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EXHIBIT 10.38
AGREEMENT AND PLAN OF MERGER
AMONG
SLEEPMASTER L.L.C.,
SLEEPMASTER ACQUISITION CORP.
AND
PALM BEACH BEDDING COMPANY
FEBRUARY ___, 1998
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TABLE OF CONTENTS
Page No.
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ARTICLE I
DEFINITIONS
1.1. Accounting Terms................................................................................. 1
1.2. Singular and Plural Forms........................................................................ 1
1.3. Other Defined Terms.............................................................................. 2
ARTICLE II
THE MERGER; CLOSING; EFFECTIVE TIME
2.1. The Merger....................................................................................... 6
2.2. The Closing...................................................................................... 7
2.3. Effective Time................................................................................... 7
2.4. Other Actions.................................................................................... 7
2.5. Articles of Incorporation........................................................................ 8
2.6. By-Laws.......................................................................................... 8
2.7. Officers and Directors........................................................................... 8
2.8. Stockholder Representative....................................................................... 8
ARTICLE III
CONVERSION OF SHARES; MERGER CONSIDERATION
3.1. Conversion....................................................................................... 9
3.2. Adjustment to Purchase Price..................................................................... 11
3.3. IRB-Related Obligations.......................................................................... 13
3.4. Assignment of Serta Licenses..................................................................... 13
3.5. Books and Records................................................................................ 14
3.6. Tax Election; Preparation of PBBC Short Year Return; Allocation of Price......................... 14
ARTICLE IV
REPRESENTATIONS AND
WARRANTIES OF PBBC
4.1. Organization and Good Standing; Capitalization................................................... 15
4.2. Financial Statements............................................................................. 16
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TABLE OF CONTENTS
(CONT'D)
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4.3. Authorization; No Violation; Consents............................................................ 17
(a) Authorization and No Violation........................................................ 17
(b) Consents.............................................................................. 17
(c) Enforceable Agreement................................................................. 17
4.4. Properties of the Business....................................................................... 18
(a) Title to Transferred Assets and Related Matters....................................... 18
(b) Owned Real Property................................................................... 18
(c) Leased Real Property.................................................................. 19
(d) Personal Property Leases.............................................................. 19
4.5. Compliance with Laws............................................................................. 19
4.6. Litigation....................................................................................... 19
4.7. Absence of Certain Changes....................................................................... 20
4.8. Patents, Trademarks, Trade Names................................................................. 22
4.9. Contracts and Commitments........................................................................ 22
4.10. Compliance with Labor and Employment Laws........................................................ 24
4.11. Employee Benefit Plans........................................................................... 24
4.12. Environmental Matters............................................................................ 26
4.13. Licenses, Permits and Authorizations............................................................. 28
4.14. Taxes............................................................................................ 28
4.15. Sufficiency and Condition of Assets.............................................................. 30
4.16. Broker's or Finder's Fee......................................................................... 30
4.17. Undisclosed Liabilities.......................................................................... 30
4.18. Subsidiaries..................................................................................... 30
4.19. Notes and Accounts Receivable.................................................................... 30
4.20. Insurance........................................................................................ 31
4.21. Product Warranty................................................................................. 31
4.22. Certain Business Relationships with PBBC and its Affiliates...................................... 31
4.23. Disclosure....................................................................................... 32
4.24. Radon Gas Disclosure............................................................................. 32
4.25. Disclaimer of Other Representations and Warranties............................................... 32
4.26. Exhibits and Disclosure Schedules................................................................ 32
ARTICLE V
REPRESENTATIONS AND
WARRANTIES OF SUB
5.1. Organization and Good Standing................................................................... 33
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TABLE OF CONTENTS
(CONT'D)
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5.2. Authorization; No Violation; Consents............................................................ 33
(a) Authorization and No Violation........................................................ 33
(b) Consents.............................................................................. 34
5.3. Broker's or Finder's Fees........................................................................ 34
5.4. Litigation....................................................................................... 34
5.5. Sub's Sophistication............................................................................. 34
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
OF SLEEPMASTER
6.1. Organization and Good Standing................................................................... 35
6.2. Authorization; No Violation; Consents............................................................ 35
(a) Authorization and No Violation........................................................ 35
(b) Consents.............................................................................. 36
6.3. Broker's or Finder's Fees........................................................................ 36
6.4. Litigation....................................................................................... 36
6.5. Purchase for Investment.......................................................................... 36
6.6. Sleepmaster's Sophistication..................................................................... 36
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS
OF SUB AND SLEEPMASTER
7.1. Representations and Warranties True; Obligations Performed....................................... 37
7.2. Officer's Certificate............................................................................ 37
7.3. No Material Changes.............................................................................. 37
7.4. Performance...................................................................................... 37
7.5. Escrow Agreements................................................................................ 37
7.6. Shareholders Agreement........................................................................... 38
7.7. Consents......................................................................................... 38
7.8. Serta Standard License Agreement................................................................. 38
7.9. Financing........................................................................................ 38
7.10. Dissenters Rights................................................................................ 38
7.11. No Proceedings................................................................................... 38
7.12. Deliveries....................................................................................... 38
7.13. Consummation..................................................................................... 38
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TABLE OF CONTENTS
(CONT'D)
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ARTICLE VIII
CONDITIONS TO THE
OBLIGATIONS OF PBBC
8.1. Representations and Warranties True; Obligations Performed....................................... 39
8.2. Officer's Certificate............................................................................ 39
8.3. Performance...................................................................................... 39
8.4. Consents......................................................................................... 39
8.5. Employment Agreements............................................................................ 40
8.6. Escrow Agreements................................................................................ 40
8.7. No Proceedings................................................................................... 40
8.8. Deliveries....................................................................................... 40
8.9. Consummation..................................................................................... 40
ARTICLE IX
DELIVERIES BY PBBC
AT THE CLOSING
9.1. Consents......................................................................................... 40
9.2. Opinion of Counsel............................................................................... 40
9.3. Certificate...................................................................................... 41
9.4. Employment Agreements............................................................................ 41
9.5. Escrow Agreements................................................................................ 41
9.6. Termination and Waiver Agreement................................................................. 41
9.7. Secretary's Certificates......................................................................... 41
9.8. Other............................................................................................ 41
ARTICLE X
DELIVERIES BY SLEEPMASTER
AND SUB AT THE CLOSING
10.1. Payment of the Closing Merger Consideration...................................................... 41
10.2. Opinion of Counsel............................................................................... 41
10.3. Consents......................................................................................... 42
10.4. Officer's Certificate............................................................................ 42
10.5. Secretary's Certificate.......................................................................... 42
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10.6. Manager's Certificate............................................................................ 42
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TABLE OF CONTENTS
(CONT'D)
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10.7. Written Offer to holders of Dissenting Shares.................................................... 42
10.8. Other............................................................................................ 42
10.9. Escrow Agreements................................................................................ 42
ARTICLE XI
COVENANTS OF PBBC, SLEEPMASTER AND
SUB PRIOR TO CLOSING
11.1. General.......................................................................................... 43
11.2. Provide Access to Information.................................................................... 43
11.3. Conduct Prior to Closing Date.................................................................... 43
11.4. Prohibited Transactions Prior to Closing Date.................................................... 43
11.5. Confidentiality.................................................................................. 44
11.6. Notices and Consents............................................................................. 44
11.7. Notice of Developments........................................................................... 44
11.8. Exclusivity...................................................................................... 45
11.9. Permitted Dividends and Other Actions............................................................ 45
ARTICLE XII
SURVIVAL
12.1. Survival......................................................................................... 46
ARTICLE XIII
INDEMNIFICATION FROM THE
INDEMNITY ESCROW
ARTICLE XIV
TERMINATION
14.1. Termination...................................................................................... 50
14.2. Effect of Termination............................................................................ 51
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TABLE OF CONTENTS
(CONT'D)
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ARTICLE XV
MISCELLANEOUS PROVISIONS
15.1. Public Announcements............................................................................ 52
15.2. Rights to Third Parties......................................................................... 52
15.3. Notices......................................................................................... 52
15.4. Parties in Interest............................................................................. 54
15.5. Entire Agreement; Amendment; Waiver............................................................. 54
15.6. Headings........................................................................................ 54
15.7. Counterparts.................................................................................... 54
15.8. Governing Law................................................................................... 54
15.9. Severability.................................................................................... 55
15.10. Expenses........................................................................................ 55
15.11. References; Exhibits and Schedules.............................................................. 55
15.12. Specific Performance............................................................................ 55
15.13. Waiver of Jury Trial............................................................................ 55
15.14. Time is of the Essence.......................................................................... 56
15.15. Construction.................................................................................... 56
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made, entered
into and effective as of the ___ day of February, 1998 by and among SLEEPMASTER
L.L.C., a New Jersey limited liability company ("Sleepmaster"), SLEEPMASTER
ACQUISITION CORP., a Florida corporation ("Sub") and a wholly-owned subsidiary
of Sleepmaster, and PALM BEACH BEDDING COMPANY, a Florida corporation ("PBBC").
Sleepmaster, Sub and PBBC are collectively referred to herein as the "Parties"
and singularly referred to herein as a "Party." This Agreement with be joined in
at the Closing by ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, Esq., as "Representative," provided the
Representative obtains the execution, by each of the Company Stockholders (other
than holders of Dissenting Shares), of that certain "Power of Attorney and
Appointment of Representative," such ▇▇▇▇▇▇ and consent by ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇,
Esq. being solely for the purpose of evidencing his agreement act as
Representative, as provided for herein, unless otherwise limited and as
otherwise provided in said "Power of Attorney and Appointment of
Representative."
RECITALS
WHEREAS, Sleepmaster is engaged in the business of manufacturing and
distributing mattresses and bedding products under the Serta brand and otherwise
in the northeastern United States; and
WHEREAS, PBBC is engaged in the business of manufacturing and
distributing sleep mattresses under the Serta brand and otherwise in the State
of Florida (the "Business"); and
WHEREAS, the Parties desire to enter into this Agreement with each
other under the terms of which Sub will merge with and into PBBC, and under
which PBBC will survive and become a wholly-owned subsidiary of Sleepmaster.
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties and covenants which are made and to be performed by
the Parties pursuant to this Agreement, Sleepmaster, Sub and PBBC hereby agree
as follows:
ARTICLE I
DEFINITIONS
1.1. Accounting Terms. All accounting terms not specifically defined in this
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Agreement shall be construed in accordance with GAAP (as hereinafter defined)
consistently applied.
1.2. Singular and Plural Forms. The use herein of the singular form
also denotes the plural form, and the use of the plural form herein also denotes
the singular form, as in each case the context may require.
1.3. Other Defined Terms. The terms listed below in this Section shall
have the following respective meanings in this Agreement:
"Action" means any action, suit, claim, investigation, order,
judgment, decree, ruling, charge or legal, administrative or
arbitration proceeding.
"Affiliate" of an entity means any entity that directly or
indirectly controls, or is controlled by, or is under common control
with such entity and, with respect to any individual, such
individual's spouse or any person within the first degree of kinship
of such individual.
"Aggregate Company Common" means (i) the aggregate number of
issued and outstanding shares of Company Common held by all holders
thereof immediately prior to the Effective Time who have not exercised
their dissenters' rights pursuant to the Florida Law, plus (ii) the
aggregate number of Dissenting Shares.
"Cash per Common Share" means the Closing Merger
Consideration divided by the Aggregate Company Common.
"Change of Control Payments" means all payments, other than
payment of the Closing Merger Consideration, to which any officer or
director of PBBC or any Affiliate of PBBC is entitled to receive from
PBBC as a result of the transaction contemplated hereby.
"Closing Merger Consideration" has the meaning given it in
Section 3.1(a).
"Code" means the Internal Revenue Code of 1986, as amended,
or any successor federal income tax code.
"Company" means PBBC before the Effective Time of the Merger.
"Company Common" means PBBC's Common Stock, par value $5.00
per share, prior to the Effective Time.
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"Company Expenses" shall mean the aggregate amount of the
fees and expenses of the Company incurred and unpaid at or prior to
the Effective Time by the Company in connection with this Agreement
which inure directly or indirectly to the benefit of the Company
Stockholders and the consummation of the transactions contemplated
hereby, including, without limitation, any investment banking,
brokers, finders and legal fees, accounting, and all other similar
charges.
"Company Stockholders" mean the holders of the Company
Common, prior to the Effective Time.
"Debt" shall mean all indebtedness of PBBC including without
limitation (i) all obligations of PBBC for borrowed money or evidenced
by bonds, debentures, notes, letters of credit or other similar
instruments, (ii) obligations to pay the deferred purchase price of
property or services, except accounts payable arising in the Ordinary
Course of Business, (iii) all debt of others guaranteed or otherwise
supported by PBBC, or secured by a lien on any of the assets of PBBC,
(iv) any Change of Control Payments, and (v) any interest, principal,
prepayment penalty, fees or expenses in respect of those items listed
in clauses (i) through (iv) of this defined term.
"Dissenting Share" means any Company Common with respect to
which any Company Stockholder, who or which, at the Effective Time,
has exercised his or its dissenters' rights under Sections 607.1302
and 607.1320 of the Florida Business Corporation Act, holds of record.
"Dollars" or "$" means dollars ($) of the United States of
America.
"Escrow Agent" shall mean The First National Bank of Chicago,
a national banking association.
"Excluded Assets" has the meaning given it in Section 11.9.
"Excluded Real Estate" means the following parcels of land,
with improvements thereon, located outside of the municipal
incorporated boundaries of the City of Riviera Beach, Florida, at the
following post office addresses, the legal descriptions of such
parcels being described on the attached Exhibit 1.3: (1) ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇; (2) ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇,
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇; (3) ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇; and (4) ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇▇▇.
"Florida Law" means the Florida Business Corporation Act.
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"First Union" means First Union National Bank of Florida.
"GAAP" shall mean United States generally accepted accounting
principles, as in effect from time to time, applied on a basis
consistent with prior periods.
"Governmental Entity" means any court, arbitral tribunal,
administrative agency or commission or other governmental or other
regulatory authority or agency.
"Intangible Property Rights" means all of the following
utilized by and owned or licensed to PBBC in connection with its
operation of the Business on or after December 31,
1996, irrespective of where any of the same were issued, are pending
or exist: United States and foreign patents of any description, and
applications therefor, registrations of trademark and of other marks,
registrations of trade names, labels or other trade rights, registered
user entries, and applications for any such registration or entries;
United States and foreign copyrights, copyright registrations and
applications therefor; United States and foreign trademarks and other
marks, corporate names, trade names, business names, labels and other
trade rights, whether or not registered; inventions, discoveries,
improvements, designs, processes, formulae, technology, know-how,
trade secrets, confidential information and technical information,
whether patented, not patented, patentable or not patentable; and shop
rights and other rights relating in whole or in part to any of the
foregoing.
"IRB Documents" means the following documents comprised
within the IRB-Related Obligations: (i) the Loan Agreement (the "Loan
Agreement"), dated as of April 1, 1996, between PBBC and Palm Beach
County, Florida relating to $7,650,000 Palm Beach County, Florida
Variable Rate Demand Industrial Development Revenue Bonds (Palm Beach
Bedding Company Project, Series 1996) (the "IRB's") originally
outstanding in the original principal amount of $7,650,000; (ii) the
Letter of Credit and Reimbursement Agreement, dated as of April 1,
1996, between PBBC and First Union National Bank of Florida ("First
Union"); (iii) the Mortgage and Security Agreement, dated April 1,
1996, between PBBC and First Union; (iv) the Remarketing Agreement,
dated April 1, 1996, between PBBC and First Union; and (v) the Pledge
Agreement, dated April 1, 1996, between PBBC and First Union.
"IRB Issuer" shall mean Palm Beach County, Florida.
"IRB-Related Obligations" means PBBC's obligations and
indebtedness under the Loan Agreement and the IRB Documents.
"IRS" means the Internal Revenue Service.
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"Knowledge" when used as a qualification to any
representations or warranties made by PBBC, shall mean the actual
knowledge of ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇.
"Lien" or "Liens" shall mean with respect to any asset any
mortgage, pledge, security interest, conditional sale or other title
retention agreement, encumbrance, lien, easement, claim, right,
covenant, restriction, right of way, warrant, option or charge of any
kind in respect of such asset, including without limitation any liens
to secure the payment or collection of Taxes due and payable, but
excluding from the definition of "Lien" or "Liens" (i) all matters
shown on the status of title report with respect to the Facility, in
the ALTA Form Title insurance policy, dated April 2, 1996, and update
thereto, dated February __, 1998 and included in Schedule 4.4(b)
(collectively the "Title Policy"), (ii) the IRB-Related Obligations,
(iii) any liens to secure the payment or collection of Taxes not yet
due and payable and (iv) any such matter arising in the Ordinary
Course of Business of PBBC and (a) not incurred in connection with the
borrowing of money, (b) which does not materially
interfere with the Business as currently conducted and (c) which did
not arise from a tort or breach of contract.
"Majority Holders" means Company Stockholders who
collectively hold more than 50% of the Aggregate Company Common at or
immediately prior to the Effective Time.
Any reference to any event, change or effect having a
"Material Adverse Effect" means with respect to PBBC, such event,
change or effect that is materially adverse to the consolidated
condition (financial or otherwise), properties, assets (including
intangible assets), liabilities (including contingent liabilities),
business, results of operations or prospects of PBBC.
"Net Working Capital" shall mean the excess of PBBC's current
assets at the Effective Time over PBBC's current liabilities at the
Effective Time, as determined in accordance with GAAP; provided, that
for purposes of determining Net Working Capital, (a) PBBC's current
assets shall not include (i) any Unrestricted Cash, (ii) any prepaid
items relating to the Company's note to Serta Inc. for amounts due to
Serta Inc. ▇▇▇▇▇▇ ▇▇▇▇, (▇▇▇) any of the Excluded Assets at the
Effective Time or (iv) the Project Account Cash Equivalents, and (b)
PBBC's current liabilities shall not include (i) the current portion
(those payments due and payable by PBBC within 12 months of the
Closing Date)of principal and interest due and payable with respect to
the IRB-Related Obligations or (ii) any portion of the aforesaid note
to Serta Inc. coming due during calendar year 1998 after the Effective
Time.
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"Non-Dissenting Ratio" shall mean a fraction, the numerator
of which shall be the aggregate number of issued and outstanding
shares of Company Common held by the Company Stockholders immediately
prior to the Effective Time who have not exercised their dissenters'
rights pursuant to the Florida Law and the denominator of which shall
be the Aggregate Company Common.
"Ordinary Course of Business" means the ordinary course of
the Business consistent with past custom and practice as of December
31, 1996 (including with respect to quantity and frequency).
"Person" means an individual, a partnership, a corporation, a
limited liability company, an association, a joint stock company, a
trust, a joint venture, an unincorporated organization or a
Governmental Entity.
"Pro Rata Escrow Share" has the meaning given it in Section
3.1(d).
"Pro Rata Portion" has the meaning given it in Section
3.1(b).
"Project Account" means the Project Account at First Union
that holds the remaining portion of the proceeds of the loan made by
Palm Beach County to PBBC in connection with the IRB-Related
Obligations, together with all amounts earned thereon.
"Project Account Cash Equivalents" means the cash, cash
equivalents, certificates of deposit and stock or bond investments of
PBBC in the Project Account.
"Surviving Corporation" means PBBC at and after the
Effective Time of the Merger.
Surviving Pre-Closing Covenants means those covenants given
in Sections 11.5(a), 11.8 and 11.9 of this Agreement.
"Tax" means any taxes, fees, charges, levies, excises,
duties, or assessments of any kind whatsoever, including, without
limitation, income, gross receipts, ad valorem, premium, excise, real
property, personal property, windfall profit, sales, use, transfer,
licensing, import, export, withholding, employment, payroll, social
security, medicare, environmental (under Code Sec. 59A), customs
duties, value added, alternative or add-on minimum estimated and
franchise taxes, together with additions to tax or additional amounts,
interests and penalties relating thereto that may be imposed on or
with respect to PBBC with respect to all taxable periods ending on or
prior to the Closing Date;
"Tax Returns" mean all returns, reports, declarations and
forms, including
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any schedule or attachment thereto, and any amendment thereof,
required to be filed in respect of any Taxes.
