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EXHIBIT 10.34
EXECUTION COPY
ASSET PURCHASE AGREEMENT
by and among
STAR BEDDING PRODUCTS LIMITED
and
SLEEPMASTER L.L.C.
as Purchaser
and
STAR BEDDING PRODUCTS (1986) LIMITED,
and
▇▇▇▇▇ ▇▇▇▇▇▇,
as Seller
Dated as of April 8, 1999
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TABLE OF CONTENTS
ARTICLE I
ACQUISITION OF THE SUBJECT ASSETS; ASSUMPTION OF THE
ASSUMED LIABILITIES AND PURCHASE PRICE.................................................................. 1
1.1 Purchase of the Subject Assets................................................................. 1
1.2 Excluded Assets................................................................................ 4
1.3 Assumed Liabilities............................................................................ 5
1.4 Liabilities Not Assumed........................................................................ 6
1.5 Purchase Price................................................................................. 7
1.6 Determination of Closing Net Working Capital................................................... 8
1.7 Working Capital Purchase Price Adjustment...................................................... 9
1.8 Elections...................................................................................... 10
1.9 Closing Date................................................................................... 10
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND ▇▇▇▇▇▇............................................................................... 10
2.1 Organization and Qualification................................................................. 10
2.2 Capitalization; Title to the Securities........................................................ 11
2.3 Authorization; No Breach....................................................................... 11
2.4 Consents....................................................................................... 12
2.5 Certificate of Amalgamation and By-Laws........................................................ 12
2.6 Product Warranty............................................................................... 12
2.7 Financial Statements........................................................................... 12
2.8 Undisclosed Liabilities........................................................................ 13
2.9 No Material Adverse Change..................................................................... 13
2.10 Tax Matters.................................................................................... 13
2.11 Litigation..................................................................................... 14
2.12 Contracts and Other Agreements................................................................. 14
2.13 Real Property.................................................................................. 16
2.14 Transactions with Affiliates................................................................... 17
2.15 Accounts Receivable............................................................................ 17
2.16 Compensation Arrangements: Officers, Directors and Employees................................... 18
2.17 Operations..................................................................................... 18
2.18 Tangible Property.............................................................................. 20
2.19 Intellectual Property.......................................................................... 20
2.20 Employees...................................................................................... 21
2.21 Employee Benefits.............................................................................. 22
2.22 Environmental and Health and Safety Matters.................................................... 23
2.23 Insurance...................................................................................... 25
2.24 Licenses and Permits........................................................................... 25
2.25 Title; Liens................................................................................... 25
2.26 Compliance with Laws........................................................................... 26
2.27 Sufficiency of Subject Assets.................................................................. 26
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2.28 Inventory...................................................................................... 26
2.29 Product Liability.............................................................................. 27
2.30 Brokers........................................................................................ 27
2.31 Disclosure..................................................................................... 27
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER......................................................... 27
3.1 Organization and Qualification................................................................. 27
3.2 Authorization; No Breach....................................................................... 27
3.3 Consents....................................................................................... 28
3.4 Brokers........................................................................................ 28
3.5 No Prior Activity.............................................................................. 28
3.6 Disclosure..................................................................................... 28
ARTICLE IV
PRECLOSING COVENANTS OF THE
COMPANY AND ▇▇▇▇▇▇...................................................................................... 29
4.1 Corporate Examinations and Investigations...................................................... 29
4.2 Notice of Events............................................................................... 30
4.3 Filings and Authorizations..................................................................... 30
4.4 Taxes.......................................................................................... 30
4.5 Best Efforts; Further Assurances............................................................... 30
4.6 Mutual Assistance.............................................................................. 30
4.7 Exclusivity.................................................................................... 30
4.8 Name Changes................................................................................... 31
4.9 Third Party Notices and Consents............................................................... 31
4.10 Operation of Business.......................................................................... 31
4.11 Press Release and Announcements................................................................ 32
4.12 Compliance with Agreements and Laws............................................................ 32
4.13 Registrations.................................................................................. 32
ARTICLE V
CONDITIONS PRECEDENT TO THE CLOSING..................................................................... 32
5.1 Conditions Precedent to the Obligations of the Purchaser to Complete the
Closing........................................................................................ 32
5.2 Conditions Precedent to the Obligations of the Company and ▇▇▇▇▇▇ to
Complete the Closing........................................................................... 36
ARTICLE VI
POST-CLOSING COVENANTS.................................................................................. 38
6.1 Further Information; Assistance................................................................ 38
6.2 Record Retention............................................................................... 38
6.3 Post-Closing Transfer Taxes.................................................................... 38
6.4 Accounts Receivable; Mail...................................................................... 39
