SECTION 8.03. Repayment to Company.........................................86
SECTION 8.04. Reinstatement................................................87
ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.01. Without Consent of Holders.................................87
SECTION 9.02. With Consent of Holders....................................88
SECTION 9.03. Compliance with Trust Indenture Act........................89
SECTION 9.04. Record Date for Consents and Effect of Consents............90
SECTION 9.05. Notation on or Exchange of Notes...........................90
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<PAGE>
SECTION 9.06. Trustee To Sign Amendments, etc............................90
ARTICLE TEN
NOTE GUARANTEE
SECTION 10.01. Unconditional Note Guarantee...............................91
SECTION 10.02. Severability...............................................92
SECTION 10.03. Release of a Guarantor.....................................92
SECTION 10.04. Limitation of Guarantor's Liability........................92
SECTION 10.05. Contribution...............................................93
SECTION 10.06. Execution of Note Guarantee................................93
SECTION 10.07. Subordination of Subrogation and Other Rights..............93
ARTICLE ELEVEN
MISCELLANEOUS
SECTION 11.01. Trust Indenture Act Controls...............................94
SECTION 11.02. Notices....................................................94
SECTION 11.03. Communications by Holders with Other Holders...............95
SECTION 11.04. Certificate and Opinion as to Conditions Precedent.........95
SECTION 11.05. Statements Required in Certificate.........................96
SECTION 11.06. Rules by Trustee, Paying Agent, Registrar..................96
SECTION 11.07. Governing Law..............................................96
SECTION 11.08. No Recourse Against Others.................................96
SECTION 11.09. Successors.................................................97
SECTION 11.10. Counterpart Originals......................................97
SECTION 11.11. Severability...............................................97
SECTION 11.12. No Adverse Interpretation of Other Agreements..............97
SECTION 11.13. Legal Holidays.............................................97
SIGNATURES ..........................................................S-1
EXHIBIT A Form of Series A Note.......................................A-1
EXHIBIT B Form of Series B Note.......................................B-1
EXHIBIT C Form of Legend for Global Securities........................C-1
EXHIBIT D Form of Transfer Certificate................................D-1
EXHIBIT E Form of Transfer Certificate for Institutional
Accredited Investors......................................E-1
EXHIBIT F Form of Transfer Certificate for Regulation S Transfers.....F-1
- -----------------
NOTE: This Table of Contents shall not, for any purpose, be deemed to be a part
of the Indenture.
-iv-
<PAGE>
INDENTURE dated as of August 6, 1999, among MATTRESS DISCOUNTERS
CORPORATION, a Delaware corporation (the "Company"), the GUARANTORS named herein
-------
and STATE STREET BANK AND TRUST COMPANY, as trustee (the "Trustee").
-------
The Company has duly authorized the creation of an issue of
$140,000,000 in aggregate principal amount of its 12 5/8% Series A Senior Notes
due 2007 in the form of Initial Notes (as defined below) and, if and when issued
in connection with a registered exchange for such Initial Notes, 12 5/8% Series
B Senior Notes due 2007 in the form of Exchange Notes (as defined below) and, if
and when issued in connection with a Private Exchange (as defined below) for
such Initial Notes, 12 5/8% Senior Private Exchange Notes due 2007 in the form
of Private Exchange Notes (as defined below), and such Additional Notes (as
defined below) that the Company may from time to time choose to issue pursuant
to this Indenture, and, to provide therefor, the Company and the Guarantors have
duly authorized the execution and delivery of this Indenture.
Each party hereto agrees as follows for the benefit of each other
party and for the equal and ratable benefit of the Holders of the Notes:
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions.
"144A Global Security" means a permanent global security in registered
--------------------
form representing the aggregate principal amount of Notes sold in reliance on
Rule 144A.
"Acquired Indebtedness" means Indebtedness of a Person or any of its
---------------------
Subsidiaries existing at the time such Person becomes a Restricted Subsidiary of
the Company or that is assumed by the Company or any of its Restricted
Subsidiaries in connection with the acquisition of assets from such Person, in
each case excluding any Indebtedness incurred by such Person in connection with,
or in anticipation or contemplation of, such Person becoming a Restricted
Subsidiary of the Company or such acquisition.
"Additional Notes" means, subject to the Company's compliance with
----------------
Section 4.04, 12 5/8% Series A, Series B or any other series of Senior Notes due
2007 issued from time to time after the Issue Date under the terms of this
Indenture (other than issuances pursuant to Section 2.07, 2.10, 3.06, 4.05, 4.12
or 9.05 of this Indenture and other than Exchange Notes or Private Exchange
Notes issued pursuant to an exchange offer for other Notes outstanding under
this Indenture).
<PAGE>
-2-
"Affiliate" means a Person who directly or indirectly through one or
---------
more intermediaries controls, or controlled by, or is under common control with,
the Company. The term "control" means the possession, directly or indirectly, of
the power to direct or cause the direction of the management and policies of a
Person whether through the ownership of voting securities, by contract or
otherwise. Notwithstanding the foregoing, (i) no Person (other than the Company
or any Subsidiary of the Company) in whom a Securitization Entity makes an
Investment in connection with a Qualified Securitization Transaction shall be
deemed to be an Affiliate of the Company or any of its Subsidiaries solely by
reason of such Investment and (ii) neither Chase Securities Inc. nor any of its
Affiliates shall be Affiliates of the Company.
"Affiliate Transaction" has the meaning provided in Section 4.03.
---------------------
"Agent" means any Registrar, Paying Agent or co-Registrar.
----
"all or substantially all" shall have the meaning given such phrase in
------------------------
the Revised Model Business Corporation Act.
"Asset Acquisition" means:
-----------------
(a) an Investment by the Company or any Restricted Subsidiary of the
Company in any other Person if, as a result of such Investment, such Person
shall become a Restricted Subsidiary of the Company, or shall be merged
with or into the Company or any Restricted Subsidiary of the Company; or
(b) the acquisition by the Company or any Restricted Subsidiary of
the Company of all or substantially all of the assets of any other Person
or any division or line of business of any other Person.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
----------
transfer, lease (other than operating leases entered into in the ordinary course
of business), assignment or other transfer for value by the Company or any of
its Restricted Subsidiaries to any Person other than the Company or a Restricted
Subsidiary of the Company of:
(a) any Capital Stock of any Restricted Subsidiary of the Company; or
(b) any other property or assets of the Company or any Restricted
Subsidiary of the Company other than in the ordinary course of business;
provided, however, that Asset Sales shall not include:
(i) a transaction or series of related transactions for which the
Company or its Restricted Subsidiaries receive aggregate consideration of
less than $1.0 million;
<PAGE>
-3-
(ii) the sale, lease, conveyance, disposition or other transfer of
all or substantially all of the assets of the Company as permitted by
Section 5.01 or any disposition that constitutes a Change of Control;
(iii) the sale or discount, in each case without recourse, of
accounts receivable arising in the ordinary course of business, but only in
connection with the compromise or collection thereof;
(iv) the factoring of accounts receivable arising in the ordinary
course of business pursuant to arrangements customary in the industry;
(v) the licensing of intellectual property in the ordinary course
of business;
(vi) disposals or replacements of obsolete, uneconomical,
negligible, worn-out or surplus property in the ordinary course of
business;
(vii) the sale, lease, conveyance, disposition or other transfer by
the Company or any Restricted Subsidiary of assets or property to one or
more Restricted Subsidiaries in connection with Investments permitted by
Section 4.06; or
(viii) sales of accounts receivable, equipment and related assets
(including contract rights) of the type specified in the definition of
"Qualified Securitization Transaction" to a Securitization Entity for the
fair market value thereof, including cash in an amount at least equal to
75% of the fair market value thereof.
For the purposes of clause (viii) above, Purchase Money Notes shall be deemed to
be cash.
"Bankruptcy Law" has the meaning provided in Section 6.01.
--------------
"Board of Directors" means the Board of Directors of the Company or
------------------
any Guarantor, as the case may be, or any authorized committee of such Board of
Directors.
"Board Resolution" means, with respect to any Person, a duly adopted
----------------
resolution of the Board of Directors of such Person.
"Business Day" means each day which is not a Saturday, Sunday or a day
------------
on which banking institutions are not required to be open in the States of New
York or Connecticut or the Commonwealth of Massachusetts.
"Capital Lease Obligation" means, at the time any determination
------------------------
thereof is to be made, the amount of the liability in respect of a capital lease
that would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
<PAGE>
-4-
"Capital Stock" means:
-------------
(i) in the case of a corporation, corporate stock;
(ii) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock;
(iii) in the case of a partnership or limited liability company,
partnership or membership interests (whether general or limited); and
(iv) any other interest or participation that confers on a Person
the right to receive a share of the profits and losses of, or distributions
of assets of, the issuing Person.
"Cash Equivalents" means:
----------------
(i) marketable direct obligations issued by, or unconditionally
guaranteed by, the United States Government or issued by any agency thereof
and backed by the full faith and credit of the United States, in each case
maturing within one year from the date of acquisition thereof;
(ii) marketable direct obligations issued by any state of the United
States of America or any political subdivision of any such state or any
public instrumentality thereof maturing within one year from the date of
acquisition thereof and, at the time of acquisition, having one of the two
highest ratings obtainable from either S&P or Moody's;
(iii) commercial paper maturing no more than one year from the date
of creation thereof and at the time of acquisition, having a rating of at
least A-1 from S&P or at least P-1 from Moody's;
(iv) certificates of deposit or bankers' acceptances (or, with
respect to foreign banks, similar instruments) maturing within one year
from the date of acquisition thereof issued by any bank organized under the
laws of the United States of America or any state thereof or the District
of Columbia, Japan or any member of the European Economic Community or any
U.S. branch of a foreign bank having at the date of acquisition thereof
combined capital and surplus of not less than $200.0 million;
(v) repurchase obligations with a term of not more than seven days
for underlying securities of the types described in clause (i) above
entered into with any bank meeting the qualifications specified in clause
(iv) above; and
<PAGE>
-5-
(vi) investments in money market funds which invest substantially
all their assets in securities of the types described in clauses (i)
through (v) above.
"Change of Control" means the occurrence of one or more of the
----------------
following events:
(i) any sale, lease, exchange or other transfer (in one transaction
or a series of related transactions) of all or substantially all of the
assets of the Company to any Person or group of related Persons, as defined
in Section 13(d) of the Exchange Act (a "Group"), whether or not otherwise
-----
in compliance with the provisions of this Indenture, other than Bain
Capital, Inc. and its Affiliates and members of the Permitted Group;
(ii) the approval by the holders of Capital Stock of the Company of
any plan or proposal for the liquidation or dissolution of the Company
(whether or not otherwise in compliance with the provisions of this
Indenture);
(iii) any Person or Group (other than Bain Capital, Inc. and its
Affiliates and members of the Permitted Group) shall become the owner,
directly or indirectly, beneficially or of record, of shares representing
more than 50% of the aggregate ordinary voting power represented by the
issued and outstanding Voting Stock of the Company or any successor to all
or substantially all of its assets; or
(iv) the first day on which a majority of the members of the Board
of Directors of the Company or Parent are not Continuing Directors.
"Change of Control Offer" shall have the meaning provided in Section
-----------------------
4.12.
"Change of Control Payment" shall have the meaning provided in Section
-------------------------
4.12.
"Change of Control Payment Date" shall have the meaning provided in
------------------------------
Section 4.12.
"Company" means the Person named as the "Company" in the first
-------
paragraph of this Indenture until a successor shall have become such pursuant to
the applicable provisions of this Indenture, and thereafter "Company" shall mean
such successor.
"Company Request" or "Company Order" means a written request or order
--------------- -------------
signed in the name of the Company by its Chairman of the Board, its Vice
Chairman of the Board, its President, a Vice President or its Treasurer, and by
an Assistant Treasurer, its Secretary or an Assistant Secretary, and delivered
to the Trustee.
<PAGE>
-6-
"Consolidated EBITDA" means, with respect to any Person, for any
-------------------
period, the sum (without duplication) of such Person's (i) Consolidated Net
Income; and (ii) to the extent Consolidated Net Income has been reduced thereby,
(A) all income taxes and foreign withholding taxes of such Person and its
Restricted Subsidiaries paid or accrued in accordance with GAAP for such period,
(B) Consolidated Interest Expense, (C) Consolidated Noncash Charges, and (D) any
payments related to (x) addressing the Company's or any of its Subsidiaries'
"Year 2000" information systems issues expensed in accordance with GAAP or (y)
"reengineering" efforts relating to the installation of the Company's point of
sale system expensed in accordance with GAAP and pursuant to the Financial
Accounting Standards Board's (FASB) Emerging Issues Task Force (EITF) Issue No.
97-13: "Accounting for Costs Incurred in Connection with a Consulting Contract
or an Internal Project that Combines Business Process Re-engineering and
Information Technology Transformation"; provided, however, that the aggregate
amount of such payments in (x) and (y) above shall not exceed $2.4 million and
shall be made on or prior to December 31, 2001.
With respect to the calculation of Consolidated EBITDA for any period
prior to the expiration of the first Four-Quarter Period subsequent to the Issue
Date, Consolidated EBITDA shall be calculated on a pro forma basis for the
Recapitalization in accordance with Article 11 of Regulation S-X under the
Securities Act as if the Recapitalization were consummated on the first day of
the relevant Four-Quarter Period.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to any
----------------------------------------
Person, the ratio of Consolidated EBITDA of such Person during the most recent
four full fiscal quarters for which internal financial statements are available
(the "Four-Quarter Period") ending on or prior to the date of the transaction
-------------------
giving rise to the need to calculate the Consolidated Fixed Charge Coverage
Ratio (the "Transaction Date") to Consolidated Fixed Charges of such Person for
----------------
the Four-Quarter Period. In addition to and without limitation of the foregoing,
for purposes of this definition, Consolidated EBITDA and Consolidated Fixed
Charges shall be calculated after giving effect on a pro forma basis for the
period of such calculation to:
(i) the incurrence of any Indebtedness or the issuance of any
preferred stock of such Person or any of its Restricted Subsidiaries (and
the application of the proceeds thereof) and any repayment of other
Indebtedness or redemption of other preferred stock occurring during the
Four-Quarter Period or at any time subsequent to the last day of the Four-
Quarter Period and on or prior to the Transaction Date, as if such
incurrence, repayment, issuance or redemption, as the case may be (and the
application of the proceeds thereof), occurred on the first day of the
Four-Quarter period; and
(ii) any Asset Sale or Asset Acquisition (including, without
limitation, any Asset Acquisition giving rise to the need to make such
calculation as a result of such
<PAGE>
-7-
Person or one of its Restricted Subsidiaries (including any Person who
becomes a Restricted Subsidiary as a result of the Asset Acquisition)
incurring, assuming or otherwise being liable for Acquired Indebtedness and
also including any Consolidated EBITDA (including any Pro Forma Cost
Savings) associated with any such Asset Acquisition) occurring during the
Four-Quarter Period or at any time subsequent to the last day of the Four-
Quarter Period and on or prior to the Transaction Date, as if such Asset
Sale or Asset Acquisition (including the incurrence of, or assumption or
liability for any such Indebtedness or Acquired Indebtedness) occurred on
the first day of the Four-Quarter Period.
If such Person or any of its Restricted Subsidiaries directly or
indirectly Guarantees Indebtedness of a third Person, the preceding sentence
shall give effect to the incurrence of such guaranteed Indebtedness as if such
Person or any Restricted Subsidiary of such Person had directly incurred or
otherwise assumed such guaranteed Indebtedness. Furthermore, in calculating
Consolidated Fixed Charges for purposes of determining the denominator (but not
the numerator) of this Consolidated Fixed Charge Coverage Ratio:
(1) interest on outstanding Indebtedness determined on a
fluctuating basis as of the Transaction Date and which will continue to be
so determined thereafter and shall be deemed to have accrued at a fixed
rate per annum equal to the rate of interest on such Indebtedness in effect
on the Transaction Date;
(2) if interest on any Indebtedness actually incurred on the
Transaction Date may optionally be determined at an interest rate based
upon a factor of a prime or similar rate, a eurocurrency interbank offered
rate, or other rates, then the interest rate in effect on the Transaction
Date will be deemed to have been in effect during the Four-Quarter Period;
and
(3) notwithstanding clause (1) above, interest on Indebtedness
determined on a fluctuating basis, to the extent such interest is covered
by agreements relating to Interest Swap Obligations, shall be deemed to
accrue at the rate per annum resulting after giving effect to the operation
of such agreements.
"Consolidated Fixed Charges" means, with respect to any Person for any
--------------------------
period, the sum, without duplication, of:
(i) Consolidated Interest Expense (before amortization or write-off
of debt issuance costs and before amortization of original issue discount
relating to the offering of Initial Notes and warrants to purchase common
stock of the Parent on the Issue Date);
<PAGE>
-8-
(ii) the amount of all dividend payments on any series of preferred
stock or Disqualified Stock of such Person (other than dividends paid in
Qualified Capital Stock); and
(iii) the amount of all dividend payments on:
(x) any series of preferred stock of any Restricted Subsidiary
of such Person; and
(y) any Refunding Capital Stock of such Person, to the extent
paid pursuant to the terms of clause (2) of Section 4.06(b).
"Consolidated Interest Expense" means, with respect to any Person for
-----------------------------
any period, the sum, without duplication, of:
(i) the aggregate of all cash and non-cash interest expense with
respect to all outstanding Indebtedness of such Person and its Restricted
Subsidiaries, including the net costs associated with Interest Swap
Obligations, for such period determined on a consolidated basis in
conformity with GAAP;
(ii) the consolidated interest expense of such Person and its
Restricted Subsidiaries that was capitalized during such period; and
(iii) the interest component of Capital Lease Obligations paid,
accrued and/or scheduled to be paid or accrued by such Person and its
Restricted Subsidiaries during such period as determined on a consolidated
basis in accordance with GAAP.
"Consolidated Net Income" of the Company means, for any period, the
-----------------------
aggregate net income (or loss) of the Company and its Restricted Subsidiaries
for such period on a consolidated basis, determined in accordance with GAAP;
provided that there shall be excluded therefrom:
(a) gains and losses from Asset Sales (without regard to the $1.0
million limitation set forth in the definition thereof) or abandonments or
reserves relating thereto and the related tax effects according to GAAP;
(b) gains and losses due solely to fluctuations in currency values
and the related tax effects according to GAAP;
(c) items classified as a cumulative effect accounting change or as
extraordinary, unusual or nonrecurring gains and losses (including, without
limitation, severance,
<PAGE>
-9-
relocation and other restructuring costs), and the related tax effects
according to GAAP;
(d) the net income (or loss) of any Person acquired in a pooling of
interests transaction accrued prior to the date it becomes a Restricted
Subsidiary of the Company or is merged or consolidated with the Company or
any Restricted Subsidiary of the Company;
(e) the net income of any Restricted Subsidiary of the Company to the
extent that the declaration of dividends or similar distributions by that
Restricted Subsidiary of the Company of that income is restricted by
contract, operation of law or otherwise;
(f) the net loss of any Person, other than a Restricted Subsidiary of
the Company;
(g) the net income of any Person, other than a Restricted Subsidiary
of the Company, except to the extent of cash dividends or distributions
paid to the Company or a Restricted Subsidiary of the Company by such
Person;
(h) only for purposes of clause (c)(i) of Section 4.06(a), any
amounts included pursuant to clause (c)(iii) of Section 4.06(a); and
(i) one-time non-cash compensation charges, including any arising
from existing stock options resulting from any merger, acquisition or
recapitalization transaction.
For purposes of clause (c)(i) of Section 4.06(a), Consolidated Net
Income shall be reduced by any cash dividends paid with respect to any series of
Designated Preferred Stock.
"Consolidated Noncash Charges" means, with respect to any Person for
----------------------------
any period, the aggregate depreciation, amortization and other non-cash expenses
of such Person and its Restricted Subsidiaries reducing Consolidated Net Income
of such Person for such period, determined on a consolidated basis in accordance
with GAAP, excluding any such non-cash charge constituting an extraordinary item
or loss or any such non-cash charge which requires an accrual of or a reserve
for cash charges for any future period.
"Continuing Directors" means, as of any date of determination, any
--------------------
member of the Board of Directors of the Company who (i) was a member of such
Board of Directors on the Issue Date or (ii) was nominated for election or
elected to such Board of Directors by any
<PAGE>
-10-
of the Principals or with the approval of a majority of the Continuing Directors
who were members of such Board at the time of such nomination or election.
"Corporate Trust Office of the Trustee" shall be at the address of the
-------------------------------------
Trustee specified in Section 11.02 or such other address as the Trustee may give
notice to the Company.
"Currency Agreement" means any foreign exchange contract, currency
------------------
swap agreement or other similar agreement or arrangement designed to protect the
Company or any Restricted Subsidiary of the Company against fluctuations in
currency values.
"Custodian" has the meaning provided in Section 6.01.
---------
"Default" means any event that is or with the passage of time or the
------
giving of notice or both would be an Event of Default.
"Depository" means, with respect to the Notes issued in the form of
----------
one or more Global Securities, The Depository Trust Company or another Person
designated as Depository by the Company, which must be a clearing agency
registered under the Exchange Act.
"Designated Noncash Consideration" means any non-cash consideration
--------------------------------
received by the Company or one of its Restricted Subsidiaries in connection with
an Asset Sale that is so designated as Designated Noncash Consideration pursuant
to an Officers' Certificate executed by the principal executive officer and the
principal financial officer of the Company or such Restricted Subsidiary. Such
Officers' Certificate shall state the basis of such valuation, which shall be a
report of a nationally recognized investment banking firm with respect to the
receipt in one or a series of related transactions of Designated Noncash
Consideration with a fair market value in excess of $10.0 million.
"Designated Preferred Stock" means Preferred Stock that is so
--------------------------
designated as Designated Preferred Stock, pursuant to an Officers' Certificate
executed by the principal executive officer and the principal financial officer
of the Company, on the issuance date thereof, the cash proceeds of which are
excluded from the calculation set forth in clause (c)(ii) of Section 4.06(a).
"Disqualified Stock" means any Capital Stock that, by its terms (or by
------------------
the terms of any security into which it is convertible, or for which it is
exchangeable, at the option of the holder thereof), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable at the option of the Holder thereof, in
whole or in part, on or prior to the date that is 91 days after the date on
<PAGE>
-11-
which the Notes mature; provided, however, that any Capital Stock that would
constitute Disqualified Stock solely because the holders thereof have the right
to require the Company to repurchase such Capital Stock upon the occurrence of a
Change of Control or an Asset Sale shall not constitute Disqualified Stock if
the terms of such Capital Stock provide that the Company may not repurchase or
redeem any such Capital Stock pursuant to such provisions unless such repurchase
or redemption complies with the covenant described under Section 4.06.
"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 Offering" means any offering of Qualified Capital Stock of
---------------
Parent or the Company; provided that, in the event of any Equity Offering by
Parent, Parent contributes to the common equity capital of the Company (other
than as Disqualified Stock) the portion of the net cash proceeds of such Equity
Offering necessary to pay the aggregate redemption price (plus accrued interest
to the redemption date) of the Notes to be redeemed.
"Event of Default" see Section 6.01.
----------------
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
------------
and the rules and regulations promulgated by the SEC thereunder.
"Exchange Notes" means (i) the 12 5/8% Senior Notes due 2007, Series
--------------
B, to be issued in exchange for the Initial Notes pursuant to the Registration
Rights Agreement and (ii) Additional Notes, if any, issued in the form of 12
5/8% Senior Notes due 2007, Series B, or other series of 12 5/8% Senior Notes
due 2007 issued pursuant to a registration statement filed with the SEC under
the Securities Act.
"Expiration Date" has the meaning set forth in the definition of
---------------
"Offer to Purchase" below.
"Final Maturity Date" means July 15, 2007.
-------------------
"Final Offering Memorandum" means the Offering Memorandum dated August
-------------------------
6, 1999 setting forth information concerning the Company and the Notes.
"Four-Quarter Period" has the meaning specified in the definition of
-------------------
"Consolidated Fixed Charge Coverage Ratio."
"Funding Guarantor" has the meaning provided in Section 10.05.
-----------------
<PAGE>
-12-
"GAAP" means generally accepted accounting principles set forth in the
----
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the Issue Date.
"Global Securities" means one or more 144A Global Securities,
-----------------
Regulation S Global Securities or IAI Global Securities.
"Guarantee" means a guarantee (other than by endorsement of negotiable
---------
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof), of all or any part of any Indebtedness.
"Guarantor" means (i) each Restricted Subsidiary in existence on the
---------
Issue Date listed on the signature pages to this Indenture and (ii) each other
Restricted Subsidiary, formed, created or acquired before or after the Issue
Date, required to become a Guarantor after the Issue Date, in each case subject
to Section 4.16.
"Hedging Obligations" means, with respect to any Person, the
-------------------
obligations of such Person under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements (including Interest Swap
Obligations); and (ii) other agreements or arrangements designed to protect such
Person against fluctuations in interest rates (including Currency Agreements).
"Holders" means the registered holders of the Notes.
-------
"IAI Global Security" means a permanent global security in registered
-------------------
form representing the aggregate principal amount of Notes transferred after the
Issue Date to Institutional Accredited Investors.
"incur" has the meaning provided in Section 4.04(a).
-----
"Indebtedness" means, with respect to any Person, any indebtedness of
------------
such Person, whether or not contingent, in respect of borrowed money or
evidenced by bonds, notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof) or banker's acceptances
or representing Capital Lease Obligations or the balance deferred and unpaid of
the purchase price of any property or representing any Hedging Obligations,
except any such balance that constitutes an accrued expense or trade payable, if
and to the extent any of the foregoing (other than letters of credit and Hedging
Obligations) would appear as a liability upon a balance sheet of such Person
prepared in accordance with
<PAGE>
-13-
GAAP, as well as all Indebtedness of others secured by a Lien on any asset of
such Person (whether or not such Indebtedness is assumed by such Person) and, to
the extent not otherwise included, the Guarantee by such Person of any
indebtedness of any other Person. Indebtedness shall also include all
Disqualified Stock issued by such Person with the amount of Indebtedness
represented by such Disqualified Stock being equal to the greater of its
voluntary or involuntary liquidation preference and its maximum fixed repurchase
price, but excluding accrued dividends, if any. The amount of any Indebtedness
outstanding as of any date shall be (i) the accreted value thereof, in the case
of any Indebtedness issued with original issue discount, and (ii) the principal
amount thereof, together with any interest thereon that is more than 30 days
past due, in the case of any other Indebtedness. For purposes of calculating the
amount of Indebtedness of a Securitization Entity outstanding as of any date,
the face or notional amount of any interest in receivables or equipment that is
outstanding as of such date shall be deemed to be Indebtedness but any such
interests held by Affiliates of such Securitization Entity shall be excluded for
purposes of such calculation. For purposes of this definition, the "maximum
fixed repurchase price" of any Disqualified Capital Stock which does not have a
fixed repurchase price shall be calculated in accordance with the terms of such
Disqualified Capital Stock as if such Disqualified 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 Disqualified Capital Stock, such fair market value shall be
determined reasonably and in good faith by the Board of Directors of the issuer
of such Disqualified Stock.
"Indenture" means this Indenture, as amended or supplemented from time
---------
to time.
"Initial Notes" means (i) the 12 5/8% Senior Notes due 2007, Series A,
-------------
of the Company and (ii) Additional Notes, if any, issued in the form of 12 5/8%
Senior Notes due 2007, Series A, or other series of 12 5/8% Senior Notes due
2007 issued in a transaction exempt from the registration requirements of the
Securities Act.
"Initial Purchasers" means Chase Securities Inc., CIBC World Markets
------------------
Corp. and BancBoston Robertson Stephens Inc.
"Institutional Accredited Investor" means an institution that is an
---------------------------------
"accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or (7)
under the Securities Act.
"interest" means, with respect to the Notes, the sum of any cash
--------
interest and any liquidated damages payable on the Notes pursuant to the
Registration Rights Agreement.
"Interest Payment Date" means each semiannual interest payment date on
---------------------
January 15 and July 15 of each year, commencing January 15, 2000.
<PAGE>
-14-
"Interest Record Date" for the interest payable on any Interest
--------------------
Payment Date (except a date for payment of defaulted interest) means the January
1 or July 1 (whether or not a Business Day), as the case may be, immediately
preceding such Interest Payment Date.
"Interest Swap Obligations" means the obligations of any Person,
-------------------------
pursuant to any arrangement with any other Person, whereby, directly or
indirectly, such Person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest on
a stated notional amount in exchange for periodic payments made by such other
Persons calculated by applying a fixed or a floating rate of interest on the
same notional amount.
"Investments" means, with respect to any Person, all investments by
-----------
such Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If the Company or any Subsidiary of the Company sells or otherwise disposes of
any Equity Interests of any direct or indirect Subsidiary of the Company such
that, after giving effect to any such sale or disposition, such Person is no
longer a Subsidiary of the Company, the Company shall be deemed to have made an
Investment on the date of any such sale or disposition equal to the fair market
value of the Equity Interests of such Subsidiary not sold or disposed of in an
amount determined as provided in Section 4.06(d).
"Issue Date" means August 6, 1999.
----------
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
----
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Marketable Securities" means publicly traded debt or equity
---------------------
securities that are listed for trading on a national securities exchange and
that were issued by a corporation whose debt securities are rated in one of the
three highest rating categories by either S&P or Moody's.
"Moody's" means Moody's Investors Service, Inc.
-------
<PAGE>
-15-
"Net Cash Proceeds" means the aggregate cash proceeds received by the
-----------------
Company or any of its Restricted Subsidiaries in respect of any Asset Sale
(including, without limitation, any cash received upon the sale or other
disposition of any non-cash consideration received in any Asset Sale), net of
the direct costs relating to such Asset Sale (including, without limitation,
legal, accounting and investment banking fees, and sales commissions) and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements) and any reserve for adjustment in
respect of the sale price of such asset or assets established in accordance with
GAAP.
"Net Proceeds Offer" shall have the meaning provided in Section 4.05.
------------------
"Net Proceeds Offer Amount" shall have the meaning provided in Section
-------------------------
4.05.
"Net Proceeds Offer Payment Date" shall have the meaning provided in
-------------------------------
Section 4.05.
"Net Proceeds Offer Trigger Date" shall have the meaning provided in
-------------------------------
Section 4.05.
"Non-Recourse Debt" means Indebtedness:
-----------------
(i) as to which neither the Company nor any of its Restricted
Subsidiaries:
(a) provides credit support of any kind (including any
undertaking, agreement or instrument that would constitute
Indebtedness);
(b) is directly or indirectly liable (as a guarantor or
otherwise); or
(c) constitutes the lender;
(ii) no default with respect to which (including any rights that the
holders thereof may have to take enforcement action against an Unrestricted
Subsidiary) would permit (upon notice, lapse of time or both) any holder of
any other Indebtedness of the Company or any of its Restricted Subsidiaries
to declare a default on such other Indebtedness or cause the payment
thereof to be accelerated or payable prior to its stated maturity; and
(iii) as to which the lenders have been notified in writing that they
will not have any recourse to the stock or assets of the Company or any of
its Restricted Subsidiaries.
<PAGE>
-16-
"Note Guarantee" means the Guarantee of the Notes by the Guarantors
--------------
pursuant to Article Ten of this Indenture.
"Notes" means, collectively, the Initial Notes, the Private Exchange
-----
Notes and the Unrestricted Notes treated as a single class of securities, as
amended or supplemented from time to time in accordance with the terms of this
Indenture.
"Obligations" means any principal, interest (including, without
-----------
limitation, Post-Petition Interest), penalties, fees, indemnifications,
reimbursement obligations, damages and other liabilities payable under the
documentation governing any Indebtedness.
"Offer to Purchase" means a written offer (the "Offer") sent by or on
----------------- -----
behalf of the Company by first-class mail, postage prepaid, to each Holder at
his address appearing in the register for the Notes on the date of the Offer
offering to purchase up to the principal amount of Notes specified in such Offer
at the purchase price specified in such Offer (as determined pursuant to this
Indenture if so required). Unless otherwise required by applicable law, the
Offer shall specify an expiration date (the "Expiration Date") of the Offer to
---------------
Purchase, which shall be not less than 30 days nor more than 60 days after the
date of such Offer, and a settlement date (the "Purchase Date") for purchase of
-------------
Notes to occur no later than five Business Days after the Expiration Date. The
Company shall notify the Trustee at least 15 Business Days (or such shorter
period as is acceptable to the Trustee) prior to the mailing of the Offer of the
Company's obligation to make an Offer to Purchase, and the Offer shall be mailed
by the Company or, at the Company's request, by the Trustee in the name and at
the expense of the Company. The Offer shall contain all the information
required by applicable law to be included therein. The Offer shall contain all
instructions and materials necessary to enable such Holders to tender Notes
pursuant to the Offer to Purchase. The Offer shall also state:
(1) the Section of this Indenture pursuant to which the Offer
to Purchase is being made;
(2) the Expiration Date and the Purchase Date;
(3) the aggregate principal amount of the outstanding Notes
offered to be purchased by the Company pursuant to the Offer to
Purchase (including, if less than 100%, the manner by which such
amount has been determined pursuant to the Section of this Indenture
requiring the Offer to Purchase) (the "Purchase Amount");
---------------
(4) the purchase price to be paid by the Company for each
$1,000 aggregate principal amount of Notes accepted for payment (as
specified pursuant to this Indenture) (the "Purchase Price");
--------------
<PAGE>
-17-
(5) that the Holder may tender all or any portion of the Notes
registered in the name of such Holder and that any portion of a Note
tendered must be tendered in an integral multiple of $1,000 principal
amount;
(6) the place or places where Notes are to be surrendered for
tender pursuant to the Offer to Purchase;
(7) that interest on any Note not tendered or tendered but not
purchased by the Company pursuant to the Offer to Purchase will
continue to accrue;
(8) that on the Purchase Date the Purchase Price will become
due and payable upon each Note being accepted for payment pursuant to
the Offer to Purchase and that interest thereon shall cease to accrue
on and after the Purchase Date;
(9) that each Holder electing to tender all or any portion of
a Note pursuant to the Offer to Purchase will be required to surrender
such Note at the place or places specified in the Offer prior to the
close of business on the Expiration Date (such Note being, if the
Company or the Trustee so requires, duly endorsed by, or accompanied
by a written instrument of transfer in form satisfactory to the
Company and the Trustee duly executed by, the Holder thereof or his
attorney duly authorized in writing);
(10) that (a) if Notes in an aggregate principal amount less
than or equal to the Purchase Amount are duly tendered and not
withdrawn pursuant to the Offer to Purchase, the Company shall
purchase all such Notes and (b) if Notes in an aggregate principal
amount in excess of the Purchase Amount are tendered and not withdrawn
pursuant to the Offer to Purchase, the Company shall purchase Notes
having an aggregate principal amount equal to the Purchase Amount on a
pro rata basis (with such adjustments as may be deemed appropriate so
that only Notes in denominations of $1,000 principal amount or
integral multiples thereof shall be purchased); and
(11) that in the case of any Holder whose Note is purchased
only in part, the Company shall execute and the Trustee shall
authenticate and deliver to the Holder of such Note without service
charge, a new Note or Notes, of any authorized denomination as
requested by such Holder, in an aggregate principal amount equal to
and in exchange for the unpurchased portion of the Note so tendered.
An Offer to Purchase shall be governed by and effected in
accordance with the provisions above pertaining to any Offer.
"Officer" means the Chairman, any Vice Chairman, the President,
-------
any Vice President, the Chief Financial Officer, the Treasurer,
or the Secretary of the Company.
<PAGE>
-18-
"Officers' Certificate" means a certificate signed by two Officers or
---------------------
by an Officer and an Assistant Treasurer or Assistant Secretary of the Company
complying with Sections 11.04 and 11.05.
"Opinion of Counsel" means a written opinion delivered to the Trustee
------------------
from legal counsel who is reasonably acceptable to the Trustee. The counsel may
be an employee of or counsel to the Company or the Trustee.
"Parent" means Mattress Discounters Holding Corporation, a Virginia
------
corporation.
"Participant" has the meaning provided in Section 2.15.
-----------
"Paying Agent" has the meaning provided in Section 2.03.
------------
"Permitted Business" means any business (including stock or assets)
------------------
that derives a majority of its revenues from the manufacture, distribution and
sale of mattresses, foundation and other bedding products and activities that
are reasonably similar, ancillary or related to, or a reasonable extension,
development or expansion of, the businesses in which the Company and its
Restricted Subsidiaries are engaged on the date of this Indenture.
"Permitted Domestic Subsidiary Preferred Stock" means any series of
---------------------------------------------
Preferred Stock of a U.S. Subsidiary of the Company that constitutes Qualified
Capital Stock and has a fixed dividend rate, the liquidation value of all series
of which, when combined with the aggregate amount of Indebtedness of the Company
and its Restricted Subsidiaries incurred pursuant to clause (xvi) of the
definition of "Permitted Indebtedness," does not exceed $10.0 million.
"Permitted Group" means any group of investors deemed to be a "person"
---------------
(as such term is used in Section 13(d)(3) of the Exchange Act) by virtue of the
Shareholders Agreement, as the same may be amended, modified or supplemented
from time to time; provided that:
(i) Bain Capital, Inc. or one of its Affiliates is a party to such
Shareholders Agreement;
(ii) no Person party to the Shareholders Agreement as so amended,
supplemented or modified from time to time (other than Bain Capital, Inc.
and its Affiliates), together with its Affiliates, owns, directly or
indirectly, beneficially, or of record, shares representing more than 50%
of the aggregate ordinary voting power represented by the issued and
outstanding Voting Stock of the Company or any successor to all or
substantially all of its assets; and
<PAGE>
-19-
(iii) no Person party to the Shareholders Agreement as so amended,
supplemented or modified from time to time (other than Bain Capital, Inc.
and its Affiliates), together with its Affiliates, has the right, pursuant
to the Shareholders Agreement (as so amended, supplemented or modified) or
otherwise to designate more than 50% of the members of the Board of
Directors of the Company or Parent.
"Permitted Indebtedness" has the meaning provided in Section 4.04(a).
----------------------
"Permitted Investments" means:
---------------------
(i) Investments by the Company or any Restricted Subsidiary of the
Company in any Restricted Subsidiary of the Company that is a Guarantor for
so long as it remains a Guarantor or any Wholly Owned Restricted Subsidiary
for so long as it remains a Wholly Owned Restricted Subsidiary (whether
existing on the Issue Date or created thereafter) or in any other Person
(including by means of any transfer of cash or other property) if as a
result of such Investment such Person shall become a Restricted Subsidiary
of the Company that is a Guarantor or a Wholly Owned Restricted Subsidiary
and Investments in the Company by any Restricted Subsidiary of the Company;
(ii) cash and Cash Equivalents;
(iii) Investments existing on the Issue Date;
(iv) loans and advances to employees and officers of the Company and
its Restricted Subsidiaries in the ordinary course of business;
(v) accounts receivable created or acquired in the ordinary course
of business;
(vi) Currency Agreements and Interest Swap Obligations entered into
in the ordinary course of the Company's businesses and otherwise in
compliance with this Indenture;
(vii) Investments in securities of trade creditors or customers
received pursuant to any plan of reorganization or similar arrangement upon
the bankruptcy or insolvency of such trade creditors or customers;
(viii) Guarantees by the Company of Indebtedness otherwise permitted
to be incurred by Restricted Subsidiaries of the Company that are
Guarantors under this Indenture;
<PAGE>
-20-
(ix) additional Investments having an aggregate fair market value,
taken together with all other Investments made pursuant to this clause (ix)
that are at that time outstanding, not to exceed 5.0% of Total Assets at
the time of such Investment (with the fair market value of each Investment
being measured at the time made and without giving effect to subsequent
changes in value);
(x) any Investment by the Company or a Subsidiary of the Company in
a Securitization Entity or any Investment by a Securitization Entity in any
other Person in connection with a Qualified Securitization Transaction;
provided that any Investment in a Securitization Entity is in the form of a
Purchase Money Note or an equity interest;
(xi) Investments the payment for which consists exclusively of
Qualified Capital Stock of the Company; and
(xii) Investments received by the Company or its Restricted
Subsidiaries as consideration for asset sales, including Asset Sales;
provided that in the case of an Asset Sale, such Asset Sale is effected in
compliance with the covenant described under Section 4.05.
"Permitted Liens" means the following types of Liens:
---------------
(i) Liens for taxes, assessments or governmental charges or claims
either
(a) not delinquent or
(b) contested in good faith by appropriate proceedings and as to
which the Company or its Restricted Subsidiaries shall have set aside on
its books such reserves as may be required pursuant to GAAP;
(ii) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for sums not yet delinquent or
being contested in good faith, if such reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made in
respect thereof;
(iii) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance
and other types of social security, including any Lien securing letters of
credit issued in the ordinary course of business consistent with past
practice in connection therewith, or to secure the performance of tenders,
statutory obligations, surety and appeal bonds, bids,
<PAGE>
-21-
leases, government contracts, performance and return-of-money bonds and
other similar obligations (exclusive of obligations for the payment of
borrowed money);
(iv) judgment Liens not giving rise to an Event of Default;
(v) easements, rights-of-way, zoning restrictions and other similar
charges or encumbrances in respect of real property not interfering in any
material respect with the ordinary conduct of the business of the Company
or any of its Restricted Subsidiaries;
(vi) any interest or title of a lessor under any Capital Lease
Obligation;
(vii) purchase money Liens to finance property or assets of the
Company or any Restricted Subsidiary of the Company acquired in the
ordinary course of business; provided, however, that
(A) the related purchase money Indebtedness shall not exceed the
cost of such property or assets and shall not be secured by any
property or assets of the Company or any Restricted Subsidiary of the
Company other than the property and assets so acquired and
(B) the Lien securing such Indebtedness shall be created with 90
days of such acquisition;
(viii) Liens upon specific items of inventory or other goods and
proceeds of any Person securing such Person's obligations in respect of
bankers' acceptances issued or created for the account of such Person to
facilitate the purchase, shipment, or storage of such inventory or other
goods;
(ix) Liens securing reimbursement obligations with respect to
commercial letters of credit which encumber documents and other property
relating to such letters of credit and products and proceeds thereof;
(x) Liens encumbering deposits made to secure obligations arising
from statutory, regulatory, contractual, or warranty requirements of the
Company or any of its Restricted Subsidiaries, including rights of offset
and set-off;
(xi) Liens securing Interest Swap Obligations or Currency
Agreement which Interest Swap Obligations or Currency Agreement relate to
Indebtedness that is otherwise permitted under this Indenture;
<PAGE>
-22-
(xii) Liens securing Indebtedness incurred in reliance on clause
(vii) of Section 4.04(b) so long as such Liens extend to no assets other
than the assets acquired;
(xiii) Liens incurred in the ordinary course of business of the
Company or any Restricted Subsidiary with respect to obligations that do
not in the aggregate exceed $5.0 million at any one time outstanding;
(xiv) Liens on assets transferred to a Securitization Entity or on
assets of a Securitization Entity, in either case incurred in connection
with a Qualified Securitization Transaction;
(xv) leases or subleases granted to others that do not materially
interfere with the ordinary course of business of the Company and its
Restricted Subsidiaries;
(xvi) Liens arising from filing Uniform Commercial Code financing
statements regarding leases;
(xvii) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customer duties in connection with the
importation of goods;
(xviii) Liens on assets of Unrestricted Subsidiaries that secure Non-
Recourse Debt of Unrestricted Subsidiaries; and
(xix) Liens existing on the Issue Date, together with any Liens
securing Indebtedness incurred in reliance on clause (xiii) of the
definition of "Permitted Indebtedness" in order to refinance the
Indebtedness secured by Liens existing on the Issue Date; provided that the
Liens securing the refinancing Indebtedness shall not extend to property
other than that pledged under the Liens securing the Indebtedness being
refinanced.
"Person" means any individual, corporation, partnership, joint
------
venture, association, joint-stock company, limited liability company, limited
liability limited partnership, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Physical Securities" means one or more certificated Notes in
-------------------
registered form.
"Private Exchange" means the offer by the Company, pursuant to a
----------------
Registration Rights Agreement, to the Initial Purchasers to issue and deliver to
the Initial Purchasers, in exchange for the Initial Notes held by the Initial
Purchasers as part of its initial distribution, a like aggregate principal
amount of Private Exchange Notes.
<PAGE>
-23-
"Private Exchange Notes" means the 12 5/8% of Senior Notes due 2007,
----------------------
if any, to be issued pursuant to a Registration Rights Agreement to the Initial
Purchasers or any other underwriters or initial purchasers in a Private
Exchange.
"Private Placement Legend" means the legend initially set forth on the
------------------------
Initial Notes in the form set forth on Exhibit A hereto.
---------
"Pro Forma Cost Savings" means, with respect to any period, the
----------------------
reduction in costs that would have been achieved during the Four-Quarter Period
or after the end of the Four-Quarter Period and on or prior to the Transaction
Date that are (i) directly attributable to an Asset Acquisition and calculated
on a basis that is consistent with Regulation S-X under the Securities Act or
(ii) implemented or to be implemented within six months of the date of the Asset
Acquisition and that are supportable and quantifiable by the underlying
accounting records of such business, as if, in the case of each of clause (i)
and (ii), all such reductions in costs had been effected as of the beginning of
such period.
"Productive Assets" means assets (including Capital Stock) that are
-----------------
used or usable by the Company and its Restricted Subsidiaries in Permitted
Businesses.
"Purchase Agreement" means (i) with respect to the Initial Notes
------------------
issued on August 6, 1999, the Purchase Agreement dated as of August 3, 1999 by
and among the Company, the Guarantors and the Initial Purchasers and (ii) with
respect to each issuance of Additional Notes, the purchase agreement or
underwriting agreement among the Company, the Guarantors, if any, and the person
purchasing Additional Notes.
"Purchase Money Note" means a promissory note of a Securitization
-------------------
Entity evidencing a line of credit, which may be irrevocable, from the Company
or any Restricted Subsidiary of the Company in connection with a Qualified
Securitization Transaction, which note shall be repaid from cash available to
the Securitization Entity, other than amounts required to be established as
reserves pursuant to agreements, amounts paid to investors in respect of
interest, principal and other amounts owing to such investors and amounts paid
in connection with the purchase of newly generated receivables or newly acquired
equipment.
"Qualified Capital Stock" means any Capital Stock that is not
-----------------------
Disqualified Stock.
"Qualified Institutional Buyer" or "QIB" means a "qualified
----------------------------- ---
institutional buyer" as that term is defined in Rule 144A under the Securities
Act.
"Qualified Securitization Transaction" means any transaction or series
------------------------------------
of transactions pursuant to which the Company or any of its Restricted
Subsidiaries may sell,
<PAGE>
-24-
convey or otherwise transfer to (a) a Securitization Entity (in the case of a
transfer by the Company or any of its Restricted Subsidiaries) and (b) any other
Person (in case of a transfer by a Securitization Entity), or may grant a
security interest in, any accounts receivable or equipment (whether now existing
or arising or acquired in the future) of the Company or any of its Restricted
Subsidiaries, and any assets related thereto including, without limitation, all
collateral securing such accounts receivable and equipment, all contracts and
contract rights and all Guarantees or other obligations in respect such accounts
receivable and equipment, proceeds of such accounts receivable and equipment and
other assets (including contract rights) which are customarily transferred or in
respect of which security interests are customarily granted in connection with
asset securitization transactions involving accounts receivable and equipment.
"Recapitalization" has the meaning ascribed to such term in the
----------------
Purchase Agreement with respect to the Initial Notes issued on August 6, 1999.
"Redemption Date," when used with respect to any Note to be redeemed,
----------------
means the date fixed for such redemption pursuant to this Indenture.
"redemption price," when used with respect to any Note to be redeemed,
----------------
means the price fixed for such redemption pursuant to this Indenture.
"Refinancing Indebtedness" shall have the meaning provided in clause
------------------------
(xiv) of the second paragraph of Section 4.04.
"Refinancings" shall have the meaning provided in clause (xiv) of the
------------
second paragraph of Section 4.04.
"Registrar" has the meaning provided in Section 2.03.
---------
"Registration" means a registered exchange offer pursuant to a
------------
Registration Rights Agreement for the Initial Notes by the Company or other
registration of the Notes under the Securities Act pursuant to a Registration
Rights Agreement.
"Registration Rights Agreement" means (i) with respect to the Initial
-----------------------------
Notes issued on August 6, 1999, the Exchange and Registration Rights Agreement
dated as of August 6, 1999 by and among the Company, the Guarantors and the
Initial Purchasers and (ii) with respect to each issuance of Additional Notes
issued in a transaction exempt from the registration requirements of the
Securities Act, the registration rights agreement, if any, among the Company,
the Guarantors, if any, and the Persons purchasing such Additional Notes under
the related Purchase Agreement.
"Regulation S" means Regulation S under the Securities Act.
------------
<PAGE>
-25-
"Regulation S Global Security" means a permanent global security in
----------------------------
registered form representing the aggregate principal amount of Notes sold in
reliance on Regulation S under the Securities Act.
"Retired Capital Stock" has the meaning provided in Section 4.06.
---------------------
"Refunding Capital Stock" has the meaning provided in Section 4.06.
-----------------------
"Required Premiums" shall have the meaning, provided in clause (xiv)
-----------------
of the second paragraph of Section 4.04.
"Restricted Investment" means an Investment other than a Permitted
---------------------
Investment.
"Restricted Payment" has the meaning provided in Section 4.06.
------------------
"Restricted Security" has the meaning set forth in Rule 144(a)(3)
-------------------
under the Securities Act; provided, however, that the Trustee shall be entitled
to request and conclusively rely upon an Opinion of Counsel with respect to
whether any Note is a Restricted Security.
"Restricted Subsidiary" of a Person means any Subsidiary of the
---------------------
referent Person that is not an Unrestricted Subsidiary.
"Rule 144A" means Rule 144A under the Securities Act.
---------
"S&P" means Standard & Poor's.
---
"SEC" or "Commission" means the Securities and Exchange Commission.
--- ----------
"Securities Act" means the Securities Act of 1933, as amended, and the
--------------
rules and regulations promulgated by the SEC thereunder.
"Securitization Entity" means a Wholly Owned Subsidiary of the Company
---------------------
(or another Person in which the Company or any Subsidiary of the Company makes
an Investment and to which the Company or any Subsidiary of the Company
transfers accounts receivable or equipment and related assets) that engages in
no activities other than in connection with the financing of accounts receivable
or equipment and that is designated by the Board of Directors of the Company (as
provided below) as a Securitization Entity,
(a) no portion of the Indebtedness or any other Obligations
(contingent or otherwise) of which
<PAGE>
-26-
(i) is guaranteed by the Company or any Restricted Subsidiary of the
Company (excluding guarantees of Obligations (other than the principal of,
and interest on, Indebtedness)) pursuant to Standard Securitization
(ii) is recourse to or obligates the Company or any Restricted
Subsidiary of the Company in any way other than pursuant to Standard
Securitization Undertakings; or
(iii) subjects any property or asset of the Company or any Restricted
Subsidiary of the Company, directly or indirectly, contingently or
otherwise, to the satisfaction thereof, other than pursuant to Standard
Securitization Undertakings;
(b) with which neither the Company nor any Restricted Subsidiary of
the Company has any material contract, agreement, arrangement or
understanding other than on terms no less favorable to the Company or such
Restricted Subsidiary than those that might be obtained at the time from
Persons that are not Affiliates of the Company, other than fees payable in
the ordinary course of business in connection with servicing receivables of
such entity; and
(c) to which neither the Company nor any Restricted Subsidiary of the
Company has any obligation to maintain or preserve such entity's financial
condition or cause such entity to achieve certain levels of operating
results.
Any such designation by the Board of Directors of the Company shall be evidenced
to the Trustee by filing with the Trustee a certified copy of the Board
Resolution of the Company giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the foregoing
conditions.
"Seller Note" means, collectively, the Junior Subordinated Promissory
-----------
Notes dated as of the Issue Date issued by Parent to the sellers in the
Recapitalization.
"Senior Credit Facility" mean that certain Credit Agreement, dated as
----------------------
of the Issue Date, by and among the Company, Parent, the Guarantors, BankBoston,
N.A. and Canadian Imperial Bank of Commerce, as Co-Agents, The Chase Manhattan
Bank, as Administrative Agent, and the financial institutions party thereto,
including any related notes, guarantees, collateral documents, instruments and
agreements executed in connection therewith, and in each case as amended
(including any amendment and restatement thereof), modified, renewed, refunded,
replaced, refinanced or restructured (including, without limitation, any
amendment increasing the amount of available borrowing thereunder) from time to
time and whether with the same or any other agent, lender or group of lenders.
<PAGE>
-27-
"Shareholders Agreement" means, collectively, that certain
----------------------
shareholders agreement and that certain voting agreement, each dated as of the
Issue Date, among Bain Capital, Inc. and the other shareholders of Parent named
as parties therein from time to time.
"Significant Subsidiary" means any Subsidiary that would be a
----------------------
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the Issue Date.
"Standard Securitization Undertakings" means representations,
------------------------------------
warranties, covenants and indemnities entered into by the Company or any
Subsidiary of the Company that are reasonably customary in an accounts
receivable or equipment transactions.
"Stated Maturity" means, with respect to any installment of interest
---------------
or principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subordinated Indebtedness" means, with respect to the Company or any
-------------------------
Guarantor, any Indebtedness of the Company or such Guarantor, as the case may
be, which is expressly subordinated in right of payment to the Notes or such
Guarantor's Note Guarantee, as the case may be.
"Subsidiary" means, with respect to any Person, (i) any corporation,
----------
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof); and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof), but shall not include
any Unrestricted Subsidiary.
"Tax Allocation Agreement" means the tax allocation agreement dated as
------------------------
of the Issue Date among the Parent, any holding company of the Parent, the
Company and the Company's Subsidiaries.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code (S)(S)
---
77aaa-77bbbb), as amended, as in effect on the Issue Date (except as provided in
Section 9.03) until such time as this Indenture is qualified under the TIA, and
thereafter as in effect on the date on which this Indenture is qualified under
the TIA.
<PAGE>
-28_
"Total Assets" means the total consolidated assets of the Company and
------------
its Restricted Subsidiaries, as set forth on the Company's most recent
consolidated balance sheet, adjusted to give effect to any acquisitions or
dispositions since the date of such balance sheet (including any acquisitions
for which Indebtedness is proposed to be incurred).
"Total Tangible Assets" means Total Assets minus goodwill and other
---------------------
intangibles and deferred tax assets.
"Transaction Date" has the meaning specified in the definition of
----------------
"Consolidated Fixed Charge Coverage Ratio."
"Trustee" means the party named as such in the first paragraph of this
-------
Indenture until a successor replaces it in accordance with the provisions of
this Indenture and thereafter means such successor.
"Trust Officer" means any officer within the corporate trust
-------------
department (or any successor group of the Trustee) including any vice president,
assistant vice president, assistant secretary or any other officer or assistant
officer of the Trustee customarily performing functions similar to those
performed by the persons who at that time shall be such officers, and also
means, with respect to a particular corporate trust matter, any other officer to
whom such trust matter is referred because of his knowledge of and familiarity
with the particular subject.
"United States Government Obligations" means direct non-callable
------------------------------------
obligations of the United States of America for the payment of which the full
faith and credit of the United States is pledged.
"Unrestricted Notes" means one or more Notes that do not and are not
------------------
required to bear the Private Placement Legend in the form set forth in Exhibit A
---------
hereto, including, without limitation, the Exchange Notes and any Notes
registered under the Securities Act pursuant to and in accordance with a
Registration Rights Agreement.
"Unrestricted Subsidiary" means any Subsidiary that is designated by
-----------------------
the Board of Directors as an Unrestricted Subsidiary pursuant to a Board
Resolution, but only to the extent that such Subsidiary:
(a) has no Indebtedness other than Non-Recourse Debt;
(b) is not party to any agreement, contract, arrangement or
understanding with the Company or any Restricted Subsidiary of the Company
unless the terms of any such agreement, contract, arrangement or
understanding are no less favorable to the Company or such Restricted
Subsidiary than those that might be obtained at the time from Persons who
are not Affiliates of the Company;
<PAGE>
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(c) is a Person with respect to which neither the Company nor any of
its Restricted Subsidiaries has any direct or indirect obligation (x) to
subscribe for additional Equity Interests or (y) to maintain or preserve
such Person's financial condition or to cause such Person to achieve any
specified levels of operating results;
(d) has not guaranteed or otherwise directly or indirectly provided
credit support for any Indebtedness of the Company or any of its Restricted
Subsidiaries; and
(e) has at least one director on its board of directors that is not a
director or executive officer of the Company or any of its Restricted
Subsidiaries and has at least one executive officer that is not a director
or executive officer of the Company or any of its Restricted Subsidiaries.
Any such designation by the Board of Directors shall be evidenced to
the Trustee by filing with the Trustee a certified copy of the Board Resolution
giving effect to such designation and an Officers' Certificate certifying that
such designation complied with the foregoing conditions and was permitted by
Section 4.06. If, at any time, any Unrestricted Subsidiary would fail to meet
the foregoing requirements as an Unrestricted Subsidiary, it shall thereafter
cease to be an Unrestricted Subsidiary for purposes of this Indenture and any
Indebtedness of such Subsidiary shall be deemed to be incurred by a Restricted
Subsidiary of the Company as of such date (and, if such Indebtedness is not
permitted to be incurred as of such date under the covenant described under
Section 4.04, the Company shall be in default of such covenant). The Board of
Directors of the Company may at any time designate any Unrestricted Subsidiary
to be a Restricted Subsidiary; provided that such designation shall be deemed to
be an incurrence of Indebtedness by a Restricted Subsidiary of the Company of
any outstanding Indebtedness of such Unrestricted Subsidiary and such
designation shall only be permitted if:
(i) such Indebtedness is permitted under the covenant described
under Section 4.04, calculated on a pro forma basis as if such designation
had occurred at the beginning of the Four-Quarter Period;
(ii) such Subsidiary shall execute a Note Guarantee and deliver an
Opinion of Counsel, in each case, if required by Section 4.16; and
(iii) no Default or Event of Default would be in existence following
such designation.
"U.S. Subsidiary" means any Restricted Subsidiary of the Company that
---------------
is incorporated in a State in the United States or the District of Columbia.
<PAGE>
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"Voting Stock" of any Person as of any date means the Capital Stock of
------------
such Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any
---------------------------------
Indebtedness at any date, the number of years obtained by dividing (i) the sum
of the products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
----------------------------------
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person and one or more Wholly Owned Restricted Subsidiaries
of such Person.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such
-----------------------
Person all of the outstanding Capital Stock or other ownership interests of
which (other than directors' qualifying shares) shall at the time be owned by
such Person or by one or more Wholly Owned Subsidiaries of such Person and one
or more Wholly Owned Subsidiaries of such Person.
SECTION 1.02. Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following meanings:
"Commission" means the SEC.
"indenture securities" means the Notes.
"indenture security holder" means a Holder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Company or any other
obligor on the Notes.
<PAGE>
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All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by SEC rule and not
otherwise defined herein have the meanings assigned to them therein.
SECTION 1.03. Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned
to it in accordance with generally accepted accounting principles in effect
from time to time, and any other reference in this Indenture to "generally
accepted accounting principles" refers to GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and words in the plural
include the singular;
(5) provisions apply to successive events and transactions; and
(6) "herein," "hereof" and other words of similar import refer to
this Indenture as a whole and not to any particular Article, Section or
other subdivision.
ARTICLE TWO
THE NOTES
SECTION 2.01. Form and Dating.
The Initial Notes and the Trustee's certificate of authentication
thereof shall be substantially in the form of Exhibit A hereto, which is hereby
---------
incorporated in and expressly made a part of this Indenture. The Exchange Notes
and the Trustee's certificate of authentication thereof shall be substantially
in the form of Exhibit B hereto, which is hereby incorporated in and expressly
---------
made a part of this Indenture. The Notes may have notations, legends or
endorsements (including the Note Guarantee) required by law, stock exchange rule
or usage. The Company and the Trustee shall approve the form of the Notes and
any notation, legend or endorsement (including the Note Guarantee) on them.
Each Note shall be dated the date of its issuance and shall show the date of its
authentication.
<PAGE>
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Notes offered and sold in reliance on Rule 144A and Notes offered and
sold in reliance on Regulation S shall be issued initially in the form of one or
more Global Securities, substantially in the form set forth in Exhibit A hereto,
---------
deposited with the Trustee, as custodian for the Depository, duly executed by
the Company and authenticated by the Trustee as hereinafter provided with the
Note Guarantees of the Guarantors endorsed thereon and shall bear the legend set
forth in Exhibit C hereto. The aggregate principal amount of the Global
---------
Securities may from time to time be increased or decreased by adjustments made
on the records of the Trustee, as custodian for the Depository, as hereinafter
provided. Notes issued in exchange for interests in a Global Security pursuant
to Section 2.16 may be issued in the form of Physical Securities in
substantially the form set forth in Exhibit A.
---------
SECTION 2.02. Execution and Authentication.
Two Officers, or an Officer and an Assistant Secretary, shall sign, or
one Officer shall sign and one Officer or an Assistant Secretary (each of whom
shall, in each case, have been duly authorized by all requisite corporate
actions) shall attest to, the Notes for the Company by manual or facsimile
signature.
If an Officer or an Assistant Secretary whose signature is on a Note
was an Officer or an Assistant Secretary, as the case may be, at the time of
such execution but no longer holds that office at the time the Trustee
authenticates the Note, the Note shall be valid nevertheless.
A Note shall not be valid until an authorized signatory of the Trustee
manually signs the certificate of authentication on the Note. The signature
shall be conclusive evidence that the Note has been authenticated under this
Indenture.
The Trustee shall authenticate (i) Initial Notes for original issue in
an aggregate principal amount not to exceed $140,000,000, (ii) Private Exchange
Notes from time to time only in exchange for a like principal amount of Initial
Notes and (iii) Unrestricted Notes from time to time only in exchange for (A) a
like principal amount of Initial Notes or (B) a like principal amount of Private
Exchange Notes, in each case upon a written order of the Company in the form of
an Officers' Certificate. Each such written order shall specify the amount of
Notes to be authenticated and the date on which the Notes are to be
authenticated, whether the Notes are to be Initial Notes, Private Exchange Notes
or Unrestricted Notes and whether the Notes are to be issued as Physical
Securities or Global Securities and such other information as the Trustee may
reasonably request. Additional Notes may be issued in accordance with Section
2.17. Any such order shall specify the amount of the Notes to be authenticated
and the date on which the original issue of Notes is to be authenticated and, in
the case of an issuance of Additional Notes pursuant to Section 2.17 after the
Issue Date, shall certify that such issuance will not be prohibited by Section
4.04.
<PAGE>
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Notwithstanding the foregoing, all Notes issued under this Indenture
shall vote and consent together on all matters (as to which any of such Notes
may vote or consent) as one class and no series of Notes will have the right to
vote or consent as a separate class on any matter.
The Trustee may appoint an authenticating agent reasonably acceptable
to the Company to authenticate Notes. Unless otherwise provided in the
appointment, an authenticating agent may authenticate Notes whenever the Trustee
may do so. Each reference in this Indenture to authentication by the Trustee
includes authentication by such agent. An authenticating agent shall have the
same rights as an Agent to deal with the Company and Affiliates of the Company.
The Notes shall be issuable only in registered form without coupons in
denominations of $1,000 and any integral multiple thereof.
SECTION 2.03. Registrar and Paying Agent.
The Company shall maintain an office or agency, which shall be in the
Borough of Manhattan, The City of New York, where (a) Notes may be presented or
surrendered for registration of transfer or for exchange (the "Registrar"), (b)
---------
Notes may be presented or surrendered for payment (the "Paying Agent") and (c)
------------
notices and demands in respect of the Notes and this Indenture may be served.
The Registrar shall keep a register of the Notes and of their transfer and
exchange. The Company, upon notice to the Trustee, may appoint one or more co-
Registrars and one or more additional Paying Agents. The term "Paying Agent"
includes any additional Paying Agent. Except as provided herein, the Company or
any Guarantor may act as Paying Agent, Registrar or co-Registrar.
The Company shall enter into an appropriate agency agreement with any
Agent not a party to this Indenture, which shall incorporate the provisions of
the TIA. The agreement shall implement the provisions of this Indenture that
relate to such Agent. The Company shall notify the Trustee of the name and
address of any such Agent. If the Company fails to maintain a Registrar or
Paying Agent, or fails to give the foregoing notice, the Trustee shall act as
such and shall be entitled to appropriate compensation in accordance with
Section 7.07.
The Company initially appoints the Trustee as Registrar and Paying
Agent until such time as the Trustee has resigned or a successor has been
appointed.
<PAGE>
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SECTION 2.04. Paying Agent To Hold Assets in Trust.
The Company shall require each Paying Agent other than the Trustee to
agree in writing that each Paying Agent shall hold in trust for the benefit of
Holders or the Trustee all assets held by the Paying Agent for the payment of
principal of, or interest on, the Notes, and shall notify the Trustee of any
Default by the Company in making any such payment. The Company at any time may
require a Paying Agent to distribute all assets held by it to the Trustee and
account for any assets disbursed and the Trustee may at any time during the
continuance of any payment Default, upon written request to a Paying Agent,
require such Paying Agent to distribute all assets held by it to the Trustee and
to account for any assets distributed. Upon distribution to the Trustee of all
assets that shall have been delivered by the Company to the Paying Agent (if
other than the Company), the Paying Agent shall have no further liability for
such assets. If the Company, any Guarantor or any of their respective
Affiliates acts as Paying Agent, it shall, on or before each due date of the
principal of or interest on the Notes, segregate and hold in trust for the
benefit of the Persons entitled thereto a sum sufficient to pay the principal or
interest so becoming due until such sums shall be paid to such Persons or
otherwise disposed of as herein provided and will promptly notify the Trustee of
its action or failure so to act.
SECTION 2.05. Holder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Holders. If the Trustee is not the Registrar, the Company shall furnish to the
Trustee before each Interest Record Date and at such other times as the Trustee
may request in writing a list as of such date and in such form as the Trustee
may reasonably require of the names and addresses of Holders, which list may be
conclusively relied upon by the Trustee.
SECTION 2.06. Transfer and Exchange.
Subject to the provisions of Sections 2.15 and 2.16, when Notes are
presented to the Registrar or a co-Registrar with a request to register the
transfer of such Notes or to exchange such Notes for an equal principal amount
of Notes of other authorized denominations of the same series, the Registrar or
co-Registrar shall register the transfer or make the exchange as requested if
its requirements for such transaction are met; provided, however, that the Notes
surrendered for transfer or exchange shall be duly endorsed or accompanied by a
written instrument of transfer in form satisfactory to the Company and the
Registrar or co-Registrar, duly executed by the Holder thereof or his attorney
duly authorized in writing. To permit registrations of transfers and exchanges,
the Company shall execute and the Trustee shall authenticate Notes at the
Registrar's or co-Registrar's written request. No service charge shall be made
for any registration of transfer or exchange, but the Company may require
pay-
<PAGE>
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ment of a sum sufficient to cover any transfer tax or similar governmental
charge payable in connection therewith (other than any such transfer taxes or
other governmental charge payable upon exchanges or transfers pursuant to
Section 2.02, 2.10, 3.06, 4.05, 4.12, or 9.05). The Registrar or co-Registrar
shall not be required to register the transfer or exchange of any Note (i)
during a period beginning at the opening of business 15 days before the mailing
of a notice of redemption of Notes and ending at the close of business on the
day of such mailing and (ii) selected for redemption in whole or in part
pursuant to Article Three hereof, except the unredeemed portion of any Note
being redeemed in part.
Prior to the registration of any transfer by a Holder as provided
herein, the Company, the Trustee and any Agent of the Company shall treat the
person in whose name the Note is registered as the owner thereof for all
purposes whether or not the Note shall be overdue, and neither the Company, the
Trustee nor any such Agent shall be affected by notice to the contrary. Any
holder of a beneficial interest in a Global Security shall, by acceptance of
such beneficial interest in a Global Security, agree that transfers of
beneficial interests in such Global Security may be effected only through a
book-entry system maintained by the Depository (or its agent), and that
ownership of a beneficial interest in a Global Security shall be required to be
reflected in a book entry.
SECTION 2.07. Replacement Notes.
If a mutilated Note is surrendered to the Trustee or if the Holder of
a Note claims that the Note has been lost, destroyed or wrongfully taken, the
Company shall issue and the Trustee shall authenticate a replacement Note if the
Trustee's requirements for replacement of Notes are met. If required by the
Company or the Trustee, such Holder must provide an indemnity bond or other
indemnity, sufficient in the judgment of both the Company and the Trustee, to
protect the Company, the Trustee and any Agent from any loss which any of them
may suffer if a Note is replaced. The Company or the Trustee may charge such
Holder for its reasonable out-of-pocket expenses in replacing a Note, including
reasonable fees and expenses of counsel.
Every replacement Note is an additional obligation of the Company.
SECTION 2.08. Outstanding Notes.
Notes outstanding at any time are all the Notes that have been
authenticated by the Trustee except those canceled by the Registrar, those
delivered to it for cancellation and those described in this Section 2.08 as not
outstanding. Subject to Section 2.09, a Note does not cease to be outstanding
because the Company, any Guarantor or any of their respective Affiliates holds
the Note.
<PAGE>
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If a Note is replaced pursuant to Section 2.07 (other than a mutilated
Note surrendered for replacement), it ceases to be outstanding unless the
Trustee receives proof satisfactory to it that the replaced Note is held by a
bona fide purchaser. A mutilated Note ceases to be outstanding upon surrender
of such Note and replacement thereof pursuant to Section 2.07.
If on a Redemption Date, Purchase Date or the Final Maturity Date the
Paying Agent holds money sufficient to pay all of the principal and interest due
on the Notes payable on that date, and is not prohibited from paying such money
to the Holders pursuant to the terms of this Indenture, then on and after that
date such Notes cease to be outstanding and interest on them ceases to accrue.
SECTION 2.09. Treasury Notes.
In determining whether the Holders of the required principal amount of
Notes have concurred in any direction, waiver or consent, Notes owned by the
Company, the Guarantors or any of their respective Affiliates shall be
disregarded, except that, for the purposes of determining whether the Trustee
shall be protected in relying on any such direction, waiver or consent, only
Notes that a Trust Officer of the Trustee actually knows are so owned shall be
disregarded.
The Company shall notify the Trustee, in writing, when it, any
Guarantor or any of its Affiliates repurchases or otherwise acquires Notes, of
the aggregate principal amount of such Notes so repurchased or otherwise
acquired.
SECTION 2.10. Temporary Notes.
Until definitive Notes are ready for delivery, the Company may prepare
and the Trustee shall authenticate temporary Notes upon receipt of a written
order of the Company in the form of an Officers' Certificate. The Officers'
Certificate shall specify the amount of temporary Notes to be authenticated and
the date on which the temporary Notes are to be authenticated.
Temporary Notes shall be substantially in the form of definitive Notes
but may have variations that the Company considers appropriate for temporary
Notes. Without unreasonable delay, the Company shall prepare and the Trustee
shall authenticate upon receipt of a written order of the Company pursuant to
Section 2.02 definitive Notes in exchange for temporary Notes.
<PAGE>
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SECTION 2.11. Cancellation.
The Company at any time may deliver Notes to the Trustee for
cancellation. The Registrar and the Paying Agent shall forward to the Trustee
any Notes surrendered to them for transfer, exchange or payment. The Trustee, or
at the direction of the Trustee, the Registrar or the Paying Agent, and no one
else, shall cancel, and at the written direction of the Company, dispose of all
Notes surrendered for transfer, exchange, payment or cancellation according to
its standard procedures. Subject to Section 2.07, the Company may not issue new
Notes to replace Notes that it has paid or delivered to the Trustee for
cancellation. If the Company or any Guarantor shall acquire any of the Notes,
such acquisition shall not operate as a redemption or satisfaction of the
Indebtedness represented by such Notes unless and until the same are surrendered
to the Trustee for cancellation pursuant to this Section 2.11.
SECTION 2.12. Defaulted Interest.
The Company shall pay interest on overdue principal from time to time
on demand at the rate of interest then borne by the Notes. The Company shall,
to the extent lawful, pay interest on overdue installments of interest (without
regard to any applicable grace periods) from time to time on demand at the rate
of interest then borne by the Notes.
If the Company defaults in a payment of interest on the Notes, it
shall pay the defaulted interest, plus (to the extent lawful) any interest
payable on the defaulted interest to the Persons who are Holders on a subsequent
special record date, which date shall be the fifteenth day preceding the date
fixed by the Company for the payment of defaulted interest or the next
succeeding Business Day if such date is not a Business Day. At least 15 days
before the subsequent special record date, the Company, or upon the written
request of the Company, the Trustee, in the name of and at the expense of the
Company shall mail to each Holder, with a copy to the Trustee, a notice that
states the subsequent special record date, the payment date and the amount of
defaulted interest, and interest payable on such defaulted interest, if any, to
be paid.
Notwithstanding the foregoing, any interest which is paid prior to the
expiration of the 30-day period set forth in Section 6.01(b) shall be paid to
Holders as of the Interest Record Date for the Interest Payment Date for which
interest has not been paid.
SECTION 2.13. CUSIP Number.
The Company in issuing the Notes will use a "CUSIP" number and the
Trustee shall use the CUSIP number in notices of redemption or exchange as a
convenience to Holders; provided, however, that any such notice may state that
no representation is made as to the correctness or accuracy of the CUSIP number
printed in the notice or on the Notes, and that
<PAGE>
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reliance may be placed only on the other identification numbers printed on the
Notes. The Company shall promptly notify the Trustee of any changes in CUSIP
numbers.
SECTION 2.14. Deposit of Moneys.
Prior to 12:00 noon New York City time on each Interest Payment Date,
Redemption Date, Purchase Date and the Final Maturity Date, the Company shall
deposit with the Paying Agent in immediately available funds money sufficient to
make cash payments, if any, due on such Interest Payment Date, Redemption Date,
Purchase Date or Final Maturity Date, as the case may be, in a timely manner
which permits the Paying Agent to remit payment to the Holders on such Interest
Payment Date, Redemption Date, Purchase Date or Final Maturity Date, as the case
may be.
SECTION 2.15. Book-Entry Provisions for Global Securities.
(a) The Global Securities initially shall (i) be registered in the
name of the Depository or the nominee of such Depository, (ii) be delivered to
the Trustee as custodian for such Depository and (iii) bear legends as set forth
in Exhibit C.
---------
Members of, or participants in, the Depository ("Participants") shall
------------
have no rights under this Indenture with respect to any Global Security held on
their behalf by the Depository, or the Trustee as its custodian, or under the
Global Security, and the Depository may be treated by the Company, the Trustee
and any agent of the Company or the Trustee as the absolute owner of the Global
Security for all purposes whatsoever. Notwithstanding the foregoing, nothing
herein shall prevent the Company, the Trustee or any agent of the Company or the
Trustee from giving effect to any written certification, proxy or other
authorization furnished by the Depository or impair, as between the Depository
and Participants, the operation of customary practices governing the exercise of
the rights of a beneficial owner in a Global Security.
(b) Transfers of Global Securities shall be limited to transfers in
whole, but not in part, to the Depository, its successors or their respective
nominees. Interests of beneficial owners in the Global Securities may be
transferred or exchanged for Physical Securities in accordance with the rules
and procedures of the Depository and the provisions of Section 2.16; provided,
however, that Physical Securities shall be transferred to all beneficial owners
in exchange for their beneficial interests in Global Securities if (i) the
Depository notifies the Company that it is unwilling or unable to continue as
Depository for any Global Security and a successor Depository is not appointed
by the Company within 90 days of such notice, (ii) the Company, at its option,
notifies the Trustee in writing that it elects to cause the issuance of the
Notes as Physical Securities or (iii) an Event of Default has occurred and is
con-
<PAGE>
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tinuing and the Registrar has received a request from the Depository to issue
Physical Securities.
(c) In connection with any transfer or exchange of a portion of the
beneficial interest in a Global Security to beneficial owners pursuant to
paragraph (b), the Registrar shall (if one or more Physical Securities are to be
issued) reflect on its books and records the date and a decrease in the
principal amount of such Global Security in an amount equal to the principal
amount of the beneficial interest in the Global Security to be transferred, and
the Company shall execute, and the Trustee shall authenticate and deliver, one
or more Physical Securities of like tenor and amount.
(d) In connection with the transfer of Global Securities as an
entirety to beneficial owners pursuant to paragraph (b) of this Section 2.15,
the Global Securities shall be deemed to be surrendered to the Trustee for
cancellation, and the Company shall execute, and the Trustee shall upon written
instructions from the Company authenticate and deliver, to each beneficial owner
identified by the Depository in exchange for its beneficial interest in the
Global Securities, an equal aggregate principal amount of Physical Securities of
authorized denominations.
(e) Any Physical Security constituting a Restricted Security
delivered in exchange for an interest in a Global Security pursuant to paragraph
(c) of this Section 2.15 shall, except as otherwise provided by Section 2.16,
bear the Private Placement Legend.
(f) The Holder of any Global Security may grant proxies and otherwise
authorize any Person, including Participants and Persons that may hold interests
through Participants, to take any action which a Holder is entitled to take
under this Indenture or the Notes and the Trustee is entitled to rely upon any
electronic instructions from beneficial owners to the Holder of any Global
Security.
(g) The Company, the Trustee and the Agents shall not be responsible
for any acts or omissions of a Depository, for any Depository records of
beneficial ownership interests or for any transactions of the Depository and
beneficial owners.
SECTION 2.16. Registration of Transfers and Exchanges.
(a) Transfer and Exchange of Physical Securities. When Physical
Securities are presented to the Registrar or co-Registrar with a request:
(i) to register the transfer of the Physical Securities; or
(ii) to exchange such Physical Securities for an equal principal
amount of Physical Securities of other authorized denominations,
<PAGE>
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the Registrar or co-Registrar shall register the transfer or make the exchange
as requested if the requirements under this Indenture as set forth in this
Section 2.16 for such transactions are met; provided, however, that the Physical
Securities presented or surrendered for registration of transfer or exchange:
(I) shall be duly endorsed or accompanied by a written instrument of
transfer in form satisfactory to the Registrar or co-Registrar, duly
executed by the Holder thereof or his attorney duly authorized in writing;
and
(II) in the case of Physical Securities the offer and sale of which
have not been registered under the Securities Act, such Physical Securities
shall be accompanied, in the sole discretion of the Company, by the
following additional information and documents, as applicable:
(A) if such Physical Security is being delivered to the Registrar or
co-Registrar by a Holder for registration in the name of such
Holder, without transfer, a certification from such Holder to
that effect (substantially in the form of Exhibit D hereto); or
---------
(B) if such Physical Security is being transferred to a QIB in
accordance with Rule 144A, a certification to that effect
(substantially in the form of Exhibit D hereto); or
---------
(C) if such Physical Security is being transferred to an
Institutional Accredited Investor, delivery of a certification
to that effect (substantially in the form of Exhibit D hereto)
---------
and a transferee letter of representation (substantially in the
form of Exhibit E) hereto and, at the option of the Company, an
---------
Opinion of Counsel reasonably satisfactory to the Company to the
effect that such transfer is in compliance with the Securities
Act; or
(D) if such Physical Security is being transferred in reliance on
Regulation S, delivery of a certification to that effect
(substantially in the form of Exhibit D hereto) and a transferor
---------
certificate for Regulation S transfers substantially in the form
of Exhibit F hereto and, at the option of the Company, an
---------
Opinion of Counsel reasonably satisfactory to the Company to the
effect that such transfer is in compliance with the Securities
Act; or
(E) if such Physical Security is being transferred in reliance on
Rule 144 under the Securities Act, delivery of a certification to
that effect (sub-
<PAGE>
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stantially in the form of Exhibit D hereto) and,
-------
at the option of the Company, an Opinion of Counsel reasonably
satisfactory to the Company to the effect that such transfer is
in compliance with the Securities Act; or
(F) if such Physical Security is being transferred in reliance on
another exemption from the registration requirements of the
Securities Act, a certification to that effect (substantially in
the form of Exhibit D hereto) and, at the option of the Company,
---------
an Opinion of Counsel reasonably acceptable to the Company to the
effect that such transfer is in compliance with the Securities
Act.
(b) Restrictions on Transfer of a Physical Security for a Beneficial
Interest in a Global Security. A Physical Security the offer and sale of which
has not been registered under the Securities Act may not be exchanged for a
beneficial interest in a Global Security except upon satisfaction of the
requirements set forth below. Upon receipt by the Registrar or co-Registrar of
a Physical Security, duly endorsed or accompanied by appropriate instruments of
transfer, in form satisfactory to the Registrar or co-Registrar, together with:
(A) certification, substantially in the form of Exhibit D hereto,
---------
that such Physical Security is being transferred (I) to a QIB,
(II) to an Accredited Investor or (III) in an offshore
transaction in reliance on Regulation S and, with respect to (II)
or (III), at the option of the Company, an Opinion of Counsel
reasonably acceptable to the Company to the effect that such
transfer is in compliance with the Securities Act; and
(B) written instructions directing the Registrar or co-Registrar to
make, or to direct the Depository to make, an endorsement on the
applicable Global Security to reflect an increase in the
aggregate amount of the Notes represented by the Global Security,
then the Registrar or co-Registrar shall cancel such Physical Security and
cause, or direct the Depository to cause, in accordance with the standing
instructions and procedures existing between the Depository and the Registrar or
co-Registrar, the principal amount of Notes represented by the applicable Global
Security to be increased accordingly. If no 144A Global Security, IAI Global
Security or Regulation S Global Security, as the case may be, is then
outstanding, the Company shall, unless either of the events in the proviso to
Section 2.15(b) have occurred and are continuing, issue and the Trustee shall,
upon written instructions from the Company in accordance with Section 2.02,
authenticate such a Global Security in the appropriate principal amount.
<PAGE>
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(c) Transfer and Exchange of Global Securities. The transfer and
exchange of Global Securities or beneficial interests therein shall be effected
through the Depository in accordance with this Indenture (including the
restrictions on transfer set forth herein) and the procedures of the Depository
therefor. Upon receipt by the Registrar or Co-Registrar of written
instructions, or such other instruction as is customary for the Depository, from
the Depository or its nominee, requesting the registration of transfer of an
interest in a 144A Global Security, an IAI Global Security or Regulation S
Global Security, as the case may be, to another type of Global Security,
together with the applicable Global Securities (or, if the applicable type of
Global Security required to represent the interest as requested to be obtained
is not then outstanding, only the Global Security representing the interest
being transferred), the Registrar or Co-Registrar shall reflect on its books and
records (and the applicable Global Security) the applicable increase and
decrease of the principal amount of Notes represented by such types of Global
Securities, giving effect to such transfer. If the applicable type of Global
Security required to represent the interest as requested to be obtained is not
outstanding at the time of such request, the Company shall issue and the Trustee
shall, upon written instructions from the Company in accordance with Section
2.02, authenticate a new Global Security of such type in principal amount equal
to the principal amount of the interest requested to be transferred.
(d) Transfer of a Beneficial Interest in a Global Security for a
Physical Security.
(i) Any Person having a beneficial interest in a Global Security
may upon request exchange such beneficial interest for a Physical Security;
provided, however, that prior to the Registration, a transferee that is a
QIB or Institutional Accredited Investor may not exchange a beneficial
interest in a Global Security for a Physical Security. Upon receipt by the
Registrar or co-Registrar of written instructions, or such other form of
instructions as is customary for the Depository, from the Depository or its
nominee on behalf of any Person (subject to the previous sentence) having a
beneficial interest in a Global Security and upon receipt by the Trustee of
a written order or such other form of instructions as is customary for the
Depository or the Person designated by the Depository as having such a
beneficial interest containing registration instructions and, in the case
of any such transfer or exchange of a beneficial interest in Notes the
offer and sale of which have not been registered under the Securities Act,
the following additional information and documents:
(A) if such beneficial interest is being transferred in reliance
on Rule 144 under the Securities Act, delivery of a
certification to that effect (substantially in the form of
Exhibit D hereto) and, at the option of the Company, an
---------
Opinion of Counsel reasonably satisfactory to the Com-
<PAGE>
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pany to the effect that such transfer is in compliance with
the Securities Act; or
(B) if such beneficial interest is being transferred in reliance
on another exemption from the registration requirements of the
Securities Act, a certification to that effect (substantially
in the form of Exhibit D hereto) and, at the option of the
---------
Company (except in the case of a transfer to a QIB), an
Opinion of Counsel reasonably satisfactory to the Company to
the effect that such transfer is in compliance with the
Securities Act,
then the Registrar or co-Registrar will cause, in accordance with the
standing instructions and procedures existing between the Depository and
the Registrar or co-Registrar, the aggregate principal amount of the
applicable Global Security to be reduced and, following such reduction, the
Company will execute and, upon receipt of an authentication order in the
form of an Officers' Certificate in accordance with Section 2.02, the
Trustee will authenticate and deliver to the transferee a Physical Security
in the appropriate principal amount.
(ii) Notes issued in exchange for a beneficial interest in a Global
Security pursuant to this Section 2.16(d) shall be registered in such names
and in such authorized denominations as the Depository, pursuant to
instructions from its direct or indirect participants or otherwise, shall
instruct the Registrar or co-Registrar in writing. The Registrar or co-
Registrar shall deliver such Physical Securities to the Persons in whose
names such Physical Securities are so registered.
(e) Restrictions on Transfer and Exchange of Global Securities.
Notwithstanding any other provisions of this Indenture, a Global Security may
not be transferred as a whole except by the Depository to a nominee of the
Depository or by a nominee of the Depository to the Depository or another
nominee of the Depository or by the Depository or any such nominee to a
successor Depository or a nominee of such successor Depository.
(f) Private Placement Legend. Upon the transfer, exchange or
replacement of Notes not bearing the Private Placement Legend, the Registrar or
co-Registrar shall deliver Notes that do not bear the Private Placement Legend.
Upon the transfer, exchange or replacement of Notes bearing the Private
Placement Legend, the Registrar or co-Registrar shall deliver only Notes that
bear the Private Placement Legend unless, and the Trustee is hereby authorized
to deliver Notes without the Private Placement Legend if, (i) there is delivered
to the Trustee an Opinion of Counsel reasonably satisfactory to the Company and
the Trustee to the effect that neither such legend nor the related restrictions
on transfer are required in order to maintain compliance with the provisions of
the Securities Act; (ii) such Note has been sold pursuant to an effective
registration statement under the Securities Act (including pursuant to
<PAGE>
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a Registration); or (iii) the date of such transfer, exchange or replacement is
two years after the later of (x) the Issue Date and (y) the last date that the
Company or any affiliate (as defined in Rule 144 under the Securities Act) of
the Company was the owner of such Notes (or any predecessor thereto).
(g) General. By its acceptance of any Note bearing the Private
Placement Legend, each Holder of such a Note acknowledges the restrictions on
transfer of such Note set forth in this Indenture and in the Private Placement
Legend and agrees that it will transfer such Note only as provided in this
Indenture.
The Trustee shall have no obligation or duty to monitor, determine or
inquire as to compliance with any restrictions on transfer imposed under this
Indenture or under applicable law with respect to any transfer of any interest
in any Note (including any transfers between or among Participants or beneficial
owners of interest in any Global Security) other than to require delivery of
such certificates and other documentation or evidence as are expressly required
by, and to do so if and when expressly required by the terms of, this Indenture,
and to examine the same to determine substantial compliance as to form with the
express requirements hereof.
The Registrar shall retain copies of all letters, notices and other
written communications received pursuant to Section 2.15 or this Section 2.16.
The Company shall have the right to inspect and make copies of all such letters,
notices or other written communications at any reasonable time upon the giving
of reasonable written notice to the Registrar.
SECTION 2.17. Issuance of Additional Notes.
The Company shall be entitled to issue Additional Notes under this
Indenture which shall have identical terms as the Notes issued on the Issue
Date, other than with respect to the date of issuance, issue price and amount of
interest payable on the first payment date applicable thereto (and, if such
Additional Notes shall be issued in the form of Exchange Notes, other than with
respect to transfer restrictions); provided that such issuance is not prohibited
by Section 4.04. The Initial Notes issued on the Issue Date, any Additional
Notes and all Exchange Notes or Private Exchange Notes issued in exchange
therefor shall be treated as a single class for all purposes under this
Indenture.
With respect to any Additional Notes, the Company shall set forth in a
Board Resolution and in an Officers' Certificate, a copy of each of which shall
be delivered to the Trustee, the following information:
(1) the aggregate principal amount of such Additional Notes to be
authenticated and delivered pursuant to this Indenture;
<PAGE>
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(2) the issue price, the issue date and the CUSIP number of such
Additional Notes and the amount of interest payable on the first payment
date applicable thereto; and
(3) whether such Additional Notes shall be Restricted Securities and
issued in the form of Initial Notes or shall be registered securities
issued in the form of Unrestricted Notes.
ARTICLE THREE
REDEMPTION
SECTION 3.01. Notices to Trustee.
If the Company wants to redeem Notes pursuant to paragraph 5, 6 or 7
of the Notes at the applicable redemption price set forth thereon, it shall
notify the Trustee in writing of the Redemption Date, the principal amount of
Notes to be redeemed, the redemption price and the Section of the Notes pursuant
to which such redemption is being made. The Company shall give such notice to
the Trustee at least 45 days before the Redemption Date (unless a shorter notice
shall be agreed to by the Trustee in writing), together with an Officers'
Certificate stating that such redemption will comply with the conditions
contained herein.
SECTION 3.02. Selection of Notes To Be Redeemed.
If less than all of the Notes are to be redeemed pursuant to
paragraph 5 of the Notes, the Trustee shall select the Notes to be redeemed in
compliance with the requirements, if any, of any securities exchange on which
the Notes are listed or, on a pro rata basis, by lot or in such other manner as
the Trustee shall deem fair and appropriate. Selection of the Notes to be
redeemed pursuant to paragraph 6 of the Notes shall be made by the Trustee only
on a pro rata basis or on as nearly a pro rata basis as is practicable (subject
to the procedures of the Depository) based on the aggregate principal amount of
Notes held by each Holder. The Trustee shall make the selection from the Notes
then outstanding, subject to redemption and not previously called for
redemption.
The Trustee may select for redemption pursuant to paragraph 5 or 6
of the Notes, portions of the principal amount of Notes that have denominations
equal to or larger than $1,000 principal amount. Notes and portions of them the
Trustee so selects shall be in amounts of $1,000 principal amount or integral
multiples thereof. Provisions of this Indenture that apply to Notes called for
redemption also apply to portions of Notes called for redemption.
<PAGE>
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SECTION 3.03. Notice of Redemption.
At least 30 days but not more than 60 days before a Redemption Date,
the Company shall mail a notice of redemption by first-class mail to each Holder
whose Notes are to be redeemed at such Holder's registered address; provided,
however, that notice of a redemption pursuant to paragraph 6 of the Notes shall
be mailed to each Holder whose Notes are to be redeemed no later than 60 days
after the date of the closing of the relevant Equity Offering.
Each notice of redemption shall identify the Notes to be redeemed
(including the CUSIP number thereon) and shall state:
(1) the Redemption Date;
(2) the redemption price;
(3) the name and address of the Paying Agent to which the Notes are
to be surrendered for redemption;
(4) that Notes called for redemption must be surrendered to the
Paying Agent to collect the redemption price;
(5) that, unless the Company defaults in making the redemption
payment, interest on Notes called for redemption ceases to accrue on and
after the Redemption Date and the only remaining right of the Holders is to
receive payment of the redemption price upon surrender to the Paying Agent;
and
(6) in the case of any redemption pursuant to paragraph 5 or 6 of the
Notes, if any Note is being redeemed in part, the portion of the principal
amount of such Note to be redeemed and that, after the Redemption Date,
upon surrender of such Note, a new Note or Notes in principal amount equal
to the unredeemed portion thereof will be issued.
At the Company's request, the Trustee shall give the notice of
redemption on behalf of the Company, in the Company's name and at the Company's
expense.
SECTION 3.04. Effect of Notice of Redemption.
Once a notice of redemption is mailed, Notes called for redemption
become due and payable on the Redemption Date and at the redemption price. Upon
surrender to the Paying Agent, such Notes shall be paid at the redemption price,
plus accrued interest thereon, if any, to the Redemption Date, but interest
installments whose maturity is on or prior to such
<PAGE>
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Redemption Date shall be payable to the Holders of record at the close of
business on the relevant Interest Record Date.
SECTION 3.05. Deposit of Redemption Price.
At least one Business Day before the Redemption Date, the Company
shall deposit with the Paying Agent (or if the Company is its own Paying Agent,
shall, on or before the Redemption Date, segregate and hold in trust) money
sufficient to pay the redemption price of and accrued interest, if any, on all
Notes to be redeemed on that date other than Notes or portions thereof called
for redemption on that date which have been delivered by the Company to the
Trustee for cancellation.
If any Note surrendered for redemption in the manner provided in the
Notes shall not be so paid on the Redemption Date due to the failure of the
Company to deposit with the Paying Agent money sufficient to pay the redemption
price thereof, the principal and accrued and unpaid interest, if any, thereon
shall, until paid or duly provided for, bear interest as provided in Sections
2.12 and 4.01 with respect to any payment default.
SECTION 3.06. Notes Redeemed in Part.
Upon surrender of a Note that is redeemed in part, the Trustee shall
authenticate for the Holder a new Note equal in principal amount to the
unredeemed portion of the Note surrendered.
ARTICLE FOUR
COVENANTS
SECTION 4.01. Payment of Notes.
The Company shall pay the principal of and interest on the Notes in
the manner provided in the Notes and the Registration Rights Agreement. An
installment of principal or interest shall be considered paid on the date due if
the Trustee or Paying Agent (other than the Company, a Guarantor or any of their
respective Affiliates) holds on that date money designated for and sufficient to
pay the installment in full and is not prohibited from paying such money to the
Holders of the Notes pursuant to the terms of this Indenture.
The Company shall pay cash interest on overdue principal at the same
rate per annum borne by the Notes. The Company shall pay cash interest on
overdue installments of
<PAGE>
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interest at the same rate per annum borne by the Notes, to the extent lawful, as
provided in Section 2.12.
SECTION 4.02. Maintenance of Office or Agency.
The Company shall maintain the office or agency required by Section
2.03. The Company shall give prompt written notice to the Trustee of the
location, and any change in the location, of such office or agency. If at any
time the Company shall fail to maintain any such required office or agency or
shall fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the address of the
Trustee set forth in Section 11.02. The Company hereby initially designates the
Trustee as its office or agency in The Borough of Manhattan, The City of New
York, located at 61 Broadway, 15th Floor, New York, New York 10006 for such
purposes.
SECTION 4.03. Transactions with Affiliates.
(a) The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, enter into or permit to occur any
transaction or series or related transactions (including, without limitation,
the purchase, sale, lease or exchange of any property or the rendering of any
service) with, or for the benefit of, any of its Affiliates involving aggregate
consideration in excess of $2.0 million (an "Affiliate Transaction"), other
---------------------
than:
(x) Affiliate Transactions permitted under paragraph (b) below; and
(y) Affiliate Transactions on terms that are not materially less
favorable than those that might reasonably have been obtained in a
comparable transaction at such time on an arm's-length basis from a Person
that is not an Affiliate of the Company;
provided, however, that for a transaction or series of related transactions with
an aggregate value of $5.0 million or more, at the Company's option, either
(i) a majority of the disinterested members of the Board of
Directors of the Company shall determine in good faith that such Affiliate
Transaction is on terms that are not materially less favorable than those
that might reasonably have been obtained in a comparable transaction at
such time on an arm's-length basis from a Person that is not an Affiliate
of the Company; or
(ii) the Board of Directors of the Company or any such Restricted
Subsidiary party to such Affiliate Transaction shall have received an
opinion from a nationally recognized investment banking firm that such
Affiliate Transaction is on terms not materially less favorable than those
that might reasonably have been obtained in a
<PAGE>
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comparable transaction at such time on an arm's-length basis from a Person
that is not an Affiliate of the Company;
provided, further, that for an Affiliate Transaction or series of related
Affiliate Transactions with an aggregate value of $10.0 million or more, the
Board of Directors of the Company or any such Restricted Subsidiary party to
such Affiliate Transaction shall have received an opinion from a nationally
recognized investment banking firm that such Affiliate Transaction is on terms
not materially less favorable than those that might reasonably have been
obtained in a comparable transaction at such time on an arm's-length basis from
a Person that is not an Affiliate of the Company.
(b) The foregoing restrictions shall not apply to:
(i) reasonable fees and compensation paid to, and indemnity provided
on behalf of, officers, directors, employees or consultants of the Company
or any Subsidiary as determined in good faith by the Company's Board of
Directors or senior management;
(ii) transactions exclusively between or among the Company and any of
its Restricted Subsidiaries or exclusively between or among such Restricted
Subsidiaries; provided such transactions are not otherwise prohibited by
this Indenture;
(iii) transactions effected as part of a Qualified Securitization
Transaction;
(iv) any agreement as in effect as of the Issue Date or any amendment
or replacement thereto or any transaction contemplated thereby (including
pursuant to any amendment or replacement thereto) so long as any such
amendment or replacement agreement is not more disadvantageous to the
Holders in any material respect than the original agreement as in effect on
the Issue Date;
(v) Restricted Payments permitted by this Indenture;
(vi) the payment of customary management, consulting and advisory
fees and related expenses made pursuant to any financial advisory,
financing, underwriting or placement agreement or in respect of other
investment banking activities, including, without limitation, in connection
with acquisitions or divestitures which fees are approved by the Board of
Directors of the Company or such Restricted Subsidiary in good faith;
(vii) payments or loans to employees or consultants that are approved
by the Board of Directors of the Company in good faith;
<PAGE>
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(viii) the existence of, or the performance by the Company or any of
its Restricted Subsidiaries of its obligations under the terms of, any
stockholders agreement (including any registration rights agreement or purchase
agreement related thereto) to which it is a party as of the Issue Date and any
similar agreements which it may enter into thereafter; provided, however, that
the existence of, or the performance by the Company or any of its Restricted
Subsidiaries of obligations under, any future amendment to any such existing
agreement or under any similar agreement entered into after the Issue Date shall
only be permitted by this clause (viii) to the extent that the terms of any such
amendment or new agreement are not disadvantageous to the Holders of the Notes
in any material respect;
(ix) transactions permitted by, and complying with, the provisions
of Section 5.01;
(x) transactions with customers, clients, suppliers, joint venture
partners or purchasers or sellers of goods or services, in each case in the
ordinary course of business (including, without limitation, pursuant to
joint venture agreements) and otherwise in compliance with the terms of
this Indenture which are fair to the Company or its Restricted
Subsidiaries, in the reasonable determination of the Board of Directors of
the Company or the senior management thereof, or are on terms at least as
favorable as might reasonably have been obtained at such time from an
unaffiliated party; and
(xi) any transaction with Bain Capital, Inc. or its Affiliates where
the only consideration paid by the Company or any Restricted Subsidiary is
Capital Stock of the Company (other than Disqualified Stock) or the Parent.
SECTION 4.04. Incurrence of Indebtedness and Issuance of Preferred Stock.
(a) The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "incur") any
-----
Indebtedness and the Company shall not issue any Disqualified Stock and shall
not permit any of its Restricted Subsidiaries to issue any shares of preferred
stock; provided, however, that the Company and any Restricted Subsidiary that is
a Guarantor may incur Indebtedness (including Acquired Indebtedness) or the
Company may issue shares of Disqualified Stock if:
(i) no Default or Event of Default shall have occurred and be
continuing at the time or as a consequence of the incurrence of any such
Indebtedness or the issuance of any such Disqualified Stock; and
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(ii) the Consolidated Fixed Charge Coverage Ratio would have been at
least 2.0 to 1.0, determined on a pro forma basis (including the pro forma
application of the net proceeds therefrom), as if the additional
Indebtedness had been incurred, or the Disqualified Stock had been issued,
at the beginning of such Four-Quarter Period.
(b) The provisions of paragraph (a) of this Section 4.04 will not
apply to the incurrence of any of the following items of Indebtedness
(collectively, "Permitted Indebtedness"):
----------------------
(i) the Notes (other than Additional Notes) and the Note Guarantees
(other than in respect of Additional Notes) in an aggregate principal
amount not to exceed $140.0 million;
(ii) Indebtedness incurred pursuant to the Senior Credit Facility in
an aggregate principal amount at any time outstanding (with letters of
credit being deemed to have a principal amount equal to the maximum
potential liability of the Company and its Subsidiaries thereunder) not to
exceed $20.0 million; provided that the amount of Indebtedness permitted to
be incurred pursuant to the Senior Credit Facility in accordance with this
clause (ii) shall be in addition to any Indebtedness permitted to be
incurred pursuant to the Senior Credit Facility in reliance on, and in
accordance with, clauses (vii), (ix) and (xv) below or pursuant to
paragraph (a) above;
(iii) other Indebtedness of the Company and its Subsidiaries
outstanding on the Issue Date for so long as such Indebtedness remains
outstanding;
(iv) Interest Swap Obligations of the Company covering Indebtedness
of the Company; provided that any Indebtedness to which any such Interest
Swap Obligations correspond is otherwise permitted to be incurred under
this Indenture; and provided, further, that such Interest Swap Obligations
are entered into, in the judgment of the Company, to protect the Company
from fluctuation in interest rates on its outstanding Indebtedness;
(v) Indebtedness of the Company under Currency Agreements;
(vi) the incurrence by the Company or any of its Restricted
Subsidiaries of intercompany Indebtedness between or among the Company and
any of its Restricted Subsidiaries; provided, however, that (A) if the
Company is the obligor on such Indebtedness, such Indebtedness is expressly
subordinated to the prior payment in full in cash of all Obligations with
respect to the Notes and (B) any subsequent issuance or transfer of Equity
Interests that results in any such Indebtedness being held by a Person
other than the Company or a Restricted Subsidiary thereof and any sale or
other
<PAGE>
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transfer of any such Indebtedness to a Person that is not either the
Company or a Restricted Subsidiary thereof shall be deemed, in each case,
to constitute an incurrence of such Indebtedness by the Company or such
Restricted Subsidiary, as the case may be, that was not permitted by this
clause (vi);
(vii) with respect to any incurrence prior to February 28, 2001,
(A) Indebtedness incurred by the Company or any of its Restricted
Subsidiaries that is a Guarantor to consummate an Asset Acquisition of a
Person engaged in, or assets consisting of, a Permitted Business or (B) the
incurrence of Acquired Indebtedness by the Company or any of its Restricted
Subsidiaries in respect of a Person engaged in a Permitted Business, in the
aggregate principal amount for (A) and (B) above not to exceed $15.0
million, in each case so long as immediately after giving effect to such
incurrence on a pro forma basis, the Company would have had a Consolidated
Fixed Charge Coverage Ratio that is not less than the Consolidated Fixed
Charge Coverage Ratio of the Company immediately prior to such incurrence;
provided that in no event shall the Company's Consolidated Fixed Charge
Coverage Ratio immediately after giving effect to such incurrence on a pro
forma basis be less than the Company's Consolidated Fixed Charge Coverage
Ratio on the Issue Date; provided, however, that if the Consolidated EBITDA
relating to any such Asset Acquisition for the most recently ended four
fiscal quarters prior to the consummation of such Asset Acquisition is in
excess of $8.0 million of Consolidated EBITDA and the Company's
Consolidated Fixed Charge Coverage Ratio immediately after giving effect to
such incurrence on a pro forma basis would have been greater than 1.8 to
1.0, then the $15.0 million limitation above shall not apply to such
incurrence (it being understood that for purposes of calculating the
Consolidated Fixed Charge Coverage Ratio for purposes of this clause (vii)
only, Pro Forma Cost Savings shall only mean those cost savings that are
directly attributable to such Asset Acquisition and that are calculated on
a basis that is consistent with Regulation S-X under the Securities Act);
(viii) Guarantees by the Company and the Guarantors of each other's
Indebtedness; provided that such Indebtedness is permitted to be incurred
under this Indenture;
(ix) Indebtedness (including Capital Lease Obligations) incurred
by the Company or any of its Restricted Subsidiaries to finance the
purchase, lease or improvement of property (real or personal) or equipment
(whether through the direct purchase of assets or the Capital Stock of any
Person owning such assets) in an aggregate principal amount outstanding not
to exceed the greater of (A) $5.0 million or (B) 10% of Total Tangible
Assets at the time of any incurrence thereof (including any Refinancing
Indebtedness with respect thereto) (which amount may, but need not, be
incurred in whole or in part under the Senior Credit Facility);
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(x) Indebtedness incurred by the Company or any of its Restricted
Subsidiaries constituting reimbursement obligations with respect to letters
of credit issued in the ordinary course of business, including, without
limitation, letters of credit in respect of workers' compensation claims or
self-insurance, or other Indebtedness with respect to reimbursement type
obligations regarding workers' compensation claims;
(xi) Indebtedness arising from agreements of the Company or a
Restricted Subsidiary of the Company providing for indemnification,
adjustment of purchase price, earn out or other similar obligations, in
each case, incurred or assumed in connection with the disposition of any
business, assets or a Restricted Subsidiary of the Company, 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 the maximum assumable
liability in respect of all such Indebtedness shall at no time exceed the
gross proceeds actually received by the Company and its Restricted
Subsidiaries in connection with such disposition;
(xii) obligations in respect of performance and surety bonds and
completion guarantees provided by the Company or any Restricted Subsidiary
of the Company in the ordinary course of business;
(xiii) any refinancing, modification, replacement, renewal,
restatement, refunding, deferral, extension, substitution, supplement,
reissuance or resale (collectively, "Refinancings" and the term
------------
"Refinanced" shall have a correlative meaning) of existing or future
----------
Indebtedness (other than Indebtedness incurred pursuant to clauses (ii),
(iv), (v), (vi), (viii), (ix), (x), (xi), (xii), (xiv) and (xv) of this
paragraph (b)), including any additional Indebtedness incurred to pay
interest or premiums required by the instruments governing such existing or
future Indebtedness as in effect at the time of issuance thereof ("Required
--------
Premiums") and fees in connection therewith ("Refinancing Indebtedness");
-------- ------------------------
provided that any such event shall not:
(1) directly or indirectly result in an increase in the
aggregate principal amount of Permitted Indebtedness (except to the extent
such increase is a result of a simultaneous incurrence of additional
Indebtedness (A) to pay Required Premiums and related fees or (B) otherwise
permitted to be incurred under this Indenture) of the Company and its
Restricted Subsidiaries; and
(2) create Indebtedness with a Weighted Average Life to
Maturity at the time such Indebtedness is incurred that is less than the
Weighted Average Life to Maturity at such time of the Indebtedness being
refinanced, modified, replaced, renewed, restated, refunded, deferred,
extended, substituted, supplemented, reissued or resold;
<PAGE>
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provided, further, however, that
(x) Refinancing Indebtedness shall not include (1) Indebtedness
of a Restricted Subsidiary that is not a Guarantor that Refinances
Indebtedness of the Company, or (2) Indebtedness of the Company or a
Restricted Subsidiary that Refinances Indebtedness of an Unrestricted
Subsidiary;
(y) if the Indebtedness being Refinanced is Subordinated
Indebtedness, then such Refinancing Indebtedness shall be at least as
subordinated in right of payment to the Notes as the Indebtedness
being Refinanced; and
(z) Refinancing Indebtedness shall be secured only by assets of a
similar type and in a similar amount to those that secured the
Indebtedness so refinanced;
(xiv) the incurrence by a Securitization Entity of Indebtedness in
a Qualified Securitization Transaction that is Non-Recourse Debt with
respect to the Company and its other Restricted Subsidiaries (except for
Standard Securitization Undertakings); and
(xv) the incurrence of additional Indebtedness by the Company or any
of its Restricted Subsidiaries and/or the issuance of Permitted Domestic
Subsidiary Preferred Stock by the Company's U.S. Subsidiaries which,
together with the aggregate principal amount of other indebtedness incurred
pursuant to this clause (xv) and the aggregate liquidation value of all
other Permitted Domestic Subsidiary Preferred Stock issued pursuant to this
clause (xv), does not exceed $10.0 million at any one time outstanding
(which amount, in the case of Indebtedness, may, but need not, be incurred
in whole or in part under the Senior Credit Facility).
(c) Notwithstanding paragraphs (a) and (b) above, neither the Company
nor any of the Guarantors may incur any Indebtedness that is subordinated to any
other Indebtedness unless such Indebtedness is expressly subordinated in right
of payment to the Notes and/or the Note Guarantees, as the case may be.
(d) For purposes of determining compliance with this Section 4.04, in
the event that an item of Indebtedness meets the criteria of more than one of
the categories of Permitted Indebtedness described in clauses (i) through (xv)
in paragraph (b) of this Section 4.04 or is entitled to be incurred pursuant to
paragraph (a) of this Section 4.04, the Company shall, in its sole discretion,
classify such item of Indebtedness in any manner that complies with this Section
4.04. In addition, the Company may, at any time, change the classification of
an item of Indebtedness (or any portion thereof) to any other clause of
paragraph (b) of this
<PAGE>
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Section 4.04 or to paragraph (a) of this Section 4.04 provided that the Company
would be permitted to incur such item of Indebtedness (or portion thereof)
pursuant to such other clause or paragraph (a), as the case may be, at such time
of reclassification. Accrual of interest, accretion or amortization of original
issue discount, the payment of interest on any Indebtedness in the form of
additional Indebtedness with the same terms and the payment of dividends on
Disqualified Stock in the form of additional shares of the same class of
Disqualified Stock will not be deemed to be an incurrence of Indebtedness or an
issuance of Disqualified Stock for purposes of this covenant; provided, in each
such case, that the amount thereof is included in Consolidated Fixed Charges of
the Company as accrued. For purposes of determining whether the requirement in
clause (ii) of paragraph (b) of this Section 4.04 has been met, all Indebtedness
incurred or permitted to be incurred under a revolving facility shall be deemed
to have been incurred on the date such facility becomes available and not on the
date of any borrowing under such facility.
SECTION 4.05. Disposition of Proceeds of Asset Sales.
(a) The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless:
(i) the Company or the applicable Restricted Subsidiary, as the case
may be, receives consideration at the time of such Asset Sale at least
equal to the fair market value of the assets sold or otherwise disposed of
(as determined in good faith by the Company's Board of Directors);
(ii) at least 75% of the consideration received by the Company or
the Restricted Subsidiary, as the case may be, from such Asset Sale shall
be cash or Cash Equivalents; provided that the amount of (a) any
liabilities (as shown on the Company's or such Restricted Subsidiary's most
recent balance sheet) of the Company or any such Restricted Subsidiary
(other than liabilities that are by their terms subordinated to the Notes)
that are assumed by the transferee of any such assets; (b) any notes or
other obligations received by the Company or any such Restricted Subsidiary
from such transferee that are immediately converted by the Company or such
Restricted Subsidiary into cash (to the extent of the cash received); and
(c) any Designated Noncash Consideration received by the Company or any of
its Restricted Subsidiaries in such Asset Sale having an aggregate fair
market value, taken together with all other Designated Noncash
Consideration received pursuant to this clause (c) that is at that time
outstanding, not to exceed 10% of Total Assets at the time of the receipt
of such Designated Noncash Consideration (with the fair market value of
each item of Designated Noncash Consideration being measured by the Board
of Directors of the Company in good faith at the time received and without
giving effect to subsequent changes in value) shall be deemed to be cash
for the purposes of this provision; and
<PAGE>
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(iii) upon the consummation of an Asset Sale, the Company shall
apply, or cause such Restricted Subsidiary to apply, the Net Cash Proceeds
relating to such Asset Sale within 365 days of receipt thereof either:
(A) to repay any Indebtedness of the Company or a Restricted
Subsidiary (other than Disqualified Stock or Subordinated
Indebtedness) and, in the case of any Indebtedness under any revolving
credit facility, effect a commitment reduction under such revolving
credit facility,
(B) to reinvest in Productive Assets, or
(C) a combination of prepayment, repurchase and investment
permitted by the foregoing clauses (iii)(A) and (iii)(B).
(b) Pending the final application of any such Net Cash Proceeds, the
Company or such Restricted Subsidiary may temporarily reduce Indebtedness under
a revolving credit facility, if any, or otherwise invest such Net Cash Proceeds
in Cash Equivalents. On the 366th day after an Asset Sale or such earlier date,
if any, as the Board of Directors of the Company or of such Restricted
Subsidiary determines not to apply the Net Cash Proceeds relating to such Asset
Sale as set forth in clauses (iii)(A), (iii)(B) or (iii)(C) of paragraph (a) of
this Section 4.05 (each, a "Net Proceeds Offer Trigger Date"), the aggregate
-------------------------------
amount of Net Cash Proceeds that have not been applied on or before such Net
Proceeds Offer Trigger Date as permitted in clause (iii)(A), (iii)(B) and
(iii)(C) of paragraph (a) of this Section 4.05 (each a "Net Proceeds Offer
------------------
Amount") shall be applied by the Company or such Restricted Subsidiary to make
- ------
an Offer to Purchase (the "Net Proceeds Offer") from all Holders on a pro rata
------------------
basis that amount of Notes equal to the Net Proceeds Offer Amount at a price
equal to 100% of the principal amount of the Notes to be purchased, plus accrued
and unpaid interest thereon, if any, to the date of purchase; provided, however,
that if at any time any non-cash consideration received by the Company or any
Restricted Subsidiary of the Company, as the case may be, in connection with any
Asset Sale is converted into or sold or otherwise disposed of for cash (other
than interest received with respect to any such non-cash consideration), then
such conversion or disposition shall be deemed to constitute an Asset Sale
hereunder and the Net Cash Proceeds thereof shall be applied in accordance with
this Section 4.05. Notwithstanding the foregoing, if a Net Proceeds Offer
Amount is less than $10.0 million, the application of the Net Cash Proceeds
constituting such Net Proceeds Offer Amount to a Net Proceeds Offer may be
deferred until such time as such Net Proceeds Offer Amount plus the aggregate
amount of all Net Proceeds Offer Amounts arising subsequent to the Net Proceeds
Offer Trigger Date relating to such initial Net Proceeds Offer Amount from all
Asset Sales by the Company and its Restricted Subsidiaries aggregates at least
$10.0 million, at which time the Company or such Restricted Subsidiary shall
apply all Net Cash Proceeds constituting all Net Proceeds Offer Amounts that
have been so deferred to make a Net Proceeds Offer (the first date the ag-
<PAGE>
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- -gregate of all such deferred Net Proceeds Offer Amounts is equal to $10.0
million or more shall be deemed to be a Net Proceeds Offer Trigger Date).
(c) Notwithstanding paragraph (a) and (b) above, the Company and its
Restricted Subsidiaries will be permitted to consummate an Asset Sale without
complying with such paragraphs to the extent (i) at least 75% of the
consideration for such Asset Sale constitutes Productive Assets, cash, Cash
Equivalents and/or Marketable Securities and (ii) such Asset Sale is for fair
market value (as determined in good faith by the Company's Board of Directors);
provided that any consideration not constituting Productive Assets received by
the Company or any of its Restricted Subsidiaries in connection with any Asset
Sale permitted to be consummated under this paragraph (c) shall be subject to
the provisions of paragraphs (a) and (b) above.
(d) Each Net Proceeds Offer shall be mailed to the record Holders as
shown on the register of Holders within 25 days following the Net Proceeds Offer
Trigger Date, with a copy to the Trustee, and shall comply with the procedures
set forth in this Indenture (including, without limitation, the definition of
Offer to Purchase). Upon receiving notice of the Net Proceeds Offer, Holders
may elect to tender their Notes in whole or in part in integral multiples of
$1,000 in exchange for cash. To the extent Holders properly tender Notes in an
amount exceeding the Net Proceeds Offer Amount, Notes of tendering Holders will
be purchased on a pro rata basis (based on amounts tendered). A Net Proceeds
Offer shall remain open for a period of at least 20 (but not more than 30)
Business Days or such longer period as may be required by law. To the extent
that the aggregate amount of Notes tendered pursuant to a Net Proceeds Offer is
less than the Net Proceeds Offer Amount, the Company may use any remaining Net
Proceeds Offer Amount for general corporate purposes. Upon completion of any
such Net Proceeds Offer, the Net Proceeds Offer Amount shall be reset at zero.
(e) On or prior to the Purchase Date specified in the Offer to
Purchase relating to the Net Proceeds Offer, the Company shall (i) subject to
paragraph (d) of this Section 4.05, accept for payment all Notes validly
tendered pursuant to the Offer, (ii) deposit with the Paying Agent or, if the
Company is acting as its own Paying Agent, segregate and hold in trust as
provided in Section 2.04, money sufficient to pay the Purchase Price of all
Notes or portions thereof so accepted and (iii) deliver or cause to be delivered
to the Trustee for cancellation all Notes so accepted together with an Officers'
Certificate stating the Notes or portions thereof accepted for payment by the
Company. The Paying Agent (or the Company, if so acting) shall promptly mail or
deliver to Holders of Notes so accepted, payment in an amount equal to the
Purchase Price for such Notes, and the Trustee shall promptly authenticate and
mail or deliver to each Holder of Notes a new Note or Notes equal in principal
amount to any unpurchased portion of the Note surrendered as requested by the
Holder. Any Note not accepted for payment shall be promptly mailed or delivered
by the Company to the Holder thereof. The
<PAGE>
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Company shall publicly announce the results of the Offer on or as soon as
practicable after the Purchase Date.
(f) The Company shall comply with the requirements of Rule 14e-1
under the Exchange Act and any other securities laws and regulations thereunder
to the extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Net Proceeds Offer. To the extent that the
provisions of any securities laws or regulations conflict with this Section
4.05, the Company shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations under this
Section 4.05 by virtue thereof.
SECTION 4.06. Limitation on Restricted Payments.
(a) The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly:
(i) declare or pay any dividend or make any other payment or
distribution on account of the Company's Equity Interests (including,
without limitation, any payment in connection with any merger or
consolidation involving the Company) or to the direct or indirect holders
of the Company's Equity Interests in their capacity as such (other than
dividends or distributions payable in Qualified Capital Stock of the
Company);
(ii) purchase, redeem or otherwise acquire or retire for value
(including, without limitation, in connection with any merger or
consolidation involving the Company) any Equity Interests of the Company or
any direct or indirect parent of the Company;
(iii) purchase, repurchase, redeem, defease or otherwise acquire or
retire for value, prior to scheduled maturity, scheduled repayment or
scheduled sinking fund payment, any Subordinated Indebtedness; or
(iv) make any Restricted Investment
(all such payments and other actions set forth in clauses (i) through (iv) above
being collectively referred to as "Restricted Payments"), unless, at the time of
-------------------
and after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
<PAGE>
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(b) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the applicable Four-Quarter Period, have been
permitted to incur at least $1.00 of additional Indebtedness pursuant to
the Consolidated Fixed Charge Coverage Ratio test set forth in paragraph
(a) of Section 4.04; and
(c) such Restricted Payment, together with the aggregate amount of
all other Restricted Payments made by the Company and its Restricted
Subsidiaries after the Issue Date (excluding Restricted Payments permitted
by clauses (2)(i), (3), (4), (6), (7), (8) and (9) of paragraph (b) below),
is less than the sum, without duplication, of:
(i) 50% of the Consolidated Net Income of the Company for
the period (taken as one accounting period) from the beginning of the
first fiscal quarter commencing after the Issue Date to the end of the
Company's most recently ended fiscal quarter for which internal
financial statements are available at the time of such Restricted
Payment (or, if such Consolidated Net Income for such period is a
deficit, less 100% of such deficit), plus
(ii) 100% of the aggregate net proceeds (including the fair
market value of property other than cash as determined in good faith
by the Board of Directors of the Company that would constitute
Marketable Securities or a Permitted Business) received by the Company
since the Issue Date as a contribution to its common equity capital
(other than from a Subsidiary or that were financed with loans from
the Company or any Restricted Subsidiary) or from the issue or sale of
Qualified Capital Stock (including Capital Stock issued upon the
conversion of convertible Indebtedness or in exchange for outstanding
Indebtedness) of the Company (excluding any net proceeds from an
Equity Offering or capital contribution to the extent used to redeem
Notes in accordance with the optional redemption provisions of the
Notes) or from the issue or sale of Disqualified Stock or debt
securities of the Company that have been converted into Qualified
Capital Stock (other than Qualified Capital Stock (or Disqualified
Stock or convertible debt securities) sold to a Subsidiary of the
Company), plus
(iii) 100% of the aggregate net proceeds (including the fair
market value of property other than cash that would constitute
Marketable Securities or a Permitted Business) of any (A) sale or
other disposition of Restricted Investments made by the Company and
its Restricted Subsidiaries or (B) dividend from, or the sale of the
stock of, an Unrestricted Subsidiary.
<PAGE>
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(b) Notwithstanding the foregoing, the provisions set forth in the
immediately preceding paragraph (a) above will not prohibit:
(1) the payment of any dividend or the consummation of any
irrevocable redemption within 60 days after the date of declaration of such
dividend or notice of such redemption if the dividend or payment of the
redemption price, as the case may be, would have been permitted on the date
of declaration or notice;
(2) if no Default or Event of Default shall have occurred and be
continuing or shall occur as a consequence thereof, the acquisition of any
shares of Capital Stock of the Company (the "Retired Capital Stock") or
---------------------
Subordinated Indebtedness, either (i) solely in exchange for shares of
Qualified Capital Stock of the Company (the "Refunding Capital Stock"), or
-----------------------
(ii) through the application of the net proceeds of a substantially
concurrent sale for cash (other than to a Subsidiary of the Company) of
shares of Qualified Capital Stock of the Company, and, in the case of
subclause (i) of this clause (2), if immediately prior to the retirement of
the Retired Capital Stock the declaration and payment of dividends thereon
was permitted under clause (3) of this paragraph (b), the declaration and
payment of dividends on the Refunding Capital Stock in an aggregate amount
per year no greater than the aggregate amount of dividends per annum that
was declarable and payable on such Retired Capital Stock immediately prior
to such retirement; provided that at the time of the declaration of any
such dividends on the Refunding Capital Stock, no Default or Event of
Default shall have occurred and be continuing or would occur as a
consequence thereof;
(3) if no Default or Event of Default shall have occurred and be
continuing or shall occur as a consequence thereof, any purchase,
repurchase, redemption, defeasance or other acquisition or retirement for
value of Subordinated Indebtedness, either (i) solely in exchange for
Subordinated Indebtedness which is permitted to be incurred pursuant to
Section 4.04, or (ii) through the application of the net proceeds of a
substantially concurrent sale for cash (other than to a Subsidiary of the
Company) of Subordinated Indebtedness of the Company permitted to be
incurred pursuant to Section 4.04;
(4) if no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof, the declaration and
payment of dividends to holders of any class or series of Designated
Preferred Stock (other than Disqualified Stock) issued after the Issue Date
(including, without limitation, the declaration and payment of dividends on
Refunding Capital Stock in excess of the dividends declarable and payable
thereon pursuant to clause (2) of this paragraph (b)); provided that, at
the time of such issuance, the Company, after giving effect to such
issuance on
<PAGE>
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a pro forma basis, would have had a Consolidated Fixed Charge
Coverage Ratio of at least 2.0 to 1.0 for the most recent Four-Quarter
Period;
(5) payments to Parent for the purpose of permitting, and in an
amount equal to the amount required to permit, Parent to redeem or
repurchase Parent's common equity or options in respect thereof, in each
case in connection with the repurchase provisions of employee stock option
or stock purchase agreements or other agreements to compensate management
employees; provided that all such redemptions or repurchases pursuant to
this clause (5) shall not exceed $7.5 million (which amount shall be
increased by the amount of any net cash proceeds received from the sale
since the Issue Date of Equity Interests (other than Disqualified Stock) to
members of the Company's management team that have not otherwise been
applied to the payment of Restricted Payments pursuant to the terms of
clause (c) of the preceding paragraph (a) and by the cash proceeds of any
"key-man" life insurance policies which are used to make such redemptions
or repurchases) in the aggregate since the Issue Date; provided, further,
that the cancellation of Indebtedness owing to the Company from members of
management of the Company or any of its Restricted Subsidiaries in
connection with such a repurchase of Capital Stock of Parent will not be
deemed to constitute a Restricted Payment under this Indenture;
(6) the making of distributions, loans or advances to Parent in
an amount not to exceed $750,000 per annum in order to permit Parent to pay
the ordinary operating expenses of Parent (including, without limitation,
directors' fees, indemnification obligations, professional fees and
expenses, but excluding any payments on or repurchases of the Seller Note);
(7) payments to Parent in respect of taxes pursuant to the terms
of the Tax Allocation Agreement as in effect on the Issue Date and as
amended from time to time pursuant to amendments that do not increase the
amounts payable by the Company or any of its Restricted Subsidiaries
thereunder;
(8) 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;
(9) payments in connection with the Recapitalization and related
transactions (as described under "Use of Proceeds" in the Final Offering
Memorandum);
(10) if no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof and the Company would be
permitted to incur at least $1.00 of additional Indebtedness (other than
Permitted Indebtedness) in
<PAGE>
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compliance with Section 4.04(a), other Restricted Payments in an aggregate
amount not to exceed $5.0 million since the Issue Date; and
(11) if no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof, payments to Parent to
allow Parent to contemporaneously redeem, repurchase or otherwise retire
the Seller Note; provided that immediately after giving effect to such
payment on a pro forma basis, the Company would have had a Consolidated
Fixed Charge Coverage Ratio of at least 2.75 to 1.0.
In determining the aggregate amount of Restricted Payments made
subsequent to the date of this Indenture in accordance with clause (c) of the
preceding paragraph (a), (i) amounts expended pursuant to clauses (1), (2)(ii),
(5), (10) and (11) shall be included in such calculation; provided such
expenditures pursuant to clause (4) shall not be included to the extent of the
cash proceeds received by the Company from any "key-man" life insurance policies
and (ii) amounts expended pursuant to clauses (2)(i), (3), (4), (6), (7), (8)
and (9) shall be excluded from such calculation.
(c) The Board of Directors may designate any Restricted
Subsidiary to be an Unrestricted Subsidiary if such designation would not cause
a Default. For purposes of making such determination, all outstanding
Investments by the Company and its Restricted Subsidiaries (except to the extent
repaid in cash) in the Subsidiary so designated will be deemed to be Restricted
Payments at the time of such designation and will reduce the amount available
for Restricted Payments under paragraph (a) of this Section 4.06. All such
outstanding Investments will be deemed to constitute Investments in an amount
equal to the fair market value of such Investments at the time of such
designation. Such designation will only be permitted if such Restricted Payment
would be permitted at such time and if such Restricted Subsidiary otherwise
meets the definition of an Unrestricted Subsidiary.
(d) The amount of all Restricted Payments (other than cash)
shall be the fair market value on the date of the Restricted Payment of the
asset(s) or securities proposed to be transferred or issued by the Company or
such Restricted Subsidiary, as the case may be, pursuant to the Restricted
Payment.
SECTION 4.07. Corporate Existence.
Subject to Article Five, the Company shall do or shall cause to
be done all things necessary to preserve and keep in full force and effect its
corporate existence and the corporate, partnership or other existence of each
Restricted Subsidiary in accordance with the respective organizational documents
of each such Restricted Subsidiary and the rights (charter and statutory) and
material franchises of the Company and the Restricted Subsidiaries; provided,
however, that the Company shall not be required to preserve any such right or
fran-
<PAGE>
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chise, or the corporate existence of any Restricted Subsidiary, if the Board
of Directors of the Company shall determine that the preservation thereof is no
longer desirable in the conduct of the business of the Company and the
Restricted Subsidiaries, taken as a whole; provided, further, however, that a
determination of the Board of Directors of the Company shall not be required in
the event of a merger of one or more Wholly Owned Restricted Subsidiaries of the
Company with or into another Wholly Owned Restricted Subsidiary of the Company
or another Person, if the surviving Person is a Wholly Owned Restricted
Subsidiary of the Company organized under the laws of the United States or a
State thereof or of the District of Columbia or, in the case of a Foreign
Subsidiary, the jurisdiction of incorporation or organization of such Foreign
Subsidiary. This Section 4.07 shall not prohibit the Company from taking any
other action otherwise permitted by, and made in accordance with, the provisions
of this Indenture.
SECTION 4.08. Conduct of Business.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, engage in any businesses a majority of whose revenues are not
derived from the same or reasonably similar, ancillary or related to, or a
reasonable extension, development or expansion of, the businesses in which the
Company and its Restricted Subsidiaries are engaged on the Issue Date.
SECTION 4.09. Notice of Defaults.
(a) In the event that any Indebtedness of the Company or any of its
Subsidiaries is declared due and payable before its maturity because of the
occurrence of any default (or any event which, with notice or lapse of time, or
both, would constitute such a default) under such Indebtedness, the Company
shall promptly give written notice to the Trustee of such declaration, the
status of such default or event and what action the Company is taking or
proposes to take with respect thereto.
(b) Upon becoming aware of any Default or Event of Default, the
Company shall promptly deliver an Officers' Certificate to the Trustee
specifying the Default or Event of Default.
SECTION 4.10. Compliance Certificate.
The Company shall deliver to the Trustee within 120 days after the
close of each fiscal year a certificate signed by the principal executive
officer, principal financial officer or principal accounting officer stating
that a review of the activities of the Company has been made under the
supervision of the signing officers with a view to determining whether a Default
or Event of Default has occurred and whether or not the signers know of any
Default
<PAGE>
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or Event of Default by the Company that occurred during such fiscal
year. If they do know of such a Default or Event of Default, the certificate
shall describe all such Defaults or Events of Default, their status and the
action the Company is taking or proposes to take with respect thereto. The first
certificate to be delivered by the Company pursuant to this Section 4.10 shall
be for the fiscal year ending February 29, 2000.
SECTION 4.11. Provision of Financial Information.
Whether or not required by the rules and regulations of the
Commission, so long as any Notes are outstanding, the Company shall furnish to
the Holders of Notes (i) all quarterly and annual financial information that
would be required to be contained in a filing with the Commission on Forms 10-Q
and 10-K if the Company were required to file such Forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" that describes the financial condition and results of operations of
the Company and its consolidated Subsidiaries (showing in reasonable detail,
either on the face of the financial statements or in the footnotes thereto and
in Management's Discussion and Analysis of Financial Condition and Results of
Operations, the financial condition and results of operations of the Company and
its Restricted Subsidiaries separate from the financial condition and results of
operations of the Unrestricted Subsidiaries of the Company) and, with respect to
the annual information only, a report thereon by the Company's certified
independent accountants and (ii) all current reports that would be required to
be filed with the Commission on Form 8-K if the Company were required to file
such reports, in each case within the time periods specified in the Commission's
rules and regulations. In addition, following the consummation of the exchange
offer contemplated by the Registration Rights Agreement, whether or not required
by the rules and regulations of the Commission, the Company will file a copy of
all such information and reports with the Commission for public availability
within the time periods specified in the Commission's rules and regulations
(unless the Commission will not accept such a filing) and make such information
available to securities analysts and prospective investors upon request. In
addition, the Company and the Guarantors have agreed that, for so long as any
Notes remain outstanding, they will furnish to the Holders and to securities
analysts and prospective investors, upon their request, the information required
to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.
SECTION 4.12. Change of Control.
(a) Upon the occurrence of a Change of Control, each Holder of Notes
shall have the right to require the Company to repurchase all or any part (equal
to $1,000 or an integral multiple thereof) of such Holder's Notes pursuant to an
Offer to Purchase (the "Change of Control Offer") at an offer price in cash
-----------------------
equal to 101% of the aggregate principal amount thereof plus accrued and unpaid
interest thereon, if any, to the date of purchase. Within 30 days following any
Change of Control, the Company shall mail the Offer to Purchase to each
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Holder describing the transaction or transactions that constitute the Change of
Control and offering to repurchase Notes on the date specified in such Offer
pursuant to the procedures required by this Indenture and described in such
Offer. Each Holder shall be entitled to tender all or any portion of the Notes
owned by such Holder pursuant to the Change of Control Offer, subject to the
requirement that any portion of a Note tendered must be tendered in an integral
multiple of $1,000 principal amount. The Company will comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities laws
and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the Notes as a result of a
Change of Control.
(b) On or prior to the Purchase Date specified in the Offer to
Purchase relating to the Change of Control Offer, the Company shall (i) accept
for payment all Notes or portions thereof validly tendered pursuant to the
Offer, (ii) deposit with the Paying Agent or, if the Company is acting as its
own Paying Agent, segregate and hold in trust as provided in Section 2.04, money
sufficient to pay the Purchase Price of all Notes or portions thereof so
accepted and (iii) deliver or cause to be delivered to the Trustee for
cancellation all Notes so accepted together with an Officers' Certificate
stating the Notes or portions thereof accepted for payment by the Company. The
Paying Agent (or the Company, if so acting) shall promptly mail or deliver to
Holders of Notes so accepted, payment in an amount equal to the Purchase Price
for such Notes, and the Trustee shall promptly authenticate and mail or deliver
to each Holder of Notes a new Note or Notes equal in principal amount to any
unpurchased portion of the Note surrendered as requested by the Holder. Any
Note not accepted for payment shall be promptly mailed or delivered by the
Company to the Holder thereof. The Company shall publicly announce the results
of the Offer on or as soon as practicable after the Purchase Date.
(c) Notwithstanding the foregoing, the Company shall not be required
to make a Change of Control Offer upon a Change of Control (i) if a third party
makes the Change of Control Offer in the manner, at the times and otherwise in
compliance with the requirements set forth in this Indenture applicable to a
Change of Control Offer made by the Company (including, without limitation, the
definitions of Offer to Purchase) and purchases all Notes validly tendered and
not withdrawn under such Change of Control Offer or (ii) the Company exercises
its option to purchase all the Notes upon a Change of Control as set forth in
paragraph 5 or 7 of the Notes.
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SECTION 4.13. [Intentionally Omitted]
SECTION 4.14. Limitation on Dividend and Other Payment Restrictions Affecting
Restricted Subsidiaries.
The Company shall not, and shall not cause or permit any Restricted
Subsidiary to, directly or indirectly, create or otherwise cause or permit to
exist or become effective any consensual encumbrance or consensual restriction
on the ability of any Restricted Subsidiary to (a) pay dividends or make any
other distributions on or in respect of its Capital Stock, (b) make loans or
advances or to pay any Indebtedness or other obligation owed to the Company or
any other Restricted Subsidiary of the Company, or (c) transfer any of its
property or assets to the Company or any other Restricted Subsidiary of the
Company, except for such encumbrances or restrictions existing under or by
reason of:
(1) applicable law;
(2) this Indenture;
(3) non-assignment provisions of any contract or any lease entered
into in the ordinary course of business;
(4) any instrument governing Acquired Indebtedness, which encumbrance
or restriction is not applicable to any Person, or the properties or assets
of any Person, other than the Person or the properties or assets of the
Person so acquired;
(5) agreements existing on the Issue Date (including, without
limitation, the Senior Credit Facility);
(6) restrictions on the transfer of assets subject to any Lien
permitted under this Indenture imposed by the holder of such Lien;
(7) restrictions imposed by any agreement to sell assets or Capital
Stock permitted under this Indenture to any Person pending the closing of
such sale;
(8) any agreement or instrument governing Capital Stock of any Person
that is in effect on the date such Person is acquired by the Company or a
Restricted Subsidiary of the Company;
(9) any Purchase Money Note, or other Indebtedness or other
contractual requirements of a Securitization Entity in connection with a
Qualified Securitization Transaction; provided that such restrictions apply
only to such Securitization Entity;
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(10) Indebtedness incurred after the Issue Date in accordance with
the terms of this Indenture; provided that the restrictions contained in
the agreements, governing such new Indebtedness are ordinary and customary
with respect to the type of Indebtedness being incurred (under the relevant
circumstances);
(11) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of business;
(12) purchase money obligations for property acquired in the
ordinary course of business that impose restrictions on the property so
acquired of the nature described in clause (c) of this Section 4.14;
(13) provisions with respect to the disposition or distribution of
assets or property in joint venture agreements and other similar agreements
entered into in the ordinary course of business;
(14) any encumbrances or restrictions imposed by any amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings of the contracts, instruments or obligations
referred to in clauses (1) through (13) of this Section 4.14; provided that
such amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings are, in the good
faith judgment of the Company's Board of Directors, no more restrictive
with respect to such dividend and other payment restrictions than those
contained in the dividend or other payment restrictions prior to such
amendment, modification, restatement, renewal, increase, supplement,
refunding, replacement or refinancing.
SECTION 4.15. Limitation on Liens.
The Company shall not, and shall not cause or permit any Restricted
Subsidiary to create, incur, assume or suffer to exist any Liens of any kind
against or upon any of its property or assets, or any proceeds therefrom, unless
(i) in the case of Liens securing Indebtedness that is expressly subordinate or
junior in right of payment to the Notes, the Notes are secured by a Lien on such
property, assets or proceeds that is senior in priority to such Liens and (ii)
in all other cases, the Notes are equally and ratably secured, except for (A)
Liens existing as of the Issue Date and any extensions, renewals or replacements
thereof; (B) Liens securing (x) Indebtedness incurred under the Senior Credit
Facility and (y) Hedging Obligations so long as the only assets securing such
Hedging Obligations are assets securing the Senior Credit Facility; (C) Liens
securing the Notes and the Note Guarantees; (D) Liens securing intercompany
Indebtedness of the Company or a Restricted Subsidiary of the Company on assets
of any Subsidiary of the Company; (E) Liens securing Indebtedness that is
incurred to refinance Indebtedness that was secured by a Lien permitted under
this Indenture that was
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incurred in accordance with the provisions of this Indenture; provided, however,
that such Liens do not extend to or cover any property or assets of the Company
or any of its Restricted Subsidiaries not securing the Indebtedness so
refinanced; and (F) Permitted Liens.
SECTION 4.16. Limitation on Guarantees by Restricted Subsidiaries.
The Company shall not cause or permit any of the Restricted
Subsidiaries (whether existing on the Issue Date or created or acquired
thereafter), directly or indirectly, to guarantee the payment of any
Indebtedness of the Company ("Other Indebtedness") or become a primary obligor
------------------
under any Senior Credit Facility unless such Restricted Subsidiary (A) is a
Guarantor or (B) simultaneously executes and delivers a supplemental indenture
to this Indenture pursuant to which it will become a Guarantor under this
Indenture; provided that if such Other Indebtedness is (i) pari passu in right
of payment with the Notes, the Note Guarantee of such Restricted Subsidiary
shall be pari passu in right of payment with the Guarantee of the Other
Indebtedness; or (ii) Subordinated Indebtedness, the Note Guarantee of such
Restricted Subsidiary shall be senior in right of payment to the Guarantee of
the Other Indebtedness (which Guarantee of such Subordinated Indebtedness shall
provide that such Guarantee is subordinated to the Note Guarantee of such
Restricted Subsidiary to the same extent and in the same manner as the Other
Indebtedness is subordinated to the Notes); provided, further, that each
Guarantor as of the Issue Date and each Restricted Subsidiary issuing a Note
Guarantee after the Issue Date will be automatically and unconditionally
released and discharged from its obligations under such Note Guarantee upon the
release or discharge of, in the case of Guarantors as of the Issue Date, the
Guarantee of such Guarantor of the Senior Credit Facility, and in the case of
Restricted Subsidiaries issuing a Note Guarantee after the Issue Date, the
Guarantee of the Other Indebtedness or the primary obligations under any Senior
Credit Facility, as applicable, that resulted in the creation of such Note
Guarantee; provided however, that any such release of a Note Guarantee shall
only be effective if after giving effect to such release of a Note Guarantee
such Restricted Subsidiary will have no Indebtedness outstanding other than (i)
Indebtedness permitted to be incurred pursuant to clause (ix) of paragraph (b)
of Section 4.04 and (ii) other Indebtedness not to exceed $5.0 million in
aggregate principal amount outstanding. The Company may, at any time, cause a
Restricted Subsidiary to become a Guarantor by executing and delivering a
supplemental indenture providing for the Guarantee of payment of the Notes by
such Restricted Subsidiary on the basis provided in this Indenture.
SECTION 4.17. Payment of Taxes and Other Claims.
The Company shall pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (i) all material taxes, assessments and
governmental charges (including withholding taxes and any penalties, interest
and additions to taxes) levied or imposed upon it or any of its Re-
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stricted Subsidiaries or properties of it or any of its Restricted Subsidiaries
and (ii) any lawful claims for labor, materials and supplies that, if unpaid,
might by law become a Lien upon the property of it or any of its Restricted
Subsidiaries; provided, however, that the Company shall not be required to pay
or discharge or cause to be paid or discharged any such tax, assessment, charge
or claim whose amount, applicability or validity is being contested in good
faith by appropriate proceedings properly instituted and diligently conducted
and for which adequate reserves, to the extent required under GAAP, have been
taken.
SECTION 4.18. Maintenance of Properties and Insurance.
(a) The Company shall, and shall cause each of its Restricted
Subsidiaries to, maintain its material properties in good working order and
condition (subject to ordinary wear and tear) and make all necessary repairs,
renewals, replacements, additions, betterments and improvements thereto and
actively conduct and carry on its business; provided, however, that nothing in
this Section 4.18 shall prevent the Company or any of its Restricted
Subsidiaries from discontinuing the operation and maintenance of any of its
properties, if such discontinuance is in good faith judgment of the Board of
Directors of the Company or the Restricted Subsidiary, as the case may be,
desirable in the conduct of their respective business and is not disadvantageous
in any material respect to the Holders.
(b) The Company shall provide or cause to be provided, for itself
and each of its Restricted Subsidiaries, insurance (including appropriate self-
insurance) against loss of damage of the kinds that, in the good faith judgment
of the Board of Directors of the Company, are adequate and appropriate for the
conduct of the business of the Company and such Restricted Subsidiaries of the
Company in a prudent manner, with reputable insurers or with the government of
the United States of America or any agency or instrumentality thereof, in such
amounts, with such deductibles, and by such methods as shall be customary, in
the good faith judgment of the Board of Directors of the Company, for companies
similarly situated in the industry.
SECTION 4.19. Compliance with Laws.
The Company shall comply, and shall cause each of its Restricted
Subsidiaries to comply, with all applicable statutes, rules, regulations, orders
and restrictions of the United Sates of America, all states and municipalities
thereof, and of any governmental department, commission, board, regulatory
authority, bureau, agency and instrumentality of the foregoing, in respect of
the conduct of their respective businesses and the ownership of their respective
properties, except for such noncompliances as are not in the aggregate
reasonably likely to have a material adverse effect on the financial condition
or results of operations of the Company and its Subsidiaries, take as a whole.
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SECTION 4.20. Waiver of Stay, Extension or Usury Laws.
The Company and each Guarantor covenants (to the extent that it may
lawfully do so) that it shall not at any time insist upon, plead, or in any
manner whatsoever claim or take insist upon, plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay or extension law or any
usury law or other law that would prohibit or forgive the Company or any such
Guarantor, as the case may be, from paying all or any portion of the principal
of or interest on the Notes or performing its Note Guarantee, as the case may
be, and as contemplated herein, wherever enacted, now or at any time hereafter
in force, or which may affect the covenants or the performance of this
Indenture; and (to the extent that it may lawfully do so) the Company and each
Guarantor, if any, hereby expressly waives all benefit or advantage of any such
law, and covenants that it shall not hinder, delay or impede the execution of
any power herein granted to the Trustee, but shall suffer and permit the
execution of every such power are though no such law had been enacted.
ARTICLE FIVE
MERGERS; SUCCESSOR CORPORATION
SECTION 5.01. Mergers, Sale of Assets, etc.
(a) The Company shall not consolidate or merge with or into (whether
or not the Company is the surviving corporation), or sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of its properties
or assets in one or more related transactions, to another corporation, Person or
entity unless:
(i) the Company is the surviving corporation or the entity or the
Person formed by or surviving any such consolidation or merger (if other
than the Company) or to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made is a corporation
organized or existing under the laws of the United States, any state
thereof or the District of Columbia;
(ii) the entity or Person formed by or surviving any such
consolidation or merger (if other than the Company) or the entity or Person
to which such sale, assignment, transfer, lease, conveyance or other
disposition shall have been made assumes all the obligations of the Company
under the Registration Rights Agreement, the Notes and this Indenture
pursuant to a supplemental indenture in a form reasonably satisfactory to
the Trustee;
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(iii) immediately after such transaction no Default or Event of
Default exists; and
(iv) except in the case of a merger of the Company with or into a
Wholly Owned Restricted Subsidiary of the Company and except in the case of
a merger entered into solely for the purpose of reincorporating the Company
in another jurisdiction, the Company or the entity or Person formed by or
surviving any such consolidation or merger (if other than the Company), or
to which such sale, assignment, transfer, lease, conveyance or other
disposition shall have been made will, at the time of such transaction and
after giving pro forma effect thereto as if such transaction had occurred
at the beginning of the applicable Four-Quarter Period, either (A) be
permitted to incur at least $1.00 of additional Indebtedness pursuant to
the Consolidated Fixed Charge Coverage Ratio test set forth in Section
4.04(a) or (B) have a Consolidated Fixed Charge Coverage Ratio that is not
less than the Consolidated Fixed Charge Coverage Ratio of the Company
immediately prior to such transaction; provided that this clause (B) shall
not apply if such Consolidated Fixed Charge Coverage Ratio is less than the
Company's Consolidated Fixed Charge Coverage Ratio as of the Issue Date.
(b) No Guarantor (other than a Guarantor whose Note Guarantee is to
be released in accordance with the terms of its Note Guarantee and this
Indenture as provided in Section 10.03) may consolidate with or merge with or
into (whether or not such Guarantor is the surviving Person) another
corporation, Person or entity whether or not affiliated with such Guarantor
unless:
(i) the Person formed by or surviving any such consolidation or
merger (if other than such Guarantor) assumes all the obligations of such
Guarantor pursuant to a supplemental indenture in form and substance
reasonably satisfactory to the Trustee, under the Notes, this Indenture and
the Registration Rights Agreement;
(ii) immediately after giving effect to such transaction, no
Default or Event of Default exists; and
(iii) either (A) the Company would be permitted by virtue of the
Company's pro forma Consolidated Fixed Charge Coverage Ratio, immediately
after giving effect to such transaction on a pro forma basis, to incur at
least $1.00 of additional Indebtedness pursuant to the Consolidated Fixed
Charge Coverage Ratio test set forth in Section 4.04(a) or (B) the Company,
immediately after giving effect to such transaction on a pro forma basis,
would have a Consolidated Fixed Charge Coverage Ratio that is not less than
the Consolidated Fixed Charge Coverage Ratio of the Company immediately
prior to such transaction; provided that this clause (B) shall not apply if
such
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Consolidated Fixed Charge Coverage Ratio is less than the Company's
Consolidated Fixed Charge Coverage Ratio as of the Issue Date.
(c) Except as set forth in paragraphs (a) and (b) above, this
Indenture will not prohibit the merger of two of the Company's Restricted
Subsidiaries or the merger of a Restricted Subsidiary into the Company.
SECTION 5.02. Successor Corporation Substituted.
In the event of any transaction (other than a lease) described in and
complying with the conditions listed in Section 5.01 in which the Company or a
Guarantor, as the case may be, is not the surviving person and the surviving
person is to assume all the Obligations of the Company under the Notes, this
Indenture and the Registration Rights Agreement or of such Guarantor under its
Note Guarantee, this Indenture and the Registration Rights Agreement, as the
case may be, pursuant to a supplemental indenture, such surviving person shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company or such Guarantor, as the case may be, and the Company shall be
discharged from its Obligations under this Indenture and the Notes or such
Guarantor shall be discharged from its Obligations under this Indenture and its
Note Guarantee, as the case may be.
ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01. Events of Default.
Each of the following shall be an "Event of Default" for purposes of
----------------
this Indenture:
(i) the failure to pay interest on any Notes when the same
becomes due and payable if the default continues for a period of 30 days;
(ii) the failure to pay the principal on any Notes when such
principal becomes due and payable, at maturity, upon redemption or
otherwise (including the failure to make a payment to purchase Notes
tendered pursuant to a Change of Control Offer or a Net Proceeds Offer);
(iii) a default in the observance or performance of any other
covenant or agreement contained in this Indenture if the default continues
for a period of 30 days after the Company receives written notice
specifying the default (and demanding that
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such default be remedied) from the Trustee or the Holders of at least 25%
of the outstanding principal amount of the Notes;
(iv) the failure to pay at final stated maturity (giving effect to any
extensions thereof) the principal amount of any Indebtedness of the Company
or any Restricted Subsidiary (other than a Securitization Entity), which
failure continues for at least 10 days, or the acceleration of the maturity
of any such Indebtedness, which acceleration remains uncured and
unrescinded for at least 10 days, if the aggregate principal amount of such
Indebtedness, together with the principal amount of any other such
Indebtedness in default for failure to pay principal at final maturity or
which has been accelerated, aggregates $5.0 million or more at any time;
(v) one or more judgments in an aggregate amount in excess $5.0 million
shall have been rendered against the Company or any of its Significant
Subsidiaries and such judgments remain undischarged, unpaid or unstayed for
a period of 60 days after such judgment or judgments become final and non-
appealable;
(vi) except as permitted by this Indenture, any Note Guarantee of a
Significant Subsidiary shall be held in any judicial proceeding to be
unenforceable or invalid or shall cease for any reason to be in full force
and effect or any Guarantor that is a Significant Subsidiary, or any Person
acting on behalf of any Guarantor, shall deny or disaffirm its obligations
under its Note Guarantee;
(vii) the Company or any of its Significant Subsidiaries pursuant to or
within the meaning of any Bankruptcy Law: (i) admits in writing its
inability to pay its debts generally as they become due; (ii) commences a
voluntary case or proceeding; (iii) consents to the entry of an order for
relief against it in an involuntary case or proceeding; (iv) consents or
acquiesces in the institution of a bankruptcy or insolvency proceeding
against it; (v) consents to the appointment of a Custodian of it or for all
or substantially all of its property; or (vi) makes a general assignment
for the benefit of its creditors, or any of them takes any action to
authorize or effect any of the foregoing; and
(viii) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that: (i) is for relief against the Company or any
Significant Subsidiary in an involuntary case or proceeding; (ii) appoints
a Custodian of the Company or any Significant Subsidiary for all or
substantially all of its property; or (iii) orders the liquidation of the
Company or any Significant Subsidiary; and in each case the order or decree
remains unstayed and in effect for 60 days; provided, however, that if the
entry of such order or decree is appealed and dismissed on appeal, then the
Event of
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Default hereunder by reason of the entry of such order or decree shall be
deemed to have been cured ;
The term "Bankruptcy Law" means Title 11, U.S. Code or any similar
--------------
Federal, state or foreign law for the relief of debtors. The term "Custodian"
---------
means any receiver, trustee, assignee, liquidator, sequestrator or similar
official under any Bankruptcy Law.
SECTION 6.02. Acceleration.
If an Event of Default with respect to the Notes (other than an Event
of Default with respect to the Company described in clauses (vii) or (viii) of
Section 6.01) occurs and is continuing, the Trustee or the Holders of at least
25% in aggregate principal amount of the outstanding Notes, by notice in writing
to the Company, may declare the unpaid principal of (and premium, if any) and
accrued interest to the date of acceleration on all the outstanding Notes to be
due and payable immediately and, upon any such declaration, such principal
amount (and premium, if any) and accrued interest, notwithstanding anything
contained in this Indenture or the Notes to the contrary, will become
immediately due and payable. If an Event or Default specified in clauses (vii)
or (viii) of Section 6.01 with respect to the Company occurs under this
Indenture, the Notes will ipso facto become immediately due and payable without
any declaration or other act on the part of the Trustee or any Holder of the
Notes.