"Transferred Assets" mean all of the assets of PBBC as of the
Closing Date, less and excepting the Excluded Assets (as defined in
Section 11.9).
"Unrestricted Cash" means all cash and cash equivalents of
PBBC (including, but not limited to, all certificates of deposit and
other stock or bond investments of PBBC) other than Project Account
Cash Equivalents and any proceeds from the sale or other transfer of
any Excluded Assets.
Other capitalized terms used herein shall have their respective meanings
accorded them throughout this Agreement.
ARTICLE II
THE MERGER; CLOSING; EFFECTIVE TIME
2.1. The Merger. Subject to the terms and conditions of this
Agreement, at the Effective Time (as defined in Section 2.3) Sub shall be merged
with and into PBBC and the separate corporate existence of Sub shall thereupon
cease (the "Merger"). PBBC shall be the surviving corporation in the Merger
(sometimes hereinafter referred to as the "Surviving Corporation") and shall
continue to be governed by the laws of the State of Florida. The separate
corporate existence of PBBC with all its rights, privileges, powers, immunities,
purposes and franchises shall continue unaffected by the Merger. The Merger
shall have effects specified in the Florida Law.
2.2. The Closing. The closing of the Merger (the "Closing") shall take
place (i) at the offices of ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, Esq., ▇▇▇▇▇▇, ▇▇▇▇▇▇ & Heffling,
P.A., 501 South Flagler Drive, Flagler Center, ▇▇▇▇▇ #▇▇▇, ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇,
▇▇▇▇▇▇▇ ▇▇▇▇▇, counsel to PBBC, or such other place as the Parties mutually
agree, commencing at 10:00 a.m. local time on the later of (i) March 2, 1998,
and (ii) the first business day immediately following the day on which the last
of the conditions set forth in Articles VII and VIII is fulfilled or waived in
accordance with this Agreement (the "Closing Date"); provided, that the Closing
Date shall be no later than March 16, 1998. Closing shall be consummated by the
execution and acknowledgment by PBBC and Sub of the Florida Articles (as defined
in Section 2.3).
2.3. Effective Time. If all the conditions to the Merger set forth in
Articles VII and VIII shall have been fulfilled or waived in accordance herewith
and this Agreement shall not have been terminated in accordance with Article
XIV, on the Closing Date the
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Parties shall cause the Articles of Merger (the "Florida Articles"),
substantially in the form of Exhibit A and meeting the requirements of Section
607.1105 of the Florida Law, to be properly executed and filed in accordance
with such Section. The Merger shall become effective on the date and at the time
(the "Effective Time") at which the Florida Articles have been filed in
accordance with the Florida Law, which shall be the date of Closing. The Merger
shall have the effect set forth in the Florida Law. Prior to the Closing Date,
to the extent permitted by applicable law, the Parties shall cause the Florida
Articles to be pre- filed with the appropriate Governmental Entity for review
and comment to ensure that each document will be accepted for filing on the
Closing Date. At the Closing, (i) PBBC will deliver to the Sub and Sleepmaster
the various certificates, instruments and documents referred to in Article IX,
(ii) the Sub and Sleepmaster will deliver to PBBC the various certificates,
instruments and documents referred to in Article X, and (iii) the Sub and
Sleepmaster will cause the Surviving Corporation to deliver the Closing Merger
Consideration to the Representative and the Escrow Agent in the manner provided
in Article III.
2.4. Other Actions. If, at any time after the Effective Time, the
Surviving Corporation shall reasonably determine that any deeds, bills of sale,
assignments, assurances or any other actions or things are necessary or
desirable to vest, perfect or confirm of record or otherwise in the Surviving
Corporation its right, title or interest in, to or under any of the rights,
properties or assets of PBBC or Sub acquired or to be acquired by the Surviving
Corporation as a result of, or in connection with, the Merger (excluding for all
purposes the "Excluded Assets") or otherwise to carry out this Agreement, the
officers and directors of the Surviving Corporation shall be authorized to
execute and deliver, in the name and on behalf of PBBC or Sub or otherwise, all
such deeds, bills of sale, assignments and assurances and to take and do, in the
name and on behalf of PBBC or Sub or otherwise, all such other actions and
things as may be necessary or desirable to vest, perfect or confirm any and all
right, title and interest in, to and under such rights, properties or assets in
the Surviving Corporation or otherwise to carry out this Agreement.
2.5. Articles of Incorporation. The Articles of Incorporation of PBBC
as in effect immediately prior to the Effective Time shall be the Articles of
Incorporation of the Surviving Corporation, without any modification or
amendment in the Merger, unless and until amended after the Effective Time, in
accordance with its terms and the Florida Law.
2.6. By-Laws. The By-Laws of PBBC as in effect immediately prior to
the Effective Time shall be the By-Laws of the Surviving Corporation without any
modification or amendment in the Merger, unless and until amended after the
Effective Time, in accordance with their terms, the Articles of Incorporation of
the Surviving Corporation, and the Florida Law.
2.7. Officers and Directors. The officers of PBBC immediately prior to
the Effective Time shall be the officers of the Surviving Corporation until
their respective
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successors are duly appointed. The directors of Sub immediately prior to the
Effective Time shall be the directors of the Surviving Corporation until their
successors are duly elected and qualified.
2.8. Stockholder Representative. To facilitate the consummation of the
transactions contemplated by this Agreement, the Company will request the
Company Stockholders, in conjunction with their vote upon the merger
contemplated by this Agreement, to designate, appoint and empower, ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, Esq., or such other individual Person they may choose, as the sole and
exclusive representative (the "Representative") of the Company Stockholders, to
make all decisions and determinations on behalf of the Company Stockholders that
the Representative may deem necessary or appropriate to accomplish the intent of
this Agreement, pursuant to a Power of Attorney and Appointment of
Representative, the form of which is annexed hereto as Exhibit B (the "Power of
Attorney"). Whenever the Representative or any direct or indirect successor to
the Representative resigns or is removed, a new Representative shall be
appointed by a vote of the Majority Holders, such appointment to become
effective upon the written acceptance by the new Representative. Until such
appointment, the Majority Holders may act for and bind all of the Company
Stockholders. If PBBC obtains the execution of the foregoing Power of Attorney
from each of the Company Stockholders, Sleepmaster acknowledges and agrees that
the Representative, in its capacity as such with respect to the Company
Stockholders, shall not be liable to Sleepmaster or Sub or any Person affiliated
or associated therewith, other than for gross negligence, acting in bad faith or
for reckless or intentional misconduct.
ARTICLE III
CONVERSION OF SHARES;
MERGER CONSIDERATION
3.1. Conversion.
(a) Subject to the adjustments required by Section 3.2, the
"Closing Merger Consideration" shall consist of:
(i) Thirty-Two Million Dollars ($32,000,000) (the "Fixed
Closing Merger Consideration"), plus
(ii) the Unrestricted Cash as of the opening of business on
the Closing Date (less the amount of checks written or drafts drawn on
PBBC's accounts which are in transit or have yet to clear, and plus
any funds deposited but not credited to PBBC's accounts as of such
time) (the "Variable Closing Merger Consideration").
18
(b) The Closing Merger Consideration shall be allocated among
the holders of the shares of Company Common as set forth in this Section 3.1(b).
At the Effective Time, by virtue of the Merger and without any action on the
part of the holders of the shares of Company Common, each share of Company
Common (other than any Dissenting Shares) issued and outstanding immediately
prior to the Effective Time shall be converted into the right to receive the
Cash per Common Share, and each holder of shares of Company Common (other than
holders of Dissenting Shares) shall be entitled to receive a portion (the "Pro
Rata Portion") of the Closing Merger Consideration equal to (i) the Cash per
Common Share, multiplied by (ii) the aggregate number of shares of Company
Common (other than Dissenting Shares) held by such holder immediately prior to
the Effective Time.
(c) Immediately prior to the Effective Time, Sleepmaster will
pay: (1) to the Representative, by wire transfer of immediately available funds,
an amount (the "Funding Amount") equal to (i) the Closing Merger Consideration,
determined prior to giving effect to the adjustments provided for in Section
3.2, minus (ii) the product of (x) the number of Dissenting Shares and (y) the
Cash per Common Share, minus (iii) One Million Dollars ($1,000,000) (the
"Adjustment Escrow Amount"), minus (iv) Two Million Eight Hundred Thousand
Dollars ($2,800,000) (the "Indemnity Escrow Amount," and, together with the
Adjustment Escrow Amount, the "Escrow Amounts"), to be held in two separate,
segregated, interest-bearing escrow accounts (the "Adjustment Escrow" and the
"Indemnity Escrow," respectively), and (2) to the Escrow Agent, by wire transfer
of immediately available funds, an amount equal to the sum of the Escrow
Amounts. Upon payment by Sleepmaster to the Representative of the Funding Amount
and to the Escrow Agent of the Escrow Amounts, in accordance with this Section
3.1(c), Sleepmaster and the Surviving Corporation shall be deemed to have
satisfied their obligations to make payments in respect of the Closing Merger
Consideration other than (A) Sleepmaster's or the Surviving Corporation's
obligation to make payments required by Section 3.2, if any, and (B) the
obligation of Sleepmaster or the Surviving Corporation under or pursuant to the
Florida Law, to make payments to the holders of the Dissenting Shares following
the Effective Time.
(d) After the Effective Time, each holder of an outstanding
certificate or certificates evidencing shares of Company Common (the
"Certificates"), other than any holder of Dissenting Shares, upon surrender of
such Certificates to the Representative shall be entitled to receive an amount,
without interest, equal to the Pro Rata Portion (subject to the provisions of
Section 3.2) allocable to such holder in exchange for the Certificates, less and
except each holder's pro rata share ("Pro Rata Escrow Share") of the Escrow
Amounts determined by dividing (A) the number of shares of Company Common held
by such holder (exclusive of Dissenting Shares) by (B) the Aggregate Company
Common (exclusive of Dissenting Shares), and then multiplying such fraction and
the Escrow Amounts. Pending such surrender and exchange, a holder's Certificate
19
or Certificates shall be deemed for all purposes (other than the exchange
contemplated by this Section 3.1) to evidence such holder's Pro Rata Portion,
less and except such holder's Pro Rata Escrow Share, which Pro Rata Escrow Share
shall be retained in escrow and be distributed pursuant to terms of Article
XIII.
(e) At the Effective Time, the Surviving Corporation shall,
pursuant to Florida Law, deliver to each holder of Dissenting Shares a written
offer to pay to such holder of Dissenting Shares, an amount deemed by the
Surviving Corporation to constitute the fair value of the aggregate of such
holder's Dissenting Shares owned at the Effective Time. The Surviving
Corporation's notice and offer shall be accompanied by a balance sheet of PBBC
as of the latest available date that is not more than 12 months before the
offer, and by a profit and loss statement of PBBC for the 12-month period ending
on the date of the accompanying balance sheet. At and as of the Effective Time,
each Dissenting Share shall be converted into the right to receive payment from
the Surviving Corporation with respect thereto in accordance with the provisions
of the Florida Law. Notwithstanding any other provision of this Agreement, the
obligations created by this Section 3.1(e) shall survive the Closing until
fulfilled.
(f) At the Effective Time, all shares of the capital stock of
PBBC which are held in PBBC's treasury shall be canceled and retired, without
the payment of any consideration therefor.
(g) From and after the Effective Time, there will be no
transfers of Company Common on the stock transfer book of the Surviving
Corporation.
(h) At the Effective Time, each share of Common Stock of Sub
issued and outstanding immediately prior to the Effective Time shall be
converted into one share of Common Stock, par value $5.00 per share, of the
Surviving Corporation (the "Surviving Corporation Common").
3.2. Adjustment to Purchase Price.
(a) The Closing Merger Consideration shall be adjusted by
reference to the Closing Date Balance Sheet as finally determined pursuant to
this Section. Immediately prior to the Closing Date, PBBC will perform a
physical inventory of PBBC; provided, that Sleepmaster and its representatives
may participate in any such physical inventory. As soon as reasonably
practicable after the Closing Date (but in no event later than 60 days following
the Closing Date), the Surviving Corporation and Sleepmaster will prepare and
deliver to the Representative a statement of PBBC's Net Working Capital as at
the opening of business on the Closing Date determined on a pro forma basis as
though the Parties had not consummated the transactions contemplated by this
Agreement (the "Draft Closing Date Balance Sheet"). The Surviving Corporation
and Sleepmaster will prepare the Draft Closing Date Balance Sheet in accordance
with GAAP applied on a basis consistent with the preparation of the most recent
audited balance sheet included within the Historical Balance Sheets (as defined
in Section 4.2)
20
of PBBC; provided, that (i) the assets, liabilities, gains, losses, revenues and
expenses in interim periods or as of dates other than year-end (which normally
are determined through the application of so-called interim accounting
conventions or procedures) will be determined, for purposes of the Draft Closing
Date Balance Sheet, through full application of the procedures used in preparing
the most recent audited balance sheet included within the Historical Balance
Sheets; (ii) a reserve for doubtful accounts receivable of Forty Thousand
Dollars ($40,000) shall be established and agreed to for the Draft Closing
Balance Sheet (the "Accounts Receivable Reserve"); (iii) all Company Expenses
shall be accrued for and shall be recorded on the Draft Closing Balance Sheet;
and (iv) all known arithmetic errors shall be taken into account in the
preparation of the Draft Closing Balance Sheet. With respect to the preparation
of the Draft Closing Balance Sheet, no change in accounting principles shall be
made from those utilized in preparing the Historical Balance Sheets, including,
without limitation, with respect to the nature of accounts, or the determination
of the level of reserves or level of accruals. For purposes of the preceding
sentence, a "change in accounting principles" includes all changes in accounting
principles, policies, practices, procedures or methodologies with respect to
financial statements, their classification or their display, as well as all
changes in practices, methods, conventions or assumptions (unless required by
objective changes in underlying events) utilized in making accounting estimates.
All effects of purchase accounting principles (A.P.B. 16 and/or 17 and EITF
88-16 and FASB 109) and all adjustments for transaction expenses in connection
with this Agreement shall be excluded for purposes of preparation of the Draft
Closing Balance Sheet. The Surviving Corporation and Sleepmaster will make the
work papers and backup materials used in preparing the Draft Closing Date
Balance Sheet available to the Representative and his accountants and other
representatives at reasonable times and upon reasonable notice at any time
during (A) the review by the Representative of the Draft Closing Date Balance
Sheet, and (B) the resolution by the Surviving Corporation, Sleepmaster and the
Representative of any objections thereto.
(b) The Representative will review the Draft Closing Date
Balance Sheet and, in no event later than 30 days following its receipt of the
Draft Closing Date Balance Sheet, deliver to the Surviving Corporation and
Sleepmaster a statement setting forth in detail its objections and
qualifications to any items on the Draft Closing Date Balance Sheet. If the
Representative delivers such a statement within the required time, the
Representative, Sleepmaster and the Surviving Corporation shall promptly
negotiate in good faith to resolve the issue or issues which form the basis for
such objections and qualifications, and will revise the Draft Closing Balance
Sheet to incorporate all final resolutions so reached that require such
incorporation. If the Representative, Sleepmaster and the Surviving Corporation
are unable to agree on the final resolution of such of the Representative's
objections and qualifications within 30 days after delivery of the
Representative's objections and qualifications to the Surviving Corporation, the
Representative, Sleepmaster and the Surviving Corporation will refer
21
such dispute to another firm of independent certified public accountants
mutually acceptable to the Representative, Sleepmaster and the Surviving
Corporation to resolve any remaining objections and qualifications and for
determination of an appropriate adjustment to the Draft Closing Date Balance
Sheet to resolve the issues raised by the Representative's statement of
objections and qualifications (the "Outside Accountant"). If the Representative,
Sleepmaster and the Surviving Corporation are unable to agree on the choice of
an Outside Accountant firm, they will select a nationally-recognized accounting
firm by lot (after excluding their respective regular outside accounting firms).
The determination of any Outside Accountant firm so selected will be set forth
in writing and will be conclusive and binding upon the Representative,
Sleepmaster and the Surviving Corporation. The Company Stockholders shall pay
the fees, expenses and costs of the Representative's accountant, and Sleepmaster
and the Company Shareholders as a group will each pay one half of the fees,
expenses and costs of the Outside Accountant firm for the services described
herein. The Representative, Sleepmaster and the Surviving Corporation will
revise the Draft Closing Date Balance Sheet as appropriate to reflect the
resolution of any objections and qualifications thereto pursuant to this
Section. The "Closing Date Balance Sheet" shall mean the Draft Closing Date
Balance Sheet together with any revisions thereto made pursuant to this Section.
(c) The Closing Merger Consideration shall be adjusted by an
amount equal to the amount by which the Net Working Capital, as shown on the
Closing Date Balance Sheet differs from Three Million Dollars ($3,000,000) (the
"Target"). If Net Working Capital is less than the Target, the Closing Merger
Consideration shall be adjusted downward by an amount equal to the difference,
up to a limit of One Million Dollars ($1,000,000) (the "Deficiency"); and if Net
Working Capital is greater than the Target, the Closing Merger Consideration
shall be adjusted upward by an amount equal to the difference, up to a limit of
One Million Dollars ($1,000,000) (the "Excess"). In no event shall the
Deficiency or the Excess exceed One Million Dollars ($1,000,000) in amount.
Within fifteen (15) days following the determination of the Closing Data Balance
Sheet, (i) if payment of an Excess shall be due, Sleepmaster will cause the
Surviving Corporation to pay, or shall otherwise pay itself, to the
Representative, on behalf of and for distribution to the Company Stockholders
who have not exercised their dissenters' rights under the Florida Law, an amount
equal to the Excess, multiplied by the Non-Dissenting Ratio, and (ii) whether
there shall be an Excess or a Deficiency, the Surviving Corporation, Sleepmaster
and the Representative will simultaneously issue and execute written
instructions to the Escrow Agent such that:
(i) if there is an Excess, the amount equal to the
Adjustment Escrow Amount, together with all interest earned on such
amount, shall be released by the Escrow Agent from the Adjustment
Escrow to the Representative for distribution to the Company
Stockholders other than the holders of Dissenting Shares; and
(ii) if there is a Deficiency, the amount equal to the
Deficiency
22
times the Non-Dissenting Ratio, together with all interest earned on
such amount, shall be released by the Escrow Agent from the Adjustment
Escrow to the Surviving Corporation, and the balance of the Adjustment
Escrow Amount shall be paid by the Escrow Agent from the Adjustment
Escrow to the Representative for distribution to the Company
Stockholders other than the holders of Dissenting Shares.
Notwithstanding the foregoing, no payment of an Excess or Deficiency shall be
made unless the amount of such payment exceeds One Hundred Thousand Dollars
($100,000), in which case the amount of such Excess or Deficiency (including the
$100,000 threshold amount) shall be made in accordance with the provisions of
this Section. Notwithstanding other provisions of this Agreement, the
obligations contained in this Section 3.2 shall survive the Closing until
fulfilled.
3.3. IRB-Related Obligations.
The Parties acknowledge and agree that the transactions
contemplated by this Agreement will require Sleepmaster and Sub to obtain the
consent of certain third parties under the IRB Documents. Accordingly,
Sleepmaster and Sub enter into this Agreement with full knowledge of the terms,
provisions and conditions of the IRB Documents. If, as a result of the Merger,
the IRB- Related Obligations are accelerated in accordance with their terms, the
Closing Merger Consideration shall not be increased or decreased by any amounts
payable under the IRB-Related Obligations, including any prepayment penalties
associated with fully discharging all obligations under the IRB- Related
Obligations and any costs, expenses and additional interest imposed by the
holder associated with fully discharging all obligations under the IRB-Related
Obligations prior to the stated maturity thereof. Sleepmaster acknowledges that
all fees, costs, expenses, and charges which may be incurred or assessed by
First Union in connection with their review and approval of this Merger
Agreement and its impact upon the IRB-Related Obligations shall be the sole
obligation of the Surviving Corporation, without any decrease in the Closing
Merger Consideration and without any impact upon nor inclusion within the
calculation of "Net Working Capital" under Section 3.2 of this Agreement.
