Exhibit 2
EXECUTION COPY
TRANSACTION AGREEMENT
AMONG
XXXXXX-XXXXXX COMPANY,
XXXXXX-XXXXXX 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
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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
8.2 Seller's Section 401(k) Plan...............................48
8.3 COBRA......................................................50
8.4 Administration.............................................50
9. MISCELLANEOUS COVENANTS AND OTHER PROVISIONS
9.1 Access to Records..........................................50
9.2 Xxxx-Xxxxx-Xxxxxx 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
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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 - A Plan of Merger
Exhibit - B Junior Subordinated Notes
Exhibit - C Tax Agreement
Exhibit - D Mattress Supply Agreement
Exhibit - E Advertising Agreement
Exhibit - F Indemnity Agreement
Exhibit - G Opinion of McGuire, Woods, Battle & Xxxxxx LLP
Exhibit - H Opinion of Xxxxxxxx & Xxxxx
Exhibit - I Terms of Stockholders Agreement
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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 Xxxxxx-Xxxxxx
Company, a Virginia corporation ("Seller"), Xxxxxx-Xxxxxx 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.
E. It is intended that the Merger be recorded as a recapitalization for
financial reporting purposes.
1. THE MERGER AND RECAPITALIZATION
l.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) the aggregate of the Oldco Shares (representing all of the issued
and outstanding capital stock of Oldco immediately prior to the Effective
Time) shall, at the Effective Time, be converted into the right to receive
(A) that number of fully paid and nonassessable shares of Surviving
Corporation Common Stock such that, immediately following the Effective
Time, Seller will own 7% of each class of the issued and outstanding
Surviving Corporation Common Stock; (B) $214,175,000 cash, subject to a
working capital adjustment as provided in Section 1.2; and (c) junior
subordinated notes in the principal amount of $7.5 million (the "Junior
Subordinated Notes"), in the form attached hereto as Exhibit B ((A), (B)
and (c) are collectively referred to in this Agreement as, the "Merger
Consideration").
(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.
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The Contribution, Merger, and Borrowings are hereinafter referred to
collectively as the "Transactions."
(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 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."
(3) 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.
(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.
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l.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 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
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 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, 1,000 shares are
validly issued and outstanding, fully paid and nonassessable. The
authorized capital of TJB consists solely of 5,000 shares of common stock,
no par value, of which, as of the date hereof, 4,500 shares are validly
issued and outstanding, fully paid and nonassessable. The authorized
capital of Bedding Experts consists solely of 1,000 shares of common stock,
no par value, of which, as of the date hereof, 1,000 shares are validly
issued and outstanding, fully paid and nonassessable. The authorized
capital of the subsidiary described on Schedule 2.1(r) consists solely of
the shares set forth thereon and all the outstanding shares of such
subsidiaries set forth thereon are validly issued and outstanding, fully
paid and nonassessable and are owned beneficially and of record by Mattress
Discounters. The authorized capital of Oldco consists solely of 5,000
shares of common stock, $1.00 par value, of which, as of the date hereof,
100 shares are validly issued and outstanding, fully paid and
nonassessable. Seller owns the Shares and the Oldco Shares beneficially and
of record. The Shares constitute all of the outstanding shares of capital
stock of the Companies. The Oldco Shares constitute all of the outstanding
shares of capital Stock of Oldco. Seller has good title to the Oldco Shares
and the Shares, free and clear of encumbrances and upon the transfer of the
Shares to Oldco pursuant to this Agreement Oldco will have good title to
the Shares, free and clear of encumbrances. None of the Companies or Oldco
have any commitment to issue or sell any shares of their capital stock or
any securities or obligations convertible into or exchangeable for, or
giving any person or entity any right to acquire from them, any shares of
their capital stock and no such securities or obligations are issued or
outstanding. The Shares and the Oldco Shares have been offered, issued and
sold in compliance with all applicable laws. Seller has full voting power
over the Shares and the Oldco Shares, subject to no proxy, shareholders
agreement, voting trust or other agreement relating to the voting of any of
the Shares. Other than this Agreement, there is no agreement between Seller
and any Person with respect to the disposition of the Shares or the Oldco
Shares or otherwise relating to the Shares or the Oldco Shares.
