EXHIBIT 2.1
EXECUTION COPY
TRANSACTION AGREEMENT
AMONG
XXXXXX-XXXXXX COMPANY,
XXXXXX-XXXXXX ASSOCIATES, INC.
AND
MD ACQUISITION CORPORATION
Dated as of May 28, 1999
TABLE OF CONTENTS
Page
1. THE MERGER AND RECAPITALIZATION
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1.1 The Merger and Recapitalization.................. 2
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1.2 Adjustment to the Purchase Price................. 4
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1.3 Related Agreements............................... 6
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2. REPRESENTATIONS AND WARRANTIES
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2.1 Representations and Warranties of Seller......... 6
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2.2 Representations and Warranties of Buyer.......... 24
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3. CONDUCT AND TRANSACTIONS BEFORE CLOSING
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3.1 Access to Records and Properties................. 28
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3.2 Operation of Business of the Companies........... 28
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3.3 Forebearances by Seller.......................... 29
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3.4 Senior Sub Note Offering......................... 30
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3.5 Efforts to Consummate............................ 31
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4. CONDITIONS TO CLOSING
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4.1 Conditions to Obligations of Buyer............... 32
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4.2 Conditions to Obligations of Seller.............. 35
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5. CLOSING
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5.1 The Closing...................................... 37
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5.2 Deliveries by Seller............................. 37
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5.3 Deliveries by Buyer.............................. 38
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5.4 Deliveries by Seller and Buyer................... 39
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6. SURVIVAL OF REPRESENTATIONS
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AND WARRANTIES AND INDEMNIFICATION
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6.1 Survival of Representations and Warranties....... 39
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6.2 Indemnification.................................. 40
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7. TERMINATION
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7.1 Termination...................................... 46
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7.2 Effect of Termination............................ 46
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8. EMPLOYEES AND EMPLOYEE MATTERS
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8.1 General.......................................... 46
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8.2 Seller's Section 401(k) Plan..................... 48
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8.3 COBRA............................................ 50
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8.4 Administration................................... 50
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9. MISCELLANEOUS COVENANTS AND OTHER PROVISIONS
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9.1 Access to Records................................ 50
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9.2 Xxxx-Xxxxx-Xxxxxx Filings........................ 50
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9.3 Expenses......................................... 51
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9.4 Public Announcements............................. 51
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9.5 Further Assurances............................... 51
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9.6 Descriptive Headings, Schedules and Exhibits..... 51
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9.7 Counterparts..................................... 52
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9.8 Notices.......................................... 52
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9.9 Successors and Assigns........................... 53
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9.10 Law Applicable................................... 53
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9.11 Entire Agreement................................. 54
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SCHEDULES
Schedule 1.2 - Working Capital Adjustment
Schedule 1.2(a) - Working Capital Calculation Example
Schedule 2.1(b) - Non-Contravention
Schedule 2.1(d) - Litigation
Schedule 2.1(e) - Material Contracts
Schedule 2.1(g) - Employee Benefit Plans
Schedule 2.1(h) - Labor and Employment Matters
Schedule 2.1(i) - Environmental and Safety Matters
Schedule 2.1(k) - Intellectual Property
Schedule 2.1(o) - Tax Matters
Schedule 2.1(r) - Subsidiaries
Schedule 2.1(s) - Undisclosed Liabilities
Schedule 2.2(f) - Commitment Letters
Schedule 4.1(l) - Employment Agreements
Schedule 6.2(a)(iv) - Lease Consents and Indemnifications
Schedule 6.2(a)(v) - Litigation Matters
EXHIBITS
Exhibit - A Plan of Merger
Exhibit - B Junior Subordinated Notes
Exhibit - C Tax Agreement
Exhibit - D Mattress Supply Agreement
Exhibit - E Advertising Agreement
Exhibit - F Indemnity Agreement
Exhibit - G Opinion of McGuire, Woods, Battle & Xxxxxx LLP
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Exhibit - H Opinion of Xxxxxxxx & Xxxxx
Exhibit - I Terms of Stockholders Agreement
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TRANSACTION AGREEMENT
THIS AGREEMENT ("Agreement") made as of the ___ day of May, 1999, by and
among Xxxxxx-Xxxxxx Company, a Virginia corporation ("Seller"), Xxxxxx-Xxxxxx
Associates, Inc., a Virginia corporation ("Oldco"), and MD Acquisition
Corporation, a Virginia corporation ("Buyer"), provides:
RECITALS
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A. Seller owns all of the issued and outstanding shares of common stock
of Oldco ("Oldco Shares").
B. Seller owns all of the issued and outstanding shares (the "Shares") of
common stock of Mattress Discounters Corporation, a Delaware corporation
("Mattress Discounters"), T.J.B., Inc., a Maryland corporation ("TJB") and The
Bedding Experts, Inc., an Illinois corporation ("Bedding Experts") (Mattress
Discounters, TJB and Bedding Experts, collectively, with the subsidiary set
forth on Schedule 2.1(r) the "Companies"). The business and operations of the
Companies as currently conducted is referred to herein as the "Business."
C. Seller has agreed to contribute all of the Shares to the capital of
Oldco prior to the Effective Time (as defined in the Plan of Merger attached
hereto as Exhibit A).
D. Seller, Buyer and Oldco have agreed to consummate a merger (the
"Merger") pursuant to which Buyer would merge with and into Oldco and Seller
would receive cash and a promissory note in exchange for a portion of the Oldco
Shares currently owned by Seller and the remainder of the Oldco Shares currently
owned by Seller will become shares of common stock of the Surviving Corporation.
E. It is intended that the Merger be recorded as a recapitalization for
financial reporting purposes.
1. THE MERGER AND RECAPITALIZATION
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1.1 The Merger and Recapitalization. Subject to the terms and conditions
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set forth herein, at the Closing (as defined in Section 5.1), the following
transactions shall occur:
(a) Seller shall contribute all of the Shares to Oldco (the
"Contribution").
(b) Subject to the terms and conditions set forth herein, on the
Closing Date (as defined in Section 5.1), immediately after the Contribution and
the Borrowings (described below), Buyer shall merge with and into Oldco pursuant
to the Plan of Merger attached hereto as Exhibit A (the "Merger") in accordance
with the Virginia Stock Corporation Act and Oldco shall be the surviving
corporation (the "Surviving Corporation"). Pursuant to the Merger, and without
any action on the part of the holders thereof;
(i) each share of Class A Common Stock, $.01 par value per
share, of Buyer, issued and outstanding immediately prior to the Effective
Time, shall, at the Effective Time, be converted into one fully paid and
nonassessable share of Class A Common Stock, $.01 par value per share, of
the Surviving Corporation (the "Class A Stock"), and each share of Class L
Common Stock, $.01 par value per share, of Buyer, issued and outstanding
immediately prior to the Effective Time, shall, at the Effective Time, be
converted into one fully paid and nonassessable share of Class L Common
Stock, $.01 par value per share, of the Surviving Corporation (the "Class L
Stock" and together with the Class A Stock, the "Surviving Corporation
Common Stock"); and
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(ii) the aggregate of the Oldco Shares (representing all of the
issued and outstanding capital stock of Oldco immediately prior to the
Effective Time) shall, at the Effective Time, be converted into the right
to receive (A) that number of fully paid and nonassessable shares of
Surviving Corporation Common Stock such that, immediately following the
Effective Time, Seller will own 7% of each class of the issued and
outstanding Surviving Corporation Common Stock; (B) $218 million cash,
subject to a working capital adjustment as provided in Section 1.2; and (c)
junior subordinated notes in the principal amount of $7.5 million (the
"Junior Subordinated Notes"), in the form attached hereto as Exhibit B
((A), (B) and (c) are collectively referred to in this Agreement as, the
"Merger Consideration").
(c) Subject to the terms and conditions set forth herein, at the
Closing, Oldco and the Companies will collectively borrow (the "Borrowings"),
and certain providers of financing (the "Lenders") as described in the
Commitment Letters (as defined in Section 2.2(f)) will lend to Oldco and the
Companies with respect to such Borrowings, such amount so that sufficient cash
is available at the Effective Time (net of any fees, expenses or other costs
required to be paid by Oldco in connection with the Transactions (as defined
below)) for $138.5 million of the cash component of the Merger Consideration.
The Contribution, Merger, and Borrowings are hereinafter referred to
collectively as the "Transactions."
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(d) The parties agree that immediately following the Merger Oldco
will contribute all of the issued and outstanding capital stock of TJB and
Bedding Experts to the capital of Mattress Discounters.
(e) If, at any time after the Effective Time, the Surviving
Corporation shall consider or be advised any deeds, bills of sale, assignments,
assurances or any other actions or things are necessary or appropriate to (i)
vest, perfect or confirm, of record or otherwise, in the Surviving Corporation,
its right, title or interest in, to or under, any of the rights, properties or
assets of Oldco or Buyer acquired or to be acquired by the Surviving Corporation
as a result of, or in connection with, the Merger or (ii) otherwise carry out
the purposes of this Agreement, Oldco and its officers and directors and Buyer
shall take all reasonable steps necessary to execute and deliver all such deeds,
bills of sale, assignments and assurances and to take and do all such other
reasonable actions and things as may be necessary or appropriate to vest,
perfect or confirm any and all rights, title, properties or assets in the
Surviving Corporation or to otherwise carry out the purposes of this Agreement.
1.2 Adjustment to the Purchase Price.
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(a) As promptly as practical, but in no event more than 75 days after
the Closing, the Surviving Corporation shall prepare and deliver to Seller a
calculation of Working Capital of the Companies ("Preliminary Working Capital
Statement") as of the Closing. Working Capital shall mean current assets less
current liabilities, subject to the adjustments set forth on Schedule 1.2. The
Preliminary Working Capital Statement will be prepared on a basis consistent
with the manner in which the Financial Statements were prepared. Schedule 1.2(a)
sets
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forth an example (based on financial information dated as of February 28, 1999)
of how the preliminary working capital statement shall be prepared.
(b) Within thirty days after receipt of the Preliminary Working
Capital Statement, Seller shall give written notice of any objections to the
Preliminary Working Capital Statement (which must describe in reasonable detail
the basis of such objection) (the "Objection Letter"). Seller and its
accountants or auditors shall be given access to the Surviving Corporation's
working papers and such other information, including without limitation, a
review of and participation in, any inventory count, which were used in
preparation of the Preliminary Working Capital Statement as reasonably
necessary. If no such notice is given with respect to any item, then such items
shall be deemed agreed upon and deemed final and conclusive for purposes of
determining the "Final Working Capital Statement."