3.4. Assignment of Serta Licenses. Sleepmaster and the Sub acknowledge
that the consummation of the Merger contemplated by this Agreement will require
the consent of Serta, Inc., a Delaware corporation, under that certain Standard
License Agreement, dated November 4, 1989 (the "Standard License Agreement") in
order for the transaction to be consummated. Prior to the Closing, at its
expense, PBBC will use commercially reasonable efforts to obtain, and will
refrain from any act that would not permit to be given, the consent of Serta to
reissue PBBC's entire right, title and interest in the Serta License to the
Surviving Corporation, and PBBC shall provide Sub with any and all reasonable
assistance that Sub may require to permit the Surviving Corporation to enter
into a Standard License Agreement and Memorandum of Agreement with
23
Serta, appointing the Surviving Corporation as the U.S. primary licensee in
place of PBBC for the territory described in the Standard License Agreement in
which the Business operates and entitling the Surviving Corporation to own and
hold shares of stock in Serta, Inc., such agreements to contain terms and
conditions either identical to the Serta Standard License Agreement or
reasonably satisfactory to Sub (collectively, the "Replacement License").
3.5. Books and Records. Unless otherwise consented to in writing by
the Representative, for a period of seven years after the Closing Date, the
Surviving Corporation will not destroy, alter or otherwise dispose of any of its
original books, records or software without first offering to surrender such
books, records or software to the Representative, all of such records being
retained within Palm Beach County, Florida. If the Representative has given
reasonable prior written notice to the Surviving Corporation, for a period of
six years after the Closing Date, the Surviving Corporation shall allow the
Representative (or its successor) and its accountants, counsel and agents, and
the Representative or the Representative's representative shall have the right
of access during normal business hours, to examine and copy the books and
records of the Surviving Corporation.
3.6. Tax Election; Preparation of PBBC Short Year Return; Allocation
of Price.
(a) In connection with the Code Section 338 (h)(10) election provided
in Section 3.6(b) below, not later than the Closing, Sleepmaster and PBBC shall
act together in good faith to determine and agree upon a "Modified Aggregate
Deemed Sales Price" with respect to PBBC (within the meaning of, and in
accordance with, Treasury Regulation Section 1.338(h)(10)-1(f). Schedule 3.6
sets forth the proper allocations of the Modified Aggregate Deemed Sale Price
among the respective assets of PBBC (in accordance with Code Section 338(b)(5)
and the Treasury regulations promulgated thereunder).Sleepmaster, the Surviving
Corporation, PBBC and the Company Stockholders shall be bound by such
determinations and allocations for all purposes (including financial, accounting
and tax reporting purposes).Sleepmaster, the Surviving Corporation, PBBC and the
Company Stockholders will prepare and file their respective tax returns and
information reports in a manner and on a basis consistent with such
determinations and allocations. None of PBBC, the Company's Stockholders, the
Surviving Corporation and Sleepmaster shall take any position (on any applicable
tax return, in any proceeding before any taxing authority or otherwise) for
purposes of federal, state or local income tax, respecting the foregoing
determinations and allocations which is inconsistent with the determinations and
allocations so agreed upon by the Parties in accordance with this Section. In
the event that such values set forth in the Allocation Schedule attached hereto
is disputed by any taxing authority, the party receiving notice of the dispute
shall promptly notify the Representative and Sleepmaster, as the case may be,
concerning resolution of the dispute.
24
(b) After the Effective Time, Sleepmaster, the Surviving
Corporation and each of the Company Stockholders will make an election to have
the Merger treated in accordance with the provisions of Section 338(h)(10) of
the Code. At the Closing, Sleepmaster shall deliver to the Representative a
signed Department of Treasury Form 8023-A, with Section 1a through 6h (excluding
Section c) completed. The allocations set forth in the required attachment to
Treasury Form 8023-A has been made in a manner consistent with the fair market
values set forth in the Allocation Schedule attached hereto.
(c) Representative, on behalf of the Company Stockholders,
shall prepare or cause to be prepared and shall file or cause to be filed, in a
manner consistent with past practice, all federal and state income tax returns
for PBBC for all periods ending on or prior to the Closing Date which are filed
after the Closing Date, including but not limited to the short year Subchapter
"S" federal income tax return for the period beginning on January 1, 1998 and
ending on the Closing Date. The appropriate officers of the Surviving
Corporation shall execute such Representative-prepared returns upon written
request of the Representative, thereby enabling the Representative to file or
cause to be filed such returns with the appropriate Governmental Entities. The
Representative shall permit Sleepmaster to review and comment on each such tax
return described in the preceding sentence prior to filing. The Surviving
Corporation shall allow the Representative (or its successor) and its
accountants, counsel and agents, and the Representative or the Representative's
representative shall have the right of access during normal business hours, to
examine and copy the books and records of PBBC within the possession of the
Surviving Corporation to enable it to prepare and file the foregoing tax
returns.
(d) All transfer, documentary, sales, use, stamp,
registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with this Agreement (including any New York
City Transfer Tax and any similar tax imposed in other states or subdivisions),
shall be paid by Sleepmaster when due, and Sleepmaster and the Representative
will each, at its own expense, file all necessary tax returns and other
documentation with respect to all such transfer, documentary, sales, use, stamp,
registration and other Taxes and fees, and, if required by applicable law, the
Company Stockholders will join in the execution of any such tax returns and
other documentation.
(e) Notwithstanding any other provision of this Agreement,
the obligations created by this Section 3.6 shall survive the Closing until
fulfilled.
ARTICLE IV
REPRESENTATIONS AND
WARRANTIES OF PBBC
25
PBBC hereby represents and warrants to Sub that the statements made in
this Article III are correct and complete as of the date of this Agreement and
will be correct and complete as of the Closing Date, except as set forth in the
disclosure schedule accompanying this Agreement and initialed by the Parties
(the "Disclosure Schedule"). The Disclosure Schedule will be arranged in
paragraphs corresponding to the lettered and numbered paragraphs contained in
this Article IV.
4.1. Organization and Good Standing; Capitalization.
(a) PBBC (i) is a corporation duly incorporated, validly
existing and in good standing under the laws of its jurisdiction of formation;
(ii) has full corporate power and authority to carry on the Business as it is
now being conducted and to own the properties and assets it now owns; and (iii)
is duly qualified to transact business in all jurisdictions in which the
ownership or leasing of assets, or conducting of the Business, requires such
qualification and in which the failure to so qualify would have a Material
Adverse Effect on the Business. PBBC has heretofore delivered to Sub complete
and correct copies of its Articles of Incorporation, as amended as currently in
effect.
(b) PBBC's authorized capital is 50,000 shares of Company
Common, of which 26,752 shares of Company Common are issued and outstanding.
Schedule 4.1(b) sets forth a true, correct and complete list of all of the
issued and outstanding shares of capital stock of PBBC and the holders of record
thereof. All of the issued and outstanding shares of Company Common have been
duly authorized and validly issued (without violation of any preemptive rights
of any stockholder) in conformity with all applicable state and federal laws,
and are fully paid and non-assessable. Other than as set forth on Schedule
4.1(b), there are no outstanding shares of capital stock or subscriptions,
commitments, options, warrants or other arrangements to issue shares of capital
stock or other securities convertible into shares of capital stock of PBBC.
(c) Other than with respect to investments in publicly traded
companies which it does not control, PBBC has no capital investment in, and does
not control, directly or indirectly, any other corporation, partnership, joint
venture, association or other entity or business concern.
4.2. Financial Statements. Attached hereto as Schedule 4.2 are (a) the
balance sheets of PBBC as at December 31, 1994, December 31, 1995 and December
31, 1996 (the "Historical Balance Sheets") and the related statements of
operations and cash flows of PBBC for the three fiscal years then ended,
together with the notes thereto, in each case audited by Lamn, Krielow, Dytrych
& Darling, P.A., PBBC's independent certified public accountant, together with
the audit report of such firm as to such statements (collectively, with the
Historical Balance Sheets, the "Historical Financial Statements"); and (b) an
unaudited balance sheet for PBBC as at September 30, 1997 (the "Interim Balance
Sheet") and unaudited statements of operations and cash flow for the nine-month
period then ended (collectively with the Interim Balance
26
Sheet, the "Interim Financial Statements"); (the Historical Financial Statements
and the Interim Financial Statements being collectively referred to as the
"Financial Statements"). The Financial Statements (i) were compiled from and are
consistent with the books and records of the Business regularly maintained by
management and used to prepare the financial statements of PBBC, (ii) are used
by PBBC in the ordinary conduct of the Business, (iii) except as disclosed in
Schedule 4.2, were determined on a basis consistent with the past practices of
PBBC, (iv) present fairly the financial position, results of operation and other
information of PBBC included therein, and (v) except with respect to the absence
of footnotes and other presentation items normally found in a year-end report
and normal year-end adjustments to be made to the Interim Financial Statements,
have been prepared in accordance with GAAP applied on a consistent basis
throughout the periods covered thereby.
4.3. Authorization; No Violation; Consents.
(a) Authorization and No Violation. Except as set forth in
Schedule 4.3(a), PBBC has full corporate power and authority to execute and
deliver this Agreement and the other agreements and documents contemplated
hereby, to perform its obligations hereunder and thereunder. The execution and
delivery by PBBC of this Agreement and the other agreements and documents
contemplated hereby, and the consummation of the transactions contemplated
hereby and thereby, (i) upon and subject to obtaining approval by PBBC's board
of directors and the Company's Stockholders, in a manner required by the Florida
Law, will then be deemed duly and validly authorized by all necessary action on
the part of PBBC, (ii) do not conflict with or violate any of the terms of the
articles of incorporation or by-laws of PBBC, (iii) do not violate to any
material degree, any applicable law, ordinance, rule or regulation or any
judgment, order, writ, injunction or decree of any court, administrative or
Governmental Entity, and (iv) except as set forth in Schedule 4.3(a) and except
with respect to the Serta Standard License Agreement and the IRB-Related
Obligations, do not violate or conflict with the terms of, or result in a breach
of, or constitute a default under, or result in the creation or imposition of
any Lien upon any property or assets of the Business under, any mortgage,
indenture, lease, agreement, license or other instrument to which PBBC or the
Business is a party or by which PBBC, or the Business, or the assets thereof,
may be bound, which violation, conflict, default or Lien, in the aggregate with
all other such violations, conflicts, defaults and Liens, would have a Material
Adverse Effect on the Business.
(b) Consents. Except as set forth in Schedule 4.3(b) and
except with respect to (i) the IRB-Related Obligations, (ii) the Serta Standard
License Agreement, (iii) the Florida Law, and (iv) obtaining approval by PBBC's
Board of Directors and the Company Stockholders, in a manner required by the
Florida Law, PBBC and the Company Stockholders do not need to obtain any
consents, authorizations or approvals
27
of, notices to, or filings or registrations with, any Governmental Entity or any
other third party, and no Change of Control Payments become payable, in
connection with the execution and delivery by PBBC of this Agreement and the
other agreements and documents contemplated by this Agreement, and the
consummation of the transactions contemplated hereby and thereby, except where
the failure to obtain such consents, authorizations or approvals would not have
a Material Adverse Effect on the Business. Except as otherwise set forth in
Schedule 4.3(b), and except with respect to (i) the IRB-Related Obligations,
(ii) the Serta Standard License Agreement, (iii) the Florida Law, and (iv)
obtaining approval by PBBC's Board of Directors and the Company Stockholders, in
a manner required by the Florida Law (the "Required Corporate Consents"), all
consents, authorizations, approvals, notices, filings and registrations set
forth in said Schedule have been obtained or made.
(c) Enforceable Agreement. Upon obtaining the Required
Corporate Consents, this Agreement constitutes the legal, valid and binding
obligations of PBBC, enforceable in accordance with their respective terms,
except for (i) the effect of bankruptcy, reorganization or other similar laws of
general application relating to or affecting the rights or remedies of
creditors; (ii) limitations imposed by general principles of equity upon the
specific enforcement of any of the remedies, covenants or other provisions of
this Agreement and the other agreements and documents contemplated hereby and
upon the availability of injunctive relief or other equitable remedies; and
(iii) other laws, court decisions or legal or equitable doctrines affecting the
right to specific performance or affecting the enforcement of other specific
rights and remedies.
4.4. Properties of the Business.
(a) Title to Transferred Assets and Related Matters. Except
as set forth in Schedule 4.4(a) and except as described in (i) the IRB-Related
Obligations (ii) in the Title Policy, (iii) with respect to Taxes not yet due,
(iv) mechanic's, materialmen's and similar liens, (v) purchase money Liens and
Liens securing rental payments under capital lease arrangements, (vi) Liens
arising in the Ordinary Course of Business of PBBC, and (vii) the "Canal Issue"
(as hereinafter described), PBBC has good title to, or a valid leasehold
interest in, all of the Transferred Assets (except for such properties and
assets within the definition of Transferred Assets disposed of in the Ordinary
Course of Business since the date of this Agreement), and on the Closing Date
the Transferred Assets shall be free and clear of all Liens, except such Liens
which are set forth in Schedule 4.4(a) and except as described in (i) the
IRB-Related Obligations (ii) in the Title Policy, (iii) with respect to Taxes
not yet due, (iv) mechanic's, materialmen's and similar liens, (v) purchase
money Liens and Liens securing rental payments under capital lease arrangements,
(vi) Liens arising in the Ordinary Course of Business of PBBC, and (vii) the
"Canal Issue." All property and assets (tangible and intangible) used by PBBC in
the conduct of the Business as presently conducted are owned by PBBC or licensed
or leased to PBBC pursuant to a license or lease listed in Schedule 4.4(c),
Schedule 4.4(d), Schedule 4.8 or Schedule 4.9. The Transferred Assets include
all properties and assets utilized in carrying on the operations of the Business
in the Ordinary Course of Business except for the Unrestricted Cash utilized by
PBBC in
28
conducting the Business before the Effective Time. For purposes of this
Agreement, the Canal Issue shall refer to the following facts and circumstances:
The owner of the 50 feet strip of real property to the north of the present
Facility, which real property constitutes the south half of a drainage canal,
has made claims in the past that PBBC has no right to outfall into the drainage
canal. These claims were primarily made to the Palm Beach County, Florida,
County Engineer at such time as PBBC was applying for a building permit for
construction of its Facility. Palm Beach County, Florida agreed with PBBC's
analysis and issued the Facility building permit and the Facility was
constructed. Copies of pertinent correspondence are attached as Exhibit 4.4.
(b) Owned Real Property. PBBC owns that certain parcel of
real estate with improvements thereon, located in the City of Riviera Beach,
Florida, and more fully described on Schedule 4.4(b) (the "Facility"), as
defined in the Title Policy, in fee simple, subject to the IRB- Related
Obligations and to the Liens described and as provided in Title Policy No.
10-0732-106- 00000070 (previously provided to Sleepmaster) issued by Chicago
Title Insurance Company showing insurable title to such real property vested in
PBBC ("Title Policy").
(c) Leased Real Property. Schedule 4.4(c) sets forth all
leases or other agreements pursuant to which PBBC or the Business leases,
occupies or otherwise uses real property. Other than PBBC, and the named tenants
or subtenants described in the leases contained on Schedule 4.4(c), there are no
parties in possession or parties having any rights to occupy all or any portion
of the Facility. The Facility is in good condition and repair and is sufficient
and appropriate for the conduct of the Business as presently conducted. Except
as may be described in the Title Policy and except with respect to the Canal
Issue, the Facility, and all plants, buildings and improvements located thereon,
to PBBC's knowledge, conform to all applicable building, zoning and other laws,
ordinances, rules and regulations, other than nonconformance, none of which,
either individually or in the aggregate, would have a Material Adverse Effect on
the Business. There is no pending or, to the Knowledge of PBBC, any threatened
condemnation proceeding affecting any portion of the Facility. Except as may be
described in the Title Policy, all utilities enter the Facility from an adjacent
public street or valid private easement owned by the supplier of such utility.
To the Knowledge of PBBC, the Facility has direct access to a public street
adjoining the Facility and no existing access way crosses or encroaches upon any
property or property interest of any third party. To the Knowledge of PBBC,
except as may be impacted by the Canal Issue, no improvement forming a portion
of the Facility encroaches upon any property or property interest of any third
party.
(d) Personal Property Leases. Schedule 4.4(d) contains a
complete list, insofar as any of them relate to the Business, of:
29
(i) all leases pursuant to which PBBC or the Business leases
any type of personal property (including without limitation computer
hardware and software) which provide, singly, for rental payments in
excess of $10,000 per annum; and
(ii) all leases pursuant to which PBBC or the Business leases
to others any type of property which provide, singly, for rental
payments in excess of $25,000 per annum or which have an unexpired
term in excess of three years.
4.5. Compliance with Laws. Since December 31, 1992, PBBC has
conducted the Business in compliance with all applicable federal, state or local
laws, rules and regulations, ordinances, orders, judgments, decrees or
administrative rulings, except for (i) possible violations which in the
aggregate do not have a Material Adverse Effect on the Business, and (ii) those
described in Schedule 4.5.
4.6. Litigation. Schedule 4.6 sets forth each instance in
which PBBC: (i) is subject to any outstanding injunction, judgment, order,
decree, ruling or charge or (ii) is a party to any action, suit, proceeding,
hearing or, to the Knowledge of PBBC, investigation of, in, or before any court
or quasi-judicial or administrative agency of any federal, state, local or
foreign jurisdiction, except where the injunction, judgment, order, decree,
ruling, action, suit, proceeding, hearing or investigation which would not have
a Material Adverse Effect on the Business. No Actions are pending or, to PBBC's
knowledge, threatened against PBBC or otherwise which question or challenge the
validity of this Agreement or any action taken or proposed to be taken by PBBC
pursuant to this Agreement or in connection with the transactions contemplated
by this Agreement.
