SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) August 6, 1999
--------------------------------
Heilig-Meyers Company
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(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Virginia 1-8484 54-0558861
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(State or other jurisdiction of incorporation) (Commission (IRS Employer
file number) Identification No.)
</TABLE>
12560 West Creek Parkway, Richmond, Virginia 23238
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (804) 784-7300
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N/A
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(Former name or former address, if changed since last report)
<PAGE>
Item 2. Acquisition or Disposition of Assets
- ---------------------------------------------
Heilig-Meyers Company, a Virginia corporation (the "Company"), entered
into a Transaction Agreement dated as of May 28, 1999, as amended by Amendment
No. 1 thereto dated as of July 15, 1999 and Amendment No. 2 thereto dated as of
July 29, 1999 attached hereto as Exhibit 2.1 (as amended, the "Transaction
Agreement"), with MD Acquisition Corporation, a Virginia corporation ("MDAC"),
and Heilig-Meyers Associates, Inc., a Virginia corporation ("HMA") and a
wholly-owned subsidiary of the Company, pursuant to which the Company agreed to
sell a controlling interest in 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"). MDAC is controlled by an investment group lead by Bain Capital.
The transaction, which closed on August 6, 1999, was effected through
the merger of MDAC into HMA, which changed its name to Mattress Discounters
Holding Corporation ("MD Holding"). Under the terms of the Transaction
Agreement, the Company received approximately $204 million in cash, subject to
certain working capital adjustments, a $7.5 million 12% pay-in-kind junior
subordinated note due July 15, 2008, and a $10 million 10% pay-in-kind junior
subordinated note due July 15, 2008 and retained a 7% equity interest in MD
Holding. In addition, Mattress Discounters assumed approximately $4 million of
the Company's closing costs.
A copy of the Company's press release announcing the closing of the
transaction is attached as Exhibit 99.1 hereto and is incorporated herein by
reference.
<PAGE>
Item 7. Financial Statements and Exhibits
- ------------------------------------------
(b) Pro Forma Financial Information
-------------------------------
Pro Forma Condensed Consolidated Statements of Earnings For the Year Ended
February 28, 1999
Pro Forma Condensed Consolidated Statements of Earnings For the Three
Months Ended May 31, 1999
Pro Forma Condensed Consolidated Balance Sheet As of May 31, 1999
Notes to Pro Forma Condensed Consolidated Financial Statements
(c) Exhibits
--------
The following exhibit is filed as a part of this report:
2.1 Transaction Agreement dated as of May 28, 1999, as amended by
Amendment No. 1 thereto dated as of July 15, 1999 and Amendment No. 2
thereto dated as of July 29, 1999 by and among Heilig-Meyers Company,
a Virginia corporation, Heilig-Meyers Associates, Inc., a Virginia
corporation, and MD Acquisition Corporation, a Virginia corporation.
Pursuant to Item 601(b)(2), the Company agrees to furnish
supplementally a copy of any omitted schedule or exhibit to this
agreement to the Commission upon request.
99.1 News Release dated August 9, 1999.
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HEILIG-MEYERS COMPANY
Date: August 23, 1999 By: /s/ Roy B. Goodman
------------------
Roy B. Goodman
Executive Vice President,
Chief Financial Officer
<PAGE>
Exhibit Index
-------------
Exhibit
No. Description
- ------- -----------
2.1 Transaction Agreement dated as of May 28, 1999, as amended by
Amendment No. 1 thereto dated as of July 15, 1999 and
Amendment No. 2 thereto dated as of July 29, 1999 by and among
Heilig-Meyers Company, a Virginia corporation, Heilig-Meyers
Associates, Inc., a Virginia corporation, and MD Acquisition
Corporation, a Virginia corporation. Pursuant to Item
601(b)(2), the Company agrees to furnish supplementally a copy
of any omitted schedule or exhibit to this agreement to the
Commission upon request.
9.9 News Release dated August 9, 1999.
<PAGE>
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated statements of
earnings for the year ended February 28, 1999 and the three months ended May 31,
1999 give effect to dispositions of businesses by Heilig-Meyers. The pro forma
information is based on the historical financial statements of Heilig-Meyers
giving effect to the disposition under the assumptions and adjustments described
in the accompanying notes to the unaudited pro forma condensed consolidated
financial statements. The following unaudited pro forma condensed consolidated
balance sheet gives effect to dispositions of businesses by Heilig-Meyers which
were completed after the balance sheet date, as if such dispositions had been
completed as of May 31, 1999.