(c) As soon as practicable but not later than fifteen days after the
receipt of the Objection Letter, the parties shall attempt to resolve any
disputed items. If the parties are able to resolve all such disputed items, the
Preliminary Working Capital Statement so agreed upon shall become the "Final
Working Capital Statement." If such objections cannot be resolved between the
Surviving Corporation and Seller within the 15 days after delivery of the
Objection Letter by Seller, the question or questions in dispute shall then be
submitted, as soon as practicable, to a mutually acceptable firm of independent
public accountants of recognized standing that is not rendering (and has not
rendered in the past two years) audit services to either Buyer or Seller, the
decision of which as to such question or questions in dispute shall be final and
binding upon Seller and the Surviving Corporation.
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(d) If the Final Working Capital Statement, after the resolution of
all disputes, indicates that the amount of Working Capital of the Companies was
greater than $873,915, the Surviving Corporation shall promptly pay to Seller,
in immediately available funds, with interest at 7% per annum, the amount of
such excess. If the Final Working Capital Statement, after the resolution of all
disputes, indicates that the amount of Working Capital of the Companies was less
than $873,915, Seller shall promptly pay to the Surviving Corporation, in
immediately available funds, with interest at 7% per annum, the amount of such
deficiency.
(e) Each party shall bear its own expenses in connection with
preparation and analysis of the Preliminary and Final Working Capital Statement.
The fees of any independent accounting firm appointed pursuant to Section 1.2(d)
shall be borne equally by Seller and the Surviving Corporation; provided,
however, that all costs shall be borne by a party if more than 50% of a dispute
is resolved against them.
(f) At or before submission to Seller of the Preliminary Working
Capital Statement, Buyer shall submit to Seller a schedule setting forth any
indebtedness, including capital lease obligations, of the Companies not included
on the Preliminary Working Capital Statement (the "Closing Debt"). Subject to
the same dispute resolution mechanisms set forth in Sections 1.2(b) through (d)
above, Seller shall promptly remit to Buyer funds in an amount equal to the
Closing Debt.
1.3 Related Agreements. In connection with the sale and purchase of the
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Shares contemplated by this Agreement, (i) Seller and Buyer will enter into an
agreement in substantially the form attached hereto as Exhibit C pursuant to
which Seller and Buyer will agree how certain tax matters which may arise will
be handled, (ii) Seller, Buyer and the Companies
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will enter into a purchase agreement in substantially the form attached hereto
as Exhibit D with respect to the purchase of mattresses by Seller from the
Companies and (iii) Seller, Buyer and the Companies shall have entered into the
advertising agreement in substantially the form attached hereto as Exhibit E.
The foregoing agreements are hereinafter collectively referred to as the
"Related Agreements".
2. REPRESENTATIONS AND WARRANTIES
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2.1 Representations and Warranties of Seller. Seller represents and
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warrants to Buyer that the following statements are true and correct as of the
date hereof (it being agreed that for purposes hereof, the term "knowledge"
means the actual knowledge after reasonable investigation of the elected
officers of Seller who are elected officers of the Companies and the elected
officers of the Companies).
(a) Organization; Qualification. Seller, Oldco and each of the
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Companies is a corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation, and is duly qualified
to do business and in good standing in each jurisdiction where the character of
its properties or the nature of its activities make such qualification
necessary, except where the failure to qualify would not (i) have a material
adverse effect on Seller or (ii) have a Material Adverse Effect (as defined
below). "Material Adverse Effect" means a material adverse affect on the
business, assets, results of operations or financial condition of the Companies
taken together as a whole.
(b) Authority Relative to this Agreement.
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(i) Seller and Oldco each has the corporate power and authority
to enter into this Agreement and the Related Agreements and to consummate
the
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transactions contemplated hereby and thereby. This Agreement has been duly
executed and delivered by Seller and Oldco and is, and each of the Related
Agreements when executed and delivered by Seller and Oldco will be, a valid
and binding agreement of each of Seller and Oldco, enforceable against each
of Seller and Oldco in accordance with its terms. Each of Seller and Oldco
has taken all corporate action necessary to approve this Agreement, the
Related Agreements and the transactions contemplated hereby and thereby.
(ii) The execution, delivery and performance of this Agreement
and the Related Agreements by Seller and Oldco and the consummation of the
transactions contemplated hereby and thereby will not:
(a) conflict with or result in a violation or breach of any
of the terms, conditions or provisions of the certificate or
articles of incorporation or bylaws (or other comparable
corporate charter documents) of Seller, Oldco or any of the
Companies;
(b) conflict with or result in a violation or breach of any
term or provision of any law, statute, ordinance, code or
regulation ("Law") or any rule, order, judgment, decree,
standard, requirement or procedure ("Order") enacted,
adopted, promulgated, applied or followed by any federal,
state, municipal, local or other government (domestic or
foreign), governmental agency, commission, court, authority,
tribunal, arbitrator, agency, commission, official, body or
other instrumentality ("Governmental Authority") applicable
to Seller, Oldco or the Companies
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or any of their respective assets and properties, except
where such violation or breach would not have a Material
Adverse Effect or a material adverse effect on the ability
of Seller, Oldco or the Companies to consummate the
transactions contemplated hereby; or
(c) except as disclosed in Schedule 2.1(b), (A) conflict
with or result in a violation or breach of, (B) constitute
(with or without notice or lapse of time or both) a default
under, (c) result in or give to any Person any right of
termination, cancellation, acceleration or modification in
or with respect to, (D) result in or give any person any
additional rights or entitlement to increased, additional,
accelerated or guaranteed payments under, or (E) result in
the creation or imposition of any mortgage, pledge, security
interest, lien, charge or other encumbrance ("Lien") upon
any of the Companies, Oldco or any of their respective
assets and properties under, any Material Contract (as
hereinafter defined) or license, permit, certificate of
authority, authorization, approval, registration, franchise
or similar consent granted or issued by any Governmental
Authority to which Seller, Oldco or any Company is a party
or by which any of their respective assets and properties is
bound, except where such conflict, violation, breach, or
default, termination, cancellation, acceleration,
modification or Lien would not have a Material Adverse
Effect or a material adverse effect on the ability of
Seller, Oldco or the Companies to consummate the
transactions contemplated hereby.
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(c) Capitalization of the Company; Validity of Shares. The authorized
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capital of Mattress Discounters consists solely of 3,000 shares of common stock,
$.01 par value, of which, as of the date hereof, 1,000 shares are validly issued
and outstanding, fully paid and nonassessable. The authorized capital of TJB
consists solely of 5,000 shares of common stock, no par value, of which, as of
the date hereof, 4,500 shares are validly issued and outstanding, fully paid and
nonassessable. The authorized capital of Bedding Experts consists solely of
1,000 shares of common stock, no par value, of which, as of the date hereof,
1,000 shares are validly issued and outstanding, fully paid and nonassessable.
The authorized capital of the subsidiary described on Schedule 2.1(r) consists
solely of the shares set forth thereon and all the outstanding shares of such
subsidiaries set forth thereon are validly issued and outstanding, fully paid
and nonassessable and are owned beneficially and of record by Mattress
Discounters. The authorized capital of Oldco consists solely of 5,000 shares of
common stock, $1.00 par value, of which, as of the date hereof, 100 shares are
validly issued and outstanding, fully paid and nonassessable. Seller owns the
Shares and the Oldco Shares beneficially and of record. The Shares constitute
all of the outstanding shares of capital stock of the Companies. The Oldco
Shares constitute all of the outstanding shares of capital Stock of Oldco.
Seller has good title to the Oldco Shares and the Shares, free and clear of
encumbrances and upon the transfer of the Shares to Oldco pursuant to this
Agreement Oldco will have good title to the Shares, free and clear of
encumbrances. None of the Companies or Oldco have any commitment to issue or
sell any shares of their capital stock or any securities or obligations
convertible into or exchangeable for, or giving any person or entity any right
to acquire from them, any shares of their capital stock and no such securities
or obligations are issued or outstanding. The Shares and the Oldco Shares have
been offered,
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issued and sold in compliance with all applicable laws. Seller has full voting
power over the Shares and the Oldco Shares, subject to no proxy, shareholders'
agreement, voting trust or other agreement relating to the voting of any of the
Shares. Other than this Agreement, there is no agreement between Seller and any
Person with respect to the disposition of the Shares or the Oldco Shares or
otherwise relating to the Shares or the Oldco Shares.
(d) Litigation. Except as listed on Schedule 2.1(d), none of Seller,
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Oldco or any of the Companies is involved in, or the subject of, any pending or,
to Seller's knowledge, threatened suit, action, claim, investigation, or
proceeding in or by any Governmental Authority, or any legal, administrative,
arbitration, condemnation or eminent domain proceeding, which if determined
adversely to Seller, Oldco or any of the Companies, (i) could reasonably be
expected to have a Material Adverse Effect, or (ii) could reasonably be expected
to have a material adverse effect on the ability of Seller or Oldco to
consummate the transactions contemplated by this Agreement. Except as listed on
Schedule 2.1(d), there is no outstanding order, writ, injunction or decree of or
settlement enforceable by any Governmental Authority against or affecting any of
the Companies or Oldco which would have a Material Adverse Effect.
(e) Material Contracts. Schedule 2.1(e) contains a true and accurate
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list of each of contract, agreement or commitment of the Companies:
(i) upon which any substantial part of the Business is
dependent or which, if breached, could reasonably be expected to have a
Material Adverse Effect or a material adverse effect on the ability of
Seller, Oldco or the Companies to consummate the transactions contemplated
hereby;
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(ii) which provides for aggregate future payments by or to any
of the Companies of more than $100,000 in any calendar year;
(iii) relating to any indebtedness of the Companies;
(iv) containing any provision or covenant prohibiting or
limiting the ability of the Companies to engage in any business activity or
compete with any Person or prohibiting or limiting the ability of any
Person to compete with the Companies;
(v) relating to any arrangement with a distributor, dealer,
sales agent or manufacturer representative which is not terminable without
penalty on 60 days' or less notice by the Companies;
(vi) which is an agreement relating to employment or severance
that is not terminable at will by the applicable Company; or
(vii) under which any Company is a lessor or lessee of (i) real
property or (ii) personal property, and which requires annual payments in
excess of $100,000 in any year from or to any Company in the case of (ii).
Each of the foregoing is referred to in this Agreement as a "Material
Contract." All of the Material Contracts are in full force and effect; no
Material Contracts have been breached by the Companies, in any material respect,
or to Seller's knowledge, by any other party thereto; and, to Seller's
knowledge, no event has occurred with respect to any Material Contract which,
with the giving of notice or the passage of time or both, would constitute a
breach thereof by any party thereto, excluding any breaches which would not have
a Material Adverse Effect. To Seller's knowledge, no other party has asserted a
default by any of the Companies or Seller under any Material Contracts. Complete
copies of all Material Contracts have been delivered or made
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available to Buyer. Except as set forth on Schedule 2.1(e), no consent or
approval is required under the terms of any of the Material Contracts in
connection with the consummation of the transactions contemplated by the
Agreement. Other than this Agreement, neither Oldco nor the subsidiary listed on
Schedule 2.1(r) is a party to any other agreement.
