Exhibit 10.6
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STANDSTILL AGREEMENT
STANDSTILL AGREEMENT, dated as of August 12, 2002, by and among
Mattress Discounters Corporation, a Delaware corporation ("MD") and each of the
lenders (the "Lenders") party hereto as listed on the signature pages hereof and
JPMorgan Chase Bank, as Administrative Agent (the "Administrative Agent").
WHEREAS, MD issued Senior Notes in the total aggregate principal amount
of $140 million pursuant to a certain Indenture (the "Indenture") dated as of
August 6, 1999, by and among MD, as Issuer, certain Guarantors named therein, as
Guarantors, and State Street Bank and Trust Company, as Trustee (the "Trustee");
WHEREAS, in accordance with the terms of the Senior Notes and the
Indenture, MD was obligated to make an interest payment on July 15, 2002, in the
total aggregate amount of approximately $8.8 million (the "July Interest
Payment");
WHEREAS, MD has not made the July Interest Payment;
WHEREAS, MD, Mattress Holding Corporation ("Holdings"), the Lenders,
the Administrative Agent and the Co-Agent named therein are parties to the
Credit Agreement, dated as of August 6, 1999, as amended and restated as of
January 11, 2002, as amended by the First Amendment, dated as of May 14, 2002,
and as amended by the Second Amendment, dated as of June 20, 2002 (as further
amended, supplemented or otherwise modified from time to time, the "Credit
Agreement");
WHEREAS, under the Credit Agreement, MD's failure to make the July
Interest Payment on or before August 14, 2002 will constitute an Event of
Default pursuant to Section 8(e) of the Credit Agreement (the "Cross-Default
Event of Default");
WHEREAS, MD has informed the Administrative Agent and the Lenders that
it is in default under Section 7.1 of the Credit Agreement with respect to the
required minimum Consolidated EBITDA for the fiscal quarter ending June 29,
2002, which constitutes an Event of Default pursuant to Section 8(c) of the
Credit Agreement (the "EBITDA Event of Default").
WHEREAS, MD and the Lenders, among others, have been in negotiations
regarding a possible recapitalization or other financial restructuring of MD in
order to address MD's current financial condition (the "Restructuring
Negotiations");
WHEREAS, in order to give the parties a more meaningful opportunity to
pursue the Restructuring Negotiations and, at the same time, to help preserve
the value of MD during the period of such Restructuring Negotiations, MD has
requested that the Lenders agree to refrain from exercising any rights or
remedies or otherwise taking any action under the Credit Agreement or any of the
other Loan Documents on the basis of the Cross-Default Event of Default or the
EBITDA Event of Default; and
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WHEREAS, the Lenders have agreed to refrain from exercising any rights
or remedies, including, without limitation, by foreclosure or setoff, or
otherwise taking any action under the Credit Agreement or any of the other Loan
Documents on the basis of the Cross-Default Event of Default or the EBITDA Event
of Default, in accordance with and to the extent set forth below in this
Agreement.
NOW, THEREFORE, in consideration of the above, the promises contained
herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Definitions. All capitalized terms used herein without definitions
shall have the respective meanings provided for them in the Credit Agreement.
2. Standstill. Each of the Lenders agrees that from the Effective Date
(as defined below) until the Termination Date, no Lender shall: (i) instruct the
Administrative Agent, or otherwise take any action, to accelerate the
Obligations; or (ii) instruct the Administrative Agent, or otherwise take any
action, to commence any suit or other action or to exercise any other remedy to
collect any portion of the Obligations from MD or any Guarantor or to take any
action to exercise remedies with respect to the Collateral. The Administrative
Agent also agrees not to take such actions. This Standstill Agreement shall
become effective on and as of the date that the Administrative Agent shall have
received counterparts of this Standstill Agreement, duly executed and delivered
by a duly authorized officer of each of Holdings, MD, the Administrative Agent
and the Required Lenders.