4.7. Absence of Certain Changes. Except as set forth in
Schedule 4.7, since December 31, 1996, PBBC has conducted the Business only in
accordance with the Ordinary Course of Business and PBBC has not since that
date:
(i) except with respect to accounts receivables of
and sales by PBBC to parties who are the subject of pending
bankruptcy proceedings (including but not limited to such
accounts receivables of and sales by PBBC to ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇
Company, Saw Mattress Company and ▇▇▇▇▇▇ Furniture Company),
collectively referred to herein as the "Bankruptcy
Receivables," PBBC has not, since December 31, 1996, suffered
any Material Adverse Effect;
(ii) suffered any damage, destruction or loss of the
Equipment or the Facility, whether covered by insurance or
not, which has had a Materially Adverse Effect on the
Business;
(iii) paid, discharged or satisfied any material
liability or other expenses, other than the payment, discharge
or satisfaction of liabilities at
30
the time the same were due and payable and in the Ordinary
Course of Business;
(iv) sold, assigned or transferred, or mortgaged,
pledged or permitted or allowed the imposition of any Liens
upon any of its properties or assets (real, personal or mixed,
tangible or intangible), in the case of Liens other than (a)
mechanic's, materialmen's and similar liens, (b) liens for
Taxes not yet due and payable, (c) purchase money Liens and
Liens securing rental payments under capital lease
arrangements, and (d) other Liens arising in the Ordinary
Course of Business and not incurred in connection with the
borrowing of money;
(v) created or incurred any Debt, except in the
Ordinary Course of Business or created or incurred any other
material liability, other than in the Ordinary Course of
Business;
(vi) except with respect to a matter with ▇▇▇▇▇▇▇ &
▇▇▇▇▇ concerning the payment for certain equipment and
machinery, delayed or postponed the payment of accounts
payable or other liabilities not in the Ordinary Course of
Business;
(vii) canceled or compromised any material
liabilities, or waived or permitted to lapse any material
claims or rights, except in the Ordinary Course of Business;
(viii) disposed of or permitted to lapse any rights
to the use of any patent, trademark, trade name, copyright,
slogan or telephone number material to the Business;
(ix) granted any material general increase in the
compensation of officers or employees (including any such
increase pursuant to any bonus, pension, profit-sharing or
other plan or commitment) or any increase in the compensation
payable or to become payable to any managers or employee,
other than in the Ordinary Course of Business;
(x) entered into any contract, license, commitment or
transaction not in the Ordinary Course of Business, invested
in, or committed to invest in, or acquired the assets of
another Person in excess of $25,000, or made any capital
expenditures or commitment for any additions to property,
plant or equipment which exceed $25,000 in any one case or
$250,000 in the aggregate;
(xi) accelerated, terminated, modified or canceled
any agreement, contract, lease or license (or series of
related agreements, contracts, leases and licenses) involving
more than $100,000 to which
31
PBBC is a party or by which it is bound, and PBBC has no
knowledge of any action by any party to do any of the
foregoing;
(xii) made any material change in any method of
accounting or accounting practice, except for any such change
required by reason of a concurrent change in GAAP;
(xiii) paid (other than any payments in the Ordinary
Course of Business of PBBC and other than loans to
shareholders set forth on Schedule 4.7), loaned or advanced
any material amount to, or sold, transferred or leased any
properties or assets (real, personal or mixed, tangible or
intangible) to, or entered into any agreement or arrangement
with, any of its managers, employees, or any family member of
any of its managers or employees, or any Affiliate of PBBC,
any manager or employee of any such Affiliate;
(xiv) granted or entered into any license or
sublicense of any rights under or with respect to any
Intangible Property Rights;
(xv) declared, set aside or paid any dividend or made
any distribution with respect to its capital stock (whether in
cash or in kind) other than distributions made pursuant to
Section 11.9 and distributions of its taxable earnings in the
amounts permitted by Section 11.9 as set forth in Schedule
4.7, or redeemed, purchased or otherwise acquired any of its
capital stock;
(xvi) entered into any employment contract or
collective bargaining agreement, written or oral, or modified
the terms of any existing such employment contract or
collective bargaining agreement; and
(xvii) agreed, whether in writing or otherwise, to
take any action described in this Section 4.7.
4.8. Patents, Trademarks, Trade Names. To the Knowledge of
PBBC, PBBC has not interfered with, infringed upon, misappropriated or violated
any material Intellectual Property rights of third parties in any material
respect, and PBBC has never received any demand or notice alleging any such
interference, infringement, misappropriation or violation (including any claim
that PBBC must license or refrain from using any Intellectual Property rights of
any third party), which claim, if correct, would have a Material Adverse Effect
on the Business. To the Knowledge of PBBC, no third party has interfered with,
infringed, upon, misappropriated or violated any material
32
Intellectual Property rights of PBBC in any material respect. Schedule 4.8 of
the Disclosure Schedule identifies each patent or registration which has been
issued to PBBC with respect to any of its Intellectual Property Rights,
identifies each pending patent application or application for registration which
PBBC has made with respect to any of its Intellectual Property Rights, and
identifies each license, agreement or other permission which PBBC has granted to
any third party with respect to any of its Intellectual Property Rights.
Schedule 4.8 identifies all trade names, corporate names, unregistered
trademarks and material unregistered copyrights which have been issued to or
used by PBBC and all licenses and other agreements relating to any Intangible
Property Rights which PBBC is licensed or authorized to use by others or
licenses or authorizes others to use. Except for matters set forth in Schedule
4.8, for computer software utilized by PBBC under standard license agreements,
and for immaterial nonexclusive licenses granted to third parties, to PBBC's
knowledge, PBBC has the sole and exclusive right to use the Intangible Property
Rights of the Business, and no consent of any third party other than Serta, Inc.
is required for the use thereof by the Surviving Corporation upon completion of
the transfer of the Transferred Assets.
4.9. Contracts and Commitments.
(a) Insofar as they relate to the Business, Schedule
4.9 (together with the leases disclosed in Schedules 4.4(c) and 4.4(d)) contains
a true and complete list of the following types of agreements binding on PBBC
which require the performance of any obligation by PBBC or the payment or
delivery of any consideration by any party thereto after the Closing Date:
(i) the Serta Standard License Agreement;
(ii) all agreements, contracts and commitments to
which PBBC is a party or by which any of the Transferred
Assets is bound which by their terms (A) can reasonably be
expected to require future payment by or to PBBC of $25,000 or
more or (B) cannot be terminated by any party thereto on less
than 90 days prior notice;
(iii) all written employment contracts and
commitments with employees of PBBC providing for direct
remuneration for any employee of PBBC or containing any
severance or termination pay or obligations for any employee
of PBBC;
(iv) all collective bargaining agreements and union
contracts respecting the Business to which PBBC is a party;
(v) all other contracts of PBBC utilized by PBBC in
the operation of the Business as of September 30, 1997 for or
relating to the construction of capital assets which exceed
$100,000 in any one case or $250,000 in the aggregate;
33
(vi) all partnership or joint venture agreements to
which PBBC is a party;
(vii) any agreement (or group of related agreements)
for the purchase or sale of raw materials, commodities,
supplies, products or other personal property, or for the
furnishing or receipt of services, the performance of which
will extend over a period of more than one year, result in a
material loss to PBBC, or involve consideration in excess of
$100,000;
(viii) any agreement concerning confidentiality or
noncompetition; or
(ix) any agreement under which the consequences of a
default or termination could have a Material Adverse Effect on
the Business.
(b) PBBC has made available to Sleepmaster or Sub
full and complete copies of the documents identified in Schedules 4.4(c), 4.4(d)
and 4.9 (the "Material Contracts").
(c) Other than the Serta Standard License Agreement,
PBBC is not a party to any written agreement and is not subject to any other
instruments or documents that would materially restrict the Business from
carrying on its business anywhere in the world.
(d) To the Knowledge of PBBC, the Material Contracts
are valid, binding, enforceable and in full force and effect with respect to the
Business and there does not exist any default on the part of PBBC, except with
respect to the Unauthorized Sales, or, to PBBC's knowledge, any default on the
part of the other party thereto, or any event which with notice or lapse of time
or both would constitute a default, under a Material Contract, which default
would allow the termination thereof and would have a Material Adverse Effect on
the Business.
(e) The by-laws of Serta, the Standard License
Agreement and the rules and regulations of Serta promulgated thereunder are the
only instruments or agreements among Serta and its stockholders to which PBBC or
any of its Affiliates are subject or which bind PBBC or any of its Affiliates.
(f) Other than the IRB-Related Obligations, the
obligations of PBBC to pay accounts payables and salaries and other
remunerations arising in the Ordinary Course of Business, and the obligations to
make payments under certain
34
equipment leases, PBBC is not obligated on or with respect to any Debt.
4.10. Compliance with Labor and Employment Laws.
(a) PBBC is in compliance in all material respects,
with all applicable laws, regulations and administrative orders of any country,
state or municipality or of any subdivision thereof to which the Business and
the employment of labor are subject, including without limitation laws
respecting employment and employment practices, terms and conditions of
employment, workplace health and safety, plant closing, employment
discrimination and wages and hours, except where the failure to comply with any
such applicable laws, regulations and administrative orders would not have a
Material Adverse Effect on the Business.
(b) There is no strike, labor dispute, slowdown or
stoppage actually pending,
or, to PBBC's Knowledge, threatened, against or directly affecting PBBC.
(c) To the Knowledge of PBBC, (i) other than with
respect to ▇▇▇▇▇▇▇▇ ▇▇▇▇,
the chief financial officer of PBBC, no executive, key employee, or group of
employees has any plans to terminate employment with PBBC; (ii) PBBC has not
experienced any strikes, grievances, claims of unfair labor practices, or other
collective bargaining disputes; (iii) PBBC has not committed any unfair labor
practice and (iv) there is no organizational effort presently being made or
threatened by or on behalf of any labor union with respect to employees of PBBC.
4.11. Employee Benefit Plans.
(a) Schedule 4.11 sets forth the name of (i) each
of the "employee benefit plans" (as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")) maintained
currently or in the past by PBBC under which PBBC has any current or, to the
Knowledge of PBBC, potential liability or under which any former or present
employee of PBBC has any current or future rights to benefits (the "ERISA
Plans"), (ii) each nonqualified deferred compensation, bonus, incentive or other
retirement, plan, program or arrangement, and (iii) each fringe benefit plan or
program (collectively (i), (ii) and (iii) shall be referred to as the "Plans"),
copies of which have been previously delivered to Sleepmaster or the Sub. None
of the employee benefit plans set forth in Schedule 4.11 is a "pension plan" as
defined in Section 3(2) of ERISA.
(b) Neither PBBC nor any trade or business (whether
or not incorporated) which are or have ever been under common control, or which
are or have been treated as a single employer, with PBBC under Section 414(b),
(c), (m) or (o) of the Code, has maintained or contributed or ever been
obligated to contribute to any pension plan that is subject to Title IV of ERISA
(including a multiemployer pension plan).
35
(c) Since January 1, 1992, each Plan (and related
trusts, insurance contracts or other funding vehicles) complied in form and
operation with the applicable requirements of law; and each ERISA Plan which is
intended to be qualified (except where the failure to be qualified would not
have a Material Adverse Effect upon the Business) under Section 401 of the Code
is so qualified, has received a favorable determination letter from the IRS and
was timely amended and filed with the IRS for a favorable determination letter
with respect to changes made by the Tax Reform Act of 1986. All required
reporting and disclosure obligations (including Form 5500 Annual Reports,
Summary Annual Reports and Summary Plan Descriptions) with respect to each ERISA
Plan have been properly and timely filed with the appropriate government agency
or distributed to participants.
(d) With respect to each Plan, all contributions and
premium payments which are due (including all employer and employee
contributions) have been paid and all contributions, premium payments and
uninsured welfare benefit plan liabilities for all periods ending on the Closing
Date are or will be accrued for on the books and records of PBBC as of the
Closing Date.
(e) To the Knowledge of PBBC, with respect to each
Plan, (i) PBBC has no actual liability to the IRS or the Department of Labor,
(ii) there have been no prohibited transactions as defined in Section 406 of
ERISA in Section 4975 of the Code), (iii) no fiduciary (as defined in Section
3(21) of ERISA) has any liability for breach of fiduciary duty or any other
failure to act or comply in connection with the administration or investment of
the assets of such Plan, and (iv) no Actions with respect to the assets thereof
are pending or threatened, and PBBC has no knowledge of any facts which would
give rise to or could reasonably be expected to give rise to any such Actions.
(f) No welfare benefit plan (as defined in Section
3(1) of ERISA) maintained by PBBC provides post-employment benefits with respect
to current or former employees beyond termination of employment (other than
coverage mandated by Section 4980B of the Code ("COBRA")). PBBC has complied in
all material respects with COBRA.
(g) PBBC has made available to Sleepmaster or Sub
true and complete copies of (i) all documents governing the Plans, including,
without limitation, all amendments thereto which will become effective at a
later date; (ii) all summary plan descriptions and each Summary of Material
Modifications relating to the ERISA Plans; (iii) all employment manuals; (iv)
insurance policies or contracts with respect to each Plan; (v) financial
statements with respect to the ERISA Plans (to the extent applicable); (vi) the
IRS favorable determination letter with respect to each ERISA Plan (to the
extent applicable); and (vii) Form 5500 (including all schedules and
attachments) with respect to each ERISA Plan.
36
4.12. Environmental Matters. To the Knowledge of PBBC, except
as set forth in Schedule 4.12 and except as disclosed on the Environmental Audit
Report, dated August 1995, as updated on the 23rd day of January, 1998
(collectively the "Environmental Audit Report"), previously delivered to
Sleepmaster and attached hereto as Exhibit 4.12:
(a) To the Knowledge of PBBC, the operation of the
business of PBBC and any real property owned, operated or leased by PBBC are in
compliance in all material respects with all applicable Environmental Laws (as
hereinafter defined).
(b) (i) PBBC has in a timely manner obtained and
currently maintains all Environmental Permits (as hereinafter defined) necessary
for its operations and, to the Knowledge of PBBC, is in compliance with such
Environmental Permits, (ii) there are no legal proceedings pending nor, to
PBBC's Knowledge, threatened to revoke such Environmental Permits, and (iii)
PBBC has not received any notice to the effect that there is lacking any
Environmental Permit required for the current use or operation of any real
property owned, operated or leased by PBBC.
(c) PBBC does not now utilize, store, dispose of,
treat, generate, transport, release or own any Hazardous Substance (as defined
below) in a manner which violates any Environmental Laws.
(d) To the Knowledge of PBBC, PBBC has not ever
utilized any property of PBBC, or any portion thereof, in violation of any
Environmental Law.
(e) To the Knowledge of PBBC, no Release (as defined
below) by PBBC of any Hazardous Substance has occurred at, upon or under any
property owned, operated or leased by PBBC in an amount which violates any
Environmental Law or could reasonably be expected to give rise to an obligation
to remediate under or pursuant to any Environmental Law.
(f) To the Knowledge of PBBC, there is not now, nor
has there been in the past, on, in or under any real property owned, leased or
operated by PBBC (i) any underground storage tanks, above ground storage tanks,
dikes or surface impoundments, (ii) any asbestos-containing materials which
would be required to be removed by Environmental Laws, (ii) any polychlorinated
biphenyls or (iv) any radioactive substances.
(g) PBBC has not received any notice of outstanding
writs, injunctions, decrees, orders, notices of violation or judgments or any
suits, claims, actions, proceedings or, to the Knowledge of PBBC, investigations
pending or, to the Knowledge of PBBC, threatened under or pursuant to any
Environmental Laws, including but not limited to any notice from any
Governmental Entity or private or public entity advising PBBC that it is, or is
potentially, responsible for response costs under the CERCLA (as defined in
Section 4.12(j)) with respect to a release or threatened
37
release of Hazardous Substances.
(h) PBBC has not received any notice of any violation
of any Environmental Law relating to the operation of the Business or, to the
Knowledge of PBBC, to any of the processes used or followed, results obtained or
products developed, made or sold by PBBC including, without limitation, under
CERCLA, the Toxic Substances Control Act of 1976, as amended, the Resource
Conservation Recovery Act of 1976, as amended, the Clean Air Act, as amended,
the Federal Water Pollution Control Act, as amended, or the Occupational Safety
and Health Act of 1970, as amended.
(i) There are no Actions pending or, to the Knowledge
of PBBC, threatened against PBBC alleging the violation of or imposing liability
pursuant to any Environmental Law or Environmental Permit.
(j) For purposes of this Agreement, the following
terms have the following meanings: (i) "Environmental Laws" means any federal,
state, local or foreign law (including common law), statute, code, ordinance,
rule, regulation or other requirement relating to the environment, natural
resources, or public or employee health and safety as in effect as of the date
of this Agreement and includes, but is not limited to, the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA"), 42 U.S.C.
Section 9601 et seq., the Resource Conservation and Recovery Act, 42 U.S.C.
Section 6901 et seq., the Clean Water Act, 33 U.S.C. Section 1251 et seq., the
Clean Air Act, 33 U.S.C. Section 2601 et seq., the Toxic Substances Control Act,
15 U.S.C. Section 2601 et seq., the Federal Insecticide, Fungicide, and
Rodenticide Act, 7 U.S.C. Section 136 et seq., the Oil Pollution Act of 1990, 33
U.S.C. Section 2701 et seq. and the Occupational Safety and Health Act, 29
U.S.C. Section 651 et seq., as such laws have been amended or supplemented to
the date hereof, and the regulations promulgated pursuant thereto, and all
analogous state or local statutes; (ii) "Environmental Permit" means any permit,
approval, authorization, license, variance, registration, or permission required
under any applicable Environmental Law; (iii) "Hazardous Substances" means any
substance, material or waste which is regulated by any Governmental Authority or
the United States or other national government, including, without limitation,
any material, substance or waste which is defined as a "hazardous waste,"
"hazardous material," "hazardous substance," "extremely hazardous waste,"
"restricted hazardous waste," "contaminant," "toxic waste" or "toxic substance"
under any provision of Environmental Law, which includes, but is not limited to,
petroleum, petroleum products, asbestos, urea formaldehyde and polychlorinated
biphenyls and (iv) "Release" means any release, spill, emission, leaking,
pumping, pouring, dumping, emptying, injection, deposit, disposal, discharge,
dispersal, leaching, or migration on or into the indoor or outdoor environment
or into or out of any property.
(k) This Section 4.12 contains the sole and exclusive
representations and warranties of PBBC with respect to any environmental
matters,
38
including without limitation any arising under any Environmental Laws.
4.13. Licenses, Permits and Authorizations. PBBC holds all
permits, licenses, variances, exemptions, orders and approvals of all
Governmental Entities necessary for the lawful conduct of the Business (the
"Business Permits"), except for failures to hold such permits, licenses,
variances, exemptions, orders and approvals that would not, individually or in
the aggregate, have a Material Adverse Effect on the Business. PBBC is in
compliance with the terms of the Business Permits, except where the failure so
to comply would not have a Material Adverse Effect on the Business. Except as
disclosed in Schedule 4.13, to the Knowledge of PBBC, the Business is not being
conducted in violation of any law, ordinance or regulation of any Governmental
Entity, except for possible violations that individually or in the aggregate do
not, and, insofar as reasonably can be foreseen, in the future will not, have a
Material Adverse Effect on the Business. Except as set forth in Schedule 4.13,
to the Knowledge of PBBC, no investigation or review by any Governmental Entity
with respect to PBBC is pending or, to the Knowledge of PBBC, threatened, nor
has any Governmental Entity indicated an intention to conduct the same, other
than, in each case, those the outcome of which, as far as reasonably can be
foreseen, in the future will not have a Material Adverse Effect on the Business.
4.14. Taxes.
(a) Except as set forth in Schedule 4.14, PBBC has:
(i) timely filed or will file when due all
federal, foreign, state and local Tax Returns required to be
filed by or with respect to PBBC and all such Tax Returns are
correct and complete in all material respects;
(ii) paid in full all Taxes for which it is or
may be liable and Taxes claimed to be due by any Governmental
Entity; and
(iii) with respect to any period for which Tax
Returns have not yet been filed, or for which Taxes are not
yet due or owing, made due and sufficient accruals for Taxes
with respect to PBBC (or for which it may be liable) in the
Interim Financial Statements.
(b) PBBC is not a party to, and has not received any
written notice of, any pending action or proceeding, nor, to PBBC's Knowledge,
is any such action or proceeding threatened by any Governmental Entity, for the
assessment or collection of any Taxes and no claim for the assessment or
collection of any Taxes has been asserted against PBBC. PBBC has not given or
been requested to give waivers or extensions of any statutes of limitations
relating to the payment of Taxes. PBBC has withheld proper and accurate amounts
from its employees in compliance in all material respects with all withholding
and similar provisions of any and all applicable federal, foreign, state and
local laws, statutes, codes, ordinances, rules and regulations and paid such
amounts to the appropriate Governmental Entity. PBBC has filed proper and
▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇ and local tax returns and estimates with
respect to employee income tax or other withholding with respect to social
security taxes and unemployment taxes for all years and periods (and portions
thereof) for which tax returns were due and any and all amounts shown on such
tax returns to be due and payable have been paid in full. All payments
(including interest and penalties) due or to become due with respect to employee
income tax or other withholding with respect to any social security taxes and
unemployment taxes for any period ending prior to the Closing Date were either
paid in full on or prior to the Closing Date or accrued as a liability on the
Financial Statements.
(c) PBBC has made all required estimated payments of
Taxes sufficient in amount to avoid any underpayment penalties.
