Exhibit 10.3
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
FOURTH AMENDMENT TO SUPPLY AGREEMENT
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This Amendment to Supply Agreement (this "Agreement" is entered. into by
and between Mattress Discounters Corporation., a Delaware corporation,
("Mattress Discounters") and Sealy, Inc., an Ohio Corporation ("Sealy") on this
10th day of January 2002.
WHEREAS, Mattress Discounters and Sealy entered into a letter agreement
dated March 17, 1997 which established a supply arrangement under which Sealy
supplies bedding products to Mattress Discounters, and have amended that letter
agreement on June 30, 1997, in March 1998, and on August 11, 1999 (that letter
agreement as am. ended hereby is referred to herein as the "Supply Agreement");
WHEREAS, Mattress Discounters' bankers have requested that the Supply
Agreement be amended, and
WHEREAS, Mattress Discounters and Sealy each desire to amend the Supply
Agreement in the manner provided herein.
NOW, THEREFORE, Mattress Discounters and Sealy hereby agree as follows:
1. Payment Terms. The terms for Mattress Discounters payments to Sealy
under the Supply Agreement shall be changed to "[**] days, [**] days".
2. Extension of Supply Agreement Term. The term of the Supply Agreement
shall be extended for three additional years through June 30,2007.
3. Balance of Share. During the term of the Supply Agreement, Sealy, Inc.
products will represent a minimum of [**]percent ([**]%) of Mattress
Discounters' annual sales of retail bedding (as measured in retail sales
dollars) and will represent a minimum of [**] percent ([**]%) of Mattress
Discounters' retail bedding sales in each of Mattress Discounters' fiscal
quarters. The balance of Mattress Discounters bedding products shall be bedding
sold under Discounters' own label ("Private Label Products") which are either
produced by Mattress Discounters in its own factories or subcontracted as
substitutes for such manufacturing. Private Label Products can not be products
which are co-branded or labeled by any other bedding manufacturer other than
Mattress Discounters. Private Label Products may be sold by Mattress Discounters
at any price points. Mattress Discounters will begin to work towards these new
levels immediately and will have achieved them by the end of 2002.
4. Differentiated Products. Sealy and Mattress Discounters shall work
together to develop, by no later that the end of 2002, differentiated Sealy
branded bedding products for Mattress Discounters. Such differentiated products
shall at a minimum have unique upholstery, ticking, labels and double edge
guards (or equivalent), and may work towards
exclusive innersprings in the future. The parties shall ensure that the economic
impact of such differentiated products shall be favorable for both Sealy and
Mattress Discounters.
5. Subsidy Rate. For the remaining term of the Supply Agreement the subsidy
rate shall remain at its current rate of [**] percent ([**]%) [**].
6. Rebate Rate. For the remaining term of the Supply Agreement the rebate
rate shall remain at its current rate of [**] percent ([**]%) [**].
7. Wholesale Price Increases. For the remaining term of the Supply
Agreement, the wholesale prices charged by Sealy for sales to Mattress
Discounters under the Supply Agreement for products shall be as follows:
a. Brand Image ("BI") Products: Mattress Discounters will pay the [**]
price established by Sealy on all BI products.
b. In-line Branded Products: Wholesale prices for in-line branded
products shall remain at their current price, [**] for comparable products.
Changes in the wholesale price to Mattress Discounters' on such products
shall [**] for comparable products. Price increases (or decreases) to
Mattress Discounters will be calculated [**], and will take place at the
same time [**].
c. Custom Branded Products: Wholesale prices for branded products
which Sealy custom makes for Mattress Discounters shall follow the
procedure stated in the in-line branded products (above). In addition, the
wholesale price of such custom branded product shall include [**] resulting
from the [**] product [**] the comparable in-line branded product at that
level.
d. Custom Non-Branded Products ("Private Label"): Wholesale prices on
custom non-branded products which Sealy makes for Mattress Discounters
shall be priced to [**] product basis, as long as Mattress Discounters'
purchases of Sealy manufactured private label products [**] of Mattress
Discounters' total Sealy product purchases. New Private Label product
pricing shall reflect any changes in MLO costs [**] at that level.