After a declaration of acceleration, but before a judgment or decree
of the money due in respect of the Notes has been obtained, the Holders of not
less than a majority in aggregate principal amount of the Notes then outstanding
by written notice to the Trustee may rescind an acceleration and its
consequences if all existing Events of Default (other than the nonpayment of
principal of and interest on the Notes which has become due solely by virtue of
such acceleration) have been cured or waived and if the rescission would not
conflict with any judgment or decree. No such rescission shall affect any
subsequent Default or impair any right consequent thereto.
SECTION 6.03. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy by proceeding at law or in equity to collect the
payment of principal of or interest on the Notes or to enforce the performance
of any provision of the Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Notes or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder in exercising any right or remedy maturing
upon an Event of Default shall not impair the right or remedy or constitute a
waiver of or acquiescence in the Event of Default.
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No remedy is exclusive of any other remedy. All available remedies are
cumulative to the extent permitted by law.
SECTION 6.04. Waiver of Past Default.
Subject to Sections 2.09 and 6.07, prior to the declaration of
acceleration of the Notes, the Holders of not less than a majority in aggregate
principal amount of the outstanding Notes by written notice to the Trustee may
waive an existing Default or Event of Default and its consequences, except a
Default in the payment of principal of or interest on any Note as specified in
clauses (i) and (ii) of Section 6.01 or a Default in respect of any term or
provision of this Indenture that may not be amended or modified without the
consent of each Holder affected as provided in Section 9.02. The Company shall
deliver to the Trustee an Officers' Certificate stating that the requisite
percentage of Holders have consented to such waiver and attaching copies of such
consents. In case of any such waiver, the Company, the Trustee and the Holders
shall be restored to their former positions and rights hereunder and under the
Notes, respectively. This paragraph of this Section 6.04 shall be in lieu of (S)
316(a)(1)(B) of the TIA and such (S) 316(a)(1)(B) of the TIA is hereby expressly
excluded from this Indenture and the Notes, as permitted by the TIA.
Upon any such waiver, such Default shall cease to exist and be deemed
to have been cured and not to have occurred, and any Event of Default arising
therefrom shall be deemed to have been cured and not to have occurred for every
purpose of this Indenture and the Notes, but no such waiver shall extend to any
subsequent or other Default or Event of Default or impair any right consequent
thereon.
SECTION 6.05. Control by Majority.
Subject to Section 2.09, the Holders of a majority in principal amount
of the outstanding Notes may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on it. However, the Trustee may refuse to follow any direction
that conflicts with law or this Indenture that the Trustee determines may be
unduly prejudicial to the rights of another Holder, it being understood that the
Trustee shall have no duty (subject to Section 7.01) to ascertain whether or not
such actions or forebearances are unduly prejudicial to such holders, or that
may involve the Trustee in personal liability; provided, however, that the
Trustee may take any other action deemed proper by the Trustee which is not
inconsistent with such direction. In the event the Trustee takes any action or
follows any direction pursuant to this Indenture, the Trustee shall be entitled
to indemnification satisfactory to it in its sole discretion against any loss or
expense caused by taking such action or following such direction. This Section
6.05 shall be in lieu of (S) 316(a)(1)(A) of the TIA, and such (S) 316(a)(1)(A)
of the TIA is hereby expressly excluded from this Indenture and the Notes, as
permitted by the TIA.
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SECTION 6.06. Limitation on Suits.
A Holder may not pursue any remedy with respect to this Indenture or
the Notes unless:
(i) the Holder gives to the Trustee written notice of a continuing
Event of Default;
(ii) the Holders of at least 25% in aggregate principal amount of
the outstanding Notes make a written request to the Trustee to pursue a
remedy;
(iii) such Holder or Holders offer and, if requested, provide to the
Trustee indemnity satisfactory to the Trustee against any loss, liability
or expense;
(iv) the Trustee does not comply with the request within 60 days
after receipt of the request and the offer and, if requested, the provision
of indemnity; and
(v) during such 60-day period the Holders of a majority in
principal amount of the outstanding Notes do not give the Trustee a
direction which, in the opinion of the Trustee, is inconsistent with the
request.
A Holder may not use this Indenture to prejudice the rights of another
Holder or to obtain a preference or priority over such other Holder.
SECTION 6.07. Rights of Holders To Receive Payment.
Notwithstanding any other provision of this Indenture, the right of
any Holder to receive payment of principal of or interest on a Note, on or after
the respective due dates expressed in the Note, or to bring suit for the
enforcement of any such payment on or after such respective dates, shall not be
impaired or affected without the consent of the Holder.
SECTION 6.08. Collection Suit by Trustee.
If an Event of Default in payment of principal or interest specified
in Section 6.01(i) or (ii) occurs and is continuing, the Trustee may recover
judgment in its own name and as trustee of an express trust against the Company
or any other obligor on the Notes for the whole amount of principal and accrued
interest remaining unpaid, together with interest overdue on principal and to
the extent that payment of such interest is lawful, interest on overdue
installments of interest, in each case at the rate per annum borne by the Notes
and such further amount as shall be sufficient to cover the costs and expenses
of collection, including the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel.
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SECTION 6.09. Trustee May File Proofs of Claim.
The Trustee may file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Holders allowed in any judicial proceedings relative to the Company (or any
other obligor upon the Notes), its creditors or its property and shall be
entitled and empowered to collect and receive any monies or other property
payable or deliverable on any such claims and to distribute the same, and any
Custodian in any such judicial proceedings is hereby authorized by each Holder
to make such payments to the Trustee and, in the event that the Trustee shall
consent to the making of such payments directly to the Holders, to pay to the
Trustee any amount due to it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agent and counsel, and any other
amounts due the Trustee under Section 7.07. Nothing herein contained shall be
deemed to authorize the Trustee to authorize or consent to or accept or adopt on
behalf of any Holder any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder thereof, or to
authorize the Trustee to vote in respect of the claim of any Holder in any such
proceeding; provided, however, that the Trustee may, on behalf of the Holders,
vote for the election of a trustee in bankruptcy or similar official and may be
a member of the creditors' committee.
SECTION 6.10. Priorities.
If the Trustee collects any money or property pursuant to this Article
Six, it shall pay out the money or property in the following order:
First: to the Trustee for amounts due under Section 7.07;
Second: to Holders for amounts due and unpaid on the Notes for
principal and interest, ratably, without preference or priority of any
kind, according to the amounts due and payable on the Notes for principal
and interest, respectively; and
Third: to the Company.
The Trustee, upon prior written notice to the Company, may fix a
record date and payment date for any payment to the Holders pursuant to this
Section 6.10.
SECTION 6.11. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the
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costs of the suit, and the court in its discretion may assess reasonable costs,
including reasonable attorneys' fees and expenses, against any party litigant in
the suit, having due regard to the merits and good faith of the claims or
defenses made by the party litigant. This Section 6.11 shall not apply to a suit
by the Trustee, a suit by a Holder or group of Holders of more than 10% in
aggregate principal amount of the outstanding Notes, or to any suit instituted
by any Holder for the enforcement or the payment of the principal or interest on
any Notes on or after the respective due dates expressed in the Note.
ARTICLE SEVEN
TRUSTEE
SECTION 7.01. Duties of Trustee.
(a) If a Default has occurred and is continuing, the Trustee shall
exercise such of the rights and powers vested in it by this Indenture and use
the same degree of care and skill in their exercise as a prudent person would
exercise or use under the circumstances in the conduct of its own affairs.
(b) Except during the continuance of a Default:
(1) The Trustee shall not be liable except for the performance of
such duties as are specifically set forth herein; and
(2) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions conforming to
the requirements of this Indenture; however, in the case of any such
certificates or opinions which by any provision hereof are specifically
required to be furnished to the Trustee, the Trustee shall examine such
certificates and opinions to determine whether or not they conform to the
requirements of this Indenture.
(c) The Trustee shall not be relieved from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(1) This paragraph does not limit the effect of paragraph (b) of
this Section 7.01;
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(2) The Trustee shall not be liable for any error of judgment made
in good faith by a Trust Officer, unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts; and
(3) The Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05.
(d) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or to take or omit to take any action
under this Indenture or take any action at the request or direction of Holders
if it shall have reasonable grounds for believing that repayment of such funds
is not assured to it or it does not receive from such Holders an indemnity
satisfactory to it in its sole discretion against such risk, liability, loss,
fee or expense which might be incurred by it in compliance with such request or
direction.
(e) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b), (c) and (d) of this Section 7.01.
(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
SECTION 7.02. Rights of Trustee.
Subject to Section 7.01:
(a) The Trustee may rely on any document believed by it to be genuine
and to have been signed or presented by the proper person. The Trustee need not
investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require
an Officers' Certificate and/or an Opinion of Counsel, which shall conform to
the provisions of Section 13.05. The Trustee shall not be liable for any action
it takes or omits to take in good faith in reliance on such certificate or
opinion.
(c) The Trustee may act through attorneys and agents of its selection
and shall not be responsible for the misconduct or negligence of any agent or
attorney (other than an agent who is an employee of the Trustee) appointed with
due care.
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith which it reasonably believes to be authorized or within
its rights or powers.
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(e) Before the Trustee acts or refrains from acting, it may consult
with counsel and the advice or opinion of such counsel as to matters of law
shall be full and complete authorization and protection from liability in
respect of any action taken, omitted or suffered by it hereunder in good faith
and in accordance with the advice or opinion of such counsel.
(f) Any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any resolution
of the Board of Directors may be sufficiently evidenced by a Board Resolution.
(g) The Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture,
note, other evidence of indebtedness or other paper or document, but the
Trustee, in its discretion, may make such further inquiry or investigation into
such facts or matters as it may see fit, and, if the Trustee shall determine to
make such further inquiry or investigation, it shall be entitled to examine the
books, records and premises of the Company, personally or by agent or attorney.
(h) The Trustee shall not be deemed to have notice of any Event of
Default unless a Trust Officer of the Trustee has actual knowledge thereof or
unless the Trustee shall have received written notice thereof at the Corporate
Trust Office of the Trustee, and such notice references the Notes and this
Indenture. As used herein, the term "actual knowledge" means the actual fact or
------ ---------
statement of knowing, without any duty to make any investigation with regard
thereto.
(i) The Trustee shall not be required to give any bond or surety in
respect of the performance of its powers and duties hereunder.
(j) The permissive rights 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 negligence or willful misconduct.
SECTION 7.03. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Notes and may otherwise deal with the Company or its
Affiliates with the same rights it would have if it were not Trustee, subject to
Section 7.10 hereof. Any Agent may do the same with like rights. However, the
Trustee is subject to Sections 7.10 and 7.11.
SECTION 7.04. Trustee's Disclaimer.
The Trustee shall not be responsible for and makes no representation
as to the validity or adequacy of this Indenture or the Notes, it shall not be
accountable for the Com-
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pany's use of the proceeds from the Notes, and it shall not be responsible for
any statement of the Company in this Indenture or any document issued in
connection with the sale of Notes or any statement in the Notes other than the
Trustee's certificate of authentication.
SECTION 7.05. Notice of Defaults.
If a Default or an Event of Default occurs and is continuing and the
Trustee has actual knowledge of such Defaults or Events of Default, the Trustee
shall mail to each Holder notice of the Default or Event of Default within 30
days after the occurrence thereof. Except in the case of a Default or an Event
of Default in payment of principal of or interest on any Note or a Default or
Event of Default in complying with Section 5.01, the Trustee may withhold the
notice if and so long as a committee of its Trust Officers in good faith
determines that withholding the notice is in the interest of Holders. This
Section 7.05 shall be in lieu of the proviso to (S) 315(b) of the TIA and such
proviso to (S) 315(b) of the TIA is hereby expressly excluded from this
Indenture and the Notes, as permitted by the TIA.
SECTION 7.06. Reports by Trustee to Holders.
If required by TIA (S) 313(a), within 60 days after each May 15
beginning with the May 15 following the date of this Indenture, the Trustee
shall mail to each Holder a report dated as of such May 15 that complies with
TIA (S) 313(a). The Trustee also shall comply with TIA (S) 313(b), (c) and (d).
A copy of each such report at the time of its mailing to Holders shall
be filed with the SEC and each stock exchange, if any, on which the Notes are
listed.
The Company shall promptly notify the Trustee in writing if the Notes
become listed on any stock exchange or of any delisting thereof.
SECTION 7.07. Compensation and Indemnity.
The Company shall pay to the Trustee from time to time, and the
Trustee shall be entitled to, such compensation as the Company and the Trustee
shall from time to time agree in writing for its services. The Trustee's
compensation shall not be limited by any law on compensation of a trustee of an
express trust. The Company shall reimburse the Trustee upon request for all
reasonable disbursements, expenses and advances, including all costs and
expenses of collection (including reasonable fees, disbursements and expenses of
its agents and outside counsel) incurred or made by it in addition to the
compensation for its services except any such disbursements, expenses and
advances as may be attributable to the Trustee's negligence or willful
misconduct. Such expenses shall include the reasonable compensation,
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disbursements and expenses of the Trustee's agents, accountants, experts and
outside counsel and any taxes or other expenses incurred by a trust created
pursuant to Section 8.01 hereof.
The Company shall indemnify the Trustee for, and hold it harmless
against any and all loss, damage, claims, liability or expense, including taxes
(other than franchise taxes imposed on the Trustee and taxes based upon,
measured by or determined by the income of the Trustee), arising out of or in
connection with the acceptance or administration of the trust or trusts
hereunder, including the costs and expenses of defending itself against or
investigating any claim or liability in connection with the exercise or
performance of any of its powers or duties hereunder, except to the extent that
such loss, damage, claim, liability or expense is due to its own negligence or
willful misconduct. The Trustee shall notify the Company promptly of any claim
asserted against the Trustee for which it may seek indemnity. However, the
failure by the Trustee to so notify the Company shall not relieve the Company of
its obligations hereunder. The Company shall defend the claim and the Trustee
shall cooperate in the defense (and may employ its own counsel) at the Company's
expense; provided, however, that the Company's reimbursement obligation with
respect to counsel employed by the Trustee will be limited to the reasonable
fees and expenses of such counsel.
The Company need not pay for any settlement made without its written
consent, which consent shall not be unreasonably withheld. The Company need not
reimburse any expense or indemnify against any loss or liability incurred by the
Trustee as a result of its own negligence or willful misconduct.
To secure the Company's payment obligations in this Section 7.07, the
Trustee shall have a Lien prior to the Notes against all money or property held
or collected by the Trustee, in its capacity as Trustee, except money or
property held in trust to pay principal of or interest on particular Notes or
the Purchase Price or redemption price of any Notes to be purchased pursuant to
an Offer to Purchase or redeemed.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01(vii) or (viii) occurs, the expenses (including
the reasonable fees and expenses of its agents and counsel) and the compensation
for the services shall be preferred over the status of the Holders in a
proceeding under any Bankruptcy Law and are intended to constitute expenses of
administration under any Bankruptcy Law. The Company's obligations under this
Section 7.07 and any claim arising hereunder shall survive the resignation or
removal of any Trustee, the discharge of the Company's obligations pursuant to
Article Eight and any rejection or termination under any Bankruptcy Law.
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SECTION 7.08. Replacement of Trustee.
The Trustee may resign at any time by so notifying the Company in
writing. The Holders of a majority in principal amount of the outstanding Notes
may remove the Trustee by so notifying the Trustee and the Company in writing
and may appoint a successor Trustee with the Company's consent. The Company may
remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10;
(b) the Trustee is adjudged a bankrupt or an insolvent under any
Bankruptcy Law;
(c) a custodian or other public officer takes charge of the Trustee
or its property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason (the Trustee in such event being referred to
herein as the retiring Trustee), the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the Notes may appoint a successor Trustee
to replace the successor Trustee appointed by the Company.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. As promptly as
practicable after that, the retiring Trustee shall transfer, after payment of
all sums then owing to the Trustee pursuant to Section 7.07, all property held
by it as Trustee to the successor Trustee, subject to the Lien provided in
Section 7.07, the resignation or removal of the retiring Trustee shall become
effective, and the successor Trustee shall have the rights, powers and duties of
the Trustee under this Indenture. A successor Trustee shall mail notice of its
succession to each Holder.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Holders of at least 10% in principal amount of the outstanding Notes may
petition, at the expense of the Company, any court of competent jurisdiction for
the appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any Holder may
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
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Notwithstanding replacement of the Trustee pursuant to this Section
7.08, the Company's obligations under Section 7.07 shall continue for the
benefit of the retiring Trustee.
SECTION 7.09. Successor Trustee by Merger, etc.
If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation or banking corporation, the resulting, surviving or transferee
corporation or banking corporation without any further act shall be the
successor Trustee.
SECTION 7.10. Eligibility; Disqualification.
This Indenture shall always have a Trustee which shall be eligible to
act as Trustee under TIA (S)(S) 310(a)(1) and 310(a)(2). The Trustee shall have
a combined capital and surplus of at least $50,000,000 as set forth in its most
recent published annual report of condition. If the Trustee has or shall acquire
any "conflicting interest" within the meaning of TIA (S) 310(b), the Trustee and
the Company shall comply with the provisions of TIA (S) 310(b); provided,
however, that there shall be excluded from the operation of TIA (S) 310(b)(1)
any indenture or indentures under which other securities or certificates of
interest or participation in other securities of the Company are outstanding if
the requirements for such exclusion set forth in TIA (S) 310(b)(1) are met. If
at any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section 7.10, the Trustee shall resign immediately in the
manner and with the effect hereinbefore specified in this Article Seven.
SECTION 7.11. Preferential Collection of Claims Against Company.
The Trustee shall comply with TIA (S) 311(a), excluding any creditor
relationship listed in TIA (S) 311(b). A Trustee who has resigned or been
removed shall be subject to TIA (S) 311(a) to the extent indicated therein.
ARTICLE EIGHT
DISCHARGE OF INDENTURE
SECTION 8.01. Termination of Company's Obligations.
The Company may terminate its and the Guarantors' substantive
obligations in respect of the Notes by delivering all outstanding Notes to the
Trustee for cancellation and paying all sums payable by it on account of
principal of, premium, if any, and interest on all
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Notes or otherwise. In addition to the foregoing, with respect to the creation
of the defeasance trust provided for in the following clause (i), the Company
may, provided that no Default or Event of Default has occurred and is continuing
or would arise therefrom (or, with respect to a Default or Event of Default
specified in Section 6.01(vii) or (viii), occurs at any time on or prior to the
91st calendar day after the date of such deposit (it being understood that this
condition shall not be deemed satisfied until after such 91st day)), terminate
its and the Guarantors' substantive obligations in respect of Article Four
(other than Sections 4.01, 4.02, 4.07, 4.10, 4.11, 4.17, 4.18, 4.19 and 4.20)
and Sections 5.01(a)(iii) and (iv) and 5.01(b)(ii) and (iii) and any Event of
Default specified in Section 6.01(iii) by (i) depositing with the Trustee, under
the terms of an irrevocable trust agreement, money or United States Government
Obligations sufficient (without reinvestment) to pay all remaining Indebtedness
on the Notes, (ii) delivering to the Trustee either an Opinion of Counsel or a
ruling directed to the Trustee from the Internal Revenue Service to the effect
that the Holders will not recognize income, gain or loss for federal income tax
purposes as a result of such deposit and termination of obligations, (iii)
delivering to the Trustee an Opinion of Counsel to the effect that the Company's
exercise of its option under this Section 8.01 will not result in any of the
Company, the Trustee or the trust created by the Company's deposit of funds
pursuant to this provision becoming or being deemed to be an "investment
company" under the Investment Company Act of 1940, as amended (the "Investment
----------
Company Act"), and (iv) delivering to the Trustee an Officers' Certificate and
- -----------
an Opinion of Counsel each stating compliance with all conditions precedent
provided for herein. In addition, with respect to the creation of the defeasance
trust provided for in the following clause (i), the Company may, provided that
no Default or Event of Default has occurred and is continuing or would arise
therefrom (or, with respect to a Default or Event of Default specified in
Section 6.01(vii) or (viii), occurs at any time on or prior to the 91st calendar
day after the date of such deposit (it being understood that this condition
shall not be deemed satisfied until after such 91st day)), terminate all of its
and the Guarantors' substantive obligations in respect of the Notes (including
its obligations to pay the principal of and interest on the Notes and the
Guarantors' Note Guarantee thereof) by (i) depositing with the Trustee, under
the terms of an irrevocable trust agreement, money or United States Government
Obligations sufficient (without reinvestment) to pay all remaining Indebtedness
on the Notes, (ii) delivering to the Trustee either a ruling directed to the
Trustee from the Internal Revenue Service to the effect that the Holders of the
Notes will not recognize income, gain or loss for federal income tax purposes as
a result of such deposit and termination of obligations or an Opinion of Counsel
addressed to the Trustee based upon such a ruling or based on a change in the
applicable Federal tax law since the date of this Indenture to such effect,
(iii) delivering to the Trustee an Opinion of Counsel to the effect that the
Company's exercise of its option under this Section 8.01 will not result in any
of the Company, the Trustee or the trust created by the Company's deposit of
funds pursuant to this provision becoming or being deemed to be an "investment
company" under the Investment Company Act and (iv) delivering to the Trus-
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tee an Officers' Certificate and an Opinion of Counsel each stating compliance
with all conditions precedent provided for herein.
Notwithstanding the foregoing paragraph, the Company's obligations in
Sections 2.02, 2.03, 2.04, 2.05, 2.06, 2.07, 2.10, 2.13, 4.01 (but not with
respect to termination of substantive obligations pursuant to the third sentence
of the foregoing paragraph), 4.02, 7.07, 7.08, 8.03 and 8.04 shall survive until
the Notes are no longer outstanding. Thereafter the Company's obligations in
Sections 7.07, 8.03 and 8.04 shall survive.
After such delivery or irrevocable deposit and delivery of an
Officers' Certificate and Opinion of Counsel, the Trustee upon request shall
acknowledge in writing the discharge of the Company's and the Guarantors'
obligations under the Notes and this Indenture except for those surviving
obligations specified above.
The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the United States Government
Obligations deposited pursuant to this Section 8.01 or the principal and
interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of outstanding Notes.
SECTION 8.02. Application of Trust Money.
The Trustee shall hold in trust money or United States Government
Obligations deposited with it pursuant to Section 8.01, and shall apply the
deposited money and the money from United States Government Obligations in
accordance with this Indenture solely to the payment of principal of and
interest on the Notes.
SECTION 8.03. Repayment to Company.
Subject to Sections 7.07 and 8.01, the Trustee shall promptly pay to
the Company upon written request any excess money held by it at any time. The
Trustee shall pay to the Company upon written request any money held by it for
the payment of principal or interest that remains unclaimed for two years;
provided, however, that the Trustee before being required to make any payment
may at the expense of the Company cause to be published once in a newspaper of
general circulation in The City of New York or mail to each Holder entitled to
such money notice that such money remains unclaimed and that, after a date
specified therein which shall be at least 30 days from the date of such
publication or mailing, any unclaimed balance of such money then remaining shall
be repaid to the Company. After payment to the Company, Holders entitled to
money must look solely to the Company for payment as general creditors unless an
applicable abandoned property law designates another per-
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son and all liability of the Trustee or Paying Agent with respect to such money
shall thereupon cease.
SECTION 8.04. Reinstatement.
If the Trustee is unable to apply any money or United States
Government Obligations in accordance with Section 8.01 by reason of any legal
proceeding or by reason of any order or judgment of any court or governmental
authority enjoining, restraining or otherwise prohibiting such application, the
Company's and the Guarantors' obligations under this Indenture and the Notes
shall be revived and reinstated as though no deposit had occurred pursuant to
Section 8.01 until such time as the Trustee is permitted to apply all such money
or United States Government Obligations in accordance with Section 8.01;
provided, however, that if the Company has made any payment of interest on or
principal of any Notes because of the reinstatement of its obligations, the
Company shall be subrogated to the rights of the Holders of such Notes to
receive such payment from the money or United States Government Obligations held
by the Trustee.
ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.01. Without Consent of Holders.
The Company and the Guarantors, when authorized by a resolution of
their respective Boards of Directors, and the Trustee may amend or supplement
this Indenture or the Notes without notice to or consent of any Holder:
(i) cure any ambiguity, defect or inconsistency;
(ii) provide for uncertificated Notes in addition to or in place
of certificated Notes;
(iii) provide for the assumption of the Company's Obligations to
Holders of Notes in the case of a merger or consolidation or sale of all or
substantially all of the Company's assets;
(iv) make any change that would provide any additional rights or
benefits to the Holders of Notes or that does not adversely affect the
legal rights under this Indenture of any such Holder;
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(v) comply with requirements of the Commission to effect or
maintain the qualification of this Indenture under the Trust Indenture Act;
(vi) to evidence the succession of another Person to any
Guarantor and the assumption by any such successor of the covenants of such
Guarantor herein and in the Note Guarantee in connection with any
transaction complying with Article Five of this Indenture;
(vii) to secure the Notes pursuant to the requirements of Section
4.15 or otherwise; or
(viii) to reflect the release of a Guarantor from its obligations
with respect to its Note Guarantee in accordance with the provisions of
Section 10.03 and to add a Guarantor pursuant to the requirements of
Section 4.16;
provided, however, that the Company has delivered to the Trustee an Opinion of
Counsel stating that such amendment or supplement complies with the provisions
of this Section 9.01.
SECTION 9.02. With Consent of Holders.
Subject to Section 6.07, the Company and the Guarantors, when
authorized by a resolution of their respective Boards of Directors, and the
Trustee may amend or supplement this Indenture or the Notes with the written
consent of the Holders of at least a majority in principal amount of the
outstanding Notes. Subject to Section 6.07, the Holders of a majority in
principal amount of the outstanding Notes may waive compliance by the Company or
any Guarantor with any provision of this Indenture or the Notes. However,
without the consent of each Holder affected, an amendment, supplement or waiver,
including a waiver pursuant to Section 6.04, may not:
(a) change the maturity of the principal of or any installment of
interest on any such Note or alter the optional redemption or repurchase
provisions of any such Note or this Indenture in a manner adverse to the
Holders of the Notes;
(b) reduce the principal amount of (or the premium) of any such Note;
(c) reduce the rate of or extend the time for payment of interest on
any such Note;
(d) change the place or currency of payment of principal of (or
premium) or interest on any such Note;
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(e) modify any provisions of Section 6.04 (other than to add sections
of this Indenture or the Notes subject thereto) or the right of the Holders
of Notes to institute suit for the enforcement of any payment on or with
respect to any such Note or any Note Guarantee in respect thereof or the
modification and amendment provisions of this Indenture and the Notes
(other than to add sections of this Indenture or the Notes which may not be
amended, supplemented or waived without the consent of each Holder therein
affected);
(f) reduce the percentage of the principal amount of outstanding
Notes necessary for amendment to or waiver of compliance with any provision
of this Indenture or the Notes or for waiver of any Default in respect
thereof;
(g) waive a default in the payment of principal of, interest on, or
redemption payment with respect to, the Notes (except a rescission of
acceleration of the Notes by the Holders thereof as provided in Section
6.02 and a waiver of the payment default that resulted from such
acceleration);
(h) modify the ranking or priority of any Note or the Note Guarantee
in respect thereof of any Guarantor in any manner adverse to the Holders of
the Notes; or
(i) release any Significant Subsidiary that is a Guarantor from any
of its obligations under its Note Guarantee or this Indenture otherwise
than in accordance with this Indenture.
It shall not be necessary for the consent of the Holders under this
Section 9.02 to approve the particular form of any proposed amendment,
supplement or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment, supplement or waiver under this Section 9.02
becomes effective, the Company shall mail to the Holders affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such amendment, supplement or
waiver.
SECTION 9.03. Compliance with Trust Indenture Act.
Every amendment to or supplement of this Indenture or the Notes shall
comply with the TIA as then in effect.
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SECTION 9.04. Record Date for Consents and Effect of Consents.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders of Notes entitled to consent to any
amendment, supplement or waiver. If a record date is fixed, then those persons
who were Holders of Notes at such record date (or their duly designated
proxies), and only those persons, shall be entitled to consent to such
amendment, supplement or waiver or to revoke any consent previously given,
whether or not such persons continue to be Holders of such Notes after such
record date. No such consent shall be valid or effective for more than 90 days
after such record date. The Trustee is entitled to rely upon any electronic
instruction from beneficial owners to the Holders of any Global Security.
After an amendment, supplement or waiver becomes effective, it shall
bind every Holder, unless it makes a change described in any of clauses (a)
through (i) of Section 9.02. In that case the amendment, supplement or waiver
shall bind each Holder of a Note who has consented to it and every subsequent
Holder of a Note or portion of a Note that evidences the same debt as the
consenting Holder's Note.
SECTION 9.05. Notation on or Exchange of Notes.
If an amendment, supplement or waiver changes the terms of a Note, the
Trustee may require the Holder of the Note to deliver it to the Trustee. The
Trustee may place an appropriate notation on the Note about the changed terms
and return it to the Holder. Alternatively, if the Company or the Trustee so
determines, the Company in exchange for the Note shall issue and the Trustee
shall authenticate a new Note that reflects the changed terms. Failure to make
the appropriate notation or issue a new Note shall not affect the validity and
effect of such amendment, supplement or waiver.
SECTION 9.06. Trustee To Sign Amendments, etc.
The Trustee shall be entitled to receive, and shall be fully protected
in relying upon, an Opinion of Counsel stating that the execution of any
amendment, supplement or waiver authorized pursuant to this Article Nine is
authorized or permitted by this Indenture and that such amendment, supplement or
waiver constitutes the legal, valid and binding obligation of the Company and
the Guarantors, enforceable in accordance with its terms (subject to customary
exceptions). The Trustee may, but shall not be obligated to, execute any such
amendment, supplement or waiver which affects the Trustee's own rights, duties
or immunities under this Indenture or otherwise. In signing any amendment,
supplement or waiver, the Trustee shall be entitled to receive an indemnity
reasonably satisfactory to it.
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ARTICLE TEN
NOTE GUARANTEE
SECTION 10.01. Unconditional Note Guarantee.
Each Guarantor hereby unconditionally, jointly and severally,
guarantees (each, a "Note Guarantee") to each Holder of a Note authenticated by
--------------
the Trustee and to the Trustee and its successors and assigns that: the
principal of, premium, if any, and interest on the Notes will be promptly paid
in full when due, subject to any applicable grace period, whether at maturity,
by acceleration or otherwise, and interest on the overdue principal and interest
on any overdue interest on the Notes, to the extent lawful, and all other
obligations of the Company to the Holders or the Trustee hereunder or under the
Notes will be promptly paid in full or performed, all in accordance with the
terms hereof and thereof; subject, however, to the limitations set forth in
Section 10.04. Each Guarantor hereby agrees that its obligations hereunder shall
be unconditional, irrespective of the validity, regularity or enforceability of
the Notes or this Indenture, the absence of any action to enforce the same, any
waiver or consent by any Holder of the Notes with respect to any provisions
hereof or thereof, the recovery of any judgment against the Company, any action
to enforce the same or any other circumstance which might otherwise constitute a
legal or equitable discharge or defense of a Guarantor. Each Guarantor hereby
waives diligence, presentment, demand of payment, filing of claims with a court
in the event of insolvency or bankruptcy of the Company, any right to require a
proceeding first against the Company, protest, notice and all demands whatsoever
and covenants that the Note Guarantee will not be discharged except by complete
performance of the obligations contained in the Notes, this Indenture, and this
Note Guarantee. If any Holder or the Trustee is required by any court or
otherwise to return to the Company, any Guarantor, or any custodian, trustee,
liquidator or other similar official acting in relation to the Company or any
Guarantor, any amount paid by the Company or any Guarantor to the Trustee or
such Holder, this Note Guarantee, to the extent theretofore discharged, shall be
reinstated in full force and effect. Each Guarantor further agrees that, as
between each Guarantor, on the one hand, and the Holders and the Trustee, on the
other hand, (x) the maturity of the obligations guaranteed hereby may be
accelerated as provided in Article Six for the purpose of this Note Guarantee,
notwithstanding any stay, injunction or other prohibition preventing such
acceleration in respect of the obligations guaranteed hereby, and (y) in the
event of any acceleration of such obligations as provided in Article Six, such
obligations (whether or not due and payable) shall forth become due and payable
by each Guarantor for the purpose of this Note Guarantee.
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SECTION 10.02. Severability.
In case any provision of this Note Guarantee shall be invalid, illegal
or unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
SECTION 10.03. Release of a Guarantor.
If (i) subject to the requirements of Section 5.01(a), all or
substantially all of the assets of any Guarantor or all of the Equity Interests
of any Guarantor are sold (including by issuance or otherwise) by the Company in
a transaction constituting an Asset Sale and (x) the Net Cash Proceeds from such
Asset Sale are used in accordance with Section 4.05 or (y) the Company delivers
to the Trustee an Officers' Certificate to the effect that the Net Cash Proceeds
from such Asset Sale shall be used in accordance with Section 4.05 and within
the time limits specified by Section 4.05 or (ii) the conditions set forth in
Section 4.16 for the release of the Note Guarantee of any Guarantor have been
satisfied, then such Guarantor (in the case of (i) or (ii)) or the corporation
acquiring such assets (in the case of (i)) shall be released and discharged from
all obligations under this Indenture and the Notes without any further action
required on the part of the Trustee or any Holder. The Trustee shall, at the
sole cost and expense of the Company and upon receipt at the reasonable request
of the Trustee of an Opinion of Counsel that the provisions of this Section
10.03 have been complied with, deliver an appropriate instrument evidencing such
release upon receipt of a request by the Company accompanied by an Officers'
Certificate certifying as to the compliance with this Section 10.03. Any
Guarantor not so released remains liable for the full amount of principal of and
interest on the Notes and the other obligations of the Company hereunder as
provided in this Article Ten.
SECTION 10.04. Limitation of Guarantor's Liability.
Each Guarantor, and by its acceptance hereof each Holder and the
Trustee, hereby confirms that it is the intention of all such parties that the
guarantee by such Note Guarantor pursuant to its Note Guarantee not constitute a
fraudulent transfer or conveyance for purposes of title 11 of the United States
Code, as amended, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent
Transfer Act or any similar U.S. Federal or state or other applicable law. To
effectuate the foregoing intention, the Holders and each Guarantor hereby
irrevocably agree that the obligations of each Guarantor under its Note
Guarantee shall be limited to the maximum amount as will, after giving effect to
all other contingent and fixed liabilities of such Guarantor and after giving
effect to any collections from or payments made by or on behalf of any other
Guarantor in respect of the obligations of such other Guarantor under its Note
Guarantee or pursuant to Section 10.05, result in the obligations of such
Guar-
<PAGE>
-93-
antor under its Note Guarantee not constituting such a fraudulent transfer
or conveyance under Federal or State law.
SECTION 10.05. Contribution.
In order to provide for just and equitable contribution among the
Guarantors, the Guarantors agree, inter se, that in the event any payment or
distribution is made by any Guarantor (a "Funding Guarantor") under the Note
-----------------
Guarantee, such Funding Guarantor shall be entitled to a contribution from all
other Guarantors in a pro rata amount, based on the net assets of each Guarantor
(including the Funding Guarantor), determined in accordance with GAAP, subject
to Section 10.04, for all payments, damages and expenses incurred by such
Funding Guarantor in discharging the Company's obligations with respect to the
Notes or any other Guarantor's obligations with respect to the Note Guarantee.
SECTION 10.06. Execution of Note Guarantee.
To further evidence their Note Guarantee to the Holders, each of the
Guarantors hereby agree to execute a Note Guarantee to be endorsed on each Note
ordered to be authenticated and delivered by the Trustee. Each Note Guarantor
hereby agrees that its Note Guarantee set forth in Section 10.01 shall remain in
full force and effect notwithstanding any failure to endorse on each Note a Note
Guarantee. Each such Note Guarantee shall be signed on behalf of each Guarantor
by its Chairman of the Board, its President or one of its Vice Presidents prior
to the authentication of the Note on which it is endorsed, and the delivery of
such Note by the Trustee, after the authentication thereof hereunder, shall
constitute due delivery of such Note Guarantee on behalf of such Guarantor.
Such signature upon the Note Guarantee may be manual or facsimile signature of
such officer and may be imprinted or otherwise reproduced on the Note Guarantee,
and in case such officer who shall have signed the Note Guarantee shall cease to
be such officer before the Note on which such Note Guarantee is endorsed shall
have been authenticated and delivered by the Trustee or disposed of by the
Company, such Note nevertheless may be authenticated and delivered or disposed
of as though the Person who signed the Note Guarantee had not ceased to be such
officer of such Guarantor.
SECTION 10.07. Subordination of Subrogation and Other Rights.
Each Guarantor hereby agrees that any claim against the Company that
arises from the payment, performance or enforcement of such Guarantor's
obligations under its Note Guarantee or this Indenture, including, without
limitation, any right of subrogation, shall be subject and subordinate to, and
no payment with respect to any such claim of such Guarantor shall be made
before, the payment in full in cash of all outstanding Notes in accordance with
the provisions provided therefor in this Indenture.
<PAGE>
-94-
ARTICLE ELEVEN
MISCELLANEOUS
SECTION 11.01. Trust Indenture Act Controls.
This Indenture is subject to the provisions of the TIA that are
required to be a part of this Indenture, and shall, to the extent applicable, be
governed by such provisions. If any provision of this Indenture modifies any TIA
provision that may be so modified, such TIA provision shall be deemed to apply
to this Indenture as so modified. If any provision of this Indenture excludes
any TIA provision that may be so excluded, such TIA provision shall be excluded
from this Indenture.
The provisions of TIA (S)(S) 310 through 317 that impose duties on any
Person (including the provisions automatically deemed included unless expressly
excluded by this Indenture) are a part of and govern this Indenture, whether or
not physically contained herein.
SECTION 11.02. Notices.
Any notice or communication shall be sufficiently given if in writing
and delivered in person, by facsimile and confirmed by overnight courier, or
mailed by first-class mail addressed as follows:
if to the Company or to the Guarantors:
Mattress Discounters Corporation
9822 Fallard Court
Upper Marlboro, MD 20772
Attention: Chief Financial Officer
Facsimile: (301) 856-4591
Telephone: (301) 856-6755
with a copy, which shall not constitute notice, to:
Kirkland & Ellis
Citicorp Center
153 East 53rd Street
New York, NY 10022
<PAGE>
-95-
Attention: Lance Balk, Esq.
Facsimile: (212) 446-4950
Telephone: (212) 446-4900
if to the Trustee:
State Street Bank and Trust Company
Goodwin Square, 225 Asylum Street, 23rd Floor
Hartford, CT 06103
Attention: Corporate Trust Administration
Facsimile: (880) 244-1889
Telephone: (860) 244-1813
The Company or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications.
Any notice or communication mailed, first-class, postage prepaid, to a
Holder including any notice delivered in connection with TIA (S) 310(b), TIA (S)
313(c), TIA (S) 314(a) and TIA (S) 315(b), shall be mailed to him at his address
as set forth on the Security Register and shall be sufficiently given to him if
so mailed within the time prescribed. To the extent required by the TIA, any
notice or communication shall also be mailed to any Person described in TIA (S)
313(c).
Failure to mail a notice or communication to a Holder or any defect in
it shall not affect its sufficiency with respect to other Holders. Except for a
notice to the Trustee, which is deemed given only when received, if a notice or
communication is mailed in the manner provided above, it is duly given, whether
or not the addressee receives it.
SECTION 11.03. Communications by Holders with Other Holders.
Holders may communicate pursuant to TIA (S) 312(b) with other Holders
with respect to their rights under this Indenture or the Notes. The Company, the
Trustee, the Registrar and any other person shall have the protection of TIA (S)
312(c).
SECTION 11.04. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company to the Trustee to take
or refrain from taking any action under this Indenture, the Company shall
furnish to the Trustee at the request of the Trustee:
<PAGE>
-96-
(1) an Officers' Certificate in form and substance satisfactory to
the Trustee stating that, in the opinion of the signers, all conditions
precedent, if any, provided for in this Indenture relating to the proposed
action have been complied with; and
(2) an Opinion of Counsel in form and substance satisfactory to the
Trustee stating that, in the opinion of such counsel, all such conditions
precedent have been complied with; provided, however, that with respect to
matters of fact an Opinion of Counsel may rely on an Officers' Certificate
or certificates of public officials.
SECTION 11.05. Statements Required in Certificate.
Each certificate with respect to compliance with a condition or
covenant provided for in this Indenture shall include:
(1) a statement that the person making such certificate has read
such covenant or condition;
(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements contained in such certificate
are based;
(3) a statement that, in the opinion of such person, he has made
such examination or investigation as is necessary to enable him to express
an informed opinion as to whether or not such covenant or condition has
been complied with; and
(4) a statement as to whether or not, in the opinion of such
person, such condition or covenant has been complied with.
SECTION 11.06. Rules by Trustee, Paying Agent, Registrar.
The Trustee may make reasonable rules for action by or at a meeting of
Holders. The Paying Agent or Registrar may make reasonable rules for its
functions.
SECTION 11.07. Governing Law.
The laws of the State of New York shall govern this Indenture, the
Notes and the Note Guarantees.
SECTION 11.08. No Recourse Against Others.
A director, officer, employee or stockholder, as such, of the Company
or any of its Affiliates shall not have any liability for any obligations of the
Company or any of its Affiliates under the Notes, the Note Guarantee of such
Guarantor or this Indenture or for any
<PAGE>
-97-
claim based on, in respect of, or by reason of, such obligations or their
creation. Each Holder by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for the issuance
of the Notes and the Note Guarantees.
SECTION 11.09. Successors.
All agreements of the Company in this Indenture and the Notes shall
bind its successor. All agreements of each Guarantor in this Indenture and such
Guarantor's Note Guarantee shall bind its successor. All agreements of the
Trustee in this Indenture shall bind its successor.
SECTION 11.10. Counterpart Originals.
The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement.
SECTION 11.11. Severability.
In case any provision in this Indenture, in the Notes or in the Note
Guarantee shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby, and a Holder shall have no claim therefor against any party
hereto.
SECTION 11.12. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another indenture, loan or
debt agreement of the Company or a Subsidiary. Any such indenture, loan or debt
agreement may not be used to interpret this Indenture.
SECTION 11.13. Legal Holidays.
If a payment date is a not a Business Day at a place of payment,
payment may be made at that place on the next succeeding Business Day, and no
interest shall accrue for the intervening period.
[Signature Pages Follow]
<PAGE>
S-1
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed as of the date first written above.
MATTRESS DISCOUNTERS CORPORATION, as the Issuer
By: /s/ Michael Krupka
-----------------------------------------------
Name: Michael Krupka
Title: Vice President
T.J.B., INC.
THE BEDDING EXPERTS, INC.,
as Guarantors
By: /s/ Michael Krupka
-----------------------------------------------
Name: Michael Krupka
Title: Vice President
STATE STREET BANK AND TRUST COMPANY, as Trustee
By: /s/ Laurel Melody - Casasanta
-----------------------------------------------
Name: Laurel Melody - Casasanta
Title: Assistant Vice President
<PAGE>
EXHIBIT A
---------
[FORM OF SERIES A SECURITY]
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE OR
OTHER JURISDICTION. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION
HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH
TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER,
SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE
RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE
ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY
AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF
SUCH SECURITY), ONLY (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION
STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO
LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A
PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN
RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE
TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND
SALES THAT OCCUR OUTSIDE THE UNITED STATES IN ACCORDANCE WITH REGULATION S UNDER
THE SECURITIES ACT, (E) TO AN "ACCREDITED INVESTOR" WITHIN THE MEANING OF RULE
501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT THAT IS AN INSTITUTIONAL
INVESTOR ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF SUCH
AN INSTITUTIONAL ACCREDITED INVESTOR, IN EACH CASE IN A MINIMUM PRINCIPAL AMOUNT
OF THE SECURITIES OF $250,000, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO OR
FOR OFFER OR SALE IN CONNECTION WITH ANY OTHER DISTRIBUTION IN VIOLATION OF THE
SECURITIES ACT OR (F) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND
THE
A-1
<PAGE>
TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSE
(D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION
AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND IN THE CASE OF THE
FOREGOING CLAUSE (E), A CERTIFICATE OF TRANSFER (A FORM OF WHICH MAY BE OBTAINED
FROM THE COMPANY OR THE TRUSTEE) COMPLETED AND DELIVERED BY THE TRANSFEROR TO
THE COMPANY AND THE TRUSTEE. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF
THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE.
FOR PURPOSES OF SECTIONS 1272, 1273 AND 1275 OF THE INTERNAL REVENUE
CODE OF 1986, AS AMENDED, AND THE RULES AND REGULATIONS THEREUNDER, THIS
SECURITY IS BEING ISSUED WITH ORIGINAL ISSUE DISCOUNT; FOR EACH $1,000 PRINCIPAL
AMOUNT OF THIS SECURITY, (1) THE ISSUE PRICE IS $963.77; (2) THE AMOUNT OF THE
ORIGINAL ISSUE DISCOUNT IS $36.33; (3) THE ISSUE DATE IS AUGUST 6, 1999; AND (4)
THE YIELD TO MATURITY IS 13.714% (COMPOUNDED SEMI-ANNUALLY).
A-2
<PAGE>
MATTRESS DISCOUNTERS CORPORATION
12 5/8% Senior Note due 2007, Series A
CUSIP No.:[ ]
No. [ ] $[ ]
MATTRESS DISCOUNTERS CORPORATION, a Delaware corporation (the
"Company", which term includes any successor corporation), for value received
-------
promises to pay to [ ] or registered assigns, the principal sum of [ ]
Dollars, on July 15, 2007.
Interest Payment Dates: January 15 and July 15, commencing on January
15, 2000.
Interest Record Dates: January 1 and July 1.
Reference is made to the further provisions of this Note contained
herein, which will for all purposes have the same effect as if set forth at this
place.
IN WITNESS WHEREOF, the Company has caused this Note to be signed
manually or by facsimile by its duly authorized officer.
MATTRESS DISCOUNTERS CORPORATION
By:
-----------------------------
Name:
Title:
By:
-----------------------------
Name:
Title:
Dated: August 6, 1999
A-3
<PAGE>
This is one of the 12 5/8% Senior Notes due 2007, Series A, described
in the within-mentioned Indenture.
Dated: August 6, 1999
STATE STREET BANK AND TRUST COMPANY,
as Trustee
By:
---------------------------------
Authorized Signatory
A-4
<PAGE>
(REVERSE OF SECURITY)
MATTRESS DISCOUNTERS CORPORATION
12 5/8% Senior Note due 2007, Series A
1. Interest.
--------
MATTRESS DISCOUNTERS CORPORATION, a Delaware corporation (the
"Company"), promises to pay interest on the principal amount of this Note at the
-------
rate per annum shown above. Cash interest on the Notes will accrue from the
most recent date to which interest has been paid or, if no interest has been
paid, from August 6, 1999. The Company will pay interest semi-annually in
arrears on each Interest Payment Date, commencing January 15, 2000. Interest
will be computed on the basis of a 360-day year of twelve 30-day months.
The Company shall pay interest on overdue principal from time to time
on demand and on overdue installments of interest (without regard to any
applicable grace periods) to the extent lawful from time to time on demand, in
each case at the rate borne by the Notes
2. Method of Payment.
-----------------
The Company shall pay interest on the Notes (except defaulted
interest) to the persons who are the registered Holders at the close of business
on the Interest Record Date immediately preceding the Interest Payment Date even
if the Notes are canceled on registration of transfer or registration of
exchange after such Interest Record Date. Holders must surrender Notes to a
Paying Agent to collect principal payments. The Company shall pay principal and
interest in money of the United States that at the time of payment is legal
tender for payment of public and private debts ("U.S. Legal Tender"). However,
-----------------
the Company may pay principal and interest by wire transfer of Federal funds
(provided that the Paying Agent shall have received wire instructions on or
prior to the relevant Interest Record Date), or interest by check payable in
such U.S. Legal Tender. The Company may deliver any such interest payment to
the Paying Agent or to a Holder at the Holder's registered address.
3. Paying Agent and Registrar.
--------------------------
Initially, State Street Bank and Trust Company (the "Trustee") will
-------
act as Paying Agent and Registrar. The Company may change any Paying Agent or
Registrar with-
A-5
<PAGE>
out notice to the Holders. The Company or any of its Subsidiaries may, subject
to certain exceptions, act as Registrar.
4. Indenture and Note Guarantees.
-----------------------------
The Company issued the Notes under an Indenture, dated as of August 6,
1999 (the "Indenture"), by and among the Company, the Guarantors and the
---------
Trustee. Capitalized terms herein are used as defined in the Indenture unless
otherwise defined herein. This Note is one of a duly authorized issue of Notes
of the Company designated as its 12 5/8% Senior Notes due 2007, Series A (the
"Initial Notes"). The Initial Notes are initially being issued in the aggregate
- --------------
principal amount of $140,000,000. The Company shall be entitled to issue
Additional Notes pursuant to Section 2.l7 of the Indenture. The Notes include
the Initial Notes, the Private Exchange Notes (as defined in the Indenture) and
the Unrestricted Notes (as defined below) issued in exchange for the Initial
Notes pursuant to the Registration Rights Agreement. The Initial Notes, the
Additional Notes and the Unrestricted Notes are treated as a single class of
securities under the Indenture. The terms of the Notes include those stated in
the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 (15 U.S.C. (S)(S) 77aaa-77bbbb) (the "TIA"), as in effect
---
on the date of the Indenture (except as otherwise indicated in the Indenture)
until such time as the Indenture is qualified under the TIA, and thereafter as
in effect on the date on which the Indenture is qualified under the TIA.
Notwithstanding anything to the contrary herein, the Notes are subject to all
such terms, and holders of Notes are referred to the Indenture and the TIA for a
statement of them. The Notes are senior unsecured obligations of the Company.
Payment on the Notes is guaranteed (each, a " Note Guarantee"), on a
--------------
senior subordinated basis, jointly and severally, by each Restricted Subsidiary
of the Company existing on the Issue Date (each, a "Guarantor") pursuant to
---------
Article Ten of the Indenture. In addition, in certain circumstances subject to
certain exceptions, the Indenture requires the Company to cause each Restricted
Subsidiary formed, created or acquired after the Issue Date to become a party to
the Indenture as a Guarantor and guarantee payment on the Notes pursuant to
Article Ten of the Indenture. In certain circumstances, the Note Guarantees may
be released.
5. Optional Redemption.
-------------------
Except as described in paragraphs 6 and 7 below, the Notes are not
redeemable prior to July 15, 2004. The Notes will be redeemable at the option
of the Company, in whole or in part, at any time on or after July 15, 2004, at
the redemption prices (expressed as a percentage of principal amount) set forth
below, plus accrued and unpaid interest thereon, if any,
A-6
<PAGE>
to the Redemption Date (subject to the right of holders of record on the
relevant Interest Record Date to receive interest due on the relevant Interest
Payment Date) if redeemed during the 12-month period beginning on July 15 of the
years indicated below:
Year Percentage
---- ----------
2004 106.313%
2005 103.156%
2006 and thereafter 100.000%
6. Optional Redemption upon Equity Offerings.
--------------------------------------------
In addition, at any time and from time to time on or prior to July 15,
2002, the Company may redeem in the aggregate up to 35% of the aggregate
principal amount of the Notes originally issued (including the original
principal amount of any Additional Notes) with the net cash proceeds of one or
more Equity Offerings at a redemption price in cash equal to 112.625% of the
principal amount thereof, plus accrued and unpaid interest thereon, if any, to
the date of redemption (subject to the right of Holders of record on the
relevant Interest Record Date to receive interest due on the relevant Interest
Payment Date); provided, however, that at least 65% of the aggregate principal
amount of the Notes originally issued (including the original principal amount
of any Additional Notes) must remain outstanding immediately after giving effect
to each such redemption (excluding any Notes held by the Company or any of its
Affiliates). Notice of any such redemption must be given within 60 days after
the date of the closing of the relevant Equity Offering.
7. Optional Redemption Upon Change of Control.
------------------------------------------
At any time prior to July 15, 2004, the Notes may also be redeemed, as
a whole but not in part, at the option of the Company upon the occurrence of a
Change of Control, upon not less than 30 nor more than 60 days prior notice (but
in no event may any such redemption occur more than 90 days after the occurrence
of such Change of Control) mailed by first-class mail to each Holder's
registered address, at a redemption price equal to 100% of the principal amount
thereof plus the Applicable Premium as of, and accrued and unpaid interest, if
any, to, the date of redemption.
"Applicable Premium" means, with respect to any Note on any redemption
------------------
date, the greater of (i) 1.0% of the principal amount of such Note or (ii) the
excess of (A) the present value at such redemption date of (1) the redemption
price of such Note at July 15, 2004 (such redemption price being set forth under
paragraph 5 above) plus (2) all required interest payments due on such Note
through July 15, 2004 (excluding accrued but unpaid in-
A-7
<PAGE>
terest), computed using a discount rate equal to the Treasury Rate at such
redemption date plus 50 basis points over (B) the principal amount of such Note,
if greater.
"Treasury Rate" means, as of any redemption date, the yield to
-------------
maturity as of such redemption date of United States Treasury securities with a
constant maturity (as compiled and published in the most recent Federal Reserve
Statistical Release H.15 (519) that has become publicly available at least two
Business Days prior to such redemption date (or, if such Statistical Release is
no longer published, any publicly available source of similar market data)) most
nearly equal to the period from such redemption date to July 15, 2004; provided,
however, that if the period from such redemption date to July 15, 2004 is less
than one year, the weekly average yield on actually traded United States
Treasury securities adjusted to a constant maturity of one year shall be used.
8. Notice of Redemption.
--------------------
Notice of redemption will be mailed by first-class mail at least 30
days but not more than 60 days before the Redemption Date to each Holder of
Notes to be redeemed at its registered address. The Trustee may select for
redemption portions of the principal amount of Notes that have denominations
equal to or larger than $1,000 principal amount. Notes and portions of them the
Trustee so selects shall be in amounts of $1,000 principal amount or integral
multiples thereof.
If any Note is to be redeemed in part only, the notice of redemption
that relates to such Note shall state the portion of the principal amount
thereof to be redeemed. A new Note in a principal amount equal to the
unredeemed portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Note. On and after the Redemption Date, interest
will cease to accrue on Notes or portions thereof called for redemption so long
as the Company has deposited with the Paying Agent for the Notes funds in
satisfaction of the redemption price pursuant to the Indenture and the Paying
Agent is not prohibited from paying such funds to the Holders pursuant to the
terms of the Indenture.
9. Change of Control Offer.
-----------------------
Following the occurrence of a Change of Control (the date of such
occurrence being the "Change of Control Date"), the Company shall, within 30
----------------------
days after the Change of Control Date, make an Offer to Purchase all Notes then
outstanding at a purchase price in cash equal to 101% of the aggregate principal
amount thereof, plus accrued and unpaid interest thereon, if any, to the
Purchase Date (subject to the right of Holders of record on the relevant
Interest Record Date to receive interest due on the relevant Interest Payment
Date).
A-8
<PAGE>
10. Limitation on Disposition of Assets.
-----------------------------------
The Company is, subject to certain conditions and certain exceptions,
obligated to make an Offer to Purchase Notes at a purchase price equal to 100%
of the principal amount thereof, plus accrued and unpaid interest thereon, if
any, to the Purchase Date (subject to the right of Holders of record on the
Interest Relevant Record Date to receive interest due on the relevant Interest
Payment Date) with the proceeds of certain asset dispositions.
11. Denominations; Transfer; Exchange.
---------------------------------
The Notes are in registered form, without coupons, in denominations of
$1,000 and integral multiples of $1,000. A Holder shall register the transfer
of or exchange Notes in accordance with the Indenture. The Registrar may
require a Holder, among other things, to furnish appropriate endorsements and
transfer documents and to pay certain transfer taxes or similar governmental
charges payable in connection therewith as permitted by the Indenture. The
Registrar need not register the transfer of or exchange any Notes or portions
thereof selected for redemption, except the unredeemed portion of any security
being redeemed in part.
12. Persons Deemed Owners.
---------------------
The registered Holder of a Note shall be treated as the owner of it
for all purposes.
13. Unclaimed Funds.
---------------
If funds for the payment of principal or interest remain unclaimed for
two years, the Trustee and the Paying Agent will repay the funds to the Company
at its written request. After that, all liability of the Trustee and such
Paying Agent with respect to such funds shall cease.
14. Legal Defeasance and Covenant Defeasance.
----------------------------------------
The Company and the Guarantors may be discharged from their
obligations under the Indenture, the Notes and the Note Guarantees, except for
certain provisions thereof, and may be discharged from obligations to comply
with certain covenants contained in the Indenture, the Notes and the Note
Guarantees, in each case upon satisfaction of certain conditions specified in
the Indenture.
A-9
<PAGE>
15. Amendment; Supplement; Waiver.
-----------------------------
Subject to certain exceptions, the Indenture, the Notes and the Note
Guarantees may be amended or supplemented with the written consent of the
Holders of at least a majority in aggregate principal amount of the Notes then
outstanding, and any existing Default or Event of Default or compliance with any
provision may be waived with the consent of the Holders of a majority in
aggregate principal amount of the Notes then outstanding. Without notice to or
consent of any Holder, the parties thereto may amend or supplement the
Indenture, the Notes and the Note Guarantees to, among other things, cure any
ambiguity, defect or inconsistency, provide for uncertificated Notes in addition
to or in place of certificated Notes or comply with any requirements of the SEC
in connection with the qualification of the Indenture under the TIA, or make any
other change that does not materially adversely affect the rights of any Holder
of a Note.
16. Restrictive Covenants.
---------------------
The Indenture contains certain covenants that, among other things,
limit the ability of the Company and the Restricted Subsidiaries to make
restricted payments, to incur indebtedness, to create liens, to sell assets, to
permit restrictions on dividends and other payments by Restricted Subsidiaries
to the Company, to consolidate, merge or sell all or substantially all of its
assets, to engage in transactions with affiliates or certain other related
persons. The limitations are subject to a number of important qualifications
and exceptions. The Company must report annually to the Trustee on compliance
with such limitations.
17. Defaults and Remedies.
---------------------
If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in aggregate principal amount of Notes then outstanding
may declare all the Notes to be due and payable immediately in the manner and
with the effect provided in the Indenture. Holders of Notes may not enforce the
Indenture, the Notes or the Note Guarantees except as provided in the Indenture.
The Trustee is not obligated to enforce the Indenture, the Notes or the Note
Guarantees unless it has received indemnity satisfactory to it. The Indenture
permits, subject to certain limitations therein provided, Holders of a majority
in aggregate principal amount of the Notes then outstanding to direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders of Notes notice of certain continuing Defaults or Events of Default if
it determines that withholding notice is in their interest.
A-10
<PAGE>
18. Trustee Dealings with Company.
-----------------------------
The Trustee under the Indenture, in its individual or any other
capacity, may become the owner or pledgee of Notes and may otherwise deal with
the Company, its Subsidiaries or their respective Affiliates as if it were not
the Trustee.
19. No Recourse Against Others.
--------------------------
No director, officer, employee or stockholder, as such, of the Company
or any of its Affiliates shall have any liability for any obligation of the
Company or any of its Affiliates under the Notes, the Note Guarantee of such
Guarantor or the Indenture or for any claim based on, in respect of or by reason
of, such obligations or their creation. Each Holder by accepting a Note waives
and releases all such liability. The waiver and release are part of the
consideration for the issuance of the Notes and the Note Guarantees.
20. Authentication.
--------------
This Note shall not be valid until the Trustee or authenticating agent
signs the certificate of authentication on this Note.
21. Abbreviations and Defined Terms.
-------------------------------
Customary abbreviations may be used in the name of a Holder of a Note
or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by
the entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors
Act).
22. CUSIP Numbers.
-------------
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company has caused CUSIP numbers to be
printed on the Notes as a convenience to the Holders of the Notes. No
representation is made as to the accuracy of such numbers as printed on the
Notes and reliance may be placed only on the other identification numbers
printed hereon.
23. Registration Rights.
-------------------
Pursuant to the Registration Rights Agreement, the Company will be
obligated upon the occurrence of certain events to consummate an exchange offer
pursuant to which the Holder of this Note shall have the right to exchange this
Note for a 12 5/8% Senior Note due
A-11
<PAGE>
2007, Series B, of the Company (an "Unrestricted Note") which have been
-----------------
registered under the Securities Act, in like principal amount and having terms
identical in all material respects to the Initial Notes. The Holders shall be
entitled to receive certain liquidated damages in the event such exchange offer
is not consummated and upon certain other conditions, all pursuant to and in
accordance with the terms of the Registration Rights Agreement.
24. Governing Law.
-------------
The laws of the State of New York shall govern the Indenture, this
Note and any Note Guarantee thereof.
A-12
<PAGE>
[FORM OF NOTE GUARANTEE]
SENIOR GUARANTEE
The Guarantor (as defined in the Indenture referred to in the Note
upon which this notation is endorsed) hereby unconditionally guarantees on a
senior basis (such Guarantee by the Guarantor being referred to herein as the
"Note Guarantee") the due and punctual payment of the principal of, premium, if
- ---------------
any, and interest on the Notes, whether at maturity, by acceleration or
otherwise, the due and punctual payment of interest on the overdue principal,
premium and interest on the Notes, and the due and punctual performance of all
other obligations of the Company to the Holders or the Trustee, all in
accordance with the terms set forth in Article Ten of the Indenture.
The obligations of the Guarantor to the Holders of Notes and to the
Trustee pursuant to the Note Guarantee and the Indenture are expressly set forth
in Article Ten of the Indenture, and reference is hereby made to such Indenture
for the precise terms of the Note Guarantee therein made.
This Note Guarantee shall not be valid or obligatory for any purpose
until the certificate of authentication on the Notes upon which this Note
Guarantee is noted shall have been executed by the Trustee under the Indenture
by the manual signature of one of its authorized officers.
This Note Guarantee shall be governed by and construed in accordance
with the laws of the State of New York.
This Note Guarantee is subject to release upon the terms set forth in
the Indenture.
T.J.B., INC.
THE BEDDING EXPERTS, INC.
By:
-------------------------------
Name:
Title:
A-13
<PAGE>
ASSIGNMENT FORM
I or we assign and transfer this Note to
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type name, address and zip code of assignee or transferee)
- --------------------------------------------------------------------------------
(Insert Social Security or other identifying number of assignee or transferee)
and irrevocably appoint ________________________________________________________
agent to transfer this Note on the books of the Company. The agent may
substitute another to act for him.
Dated:___________________ Signed:
-----------------------------------
(Signed exactly as name appears
on the other side of this Note)
Signature Guarantee:
- --------------------
Participant in a recognized Signature Guarantee
Medallion Program (or other signature guarantor
program reasonably acceptable to the Trustee)
A-14
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company
pursuant to Section 4.05 or Section 4.12 of the Indenture, check the appropriate
box:
Section 4.05 [ ]
Section 4.12 [ ]
If you want to elect to have only part of this Note purchased by the
Company pursuant to Section 4.05 or Section 4.12 of the Indenture, state the
amount: $_____________
Dated:___________________ Your Signature:
------------------------
(Signed exactly as name appears
on the other side of this Note)
Signature Guarantee:
- --------------------
Participant in a recognized Signature Guarantee
Medallion Program (or other signature guarantor
program reasonably acceptable to the Trustee)
A-15
<PAGE>
SCHEDULE OF EXCHANGES OF CERTIFICATED NOTES
-------------------------------------------
The following exchanges of a part of this Global Note for certificated Notes
have been made:
Number of
Notes of
Amount of Amount of this Global
decrease in increase in Note Signature of
Number of Number of following authorized
Date of Notes of this Notes of this such decrease officer of
Exchange Global Note Global Note (or increase) Trustee
- --------------------------------------------------------------------------------
A-16
<PAGE>
EXHIBIT B
---------
[FORM OF SERIES B SECURITY]
MATTRESS DISCOUNTERS CORPORATION
12 5/8% Senior Note due 2007, Series B
CUSIP No.:[ ]
No. [ ] $[ ]
MATTRESS DISCOUNTERS CORPORATION, a Delaware corporation (the
"Company", which term includes any successor corporation), for value received
-------
promises to pay to [ ] or registered assigns, the principal sum of [ ]
Dollars, on July 15, 2007.
Interest Payment Dates: January 15 and July 15, commencing on January
15, 2000.
Interest Record Dates: January 1 and July 1.
Reference is made to the further provisions of this Note contained
herein, which will for all purposes have the same effect as if set forth at this
place.
IN WITNESS WHEREOF, the Company has caused this Note to be signed
manually or by facsimile by its duly authorized officer.
MATTRESS DISCOUNTERS CORPORATION
By:
-----------------------------
Name:
Title:
By:
-----------------------------
Name:
Title:
Dated: [ ]
B-1
<PAGE>
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This is one of the 12 5/8% Senior Notes due 2007, Series B, described
in the within-mentioned Indenture.
Dated: [ ]
STATE STREET BANK AND TRUST COMPANY,
as Trustee
By:
---------------------------------
Authorized Signatory
B-2
<PAGE>
(REVERSE OF SECURITY)
MATTRESS DISCOUNTERS CORPORATION
12 5/8% Senior Note due 2007, Series B
1. Interest.
--------
MATTRESS DISCOUNTERS CORPORATION, a Delaware corporation (the
"Company"), promises to pay interest on the principal amount of this Note at the
-------
rate per annum shown above. Cash interest on the Notes will accrue from the
most recent date to which interest has been paid or, if no interest has been
paid, from August 6, 1999. The Company will pay interest semi-annually in
arrears on each Interest Payment Date, commencing January 15, 2000. Interest
will be computed on the basis of a 360-day year of twelve 30-day months.
The Company shall pay interest on overdue principal from time to time
on demand and on overdue installments of interest (without regard to any
applicable grace periods) to the extent lawful from time to time on demand, in
each case at the rate borne by the Notes
2. Method of Payment.
-----------------
The Company shall pay interest on the Notes (except defaulted
interest) to the persons who are the registered Holders at the close of business
on the Interest Record Date immediately preceding the Interest Payment Date even
if the Notes are canceled on registration of transfer or registration of
exchange after such Interest Record Date. Holders must surrender Notes to a
Paying Agent to collect principal payments. The Company shall pay principal and
interest in money of the United States that at the time of payment is legal
tender for payment of public and private debts ("U.S. Legal Tender"). However,
-----------------
the Company may pay principal and interest by wire transfer of Federal funds
(provided that the Paying Agent shall have received wire instructions on or
prior to the relevant Interest Record Date), or interest by check payable in
such U.S. Legal Tender. The Company may deliver any such interest payment to
the Paying Agent or to a Holder at the Holder's registered address.
3. Paying Agent and Registrar.
--------------------------
Initially, State Street Bank and Trust Company (the "Trustee") will
-------
act as Paying Agent and Registrar. The Company may change any Paying Agent or
Registrar with-
B-3
<PAGE>
out notice to the Holders. The Company or any of its Subsidiaries may, subject
to certain exceptions, act as Registrar.
4. Indenture and Note Guarantees.
-----------------------------
The Company issued the Notes under an Indenture, dated as of August 6,
1999 (the "Indenture"), by and among the Company, the Guarantors and the
---------
Trustee. Capitalized terms herein are used as defined in the Indenture unless
otherwise defined herein. The Initial Notes are initially being issued in the
aggregate principal amount of $140,000,000. This Note is one of a duly
authorized issue of Notes of the Company designated as its 12 5/8% Senior Notes
due 2007, Series B (the "Unrestricted Notes"). The Company shall be entitled to
------------------
issue Additional Notes pursuant to Section 2.17 of the Indenture. The Notes
include the 12 5/8% Senior Notes due 2007, Series A (the "Initial Notes"), the
-------------
Private Exchange Notes (as defined in the Indenture) and the Unrestricted Notes.
The Initial Notes, the Additional Notes, the Private Exchange Notes and the
Unrestricted Notes are treated as a single class of securities under the
Indenture. The terms of the Notes include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of 1939
(15 U.S.C. (S)(S) 77aaa-77bbbb) (the "TIA"), as in effect on the date of the
---
Indenture (except as otherwise indicated in the Indenture) until such time as
the Indenture is qualified under the TIA, and thereafter as in effect on the
date on which the Indenture is qualified under the TIA. Notwithstanding
anything to the contrary herein, the Notes are subject to all such terms, and
holders of Notes are referred to the Indenture and the TIA for a statement of
them. The Notes are senior unsecured obligations of the Company.
Payment on the Notes is guaranteed (each, a "Note Guarantee"), on a
--------------
senior basis, jointly and severally, by each Restricted Subsidiary of the
Company existing on the Issue Date (each, a "Guarantor") pursuant to Article Ten
---------
of the Indenture. In addition, in certain circumstances subject to certain
exceptions, the Indenture requires the Company to cause each Restricted
Subsidiary formed, created or acquired after the Issue Date to become a party to
the Indenture as a Guarantor and guarantee payment on the Notes pursuant to
Article Ten of the Indenture. In certain circumstances, the Note Guarantees may
be released.
5. Optional Redemption.
-------------------
Except as described in paragraphs 6 and 7 below, the Notes are not
redeemable prior to July 15, 2004. The Notes will be redeemable at the option
of the Company, in whole or in part, at any time on or after July 15, 2004, at
the redemption prices (expressed as a percentage of principal amount) set forth
below, plus accrued and unpaid interest thereon, if any, to the Redemption Date
(subject to the right of holders of record on the relevant Interest Rec-
B-4
<PAGE>
ord Date to receive interest due on the relevant Interest Payment Date) if
redeemed during the 12-month period beginning on July 15 of the years indicated
below:
Year Percentage
---- ----------
2004 106.313%
2005 103.156%
2006 and thereafter 100.000%
6. Optional Redemption upon Equity Offerings.
-----------------------------------------
In addition, at any time and from time to time on or prior to July 15,
2002, the Company may redeem in the aggregate up to 35% of the aggregate
principal amount of the Notes originally issued (including the original
principal amount of any Additional Notes) with the net cash proceeds of one or
more Equity Offerings at a redemption price in cash equal to 112.625% of the
principal amount thereof, plus accrued and unpaid interest thereon, if any, to
the date of redemption (subject to the right of Holders of record on the
relevant Interest Record Date to receive interest due on the relevant Interest
Payment Date); provided, however, that at least 65% of the aggregate principal
amount of the Notes originally issued (including the original principal amount
of any Additional Notes) must remain outstanding immediately after giving effect
to each such redemption (excluding any Notes held by the Company or any of its
Affiliates). Notice of any such redemption must be given within 60 days after
the date of the closing of the relevant Equity Offering.
7. Optional Redemption Upon Change of Control.
------------------------------------------
At any time prior to July 15, 2004, the Notes may also be redeemed, as
a whole but not in part, at the option of the Company upon the occurrence of a
Change of Control, upon not less than 30 nor more than 60 days prior notice (but
in no event may any such redemption occur more than 90 days after the occurrence
of such Change of Control) mailed by first-class mail to each Holder's
registered address, at a redemption price equal to 100% of the principal amount
thereof plus the Applicable Premium as of, and accrued and unpaid interest, if
any, to, the date of redemption.
"Applicable Premium" means, with respect to any Note on any redemption
------------------
date, the greater of (i) 1.0% of the principal amount of such Note or (ii) the
excess of (A) the present value at such redemption date of (1) the redemption
price of such Note at July 15, 2004 (such redemption price being set forth under
paragraph 5 above) plus (2) all required interest payments due on such Note
through July 15, 2004 (excluding accrued but unpaid in-
B-5
<PAGE>
terest), computed using a discount rate equal to the Treasury Rate at such
redemption date plus 50 basis points over (B) the principal amount of such Note,
if greater.
"Treasury Rate" means, as of any redemption date, the yield to
-------------
maturity as of such redemption date of United States Treasury securities with a
constant maturity (as compiled and published in the most recent Federal Reserve
Statistical Release H.15 (519) that has become publicly available at least two
Business Days prior to such redemption date (or, if such Statistical Release is
no longer published, any publicly available source of similar market data)) most
nearly equal to the period from such redemption date to July 15, 2004; provided,
however, that if the period from such redemption date to July 15, 2004 is less
than one year, the weekly average yield on actually traded United States
Treasury securities adjusted to a constant maturity of one year shall be used.
8. Notice of Redemption.
--------------------
Notice of redemption will be mailed by first-class mail at least 30
days but not more than 60 days before the Redemption Date to each Holder of
Notes to be redeemed at its registered address. The Trustee may select for
redemption portions of the principal amount of Notes that have denominations
equal to or larger than $1,000 principal amount. Notes and portions of them the
Trustee so selects shall be in amounts of $1,000 principal amount or integral
multiples thereof.
If any Note is to be redeemed in part only, the notice of redemption
that relates to such Note shall state the portion of the principal amount
thereof to be redeemed. A new Note in a principal amount equal to the
unredeemed portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Note. On and after the Redemption Date, interest
will cease to accrue on Notes or portions thereof called for redemption so long
as the Company has deposited with the Paying Agent for the Notes funds in
satisfaction of the redemption price pursuant to the Indenture and the Paying
Agent is not prohibited from paying such funds to the Holders pursuant to the
terms of the Indenture.
9. Change of Control Offer.
-----------------------
Following the occurrence of a Change of Control (the date of such
occurrence being the "Change of Control Date"), the Company shall within 30 days
----------------------
after the Change of Control Date, make an Offer to Purchase all Notes then
outstanding at a purchase price in cash equal to 101% of the aggregate principal
amount thereof, plus accrued and unpaid interest thereon, if any, to the
Purchase Date (subject to the right of Holders of record on the relevant
Interest Record Date to receive interest due on the relevant Interest Payment
Date).
B-6
<PAGE>
10. Limitation on Disposition of Assets.
-----------------------------------
The Company is, subject to certain conditions and certain exceptions,
obligated to make an Offer to Purchase Notes at a purchase price equal to 100%
of the principal amount thereof, plus accrued and unpaid interest thereon, if
any, to the Purchase Date (subject to the right of Holders of record on the
Interest Relevant Record Date to receive interest due on the relevant Interest
Payment Date) with the proceeds of certain asset dispositions.
11. Denominations; Transfer; Exchange.
---------------------------------
The Notes are in registered form, without coupons, in denominations of
$1,000 and integral multiples of $1,000. A Holder shall register the transfer
of or exchange Notes in accordance with the Indenture. The Registrar may
require a Holder, among other things, to furnish appropriate endorsements and
transfer documents and to pay certain transfer taxes or similar governmental
charges payable in connection therewith as permitted by the Indenture. The
Registrar need not register the transfer of or exchange any Notes or portions
thereof selected for redemption, except the unredeemed portion of any security
being redeemed in part.
12. Persons Deemed Owners.
---------------------
The registered Holder of a Note shall be treated as the owner of it
for all purposes.
13. Unclaimed Funds.
---------------
If funds for the payment of principal or interest remain unclaimed for
two years, the Trustee and the Paying Agent will repay the funds to the Company
at its written request. After that, all liability of the Trustee and such
Paying Agent with respect to such funds shall cease.
14. Legal Defeasance and Covenant Defeasance.
----------------------------------------
The Company and the Guarantors may be discharged from their
obligations under the Indenture, the Notes and the Note Guarantees, except for
certain provisions thereof, and may be discharged from obligations to comply
with certain covenants contained in the Indenture, the Notes and the Note
Guarantees, in each case upon satisfaction of certain conditions specified in
the Indenture.
B-7
<PAGE>
15. Amendment; Supplement; Waiver.
-----------------------------
Subject to certain exceptions, the Indenture, the Notes and the Note
Guarantees may be amended or supplemented with the written consent of the
Holders of at least a majority in aggregate principal amount of the Notes then
outstanding, and any existing Default or Event of Default or compliance with any
provision may be waived with the consent of the Holders of a majority in
aggregate principal amount of the Notes then outstanding. Without notice to or
consent of any Holder, the parties thereto may amend or supplement the
Indenture, the Notes and then Note Guarantees to, among other things, cure any
ambiguity, defect or inconsistency, provide for uncertificated Notes in addition
to or in place of certificated Notes or comply with any requirements of the SEC
in connection with the qualification of the Indenture under the TIA, or make any
other change that does not materially adversely affect the rights of any Holder
of a Note.
16. Restrictive Covenants.
---------------------
The Indenture contains certain covenants that, among other things,
limit the ability of the Company and the Restricted Subsidiaries to make
restricted payments, to incur indebtedness, to create liens, to sell assets, to
permit restrictions on dividends and other payments by Restricted Subsidiaries
to the Company, to consolidate, merge or sell all or substantially all of its
assets, to engage in transactions with affiliates or certain other related
persons. The limitations are subject to a number of important qualifications
and exceptions. The Company must report annually to the Trustee on compliance
with such limitations.
17. Defaults and Remedies.
---------------------
If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in aggregate principal amount of Notes then outstanding
may declare all the Notes to be due and payable immediately in the manner and
with the effect provided in the Indenture. Holders of Notes may not enforce the
Indenture, the Notes or the Note Guarantees except as provided in the Indenture.
The Trustee is not obligated to enforce the Indenture, the Notes or the Note
Guarantees unless it has received indemnity satisfactory to it. The Indenture
permits, subject to certain limitations therein provided, Holders of a majority
in aggregate principal amount of the Notes then outstanding to direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders of Notes notice of certain continuing Defaults or Events of Default if
it determines that withholding notice is in their interest.
B-8
<PAGE>
18. Trustee Dealings with Company.
-----------------------------
The Trustee under the Indenture, in its individual or any other
capacity, may become the owner or pledgee of Notes and may otherwise deal with
the Company, its Subsidiaries or their respective Affiliates as if it were not
the Trustee.
19. No Recourse Against Others.
--------------------------
No, director, officer, employee or stockholder, as such, of the
Company or any of its Affiliates shall have any liability for any obligation of
the Company or any of its Affiliates under the Notes, the Note Guarantee of such
Guarantor or the Indenture or for any claim based on, in respect of, or by
reason of, such obligations or their creation. Each Holder by accepting a Note
waives and releases all such liability. The waiver and release are part of the
consideration for the issuance of the Notes and the Note Guarantees.
20. Authentication.
--------------
This Note shall not be valid until the Trustee or authenticating agent
signs the certificate of authentication on this Note.
21. Abbreviations and Defined Terms.
-------------------------------
Customary abbreviations may be used in the name of a Holder of a Note
or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by
the entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors
Act).
22. CUSIP Numbers.
-------------
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company has caused CUSIP numbers to be
printed on the Notes as a convenience to the Holders of the Notes. No
representation is made as to the accuracy of such numbers as printed on the
Notes and reliance may be placed only on the other identification numbers
printed hereon.
23. Governing Law.
-------------
The laws of the State of New York shall govern the Indenture, this
Note and any Note Guarantee thereof.
B-9
<PAGE>
[FORM OF SECURITY GUARANTEE]
SENIOR GUARANTEE
The Guarantor (as defined in the Indenture referred to in the Note
upon which this notation is endorsed) hereby unconditionally guarantees on a
senior basis (such Guarantee by the Guarantor being referred to herein as the
"Note Guarantee") the due and punctual payment of the principal of, premium, if
- ---------------
any, and interest on the Notes, whether at maturity, by acceleration or
otherwise, the due and punctual payment of interest on the overdue principal,
premium and interest on the Notes, and the due and punctual performance of all
other obligations of the Company to the Holders or the Trustee, all in
accordance with the terms set forth in Article Ten of the Indenture.
The obligations of the Guarantor to the Holders of Notes and to the
Trustee pursuant to the Note Guarantee and the Indenture are expressly set forth
in Article Ten of the Indenture, and reference is hereby made to such Indenture
for the precise terms of the Note Guarantee therein made.
This Note Guarantee shall not be valid or obligatory for any purpose
until the certificate of authentication on the Notes upon which this Note
Guarantee is noted shall have been executed by the Trustee under the Indenture
by the manual signature of one of its authorized officers.
This Note Guarantee shall be governed by and construed in accordance
with the laws of the State of New York.
This Note Guarantee is subject to release upon the terms set forth in
the Indenture.
T.J.B., INC.
THE BEDDING EXPERTS, INC.
By:_______________________________________
Name:
Title:
B-10
<PAGE>
ASSIGNMENT FORM
I or we assign and transfer this Note to
_______________________________________________________________________________
_______________________________________________________________________________
(Print or type name, address and zip code of assignee or transferee)
_______________________________________________________________________________
(Insert Social Security or other identifying number of assignee or transferee)
and irrevocably appoint _______________________________________________________
agent to transfer this Note on the books of the Company. The agent may
substitute another to act for him.
Dated:___________________ Signed:
___________________________________________
(Signed exactly as name appears
on the other side of this Note)
Signature Guarantee:
______________
Participant in a recognized Signature Guarantee
Medallion Program (or other signature guarantor
program reasonably acceptable to the Trustee)
B-11
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company
pursuant to Section 4.05 or Section 4.12 of the Indenture, check the appropriate
box:
Section 4.05 [ ]
Section 4.12 [ ]
If you want to elect to have only part of this Note purchased by the
Company pursuant to Section 4.05 or Section 4.12 of the Indenture, state the
amount: $_____________
Dated:___________________ Your Signature:__________________________
(Signed exactly as name appears
on the other side of this Note)
Signature Guarantee:
______________
Participant in a recognized Signature Guarantee
Medallion Program (or other signature guarantor
program reasonably acceptable to the Trustee)
B-12
<PAGE>
SCHEDULE OF EXCHANGES OF CERTIFICATED NOTES
-------------------------------------------
The following exchanges of a part of this Global Note for certificated Notes
have been made:
Number of
Notes of
Amount of Amount of this Global
decrease in increase in Note Signature of
Number of Number of following authorized
Date of Notes of this Notes of this such decrease officer of
Exchange Global Note Global Note (or increase) Trustee
- --------------------------------------------------------------------------------
B-13
<PAGE>
EXHIBIT C
---------
FORM OF LEGEND FOR GLOBAL SECURITIES
Any Global Security authenticated and delivered hereunder shall bear a
legend (which would be in addition to any other legends required in the case of
a Restricted Security) in substantially the following form:
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A
NOMINEE OF A DEPOSITORY OR A SUCCESSOR DEPOSITORY. THIS SECURITY IS NOT
EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE
DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE
INDENTURE, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF THIS
SECURITY AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A
NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE
DEPOSITORY) MAY BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN
THE INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER
OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME
AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE
TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT
NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN
SECTION 2.16 OF THE INDENTURE.
C-1
<PAGE>
EXHIBIT D
---------
CERTIFICATE TO BE DELIVERED UPON EXCHANGE
OR REGISTRATION OF TRANSFER OF SECURITIES
Re: 12 5/8% Senior Notes due 2007 (the
"Notes"), of Mattress Discounters Corporation
---------------------------------------------
This Certificate relates to $_______ principal amount of Notes held in
the form of* ___ a beneficial interest in a Global Security or* _______ Physical
Notes by ______ (the "Transferor").
The Transferor:*
[ ] has requested by written order that the Registrar deliver in exchange
for its beneficial interest in the Global Security held by the Depositary a
Physical Security or Physical Securities in definitive, registered form of
authorized denominations and an aggregate number equal to its beneficial
interest in such Global Security (or the portion thereof indicated above); or
[ ] has requested that the Registrar by written order to exchange or
register the transfer of a Physical Security or Physical Securities.
In connection with such request and in respect of each such Note, the
Transferor does hereby certify that the Transferor is familiar with the
Indenture relating to the above captioned Notes and the restrictions on
transfers thereof as provided in Section 2.16 of such Indenture, and that the
transfer of the Notes does not require registration under the Securities Act of
1933, as amended (the "Act"), because*:
[ ] Such Note is being acquired for the Transferor's own account, without
transfer (in satisfaction of Section 2.16 of the Indenture).
[ ] Such Note is being transferred to a "qualified institutional buyer"
(as defined in Rule 144A under the Act), in reliance on Rule 144A.
[ ] Such Note is being transferred to an institutional "accredited
investor" (within the meaning of subparagraph (a)(1), (2), (3) or (7) of Rule
501 under the Act) which delivers a certificate to the Trustee in the form of
Exhibit E to the Indenture.
- ---------
[ ] Such Note is being transferred in reliance on Rule 144 under the Act.
[ ] Such Note is being transferred in reliance on and in compliance with
an exemption from the registration requirements of the Act other than Rule 144A
or Rule 144 under the Act to a person other than an institutional "accredited
investor." [An Opinion of
D-1
<PAGE>
Counsel to the effect that such transfer does not require registration under the
Securities Act accompanies this certification.]
______________________________
[INSERT NAME OF TRANSFEROR]
By: __________________________
[Authorized Signatory]
Date: _____________
*Check applicable box.
D-2
<PAGE>
EXHIBIT E
---------
Form of Transferee Letter of Representation
-------------------------------------------
Mattress Discounters Corporation
c/o State Street Bank & Trust Company
Goodwin Square, 225 Asylum Street
Hartford, CT 06103
Attention: Corporate Trust Administrator
Dear Sirs:
This certificate is delivered to request a transfer of $________
principal amount of the 12 5/8% Senior Notes due 2007 (the "Notes") of Mattress
Discounters Corporation (the "Company"). Upon transfer, the Notes would be
registered in the name of the new beneficial owner as follows:
Name:_______________________________
Address:____________________________
Taxpayer ID Number:_________________
The undersigned represents and warrants to you that:
1. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act of 1933 (the "Securities
Act")) purchasing for our own account or for the account of such an
institutional "accredited investor" at least $250,000 principal amount of the
Notes, and we are acquiring the Notes not with a view to, or for offer or sale
in connection with, any distribution in violation of the Securities Act. We
have such knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risk of our investment in the Notes and we
invest in or purchase securities similar to the Notes in the normal course of
our business. We and any accounts for which we are acting are each able to bear
the economic risk of our or its investment.
2. We understand that the Notes have not been registered under the
Securities Act and, unless so registered, may not be sold except as permitted in
the following sentence. We agree on our own behalf and on behalf of any
investor account for which we are
E-1
<PAGE>
purchasing Notes to offer, sell or otherwise transfer such Notes prior to the
date which is two years after the later of the date of original issue and the
last date on which the Company or any affiliate of the Company was the owner of
such Notes (or any predecessor thereto) (the "Resale Restriction Termination
------------------------------
Date") only (a) to the Company, (b) pursuant to a registration statement which
- ----
has been declared effective under the Securities Act, (c) in a transaction
complying with the requirements of Rule 144A under the Securities Act, to a
person we reasonably believe is a qualified institutional buyer under Rule 144A
(a "QIB") that purchases for its own account or for the account of a QIB and to
---
whom notice is given that the transfer is being made in reliance on Rule 144A,
(d) to an institutional "accredited investor" within the meaning of Rule
501(a)(1), (2), (3) or (7) under the Securities Act that is purchasing for its
own account or for the account of such an institutional "accredited investor,"
in each case in a minimum principal amount of Notes of $250,000, (e) pursuant to
offers and sales that occur outside the United States within the meaning of
Regulation S under the Securities Act or (f) pursuant to any other available
exemption from the registration requirements of the Securities Act, subject in
each of the foregoing cases to any requirement of law that the disposition of
our property or the property of such investor account or accounts be at all
times within our or their control and in compliance with any applicable state
securities laws. The foregoing restrictions on resale will not apply subsequent
to the Resale Restriction Termination Date. If any resale or other transfer of
the Notes is proposed to be made pursuant to clause (d) above prior to the
Resale Restriction Termination Date, the transferor shall deliver a letter from
the transferee substantially in the form of this letter to the Company and the
Trustee, which shall provide, among other things, that the transferee is an
institutional "accredited investor" within the meaning of Rule 501(a)(1), (2),
(3) or (7) under the Securities Act and that it is acquiring such Notes for
investment purposes and not for distribution in violation of the Securities Act.
Each purchaser acknowledges that the Company and the Trustee reserve the right
prior to any offer, sale or other transfer prior to the Resale Restriction
Termination Date of the Notes pursuant to clause (d), (e) or (f) above to
require the delivery of an opinion of counsel, certificates and/or other
information satisfactory to the Company and the Trustee.
Dated: ______________________ TRANSFEREE: _________________________
By: _________________________________
E-2
<PAGE>
EXHIBIT F
---------
Form of Certificate To Be
Delivered in Connection
with Regulation S Transfers
_______________, ____
Mattress Discounters Corporation
c/o State Street Bank & Trust Company
Goodwin Square, 225 Asylum Street
Hartford, CT 06103
Attention: Corporate Trust Administrator
Re: MATTRESS DISCOUNTERS CORPORATION (the "Company")
12 5/8% Senior Notes due 2007, Series A and
12 5/8% Senior Notes due 2007, Series B (the "Notes")
- -----------------------------------------------------
Ladies and Gentlemen:
In connection with our proposed sale of $____________ aggregate
principal amount of the Notes, we confirm that such sale has been effected
pursuant to and in accordance with Regulation S under the Securities Act of
1933, as amended (the "Securities Act"), and, accordingly, we represent that:
(1) the offer of the Notes was not made to a person in the United
States;
(2) either (a) at the time the buy offer was originated, the
transferee was outside the United States or we and any person acting on our
behalf reasonably believed that the transferee was outside the United
States, or (b) the transaction was executed in, on or through the
facilities of a designated off-shore securities market and neither we nor
any person acting on our behalf knows that the transaction has been
prearranged with a buyer in the United States;
(3) no directed selling efforts have been made in the United States in
contravention of the requirements of Rule 903(b) or Rule 904(b) of
Regulation S, as applicable;
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act; and
F-1
<PAGE>
(5) we have advised the transferee of the transfer restrictions
applicable to the Notes.
F-2
<PAGE>
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. Defined terms used herein without
definition have the respective meanings provided in Regulation S.
Very truly yours,
[Name of Transferor]
By: _________________________
[Authorized Signatory]
F-3
<PAGE>
EXHIBIT 5.1
[Letterhead of Kirkland & Ellis]
To Call Writer Directly:
(212) 446-4800
February 1, 2000
Mattress Discounters Corporation
9822 Fallard Court
Upper Marlboro, MD 20772
Re: Exchange Offer for $140,000,000 12 5/8% Series A Senior
Subordinated Notes due 2007 for $140,000,000 12 5/8% Series B
Subordinated Senior Notes due 2007.
Dear Ladies and Gentlemen:
We have acted as counsel to Mattress Discounters Corporation (the
"Company") and the Subsidiary Guarantors (together with the Company, the
"Registrants") in connection with the proposed offer (the "Exchange Offer") to
exchange an aggregate principle amount of up to $140,000,000 12 5/8% Series A
Senior Subordinated Notes due 2007 (the "Old Notes") for $140,000,000 12 5/8%
Series B Senior Subordinated Notes due 2007 (the "Exchange Notes"), pursuant to
a Registration Statement on Form S-4 filed with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Securities Act"). Such Registration Statement, as amended or supplemented, is
hereinafter referred to as the "Registration Statement". The Exchange Notes are
to be issued pursuant to the Indenture (the "Indenture"), dated as of August 6,
1999 by and among the Registrants and State Street Bank and Trust Company, as
the Trustee, in exchange for and in replacement of the Company's outstanding Old
Notes, of which $140,000,000 in aggregate principal amount is outstanding.
In that connection, we have examined originals, or copies certified or
otherwise identified to our satisfaction, of such documents, corporate records
and other instruments as have deemed necessary for the purposes of this opinion,
including (i) the corporate and organizational documents of each of the
Registrants, (ii) minutes and records of the corporate proceedings of each of
the Registrants with respect to the issuance of the Exchange Notes, (iii) the
Registration Statement and exhibits thereto and (iv) the Notes Exchange and
Registration Rights Agreement,
<PAGE>
Mattress Discounters Corporation
Page 2
dated as of August 6, 1999, among the Registrants, Chase Securities Inc., CIBC
World Markets Corp., and BancBoston Robertson Stephens Inc.
For purposes of this opinion, we have assumed the authenticity of all
documents submitted to us as originals, the conformity to the originals of all
documents submitted to us as copies and the authenticity of the originals of all
documents submitted to us as copies. We have also assumed the genuineness of the
signatures of persons signing all documents in connection with which this
opinion is rendered, the authority of such persons signing on behalf of the
parties thereto other than the Registrants, and the due authorization, execution
and delivery of all documents by the parties thereto other than the Registrants.
As to any facts material to the opinions expressed herein which we have not
independently established or verified, we have relied upon statements and
representations of officers and other representatives of the Registrants and
others.
Based upon and subject to the foregoing qualifications, assumptions and
limitations and the further limitations set forth below, we are of the opinion
that:
(i) Mattress Discounters Corporation is in good standing under the laws
of the State of Delaware.
(ii) The sale and issuance of the Exchange Notes has been validly
authorized by the Company.
(iii) When the Exchange Notes are issued pursuant to the Exchange Offer,
the Exchange Notes will constitute valid and binding obligations of the
Registrants and the Indenture will be enforceable in accordance with its terms.
Our opinions expressed above are subject to the qualifications that we
express no opinion as to the applicability of, compliance with, or effect of (i)
any bankruptcy, insolvency, reorganization, fraudulent transfer, fraudulent
conveyance, moratorium or other similar law affecting the enforcement of
creditors' rights generally, (ii) general principals of equity (regardless of
whether enforcement is considered in a proceeding in equity or at law), and
(iii) except for purposes of the opinion in paragraph 1, any laws except the
laws except the laws of the State of New York.
<PAGE>
Mattress Discounters Corporation
Page 3
We hereby consent to the filing of this opinion in Exhibit 5.1 to the
Registration Statement. We also consent to the reference to our firm under the
heading "Legal Matters" in the Registration Statement. In giving this consent,
we do not thereby admit that we are in the category of persons whose consent is
required under Section 7 of the Securities Act of the rules and regulations of
the Commission.
We do not find it necessary for the purposes of this opinion, and
accordingly we do not purport to cover herein, the application of the securities
or "Blue Sky" laws of the various states to the issuance of the Exchange Notes.
This opinion is limited to the specific issues addressed herein, and no
opinion may be inferred or implied beyond that expressly stated herein. We
assume no obligation to revise or supplement this opinion should the present
laws of the State of New York be changed by legislative action, judicial
decision or otherwise.
This opinion is furnished to you in connection with the filing of the
Registration Statement, and is not to be used, circulated, quoted or otherwise
relied upon for any other purposes.
Yours very truly,
KIRKLAND & ELLIS
<PAGE>
EXHIBIT 8.1
KIRKLAND & ELLIS
PARTNERSHIPS INCLUDING PROFESSIONAL CORPORATIONS
Citicorp Center
153 East 53rd Street
New York, New York 10022-4675
(212) 446-4800
To Call Writer Directly: Facsimile:
(212) 446-4800 (212) 446-4900
February 1, 2000
Mattress Discounters Corporation
9822 Fallard Court
Upper Marlboro, MD 20772
Re: Exchange Offer for $140,000,000 12 5/8% Series A Senior Subordinated Notes
due 2007 for $140,000,000 12 5/8 Series B Subordinated Senior Notes due
2007.
Ladies and Gentlemen:
We have acted as special counsel to Mattress Discounters Corporation ("the
Company") in connection with the proposed offer (the "Exchange Offer") to
exchange an aggregate principle amount of up to $140,000,000 12 5/8% Series B
Senior Subordinated Notes due 2007 (the "Exchange Notes") in exchange for and in
replacement of the Company's 12 5/8% Series A Senior Subordinated Notes due
2007 (the "Old Notes").
You have requested our opinion as to certain United States federal income
tax consequences of the Exchange Offer. In preparing our opinion, we have
reviewed and relied upon the Company's Registration Statement on Form S-4, filed
with the Securities and Exchange Commission on February 1, 2000 ("the
Registration Statement"), and such other documents as we deemed necessary.
On the basis of the foregoing, it is our opinion that the exchange of the
Old Notes for the Exchange Notes pursuant to the Exchange Offer will not be
treated as an "exchange" for United States federal income tax purposes.
The opinion set forth above is based upon the applicable provisions of the
Internal Revenue Code of 1986, as amended, the Treasury Regulations promulgated
or proposed thereunder, current positions of the Internal Revenue Service (the
"IRS") contained in published revenue rulings, revenue procedures, and
announcements, existing judicial decisions and other applicable authorities. No
tax ruling has been sought from the IRS with respect to any of the matters
discussed herein. Unlike a ruling from the IRS, an opinion of counsel is not
binding on the IRS. Hence, no assurances can be given that the opinion stated
in this letter will not be
<PAGE>
KIRKLAND & ELLIS
Page 2
successfully challenged by the IRS or by a court. We express no opinion
concerning any tax consequences of the Exchange Offer except as expressly set
forth above.
We hereby consent to the filing of this opinion as Exhibit 8.1 to the
Registration Statement. We also consent to the reference to our firm under the
heading "Federal Income Tax Considerations." In giving this consent, we do not
thereby admit that we are in the category of persons whose consent is required
under Section 7 of the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission promulgated thereunder.
Very truly yours,
Kirkland & Ellis
<PAGE>
Exhibit 9.1
EXECUTION COPY
STOCKHOLDERS AGREEMENT
This STOCKHOLDERS AGREEMENT is dated as of August 6, 1999, by and
among Mattress Discounters Holding Corporation, a Virginia corporation (the
"Company"); Mattress Discounters Holding L.L.C., a Delaware limited liability
company ("Holdings"); Heilig-Meyers Company, a Virginia corporation ("Heilig");
and certain other stockholders of the Company who are from time to time party
hereto (Holdings, Heilig and such other stockholders together with their
respective Permitted Transferees, collectively, the "Stockholders" and
individually a "Stockholder").
On May 28, 1999, the Company, MD Acquisition Corporation, a
transitory Virginia merger corporation ("MD Acquisition"), and Heilig entered
into a Transaction Agreement pursuant to which, simultaneous with the execution
of this Agreement, MD Acquisition merged with and into the Company (such merger,
the "Merger") with the Company as the surviving corporation.
Immediately prior to the execution of this Agreement, Holdings
purchased a number of shares of MD Acquisition's common stock ("MD Acquisition
Shares"). In connection with the Merger (i) the shares of the Company's common
stock owned by Heilig have been converted into a Junior Subordinated Promissory
Note, the right to receive cash, and a number of retained shares of the
Company's Common Stock and (ii) the MD Acquisition Shares have been converted
into a number of new shares of the Company's Common Stock.
The Company and the Stockholders desire to enter into this Agreement
for the purposes, among others, of (i) establishing the composition of the Board
(as defined below), (ii) assuring continuity in the management and ownership of
the Company and (iii) limiting the manner and terms by which the Stockholder
Shares (as defined below) may be transferred.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereby agree as follows:
1. Definitions. As used herein, the following terms shall have the
following meanings:
"Affiliate" means, when used with reference to a specified Person,
any Person that directly or indirectly controls or is controlled by or is under
common control with the specified Person. As used in this definition, "control"
(including, with its correlative meanings, "controlled by" and "under common
control with") shall mean possession, directly or indirectly, of power to direct
or cause the direction of management or policies (whether through ownership of
securities or
<PAGE>
partnership or other ownership interests, by contract or otherwise). With
respect to any Person who is an individual, "Affiliates" shall also include,
without limitation, any member of such individual's Family Group. With respect
to any Person who is a partnership, "Affiliates" shall also include, without
limitation, each general partner and limited partner of such Person.
Notwithstanding the foregoing, for purposes of this Agreement, any Person who is
an administrative member of a limited liability company and who owns less than
10% of such limited liability company's membership interests shall not be deemed
to be an Affiliate of such limited liability company.
"Bain Entities" means, collectively, Bain Capital Fund VI, L.P.
("Bain Fund VI"), BCIP Associates II, BCIP Associates II-B, BCIP Trust
Associates II and/or BCIP Trust Associates II-B or any of their respective
Affiliates.
"Bain Fund" means any of Bain Fund VI, BCIP Associates II, BCIP
Associates II-B, BCIP Trust Associates II, BCIP Trust Associates II-B, or
Randolph.
"Board" means the Company's board of directors.
"Chase" means Chase Equity Associates, L.P. and its Permitted
Transferees.
"Class A Common" means the Company's Class A Common Stock, par value
$.01 per share.
"Class B Common" means the Company's Class B Common Stock, par value
$.01 per share.
"Class L Common" means the Company's Class L Common Stock, par value
$.01 per share.
"Class M Common" means the Company's Class M Common Stock, par value
$.01 per share.
"Common Stock" means collectively Class A Common, Class B Common,
Class L Common, Class M Common and any other common stock authorized by the
Company.
"Family Group" means, with respect to any Person who is an
individual, (i) such Person's spouse, former spouse and descendants (whether
natural or adopted), parents and their descendants and any spouse of the
foregoing persons (collectively, "relatives") or (ii) the trustee, fiduciary or
personal representative of such Person, in such capacity, and any trust solely
for the benefit of such Person and/or such Person's relatives.
"Harvard" means Harvard Private Capital Holdings, Inc. or any of its
Permitted Transferees.
-2-
<PAGE>
"Heilig Holder" means Heilig or any of its Permitted Transferees.
"Heilig Shares" means all Stockholder Shares issued or issuable to
any Heilig Holder.
"Holdings Holder" means Holdings or any of its Permitted
Transferees.
"Holdings Shares" means all Stockholder Shares issued or issuable to
any Holdings Holder.
"Other Stockholders" means, with respect to a Stockholder, all
Stockholders other than such Stockholder.
"Permitted Transferee" has the meaning set forth in Section 4(d)(ii)
hereof.
"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, a governmental entity or any
department, agency or political subdivision thereof or any other entity or
organization.
"Public Offering" means an underwritten public offering and sale of
the Common Stock pursuant to an effective registration statement under the
Securities Act; provided that a Public Offering shall not include an offering
made in connection with a business acquisition or combination or an employee
benefit plan.
"Public Sale" means any sale of Stockholder Shares to the public
pursuant to an offering registered under the Securities Act or to the public
pursuant to the provisions of Rule 144 (or any similar rule or rules then in
effect) under the Securities Act.
"Qualified Public Offering" means a Public Offering in which the
Company receives aggregate gross proceeds of at least $30 million.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations of the SEC promulgated thereunder.
"Stockholder Shares" means (i) all shares of Common Stock held,
directly or indirectly, by the Stockholders, (ii) any warrants, options or other
rights to subscribe for or to acquire, directly or indirectly, any Common Stock,
purchased or otherwise acquired by any Stockholder, whether or not then
exercisable or convertible, (iii) any stock or other securities which are
convertible into or exchangeable for, directly or indirectly, Common Stock,
purchased or otherwise acquired by any Stockholder, whether or not then
convertible or exchangeable, and (iv) all equity securities issued or issuable
directly or indirectly with respect to any Common Stock
-3-
<PAGE>
referred to in clauses (i), (ii) and (iii) above by way of a stock dividend or
stock split or in connection with a combination of shares, recapitalization,
merger, consolidation or other reorganization. As to any particular shares
constituting Stockholder Shares, such shares will cease to be Stockholder Shares
when they have been Transferred in a Public Sale or repurchased by the Company
or any of its Subsidiaries. References in this Agreement to a majority of, or a
certain percentage of, the Stockholder Shares shall be deemed to be references
to a majority of the Common Stock represented by the Stockholder Shares or a
certain percentage of the Common Stock represented by the Stockholder Shares,
calculated on a fully-diluted basis, as applicable.
"Subsidiary" means, with respect to any Person, any corporation,
partnership, limited liability company, association or other business entity of
which (i) if a corporation, a majority of the total voting power of shares of
stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors thereof is at the time owned or controlled, directly
or indirectly, by that Person or one or more of the other Subsidiaries of that
Person or a combination thereof, or (ii) if a partnership, limited liability
company, association or other business entity, a majority of the partnership or
other similar ownership interest thereof is at the time owned or controlled,
directly or indirectly, by that Person or one or more Subsidiaries of that
Person or a combination thereof. For purposes hereof, a Person or Persons shall
be deemed to have a majority ownership interest in a partnership, limited
liability company, association or other business entity if such Person or
Persons shall be allocated a majority of partnership, limited liability company,
association or other business entity gains or losses or shall be or control the
managing director, managing member, manager or a general partner of such
partnership, limited liability company, association or other business entity.
"Transfer" means any voluntary or involuntary, direct or indirect
sale, transfer, conveyance, assignment, pledge, hypothecation, gift, delivery or
other disposition. Notwithstanding the foregoing, the conversion by any
Stockholder of any shares of any class of Common Stock into any other class of
Common Stock shall not be deemed a "Transfer" for purposes of this Agreement,
provided that such Stockholder continues to own such converted shares
immediately after such conversion.
"Unaffiliated Third Party" means any Person who, immediately prior
to the contemplated transaction, (i) is not a Person who directly or indirectly
owns in excess of 5% of the outstanding shares of Common Stock on a
fully-diluted basis (a "5% Owner"), (ii) is not controlling, controlled by or
under common control with any such 5% Owner and (iii) is not the spouse or
descendent (by birth or adoption) of any such 5% Owner or a trust for the
benefit of such 5% Owner and/or such other Persons.
2. Board of Directors.
(a) To the extent permitted by law, each Stockholder shall vote all
voting securities of the Company over which such Stockholder has voting control,
and shall take all other necessary or desirable actions within such
Stockholder's control (whether in such Stockholder's
-4-
<PAGE>
capacity as a stockholder, director, member of a board committee or officer of
the Company or otherwise, and including, without limitation, attendance at
meetings in person or by proxy for purposes of obtaining a quorum and execution
of written consents in lieu of meetings), and the Company shall take all
necessary and desirable actions within its control (including, without
limitation, calling special board and shareholder meetings), so that:
(i) the authorized number of directors of the Board shall be five;
(ii) so long as the Bain Entities are a beneficial owner (directly
or indirectly) of Stockholder Shares, then the Bain Entities will
designate four representatives from time to time (each a "Bain Director")
(with Joshua Bekenstein, James Hirshorn, Michael Krupka and Joe L.
Gonzalez serving as the initial Bain Directors);
(iii) prior to the consummation of an initial Public Offering, so
long as Harvard and its Affiliates (and not any of their respective
assigns) is the beneficial owner (directly or indirectly) of at least 5%
of the outstanding shares of Common Stock, then Harvard and its Affiliates
who beneficially own Stockholder Shares (and not any of their respective
assigns) will designate one representative from time to time (the "Harvard
Director") (with Andrew S. Janower serving as the initial Harvard
Director);
(iv) notwithstanding Section 9 of Bylaw III of the Company's
by-laws, any director designated pursuant to clause (ii) through (iii)
above shall be removed from the Board or any committee thereof (with or
without cause) at the written request of the Person or Persons which have
the right to designate such director hereunder, but only upon such written
request and under no other circumstances (in each case, determined on the
basis specified in clause (ii) or (iii) above, as the case may be);
(v) if any director designated hereunder for any reason ceases to
serve as a member of the Board or any committee thereof during such
director's term of office, the resulting vacancy on the Board or committee
shall be filled by a director designated by the Persons referred to in
clause (ii) or (iii) above, as the case may be, and each Stockholder
hereby agrees promptly to consent in writing or vote or cause to be voted
all Stockholder Shares owned or controlled by it to elect that individual
so designated to fill such vacancy and serve as a director;
(vi) at the Board's election, the composition of the board of
directors (or any similar governing body) of any of the Company's wholly
owned Subsidiaries (a "Sub Board") shall be the same as the Board or as
otherwise determined by the Board; and
(vii) no executive committee of the Board shall have the authority
to (1) declare dividends of the Company, (2) authorize the issuance of
capital stock of the Company (other than to directors, officers or
employees of the Company and its Subsidiaries pursuant to benefit plans),
(3) authorize the execution by the Company of any merger, consolidation or
-5-
<PAGE>
recapitalization agreement or any agreement to sell all or substantially
all of the assets of the Company, (4) authorize the refinancing of any of
the material indebtedness for borrowed money of the Company and its
Subsidiaries, (5) authorize any material acquisition of another Person or
substantially all of the assets of another Person, (6) authorize the
creation of any material Subsidiary of the Company which is not directly
or indirectly wholly-owned by the Company, or (7) authorize capital
expenditures individually or in the aggregate during any applicable period
$10 million in excess of the capital expenditures provided for in the
applicable budget or budgets of the Company and its Subsidiaries approved
by the Board. For purposes of this clause (vii), the terms "material" and
"materially" shall refer to an amount or a valuation in excess of $50
million.
(b) The Company shall reimburse or cause to be reimbursed the
directors of the Board or any Sub Board for all reasonable out-of-pocket
expenses borne by such directors in connection with the performance of their
duties as directors of the Company. In addition, the Company shall pay or cause
to be paid such additional compensation to the directors of the Company who are
not employees of the Company or any of its Subsidiaries or any Stockholder or
any Affiliate of any Stockholder as the Board so determines.
(c) If any party fails to designate in writing a representative to
fill a director position pursuant to the terms of this Section 2, the election
of a Person to such director position shall be accomplished in accordance with
the Company's Articles of Incorporation and by-laws and applicable law
(provided, that such party may subsequently remove and replace such person). If,
at any time, any provision of the Company's Articles of Incorporation or by-laws
is inconsistent with the requirements of any provision of this Section 2, the
Stockholders shall take such action as may be necessary to amend any such
provision in the Company's Articles of Incorporation or by-laws, as the case may
be, to conform with such requirements.
(d) Prior to the consummation of an initial Public Offering and so
long as (i) no Affiliate of Chase or employee of Chase or any of its Affiliates
is a director of the Company and (ii) Chase and its Affiliates (and not any of
their respective assigns) is the beneficial owner (directly or indirectly) of at
least 5% of the outstanding shares of Common Stock, the Company shall give Chase
written notice of each meeting of the Board (and any committees thereof), at the
same time and in the same manner as notice is given to the directors of the
Board and the Company shall permit a representative of Chase (the "Chase
Observer") to attend, as an observer, all such meetings unless attendance at
such meeting, in the Company's reasonable judgment, would create a conflict of
interest for Chase; provided, that in the case of telephonic meetings, Chase
need receive only actual notice thereof at the same time and in the same manner
as notice is given to the directors of the Board and the Chase Observer shall be
given the opportunity to listen to such telephonic meetings. The Chase Observer
shall be entitled to receive all written materials and other information
(including, without limitation, copies of meeting minutes) given to directors of
the Board in connection with such meetings at the same time such materials and
information are given to such directors unless receipt of such materials would
create, in the Company's reasonable judgment, a conflict of interest for Chase.
The Company shall give written notice of any action by written
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consent in lieu of a meeting of directors of the Company to Chase prior to the
effective date of such consent describing in reasonable detail the nature and
substance of such action.
3. Representations and Warranties; Conflicting Agreements. Each
Stockholder, severally and not jointly, represents and warrants that (a)
effective as of the date hereof such Stockholder is the record owner of the
number of Stockholder Shares set forth opposite its name on Schedule A attached
hereto, (b) this Agreement has been duly authorized, executed and delivered by
such Stockholder and constitutes the valid and binding obligation of such
Stockholder, enforceable in accordance with its terms, and (c) such Stockholder
has not granted and is not a party to any proxy, voting trust or other agreement
which is inconsistent with, violates or conflicts with the provisions of this
Agreement. No holder of Stockholder Shares shall grant any proxy or become party
to any voting trust or other agreement which is inconsistent with, violates or
conflicts with the provisions of this Agreement.
4. Restrictions on Transfer of Stockholder Shares.
(a) General Restrictions.
(i) Prior to the earlier of (x) the second anniversary of the date
hereof and (y) the first day after the period commencing on the date
hereof and ending on the day the Company's financial statements are filed
with the SEC for the first full fiscal quarter after the Company issues
any securities to the public pursuant to a filing with the SEC, subject to
Section 7 hereof, a Heilig Holder may Transfer Stockholder Shares only (A)
if such Heilig Holder is exercising a tag-along right granted to such
Heilig Holder pursuant to Section 4(b), then to any Person, provided, that
such Person shall have complied with the requirements of Section 4(d)(ii),
or (B) pursuant to the terms of Section 5.
(ii) On or after the earlier of (x) the second anniversary of the
date hereof and (y) the first day after the period commencing on the date
hereof and ending on the day the Company's financial statements are filed
with the SEC for the first full fiscal quarter after the Company issues
any securities to the public pursuant to a filing with the SEC, subject to
Section 7 hereof, a Heilig Holder may Transfer Stockholder Shares only (A)
if such Heilig Holder has complied with the terms and requirements of
Section 4(c) or if such Heilig Holder is exercising a tag-along right
granted to such Heilig Holder pursuant to Section 4(b), then to any
Person, provided, that such Person shall have complied with the
requirements of Section 4(d)(ii), or (B) pursuant to the terms of Section
5; provided, further, that, prior to the date described in (y) above, a
Heilig Holder may Transfer Stockholder Shares pursuant to subsection (A)
above prior to the fifth anniversary of the date hereof only if such
Heilig Holder first confirms with the Company's outside accountants that
such Transfer would not pose a material risk to the recapitalization
accounting afforded to the transactions pursuant to which the initial
Stockholders acquired their Stockholder Shares.
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(iii) Subject to Section 7 hereof, a Holdings Holder may Transfer
Stockholder Shares only (A) if such Holdings Holder has complied with the
terms and requirements of Section 4(c), to the extent applicable, in
Public Sales, (B) if such Holdings Holder has complied with the terms and
requirements of Sections 4(b), 4(c) and 4(d), to the extent applicable, or
if such Holdings Holder is exercising a tag-along right granted to such
Holdings Holder pursuant to Section 4(b), then to any Person, provided,
that such Person shall have complied with the requirements of Section
4(d)(ii), or (C) pursuant to the terms of Section 5.
(b) Participation Rights. At least 10 business days prior to the
Transfer (or series of Transfers) by any Stockholder (a "Transferring
Stockholder") of Stockholder Shares representing more than 10% of the
outstanding Stockholder Shares held by such Stockholder (other than pursuant to
(i) a Public Sale or (ii) a Transfer under Section 4(c), Section 4(d) or Section
5), the Transferring Stockholder will deliver a written notice (the "Sale
Notice") to the Company and the Other Stockholders, specifying in reasonable
detail the identity of the prospective transferee(s), the Stockholder Shares to
be sold and the terms and conditions of the Transfer. If the Other Stockholders
hold shares of the class of Stockholder Shares to be transferred, they may elect
to participate in the contemplated Transfer by delivering written notice to the
Transferring Stockholder within 5 business days after delivery of the Sale
Notice.
If any Other Stockholders have elected to participate in such
Transfer ("Participating Stockholders"), the Transferring Stockholder and each
Participating Stockholder will be entitled to sell in the contemplated Transfer,
at the same price and on the same terms, a number of Stockholder Shares of such
class equal to the product of (i) the quotient determined by dividing the number
of Stockholder Shares of such class held by such Person by the aggregate number
of Stockholder Shares of such class owned by the Transferring Stockholder and
all Participating Stockholders and (ii) the aggregate number of Stockholder
Shares of such class to be sold in the contemplated Transfer; provided that for
purposes of the foregoing, (A) Stockholder Shares which have not vested (and
will not vest as a result of such transaction) or are subject to repurchase by
the Company for less than fair market value shall not be considered to be
Stockholder Shares and (B) all Stockholder Shares held by any Permitted
Transferee of any Other Stockholder shall be deemed held by such Other
Stockholder himself or itself; provided further that if the Transferring
Stockholder intends to Transfer a strip of two or more classes of Stockholder
Shares and any Other Stockholder (including his or its Permitted Transferees)
holds all such classes of Stockholder Shares, such Other Stockholder may only
participate in such Transfer if such Other Stockholder participates with respect
to all such classes of Stockholder Shares. The Transferring Stockholder shall
use its best efforts to obtain the agreement of the prospective transferee(s) to
the participation of the Participating Stockholders in any contemplated
Transfer, and the Transferring Stockholder shall not Transfer any of its
Stockholder Shares to the prospective transferee(s) unless (1) the prospective
transferee(s) agrees to allow the participation of the Participating
Stockholders or (2) the Transferring Stockholder agrees to purchase the number
of such class of Stockholder Shares from any Participating Stockholders which
the Participating Stockholders would have been entitled to sell pursuant to this
Section 4(b). Each Stockholder participating in any transaction pursuant to this
Section 4(b) shall
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be required to bear its pro rata share (based upon the number of shares sold) of
the expenses incurred by the Stockholders in connection with such transaction to
the extent such costs are incurred for the benefit of all such Stockholders and
are not otherwise paid by the Company or the acquiring party and each
Stockholder shall be obligated to join on a pro rata basis (based on the number
of shares sold) in any representations, warranties, indemnification provisions
or other obligations (including without limitation any escrow arrangements) that
the Transferring Stockholder agrees to provide in connection with such
transaction (other than any such obligations that relate specifically to a
particular Stockholder such as indemnification with respect to representations
and warranties given by a Stockholder regarding such Stockholder's title to and
ownership of Stockholder Shares).
(c) First Refusal Rights. At least 20 business days prior to any
Transfer of Stockholder Shares by any Stockholder which, together with its
Affiliates and Permitted Transferees, holds less than 25% of the Stockholder
Shares as of immediately prior to such Transfer (other than pursuant to (i) a
Transfer to the Company, or (ii) a Transfer under Section 4(b), Section 4(d) or
Section 5), the Stockholder making such Transfer (the "Minority Transferor")
shall deliver a written notice (the "Transfer Notice") to the Company and each
Stockholder which, together with its Affiliates and Permitted Transferees, holds
at least 25% of the Stockholder Shares as of immediately prior to such Transfer
(a "Significant Stockholder") that it desires to Transfer Stockholder Shares of
such class, specifying in reasonable detail the identity of the prospective
transferee(s), the number to be transferred and the terms and conditions of the
Transfer, including the proposed price per Stockholder Share of such class
(which price shall be payable solely in cash at the closing of the transaction
or in installments over time). The Company (or its designee) may elect to
purchase all or any portion of the Stockholder Shares to be transferred, upon
the same terms and conditions as those set forth in the Transfer Notice, by
delivering a written notice of such election to the Minority Transferor within 8
business days after the Transfer Notice has been given to the Company (the
"Company Exercise Period"). If for any reason the Company does not elect to
purchase (directly or through its designee) all of the Stockholder Shares to be
transferred, the Significant Stockholder(s) (or its designee) shall be entitled
to purchase the Stockholder Shares which the Company has not elected to purchase
(the "Available Shares"), upon the same terms and conditions as those set forth
in the Transfer Notice, by giving written notice of such election to the
Minority Transferor within 8 business days after the expiration of the Company
Exercise Period (the "Significant Stockholder Exercise Period"). If more than
one Significant Stockholder elects to purchase the Available Shares, the
Available Shares will be allocated among such electing stockholders pro rata
according to the number of Stockholder Shares owned by each such electing
Significant Stockholder. The closing of the purchase of any Stockholder Shares
pursuant to this Section 4(c) shall take place within 60 days after the
expiration of the Significant Stockholder Exercise Period, which, in any event,
shall be within 90 days after the Transfer Notice was delivered to the Company
and the Significant Stockholders. Notwithstanding the foregoing, if the Company
and the Significant Stockholder(s) (together with their respective designees) do
not elect to purchase, collectively, all of the Stockholder Shares of a class
specified in the Transfer Notice, then the Minority Transferor may transfer all
of the Stockholder Shares of such class specified in the Transfer Notice to the
transferee(s) identified in the Transfer Notice (i) for a price no less than the
price specified in the Transfer Notice and (ii) upon other terms no more
favorable to the transferee(s) thereof than specified in the Transfer Notice,
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during the 90-day period immediately following the date on which the Transfer
Notice has been given to the Company and the Significant Stockholder(s). Any
Stockholder Shares not transferred within such 90-day period will be subject to
the provisions of this Section 4(c) upon subsequent transfer.
(d) Permitted Transfers.
(i) The restrictions contained in Sections 4(a), 4(b) and 4(c) shall
not apply with respect to any Transfer of Stockholder Shares by any
Stockholder (A) in the case of an individual Stockholder, pursuant to
applicable laws of descent and distribution or to any member of such
Stockholder's Family Group, (B) in the case of a non-individual
Stockholder, to its Affiliates, (C) in the case of any Bain Fund, to its
partners in connection with a distribution of all the Stockholder Shares
held by each such Bain Fund, (D) in the case of Holdings, to its members
and (E) in the case of any Regulated Stockholder (as such term is defined
in Section 10) pursuant to Section 10(b)(i); provided, in each case, that
any such transferee shall have complied with the requirements of Section
4(d)(ii).
(ii) Prior to any proposed transferee's acquisition of Stockholder
Shares pursuant to a Transfer permitted by Section 4(a)(i)(A), 4(a)(ii)(A)
or 4(a)(iii)(A), or Section 4(d)(i), such proposed transferee must agree
to take such Stockholder Shares subject to and to be fully bound by the
terms of this Agreement applicable to such Stockholder Shares by executing
a joinder to this Agreement substantially in the form attached hereto as
Exhibit A and delivering such executed joinder to the Secretary of the
Company prior to the effectiveness of such Transfer (unless such Transfer
is pursuant to applicable laws of descent and distribution, in which case,
such executed joinder shall be delivered to the Secretary of the Company
as soon as reasonably possible after such Transfer). All transferees
acquiring Stockholder Shares and executing a joinder in compliance with
this Section 4(d)(ii) are collectively referred to herein as "Permitted
Transferees".
(e) If (i) any Transfer of a majority interest in the residual
equity securities of a Stockholder owning Stockholder Shares occurs, or (ii) any
Stockholder or Permitted Transferee Transfers Stockholder Shares to an Affiliate
and an event occurs which causes such Affiliate to cease to be an Affiliate of
such Stockholder or Permitted Transferee, such Transfer or event shall be deemed
a Transfer of Stockholder Shares subject to all of the restrictions on Transfers
of Stockholder Shares set forth in this Agreement, including without limitation,
Sections 4 and 5 hereof.
(f) The provisions of this Section 4 shall terminate upon the
consummation of a Qualified Public Offering.
5. Approved Sale.
(a) Subject to Section 5(c) below, if the Board recommends or
approves, and the holders of a majority of the Stockholder Shares then
outstanding (the "Approving Stockholders")
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approve, a sale of all or substantially all of the Company's assets determined
on a consolidated basis or a sale of all (or, for accounting, tax or other
reasons, substantially all) of the Company's outstanding capital stock (whether
by merger, recapitalization, consolidation, reorganization, combination or
otherwise) to an Unaffiliated Third Party or group of Unaffiliated Third Parties
(each such sale, an "Approved Sale"), then each holder of Stockholder Shares
will vote for and consent to such Approved Sale subject to the terms set forth
below. In connection with any Stockholders exercising their rights under this
Section 5(a), such Stockholders shall send a written notice to all Other
Stockholders setting forth the principal terms of the proposed Approved Sale. If
the Approved Sale is structured as (i) a merger or consolidation, each holder of
Stockholder Shares will waive any dissenters' rights, appraisal rights or
similar rights in connection with such merger or consolidation or (ii) a sale of
stock, each holder of Stockholder Shares will agree to sell all of its
Stockholder Shares and rights to acquire Stockholder Shares on the same terms
and conditions as applicable to all of the Stockholder Shares held by the
Approving Stockholders. Each Stockholder shall take all necessary or desirable
actions in connection with the consummation of the Approved Sale as reasonably
requested by the Approving Stockholders and/or the Company.
(b) Reorganization Prior to Public Offering. Subject to Section 5(c)
below, if the Board recommends or approves and the Approving Stockholders
approve a reorganization of the Company in connection with a proposed initial
Public Offering by the Company (the "Approved Reorganization"), each Stockholder
agrees to vote for and consent to the Approved Reorganization. If the Approved
Reorganization is structured as a (i) merger or consolidation, each Stockholder
shall waive any dissenters' rights, appraisal rights or similar rights in
connection with such merger or consolidation or (ii) sale of stock, each
Stockholder shall agree to sell all of its Stockholders Shares on the terms and
conditions approved by and applicable to the Approving Stockholders. Each
Stockholder shall take all necessary or desirable actions in connection with the
consummation of the Approved Reorganization as reasonably requested by the
Approving Stockholders and/or the Company.
(c) Obligations of Stockholders. In connection with an Approved Sale
or Approved Reorganization: (i) upon the consummation of the Approved Sale or
Approved Reorganization, all of the holders of each class of Stockholder Shares
shall receive the same form and amount of consideration per share of Stockholder
Shares as the other holders of such class, or if any holders of a class of
Stockholder Shares are given an option as to the form and amount of
consideration to be received, all holders of such class shall be given the same
option; and (ii) all holders of then currently exercisable rights to acquire
Stockholder Shares shall be given reasonable prior notice of such Approved Sale
or Approved Reorganization and a reasonable opportunity, at such holder's
election and except as otherwise provided for in any related stock option
agreement, to either (A) exercise such rights prior to the consummation of the
Approved Sale or Approved Reorganization and participate in such sale as holders
of Stockholder Shares or (B) upon the consummation of the Approved Sale or
Approved Reorganization, receive in exchange for such rights consideration equal
to the amount determined by multiplying (1) the same amount of consideration per
share of a class of Stockholder Shares received by holders of such class of
Stockholder Shares in connection with the Approved Sale less the exercise price
per share of such class of Stockholder Shares of such rights to acquire such
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class of Stockholder Shares by (2) the number of shares of such class of
Stockholder Shares represented by such rights.
(d) Purchaser Representative. If any transaction undertaken pursuant
to this Section 5 involves entering into any negotiation or transaction for
which Rule 506 under the Securities Act (or any similar rule then in effect)
promulgated by SEC may be available with respect to such negotiation or
transaction (including a merger, consolidation or other reorganization), those
Stockholders involved in such transaction who are not "accredited investors" (as
such term is defined in Rule 501 under the Securities Act) (the "Unaccredited
Stockholders") shall, at the request of the Company or the Approving
Stockholders, appoint one "purchaser representative" (as such term is defined in
Rule 501 under the Securities Act (or any similar rule then in effect)) for all
such Unaccredited Stockholders reasonably acceptable to the Company. The Company
shall first propose a purchaser representative to the Unaccredited Stockholders.
If holders of a majority of the Stockholder Shares held by the Unaccredited
Stockholders do not approve the purchaser representative designated by the
Company, such holders shall appoint one purchaser representative to represent
all Unaccredited Stockholders, subject to the approval of the Company (which
approval shall not be unreasonably withheld). The Company shall be responsible
for the fees of the purchaser representative so appointed.
(e) Transaction Costs and Indemnity. Each holder of Stockholder
Shares will take all necessary or desirable actions in connection with the
consummation of the Approved Sale or Approved Reorganization, as the case may
be, as reasonably requested by the Approving Stockholders or the Company,
including without limitation executing the applicable purchase agreement;
provided, that, notwithstanding the foregoing, each Stockholder involved in any
transaction pursuant to this Section 5 shall be required to bear its pro rata
share (based upon the number of shares sold) of the expenses incurred by the
Stockholders in connection with such transaction to the extent such costs are
incurred for the benefit of all such Stockholders and are not otherwise paid by
the Company or the acquiring party and each Stockholder shall be obligated to
join on a pro rata basis (based on the number of shares sold) in any
representations, warranties, indemnification provisions or other obligations
(including without limitation any escrow arrangements) that the Approving
Stockholders agree to provide in connection with such transaction (other than
any such obligations that relate specifically to a particular Stockholder such
as indemnification with respect to representations and warranties given by a
Stockholder regarding such Stockholder's title to and ownership of Stockholder
Shares). Costs incurred by any such Stockholder on its own behalf shall not be
considered costs of the transaction hereunder.
(f) The provisions of this Section 5 shall terminate upon the
consummation of a Qualified Public Offering.
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6. Financial Statements and Access to Information.
(a) Financial Statements. The Company shall deliver to each
Stockholder who holds more than 5% of the then outstanding shares of Common
Stock:
(i) within 60 days after the end of each quarterly
accounting period in each fiscal year of the Company, unaudited consolidated
statements of income and cash flows of the Company and its Subsidiaries for such
quarterly period and unaudited consolidated balance sheets of the Company and
its Subsidiaries as of the end of such quarterly period. Such financial
statements shall be prepared in accordance with generally accepted accounting
principles, consistently applied, subject to the absence of footnote disclosures
and to normal year-end adjustments; and
(ii) within 120 days after the end of each fiscal year
of the Company, audited consolidated statements of income and cash flows of the
Company and its Subsidiaries for such fiscal year, and audited consolidated
balance sheets of the Company and its Subsidiaries as of the end of such fiscal
year. Such financial statements shall be prepared in accordance with generally
accepted accounting principles, consistently applied.
(b) Access to Information. The Company shall permit any
Stockholder who holds more than 5% of the then outstanding shares of Common
Stock, 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
entities with any of the executive officers of the Company.
(c) Following the consummation of an initial Public Offering,
any Person who is a party to this Agreement or a member of Holdings and who
holds more than 5% of the then outstanding shares of Common Stock (whether such
Person holds such shares directly or indirectly through its membership interest
in Holdings) shall be entitled to the rights set forth above in Section 6(a) and
6(b).
7. Legend; Additional Restriction on Transfer.
(a) Each certificate or instrument evidencing Stockholder
Shares and each certificate or instrument issued in exchange for or upon the
Transfer of any Stockholder Shares (if such securities remain Stockholder
Shares, each as defined herein after such Transfer) shall be stamped or
otherwise imprinted with a legend in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
AND MAY NOT BE
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SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION
THEREUNDER. THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE IS SUBJECT TO A STOCKHOLDERS AGREEMENT DATED AS OF
AUGUST 6, 1999, BY AND AMONG THE ISSUER AND CERTAIN OF THE ISSUER'S
STOCKHOLDERS. A COPY OF SUCH STOCKHOLDERS AGREEMENT WILL BE
FURNISHED WITHOUT CHARGE BY THE ISSUER TO THE HOLDER HEREOF UPON
WRITTEN REQUEST."
The legend set forth above regarding the Stockholders Agreement shall be removed
from the certificates evidencing any securities which cease to be Stockholder
Shares. Upon the request of any holder of Stockholder Shares, the Company shall
remove the Securities Act legend set forth above from the certificate or
certificates for such Stockholder Shares; provided, that such Stockholder Shares
are eligible for sale pursuant to Rule 144(k) (or any similar rule or rules then
in effect) under the Securities Act.
(b) No Stockholder may Transfer any Stockholder Shares (except
pursuant to an effective registration statement under the Securities Act)
without first delivering to the Company an opinion of counsel reasonably
acceptable in form and substance to the Company (which counsel will be
reasonably acceptable to the Company) that registration under the Securities Act
is not required in connection with such Transfer. If such opinion of counsel
reasonably acceptable in form and substance to the Company further states that
no subsequent Transfer of such Stockholder Shares will require registration
under the Securities Act, the Company will promptly upon such Transfer deliver
new certificates for such securities which do not bear the Securities Act legend
set forth in Section 7(a).
(c) Notwithstanding the foregoing, for so long as this
Agreement is in effect, each certificate or instrument evidencing shares of
Common Stock shall be stamped or otherwise imprinted with a legend in
substantially the following form, only if it does not otherwise bear the legend
set forth in Section 7(a):
"FOR SO LONG AS THE STOCKHOLDERS AGREEMENT DATED AS OF AUGUST 6,
1999, BY AND AMONG THE ISSUER AND CERTAIN OF THE ISSUER'S
STOCKHOLDERS IS IN EFFECT, THE SECURITIES REPRESENTED BY THIS
CERTIFICATE MAY BE SUBJECT TO SUCH AGREEMENT. A COPY OF SUCH
STOCKHOLDERS AGREEMENT WILL BE FURNISHED WITHOUT CHARGE BY THE
ISSUER TO THE HOLDER HEREOF UPON WRITTEN REQUEST."
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8. Transfers in Violation of Agreement. Any Transfer or attempted
Transfer of any Stockholder Shares in violation of any provision of this
Agreement shall be null and void, and the Company shall not record such Transfer
on its books or treat any purported transferee of such Stockholder Shares as the
owner of such securities for any purpose.
9. Preemptive Rights.
(a) (i) If at any time on or prior to the consummation of a
Qualified Public Offering, the Company wishes to issue any equity securities
(whether preferred stock or Common Stock) or any options, warrants or other
rights to acquire equity securities or any notes or other securities convertible
or exchangeable into equity securities (all such equity securities and other
rights and securities, collectively, the "Equity Equivalents") to any
Stockholder, the Company shall promptly deliver a notice of intention to sell
(the "Issuance Notice") to each Other Stockholder setting forth a description
and the number of the Equity Equivalents proposed to be issued to such
Stockholder and the proposed purchase price and terms of sale. Upon receipt of
the Issuance Notice, each Other Stockholder shall have the right to elect to
purchase, at the price and on the terms stated in the Issuance Notice, a number
of the Equity Equivalents equal to the product of (A) such Other Stockholder's
proportionate ownership (expressed as a fraction) of the aggregate Stockholder
Shares held by all Stockholders multiplied by (B) the number of Equity
Equivalents proposed to be issued to such Stockholder (as described in the
applicable Issuance Notice). Such election shall be made by the electing Other
Stockholder by written notice to the Company within ten (10) business days after
receipt by such Other Stockholder of the Issuance Notice (the "Issuance
Acceptance Period").
(ii) If an Other Stockholder does not make an effective
election to purchase pursuant to paragraph (a)(i) above in respect of the Equity
Equivalents proposed to be issued to such Stockholder pursuant to the applicable
Issuance Notice, the Company may, at its election, during a period of ninety
(90) days following the expiration of the applicable Issuance Acceptance Period,
issue and sell the remaining Equity Equivalents to be issued and sold to such
Stockholder at a price and upon terms not more favorable to such Stockholder
than those stated in the applicable Issuance Notice (provided that the number of
Equity Equivalents to be issued to such Stockholder in compliance with the
foregoing shall not exceed the number of Equity Equivalents proposed to be
issued to such Stockholder (as described in the applicable Issuance Notice) less
the number of Equity Equivalents to be issued to Other Shareholders pursuant to
an effective election to purchase by such Other Stockholders hereunder). If the
Company has not sold any Equity Equivalents covered by an Issuance Notice to
such Stockholder, or entered into a binding agreement to sell such Equity
Equivalents to such Stockholder, within such ninety (90) day period, the Company
shall not thereafter issue or sell such Equity Equivalents to such Stockholder
without first offering such Equity Equivalents to the Other Stockholders in the
manner provided in paragraph (a)(i) above.
(b) If an Other Stockholder gives the Company notice, pursuant to
the provisions of this Section 9, that such Other Stockholder desires to
purchase Equity Equivalents offered by the Company, payment therefor shall be
made by check or wire transfer of immediately available funds,
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against delivery of the securities (which securities shall be registered in the
name of such Other Stockholder and shall be issued free and clear of any liens
or encumbrances) at the executive offices of the Company at the closing date
fixed by the Company for the sale of all such Equity Equivalents (including to
such Stockholder). If the proposed sale is for consideration other than cash,
the Other Stockholders may pay cash in lieu of all (but not part) of such other
consideration, in the amount determined reasonably and in good faith by the
Board to represent the fair value of such consideration other than cash.
(c) The preemptive rights contained in this Section 9 shall not
apply to (i) the issuance of shares of Equity Equivalents as a stock dividend or
upon any subdivision, split or combination of the outstanding shares of Common
Stock; (ii) the issuance of Equity Equivalents upon conversion, exchange or
redemption of any outstanding convertible or exchangeable securities; (iii) the
issuance of Equity Equivalents upon exercise of any outstanding options or
warrants; (iv) the issuance of Equity Equivalents pursuant to an offering
registered under the Securities Act; or (v) the issuance of shares of Equity
Equivalents in connection with a business acquisition or combination.
10. Regulatory Compliance Cooperation.
(a) Definitions. For purposes of this Section 10, the
following terms have the following meanings:
"Applicable Law," with respect to any Person, means all provisions
of all laws, statutes, ordinances, rules, regulations, permits, certificates or
orders of any governmental authority applicable to such Person or any of its
assets or property or to which such Person or any of its assets or property is
subject, and all judgments, injunctions, orders and decrees of all courts and
arbitrators in proceedings or actions in which such Person is a party or by
which it or any of its assets or properties is or may be bound or subject.
"Regulated Stockholder" shall mean any Stockholder (i) that is
subject to the provisions of Regulation Y of the Board of Governors of the
Federal Reserve System, 12 C.F.R. Part 225 (or any successor to such
Regulations) and (ii) that holds Stockholder Shares and (iii) that has provided
written notice to the Company of its status as a "Regulated Stockholder"
hereunder.
"Regulatory Problem" means any set of facts or circumstance wherein
it has been asserted by any governmental regulatory agency (or a Regulated
Stockholder reasonably believes that there is a risk of such assertion) that
such Regulated Stockholder is not entitled to acquire, own, hold or control, or
exercise any significant right (including the right to vote) with respect to,
any Stockholder Shares.
(b) Regulatory Matters Generally.
(i) If a Regulated Stockholder determines that it has a
Regulatory Problem, the Company agrees to take all such actions, subject to
Applicable Law, as are reasonably
-16-
<PAGE>
requested by such Regulated Stockholder (1) to effectuate and facilitate any
Transfer by such Regulated Stockholder of any Stockholder Shares then held by
such Regulated Stockholder to any Affiliate of such Regulated Stockholder
designated by such Regulated Stockholder (provided such transferee complies with
the requirements of Section 4(d)(ii)), and (2) to permit such Regulated
Stockholder (or any Affiliate of such Regulated Stockholder) to exchange all or
any portion of the voting Stockholder Shares then held by such Person on a
share-for-share basis for shares of a class of nonvoting Stockholder Shares,
which nonvoting Stockholder Shares shall be identical in all respects to such
voting Stockholder Shares, except that such new Stockholder Shares shall be
nonvoting and shall be convertible into voting Stockholder Shares on such terms
as are reasonably requested by such Regulated Stockholder in light of regulatory
considerations then prevailing. Such actions may include, without limitation,
(x) entering into such additional agreements as are reasonably requested by such
Regulated Stockholder to permit any Person(s) designated by such Regulated
Stockholder to exercise any voting power which is relinquished by such Regulated
Stockholder upon any exchange of voting Stockholder Shares for nonvoting
Stockholder Shares, and (y) entering into such additional agreements, adopting
such amendment to the charter documents of the Company and taking such
additional actions as are reasonably requested by such Regulated Stockholder in
order to effectuate the intent of the foregoing.
(ii) If a Regulated Stockholder has the right or
opportunity to acquire any of the Stockholder Shares from the Company, any
Stockholder or any other Person (as the result of a preemptive offer, pro rata
offer or otherwise), at such Regulated Stockholder's request the Company will
offer to sell (or if the Company is not the seller, to cooperate with the seller
and such Regulated Stockholder to permit such seller to sell) non-voting
Stockholder Shares on the same terms as would have existed had such Regulated
Stockholder acquired the Stockholder Shares so offered and immediately requested
their exchange for non-voting Stockholder Shares pursuant to clause (i) above.
(iii) Each Stockholder agrees to cooperate with the
Company in complying with this Section 10, including without limitation, voting
to approve amending the Company's Articles of Incorporation in a manner
reasonably requested by the Regulated Stockholder requesting such amendment.
(iv) The Company agrees not to amend or waive the voting
or other provisions of this Agreement or the Company's Articles of Incorporation
if such proposed amendment or waiver would cause any Regulated Stockholder to
have a Regulatory Problem, provided that any such Regulated Stockholder notifies
the Company that it would have a Regulatory Problem promptly after it has notice
of such amendment or waiver.
11. Amendment and Waiver. No modification, amendment or waiver of
any provision of this Agreement shall be effective against the Company or the
Stockholders unless such modification, amendment or waiver is approved in
writing by, respectively, the Company or the holders of 75% of the Stockholder
Shares; provided, that no amendment shall be effective without the consent of a
Stockholder to the extent that such amendment would adversely affect the rights
or
-17-
<PAGE>
obligations of such Stockholder hereunder in any material respect.
Notwithstanding the foregoing, if an amendment or modification of this Agreement
serves merely to add a party hereto, then such amendment or modification will be
effective against the Company and the holders of Stockholder Shares if such
amendment or modification is approved in writing by the Company, the holders of
at least a majority of the Stockholder Shares, and such new party hereto. The
failure of any party to enforce any of the provisions of this Agreement shall in
no way be construed as a waiver of such provisions and shall not affect the
right of such party thereafter to enforce each and every provision of this
Agreement in accordance with its terms. Each Stockholder shall remain a party to
this Agreement only so long as such person is the holder of record of
Stockholder Shares. In connection with the issuance of any additional equity
securities of the Company to any Person, the Company may permit such Person to
become a party to this Agreement and succeed to all of the rights and
obligations of a "Stockholder" under this Agreement by obtaining the consent of
the holders of a majority of the Stockholder Shares then outstanding and an
executed counterpart signature page to this Agreement, and, upon such execution,
such Person shall for all purposes be a "Stockholder" party to this Agreement.
12. Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
13. Entire Agreement. Except as otherwise expressly set forth
herein, this document embodies the complete agreement and understanding among
the parties hereto with respect to the subject matter hereof and supersedes and
preempts any prior understandings, agreements or representations by or among the
parties, written or oral, which may have related to the subject matter hereof in
any way.
14. Termination. This Agreement will automatically terminate and be
of no further force or effect immediately after the consummation of an Approved
Sale.
15. Successors and Assigns. Except as otherwise provided herein,
this Agreement shall bind and inure to the benefit of and be enforceable by the
Company and its successors and assigns and the Stockholders and any subsequent
holders of Stockholder Shares and the respective successors, heirs and assigns
of each of them, so long as they hold Stockholder Shares.
16. Counterparts. This Agreement may be executed in separate
counterparts each of which shall be an original and all of which taken together
shall constitute one and the same agreement.
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<PAGE>
17. Remedies. The parties hereto shall be entitled to enforce their
rights under this Agreement specifically to recover damages by reason of any
breach of any provision of this Agreement and to exercise all other rights
existing in their favor. The parties hereto agree and acknowledge that money
damages may not be an adequate remedy for any breach of the provisions of this
Agreement and that the Company and any Stockholder may in his, hers, or its sole
discretion apply to any court of law or equity of competent jurisdiction for
specific performance and/or injunc tive relief (without posting a bond or other
security) in order to enforce or prevent any violation of the provisions of this
Agreement.
18. Notices. All notices, demands or other communications to be
given or delivered under or by reason of the provisions of this Agreement will
be in writing and will be deemed to have been given when delivered if delivered
personally, sent via a nationally recognized overnight courier, or sent via
facsimile to the recipient, or if sent by certified or registered mail, return
receipt requested, will be deemed to have been given two business days
thereafter. Such notices, demands and other communications will be sent to the
address indicated below:
To the Company:
Mattress Discounters Holding Corporation
c/o Bain Capital, Inc.
Two Copley Place
Boston, MA 02116
Attention: Michael Krupka
Telecopy No.: (617) 572-3274
With a copy, which shall not constitute notice, to:
Kirkland & Ellis
Citicorp Center
153 East 53rd Street
New York, New York 10022
Attention: Lance C. Balk, Esq.
Telecopy No.: (212) 446-4900
To Holdings:
Mattress Discounters Holding L.L.C.
c/o Bain Capital, Inc.
Two Copley Place
Boston, MA 02116
Attention: Michael Krupka
Telecopy No.: (617) 572-3274
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<PAGE>
With a copy, which shall not constitute notice, to:
Kirkland & Ellis
Citicorp Center
153 East 53rd Street
New York, New York 10022
Attention: Lance C. Balk, Esq.
Telecopy No.: (212) 446-4900
To Heilig:
Heilig-Meyers Company
12560 West Creek Parkway
Richmond, Virginia 23238
Attention: William C. DeRusha
Telecopy No.: (804) 784-7901
With a copy, which shall not constitute notice, to:
McGuire, Woods, Battle & Boothe LLP
One James Center
Richmond, Virginia 23219
Attention: Robert L. Burrus, Jr.
Telecopy No.: 804-698-2152
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.
19. Governing Law. This Agreement shall be governed by and construed
in accordance with the domestic laws of the State of Virginia, without giving
effect to any choice of law or conflict of law provision or rule (whether of the
State of Virginia or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of Virginia.
20. Descriptive Headings. The descriptive headings of this Agreement
are inserted for convenience only and do not constitute a part of this
Agreement.
21. No Strict Construction. The language used in this Agreement
shall be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction shall be applied against any
party.
22. Third Party Beneficiaries. Each of the parties hereto
acknowledges and agrees that any Person who is granted rights hereunder and who
is not a party hereto (e.g. pursuant to
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<PAGE>
Section 2(a)(ii) through(iii)) shall have the rights granted to such Person as
intended hereby and for the purposes of exercising such rights shall be a third
party beneficiary hereof and entitled to enforce such rights whether or not such
Person or such Persons' transferor is then a party to this Agreement.
23. Transaction with Affiliates. The Company will not, and will not
permit any of its Subsidiaries to, make any payment to, or sell, lease, transfer
or otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any transaction,
contract, agreement, understanding, loan, advance or guarantee with, or for the
benefit of, any Affiliate (each, an "Affiliate Transaction"), unless such
Affiliate Transaction is on terms that are not, in the sole judgment of the
Board, materially less favorable to the Company or such Subsidiary than those
which would have been obtained in a comparable transaction with an Unaffiliated
Third Party.
* * * * *
- 20 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Stockholders Agreement as of the date first above written.
MATTRESS DISCOUNTERS HOLDING
CORPORATION
/s/ Michael Krupka
By:_____________________________________
Name: Michael Krupka
Title: President
MATTRESS DISCOUNTERS HOLDING L.L.C.
By: Bain Capital Fund VI, L.P.
Its: Member
By: Bain Capital Partners VI, L.P.
Its: General Partner
By: Bain Capital Investors, Inc.
Its: General Partner
/s/ Michael Krupka
By:-------------------------------------
Name: Michael Krupka
Title: Managing Director
HEILIG-MEYERS COMPANY
/s/ R. B. Goodman
By:-------------------------------------
Name: Roy B. Goodman
Title: Executive Vice President and
Chief Finacial Officer
- 21 -
<PAGE>
Schedule A
<TABLE>
<CAPTION>
Shares of Class A Shares of Class B Shares of Class L Shares of Class M
Stockholder Common Stock Common Stock Common Stock Common Stock
----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Mattress Discounters 11,423,250 0 1,269,250 0
Holding L.L.C.
Heilig-Meyers Company 903,000 0 100,333 0
</TABLE>
<PAGE>
EXHIBIT A
FORM OF JOINDER TO
STOCKHOLDERS AGREEMENT
THIS JOINDER to the Stockholders Agreement dated as of August 6,
1999 by and among Mattress Discounters Holding Corporation, a Virginia
corporation (the "Company"), and certain stockholders of the Company (the
"Agreement"), is made and entered into as of _________ by and between the
Company and _________________ ("Holder"). Capitalized terms used herein but not
otherwise defined shall have the meanings set forth in the Agreement.
WHEREAS, Holder has acquired certain Stockholder Shares and the
Agreement and the Company require Holder, as a holder of such Stockholder
Shares, to become a party to the Agreement, and Holder agrees to do so in
accordance with the terms hereof.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties to this Joinder hereby agree as
follows:
1. Agreement to be Bound. Holder hereby agrees that upon execution
of this Joinder, it shall become a party to the Agreement and shall be fully
bound by, and subject to, all of the covenants, terms and conditions of the
Agreement as though an original party thereto and shall be deemed a [Holdings
Holder/Heilig Holder] and a Stockholder for all purposes thereof. In addition,
Holder hereby agrees that all Common Stock held by Holder shall be deemed
[Holdings/Heilig] Shares and Stockholder Shares for all purposes of the
Agreement.
2. Successors and Assigns. Except as otherwise provided herein, this
Joinder shall bind and inure to the benefit of and be enforceable by the Company
and its successors, heirs and assigns and Holder and any subsequent holders of
Stockholder Shares and the respective successors, heirs and assigns of each of
them, so long as they hold any Stockholder Shares.
3. Counterparts. This Joinder may be executed in separate
counterparts each of which shall be an original and all of which taken together
shall constitute one and the same agreement.
4. Notices. For purposes of Section 18 of the Agreement, all
notices, demands or other communications to the Holder shall be directed to:
[Name]
[Address]
[Facsimile Number]
5. Governing Law. his Joinder shall be governed by and construed in
accordance with the domestic laws of the State of Virginia, without giving
effect to any choice of law or conflict of law provision or rule (whether of the
State of Virginia or any other
<PAGE>
jurisdiction) that would cause the application of the laws of any jurisdiction
other than the State of Virginia.
6. Descriptive Headings. The descriptive headings of this Joinder
are inserted for convenience only and do not constitute a part of this Joinder.
* * * * *
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Joinder as
of the date first above written.
MATTRESS DISCOUNTERS HOLDING
CORPORATION
By:_____________________________________
Name:
Title:
[HOLDER]
By:_____________________________________
Name:
Title:
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<PAGE>
Exhibit 10.1
EXECUTION COPY
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT is dated as of August 6, 1999 by
and among Mattress Discounters Holding Corporation, a Virginia corporation (the
"Company"); Mattress Discounters Holding L.L.C., a Delaware limited liability
company ("Holdings"); Heilig-Meyers Company, a Virginia corporation ("Heilig");
and certain other stockholders of the Company who are from time to time a party
hereto.
As of the date hereof, Holdings and Heilig each own a number of shares
of the Company's Common Stock.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties to this Agreement hereby agree as
follows:
1. Definitions. As used herein, the following terms shall have the
following meanings.
"Affiliate" means, when used with reference to a specified Person, any
Person that directly or indirectly controls or is controlled by or is under
common control with the specified Person. As used in this definition, "control"
(including, with its correlative meanings, "controlled by" and "under common
control with") shall mean possession, directly or indirectly, of power to direct
or cause the direction of management or policies (whether through ownership of
securities or partnership or other ownership interests, by contract or
otherwise). With respect to any Person who is an individual, "Affiliates" shall
also include, without limitation, any member of such individual's Family Group.
Notwithstanding the foregoing, for purposes of this Agreement, no MDLLC Investor
shall be deemed an "Affiliate" of any Bain Fund or any Affiliate of any Bain
Fund, and neither any Bain Fund nor any Affiliate of any Bain Fund shall be
deemed an "Affiliate" of any MDLLC Investor.
"Bain Funds" means Bain Capital Fund VI, L.P., BCIP Associates II,
BCIP Associates II-B, BCIP Associates II-C, BCIP Trust Associates II, BCIP Trust
Associates II-B, PEP Investment PTY Ltd. and Randolph Street Partners II and any
of their respective Affiliates (other than Holdings).
"Bain Funds Registrable securities" means (i) all Common Stock
acquired by, or issued or issuable to, any of the Bain Funds on or after the
date hereof and (ii) all equity securities issued or issuable directly or
indirectly with respect to any Common Stock described in clause (i) above by way
of a stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization. As to
any particular Bain Funds Registrable Securities, such securities shall cease to
be Bain Funds Registrable securities when they
<PAGE>
have been distributed to the public pursuant to an offering registered under the
Securities Act or sold to the public in compliance with Rule 144. For purposes
of this Agreement, a Person will be deemed to be a holder of Bain Funds
Registrable Securities whenever such Person has the right to acquire directly or
indirectly such Bain Funds Registrable Securities (upon conversion or exercise
in connection with a transfer of securities or otherwise, but disregarding any
restrictions or limitations upon the exercise of such right), whether or not
such acquisition has actually been effected.
"Class A Common" means the Company's Class A Common Stock, par value
$.01 per share.
"Class B Common" means the Company's Class B Common stock, par value
$.01 per share.
"Class L Common" means the Company's Class L Common Stock, par value
$.01 per share.
"Class M Common" means the Company's Class M Common Stock, par value
$01 per share.
"Common Stock" means, collectively, Class A Common, Class B Common,
Class L Common, Class M Common and any other common stock authorized by the
Company.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the SEC promulgated thereunder.
"Family Group" means, with respect to any Person who is an individual,
(i) such Person's spouse, former spouse and descendants (whether natural or
adopted), parents and their descendants and any spouse of the foregoing persons
(collectively, "relatives") or (ii) the trustee, fiduciary or personal
representative of such Person and any trust solely for the benefit of such
Person and/or such Person's relatives.