6.5 No Assignment Causing Breach................................................................... 39
6.6 Insurance Coverage............................................................................. 39
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6.7 Employee Matters............................................................................... 40
6.8 Noncompete; Nonsolicitation.................................................................... 41
6.9 Further Assurances............................................................................. 42
ARTICLE VII
SURVIVAL; INDEMNIFICATION............................................................................... 42
7.1 Survival of Representations and Warranties..................................................... 42
7.2 General Indemnification. ...................................................................... 43
ARTICLE VIII
TERMINATION OF AGREEMENT................................................................................ 46
8.1 Termination.................................................................................... 46
8.2 Effect of Termination.......................................................................... 46
ARTICLE IX
CERTAIN DEFINITIONS..................................................................................... 47
9.1 Certain Definitions............................................................................ 47
ARTICLE X
MISCELLANEOUS........................................................................................... 54
10.1 Fees and Expenses.............................................................................. 54
10.2 Remedies....................................................................................... 54
10.3 Consent to Amendments; Waivers................................................................. 54
10.4 Successors and Assigns......................................................................... 54
10.5 Severability................................................................................... 55
10.6 Counterparts................................................................................... 55
10.7 Descriptive Headings; Interpretation........................................................... 55
10.8 Entire Agreement............................................................................... 55
10.9 No Third-Party Beneficiaries................................................................... 55
10.10 Schedules and Exhibits......................................................................... 55
10.11 GOVERNING LAW.................................................................................. 55
10.12 Notices........................................................................................ 56
10.13 Jurisdiction and Venue......................................................................... 57
10.14 WAIVER OF RIGHT TO JURY TRIAL.................................................................. 57
10.15 No Strict Construction......................................................................... 57
10.16 Dispute Resolution............................................................................. 57
EXHIBITS:
EXHIBIT A Accounting Procedures; Exceptions to GAAP
EXHIBIT B Subordinated Note
EXHIBIT C Escrow Agreement
EXHIBIT D Opinion of Counsel to the Company
EXHIBIT E Assignment and Assumption Agreement
EXHIBIT F ▇▇▇▇ of Sale
EXHIBIT G Opinions of Counsel to the Purchaser
EXHIBIT H ▇▇▇▇▇▇ Employment Agreement
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SCHEDULES:
SCHEDULE 1.1 Vehicle Identification and Description
SCHEDULE 1.2(c) Excluded Life Insurance
SCHEDULE 1.2(g) Specific Excluded Assets
SCHEDULE 1.4(b) Excluded Obligations
SCHEDULE 1.5(c) Allocation Schedule
SCHEDULE 2.2 Capitalization; Title to the Securities
SCHEDULE 2.3 Authorization; No Breach
SCHEDULE 2.4 Consents
SCHEDULE 2.6 Product Warranty
SCHEDULE 2.7 Financial Statements
SCHEDULE 2.8 Undisclosed Liabilities
SCHEDULE 2.9 Material Adverse Change
SCHEDULE 2.10 Tax Matters
SCHEDULE 2.11 Litigation
SCHEDULE 2.12 Contracts and other Agreements
SCHEDULE 2.13 Real Property
SCHEDULE 2.14 Transactions with Affiliates
SCHEDULE 2.15 Accounts Receivable
SCHEDULE 2.16 Compensation Arrangements
SCHEDULE 2.17 Operations
SCHEDULE 2.18 Tangible Property
SCHEDULE 2.19 Intellectual Property
SCHEDULE 2.20 Employees
SCHEDULE 2.21 Employee Benefits
SCHEDULE 2.22 Environmental and Health and Safety Matters
SCHEDULE 2.23 Insurance
SCHEDULE 2.24 Licenses and Permits
SCHEDULE 2.25 Title; Liens
SCHEDULE 2.26 Compliance With Laws
SCHEDULE 2.27 Sufficiency of Subject Assets
SCHEDULE 2.28 Inventory
SCHEDULE 3.3 Consents
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This ASSET PURCHASE AGREEMENT is dated as of April 8, 1999, by
and among Star Bedding Products (1986) Limited, a corporation amalgamated and
organized under the laws of the Province of Ontario (the "Company"), ▇▇▇▇▇
▇▇▇▇▇▇ ("▇▇▇▇▇▇"), an indirect stockholder of the Company, Star Bedding Products
Limited, a corporation organized under the laws of the Province of New Brunswick
(the "Purchaser"), and Sleepmaster L.L.C., a New Jersey limited liability
company ("Sleepmaster"). The Company, the Purchaser, Sleepmaster and ▇▇▇▇▇▇ are
sometimes collectively referred to herein as the "Parties" and individually as a
"Party." Capitalized terms used herein and not otherwise defined herein have the
meaning as set forth in Article IX hereof.
RECITALS:
WHEREAS, ▇▇▇▇▇▇ and a trust established by his family own a
controlling interest in the outstanding capital stock of the Company;
WHEREAS, the Company is a licensee of Serta, Inc. ("Serta")
and is engaged in the business of manufacturing and distributing mattresses and
box springs including mattresses and box springs under the Serta brand name (the
"Business"); and
WHEREAS, the Company wishes to sell, and the Purchaser wishes
to purchase, the Subject Assets (as hereinafter defined), subject to the
assumption by the Purchaser of certain liabilities of the Company comprising the
Assumed Liabilities (as hereinafter defined) upon the terms and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual terms,
conditions and other agreements set forth herein, the Parties hereby agree as
follows:
ARTICLE I
ACQUISITION OF THE SUBJECT ASSETS; ASSUMPTION OF THE
ASSUMED LIABILITIES AND PURCHASE PRICE
1.1 Purchase of the Subject Assets. On the terms and subject
to the conditions set forth in this Agreement, on the Closing Date, the Company
agrees to sell, transfer, assign, convey and deliver to the Purchaser free and
clear of all Liens (other than Permitted Liens), and the Purchaser agrees to
purchase, acquire and accept from the Company, all of the right, title and
interest in and to all of the assets, properties and rights owned or used by the
Company in the operation of the Business as presently conducted and as conducted
by the Company and its former subsidiary ▇▇▇▇▇▇▇ Bedding Limited on December 31,
1998, of every type and description, real, personal and mixed, tangible and
intangible, wherever located, including those located at ▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ (the "Premises"), and whether or not reflected on the Books and
Records of the Company (the foregoing are hereinafter collectively referred to
as the "Subject Assets"), other than those assets, properties and rights which
are specifically excluded pursuant to Section 1.2. Except as specifically
excluded pursuant to Section 1.2, the Subject Assets include, without
limitation, all of the right, title and interest of the Company in or to the
following:
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(a) Real Property Lease. (i) The lease of real property set
forth on Schedule 2.13 hereto as to which the Company is the lessee, together
with any options to purchase the underlying property and leasehold improvements
thereon set forth on Schedule 2.13 hereto, and all other rights, subleases,