(f) Licenses and Permits and Compliance with Laws. The Companies
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have, and are in compliance with, all governmental licenses, permits and other
authorizations, and have made all filings, necessary to conduct the Business,
except where the failure to have, or be in compliance with, such license,
permits and other authorizing actions or to make such filings could not
reasonably be expected to have a Material Adverse Effect. The Companies are
operating, and since the date of their acquisition by Seller have been operated,
in compliance in all material respects with all Laws and Orders, applicable to
the Business, except where failure to be in compliance could not reasonably be
expected to have a Material Adverse Effect.
(g) Employee Benefit Matters.
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(i) Schedule 2.1(g) lists all "employee benefit plans" within
the meaning of Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA") including, without limitation, all
retirement, savings and other pension plans, all health, severance,
insurance, disability and other employee welfare plans and all incentive,
vacation and other similar plans, all bonus, stock option, stock purchase,
incentive, deferred compensation, supplemental retirement, severance and
other employee benefit plans, programs or arrangements, and all employment
or compensation agreements, in each case for the benefit of, or relating
to, employees of the Companies ("Employees"), whether or not written,
whether or not subject to ERISA, and whether
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covering one person or more than one person (collectively, the "Employee
Plans"). Schedule 2.1(g) also includes all contracts, agreements or
commitments of the Companies which relate to the employment, retirement or
termination of the services of any officer, former officer or key employee
of the Companies. For purposes of this Section 2.1(g) only, the term
"Employee Plans" also includes the contracts, agreements and commitments
described in the preceding sentence.
(ii) None of the Employee Plans is a "multiemployer plan" as
defined in Section 3(37) of ERISA. No Employee Plan is subject to Title IV
or Section 302 of ERISA or Section 412 or 4971 of the Internal Revenue Code
of 1986, as amended (the "Code"). None of the Companies has any liability
under Title IV of ERISA nor, to Seller's knowledge, do circumstances exist
which could reasonably be expected to result in such a liability of the
Companies.
(iii) Seller and the Companies have made available to Buyer
complete and correct copies of each Employee Plan and any amendments
thereto and any related trust agreement, funding agreement and insurance
contract relating thereto, copies of all Employee Plans and, where
applicable, summary plan descriptions and annual reports required to be
filed within the last three years pursuant to ERISA or the Code, if
applicable, with respect to the Employee Plans.
(iv) Except as set forth on Schedule 2.1(g), the Companies have
not made any commitment to establish any new Employee Plan or to modify any
Employee Plan, nor has any intention to do so been communicated to any
employee.
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(v) All Employee Plans are in compliance in all material
respects with their terms and with the requirements prescribed by
applicable statutes, orders or governmental rules or regulations currently
in effect with respect thereto, and the Companies have performed all
material obligations required to be performed by them under, and are not in
any material respect in default under or in violation of, any provision of
the Employee Plans. With respect to each Employee Plan, all required
payments, premiums, contributions, distributions and reimbursements for all
periods ending prior to or as of the Closing Date have been made or
properly accrued.
(vi) Except as set forth in Schedule 2.1(g), each Employee Plan
intended to be qualified under Section 401(a) of the Code has heretofore
been determined by the Internal Revenue Service to so qualify, and each
trust created thereunder has heretofore been determined by the Internal
Revenue Service to so qualify, and each trust created thereunder has
heretofore been determined by the Internal Revenue Service to be exempt
from tax under the provisions of Section 501(a) of the Code and nothing has
occurred since the date of the most recent determination that would be
reasonably likely to cause any such Employee Plan or trust to fail to
qualify under Section 401(a) or 501(a) of the Code.
(vii) No prohibited transaction, as defined in Section 4975 of
the Code, that is not exempt has occurred with respect to any Employee
Plan.
(viii) Except as set forth on Schedule 2.1(g), there are no
actions, suits or claims pending, or, to Seller's knowledge, threatened or
anticipated (other than routine claims for benefits) with respect to any
Employee Plan.
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(ix) Oldco has no employees.
(h) Labor and Employment Matters. Except as set forth in Schedule
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2.1(h) hereto, (i) none of the Companies, Oldco or Seller (as with respect to
employees of the Companies) is a party to or bound by any collective bargaining
agreement or relationship with any labor organization; (ii) no labor
organization or group of employees has filed any representation petition or made
any written or oral demand for recognition; (iii) to Seller's knowledge, no
union organizing or decertification efforts are underway or threatened and no
other question concerning representation exists; (iv) no labor strike, work
stoppage, slowdown, or other material labor dispute, is underway, or, to
Seller's knowledge, threatened; (v) to Seller's knowledge, as of the date
hereof, no executive, key employee or group of employees has any present
intention to terminate their employment with the Companies; and (vi) there is no
employment-related charge, complaint, grievance, investigation, inquiry or
obligation of any kind, pending or, to Seller's knowledge, threatened in any
forum, relating to an alleged violation or breach by Seller or the Companies (or
any of their respective officers or directors) of any law, regulation or
contract which could reasonably be expected to have a Material Adverse Effect.
With respect to the Business, Seller has not implemented any plant closing or
mass layoff of employees as those terms are defined in the Worker Adjustment and
Retraining Notification Act of 1988, as amended (the "WARN Act"), or any similar
foreign, state, or local law, regulation or ordinance.
(i) Environmental and Safety Matters. Except as set forth on Schedule
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2.1(i):
(i) Each of the Companies and their respective predecessors has
materially complied and is in material compliance with all Environmental
Laws,
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including without limitation all material permits, licenses and other
authorizations required pursuant to Environmental Laws for the occupation
of its facilities and the operation of the Business. "Environmental Laws"
shall mean as enacted and amended from time to time, all applicable
federal, state, local and foreign statutes, regulations, ordinances and
similar provisions having the force or effect of law, all judicial and
administrative orders and determinations, and all common law concerning
public health and safety, worker health and safety, and pollution or
protection of the environment, including without limitation all those
relating to hazardous materials, substances or wastes, or petroleum.
(ii) Neither Seller (with respect to the Business), nor any of
the Companies, nor any of their respective predecessors has received any
written or oral notice, report or other information regarding any actual or
alleged material violation of Environmental Laws, or any material
liabilities or potential material liabilities arising under Environmental
Laws relating to any of the Companies, any of their respective
predecessors, or the Business.
(iii) None of the following exists at any property or facility
owned or operated by the Companies or in connection with the Business: 1)
underground storage tanks which are not in material compliance with the
Environmental Laws or from which a release of a reportable quantity of a
substance has not been remediated as required under the Environmental Laws;
2) friable asbestos-containing materials requiring abatement at the time of
closing under the Environmental Laws; 3) transformers owned by any of the
Companies containing polychlorinated biphenyls in amounts above those
allowed under
17
the Environmental Laws; or 4) landfills, surface impoundments, or disposal
areas in material violation of Environmental Laws.
(iv) Neither Seller (with respect to the Business), nor any of
the Companies, nor any of their respective predecessors has treated,
stored, disposed of, arranged for or permitted the disposal of,
transported, handled, or released any substance, including without
limitation any hazardous substance, or owned or operated any property or
facility (and no such property or facility is contaminated by any such
substance) in a manner that has given or would give rise to liabilities,
including any liability for response costs, corrective action costs,
personal injury, property damage, natural resources damages, or any
investigative, corrective or remedial obligations, pursuant to the
Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended ("CERCLA") or the Solid Waste Disposal Act, as amended
("SWDA") or any other Environmental Laws.
(v) None of the Companies have assumed, undertaken or otherwise
become subject to any liability, including without limitation any
obligation for corrective or remedial action, of any other person or entity
relating to Environmental Laws.
(j) [Intentionally Omitted].
-----------------------
(k) Intellectual Property. Schedule 2.1(k) sets forth a complete and
---------------------
accurate list of all: (i) patented or registered Intellectual Property, and
pending patent applications or other applications for registration of
Intellectual Property, owned or filed by or on behalf of any Company; (ii) all
trade names, domain names and material unregistered trademarks, service marks
and copyrights owned or used by the Companies; and (iii) all licenses or similar
18
agreements or arrangements concerning Intellectual Property to which any of the
Companies is a party, either as licensee or licensor. The Companies own or are
licensed or otherwise have the right to use the Intellectual Property (as
hereinafter defined) necessary for the operation of the Business. There is no
claim, suit, action or proceeding, pending or, to Seller's knowledge, threatened
against the Companies asserting that their use of any such Intellectual
Property, or that the operation of business, infringes upon or constitutes a
misappropriation of the rights of any third party or otherwise contesting the
Companies' rights with respect to any such Intellectual Property, including, but
not limited to, contesting the validity or enforceability of any such
Intellectual Property. Except as set forth on Schedule 2.1(k), the Companies
have not received notice of, and are not aware of any facts which indicate a
likelihood of, any infringement or misappropriations by any third party with
respect to the Companies' Intellectual Property. All Intellectual Property owned
or used by the Companies as of the date hereof will be owned or available for
use by the Companies on identical terms and conditions immediately following the
Closing. All letters, patents, registrations and certificates issued by any
governmental agency to the Companies relating to the Companies' Intellectual
Property are valid and subsisting and have been properly maintained. The term
"Intellectual Property" means trade names, domain names, trademarks and service
marks, patents, patent rights, copyrights, whether domestic or foreign (as well
as applications, registrations or certificates for any of the foregoing),
inventions, trade secrets, know-how, proprietary processes, software and other
industrial and intellectual property rights. The Companies have conducted an
inventory and assessment of the hardware, software and embedded microcontrollers
in noncomputer equipment (collectively, the "Computer Systems") used in the
Business and have used, and will continue to use, their
19
reasonable efforts to enable all such computer systems, by December 31, 1999, to
recognize the advent of year 2000 and correctly recognize and manipulate date
information relating to dates on or after January 1, 2000.
(l) Financial Statements. The Companies will, within 14 days of the
--------------------
date hereof, furnish to Buyer audited combined financial statements for the
fiscal year ended February 28, 1999, for the period from July 2, 1997 to
February 28, 1998 and for the period from December 29, 1996 to July 1, 1997 (the
"Financial Statements"). The Financial Statements will be prepared in accordance
with the Companies books and records, will fairly present in all material
respects the financial position of the Companies as of such dates and the
results of operations and changes in stockholders' equity and in financial
position for such periods, will be prepared in accordance with generally
accepted accounting principles ("GAAP") applied on a consistent basis.
(m) Conduct of Business Since February 28, 1999. Between February
-------------------------------------------
28, 1999 and the Closing, the Companies (i) have conducted the Business only in
the usual, regular and ordinary manner consistent with past practice; (ii) have
used commercially reasonable efforts to preserve intact the present business
organization and operations of the Business and have preserved their respective
relationships with persons or entities having business dealings with the
Companies; and (iii) have not had any material adverse change in their financial
assets, properties, prospects or liabilities.