"Heilig Registrable Securities" means (i) all Common Stock acquired
by, or issued or issuable to, Heilig or any of its Affiliates on or after the
date hereof and (ii) all equity securities issued or issuable directly or
indirectly with respect to any Common Stock described in clause (i) above by way
of a stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization. As to
any particular Heilig Registrable Securities, such securities shall cease to be
Heilig Registrable Securities when they have been distributed to the public
pursuant to an offering registered under the Securities Act or sold to the
public in compliance with Rule 144. For purposes of this Agreement, a Person
will be deemed to be a holder of Heilig Registrable Securities whenever such
Person has the right to acquire directly or indirectly such Heilig Registrable
Securities (upon conversion or exercise in connection with a transfer of
securities or otherwise, but disregarding any restrictions or limitations upon
the exercise of such right), whether or not such acquisition has actually been
effected.
-2-
<PAGE>
"Holdings Registrable Securities" means (i) all Common Stock
acquired by, or issued or issuable to, Holdings or any of its Affiliates on or
after the date hereof and (ii) all equity securities issued or issuable directly
or indirectly with respect to any Common Stock described in clause (i) above by
way of a stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization;
provided that those securities which are otherwise classified in this Agreement
as Bain Funds Registrable Securities shall not be Holdings Registrable
Securities hereunder. As to any particular Holdings Registrable Securities, such
securities shall cease to be Holdings Registrable Securities when they have been
distributed to the public pursuant to an offering registered under the
Securities Act or sold to the public in compliance with Rule 144. For purposes
of this Agreement, a Person will be deemed to be a holder of Holdings
Registrable Securities whenever such Person has the right to acquire directly or
indirectly such Holdings Registrable Securities (upon conversion or exercise in
connection with a transfer of securities or otherwise, but disregarding any
restrictions or limitations upon the exercise of such right), whether or not
such acquisition has actually been effected. Upon any distribution of Holdings
Registrable Securities to the members of Holdings (whether by liquidation of
Holdings or otherwise), those securities distributed to the Bain Funds shall be
Bain Funds Registrable Securities and those securities distributed to all other
members of Holdings shall remain Holdings Registrable Securities.
"MDLLC Investors" means Mattress Discounters Investors 1, LLC,
Mattress Discounters Investors 2, LLC and Mattress Discounters Investors 3, LLC.
"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, a governmental entity or any
department, agency or political subdivision thereof or any other entity or
organization.
"Registrable Securities" means, collectively, the Bain Funds
Registrable Securities, the Holdings Registrable Securities and the Heilig
Registrable Securities. Solely for purposes of Sections 3(b)(ii) and 3(c)(i) of
this Agreement, "Registrable Securities" shall be deemed to include Registrable
Securities as defined in that certain Common Stock Registration Rights
Agreement, dated as of August 6, 1999 among the Company, Holdings and the
Initial Purchasers (as defined therein).
"Registration Expenses" means all expenses incident to the Company's
performance of or compliance with this Agreement, including without limitation
all registration and filing fees, fees and expenses of compliance with
securities or blue sky laws, printing and distributing expenses, messenger and
delivery expenses, fees and expenses of custodians, internal expenses (including
all salaries and expenses of its officers and employees performing legal or
accounting duties), the expense of any annual audit or quarterly review, the
expense of any liability insurance and the expenses and fees for listing the
securities to be registered on each securities exchange on which similar
securities issued by the Company are then listed or on the NASD automated
quotation system, and fees and disbursements of counsel for the Company and all
independent certified public accountants, underwriters (excluding discounts and
commissions) and other Persons retained by the Company.
-3-
<PAGE>
"Rule 144" means Rule 144 under the Securities Act (or any similar
rule then in force).
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations of the SEC promulgated thereunder.
"Subsidiary" means, with respect to any Person, any corporation,
partnership, limited liability company, association or other business entity of
which (i) if a corporation, a majority of the total voting power of shares of
stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors thereof is at the time owned or controlled, directly
or indirectly, by that Person or one or more of the other Subsidiaries of that
Person or a combination thereof, or (ii) if a partnership, limited liability
company, association or other business entity, a majority of the partnership or
other similar ownership interests thereof is at the time owned or controlled,
directly or indirectly, by that Person or one or more Subsidiaries of that
Person or a combination thereof. For purposes hereof, a Person or Persons shall
be deemed to have a majority ownership interest in a partnership, limited
liability company, association or other business entity if such Person or
Persons shall be allocated a majority of partnership, limited liability company,
association or other business entity gains or losses or shall be or control the
managing director, managing member, manager or a general partner of such
partnership, limited liability company, association or other business entity.
2. Demand Registrations.
(a) Requests for Registration. At any time after the date hereof,
the holder(s) of a majority of the Bain Funds Registrable Securities may request
registration under the Securities Act of all or any portion of their Registrable
Securities on Form S-1 or any similar long-form registration (a "Long-Form
Registration"), or on Form S-2 or S-3 or any similar short-form registration (a
"Short-Form Registration") if such a short form is available. All registrations
requested pursuant to this Section 2(a) are referred to herein as "Demand
Registrations". Each request for a Demand Registration shall specify the
approximate number of Registrable Securities requested to be registered, the
anticipated method or methods of distribution and the anticipated per share
price range for such offering. Within ten days after receipt of any such
request, the Company will give written notice of such requested registration
(which shall specify the intended method of disposition of such Registrable
Securities) to all other holders of Registrable Securities (a "Company Notice")
and the Company will include (subject to the provisions of this Agreement) in
such registration, all Registrable Securities with respect to which the Company
has received written requests for inclusion therein within 20 days after the
delivery of such Company Notice.
(b) Long-Form Registrations. The holders of Bain Funds Registrable
Securities will be entitled to only three Long-Form Registrations. A
registration will not count as one of the permitted Long-Form Registrations
unless and until it has become effective and no Long-Form Registration will
count as a Long-Form Registration unless the applicable Bain Funds and the
holders of Registrable Securities joining therein are able to register and sell
at least 75% of the
-4-
<PAGE>
Registrable Securities requested to be included by them in such registration;
provided that in any event the Company will pay all Registration Expenses in
connection with any registration initiated as a Long-Form Registration whether
or not it has become effective, and whether or not such registration has counted
as one of the permitted Long-Form Registrations.
(c) Short-Form Registrations. The holders of Bain Funds Registrable
Securities will be entitled to unlimited Short-Form Registrations. Demand
Registrations will be Short-Form Registrations whenever the Company is permitted
to use any applicable short form. After the Company has become subject to the
reporting requirements of the Exchange Act, the Company will use its best
efforts to make Short-Form Registrations on Form S-3 available for the sale of
Bain Funds Registrable Securities. The Company will pay all Registration
Expenses in connection with any registration initiated hereunder as a Short-Form
Registration, whether or not such Short-Form Registration has become effective.
(d) Priority on Demand Registrations.
(i) The Company will not include in any Demand Registration
any securities which are not Registrable Securities unless holder(s) of a
majority of the Bain Funds Registrable Securities otherwise consent.
(ii) If a Demand Registration is an underwritten offering and
the managing underwriters advise the Company in writing that in their opinion
the number of Registrable Securities and, if permitted hereunder, other
securities, requested to be included in such offering exceeds the number of
Registrable Securities and other securities, if any, which can be sold in an
orderly manner in such offering within a price range acceptable to holder(s) of
a majority of the Bain Funds Registrable Securities and without adversely
affecting the marketability of the offering, then the Company will include in
such registration (A) first, the number of Registrable Securities requested to
be included in such registration, pro rata from among the holders of such
Registrable Securities according to the number of Registrable Securities
requested by them to be so included, and (B) second, any other securities of the
Company requested to be included in such registration, in such manner as the
Company may determine.
(e) Restrictions on Demand Registrations.
(i) The Company will not be obligated to file any registration
statement with respect to any Long-Form Registration within 180 days after the
effective date of a previous Long-Form Registration or a previous registration
in which the holders of Registrable Securities were given piggyback rights
pursuant to Section 3 and in which there were included not less than 80% of the
number of Registrable Securities requested to be included.
(ii) The Company may postpone for up to 90 days the filing or
the effectiveness of a registration statement for a Demand Registration if the
Company determines that such Demand Registration would reasonably be expected to
have a material adverse effect on any proposal or plan by the Company or any of
its Subsidiaries to engage in any acquisition of assets (other than in the
ordinary course of business) or any merger, consolidation, tender offer,
reorganiza-
-5-
<PAGE>
tion or similar transaction; provided that in such event the holders of Bain
Funds Registrable Securities initially requesting such Demand Registration will
be entitled to withdraw such request and, if such request is withdrawn, such
Demand Registration will not count as one of the permitted Demand Registrations
hereunder and the Company will pay all Registration Expenses in connection with
such requested registration. The Company may delay a Demand Registration under
this clause (ii) only once during any twelve-month period.
(f) Selection of Underwriters. In the case of a Demand Registration
for an underwritten offering, the holders of a majority of the Bain Funds
Registrable Securities to be included in such Demand Registration will have the
right to select the investment banker(s) and manager(s) to administer the
offering (which investment banker(s) and manager(s) will be nationally
recognized) subject to the Company's approval which will not be unreasonably
withheld. In the case of any other registration for an underwritten offering,
the Board of Directors of the Company will have the right to select the
investment banker(s) and manager(s) to administer the offering (which investment
banker(s) and manager(s) will be nationally recognized).
(g) Other Registration Rights. Except as provided in this Agreement,
the Company (i) will not grant to any Persons the right to request the Company
to register any equity or similar securities of the Company, or any securities
convertible or exchangeable into or exercisable for such securities, without the
prior written consent of the holders of a majority of the Bain Funds Registrable
Securities and (ii) will not grant to any Persons any such rights to the extent
such rights conflict with, or are adverse to, the rights of the holders of
Registrable Securities without the consent of holders of at least two-thirds of
the Registrable Securities (other than the Bain Funds Registrable Securities)
and a majority of the holders of the Bain Funds Registrable Securities.
3. Piggyback Registrations.
(a) Right to Piggyback. Whenever the Company proposes to register
any of its Common Stock under the Securities Act for its own account or for the
account of any holder of Common Stock (other than pursuant to a Demand
Registration (in which case the rights of the holders of Registrable Securities
shall be governed by Section 2), and other than pursuant to a registration
statement on Form S-8 or S-4 or any similar or successor form or in connection
with a registration the primary purpose of which is to register debt securities
(i.e., in connection with a so-called "equity kicker")) (a "Piggyback
Registration"), the Company will give prompt written notice to all holders of
Registrable Securities of its intention to effect such a registration. Upon the
written request of any holder of Registrable Securities (which request shall
specify the Registrable Securities intended to be disposed of by such holder and
the intended method of disposition thereof), the Company shall include in such
registration (subject to the provisions of this Agreement) all Registrable
Securities requested to be registered pursuant to this Section 3(a), subject to
Section 3(b) below, with respect to which the Company has received written
requests for inclusion therein within 20 days after the receipt of the Company's
notice.
(b) Priority on Primary Registrations. If a Piggyback Registration
is in part an underwritten primary registration on behalf of the Company and the
managing underwriters advise the Company in writing that in their opinion the
number of securities requested to be included in
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such registration exceeds the number which can be sold in an orderly manner in
such offering within a price range acceptable to the Company and without
adversely affecting the marketability of the offering, then the Company will
include in such registration (i) first, the securities the Company proposes to
sell, (ii) second, the Registrable Securities requested to be included in such
registration, pro rata from among the holders of such Registrable Securities
according to the number of Registrable Securities requested by them to be so
included, and (iii) third, any other securities requested to be included in such
registration, in such manner as the Company may determine.
(c) Priority on Secondary Registrations. If a Piggyback Registration
is an underwritten secondary registration on behalf of holders of the Company's
securities, and the managing underwriters advise the Company in writing that in
their opinion the number of securities requested to be included in such
registration exceeds the number which can be sold in an orderly manner in such
offering within a price range acceptable to the holders initially requesting
such registration and without adversely affecting the marketability of the
offering, then the Company will include in such registration (i) first, the
securities requested to be included therein by the holders requesting such
registration and the Registrable Securities requested to be included in such
registration, pro rata from among such holders and the holders of such
Registrable Securities according to the number of Registrable Securities
requested by them to be so included, and (ii) second, any other securities
requested to be included in such registration, in such manner as the Company may
determine.
(d) Other Registrations. If the Company has previously filed a
registration statement with respect to Registrable Securities pursuant to
Section 2 or pursuant to this Section 3, and if such previous registration has
not been withdrawn or abandoned, then all the parties hereto agree that the
Company shall not be required to effect any other registration of any of its
equity or similar securities or securities convertible or exchangeable into or
exercisable for its equity or similar securities under the Securities Act
(except on Forms S-4 or S-8 or any successor or similar form or in connection
with a Demand Registration), whether on its own behalf or at the request of any
holder or holders of such securities, until a period of at least 180 days has
elapsed from the effective date of such previous registration.
4. Holdback Agreements.
(a) Each holder of Registrable Securities hereby agrees not to
effect any sale or distribution of equity securities of the Company, or any
securities convertible into or exchangeable or exercisable for such securities,
during the seven days prior to and the 180-day period beginning on the effective
date of any underwritten Demand Registration or any underwritten Piggyback
Registration (except as part of such underwritten registration), unless the
underwriters managing such underwritten registration otherwise agree (which
agreement shall be equally applicable to all holders of Registrable Securities).
(b) The Company (i) will not effect any sale or distribution of its
equity securities, or any securities convertible into or exchangeable or
exercisable for such securities, during the seven days prior to and during the
180-day period beginning on the effective date of any underwritten Demand
Registration or any underwritten Piggyback Registration (except as part of such
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underwritten registration or pursuant to registrations on Forms S-4 or S-8 or
any successor or similar form or in connection with a registration the primary
purpose of which is to register debt securities (i.e., in connection with a
so-called "equity kicker")), unless the underwriters managing such underwritten
registration otherwise agree (which agreement shall be equally applicable to all
holders of Registrable Securities), and (ii) will cause each holder of at least
2% (on a fully diluted basis) of Common Stock, or any securities convertible
into or exchangeable or exercisable for Common Stock, purchased from the Company
at any time after the date of this Agreement (other than in a registered public
offering) to agree not to effect any sale or distribution of any such securities
during such period (except as part of such underwritten registration, if
otherwise permitted), unless the underwriters managing such underwritten
registration otherwise agree.
5. Registration Procedures. Whenever the holders of Registrable Securities
have requested that any Registrable Securities be registered pursuant to this
Agreement, the Company will use its best efforts to effect the registration and
the sale of such Registrable Securities in accordance with the intended method
of disposition thereof, and pursuant thereto the Company will as expeditiously
as possible:
(a) prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective (provided that before filing a
registration statement or prospectus or any amendments or supplements thereto,
the Company will furnish to the counsel selected pursuant to Section 6(b) below
copies of all such documents proposed to be filed, which documents will be
subject to the prompt review and reasonable comment of such counsel), and upon
filing such documents, the Company shall promptly notify in writing such counsel
of the receipt by the Company of any written comments by the SEC with respect to
such registration statement or prospectus or any amendment or supplement thereto
or any written request by the SEC for the amending or supplementing thereof or
for additional information with respect thereto;
(b) prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection therewith as
may be necessary to keep such registration statement effective for a period of
not less than 180 days and comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such registration
statement during such period in accordance with the intended methods of
disposition by the sellers thereof set forth in such registration statement and
cause the prospectus to be supplemented by any required prospectus supplement,
and as so supplemented to be filed pursuant to Rule 424 under the Securities
Act;
(c) furnish to each seller of Registrable Securities such number of
copies of such registration statement, each amendment and supplement thereto,
the prospectus included in such registration statement (including each
preliminary prospectus) and such other documents as such seller may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such seller;
(d) use its best efforts to register or qualify such Registrable
Securities under such other securities or blue sky laws of such jurisdictions as
any seller reasonably requests and do any
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and all other acts and things which may be reasonably necessary or advisable to
enable such seller to consummate the disposition in such jurisdictions of the
Registrable Securities owned by such seller (provided that the Company will not
be required to (i) qualify generally to do business in any jurisdiction where it
would not otherwise be required to qualify but for this subsection, (ii) subject
itself to taxation in any such jurisdiction or (iii) consent to general service
of process (i.e., service of process which is not limited solely to securities
law violations) in any such jurisdiction);
(e) notify each seller of such Registrable Securities, at any time
when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement contains an untrue statement
of a material fact or omits any fact necessary to make the statements therein
not misleading in light of the circumstances under which they were made, and, at
the request of any such seller, the Company will, as soon as reasonably
practicable, file and furnish to all sellers a supplement or amendment to such
prospectus so that, as thereafter delivered to the purchasers of such
Registrable Securities, such prospectus will not contain an untrue statement of
a material fact or omit to state any fact necessary to make the statements
therein not misleading in light of the circumstances under which they were made;
(f) cause all such Registrable Securities to be listed on each
securities exchange on which similar securities issued by the Company are then
listed and, if not so listed, to be listed on the Nasdaq National Market System
("Nasdaq Market") and, if listed on the Nasdaq Market, use its best efforts to
secure designation of all such Registrable Securities covered by such
registration statement as a Nasdaq "National Market System security" within the
meaning of Rule 11Aa2-1 under the Exchange Act or, failing that, to secure
Nasdaq Market authorization for such Registrable Securities and, without
limiting the generality of the foregoing, to arrange for at least two market
makers to register as such with respect to such Registrable Securities with the
National Association of Securities Dealers;
(g) provide a transfer agent and registrar for all such Registrable
Securities not later than the effective date of such registration statement;
(h) enter into such customary agreements (including underwriting
agreements in customary form) and take all such other actions as the holders of
a majority of the Registrable Securities being sold or the underwriters, if any,
reasonably request in order to expedite or facilitate the disposition of such
Registrable Securities (including, without limitation, effecting a split or a
combination of stock or units);
(i) make available for inspection by any seller of Registrable
Securities, any underwriter participating in any disposition pursuant to such
registration statement and any attorney, accountant or other agent retained by
any such seller or underwriter, all financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company's
officers, directors, employees and independent accountants to supply all
information and participate in due diligence sessions reasonably requested by
any such seller, underwriter, attorney, accountant or agent in connection with
such registration statement;
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(j) otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC, and make available to its security holders, as
soon as reasonably practicable, an earnings statement covering the period of at
least twelve months beginning with the first day of the Company's first full
calendar quarter after the effective date of the registration statement, which
earnings statement shall satisfy the provisions of Section 11(a) of the
Securities Act and Rule 158 promulgated thereunder;
(k) in the event of the issuance of any stop order suspending the
effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the qualification of
any common stock included in such registration statement for sale in any
jurisdiction, the Company will use its best efforts promptly to obtain the
withdrawal of such order;
(l) use its best efforts to cause such Registrable Securities
covered by such registration statement to be registered with or approved by such
other governmental agencies or authorities as may be necessary to enable the
sellers thereof to consummate the disposition of such Registrable Securities,
and cooperate and assist with any filings to be made with the NASD;
(m) obtain one or more "cold comfort" letters, dated the effective
date of such registration statement (and, if such registration includes an
underwritten public offering, dated the date of the closing under the
underwriting agreement), signed by the Company's independent public accountants
in customary form and covering such matters of the type customarily covered by
"cold comfort" letters as the holders of a majority of the Registrable
Securities being sold reasonably request;
(n) provide a legal opinion of the Company's outside counsel, dated
the effective date of such registration statement (and, if such registration
includes an underwritten public offering, dated the date of the closing under
the underwriting agreement), with respect to the registration statement, each
amendment and supplement thereto, the prospectus included therein (including the
preliminary prospectus) and such other documents relating thereto in customary
form and covering such matters of the type customarily covered by legal opinions
of such nature; and
(o) use its best efforts to cause its officers to support the
marketing of the Registrable Securities being sold (including, without
limitation, their participation in "road shows" as may be reasonably requested
by the underwriters administering the offering and sale of such Registrable
Securities) to the extent reasonably possible taking into account such officers'
responsibilities to manage the Company's business.
If any such registration or comparable statement refers to any holder by name or
otherwise as the holder of any securities of the Company and if in such holder's
sole and exclusive judgment, such holder is or might be deemed to be an
underwriter or a controlling person of the Company, such holder shall have the
right to require (i) the insertion therein of language, in form and substance
satisfactory to such holder and presented to the Company in writing, to the
effect that the holding by such holder of such securities is not to be construed
as a recommendation by such holder of the investment quality of the Company's
securities covered thereby and that such holding does not imply
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<PAGE>
that such holder will assist in meeting any future financial requirements of the
Company, or (ii) in the event that such reference to such holder by name or
otherwise is not required by the Securities Act or any similar Federal statute
then in force, the deletion of the reference to such holder; provided, that with
respect to this clause (ii) such holder shall furnish to the Company an opinion
of counsel to such effect, which opinion and counsel shall be reasonably
satisfactory to the Company.
6. Registration Expenses.
(a) All expenses incident to the Company's performance of or
compliance with this Agreement, including without limitation all Registration
Expenses, will be borne by the Company.
(b) In connection with each Demand Registration and each Piggyback
Registration, the Company will pay for the reasonable fees and disbursements of
one counsel chosen by the holders of a majority of the Registrable Securities
initially requesting such registration (which counsel shall be retained to
represent all such holders).
7. Indemnification.
(a) By the Company. The Company agrees to, and will cause each of
its Subsidiaries to agree to, indemnify, to the fullest extent permitted by law,
each holder of Registrable Securities, its officers, directors, members,
trustees, employees, agents, stockholders and general and limited partners and
each Person who controls such holder (within the meaning of the Securities Act
and Exchange Act) against any and all losses, claims, damages, liabilities and
expenses (or actions or proceedings, whether commenced or threatened, in respect
thereof), joint or several, arising out of or based upon any untrue or alleged
untrue statement of material fact contained in any registration statement,
reports required and other documents filed under the Exchange Act, prospectus or
preliminary prospectus or any amendment thereof or supplement thereto, together
with any documents incorporated therein by reference, or any omission or alleged
omission of a material fact required to be stated therein or necessary to make
the statements therein not misleading, or any violation or alleged violation by
the Company or any of its Subsidiaries of any federal, state, foreign or common
law rule or regulation and relating to action or inaction in connection with any
such registration, disclosure document or other document and shall reimburse
such holder, officer, director, member, trustee, employee, agent, stockholder,
partner or controlling Person for any legal or other expenses, including any
amounts paid in any settlement effected with the consent of the Company, which
consent will not be unreasonably withheld or delayed, incurred by such holder,
officer, director, member, trustee, employee, agent, stockholder, partner or
controlling Person in connection with the investigation or defense of such loss,
claim, damage, liability or expense (or actions or proceedings, whether
commenced or threatened, in respect thereof), except insofar as the same are
caused by or contained in any information furnished in writing to the Company by
such holder expressly for use therein. In connection with an underwritten
offering, the Company will indemnify such underwriters, their officers and
directors and each Person who controls such underwriters (within the meaning of
the Securities Act) to the same extent as provided above with respect to the
indemnification of the holders of Registrable Securities.
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<PAGE>
(b) By the Holders. In connection with any registration statement in
which a holder of Registrable Securities is participating, each such holder will
furnish to the Company in writing such information and affidavits about such
holder as the Company reasonably requests for use in connection with any such
registration statement or prospectus and, to the extent permitted by law, will
indemnify the Company, its directors and officers and each Person who controls
the Company (within the meaning of the Securities Act) and the other holders of
Registrable Securities against any losses, claims, damages, liabilities and
expenses resulting from any untrue or alleged untrue statement of material fact
contained in the registration statement, prospectus or preliminary prospectus or
any amendment thereof or supplement thereto or any omission or alleged omission
of a material fact required to be stated therein or necessary to make the
statements therein not misleading, but only to the extent that such untrue
statement or omission is contained in any information or affidavit so furnished
in writing by such holder; provided, that the obligation to indemnify will be
individual, not joint and several, for each holder and will be limited to the
net amount of proceeds received by such holder from the sale of Registrable
Securities pursuant to such registration statement.
(c) Claim Procedures. Any Person entitled to indemnification
hereunder will (i) give prompt written notice to the indemnifying party of any
claim with respect to which it seeks indemnification (provided that the failure
to give prompt notice will not impair any Person's right to indemnification
hereunder to the extent such failure has not prejudiced the indemnifying party)
and (ii) unless in such indemnified party's reasonable judgment a conflict of
interest between such indemnified and indemnifying parties may exist with
respect to such claim, permit the indemnifying party to assume the defense
thereof, jointly with any other indemnifying party similarly notified to the
extent it may wish, with counsel reasonably satisfactory to the indemnified
party. If such defense is assumed, the indemnifying party will not be subject to
any liability for any settlement made by the indemnified party without its
consent (but such consent will not be unreasonably withheld or delayed) and the
indemnifying party shall not, without the consent of the indemnified party,
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof, a release from all liability in
respect of such claim or litigation provided by the claimant or plaintiff to
such indemnified party. An indemnifying party who is not entitled to, or elects
not to, assume the defense of a claim will not be obligated to pay (i) the fees
and expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable judgment
of any indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
claim or (ii) any settlement made by any indemnified party without such
indemnifying party's consent (but such consent will not be unreasonably
withheld).
(d) Survival; Contribution. The indemnification provided for under
this Agreement will remain in full force and effect regardless of any
investigation made by or on behalf of the indemnified party or any officer,
director, agent or employee and each other Person who participates as an
underwriter in the offering or sale of such securities and each other Person, if
any, who controls such indemnified party (within the meaning of the Securities
Act), and will survive the transfer of securities. The Company also agrees to
make such provisions, as are reasonably requested by any indemnified party, for
contribution to such party in the event the Company's indemnification is
unavailable for any reason.
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<PAGE>
8. Participation in Underwritten Registrations. No Person may participate
in any registration hereunder which is underwritten unless such Person (a)
agrees to sell such Person's securities on the basis provided in any
underwriting arrangements (with terms customary in underwriting agreements for
secondary distributions) approved by the Person or Persons entitled hereunder to
approve such arrangements (including, without limitation, pursuant to the terms
of any over-allotment or "green shoe" option requested by the managing
underwriter(s), provided that no holder of Registrable Securities will be
required to sell more than the number of Registrable Securities that such holder
has requested the Company to include in any registration) and (b) completes and
executes all customary questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents required under the terms of such
underwriting arrangements; provided, that no holder of Registrable Securities
included in any underwritten registration shall be required to make any
representations or warranties to the Company or the underwriters (other than
representations and warranties regarding such holder and such holder's intended
method of distribution) or to undertake any indemnification or contribution
obligations to the Company or the underwriters with respect thereto, except as
otherwise provided in Section 7.
9. Rule 144 Reporting. With a view to making available to the holders of
Registrable Securities the benefits of certain rules and regulations of the SEC
which may permit the sale of the Registrable Securities to the public without
registration, the Company agrees at its expense to use its best efforts to:
(a) make and keep current public information available, within the
meaning of Rule 144 or any similar or analogous rule promulgated under the
Securities Act, at all times after it has become subject to the reporting
requirements of the Exchange Act;
(b) file with the SEC, in a timely manner, all reports and other
documents required of the Company under the Securities Act and Exchange Act
(after it has become subject to such reporting requirements); and
(c) so long as any Person owns any Registrable Securities, furnish
to such Person forthwith upon request, a written statement by the Company as to
its compliance with the reporting requirements of said Rule 144 (at any time
commencing 90 days after the effective date of the first registration filed by
the Company for an offering of its securities to the general public), the
Securities Act and the Exchange Act (at any time after it has become subject to
such reporting requirements); a copy of the most recent annual or quarterly
report of the Company; and such other reports and documents as such Person may
reasonably request in availing itself of any rule or regulation of the SEC
allowing it to sell any such securities without registration.
10. Notices. All notices, demands or other communications to be given or
delivered under or by reason of the provisions of this Agreement will be in
writing and will be deemed to have been given when delivered if delivered
personally, sent via a nationally recognized overnight courier, or sent via
facsimile to the recipient, or if sent by certified or registered mail, return
receipt requested, will be deemed to have been given two business days
thereafter. Such notices, demands and other communications will be sent to the
address indicated below:
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To the Company:
Mattress Discounters Holding Corporation
c/o Bain Capital, Inc.
Two Copley Place
Boston, MA 02116
Attention: Michael Krupka
Telecopy No.: (617) 572-3274
With a copy, which shall not constitute notice, to:
Kirkland & Ellis
Citicorp Center
153 East 53rd Street
New York, New York 10022
Attention: Lance C. Balk, Esq.
Telecopy No.: (212) 446-4900
To any Bain Fund:
Bain Capital, Inc.
Two Copley Place
Boston, MA 02116
Attention: Michael Krupka
Telecopy No.: (617) 572-3274
With a copy, which shall not constitute notice, to:
Kirkland & Ellis
Citicorp Center
153 East 53rd Street
New York, New York 10022
Attention: Lance C. Balk, Esq.
Telecopy No.: (212) 446-4900
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To Heilig:
Heilig-Meyers Company
12560 West Creek Parkway
Richmond, Virginia 23238
Attention: William C. DeRusha
Telecopy No.: (804) 784-7901
With a copy, which shall not constitute notice, to:
McGuire, Woods, Battle & Boothe LLP
One James Center
Richmond, Virginia 23219
Attention: Robert L. Burrus, Jr.
Telecopy No.: 804-698-2152
To Holdings:
Mattress Discounters Holding L.L.C.
c/o Bain Capital, Inc.
Two Copley Place
Boston, MA 02116
Attention: Michael Krupka
Telecopy No.: (617) 572-3274
With a copy, which shall not constitute notice, to:
Kirkland & Ellis
Citicorp Center
153 East 53rd Street
New York, New York 10022
Attention: Lance C. Balk, Esq.
Telecopy No.: (212) 446-4900
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party.
11. Miscellaneous.
(a) No Inconsistent Agreements. The Company will not enter into any
agreement which is inconsistent with or violates the rights granted to the
holders of Registrable Securities in this Agreement.
(b) Remedies. Any Person having rights under any provision of this
Agreement will be entitled to enforce such rights specifically to recover
damages caused by reason of any breach
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of any provision of this Agreement and to exercise all other rights granted by
law. The parties hereto agree and acknowledge that money damages may not be an
adequate remedy for any breach of the provisions of this Agreement and that any
party may in its sole discretion apply to any court of law or equity of
competent jurisdiction (without posting any bond or other security) for specific
performance and for other injunctive relief in order to enforce or prevent
violation of the provisions of this Agreement.
(c) Amendments and Waivers. The provisions of this Agreement may be
amended or waived only upon the prior written consent of the Company and holders
of at least 75% of the Registrable Securities; provided, that no amendment shall
be effective without the consent of a holder of Registrable Securities to the
extent that such amendment would adversely affect the rights or obligations of
such holder of Registrable Securities hereunder in any material respect, and any
amendment to which such written consent is obtained will be binding upon the
Company and all holders of Registrable Securities. For avoidance of doubt, an
amendment to add another party to this Agreement is not an action which, in and
of itself, affects any holder of Registrable Securities materially adversely.
The failure of any party to enforce any of the provisions of this Agreement
shall in no way be construed as a waiver of such provisions and shall not affect
the right of such party thereafter to enforce each and every provision of this
Agreement in accordance with its terms.
(d) Successors and Assigns. All covenants and agreements in this
Agreement by or on behalf of any of the parties hereto will bind and inure to
the benefit of the respective successors and assigns of the parties hereto
whether so expressed or not. In addition, whether or not any express assignment
has been made, the provisions of this Agreement which are for the benefit of
purchasers or holders of Registrable Securities are also for the benefit of, and
enforceable by, any subsequent holder of Registrable Securities.
(e) Severability. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
(f) Counterparts. This Agreement may be executed simultaneously in
two or more counterparts, any one of which need not contain the signatures of
more than one party, but all such counterparts taken together will constitute
one and the same Agreement.
(g) Descriptive Headings. The descriptive headings of this Agreement
are inserted for convenience only and do not constitute a part of this
Agreement.
(h) Governing Law. This Agreement shall be governed by and construed
in accordance with the domestic laws of the State of New York, without giving
effect to any choice
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of law or conflict of law provision or rule (whether of the State of New York or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of New York.
(i) Third Party Beneficiaries. Each of the parties hereto
acknowledges and agrees that, even though the Bain Funds are not a party hereto,
the Bain Funds shall have the rights granted to them as intended hereby and for
the purposes of exercising such rights shall be a third party beneficiary hereof
and entitled to enforce such rights whether or not the Bain Funds or the Bain
Funds' transferor is then a party to this Agreement. Each of the parties hereto
further acknowledges and agrees that any Person who is a holder of Registrable
Securities as defined herein and who is not a party hereto shall have the rights
granted to holders of Registrable Securities as intended hereby and for the
purposes of exercising such rights shall be a third party beneficiary hereof and
entitled to enforce such rights whether or not such Person or such Persons'
transferor is then a party to this Agreement.
* * * * *
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IN WITNESS WHEREOF, the parties hereto have executed this
Registration Rights Agreement as of the date first above written.
MATTRESS DISCOUNTERS HOLDING
CORPORATION
/s/ Michael Krupka
By:_____________________________________
Name: Michael Krupka
Title: President
MATTRESS DISCOUNTERS HOLDING L.L.C.
By: Bain Capital Fund VI, L.P.
Its: Member
By: Bain Capital Partners VI, L.P.
Its: General Partner
By: Bain Capital Investors, Inc.
Its: General Partner
/s/ Michael Krupka
By:_____________________________________
Name: Michael Krupka
Title: Managing Director
HEILIG-MEYERS COMPANY
/s/ R. B. Goodman
By:_____________________________________
Name: Roy B. Goodman
Title: Executive Vice President and
Chief Financial Officer
<PAGE>
EXHIBIT 10.2
- --------------------------------------------------------------------------------
COMMON STOCK REGISTRATION RIGHTS AGREEMENT
Dated as of August 6, 1999
among
MATTRESS DISCOUNTERS HOLDING CORPORATION,
MATTRESS DISCOUNTERS HOLDING L.L.C.
AND
CHASE SECURITIES INC.,
CIBC WORLD MARKETS CORP. AND
BANCBOSTON ROBERTSON STEPHENS INC.,
as Initial Purchasers
- --------------------------------------------------------------------------------
<PAGE>
THIS COMMON STOCK REGISTRATION RIGHTS AGREEMENT (the "Agreement") is
---------
made and entered into as of August 6, 1999, among Mattress Discounters Holding
Corporation, a Virginia corporation ("Holdings"), Mattress Discounters Holding
--------
L.L.C. (the "Investor"), and Chase Securities Inc. ("CSI"), CIBC World Markets
-------- ---
Corp., and BancBoston Robertson Stephens Inc. (together with CSI, the "Initial
-------
Purchasers").
- ----------
This Agreement is made pursuant to the Purchase Agreement, dated as of
August 3, 1999, among Holdings, the guarantors party thereto and the Initial
Purchasers (the "Purchase Agreement"), relating to the sale by Holdings to the
------------------
Initial Purchasers of an aggregate of 140,000 Units, each Unit consisting of
$1,000 principal amount 12 5/8% Senior Notes due 2007 of Mattress Discounters
Corporation (the "Notes") and 1 Warrant (collectively, "Warrants") to purchase
----- --------
initially 4.850 shares of Class A Common Stock of Holdings and 0.539 shares of
Class L Common Stock of Holdings. In order to induce the Initial Purchasers to
enter into the Purchase Agreement, Holdings has agreed to provide to the Holders
(as defined herein) the registration rights for the Registrable Securities (as
defined herein) set forth in this Agreement and the Investor has agreed to
provide the Holders, among other things, the tag-along rights for the Warrants
and the Registrable Securities set forth herein. The execution of this
Agreement is a condition to the obligations of the Initial Purchasers to
purchase the Units under the Purchase Agreement.
In consideration of the foregoing, the parties hereto agree as
follows:
1. Definitions.
-----------
As used in this Agreement, the following capitalized defined terms
shall have the following meanings:
"Advice" shall have the meaning ascribed to that term in the last
------
paragraph of Section 4.
"Affiliate" of any specified Person shall mean any other Person which,
---------
directly or indirectly, controls, is controlled by, or is under direct or
indirect common control with, such specified Person. For the purposes of this
definition, "control," when used with respect to any Person, means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise,
and the terms "affiliated," "controlling" and "controlled" have meanings
correlative to the foregoing.
"Agreement" shall have the meaning ascribed to that term in the
---------
preamble hereto.
"Business Day" shall mean a day that is not a Legal Holiday.
------------
"Capital Stock" shall mean, with respect to any Person, any and all
-------------
shares, interests, participations, rights in or other equivalents (however
designated and whether voting and/or non-voting) of capital stock, partnership
interests or any other participation, right or other interest
<PAGE>
-2-
in the nature of an equity interest in such Person or any option, warrant or
other security convertible into or exercisable or exchangeable for any of the
foregoing.
"Class A Common Stock" shall mean the Class A Common Stock of
--------------------
Holdings, par value $.01 per share.
"Class L Common Stock" shall mean the Class L Common Stock of
--------------------
Holdings, par value $.01 per share.
"Common Stock" shall mean, together, the Class A Common Stock and the
------------
Class L Common Stock of Holdings and any options, warrants or security
convertible into or exercisable or exchangeable for such common stock.
"CSI" shall have the meaning ascribed to that term in the preamble
---
hereto.
"Effectiveness Period" shall mean the shorter of (a) 180 days or (b)
--------------------
such period of time as all of the Subject Equity included in such Registration
Statement shall have been sold thereunder.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended from time to time.
"Fair Market Value" shall mean the value of any securities as
-----------------
determined (without any discount for lack of liquidity, the amount of such
securities proposed to be sold or the fact that such securities held by any
Holder of such security may represent a minority interest in a private company)
by a nationally or regionally recognized investment banking firm selected by
Holdings for the determination of such value.
"Holder" shall mean the Initial Purchasers, for so long as each
------
Initial Purchaser owns any Warrants or Registrable Securities, and each of their
successors, assigns and direct and indirect transferees who become registered
owners of Warrants or Registrable Securities.
"Holdings" shall have the meaning ascribed to that term in the
--------
preamble hereto and shall also include Holdings' successors.
"Initial Public Equity Offering" shall mean a primary public offering
------------------------------
(whether or not underwritten, but excluding any offering pursuant to Form S-8
under the Securities Act or any other publicly registered offering pursuant to
the Securities Act pertaining to an issuance of shares of Common Stock or
securities exercisable therefor under any benefit plan, employee compensation
plan, or employee or director stock purchase plan) of Common Stock of Holdings
pursuant to an effective registration statement under the Securities Act in
which Holdings receives aggregate gross proceeds of at least $30 million.
"Initial Purchasers" shall have the meaning ascribed to that term in
------------------
the preamble hereto.
<PAGE>
-3-
"Legal Holiday" shall mean a Saturday, a Sunday or a day on which
-------------
banking institutions in New York, New York are required by law, regulation or
executive order to remain closed.
"Notes" shall have the meaning ascribed to that term in the preamble
-----
hereto.
"Participating Holder" shall have the meaning ascribed to that term in
--------------------
Section 3.2(a).
"Person" shall mean an individual, partnership, corporation, trust or
------
unincorporated organization, or a government or agency or political subdivision
thereof.
"Piggy-Back Registration" shall have the meaning ascribed to that term
-----------------------
in Section 2.1.
"Proposed Purchaser" shall have the meaning ascribed to that term in
------------------
Section 3.2(a).
"Prospectus" shall mean the prospectus included in any Registration
----------
Statement (including, without limitation, a prospectus that discloses
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated pursuant to the
Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities covered by such Registration Statement, and all other amendments and
supplements to any such prospectus, including post-effective amendments, and all
material incorporated by reference or deemed to be incorporated by reference, if
any, in such prospectus.
"Purchase Agreement" shall have the meaning ascribed to that term in
------------------
the preamble hereto.
"Registrable Securities" shall mean any of (i) the Common Stock issued
----------------------
and issuable upon exercise of the Warrants and (ii) any other securities issued
or issuable with respect to the Warrants or Warrant Shares by way of stock
dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization or otherwise.
As to any particular Registrable Securities, such securities shall cease to be
Registrable Securities when (a) a registration statement with respect to the
offering of such securities by the holder thereof shall have been declared
effective under the Securities Act and such securities shall have been disposed
of by such holder pursuant to such registration statement, (b) such securities
have been sold to the public pursuant to, or are eligible for sale to the public
without volume or manner of sale restrictions under, Rule 144(k) (or any similar
provision then in force, but not Rule 144A) promulgated under the Securities
Act, (c) such securities shall have been otherwise transferred and new
certificates for such securities not bearing a legend restricting further
transfer shall have been delivered by Holdings or its transfer agent and
subsequent disposition of
<PAGE>
-4-
such securities shall not require registration or qualification under the
Securities Act or any similar state law then in force or (d) such securities
shall have ceased to be outstanding.
"Registration Expenses" shall mean all expenses incident to Holdings'
---------------------
performance of or compliance with this Agreement, including, without limitation,
all SEC and stock exchange or National Association of Securities Dealers, Inc.
registration and filing fees and expenses, fees and expenses of compliance with
securities or blue sky laws (including, without limitation, reasonable fees and
disbursements of counsel in connection with blue sky qualifications of the
Registrable Securities), rating agency fees, printing expenses, messenger,
telephone and delivery expenses, fees and disbursements of counsel for Holdings
and all independent certified public accountants and any fees and disbursements
of underwriters customarily paid by issuers or sellers of securities (but not
including any underwriting discounts or commissions, fees of counsel to the
Holders or transfer taxes, if any, attributable to the sale of Subject Equity by
Holders of such Subject Equity).
"Registration Statement" shall mean any registration statement of
----------------------
Holdings which covers any of the Subject Equity pursuant to the provisions of
this Agreement and all amendments and supplements to any such Registration
Statement, including post-effective amendments, in each case including the
Prospectus contained therein, all exhibits thereto and all material incorporated
by reference therein.
"Requisite Shares" shall mean a number of Warrants, Warrant Shares and
----------------
Registrable Securities equivalent to a majority of the Warrant Shares subject to
the originally issued Warrants.
"Rule 144" shall mean Rule 144 under the Securities Act, as such Rule
--------
may be amended from time to time, or any similar rule (other than Rule 144A) or
regulation hereafter adopted by the SEC providing for offers and sales of
securities made in compliance therewith resulting in offers and sales by
subsequent holders that are not affiliates of an issuer of such securities being
free of the registration and prospectus delivery requirements of the Securities
Act.
"Rule 144A" shall mean Rule 144A under the Securities Act, as such
---------
Rule may be amended from time to time.
"SEC" shall mean the Securities and Exchange Commission.
---
"Securities Act" shall mean the Securities Act of 1933, as amended
--------------
from time to time.
"Stockholder" shall mean, collectively, each Holder, the Investor and
-----------
the Affiliates of the Investor owning Common Stock or other securities
convertible or exercisable or exchangeable into Common Stock.
<PAGE>
-5-
"Stockholders Agreement" shall mean that certain stockholders
----------------------
agreement dated August 6, 1999 by and among Holdings and certain of its
Stockholders.
"Subject Equity" shall mean the Warrants, Warrant Shares and
--------------
Registrable Securities.
"Tag-Along Notice" shall have the meaning ascribed to that term in
----------------
Section 3.2(a).
"Tag-Along Right" shall have the meaning ascribed to that term in
---------------
Section 3.2(a).
"Transfer" shall have the meaning ascribed to that the term in Section
--------
3.2(a).
"Transfer Notice" shall have the meaning ascribed to that term in
---------------
Section 3.2(a).
"Triggering Event" shall mean the date of the consummation of a bona
----------------
fide underwritten public offering of Common Stock as a result of which at least
20% of the outstanding shares of Common Stock are listed on a United States
national securities exchange or the Nasdaq National Market.
"Warrants" shall have the meaning ascribed to that term in the
--------
preamble hereto.
"Warrant Shares" shall mean the shares of Common Stock issued and
--------------
issuable upon exercise of the Warrants and any other securities issued or
issuable with respect to the Warrants by way of stock dividend, stock split or
in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization or otherwise.
"Withdrawal Election" shall have the meaning ascribed to that term in
-------------------
Section 2.2(c).
2. Registration Rights.
-------------------
2.1. Piggy-Back Registration. If at any time Holdings proposes to
-----------------------
file a Registration Statement under the Securities Act with respect to an
offering by Holdings for its own account or for the account of any of its
respective securityholders covering the sale of Common Stock (other than (a) a
registration statement on Form S-4 or S-8 or any similar or successor form or in
connection with a registration the primary purpose of which is to register debt
securities (i.e., in connection with a so-called "equity kicker"), or (b) a
---
registration statement filed in connection with an offer of securities solely to
Holdings' existing securityholders) for sale on the same terms and conditions as
the securities of Holdings or any other selling securityholder included therein,
then Holdings shall give written notice of such proposed filing to the Holders
of Registrable Securities as soon as practicable (but in no event less than 10
Business Days before the anticipated filing date), and such notice shall offer
such Holders the opportunity to register such number of Registrable Securities
as each such Holder may request (which request shall specify the Registrable
Securities intended to be disposed of by such Holder and the intended
<PAGE>
-6-
method of distribution thereof) (a "Piggy-Back Registration"). Holdings shall
-----------------------
use its commercially reasonable efforts to cause the managing underwriter or
underwriters of such proposed underwritten offering to permit the Registrable
Securities requested to be included in a Piggy-Back Registration to be included
on the same terms and conditions as any similar securities of Holdings or any
other securityholder included therein and to permit the sale or other
disposition of such Registrable Securities in accordance with the intended
method of distribution thereof. Any Holder shall have the right to withdraw its
request for inclusion of its Registrable Securities in any Registration
Statement pursuant to this Section 2.2 by giving written notice to Holdings of
its request to withdraw. Holdings may withdraw a Piggy-Back Registration at any
time prior to the time it becomes effective; provided that Holdings shall give
--------
prompt notice thereof to participating Holders. Holdings will pay all
Registration Expenses in connection with each registration of Registrable
Securities requested pursuant to this Section 2.1, and each Holder shall pay all
underwriting discounts and commissions and transfer taxes, if any, relating to
the sale or disposition of such Holder's Registrable Securities pursuant to a
registration statement effected pursuant to this Section 2.1.
No failure to effect a registration under this Section 2.1 and to
complete the sale of Registrable Securities in connection therewith shall
relieve Holdings of any other obligation under this Agreement.
2.2. Reduction of Piggy-Back Registration. (a) If the lead managing
------------------------------------
underwriter of any underwritten offering described in Section 2.1 has informed,
in writing, the Holders of the Registrable Securities requesting inclusion in
such offering that it is its view that the total number of securities which
Holdings, the Holders and any other Persons desiring to participate in such
registration intend to include in such offering exceeds the number which can be
sold in an orderly manner within a price range acceptable to Holdings and
without adversely affecting the marketability of the offering, then the
Securities Holdings proposes to sell shall first be included in such offering,
and then the number of Registrable Securities to be offered for the account of
such Holders and the number of such securities to be offered for the account of
all such other Persons (other than Holdings) participating in such registration
shall be reduced or limited pro rata in proportion to the respective number of
--- ----
securities requested to be registered to the extent necessary to reduce the
total number of securities requested to be included in such offering to the
number of securities, if any, recommended by such lead managing underwriter.
(b) If the lead managing underwriter of any underwritten offering
described in Section 2.1 notifies the Holders requesting inclusion of
Registrable Securities in such offering, that the kind of securities that such
Holders, Holdings and any other Persons desiring to participate in such
registration intend to include in such offering is such as to materially and
adversely affect the success of such offering, (x) the Registrable Securities to
be included in such offering shall be reduced as described in clause (a) above
or (y) if a reduction in the Registrable Securities pursuant to clause (a) above
would, in the judgment of the lead managing underwriter, be insufficient to
substantially eliminate the adverse effect that inclusion of the Registrable
Securities
<PAGE>
-7-
requested to be included would have on such offering, such Registrable
Securities will be excluded from such offering.
(c) If, as a result of the proration provisions of this Section 2.2,
any Holder shall not be entitled to include all Registrable Securities in a
Piggy-Back Registration that such Holder has requested to be included, such
Holder may elect to withdraw his request to include Registrable Securities in
such registration (a "Withdrawal Election"); provided that a Withdrawal Election
------------------- --------
shall be irrevocable and, after making a Withdrawal Election, a Holder shall no
longer have any right to include Registrable Securities in the registration as
to which such Withdrawal Election was made.
3. Transfers.
---------
3.1. Generally. All Subject Equity at any time and from time to time
---------
outstanding shall be held subject to the conditions and restrictions set forth
in this Section 3. All shares of Capital Stock now or hereafter held by the
Investor shall be held subject to the conditions and restrictions set forth in
this Section 3. Each Holder of Subject Equity and the Investor by executing this
Agreement or by accepting a certificate representing Capital Stock or other
indicia of ownership therefor from Holdings agree with Holdings and with each
other Stockholder to such conditions and restrictions.
3.2. Tag-Along Rights. (a) Prior to a Triggering Event, each of the
----------------
Holders of Subject Equity shall have the right (the "Tag-Along Right") to
---------------
require the Proposed Purchaser to purchase from each of them all (subject to (c)
below) Subject Equity owned by such Holder in the event of any proposed direct
or indirect sale or other disposition (collectively, a "Transfer") of
--------
Stockholder Shares (as defined in the Stockholders Agreement) (whether now or
hereafter issued) to any Person or Persons (such other Person or Persons being
hereinafter referred to as the "Proposed Purchaser") by the Investor or any of
------------------
its Affiliates in any transaction or series of related transactions of Holdings'
Common Stock representing 25% or more of the aggregate number of shares of
common stock of Holdings owned by the Investor on the date hereof (other than
sales in a bona fide public offering pursuant to an effective registration
statement under the Securities Act, sales to the public pursuant to the
provisions of Rule 144 (or any similar rule or rules then in effect) under the
Securities Act, transfers to Holdings or one or more of its stockholders
pursuant to the right of first refusal contained in Section 4(c) of the
Stockholders Agreement and transfers to Affiliates and certain other transfers
permitted by Section 4(d) of the Stockholders Agreement). Any Investor
proposing a transfer which triggers the rights under this Section 3.2(a) shall
notify, or cause to be notified, each Holder of Subject Equity in writing (a
"Transfer Notice") of each such proposed Transfer at least 10 Business Days
---------------
prior to the date thereof. Such notice shall set forth: (a) the name of the
Proposed Purchaser and the number of shares of Common Stock and other
securities, if any, proposed to be transferred, (b) the proposed amount of
consideration and terms and conditions of payment offered by such Proposed
Purchaser (if the proposed consideration is not cash, the Transfer Notice shall
describe the terms of the proposed consideration) and (c) that either the
Proposed Purchaser has been informed of the "Tag-Along Right" and has agreed to
purchase Subject Equity in accordance with the terms hereof or that the
<PAGE>
-8-
Investor or any of its Affiliates will make such purchase. The Tag-Along Right
may be exercised by any Holder of Subject Equity by delivery of a written notice
to the Investor who delivered the Transfer Notice ("Tag-Along Notice"), within 5
----------------
Business Days of receipt of the Transfer Notice, indicating its election to
exercise the Tag-Along Right (the "Participating Holders"). The Tag-Along
---------------------
Notice shall state the amounts of Subject Equity that such Holder proposes to
include in such Transfer to the Proposed Purchaser. Failure by any Holder to
provide a Tag-Along Notice within the 5 Business Day notice period shall be
deemed to constitute an election by such Holder not to exercise its Tag-Along
Right. The closing with respect to any sale to a Proposed Purchaser pursuant to
this Section shall be held at the time and place specified in the Transfer
Notice. Consummation of the sale of Common Stock by the Investor or any of its
Affiliates to a Proposed Purchaser shall be conditioned upon consummation of the
sale by each Participating Holder to such Proposed Purchaser (or the Investor)
of the Subject Equity entitled to be transferred as described in (c) below, if
any. Additionally:
(b) In the event that the Proposed Purchaser does not purchase
Subject Equity entitled to be transferred as described in (c) below, on the same
terms and conditions as purchased from the Investor or any of its Affiliates,
then the Investor or to its Affiliates shall purchase such Subject Equity if the
Transfer occurs.
(c) Each Holder shall have the right to require the Proposed
Purchaser to purchase from such Holder that percentage of the aggregate number
of shares of Common Stock desired to be transferred by such Holder equal to a
fraction, expressed as a percentage, the numerator of which is the total number
of shares of Common Stock held by such Holder and the denominator of which is
the total number of shares of Common Stock held by all Stockholders and all
other persons owning Common Stock or securities convertible or exchangeable into
Common Stock participating in such Transfer.
(d) Any Subject Equity purchased from the Participating Holders
pursuant to this Section 3.2 shall be paid for in the same type of consideration
and at the same price per share of Common Stock and upon the same terms and
conditions of such proposed Transfer of Common Stock by the Investor and/or any
of its Affiliates. The price per Warrant to be paid by the Proposed Purchaser
shall be less the exercise price of such Warrant per share. If the Subject
Equity to be purchased includes securities or property other than Common Stock,
the price to be paid for such securities or property shall be the same price per
share or other denomination paid by the Proposed Purchaser for like securities
purchased from the Investor or any of its Affiliates. The Investor shall arrange
for payment directly by the Proposed Purchaser to each Participating Holder,
upon delivery of the certificate or certificates representing the Warrants
and/or Registrable Securities duly endorsed for transfer, together with such
other documents as the Proposed Purchaser may reasonably request.
(e) If the sale of Common Stock by the Investor or its Affiliates and
the sale of the Subject Equity entitled to be transferred as provided above have
not been completed in accordance with the terms of the Proposed Purchaser's
offer, all certificates representing such Subject Equity shall be returned to
the Participating Holders, and all the restrictions on Transfer
<PAGE>
-9-
contained in this Agreement with respect to Common Stock owned by the Investor
and its Affiliates shall remain in effect.
(f) If the Investor proposing the Transfer intends to Transfer a
strip of two or more classes of shares and any Participating Holder holds all
such classes, such Participating Holder may only participate in such Transfer if
such Participating Holder participates with respect to all such classes of
shares.
(g) Each Participating Holder shall be required to bear its pro rata
share (based upon the number of shares sold) of the expenses incurred by the
transferring stockholders in connection with such transaction to the extent such
costs are incurred for the benefit of all such stockholders and are not
otherwise paid by Holdings or the Proposed Purchaser.
3.3. Drag-Along Rights. If at any time prior to an Initial Public
-----------------
Equity Offering, the Investor and/or any of its Affiliates determines to sell
all or substantially all of the Capital Stock of Holdings owned by it to a
Person other than the Investor or an Affiliate of the Investor, the Investor
(whether directly or through an Affiliate) shall have the right to require the
Holders of Subject Equity to sell such Subject Equity to such transferee;
provided that the consideration to be received by the Holders of Subject Equity
- --------
shall be the same type of consideration received by the Investor and its
Affiliates. Any Warrants and/or Registrable Securities purchased from the
Holders thereof pursuant to this Section 3.3 shall be paid for at the same price
per share of Common Stock and upon the same terms and conditions of such
proposed transfer of Common Stock by the Investor and its Affiliates. The price
per Warrant to be paid by the Proposed Purchaser shall be less the exercise
price of such Warrant per share. If the Subject Equity to be purchased includes
securities other than Common Stock, the price to be paid for such securities
shall be the same price per share or other denomination paid by the Proposed
Purchaser for like securities purchased from the Investor and its Affiliates or,
if like securities are not purchased from the Investor and its Affiliates, the
Fair Market Value of such securities.
4. Registration Procedures.
-----------------------
In connection with the obligations of Holdings with respect to any
Registration Statement pursuant to Section 2.1 hereof, Holdings shall:
(a) A reasonable period of time prior to the initial filing of a
Registration Statement or Prospectus and a reasonable period of time prior
to the filing of any amendment or supplement thereto (including any
document that would be incorporated or deemed to be incorporated therein by
reference), furnish to the Initial Purchasers and the managing
underwriters, if any, copies of all such documents proposed to be filed,
which documents (other than those incorporated or deemed to be incorporated
by reference) will be subject to the review of such Holders, and such
underwriters, if any, and cause the officers and directors of Holdings,
counsel to Holdings and independent certified public accountants to
Holdings to respond to such reasonable inquiries as shall be necessary, in
the opinion of counsel to such underwriters, to conduct a reasonable
investigation within the meaning
<PAGE>
-10-
of the Securities Act; provided that the foregoing inspection and
--------
information gathering shall be coordinated on behalf of the Initial
Purchasers by CSI;
(b) Prepare and file with the SEC such amendments, including post-
effective amendments, to each Registration Statement as may be necessary to
keep such Registration Statement continuously effective for the applicable
time period required hereunder; cause the related Prospectus to be
supplemented by any required Prospectus supplement, and as so supplemented
to be filed pursuant to Rule 424 under the Securities Act; and comply with
the provisions of the Securities Act and the Exchange Act with respect to
the disposition of all securities covered by such Registration Statement
during such period in accordance with the intended methods of disposition
by the sellers thereof set forth in such Registration Statement as so
amended or in such Prospectus as so supplemented;
(c) Notify the holders of Registrable Securities to be sold and the
managing underwriters, if any, promptly, and (if requested by any such
person), confirm such notice in writing, (i)(A) when a Prospectus or any
Prospectus supplement or post-effective amendment is proposed to be filed,
and (B) with respect to a Registration Statement or any post-effective
amendment, when the same has become effective, (ii) of any request by the
SEC or any other Federal or state governmental authority for amendments or
supplements to a Registration Statement or related Prospectus or for
additional information, (iii) of the issuance by the SEC, any state
securities commission, any other governmental agency or any court of any
stop order, order or injunction suspending or enjoining the use of a
Prospectus or the effectiveness of a Registration Statement or the
initiation of any proceedings for that purpose, (iv) of the receipt by
Holdings of any notification with respect to the suspension of the
qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction, or the initiation or threatening
of any proceeding for such purpose, and (v) of the happening of any event
or information becoming known that makes any statement made in a
Registration Statement or related Prospectus or any document incorporated
or deemed to be incorporated therein by reference untrue in any material
respect or that requires the making of any changes in such Registration
Statement, Prospectus or documents so that it will not contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein, not
misleading, and that in the case of a Prospectus, it will not contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading;
(d) Use its best efforts to avoid the issuance of or, if issued,
obtain the withdrawal of any order enjoining or suspending the use of a
Prospectus or the effectiveness of a Registration Statement or the lifting
of any suspension of the qualification (or exemption from qualification) of
any of the Registrable Securities for sale in any jurisdiction, at the
earliest practicable moment;
<PAGE>
-11-
(e) If requested by the managing underwriters, if any, (i) promptly
incorporate in a Prospectus supplement or post-effective amendment such
information as the managing underwriters, if any reasonably believe should
be included therein, and (ii) make all required filings of such Prospectus
supplement or such post-effective amendment under the Securities Act as
soon as practicable after Holdings has received notification of the matters
to be incorporated in such Prospectus supplement or post-effective
amendment; provided, however, that Holdings shall not be required to take
-------- -------
any action pursuant to this Section 4(e) that would, in the opinion of
counsel for Holdings, violate applicable law;
(f) Upon written request to Holdings, furnish to each Holder of
Registrable Securities to be sold pursuant to a Registration Statement and
each managing underwriter, if any, without charge, at least one conformed
copy of such Registration Statement and each amendment thereto, including
financial statements and schedules, all documents incorporated or deemed to
be incorporated therein by reference, and all exhibits to the extent
requested (including those previously furnished or incorporated by
reference) as soon as practicable after the filing of such documents with
the SEC;
(g) Deliver to each Holder of Registrable Securities to be sold
pursuant to a Registration Statement, and the underwriters, if any, without
charge, as many copies of the Prospectus (including each form of
prospectus) and each amendment or supplement thereto as such persons
reasonably request; and Holdings hereby consents to the use of such
Prospectus and each amendment or supplement thereto by each of the selling
Holders of Registrable Securities and the underwriters, if any, in
connection with the offering and sale of the Registrable Securities covered
by such Prospectus and any amendment or supplement thereto;
(h) Prior to any public offering of Registrable Securities, use its
best efforts to register or qualify or cooperate with the Holders of
Registrable Securities to be sold, the underwriters, if any, and their
respective counsel in connection with the registration or qualification (or
exemption from such registration or qualification) of such Registrable
Securities for offer and sale under the securities or Blue Sky laws of such
jurisdictions as any such Holder or underwriter reasonably requests in
writing; keep each such registration or qualification (or exemption
therefrom) effective during the period such Registration Statement is
required to be kept effective hereunder and do any and all other acts or
things necessary or advisable to enable the disposition in such
jurisdictions of the Registrable Securities covered by the applicable
Registration Statement; provided, however, that Holdings shall not be
-------- -------
required to (i) qualify generally to do business in any jurisdiction where
it is not then so qualified or (ii) take any action which would subject it
to general service of process or to taxation in any jurisdiction where they
are not so subject;
(i) In connection with any sale or transfer of Registrable Securities
that will result in such securities no longer being Registrable Securities,
cooperate with the Holders thereof and the managing underwriters, if any,
to facilitate the timely preparation and delivery of certificates
representing Registrable Securities to be sold, which certificates
<PAGE>
-12-
shall not bear any restrictive legends and shall be in a form eligible for
deposit with The Depository Trust Company and to enable such Registrable
Securities to be in such denominations and registered in such names as the
managing underwriters, if any, or such Holders may request at least two
Business Days prior to any sale of Registrable Securities;
(j) Upon the occurrence of any event contemplated by Section 4(c)(v),
as promptly as practicable, prepare a supplement or amendment, including,
if appropriate, a post-effective amendment, to each Registration Statement
or a supplement to the related Prospectus or any document incorporated or
deemed to be incorporated therein by reference, and file any other required
document so that, as thereafter delivered, such Prospectus will not contain
an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading;
(k) Enter into such agreements (including an underwriting agreement
in form, scope and substance as is customary in underwritten offerings) and
take all such other reasonable actions in connection therewith (including
those reasonably requested by the managing underwriters, if any, or the
Holders of a majority of the Registrable Securities being sold) in order to
expedite or facilitate the disposition of such Registrable Securities, and,
whether or not an underwriting agreement is entered into and whether or not
the registration is an underwritten registration, (i) make such
representations and warranties to the Holders of such Registrable
Securities and the underwriters, if any, with respect to the business of
Holdings and its subsidiaries (including with respect to businesses or
assets acquired or to be acquired by any of them), and the Registration
Statement, Prospectus and documents, if any, incorporated or deemed to be
incorporated by reference therein, in each case, in form, substance and
scope as are customarily made by issuers to underwriters in underwritten
offerings, and confirm the same if and when requested; (ii) obtain opinions
of counsel to Holdings and updates thereof (which counsel and opinions (in
form, scope and substance) shall be reasonably satisfactory to the managing
underwriters, if any, addressed to each selling Holder of Registrable
Securities and each of the underwriters, if any), covering the matters
customarily covered in opinions requested in underwritten offerings and
such other matters as may be reasonably requested by such underwriters;
(iii) use their best efforts to obtain customary "cold comfort" letters and
updates thereof from the independent certified public accountants of
Holdings (and, if necessary, any other independent certified public
accountants of any subsidiary of Holdings or of any business acquired by
Holdings for which financial statements and financial data is, or is
required to be, included in the Registration Statement), addressed (where
reasonably possible) to each selling Holder of Registrable Securities and
each of the underwriters, if any, such letters to be in customary form and
covering matters of the type customarily covered in "cold comfort" letters
in connection with underwritten offerings; (iv) if an underwriting
agreement is entered into, the same shall contain indemnification
provisions and procedures no less favorable to the selling Holders and the
underwriters, if
<PAGE>
-13-
any, than those set forth in Section 5 hereof (or such other provisions and
procedures acceptable to Holders of a majority of Registrable Securities
covered by such Registration Statement and the managing underwriters, if
any); and (v) deliver such documents and certificates as may be reasonably
requested by the Holders of a majority of the Registrable Securities being
sold and the managing underwriters, if any, to evidence the continued
validity of the representations and warranties made pursuant to clause (i)
above and to evidence compliance with any customary conditions contained in
the underwriting agreement or other agreement entered into by Holdings;
(l) Make available for inspection by a representative of the Initial
Purchasers selling Registrable Securities, any underwriter participating in
any such disposition of Registrable Securities, and any attorney,
consultant or accountant retained by such Initial Purchasers or
underwriter, at the offices where normally kept, during reasonable business
hours, all financial and other records, pertinent corporate documents and
properties of Holdings and its subsidiaries (including with respect to
businesses and assets acquired or to be acquired to the extent that such
information is available to Holdings), and cause the officers, directors,
agents and employees of Holdings and its subsidiaries (including with
respect to businesses and assets acquired or to be acquired to the extent
that such information is available to Holdings) to supply all information
in each case reasonably requested by any such representative, underwriter,
attorney, consultant or accountant in connection with such Registration
Statement; provided, however, that such persons shall first agree in
-------- -------
writing with Holdings that any information that is reasonably and in good
faith designated by Holdings in writing as confidential at the time of
delivery of such information shall be kept confidential by such Persons,
unless (i) disclosure of such information is required by court or
administrative order or is necessary to respond to inquiries of regulatory
authorities, (ii) disclosure of such information is required by law
(including any disclosure requirements pursuant to Federal securities laws
in connection with the filing of the Registration Statement or the use of
any Prospectus), (iii) such information becomes generally available to the
public other than as a result of a disclosure or failure to safeguard such
information by such Person or (iv) such information becomes available to
such Person from a source other than Holdings and its subsidiaries and such
source is not bound by a confidentiality agreement; and provided, further,
-------- -------
that the foregoing inspection and information gathering shall be
coordinated on behalf of the Initial Purchasers by CSI;
(m) Comply with all applicable rules and regulations of the SEC and
make generally available to their securityholders earning statements
satisfying the provisions of Section 11(a) of the Securities Act and Rule
158 under the Securities Act, no later than 60 days after the end of any
12-month period (or 135 days after the end of any 12-month period if such
period is a fiscal year) (i) commencing at the end of any fiscal quarter in
which Registrable Securities are sold to underwriters in a firm commitment
or reasonable efforts underwritten offering and (ii) if not sold to
underwriters in such an offering, commencing on the first day of the first
fiscal quarter after the effective date of a Registration
<PAGE>
-14-
Statement, which statement shall cover said period, consistent with the
requirements of Rule 158 under the Securities Act; and
(n) Cooperate with each seller of Registrable Securities covered by
any Registration Statement and each underwriter, if any, participating in
the disposition of such Registrable Securities and their respective counsel
in connection with any filings required to be made with the National
Association of Securities Dealers, Inc.
Holdings may require a Holder of Registrable Securities to be included
in a Registration Statement to furnish to Holdings such information regarding
(i) the intended method of distribution of such Registrable Securities, (ii)
such Holder and (iii) the Registrable Securities held by such Holder as is
required by law to be disclosed in such Registration Statement and Holdings may
exclude from such Registration Statement the Registrable Securities of any
Holder who unreasonably fails to furnish such information within a reasonable
time after receiving such request.
If any such Registration Statement refers to any Holder by name or
otherwise as the Holder of any securities of Holdings, then such Holder shall
have the right to require (i) the insertion therein of language, in form and
substance reasonably satisfactory to such Holder, to the effect that the holding
by such Holder of such securities is not to be construed as a recommendation by
such Holder of the investment quality of Holdings' securities covered thereby
and that such holding does not imply that such Holder will assist in meeting any
future financial requirements of Holdings, or (ii) in the event that such
reference to such Holder by name or otherwise is not required by the Securities
Act, the deletion of the reference to such Holder in any amendment or supplement
to the Registration Statement filed or prepared subsequent to the time that such
reference ceases to be required.
Each Holder of Registrable Securities agrees by acquisition of such
Registrable Securities that, upon receipt of any notice from Holdings of the
happening of any event of the kind described in Section 4(c)(ii), 4(c)(iii),
4(c)(iv) or 4(c)(v) hereof, such Holder will forthwith discontinue disposition
of such Registrable Securities covered by such Registration Statement or
Prospectus until such Holder's receipt of the copies of the supplemented or
amended Prospectus contemplated by Section 4(j) hereof, or until it is advised
in writing (the "Advice") by Holdings that the use of the applicable Prospectus
------
may be resumed, and, in either case, has received copies of any additional or
supplemental filings that are incorporated or deemed to be incorporated by
reference in such Prospectus. If Holdings shall give any such notice, the
Effectiveness Period shall be extended by the number of days during such period
from and including the date of the giving of such notice to and including the
date when each Holder of Registrable Securities covered by such Registration
Statement shall have received (x) the copies of the supplemented or amended
Prospectus contemplated by Section 4(j) hereof or (y) the Advice, and, in either
case, has received copies of any additional or supplemental filings that are
incorporated or deemed to be incorporated by reference in such Prospectus.
<PAGE>
-15-
5. Indemnification and Contribution.
--------------------------------
(a) Holdings shall indemnify and hold harmless the Initial
Purchasers, each Holder, each underwriter who participates in an offering of
Registrable Securities, their respective Affiliates, each Person, if any, who
controls any of such parties within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act and each of their respective directors,
officers, employees and agents, as follows:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, joint or several, as incurred, arising out of any
untrue statement or alleged untrue statement of a material fact contained
in any Registration Statement (or any amendment thereto), covering
Registrable Securities, including all documents incorporated therein by
reference, or the omission or alleged omission therefrom of a material fact
required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not
misleading or arising out of any untrue statement or alleged untrue
statement of a material fact contained in any Prospectus (or any amendment
or supplement thereto) or the omission or alleged omission therefrom of a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, joint or several, as incurred, to the extent of the
aggregate amount paid in settlement of any litigation, or any investigation
or proceeding by any court or governmental agency or body, commenced or
threatened, or of any claim whatsoever based upon any such untrue statement
or omission, or any such alleged untrue statement or omission, if such
settlement is effected with the prior written consent of Holdings; and
(iii) against any and all expenses whatsoever, as incurred
(including reasonable fees and disbursements of counsel chosen by CSI),
reasonably incurred in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any court or governmental
agency or body, commenced or threatened, or any claim whatsoever based upon
any such untrue statement or omission, or any such alleged untrue statement
or omission, to the extent that any such expense is not paid under
subparagraph (i) or (ii) of this Section 5(a);
provided that this indemnity does not apply to any loss, liability, claim,
- --------
damage or expense to the extent arising out of an untrue statement or omission
or alleged untrue statement or omission (i) made in reliance upon and in
conformity with written information furnished to Holdings by such Holder or any
underwriter in writing expressly for use in the Registration Statement (or any
amendment thereto) or any Prospectus (or any amendment or supplement thereto) or
(ii) contained in any preliminary prospectus if such Holder or such underwriter
failed to send or deliver a copy of the Prospectus (in the form it was first
provided to such parties for confirmation of sales) to the Person asserting such
losses, claims, damages or liabilities on or prior to the delivery of written
confirmation of any sale of securities covered thereby to such Person in any
case
<PAGE>
-16-
where such delivery is required by the Securities Act and such Prospectus would
have corrected such untrue statement or omission. Any amounts advanced by
Holdings to an indemnified party pursuant to this Section 5 as a result of such
losses shall be returned to Holdings if it shall be finally determined by such a
court in a judgment not subject to appeal or final review that such indemnified
party was not entitled to indemnification by Holdings.
(b) By accepting the benefits of this Agreement, each Holder agrees,
severally and not jointly, to indemnify and hold harmless Holdings, each Initial
Purchaser, each underwriter who participates in an offering of Registrable
Securities and the other selling Holders and each of their respective directors,
officers (including each officer of Holdings who signed the Registration
Statement), employees and agents and each Person, if any, who controls Holdings,
the Initial Purchasers, any underwriter or any other selling Holder within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act,
from and against any and all loss, liability, claim, damage and expense
whatsoever described in the indemnity contained in Section 5(a) hereof, as
incurred, but only with respect to untrue statements or omissions, or alleged
untrue statements or omissions, made in the Registration Statement (or any
amendment thereto) or any Prospectus (or any amendment or supplement thereto) in
reliance upon and in conformity with written information furnished to Holdings
by such selling Holder expressly for use in the Registration Statement (or any
amendment thereto), or any such Prospectus (or any amendment or supplement
thereto).
(c) Each indemnified party shall give prompt notice to each
indemnifying party of any action commenced against it in respect of which
indemnity may be sought hereunder, enclosing a copy of all papers properly
served on such indemnified party, but failure to so notify an indemnifying party
shall not relieve such indemnifying party from any liability hereunder to the
extent it is not materially prejudiced as a result thereof and in any event
shall not relieve it from any liability which it may have otherwise than on
account of this indemnity agreement. In the case of parties indemnified pursuant
to Section 5(a) above, counsel to the indemnified parties shall be selected by
CSI and, in the case of parties indemnified pursuant to Section 5(b) above,
counsel to the indemnified parties shall be selected by Holdings.
Notwithstanding the foregoing sentence, in case any such action is brought
against any indemnified party, and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent it may wish, jointly with any other indemnifying
party similarly notified, unless such indemnified party shall have one or more
legal defenses available to it which are not available to the indemnifying
party, to assume the defense thereof, with counsel reasonably satisfactory to
such indemnified party. After notice from the indemnifying party to such
indemnified party of its election as aforesaid to assume the defense thereof and
approval by such indemnified party of counsel appointed to defend such action,
the indemnifying party will not be liable to such indemnified party under this
Section 5 for any legal or other expenses other than reasonable costs of
investigation, subsequently incurred by such indemnified party in connection
with the defense thereof. An indemnifying party may participate at its own
expense in the defense of any such action; provided, however, that counsel to
the indemnifying party shall not (except with the consent of the indemnified
party) also be counsel to the indemnified party.
<PAGE>
-17-
In no event shall the indemnifying parties be liable for fees and expenses of
more than one counsel (in addition to any local counsel) separate from their own
counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances. No indemnifying party shall,
without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any Judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this Section 5 (whether or
not the indemnified parties are actual or potential parties thereto), unless
such settlement, compromise or consent (i) includes an unconditional release of
each indemnified party from all liability arising out of such litigation,
investigation, proceeding or claim and (ii) does not include a statement as to
or an admission of fault, culpability or a failure to act by or on behalf of any
indemnified party.
(d) If at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel, such indemnifying party agrees that it shall be liable for any
settlement of the nature contemplated by Section 5(a)(ii) effected without its
written consent if (i) such settlement is entered into more than 45 days after
receipt by such indemnifying party of the aforesaid request, (ii) such
indemnifying party shall have received notice of the terms of such settlement at
least 30 days prior to such settlement being entered into and (iii) such
indemnifying party shall not have reimbursed such indemnified party in
accordance with such request prior to the date of such settlement.
(e) In order to provide for just and equitable contribution in
circumstances under which any of the indemnity provisions set forth in this
Section 5 is for any reason held to be unavailable to the indemnified parties
although applicable in accordance with its terms, Holdings and the Holders shall
contribute to the aggregate losses, liabilities, claims, damages and expenses of
the nature contemplated by such indemnity agreement incurred by Holdings, and
the Holders, as incurred; provided that no Person guilty of fraudulent
--------
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person that was not guilty of such
fraudulent misrepresentation. As between Holdings and the Holders, such parties
shall contribute to such aggregate losses, liabilities, claims, damages and
expenses of the nature contemplated by such indemnity agreement in such
proportion as shall be appropriate to reflect the relative fault of Holdings, on
the one hand, and the Holders, on the other hand, with respect to the statements
or omissions which resulted in such loss, liability, claim, damage or expense,
or action in respect thereof, as well as any other relevant equitable
considerations. The relative fault of Holdings, on the one hand, and of the
Holders, on the other hand, shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by Holdings, on the one hand, or by or on behalf of the Holders, on the
other, and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. Holdings and the
Holders of the Registrable Securities agree that it would not be just and
equitable if contribution pursuant to this Section 5 were to be determined
<PAGE>
-18-
by pro rata allocation or by any other method of allocation that does not take
--- ----
into account the relevant equitable considerations. For purposes of this Section
5, each Affiliate of a Holder, and each director, officer, employee, agent and
Person, if any, who controls a Holder or such Affiliate within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act shall have
the same rights to contribution as such Holder, and each director of Holdings,
each officer of Holdings who signed the Registration Statement, and each Person,
if any, who controls Holdings within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act shall have the same rights to contribution
as Holdings.
6. Rules 144 and 144A.
------------------
Holdings shall use its best efforts to file any reports required to be
filed by it under the Securities Act and the Exchange Act in a timely manner
and, if at any time it is not required to file such reports but in the past had
been required to or did file such reports, it will, upon the request of any
Holder of Warrants or Registrable Securities, make available other information
as required by, and so long as necessary to permit, sales of its Warrants and
Registrable Securities pursuant to Rule 144A. Notwithstanding the foregoing,
nothing in this Section 6 shall be deemed to require Holdings to register any of
its securities pursuant to the Exchange Act.
7. Underwritten Registrations.
--------------------------
If any of the Registrable Securities covered by any Registration
Statement are to be sold in an underwritten public offering, the investment
banker or investment bankers and manager or managers that will administer the
offering will be selected by Holdings.
No Person may participate in any underwritten public offering
hereunder unless such person (i) agrees to sell such Registrable Securities on
the basis reasonably provided in any underwriting arrangements approved by the
Persons entitled hereunder to approve such arrangements and (ii) completes and
executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents required under the terms of such underwriting
arrangements.
If Holdings has complied with all its obligations under this Agreement
with respect to a Piggy-Back Registration relating to an underwritten public
offering, all holders of Warrants and Registrable Securities, upon request of
the lead managing underwriter with respect to such underwritten public offering,
will be required to not sell or otherwise dispose of any Warrant or Registrable
Security owned by them for a period not to exceed 90 days from the consummation
of such underwritten public offering.
8. Miscellaneous.
-------------
8.1. Remedies. In the event of a breach by Holdings, the Investor or
--------
by a Holder of any of its obligations under this Agreement, each Holder, the
Investor and Holdings, in addi-
<PAGE>
-19-
tion to being entitled to exercise all rights granted by law, including recovery
of damages, will be entitled to specific performance of its rights under this
Agreement. Holdings, the Investor and each Holder agree that monetary damages
would not be adequate compensation for any loss incurred by reason of a breach
of any of the provisions of this Agreement and each hereby further agrees that,
in the event of any action for specific performance in respect of such breach,
it shall waive the defense that a remedy at law would be adequate.
8.2. No Conflicting Agreements. Holdings and the Investor will not
-------------------------
enter into any agreement that conflicts with the rights granted to the Holders
and indemnified persons in this Agreement or otherwise conflicts with the
provisions hereof. Without the written consent of the Holders of a majority of
the outstanding Warrants and each class and series of Registrable Securities,
Holdings and the Investor shall not grant to any Person any rights which
conflict with the provisions of this Agreement.
8.3. Amendments and Waivers. The provisions of this Agreement,
----------------------
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, otherwise than with the prior written consent of the Holders
of not less than the Requisite Shares; provided, however, that, for the purposes
-------- -------
of this Agreement, Warrants, Warrant Shares and Registrable Securities that are
owned, directly or indirectly, by Holdings, the Investor or any of their
Affiliates are not deemed outstanding. Notwithstanding the foregoing, a waiver
or consent to depart from the provisions hereof with respect to a matter that
relates exclusively to the rights of Holders whose securities are being sold
pursuant to a Registration Statement and that does not directly or indirectly
affect the rights of other Holders may be given by Holders of a majority of the
Registrable Securities being sold by such Holders pursuant to such Registration
Statement; provided, however, that the provisions of this sentence may not be
-------- -------
amended, modified or supplemented except in accordance with the provisions of
the immediately preceding sentence. Notwithstanding the foregoing, no
amendment, modification, supplement, waiver or consent with respect to Section 5
shall be made or given otherwise than with the prior written consent of each
Person affected thereby.
8.4. Notices. All notices and other communications provided for
-------
herein shall be made in writing by hand-delivery, next-day air courier,
certified first-class mail, return receipt requested, telex or telecopier to
Holdings, as provided in the Purchase Agreement,
(a) if to the Investor,
Mattress Discounters Holding L.L.C.
c/o Bain Capital, Inc.
Two Copley Place
Boston, MA 02116
Attention: Michael Krupka
Telecopy No.: (617) 572-3274
With a copy, which shall not constitute notice, to:
<PAGE>
-20-
Kirkland & Ellis
Citicorp Center
153 East 53rd Street
New York, New York 10022
Attention: Lance C. Balk, 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.
(b) if to the Initial Purchasers, as provided in the Purchase
Agreement, or
(c) if to any other Person who is then the registered Holder of
Warrants or Registrable Securities, to the address of such Holder as it
appears in the register therefor of Holdings.
Except as otherwise provided in this Agreement, all such
communications shall be deemed to have been duly given: when delivered by hand,
if personally delivered; one Business Day after being timely delivered to a
next-day air courier; five Business Days after being deposited in the mail,
postage prepaid, if mailed; when answered back, if telexed; and when receipt is
acknowledged by the recipient's telecopier machine, if telecopied.
8.5. Successors and Assigns. This Agreement shall inure to the
----------------------
benefit of and be binding upon the successors and permitted assigns of each of
the parties and shall inure to the benefit of each Holder. Notwithstanding the
foregoing, no successor or assignee of Holdings shall have any of the rights
granted under this Agreement until such Person shall acknowledge its rights and
obligations hereunder by a signed written statement of such person's acceptance
of such rights and obligations.
8.6. Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and, all of which taken
together shall constitute one and the same Agreement.
8.7. Governing Law; Submission to Jurisdiction. THIS AGREEMENT SHALL
-----------------------------------------
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK.
HOLDINGS AND THE INVESTOR HEREBY IRREVOCABLY SUBMIT TO THE JURISDICTION OF ANY
NEW YORK STATE COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK
OR ANY FEDERAL COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK
IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT, AND EACH IRREVOCABLY ACCEPTS FOR IT-
<PAGE>
-21-
SELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, JURISDICTION
OF THE AFORESAID COURTS.
8.8. Severability. The remedies provided herein are cumulative and
------------
not exclusive of any remedies provided by law. If any term, provision, covenant
or restriction of this Agreement is held by a court of competent jurisdiction to
be invalid, illegal, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions set forth herein shall remain in full
force and effect and shall in no way be affected, impaired or invalidated, and
the parties hereto shall use their reasonable efforts to find and employ an
alternative means to achieve the same or substantially the same result as that
contemplated by such term, provision, covenant or restriction. It is hereby
stipulated and declared to be the intention of the parties that they would have
executed the remaining terms, provisions, covenants and restrictions without
including any of such that may be hereafter declared invalid, illegal, void or
unenforceable.
8.9. Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof. All
references made in this Agreement to "Section" and "paragraph" refer to such
Section or paragraph of this Agreement, unless expressly stated otherwise.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Common Stock
Registration Rights Agreement to be duly executed as of the date first written
above.
MATTRESS DISCOUNTERS HOLDING
CORPORATION
/s/ Michael Krupka
By: __________________________________
Name: Michael Krupka
Title:
MATTRESS DISCOUNTERS HOLDING L.L.C.
/s/ Michael Krupka
By: __________________________________
Name: Michael Krupka
Title:
CHASE SECURITIES INC.
/s/ Ira Ginsburg
By: __________________________________
Name: Ira Ginsburg
Title:
CIBC WORLD MARKETS CORP.
/s/ Kevin Migiel
By: __________________________________
Name: Kevin Migiel
Title:
BANCBOSTON ROBERTSON STEPHENS INC.
<PAGE>
/s/ Greg Foy
By: __________________________________
Name: Greg Foy
Title:
<PAGE>
EXHIBIT 10.3
MATTRESS DISCOUNTERS CORPORATION
MATTRESS DISCOUNTERS HOLDING CORPORATION
140,000 Units consisting of
$140,000,000
12 5/8% Senior Notes due 2007 of Mattress Discounters Corporation
and
140,000 Warrants to Purchase 679,000 Shares of
Class A Common Stock and 75,460 Shares of
Class L Common Stock of Mattress Discounters Holding Corporation
PURCHASE AGREEMENT
------------------
August 3, 1999
CHASE SECURITIES INC.
CIBC WORLD MARKETS CORP.
BANCBOSTON ROBERTSON STEPHENS INC.
c/o Chase Securities Inc.
270 Park Avenue, 4th floor
New York, New York 10017
Ladies and Gentlemen:
Mattress Discounters Corporation, a Delaware corporation (the
"Company"), proposes to issue and sell $140,000,000 aggregate principal amount
-------
of its 12 5/8% Senior Notes due 2007 (the "Notes"). The Notes will be issued
-----
pursuant to an Indenture to be dated as of August 6, 1999 (the "Indenture")
---------
between the Company and State Street Bank and Trust Company, as trustee (the
"Trustee"). The Notes will be unconditionally guaranteed (the "Guarantees") by
------- ----------
each of T.J.B., Inc., a Maryland corporation ("TJB"), and The Bedding Experts,
---
Inc., an Illinois corporation ("Bedding Experts" and, together with TJB, the
---------------
"Guarantors" and, collectively with the Company, the "Notes Issuers"), pursuant
---------- -------------
to the terms of the Indenture (the "Guarantees"). Mattress Discounters Holding
----------
Corporation, a Virginia corporation ("Holdings"), proposes to issue and sell
--------
140,000 Warrants (the "Warrants") to purchase 679,000 shares of Class A Common
--------
Stock, par value $.01 per share of Holdings and 75,460 shares of Class L Common
Stock, par value $.01 per share, of Holdings (the Class A Common Stock and the
Class L Common Stock, collectively, the "Warrant Shares"). The Notes and the
--------------
Warrants are collectively referred to as the "Units." The Notes Issuers and
-----
Holdings are collectively referred to as the "Issuers." Each Unit will consist
-------
of $1,000 principal amount
<PAGE>
of Notes and one Warrant, to purchase 4.850 shares of Class A Common Stock and
0.539 shares of Class L Common Stock. The Warrants are to be issued under a
Warrant Agreement to be dated as of August 6, 1999 (the "Warrant Agreement")
-----------------
between Holdings and State Street Bank and Trust Company, as Warrant Agent (the
"Warrant Agent"). The Units will be issued under a Unit Certificate dated as of
-------------
August 6, 1999 (the "Unit Certificate") among the Issuers, the Trustee, the
----------------
Warrant Agent and State Street Bank and Trust Company, as Unit Agent (the "Unit
----
Agent"). The Notes, the Guarantees, the Units, the Warrants and the Warrant
- -----
Shares are referred to collectively herein as the "Securities." The Issuers
----------
hereby confirm their agreement with Chase Securities Inc. ("CSI"), CIBC World
---
Markets Corp. and BancBoston Robertson Stephens Inc. (together with CSI, the
"Initial Purchasers") concerning the purchase of the Securities from the Company
------------------
by the several Initial Purchasers.
The Units will be offered and sold to the Initial Purchasers without
being registered under the Securities Act of 1933, as amended (the "Securities
----------
Act"), in reliance upon an exemption therefrom. The Company has prepared a
- ---
preliminary offering memorandum dated July 13, 1999 (the "Preliminary Offering
--------------------
Memorandum") and will prepare an offering memorandum dated the date hereof (the
- ----------
"Offering Memorandum") setting forth information concerning the Issuers and the
-------------------
Units. Copies of the Preliminary Offering Memorandum have been, and copies of
the Offering Memorandum will be, delivered by the Company and Holdings to the
Initial Purchasers pursuant to the terms of this Agreement. Any references
herein to the Preliminary Offering Memorandum and the Offering Memorandum shall
be deemed to include all amendments and supplements thereto, unless otherwise
noted. The Company and Holdings hereby confirm that they have authorized the
use of the Preliminary Offering Memorandum and the Offering Memorandum in
connection with the offering and resale of the Securities by the Initial
Purchasers in accordance with Section 2.
Holders of the Notes and the Guarantees (including the Initial
Purchasers and their direct and indirect transferees) will be entitled to the
benefits of an Exchange and Registration Rights Agreement, substantially in the
form attached hereto as Annex A-1 (the "Notes Registration Rights Agreement"),
-----------------------------------
pursuant to which the Notes Issuers will agree to file with the Securities and
Exchange Commission (the "Commission") (i) a registration statement under the
----------
Securities Act (the "Exchange Offer Registration Statement") registering an
-------------------------------------
issue of senior notes of the Company that are guaranteed by the Guarantors (the
"Exchange Securities") and that are identical in all material respects to the
-------------------
Notes and the Guarantees (except that the Exchange Securities will not contain
terms with respect to transfer restrictions and liquidated damages) and (ii)
under certain circumstances, a shelf registration statement pursuant to Rule 415
under the Securities Act (the "Shelf Registration Statement"). Holders of the
----------------------------
Warrants will be entitled to the benefits of a Common Stock Registration Rights
Agreement, substantially in the form attached hereto as Annex A-2 (the "Stock
-----
Registration Rights Agreement" and together with the Notes Registration Rights
- -----------------------------
Agreement, the "Registration
------------
-2-
<PAGE>
Rights Agreements") among Holdings and the Equity Investors (as defined in the
Offering Memorandum) and the Initial Purchasers, pursuant to which Holdings will
agree to provide certain registration rights with respect to the Warrant Shares
and the Equity Investors will agree to provide certain tag-along and other
rights to holders of Warrants and Warrant Shares.
The Units are being issued in connection with a recapitalization (the
"Recapitalization") in which (a) MD Acquisition Corporation, a Virginia
----------------
corporation ("MD Acquisition") has entered into a Transaction Agreement, dated
--------------
as of May 28, 1999, as amended July 15, 1999 (the "Transaction Agreement"), by
---------------------
and among MD Acquisition, Heilig-Meyers Company, a Virginia corporation
("Heilig-Meyers"), and Heilig-Meyers Associates, Inc., a Virginia corporation
--------------
("HMA"), pursuant to which Heilig-Meyers will contribute the issued and
---
outstanding shares of the Company, TJB and Bedding Experts, to HMA and MD
Acquisition will then merge (the "Merger") with HMA with HMA being the surviving
------
corporation and changing its name to Mattress Discounters Holding Corporation,
at which time MDC will become a direct wholly owned subsidiary of Holdings and
TJB and Bedding Experts will become direct wholly owned subsidiaries of MDC, (b)
the Company will also enter into a new credit facility, which consists of a $20
million revolving credit facility with a six-year term (the "Credit Agreement"),
----------------
and (c) certain Equity Investors including Bain Capital, Inc. and its affiliates
are making a $76.2 million equity investment (the "Equity Investment") in
-----------------
Mattress Discounters Holding, LLC, which will be contributed to MD Acquisition
to pay a portion of the cash consideration in the Recapitalization.
Capitalized terms used but not defined herein shall have the meanings
given to such terms in the Offering Memorandum.
1. Representations, Warranties and Agreements of the Issuers.
---------------------------------------------------------
Each of Issuers represents and warrants to, and agrees with, the several Initial
Purchasers on and as of the date hereof and, in all material respects, as of the
Closing Date, (as defined in Section 3) that, after giving effect to the
Recapitalization:
(a) Each of the Preliminary Offering Memorandum and the Offering
Memorandum, as of its respective date, did not, and on the Closing Date the
Offering Memorandum will not, contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided that
--------
each of the Issuers makes no representation or warranty as to information
contained in or omitted from the Preliminary Offering Memorandum or the
Offering Memorandum in reliance upon and in conformity with written
information relating to the Initial Purchasers furnished to the Company by
or on behalf of
-3-
<PAGE>
any Initial Purchaser specifically for use therein (the "Initial
-------
Purchasers' Information").
-----------------------
(b) Each of the Preliminary Offering Memorandum and the Offering
Memorandum, as of its respective date, contains all of the information
that, if requested by a prospective purchaser of the Units, would be
required to be provided to such prospective purchaser pursuant to Rule
144A(d)(4) under the Securities Act.
(c) Assuming the accuracy of the representations and warranties of
the Initial Purchasers contained in Section 2 and their compliance with the
agreements set forth therein, it is not necessary, in connection with the
issuance and sale of the Units to the Initial Purchasers and the offer,
resale and delivery of the Units by the Initial Purchasers in the manner
contemplated by this Agreement and the Offering Memorandum, to register the
Units under the Securities Act or to qualify the Indenture under the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act").
-------------------
(d) Each of the Issuers has been duly incorporated and is an existing
corporation in good standing under the laws of its jurisdiction of
incorporation, is duly qualified to do business and is in good standing as
a foreign corporation in each jurisdiction in which its ownership or lease
of property or the conduct of its businesses requires such qualification,
and has all power and authority necessary to own or hold its properties and
to conduct the businesses in which it is engaged, except where the failure
to so qualify or have such power or authority would not reasonably be
expected to, singularly or in the aggregate, have a material adverse effect
on the condition (financial or otherwise), results of operations, business
or prospects of the Company and its subsidiaries taken as a whole (a
"Material Adverse Effect").
-----------------------
(e) The Company has an authorized capitalization as set forth in the
Offering Memorandum under the heading "Capitalization"; as of the Closing
Date, all of the outstanding shares of capital stock of the Company will
have been duly and validly authorized and issued and will be fully paid and
non-assessable; all of the issued and outstanding shares of capital stock
of the Company are owned by Holdings, free and clear of any lien, charge,
security interest, encumbrance, restriction upon voting or transfer or any
other claim of any third party; and the capital stock of the Company
conforms in all material respects to the description thereof contained in
the Offering Memorandum. TJB and Bedding Experts are the only subsidiaries,
direct or indirect, of the Company (collectively, the "Subsidiaries"). All
------------
of the outstanding shares of capital stock of each Subsidiary of the
Company have been duly and validly authorized and issued, are fully paid
and non-assessable and are owned directly or indirectly by the Company,
free and clear of any lien, charge, encumbrance, security interest,
re-
-4-
<PAGE>
striction upon voting or transfer or any other claim of any third party,
except for security interests securing the Credit Agreement.
(f) Each of the Issuers, as applicable, has full right, power and
authority to execute and deliver, to the extent it is a party thereto, this
Agreement, the Indenture, the Registration Rights Agreements, the Notes,
the Guarantees, the Unit Certificate, the Warrant Agreement, the Warrant
Certificate, the Credit Agreement and each other document to which any of
the Issuers is a party entered into in connection with the Recapitalization
by the Company (collectively, the "Transaction Documents") and to perform
---------------------
its obligations hereunder and thereunder; and, as of the Closing Date, all
corporate action required to be taken for the due and proper authorization,
execution and delivery of each of the Transaction Documents and the
consummation of the transactions contemplated thereby will have been duly
and validly taken.
(g) This Agreement has been duly authorized, executed and delivered
by of each of the Issuers and constitutes a valid and legally binding
agreement of each of the Issuers.
(h) As of the Closing Date, the Registration Rights Agreements will
have been duly authorized by each of the Issuers, to the extent it is a
party thereto, and, when duly executed and delivered in accordance with its
terms by each of the parties thereto, will constitute valid and legally
binding agreements of such Issuer enforceable against such Issuer in
accordance with their terms, except to the extent that such enforceability
may be limited by applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws affecting creditors'
rights generally and by general equitable principles (whether considered in
a proceeding in equity or at law).
(i) As of the Closing Date, the Indenture will been duly authorized
by of each of the Notes Issuers and, when duly executed and delivered in
accordance with its terms by each of the parties thereto, will constitute a
valid and legally binding agreement of each of the Notes Issuers
enforceable against of each of the Notes Issuers in accordance with its
terms, except to the extent that such enforceability may be limited by
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws affecting creditors' rights generally and
by general equitable principles (whether considered in a proceeding in
equity or at law). On the Closing Date, the Indenture will conform in all
material respects to the requirements of the Trust Indenture Act and the
rules and regulations of the Commission applicable to an indenture which is
qualified thereunder.
-5-
<PAGE>
(j) As of the Closing Date, the Notes will have been duly authorized
by the Company and, when duly executed, authenticated, issued and delivered
as provided in the Indenture and paid for as provided herein, will be duly
and validly issued and outstanding and will constitute valid and legally
binding obligations of the Company entitled to the benefits of the
Indenture and enforceable against the Company in accordance with their
terms, except to the extent that such enforceability may be limited by
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws affecting creditors' rights generally and
by general equitable principles (whether considered in a proceeding in
equity or at law).
(k) As of the Closing Date, the Guarantees to be endorsed on the
Notes will have been duly authorized by each of the Guarantors and, when
duly executed by each of the Guarantors and when the Notes are duly
executed, authenticated, issued and delivered as provided in the Indenture
and paid for as provided herein, will constitute valid and legally binding
obligations of each of the Guarantors entitled to the benefits of the
Indenture, enforceable against each of the Guarantors in accordance with
their terms, except to the extent that such enforceability may be limited
by applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws affecting creditors'
rights generally and by general equitable principles (whether considered in
a proceeding in equity or at law).
(l) As of the Closing Date, the Exchange Securities will have been
duly authorized by the Company and, when executed, authenticated, issued
and delivered as provided in the Indenture and the Registration Rights
Agreement, will be duly and validly issued and outstanding and will
constitute valid and legally binding obligations of the Company entitled to
the benefits of the Indenture, enforceable against the Company in
accordance with their terms, except to the extent that such enforceability
may be limited by applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws affecting creditors'
rights generally and by general equitable principles (whether considered in
a proceeding in equity or at law).
(m) As of the Closing Date, the Guarantees to be endorsed on the
Exchange Securities will have been duly authorized by each of the
Guarantors and, when duly executed by each of the Guarantors and when the
Exchange Securities are duly executed, authenticated, issued and delivered
as provided in the Indenture and the Registration Rights Agreement, will
constitute valid and legally binding obligations of each of the Guarantors
entitled to the benefits of the Indenture, enforceable against each of the
Guarantors in accordance with their terms, except to the extent that such
enforceability may be limited by applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other similar laws
affecting creditors' rights generally
-6-
<PAGE>
and by general equitable principles (whether considered in a proceeding in
equity or at law).
(n) As of the Closing Date, the Units will have been duly authorized
by the Issuers and, when duly executed, authenticated, issued and delivered
as provided in the Unit Certificate and paid for as provided herein, will
be duly and validly issued and outstanding and will constitute valid and
legally binding obligations of the Issuers entitled to the benefits of the
Unit Certificate and enforceable against the Issuers in accordance with
their terms, except to the extent that such enforceability may be limited
by applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws affecting creditors'
rights generally and by general equitable principles (whether considered in
a proceeding in equity or at law).
(o) As of the Closing Date, the Warrants will have been duly
authorized by Holdings and, when duly executed, authenticated, issued and
delivered as provided in the Warrant Agreement and paid for as provided
herein, will be duly and validly issued and outstanding and will constitute
valid and legally binding obligations of Holdings entitled to the benefits
of the Warrant Agreement and enforceable against Holdings in accordance
with their terms, except to the extent that such enforceability may be
limited by applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws affecting creditors'
rights generally and by general equitable principles (whether considered in
a proceeding in equity or at law).
(p) When issued in accordance with the terms and conditions contained
in the Warrant Agreement upon exercise of the Warrants, the Warrant Shares
will be duly authorized, validly issued, fully paid and non-assessable and
will not be subject to any preemptive or similar rights. As of the Closing
Date, the Warrant Shares will have been duly reserved for issuance in
accordance with the terms of the Warrants and the Warrant Agreement.
(q) As of the Closing Date, the Credit Agreement will have been duly
authorized by the Company and each guarantor party thereto and, when duly
executed and delivered by the Company and each guarantor party thereto,
will constitute a valid and legally binding agreement of the Company and
each guarantor party thereto enforceable against the Company and each
guarantor party thereto in accordance with its terms, except to the extent
that such enforceability may be limited by applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and other
similar laws affecting creditors' rights generally and by general equitable
principles (whether considered in a proceeding in equity or at law).
-7-
<PAGE>
(r) As of the Closing Date, each Transaction Document will conform in
all material respects to the description thereof contained in the Offering
Memorandum.
(s) The execution, delivery and performance by each of the Issuers of
each of the Transaction Documents to which it is a party, the issuance,
authentication, sale and delivery of the Securities and compliance by each
of the Issuers with the terms thereof and the consummation of the
transactions contemplated by the Transaction Documents will not conflict
with or result in a breach or violation of any of the terms or provisions
of, or constitute a default under, or result in the creation or imposition
of any lien, charge or encumbrance upon any property or assets of any
Issuer or any of its subsidiaries pursuant to, any material indenture,
mortgage, deed of trust, loan agreement or other material agreement or
instrument to which any Issuer or any of its subsidiaries is a party or by
which any Issuer or any of its subsidiaries is bound or to which any of the
property or assets of any Issuer or any of its subsidiaries is subject, nor
will such actions result in any violation of the provisions of the charter
or by-laws of any Issuer or any of its subsidiaries or any statute or any
judgment, order, decree, rule or regulation of any court or arbitrator or
governmental agency or body having jurisdiction over any Issuer or any of
its subsidiaries or any of their properties or assets; and no consent,
approval, authorization or order of, or filing or registration with, any
such court or arbitrator or governmental agency or body under any such
statute, judgment, order, decree, rule or regulation is required for the
execution, delivery and performance by any Issuer of each of the
Transaction Documents, the issuance, authentication, sale and delivery of
the Securities and compliance by any Issuer with the terms thereof and the
consummation of the transactions contemplated by the Transaction Documents,
except for such consents, approvals, authorizations, filings, registrations
or qualifications (i) which shall have been obtained or made prior to the
Closing Date and (ii) as may be required to be obtained or made under the
Securities Act and applicable state securities laws as provided in the
Registration Rights Agreement.
(t) Deloitte & Touche LLP and KPMG LLP are each independent certified
public accountants with respect to the Company and its subsidiaries within
the meaning of Rule 101 of the Code of Professional Conduct of the American
Institute of Certified Public Accountants ("AICPA") and its interpretations
-----
and rulings thereunder. The historical financial statements (including the
related notes) contained in the Offering Memorandum have been prepared in
accordance with generally accepted accounting principles consistently
applied throughout the periods covered thereby and fairly present the
financial position of the entities purported to be covered thereby at the
respective dates indicated and the results of their operations and their
cash flows for the respective periods indicated; and the financial
information contained in the Offering Memorandum under the headings
"Summary--Summary Unaudited Pro Forma
-8-
<PAGE>
Combined Financial Data", "Summary Historical Combined Financial Data",
"Capitalization", "Unaudited Pro Forma Combined Financial Data", "Selected
Historical Combined Financial Data", "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Management--
Executive Compensation" are derived from the accounting records of the
Company and its subsidiaries and fairly present the information purported
to be shown thereby. The pro forma financial information contained in the
Offering Memorandum has been prepared on a basis consistent with the
historical financial statements contained in the Offering Memorandum
(except for the pro forma and supplemental adjustments specified therein),
includes all material adjustments to the historical financial information
required by Rule 11-02 of Regulation S-X under the Securities Act and the
Exchange Act to reflect the transactions described in the Offering
Memorandum, gives effect to assumptions made on a reasonable basis and
fairly presents the historical and proposed transactions contemplated by
the Offering Memorandum and the Transaction Documents. The other historical
financial and statistical information and data included in the Offering
Memorandum are, in all material respects, fairly presented.
(u) Except as disclosed in the Offering Memorandum, there are no
legal or governmental proceedings pending to which any Issuer is a party or
of which any property or assets of any Issuer is the subject which,
singularly or in the aggregate, if determined adversely to the Company or
any of the Subsidiaries, could reasonably be expected to have a Material
Adverse Effect; and to the best knowledge of each Issuer, no such
proceedings are threatened or contemplated by governmental authorities or
threatened by others.
(v) No action has been taken and no statute, rule, regulation or
order has been enacted, adopted or issued by any governmental agency or
body which prevents the issuance of the Securities or suspends the sale of
the Securities in any jurisdiction; no injunction, restraining order or
order of any nature by any federal or state court of competent jurisdiction
has been issued with respect to the Company or any of its subsidiaries
which would prevent or suspend the issuance or sale of the Securities or
the use of the Preliminary Offering Memorandum or the Offering Memorandum
in any jurisdiction; no action, suit or proceeding is pending against or,
to the best knowledge of each Issuer, threatened against or affecting any
Issuer or any of their subsidiaries before any court or arbitrator or any
governmental agency, body or official, domestic or foreign, which could
reasonably be expected to interfere with or adversely affect the issuance
of the Securities or in any manner draw into question the validity or
enforceability of any of the Transaction Documents or any action taken or
to be taken pursuant thereto; and each Issuer has complied with any and all
requests by any securities
-9-
<PAGE>
authority in any jurisdiction for additional information to be included in
the Preliminary Offering Memorandum and the Offering Memorandum.
(w) No Issuer is (i) in violation of its charter or by-laws, (ii) in
default in any material respect, and no event has occurred which, with
notice or lapse of time or both, would constitute such a default, in the
due performance or observance of any term, covenant or condition contained
in any material indenture, mortgage, deed of trust, loan agreement or other
material agreement or instrument to which it is a party or by which it is
bound or to which any of its property or assets is subject or (iii) in
violation in any material respect of any law, ordinance, governmental rule,
regulation or court decree to which it or its property or assets may be
subject.
(x) Each Issuer possesses all material licenses, certificates,
authorizations and permits issued by, and has made all declarations and
filings with, the appropriate federal, state or foreign regulatory agencies
or bodies which are necessary for the ownership of its properties or the
conduct of its businesses as described in the Offering Memorandum, except
where the failure to possess or make the same would not, singularly or in
the aggregate, have a Material Adverse Effect, and no Issuer has received
notification of any revocation or modification of any such license,
certificate, authorization or permit.
(y) Each Issuer has filed all federal, state, local and foreign
income and franchise tax returns required to be filed through the date
hereof and has paid all taxes due thereon, and no tax deficiency has been
determined adversely to any Issuer which has had (nor does any Issuer have
any knowledge of any tax deficiency which, if determined adversely to any
Issuer, could reasonably be expected to have) a Material Adverse Effect.
(z) No Issuer is (i) an "investment company" or a company "controlled
by" an investment company within the meaning of the Investment Company Act
of 1940, as amended (the "Investment Company Act"), and the rules and
----------------------
regulations of the Commission thereunder or (ii) a "holding company" or a
"subsidiary company" of a holding company or an "affiliate" thereof within
the meaning of the Public Utility Holding Company Act of 1935, as amended.
(aa) Each Issuer maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management's general or specific
authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability; (iii) access to
as-
-10-
<PAGE>
sets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared
with the existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
(bb) Each Issuer has insurance covering its properties, operations,
personnel and businesses, which insurance is in amounts and insures against
such losses and risks as are consistent with industry practice to protect
each Issuer and its businesses. No Issuer has received notice from any
insurer or agent of such insurer that capital improvements or other
expenditures are required or necessary to be made in order to continue such
insurance.
(cc) Each Issuer owns or possesses the right to use all material
patents, patent applications, trademarks, service marks, trade names,
trademark registrations, service mark registrations, copyrights, licenses
and know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or
procedures) used in the conduct of its businesses currently operated or
proposed to be operated by it; and no Issuer has received any notice of any
claim of conflict in any material respect with any such rights of others.
(dd) Except as disclosed in the Offering Memorandum, each Issuer has
good and marketable title to, or has valid rights to lease or otherwise
use, all items of real and personal property which are material to the
business of the Issuers taken as a whole, in each case free of all liens,
encumbrances and defects of title except such as (i) do not materially
interfere with the use made and proposed to be made of such property by any
Issuer or (ii) could not reasonably be expected to have a Material Adverse
Effect.
(ee) Except as disclosed in the Offering Memorandum, no labor
disturbance by or dispute with the employees of any Issuer exists or, to
the best knowledge of each Issuer, is imminent that would, either
singularly or in the aggregate, have a Material Adverse Effect.
(ff) No "prohibited transaction" (as defined in Section 406 of the
Employee Retirement Income Security Act of 1974, as amended, including the
regulations and published interpretations thereunder ("ERISA"), or Section
-----
4975 of the Internal Revenue Code of 1986, as amended from time to time
(the "Code")) or "accumulated funding deficiency" (as defined in Section
----
302 of ERISA) or any of the events set forth in Section 4043(b) of ERISA
(other than events with respect to which the 30-day notice requirement
under Section 4043 of ERISA has been waived) has occurred with
-11-
<PAGE>
respect to any employee benefit plan of any Issuer which could reasonably
be expected to have a Material Adverse Effect; each such employee benefit
plan is in compliance in all material respects with applicable law,
including ERISA and the Code; each Issuer has not incurred and does not
expect to incur liability under Title IV of ERISA with respect to the
termination of, or withdrawal from, any pension plan for which any Issuer
would have any liability; and each such pension plan that is intended to be
qualified under Section 401(a) of the Code is so qualified in all material
respects and nothing has occurred, whether by action or by failure to act,
which could reasonably be expected to cause the loss of such qualification.
(gg) There has been no storage, generation, transportation, handling,
treatment, disposal, discharge, emission or other release of any kind of
toxic or other wastes or other hazardous substances by, due to or caused by
any Issuer (or, to the best knowledge of each Issuer, any other entity
(including any predecessor) for whose acts or omissions any Issuer is or
could reasonably be expected to be liable) upon any of the property now or
previously owned or leased by any Issuer, or upon any other property, in
violation of any statute or any ordinance, rule, regulation, order,
judgment, decree or permit or which would, under any statute or any
ordinance, rule (including rule of common law), regulation, order,
judgment, decree or permit, give rise to any liability, except for any
violation or liability could not reasonably be expected to have, singularly
or in the aggregate with all such violations and liabilities, a Material
Adverse Effect; and there has been no disposal, discharge, emission or
other release of any kind onto such property or into the environment
surrounding such property of any toxic or other wastes or other hazardous
substances with respect to which any Issuer has knowledge, except for any
such disposal, discharge, emission or other release of any kind which could
not reasonably be expected to have, singularly or in the aggregate with all
such discharges and other releases, a Material Adverse Effect.
(hh) No Issuer nor, to the best knowledge of any Issuer, any director,
officer, agent, employee or other person associated with or acting on
behalf of any Issuer has (i) used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expense relating to
political activity; (ii) made any direct or indirect unlawful payment to
any foreign or domestic government official or employee from corporate
funds; (iii) violated or is in violation of any provision of the Foreign
Corrupt Practices Act of 1977; or (iv) made any bribe, rebate, payoff,
influence payment, kickback or other unlawful payment.
(ii) Except as described in the Offering Memorandum, there are no
outstanding subscriptions, rights, warrants, calls or options to acquire,
or instruments convertible into or exchangeable for, or agreements or
understandings with respect to
-12-
<PAGE>
the sale or issuance of, any shares of capital stock of or other equity or
other ownership interest in any Issuer.
(jj) No Issuer owns any "margin securities" as that term is defined in
Regulation U of the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board"), and none of the proceeds of the sale of the
---------------------
Securities will be used, directly or indirectly, for the purpose of
purchasing or carrying any margin security, for the purpose of reducing or
retiring any indebtedness which was originally incurred to purchase or
carry any margin security or for any other purpose which might cause any of
the Securities to be considered a "purpose credit" within the meanings of
Regulation T, U or X of the Federal Reserve Board.
(kk) Except as disclosed in the Offering Memorandum, none of the
Issuers is a party to any contract, agreement or understanding with any
person that would give rise to a valid claim against any Issuer or the
Initial Purchasers for a brokerage commission, finder's fee or like payment
in connection with the offering and sale of the Units.
(ll) The Units satisfy the eligibility requirements for resales to
"qualified institutional buyers" pursuant to Rule 144A(d)(3) under the
Securities Act.
(mm) None of the Issuers, any of their affiliates or any person acting
on its or their behalf has engaged or will engage in any directed selling
efforts (as such term is defined in Regulation S under the Securities Act
("Regulation S")), and all such persons have complied and will comply with
------------
the offering-restrictions requirement of Regulation S to the extent
applicable.
(nn) None of the Issuers nor any of their affiliates has, directly or
through any agent, sold, offered for sale, solicited offers to buy or
otherwise negotiated in respect of, any security (as such term is defined
in the Securities Act) which is or will be integrated with the sale of the
Units in a manner that would require registration of any of the Securities
under the Securities Act.
(oo) None of the Issuers or any of their affiliates or any other
person acting on its or their behalf has engaged, in connection with the
offering of the Units, in any form of general solicitation or general
advertising within the meaning of Rule 502(c) under the Securities Act.
-13-
<PAGE>
(pp) There are no securities of any Issuer registered under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or listed
------------
on a national securities exchange or quoted in a U.S. automated inter-
dealer quotation system.
(qq) The Issuers have not taken and will not take, directly or
indirectly, any action prohibited by Regulation M under the Exchange Act in
connection with the offering of the Securities.
(rr) None of the Issuers nor any of their subsidiaries does business
with the government of Cuba or with any person or affiliate located in Cuba
within the meaning of Florida Statutes Section 517.075.
(ss) Since the date as of which information is given in the Offering
Memorandum, except as otherwise stated therein, (i) there has been no
material adverse change or any development involving a prospective material
adverse change in the condition, financial or otherwise, or in the
earnings, business affairs, management or business prospects of the
Issuers, taken as a whole, whether or not arising in the ordinary course of
business, (ii) no Issuer has incurred any material liability or obligation,
direct or contingent, other than in the ordinary course of business, (iii)
no Issuer has entered into any material transaction other than in the
ordinary course of business and (iv) there has not been any change in the
capital stock or long-term debt of any Issuer, or any dividend or
distribution of any kind declared, paid or made by any Issuer on any class
of its capital stock.
2. Purchase and Resale of the Units. (a) On the basis of the
--------------------------------
representations, warranties and agreements contained herein, and subject to the
terms and conditions set forth herein, the Issuers agree to issue and sell to
each of the Initial Purchasers, severally and not jointly, and each of the
Initial Purchasers, severally and not jointly, agrees to purchase from the
Issuers, the number of Units set forth opposite the name of such Initial
Purchaser on Schedule I hereto at a purchase price of $933.77 per Unit. Each of
----------
the Guarantors will issue its Guarantee at the time of issuance and sale of the
Notes. The Issuers shall not be obligated to deliver any of the Units except
upon payment for all of the Units to be purchased as provided herein.
(b) The Initial Purchasers have advised the Issuers that they propose
to offer the Units for resale upon the terms and subject to the conditions set
forth herein and in the Offering Memorandum. Each Initial Purchaser, severally
and not jointly, represents, warrants and agrees that (i) it is purchasing the
Units pursuant to a private sale exempt from registration under the Securities
Act, (ii) it has not solicited offers for, or offered or sold, and will not
solicit offers for, or offer or sell, the Securities by means of any form of
general solicitation or
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<PAGE>
general advertising within the meaning of Rule 502(c) of Regulation D under the
Securities Act ("Regulation D") or in any manner involving a public offering
------------
within the meaning of Section 4(2) of the Securities Act and (iii) it has
solicited and will solicit offers for the Units only from, and has offered or
sold and will offer, sell or deliver the Units, as part of their initial
offering, only (A) within the United States (x) to persons whom it reasonably
believes to be qualified institutional buyers ("Qualified Institutional
-----------------------
Buyers"), as defined in Rule 144A under the Securities Act ("Rule 144A"), or if
- ------ ---------
any such person is buying for one or more institutional accounts for which such
person is acting as fiduciary or agent, only when such person has represented to
it that each such account is a Qualified Institutional Buyer to whom notice has
been given that such sale or delivery is being made in reliance on Rule 144A and
in each case, in transactions in accordance with Rule 144A or (y) to a limited
number of other institutional investors reasonably believed by the Initial
Purchasers to be institutional "Accredited Investors", as defined under Rule
501(a)(1), (2), (3) or (7) under the Securities Act, and (B) outside the United
States to persons other than U.S. persons in reliance on Regulation S under the
Securities Act ("Regulation S").
------------
(c) In connection with the offer and sale of Units in reliance on
Regulation S, each Initial Purchaser, severally and not jointly, represents,
warrants and agrees that:
(i) The Units have not been registered under the Securities Act and
may not be offered or sold within the United States or to, or for the
account or benefit of, U.S. persons except pursuant to an exemption from,
or in transactions not subject to, the registration requirements of the
Securities Act.
(ii) Such Initial Purchaser has offered and sold the Units, and will
offer and sell the Units, (A) as part of their distribution at any time and
(B) otherwise until 40 days after the later of the commencement of the
offering of the Securities and the Closing Date, only in accordance with
Regulation S, Rule 144A or Rules 501(a) (1), (2), (3) or (7) or any other
available exemption from registration under the Securities Act.
(iii) None of such Initial Purchaser or any of its affiliates or any
other person acting on its or their behalf has engaged or will engage in
any directed selling efforts with respect to the Units, and all such
persons have complied and will comply with the offering restrictions
requirement of Regulation S.
(iv) At or prior to the confirmation of sale of any Units sold in
reliance on Regulation S, it will have sent to each distributor, dealer or
other person receiving a selling concession, fee or other remuneration that
purchase Units from it during the restricted period a confirmation or
notice to substantially the following effect:
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<PAGE>
"The Securities covered hereby have not been registered under the U.S.
Securities Act of 1933, as amended (the "Securities Act"), and may not
be offered or sold within the United States or to, or for the account
or benefit of, U.S. persons (i) as part of their distribution at any
time or (ii) otherwise until 40 days after the later of the
commencement of the offering of the Securities and the date of
original issuance of the Securities, except in accordance with
Regulation S Rules 501(a)(1), (2), (3) or (7) or Rule 144A or any
other available exemption from registration under the Securities Act.
Terms used above have the meanings given to them by Regulation S."
(v) It has not and will not enter into any contractual arrangement
with any distributor with respect to the distribution of the Units, except
with its affiliates or with the prior written consent of the Company and
Holdings.
Terms used in this Section 2(c) have the meanings given to them by Regulation S.
(d) Each Initial Purchaser, severally and not jointly, represents,
warrants and agrees that (i) it has not offered or sold and prior to the date
six months after the Closing Date will not offer or sell any Units to persons in
the United Kingdom except to persons whose ordinary activities involve them in
acquiring, holding, managing or disposing of investments (as principal or agent)
for the purposes of their businesses or otherwise in circumstances which have
not resulted and will not result in an offer to the public in the United Kingdom
within the meaning of the Public Offers of Securities Regulations 1995; (ii) it
has complied and will comply with all applicable provisions of the Financial
Services Act 1986 and the Public Offers of Securities Regulations 1995 with
respect to anything done by it in relation to the Securities in, from or
otherwise involving the United Kingdom; and (iii) it has only issued or passed
on and will only issue or pass on in the United Kingdom any document received by
it in connection with the issue of the Units to a person who is of a kind
described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 or is a person to whom such document may
otherwise lawfully be issued or passed on.
(e) Each Initial Purchaser, severally and not jointly, agrees that,
prior to or simultaneously with the confirmation of sale by such Initial
Purchaser to any purchaser of any of the Units purchased by such Initial
Purchaser from the Issuers pursuant hereto, such Initial Purchaser shall furnish
to that purchaser a copy of the Offering Memorandum (and any amendment or
supplement thereto that the Issuers shall have furnished to such Initial
Purchaser prior to the date of such confirmation of sale). In addition to the
foregoing, each Initial Purchaser acknowledges and agrees that the Issuers and,
for purposes of the opinions to be delivered to the Initial Purchasers pursuant
to Sections 5(d) and (e), counsel for the Issuers and for the Initial
Purchas-
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<PAGE>
ers, respectively, may rely upon the accuracy of the representations and
warranties of the Initial Purchasers and their compliance with their agreements
contained in this Section 2, and each Initial Purchaser hereby consents to such
reliance.
(f) The Issuers acknowledge and agree that the Initial Purchasers may
sell Securities to any affiliate of an Initial Purchaser and that any such
affiliate may sell Securities purchased by it to an Initial Purchaser.
3. Delivery of and Payment for the Units. (a) Delivery of and payment
-------------------------------------
for the Units shall be made at the offices of Kirkland & Ellis, New York, New
York, or at such other place as shall be agreed upon by the Initial Purchasers
and the Issuers, at 10:00 A.M., New York City time, on August 6, 1999, or at
such other time or date, not later than seven full business days thereafter, as
shall be agreed upon by the Initial Purchasers and the Issuers (such date and
time of payment and delivery being referred to herein as the "Closing Date").
------------
(b) On the Closing Date, payment of the purchase price for the Units
shall be made to the Company and Holdings by wire or book-entry transfer of
same-day funds to such account or accounts as the Company and Holdings shall
specify prior to the Closing Date or by such other means as the parties hereto
shall agree prior to the Closing Date against delivery to the Initial Purchasers
of the certificates evidencing the Units, the Notes and the Warrants. Time
shall be of the essence, and delivery at the time and place specified pursuant
to this Agreement is a further condition of the obligations of the Initial
Purchasers hereunder. Upon delivery, the Units, the Notes and the Warrants
shall be in global form, registered in such names and in such denominations as
CSI on behalf of the Initial Purchasers shall have requested in writing not less
than two full business days prior to the Closing Date. The Issuers agree to
make one or more global certificates evidencing the Units, the Notes and the
Warrants available for inspection by CSI on behalf of the Initial Purchasers in
New York, New York at least 24 hours prior to the Closing Date.
4. Further Agreements of the Issuers. Each of the Issuers agrees
---------------------------------
with each of the several Initial Purchasers:
(a) prior to the resale of the Units by the Initial Purchasers, to
advise the Initial Purchasers promptly and, if requested, confirm such
advice in writing, of the happening of any event which makes any statement
of a material fact made in the Offering Memorandum untrue or which requires
the making of any additions to or changes in the Offering Memorandum (as
amended or supplemented from time to time) in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; and upon receipt of such notice, each Initial
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<PAGE>
Purchaser agrees to suspend use of the Offering Memorandum until the
Issuers have amended or supplemented the Offering Memorandum to correct
such misstatement or omission or to effect compliance with this paragraph
(a); to advise the Initial Purchasers promptly of any order preventing or
suspending the use of the Preliminary Offering Memorandum or the Offering
Memorandum, of any suspension of the qualification of the Securities for
offering or sale in any jurisdiction and of the initiation or threatening
of any proceeding for any such purpose; and to use its best efforts to
prevent the issuance of any such order preventing or suspending the use of
the Preliminary Offering Memorandum or the Offering Memorandum or
suspending any such qualification and, if any such suspension is issued, to
obtain the lifting thereof at the earliest possible time;
(b) to furnish as soon as available to each of the Initial Purchasers
and counsel for the Initial Purchasers, without charge, as many copies of
the Preliminary Offering Memorandum and the Offering Memorandum (and any
amendments or supplements thereto) as may be reasonably requested;
(c) prior to making any amendment or supplement to the Offering
Memorandum, to furnish a copy thereof to each of the Initial Purchasers and
counsel for the Initial Purchasers and not to effect any such amendment or
supplement to which the Initial Purchasers shall reasonably object by
notice to the Issuers after a reasonable period to review;
(d) if, at any time prior to completion of the resale of the
Securities by the Initial Purchasers, any event shall occur or condition
exist as a result of which it is necessary, in the opinion of counsel for
the Initial Purchasers or counsel for the Issuers, to amend or supplement
the Offering Memorandum in order that the Offering Memorandum will not
include an untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements therein, in the light of the
circumstances existing at the time it is delivered to a purchaser, not
misleading, or if it is necessary to amend or supplement the Offering
Memorandum to comply with applicable law, to promptly prepare such
amendment or supplement as may be necessary to correct such untrue
statement or omission or so that the Offering Memorandum, as so amended or
supplemented, will comply with applicable law;
(e) for so long as any Securities are outstanding and are "restricted
securities" within the meaning of Rule 144(a)(3) under the Securities Act,
to furnish to holders of the Securities and prospective purchasers of the
Securities designated by such holders, upon request of such holders or such
prospective purchasers, the information required to be delivered pursuant
to Rule 144A(d)(4) under the Securities Act, unless
-18-
<PAGE>
the Issuers are then subject to and in compliance with Section 13 or 15(d)
of the Exchange Act (the foregoing agreement being for the benefit of the
holders from time to time of the Securities and prospective purchasers of
the Securities designated by such holders);
(f) for so long as any Securities are outstanding, to furnish to each
Initial Purchaser, as soon as practicable after the end of each fiscal
year, a copy of its annual report to stockholders for such year and, as
soon as available, a copy of each report filed by the Company with the
Commission on Forms 10-K, 10-Q and 8-K, or such other similar forms as may
be designated by the Commission, and such other documents, reports and
information as shall be furnished by the Company or Holdings to the
Trustee, the Warrant Agent or to the holders of the Securities pursuant to
the Indenture, the Warrant Agreement or the Exchange Act or any rule or
regulation of the Commission thereunder;
(g) to promptly take from time to time such actions as the Initial
Purchasers may reasonably request to qualify the Securities for offering
and sale under the securities or Blue Sky laws of such jurisdictions as the
Initial Purchasers may designate and to continue such qualifications in
effect for so long as required for the resale of the Securities; and to
arrange for the determination of the eligibility for investment of the
Securities under the laws of such jurisdictions as the Initial Purchasers
may reasonably request; provided that Holdings and its subsidiaries shall
--------
not be obligated to qualify as foreign corporations in any jurisdiction in
which they are not so qualified or to file a general consent to service of
process in any jurisdiction;
(h) to assist the Initial Purchasers in arranging for the Units, the
Notes and the Warrants to be designated Portal Market ("Portal Market")
-------------
securities in accordance with the rules and regulations adopted by the
National Association of Securities Dealers, Inc. ("NASD") relating to
----
trading in the Portal Market and for the Securities to be eligible for
clearance and settlement through The Depository Trust Company ("DTC");
---
(i) not to, and to cause its affiliates not to, sell, offer for sale
or solicit offers to buy or otherwise negotiate in respect of any security
(as such term is defined in the Securities Act) which could be integrated
with the sale of the Securities in a manner which would require
registration of the Securities under the Securities Act;
(j) except following the effectiveness of the Exchange Offer
Registration Statement or the Shelf Registration Statement, as the case may
be, not to, and to cause its affiliates not to, and not to authorize or
knowingly permit any person acting on their
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<PAGE>
behalf to, solicit any offer to buy or offer to sell the Securities by
means of any form of general solicitation or general advertising within the
meaning of Regulation D or in any manner involving a public offering within
the meaning of Section 4(2) of the Securities Act; and not to offer, sell,
contract to sell or otherwise dispose of, directly or indirectly, any
securities under circumstances where such offer, sale, contract or
disposition would cause the exemption afforded by Section 4(2) of the
Securities Act to cease to be applicable to the offering and sale of the
Securities as contemplated by this Agreement and the Offering Memorandum;
(k) for a period of 180 days from the date of the Offering
Memorandum, not to offer for sale, sell, contract to sell or otherwise
dispose of, directly or indirectly, or file a registration statement for,
or announce any offer, sale, contract for sale of or other disposition of
any debt securities issued or guaranteed by any of the Issuers (other than
the Securities) without the prior written consent of the Initial
Purchasers;
(l) during the period from the Closing Date until two years after the
Closing Date, without the prior written consent of the Initial Purchasers,
not to, and not permit any of its affiliates (as defined in Rule 144 under
the Securities Act) to, resell any of the Securities that have been
reacquired by them, except for Securities purchased by the Company or any
of its affiliates and resold in a transaction registered under the
Securities Act;
(m) not to, for so long as the Securities are outstanding, be or
become, or be or become owned by, an open-end investment company, unit
investment trust or face-amount certificate company that is or is required
to be registered under Section 8 of the Investment Company Act, and to not
be or become, or be or become owned by, a closed-end investment company
required to be registered, but not registered thereunder;
(n) in connection with the offering of the Securities, until CSI on
behalf of the Initial Purchasers shall have notified the Company of the
completion of the resale of the Securities, not to, and to cause its
affiliated purchasers (as defined in Regulation M under the Exchange Act)
not to, either alone or with one or more other persons, bid for or
purchase, for any account in which it or any of its affiliated purchasers
has a beneficial interest, any Securities, or attempt to induce any person
to purchase any Securities; and not to, and to cause its affiliated
purchasers not to, make bids or purchase for the purpose of creating
actual, or apparent, active trading in or of raising the price of the
Securities;
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<PAGE>
(o) in connection with the offering of the Securities, to make its
officers, employees, independent accountants and legal counsel reasonably
available upon request by the Initial Purchasers;
(p) to furnish to each of the Initial Purchasers on the date hereof a
copy of the independent accountants' report included in the Offering
Memorandum signed by the accountants rendering such report;
(q) to do and perform all things required to be done and performed by
it under this Agreement that are within its control prior to or after the
Closing Date, and to use its best efforts to satisfy all conditions
precedent on its part to the delivery of the Securities;
(r) to not take any action prior to the execution and delivery of the
Transaction Documents which, if taken after such execution and delivery,
would have violated any of the covenants contained in the Transaction
Documents;
(s) to not take any action prior to the Closing Date which would
require the Offering Memorandum to be amended or supplemented pursuant to
Section 4(d);
(t) prior to the Closing Date, not to issue any press release or
other communication directly or indirectly or hold any press conference
with respect to any Issuer, its condition, financial or otherwise, or
earnings, business affairs or business prospects (except for routine oral
marketing communications in the ordinary course of business and consistent
with the past practices of such Issuer and of which the Initial Purchasers
are notified), without the prior written consent of the Initial Purchasers,
unless in the judgment of such Issuer and its counsel, and after
notification to the Initial Purchasers, such press release or communication
is required by law; and
(u) to apply the net proceeds from the sale of the Units as set forth
in the Offering Memorandum under the heading "Use of Proceeds".
5. Conditions of Initial Purchasers' Obligations. The respective
---------------------------------------------
obligations of the several Initial Purchasers hereunder are subject to the
accuracy, on and as of the date hereof and, in all material respects, as of the
Closing Date, of the representations and warranties of each of the Issuers
contained herein, to the accuracy of the statements of each of the Issuers and
its officers made in any certificates delivered pursuant hereto, to the
performance by each of the Issuers of its respective obligations hereunder, and
to each of the following additional terms and conditions:
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<PAGE>
(a) The Offering Memorandum (and any amendments or supplements
thereto) shall have been printed and copies distributed to the Initial
Purchasers as promptly as practicable on or following the date of this
Agreement or at such other date and time as to which the Initial Purchasers
may agree; and no stop order suspending the sale of the Securities in any
jurisdiction shall have been issued and no proceeding for that purpose
shall have been commenced or shall be pending or threatened.
(b) None of the Initial Purchasers shall have discovered and
disclosed in writing to any of the Issuers on or prior to the Closing Date
that the Offering Memorandum or any amendment or supplement thereto
contains an untrue statement of a fact which, in the opinion of counsel for
the Initial Purchasers, is material or omits to state any fact which, in
the opinion of such counsel, is material and is required to be stated
therein or is necessary to make the statements therein not misleading.
(c) All corporate proceedings and other legal matters incident to the
authorization, form and validity of each of the Transaction Documents and
the Offering Memorandum, and all other legal matters relating to the
Transaction Documents and the transactions contemplated thereby, shall be
satisfactory in all material respects to the Initial Purchasers, and each
Issuer shall have furnished to the Initial Purchasers all documents and
information that they or their counsel may reasonably request to enable
them to pass upon such matters.
(d) Kirkland & Ellis shall have furnished to the Initial Purchasers
their written opinion, as counsel to the Issuers, addressed to the Initial
Purchasers and dated the Closing Date, in the form and substance set forth
in Annex B hereto.
-------
(e) Hunton & Williams, local Virginia counsel to Holdings, shall have
furnished to the Initial Purchasers their written opinion, addressed to the
Initial Purchasers and dated the Closing Date in form and substance
reasonably acceptable to the Initial Purchasers.
(f) The Initial Purchasers shall have received from Cahill Gordon &
Reindel, counsel for the Initial Purchasers, such opinion or opinions,
dated the Closing Date, with respect to such matters as the Initial
Purchasers may reasonably require, and each Issuer shall have furnished to
such counsel such documents and information as they reasonably request for
the purpose of enabling them to pass upon such matters.
(g) Each of the Issuers shall have furnished to the Initial
Purchasers a letter (the "Initial Letter") of each of Deloitte & Touche LLP
--------------
and KPMG LLP addressed to
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<PAGE>
the Initial Purchasers and dated the date hereof, in form and substance
satisfactory to the Initial Purchasers.
(h) Each of the Issuers shall have furnished to the Initial
Purchasers a letter (the "Bring-Down Letter") of Deloitte & Touche LLP and
-----------------
KPMG LLP, addressed to the Initial Purchasers and dated the Closing Date
(i) confirming that they are independent public accountants with respect to
the Issuers and their subsidiaries within the meaning of Rule 101 of the
Code of Professional Conduct of the AICPA and its interpretations and
rulings thereunder, (ii) stating, as of the date of the Bring-Down Letter
(or, with respect to matters involving changes or developments since the
respective dates as of which specified financial information is given in
the Offering Memorandum, as of a date not more than three business days
prior to the date of the Bring-Down Letter), that the conclusions and
findings of such accountants with respect to the financial information and
other matters covered by the Initial Letter are accurate and (iii)
confirming in all material respects the conclusions and findings set forth
in the Initial Letter.
(i) Each of the Company and Holdings shall have furnished to the
Initial Purchasers a certificate, dated the Closing Date, of its vice
presidents stating that (A) such officers have carefully examined the
Offering Memorandum, (B) in their opinion, the Offering Memorandum, as of
its date, did not include any untrue statement of a material fact and did
not omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, and since the
date of the Offering Memorandum, no event has occurred which should have
been set forth in a supplement or amendment to the Offering Memorandum so
that the Offering Memorandum (as so amended or supplemented) would not
include any untrue statement of a material fact and would not omit to state
a material fact required to be stated therein or necessary in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading and (C) as of the Closing Date, the
representations and warranties of such Issuer in this Agreement are true
and correct in all material respects, such Issuer has complied with all
agreements and satisfied all conditions on its part to be performed or
satisfied hereunder on or prior to the Closing Date, and subsequent to the
date of the most recent financial statements contained in the Offering
Memorandum, there has been no material adverse change in the financial
position or results of operation of the Company or any of the Subsidiaries,
or any change, or any development including a prospective change, in or
affecting the condition (financial or otherwise), results of operations,
business or prospects of the Company and the Subsidiaries taken as a whole,
except as set forth in the Offering Memorandum.
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<PAGE>
(j) The Initial Purchasers shall have received a counterpart of each
Registration Rights Agreement which shall have been duly executed and
delivered by a duly authorized officer of each of the applicable Issuers.
(k) The Indenture shall have been duly executed and delivered by each
of the Notes Issuers and the Trustee in form and substance reasonably
satisfactory to the Initial Purchasers, and the Notes shall have been duly
executed and delivered by the Company and duly authenticated by the Trustee
and the Guarantee of each Guarantor shall have been endorsed thereon.
(l) The Units shall have been duly executed and delivered by each of
the Issuers and the Unit Agent in form and substance reasonably
satisfactory to the Initial Purchasers.
(m) The Warrants shall have been duly executed and delivered by
Holdings and the Warrant Agent in form and substance reasonably
satisfactory to the Initial Purchasers.
(n) The Securities shall have been approved by the NASD for trading
in the Portal Market.
(o) If any event shall have occurred that requires the Issuers under
Section 4(d) to prepare an amendment or supplement to the Offering
Memorandum, such amendment or supplement shall have been prepared, the
Initial Purchasers shall have been given a reasonable opportunity to
comment thereon, and copies thereof shall have been delivered to the
Initial Purchasers reasonably in advance of the Closing Date.
(p) There shall not have occurred any invalidation of Rule 144A under
the Securities Act by any court or any withdrawal or proposed withdrawal of
any rule or regulation under the Securities Act or the Exchange Act by the
Commission or any amendment or proposed amendment thereof by the Commission
which in the reasonable judgment of the Initial Purchasers would materially
impair the ability of the Initial Purchasers to purchase, hold or effect
resales of the Securities as contemplated hereby.
(q) Subsequent to the execution and delivery of this Agreement or, if
earlier, the dates as of which information is given in the Offering
Memorandum (exclusive of any amendment or supplement thereto), there shall
not have been any change in the capital stock or long-term debt or any
change, or any development involving a prospective change, in or affecting
the condition (financial or otherwise), results of op-
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<PAGE>
erations, business or prospects of the Issuers taken as a whole, the effect
of which, in any such case described above, is, in the reasonable judgment
of the Initial Purchasers, so material and adverse as to make it
impracticable or inadvisable to proceed with the sale or delivery of the
Securities on the terms and in the manner contemplated by this Agreement
and the Offering Memorandum (exclusive of any amendment or supplement
thereto).
(r) No action shall have been taken and no statute, rule, regulation
or order shall have been enacted, adopted or issued by any governmental
agency or body which would, as of the Closing Date, prevent the issuance or
sale of the Securities; and no injunction, restraining order or order of
any other nature by any federal or state court of competent jurisdiction
shall have been issued as of the Closing Date which would prevent the
issuance or sale of the Securities.
(s) Subsequent to the execution and delivery of this Agreement (i) no
downgrading shall have occurred in the rating accorded the Notes or any of
the Company's other debt securities or preferred stock by any "nationally
recognized statistical rating organization", as such term is defined by the
Commission for purposes of Rule 436(g)(2) of the rules and regulations of
the Commission under the Securities Act and (ii) no such organization shall
have publicly announced that it has under surveillance or review (other
than an announcement with positive implications of a possible upgrading),
its rating of the Notes or any of the Company's other debt securities or
preferred stock.
(t) Subsequent to the execution and delivery of this Agreement there
shall not have occurred any of the following: (i) trading in securities
generally on the New York Stock Exchange, the American Stock Exchange or
the over-the-counter market shall have been suspended or materially
limited, or minimum prices shall have been established on any such exchange
or market by the Commission, by any such exchange or by any other
regulatory body or governmental authority having jurisdiction, or trading
in any securities of the Issuers on any exchange or in the over-the-counter
market shall have been suspended or (ii) any moratorium on commercial
banking activities shall have been declared by federal or New York state
authorities or (iii) an outbreak or escalation of hostilities or a
declaration by the United States of a national emergency or war or (iv) a
material adverse change in general economic, political or financial
conditions (or the effect of international conditions on the financial
markets in the United States shall be such) the effect of which, in the
case of this clause (iv), is, in the reasonable judgment of the Initial
Purchasers, so material and adverse as to make it impracticable or
inadvisable to proceed with the sale or the delivery of the
-25-
<PAGE>
Units on the terms and in the manner contemplated by this Agreement and in
the Offering Memorandum (exclusive of any amendment or supplement thereto).
(u) On or before the Closing Date, (i) the Credit Agreement shall
have been entered into in form and substance reasonably satisfactory to the
Initial Purchasers, (ii) the Initial Purchasers and counsel for the Initial
Purchasers shall have received executed copies of the Credit Agreement,
dated the Closing Date, and such other documents, opinions and reliance
letters as they shall have reasonably requested, (iii) all conditions
necessary for the effectiveness of the Credit Agreement shall have been
satisfied without waiver or amendment, (iv) after giving effect to the
transactions contemplated by this Agreement and the application of the
proceeds received by the Company from the sale of the Units, no condition
that would constitute a default or event of default under the Credit
Agreement shall exist and (v) no amount shall be outstanding under the
Credit Agreement on the Closing Date (after giving effect to all borrowings
on the Closing Date).
(v) The Company shall contemporaneously consummate the
Recapitalization and the related transactions on substantially the terms
described in the Offering Memorandum, including the Merger, the Credit
Agreement and the Equity Investment, each as described in the Offering
Memorandum, and there shall have been no material amendments, alterations,
modifications or waivers of any material provisions of the Transaction
Agreement as of the Closing Date.
(w) The Initial Purchasers shall have received from Murray Devine &
Co. a solvency opinion with respect to the Issuers, addressed to the
Initial Purchasers and dated the Closing Date, in form and substance
reasonably satisfactory to the Initial Purchasers.
(x) Each of the Transaction Documents shall have been duly executed
and delivered by each of the applicable Issuers in form and substance
reasonably satisfactory to the Initial Purchasers.
All opinions, letters, evidence and certificates mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance reasonably satisfactory
to counsel for the Initial Purchasers.
6. Termination. The obligations of the Initial Purchasers hereunder
-----------
may be terminated by the Initial Purchasers, in their absolute discretion, by
notice given to and received by the Company prior to delivery of and payment for
the Units if, prior to that time,
-26-
<PAGE>
any of the events described in Section 5(p), (q), (r), (s) and (t) shall have
occurred and be continuing.
7. Defaulting Initial Purchasers. (a) If one or more Initial
-----------------------------
Purchaser defaults in its obligation to purchase Units hereunder and the number
of Units that such defaulting Initial Purchasers agreed but failed to purchase
does not exceed 10% of the total number of Units, CSI may make arrangements
satisfactory to the Issuers for the purchase of such Units by other persons,
including other Initial Purchasers, but if no such arrangements are made by the
Closing Date, the non-defaulting Initial Purchasers shall be obligated to
purchase the Units that such defaulting Initial Purchaser agreed but failed to
purchase. If one or more Initial Purchasers so defaults and the number of Units
with respect to which such default occurs exceeds 10% of the total number of
Units and arrangements satisfactory to CSI and the Issuers for the purchase of
such Units by other persons are not made within 36 hours after such default,
this Agreement shall terminate without liability on the part of the non-
defaulting Initial Purchasers or the Issuers, except that the Issuers will
continue to be liable for the payment of expenses to the extent set forth in
Sections 8 and 12 and except that the provisions of Sections 9 and 10 shall not
terminate and shall remain in effect. As used in this Agreement, the term
"Initial Purchasers" includes, for all purposes of this Agreement unless the
context otherwise requires, any party not listed in Schedule I hereto that,
----------
pursuant to this Section 7, purchases Units which a defaulting Initial Purchaser
agreed but failed to purchase.
(b) Nothing contained herein shall relieve a defaulting Initial
Purchaser of any liability it may have to the Issuers or any non-defaulting
Initial Purchaser for damages caused by its default. If other persons are
obligated or agree to purchase the Units of a defaulting Initial Purchaser,
either the non-defaulting Initial Purchasers or the Issuers may postpone the
Closing Date for up to seven full business days in order to effect any changes
that in the opinion of counsel for the Issuers or counsel for the Initial
Purchasers may be necessary in the Offering Memorandum or in any other document
or arrangement, and the Issuers agree to promptly prepare any amendment or
supplement to the Offering Memorandum that effects any such changes.
8. Reimbursement of Initial Purchasers' Expenses. If (a) this
---------------------------------------------
Agreement shall have been terminated pursuant to Section 6 or 7, (b) the Issuers
shall fail to tender the Units for delivery to the Initial Purchasers for any
reason permitted under this Agreement or (c) the Initial Purchasers shall
decline to purchase the Units for any reason permitted under this Agreement, the
Issuers, jointly and severally, shall reimburse the Initial Purchasers for such
out-of-pocket expenses (including reasonable fees and disbursements of counsel)
as shall have been reasonably incurred by the Initial Purchasers in connection
with this Agreement and the proposed purchase and resale of the Units. If this
Agreement is terminated pursuant to
-27-
<PAGE>
Section 7 by reason of the default of one or more of the Initial Purchasers, the
Issuers shall not be obligated to reimburse any defaulting Initial Purchaser on
account of such expenses.
9. Indemnification. (a) Each of the Issuers, jointly and
---------------
severally, shall indemnify and hold harmless each Initial Purchaser, its
affiliates, their respective officers, directors, employees, representatives and
agents, and each person, if any, who controls any Initial Purchaser within the
meaning of the Securities Act or the Exchange Act (collectively referred to for
purposes of this Section 9(a) and Section 10 as an Initial Purchaser), from and
against any loss, claim, damage or liability, joint or several, or any action in
respect thereof (including, without limitation, any loss, claim, damage,
liability or action relating to purchases and sales of the Units), to which that
Initial Purchaser may become subject, whether commenced or threatened, under the
Securities Act, the Exchange Act, any other federal or state statutory law or
regulation, at common law or otherwise, insofar as such loss, claim, damage,
liability or action arises out of, or is based upon, (i) any untrue statement or
alleged untrue statement of a material fact contained in the Preliminary
Offering Memorandum or the Offering Memorandum or in any amendment or supplement
thereto or in any information provided by the Issuers pursuant to Section 4(e)
or (ii) the omission or alleged omission to state therein a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, and shall reimburse each Initial Purchaser promptly upon demand for
any legal or other expenses reasonably incurred by that Initial Purchaser in
connection with investigating or defending or preparing to defend against or
appearing as a third party witness in connection with any such loss, claim,
damage, liability or action as such expenses are incurred; provided, however,
-------- -------
that the Issuers shall not be liable in any such case to the extent that any
such loss, claim, damage, liability or action arises out of, or is based upon,
an untrue statement or alleged untrue statement in or omission or alleged
omission from any of such documents in reliance upon and in conformity with any
Initial Purchasers' Information; and provided, further, that with respect to any
-------- -------
such untrue statement in or omission from the Preliminary Offering Memorandum,
the indemnity agreement contained in this Section 9(a) shall not inure to the
benefit of any such Initial Purchaser to the extent that the sale to the person
asserting any such loss, claim, damage, liability or action was an initial
resale by such Initial Purchaser and any such loss, claim, damage, liability or
action of or with respect to such Initial Purchaser results from the fact that
both (A) to the extent required by applicable law, a copy of the Offering
Memorandum was not sent or given to such person at or prior to the written
confirmation of the sale of such Units to such person and (B) the untrue
statement in or omission from the Preliminary Offering Memorandum was corrected
in the Offering Memorandum unless, in either case, such failure to deliver the
Offering Memorandum was a result of non-compliance by the Issuers with Section
4(b).
-28-
<PAGE>
(b) Each Initial Purchaser, severally and not jointly, shall
indemnify and hold harmless each of the Issuers, its affiliates, their
respective officers, directors, employees, representatives and agents, and each
person, if any, who controls any Issuer within the meaning of the Securities Act
or the Exchange Act (collectively referred to for purposes of this Section 9(b)
and Section 10 as the "Issuers"), from and against any loss, claim, damage or
-------
liability, joint or several, or any action in respect thereof, to which the
Issuers may become subject, whether commenced or threatened, under the
Securities Act, the Exchange Act, any other federal or state statutory law or
regulation, at common law or otherwise, insofar as such loss, claim, damage,
liability or action arises out of, or is based upon, (i) any untrue statement or
alleged untrue statement of a material fact contained in the Preliminary
Offering Memorandum or the Offering Memorandum or in any amendment or supplement
thereto or (ii) the omission or alleged omission to state therein a material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, but in each case only to the extent that the untrue statement or
alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with any Initial Purchasers' Information, and shall
reimburse the Issuers for any legal or other expenses reasonably incurred by the
Issuers in connection with investigating or defending or preparing to defend
against or appearing as a third party witness in connection with any such loss,
claim, damage, liability or action as such expenses are incurred.
(c) Promptly after receipt by an indemnified party under this Section
9 of notice of any claim or the commencement of any action, the indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party pursuant to Section 9(a) or 9(b), notify the indemnifying
party in writing of the claim or the commencement of that action; provided,
--------
however, that the failure to notify the indemnifying party shall not relieve it
- -------
from any liability which it may have under this Section 9 except to the extent
that it has been materially prejudiced (through the forfeiture of substantive
rights or defenses) by such failure; and, provided, further, that the failure to
-------- -------
notify the indemnifying party shall not relieve it from any liability which it
may have to an indemnified party otherwise than under this Section 9. If any
such claim or action shall be brought against an indemnified party, and it shall
notify the indemnifying party thereof, the indemnifying party shall be entitled
to participate therein and, to the extent that it wishes, jointly with any other
similarly notified indemnifying party, to assume the defense thereof with
counsel reasonably satisfactory to the indemnified party. After notice from the
indemnifying party to the indemnified party of its election to assume the
defense of such claim or action, the indemnifying party shall not be liable to
the indemnified party under this Section 9 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than reasonable costs of investigation; provided, however, that an
-------- -------
indemnified party shall have the right to employ its own
-29-
<PAGE>
counsel in any such action, but the fees, expenses and other charges of such
counsel for the indemnified party will be at the expense of such indemnified
party unless (1) the employment of counsel by the indemnified party has been
authorized in writing by the indemnifying party, (2) the indemnified party has
reasonably concluded (based upon advice of counsel to the indemnified party)
that there may be legal defenses available to it or other indemnified parties
that are different from or in addition to those available to the indemnifying
party, (3) a conflict or potential conflict exists (based upon advice of counsel
to the indemnified party) between the indemnified party and the indemnifying
party (in which case the indemnifying party will not have the right to direct
the defense of such action on behalf of the indemnified party) or (4) the
indemnifying party has not in fact employed counsel reasonably satisfactory to
the indemnified party to assume the defense of such action within a reasonable
time after receiving notice of the commencement of the action, in each of which
cases the reasonable fees, disbursements and other charges of counsel will be at
the expense of the indemnifying party or parties. It is understood that the
indemnifying party or parties shall not, in connection with any proceeding or
related proceedings in the same jurisdiction, be liable for the reasonable fees,
disbursements and other charges of more than one separate firm of attorneys (in
addition to any local counsel) at any one time for all such indemnified party or
parties. Each indemnified party, as a condition of the indemnity agreements
contained in Sections 9(a) and 9(b), shall use all reasonable efforts to
cooperate with the indemnifying party in the defense of any such action or
claim. No indemnifying party shall be liable for any settlement of any such
action effected without its written consent (which consent shall not be
unreasonably withheld), but if settled with its written consent or if there be a
final judgment for the plaintiff in any such action, the indemnifying party
agrees to indemnify and hold harmless any indemnified party from and against any
loss or liability by reason of such settlement or judgment. No indemnifying
party shall, without the prior written consent of the indemnified party (which
consent shall not be unreasonably withheld), effect any settlement of any
pending or threatened proceeding in respect of which any indemnified party is or
could have been a party and indemnity could have been sought hereunder by such
indemnified party unless such settlement includes an unconditional release of
such indemnified party from all liability on claims that are the subject matter
of such proceeding.
The obligations of the Issuers and the Initial Purchasers in this
Section 9 and in Section 10 are in addition to any other liability that the
Issuers or the Initial Purchasers, as the case may be, may otherwise have,
including in respect of any breaches of representations, warranties and
agreements made herein by any such party.
10. Contribution. If the indemnification provided for in Section 9
------------
is unavailable or insufficient to hold harmless an indemnified party under
Section 9(a) or 9(b), then each indemnifying party shall, in lieu of
indemnifying such indemnified party, contribute to the amount paid or payable by
such indemnified party as a result of such loss, claim, damage
-30-
<PAGE>
or liability, or action in respect thereof, (i) in such proportion as shall be
appropriate to reflect the relative benefits received by the Issuers on the one
hand and the Initial Purchasers on the other from the offering of the Units or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Issuers on the one hand and the Initial Purchasers on the other with respect
to the statements or omissions that resulted in such loss, claim, damage or
liability, or action in respect thereof, as well as any other relevant equitable
considerations. The relative benefits received by the Issuers on the one hand
and the Initial Purchasers on the other with respect to such offering shall be
deemed to be in the same proportion as the total net proceeds from the offering
of the Units purchased under this Agreement (before deducting expenses) received
by or on behalf of the Issuers, on the one hand, and the total discounts and
commissions received by the Initial Purchasers with respect to the Securities
purchased under this Agreement, on the other, bear to the total gross proceeds
from the sale of the Units under this Agreement. The relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to the Issuers or information supplied by the Issuers on
the one hand or to any Initial Purchasers' Information on the other, the intent
of the parties and their relative knowledge, access to information and
opportunity to correct or prevent such untrue statement or omission. The Issuers
and the Initial Purchasers agree that it would not be just and equitable if
contributions pursuant to this Section 10 were to be determined by pro rata
allocation (even if the Initial Purchasers were treated as one entity for such
purpose) or by any other method of allocation that does not take into account
the equitable considerations referred to herein. The amount paid or payable by
an indemnified party as a result of the loss, claim, damage or liability, or
action in respect thereof, referred to above in this Section 10 shall be deemed
to include, for purposes of this Section 10, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending or preparing to defend any such action or claim. Notwithstanding
the provisions of this Section 10, no Initial Purchaser shall be required to
contribute any amount in excess of the amount by which the total discounts and
commissions received by such Initial Purchaser with respect to the Units
purchased by it under this Agreement exceeds the amount of any damages which
such Initial Purchaser has otherwise paid or become liable to pay by reason of
any untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Initial Purchasers'
obligations to contribute as provided in this Section 10 are several in
proportion to their respective purchase obligations and not joint.