(d) None of the Transferred Assets is an asset or
property that the Surviving Corporation is or will be required to treat as being
(i) owned by any other person pursuant to the provisions of Section 168(f)(8) of
the Code, or (ii) tax-exempt use property within the meaning of Section
168(h)(1) of the Code. There is no contract, agreement, plan or arrangement
covering any person that, individually or collectively, could give rise to the
payment of any amount that would not be deductible by PBBC by reason of Section
280G of the Code. Other than as contemplated by this Agreement, no election
under Section 338 has been made with respect to PBBC. No consent to the
application of Section 341(f) of the Code (or any predecessor provision) has
been made or filed by or with respect to PBBC or any of their assets. PBBC is
not a party to, is not bound by and has no obligation under any tax sharing
agreement or similar contract. PBBC has no liability for the Taxes of any other
Person as a transferee or a successor, by contract, operation of law or
otherwise. PBBC has previously made available to Sleepmaster true and complete
copies of each of (i) any written audit reports issued by any taxing authority
within the last three years relating to the United States federal, state, local,
or foreign Taxes due from or with respect to PBBC and (ii) the United States
federal, state, local, and foreign Tax Returns, for each of the three taxable
years preceding the date hereof filed by PBBC. No closing agreement pursuant to
Section 7121 of the Code (or any predecessor provision) or any similar provision
of any state, local, or foreign law has been entered into by or with respect to
PBBC. There are no deferred gains with respect to deferred intercompany
transactions involving PBBC within the meaning of Treasury Regulation Section
1.1502-13(c) (or any successor Regulation). PBBC (A) has not been a member of an
affiliated group filing a consolidated federal income Tax Return (other than a
group the common parent of which was PBBC) or (B) has any liability for the
Taxes of any person (other than PBBC) under Reg. Section 1.1502-6 (or any
similar provision of state, local, or foreign law), as a transferee or
successor, by contract, or otherwise. The 1996 Tax Return of PBBC sets forth the
respective tax bases of the Transferred Assets.
40
(e) No tax years of PBBC are open during which PBBC did not
qualify as an "S" corporation. Neither PBBC nor any of its shareholders has
taken any action that would invalidate PBBC's election to be treated as an "S"
corporation for federal or Florida income tax purposes (or failed to take any
action to keep such election in place).
(f) PBBC elected to be treated as an "S" corporation for both
federal and Florida income tax purposes, effective for taxable years beginning
after May 1, 1986. Such election has continued in place at all times since made.
The acquisition of the Company Common contemplated by this Agreement (including,
without limitation, the Section 338(h)(10) election) will not result in any
federal or Florida state income tax liability for the Surviving Corporation
under Code Section 1374.
4.15. Sufficiency and Condition of Assets. Except for the
Unrestricted Cash utilized by PBBC in conducting the Business before the
Effective Time, the Transferred Assets constitute all the property, assets and
contractual rights (i) appropriate for the conduct of the Business as conducted
by PBBC as of December 31, 1996 and (ii) presently used by PBBC with respect to
the Business. The Business has, and on the Closing Date will have, a normal
operating supply (consistent with practices and policies as of December 31,
1996) of inventory, equipment and supplies. Each Transferred Asset has been
substantially maintained in accordance with normal industry practice, is in good
operating condition and repair (subject to normal wear and tear), and is, except
with respect to the disputed equipment and machinery acquired from ▇▇▇▇▇▇▇ &
▇▇▇▇▇, suitable for the purposes for which it presently is used.
4.16. Broker's or Finder's Fee. Neither PBBC nor any of its
Affiliates has incurred any liability to any broker, finder or agent or any
other person or entity for any fees or commissions with respect to the
transactions contemplated by this Agreement for which Sleepmaster or the
Surviving Corporation could become liable or obligated.
4.17. Undisclosed Liabilities. PBBC has no liabilities (and,
to PBBC's Knowledge, there exists no basis for any present or future Action
against it giving rise to any liabilities), except for (i) liabilities set forth
in the Historical Financial Statements or on the face of the Interim Financials
(including those disclosed in any notes thereto), (ii) liabilities set forth or
shown on any and all exhibits and disclosure schedules hereto, (iii) liabilities
set forth or shown on any and all of the Disclosure Schedules, as amended, and
on any and all of the documents and materials tendered by PBBC to Sleepmaster or
its financial and legal advisors (the "Advisors") and (iv) liabilities which
have arisen after the date of the Interim Financials in the Ordinary Course of
Business.
4.18. Subsidiaries. PBBC does not (a) own a majority of the
voting securities of any other entity or (b) have the power to vote or direct
the voting of sufficient securities to elect the body controlling another entity
or to control any other entity.
41
4.19. Notes and Accounts Receivable. All notes and accounts
receivable (the "Accounts Receivable") of PBBC (i) are reflected properly on the
Interim Balance Sheet and on PBBC's books and records, (ii) are valid
receivables subject, except with respect to the Bankruptcy Receivables, to no
setoffs or counterclaims, (iii) are free and clear of any Liens (but such notes
and accounts receivables are encumbered by the IRB-Related Obligations, Taxes
not yet due and payable and matters arising in the Ordinary Course of Business);
and (iv) arose from valid sales and bona fide transactions. Except for the
Bankruptcy Receivables, the Accounts Receivable constitute all of the accounts
receivable of the business of the Company. Except for the Bankruptcy
Receivables, Schedule 4.19 contains a complete and accurate list of all Accounts
Receivable as of the date of the Interim Balance Sheet, which list sets forth
the aging of such Accounts Receivable.
4.20. Insurance. Schedule 4.20 (together with the issuance
policies attached thereto) sets forth the following information with respect to
each insurance policy (including policies providing property, casualty,
liability, and workers' compensation coverage and bond and surety arrangements)
to which PBBC has been a party, a named insured, or otherwise the beneficiary of
coverage at any time within the past five years:
(a) the name of the insurer, the name of the
policyholder, and the name of each covered insured;
(b) the policy number and the period of coverage; and
(c) the scope (including an indication of whether the
coverage was on a claims made, occurrence, or other basis) and amount of
coverage.
PBBC has been covered since December 31, 1992 by insurance in scope and amount
customary and reasonable for the businesses in which it has engaged during the
aforementioned period. Schedule 4.20 describes any self-insurance arrangements
affecting PBBC.
4.21. Product Warranty. To the Knowledge of PBBC, each product
manufactured, sold or delivered by PBBC has substantially been in conformity
with all applicable contractual commitments and all express and implied
warranties, and PBBC has no liability (and, to PBBC's Knowledge, there is no
basis for any present or future Action) for replacement or repair thereof or
other damages in connection therewith other than returns and claims which could
lead to returns of individual products or sets of its products in volumes
consistent with the return information that was used to compute "net shipments"
as shown on the Financial Statements. No product
42
manufactured, sold or delivered by PBBC is subject to any guaranty, warranty, or
other indemnity beyond the applicable standard terms and conditions of sale or
lease. PBBC has delivered to Sleepmaster or Sub copies of its standard terms and
conditions of sale (including applicable guaranty, warranty and indemnity
provisions).
4.22. Certain Business Relationships with PBBC and its
Affiliates. Other than the employment agreements listed in Schedule 4.9 and as
disclosed on Schedule 4.22, none of PBBC's shareholders have been involved in
any business arrangement or relationship with PBBC within the past twelve
months, which arrangement or relationship will not have been terminated prior to
or at the Closing. None of PBBC's shareholders owns any asset, tangible or
intangible, which is used in the Business.
4.23. Disclosure. To the Knowledge of PBBC, no representation
or warranty by PBBC in this Agreement (including, without limitation, the
Disclosure Schedules) contains any untrue statement of a material fact or omits
or will omit to state any material fact necessary to make the statements herein
or therein not misleading.
4.24. Radon Gas Disclosure. As required by Florida law, the
following is notification regarding radon gas:
RADON GAS: Radon is a naturally occurring radioactive gas
that, when it has accumulated in a building in sufficient
quantities, may present health risks to persons who are
exposed to it over time. Levels of radon that exceed federal
and state guidelines have been found in buildings in Florida.
Additional information regarding radon and radon testing may
be obtained from your county public health unit. In that
regard, Sleepmaster hereby acknowledges that PBBC has made no
investigation to determine whether there is radon gas or other
environmental pollutants in, on or about the Facility and/or
the buildings upon the Facility or affecting such buildings,
although such conditions may exist. Further, PBBC has made no
analysis or verification of the extent of the environmental or
health hazard, if any, that may affect the buildings upon the
Facility, Sleepmaster or PBBC or their respective invites.
4.25. Disclaimer of Other Representations and Warranties.
Except as expressly set forth in this Article IV, PBBC makes no representation
or warranty, express or implied, at law or in equity, in respect of any of its
assets (including, without limitation, the Transferred Assets), liabilities or
operations, including, without limitation, with respect to merchantability or
fitness for any particular purpose, and any such other representations or
warranties are hereby expressly disclaimed. Sleepmaster hereby acknowledges and
agrees that, except to the extent specifically set forth in this Article IV, the
Surviving Corporation is accepting the Transferred Assets on an "as-is,
43
where-is" basis. Without limiting the generality of the foregoing, PBBC makes no
representation or warranty regarding any assets other than the Transferred
Assets and none shall be implied at law or in equity.
4.26. Exhibits and Disclosure Schedules. Notwithstanding
anything contained herein to the contrary, the representations and warranties of
PBBC set forth above in this Article IV are expressly subject to the terms,
provisions, conditions, facts and disclosures shown on the referenced Exhibits
and Disclosure Schedules and all documents and materials tendered to Sleepmaster
and its Advisors. In the event of any conflict between the representations and
warranties of PBBC set forth above in this Article IV and the terms, provisions,
conditions, facts and disclosures shown on any Exhibits or Disclosure Schedules
or documents and materials tendered to Sleepmaster and its Advisors, the terms,
provisions, conditions, facts and disclosures shown on the Exhibits or
Disclosure Schedules or documents and materials tendered to Sleepmaster and its
Advisors shall control.
ARTICLE V
REPRESENTATIONS AND
WARRANTIES OF SUB
Sub hereby represents and warrants to PBBC that the statements
made in this Article V are correct and complete as of the date of this Agreement
and will be correct and complete as of the Closing Date as though made then and
as though the Closing Date were substituted for the date of this Agreement
throughout this Article V.
5.1. Organization and Good Standing. Sub is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Florida.
5.2. Authorization; No Violation; Consents.
(a) Authorization and No Violation. Sub has full
corporate power and authority to execute and deliver this Agreement and the
other agreements and documents contemplated hereby and to perform its
obligations hereunder and thereunder. The execution and delivery by Sub
of this Agreement and the other agreements and documents contemplated hereby,
and the consummation of the transactions contemplated hereby and thereby, (i)
have been duly and validly authorized by all necessary corporate action on the
part of Sub, (ii) do not conflict with or violate any of the terms of the
Certificate of Incorporation or By-Laws of Sub, (iii) do not violate, to any
material degree, any applicable law, ordinance, rule or regulation or any
judgment, order, writ, injunction or decree of any court, administrative or
44
Governmental Entity applicable to Sub, and (iv) do not violate or conflict with
the terms of, or result in a breach of, or constitute a default under, or result
in the creation or imposition of any Lien upon any property or assets of Sub
under, any mortgage, indenture, lease, agreement or other instrument to which
Sub is a party or by which Sub may be bound, which violation, conflict, default
or Lien, either individually or in the aggregate with all other such violations,
conflicts, defaults, Liens, would have a Material Adverse Effect on the
business, operations or financial condition of Sub. This Agreement and the other
agreements and documents contemplated hereby constitute the legal, valid and
binding obligations of Sub, enforceable against Sub in accordance with their
respective terms, and this Agreement, constitutes the legal, valid and binding
obligations of Sub in accordance with their respective terms, except that the
remedy of specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the court
before which any proceeding may be brought, and that applicable bankruptcy and
other laws of general application may affect the rights and remedies of
creditors.
(b) Consents. Except as set forth in Schedule 5.2(b),
there are no consents, authorizations, or approvals of, or notices to, or
filings or registrations with, any Governmental Entity or any other third party
required in connection with the execution and delivery by Sub of this Agreement
or the other agreements and documents contemplated hereby and thereby or the
consummation by Sub of the transactions contemplated hereby and thereby, except
where the failure to obtain such consents, authorizations or approvals would not
have a Material Adverse Effect on the business, operations or financial
condition of the business of Sub. Except as otherwise set forth in Schedule
5.2(b), all consents, authorizations, approvals, notices, filings and
registration set forth in said Schedule have been obtained or made.
5.3. Broker's or Finder's Fees. Sub has not incurred any
liability to any broker, finder or agent or any other person or entity for any
fees or commissions with respect to the transactions contemplated by this
Agreement for which PBBC could become liable or obligated.
5.4. Litigation. There are no Actions pending or, to Sub's
knowledge, threatened against Sub or any properties or rights of Sub, before any
court, arbitrator or administrative or Governmental Entity, which questions or
challenges the validity of this Agreement or any action taken or proposed to be
taken by Sub pursuant to this Agreement or the transactions contemplated hereby.
5.5. Sub's Sophistication. Sub hereby represents that it, its
officers, members of its Board of Directors and all those directing its affairs:
(i) are sophisticated investors by virtue of their numerous prior investments
and that they are knowledgeable and experienced in financial and business
affairs; and (ii) are capable of evaluating the merits and risks of the
transactions contemplated by the Agreement. Sub acknowledges that it has had
sufficient access to and has engaged in a comprehensive independent examination
of the Transferred Assets, PBBC's books, records, contracts
45
and documents related to the Transferred Assets, the Financial Statements, the
IRB-Related Obligations, the Title Policy, the Canal Issue, the ▇▇▇▇▇▇▇ & ▇▇▇▇▇
matter, the Unauthorized Sales, and all other aspects of the transaction
contemplated by the Agreement (the "Transaction") that it determined necessary
to close the Transaction. Sub further acknowledges that it has had sufficient
opportunity to direct inquiries to PBBC with respect to any matter it has deemed
relevant to the Transaction, and that such examination and all such inquiries
have been completed to its satisfaction.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
OF SLEEPMASTER
Sleepmaster hereby represents and warrants to PBBC that the
statements made in this Article VI are correct and complete as of the date of
this Agreement and will be correct and complete as of the Closing Date as though
made then and as though the Closing Date were substituted for the date of this
Agreement throughout this Article VI.
6.1. Organization and Good Standing. Sleepmaster is a limited liability company
duly formed, validly existing and in good standing under the laws of the State
of New Jersey.
6.2. Authorization; No Violation; Consents.
(a) Authorization and No Violation. Sleepmaster
has full requisite power and authority to execute and deliver this Agreement and
the other agreements and documents contemplated hereby and to perform its
obligations hereunder and thereunder. Sleepmaster will, at the Closing, cause
the Closing Merger Consideration to be paid to the Representative and Escrow
Agent, consistent with the terms of Articles II, III and X. The execution and
delivery by Sleepmaster of this Agreement and the other agreements and documents
contemplated hereby, and the consummation of the transactions contemplated
hereby and thereby, (i) have been duly and validly authorized by all necessary
action on the part of Sleepmaster, (ii) do not conflict with or violate any of
the terms of the Articles of Formation or Operating Agreement of Sleepmaster,
(iii) do not violate, to any material degree, any applicable law, ordinance,
rule or regulation or any judgment, order, writ, injunction or decree of any
court, administrative or Governmental Entity applicable to Sleepmaster, and (iv)
do not violate or conflict with the terms of, or result in a breach of, or
constitute a default under, or result in the creation or imposition of any Lien
upon any property or assets of Sleepmaster under, any mortgage, indenture,
lease, agreement or other instrument to which Sleepmaster is a party or by which
Sleepmaster may be bound, which violation, conflict, default or Lien, either
individually or in the aggregate with all other such violations, conflicts,
defaults, Liens, would have a Material Adverse Effect on the
46
business, operations or financial condition of Sleepmaster. This Agreement and
the other agreements and documents contemplated hereby constitute the legal,
valid and binding obligations of Sleepmaster, enforceable against Sleepmaster in
accordance with their respective terms, and this Agreement, constitutes the
legal, valid and binding obligations of Sleepmaster in accordance with their
respective terms, except that the remedy of specific performance and injunctive
and other forms of equitable relief may be subject to equitable defenses and to
the discretion of the court before which any proceeding may be brought, and that
applicable bankruptcy and other laws of general application may affect the
rights and remedies of creditors.
(b) Consents. Except as set forth in Schedule 6.2(b),
there are no consents, authorizations, or approvals of, or notices to, or
filings or registrations with, any Governmental Entity or any other third party
required in connection with the execution and delivery by Sleepmaster of this
Agreement or the other agreements and documents contemplated hereby and thereby,
the consummation by Sleepmaster of the transactions contemplated hereby and
thereby or the performance by Sleepmaster of its obligations contemplated
hereby, except where the failure to obtain such consents, authorizations or
approvals would not have a Material Adverse Effect on the business, operations
or financial condition of the business of Sleepmaster. Except as otherwise set
forth in Schedule 6.2(b), all consents, authorizations, approvals, notices,
filings and registration set forth in said Schedule have been obtained or made.
6.3. Broker's or Finder's Fees. Sleepmaster has not incurred
any liability to any broker, finder or agent or any other person or entity for
any fees or commissions with respect to the transactions contemplated by this
Agreement for which PBBC could become liable or obligated.
6.4. Litigation. There are no Actions pending or, to
Sleepmaster's knowledge, threatened against Sleepmaster or any properties or
rights of Sleepmaster, before any court, arbitrator or administrative or
Governmental Entity, which questions or challenges the validity of this
Agreement or any action taken or proposed to be taken by Sleepmaster pursuant to
this Agreement or the transactions contemplated hereby.
6.5. Purchase for Investment.
(a) Sleepmaster is acquiring the equity stock
interest in the Surviving Corporation for investment for its own account and not
with a view to, or for sale in connection with, any distribution thereof;
(b) Sleepmaster understands, acknowledges and agrees
that the Company Common and the Surviving Corporation Common have not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
or applicable state
47
securities laws, and may not be sold or otherwise transferred by Sleepmaster
unless the Surviving Corporation Common have been registered under the
Securities Act and applicable state securities laws or are sold or transferred
in a transaction exempt therefrom.
6.6. Sleepmaster's Sophistication. Sleepmaster hereby represents that
it, its managers, members of its Board of Advisors and all those directing its
affairs: (i) are sophisticated investors by virtue of their numerous prior
investments and that they are knowledgeable and experienced in financial and
business affairs; and (ii) are capable of evaluating the merits and risks of the
transactions contemplated by the Agreement. Sleepmaster acknowledges that it has
had sufficient access to and has engaged in a comprehensive independent
examination of the Transferred Assets, PBBC's books, records, contracts and
documents related to the Transferred Assets, the Financial Statements, the
IRB-Related Obligations, the Title Policy, the Canal Issue, the ▇▇▇▇▇▇▇ & ▇▇▇▇▇
matter, the Unauthorized Sales, and all other aspects of the transaction
contemplated by the Agreement (the "Transaction") that it determined necessary
to close the Transaction. Sleepmaster further acknowledges that it has had
sufficient opportunity to direct inquiries to PBBC with respect to any matter it
has deemed relevant to the Transaction, and that such examination and all such
inquiries have been completed to its satisfaction.
6.7. ▇▇▇▇-▇▇▇▇▇ ▇▇▇▇▇▇. Sleepmaster Holdings, L.L.C., ultimate
parent entity of Sleepmaster, has annual net sales and total assets (as stated
in its most recent regularly prepared consolidated annual income statement and
balance sheet, prepared in accordance with the accounting principles normally
used by Sleepmaster Holdings, L.L.C. and are of a date not more than 15 months
prior to the Effective Time) of less than One Hundred Million Dollars
($100,000,000).
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS
OF SUB AND SLEEPMASTER
The consummation by Sub and Sleepmaster of the transactions
contemplated hereby is subject to the satisfaction, fulfillment or waiver of
each of the following conditions on or prior to the Closing Date:
7.1. Representations and Warranties True; Obligations
Performed. The representations and warranties of PBBC set forth in Article IV
shall be true and accurate in all material respects, without giving effect to
any qualifications as to Knowledge provided in this Agreement, at and as of the
date of this Agreement and as of the Closing Date as though such representations
and warranties were made on such date, except (a) for changes expressly
permitted or contemplated by this Agreement and (b) to the extent that any such
representations and warranties are made as of a
48
specified date and as to such representations and warranties the same shall be
materially true and correct as of the specified date.