(n) Regulatory Approvals. Except for notification under the
--------------------
Xxxx-Xxxxx-Xxxxxx Antitrust Improvement Act of 1976, as amended (the "HSR Act"),
if required, there is no requirement applicable to Seller or the Companies to
make any filing with, or to obtain any
20
permit, authorization, consent, order or approval of any Governmental Authority
as a condition to the lawful consummation of the transactions contemplated by
this Agreement and the Related Agreements.
(o) Tax Matters. The Companies and Oldco (or Seller on their
-----------
behalf) have filed for all dates and periods of time through the Closing, all
Tax Returns required by applicable law to be filed on or before the Closing, and
have paid or made provision for the payment of all Taxes (including, without
limitation, income, sales, use, occupation, property, withholding, excise and
employment taxes, and interest and penalties thereon) which have or may become
due (whether or not such amounts were shown as due on such Tax Returns). Except
as disclosed on Schedule 2.1(o), neither Seller, Oldco nor any of the Companies
has received any assessment for unpaid Taxes with respect to the Companies or
Oldco or has agreed to any extension of time for the filing of any Tax Returns
or for the assessment of any Taxes with respect to the Companies or Oldco.
Adequate provisions on the books of the Companies and Oldco have been made for
the payment of all current Taxes and no amounts will be due to the Seller as of
the Closing pursuant to the intercompany tax sharing agreement. The Companies
and Oldco (or Seller on their behalf ) have withheld and paid over to the
appropriate taxing authority all Taxes which they are required to withhold from
amounts paid or owing to any employee, shareholder, creditor or other third
party. Except as disclosed on Schedule 2.1(o), no foreign, federal, state or
local tax audits or administrative or judicial proceedings are pending or being
conducted with respect to the Companies and Oldco and the Companies and Oldco
have not received from any foreign, federal, state or local taxing authority
(including, but not limited to, jurisdictions where the Companies have filed Tax
Returns) any (a) notice indicating an intent to open an audit or other
21
review, (b) request for information related to Tax matters or (c) notice of
deficiency or proposed adjustment for any amount of Tax proposed, asserted or
assessed by any taxing authority against any Company. Neither the Companies nor
Oldco have ever been a member of an Affiliated Group or filed or been included
in a combined, consolidated or unitary income Tax Return with any other
corporation, other than the Affiliated Group of which Seller is the common
parent. None of the Companies nor Oldco have made an election under Section
341(f) of the Code. Buyer will not be required to deduct and withhold any amount
pursuant to Code Section 1445(a) upon the purchase of the Shares. Neither the
Companies nor Oldco have made any payments, and are not and will not become
obligated (under any contract entered into on or before the Closing Date) to
make any payments, that will be non-deductible under Section 280G of the Code
(or any corresponding provision of state, local or foreign income Tax law).
Neither the Companies nor Oldco will be required as a result of a change in
method of accounting or as a result of any "closing agreement," as described in
Section 7121 of the Code (or any corresponding provision of state, local or
foreign income Tax law), to include any item of income in, or exclude any item
of deduction from, taxable income for any taxable period (or portion thereof)
ending after the Closing Date. As used in this Agreement, the following terms
shall have the following respective meanings:
(i) "Affiliated Group" means an affiliated group as defined in
Section 1504 of the Code (or any analogous combined, consolidated or
unitary group defined under state, local or foreign income Tax law) of
which any Company is or has been a member.
22
(ii) "Tax" means any (A) federal, state, local or foreign
income, gross receipts, franchise, estimated, alternative minimum, add-on
minimum, sales, use, transfer, registration, value added, excise, natural
resources, severance, stamp, occupation, premium, windfall profit,
environmental, customs, duties, real property, personal property, capital
stock, social security, unemployment, disability, payroll, license,
employee or other withholding, or other tax, of any kind whatsoever,
including (i) any interest, penalties or additions to tax or additional
amounts in respect of the foregoing, (ii) any fines, costs, penalties or
amounts due in respect of the foregoing relating to the misstatement of any
kind of tax whatsoever (whether under a fraud or criminal claim or
otherwise); (B) liability of any Company for the payment of any amounts of
the type described in clause (A) arising as a result of being (or ceasing
to be) a member of any Affiliated Group (or being included (or required to
be included) in any Tax Return relating thereto); and (C) liability of any
Company for the payment of any amounts of the type described in clause (A)
as a result of any express or implied obligation to indemnify or otherwise
assume or succeed to the liability of any other person.
(iii) "Tax Returns" means returns, declarations, reports, claims
for refund, information returns or other documents (including any related
or supporting schedules, statements or information) filed or required to be
filed in connection with the determination, assessment or collection of
Taxes of any party or the administration of any laws, regulations or
administrative requirements relating to any Taxes.
(p) Warranty or Product Liability Claims. The Companies in the
------------------------------------
aggregate have experienced less than $700,000 in claims for (i) all products
manufactured by them and
23
returned to them because of warranty or other problems during each of the last
two fiscal years and (ii) all credits, discounts, concessions, offsets or
allowances made with respect to all warranty and other claims or problems with
respect to products manufactured by them during each of the last two fiscal
years. Adequate provision for all such claims will have been made as of the
Closing Date balance sheet and such provision will not differ significantly from
the provision made in the February 28, 1999 balance sheet, except with respect
to changes in volume of sales. No product liability claims have been made
against the Companies for products manufactured by them in connection with the
business during the last two fiscal years or the current fiscal year to date.
(q) Broker; Finder. Except for Xxxxxxx Xxxxx & Co. and NationsBanc
--------------
Xxxxxxxxxx Securities LLC whose fees will be the sole responsibility of Seller,
neither Seller nor any of the Companies has employed any broker or finder or
incurred any responsibility for paying any brokerage fees, commissions or
finders' fee in connection with the transactions contemplated herein.
(r) Subsidiaries. Except as set forth in Schedule 2.1(r), there
------------
are no subsidiaries of the Companies or Oldco, and, except for this Agreement,
none of the Companies or Oldco are a partner in any partnership or are a party
to any agreement to acquire or own, nor have they the right to acquire, any
subsidiary or shares, units of partnership or any other ownership interest in
any corporation, limited liability company, joint venture, partnership or other
legal entity.
(s) Undisclosed Liabilities. Except as disclosed on Schedule 2.1(s),
----------------------- ---------------
to Seller's knowledge the Companies have no material liability or obligation
that is not reflected or
24
adequately reserved against in the Financial Statements (including the notes
thereto), other than liabilities incurred in the ordinary course of business
since February 28, 1999 in a manner consistent with past practice. Except for
the transactions contemplated hereby, neither Oldco nor the subsidiary listed on
Schedule 2.1(r) has any liabilities or assets.
(t) Compliance with Settlement Agreements. The Companies have been
-------------------------------------
and are in compliance in all material respects with all Orders, Settlement
Agreements, and Assurances of Discontinuance to which they are subject,
including but not limited to the Assurance of Discontinuance dated December 9,
1992 in Commonwealth of Massachusetts v. Mattress Discounters, Inc., the Final
Judgment and Consent Decree dated June 30, 1994 in People of the State of
Illinois v. The Bedding Experts, Inc. and Xxxxxx X. X'Xxxxx, Xx. 00 XX 0000, the
Settlement Agreement dated February 28, 1995 In re T.J.B., Inc. t/a Mattress
Discounters, Inc., the Settlement Agreement dated November, 1993 in Xxxxxxx Co.
v. The Bedding Experts, Inc., No. 92 C 5465 and the Class Action Settlement
Agreement dated February 9, 1999 in Guittierez et al. v. Mattress Discounters,
Inc. No. C-97-03945.
2.2 Representations and Warranties of Buyer. Buyer represents and warrants
---------------------------------------
to Seller that the following statements are true and correct as of the date
hereof (it being agreed that the term "knowledge" means the actual knowledge
after reasonable investigation of the elected officers of Buyer):
(a) Organization; Qualification. Buyer is a corporation duly
---------------------------
organized, validly existing and in good standing under the laws of Virginia and
is duly qualified to do business and in good standing in each jurisdiction where
the character of its properties or the nature of its activities make such
qualification necessary, except where the failure to qualify
25
would not have a Buyer Material Adverse Effect (as defined below). "Buyer
Material Adverse Effect" means a material adverse affect on the business,
assets, results of operations or financial condition of the Buyer.
(b) Authority Relative to this Agreement. Buyer has the corporate
------------------------------------
power and authority to enter into this Agreement and the Related Agreements and
to consummate the transactions contemplated hereby and thereby. This Agreement
has been duly executed and delivered by Buyer and is, and each of the Related
Agreements when executed and delivered by Buyer will be, a valid and binding
agreement of Buyer, enforceable against Buyer in accordance with its terms.
Buyer has taken all corporate action necessary to approve this Agreement, the
Related Agreements and the transactions contemplated hereby and thereby. The
execution, delivery and performance of this Agreement and the Related Agreements
by Buyer and the consummation of the transactions contemplated hereby and
thereby will not:
(i) conflict with or result in a violation or breach of any of
the terms, conditions or provisions of the certificate or articles of
incorporation or bylaws (or other comparable corporate charter documents)
of Buyer;
(ii) conflict with or result in a violation or breach of any
term or provision of any Law enacted, adopted, promulgated, applied or
followed by any Governmental Authority applicable to Buyer or any of its
assets and properties, except where such violation or breach would not have
a Buyer Material Adverse Effect or have a material adverse effect on the
ability of Buyer to consummate the transactions contemplated hereby; or
26
(iii) (A) conflict with or result in a violation or breach of,
(B) constitute (with or without notice or lapse of time or both) a default
under, (C) result in or give to any Person any right of termination,
cancellation, acceleration or modification in or with respect to, or (D)
result in the creation or imposition of any Lien upon the Buyer or any of
their respective assets and properties under, any material contract of
Buyer or license, permit, certificate of authority, authorization,
approval, registration, franchise or similar consent granted or issued by
any Governmental Authority to which the Buyer is a party or by which any of
its respective assets and properties is bound, except where such conflict,
violation, breach, or default, termination, cancellation, acceleration,
modification or Lien would not have a Buyer Material Adverse Effect or have
a material adverse effect on the ability of Buyer to consummate the
transactions contemplated hereby.
(c) Requirements Relative to this Agreement. Except for notification
---------------------------------------
under the HSR Act, if required, there is no requirement applicable to the Buyer
to make any filing with, or to obtain any permit, authorization, consent, order
or approval of any governmental or regulatory authority as a condition to the
lawful consummation of the transactions contemplated by this Agreement. There is
no requirement contained in any agreement or instrument to which Buyer is a
party that any person or entity consent to the transaction contemplated hereby,
except where the failure to obtain such consent would not have a Buyer Material
Adverse Effect or a material adverse effect on Buyer's ability to consummate the
transactions contemplated hereby.