On July 13, 1999, with an effective date of July 1, 1999, Heilig-Meyers
completed the sale of its wholly-owned subsidiary, Rhodes, Inc. Heilig-Meyers
received $60.0 million in cash, a $40 million 10% pay-in-kind subordinated note
due 2004 (9.5% interest rate per annum for periods where interest is paid in
cash) and an option to acquire a 10% equity interest in Rhodes Holdings, the
acquiring entity. Heilig-Meyers also received an option to acquire an additional
10% equity interest in Rhodes Holdings if certain financial goals are achieved
by Rhodes Holdings. Heilig-Meyers has agreed to provide or guarantee a $20.0
million standby credit facility after the closing, which may only be drawn on in
certain circumstances after utilization of availability under the Rhodes'
primary credit facility. During its first fiscal quarter ended May 31, 1999,
Heilig-Meyers recorded a $113.7 million write-down, before benefit for income
taxes, of its investment in Rhodes, Inc.
On August 6, 1999, Heilig-Meyers completed the sale of 93% of its
interest in its Mattress Discounters division. Heilig-Meyers received
approximately $204 million in cash, subject to certain working capital
adjustments, a $7.5 million 12% pay-in-kind junior subordinated note due July
15, 2008, and a $10 million 10% pay-in-kind junior subordinated note due July
15, 2008 and retained a 7% equity interest in Mattress Discounters, less the
assumption of $4.3 million of liabilities by Heilig-Meyers. Heilig-Meyers
expects this transaction to result in a gain, net of income taxes, of
approximately $60.6 million.
The net cash proceeds generated by these transactions will be used to
reduce a portion of long term debt due within one year and notes payable.
The unaudited pro forma condensed consolidated financial statements
have been prepared by the management of Heilig-Meyers based upon historical and
other financial information. The pro forma statements do not purport to be
indicative of the results of operations or financial position which would have
occurred had the dispositions been made at the beginning of the periods or as of
the date indicated or of the financial position or results of operations which
may be obtained in the future.
<PAGE>
HEILIG-MEYERS COMPANY
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE YEAR ENDED FEBRUARY 28, 1999
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
------------------------------
MATTRESS
HEILIG-MEYERS RHODES DISCOUNTERS PRO FORMA
HISTORICAL OPERATIONS OPERATIONS OTHER COMBINED
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<S> <C>
REVENUES:
Sales $ 2,431,152 $(457,501) $(238,271) $ 1,735,380
Other income 295,206 (22,119) (377) 272,710
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Total Revenues 2,726,358 (479,620) (238,648) - 2,008,090
- -----------------------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES:
Costs of sales 1,637,901 (331,975) (149,101) 1,156,825
Selling, general & administrative 907,913 (176,924) (66,576) 664,413
Interest 75,676 - - (17,787)(D) 57,889
Provision for doubtful accounts 107,916 - - 107,916
- -----------------------------------------------------------------------------------------------------------------------------
Total costs and expenses 2,729,406 (508,899) (215,677) (17,787) 1,987,043
- -----------------------------------------------------------------------------------------------------------------------------
EARNINGS (LOSS) BEFORE INCOME TAXES (3,048) 29,279 (22,971) 17,787 21,047
Provision (benefit) for income taxes (1,081) 10,687 (8,384) 6,492 7,714
- -----------------------------------------------------------------------------------------------------------------------------
NET EARNINGS (LOSS) $ (1,967) $ 18,592 $ (14,587) $ 11,295 $ 13,333
=============================================================================================================================
NET EARNINGS (LOSS) PER SHARE:
BASIC $ (0.03) $ 0.31 $ (0.25) $ 0.19 $ 0.22
DILUTED $ (0.03) $ 0.31 $ (0.25) $ 0.19 $ 0.22
=============================================================================================================================
Weighted average shares:
Basic 59,331 59,331 59,331 59,331 59,331
Diluted 59,331 59,331 59,331 60,103(F) 60,103(F)
</TABLE>
See notes to pro forma condensed consolidated financial statements.