7.2. Officer's Certificate. PBBC shall have delivered a
certificate, signed by its President, dated the Closing Date, certifying to the
satisfaction of the conditions set forth in Sections 7.1, 7.3 through 7.7 and
Sections 7.10 through 7.12.
7.3. No Material Changes. Other than with respect to the
Bankruptcy Receivables, since December 31, 1996 the Business shall not have
suffered or become subject to changes of any kind or nature which either
individually or in the aggregate would have a Material Adverse Effect on the
Business.
7.4. Performance. PBBC shall have performed and complied in
all material respects with all agreements, obligations and conditions required
by this Agreement to be performed or complied with by it on or prior to the
Closing Date.
7.5. Escrow Agreements. Sleepmaster, the Escrow Agent and the
Representative shall have executed and delivered the Indemnity Escrow Agreement
and the Adjustment Escrow Agreement (collectively the "Escrow Agreements"),
substantially in the form of Exhibits C-1 and C-2.
7.6. Shareholders Agreement. The Shareholders Agreement among
the Company Stockholders and PBBC, entered into on or about December 1997, shall
have been terminated pursuant to its terms and the holders of at least 100% of
Aggregate Company Common shall have executed the form of Termination and Waiver
Agreement (the "Termination and Waiver Agreement"), dated the Closing Date,
attached to this Agreement as Exhibit D.
7.7. Consents. All filings with and consents from
administrative, Governmental Entities, regulatory and industry authorities and
other third parties required to be obtained or filed by PBBC to consummate the
transactions contemplated hereby shall have been obtained by PBBC (other than
with respect to the IRB-Related Obligations, the Florida Law, and the Serta
Standard License Agreement), unless the failure to obtain any such consent or
make any such filing would not have a Material Adverse Effect on the Business or
the transactions contemplated hereby, or except to the extent that making any
such filing or obtaining any such consent has been waived in writing by Sub or
Sleepmaster.
7.8. Serta Standard License Agreement. Serta shall have (i)
consented to the transactions contemplated by this Agreement insofar as such
transactions may constitute an event that permits Serta to terminate the Serta
Standard License Agreement and (ii) approved and entered into the Replacement
License.
7.9. Financing. Sub shall have received debt and equity
financing from one or more sources sufficient to consummate the transactions
contemplated by this
49
Agreement and to provide working capital to the Surviving Corporation after the
Merger.
7.10. Dissenters Rights. The holders of not more than 20% of
the Company Common shall have exercised their dissenters' rights pursuant to
Sections 607.1302 and 607.1320 of the Florida Law.
7.11. No Proceedings. No Action instituted by a Person or
entity other than Sleepmaster or Sub, or any of their respective Affiliates,
members or managers, shall be pending before any court or quasi-judicial or
administrative agency of any federal, state, local, or foreign jurisdiction or
before any arbitrator wherein an unfavorable injunction, judgment, order,
decree, ruling, or charge would (a) prevent consummation of any of the
transactions contemplated by this Agreement, (b) cause any of the transactions
contemplated by this Agreement to be rescinded following consummation or (c)
materially affect adversely the right of the Surviving Corporation to operate
the Business (and no such injunction, judgment, order, decree, ruling, or charge
shall be in effect).
7.12. Deliveries. PBBC shall have made all of the deliveries
to Sub required in Article IX.
7.13. Consummation. The consummation by Sleepmaster and Sub of
the transactions contemplated hereby, as evidenced by their participation,
pursuant to the terms of this Agreement, at the Closing, shall be conclusive
evidence of the satisfaction, fulfillment or waiver of each of the conditions
described in this Article VII on or prior to the Closing Date.
ARTICLE VIII
CONDITIONS TO THE
OBLIGATIONS OF PBBC
The obligation of PBBC to consummate the transactions to be
performed by PBBC in connection with the Closing is subject to the satisfaction
or fulfillment of each of the following conditions on or prior to the Closing
Date:
8.1. Representations and Warranties True; Obligations
Performed. The representations and warranties of Sub set forth in Article V and
the representations and warranties of Sleepmaster set forth in Article VI shall
be true and accurate in all material respects, without giving effect to any
qualifications as to knowledge provided in this Agreement, at and as of the date
of this Agreement and as of the Closing Date, except for changes expressly
permitted or contemplated by this Agreement and except to the
50
extent that any such representations and warranties are made as of a specified
date and as to such representations and warranties the same shall be materially
true and correct as of the specified date.
8.2. Officer's Certificate. Each of Sleepmaster and Sub shall
have delivered a certificate, signed by its Manager and President, dated the
Closing Date, certifying to the satisfaction of the conditions set forth in
Sections 8.1, 8.3, 8.4(a) and 8.5 through 8.8.
8.3. Performance. Each of Sleepmaster and Sub shall have
performed and complied in all material respects with all agreements, obligations
and conditions required by this Agreement to be respectively performed or
complied with by them on or prior to the Closing Date.
8.4. Consents.
(a) All filings with and consents from administrative or
Governmental Entities required to have been obtained or filed by Sleepmaster or
Sub to consummate the transactions contemplated hereby shall have been obtained
by Sleepmaster or Sub, unless the failure to obtain any such consent (other than
with respect to the Essential Contract) or make any such filing would not have a
Material Adverse Effect on the transactions contemplated hereby or except to the
extent that making any such filing or obtaining any such consent has been waived
in writing by PBBC.
(b) The transactions contemplated by this Agreement shall have
been approved by the holders of a majority of the Company Common, as required by
Section 607.1103 of the Florida Law.
8.5. Employment Agreements. PBBC and the Company shall have
executed and delivered (i) those Employment Agreements with ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇,
▇▇▇▇▇▇ ▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇ (the "Employment Agreements"), each in the form of
Exhibits E, F and G.
8.6. Escrow Agreements. Sleepmaster, the Escrow Agent and the
Representative shall have executed and delivered the Escrow Agreements.
8.7. No Proceedings. No Action instituted by a Person or
entity other than PBBC or any of its officers, directors or shareholders shall
be pending or threatened before any court or quasi- judicial or administrative
agency of any federal, state, local or foreign jurisdiction or before any
arbitrator wherein an unfavorable injunction, judgment, order, decree, ruling or
charge would (a) prevent consummation of any of the transactions contemplated by
this Agreement or (b) cause any of the transactions contemplated by this
Agreement to be rescinded following consummation (and no such injunction,
judgment, order, decree, ruling or charge shall be in effect).
51
8.8. Deliveries. Each of Sleepmaster and Sub shall have made
all of the deliveries to PBBC required in Article X.
8.9. Consummation. The consummation by PBBC of the
transactions contemplated hereby, as evidenced by its participation, pursuant to
the terms of this Agreement, at the Closing, shall be conclusive evidence of the
satisfaction, fulfillment or waiver of each of the conditions described in this
Article VIII on or prior to the Closing Date.
ARTICLE IX
DELIVERIES BY PBBC
AT THE CLOSING
At the Closing, PBBC shall deliver to Sleepmaster and Sub the
following:
9.1. Consents. Copies of all executed consents,
authorizations, approvals, notices, registrations and filings required by
Section 7.7 to be obtained by PBBC.
9.2. Opinion of Counsel. The executed opinion of ▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇, P.A., counsel to PBBC, substantially in the form of Exhibit H. In
rendering this opinion, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, P.A., as to factual matters that
affect its opinion, may rely solely on its examination of applicable
documentation and certificates from and under seal of the current members of
PBBC's Board of Directors and the Company Stockholders (collectively, the
"Support Documents") and shall not have been required to have conducted any
independent verification of the facts contained in the Support Documents,
including without limitation, the representations and warranties contained
therein of the current members of PBBC's Board of Directors and the Company
Stockholders or third party(ies) rendered in any of the Support Documents.
9.3. Certificate. PBBC's executed officer's certificate
referred to in Section 7.2.
9.4. Employment Agreements. The duly executed Employment
Agreements.
9.5. Escrow Agreements. The duly executed Escrow Agreements,
duly executed by the Representative.
9.6. Termination and Waiver Agreement. The Termination and
Waiver Agreement, duly executed by the holders of 100% of the Aggregate Company
52
Common.
9.7. Powers of Attorney. The Powers of Attorney duly executed
by each of the holders of Company Common other than Dissenters' Shares.
9.8. Secretary's Certificates. An executed certificate of an
officer of PBBC, dated as of the Closing Date, certifying as to (i) resolutions
adopted by its Board of Directors and its stockholders, authorizing this
Agreement and the transactions contemplated hereby and incident thereto and (ii)
the incumbency and signatures of its executive officers.
9.9. Charter Documents. (a) The Certificate of Incorporation
and all amendments thereto of PBBC, duly certified as of a recent date by the
Secretary of State of the State of Florida; (b) the By-Laws of PBBC, duly
certified by its Secretary as being in force at all times since at least January
1, 1997; and (c) a good standing certificate issued as of a recent date with
respect to PBBC by the Secretary of State of the State of Florida and each state
in which PBBC is qualified to conduct business.
9.10. Other. Such other documents or certificates as shall be
reasonably requested by Sleepmaster or its counsel.
ARTICLE X
DELIVERIES BY SLEEPMASTER
AND SUB AT THE CLOSING
At the Closing, Sub shall deliver and Sleepmaster shall cause
to be delivered to PBBC the following:
10.1. Payment of the Closing Merger Consideration. Sub shall
have paid and Sleepmaster shall have caused to have been paid to the
Representative and the Escrow Agent, the Closing Merger Consideration in the
manner described in Articles II and III of this Agreement.
10.2. Opinion of Counsel. The executed opinion of ▇▇▇▇▇▇▇▇▇▇ &
▇▇▇▇▇, a Professional Corporation, counsel to Sub and Sleepmaster, substantially
in the form of Exhibit I. In rendering this opinion, ▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇, as to
factual matters that affect its opinion, may rely solely on its examination of
applicable documentation and certificates from and under seal of the current
members of Sub's Board of Directors, Sleepmaster's managers and Sleepmaster's
members (collectively, the "Support Documents") and shall not have been required
to have conducted any independent verification of the facts contained in the
Support Documents, including without limitation, the representations and
warranties contained therein of the current members of Sub's Board of Directors,
Sleepmaster's managers and Sleepmaster's members or
53
third party(ies) rendered in any of the Support Documents.
10.3. Consents. Copies of all consents, authorizations,
approvals, notices, registrations and filings required by Section 8.4(a) to be
obtained by Sub and Sleepmaster.
10.4. Officer's Certificate. Sub's and Sleepmaster's executed
officer's certificate referred to in Section 8.2.
10.5. Secretary's Certificate. An executed certificate of the
Secretary or Assistant Secretary of Sub, dated as of the Closing Date, (i)
attaching a copy of the Articles of Incorporation of Sub, duly certified as of a
recent date by the Department of State of the State of Florida; (ii) attaching a
copy of the By-Laws of Sub and certifying that said By-Laws are true and
complete and have been in effect since the date of incorporation of Sub; (iii)
attaching a copy of the good standing certificate issued as of a recent date
with respect to Sub by the Department of State of the State of Florida; (iv)
certifying as to the resolutions adopted by the Board of Directors and
stockholders of Sub authorizing this Agreement and the transactions contemplated
hereby and incident thereto and (v) certifying as to the incumbency and
signatures of certain officers of Sub.
10.6. Manager's Certificate. An executed certificate of the
Manager of Sleepmaster, dated as of the Closing Date, (i) attaching a copy of
the Articles of Formation of Sleepmaster, duly certified as of a recent date by
the Secretary of State of the State of New Jersey; (ii) attaching a copy of the
Amended and Restated Operating Agreement of Sleepmaster (the "Operating
Agreement") and certifying that said Operating Agreement has been in effect
since January 1, 1997; (iii) attaching a copy of the Certificate of Existence
issued as of a recent date with respect to Sleepmaster by the Secretary of State
of the State of New Jersey; (iv) certifying as to the resolutions adopted by its
Board of Directors (or body with similar duties) and members (or body with
similar duties) authorizing this Agreement and the transactions contemplated
hereby and incident thereto and (v) certifying as to the incumbency and
signatures of certain managers of Sleepmaster.
10.7. Written Offer to holders of Dissenting Shares. The
Surviving Corporation shall, pursuant to Florida Law, have deliver to each
holder of Dissenting Shares a written offer to pay to such holder of Dissenting
Shares, in an amount deemed by the Surviving Corporation to constitute the fair
value of the aggregate of such holder's Dissenting Shares owned at the Effective
Time.
10.8. Other. Such other documents or certificates as shall be
reasonably requested by PBBC or its counsel.
54
10.9. Escrow Agreements. The duly executed Escrow Agreements,
duly executed by the Surviving Corporation and the Escrow Agent.
ARTICLE XI
COVENANTS OF PBBC, SLEEPMASTER AND
SUB PRIOR TO CLOSING
11.1. General. Each of Sleepmaster, Sub and PBBC will use its
commercially reasonable best efforts to (a) take all action, (b) cooperate and
(c) do all things reasonably necessary in order to consummate and make effective
the transactions contemplated by this Agreement (including satisfaction, but not
waiver, of the closing conditions set forth in Articles VII and VIII).
11.2. Provide Access to Information. Prior to the Closing
Date, (a) PBBC shall afford to Sleepmaster and Sub, their attorneys,
accountants, lenders and representatives (its "Advisors") reasonable access
during normal business hours and upon reasonable prior notice to the President
of PBBC (provided, that Sleepmaster and Sub and the Advisors will undertake such
access in a manner so as not to interfere with the normal business operations of
PBBC), to the books and records of PBBC in order that Sub and its Advisors may
have full opportunity to make such investigation as they shall reasonably desire
of the Business, and (b) PBBC shall provide to Sub and its Advisors such
additional financial and operating data and other information as to the
Business, as Sleepmaster and Sub or their Advisors shall from time to time
reasonably request.
11.3. Conduct Prior to Closing Date. PBBC will not from the
date of its execution of this Agreement through and including the Closing Date
engage in any practice, take any action or enter into any transaction outside
the Ordinary Course of Business. Without limiting the generality of the
foregoing, PBBC shall not engage in any practice, take any action or enter into
any transaction outside the Ordinary Course of Business, the primary purpose or
effect of which will be to generate or preserve cash or cash equivalents. In
addition, PBBC shall not intentionally interfere with the goodwill of or
intentionally seek to adversely effect the contractual relationships with PBBC's
customers, distributors, suppliers and others having business relations with
PBBC and shall not expend or convert any of the assets in the Project Account
referred to in Section 11.9(c), except that PBBC shall be authorized to expend
any sum from the Project Account to enhance or improve the Facility or to
acquire equipment which will be owned by the Surviving Corporation at the
Effective Time in accordance with the IRB Obligations.
11.4. Prohibited Transactions Prior to Closing Date. Except as
otherwise contemplated by this Agreement or permitted by the prior written
consent of Sub or Sleepmaster, prior to the Closing Date, PBBC shall not become
a party to any agreement which, if it existed on the date of this Agreement,
would be required to be
55
listed in the Disclosure Schedules, unless PBBC enters into such agreement in
the Ordinary Course of Business; provided, that nothing in this Section shall
relieve PBBC of its obligations under Section 11.7 to provide an Update Notice
(as defined in such Section) or to modify any of the Disclosure Schedules to
this Agreement with respect to any agreement referred to above in this Section.
11.5. Confidentiality.
(a) Except as required by any court order or decree,
regulatory authorities, Governmental Entities or applicable law, Sub and
Sleepmaster (i) prior to the Closing shall, and shall cause its respective
officers, directors, members and managers and Advisors to hold in strict
confidence and not disclose to others for any reason whatsoever, without the
prior written consent of PBBC, any non-public information received by it from
PBBC in connection with the transactions contemplated by this Agreement or the
Exhibits hereto all in accordance with the terms and conditions of that certain
Confidential Disclosure Agreement, dated October 7, 1997, for identification
purposes, by and between Sleepmaster and PBBC, which terms and conditions are
incorporated into this Agreement and will continue to survive pursuant to its
terms, and (ii) will not use such information for any purpose in the event that
the Closing does not occur under this Agreement.
(b) Except as required by any court order or decree,
regulatory authorities, Governmental Entities or applicable law, the Surviving
Corporation (i) after the Closing shall, and shall cause its officers, directors
and Advisors to, hold in strict confidence, and not disclose to others for any
reason whatsoever, without the prior written consent of the Representative, any
non-public information concerning the conduct, affairs or operation of the
Business, and (ii) Sleepmaster will not use any non-public information received
by it from PBBC for any purpose in the event the Closing does not occur under
this Agreement. Except as required by any court order or decree, regulatory
authorities, Governmental Entities or applicable law, Sleepmaster, the Surviving
Corporation and their respective officers, directors, managers, members and
Advisors shall hold in strict confidence and not disclose to others for any
reason whatsoever, the terms, conditions and consideration described in this
Agreement.
11.6. Notices and Consents. PBBC will give any notices to
third parties, and PBBC will use its commercially reasonable efforts to obtain
any third party consents, that Sub reasonably may request in connection with the
matters referred to in Section 4.3(b). Sub and Sleepmaster will give any notices
to third parties and, except as set forth in this Agreement, Sub and Sleepmaster
will use commercially reasonable efforts to obtain any third party consents that
PBBC reasonably may request in connection with the matters referred to in
Section 6.2(b). Each of the Sub, Sleepmaster and PBBC will give any notices to,
make any filings with, and use commercially reasonable efforts to obtain any
authorizations, consents, and approvals of governments and governmental agencies
in connection with the matters referred to in Section 4.3(b), Section 5.2(b) and
Section 6.2(b).
56
11.7. Notice of Developments. With regard to any
representation or warranty of PBBC contained in this Agreement or prospective
Interim Financial Statements, PBBC shall promptly notify Sub and Sleepmaster in
writing (the "Update Notice") of any change in the information included in such
representation or warranty or any Schedule delivered by PBBC pursuant thereto
("development"), which change would cause such representation or warranty to be
untrue as of the date hereof or as of the Closing Date. Unless Sub or
Sleepmaster exercises its right to terminate this Agreement, pursuant to Section
14.1 by reason of the development, and exercises that right within ten (10)
business days of the receipt of the Update Notice, the Update Notice given
pursuant to this Section 11.7 will be deemed to have amended the Disclosure
Schedule, to have qualified the representations and warranties contained in this
Agreement, and to have cured any misrepresentation or breach of warranty that
otherwise might have existed hereunder by reason of the development.
11.8. Exclusivity. From the date of this Agreement until March
16, 1998 (the "Exclusivity Termination Date"), PBBC shall not, and shall cause
its representatives, officers, directors, agents, stockholders or Affiliates
(all such persons and entities, the "Seller Group") to not, initiate, solicit,
entertain, negotiate, accept or discuss, directly or indirectly, any proposal or
offer (an "Acquisition Proposal") to acquire all or any significant part of the
Business or the properties, capital stock equivalents of PBBC and/or any of its
Affiliates, whether by merger, purchase of stock, purchase of assets, tender
offer or otherwise (a "Third Party Acquisition"), or provide any non-public
information to any third party in connection with an Acquisition Proposal or
enter into any agreement, arrangement or understanding requiring PBBC to
abandon, terminate or fail to consummate the transactions contemplated hereby.