licenses, permits, deposits and profits appurtenant to or related to such lease
(such lease, as amended, extended or otherwise modified, the "Real Property
Lease");
(b) Inventory. All inventories or raw materials,
work-in-process, finished goods, consigned goods, merchandise, demonstration
equipment, office and other supplies, parts, packaging materials and other
accessories related thereto which are held at, or are in transit from or to, the
locations at which the Business is conducted (including at the Premises), or
located at suppliers' premises or customers' premises on consignment, in each
case, which are used or held for use by the Company in the conduct of the
Business, including any of the foregoing purchased subject to any conditional
sales or title retention agreement in favor of any other Person, together with
all rights of the Company against suppliers of such inventories (the
"Inventory");
(c) Accounts Receivable. All trade accounts receivable and all
notes, bonds and other evidences of indebtedness of and rights to receive
payments arising out of sales occurring in the conduct of the Business and the
security agreements related thereto, including any rights of the Company with
respect to any third party collection proceedings or any other Actions or
Proceedings which have been commenced in connection therewith (the "Accounts
Receivable");
(d) Tangible Personal Property. In addition to the Inventory,
all furniture, fixtures, equipment and machinery, all office supplies, computers
and related equipment, telephones and related equipment, production supplies,
spare parts, other miscellaneous supplies, and other tangible personal property
used or held for use in the conduct of the Business at the locations at which
the Business is conducted (including at the Premises) or at suppliers' premises
or customers' premises on consignment, or otherwise used or held for use by the
Company in the conduct of the Business, including any of the foregoing purchased
subject to any conditional sales or title retention agreement in favor of any
other Person;
(e) Personal Property Leases. The leases of tangible personal
property set forth on Schedule 2.18 hereto as to which the Company is the lessor
or lessee (the "Personal Property Leases");
(f) Business Contracts. In addition to the Real Property
Lease, the Personal Property Leases and the Accounts Receivable, all contracts
and other agreements entered into in the ordinary course of business consistent
with past custom and practice to which the Company is a party and which are
utilized in the conduct of the Business, including contracts and other
agreements relating to suppliers, sales representatives, distributors,
consultants, purchase orders, marketing and purchasing arrangements,
manufacturing arrangements and facilities management agreements (the "Business
Contracts");
(g) Prepaid Expenses. All prepaid expenses relating to the
Business (to the extent assignable);
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(h) Intellectual Property. All Intellectual Property owned or
used by the Company (including everything listed on Schedule 2.19 attached
hereto), along with all income, royalties, damages and payments due or payable
as of the Closing Date or thereafter (including damages and payments for past,
present or future infringements or misappropriations thereof), the right to ▇▇▇
and recover for past infringements and misappropriations thereof, and any and
all corresponding rights that, now or hereafter, may be secured throughout the
world, in each case together with all books, records, drawings, recipes,
application or other indicia thereof, and in each case together with goodwill
associated therewith;
(i) Licenses. All licenses, permits, franchises, approvals,
authorizations, orders, registrations, certificates, variances and similar
rights (including applications therefor), utilized in the conduct of the
Business and the rights to all data and records held by any Governmental or
Regulatory Body or other agency with respect thereto (collectively, the
"Business Licenses");
(j) Vehicles. All motor vehicles owned or leased by the
Company, described in Schedule 1.1 hereto;
(k) Security Deposits. All security deposits (including
utility deposits) deposited by or on behalf of the Company as lessee, under the
Real Property Lease or the Personal Property Leases (to the extent assignable);
(l) Balance Sheet Assets. Those assets, properties and rights
of the Company reflected on the Latest Balance Sheet or otherwise referred to in
this Agreement or any Schedule hereto, subject to changes in the ordinary course
of business consistent with past custom and practice through the Closing Date;
(m) Books and Records. All Books and Records used or held for
use in the conduct of the Business or otherwise relating to the Company or the
Subjects Assets, except for the Corporate Records and Tax Returns (which will
remain subject to Section 6.1 and 6.2 as applicable);
(n) Warranties. All rights of the Company under or pursuant to
all warranties, representations and guarantees made by suppliers, manufacturers
and contractors in connection with products sold to or services provided to the
Company for the Business, or affecting the property, machinery or equipment used
in the conduct of the Business, or relating to the Subject Assets;
(o) Telephone Numbers. All transferable telephone exchange
numbers;
(p) Claims. All claims, refunds, causes of action, rights of
recovery, rights of set-off and rights of recoupment of every kind and nature,
other than those relating exclusively to the Excluded Assets or Excluded
Liabilities;
(q) Mail and Communications. The right to receive and retain
mail and other communications and collections, including mail and communications
from customers, suppliers, distributors, agents and others, which relate or
pertain to the Subject Assets or the Business;
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(r) Customer Information. All lists and records pertaining to
customers, suppliers, distributors, personnel and agents (past or current) of
the Business and all other files, documents, correspondence, drawings, and
specifications, computer programs and business records of every kind and nature,
in each case whether evidenced in writing, electronically (including by
computer) or otherwise of the Business;
(s) Going Concern. All right, title and interest of the
Company in the Business as a going concern, including the goodwill (if any) and
all other intangible assets associated with the Business;
(t) Certifications. All certifications, ratings, listings and
similar rights or benefits obtained from any customer or product certification
organization; and
(u) Other Assets. All other property owned by the Company or
▇▇▇▇▇▇ which is used in the Business, other than the Excluded Assets.
1.2 Excluded Assets. Any provision of this Agreement to the
contrary notwithstanding, the Purchaser shall not acquire and there shall be
excluded from the Subject Assets the Company's interest in each of the following
(the "Excluded Assets"):
(a) Cash and Cash Equivalents. All cash and cash equivalents
wherever maintained or held;
(b) Corporate Records. The Corporate Records and Tax Returns
of the Company;
(c) Life Insurance. The life insurance policies set forth on
Schedule 1.2(c) with respect to the life of ▇▇▇▇▇ ▇▇▇▇▇▇ and any and all rights
thereto;
(d) Intercompany Loan Accounts. Any amounts owed to the
Company or ▇▇▇▇▇▇ by their Affiliates;
(e) Other Matters. All rights of the Company and ▇▇▇▇▇▇, under
this Agreement and the documents and other papers delivered to the Company and
▇▇▇▇▇▇ by the Purchaser and Sleepmaster pursuant to this Agreement;
(f) Claims Related to Excluded Liabilities and Assets. All
claims related to the Excluded Liabilities or Excluded Assets and all claims for
reimbursement, refund or otherwise with respect to Taxes paid by or assessed
against the Company and ▇▇▇▇▇▇; and
(g) Specific Excluded Assets. The assets listed on Schedule
1.2(g) and any and all rights with respect thereto.