<PAGE>
HEILIG-MEYERS COMPANY
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE THREE MONTHS ENDED MAY 31, 1999
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
---------------------
MATTRESS
HEILIG-MEYERS RHODES DISCOUNTERS PRO FORMA
HISTORICAL OPERATIONS OPERATIONS OTHER COMBINED
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C>
REVENUES:
Sales $ 618,492 $(114,846) $ (60,988) $ 442,658
Other income 70,711 (7,257) (89) 63,365
- ---------------------------------------------------------------------------------------------------------------------------------
Total Revenues 689,203 (122,103) (61,077) - 506,023
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COSTS AND EXPENSES:
Costs of sales 400,229 (79,358) (37,548) 283,323
Selling, general & administrative 231,320 (43,577) (16,818) 170,925
Interest 19,733 - - (4,806)(D) 14,927
Provision for doubtful accounts 23,872 - - 23,872
- ---------------------------------------------------------------------------------------------------------------------------------
Total costs and expenses 675,154 (122,935) (54,366) (4,806) 493,047
- ---------------------------------------------------------------------------------------------------------------------------------
Write-down of assets held for sale (113,690) 113,690(E) -
EARNINGS (LOSS) BEFORE INCOME TAXES (99,641) 832 (6,711) 118,496 12,976
Provision (benefit) for income taxes (29,101) 304 (2,450) 35,892 4,645
- ---------------------------------------------------------------------------------------------------------------------------------
NET EARNINGS (LOSS) $ (70,540) $ 528 $ (4,261) $ 82,604 $ 8,331
=================================================================================================================================
NET EARNINGS (LOSS) PER SHARE:
BASIC $ (1.18) $ 0.01 $ (0.07) $ 1.38 $ 0.14
DILUTED $ (1.18) $ 0.01 $ (0.07) $ 1.36 $ 0.14
=================================================================================================================================
Weighted average shares:
Basic 59,861 59,861 59,861 59,861 59,861
Diluted 59,861 59,861 59,861 60,630(F) 60,630(F)
See notes to pro forma condensed consolidated financial statements.
</TABLE>
<PAGE>
HEILIG-MEYERS COMPANY
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MAY 31, 1999
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
MATTRESS
RHODES DISCOUNTERS OTHER
HEILIG-MEYERS PRO FORMA PRO FORMA PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS COMBINED
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Assets
Current assets:
Cash $ 20,649 $ 20,649
Accounts receivable, net 252,205 252,205
Retained interest in securitized receivables 192,184 192,184
Inventories 396,845 396,845
Other 98,773 98,773
Net assets held for sale 159,857 (88,877) (A) (70,980) (B) -
- ------------------------------------------------------------------------------------------------------------------------------------
Total current assets 1,120,513 (88,877) (70,980) - 960,656
- ------------------------------------------------------------------------------------------------------------------------------------
Property, plant & equipment, net 320,712 320,712
Other assets 104,995 40,038 (A) 13,500 (B) 163,502
4,969 (C)
Excess cost over net assets acquired, net 196,126 196,126
-
- ------------------------------------------------------------------------------------------------------------------------------------
$ 1,742,346 $ (48,839) $ (52,511) $ - $1,640,996
====================================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 201,358 $(159,218) (D) $ 42,140
Long-term debt due within one year 131,193 (54,900) (A)(D) (35,500) (D) 40,793
Accounts payable 147,368 147,368
Accrued expenses and other 154,875 6,061 (A) 4,250 (B) (3,052) (D) 239,484
77,350 (B)
-
- ------------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 634,794 (48,839) (113,118) (3,052) 469,785
- ------------------------------------------------------------------------------------------------------------------------------------
Long-term debt/capital leases 536,766 536,766
Deferred income taxes 40,129 40,129
Stockholders' equity:
Common stock, at par 119,722 119,722
Capital in excess of par value 242,380 242,380
Unrealized gain on investments 5,478 5,478
Retained earnings 163,077 60,607 (B) 3,052 (D) 226,736
- ------------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 530,657 - 60,607 3,052 594,316
- ------------------------------------------------------------------------------------------------------------------------------------
$ 1,742,346 $ (48,839) $ (52,511) $ - $1,640,996
====================================================================================================================================
</TABLE>
See notes to pro forma condensed consolidated financial statements.
<PAGE>
HEILIG-MEYERS COMPANY
Notes to Pro Forma Condensed Consolidated Financial Statements
(Amounts in Thousands)
<TABLE>
<S> <C>
(A) To reflect the allocation of proceeds generated by the disposition of Rhodes, Inc.