11.9. Permitted Dividends and Other Actions.
(a) Notwithstanding any other provision of this
Agreement to the contrary, at any time prior to the Effective Time, PBBC shall
sell, transfer, dividend or otherwise assign and distribute the following assets
of PBBC to or for the benefit of the holders of the Company Common
(collectively, the "Excluded Assets") without any reduction in the Closing
Merger Consideration:
(i) all right, title and interest of PBBC in the
Excluded Real Estate and in all cash and notes receivable
proceeds resulting from any sale, exchange or other
disposition of any Excluded Real Estate prior to the Closing
Date;
(ii) all right, title and interest of PBBC in notes
receivable from the prior sale of PBBC's Miami, Florida
warehouse;
57
(iii) all right, title and interest of PBBC in all
cash surrender values on life insurance policies owned by PBBC
on officers, directors and shareholders of PBBC, as well as
the underlying life insurance policies;
(iv) all right, title and interest of PBBC in those
notes and accounts receivable owned by PBBC as of the Closing
Date and itemized on Schedule 11.9(a)(iv);
(v) the Bankruptcy Receivables of PBBC, as of the
Closing Date, as itemized on Schedule 11.9(a)(v). The
Surviving Corporation and Sleepmaster covenant that they shall
provide reasonable assistance to the Common Stockholders,
without consideration, in collecting these items after the
Closing in its Ordinary Course of Business;
(vi) all promissory notes payable to PBBC from any of
PBBC's officers, directors or shareholders, owned by PBBC as
of the Closing Date; and
(vii) any proceeds of any of the foregoing (i)
through (vi).
(b) Subject to Section 11.3, at any time prior to the Closing,
PBBC may dividend or otherwise distribute the Unrestricted Cash without any
reduction in the Fixed Closing Merger Consideration, but with a corresponding,
dollar-for-dollar reduction in the Variable Closing Merger Consideration.
(c) In addition to distributions permitted under clauses (b)
and (c) above in this Section, PBBC shall also be permitted to make
distributions to the holders of the Company Common to enable them to pay federal
and state income taxes imposed upon them as a result of the allocation of PBBC's
income to them, consistent with the Ordinary Course of the Business.
ARTICLE XII
SURVIVAL
12.1. Survival. Notwithstanding any other provision of this
Agreement to the contrary, none of representations and warranties contained in
this Agreement, the Exhibits or the Disclosure Schedules with respect to such
provisions and none of the covenants of the Parties contained in Article XI and
elsewhere in this Agreement shall survive the Closing or provide any basis for
any cause of action or claim against such Parties or their respective
shareholders, employees, members, managers, representatives, officers and
members of their respective boards of directors or advisors, as the case shall
be, from and after the Closing, other than those contained
58
Sections 3.2, 3.6, 4.14(e), Surviving Pre-Closing Covenants, and Sections 13.1
through 13.15, all of which shall, and are expressly agreed to, survive in
accordance with their respective terms. Subject to Section 12.3 and Article
XIII, the sole and exclusive remedy of Sub and Sleepmaster or PBBC (or their
respective officers, directors, shareholders, members, managers, employees and
representatives) for any such breach of the representations, warranties and
pre-closing covenants contained in this Agreement shall be to terminate this
Agreement prior to the Closing, as provided in clauses (ii) or (iii) of Section
14.1. Subject to Section 12.3 and as provided in Article XIII, the sole and
exclusive purpose of any Party providing its representations, warranties and
pre-closing covenants, other than the Surviving Pre-Closing Covenants, pursuant
to this Agreement, is to provide all other party(ies) to this Agreement with an
information gathering mechanism and conditions to Closing and not for the
purpose of providing such other Party(ies) (or their respective officers,
directors, shareholders, members, managers, employees and representatives) the
benefit of any indemnification from or against any adverse consequences
resulting from any inaccuracy with respect to any Party's representations,
warranties and pre-closing covenants, other than the Surviving Pre-Closing
Covenants. Subject to Section 12.3 and as provided in Article XIII, all
representations, warranties and pre-closing covenants of the Parties hereto,
other than the Surviving Pre-Closing Covenants, will, upon Closing, merge into
the respective instruments of conveyance, cease to exist and become null and
void, and such Party's representations, warranties and pre-closing covenants,
other than the Surviving Pre-Closing Covenants, shall not provide any contingent
post-closing liability for such Party(or any of its officers, employees,
representatives, members, managers, directors, advisors or shareholders),
regardless of the extent of any pre-closing investigation undertaken by such
Party (or any of its officers, employees, representatives, members, managers,
directors, advisors or shareholders) or by the other Party(ies) hereto (or their
respective officers, directors, advisors, shareholders, members, managers,
employees and representatives); and that should any such other Party discover
any inaccuracy in any of a Party's representations or warranties prior to
Closing, such other Party shall be obligated to acknowledge and accept such
inaccuracy in writing and proceed to Closing or to terminate the transactions
contemplated by this Agreement.
12.2. Indemnity. In furtherance of the foregoing provisions
contained in this Article XII, Sleepmaster will indemnify each individual who
served as a director or officer of PBBC at any time prior to the Effective Time
from and against any and all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid
in settlement, liabilities, obligations, taxes, liens, losses, expenses and
fees, including all court costs and reasonable attorneys' fees and expenses,
resulting from, arising out of, relating to, in the nature of, or caused by
claims or actions instituted by Sub, Sleepmaster or their respective officers,
directors,
59
managers, shareholders or members, at law, in equity, by statute, contract or
otherwise, arising out of or related in any way to this Agreement or any of the
transactions contemplated by this Agreement, provided that this Section 12.2
shall not apply to any claims or actions with respect to any Surviving
Pre-Closing Covenants, post Closing obligations or claims referred to in Section
12.3.
12.3. Fraud In Fact. Notwithstanding the foregoing, Section
12.1 shall not preclude any claims against a party for actual fraud in fact (as
opposed to constructive fraud or fraud in law) committed by such party.
ARTICLE XIII
INDEMNIFICATION FROM THE
INDEMNITY ESCROW
13.1. For purposes of this Article, (a) "Indemnity Payment"
means any amount of Indemnifiable Losses required to be paid to an Indemnitee
pursuant to this Section 13.1, 13.2 or Section 13.5, (b) "Indemnitee" means
Sleepmaster and the Surviving Corporation, (c) "Indemnifiable Losses" means any
and all damages, losses, liabilities, obligations, costs and expenses actually
incurred or suffered, and any and all claims, demands or suits (by any person or
entity, including without limitation any Governmental Entity), including,
subject to Section 13.9(ii) hereof, the costs and expenses of any and all
Actions, demands, assessments, judgments, settlements and compromises relating
thereto and including reasonable attorneys' fees and expenses in connection
therewith, after giving effect to all actual insurance indemnities actually
received by and all tax savings actually realized by the Indemnitee, solely with
respect to the Indemnification Obligations (as defined in Section 13.2) provided
under this Article XIII, and (d) "Third Party Claims" means any Action made or
brought by any Person which is not a Party or an Affiliate of a Party against
the Surviving Corporation or Sleepmaster and as to which an Indemnitee is
entitled to indemnification under Section 13.5.
13.2. Subject to the dollar limitations set forth in Section
13.3, the Indemnitee shall be indemnified and held harmless, solely by the
principal funds in the Indemnity Escrow, from and against any and all
Indemnifiable Losses, as and when incurred, relating to, resulting from, or
arising out of (i) the Excluded Real Estate (the "Excluded Real Estate
Indemnity"); (ii) any breach of the Surviving Pre-Closing Covenants by PBBC
prior to the Closing (the "Pre-Closing Covenant Indemnity"); and (iii) any
inaccuracy in or any breach of the representation and warranty of PBBC contained
in Section 4.14(e) of this Agreement, which inaccuracy or breach results in the
Surviving Corporation having liability for United States federal or State of
Florida corporate income taxes resulting solely from a loss by PBBC of its
status as an "S" corporation for both federal and Florida income tax purposes at
a time that is prior to the Effective Time (the "Tax Indemnity").
Notwithstanding the foregoing, in no event will
60
the Tax Indemnity apply to any Indemnifiable Losses sustained by any Indemnitee
due to (i) the invalidity of the Section 338(h)(10) election resulting from a
loss by PBBC or a failure of PBBC to maintain its status as an "S" corporation,
for either federal or Florida income tax purposes, prior to the Effective Time,
or, except as specifically described in the Tax Indemnity, (ii) from any other
inaccuracy in or any breach of the representations and warranties of PBBC other
than that contained in Section 4.14(e). The Tax Indemnity, the Pre-Closing
Covenant Indemnity and the Excluded Real Estate Indemnity are collectively
referred to herein as the "Indemnification Obligations."
13.3. Notwithstanding any other provision of this Agreement or
of any applicable Law, no Indemnitee will be entitled to make a claim against
the Indemnity Escrow other than for any Indemnifiable Losses related solely to
the Indemnification Obligations. No Indemnitee will be entitled to recover any
payments to the extent that such Indemnifiable Losses exceed, when aggregated
with all other payments received by all other Indemnitees from the Indemnity
Escrow, the principal sum of Two Million Eight Hundred Thousand Dollars
($2,800,000) (the "Indemnification Cap"), which amount shall be the maximum
aggregate liability to which the Indemnity Escrow shall be subject under this
Agreement.
13.4. The Parties shall make appropriate adjustments for tax
benefits actually realized and insurance coverage actually received in
determining Indemnifiable Losses for purposes of this Agreement. If and to the
extent that any Indemnitee collects insurance proceeds in respect of an
Indemnifiable Loss after the Indemnitee has been reimbursed in full for such
Indemnifiable Loss, the Indemnitee shall pay over such proceeds to the
Representative for distribution to the Company Stockholders (other than holders
of any Dissenting Shares).
13.5. (a) If any Indemnitee receives notice of assertion or
commencement of any Third Party Claim against such Indemnitee with respect to
which the Indemnity Escrow is obligated to provide reimbursement of
Indemnifiable Losses under this Article XIII, the Indemnitee will give the
Representative (on behalf of the holders of Company Common other than holders of
Dissenting Shares) reasonably prompt written notice thereof, but in any event
not later than (i) twelve (12) calendar days after receipt by such Indemnitee of
such notice of such Third Party Claim that a legal proceeding or arbitration has
been commenced or after receipt of any letter from the Internal Revenue Service
requiring a response to maintain an administrative or judicial right of review
or appeal with respect to the Indemnification Obligations arising from matters
occurring prior to the Effective Time or (ii) twenty (20) days in the case of
all other Third Party Claims, subject to Section 13.9(i). Such notice (the
"Third Party Claim Notice") will describe the Third Party Claim in reasonable
detail, will include copies of all material written evidence thereof and notices
received from such third parties and will indicate the estimated amount, if
known and quantifiable, of the
61
Indemnifiable Loss that has been or may be sustained by the Indemnitee. The
Representative (on behalf of the holders of Company Common other than holders of
Dissenting Shares) shall have twelve (12) days from its receipt of a Third Party
Claim Notice (the "Third Party Claim Notice Period") to notify Indemnitee
whether the Representative (on behalf of the holders of Company Common other
than holders of Dissenting Shares) disputes the Indemnitee's right of
indemnification with respect to such Third Party Claim from the Indemnity Escrow
or if the Representative (on behalf of the holders of Company Common other than
holders of Dissenting Shares) does not dispute such right of indemnification,
whether or not it desires to defend the Indemnitee against such Third Party
Claim. The Parties acknowledge (x) the rights of the holders of Company Common
(other than the holders of Dissenting Shares) to the Indemnity Escrow deposited
with the Escrow Agent under the Indemnity Escrow Agreement, subject to the
Indemnification Obligations and (y) that for the remaining portions of this
Article XIII the Representative shall always be acting on behalf of the holders
of Company Common other than the holders of Dissenting Shares.
(b) If the Representative notifies the Indemnitee
within the Third Party Claim Notice Period that (i) the Representative does not
dispute the Indemnitee's right of indemnification and (ii) the Representative
desires to defend against such Third Party Claim, then the Representative shall
have the right to assume and control the defense of such Third Parry Claim by
appropriate proceedings with counsel reasonably acceptable to Indemnitee, at the
Representative's sole cost and expense; provided, that such rights shall adhere
and last only so long as (A) prior to assuming such defense, the Representative
notifies the Indemnitee in writing within 30 days after the Indemnitee has given
notice of the Third Party claim that the Indemnity Escrow will, subject to the
Indemnification Cap, indemnify the Indemnitee from and against any adverse
consequences the Indemnitee may suffer resulting from, arising out of, relating
to, in the nature of, or caused by the Third Party Claim, (B) the Third Party
Claim involves only money damages and does not seek an injunction or other
equitable relief, and (C) the Representative conducts the defense of the Third
Party Claim actively and diligently. The Indemnitee may participate in, but not
control, any such defense or settlement, at its sole cost and expense, and, if
the size of the Third Party Claim is such that the Indemnitee has reasonably
determined that its potential loss in connection with such Third Party Claim is
at least twice the principal amount of the funds in the Indemnity Escrow, the
Indemnitee may elect to participate in the defense thereof, and thereafter no
material decisions shall be made without the Indemnitee's prior written consent.
(c) If the Representative (i) disputes the
Indemnitee's right of indemnification with respect to a Third Party Claim, (ii)
does not dispute such right of indemnification but fails to promptly assume and
prosecute the defense of such Third Party Claim, or (iii) is not entitled to
assume defense of such Third Party Claim under Section 13.5(b), then the
Indemnitee shall be obligated to assume and control the defense of such Third
Party Claim and shall diligently pursue such defense with counsel reasonably
acceptable to the Representative. If the Representative does not assume
62
the defense of a Third Party Claim for any reason, it may still participate in,
but not control, the defense of such Third Party Claim at the Representative's
sole cost and expense.
(d) The party responsible for the defense of any
Third Party Claim (the "Responsible Party") shall, to the extent reasonably
requested by the other person or entity described in this Section 13.5, keep
such other person or entity informed as to the status of any Third Party Claim
for which such other person or entity is not the Responsible Party, including,
without limitation, all settlement negotiations and offers. With respect to a
Third Party Claim for which the Representative is the Responsible Party, the
Indemnitee shall make available to the Representative and its representatives
all books and records of the Indemnitees relating to such Third Party Claim and
shall render to the Representative such assistance and access to records and the
representatives of the Indemnitee as the Representative and its representatives
may reasonably request, except that the Indemnitee shall not be required to make
available to the Representative any books, records, documents or other
information that the Indemnitee reasonably determines to be confidential or
subject to attorney-client privilege unless and until the Representative shall
have entered into such agreements as the Indemnitee reasonably deems to be
necessary in light of all surrounding circumstances (including, without
limitation, the Representative's need for information in connection with the
investigation or defense of a Third Party Claim) to protect such confidentiality
or privilege.
(e) Neither the Representative, on the one hand, nor
the Indemnitee, on the other hand, shall enter into any settlement of any Third
Party Claim subject to indemnification under this Article XIII of this Agreement
in an amount in excess of One Hundred Thousand Dollars ($100,000) without the
prior written consent of the other party, which consent shall not be
unreasonably withheld. The Responsible Party shall promptly notify the other
party of each settlement offer (including whether or not the Responsible Party
is willing to accept the proposed settlement offer) with respect to a Third
Party Claim. In the case of any settlement involving more than One Hundred
Thousand Dollars ($100,000), such other person or entity agrees to notify the
Responsible Party with reasonable promptness whether or not such party is
willing to accept the proposed settlement offer, and if not, his objections
thereto in reasonable detail and the offer that he would accept. If an
Indemnitee fails to consent to any settlement offer of a Third Party Claim
(whether or not the Indemnitee is the Responsible Party with respect to such
Third Party Claim), the Indemnitee may continue to contest or defend such Third
Party Claim and, in such event, the maximum liability of the Indemnity Escrow
with respect to such Third Party Claim (including the reasonable costs and
expenses of contesting or defending such Third Party Claim incurred after the
Indemnitee fails to consent to such settlement offer) shall not exceed the full
amount of such settlement offer plus the reasonable costs and expenses of
contesting or defending such Third Party Claim to the extent incurred before the
Indemnitee failed to consent to such settlement offer.
63
13.6. The Representative will have a period of 30 calendar
days within which to respond in writing to any claim by an Indemnitee on account
of an Indemnifiable Loss which does not result from a Third Party Claim (a
"Direct Claim"). If the Representative rejects such claim within such 30-day
period or if the Representative does not so respond within such 30 calendar day
period, the Representative will be deemed to have rejected such claim, in which
event the Indemnitee will be free to pursue such remedies, subject to Section
13.10 hereof, as may be available to the Indemnitee, with each monetary recovery
being paid from the Indemnity Escrow. In no event, however, can the aggregate
recovery of the Indemnitee with respect to a Direct Claim (including the fees
and expenses incurred in connection with the defense of such claim), when
aggregated with all other amounts paid to all Indemnitees from the Indemnity
Escrow, exceed the Indemnification Cap.
13.7. All Indemnity Payments under this Agreement shall be
deemed adjustments to the Closing Merger Consideration under the Merger
Agreement.
13.8. All amounts to be paid from the Indemnity Escrow shall
be released upon the joint written instructions of the Surviving Corporation and
the Representative or as a court of competent jurisdiction otherwise directs.
13.9. The obligations to indemnify the Indemnitee, pursuant to
this Article XIII of this Agreement, shall be limited as follows: (i) the
Indemnitee shall be entitled to indemnification from the Indemnity Escrow only
if and to the extent that the Representative has received written notice from
the Indemnitee of a claim for indemnification: (A) within twelve (12) days after
such Indemnitee has received notice of a claim or demand for which a legal
proceeding or arbitration has been commenced or after receipt of any letter from
the IRS requiring a response to maintain an administrative or judicial right of
review or appeal with respect to the Indemnification Obligations and matters
occurring prior to the Effective Time has been received; or (B) not later than
twenty (20) days in the case of all other Third Party Claims; provided, that a
failure to give timely notice or to include any specified information in any
notice as provided in Section 13.9(i)(B) above will not affect the rights of an
Indemnitee to indemnification from the Indemnity Escrow except and only to the
extent that, as a result of such failure, the Representative was actually
prejudiced as a result of such failure; and (ii) the Indemnitee shall not be
entitled to indemnification with respect to its investigation and/or litigation
of a claim, including but not limited to such Indemnitee's attorney's fees,
paralegal fees, disbursements and any applicable taxes thereon, whether incident
to trial, appellate or arbitration proceedings or negotiations, if the Indemnity
Escrow is ultimately not liable for any payments to a prevailing party in any
such legal matter. Notwithstanding any other provision of this Agreement to the
contrary, if a counterclaim is asserted to any Third Party Claim with respect to
the Excluded Real Estate, any recovery on the counterclaim in excess of any
payment made or to be made with respect to the Third Party Claim shall be paid
to the Representative for distribution to the Company Stockholders other than
the holders of Dissenting Shares. For the avoidance of any doubt, in the event
64
an Indemnitee incurs Indemnifiable Losses with respect to the Tax Indemnity, and
as a result thereof the Company Stockholders file amended individual income tax
returns and obtain federal or state income tax refunds with respect to amounts
of income originally reported on their respective personal income tax returns
but properly reportable by PBBC, then such federal or state income tax refunds
shall remain the sole property of the Company Stockholders with no Indemnitee
having any claim to such property.
13.10. Each Indemnitee acknowledges and agrees that, subject
to Section 12.3, the foregoing indemnification provisions in this Article XIII
of this Agreement shall be the exclusive remedy of such Indemnitee with respect
to this Agreement and the transactions contemplated by this Agreement and,
without limiting the generality of the foregoing, each Indemnitee acknowledges
and agrees that such Indemnitee shall not have any remedy after the Closing
under this Agreement for any breach of the representations and warranties of
PBBC in this Agreement and each other agreement and the transactions
contemplated by this Agreement, other than as specifically provided in this
Article XIII of this Agreement. Except with respect to any claims or actions
concerning any Surviving Pre-Closing Covenants, post Closing obligations or
claims referred to in Section 12.3, each Indemnitee hereby waives any right,
whether arising at law or in equity, to seek contribution, cost recovery,
damages or any other recourse or remedy from the Company Stockholders, the
Representative on behalf of the Company Stockholders and/or any other
indemnifying parties, and hereby releases the Company Stockholders, the
Representative on behalf of the Company Stockholders and/or any other
indemnifying parties, from any claim, demand or liability. EACH INDEMNITEE
HEREOF IRREVOCABLE COVENANTS AND AGREES NOT TO SEEK A DEFICIENCY JUDGMENT
AGAINST ANY OF THE COMPANY STOCKHOLDERS OR THE REPRESENTATIVE ON BEHALF OF THE
COMPANY STOCKHOLDERS ON OR WITH RESPECT TO THE INDEMNIFICATION OBLIGATIONS
SUBSEQUENT TO THE FUNDING OF THE INDEMNITY ESCROW AS ABOVE PROVIDED, AND EACH
INDEMNITEE AGREES THAT THE COLLECTION OF THE INDEMNIFIABLE LOSSES WITH RESPECT
TO THE INDEMNIFICATION OBLIGATIONS EVIDENCED BY THIS AGREEMENT WILL BE ENFORCED
SOLELY AGAINST THE INDEMNITY ESCROW DESCRIBED IN THIS AGREEMENT.