-31-
<PAGE>
11. Persons Entitled to Benefit of Agreement. This Agreement shall
----------------------------------------
inure to the benefit of and be binding upon the Initial Purchasers, each of the
respective Issuers and their respective successors. This Agreement and the terms
and provisions hereof are for the sole benefit of only those persons, except as
provided in Sections 9 and 10 with respect to affiliates, officers, directors,
employees, representatives, agents and controlling persons of the Issuers and
the Initial Purchasers and in Section 4(e) with respect to holders and
prospective purchasers of the Securities. Nothing in this Agreement is intended
or shall be construed to give any person, other than the persons referred to in
this Section 11, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision contained herein.
12. Expenses. Each of the Issuers, jointly and severally, agree
--------
with the Initial Purchasers to pay (a) the costs incident to the authorization,
issuance, sale, preparation and delivery of the Securities and any taxes payable
in that connection; (b) the costs incident to the preparation, printing and
distribution of the Preliminary Offering Memorandum, the Offering Memorandum and
any amendments or supplements thereto; (c) the costs of reproducing and
distributing each of the Transaction Documents; (d) the costs incident to the
preparation, printing and delivery of the certificates evidencing the
Securities, including stamp duties and transfer taxes, if any, payable upon
issuance of the Securities; (e) the fees and expenses of the Issuers' counsel
and independent accountants; (f) the fees and expenses of qualifying the
Securities under the securities laws of the several jurisdictions as provided in
Section 4(h) and of preparing, printing and distributing Blue Sky Memoranda
(including related fees and expenses of counsel for the Initial Purchasers); (g)
any fees charged by rating agencies for rating the Securities; (h) the fees and
expenses of the Trustee, the Unit Agent and the Warrant Agent and any paying
agent (including related fees and expenses of any counsel to such parties); (i)
all expenses and application fees incurred in connection with the application
for the inclusion of the Securities on the Portal Market and the approval of the
Securities for book-entry transfer by DTC; and (j) all other costs and expenses
incident to the performance of the obligations of the Issuers under this
Agreement which are not otherwise specifically provided for in this Section 12;
provided, however, that except as provided in this Section 12 and Section 8,
- -------- -------
the Initial Purchasers shall pay their own costs and expenses.
13. Survival. The respective indemnities, rights of contribution,
--------
representations, warranties and agreements of the Issuers and the Initial
Purchasers contained in this Agreement or made by or on behalf of the Issuers or
the Initial Purchasers pursuant to this Agreement or any certificate delivered
pursuant hereto shall survive the delivery of and payment for the Units and
shall remain in full force and effect, regardless of any termination or
cancellation of this Agreement or any investigation made by or on behalf of any
of them or any of their respective affiliates, officers, directors, employees,
representatives, agents or controlling persons.
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<PAGE>
14. Notices, etc. All statements, requests, notices and agreements
------------
hereunder shall be in writing, and:
(a) if to the Initial Purchasers, shall be delivered or sent by mail
or telecopy transmission to Chase Securities Inc., 270 Park Avenue, New
York, New York 10017, Attention: James C. Neary (telecopier no.: (212) 270-
0994); or
(b) if to the Issuers, shall be delivered or sent by mail or telecopy
transmission to the address of the Company set forth in the Offering
Memorandum, Attention: Jon Studner (telecopier no.: (301) 856-0380);
provided that any notice to an Initial Purchaser pursuant to Section 9(c) shall
- --------
also be delivered or sent by mail to such Initial Purchaser at its address set
forth on the signature page hereof. Any such statements, requests, notices or
agreements shall take effect at the time of receipt thereof. The Issuers shall
be entitled to act and rely upon any request, consent, notice or agreement given
or made on behalf of the Initial Purchasers by CSI.
15. Definition of Terms. For purposes of this Agreement, (a) the
-------------------
term "business day" means any day on which the New York Stock Exchange, Inc. is
open for trading, (b) the term "subsidiary" has the meaning set forth in Rule
405 under the Securities Act and (c) except where otherwise expressly provided,
the term "affiliate" has the meaning set forth in Rule 405 under the Securities
Act.
16. Initial Purchasers' Information. The parties hereto acknowledge
-------------------------------
and agree that, for all purposes of this Agreement, the Initial Purchasers'
Information consists solely of the following information in the Preliminary
Offering Memorandum and the Offering Memorandum: the statements concerning the
Initial Purchasers contained in the third paragraph, the fifth and sixth
sentences of the eighth paragraph and the ninth and tenth paragraphs, in each
case, under the heading "Plan of Distribution".
17. Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of New York.
18. Counterparts. This Agreement may be executed in one or more
------------
counterparts (which may include counterparts delivered by telecopier) and, if
executed in more than one counterpart, the executed counterparts shall each be
deemed to be an original, but all such counterparts shall together constitute
one and the same instrument.
19. Amendments. No amendment or waiver of any provision of this
----------
Agreement, nor any consent or approval to any departure therefrom, shall in any
event be effective unless the same shall be in writing and signed by the parties
hereto.
-33-
<PAGE>
20. Headings. The headings herein are inserted for convenience of
--------
reference only and are not intended to be part of, or to affect the meaning or
interpretation of, this Agreement.
[Signature Pages Follow]
-34-
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to us a counterpart hereof, whereupon this
instrument will become a binding agreement between each of the Issuers and the
several Initial Purchasers in accordance with its terms.
Very truly yours,
MATTRESS DISCOUNTERS CORPORATION
/s/ Jon Studner
By: _____________________________________________
Name: Jon Studner
Title: Senior Vice President
T.J.B., INC., as a Guarantor
/s/ Jon Studner
By: _____________________________________________
Name: Jon Studner
Title: Senior Vice President
THE BEDDING EXPERTS, INC.,
as a Guarantor
/s/ Jon Studner
By: _____________________________________________
Name: Jon Studner
Title: Senior Vice President
MATTRESS DISCOUNTERS HOLDING
CORPORATION
/s/ Michael Krupka
By: _____________________________________________
Name: Michael Krupka
Title:
-35-
<PAGE>
Accepted:
CHASE SECURITIES INC.
/s/ Ira Ginsburg
By: ___________________________________________
Authorized Signatory
Address for notices pursuant to Section 9(c):
1 Chase Plaza, 25th floor
New York, New York 10081
Attention: Legal Department
CIBC WORLD MARKETS CORP.
/s/ Kevin Migiel
By: ___________________________________________
Authorized Signatory
Address for notices pursuant to Section 9(c):
CIBC World Markets Corp.
425 Lexington Avenue
New York, New York 10017
Attention: Kevin Migiel
BANCBOSTON ROBERTSON STEPHENS INC.
/s/ Greg Foy
By: ___________________________________________
Authorized Signatory
Address for notices pursuant to Section 9(c):
BancBoston Robertson Stephens Inc.
100 Federal Street, Mail Stop D1-11-03
Boston, Massachusetts 02110
Attention: Greg Foy
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<PAGE>
SCHEDULE I
----------
Number
Initial Purchasers of Units
- ------------------ ----------
Chase Securities Inc. 98,000
CIBC World Markets Corp. 28,000
BancBoston Robertson Stephens Inc. 14,000
----------
Total 140,000
<PAGE>
ANNEX A-1
---------
[Form of Notes Registration Rights Agreement]
<PAGE>
ANNEX A-2
---------
[Form of Stock Registration Rights Agreement]
<PAGE>
ANNEX B
-------
[Form of Opinion of Counsel for the Issuers]
<PAGE>
EXHIBIT 10.11
INDEMNITY AGREEMENT
This Indemnity Agreement is made as of May 28, 1999, between Heilig-Meyers
Company, a Virginia Corporation ("Seller"), Bain Capital, Inc., a Delaware
Corporation ("Bain") and MD Acquisition Corporation, a Virginia corporation
("Buyer").
RECITALS
A. Seller and Buyer have entered into a Transaction Agreement dated the
date hereof (the "Transaction Agreement"), providing, among other
things, for the contribution by Seller of the outstanding shares of
Mattress Discounters, TJB, and Bedding Experts to Oldco and for the
merger (the "Merger") of Buyer with and into Oldco.
B. Bain has arranged for part of its financing for the Merger and the
transactions contemplated by the Transaction Agreement under
Commitment Letters attached to the Transaction Agreement as Schedule
2.2(f) (the "Commitment Letters"). Oldco and the Companies will
collectively borrow and certain providers of the financing will lend
to Oldco and the Companies as described in the Commitment Letters,
Oldco will cause and Mattress Discounters will issue and sell senior
subordinated notes, and Chase Securities Inc. may sell or purchase
non-cash pay notes, preferred securities or other mezzanine
securities, all such financing as described in the Commitment Letters
(including any offering document registration statement, prospectus or
other document in connection therewith) (the "Debt Offering"). Bain
desires to take all steps necessary with respect to the Debt Offering
prior to the Merger so that the closing of the Debt Offering will
occur at or about the Effective Time.
C. Pursuant to Section 3.4 of the Transaction Agreement, Bain shall be
taking steps towards the consummation of the Debt Offering while
Mattress Discounters, Oldco and the Companies are subsidiaries of
Seller and Bain may request certain assistance from Seller, Oldco and
the Companies in connection therewith. Seller desires certain
protections and indemnities because it is only providing assistance on
behalf of Bain and Seller, Oldco and the Companies while under the
control of Seller, will not be responsible for the Debt Offering.
D. Terms used herein and not otherwise defined shall have the meanings
given to them in the Transaction Agreement.
Now, therefore, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
<PAGE>
1. Indemnification. (a) Bain agrees to indemnify and hold harmless
Seller, the directors, officers, employees and agents of Seller, and each person
who controls Seller (or under common control of Seller) within the meaning of
either Section 15 of the Securities Act of 1933 (the "Act") or Section 20 of the
Securities Exchange Act of 1934 (the "Exchange Act") and their respective
directors, officers, employees and agents as follows: against any and all
losses, claims, damages or liabilities, joint or several, to which they or any
of them may become subject or incur, including, without limitation, under the
Act, the Exchange Act or any Federal or state statutory law or regulation, at
common law or otherwise, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon the Debt
Offering, or are in connection with the Debt Offering, including without
limitation, any losses, claims, damages, or liabilities (or actions in respect
thereof) which arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in any offering document or
registration statement or prospectus, or similar document, or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading; provided, however, that neither Bain nor the Surviving Corporation
-------- -------
shall be liable for any loss, claim, damage, liability or expense to the extent
arising out of any untrue statement or omission or alleged untrue statement or
omission of a material fact required to be stated therein made in reliance upon
and in conformity with written information furnished to Bain, its affiliates or
representatives by or on behalf of Seller specifically for use in any offering
document, registration statement, prospectus or similar document in connection
with the Debt Offering.
(b) Promptly after receipt by Seller of notice of the commencement of
any action by any third party, Seller will, if a claim in respect thereof is to
be made against Bain under this Section 1, notify Bain in writing of the
commencement thereof, but the failure so to notify Bain will not relieve it from
liability under paragraph (a) above unless and to the extent it did not
otherwise learn of such action and such failure results in the forfeiture by
Bain of substantial rights and defenses. Bain shall be entitled to appoint
counsel of its choice at its expense to represent Seller in such proceeding in
any action for which indemnification is sought; provided, however, that such
counsel shall be reasonably satisfactory to Seller. Notwithstanding Bain's
election to appoint counsel to represent Seller in an action, Seller shall have
the right to employ separate counsel, and Bain shall bear the reasonable fees,
costs and expenses of such separate counsel if (i) the use of counsel chosen by
Bain to represent Seller would present such counsel with a conflict of interest,
(ii) the actual or potential defendants in, or targets of, any such action
include both Seller and Bain, (iii) the Seller shall have reasonably concluded
that there may be legal defenses available to it which are different from or
additional to those available to Bain, or (iv) Bain shall authorize in writing
the Seller to employ separate counsel at the expense of Bain. Bain will not,
without the prior written consent of Seller, settle or compromise or consent to
the entry of any judgment with respect to any pending or threatened claim,
action, suit or proceeding in respect of which indemnification or contribution
may be sought hereunder (whether or not Seller is an actual or potential party
to such claim or action) unless such settlement, compromise or consent includes
an
2
<PAGE>
unconditional release of Seller from all liability arising out of such claim,
action, suit or proceeding.
2. Expenses. Bain will pay, or after the Effective Time, shall cause the
--------
Surviving Corporation to pay, all costs and expenses of Seller, Oldco or the
Companies while under the control of Seller, related to or incurred in
connection with the Debt Offering, including, without limitation, reasonable
expenses of investigation and reasonable attorneys' or other consultants' fees
and expenses.
3. Covenants of Bain. Bain shall conduct the Debt Offering in compliance
-----------------
with all laws and regulations, and shall undertake to ensure that the Debt
Offering is not marketed, sold, relied upon as, or represented to be, an
offering or undertaking by Seller or its subsidiaries or affiliates. Except as
otherwise provided herein, Bain agrees that it shall be solely responsible and
liable for the Debt Offering prior to the Effective Time. At and after the
Effective Time, Bain shall be released from all obligations hereunder and the
Surviving Corporation shall be solely responsible and liable for Bain's
obligations under this Indemnity Agreement.
3
<PAGE>
IN WITNESS WHEREOF, the parties have hereunto set their hands.
Heilig-Meyers Company
By: /s/ William C. DeRusha
-----------------------------------
William C. DeRusha
Chairman; Chief Executive Officer
Bain Capital, Inc.
By: /s/ Michael A. Krupka
-----------------------------------
Michael A. Krupka
Managing Director
MD Acquisition Corporation
By: /s/ Michael A. Krupka
-----------------------------------
Michael A. Krupka
Vice President
4
<PAGE>
EXHIBIT 10.12
AMENDMENT NO. 1 TO THE INDEMNITY AGREEMENT
THIS AMENDMENT NO. 1 ("Amendment No. 1") to the Indemnity Agreement dated
as of May 28, 1999, between Heilig-Meyers Company, a Virginia corporation
("Seller"), Bain Capital, Inc., a Delaware corporation ("Bain") and MD
Acquisition Corporation, a Virginia corporation ("Buyer") is entered into as of
July 29, 1999.
The parties desire to amend the Agreement and hereby agree as follows:
1. Section B of the Recitals to the Agreement is deleted in its entirety
and the following inserted in lieu thereof:
"B. Bain has arranged for part of its financing for the Merger and
the transactions contemplated by the Transaction Agreement under
Commitment Letters attached to the Transaction Agreement as
Schedule 2.2(f) (the "Commitment Letters"). Oldco and the
Companies will collectively borrow and certain providers of the
financing will lend to Oldco and the Companies as described in
the Commitment Letters, Oldco will cause and Mattress Discounters
will issue and sell senior subordinated notes, and Chase
Securities Inc. may sell or purchase non-cash pay notes,
preferred securities or other mezzanine securities, all such
financing as described in the Commitment Letters together with
[associated warrants to acquire capital stock of Oldco]
(including any offering document registration statement,
prospectus or other document in connection therewith) (the "Debt
Offering"). In the event senior notes of Mattress Discounters are
offered in lieu of senior subordinated notes, the definition of
Debt Offering shall be deemed to include such senior notes. Bain
desires to take all steps necessary with respect to the Debt
Offering prior to the Merger so that the closing of the Debt
Offering will occur at or about the Effective Time."
2. Except as expressly set forth in this Amendment, all other terms and
conditions of the Agreement shall remain in full force and effect. Capitalized
terms used herein and not otherwise defined shall have the meaning assigned to
such terms in the Agreement.
3. This Amendment may be executed in any number of counterparts, each of
which shall be deemed an original but all of which together shall constitute one
instrument.
4. This Amendment shall be governed by and construed in accordance with its
laws of the Commonwealth of Virginia without regard to the conflict of laws
rules thereof.
5. This Amendment shall be effective as of July 29, 1999.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the day and year first above written.
Buyer:
-----
MD Acquisition Corporation,
a Virginia corporation
By: /s/ Michael A. Krupka
------------------------------
Michael A. Krupka
Vice President
Bain:
----
Bain Capital, Inc.
a Delaware corporation
By: /s/ Michael A. Krupka
------------------------------
Michael A. Krupka
Vice President
Seller:
------
Heilig-Meyers Company,
a Virginia corporation
By: /s/ Roy B. Goodman
------------------------------
Roy B. Goodman
Executive Vice President
<PAGE>
EXHIBIT 10.13
ASSIGNMENT AND ASSUMPTION AGREEMENT
This Assignment and Assumption Agreement (the "Agreement") is entered into
as of August 6, 1999, by and between Heilig-Meyers Company ("Heilig") and
Mattress Discounters Corporation ("Mattress"), a wholly-owned subsidiary of
Heilig, and states as follows:
RECITALS
--------
A. The Company, Heilig-Meyers Associates, Inc. ("Oldco") and MD
Acquisition Corporation ("Buyer") are parties to a Transaction Agreement dated
as of May 28, 1999 (the "Transaction Agreement").
B. Pursuant to the Transaction Agreement, Heilig will contribute all of
the stock of Mattress to Oldco, and Buyer will merge into Oldco (the "Sale"). As
a result of the Sale, Mattress will cease to be a wholly owned subsidiary of
Heilig.
C. Heilig has agreed to pay special bonuses to certain employees of
Mattress in connection with the Sale.
D. The parties desire to assign to Mattress the obligation to pay all or
a portion of the special bonuses.
NOW, THEREFORE, in consideration of the foregoing premises and of the
mutual covenants and agreements set forth herein, the receipt and sufficiency of
which are hereby acknowledged, the parties, intending to be legally bound, agree
as follows:
1. Assignment. Heilig hereby assigns and transfers to Mattress its
----------
obligation to pay the bonus amounts set forth on Appendix A.
2. Assumption. Mattress hereby assumes, undertakes and agrees to pay
----------
the bonus amounts set forth on Appendix A.
3. Retained Obligations. Heilig agrees to retain the obligation to pay
--------------------
the bonus amounts set forth on Appendix B.
* * * * *
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
representatives to execute this Agreement as of the date set forth above.
HEILIG-MEYERS COMPANY
/s/ R. B. Goodman
By:___________________________
Executive Vice President and
Chief Financial Officer
Title:________________________
MATTRESS DISCOUNTERS
CORPORATION
/s/ R. B. Goodman
By:___________________________
Senior Vice President
Title:________________________
<PAGE>
APPENDIX A
----------
Bonus Payment Obligations Assumed by Mattress
---------------------------------------------
Steve Lytell $2,000,000
Jon Studner 1,000,000
Ray Bojanowski 450,000
Tom Budsock 150,000
Rich Branch 175,000
Bob Gorney 50,000
----------
Total Payment $3,825,000
==========
3
<PAGE>
APPENDIX B
----------
Bonus Payment Obligations Retained by Heilig
--------------------------------------------
Steve Lytell $ 968,000
Jon Studner 1,280,000
Denny Latham 15,000
----------
Total Payment $2,263,000
==========
4
<PAGE>
EXHIBIT 10.14
EXECUTION COPY
TAX AGREEMENT
This TAX AGREEMENT (this "Tax Agreement") is made as of this 6 day of
August, 1999 among MD Acquisition Corporation, a Virginia corporation ("Buyer"),
Heilig-Meyers Company, a Virginia corporation ("Seller"), Heilig-Meyers
Associates, Inc., a Virginia corporation ("Oldco"), Mattress Discounters
Corporation, a Delaware corporation ("Mattress Discounters"), T.J.B., Inc., a
Maryland corporation ("TJB") and The Bedding Experts, Inc., an Illinois
corporation ("Bedding Experts") (OLDCO, Mattress Discounters, TJB and Bedding
Experts, each a "Company," are often referred to collectively as the
"Companies").
RECITALS
--------
A. Buyer, Seller and Oldco have entered into a Transaction Agreement
dated as of the 28th day of May, 1999, as amended by Amendment No. 1 thereto
dated as of July 15, 1999 (the "Transaction Agreement"), pursuant to which
Seller will contribute all of the issued and outstanding stock of Mattress
Discounters, TJB and Bedding Experts to the capital of Oldco. Buyer will merge
with and into Oldco and Seller will receive cash and a promissory note in
exchange for a portion of the issued and outstanding shares of common stock of
Oldco (the "Merger").
B. The Transaction Agreement provides, among other things, that the
parties will enter into this Tax Agreement.
NOW THEREFORE, in consideration of the foregoing and the representations,
warranties, agreements and conditions contained in this Tax Agreement, the
parties agree as follows:
<PAGE>
ARTICLE I
CERTAIN DEFINITIONS
Capitalized terms not otherwise defined in this Tax Agreement have the
meaning ascribed to them in the Transaction Agreement, the singular shall be
deemed to include the plural and vice-versa, and the following terms shall have
the following meanings:
"Affiliated Group" means any affiliated group within the meaning of
----------------
Internal Revenue Code Section 1504 (or any similar group defined under a similar
provision of state, local or foreign law).
"Buyer Tax Liabilities" shall have the meaning given to it in Section 2.01
---------------------
of this Tax Agreement.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
---------------------
amended.
"Post-Closing Operations" means all activities of any of the Companies
-----------------------
other than Pre-Closing Operations.
"Pre-Closing Operations" means all activities attributable to, or conducted
----------------------
by, Seller, any of the Companies, or any member of an Affiliated Group that
includes Seller or any of the Companies, during any taxable period ending (or
portions thereof) on or before the Closing Date, including the entire day of
Closing.
"Pre-Closing Tax Returns" means all Tax Returns for any of the Companies,
-----------------------
or all Tax Returns that include any of the Companies, for any taxable period
that ends on or before the Closing Date.
"Section 338(h)(10) Election" shall have the meaning set forth in Section
---------------------------
4.02(i).
"Seller Tax Liabilities" shall have the meaning given to it in Section 2.01
----------------------
of this Tax Agreement.
2
<PAGE>
"Tax or Taxes" means any (A) federal, state, local or foreign income, gross
------------
receipts, franchise, estimated, alternative minimum, add-on minimum, sales, use,
transfer, registration, value added, excise, natural resources, severance,
stamp, occupation, premium, windfall profit, environmental, customs, duties,
real property, personal property, capital stock, social security, unemployment,
disability, payroll, license, employee or other withholding, or other tax, of
any kind whatsoever, including (i) any interest, penalties or additions to tax
or additional amounts in respect of the foregoing, (ii) any fines, costs,
penalties or amounts due in respect of the foregoing relating to the
misstatement of any kind of tax whatsoever (whether under a fraud or criminal
claim or otherwise); (B) liability of any Company for the payment of any amounts
of the type described in clause (A) arising as a result of being (or ceasing to
be) a member of any Affiliated Group (or being included (or required to be
included) in any Tax Return relating thereto); and (C) liability of any Company
for the payment of any amounts of the type described in clause (A) as a result
of any express or implied obligation to indemnify or otherwise assume or succeed
to the liability of any other person.
"Tax Returns" means returns, declarations, reports, claims for refund,
-----------
information returns or other documents (including any related or supporting
schedules, statements or information) filed or required to be filed in
connection with the determination, assessment or collection of Taxes of any
party or the administration of any laws, regulations or administrative
requirements relating to any Taxes.
ARTICLE II
ALLOCATION OF LIABILITY FOR TAXES
Section 2.01 Liability for Taxes. Seller shall be responsible for and pay
-------------------
(i) all Taxes resulting from Pre-Closing Operations, other than withholding
taxes and employment taxes
3
<PAGE>
payable with respect to compensation paid by any of the Companies after the
Closing Date (ii) any federal or state income tax attributable to the making of
a Section 338(h)(10) Election, and (iii) any state or local income tax
attributable to an election corresponding to a Code Section 338(g) election with
respect to the Merger where the state or local Tax jurisdiction (A) does not
provide or recognize a Section 338(h)(10) Election or (B) does not apply its
provisions corresponding to Code Section 338(h)(10) to the Merger (for example,
because the Companies file separate company Tax Returns in such jurisdiction)
("Seller Tax Liabilities"). The Companies shall be responsible for and pay all
Taxes resulting from Post-Closing Operations, including withholding taxes and
employment taxes payable with respect to compensation paid by any of the
Companies after the Closing Date ("Buyer Tax Liabilities"). This Tax Agreement
shall supersede any conflicting provision concerning Taxes in the Transaction
Agreement; provided that nothing in this Tax Agreement shall supersede Buyer's
rights of indemnification for any breach of the tax representations contained
within the Transaction Agreement.
Section 2.02 Computations. The amount of taxable income, gain, loss and
------------
any Tax thereon that is considered attributable to Pre-Closing Operations and to
Post-Closing Operations shall be determined by (i) assuming that the Companies'
taxable year (including the taxable year of organizations in which any of the
Companies owns a partnership interest or other equity interest) ends as of the
close of business on the Closing Date; (ii) closing on an actual basis each of
the Company's books as of the close of such date (or if an actual closing is not
feasible, on an equitable pro forma basis that has a comparable economic result
to the result that would have been obtained had an actual closing occurred,
taking into account extraordinary items); and (iii) preparing a Tax Return based
on the income, gain, deductions and losses as so determined under
4
<PAGE>
an accurate and appropriate accounting method and consistent with the
methodology and elections employed in prior years.
ARTICLE III
PREPARING AND FILING TAX RETURNS AND PAYING TAXES
Section 3.01 Pre-Closing Date Returns and Taxes. Seller shall be
----------------------------------
responsible for preparing and filing all Pre-Closing Tax Returns on or before
the due date (including extensions) and for the payment of the Seller Tax
Liabilities due with respect to such Pre-Closing Tax Returns. Except as
previously consented to in writing by Buyer or any of the Companies (which
consent shall not be unreasonably withheld or delayed), every material position
taken on a Pre-Closing Tax Return filed after the Closing Date shall be
consistent with the methodology and elections employed in prior years. Seller
shall deliver a copy of all Pre-Closing Tax Returns filed after the Closing Date
to Buyer promptly after filing.
Section 3.02 Post-Closing Date Returns and Taxes. Buyer and the Companies
-----------------------------------
shall be responsible for preparing and filing all Tax Returns other than Pre-
Closing Tax Returns and for paying the Buyer Tax Liabilities with respect to
such returns.
Section 3.03 Straddle Returns and Taxes. Notwithstanding Sections 3.01 and
--------------------------
3.02 of this Tax Agreement, with respect to any tax period that includes Pre-
Closing Operations and Post-Closing Operations and for which Seller does not
file returns and pay Taxes because the applicable tax period does not end on or
before the Closing Date or with respect to any other reason that Buyer (or any
of the Companies) incurs liability for Taxes that are attributable in any way to
Pre-Closing Operations or assets of any of the Companies, the Company (or Buyer)
shall file the applicable Tax Returns and pay the Tax due with respect to such
returns. Not less than twenty-five (25) days before the earlier of the due date
of any such Tax Return (including
5
<PAGE>
amended Tax Returns and refund claims) of any of the Companies (or Buyer) or the
date on which any of the Companies (or Buyer) files such Tax Return, the Company
(or Buyer) shall furnish a draft of such Tax Return (or the portions relating to
any of the Companies of a consolidated federal income Tax Return or a state or
local consolidated, combined, or unitary Tax Return that includes any of the
Companies) to Seller for its review. Not less than ten (10) days before the
earlier of the due date of such Tax Return or the date on which such Tax Return
is filed, Seller shall forward to Buyer any comments it may have relating to
such Tax Return. Buyer shall alter such Tax Return to reflect the reasonable
comments of Seller unless Buyer reasonably believes that such alteration (i)
would have an adverse impact on Buyer or any member of its Affiliated Group or
(ii) would be contrary to the Code, the regulations thereunder or any other
applicable law. Seller shall be responsible for and pay to the Company (or
Buyer) five (5) days before the due date of such Tax Return the Seller Tax
Liabilities computed in accordance with the method described in Section 2.02 of
this Tax Agreement with respect to such Tax Return.
Section 3.04 Cooperation. Seller, Buyer, and the Companies shall cooperate
-----------
fully with each other in connection with the preparation and filing of all Tax
Returns or any audit examinations for any period, including, but not limited to,
the timely furnishing or making available of records, books of account and any
other information necessary for the preparation of the Tax Returns, as well as
making employees available on a mutually convenient basis to provide additional
information and explanation. If Seller is required to file a Pre-Closing Tax
Return after the Closing Date, the applicable Company shall permit Seller to
sign such Pre-Closing Tax Return on behalf of the Company under a limited power
of attorney. Each of Seller, Buyer, and the Companies shall use its best
efforts to obtain any certificates or other documents
6
<PAGE>
from any governmental authority or any other persons as may be necessary or
helpful to mitigate, reduce or eliminate any Taxes that would otherwise be
imposed with respect to the transactions contemplated by the Transaction
Agreement or this Tax Agreement and which do not adversely affect any party to
this Tax Agreement.
Section 3.05 Record Retention. Buyer and Seller will (A) retain all books
----------------
and records with respect to Tax matters pertinent to the Companies relating to
any Tax period beginning before the Closing Date until the expiration of the
statute of limitations with respect to such Tax period (including, to the extent
notified by Seller or Buyer, as the case may be, any extensions thereof), and
abide by all record retention agreements entered into with any taxing authority,
and (B) give each other reasonable written notice prior to transferring,
destroying or discarding any such books and records and, if the other party so
requests, Buyer or Seller, as the case may be, will allow the other party to
take possession of such books and records.
Section 3.06 Contests.
--------
(i) With respect to any Pre-Closing Tax Return, Seller and its duly
appointed representatives shall have the sole right, at its expense, to
supervise or otherwise coordinate any examination process and to negotiate,
resolve, settle or contest any asserted Tax deficiencies or assert and prosecute
any claims for refund. The foregoing notwithstanding, without the express
written consent of Buyer or any of the Companies, which consent shall not be
unreasonably withheld or delayed, Seller shall not file any amended Tax Return,
settle any Tax claim or assessment, or surrender any right to claim a refund of
Tax, if such action could have the effect of increasing Buyer Tax Liabilities.
(ii) With respect to any other Tax Return of any of the Companies,
Buyer, the Companies and their duly appointed representatives shall have the
sole right, at its expense, to
7
<PAGE>
supervise or otherwise coordinate any examination process and to negotiate,
resolve, settle or contest any asserted Tax deficiencies or assert and prosecute
any claims for refund. The foregoing notwithstanding, without the express
written consent of Seller, which consent shall not be unreasonably withheld or
delayed, neither Buyer nor any of the Companies shall file any amended Tax
Return, settle any Tax claim or assessment, or surrender any right to claim a
refund of Tax, if such action could have the effect of increasing Seller Tax
Liabilities.
(iii) Each party hereto shall, within thirty (30) days (unless action
is required sooner, then as soon as practicable), notify the other of the
assertion of any claim or the commencement of any suit, action, proceeding,
investigation or audit with respect to the operations of the Company that is the
subject of this Section 3.06, and shall provide the other party with copies
(subject to deletion of nonrelevant information) of all correspondence relating
to such contest.
Section 3.07 Allocation of Refunds. Except as otherwise agreed upon in
---------------------
writing, in the event an audit, amended Tax Return or other action that results
in a refund of Taxes, such refund (including any interest paid thereon) shall be
paid: (i) to Seller if the deduction, loss, or other item that gives rise to the
refund is attributable to Pre-Closing Operations and the refunded Tax was
actually paid on or before the Closing Date unless the refund was reflected as
an asset on the Final Working Capital Statement; and (ii) to Buyer if such item
is attributable to Post-Closing Operations and the refunded Tax was actually
paid by Buyer or any of the Companies. In all other events, such refund shall be
paid to the Company. The parties shall lend mutual assistance to each other in
taking such action as may be necessary to procure a refund, including the
preparation, filing and processing of any requisite amended return or other
documents.
8
<PAGE>
ARTICLE IV
TRANSFER TAXES AND SECTION 338 ELECTIONS
Section 4.01 Transfer Taxes. All transfer, documentary, sales, use, stamp,
--------------
registration and other such Taxes and fees (including any interest, penalties,
or additions thereto) incurred in connection with the Transaction Agreement will
be borne equally by Buyer and Seller. Buyer and Seller shall cooperate with each
other in filing all necessary Tax Returns and other documentation with respect
to all such Taxes and fees, and, if required by applicable law, in joining in
the execution of any such Tax Returns and other documentation.
Section 4.02 Section 338(h)(10) Election.
---------------------------
(i) At the Buyer's option, each of the Seller and Buyer will make an
election under Internal Revenue Code Section 338(h)(10) (and any corresponding
provisions of state, local or foreign law) (collectively, a "Section 338(h)(10)
------------------
Election") with respect to the purchase and sale of the Shares of one or more of
- --------
the Companies. If Buyer exercises its option to make a Section 338(h)(10)
Election for one or more of the Companies, Buyer will be responsible for
preparing and timely filing any forms used to make a Section 338(h)(10)
Election. Seller shall sign on a timely basis all federal and state forms used
to make a Section 338(h)(10) Election requiring its signature, which forms shall
be provided to Seller at least thirty (30) days prior to the required filing
date.
(ii) Promptly after the Closing Date, Seller shall provide to Buyer
any information (including Tax elections made by or on behalf of the Companies
reasonably requested by Buyer in connection with its filing of a Section
338(h)(10) Election).
9
<PAGE>
(iii) Prior to the due date of filing the Section 338(h)(10) Election,
the purchase price, the Companies' liabilities and other relevant items shall be
allocated among the Companies' assets as reasonably determined by Buyer and as
reasonably agreed to by Seller. Buyer shall deliver a schedule setting forth the
fair market value of the assets and such allocation at lease fifteen (15) days
prior to the due date of filing the Section 338(h)(10) Election. Buyer and
Seller shall file any Tax Returns and any other governmental filings on a basis
consistent with such allocation of fair market value.
ARTICLE V
INDEMNIFICATION
Section 5.01 Indemnification of Buyer. Seller shall indemnify, protect,
------------------------
save and keep harmless Buyer, the Companies, and Buyer's affiliates, against (i)
any and all Seller Tax Liabilities and (ii) any damage, loss, liability or
expense (including, without limitation, reasonable expenses of investigation and
reasonable legal and accounting fees) ("Other Tax Related Amounts") arising out
of any Seller Tax Liabilities or any breach of a covenant or agreement made by
Seller in this Tax Agreement. Seller shall promptly pay to Buyer in immediately
available funds such amount as will indemnify and hold harmless the Buyer, the
Companies, and Buyer's affiliates with respect to any such Seller Tax
Liabilities or Other Tax Related Amounts.
If Buyer or any of the Companies receives any written claim or demand for
any Tax for which they are or would be indemnified by Seller, Buyer shall, as
required by Section 3.06(iii) of this Tax Agreement, promptly notify Seller of
such Tax claim or demand.
Section 5.02 Indemnification of Seller. Buyer shall indemnify, protect,
-------------------------
save and keep harmless Seller against (i) any and all Buyer Tax Liabilities and
(ii) any other Tax Related
10
<PAGE>
Amounts arising out of any Buyer Tax Liabilities or any breach of a covenant or
agreement made by Buyer in this Tax Agreement. Buyer shall promptly pay to
Seller in immediately available funds such amount as will indemnify and hold
harmless Seller with respect to any such Buyer Tax Liabilities or Other Tax
Related Amounts.
If Seller receives any written claim or demand for any Tax for which Seller
is or would be indemnified by Buyer, Seller shall, as required by Section
3.06(iii) of this Tax Agreement, promptly notify Buyer of such Tax claim or
demand.
ARTICLE VI
MISCELLANEOUS
Section 6.01 Certain Tax Elections.
---------------------
(i) Except as required by the Internal Revenue Code or the
regulations promulgated thereunder, without the prior written consent of Buyer
(not to be unreasonably withheld or delayed), neither Seller nor any of the
Companies shall make any new election or change any existing election, change an
annual accounting period or adopt or change any accounting method if any such
election, adoption or change would have the effect of increasing Buyer Tax
Liabilities, provided, that Buyer will waive such objection on payment by Seller
--------
of the amount necessary, as reasonably determined by Buyer, to hold Buyer
harmless.
(ii) Except as required by the Internal Revenue Code or the
regulations promulgated thereunder, without the prior written consent of Seller
(not to be unreasonably withheld or delayed), neither Buyer nor any of the
Companies shall make any election, change an annual accounting period or adopt
or change any accounting method if any such election, adoption or change would
have the effect of increasing Seller Tax Liabilities, provided, that
--------
11
<PAGE>
Seller will waive such objection on payment by Buyer of the amount necessary to
hold Seller harmless. The preceding sentence shall not apply to the Section
338(h)(10) Election.
(iii) None of the Companies has made an election pursuant to Treasury
Regulation Section 1.1502-76(b)(5) to be excluded from a consolidated federal
income tax return for any taxable period, and shall not make any such election
for any period ending on or before the Closing Date.
(iv) Neither Seller nor any of the Companies shall make (and Seller
and the Companies hereby confirm that they have not previously made) an election
under Section 341(f) of the Internal Revenue Code.
Section 6.02 Tax Sharing Agreements. As of the date of this Tax Agreement,
----------------------
Seller releases each of the Companies from any obligations, duties or rights
arising in connection with any tax sharing agreements, practices or other
arrangement for the allocation of tax liabilities to which any of the Companies
may be subject. Each of the Companies hereby releases Seller from any
obligations, duties or rights with respect to any tax sharing agreements,
practices or other arrangement for the allocation of tax liabilities to which
Seller may be subject. Neither Seller nor any of the Companies shall have any
continuing liabilities, whether fixed, contingent or otherwise, under any such
agreements or arrangements.
Section 6.03 Notices. All notices and other communications required or
-------
permitted hereunder shall be in writing (including telex, telefax or similar
writing) and shall be given:
If to any of the Companies:
c/o Bain Capital, Inc.
Two Copley Place
Boston, MA 02116
Attention: Michael Krupka
Fascimile: (617) 572-3274
12
<PAGE>
with copies to:
Kirkland & Ellis
Citicorp Center
153 East 53/rd/ Street
New York, New York 10022
Attention: Lance C. Balk
Facsimile: (212) 446-4900
If to Heilig:
Heilig-Meyers Company
12560 West Creek Parkway
Richmond, Virginia 23238
Attention: William C. DeRusha
Facsimile: (804) 784-7901
with a copy to:
McGuire, Woods, Battle & Boothe LLP
901 East Cary Street
Richmond, Virginia 23219
Attention: Robert L. Burrus, Jr.
Telefax: (804) 775-1061
or to such other person or to such other address or telefax number as the party
to whom such notice is to be given may have furnished the other parties in
writing by like notice. If mailed, any such communication shall be deemed to
have been given on the fifth business day following the day on which the
communication is posted by registered or certified mail (return receipt
requested). If given by any other means it shall be deemed to have been given
when delivered to the address specified in this Section.
Section 6.04 Successors. This Tax Agreement shall inure to the benefit of
----------
and be binding upon the parties and their respective successors and assigns.
Section 6.05 Survival; Limitation on Indemnification. Notwithstanding
---------------------------------------
anything in this Tax Agreement or the Transaction Agreement to the contrary, the
representations, warranties,
13
<PAGE>
covenants and agreements made by the parties in this Tax Agreement regarding
Taxes and in any other certificates and documents delivered in connection with
them, and the provisions of Article V of this Tax Agreement, shall survive until
sixty (60) days after the date on which the full period of all applicable
statutes of limitations, including extensions, expires; provided, however, that
--------
any claims that have been made before such date shall survive until final
resolution thereof.
Section 6.06 Governing Law. This Tax Agreement shall be governed in all
-------------
respects by the laws governing the provisions of the Transaction Agreement.
Section 6.07 Counterparts. This Tax Agreement may be executed in two or
------------
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
[Remainder of page intentionally left blank]
14
<PAGE>
IN WITNESS WHEREOF, the parties by their duly authorized officers have
caused this Tax Agreement to be executed as of the date above first written.
MD ACQUISITION CORPORATION HEILIG-MEYERS COMPANY
/s/ Michael Krupka /s/ R. B. Goodman
By: __________________________ By: ___________________________
President Executive Vice President
Title: _______________________ Title: ________________________
HEILIG-MEYERS ASSOCIATES, INC. MATTRESS DISCOUNTERS
CORPORATION
/s/ R. B. Goodman /s/ R. B. Goodman
By: __________________________ By: ___________________________
Senior Vice President
Title: _______________________ Title: ________________________
THE BEDDING EXPERTS, INC.
/s/ R. B. Goodman
By: ___________________________
Title: ________________________
15
<PAGE>
EXHIBIT 10.15
TAX SHARING AGREEMENT
This agreement is effective as of August 6, 1999 between and among Mattress
Discounters Holding L.L.C. ("LLC"), Mattress Discounters Holding Corporation
("Holding"), Mattress Discounters Corporation ("Discounters"), The Bedding
Experts, Inc. ("Bedding"), T.J.B., Inc. ("T.J.B."), and Comfort Source Mattress
Company ("Comfort Source") and each such other corporation as may become a party
hereto pursuant to the provisions hereof. Holding, Discounters, Bedding, T.J.B.
and Comfort Source may be referred to individually as a "Subsidiary" and
collectively as the "Subsidiaries." As used in this Agreement, "Parent" shall
refer to LLC and any successor corporation which may become the common parent of
the Mattress Group (as defined below).
Recitals
--------
A. WHEREAS, Parent will become the common parent of an affiliated group of
corporations (the "Mattress Group") as defined by Section 1504(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), and the
Subsidiaries are members of the Mattress Group. (Parent and each Subsidiary
may be referred to individually as a "Member" and collectively as the
"Members.")
B. WHEREAS, the Mattress Group will file a consolidated U.S. Federal income
tax return for each taxable year for which it is eligible to do so.
C. WHEREAS, the Members wish to define the rights and obligations of the
Members regarding the computation, allocation and payment of the Mattress
Group's Federal income tax liability, and various administrative matters
related thereto.
NOW, THEREFORE, the Members hereby agree as follows:
1. Definitions
-----------
The following terms as used herein shall have the meanings set forth below:
"Consolidated Return" means a consolidated U.S. Federal income tax return
-------------------
filed pursuant to Code (S)1501.
"Consolidated Tax Liability" means the Federal income tax liability of the
--------------------------
Mattress Group for a given taxable year.
"IRS" means the Internal Revenue Service, or any successor organization.
---
"Regulations" means the Treasury regulations as in effect from time to
-----------
time.
<PAGE>
"Separate Return Tax Credit" means the Federal income tax refund or credit
--------------------------
(arising from net operating loss carryovers, foreign tax credit carryovers or
any other tax items), if any, that would be available to a Member, computed as
if the Member had filed a separate Federal income tax return, with the
modifications set forth in Regulation (S)1.1552-1(a)(2)(ii), for the applicable
taxable year and for all prior taxable years in which the Member was a member of
the Mattress Group.
"Separate Return Tax Liability" means the Federal income tax liability, if
-----------------------------
any, that would be owed by a Member, computed as if the Member had filed a
separate Federal income tax return, with the modifications set forth in
Regulation (S)1.1552-1(a)(2)(ii), for the applicable taxable year and for all
prior taxable years in which the Member was a member of the Mattress Group.
2. Treatment of Separate Return Tax Liability and Separate Return Tax
------------------------------------------------------------------
Credit
- ------
(a) If a Consolidated Return is filed by the Mattress Group for any
taxable year, then, (i) each Member shall owe the amount of such Member's
Separate Return Tax Liability; or (ii) each Member shall be owed the amount of
such Member's Separate Return Tax Credit.
(b) Payment with respect to each Member's Separate Return Tax Liability or
Separate Return Tax Credit are governed by Sections 3 and 4 below.
3. Payment of Separate Return Tax Liability
----------------------------------------
(a) A Subsidiary's Separate Return Tax Liability shall be an obligation
from such Subsidiary to Parent.
(b) During each taxable year for which Parent files a Consolidated Return
in which any Subsidiary is a member of the Mattress Group each such Subsidiary
will deposit with or at the discretion of Parent, no more than ten days prior to
the due date of each quarterly estimated tax payment of Parent to the IRS, an
amount established by the financial officers of Parent and each such Subsidiary
as appropriately reflecting the estimated tax, if any, which would be payable by
each such Subsidiary on such date if it filed a separate return for such year.
(c) Each Subsidiary shall pay to Parent the amount of such Subsidiary's
Separate Return Tax Liability no later than the due date (excluding extensions)
of the Consolidated Return for the applicable year, less any amount paid by such
Subsidiary to Parent under Section 3(b) for such year. If the Subsidiary's
Separate Return Tax Liability as computed at the time the Consolidated Return is
filed differs from the amount previously paid by Subsidiary to Parent pursuant
to this Section 3, then such difference shall be paid by Subsidiary to Parent
(or vice verse) promptly after such filing.
2
<PAGE>
4. Payment of Separate Return Tax Credit
-------------------------------------
(a) A Subsidiary's Separate Return Tax Credit shall be an obligation from
Parent to such Subsidiary.
(b) Parent shall pay the amount of a Subsidiary's Separate Return Tax
Credit at such time as, and to the extent that, such Separate Return Tax Credit
actually reduces the Consolidated Tax Liability. The amount of such reduction
shall be calculated by computing the Consolidated Tax Liability including the
Separate Return Tax Credit, and then again but excluding the Separate Return Tax
Credit, adopting such other methods and practices as Parent may choose. If a
Separate Return Tax Credit from more than one Subsidiary is available to reduce
the Consolidated Tax Liability, then the use of such Separate Return Tax Credits
shall be apportioned among the Subsidiaries with such available Separate Return
Tax Credits using such methods and practices as Parent may adopt.
(c) No payment will be made to a Subsidiary under this Section 4 to the
extent, on or prior to such payment being made, such Subsidiary's Separate
Return Tax Credit reduces the amount of the Subsidiary's Separate Return Tax
Liability computed for a given year.
(d) To the extent a Subsidiary receives a payment pursuant to this Section
4 for a Separate Return Tax Credit, such Separate Return Tax Credit shall not be
taken into account in computing the Subsidiary's Separate Return Tax Liability
or Separate Return Tax Credit for future years.
5. Redeterminations
----------------
Separate Return Tax Liability and Separate Return Tax Credit will be
recomputed if the income tax items of the Member are recomputed on audit or
otherwise. Any interest and penalties related to such recomputed items shall be
(i) allocated to the Member whose items are recomputed and (ii) treated as a
Separate Return Tax Liability of the Member, payable upon a final determination
that such amount is owing.
6. Procedural Matters
------------------
(a) The Members will join in the filing of a Federal consolidated income
tax return.
(b) Parent will prepare and file the Consolidated Return and any other
returns, documents or statements required to be filed with the IRS with respect
to the determination of the Consolidated Tax Liability.
(c) In its sole discretion, Parent will have the right with respect to any
Consolidated Returns which it has filed or will file, (i) to determine (A) the
manner in which such returns, documents or statement shall be prepared and
filed, including, without limitation, the manner in which any item of income,
gain, loss, deduction or credit shall be reported, (B) whether any extensions
may be requested and (C) the elections that will be made by any Member; (ii) to
3
<PAGE>
contest, compromise or settle any adjustment or deficiency proposed, asserted or
assessed as a result of any audit of such returns by the IRS; (iii) to file,
prosecute compromise or settle any claim for refund; and (iv) to determine
whether any refund shall be paid by way of refund or credited against the
Consolidated Tax Liability.
(d) In its sole discretion, consistent with the provisions of this
Agreement, Parent will have the right to compute the Separate Return Tax
Liability or Separate Return Tax Credit for each Member, including the adoption
of any elections or interpretations necessary for the computation thereof.
(e) Each Member hereby irrevocably appoints Parent as its agent and
attorney-in-fact to take such action (including the execution of documents) as
Parent may deem appropriate to effect the provisions of this Agreement. Each
Member shall execute any necessary consents, powers of attorney or other
documents necessary to carry out the provisions of this Agreement.
7. Departure from the Mattress Group
---------------------------------
If a Member ceases to be a member of the Mattresss Group, it will have no
obligation under this Agreement for taxable periods the income from which is not
includable in the Consolidated Return for the Mattress Group. However, this
Agreement shall remain in effect for those taxable periods the Member's income
from which is includable in the Consolidated Return for the Mattress Group,
notwithstanding the fact that such Member is no longer a member of the Mattress
Group.
8. State and Local Taxes
---------------------
To the extent that the Mattress Group (or a portion thereof) files any
state or local income tax return on a consolidated or combined basis, the
Members shall share the state or local income tax liability using the same
principles as those applicable to the Consolidated Tax Liability under the terms
of this Agreement, with such other provisions and procedures as Parent may
reasonably establish.
9. Miscellaneous
-------------
(a) Parent and each Subsidiary agree that if any Member merges into, is
consolidated with, or transfers substantially all of its assets to another
corporation, such surviving corporation shall succeed to the rights and
obligations of such Member herein, and all covenants and agreements in this
Agreement shall be binding upon, and inure to the benefit of, such surviving
corporation.
(b) The parties intend that this Agreement shall apply to all corporations
which are or which may become members of the Mattress Group. Parent and each
Subsidiary agree that they will make every reasonable effort to ensure that any
corporation that becomes a member of the Mattress Group agrees to be bound by
the terms of this Agreement by executing and delivering to Parent a counterpart
of this Agreement.
4
<PAGE>
(c) This Agreement contains the entire understanding of the parties hereto
with respect to the subject matter contained herein. No alternation, amendment
or modification of any of the terms of this Agreement shall be valid against any
party hereto unless made by an instrument signed in writing by such party.
(d) This Agreement has been made in and shall be construed and enforced in
accordance with the law of the State of New York without giving any effect to
any choice or conflict of law provision or rule.
(e) This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first written above.
MATTRESS DISCOUNTERS HOLDING L.L.C.
/s/ Michael A. Krupka
By___________________________________
Representative
Its__________________________________
MATTRESS DISCOUNTERS HOLDING CORPORATION
/s/ Michael A. Krupka
By___________________________________
President
Its__________________________________
MATTRESS DISCOUNTERS CORPORATION
/s/ Michael A. Krupka
By___________________________________
Vice President
Its__________________________________
T.J.B., INC.
/s/ Michael A. Krupka
By___________________________________
Vice President
Its__________________________________
THE BEDDING EXPERTS, INC.
/s/ Michael A. Krupka
By___________________________________
Vice President
Its__________________________________
COMFORT SOURCE MATTRESS COMPANY
/s/ Michael A. Krupka
By___________________________________
Vice President
Its__________________________________
6
<PAGE>
EXHIBIT 10.16
LANDLORD AGREEMENT
------------------
THIS LANDLORD AGREEMENT (this "Agreement") dated as of July 27, 1999, is
made by O.J.B./MID-ATLANTIC REALTY JV, LLC, a Maryland limited liability
company ("Landlord"), for the benefit of MATTRESS DISCOUNTERS CORPORATION, a
Delaware corporation ("Tenant") and HEILIG-MEYERS COMPANY, a Virginia
corporation ("Heilig-Meyers"), as the owner of all the outstanding stock of
Tenant.
RECITALS
- --------
A. By Commercial Lease Agreement by and between Landlord and Mid-Atlantic
Realty, Inc., a Maryland corporation ("Mid-Atlantic Realty"), dated
October 31, 1995 (as amended, supplemented or otherwise modified from
time to time, the "Lease"), Landlord leased to Mid-Atlantic Realty and
Mid-Atlantic Realty let from Landlord certain improved real property
located in Upper Marlboro, Maryland and more particularly described in
the Lease (the "Premises").
B. Pursuant to an Assignment and Assumption of Lease between and among
Mid-Atlantic Realty, W.S. Manufacturing Corporation, a Maryland
corporation ("W.S. Manufacturing"), and Landlord dated February 20,
1996, Mid-Atlantic Realty, with the consent of Landlord, assigned its
interest in the Lease and its leasehold interest in the Premises to
W.S. Manufacturing.
C. Tenant has succeeded to W.S. Manufacturing interest in the Lease an
its leasehold interest in the Premises.
D. Tenant and Heilig-Meyers have informed Landlord of a transaction that
is currently pending involving Tenant, which will ultimately result in
all of the outstanding stock of Tenant being held by Mattress
Discounters Holding Corporation, a Virginia corporation (now known as
MD Acquisition Corporation) (the "Pending Transaction").
E. In connection with the pending transaction, Tenant and Heilig-Meyers
have requested and Landlord has agreed to execute this Agreement to
finalize certain agreements reached between Tenant and Heilig-Meyers
and Landlord.
AGREEMENT
---------
NOW, THEREFORE, for and in consideration of the sum of $1.00 and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Landlord agrees as follows:
<PAGE>
1. The Pending Transaction does not constitute a prohibited assignment or
transfer under Section 8 of the Lease and, as a result, does not
require the prior consent of Landlord.
2. The Pending Transaction will not result in any change in occupancy or
use of the Premises and, as a result, will not constitute a violation
of Section 8 of the Lease.
3. Landlord shall have no right, pursuant to Section 8 (c) of the Lease,
to require an automatic seven percent (7%) increase in Basic Rent (as
defined in the Lease) as a result of the Pending Transaction or as a
result of any other change of control of Tenant.
4. This Agreement shall be for the benefit of Tenant and Heilig-Meyers
and each of their respective successors and assigns.
5. This Agreement shall be construed and governed by the applicable laws
of the Commonwealth of Virginia.
IN WITNESS WHEREOF, Landlord has caused this Landlord Agreement to be
executed as of the day and year first above written.
O.J.B./MID-ATLANTIC REALTY JV, LLC,
a Maryland limited liability company
/s/ Warren S. Teitelbaum
-------------------------
Title:
<PAGE>
Exhibit 10.17
EXECUTION COPY
MANAGEMENT SERVICES AGREEMENT
THIS AGREEMENT is made as of August 6, 1999 by and among Mattress
Discounters Holding Corporation, a Virginia corporation ("Holdings"), and
Mattress Discounters Corporation, a Delaware corporation ("MD"; and together
with Holdings, the "Companies"), and Bain Capital Partners VI, L.P. ("Bain").
WHEREAS, the Companies desire to retain Bain and Bain desires to
perform for the Companies and their subsidiaries certain services;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties hereto agree as follows:
1. Term. This Agreement shall be in effect for an initial term of
ten (10) years commencing on the date hereof (the "Term"), and shall be
automatically extended thereafter on a year to year basis unless Holdings or
Bain provides written notice to the other party of its desire to terminate this
Agreement 90 days prior to the expiration of the Term or any extension thereof.
2. Services. Bain shall perform or cause to be performed such
services for Holdings and its direct and indirect subsidiaries (including MD) as
directed by Holdings' board of directors, which may include, without limitation,
the following:
(a) general management services;
(b) identification, support, negotiation and analysis of
acquisitions and dispositions;
(c) support, negotiation and analysis of financing alternatives,
including, without limitation, in connection with acquisitions, capital
expenditures and refinancing of existing indebtedness;
(d) finance functions, including assistance in the preparation of
financial projections, and monitoring of compliance with financing agreements;
(e) strategic planning functions, including evaluating major
strategic alternatives; and
(f) other services for Holdings and its subsidiaries (including MD)
upon which Holdings' board of directors and Bain agree.
<PAGE>
3. Advisory Fees and Transaction Fees.
(a) Payment to Bain for services rendered in connection with the
performance of services pursuant to this Agreement shall be $1,000,000 per year
or such other amount as the parties hereto shall agree ("Advisory Fees") plus
reasonable out-of-pocket expenses of Bain and/or its affiliates. Following each
acquisition of an additional business by the Companies or any of their
subsidiaries (each, an "Acquisition"), the Advisory Fees shall be increased (in
the fiscal quarter in which such Acquisition is consummated) by an amount (if
positive) equal to (i) Acquired EBITDA (as defined below), divided by (ii) 30
(each, an "Advisory Fee Increase"). Notwithstanding the foregoing sentence, no
Advisory Fee Increase shall be added to Advisory Fees until the aggregate amount
of all Advisory Fee Increases exceed $100,000 per year, at which time, all
Advisory Fee Increases not previously added shall be added to Advisory Fees. The
Advisory Fees shall be payable quarterly in advance by the Companies to Bain or
its designees in immediately available funds, the first such payment to be made
promptly after the date hereof. "Acquired EBITDA" means earnings before
interest, taxes, depreciation, amortization, gain (loss) on sale of assets,
(net), and nonrecurring other income (expense), (net), of the Acquisition,
calculated for the most recent 12 month period for which financial information
is available, pro forma for any cost savings or other synergies.
(b) During the term of this Agreement, Bain shall be entitled to
receive from the Companies a transaction fee in connection with the consummation
by Holdings or any of its subsidiaries (including MD) of (i) each material
acquisition of an additional business, (ii) each material divestiture and (iii)
each material financing or refinancing, in each case, in an amount equal to 1%
of the aggregate value of such transaction (each such payment, a "Transaction
Fee").
(c) Upon the consummation of the merger of MD Acquisition
Corporation, a transitory Virginia merger corporation ("MD Acquisition") with
and into Heilig-Meyers Associates, Inc. as contemplated by the Transaction
Agreement dated May 28, 1999, by and among Heilig-Meyers Associates, Inc., MD
Acquisition and Heilig-Meyers Company, a Virginia corporation, the Companies
shall pay to Bain a transaction fee of $2,635,000 (the "Closing Fee") in
immediately available funds, to an account designated by Bain; it being
understood that the Closing Fee shall be in lieu of the Transaction Fee with
respect to such merger.
4. Personnel. Bain shall provide and devote to the performance of
this Agreement such partners, employees and agents of Bain as Bain shall deem
appropriate to the furnishing of the services required.
5. Liability. Neither Bain nor any other Indemnitee (as defined in
Section 6 below) shall be liable to either Company or any of their respective
subsidiaries or affiliates for any loss, liability, damage or expense arising
out of or in connection with the performance of services contemplated by this
Agreement, unless such loss, liability, damage or expense shall be proven to
result directly from gross negligence, willful misconduct or bad faith on the
part of Bain or any other Indemnitee acting within the scope of their employment
or authority. Bain makes no representations or warranties, express or implied,
in respect of the services to be provided by Bain or any of the other
Indemnitees. Except as Bain may otherwise agree in writing after the date
hereof: (i) Bain shall have the right to, and shall have no duty (contractual or
otherwise) not to, directly or indirectly: (A)
2
<PAGE>
engage in the same or similar business activities or lines of business as the
Companies, including those competing with the Companies and (B) do business with
any client or customer of the Companies; (ii) neither Bain nor any officer,
director, employee, partner, affiliate or associated entity thereof shall be
liable to the Companies or their subsidiaries or affiliates for breach of any
duty (contractual or otherwise) by reason of any such activities of or of such
person's participation therein; and (iii) in the event that Bain acquires
knowledge of a potential transaction or matter that may be a corporate
opportunity for both the Companies and Bain or any other person, Bain shall have
no duty (contractual or otherwise) to communicate or present such corporate
opportunity to the Companies and, notwithstanding any provision of this
Agreement to the contrary, shall not be liable to the Companies or their
affiliates for breach of any duty (contractual or otherwise) by reasons of the
fact that Bain directly or indirectly pursues or acquires such opportunity for
itself, directs such opportunity to another person, or does not present such
opportunity to the Companies. In no event will either party hereto be liable to
the other for any indirect, special, incidental or consequential damages,
including lost profits or savings, whether or not such damages are foreseeable,
or in respect of any liabilities relating to any third party claims (whether
based in contract, tort or otherwise) other than the Claims (as defined in
Section 6 below) relating to the service to be provided by Bain hereunder.
6. Indemnity. Each Company and its respective subsidiaries shall
defend, indemnify and hold harmless each of Bain, its affiliates, partners,
employees and agents (collectively, the "Indemnitees") from and against any and
all loss, liability, damage, or expenses arising from any claim by any person
with respect to, or in any way related to, the performance of services
contemplated by this Agreement (including attorneys' fees) (collectively,
"Claims") resulting from any act or omission of any of the Indemnitees, other
than for Claims which shall be proven to be the direct result of gross
negligence, bad faith or willful misconduct by an Indemnitee. Each Company and
its respective subsidiaries shall defend at its own cost and expense any and all
suits or actions (just or unjust) which may be brought against any Company,
and/or any of its respective subsidiaries or any of the Indemnitees or in which
any of the Indemnitees may be impleaded with others upon any Claims, or upon any
matter, directly or indirectly, related to or arising out of this Agreement or
the performance hereof by any Indemnitee, except that if such damage shall be
proven to be the direct result of gross negligence, bad faith or willful
misconduct by an Indemnitee, then Bain shall reimburse the Companies for the
costs of defense and other costs incurred by the Companies.
7. Notices. All notices or other communications required or
permitted by this Agreement shall be effective upon receipt and shall be in
writing and delivered personally or by overnight courier, or sent by facsimile,
as follows:
3
<PAGE>
To either Company:
Mattress Discounters Holding Corporation
Mattress Discounters Corporation
9822 Fallard Court
Upper Marlboro, Maryland 20772
Attention: President
Telecopy No.: (301) 856-0380
To Bain:
Bain Capital, Inc.
Two Copley Place
Boston, Massachusetts 02116
Attention: Mike Krupka
Telecopy No.: (617) 572-3274
With a copy, which shall not constitute notice, to:
Kirkland & Ellis
Citicorp Center
153 East 53rd Street
New York, New York 10022
Attention: Lance C. Balk, Esq.
Telecopy No.: (212) 446-4900
8. Assignment. No party hereto may assign any obligations hereunder
to any other party without the prior written consent of all other parties
hereto, which consent shall not be unreasonably withheld; provided, however,
that, notwithstanding the foregoing, Bain may assign its rights and obligations
under this Agreement to any of its affiliates without the consent of the
Companies.
9. Successors. This Agreement and all the obligations and benefits
hereunder shall inure to the successors and assigns of the parties hereto.
10. CounterpartsThis Agreement may be executed and delivered by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be deemed an original and both of which taken together shall
constitute but one and the same agreement.
11. Entire Agreement; Modification; Governing Law. The terms and
conditions hereof constitute the entire agreement between the parties hereto
with respect to the subject matter of this Agreement and supersede all previous
communications, either oral or written, representations or warranties of any
kind whatsoever, except as expressly set forth herein. No modifications of this
Agreement nor waiver of the terms or conditions hereof shall be binding upon any
party hereto unless approved in writing by an authorized representative of such
party. All issues concerning this
4
<PAGE>
Agreement 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
provision or rule (whether of the State of New York or any other jurisdiction)
that would cause the application of the law of any jurisdiction other than the
State of New York.
5
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Management
Services Agreement as of the date first written above.
MATTRESS DISCOUNTERS HOLDING
CORPORATION
/s/ Michael A. Krupka
By:_____________________________________
Name: Michael A. Krupka
Title: President
MATTRESS DISCOUNTERS CORPORATION
/s/ Michael A. Krupka
By:_____________________________________
Name: Michael A. Krupka
Title: Vice President
BAIN CAPITAL PARTNERS VI, L.P.
By: Bain Capital Investors VI, Inc.
Its: General Partner
/s/ Michael A. Krupka
By:_____________________________________
Name: Michael A. Krupka
Title: Managing Director
6
<PAGE>
Exhibit 10.18
EXECUTION COPY
MATTRESS DISCOUNTERS HOLDING CORPORATION
EXECUTIVE STOCK AND OPTION AGREEMENT
THIS EXECUTIVE STOCK AND OPTION AGREEMENT (this "Agreement") is made
and entered into as of August 6, 1999 by and between Mattress Discounters
Holding Corporation, a Virginia corporation (the "Company"), and Steven M.
Lytell ("Executive").
Reference is hereby made to the Transaction Agreement (as amended,
the "Merger Agreement") dated May 28, 1999 among the Company, MD Acquisition
Corporation, a transitory Virginia merger corporation ("MD Acquisition") and
Heilig-Meyers Company, a Virginia corporation, pursuant to which, as of the date
hereof, and simultaneous with the execution of this Agreement, MD Acquisition
has merged with and into the Company (such merger, the "Merger") with the
Company as the surviving corporation.
The Company and Executive desire to enter into this Agreement (i) to
restrict the sale, assignment, transfer, encumbrance or other disposition of
certain shares of Common Stock held, now or in the future, by Executive, and to
provide for certain rights and obligations in respect thereto as hereinafter
provided and (ii) to provide Executive options (collectively, the "Options") to
acquire a certain number of shares of Class L Common and a certain number of
shares of Class A Common pursuant to the terms and subject to the conditions
provided herein. Capitalized terms used herein and not otherwise defined are
defined in Section 13 hereof.
The parties hereto agree as follows:
1. Options and Option Shares.
(a) Options Grant. The Company hereby grants to Executive options to
purchase (x) 33,333 shares of Class L Common ("Class L Option Shares") at an
exercise price of $13.50 per share (the "Class L Exercise Price") and (y)
300,000 shares of Class A Common ("Class A Option Shares"; and together with the
Class L Option Shares, the "Option Shares") at an exercise price of $.1667 per
share (the "Class A Exercise Price"). The Class L Exercise Price and the Class A
Exercise Price are collectively referred to herein as "Option Prices" and
individually as an "Option Price". The Options will be immediately exercisable
and, subject to earlier expiration as provided in subsection 1(b) below, will
expire on the Expiration Date. The Options are not intended to be "incentive
stock options" within the meaning of Section 422A of the Internal Revenue Code
of 1986, as amended.
(b) Expiration Upon Termination of Employment. Any Options which
have not been exercised prior to the Termination Date will expire on the earlier
of (i) 60 days after the
<PAGE>
Termination Date (180 days if the Termination Date occurs as a result of the
death of Executive) and (ii) the Expiration Date, and may not be exercised
thereafter under any circumstance.
(c) Procedure for Exercise. At any time after the date hereof and
prior to the Expiration Date, Executive may exercise all or a portion of the
Options which have not expired pursuant to subsection 1(b) above by delivering
written notice of exercise to the Company, together with (i) a written
acknowledgment that Executive has read and has been afforded an opportunity to
ask questions of members of the Company's management regarding all financial and
other information provided to Executive regarding the Company and (ii) a
certified check or wire transfer of funds in an amount equal to the aggregate
Option Prices of the Option Shares being purchased. As a condition to any
exercise of the Options, Executive will permit the Company to deliver to him all
financial and other information regarding the Company and its Subsidiaries which
it believes necessary to enable Executive to make an informed investment
decision.
(d) Non-Transferability of Options. The Options are personal to
Executive and are not transferable (whether by sale or pledge) by Executive
except pursuant to the laws of descent or distribution. Only Executive or his
legal guardian or representative may exercise the Options.
2. Representations and Warranties; Acknowledgments.
(a) Representations and Warranties by Executive. In connection with
the purchase and sale of Executive Stock hereunder, Executive represents and
warrants to the Company that:
(i) The shares of Executive Stock to be acquired by Executive
pursuant to this Agreement will be acquired for Executive's own account
and not with a view to, or intention of, distribution thereof in violation
of the Securities Act or any applicable state securities laws, and the
shares of Executive Stock will not be disposed of in contravention of the
Securities Act or any applicable state securities laws.
(ii) Executive is (or, if the Termination Date has occurred, was) an
executive officer of the Company or its Subsidiaries, is sophisticated in
financial matters and is able to evaluate the risks and benefits of the
investment in Executive Stock.
(iii) Executive is able to bear the economic risk of his investment
in Executive Stock for an indefinite period of time because Executive
Stock has not been registered under the Securities Act and, therefore,
cannot be sold unless subsequently registered under the Securities Act or
an exemption from such registration is available.
(iv) Executive has had an opportunity to ask questions and receive
answers concerning the terms and conditions of the offering of Executive
Stock and has had full access to such other information concerning the
Company and its Subsidiaries as he has requested. Executive has reviewed,
or has had an opportunity to review, a copy of the Merger Agreement, and
Executive is familiar with the transactions contemplated thereby.
Executive also has reviewed, or has had an opportunity to review the
Offering Memorandum related to certain of the debt financing of the
Merger, the Company's Certificate of
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Incorporation and the Company's Bylaws and any credit agreements, notes
and related documents to which the Company is a party.
(v) This Agreement constitutes the legal, valid and binding
obligation of Executive, enforceable in accordance with its terms, and the
execution, delivery and performance of this Agreement by Executive does
not and will not conflict with, violate or cause a breach of any
agreement, contract or instrument to which Executive is a party or any
judgment, order or decree to which Executive is subject.
(b) Acknowledgment by Executive. As an inducement to the Company to
issue the Options to Executive, and as a condition thereto, Executive
acknowledges and agrees that:
(i) the Company will have no duty or obligation to disclose to
Executive, and Executive will have no right to be advised of, any
information regarding the Company or its Subsidiaries at any time prior
to, upon or in connection with the repurchase of any Executive Stock as
provided hereunder; and
(ii) subject to any employment agreement between Executive and the
Company or applicable law, neither the issuance of Options or any
Executive Stock to Executive nor any provision contained herein will
entitle Executive to remain in the employment of the Company or its
Subsidiaries or affect the right of the Company to terminate Executive's
employment at any time for any reason.
3. Right to Purchase Executive Stock Upon Termination of Employment.
(a) Repurchase Right. If the Termination Date occurs, the Executive
Stock (including any Executive Stock acquired subsequent to the Termination
Date), whether held by Executive or one or more transferees, will be subject to
repurchase by the Company pursuant to the terms and conditions set forth in this
Section 3 (the "Repurchase Option").
(b) Repurchase Price. Executive Stock purchased pursuant to the
Repurchase Option will be purchased at a price per share equal to the Fair
Market Value of such Executive Stock as of the Valuation Date, less the amount
of any cash distributed by the Company with respect to such share between the
Valuation Date and the closing of such repurchase; provided, that,
notwithstanding the foregoing, if Executive ceases to be employed by the Company
or any of its Subsidiaries either (x) due to Executive's resignation in the
absence of a Good Reason Event or (y) due to a termination of Executive's
employment by the Company or any Subsidiary for Cause (as determined by the
Board), and if the Termination Date occurs at or prior to the second anniversary
of the date hereof, then Executive Stock purchased pursuant to the Repurchase
Option will be purchased at a price per share equal to the lesser of (i) the
Deal Value of such Executive Stock, less the amount of any cash distributed by
the Company with respect to such share between the Valuation Date and the
closing of such repurchase or (ii) the Fair Market Value of such Executive Stock
as of the Valuation Date, less the amount of any cash distributed by the Company
with respect to such share between the Valuation Date and the closing of such
repurchase.
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(c) Repurchase Procedures. The Repurchase Option is exercisable by
the Company delivering written notice (the "Repurchase Notice") to the holder or
holders of each class of Executive Stock within 180 days after the Termination
Date. The Repurchase Notice will set forth the number of shares of each class of
Executive Stock to be acquired from such holder(s), the aggregate consideration
to be paid for such holder's shares of each such class of Executive Stock and
the time and place for the closing of the transaction. If any shares of any
class of Executive Stock are held by any transferees of Executive, the Company
will purchase such shares of such class elected to be purchased from such
holder(s) of Executive Stock, pro rata according to the number of shares of such
class of Executive Stock held by such holder(s) at the time of delivery of such
Repurchase Notice (determined as nearly as practicable to the nearest share).
(d) Closing. The closing of the transactions contemplated by this
Section 3 will take place on the date designated by the Company in the
Repurchase Notice, which date will not be more than 60 days after the delivery
of such notice. The Company will pay for any shares of Executive Stock to be
purchased by the Company pursuant to the Repurchase Option by delivery (i) of a
check payable to the holder(s) of such shares of Executive Stock in an aggregate
amount equal to one-third of the aggregate repurchase price ("Repurchase Price")
for such shares of Executive Stock and (ii) of a note or notes for an aggregate
principal amount equal to the remaining unpaid Repurchase Price and payable in
two equal annual installments beginning on the first anniversary of the closing
of such purchase and bearing interest at a rate per annum equal to the then
prevailing "prime rate" plus 200 basis points and payable quarterly in cash
(subject to the following two sentences). Any notes issued by the Company
pursuant to this subsection 3(d) will be subject to any restrictive covenants to
which the Company is subject at the time of such purchase. Notwithstanding
anything to the contrary contained in this Agreement, all repurchases of shares
of Executive Stock by the Company will be subject to applicable restrictions
contained in the Virginia Stock Corporation Act and in the Company's and its
Subsidiaries' debt and equity financing agreements. If any such restrictions
prohibit the repurchase of shares of Executive Stock hereunder which the Company
is otherwise entitled to make, the Company may make such repurchases as soon as
it is permitted to do so under such restrictions, and the Company will use all
commercially reasonable efforts to obtain a waiver of any such restriction or to
otherwise enable the Company to make such repurchase. The Company will receive
customary representations and warranties from each seller regarding the sale of
the shares of Executive Stock, including, but not limited to, the representation
that such seller has good and marketable title to such shares of Executive Stock
to be transferred free and clear of all liens, claims and other encumbrances.
(e) Termination of Repurchase Right. The provisions of this Section
3 will terminate at the time of a Sale of the Company or a Qualified Initial
Public Offering if Executive is still employed at the Company or any of its
Subsidiaries at the time of such Sale of the Company or a Qualified Initial
Public Offering, as the case may be.
4. Right to Put Executive Stock.
(a) Put Right. If Executive ceases to be employed by the Company or
any of its Subsidiaries at any time prior to the second anniversary of the date
hereof due to (i) a termination by the Company of Executive's employment with
the Company or any Subsidiary other than for Cause (as determined by the Board),
or (ii) the voluntary resignation by Executive from his
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employment with the Company or any Subsidiary within 30 days after a Good Reason
Event, then holder(s) of Executive Stock shall have the right (the "Put Right")
to require the Company to purchase all of the Executive Stock then held by all
(and not less than all) of such holder(s) (other than any Executive Stock for
which the Company has exercised its Repurchase Option) pursuant to the terms and
conditions set forth in this Section 4.
(b) Put Price. Executive Stock purchased pursuant to the Put Right
will be purchased at a price per share equal to the lesser of (i) the Fair
Market Value of such Executive Stock as of the Valuation Date, less the amount
of any cash distributed by the Company with respect to such share between the
Valuation Date and the closing of such repurchase and (ii) the Deal Value of
such Executive Stock, less the amount of any cash distributed by the Company
with respect to such share between the Valuation Date and the closing of such
repurchase.
(c) Put Procedures. The Put Right is exercisable by the holder(s) of
the Executive Stock delivering written notice (the "Put Notice") to the Company
during the period beginning on the date 30 days after the Termination Date and
ending of the date 90 days after the Termination Date. The Put Notice will set
forth the number of shares of each class of Executive Stock to be sold by the
holder(s).
(d) Closing. The closing of the transactions contemplated by this
Section 4 will take place on a date designated by the Company which date will
not be more than 160 days after the delivery of the Put Notice. The Company will
pay for any shares of Executive Stock to be purchased by the Company pursuant to
the Put Option by delivery of a check payable to the holder(s) of such shares of
Executive Stock in an aggregate amount equal to the aggregate repurchase price
for such shares of Executive Stock. Notwithstanding anything to the contrary
contained in this Agreement, all repurchases of shares of Executive Stock by the
Company will be subject to applicable restrictions contained in the Virginia
Stock Corporation Act and in the Company's and its Subsidiaries' debt and equity
financing agreements. If any such restrictions prohibit the repurchase of shares
of Executive Stock hereunder which the Company is otherwise obligated to make,
the Company may make such repurchases as soon as it is permitted to do so under
such restrictions, and the Company will use all commercially reasonable efforts
to obtain a waiver of any such restriction or to otherwise enable the Company to
make such repurchase. The Company will receive customary representations and
warranties from each seller regarding the sale of the shares of Executive Stock,
including, but not limited to, the representation that such seller has good and
marketable title to such shares of Executive Stock to be transferred free and
clear of all liens, claims and other encumbrances.
(e) Termination of Put Right. The provisions of this Section 4 will
terminate upon the earlier to occur of (i) the second anniversary of this
Agreement and (ii) at the time of the consummation of a Sale of the Company or a
Qualified Initial Public Offering if Executive is still employed at the Company
or any of its Subsidiaries at the time of such Sale of the Company or a
Qualified Initial Public Offering, as the case may be.
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5. Restrictions on Transfer of Executive Stock.
(a) Transfer of Executive Stock. Executive will not sell, pledge,
transfer or otherwise dispose of (a "Transfer") any interest in any shares of
Executive Stock, except (i) pursuant to the provisions of Sections 3, 4 or 8
hereof, (ii) pursuant to applicable laws of descent and distribution, or (iii)
among Executive's Family Group; provided, that the restrictions contained in
this Section 5 will continue to be applicable to the shares of Executive Stock
after any Transfer of the type referred to in clause (ii) or (iii) above and, as
a condition to any such Transfer, the transferees of such shares of Executive
Stock must agree in writing to be bound by the provisions of this Agreement. Any
transferee of Executive Stock pursuant to a Transfer in accordance with clause
(ii) or (iii) above is herein referred to as a "Permitted Transferee." Upon the
proposed Transfer of Executive Stock pursuant to clause (ii) or (iii) above,
Executive or a Permitted Transferee Transferring such Executive Stock will
deliver a written notice (a "Transfer Notice") to the Company, which discloses
in reasonable detail the identity of the Permitted Transferee(s).
(b) Termination of Transfer Restrictions. The provisions of this
Section 5 will terminate upon a Qualified Initial Public Offering.
6. Additional Restrictions on Transfer.
(a) The certificates representing shares of Executive Stock will
bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION FROM
REGISTRATION THEREUNDER. THE SECURITIES REPRESENTED BY THIS
CERTIFICATE ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER,
CERTAIN REPURCHASE OPTIONS AND CERTAIN OTHER AGREEMENTS SET FORTH IN
AN EXECUTIVE STOCK AND OPTION AGREEMENT BETWEEN THE ISSUER (THE
"COMPANY") AND AN EMPLOYEE OF THE COMPANY DATED AS OF AUGUST 6,
1999, A COPY OF WHICH MAY BE OBTAINED BY THE HOLDER HEREOF AT THE
COMPANY'S PRINCIPAL PLACE OF BUSINESS WITHOUT CHARGE."
The legend set forth above regarding this Agreement shall be removed from the
certificates evidencing any securities which cease to be Executive Stock.
(b) No holder of Executive Stock may Transfer any Executive Stock
(except pursuant to an effective registration statement under the Securities
Act) without first delivering to the Company an opinion of counsel reasonably
acceptable in form and substance to the Company (which counsel will be
reasonably acceptable to the Company) that registration under the Securities Act
is not required in connection with such Transfer. If such opinion of counsel
reasonably acceptable in form and substance to the Company further states that
no subsequent Transfer of such Executive Stock will require registration under
the Securities Act, the Company will promptly upon
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such Transfer deliver new certificates which do not bear the Securities Act
legend set forth in Section 6(a).
7. Definition of Executive Stock. For all purposes of this
Agreement, Executive Stock will continue to be Executive Stock in the hands of
any holder other than Executive (except for the Company, purchasers pursuant to
an offering registered under the Securities Act or purchasers pursuant to a Rule
144 transaction (other than a Rule 144(k) transaction occurring prior to the
time the Company is a Public Company) and subsequent transferees), and each such
other holder of Executive Stock will succeed to all rights and obligations
attributable to Executive as a holder of Executive Stock hereunder. Executive
Stock will also include shares of the Company's capital stock issued with
respect to shares of Executive Stock by way of a stock split, stock dividend or
other recapitalization.
8. Approved Sale of the Company
(a) If the holders of a majority of the shares of voting Common
Stock then outstanding approve a sale of all or substantially all of the
Company's assets determined on a consolidated basis or a sale of all (or, for
accounting, tax or other reasons, substantially all) of the Company's
outstanding capital stock (whether by merger, recapitalization, consolidation,
reorganization, combination or otherwise) to an Independent Third Party or group
of Independent Third Parties (each such sale, an "Approved Sale"), then each
holder of Executive Stock will vote for, consent to and raise no objections
against such Approved Sale. If the Approved Sale is structured as (i) a merger
or consolidation, each holder of Executive Stock will waive any dissenters'
rights, appraisal rights or similar rights in connection with such merger or
consolidation or (ii) a sale of stock, each holder of Executive Stock will agree
to sell all of his or her shares of Executive Stock on the terms and conditions
approved by the holders of a majority of the shares of voting Common Stock then
outstanding. Each holder of Executive Stock will take all necessary or desirable
actions in connection with the consummation of the Approved Sale as requested by
the Company.
(b) If the Company or the holders of the Company's securities enter
into any negotiation or transaction for which Rule 506 (or any similar rule then
in effect) promulgated by the Securities and Exchange Commission may be
available with respect to such negotiation or transaction (including a merger,
consolidation or other reorganization), the holders of Executive Stock will, at
the request of the Company, appoint a purchaser representative (as such term is
defined in Rule 501) reasonably acceptable to the Company. If any holder of
Executive Stock appoints a purchaser representative designated by the Company,
the Company will pay the fees of such purchaser representative, but if any
holder of Executive Stock declines to appoint the purchaser representative
designated by the Company, such holder will appoint another purchaser
representative, and such holder will be responsible for the fees of the
purchaser representative so appointed.
(c) Executive and the other holders of Executive Stock (if any) will
bear their pro rata share (based upon the number of shares sold) of the costs of
any sale of Executive Stock pursuant to an Approved Sale to the extent such
costs are incurred for the benefit of all holders of Common Stock and are not
otherwise paid by the Company or the acquiring party in a like manner
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for all holders of Common Stock. Costs incurred by Executive and the other
holders of Executive Stock on their own behalf will not be considered costs of
the transaction hereunder.
9. 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 Stock are entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets with respect to or in
exchange for Common Stock is referred to herein as an "Organic Change." Except
as otherwise provided herein, after the consummation of any Organic Change, each
Option shall thereafter be exercisable for, rather than the applicable Option
Shares immediately theretofore acquirable and receivable upon exercise of such
Option, such shares of stock, securities or assets (including cash) as may be
issued or payable with respect to or in exchange for the number and class of
Option Shares immediately theretofore acquirable and receivable upon exercise of
such Option had such Organic Change not taken place. Notwithstanding the
foregoing, in the event of any proposed Organic Change, the Board may, in its
discretion, by written notice to the Executive at least 10 days prior to such
Organic Change, terminate the Options, if not exercised as of such date of the
Organic Change or any other designated date, subject to the payment of such
consideration, if any, as the Board shall deem equitable in the circumstances.
10. Adjustment for Change in Common Stock. In the event of a
recapitalization, reorganization, stock split, stock dividend, combination of
shares, consolidation, merger or other change in any class of Common Stock, the
Board shall, in order to prevent the dilution or enlargement of rights under any
Option, make appropriate changes in the number and type of shares or other
consideration covered by any unexercised Option which has not expired and its
applicable Option Price as the Board determines to be appropriate and equitable.
11. Sale of the Company. In the event of a proposed Sale of the
Company, the Board may provide, in its discretion, by written notice to the
Executive at least 10 days prior to the consummation of such proposed Sale of
the Company, that the Options shall terminate if not exercised as of such date
of such Sale of the Company or any other designated date or that the Options
shall thereafter represent only the right to receive such consideration as the
Board shall deem equitable in the circumstances.
12. Holdback Agreement. No holder of Executive Stock will effect any
sale or distribution of Common Stock during the seven days prior to or the
180-day period beginning on the effective date of any underwritten Public
Offering (except as part of such underwritten registration), unless the
underwriters managing such underwritten Public Offering otherwise agree.
13. Definitions. The following terms are defined as follows:
"Affiliate" means, when used with reference to a specified Person,
any Person that directly or indirectly controls or is controlled by or is under
common control with the specified Person. As used in this definition, "control"
(including, with its correlative meanings, "controlled by" and "under common
control with") shall mean possession, directly or indirectly, of power to direct
or cause the direction of management or policies (whether through ownership of
securities or partnership or other ownership interests, by contract or
otherwise). With respect to any Person who
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is an individual, "Affiliates" shall also include, without limitation, any
member of such individual's Family Group.
"Board" means the Company's Board of Directors.
"Cause" means (i) the commission of a felony or other crime
involving moral turpitude or the commission of any other act or omission
involving dishonesty, disloyalty or fraud with respect to the Company or any of
its Subsidiaries or any of their customers or suppliers, (ii) chronic drug or
alcohol abuse or other repeated conduct causing the Company or any of its Subsid
iaries substantial public disgrace or disrepute or economic harm, (iii)
substantial and repeated failure to perform duties as reasonably directed by the
Board, which is not cured, if curable, to the Board's reasonable satisfaction in
all material respects within thirty (30) days after the Board or the designee
thereof gives written notice thereof to Executive, (iv) any other act or
omission of Executive which would in law permit an employer to, without notice
or payment in lieu of notice, terminate the employment of an employee or (v)
commission by Executive of a material breach or material default of any of
Executive's written agreements or obligations under any provision of any written
agreement (including this Agreement) between Executive and the Company or any of
its Subsidiaries, which is not cured, if curable, to the Board's reasonable
satisfaction in all material respects within thirty (30) days after the Board or
the designee thereof gives written notice thereof to Executive.
"Class A Common" means the Company's Class A Common Stock, par value
$.01 per share.
"Class L Common" means the Company's Class L Common Stock, par value
$.01 per share.
"Common Stock" means, collectively, Class A Common, Class L Common
and any other common stock authorized by the Company.
"Deal Value" means (i) with respect to any share of Class A Common,
$.6667 less the amount of any cash distributed by the Company with respect to
such share of Class A Common between the date hereof and the applicable
Valuation Date (such number to be appropriately adjusted for any stock split,
reverse stock split, stock dividend or other combination of Class A Common after
the date hereof) and (ii) with respect to any share of Class L Common, $54.00
less the amount of any cash distributed by the Company with respect to such
share of Class L Common between the date hereof and the applicable Valuation
Date (such number to be appropriately adjusted for any stock split, reverse
stock split, stock dividend or other combination of Class L Common after the
date hereof).
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time.
"Executive Stock" means (i) all shares of Issued Stock and (ii) all
shares of Common Stock issued with respect to the shares referred to in clause
(i) above by way of stock dividend or
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stock split in connection with any conversion, merger, consolidation or
recapitalization or other reorganization affecting the Common Stock.
"Expiration Date" means, with respect to any Option, the date which
is ten (10) years after the date of this Agreement.
"Fair Market Value" per share of any class of Common Stock as of any
given date shall be as determined by the Board based on such factors as the
members thereof, in the exercise of their business judgment, consider relevant,
including, without limitation, the Company's financial performance and results
of operations.
"Family Group" means Executive's spouse and descendants (whether
natural or adopted) and any trust solely for the benefit of Executive and/or
Executive's spouse and/or descendants.
"Good Reason Event" means the occurrence of (i) any material
reduction in the annual base salary of Executive, the Executive's eligibility
for an annual bonus and/or the employee benefits granted to Executive, taken as
a whole, (ii) any material reduction in the position, authority or office of
Executive, or (iii) any material reduction in Executive's responsibilities or
duties for the Company and its Subsidiaries, in each case, other than (x) for
Cause (as determined by the Board in good faith) or (y) with the written consent
of Executive.
"Independent Third Party" means any Person who, immediately prior to
the contemplated transaction, does not own in excess of 5% of the Common Stock
on a fully diluted basis, who is not controlling, controlled by or under common
control with any such 5% owner of the Common Stock and who is not the spouse or
descendant (by birth or adoption) of any such 5% owner of the Common Stock.
"Issued Stock" means all shares of Common Stock issued upon the
proper exercise of an Option.
"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, a governmental entity or any
department, agency or political subdivision thereof or any other entity or
organization.
"Public Company" means a company any of whose securities are
registered pursuant to Section 12(b) or 12(g) of the Exchange Act.
"Public Offering" means a public offering and sale of the Common
Stock pursuant to an effective registration statement under the Securities Act;
provided that a Public Offering shall not include an offering made in connection
with a business acquisition or combination or an employee benefit plan.
"Public Sale" means any sale of Common Stock to the public pursuant
to an offering registered under the Securities Act or to the public through a
broker, dealer or market maker pursuant
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to the provisions of Rule 144 (other than Rule 144(k) prior to the time the
Company is a Public Company) adopted under the Securities Act.
"Qualified Initial Public Offering" means the initial sale by the
Company of any class or classes of the Common Stock in an offering registered
under the Securities Act, other than an offering made solely in connection with
a business acquisition or combination or an employee benefit plan, but only if
the aggregate gross proceeds received by the Company and/or its majority
stockholder in such initial sale or series of such sales in the aggregate are in
excess of $40 million.
"Sale of the Company" means any transaction involving the Company
and an Independent Third Party or affiliated group of Independent Third Parties
pursuant to which such party or parties acquire (i) a majority of the
outstanding shares of capital stock of the Company entitled to vote generally in
the election of the Board (whether by merger, consolidation, sale of the
Company's capital stock or otherwise) or (ii) all or substantially all of the
Company's assets determined on a consolidated basis.
"Securities Act" means the Securities Act of 1933, as amended from
time to time.
"Subsidiary" means, with respect to any Person, any corporation,
partnership, limited liability company, association or other business entity of
which (i) if a corporation, a majority of the total voting power of shares of
stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors thereof is at the time owned or controlled, directly
or indirectly, by that Person or one or more of the other Subsidiaries of that
Person or a combination thereof, or (ii) if a partnership, limited liability
company, association or other business entity, a majority of the partnership or
other similar ownership interest thereof is at the time owned or controlled,
directly or indirectly, by that Person or one or more Subsidiaries of that
Person or a combination thereof. For purposes hereof, a Person or Persons shall
be deemed to have a majority ownership interest in a partnership, limited
liability company, association or other business entity if such Person or
Persons shall be allocated a majority of partnership, limited liability company,
association or other business entity gains or losses or shall be or control the
managing director, managing member, manager or a general partner of such
partnership, limited liability company, association or other business entity.
"Termination Date" means the date that Executive ceases to be
employed by the Company or any of its Subsidiaries for any reason.
"Valuation Date" shall mean (i) with respect to any Repurchase
Option, the date, if any, that the Company delivers a Repurchase Notice to a
holder of Executive Stock or (ii) with respect to any Put Right, the date, if
any, that the holder(s) of Executive Stock deliver a Put Notice to the Company.
14. Notices. All notices, demands or other communications to be
given or delivered under or by reason of the provisions of this Agreement will
be in writing and will be deemed to have been given when delivered personally,
mailed by certified or registered mail, return receipt requested and postage
prepaid, or sent
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via a nationally recognized overnight courier, or sent via facsimile to the
recipient with telephonic confirmation by the sending party. Such notices,
demands and other communications will be sent to the address indicated below:
To the Company:
Mattress Discounters Holding Corporation
c/o Bain Capital, Inc.
Two Copley Place
Boston, Massachusetts 02116
Attn: Michael Krupka
Facsimile: 617-572-3274
With a copy to:
Kirkland & Ellis
153 East 53rd Street
New York, NY 10022
Attn: Lance C. Balk, Esq.
Facsimile: 212-446-4900
To Executive:
at Executive's last address
on the records of the Company
or such other address or to the attention of such other person as the recipient
party will have specified by prior written notice to the sending party. Any
notice under this Agreement will be deemed to have been given when so delivered
or mailed.
15. Severability. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or the effectiveness or validity of any provision in any
other jurisdiction, and this Agreement will be reformed, construed and enforced
in such jurisdiction as if such invalid, illegal or unenforceable provision had
never been contained herein.
16. Complete Agreement. This Agreement embodies the complete
agreement and understanding among the parties and supersedes and preempts any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
Without limiting the foregoing, all stock option agreements between the Company
and Executive which existed immediately prior to the Merger are hereby cancelled
and terminated.
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17. Counterparts. This Agreement may be executed in separate
counterparts, each of which will be deemed to be an original and all of which
taken together will constitute one and the same agreement.
18. Successors and Assigns; Transfer. This Agreement is intended to
bind and inure to the benefit of and be enforceable by Executive and the Company
and their respective successors, heirs and assigns, provided that Executive may
not assign any of his rights or obligations, except as expressly provided by the
terms of this Agreement. Prior to Transferring any shares of Executive Stock
(other than in a Public Sale or any Approved Sale) to any person or entity,
Executive will cause the prospective transferee to execute and deliver to the
Company an agreement containing the rights and restrictions set forth herein
with respect to such shares of Executive Stock.
19. Governing Law. The corporate law of the State of Virginia will
govern all questions concerning the relative rights of the Company and its
stockholders. All other issues concerning the enforceability, validity and
binding effect of this Agreement will 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 provision or rule that would cause the application of the
law of any jurisdiction other than the State of New York.
20. Remedies. The parties hereto acknowledge and agree that money
damages may not be an adequate remedy for any breach of the provisions of this
Agreement and that any party hereto will have the right to injunctive relief, in
addition to all of its other rights and remedies at law or in equity, to enforce
the provisions of this Agreement.
21. Effect of Transfers in Violation of Agreement. The Company will
not be required (a) to transfer on its books any shares of Executive Stock which
have been sold or transferred in violation of any of the provisions set forth in
this Agreement or (b) to treat as owner of such shares of Executive Stock, to
accord the right to vote as such owner or to pay dividends to any transferee to
whom such shares of Executive Stock have been transferred in violation of this
Agreement.
22. Amendments and Waivers. Any provision of this Agreement may be
amended or waived only with the prior written consent of the Company (with
approval of the Board) and Executive.
23. Arbitration. In the event of any dispute over any Fair Market
Value determination, such dispute will be resolved by and through an arbitration
proceeding to be conducted under the auspices of the American Arbitration
Association (or any like organization successor thereto) in Baltimore, MD. Such
arbitration proceeding will be conducted in as expedited a manner as is then
permitted by the commercial arbitration rules (formal or informal) of the
American Arbitration Association, and the arbitrator or arbitrators in any such
arbitration will be individuals who are expert in the subject matter of the
dispute. The arbitration will be conducted before a panel of arbitrators
selected in accordance with the rules of the American Arbitration Association.
The costs of said arbitrators and the arbitration will be borne equally by the
parties to the arbitration. Both the foregoing provisions to arbitrate any and
all such disputes, and the results,
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determination, finding, judgment and/or award rendered through such arbitration,
will be final and binding on all applicable parties and may be specifically
enforced by legal proceedings.
24. Valuation upon Termination. If upon a Termination Date any
Options remain unexercised, then within 45 days after such Termination Date, the
Board shall send a written notice to the Executive which notice shall state the
Board's determination of the Fair Market Value of the Common Stock issuable upon
the exercise of such unexercised Options as of a date within six (6) months of
such Termination Date.
25. Cash Dividends. If the Board pays any cash dividends on any of
its Common Stock, the Board shall, in order to prevent the dilution of rights
under any unexercised Option, (i) make appropriate changes in the number and
type of shares or other consideration covered by such unexercised Option and/or
its applicable Option Price, (ii) pay the holder of such unexercised Option the
amount of cash such holder would have received had such holder exercised such
unexercised Option immediately prior to the record date of such cash dividend,
or (iii) any combination of (i) and (ii) above, in any case, as the Board
determines to be appropriate and equitable.
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IN WITNESS WHEREOF, the parties have executed this Executive Stock
and Option Agreement on the day and year first above written.
MATTRESS DISCOUNTERS HOLDING
CORPORATION
/s/ M. Lytell
---------------------------------------
By:
Its:
---------------------------------------
Steven M. Lytell
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Exhibit 10.20
EXECUTION COPY
MATTRESS DISCOUNTERS HOLDING CORPORATION
EXECUTIVE STOCK AND OPTION AGREEMENT
THIS EXECUTIVE STOCK AND OPTION AGREEMENT (this "Agreement") is made
and entered into as of August 6, 1999 by and between Mattress Discounters
Holding Corporation, a Virginia corporation (the "Company"), and Raymond T.
Bojanowski ("Executive").
Reference is hereby made to the Transaction Agreement (as amended,
the "Merger Agreement") dated May 28, 1999 among the Company, MD Acquisition
Corporation, a transitory Virginia merger corporation ("MD Acquisition") and
Heilig-Meyers Company, a Virginia corporation, pursuant to which, as of the date
hereof, and simultaneous with the execution of this Agreement, MD Acquisition
has merged with and into the Company (such merger, the "Merger") with the
Company as the surviving corporation.
The Company and Executive desire to enter into this Agreement (i) to
restrict the sale, assignment, transfer, encumbrance or other disposition of
certain shares of Common Stock held, now or in the future, by Executive, and to
provide for certain rights and obligations in respect thereto as hereinafter
provided and (ii) to provide Executive options (collectively, the "Options") to
acquire a certain number of shares of Class L Common and a certain number of
shares of Class A Common pursuant to the terms and subject to the conditions
provided herein. Capitalized terms used herein and not otherwise defined are
defined in Section 13 hereof.
The parties hereto agree as follows:
1. Options and Option Shares.
(a) Options Grant. The Company hereby grants to Executive options to
purchase (x) 7,500 shares of Class L Common ("Class L Option Shares") at an
exercise price of $13.50 per share (the "Class L Exercise Price") and (y) 67,500
shares of Class A Common ("Class A Option Shares"; and together with the Class L
Option Shares, the "Option Shares") at an exercise price of $.1667 per share
(the "Class A Exercise Price"). The Class L Exercise Price and the Class A
Exercise Price are collectively referred to herein as "Option Prices" and
individually as an "Option Price". The Options will be immediately exercisable
and, subject to earlier expiration as provided in subsection 1(b) below, will
expire on the Expiration Date. The Options are not intended to be "incentive
stock options" within the meaning of Section 422A of the Internal Revenue Code
of 1986, as amended.
(b) Expiration Upon Termination of Employment. Any Options which
have not been exercised prior to the Termination Date will expire on the earlier
of (i) 60 days after the
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Termination Date (180 days if the Termination Date occurs as a result of the
death of Executive) and (ii) the Expiration Date, and may not be exercised
thereafter under any circumstance.
(c) Procedure for Exercise. At any time after the date hereof and
prior to the Expiration Date, Executive may exercise all or a portion of the
Options which have not expired pursuant to subsection 1(b) above by delivering
written notice of exercise to the Company, together with (i) a written
acknowledgment that Executive has read and has been afforded an opportunity to
ask questions of members of the Company's management regarding all financial and
other information provided to Executive regarding the Company and (ii) a
certified check or wire transfer of funds in an amount equal to the aggregate
Option Prices of the Option Shares being purchased. As a condition to any
exercise of the Options, Executive will permit the Company to deliver to him all
financial and other information regarding the Company and its Subsidiaries which
it believes necessary to enable Executive to make an informed investment
decision. Notwithstanding the foregoing, the Board may, in its sole discretion,
provide, by written notice
(d) Non-Transferability of Options. The Options are personal to
Executive and are not transferable (whether by sale or pledge) by Executive
except pursuant to the laws of descent or distribution. Only Executive or his
legal guardian or representative may exercise the Options.
2. Representations and Warranties; Acknowledgments.
(a) Representations and Warranties by Executive. In connection with
the purchase and sale of Executive Stock hereunder, Executive represents and
warrants to the Company that:
(i) The shares of Executive Stock to be acquired by Executive
pursuant to this Agreement will be acquired for Executive's own account
and not with a view to, or intention of, distribution thereof in violation
of the Securities Act or any applicable state securities laws, and the
shares of Executive Stock will not be disposed of in contravention of the
Securities Act or any applicable state securities laws.
(ii) Executive is (or, if the Termination Date has occurred, was) an
executive officer of the Company or its Subsidiaries, is sophisticated in
financial matters and is able to evaluate the risks and benefits of the
investment in Executive Stock.
(iii) Executive is able to bear the economic risk of his investment
in Executive Stock for an indefinite period of time because Executive
Stock has not been registered under the Securities Act and, therefore,
cannot be sold unless subsequently registered under the Securities Act or
an exemption from such registration is available.
(iv) Executive has had an opportunity to ask questions and receive
answers concerning the terms and conditions of the offering of Executive
Stock and has had full access to such other information concerning the
Company and its Subsidiaries as he has requested. Executive has reviewed,
or has had an opportunity to review, a copy of the Merger Agreement, and
Executive is familiar with the transactions contemplated thereby.
Executive also has reviewed, or has had an opportunity to review the
Offering Memorandum
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related to certain of the debt financing of the Merger, the Company's
Certificate of Incorporation and the Company's Bylaws and any credit
agreements, notes and related documents to which the Company is a party.
(v) This Agreement constitutes the legal, valid and binding
obligation of Executive, enforceable in accordance with its terms, and the
execution, delivery and performance of this Agreement by Executive does
not and will not conflict with, violate or cause a breach of any
agreement, contract or instrument to which Executive is a party or any
judgment, order or decree to which Executive is subject.
(b) Acknowledgment by Executive. As an inducement to the Company to
issue the Options to Executive, and as a condition thereto, Executive
acknowledges and agrees that:
(i) the Company will have no duty or obligation to disclose to
Executive, and Executive will have no right to be advised of, any
information regarding the Company or its Subsidiaries at any time prior
to, upon or in connection with the repurchase of any Executive Stock as
provided hereunder; and
(ii) subject to any employment agreement between Executive and the
Company or applicable law, neither the issuance of Options or any
Executive Stock to Executive nor any provision contained herein will
entitle Executive to remain in the employment of the Company or its
Subsidiaries or affect the right of the Company to terminate Executive's
employment at any time for any reason.
3. Right to Purchase Executive Stock Upon Termination of Employment.
(a) Repurchase Right. If the Termination Date occurs, the Executive
Stock (including any Executive Stock acquired subsequent to the Termination
Date), whether held by Executive or one or more transferees, will be subject to
repurchase by the Company pursuant to the terms and conditions set forth in this
Section 3 (the "Repurchase Option").
(b) Repurchase Price. Executive Stock purchased pursuant to the
Repurchase Option will be purchased at a price per share equal to the Fair
Market Value of such Executive Stock as of the Valuation Date, less the amount
of any cash distributed by the Company with respect to such share between the
Valuation Date and the closing of such repurchase; provided, that,
notwithstanding the foregoing, if Executive ceases to be employed by the Company
or any of its Subsidiaries either (x) due to Executive's resignation in the
absence of a Good Reason Event or (y) due to a termination of Executive's
employment by the Company or any Subsidiary for Cause (as determined by the
Board), and if the Termination Date occurs at or prior to the second anniversary
of the date hereof, then Executive Stock purchased pursuant to the Repurchase
Option will be purchased at a price per share equal to the lesser of (i) the
Deal Value of such Executive Stock, less the amount of any cash distributed by
the Company with respect to such share between the Valuation Date and the
closing of such repurchase or (ii) the Fair Market Value of such Executive Stock
as of the Valuation Date, less the amount of any cash distributed by the Company
with respect to such share between the Valuation Date and the closing of such
repurchase.
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(c) Repurchase Procedures. The Repurchase Option is exercisable by
the Company delivering written notice (the "Repurchase Notice") to the holder or
holders of each class of Executive Stock within 180 days after the Termination
Date. The Repurchase Notice will set forth the number of shares of each class of
Executive Stock to be acquired from such holder(s), the aggregate consideration
to be paid for such holder's shares of each such class of Executive Stock and
the time and place for the closing of the transaction. If any shares of any
class of Executive Stock are held by any transferees of Executive, the Company
will purchase such shares of such class elected to be purchased from such
holder(s) of Executive Stock, pro rata according to the number of shares of such
class of Executive Stock held by such holder(s) at the time of delivery of such
Repurchase Notice (determined as nearly as practicable to the nearest share).
(d) Closing. The closing of the transactions contemplated by this
Section 3 will take place on the date designated by the Company in the
Repurchase Notice, which date will not be more than 60 days after the delivery
of such notice. The Company will pay for any shares of Executive Stock to be
purchased by the Company pursuant to the Repurchase Option by delivery (i) of a
check payable to the holder(s) of such shares of Executive Stock in an aggregate
amount equal to one-third of the aggregate repurchase price ("Repurchase Price")
for such shares of Executive Stock and (ii) of a note or notes for an aggregate
principal amount equal to the remaining unpaid Repurchase Price and payable in
two equal annual installments beginning on the first anniversary of the closing
of such purchase and bearing interest at a rate per annum equal to the then
prevailing "prime rate" plus 200 basis points and payable quarterly in cash
(subject to the following two sentences). Any notes issued by the Company
pursuant to this subsection 3(d) will be subject to any restrictive covenants to
which the Company is subject at the time of such purchase. Notwithstanding
anything to the contrary contained in this Agreement, all repurchases of shares
of Executive Stock by the Company will be subject to applicable restrictions
contained in the Virginia Stock Corporation Act and in the Company's and its
Subsidiaries' debt and equity financing agreements. If any such restrictions
prohibit the repurchase of shares of Executive Stock hereunder which the Company
is otherwise entitled to make, the Company may make such repurchases as soon as
it is permitted to do so under such restrictions, and the Company will use all
commercially reasonable efforts to obtain a waiver of any such restriction or to
otherwise enable the Company to make such repurchase. The Company will receive
customary representations and warranties from each seller regarding the sale of
the shares of Executive Stock, including, but not limited to, the representation
that such seller has good and marketable title to such shares of Executive Stock
to be transferred free and clear of all liens, claims and other encumbrances.
(e) Termination of Repurchase Right. The provisions of this Section
3 will terminate at the time of a Sale of the Company or a Qualified Initial
Public Offering if Executive is still employed at the Company or any of its
Subsidiaries at the time of such Sale of the Company or a Qualified Initial
Public Offering, as the case may be.
4. Right to Put Executive Stock.
(a) Put Right. If Executive ceases to be employed by the Company or
any of its Subsidiaries at any time prior to the second anniversary of the date
hereof due to (i) a termination by the Company of Executive's employment with
the Company or any Subsidiary other than for Cause (as determined by the Board),
or (ii) the voluntary resignation by Executive from his
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<PAGE>
employment with the Company or any Subsidiary within 30 days after a Good Reason
Event, then holder(s) of Executive Stock shall have the right (the "Put Right")
to require the Company to purchase all of the Executive Stock then held by all
(and not less than all) of such holder(s) (other than any Executive Stock for
which the Company has exercised its Repurchase Option) pursuant to the terms and
conditions set forth in this Section 4.
(b) Put Price. Executive Stock purchased pursuant to the Put Right
will be purchased at a price per share equal to the lesser of (i) the Fair
Market Value of such Executive Stock as of the Valuation Date, less the amount
of any cash distributed by the Company with respect to such share between the
Valuation Date and the closing of such repurchase and (ii) the Deal Value of
such Executive Stock, less the amount of any cash distributed by the Company
with respect to such share between the Valuation Date and the closing of such
repurchase.
(c) Put Procedures. The Put Right is exercisable by the holder(s) of
the Executive Stock delivering written notice (the "Put Notice") to the Company
during the period beginning on the date 30 days after the Termination Date and
ending of the date 90 days after the Termination Date. The Put Notice will set
forth the number of shares of each class of Executive Stock to be sold by the
holder(s).
(d) Closing. The closing of the transactions contemplated by this
Section 4 will take place on a date designated by the Company which date will
not be more than 160 days after the delivery of the Put Notice. The Company will
pay for any shares of Executive Stock to be purchased by the Company pursuant to
the Put Option by delivery of a check payable to the holder(s) of such shares of
Executive Stock in an aggregate amount equal to the aggregate repurchase price
for such shares of Executive Stock. Notwithstanding anything to the contrary
contained in this Agreement, all repurchases of shares of Executive Stock by the
Company will be subject to applicable restrictions contained in the Virginia
Stock Corporation Act and in the Company's and its Subsidiaries' debt and equity
financing agreements. If any such restrictions prohibit the repurchase of shares
of Executive Stock hereunder which the Company is otherwise obligated to make,
the Company may make such repurchases as soon as it is permitted to do so under
such restrictions, and the Company will use all commercially reasonable efforts
to obtain a waiver of any such restriction or to otherwise enable the Company to
make such repurchase. The Company will receive customary representations and
warranties from each seller regarding the sale of the shares of Executive Stock,
including, but not limited to, the representation that such seller has good and
marketable title to such shares of Executive Stock to be transferred free and
clear of all liens, claims and other encumbrances.
(e) Termination of Put Right. The provisions of this Section 4 will
terminate upon the earlier to occur of (i) the second anniversary of this
Agreement and (ii) at the time of the consummation of a Sale of the Company or a
Qualified Initial Public Offering if Executive is still employed at the Company
or any of its Subsidiaries at the time of such Sale of the Company or a
Qualified Initial Public Offering, as the case may be.
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5. Restrictions on Transfer of Executive Stock.
6
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(a) Transfer of Executive Stock. Executive will not sell, pledge,
transfer or otherwise dispose of (a "Transfer") any interest in any shares of
Executive Stock, except (i) pursuant to the provisions of Sections 3, 4 or 8
hereof, (ii) pursuant to applicable laws of descent and distribution, or (iii)
among Executive's Family Group; provided, that the restrictions contained in
this Section 5 will continue to be applicable to the shares of Executive Stock
after any Transfer of the type referred to in clause (ii) or (iii) above and, as
a condition to any such Transfer, the transferees of such shares of Executive
Stock must agree in writing to be bound by the provisions of this Agreement. Any
transferee of Executive Stock pursuant to a Transfer in accordance with clause
(ii) or (iii) above is herein referred to as a "Permitted Transferee." Upon the
proposed Transfer of Executive Stock pursuant to clause (ii) or (iii) above,
Executive or a Permitted Transferee Transferring such Executive Stock will
deliver a written notice (a "Transfer Notice") to the Company, which discloses
in reasonable detail the identity of the Permitted Transferee(s).
(b) Termination of Transfer Restrictions. The provisions of this
Section 5 will terminate upon a Qualified Initial Public Offering.
6. Additional Restrictions on Transfer.
(a) The certificates representing shares of Executive Stock will
bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION FROM
REGISTRATION THEREUNDER. THE SECURITIES REPRESENTED BY THIS
CERTIFICATE ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER,
CERTAIN REPURCHASE OPTIONS AND CERTAIN OTHER AGREEMENTS SET FORTH IN
AN EXECUTIVE STOCK AND OPTION AGREEMENT BETWEEN THE ISSUER (THE
"COMPANY") AND AN EMPLOYEE OF THE COMPANY DATED AS OF AUGUST 6,
1999, A COPY OF WHICH MAY BE OBTAINED BY THE HOLDER HEREOF AT THE
COMPANY'S PRINCIPAL PLACE OF BUSINESS WITHOUT CHARGE."
The legend set forth above regarding this Agreement shall be removed from the
certificates evidencing any securities which cease to be Executive Stock.
(b) No holder of Executive Stock may Transfer any Executive Stock
(except pursuant to an effective registration statement under the Securities
Act) without first delivering to the Company an opinion of counsel reasonably
acceptable in form and substance to the Company (which counsel will be
reasonably acceptable to the Company) that registration under the Securities Act
is not required in connection with such Transfer. If such opinion of counsel
reasonably acceptable in form and substance to the Company further states that
no subsequent Transfer of such Executive Stock will require registration under
the Securities Act, the Company will promptly upon
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such Transfer deliver new certificates which do not bear the Securities Act
legend set forth in Section 6(a).
7. Definition of Executive Stock. For all purposes of this
Agreement, Executive Stock will continue to be Executive Stock in the hands of
any holder other than Executive (except for the Company, purchasers pursuant to
an offering registered under the Securities Act or purchasers pursuant to a Rule
144 transaction (other than a Rule 144(k) transaction occurring prior to the
time the Company is a Public Company) and subsequent transferees), and each such
other holder of Executive Stock will succeed to all rights and obligations
attributable to Executive as a holder of Executive Stock hereunder. Executive
Stock will also include shares of the Company's capital stock issued with
respect to shares of Executive Stock by way of a stock split, stock dividend or
other recapitalization.
8. Approved Sale of the Company
(a) If the holders of a majority of the shares of voting Common
Stock then outstanding approve a sale of all or substantially all of the
Company's assets determined on a consolidated basis or a sale of all (or, for
accounting, tax or other reasons, substantially all) of the Company's
outstanding capital stock (whether by merger, recapitalization, consolidation,
reorganization, combination or otherwise) to an Independent Third Party or group
of Independent Third Parties (each such sale, an "Approved Sale"), then each
holder of Executive Stock will vote for, consent to and raise no objections
against such Approved Sale. If the Approved Sale is structured as (i) a merger
or consolidation, each holder of Executive Stock will waive any dissenters'
rights, appraisal rights or similar rights in connection with such merger or
consolidation or (ii) a sale of stock, each holder of Executive Stock will agree
to sell all of his or her shares of Executive Stock on the terms and conditions
approved by the holders of a majority of the shares of voting Common Stock then
outstanding. Each holder of Executive Stock will take all necessary or desirable
actions in connection with the consummation of the Approved Sale as requested by
the Company.
(b) If the Company or the holders of the Company's securities enter
into any negotiation or transaction for which Rule 506 (or any similar rule then
in effect) promulgated by the Securities and Exchange Commission may be
available with respect to such negotiation or transaction (including a merger,
consolidation or other reorganization), the holders of Executive Stock will, at
the request of the Company, appoint a purchaser representative (as such term is
defined in Rule 501) reasonably acceptable to the Company. If any holder of
Executive Stock appoints a purchaser representative designated by the Company,
the Company will pay the fees of such purchaser representative, but if any
holder of Executive Stock declines to appoint the purchaser representative
designated by the Company, such holder will appoint another purchaser
representative, and such holder will be responsible for the fees of the
purchaser representative so appointed.
(c) Executive and the other holders of Executive Stock (if any) will
bear their pro rata share (based upon the number of shares sold) of the costs of
any sale of Executive Stock pursuant to an Approved Sale to the extent such
costs are incurred for the benefit of all holders of Common Stock and are not
otherwise paid by the Company or the acquiring party in a like manner
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for all holders of Common Stock. Costs incurred by Executive and the other
holders of Executive Stock on their own behalf will not be considered costs of
the transaction hereunder.
9. 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 Stock are entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets with respect to or in
exchange for Common Stock is referred to herein as an "Organic Change." Except
as otherwise provided herein, after the consummation of any Organic Change, each
Option shall thereafter be exercisable for, rather than the applicable Option
Shares immediately theretofore acquirable and receivable upon exercise of such
Option, such shares of stock, securities or assets (including cash) as may be
issued or payable with respect to or in exchange for the number and class of
Option Shares immediately theretofore acquirable and receivable upon exercise of
such Option had such Organic Change not taken place. Notwithstanding the
foregoing, in the event of any proposed Organic Change, the Board may, in its
discretion, by written notice to the Executive at least 10 days prior to such
Organic Change, terminate the Options, if not exercised as of such date of the
Organic Change or any other designated date, subject to the payment of such
consideration, if any, as the Board shall deem equitable in the circumstances.
10. Adjustment for Change in Common Stock. In the event of a
recapitalization, reorganization, stock split, stock dividend, combination of
shares, consolidation, merger or other change in any class of Common Stock, the
Board shall, in order to prevent the dilution or enlargement of rights under any
Option, make appropriate changes in the number and type of shares or other
consideration covered by any unexercised Option which has not expired and its
applicable Option Price as the Board determines to be appropriate and equitable.
11. Sale of the Company. In the event of a proposed Sale of the
Company, the Board may provide, in its discretion, by written notice to the
Executive at least 10 days prior to the consummation of such proposed Sale of
the Company, that the Options shall terminate if not exercised as of such date
of such Sale of the Company or any other designated date or that the Options
shall thereafter represent only the right to receive such consideration as the
Board shall deem equitable in the circumstances.
12. Holdback Agreement. No holder of Executive Stock will effect any
sale or distribution of Common Stock during the seven days prior to or the
180-day period beginning on the effective date of any underwritten Public
Offering (except as part of such underwritten registration), unless the
underwriters managing such underwritten Public Offering otherwise agree.
13. Definitions. The following terms are defined as follows:
"Affiliate" means, when used with reference to a specified Person,
any Person that directly or indirectly controls or is controlled by or is under
common control with the specified Person. As used in this definition, "control"
(including, with its correlative meanings, "controlled by" and "under common
control with") shall mean possession, directly or indirectly, of power to direct
or cause the direction of management or policies (whether through ownership of
securities or partnership or other ownership interests, by contract or
otherwise). With respect to any Person who
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is an individual, "Affiliates" shall also include, without limitation, any
member of such individual's Family Group.
"Board" means the Company's Board of Directors.
"Cause" means (i) the commission of a felony or other crime
involving moral turpitude or the commission of any other act or omission
involving dishonesty, disloyalty or fraud with respect to the Company or any of
its Subsidiaries or any of their customers or suppliers, (ii) chronic drug or
alcohol abuse or other repeated conduct causing the Company or any of its Subsid
iaries substantial public disgrace or disrepute or economic harm, (iii)
substantial and repeated failure to perform duties as reasonably directed by the
Board, which is not cured, if curable, to the Board's reasonable satisfaction in
all material respects within thirty (30) days after the Board or the designee
thereof gives written notice thereof to Executive, (iv) any other act or
omission of Executive which would in law permit an employer to, without notice
or payment in lieu of notice, terminate the employment of an employee or (v)
commission by Executive of a material breach or material default of any of
Executive's written agreements or obligations under any provision of any written
agreement (including this Agreement) between Executive and the Company or any of
its Subsidiaries, which is not cured, if curable, to the Board's reasonable
satisfaction in all material respects within thirty (30) days after the Board or
the designee thereof gives written notice thereof to Executive.
"Class A Common" means the Company's Class A Common Stock, par value
$.01 per share.
"Class L Common" means the Company's Class L Common Stock, par value
$.01 per share.
"Common Stock" means, collectively, Class A Common, Class L Common
and any other common stock authorized by the Company.
"Deal Value" means (i) with respect to any share of Class A Common,
$.6667 less the amount of any cash distributed by the Company with respect to
such share of Class A Common between the date hereof and the applicable
Valuation Date (such number to be appropriately adjusted for any stock split,
reverse stock split, stock dividend or other combination of Class A Common after
the date hereof) and (ii) with respect to any share of Class L Common, $54.00
less the amount of any cash distributed by the Company with respect to such
share of Class L Common between the date hereof and the applicable Valuation
Date (such number to be appropriately adjusted for any stock split, reverse
stock split, stock dividend or other combination of Class L Common after the
date hereof).
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time.
"Executive Stock" means (i) all shares of Issued Stock and (ii) all
shares of Common Stock issued with respect to the shares referred to in clause
(i) above by way of stock dividend or
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stock split in connection with any conversion, merger, consolidation or
recapitalization or other reorganization affecting the Common Stock.
"Expiration Date" means, with respect to any Option, the date which
is ten (10) years after the date of this Agreement.
"Fair Market Value" per share of any class of Common Stock as of any
given date shall be as determined by the Board based on such factors as the
members thereof, in the exercise of their business judgment, consider relevant,
including, without limitation, the Company's financial performance and results
of operations.
"Family Group" means Executive's spouse and descendants (whether
natural or adopted) and any trust solely for the benefit of Executive and/or
Executive's spouse and/or descendants.
"Good Reason Event" means the occurrence of (i) any material
reduction in the annual base salary of Executive, the Executive's eligibility
for an annual bonus and/or the employee benefits granted to Executive, taken as
a whole, (ii) any material reduction in the position, authority or office of
Executive, or (iii) any material reduction in Executive's responsibilities or
duties for the Company and its Subsidiaries, in each case, other than (x) for
Cause (as determined by the Board in good faith) or (y) with the written consent
of Executive.
"Independent Third Party" means any Person who, immediately prior to
the contemplated transaction, does not own in excess of 5% of the Common Stock
on a fully diluted basis, who is not controlling, controlled by or under common
control with any such 5% owner of the Common Stock and who is not the spouse or
descendant (by birth or adoption) of any such 5% owner of the Common Stock.
"Issued Stock" means all shares of Common Stock issued upon the
proper exercise of an Option.
"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, a governmental entity or any
department, agency or political subdivision thereof or any other entity or
organization.
"Public Company" means a company any of whose securities are
registered pursuant to Section 12(b) or 12(g) of the Exchange Act.
"Public Offering" means a public offering and sale of the Common
Stock pursuant to an effective registration statement under the Securities Act;
provided that a Public Offering shall not include an offering made in connection
with a business acquisition or combination or an employee benefit plan.
"Public Sale" means any sale of Common Stock to the public pursuant
to an offering registered under the Securities Act or to the public through a
broker, dealer or market maker pursuant
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to the provisions of Rule 144 (other than Rule 144(k) prior to the time the
Company is a Public Company) adopted under the Securities Act.
"Qualified Initial Public Offering" means the initial sale by the
Company of any class or classes of the Common Stock in an offering registered
under the Securities Act, other than an offering made solely in connection with
a business acquisition or combination or an employee benefit plan, but only if
the aggregate gross proceeds received by the Company and/or its majority
stockholder in such initial sale or series of such sales in the aggregate are in
excess of $40 million.
"Sale of the Company" means any transaction involving the Company
and an Independent Third Party or affiliated group of Independent Third Parties
pursuant to which such party or parties acquire (i) a majority of the
outstanding shares of capital stock of the Company entitled to vote generally in
the election of the Board (whether by merger, consolidation, sale of the
Company's capital stock or otherwise) or (ii) all or substantially all of the
Company's assets determined on a consolidated basis.
"Securities Act" means the Securities Act of 1933, as amended from
time to time.
"Subsidiary" means, with respect to any Person, any corporation,
partnership, limited liability company, association or other business entity of
which (i) if a corporation, a majority of the total voting power of shares of
stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors thereof is at the time owned or controlled, directly
or indirectly, by that Person or one or more of the other Subsidiaries of that
Person or a combination thereof, or (ii) if a partnership, limited liability
company, association or other business entity, a majority of the partnership or
other similar ownership interest thereof is at the time owned or controlled,
directly or indirectly, by that Person or one or more Subsidiaries of that
Person or a combination thereof. For purposes hereof, a Person or Persons shall
be deemed to have a majority ownership interest in a partnership, limited
liability company, association or other business entity if such Person or
Persons shall be allocated a majority of partnership, limited liability company,
association or other business entity gains or losses or shall be or control the
managing director, managing member, manager or a general partner of such
partnership, limited liability company, association or other business entity.
"Termination Date" means the date that Executive ceases to be
employed by the Company or any of its Subsidiaries for any reason.
"Valuation Date" shall mean (i) with respect to any Repurchase
Option, the date, if any, that the Company delivers a Repurchase Notice to a
holder of Executive Stock or (ii) with respect to any Put Right, the date, if
any, that the holder(s) of Executive Stock deliver a Put Notice to the Company.
14. Notices. All notices, demands or other communications to be
given or delivered under or by reason of the provisions of this Agreement will
be in writing and will be deemed to have been given when delivered personally,
mailed by certified or registered mail, return receipt requested and postage
prepaid, or sent via a nationally recognized overnight courier, or sent
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via facsimile to the recipient with telephonic confirmation by the sending
party. Such notices, demands and other communications will be sent to the
address indicated below:
To the Company:
Mattress Discounters Holding Corporation
c/o Bain Capital, Inc.
Two Copley Place
Boston, Massachusetts 02116
Attn: Michael Krupka
Facsimile: 617-572-3274
With a copy to:
Kirkland & Ellis
153 East 53rd Street
New York, NY 10022
Attn: Lance C. Balk, Esq.
Facsimile: 212-446-4900
To Executive:
at Executive's last address
on the records of the Company
or such other address or to the attention of such other person as the recipient
party will have specified by prior written notice to the sending party. Any
notice under this Agreement will be deemed to have been given when so delivered
or mailed.
15. Severability. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or the effectiveness or validity of any provision in any
other jurisdiction, and this Agreement will be reformed, construed and enforced
in such jurisdiction as if such invalid, illegal or unenforceable provision had
never been contained herein.
16. Complete Agreement. This Agreement embodies the complete
agreement and understanding among the parties and supersedes and preempts any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
Without limiting the foregoing, all stock option agreements between the Company
and Executive which existed immediately prior to the Merger are hereby cancelled
and terminated.
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17. Counterparts. This Agreement may be executed in separate
counterparts, each of which will be deemed to be an original and all of which
taken together will constitute one and the same agreement.
18. Successors and Assigns; Transfer. This Agreement is intended to
bind and inure to the benefit of and be enforceable by Executive and the Company
and their respective successors, heirs and assigns, provided that Executive may
not assign any of his rights or obligations, except as expressly provided by the
terms of this Agreement. Prior to Transferring any shares of Executive Stock
(other than in a Public Sale or any Approved Sale) to any person or entity,
Executive will cause the prospective transferee to execute and deliver to the
Company an agreement containing the rights and restrictions set forth herein
with respect to such shares of Executive Stock.
19. Governing Law. The corporate law of the State of Virginia will
govern all questions concerning the relative rights of the Company and its
stockholders. All other issues concerning the enforceability, validity and
binding effect of this Agreement will 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 provision or rule that would cause the application of the
law of any jurisdiction other than the State of New York.
20. Remedies. The parties hereto acknowledge and agree that money
damages may not be an adequate remedy for any breach of the provisions of this
Agreement and that any party hereto will have the right to injunctive relief, in
addition to all of its other rights and remedies at law or in equity, to enforce
the provisions of this Agreement.
21. Effect of Transfers in Violation of Agreement. The Company will
not be required (a) to transfer on its books any shares of Executive Stock which
have been sold or transferred in violation of any of the provisions set forth in
this Agreement or (b) to treat as owner of such shares of Executive Stock, to
accord the right to vote as such owner or to pay dividends to any transferee to
whom such shares of Executive Stock have been transferred in violation of this
Agreement.
22. Amendments and Waivers. Any provision of this Agreement may be
amended or waived only with the prior written consent of the Company (with
approval of the Board) and Executive.
23. Arbitration. In the event of any dispute over any Fair Market
Value determination, such dispute will be resolved by and through an arbitration
proceeding to be conducted under the auspices of the American Arbitration
Association (or any like organization successor thereto) in Baltimore, MD. Such
arbitration proceeding will be conducted in as expedited a manner as is then
permitted by the commercial arbitration rules (formal or informal) of the
American Arbitration Association, and the arbitrator or arbitrators in any such
arbitration will be individuals who are expert in the subject matter of the
dispute. The arbitration will be conducted before a panel of arbitrators
selected in accordance with the rules of the American Arbitration Association.
The costs of said arbitrators and the arbitration will be borne equally by the
parties to the arbitration. Both the foregoing provisions to arbitrate any and
all such disputes, and the results,
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determination, finding, judgment and/or award rendered through such arbitration,
will be final and binding on all applicable parties and may be specifically
enforced by legal proceedings.
24. Valuation upon Termination. If upon a Termination Date any
Options remain unexercised, then within 45 days after such Termination Date, the
Board shall send a written notice to the Executive which notice shall state the
Board's determination of the Fair Market Value of the Common Stock issuable upon
the exercise of such unexercised Options as of a date within six (6) months of
such Termination Date.
25. Cash Dividends. If the Board pays any cash dividends on any of
its Common Stock, the Board shall, in order to prevent the dilution of rights
under any unexercised Option, (i) make appropriate changes in the number and
type of shares or other consideration covered by such unexercised Option and/or
its applicable Option Price, (ii) pay the holder of such unexercised Option the
amount of cash such holder would have received had such holder exercised such
unexercised Option immediately prior to the record date of such cash dividend,
or (iii) any combination of (i) and (ii) above, in any case, as the Board
determines to be appropriate and equitable.
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IN WITNESS WHEREOF, the parties have executed this Executive Stock
and Option Agreement on the day and year first above written.
MATTRESS DISCOUNTERS HOLDING
CORPORATION
/s/ Raymond T. Bojanowski
---------------------------------------
By:
Its:
---------------------------------------
Raymond T. Bojanowski
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Exhibit 10.21
EXECUTION COPY
MATTRESS DISCOUNTERS HOLDING CORPORATION
EXECUTIVE STOCK AND OPTION AGREEMENT
THIS EXECUTIVE STOCK AND OPTION AGREEMENT (this "Agreement") is made
and entered into as of August 6, 1999 by and between Mattress Discounters
Holding Corporation, a Virginia corporation (the "Company"), and Richard L.
Branch ("Executive").
Reference is hereby made to the Transaction Agreement (as amended,
the "Merger Agreement") dated May 28, 1999 among the Company, MD Acquisition
Corporation, a transitory Virginia merger corporation ("MD Acquisition") and
Heilig-Meyers Company, a Virginia corporation, pursuant to which, as of the date
hereof, and simultaneous with the execution of this Agreement, MD Acquisition
has merged with and into the Company (such merger, the "Merger") with the
Company as the surviving corporation.
The Company and Executive desire to enter into this Agreement (i) to
restrict the sale, assignment, transfer, encumbrance or other disposition of
certain shares of Common Stock held, now or in the future, by Executive, and to
provide for certain rights and obligations in respect thereto as hereinafter
provided and (ii) to provide Executive options (collectively, the "Options") to
acquire a certain number of shares of Class L Common and a certain number of
shares of Class A Common pursuant to the terms and subject to the conditions
provided herein. Capitalized terms used herein and not otherwise defined are
defined in Section 13 hereof.
The parties hereto agree as follows:
1. Options and Option Shares.
(a) Options Grant. The Company hereby grants to Executive options to
purchase (x) 2,917 shares of Class L Common ("Class L Option Shares") at an
exercise price of $13.50 per share (the "Class L Exercise Price") and (y) 26,250
shares of Class A Common ("Class A Option Shares"; and together with the Class L
Option Shares, the "Option Shares") at an exercise price of $.1667 per share
(the "Class A Exercise Price"). The Class L Exercise Price and the Class A
Exercise Price are collectively referred to herein as "Option Prices" and
individually as an "Option Price". The Options will be immediately exercisable
and, subject to earlier expiration as provided in subsection 1(b) below, will
expire on the Expiration Date. The Options are not intended to be "incentive
stock options" within the meaning of Section 422A of the Internal Revenue Code
of 1986, as amended.
(b) Expiration Upon Termination of Employment. Any Options which
have not been exercised prior to the Termination Date will expire on the earlier
of (i) 60 days after the
<PAGE>
Termination Date (180 days if the Termination Date occurs as a result of the
death of Executive) and (ii) the Expiration Date, and may not be exercised
thereafter under any circumstance.
(c) Procedure for Exercise. At any time after the date hereof and
prior to the Expiration Date, Executive may exercise all or a portion of the
Options which have not expired pursuant to subsection 1(b) above by delivering
written notice of exercise to the Company, together with (i) a written
acknowledgment that Executive has read and has been afforded an opportunity to
ask questions of members of the Company's management regarding all financial and
other information provided to Executive regarding the Company and (ii) a
certified check or wire transfer of funds in an amount equal to the aggregate
Option Prices of the Option Shares being purchased. As a condition to any
exercise of the Options, Executive will permit the Company to deliver to him all
financial and other information regarding the Company and its Subsidiaries which
it believes necessary to enable Executive to make an informed investment
decision.
(d) Non-Transferability of Options. The Options are personal to
Executive and are not transferable (whether by sale or pledge) by Executive
except pursuant to the laws of descent or distribution. Only Executive or his
legal guardian or representative may exercise the Options.
2. Representations and Warranties; Acknowledgments.
(a) Representations and Warranties by Executive. In connection with
the purchase and sale of Executive Stock hereunder, Executive represents and
warrants to the Company that:
(i) The shares of Executive Stock to be acquired by Executive
pursuant to this Agreement will be acquired for Executive's own account
and not with a view to, or intention of, distribution thereof in violation
of the Securities Act or any applicable state securities laws, and the
shares of Executive Stock will not be disposed of in contravention of the
Securities Act or any applicable state securities laws.
(ii) Executive is (or, if the Termination Date has occurred, was) an
executive officer of the Company or its Subsidiaries, is sophisticated in
financial matters and is able to evaluate the risks and benefits of the
investment in Executive Stock.
(iii) Executive is able to bear the economic risk of his investment
in Executive Stock for an indefinite period of time because Executive
Stock has not been registered under the Securities Act and, therefore,
cannot be sold unless subsequently registered under the Securities Act or
an exemption from such registration is available.
(iv) Executive has had an opportunity to ask questions and receive
answers concerning the terms and conditions of the offering of Executive
Stock and has had full access to such other information concerning the
Company and its Subsidiaries as he has requested. Executive has reviewed,
or has had an opportunity to review, a copy of the Merger Agreement, and
Executive is familiar with the transactions contemplated thereby.
Executive also has reviewed, or has had an opportunity to review the
Offering Memorandum related to certain of the debt financing of the
Merger, the Company's Certificate of
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Incorporation and the Company's Bylaws and any credit agreements, notes
and related documents to which the Company is a party.
(v) This Agreement constitutes the legal, valid and binding
obligation of Executive, enforceable in accordance with its terms, and the
execution, delivery and performance of this Agreement by Executive does
not and will not conflict with, violate or cause a breach of any
agreement, contract or instrument to which Executive is a party or any
judgment, order or decree to which Executive is subject.
(b) Acknowledgment by Executive. As an inducement to the Company to
issue the Options to Executive, and as a condition thereto, Executive
acknowledges and agrees that:
(i) the Company will have no duty or obligation to disclose to
Executive, and Executive will have no right to be advised of, any
information regarding the Company or its Subsidiaries at any time prior
to, upon or in connection with the repurchase of any Executive Stock as
provided hereunder; and
(ii) subject to any employment agreement between Executive and the
Company or applicable law, neither the issuance of Options or any
Executive Stock to Executive nor any provision contained herein will
entitle Executive to remain in the employment of the Company or its
Subsidiaries or affect the right of the Company to terminate Executive's
employment at any time for any reason.
3. Right to Purchase Executive Stock Upon Termination of Employment.
(a) Repurchase Right. If the Termination Date occurs, the Executive
Stock (including any Executive Stock acquired subsequent to the Termination
Date), whether held by Executive or one or more transferees, will be subject to
repurchase by the Company pursuant to the terms and conditions set forth in this
Section 3 (the "Repurchase Option").
(b) Repurchase Price. Executive Stock purchased pursuant to the
Repurchase Option will be purchased at a price per share equal to the Fair
Market Value of such Executive Stock as of the Valuation Date, less the amount
of any cash distributed by the Company with respect to such share between the
Valuation Date and the closing of such repurchase; provided, that,
notwithstanding the foregoing, if Executive ceases to be employed by the Company
or any of its Subsidiaries either (x) due to Executive's resignation in the
absence of a Good Reason Event or (y) due to a termination of Executive's
employment by the Company or any Subsidiary for Cause (as determined by the
Board), and if the Termination Date occurs at or prior to the second anniversary
of the date hereof, then Executive Stock purchased pursuant to the Repurchase
Option will be purchased at a price per share equal to the lesser of (i) the
Deal Value of such Executive Stock, less the amount of any cash distributed by
the Company with respect to such share between the Valuation Date and the
closing of such repurchase or (ii) the Fair Market Value of such Executive Stock
as of the Valuation Date, less the amount of any cash distributed by the Company
with respect to such share between the Valuation Date and the closing of such
repurchase.
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<PAGE>
(c) Repurchase Procedures. The Repurchase Option is exercisable by
the Company delivering written notice (the "Repurchase Notice") to the holder or
holders of each class of Executive Stock within 180 days after the Termination
Date. The Repurchase Notice will set forth the number of shares of each class of
Executive Stock to be acquired from such holder(s), the aggregate consideration
to be paid for such holder's shares of each such class of Executive Stock and
the time and place for the closing of the transaction. If any shares of any
class of Executive Stock are held by any transferees of Executive, the Company
will purchase such shares of such class elected to be purchased from such
holder(s) of Executive Stock, pro rata according to the number of shares of such
class of Executive Stock held by such holder(s) at the time of delivery of such
Repurchase Notice (determined as nearly as practicable to the nearest share).
(d) Closing. The closing of the transactions contemplated by this
Section 3 will take place on the date designated by the Company in the
Repurchase Notice, which date will not be more than 60 days after the delivery
of such notice. The Company will pay for any shares of Executive Stock to be
purchased by the Company pursuant to the Repurchase Option by delivery (i) of a
check payable to the holder(s) of such shares of Executive Stock in an aggregate
amount equal to one-third of the aggregate repurchase price ("Repurchase Price")
for such shares of Executive Stock and (ii) of a note or notes for an aggregate
principal amount equal to the remaining unpaid Repurchase Price and payable in
two equal annual installments beginning on the first anniversary of the closing
of such purchase and bearing interest at a rate per annum equal to the then
prevailing "prime rate" plus 200 basis points and payable quarterly in cash
(subject to the following two sentences). Any notes issued by the Company
pursuant to this subsection 3(d) will be subject to any restrictive covenants to
which the Company is subject at the time of such purchase. Notwithstanding
anything to the contrary contained in this Agreement, all repurchases of shares
of Executive Stock by the Company will be subject to applicable restrictions
contained in the Virginia Stock Corporation Act and in the Company's and its
Subsidiaries' debt and equity financing agreements. If any such restrictions
prohibit the repurchase of shares of Executive Stock hereunder which the Company
is otherwise entitled to make, the Company may make such repurchases as soon as
it is permitted to do so under such restrictions, and the Company will use all
commercially reasonable efforts to obtain a waiver of any such restriction or to
otherwise enable the Company to make such repurchase. The Company will receive
customary representations and warranties from each seller regarding the sale of
the shares of Executive Stock, including, but not limited to, the representation
that such seller has good and marketable title to such shares of Executive Stock
to be transferred free and clear of all liens, claims and other encumbrances.
(e) Termination of Repurchase Right. The provisions of this Section
3 will terminate at the time of a Sale of the Company or a Qualified Initial
Public Offering if Executive is still employed at the Company or any of its
Subsidiaries at the time of such Sale of the Company or a Qualified Initial
Public Offering, as the case may be.
4. Right to Put Executive Stock.
(a) Put Right. If Executive ceases to be employed by the Company or
any of its Subsidiaries at any time prior to the second anniversary of the date
hereof due to (i) a termination by the Company of Executive's employment with
the Company or any Subsidiary other than for Cause (as determined by the Board),
or (ii) the voluntary resignation by Executive from his
4
<PAGE>
employment with the Company or any Subsidiary within 30 days after a Good Reason
Event, then holder(s) of Executive Stock shall have the right (the "Put Right")
to require the Company to purchase all of the Executive Stock then held by all
(and not less than all) of such holder(s) (other than any Executive Stock for
which the Company has exercised its Repurchase Option) pursuant to the terms and
conditions set forth in this Section 4.
(b) Put Price. Executive Stock purchased pursuant to the Put Right
will be purchased at a price per share equal to the lesser of (i) the Fair
Market Value of such Executive Stock as of the Valuation Date, less the amount
of any cash distributed by the Company with respect to such share between the
Valuation Date and the closing of such repurchase and (ii) the Deal Value of
such Executive Stock, less the amount of any cash distributed by the Company
with respect to such share between the Valuation Date and the closing of such
repurchase.
(c) Put Procedures. The Put Right is exercisable by the holder(s) of
the Executive Stock delivering written notice (the "Put Notice") to the Company
during the period beginning on the date 30 days after the Termination Date and
ending of the date 90 days after the Termination Date. The Put Notice will set
forth the number of shares of each class of Executive Stock to be sold by the
holder(s).
(d) Closing. The closing of the transactions contemplated by this
Section 4 will take place on a date designated by the Company which date will
not be more than 160 days after the delivery of the Put Notice. The Company will
pay for any shares of Executive Stock to be purchased by the Company pursuant to
the Put Option by delivery of a check payable to the holder(s) of such shares of
Executive Stock in an aggregate amount equal to the aggregate repurchase price
for such shares of Executive Stock. Notwithstanding anything to the contrary
contained in this Agreement, all repurchases of shares of Executive Stock by the
Company will be subject to applicable restrictions contained in the Virginia
Stock Corporation Act and in the Company's and its Subsidiaries' debt and equity
financing agreements. If any such restrictions prohibit the repurchase of shares
of Executive Stock hereunder which the Company is otherwise obligated to make,
the Company may make such repurchases as soon as it is permitted to do so under
such restrictions, and the Company will use all commercially reasonable efforts
to obtain a waiver of any such restriction or to otherwise enable the Company to
make such repurchase. The Company will receive customary representations and
warranties from each seller regarding the sale of the shares of Executive Stock,
including, but not limited to, the representation that such seller has good and
marketable title to such shares of Executive Stock to be transferred free and
clear of all liens, claims and other encumbrances.
(e) Termination of Put Right. The provisions of this Section 4 will
terminate upon the earlier to occur of (i) the second anniversary of this
Agreement and (ii) at the time of the consummation of a Sale of the Company or a
Qualified Initial Public Offering if Executive is still employed at the Company
or any of its Subsidiaries at the time of such Sale of the Company or a
Qualified Initial Public Offering, as the case may be.
5
<PAGE>
5. Restrictions on Transfer of Executive Stock.
(a) Transfer of Executive Stock. Executive will not sell, pledge,
transfer or otherwise dispose of (a "Transfer") any interest in any shares of
Executive Stock, except (i) pursuant to the provisions of Sections 3, 4 or 8
hereof, (ii) pursuant to applicable laws of descent and distribution, or (iii)
among Executive's Family Group; provided, that the restrictions contained in
this Section 5 will continue to be applicable to the shares of Executive Stock
after any Transfer of the type referred to in clause (ii) or (iii) above and, as
a condition to any such Transfer, the transferees of such shares of Executive
Stock must agree in writing to be bound by the provisions of this Agreement. Any
transferee of Executive Stock pursuant to a Transfer in accordance with clause
(ii) or (iii) above is herein referred to as a "Permitted Transferee." Upon the
proposed Transfer of Executive Stock pursuant to clause (ii) or (iii) above,
Executive or a Permitted Transferee Transferring such Executive Stock will
deliver a written notice (a "Transfer Notice") to the Company, which discloses
in reasonable detail the identity of the Permitted Transferee(s).
(b) Termination of Transfer Restrictions. The provisions of this
Section 5 will terminate upon a Qualified Initial Public Offering.
6. Additional Restrictions on Transfer.
(a) The certificates representing shares of Executive Stock will
bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION FROM
REGISTRATION THEREUNDER. THE SECURITIES REPRESENTED BY THIS
CERTIFICATE ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER,
CERTAIN REPURCHASE OPTIONS AND CERTAIN OTHER AGREEMENTS SET FORTH IN
AN EXECUTIVE STOCK AND OPTION AGREEMENT BETWEEN THE ISSUER (THE
"COMPANY") AND AN EMPLOYEE OF THE COMPANY DATED AS OF AUGUST 6,
1999, A COPY OF WHICH MAY BE OBTAINED BY THE HOLDER HEREOF AT THE
COMPANY'S PRINCIPAL PLACE OF BUSINESS WITHOUT CHARGE."
The legend set forth above regarding this Agreement shall be removed from the
certificates evidencing any securities which cease to be Executive Stock.
(b) No holder of Executive Stock may Transfer any Executive Stock
(except pursuant to an effective registration statement under the Securities
Act) without first delivering to the Company an opinion of counsel reasonably
acceptable in form and substance to the Company (which counsel will be
reasonably acceptable to the Company) that registration under the Securities Act
is not required in connection with such Transfer. If such opinion of counsel
reasonably
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<PAGE>
acceptable in form and substance to the Company further states that no
subsequent Transfer of such Executive Stock will require registration under the
Securities Act, the Company will promptly upon such Transfer deliver new
certificates which do not bear the Securities Act legend set forth in Section
6(a).
7. Definition of Executive Stock. For all purposes of this
Agreement, Executive Stock will continue to be Executive Stock in the hands of
any holder other than Executive (except for the Company, purchasers pursuant to
an offering registered under the Securities Act or purchasers pursuant to a Rule
144 transaction (other than a Rule 144(k) transaction occurring prior to the
time the Company is a Public Company) and subsequent transferees), and each such
other holder of Executive Stock will succeed to all rights and obligations
attributable to Executive as a holder of Executive Stock hereunder. Executive
Stock will also include shares of the Company's capital stock issued with
respect to shares of Executive Stock by way of a stock split, stock dividend or
other recapitalization.
8. Approved Sale of the Company
(a) If the holders of a majority of the shares of voting Common
Stock then outstanding approve a sale of all or substantially all of the
Company's assets determined on a consolidated basis or a sale of all (or, for
accounting, tax or other reasons, substantially all) of the Company's
outstanding capital stock (whether by merger, recapitalization, consolidation,
reorganization, combination or otherwise) to an Independent Third Party or group
of Independent Third Parties (each such sale, an "Approved Sale"), then each
holder of Executive Stock will vote for, consent to and raise no objections
against such Approved Sale. If the Approved Sale is structured as (i) a merger
or consolidation, each holder of Executive Stock will waive any dissenters'
rights, appraisal rights or similar rights in connection with such merger or
consolidation or (ii) a sale of stock, each holder of Executive Stock will agree
to sell all of his or her shares of Executive Stock on the terms and conditions
approved by the holders of a majority of the shares of voting Common Stock then
outstanding. Each holder of Executive Stock will take all necessary or desirable
actions in connection with the consummation of the Approved Sale as requested by
the Company.
(b) If the Company or the holders of the Company's securities enter
into any negotiation or transaction for which Rule 506 (or any similar rule then
in effect) promulgated by the Securities and Exchange Commission may be
available with respect to such negotiation or transaction (including a merger,
consolidation or other reorganization), the holders of Executive Stock will, at
the request of the Company, appoint a purchaser representative (as such term is
defined in Rule 501) reasonably acceptable to the Company. If any holder of
Executive Stock appoints a purchaser representative designated by the Company,
the Company will pay the fees of such purchaser representative, but if any
holder of Executive Stock declines to appoint the purchaser representative
designated by the Company, such holder will appoint another purchaser
representative, and such holder will be responsible for the fees of the
purchaser representative so appointed.
(c) Executive and the other holders of Executive Stock (if any) will
bear their pro rata share (based upon the number of shares sold) of the costs of
any sale of Executive Stock pursuant to an Approved Sale to the extent such
costs are incurred for the benefit of all holders of
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Common Stock and are not otherwise paid by the Company or the acquiring party in
a like manner for all holders of Common Stock. Costs incurred by Executive and
the other holders of Executive Stock on their own behalf will not be considered
costs of the transaction hereunder.
9. 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 Stock are entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets with respect to or in
exchange for Common Stock is referred to herein as an "Organic Change." Except
as otherwise provided herein, after the consummation of any Organic Change, each
Option shall thereafter be exercisable for, rather than the applicable Option
Shares immediately theretofore acquirable and receivable upon exercise of such
Option, such shares of stock, securities or assets (including cash) as may be
issued or payable with respect to or in exchange for the number and class of
Option Shares immediately theretofore acquirable and receivable upon exercise of
such Option had such Organic Change not taken place. Notwithstanding the
foregoing, in the event of any proposed Organic Change, the Board may, in its
discretion, by written notice to the Executive at least 10 days prior to such
Organic Change, terminate the Options, if not exercised as of such date of the
Organic Change or any other designated date, subject to the payment of such
consideration, if any, as the Board shall deem equitable in the circumstances.
10. Adjustment for Change in Common Stock. In the event of a
recapitalization, reorganization, stock split, stock dividend, combination of
shares, consolidation, merger or other change in any class of Common Stock, the
Board shall, in order to prevent the dilution or enlargement of rights under any
Option, make appropriate changes in the number and type of shares or other
consideration covered by any unexercised Option which has not expired and its
applicable Option Price as the Board determines to be appropriate and equitable.
11. Sale of the Company. In the event of a proposed Sale of the
Company, the Board may provide, in its discretion, by written notice to the
Executive at least 10 days prior to the consummation of such proposed Sale of
the Company, that the Options shall terminate if not exercised as of such date
of such Sale of the Company or any other designated date or that the Options
shall thereafter represent only the right to receive such consideration as the
Board shall deem equitable in the circumstances.
12. Holdback Agreement. No holder of Executive Stock will effect any
sale or distribution of Common Stock during the seven days prior to or the
180-day period beginning on the effective date of any underwritten Public
Offering (except as part of such underwritten registration), unless the
underwriters managing such underwritten Public Offering otherwise agree.
13. Definitions. The following terms are defined as follows:
"Affiliate" means, when used with reference to a specified Person,
any Person that directly or indirectly controls or is controlled by or is under
common control with the specified Person. As used in this definition, "control"
(including, with its correlative meanings, "controlled by" and "under common
control with") shall mean possession, directly or indirectly, of power to direct
or cause the direction of management or policies (whether through ownership of
securities or
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partnership or other ownership interests, by contract or otherwise). With
respect to any Person who is an individual, "Affiliates" shall also include,
without limitation, any member of such individual's Family Group.
"Board" means the Company's Board of Directors.
"Cause" means (i) the commission of a felony or other crime
involving moral turpitude or the commission of any other act or omission
involving dishonesty, disloyalty or fraud with respect to the Company or any of
its Subsidiaries or any of their customers or suppliers, (ii) chronic drug or
alcohol abuse or other repeated conduct causing the Company or any of its Subsid
iaries substantial public disgrace or disrepute or economic harm, (iii)
substantial and repeated failure to perform duties as reasonably directed by the
Board, which is not cured, if curable, to the Board's reasonable satisfaction in
all material respects within thirty (30) days after the Board or the designee
thereof gives written notice thereof to Executive, (iv) any other act or
omission of Executive which would in law permit an employer to, without notice
or payment in lieu of notice, terminate the employment of an employee or (v)
commission by Executive of a material breach or material default of any of
Executive's written agreements or obligations under any provision of any written
agreement (including this Agreement) between Executive and the Company or any of
its Subsidiaries, which is not cured, if curable, to the Board's reasonable
satisfaction in all material respects within thirty (30) days after the Board or
the designee thereof gives written notice thereof to Executive.
"Class A Common" means the Company's Class A Common Stock, par value
$.01 per share.
"Class L Common" means the Company's Class L Common Stock, par value
$.01 per share.
"Common Stock" means, collectively, Class A Common, Class L Common
and any other common stock authorized by the Company.
"Deal Value" means (i) with respect to any share of Class A Common,
$.6667 less the amount of any cash distributed by the Company with respect to
such share of Class A Common between the date hereof and the applicable
Valuation Date (such number to be appropriately adjusted for any stock split,
reverse stock split, stock dividend or other combination of Class A Common after
the date hereof) and (ii) with respect to any share of Class L Common, $54.00
less the amount of any cash distributed by the Company with respect to such
share of Class L Common between the date hereof and the applicable Valuation
Date (such number to be appropriately adjusted for any stock split, reverse
stock split, stock dividend or other combination of Class L Common after the
date hereof).
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time.
"Executive Stock" means (i) all shares of Issued Stock and (ii) all
shares of Common Stock issued with respect to the shares referred to in clause
(i) above by way of stock dividend or
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stock split in connection with any conversion, merger, consolidation or
recapitalization or other reorganization affecting the Common Stock.
"Expiration Date" means, with respect to any Option, the date which
is ten (10) years after the date of this Agreement.
"Fair Market Value" per share of any class of Common Stock as of any
given date shall be as determined by the Board based on such factors as the
members thereof, in the exercise of their business judgment, consider relevant,
including, without limitation, the Company's financial performance and results
of operations.