1.3 Assumed Liabilities. Subject to the terms and conditions
set forth herein, the Purchaser agrees that, on the Closing Date, the Purchaser
shall assume and thereafter pay, perform or discharge when due or required to be
performed, as the case may be, all of the following obligations and liabilities
of the Company relating to the Business to the extent existing on the
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Closing Date (the "Assumed Liabilities"). The Purchaser will not assume or have
any responsibility with respect to any obligation or liability of the Company
not included within the following Assumed Liabilities:
(a) Balance Sheet Liabilities. All undischarged current
liabilities and obligations of the Company (including current liabilities for
Taxes other than income Taxes) which relate to conduct of the Business prior to
the Closing Date and are reflected on the face of the Closing Balance Sheet (as
opposed to in the notes thereto) to the extent such liabilities (i) are properly
recorded thereon and (ii) have been incurred in the ordinary course of business
consistent with past custom and practice (other than as a result of any breach
of contract, tort, infringement, claim or lawsuit); provided, that Assumed
Liabilities shall not include any Indebtedness of the Company or any liabilities
for income Taxes or liabilities to any Affiliates of the Company or ▇▇▇▇▇▇ other
than Liabilities for business expenses incurred in the ordinary course of
business which are accrued on the Closing Balance Sheet;
(b) Real Property Lease Obligations. All obligations of the
Company under the Real Property Lease;
(c) Personal Property Lease Obligations. All obligations of
the Company under the Personal Property Leases;
(d) Obligations Under Contracts and Licenses. All obligations
of the Company under the Business Contracts and Business Licenses;
(e) Product Warranties. All obligations and liabilities of the
Company in respect of its standard product warranties; provided, that with
respect to products manufactured or sold by the Company during the period prior
to the Closing Date, such products shall have been manufactured in accordance
with the applicable specifications;
(f) Utility Charges and Other Payments. All obligations of the
Company for utilities or other similar periodic payments;
(g) Worker's Compensation. All liabilities for worker's
compensation claims arising from or relating to the Transferred Employees; and
(h) Transferred Employees. All liabilities for Transferred
Employees pursuant to the terms and conditions of Section 6.7.
In the event of any claim against the Purchaser with respect
to any of the Assumed Liabilities hereunder, the Purchaser shall have, and the
Company does hereby assign to the Purchaser, any defense, counterclaim, or right
of setoff which would have been available to the Company if such claim had been
asserted against the Company.
1.4 Liabilities Not Assumed. Any provision of this Agreement
to the contrary notwithstanding (and without implication that the Purchaser is
assuming any liability not expressly excluded and, where applicable, without
implication that any of the following have been included
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in the Assumed Liabilities), the following liabilities (the "Excluded
Liabilities") of the Company are excluded and shall not be assumed or discharged
by the Purchaser:
(a) any liabilities and obligations of the Company (or any
consolidated, affiliated or unitary group of which the Company is a member) with
respect to Taxes for any period, except for current Taxes (other than income
Taxes) that are properly accrued on the Closing Balance Sheet;
(b) any liabilities of the Company to any Affiliate of the
Company or ▇▇▇▇▇▇ (including the obligations listed on Schedule 1.4(b));
(c) except as expressly provided in Section 6.7, any
liabilities arising out of or in connection with any Employee Plans;
(d) any liabilities of the Company for injury to or death of
persons or damage to or destruction of property (excluding any worker's
compensation claims) regardless of when said claim or liability is asserted,
including any claim for consequential damages in connection with the foregoing;
it being understood and agreed that any such claim or liability asserted after
the Closing Date, but arising out of acts or omissions by the Company which
occur before the Closing Date, shall be considered to be a claim against or a
liability of the Company for injury to or death of persons or damages to or
destruction of property and therefore not assumed hereunder by the Purchaser;
(e) any liabilities of the Company arising out of infringement
of the Intellectual Property rights of any Person;
(f) any liabilities not recorded on the Closing Balance Sheet
for (i) medical, dental, disability income, life insurance or accidental death
benefits, whether insured or self insured, for claims incurred or for sickness,
injury or disabilities occurring prior to the Closing Date or (ii) severance
benefits, for employees of the Company whose employment is terminated on or
prior to the Closing Date or who do not accept the Purchaser's offer of
employment;
(g) any and all liabilities arising out of violations of any
Law or Order and any liabilities resulting from the contravention of any
Environmental Law including, without limitation, for any Release of Hazardous
Material and any failure to satisfy obligations in respect of matters of health
and safety, in each case arising out of the period prior to the Closing Date
(whether asserted or commenced before or after the Closing Date);
(h) any liability in connection with any Action or Proceeding
in respect of the Company or the Business arising out of the period prior to the
Closing Date (whether asserted or commenced before or after the Closing Date);
(i) any liabilities relating to the Excluded Assets of the
Company;
(j) any liabilities of the Company with respect to
Indebtedness;
(k) any liabilities relating to the capital stock of the
Company; and
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(l) without limitation by the specific enumeration of the
foregoing, any liabilities not expressly assumed by the Purchaser pursuant to
the provisions of Section 1.3.
1.5 Purchase Price.
(a) Subject to adjustment pursuant to Section 1.7, the
aggregate purchase price (the "Purchase Price") for the Subject Assets to be
purchased by the Purchaser from the Company hereunder shall be $25,500,000 which
shall consist of: (i) $24,500,000 (the "Cash Payment"), and (ii) a subordinated
promissory note of Sleepmaster Holdings L.L.C. in the form of Exhibit B attached
hereto in an aggregate principal amount of $1,000,000 (the "Subordinated Note"),
plus (iii) the assumption by the Purchaser of the Assumed Liabilities. All
amounts expressed in this Agreement are expressed in Canadian Dollars.
(b) The Cash Payment shall be paid to the Company by the
Purchaser as follows:
(i) the Purchaser has made a nonrefundable initial deposit
of $125,000 to ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, the Company's legal counsel, following the
execution by the Purchaser and the Company of the January 8, 1999 letter
agreement (the "Initial Deposit");
(ii) on March 31, 1999 the Purchaser made an additional
nonrefundable deposit of $125,000 to ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ (the "Subsequent Deposit",
and together with the Initial Deposit, the "Deposits");
(iii) the Purchaser shall deliver $1,000,000 (the
"Indemnity Escrow Fund") to an escrow agent, to be mutually agreed upon by the
Company and the Purchaser, (the "Escrow Agent") on the Closing Date as security
for any amounts owed by the Company or ▇▇▇▇▇▇ pursuant to the indemnification
provisions set forth in Section 7.2(a). The Indemnity Escrow Fund shall be held
by the Escrow Agent pursuant to the terms and conditions of the Escrow Agreement
attached as Exhibit C hereto; and
(iv) the Purchaser shall pay $23,250,000 on the Closing
Date by wire transfer of immediately available funds to an account or accounts
designated by the Company in writing not less than three (3) Business Days prior
to Closing by Notice to the Purchaser.