Cash $ 60,000
Transaction costs (5,100)
------------
Net cash proceeds 54,900
Note receivable 40,000
Warrants to acquire a 10% equity interest in Rhodes Holdings, at fair value 38
Liabilities assumed by Heilig-Meyers (6,061)
------------
Total proceeds 88,877
Less: investment in Rhodes 88,877
------------
Gain (loss) on disposition $ -
============
(B) To reflect the allocation of estimated proceeds to be generated by the planned disposition
of Mattress Discounters.
Cash $ 203,575
Transaction costs (8,857)
------------
Net cash proceeds 194,718
Notes receivable, net of discount 13,500
Liabilities assumed by Heilig-Meyers (4,250)
------------
Total proceeds 203,968
Less: investment in Mattress Discounters 66,011
------------
Gain on disposition 137,957
Income tax expense 77,350
------------
Net gain on disposition $ 60,607
============
</TABLE>
(C) Represents the 7% interest in Mattress Discounters retained by the Company.
This amount is carried at the Company's historical cost.
(D) To reflect the pro forma impact of reduction of debt outstanding from
application of net proceeds generated by the dispositions.
<TABLE>
<CAPTION>
3 months ended 12 months ended
May 31, 1999 February 28, 1999
-------------- -----------------
<S> <C>
Net proceeds applied to notes payable $ 159,218 $ 159,218
Weighted average annual interest rate 8.10% 7.64%
-------------- -----------------
$ 12,897 $ 12,164
-------------- -----------------
Net proceeds applied to long-term debt $ 90,400 $ 90,400
Weighted average annual interest rate 7.00% 6.22%
-------------- -----------------
$ 6,328 $ 5,623
-------------- -----------------
Annual pro forma reduction in interest expense $ 19,225 $ 17,787
============== =================
Quarterly pro forma reduction in interest expense $ 4,806
==============
</TABLE>
The first $90.4 million of net cash proceeds will be applied to long-term
debt due within one year and the remaining $159.2 million will be applied to
notes payable.
(E) To eliminate the write-down of investment in Rhodes to give effect to the
disposition of Rhodes as if it had been completed prior to the beginning of
the period.
(F) Diluted weighted average shares have been adjusted for pro forma purposes to
include common stock equivalents that were excluded for purposes of the
historical statements since the result would have been antidilutive to the
loss from operations.
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, as amended
by Amendment No. 1 hereto dated as of July 14, 1999
and by Amendment No. 2 hereto dated as of July 29, 1999
<PAGE>
TABLE OF CONTENTS
Page
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
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8.2 Seller's Section 401(k) Plan..............................48
----------------------------
8.3 COBRA.....................................................50
-----
8.4 Administration............................................50
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i
<PAGE>
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
----------------
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
Schedule 8.1 - Assignment and Assumption Agreement
EXHIBITS
Exhibit - Plan of Merger
Exhibit - Junior Subordinated Notes
Exhibit - Tax Agreement
Exhibit - Mattress Supply Agreement
Exhibit - Advertising Agreement
Exhibit - Indemnity Agreement
Exhibit - Opinion of McGuire, Woods, Battle & Boothe LLP
Exhibit - Opinion of Kirkland & Ellis
Exhibit - Terms of Stockholders Agreement
ii
<PAGE>
TRANSACTION AGREEMENT
THIS AGREEMENT ("Agreement") made as of the 28 day of May, 1999, as
amended by Amendment No. 1 dated as of July 14, 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.
1
<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:
(1) Seller shall contribute all of the Shares to Oldco (the
"Contribution").
(2) 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;
(1) 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>
(2) 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; 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;
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").
(3) 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>
(4) 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.
(5) 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.
(1) 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 forth an
4
<PAGE>
example (based on financial information dated as of February 28, 1999) of how
the preliminary working capital statement shall be prepared.
(2) 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."
(1) 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>
(4) 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.
(5) 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.
(6) 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 less the amount deducted from cash on hand at the Closing pursuant
to Section 3.7.
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 will enter into a
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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).
(1) 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.
(2) Authority Relative to this Agreement.
(1) Seller and Oldco each has the corporate power and
authority to enter into this Agreement and the Related Agreements and to
consummate the
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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.
(2) 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:
(1) 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;
(2) 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 or any of their
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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
(3) 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.
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(3) 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
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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.
(4) 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.