13.11. (a) In the event the Representative and the Indemnitee
determine that the Indemnitee is entitled to receive any reimbursement with
respect to Indemnified Losses or the Representative and the Indemnitee determine
that a Third Party Claim is due and payable, each in respect solely to the
Indemnification Obligations, the Representative and the Indemnitee shall issue
joint written instructions to direct the Escrow Agent to distribute to the
Indemnitee, or to the Third Party claimant, such portion of the Indemnity
Escrow. The Escrow Agent, subject to the terms of the Indemnity Escrow
Agreement, shall release all or any portion of the Indemnity Amount only upon
(i) receipt of joint written instructions from the Representative and the
Surviving Corporation, stating the amount and manner in which the Indemnity
Escrow is to be distributed (including specific payment instructions) or (ii) an
order of a court of competent jurisdiction otherwise directing the Escrow Agent,
if applicable.
65
(b) Sleepmaster, Sub, PBBC and the Representative
agree not to direct the Escrow Agent to dispose of all or any portion of the
Indemnity Escrow other than as provided in this Agreement.
13.12. (a) On the third anniversary of the filing of PBBC's
1997 calendar year federal income tax return (the "Distribution Date"), the
Representative and the Surviving Corporation will give joint written
instructions to the Escrow Agent that it shall immediately deliver to the
Representative an amount equal to (A) the amount remaining on deposit of the
Escrow Amount in the Indemnity Escrow, less (B) any amount designated by the
Representative and the Surviving Corporation as subject to any documented
pending or potential claim with respect to the Indemnification Obligations,
including but not limited to any actual or threatened litigation in respect of
such claim of which either the Indemnitee or the Representative has actual
knowledge (each a "Pending Claim") to the extent such Pending Claim has not been
resolved prior to such date, and less (C) any amount to cover the Escrow Agent's
costs and expenses incurred or expected to be incurred in connection with its
activities hereunder. Any amount retained in the Indemnity Escrow after the
Distribution Date shall be held by the Escrow Agent and upon resolution and
payment out of the Indemnity Escrow in satisfaction of any Pending Claims, as
directed by the Representative and the Surviving Corporation, in the manner
otherwise consistent with the terms of this Agreement, any remaining amounts in
Indemnity Escrow shall be paid to the Representative (on behalf of the Company
Stockholders).
(b) Upon distribution of the entire amount of the
Indemnity Escrow, the Indemnity Escrow Agreement shall be automatically
terminated.
13.13. The Escrow Agent shall disburse to the Representative
(on behalf of the Company Stockholders), on an annual basis on or before March
1st of each calendar year, during which the Escrow Agent retains any portion of
the Indemnity Escrow, any interest earned and realized in respect of the
Indemnity Escrow, together with a 1099-DIV setting forth the amount and nature
of the interest earned by the Representative (on behalf of the Company
Stockholders) from the Indemnity Escrow.
13.14. (a) Sections 13.14 and 13.15 set forth the provisions
for resolving any dispute, controversy or claim arising out of or relating to a
party's entitlement to have Indemnifiable Losses related to Indemnification
Obligations satisfied out of the Indemnity Escrow and the rights and obligations
of a party under Article XIII of this Agreement or the validity, interpretation,
breach or termination thereof (a "Dispute"), including claims seeking redress or
asserting rights under applicable law.
(b) All communications between the parties or their
representatives in connection with the attempted resolution of any Dispute shall
be deemed to have been delivered in furtherance of a Dispute settlement and
shall be exempt from discovery and production, and shall not be admissible in
evidence (whether as an admission or otherwise), in any arbitral or other
proceeding for the resolution of the Dispute.
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(c) Any Dispute not resolved amicably may be resolved
through adjudication as otherwise provided in this Agreement, except as provided
below. IN CONNECTION WITH ANY DISPUTE, THE PARTIES EXPRESSLY WAIVE AND FOREGO
ANY RIGHT TO TRIAL BY JURY.
13.15. (a) Within 30 days after efforts to amicably resolve
any Dispute have ceased, then at the Representative's or the Surviving
Corporation's option ("Optionee"), to be exercised by notice to any other party
to the Dispute, Optionee may submit the Dispute for resolution by arbitration
pursuant to the Rules of the Center for Public Resources ("CPR") for
Non-Administered Arbitration of Business Disputes as in effect at the time of
the arbitration. The parties consent to a single, consolidated arbitration for
all Disputes for which arbitration is permitted. If an action shall have been
commenced in any court or other forum against Optionee, Optionee may exercise
its option under this Section at any time within 30 days thereafter or such
later time as an answer may be due in such other forum.
(b) The neutral organization for purposes of the CPR
rules will be the CPR. The arbitral tribunal shall be composed of one arbitrator
selected by agreement of the parties or, in the absence of such agreement within
60 days after either party first proposes an arbitrator, by the CPR. All
arbitrators shall be experts in merger and acquisition transactions and shall be
instructed to make their determinations consistent with the terms, conditions
and principles of this Agreement. The arbitration shall be conducted in West
Palm Beach, Florida. Each party shall be permitted to present its case,
witnesses and evidence, if any, in the presence of the other party. A written
transcript of the proceedings shall be made and furnished to the parties. The
arbitrators shall determine the Dispute in accordance with the Florida
Arbitration Code, without giving effect to any conflict of law rules or other
rules that might render such law inapplicable or unavailable, and shall apply
this Agreement according to its terms.
(c) The parties agree that any award or order
resulting from any arbitration conducted hereunder shall be final and binding
and further agree that:
(i) any monetary award shall include
pre-award interest, to the extent appropriate, and shall be
made and payable in U.S. dollars, free of any withholding tax
or other deduction, together with interest thereon at the
Prime Rate in effect on the date of the award, which interest
shall be payable for the period from the date the award is
granted to the date it is paid in full;
(ii) in the context of an attempt by either
party to enforce an arbitral award or order, any defenses
relating to the parties' capacity or the validity of this
Agreement or any related agreement under any law are hereby
waived; and
(iii) judgment on any award or order
resulting from an arbitration conducted under this Section may
be entered and enforced in any court, in any country, having
jurisdiction thereof or having jurisdiction over any of the
parties or any of their assets.
67
(d) If Optionee shall have submitted a Dispute for
arbitration as provided above, no other party will thereafter commence or
continue any court action or proceeding concerning such Dispute, except (i) for
enforcement as contemplated by Section 13.15(c)(iii) above, (ii) to restrict or
vacate an arbitral decision based on the grounds specified under applicable law
and not waived in Section 13.15(c)(ii) above, or (iii) for interim relief as
provided in Section 13.14(e) below.
(e) In addition to the authority otherwise conferred
on the arbitral tribunal, the tribunal shall have the authority to make such
orders for interim relief, including injunctive relief, as it may deem just and
equitable, pursuant to the terms, conditions and principles of this Agreement.
(f) The parties agree that, insofar as it is within
their control, and notwithstanding anything to the contrary in the applicable
arbitration rules:
(i) the arbitrator(s) shall be selected
within 21 days after commencement of the arbitration;
(ii) any discovery that may be permitted
will be completed within 60 days and will not exceed single
depositions of more than three individuals per side who are
directly involved and a single, reasonable request for
directly relevant documents;
(iii) any hearing that may be held will take
place within 90 days after completion of discovery, and each
party's presentation at the hearing will not require more than
three full days;
(iv) any written briefs submitted to the
arbitrator(s) will not exceed a total of 25 pages prior to the
hearing and 15 pages subsequently, in each case excluding
exhibits; and
(v) the decision will be issued with only a
brief opinion within 30 days after the hearing.
13.16. Notwithstanding any other provision of this Agreement,
the obligations created by this Article XIII shall survive the Closing until
fulfilled.
ARTICLE XIV
TERMINATION
14.1. Termination. At any time before the Closing, this
Agreement may be terminated:
68
(i) by the mutual written consent of the Parties at
any time prior to the Closing;
(ii) by PBBC (a) if there has been a material
misrepresentation, breach of warranty or breach of any
covenant or agreement contained in this Agreement by
Sleepmaster or Sub which is not cured within twenty business
days after Sub has been notified of PBBC's intent to terminate
this Agreement pursuant to this clause (ii) or (b) if the
Closing shall not have occurred on or before March 16, 1998,
by reason of the failure of any condition precedent under
Article VIII;
(iii) by Sleepmaster or Sub, if there has been a
material misrepresentation, breach of warranty or breach of
any covenant or agreement contained in this Agreement by PBBC
which is not cured within twenty business days after PBBC has
been notified of Sub's intent to terminate this Agreement
pursuant to this clause;
(iv) by PBBC if any condition set forth in Article
VIII has not been complied with or performed at or before the
Closing and such noncompliance or nonperformance shall not
have been cured or eliminated by March 16, 1998;
(v) by Sleepmaster or Sub if any condition set forth
in Article VII has not been complied with or performed at or
before the Closing and such noncompliance or nonperformance
shall not have been cured or eliminated by March 16, 1998;
(vi) by Sleepmaster or Sub, upon receipt by
Sleepmaster or Sub of an Update Notice from PBBC which
contains a development unacceptable within the sole discretion
of Sub or Sleepmaster;
(vii) by PBBC giving written notice to Sleepmaster
and the Sub, at any time prior to the Effective Time, in the
event this Agreement and the Merger fail to receive the
requisite stockholder approval of the Company Stockholders
pursuant to the Florida Law;
(viii) by PBBC by giving written notice to
Sleepmaster and the Sub, at any time prior to the Effective
Time, in the event PBBC's Board of Directors concludes that
termination would be in the best interests of PBBC and the
Company Stockholders.
14.2. Effect of Termination. If any of Sub, Sleepmaster or
PBBC terminates this Agreement pursuant to Section 14.1, all rights and
obligations of the Parties shall terminate without any liability of any Party to
any other Party (except for any liability of any Party then in breach);
provided, that the confidentiality provisions contained in this Agreement and in
the Confidential Disclosure Agreement shall survive such termination and
continue in force, pursuant to their respective terms.
69
ARTICLE XV
MISCELLANEOUS PROVISIONS
15.1. Public Announcements. Prior to the Closing Date, none of
PBBC, Sleepmaster and Sub will issue any press releases or otherwise make any
public statements with respect to this Agreement or the transactions
contemplated hereby without obtaining the prior written consent of the other
Party, except as may be required by law (in which case the disclosing party will
advise the other party prior to making the disclosure). On or after the Closing
Date, Sleepmaster and Sub shall cooperate to issue a mutually agreeable press
release.
15.2. Rights to Third Parties. Except as permitted pursuant to
Section 14.4, nothing in this Agreement shall establish any enforceable rights,
legal or equitable, in any person other than the Parties, including any employee
of PBBC or any beneficiary of such employee.
15.3. Notices. Any notices or other communications required or
permitted hereunder shall be in writing and shall be sufficiently given if
delivered in person, if mailed by certified mail, return receipt requested,
postage prepaid, if delivered by confirmed telefax or if sent by a nationally
recognized overnight courier, delivery prepaid, addressed as follows:
(a) if to PBBC or Representative, to:
Palm Beach Bedding Company
c/o ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
PERSONAL AND CONFIDENTIAL
with a copy to:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, P.A.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Fax No.: (▇▇▇) ▇▇▇-▇▇▇▇
or such other person or address as PBBC may furnish Sub or Sleepmaster in
writing.
70
(b) if to Sub, to:
Sleepmaster Acquisition Corp.
c/o Sleepmaster L.L.C.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ or ▇▇▇▇▇ ▇▇▇▇▇▇▇
Fax No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇, A Professional
Corporation
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Fax No.: (▇▇▇) ▇▇▇-▇▇▇▇
or such other person or address as Sub or Sleepmaster shall furnish PBBC in
writing.
(c) if to Sleepmaster, to:
Sleepmaster L.L.C.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ or ▇▇▇▇▇ ▇▇▇▇▇▇▇
Fax No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇, A Professional
Corporation
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Fax No.: (▇▇▇) ▇▇▇-▇▇▇▇
or such other person or address as Sleepmaster or Sub shall furnish PBBC in
writing.
All such written notices and communications delivered as
aforesaid shall be deemed given for purposes of this Agreement on the day such
notice or communication is received if delivered personally or by telefax, or,
if delivered by certified mail, as aforesaid, on the date that is four business
days after deposit in the mail or, if delivered by nationally recognized
overnight courier, two days after it has been so sent.
71
15.4. Parties in Interest. This Agreement will be binding
upon, inure to the benefit of the Parties and be enforceable by their respective
successors and permitted assigns. No Party may assign either this Agreement or
any of its rights, interests or obligations hereunder without the prior written
approval of all of the other Parties; provided, that Sleepmaster and Sub may (i)
assign any or all of their respective rights and interests under this Agreement
to one or more of their sources of financing for collateral purposes only, (ii)
assign any or all of their respective rights and interests under this Agreement
to one or more of its Affiliates, or (iii) after the Effective Time, assign any
or all of their respective rights under this Agreement to any subsequent
purchaser of all or substantially all of the assets of the Surviving Corporation
or Sleepmaster; provided, in each and every situation described in clauses (i),
(ii) and (iii) of this proviso, Sub and Sleepmaster nonetheless shall remain
legally responsible for the performance of all of their respective obligations
under this Agreement.
15.5. Entire Agreement; Amendment; Waiver. This Agreement and
the agreements and documents referred to herein or delivered pursuant hereto
contain the entire understanding of the Parties with respect to its subject
matter. There are no representations, promises, warranties, covenants or
undertakings other than as expressly set forth herein or therein. This Agreement
supersedes all prior agreements and understandings between the Parties with
respect to its subject matter, except as otherwise contained in the Confidential
Disclosure Agreement. This Agreement may be amended or modified by the boards of
directors of the Sub and PBBC, before the filing of the Florida Articles, only
by a written instrument duly executed by the Parties, and any condition to a
party's obligations hereunder may only be waived in writing by such party;
provided, that any amendment effected subsequent to stockholder approval will be
subject to the restrictions contained in the Florida Law. If the Florida
Articles have already been filed with the Florida Secretary of State and the
Parties desire to amend this Agreement, in a manner permitted by Florida
Statutes, amended Articles of Merger must be filed before the Effective Time. No
waiver by any party of any default, misrepresentation, or breach of warranty or
covenant hereunder, whether intentional or not, shall be deemed to extend to any
prior or subsequent default, misrepresentation, or breach of warranty or
covenant hereunder or affect in any way any rights arising by virtue of any
prior or subsequent such occurrence.
15.6. Headings. The article, section and paragraph headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement.
15.7. Counterparts. This Agreement may be executed in any
number of counterparts, and each such counterpart hereof shall be deemed to be
an original instrument, and all such counterparts together shall constitute but
one agreement.
15.8. Governing Law. This Agreement and all transactions
contemplated by this Agreement shall be governed by and construed and enforced
in accordance with the internal laws of the State of Florida without regard to
principles of conflicts of laws. Sub, Sleepmaster and PBBC acknowledge that a
substantial portion of the negotiations, anticipated performance and execution
of this Agreement occurred or shall occur in Palm Beach County, Florida, and
that, therefore, without limiting the jurisdiction or venue of any other federal
or state courts, each of the Parties irrevocably
72
and unconditionally: (a) agrees that any suit, action or legal proceeding
arising out of or relating to this Agreement may be brought in the courts of
record of the State of Florida in Palm Beach County or the District Court of the
United States, Southern District of Florida; (b) consents to the jurisdiction of
each such court in any suit, action or proceeding; (c) waives any objection
which it may have to the laying of venue of any such suit, action or proceeding
in any of such courts; and (d) agrees that service of any court paper may be
effected on such party by mail, as provided in this Agreement, or in such other
manner as may be provided under applicable laws or court rules in said state.
15.9. Severability. In the event that any provision, or part
thereof, of this Agreement shall be held to be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions, or parts thereof, shall not in any way be affected or impaired
thereby.
15.10. Expenses. Each of the Parties shall be responsible for
its own legal fees and other costs and expenses incurred in connection with this
Agreement and the negotiation and consummation of the transactions contemplated
hereby; provided, that the Surviving Corporation shall be obligated to pay only
those Company Expenses that have been accrued on the Draft Closing Date Balance
Sheet and only to the extent accrued on the Closing Date Balance Sheet.
15.11. References; Exhibits and Schedules. All references in
this Agreement to Sections, Exhibits and Schedules shall, unless otherwise
stated, refer to Sections, Exhibits and Schedules of this Agreement. The
Exhibits and Schedules identified in this Agreement are incorporated herein by
reference and made a part hereof.
15.12. Specific Performance. Each of the Parties acknowledges
and agrees that the other Party would be damaged irreparably in the event
Sections 11.5 and 11.8 of this Agreement are not performed in accordance with
their specific terms or otherwise are breached. Accordingly, each of the Parties
agrees that the other party shall be entitled to an injunction or injunctions to
prevent any actual or threatened breaches of Sections 11.5 and 11.8 of this
Agreement and to enforce specifically the terms and provisions thereof in any
action instituted in any court of the United States or any state thereof having
jurisdiction over the Parties and the matter, in addition to any other remedy to
which it may be entitled, at law or in equity.
15.13. WAIVER OF JURY TRIAL. EACH OF THE PARTIES WAIVES ANY
RIGHT TO A TRIAL BY JURY WITH RESPECT TO ANY LITIGATION WHICH ARISES OUT OF, OR
WHICH IS RELATED TO, THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.
15.14. Time is of the Essence. Each of the Parties agrees that
time is of the essence with respect to every date, every action and every
delivery set forth in this Agreement.
15.15. Construction. Sleepmaster, Sub and PBBC have
participated jointly in the negotiation and drafting of this Agreement. If an
ambiguity or question of intent or interpretation arises, this Agreement shall
be construed as if drafted jointly by Sleepmaster, Sub and PBBC, and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the
73
authorship of any of the provisions of this Agreement. Any reference to any
federal, state, local or foreign statute or law shall be deemed also to refer to
all rules and regulations promulgated thereunder, unless the context otherwise
requires. The word "including" shall mean including without limitation.
IN WITNESS WHEREOF the Parties hereto have caused this
Agreement to be duly executed as of the date first above written.
SLEEPMASTER L.L.C.
By:
----------------------------------------
Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
----------------------------------
Title: Manager
---------------------------------
By:
----------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
----------------------------------
Title: Manager
---------------------------------
SLEEPMASTER ACQUISITION CORP.
By:
----------------------------------------
Name:
----------------------------------
Title:
---------------------------------
PALM BEACH BEDDING COMPANY
By:
----------------------------------------
Name:
----------------------------------
Title:
---------------------------------
This Agreement with be joined in at the Closing by ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇,
Esq., as "Representative," provided the Representative obtains the execution, by
each of the Company Stockholders (other than holders of Dissenting Shares), of
that certain "Power of Attorney and Appointment of Representative," such ▇▇▇▇▇▇
and consent by ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, Esq. being solely for the purpose of evidencing
his agreement act as Representative, as provided for herein unless otherwise
limited and as otherwise provided in said "Power of Attorney and Appointment of
Representative."
REPRESENTATIVE
By:
----------------------------------------
Name:
----------------------------------
Title:
---------------------------------