In addition, the Subordinated Note shall be issued by Sleepmaster Holdings
L.L.C. on the Closing Date to the Company. On the Closing Date, the Purchaser
and the Company shall issue joint written instructions to ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
instructing it to deliver the total amount of the Deposits to the Company. If
the Closing does not occur by 5:00 p.m. (Toronto time) on June 30, 1999, the
Purchaser and the Company shall be deemed to have issued joint written
instructions to ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ instructing it to deliver the total amount of the
Deposits to the Company; provided, that the reason for the delay beyond June 30,
1999 shall not have been caused by any act or failure to act of the Company or
▇▇▇▇▇▇.
(c) The Purchase Price will be allocated among the Subject
Assets for all purposes (including Tax and financial accounting purposes) in the
manner set forth in Schedule 1.5(c) (the "Allocation Schedule") or as otherwise
agreed to in writing by the Purchaser
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and the Company (the "Purchase Price Allocation"). Each of the Parties hereto
will not take a position on any Tax Return, before any governmental agency
charged with the collection of any Tax, or in any judicial proceeding, that is
in any way inconsistent with the Purchase Price Allocation.
1.6 Determination of Closing Net Working Capital.
(a) Definitions. The "Closing Net Working Capital" means the
Net Working Capital as of the close of business on the Closing Date, as
determined in accordance with Sections 1.6(b), (c) and (d) below.
(b) Closing Balance Sheet. On or before the 60th day after the
Closing Date, the Purchaser will, at its own cost, prepare and deliver to the
Company a consolidated balance sheet of the Company as of the close of business
on the Closing Date which shall be audited by PricewaterhouseCoopers LLP (the
"Purchaser's Accountant") (together with the related audit report of such firm
the "Closing Balance Sheet"), and which shall set forth a calculation of the
Closing Net Working Capital. The Closing Balance Sheet shall (x) be prepared in
a manner consistent with the accounting principles, policies and procedures
applied in the preparation of the Company's audited financial statements as of
December 31, 1998 all of which are in conformity with GAAP, except as set forth
on Exhibit A attached hereto (such accounting principles, policies and
procedures and Exhibit A are collectively referred to herein as the "Accounting
Principles") and (y) fairly present the financial position of the Company as of
the Closing Date. With respect to the calculation of the accounts in the Closing
Balance Sheet, no change in Accounting Principles shall be made from those
utilized in preparing the Latest Balance Sheet (without regard to materiality),
including, without limitation, with respect to the nature or classification of
accounts, closing proceedings, levels of reserves (other than the reserve for
doubtful accounts which the Parties agree shall be $50,000) or levels of
accruals (other than with respect to accruals for volume rebates and co-op
advertising which may be adjusted in an amount not to exceed $125,000). For
purposes of the preceding sentence, a "change in Accounting Principles" shall
include any change in accounting principles, policies, practices, procedures or
methodologies with respect to financial statements, their classification or
their display, as well as any change in practices, methods, conventions or
methodologies utilized in making accounting estimates. During the 30-day period
immediately following the Purchaser's delivery of the Closing Balance Sheet, the
Purchaser will provide the Company and the Company's accountant access to the
Purchaser's records, and will use reasonable efforts to provide the Company's
accountant access to the Purchaser's Accountant and the work papers of the
Purchaser's Accountant related to the preparation of the Closing Balance Sheet
and the calculation of the Closing Net Working Capital. On or prior to the 30th
day following Purchaser's delivery of the Closing Balance Sheet, the Company may
give the Purchaser a written notice stating in reasonable detail the Company's
objections (an "Objection Notice") to the Closing Balance Sheet. Any Objection
Notice shall specify in reasonable detail the dollar amount of any objection and
the basis therefor. Any determination expressly set forth on the Closing Balance
Sheet which is not specifically objected to in the Objection Notice shall be
deemed final and binding upon the Parties upon delivery of the Objection Notice.
If the Company does not give the Purchaser an Objection Notice within such 30-
day period, then the Closing Balance Sheet will be conclusive and binding upon
the Parties and the Closing Net Working Capital set forth in the Closing Balance
Sheet will constitute the Closing Net Working Capital for purposes of Section
1.6(a) above.
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14
(c) Dispute and Amicable Resolution. If the Company gives a
timely Objection Notice as described in Section 1.6(b) above, then the Purchaser
and the Company will negotiate in good faith to resolve their disputes regarding
the Closing Balance Sheet.
(d) Resolution by Independent Accounting Firm. If the
Purchaser and the Company are unable to resolve all disputes regarding the
Closing Net Working Capital on or prior to the 45th day after the Objection
Notice is given, then the Purchaser and the Company will retain a firm of
chartered public accountants chosen randomly by lot from among the "big five"
accounting firms other than the Company's accountant and the Purchaser's
Accountant (the "Independent Accounting Firm") to determine the Closing Net
Working Capital as soon as practicable. The Independent Accounting Firm shall
only decide the specific items under dispute by the Parties and shall determine
the Closing Net Working Capital in accordance with the guidelines and procedures
set forth in this Agreement. The Closing Net Working Capital determined by the
Independent Accounting Firm will be conclusive and binding upon the Parties and
will constitute the Closing Net Working Capital for purposes of Section 1.6(a)
above. The fees and expenses of the Independent Accounting Firm in connection
with its determination of the Closing Net Working Capital will be paid one-half
by the Company and one-half by the Purchaser.