(d) Litigation. The Buyer is not involved in, or the subject of, any
----------
pending or, to Buyer's knowledge, threatened suit, action, claim, investigation,
or proceeding in or by any Governmental Authority, or any legal, administrative,
arbitration, condemnation or eminent
27
domain proceeding, which if determined adversely to Buyer, (i) could reasonably
be expected to have a Buyer Material Adverse Effect, or (ii) could reasonably be
expected to have a material adverse effect on the ability of Buyer to consummate
the transactions contemplated by this Agreement. There is no outstanding order,
writ, injunction or decree of or settlement enforceable by any Governmental
Authority against or affecting Buyer which would have a Buyer Material Adverse
Effect.
(e) Investment Representation. Buyer is acquiring the Shares for
-------------------------
investment and not with a view to their sale or distribution other than in a
sale or distribution which is registered under the applicable securities laws or
is exempt from such registration, and will accept certificates for the Shares
with a legend thereon indicating this fact, it being understood that the right
to dispose of such Shares shall be entirely within the discretion of Buyer.
(f) Financing. The Buyer has delivered to Seller true and complete
---------
copies of the commitment letters (the "Commitment Letters") set forth on
Schedule 2.2(f). The aggregate net proceeds of the capital contributions, credit
facilities and debt described in the Commitment Letters will be sufficient for
Buyer to consummate the transactions contemplated hereby and to pay all related
fees and expenses.
3. CONDUCT AND TRANSACTIONS BEFORE CLOSING
---------------------------------------
3.1 Access to Records and Properties. From the date hereof through the
--------------------------------
Closing Date (as hereinafter defined), Seller will cause the Companies to give
Buyer, its financing sources and its representatives and agents reasonable
access to all books and records of the Companies during normal business hours
and upon reasonable notice, and will cause the officers, employees and
accountants and other representatives of Seller and the Companies to furnish to
Buyer such
28
financial and operating data and other information with respect to the Companies
respective assets and Business as Buyer shall from time to time reasonably
request, including all information reasonably necessary to satisfy closing
conditions for obtaining financing for the transactions contemplated hereby. In
addition, the Seller shall use its commercially reasonable best efforts to
obtain from Deloitte & Touche (Seller's independent public accountants) its
consent to the inclusion of their audit report on the Financial Statements in
any public or private filings related to Buyer's financing in connection with
the purchase of the Shares.
3.2 Operation of Business of the Companies. Seller agrees to cause the
--------------------------------------
Companies to, from the date hereof through the Closing Date, except for
transactions contemplated by this Agreement and transactions to which Buyer
shall otherwise consent in writing, and the Companies shall, (x) operate the
Business substantially as presently operated and only in the ordinary course;
and (y) use their commercially reasonable efforts to preserve intact the present
business organization and operations of the Business and their relationship with
persons or entities having business dealings with the Companies.
3.3 Forebearances by Seller. Except as contemplated by this Agreement
-----------------------
(including without limitation, Section 3.2 hereof), Seller will not allow the
Companies to, from the date hereof until the Closing, without the written
consent of Buyer:
(i) sell, dispose of, transfer, mortgage, pledge, encumber, or
license any of their respective assets (tangible or intangible), except
inventory in the ordinary course of business;
29
(ii) except in accordance with the ordinary and usual course of
their business and in a manner consistent with past practices, enter into,
amend, modify or cancel any Material Contract;
(iii) declare, set aside or pay any dividend (whether in cash or
property) with respect to their capital stock;
(iv) issue or sell any shares of their capital stock or any
securities or obligations convertible into or exchangeable for, or giving
any person or entity any right to acquire any shares of their capital stock
or split, reclassify, combine or reorganize any existing capital stock;
(v) amend their Articles of Incorporation or Bylaws;
(vi) purchase or acquire any assets or property other than in
the ordinary and usual course of their business and in a manner consistent
with past practices;
(vii) announce or institute any personnel changes, other than in
the ordinary course of business, or employee commitments or contracts,
including granting any increase in the compensation of any Employee;
(viii) implement any employee layoffs that could implicate the
Workers Adjustment and Retraining Notification Act of 1988, as amended; and
(ix) enter into, cancel or amend or modify (in any manner
adverse to the Companies) any leases relating to real property currently
leased by the Companies;
(x) enter into an agreement to do any of the things described
in clauses (i) through (ix) above.
30
3.4 Senior Sub Note Offering.
------------------------
(a) The Companies, with the full assistance of Seller, its outside
accountants and Buyer, shall use all commercially reasonable efforts to, as
requested by and at the direction and under the control of Buyer and subject to
the provisions of Section 3.6, (1) prepare, print and circulate to potential
investors a preliminary offering memorandum relating to the Senior Subordinated
Notes of Mattress Discounters (the "Senior Sub Notes") containing such
disclosure and financial statements as may be required by the Securities Act and
other applicable laws and such other disclosures as are customary and
appropriate for such a document, and supplementing and updating such memorandum
as may be required by the Securities Act, (2) actively participate in marketing
the Senior Sub Notes, including making senior management available during the
roadshow period, which shall be for a customary period or such shorter period
that is needed to successfully place the Senior Sub Notes, (3) in the event of a
successful placement (i.e., a placement which Mattress Discounters either (a) is
required to consummate pursuant to subsection (b) below, or (b) elects to
consummate), execute a purchase agreement with the Initial Purchasers of the
Senior Sub Notes (the "Initial Purchasers") in a form customary for high yield
debt offerings under Rule 144A, (4) in the event of a successful placement
(i.e., a placement which Mattress Discounters either (a) is required to
consummate pursuant to subsection (b) below, or (b) elects to consummate),
deliver a final offering memorandum to be used by the Initial Purchasers for
confirmation of sales of the Senior Sub Notes within 24 hours after the pricing
of the Senior Sub Notes, (5) execute a purchase agreement, with Xxxx Capital,
Inc. or an affiliate thereof ("Bain") pursuant to which Bain will purchase
Senior Sub Notes (which agreement shall be substantially similar to the purchase
agreement entered into (or proposed to
31
be entered into) with the Initial Purchasers pursuant to (3) above) and
satisfying all representations, warranties and conditions set forth therein and
(6) satisfying such other conditions to be agreed upon between the parties.
Seller acknowledges that the provisions of this Section 3.4 shall equally apply
to the sale of any non-cash pay notes of Oldco or other mezzanine securities
which are required to be and are issued at Closing pursuant to the Commitment
Letters. Before Seller or any of the Companies shall be obligated to take any
action under this Section, Bain shall have executed and delivered the Indemnity
Agreement attached hereto as Exhibit F.
(b) Seller and Buyer agree that, if Mattress Discounters is able to
place the Senior Sub Notes in a Rule 144A Offering with a yield less than or
equal to the amount set forth in that certain letter between Bain and Xxxxx
Securities, Inc. dated May 10, 1999 and with terms which are not materially less
favorable to Mattress Discounters than the terms contained in the Commitment
Letters, then it will place such Senior Sub Notes.
(c) Notwithstanding anything in this Agreement to the contrary, the
actions of Seller or any of the Companies in connection with the transactions
contemplated by this Section 3.4 shall not constitute, or be deemed to be, a
breach of any other covenant of Seller contained elsewhere in this Agreement or
any representation or warranty of Seller contained in this Agreement.
3.5 Efforts to Consummate. Subject to the terms and conditions herein
---------------------
provided, each of the parties hereto agrees to use its commercially reasonable
best efforts to take, or cause to be taken, all action and to do, or cause to be
done, all things necessary, proper or advisable to consummate, as promptly as
practicable, the transactions contemplated hereby, including, but not limited
to, the obtaining of all necessary consents, waivers, authorizations, orders and
approvals
32
of third parties, whether private or governmental, required of it to enable it
to comply with the conditions precedent to consummating the transactions
contemplated by this Agreement. Each party agrees to cooperate fully with the
other party in assisting it to comply with this Section. Notwithstanding the
foregoing, none of the parties shall be required to initiate any litigation,
make any payment or incur any obligation or material economic burden, to obtain
any consent, waiver, authorization, order or approval. Buyer agrees and it shall
cause its Subsidiaries to take all action reasonably appropriate to effectuate
the financings under the Commitment Letters. At Closing, Seller will cause there
to be no Liens which materially interfere with the operation of the Business or
with the financing described in the Commitment Letters.
3.6 In connection with the transactions contemplated by Section 3.4,
Seller will use its commercially reasonable best efforts to provide Buyer
financial statements as reasonably required by Buyer and which are necessary to
complete the offering memorandum for the Senior Sub Notes, including audited
financial statements and selected financial data. Notwithstanding anything
contained herein to the contrary, the parties agree and acknowledge that
Seller's obligation to provide financial statements pursuant to this Agreement
shall only include the Financial Statements together with periods for Mattress
Discounters prior to December 29, 1996, and related selected financial data (it
being understood that such selected financial data shall not include data with
respect to Bedding Experts before December 29, 1996) (the "Existing Financial
Statements"). Buyer agrees and acknowledges that the Existing Financial
Statements are the only historical financial information required for it to meet
its financing condition contained in Section 4.1(j). The Existing Financial
Statements may be used for any non-cash pay notes of Oldco or other mezzanine
securities which are required to be and are issued at Closing pursuant
33
to the Commitment Letters. Seller agrees that, in addition to the Existing
Financial Statements, at Buyer's request prior to Closing (and after Closing to
the extent such information is retained by Seller), Seller will use its
commercially reasonable best efforts to provide to Buyer unaudited financial
statements for Bedding Experts for periods prior to December 29, 1996 and
unaudited financial information for any period subsequent thereto as reasonably
requested by Buyer.
4. CONDITIONS TO CLOSING
---------------------
4.1 Conditions to Obligations of Buyer. The obligations of Buyer to be
----------------------------------
performed under this Agreement at the Closing are subject to the satisfaction of
each of the following conditions on or before the Closing, unless waived in
writing by Buyer:
(a) The representations and warranties of Seller made herein shall be
true and correct in all material respects on the date of this Agreement, and on
the Closing Date as though made at and as of such time, and Seller shall have
performed and complied with in all material respects all covenants and
agreements and satisfied all conditions required to be performed or complied
with by it under this Agreement on or before the Closing Date.
(b) Buyer shall have received copies of the resolutions approved and
adopted by the Board of Directors of Seller and Oldco authorizing the execution,
delivery and performance of this Agreement and the Related Agreements, and the
Certificate or Articles of Incorporation of each Company and Oldco and Bylaws of
each Company and Oldco, all certified by the Seller's, Oldco's and each
Company's, as applicable, Secretary or Assistant Secretary.