(5) Material Contracts. Schedule 2.1(e) contains a true and accurate
list of each of contract, agreement or commitment of the Companies:
(1) 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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(2) which provides for aggregate future payments by or to any
of the Companies of more than $100,000 in any calendar year;
(3) relating to any indebtedness of the Companies;
(4) 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;
(5) 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;
(6) which is an agreement relating to employment or severance
that is not terminable at will by the applicable Company; or
(7) 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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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.
(6) 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.
(7) Employee Benefit Matters.
(1) 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
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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.
(2) 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.
(3) 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.
(4 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.
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(5) 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.
(6) 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.
(7) No prohibited transaction, as defined in Section 4975 of
the Code, that is not exempt has occurred with respect to any Employee
Plan.
(8)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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(9) Oldco has no employees.
(8) 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.
(9) Environmental and Safety Matters. Except as set forth on
Schedule 2.1(i):
(1) Each of the Companies and their respective predecessors
has materially complied and is in material compliance with all
Environmental Laws, including without limitation all material permits,
licenses and other authorizations required pursuant
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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.
(2) 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.
(3) 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 the Environmental Laws; or 4) landfills, surface
impoundments, or disposal areas in material violation of Environmental
Laws.
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(4) 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.
(5) 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.
(10) [Intentionally Omitted].
(11) 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
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
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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 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.
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(l2) 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.
(13) 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.
(14) 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 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.
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(15) 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 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
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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:
(1) "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.
(2) "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,
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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.
(3) "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.
(16) 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 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
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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.
(17) 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.
(18) 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.
(19) 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 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.
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(20) 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):
(1) 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 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.
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(2) 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:
(1) 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;
(2) 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
(3) (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
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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.
(3) 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.
(4) 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 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
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by any Governmental Authority against or affecting Buyer which would have a
Buyer Material Adverse Effect.
(5) 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.
(6) 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 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
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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:
(1) 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;
(2) 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;
(3) declare, set aside or pay any dividend (whether in cash
or property) with respect to their capital stock;
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(4) 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;
(5) amend their Articles of Incorporation or Bylaws;
(6) 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;
(7) 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;
(8) implement any employee layoffs that could implicate the Workers
Adjustment and Retraining Notification Act of 1988, as amended; and
(9) 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;
(10) enter into an agreement to do any of the things described in
clauses (i) through (ix) above.
3.4 Senior Sub Note Offering.
(1) 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
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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 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
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Indemnity Agreement attached hereto as Exhibit F. Seller acknowledges that the
provisions of this Section 3.4 shall equally apply to 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 references to senior notes of Mattress Discounters.
(2) 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.
(3) 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 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
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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 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
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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.
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.
1. CONDITIONS TO CLOSING
3.8 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:
(1) 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.
(2) 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
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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.
(3) 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 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.
(4) 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.
(5) 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.
(6) 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.
(7) 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
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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.
(8) 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.
(9) Seller shall have delivered to Buyer the deliveries described in
Section 5.2.
(10) 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.
(11) 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.
(12) 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).
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3.9 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:
(1) 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.
(2) 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.
(3) Seller shall have received the Merger Consideration.
(4) 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.
(5) 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.
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(6) 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.
(7) 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.
(8) 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.
(9) 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.
(10) The Surviving Corporation shall have executed and delivered a
stockholders agreement with Seller and other stockholders containing the terms
set forth on Exhibit I.
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2. CLOSING
3.10 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.
2.1 Deliveries by Seller. At the Closing, Seller shall deliver to
Buyer the following:
(1) 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;
(2) certified copies of the resolutions, charter and Bylaws
described in Section 4.1(b);
(3) the certificate required by Section 4.1(c);
(4) 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;
(5) the opinion of counsel required by Section 4.1(d);
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(6) copies of the consents required by Section 4.1(f); and
(7) resignations of all directors and officers of Oldco serving in
office immediately prior to the Closing to be effective as of the Closing; and
(8) such additional documents as Buyer may reasonably request.
3.11 Deliveries by Buyer. At the Closing, Buyer shall deliver to Seller
the following:
(1) 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;
(2) the Junior Subordinated Notes and the 10% Junior Subordinated
Notes;
(3) certified copies of the resolutions described in Section
4.2(b);
(4) the opinion of counsel required by Section 4.2(d);
(5) the certificate required by Section 4.2(e);
(6) 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;
(7) copies of the consents required by Section 4.2(g); and
(8) such additional documents as Seller may reasonably request.
3.12 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.