1.7 Working Capital Purchase Price Adjustment. If the Target
Net Working Capital exceeds the Closing Net Working Capital, then not later than
the third business day after the Closing Net Working Capital is finally
determined pursuant to Section 1.6, the Company will pay to the Purchaser an
amount equal to such excess in immediately available funds to the account
specified by the Purchaser. If the Closing Net Working Capital exceeds the
Target Net Working Capital, then not later than the third business day after the
Closing Net Working Capital is finally determined pursuant to Section 1.6 above,
the Purchaser will pay to the Company an amount equal to such excess in
immediately available funds to the account specified by the Company; provided,
that in no event shall the Purchaser's obligation to the Company pursuant to
this Section 1.7 exceed $1,250,000. Any amount to be paid pursuant to this
Section 1.7 will be treated as an adjustment to the Purchase Price for all
purposes.
1.8 Elections. The Parties will use their commercially
reasonable best efforts in good faith to minimize (or eliminate) any Transfer
Taxes in respect of the Closing by, among other things, making such elections
and taking such steps as may be provided for under applicable law (including,
for greater certainty, making a joint election in a timely manner under Section
167 of the Excise Tax Act (Canada)) as may reasonably be requested by the
Purchaser in connection with the Closing. Each of the Purchaser and the Company
agree to elect jointly in the prescribed form under Section 22 of the Income Tax
Act (Canada) as to the sale of the Accounts Receivable and to designate in such
election an amount equal to the portion of the Purchase Price allocated to
Accounts Receivable pursuant to Section 1.5(c).
1.9 Closing Date. The consummation of the purchase and sale of
the Subject Assets and the assumption of the Assumed Liabilities (the "Closing")
shall be held at 10:00 a.m. (E.S.T.) on May 28, 1999 or at such other time and
date as shall be mutually agreed to by the Parties (such date and time of the
Closing being herein referred to as the "Closing Date") at the offices of
Stikeman, Elliott, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇ or at such
other location as shall be mutually agreed to by the Parties.
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15
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND ▇▇▇▇▇▇
As a material inducement to the Purchaser to enter into this
Agreement and to purchase the Subject Assets hereunder, each of the Company and
▇▇▇▇▇▇ hereby jointly and severally represents and warrants to each of the
Purchaser and Sleepmaster that the following statements contained in this
Article II are correct and complete as of the date hereof and as of the Closing
Date (for purposes of this Article II, all references to the Company, except in
Sections 2.1 and 2.2, shall include its predecessor corporations for periods
prior to the amalgamation of the Company dated January 1, 1999):
2.1 Organization and Qualification. The Company is a
corporation duly amalgamated, organized, validly existing and in good standing
under the laws of the Province of Ontario and has all requisite corporate power
and authority to (i) own, lease and operate its properties and assets as they
are now owned, leased and operated, (ii) carry on the Business as now presently
conducted and (iii) execute and deliver this Agreement and each Related Document
to which it is a party and to carry out the terms hereof and thereof. The
Company is duly qualified to do business in its jurisdiction of amalgamation,
which is the only jurisdiction in which the Company conducts business and in
which the Subject Assets are located.
2.2 Capitalization; Title to the Securities. As of immediately
prior to the Closing, the authorized capital stock of the Company consists of an
unlimited number of Class A and Class B Common Shares and Preferred Shares,
issuable in Series. All of the issued and outstanding shares of capital stock of
the Company are owned, directly or indirectly, beneficially and of record by the
Persons as set forth on Schedule 2.2, free and clear of all Liens, except as set
forth on Schedule 2.2. For purposes of this Section 2.2, "beneficially own" any
shares of capital stock shall mean having or sharing the power to direct or
control the voting or disposition of such shares of capital stock.
2.3 Authorization; No Breach. The Company's execution,
delivery and performance of this Agreement and all other agreements and
instruments contemplated hereby to which it is a party have been duly
authorized, and all necessary corporate action has been taken by, each of the
Company and the Persons listed on Schedule 2.2 above. This Agreement constitutes
a valid and binding obligation of the Company, enforceable in accordance with
its terms, except as
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16
such enforceability may be limited by (x) applicable insolvency, bankruptcy,
reorganization, moratorium or other similar laws affecting creditors' rights
generally and (y) applicable equitable principles (whether considered in a
proceeding at law or in equity), and all other agreements and instruments
contemplated hereby to which the Company is a party, and when executed and
delivered by the Company in accordance with the terms hereof, shall each
constitute a valid and binding obligation of the Company, enforceable in
accordance with its terms, except as such enforceability may be limited by (a)
applicable insolvency, bankruptcy, reorganization, moratorium or other similar
laws affecting creditors' rights generally and (b) applicable equitable
principles (whether considered in a proceeding at law or in equity). Except as
set forth on the attached Schedule 2.3, the execution and delivery by the
Company of this Agreement and all other agreements and instruments contemplated
hereby to which it is a party, and the fulfillment of and compliance with the
respective terms hereof and thereof by the Company do not and shall not (i)
conflict with or result in a breach of the terms, conditions or provisions of,
(ii) constitute a default under (whether with or without the passage of time,
the giving of notice or both), (iii) result in the creation of any Lien upon any
of the Company's capital stock or the Subject Assets pursuant to, (iv) give any
third party the right to modify, terminate or accelerate any obligation under,
(v) result in a violation of the articles of amalgamation or bylaws of the
Company, or any Law to which the Company is subject, or any order, judgment or
decree or any material agreement or instrument to which the Company is subject.
The Company is not a party to or bound by any written or oral agreement or
understanding with respect to an Acquisition Proposal or a Third Party
Acquisition other than this Agreement, and the Company Group has terminated all
discussions with third parties (other than the Purchaser) regarding Acquisition
Proposals or Third Party Acquisitions, as such items are defined in Section 4.7
of this Agreement.
2.4 Consents. No consent, approval or authorization of, or
designation, declaration or filing with, any Governmental or Regulatory Body or
other third party is necessary for the execution, delivery or performance of
this Agreement by the Company and/or ▇▇▇▇▇▇ or the consummation of the
transactions contemplated hereby, except for applicable requirements of the Bank
Act and the Investment Canada Act (both of which are obligations of the
Purchaser and/or Sleepmaster), the consent of Serta, Inc. and its stockholders
and the consent of the Company's stockholders (both of which are obligations of
the Company and ▇▇▇▇▇▇), or as set forth on the attached Schedule 2.4.