(b) Buyer shall have received a certificate, dated as of the Closing
Date, executed by Seller certifying that (i) the representations and warranties
of Seller contained in this Agreement are true and correct in all material
respects as of the Closing Date as though made at
34
and as of such time, and (ii) it has duly performed and complied with, in all
material respects, all covenants and agreements and satisfied all conditions
required by this Agreement to be performed or complied with by it prior to or on
the Closing Date.
(d) Buyer shall have received an opinion of McGuire, Woods, Battle &
Xxxxxx LLP, legal counsel for Seller, dated as of the Closing Date,
substantially in the form of the opinion attached hereto as Exhibit G.
(e) All corporate and other proceedings to be taken by Seller
necessary to carry out this Agreement, and all documents incident thereto shall
be reasonably satisfactory in form and substance to Buyer and its legal counsel.
(f) All consents, authorizations, orders and approvals of
governmental or regulatory authorities and of individuals or business entities
reasonably required for the consummation of the transactions contemplated by
this Agreement (other than those required under leases of real property
described in Schedule 2.1(b)) shall have been obtained, and all waiting periods
specified by law with respect thereto shall have passed.
(g) No order of any court or governmental agency shall be in effect
which restrains or prohibits the consummation of the transactions contemplated
by this Agreement, and there shall not have been threatened, nor shall there be
pending, any action or proceeding by or before any such court or governmental
agency which is likely to prohibit or delay or successfully challenge the
validity of the transactions contemplated by this Agreement.
(h) Such directors and officers of the Companies as Buyer shall
request shall have tendered written resignation to the applicable Company, to be
effective immediately prior to the Closing.
35
(i) Seller shall have delivered to Buyer the deliveries described in
Section 5.2.
(j) Buyer shall have obtained the financing contemplated by the
Commitment Letters; provided, however that this provision shall not apply if
Buyer does not obtain such financing due to its failure to fulfill any
obligations which are reasonably within its control.
(k) All intercompany accounts payable and receivable between the
Seller, on the one hand, and the Companies, on the other, including intercompany
Taxes payable, will be deemed settled by the Seller and contributed to the
capital of the applicable Company, except that the intercompany trade
receivables of the Companies from the Seller for sales of mattresses, box
springs and foundations manufactured by the Companies shall be paid in cash
after the Closing Date in accordance with the terms of the Mattress Supply
Agreement, which is attached hereto as Exhibit D.
---------
(l) The Companies shall have entered into employment arrangements
with the persons set forth on Schedule 4.1 (l) which are mutually satisfactory
to the Seller and Buyer (provided that this condition may be waived by Buyer).
4.2 Conditions to Obligations of Seller. The obligations of Seller to be
-----------------------------------
performed under this Agreement at the Closing are subject to the satisfaction of
each of the following conditions on or before the Closing unless waived in
writing by Seller:
(a) The representations and warranties of Buyer made herein shall be
true and correct in all material respects on the date of this Agreement and on
the Closing Date, as though made at and as of such time, and Buyer shall have
performed and complied with in all material respects all covenants and
agreements and conditions required to be performed or complied with by it under
this Agreement on or before the Closing Date.
36
(b) Seller shall have received copies of resolutions approved and
adopted by the Board of Directors of Buyer authorizing the execution, delivery
and performance of this Agreement and the Related Agreements.
(c) Seller shall have received the Merger Consideration.
(d) The receipt of an officer's certificate from Buyer in form and
substance reasonably satisfactory to Seller that after giving effect to the
transactions contemplated hereby and in the Commitment Letters, none of Buyer,
Oldco or Mattress Discounters will be insolvent or will be rendered insolvent
thereby, will be left with unreasonably small capital with which to engage in
its business or will have incurred debts beyond its ability to pay such debts as
they mature.
(e) Seller shall have received an opinion of Xxxxxxxx & Xxxxx, legal
counsel for Buyer, and of Virginia counsel for Buyer, reasonably satisfactory to
Buyer, each dated as of the Closing Date, substantially in the form of the
opinion attached hereto as Exhibit H.
(f) Seller shall have received a certificate, dated as of the Closing
Date, executed by Buyer certifying that (i) the representations and warranties
of Buyer contained in this Agreement are true and correct in all material
respects as of the Closing Date as though made at and as such time, and (ii) it
has duly performed and complied with, in all material respects, all covenants
and agreements and satisfied all conditions required by this Agreement to be
performed or complied with by it prior to or on the Closing Date.
(g) All corporate and other proceedings to be taken by Buyer
necessary to carry out this Agreement, and all documents incident thereto shall
be reasonably satisfactory in form and substance to Seller and its legal
counsel.
37
(h) All consents, authorizations, orders and approvals of
governmental or regulatory authorities and of individuals or business entities
reasonably required for the consummation by Seller of the transactions
contemplated by this Agreement (other than those which may be waived by Buyer)
shall have been obtained, and all waiting periods specified by law with respect
thereto shall have passed.
(i) No order of any court or governmental agency shall be in effect
which restrains or prohibits the consummation of the transactions contemplated
by this Agreement, and there shall not have been threatened, nor shall there be
pending, any action or proceeding by or before any such court or governmental
agency which is likely to prohibit or delay or successfully challenge the
validity of any of the transactions contemplated by this Agreement.
(j) The Surviving Corporation shall have executed and delivered a
stockholders agreement with Seller and other stockholders containing the terms
set forth on Exhibit I.
5. CLOSING
-------
5.1 The Closing. The consummation of the purchase and sale of the Shares
-----------
and of all other related transactions hereunder (the "Closing"), shall, unless
another time, date and place be agreed to in writing by Buyer and Seller, take
place at the offices of Xxxxxxxx & Xxxxx, New York, New York at 10:00 a.m. on
the 5th business day following the satisfaction or, if permissible, waiver in
accordance with this Agreement, of the closing conditions set forth in Sections
4.1 and 4.2 (the actual date of Closing is referred to herein as the "Closing
Date"). Subject to the terms and conditions contained herein, the parties shall
use all commercially reasonably efforts to close on or before July 30, 1999. The
effective date of the Closing shall be the Closing Date.
38
5.2 Deliveries by Seller. At the Closing, Seller shall deliver to Buyer
--------------------
the following:
(a) certificates representing the common stock of Oldco together with
the certificates representing the Shares and the minute books and stock ledgers
of Oldco and the Companies;
(b) certified copies of the resolutions, charter and Bylaws described
in Section 4.1(b);
(c) the certificate required by Section 4.1(c);
(d) a certificate from the appropriate governmental agency of the
good standing of Seller, Oldco and each of the Companies in the state of its
incorporation as of a recent date, together with a certified (by the Seller's
Secretary or Assistant Secretary) copy of their charters;
(e) the opinion of counsel required by Section 4.1(d);
(f) copies of the consents required by Section 4.1(f); and
(g) resignations of all directors and officers of Oldco serving in
office immediately prior to the Closing to be effective as of the Closing; and
(h) such additional documents as Buyer may reasonably request.
5.3 Deliveries by Buyer. At the Closing, Buyer shall deliver to Seller the
-------------------
following:
(a) the cash portion of the Merger Consideration by wire transfer in
accordance with Section 1.2 hereof to an account designated by Seller in writing
to Buyer at least three business days prior to the Closing Date;
39
(b) the Junior Subordinated Notes;
(c) certified copies of the resolutions described in Section 4.2(b);
(d) the opinion of counsel required by Section 4.2(d);
(e) the certificate required by Section 4.2(e);
(f) copy of the resolutions adopted by the Board of Directors of
Buyer authorizing the transactions contemplated by this Agreement, certified by
appropriate authorized officers Buyer;
(g) copies of the consents required by Section 4.2(g); and
(h) such additional documents as Seller may reasonably request.
5.4 Deliveries by Seller and Buyer. At the Closing, Seller, the Companies
------------------------------
and Buyer shall each execute and deliver to the appropriate party copies of the
Related Agreements to which they are parties.
6. SURVIVAL OF REPRESENTATIONS
---------------------------
AND WARRANTIES AND INDEMNIFICATION
----------------------------------
6.1 Survival of Representations and Warranties. All of the
------------------------------------------
representations, warranties and covenants made by Seller and Buyer in this
Agreement shall be continuing and shall survive the Closing and the purchase and
sale of the Shares hereunder, (i) indefinitely with respect to the
representations and warranties contained in Sections 2.1(b)(i) and 2.1(c), (ii)
until sixty (60) calendar days after the expiration of all applicable statutes
of limitation (including all periods of extension, whether automatic or
permissive) with respect to matters covered by Section 2.1(o), (iii) until the
earlier of 18 months after the Closing or 60 days after the delivery of the
first audited financial statements of the Companies (or consolidated financial
statements of the Buyer
40
including the Companies) for the first full year following the Closing in the
case of all other representations and warranties and any covenant or agreement
to be performed in whole or in part on or prior to the Closing or (iv) with
respect to each other covenant or agreement contained in this Agreement, until
60 days after the delivery of the first audited financial statements of the
Companies (or consolidated financial statements of the Buyer including the
Companies) for the first full year following the last date on which such
covenant or agreement is to be performed or, if no such date is specified,
indefinitely. Notwithstanding the foregoing, any representation or warranty in
respect of which indemnification may be sought under Section 6.2 shall survive
the date specified for the termination of its effectiveness, if written notice
thereof, given in good faith, of the specified breach thereof is given to the
indemnifying party before such date, whether or not liability has actually been
incurred.
6.2 Indemnification. If the transactions contemplated by this Agreement
---------------
are consummated in accordance with Section 5.1 hereof:
(a) Indemnification of the Surviving Corporation. Without in any way
--------------------------------------------
limiting or diminishing the warranties, representations or agreements herein
contained, Seller agrees to indemnify, defend and hold harmless the Surviving
Corporation, its officers, directors, agents, representatives and affiliates
from and against all Losses (as hereinafter defined) arising out of or relating
to:
(i) the breach of any representation or warranty of Seller
contained in this Agreement;
(ii) the breach of any covenant or agreement of Seller contained
in this Agreement (but not the Related Agreements, each one of which will
stand on its own);
41
(iii) any liability or obligation of Oldco that arises as a
result of events which occur before the Closing other than those relating to the
Borrowings;
(iv) the failure to obtain those consents listed on Schedule
6.2(a)(iv) up to certain maximum thresholds as stated therein; or
(v) the litigation matters set forth on Schedule 6.2(a)(v) up
to certain maximum thresholds as stated therein.
Notwithstanding the foregoing, Seller shall not be required to
indemnify the Surviving Corporation for liabilities arising solely from changes
in law after the Closing.