(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;
(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).
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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 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 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.
(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.
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(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.
(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 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 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.
(12) 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.
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(14) Regulatory Approvals. Except for notification under the
Xxxx-Xxxxx-Xxxxxx 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.
(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 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 nondeductible 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, 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.
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(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 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 Xxxxxxx Xxxxx & Co. and NationsBanc
Xxxxxxxxxx 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.
(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 Xxxxxx X. X'Xxxxx, Xx. 00 XX 0000, 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 Xxxxxxx 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
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 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.
32
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 obtain from Deloitte & Touche (Sellers independent public
accountants) its consent to the inclusion of their audit report on the Financial
Statements in any public or private filings related to Buyers 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;
(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.
33
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
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 Xxxx 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 Indemnity Agreement attached hereto as Exhibit F.
(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 Xxxxx 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 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.
34
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 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.
1. CONDITIONS TO CLOSING
3.7 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 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 &
Xxxxxx 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 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.
35
(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
intercompany Taxes payable, will be deemed settled by the Seller and
contributed to the capital of the applicable Company, except that the
intercompany trade receivables of the Companies from the Seller for sales
of mattresses, box springs and foundations manufactured by the Companies
shall be paid in cash after the Closing Date in accordance with the terms
of the Mattress Supply Agreement, which is attached hereto as Exhibit D.
(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).
3.8 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 Xxxxxxxx & Xxxxx, 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.
(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.
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(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.
2. CLOSING
3.9 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 Xxxxxxxx & Xxxxx, 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);
(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;
(8) and such additional documents as Buyer may reasonably request.
3.10 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;
(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 Section4.2(g); and
(8) such additional documents as Seller may reasonably request.
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3.11 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.
3. SURVIVAL OF REPRESENTATIONS
AND WARRANTIES AND INDEMNIFICATION
3.12 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:
(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:
(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.
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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 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 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 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:
39
(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);
(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.
4. TERMINATION
3.13 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);
3.14 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.
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5. EMPLOYEES AND EMPLOYEE MATTERS
3.15 General. (a) From and after the Closing, subject to applicable law and
except as contemplated hereby, Buyer will honor, in accordance with their terms,
all Employee Plans that are sponsored solely by the Companies (and not by
Seller) (the "Company Plans"). 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
Xxxxxx-Xxxxxx Company Executive Income Continuation Plan and the Xxxxxx-Xxxxxx
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
Xxxxxx-Xxxxxx Company Severance Plan or to provide any comparable benefit.
Employees who remain employed by the Companies following the Closing will
receive credit for years of service with the Companies or predecessors prior to
the Closing for purposes of determining eligibility to participate and vesting
under employee benefit plans maintained by Buyer and its subsidiaries ("Buyer
Employee Plans"), and shall not be subject to pre-existing conditions or
actively-at-work exclusions under Buyer Employee Plans that provide medical or
dental welfare benefits. Medical and dental expenses incurred by such employees
on or before the Closing shall be taken into account under deductible,
coinsurance and maximum out-of-pocket provisions of Buyer Employee Plans. It is
understood and agreed that notwithstanding any of the foregoing, except as
otherwise expressly set forth in this Agreement, nothing herein shall require
Buyer to maintain any particular plan or arrangement following the Closing or
shall be construed to obligate Buyer to issue to employees of any Company, or
adopt any plans or arrangements to provide for the issuance of, any shares of
its capital stock or any options, warrants, stock appreciation rights or other
rights in respect of any shares of its capital stock or any securities
convertible into or exchangeable for such shares.
3.16 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) 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.
41
(d) The account balances to be credited for Employees under Buyer's 401(k)
Plan shall not be less than the account balances of Employees under Seller's
401(k) Plan as of the date on which the transfer is made. Effective on the date
of the transfer of Seller's 401(k) Plan assets, (i) Buyer and Buyer's 401(k)
Plan shall assume all liabilities in connection with the account balances of
Employees under Seller's 401(k) Plan, and (ii) Seller, its affiliates and
Seller's 401(k) Plan shall have no further liability with respect to the account
balances of Employees. Seller and its affiliates shall have no liability with
respect to Buyer's 401(k) Plan.