"Family Group" means Executive's spouse and descendants (whether
natural or adopted) and any trust solely for the benefit of Executive and/or
Executive's spouse and/or descendants.
"Good Reason Event" means the occurrence of (i) any material
reduction in the annual base salary of Executive, the Executive's eligibility
for an annual bonus and/or the employee benefits granted to Executive, taken as
a whole, (ii) any material reduction in the position, authority or office of
Executive, or (iii) any material reduction in Executive's responsibilities or
duties for the Company and its Subsidiaries, in each case, other than (x) for
Cause (as determined by the Board in good faith) or (y) with the written consent
of Executive.
"Independent Third Party" means any Person who, immediately prior to
the contemplated transaction, does not own in excess of 5% of the Common Stock
on a fully diluted basis, who is not controlling, controlled by or under common
control with any such 5% owner of the Common Stock and who is not the spouse or
descendant (by birth or adoption) of any such 5% owner of the Common Stock.
"Issued Stock" means all shares of Common Stock issued upon the
proper exercise of an Option.
"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, a governmental entity or any
department, agency or political subdivision thereof or any other entity or
organization.
"Public Company" means a company any of whose securities are
registered pursuant to Section 12(b) or 12(g) of the Exchange Act.
"Public Offering" means a public offering and sale of the Common
Stock pursuant to an effective registration statement under the Securities Act;
provided that a Public Offering shall not include an offering made in connection
with a business acquisition or combination or an employee benefit plan.
"Public Sale" means any sale of Common Stock to the public pursuant
to an offering registered under the Securities Act or to the public through a
broker, dealer or market maker pursuant
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to the provisions of Rule 144 (other than Rule 144(k) prior to the time the
Company is a Public Company) adopted under the Securities Act.
"Qualified Initial Public Offering" means the initial sale by the
Company of any class or classes of the Common Stock in an offering registered
under the Securities Act, other than an offering made solely in connection with
a business acquisition or combination or an employee benefit plan, but only if
the aggregate gross proceeds received by the Company and/or its majority
stockholder in such initial sale or series of such sales in the aggregate are in
excess of $40 million.
"Sale of the Company" means any transaction involving the Company
and an Independent Third Party or affiliated group of Independent Third Parties
pursuant to which such party or parties acquire (i) a majority of the
outstanding shares of capital stock of the Company entitled to vote generally in
the election of the Board (whether by merger, consolidation, sale of the
Company's capital stock or otherwise) or (ii) all or substantially all of the
Company's assets determined on a consolidated basis.
"Securities Act" means the Securities Act of 1933, as amended from
time to time.
"Subsidiary" means, with respect to any Person, any corporation,
partnership, limited liability company, association or other business entity of
which (i) if a corporation, a majority of the total voting power of shares of
stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors thereof is at the time owned or controlled, directly
or indirectly, by that Person or one or more of the other Subsidiaries of that
Person or a combination thereof, or (ii) if a partnership, limited liability
company, association or other business entity, a majority of the partnership or
other similar ownership interest thereof is at the time owned or controlled,
directly or indirectly, by that Person or one or more Subsidiaries of that
Person or a combination thereof. For purposes hereof, a Person or Persons shall
be deemed to have a majority ownership interest in a partnership, limited
liability company, association or other business entity if such Person or
Persons shall be allocated a majority of partnership, limited liability company,
association or other business entity gains or losses or shall be or control the
managing director, managing member, manager or a general partner of such
partnership, limited liability company, association or other business entity.
"Termination Date" means the date that Executive ceases to be
employed by the Company or any of its Subsidiaries for any reason.
"Valuation Date" shall mean (i) with respect to any Repurchase
Option, the date, if any, that the Company delivers a Repurchase Notice to a
holder of Executive Stock or (ii) with respect to any Put Right, the date, if
any, that the holder(s) of Executive Stock deliver a Put Notice to the Company.
14. Notices. All notices, demands or other communications to be
given or delivered under or by reason of the provisions of this Agreement will
be in writing and will be deemed to have been given when delivered personally,
mailed by certified or registered mail, return receipt requested and postage
prepaid, or sent via a nationally recognized overnight courier, or sent
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via facsimile to the recipient with telephonic confirmation by the sending
party. Such notices, demands and other communications will be sent to the
address indicated below:
To the Company:
Mattress Discounters Holding Corporation
c/o Bain Capital, Inc.
Two Copley Place
Boston, Massachusetts 02116
Attn: Michael Krupka
Facsimile: 617-572-3274
With a copy to:
Kirkland & Ellis
153 East 53rd Street
New York, NY 10022
Attn: Lance C. Balk, Esq.
Facsimile: 212-446-4900
To Executive:
at Executive's last address
on the records of the Company
or such other address or to the attention of such other person as the recipient
party will have specified by prior written notice to the sending party. Any
notice under this Agreement will be deemed to have been given when so delivered
or mailed.
15. Severability. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or the effectiveness or validity of any provision in any
other jurisdiction, and this Agreement will be reformed, construed and enforced
in such jurisdiction as if such invalid, illegal or unenforceable provision had
never been contained herein.
16. Complete Agreement. This Agreement embodies the complete
agreement and understanding among the parties and supersedes and preempts any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
Without limiting the foregoing, all stock option agreements between the Company
and Executive which existed immediately prior to the Merger are hereby cancelled
and terminated.
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17. Counterparts. This Agreement may be executed in separate
counterparts, each of which will be deemed to be an original and all of which
taken together will constitute one and the same agreement.
18. Successors and Assigns; Transfer. This Agreement is intended to
bind and inure to the benefit of and be enforceable by Executive and the Company
and their respective successors, heirs and assigns, provided that Executive may
not assign any of his rights or obligations, except as expressly provided by the
terms of this Agreement. Prior to Transferring any shares of Executive Stock
(other than in a Public Sale or any Approved Sale) to any person or entity,
Executive will cause the prospective transferee to execute and deliver to the
Company an agreement containing the rights and restrictions set forth herein
with respect to such shares of Executive Stock.
19. Governing Law. The corporate law of the State of Virginia will
govern all questions concerning the relative rights of the Company and its
stockholders. All other issues concerning the enforceability, validity and
binding effect of this Agreement will 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 provision or rule that would cause the application of the
law of any jurisdiction other than the State of New York.
20. Remedies. The parties hereto acknowledge and agree that money
damages may not be an adequate remedy for any breach of the provisions of this
Agreement and that any party hereto will have the right to injunctive relief, in
addition to all of its other rights and remedies at law or in equity, to enforce
the provisions of this Agreement.
21. Effect of Transfers in Violation of Agreement. The Company will
not be required (a) to transfer on its books any shares of Executive Stock which
have been sold or transferred in violation of any of the provisions set forth in
this Agreement or (b) to treat as owner of such shares of Executive Stock, to
accord the right to vote as such owner or to pay dividends to any transferee to
whom such shares of Executive Stock have been transferred in violation of this
Agreement.
22. Amendments and Waivers. Any provision of this Agreement may be
amended or waived only with the prior written consent of the Company (with
approval of the Board) and Executive.
23. Arbitration. In the event of any dispute over any Fair Market
Value determination, such dispute will be resolved by and through an arbitration
proceeding to be conducted under the auspices of the American Arbitration
Association (or any like organization successor thereto) in Baltimore, MD. Such
arbitration proceeding will be conducted in as expedited a manner as is then
permitted by the commercial arbitration rules (formal or informal) of the
American Arbitration Association, and the arbitrator or arbitrators in any such
arbitration will be individuals who are expert in the subject matter of the
dispute. The arbitration will be conducted before a panel of arbitrators
selected in accordance with the rules of the American Arbitration Association.
The costs of said arbitrators and the arbitration will be borne equally by the
parties to the arbitration. Both the foregoing provisions to arbitrate any and
all such disputes, and the results,
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determination, finding, judgment and/or award rendered through such arbitration,
will be final and binding on all applicable parties and may be specifically
enforced by legal proceedings.
24. Valuation upon Termination. If upon a Termination Date any
Options remain unexercised, then within 45 days after such Termination Date, the
Board shall send a written notice to the Executive which notice shall state the
Board's determination of the Fair Market Value of the Common Stock issuable upon
the exercise of such unexercised Options as of a date within six (6) months of
such Termination Date.
25. Cash Dividends. If the Board pays any cash dividends on any of
its Common Stock, the Board shall, in order to prevent the dilution of rights
under any unexercised Option, (i) make appropriate changes in the number and
type of shares or other consideration covered by such unexercised Option and/or
its applicable Option Price, (ii) pay the holder of such unexercised Option the
amount of cash such holder would have received had such holder exercised such
unexercised Option immediately prior to the record date of such cash dividend,
or (iii) any combination of (i) and (ii) above, in any case, as the Board
determines to be appropriate and equitable.
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IN WITNESS WHEREOF, the parties have executed this Executive Stock
and Option Agreement on the day and year first above written.
MATTRESS DISCOUNTERS HOLDING
CORPORATION
/s/ Richard L. Branch
---------------------------------------
By:
Its:
---------------------------------------
Richard L. Branch
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Exhibit 10.23
EXECUTION COPY
MATTRESS DISCOUNTERS HOLDING CORPORATION
EXECUTIVE STOCK AND OPTION AGREEMENT
THIS EXECUTIVE STOCK AND OPTION AGREEMENT (this "Agreement") is made
and entered into as of August 6, 1999 by and between Mattress Discounters
Holding Corporation, a Virginia corporation (the "Company"), and Robert D.
Gorney ("Executive").
Reference is hereby made to the Transaction Agreement (as amended,
the "Merger Agreement") dated May 28, 1999 among the Company, MD Acquisition
Corporation, a transitory Virginia merger corporation ("MD Acquisition") and
Heilig-Meyers Company, a Virginia corporation, pursuant to which, as of the date
hereof, and simultaneous with the execution of this Agreement, MD Acquisition
has merged with and into the Company (such merger, the "Merger") with the
Company as the surviving corporation.
The Company and Executive desire to enter into this Agreement (i) to
restrict the sale, assignment, transfer, encumbrance or other disposition of
certain shares of Common Stock held, now or in the future, by Executive, and to
provide for certain rights and obligations in respect thereto as hereinafter
provided and (ii) to provide Executive options (collectively, the "Options") to
acquire a certain number of shares of Class L Common and a certain number of
shares of Class A Common pursuant to the terms and subject to the conditions
provided herein. Capitalized terms used herein and not otherwise defined are
defined in Section 13 hereof.
The parties hereto agree as follows:
1. Options and Option Shares.
(a) Options Grant. The Company hereby grants to Executive options to
purchase (x) 833 shares of Class L Common ("Class L Option Shares") at an
exercise price of $13.50 per share (the "Class L Exercise Price") and (y) 7,500
shares of Class A Common ("Class A Option Shares"; and together with the Class L
Option Shares, the "Option Shares") at an exercise price of $.1667 per share
(the "Class A Exercise Price"). The Class L Exercise Price and the Class A
Exercise Price are collectively referred to herein as "Option Prices" and
individually as an "Option Price". The Options will be immediately exercisable
and, subject to earlier expiration as provided in subsection 1(b) below, will
expire on the Expiration Date. The Options are not intended to be "incentive
stock options" within the meaning of Section 422A of the Internal Revenue Code
of 1986, as amended.
(b) Expiration Upon Termination of Employment. Any Options which
have not been exercised prior to the Termination Date will expire on the earlier
of (i) 60 days after the
<PAGE>
Termination Date (180 days if the Termination Date occurs as a result of the
death of Executive) and (ii) the Expiration Date, and may not be exercised
thereafter under any circumstance.
(c) Procedure for Exercise. At any time after the date hereof and
prior to the Expiration Date, Executive may exercise all or a portion of the
Options which have not expired pursuant to subsection 1(b) above by delivering
written notice of exercise to the Company, together with (i) a written
acknowledgment that Executive has read and has been afforded an opportunity to
ask questions of members of the Company's management regarding all financial and
other information provided to Executive regarding the Company and (ii) a
certified check or wire transfer of funds in an amount equal to the aggregate
Option Prices of the Option Shares being purchased. As a condition to any
exercise of the Options, Executive will permit the Company to deliver to him all
financial and other information regarding the Company and its Subsidiaries which
it believes necessary to enable Executive to make an informed investment
decision.
(d) Non-Transferability of Options. The Options are personal to
Executive and are not transferable (whether by sale or pledge) by Executive
except pursuant to the laws of descent or distribution. Only Executive or his
legal guardian or representative may exercise the Options.
2. Representations and Warranties; Acknowledgments.
(a) Representations and Warranties by Executive. In connection with
the purchase and sale of Executive Stock hereunder, Executive represents and
warrants to the Company that:
(i) The shares of Executive Stock to be acquired by Executive
pursuant to this Agreement will be acquired for Executive's own account
and not with a view to, or intention of, distribution thereof in violation
of the Securities Act or any applicable state securities laws, and the
shares of Executive Stock will not be disposed of in contravention of the
Securities Act or any applicable state securities laws.
(ii) Executive is (or, if the Termination Date has occurred, was) an
executive officer of the Company or its Subsidiaries, is sophisticated in
financial matters and is able to evaluate the risks and benefits of the
investment in Executive Stock.
(iii) Executive is able to bear the economic risk of his investment
in Executive Stock for an indefinite period of time because Executive
Stock has not been registered under the Securities Act and, therefore,
cannot be sold unless subsequently registered under the Securities Act or
an exemption from such registration is available.
(iv) Executive has had an opportunity to ask questions and receive
answers concerning the terms and conditions of the offering of Executive
Stock and has had full access to such other information concerning the
Company and its Subsidiaries as he has requested. Executive has reviewed,
or has had an opportunity to review, a copy of the Merger Agreement, and
Executive is familiar with the transactions contemplated thereby.
Executive also has reviewed, or has had an opportunity to review the
Offering Memorandum related to certain of the debt financing of the
Merger, the Company's Certificate of
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Incorporation and the Company's Bylaws and any credit agreements, notes
and related documents to which the Company is a party.
(v) This Agreement constitutes the legal, valid and binding
obligation of Executive, enforceable in accordance with its terms, and the
execution, delivery and performance of this Agreement by Executive does
not and will not conflict with, violate or cause a breach of any
agreement, contract or instrument to which Executive is a party or any
judgment, order or decree to which Executive is subject.
(b) Acknowledgment by Executive. As an inducement to the Company to
issue the Options to Executive, and as a condition thereto, Executive
acknowledges and agrees that:
(i) the Company will have no duty or obligation to disclose to
Executive, and Executive will have no right to be advised of, any
information regarding the Company or its Subsidiaries at any time prior
to, upon or in connection with the repurchase of any Executive Stock as
provided hereunder; and
(ii) subject to any employment agreement between Executive and the
Company or applicable law, neither the issuance of Options or any
Executive Stock to Executive nor any provision contained herein will
entitle Executive to remain in the employment of the Company or its
Subsidiaries or affect the right of the Company to terminate Executive's
employment at any time for any reason.
3. Right to Purchase Executive Stock Upon Termination of Employment.
(a) Repurchase Right. If the Termination Date occurs, the Executive
Stock (including any Executive Stock acquired subsequent to the Termination
Date), whether held by Executive or one or more transferees, will be subject to
repurchase by the Company pursuant to the terms and conditions set forth in this
Section 3 (the "Repurchase Option").
(b) Repurchase Price. Executive Stock purchased pursuant to the
Repurchase Option will be purchased at a price per share equal to the Fair
Market Value of such Executive Stock as of the Valuation Date, less the amount
of any cash distributed by the Company with respect to such share between the
Valuation Date and the closing of such repurchase; provided, that,
notwithstanding the foregoing, if Executive ceases to be employed by the Company
or any of its Subsidiaries either (x) due to Executive's resignation in the
absence of a Good Reason Event or (y) due to a termination of Executive's
employment by the Company or any Subsidiary for Cause (as determined by the
Board), and if the Termination Date occurs at or prior to the second anniversary
of the date hereof, then Executive Stock purchased pursuant to the Repurchase
Option will be purchased at a price per share equal to the lesser of (i) the
Deal Value of such Executive Stock, less the amount of any cash distributed by
the Company with respect to such share between the Valuation Date and the
closing of such repurchase or (ii) the Fair Market Value of such Executive Stock
as of the Valuation Date, less the amount of any cash distributed by the Company
with respect to such share between the Valuation Date and the closing of such
repurchase.
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(c) Repurchase Procedures. The Repurchase Option is exercisable by
the Company delivering written notice (the "Repurchase Notice") to the holder or
holders of each class of Executive Stock within 180 days after the Termination
Date. The Repurchase Notice will set forth the number of shares of each class of
Executive Stock to be acquired from such holder(s), the aggregate consideration
to be paid for such holder's shares of each such class of Executive Stock and
the time and place for the closing of the transaction. If any shares of any
class of Executive Stock are held by any transferees of Executive, the Company
will purchase such shares of such class elected to be purchased from such
holder(s) of Executive Stock, pro rata according to the number of shares of such
class of Executive Stock held by such holder(s) at the time of delivery of such
Repurchase Notice (determined as nearly as practicable to the nearest share).
(d) Closing. The closing of the transactions contemplated by this
Section 3 will take place on the date designated by the Company in the
Repurchase Notice, which date will not be more than 60 days after the delivery
of such notice. The Company will pay for any shares of Executive Stock to be
purchased by the Company pursuant to the Repurchase Option by delivery (i) of a
check payable to the holder(s) of such shares of Executive Stock in an aggregate
amount equal to one-third of the aggregate repurchase price ("Repurchase Price")
for such shares of Executive Stock and (ii) of a note or notes for an aggregate
principal amount equal to the remaining unpaid Repurchase Price and payable in
two equal annual installments beginning on the first anniversary of the closing
of such purchase and bearing interest at a rate per annum equal to the then
prevailing "prime rate" plus 200 basis points and payable quarterly in cash
(subject to the following two sentences). Any notes issued by the Company
pursuant to this subsection 3(d) will be subject to any restrictive covenants to
which the Company is subject at the time of such purchase. Notwithstanding
anything to the contrary contained in this Agreement, all repurchases of shares
of Executive Stock by the Company will be subject to applicable restrictions
contained in the Virginia Stock Corporation Act and in the Company's and its
Subsidiaries' debt and equity financing agreements. If any such restrictions
prohibit the repurchase of shares of Executive Stock hereunder which the Company
is otherwise entitled to make, the Company may make such repurchases as soon as
it is permitted to do so under such restrictions, and the Company will use all
commercially reasonable efforts to obtain a waiver of any such restriction or to
otherwise enable the Company to make such repurchase. The Company will receive
customary representations and warranties from each seller regarding the sale of
the shares of Executive Stock, including, but not limited to, the representation
that such seller has good and marketable title to such shares of Executive Stock
to be transferred free and clear of all liens, claims and other encumbrances.
(e) Termination of Repurchase Right. The provisions of this Section
3 will terminate at the time of a Sale of the Company or a Qualified Initial
Public Offering if Executive is still employed at the Company or any of its
Subsidiaries at the time of such Sale of the Company or a Qualified Initial
Public Offering, as the case may be.
4. Right to Put Executive Stock.
(a) Put Right. If Executive ceases to be employed by the Company or
any of its Subsidiaries at any time prior to the second anniversary of the date
hereof due to (i) a termination by the Company of Executive's employment with
the Company or any Subsidiary other than for Cause (as determined by the Board),
or (ii) the voluntary resignation by Executive from his
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employment with the Company or any Subsidiary within 30 days after a Good Reason
Event, then holder(s) of Executive Stock shall have the right (the "Put Right")
to require the Company to purchase all of the Executive Stock then held by all
(and not less than all) of such holder(s) (other than any Executive Stock for
which the Company has exercised its Repurchase Option) pursuant to the terms and
conditions set forth in this Section 4.
(b) Put Price. Executive Stock purchased pursuant to the Put Right
will be purchased at a price per share equal to the lesser of (i) the Fair
Market Value of such Executive Stock as of the Valuation Date, less the amount
of any cash distributed by the Company with respect to such share between the
Valuation Date and the closing of such repurchase and (ii) the Deal Value of
such Executive Stock, less the amount of any cash distributed by the Company
with respect to such share between the Valuation Date and the closing of such
repurchase.
(c) Put Procedures. The Put Right is exercisable by the holder(s) of
the Executive Stock delivering written notice (the "Put Notice") to the Company
during the period beginning on the date 30 days after the Termination Date and
ending of the date 90 days after the Termination Date. The Put Notice will set
forth the number of shares of each class of Executive Stock to be sold by the
holder(s).
(d) Closing. The closing of the transactions contemplated by this
Section 4 will take place on a date designated by the Company which date will
not be more than 160 days after the delivery of the Put Notice. The Company will
pay for any shares of Executive Stock to be purchased by the Company pursuant to
the Put Option by delivery of a check payable to the holder(s) of such shares of
Executive Stock in an aggregate amount equal to the aggregate repurchase price
for such shares of Executive Stock. Notwithstanding anything to the contrary
contained in this Agreement, all repurchases of shares of Executive Stock by the
Company will be subject to applicable restrictions contained in the Virginia
Stock Corporation Act and in the Company's and its Subsidiaries' debt and equity
financing agreements. If any such restrictions prohibit the repurchase of shares
of Executive Stock hereunder which the Company is otherwise obligated to make,
the Company may make such repurchases as soon as it is permitted to do so under
such restrictions, and the Company will use all commercially reasonable efforts
to obtain a waiver of any such restriction or to otherwise enable the Company to
make such repurchase. The Company will receive customary representations and
warranties from each seller regarding the sale of the shares of Executive Stock,
including, but not limited to, the representation that such seller has good and
marketable title to such shares of Executive Stock to be transferred free and
clear of all liens, claims and other encumbrances.
(e) Termination of Put Right. The provisions of this Section 4 will
terminate upon the earlier to occur of (i) the second anniversary of this
Agreement and (ii) at the time of the consummation of a Sale of the Company or a
Qualified Initial Public Offering if Executive is still employed at the Company
or any of its Subsidiaries at the time of such Sale of the Company or a
Qualified Initial Public Offering, as the case may be.
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5. Restrictions on Transfer of Executive Stock.
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(a) Transfer of Executive Stock. Executive will not sell, pledge,
transfer or otherwise dispose of (a "Transfer") any interest in any shares of
Executive Stock, except (i) pursuant to the provisions of Sections 3, 4 or 8
hereof, (ii) pursuant to applicable laws of descent and distribution, or (iii)
among Executive's Family Group; provided, that the restrictions contained in
this Section 5 will continue to be applicable to the shares of Executive Stock
after any Transfer of the type referred to in clause (ii) or (iii) above and, as
a condition to any such Transfer, the transferees of such shares of Executive
Stock must agree in writing to be bound by the provisions of this Agreement. Any
transferee of Executive Stock pursuant to a Transfer in accordance with clause
(ii) or (iii) above is herein referred to as a "Permitted Transferee." Upon the
proposed Transfer of Executive Stock pursuant to clause (ii) or (iii) above,
Executive or a Permitted Transferee Transferring such Executive Stock will
deliver a written notice (a "Transfer Notice") to the Company, which discloses
in reasonable detail the identity of the Permitted Transferee(s).
(b) Termination of Transfer Restrictions. The provisions of this
Section 5 will terminate upon a Qualified Initial Public Offering.
6. Additional Restrictions on Transfer.
(a) The certificates representing shares of Executive Stock will
bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
AND MAY NOT BE SOLD OR TRANS FERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION FROM
REGISTRATION THEREUNDER. THE SECURITIES REPRESENTED BY THIS
CERTIFICATE ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER,
CERTAIN REPURCHASE OPTIONS AND CERTAIN OTHER AGREEMENTS SET FORTH IN
AN EXECUTIVE STOCK AND OPTION AGREEMENT BETWEEN THE ISSUER (THE
"COMPANY") AND AN EMPLOYEE OF THE COMPANY DATED AS OF AUGUST 6,
1999, A COPY OF WHICH MAY BE OBTAINED BY THE HOLDER HEREOF AT THE
COMPANY'S PRINCIPAL PLACE OF BUSINESS WITHOUT CHARGE."
The legend set forth above regarding this Agreement shall be removed from the
certificates evidencing any securities which cease to be Executive Stock.
(b) No holder of Executive Stock may Transfer any Executive Stock
(except pursuant to an effective registration statement under the Securities
Act) without first delivering to the Company an opinion of counsel reasonably
acceptable in form and substance to the Company (which counsel will be
reasonably acceptable to the Company) that registration under the Securities Act
is not required in connection with such Transfer. If such opinion of counsel
reasonably acceptable in form and substance to the Company further states that
no subsequent Transfer of such Executive Stock will require registration under
the Securities Act, the Company will promptly upon
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such Transfer deliver new certificates which do not bear the Securities Act
legend set forth in Section 6(a).
7. Definition of Executive Stock. For all purposes of this
Agreement, Executive Stock will continue to be Executive Stock in the hands of
any holder other than Executive (except for the Company, purchasers pursuant to
an offering registered under the Securities Act or purchasers pursuant to a Rule
144 transaction (other than a Rule 144(k) transaction occurring prior to the
time the Company is a Public Company) and subsequent transferees), and each such
other holder of Executive Stock will succeed to all rights and obligations
attributable to Executive as a holder of Executive Stock hereunder. Executive
Stock will also include shares of the Company's capital stock issued with
respect to shares of Executive Stock by way of a stock split, stock dividend or
other recapitalization.
8. Approved Sale of the Company
(a) If the holders of a majority of the shares of voting Common
Stock then outstanding approve a sale of all or substantially all of the
Company's assets determined on a consolidated basis or a sale of all (or, for
accounting, tax or other reasons, substantially all) of the Company's
outstanding capital stock (whether by merger, recapitalization, consolidation,
reorganization, combination or otherwise) to an Independent Third Party or group
of Independent Third Parties (each such sale, an "Approved Sale"), then each
holder of Executive Stock will vote for, consent to and raise no objections
against such Approved Sale. If the Approved Sale is structured as (i) a merger
or consolidation, each holder of Executive Stock will waive any dissenters'
rights, appraisal rights or similar rights in connection with such merger or
consolidation or (ii) a sale of stock, each holder of Executive Stock will agree
to sell all of his or her shares of Executive Stock on the terms and conditions
approved by the holders of a majority of the shares of voting Common Stock then
outstanding. Each holder of Executive Stock will take all necessary or desirable
actions in connection with the consummation of the Approved Sale as requested by
the Company.
(b) If the Company or the holders of the Company's securities enter
into any negotiation or transaction for which Rule 506 (or any similar rule then
in effect) promulgated by the Securities and Exchange Commission may be
available with respect to such negotiation or transaction (including a merger,
consolidation or other reorganization), the holders of Executive Stock will, at
the request of the Company, appoint a purchaser representative (as such term is
defined in Rule 501) reasonably acceptable to the Company. If any holder of
Executive Stock appoints a purchaser representative designated by the Company,
the Company will pay the fees of such purchaser representative, but if any
holder of Executive Stock declines to appoint the purchaser representative
designated by the Company, such holder will appoint another purchaser
representative, and such holder will be responsible for the fees of the
purchaser representative so appointed.
(c) Executive and the other holders of Executive Stock (if any) will
bear their pro rata share (based upon the number of shares sold) of the costs of
any sale of Executive Stock pursuant to an Approved Sale to the extent such
costs are incurred for the benefit of all holders of Common Stock and are not
otherwise paid by the Company or the acquiring party in a like manner
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for all holders of Common Stock. Costs incurred by Executive and the other
holders of Executive Stock on their own behalf will not be considered costs of
the transaction hereunder.
9. 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 Stock are entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets with respect to or in
exchange for Common Stock is referred to herein as an "Organic Change." Except
as otherwise provided herein, after the consummation of any Organic Change, each
Option shall thereafter be exercisable for, rather than the applicable Option
Shares immediately theretofore acquirable and receivable upon exercise of such
Option, such shares of stock, securities or assets (including cash) as may be
issued or payable with respect to or in exchange for the number and class of
Option Shares immediately theretofore acquirable and receivable upon exercise of
such Option had such Organic Change not taken place. Notwithstanding the
foregoing, in the event of any proposed Organic Change, the Board may, in its
discretion, by written notice to the Executive at least 10 days prior to such
Organic Change, terminate the Options, if not exercised as of such date of the
Organic Change or any other designated date, subject to the payment of such
consideration, if any, as the Board shall deem equitable in the circumstances.
10. Adjustment for Change in Common Stock. In the event of a
recapitalization, reorganization, stock split, stock dividend, combination of
shares, consolidation, merger or other change in any class of Common Stock, the
Board shall, in order to prevent the dilution or enlargement of rights under any
Option, make appropriate changes in the number and type of shares or other
consideration covered by any unexercised Option which has not expired and its
applicable Option Price as the Board determines to be appropriate and equitable.
11. Sale of the Company. In the event of a proposed Sale of the
Company, the Board may provide, in its discretion, by written notice to the
Executive at least 10 days prior to the consummation of such proposed Sale of
the Company, that the Options shall terminate if not exercised as of such date
of such Sale of the Company or any other designated date or that the Options
shall thereafter represent only the right to receive such consideration as the
Board shall deem equitable in the circumstances.
12. Holdback Agreement. No holder of Executive Stock will effect any
sale or distribution of Common Stock during the seven days prior to or the
180-day period beginning on the effective date of any underwritten Public
Offering (except as part of such underwritten registration), unless the
underwriters managing such underwritten Public Offering otherwise agree.
13. Definitions. The following terms are defined as follows:
"Affiliate" means, when used with reference to a specified Person,
any Person that directly or indirectly controls or is controlled by or is under
common control with the specified Person. As used in this definition, "control"
(including, with its correlative meanings, "controlled by" and "under common
control with") shall mean possession, directly or indirectly, of power to direct
or cause the direction of management or policies (whether through ownership of
securities or partnership or other ownership interests, by contract or
otherwise). With respect to any Person who
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is an individual, "Affiliates" shall also include, without limitation, any
member of such individual's Family Group.
"Board" means the Company's Board of Directors.
"Cause" means (i) the commission of a felony or other crime
involving moral turpitude or the commission of any other act or omission
involving dishonesty, disloyalty or fraud with respect to the Company or any of
its Subsidiaries or any of their customers or suppliers, (ii) chronic drug or
alcohol abuse or other repeated conduct causing the Company or any of its Subsid
iaries substantial public disgrace or disrepute or economic harm, (iii)
substantial and repeated failure to perform duties as reasonably directed by the
Board, which is not cured, if curable, to the Board's reasonable satisfaction in
all material respects within thirty (30) days after the Board or the designee
thereof gives written notice thereof to Executive, (iv) any other act or
omission of Executive which would in law permit an employer to, without notice
or payment in lieu of notice, terminate the employment of an employee or (v)
commission by Executive of a material breach or material default of any of
Executive's written agreements or obligations under any provision of any written
agreement (including this Agreement) between Executive and the Company or any of
its Subsidiaries, which is not cured, if curable, to the Board's reasonable
satisfaction in all material respects within thirty (30) days after the Board or
the designee thereof gives written notice thereof to Executive.
"Class A Common" means the Company's Class A Common Stock, par value
$.01 per share.
"Class L Common" means the Company's Class L Common Stock, par value
$.01 per share.
"Common Stock" means, collectively, Class A Common, Class L Common
and any other common stock authorized by the Company.
"Deal Value" means (i) with respect to any share of Class A Common,
$.6667 less the amount of any cash distributed by the Company with respect to
such share of Class A Common between the date hereof and the applicable
Valuation Date (such number to be appropriately adjusted for any stock split,
reverse stock split, stock dividend or other combination of Class A Common after
the date hereof) and (ii) with respect to any share of Class L Common, $54.00
less the amount of any cash distributed by the Company with respect to such
share of Class L Common between the date hereof and the applicable Valuation
Date (such number to be appropriately adjusted for any stock split, reverse
stock split, stock dividend or other combination of Class L Common after the
date hereof).
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time.
"Executive Stock" means (i) all shares of Issued Stock and (ii) all
shares of Common Stock issued with respect to the shares referred to in clause
(i) above by way of stock dividend or
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stock split in connection with any conversion, merger, consolidation or
recapitalization or other reorganization affecting the Common Stock.
"Expiration Date" means, with respect to any Option, the date which
is ten (10) years after the date of this Agreement.
"Fair Market Value" per share of any class of Common Stock as of any
given date shall be as determined by the Board based on such factors as the
members thereof, in the exercise of their business judgment, consider relevant,
including, without limitation, the Company's financial performance and results
of operations.
"Family Group" means Executive's spouse and descendants (whether
natural or adopted) and any trust solely for the benefit of Executive and/or
Executive's spouse and/or descendants.
"Good Reason Event" means the occurrence of (i) any material
reduction in the annual base salary of Executive, the Executive's eligibility
for an annual bonus and/or the employee benefits granted to Executive, taken as
a whole, (ii) any material reduction in the position, authority or office of
Executive, or (iii) any material reduction in Executive's responsibilities or
duties for the Company and its Subsidiaries, in each case, other than (x) for
Cause (as determined by the Board in good faith) or (y) with the written consent
of Executive.
"Independent Third Party" means any Person who, immediately prior to
the contemplated transaction, does not own in excess of 5% of the Common Stock
on a fully diluted basis, who is not controlling, controlled by or under common
control with any such 5% owner of the Common Stock and who is not the spouse or
descendant (by birth or adoption) of any such 5% owner of the Common Stock.
"Issued Stock" means all shares of Common Stock issued upon the
proper exercise of an Option.
"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, a governmental entity or any
department, agency or political subdivision thereof or any other entity or
organization.
"Public Company" means a company any of whose securities are
registered pursuant to Section 12(b) or 12(g) of the Exchange Act.
"Public Offering" means a public offering and sale of the Common
Stock pursuant to an effective registration statement under the Securities Act;
provided that a Public Offering shall not include an offering made in connection
with a business acquisition or combination or an employee benefit plan.
"Public Sale" means any sale of Common Stock to the public pursuant
to an offering registered under the Securities Act or to the public through a
broker, dealer or market maker pursuant
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to the provisions of Rule 144 (other than Rule 144(k) prior to the time the
Company is a Public Company) adopted under the Securities Act.
"Qualified Initial Public Offering" means the initial sale by the
Company of any class or classes of the Common Stock in an offering registered
under the Securities Act, other than an offering made solely in connection with
a business acquisition or combination or an employee benefit plan, but only if
the aggregate gross proceeds received by the Company and/or its majority
stockholder in such initial sale or series of such sales in the aggregate are in
excess of $40 million.
"Sale of the Company" means any transaction involving the Company
and an Independent Third Party or affiliated group of Independent Third Parties
pursuant to which such party or parties acquire (i) a majority of the
outstanding shares of capital stock of the Company entitled to vote generally in
the election of the Board (whether by merger, consolidation, sale of the
Company's capital stock or otherwise) or (ii) all or substantially all of the
Company's assets determined on a consolidated basis.
"Securities Act" means the Securities Act of 1933, as amended from
time to time.
"Subsidiary" means, with respect to any Person, any corporation,
partnership, limited liability company, association or other business entity of
which (i) if a corporation, a majority of the total voting power of shares of
stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors thereof is at the time owned or controlled, directly
or indirectly, by that Person or one or more of the other Subsidiaries of that
Person or a combination thereof, or (ii) if a partnership, limited liability
company, association or other business entity, a majority of the partnership or
other similar ownership interest thereof is at the time owned or controlled,
directly or indirectly, by that Person or one or more Subsidiaries of that
Person or a combination thereof. For purposes hereof, a Person or Persons shall
be deemed to have a majority ownership interest in a partnership, limited
liability company, association or other business entity if such Person or
Persons shall be allocated a majority of partnership, limited liability company,
association or other business entity gains or losses or shall be or control the
managing director, managing member, manager or a general partner of such
partnership, limited liability company, association or other business entity.
"Termination Date" means the date that Executive ceases to be
employed by the Company or any of its Subsidiaries for any reason.
"Valuation Date" shall mean (i) with respect to any Repurchase
Option, the date, if any, that the Company delivers a Repurchase Notice to a
holder of Executive Stock or (ii) with respect to any Put Right, the date, if
any, that the holder(s) of Executive Stock deliver a Put Notice to the Company.
14. Notices. All notices, demands or other communications to be
given or delivered under or by reason of the provisions of this Agreement will
be in writing and will be deemed to have been given when delivered personally,
mailed by certified or registered mail, return receipt requested and postage
prepaid, or sent via a nationally recognized overnight courier, or sent
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via facsimile to the recipient with telephonic confirmation by the sending
party. Such notices, demands and other communications will be sent to the
address indicated below:
To the Company:
Mattress Discounters Holding Corporation
c/o Bain Capital, Inc.
Two Copley Place
Boston, Massachusetts 02116
Attn: Michael Krupka
Facsimile: 617-572-3274
With a copy to:
Kirkland & Ellis
153 East 53rd Street
New York, NY 10022
Attn: Lance C. Balk, Esq.
Facsimile: 212-446-4900
To Executive:
at Executive's last address
on the records of the Company
or such other address or to the attention of such other person as the recipient
party will have specified by prior written notice to the sending party. Any
notice under this Agreement will be deemed to have been given when so delivered
or mailed.
15. Severability. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or the effectiveness or validity of any provision in any
other jurisdiction, and this Agreement will be reformed, construed and enforced
in such jurisdiction as if such invalid, illegal or unenforceable provision had
never been contained herein.
16. Complete Agreement. This Agreement embodies the complete
agreement and understanding among the parties and supersedes and preempts any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
Without limiting the foregoing, all stock option agreements between the Company
and Executive which existed immediately prior to the Merger are hereby cancelled
and terminated.
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17. Counterparts. This Agreement may be executed in separate
counterparts, each of which will be deemed to be an original and all of which
taken together will constitute one and the same agreement.
18. Successors and Assigns; Transfer. This Agreement is intended to
bind and inure to the benefit of and be enforceable by Executive and the Company
and their respective successors, heirs and assigns, provided that Executive may
not assign any of his rights or obligations, except as expressly provided by the
terms of this Agreement. Prior to Transferring any shares of Executive Stock
(other than in a Public Sale or any Approved Sale) to any person or entity,
Executive will cause the prospective transferee to execute and deliver to the
Company an agreement containing the rights and restrictions set forth herein
with respect to such shares of Executive Stock.
19. Governing Law. The corporate law of the State of Virginia will
govern all questions concerning the relative rights of the Company and its
stockholders. All other issues concerning the enforceability, validity and
binding effect of this Agreement will 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 provision or rule that would cause the application of the
law of any jurisdiction other than the State of New York.
20. Remedies. The parties hereto acknowledge and agree that money
damages may not be an adequate remedy for any breach of the provisions of this
Agreement and that any party hereto will have the right to injunctive relief, in
addition to all of its other rights and remedies at law or in equity, to enforce
the provisions of this Agreement.
21. Effect of Transfers in Violation of Agreement. The Company will
not be required (a) to transfer on its books any shares of Executive Stock which
have been sold or transferred in violation of any of the provisions set forth in
this Agreement or (b) to treat as owner of such shares of Executive Stock, to
accord the right to vote as such owner or to pay dividends to any transferee to
whom such shares of Executive Stock have been transferred in violation of this
Agreement.
22. Amendments and Waivers. Any provision of this Agreement may be
amended or waived only with the prior written consent of the Company (with
approval of the Board) and Executive.
23. Arbitration. In the event of any dispute over any Fair Market
Value determination, such dispute will be resolved by and through an arbitration
proceeding to be conducted under the auspices of the American Arbitration
Association (or any like organization successor thereto) in Baltimore, MD. Such
arbitration proceeding will be conducted in as expedited a manner as is then
permitted by the commercial arbitration rules (formal or informal) of the
American Arbitration Association, and the arbitrator or arbitrators in any such
arbitration will be individuals who are expert in the subject matter of the
dispute. The arbitration will be conducted before a panel of arbitrators
selected in accordance with the rules of the American Arbitration Association.
The costs of said arbitrators and the arbitration will be borne equally by the
parties to the arbitration. Both the foregoing provisions to arbitrate any and
all such disputes, and the results,
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determination, finding, judgment and/or award rendered through such arbitration,
will be final and binding on all applicable parties and may be specifically
enforced by legal proceedings.
24. Valuation upon Termination. If upon a Termination Date any
Options remain unexercised, then within 45 days after such Termination Date, the
Board shall send a written notice to the Executive which notice shall state the
Board's determination of the Fair Market Value of the Common Stock issuable upon
the exercise of such unexercised Options as of a date within six (6) months of
such Termination Date.
25. Cash Dividends. If the Board pays any cash dividends on any of
its Common Stock, the Board shall, in order to prevent the dilution of rights
under any unexercised Option, (i) make appropriate changes in the number and
type of shares or other consideration covered by such unexercised Option and/or
its applicable Option Price, (ii) pay the holder of such unexercised Option the
amount of cash such holder would have received had such holder exercised such
unexercised Option immediately prior to the record date of such cash dividend,
or (iii) any combination of (i) and (ii) above, in any case, as the Board
determines to be appropriate and equitable.
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IN WITNESS WHEREOF, the parties have executed this Executive Stock
and Option Agreement on the day and year first above written.
MATTRESS DISCOUNTERS HOLDING
CORPORATION
/s/ Robert D. Gorney
_______________________________________
By:
Its:
________________________________________
Robert D. Gorney
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Exhibit 10.24
EXECUTION COPY
MATTRESS DISCOUNTERS CORPORATION
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of August 6, 1999, between Mattress
Discounters Corporation, a Delaware corporation (the "Company"), and Steven M.
Lytell ("Executive").
In consideration of the mutual covenants contained herein and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Employment. The Company agrees to employ Executive, and Executive
hereby accepts employment with the Company, upon the terms and conditions set
forth in this Agreement for the period beginning on the date hereof and ending
as provided in Section 5 hereof (the "Employment Period").
2. Position and Duties.
(a) During the Employment Period, Executive shall serve as the Vice
Chairman of the Company and shall have the normal duties, responsibilities and
authority of the Vice Chairman, subject to the general supervisory power of the
Company's board of directors (the "Board") under applicable corporate law.
(b) During the Employment Period, Executive shall report to the
Board and shall devote his best efforts and his full business time and attention
(except for permitted vacation periods and reasonable periods of illness or
other incapacity other than Disability) to the business and affairs of the
Company and its Subsidiaries. Executive shall perform his duties and
responsibilities to the Company and its Subsidiaries hereunder to the best of
his abilities in a diligent, trustworthy, businesslike and efficient manner.
(c) For purposes of this Agreement, "Subsidiaries" shall mean any
corporation or other entity of which the securities or other ownership interests
having the voting power to elect a majority of the board of directors or other
governing body are, at the time of determination, owned by the Company, directly
or through one or more Subsidiaries. For purposes hereof, the Company shall be
deemed to have a majority ownership interest in a partnership, limited liability
company (without voting securities), association or other business entity if the
Company, directly or through one or more Subsidiaries, shall be allocated a
majority of partnership, limited liability company, association or other
business entity gains or losses or shall be or control the managing director or
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general partner of such partnership, limited liability company, association or
other business entity. For purposes of this Agreement, "Disability" means the
inability, due to illness, accident, injury, physical or mental incapacity or
other disability, of the Executive to carry out effectively his duties and
obligations to the Company or to participate effectively and actively in the
management of the Company or a Subsidiary of the Company for a period or periods
aggregating at least 90 days (whether or not consecutive) during any
twelve-month period, as determined in the reasonable judgment of the Board.
3. Compensation and Benefits.
(a) During the Employment Period, Executive's base salary shall be
$500,000 per annum or such higher rate as the Board may designate from time to
time (the "Base Salary"), which salary shall be payable in regular installments
in accordance with the Company's general payroll practices. In addition, during
the Employment Period, Executive shall be entitled to participate in all of the
Company's employee compensatory and benefit programs for which senior executive
employees of the Company and its Subsidiaries are generally eligible.
(b) During the Employment Period, the Company shall reimburse
Executive for all reasonable expenses incurred by him in the course of
performing his duties and responsibilities under this Agreement which are
consistent with the Company's policies in effect from time to time with respect
to travel, entertainment and other business expenses, subject to the Company's
requirements with respect to reporting and documentation of such expenses.
(c) In addition to the Base Salary, the Board may, based on a
mutually agreeable bonus plan, award a bonus to Executive of up to 60% of the
Base Salary following the end of each fiscal year during the Employment Period
based upon Executive's performance and the Company's operating results during
such year.
(d) All amounts payable to Executive as compensation hereunder shall
be subject to customary withholding by the Company.
4. Board Membership. With respect to all regular elections of
directors during the Employment Period, the Company shall nominate, and use its
reasonable efforts to cause the election of, Executive to serve as a member and
Vice Chairman of the Board. Upon the termination of the Employment Period,
Executive shall resign as a director of the Company and its Subsidiaries, as the
case may be.
5. Term.
(a) The initial Employment Period shall end on February 6, 2001 and
will thereafter be automatically extended for consecutive 18 month periods
unless notice of termination is delivered by either party to the other at least
90 days prior to the end of such period; provided that (i) the Employment Period
shall terminate prior to such date immediately upon Executive's
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resignation, death or Disability and (ii) the Employment Period may be
terminated by the Company at any time prior to such date for Cause (as defined
below) or without Cause. Except as otherwise provided herein, any termination of
the Employment Period by the Company shall be effective as specified in a
written notice from the Company to Executive.
(b) If the Employment Period is terminated by the Company or its
successors in interest without Cause, Executive shall be entitled to continue to
receive his Base Salary payable in regular installments for a period of 18
months from the date of termination (the "Severance Period"), if and only if
Executive has executed and delivered to the Company a General Release in the
form of Exhibit A attached hereto and only so long as Executive has not breached
the provisions of Sections 6, 7 and 8 hereof. The amounts payable pursuant to
this Section 5(b) may be payable, at Company's discretion, in one lump sum
payment within 30 days following termination of the Employment Period.
(c) If the Employment Period is terminated by the Company for Cause
or is terminated pursuant to clause (a)(i) above or expires and is not renewed
hereunder, Executive shall only be entitled to receive his Base Salary through
the date of termination or expiration.
(d) Except as otherwise expressly provided herein, all of
Executive's rights to salary, bonuses, fringe benefits and other compensation
hereunder which accrue or become payable after the termination or expiration of
the Employment Period shall cease upon such termination or expiration. The
Company may offset any amounts Executive owes it or its Subsidiaries against any
amounts it owes Executive hereunder.
(e) For purposes of this Agreement, "Cause" shall mean (i) the
commission of a felony or other crime involving moral turpitude or the
commission of any other act or omission involving dishonesty, disloyalty or
fraud with respect to the Company or any of its Subsidiaries or any of their
customers or suppliers, (ii) chronic drug or alcohol abuse or other repeated
conduct causing the Company or any of its Subsidiaries substantial public
disgrace or disrepute or economic harm, (iii) substantial and repeated failure
to perform duties as reasonably directed by the Board, which is not cured, if
curable, to the Board's reasonable satisfaction in all material respects within
thirty (30) days after the Board or the designee thereof gives written notice
thereof to Executive, (iv) any other act or omission of Executive which would in
law permit an employer to, without notice or payment in lieu of notice,
terminate the employment of an employee or (v) any other material breach of this
Agreement which is not cured, if curable, to the Board's reasonable satisfaction
within 15 days after written notice thereof to Executive (provided, that a
breach of Sections 6, 7 or 8 shall be material and the applicable cure period
shall be 3 days).
6. Confidential Information. Executive acknowledges that the
information, observations and data (including trade secrets) obtained by him
while employed by the Company and its Subsidiaries concerning the business or
affairs of the Company or any Subsidiary ("Confidential Information") are the
property of the Company or such Subsidiary. Therefore, Executive agrees that he
shall not disclose to any unauthorized person or use for his own purposes
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<PAGE>
any Confidential Information without the prior written consent of the Board,
unless and to the extent that the Confidential Information becomes generally
known to and available for use by the public other than as a result of
Executive's acts or omissions. Executive shall deliver to the Company at the
termination or expiration of the Employment Period, or at any other time the
Company may request, all memoranda, notes, plans, records, reports, computer
tapes, printouts and software and other documents and data (and copies thereof)
embodying or relating to the Confidential Information, Work Product (as defined
below) or the business of the Company or any Subsidiaries which he may then
possess or have under his control.
7. Inventions and Patents. Executive acknowledges that all
inventions, innovations, improvements, developments, methods, designs, analyses,
drawings, reports and all similar or related information (whether or not
patentable) which relate to the Company's or any of its Subsidiaries' actual or
anticipated business, research and development or existing or future products or
services and which are conceived, developed or made by Executive while employed
by the Company and its Subsidiaries ("Work Product") belong to the Company or
such Subsidiary. Executive shall promptly disclose such Work Product to the
Board and, at the Company's expense, perform all actions reasonably requested by
the Board (whether during or after the Employment Period) to establish and
confirm such ownership (including, without limitation, assignments, consents,
powers of attorney and other instruments).
8. Non-Compete, Non-Solicitation.
(a) In further consideration of the compensation to be paid to
Executive hereunder, Executive acknowledges that in the course of his employment
with the Company and its Subsidiaries he shall become familiar, and he has
become familiar, with the Company's trade secrets and with other Confidential
Information and that his services have been and shall be of special, unique and
extraordinary value to the Company and its Subsidiaries. Therefore, Executive
agrees that, during the Employment Period and for three years thereafter (the
"Noncompete Period"), he shall not directly or indirectly own any interest in,
operate, manage, control, participate in, consult with, advise, render services
for, or in any manner engage in any business (including by himself or in
association with any person, firm, corporate or other business organization or
through any other entity) in competition with, or potential competition with,
the businesses of the Company or its Subsidiaries as such businesses exist or
are in process on the date of the termination or expiration of the Employment
Period, within the United States. Nothing herein shall prohibit Executive from
being a passive owner of not more than 2% of the outstanding stock of any class
of a corporation which is publicly traded, so long as Executive has no active
participation in the business of such corporation.
(b) During the Noncompete Period, Executive shall not directly or
indirectly through another entity (i) induce or attempt to induce any employee
of the Company or any Subsidiary to leave the employ of the Company or such
Subsidiary, or in any way interfere with the relationship between the Company or
any Subsidiary and any employee thereof, (ii) hire any person who was an
employee of the Company or any Subsidiary at any time during the Employment
Period
-4-
<PAGE>
or (iii) induce or attempt to induce any customer, supplier, licensee, licensor,
franchisee or other business relation of the Company or any Subsidiary to cease
doing business with the Company or such Subsidiary, or in any way interfere with
the relationship between any such customer, supplier, licensee, licensor,
franchisee or business relation and the Company or any Subsidiary (including,
without limitation, making any negative or disparaging statements or
communications regarding the Company or its Subsidiaries).
(c) Executive agrees that: (i) the covenants set forth in this
Section 8 are reasonable in geographical and temporal scope and in all other
respects and that he has reviewed the provisions of this Agreement with his
legal counsel, (ii) the Company would not have entered into this Agreement but
for the covenants of Executive contained herein, and (iii) the covenants
contained herein have been made in order to induce the Company to enter into
this Agreement.
(d) If, at the time of enforcement of this Section 8, a court shall
hold that the duration, scope or area restrictions stated herein are
unreasonable under circumstances then existing, the parties agree that the
maximum duration, scope or area reasonable under such circumstances shall be
substituted for the stated duration, scope or area and that the court shall be
allowed to revise the restrictions contained herein to cover the maximum period,
scope and area permitted by law.
(e) Executive recognizes and affirms that in the event of his breach
of any provision of this Section 8, money damages would be inadequate and the
Company would have no adequate remedy at law. Accordingly, the Executive agrees
that in the event of the breach or a threatened breach by Executive of any of
the provisions of this Section 8, the Company, in addition and supplementary to
other rights and remedies existing in its favor, shall be entitled to specific
performance and/or injunctive or other equitable relief from a court of
competent jurisdiction in order to enforce or prevent any violations of the
provisions hereof (without posting a bond or other security). In addition, in
the event of an alleged breach or violation by Executive of this Section 8, the
Noncompete Period shall be tolled until such breach or violation has been duly
cured.
9. Executive's Representations. Executive hereby represents and
warrants to the Company that (i) the execution, delivery and performance of this
Agreement by Executive do not and shall not conflict with, breach, violate or
cause a default under any contract, agreement, instrument, order, judgment or
decree to which Executive is a party or by which he is bound, (ii) Executive is
not a party to or bound by any employment agreement, noncompete agreement or
confidentiality agreement with any other person or entity and (iii) upon the
execution and delivery of this Agreement by the Company, this Agreement shall be
the valid and binding obligation of Executive, enforceable in accordance with
its terms. Executive hereby acknowledges and represents that he has consulted
with independent legal counsel regarding his rights and obligations under this
Agreement and that he fully understands the terms and conditions contained
herein.
10. Survival. Sections 6 through 19 shall survive and continue in
full force in accordance with their terms notwithstanding the expiration or
termination of the Employment Period.
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<PAGE>
11. Notices. All notices, demands or other communications to be
given or delivered under or by reason of the provisions of this Agreement will
be in writing and will be deemed to have been given when delivered personally,
mailed by certified or registered mail, return receipt requested and postage
prepaid, or sent via a nationally recognized overnight courier, or sent via
facsimile to the recipient with telephonic confirmation by the sending party.
Such notices, demands and other communications will be sent to the address
indicated below:
To Executive:
3620 Ocean Boulevard
Corona Del Mar, CA 92625
Attention: Steven M. Lytell
Telecopy No.: (949) 759-9688
Telephone No.: (949) 759-7050
To the Company:
Mattress Discounters Corporation
9822 Fallard Court
Upper Marlboro, MD 20722
Attention: Board of Directors
Telecopy No.: (301) 856-4591
Telephone No.: (301) 856-6755
With copies to:
Bain Capital, Inc.
Two Copley Place
Boston, MA 02116
Attention: Michael Krupka
Telecopy No.: (617) 572-3274
Telephone No.: (617) 572-2753
Kirkland & Ellis
Citicorp Center
153 East 53rd Street
New York, NY 10022
Attention: Lance C. Balk, Esq.
Telecopy No.: (212) 446-4900
Telephone No.: (212) 446-4800
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<PAGE>
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. Any
notice under this Agreement shall be deemed to have been given when so
delivered, sent or mailed.
12. Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any action in any other jurisdiction, but this Agreement
shall be reformed, construed and enforced in such jurisdiction as if such
invalid, illegal or unenforceable provision had never been contained herein.
13. Complete Agreement. This Agreement embodies the complete
agreement and understanding among the parties and supersedes and preempts any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way
(including, without limitation, the Employment Agreement between the parties
hereto, dated July 1, 1997), but excluding any breaches thereof by either party
prior to the date hereof.
14. No Strict Construction. The language used in this Agreement
shall be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction shall be applied against any
party.
15. Counterparts. This Agreement may be executed in separate
counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same agreement.
16. Successors and Assigns. This Agreement is intended to bind and
inure to the benefit of and be enforceable by Executive, the Company and their
respective heirs, successors and assigns; provided that the rights and
obligations of Executive under this Agreement shall not be assignable.
17. Governing Law. All issues and questions concerning the
construction, validity, enforcement and interpretation of this Agreement and the
exhibits and schedules hereto shall be governed by, and construed in accordance
with, the laws of the State of Delaware, without giving effect to any choice of
law or conflict of law rules or provisions (whether of the State of Delaware or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Delaware.
18. Amendment and Waiver. The provisions of this Agreement may be
amended or waived only with the prior written consent of the Company and
Executive, and no course of conduct or failure or delay in enforcing the
provisions of this Agreement shall affect the validity, binding effect or
enforceability of this Agreement.
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<PAGE>
19. Remedies. Each of the parties to this Agreement will be entitled
to enforce its rights under this Agreement specifically, to recover damages and
costs (including reasonable attorneys' fees) caused by any breach of any
provision of this Agreement and to exercise all other rights existing in its
favor. The parties hereto agree and acknowledge that money damages may not be an
adequate remedy for any breach of the provisions of this Agreement and that any
party may in its sole discretion apply to any court of law or equity of
competent jurisdiction (without posting any bond or deposit) for specific
performance and/or other injunctive relief in order to enforce or prevent any
violations of the provisions of this Agreement.
* * * * *
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first written above.
MATTRESS DISCOUNTERS CORPORATION
By: /s/ Steven M. Lytell
____________________________________
Its:____________________________________
________________________________________
STEVEN M. LYTELL
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<PAGE>
Exhibit A
GENERAL RELEASE
I, Steven M. Lytell, in consideration of and subject to the performance by
Mattress Discounters Corporation, a Delaware corporation (together with its
subsidiaries, the "Company"), of its material obligations under the Employment
Agreement, dated as of August 6, 1999 (the "Agreement"), do hereby release and
forever discharge as of the date hereof the Company and all present and former
directors, officers, agents, representatives, employees, successors and assigns
of the Company and its direct or indirect owners (collectively, the "Released
Parties") to the extent provided below.
1. I understand that any payments or benefits paid or granted to me under
Section 5(b) of the Agreement represent, in part, consideration for
signing this General Release and are not salary, wages or benefits to
which I was already entitled. I understand and agree that I will not
receive the payments and benefits specified in Section 5(b) of the
Agreement unless I execute this General Release and do not revoke this
General Release within the time period permitted hereafter or breach this
General Release.
2. Except as provided in Section 4 below, I knowingly and voluntarily release
and forever discharge the Company and the other Released Parties from any
and all claims, controversies, actions, causes of action, cross-claims,
counter-claims, demands, debts, compensatory damages, liquidated damages,
punitive or exemplary damages, other damages, claims for costs and
attorneys' fees, or liabilities of any nature whatsoever in law and in
equity, both past and present (through the date of this General Release)
and whether known or unknown, suspected, or claimed against the Company or
any of the Released Parties which I, my spouse, or any of my heirs,
executors, administrators or assigns, may have, which arise out of or are
connected with my employment with, or my separation from, the Company
(including, but not limited to, any allegation, claim or violation,
arising under: Title VII of the Civil Rights Act of 1964, as amended; the
Civil Rights Act of 1991; the Age Discrimination in Employment Act of
1967, as amended (including the Older Workers Benefit Protection Act); the
Equal Pay Act of 1963, as amended; the Americans with Disabilities Act of
1990; the Family and Medical Leave Act of 1993; the Civil Rights Act of
1866, as amended; the Worker Adjustment Retraining and Notification Act;
the Employee Retirement Income Security Act of 1974; any applicable
Executive Order Programs; the Fair Labor Standards Act; or their state or
local counterparts; or under any other federal, state or local civil or
human rights law, or under any other local, state, or federal law,
regulation or ordinance; or under any public policy, contract or tort, or
under common law; or arising under any policies, practices or procedures
of the Company; or any claim for wrongful discharge, breach of contract,
infliction of emotional distress, defamation; or any claim for costs,
fees, or other expenses, including attorneys' fees incurred in these
matters) (all of the foregoing collectively referred to herein as the
"Claims").
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<PAGE>
3. I represent that I have made no assignment or transfer of any right,
claim, demand, cause of action, or other matter covered by Section 2
above.
4. I agree that this General Release does not waive or release any rights or
claims that I may have under the Age Discrimination in Employment Act of
1967 which arise after the date I execute this General Release. I
acknowledge and agree that my separation from employment with the Company
in compliance with the terms of the Agreement shall not serve as the basis
for any claim or action (including, without limitation, any claim under
the Age Discrimination in Employment Act of 1967).
5. In signing this General Release, I acknowledge and intend that it shall be
effective as a bar to each and every one of the Claims hereinabove
mentioned or implied. I expressly consent that this General Release shall
be given full force and effect according to each and all of its express
terms and provisions, including those relating to unknown and unsuspected
Claims (notwithstanding any state statute that expressly limits the
effectiveness of a general release of unknown, unsuspected and
unanticipated Claims), if any, as well as those relating to any other
Claims hereinabove mentioned or implied. I acknowledge and agree that this
waiver is an essential and material term of this General Release and that
without such waiver the Company would not have agreed to the terms of the
Agreement. I further agree that in the event I should bring a Claim
seeking damages against the Company, or in the event I should seek to
recover against the Company in any Claim brought by a governmental agency
on my behalf, this General Release shall serve as a complete defense to
such Claims. I further agree that I am not aware of any pending charge or
complaint of the type described in Section 2 as of the execution of this
General Release.
6. I agree that neither this General Release, nor the furnishing of the
consideration for this General Release, shall be deemed or construed at
any time to be an admission by the Company, any Released Party or myself
of any improper or unlawful conduct.
7. I agree that I will forfeit all amounts payable by the Company pursuant to
the Agreement if I challenge the validity of this General Release. I also
agree that if I violate this General Release by suing the Company or the
other Released Parties, I will pay all costs and expenses of defending
against the suit incurred by the Released Parties, including reasonable
attorneys' fees, and return all payments received by me pursuant to the
Agreement.
8. I agree that this General Release is confidential and agree not to
disclose any information regarding the terms of this General Release,
except to my immediate family and any tax, legal or other counsel I have
consulted regarding the meaning or effect hereof or as required by law,
and I will instruct each of the foregoing not to disclose the same to
anyone.
9. Any non-disclosure provision in this General Release does not prohibit or
restrict me (or my attorney) from responding to any inquiry about this
General Release or its underlying facts and circumstances by the
Securities and Exchange Commission (SEC), the National
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<PAGE>
Association of Securities Dealers, Inc. (NASD), any other self-regulatory
organization or governmental entity.
10. I agree to reasonably cooperate with the Company in any internal
investigation or administrative, regulatory, or judicial proceeding. I
understand and agree that my cooperation may include, but not be limited
to, making myself available to the Company upon reasonable notice for
interviews and factual investigations; appearing at the Company's request
to give testimony without requiring service of a subpoena or other legal
process; volunteering to the Company pertinent information; and turning
over to the Company all relevant documents which are or may come into my
possession all at times and on schedules that are reasonably consistent
with my other permitted activities and commitments. I understand that in
the event the Company asks for my cooperation in accordance with this
provision, the Company will reimburse me solely for reasonable travel
expenses, including lodging and meals, upon my submission of receipts.
11. Notwithstanding anything in this General Release to the contrary, this
General Release shall not relinquish, diminish, or in any way affect any
rights or claims arising out of any breach by the Company or by any
Released Party of the Agreement.
12. Whenever possible, each provision of this General Release shall be
interpreted in, such manner as to be effective and valid under applicable
law, but if any provision of this General Release is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule
in any jurisdiction, such invalidity, illegality or unenforceability shall
not affect any other provision or any other jurisdiction, but this General
Release shall be reformed, construed and enforced in such jurisdiction as
if such invalid, illegal or unenforceable provision had never been
contained herein.
BY SIGNING THIS GENERAL RELEASE, I REPRESENT AND AGREE THAT:
a. I HAVE READ IT CAREFULLY;
b. I UNDERSTAND ALL OF ITS TERMS AND KNOW THAT I AM GIVING UP IMPORTANT
RIGHTS, INCLUDING BUT NOT LIMITED TO, RIGHTS UNDER THE AGE
DISCRIMINATION IN EMPLOYMENT ACT OF 1967, AS AMENDED, TITLE VII OF
THE CIVIL RIGHTS ACT OF 1964, AS AMENDED; THE EQUAL PAY ACT OF 1963,
THE AMERICANS WITH DISABILITIES ACT OF 1990; AND THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED;
c. I VOLUNTARILY CONSENT TO EVERYTHING IN IT;
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<PAGE>
d. I HAVE BEEN ADVISED TO CONSULT WITH AN ATTORNEY BEFORE EXECUTING IT
AND I HAVE DONE SO OR, AFTER CAREFUL READING AND CONSIDERATION I
HAVE CHOSEN NOT TO DO SO OF MY OWN VOLITION;
e. I HAVE HAD AT LEAST 21 DAYS FROM THE DATE OF MY RECEIPT OF THIS
RELEASE SUBSTANTIALLY IN ITS FINAL FORM ON _______________ __, _____
TO CONSIDER IT AND THE CHANGES MADE SINCE THE _______________ __,
_____ VERSION OF THIS RELEASE ARE NOT MATERIAL AND WILL NOT RESTART
THE REQUIRED 21-DAY PERIOD;
f. THE CHANGES TO THE AGREEMENT SINCE AUGUST 6, 1999 EITHER ARE NOT
MATERIAL OR WERE MADE AT MY REQUEST.
g. I UNDERSTAND THAT I HAVE SEVEN DAYS AFTER THE EXECUTION OF THIS
RELEASE TO REVOKE IT AND THAT THIS RELEASE SHALL NOT BECOME
EFFECTIVE OR ENFORCEABLE UNTIL THE REVOCATION PERIOD HAS EXPIRED;
h. I HAVE SIGNED THIS GENERAL RELEASE KNOWINGLY AND VOLUNTARILY AND
WITH THE ADVICE OF ANY COUNSEL RETAINED TO ADVISE ME WITH RESPECT TO
IT; AND
i. I AGREE THAT THE PROVISIONS OF THIS GENERAL RELEASE MAY NOT BE
AMENDED, WAIVED, CHANGED OR MODIFIED EXCEPT BY AN INSTRUMENT IN
WRITING SIGNED BY AN AUTHORIZED REPRESENTATIVE OF THE COMPANY AND BY
ME.
DATE: ___________ __, ______ ________________________________________
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<PAGE>
EXHIBIT 10.25
MATTRESS HOLDING CORPORATION
MATTRESS DISCOUNTERS CORPORATION
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT is made as of December 6, 1999, by and among Mattress
Discounters Corporation, a Delaware corporation (the "Company"), Mattress
-------
Holding Corporation, a Virginia corporation ("Holdings"), and Stephen A. Walker
--------
("Executive").
---------
In consideration of the mutual covenants contained herein and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Employment. The Holdings and the Company agree to employ Executive, and
----------
Executive hereby accepts employment with Holdings and the Company, upon the
terms and conditions set forth in this Agreement for the period beginning on the
date hereof and ending as provided in Section 5 hereof (the "Employment
----------
Period").
- ------
2. Position and Duties.
-------------------
(a) During the Employment Period, Executive shall serve as the Chief
Executive Officer of Holdings and of the Company and shall have the normal
duties, responsibilities and authority of the Chief Executive Officer, subject
to the general supervisory power of Holdings' board of directors (the "Board")
-----
under applicable Corporate law.
(b) During the Employment Period, Executive shall report to the Board and
shall devote his best efforts and his full business time and attention (except
for permitted vacation periods and reasonable periods of illness or other
incapacity other than Disability) to the business and affairs of Holdings, the
Company and the Subsidiaries; provided, however, that Executive may spend an
average of one to two days per month to serve as a member of the board of
directors of [ ]. Executive shall perform his duties and responsibilities to
Holdings, the Company and the Subsidiaries hereunder to the best of his
abilities in a diligent, trustworthy, businesslike and efficient manner.
(c) For purposes of this Agreement, "Subsidiaries" shall mean any
------------
corporation or other entity of which the securities or other ownership interests
having the voting power to elect a majority of the board of directors or other
governing body are, at the time of determination, owned by Holdings or the
Company, directly or through one or more Subsidiaries. For purposes hereof,
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<PAGE>
Holdings or the Company shall be deemed to have a majority ownership interest in
a partnership, limited liability company (without voting securities),
association or other business entity if Holdings or the Company, directly or
through one or more Subsidiaries, shall be allocated a majority of partnership,
limited liability company, association or other business entity gains or losses
or shall be or control the managing director or general partner of such
partnership, limited liability company, association or other business entity.
For purposes of this Agreement, "Disability" means the inability, due to
----------
illness, accident, injury, physical or mental incapacity or other disability, of
the Executive to carry out effectively his duties and obligations to Holdings or
the Company or to participate effectively and actively in the management of
Holdings, the Company or a Subsidiary for a period or periods aggregating at
least 90 days (whether or not consecutive) during any twelve-month period, as
determined in the reasonable judgment of the Board.
3. Compensation and Benefits.
-------------------------
(a) During the Employment Period, Executive's base salary shall be
$300,000 per annum or such higher rate as the Board may designate from time to
time (the "Base Salary"), which salary shall be payable by the Company in
-----------
regular installments in accordance with the Company's general payroll practices.
In addition, during the Employment Period, Executive shall be entitled to
participate in applicable Company employee compensatory and benefit programs for
which senior executive employees of the Company are generally eligible.
(b) During the Employment Period, the Company shall reimburse
Executive for all reasonable expenses incurred by him in the course of
performing his duties and responsibilities under this Agreement which are
consistent with the Company's policies in effect from time to time with respect
to travel, entertainment and other business expenses, subject to the Company's
requirements with respect to reporting and documentation of such expenses.
(c) In addition to the Base Salary, the Board will award (and the
Company will pay) a bonus to Executive of up to 67% of the Base Salary following
the end of each fiscal year during the Employment Period based upon Executive's
performance and Holdings' consolidated operating results during such year, with
certain financial targets to be mutually agreed upon by Holdings and Executive.
(d) The Company will provide Executive with the following amounts
(the "Relocation Payments") to reimburse Executive for his relocation expenses
-------------------
(i) the cost of no more than two trips to the Washington, D.C./Baltimore, MD
area for Executive and his spouse for the purpose of searching for a house (such
cost to include travel, lodging and automobile), (ii) an amount equal to the
real estate broker's fee Executive actually pays in connection with the sale of
his Marietta, GA home (such amount not to exceed 6% of the sale price of such
home), (iii) up to $30,000 for moving expenses which Executive actually incurs
and for which Executive provides the Company with itemized receipts, and (iv) a
miscellaneous payment of $10,000. The Company will pay Executive the Relocation
Payments referenced in subsection (i) above at the time Executive submits such
expenses for reimbursement and in subsections (ii) through (iv) above within two
business days after Executive actually relocates to the Washington,
D.C./Baltimore, MD area. Until
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<PAGE>
the earlier of such relocation and 120 days from the date of this Agreement, the
Company will (i) reimburse Executive for travel expenses and coach airline
tickets between his Marietta, GA home and Mattress Discounters Corporation's
executive offices for one round trip per week (Executive will attempt to obtain
the most economical fares available) and (ii) provide Executive with an
automobile and temporary furnished lodging in the Washington, D.C./Baltimore, MD
area. The Company shall pay Executive an additional amount equal to the marginal
increase in Executive's income taxes which results from the payments referred to
in this Section 3(d), including the payment referred to in this sentence.
(e) Holdings will grant to Executive options pursuant to an option
agreement dated the date of this Agreement in the form attached hereto as
Exhibit B.
(f) All amounts payable to Executive as compensation hereunder shall
be subject to customary withholding by the Company.
4. Board Membership. With respect to all regular elections of
----------------
directors during the Employment Period, Holdings shall nominate, and use its
reasonable efforts to cause the election of, Executive to serve as a member of
the Board. Upon the termination of the Employment Period, Executive shall resign
as a director of Holdings and its Subsidiaries, as the case may be.
5. Term.
----
(a) The initial Employment Period shall end on December 6, 2000 and
will thereafter be automatically extended for consecutive 12 month periods
unless notice of termination is delivered by either party to the other at least
90 days prior to the end of such period; provided that (i) the Employment Period
shall terminate prior to such date immediately upon Executive's resignation,
death or Disability and (ii) the Employment Period may be terminated by Holdings
at any time prior to such date for Cause (as defined below) or without Cause.
Except as otherwise provided herein, any termination of the Employment Period by
Holdings shall be effective as specified in a written notice from Holdings to
Executive.
(b) If the Employment Period is terminated by Holdings or its
successors in interest without Cause, Executive shall be entitled to continue to
receive from the Company (i) his Base Salary payable in regular installments for
a period of 12 months from the date of termination (the "Severance Period"), and
----------------
(ii) for the duration of the Severance Period or until such time as Executive
obtains health benefits from another employer, whichever comes first, the health
benefits to which he was entitled at the time of termination, and in either
case, if and only if Executive has executed and delivered to Holdings a General
Release in the form of Exhibit A attached hereto and only so long as Executive
has not breached the provisions of Sections 6, 7 and 8 hereof. The amounts
payable pursuant to Section 5(b)(i) may be payable, at the Company's discretion,
in one lump sum payment within 30 days following termination of the Employment
Period.
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<PAGE>
(c) If the Employment Period is terminated by Holdings for Cause or
is terminated pursuant to clause (a)(i) above or expires and is not renewed
hereunder, Executive shall only be entitled to receive his Base Salary through
the date of termination or expiration.
(d) Except as otherwise expressly provided herein, all of Executive's
rights to salary, bonuses, fringe benefits and other compensation hereunder
which accrue or become payable after the termination or expiration of the
Employment Period shall cease upon such termination or expiration. Holdings and
the Company may offset any amounts Executive owes it or its Subsidiaries against
any amounts it owes Executive hereunder.
(e) For purposes of this Agreement, "Cause" shall mean (i) the
-----
commission of a felony or other crime involving moral turpitude or the
commission of any other act or omission involving dishonesty, disloyalty or
fraud with respect to Holdings, the Company or any Subsidiary or any of their
customers or suppliers, (ii) chronic drug or alcohol abuse or other repeated
conduct causing Holdings, the Company or any Subsidiary substantial public
disgrace or disrepute or economic harm, (iii) substantial and repeated failure
to perform duties as reasonably directed by the Board, which is not cured,
if curable, to the Board's reasonable satisfaction in all material respects
within thirty (30) days after the Board or the designee thereof gives written
notice thereof to Executive or (iv) any other material breach of this Agreement
which is not cured, if curable, to the Board's reasonable satisfaction within 15
days after written notice thereof to Executive (provided, that a breach
of Sections 6, 7 or 8 shall be material and the applicable cure period shall be
3 days).
6. Confidential Information. Executive acknowledges that the
------------------------
information, observations and data (including trade secrets) obtained by him
while employed by Holdings, the Company and the Subsidiaries concerning the
business or affairs of Holdings, the Company or any Subsidiary ("Confidential
------------
Information") are the property of Holdings, the Company or such Subsidiary.
- -----------
Therefore, Executive agrees that he shall not disclose to any unauthorized
person or use for his own purposes any Confidential Information without the
prior written consent of the Board, unless and to the extent that the
Confidential Information becomes generally known to and available for use by the
public other than as a result of Executive's acts or omissions. Executive shall
deliver to Holdings at the termination or expiration of the Employment Period,
or at any other time Holdings may request, all memoranda, notes, plans,
records, reports, computer tapes, printouts and software and other documents and
data (and copies thereof) embodying or relating to the Confidential Information,
Work Product (as defined below) or the business of Holdings, the Company or any
Subsidiaries which he may then possess or have under his control.
7. Inventions and Patents. Executive acknowledges that all
----------------------
inventions, innovations, improvements, developments, methods, designs, analyses,
drawings, reports and all similar or related information (whether or not
patentable) which relate to Holdings', the Company's or any Subsidiary's actual
or anticipated business, research and development or existing or future products
or services and which are conceived, developed or made by Executive while
employed by Holdings, the Company or any Subsidiary ("Work Product") belong to
------------
Holdings, the Company or such Subsidiary. Executive shall promptly disclose such
Work Product to the Board and, at the Company's expense, perform all actions
reasonably requested by the Board (whether during or after
-4-
<PAGE>
the Employment Period) to establish and confirm such ownership (including,
without limitation, assignments, consents, powers of attorney and other
instruments).
8. Non-Compete, Non-Solicitation.
-----------------------------
(a) In further consideration of the compensation to be paid to
Executive hereunder, Executive acknowledges that in the course of his employment
with Holdings, the Company and the Subsidiaries he shall become familiar, and he
has become familiar, with Holdings and the Company's trade secrets and with
other Confidential Information and that his services have been and shall be of
special, unique and extraordinary value to Holdings, the Company and the
Subsidiaries. Therefore, Executive agrees that, during the Employment Period and
for 18 months thereafter (the "Noncompete Period"), he shall not directly or
-----------------
indirectly own any interest in, operate, manage, control, participate in,
consult with, advise, render services for, or in any manner engage in any
business (including by himself or in association with any person, firm,
corporate or other business organization or through any other entity) in
competition with, or potential competition with, the businesses of Holdings, the
Company or the Subsidiaries as such businesses exist or are in process on the
date of the termination or expiration of the Employment Period, within the
United States. Nothing herein shall prohibit Executive from being a passive
owner of not more than 2% of the outstanding stock of any class of a corporation
which is publicly traded, so long as Executive has no active participation in
the business of such corporation.
(b) During the Noncompete Period, Executive shall not directly or
indirectly through another entity (i) induce or attempt to induce any employee
of Holdings, the Company or any Subsidiary to leave the employ of Holdings, the
Company or such Subsidiary, or in any way interfere with the relationship
between Holdings, the Company or any Subsidiary and any employee thereof, (ii)
hire any person who was an employee of Holdings, the Company or any Subsidiary
at any time during the year prior to the termination of the Employment Period or
(iii) induce or attempt to induce any customer, supplier, licensee, licensor,
franchisee or other business relation of Holdings, the Company or any Subsidiary
to cease doing business with Holdings, the Company or such Subsidiary, or in any
way interfere with the relationship between any such customer, supplier,
licensee, licensor, franchisee or business relation and Holdings, the Company or
any Subsidiary (including, without limitation, making any negative or
disparaging statements or communications regarding Holdings, the Company or any
Subsidiary).
(c) Executive agrees that: (i) the covenants set forth in this
Section 8 are reasonable in geographical and temporal scope and in all other
respects and that he has reviewed the provisions of this Agreement with his
legal counsel, (ii) neither Holdings nor the Company would have entered into
this Agreement but for the covenants of Executive contained herein, and (iii)
the covenants contained herein have been made in order to induce Holdings and
the Company to enter into this Agreement.
(d) If, at the time of enforcement of this Section 8, a court shall
hold that the duration, scope or area restrictions stated herein are
unreasonable under circumstances then existing, the parties agree that the
maximum duration, scope or area reasonable under such circumstances
-5-
<PAGE>
shall be substituted for the stated duration, scope or area and that the court
shall be allowed to revise the restrictions contained herein to cover the
maximum period, scope and area permitted by law.
(e) Executive recognizes and affirms that in the event of his breach
of any provision of this Section 8, money damages would be inadequate and
Holdings and the Company would have no adequate remedy at law. Accordingly, the
Executive agrees that in the event of the breach or a threatened breach by
Executive of any of the provisions of this Section 8, Holdings or the Company,
in addition and supplementary to other rights and remedies existing in its
favor, shall be entitled to specific performance and/or injunctive or other
equitable relief from a court of competent jurisdiction in order to enforce or
prevent any violations of the provisions hereof (without posting a bond or other
security). In addition, in the event of an alleged breach or violation by
Executive of this Section 8, the Noncompete Period shall be tolled until such
breach or violation has been duly cured.
9. Executive's Representations. Executive hereby represents and
---------------------------
warrants to Holdings and the Company that (i) the execution, delivery and
performance of this Agreement by Executive do not and shall not conflict with,
breach, violate or cause a default under any contract, agreement, instrument,
order, judgment or decree to which Executive is a party or by which he is bound,
(ii) Executive is not a party to or bound by any employment agreement,
noncompete agreement or confidentiality agreement with any other person or
entity and (iii) upon the execution and delivery of this Agreement by Holdings
and the Company, this Agreement shall be the valid and binding obligation of
Executive, enforceable in accordance with its terms. Executive hereby
acknowledges and represents that he has consulted with independent legal counsel
regarding his rights and obligations under this Agreement and that he fully
understands the terms and conditions contained herein.
10. Survival. Sections 6 through 19 shall survive and continue in
--------
full force in accordance with their terms notwithstanding the expiration or
termination of the Employment Period.
11. Notices. All notices, demands or other communications to be given
-------
or delivered under or by reason of the provisions of this Agreement will be in
writing and will be deemed to have been given when delivered personally, mailed
by certified or registered mail, return receipt requested and postage prepaid,
or sent via a nationally recognized overnight courier, or sent via fascimile to
the recipient with telephonic confirmation by the sending party. Such notices,
demands and other communications will be sent to the address indicated below:
To Executive:
------------
4660 Jefferson Township Place
Marietta, GA 30066
Attention: Stephen A. Walker
Telecopy No.:
Telephone.: (770)645-5605
-6-
<PAGE>
To Holdings or the Company:
--------------------------
Mattress Holding Corporation
c/o Bain Capital, Inc.
Two Copley Place
Boston, MA 02116
Attention: Michael Krupka
Telecopy No.: (617) 572-3274
Telephone No.: (617) 572-2753
With copies to:
--------------
Kirkland & Ellis
Citicorp Center
153 East 53rd Street
New York, NY 10022
Attention: Lance C. Balk, Esq.
Telecopy No.: (212) 446-4900
Telephone No.: (212) 446-4800
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. Any
notice under this Agreement shall be deemed to have been given when so
delivered, sent or mailed.
12. Severability. Whenever possible, each provision of this Agreement
------------
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any action in any other jurisdiction, but this Agreement
shall be reformed, construed and enforced in such jurisdiction as if such
invalid, illegal or unenforceable provision had never been contained herein.
13. Complete Agreement. This Agreement embodies the complete
------------------
agreement and understanding among the parties and supersedes and preempts any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way,
but excluding any breaches thereof by either party prior to the date hereof.
14. No Strict Construction. The language used in this Agreement shall
----------------------
be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction shall be applied against any
party.
-7-
<PAGE>
15. Counterparts. This Agreement may be executed in separate counterparts,
------------
each of which is deemed to be an original and all of which taken together
constitute one and the same agreement.
16. Successors and Assigns. This Agreement is intended to bind and inure
----------------------
to the benefit of and be enforceable by Executive, Holdings, the Company and
their respective heirs, successors and assigns; provided that the rights and
obligations of Executive under this Agreement shall not be assignable.
17. Governing Law. All issues and questions concerning the construction,
-------------
validity, enforcement and interpretation of this Agreement and the exhibits and
schedules 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.
18. Amendment and Waiver. The provisions of this Agreement may be amended
--------------------
or waived only with the prior written consent of Holdings, the Company and
Executive, and no course of conduct or failure or delay in enforcing the
provisions of this Agreement shall affect the validity, binding effect or
enforceability of this Agreement.
19. Remedies. Each of the parties to this Agreement will be entitled to
--------
enforce its rights under this Agreement specifically, to recover damages and
costs (including reasonable attorneys' fees) caused by any breach of any
provision of this Agreement and to exercise all other rights existing in its
favor. The parties hereto agree and acknowledge that money damages may not be an
adequate remedy for any breach of the provisions of this Agreement and that any
party may in its sole discretion apply to any court of law or equity of
competent jurisdiction (without posting any bond or deposit) for specific
performance and/or other injunctive relief in order to enforce or prevent any
violations of the provisions of this Agreement.
* * * * *
-8-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
MATTRESS HOLDING CORPORATION
By: /s/ Michael A. Krupka
-----------------------------------
Its: ___________________________________
MATTRESS DISCOUNTERS CORPORATION
By: /s/ Michael A. Krupka
-----------------------------------
Its: ___________________________________
/s/ Stephen A. Walker
----------------------------------------
Stephen A. Walker
-9-
<PAGE>
Exhibit A
GENERAL RELEASE
I, Stephen A. Walker, in consideration of and subject to the performance by
Mattress Holding Corporation, a Virginia corporation ("Holdings"), and Mattress
--------
Discounters Corporation, a Delaware corporation (together with Holdings and its
subsidiaries, the "Company"), of its material obligations under the Employment
-------
Agreement, dated as of December 6, 1999 (the "Agreement"), do hereby release and
---------
forever discharge as of the date hereof the Company and all present and former
directors, officers, agents, representatives, employees, successors and assigns
of the Company and its direct or indirect owners (collectively, the "Released
--------
Parties") to the extent provided below.
- -------
1. I understand that any payments or benefits paid or granted to me under
Section 5(b) of the Agreement represent, in part, consideration for signing
this General Release and are not salary, wages or benefits to which I was
already entitled. I understand and agree that I will not receive the
payments and benefits specified in Section 5(b) of the Agreement unless I
execute this General Release and do not revoke this General Release within
the time period permitted hereafter or breach this General Release.
2. Except as provided in Section 4 below, I knowingly and voluntarily release
and forever discharge the Company and the other Released Parties from any
and all claims, controversies, actions, causes of action, cross-claims,
counter-claims, demands, debts, compensatory damages, liquidated damages,
punitive or exemplary damages, other damages, claims for costs and
attorneys' fees, or liabilities of any nature whatsoever in law and in
equity, both past and present (through the date of this General Release)
and whether known or unknown, suspected, or claimed against the Company or
any of the Released Parties which I, my spouse, or any of my heirs,
executors, administrators or assigns, may have, which arise out of or are
connected with my employment with, or my separation from, the Company
(including, but not limited to, any allegation, claim or violation, arising
under: Title VII of the Civil Rights Act of 1964, as amended; the Civil
Rights Act of 1991; the Age Discrimination in Employment Act of 1967, as
amended (including the Older Workers Benefit Protection Act); the Equal Pay
Act of 1963, as amended; the Americans with Disabilities Act of 1990; the
Family and Medical Leave Act of 1993; the Civil Rights Act of 1866, as
amended; the Worker Adjustment Retraining and Notification Act; the
Employee Retirement Income Security Act of 1974; any applicable Executive
Order Programs; the Fair Labor Standards Act; or their state or local
counterparts; or under any other federal, state or local civil or human
rights law, or under any other local, state, or federal law, regulation or
ordinance; or under any public policy, contract or tort, or under common
law; or arising under any policies, practices or procedures of the Company;
or any claim for wrongful discharge, breach of contract, infliction of
emotional distress, defamation; or any claim for costs, fees, or other
expenses, including attorneys' fees incurred in these matters) (all of the
foregoing collectively referred to herein as the "Claims").
------
A-1
<PAGE>
3. I represent that I have made no assignment or transfer of any right, claim,
demand, cause of action, or other matter covered by Section 2 above.
4. I agree that this General Release does not waive or release any rights or
claims that I may have under the Age Discrimination in Employment Act of
1967 which arise after the date I execute this General Release. I
acknowledge and agree that my separation from employment with the Company
in compliance with the terms of the Agreement shall not serve as the basis
for any claim or action (including, without limitation, any claim under the
Age Discrimination in Employment Act of 1967).
5. In signing this General Release, I acknowledge and intend that it shall be
effective as a bar to each and every one of the Claims hereinabove
mentioned or implied. I expressly consent that this General Release shall
be given full force and effect according to each and all of its express
terms and provisions, including those relating to unknown and unsuspected
Claims (notwithstanding any state statute that expressly limits the
effectiveness of a general release of unknown, unsuspected and
unanticipated Claims), if any, as well as those relating to any other
Claims hereinabove mentioned or implied. I acknowledge and agree that this
waiver is an essential and material term of this General Release and that
without such waiver the Company would not have agreed to the terms of the
Agreement. I further agree that in the event I should bring a Claim seeking
damages against the Company, or in the event I should seek to recover
against the Company in any Claim brought by a governmental agency on my
behalf, this General Release shall serve as a complete defense to such
Claims. I further agree that I am not aware of any pending charge or
complaint of the type described in Section 2 as of the execution of this
General Release.
6. I agree that neither this General Release, nor the furnishing of the
consideration for this General Release, shall be deemed or construed at any
time to be an admission by the Company, any Released Party or myself of any
improper or unlawful conduct.
7. I agree that I will forfeit all amounts payable by the Company pursuant to
the Agreement if I challenge the validity of this General Release. I also
agree that if I violate this General Release by suing the Company or the
other Released Parties, I will pay all costs and expenses of defending
against the suit incurred by the Released Parties, including reasonable
attorneys' fees, and return all payments received by me pursuant to the
Agreement.
8. I agree that this General Release is confidential and agree not to disclose
any information regarding the terms of this General Release, except to my
immediate family and any tax, legal or other counsel I have consulted
regarding the meaning or effect hereof or as required by law, and I will
instruct each of the foregoing not to disclose the same to anyone.
9. Any non-disclosure provision in this General Release does not prohibit or
restrict me (or my attorney) from responding to any inquiry about this
General Release or its underlying facts and circumstances by the Securities
and Exchange Commission (SEC), the National
A-2
<PAGE>
Association of Securities Dealers, Inc. (NASD), any other self-regulatory
organization or governmental entity.
10. I agree to reasonably cooperate with the Company in any internal
investigation or administrative, regulatory, or judicial proceeding. I
understand and agree that my cooperation may include, but not be limited
to, making myself available to the Company upon reasonable notice for
interviews and factual investigations; appearing at the Company's request
to give testimony without requiring service of a subpoena or other legal
process; volunteering to the Company pertinent information; and turning
over to the Company all relevant documents which are or may come into my
possession all at times and on schedules that are reasonably consistent
with my other permitted activities and commitments. I understand that in
the event the Company asks for my cooperation in accordance with this
provision, the Company will reimburse me solely for reasonable travel
expenses, including lodging and meals, upon my submission of receipts.
11. Notwithstanding anything in this General Release to the contrary, this
General Release shall not relinquish, diminish, or in any way affect any
rights or claims arising out of any breach by the Company or by any
Released Party of the Agreement.
12. Whenever possible, each provision of this General Release shall be
interpreted in, such manner as to be effective and valid under applicable
law, but if any provision of this General Release is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in
any jurisdiction, such invalidity, illegality or unenforceability shall not
affect any other provision or any other jurisdiction, but this General
Release shall be reformed, construed and enforced in such jurisdiction as
if such invalid, illegal or unenforceable provision had never been
contained herein.
BY SIGNING THIS GENERAL RELEASE, I REPRESENT AND AGREE THAT:
(a) I HAVE READ IT CAREFULLY;
(b) I UNDERSTAND ALL OF ITS TERMS AND KNOW THAT I AM GIVING UP IMPORTANT
RIGHTS, INCLUDING BUT NOT LIMITED TO, RIGHTS UNDER THE AGE DISCRIMINATION
IN EMPLOYMENT ACT OF 1967, AS AMENDED, TITLE VII OF THE CIVIL RIGHTS ACT OF
1964, AS AMENDED; THE EQUAL PAY ACT OF 1963, THE AMERICANS WITH
DISABILITIES ACT OF 1990; AND THE EMPLOYEE RETIREMENT INCOME SECURITY ACT
OF 1974, AS AMENDED;
(c) I VOLUNTARILY CONSENT TO EVERYTHING IN IT;
(d) I HAVE BEEN ADVISED TO CONSULT WITH AN ATTORNEY BEFORE EXECUTING IT AND I
HAVE DONE SO OR, AFTER CAREFUL READING AND CONSIDERATION I HAVE CHOSEN NOT
TO DO SO OF MY OWN VOLITION;
A-3
<PAGE>
(e) I HAVE HAD AT LEAST 21 DAYS FROM THE DATE OF MY RECEIPT OF THIS RELEASE
SUBSTANTIALLY IN ITS FINAL FORM ON _______________, _____ TO CONSIDER IT
AND THE CHANGES MADE SINCE THE ____________________, _____ VERSION OF THIS
RELEASE ARE NOT MATERIAL AND WILL NOT RESTART THE REQUIRED 21-DAY PERIOD;
(f) THE CHANGES TO THE AGREEMENT SINCE DECEMBER 6, 1999 EITHER ARE NOT MATERIAL
OR WERE MADE AT MY REQUEST.
(g) I UNDERSTAND THAT I HAVE SEVEN DAYS AFTER THE EXECUTION OF THIS RELEASE TO
REVOKE IT AND THAT THIS RELEASE SHALL NOT BECOME EFFECTIVE OR ENFORCEABLE
UNTIL THE REVOCATION PERIOD HAS EXPIRED;
(h) I HAVE SIGNED THIS GENERAL RELEASE KNOWINGLY AND VOLUNTARILY AND WITH THE
ADVICE OF ANY COUNSEL RETAINED TO ADVISE ME WITH RESPECT TO IT; AND
(i) I AGREE THAT THE PROVISIONS OF THIS GENERAL RELEASE MAY NOT BE AMENDED,
WAIVED, CHANGED OR MODIFIED EXCEPT BY AN INSTRUMENT IN WRITING SIGNED BY AN
AUTHORIZED REPRESENTATIVE OF THE COMPANY AND BY ME.
DATE: DEC 6, 1999. /s/ Stephen Walker
-------------------- ------------------------
A-4
<PAGE>
Exhibit 10.26
EXECUTION COPY
MATTRESS DISCOUNTERS CORPORATION
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of August 6, 1999, between Mattress
Discounters Corporation, a Delaware corporation (the "Company"), and Raymond T.
Bojanowski ("Executive").
In consideration of the mutual covenants contained herein and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Employment. The Company agrees to employ Executive, and Executive
hereby accepts employment with the Company, upon the terms and conditions set
forth in this Agreement for the period beginning on the date hereof and ending
as provided in Section 4 hereof (the "Employment Period").
2. Position and Duties.
(a) During the Employment Period, Executive shall serve as the
Executive Vice President of Sales of the Company and shall have the normal
duties, responsibilities and authority of the Executive Vice President of Sales,
subject to the power of the Company's President and the Company's board of
directors (the "Board") to expand or limit such duties, responsibilities and
authority and to override actions of officers of the Company.
(b) During the Employment Period, Executive shall report to the
Board and shall devote his best efforts and his full business time and attention
(except for permitted vacation periods and reasonable periods of illness or
other incapacity other than Disability) to the business and affairs of the
Company and its Subsidiaries. Executive shall perform his duties and
responsibilities to the Company and its Subsidiaries hereunder to the best of
his abilities in a diligent, trustworthy, businesslike and efficient manner.
(c) For purposes of this Agreement, "Subsidiaries" shall mean any
corporation or other entity of which the securities or other ownership interests
having the voting power to elect a majority of the board of directors or other
governing body are, at the time of determination, owned by the Company, directly
or through one or more Subsidiaries. For purposes hereof, the Company shall be
deemed to have a majority ownership interest in a partnership, limited liability
company (without voting securities), association or other business entity if the
Company, directly or through one or more Subsidiaries, shall be allocated a
majority of partnership, limited liability company,
<PAGE>
association or other business entity gains or losses or shall be or control the
managing director or general partner of such partnership, limited liability
company, association or other business entity. For purposes of this Agreement,
"Disability" means the inability, due to illness, accident, injury, physical or
mental incapacity or other disability, of the Executive to carry out effectively
his duties and obligations to the Company or to participate effectively and
actively in the management of the Company or a Subsidiary of the Company for a
period or periods aggregating at least 90 days (whether or not consecutive)
during any twelve-month period, as determined in the reasonable judgment of the
Board.
3. Compensation and Benefits.
(a) During the Employment Period, Executive's base salary shall be
$275,000 per annum or such higher rate as the Board may designate from time to
time (the "Base Salary"), which salary shall be payable in regular installments
in accordance with the Company's general payroll practices. In addition, during
the Employment Period, Executive shall be entitled to participate in all of the
Company's employee compensatory and benefit programs for which senior executive
employees of the Company and its Subsidiaries are generally eligible.
(b) During the Employment Period, the Company shall reimburse
Executive for all reasonable expenses incurred by him in the course of
performing his duties and responsibilities under this Agreement which are
consistent with the Company's policies in effect from time to time with respect
to travel, entertainment and other business expenses, subject to the Company's
requirements with respect to reporting and documentation of such expenses.
(c) In addition to the Base Salary, the Board will award a bonus to
Executive subject to the provisions of and in accordance with the attached
Exhibit A, pro rated for the period beginning on August 6, 1999 and ending
December 31, 1999. The Board shall determine an appropriate bonus plan for
periods thereafter.
(d) All amounts payable to Executive as compensation hereunder shall
be subject to customary withholding by the Company.
4. Term.
(a) The initial Employment Period shall end on February 6, 2001 and
will thereafter be automatically extended for consecutive 18 month periods
unless notice of termination is delivered by either party to the other at least
90 days prior to the end of such period; provided that (i) the Employment Period
shall terminate prior to such date immediately upon Executive's resignation,
death or Disability and (ii) the Employment Period may be terminated by the
Company at any time prior to such date for Cause (as defined below) or without
Cause. Except as otherwise provided herein, any termination of the Employment
Period by the Company shall be effective as specified in a written notice from
the Company to Executive.
-2-
<PAGE>
(b) If the Employment Period is terminated by the Company or its
successors in interest without Cause, Executive shall be entitled to continue to
receive his Base Salary payable in regular installments for a period of 18
months from the date of termination (the "Severance Period"), if and only if
Executive has executed and delivered to the Company a General Release in the
form of Exhibit B attached hereto and only so long as Executive has not breached
the provisions of Sections 5, 6 and 7 hereof. The amounts payable pursuant to
this Section 4(b) may be payable, at Company's discretion, in one lump sum
payment within 30 days following termination of the Employment Period.
(c) If the Employment Period is terminated by the Company for Cause
or is terminated pursuant to clause (a)(i) above or expires and is not renewed
hereunder, Executive shall only be entitled to receive his Base Salary through
the date of termination or expiration.
(d) Except as otherwise expressly provided herein, all of
Executive's rights to salary, bonuses, fringe benefits and other compensation
hereunder which accrue or become payable after the termination or expiration of
the Employment Period shall cease upon such termination or expiration. The
Company may offset any amounts Executive owes it or its Subsidiaries against any
amounts it owes Executive hereunder.
(e) For purposes of this Agreement, "Cause" shall mean (i) the
commission of a felony or other crime involving moral turpitude or the
commission of any other act or omission involving dishonesty, disloyalty or
fraud with respect to the Company or any of its Subsidiaries or any of their
customers or suppliers, (ii) chronic drug or alcohol abuse or other repeated
conduct causing the Company or any of its Subsidiaries substantial public
disgrace or disrepute or economic harm, (iii) substantial and repeated failure
to perform duties as reasonably directed by the Board, which is not cured, if
curable, to the Board's reasonable satisfaction in all material respects within
thirty (30) days after the Board or the designee thereof gives written notice
thereof to Executive, (iv) any other act or omission of Executive which would in
law permit an employer to, without notice or payment in lieu of notice,
terminate the employment of an employee or (v) any other material breach of this
Agreement which is not cured, if curable, to the Board's reasonable satisfaction
within 15 days after written notice thereof to Executive (provided, that a
breach of Sections 5, 6 or 7 shall be material and the applicable cure period
shall be 3 days).
5. Confidential Information. Executive acknowledges that the
information, observations and data (including trade secrets) obtained by him
while employed by the Company and its Subsidiaries concerning the business or
affairs of the Company or any Subsidiary ("Confidential Information") are the
property of the Company or such Subsidiary. Therefore, Executive agrees that he
shall not disclose to any unauthorized person or use for his own purposes any
Confidential Information without the prior written consent of the Board, unless
and to the extent that the Confidential Information becomes generally known to
and available for use by the public other than as a result of Executive's acts
or omissions. Executive shall deliver to the Company at the termination or
expiration of the Employment Period, or at any other time the Company may
request, all memoranda, notes, plans, records, reports, computer tapes,
printouts and software and
-3-
<PAGE>
other documents and data (and copies thereof) embodying or relating to the
Confidential Information, Work Product (as defined below) or the business of the
Company or any Subsidiaries which he may then possess or have under his control.
6. Inventions and Patents. Executive acknowledges that all
inventions, innovations, improvements, developments, methods, designs, analyses,
drawings, reports and all similar or related information (whether or not
patentable) which relate to the Company's or any of its Subsidiaries' actual or
anticipated business, research and development or existing or future products or
services and which are conceived, developed or made by Executive while employed
by the Company and its Subsidiaries ("Work Product") belong to the Company or
such Subsidiary. Executive shall promptly disclose such Work Product to the
Board and, at the Company's expense, perform all actions reasonably requested by
the Board (whether during or after the Employment Period) to establish and
confirm such ownership (including, without limitation, assignments, consents,
powers of attorney and other instruments).
7. Non-Compete, Non-Solicitation.
(a) In further consideration of the compensation to be paid to
Executive hereunder, Executive acknowledges that in the course of his employment
with the Company and its Subsidiaries he shall become familiar, and he has
become familiar, with the Company's trade secrets and with other Confidential
Information and that his services have been and shall be of special, unique and
extraordinary value to the Company and its Subsidiaries. Therefore, Executive
agrees that, during the Employment Period and for three years thereafter (the
"Noncompete Period"), he shall not directly or indirectly own any interest in,
operate, manage, control, participate in, consult with, advise, render services
for, or in any manner engage in any business (including by himself or in
association with any person, firm, corporate or other business organization or
through any other entity) in competition with, or potential competition with,
the businesses of the Company or its Subsidiaries as such businesses exist or
are in process on the date of the termination or expiration of the Employment
Period, within any geographical area in which the Company or its Subsidiaries
engage or plan to engage in such businesses. Nothing herein shall prohibit
Executive from being a passive owner of not more than 2% of the outstanding
stock of any class of a corporation which is publicly traded, so long as
Executive has no active participation in the business of such corporation.
(b) During the Noncompete Period, Executive shall not directly or
indirectly through another entity (i) induce or attempt to induce any employee
of the Company or any Subsidiary to leave the employ of the Company or such
Subsidiary, or in any way interfere with the relationship between the Company or
any Subsidiary and any employee thereof, (ii) hire any person who was an
employee of the Company or any Subsidiary at any time during the Employment
Period or (iii) induce or attempt to induce any customer, supplier, licensee,
licensor, franchisee or other business relation of the Company or any Subsidiary
to cease doing business with the Company or such Subsidiary, or in any way
interfere with the relationship between any such customer, supplier, licensee,
licensor, franchisee or business relation and the Company or any Subsidiary
(including,
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<PAGE>
without limitation, making any negative or disparaging statements or
communications regarding the Company or its Subsidiaries).
(c) Executive agrees that: (i) the covenants set forth in this
Section 7 are reasonable in geographical and temporal scope and in all other
respects and that he has reviewed the provisions of this Agreement with his
legal counsel, (ii) the Company would not have entered into this Agreement but
for the covenants of Executive contained herein, and (iii) the covenants
contained herein have been made in order to induce the Company to enter into
this Agreement.
(d) If, at the time of enforcement of this Section 7, a court shall
hold that the duration, scope or area restrictions stated herein are
unreasonable under circumstances then existing, the parties agree that the
maximum duration, scope or area reasonable under such circumstances shall be
substituted for the stated duration, scope or area and that the court shall be
allowed to revise the restrictions contained herein to cover the maximum period,
scope and area permitted by law.
(e) Executive recognizes and affirms that in the event of his breach
of any provision of this Section 7, money damages would be inadequate and the
Company would have no adequate remedy at law. Accordingly, the Executive agrees
that in the event of the breach or a threatened breach by Executive of any of
the provisions of this Section 7, the Company, in addition and supplementary to
other rights and remedies existing in its favor, shall be entitled to specific
performance and/or injunctive or other equitable relief from a court of
competent jurisdiction in order to enforce or prevent any violations of the
provisions hereof (without posting a bond or other security). In addition, in
the event of an alleged breach or violation by Executive of this Section 7, the
Noncompete Period shall be tolled until such breach or violation has been duly
cured.
8. Executive's Representations. Executive hereby represents and
warrants to the Company that (i) the execution, delivery and performance of this
Agreement by Executive do not and shall not conflict with, breach, violate or
cause a default under any contract, agreement, instrument, order, judgment or
decree to which Executive is a party or by which he is bound, (ii) Executive is
not a party to or bound by any employment agreement, noncompete agreement or
confidentiality agreement with any other person or entity and (iii) upon the
execution and delivery of this Agreement by the Company, this Agreement shall be
the valid and binding obligation of Executive, enforceable in accordance with
its terms. Executive hereby acknowledges and represents that he has consulted
with independent legal counsel regarding his rights and obligations under this
Agreement and that he fully understands the terms and conditions contained
herein.
9. Survival. Sections 5 through 19 shall survive and continue in
full force in accordance with their terms notwithstanding the expiration or
termination of the Employment Period.
10. Notices. All notices, demands or other communications to be
given or delivered under or by reason of the provisions of this Agreement will
be in writing and will be deemed to have been given when delivered personally,
mailed by certified or registered mail, return
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<PAGE>
receipt requested and postage prepaid, or sent via a nationally recognized
overnight courier, or sent via facsimile to the recipient with telephonic
confirmation by the sending party. Such notices, demands and other
communications will be sent to the address indicated below:
To Executive:
13656 Palmetto Circle
Germantown, MD 20874
Attention: Raymond T. Bojanowski
Telecopy No.: (301) 515-3914
Telephone No.: (301) 428-0714
To the Company:
Mattress Discounters Corporation
9822 Fallard Court
Upper Marlboro, MD 20772
Attention: Board of Directors
Telecopy No.: (301) 856-4591
Telephone No.: (301) 856-6755
With copies to:
Bain Capital, Inc.
Two Copley Place
Boston, MA 02116
Attention: Michael Krupka
Telecopy No.: (617) 572-3274
Telephone No.: (617) 572-2753
Kirkland & Ellis
Citicorp Center
153 East 53rd Street
New York, NY 10022
Attention: Lance C. Balk, Esq.
Telecopy No.: (212) 446-4900
Telephone No.: (212) 446-4800
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. Any
notice under this Agreement shall be deemed to have been given when so
delivered, sent or mailed.
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<PAGE>
11. Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any action in any other jurisdiction, but this Agreement
shall be reformed, construed and enforced in such jurisdiction as if such
invalid, illegal or unenforceable provision had never been contained herein.
12. Complete Agreement. This Agreement embodies the complete
agreement and understanding among the parties and supersedes and preempts any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way
(including, without limitation, the Employment Agreement between the parties
hereto, dated January 1, 1997), but excluding any breaches thereof by either
party prior to the date hereof.
13. No Strict Construction. The language used in this Agreement
shall be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction shall be applied against any
party.
14. Counterparts. This Agreement may be executed in separate
counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same agreement.
15. Successors and Assigns. This Agreement is intended to bind and
inure to the benefit of and be enforceable by Executive, the Company and their
respective heirs, successors and assigns; provided that the rights and
obligations of Executive under this Agreement shall not be assignable.
16. Governing Law. All issues and questions concerning the
construction, validity, enforcement and interpretation of this Agreement and the
exhibits and schedules hereto shall be governed by, and construed in accordance
with, the laws of the State of Delaware, without giving effect to any choice of
law or conflict of law rules or provisions (whether of the State of Delaware or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Delaware.
17. Amendment and Waiver. The provisions of this Agreement may be
amended or waived only with the prior written consent of the Company and
Executive, and no course of conduct or failure or delay in enforcing the
provisions of this Agreement shall affect the validity, binding effect or
enforceability of this Agreement.
18. Remedies. Each of the parties to this Agreement will be entitled
to enforce its rights under this Agreement specifically, to recover damages and
costs (including reasonable attorneys' fees) caused by any breach of any
provision of this Agreement and to exercise all other
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<PAGE>
rights existing in its favor. The parties hereto agree and acknowledge that
money damages may not be an adequate remedy for any breach of the provisions of
this Agreement and that any party may in its sole discretion apply to any court
of law or equity of competent jurisdiction (without posting any bond or deposit)
for specific performance and/or other injunctive relief in order to enforce or
prevent any violations of the provisions of this Agreement.
* * * * *
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first written above.
MATTRESS DISCOUNTERS CORPORATION
By: /s/ Raymond T. Bojanowski
_____________________________________
Its:____________________________________
________________________________________
RAYMOND T. BOJANOWSKI
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<PAGE>
Exhibit B
GENERAL RELEASE
I, Raymond T. Bojanowski, in consideration of and subject to the
performance by Mattress Discounters Corporation, a Delaware corporation
(together with its subsidiaries, the "Company"), of its material obligations
under the Employment Agreement, dated as of August 6, 1999 (the "Agreement"), do
hereby release and forever discharge as of the date hereof the Company and all
present and former directors, officers, agents, representatives, employees,
successors and assigns of the Company and its direct or indirect owners
(collectively, the "Released Parties") to the extent provided below.
1. I understand that any payments or benefits paid or granted to me under
Section 4(b) of the Agreement represent, in part, consideration for
signing this General Release and are not salary, wages or benefits to
which I was already entitled. I understand and agree that I will not
receive the payments and benefits specified in Section 4(b) of the
Agreement unless I execute this General Release and do not revoke this
General Release within the time period permitted hereafter or breach this
General Release.
2. Except as provided in Section 4 below, I knowingly and voluntarily release
and forever discharge the Company and the other Released Parties from any
and all claims, controversies, actions, causes of action, cross-claims,
counter-claims, demands, debts, compensatory damages, liquidated damages,
punitive or exemplary damages, other damages, claims for costs and
attorneys' fees, or liabilities of any nature whatsoever in law and in
equity, both past and present (through the date of this General Release)
and whether known or unknown, suspected, or claimed against the Company or
any of the Released Parties which I, my spouse, or any of my heirs,
executors, administrators or assigns, may have, which arise out of or are
connected with my employment with, or my separation from, the Company
(including, but not limited to, any allegation, claim or violation,
arising under: Title VII of the Civil Rights Act of 1964, as amended; the
Civil Rights Act of 1991; the Age Discrimination in Employment Act of
1967, as amended (including the Older Workers Benefit Protection Act); the
Equal Pay Act of 1963, as amended; the Americans with Disabilities Act of
1990; the Family and Medical Leave Act of 1993; the Civil Rights Act of
1866, as amended; the Worker Adjustment Retraining and Notification Act;
the Employee Retirement Income Security Act of 1974; any applicable
Executive Order Programs; the Fair Labor Standards Act; or their state or
local counterparts; or under any other federal, state or local civil or
human rights law, or under any other local, state, or federal law,
regulation or ordinance; or under any public policy, contract or tort, or
under common law; or arising under any policies, practices or procedures
of the Company; or any claim for wrongful discharge, breach of contract,
infliction of emotional distress, defamation; or any claim for costs,
fees, or other expenses, including attorneys' fees incurred in these
matters) (all of the foregoing collectively referred to herein as the
"Claims").
B-1
<PAGE>
3. I represent that I have made no assignment or transfer of any right,
claim, demand, cause of action, or other matter covered by Section 2
above.
4. I agree that this General Release does not waive or release any rights or
claims that I may have under the Age Discrimination in Employment Act of
1967 which arise after the date I execute this General Release. I
acknowledge and agree that my separation from employment with the Company
in compliance with the terms of the Agreement shall not serve as the basis
for any claim or action (including, without limitation, any claim under
the Age Discrimination in Employment Act of 1967).
5. In signing this General Release, I acknowledge and intend that it shall be
effective as a bar to each and every one of the Claims hereinabove
mentioned or implied. I expressly consent that this General Release shall
be given full force and effect according to each and all of its express
terms and provisions, including those relating to unknown and unsuspected
Claims (notwithstanding any state statute that expressly limits the
effectiveness of a general release of unknown, unsuspected and
unanticipated Claims), if any, as well as those relating to any other
Claims hereinabove mentioned or implied. I acknowledge and agree that this
waiver is an essential and material term of this General Release and that
without such waiver the Company would not have agreed to the terms of the
Agreement. I further agree that in the event I should bring a Claim
seeking damages against the Company, or in the event I should seek to
recover against the Company in any Claim brought by a governmental agency
on my behalf, this General Release shall serve as a complete defense to
such Claims. I further agree that I am not aware of any pending charge or
complaint of the type described in Section 2 as of the execution of this
General Release.
6. I agree that neither this General Release, nor the furnishing of the
consideration for this General Release, shall be deemed or construed at
any time to be an admission by the Company, any Released Party or myself
of any improper or unlawful conduct.
7. I agree that I will forfeit all amounts payable by the Company pursuant to
the Agreement if I challenge the validity of this General Release. I also
agree that if I violate this General Release by suing the Company or the
other Released Parties, I will pay all costs and expenses of defending
against the suit incurred by the Released Parties, including reasonable
attorneys' fees, and return all payments received by me pursuant to the
Agreement.
8. I agree that this General Release is confidential and agree not to
disclose any information regarding the terms of this General Release,
except to my immediate family and any tax, legal or other counsel I have
consulted regarding the meaning or effect hereof or as required by law,
and I will instruct each of the foregoing not to disclose the same to
anyone.
9. Any non-disclosure provision in this General Release does not prohibit or
restrict me (or my attorney) from responding to any inquiry about this
General Release or its underlying facts and circumstances by the
Securities and Exchange Commission (SEC), the National
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<PAGE>
Association of Securities Dealers, Inc. (NASD), any other self-regulatory
organization or governmental entity.
10. I agree to reasonably cooperate with the Company in any internal
investigation or administrative, regulatory, or judicial proceeding. I
understand and agree that my cooperation may include, but not be limited
to, making myself available to the Company upon reasonable notice for
interviews and factual investigations; appearing at the Company's request
to give testimony without requiring service of a subpoena or other legal
process; volunteering to the Company pertinent information; and turning
over to the Company all relevant documents which are or may come into my
possession all at times and on schedules that are reasonably consistent
with my other permitted activities and commitments. I understand that in
the event the Company asks for my cooperation in accordance with this
provision, the Company will reimburse me solely for reasonable travel
expenses, including lodging and meals, upon my submission of receipts.
11. Notwithstanding anything in this General Release to the contrary, this
General Release shall not relinquish, diminish, or in any way affect any
rights or claims arising out of any breach by the Company or by any
Released Party of the Agreement.
12. Whenever possible, each provision of this General Release shall be
interpreted in, such manner as to be effective and valid under applicable
law, but if any provision of this General Release is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule
in any jurisdiction, such invalidity, illegality or unenforceability shall
not affect any other provision or any other jurisdiction, but this General
Release shall be reformed, construed and enforced in such jurisdiction as
if such invalid, illegal or unenforceable provision had never been
contained herein.
BY SIGNING THIS GENERAL RELEASE, I REPRESENT AND AGREE THAT:
(a) I HAVE READ IT CAREFULLY;
(b) I UNDERSTAND ALL OF ITS TERMS AND KNOW THAT I AM GIVING UP IMPORTANT
RIGHTS, INCLUDING BUT NOT LIMITED TO, RIGHTS UNDER THE AGE DISCRIMINATION
IN EMPLOYMENT ACT OF 1967, AS AMENDED, TITLE VII OF THE CIVIL RIGHTS ACT
OF 1964, AS AMENDED; THE EQUAL PAY ACT OF 1963, THE AMERICANS WITH
DISABILITIES ACT OF 1990; AND THE EMPLOYEE RETIREMENT INCOME SECURITY ACT
OF 1974, AS AMENDED;
(c) I VOLUNTARILY CONSENT TO EVERYTHING IN IT;
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<PAGE>
(d) I HAVE BEEN ADVISED TO CONSULT WITH AN ATTORNEY BEFORE EXECUTING IT AND I
HAVE DONE SO OR, AFTER CAREFUL READING AND CONSIDERATION I HAVE CHOSEN NOT
TO DO SO OF MY OWN VOLITION;
(e) I HAVE HAD AT LEAST 21 DAYS FROM THE DATE OF MY RECEIPT OF THIS RELEASE
SUBSTANTIALLY IN ITS FINAL FORM ON _______________ __, _____ TO CONSIDER
IT AND THE CHANGES MADE SINCE THE _______________ __, _____ VERSION OF
THIS RELEASE ARE NOT MATERIAL AND WILL NOT RESTART THE REQUIRED 21-DAY
PERIOD;
(f) THE CHANGES TO THE AGREEMENT SINCE AUGUST 6, 1999 EITHER ARE NOT MATERIAL
OR WERE MADE AT MY REQUEST.
(g) I UNDERSTAND THAT I HAVE SEVEN DAYS AFTER THE EXECUTION OF THIS RELEASE TO
REVOKE IT AND THAT THIS RELEASE SHALL NOT BECOME EFFECTIVE OR ENFORCEABLE
UNTIL THE REVOCATION PERIOD HAS EXPIRED;
(h) I HAVE SIGNED THIS GENERAL RELEASE KNOWINGLY AND VOLUNTARILY AND WITH THE
ADVICE OF ANY COUNSEL RETAINED TO ADVISE ME WITH RESPECT TO IT; AND
(i) I AGREE THAT THE PROVISIONS OF THIS GENERAL RELEASE MAY NOT BE AMENDED,
WAIVED, CHANGED OR MODIFIED EXCEPT BY AN INSTRUMENT IN WRITING SIGNED BY
AN AUTHORIZED REPRESENTATIVE OF THE COMPANY AND BY ME.
DATE: ___________ __, ______ ______________________________
B-4
<PAGE>
Exhibit 10.27
EXECUTION COPY
MATTRESS DISCOUNTERS CORPORATION
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of August 6, 1999, between Mattress
Discounters Corporation, a Delaware corporation (the "Company"), and Richard L.
Branch ("Executive").
In consideration of the mutual covenants contained herein and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Employment. The Company agrees to employ Executive, and Executive
hereby accepts employment with the Company, upon the terms and conditions set
forth in this Agreement for the period beginning on the date hereof and ending
as provided in Section 4 hereof (the "Employment Period").
2. Position and Duties.
(a) During the Employment Period, Executive shall serve as the
Senior Vice President of Advertising and Marketing of the Company and shall have
the normal duties, responsibilities and authority of the Senior Vice President
of Advertising and Marketing, subject to the power of the Company's President
and the Company's board of directors (the "Board") to expand or limit such
duties, responsibilities and authority and to override actions of officers of
the Company.
(b) During the Employment Period, Executive shall report to the
Board and shall devote his best efforts and his full business time and attention
(except for permitted vacation periods and reasonable periods of illness or
other incapacity other than Disability) to the business and affairs of the
Company and its Subsidiaries. Executive shall perform his duties and
responsibilities to the Company and its Subsidiaries hereunder to the best of
his abilities in a diligent, trustworthy, businesslike and efficient manner.
(c) For purposes of this Agreement, "Subsidiaries" shall mean any
corporation or other entity of which the securities or other ownership interests
having the voting power to elect a majority of the board of directors or other
governing body are, at the time of determination, owned by the Company, directly
or through one or more Subsidiaries. For purposes hereof, the Company shall be
deemed to have a majority ownership interest in a partnership, limited liability
company (without voting securities), association or other business entity if the
Company, directly or through one or more Subsidiaries, shall be allocated a
majority of partnership, limited liability company,
<PAGE>
association or other business entity gains or losses or shall be or control the
managing director or general partner of such partnership, limited liability
company, association or other business entity. For purposes of this Agreement,
"Disability" means the inability, due to illness, accident, injury, physical or
mental incapacity or other disability, of the Executive to carry out effectively
his duties and obligations to the Company or to participate effectively and
actively in the management of the Company or a Subsidiary of the Company for a
period or periods aggregating at least 90 days (whether or not consecutive)
during any twelve-month period, as determined in the reasonable judgment of the
Board.
3. Compensation and Benefits.
(a) During the Employment Period, Executive's base salary shall be
$200,000 per annum or such higher rate as the Board may designate from time to
time (the "Base Salary"), which salary shall be payable in regular installments
in accordance with the Company's general payroll practices. In addition, during
the Employment Period, Executive shall be entitled to participate in all of the
Company's employee compensatory and benefit programs for which senior executive
employees of the Company and its Subsidiaries are generally eligible.
(b) During the Employment Period, the Company shall reimburse
Executive for all reasonable expenses incurred by him in the course of
performing his duties and responsibilities under this Agreement which are
consistent with the Company's policies in effect from time to time with respect
to travel, entertainment and other business expenses, subject to the Company's
requirements with respect to reporting and documentation of such expenses.
(c) In addition to the Base Salary, the Board will award a bonus to
Executive subject to the provisions of and in accordance with the attached
Exhibit A, pro rated for the period beginning on August 6, 1999 and ending
December 31, 1999. The Board shall determine an appropriate bonus plan for
periods thereafter.
(d) All amounts payable to Executive as compensation hereunder shall
be subject to customary withholding by the Company.
4. Term.
(a) The initial Employment Period shall end on August 6, 2000 and
will thereafter be automatically extended for consecutive 12 month periods
unless notice of termination is delivered by either party to the other at least
90 days prior to the end of such period; provided that (i) the Employment Period
shall terminate prior to such date immediately upon Executive's resignation,
death or Disability and (ii) the Employment Period may be terminated by the
Company at any time prior to such date for Cause (as defined below) or without
Cause. Except as otherwise provided herein, any termination of the Employment
Period by the Company shall be effective as specified in a written notice from
the Company to Executive.
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<PAGE>
(b) If the Employment Period is terminated by the Company or its
successors in interest without Cause, Executive shall be entitled to continue to
receive his Base Salary payable in regular installments for a period of 12
months from the date of termination (the "Severance Period"), if and only if
Executive has executed and delivered to the Company a General Release in the
form of Exhibit B attached hereto and only so long as Executive has not breached
the provisions of Sections 5, 6 and 7 hereof. The amounts payable pursuant to
this Section 4(b) may be payable, at Company's discretion, in one lump sum
payment within 30 days following termination of the Employment Period.
(c) If the Employment Period is terminated by the Company for Cause
or is terminated pursuant to clause (a)(i) above or expires and is not renewed
hereunder, Executive shall only be entitled to receive his Base Salary through
the date of termination or expiration.
(d) Except as otherwise expressly provided herein, all of
Executive's rights to salary, bonuses, fringe benefits and other compensation
hereunder which accrue or become payable after the termination or expiration of
the Employment Period shall cease upon such termination or expiration. The
Company may offset any amounts Executive owes it or its Subsidiaries against any
amounts it owes Executive hereunder.
(e) For purposes of this Agreement, "Cause" shall mean (i) the
commission of a felony or other crime involving moral turpitude or the
commission of any other act or omission involving dishonesty, disloyalty or
fraud with respect to the Company or any of its Subsidiaries or any of their
customers or suppliers, (ii) chronic drug or alcohol abuse or other repeated
conduct causing the Company or any of its Subsidiaries substantial public
disgrace or disrepute or economic harm, (iii) substantial and repeated failure
to perform duties as reasonably directed by the Board, which is not cured, if
curable, to the Board's reasonable satisfaction in all material respects within
thirty (30) days after the Board or the designee thereof gives written notice
thereof to Executive, (iv) any other act or omission of Executive which would in
law permit an employer to, without notice or payment in lieu of notice,
terminate the employment of an employee or (v) any other material breach of this
Agreement which is not cured, if curable, to the Board's reasonable satisfaction
within 15 days after written notice thereof to Executive (provided, that a
breach of Sections 5, 6 or 7 shall be material and the applicable cure period
shall be 3 days).
5. Confidential Information. Executive acknowledges that the
information, observations and data (including trade secrets) obtained by him
while employed by the Company and its Subsidiaries concerning the business or
affairs of the Company or any Subsidiary ("Confidential Information") are the
property of the Company or such Subsidiary. Therefore, Executive agrees that he
shall not disclose to any unauthorized person or use for his own purposes any
Confidential Information without the prior written consent of the Board, unless
and to the extent that the Confidential Information becomes generally known to
and available for use by the public other than as a result of Executive's acts
or omissions. Executive shall deliver to the Company at the termination or
expiration of the Employment Period, or at any other time the Company may
request, all memoranda, notes, plans, records, reports, computer tapes,
printouts and software and
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<PAGE>
other documents and data (and copies thereof) embodying or relating to the
Confidential Information, Work Product (as defined below) or the business of the
Company or any Subsidiaries which he may then possess or have under his control.
6. Inventions and Patents. Executive acknowledges that all
inventions, innovations, improvements, developments, methods, designs, analyses,
drawings, reports and all similar or related information (whether or not
patentable) which relate to the Company's or any of its Subsidiaries' actual or
anticipated business, research and development or existing or future products or
services and which are conceived, developed or made by Executive while employed
by the Company and its Subsidiaries ("Work Product") belong to the Company or
such Subsidiary. Executive shall promptly disclose such Work Product to the
Board and, at the Company's expense, perform all actions reasonably requested by
the Board (whether during or after the Employment Period) to establish and
confirm such ownership (including, without limitation, assignments, consents,
powers of attorney and other instruments).
7. Non-Compete, Non-Solicitation.
(a) In further consideration of the compensation to be paid to
Executive hereunder, Executive acknowledges that in the course of his employment
with the Company and its Subsidiaries he shall become familiar, and he has
become familiar, with the Company's trade secrets and with other Confidential
Information and that his services have been and shall be of special, unique and
extraordinary value to the Company and its Subsidiaries. Therefore, Executive
agrees that, during the Employment Period and for three years thereafter (the
"Noncompete Period"), he shall not directly or indirectly own any interest in,
operate, manage, control, participate in, consult with, advise, render services
for, or in any manner engage in any business (including by himself or in
association with any person, firm, corporate or other business organization or
through any other entity) in competition with, or potential competition with,
the businesses of the Company or its Subsidiaries as such businesses exist or
are in process on the date of the termination or expiration of the Employment
Period, within any geographical area in which the Company or its Subsidiaries
engage or plan to engage in such businesses. Nothing herein shall prohibit
Executive from being a passive owner of not more than 2% of the outstanding
stock of any class of a corporation which is publicly traded, so long as
Executive has no active participation in the business of such corporation.
(b) During the Noncompete Period, Executive shall not directly or
indirectly through another entity (i) induce or attempt to induce any employee
of the Company or any Subsidiary to leave the employ of the Company or such
Subsidiary, or in any way interfere with the relationship between the Company or
any Subsidiary and any employee thereof, (ii) hire any person who was an
employee of the Company or any Subsidiary at any time during the Employment
Period or (iii) induce or attempt to induce any customer, supplier, licensee,
licensor, franchisee or other business relation of the Company or any Subsidiary
to cease doing business with the Company or such Subsidiary, or in any way
interfere with the relationship between any such customer, supplier, licensee,
licensor, franchisee or business relation and the Company or any Subsidiary
(including,
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<PAGE>
without limitation, making any negative or disparaging statements or
communications regarding the Company or its Subsidiaries).
(c) Executive agrees that: (i) the covenants set forth in this
Section 7 are reasonable in geographical and temporal scope and in all other
respects and that he has reviewed the provisions of this Agreement with his
legal counsel, (ii) the Company would not have entered into this Agreement but
for the covenants of Executive contained herein, and (iii) the covenants
contained herein have been made in order to induce the Company to enter into
this Agreement.
(d) If, at the time of enforcement of this Section 7, a court shall
hold that the duration, scope or area restrictions stated herein are
unreasonable under circumstances then existing, the parties agree that the
maximum duration, scope or area reasonable under such circumstances shall be
substituted for the stated duration, scope or area and that the court shall be
allowed to revise the restrictions contained herein to cover the maximum period,
scope and area permitted by law.
(e) Executive recognizes and affirms that in the event of his breach
of any provision of this Section 7, money damages would be inadequate and the
Company would have no adequate remedy at law. Accordingly, the Executive agrees
that in the event of the breach or a threatened breach by Executive of any of
the provisions of this Section 7, the Company, in addition and supplementary to
other rights and remedies existing in its favor, shall be entitled to specific
performance and/or injunctive or other equitable relief from a court of
competent jurisdiction in order to enforce or prevent any violations of the
provisions hereof (without posting a bond or other security). In addition, in
the event of an alleged breach or violation by Executive of this Section 7, the
Noncompete Period shall be tolled until such breach or violation has been duly
cured.
8. Executive's Representations. Executive hereby represents and
warrants to the Company that (i) the execution, delivery and performance of this
Agreement by Executive do not and shall not conflict with, breach, violate or
cause a default under any contract, agreement, instrument, order, judgment or
decree to which Executive is a party or by which he is bound, (ii) Executive is
not a party to or bound by any employment agreement, noncompete agreement or
confidentiality agreement with any other person or entity and (iii) upon the
execution and delivery of this Agreement by the Company, this Agreement shall be
the valid and binding obligation of Executive, enforceable in accordance with
its terms. Executive hereby acknowledges and represents that he has consulted
with independent legal counsel regarding his rights and obligations under this
Agreement and that he fully understands the terms and conditions contained
herein.
9. Survival. Sections 5 through 19 shall survive and continue in
full force in accordance with their terms notwithstanding the expiration or
termination of the Employment Period.
10. Notices. All notices, demands or other communications to be
given or delivered under or by reason of the provisions of this Agreement will
be in writing and will be deemed to have been given when delivered personally,
mailed by certified or registered mail, return
-5-
<PAGE>
receipt requested and postage prepaid, or sent via a nationally recognized
overnight courier, or sent via facsimile to the recipient with telephonic
confirmation by the sending party. Such notices, demands and other
communications will be sent to the address indicated below:
To Executive:
[Address]
[City, State, Zip]
Attention: Richard L. Branch
Telecopy No.:
Telephone No.:
To the Company:
Mattress Discounters Corporation
9822 Fallard Court
Upper Marlboro, MD 20772
Attention: Board of Directors
Telecopy No.: (301) 856-4591
Telephone No.: (301) 856-6755
With copies to:
Bain Capital, Inc.
Two Copley Place
Boston, MA 02116
Attention: Michael Krupka
Telecopy No.: (617) 572-3274
Telephone No.: (617) 572-2753
Kirkland & Ellis
Citicorp Center
153 East 53rd Street
New York, NY 10022
Attention: Lance C. Balk, Esq.
Telecopy No.: (212) 446-4900
Telephone No.: (212) 446-4800
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. Any
notice under this Agreement shall be deemed to have been given when so
delivered, sent or mailed.
-6-
<PAGE>
11. Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any action in any other jurisdiction, but this Agreement
shall be reformed, construed and enforced in such jurisdiction as if such
invalid, illegal or unenforceable provision had never been contained herein.
12. Complete Agreement. This Agreement embodies the complete
agreement and understanding among the parties and supersedes and preempts any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way
(including, without limitation, the Employment Agreement between the parties
hereto, dated January 1, 1997), but excluding any breaches thereof by either
party prior to the date hereof.
13. No Strict Construction. The language used in this Agreement
shall be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction shall be applied against any
party.
14. Counterparts. This Agreement may be executed in separate
counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same agreement.
15. Successors and Assigns. This Agreement is intended to bind and
inure to the benefit of and be enforceable by Executive, the Company and their
respective heirs, successors and assigns; provided that the rights and
obligations of Executive under this Agreement shall not be assignable.
16. Governing Law. All issues and questions concerning the
construction, validity, enforcement and interpretation of this Agreement and the
exhibits and schedules hereto shall be governed by, and construed in accordance
with, the laws of the State of Delaware, without giving effect to any choice of
law or conflict of law rules or provisions (whether of the State of Delaware or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Delaware.
17. Amendment and Waiver. The provisions of this Agreement may be
amended or waived only with the prior written consent of the Company and
Executive, and no course of conduct or failure or delay in enforcing the
provisions of this Agreement shall affect the validity, binding effect or
enforceability of this Agreement.
18. Remedies. Each of the parties to this Agreement will be entitled
to enforce its rights under this Agreement specifically, to recover damages and
costs (including reasonable attorneys' fees) caused by any breach of any
provision of this Agreement and to exercise all other
-7-
<PAGE>
rights existing in its favor. The parties hereto agree and acknowledge that
money damages may not be an adequate remedy for any breach of the provisions of
this Agreement and that any party may in its sole discretion apply to any court
of law or equity of competent jurisdiction (without posting any bond or deposit)
for specific performance and/or other injunctive relief in order to enforce or
prevent any violations of the provisions of this Agreement.
* * * * *
-8-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first written above.
MATTRESS DISCOUNTERS CORPORATION
By: /s/ Richard L. Branch
_____________________________________
Its:____________________________________
________________________________________
RICHARD L. BRANCH
-9-
<PAGE>
Exhibit B
GENERAL RELEASE
I, Richard L. Branch, in consideration of and subject to the performance
by Mattress Discounters Corporation, a Delaware corporation (together with its
subsidiaries, the "Company"), of its material obligations under the Employment
Agreement, dated as of August 6, 1999 (the "Agreement"), do hereby release and
forever discharge as of the date hereof the Company and all present and former
directors, officers, agents, representatives, employees, successors and assigns
of the Company and its direct or indirect owners (collectively, the "Released
Parties") to the extent provided below.
1. I understand that any payments or benefits paid or granted to me under
Section 4(b) of the Agreement represent, in part, consideration for
signing this General Release and are not salary, wages or benefits to
which I was already entitled. I understand and agree that I will not
receive the payments and benefits specified in Section 4(b) of the
Agreement unless I execute this General Release and do not revoke this
General Release within the time period permitted hereafter or breach this
General Release.
2. Except as provided in Section 4 below, I knowingly and voluntarily release
and forever discharge the Company and the other Released Parties from any
and all claims, controversies, actions, causes of action, cross-claims,
counter-claims, demands, debts, compensatory damages, liquidated damages,
punitive or exemplary damages, other damages, claims for costs and
attorneys' fees, or liabilities of any nature whatsoever in law and in
equity, both past and present (through the date of this General Release)
and whether known or unknown, suspected, or claimed against the Company or
any of the Released Parties which I, my spouse, or any of my heirs,
executors, administrators or assigns, may have, which arise out of or are
connected with my employment with, or my separation from, the Company
(including, but not limited to, any allegation, claim or violation,
arising under: Title VII of the Civil Rights Act of 1964, as amended; the
Civil Rights Act of 1991; the Age Discrimination in Employment Act of
1967, as amended (including the Older Workers Benefit Protection Act); the
Equal Pay Act of 1963, as amended; the Americans with Disabilities Act of
1990; the Family and Medical Leave Act of 1993; the Civil Rights Act of
1866, as amended; the Worker Adjustment Retraining and Notification Act;
the Employee Retirement Income Security Act of 1974; any applicable
Executive Order Programs; the Fair Labor Standards Act; or their state or
local counterparts; or under any other federal, state or local civil or
human rights law, or under any other local, state, or federal law,
regulation or ordinance; or under any public policy, contract or tort, or
under common law; or arising under any policies, practices or procedures
of the Company; or any claim for wrongful discharge, breach of contract,
infliction of emotional distress, defamation; or any claim for costs,
fees, or other expenses, including attorneys' fees incurred in these
matters) (all of the foregoing collectively referred to herein as the
"Claims").
B-1
<PAGE>
3. I represent that I have made no assignment or transfer of any right,
claim, demand, cause of action, or other matter covered by Section 2
above.
4. I agree that this General Release does not waive or release any rights or
claims that I may have under the Age Discrimination in Employment Act of
1967 which arise after the date I execute this General Release. I
acknowledge and agree that my separation from employment with the Company
in compliance with the terms of the Agreement shall not serve as the basis
for any claim or action (including, without limitation, any claim under
the Age Discrimination in Employment Act of 1967).
5. In signing this General Release, I acknowledge and intend that it shall be
effective as a bar to each and every one of the Claims hereinabove
mentioned or implied. I expressly consent that this General Release shall
be given full force and effect according to each and all of its express
terms and provisions, including those relating to unknown and unsuspected
Claims (notwithstanding any state statute that expressly limits the
effectiveness of a general release of unknown, unsuspected and
unanticipated Claims), if any, as well as those relating to any other
Claims hereinabove mentioned or implied. I acknowledge and agree that this
waiver is an essential and material term of this General Release and that
without such waiver the Company would not have agreed to the terms of the
Agreement. I further agree that in the event I should bring a Claim
seeking damages against the Company, or in the event I should seek to
recover against the Company in any Claim brought by a governmental agency
on my behalf, this General Release shall serve as a complete defense to
such Claims. I further agree that I am not aware of any pending charge or
complaint of the type described in Section 2 as of the execution of this
General Release.
6. I agree that neither this General Release, nor the furnishing of the
consideration for this General Release, shall be deemed or construed at
any time to be an admission by the Company, any Released Party or myself
of any improper or unlawful conduct.
7. I agree that I will forfeit all amounts payable by the Company pursuant to
the Agreement if I challenge the validity of this General Release. I also
agree that if I violate this General Release by suing the Company or the
other Released Parties, I will pay all costs and expenses of defending
against the suit incurred by the Released Parties, including reasonable
attorneys' fees, and return all payments received by me pursuant to the
Agreement.
8. I agree that this General Release is confidential and agree not to
disclose any information regarding the terms of this General Release,
except to my immediate family and any tax, legal or other counsel I have
consulted regarding the meaning or effect hereof or as required by law,
and I will instruct each of the foregoing not to disclose the same to
anyone.
9. Any non-disclosure provision in this General Release does not prohibit or
restrict me (or my attorney) from responding to any inquiry about this
General Release or its underlying facts and circumstances by the
Securities and Exchange Commission (SEC), the National
B-2
<PAGE>
Association of Securities Dealers, Inc. (NASD), any other self-regulatory
organization or governmental entity.
10. I agree to reasonably cooperate with the Company in any internal
investigation or administrative, regulatory, or judicial proceeding. I
understand and agree that my cooperation may include, but not be limited
to, making myself available to the Company upon reasonable notice for
interviews and factual investigations; appearing at the Company's request
to give testimony without requiring service of a subpoena or other legal
process; volunteering to the Company pertinent information; and turning
over to the Company all relevant documents which are or may come into my
possession all at times and on schedules that are reasonably consistent
with my other permitted activities and commitments. I understand that in
the event the Company asks for my cooperation in accordance with this
provision, the Company will reimburse me solely for reasonable travel
expenses, including lodging and meals, upon my submission of receipts.
11. Notwithstanding anything in this General Release to the contrary, this
General Release shall not relinquish, diminish, or in any way affect any
rights or claims arising out of any breach by the Company or by any
Released Party of the Agreement.
12. Whenever possible, each provision of this General Release shall be
interpreted in, such manner as to be effective and valid under applicable
law, but if any provision of this General Release is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule
in any jurisdiction, such invalidity, illegality or unenforceability shall
not affect any other provision or any other jurisdiction, but this General
Release shall be reformed, construed and enforced in such jurisdiction as
if such invalid, illegal or unenforceable provision had never been
contained herein.
BY SIGNING THIS GENERAL RELEASE, I REPRESENT AND AGREE THAT:
(a) I HAVE READ IT CAREFULLY;
(b) I UNDERSTAND ALL OF ITS TERMS AND KNOW THAT I AM GIVING UP IMPORTANT
RIGHTS, INCLUDING BUT NOT LIMITED TO, RIGHTS UNDER THE AGE DISCRIMINATION
IN EMPLOYMENT ACT OF 1967, AS AMENDED, TITLE VII OF THE CIVIL RIGHTS ACT
OF 1964, AS AMENDED; THE EQUAL PAY ACT OF 1963, THE AMERICANS WITH
DISABILITIES ACT OF 1990; AND THE EMPLOYEE RETIREMENT INCOME SECURITY ACT
OF 1974, AS AMENDED;
(c) I VOLUNTARILY CONSENT TO EVERYTHING IN IT;
B-3
<PAGE>
(d) I HAVE BEEN ADVISED TO CONSULT WITH AN ATTORNEY BEFORE EXECUTING IT AND I
HAVE DONE SO OR, AFTER CAREFUL READING AND CONSIDERATION I HAVE CHOSEN NOT
TO DO SO OF MY OWN VOLITION;
(e) I HAVE HAD AT LEAST 21 DAYS FROM THE DATE OF MY RECEIPT OF THIS RELEASE
SUBSTANTIALLY IN ITS FINAL FORM ON _______________ __, _____ TO CONSIDER
IT AND THE CHANGES MADE SINCE THE _______________ __, _____ VERSION OF
THIS RELEASE ARE NOT MATERIAL AND WILL NOT RESTART THE REQUIRED 21-DAY
PERIOD;
(f) THE CHANGES TO THE AGREEMENT SINCE AUGUST 6, 1999 EITHER ARE NOT MATERIAL
OR WERE MADE AT MY REQUEST.
(g) I UNDERSTAND THAT I HAVE SEVEN DAYS AFTER THE EXECUTION OF THIS RELEASE TO
REVOKE IT AND THAT THIS RELEASE SHALL NOT BECOME EFFECTIVE OR ENFORCEABLE
UNTIL THE REVOCATION PERIOD HAS EXPIRED;
(h) I HAVE SIGNED THIS GENERAL RELEASE KNOWINGLY AND VOLUNTARILY AND WITH THE
ADVICE OF ANY COUNSEL RETAINED TO ADVISE ME WITH RESPECT TO IT; AND
(i) I AGREE THAT THE PROVISIONS OF THIS GENERAL RELEASE MAY NOT BE AMENDED,
WAIVED, CHANGED OR MODIFIED EXCEPT BY AN INSTRUMENT IN WRITING SIGNED BY
AN AUTHORIZED REPRESENTATIVE OF THE COMPANY AND BY ME.
DATE: ___________ __, ______ ______________________________
B-4
<PAGE>
EXHIBIT 10.29
================================================================================
WARRANT AGREEMENT
Dated as of August 6, 1999
By and Between
MATTRESS DISCOUNTERS HOLDING CORPORATION
and
STATE STREET BANK AND TRUST COMPANY
as Warrant Agent
----------------------
Warrants to Purchase Class A Common Stock, Par Value $.01 Per Share and Class
L Common Stock Par Value $.01 Per Share
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE I
ISSUANCE, FORM, EXECUTION, DELIVERY AND
REGISTRATION OF WARRANT CERTIFICATES
SECTION 1.01. Issuance of Warrants.........................................2
SECTION 1.02. Form of Warrant Certificates.................................2
SECTION 1.03. Execution of Warrant Certificates............................3
SECTION 1.04. Authentication and Delivery..................................3
SECTION 1.05. Temporary Warrant Certificates...............................4
SECTION 1.06. Separation of Warrants and Notes.............................4
SECTION 1.07. Registration.................................................5
SECTION 1.08. Registration of Transfers or Exchanges.......................5
SECTION 1.09. Lost, Stolen, Destroyed, Defaced or Mutilated Warrant
Certificates............................................10
SECTION 1.10. Offices for Exercise, etc. .................................11
SECTION 1.11. Book-Entry Provisions for Global Warrants...................12
ARTICLE II
DURATION, EXERCISE OF WARRANTS; EXERCISE PRICE
AND REPURCHASE OF WARRANTS
SECTION 2.01. Duration of Warrants........................................13
SECTION 2.02. Exercise, Exercise Price, Settlement and Delivery...........13
SECTION 2.03. Cancellation of Warrant Certificates........................17
SECTION 2.04. Notice of an Exercise Event.................................17
ARTICLE III
OTHER PROVISIONS RELATING TO
RIGHTS OF HOLDERS OF WARRANTS
SECTION 3.01. Enforcement of Rights.......................................17
ARTICLE IV
CERTAIN COVENANTS OF THE COMPANY
SECTION 4.01. Payment of Taxes............................................18
-i-
<PAGE>
Page
SECTION 4.02. Rules 144 and 144A..........................................18
SECTION 4.03. Form of Initial Public Equity Offering......................18
SECTION 4.04. Registration of Shares......................................18
ARTICLE V
ADJUSTMENTS
SECTION 5.01. Adjustment of Exercise Rate; Notices........................19
SECTION 5.02. Fractional Shares...........................................25
SECTION 5.03. Certain Distributions.......................................25
ARTICLE VI
CONCERNING THE WARRANT AGENT
SECTION 6.01. Warrant Agent...............................................26
SECTION 6.02. Conditions of Warrant Agent's Obligations...................26
SECTION 6.03. Resignation and Appointment of Successor....................30
ARTICLE VII
MISCELLANEOUS
SECTION 7.01. Amendment...................................................31
SECTION 7.02. Notices and Demands to the Company and Warrant Agent........32
SECTION 7.03. Addresses for Notices to Parties and for Transmission of
Documents...............................................32
SECTION 7.04. Notices to Holders..........................................33
SECTION 7.05. APPLICABLE LAW; SUBMISSION TO JURISDICTION..................33
SECTION 7.06. Persons Having Rights Under Agreement.......................33
SECTION 7.07. Headings....................................................33
SECTION 7.08. Counterparts................................................33
SECTION 7.09. Inspection of Agreement.....................................34
SECTION 7.10. Availability of Equitable Remedies..........................34
SECTION 7.11. Obtaining of Governmental Approvals.........................34
EXHIBIT A - Form of Warrant Certificate.................................A-1
EXHIBIT B - Form of Legend for Global Warrant...........................B-1
EXHIBIT C - Certificate To Be Delivered upon
-ii-
<PAGE>
Exchange or Registration of Trans-
fer of Warrants.........................................C-1
EXHIBIT D - Form of Transferee Certificate for
Institutional Accredited Investors........................D-1
EXHIBIT E - Form of Transferee Certificate for
Regulation S Transfers....................................E-1
-iii-
<PAGE>
INDEX OF DEFINED TERMS
----------------------
Defined Term Section
- ------------ -------
Affiliate......................................................... 5.01(b)
Agreement......................................................... Recitals
Business Day...................................................... 2.01
Capital Stock..................................................... 5.01(1)
Cashless Exercise................................................. 2.02(c)
Cashless Exercise Ratio........................................... 2.02(c)
Common Stock...................................................... Recitals
Company........................................................... Recitals
Current Market Value.............................................. 5.01(1)
Definitive Warrants............................................... 1.02
Distribution...................................................... 5.03
Distribution Rights............................................... 5.03
Election To Exercise.............................................. 2.02(b)
Exercisability Date............................................... 2.02(a)
Exercise Date..................................................... 2.02(d)
Exercise Event.................................................... 2.02(a)
Exercise Price.................................................... 2.02(a)
Exercise Rate..................................................... 2.02(a)
Expiration Date................................................... 2.01
Fundamental Transaction........................................... 5.01(d)
Global Shares..................................................... 2.02(f)
Global Warrants................................................... 1.02
IAI Global Warrant................................................ 1.03
Indenture......................................................... Recitals
Independent Financial Expert...................................... 5.01(1)
Initial Public Equity Offering.................................... 2.02(a)
Initial Purchasers................................................ Recitals
Notes............................................................. Recitals
Notice Date....................................................... 2.05(b)
Officers' Certificate............................................. 1.08(d)
144A Global Warrant............................................... 1.03
Person............................................................ 2.02(a)
Private Placement Legend.......................................... 1.08(g)
Prospectus........................................................ 4.02
Registrar......................................................... 1.07
Registration Rights Agreement..................................... Recitals
Regulation S Global Warrant....................................... 1.03
Related Parties................................................... 6.02(e)
-iv-
<PAGE>
Requisite Warrant Holders......................................... 7.01
Resale Restriction Termination Date............................... 1.08
Securities Act.................................................... 1.06
Separability Date................................................. 1.06
Separation........................................................ 1.06
Shares............................................................ 1.01
Subject Class..................................................... 4.04
Surviving Person.................................................. 5.01(d)
Time of Determination............................................. 5.01(1)
Trustee........................................................... Recitals
Units............................................................. Recitals
Warrant Agent..................................................... Recitals
Warrant Agent Office.............................................. 1.10
Warrant Certificates.............................................. Recitals
Warrant Exercise Office........................................... 2.02(b)
Warrant Register.................................................. 1.07
Warrants.......................................................... Recitals
-v-
<PAGE>
WARRANT AGREEMENT
WARRANT AGREEMENT, dated as of August 6, 1999 by and between
MATTRESS DISCOUNTERS HOLDING CORPORATION, a Virginia corporation (together with
any successor thereto, "Holdings"), and STATE STREET BANK AND TRUST COMPANY, as
--------
warrant agent (with any successor Warrant Agent, the "Warrant Agent").
-------------
WHEREAS, Holdings, Mattress Discounters Corporation (the
"Company") and the guarantors party thereto have entered into a purchase
-------
agreement (the "Purchase Agreement") dated August 3, 1999 with Chase Securities
------------------
Inc. ("CSI"), CIBC World Markets Corp., and BancBoston Robertson Stephens Inc.
(collectively, the "Initial Purchasers") in which the Company and Holdings have
------------------
agreed to sell to the Initial Purchasers 140,000 units (the "Units") consisting
-----
in the aggregate of (i) $140,000,000 aggregate principal amount of 12 5/8%
Senior Notes due 2007 (the "Notes") of the Company to be issued under an
-----
indenture dated as of August 6, 1999 (the "Indenture"), between the Company and
---------
State Street Bank and Trust Company, as trustee (in such capacity, the
"Trustee"), and (ii) Warrants (the "Warrants"), each Warrant initially entitling
------- --------
the holder thereof to purchase 4.850 shares of Class A Common Stock, par value
$.01 per share of Holdings (the "Class A Common Stock") and 0.539 shares of
--------------------
Class L Common Stock, par value $0.01 per share of Holdings (the "Class L Common
--------------
Stock") (collectively, the "Common Stock"), of Holdings. The certificates
- ----- ------------
evidencing the Warrants are herein referred to collectively as the "Warrant
-------
Certificates"; and
- ------------
WHEREAS, each Unit will consist of one Note in the principal
amount of $1,000 and one Warrant; the Notes and the Warrants comprising part of
the Units shall not be separately transferable until the Separability Date (as
defined below); and
WHEREAS, the holders of the Warrants are entitled to the
benefits of a Common Stock Registration Rights Agreement dated as of August 6,
1999 between Holdings, certain investors in Holdings and the Initial Purchasers
(the "Registration Rights Agreement"); and
-----------------------------
WHEREAS, Holdings desires the Warrant Agent as warrant agent
to assist Holdings in connection with the issuance, exchange, cancellation,
replacement and exercise of the Warrants, and in this Agreement wishes to set
forth, among other things, the terms and conditions on which the Warrants may be
issued, exchanged, cancelled, replaced and exercised;
NOW, THEREFORE, the parties hereto agree as follows:
<PAGE>
-2-
ARTICLE I
ISSUANCE, FORM, EXECUTION, DELIVERY AND
REGISTRATION OF WARRANT CERTIFICATES
---------------------------------------
SECTION 1.01. Issuance of Warrants. Warrants comprising part
--------------------
of the Units shall be originally issued in connection with the issuance of the
Units and such Warrants shall not be separately transferable from the Notes
until on or after the Separability Date as provided in Section 1.06 hereof.
Each Warrant Certificate shall evidence the number of Warrants
specified therein, and each Warrant evidenced thereby shall, when exercisable as
provided herein and therein, represent the right, subject to the provisions
contained herein and therein, to purchase from Holdings (and Holdings shall
issue and sell to the holder of such Warrant upon exercise thereof) 4.850 fully
paid, registered and non-assessable shares of Holdings' Class A Common Stock at
an exercise price of $0.01 per share and 0.539 fully paid, registered and
non-assessable shares of Holdings' Class L Common Stock at an exercise price of
$0.01 per share. The number of Shares issuable upon exercise of a Warrant is
subject to adjustment as provided herein and in the Warrant. The shares
purchasable upon exercise of a Warrant are hereinafter referred to as the
"Shares" and, unless the context otherwise requires, such term shall also
------
include any other securities or property purchasable and deliverable upon
exercise of a Warrant as provided in Article V, subject to adjustment as
provided herein and in the Warrant.
SECTION 1.02. Form of Warrant Certificates. The Warrant
----------------------------
Certificates will initially be issued either in global form as 144A Global
Warrants, IAI Global Warrants or Regulation S Global Warrants (collectively, the
"Global Warrants"), substantially in the form of Exhibit A hereto, or in
--------------- ---------
registered form as definitive Warrant Certificates (the "Definitive Warrants")
-------------------
substantially in the form of Exhibit A attached hereto. Any Global Warrants to
---------
be delivered pursuant to this Agreement shall bear the legend set forth in
Exhibit B attached hereto. Such Global Warrants shall represent such of the
- ---------
outstanding Warrants as shall be specified therein and each shall provide that
it shall represent the aggregate amount of outstanding Warrants from time to
time endorsed thereon and that the aggregate amount of outstanding Warrants
represented thereby may from time to time be reduced or increased, as
appropriate. Any endorsement of a Global Warrant to reflect the amount of any
increase or decrease in the amount of outstanding Warrants represented thereby
shall be made by the Warrant Agent and the Depository (as defined below) in
accordance with instructions given by the holder thereof. The Depository Trust
Company shall act as the Depository with respect to the Global Warrants until a
successor shall be appointed by Holdings and the Warrant Agent. Upon written
request, a holder of record of Warrants may receive from the Warrant Agent or
the Depository Definitive Warrants as set forth in Section 1.08 hereof.