(b) Indemnification of Seller. Without in any way limiting or
-------------------------
diminishing the warranties, representations or agreements herein contained,
Buyer (and after the Merger, the Surviving Corporation) hereby agrees, with
respect to this Agreement, to indemnify, defend and hold harmless Seller, its
officers, directors, agents, representatives and affiliates from and against all
Losses arising out of or relating to:
(i) the breach of any representation or warranty of Buyer
contained in this Agreement;
(ii) the breach of any covenant or agreement of Buyer contained
in the Agreement (but not the Related Agreements, each one of which will
stand on its own);
(iii) any liabilities of Seller expressly assumed by the
Companies or the Surviving Corporation pursuant to this Agreement; or
(iv) any liabilities or obligations arising after the Closing
related to any guarantees granted by Seller of lease obligations of the
Companies, which guarantees are not released.
42
Notwithstanding the foregoing, the Surviving Corporation shall not be
required to indemnify Seller for liabilities arising solely from changes in law
after the Closing.
(c) Indemnification Procedure for Claims of Third Parties.
-----------------------------------------------------
Indemnification, with respect to claims resulting from the assertion of
liability by those not parties to this Agreement (including without limitation
governmental claims for penalties, fines and assessments), shall be subject to
the following terms and conditions:
(i) The party seeking indemnification (the "Indemnified Party")
shall give prompt written notice to the party or parties from which it is
seeking indemnification (the "Indemnifying Party") of any assertion of
liability by a third party, including, without limitation, the commencement
of any action, suit or proceeding (each, a "Legal Action"), which might
give rise to a claim for indemnification based on the foregoing provisions
of this Article, which notice shall state the nature and basis of the Legal
Action and the amount thereof, to the extent known, and shall include a
copy of any written claim or assertion or related process or legal
proceeding; provided, however, that no delay on the part of the Indemnified
Party in giving notice shall relieve the Indemnifying Party of any
obligation to indemnify unless (and then solely to the extent that) the
Indemnifying Party is materially prejudiced by such delay.
(ii) If any Legal Action is brought against an Indemnified Party
with respect to which an Indemnifying Party may have an obligation to
indemnify the Indemnified Party, the Legal Action shall be defended
vigorously and diligently to a final conclusion or settled by the
Indemnifying Party, with counsel reasonably satisfactory to
43
the Indemnified Party, and such defense to include all proceedings for
appeal or review which counsel for the Indemnified Party shall reasonably
deem appropriate.
(iii) Notwithstanding the provisions of the previous subsection
of this Agreement, until the Indemnifying Party shall have assumed the
defense of the Legal Action, the defense shall be handled by the
Indemnified Party. Furthermore, if the Indemnified Party shall have
reasonably concluded that there are likely to be defenses available to it
that are different from or in addition to those available to the
Indemnifying Party, the Indemnified Party shall so notify the Indemnifying
Party, and in such case, the Indemnifying Party shall not be entitled to
assume the defense of such Legal Action, but shall remain responsible for
its obligation as an indemnitor.
(iv) In any Legal Action initiated by a third party and
defended by the Indemnifying Party: (w) the Indemnified Party shall have
the right, at its sole cost and expense, to participate in such defense,
and in connection therewith, to be represented by advisory counsel and
accountants, it being acknowledged and agreed that control of such defense
and its settlement and resolution (subject to Sections 6.2(c)(iii) and (v)
hereof) shall rest with the Indemnifying Party; (x) the Indemnifying Party
shall keep the Indemnified Party fully informed as to the status of such
Legal Action at all stages thereof, whether or not the Indemnified Party is
represented by its own counsel; (y) each of the Indemnifying Party and the
Indemnified Party shall make available to each other and its attorneys,
accountants and other representatives, all books and records relating to
such Legal Action; and (z) the Indemnified Party and the Indemnifying Party
shall render
44
to each other such assistance as may be reasonably required in order to
ensure the proper and adequate defense of such Legal Action.
(v) In any Legal Action initiated by a third party and defended
by the Indemnifying Party, the Indemnifying Party shall not make settlement
of such Legal Action without the written consent of the Indemnified Party,
which consent shall not be unreasonably withheld. Without limiting the
generality of the foregoing, it shall not be deemed unreasonable to
withhold consent to a settlement involving injunctive or other equitable
relief against the Indemnified Party or its assets, employees or business,
or relief which the Indemnified Party reasonably believes could establish a
custom or precedent which will be adverse to the best interests of its
continuing business.
(d) Definition of Loss. For purposes of this Section 6, "Losses"
------------------
shall mean direct losses, damages, penalties and expenses incurred by an
Indemnified Party entitled to indemnification hereunder as a result of a matter
giving rise to a claim for indemnification hereunder, including, without
limitation, (i) reasonable expenses of investigation and reasonable attorneys'
fees and expenses incurred in connection with Legal Action instituted against
the Indemnified Party determined, and (ii) for any costs or expenses of contests
or controversies relating to the payment of any Taxes which result from a breach
of the representations contained in 2.1(o) and are not otherwise covered by the
Tax Agreement, net of the:
(i) tax savings, if any, actually realized by the Indemnified
Party in respect of such matter;
(ii) insurance proceeds to which the Indemnified Party is
entitled in respect of such matter net of resultant increases in insurance
premiums; and
45
(iii) indemnity payments received by the Indemnified Party from
parties other than the Indemnifying Party hereunder in respect of such
matter.
Notwithstanding any provision of this Section 6, consequential
damages or any damages to the extent attributable to a failure to mitigate
damages shall not constitute Losses.
(e) Limitations. The indemnification provided for in this Section
-----------
6.2 shall be subject to the following provisions:
(i) Seller shall not be obligated to make indemnification
payments pursuant to this Section 6.2 for breach of representations or
warranties set forth herein until the aggregate amounts for indemnification
hereunder exceed $3.0 million (the "Deductible"), whereupon Seller shall be
obligated to pay in full all such amounts for indemnification in excess of
the Deductible, subject to clause (iii) below; provided that this
subsection shall not apply to a misrepresentation or breach of warranty by
Seller contained in Sections 2.1(b) (i), (c) and (q) and shall not apply to
the indemnification obligations set forth in Sections 6(a)(ii) through (v);
(ii) Buyer shall not be obligated to make indemnification
payments for breach of representations or warranties pursuant to this
Section 6 until the aggregate amounts for indemnification hereunder exceed
the Deductible, whereupon Buyer shall be obligated to pay in full all such
amounts for indemnification in excess of the Deductible, subject to clause
(iii) below; provided that this subsection shall not apply to the
indemnification obligations set forth in Sections 6(b)(ii) through (iv).
46
(iii) Neither Buyer nor Seller shall be obligated to make
indemnification payments pursuant to this Section 6.2 for Losses arising
out of or related to breaches of representations or warranties set forth
herein in excess of $100 million in the aggregate.
(iv) For purposes of determining the aggregate amount of Loss
suffered by an Indemnified Party, each representation and warranty
contained in this Agreement for which indemnification is sought hereunder
shall be read (including for purposes of determining whether a breach of
such representation or warranty has occurred) without regard to
qualifications as to materiality that may be contained therein.
(f) Remedies Exclusive. The foregoing indemnification provisions are
------------------
in lieu of any statutory, other contractual, equitable or common law remedy any
party may have for a breach of a representation, warranty, covenant or agreement
contained herein, and all such other rights and remedies are hereby irrevocably
waived.
7. TERMINATION
-----------
7.1 Termination. This Agreement may be terminated at any time before
-----------
Closing:
(a) by the mutual written consent of all parties hereto;
(b) by Buyer or Seller if the Closing fails to occur on or before
December 31, 1999, so long as Buyer or Seller, as the case may be, is not in
breach of its obligations hereunder; or
(c) by Seller or Buyer, as the case may be, if there has been a
material breach by the other of a representation, warranty or agreement
contained herein (and such breach, if
47
capable of being cured, is not cured within ten days following written notice
from the nonbreaching party specifying the nature of such breach);
7.2 Effect of Termination. If this Agreement is validly terminated
---------------------
pursuant to Section 7.1 hereof, it shall become null and void and have no
further effect, without liability on the part of any party or such party's
directors, officers, employees, agents, representatives or shareholders;
provided, however, that (i) such termination shall not constitute a waiver by
-------- -------
any party of any claim it may have for damages caused by reason of a breach of a
representation, warranty, covenant or agreement made by any other party hereto,
and (ii) the provisions of Sections 9.3 and 9.4 and the confidentiality
agreement, dated as of March 9, 1999 (the "Confidentiality Agreement"), among
Buyer and Seller shall remain in full force and effect in accordance with their
respective terms.
8. EMPLOYEES AND EMPLOYEE MATTERS
------------------------------
8.1 General. (a) From and after the Closing, subject to applicable law
-------
and except as contemplated hereby, Buyer will honor, in accordance with their
terms, all Employee Plans that are sponsored solely by the Companies (and not by
Seller) (the "Company Plans"). Notwithstanding the foregoing, and subject to
the terms of the Company Plans, nothing herein shall preclude Buyer from
changing or terminating, on a prospective basis, any Company Plan. On and after
the Closing Date, Seller shall retain and have sole responsibility for all
liabilities, obligations or commitments arising under or pertaining to all
Employee Plans that are not Company Plans (including, without limitation, the
Xxxxxx-Xxxxxx Company Executive Income Continuation Plan and the Xxxxxx-Xxxxxx
Company Severance Plan).
48
(b) Buyer and/or Buyer's subsidiaries (including, after the Closing,
the Companies) will provide to Employees who remain employed by the Companies
following the Closing, for a period of at least one year following the Closing,
benefits that are generally comparable in the aggregate to the benefits provided
by the Companies immediately prior to Closing; provided, that none of Buyer,
Buyer's Subsidiaries, or any of the Companies shall be obligated to maintain the
Xxxxxx-Xxxxxx Company Severance Plan or to provide any comparable benefit.
Employees who remain employed by the Companies following the Closing will
receive credit for years of service with the Companies or predecessors prior to
the Closing for purposes of determining eligibility to participate and vesting
under employee benefit plans maintained by Buyer and its subsidiaries ("Buyer
Employee Plans"), and shall not be subject to pre-existing conditions or
actively-at-work exclusions under Buyer Employee Plans that provide medical or
dental welfare benefits. Medical and dental expenses incurred by such employees
on or before the Closing shall be taken into account under deductible,
coinsurance and maximum out-of-pocket provisions of Buyer Employee Plans. It
is understood and agreed that notwithstanding any of the foregoing, except as
otherwise expressly set forth in this Agreement, nothing herein shall require
Buyer to maintain any particular plan or arrangement following the Closing or
shall be construed to obligate Buyer to issue to employees of any Company, or
adopt any plans or arrangements to provide for the issuance of, any shares of
its capital stock or any options, warrants, stock appreciation rights or other
rights in respect of any shares of its capital stock or any securities
convertible into or exchangeable for such shares.