2.5 Certificate of Amalgamation and By-Laws. The Company has
heretofore delivered to the Purchaser true, correct and complete copies of its
Certificate and Articles of Amalgamation(certified by the Director, Companies
Branch, Minister of Consumer and Commercial Relations) and its By-Laws and all
amendments thereto (certified by the secretary of the Company) which are in full
force and effect on the date hereof.
2.6 Product Warranty. Each product manufactured, sold, leased
or delivered by the Company has been in conformity with all applicable
contractual commitments and all express and implied warranties, and the Company
has no liability (and there is no basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand against
the Company giving rise to any liability) for replacement or repair thereof or
other damages in connection therewith other than liabilities in respect of the
standard product warranties set forth on
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17
Schedule 2.6 for products manufactured in accordance with the applicable
specifications. No product manufactured, sold, leased or delivered by the
Company is subject to any guaranty, indemnity, representation, warranty,
condition, covenant or other agreement, express or implied, collateral,
statutory or otherwise, beyond the applicable standard terms, statutory terms
and conditions of sale. Schedule 2.6 includes copies of the standard terms and
conditions of sale or lease for the Company (containing applicable
representation, warranty, condition, covenant and guaranty provisions). The
Company's liabilities for product returns and product warranties during fiscal
year 1998 did not exceed 2% of the Company's Net Sales.
2.7 Financial Statements. Attached hereto as Schedule 2.7 are
the following financial statements:
(a) the audited consolidated balance sheet of the Company as
of December 31, 1998 (the "Latest Balance Sheet") and the audited consolidated
balance sheets of the Company as of December 31, 1995, December 31, 1996, and
December 31, 1997 and the related statements of consolidated income and cash
flows (or the equivalent) for the respective twelve-month periods then ended;
and
(b) the management prepared unaudited balance sheet of the
Company as of February 28, 1999 and the related statements of income and cash
flows (or the equivalent) for the 2-month period then ended. The management
prepared unaudited balance sheet as of March 31, 1999 and the related statements
of income and cash flows (or the equivalent) for the 3-month period then ended
shall be delivered to the Purchaser and attached hereto promptly following the
preparation thereof.
Except as set forth on Schedule 2.7, all of the foregoing
financial statements (including in all cases the notes thereto, if any) are
correct and complete and are consistent with the books and records of the
Company (which books and records are correct and complete) and fairly present
the financial condition, operating results and cash flows of the Company, and
(i) with respect to the financial statements described in clause (a) above, have
been prepared in accordance with GAAP consistently applied throughout such
financial statements and the periods covered thereby, and (ii) with respect to
the financial statements described in clause (b) above, have been prepared in a
manner consistent with the management prepared financial statements prepared for
all prior monthly periods but may not be in accordance with GAAP.
2.8 Undisclosed Liabilities. Except as set forth on the
attached Schedule 2.8, the Company has no material obligation or liability
(whether accrued, absolute, contingent, unliquidated or otherwise, whether due
or to become due and regardless of when asserted) (and there is no basis for any
present or future action, suit, proceeding, hearing, investigation, charge,
complaint, or demand against the Company giving rise to any liability), other
than: (i) liabilities set forth on the liabilities side of the Latest Balance
Sheet (excluding any notes thereto), (ii) liabilities and obligations which have
arisen after the date of the Latest Balance Sheet in the ordinary course of
business consistent with past custom and practice (none of which is a liability
resulting from breach of contract, tort, infringement or other lawsuit) and
(iii) other liabilities and obligations expressly disclosed on Schedule 2.8.
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2.9 No Material Adverse Change. Except as set forth on
Schedule 2.9, since December 31, 1998, there has been no material adverse change
in the assets, properties, business, operations, income or condition (financial
or otherwise) of the Company, nor does the Company have knowledge of any such
threatened change, nor has there been any damage, destruction or loss which
could have a Material Adverse Effect on the Business or the Subject Assets.
2.10 Tax Matters.
(a) Except as set forth on the attached Schedule 2.10
(i) the accrual for Taxes on the Latest Balance Sheet
would be adequate to pay all Tax liabilities of the Company if its current tax
year were treated as ending on the date of such balance sheet (excluding any
amount recorded which is attributable solely to timing differences between book
and Tax income);
(ii) there are no Liens for Taxes (other than for current
Taxes not yet due and payable) upon the Subject Assets.
(b) The Subject Assets consist of all or substantially all
of the assets used in carrying on the Business for purposes of the Income Tax
Act (Canada) and the Excise Tax Act (Canada).
(c) The Company has not acquired property from, or
disposed of property to, any Person with whom it does not deal at arm's length
for the purposes of the Income Tax Act (Canada) for proceeds less than the fair
market value thereof.
(d) The Company is a registrant for the purposes of the
tax imposed under Part IX of the Excise Tax Act (Canada).
(e) The Company is not a non-resident of Canada within the
meaning of the Income Tax Act (Canada).
2.11 Litigation. Except as set forth on the attached Schedule
2.11, there are no (and, during the six years preceding the date hereof, there
have not been any material) actions, suits, or proceedings (including any
arbitration proceedings or dispute resolution process, orders, investigations or
claims) pending or, to the Company's knowledge threatened, against or affecting
the Company or pending or, to the Company's knowledge, threatened, against any
of the officers, directors or employees of the Company or the Subject Assets, or
pending or, to the Company's knowledge threatened, by the Company against any
third party, at law or in equity, or before or by any Governmental or Regulatory
Body (including any actions, suits, proceedings or investigations with respect
to the transactions contemplated by this Agreement); the Company is not subject
to any material grievance or arbitration proceedings under collective bargaining
agreements or otherwise or any governmental investigations or inquiries; and the
Company has no knowledge of any basis for any of the foregoing. The Company is
fully insured with respect to each of the outstanding or unresolved matters set
forth on the attached Schedule 2.11. The Company is not subject to any
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19
judgment, order or decree of any Governmental or Regulatory Body and the Company
has not received any opinion or memorandum or legal advice from legal counsel to
the effect that it is exposed, from a legal standpoint, to any liability which
would reasonably be expected to have a Material Adverse Effect.