"144A Global Warrant" means a permanent global security in
-------------------
registered form representing the aggregate principal amount of Warrants sold in
reliance on Rule 144A.
<PAGE>
-3-
"IAI Global Warrant" means a permanent global security in
------------------
registered form representing the aggregate principal amount of Warrants sold to
Institutional Accredited Investors.
"Regulation S Global Warrant" means a permanent global
---------------------------
security in registered form representing the aggregate principal amount of
Warrants sold in reliance on Regulation S under the Securities Act.
SECTION 1.03. Execution of Warrant Certificates. The Warrant
---------------------------------
Certificates shall be executed on behalf of Holdings by the chairman of its
Board of Directors, its president or any vice president and attested by its
secretary or assistant secretary. Such signatures may be the manual or facsimile
signatures of the present or any future such officers. Typographical and other
minor errors or defects in any such reproduction of any such signature shall not
affect the validity or enforceability of any Warrant Certificate that has been
duly countersigned and delivered by the Warrant Agent.
In case any officer of Holdings who shall have signed any of
the Warrant Certificates shall cease to be such officer before the Warrant
Certificate so signed shall be countersigned and delivered by the Warrant Agent
or disposed of by Holdings, such Warrant Certificate nevertheless may be
countersigned and delivered or disposed of as though the person who signed such
Warrant Certificate had not ceased to be such officer of Holdings; and any
Warrant Certificate may be signed on behalf of Holdings by such persons as, at
the actual date of the execution of such Warrant Certificate, shall be the
proper officers of Holdings, although at the date of the execution and delivery
of this Agreement any such person was not such an officer.
SECTION 1.04. Authentication and Delivery. Subject to the
---------------------------
immediately following paragraph, Warrant Certificates shall be authenticated by
manual signature and dated the date of authentication by the Warrant Agent and
shall not be valid for any purpose unless so authenticated and dated. The
Warrant Certificates shall be numbered and shall be registered in the Warrant
Register (as defined in Section 1.07 hereof).
Upon the receipt by the Warrant Agent of a written order of
Holdings, which order shall be signed by the chairman of its Board of Directors,
its president or any vice president and attested by its secretary or assistant
secretary, and shall specify the amount of Warrants to be authenticated, whether
the Warrants are to be Global Warrants or Definitive Warrants, the date of such
Warrants and such other information as the Warrant Agent may reasonably request,
without any further action by Holdings, the Warrant Agent is authorized, upon
receipt from Holdings at any time and from time to time of the Warrant
Certificates, duly executed as provided in Section 1.03 hereof, to authenticate
the Warrant Certificates and upon the holder's request deliver them. Such
authentication shall be by a duly authorized signatory of the Warrant Agent
(although it shall not be necessary for the same signatory to sign all Warrant
Certificates).
In case any authorized signatory of the Warrant Agent who
shall have authenticated any of the Warrant Certificates shall cease to be such
authorized signatory before the Warrant Certificate shall be disposed of by
Holdings or the Warrant Agent, such Warrant Certifi-
<PAGE>
-4-
cate nevertheless may be delivered or disposed of as though the person who
authenticated such Warrant Certificate had not ceased to be such authorized
signatory of the Warrant Agent; and any Warrant Certificate may be authenticated
on behalf of the Warrant Agent by such persons as, at the actual time of
authentication of such Warrant Certificates, shall be the duly authorized
signatories of the Warrant Agent, although at the time of the execution and
delivery of this Agreement any such person is not such an authorized signatory.
The Warrant Agent's authentication on all Warrant Certificates
shall be in substantially the form set forth in Exhibit A hereto.
---------
SECTION 1.05. Temporary Warrant Certificates. Pending the
------------------------------
preparation of definitive Warrant Certificates, Holdings may execute, and the
Warrant Agent shall authenticate and deliver, temporary Warrant Certificates,
which are printed, lithographed, typewritten or otherwise produced,
substantially of the tenor of the definitive Warrant Certificates in lieu of
which they are issued and with such appropriate insertions, omissions,
substitutions and other variations as the officers executing such Warrant
Certificates may determine, as evidenced by their execution of such Warrant
Certificates.
If temporary Warrant Certificates are issued, Holdings will
cause definitive Warrant Certificates to be prepared without unreasonable delay.
After the preparation of definitive Warrant Certificates, the temporary Warrant
Certificates shall be exchangeable for definitive Warrant Certificates upon
surrender of the temporary Warrant Certificates at any office or agency
maintained by Holdings for that purpose pursuant to Section 1.10 hereof. Subject
to the provisions of Section 4.01 hereof, such exchange shall be without charge
to the holder. Upon surrender for cancellation of any one or more temporary
Warrant Certificates, Holdings shall execute, and the Warrant Agent shall
authenticate and deliver in exchange therefor, one or more definitive Warrant
Certificates representing in the aggregate a like number of Warrants. Until so
exchanged, the holder of a temporary Warrant Certificate shall in all respects
be entitled to the same benefits under this Agreement as a holder of a
definitive Warrant Certificate.
SECTION 1.06. Separation of Warrants and Notes. The Notes and
--------------------------------
the Warrants will not be separately transferable until the Separability Date.
"Separability Date" shall mean the earliest to occur of: (1) 180 days after the
-----------------
Issue Date (as defined in the Indenture); (2) the occurrence of a Change of
Control (as defined in the Indenture); (3) the occurrence of an Event of Default
(as defined in the Indenture); (4) the effectiveness of a registration statement
under the Securities Act of 1933, as amended (the "Securities Act") with respect
--------------
to the Notes or the Exchange Notes (as defined in the Indenture); or (5) such
earlier date as determined by Chase Securities Inc. in its discretion and
specified to Holdings, the Trustee, the Warrant Agent and the Unit Agent in
writing. The surrender of a Unit certificate for separate Warrant certificates
and Note certificates is herein referred to as a "Separation." Holdings shall
----------
promptly notify the Warrant Agent of the Separability Date. Following the
Separability Date, no Unit certificates shall be issued.
<PAGE>
-5-
SECTION 1.07. Registration. Holdings will keep, at the office
------------
or agency maintained by Holdings for such purpose, a register or registers in
which, subject to such reasonable regulations as it may prescribe, Holdings
shall provide for the registration of, and registration of transfer and exchange
of, Warrants as provided in this Article. Each person designated by Holdings
from time to time as a person authorized to register the transfer and exchange
of the Warrants is hereinafter called, individually and collectively, the
"Registrar." Holdings hereby initially appoints the Warrant Agent as Registrar.
---------
Upon written notice to the Warrant Agent and any acting Registrar, Holdings may
appoint a successor Registrar for such purposes.
Holdings will at all times designate one person (who may be
Holdings and who need not be a Registrar) to act as repository of a master list
of names and addresses of the holders of Warrants (the "Warrant Register"). The
----------------
Warrant Agent will act as such repository unless and until some other person is,
by written notice from Holdings to the Warrant Agent and the Registrar,
designated by Holdings to act as such. Holdings shall cause each Registrar to
furnish to such repository, on a current basis, such information as to all
registrations of transfer and exchanges effected by such Registrar, as may be
necessary to enable such repository to maintain the Warrant Register on as
current a basis as is practicable.
SECTION 1.08. Registration of Transfers or Exchanges.
--------------------------------------
(a) Transfer or Exchange of Definitive Warrants. When
-------------------------------------------
Definitive Warrants are presented to the Warrant Agent with a request from the
holder:
(i) to register the transfer of the Definitive Warrants; or
(ii) to exchange such Definitive Warrants for an equal number of
Definitive Warrants of other authorized denominations,
the Warrant Agent shall register the transfer or make the exchange as requested
if the requirements under this Warrant Agreement as set forth in this Section
1.08 hereof for such transactions are met; provided, however, that the
-------- -------
Definitive Warrants presented or surrendered by a holder for registration of
transfer or exchange:
(x) shall be duly endorsed or accompanied by a written instruction
of transfer or exchange in form satisfactory to Holdings and
the Warrant Agent, duly executed by such holder or by his
attorney, duly authorized in writing; and
(y) in the case of Warrants the offer and sale of which have not
been registered under the Securities Act and are presented for
transfer or exchange prior to (X) the date which is two years
(or such shorter period as may be prescribed by Rule 144(k)
(or any successor provision thereto)) after the later of the
date of original issuance of the Warrants and the last date on
which Holdings or any affiliate of Holdings was the owner of
such Warrants, or any predecessor thereto, and (Y) such later
date, if any, as may be required by any subsequent change in
applicable law (the
<PAGE>
-6-
"Resale Restriction Termination Date"), such Warrants shall be
-----------------------------------
accompanied by the following additional information and
documents, as applicable:
(A) if such Warrants are being delivered to the Warrant
Agent by a holder for registration in the name of
such holder, without transfer, a certification from
such holder to that effect (in substantially the form
of Exhibit C hereto); or
---------
(B) if such Warrants are being transferred to a qualified
institutional buyer (as defined in Rule 144A under
the Securities Act) (a "QIB") in accordance with Rule
144A under the Securities Act, a certification from
the transferor to that effect (in substantially the
form of Exhibit C hereto); or
---------
(C) if such Warrants are being transferred to an
institutional "accredited investor" within the
meaning of subparagraphs (a)(1), (a)(2), (a)(3) or
(a)(7) of Rule 501 under the Securities Act (an
"Institutional Accredited Investor"), delivery by the
transferor of a certification to that effect (in
substantially the form of Exhibit C hereto), and
---------
delivery by the proposed transferee of a Transferee
Certificate for Institutional Accredited Investors
(in substantially the form of Exhibit D hereto); or
---------
(D) if such Warrants are being transferred in reliance on
Regulation S under the Securities Act, delivery by
the transferor of a certification to that effect (in
substantially the form of Exhibit C hereto), and a
---------
Certificate for Regulation S Transfers in the form of
Exhibit E hereto; or
---------
(E) if such Warrants are being transferred in reliance on
Rule 144 under the Securities Act, delivery by the
transferor of (i) a certification from the transferor
to that effect (in substantially the form of Exhibit
-------
C hereto), and (ii) an opinion of counsel reasonably
-
satisfactory to Holdings to the effect that such
transfer is in compliance with the Securities Act; or
(F) if such Warrants are being transferred in reliance on
another exemption from the registration requirements
of the Securities Act, a certification from the
transferor to that effect (in substantially the form
of Exhibit C hereto) and an opinion of counsel
---------
reasonably satisfactory to Holdings to the effect
that such transfer is in compliance with the
Securities Act; provided that Holdings may, based
--------
upon the views of its own counsel, instruct the
Warrant Agent not to register such transfer in any
case where the proposed transferee is not a QIB,
Non-U.S. Person or Institutional Accredited Investor.
(b) Restrictions on Transfer of a Definitive Warrant for a
------------------------------------------------------
Beneficial Interest in a Global Warrant. A Definitive Warrant may not be
- ---------------------------------------
transferred by a holder for a beneficial interest
<PAGE>
-7-
in a Global Warrant except upon satisfaction of the requirements set forth
below. Upon receipt by the Warrant Agent of a Definitive Warrant, duly endorsed
or accompanied by appropriate instruments of transfer, in form satisfactory to
the Warrant Agent, together with:
(A) certification from such holder (in substantially the
form of Exhibit C hereto) that such Definitive
---------
Warrant is being transferred to (I) a QIB in
accordance with Rule 144A under the Securities Act,
(II) to an Accredited Investor or (III) in an
offshore transaction in reliance on Regulation S and,
with respect to (II) or (III), at the option of
Holdings or the Warrant Agent, an Opinion of Counsel
reasonably acceptable to Holdings to the effect that
such transfer is in compliance with the Securities
Act; and
(B) written instructions directing the Warrant Agent to
make, or to direct the Depository to make, an
endorsement on the applicable Global Warrant to
reflect an increase in the aggregate amount of the
Warrants represented by the Global Warrant,
then the Warrant Agent shall cancel such Definitive Warrant and cause, or direct
the Depository to cause, in accordance with the standing instructions and
procedures existing between the Depository and the Warrant Agent, the number of
Shares represented by the applicable Global Warrant to be increased accordingly.
If no 144A Global Warrant, IAI Global Warrant or Regulation S Global Warrant is
then outstanding, Holdings shall issue and the Warrant Agent shall upon written
instructions from the Company authenticate a new Global Warrant in the
appropriate amount.
(c) Transfer or Exchange of Global Warrants. The transfer or
---------------------------------------
exchange of Global Warrants or beneficial interests therein shall be effected
through the Depository, in accordance with this Section 1.08, the Private
Placement Legend, this Agreement (including the restrictions on transfer set
forth herein) and the procedures of the Depository therefor. Upon receipt by the
Registrar or Co-Registrar of written instructions, or such other instruction as
is customary for the Depository, from the Depository or its nominee, requesting
the registration of transfer of an interest in a 144A Global Warrant, an IAI
Global Warrant or Regulation S Global Warrant, as the case may be, to another
type of Global Warrant, together with the applicable Global Warrants (or, if the
applicable type of Global Warrant required to represent the interest as
requested to be obtained is not then outstanding, only the Global Warrant
representing the interest being transferred), the Registrar or Co-Registrar
shall reflect on its books and records (and the applicable Global Warrant) the
applicable increase and decrease of the principal amount of Warrants represented
by such types of Global Warrants, giving effect to such transfer. If the
applicable type of Global Warrant required to represent the interest as
requested to be obtained is not outstanding at the time of such request,
Holdings shall issue and the Warrant Agent shall, upon written instructions from
Holdings in accordance with Section 1.08, authenticate a new Global Warrant of
such type in principal amount equal to the principal amount of the interest
requested to be transferred.
<PAGE>
-8-
(d) Transfer or Exchange of a Beneficial Interest in a Global
---------------------------------------------------------
Warrant for a Definitive Warrant.
- --------------------------------
(i) Any person having a beneficial interest in a Global Warrant
may transfer or exchange such beneficial interest for a
Definitive Warrant; provided, however, that prior to the
-------- -------
Registration, a transferee that is a QIB or Institutional
Accredited Investor may not exchange a beneficial interest in
a Global Warrant for a Definitive Warrant until receipt by the
Warrant Agent of written instructions or such other form of
instructions as is customary for the Depository from the
Depository or its nominee on behalf of any person having a
beneficial interest in a Global Warrant, including a written
order containing registration instructions and, in the case of
any such transfer or exchange of a beneficial interest in
Warrants the offer and sale of which have not been registered
under the Securities Act, the following additional information
and documents:
(A) if such beneficial interest is being transferred to
the person designated by the Depository as being the
beneficial owner, a certification from such person to
that effect (in substantially the form of Exhibit C
---------
hereto); or
(B) if such beneficial interest is being transferred in
reliance on Regulation S under the Securities Act,
delivery by the transferor of (i) a certification to
that effect (in substantially the form of Exhibit C
---------
hereto), and (ii) a Certificate for Regulation S
Transfers in the form of Exhibit E hereto; or
---------
(C) if such beneficial interest is being transferred in
reliance on Rule 144 under the Securities Act,
delivery by the transferor of (i) a certification to
that effect (in substantially the form of Exhibit C
---------
hereto) and (ii) an opinion of counsel reasonably
satisfactory to Holdings to the effect that such
transfer is in compliance with the Securities Act; or
(D) if such beneficial interest is being transferred in
reliance on another exemption from the registration
requirements of the Securities Act, a certification
from the transferor to that effect (in substantially
the form of Exhibit C hereto) and an opinion of
---------
counsel reasonably satisfactory to Holdings to the
effect that such transfer is in compliance with the
Securities Act; provided that Holdings may instruct
--------
the Warrant Agent not to register such transfer in
any case where the proposed transferee is not a QIB,
Non-U.S. Person or Institutional Accredited Investor.
then the Warrant Agent will cause, in accordance with the
standing instructions and procedures existing between the
Depository and the Warrant Agent, the aggregate amount of the
Global Warrant to be reduced and, following such reduction,
Holdings will execute and, upon receipt of an authentication
order in the form of an officers' certificate (a certificate
signed by two officers of such
<PAGE>
-9-
company, one of whom must be the principal executive officer,
principal financial officer or principal accounting officer)
(an "Officers' Certificate"), the Warrant Agent will
---------------------
authenticate and deliver to the transferee a Definitive
Warrant. The Warrant Agent shall not be deemed to have
knowledge of any registration under the Securities Act unless
it receives an Officers' Certificate specifying such
registration.
(ii) Definitive Warrants issued in exchange for a beneficial
interest in a Global Warrant pursuant to this Section 1.08(d)
shall be registered in such names and in such authorized
denominations as the Depository, shall instruct the Warrant
Agent in writing. The Warrant Agent shall deliver such
Definitive Warrants to the persons in whose names such
Warrants are so registered and adjust the Global Warrant
pursuant to paragraph (h) of this Section 1.08.
(e) Restrictions on Transfer or Exchange of Global Warrants.
-------------------------------------------------------
Notwithstanding any other provisions of this Agreement (other than the
provisions set forth in subsection (f) of this Section 1.08), a Global Warrant
may not be transferred or exchanged as a whole except by the Depository to a
nominee of the Depository or by a nominee of the Depository to the Depository or
another nominee of the Depository or by the Depository or any such nominee to a
successor Depository or a nominee of such successor Depository.
(f) Authentication of Definitive Warrants in Absence of
---------------------------------------------------
Depository. If at any time:
- ----------
(i) the Depository for the Global Warrants notifies Holdings and
the Warrant Agent that the Depository is unwilling or unable
to continue as Depository for the Global Warrants and a
successor Depository for the Global Warrants is not appointed
by Holdings within 90 days after delivery of such notice; or
(ii) Holdings, at its sole discretion, notifies the Warrant Agent
in writing that it elects to cause the issuance of Definitive
Warrants for all Global Warrants under this Agreement,
then Holdings will execute, and the Warrant Agent will, upon receipt of an
Officers' Certificate requesting the authentication and delivery of Definitive
Warrants, authenticate and deliver Definitive Warrants, in an aggregate number
equal to the aggregate number of warrants represented by the Global Warrant, in
exchange for such Global Warrant.
(g) Private Placement Legend. Upon the registration of
------------------------
transfer, exchange or replacement of Warrant Certificates not bearing the legend
set forth in the first paragraph of Exhibit A attached hereto (the "Private
--------- -------
Placement Legend"), the Warrant Agent shall deliver Warrant Certificates that do
- ----------------
not bear the Private Placement Legend. Upon the registration of transfer,
exchange or replacement of Warrant Certificates bearing the Private Placement
Legend, the Warrant Agent shall deliver Warrant Certificates that bear the
Private Placement Legend un-
<PAGE>
-10-
less, and the Warrant Agent is hereby authorized to deliver Warrant Certificates
without the Private Placement Legend if, (i) the requested transfer is not prior
to the date which is two years (or such shorter period as may be prescribed by
Rule 144(k) (or any successor provision thereto) under the Securities Act or any
successor provision thereunder) after the later of the original Issue Date of
the Warrants or the last day on which Holdings or any of its Affiliates was the
owner of the Warrant or any predecessor security, (ii) there is delivered to the
Warrant Agent an opinion of counsel reasonably satisfactory to Holdings and the
Warrant Agent to the effect that neither such legend nor the related
restrictions on transfer are required in order to maintain compliance with the
provisions of the Securities Act or (iii) the Warrants to be transferred or
exchanged represented by such Warrant Certificates are being transferred or
exchanged pursuant to an effective registration statement under the Securities
Act.
(h) Cancellation or Adjustment of a Global Warrant. At such
----------------------------------------------
time as all beneficial interests in a Global Warrant have either been exchanged
for Definitive Warrants, redeemed, repurchased or cancelled, such Global Warrant
shall be returned to Holdings or, upon written order to the Warrant Agent in the
form of an Officers' Certificate from Holdings, retained and cancelled by the
Warrant Agent. At any time prior to such cancellation, if any beneficial
interest in a Global Warrant is exchanged for Definitive Warrants, redeemed,
repurchased or cancelled, the number of Warrants represented by such Global
Warrant shall be reduced and an endorsement shall be made on such Global Warrant
by the Warrant Agent to reflect such reduction.
(i) Obligations with Respect to Transfers or Exchanges of
-----------------------------------------------------
Definitive Warrants.
-------------------
(i) To permit registrations of transfers or exchanges, Holdings
shall execute, at the Warrant Agent's request, and the Warrant
Agent shall authenticate Definitive Warrants and Global
Warrants.
(ii) All Definitive Warrants and Global Warrants issued upon any
registration, transfer or exchange of Definitive Warrants or
Global Warrants shall be the valid obligations of Holdings,
entitled to the same benefits under this Warrant Agreement as
the Definitive Warrants or Global Warrants surrendered upon
the registration of transfer or exchange.
(iii) Prior to due presentment for registration of transfer of any
Warrant, the Warrant Agent and Holdings may deem and treat the
person in whose name any Warrant is registered as the absolute
owner of such Warrant, and neither the Warrant Agent nor
Holdings shall be affected by notice to the contrary.
"Depository" means, with respect to the Warrants issued in the
----------
form of one or more Global Securities, The Depository Trust Company or another
Person designated as Depository by Holdings, which must be a clearing agency
registered under the Exchange Act.
SECTION 1.09. Lost, Stolen, Destroyed, Defaced or Mutilated
---------------------------------------------
Warrant Certificates. Upon receipt by Holdings and the Warrant Agent (or any
- --------------------
agent of Holdings or the
<PAGE>
-11-
Warrant Agent, if requested by Holdings) of evidence satisfactory to them of the
loss, theft, destruction, defacement, or mutilation of any Warrant Certificate
and of an indemnity bond satisfactory to them and, in the case of mutilation or
defacement, upon surrender thereof to the Warrant Agent for cancellation, then,
in the absence of notice to Holdings or the Warrant Agent that such Warrant
Certificate has been acquired by a bona fide purchaser or holder in due course,
---- ----
Holdings shall execute, and an authorized signatory of the Warrant Agent shall
manually authenticate and deliver, in exchange for or in lieu of the lost,
stolen, destroyed, defaced or mutilated Warrant Certificate, a new Warrant
Certificate representing a like number of Warrants, bearing a number or other
distinguishing symbol not contemporaneously outstanding. Upon the issuance of
any new Warrant Certificate under this Section in a name other than the prior
registered holder of the lost, stolen, destroyed, defaced or mutilated Warrant
Certificate, Holdings may require the payment from the holder of such Warrant
Certificate of a sum sufficient to cover any tax, stamp tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Warrant Agent and the
Registrar) in connection therewith. Every substitute Warrant Certificate
executed and delivered pursuant to this Section in lieu of any lost, stolen or
destroyed Warrant Certificate shall constitute an additional contractual
obligation of Holdings, whether or not the lost, stolen or destroyed Warrant
Certificate shall be at any time enforceable by anyone, and shall be entitled to
the benefits of (but shall be subject to all the limitations of rights set forth
in) this Agreement equally and proportionately with any and all other Warrant
Certificates duly executed and delivered hereunder. The provisions of this
Section 1.09 are exclusive with respect to the replacement of lost, stolen,
destroyed, defaced or mutilated Warrant Certificates and shall preclude (to the
extent lawful) any and all other rights or remedies notwithstanding any law or
statute existing or hereafter enacted to the contrary with respect to the
replacement of lost, stolen, destroyed, defaced or mutilated Warrant
Certificates.
The Warrant Agent is hereby authorized to authenticate in
accordance with the provisions of this Agreement, and deliver the new Warrant
Certificates required pursuant to the provisions of this Section.
SECTION 1.10. Offices for Exercise, etc. So long as any of the
-------------------------
Warrants remain outstanding, Holdings will designate and maintain in the Borough
of Manhattan, The City of New York: (a) an office or agency where the Warrant
Certificates may be presented for exercise, (b) an office or agency where the
Warrant Certificates may be presented for registration of transfer and for
exchange (including the exchange of temporary Warrant Certificates for
definitive Warrant Certificates pursuant to Section 1.05 hereof), and (c) an
office or agency where notices and demands to or upon Holdings in respect of the
Warrants or of this Agreement may be served. Holdings may from time to time
change or rescind such designation, as it may deem desirable or expedient;
provided, however, that an office or agency shall at all times be maintained in
- -------- -------
the Borough of Manhattan, The City of New York, as provided in the first
sentence of this Section. In addition to such office or offices or agency or
agencies, Holdings may from time to time designate and maintain one or more
additional offices or agencies within or outside The City of New York, where
Warrant Certificates may be presented for exercise or for registration of
transfer or for exchange, and Holdings may from time to time change or rescind
such designa-
<PAGE>
-12-
tion, as it may deem desirable or expedient. Holdings will give to the Warrant
Agent written notice of the location of any such office or agency and of any
change of location thereof. Holdings hereby designates the Warrant Agent at its
corporate trust office identified at 61 Broadway, 15th Floor, New York, New York
10006 (the "Warrant Agent Office"), as the initial agency maintained for each
--------------------
such purpose. In case Holdings shall fail to maintain any such office or agency
or shall fail to give such notice of the location or of any change in the
location thereof, presentations and demands may be made and notice may be served
at the Warrant Agent Office and Holdings appoints the Warrant Agent as its agent
to receive all such presentations, surrenders, notices and demands.
SECTION 1.11. Book-Entry Provisions for Global Warrants. (a)
-----------------------------------------
The Global Warrants initially shall (i) be registered in the name of the
Depository or the nominee of such Depository, (ii) be delivered to the Warrant
Agent as custodian for such Depository and (iii) bear legends as set forth in
Exhibit B.
- ---------
Members of, or participants in, the Depository
("Participants") shall have no rights under this Warrant Agreement with respect
------------
to any Global Warrant held on their behalf by the Depository, or the Warrant
Agent as its custodian, or under the Global Warrant, and the Depository may be
treated by Holdings, the Warrant Agent and any agent of Holdings or the Warrant
Agent as the absolute owner of the Global Warrant for all purposes whatsoever.
Notwithstanding the foregoing, nothing herein shall prevent Holdings, the
Warrant Agent or any agent of Holdings or the Warrant Agent from giving effect
to any written certification, proxy or other authorization furnished by the
Depository or impair, as between the Depository and Participants, the operation
of customary practices governing the exercise of the rights of a beneficial
owner in a Global Warrant.
(b) Transfers of Global Warrants shall be limited to transfers
in whole, but not in part, to the Depository, its successors or their respective
nominees. Interests of beneficial owners in the Global Warrants may be
transferred or exchanged for Definitive Warrants in accordance with the rules
and procedures of the Depository and the provisions of Section 1.08; provided,
--------
however, that Definitive Warrants shall be transferred to all beneficial owners
- -------
in exchange for their beneficial interests in Global Warrants if (i) the
Depository notifies Holdings that it is unwilling or unable to continue as
Depository for any Global Warrant and a successor Depository is not appointed by
Holdings within 90 days of such notice, (ii) Holdings, at its option, notifies
the Warrant Agent in writing that it elects to cause the issuance of the
Warrants as Definitive Warrants or (iii) an Event of Default has occurred and is
continuing and the Registrar has received a request from the Depository to issue
Definitive Warrants.
(c) In connection with any transfer or exchange of a portion
of the beneficial interest in a Global Warrant to beneficial owners pursuant to
paragraph (b), the Registrar shall (if one or more Definitive Warrants are to be
issued) reflect on its books and records the date and a decrease in the
principal amount of such Global Warrant in an amount equal to the principal
amount of the beneficial interest in the Global Warrant to be transferred, and
Holdings shall exe-
<PAGE>
-13-
cute, and the Warrant Agent shall authenticate and deliver, one or more
Definitive Warrants of like tenor and amount.
(d) In connection with the transfer of Global Warrants as an
entirety to beneficial owners pursuant to paragraph (b) of this Section 1.11,
the Global Warrants shall be deemed to be surrendered to the Warrant Agent for
cancellation, and Holdings shall execute, and the Warrant Agent shall upon
written instructions from Holdings authenticate and deliver, to each beneficial
owner identified by the Depository in exchange for its beneficial interest in
the Global Warrants, an equal aggregate principal amount of Definitive Warrants
of authorized denominations.
(e) Any Definitive Warrants constituting a Restricted Security
delivered in exchange for an interest in a Global Security pursuant to paragraph
(c) of this Section 1.11 shall, except as otherwise provided by Section 1.08,
bear the Private Placement Legend.
(f) The Holder of any Global Warrant may grant proxies and
otherwise authorize any Person, including Participants and Persons that may hold
interests through Participants, to take any action which a Holder is entitled to
take under this Warrant Agreement or the Warrants and the Warrant Agent is
entitled to rely upon any electronic instructions from beneficial owners to the
Holder of any Global Warrant.
ARTICLE II
DURATION, EXERCISE OF WARRANTS; EXERCISE PRICE
AND REPURCHASE OF WARRANTS
---------------------------------------
SECTION 2.01. Duration of Warrants. Subject to the terms and
--------------------
conditions established herein, the Warrants shall expire at 5:00 p.m., New York
City time, on July 15, 2007. The applicable date of expiration of a particular
Warrant is referred to herein as the "Expiration Date" of such Warrant. Each
---------------
Warrant may be exercised on any Business Day (as defined below) on or after the
Exercisability Date (as defined in Section 2.02) and on or prior to the close of
business on the Expiration Date.
Any Warrant not exercised before the close of business on the
Expiration Date shall become void, and all rights of the holder under the
Warrant Certificate evidencing such Warrant and under this Agreement shall
cease.
"Business Day" shall mean any day on which (i) banks in New
------------
York City, Hartford, Connecticut and Boston, Massachusetts (ii) the principal
U.S. securities exchange or market, if any, on which any Common Stock is listed
or admitted to trading and (iii) the principal U.S. securities exchange or
market, if any, on which the Warrants are listed or admitted to trading are open
for business.
SECTION 2.02. Exercise, Exercise Price, Settlement and
----------------------------------------
Delivery. (a) Subject to the provisions of this Agreement, a holder of a Warrant
- --------
shall have the right to pur-
<PAGE>
-14-
chase from Holdings on or after the Exercisability Date and on or prior to the
close of business on the Expiration Date the number of fully paid, registered
and non-assessable shares of Common Stock specified in Section 1.01, subject to
adjustment in accordance with Article V hereof, at the purchase price of $0.01
for each share purchased (the "Exercise Price"). The number of Shares for which
--------------
a particular Warrant may be exercised (the "Exercise Rate") shall be subject to
-------------
adjustment from time to time as set forth in Article V hereof.
"Exercisability Date" means, with respect to each Warrant, the
-------------------
date as of which both of the following shall have occurred (whether before or on
such date): (i) the Separability Date and (ii) an Exercise Event.
"Exercise Event" means, with respect to each Warrant, the date
--------------
of the occurrence of the earliest of: (1) an Initial Public Equity Offering, (2)
a class of equity securities of Holdings is listed on a United States national
securities exchange or authorized for quotation on the Nasdaq National Market or
is otherwise subject to registration under the Exchange Act or (3) the
Separability Date. Holdings will promptly notify the Warrant Agent of an
Exercise Event.
"Initial Public Equity Offering" means a primary public
------------------------------
offering (whether or not underwritten, but excluding any offering pursuant to
Form S-8 under the Securities Act or any other publicly registered offering
pursuant to the Securities Act pertaining to an issuance of shares of capital
stock of Holdings or securities exercisable therefor under any benefit plan,
employee compensation plan, or employee or director stock purchase plan) of
common stock of Holdings pursuant to an effective registration statement under
the Securities Act in which Holdings' receives aggregate gross proceeds of at
least $30.0 million.
"Registrable Securities" means any of (i) the Common Stock
----------------------
issued and issuable upon exercise of the Warrants and (ii) any other securities
issued or issuable with respect to the Warrants or Warrant Shares by way of
stock dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation, reorganization or otherwise. As to any
particular Registrable Securities, such securities shall cease to be Registrable
Securities when (a) a registration statement with respect to the offering of
such securities by the holder thereof shall have been declared effective under
the Securities Act and such securities shall have been disposed of by such
holder pursuant to such registration statement, (b) such securities have been
sold to the public pursuant to, or are eligible for sale to the public without
volume or manner of sale restrictions under, Rule 144(k) (or any similar
provision then in force, but not Rule 144A) promulgated under the Securities
Act, (c) such securities shall have been otherwise transferred and new
certificates for such securities not bearing a legend restricting further
transfer shall have been delivered by Holdings or its transfer agent and
subsequent disposition of such securities shall not require registration or
qualification under the Securities Act or any similar state law then in force or
(d) such securities shall have ceased to be outstanding.
"Person" means any individual, corporation, partnership,
------
limited liability company, joint venture, association, joint-stock company,
trust, unincorporated organization,
<PAGE>
-15-
government or any agency or political subdivision thereof or any other entity,
including any predecessor of any such entity.
(b) Warrants may be exercised on or after the date they are
exercisable hereunder by (i) surrendering at any office or agency maintained for
that purpose by Holdings pursuant to Section 1.10 (each a "Warrant Exercise
----------------
Office") the Warrant Certificate evidencing such Warrants with the form of
- ------
election to exercise Shares set forth on the reverse side of the Warrant
Certificate (the "Election to Exercise") duly completed and signed by the
--------------------
registered holder or holders thereof or by the duly appointed legal
representative thereof or by a duly authorized attorney, and in the case of a
transfer, such signature shall be guaranteed by an eligible guarantor
institution, and (ii) paying in full the Exercise Price for each such Warrant
exercised. Each Warrant may be exercised only in whole. No exercise of Warrants
may be effected which does not call for the issuance of a number of shares of
Class A Common Stock and a number of shares of Class L Common Stock in direct
proportion (subject only to rounding with respect to fractional shares) to the
aggregate number of shares of Class A Common Stock and the aggregate number of
shares of Class L Common Stock then issuable upon exercise of the Warrants
evidenced by the relevant Warrant Certificate.
(c) Simultaneously with the exercise of each Warrant, payment
in full of the aggregate Exercise Price may be made, at the option of the
holder, (i) by wire transfer or by certified check, (ii) by the surrender (which
surrender shall be evidenced by cancellation of the number of Warrants
represented by any Warrant Certificate presented in connection with a Cashless
Exercise) of a Warrant or Warrants (represented by one or more Warrant
Certificates), and without payment of the Exercise Price in cash, for such
number of Shares equal to the product of (1) the number of Shares for which such
Warrant is exercisable with payment in cash of the aggregate Exercise Price as
of the date of exercise and (2) the Cashless Exercise Ratio or (iii) with any
combination of (i) and (ii). For purposes of this Agreement, the "Cashless
--------
Exercise Ratio" shall equal a fraction, the numerator of which is the excess of
- --------------
the Current Market Value per share of the Common Stock on the date of exercise
over the Exercise Price per share as of the date of exercise and the denominator
of which is the Current Market Value per share of the Common Stock on the date
of exercise. An exercise of a Warrant in accordance with the immediately
preceding sentences is herein called a "Cashless Exercise." Upon surrender of a
-----------------
Warrant Certificate representing more than one Warrant in connection with the
holder's option to elect a Cashless Exercise, the number of Shares deliverable
upon a Cashless Exercise shall be equal to the Cashless Exercise Ratio
multiplied by the product of (a) the number of Warrants that the holder
specifies is to be exercised pursuant to a Cashless Exercise and (b) the number
of Shares for which such Warrant is then exercisable (without giving effect to
the Cashless Exercise option). All provisions of this Agreement shall be
applicable with respect to an exercise of a Warrant Certificate pursuant to a
Cashless Exercise for less than the full number of Warrants represented thereby.
No payment or adjustment shall be made on account of any dividends on the Shares
issued upon exercise of a Warrant. If Holdings has not effected the registration
under the Securities Act of the offer and sale of the Shares by Holdings to the
holders of the Warrants upon the exercise thereof, Holdings may elect to require
that holders of the Warrants effect the
<PAGE>
-16-
exercise of the Warrants solely pursuant to the Cashless Exercise option and may
also amend the Warrants to eliminate the requirement for payment of the Exercise
Price with respect such Cashless Exercise option. The Warrant Agent shall have
no obligation under this section to calculate the Cashless Exercise Ratio.
Holdings shall calculate the Exercise Price and the Cashless Exercise Ratio
whenever such calculation is necessary and shall deliver an Officers'
Certificate to the Warrant Agent specifying such numbers.
(d) Upon such surrender of a Warrant Certificate and payment
and collection of the Exercise Price at any Warrant Exercise Office (other than
any Warrant Exercise Office that also is an office of the Warrant Agent), such
Warrant Certificate and payment shall be promptly delivered to the Warrant
Agent. The "Exercise Date" for a Warrant shall be the date when all of the items
-------------
referred to in the first sentence of paragraphs (b) and (c) of this Section 2.02
are received by the Warrant Agent at or prior to 11:00 a.m., New York City time,
on a Business Day and the exercise of the Warrants will be effective as of such
Exercise Date. If any items referred to in the first sentence of paragraphs (b)
and (c) are received after 11:00 a.m., New York City time, on a Business Day,
the exercise of the Warrants to which such item relates will be effective on the
next succeeding Business Day. Notwithstanding the foregoing, in the case of an
exercise of Warrants on the Expiration Date, if all of the items referred to in
the first sentence of paragraphs (b) and (c) are received by the Warrant Agent
at or prior to 5:00 p.m., New York City time, on the Expiration Date, the
exercise of the Warrants to which such items relate will be effective on the
Expiration Date.
(e) Upon the exercise of a Warrant in accordance with the
terms hereof, the receipt of a Warrant Certificate and payment of the Exercise
Price (or election of the Cashless Exercise option), the Warrant Agent shall:
(i) except to the extent exercise of the Warrant has been effected through
Cashless Exercise, cause an amount equal to the aggregate Exercise Price to be
paid to Holdings by crediting the same to the account designated by Holdings in
writing to the Warrant Agent for that purpose; (ii) advise Holdings immediately
by telephone of the amount so deposited to Holdings' account and promptly
confirm such telephonic advice in writing; and (iii) as soon as practicable,
advise Holdings in writing of the number of Warrants exercised in accordance
with the terms and conditions of this Agreement and the Warrant Certificates,
the instructions of each exercising holder of the Warrant Certificates with
respect to delivery of the Shares to which such holder is entitled upon such
exercise, and such other information as Holdings shall reasonably request.
(f) Subject to Section 5.02 hereof, as soon as practicable
after the exercise of any Warrant or Warrants in accordance with the terms
hereof, Holdings shall issue or cause to be issued to or upon the written order
of the registered holder of the Warrant Certificate evidencing such exercised
Warrant or Warrants, a certificate or certificates evidencing the Shares to
which such holder is entitled, in fully registered form, registered in such name
or names as may be directed by such holder pursuant to the Election to Exercise,
as set forth on the reverse of the Warrant Certificate. Such certificate or
certificates evidencing the Shares shall be deemed to have been issued and any
persons who are designated to be named therein shall be deemed to
<PAGE>
-17-
have become the holder of record of such Shares as of the close of business on
the Exercise Date; the Shares may initially be issued in global form (the
"Global Shares"). Such Global Shares shall represent such of the outstanding
-------------
Shares as shall be specified therein and each shall provide that it shall
represent the aggregate amount of outstanding Shares from time to time endorsed
thereon and that the aggregate amount of outstanding Shares represented thereby
may from time to time be reduced or increased, as appropriate. Any endorsement
of a Global Share to reflect the amount of any increase or decrease in the
amount of outstanding Shares represented thereby shall be made by the registrar
for the Shares and the Depository (referred to below) in accordance with
instructions given by the holder thereof. The Depository Trust Company shall (if
possible) act as the Depository with respect to the Global Shares until a
successor shall be appointed by Holdings and the registrar for the Shares. After
such exercise of any Warrant or Shares, Holdings shall also issue or cause to be
issued to or upon the written order of the registered holder of such Warrant
Certificate, a new Warrant Certificate, countersigned by the Warrant Agent
pursuant to written instruction, evidencing the number of Warrants, if any,
remaining unexercised unless such Warrants shall have expired.
SECTION 2.03. Cancellation of Warrant Certificates. In the
------------------------------------
event Holdings shall purchase or otherwise acquire Warrants, the Warrant
Certificates evidencing such Warrants may thereupon be delivered to the Warrant
Agent, and if so delivered, shall at Holdings' written instruction be canceled
by it and retired. The Warrant Agent shall cancel all Warrant Certificates
properly surrendered for exchange, substitution, transfer or exercise in
accordance with its customary procedures.
SECTION 2.04. Notice of an Exercise Event. Holdings shall, as
---------------------------
soon as practicable after the occurrence of an Exercise Event, send or cause to
be sent to each holder of Warrants, by first-class mail, at the addresses
appearing on the Warrant Register, a notice prepared by Holdings advising such
holder of the Exercise Event which has occurred, which notice shall describe the
type of Exercise Event and the date of the occurrence thereof, as applicable,
and the date of expiration of the right to exercise the Warrants prominently set
forth in the face of such notice. Holdings agrees to make available the
foregoing right notwithstanding any other provision herein to the contrary.
ARTICLE III
OTHER PROVISIONS RELATING TO
RIGHTS OF HOLDERS OF WARRANTS
-----------------------------
SECTION 3.01. Enforcement of Rights. (a) Notwithstanding any
---------------------
of the provisions of this Agreement, any holder of any Warrant Certificate,
without the consent of the Warrant Agent, the holder of any Shares or the holder
of any other Warrant Certificate, may, in and for his own behalf, enforce, and
may institute and maintain any suit, action or proceeding against Holdings
suitable to enforce, his right to exercise the Warrant or Warrants evidenced by
his Warrant Certificate in the manner provided in such Warrant Certificate and
in this Agreement.
<PAGE>
-18-
(b) Neither the Warrants nor any Warrant Certificate shall entitle the
holders thereof to any of the rights of a holder of Shares, including, without
limitation, the right to vote or to receive any dividends or other payments or
to consent or to receive notice as stockholders in respect of the meetings of
stockholders or for the election of directors of Holdings or any other matter,
or any rights whatsoever as stockholders of Holdings, except as expressly
provided herein (including Section 5.03 hereof).
ARTICLE IV
CERTAIN COVENANTS OF THE COMPANY
--------------------------------
SECTION 4.01. Payment of Taxes. Holdings will pay all documentary
----------------
stamp taxes attributable to the initial issuance of Warrants and of the Shares
upon the exercise of Warrants; provided, however, that Holdings shall not be
-------- -------
required to pay any tax or other governmental charge which may be payable in
respect of any transfer or exchange of any Warrant Certificates or any
certificates for Shares in a name other than the registered holder of a Warrant
Certificate surrendered upon the exercise of a Warrant. In any such case, no
transfer or exchange shall be made unless or until the person or persons
requesting issuance thereof shall have paid to Holdings the amount of such tax
or other governmental charge or shall have established to the satisfaction of
Holdings that such tax or other governmental charge has been paid or an
exemption is available therefrom.
SECTION 4.02. Rules 144 and 144A. Holdings covenants that it will file
------------------
the reports required to be filed by it under the Securities Act and the Exchange
Act and the rules and regulations adopted by the Securities and Exchange
Commission thereunder in a timely manner in accordance with the requirements of
the Securities Act and the Exchange Act and, if at any time Holdings is not
required to file such reports, it will, upon the request of any holder or
beneficial owner of Warrants, make available such information necessary to
permit sales pursuant to Rule 144A under the Securities Act.
SECTION 4.03. Form of Initial Public Equity Offering. Holdings agrees
--------------------------------------
that it will not make an Initial Public Equity Offering of any class of its
Capital Stock (other than the class to which the Shares belong) without amending
the terms of Holdings' certificate of incorporation to provide that the Shares
are convertible into the class of Capital Stock subject to the Initial Public
Equity Offering (the "Subject Class") on a share-for-share basis and that the
-------------
rights, conditions and privileges of the Subject Class shall not be adverse to
the holders of the Shares.
SECTION 4.04. Registration of Shares. Holdings agrees that it will
----------------------
comply with all applicable laws, including the Securities Act and any applicable
state securities laws, in connection with any offer and sale of Common Stock
(and other securities and property deliverable) upon exercise of the Warrants.
<PAGE>
-19-
ARTICLE V
ADJUSTMENTS
-----------
SECTION 5.01. Adjustment of Exercise Rate; Notices. The Exercise Rate
------------------------------------
is subject to adjustment from time to time as provided in this Section.
(a) Adjustment for Change in Capital Stock. If, after the date
--------------------------------------
hereof, Holdings:
(i) pays a dividend or makes a distribution on any of its Common
Stock in shares of any of its Common Stock (other than any such dividend to
the extent covered by Section 5.03);
(ii) subdivides any of its outstanding shares of Common Stock into a
greater number of shares;
(iii) combines any of its outstanding shares of Common Stock into a
smaller number of shares;
(iv) pays a dividend or makes a distribution on any of its Common
Stock in shares of any of its Capital Stock (as defined below) (other than
Common Stock or rights, warrants, or options for its Common Stock to the
extent such issuance or distribution is covered by Section 5.03); or
(v) issues by reclassification of any of its Common Stock any
shares of any of its Capital Stock;
then the Exercise Rate in effect immediately prior to such action for each
Warrant then outstanding shall be adjusted so that the holder of a Warrant
thereafter exercised may receive the number of shares of Capital Stock of
Holdings which such holder would have owned immediately following such action if
such holder had exercised the Warrant immediately prior to such action or
immediately prior to the record date applicable thereto, if any (regardless of
whether the Warrants then outstanding are then exercisable and without giving
effect to the Cashless Exercise option). If there are no outstanding shares of
Common Stock that are of the same class as the Shares at the time of any such
action and such action has therefore been taken only in respect of the Shares,
the adjustment shall relate to the Shares in their same form if it would not
frustrate the intent and purposes of this Section 5.01.
The adjustment shall become effective immediately after the record
date in the case of a dividend or distribution and immediately after the
effective date in the case of a subdivision, combination or reclassification. In
the event that such dividend or distribution is not so paid or made or such
subdivision, combination or reclassification is not effected, the Exercise Rate
shall again be adjusted to be the Exercise Rate which would then be in effect if
such record date or effective date had not been so fixed.
<PAGE>
-20-
If after an adjustment a holder of a Warrant upon exercise of such
Warrant may receive shares of two or more classes of Capital Stock of Holdings,
the Exercise Rate shall thereafter be subject to adjustment upon the occurrence
of an action taken with respect to any such class of Capital Stock as is
contemplated by this Article V with respect to the Common Stock, on terms
comparable to those applicable to Common Stock in this Article V.
(b) Adjustment for Sale of Common Stock Below Current Market Value.
--------------------------------------------------------------
If, after the date hereof, Holdings grants or sells to any Affiliate of Holdings
(other than a wholly-owned subsidiary) any Common Stock or any securities
convertible into or exchangeable or exercisable for any Common Stock at a price
below the then Current Market Value (other than (1) pursuant to the exercise of
the Warrants, (2) pursuant to any security convertible into, or exchangeable or
exercisable for shares of Common Stock outstanding as of the date of this
Agreement, (3) upon the conversion, exchange or exercise of any convertible,
exchangeable or exercisable security as to which upon the issuance thereof an
adjustment pursuant to this Article V has been made and (4) upon the conversion,
exchange or exercise of convertible, exchangeable or exercisable securities of
Holdings outstanding on the date of this Agreement (to the extent in accordance
with the terms of such securities as in effect on the date of this Agreement),
the Exercise Rate for each Warrant then outstanding shall be adjusted in
accordance with the formula:
E' = E x (O + N)
-------------------
(O + (N x P/M))
where:
E' = the adjusted Exercise Rate for such class of Common Stock;
E = the then current Exercise Rate for such class of Common Stock;
O = the number of shares of such class of Common Stock outstanding on a
fully diluted basis (disregarding for this purpose the convertibility
of shares of Class L Common Stock into Class A Common Stock)
immediately prior to the sale of Common Stock or issuance of
securities convertible, exchangeable or exercisable for Common Stock;
N = the number of shares of such class of Common Stock so sold or the
maximum stated number of shares of Common Stock issuable upon the
conversion, exchange or exercise of any such convertible, exchangeable
or exercisable securities, as the case may be (disregarding for this
purpose the convertibility of shares of Class L Common Stock into
Class A Common Stock);
P = the proceeds per share of Common Stock received by Holdings, which (i)
in the case of shares of Common Stock is the amount received by
Holdings in consideration for the sale and issuance of such shares;
and (ii) in the case of securities convertible into or exchangeable or
exercisable for shares of Common Stock is the
<PAGE>
-21-
amount received by Holdings in consideration for the sale and issuance
of such convertible or exchangeable or exercisable securities, plus
the minimum aggregate amount of additional consideration, other than
the surrender of such convertible or exchangeable securities, payable
to the Company upon exercise, conversion or exchange thereof; and
M = the Current Market Value as of the Time of Determination or at the
time of sale, as the case may be.
The adjustment shall become effective immediately after the record
date for the determination of stockholders entitled to receive the rights,
warrants or options to which this paragraph (b) applies or upon consummation of
the sale of Common Stock, as the case may be. To the extent that shares of
Common Stock are not delivered after the expiration of such rights or warrants,
the Exercise Rate for each Warrant then outstanding shall be readjusted to the
Exercise Rate which would otherwise be in effect had the adjustment made upon
the issuance of such rights or warrants been made on the basis of delivery of
only the number of shares of Common Stock actually delivered. In the event that
such rights or warrants are not so issued, the Exercise Rate for each Warrant
then outstanding shall again be adjusted to be the Exercise Rate which would
then be in effect if such date fixed for determination of stockholders entitled
to receive such rights or warrants had not been so fixed.
No adjustment shall be made under this paragraph (b) if the
application of the formula stated above in this paragraph (b) would result in a
value of E' that is lower than the value of E.
No adjustment in the Exercise Rate shall be made under this paragraph
(b) upon the conversion, exchange or exercise of options to acquire shares of
Common Stock by officers, directors or employees of Holdings; provided that the
--------
exercise price of such options, at the time of issuance thereof, is at least
equal to the then Current Market Value of the Common Stock underlying such
options.
"Affiliate" of any specified Person means any other Person which,
---------
directly or indirectly, controls, is controlled by or is under direct or
indirect common control with such specified Person. For purposes of this
definition, "control" (including, with correlative meanings, the terms
-------
"controlling," "controlled by" and "under common control with") when used with
----------- ------------- -------------------------
respect to any Person means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise.
(c) Notice of Adjustment. Whenever the Exercise Rate is adjusted,
--------------------
Holdings shall promptly mail to holders of Warrants then outstanding at the
addresses appearing on the Warrant Register a notice of the adjustment. Holdings
shall file with the Warrant Agent and any other Registrar such notice and a
certificate from Holdings' independent public accountants briefly stating the
facts requiring the adjustment and the manner of computing it. The certificate
<PAGE>
-22-
shall be conclusive evidence that the adjustment is correct. Neither the Warrant
Agent nor any such Registrar shall be under any duty or responsibility with
respect to any such certificate except to exhibit the same during normal
business hours to any holder desiring inspection thereof.
(d) Reorganization of Company; Special Distributions. (i) If Holdings,
------------------------------------------------
in a single transaction or through a series of related transactions, merges,
consolidates or amalgamates with or into any other person or sells, assigns,
transfers, leases, conveys or otherwise disposes of all or substantially all of
its properties and assets to another person or group of affiliated persons or is
a party to a merger or binding share exchange which reclassifies or changes its
outstanding Common Stock (a "Fundamental Transaction"), as a condition to
-----------------------
consummating any such transaction the person formed by or surviving any such
consolidation or merger if other than Holdings or the person to whom such
transfer has been made (the "Surviving Person") shall enter into a supplemental
----------------
warrant agreement. The supplemental warrant agreement shall provide (a) that the
holder of a Warrant then outstanding may exercise it for the kind and amount of
securities, cash or other assets which such holder would have received
immediately after the Fundamental Transaction if such holder had exercised the
Warrant immediately before the effective date of the transaction (regardless of
whether the Warrants are then exercisable and without giving effect to the
Cashless Exercise option, assuming (to the extent applicable) that such holder
(i) was not a constituent person or an affiliate of a constituent person to such
transaction, (ii) made no election with respect thereto, and (iii) was treated
alike with the plurality of non-electing holders, and (b) that the Surviving
Person shall succeed to and be substituted to every right and obligation of
Holdings in respect of this Agreement and the Warrants. The supplemental warrant
agreement shall provide for adjustments which shall be as nearly equivalent as
may be practicable to the adjustments provided for in this Article V. The
Surviving Person shall mail to holders of Warrants at the addresses appearing on
the Warrant Register a notice briefly describing the supplemental warrant
agreement. If the issuer of securities deliverable upon exercise of Warrants is
an affiliate of the Surviving Person, that issuer shall join in the supplemental
warrant agreement.
(ii) Notwithstanding the foregoing, if Holdings enters into a
Fundamental Transaction with another Person (other than a subsidiary of
Holdings) and consideration is payable to holders of shares of Capital Stock (or
other securities or property) issuable or deliverable upon exercise of the
Warrants that are exercisable in exchange for their shares in connection with
such Fundamental Transaction which consists solely of cash, then the holders of
Warrants shall be entitled to receive distributions on the date of such event on
an equal basis with holders of such shares (or other securities issuable upon
exercise of the Warrants) as if the Warrants had been exercised immediately
prior to such event, less the Exercise Price therefor. Upon receipt of such
payment, if any, the rights of a holder of such a Warrant shall terminate and
cease and such holder's Warrants shall expire.
(iii) If this paragraph (d) applies, it shall supersede the
application of paragraph (a) of this Section 5.01.
<PAGE>
-23-
(e) Company Determination Final. Any determination that Holdings or
---------------------------
the Board of Directors of Holdings must make pursuant to this Article V is
conclusive.
(f) Warrant Agent's Adjustment Disclaimer. The Warrant Agent has no
-------------------------------------
duty to determine when an adjustment under this Article V should be made, how it
should be made or what it should be. The Warrant Agent has no duty to determine
whether a supplemental warrant agreement under paragraph (f) need be entered
into or whether any provisions of any supplemental warrant agreement are
correct. The Warrant Agent shall not be accountable for and makes no
representation as to the validity or value of any securities or assets issued
upon exercise of Warrants. The Warrant Agent shall not be responsible for
Holdings' failure to comply with this Article V.
(g) Adjustment for Tax Purposes. Holdings may make such increases in
---------------------------
the Exercise Rate, in addition to those otherwise required by this Section, as
it considers to be advisable in order that any event treated for Federal income
tax purposes as a dividend of stock or stock rights shall not be taxable to the
recipients.
(h) Underlying Shares. Holdings shall at all times reserve and keep
-----------------
available, free from preemptive rights, out of its authorized but unissued
Common Stock or Common Stock held in the treasury of Holdings, for the purpose
of effecting the exercise of Warrants, the full number of Shares then
deliverable upon the exercise of all Warrants then outstanding and payment of
the exercise price, and the shares so deliverable shall be fully paid and
nonassessable and free from all liens and security interests.
(i) Specificity of Adjustment. Irrespective of any adjustments in the
-------------------------
number or kind of shares purchasable upon the exercise of the Warrants, Warrant
Certificates theretofore or thereafter issued may continue to express the same
number and kind of Shares per Warrant as are stated on the Warrant Certificates
initially issuable pursuant to this Agreement.
(j) Voluntary Adjustment. Holdings from time to time may increase the
--------------------
Exercise Rate by any number and for any period of time (provided that such
--------
period is not less than 20 Business Days). Whenever the Exercise Rate is so
increased, Holdings shall mail to holders at the addresses appearing on the
Warrant Register and file with the Warrant Agent a notice of the increase.
Holdings shall give the notice at least 15 days before the date the increased
Exercise Rate takes effect. The notice shall state the increased Exercise Rate
and the period it will be in effect. A voluntary increase in the Exercise Rate
does not change or adjust the Exercise Rate otherwise in effect as determined by
this Section 5.01.
(k) Multiple Adjustments. After an adjustment to the Exercise Rate for
--------------------
outstanding Warrants under this Article V, any subsequent event requiring an
adjustment under this Article V shall cause an adjustment to the Exercise Rate
for outstanding Warrants as so adjusted.
(l) Definitions.
-----------
<PAGE>
-24-
"Capital Stock" means, with respect to any person, any and all shares,
-------------
interests, participations, rights in, or other equivalents (however designated
and whether voting or non-voting) of, such person's capital stock, whether
outstanding on the Issue Date (as defined in the Indenture) or issued after the
Issue Date, and any and all rights, warrants or options exchangeable for or
convertible into such capital stock.
"Current Market Value" per share of Common Stock of Holdings or any
--------------------
other security at any date means (i) if the security is not registered under the
Exchange Act, (a) the fair market value of the security, determined in good
faith by the Board of Directors of Holdings if the aggregate amount of such
security to be issued is less than or equal to $20.0 million, or if the
aggregate amount of such security exceeds $20.0 million, as determined by an
Independent Financial Expert (provided that, in the case of the calculation of
Current Market Value for determining the cash value of fractional shares, any
such determination within six months that is, in the good faith judgment of the
Board, a reasonable determination of value, may be utilized) or (ii) (a) if the
security is registered under the Exchange Act, the average of the daily closing
sales prices of the securities for the 20 consecutive days immediately preceding
such date, or (b) if the security has been registered under the Exchange Act for
less than 20 consecutive days immediately preceding such date, then the average
of the closing sales prices for all of the trading days before such date for
which closing sales prices are available, in the case of each of (ii)(a) and
(ii)(b), as certified to the Warrant Agent by the President, any Vice President
or the Chief Financial Officer of Holdings. The closing sales price for each
such trading day shall be: (A) in the case of a security listed or admitted to
trading on any United States national securities exchange or quotation system,
the closing sales price, regular way, on such day, or if no sale takes place on
such day, the average of the closing bid and asked prices on such day, (B) in
the case of a security not then listed or admitted to trading on any United
States national securities exchange or quotation system, the last reported sale
price on such day, or if no sale takes place on such day, the average of the
closing bid and asked prices on such day, as reported by a reputable quotation
source designated by Holdings, (C) in the case of a security not then listed or
admitted to trading on any United States national securities exchange or
quotation system and as to which no such reported sale price or bid and asked
prices are available, the average of the reported high bid and low asked prices
on such day, as reported by a reputable quotation service, or a newspaper of
general circulation in the Borough of Manhattan, City and State of New York
customarily published on each Business Day, designated by Holdings, or, if there
shall be no bid and asked prices on such day, the average of the high bid and
low asked prices, as so reported, on the most recent day (not more than 30 days
prior to the date in question) for which prices have been so reported and (D) if
there are not bid and asked prices reported during the 30 days prior to the date
in question, the Current Market Value shall be determined as if the Shares (or
other securities) were not registered under the Exchange Act.
"Independent Financial Expert" means a United States investment
----------------------------
banking firm of national or regional standing in the United States (i) which
does not, and whose directors, officers and employees or Affiliates do not have
a direct or indirect material financial interest for its proprietary account in
Holdings or any of its Affiliates and (ii) which, in the judgment of the
<PAGE>
-25-
Board of Directors of Holdings, is otherwise independent with respect to
Holdings and its Affiliates and qualified to perform the task for which it is to
be engaged.
"Time of Determination" means, (i) in the case of any distribution of
---------------------
securities or other property to existing stockholders to which paragraph (b)
applies, the time and date of the determination of stockholders entitled to
receive such securities or property or (ii) in the case of any other issuance
and sale to which paragraph (b) applies, the time and date of such issuance or
sale.
(m) When De Minimis Adjustment may be Deferred. No Adjustment in the
------------------------------------------
Exercise Rate need be made unless the adjustment would require an increase of at
least 1% in the Exercise Rate. Any adjustments that are not made shall be
carried forward and taken into account in any subsequent adjustments. All
calculations under this Section 5 shall be made to the nearest 1/1000th of a
share, as the case may be.
SECTION 5.02. Fractional Shares. Holdings will not be required to
-----------------
issue fractional Shares upon exercise of the Warrants or distribute Share
certificates that evidence fractional Shares. In the event a holder is required
by Section 2.02(c) to make a Cashless Exercise, the number of Shares issuable
shall be rounded up to the nearest whole number. In addition, in no event shall
any holder of Warrants be required to make any payment of a fractional cent. In
lieu of fractional Shares, there shall be paid to the registered holders of
Warrant Certificates at the time Warrants evidenced thereby are exercised as
herein provided an amount in cash equal to the same fraction of the Current
Market Value, per Share on the Business Day preceding the date the Warrant
Certificates evidencing such Warrants are surrendered for exercise. Such
payments will be made by check or by transfer to an account maintained by such
registered holder with a bank in The City of New York. If any holder surrenders
for exercise more than one Warrant Certificate, the number of Shares deliverable
to such holder may, at the option of Holdings, be computed on the basis of the
aggregate amount of all the Warrants exercised by such holder.
SECTION 5.03. Certain Distributions. If at any time Holdings grants,
---------------------
issues or sells options, convertible securities, or rights to purchase Capital
Stock, warrants or other securities pro rata to the record holders of any Common
Stock (the "Distribution Rights") or, without duplication, makes any dividend or
-------------------
otherwise makes any distribution, including, subject to applicable law, pursuant
to any plan of liquidation ("Distribution") on Common Stock (whether in cash,
------------
property, evidences of indebtedness or otherwise), then Holdings shall grant,
issue, sell or make to each registered holder of Warrants then outstanding, the
aggregate Distribution Rights or Distribution, as the case may be, which such
holder would have acquired if such holder had held the maximum number of Shares
acquirable upon complete exercise of such holder's Warrants (regardless of
whether the Warrants are then exercisable and without giving effect to the
Cashless Exercise option) immediately before the record date for the grant,
issuance or sale of such Distribution Rights or Distribution, as the case may
be, or, if there is no such record date, the date as of which the record holders
of Common Stock are to be determined for the grant, issue or sale of such
Distribution Rights or Distribution, as the case may be.
<PAGE>
-26-
ARTICLE VI
CONCERNING THE WARRANT AGENT
----------------------------
SECTION 6.01. Warrant Agent. Holdings hereby appoints State
-------------
Street Bank and Trust Company as Warrant Agent of Holdings in respect of the
Warrants and the Warrant Certificates upon the terms and subject to the
conditions herein and in the Warrant Certificates set forth; and State Street
Bank and Trust Company hereby accepts such appointment. The Warrant Agent shall
have the powers and authority specifically granted to and conferred upon it in
the Warrant Certificates and hereby and such further powers and authority to act
on behalf of Holdings as Holdings may hereafter grant to or confer upon it and
it shall accept in writing. All of the terms and provisions with respect to such
powers and authority contained in the Warrant Certificates are subject to and
governed by the terms and provisions hereof. The Warrant Agent may act through
agents and shall not be responsible for the misconduct or negligence of any such
agent appointed with due care.
SECTION 6.02. Conditions of Warrant Agent's Obligations. The
-----------------------------------------
Warrant Agent accepts its obligations herein set forth upon the terms and
conditions hereof and in the Warrant Certificates, including the following, to
all of which Holdings agrees and to all of which the rights hereunder of the
holders from time to time of the Warrant Certificates shall be subject:
(a) The Warrant Agent shall be entitled to compensation to be
agreed upon with Holdings in writing for all services rendered by it
and Holdings agrees promptly to pay such compensation and to reimburse
the Warrant Agent for its reasonable out-of-pocket expenses (including
reasonable fees and expenses of counsel) incurred without gross
negligence or willful misconduct on its part in connection with the
services rendered by it hereunder. Holdings also agrees to indemnify
the Warrant Agent and any predecessor Warrant Agent, their directors,
officers, affiliates, agents and employees for, and to hold them and
their directors, officers, affiliates, agents and employees harmless
against, any loss, liability or expense of any nature whatsoever
(including, without limitation, reasonable fees and expenses of
counsel) incurred without gross negligence or willful misconduct on the
part of the Warrant Agent, arising out of or in connection with its
acting as such Warrant Agent hereunder and its exercise of its rights
and performance of its obligations hereunder. The obligations of
Holdings under this Section 6.02 shall survive the exercise and the
expiration of the Warrant Certificates and the resignation and removal
of the Warrant Agent.
(b) In acting under this Agreement and in connection with the
Warrant Certificates, the Warrant Agent is acting solely as agent of
Holdings and does not assume any obligation or relationship of agency
or trust for or with any of the owners or holders of the Warrant
Certificates.
(c) The Warrant Agent may consult with counsel of its
selection and any advice or written opinion of such counsel shall be
full and complete authorization and protection
<PAGE>
-27-
in respect of any action taken, suffered or omitted by it hereunder in
good faith and in accordance with such advice or opinion.
(d) The Warrant Agent shall be fully protected and shall incur
no liability for or in respect of any action taken or omitted to be
taken or thing suffered by it in reliance upon any Warrant Certificate,
notice, direction, consent, certificate, affidavit, opinion of counsel,
instruction, statement or other paper or document reasonably believed
by it to be genuine and to have been presented or signed by the proper
parties.
(e) The Warrant Agent, and its officers, directors, affiliates
and employees ("Related Parties"), may become the owners of, or acquire
---------------
any interest in, Warrant Certificates, shares or other obligations of
Holdings with the same rights that it or they would have it if were not
the Warrant Agent hereunder and, to the extent permitted by applicable
law, it or they may engage or be interested in any financial or other
transaction with Holdings and may act on, or as Depository, trustee or
agent for, any committee or body of holders of shares or other
obligations of Holdings as freely as if it were not the Warrant Agent
hereunder. Nothing in this Agreement shall be deemed to prevent the
Warrant Agent or such Related Parties from acting in any other capacity
for Holdings.
(f) The Warrant Agent shall not be under any liability for
interest on, and shall not be required to invest, any monies at any
time received by it pursuant to any of the provisions of this Agreement
or of the Warrant Certificates.
(g) The Warrant Agent shall not be under any responsibility in
respect of the validity of this Agreement (or any term or provision
hereof) or the execution and delivery hereof (except the due execution
and delivery hereof by the Warrant Agent) or in respect of the validity
or execution of any Warrant Certificate (except its authentication
thereof).
(h) The recitals and other statements contained herein and in
the Warrant Certificates (except as to the Warrant Agent's
authentication thereon) shall be taken as the statements of Holdings
and the Warrant Agent assumes no responsibility for the correctness of
the same. The Warrant Agent does not make any representation as to the
validity or sufficiency of this Agreement or the Warrant Certificates,
except for its due execution and delivery of this Agreement; provided,
--------
however, that the Warrant Agent shall not be relieved of its duty to
-------
authenticate the Warrant Certificates as authorized by this Agreement.
The Warrant Agent shall not be accountable for the use or application
by Holdings of the proceeds of the exercise of any Warrant.
(i) Before the Warrant Agent acts or refrains from acting with
respect to any matter contemplated by this Warrant Agreement, it may
require:
(1) an Officers' Certificate (as defined in the
Indenture) stating on behalf of Holdings that, in the opinion
of the signers, all conditions precedent, if
<PAGE>
-28-
any, provided for in this Warrant Agreement relating to the
proposed action have been complied with; and
(2) if reasonably necessary in the sole judgment of
the Warrant Agent, an opinion of counsel for Holdings stating
that, in the opinion of such counsel, all such conditions
precedent have been complied with provided that such matter is
one customarily opined on by counsel.
Each Officers' Certificate or, if requested, an opinion of
counsel with respect to compliance with a condition or covenant
provided for in this Warrant Agreement shall include:
(1) a statement that the person making such
certificate or opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of
the examination or investigation upon which the statements or
opinions contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such person,
he or she has made such examination or investigation as is
necessary to enable him or her to express an informed opinion
as to whether or not such covenant or condition has been
complied with; and
(4) a statement as to whether or not, in the opinion
of such person, such condition or covenant has been complied
with.
(j) The Warrant Agent shall be obligated to perform such
duties as are herein and in the Warrant Certificates specifically set
forth and no implied duties or obligations shall be read into this
Agreement or the Warrant Certificates against the Warrant Agent. The
Warrant Agent shall not be accountable or under any duty or
responsibility for the use by Holdings of any of the Warrant
Certificates authenticated by the Warrant Agent and delivered by it to
Holdings pursuant to this Agreement. The Warrant Agent shall have no
duty or responsibility in case of any default by Holdings in the
performance of its covenants or agreements contained in the Warrant
Certificates or in the case of the receipt of any written demand from a
holder of a Warrant Certificate with respect to such default,
including, without limiting the generality of the foregoing, any duty
or responsibility to initiate or attempt to initiate any proceedings at
law or otherwise or, except as provided in Section 7.02 hereof, to make
any demand upon Holdings.
(k) Unless otherwise specifically provided herein, any order,
certificate, notice, request, direction or other communication from
Holdings made or given under any provision of this Agreement shall be
sufficient if signed by its chairman of the Board of
<PAGE>
-29-
Directors, its president, its treasurer, its controller or any vice
president or its secretary or any assistant secretary.
(l) The Warrant Agent shall have no responsibility in respect
of any adjustment pursuant to Article V hereof.
(m) Holdings agrees that it will perform, execute, acknowledge
and deliver, or cause to be performed, executed, acknowledged and
delivered, all such further and other acts, instruments and assurances
as may reasonably be required by the Warrant Agent for the carrying out
or performing by the Warrant Agent of the provisions of this Agreement.
(n) The Warrant Agent is hereby authorized and directed to
accept written instructions with respect to the performance of its
duties hereunder from any one of the chairman of the Board of
Directors, the president, the treasurer, the controller, any vice
president or the secretary or assistant secretary of Holdings or any
other officer or official of Holdings reasonably believed to be
authorized to give such instructions and to apply to such officers or
officials for advice or instructions in connection with its duties, and
it shall not be liable for any action taken or suffered to be taken by
it in good faith in accordance with instructions with respect to any
matter arising in connection with the Warrant Agent's duties and
obligations arising under this Agreement. Such application by the
Warrant Agent for written instructions from Holdings may, at the option
of the Warrant Agent, set forth in writing any action proposed to be
taken or omitted by the Warrant Agent with respect to its duties or
obligations under this Agreement and the date on or after which such
action shall be taken and the Warrant Agent shall not be liable for any
action taken or omitted in accordance with a proposal included in any
such application on or after the date specified therein (which date
shall be not less than 10 Business Days after Holdings receives such
application unless Holdings consents to a shorter period), provided
that (i) such application includes a statement to the effect that it is
being made pursuant to this paragraph (n) and that unless objected to
prior to such date specified in the application, the Warrant Agent will
not be liable for any such action or omission to the extent set forth
in such paragraph (n) and (ii) prior to taking or omitting any such
action, the Warrant Agent has not received written instructions
objecting to such proposed action or omission.
(o) Whenever in the performance of its duties under this
Agreement the Warrant Agent shall deem it necessary or desirable that
any fact or matter be proved or established by Holdings prior to taking
or suffering any action hereunder, such fact or matter (unless other
evidence in respect thereof be herein specifically prescribed) may be
deemed to be conclusively proved and established by a certificate
signed on behalf of Holdings by any one of the chairman of the Board of
Directors, the president, the treasurer, the controller, any vice
president or the secretary or assistant secretary of Holdings or any
other officer or official of Holdings reasonably believed to be
authorized to give such instructions and delivered to the Warrant
Agent; and such certificate shall be full authorization to the War-
<PAGE>
-30-
rant Agent for any action taken or suffered in good faith by it under
the provisions of this Agreement in reliance upon such certificate.
(p) The Warrant Agent shall not be required to risk or expend
its own funds in the performance of its obligations and duties
hereunder.
SECTION 6.03. Resignation and Appointment of Successor. (a)
----------------------------------------
Holdings agrees, for the benefit of the holders from time to time of the Warrant
Certificates, that there shall at all times be a Warrant Agent hereunder.
(b) The Warrant Agent may at any time resign as Warrant Agent
by giving written notice to Holdings of such intention on its part, specifying
the date on which its desired resignation shall become effective; provided,
--------
however, that such date shall be at least 30 days after the date on which such
- -------
notice is given unless Holdings agrees to accept less notice. Upon receiving
such notice of resignation, Holdings shall promptly appoint a successor Warrant
Agent, qualified as provided in Section 6.03(d) hereof, by written instrument in
duplicate signed on behalf of Holdings, one copy of which shall be delivered to
the resigning Warrant Agent and one copy to the successor Warrant Agent. As
provided in Section 6.03(d) hereof, such resignation shall become effective upon
the earlier of (x) the acceptance of the appointment by the successor Warrant
Agent or (y) 30 days after receipt by Holdings of notice of such resignation.
Holdings may, at any time and for any reason, and shall, upon any event set
forth in the next succeeding sentence, remove the Warrant Agent and appoint a
successor Warrant Agent by written instrument in duplicate, specifying such
removal and the date on which it is intended to become effective, signed on
behalf of Holdings, one copy of which shall be delivered to the Warrant Agent
being removed and one copy to the successor Warrant Agent. The Warrant Agent
shall be removed as aforesaid if it shall become incapable of acting, or shall
be adjudged a bankrupt or insolvent, or a receiver of the Warrant Agent or of
its property shall be appointed, or any public officer shall take charge or
control of it or of its property or affairs for the purpose of rehabilitation,
conservation or liquidation. Any removal of the Warrant Agent and any
appointment of a successor Warrant Agent shall become effective upon acceptance
of appointment by the successor Warrant Agent as provided in Section 6.03(d). As
soon as practicable after appointment of the successor Warrant Agent, Holdings
shall cause written notice of the change in the Warrant Agent to be given to
each of the registered holders of the Warrants in the manner provided for in
Section 8.04 hereof.
(c) Upon resignation or removal of the Warrant Agent, if
Holdings shall fail to appoint a successor Warrant Agent within a period of 60
days after receipt of such notice of resignation or removal, then the holder of
any Warrant Certificate or the retiring Warrant Agent may apply to a court of
competent jurisdiction for the appointment of a successor to the Warrant Agent.
Pending appointment of a successor to the Warrant Agent, either by Holdings or
by such a court, the duties of the Warrant Agent shall be carried out by
Holdings.
(d) Any successor Warrant Agent, whether appointed by Holdings
or by a court, shall be a bank or trust company in good standing, incorporated
under the laws of the United
<PAGE>
-31-
States of America or any State thereof and having, at the time of its
appointment, a combined capital surplus of at least $250 million. Such successor
Warrant Agent shall execute and deliver to its predecessor and to Holdings an
instrument accepting such appointment hereunder and all the provisions of this
Agreement, and thereupon such successor Warrant Agent, without any further act,
deed or conveyance, shall become vested with all the rights, powers, duties and
obligations of its predecessor hereunder, with like effect as if originally
named as Warrant Agent hereunder, and such predecessor shall thereupon become
obligated to (i) transfer and deliver, and such successor Warrant Agent shall be
entitled to receive, all securities, records or other property on deposit with
or held by such predecessor as Warrant Agent hereunder and (ii) upon payment of
the amounts then due it pursuant to Section 6.02(a) hereof, pay over, and such
successor Warrant Agent shall be entitled to receive, all monies deposited with
or held by any predecessor Warrant Agent hereunder.
(e) Any corporation or bank into which the Warrant Agent
hereunder may be merged or converted, or any corporation or bank with which the
Warrant Agent may be consolidated, or any corporation or bank resulting from any
merger, conversion or consolidation to which the Warrant Agent shall be a party,
or any corporation or bank to which the Warrant Agent shall sell or otherwise
transfer all or substantially all of its corporate trust business, shall be the
successor to the Warrant Agent under this Agreement (provided that such
corporation or bank shall be qualified as aforesaid) without the execution or
filing of any document or any further act on the part of any of the parties
hereto.
(f) No Warrant Agent under this Warrant Agreement shall be
personally liable for any action or omission of any successor Warrant Agent.
ARTICLE VII
MISCELLANEOUS
-------------
SECTION 7.01. Amendment. This Agreement and the terms of the
---------
Warrants may be amended by Holdings and the Warrant Agent, without the consent
of the holder of any Warrant Certificate, for the purpose of curing any
ambiguity, or of curing, correcting or supplementing any defective or
inconsistent provision contained herein or therein, or to effect any assumptions
of Holdings' obligations hereunder and thereunder by a successor corporation
under the circumstances described in Section 5.01(d) hereof or in any other
manner which Holdings may deem necessary or desirable and which shall not
adversely affect the interests of the holders of the Warrant Certificates.
Holdings and the Warrant Agent may amend, modify or supplement
this Agreement and the terms of the Warrants, and waivers to departures from the
terms hereof and thereof may be given, with the consent of the Requisite Warrant
Holders (as defined below) for the purpose of adding any provision to or
changing in any manner or eliminating any of the provisions of this Agreement or
modifying in any manner the rights of the holders of the outstanding Warrants;
provided, however, that no such modification that increases the Exercise Price
- -------- -------
or decreases
<PAGE>
-32-
the Exercise Rate, makes any change to the last paragraph of Section 5.01(d),
reduces the period of time during which the Warrants are exercisable hereunder,
or effects any change to this Section 7.01 may be made with respect to any
Warrant without the consent of the holder of such Warrant. "Requisite Warrant
-----------------
Holders" means (i) in the case of any amendment, modification, supplement or
- -------
waiver affecting Warrant Holders, the holders of a majority in number of the
outstanding Warrants so affected, or (ii) in the case of any amendment,
modification, supplement or waiver affecting Warrant Holders, a majority in
number of Shares represented by the Warrants that would be issuable assuming
exercise thereof at the time such amendment, modification, supplement or waiver
is voted upon. Notwithstanding any other provision of this Agreement, the
Warrant Agent's consent must be obtained regarding any supplement or amendment
which alters the Warrant Agent's rights or duties (it being expressly understood
that the foregoing shall not be in derogation of the right of Holdings to remove
the Warrant Agent in accordance with Section 6.03 hereof). For purposes of any
amendment, modification or waiver hereunder, Warrants held by Holdings or any of
its Affiliates shall be disregarded.
Any modification or amendment made in accordance with this
Agreement will be conclusive and binding on all present and future holders of
Warrant Certificates whether or not they have consented to such modification or
amendment or waiver and whether or not notation of such modification or
amendment is made upon such Warrant Certificates. Any instrument given by or on
behalf of any holder of a Warrant Certificate in connection with any consent to
any modification or amendment will be conclusive and binding on all subsequent
holders of such Warrant Certificate.
SECTION 7.02. Notices and Demands to Holdings and Warrant
-------------------------------------------
Agent. If the Warrant Agent shall receive any notice or demand addressed to
- -----
Holdings by the holder of a Warrant Certificate pursuant to the provisions
hereof or of the Warrant Certificates, the Warrant Agent shall promptly forward
such notice or demand to Holdings.
SECTION 7.03. Addresses for Notices to Parties and for
----------------------------------------
Transmission of Documents. All notices hereunder to the parties hereto shall be
- -------------------------
deemed to have been given when sent by certified or registered mail, postage
prepaid, or by facsimile transmission, confirmed by first class mail, postage
prepaid, addressed to any party hereto as follows:
To Holdings:
Mattress Discounters Holding Corporation
c/o Bain Capital Inc.
Two Copley Place
Boston, MA 02116
Attention: Michael Krupka
Facsimile: (617) 572-3274
Telephone: (617) 572-2753
<PAGE>
-33-
To the Warrant Agent:
State Street Bank and Trust Company
Goodwin Square, 225 Asylum Street, 23rd Floor
Hartford, CT 06103
Attention: Corporate Trust Administration
Facsimile: (880) 244-1889
Telephone: (860) 244-1813
Attention: Corporate Trust Department
or at any other address of which either of the foregoing shall have notified the
other in writing.
SECTION 7.04. Notices to Holders. Notices to holders of
------------------
Warrants shall be mailed to such holders at the addresses of such holders as
they appear in the Warrant Register. Any such notice shall be sufficiently given
if sent by first-class mail, postage prepaid.
SECTION 7.05. APPLICABLE LAW; SUBMISSION TO JURISDICTION. THE
------------------------------------------
VALIDITY, INTERPRETATION AND PERFORMANCE OF THIS AGREEMENT AND EACH WARRANT
CERTIFICATE ISSUED HEREUNDER AND OF THE RESPECTIVE TERMS AND PROVISIONS THEREOF
SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO
THE CONFLICT OF LAWS PROVISIONS THEREOF.
SECTION 7.06. Persons Having Rights Under Agreement. Nothing
-------------------------------------
in this Agreement expressed or implied and nothing that may be inferred from any
of the provisions hereof is intended, or shall be construed, to confer upon, or
give to, any person or corporation other than Holdings, the Warrant Agent, the
holders of the Warrant Certificates and, with respect to Sections 4.04 and 4.05,
the holders of Shares issued pursuant to Warrants, any right, remedy or claim
under or by reason of this Agreement or of any covenant, condition, stipulation,
promise or agreement hereof; and all covenants (except for Section 4.04 which
shall be for the benefit of all holders of Shares issued pursuant to Warrants),
conditions, stipulations, promises and agreements in this Agreement contained
shall be for the sole and exclusive benefit of Holdings and the Warrant Agent
and their successors and of the holders of the Warrant Certificates.
SECTION 7.07. Headings. The descriptive headings of the
--------
several Articles and Sections of this Agreement are inserted for convenience
only and shall not control or affect the meaning or construction of any of the
provisions hereof.
SECTION 7.08. Counterparts. This Agreement may be executed in
------------
any number of counterparts, each of which so executed shall be deemed to be an
original; but such counterparts shall together constitute but one and the same
instrument.
<PAGE>
-34-
SECTION 7.09. Inspection of Agreement. A copy of this
-----------------------
Agreement shall be available during regular business hours at the principal
corporate trust office of the Warrant Agent, for inspection by the holder of any
Warrant Certificate. The Warrant Agent may require such holder to submit his
Warrant Certificate for inspection by it.
SECTION 7.10. Availability of Equitable Remedies. Since a
----------------------------------
breach of the provisions of this Agreement could not adequately be compensated
by money damages, holders of Warrants shall be entitled, in addition to any
other right or remedy available to them, to an injunction restraining such
breach or a threatened breach and to specific performance of any such provision
of this Agreement, and in either case no bond or other security shall be
required in connection therewith, and the parties hereby consent to such
injunction and to the ordering of specific performance.
SECTION 7.11. Obtaining of Governmental Approvals. Holdings
-----------------------------------
will from time to time take all action required to be taken by it which may be
necessary to obtain and keep effective any and all permits, consents and
approvals of governmental agencies and authorities and securities acts filings
under United States Federal and state laws, and the rules and regulations of all
stock exchanges on which the Warrants are listed which may be or become
requisite in connection with the issuance, sale, transfer, and delivery of the
Warrant Certificates, the exercise of the Warrants or the issuance, sale,
transfer and delivery of the Shares issued upon exercise of the Warrants.
[Signature Page Follows]
<PAGE>
S-1
IN WITNESS WHEREOF, this Warrant Agreement has been duly
executed by the parties hereto as of the day and year first above written.
MATTRESS DISCOUNTERS HOLDING CORPORATION
By: /s/ Michael A. Krupka
----------------------------
Name: Michael A. Krupka
Title: President
STATE STREET BANK AND TRUST COMPANY
as Warrant Agent
By: /s/ Laurel Melody - Casasanta
----------------------------
Name: Laurel Melody - Casasanta
Title:
<PAGE>
EXHIBIT A
---------
[FORM OF WARRANT CERTIFICATE]
[FACE]
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE
OR OTHER JURISDICTION. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION
HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH
TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO
OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE
RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE
ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH HOLDINGS OR ANY AFFILIATE
OF HOLDINGS WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH
SECURITY), ONLY (A) TO HOLDINGS, (B) PURSUANT TO A REGISTRATION STATEMENT THAT
HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE
SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT
REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A
UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT
OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS
BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES THAT OCCUR
OUTSIDE THE UNITED STATES IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES
ACT, (E) TO AN "ACCREDITED INVESTOR" WITHIN THE MEANING OF RULE 501(a)(1), (2),
(3) OR (7) UNDER THE SECURITIES ACT THAT IS AN INSTITUTIONAL INVESTOR ACQUIRING
THE SECURITY FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL
ACCREDITED INVESTOR, IN EACH CASE IN A MINIMUM PRINCIPAL AMOUNT OF THE
SECURITIES OF $250,000, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO OR FOR
OFFER OR SALE IN CONNECTION WITH ANY OTHER DISTRIBUTION IN VIOLATION OF THE
SECURITIES ACT OR (F) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO HOLDINGS' AND THE
WARRANT AGENT'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO
CLAUSE (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL,
CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND IN THE
CASE OF THE FOREGOING CLAUSE (E), A CERTIFICATE OF TRANSFER (A FORM OF WHICH MAY
BE OBTAINED FROM HOLDINGS OR THE WARRANT AGENT) COMPLETED AND
A-1
<PAGE>
DELIVERED BY THE TRANSFEROR TO HOLDINGS AND THE WARRANT AGENT. THIS LEGEND WILL
BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION
TERMINATION DATE.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
A COMMON STOCK REGISTRATION RIGHTS AGREEMENT DATED AS OF AUGUST 6, 1999 AMONG
HOLDINGS, MATTRESS DISCOUNTERS HOLDING L.L.C. AND CHASE SECURITIES INC., CIBC
WORLD MARKETS CORP. AND BANCBOSTON ROBERTSON STEPHENS INC., A COPY OF WHICH IS
ON FILE WITH THE WARRANT AGENT.
A-2
<PAGE>
CUSIP #[ ]
No. [_] [_] Warrants
WARRANT CERTIFICATE
MATTRESS DISCOUNTERS HOLDING CORPORATION
This Warrant Certificate certifies that [_], or registered
assigns, is the registered holder of [_] Warrants (the "Warrants") to purchase
--------
shares of Class A Common Stock, par value $0.01 per share and Class L Common
Stock, par value $0.01 per share (collectively, the "Common Stock"), of MATTRESS
DISCOUNTERS HOLDING CORPORATION, a Virginia corporation ("Holdings", which term
--------
includes its successors and assigns). Each Warrant entitles the holder to
purchase from Holdings at any time from 9:00 a.m. New York City time on or after
the Exercisability Date until 5:00 p.m., New York City time, on July 15, 2007
(the "Expiration Date"), 4.850 fully paid, registered and non-assessable shares
---------------
of Class A Common Stock and 0.539 fully paid, registered and non-assessable
shares of Class L Common Stock subject to adjustment as provided in Article V of
the Warrant Agreement, at the exercise price of $0.01 for each share purchased
(the "Exercise Price") (the shares of Common Stock purchasable upon exercise of
--------------
a Warrant being herein referred to as the "Shares" and, unless the context
------
otherwise requires, such term shall also mean the other securities or property
purchasable and deliverable upon exercise of a Warrant as provided in the
Warrant Agreement), upon surrender of this Warrant Certificate and payment of
the Exercise Price (i) by wire transfer or certified check, (ii) pursuant to the
next sentence or (iii) in any combination of (i) and (ii), at any office or
agency maintained for that purpose by Holdings (the "Warrant Agent Office"),
subject to the conditions set forth herein and in the Warrant Agreement. A
Warrant may also be exercised solely by the surrender of the Warrant, and
without the payment of the Exercise Price in cash, for such number of Shares
equal to the product of (1) the number of Shares for which such Warrant is
exercisable with payment of the Exercise Price as of the date of exercise and
(2) the Cashless Exercise Ratio. For purposes of this Warrant, the "Cashless
Exercise Ratio" shall equal a fraction, the numerator of which is the excess of
the Current Market Value per share of the Common Stock on the date of exercise
over the Exercise Price per share as of the date of exercise and the denominator
of which is the Current Market Value per share of the Common Stock on the date
of exercise. An exercise of a Warrant in accordance with the immediately
preceding sentences is herein called a "Cashless Exercise." Upon surrender of a
Warrant Certificate representing more than one Warrant in connection with the
Holder's option to elect a Cashless Exercise, the number of Shares deliverable
upon a Cashless Exercise shall be equal to the Cashless Exercise Ratio
multiplied by the product of (a) the number of Warrants that the holder
specifies is to be exercised pursuant to a Cashless Exercise and (b) the number
of Shares for which such Warrant is then exercisable (without giving effect to
the Cashless Exercise Option). If Holdings has not effected the registration
under the Securities Act of the offer and sale of the Shares by Holdings to the
holders of the Warrants upon the exercise thereof, Holdings may elect to require
that holders of the Warrants effect the exercise of the Warrants solely pursuant
to the Cashless Exercise option and may also amend the Warrants to eliminate the
requirement for payment of the Exercise Price with
A-3
<PAGE>
respect to such Cashless Exercise option. All provisions of the Warrant
Agreement shall be applicable with respect to an exercise of a Warrant
Certificate pursuant to a Cashless Exercise for less than the full number of
Warrants represented thereby. Capitalized terms used herein without being
defined herein shall have the definitions ascribed to such terms in the Warrant
Agreement.
"Current Market Value" per share of Common Stock of Holdings
--------------------
or any other security at any date means (i) if the security is not registered
under the Exchange Act, (a) the fair market value of the security, determined in
good faith by the Board of Directors of Holdings if the aggregate amount of such
security to be issued is less than or equal to $20.0 million, or if the
aggregate amount of such security exceeds $20.0 million, as determined by an
Independent Financial Expert (provided that, in the case of the calculation of
--------
Current Market Value for determining the cash value of fractional shares, any
such determination within six months that is, in the good faith judgment of the
Board, a reasonable determination of value, may be utilized) or (ii) (a) if the
security is registered under the Exchange Act, the average of the daily closing
sales prices of the securities for the 20 consecutive trading days immediately
preceding such date, or (b) if the security has been registered under the
Exchange Act for less than 20 consecutive trading days before such date, then
the average of the closing sales prices for all of the trading days before such
date for which closing sales prices are available, in the case of each of
(ii)(a) and (ii)(b), as certified to the Warrant Agent by the President, any
Vice President or the Chief Financial Officer of Holdings. The closing sales
price for each such trading day shall be: (A) in the case of a security listed
or admitted to trading on any United States national securities exchange or
quotation system, the closing sales price, regular way, on such day, or if no
sale takes place on such day, the average of the closing bid and asked prices on
such day, (B) in the case of a security not then listed or admitted to trading
on any United States national securities exchange or quotation system, the last
reported sale price on such day, or if no sale takes place on such day, the
average of the closing bid and asked prices on such day, as reported by a
reputable quotation source designated by Holdings, (C) in the case of a security
not then listed or admitted to trading on any United States national securities
exchange or quotation system and as to which no such reported sale price or bid
and asked prices are available, the average of the reported high bid and low
asked prices on such day, as reported by a reputable quotation service, or a
newspaper of general circulation in the Borough of Manhattan, City and State of
New York customarily published on each Business Day, designated by Holdings, or,
if there shall be no bid and asked prices on such day, the average of the high
bid and low asked prices, as so reported, on the most recent day (not more than
30 days prior to the date in question) for which prices have been so reported
and (D) if there are not bid and asked prices reported during the 30 days prior
to the date in question, the Current Market Value shall be determined as if the
Shares (or other securities) were not registered under the Exchange Act.
"Exercise Event" means, with respect to each Warrant, the date
--------------
of the occurrence of the earliest of: (1) an Initial Public Equity Offering (as
defined in the Warrant Agreement), (2) a class of equity securities of Holdings
is listed on a national securities exchange or authorized for quotation on the
Nasdaq National Market or is otherwise subject to registration under the
Exchange Act or (3) the Separability Date.
A-4
<PAGE>
"Independent Financial Expert" means a United States
----------------------------
investment banking firm of national or regional standing, (i) which does not,
and whose directors, officers and employees or Affiliates do not have a direct
or indirect material financial interest for its proprietary account in Holdings
or any of its Affiliates and (ii) which, in the judgment of the Board of
Directors of Holdings, is otherwise independent with respect to Holdings and its
Affiliates and qualified to perform the task for which it is to be engaged.
"Separability Date" shall mean the earliest to occur of: (1)
-----------------
180 days after the Issue Date (as defined in the Indenture); (2) the occurrence
of a Change of Control (as defined in the Indenture); (3) the occurrence of an
Event of Default (as defined in the Indenture); (4) the effectiveness of a
registration statement under the Securities Act of 1933, as amended (the
"Securities Act") with respect to the Notes or the Exchange Notes (as defined in
--------------
the Indenture); or (5) such earlier date as determined by Chase Securities Inc.
in its discretion and specified to Holdings, the Trustee, the Warrant Agent and
the Unit Agent in writing. The separation of the Warrants and the Notes is
herein referred to as a "Separation."
----------
No exercise of the Warrants may be effected which does not
call for the issuance of a number of shares of Class A Common Stock and a number
of shares of Class L Common Stock in direct proportion (subject only to rounding
with respect to fractional shares) to the aggregate number of shares of Class A
Common Stock and the aggregate number of shares of Class L Common Stock then
issuable upon exercise of the Warrants evidenced hereby.
Holdings has initially designated the principal corporate
trust office of the Warrant Agent in the Borough of Manhattan, The City of New
York, as the initial Warrant Agent Office. The number of Shares issuable upon
exercise of the Warrants ("Exercise Rate") is subject to adjustment upon the
-------------
occurrence of certain events set forth in the Warrant Agreement.
Any Warrants not exercised on or prior to 5:00 p.m., New York
City time, on July 15, 2007 shall thereafter be void.
If Holdings merges, amalgamates or consolidates with or into,
or sells all or substantially all of its property and assets to, another Person
solely for cash, the holders of Warrants shall be entitled to receive
distributions on the date of such event on an equal basis with holders of Shares
(or other securities issuable upon exercise of the Warrants) as if the Warrants
had been exercised immediately prior to such event (less the Exercise Price).
Reference is hereby made to the further provisions on the
reverse hereof which provisions shall for all purposes have the same effect as
though fully set forth at this place.
This Warrant Certificate shall not be valid unless
authenticated by the Warrant Agent, as such term is used in the Warrant
Agreement.
A-5
<PAGE>
THIS WARRANT CERTIFICATE SHALL BE CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS
PROVISIONS THEREOF.
A-6
<PAGE>
WITNESS the seal of Holdings and signatures of its duly
authorized officers.
Dated:
MATTRESS DISCOUNTERS HOLDING
CORPORATION
By:
-----------------------------
Name:
Title:
Attest:
By:
-----------------------------
Name:
Title:
Certificate of Authentication:
This is one of the Warrants referred to in the within mentioned Warrant
Agreement:
STATE STREET BANK AND TRUST COMPANY
as Warrant Agent
By:
-----------------------------
Authorized Signatory
A-7
<PAGE>
[FORM OF WARRANT CERTIFICATE]
[REVERSE]
MATTRESS DISCOUNTERS HOLDING CORPORATION
The Warrants evidenced by this Warrant Certificate are part of
a duly authorized issue of Warrants expiring at 5:00 p.m., New York City time,
on July 15, 2007 (the "Expiration Date"), each of which represents the right to
---------------
purchase at any time on or after the Exercisability Date (as defined in the
Warrant Agreement) and on or prior to the Expiration Date 4.850 shares of Class
A Common Stock and 0.539 shares of Class L Common Stock subject to adjustment as
set forth in the Warrant Agreement. The Warrants are issued pursuant to a
Warrant Agreement dated as of August 6, 1999 (the "Warrant Agreement"), duly
-----------------
executed and delivered by Holdings to State Street Bank and Trust Company, as
Warrant Agent (the "Warrant Agent"), which Warrant Agreement is hereby
-------------
incorporated by reference in and made a part of this instrument and is hereby
referred to for a description of the rights, limitation of rights, obligations,
duties and immunities thereunder of the Warrant Agent, Holdings and the holders
(the words "holders" or holder" meaning the registered holders or registered
holder) of the Warrants.
Warrants may be exercised by (i) surrendering at any Warrant
Agent Office this Warrant Certificate with the form of Election to Exercise set
forth hereon duly completed and executed and (ii) to the extent such exercise is
not being effected through a Cashless Exercise by paying in full the Warrant
Exercise Price for each such Warrant exercised and any other amounts required to
be paid pursuant to the Warrant Agreement.
If all of the items referred to in the preceding paragraph are
received by the Warrant Agent at or prior to 11:00 a.m., New York City time, on
a Business Day, the exercise of the Warrant to which such items relate will be
effective on such Business Day. If any items referred to in the preceding
paragraph are received after 11:00 a.m., New York City time, on a Business Day,
the exercise of the Warrants to which such item relates will be deemed to be
effective on the next succeeding Business Day. Notwithstanding the foregoing, in
the case of an exercise of Warrants on July 15, 2007, if all of the items
referred to in the preceding paragraph are received by the Warrant Agent at or
prior to 5:00 p.m., New York City time, on such Expiration Date, the exercise of
the Warrants to which such items relate will be effective on the Expiration
Date.
As soon as practicable after the exercise of any Warrant or
Warrants, Holdings shall issue or cause to be issued to or upon the written
order of the registered holder of this Warrant Certificate, a certificate or
certificates evidencing the Share or Shares to which such holder is entitled, in
fully registered form, registered in such name or names as may be directed by
such holder pursuant to the Election to Exercise, as set forth on the reverse of
this Warrant Certificate. Such certificate or certificates evidencing the Share
or Shares shall be deemed to have been issued and any persons who are designated
to be named therein shall be deemed to have become the holder of record of such
Share or Shares as of the close of business on the date upon which the exercise
of this Warrant was deemed to be effective as provided in the preceding
paragraph.
A-8
<PAGE>
Holdings will not be required to issue fractional shares of
Common Stock upon exercise of the Warrants or distribute Share certificates that
evidence fractional shares of Common Stock. In lieu of fractional shares of
Common Stock, there shall be paid to the registered Holder of this Warrant
Certificate at the time such Warrant Certificate is exercised an amount in cash
equal to the same fraction of the Current Market Value per share of Common Stock
on the Business Day preceding the date this Warrant Certificate is surrendered
for exercise.
Warrant Certificates, when surrendered at any office or agency
maintained by Holdings for that purpose by the registered holder thereof in
person or by legal representative or attorney duly authorized in writing, may be
exchanged for a new Warrant Certificate or new Warrant Certificates evidencing
in the aggregate a like number of Warrants, in the manner and subject to the
limitations provided in the Warrant Agreement, without charge except for any tax
or other governmental charge imposed in connection therewith.
Upon due presentment for registration of transfer of this
Warrant Certificate at any office or agency maintained by Holdings for that
purpose, a new Warrant Certificate evidencing in the aggregate a like number of
Warrants shall be issued to the transferee in exchange for this Warrant
Certificate, subject to the limitations provided in the Warrant Agreement,
without charge except for any tax or other governmental charge imposed in
connection therewith.
Holdings and the Warrant Agent may deem and treat the
registered holder hereof as the absolute owner of this Warrant Certificate
(notwithstanding any notation of ownership or other writing hereon made by
anyone) for the purpose of any exercise hereof and for all other purposes, and
neither Holdings nor the Warrant Agent shall be affected by any notice to the
contrary.
The term "Business Day" shall mean any day on which (i) banks
in New York City, (ii) the principal U.S. securities exchange or market, if any,
on which the Common Stock is listed or admitted to trading and (iii) the
principal U.S. securities exchange or market, if any, on which the Warrants are
listed or admitted to trading are open for business.
The Warrants and the Shares are entitled to the benefits of a
registration rights agreement relating to the Warrants and the shares of Common
Stock issuable upon exercise thereof (the "Common Stock Registration Rights
--------------------------------
Agreement"). The Common Stock Registration Rights Agreement provides the holders
- ---------
of Registrable Securities with the right, subject to the conditions and
limitations contained therein, to include the Registrable Securities in certain
registration statements filed by Holdings for its account or for the account of
any of its securityholders.
A-9
<PAGE>
(FORM OF ELECTION TO EXERCISE)
(To be executed upon exercise of Warrants on the Exercise Date)
The undersigned hereby irrevocably elects to exercise [_] of
the Warrants represented by this Warrant Certificate and purchase the whole
number of Shares issuable upon the exercise of such Warrants and herewith
tenders payment for such Shares as follows:
$[_] in cash or by certified or official bank check; or by
surrender of Warrants pursuant to a Cashless Exercise (as defined in the Warrant
Agreement) for [_] shares of Class A Common Stock and [_] shares of Class L
Common Stock at the current Cashless Exercise Ratio.
The undersigned requests that a certificate representing such
Shares be registered in the name of ____________________ whose address is
_________________________ and that such shares be delivered to
__________________________ whose address is __________________________. Any cash
payments to be paid in lieu of a fractional Share should be made to
__________________ whose address is ________________________ and the check
representing payment thereof should be delivered to ______________________ whose
address is ___________________.
Dated __________________, ____
Name of holder of
Warrant Certificate: _______________________________
(Please Print)
Tax Identification or
Social Security Number: ____________________________
Address: ___________________________________________
___________________________________________
Signature: _________________________________________
Note: The above signature must
correspond with the name
as written upon the face
of this Warrant
Certificate in every
particular, without
alteration or enlargement
or any change whatever and
if the certificate
representing the Shares or
any Warrant Certificate
representing Warrants not
exercised is to be
registered in a name other
than that in which this
Warrant Certificate is
registered, or if any cash
payment to be paid in lieu
of a fractional share is
to be made to a person
other than the registered
holder
A-10
<PAGE>
of this Warrant
Certificate, the signature
of the holder hereof must
be guaranteed as provided
in the Warrant Agreement.
Dated ____________________, ___
Signature: ________________________________________
Note: The above signature must
correspond with the name as
written upon the face of
this Warrant Certificate in
every particular, without
alteration or enlargement
or any change whatever.
Signature Guaranteed: _____________________________
[FORM OF ASSIGNMENT]
For value received _______________________ hereby sells,
assigns and transfers unto _____________________ the within Warrant Certificate,
together with all right, title and interest therein, and does hereby irrevocably
constitute and appoint __________________________ attorney, to transfer said
Warrant Certificate on the books of the within-named Company, with full power of
substitution in the premises.
Dated ____________________, ____
Signature: ________________________________________
Note: The above signature must
correspond with the name as
written upon the face of
this Warrant Certificate in
every particular, without
alteration or enlargement
or any change whatever.
Signature Guaranteed: _____________________________
A-11
<PAGE>
SCHEDULE OF EXCHANGES OF CERTIFICATED WARRANTS1
-----------------------------------------------
The following exchanges of a part of this Global Warrant for certificated
Warrants have been made:
<TABLE>
Number of
Warrants of
Amount of Amount of this Global
decrease in increase in Warrant Signature of
Number of Number of following authorized
Date of Warrants of this Warrants of this such decrease officer of
Exchange Global Warrant Global Warrant (or increase) Warrant Agent
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
</TABLE>
- ----------------------------------
1This is to be included only if the Warrant is in global form.
A-12
<PAGE>
EXHIBIT B
---------
FORM OF LEGEND FOR GLOBAL WARRANT
Any Global Warrant authenticated and delivered hereunder shall
bear a legend in substantially the following form:
THIS SECURITY IS A GLOBAL WARRANT WITHIN THE MEANING OF THE
WARRANT AGREEMENT HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME
OF A DEPOSITORY OR A NOMINEE OF A DEPOSITORY OR A SUCCESSOR DEPOSITORY.
THIS SECURITY IS NOT EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME
OF A PERSON OTHER THAN THE DEPOSITORY OR ITS NOMINEE EXCEPT IN THE
LIMITED CIRCUMSTANCES DESCRIBED IN THE WARRANT AGREEMENT, AND NO
TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A
WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE
OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE
DEPOSITORY) MAY BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES
DESCRIBED IN THE WARRANT AGREEMENT.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION
("DTC"), TO ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE,
OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF
CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH
OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC),
ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR
TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE
& CO., HAS AN INTEREST HEREIN.
B-1
<PAGE>
EXHIBIT C
CERTIFICATE TO BE DELIVERED UPON EXCHANGE
OR REGISTRATION OF TRANSFER OF WARRANTS
Re: Warrants to Purchase Common Stock (the "Warrants")
of MATTRESS DISCOUNTERS HOLDING
-------------------------------
CORPORATION
------------------------------------
This Certificate relates to ____ Warrants held in* ___
book-entry or* _______ certificated form by ______ (the "Transferor").
The Transferor:*
[_] has requested the Warrant Agent by written order to deliver in
exchange for its beneficial interest in the Global Warrant held by the
Depository a Warrant or Warrants in definitive, registered form of authorized
denominations and an aggregate number equal to its beneficial interest in such
Global Warrant (or the portion thereof indicated above); or
[_] has requested the Warrant Agent by written order to exchange or
register the transfer of a Warrant or Warrants.
In connection with such request and in respect of each such
Warrant, the Transferor does hereby certify that Transferor is familiar with the
Warrant Agreement relating to the above captioned Warrants and the restrictions
on transfers thereof as provided in Section 1.08 of such Warrant Agreement, and
that the transfer of this Warrant does not require registration under the
Securities Act of 1933, as amended (the "Act") because*:
---
[_] Such Warrant is being acquired for the Transferor's own account,
without transfer (in satisfaction of Section 1.08(a)(y)(A) or Section
1.08(d)(i)(A) of the Warrant Agreement).
[_] Such Warrant is being transferred to a qualified institutional
buyer (as defined in Rule 144A under the Act), in reliance on Rule 144A.
[_] Such Warrant is being transferred to an institutional "accredited
investor" (within the meaning of subparagraphs (a)(1), (2), (3) or (7) of Rule
501 under the Act).
[_] Such Warrant is being transferred in reliance on Regulation S under
the Act.
[_] Such Warrant is being transferred in accordance with Rule 144 under
the Act.
[_] Such Warrant is being transferred in reliance on and in compliance
with an exemption from the registration requirements of the Act.
C-1
<PAGE>
------------------------------
[INSERT NAME OF TRANSFEROR]
By:
-------------------------
Date:
------------------
*Check applicable box.
C-2
<PAGE>
EXHIBIT D
Form of Certificate to Be
Delivered in Connection with
Transfers to Institutional Accredited Investors
-----------------------------------------------
-------------, ----
State Street Bank and Trust Company
Attention: Corporate Trust Department
Ladies and Gentlemen:
In connection with our proposed purchase of warrants (the
"Warrants") to purchase Common Stock of Mattress Discounters Holding Corporation
("Holdings"), we confirm that:
--------
1. We have received such information as we deem necessary in
order to make our investment decision.
2. We understand that any subsequent transfer of the
Warrants is subject to certain restrictions and conditions set forth in the
Warrant Agreement and the undersigned agrees to be bound by, and not to resell,
pledge or otherwise transfer the Warrants except in compliance with, such
restrictions and conditions and the Securities Act of 1933, as amended (the
"Securities Act").
3. We understand that the offer and sale of the Warrants
have not been registered under the Securities Act, and that the Warrants may not
be offered or sold within the United States or to, or for the account or benefit
of, U.S. persons except as permitted in the following sentence. We agree, on our
own behalf and on behalf of any accounts for which we are acting as hereinafter
stated, that if we should sell any Warrants prior to (x) the date which is three
years after the later of the date of original issuance of the Warrants (or such
shorter period as may be prescribed by Rule 144(k) under the Securities Act or
any successor provision thereto) or the last day on which Holdings or any
affiliate of Holdings was owner of such Warrants, or any predecessor thereto,
and (y) such later date, if any, as may be required by applicable laws, we will
do so only (A) to Holdings, (B) inside the United States in accordance with Rule
144A under the Securities Act to a "qualified institutional buyer" (as defined
therein), (C) inside the United States to an institutional "accredited investor"
(as defined below) that, prior to such transfer, furnishes (or has furnished on
its behalf by a U.S. broker-dealer) to the Warrant Agent a
D-1
<PAGE>
signed letter substantially in the form hereof, (D) outside the United States in
accordance with Regulation S under the Securities Act, (E) pursuant to the
exemption from registration provided by Rule 144 under the Securities Act (if
available) or (F) pursuant to an effective registration statement under the
Securities Act and (G) pursuant to another available exemption under the
Securities Act, and we further agree to provide to any person purchasing
Warrants from us a notice advising such purchaser that resales of the Warrants
are restricted as stated herein.
4. We understand that, on any proposed resale of
Warrants, we will be required to furnish to the Warrant Agent and Holdings, such
certification, legal opinions and other information as the Warrant Agent and
Holdings may reasonably require to confirm that the proposed sale complies with
the foregoing restrictions. We further understand that the Warrants purchased by
us will bear a legend to the foregoing effect.
5. We are an institutional "accredited investor" (as
defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities
Act) and have such knowledge and experience in financial and business matters as
to be capable of evaluating the merits and risks of our investment in the
Warrants, and we and any accounts for which we are acting are each able to bear
the economic risk of our or their investment, as the case may be.
6. We are acquiring the Warrants purchased by us for our
account or for one or more accounts (each of which is an institutional
"accredited investor") as to each of which we exercise sole investment
discretion.
D-2
<PAGE>
You and Holdings are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceeding or official inquiry with respect
to the matters covered hereby.
Very truly yours,
[Name of Transferee]
By:
------------------------------
[Authorized Signatory]
Upon transfer the Warrants would be registered in the name of
the new beneficial owner as follows:
Name:______________________________
Address:___________________________
Taxpayer ID Number:________________
D-3
<PAGE>
EXHIBIT E
Form of Certificate to Be
Delivered in Connection
with Regulation S Transfers
---------------------------
---------------, ----
State Street Bank and Trust Company
Attention: Corporate Trust Department
Ladies and Gentlemen:
In connection with our proposed sale of Warrants of Mattress
Discounters Holding Corporation ("Holdings"), we confirm that such sale has been
--------
effected pursuant to and in accordance with Regulation S under the Securities
Act of 1933, as amended (the "Securities Act"), and, accordingly, we represent
that:
(1) the offer of the Warrants was not made to a
person in the United States;
(2) either (a) at the time the buy offer was
originated, the transferee was outside the United States or we
and any person acting on our behalf reasonably believed that
the transferee was outside the United States, or (b) the
transaction was executed in, on or through the facilities of a
designated off-shore securities market and neither we nor any
person acting on our behalf knows that the transaction has
been pre-arranged with a buyer in the United States;
(3) no directed selling efforts have been made in the
United States in contravention of the requirements of Rule
903(b) or Rule 904(b) of Regulation S under the Securities
Act, as applicable;
(4) the transaction is not part of a plan or scheme
to evade the registration requirements of the Securities Act;
(5) we have advised the transferee of the transfer
restrictions applicable to the Warrants; and
E-1
<PAGE>
(6) if the circumstances set forth in Rule 904(c)
under the Securities Act are applicable, we have complied with
the additional conditions therein, including (if applicable)
sending a confirmation or other notice stating that the
Warrants may be offered and sold during the restricted period
specified in Rule 903(c)(2) or (3), as applicable, in
accordance with the provisions of Regulation S; pursuant to
registration of the Warrants under the Securities Act; or
pursuant to an available exemption from the registration
requirements under the Act.
You and Holdings are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. Defined terms used herein without
definition have the respective meanings provided in Regulation S under the
Securities Act.
Very truly yours,
[Name of Transferee]
By:
-------------------------------
[Authorized Signatory]
Upon transfer the Warrants would be registered in the name of
the new beneficial owner as follows:
Name:______________________________
Address:___________________________
Taxpayer ID Number:________________
- --------
1 This is to be included only if the Warrant is in global form.
E-2
<PAGE>
EXHIBIT 10.30
EXECUTION COPY
--------------
================================================================================
$20,000,000
CREDIT AGREEMENT
among
MATTRESS DISCOUNTERS HOLDING CORPORATION,
MATTRESS DISCOUNTERS CORPORATION,
as Borrower,
The Several Lenders
from Time to Time Parties Hereto,
BANKBOSTON, N.A.
and
CANADIAN IMPERIAL BANK OF COMMERCE,
as Co-Agents,
and
THE CHASE MANHATTAN BANK,
as Administrative Agent
Dated as of August 6, 1999
================================================================================
CHASE SECURITIES INC.,
as Lead Arranger and Sole Book Manager
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SECTION 1. DEFINITIONS........................................................ 1
1.1 Defined Terms........................................................ 1
1.2 Other Definitional Provisions........................................ 20
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS.................................... 20
2.1 Commitments.......................................................... 20
2.2 Procedure for Loan Borrowing......................................... 20
2.3 Commitment Fees, etc. ............................................... 21
2.4 Termination or Reduction of Commitments.............................. 21
2.5 Optional Prepayments................................................. 21
2.6 Mandatory Prepayments and Commitment Reductions...................... 21
2.7 Conversion and Continuation Options.................................. 23
2.8 Limitations on Eurodollar Tranches................................... 23
2.9 Interest Rates and Payment Dates..................................... 24
2.10 Computation of Interest and Fees.................................... 24
2.11 Inability to Determine Interest Rate................................ 24
2.12 Pro Rata Treatment and Payments..................................... 25
2.13 Requirements of Law................................................. 26
2.14 Taxes............................................................... 27
2.15 Indemnity........................................................... 28
2.16 Change of Lending Office............................................ 29
2.17 Replacement of Lenders.............................................. 29
SECTION 3. LETTERS OF CREDIT.................................................. 29
3.1 L/C Commitment....................................................... 29
3.2 Procedure for Issuance of Letter of Credit........................... 30
3.3 Fees and Other Charges............................................... 30
3.4 L/C Participations................................................... 30
3.5 Reimbursement Obligation of the Borrower............................. 31
3.6 Obligations Absolute................................................. 31
3.7 Letter of Credit Payments............................................ 32
3.8 Applications......................................................... 32
SECTION 4. REPRESENTATIONS AND WARRANTIES..................................... 32
4.1 Financial Condition.................................................. 32
4.2 No Change............................................................ 33
4.3 Corporate Existence; Compliance with Law............................. 33
4.4 Corporate Power; Authorization; Enforceable Obligations.............. 33
4.5 No Legal Bar......................................................... 34
4.6 Litigation........................................................... 34
4.7 No Default........................................................... 34
4.8 Ownership of Property................................................ 34
4.9 Intellectual Property................................................ 34
4.10 Taxes............................................................... 34
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4.11 Federal Regulations................................................. 34
4.12 Labor Matters....................................................... 35
4.13 ERISA............................................................... 35
4.14 Investment Company Act; Other Regulations........................... 35
4.15 Subsidiaries........................................................ 35
4.16 Use of Proceeds..................................................... 35
4.17 Environmental Matters............................................... 36
4.18 Accuracy of Information, etc. ...................................... 36
4.19 Security Documents.................................................. 37
4.20 Solvency............................................................ 37
4.21 Senior Indebtedness................................................. 37
4.22 Year 2000 Matters................................................... 37
4.23 Regulation H........................................................ 38
SECTION 5. CONDITIONS PRECEDENT............................................... 38
5.1 Conditions to Initial Extension of Credit............................ 38
5.2 Conditions to Each Extension of Credit............................... 42
5.3 Conditions to Permitted Acquisitions................................. 42
SECTION 6. AFFIRMATIVE COVENANTS.............................................. 43
6.1 Financial Statements................................................. 43
6.2 Certificates; Other Information...................................... 44
6.3 Payment of Obligations............................................... 45
6.4 Maintenance of Existence; Compliance................................. 45
6.5 Maintenance of Property; Insurance................................... 45
6.6 Inspection of Property; Books and Records; Discussions............... 45
6.7 Notices.............................................................. 46
6.8 Environmental Laws................................................... 46
6.9 Additional Collateral, etc. ......................................... 46
6.10 Payment of Obligations Relating to Alabama Mortgage.................. 46
SECTION 7. NEGATIVE COVENANTS................................................. 48
7.1 Financial Condition Covenants........................................ 48
7.2 Indebtedness......................................................... 50
7.3 Liens................................................................ 51
7.4 Fundamental Changes.................................................. 52
7.5 Disposition of Property.............................................. 53
7.6 Restricted Payments.................................................. 53
7.7 Capital Expenditures................................................. 54
7.8 Investments.......................................................... 55
7.9 Payments and Modifications of Certain Debt Instruments............... 56
7.10 Transactions with Affiliates........................................ 56
7.11 Sales and Leasebacks................................................ 56
7.12 Changes in Fiscal Periods........................................... 56
7.13 Negative Pledge Clauses............................................. 57
7.14 Clauses Restricting Subsidiary Distributions........................ 57
7.15 Lines of Business................................................... 57
7.16 Amendments to Certain Agreements.................................... 57
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SECTION 8. EVENTS OF DEFAULT.................................................. 58
SECTION 9. THE AGENTS......................................................... 61
9.1 Appointment.......................................................... 61
9.2 Delegation of Duties................................................. 61
9.3 Exculpatory Provisions............................................... 61
9.4 Reliance by Administrative Agent..................................... 62
9.5 Notice of Default.................................................... 62
9.6 Non-Reliance on Agents and Other Lenders............................. 62
9.7 Indemnification...................................................... 63
9.8 Agent in Its Individual Capacity..................................... 63
9.9 Successor Administrative Agent....................................... 63
9.10 Co-Agents........................................................... 64
SECTION 10. MISCELLANEOUS..................................................... 64
10.1 Amendments and Waivers.............................................. 64
10.2 Notices............................................................. 65
10.3 No Waiver; Cumulative Remedies...................................... 66
10.4 Survival of Representations and Warranties.......................... 66
10.5 Payment of Expenses and Taxes....................................... 66
10.6 Successors and Assigns; Participations and Assignments.............. 67
10.7 Adjustments; Set-off................................................ 69
10.8 Counterparts........................................................ 69
10.9 Severability........................................................ 70
10.10 Integration........................................................ 70
10.11 GOVERNING LAW...................................................... 70
10.12 Submission To Jurisdiction; Waivers................................ 70
10.13 Acknowledgements................................................... 70
10.14 Releases of Guarantees and Liens................................... 71
10.15 Confidentiality.................................................... 71
10.16 WAIVERS OF JURY TRIAL.............................................. 71
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ANNEX:
A Pricing Grid
SCHEDULES:
1.1A Commitments
1.1B Mortgaged Property
4.10 Taxes
4.15 Subsidiaries
4.19(a) UCC Filing Jurisdictions
4.19(b) Mortgage Filing Jurisdictions
4.19(c) Owned Properties
7.2(d) Existing Indebtedness
7.3(f) Existing Liens
7.10 Transactions with Affiliates
EXHIBITS:
A Form of Guarantee and Collateral Agreement
B Form of Compliance Certificate
C Form of Closing Certificate
D Form of Mortgage
E Form of Assignment and Acceptance
F Form of Legal Opinion of Kirkland & Ellis
G Form of Exemption Certificate
H Form of Subordination Provisions of Subordinated Debt
I Form of Borrower/Holdings Subordinated Debt
J Form of Management Note
K Form of Borrowing Base Certificate
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CREDIT AGREEMENT, dated as of August 6, 1999, among Mattress
Discounters Holding Corporation, a Virginia corporation ("Holdings"), Mattress
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Discounters Corporation, a Delaware corporation (the "Borrower"), the several
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banks and other financial institutions or entities from time to time parties to
this Agreement (the "Lenders"), BankBoston, N.A. and Canadian Imperial Bank of
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Commerce, as co-agents (in such capacity, the "Co-Agents"), and The Chase
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Manhattan Bank, as administrative agent.
The parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the terms listed
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in this Section 1.1 shall have the respective meanings set forth in this
Section 1.1 .
"ABR": for any day, a rate per annum (rounded upwards, if
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necessary, to the next 1/16 of 1%) equal to the greatest of (a) the Prime Rate
in effect on such day, (b) the Base CD Rate in effect on such day plus 1% and
(c) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. For
purposes hereof: "Prime Rate" shall mean the rate of interest per annum publicly
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announced from time to time by Chase as its prime rate in effect at its
principal office in New York City (the Prime Rate not being intended to be the
lowest rate of interest charged by Chase in connection with extensions of credit
to debtors); "Base CD Rate" shall mean the sum of (a) the product of (i) the
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Three-Month Secondary CD Rate and (ii) a fraction, the numerator of which is one
and the denominator of which is one minus the C/D Reserve Percentage and (b) the
C/D Assessment Rate; and "Three-Month Secondary CD Rate" shall mean, for any
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day, the secondary market rate for three-month certificates of deposit reported
as being in effect on such day (or, if such day shall not be a Business Day, the
next preceding Business Day) by the Board through the public information
telephone line of the Federal Reserve Bank of New York (which rate will, under
the current practices of the Board, be published in Federal Reserve Statistical
Release H.15(519) during the week following such day), or, if such rate shall
not be so reported on such day or such next preceding Business Day, the average
of the secondary market quotations for three-month certificates of deposit of
major money center banks in New York City received at approximately 10:00 A.M.,
New York City time, on such day (or, if such day shall not be a Business Day, on
the next preceding Business Day) by Chase from three New York City negotiable
certificate of deposit dealers of recognized standing selected by it. Any change
in the ABR due to a change in the Prime Rate, the Three-Month Secondary CD Rate
or the Federal Funds Effective Rate shall be effective as of the opening of
business on the effective day of such change in the Prime Rate, the Three-Month
Secondary CD Rate or the Federal Funds Effective Rate, respectively .
"ABR Loans": Loans the rate of interest applicable to which is
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based upon the ABR.
"Adjustment Date": as defined in the Pricing Grid.
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"Administrative Agent": Chase, together with its affiliates, as
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the lead arranger of the Commitments and as the administrative agent for the
Lenders under this Agreement and the other Loan Documents, together with any of
its successors.
"Affiliate": as to any Person, any other Person that, directly or
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indirectly, is in control of, is controlled by, or is under common control with,
such Person. For purposes of this definition, "control" of a Person means the
power, directly or indirectly, either to (a) vote 10% or more of the securities
having ordinary voting power for the election of directors (or persons
performing similar functions) of such
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2
Person or (b) direct or cause the direction of the management and policies of
such Person, whether by contract or otherwise.
"Agents": the collective reference to the Co-Agents and the
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Administrative Agent.
"Aggregate Exposure": with respect to any Lender at any time, an
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amount equal to such Lender's Commitment then in effect or, if the Commitments
have been terminated, the amount of such Lender's Extensions of Credit then
outstanding.
"Aggregate Exposure Percentage": with respect to any Lender at
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any time, the ratio (expressed as a percentage) of such Lender's Aggregate
Exposure at such time to the Aggregate Exposure of all Lenders at such time.
"Agreement": this Credit Agreement, as amended, supplemented or
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otherwise modified from time to time.
"Applicable Margin": (a) 3.0% per annum, in the case of
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Eurodollar Loans and (b) 2.0% per annum, in the case of ABR Loans; provided,
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that, on and after February 6, 2000, the Applicable Margin will be determined
pursuant to the Pricing Grid.
"Application": an application, in such form as the Issuing Lender
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may specify from time to time, requesting the Issuing Lender to open a Letter of
Credit.
"Approved Fund": with respect to any Lender that is a fund that
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invests in commercial loans, any other fund that invests in commercial loans and
is managed or advised by the same investment advisor as such Lender or by an
Affiliate of such investment advisor.
"Asset Sale": any Disposition of property or series of related
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Dispositions of property (excluding any such Disposition permitted by clause
(a), (b), (c), (d), (e), (f) or (g) of Section 7.5) that yields Net Cash
Proceeds to Holdings, the Borrower or any of their respective Subsidiaries in
excess of $500,000.
"Assignee": as defined in Section 10.6(c).
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"Assignment and Acceptance": an Assignment and Acceptance,
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substantially in the form of Exhibit E.
"Assignor": as defined in Section 10.6(c).
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"Available Commitment": as to any Lender at any time, an amount
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equal to the excess, if any, of (a) such Lender's Commitment then in effect over
(b) such Lender's Extensions of Credit then outstanding.
"Bain Advisory Services Agreement": the Advisory Services
--------------------------------
Agreement between the Borrower and the Sponsor, dated on or about the Closing
Date, as the same may thereafter be amended, restated, supplemented or otherwise
modified from time to time to the extent permitted under Section 7.16.
"Base Amount": as defined in Section 7.7(a).
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3
"Bedding Experts": The Bedding Experts, Inc., an Illinois
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corporation.
"Benefitted Lender": as defined in Section 10.7(a).
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"Board": the Board of Governors of the Federal Reserve System of
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the United States (or any successor).
"Borrower": as defined in the preamble hereto.
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"Borrower/Holdings Subordinated Indebtedness": as defined in
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Section 7.2(i).
"Borrowing Base": an amount equal to the sum of (a) 80% of the
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sum of net "accounts receivable" and net "inventory" plus (b) 50% of net
"property and equipment". For purposes of determining the amount of the
Borrowing Base, the terms "accounts receivable", "inventory" and "property and
equipment" are used herein as such terms are used and/or defined in the
consolidated balance sheet of Holdings and its Subsidiaries.
"Borrowing Base Certificate": as defined in Section 6.2(e).
--------------------------
"Borrowing Date": any Business Day specified by the Borrower as a
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date on which the Borrower requests the Lenders to make Loans hereunder.
"Business": as defined in Section 4.17(b).
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"Business Day": a day other than a Saturday, Sunday or other day
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on which commercial banks in New York City are authorized or required by law to
close, provided, that with respect to notices and determinations in connection
with, and payments of principal and interest on, Eurodollar Loans, such day is
also a day for trading by and between banks in Dollar deposits in the interbank
eurodollar market.
"Capital Expenditures": for any period, with respect to any
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Person, the aggregate of all expenditures by such Person and its Subsidiaries
for the acquisition or leasing (pursuant to a capital lease) of fixed or capital
assets or additions to equipment (including replacements, capitalized repairs
and improvements during such period) that should be capitalized under GAAP
within the property, plant and equipment captions on a consolidated balance
sheet of such Person and its Subsidiaries.
"Capital Lease Obligations": as to any Person, the obligations of
-------------------------
such Person to pay rent or other amounts under any lease of (or other
arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such Person under GAAP
and, for the purposes of this Agreement, the amount of such obligations at any
time shall be the capitalized amount thereof at such time determined in
accordance with GAAP.
"Capital Stock": any and all shares, interests, participations or
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other equivalents (however designated) of capital stock of a corporation, any
and all equivalent ownership interests in a Person (other than a corporation)
and any and all warrants, rights or options to purchase or acquire any of the
foregoing.
"Cash Equivalents": (a) marketable securities issued or directly
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and unconditionally guaranteed by the United States Government or issued by any
agency thereof and backed by the full faith
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4
and credit of the United States, in each case maturing within one year from the
date of acquisition thereof; (b) marketable direct obligations issued by any
state of the United States of America or any political subdivision of any such
state or any public instrumentality thereof maturing within one year from the
date of acquisition thereof and, at the time of acquisition, having the highest
rating obtainable from either Standard & Poor's Ratings Services ("S&P") or
---
Moody's Investor Service, Inc. ("Moody's"); (c) commercial paper maturing no
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more than one year from the date of creation thereof and, at the time of
acquisition, having a rating of at least A-1 from S&P or at least P-1 from
Moody's; (d) certificates of deposit or bankers' acceptances maturing within one
year from the date of acquisition thereof and, at the time of acquisition,
having a rating of at least A-1 from S&P or at least P-1 from Moody's, issued by
any Lender or any commercial bank organized under the laws of the United States
of America or any state thereof or the District of Columbia, Canada, any member
of the European Economic Community or any U.S. branch of a foreign bank having
combined capital and surplus of not less than $250,000,000 (each Lender and each
such commercial bank being herein called a "Cash Equivalent Bank"); (e)
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Eurodollar time deposits having a maturity of less than one year purchased
directly from any Cash Equivalent Bank (provided such deposit is with such Cash
Equivalent Bank or any other Cash Equivalent Bank); (f) repurchase obligations
for underlying securities of the types described in clauses (a) through (e); and
(g) investments in money market funds which invest their assets substantially
exclusively in the types of Cash Equivalents described in clauses (a) through
(e) above.
"Cash Pay Subordinated Debt": shall have the meaning set forth in
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the definition of Subordinated Debt.
"C/D Assessment Rate": for any day as applied to any ABR Loan,
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the annual assessment rate in effect on such day that is payable by a member of
the Bank Insurance Fund maintained by the Federal Deposit Insurance Corporation
(the "FDIC") classified as well-capitalized and within supervisory subgroup "B"
(or a comparable successor assessment risk classification) within the meaning of
12 C.F.R. (S) 327.4 (or any successor provision) to the FDIC (or any successor)
for the FDIC's (or such successor's) insuring time deposits at offices of such
institution in the United States.
"C/D Reserve Percentage": for any day as applied to any ABR Loan,
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that percentage (expressed as a decimal) which is in effect on such day, as
prescribed by the Board, for determining the maximum reserve requirement for a
Depositary Institution (as defined in Regulation D of the Board as in effect
from time to time) in respect of new non-personal time deposits in Dollars
having a maturity of 30 days or more.
"Change of Control": any of the following events:
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(a) the Permitted Investors shall cease to own (on a fully diluted basis) at
least 51% of the economic and voting interests in the Capital Stock of
Holdings (which percentage shall be reduced to 35% from and after the date
(the "IPO Date") of an initial registered primary public offering by
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Holdings of its common stock);
(b) prior to the IPO Date, the Sponsor and its Control Investment Affiliates
shall cease to own of record and beneficially an amount of common stock of
Holdings equal to at least 66-2/3% of the amount of common stock of Holdings
owned by the Sponsor and its Control Investment Affiliates as of the Closing
Date (which percentage shall be reduced to 33-1/3% from and after the IPO
Date);
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5
(c) prior to the IPO Date, the Permitted Investors shall cease to "control" (as
such term is defined in Rule 405 promulgated under the Securities Act of
1933, as amended) Holdings;
(d) from and after the IPO Date, (i) any Person or "group" (within the meaning
of Rules 13d-3 and 13d-5 under the Securities Act of 1934, as in effect on
the Closing Date) shall own a greater percentage of the voting and/or
economic interest in the Capital Stock of Holdings than that owned by the
Permitted Investors or (ii) the Board of Directors of Holdings shall cease
to consist of a majority of Continuing Directors;
(e) Holdings shall cease to own directly 100% of the economic and voting
interest in the Borrower's Capital Stock on a fully diluted basis, free and
clear of all Liens (except Liens permitted by Section 7.3(h)); or
(f) a "Change of Control" as defined in the Senior Note Indenture shall occur.
"Chase": The Chase Manhattan Bank.
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"Closing Date": the date on which the conditions precedent set
------------
forth in Section 5.1 shall have been satisfied, which date is August 6, 1999.
"Co-Agents": as defined in the preamble hereto.
---------
"Code": the Internal Revenue Code of 1986, as amended from time
----
to time.
"Collateral": all property of the Loan Parties, now owned or
----------
hereafter acquired, upon which a Lien is purported to be created by any Security
Document.
"Commitment": as to any Lender, the obligation of such Lender, if
----------
any, to make Loans and participate in Letters of Credit in an aggregate
principal and/or face amount not to exceed the amount set forth under the
heading "Commitment" opposite such Lender's name on Schedule 1.1A or in the
Assignment and Acceptance pursuant to which such Lender became a party hereto,
as the same may be changed from time to time pursuant to the terms hereof. The
original amount of the Total Commitments is $20,000,000.
"Commitment Fee Rate": 0.50% per annum; provided, that on and
-------------------
after February 6, 2000, the Commitment Fee Rate will be determined pursuant to
the Pricing Grid.
"Commitment Period": the period from and including the Closing
-----------------
Date to the Termination Date.
"Commonly Controlled Entity": an entity, whether or not
--------------------------
incorporated, that is under common control with the Borrower within the meaning
of Section 4001 of ERISA or is part of a group that includes the Borrower and
that is treated as a single employer under Section 414 of the Code.
"Compliance Certificate": a certificate duly executed by a
----------------------
Responsible Officer substantially in the form of Exhibit B.
"Consolidated Current Assets": at any date, all amounts (other
---------------------------
than cash and Cash Equivalents and deferred taxes to the extent included in
current assets) that would, in conformity with
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6
GAAP, be set forth opposite the caption "total current assets" (or any like
caption) on a consolidated balance sheet of the Borrower and its Subsidiaries at
such date.
"Consolidated Current Liabilities": at any date, all amounts that
--------------------------------
would, in conformity with GAAP, be set forth opposite the caption "total current
liabilities" (or any like caption) on a consolidated balance sheet of the
Borrower and its Subsidiaries at such date, but excluding (a) any liabilities of
the Borrower and its Subsidiaries that are the current portion of any
Indebtedness classified as long term liabilities in conformity with GAAP, (b)
without duplication of clause (a) above, all Indebtedness consisting of Loans to
the extent otherwise included therein, and (c) deferred taxes to the extent
otherwise included therein.
"Consolidated EBITDA": for any period, Consolidated Net Income
-------------------
for such period plus, without duplication and to the extent reflected as a
charge in the statement of such Consolidated Net Income for such period, the sum
of (a) income tax expense, (b) interest expense, amortization or writeoff of
debt discount and debt issuance costs and commissions, discounts and other fees
and charges associated with Indebtedness (including the Loans), (c) depreciation
and amortization expense, (d) amortization of intangibles (including, but not
limited to, goodwill) and organization costs, (e) any extraordinary, unusual or
non-recurring expenses or losses (including, (i) items classified as cumulative
effect accounting change items, (ii) whether or not otherwise includable as a
separate item in the statement of such Consolidated Net Income for such period,
losses on sales of assets outside of the ordinary course of business and
(iii) restructuring costs, severance and relocation costs and any one-time
expenses relating to (or resulting from) any merger, recapitalization or
acquisition permitted by this Agreement), (f) any other non-cash charges,
(g) all management fees paid to the Sponsor and/or its Control Investment
Affiliates pursuant to Section 7.10, (h) all transaction fees paid to the
Sponsor or any of its Control Investment Affiliates pursuant to Section 7.10,
(i) one-time compensation charges, including any arising from any
recapitalization of the Borrower's bonus program or existing stock options,
performance share or restricted stock plans resulting from any merger or
recapitalization transaction expended in any period prior to the consummation of
the transactions contemplated by the Recapitalization Documentation, (j) all
cost savings directly attributable to any Permitted Acquisition that (i) are
recognized by Regulation S-X of the Securities and Exchange Act of 1934, as
amended, (ii) result from the sourcing of mattress sales within Holdings and its
Subsidiaries or under the Sealy Supply Agreement, or (iii) (x) are implemented
within six months of such Permitted Acquisition, (y) are confirmed by the board
of directors of the Borrower and (z) do not, in the aggregate, exceed an amount
equal to 5% of the consolidated EBITDA (calculated in a manner comparable to the
manner in which Consolidated EBITDA is calculated hereunder) of the relevant
Permitted Acquired Person, in each case with respect to clauses (i), (ii) and
(iii) as certified in reasonable detail by the Chief Financial Officer of the
Borrower to the Administrative Agent and (k) any payments related to (i)
addressing the Borrower and any of its Subsidiaries' Year 2000 Problems
expressed in accordance with GAAP or (ii) reengineering efforts relating to the
installation of the Borrower's point of sale system expensed in accordance with
GAAP and pursuant to the Financial Accounting Standards Board's (FASB) Emerging
Issues Task Force Issue No. 97-13, provided that the aggregate amount of
payments pursuant to clauses (i) and (ii) shall not exceed $2,400,000 and shall
be made on or prior to December 31, 2001, and minus, to the extent included in
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the statement of such Consolidated Net Income for such period, the sum of
(a) interest income, (b) any extraordinary, unusual or non-recurring income or
gains (including, whether or not otherwise includable as a separate item in the
statement of such Consolidated Net Income for such period, gains on the sales of
assets outside of the ordinary course of business) and (c) any other non-cash
income (other than non-cash income resulting from the Borrower's accrual method
of accounting in accordance with past practice), all as determined on a
consolidated basis.
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7
For purposes of this Agreement, Consolidated EBITDA for the fiscal
quarters ended February 28, 1999 (or March 31, 1999, as applicable) and May 31,
1999 (or June 30, 1999, as applicable) shall be deemed to be $6,340,000 and
$8,090,000, respectively.
For the purposes of calculating Consolidated EBITDA for any period
of four consecutive fiscal quarters (each, a "Reference Period") pursuant to any
determination of the Consolidated Total Debt Ratio, (i) if at any time during
such Reference Period the Borrower or any Subsidiary shall have made any
Disposition, the Consolidated EBITDA for such Reference Period shall be reduced
by an amount equal to the Consolidated EBITDA (if positive) attributable to the
property that is the subject of such Disposition for such Reference Period or
increased by an amount equal to the Consolidated EBITDA (if negative)
attributable thereto for such Reference Period and (ii) if during such Reference
Period the Borrower or any Subsidiary shall have made an Acquisition,
Consolidated EBITDA for such Reference Period shall be calculated after giving
pro forma effect thereto as if such Acquisition occurred on the first day of
such Reference Period. As used in this definition, "Acquisition" means any
acquisition of property or series of related acquisitions of property that
constitutes assets comprising all or substantially all of an operating unit of a
business or constitutes all or substantially all of the common stock of a
Person.
"Consolidated Interest Coverage Ratio": for any period, the ratio
------------------------------------
of (a) Consolidated EBITDA for such period to (b) Consolidated Interest Expense
for such period.
"Consolidated Interest Expense": for any period, total cash
-----------------------------
interest expense (including that attributable to Capital Lease Obligations) of
the Borrower and its Subsidiaries for such period with respect to all
outstanding Indebtedness of the Borrower and its Subsidiaries (including
commitment fees accrued under Section 2.3, all commissions, discounts and other
fees and charges owed with respect to letters of credit and bankers' acceptance
financing and net costs under Hedge Agreements in respect of interest rates to
the extent such net costs are allocable to such period in accordance with GAAP).
"Consolidated Net Income": for any period, the consolidated net
-----------------------
income (or loss) of the Borrower and its Subsidiaries, determined on a
consolidated basis in accordance with GAAP; provided that there shall be
excluded (a) the income (or deficit) of any Person accrued prior to the date it
becomes a Subsidiary of the Borrower or is merged into or consolidated with the
Borrower or any of its Subsidiaries, (b) the income (or deficit) of any Person
(other than a Subsidiary of the Borrower) in which the Borrower or any of its
Subsidiaries has an ownership interest, except to the extent that any such
income is actually received by the Borrower or such Subsidiary in the form of
dividends or similar distributions and (c) the undistributed earnings of any
Subsidiary of the Borrower to the extent that the declaration or payment of
dividends or similar distributions by such Subsidiary is not at the time
permitted by the terms of any Contractual Obligation (other than under any Loan
Document) or Requirement of Law applicable to such Subsidiary.
"Consolidated Total Debt": at any date, the aggregate principal
-----------------------
amount of all Indebtedness of the Borrower and its Subsidiaries at such date,
determined on a consolidated basis in accordance with GAAP.
"Consolidated Total Debt Ratio": as of the last day of any
-----------------------------
period, the ratio of (a) Consolidated Total Debt on such day to (b) Consolidated
EBITDA for such period.
"Consolidated Working Capital": at any date, the excess of
----------------------------
Consolidated Current Assets on such date over Consolidated Current Liabilities
on such date.
<PAGE>
8
"Continuing Directors": the directors of Holdings on the Closing
--------------------
Date, after giving effect to the Recapitalization and the other transactions
contemplated hereby, and each other director, if, in each case, such other
director's nomination for election to the board of directors of Holdings is
recommended by at least a majority of the then Continuing Directors or such
other director receives the vote of the Permitted Investors in his or her
election by the shareholders of Holdings.
"Contractual Obligation": as to any Person, any provision of any
----------------------
security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
property is bound.
"Control Investment Affiliate": as to any Person, any other
----------------------------
Person that (a) directly or indirectly, is in control of, is controlled by, or
is under common control with, such Person and (b) is organized primarily for the
purpose of making equity or debt investments in one or more companies. For
purposes of this definition, "control" of a Person means the power, directly or
indirectly, to direct or cause the direction of the management and policies of
such Person whether by contract or otherwise.
"Default": any of the events specified in Section 8, whether or
-------
not any requirement for the giving of notice, the lapse of time, or both, has
been satisfied, including, in any event, a "Default" under and as defined in the
Senior Note Indenture.
"Disposition": with respect to any property, any sale, lease,
-----------
sale and leaseback, assignment, conveyance, transfer or other disposition
thereof. The terms "Dispose" and "Disposed of" shall have correlative meanings.
------- -----------
"Dollars" and "$": dollars in lawful currency of the United
------- -
States.
"Domestic Subsidiary": any Subsidiary of the Borrower organized
-------------------
under the laws of any jurisdiction within the United States.
"ECF Percentage": 50%; provided that the ECF Percentage shall be
--------------
reduced to 25% if the Consolidated Total Debt Ratio as of the last day of the
relevant fiscal year is not greater than 3.50 to 1.0.
"Environmental Laws": any and all foreign, Federal, state, local
------------------
or municipal laws, rules, orders, regulations, statutes, ordinances, codes,
decrees, requirements of any Governmental Authority or other Requirements of Law
(including common law) regulating, relating to or imposing liability or
standards of conduct concerning protection of the environment, as now or may at
any time hereafter be in effect.
"ERISA": the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time.
"Eurocurrency Reserve Requirements": for any day as applied to a
---------------------------------
Eurodollar Loan, the aggregate (without duplication) of the maximum rates
(expressed as a decimal fraction) of reserve requirements in effect on such day
(including basic, supplemental, marginal and emergency reserves under any
regulations of the Board or other Governmental Authority having jurisdiction
with respect thereto) dealing with reserve requirements prescribed for
eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in
Regulation D of the Board) maintained by a member bank of the Federal Reserve
System.
<PAGE>
9
"Eurodollar Base Rate": with respect to each day during each
--------------------
Interest Period pertaining to a Eurodollar Loan, the rate per annum determined
on the basis of the rate for deposits in Dollars for a period equal to such
Interest Period commencing on the first day of such Interest Period appearing on
Page 3750 of the Dow Jones Markets screen as of 11:00 A.M., London time, two
Business Days prior to the beginning of such Interest Period. In the event that
such rate does not appear on Page 3750 of the Dow Jones Markets screen (or
otherwise on such screen), the "Eurodollar Base Rate" shall be determined by
reference to such other comparable publicly available service for displaying
eurodollar rates as may be selected by the Administrative Agent or, in the
absence of such availability, by reference to the rate at which the
Administrative Agent is offered Dollar deposits at or about 11:00 A.M., New York
City time, two Business Days prior to the beginning of such Interest Period in
the interbank eurodollar market where its eurodollar and foreign currency and
exchange operations are then being conducted for delivery on the first day of
such Interest Period for the number of days comprised therein.
"Eurodollar Loans": Loans the rate of interest applicable to
----------------
which is based upon the Eurodollar Rate.
"Eurodollar Rate": with respect to each day during each Interest
---------------
Period pertaining to a Eurodollar Loan, a rate per annum determined for such day
in accordance with the following formula (rounded upward to the nearest 1/100th
of 1%):
Eurodollar Base Rate
----------------------------------------
1.00 - Eurocurrency Reserve Requirements
"Eurodollar Tranche": the collective reference to Eurodollar
------------------
Loans the then current Interest Periods with respect to all of which begin on
the same date and end on the same later date (whether or not such Loans shall
originally have been made on the same day).
"Event of Default": any of the events specified in Section 8,
----------------
provided that any requirement for the giving of notice, the lapse of time, or
both, has been satisfied, including, in any event, an "Event of Default" under
and as defined in the Senior Note Indenture.
"Excess Cash Flow": for any fiscal year of the Borrower, the
----------------
excess, if any, of (a) the sum, without duplication, of (i) Consolidated Net
Income for such fiscal year, (ii) an amount equal to the amount of all non-cash
charges (including depreciation and amortization) deducted in arriving at such
Consolidated Net Income, (iii) decreases in Consolidated Working Capital for
such fiscal year, and (iv) an amount equal to the aggregate net non-cash loss on
the Disposition of property by the Borrower and its Subsidiaries during such
fiscal year (other than sales of inventory in the ordinary course of business),
to the extent deducted in arriving at such Consolidated Net Income over (b) the
sum, without duplication, of (i) an amount equal to the amount of all non-cash
credits included in arriving at such Consolidated Net Income, (ii) Capital
Expenditures made pursuant to Section 7.7(a) (net of any proceeds of any related
debt or equity financings with respect to such Capital Expenditures) plus the
amount for such fiscal year to be carried forward to the next fiscal year and
paid in cash pursuant to Section 7.7(a) less the amount (if any) for the
preceding fiscal year carried forward to the current fiscal year pursuant to
Section 7.7(a), (iii) the aggregate amount of all prepayments of Loans during
such fiscal year to the extent accompanying permanent optional reductions of the
Commitments or made pursuant to Section 2.6(g), (iv) the aggregate amount of all
regularly scheduled principal payments of Funded Debt of the Borrower and its
Subsidiaries made during such fiscal year (other than in respect of any
revolving credit facility to the extent there is not an equivalent permanent
reduction in commitments thereunder), (v) increases in Consolidated Working
Capital for such fiscal year, (vi) an amount equal to the aggregate net non-cash
<PAGE>
10
gain on the Disposition of property by the Borrower and its Subsidiaries during
such fiscal year (other than sales of inventory in the ordinary course of
business), to the extent included in arriving at such Consolidated Net Income,
(vii) non-cash charges added in calculating Consolidated EBITDA in a prior
period to the extent such non-cash charges are paid in cash in the current
period, (viii) fees and expenses associated with any exchange of the Senior
Notes contemplated under the terms of the Senior Note Indenture, (ix) to the
extent not otherwise deducted in determining Excess Cash Flow, cash payments
made during such period with respect to non-current liabilities and cash
payments made during such period with respect to restructuring reserves and
Permitted Acquisitions, and (x) to the extent not otherwise deducted in
determining Consolidated Net Income, Restricted Payments and Investments made in
cash pursuant to Section 7.6 or 7.8 made during such period (net of any proceeds
of any related debt or equity financings (other than proceeds of equity
financing constituting Excess Proceeds Amounts) used to fund any such Restricted
Payments or Investments).
"Excess Cash Flow Application Date": as defined in
---------------------------------
Section 2.6(e).
"Excess Proceeds Amount" means, initially, $0, which amount shall
----------------------
be (a) increased (i) on the date of delivery in any fiscal year of an officer's
---------
certificate setting forth the calculation of Excess Cash Flow for the preceding
fiscal year pursuant to Section 2.6(e), so long as any prepayment required
pursuant to Section 2.6(e) has been made, by an amount equal to 50% or 75%, as
the case may be, of such Excess Cash Flow, and (ii) on the date of the receipt
by the Borrower of any Net Cash Proceeds from the issuance of Capital Stock of
the Borrower, so long as any Commitment reduction and prepayment required
pursuant to Section 2.6(b) has been made, by an amount equal to such Net Cash
Proceeds which are not applied to reduce the Commitments, and (b) reduced (i) on
each Excess Cash Flow Application Date where Excess Cash Flow for the
immediately preceding fiscal year is a negative number, by such amount, (ii) at
the time any Capital Expenditures are made pursuant to Section 7.7(c), by the
amount of such Capital Expenditure and (iii) at the time an Investment is made
pursuant to Section 7.8(m) with an amount attributable to the Excess Proceeds
Amount, by the portion of the Investment made with the Excess Proceeds Amount,
it being understood that the Excess Proceeds Amount may be reduced to an amount
below $0 after giving effect to the reductions enumerated in clause (b)(i)
above.
"Excluded Foreign Subsidiary": any Foreign Subsidiary in respect
---------------------------
of which either (a) the pledge of all of the Capital Stock of such Subsidiary as
Collateral or (b) the guaranteeing by such Subsidiary of the Obligations, would,
in the good faith judgment of the Borrower, result in adverse tax consequences
to the Borrower.
"Extensions of Credit": as to any Lender at any time, an amount
--------------------
equal to the sum of (a) the aggregate principal amount of all Loans held by such
Lender then outstanding and (b) such Lender's Percentage of the L/C Obligations
then outstanding.
"Federal Funds Effective Rate": for any day, the weighted average
----------------------------
of the rates on overnight federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers, as published on the next
succeeding Business Day by the Federal Reserve Bank of New York, or, if such
rate is not so published for any day that is a Business Day, the average of the
quotations for the day of such transactions received by Chase from three federal
funds brokers of recognized standing selected by it.
"Foreign Subsidiary": any Subsidiary of the Borrower that is not
------------------
a Domestic Subsidiary.
<PAGE>
11
"Funded Debt": as to any Person, all Indebtedness of such Person
-----------
that matures more than one year from the date of its creation or matures within
one year from such date but is renewable or extendible, at the option of such
Person, to a date more than one year from such date or arises under a revolving
credit or similar agreement that obligates the lender or lenders to extend
credit during a period of more than one year from such date, including all
current maturities and current sinking fund payments in respect of such
Indebtedness whether or not required to be paid within one year from the date of
its creation and, in the case of the Borrower, Indebtedness in respect of the
Loans.
"Funding Office": the office of the Administrative Agent
--------------
specified in Section 10.2 or such other office as may be specified from time to
time by the Administrative Agent as its funding office by written notice to the
Borrower and the Lenders.
"GAAP": generally accepted accounting principles in the United
----
States as in effect from time to time, except that for purposes of Section 7.1,
GAAP shall be determined on the basis of such principles in effect on the date
hereof and consistent with those used in the preparation of the most recent
audited financial statements delivered pursuant to Section 4.1(b). In the event
that any "Accounting Change" (as defined below) shall occur and such change
results in a change in the method of calculation of financial covenants,
standards or terms in this Agreement, then the Borrower and the Administrative
Agent agree to enter into negotiations in order to amend such provisions of this
Agreement so as to equitably reflect such Accounting Changes with the desired
result that the criteria for evaluating the Borrower's financial condition shall
be the same after such Accounting Changes as if such Accounting Changes had not
been made. Until such time as such an amendment shall have been executed and
delivered by the Borrower, the Administrative Agent and the Required Lenders,
all financial covenants, standards and terms in this Agreement shall continue to
be calculated or construed as if such Accounting Changes had not occurred.
"Accounting Changes" refers to changes in accounting principles required by the
promulgation of any rule, regulation, pronouncement or opinion by the Financial
Accounting Standards Board of the American Institute of Certified Public
Accountants or, if applicable, the SEC.
"Governmental Authority": any nation or government, any state or
----------------------
other political subdivision thereof, any agency, authority, instrumentality,
regulatory body, court, central bank or other entity exercising executive,
legislative, judicial, taxing, regulatory or administrative functions of or
pertaining to government.
"Guarantee and Collateral Agreement": the Guarantee and
----------------------------------
Collateral Agreement to be executed and delivered by Holdings, the Borrower and
each Subsidiary Guarantor, substantially in the form of Exhibit A, as the same
may be amended, supplemented or otherwise modified from time to time.
"Guarantee Obligation": as to any Person (the "guaranteeing
-------------------- ------------
person"), any obligation of (a) the guaranteeing person or (b) another Person
- ------
(including any bank under any letter of credit) to induce the creation of which
the guaranteeing person has issued a reimbursement, counterindemnity or similar
obligation, in either case guaranteeing or in effect guaranteeing any
Indebtedness, dividends or other obligations (the "primary obligations") of any
-------------------
other third Person (the "primary obligor") in any manner, whether directly or
---------------
indirectly, including any obligation of the guaranteeing person, whether or not
contingent, (i) to purchase any such primary obligation or any property
constituting direct or indirect security therefor, (ii) to advance or supply
funds (1) for the purchase or payment of any such primary obligation or (2) to
maintain working capital or equity capital of the primary obligor or otherwise
to maintain the net worth or solvency of the primary obligor, (iii) to purchase
property, securities or services primarily for the purpose of assuring the owner
of any such primary obligation of the ability of the primary obligor to make
payment of such primary obligation or (iv) otherwise to assure or hold harmless
<PAGE>
12
the owner of any such primary obligation against loss in respect thereof;
provided, however, that the term Guarantee Obligation shall not include standard
contractual indemnities, endorsements of instruments for deposit or collection
in the ordinary course of business. The amount of any Guarantee Obligation of
any guaranteeing person shall be deemed to be the lower of (a) an amount equal
to the stated or determinable amount of the primary obligation in respect of
which such Guarantee Obligation is made and (b) the maximum amount for which
such guaranteeing person may be liable pursuant to the terms of the instrument
embodying such Guarantee Obligation, unless such primary obligation and the
maximum amount for which such guaranteeing person may be liable are not stated
or determinable, in which case the amount of such Guarantee Obligation shall be
such guaranteeing person's maximum reasonably anticipated liability in respect
thereof as determined by the Borrower in good faith.