8. Delivery. Sealy shall place Mattress Discounters' stores on 48-hour
delivery status if they are located in areas where Sealy's facilities and
delivery schedule are such that 48-hour delivery can be reasonably successfully
achieved on an economically reasonable basis. Purchaser agrees to comply with
Sealy's "order by time" that is determined by Sealy plants to facilitate 48-hour
delivery. Sealy can not guaranty that deliveries will be made in 48-hours to
stores placed on 48-hour delivery. Sealy and Mattress Discounters shall jointly
work together to implement an electronic ordering system to improve ordering and
delivery timing, as well as providing Sealy with as early as possible visibility
on Mattress Discounters' orders.
9. Sales Associate Commissions. Mattress Discounters shall be free to
establish its commission structure for its retail sales associates.
10. Product Returns. Mattress Discounters has the right to return any Sealy
products to Sealy, including customer warranty returns. This right shall be
[**] of Mattress Discounters' purchases from Sealy measured annually on a
national basis. If Mattress Discounters has [**], then Sealy will [**] payment.
That [**] shall be subject to an annual adjustment, if Sealy's annual warranty
return rate increases or decreases more than [**]% from its 2001 warranty return
rate.
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11. Warranty. Sealy shall continue to offer Mattress Discounters' customers
Sealy's standard products warranty. Sealy and Mattress Discounters shall
consider a revision of product warranties for the mutual benefit of both
parties, sales support, and the enhancement of consumer confidence.
12. Retail Acquisitions by Mattress Discounters. If Mattress Discounters
acquires another mattress retailer, the acquired retailer stores shall continue
to purchase Sealy product under the terms of such retailer's then existing
supply agreement with Sealy (including pricing, delivery and coop support) for
six (6) months. During such six (6) month period Mattress Discounters and Sealy
shall negotiate a revision, of the Supply Agreement terms to include sales to
such acquired stores on a basis fair to both parties.
13. Sleep Country Canada. Mattress Discounters and Sealy each hereby
acknowledge that Sleep Country Canada is not covered by or subject to the Supply
Agreement - either before or after this Agreement.
14. Cooperation. Sealy and Mattress Discounters shall form a "Steering
Committee" of one senior executive from each company to explore synergy
opportunities between the companies. Each company shall also designate other
executives to work either individually or on teams to address issues delegated
to them by the Steeling Committee. The Steering Committee may mutually invite
other parties to participate in the Steering Committee to explore synergy
opportunities.
15. Disputes. Any significant disputes between Sealy and Mattress
Discounters shall be referred to their two senior executives on the Steering
Committee for a good faith effort at resolution. If they are not able to resolve
the dispute, it shall then be referred to the senior Xxxx Capital executive
responsible for managing Xxxx Capital's investment in each company (as long as
Xxxx Capital and Xxxx Capital's related parties control a major of the equity in
both companies). If Xxxx Capital's executive(s) are unable to resolve the
dispute, it shall be submitted to binding arbitration under the rules of the
American Arbitration Association. The location for such arbitration shall
alternate between the headquarters of each company with the initial arbitration
to occur at Mattress Discounters' headquarters.
16. Counterparts. This Agreement may be executed in counterparts, each of
which shall be an original and all of which taken together shall constitute one
and the same.
17. Interpretation. To the extent that this Agreement is in conflict with a
prior component of the Supply Agreement, this Agreement shall control.
IN WITNESS WHEREOF the parties hereto have caused this Fourth Amendment to
Supply Agreement to be duly executed as of the date first listed above.
MATTRESS DISCOUNTERS CORPORATION
By: /s/ Xxxxx Xxxxxx
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Name: Xxxxx Xxxxxx
Title: President & CEO
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SEALY, INC.
BV: By: /s/ Xxxxx X. XxXxxxxxx
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Name: Xxxxx X. XxXxxxxxx
Title: President & Chief Operating Officer
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