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3. SURVIVAL OF REPRESENTATIONS
AND WARRANTIES AND INDEMNIFICATION
3.13 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 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.
3.2 Indemnification. If the transactions contemplated by this
Agreement are consummated in accordance with Section 5.1 hereof:
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(1) 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:
(1) the breach of any representation or warranty of Seller
contained in this Agreement;
(2) 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);
(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.
(2) 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:
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(1) the breach of any representation or warranty of Buyer
contained in this Agreement;
(2) 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);
(3) any liabilities of Seller expressly assumed by the
Companies or the Surviving Corporation pursuant to this Agreement; or
(4) 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.
Notwithstanding the
foregoing, the Surviving Corporation shall not be required to
indemnify Seller for liabilities arising solely from changes in law after
the Closing.
(3) 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:
(1) 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
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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.
(2) 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 the
Indemnified Party, and such defense to include all proceedings for appeal
or review which counsel for the Indemnified Party shall reasonably deem
appropriate.
(3) 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.
(4) 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
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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 to each other such assistance as
may be reasonably required in order to ensure the proper and adequate
defense of such Legal Action.
(5) 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.
(4) 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
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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:
(1) tax savings, if any, actually realized by the
Indemnified Party in respect of such matter;
(2) insurance proceeds to which the Indemnified Party is
entitled in respect of such matter net of resultant increases in insurance
premiums; and
(3) 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.
(5) Limitations. The indemnification provided for in this Section
6.2 shall be subject to the following provisions:
(1) 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);
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(2) 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).
(3) 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.
(4) 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.
(6) 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.
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4. TERMINATION
3.14 Termination. This Agreement may be terminated at any time before
Closing:
(1) by the mutual written consent of all parties hereto;
(2) 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
(3) 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 capable of being cured, is not cured
within ten days following written notice from the nonbreaching party specifying
the nature of such breach);
3.15 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.
5. EMPLOYEES AND EMPLOYEE MATTERS
3.16 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
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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).
(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
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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.
(c) After the Closing, Seller shall pay to Employees who are
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 Seller's current fiscal year through July 1999.
3.17 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 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)
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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 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)
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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.
3.18 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.
3.19 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.
6. MISCELLANEOUS COVENANTS AND OTHER PROVISIONS
3.20 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
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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.
3.21 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 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
3.22 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.
3.23 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
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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.
3.24 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.
3.25 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 same
manner as is currently conducted; provided, however, that Buyer shall be under
no obligation to continue, replace or extend any particular Revenue Contract.
3.26 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.
3.27 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
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counterpart shall be deemed to be an original, but all of which taken together
shall constitute one and the same instrument.
3.28 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
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
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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.
3.29 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 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.
3.30 Law Applicable. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Virginia.
3.31 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
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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.
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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
Exhibit 99.1
Heilig-Meyers Company Completes the Sale of Its Mattress Discounters Division
RICHMOND, Va., Aug. 9 /PRNewswire/ -- Heilig-Meyers Company (NYSE: HMY)
today announced that it had completed the sale of a controlling interest in its
Mattress Discounters division to an investment group, led by Boston based Bain
Capital. Under final terms of the agreement Heilig-Meyers received approximately
$204 million in cash, subordinated notes with a face value of $17.5 million and
retained a 7% equity interest in Mattress Discounters. Mattress Discounters
assumed approximately $4 million of Heilig-Meyers' closing costs. William C.
DeRusha, Chairman and Chief Executive Officer, noted that the proceeds from this
transaction would be used to pay down debt and allow the Company to
significantly improve its overall financial position. He added that as a result
of both the Mattress Discounters and previously announced Rhodes divestitures
the Company's overall debt obligations would be lowered by approximately 30% and
that tangible book value per common share would be increased by approximately
40%. As a result of the Mattress Discounters transaction, the Company expects to
recognize a one-time pre-tax gain in excess of $130 million during the second
fiscal quarter. However, management noted that certain other potential strategic
operating decisions aimed at improving the overall profitability of the Company
could potentially offset a portion of this gain.
Heilig-Meyers Company is the Nation's largest retailer of furniture,
bedding and related items. As of July 31, 1999, the Company operated 1,164
stores: 816 as Heilig-Meyers, 241 as Mattress Discounters, 75 as The RoomStore
and 32 in Puerto Rico as Berrios. Visit the Company's retail web sites at
www.heiligmeyers.com and www.roomstore.com. For the latest corporate news visit
www.hmyco.com.