"Guarantors": the collective reference to Holdings and the
----------
Subsidiary Guarantors.
"Hedge Agreements": all interest rate swaps, caps or collar
----------------
agreements or similar arrangements dealing with interest rates or currency
exchange rates or the exchange of nominal interest obligations, either generally
or under specific contingencies.
"Holdings": as defined in the preamble hereto.
--------
"Indebtedness": of any Person at any date, without duplication,
------------
(a) all indebtedness of such Person for borrowed money, (b) all obligations of
such Person for the deferred purchase price of property or services (other than
current trade payables, accrued expenses or deferred rent incurred in the
ordinary course of such Person's business), (c) all obligations of such Person
evidenced by notes, bonds, debentures or other similar instruments, (d) all
indebtedness created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person (even
though 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),
(e) all Capital Lease Obligations of such Person, (f) all obligations of such
Person, contingent or otherwise, as an account party under acceptances, letters
of credit, surety bonds or similar arrangements, (g) the liquidation value of
all redeemable preferred Capital Stock of such Person, (h) all Guarantee
Obligations of such Person in respect of obligations of the kind referred to in
clauses (a) through (g) above, (i) all obligations of the kind referred to in
clauses (a) through (h) above secured by (or for which the holder of such
obligation has an existing right, contingent or otherwise, to be secured by) any
Lien on property (including accounts and contract rights) owned by such Person,
whether or not such Person has assumed or become liable for the payment of such
obligation, and (j) for the purposes of Sections 7.2 and 8(e) only, all
obligations of such Person in respect of Hedge Agreements. The Indebtedness of
any Person shall include the Indebtedness of any other entity (including any
partnership in which such Person is a general partner) to the extent such Person
is liable therefor as a result of such Person's ownership interest in such
entity, except to the extent the terms of such Indebtedness expressly provide
that such Person is not liable therefor.
"Insolvency": with respect to any Multiemployer Plan, the
----------
condition that such Plan is insolvent within the meaning of Section 4245 of
ERISA.
"Insolvent": pertaining to a condition of Insolvency.
---------
"Intellectual Property": the collective reference to all rights,
---------------------
priorities and privileges relating to intellectual property, whether arising
under United States, multinational or foreign laws or otherwise, including
copyrights, copyright licenses, patents, patent licenses, trademarks, trademark
licenses, technology, know-how and processes, and all rights to sue at law or in
equity for any
<PAGE>
13
infringement or other impairment thereof, including the right to receive all
proceeds and damages therefrom.
"Interest Payment Date": (a) as to any ABR Loan, the last day of
---------------------
each March, June, September and December to occur while such Loan is outstanding
and the final maturity date of such Loan, (b) as to any Eurodollar Loan having
an Interest Period of three months or less, the last day of such Interest
Period, (c) as to any Eurodollar Loan having an Interest Period longer than
three months, each day that is three months, or a whole multiple thereof, after
the first day of such Interest Period and the last day of such Interest Period
and (d) as to any Loan (other than, unless otherwise provided herein, any Loan
that is an ABR Loan), the date of any repayment or prepayment made in respect
thereof.
"Interest Period": as to any Eurodollar Loan, (a) initially, the
---------------
period commencing on the borrowing or conversion date, as the case may be, with
respect to such Eurodollar Loan and ending one, two, three, six or, if available
to all Lenders, such other periods as the Borrower may request, as selected by
the Borrower in its notice of borrowing or notice of conversion, as the case may
be, given with respect thereto; and (b) thereafter, each period commencing on
the last day of the next preceding Interest Period applicable to such Eurodollar
Loan and ending one, two, three, six or, if available to all Lenders, such other
periods as the Borrower may request, as selected by the Borrower by irrevocable
notice to the Administrative Agent not less than three Business Days prior to
the last day of the then current Interest Period with respect thereto; provided
that, all of the foregoing provisions relating to Interest Periods are subject
to the following:
(i) if any Interest Period 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;
(ii) the Borrower may not select an Interest Period that
would extend beyond the Termination Date;
(iii) any Interest Period 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 a calendar month; and
(iv) the Borrower shall select Interest Periods so as not
to require a payment or prepayment of any Eurodollar Loan during an
Interest Period for such Loan.
"Investments": as defined in Section 7.8.
-----------
"Issuing Lender": Chase, or any affiliate thereof, in its
--------------
capacity as issuer of any Letter of Credit.
"L/C Commitment": $5,000,000.
--------------
"L/C Fee Payment Date": the last day of each March, June,
--------------------
September and December and the last day of the Commitment Period.
<PAGE>
14
"L/C Obligations": at any time, an amount equal to the sum of
---------------
(a) the aggregate then undrawn and unexpired amount of the then outstanding
Letters of Credit and (b) the aggregate amount of drawings under Letters of
Credit that have not then been reimbursed pursuant to Section 3.5.
"L/C Participants": the collective reference to all the Lenders
----------------
other than the Issuing Lender.
"Lenders": as defined in the preamble hereto.
-------
"Letters of Credit": as defined in Section 3.1(a).
-----------------
"Lien": 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 any conditional sale or
other title retention agreement and any capital lease having substantially the
same economic effect as any of the foregoing).
"Loan Documents": this Agreement, the Security Documents and the
--------------
Notes.
"Loan Parties": Holdings, the Borrower and each Subsidiary of the
------------
Borrower that is a party to a Loan Document.
"Loans": as defined in Section 2.1(a).
-----
"Management Notes": as defined in Section 7.2(m).
----------------
"Material Adverse Effect": a material adverse effect on (a) the
-----------------------
Recapitalization, (b) the business, property, operations or financial condition
of the Borrower and its Subsidiaries taken as a whole or (c) the validity or
enforceability of this Agreement or any of the other Loan Documents or the
rights or remedies of the Administrative Agent or the Lenders hereunder or
thereunder.
"Materials of Environmental Concern": 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 asbestos, polychlorinated biphenyls
and urea-formaldehyde insulation.
"Mortgaged Properties": the real properties listed on
--------------------
Schedule 1.1B, as to which the Administrative Agent for the benefit of the
Lenders shall be granted a Lien pursuant to the Mortgages.
"Mortgages": each of the mortgages and deeds of trust made by any
---------
Loan Party in favor of, or for the benefit of, the Administrative Agent for the
benefit of the Lenders, substantially in the form of Exhibit D (with such
changes thereto as shall be advisable under the law of the jurisdiction in which
such mortgage or deed of trust is to be recorded), as the same may be amended,
supplemented or otherwise modified from time to time.
"Multiemployer Plan": a Plan that is a multiemployer plan as
------------------
defined in Section 4001(a)(3) of ERISA.
<PAGE>
15
"Net Cash Proceeds": (a) in connection with any Asset Sale or any
-----------------
Recovery Event, the proceeds thereof in the form of cash and Cash Equivalents
(including any such proceeds received by way of deferred payment of principal
pursuant to a note or installment receivable or purchase price adjustment
receivable or otherwise, but only as and when received) of such Asset Sale or
Recovery Event, net of attorneys' fees, accountants' fees, investment banking
fees, amounts required to be applied to the repayment of Indebtedness secured by
a Lien expressly permitted hereunder on any asset that is the subject of such
Asset Sale or Recovery Event (other than any Lien pursuant to a Security
Document) and other customary fees and expenses actually incurred in connection
therewith and net of taxes paid or reasonably estimated to be payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements) and (b) in connection with any
issuance or sale of Capital Stock or any incurrence of Indebtedness, the cash
proceeds received from such issuance or incurrence, net of attorneys' fees,
investment banking fees, accountants' fees, underwriting discounts and
commissions and other customary fees and expenses actually incurred in
connection therewith.
"Non-Excluded Taxes": as defined in Section 2.14(a).
------------------
"Non-U.S. Lender": as defined in Section 2.14(d).
---------------
"Notes": the collective reference to any promissory note
-----
evidencing Loans.
"Obligations": the unpaid principal of and interest on (including
-----------
interest accruing after the maturity of the Loans and Reimbursement Obligations
and interest accruing after the filing of any petition in bankruptcy, or the
commencement of any insolvency, reorganization or like proceeding, relating to
the Borrower, whether or not a claim for post-filing or post-petition interest
is allowed in such proceeding) the Loans and all other obligations and
liabilities of the Borrower to the Administrative Agent or to any Lender (or, in
the case of Hedge Agreements, any affiliate of any Lender), whether direct or
indirect, absolute or contingent, due or to become due, or now existing or
hereafter incurred, which may arise under, out of, or in connection with, this
Agreement, any other Loan Document, the Letters of Credit, any Hedge Agreement
entered into with any Lender or any affiliate of any Lender or any other
document made, delivered or given in connection herewith or therewith, whether
on account of principal, interest, reimbursement obligations, fees, indemnities,
costs, expenses (including all fees, charges and disbursements of counsel to the
Administrative Agent or to any Lender that are required to be paid by the
Borrower pursuant hereto) or otherwise.
"Other Taxes": any and all present or future stamp or documentary
-----------
taxes or any other excise or property taxes, charges or similar levies arising
from any payment made hereunder or from the execution, delivery or enforcement
of, or otherwise with respect to, this Agreement or any other Loan Document.
"Participant": as defined in Section 10.6(b).
-----------
"PBGC": the Pension Benefit Guaranty Corporation established
----
pursuant to Subtitle A of Title IV of ERISA (or any successor).
"Percentage": as to any Lender at any time, the percentage which
----------
such Lender's Commitment then constitutes of the Total Commitments (or, at any
time after the Commitments shall have expired or terminated, the percentage
which the aggregate principal amount of such Lender's Loans then outstanding
constitutes of the aggregate principal amount of the Loans then outstanding).
<PAGE>
16
"Permitted Acquired Person": any Person acquired in connection
-------------------------
with a Permitted Acquisition.
"Permitted Acquisition": any acquisition by Holdings, the Borrower
---------------------
or any Wholly Owned Subsidiary Guarantor of all of the Capital Stock of, or all
or substantially all of the assets of, or of a business, unit or division of,
any Person; provided that (a) the Borrower shall be in compliance, on a pro
-------- ---
forma basis after giving effect to such acquisition, with the covenants
- -----
contained in Section 7.1, in each case recomputed as at the last day of the most
recently ended fiscal quarter of the Borrower for which the relevant information
is available as if such acquisition had occurred on the first day of each
relevant period for testing such compliance (as demonstrated in a certificate of
a Responsible Officer delivered to the Administrative Agent not later than three
Business Days prior to such acquisition), (b) no Default or Event of Default
shall have occurred and be continuing, or would occur after giving effect to
such acquisition, (c) the Capital Stock and the other property so acquired (but
only to the extent required by Section 6.9) shall constitute Collateral, (d) in
the case of the acquisition of any Capital Stock, neither the relevant Permitted
Acquired Person nor any of its Subsidiaries shall be an Excluded Foreign
Subsidiary other than an Excluded Foreign Subsidiary incorporated under the laws
of Canada (provided, that after giving pro forma effect to such Permitted
Acquisition as if such Permitted Acquisition had been consummated on the first
day of the most recent period of four consecutive fiscal quarters for which the
relevant financial information is available, the portion of Consolidated EBITDA
for such period contributed by all Excluded Foreign Subsidiaries acquired
pursuant to Permitted Acquisitions shall not exceed 25%), (e) any such
acquisition shall have been approved by the Board of Directors or comparable
governing body of the relevant Person, and (f) the conditions set forth in
Section 5.3 shall have been satisfied with respect to such acquisition.
"Permitted Acquisition Date": with respect to each Permitted
--------------------------
Acquisition, the date on which the conditions precedent set forth in Section 5.3
shall have been satisfied.
"Permitted Investors": the collective reference to the Sponsor,
-------------------
Chase, BankBoston, N.A., Canadian Imperial Bank of Commerce, Harvard Private
Capital Holdings, Inc., Randolph Street Partners and their respective Control
Investment Affiliates.
"Person": an individual, partnership, corporation, limited
------
liability company, business trust, joint stock company, trust, unincorporated
association, joint venture, Governmental Authority or other entity of whatever
nature.
"Plan": at a particular time, any employee benefit plan that is
----
covered by Section 3(2) 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.
"Pricing Grid": the pricing grid attached hereto as Annex A.
------------
"Pro Forma Balance Sheet": as defined in Section 4.1(a).
-----------------------
"Projections": as defined in Section 6.2(c).
-----------
"Properties": as defined in Section 4.17(a).
----------
"Recapitalization": as defined in Section 5.1(b)(i).
----------------
<PAGE>
17
"Recapitalization Agreement": the Transaction Agreement among
--------------------------
Heilig-Meyers Company, Heilig-Meyers Associates, Inc. and MD Acquisition
Corporation dated as of May 28, 1999.
"Recapitalization Documentation": collectively, the
------------------------------
Recapitalization Agreement and all schedules, exhibits and annexes thereto and
all side letters and agreements affecting the terms thereof or entered into in
connection therewith, in each case as amended, supplemented or otherwise
modified from time to time in accordance with Section 7.16.
"Recovery Event": any settlement of or payment in respect of any
--------------
property or casualty insurance claim or any condemnation proceeding relating to
any asset of Holdings, the Borrower or any of their respective Subsidiaries.
"Register": as defined in Section 10.6(d).
--------
"Regulation U": Regulation U of the Board as in effect from time
------------
to time.
"Reimbursement Obligation": the obligation of the Borrower to
------------------------
reimburse the Issuing Lender pursuant to Section 3.5 for amounts drawn under
Letters of Credit.
"Reinvestment Deferred Amount": with respect to any Reinvestment
----------------------------
Event, the aggregate Net Cash Proceeds received by Holdings, the Borrower or any
of their respective Subsidiaries in connection therewith that are not applied to
reduce the Commitments pursuant to Section 2.6(c) or (d) as a result of the
delivery of a Reinvestment Notice.
"Reinvestment Event": any Asset Sale or Recovery Event in respect
------------------
of which the Borrower has delivered a Reinvestment Notice.
"Reinvestment Notice": a written notice executed by a Responsible
-------------------
Officer stating that no Event of Default has occurred and is continuing and that
the Borrower (directly or indirectly through a Subsidiary) intends and expects
to use all or a specified portion of the Net Cash Proceeds of an Asset Sale or
Recovery Event to acquire assets useful in its business.
"Reinvestment Prepayment Amount": with respect to any
------------------------------
Reinvestment Event, the Reinvestment Deferred Amount relating thereto less any
amount expended prior to the relevant Reinvestment Prepayment Date to acquire
assets useful in the Borrower's business.
"Reinvestment Prepayment Date": with respect to any Reinvestment
----------------------------
Event, the earlier of (a) the date occurring one year after such Reinvestment
Event and (b) the date on which the Borrower shall have determined not to, or
shall have otherwise ceased to, acquire assets useful in the Borrower's business
with all or any portion of the relevant Reinvestment Deferred Amount.
"Reorganization": with respect to any Multiemployer Plan, the
--------------
condition that such plan is in reorganization within the meaning of Section 4241
of ERISA.
"Reportable Event": any of the events set forth in Section
----------------
4043(c) of ERISA, other than those events as to which the thirty day notice
period is waived under subsections .27, .28, .29, .30, .31, .32, .34 or .35 of
PBGC Reg. (S) 4043.
<PAGE>
18
"Required Lenders": at any time, the holders of more than 50% of
----------------
the Total Commitments then in effect or, if the Commitments have been
terminated, the Total Extensions of Credit then outstanding.
"Requirement of Law": as to any Person, the Certificate of
------------------
Incorporation and By-Laws or other organizational or governing documents of such
Person, and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case applicable
to or binding upon such Person or any of its property or to which such Person or
any of its property is subject.
"Responsible Officer": the chief executive officer, president,
-------------------
vice president, secretary, vice president of finance or chief financial officer
of the Borrower, but in any event, with respect to financial matters, the chief
financial officer or vice president of finance of the Borrower.
"Restricted Payments": as defined in Section 7.6.
-------------------
"Sealy Supply Agreement": as defined in Schedule 7.10.
----------------------
"SEC": the Securities and Exchange Commission, any successor
---
thereto and any analogous Governmental Authority.
"Security Documents": the collective reference to the Guarantee
------------------
and Collateral Agreement, the Mortgages and all other security documents
hereafter delivered to the Administrative Agent granting a Lien on any property
of any Person to secure the obligations and liabilities of any Loan Party under
any Loan Document.
"Seller": Heilig-Meyers Company.
------
"Senior Note Indenture": the Indenture entered into by the
---------------------
Borrower and certain of its Subsidiaries in connection with the issuance of the
Senior Notes, together with all instruments and other agreements entered into by
the Borrower or such Subsidiaries in connection therewith, as the same may be
amended, supplemented or otherwise modified from time to time in accordance with
Section 7.9.
"Senior Notes": the notes of the Borrower issued on the Closing
------------
Date together with any Exchange Notes (as defined in the Senior Note Indenture)
issued in exchange for such notes pursuant to the Senior Note Indenture.
"Single Employer Plan": any Plan that is covered by Title IV of
--------------------
ERISA, but that is not a Multiemployer Plan.
"Solvent": when used with respect to any Person, means that, as
-------
of any date of determination, (a) the amount of the "present fair saleable
value" on a going concern basis of the assets of such Person will, as of such
date, exceed the amount of all "liabilities of such Person, contingent or
otherwise", as of such date, as such quoted terms are determined in accordance
with applicable federal and state laws governing determinations of the
insolvency of debtors, (b) the present fair saleable value on a going concern
basis of the assets of such Person will, as of such date, be greater than the
amount that will be required to pay the liability of such Person on its debts as
such debts become absolute and matured, (c) such Person will not have, as of
such date, an unreasonably small amount of capital with which to conduct its
business, and (d) such Person will be able to pay its debts as they mature.
For purposes of this definition, (i) "debt" means liability on a "claim", and
(ii) "claim" means any (x) right to
<PAGE>
19
payment, whether or not such a right is reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed,
legal, equitable, secured or unsecured or (y) right to an equitable remedy for
breach of performance if such breach gives rise to a right to payment, whether
or not such right to an equitable remedy is reduced to judgment, fixed,
contingent, matured or unmatured, disputed, undisputed, secured or unsecured.
"Sponsor": Bain Capital, Inc., a Delaware corporation.
-------
"Subordinated Debt": any unsecured Indebtedness of Holdings or the
-----------------
Borrower (other than the Senior Notes), provided, that (a) no part of the
principal of such Indebtedness is stated to be payable or is required to be paid
(whether by way of mandatory sinking fund, mandatory redemption, mandatory
prepayment or otherwise) prior to August 7, 2006; (b) the payment of the
principal of and interest on such Indebtedness and other obligations of Holdings
or the Borrower, as the case may be, in respect thereof are subordinated to the
prior payment in full of the principal of and interest (including post-petition
interest) on the Loans and all other obligations and liabilities of Holdings or
the Borrower, as the case may be, to the Administrative Agent and the Lenders
under the Loan Documents to which it is a party on the terms set forth in
Exhibit H; (c) such Indebtedness otherwise contains terms, covenants and
conditions (other than the applicable interest rate) which are either (i) no
less favorable to the Lenders than those contained in the Senior Note Indenture
or (ii) reasonably satisfactory in form and substance to the Required Lenders as
evidenced by their prior written approval thereof; (d) (i) if such Indebtedness
does not require payment of interest in cash prior to August 7, 2006, such
interest may not accrue at a rate in excess of 17% per annum or (ii) if such
Indebtedness does require payment of interest in cash prior to August 7, 2006
("Cash Pay Subordinated Debt"), the applicable interest rate shall not exceed
14%; (e) the Net Cash Proceeds of such Indebtedness are applied to make
Investments; and (f) no Default or Event of Default shall have occurred and be
continuing on a pro forma basis after giving effect thereto.
"Subordinated Seller Notes": the subordinated notes of Holdings
-------------------------
issued on the Closing Date to the Seller.
"Subsidiary": 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.
"Subsidiary Guarantor": each Subsidiary of the Borrower other
--------------------
than any Excluded Foreign Subsidiary.
"Tax Sharing Agreement": the Tax Sharing Agreement among Mattress
---------------------
Discounters Holding L.L.C., Holdings, the Borrower, TJB, Bedding Experts and
Comfort Source Mattress Company, dated as of August 6, 1999.
"Termination Date": August 6, 2005.
----------------
"TJB": T.J.B., Inc., a Maryland corporation.
---
<PAGE>
20
"Total Commitments": at any time, the aggregate amount of the
-----------------
Commitments then in effect.
"Total Extensions of Credit": at any time, the aggregate amount
--------------------------
of the Extensions of Credit of the Lenders outstanding at such time.
"Transferee": any Assignee or Participant.
----------
"Type": as to any Loan, its nature as an ABR Loan or a Eurodollar
----
Loan.
"United States": the United States of America.
-------------
"Wholly Owned Subsidiary": as to any Person, any other Person all
-----------------------
of the Capital Stock of which (other than directors' qualifying shares and/or
other nominal amounts of shares, each as required by law) is owned by such
Person directly and/or through other Wholly Owned Subsidiaries.
"Wholly Owned Subsidiary Guarantor": any Subsidiary Guarantor
---------------------------------
that is a Wholly Owned Subsidiary of the Borrower.
"Year 2000 Problems": limitations in the capacity or readiness to
------------------
handle date information (including, without limitation, calculations based on
date information) for the Year 1999 or years beginning January 1, 2000 of any of
the hardware, firmware or software systems ("Systems") associated with
information processing and delivery, operations or services (e.g., security and
alarms, elevators, communications and HVAC), including, without limitation,
equipment containing embedded microchips, in each case necessary to the business
or operations of Holdings, the Borrower and their respective Subsidiaries taken
as a whole.
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 other Loan Documents or any certificate or other
document made or delivered pursuant hereto or thereto.
(b) As used herein and in the other Loan Documents, and any
certificate or other document made or delivered pursuant hereto or thereto,
(i) accounting terms relating to Holdings, the Borrower and their respective
Subsidiaries not defined in Section 1.1 and accounting terms partly defined in
Section 1.1, to the extent not defined, shall have the respective meanings given
to them under GAAP, (ii) the words "include", "includes" and "including" shall
be deemed to be followed by the phrase "without limitation", (iii) the word
"incur" shall be construed to mean incur, create, issue, assume, become liable
in respect of or suffer to exist (and the words "incurred" and "incurrence"
shall have correlative meanings), and (iv) the words "asset" and "property"
shall be construed to have the same meaning and effect and to refer to any and
all tangible and intangible assets and properties, including cash, Capital
Stock, securities, revenues, accounts, leasehold interests and contract rights.
(c) The words "hereof", "herein" and "hereunder" and words
of similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement, and Section,
Schedule and Exhibit references are to this Agreement unless otherwise
specified.
(d) The meanings given to terms defined herein shall be
equally applicable to both the singular and plural forms of such terms.
<PAGE>
21
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS
2.1 Commitments. (a) Subject to the terms and conditions hereof,
-----------
each Lender severally agrees to make revolving credit loans ("Loans") to the
Borrower from time to time during the Commitment Period in an aggregate
principal amount at any one time outstanding which, when added to such Lender's
Percentage of the L/C Obligations then outstanding, does not exceed the lesser
of (a) such Lender's Commitment and (b) such Lender's Percentage of the
Borrowing Base then in effect; provided that the Borrower may not borrow Loans
in an amount exceeding $6,000,000 on the Closing Date. During the Commitment
Period the Borrower may use the Commitments by borrowing, prepaying the Loans in
whole or in part, and reborrowing, all in accordance with the terms and
conditions hereof. The Loans may from time to time be Eurodollar Loans or ABR
Loans, as determined by the Borrower and notified to the Administrative Agent in
accordance with Sections 2.2 and 2.7.
(b) The Borrower shall repay all outstanding Loans on the
Termination Date.
2.2 Procedure for Loan Borrowing. The Borrower may borrow
----------------------------
under the Commitments during the Commitment Period on any Business Day, provided
--------
that the Borrower shall give the Administrative Agent irrevocable notice (which
notice must be received by the Administrative Agent prior to 12:00 Noon, New
York City time, (a) three Business Days prior to the requested Borrowing Date,
in the case of Eurodollar Loans, or (b) on the requested Borrowing Date, in the
case of ABR Loans), specifying (i) the amount and Type of Loans to be borrowed,
(ii) the requested Borrowing Date and (iii) in the case of Eurodollar Loans, the
respective amounts of each such Type of Loan and the respective lengths of the
initial Interest Period therefor. Each borrowing under the Commitments shall be
in an amount equal to (x) in the case of ABR Loans, $500,000 or a whole multiple
thereof (or, if the then aggregate Available Commitments are less than $100,000,
such lesser amount) and (y) in the case of Eurodollar Loans, $1,000,000 or a
whole multiple of $100,000 in excess thereof. Upon receipt of any such notice
from the Borrower, the Administrative Agent shall promptly notify each Lender
thereof. Each Lender will make the amount of its pro rata share of each
--- ----
borrowing available to the Administrative Agent for the account of the Borrower
at the Funding Office prior to 12:00 Noon, New York City time, on the Borrowing
Date requested by the Borrower in funds immediately available to the
Administrative Agent. Such borrowing will then be made available to the Borrower
by the Administrative Agent 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.
2.3 Commitment Fees, etc. (a) The Borrower agrees to pay to the
--------------------
Administrative Agent for the account of each Lender a commitment fee for the
period from and including the Closing Date to the last day of the Commitment
Period, computed at the Commitment Fee Rate on the average daily amount of the
Available Commitment of such Lender during the period for which payment is made,
payable quarterly in arrears on the last day of each March, June, September and
December and on the Termination Date, commencing on the first of such dates to
occur after the date hereof.
(b) The Borrower agrees to pay to the Administrative Agent the
fees in the amounts and on the dates previously agreed to in writing by the
Borrower and the Administrative Agent.
2.4 Termination or Reduction of Commitments. The Borrower shall
---------------------------------------
have the right, upon not less than three Business Days' (or such shorter time as
the Administrative Agent shall agree to) notice to the Administrative Agent, to
terminate the Commitments or, from time to time, to reduce the amount of the
Commitments; provided that no such termination or reduction of Commitments shall
--------
be permitted if,
<PAGE>
22
after giving effect thereto and to any prepayments of the Loans made on the
effective date thereof, the Total Extensions of Credit would exceed the Total
Commitments. Any such reduction shall be in an amount equal to $1,000,000, or a
whole multiple thereof, and shall reduce permanently the Commitments then in
effect.
2.5 Optional Prepayments. The Borrower may at any time and from
--------------------
time to time prepay the Loans, in whole or in part, without premium or penalty,
upon irrevocable notice delivered to the Administrative Agent at least three
Business Days prior thereto in the case of Eurodollar Loans and at least one
Business Day prior thereto in the case of ABR Loans, which notice shall specify
the date and amount of prepayment and whether the prepayment is of Eurodollar
Loans or ABR Loans; provided, that if a Eurodollar Loan is prepaid on any day
other than the last day of the Interest Period applicable thereto, the Borrower
shall also pay any amounts owing pursuant to Section 2.15. Upon receipt of any
such notice the Administrative Agent shall promptly notify each relevant Lender
thereof. If any such notice is given, the amount specified in such notice shall
be due and payable on the date specified therein, together with (except in the
case of Loans that are ABR Loans) accrued interest to such date on the amount
prepaid. Partial prepayments of Loans shall be in an aggregate principal amount
of $1,000,000 or a whole multiple thereof.
2.6 Mandatory Prepayments and Commitment Reductions. (a) If any
-----------------------------------------------
Indebtedness shall be incurred by Holdings, the Borrower or any of their
respective Subsidiaries (excluding any Indebtedness incurred in accordance with
Section 7.2), an amount equal to 100% of the Net Cash Proceeds thereof shall be
applied on the date of such incurrence toward the reduction of the Commitments.
(b) If any Capital Stock shall be issued by Holdings, the
Borrower or any of their respective Subsidiaries, an amount equal to 50% of the
Net Cash Proceeds thereof (excluding such Net Cash Proceeds received (i) from
intercompany capital contributions made by Holdings, the Borrower or any of
their respective Subsidiaries, (ii) from the Permitted Investors (other than
Randolph Street Partners except to the extent its contribution is made on a pro
rata basis), (iii) by Holdings, the Borrower or any of their respective
Subsidiaries as payment for any shares of Capital Stock of Holdings, the
Borrower or any of their respective Subsidiaries purchased by, or the exercise
price under any option for any shares of Capital Stock of Holdings, the Borrower
or any of their respective Subsidiaries held by, any officer, director or
employee or consultant of Holdings, the Borrower or any of their respective
Subsidiaries and (iv) by Holdings or the Borrower as consideration for shares of
Capital Stock issued in connection with a Permitted Acquisition, provided that
the aggregate Net Cash Proceeds which may be excluded under this Agreement
pursuant to clause (iv) shall not exceed $20,000,000) shall be applied on the
date of such issuance toward the reduction of the Commitments; provided, that
--------
such percentage shall be reduced to 25% if the Consolidated Total Debt Ratio
immediately prior to giving effect to such application (determined as at the end
of the most recent period of four consecutive fiscal quarters for which the
relevant financial information is available) is not greater than 3.50 to 1.0.
(c) If on any date Holdings, the Borrower or any of their
respective Subsidiaries shall receive Net Cash Proceeds from any Asset Sale
then, unless a Reinvestment Notice shall be delivered in respect thereof, such
Net Cash Proceeds shall be applied on such date toward the reduction of the
Commitments; provided that, notwithstanding the foregoing, (i) the aggregate Net
--------
Cash Proceeds of Asset Sales that may be excluded from the foregoing requirement
pursuant to a Reinvestment Notice shall not exceed $750,000 in any fiscal year
of the Borrower and (ii) on each Reinvestment Prepayment Date, an amount equal
to the Reinvestment Prepayment Amount with respect to the relevant Reinvestment
Event shall be applied toward the reduction of the Commitments.
<PAGE>
23
(d) If on any date Holdings, the Borrower or any of their
respective Subsidiaries shall receive Net Cash Proceeds from any Recovery Event
then, unless a Reinvestment Notice shall be delivered in respect thereof, such
Net Cash Proceeds shall be applied on such date toward the reduction of the
Commitments; provided that, notwithstanding the foregoing, (i) the aggregate Net
--------
Cash Proceeds of Recovery Events that may be excluded from the foregoing
requirement pursuant to a Reinvestment Notice shall not exceed $1,500,000 in any
fiscal year of the Borrower and (ii) on each Reinvestment Prepayment Date, an
amount equal to the Reinvestment Prepayment Amount with respect to the relevant
Reinvestment Event shall be applied toward the reduction of the Commitments.
(e) If, for any fiscal year of the Borrower commencing with
the fiscal year ending December 31, 2000 (or, if the Borrower has not changed
its fiscal year pursuant to Section 7.12 by such date, February 28, 2001) there
shall be Excess Cash Flow, the Borrower shall, on the relevant Excess Cash Flow
Application Date, prepay the Loans in an amount equal to the ECF Percentage of
such Excess Cash Flow. Each such prepayment shall be made on a date (an "Excess
------
Cash Flow Application Date") no later than five days after the earlier of
- --------------------------
(i) the date on which the financial statements of the Borrower referred to in
Section 6.1(a), for the fiscal year with respect to which such prepayment is
made, are required to be delivered to the Lenders and (ii) the date such
financial statements are actually delivered.
(f) Any Commitment reductions made pursuant to Section 2.6
shall be permanent and shall be accompanied by prepayment of the Loans to the
extent, if any, that the Total Extensions of Credit exceed the amount of the
Total Commitments as so reduced, provided that if the aggregate principal amount
--------
of Loans then outstanding is less than the amount of such excess (because L/C
Obligations constitute a portion thereof), the Borrower shall, to the extent of
the balance of such excess, replace outstanding Letters of Credit and/or deposit
an amount in cash in a cash collateral account established with the
Administrative Agent for the benefit of the Lenders on terms and conditions
reasonably satisfactory to the Administrative Agent.
(g) If on any date the Total Extensions of Credit exceed the
lesser of (i) the Borrowing Base then in effect and (ii) the Total Commitments,
the Borrower shall on such date prepay the Loans in an amount equal to the
amount of such excess, provided that if the aggregate principal amount of Loans
--------
then outstanding is less than the amount of such excess (because L/C Obligations
constitute a portion thereof), the Borrower shall, to the extent of the balance
of such excess, replace outstanding Letters of Credit and/or deposit an amount
in cash in a cash collateral account established with the Administrative Agent
for the benefit of the Lenders on terms and conditions reasonably satisfactory
to the Administrative Agent.
(h) The application of any prepayment pursuant to this
Section 2.6 shall be made, first, to ABR Loans and, second, to Eurodollar Loans.
----- ------
Each prepayment of the Loans under this Section 2.6 shall be accompanied by
accrued interest to the date of such prepayment on the amount prepaid.
2.7 Conversion and Continuation Options. (a) The Borrower may
-----------------------------------
elect from time to time to convert Eurodollar Loans to ABR Loans by giving the
Administrative Agent at least two Business Days' prior irrevocable (subject to
Sections 2.11 and 2.13) notice of such election, provided that any such
--------
conversion of Eurodollar Loans may only be made on the last day of an Interest
Period with respect thereto. The Borrower may elect from time to time to convert
ABR Loans to Eurodollar Loans by giving the Administrative Agent at least three
Business Days' prior irrevocable (subject to Sections 2.11 and 2.13) notice of
such election (which notice shall specify the length of the initial Interest
Period therefor), provided that no ABR Loan may be converted into a Eurodollar
Loan when any Event of Default has occurred and is continuing and the
Administrative Agent or the Required Lenders have determined in its
<PAGE>
24
or their sole discretion not to permit such conversions. Upon receipt of any
such notice the Administrative Agent shall promptly notify each relevant Lender
thereof.
(b) Any Eurodollar Loan may be continued as such upon the
expiration of the then current Interest Period with respect thereto by the
Borrower giving irrevocable (subject to Sections 2.11 and 2.13) notice to the
Administrative Agent, in accordance with the applicable provisions of the term
"Interest Period" set forth in Section 1.1, of the length of the next Interest
Period to be applicable to such Loans, provided that no Eurodollar Loan may be
continued as such when any Event of Default has occurred and is continuing and
the Administrative Agent has or the Required Lenders have determined in its or
their sole discretion not to permit such continuations, and provided, further,
-------- -------
that if the Borrower shall fail to give any required notice as described above
in this paragraph or if such continuation is not permitted pursuant to the
preceding proviso such Loans shall be automatically converted to ABR Loans on
the last day of such then expiring Interest Period. Upon receipt of any such
notice the Administrative Agent shall promptly notify each relevant Lender
thereof.
2.8 Limitations on Eurodollar Tranches. Notwithstanding anything
----------------------------------
to the contrary in this Agreement, all borrowings, conversions and continuations
of Eurodollar Loans hereunder and all selections of Interest Periods hereunder
shall be in such amounts and be made pursuant to such elections so that, (a)
after giving effect thereto, the aggregate principal amount of the Eurodollar
Loans comprising each Eurodollar Tranche shall be equal to $1,000,000 or a whole
multiple of $100,000 in excess thereof and (b) no more than ten Eurodollar
Tranches shall be outstanding at any one time.
2.9 Interest Rates and Payment Dates. (a) Each Eurodollar Loan
--------------------------------
shall bear interest for each day during each Interest Period with respect
thereto at a rate per annum equal to the Eurodollar Rate determined for such day
plus the Applicable Margin.
(b) Each ABR Loan shall bear interest at a rate per annum equal to
the ABR plus the Applicable Margin.
(c) (i) If all or a portion of the principal amount of any Loan
or Reimbursement Obligation shall not be paid when due (whether at the stated
maturity, by acceleration or otherwise), such overdue amount shall bear interest
at a rate per annum equal to (x) in the case of the Loans, the rate that would
otherwise be applicable thereto pursuant to the foregoing provisions of this
Section plus 2% or (y) in the case of Reimbursement Obligations, the rate
----
applicable to ABR Loans plus 2%, and (ii) if all or a portion of any interest
----
payable on any Loan or Reimbursement Obligation or any commitment fee or other
amount payable hereunder shall not be paid when due (whether at the stated
maturity, by acceleration or otherwise), such overdue amount shall bear interest
at a rate per annum equal to the rate then applicable to ABR Loans plus 2%, in
----
each case, with respect to clauses (i) and (ii) above, from the date of such
non-payment until such amount is paid in full (as well after as before
judgment).
(d) Interest shall be payable in arrears on each Interest Payment
Date, provided that interest accruing pursuant to paragraph (c) of this Section
shall be payable from time to time on demand.
2.10 Computation of Interest and Fees. (a) Interest and fees
--------------------------------
payable pursuant hereto shall be calculated on the basis of a 360-day year for
the actual days elapsed, except that, with respect to ABR Loans the rate of
interest on which is calculated on the basis of the Prime Rate, the interest
thereon shall be calculated on the basis of a 365- (or 366-, as the case may be)
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
Eurodollar Rate. Any change in the interest rate on a Loan resulting from a
<PAGE>
25
change in the ABR or the Eurocurrency Reserve Requirements shall become
effective as of the opening of business on the day on which such change becomes
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 in interest rate.
(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 quotations used by the Administrative Agent in
determining any interest rate pursuant to Section 2.9(a).
2.12 Inability to Determine Interest Rate. If prior to the
------------------------------------
first day of any Interest Period:
(a) the Administrative Agent shall have determined (which
determination shall be conclusive and binding upon the Borrower) that, by reason
of circumstances affecting the relevant market, adequate and reasonable means do
not exist for ascertaining the Eurodollar Rate for such Interest Period, or
(b) the Administrative Agent shall have received notice from the
Required Lenders that the Eurodollar Rate determined or to be determined for
such Interest Period will not adequately and fairly reflect the cost to such
Lenders (as conclusively certified by such Lenders) of making or maintaining
their affected Loans during such Interest Period, the Administrative Agent shall
give telecopy or telephonic notice thereof to the Borrower and the Lenders as
soon as practicable thereafter, whereupon (i) no Loans may be made or continued
as, or converted to, Eurodollar Loans, until such time as the Administrative
Agent notifies the Borrower and the Lenders that the circumstances giving rise
to such notice no longer exist (such notification not to be unreasonably
withheld or delayed) and (ii) any notice of borrowing, conversion or
continuation given by the Borrower with respect to the Loans in respect of which
such determination was made shall be deemed to be rescinded by the Borrower.
2.1 Pro Rata Treatment and Payments. (a) Each borrowing by the
-------------------------------
Borrower from the Lenders hereunder, each payment by the Borrower on account of
any commitment fee and any reduction of the Commitments of the Lenders shall be
made pro rata according to the respective Percentages of the Lenders.
--- ----
(b) Each payment (including each prepayment) by the Borrower on
account of principal of and interest on the Loans shall be made pro rata
--- ----
according to the respective outstanding principal amounts of the Loans then held
by the Lenders.
(c) All payments (including prepayments) to be made by the
Borrower hereunder, whether on account of principal, interest, fees or
otherwise, shall be made without setoff or counterclaim and shall be made prior
to 12:00 Noon, New York City time, on the due date thereof to the Administrative
Agent, for the account of the Lenders, at the Funding Office, in Dollars and in
immediately available funds. The Administrative Agent shall distribute such
payments to the Lenders promptly upon receipt in like funds as received. If any
payment hereunder (other than payments on the Eurodollar Loans) becomes due and
payable on a day other than a Business Day, such payment shall be extended to
the next succeeding Business Day. If any payment on a Eurodollar Loan becomes
due and payable on a day other than a Business Day, the maturity thereof shall
be extended to the next succeeding
<PAGE>
26
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. In the case of any extension of any payment
of principal pursuant to the preceding two sentences, interest thereon shall be
payable at the then applicable rate during such extension.
(d) Unless the Administrative Agent shall have been notified in
writing by any Lender prior to a borrowing that such Lender will not make the
amount that would constitute its share of such borrowing available to the
Administrative Agent, the Administrative Agent may assume that such Lender is
making such amount available to the Administrative Agent, and the Administrative
Agent may, in reliance upon such assumption, make available to the Borrower a
corresponding amount. If such amount is not made available to the
Administrative Agent by the required time on the Borrowing Date therefor, such
Lender shall pay to the Administrative Agent, on demand, such amount with
interest thereon at a rate equal to the daily average Federal Funds Effective
Rate for the period until such Lender makes such amount immediately available to
the Administrative Agent. A certificate of the Administrative Agent submitted
to any Lender with respect to any amounts owing under this paragraph shall be
conclusive in the absence of manifest error. If such Lender's share of such
borrowing is not made available to the Administrative Agent by such Lender
within three Business Days of such Borrowing Date, the Administrative Agent
shall also be entitled to recover such amount with interest thereon at the rate
per annum applicable to ABR Loans, on demand, from the Borrower. Notwithstanding
anything contained in this Section 2.12(d), if the Administrative Agent demands
repayment pursuant to the preceding sentence the Borrower shall not be required
to pay any amount pursuant to Section 2.15 in connection with such repayment.
(e) Unless the Administrative Agent shall have been notified in
writing by the Borrower prior to the date of any payment being made hereunder
that the Borrower will not make such payment to the Administrative Agent, the
Administrative Agent may assume that the Borrower is making such payment, and
the Administrative Agent may, but shall not be required to, in reliance upon
such assumption, make available to the Lenders their respective pro rata shares
of a corresponding amount. If such payment is not made to the Administrative
Agent by the Borrower within three Business Days of such required date, the
Administrative Agent shall be entitled to recover, on demand, from each Lender
to which any amount which was made available pursuant to the preceding sentence,
such amount with interest thereon at the rate per annum equal to the daily
average Federal Funds Effective Rate. Nothing herein shall be deemed to limit
the rights of the Administrative Agent or any Lender against the Borrower.
2.13 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 any Lender to any tax of any kind
whatsoever with respect to this Agreement, any Letter of Credit, any
Application or any Eurodollar Loan made by it, or change the basis of
taxation of payments to such Lender in respect thereof (except for Non-
Excluded Taxes covered by Section 2.14 and changes in the rate of tax on
the overall net income of such Lender);
(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
<PAGE>
27
funds by, any office of such Lender that is not otherwise included in the
determination of the Eurodollar 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,
by an amount that such Lender deems to be material, of making, converting into,
continuing or maintaining Eurodollar Loans or issuing or participating in
Letters of Credit, or to reduce any amount receivable hereunder in respect
thereof, then, in any such case, the Borrower shall promptly pay such Lender,
within 15 Business Days of the receipt of its demand accompanied by
documentation supporting such reimbursement request, any additional amounts
necessary to compensate such Lender for such increased cost or reduced amount
receivable. If any Lender becomes entitled to claim any additional amounts
pursuant to this paragraph, it shall promptly notify the Borrower (with a copy
to the Administrative Agent) of the event by reason of which it has become so
entitled.
(b) If any Lender shall have 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 Governmental
Authority made subsequent to the date hereof 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 or under or in respect of any Letter of
Credit 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 deemed by such Lender to be material, then from time to time, after
submission by such Lender to the Borrower (with a copy to the Administrative
Agent) of a written request therefor, the Borrower shall pay to such Lender such
additional amount or amounts as will compensate such Lender for such reduction;
provided that the Borrower shall not be required to compensate a Lender pursuant
to this paragraph for any amounts incurred more than six months prior to the
date that such Lender notifies the Borrower of such Lender's intention to claim
compensation therefor; and provided further that, if the circumstances giving
-------- -------
rise to such claim have a retroactive effect, then such six-month period shall
be extended to include the period of such retroactive effect.
(c) A certificate as to any additional amounts payable pursuant
to this Section submitted by any Lender to the Borrower (with a copy to the
Administrative Agent) shall be conclusive in the absence of manifest error. The
obligations of the Borrower pursuant to this Section shall survive the
termination of this Agreement and the payment of the Loans and all other amounts
payable hereunder.
2.14 Taxes. (a) All payments made by the Borrower under this
-----
Agreement shall be made free and clear of, and without deduction or withholding
for or on account of, any present or future income, stamp or other taxes,
levies, imposts, duties, charges, fees, deductions or withholdings, now or
hereafter imposed, levied, collected, withheld or assessed by any Governmental
Authority, excluding net income taxes and franchise taxes (imposed in lieu of
net income taxes) imposed on the Administrative Agent or any Lender as a result
of a present or former connection between the Administrative Agent or such
Lender and the jurisdiction of the Governmental Authority imposing such tax or
any political subdivision or taxing authority thereof or therein (other than any
such connection arising solely from the Administrative Agent or such Lender
having executed, delivered or performed its obligations or received a payment
under, or enforced, this Agreement or any other Loan Document). If any such
non-excluded taxes, levies, imposts, duties, charges, fees, deductions or
withholdings ("Non-Excluded Taxes") or Other Taxes are required to be withheld
------------------
from any amounts payable to the Administrative Agent or any Lender
<PAGE>
28
hereunder, the amounts so payable to the Administrative Agent or such Lender
shall be increased to the extent necessary to yield to the Administrative Agent
or such Lender (after payment of all Non-Excluded Taxes and Other Taxes)
interest or any such other amounts payable hereunder at the rates or in the
amounts specified in this Agreement, provided, however, that the Borrower shall
-------- -------
not be required to increase any such amounts payable to any Lender with respect
to any Non-Excluded Taxes (i) that are attributable to such Lender's failure to
comply with the requirements of paragraph (d) or (e) of this Section or
(ii) that are United States withholding taxes imposed on amounts payable to such
Lender at the time the Lender becomes a party to this Agreement, except to the
extent that such Lender's assignor (if any) was entitled, at the time of
assignment, to receive additional amounts from the Borrower with respect to such
Non-Excluded Taxes pursuant to this paragraph.
(b) In addition, the Borrower shall pay any Other Taxes to the
relevant Governmental Authority in accordance with applicable law.
(c) Whenever any Non-Excluded Taxes or Other Taxes are payable by the
Borrower, as promptly as possible thereafter the Borrower shall send to the
Administrative Agent for its own account or for the account of the relevant
Lender, as the case may be, a certified copy of an original official receipt
received by the Borrower showing payment thereof. If the Borrower fails to pay
any Non-Excluded Taxes or Other Taxes when due to the appropriate taxing
authority or fails to remit to the Administrative Agent the required receipts or
other required documentary evidence, the Borrower shall indemnify the
Administrative Agent and the Lenders for any incremental taxes, interest or
penalties that may become payable by the Administrative Agent or any Lender as a
result of any such failure.
(d) Each Lender (or Transferee) that is not a citizen or resident of
the United States of America, a corporation, partnership or other entity created
or organized in or under the laws of the United States of America (or any
jurisdiction thereof), or any estate or trust that is subject to federal income
taxation regardless of the source of its income (a "Non-U.S. Lender") shall
---------------
deliver to the Borrower and the Administrative Agent (or, in the case of a
Participant, to the Lender from which the related participation shall have been
purchased) two copies of either U.S. Internal Revenue Service Form 1001 or Form
4224, or, in the case of a Non-U.S. Lender claiming exemption from U.S. federal
withholding tax under Section 871(h) or 881(c) of the Code with respect to
payments of "portfolio interest", a statement substantially in the form of
Exhibit G and a Form W-8, or any subsequent versions thereof or successors
thereto, properly completed and duly executed by such Non-U.S. Lender claiming
complete exemption from, or a reduced rate of, U.S. federal withholding tax on
all payments by the Borrower under this Agreement and the other Loan Documents.
Such forms shall be delivered by each Non-U.S. Lender on or before the date it
becomes a party to this Agreement (or, in the case of any Participant, on or
before the date such Participant purchases the related participation). In
addition, each Non-U.S. Lender shall deliver such forms promptly upon the
obsolescence or invalidity of any form previously delivered by such Non-U.S.
Lender. Each Non-U.S. Lender shall promptly notify the Borrower at any time it
determines that it is no longer in a position to provide any previously
delivered certificate to the Borrower (or any other form of certification
adopted by the U.S. taxing authorities for such purpose). Notwithstanding any
other provision of this paragraph, a Non-U.S. Lender shall not be required to
deliver any form pursuant to this paragraph that such Non-U.S. Lender is not
legally able to deliver.
(e) A Lender that is entitled to an exemption from or reduction of
non-U.S. withholding tax under the law of the jurisdiction in which the Borrower
is located, or any treaty to which such jurisdiction is a party, with respect to
payments under this Agreement shall deliver to the Borrower (with a copy to the
Administrative Agent), at the time or times prescribed by
<PAGE>
29
applicable law or reasonably requested by the Borrower, such properly completed
and executed documentation prescribed by applicable law as will permit such
payments to be made without withholding or at a reduced rate, provided that such
Lender is legally entitled to complete, execute and deliver such documentation
and in such Lender's judgment such completion, execution or submission would not
materially prejudice the legal position of such Lender.
(f) If Administrative Agent or any Lender receives a refund in
respect of any amounts paid by the Borrower pursuant to this Section 2.14, which
refund in the sole judgment of the Administrative Agent or such Lender is
allocable to such payment, it shall promptly notify the Borrower and shall,
within 15 Business Days after receipt, repay such refund to the Borrower net of
all out-of-pocket expenses of the Administrative Agent or such Lender; provided,
that the Borrower, upon the request of the Administrative Agent or any Lender,
agrees to promptly repay, within 15 Business Days of the receipt of demand
therefor accompanied by documentation supporting such request, the amount paid
over to the Administrative Agent or such Lender in the event the Administrative
Agent or such Lender is required to repay such refund to the relevant tax
authority.
(g) The agreements in this Section shall survive the termination of
this Agreement and the payment of the Loans and all other amounts payable
hereunder.
2.15 Indemnity. The Borrower agrees to indemnify each Lender and to
---------
hold each Lender harmless from any loss or expense that such Lender may sustain
or incur as a consequence of (a) default by the Borrower in making a borrowing
of, conversion into or continuation of Eurodollar Loans after the Borrower has
given a notice requesting the same in accordance with the provisions of this
Agreement, (b) default by the Borrower in making any prepayment of or conversion
from Eurodollar Loans after the Borrower has given a notice thereof in
accordance with the provisions of this Agreement or (c) the making of a
prepayment of Eurodollar Loans on a day that is not the last day of an Interest
Period with respect thereto. Such indemnification may include an amount equal
to the excess, if any, of (i) the amount of interest that would have accrued on
the amount so prepaid, or not so borrowed, converted or continued, for the
period from the date of such prepayment or of such failure to borrow, convert or
continue to the last day of such Interest Period (or, in the case of a failure
to borrow, convert or continue, the Interest Period that would have commenced on
the date of such failure) in each case at the applicable rate of interest for
such Loans provided for herein (excluding, however, the Applicable Margin
included therein, if any) over (ii) the amount of interest (as reasonably
determined by such Lender) that would have accrued to such Lender on such amount
by placing such amount on deposit for a comparable period with leading banks in
the interbank eurodollar market. A certificate as to any amounts payable
pursuant to this Section submitted to the Borrower by any Lender shall be
conclusive in the absence of manifest error. This covenant shall survive the
termination of this Agreement and the payment of the Loans and all other amounts
payable hereunder.
2.16 Change of Lending Office. Each Lender agrees that, upon the
------------------------
occurrence of any event giving rise to the operation of Section 2.13 or 2.14(a)
with respect to such Lender, it will, if requested by the Borrower, use
reasonable efforts (subject to overall policy considerations of such Lender) to
designate another lending office for any Loans affected by such event with the
object of avoiding the consequences of such event; provided, that such
--------
designation is made on terms that, in the sole judgment of such Lender, cause
such Lender and its lending office(s) to suffer no economic, legal or regulatory
disadvantage, and provided, further, that nothing in this Section shall affect
-------- -------
or postpone any of the obligations of any Borrower or the rights of any Lender
pursuant to Section 2.13 or 2.14(a).
2.17 Replacement of Lenders. The Borrower shall be permitted to
----------------------
replace any Lender that (a) requests reimbursement for amounts owing pursuant to
Section 2.13 or 2.14(a), (b) defaults in its
<PAGE>
30
obligation to make Loans hereunder, with a replacement financial institution or
(c) fails to comply with a proposed change, waiver, discharge or termination
under the Loan Documents otherwise approved by the Required Lenders (it being
understood that no such failure shall be deemed to arise solely from the failure
of such Lender to vote in favor of such change, waiver, discharge or
termination); provided that (i) such replacement does not conflict with any
--------
Requirement of Law, (ii) no Event of Default shall have occurred and be
continuing at the time of such replacement, (iii) prior to any such replacement,
such Lender shall have taken no action under Section 2.16 so as to eliminate the
continued need for payment of amounts owing pursuant to Section 2.13 or 2.14(a),
(iv) the replacement financial institution shall purchase, at par, all Loans and
other amounts owing to such replaced Lender on or prior to the date of
replacement, (v) unless clause (b) above is applicable, the Borrower shall be
liable to such replaced Lender under Section 2.15 if any Eurodollar Loan owing
to such replaced Lender shall be purchased other than on the last day of the
Interest Period relating thereto, (vi) the replacement financial institution, if
not already a Lender, shall be reasonably satisfactory to the Administrative
Agent, (vii) the replaced Lender shall be obligated to make such replacement in
accordance with the provisions of Section 10.6 (provided that the Borrower shall
be obligated to pay the registration and processing fee referred to therein),
(viii) until such time as such replacement shall be consummated, the Borrower
shall pay all additional amounts (if any) required pursuant to Section 2.13 or
2.14(a), as the case may be, and (ix) any such replacement shall not be deemed
to be a waiver of any rights that the Borrower, the Administrative Agent or any
other Lender shall have against the replaced Lender.
SECTION 3. LETTERS OF CREDIT
3.1 L/C Commitment. (a) Subject to the terms and conditions hereof,
--------------
the Issuing Lender, in reliance on the agreements of the other Lenders set forth
in Section 3.4(a), agrees to issue letters of credit ("Letters of Credit") for
-----------------
the account of the Borrower on any Business Day during the Commitment Period in
such form as may be approved from time to time by the Issuing Lender; provided
--------
that the Issuing Lender shall have no obligation to issue any Letter of Credit
if, after giving effect to such issuance, (i) the L/C Obligations would exceed
the L/C Commitment or (ii) the Total Extensions of Credit would exceed the
lesser of (x) the Total Commitments and (y) the Borrowing Base then in effect.
Each Letter of Credit shall (i) be denominated in Dollars, (ii) have a face
amount of at least $100,000 (unless otherwise agreed by the Issuing Lender) and
(iii) expire no later than the earlier of (x) the first anniversary of its date
of issuance and (y) the date that is five Business Days prior to the Termination
Date, provided that any Letter of Credit with a one-year term may provide for
the renewal thereof for additional one-year periods (which shall in no event
extend beyond the date referred to in clause (y) above).
(b) The Issuing Lender shall not at any time be obligated to issue
any Letter of Credit hereunder if such issuance would conflict with, or cause
the Issuing Lender or any L/C Participant to exceed any limits imposed by, any
applicable Requirement of Law.
3.2 Procedure for Issuance of Letter of Credit. The Borrower may
------------------------------------------
from time to time request that the Issuing Lender issue a Letter of Credit by
delivering to the Issuing Lender at its address for notices specified herein an
Application therefor, completed to the satisfaction of the Issuing Lender, and
such other certificates, documents and other papers and information as the
Issuing Lender may request. Upon receipt of any Application, the Issuing Lender
will process such Application and the certificates, documents and other papers
and information delivered to it in connection therewith in accordance with its
customary procedures and shall promptly issue the Letter of Credit requested
thereby (but in no event shall the Issuing Lender be required to issue any
Letter of Credit earlier than three Business Days after its receipt of the
Application therefor and all such other certificates, documents and
<PAGE>
31
other papers and information relating thereto) by issuing the original of such
Letter of Credit to the beneficiary thereof or as otherwise may be agreed to by
the Issuing Lender and the Borrower. The Issuing Lender shall furnish a copy of
such Letter of Credit to the Borrower promptly following the issuance thereof.
The Issuing Lender shall promptly furnish to the Administrative Agent, which
shall in turn promptly furnish to the Lenders, notice of the issuance of each
Letter of Credit (including the amount thereof).
3.3 Fees and Other Charges. (a) The Borrower will pay a fee on all
----------------------
outstanding Letters of Credit at a per annum rate equal to the Applicable Margin
then in effect with respect to Eurodollar Loans, shared ratably among the
Lenders and payable quarterly in arrears on each L/C Fee Payment Date after the
issuance date. In addition, the Borrower shall pay to the Issuing Lender for
its own account a fronting fee of 0.25% per annum on the undrawn and unexpired
amount of each Letter of Credit, payable quarterly in arrears on each L/C Fee
Payment Date after the Issuance Date.
(b) In addition to the foregoing fees, the Borrower shall pay or
reimburse the Issuing Lender for such normal and customary costs and expenses as
are incurred or charged by the Issuing Lender in issuing, negotiating, effecting
payment under, amending or otherwise administering any Letter of Credit.
3.4 L/C Participations. (a) The Issuing Lender irrevocably agrees
------------------
to grant and hereby grants to each L/C Participant, and, to induce the Issuing
Lender to issue Letters of Credit hereunder, each L/C Participant irrevocably
agrees to accept and purchase and hereby accepts and purchases from the Issuing
Lender, on the terms and conditions hereinafter stated, for such L/C
Participant's own account and risk an undivided interest equal to such L/C
Participant's Percentage in the Issuing Lender's obligations and rights under
each Letter of Credit issued hereunder and the amount of each draft paid by the
Issuing Lender thereunder. Each L/C Participant unconditionally and irrevocably
agrees with the Issuing Lender that, if a draft is paid under any Letter of
Credit for which the Issuing Lender is not reimbursed in full by the Borrower in
accordance with the terms of this Agreement, such L/C Participant shall pay to
the Issuing Lender upon demand at the Issuing Lender's address for notices
specified herein an amount equal to such L/C Participant's Percentage of the
amount of such draft, or any part thereof, that is not so reimbursed.
(b) If any amount required to be paid by any L/C Participant to the
Issuing Lender pursuant to Section 3.4(a) in respect of any unreimbursed portion
of any payment made by the Issuing Lender under any Letter of Credit is paid to
the Issuing Lender within three Business Days after the date such payment is
due, such L/C Participant shall pay to the Issuing Lender on demand an amount
equal to the product of (i) such amount, times (ii the daily average Federal
Funds Effective Rate during the period from and including the date such payment
is required to the date on which such payment is immediately available to the
Issuing Lender, times (ii a fraction the numerator of which is the number of
days that elapse during such period and the denominator of which is 360. If any
such amount required to be paid by any L/C Participant pursuant to Section
3.4(a) is not made available to the Issuing Lender by such L/C Participant
within three Business Days after the date such payment is due, the Issuing
Lender shall be entitled to recover from such L/C Participant, on demand, such
amount with interest thereon calculated from such due date at the rate per annum
applicable to ABR Loans. A certificate of the Issuing Lender submitted to any
L/C Participant with respect to any amounts owing under this Section shall be
conclusive in the absence of manifest error.
(c) Whenever, at any time after the Issuing Lender has made payment
under any Letter of Credit and has received from any L/C Participant its pro
rata share of such payment in accordance with
<PAGE>
32
Section 3.4(a), the Issuing Lender receives any payment related to such Letter
of Credit (whether directly from the Borrower or otherwise, including proceeds
of collateral applied thereto by the Issuing Lender), or any payment of interest
on account thereof, the Issuing Lender will distribute to such L/C Participant
its pro rata share thereof; provided, however, that in the event that any such
-------- -------
payment received by the Issuing Lender shall be required to be returned by the
Issuing Lender, such L/C Participant shall return to the Issuing Lender the
portion thereof previously distributed by the Issuing Lender to it.
3.5 Reimbursement Obligation of the Borrower. The Borrower agrees to
----------------------------------------
reimburse the Issuing Lender on each date on which the Issuing Lender notifies
the Borrower of the date and amount of a draft presented under any Letter of
Credit and paid by the Issuing Lender for the amount of (a) such draft so paid
and (b) any taxes, fees, charges or other costs or expenses incurred by the
Issuing Lender in connection with such payment. Each such payment shall be made
to the Issuing Lender at its address for notices specified herein in lawful
money of the United States and in immediately available funds. Interest shall
be payable on any and all amounts remaining unpaid by the Borrower under this
Section from the date such amounts become payable (whether at stated maturity,
by acceleration or otherwise) until payment in full at the rate set forth in (i)
until the second Business Day following the date of the applicable drawing,
Section 2.9(b) and (ii) thereafter, Section 2.9(c).
3.6 Obligations Absolute. The Borrower's obligations under this
--------------------
Section 3 shall be absolute and unconditional under any and all circumstances
and irrespective of any setoff, counterclaim or defense to payment that the
Borrower may have or have had against the Issuing Lender, any beneficiary of a
Letter of Credit or any other Person. The Borrower also agrees with the Issuing
Lender that the Issuing Lender shall not be responsible for, and the Borrower's
Reimbursement Obligations under Section 3.5 shall not be affected by, among
other things, the validity or genuineness of documents or of any endorsements
thereon, even though such documents shall in fact prove to be invalid,
fraudulent or forged, or any dispute between or among the Borrower and any
beneficiary of any Letter of Credit or any other party to which such Letter of
Credit may be transferred or any claims whatsoever of the Borrower against any
beneficiary of such Letter of Credit or any such transferee. The Issuing Lender
shall not be liable for any error, omission, interruption or delay in
transmission, dispatch or delivery of any message or advice, however
transmitted, in connection with any Letter of Credit, except for errors or
omissions resulting from the bad faith, gross negligence or willful misconduct
of the Issuing Lender. The Borrower agrees that any action taken or omitted by
the Issuing Lender under or in connection with any Letter of Credit or the
related drafts or documents, if done in the absence of bad faith, gross
negligence or willful misconduct and in accordance with the standards of care
specified in the Uniform Commercial Code of the State of New York, shall be
binding on the Borrower and shall not result in any liability of the Issuing
Lender to the Borrower.
3.7 Letter of Credit Payments. If any draft shall be presented for
-------------------------
payment under any Letter of Credit, the Issuing Lender shall promptly notify the
Borrower of the date and amount thereof. The responsibility of the Issuing
Lender to the Borrower in connection with any draft presented for payment under
any Letter of Credit shall, in addition to any payment obligation expressly
provided for in such Letter of Credit, be limited to determining that the
documents (including each draft) delivered under such Letter of Credit in
connection with such presentment are substantially in conformity with such
Letter of Credit.
3.8 Applications. To the extent that any provision of any
------------
Application related to any Letter of Credit is inconsistent with the provisions
of this Section 3, the provisions of this Section 3 shall apply.
<PAGE>
33
SECTION 4. REPRESENTATIONS AND WARRANTIES
To induce the Administrative Agent and the Lenders to enter into this
Agreement and to make the Loans and issue or participate in the Letters of
Credit, Holdings and the Borrower hereby jointly and severally represent and
warrant to the Administrative Agent and each Lender that:
4.1 Financial Condition. (a) The unaudited pro forma combined
------------------- --- -----
balance sheet of the Borrower as at February 28, 1999 (including the notes
thereto) (the "Pro Forma Balance Sheet"), copies of which have heretofore been
-----------------------
furnished to each Lender, has been prepared giving effect (as if such events had
occurred on such date) to (i) the consummation of the Recapitalization, (ii) the
Loans to be made and the Senior Notes to be issued on the Closing Date and the
use of the proceeds thereof and (iii) the payment of fees and expenses in
connection with the foregoing. The Pro Forma Balance Sheet presents fairly in
all material respects on a pro forma basis the estimated financial position of
--- -----
Borrower as at February 28, 1999, assuming that the events specified in the
preceding sentence had actually occurred at such date.
(b) The audited combined balance sheets of the Borrower as at
December 28, 1996, February 28, 1998 and February 28, 1999, and the related
combined statements of income and of cash flows for the fiscal periods ended on
such dates, reported on by and accompanied by an unqualified report from the
relevant firm of accountants, present fairly in all material respects the
combined financial condition of the Borrower as at such date, and the combined
results of its operations and its combined cash flows for the respective fiscal
periods then ended. The audited combined balance sheet of the Borrower as at
July 1, 1997, and the related combined statements of income and of cash flows
for the six-month period ended on such date, present fairly in all material
respects the combined financial condition of the Borrower as at such date, and
the combined results of its operations and its combined cash flows for such
period. The audited combined balance sheet of Bedding Experts as at July 1,
1997, and the related combined statements of income and of cash flows for the
six-month period ended on such date, present fairly in all material respects the
combined financial condition of Bedding Experts as at such date, and the
combined results of its operations and its combined cash flows for such period.
The unaudited combined balance sheet of the Borrower as at May 31, 1999, and the
related unaudited combined statements of income and cash flows for the three-
month period ended on such date, present fairly in all material respects the
combined financial condition of the Borrower as at such date, and the combined
results of its operations and its combined cash flows for the three-month period
then ended (subject to normal year-end audit adjustments). 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 discussed therein, the absence of footnotes for all
unaudited periods and, in the case of audited financial statements, as approved
by the relevant firm of accountants). Holdings, the Borrower and their
respective Subsidiaries do not have any material Guarantee Obligations,
contingent liabilities and liabilities for taxes, or any long-term leases or
unusual forward or long-term commitments, including any interest rate or foreign
currency swap or exchange transaction or other obligation in respect of
derivatives, that are not reflected in the most recent financial statements
referred to in this paragraph. During the period from February 28, 1999 to and
including the date hereof there has been no Disposition by Holdings, the
Borrower or any of their respective Subsidiaries of any material part of its
business or property.
4.2 No Change. Since February 28, 1999, there has been no
---------
development or event that has had or could reasonably be expected to have a
Material Adverse Effect.
<PAGE>
34
4.3 Corporate Existence; Compliance with Law. Each Loan Party (a) is
----------------------------------------
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, (b) has the corporate power and authority, and
the legal right, to own and operate its property, to lease the property it
operates as lessee and to conduct the business in which it is currently engaged
except for any consents needed to transfer leases required as a result of the
Recapitalization the failure to obtain which could not, in the aggregate,
reasonably be expected to have a Material Adverse Effect, (c) is duly qualified
as a foreign corporation 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 as 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.
4.4 Corporate Power; Authorization; Enforceable Obligations. Each
-------------------------------------------------------
Loan Party has the corporate power and authority, and the legal right, to make,
deliver and perform the Loan Documents to which it is a party and, in the case
of the Borrower, to borrow hereunder. Each Loan Party has taken all necessary
corporate action to authorize the execution, delivery and performance of the
Loan Documents to which it is a party and, in the case of the Borrower, to
authorize the borrowings on the terms and conditions of this Agreement. No
consent or authorization of, filing with, notice to or other act by or in
respect of, any Governmental Authority or any other Person is required in
connection with the Recapitalization except consents, authorizations, filings
and notices (i) which have been obtained or made and are in full force and
effect or (ii) the failure to obtain which could not, in the aggregate,
reasonably be expected to have a Material Adverse Effect. No consent or
authorization of, filing with, notice to or other act by or in respect of, any
Governmental Authority or any other Person is required in connection with the
borrowings hereunder or with the execution, delivery, performance, validity or
enforceability of this Agreement or any of the Loan Documents, except
(i) consents, authorizations, filings and notices which have been obtained or
made and are in full force and effect and (ii) the filings referred to in
Section 4.19. Each Loan Document has been duly executed and delivered on behalf
of each Loan Party party thereto. This Agreement constitutes, and each other
Loan Document upon execution will constitute, a legal, valid and binding
obligation of each Loan Party party thereto, enforceable against each such Loan
Party 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).
4.5 No Legal Bar. The execution, delivery and performance of this
------------
Agreement and the other Loan Documents, the issuance of Letters of Credit, the
borrowings hereunder and the use of the proceeds thereof will not violate any
Requirement of Law or any Contractual Obligation of Holdings, the Borrower or
any other Loan Party and will not result in, or require, the creation or
imposition of any Lien on any of their respective properties or revenues
pursuant to any Requirement of Law or any such Contractual Obligation (other
than the Liens created by the Security Documents).
4.6 Litigation. No litigation, investigation or proceeding of or
----------
before any arbitrator or Governmental Authority is pending or, to the knowledge
of Holdings or the Borrower, threatened by or against Holdings, the Borrower or
any of their respective Subsidiaries or against any of their respective
properties or revenues (a) with respect to any of the Loan Documents or any of
the transactions contemplated hereby or thereby, or (b) that could reasonably be
expected to have a Material Adverse Effect.
<PAGE>
35
4.7 No Default. Neither Holdings, the Borrower nor any of their
----------
respective Subsidiaries is in default under or with respect to any of its
Contractual Obligations in any respect that could reasonably be expected to have
a Material Adverse Effect.
4.8 Ownership of Property. Each of Holdings, the Borrower and each
---------------------
other Loan Party has title in fee simple to, or a valid leasehold interest in,
all its real property, and good title to, or a valid leasehold interest in, all
its other property.
4.9 Intellectual Property. Holdings, the Borrower and each of their
---------------------
respective Subsidiaries owns, or is licensed to use, all material Intellectual
Property necessary for the conduct of its business as currently conducted. No
material claim has been asserted and is pending by any Person challenging or
questioning the use of any Intellectual Property or the validity or
effectiveness of any Intellectual Property, nor does Holdings or the Borrower
know of any valid basis for any such material claim. To the best knowledge of
the Borrower, the use of Intellectual Property by Holdings, the Borrower and
their respective Subsidiaries in the conduct of their business as currently
conducted does not infringe on the rights of any Person in any material respect.
4.10 Taxes. Except as set forth on Schedule 4.10, each of Holdings,
-----
the Borrower and each of their respective Subsidiaries has filed or caused to be
filed all Federal, material state and other material tax returns that are
required to be filed and has paid all material taxes shown to be due and payable
on said returns or on any assessments made against it or any of its property and
all other taxes, fees or other charges imposed on it or any of its property by
any Governmental Authority (other than any the amount or validity of that are
currently being contested in good faith by appropriate proceedings and with
respect to which reserves in conformity with GAAP have been provided on the
books of Holdings, the Borrower or their respective Subsidiaries, as the case
may be); no material tax Lien has been filed, and, to the knowledge of Holdings
and the Borrower, no material claim is being asserted, with respect to any such
tax, fee or other charge.
4.11 Federal Regulations. No part of the proceeds of any Loans will
-------------------
be used for "buying" or "carrying" any "margin stock" within the respective
meanings of each of the quoted terms under Regulation U as now and from time to
time hereafter in effect or for any purpose that violates the provisions of the
Regulations of the Board. If requested by any Lender or the Administrative
Agent, the Borrower will furnish to the Administrative Agent and each Lender a
statement to the foregoing effect in conformity with the requirements of FR Form
G-3 or FR Form U-1, as applicable, referred to in Regulation U.
4.12 Labor Matters. Except as, in the aggregate, could not
-------------
reasonably be expected to have a Material Adverse Effect: (a) there are no
strikes or other labor disputes against Holdings, the Borrower or any of their
respective Subsidiaries pending or, to the knowledge of Holdings or the
Borrower, threatened; (b) hours worked by and payment made to employees of
Holdings, the Borrower and their respective Subsidiaries have not been in
violation of the Fair Labor Standards Act or any other applicable Requirement of
Law dealing with such matters; and (c) all payments due from Holdings, the
Borrower or any of their respective Subsidiaries on account of employee health
and welfare insurance have been paid or accrued as a liability on the books of
Holdings, the Borrower or the relevant Subsidiary.
4.13 ERISA. 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
<PAGE>
36
any Plan, and each Plan has complied in all material respects with the
applicable provisions of ERISA and the Code. No termination of a Single Employer
Plan has occurred, and no Lien in favor of the PBGC or a Plan has arisen, during
such five-year period. 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 a material amount. Neither the
Borrower nor any Commonly Controlled Entity has had a complete or partial
withdrawal from any Multiemployer Plan that has resulted or could reasonably be
expected to result in a material liability under ERISA, and neither the Borrower
nor any Commonly Controlled Entity would become subject to any material
liability under ERISA if the Borrower or any such Commonly Controlled Entity
were to withdraw completely from all Multiemployer Plans as of the valuation
date most closely preceding the date on which this representation is made or
deemed made. No such Multiemployer Plan is in Reorganization or Insolvent.
4.14 Investment Company Act; Other Regulations. No Loan 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. No Loan
Party is subject to regulation under any Requirement of Law (other than
Regulation X of the Board and Requirements of Law of the type referred to in the
exception contained in the last sentence of Section 4.4) that limits its ability
to incur Indebtedness.
4.15 Subsidiaries. Except as disclosed to the Administrative Agent
------------
by the Borrower in writing from time to time after the Closing Date, (a)
Schedule 4.15 sets forth the name and jurisdiction of incorporation of each
Subsidiary and, as to each such Subsidiary, the percentage of each class of
Capital Stock owned by any Loan Party and (b) there are no outstanding
subscriptions, options, warrants, calls, rights or other agreements or
commitments (other than stock options granted to employees or directors and
directors' qualifying shares) of any nature relating to any Capital Stock of the
Borrower or any Subsidiary, except as created by the Loan Documents.
4.16 Use of Proceeds. The proceeds of the Loans and the Letters of
---------------
Credit shall be used for general corporate purposes of the Borrower and the
Subsidiaries (including, without limitation, to provide working capital and
finance Permitted Acquisitions).
4.17 Environmental Matters. Except as, in the aggregate, could not
---------------------
reasonably be expected to result in a Material Adverse Effect:
(a) the facilities and properties owned, leased or operated by
Holdings, the Borrower or any of their respective Subsidiaries (the
"Properties") do not contain, and have not previously contained, any Materials
of Environmental Concern in amounts or concentrations or under circumstances
that constitute or constituted a violation of, or could give rise to liability
under, any Environmental Law;
(b) neither Holdings, the Borrower nor any of their respective
Subsidiaries has received any written 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 operated by Holdings, the Borrower or any of their
respective Subsidiaries (the "Business"), nor does Holdings or the Borrower
have knowledge that any such notice will be received or is being threatened;
<PAGE>
37
(c) Materials of Environmental Concern have not been transported or
disposed of or from the Properties in violation of, or in a manner or to a
location that could reasonably be expected to 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;
(d) no judicial proceeding or governmental or administrative action
is pending or, to the knowledge of Holdings and the Borrower, threatened,
under any Environmental Law to which Holdings, the Borrower or any Subsidiary
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;
(e) 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 Holdings, the Borrower or any Subsidiary in connection with
the Properties or otherwise in connection with the Business, in violation of
Environmental Laws;
(f) the Properties and all operations at the Properties are in
compliance, and have in the last five years been in compliance, with all
applicable Environmental Laws; and
(g) neither Holdings, the Borrower nor any of their respective
Subsidiaries has retained or contractually assumed any liability of any other
Person under Environmental Laws.
4.18 Accuracy of Information, etc. No statement or information
----------------------------
contained in this Agreement, any other Loan Document or any other document,
certificate or statement furnished by or on behalf of any Loan Party to the
Administrative Agent or the Lenders, or any of them, for use in connection with
the transactions contemplated by this Agreement or the other Loan Documents,
contained as of the date such statement, information, document or certificate
was so furnished, any untrue statement of a material fact or omitted to state a
material fact necessary to make the statements contained herein or therein not
misleading in light of the circumstances under which such information was
furnished. The projections and pro forma financial information contained in the
--- -----
materials referenced above are based upon good faith estimates and assumptions
believed by management of the Borrower to be reasonable at the time made, it
being recognized by the Lenders that such financial information as it relates to
future events is not to be viewed as fact and that actual results during the
period or periods covered by such financial information may differ from the
projected results set forth therein by a material amount. As of the date
hereof, the representations and warranties of Holdings and, to the knowledge of
Holdings, the Seller contained in the Recapitalization Documentation are true
and correct in all material respects. There is no fact known to any Loan Party
that could reasonably be expected to have a Material Adverse Effect that has not
been expressly disclosed herein, in the other Loan Documents or in any other
documents, certificates and statements furnished to the Administrative Agent and
the Lenders for use in connection with the transactions contemplated hereby and
by the other Loan Documents.
4.19 Security Documents. (a) The Guarantee and Collateral Agreement
------------------
is effective to create in favor of the Administrative Agent, for the benefit of
the Lenders, a legal, valid and enforceable security interest in the Collateral
described therein and proceeds thereof. In the case of the Pledged Stock
described in the
<PAGE>
38
Guarantee and Collateral Agreement, when stock certificates representing such
Pledged Stock are delivered to the Administrative Agent, and in the case of the
other Collateral described in the Guarantee and Collateral Agreement, when
financing statements and other filings specified on Schedule 4.19(a) in
appropriate form are filed in the offices specified on Schedule 4.19(a), the
Guarantee and Collateral Agreement shall constitute a fully perfected Lien on,
and security interest in, all right, title and interest of the Loan Parties in
such Collateral and the proceeds thereof, as security for the Obligations (as
defined in the Guarantee and Collateral Agreement), in each case prior and
superior in right to any other Person (except, in the case of Collateral other
than Pledged Stock, Liens permitted by Section 7.3 and, with respect to
Collateral consisting of Pledged Stock, nonconsensual Liens permitted by Section
7.3(a)).
(b) Each of the Mortgages is effective to create in favor of the
Administrative Agent, for the benefit of the Lenders, a legal, valid and
enforceable Lien on the Mortgaged Properties described therein and proceeds
thereof, and when the Mortgages are filed in the offices specified on Schedule
4.19(b), each such Mortgage shall constitute a fully perfected Lien on, and
security interest in, all right, title and interest of the Loan Parties in the
Mortgaged Properties and the proceeds thereof, as security for the Obligations
(as defined in the relevant Mortgage), in each case prior and superior in right
to any other Person (except for Liens permitted by Section 7.3(a), (b), (e), (k)
and (m)).
(c) Schedule 4.19(c) lists each parcel of real property in the United
States owned in fee simple by the Borrower or any of its Subsidiaries as of the
Closing Date.
4.20 Solvency. Each Loan Party is, and after giving effect to the
--------
Recapitalization and the incurrence of all Indebtedness and obligations being
incurred in connection herewith and therewith will be and will continue to be,
Solvent.
4.21 Senior Indebtedness. The obligations of Holdings under the
-------------------
Guarantee and Collateral Agreement constitute "Senior Debt" of Holdings under
and as defined in the Subordinated Seller Notes.
4.22 Year 2000 Matters. Holdings and the Borrower reasonably believe
-----------------
that, as relating to Holdings, the Borrower and each of their respective
Subsidiaries, taken as a whole, (a) the assessment and correction of any Year
2000 Problems, in each case, which, individually or in the aggregate, if not
corrected could reasonably be expected to have a Material Adverse Effect, will
be substantially completed on or prior to September 30, 1999, (b) a Material
Adverse Effect will not occur as a result of any Year 2000 Problem, and (c) the
aggregate costs and expenses incurred and reasonably expected to be incurred in
connection with the assessment and correction of Year 2000 Problems, including,
without limitation, a plan of correction, with respect to any Year 2000
problems, and the testing and monitoring of all Systems and the correction of
Year 2000 Problems, could not reasonably be expected to have a Material Adverse
Effect.
4.23 Regulation H. No Mortgage encumbers improved real property that
------------
is located in an area that has been identified by the Secretary of Housing and
Urban Development as an area having special flood hazards and in which flood
insurance has been made available under the National Flood Insurance Act of
1968.
<PAGE>
39
SECTION 5. CONDITIONS PRECEDENT
5.1 Conditions to Initial Extension of Credit. The agreement of each
-----------------------------------------
Lender to make the initial extension of credit requested to be made by it is
subject to the satisfaction (or waiver), prior to or concurrently with the
making of such extension of credit on the Closing Date, of the following
conditions precedent:
(a) Credit Agreement; Guarantee and Collateral Agreement. The
----------------------------------------------------
Administrative Agent shall have received (i) this Agreement, executed and
delivered by the Administrative Agent, Holdings, the Borrower and each Person
listed on Schedule 1.1A, (ii) the Guarantee and Collateral Agreement, executed
and delivered by Holdings, the Borrower and each Subsidiary Guarantor and
(iii) an Acknowledgement and Consent in the form attached to the Guarantee and
Collateral Agreement, executed and delivered by each Issuer (as defined
therein), if any, that is not a Loan Party.
In the event that this Agreement has not been duly executed and
delivered by each Person listed on Schedule 1.1A on the date scheduled to be
the Closing Date, the condition referred to in clause (i) above shall
nevertheless be deemed satisfied if on such date the Borrower and the
Administrative Agent shall have designated one or more Persons (the
"Designated Lenders") to assume, in the aggregate, all of the Commitments that
would have been held by the Persons listed on Schedule 1.1A (the "Non-
Executing Persons") which have not so executed and delivered this Agreement
(subject to each such Designated Lender's consent and its execution and
delivery of this Agreement). Schedule 1.1A shall automatically be deemed to
be amended to reflect the respective Commitments of the Designated Lenders and
the omission of the Non-Executing Persons as Lenders hereunder.
(b) Recapitalization, etc. The following transactions shall have
---------------------
been consummated, in each case on terms and conditions reasonably satisfactory
to the Lenders:
(i) the Seller shall have contributed all issued and outstanding
shares of Capital Stock of the Borrower, TJB and Bedding Experts to
Heilig-Meyers Associates ("HMA"); immediately thereafter HMA shall
have merged with MD Acquisition Corp. and HMA, as the surviving
corporation, shall have changed its name to Mattress Discounters
Holding Corporation (collectively, the "Recapitalization");
(ii) all of the issued and outstanding shares of Capital Stock of
TJB and Bedding Experts shall have been contributed to the Borrower;
(iii) Holdings shall have received at least $82,175,000 from the
proceeds of common equity issued by Holdings to funds managed by the
Sponsor and other investors reasonably satisfactory to the
Administrative Agent, provided that up to 8% of such amount may be in
the form of rollover equity of the Seller;
(iv) the Borrower shall have received at least $125,290,000 in
gross cash proceeds from the issuance of the Senior Notes;
(v) Holdings shall have issued the Subordinated Seller Notes in a
principal amount not exceeding $17,500,000;
<PAGE>
40
(vi) With the exception of Indebtedness listed on Schedule
7.2(d), (i) the Administrative Agent shall have received reasonably
satisfactory evidence that all material existing Indebtedness of
Holdings, the Borrower and their respective Subsidiaries shall have
been repaid in full and (ii) reasonably satisfactory arrangements
shall have been made for the termination of all Liens granted in
connection therewith; and
(vii) the Recapitalization shall have been consummated for an
aggregate purchase price not exceeding $227,675,000 (excluding related
fees and expenses, which shall not exceed $13,000,000).
(c) Pro Forma Balance Sheet; Financial Statements. The
---------------------------------------------
Administrative Agent shall have received (i) the Pro Forma Balance Sheet, in
form and substance reasonably satisfactory to the Administrative Agent;
(ii) the financial statements referred to in Section 4.1(b); and (iii) an
unaudited monthly combined balance sheet of the Borrower as at June 30, 1999
and the related combined statement of income, provided that a combined
statement of cash flows for the monthly period ended on such date shall not be
required so long as the financial statements so delivered shall include
sufficient information to enable the Administrative Agent to construct a
statement of cash flows; provided further, that all such financial statements
shall, except in the case of audited financial statements, be reasonably
satisfactory to the Administrative Agent.
(d) Approvals. All governmental and third party approvals
---------
necessary in connection with the Recapitalization and the transactions
contemplated hereby shall have been obtained and be in full force and effect
except approvals the failure of which to obtain could not, in the aggregate,
reasonably be expected to have a Material Adverse Effect, and all applicable
waiting periods shall have expired without any action being taken or
threatened by any competent authority that would restrain, prevent or
otherwise impose adverse conditions on the Recapitalization or the financing
contemplated hereby.
(e) Lien Searches. The Administrative Agent shall have received
-------------
the results of a recent lien search in each of the jurisdictions where assets
of the Loan Parties are located, and such search shall reveal no liens on any
of the assets of Holdings, the Borrower or their respective Subsidiaries
except for liens permitted by Section 7.3 or discharged on or prior to the
Closing Date pursuant to documentation reasonably satisfactory to the
Administrative Agent.
(f) Environmental Audit. The Administrative Agent shall be
-------------------
reasonably satisfied with an environmental due diligence review with respect
to the owned Mortgaged Properties and any other real properties of the
Borrower and its Subsidiaries.
(g) Fees. The Lenders and the Administrative Agent shall have
----
received all fees required to be paid, and all expenses for which invoices
have been presented (including the reasonable fees and expenses of legal
counsel), on or before the Closing Date. All such amounts will be paid with
proceeds of Loans made on the Closing Date and will be reflected in the
funding instructions given by the Borrower to the Administrative Agent on or
before the Closing Date.
(h) Closing Certificate. The Administrative Agent shall have
-------------------
received, with a counterpart for each Lender, a certificate of each Loan
Party, dated the Closing Date, substantially in the form of Exhibit C, with
appropriate insertions and attachments.
<PAGE>
41
(i) Legal Opinions. The Administrative Agent shall have received
--------------
the following executed legal opinions:
(i) the legal opinion of Kirkland & Ellis, counsel to the
Borrower and its Subsidiaries, substantially in the form of Exhibit F;
(ii) to the extent consented to by the relevant counsel, each
legal opinion delivered in connection with the Recapitalization
Agreement authorizing reliance thereon by the Lenders; and
(iii) the legal opinion of local counsel in each of Alabama,
California and Virginia.
Each such legal opinion shall cover such other matters incident to the
transactions contemplated by this Agreement as the Administrative Agent may
reasonably require.
(j) Pledged Stock; Stock Powers; Pledged Notes. The Administrative
------------------------------------------
Agent shall have received (i) the certificates representing the shares of
Capital Stock pledged pursuant to the Guarantee and Collateral Agreement,
together with an undated stock power for each such certificate executed in
blank by a duly authorized officer of the pledgor thereof and (ii) each
promissory note (if any) pledged to the Administrative Agent pursuant to the
Guarantee and Collateral Agreement endorsed (without recourse) in blank (or
accompanied by an executed transfer form in blank) by the pledgor thereof.
(k) Filings, Registrations and Recordings. Each document
-------------------------------------
(including any Uniform Commercial Code financing statement) required by the
Security Documents or under law or reasonably requested by the Administrative
Agent to be filed, registered or recorded in order to create in favor of the
Administrative Agent, for the benefit of the Lenders, a perfected Lien on the
Collateral described therein, prior and superior in right to any other Person
(other than with respect to Liens expressly permitted by Section 7.3), shall
be in proper form for filing, registration or recordation.
(l) Mortgages, etc. (i) The Administrative Agent shall have
---------------
received a Mortgage with respect to each Mortgaged Property, executed and
delivered by a duly authorized officer of each party thereto.
(ii) If requested by the Administrative Agent, the Administrative
Agent shall have received, and the title insurance company issuing the policy
referred to in clause (iii) below (the "Title Insurance Company") shall have
-----------------------
received, maps or plats of an as-built survey of the sites of the Mortgaged
Properties certified to the Administrative Agent and the Title Insurance
Company in a manner reasonably satisfactory to them, dated a date reasonably
satisfactory to the Administrative Agent and the Title Insurance Company by an
independent professional licensed land surveyor satisfactory to the
Administrative Agent and the Title Insurance Company, which maps or plats and
the surveys on which they are based shall 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
<PAGE>
42
streets abutting the sites and width thereof; (C) all access and other
easements appurtenant to 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;
(F) if the site is described as being on a filed map, a legend relating the
survey to said map; and (G) the flood zone designations, if any, in which the
Mortgaged Properties are located.
(iii) The Administrative Agent shall have received in respect of
each Mortgaged Property a mortgagee's title insurance policy (or policies) or
marked up unconditional binder for such insurance. Each such policy shall (A)
be in an amount reasonably satisfactory to the Administrative Agent; (B) be
issued at ordinary rates; (C) insure that the Mortgage insured thereby creates
a valid first Lien on such Mortgaged Property free and clear of all defects
and encumbrances, except as disclosed therein; (D) name the Administrative
Agent for the benefit of the Lenders as the insured thereunder; (E) be in the
form of ALTA Loan Policy - 1970 (Amended 10/17/70 and 10/17/84) (or equivalent
policies), if available in the applicable jurisdictions; (F) contain such
endorsements and affirmative coverage as the Administrative Agent may
reasonably request and (G) be issued by title companies reasonably
satisfactory to the Administrative Agent (including any such title companies
acting as co-insurers or reinsurers, at the option of the Administrative
Agent). The Administrative Agent shall have received evidence reasonably
satisfactory to it that all premiums in respect of each such policy, all
charges for mortgage recording tax, and all related expenses, if any, have
been paid.
(iv) If reasonably requested by the Administrative Agent, the
Administrative Agent shall have received (A) a policy of flood insurance that
(1) covers any parcel of improved real property that is encumbered by any
Mortgage (2) is written in an amount not less than the outstanding principal
amount of the indebtedness secured by such Mortgage that is reasonably
allocable to such real property or the maximum limit of coverage made
available with respect to the particular type of property under the National
Flood Insurance Act of 1968, whichever is less, and (3) has a term ending not
later than the maturity of the Indebtedness secured by such Mortgage and (B)
confirmation that the Borrower has received the notice required pursuant to
Section 208(e)(3) of Regulation H of the Board.
(v) The Administrative Agent shall have received a copy of all
recorded documents referred to, or listed as exceptions to title in, the title
policy or policies referred to in clause (iii) above and a copy of all other
material documents affecting the Mortgaged Properties.
(m) Insurance. The Administrative Agent shall have received
---------
insurance certificates satisfying the requirements of Section 5.2(b) of the
Guarantee and Collateral Agreement.
(n) Solvency Opinion. The Administrative Agent shall have received
----------------
a reasonably satisfactory solvency opinion from Murray, Devine & Co. which
shall document the solvency of the Borrower and its Subsidiaries on a
consolidated basis after giving effect to the Recapitalization, the financing
thereof and the other transactions contemplated hereby.
(o) Sealy Supply Agreement. After giving effect to the
----------------------
Recapitalization, the Sealy Supply Agreement shall provide the Borrower with
substantially the same economic terms with Sealy Mattress Company as those to
which it was entitled immediately prior to the Recapitalization for a period
terminating no earlier than June 1, 2004.
<PAGE>
43
(p) Borrowing Base Certificate. The Administrative Agent shall
--------------------------
have received a Borrowing Base Certificate setting forth the Borrowing Base as
of June 30, 1999.
5.2 Conditions to Each Extension of Credit. The agreement of each
--------------------------------------
Lender to make any extension of credit requested to be made by it on any date
(including its initial extension of credit) is subject to the satisfaction of
the following conditions precedent:
(a) Representations and Warranties. Each of the representations
------------------------------
and warranties made by any Loan Party in or pursuant to the Loan Documents
shall be true and correct in all material respects on and as of such date as
if made on and as of such date.
(b) No Default. No Default or Event of Default shall have occurred
----------
and be continuing on such date or after giving effect to the extensions of
credit requested to be made on such date.
(c) Borrowing Base Certificate. If the Borrower has not delivered
--------------------------
a Borrowing Base Certificate pursuant to Section 6.2(e) for the most recent
month ending on or after 30 days prior to the date on which the extension of
credit is requested to be made, the Administrative Agent shall have received a
Borrowing Base Certificate setting forth the Borrowing base as of the last
days of such month.
Each borrowing by and issuance of a Letter of Credit on behalf of the Borrower
hereunder shall constitute a representation and warranty by the Borrower as of
the date of such extension of credit that the conditions contained in this
Section 5.2 have been satisfied.
5.3 Conditions to Permitted Acquisitions. The Borrower may enter
------------------------------------
into a Permitted Acquisition pursuant to Section 7.8(f) upon the satisfaction
(or waiver) of the following conditions precedent:
(a) After giving effect to such Permitted Acquisition and any
borrowings made in connection therewith, the Borrower shall have the ability
to borrow at least $5,000,000 of Loans pursuant to Section 2.1(a).
(b) All consents or authorizations of, filings with, notices to or
other acts by or in respect of, any Governmental Authority or any other Person
which are required in connection with such Permitted Acquisition and the
related borrowings hereunder shall have been obtained or made and shall be in
full force and effect, except for those consents, authorizations, filings,
notices or acts the failure of which to obtain or undertake could not, in the
aggregate, reasonably be expected to have a Material Adverse Effect.
(c) The Administrative Agent shall have received copies of all
material documentation governing the Permitted Acquisition.
(d) The Administrative Agent shall have received documentation in
form and substance reasonably satisfactory to it regarding compliance with
Section 6.9.
(e) No Default or Event of Default shall have occurred and be
continuing on the Permitted Acquisition Date or after giving effect to such
Permitted Acquisition, including, on a pro forma basis, pursuant to Section
7.1, as certified in reasonable detail to the Administrative Agent by the
Chief Financial Officer of the Borrower.
<PAGE>
44
SECTION 6. AFFIRMATIVE COVENANTS
Holdings and the Borrower hereby jointly and severally agree that, so
long as the Commitments remain in effect, any Letter of Credit remains
outstanding or any Loan or other amount is owing to any Lender or the
Administrative Agent hereunder, each of Holdings and the Borrower shall and
shall cause each of their respective Subsidiaries to:
6.1 Financial Statements. Furnish to the Administrative Agent:
--------------------
(a) as soon as available, but in any event within 90 days after the
end of each fiscal year of the Borrower, a copy of the audited consolidated
balance sheet of the Borrower and its consolidated Subsidiaries as at the end
of such year and the related audited consolidated statements of income and of
cash flows for such year, setting forth in each case in comparative form the
figures for the previous year (provided, that if the Borrower changes its
fiscal year end to December 31, 1999, then prior to the delivery of audited
financial statements for the fiscal year ended December 31, 2001 the Borrower
shall only be required to use its reasonable efforts to provide comparisons to
the previous fiscal year), reported on without a "going concern" or like
qualification or exception, or qualification arising out of the scope of the
audit, by PricewaterhouseCoopers LLP or other independent certified public
accountants of nationally recognized standing;
(b) as soon as available, but in any event not later than 45 days
after the end of each of the first three quarterly periods of each fiscal year
of the Borrower, the unaudited consolidated balance sheet of the Borrower and
its consolidated Subsidiaries as at the end of such quarter and the related
unaudited consolidated statements of income and of cash flows for such quarter
and the portion of the fiscal year through the end of such quarter, setting
forth in each case in comparative form the figures for the previous year
(provided, that if the Borrower changes its fiscal year end to December 31,
1999, then prior to the delivery of the financial statements for the fiscal
quarter ended March 31, 2001 the Borrower shall only be required to use its
reasonable efforts to provide comparisons to the relevant prior period),
certified by a Responsible Officer as being fairly stated in all material
respects (subject to normal year-end audit adjustments and the absence of
footnotes); and
(c) as soon as available, but in any event not later than 35 days
after the end of each month occurring during each fiscal year of the Borrower
(other than the third, sixth, ninth and twelfth such month), the unaudited
consolidated balance sheets of the Borrower and its Subsidiaries as at the end
of such month and the related unaudited consolidated statements of income and
of cash flows for such month and the portion of the fiscal year through the
end of such month, setting forth in each case in comparative form the figures
for the previous year, certified by a Responsible Officer as being fairly
stated in all material respects (subject to normal year-end audit adjustments
and the absence of footnotes).
All such financial statements shall be complete and correct in all material
respects and shall be prepared in reasonable detail and in accordance with GAAP
applied consistently throughout the periods reflected therein and with prior
periods (except as approved by such accountants or officer, as the case may be,
and disclosed therein).
<PAGE>
45
6.2 Certificates; Other Information. Furnish to the Administrative
-------------------------------
Agent (or, in the case of clause (i), to the relevant Lender):
(a) concurrently with the delivery of the financial statements
referred to in Section 6.1(a), 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 pursuant to Section 7.1, except as specified in
such certificate;
(b) concurrently with the delivery of any financial statements
pursuant to Section 6.1, (i) a certificate of a Responsible Officer stating
that such Responsible Officer has obtained no knowledge of any Default or
Event of Default except as specified in such certificate and (ii) in the case
of quarterly or annual financial statements, (x) a Compliance Certificate
containing all information and calculations necessary for determining
compliance by Holdings, the Borrower and their respective Subsidiaries with
the provisions of this Agreement referred to therein as of the last day of the
fiscal quarter or fiscal year of the Borrower, as the case may be, and (y) to
the extent not previously disclosed to the Administrative Agent, a listing of
any county or state within the United States where any Loan Party keeps
inventory or equipment and of any Intellectual Property acquired by any Loan
Party since the date of the most recent list delivered pursuant to this clause
(y) (or, in the case of the first such list so delivered, since the Closing
Date);
(c) as soon as available, and in any event no later than 45 days
after the end of each fiscal year of the Borrower, a detailed consolidated
budget for the following fiscal year (including a projected consolidated
balance sheet of the Borrower and its Subsidiaries as of the end of the
following fiscal year, the related consolidated statements of projected cash
flow, projected changes in financial position and projected income and a
description of the underlying assumptions applicable thereto), and, as soon as
available, significant revisions, if any, of such budget and projections with
respect to such fiscal year (collectively, the "Projections"), which
-----------
Projections shall in each case be accompanied by a certificate of a
Responsible Officer stating that such Projections are based on reasonable
estimates, information and assumptions and that such Responsible Officer has
no reason to believe that such Projections are incorrect or misleading in any
material respect;
(d) within 45 days after the end of each fiscal quarter of the
Borrower, a narrative discussion and analysis of the financial condition and
results of operations of the Borrower and its Subsidiaries for such fiscal
quarter and for the period from the beginning of the then current fiscal year
to the end of such fiscal quarter, as compared to the portion of the
Projections covering such periods (in which case no narrative discussion will
be required as long as the historical and projected numbers are presented in
comparative form) and to the comparable periods of the previous year;
(e) within 30 days after the end of each month, a Borrowing Base
Certificate substantially in the form of Exhibit K (each, a "Borrowing Base
--------------
Certificate") setting forth the Borrowing Base as of the last day of such
-----------
month, provided that the Borrower shall not be required to deliver a Borrowing
--------
Base Certificate if there are no Extensions of Credit outstanding at the end
of such month;
(f) no later than 5 Business Days prior to the effectiveness
thereof, copies of substantially final drafts of any proposed amendment,
supplement, waiver or other modification
<PAGE>
46
with respect to the Senior Note Indenture, any Subordinated Seller Note, any
Subordinated Debt, the Recapitalization Documentation, the Bain Advisory
Services Agreement, the Sealy Supply Agreement or the Tax Sharing Agreement;
(g) within five days after the same are sent, copies of all
financial statements and reports that Holdings or the Borrower sends to the
holders of any class of its debt securities or public equity securities (in
their capacity as debt or equity security holders) and, within five days after
the same are filed, copies of all financial statements and reports that
Holdings or the Borrower may make to, or file with, the SEC;
(h) at least five Business Days prior to the expected consummation
thereof, notice of any Permitted Acquisition; and
(i) promptly, such additional financial and other information as
any Lender may from time to time reasonably request.
6.3 Payment of Obligations. Except as could not, in the aggregate,
----------------------
reasonably be expected to have a Material Adverse Effect, pay, discharge or
otherwise satisfy at or before maturity or before they become delinquent, as the
case may be, all its material obligations of whatever nature, except where the
amount or validity thereof is currently being contested in good faith by
appropriate proceedings and reserves in conformity with GAAP with respect
thereto have been provided on the books of Holdings, the Borrower or their
respective Subsidiaries, as the case may be.
6.4 Maintenance of Existence; Compliance. (a)(i) Preserve, renew
------------------------------------
and keep in full force and effect its corporate existence (except as permitted
by Section 7.5) and (ii) take all reasonable action to maintain all rights,
privileges and franchises necessary in the normal conduct of its business,
except, in each case, as otherwise permitted by Section 7.4 and except, in the
case of clause (ii) above, to the extent that failure to do so could not
reasonably be expected to have a Material Adverse Effect; and (b) comply with
all Contractual Obligations and Requirements of Law except to the extent that
failure to comply therewith could not, in the aggregate, reasonably be expected
to have a Material Adverse Effect.
6.5 Maintenance of Property; Insurance. (a) Keep all property
----------------------------------
useful and necessary in its business in good working order and condition,
ordinary wear and tear and damage by casualty or condemnation excepted and (b)
maintain with financially sound and reputable insurance companies insurance on
all its property in at least such amounts and against at least such risks (but
including in any event public liability, product liability and business
interruption) as are usually insured against in the same general area by
companies engaged in the same or a similar business.
6.6 Inspection of Property; Books and Records; Discussions. (a)
------------------------------------------------------
Keep proper books of records and account in which full, true and correct entries
in conformity with GAAP and all Requirements of Law shall be made of all
dealings and transactions in relation to its business and activities and (b)
permit representatives of 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 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 Holdings, the Borrower and their respective Subsidiaries with
officers and employees of Holdings, the Borrower and their respective
Subsidiaries and with its independent certified public accountants; provided
--------
that, unless an Event of Default has occurred, no single Lender (other than the
Administrative Agent) shall be entitled to more than one inspection during any
twelve month period.
<PAGE>
47
6.7 Notices. Promptly give notice to the Administrative Agent of:
-------
(a) the occurrence of any Default or Event of Default;
(b) any litigation, investigation or proceeding that may exist at
any time between Holdings, the Borrower or any of their respective Subsidiaries
and any Governmental Authority, that in either case, if not cured or if
adversely determined, as the case may be, could reasonably be expected to have a
Material Adverse Effect;
(c) the following events, as soon as possible and in any event
within 30 days after the Borrower knows or has reason to know thereof: (i) the
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 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 termination, Reorganization or Insolvency of, any Plan; and
(d) any development or event that has had or could reasonably be
expected to have a Material Adverse Effect.
Each notice pursuant to this Section 6.7 shall be accompanied by a statement of
a Responsible Officer setting forth details of the occurrence referred to
therein and stating what action Holdings, the Borrower or the relevant
Subsidiary proposes to take with respect thereto.
6.8 Environmental Laws. Except as, in the aggregate, could not
------------------
reasonably be expected to have a Material Adverse Effect, (a) comply with, and
make reasonable efforts to ensure compliance by all tenants and subtenants, if
any, with, all applicable Environmental Laws, and (b) obtain and comply with and
maintain, and make reasonable efforts to ensure that all tenants and subtenants
obtain and comply with and maintain, any and all licenses, approvals,
notifications, registrations or permits required by applicable Environmental
Laws.
6.9 Additional Collateral, etc. (a) With respect to any property
---------------------------
acquired after the Closing Date by Holdings, the Borrower or any of their
respective Subsidiaries (other than (x) any property described in paragraph (b),
(c) or (d) below, (y) any property subject to a Lien expressly permitted by
Section 7.3(g) and (z) property acquired by any Excluded Foreign Subsidiary) as
to which the Administrative Agent, for the benefit of the Lenders, does not have
a perfected Lien, promptly (i) execute and deliver to the Administrative Agent
such amendments to the Guarantee and Collateral Agreement or such other
documents as the Administrative Agent may reasonably request to grant to the
Administrative Agent, for the benefit of the Lenders, a security interest in
such property and (ii) take all actions necessary or reasonably requested by the
Administrative Agent to grant to the Administrative Agent, for the benefit of
the Lenders, a perfected first priority (subject to Liens permitted under
Section 7.3) security interest in such property, including the filing of Uniform
Commercial Code financing statements in such jurisdictions as may be required by
the Guarantee and Collateral Agreement or by law or as may be reasonably
requested by the Administrative Agent.
(b) With respect to any fee interest in any real property having a
value (together with improvements thereof) of at least $1,000,000 acquired after
the Closing Date by Holdings, the Borrower or any of their respective
Subsidiaries (other than (x) any such real property subject to a Lien expressly
<PAGE>
48
permitted by Section 7.3(g) and (y) real property acquired by any Excluded
Foreign Subsidiary), promptly (i) execute and deliver a first priority (subject
to Liens permitted under Section 7.3) Mortgage, in favor of the Administrative
Agent, for the benefit of the Lenders, covering such real property, (ii) if
requested by the Administrative Agent, provide the Lenders with (x) title and
extended coverage insurance covering such real property in an amount at least
equal to the purchase price of such real property (or such other amount as shall
be reasonably specified by the Administrative Agent) as well as a current ALTA
survey thereof, together with a surveyor's certificate and (y) any consents or
estoppels reasonably requested by the Administrative Agent in connection with
such mortgage or deed of trust, each of the foregoing in form and substance
reasonably satisfactory to the Administrative Agent and (iii) if requested by
the Administrative Agent, deliver to the Administrative Agent legal opinions
relating to the matters described above, which opinions shall be in form and
substance reasonably satisfactory to the Administrative Agent.
(c) With respect to any new Subsidiary (other than an Excluded
Foreign Subsidiary) created or acquired after the Closing Date by Holdings, the
Borrower or any of their respective Subsidiaries (which, for the purposes of
this paragraph (c), shall include any existing Subsidiary that ceases to be an
Excluded Foreign Subsidiary), promptly (i) execute and deliver to the
Administrative Agent such amendments to the Guarantee and Collateral Agreement
as the Administrative Agent reasonably requests to grant to the Administrative
Agent, for the benefit of the Lenders, a perfected first priority (subject to
Liens permitted under Section 7.3) security interest in the Capital Stock of
such new Subsidiary that is owned by Holdings, the Borrower or any of their
respective Subsidiaries, (ii) deliver to the Administrative Agent the
certificates representing such Capital Stock, together with undated stock
powers, in blank, executed and delivered by a duly authorized officer of
Holdings, the Borrower or such Subsidiary, as the case may be, (iii) cause such
new Subsidiary (A) to become a party to the Guarantee and Collateral Agreement,
(B) to take such actions necessary or reasonably requested by the Administrative
Agent to grant to the Administrative Agent for the benefit of the Lenders a
perfected first priority (subject to Liens permitted under Section 7.3) security
interest in the Collateral described in the Guarantee and Collateral Agreement
with respect to such new Subsidiary, including the filing of Uniform Commercial
Code financing statements in such jurisdictions as may be required by the
Guarantee and Collateral Agreement or by law or as may be requested by the
Administrative Agent and (C) to deliver to the Administrative Agent a
certificate of such Subsidiary, substantially in the form of Exhibit C, with
appropriate insertions and attachments, and (iv) if requested by the
Administrative Agent, deliver to the Administrative Agent legal opinions
relating to the matters described above, which opinions shall be in form and
substance reasonably satisfactory to the Administrative Agent.
(d) With respect to any new Excluded Foreign Subsidiary created or
acquired after the Closing Date by Holdings, the Borrower or any of their
respective Subsidiaries, promptly (i) execute and deliver to the Administrative
Agent such amendments to the Guarantee and Collateral Agreement as the
Administrative Agent reasonably requests to grant to the Administrative Agent,
for the benefit of the Lenders, a perfected first priority security interest in
the Capital Stock of such new Subsidiary that is owned by Holdings, the Borrower
or any of their respective Subsidiaries (provided that in no event shall more
than 65% of the total outstanding Capital Stock of any such new Subsidiary be
required to be so pledged), (ii) deliver to the Administrative Agent the
certificates representing such Capital Stock, together with undated stock
powers, in blank, executed and delivered by a duly authorized officer of
Holdings, the Borrower or such Subsidiary, as the case may be, and take such
other action as may be necessary or reasonably requested by the Administrative
Agent to perfect the Administrative Agent's security interest therein, and (iii)
if requested by the Administrative Agent, deliver to the Administrative Agent
legal opinions relating to the matters described above, which opinions shall be
in form and substance reasonably satisfactory to the Administrative Agent.
<PAGE>
49
6.10 Payment of Obligations Relating to Alabama Mortgage. Reimburse
---------------------------------------------------
the Administrative Agent for all recording taxes and obligations paid by the
Administrative Agent in connection with any Mortgage executed with respect to
real property located within the State of Alabama (including the property
located at 813 North Decatur Street, Montgomery, Alabama) which are reasonably
necessary to preserve the full benefits granted pursuant to such Mortgage,
including recording taxes payable by the Administrative Agent in September of
every year based on Total Extensions of Credit made during the twelve months
preceding the date of such payment.
SECTION 7. NEGATIVE COVENANTS
Holdings and the Borrower hereby jointly and severally agree that, so
long as the Commitments remain in effect, any Letter of Credit remains
outstanding or any Loan or other amount is owing to any Lender or the
Administrative Agent hereunder, each of Holdings and the Borrower shall not, and
shall not permit any of their respective Subsidiaries to, directly or
indirectly:
7.1 Financial Condition Covenants.
-----------------------------
(a) Consolidated Total Debt Ratio. Permit the Consolidated Total
-----------------------------
Debt Ratio as at the last day of any period of four consecutive fiscal quarters
of the Borrower (or, if less, the number of full fiscal quarters subsequent to
the Closing Date) ending with any fiscal quarter set forth below, as applicable,
to exceed the ratio set forth below opposite such fiscal quarter:
<TABLE>
<CAPTION>
Old New Consolidated
Fiscal Quarters Fiscal Quarters Total Debt Ratio
--------------- --------------- ----------------
<S> <C> <C>
November 30, 1999 December 31, 1999 6.15 to 1.0
February 29, 2000 March 31, 2000 6.15 to 1.0
May 31, 2000 June 30, 2000 6.15 to 1.0
August 31, 2000 September 30, 2000 6.00 to 1.0
November 30, 2000 December 31, 2000 5.75 to 1.0
February 28, 2001 March 31, 2001 5.75 to 1.0
May 31, 2001 June 30, 2001 5.50 to 1.0
August 31, 2001 September 30, 2001 5.00 to 1.0
November 30, 2001 December 31, 2001 5.00 to 1.0
February 28, 2002 March 31, 2002 4.75 to 1.0
May 31, 2002 June 30, 2002 4.50 to 1.0
August 31, 2002 September 30, 2002 4.50 to 1.0
November 30, 2002 December 31, 2002 4.25 to 1.0
February 28, 2003 March 31, 2003 4.25 to 1.0
May 31, 2003 June 30, 2003 4.00 to 1.0
August 31, 2003 September 30, 2003 4.00 to 1.0
November 30, 2003 December 31, 2003 4.00 to 1.0
February 29, 2004 March 31, 2004 3.75 to 1.0
May 31, 2004 June 30, 2004 3.75 to 1.0
August 31, 2004 September 30, 2004 3.75 to 1.0
November 30, 2004 December 31, 2004 3.50 to 1.0
February 28, 2005 March 31, 2005 3.50 to 1.0
May 31, 2005 June 30, 2005 3.25 to 1.0
</TABLE>
<PAGE>
50
(b) Consolidated Interest Coverage Ratio. Permit the Consolidated
------------------------------------
Interest Coverage Ratio for any period of four consecutive fiscal quarters of
the Borrower (or, if less, the number of full fiscal quarters subsequent to the
Closing Date) ending with any fiscal quarter set forth below, as applicable, to
be less than the ratio set forth below opposite such fiscal quarter:
<TABLE>
<CAPTION>
Consolidated
Old New Interest
Fiscal Quarter Fiscal Quarter Coverage Ratio
--------------- --------------- ----------------
<S> <C> <C>
November 30, 1999 December 31, 1999 1.25 to 1.0
February 29, 2000 March 31, 2000 1.25 to 1.0
May 31, 2000 June 30, 2000 1.25 to 1.0
August 31, 2000 September 30, 2000 1.30 to 1.0
November 30, 2000 December 31, 2000 1.35 to 1.0
February 28, 2001 March 31, 2001 1.35 to 1.0
May 31, 2001 June 30, 2001 1.45 to 1.0
August 31, 2001 September 30, 2001 1.50 to 1.0
November 30, 2001 December 31, 2001 1.55 to 1.0
February 28, 2002 March 31, 2002 1.55 to 1.0
May 31, 2002 June 30, 2002 1.70 to 1.0
August 31, 2002 September 30, 2002 1.75 to 1.0
November 30, 2002 December 31, 2002 1.75 to 1.0
February 28, 2003 March 31, 2003 1.75 to 1.0
May 31, 2003 June 30, 2003 1.95 to 1.0
August 31, 2003 September 30, 2003 1.95 to 1.0
November 30, 2003 December 31, 2003 2.00 to 1.0
February 29, 2004 March 31, 2004 2.00 to 1.0
May 31, 2004 June 30, 2004 2.00 to 1.0
August 31, 2004 September 30, 2004 2.20 to 1.0
November 30, 2004 December 31, 2004 2.25 to 1.0
February 28, 2005 March 31, 2005 2.25 to 1.0
May 31, 2005 June 30, 2005 2.25 to 1.0
</TABLE>
; provided, that for the purposes of determining the ratio described above for
the fiscal quarters of the Borrower ending November 30, 1999, February 28, 2000
and May 31, 2000 (or December 31, 1999, March 31, 2000 and June 30, 2000, as
applicable), Consolidated Interest Expense for the relevant period shall be
deemed to equal Consolidated Interest Expense for such fiscal quarter (and, in
the case of the latter two such determinations, each previous fiscal quarter
commencing after the Closing Date) multiplied by 4, 2 and 4/3, respectively.
7.2 Indebtedness. Create, issue, incur, assume, become liable in
------------
respect of or suffer to exist any Indebtedness, except:
(a) Indebtedness of any Loan Party pursuant to any Loan Document;
(b) Indebtedness of the Borrower to any Subsidiary and of any
Wholly Owned Subsidiary Guarantor to the Borrower or any other Subsidiary;
(c) Guarantee Obligations incurred in the ordinary course of
business (i) by the Borrower or any
<PAGE>
51
Subsidiary Guarantor of obligations of the Borrower or any Wholly Owned
Subsidiary Guarantor or (ii) by any Excluded Foreign Subsidiary of any
obligation of any other Excluded Foreign Subsidiary;
(d) Indebtedness outstanding on the date hereof and listed on
Schedule 7.2(d) and any refinancings, refundings, renewals or extensions
thereof (without increasing, or shortening the maturity of, the principal
amount thereof);
(e) Indebtedness (including, without limitation, Capital Lease
Obligations) secured by Liens permitted by Section 7.3(g) in an aggregate
principal amount not to exceed $2,000,000 at any one time outstanding;
(f) (i) Indebtedness of the Borrower in respect of the Senior Notes
in an aggregate principal amount not to exceed $140,000,000 and (ii) Guarantee
Obligations of any Subsidiary Guarantor in respect of such Indebtedness;
(g) Indebtedness of Holdings in respect of the Subordinated Seller
Notes in an aggregate principal amount not to exceed $17,500,000;
(h) Hedge Agreements in respect of Indebtedness otherwise permitted
hereby that bears interest at a floating rate, so long as such agreements are
not entered into for speculative purposes;
(i) Indebtedness of the Borrower to Holdings having the terms set
forth on Exhibit I "Borrower/Holdings Subordinated Debt");
-----------------------------------
(j) Indebtedness of the Borrower and its Subsidiaries in respect of
letters of credit securing performance of leases and payments under insurance
policies in an aggregate undrawn and unexpired amount of up to $2,000,000;
(k) Indebtedness of Foreign Subsidiaries under lines of credit
extended to any such Foreign Subsidiary by Persons other than the Borrower or
any or its Subsidiaries, the proceeds of which Indebtedness are used for such
Foreign Subsidiary's working capital purposes; provided that the aggregate
principal amount of all such Indebtedness outstanding at any time for all such
Foreign Subsidiaries shall not exceed $1,000,000;
(l) Indebtedness of Holdings or the Borrower with respect to
Subordinated Debt, provided that the aggregate amount of all Subordinated Debt
outstanding under this clause (l) shall not exceed $20,000,000 at any one time
outstanding, of which not more than $7,500,000 may be in the form of Cash Pay
Subordinated Debt;
(m) Indebtedness of Holdings owed to former officers or employees
of Holdings, the Borrower or any of their respective Subsidiaries incurred by
Holdings in connection with the repurchase of Holdings' common stock or common
stock options upon the death, disability or termination of employment of such
officer or employee having the terms set forth on Exhibit J ("Management
----------
Notes");
-----
(n) Indebtedness of any Subsidiary of the Borrower acquired
pursuant to a Permitted Acquisition existing at the time of consummation of
the Permitted Acquisition; provided that (i) such Indebtedness was not
--------
incurred in connection with or in anticipation of such Permitted
<PAGE>
52
Acquisition, (ii) such Indebtedness does not constitute debt for borrowed
money (other than debt for borrowed money incurred in connection with
industrial revenue or industrial development bond or similar financings), it
being understood and agreed that Capital Lease Obligations shall not
constitute debt for borrowed money for purposes of this clause (n), and (iii)
the aggregate outstanding principal amount of Indebtedness incurred pursuant
to this paragraph (n) shall not exceed $2,000,000; and
(o) additional Indebtedness of the Borrower or any of its
Subsidiaries in an aggregate principal amount (for the Borrower and all
Subsidiaries) not to exceed $5,000,000 at any one time outstanding.
7.3 Liens. Create, incur, assume or suffer to exist any Lien upon
-----
any of its property, whether now owned or hereafter acquired, except for:
(a) Liens for taxes not yet due or that 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;
(b) carriers', warehousemen's, mechanics', materialmen's,
repairmen's, landlords' or other like Liens arising in the ordinary course of
business that are not overdue for a period of more than 30 days or that are
being contested in good faith by appropriate proceedings;
(c) pledges or deposits in connection with workers' compensation,
unemployment insurance and other social security legislation;
(d) 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;
(e) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business that, in the
aggregate, are not substantial in amount and that do not in any case
materially detract from the value of the property subject thereto or
materially interfere with the ordinary conduct of the business of the Borrower
or any of its Subsidiaries;
(f) Liens in existence on the date hereof listed on Schedule
7.3(f), securing Indebtedness permitted by Section 7.2(d), provided that no
such Lien is spread to cover any additional property after the Closing Date
and that the amount of Indebtedness secured thereby is not increased;
(g) Liens securing Indebtedness of the Borrower or any other
Subsidiary incurred pursuant to Section 7.2(e) to finance the acquisition of
fixed or capital assets, provided that (i) such Liens shall be created
substantially simultaneously with the acquisition of such fixed or capital
assets, (ii) such Liens do not at any time encumber any property other than
the property financed by such Indebtedness and (iii) the amount of
Indebtedness secured thereby is not increased;
(h) Liens created pursuant to the Security Documents;
(i) any interest or title of a lessor under any lease entered into
by the Borrower or any other Subsidiary in the ordinary course of its business
and covering only the assets so leased;
<PAGE>
53
(j) any attachment or judgment Lien not constituting an Event of
Default under Section 8(h);
(k) leases or subleases granted to others in the ordinary course of
business consistent with past practices and not interfering in any material
respect with the ordinary conduct of the business or operations of Holdings,
the Borrower or any of their respective Subsidiaries;
(l) bankers' liens and rights of setoff with respect to customary
depository arrangements entered into in the ordinary course of business;
(m) any zoning or similar law or right reserved to or vested in any
Governmental Authority to control or regulate the use of any real property;
(n) licenses of patents, trademarks and other intellectual property
rights granted by Holdings, the Borrower or any of their respective
Subsidiaries in the ordinary course of business and not interfering in any
material respect with the ordinary conduct of the business of Holdings, the
Borrower or such Subsidiary;
(o) Liens securing any Indebtedness permitted pursuant to Section
7.2(n); provided that such Liens only encumber the assets acquired in the
related Permitted Acquisition and; provided further that such Liens were not
-------- -------
granted in contemplation of the related Permitted Acquisition; and
(p) Liens not otherwise permitted by this Section so long as the
aggregate outstanding principal amount of the obligations secured thereby does
not exceed (as to the Borrower and all Subsidiaries) $2,500,000 at any one
time.
7.4 Fundamental Changes. Enter into any merger, consolidation or
-------------------
amalgamation, or liquidate, wind up or dissolve itself (or suffer any
liquidation or dissolution), or Dispose of, all or substantially all of its
property or business, except that:
(a) any Subsidiary of the Borrower may be merged or consolidated
with or into the Borrower (provided that the Borrower shall be the continuing
--------
or surviving corporation) or with or into any Wholly Owned Subsidiary
Guarantor (provided that the Wholly Owned Subsidiary Guarantor shall be the
--------
continuing or surviving corporation);
(b) any Excluded Foreign Subsidiary may be merged or consolidated
with or into any other Excluded Foreign Subsidiary;
(c) any Subsidiary of the Borrower may Dispose of any or all of its
assets (upon voluntary liquidation or otherwise) to the Borrower or any Wholly
Owned Subsidiary Guarantor;
(d) any Excluded Foreign Subsidiary may Dispose of any or all of
its assets (upon voluntary liquidation or otherwise) to any other Excluded
Foreign Subsidiary;
(e) mergers with any other Person pursuant to investments permitted
by Section 7.8(i) (provided that the Borrower or the applicable Wholly Owned
--------
Subsidiary Guarantor shall be the continuing or surviving corporation); and
<PAGE>
54
(f) sales of all or substantially all of the property or business
of any Subsidiary to the extent permitted by Section 7.5.
7.5 Disposition of Property. Dispose of any of its property, whether
-----------------------
now owned or hereafter acquired, or, in the case of any Subsidiary, issue or
sell any shares of such Subsidiary's Capital Stock to any Person, except:
(a) the Disposition of obsolete or worn out property in the
ordinary course of business;
(b) the sale of inventory in the ordinary course of business;
(c) Dispositions permitted by Section 7.4(c) and (d);
(d) the sale or issuance of any Subsidiary's Capital Stock to the
Borrower or any Wholly Owned Subsidiary Guarantor;
(e) the sale or discount of accounts receivable in connection with
the collection or compromise thereof undertaken in the ordinary course of
business;
(f) the exchange of equipment or other personal property, including
intellectual property, for the functional equivalent thereof in the ordinary
course of business;
(g) the leasing or licensing of real or personal property,
including intellectual property, in the ordinary course of business; and
(h) the Disposition of other property having a fair market value
not to exceed $1,000,000 in the aggregate for any fiscal year of the Borrower,
provided that at least 75% of the proceeds received in connection with any
--------
such Disposition be in the form of cash.
7.6 Restricted Payments. Declare or pay any dividend (other than
-------------------
dividends payable solely in common stock of the Person making such dividend) on,
or make any payment on account of, or set apart assets for a sinking or other
analogous fund for, the purchase, redemption, defeasance, retirement or other
acquisition of, any Capital Stock of Holdings, the Borrower or any Subsidiary or
any Management Notes, whether now or hereafter outstanding, or make any other
distribution in respect thereof, either directly or indirectly, whether in cash
or property or in obligations of Holdings, the Borrower or any Subsidiary
(collectively, "Restricted Payments"), except that:
(a) any Subsidiary may make Restricted Payments to the Borrower or
any Wholly Owned Subsidiary Guarantor;
(b) so long as no Default or Event of Default shall have occurred
and be continuing, the Borrower may pay dividends to Holdings to permit
Holdings to (i) purchase Holdings' common stock or common stock options from
present or former officers or employees of Holdings, the Borrower or any
Subsidiary upon the death, disability or termination of employment of such
officer or employee or pay principal and interest on Management Notes,
provided, that the aggregate amount of cash payments under this clause (i)
after the date hereof (net of any proceeds received by Holdings and
contributed to the Borrower after the date hereof in connection with resales
of any common stock or common stock options so purchased) shall not
<PAGE>
55
exceed $4,000,000 and (ii) pay management fees and expenses expressly
permitted by the last sentence of Section 7.10; and
(c) the Borrower may pay dividends to Holdings to permit Holdings
to (i) pay corporate overhead expenses incurred in the ordinary course of
business not to exceed $250,000 in any fiscal year and (ii) pay any taxes that
are due and payable by Holdings and the Borrower as part of a consolidated
group.
7.7 Capital Expenditures. Make or commit to make any Capital
--------------------
Expenditure, except:
(a) Capital Expenditures of the Borrower and its Subsidiaries in the
ordinary course of business not exceeding in the aggregate for the Borrower
and its Subsidiaries during any fiscal year of the Borrower set forth below,
as applicable, the amount (the "Base Amount") set forth opposite such fiscal
year below:
<TABLE>
<CAPTION>
Old New Capital
Fiscal Year Fiscal Year Expenditures
------------------ ----------------- ------------
<S> <C> <C>
February 29, 2000 December 31, 1999 $6,000,000
February 28, 2001 December 31, 2000 6,500,000
February 28, 2002 December 31, 2001 6,500,000
February 28, 2003 December 31, 2002 6,500,000
February 29, 2004 December 31, 2003 6,500,000
February 28, 2005 December 31, 2004 6,500,000
</TABLE>
; provided, that (i) the Base Amount set forth above for each fiscal year during
--------
and after which a Permitted Acquisition occurs shall be increased by an amount
equal to 15% of the consolidated EBITDA of the Permitted Acquired Person
(calculated in a manner comparable to the manner in which Consolidated EBITDA is
calculated hereunder) for the most recent period of four consecutive fiscal
quarters for which the relevant information is available for the Permitted
Acquired Person; (ii) up to 50% of the Base Amount, if not so expended in the
fiscal year for which it is permitted, may be carried over for expenditure in
the next succeeding fiscal year; and (iii) Capital Expenditures made pursuant to
this clause (a) during any fiscal year shall be deemed made, first, in respect
-----
of amounts permitted for such fiscal year as provided above and, second, in
respect of amounts carried over from the prior fiscal year pursuant to subclause
(ii) above;
(b) Capital Expenditures made with the proceeds of any Reinvestment
Deferred Amount; and
(c) In addition to the Capital Expenditures made pursuant to the
Section 7.7(a) or (b), the Borrower may make additional Capital Expenditures
not in excess of the Excess Proceeds Amount;
; provided, that, for purposes of this Section 7.7, Capital Expenditures shall
--------
not be deemed to include any expenditures made by Holdings, the Borrower or any
of their respective Subsidiaries to acquire in a Permitted Acquisition the
business, property or assets of any Permitted Acquired Person, or the stock or
other evidence of beneficial ownership of any Permitted Acquired Person that, as
a result of such Permitted Acquisition, becomes a Subsidiary of the Borrower.
<PAGE>
56
7.8 Investments. Make any advance, loan, extension of credit (by way
-----------
of guaranty or otherwise) or capital contribution to, or purchase any Capital
Stock, bonds, notes, debentures or other debt securities of, or any assets
constituting a business unit of, or make any other investment in, any Person
(all of the foregoing, "Investments"), except:
-----------
(a) extensions of trade credit in the ordinary course of business;
(b) investments in Cash Equivalents;
(c) Guarantee Obligations permitted by Section 7.2(c);
(d) loans and advances to employees of Holdings, the Borrower or
any Subsidiary of the Borrower in the ordinary course of business (including
for travel, entertainment and relocation expenses) in an aggregate amount for
Holdings, the Borrower or any Subsidiary of the Borrower not to exceed
$500,000 at any one time outstanding;
(e) the Recapitalization;
(f) any Permitted Acquisitions;
(g) Investments in assets useful in the business of the Borrower
and its Subsidiaries made by the Borrower or any of its Subsidiaries with the
proceeds of any Reinvestment Deferred Amount;
(h) intercompany Investments by Holdings, the Borrower or any of
their respective Subsidiaries in the Borrower or any Person that, prior to
such investment, is a Wholly Owned Subsidiary Guarantor;
(i) the Borrower and its Subsidiaries may make and own Investments
consisting of notes received in connection with any Disposition permitted
under Section 7.5(h);
(j) Holdings may make non-cash loans to employees, officers,
executives or consultants of Holdings or the Borrower for the purpose of
purchasing Capital Stock of Holdings so long as such loans are used in their
entirety to purchase such Capital Stock;
(k) the Borrower and its Subsidiaries may make and own Investments
consisting of notes received in the ordinary course of business from suppliers
or customers in connection with the collection of accounts receivable;
(l) advances made in connection with deposits on leases in the
ordinary course of business; and
(m) in addition to Investments otherwise expressly permitted by
this Section, Investments by the Borrower or any of its Subsidiaries in an
aggregate amount (valued at cost) not to exceed $5,000,000 plus up to
$2,500,000 in Excess Proceeds Amounts during the term of this Agreement.
For purposes of this Section 7.8, consideration paid in connection with any
Investment shall be deemed to include the principal amount of any Indebtedness
assumed in connection therewith.
<PAGE>
57
7.9 Payments and Modifications of Certain Debt Instruments. (a)
------------------------------------------------------
Make or offer to make any payment, prepayment, repurchase or redemption in
respect of or defease or segregate funds with respect to the Senior Notes, any
Subordinated Debt, any Borrower/Holdings Subordinated Debt, or any Subordinated
Seller Note, other than scheduled interest payments in respect of the Senior
Notes and any Cash Pay Subordinated Debt and liquidated damages payable pursuant
to the Registration Rights Agreement (as defined in the Senior Note Indenture)
with respect to the Senior Notes (it being understood that no interest payments
pursuant to the Subordinated Seller Notes and the Borrower/Holdings Subordinated
Debt shall be permitted) or (b) amend, modify, waive or otherwise change, or
consent or agree to any amendment, modification, waiver or other change to, any
of the terms of the Senior Note Indenture, the Senior Notes, any Subordinated
Debt or any Subordinated Seller Note (other than any such amendment,
modification, waiver or other change that (i) (x) would extend the maturity or
reduce the amount of any payment of principal thereof or reduce the rate or
extend any date for payment of interest thereon or (y) would not be adverse to
the interests of the Lenders and (ii) does not involve the payment of a consent
fee).
7.10 Transactions with Affiliates. Except as set forth on Schedule
----------------------------
7.10, enter into any transaction, including any purchase, sale, lease or
exchange of property, the rendering of any service or the payment of any
management, advisory or similar fees, with any Affiliate (other than Holdings,
the Borrower or any Subsidiary) unless such transaction is (a) otherwise
permitted under this Agreement, (b) in the ordinary course of business of
Holdings, the Borrower or such Subsidiary, as the case may be, and (c) upon fair
and reasonable terms no less favorable to Holdings, the Borrower or such
Subsidiary, as the case may be, than it would obtain in a comparable arm's
length transaction with a Person that is not an Affiliate; provided that the
--------
foregoing restriction shall not apply to (i) reasonable and customary fees paid
to members of the boards of directors of Holdings, the Borrower and its
Subsidiaries, (ii) issuance of Capital Stock to employees and consultants of the
Borrower pursuant to employment or consulting arrangements and (iii) employment
and consulting arrangements entered into in the ordinary course of business.
Notwithstanding the foregoing, pursuant to the Bain Advisory Services Agreement
approved by the board of directors of the Borrower, the Borrower and its
Subsidiaries may pay to the Sponsor and its Control Investment Affiliates (x)
the transaction fees in connection with the Recapitalization as set forth on
Schedule 7.10 and (y) the advisory fees and transaction fees described in the
Bain Advisory Services Agreement, provided in no event shall any such fees be
paid (but they may accrue) under the Bain Advisory Services Agreement at any
time an Event of Default under Section 8.1(a) or (f) shall have occurred and be
continuing.
7.11 Sales and Leasebacks. Enter into any arrangement with any
--------------------
Person providing for the leasing by Holdings, the Borrower or any Subsidiary of
real or personal property that has been or is to be sold or transferred by
Holdings, the Borrower or such Subsidiary to such Person or to any other Person
to whom funds have been or are to be advanced by such Person on the security of
such property or rental obligations of Holdings, the Borrower or such
Subsidiary.
7.12 Changes in Fiscal Periods. Permit the fiscal year of the
-------------------------
Borrower to end on a day other than the last day of February or change the
Borrower's method of determining fiscal quarters, provided that a one-time
change of fiscal year to December 31 will be permitted so long as (i) the fiscal
quarters are changed to March 31, June 30 and September 30 and (ii) such change
is made in a manner that results in audited financial statements of the Borrower
becoming available for the ten-month period ended December 31, 1999 in
accordance with Section 6.1(a).
7.13 Negative Pledge Clauses. Enter into or suffer to exist or
-----------------------
become effective any agreement that prohibits or limits the ability of Holdings,
the Borrower or any of their respective
<PAGE>
58
Subsidiaries to create, incur, assume or suffer to exist any Lien upon any of
its property or revenues, whether now owned or hereafter acquired, other than
(a) this Agreement and the other Loan Documents, (b) any agreements governing
any purchase money Liens or Capital Lease Obligations otherwise permitted hereby
(in which case, any prohibition or limitation shall only be effective against
the assets financed thereby), (c) applicable law, (d) customary provisions
restricting subletting or assignment of any lease governing a leasehold interest
of Holdings, the Borrower or any of their respective Subsidiaries, (e) customary
provisions restricting assignment of any licensing agreement entered into by
Holdings, the Borrower or any of their respective Subsidiaries in the ordinary
course of business, (f) any document or instrument evidencing Foreign Subsidiary
working capital Indebtedness permitted under Section 7.2 so long as such
encumbrance or restriction only applies to the Foreign Subsidiary incurring such
Indebtedness, (g) the Senior Note Indenture and (h) customary provisions
contained in joint venture agreements entered into in the ordinary course of
business so long as such encumbrance or restriction only applies to the relevant
joint venture governed by such agreement.
7.14 Clauses Restricting Subsidiary Distributions. Enter into or
--------------------------------------------
suffer to exist or become effective any consensual encumbrance or restriction on
the ability of any Subsidiary of the Borrower to (a) make Restricted Payments in
respect of any Capital Stock of such Subsidiary held by, or pay any Indebtedness
owed to, the Borrower or any other Subsidiary of the Borrower, (b) make loans or
advances to, or other Investments in, the Borrower or any other Subsidiary of
the Borrower or (c) transfer any of its assets to the Borrower or any other
Subsidiary of the Borrower, except for such encumbrances or restrictions
existing under or by reason of (i) any restrictions existing under the Loan
Documents, (ii) any restrictions with respect to a Subsidiary imposed pursuant
to an agreement that has been entered into in connection with the Disposition of
all or substantially all of the Capital Stock or assets of such Subsidiary,
(iii) applicable law, (iv) in the case of clause (c) above, customary provisions
restricting subletting or assignment of any lease governing a leasehold interest
of Holdings, the Borrower or any of their respective Subsidiaries, (v) in the
case of clause (c) above, customary provisions restricting assignment of any
licensing agreement entered into by Holdings, the Borrower or any of their
respective Subsidiaries in the ordinary course of business, (vi) any document or
instrument evidencing Foreign Subsidiary working capital Indebtedness permitted
under Section 7.2 so long as such encumbrance or restriction only applies to the
Foreign Subsidiary incurring such Indebtedness, (vii) the Senior Note Indenture
and (viii) customary provisions contained in joint venture agreements entered
into in the ordinary course of business so long as such encumbrance or
restriction only applies to the relevant joint venture governed by such
agreement.
7.15 Lines of Business. Enter into any business, either directly or
-----------------
through any Subsidiary, except for businesses which are the same or reasonably
similar, ancillary or related to, or a reasonable extension, development or
expansion of, the businesses in which the Borrower and its Subsidiaries are
engaged on the date of this Agreement.
7.16 Amendments to Certain Agreements. (a) Amend, supplement or
--------------------------------
otherwise modify (pursuant to a waiver or otherwise) the terms and conditions of
the indemnities and licenses furnished to the Borrower or any of its
Subsidiaries pursuant to the Recapitalization Documentation such that after
giving effect thereto such indemnities or licenses shall be materially less
favorable to the interests of the Loan Parties or the Lenders with respect
thereto, (b) otherwise amend, supplement or otherwise modify the other terms and
conditions of the Recapitalization Documentation except for any such amendment,
supplement or modification that (i) becomes effective after the Closing Date and
(ii) could not reasonably be expected to have a Material Adverse Effect, or (c)
amend, supplement or otherwise modify (pursuant to a waiver or otherwise) the
terms and conditions of the Bain Advisory Services Agreement or the Tax Sharing
Agreement in any manner that is materially adverse to the Lenders.
<PAGE>
59
7.17 Sealy Supply Agreement. (a) Terminate the Sealy Supply
----------------------
Agreement for any reason other than (i) by the mutual agreement of Sealy
Mattress Company and the Borrower, provided that the Borrower shall concurrently
enter into a substantially similar supply agreement on terms which are at least
as favorable overall to the Lenders as those contained in the Sealy Supply
Agreement or (ii) the breach thereof by Sealy Mattress Company, provided that
--------
the Borrower shall thereafter use commercially reasonable efforts to promptly
enter into a substantially similar supply agreement on terms which are at least
as favorable overall to the Lenders as those contained in the Sealy Supply
Agreement.
(b) Amend, supplement or otherwise modify (pursuant to a waiver or
otherwise) the terms and conditions of the Sealy Supply Agreement except for any
such amendment, supplement or modification that could not reasonably be expected
to have a Material Adverse Effect.
SECTION 8. EVENTS OF DEFAULT
If any of the following events shall occur and be continuing:
(a) the Borrower shall fail to pay any principal of any Loan or
Reimbursement Obligation when due in accordance with the terms hereof; or the
Borrower shall fail to pay any interest on any Loan or Reimbursement
Obligation, or any other amount payable hereunder or under any other Loan
Document, within five days after any such interest or other amount becomes due
in accordance with the terms hereof; or
(b) any representation or warranty made or deemed made by any Loan
Party herein or in any other Loan Document or that is contained in any
certificate, document or financial or other statement furnished by it at any
time under or in connection with this Agreement or any such other Loan
Document shall prove to have been inaccurate in any material respect on or as
of the date made or deemed made; or
(c) any Loan Party shall default in the observance or performance
of any agreement contained in clause (i) or (ii) of Section 6.4(a) (with
respect to Holdings and the Borrower only), Section 6.7(a) or Section 7 of
this Agreement or Sections 5.5 and 5.7(b) of the Guarantee and Collateral
Agreement; or
(d) any Loan Party shall default in the observance or performance
of any other agreement contained in this Agreement or any other Loan Document
(other than as provided in paragraphs (a) through (c) of this Section), and
such default shall continue unremedied for a period of 30 days after notice to
the Borrower from the Administrative Agent or the Required Lenders; or
(e) Holdings, the Borrower or any of their respective Subsidiaries
shall (i) default in making any payment of any principal of any Indebtedness
(including any Guarantee Obligation, but excluding the Loans) on the scheduled
or original due date with respect thereto; or (ii) default in making any
payment of any interest on any such Indebtedness beyond the period of grace,
if any, provided in the instrument or agreement under which such Indebtedness
was created; or (iii) default in the observance or performance of any other
agreement or condition relating to any such Indebtedness 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 beneficiary of such
Indebtedness (or a
<PAGE>
60
trustee or agent on behalf of such holder or beneficiary) to cause, with the
giving of notice if required, such Indebtedness to become due prior to its
stated maturity or (in the case of any such Indebtedness constituting a
Guarantee Obligation) to become payable; provided, that a default, event or
--------
condition described in clause (i), (ii) or (iii) of this paragraph (e) shall
not at any time constitute an Event of Default unless, at such time, one or
more defaults, events or conditions of the type described in clauses (i), (ii)
and (iii) of this paragraph (e) shall have occurred and be continuing with
respect to Indebtedness the outstanding principal amount of which exceeds in
the aggregate $2,500,000; or
(f) (i) Holdings, the Borrower or any of their respective
Subsidiaries 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 Holdings, the Borrower or any of their
respective Subsidiaries shall make a general assignment for the benefit of its
creditors; or (ii) there shall be commenced against Holdings, the Borrower or
any of their respective Subsidiaries any case, proceeding or other action of a
nature referred to in clause (i) above that (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 Holdings, the Borrower or any of their respective
Subsidiaries 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 that results in the entry of an order for
any such relief that shall not have been vacated, discharged, or stayed or
bonded pending appeal within 60 days from the entry thereof; or (iv) Holdings,
the Borrower or any of their respective Subsidiaries 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)
Holdings, the Borrower or any of their respective Subsidiaries shall generally
not, or shall be unable to, or shall admit in writing its inability to, pay
its debts as they become due; or
(g) (i) any Person shall engage in any non-exempt "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 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) the Borrower 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, a Multiemployer Plan or (vi) any other event or condition
shall occur or exist with respect to a Plan; and in each case in clauses (i)
through (vi) above, such event or condition, together with all other such
events or conditions, if any, could, in the sole judgment of the Required
Lenders, reasonably be expected to have a Material Adverse Effect; or
<PAGE>
61
(h) one or more judgments or decrees shall be entered against
Holdings, the Borrower or any of their respective Subsidiaries involving in
the aggregate a liability (not paid or fully covered by insurance) of
$2,500,000 or more, and all such judgments or decrees shall not have been
vacated, discharged, stayed or bonded pending appeal within 30 days from the
entry thereof; or
(i) any of the Security Documents shall cease, for any reason, to
be in full force and effect, or any Loan Party or any Affiliate of any Loan
Party shall so assert, or any Lien created by any of the Security Documents
shall cease to be enforceable and of the same effect and priority purported to
be created thereby; or
(j) the guarantee contained in Section 2 of the Guarantee and
Collateral Agreement shall cease, for any reason, to be in full force and
effect or any Loan Party or any Affiliate of any Loan Party shall so assert;
or
(k) a Change of Control shall occur; or
(l) Holdings shall (i) conduct, transact or otherwise engage in, or
commit to conduct, transact or otherwise engage in, any business or operations
other than those incidental to its ownership of the Capital Stock of the
Borrower, the maintenance of its corporate existence, and activities relating
to accounting, legal and financial matters concerning Holdings, the Borrower
and their respective Subsidiaries collectively, (ii) incur, create, assume or
suffer to exist any Indebtedness or other liabilities or financial
obligations, except (w) Subordinated Debt, (x) nonconsensual obligations
imposed by operation of law, (y) pursuant to the Loan Documents to which it is
a party and (z) obligations with respect to its Capital Stock or any
Management Notes issued by it, or (iii) own, lease, manage or otherwise
operate any properties or assets (including cash (other than cash received in
connection with dividends made by the Borrower in accordance with Section 7.6
pending application in the manner contemplated by said Section) and cash
equivalents) other than (x) the ownership of shares of Capital Stock of the
Borrower and (y) Investments expressly permitted by Section 7.8 to be made by
Holdings; or
(m) any Subordinated Seller Note, any Borrower/Holdings
Subordinated Debt or any Subordinated Debt shall cease, for any reason, to be
validly subordinated to the Obligations or the obligations of the relevant
Guarantors under the Guarantee and Collateral Agreement, as the case may be,
as provided pursuant to the terms of such Indebtedness, or any Loan Party, any
Affiliate of any Loan Party or the holder of any such Indebtedness shall so
assert;
then, and in any such event, (A) if such event is an Event of Default specified
in clause (i) or (ii) of paragraph (f) above with respect to the Borrower,
automatically the Commitments shall immediately terminate and the Loans
hereunder (with accrued interest thereon) and all other amounts owing under this
Agreement and the other Loan Documents (including all amounts of L/C
Obligations, whether or not the beneficiaries of the then outstanding Letters of
Credit shall have presented the documents required thereunder) 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) with the consent of
the Required Lenders, the Administrative Agent may, or upon the request of the
Required Lenders, the Administrative Agent shall, by notice to the Borrower
declare the Commitments to be terminated forthwith, whereupon the Commitments
shall immediately terminate; and (ii) with the consent of the Required Lenders,
the Administrative Agent may, or upon the request of the Required Lenders, the
Administrative Agent shall, by notice to the Borrower, declare the Loans
hereunder (with accrued interest thereon) and all other
<PAGE>
62
amounts owing under this Agreement and the other Loan Documents (including all
amounts of L/C Obligations, whether or not the beneficiaries of the then
outstanding Letters of Credit shall have presented the documents required
thereunder) to be due and payable forthwith, whereupon the same shall
immediately become due and payable. With respect to all Letters of Credit with
respect to which presentment for honor shall not have occurred at the time of an
acceleration pursuant to this paragraph, the Borrower shall at such time deposit
in a cash collateral account opened by the Administrative Agent an amount equal
to the aggregate then undrawn and unexpired amount of such Letters of Credit.
Amounts held in such cash collateral account shall be applied by the
Administrative Agent to the payment of drafts drawn under such Letters of
Credit, and the unused portion thereof after all such Letters of Credit shall
have expired or been fully drawn upon, if any, shall be applied to repay other
obligations of the Borrower hereunder and under the other Loan Documents. After
all such Letters of Credit shall have expired or been fully drawn upon, all
Reimbursement Obligations shall have been satisfied and all other obligations of
the Borrower hereunder and under the other Loan Documents shall have been paid
in full, the balance, if any, in such cash collateral account shall be returned
to the Borrower (or such other Person as may be lawfully entitled thereto).
Except as expressly provided above in this Section, presentment, demand, protest
and all other notices of any kind are hereby expressly waived by the Borrower.
SECTION 9. THE AGENTS
9.1 Appointment. Each Lender hereby irrevocably designates and
-----------
appoints the Administrative Agent as the agent of such Lender under this
Agreement and the other Loan Documents, and each such Lender irrevocably
authorizes the Administrative Agent, in such capacity, to take such action on
its behalf under the provisions of this Agreement and the other Loan Documents
and to exercise such powers and perform such duties as are expressly delegated
to the Administrative Agent by the terms of this Agreement and the other Loan
Documents, together with such other powers as are reasonably incidental thereto.
Notwithstanding any provision to the contrary elsewhere in this Agreement, the
Administrative Agent shall not have any duties or responsibilities, except those
expressly set forth herein, or any fiduciary relationship with any Lender, and
no implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Agreement or any other Loan Document or
otherwise exist against the Administrative Agent.
9.2 Delegation of Duties. The Administrative Agent may execute any
--------------------
of its duties under this Agreement and the other Loan Documents by or through
agents or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. The Administrative Agent
shall not be responsible for the negligence or misconduct of any agents or
attorneys in-fact selected by it with reasonable care.
9.3 Exculpatory Provisions. Neither any Agent nor any of their
----------------------
respective 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 or any
other Loan Document (except to the extent that any of the foregoing are found by
a final and nonappealable decision of a court of competent jurisdiction to have
resulted from its or such Person's own gross negligence or willful misconduct)
or (ii) responsible in any manner to any of the Lenders for any recitals,
statements, representations or warranties made by any Loan Party or any officer
thereof contained in this Agreement or any other Loan Document or in any
certificate, report, statement or other document referred to or provided for in,
or received by the Agents under or in connection with, this Agreement or any
other Loan Document or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or any other Loan Document or
for any failure of any Loan Party a party thereto to perform
<PAGE>
63
its obligations hereunder or thereunder. The Agents shall not be under any
obligation to any Lender to ascertain or to inquire as to the observance or
performance of any of the agreements contained in, or conditions of, this
Agreement or any other Loan Document, or to inspect the properties, books or
records of any Loan Party.
9.4 Reliance by Administrative Agent. The Administrative Agent shall
--------------------------------
be entitled to rely, and shall be fully protected in relying, upon any
instrument, writing, resolution, notice, consent, certificate, affidavit,
letter, telecopy, telex or teletype message, statement, order or other document
or conversation believed by it to be genuine and correct and to have been
signed, sent or made by the proper Person or Persons and upon advice and
statements of legal counsel (including counsel to Holdings or 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 written notice of assignment, negotiation or
transfer thereof shall have been filed with the Administrative Agent. The
Administrative Agent shall be fully justified in failing or refusing to take any
action under this Agreement or any other Loan Document unless it shall first
receive such advice or concurrence of the Required Lenders (or, if so specified
by this Agreement, all Lenders) as it deems appropriate or it shall first be
indemnified to its satisfaction by the Lenders against any and all liability and
expense that 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 this Agreement and the other Loan
Documents in accordance with a request of the Required Lenders (or, if so
specified by this Agreement, all Lenders), 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 Loans.
9.5 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,
Holdings or the Borrower referring to this Agreement, describing such Default or
Event of Default and stating that such notice is a "notice of default". In the
event that the Administrative Agent receives such a notice, the Administrative
Agent shall give notice thereof to the Lenders. The Administrative Agent shall
take such action with respect to such Default or Event of Default as shall be
reasonably directed by the Required Lenders (or, if so specified by this
Agreement, all Lenders); provided that unless and until the Administrative Agent
--------
shall have received such directions, the Administrative Agent may (but shall not
be obligated to) take such action, or refrain from taking such action, with
respect to such Default or Event of Default as it shall deem advisable in the
best interests of the Lenders.
9.6 Non-Reliance on Agents and Other Lenders. Each Lender expressly
----------------------------------------
acknowledges that neither the Agents nor any of their respective officers,
directors, employees, agents, attorneys-in-fact or affiliates have made any
representations or warranties to it and that no act by any Agent hereinafter
taken, including any review of the affairs of a Loan Party or any affiliate of a
Loan Party, shall be deemed to constitute any representation or warranty by any
Agent to any Lender. Each Lender represents to the Agents that it has,
independently and without reliance upon any 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 Loan Parties and their
affiliates 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 any 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 the other Loan Documents, and to make such
investigation as it deems necessary to inform itself as to the business,
operations, property, financial and other condition and
<PAGE>
64
creditworthiness of the Loan Parties and their affiliates. 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 any Loan Party or any affiliate
of a Loan Party that may come into the possession of the Administrative Agent or
any of its officers, directors, employees, agents, attorneys-in-fact or
affiliates.
9.7 Indemnification. The Lenders agree to indemnify each Agent in
---------------
its capacity as such (to the extent not reimbursed by Holdings or the Borrower
and without limiting the obligation of Holdings or the Borrower to do so),
ratably according to their respective Aggregate Exposure Percentages in effect
on the date on which indemnification is sought under this Section (or, if
indemnification is sought after the date upon which the Commitments shall have
terminated and the Loans shall have been paid in full, ratably in accordance
with such Aggregate Exposure Percentages immediately prior to such date), from
and against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind
whatsoever that may at any time (whether before or after the payment of the
Loans) be imposed on, incurred by or asserted against such Agent in any way
relating to or arising out of, the Commitments, this Agreement, any of the other
Loan Documents 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 such Agent under or in connection with any of the foregoing; provided
--------
that no Lender shall be liable for the payment of any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements that are found by a final and nonappealable
decision of a court of competent jurisdiction to have resulted from such Agent's
gross negligence or willful misconduct. The agreements in this Section shall
survive the payment of the Loans and all other amounts payable hereunder.
9.8 Agent in Its Individual Capacity. Each Agent and its affiliates
--------------------------------
may make loans to, accept deposits from and generally engage in any kind of
business with any Loan Party as though such Agent was not an Agent. With
respect to its Loans made or renewed by it and with respect to any Letter of
Credit issued or participated in by it, each Agent shall have the same rights
and powers under this Agreement and the other Loan Documents as any Lender and
may exercise the same as though it were not an Agent, and the terms "Lender" and
"Lenders" shall include each Agent in its individual capacity.
9.9 Successor Administrative Agent. The Administrative Agent may
------------------------------
resign as Administrative Agent upon 10 days' notice to the Lenders and the
Borrower. If the Administrative Agent shall resign as Administrative Agent
under this Agreement and the other Loan Documents, then the Required Lenders
shall appoint from among the Lenders a successor agent for the Lenders, which
successor agent shall (unless an Event of Default under Section 8(a) or Section
8(f) with respect to the Borrower shall have occurred and be continuing) be
subject to approval by the Borrower (which approval shall not be unreasonably
withheld or delayed), 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 Loans. If no successor
agent has accepted appointment as Administrative Agent by the date that is 10
days following a retiring Administrative Agent's notice of resignation, the
retiring Administrative Agent's resignation shall nevertheless thereupon become
effective and the Lenders shall assume and perform all of the duties of the
Administrative Agent hereunder until such time, if any, as the Required Lenders
appoint a successor agent as provided for above. After any
<PAGE>
65
retiring Administrative Agent's resignation as Administrative Agent, the
provisions of this Section 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 and the other Loan Documents.