8.2 Seller's Section 401(k) Plan. (a) As soon as practicable following
----------------------------
the Closing, Buyer shall establish a defined contribution plan and trust (or
amend an existing defined
49
contribution plan) for Employees, which shall be qualified under Sections 401
and 501 of the Internal Revenue Code and which shall provide for salary
reduction contributions pursuant to Section 401(k) of the Internal Revenue Code
("Buyer's 401(k) Plan"). Buyer's 401(k) Plan shall provide that each Employee
be given credit for the Employee's service with the Companies, their affiliates
and their predecessor companies for purposes of determining the Employee's
eligibility to participate, eligibility for benefits and vesting under Buyer's
401(k) Plan. The Buyer shall ensure that all "section 411(d)(6) protected
benefits" (as defined in Treasury Regulation 1.411(d)-4) provided by Seller's
401(k) Plan (as defined below) are preserved in the Buyer's 401(k) Plan.
Employees will not accrue additional benefits after the Closing under defined
contribution plans maintained by the Seller. The Companies shall cease to
participate in the Seller's 401(k) Plan as of the Closing Date.
(b) Assets of the Seller Employees' Profit Sharing and Retirement
Savings Plan ("Seller's 401(k) Plan") equal to the account balances (whether or
not vested) of Employees under Seller's 401(k) Plan will be transferred to
Buyer's 401(k) Plan as soon as practicable after the Closing. The transfer will
be made in cash. Any outstanding plan loans to Employees shall be transferred
with the underlying accounts. The account balances of Employees in Seller's
401(k) Plan will be valued as of the date on which the transfer is made. The
account balances of Employees in Seller's 401(k) Plan shall share in the
earnings, appreciation and depreciation of Seller's 401(k) Plan for the period
between the Closing and the date on which the transfer is made.
(c) Any benefits that are payable to Employees from Seller's 401(k)
Plan after the Closing and before the assets are transferred shall be paid from
Seller's 401(k) Plan in the
50
ordinary course. The amount to be transferred to Buyer's 401(k) Plan shall be
reduced by the amount of such payments.
(d) The account balances to be credited for Employees under Buyer's
401(k) Plan shall not be less than the account balances of Employees under
Seller's 401(k) Plan as of the date on which the transfer is made. Effective on
the date of the transfer of Seller's 401(k) Plan assets, (i) Buyer and Buyer's
401(k) Plan shall assume all liabilities in connection with the account balances
of Employees under Seller's 401(k) Plan, and (ii) Seller, its affiliates and
Seller's 401(k) Plan shall have no further liability with respect to the account
balances of Employees. Seller and its affiliates shall have no liability with
respect to Buyer's 401(k) Plan.
(e) Buyer shall request that the Internal Revenue Service issue a
favorable determination letter with respect to the qualification under Sections
401 and 501 of the Internal Revenue Code of Buyer's 401(k) Plan and its related
trust. Buyer shall make such changes to Buyer's 401(k) Plan as may be required
by the Internal Revenue Service in order for the Internal Revenue Service to
issue a favorable determination letter. Buyer shall provide Seller with a copy
of the determination letter received from the Internal Revenue Service with
respect to Buyer's 401(k) Plan as soon as the determination letter is received.
8.3 COBRA. Buyer shall be responsible for providing group health plan
-----
coverage pursuant to Section 4980B of the Code and Sections 601 through 609 of
ERISA ("COBRA") for each person who is entitled to receive COBRA coverage under
a Company Plan as a result of a "qualifying event" (as defined under COBRA) that
occurs prior to, on or after the Closing Date.
51
8.4 Administration. Buyer and Seller shall each make their appropriate
--------------
employees available to the other at such reasonable times as may be necessary
for the proper administration by the other of any and all matters relating to
employee benefits affecting Employees.
9. MISCELLANEOUS COVENANTS AND OTHER PROVISIONS
--------------------------------------------
9.1 Access to Records. For a period of five years after the Closing Date,
-----------------
Buyer shall have and retain possession of all of the files, documents, papers,
agreements, records and correspondence of the Companies (collectively, the
"Records"). During such period, Buyer agrees to permit Seller and its
representatives to have reasonable access to, and the right to copy, such
Records, at the expense of Seller, during normal business hours upon reasonable
prior written notice. Upon termination of such five year period, Buyer agrees
not to destroy such Records unless Buyer gives Seller 30 days notice thereof,
during which period Seller may request that Buyer deliver such Records to
Seller, at Seller's expense.
9.2 Xxxx-Xxxxx-Xxxxxx Filings. Seller and Buyer, if required, will each
-------------------------
file, or cause to be filed as soon as possible, with the United States Federal
Trade Commission and the Antitrust Division of the United States Department of
Justice, pursuant to the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976,
as amended, all requisite documents and notifications in connection with the
transactions contemplated by this Agreement. Each party agrees to cooperate in
responding to any request from the United States Federal Trade Commission or
Department of Justice for additional information with respect to these filings.
Buyer shall determine whether HSR Act filings are required within 30 days after
the date hereof. If Buyer has not made any HSR Act filing within such 30 day
period, then Buyer represents and warrants on such date and as of Closing that
Buyer has fully investigated the applicability of the HSR Act
52
and the rules promulgated thereunder, and that no premerger notification or
other filing is required by it concerning any of the transactions contemplated
by this Agreement. The Deductible set forth in Section 6.2(e) shall not be
applicable to Buyer's indemnity obligation under Section 6.2(b) with respect to
the foregoing representation
9.3 Expenses. Whether or not the transactions contemplated hereby are
--------
consummated, each party hereto shall pay its own legal and other expenses
separately incurred in connection herewith.
9.4 Public Announcements. The parties will consult with each other before
--------------------
issuing any press releases or making any public statements (including to
employees of the Companies) with respect to this Agreement and the transactions
contemplated hereby, and will not issue any such press release or make any such
public statement without the consent of the other, unless such action is
required by law or by the New York Stock Exchange.
9.5 Further Assurances. Each of the parties will use reasonable efforts
------------------
to implement the provisions of this Agreement, and for such purpose, at the
request and expense of the other, will, at or after the Closing, without further
consideration, promptly execute and deliver, or cause to be executed and
delivered, such additional documents as may be necessary to implement any
provision of this Agreement.
9.6 Revenue Contracts. Seller and one or more of the Companies are
-----------------
parties to certain newspaper revenue contracts listed on Schedule 2.1(e) (the
"Revenue Contracts") which provide for favorable advertising rates. Buyer
agrees that it shall, or after Closing shall cause the Companies, to use all
reasonable efforts to allow Seller to continue to enjoy the benefits of such
Revenue Contracts, and any extensions, renewals or replacements thereof, in
substantially the
53
same manner as is currently conducted; provided, however, that Buyer shall be
under no obligation to continue, replace or extend any particular Revenue
Contract.
9.7 Descriptive Headings, Schedules and Exhibits. Descriptive headings
--------------------------------------------
are for convenience only and shall not control or affect the meaning or
construction of any provision of this Agreement. All Schedules and Exhibits
attached hereto are hereby incorporated into this Agreement and form a part
hereof as fully as if set forth in the body of the Agreement.
9.8 Counterparts. For the convenience of the parties, any number of
------------
counterparts of this Agreement may be executed by one or more parties hereto and
each such executed counterpart shall be deemed to be an original, but all of
which taken together shall constitute one and the same instrument.
9.9 Notices. All notices and other communications provided for herein
-------
shall be validly given, made or served, if in writing and shall be deemed
received by a party (i) on the date delivered if delivered in person, with
receipt acknowledged, or by facsimile during normal business hours with
confirmation of transmission, (ii) one business day after being sent by a
generally recognized overnight courier service (e.g., Federal Express) with all
delivery charges or fees prepaid, or billing therefor arranged to the sender, or
(iii) three business days after being mailed by registered or certified mail,
return receipt requested, addressed in each such case, as follows:
If to Buyer: MD Acquisition Corporation
c/o Bain Capital, Inc.
Two Xxxxxx Place
Boston, MA 02116
Attention: Xxxxxxx Xxxxxx
Facsimile: (000) 000-0000
54
with a copy to:
Xxxxxxxx & Xxxxx
Citicorp Center
000 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxx X. Xxxx
Facsimile: (000) 000-0000
If to Seller: Xxxxxx-Xxxxxx Company
00000 Xxxx Xxxxx Xxxxxxx
Xxxxxxxx, Xxxxxxxx 00000
Attention: Xxxxxxx X. XxXxxxx
Facsimile: (000) 000-0000
with a copy to: McGuire, Woods, Battle & Xxxxxx LLP
Xxx Xxxxx Xxxxxx
Xxxxxxxx, Xxxxxxxx 00000
Attention: Xxxxxx X. Xxxxxx, Xx.
Facsimile: 000-000-0000
or to such other addresses or person as any party hereto may, from time to time,
designate in writing delivered in a like manner.
9.10 Successors and Assigns. This Agreement shall be binding upon and
----------------------
shall inure to the benefit of the parties hereto and their respective permitted
successors and assigns. No party may assign this Agreement by operation of law
or otherwise without the written consent of the other parties; provided,
however, that Buyer (and after the Merger, the Surviving Corporation) may, upon
notice and without releasing Buyer (and after the Merger, the Surviving
Corporation) from its obligations hereunder, assign, directly or indirectly, any
or all of its rights and obligations hereunder to any affiliate of Buyer (and
after the Merger, the Surviving Corporation), including one which acquires all
or substantially all of the assets of the Companies from the Surviving
Corporation or to any Person which provides financing to Buyer, the Surviving
Corporation or the Companies. Unless written notice is given to the Seller that
any such
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collateral assignment has been foreclosed upon, the Seller shall be entitled to
deal exclusively with Buyer as to any matters arising under this Agreement or
any of the Related Agreements.
9.11 Law Applicable. This Agreement shall be governed by and construed and
--------------
enforced in accordance with the laws of the State of Virginia.
9.12 Entire Agreement. This Agreement, its Schedules and Exhibits, the
----------------
Related Agreements, the additional written agreements called for herein and the
Confidentiality Agreement together contain the entire agreement between the
parties with respect to the subject matter hereof and supersede all prior
arrangements or understandings with respect thereto, whether written or oral.
The provisions of the Confidentiality Agreement with respect to the Evaluation
Material (as defined herein) shall terminate on Closing.
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IN WITNESS WHEREOF, the parties have hereunto set their hands.
SELLER:
------
Xxxxxx-Xxxxxx Company, a Virginia corporation
By: /s/ Xxxxxxx X. XxXxxxx
-----------------------------------
Xxxxxxx X. XxXxxxx
Chairman; Chief Executive Officer
OLDCO:
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Xxxxxx-Xxxxxx Associates, Inc., a Virginia corporation
By:/s/ Xxxxxxx X. XxXxxxx
-----------------------------------
Xxxxxxx X. XxXxxxx
President
BUYER:
-----
MD Acquisition Corporation, a Virginia corporation
By: /s/ Xxxxxxx X. Xxxxxx
-----------------------------------
Xxxxxxx X. Xxxxxx
Vice President
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