(e) Buyer shall request that the Internal Revenue Service issue a favorable
determination letter with respect to the qualification under Sections 401 and
501 of the Internal Revenue Code of Buyer's 401(k) Plan and its related trust.
Buyer shall make such changes to Buyer's 401(k) Plan as may be required by the
Internal Revenue Service in order for the Internal Revenue Service to issue a
favorable determination letter. Buyer shall provide Seller with a copy of the
determination letter received from the Internal Revenue Service with respect to
Buyer's 401(k) Plan as soon as the determination letter is received.
3.17 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.
3.18 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
3.19 Access to Records. For a period of five years after the Closing Date,
Buyer shall have and retain possession of all of the files, documents, papers,
agreements, records and correspondence of the Companies (collectively, the
"Records"). During such period, Buyer agrees to permit Seller and its
representatives to have reasonable access to, and the right to copy, such
Records, at the expense of Seller, during normal business hours upon reasonable
prior written notice. Upon termination of such five year period, Buyer agrees
not to destroy such Records unless Buyer gives Seller 30 days notice thereof,
during which period Seller may request that Buyer deliver such Records to
Seller, at Seller's expense.
3.20 Xxxx-Xxxxx-Xxxxxx 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 Xxxx-Xxxxx-Xxxxxx 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
3.21 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.
3.22 Public Announcements. The parties will consult with each other before
issuing any press releases or making any public statements (including to
employees of the Companies) with respect to this Agreement and the transactions
contemplated hereby, and will not issue any such press release or make any such
public statement without the consent of the other, unless such action is
required by law or by the New York Stock Exchange.
42
3.23 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.
3.24 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.
3.25 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.
3.26 Counterparts. For the convenience of the parties, any number of
counterparts of this Agreement may be executed by one or more parties hereto and
each such executed counterpart shall be deemed to be an original, but all of
which taken together shall constitute one and the same instrument.
3.27 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 Xxxxxx Place
Boston, MA 02116
Attention: Xxxxxxx Xxxxxx
Facsimile: (000) 000-0000
with a copy to:
Xxxxxxxx & Xxxxx
Citicorp Center
000 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxx X. Xxxx
Facsimile: (000) 000-0000
If to Seller: Xxxxxx-Xxxxxx Company
00000 Xxxx Xxxxx Xxxxxxx
Xxxxxxxx, Xxxxxxxx 00000
Attention: Xxxxxxx X. XxXxxxx
Facsimile: (000) 000-0000
with a copy to: McGuire, Woods, Battle & Xxxxxx LLP
Xxx Xxxxx Xxxxxx
Xxxxxxxx, Xxxxxxxx 00000
Attention: Xxxxxx X. Xxxxxx, Xx.
Facsimile: 000-000-0000
or to such other addresses or person as any party hereto may, from time to time,
designate in writing delivered in a like manner.
43
3.28 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.
3.29 Law Applicable. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Virginia.
3.30 Entire Agreement. This Agreement, its Schedules and Exhibits, the
Related Agreements, the additional written agreements called for herein and the
Confidentiality Agreement together contain the entire agreement between the
parties with respect to the subject matter hereof and supersede all prior
arrangements or understandings with respect thereto, whether written or oral.
The provisions of the Confidentiality Agreement with respect to the Evaluation
Material (as defined herein) shall terminate on Closing.
IN WITNESS WHEREOF, the parties have hereunto set their
hands.
SELLER:
Xxxxxx-Xxxxxx Company, a Virginia
corporation
By: /s/ Xxxxxxx X. XxXxxxx
----------------------------
Xxxxxxx X. XxXxxxx
Chairman; Chief Executive Officer
OLDCO:
Xxxxxx-Xxxxxx Associates, Inc., a
Virginia corporation
By: /s/ Xxxxxxx X. XxXxxxx
-----------------------------
Xxxxxxx X. XxXxxxx
President
BUYER:
MD Acquisition Corporation, a Virginia
corporation
By: /s/Xxxxxxx X. Xxxxxx
-----------------------------
Xxxxxxx X. Xxxxxx
Vice President
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