9.10 Co-Agents. No Co-Agent shall have any duties or
---------
responsibilities hereunder in its capacity as such.
SECTION 10. MISCELLANEOUS
10.1 Amendments and Waivers. Neither this Agreement, any other Loan
----------------------
Document, nor any terms hereof or thereof may be amended, supplemented or
modified except in accordance with the provisions of this Section 10.1. The
Required Lenders and each Loan Party party to the relevant Loan Document may,
or, with the written consent of the Required Lenders, the Administrative Agent
and each Loan Party party to the relevant Loan Document may, from time to time,
(a) enter into written amendments, supplements or modifications hereto and to
the other Loan Documents for the purpose of adding any provisions to this
Agreement or the other Loan Documents or changing in any manner the rights of
the Lenders or of the Loan Parties hereunder or thereunder or (b) waive, on such
terms and conditions as the Required Lenders or the Administrative Agent, as the
case may be, may specify in such instrument, any of the requirements of this
Agreement or the other Loan Documents or any Default or Event of Default and its
consequences; provided, however, that no such waiver and no such amendment,
-------- -------
supplement or modification shall (i) forgive or reduce the principal amount or
extend the final scheduled date of maturity of any Loan, reduce the stated rate
of any interest or fee payable hereunder or extend the scheduled date of any
payment thereof, or increase the amount or extend the expiration date of any
Lender's Commitment, in each case without the written consent of each Lender
directly affected thereby; (ii) eliminate or reduce the voting rights of any
Lender under this Section 10.1 with respect to any matter covered by this
Section 10.1 without the written consent of such Lender; (iii) reduce any
percentage specified in the definition of Required Lenders, consent to the
assignment or transfer by the Borrower of any of its rights and obligations
under this Agreement and the other Loan Documents, release all or substantially
all of the Collateral or release Holdings or, except in connection with a
transaction permitted by Section 7.4 or Section 7.5, all or substantially all of
the Subsidiary Guarantors from their obligations under the Guarantee and
Collateral Agreement, in each case without the written consent of all Lenders;
(iv) amend, modify or waive any provision of Section 9 without the written
consent of the Administrative Agent and, in the case of Section 9.10, each of
the Co-Agents; or (v) amend, modify or waive any provision of Section 3 without
the written consent of the Issuing Lender. Any such waiver and any such
amendment, supplement or modification shall apply equally to each of the Lenders
and shall be binding upon the Loan Parties, the Lenders, the Administrative
Agent and all future holders of the Loans. In the case of any waiver, the Loan
Parties, the Lenders and the Administrative Agent shall be restored to their
former position and rights hereunder and under the other Loan 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.
For the avoidance of doubt, this Agreement may be amended (or amended
and restated) with the written consent of the Required Lenders, the
Administrative Agent and the Borrower (a) to add one or more additional credit
facilities to this Agreement and to permit the extensions of credit from time to
time outstanding thereunder and the accrued interest and fees in respect thereof
(collectively, the "Additional Extensions of Credit") to share ratably in the
benefits of this Agreement and the other Loan Documents with the Extensions of
Credit and the accrued interest and fees in respect thereof and (b) to
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66
include appropriately the Lenders holding such credit facilities in any
determination of the Required Lenders.
10.2 Notices. 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 when delivered, or three Business Days after being
deposited in the mail, postage prepaid, or, in the case of telecopy notice, when
received, addressed as follows in the case of Holdings, the Borrower and the
Administrative Agent, and as set forth in an administrative questionnaire
delivered to the Administrative Agent in the case of the Lenders, or to such
other address as may be hereafter notified by the respective parties hereto:
Holdings: Mattress Discounters Holding Corporation
c/o Bain Capital, Inc.
Two Copley Place
Boston, Massachusetts 02116
Attention: Michael Krupka
Telecopy: (617) 572-3000
Telephone: (617) 572-3274
The Borrower: Mattress Discounters Corporation
9822 Fallard Court
Upper Marlboro, Maryland 20772
Attention: Chief Financial Officer
Telecopy: (301) 856-0380
Telephone: (301) 856-6755
with a copy to each of: Bain Capital, Inc.
Two Copley Place
Boston, Massachusetts 02116
Attention: Michael Krupka
Telecopy: (617) 572-3274
Telephone: (617) 572-3000
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attention: Linda K. Myers
Telecopy: (312) 861-2200
Telephone: (312) 861-2000
The Administrative Agent: The Chase Manhattan Bank
270 Park Avenue
New York, New York 10017
Attention: Maggie Lane
Telecopy: (212) 270-9803
Telephone: (212) 270-7525
<PAGE>
67
with a copy to each of: The Chase Manhattan Bank
c/o The Loan and Agency Services Group
One Chase Manhattan Plaza, 8/th/ Floor
New York, New York 10081
Attention: Anne Bowles
Telecopy: (212) 552-7500
Telephone: (212) 552-7260
Chase Manhattan Bank Delaware
c/o The Letter of Credit Department
1201 Market Street, 8/th/ Floor
Wilmington, Delaware 19801
Attention: Michael Handago
Telecopy: (302) 428-3390 or (302) 984-4904
Telephone: (302) 428-3311
provided that any notice, request or demand to or upon the Administrative Agent
- --------
or the Lenders shall not be effective until received.
10.3 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 or under the other Loan Documents
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.
10.4 Survival of Representations and Warranties. All representations
------------------------------------------
and warranties made hereunder, in the other Loan Documents and in any document,
certificate or statement delivered pursuant hereto or in connection herewith
shall survive the execution and delivery of this Agreement and the making of the
Loans and other extensions of credit hereunder.
10.5 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 development, preparation and
execution of, and any amendment, supplement or modification to, this Agreement
and the other Loan Documents (requested by or on behalf of the Loan Parties) and
any other documents prepared in connection herewith or therewith, and the
consummation and administration of the transactions contemplated hereby and
thereby, including reasonable expenses incurred in connection with inspections
pursuant to Section 6.6, the reasonable fees and disbursements of counsel to the
Administrative Agent and filing and recording fees and expenses, with statements
with respect to the foregoing to be submitted to the Borrower prior to the
Closing Date (in the case of amounts to be paid on the Closing Date) and from
time to time thereafter on a quarterly basis or such other periodic basis as the
Administrative Agent shall reasonably deem appropriate, (b) to pay or reimburse
each Lender and the Administrative Agent for all its reasonable costs and
expenses incurred in connection with the enforcement or preservation of any
rights under this Agreement, the other Loan Documents and any such other
documents, including the fees and disbursements of counsel to the Administrative
Agent and not more than one additional firm of counsel to the Lenders, (c) 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 taxes, if
any, that may be
<PAGE>
68
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, this Agreement, the other Loan Documents and
any such other documents, and (d) to pay, indemnify, and hold each Lender and
the Administrative Agent and their respective officers, directors, employees,
affiliates, agents and controlling persons (each, an "Indemnitee") harmless from
----------
and against any and all other liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever with respect to the execution, delivery, enforcement,
performance and administration of this Agreement, the other Loan Documents and
any such other documents, including any of the foregoing relating to the use of
proceeds of the Loans or the violation of, noncompliance with or liability
under, any Environmental Law applicable to the operations of Holdings, the
Borrower any of their respective Subsidiaries or any of the Properties and the
reasonable fees and expenses of legal counsel in connection with claims, actions
or proceedings by any Indemnitee against any Loan Party under any Loan Document
(all the foregoing in this clause (d), collectively, the "Indemnified
-----------
Liabilities"), provided, that the Borrower shall have no obligation hereunder to
- ----------- --------
any Indemnitee with respect to Indemnified Liabilities to the extent such
Indemnified Liabilities result from the bad faith, gross negligence or willful
misconduct of such Indemnitee. Without limiting the foregoing, and to the extent
permitted by applicable law, the Borrower agrees not to assert and to cause its
Subsidiaries not to assert, and hereby waives and agrees to cause its
Subsidiaries to so waive, all rights for contribution or any other rights of
recovery with respect to all claims, demands, penalties, fines, liabilities,
settlements, damages, costs and expenses of whatever kind or nature, under or
related to Environmental Laws, that any of them might have by statute or
otherwise against any Indemnitee. All amounts due under this Section 10.5 shall
be payable promptly after written demand therefor. Statements payable by the
Borrower pursuant to this Section 10.5 shall be submitted to the Chief Financial
Officer (Telephone No. 301-856-0380) (Telecopy No. 301-856-6755), at the address
of the Borrower set forth in Section 10.2, or to such other Person or address as
may be hereafter designated by the Borrower in a written notice to the
Administrative Agent. The agreements in this Section 10.5 shall survive
repayment of the Loans and all other amounts payable hereunder.
10.6 Successors and Assigns; Participations and Assignments. (a)
------------------------------------------------------
This Agreement shall be binding upon and inure to the benefit of Holdings, the
Borrower, the Lenders, the Administrative Agent, all future holders of the Loans
and their respective successors and assigns, except that the Borrower may not
assign or transfer any of its rights or obligations under this Agreement without
the prior written consent of each Lender.
(b) Any Lender may, without the consent of the Borrower, in
accordance with applicable law, at any time sell to one or more banks, financial
institutions or other entities (each, a "Participant") participating interests
in any Loan owing to such Lender, any Commitment of such Lender or any other
interest of such Lender hereunder and under the other Loan Documents. In the
event of any such sale by a Lender of a participating interest 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
Loan for all purposes under this Agreement and the other Loan Documents, 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 and the other Loan Documents. In no event shall any Participant
under any such participation have any right to approve any amendment or waiver
of any provision of any Loan Document, or any consent to any departure by any
Loan Party therefrom, except to the extent that such amendment, waiver or
consent would (i) reduce the principal of, or interest on, the Loans or any fees
payable hereunder in which the Participant shares, (ii) postpone any date fixed
for any payment of principal or interest with respect to the Loans in which the
Participant shares, or (iii) release all or
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69
substantially all of the Collateral except (x) as contemplated by the terms of
any Loan Document or (y) in exchange for substitute collateral of equal or
greater value. The Borrower agrees that if amounts outstanding under this
Agreement and the Loans are due or unpaid, or shall have been declared or shall
have become due and payable upon the occurrence of an Event of Default, each
Participant shall, to the maximum extent permitted by applicable law, be deemed
to have the right of setoff in respect of its participating interest in amounts
owing under this Agreement to the same extent as if the amount of its
participating interest were owing directly to it as a Lender under this
Agreement, provided that, in purchasing such participating interest, such
--------
Participant shall be deemed to have agreed to share with the Lenders the
proceeds thereof as provided in Section 10.7(a) as fully as if it were a Lender
hereunder. The Borrower also agrees that each Participant shall be entitled to
the benefits of Sections 2.13, 2.14 and 2.15 with respect to its participation
in the Commitments and the Loans outstanding from time to time as if it was a
Lender; provided that, in the case of Section 2.14, such Participant shall have
--------
complied with the requirements of said Section and provided, further, that no
-------- -------
Participant shall be entitled to receive any greater amount pursuant to any such
Section than the transferor Lender would have been entitled to receive in
respect of the amount of the participation transferred by such transferor Lender
to such Participant had no such transfer occurred.
(c) Any Lender (an "Assignor") may, in accordance with applicable
--------
law, at any time and from time to time assign to any Lender, any affiliate of
any Lender or any Approved Fund or, with the consent of the Borrower and the
Administrative Agent (which, in each case, shall not be unreasonably withheld or
delayed), to an additional bank, financial institution or other entity (an
"Assignee") all or any part of its rights and obligations under this Agreement
--------
pursuant to an Assignment and Acceptance, executed by such Assignee, such
Assignor and any other Person whose consent is required pursuant to this
paragraph, and delivered to the Administrative Agent for its acceptance and
recording in the Register; provided that, except in the case of an assignment of
all of a Lender's interests under this Agreement, unless otherwise agreed by the
Borrower and the Administrative Agent, no such assignment to an Assignee (other
than any Lender, any affiliate of any Lender or any Approved Fund) shall (i) be
in an aggregate principal amount of less than $2,500,000 or (ii) cause the
Assignor to have Aggregate Exposure of less than $2,500,000. For purposes of
the proviso contained in the preceding sentence, the amounts described therein
shall be aggregated in respect of each Lender and its related Approved Funds, if
any. Any such assignment need not be ratable as among the Facilities. Upon
such execution, delivery, acceptance and recording, from and after the effective
date determined pursuant to such Assignment and Acceptance, (x) the Assignee
thereunder shall be a party hereto and, to the extent provided in such
Assignment and Acceptance, have the rights and obligations of a Lender hereunder
with a Commitment and/or Loans as set forth therein, and (y) the Assignor
thereunder shall, to the extent provided in such Assignment and Acceptance, be
released from its obligations under this Agreement (and, in the case of an
Assignment and Acceptance covering all of an Assignor's rights and obligations
under this Agreement, such Assignor shall cease to be a party hereto).
Notwithstanding any provision of this Section 10.6, the consent of the Borrower
shall not be required for any assignment that occurs when an Event of Default
pursuant to Section 8(f) shall have occurred and be continuing with respect to
the Borrower.
(d) The Administrative Agent shall, on behalf of the Borrower,
maintain at its address referred to in Section 10.2 a copy of each Assignment
and Acceptance delivered to it and a register (the "Register") for the
--------
recordation of the names and addresses of the Lenders and the Commitment of, and
the 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, each other Loan Party, the Administrative Agent and the
Lenders shall treat each Person whose name is recorded in the Register as the
owner of the Loans and any Notes evidencing the Loans recorded therein for all
purposes of this Agreement. Any assignment of any Loan, whether or not
evidenced by a Note, shall be effective only
<PAGE>
70
upon appropriate entries with respect thereto being made in the Register (and
each Note shall expressly so provide). Any assignment or transfer of all or part
of a Loan evidenced by a Note shall be registered on the Register only upon
surrender for registration of assignment or transfer of the Note evidencing such
Loan, accompanied by a duly executed Assignment and Acceptance, and thereupon
one or more new Notes shall be issued to the designated Assignee.
(e) Upon its receipt of an Assignment and Acceptance executed by an
Assignor, an Assignee and any other Person whose consent is required by Section
10.6(c), together with payment to the Administrative Agent of a registration and
processing fee of $3,500, the Administrative Agent shall (i) promptly accept
such Assignment and Acceptance and (ii) record the information contained therein
in the Register on the effective date determined pursuant thereto.
(f) For avoidance of doubt, the parties to this Agreement acknowledge
that the provisions of this Section 10.6 concerning assignments of Loans and
Notes relate only to absolute assignments and that such provisions do not
prohibit assignments creating security interests, including any pledge or
assignment by a Lender of any Loan or Note to any Federal Reserve Bank in
accordance with applicable law.
(g) The Borrower, upon receipt of written notice from the relevant
Lender, agrees to issue Notes to any Lender requiring Notes to facilitate
transactions of the type described in paragraph (f) above.
10.7 Adjustments; Set-off. (a) Except to the extent that this
--------------------
Agreement expressly provides for payments to be allocated to a particular
Lender, if any Lender (a "Benefitted Lender") shall receive any payment of all
-----------------
or part of the Obligations owing to it, 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 8(f), or otherwise), in a
greater proportion than any such payment to or collateral received by any other
Lender, if any, in respect of the Obligations owing to such other Lender, such
Benefitted Lender shall purchase for cash from the other Lenders a participating
interest in such portion of the Obligations owing to each such other Lender, or
shall provide such other Lenders with the benefits of any such collateral, as
shall be necessary to cause such Benefitted Lender to share the excess payment
or benefits of such collateral ratably with each of the Lenders; provided,
--------
however, that if all or any portion of such excess payment or benefits is
- -------
thereafter recovered from such Benefitted Lender, such purchase shall be
rescinded, and the purchase price and benefits returned, to the extent of such
recovery, but without interest.
(b) In addition to any rights and remedies of the Lenders provided by
law, each Lender shall have the right, without prior notice to Holdings or the
Borrower, any such notice being expressly waived by Holdings and the Borrower to
the extent permitted by applicable law, upon any amount becoming due and payable
by Holdings or the Borrower hereunder (whether at the stated maturity, by
acceleration or otherwise), to set off and appropriate and apply against such
amount 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 Holdings or the Borrower,
as the case may be. Each Lender agrees promptly to notify the Borrower and the
Administrative Agent after any such setoff and application made by such Lender,
provided that the failure to give such notice shall not affect the validity of
- --------
such setoff and application.
<PAGE>
71
10.8 Counterparts. This Agreement may be executed by one or more of
------------
the parties to this Agreement on any number of separate counterparts, and all of
said counterparts taken together shall be deemed to constitute one and the same
instrument. Delivery of an executed signature page of this Agreement by
facsimile transmission shall be effective as delivery of a manually executed
counterpart hereof. A set of the copies of this Agreement signed by all the
parties shall be lodged with the Borrower and the Administrative Agent.
10.9 Severability. Any provision of this Agreement that 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.
10.10 Integration. This Agreement and the other Loan Documents
-----------
represent the agreement of Holdings, 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 or any Lender relative to subject matter hereof not expressly set forth or
referred to herein or in the other Loan Documents.
10.11 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF
-------------
THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
10.12 Submission To Jurisdiction; Waivers. Each of Holdings and
-----------------------------------
the Borrower hereby irrevocably and unconditionally:
(a) submits for itself and its property in any legal action or
proceeding relating to this Agreement and the other Loan Documents to which it
is a party, or for recognition and enforcement of any judgment in respect
thereof, to the non-exclusive general jurisdiction of the courts of the State
of New York, the courts of the United States for the Southern District of New
York, and appellate courts from any thereof;
(b) consents that any such action or proceeding may be brought in
such courts and waives any objection that it may now or hereafter have to the
venue of any such action or proceeding in any such court or that such action
or proceeding was brought in an inconvenient court and agrees not to plead or
claim the same;
(c) agrees that service of process in any such action or proceeding
may be effected by mailing a copy thereof by registered or certified mail (or
any substantially similar form of mail), postage prepaid, to Holdings or the
Borrower, as the case may be at its address set forth in Section 10.2 or at
such other address of which the Administrative Agent shall have been notified
pursuant thereto;
(d) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit the
right to sue in any other jurisdiction; and
<PAGE>
72
(e) waives, to the maximum extent not prohibited by law, any right
it may have to claim or recover in any legal action or proceeding referred to
in this Section any special, exemplary, punitive or consequential damages.
10.13 Acknowledgements. Each of Holdings and the Borrower hereby
----------------
acknowledges that:
(a) it has been advised by counsel in the negotiation, execution
and delivery of this Agreement and the other Loan Documents;
(b) neither the Administrative Agent nor any Lender has any
fiduciary relationship with or duty to Holdings or the Borrower arising out of
or in connection with this Agreement or any of the other Loan Documents, and
the relationship between Administrative Agent and Lenders, on one hand, and
Holdings and the Borrower, on the other hand, in connection herewith or
therewith is solely that of debtor and creditor; and
(c) no joint venture is created hereby or by the other Loan
Documents or otherwise exists by virtue of the transactions contemplated
hereby among the Lenders or among Holdings, the Borrower and the Lenders.
10.14 Releases of Guarantees and Liens. (a) Notwithstanding
--------------------------------
anything to the contrary contained herein or in any other Loan Document, the
Administrative Agent is hereby irrevocably authorized by each Lender (without
requirement of notice to or consent of any Lender except as expressly required
by Section 10.1) to take any action requested by the Borrower having the effect
of releasing any Collateral or guarantee obligations (i) to the extent necessary
to permit consummation of any transaction not prohibited by any Loan Document or
that has been consented to in accordance with Section 10.1 or (ii) under the
circumstances described in paragraph (b) below.
(b) At such time as the Loans, the Reimbursement Obligations and the
other obligations under the Loan Documents (other than obligations under or in
respect of Hedge Agreements or contingent indemnification obligations for which
requests for payment have not been submitted) shall have been paid in full, the
Commitments have been terminated and no Letters of Credit shall be outstanding,
the Collateral shall be released from the Liens created by the Security
Documents, and the Security Documents and all obligations (other than those
expressly stated to survive such termination) of the Administrative Agent and
each Loan Party under the Security Documents shall terminate, all without
delivery of any instrument or performance of any act by any Person.
10.15 Confidentiality. Each of the Administrative Agent and each
---------------
Lender agrees to keep confidential all non-public information provided to it by
any Loan Party pursuant to this Agreement that is designated by such Loan Party
as confidential; provided that nothing herein shall prevent the Administrative
--------
Agent or any Lender from disclosing any such information (a) to the
Administrative Agent, any other Lender, any affiliate of any Lender or any
Approved Fund, (b) to any Transferee or prospective Transferee that agrees to
comply with the provisions of this Section, (c) to its employees, directors,
agents, attorneys, accountants and other professional advisors or those of any
of its affiliates involved in this financing, (d) or to any direct or indirect
contractual counterparty in swap agreements or such contractual counterparty's
professional advisor (so long as such contractual counterparty or professional
advisor to such contractual counterparty agrees to be bound by the provisions of
this Section 10.15), (e) upon the request or demand of any Governmental
Authority, (f) in response to any order of any court or other Governmental
Authority or as may otherwise be required pursuant to any Requirement
<PAGE>
73
of Law, (g) if requested or required to do so in connection with any litigation
or similar proceeding, (h) that has been publicly disclosed, (i) to the National
Association of Insurance Commissioners or any similar organization or any
nationally recognized rating agency that requires access to information about a
Lender's investment portfolio in connection with ratings issued with respect to
such Lender, or (j) in connection with the exercise of any remedy hereunder or
under any other Loan Document.
10.16 WAIVERS OF JURY TRIAL. HOLDINGS, THE BORROWER, THE
---------------------
ADMINISTRATIVE AGENT AND THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY
WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT
OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.
<PAGE>
74
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their proper and duly authorized officers as
of the day and year first above written.
MATTRESS DISCOUNTERS HOLDING
CORPORATION
By: /s/ Jordan Hitch
------------------------------------
Name: Jordan Hitch
Title: Vice President
MATTRESS DISCOUNTERS CORPORATION
By: /s/ Jordan Hitch
------------------------------------
Name: Jordan Hitch
Title: Vice President
THE CHASE MANHATTAN BANK, as Administrative
Agent and as a Lender
By: /s/ Marian N. Schulman
------------------------------------
Name: Marian N. Schulman
Title: Vice President
CANADIAN IMPERIAL BANK OF COMMERCE, as
Co-Agent
By: /s/ Gerald Girardi
------------------------------------
Name: Gerald Girardi
Title: Executive Director
CIBC INC., as a Lender
By: /s/ Gerald Girardi
------------------------------------
Name: Gerald Girardi
Title: Executive Director
BANKBOSTON, N.A., as Co-Agent and as a Lender
By: /s/ Kimberly F. Harris
------------------------------------
Name: Kimberly F. Harris
Title: Vice President
<PAGE>
Annex A
-------
PRICING GRID
<TABLE>
<CAPTION>
=========================================================================================
Applicable
Margin Applicable
Consolidated Total for Eurodollar Margin for ABR Commitment Fee
Debt Ratio Loans Loans Rate
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Greater than 4.00 to 1.0 3.00% 2.00% 0.500%
- -----------------------------------------------------------------------------------------
Less than or equal to 4.00 to 1.0, 2.75% 1.75% 0.500%
and greater than 3.00 to 1.0
- -----------------------------------------------------------------------------------------
Less than or equal to 3.00 to 1.0 2.50% 1.50% 0.375%
=========================================================================================
</TABLE>
Changes in the Applicable Margin resulting from changes in the Consolidated
Total Debt Ratio shall become effective on the date (the "Adjustment Date") on
---------------
which financial statements are delivered to the Lenders pursuant to Section 6.1
(but in any event not later than the 45th day after the end of each of the first
three quarterly periods of each fiscal year or the 90th day after the end of
each fiscal year, as the case may be) and shall remain in effect until the next
change to be effected pursuant to this paragraph; provided that the initial
--------
change in the Applicable Margin may become effective on or after February 6,
2000 upon the delivery by the Borrower of a certificate of the Chief Financial
Officer which (a) demonstrates in reasonable detail the Consolidated Total Debt
Ratio based (i) in the case of Consolidated EBITDA, on the most recent financial
statements delivered to the Administrative Agent pursuant to Section 6.1(c), and
(ii) in the case of Consolidated Total Debt, the amount thereof as of the date
of such certificate and (b) certifies that since the date of such financial
statements there has been no development or event that has had or could
reasonably be expected to have a Material Adverse Effect. If any financial
statements referred to above are not delivered within the time periods specified
above, then, until such financial statements are delivered, the Consolidated
Total Debt Ratio as at the end of the fiscal period that would have been covered
thereby shall for the purposes of this definition be deemed to be greater than
4.00 to 1.0. In addition, at all times while an Event of Default shall have
occurred and be continuing, the Consolidated Total Debt Ratio shall for the
purposes of this definition be deemed to be greater than 4.00 to 1.0. Each
determination of the Consolidated Total Debt Ratio pursuant to this pricing grid
shall be made as at the end of the period of four consecutive fiscal quarters of
the Borrower ending at the end of the period covered by the relevant financial
statements.
<PAGE>
SCHEDULE 1.1A
-------------
COMMITMENTS
Lender Commitment
------ ----------
The Chase Manhattan Bank $ 8,000,000
BankBoston, N.A. 6,000,000
CIBC Inc. 6,000,000
-----------
TOTAL $20,000,000
===========
<PAGE>
EXHIBIT 10.31
EXECUTION COPY
--------------
GUARANTEE AND COLLATERAL AGREEMENT
made by
MATTRESS DISCOUNTERS HOLDING CORPORATION,
MATTRESS DISCOUNTERS CORPORATION,
and certain of its Subsidiaries
in favor of
THE CHASE MANHATTAN BANK,
as Administrative Agent
Dated as of August 6, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1. DEFINED TERMS.................................................. 1
1.1 Definitions.................................................... 1
1.2 Other Definitional Provisions.................................. 5
SECTION 2. GUARANTEE...................................................... 5
2.1 Guarantee...................................................... 5
2.2 Right of Contribution.......................................... 6
2.3 No Subrogation................................................. 6
2.4 Amendments, etc. with respect to the Borrower Obligations...... 6
2.5 Guarantee Absolute and Unconditional........................... 6
2.6 Reinstatement.................................................. 7
2.7 Payments....................................................... 7
SECTION 3. GRANT OF SECURITY INTEREST..................................... 7
SECTION 4. REPRESENTATIONS AND WARRANTIES................................. 8
4.1 Title; No Other Liens.......................................... 8
4.2 Perfected First Priority Liens................................. 8
4.3 Chief Executive Office......................................... 9
4.4 Inventory and Equipment........................................ 9
4.5 Farm Products.................................................. 9
4.6 Investment Property............................................ 9
4.7 Receivables.................................................... 9
4.8 Contracts...................................................... 9
4.9 Intellectual Property.......................................... 10
SECTION 5. COVENANTS...................................................... 10
5.1 Delivery of Instruments, Certificated Securities and
Chattel Paper............................................... 10
5.2 Maintenance of Insurance....................................... 11
5.3 Payment of Obligations......................................... 11
5.4 Maintenance of Perfected Security Interest;
Further Documentation....................................... 11
5.5 Changes in Locations, Name, etc................................ 11
5.6 Notices........................................................ 12
5.7 Investment Property............................................ 12
5.8 Receivables.................................................... 13
5.9 Contracts...................................................... 13
5.10 Intellectual Property.......................................... 13
SECTION 6. REMEDIAL PROVISIONS............................................ 14
6.1 Certain Matters Relating to Receivables........................ 14
6.2 Communications with Obligors; Grantors Remain Liable........... 15
6.3 Pledged Stock.................................................. 15
6.4 Proceeds to be Turned Over To Administrative Agent............. 16
6.5 Application of Proceeds........................................ 16
6.6 Code and Other Remedies........................................ 17
6.7 Registration Rights............................................ 17
6.8 Waiver; Deficiency............................................. 18
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
SECTION 7. THE ADMINISTRATIVE AGENT....................................... 18
7.1 Administrative Agent's Appointment as Attorney-in-Fact, etc.... 18
7.2 Duty of Administrative Agent................................... 20
7.3 Execution of Financing Statements.............................. 20
7.4 Authority of Administrative Agent.............................. 20
SECTION 8. MISCELLANEOUS.................................................. 21
8.1 Amendments in Writing.......................................... 21
8.2 Notices........................................................ 21
8.3 No Waiver by Course of Conduct; Cumulative Remedies............ 21
8.4 Enforcement Expenses; Indemnification.......................... 21
8.5 Successors and Assigns......................................... 22
8.6 Set-Off........................................................ 22
8.7 Counterparts................................................... 22
8.8 Severability................................................... 22
8.9 Section Headings............................................... 22
8.10 Integration.................................................... 22
8.11 GOVERNING LAW.................................................. 22
8.12 Submission To Jurisdiction; Waivers............................ 22
8.13 Acknowledgements............................................... 23
8.14 Additional Grantors............................................ 23
8.15 Releases....................................................... 23
8.16 WAIVER OF JURY TRIAL........................................... 24
</TABLE>
SCHEDULES
- ---------
Schedule 1 Notice Addresses
Schedule 2 Investment Property
Schedule 3 Perfection Matters
Schedule 4 Jurisdictions of Organization and Chief Executive Offices
Schedule 5 Inventory and Equipment Locations
Schedule 6 Intellectual Property
Schedule 7 Contracts
ii
<PAGE>
GUARANTEE AND COLLATERAL AGREEMENT
GUARANTEE AND COLLATERAL AGREEMENT, dated as of August 6, 1999, made
by each of the signatories hereto (together with any other entity that may
become a party hereto as provided herein, the "Grantors"), in favor of THE CHASE
--------
MANHATTAN BANK, as Administrative Agent (in such capacity, the "Administrative
--------------
Agent") for the banks and other financial institutions (the "Lenders") from time
- ----- -------
to time parties to the Credit Agreement, dated as of August 6, 1999 (as amended,
supplemented or otherwise modified from time to time, the "Credit Agreement"),
----------------
among Mattress Discounters Holding Corporation ("Holdings"), Mattress
--------
Discounters Corporation (the "Borrower"), the Lenders and the Administrative
--------
Agent.
W I T N E S S E T H:
-------------------
WHEREAS, pursuant to the Credit Agreement, the Lenders have severally
agreed to make extensions of credit to the Borrower upon the terms and subject
to the conditions set forth therein;
WHEREAS, the Borrower is a member of an affiliated group of companies
that includes each other Grantor;
WHEREAS, the proceeds of the extensions of credit under the Credit
Agreement will be used in part to enable the Borrower to make valuable transfers
to one or more of the other Grantors in connection with the operation of their
respective businesses;
WHEREAS, the Borrower and the other Grantors are engaged in
substantially related businesses, and each Grantor will derive substantial
direct and indirect benefit from the making of the extensions of credit under
the Credit Agreement; and
WHEREAS, it is a condition precedent to the obligation of the Lenders
to make their respective extensions of credit to the Borrower under the Credit
Agreement that the Grantors shall have executed and delivered this Agreement to
the Administrative Agent for the ratable benefit of the Lenders;
NOW, THEREFORE, in consideration of the premises and to induce the
Administrative Agent and the Lenders to enter into the Credit Agreement and to
induce the Lenders to make their respective extensions of credit to the Borrower
thereunder, each Grantor hereby agrees with the Administrative Agent, for the
ratable benefit of the Lenders, as follows:
SECTION 1 DEFINED TERMS
1.1 Definitions. (a) Unless otherwise defined herein, terms defined
-----------
in the Credit Agreement and used herein shall have the meanings given to them in
the Credit Agreement, and the following terms are used herein as defined in the
New York UCC: Accounts, Certificated Security, Chattel Paper, Documents,
Equipment, Farm Products, Instruments and Inventory.
(b) The following terms shall have the following meanings:
"Agreement": this Guarantee and Collateral Agreement, as the same may
---------
be amended, supplemented or otherwise modified from time to time.
<PAGE>
2
"Borrower Obligations": the collective reference to the unpaid
--------------------
principal of and interest on the Loans and Reimbursement Obligations and
all other obligations and liabilities of the Borrower (including, without
limitation, interest accruing at the then applicable rate provided in the
Credit Agreement after the maturity of the Loans and Reimbursement
Obligations and interest accruing at the then applicable rate provided in
the Credit Agreement after the filing of any petition in bankruptcy, or the
commencement of any insolvency, reorganization or like proceeding, relating
to the Borrower, whether or not a claim for post-filing or post-petition
interest is allowed in such proceeding) to the Administrative Agent or any
Lender (or, in the case of any Lender Hedge Agreement, any Affiliate of any
Lender), whether direct or indirect, absolute or contingent, due or to
become due, or now existing or hereafter incurred, which may arise under,
out of, or in connection with, the Credit Agreement, this Agreement, the
other Loan Documents, any Letter of Credit, any Lender Hedge Agreement or
any other document made, delivered or given in connection with any of the
foregoing, in each case whether on account of principal, interest,
reimbursement obligations, fees, indemnities, costs, expenses or otherwise.
"Collateral": as defined in Section 3.
----------
"Collateral Account": any collateral account established by the
------------------
Administrative Agent as provided in Section 6.1 or 6.4.
"Contracts": the contracts and agreements listed in Schedule 7,
--------- ----------
including, without limitation, (i) all rights of any Grantor to receive
moneys due and to become due to it thereunder or in connection therewith,
(ii) all rights of any Grantor to damages arising thereunder and (iii) all
rights of any Grantor to perform and to exercise all remedies thereunder.
"Copyrights": (i) all copyrights arising under the laws of the United
----------
States, any other country or any political subdivision thereof, whether
registered or unregistered and whether published or unpublished (including,
without limitation, those United States copyright registrations listed in
Schedule 6), all registrations and recordings thereof, and all applications
----------
in connection therewith, including, without limitation, all registrations,
recordings and applications in the United States Copyright Office, and (ii)
the right to obtain all renewals thereof.
"Copyright Licenses": any written agreement naming any Grantor as
------------------
licensor or licensee (including, without limitation, those listed in
Schedule 6), granting any right under any Copyright, including, without
----------
limitation, the grant of rights to manufacture, distribute, exploit and
sell materials derived from any Copyright.
"Deposit Account": as defined in the Uniform Commercial Code of any
---------------
applicable jurisdiction and, in any event, including, without limitation,
any demand, time, savings, passbook or like account maintained with a
depositary institution.
"Foreign Subsidiary": any Subsidiary organized under the laws of any
------------------
jurisdiction outside the United States of America.
"Foreign Subsidiary Voting Stock": the voting Capital Stock of any
-------------------------------
Foreign Subsidiary.
"General Intangibles": all "general intangibles" as such term is
-------------------
defined in Section 9-106 of the New York UCC and, in any event, including,
without limitation, with respect to any Grantor, all contracts, agreements,
instruments and indentures in any form, and portions thereof,
<PAGE>
3
to which such Grantor is a party or under which such Grantor has any right,
title or interest or to which such Grantor or any property of such Grantor
is subject, as the same may from time to time be amended, supplemented or
otherwise modified, including, without limitation, (i) all rights of such
Grantor to receive moneys due and to become due to it thereunder or in
connection therewith, (ii) all rights of such Grantor to damages arising
thereunder and (iii) all rights of such Grantor to perform and to exercise
all remedies thereunder, in each case to the extent the grant by such
Grantor of a security interest pursuant to this Agreement in its right,
title and interest in such contract, agreement, instrument or indenture (a)
is not prohibited by such contract, agreement, instrument or indenture
without the consent of any other party thereto, (b) would not give any
other party to such contract, agreement, instrument or indenture the right
to terminate its obligations thereunder, or (c) is permitted with consent
if all necessary consents to such grant of a security interest have been
obtained from the other parties thereto (it being understood that the
foregoing shall not be deemed to obligate such Grantor to obtain such
consents); provided, that the foregoing limitation shall not affect, limit,
--------
restrict or impair the grant by such Grantor of a security interest
pursuant to this Agreement in any Receivable or any money or other amounts
due or to become due under any such contract, agreement, instrument or
indenture.
"Guarantor Obligations": with respect to any Guarantor, all
---------------------
obligations and liabilities of such Guarantor which may arise under or in
connection with this Agreement (including, without limitation, Section 2)
or any other Loan Document to which such Guarantor is a party, in each case
whether on account of guarantee obligations, reimbursement obligations,
fees, indemnities, costs, expenses or otherwise (including, without
limitation, all fees and disbursements of counsel to the Administrative
Agent or to the Lenders that are required to be paid by such Guarantor
pursuant to the terms of this Agreement or any other Loan Document).
"Guarantors": the collective reference to each Grantor other than the
----------
Borrower.
"Intellectual Property": the collective reference to all rights,
---------------------
priorities and privileges relating to intellectual property, whether
arising under United States, multinational or foreign laws or otherwise,
including, without limitation, the Copyrights, the Copyright Licenses, the
Patents, the Patent Licenses, the Trademarks and the Trademark Licenses,
and all rights to sue at law or in equity for any infringement or other
impairment thereof, including the right to receive all proceeds and damages
therefrom.
"Intercompany Note": any promissory note evidencing loans made by any
-----------------
Grantor to Holdings or any of its Subsidiaries.
"Investment Property": the collective reference to (i) all
-------------------
"investment property" as such term is defined in Section 9-115 of the New
York UCC (other than any Foreign Subsidiary Voting Stock excluded from the
definition of "Pledged Stock") and (ii) whether or not constituting
"investment property" as so defined, all Pledged Notes and all Pledged
Stock.
"Issuers": the collective reference to each issuer of any Investment
-------
Property.
"Lender Hedge Agreements": all interest rate swaps, caps or collar
-----------------------
agreements or similar arrangements entered into by the Borrower with any
Lender (or any Affiliate of any Lender) providing for protection against
fluctuations in interest rates or currency exchange rates or the exchange
of nominal interest obligations, either generally or under specific
contingencies.
<PAGE>
4
"New York UCC": the Uniform Commercial Code as from time to time in
------------
effect in the State of New York.
"Obligations": (i) in the case of the Borrower, the Borrower
-----------
Obligations, and (ii) in the case of each Guarantor, its Guarantor
Obligations.
"Patents": (i) all letters patent of the United States, any other
-------
country or any political subdivision thereof, all reissues and extensions
thereof and all goodwill associated therewith, including, without
limitation, any of the foregoing referred to in Schedule 6, (ii) all
----------
applications for letters patent of the United States or any other country
and all divisions, continuations and continuations-in-part thereof,
including, without limitation, any of the foregoing referred to in
Schedule 6, and (iii) all rights to obtain any reissues or extensions of
----------
the foregoing.
"Patent License": all agreements, whether written or oral, providing
--------------
for the grant by or to any Grantor of any right to manufacture, use or sell
any invention covered in whole or in part by a Patent, including, without
limitation, any of the foregoing referred to in Schedule 6.
----------
"Pledged Notes": all promissory notes listed on Schedule 2, all
------------- ----------
Intercompany Notes at any time issued to any Grantor and all other
promissory notes issued to or held by any Grantor (other than promissory
notes issued (i) in connection with extensions of trade credit by any
Grantor in the ordinary course of business or (ii) by members of management
of any Grantor in connection with the acquisition of common stock of
Holdings).
"Pledged Stock": the shares of Capital Stock listed on Schedule 2,
------------- ----------
together with any other shares, stock certificates, options or rights of
any nature whatsoever in respect of the Capital Stock of any Person that
may be issued or granted to, or held by, any Grantor while this Agreement
is in effect; provided that in no event shall more than 66% of the total
outstanding Foreign Subsidiary Voting Stock of any Foreign Subsidiary be
required to be pledged hereunder.
"Proceeds": all "proceeds" as such term is defined in Section
--------
9-306(1) of the New York UCC and, in any event, shall include, without
limitation, all dividends or other income from the Investment Property,
collections thereon or distributions or payments with respect thereto.
"Receivable": any right to payment for goods sold or leased or for
----------
services rendered, whether or not such right is evidenced by an Instrument
or Chattel Paper and whether or not it has been earned by performance
(including, without limitation, any Account).
"Securities Act": the Securities Act of 1933, as amended.
--------------
"Trademarks": (i) all trademarks, trade names, corporate names,
----------
company names, business names, fictitious business names, trade styles,
service marks, logos and other source or business identifiers, and all
goodwill associated therewith, now existing or hereafter adopted or
acquired, all registrations and recordings thereof, and all applications in
connection therewith, whether in the United States Patent and Trademark
Office or in any similar office or agency of the United States, any State
thereof or any other country or any political subdivision thereof, or
otherwise, and all common-law rights related thereto, including, without
limitation, any of the trademark or servicemark registrations or
applications for registrations referred to in Schedule 6, and (ii) the
----------
right to obtain all renewals thereof.
<PAGE>
5
"Trademark License": any agreement, whether written or oral,
-----------------
providing for the grant by or to any Grantor of any right to use any
Trademark, including, without limitation, any of the foregoing referred to
in Schedule 6.
----------
1.2 Other Definitional Provisions. (a) The words "hereof,"
-----------------------------
"herein", "hereto" 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 and Schedule references are to this
Agreement unless otherwise specified.
(b) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
(c) Where the context requires, terms relating to the Collateral or
any part thereof, when used in relation to a Grantor, shall refer to such
Grantor's Collateral or the relevant part thereof.
SECTION 2. GUARANTEE
2.1 Guarantee. (a) Each of the Guarantors hereby, jointly and
---------
severally, unconditionally and irrevocably, guarantees to the Administrative
Agent, for the ratable benefit of the Lenders and their respective successors,
indorsees, transferees and assigns, the prompt and complete payment and
performance by the Borrower when due (whether at the stated maturity, by
acceleration or otherwise) of the Borrower Obligations.
(b) Anything herein or in any other Loan Document to the contrary
notwithstanding, the maximum liability of each Guarantor hereunder and under the
other Loan Documents shall in no event exceed the amount which can be guaranteed
by such Guarantor under applicable federal and state laws relating to the
insolvency of debtors (after giving effect to the right of contribution
established in Section 2.2).
(c) Each Guarantor agrees that the Borrower Obligations may at any
time and from time to time exceed the amount of the liability of such Guarantor
hereunder without impairing the guarantee contained in this Section 2 or
affecting the rights and remedies of the Administrative Agent or any Lender
hereunder.
(d) The guarantee contained in this Section 2 shall remain in full
force and effect until all the Borrower Obligations (other than contingent
obligations not due and payable) and the obligations of each Guarantor under the
guarantee contained in this Section 2 shall have been satisfied by payment in
full, no Letter of Credit shall be outstanding and the Commitments shall be
terminated, notwithstanding that from time to time during the term of the Credit
Agreement the Borrower may be free from any Borrower Obligations.
(e) No payment made by the Borrower, any of the Guarantors, any other
guarantor or any other Person or received or collected by the Administrative
Agent or any Lender from the Borrower, any of the Guarantors, any other
guarantor or any other Person by virtue of any action or proceeding or any set-
off or appropriation or application at any time or from time to time in
reduction of or in payment of the Borrower Obligations shall be deemed to
modify, reduce, release or otherwise affect the liability of any Guarantor
hereunder which shall, notwithstanding any such payment (other than any payment
made by such Guarantor in respect of the Borrower Obligations or any payment
received or collected from such Guarantor in respect of the Borrower
Obligations), remain liable for the Borrower Obligations up to the maximum
liability of such Guarantor hereunder until the Borrower Obligations (other than
contingent obligations not due and payable) are paid in full, no Letter of
Credit shall be outstanding and the Commitments are terminated.
<PAGE>
6
2.2 Right of Contribution. Each Subsidiary Guarantor hereby agrees
---------------------
that to the extent that a Subsidiary Guarantor shall have paid more than its
proportionate share of any payment made hereunder, such Subsidiary Guarantor
shall be entitled to seek and receive contribution from and against any other
Subsidiary Guarantor hereunder which has not paid its proportionate share of
such payment. Each Subsidiary Guarantor's right of contribution shall be subject
to the terms and conditions of Section 2.3. The provisions of this Section 2.2
shall in no respect limit the obligations and liabilities of any Subsidiary
Guarantor to the Administrative Agent and the Lenders, and each Subsidiary
Guarantor shall remain liable to the Administrative Agent and the Lenders for
the full amount guaranteed by such Subsidiary Guarantor hereunder.
2.3 No Subrogation. Notwithstanding any payment made by any
--------------
Guarantor hereunder or any set-off or application of funds of any Guarantor by
the Administrative Agent or any Lender, no Guarantor shall be entitled to be
subrogated to any of the rights of the Administrative Agent or any Lender
against the Borrower or any other Guarantor or any collateral security or
guarantee or right of offset held by the Administrative Agent or any Lender for
the payment of the Borrower Obligations, nor shall any Guarantor seek or be
entitled to seek any contribution or reimbursement from the Borrower or any
other Guarantor in respect of payments made by such Guarantor hereunder, until
all amounts owing to the Administrative Agent and the Lenders by the Borrower on
account of the Borrower Obligations (other than indemnification obligations not
due and payable) are paid in full, no Letter of Credit shall be outstanding and
the Commitments are terminated. If any amount shall be paid to any Guarantor on
account of such subrogation rights at any time when all of the Borrower
Obligations (other than indemnification obligations not due and payable) shall
not have been paid in full, such amount shall be held by such Guarantor in trust
for the Administrative Agent and the Lenders, segregated from other funds of
such Guarantor, and shall, forthwith upon receipt by such Guarantor, be turned
over to the Administrative Agent in the exact form received by such Guarantor
(duly indorsed by such Guarantor to the Administrative Agent, if required), to
be applied against the Borrower Obligations, whether matured or unmatured, in
such order as the Administrative Agent may determine.
2.4 Amendments, etc. with respect to the Borrower Obligations. Each
---------------------------------------------------------
Guarantor shall remain obligated hereunder notwithstanding that, without any
reservation of rights against any Guarantor and without notice to or further
assent by any Guarantor, any demand for payment of any of the Borrower
Obligations made by the Administrative Agent or any Lender may be rescinded by
the Administrative Agent or such Lender and any of the Borrower Obligations
continued, and the Borrower Obligations, or the liability of any other Person
upon or for any part thereof, or any collateral security or guarantee therefor
or right of offset with respect thereto, may, from time to time, in whole or in
part, be renewed, extended, amended, modified, accelerated, compromised, waived,
surrendered or released by the Administrative Agent or any Lender, and the
Credit Agreement and the other Loan Documents and any other documents executed
and delivered in connection therewith may be amended, modified, supplemented or
terminated, in whole or in part, as the Administrative Agent (or the Required
Lenders or all Lenders, as the case may be) may deem advisable from time to
time, and any collateral security, guarantee or right of offset at any time held
by the Administrative Agent or any Lender for the payment of the Borrower
Obligations may be sold, exchanged, waived, surrendered or released. Neither
the Administrative Agent nor any Lender shall have any obligation to protect,
secure, perfect or insure any Lien at any time held by it as security for the
Borrower Obligations or for the guarantee contained in this Section 2 or any
property subject thereto.
<PAGE>
7
2.5 Guarantee Absolute and Unconditional. Each Guarantor waives any
------------------------------------
and all notice of the creation, renewal, extension or accrual of any of the
Borrower Obligations and notice of or proof of reliance by the Administrative
Agent or any Lender upon the guarantee contained in this Section 2 or acceptance
of the guarantee contained in this Section 2; the Borrower Obligations, and any
of them, shall conclusively be deemed to have been created, contracted or
incurred, or renewed, extended, amended or waived, in reliance upon the
guarantee contained in this Section 2; and all dealings between the Borrower and
any of the Guarantors, on the one hand, and the Administrative Agent and the
Lenders, on the other hand, likewise shall be conclusively presumed to have been
had or consummated in reliance upon the guarantee contained in this Section 2.
Each Guarantor waives diligence, presentment, protest, demand for payment and
notice of default or nonpayment to or upon the Borrower or any of the Guarantors
with respect to the Borrower Obligations. Each Guarantor understands and agrees
that the guarantee contained in this Section 2 shall be construed as a
continuing, absolute and unconditional guarantee of payment without regard to
(a) the validity or enforceability of the Credit Agreement or any other Loan
Document, any of the Borrower Obligations or any other collateral security
therefor or guarantee or right of offset with respect thereto at any time or
from time to time held by the Administrative Agent or any Lender, (b) any
defense, set-off or counterclaim (other than a defense of payment or
performance) which may at any time be available to or be asserted by the
Borrower or any other Person against the Administrative Agent or any Lender, or
(c) any other circumstance whatsoever (with or without notice to or knowledge of
the Borrower or such Guarantor) which constitutes, or might be construed to
constitute, an equitable or legal discharge of the Borrower for the Borrower
Obligations, or of such Guarantor under the guarantee contained in this Section
2, in bankruptcy or in any other instance. When making any demand hereunder or
otherwise pursuing its rights and remedies hereunder against any Guarantor, the
Administrative Agent or any Lender may, but shall be under no obligation to,
make a similar demand on or otherwise pursue such rights and remedies as it may
have against the Borrower, any other Guarantor or any other Person or against
any collateral security or guarantee for the Borrower Obligations or any right
of offset with respect thereto, and any failure by the Administrative Agent or
any Lender to make any such demand, to pursue such other rights or remedies or
to collect any payments from the Borrower, any other Guarantor or any other
Person or to realize upon any such collateral security or guarantee or to
exercise any such right of offset, or any release of the Borrower, any other
Guarantor or any other Person or any such collateral security, guarantee or
right of offset, shall not relieve any Guarantor of any obligation or liability
hereunder, and shall not impair or affect the rights and remedies, whether
express, implied or available as a matter of law, of the Administrative Agent or
any Lender against any Guarantor. For the purposes hereof "demand" shall include
the commencement and continuance of any legal proceedings.
2.6 Reinstatement. The guarantee contained in this Section 2 shall
-------------
continue to be effective, or be reinstated, as the case may be, if at any time
payment, or any part thereof, of any of the Borrower Obligations is rescinded or
must otherwise be restored or returned by the Administrative Agent or any Lender
upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of
the Borrower or any Guarantor, or upon or as a result of the appointment of a
receiver, intervenor or conservator of, or trustee or similar officer for, the
Borrower or any Guarantor or any substantial part of its property, or otherwise,
all as though such payments had not been made.
2.7 Payments. Each Guarantor hereby guarantees that payments
--------
hereunder will be paid to the Administrative Agent without set-off or
counterclaim in Dollars at the office of the Administrative Agent located at 270
Park Avenue, New York, New York 10017.
<PAGE>
8
SECTION 3. GRANT OF SECURITY INTEREST
Each Grantor hereby assigns and transfers to the Administrative Agent,
and hereby grants to the Administrative Agent, for the ratable benefit of the
Lenders, a security interest in all of such Grantor's right, title and interest
in the following property now owned or at any time hereafter acquired by such
Grantor or in which such Grantor now has or at any time in the future may
acquire any right, title or interest (collectively, the "Collateral"), as
----------
collateral security for the prompt and complete payment and performance when due
(whether at the stated maturity, by acceleration or otherwise) of such Grantor's
Obligations:
(a) all Accounts;
(b) all Chattel Paper;
(c) all Contracts;
(d) all Deposit Accounts;
(e) all Documents;
(f) all Equipment;
(g) all General Intangibles;
(h) all Instruments;
(i) all Intellectual Property;
(j) all Inventory;
(k) all Investment Property;
(l) all books and records pertaining to the Collateral; and
(m) to the extent not otherwise included, all Proceeds and products
of any and all of the foregoing and all collateral security and guarantees
given by any Person with respect to any of the foregoing.
SECTION 4. REPRESENTATIONS AND WARRANTIES
To induce the Administrative Agent and the Lenders to enter into the
Credit Agreement and to induce the Lenders to make their respective extensions
of credit to the Borrower thereunder, each Grantor hereby represents and
warrants to the Administrative Agent and each Lender that:
4.1 Title; No Other Liens. Except for the security interest granted
---------------------
to the Administrative Agent for the ratable benefit of the Lenders pursuant to
this Agreement and the other Liens permitted to exist on the Collateral by the
Credit Agreement, such Grantor owns each item of the Collateral free and clear
of any and all Liens or claims of others. No valid and enforceable financing
statement or other
<PAGE>
9
public notice with respect to all or any part of the Collateral is on file or of
record in any public office, except such as have been filed in favor of the
Administrative Agent, for the ratable benefit of the Lenders, pursuant to this
Agreement or as are permitted by the Credit Agreement.
4.2 Perfected First Priority Liens. The security interests granted
------------------------------
pursuant to this Agreement (a) upon completion of the filings, recordings and
other actions specified on Schedule 3 (which, in the case of all filings and
other documents referred to on said Schedule, have been delivered to the
Administrative Agent in completed and duly executed form) will constitute valid
perfected security interests in all of the Collateral in favor of the
Administrative Agent, for the ratable benefit of the Lenders, as collateral
security for such Grantor's Obligations, enforceable in accordance with the
terms hereof against all creditors of such Grantor and any Persons purporting to
purchase any Collateral from such Grantor and (b) are prior to all other Liens
on the Collateral in existence on the date hereof except for Liens permitted by
the Credit Agreement.
4.3 Chief Executive Office. On the date hereof, such Grantor's
----------------------
jurisdiction of organization and the location of such Grantor's chief executive
office or sole place of business are specified on Schedule 4.
----------
4.4 Inventory and Equipment. On the date hereof, the Inventory and
-----------------------
the Equipment (other than mobile goods) are kept at the locations listed on
Schedule 5.
- ----------
4.5 Farm Products. None of the Collateral constitutes, or is the
-------------
Proceeds of, Farm Products.
4.6 Investment Property. (a) The shares of Pledged Stock pledged by
-------------------
such Grantor hereunder constitute all the issued and outstanding shares of all
classes of the Capital Stock of each Issuer owned by such Grantor or, in the
case of Foreign Subsidiary Voting Stock, if less, 66% of the outstanding Foreign
Subsidiary Voting Stock of each relevant Issuer.
(b) All the shares of the Pledged Stock have been duly and validly
issued and are fully paid and nonassessable (unless such Pledged Stock relates
to a partnership or limited liability company).
(c) To the best of each Grantor's knowledge, each of the Pledged
Notes constitutes the legal, valid and binding obligation of the obligor with
respect thereto, enforceable in accordance with its terms, subject to the
effects of bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws relating to or affecting creditors' rights
generally, general equitable principles (whether considered in a proceeding in
equity or at law) and an implied covenant of good faith and fair dealing.
(d) Such Grantor is the record and beneficial owner of, and has title
to, the Investment Property pledged by it hereunder, free of any and all Liens
or options in favor of, or claims of, any other Person, except the security
interest created by this Agreement or permitted by the Credit Agreement.
4.7 Receivables. (a) No amount payable to such Grantor under or in
-----------
connection with any Receivable is evidenced by any Instrument or Chattel Paper
which has not been delivered to the Administrative Agent.
(b) None of the obligors on any Receivables is a Governmental
Authority.
<PAGE>
10
4.8 Contracts. (a) No consent of any party (other than such
---------
Grantor) to any Contract is required, or purports to be required, in connection
with the execution, delivery and performance of this Agreement other than any
consent which has been obtained by such Grantor.
(b) Each Contract is in full force and effect and, to the best of
each Grantor's knowledge, constitutes a valid and legally enforceable obligation
of the parties thereto, subject to the effects of bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other similar laws
relating to or affecting creditors' rights generally, general equitable
principles (whether considered in a proceeding in equity or at law) and an
implied covenant of good faith and fair dealing.
(c) To the best of such Grantor's knowledge, neither such Grantor nor
any of the other parties to the Contracts is in default in the performance or
observance of any of the terms thereof in any manner.
(d) To the best of such Grantor's knowledge, the right, title and
interest of such Grantor in, to and under the Contracts are not subject to any
defenses, offsets, counterclaims or claims.
(e) Such Grantor has delivered to the Administrative Agent a complete
and correct copy of each Contract, including all amendments, supplements and
other modifications thereto.
(f) No amount payable to such Grantor under or in connection with any
Contract is evidenced by any Instrument or Chattel Paper which has not been
delivered to the Administrative Agent.
(g) None of the parties to any Contract is a Governmental Authority.
4.9 Intellectual Property. (a) Schedule 6 lists all registered,
--------------------- ----------
patented and applied for Intellectual Property owned by such Grantor in its own
name on the date hereof.
(b) On the date hereof, all material Intellectual Property owned by
any Grantor is subsisting and unexpired, has not been adjudicated invalid or
unenforceable, has not been abandoned and to the best of such Grantor's
knowledge does not infringe the intellectual property rights of any other
Person.
(c) Except as set forth in Schedule 6, on the date hereof, none of
the Intellectual Property owned by any Grantor is the subject of any licensing
or franchise agreement pursuant to which such Grantor is the licensor or
franchisor.
(d) No holding, decision or judgment has been rendered by any
Governmental Authority which would limit, cancel or question the validity of, or
such Grantor's rights in, any Intellectual Property in any respect that could
reasonably be expected to have a Material Adverse Effect.
(e) No action or proceeding is pending, or, to the knowledge of such
Grantor, threatened, on the date hereof (i) seeking to limit, cancel or question
the validity of any Intellectual Property owned by Grantor or such Grantor's
ownership interest therein, or (ii) which, if adversely determined, would have a
material adverse effect on the value of the Intellectual Property owned by any
Grantor, taken as a whole.
<PAGE>
11
SECTION 5. COVENANTS
Each Grantor covenants and agrees with the Administrative Agent and
the Lenders that, from and after the date of this Agreement until the
Obligations (other than indemnification obligations not due and payable) shall
have been paid in full, no Letter of Credit shall be outstanding and the
Commitments shall have terminated:
5.1 Delivery of Instruments, Certificated Securities and Chattel
------------------------------------------------------------
Paper. If any amount payable under or in connection with any of the Collateral
- -----
shall be or become evidenced by any Instrument, Certificated Security or Chattel
Paper, such Instrument, Certificated Security or Chattel Paper shall be promptly
delivered to the Administrative Agent, duly indorsed in a manner reasonably
satisfactory to the Administrative Agent, to be held as Collateral pursuant to
this Agreement.
5.2 Maintenance of Insurance. (a) Such Grantor will maintain
------------------------
insurance policies as required by the Credit Agreement.
(b) All such insurance shall (i) provide that no cancellation thereof
shall be effective until at least 30 days after receipt by the Administrative
Agent of written notice thereof and (ii) name the Administrative Agent as
insured party or loss payee.
(c) The Borrower shall deliver to the Administrative Agent a report
of a reputable insurance broker with respect to such insurance on the date
hereof and such supplemental reports to the extent of material changes in
coverage with respect thereto.
5.3 Payment of Obligations. Such Grantor will pay and discharge or
----------------------
otherwise satisfy at or before maturity or before they become delinquent, as the
case may be, all taxes, assessments and governmental charges or levies imposed
upon the Collateral or in respect of income or profits therefrom, as well as all
claims of any kind (including, without limitation, claims for labor, materials
and supplies) against or with respect to the Collateral, except that no such
charge need be paid if the amount or validity thereof is currently being
contested in good faith by appropriate proceedings, reserves in conformity with
GAAP with respect thereto have been provided on the books of such Grantor and
such proceedings could not reasonably be expected to result in the sale,
forfeiture or loss of any material portion of the Collateral or any interest
therein.
5.4 Maintenance of Perfected Security Interest; Further
---------------------------------------------------
Documentation. (a) Such Grantor shall maintain the security interest created
- -------------
by this Agreement as a perfected security interest having at least the priority
described in Section 4.2 and shall use commercially reasonable efforts to defend
such security interest against the claims and demands of all Persons whomsoever.
(b) Such Grantor will furnish to the Administrative Agent from time
to time statements and schedules further identifying and describing the assets
and property of such Grantor and such other reports in connection therewith as
the Administrative Agent may reasonably request, all in reasonable detail.
(c) At any time and from time to time, upon the written request of
the Administrative Agent, and at the sole expense of such Grantor, such Grantor
will promptly and duly execute and deliver, and have recorded, such further
instruments and documents and take such further actions as the Administrative
Agent may reasonably request for the purpose of obtaining or preserving the full
benefits of this Agreement and of the rights and powers herein granted,
including, without limitation, (i) filing any financing or continuation
statements under the Uniform Commercial Code (or other similar laws) in effect
in any jurisdiction with respect to the security interests created hereby and
(ii) in the case of
<PAGE>
12
Investment Property, Deposit Accounts and any other relevant Collateral, taking
any actions necessary to enable the Administrative Agent to obtain "control"
(within the meaning of the applicable Uniform Commercial Code) with respect
thereto.
5.5 Changes in Locations, Name, etc. (a) Such Grantor will not
-------------------------------
permit any of the Inventory or Equipment to be kept at a location other than
those listed on Schedule 5, unless within 30 days' it gives written notice to
----------
the Administrative Agent thereof and delivers to the Administrative Agent (i)
all additional executed financing statements and other documents reasonably
requested by the Administrative Agent to maintain the validity, perfection and
priority of the security interests provided for herein and (ii) a written
supplement to Schedule 5 showing any additional location at which Inventory or
----------
Equipment shall be kept.
(b) Such Grantor will not, except upon 15 days' prior written notice
to the Administrative Agent and delivery to the Administrative Agent of all
additional executed financing statements and other documents reasonably
requested by the Administrative Agent to maintain the validity, perfection and
priority of the security interests provided for herein:
(i) change its jurisdiction of organization or the location of its
chief executive office or sole place of business from that referred to in
Section 4.3, or
(ii) change its name, identity or corporate structure to such an
extent that any financing statement filed by the Administrative Agent in
connection with this Agreement would become misleading.
5.6 Notices. Such Grantor will advise the Administrative Agent
-------
promptly, in reasonable detail, of:
(a) any Lien (other than security interests created hereby or Liens
permitted under the Credit Agreement) on any of the Collateral which would
adversely affect the ability of the Administrative Agent to exercise any of its
remedies hereunder; and
(b) of the occurrence of any other event which could reasonably be
expected to have a material adverse effect on the aggregate value of the
Collateral or on the security interests created hereby.
5.7 Investment Property. (a) If such Grantor shall become entitled
-------------------
to receive or shall receive any stock certificate (including, without
limitation, any certificate representing a stock dividend or a distribution in
connection with any reclassification, increase or reduction of capital or any
certificate issued in connection with any reorganization), option or rights in
respect of the Capital Stock of any Issuer, whether in addition to, in
substitution of, as a conversion of, or in exchange for, any shares of the
Pledged Stock, or otherwise in respect thereof, such Grantor shall accept the
same as the agent of the Administrative Agent and the Lenders, hold the same in
trust for the Administrative Agent and the Lenders and deliver the same
forthwith to the Administrative Agent in the exact form received, duly indorsed
by such Grantor to the Administrative Agent, if required, together with an
undated stock power covering such certificate duly executed in blank by such
Grantor and with, if the Administrative Agent so reasonably requests, signature
guaranteed, to be held by the Administrative Agent, subject to the terms hereof,
as additional collateral security for the Obligations. Any sums paid upon or in
respect of the Investment Property upon the liquidation or dissolution of any
Issuer shall be paid over to the Administrative Agent to be held by it hereunder
as additional collateral security for the Obligations, and in case any
distribution of capital shall be made on or in respect of the Investment
Property or any
<PAGE>
13
property shall be distributed upon or with respect to the Investment Property
pursuant to the recapitalization or reclassification of the capital of any
Issuer or pursuant to the reorganization thereof, the property so distributed
shall, unless otherwise subject to a perfected security interest in favor of the
Administrative Agent, be delivered to the Administrative Agent to be held by it
hereunder as additional collateral security for the Obligations. If any sums of
money or property so paid or distributed in respect of the Investment Property
shall be received by such Grantor, such Grantor shall, until such money or
property is paid or delivered to the Administrative Agent, hold such money or
property in trust for the Lenders, segregated from other funds of such Grantor,
as additional collateral security for the Obligations.
(b) Without the prior written consent of the Administrative Agent
(such consent not to be unreasonably withheld), such Grantor will not (i) vote
to enable, or take any other action to permit, any Issuer to issue any stock or
other equity securities of any nature or to issue any other securities
convertible into or granting the right to purchase or exchange for any stock or
other equity securities of any nature of any Issuer, (ii) sell, assign,
transfer, exchange, or otherwise dispose of, or grant any option with respect
to, the Investment Property or Proceeds thereof (except pursuant to a
transaction expressly permitted by the Credit Agreement), (iii) create, incur or
permit to exist any Lien or option in favor of, or any claim of any Person with
respect to, any of the Investment Property or Proceeds thereof, or any interest
therein, except for the security interests created by this Agreement or
expressly permitted by the Credit Agreement or (iv) enter into any agreement or
undertaking restricting the right or ability of such Grantor or the
Administrative Agent to sell, assign or transfer any of the Investment Property
or Proceeds thereof.
(c) In the case of each Grantor which is an Issuer, such Issuer
agrees that (i) it will be bound by the terms of this Agreement relating to the
Investment Property issued by it and will comply with such terms insofar as such
terms are applicable to it, (ii) it will notify the Administrative Agent
promptly in writing of the occurrence of any of the events described in Section
5.7(a) with respect to the Investment Property issued by it and (iii) the terms
of Sections 6.3(c) and 6.7 shall apply to it, mutatis mutandis, with respect to
----------------
all actions that may be required of it pursuant to Section 6.3(c) or 6.7 with
respect to the Investment Property issued by it.
5.8 Receivables. Other than in the ordinary course of business, such
-----------
Grantor will not (i) grant any extension of the time of payment of any
Receivable, (ii) compromise or settle any Receivable for less than the full
amount thereof, (iii) release, wholly or partially, any Person liable for the
payment of any Receivable, (iv) allow any credit or discount whatsoever on any
Receivable or (v) amend, supplement or modify any Receivable in any manner that
could adversely affect the value thereof.
5.9 Contracts. Such Grantor will deliver to the Administrative Agent
---------
a copy of each material demand, notice or document received by it relating in
any way to any Contract that questions the validity or enforceability of such
Contract.
5.10 Intellectual Property. (a) Such Grantor (either itself or
---------------------
through licensees) will use commercially reasonable efforts to (i) continue to
use each material Trademark on each and every trademark class of goods
applicable to its current line as reflected in its current catalogs, brochures
and price lists in order to maintain such Trademark in full force free from any
claim of abandonment for non-use, (ii) maintain substantially as in the past the
quality of products and services offered under such Trademark, (iii) use such
Trademark with the appropriate notice of registration and all other notices and
legends required by applicable Requirements of Law, (iv) not adopt or use any
mark which is confusingly similar or a colorable imitation of such Trademark
unless the Administrative Agent, for the ratable
<PAGE>
14
benefit of the Lenders, shall obtain a perfected security interest in such mark
pursuant to this Agreement, and (v) not (and not permit any licensee or
sublicensee thereof to) do any act or knowingly omit to do any act whereby such
Trademark would reasonably be expected to become invalidated or impaired in any
way.
(b) Such Grantor (either itself or through licensees) will not do any
act, or omit to do any act, whereby any material Patent would reasonably be
expected to become forfeited, abandoned or dedicated to the public.
(c) Such Grantor (either itself or through licensees) will not do any
act that knowingly uses any material Intellectual Property to infringe the
intellectual property rights of any other Person.
(d) Such Grantor will notify the Administrative Agent and the Lenders
immediately if it knows that any application or registration relating to any
material Intellectual Property is likely to become forfeited, abandoned or
dedicated to the public, or of any adverse determination or development
(including, without limitation, the institution of, or any such determination or
development in, any proceeding in the United States Patent and Trademark Office,
the United States Copyright Office or any court or tribunal in any country)
regarding such Grantor's ownership of, or the validity of, any material
Intellectual Property or such Grantor's right to register the same or to own and
maintain the same.
(e) Whenever such Grantor, either by itself or through any agent,
employee, licensee or designee, shall file an application for the registration
of any Intellectual Property with the United States Patent and Trademark Office,
the United States Copyright Office or any similar office or agency in any other
country or any political subdivision thereof, such Grantor shall report such
filing to the Administrative Agent within thirty Business Days after the last
day of the fiscal quarter in which such filing occurs. Upon reasonable request
of the Administrative Agent, such Grantor shall execute and deliver, and have
recorded, any and all agreements, instruments, documents, and papers as the
Administrative Agent may request to evidence the Administrative Agent's and the
Lenders' security interest in any Copyright, Patent or Trademark and the
goodwill and general intangibles of such Grantor relating thereto or represented
thereby.
(f) Such Grantor will take all steps which in such Grantor's
commercially reasonable discretion it deems reasonable and necessary, including,
without limitation, in any proceeding before the United States Patent and
Trademark Office, the United States Copyright Office or any similar office or
agency in any other country or any political subdivision thereof, to maintain
and pursue each application (and to obtain the relevant registration) and to
maintain each registration of the material Intellectual Property, including,
without limitation, filing of applications for renewal, affidavits of use and
affidavits of incontestability.
(g) In the event that any material Intellectual Property is
infringed, misappropriated or diluted by a third party, such Grantor shall (i)
take such actions as such Grantor shall reasonably deem appropriate under the
circumstances to protect such Intellectual Property and (ii) if such
Intellectual Property is of material economic value, promptly notify the
Administrative Agent after it learns thereof and sue for infringement,
misappropriation or dilution, to seek injunctive relief where appropriate and to
recover any and all damages for such infringement, misappropriation or dilution.
<PAGE>
15
SECTION 6. REMEDIAL PROVISIONS
6.1 Certain Matters Relating to Receivables. (a) At any time after
---------------------------------------
the occurrence and during the continuance of an Event of Default, the
Administrative Agent shall have the right to make test verifications of the
Receivables in any manner and through any medium that it reasonably considers
advisable, and each Grantor shall furnish all such assistance and information as
the Administrative Agent may require in connection with such test verifications.
At any time after the occurrence and during the continuance of an Event of
Default, upon the Administrative Agent's request and at the expense of the
relevant Grantor, such Grantor shall cause independent public accountants or
others satisfactory to the Administrative Agent to furnish to the Administrative
Agent reports showing reconciliations, aging and test verifications of, and
trial balances for, the Receivables.
(b) At any time after the occurrence and during the continuance of an
Event of Default, the Administrative Agent may collect the Receivables and, if
so requested by the Administrative Agent, the relevant Grantor shall cease
collecting its Receivables. If required by the Administrative Agent at any time
after the occurrence and during the continuance of an Event of Default, any
payments of Receivables, when collected by any Grantor, (i) shall be forthwith
(and, in any event, within two Business Days) deposited by such Grantor in the
exact form received, duly indorsed by such Grantor to the Administrative Agent
if required, in a Collateral Account maintained under the sole dominion and
control of the Administrative Agent, subject to withdrawal by the Administrative
Agent for the account of the Lenders only as provided in Section 65, and (ii)
until so turned over, shall be held by such Grantor in trust for the
Administrative Agent and the Lenders, segregated from other funds of such
Grantor.
(c) After the occurrence and during the continuance of an Event of
Default, at the Administrative Agent's request each Grantor shall deliver to the
Administrative Agent all original and other documents evidencing, and relating
to, the agreements and transactions which gave rise to the Receivables,
including, without limitation, all original orders, invoices and shipping
receipts.
6.2 Communications with Obligors; Grantors Remain Liable. (a) The
----------------------------------------------------
Administrative Agent in its own name or in the name of others may, at any time
after the occurrence and during the continuance of an Event of Default,
communicate with obligors under the Receivables and parties to the Contracts to
verify with them to the Administrative Agent's satisfaction the existence,
amount and terms of any Receivables or Contracts.
(b) Upon the request of the Administrative Agent at any time after
the occurrence and during the continuance of an Event of Default, each Grantor
shall notify obligors on the Receivables and parties to the Contracts that the
Receivables and the Contracts have been assigned to the Administrative Agent for
the ratable benefit of the Lenders and that payments in respect thereof shall be
made directly to the Administrative Agent.
(c) Anything herein to the contrary notwithstanding, each Grantor
shall remain liable under each of the Receivables and Contracts to observe and
perform all the conditions and obligations to be observed and performed by it
thereunder, all in accordance with the terms of any agreement giving rise
thereto. Neither the Administrative Agent nor any Lender shall have any
obligation or liability under any Receivable (or any agreement giving rise
thereto) or Contract by reason of or arising out of this Agreement or the
receipt by the Administrative Agent or any Lender of any payment relating
thereto, nor shall the Administrative Agent or any Lender be obligated in any
manner to perform any of the obligations of any Grantor under or pursuant to any
Receivable (or any agreement giving rise thereto) or Contract, to make any
payment, to make any inquiry as to the nature or the sufficiency of any payment
received by it or as to the sufficiency of any performance by any party
thereunder, to present or file any
<PAGE>
16
claim, to take any action to enforce any performance or to collect the payment
of any amounts which may have been assigned to it or to which it may be entitled
at any time or times.
6.3 Pledged Stock. (a) Unless an Event of Default shall have
-------------
occurred and be continuing and the Administrative Agent shall have given written
notice to the relevant Grantor of the Administrative Agent's intent to exercise
its corresponding rights pursuant to Section 6.3(b), each Grantor shall be
permitted to receive all cash dividends paid in respect of the Pledged Stock and
all payments made in respect of the Pledged Notes, in each case paid in the
normal course of business of the relevant Issuer, to the extent permitted in the
Credit Agreement, and to exercise all voting and corporate rights with respect
to the Investment Property; provided, however, that no vote shall be cast or
--------
corporate right exercised or other action taken which, in the Administrative
Agent's reasonable judgment, would impair the Collateral or which would be
inconsistent with or result in any violation of any provision of the Credit
Agreement, this Agreement or any other Loan Document.
(b) If an Event of Default shall occur and be continuing and the
Administrative Agent shall give written notice of its intent to exercise such
rights to the relevant Grantor or Grantors, (i) the Administrative Agent shall
have the right to receive any and all cash dividends, payments or other Proceeds
paid in respect of the Investment Property and make application thereof to the
Obligations in such order as the Administrative Agent may determine, and (ii)
any or all of the Investment Property shall be registered in the name of the
Administrative Agent or its nominee, and the Administrative Agent or its nominee
may thereafter exercise (x) all voting, corporate and other rights pertaining to
such Investment Property at any meeting of shareholders of the relevant Issuer
or Issuers or otherwise and (y) any and all rights of conversion, exchange and
subscription and any other rights, privileges or options pertaining to such
Investment Property as if it were the absolute owner thereof (including, without
limitation, the right to exchange at its discretion any and all of the
Investment Property upon the merger, consolidation, reorganization,
recapitalization or other fundamental change in the corporate structure of any
Issuer, or upon the exercise by any Grantor or the Administrative Agent of any
right, privilege or option pertaining to such Investment Property, and in
connection therewith, the right to deposit and deliver any and all of the
Investment Property with any committee, depositary, transfer agent, registrar or
other designated agency upon such terms and conditions as the Administrative
Agent may determine), all without liability except to account for property
actually received by it, but the Administrative Agent shall have no duty to any
Grantor to exercise any such right, privilege or option and shall not be
responsible for any failure to do so or delay in so doing.
(c) Each Grantor hereby authorizes and instructs each Issuer of any
Investment Property pledged by such Grantor hereunder to (i) comply with any
instruction received by it from the Administrative Agent in writing that (x)
states that an Event of Default has occurred and is continuing and (y) is
otherwise in accordance with the terms of this Agreement, without any other or
further instructions from such Grantor, and each Grantor agrees that each Issuer
shall be fully protected in so complying, and (ii) unless otherwise expressly
permitted hereby, pay any dividends or other payments with respect to the
Investment Property directly to the Administrative Agent.
6.4 Proceeds to be Turned Over To Administrative Agent. In addition
--------------------------------------------------
to the rights of the Administrative Agent and the Lenders specified in Section
6.1 with respect to payments of Receivables, if an Event of Default shall occur
and be continuing, all Proceeds received by any Grantor consisting of cash,
checks and other near-cash items shall be held by such Grantor in trust for the
Administrative Agent and the Lenders, segregated from other funds of such
Grantor, and shall, forthwith upon receipt by such Grantor, be turned over to
the Administrative Agent in the exact form received by such Grantor (duly
indorsed by such Grantor to the Administrative Agent, if required). All
Proceeds
<PAGE>
17
received by the Administrative Agent hereunder shall be held by the
Administrative Agent in a Collateral Account maintained under its sole dominion
and control. All Proceeds while held by the Administrative Agent in a Collateral
Account (or by such Grantor in trust for the Administrative Agent and the
Lenders) shall continue to be held as collateral security for all the
Obligations and shall not constitute payment thereof until applied as provided
in Section 65.
6.5 Application of Proceeds. At such intervals as may be agreed upon
-----------------------
by the Borrower and the Administrative Agent, or, if an Event of Default shall
have occurred and be continuing, at any time at the Administrative Agent's
election, the Administrative Agent may apply all or any part of Proceeds held in
any Collateral Account in payment of the Obligations in such order as the
Administrative Agent may elect, and any part of such funds which the
Administrative Agent elects not so to apply and deems not required as collateral
security for the Obligations shall be paid over from time to time by the
Administrative Agent to the Borrower or to whomsoever may be lawfully entitled
to receive the same. Any balance of such Proceeds remaining after the
Obligations (other than indemnification obligations not due and payable) shall
have been paid in full, no Letters of Credit shall be outstanding and the
Commitments shall have terminated shall be paid over to the Borrower or to
whomsoever may be lawfully entitled to receive the same.
6.6 Code and Other Remedies. If an Event of Default shall occur and
-----------------------
be continuing, the Administrative Agent, on behalf of the Lenders, may exercise,
in addition to all other rights and remedies granted to them in this Agreement
and in any other instrument or agreement securing, evidencing or relating to the
Obligations, all rights and remedies of a secured party under the New York UCC
or any other applicable law. Without limiting the generality of the foregoing,
the Administrative Agent, without demand of performance or other demand,
presentment, protest, advertisement or notice of any kind (except any notice
required by law referred to below) to or upon any Grantor or any other Person
(all and each of which demands, defenses, advertisements and notices are hereby
waived), may in such circumstances forthwith collect, receive, appropriate and
realize upon the Collateral, or any part thereof, and/or may forthwith sell,
lease, assign, give option or options to purchase, or otherwise dispose of and
deliver the Collateral or any part thereof (or contract to do any of the
foregoing), in one or more parcels at public or private sale or sales, at any
exchange, broker's board or office of the Administrative Agent or any Lender or
elsewhere upon such terms and conditions as it may deem advisable and at such
prices as it may deem best, for cash or on credit or for future delivery without
assumption of any credit risk. The Administrative Agent or any Lender shall
have the right upon any such public sale or sales, and, to the extent permitted
by law, upon any such private sale or sales, to purchase the whole or any part
of the Collateral so sold, free of any right or equity of redemption in any
Grantor, which right or equity is hereby waived and released. Each Grantor
further agrees, at the Administrative Agent's request, to assemble the
Collateral and make it available to the Administrative Agent at places which the
Administrative Agent shall reasonably select, whether at such Grantor's premises
or elsewhere. The Administrative Agent shall apply the net proceeds of any
action taken by it pursuant to this Section 6.6, after deducting all reasonable
costs and expenses of every kind incurred in connection therewith or incidental
to the care or safekeeping of any of the Collateral or in any way relating to
the Collateral or the rights of the Administrative Agent and the Lenders
hereunder, including, without limitation, reasonable attorneys' fees and
disbursements, to the payment in whole or in part of the Obligations, in such
order as the Administrative Agent may elect, and only after such application and
after the payment by the Administrative Agent of any other amount required by
any provision of law, including, without limitation, Section 9-504(1)(c) of the
New York UCC, need the Administrative Agent account for the surplus, if any, to
any Grantor. To the extent permitted by applicable law, each Grantor waives all
claims, damages and demands it may acquire against the Administrative Agent or
any Lender arising out of the exercise by them of any rights hereunder. If any
notice of a proposed sale or other disposition of Collateral shall be required
by law, such notice shall be deemed reasonable and proper if given at least 10
days before such sale or other disposition.
<PAGE>
18
6.7 Registration Rights. (a) If the Administrative Agent shall
-------------------
determine to exercise its right to sell any or all of the Pledged Stock pursuant
to Section 6.6, and if in the opinion of the Administrative Agent it is
necessary or advisable to have the Pledged Stock, or that portion thereof to be
sold, registered under the provisions of the Securities Act, the relevant
Grantor will cause the Issuer thereof to (i) execute and deliver, and cause the
directors and officers of such Issuer to execute and deliver, all such
instruments and documents, and do or cause to be done all such other acts as may
be, in the opinion of the Administrative Agent, necessary or advisable to
register the Pledged Stock, or that portion thereof to be sold, under the
provisions of the Securities Act, (ii) use its commercially reasonable efforts
to cause the registration statement relating thereto to become effective and to
remain effective for a period of one year from the date of the first public
offering of the Pledged Stock, or that portion thereof to be sold, and (iii)
make all amendments thereto and/or to the related prospectus which, in the
opinion of the Administrative Agent, are necessary or advisable, all in
conformity with the requirements of the Securities Act and the rules and
regulations of the Securities and Exchange Commission applicable thereto. Each
Grantor agrees to cause such Issuer to comply with the provisions of the
securities or "Blue Sky" laws of any and all jurisdictions which the
Administrative Agent shall designate and to make available to its security
holders, as soon as practicable, an earnings statement (which need not be
audited) which will satisfy the provisions of Section 11(a) of the Securities
Act.
(b) Each Grantor recognizes that the Administrative Agent may be
unable to effect a public sale of any or all the Pledged Stock, by reason of
certain prohibitions contained in the Securities Act and applicable state
securities laws or otherwise, and may be compelled to resort to one or more
private sales thereof to a restricted group of purchasers which will be obliged
to agree, among other things, to acquire such securities for their own account
for investment and not with a view to the distribution or resale thereof. Each
Grantor acknowledges and agrees that any such private sale may result in prices
and other terms less favorable than if such sale were a public sale and,
notwithstanding such circumstances, agrees that any such private sale shall be
deemed to have been made in a commercially reasonable manner. The
Administrative Agent shall be under no obligation to delay a sale of any of the
Pledged Stock for the period of time necessary to permit the Issuer thereof to
register such securities for public sale under the Securities Act, or under
applicable state securities laws, even if such Issuer would agree to do so.
(c) Each Grantor agrees to use its commercially reasonable efforts to
do or cause to be done all such other acts as may be necessary to make such sale
or sales of all or any portion of the Pledged Stock pursuant to this Section 6.7
valid and binding and in compliance with any and all other applicable
Requirements of Law. Each Grantor further agrees that a breach of any of the
covenants contained in this Section 6.7 will cause irreparable injury to the
Administrative Agent and the Lenders, that the Administrative Agent and the
Lenders have no adequate remedy at law in respect of such breach and, as a
consequence, that each and every covenant contained in this Section 6.7 shall be
specifically enforceable against such Grantor, and such Grantor hereby waives
and agrees not to assert any defenses against an action for specific performance
of such covenants except for a defense that no Event of Default has occurred
under the Credit Agreement.
6.8 Waiver; Deficiency. Each Grantor waives and agrees not to assert
------------------
any rights or privileges which it may acquire under Section 9-112 of the New
York UCC. Each Grantor shall remain liable for any deficiency if the proceeds
of any sale or other disposition of the Collateral are insufficient to pay its
Obligations.
<PAGE>
19
SECTION 7. THE ADMINISTRATIVE AGENT
7.1 Administrative Agent's Appointment as Attorney-in-Fact, etc. (a)
-----------------------------------------------------------
Each Grantor hereby irrevocably constitutes and appoints the Administrative
Agent and any officer or agent thereof, with full power of substitution, as its
true and lawful attorney-in-fact with full irrevocable power and authority in
the place and stead of such Grantor and in the name of such Grantor or in its
own name, for the purpose of carrying out the terms of this Agreement, to take
any and all appropriate action and to execute any and all documents and
instruments which may be necessary or desirable to accomplish the purposes of
this Agreement, and, without limiting the generality of the foregoing, each
Grantor hereby gives the Administrative Agent the power and right, on behalf of
such Grantor, without notice to or assent by such Grantor, to do any or all of
the following:
(i) in the name of such Grantor or its own name, or otherwise, take
possession of and indorse and collect any checks, drafts, notes,
acceptances or other instruments for the payment of moneys due under any
Receivable or Contract or with respect to any other Collateral and file any
claim or take any other action or proceeding in any court of law or equity
or otherwise deemed appropriate by the Administrative Agent for the purpose
of collecting any and all such moneys due under any Receivable or Contract
or with respect to any other Collateral whenever payable;
(ii) in the case of any Intellectual Property, execute and deliver,
and have recorded, any and all agreements, instruments, documents and
papers as the Administrative Agent may request to evidence the
Administrative Agent's and the Lenders' security interest in such
Intellectual Property and the goodwill and general intangibles of such
Grantor relating thereto or represented thereby;
(iii) pay or discharge taxes and Liens levied or placed on or
threatened against the Collateral, effect any repairs or any insurance
called for by the terms of this Agreement and pay all or any part of the
premiums therefor and the costs thereof;
(iv) execute, in connection with any sale provided for in Section
6.6 or 6.7, any indorsements, assignments or other instruments of
conveyance or transfer with respect to the Collateral; and
(v) (1) direct any party liable for any payment under any of the
Collateral to make payment of any and all moneys due or to become due
thereunder directly to the Administrative Agent or as the Administrative
Agent shall direct; (2) ask or demand for, collect, and receive payment of
and receipt for, any and all moneys, claims and other amounts due or to
become due at any time in respect of or arising out of any Collateral; (3)
sign and indorse any invoices, freight or express bills, bills of lading,
storage or warehouse receipts, drafts against debtors, assignments,
verifications, notices and other documents in connection with any of the
Collateral; (4) commence and prosecute any suits, actions or proceedings at
law or in equity in any court of competent jurisdiction to collect the
Collateral or any portion thereof and to enforce any other right in respect
of any Collateral; (5) defend any suit, action or proceeding brought
against such Grantor with respect to any Collateral; (6) settle, compromise
or adjust any such suit, action or proceeding and, in connection therewith,
give such discharges or releases as the Administrative Agent may deem
appropriate; (7) assign any Copyright, Patent or Trademark (along with the
goodwill of the business to which any such Copyright, Patent or Trademark
pertains), throughout the world for such term or terms, on such conditions,
and in such manner, as the Administrative
<PAGE>
20
Agent shall in its sole discretion determine; and (8) generally, sell,
transfer, pledge and make any agreement with respect to or otherwise deal
with any of the Collateral as fully and completely as though the
Administrative Agent were the absolute owner thereof for all purposes, and
do, at the Administrative Agent's option and such Grantor's expense, at any
time, or from time to time, all acts and things which the Administrative
Agent deems necessary to protect, preserve or realize upon the Collateral
and the Administrative Agent's and the Lenders' security interests therein
and to effect the intent of this Agreement, all as fully and effectively as
such Grantor might do.
Anything in this Section 7.1(a) to the contrary notwithstanding, the
Administrative Agent agrees that it will not exercise any rights under the power
of attorney provided for in this Section 7.1(a) unless an Event of Default shall
have occurred and be continuing.
(b) If any Grantor fails to perform or comply with any of its
agreements contained herein, the Administrative Agent, at its option, but
without any obligation so to do, may perform or comply, or otherwise cause
performance or compliance, with such agreement.
(c) The expenses of the Administrative Agent incurred in connection
with actions undertaken as provided in this Section 7.1, together with interest
thereon at a rate per annum equal to the highest rate per annum at which
interest would then be payable on any category of past due ABR Loans under the
Credit Agreement, from the date of payment by the Administrative Agent to the
date reimbursed by the relevant Grantor, shall be payable by such Grantor to the
Administrative Agent on demand.
(d) Each Grantor hereby ratifies all that said attorneys shall
lawfully do or cause to be done by virtue hereof. All powers, authorizations
and agencies contained in this Agreement are coupled with an interest and are
irrevocable until this Agreement is terminated and the security interests
created hereby are released.
7.2 Duty of Administrative Agent. The Administrative Agent's sole
----------------------------
duty with respect to the custody, safekeeping and physical preservation of the
Collateral in its possession, under Section 9-207 of the New York UCC or
otherwise, shall be to deal with it in the same manner as the Administrative
Agent deals with similar property for its own account. Neither the
Administrative Agent, any Lender nor any of their respective officers,
directors, employees or agents shall be liable for failure to demand, collect or
realize upon any of the Collateral or for any delay in doing so or shall be
under any obligation to sell or otherwise dispose of any Collateral upon the
request of any Grantor or any other Person or to take any other action
whatsoever with regard to the Collateral or any part thereof. The powers
conferred on the Administrative Agent and the Lenders hereunder are solely to
protect the Administrative Agent's and the Lenders' interests in the Collateral
and shall not impose any duty upon the Administrative Agent or any Lender to
exercise any such powers. The Administrative Agent and the Lenders shall be
accountable only for amounts that they actually receive as a result of the
exercise of such powers, and neither they nor any of their officers, directors,
employees or agents shall be responsible to any Grantor for any act or failure
to act hereunder, except for their own bad faith, gross negligence or willful
misconduct.
7.3 Execution of Financing Statements. Pursuant to Section 9-402 of
---------------------------------
the New York UCC and to the extent permitted by any other applicable law, each
Grantor authorizes the Administrative Agent to file or record financing
statements and other filing or recording documents or instruments with respect
to the Collateral without the signature of such Grantor in such form and in such
offices as the Administrative Agent determines appropriate to perfect the
security interests of the Administrative Agent
<PAGE>
21
under this Agreement. A photographic or other reproduction of this Agreement
shall be sufficient as a financing statement or other filing or recording
document or instrument for filing or recording in any jurisdiction.
7.4 Authority of Administrative Agent. Each Grantor acknowledges
---------------------------------
that the rights and responsibilities of the Administrative Agent under this
Agreement with respect to any action taken by the Administrative Agent or the
exercise or non-exercise by the Administrative Agent of any option, voting
right, request, judgment or other right or remedy provided for herein or
resulting or arising out of this Agreement shall, as between the Administrative
Agent and the Lenders, be governed by the Credit Agreement and by such other
agreements with respect thereto as may exist from time to time among them, but,
as between the Administrative Agent and the Grantors, the Administrative Agent
shall be conclusively presumed to be acting as agent for the Lenders with full
and valid authority so to act or refrain from acting, and no Grantor shall be
under any obligation, or entitlement, to make any inquiry respecting such
authority.
SECTION 8. MISCELLANEOUS
8.1 Amendments in Writing. None of the terms or provisions of this
---------------------
Agreement may be waived, amended, supplemented or otherwise modified except in
accordance with Section 10.1 of the Credit Agreement.
8.2 Notices. All notices, requests and demands to or upon the
-------
Administrative Agent or any Grantor hereunder shall be effected in the manner
provided for in Section 10.2 of the Credit Agreement; provided that any such
notice, request or demand to or upon any Subsidiary Guarantor shall be addressed
to such Subsidiary Guarantor at its notice address set forth on Schedule 1.
----------
8.3 No Waiver by Course of Conduct; Cumulative Remedies. Neither the
---------------------------------------------------
Administrative Agent nor any Lender shall by any act (except by a written
instrument pursuant to Section 8.1), delay, indulgence, omission or otherwise be
deemed to have waived any right or remedy hereunder or to have acquiesced in any
Default or Event of Default. No failure to exercise, nor any delay in
exercising, on the part of the Administrative Agent or any Lender, any right,
power or privilege hereunder shall operate as a waiver thereof. No single or
partial exercise of any right, power or privilege hereunder shall preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege. A waiver by the Administrative Agent or any Lender of any right or
remedy hereunder on any one occasion shall not be construed as a bar to any
right or remedy which the Administrative Agent or such Lender would otherwise
have on any future occasion. The rights and remedies herein provided are
cumulative, may be exercised singly or concurrently and are not exclusive of any
other rights or remedies provided by law.
8.4 Enforcement Expenses; Indemnification. (a) Each Guarantor
-------------------------------------
agrees to pay or reimburse each Lender and the Administrative Agent for all its
reasonable out-of-pocket costs and expenses incurred in collecting against such
Guarantor under the guarantee contained in Section 2 or otherwise enforcing or
preserving any rights under this Agreement and the other Loan Documents to which
such Guarantor is a party, including, without limitation, the reasonable fees
and disbursements of counsel (including the allocated fees and expenses of in-
house counsel) to the Administrative Agent and no more than one additional firm
of counsel to the Lenders.
<PAGE>
22
(b) Each Guarantor agrees to pay, and to save the Administrative
Agent and the Lenders harmless from, any and all liabilities with respect to, or
resulting from any delay in paying, any and all stamp, excise, sales or other
taxes which may be payable or determined to be payable with respect to any of
the Collateral or in connection with any of the transactions contemplated by
this Agreement.
(c) Each Guarantor agrees to pay, and to save the Administrative
Agent and the Lenders harmless from, any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature whatsoever with respect to the execution,
delivery, enforcement, performance and administration of this Agreement to the
extent the Borrower would be required to do so pursuant to Section 10.5 of the
Credit Agreement.
(d) The agreements in this Section 8.4 shall survive repayment of the
Obligations and all other amounts payable under the Credit Agreement and the
other Loan Documents.
8.5 Successors and Assigns. This Agreement shall be binding upon the
----------------------
successors and assigns of each Grantor and shall inure to the benefit of the
Administrative Agent and the Lenders and their successors and assigns; provided
that no Grantor may assign, transfer or delegate any of its rights or
obligations under this Agreement without the prior written consent of the
Administrative Agent.
8.6 Set-Off. Each Grantor hereby irrevocably authorizes each Lender
-------
at any time and from time to time while an Event of Default shall have occurred
and be continuing, without notice to such Grantor or any other Grantor, any such
notice being expressly waived by each Grantor to the extent permitted by law, to
set-off 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 to or for the credit or the account of such Grantor, or any
part thereof in such amounts as such Lender may elect, against and on account of
the obligations and liabilities of such Grantor to such Lender hereunder and
claims of every nature and description of such Lender against such Grantor, in
any currency, whether arising hereunder, under the Credit Agreement, any other
Loan Document or otherwise (and whether arising at the stated maturity of the
Loans, by acceleration or otherwise), as such Lender may elect. Each Lender
shall notify such Grantor and the Administrative Agent promptly of any such set-
off and the application made by such Lender of the proceeds thereof, provided
--------
that the failure to give such notice shall not affect the validity of such set-
off and application. The rights of each Lender under this Section 8.6 are in
addition to other rights and remedies (including, without limitation, other
rights of set-off) which such Lender may have.
8.7 Counterparts. This Agreement may be executed by one or more of
------------
the parties to this Agreement on any number of separate counterparts (including
by telecopy), and all of said counterparts taken together shall be deemed to
constitute one and the same instrument.
8.8 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.
8.9 Section Headings. The Section headings used in this Agreement
----------------
are for convenience of reference only and are not to affect the construction
hereof or be taken into consideration in the interpretation hereof.
<PAGE>
23
8.10 Integration. This Agreement and the other Loan Documents
-----------
represent the agreement of the Grantors, the Administrative Agent and the
Lenders with respect to the subject matter hereof and thereof, and there are no
promises, undertakings, representations or warranties by the Administrative
Agent or any Lender relative to subject matter hereof and thereof not expressly
set forth or referred to herein or in the other Loan Documents.
8.11 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
-------------
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
8.12 Submission To Jurisdiction; Waivers. Each Grantor hereby
-----------------------------------
irrevocably and unconditionally:
(a) submits for itself and its property in any legal action or
proceeding relating to this Agreement and the other Loan Documents to which
it is a party, or for recognition and enforcement of any judgment in
respect thereof, to the non-exclusive general jurisdiction of the Courts of
the State of New York, the court of the United States of America for the
Southern District of New York, and appellate courts from any thereof;
(b) consents that any such action or proceeding may be brought in
such courts and waives any objection that it may now or hereafter have to
the venue of any such action or proceeding in any such court or that such
action or proceeding was brought in an inconvenient court and agrees not to
plead or claim the same;
(c) agrees that service of process in any such action or proceeding
may be effected by mailing a copy thereof by registered or certified mail
(or any substantially similar form of mail), postage prepaid, to such
Grantor at its address referred to in Section 8.2 or at such other address
of which the Administrative Agent shall have been notified pursuant
thereto;
(d) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit the
right to sue in any other jurisdiction; and
(e) waives, to the maximum extent not prohibited by law, any right it
may have to claim or recover in any legal action or proceeding referred to
in this Section any special, exemplary, punitive or consequential damages.
8.13 Acknowledgements. Each Grantor hereby acknowledges that:
----------------
(a) it has been advised by counsel in the negotiation, execution and
delivery of this Agreement and the other Loan Documents to which it is a
party;
(b) neither the Administrative Agent nor any Lender has any fiduciary
relationship with or duty to any Grantor arising out of or in connection
with this Agreement or any of the other Loan Documents, and the
relationship between the Grantors, on the one hand, and the Administrative
Agent and Lenders, on the other hand, in connection herewith or therewith
is solely that of debtor and creditor; and
<PAGE>
24
(c) no joint venture is created hereby or by the other Loan Documents
or otherwise exists by virtue of the transactions contemplated hereby among
the Lenders or among the Grantors and the Lenders.
8.14 Additional Grantors. Each Subsidiary of the Borrower that is
-------------------
required to become a party to this Agreement pursuant to Section 6.9(c) of the
Credit Agreement shall become a Grantor for all purposes of this Agreement upon
execution and delivery by such Subsidiary of an Assumption Agreement in the form
of Annex 1 hereto.
8.15 Releases. (a) At such time as the Loans, the Reimbursement
--------
Obligations and the other Obligations (other than indemnification obligations
not due and payable) shall have been paid in full, the Commitments have been
terminated and no Letters of Credit shall be outstanding, the Collateral shall
be released from the Liens created hereby, and this Agreement and all
obligations (other than those expressly stated to survive such termination) of
the Administrative Agent and each Grantor hereunder shall terminate, all without
delivery of any instrument or performance of any act by any party, and all
rights to the Collateral shall revert to the Grantors. At the request and sole
expense of any Grantor following any such termination, the Administrative Agent
shall deliver to such Grantor any Collateral held by the Administrative Agent
hereunder, and execute and deliver to such Grantor such documents as such
Grantor shall reasonably request to evidence such termination.
(b) If any of the Collateral shall be sold, transferred or otherwise
disposed of by any Grantor in a transaction permitted by the Credit Agreement,
then the Administrative Agent, at the request and sole expense of such Grantor,
shall execute and deliver to such Grantor all releases or other documents
reasonably necessary or desirable for the release of the Liens created hereby on
such Collateral. At the request and sole expense of the Borrower, a Subsidiary
Guarantor shall be released from its obligations hereunder in the event that all
the Capital Stock of such Subsidiary Guarantor shall be sold, transferred or
otherwise disposed of in a transaction permitted by the Credit Agreement;
provided that the Borrower shall have delivered to the Administrative Agent, a
written request for release identifying the relevant Subsidiary Guarantor,
together with a certification by the Borrower stating that such transaction is
in compliance with the Credit Agreement and the other Loan Documents.
8.16 WAIVER OF JURY TRIAL. EACH GRANTOR, THE ADMINISTRATIVE AGENT AND
--------------------
THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY
LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT
AND FOR ANY COUNTERCLAIM THEREIN.
<PAGE>
25
IN WITNESS WHEREOF, each of the undersigned has caused this Guarantee
and Collateral Agreement to be duly executed and delivered as of the date first
above written.
MATTRESS DISCOUNTERS HOLDING
CORPORATION
By: /s/ Jordan Hitch
------------------------------
Title: Vice President
MATTRESS DISCOUNTERS CORPORATION
By: /s/ Jordan Hitch
------------------------------
Title: Vice President
THE BEDDING EXPERTS, INC.
By: /s/ Jordan Hitch
------------------------------
Title: Vice President
TJB, INC.
By: /s/ Jordan Hitch
------------------------------
Title: Vice President
COMFORT SOURCE MATTRESS COMPANY
By: /s/ Jordan Hitch
------------------------------
Title: Vice President
<PAGE>
Schedule 1
----------
NOTICE ADDRESSES OF SUBSIDIARY GUARANTORS
The Bedding Experts, Inc.
[address]
[attention]
[phone/fax]
TJB, Inc.
[address]
[attention]
[phone/fax]
Comfort Source Mattress Company
[address]
[attention]
[phone/fax]
<PAGE>
Schedule 2
----------
DESCRIPTION OF INVESTMENT PROPERTY
PLEDGED STOCK:
<TABLE>
<CAPTION>
Issuer Class of Stock Stock Certificate No. No. of Shares
- -------------- -------------- --------------------- -------------
<S> <C> <C> <C>
</TABLE>
PLEDGED NOTES:
<TABLE>
Issuer Payee Principal Amount
- --------------------------------- -------------- ---------------------
<S> <C> <C>
</TABLE>
<PAGE>
Schedule 3
----------
FILINGS AND OTHER ACTIONS
REQUIRED TO PERFECT SECURITY INTERESTS
Uniform Commercial Code Filings
-------------------------------
[List each office where a financing statement is to be filed]
Patent and Trademark Filings
----------------------------
[List all filings]
Actions with respect to Pledged Stock
-------------------------------------
Other Actions
-------------
[Describe other actions to be taken]
<PAGE>
Schedule 4
----------
LOCATION OF JURISDICTION OF ORGANIZATION AND CHIEF EXECUTIVE OFFICE
<TABLE>
<CAPTION>
Grantor Location
--------- --------
<S> <C>
</TABLE>
<PAGE>
Schedule 5
----------
LOCATION OF INVENTORY AND EQUIPMENT
<TABLE>
<CAPTION>
Grantor Location
--------- --------
<S> <C>
</TABLE>
<PAGE>
Schedule 6
----------
COPYRIGHTS AND COPYRIGHT LICENSES
PATENTS AND PATENT LICENSES
TRADEMARKS AND TRADEMARK LICENSES
<PAGE>
Schedule 7
----------
CONTRACTS
<PAGE>
ACKNOWLEDGEMENT AND CONSENT
The undersigned hereby acknowledges receipt of a copy of the Guarantee and
Collateral Agreement dated as of August 6, 1999 (the "Agreement"), made by the
Grantors parties thereto for the benefit of The Chase Manhattan Bank, as
Administrative Agent. The undersigned agrees for the benefit of the
Administrative Agent and the Lenders as follows:
1. The undersigned will be bound by the terms of the Agreement and will
comply with such terms insofar as such terms are applicable to the undersigned.
2. The undersigned will notify the Administrative Agent promptly in
writing of the occurrence of any of the events described in Section 5.7(a) of
the Agreement.
3. The terms of Sections 6.3(c) and 6.7 of the Agreement shall apply to
it, mutatis mutandis, with respect to all actions that may be required of it
pursuant to Section 6.3(c) or 6.7 of the Agreement.
[NAME OF ISSUER]
By
------------------------------------
Name:
Title:
Address for Notices:
------------------------------------
------------------------------------
------------------------------------
Fax:
<PAGE>
Annex 1 to
Guarantee and Collateral Agreement
----------------------------------
ASSUMPTION AGREEMENT, dated as of ________________, ____, made by
______________________________, a ______________ corporation (the "Additional
----------
Grantor"), in favor of THE CHASE MANHATTAN BANK, as administrative agent (in
- -------
such capacity, the "Administrative Agent") for the banks and other financial
--------------------
institutions (the "Lenders") parties to the Credit Agreement referred to below.
-------
All capitalized terms not defined herein shall have the meaning ascribed to them
in such Credit Agreement.
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, Mattress Discount Holding Corporation ("Holdings"), Mattress
--------
Discounters Corporation (the "Borrower"), the Lenders and the Administrative
--------
Agent have entered into a Credit Agreement, dated as of August 6, 1999 (as
amended, supplemented or otherwise modified from time to time, the "Credit
------
Agreement");
- ---------
WHEREAS, in connection with the Credit Agreement, Holdings, the
Borrower and certain of its Affiliates (other than the Additional Grantor) have
entered into the Guarantee and Collateral Agreement, dated as of August 6, 1999
(as amended, supplemented or otherwise modified from time to time, the
"Guarantee and Collateral Agreement") in favor of the Administrative Agent for
----------------------------------
the benefit of the Lenders;
WHEREAS, the Credit Agreement requires the Additional Grantor to
become a party to the Guarantee and Collateral Agreement; and
WHEREAS, the Additional Grantor has agreed to execute and deliver this
Assumption Agreement in order to become a party to the Guarantee and Collateral
Agreement;
NOW, THEREFORE, IT IS AGREED:
1. Guarantee and Collateral Agreement. By executing and delivering
----------------------------------
this Assumption Agreement, the Additional Grantor, as provided in Section 8.14
of the Guarantee and Collateral Agreement, hereby becomes a party to the
Guarantee and Collateral Agreement as a Grantor thereunder with the same force
and effect as if originally named therein as a Grantor and, without limiting the
generality of the foregoing, hereby expressly assumes all obligations and
liabilities of a Grantor thereunder. The information set forth in Annex 1-A
hereto is hereby added to the information set forth in the Schedules to the
Guarantee and Collateral Agreement. The Additional Grantor hereby represents
and warrants that each of the representations and warranties contained in
Section 4 of the Guarantee and Collateral Agreement is true and correct in all
material respects on and as the date hereof (after giving effect to this
Assumption Agreement) as if made on and as of such date.
2. GOVERNING LAW. THIS ASSUMPTION AGREEMENT SHALL BE GOVERNED BY,
-------------
AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW
YORK.
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this Assumption
Agreement to be duly executed and delivered as of the date first above written.
[ADDITIONAL GRANTOR]
By:
-----------------------------------
Name:
Title:
<PAGE>
Annex 1-A to
Assumption Agreement
--------------------
Supplement to Schedule 1
------------------------
Supplement to Schedule 2
------------------------
Supplement to Schedule 3
------------------------
Supplement to Schedule 4
------------------------
Supplement to Schedule 5
------------------------
Supplement to Schedule 6
------------------------
Supplement to Schedule 7
------------------------
Supplement to Schedule 8
------------------------
<PAGE>
EXHIBIT 12.1
MATTRESS DISCOUNTERS CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
-------------------------------------------------
<TABLE>
<CAPTION>
Bedding
MDC Experts Company
------------------------------------- ------- ---------------------------------------------
Eight
Six Months Six Months Months Fiscal Year
Year Ended December Ended Ended Ended Ended Nine Months Ended
July 1, July 1, February 28, February 28, November 30,
31, 1994 30, 1995 28, 1996 1997 1997 1998 1999 1998 1999
-------- -------- -------- ------ -------- ------------ ----------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Income before provision for
income taxes............... $8,100 $3,611 $5,232 $ 305 $2,914 $15,715 $22,892 $19,856 $4,776
Plus: fixed charges.......... 3,929 4,376 4,785 2,333 467 4,404 6,085 4,420 11,332
------- ------- ------- ------ ------- ------- ------- ------- -------
12,029 7,987 10,017 2,638 3,381 20,119 28,977 24,276 16,108
------- ------- ------- ------ ------- ------- ------- ------- -------
Fixed Charges:
Interest expense (income),
net including amortization
of debt discounts
and debt issuance expense. $ (661) $ (624) $ (548) $ (328) $ (9) $ (88) $ (128) $ (131) $6,319
One-third of rent
and expense(1)............ 4,590 5,000 5,333 2,661 476 4,492 6,213 4,551 5,013
------- ------- ------- ------ ------- ------- ------- ------- -------
$ 3,929 $4,376 $4,785 $2,333 $ 467 $4,404 $6,085 4,420 11,332
------- ------- ------- ------ ------- ------- ------- ------- -------
Earnings to fixed charges
ratio...................... 3.06 1.83 2.09 1.13 7.24 4.57 4.76 5.49 1.42
======= ======= ======= ====== ======= ======= ======= ======= =======
</TABLE>
- ------------------------------------
COMPUTATION OF PRO FORMA RATIO OF EARNINGS TO FIXED
CHARGES AFTER ADJUSTMENT FOR ISSUANCE OF SENIOR
SUBORDINATED NOTES
---------------------------------------------------
<TABLE>
<CAPTION>
Pro forma
---------------------------------
Year Ended Nine Months Ended
February 28, November 30,
1999 1998 1999
------------- ------ ------
<S> <C> <C> <C>
Earnings:
Income before provision for
income taxes............. 3,375 5,066 202
Plus: fixed charges........ 25,761 19,271 19,901
------------- ------ ------
29,136 24,337 20,103
============= ====== ======
Fixed Charges:
Interest expense (income),
net including amortization
of debt discounts and debt
issuance expense.......... 19,548 14,720 14,888
One-third of rent expense. (1) 6,213 4,551 5,013
------------ ------ ------
25,761 19,271 19,901
------------ ------ ------
Earnings to fixed charges
ratio.................... 1.13 1.26 1.01
============ ====== ======
</TABLE>
(1) Represents the portion of operating rental expense which our management
believes is representative of the interest component of rental expense.
These amounts exclude common and maintenance costs related to our lease
agreements.
<PAGE>
EXHIBIT 21.1
Subsidiaries of the Registrant and their respective States of Incorporation
Mattress Discounters Corporation Delaware
T.J.B., Inc. Maryland
The Bedding Experts, Inc. Illinois
Comfort Source Mattress Company Delaware
<PAGE>
EXHIBIT 25.1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM T-1
_________
STATEMENT OF ELIGIBILITY UNDER THE
TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
Check if an Application to Determine Eligibility
of a Trustee Pursuant to Section 305(b)(2)
STATE STREET BANK AND TRUST COMPANY
(Exact name of trustee as specified in its charter)
Massachusetts 04-1867445
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national bank) Identification No.)
225 Franklin Street, Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
Maureen Scannell Bateman, Esq. Executive Vice President and General Counsel
225 Franklin Street, Boston, Massachusetts 02110
(617) 654-3253
(Name, address and telephone number of agent for service)
MATTRESS DISCOUNTERS CORPORATION
(Exact name of obligor as specified in its charter)
DELAWARE 52-1710722
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9822 FALLARD COURT, UPPER MARLBORO, MD 20772
(Address of principal executive offices) (Zip Code)
12 5/8% SENIOR NOTES
(Title of indenture securities)
<PAGE>
GENERAL
Item 1. General Information.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervisory authority to
which it is subject.
Department of Banking and Insurance of The Commonwealth of
Massachusetts, 100 Cambridge Street, Boston, Massachusetts.
Board of Governors of the Federal Reserve System,
Washington, D.C., Federal Deposit Insurance Corporation,
Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
Trustee is authorized to exercise corporate trust powers.
Item 2. Affiliations with Obligor.
If the Obligor is an affiliate of the trustee, describe each such
affiliation.
The obligor is not an affiliate of the trustee or of its parent, State
Street Corporation.
(See note on page 2.)
Item 3. through Item 15. Not applicable.
Item 16. List of Exhibits.
List below all exhibits filed as part of this statement of eligibility.
1. A copy of the articles of association of the trustee as now in effect.
A copy of the Articles of Association of the trustee, as now in
effect, is on file with the Securities and Exchange Commission as
Exhibit 1 to Amendment No. 1 to the Statement of Eligibility and
Qualification of Trustee (Form T-1) filed with the Registration
Statement of Morse Shoe, Inc. (File No. 22-17940) and is
incorporated herein by reference thereto.
2. A copy of the certificate of authority of the trustee to commence
business, if not contained in the articles of association.
A copy of a Statement from the Commissioner of Banks of
Massachusetts that no certificate of authority for the trustee to
commence business was necessary or issued is on file with the
Securities and Exchange Commission as Exhibit 2 to Amendment No.
1 to the Statement of Eligibility and Qualification of Trustee
(Form T-1) filed with the Registration Statement of Morse Shoe,
Inc. (File No. 22-17940) and is incorporated herein by reference
thereto.
3. A copy of the authorization of the trustee to exercise corporate trust
powers, if such authorization is not contained in the documents specified
in paragraph (1) or (2), above.
A copy of the authorization of the trustee to exercise corporate
trust powers is on file with the Securities and Exchange
Commission as Exhibit 3 to Amendment No. 1 to the Statement of
Eligibility and Qualification of Trustee (Form T-1) filed with
the Registration Statement of Morse Shoe, Inc. (File No. 22-
17940) and is incorporated herein by reference thereto.
4. A copy of the existing by-laws of the trustee, or instruments
corresponding thereto.
A copy of the by-laws of the trustee, as now in effect, is on
file with the Securities and Exchange Commission as Exhibit 4 to
the Statementof Eligibility and Qualification of Trustee (Form T-
1) filed with the Registration Statement of Eastern Edison
Company (File No. 33-37823) and is incorporated herein by
reference thereto.
1
<PAGE>
5. A copy of each indenture referred to in Item 4. if the obligor is in
default.
Not applicable.
6. The consents of United States institutional trustees required by
Section 321(b) of the Act.
The consent of the trustee required by Section 321(b) of the Act is
annexed hereto as Exhibit 6 and made a part hereof.
7. A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or examining authority.
A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or examining authority is
annexed hereto as Exhibit 7 and made a part hereof.
NOTES
In answering any item of this Statement of Eligibility which relates to
matters peculiarly within the knowledge of the obligor or any underwriter for
the obligor, the trustee has relied upon information furnished to it by the
obligor and the underwriters, and the trustee disclaims responsibility for the
accuracy or completeness of such information.
The answer furnished to Item 2. of this statement will be amended, if
necessary, to reflect any facts which differ from those stated and which would
have been required to be stated if known at the date hereof.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, State Street Bank and Trust Company, a corporation
organized and existing under the laws of The Commonwealth of Massachusetts, has
duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Boston and The
Commonwealth of Massachusetts, on the 2nd day of November, 1999.
STATE STREET BANK AND TRUST COMPANY
By: /s/ Laurel Melody-Casasanta
______________________________________
NAME Laurel Melody-Casasanta
TITLE Assistant Vice President
2
<PAGE>
EXHIBIT 6
CONSENT OF THE TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture Act
of 1939, as amended, in connection with the proposed issuance by MATTRESS
DISCOUNTERS CORPORATION of its 12 5/8% Senior Notes, we hereby consent that
reports of examination by Federal, State, Territorial or District authorities
may be furnished by such authorities to the Securities and Exchange Commission
upon request therefor.
STATE STREET BANK AND TRUST COMPANY
By: /s/ Laurel Melody-Casasanta
_____________________________________
NAME Laurel Melody-Casasanta
TITLE Assistant Vice President
Dated: November 2, 1999
3
<PAGE>
EXHIBIT 7
Consolidated Report of Condition of State Street Bank and Trust Company,
Massachusetts and foreign and domestic subsidiaries, a state banking institution
organized and operating under the banking laws of this commonwealth and a member
of the Federal Reserve System, at the close of business June 30, 1999, published
-------------
in accordance with a call made by the Federal Reserve Bank of this District
pursuant to the provisions of the Federal Reserve Act and in accordance with a
call made by the Commissioner of Banks under General Laws, Chapter 172, Section
22(a).
<TABLE>
<CAPTION>
Thousands of
ASSETS Dollars
<S> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin....................................... 1,755,237
Interest-bearing balances................................................................ 14,209,161
Securities.................................................................................... 13,027,148
Federal funds sold and securities purchased
under agreements to resell in domestic offices
of the bank and its Edge subsidiary...................................................... 7,840,413
Loans and lease financing receivables:
Loans and leases, net of unearned income ................................................ 8,134,756
Allowance for loan and lease losses...................................................... 88,351
Allocated transfer risk reserve.......................................................... 0
Loans and leases, net of unearned income and allowances.................................. 8,046,405
Assets held in trading accounts............................................................... 1,753,511
Premises and fixed assets..................................................................... 529,247
Other real estate owned....................................................................... 0
Investments in unconsolidated subsidiaries.................................................... 603
Customers= liability to this bank on acceptances outstanding.................................. 76,078
Intangible assets............................................................................. 223,035
Other assets.................................................................................. 1,481,250
----------
Total assets................................................................................... 48,942,088
==========
LIABILITIES
Deposits:
In domestic offices....................................................................... 13,006,374
Noninterest-bearing.................................................................. 9,462,505
Interest-bearing..................................................................... 3,543,869
In foreign offices and Edge subsidiary.................................................... 19,913,151
Noninterest-bearing.................................................................. 444,189
Interest-bearing..................................................................... 19,468,962
Federal funds purchased and securities sold under
agreements to repurchase in domestic offices of
the bank and of its Edge subsidiary....................................................... 10,510,055
Demand notes issued to the U.S. ............................................................... 0
Trading liabilities....................................................................... 1,151,604
Other borrowed money........................................................................... 198,253
Subordinated notes and debentures.............................................................. 0
Bank's liability on acceptances executed and outstanding....................................... 76,078
Other liabilities.............................................................................. 1,291,791
Total liabilities.............................................................................. 46,147,306
----------
EQUITY CAPITAL
Perpetual preferred stock and related
surplus.........................................................................................
Common stock.................................................................................... 29,931
Surplus......................................................................................... 489,739
Undivided profits and capital reserves/Net unrealized holding gains (losses).................... 2,313,006
Net unrealized holding gains (losses) on available-for-sale securities..................... (25,610)
Cumulative foreign currency translation adjustments............................................. (12,284)
Total equity capital............................................................................ 2,794,782
----------
Total liabilities and equity capital............................................................ 48,942,088
----------
</TABLE>
4
<PAGE>
I, Rex S. Schuette, Senior Vice President and Comptroller of the above named
bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
Rex S. Schuette
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
David A. Spina
Marshall N. Carter
Truman S. Casner
5
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 9-MOS
<FISCAL-YEAR-END> FEB-28-1999 JAN-01-2000
<PERIOD-START> MAR-01-1998 MAR-01-1999
<PERIOD-END> FEB-28-1999 NOV-30-1999
<CASH> 1,365,805 8,595,656
<SECURITIES> 0 0
<RECEIVABLES> 5,681,413 5,908,824
<ALLOWANCES> 0 0
<INVENTORY> 13,780,944 14,750,553
<CURRENT-ASSETS> 29,358,300 36,992,425
<PP&E> 22,535,443 24,440,842
<DEPRECIATION> 11,695,629 14,096,494
<TOTAL-ASSETS> 99,678,379 198,515,021
<CURRENT-LIABILITIES> 27,150,811 30,882,901
<BONDS> 0 0
0 0
0 0
<COMMON> 29,050 29,050
<OTHER-SE> 67,105,173 29,272,737
<TOTAL-LIABILITY-AND-EQUITY> 99,678,379 198,515,021
<SALES> 246,550,833 198,053,337
<TOTAL-REVENUES> 246,550,833 198,053,337
<CGS> 156,848,163 127,575,238
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 66,939,148 59,383,718
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (128,324) 6,319,059
<INCOME-PRETAX> 22,891,846 4,775,322
<INCOME-TAX> 9,701,576 2,636,933
<INCOME-CONTINUING> 13,190,270 2,138,389
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 13,190,270 2,138,389
<EPS-BASIC> 0.00 0.00
<EPS-DILUTED> 0.00 0.00
</TABLE>
<PAGE>
EXHIBIT 99.1
LETTER OF TRANSMITTAL
To Tender for Exchange
12 5/8% Senior Subordinated Notes due 2007
of
Mattress Discounters Corporation
Pursuant to the Prospectus Dated , 1999
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON , 1999 UNLESS EXTENDED
(THE "EXPIRATION DATE").
- --------------------------------------------------------------------------------
PLEASE READ CAREFULLY THE ATTACHED INSTRUCTIONS
If you desire to accept the Exchange Offer, this Letter of Transmittal
should be completed, signed and submitted to the Exchange Agent:
<TABLE>
<CAPTION>
<S> <C> <C>
By Overnight Courier and by Hand
after 4:30 pm on the Expiration Date By Facsimile: By Registered or Certified Mail:
State Street Bank and Trust Company (617) 662-1452 State Street Bank and Trust Company
Two Avenue de Lafayette, 5th Floor Attn: Corporate P.O. Box 778
Corporate Trust Window Trust Department Boston, MA 02102-0078
Boston, MA 02111-1724 Attn: Kellie Mullen
Attn: Kellie Mullen/MacKenzie Elijah Confirm by phone:
(617) 662-1525
</TABLE>
Delivery of this instrument to an address other than those listed above
will not constitute a valid delivery.
For any questions regarding this Letter of Transmittal or for any
additional information, you may contact the Exchange Agent by telephone at (860)
244-1813 or by facsimile at (860) 244-1889.
The undersigned hereby acknowledge receipt of the Prospectus dated , 1999
(the "Prospectus") of Mattress Discounters Corporation, a Delaware corporation,
(the "Issuer"), and this Letter of Transmittal (the "Letter of Transmittal"),
that together constitute the Issuer's offer (the "Exchange Offer") to exchange
$1,000 principal amount of its 12e% Senior Subordinated Notes due 2007 (the
"Exchange Notes"), which have been registered under the Securities Act of 1933,
as amended (the "Securities Act"), pursuant to a Registration Statement, for
each $1,000 principal amount of its outstanding 12e% Senior Subordinated Notes
due 2007 (the "Notes"), of which $140,000,000 aggregate principal amount is
outstanding. Capitalized terms used but not defined herein have the meanings
ascribed to them in the Prospectus.
The undersigned hereby tenders the Notes described in Box I below (the
"Tendered Notes") pursuant to the terms and conditions described in the
Prospectus and this Letter of Transmittal. The undersigned is the registered
owner of all the Tendered Notes and the undersigned represents that it has
received from each beneficial owner of the Tendered Notes ("Beneficial Owners")
a duly completed and executed form of "Instruction to Registered Holder and/or
Book-
<PAGE>
Entry Transfer Facility Participant from Beneficial Owner" accompanying this
Letter of Transmittal, instructing the undersigned to take the action described
in this Letter of Transmittal.
Subject to, and effective upon, the acceptance for exchange of the Tendered
Notes, the undersigned hereby exchanges, assigns, and transfers to, or upon the
order of, the Issuer, all right, title, and interest in, to, and under the
Tendered Notes.
Please issue the Exchange Notes exchanged for Tendered Notes in the name(s)
of the undersigned. Similarly, unless otherwise indicated under "Special
Delivery Instructions" below (Box 3), please send or cause to be sent the
certificates for the Exchange Notes (and accompanying documents, as appropriate)
to the undersigned at the address shown below in Box 1.
The undersigned hereby irrevocably constitutes and appoints the Exchange
Agent as the true and lawful agent and attorney in fact of the undersigned with
respect to the Tendered Notes, with full power of substitution (such power of
attorney being deemed to be an irrevocable power coupled with an interest), to
(i) deliver the Tendered Notes to the Issuer or cause ownership of the Tendered
Notes to be transferred to, or upon the order of, the Issuer, on the books of
the registrar for the Notes and deliver all accompanying evidences of transfer
and authenticity to, or upon the order of, the Issuer upon receipt by the
Exchange Agent, as the undersigned's agent, of the Exchange Notes to which the
undersigned is entitled upon acceptance by the Issuer of the Tendered Notes
pursuant to the Exchange Offer, and (ii) receive all benefits and otherwise
exercise all rights of beneficial ownership of the Tendered Notes, all in
accordance with the terms of the Exchange Offer.
The undersigned understands that tenders of Notes pursuant to the
procedures described under the caption "The Exchange Offer" in the Prospectus
and in the instructions hereto will constitute a binding agreement between the
undersigned and the Issuer upon the terms and subject to the conditions of the
Exchange Offer, subject only to withdrawal of such tenders on the terms in the
Prospectus under the caption "Exchange Offer-Withdrawal of Tenders." All
authority herein conferred or agreed to be conferred shall survive the death or
incapacity of the undersigned and any Beneficial Owner(s), and every obligation
of the undersigned or any Beneficial Owners hereunder shall be binding upon the
heirs, representatives, successors, and assigns of the undersigned and such
Beneficial Owner(s).
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, exchange, assign, and transfer the Tendered
Notes and that the Issuer will acquire good and unencumbered title thereto, free
and clear of all liens, restrictions, charges, encumbrances, and adverse claims
when the Tendered Notes are acquired by the Issuer as contemplated herein. The
undersigned and each Beneficial Owner will, upon request, execute and deliver
any additional documents reasonably requested by the Issuer or the Exchange
Agent as necessary or desirable to complete and give effect to the transactions
contemplated hereby.
The undersigned hereby represents and warrants that the information in Box
2 is true and correct.
By accepting the Exchange Offer, the undersigned hereby represents and
warrants that (i) the Exchange Notes to be acquired by the undersigned and any
Beneficial Owner(s) in connection with the Exchange Offer are being acquired by
the undersigned and any Beneficial Owner(s) in the ordinary course of business
of the undersigned and any Beneficial Owner(s), (ii) the undersigned and each
Beneficial Owner are not participating, do not intend to participate, and have
no arrangement or understanding with any person to participate, in the
distribution of the Exchange Notes, (iii) except as otherwise disclosed in
writing herewith, neither the undersigned nor any Beneficial Owner is an
"affiliate," as defined in Rule 405 under the Securities Act, of the Issuer, and
(iv) the undersigned and each Beneficial Owner acknowledge and agree that any
person participating in the Exchange Offer with the intention or for the purpose
of distributing the Exchange Notes must comply with the registration and
prospectus delivery requirements of the Securities Act of 1933, as amended
(together with the rules and regulations promulgated thereunder, the "Securities
Act"), in connection with a secondary resale of the Exchange Notes acquired by
such person and cannot rely on the position of the Staff of the Securities and
Exchange Commission (the "Commission") described in the no-action letters that
are discussed in the section of the Prospectus entitled "Exchange Offer." In
addition, by accepting the Exchange Offer, the undersigned hereby (i) represents
and warrants that, if the undersigned or any Beneficial Owner of the Notes is a
Participating Broker-Dealer, such Participating Broker-Dealer acquired the Notes
for its own account as a result of market-making activities or other trading
activities and has not entered into any arrangement or understanding with the
Issuer or any affiliate of
-2-
<PAGE>
the Issuer (within the meaning of Rule 405 under the Securities Act) to
distribute the New Notes to be received in the Exchange Offer, and (ii)
acknowledges that, by receiving New Notes for its own account in exchange for
Notes, where such Notes were acquired as a result of market-making activities or
other trading activities, such Participating Broker-Dealer will deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resale of such New Notes.
[] CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED HEREWITH.
[] CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY DELIVERED TO THE EXCHANGE AGENT AND COMPLETE
"Use of Guaranteed Delivery" BELOW (Box 4).
[] CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY
TRANSFER FACILITY AND COMPLETE "Use of Book-Entry Transfer" BELOW (Box 5).
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING THE BOXES
- -------------------------------------------------------------------------------------------------------------------
BOX 1
DESCRIPTION OF NOTES TENDERED
(Attach additional signed pages, if necessary)
- -------------------------------------------------------------------------------------------------------------------
Aggregate
Names and Address(es) of Registered Note Holder(s), Certificate Principal Amount Aggregate
exactly as name(s) appear(s) on Note Certificate(s) Number(s) of Represented by Principal Amount
(Please fill in, if blank) Notes* Certificate(s) Tendered**
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
TOTAL
- ------------------------------------------------------------------------------------------------------------------
* Need not be completed by persons tendering by book-entry transfer.
** The minimum permitted tender is $1,000 in principal amount of Notes. All other tenders must be in integral
multiples of $1,000 of principal amount Unless otherwise indicated in this column, the principal amount of all
Note Certificates identified in this Box 1 or delivered to the Exchange Agent herewith shall be deemed tendered.
See Instruction 4.
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------------
BOX 2
BENEFICIAL OWNER(S)
- ------------------------------------------------------------------------------------------------------------------
State of Principal Residence of Each Beneficial Owner Principal Amount of Tendered Notes Held for Account of
of Tendered Notes Beneficial Owner
- ----------------------------------------------------------------------------------------------------------------
<S> <C>
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
-3-
<PAGE>
- --------------------------------------------------------------------------------
BOX 3
SPECIAL DELIVERY INSTRUCTION'S
(See Instructions 5, 6 and 7)
TO BE COMPLETED ONLY IF EXCHANGE NOTES EXCHANGED FOR NOTES AND UNTENDERED NOTES
ARE TO BE SENT TO SOMEONE OTHER THAN THE UNDERSIGNED, OR TO THE UNDERSIGNED AT
AN ADDRESS OTHER THAN THAT SHOWN ABOVE.
Mail Exchange Note(s) and am untendered Notes to:
Name (s):
- --------------------------------------------------------------------------------
(please print)
Address:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(include Zip Code)
Tax Identification or
Social Security No.:------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BOX 4
USE OF GUARANTEED DELIVERY
(See Instruction 2)
TO BE COMPLETED ONLY IF NOTES ARE BEING TENDERED BY MEANS OF A NOTICE OF
GUARANTEED DELIVERY.
Name(s) of Registered Holder(s):
- --------------------------------------------------------------------------------
Date of Execution of Notice of Guaranteed Delivery:-----------------------------
Name of Institution which Guaranteed Delivery:----------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BOX 5
USE OF BOOK-ENTRY TRANSFER
(See Instruction 2)
TO BE COMPLETED ONLY IF DELIVERY OF TENDERED NOTES IS TO BE MADE BY BOOK-ENTRY
TRANSFER.
Name of Tendering Institution:--------------------------------------------------
Account Number:-----------------------------------------------------------------
Transaction Code Number:--------------------------------------------------------
- --------------------------------------------------------------------------------
-4-
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
BOX 6
TENDERING HOLDER SIGNATURE
(See Instructions 1 and 5)
In Addition, Complete Substitute Form W-9
- ----------------------------------------------------------------------------------------------------------------
<S> <C>
X --------------------------------------------------------- Signature Guarantee
X --------------------------------------------------------- (If required by Instruction 5)
(Signature of Registered
Holder(s) or Authorized Signatory) Authorized Signature
Note: The above lines must be signed by the registered X ---------------------------------------------
holder(s) of Notes as their name(s) appear(s) on the Name:------------------------------------------
Notes or by persons(s) authorized to become registered (please print)
holder(s) (evidence of which authorization must be Title:-----------------------------------------
transmitted with this Letter of Transmittal). If signature Name of Firm:----------------------------------
is by a trustee, executor, administrator, guardian, Must be an Eligible Institution as
attorney-in-fact, officer, or other person acting in a defined in Instruction 2)
fiduciary or representative capacity, such person must
record his or her full title below. See Instruction 5.
Address:---------------------------------------
Name(s):--------------------------------------------------
-----------------------------------------------
- ---------------------------------------------------------- (include Zip Code)
Capacity:------------------------------------------------- Area Code and Telephone Number:
Street Address:------------------------------------------- -----------------------------------------------
- ---------------------------------------------------------- Dated:-----------------------------------------
- ----------------------------------------------------------
(include Zip Code)
Area Code and Telephone Number:
- ----------------------------------------------------------
Tax Identification or Social Security Number:
- ----------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
BOX 7
BROKER-DEALER STATUS
- --------------------------------------------------------------------------------
[] Check this box if the Beneficial Owner of the Notes is a Participating
Broker-Dealer and such Participating Broker-Dealer acquired the Notes for
its own account as a result of market-making activities or other trading
activities.
- --------------------------------------------------------------------------------
-5-
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
PAYOR'S NAME: MATTRESS DISCOUNTERS CORPORATION
- ----------------------------------------------------------------------------------------------------------------
<S> <C>
SUBSTITUTE Name (if joint names, list first and circle the name of the person or entity whose
number you enter in Part I below. See instructions if your name has changed.
Form W-9 ---------------------------------------------------------------------------------------
Address
Department of the ---------------------------------------------------------------------------------------
Treasury
City, State and ZIP Code
---------------------------------------------------------------------------------------
Internal Revenue
Service List account number(s) (optional)
---------------------------------------------------------------------------------------
Part 1-PLEASE PROVIDE YOUR TAXPAYER Social Security
IDENTIFICATION NUMBER ("TIN") IN THE BOX AT Number or TIN
RIGHT AND CERTIFY BY SIGNING AND DATING BELOW
---------------------------------------------------------------------------------------
Part 2-Check the box if you are NOT subject to backup withholding under the provisions
of section 3406(a)(1)(C) of the Internal Revenue Code because (1) you have not been
notified that you are subject to backup withholding as a result of failure to report
all interest or dividends or (2) the Internal Revenue Service has notified you that you
are no longer subject to backup withholding. [ ]
- ----------------------------------------------------------------------------------------------------------------
CERTIFICATION-UNDER THE PENALTIES OF PERJURY, I Part 3__
CERTIFY THAT THE INFORMATION PROVIDED ON THIS
FORM IS TRUE, CORRECT AND COMPLETE. Awaiting TIN [ ]
SIGNATURE __________________________ DATE___________
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
Note:FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
- ---- OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE OFFER. PLEASE
REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
-6-
<PAGE>
INSTRUCTIONS TO LETTER OF TRANSMITTAL
FORMING PART OF THE TERMS AND CONDITIONS
OF THE EXCHANGE OFFER
1. Delivery of this Letter of Transmittal and Notes. A properly completed
and duly executed copy of this Letter of Transmittal, including Substitute Form
W-9, and any other documents required by this Letter of Transmittal must be
received by the Exchange Agent at its address herein, and either certificates
for Tendered Notes must be received by the Exchange Agent at its address herein
or such Tendered Notes must be transferred pursuant to the procedures for book-
entry transfer described in the Prospectus (and a confirmation of such transfer
received by the Exchange Agent), in each case prior to 5 00 p.m., New York City
time, on the Expiration Date. The method of delivery of certificates for
Tendered Notes, this Letter of Transmittal and all other required documents to
the Exchange Agent is at the election and risk of the tendering holder and the
delivery will be deemed made only when actually received by the Exchange Agent.
If delivery is by mail, registered mail with return receipt requested, properly
insured, is recommended. Instead of delivery by mail, it is recommended that the
Holder use an overnight or hand delivery service. In all cases, sufficient time
should be allowed to assure timely delivery. No Letter of Transmittal or Notes
should be sent to the Issuers. Neither the Issuers nor the registrar are under
any obligation to notify any tendering holder of the Issuer's acceptance of
Tendered Notes prior to the closing of the Exchange Offer.
2. Guaranteed Delivery Procedures. Holders who wish to tender their Notes
but whose Notes are not immediately available, and who cannot deliver their
Notes, this Letter of Transmittal or any other documents required hereby to the
Exchange Agent prior to the Expiration Date must tender their Notes according to
the guaranteed delivery procedures described below, including completion of Box
4. Pursuant to such procedures: (i) such tender must be made by or through a
firm which is a member of a recognized Medallion Program approved by the
Securities Transfer Association Inc. (an "Eligible Institution") and the Notice
of Guaranteed Delivery must be signed by the holder; (ii) prior to the
Expiration Date, the Exchange Agent must have received from the holder and the
Eligible Institution a properly completed and duly executed Notice of Guaranteed
Delivery (by mail or hand delivery) setting forth the name and address of the
holder, the certificate number(s) of the Tendered Notes and the principal amount
of Tendered Notes, stating that the tender is being made thereby and
guaranteeing that, within five New York Stock Exchange trading days after the
Expiration Date, this Letter of Transmittal together with the certificate(s)
representing the Notes and any other required documents will be deposited by the
Eligible Institution with the Exchange Agent; and (iii) such properly completed
and executed Letter of Transmittal, as well as all other documents required by
this Letter of Transmittal and the certificate(s) representing all Tendered
Notes in proper form for transfer, must be received by the Exchange Agent within
five New York Stock Exchange trading days after the Expiration Date. Any holder
who wishes to tender Notes pursuant to the guaranteed delivery procedures
described above must ensure that the Exchange Agent receives the Notice of
Guaranteed Delivery relating to such Notes prior to 5:00 New York City time, on
the Expiration Date. Failure to complete the guaranteed delivery procedures
outlined above will not, of itself, affect the validity or effect a revocation
of any Letter of Transmittal form properly completed and executed by an Eligible
Holder who attempted to use the guaranteed delivery process.
3. Beneficial Owner Instructions to Registered Holders. Only a holder in
whose name Tendered Notes are registered on the books of the registrar (or the
legal representative or attorney-in-fact of such registered holder) may execute
and deliver this Letter of Transmittal. Any Beneficial Owner of Tendered Notes
who is not the registered holder must arrange promptly with the registered
holder to execute and deliver this Letter of Transmittal on his or her behalf
through the execution and delivery to the registered holder of the Instructions
to Registered Holder and/or Book-Entry Transfer Facility Participant from
Beneficial Owner form accompanying this Letter of Transmittal.
4. Partial Tenders. Tenders of Notes wilt be accepted only in integral
multiples of $1,000 in principal amount. If less than the entire principal
amount of Notes held by the holder is tendered, the tendering holder should fill
in the principal amount tendered in the column labeled "Aggregate Principal
Amount Tendered" of the box entitled "Description of Notes Tendered" (Box 1)
above. The entire principal amount of Notes delivered to the Exchange Agent will
be deemed to have been tendered unless otherwise indicated. If the entire
principal amount of all Notes held by the holder is not tendered, then Notes for
the principal amount of Notes not tendered and Exchange Notes issued in exchange
for any Notes tendered and accepted will be sent to the Holder at his or her
registered address, unless a different address is provided in the appropriate
box on this Letter of Transmittal, as soon as practicable following the
Expiration Date.
-7-
<PAGE>
5. Signatures on the Letter of Transmittal; Bond Powers and Endorsements;
Guarantee of Signatures. If this Letter of Transmittal is signed by the
registered holder(s) of the Tendered Notes, the signature must correspond with
the name(s) as written on the face of the Tendered Notes without alteration,
enlargement or any change whatsoever.
If any of the Tendered Notes are owned of record by two or more joint
owners, all such owners must sign this Letter of Transmittal. If any Tendered
Notes are held in different names, it will be necessary to complete, sign and
submit as many separate copies of the Letter of Transmittal as there are
different names in which Tendered Notes are held.
If this Letter of Transmittal is signed by the registered holder(s) of
Tendered Notes, and Exchange Notes issued in exchange therefor are to be issued
(and any untendered principal amount of Notes is to be reissued) in the name of
the registered holder(s), then such registered holder(s) need not and should not
endorse any Tendered Notes, nor provide a separate bond power. In any other
case, such registered holder(s) must either properly endorse the Tendered Notes
or transmit a properly completed separate bond power with this Letter of
Transmittal, with the signature(s) on the endorsement or bond power guaranteed
by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of any Tendered Notes, such Tendered Notes must be endorsed
or accompanied by appropriate bond powers, in each case, signed as the name(s)
of the registered holder(s) appear(s) on the Tendered Notes, with the
signature(s) on the endorsement or bond power guaranteed by an Eligible
Institution.
If this Letter of Transmittal or any Tendered Notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in- fact,
officers of corporations, or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing and, unless waived by the
Issuers, evidence satisfactory to the Issuer of their authority to so act must
be submitted with this Letter of Transmittal.
Endorsements on Tendered Notes or signatures on bond powers required by
this Instruction 5 must be guaranteed by an Eligible Institution.
Signatures on this Letter of Transmittal must be guaranteed by an Eligible
Institution unless the Tendered Notes are tendered (i) by a registered holder
who has not completed the box entitled "Special Delivery Instructions" (Box 3 )
or (ii) by an Eligible Institution.
6. Special Delivery Instructions. Tendering holders should indicate, in
the applicable box (Box 3), the name and address to which the Exchange Notes
and/or substitute Notes for principal amounts not tendered or not accepted for
exchange are to be sent, if different from the name and address of the person
signing this Letter of Transmittal. In the case of issuance in a different name,
the taxpayer identification or social security number of the person named must
also be indicated.
7. Transfer Taxes. The Issuer will pay all transfer taxes, if any,
applicable to the Exchange of Tendered Notes pursuant to the Exchange Offer. If,
however, a transfer tax is imposed for any reason other than the transfer and
exchange of Tendered Notes pursuant to the Exchange Offer, then the amount of
any such transfer taxes (whether imposed on the registered holder or on any
other person) will be payable by the tendering holder. If satisfactory evidence
of payment of such taxes or exemption therefrom is not submitted with this
Letter of Transmittal, the amount of such transfer taxes will be billed directly
to such tendering holder.
Except as provided in this Instruction 7, it will not be necessary for
transfer tax stamps to be affixed to the Tendered Notes listed in this Letter of
Transmittal.
8. Tax Identification Number. Federal income tax law requires that the
holder(s) of any Tendered Notes which are accepted for exchange must provide the
Issuer (as payor) with its correct taxpayer identification number ("TIN"),
which, in the case of a holder who is an individual, is his or her social
security number. If the Issuer is not provided with the correct TIN, the Holder
may be subject to backup withholding and a $50 penalty imposed by the Internal
Revenue Service. (If withholding results in an over-payment of taxes, a refund
may be obtained.) Certain holders (including, among others, all corporations and
certain foreign individuals) are not subject to these backup withholding and
reporting
-8-
<PAGE>
requirements. See the enclosed "Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9 for additional instructions.
To prevent backup withholding, each holder of Tendered Notes must provide
such holder's correct TIN by completing the Substitute Form W-9 certifying that
the TIN provided is correct (or that such holder is awaiting a TIN, and that (i)
the holder has not been notified by the Internal Revenue Service that such
holder is subject to backup withholding as a result of failure to report all
interest or dividend or (ii) the Internal Revenue Service has notified the
holder that such holder is no longer subject to backup withholding. If the
Tendered Notes are registered in more than one name or are not in the name of
the actual owner, consult the "Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9" for information on which TIN to
report.
The Issuer reserves the right in its sole discretion to take whatever steps
are necessary to comply with the Issuer's obligation regarding backup
withholding.
9. Validity of Tenders. All questions as to the validity, form,
eligibility (including time of receipt), acceptance and withdrawal of Tendered
Notes will be determined by the Issuer in its sole discretion, which
determination will be final and binding. The Issuer reserves the right to reject
any and all Notes not validly tendered or any Notes the Issuer's acceptance of
which would, in the opinion of the Issuer or its counsel, be unlawful. The
Issuer also reserves the right to waive any conditions of the Exchange Offer or
defects or irregularities in tenders of Notes as to any ineligibility of any
holder who seeks to tender Notes in the Exchange Offer. The interpretation of
the terms and conditions of the Exchange Offer (including this Letter of
Transmittal and the instructions hereto) by the Issuer shall be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Notes must he cured within such time as the Issuer
shall determine. Neither the Issuer, the Exchange Agent nor any other person
shall be under any duty to give notification of defects or irregularities with
respect to tenders of Notes, nor shall any of them incur any liability for
failure to give such notification. Tenders of Notes will not be deemed to have
been made until such defects or irregularities have been cured or waived. Any
Notes received by the Exchange Agent that are not properly tendered and as to
which the defects or irregularities have not been cured or waived will be
returned by the Exchange Agent to the tendering holders, unless otherwise
provided in this Letter of Transmittal, as soon as practicable following the
Expiration Date.
10. Waiver of Conditions. The Issuer reserves the absolute right to amend,
waive or modify any of the conditions in the Exchange Offer in the case of any
Tendered Notes.
11. No Conditional Tender. No alternative, conditional, irregular, or
contingent tender of Notes or transmittal of this Letter of Transmittal will be
accepted.
12. Mutilated, Lost, Stolen or Destroyed Notes. Any tendering Holder whose
Notes have been mutilated, lost, stolen or destroyed should contact the Exchange
Agent at the address indicated herein for further instructions.
13. Requests for Assistance or Additional Copies. Questions and requests
for assistance and requests for additional copies of the Prospectus or this
Letter of Transmittal may be directed to the Exchange Agent at the address
indicated herein. Holders may also contact their broker, dealer, commercial
bank, trust company or other nominee for assistance concerning the Exchange
Offer.
14. Acceptance of Tendered Notes and Issuance of Notes; Return of Notes.
Subject to the terms and conditions of the Exchange Offer, the Issuer will
accept for exchange all validly tendered Notes as soon as practicable after the
Expiration Date and will issue Exchange Notes therefor as soon as practicable
thereafter. For purposes of the Exchange Offer, the Issuer shall be deemed to
have accepted tendered Notes when, as and if the Issuer has given written or
oral notice (immediately followed in writing) thereof to the Exchange Agent. If
any Tendered Notes are not exchanged pursuant to the Exchange Offer for any
reason, such unexchanged Notes will be returned, without expense, to the
undersigned at the address shown in Box 1 or at a different address as may be
indicated herein under "Special Delivery Instructions" (Box 3).
15. Withdrawal. Tenders may be withdrawn only pursuant to the procedures
in the Prospectus under the caption "The Exchange Offer."
-9-
<PAGE>
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
With Respect to
12 5/8% Senior Subordinated Notes due 2007
of
Mattress Discounters Corporation
Pursuant to the Prospectus Dated , 1999
This form must be used by a holder of 12e% Senior Subordinated Notes due
2007 (the "Notes") of Mattress Discounters Corporation, a Delaware corporation,
(the "Company"), who wishes to tender Notes to the Exchange Agent pursuant to
the guaranteed delivery procedures described in "Exchange Offer-Guaranteed
Delivery Procedures" of the Company's Prospectus, dated , 1999 (the
"Prospectus") and in Instruction 2 to the related Letter of Transmittal. Any
holder who wishes to tender Notes pursuant to such guaranteed delivery
procedures must ensure that the Exchange Agent receives this Notice of
Guaranteed Delivery prior to the Expiration Date of the Exchange Offer.
Capitalized terms used but not defined herein have the meanings ascribed to them
in the Prospectus or the Letter of Transmittal.
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON , 1999 UNLESS EXTENDED
(THE "EXPIRATION DATE").
- --------------------------------------------------------------------------------
PLEASE READ CAREFULLY THE ATTACHED INSTRUCTIONS
If you desire to accept the Exchange Offer, this Letter of Transmittal
should be completed, signed and submitted to the Exchange Agent:
<TABLE>
<CAPTION>
<S> <C> <C>
By Overnight Courier and by Hand
after 4:30 pm on the Expiration By Facsimile: By Registered or Certified Mail:
Date
(617) 662-1452 State Street Bank and Trust Company
State Street Bank and Trust Company Attn: Corporate P.O. Box 778
Two Avenue de Lafayette, 5th Floor Trust Department Boston, MA 02102-0078
Corporate Trust Window Attn: Kellie Mullen
Boston, MA 02111-1724 Confirm by phone:
Attn: Kellie Mullen/MacKenzie Elijah
(617) 662-1525
</TABLE>
Delivery of this instrument to an address other than one listed above will
not constitute a valid delivery.
For any questions regarding this Notice of Guaranteed Delivery or for any
additional information, you may contact the Exchange Agent by telephone at
(860) 244-1813, or by facsimile at (860) 244-1889.
This form is not to be used to guarantee signatures. If a signature on a
Letter of Transmittal is required to be guaranteed by an "Eligible Institution"
under the instructions thereto, such signature guarantee must appear in the
applicable space provided in the signature box on the Letter of Transmittal.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to the Company, upon the terms and subject
to the condition, in the Prospectus and the related Letter of Transmittal,
receipt of which is hereby acknowledged, the principal amount of Notes as
described below pursuant to the guaranteed delivery procedures described in the
Prospectus and in Instruction 2 of the Letter of Transmittal.
The undersigned hereby tenders the Notes listed below:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Certificate Number(s) (if known) of notes Aggregate Principal Aggregate Principal
or Account Number at the Book-Entry Facility Amount Represented Amount Tendered
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
PLEASE SIGN AND COMPLETE
- ----------------------------------------------------------------------------------------------------
<S> <C>
Signatures of Registered Holder(s) or Authorized Date: , 1999
Signatory:------------------------------------------ ---------------------------------------
- ---------------------------------------------------- Address:-----------------------------------
- ---------------------------------------------------- -------------------------------------------
Names of Registered Holder(s):
- ---------------------------------------------------- Area Code and Telephone No.:---------------
- ----------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
This Notice of Guaranteed Delivery must be signed by the Holder(s) exactly
as their name(s) appear on certificates for Notes or on a security position
listing as the owner of Notes, or by person(s) authorized to become Holder(s) by
endorsements and documents transmitted with this Notice of Guaranteed Delivery.
If signature is by a trustee, executor, administrator, guardian, attorney-in-
fact, officer or other person acting in a fiduciary or representative capacity,
such person must provide the following information.
Please print name(s) and address(es)
Name(s):------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Capacity:-----------------------------------------------------------------------
Address(es):--------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
-2-
<PAGE>
GUARANTEE
(Not to be used for signature guarantee)
- --------------------------------------------------------------------------------
The undersigned, a firm which is a member of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
or is a commercial bank or trust company having an office or correspondent in
the United States, or is otherwise an "eligible guarantor institution" within
the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, as
amended, guarantees deposit with the Exchange Agent of the Letter of Transmittal
(or facsimile thereof), together with the Notes tendered hereby in proper form
for transfer (or confirmation of the book-entry transfer of such Notes into the
Exchange Agent's account at the Book-Entry Transfer Facility described in the
prospectus under the caption, "Exchange Offer-Guaranteed Delivery Procedures"
and in the Letter of Transmittal) and any other required documents, all by 5:00
p.m., New York City time, on the fifth New York Stock Exchange trading day
following the Expiration Date.
Name of firm:--------------------------- -----------------------------------
(Authorized Signature)
Address:-------------------------------- Name:------------------------------
(Please Print)
- ---------------------------------------- Title:-----------------------------
(Include Zip Code)
Area Code and Tel. No.:----------------- Dated:-----------------------, 1999
DO NOT SEND SECURITIES WITH THIS FORM. ACTUAL SURRENDER OF SECURITIES MUST BE
MADE PURSUANT TO, AND BE ACCOMPANIED BY, AN EXECUTED LETTER OF TRANSMITTAL.
- --------------------------------------------------------------------------------
-3-
<PAGE>
INSTRUCTIONS FOR NOTICE OF GUARANTEED DELIVERY
1. Delivery of this Notice of Guaranteed Delivery. A properly completed
and duly executed copy of this Notice of Guaranteed Delivery and any other
documents required by this Notice of Guaranteed Delivery must be received by the
Exchange Agent at its address prior to the Expiration Date. The method of
delivery of this Notice of Guaranteed Delivery and any other required documents
to the Exchange Agent is at the election and sole risk of the holder, and the
delivery will be deemed made only when actually received by the Exchange Agent.
If delivery is by mail, registered mail with return receipt requested, properly
insured, is recommended. As an alternative to delivery by mail, the holders may
wish to consider using an overnight or hand delivery service. In all cases,
sufficient time should be allowed to assure timely delivery. For a description
of the guaranteed delivery procedures, see Instruction 2 of the Letter of
Transmittal.
2. Signatures on this Notice of Guaranteed Delivery. If this Notice of
Guaranteed Delivery is signed by the registered holder(s) of the Notes referred
to herein, the signature must correspond with the name(s) written on the face of
the Notes without alteration, enlargement, or any change whatsoever. If this
Notice of Guaranteed Delivery is signed by a participant of the Book-Entry
Transfer Facility whose name appears on a security position listing as the owner
of the Notes, the signature must correspond with the name shown on the security
position listing as the owner of the Notes.
If this Notice of Guaranteed Delivery is signed by a person other than the
registered holder(s) of any Notes listed or a participant of the Book-Entry
Transfer Facility, this Notice of Guaranteed Delivery must be accompanied by
appropriate bond powers, signed as the name of the registered holder(s) appears
on the Notes or signed as the name of the participant shown on the Book-Entry
Transfer Facility's security position listing.
If this Notice of Guaranteed Delivery is signed by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation, or other
person acting in a fiduciary or representative capacity, such person should so
indicate when signing and submit with the Letter of Transmittal evidence
satisfactory to the Company of such person's authority to so act.
3. Requests for Assistance or Additional Copies. Questions and requests
for assistance and requests for additional copies of the Prospectus may be
directed to the Exchange Agent at the address specified in the Prospectus.
Holders may also contact their broker, dealer, commercial bank, trust company,
or other nominee for assistance concerning the Exchange Offer.
-4-