3. Further Agreements. MD agrees to pay a standstill fee in the
aggregate amount of $30,000, which fee shall be earned on the Effective Date and
shall be paid by MD within one business day thereafter. MD agrees to cooperate
with the Administrative Agent in working toward the creation of a cash
management system reasonably satisfactory to the Administrative Agent and the
Lenders, including, without limitation, on before August 30, 2002, (i)
establishing (but not funding or implementing) a collateral account and a
funding account at JPMorgan Chase Bank and (ii) executing and delivering to the
Administrative Agent letters directing, inter alia, account debtors of MD and
other parties holding funds owing to MD to remit all payments on such accounts
and amounts owing directly to the collateral account at JPMorgan Chase Bank (the
"Direction Letters"). MD agrees to use its reasonable best efforts to work with
the Administrative Agent to implement the cash management system and fund the
accounts in a manner reasonably satisfactory to the Administrative Agent in the
event of and prior to any filing by MD of a petition for relief (a "Filing").
The Administrative Agent agrees not to deliver the Direction Letters prior to a
Filing unless otherwise agreed by MD, provided, however, if MD has not complied
with its agreement set forth in the immediately preceding sentence in the
reasonable judgment of the Administrative Agent, MD acknowledges and agrees that
the Administrative Agent may, upon prior written notice to MD, deliver the
Direction Letters immediately prior to a Filing.
4. Termination. This Agreement shall become effective on the Effective
Date and shall remain in effect until the date (the "Termination Date") that is
the earlier to occur of: (i) September 25, 2002; (ii) the occurrence of a
Default or Event of Default other than the Cross
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Default Event of Default or the EBITDA Event of Default; (iii) any termination
or modification of the letter agreement with Sealy, Inc, dated August 2, 2002
(the "Sealy Letter") or the business relationship contemplated thereby; (iv) the
occurrence of the Termination Date under the Standstill Agreement dated as of
August 2, 2002 among MD and the Consenting Holders of the Senior Notes (as
defined therein); or (v) the occurrence of any material breach by MD of its
obligations hereunder.
5. Miscellaneous. This Agreement shall be governed by the laws of the
State of New York. The headings of each section of this Agreement are for
convenience only and shall not define or limit the provisions thereof. This
Standstill Agreement and all rights and obligations hereunder shall be binding
upon and inure to the benefit of MD, the Lenders and each of their respective
successors and assigns. This Standstill Agreement constitutes the entire
agreement of the parties with respect to the subject matter hereof and
supersedes all prior negotiations. Except as specifically provided for in
paragraph 2 above, the Credit Agreement and the Loan Documents shall continue to
be, and shall remain, in full force and effect. This Standstill Agreement shall
not be deemed to be a waiver of, or consent to, or a modification of any term or
condition of the Credit Agreement or of any of the other Loan Documents or to
prejudice any rights or remedies which the Lenders now have or may in the future
have under or in connection with the Credit Agreement or any of the other Loan
Documents or any of the instruments or agreements referred to therein, as the
same may be amended from time to time. This Standstill Agreement may be
exercised by one or more of the parties hereto in any number of separate
counterparts.
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IN WITNESS WHEREOF, intending to be legally bound, each of MD and the
Lenders has caused this Agreement to be duly executed as of the date first above
written.
MATTRESS DISCOUNTERS CORPORATION
By: /s/ ▇▇▇▇ ▇▇▇▇▇
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Name: ▇▇▇▇ ▇▇▇▇▇
Title: Chief Financial Officer
JPMORGAN CHASE BANK, as Administrative
Agent and as a Lender
By: /s/ ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
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Name: ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Managing Director
FLEET NATIONAL BANK, as a Lender
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
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Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Vice President
ARK II CLO 2001-1, LIMITED, as a Lender
By: Patriarch Partners II, LLC, its
Collateral Manager
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇
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Name: ▇▇▇▇ ▇▇▇▇▇▇
Title: Authorized Signatory
[SIGNATURES CONTINUE ON NEXT PAGE]
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ACKNOWLEDGED AND AGREED:
MATTRESS DISCOUNTERS HOLDING CORPORATION
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇
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Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇
Title: Chief Executive Officer