2.12 Contracts and Other Agreements.
(a) Except as expressly contemplated by this Agreement or as
set forth on the attached Schedule 2.12, the Company is not a party to or bound
by any written or oral:
(i) pension, profit sharing, stock option, employee stock
purchase or other plan or arrangement providing for deferred or other
compensation to its current or former directors, officers or employees or any
other employee benefit plan, arrangement or practice, whether formal or
informal;
(ii) collective bargaining agreement or any other contract
with any labor union, severance or termination agreements, programs, policies or
arrangements;
(iii) management agreement or contract for the employment
of any officer, individual employee or other Person on a full-time, part-time,
consulting or other basis (i) providing annual cash or other compensation in
excess of $75,000, (ii) providing for the payment of any cash or other
compensation or benefits upon the consummation of the transactions contemplated
hereby or (iii) otherwise restricting its ability to terminate the employment of
any employee at anytime for any lawful reason or for no reason without penalty
or liability, except for oral contracts of indefinite duration terminable by the
Company without cause on reasonable notice in accordance with applicable Law;
(iv) contract or agreement involving any Governmental or
Regulatory Body;
(v) agreement or indenture relating to Indebtedness or the
mortgaging, pledging or otherwise placing a Lien on any material asset or
material group of assets of the Company or any letter of credit arrangements;
(vi) Guarantee, other than endorsements made for
collection in the ordinary course of business consistent with past custom and
practice;
(vii) lease or agreement under which the Company is (i)
lessee of or holds or operates any personal property, owned by any other party,
except for any lease of personal property under which the aggregate annual
rental payments do not exceed $25,000 or (ii) lessor of or permits any third
party to hold or operate any property, real or personal, owned or controlled by
the Company;
(viii) contract or group of related contracts with the
same party or group of affiliated parties for the purchase or sale of raw
materials, commodities, supplies, products,
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equipment or other personal property or services under which the undelivered
balance since December 31, 1998 of such products and services has a selling
price in excess of $25,000;
(ix) other contract or group of related contracts with the
same party or group of affiliated parties continuing over a period of more than
six months from the date or dates thereof, not terminable by the Company upon 30
days' or less notice without penalty or involving more than $25,000;
(x) contract relating to the marketing, sale, advertising
or promotion of its products;
(xi) agreements relating to the ownership of, investments
in or loans and advances to any Person, including investments in joint ventures
and minority equity investments;
(xii) license, royalty, indemnification or other agreement
with respect to any intangible property (including any Intellectual Property);
(xiii) broker, agent, sales representative, sales or
distribution agreement;
(xiv) power of attorney or other similar agreement or
grant of agency;
(xv) contract or agreement prohibiting it from freely
engaging in any business or competing anywhere in the world, including any
nondisclosure or confidentiality agreements; or
(xvi) other agreement which involves a consideration in
excess of $25,000 annually, whether or not in the ordinary course of business
consistent with past custom and practice.
(b) All of the contracts, agreements and instruments set forth
or required to be set forth on the attached Schedule 2.12 (the "Material
Contracts") are valid, binding and enforceable in accordance with their
respective terms, except as such enforceability may be limited by (x) applicable
insolvency, bankruptcy, reorganization, moratorium or other similar laws
affecting creditors' rights generally and (y) applicable equitable principles
(whether considered in a proceeding at law or in equity). Each of the Material
Contracts shall be in full force and effect without penalty in accordance with
its terms upon consummation of the transactions contemplated hereby. The Company
has performed all obligations required to be performed by it and is not in
default under or in breach of nor in receipt of any claim of default or breach
under any Material Contract; no event has occurred which with the passage of
time or the giving of notice or both would result in a default, breach or event
of noncompliance by the Company under any Material Contract; and the Company has
no knowledge of any breach or cancellation or anticipated breach or cancellation
by the other parties to any Material Contract.
(c) The Purchaser has been supplied with a true and correct
copy of each written Material Contract, together with all amendments, waivers or
other changes thereto.
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2.13 Real Property.
(a) The Company does not own any real property.
(b) The Real Property Lease is in good standing and the
Company has a good and valid leasehold interest in and to the property thereby
demised (the "Leased Real Property"), subject to no Liens (other than Permitted
Liens). The Real Property Lease is in full force and effect and is enforceable
in accordance with its terms, all rents and additional rents have been paid, no
waiver, indulgence or postponement of the lessee's obligations has been granted
by the landlord, and to the knowledge of the Company, all of the covenants to be
performed by the parties (other than the Company) under the Real Property Lease
have been fully performed. There exists no event of default or event,
occurrence, act or condition (including the purchase of the Subject Assets)
which, with the giving of notice, the passage of time or both or the happening
of any other event or condition, could become a default under the Real Property
Lease. The Leased Real Property is adequate and suitable for the purposes for
which it is presently being used and the Company has adequate rights of ingress
and egress into the Leased Real Property for the operation of the Business in
the ordinary course. The Company has previously delivered to Purchaser a true
and complete copy of the Real Property Lease. Except as described on Consents
Schedule 2.4, no consent, waiver, approval or authorization is required from the
landlord under the Real Property Lease as a result of the execution of this
Agreement or the consummation of the transactions contemplated hereby.
(c) The Leased Real Property constitutes all of the real
property owned, leased, occupied or otherwise utilized in connection with the
Business. Other than the Company, there are no parties in possession or parties
having any current or future right to occupy any of the Leased Real Property.
The Leased Real Property is in good condition and repair and is sufficient and
appropriate for the conduct of the business of the Company. To the best
knowledge of the Company, the Leased Real Property and all plants, buildings and
improvements located thereon conform to all applicable building, zoning and
other laws, ordinances, rules and regulations. All permits, licenses and other
approvals necessary to the current occupancy and use of the Leased Real Property
have been obtained, are in full force and effect and have not been violated.
Except as set forth on Schedule 2.13(c), there exists no violation of any
covenant, condition, restriction, easement, agreement or order affecting any
portion of the Leased Real Property. All improvements located on the Leased Real
Property have direct access to a public road adjoining such Leased Real
Property. Except as set forth on Schedule 2.13(c), no such improvements or
accessways encroach on land not included in the Leased Real Property and no such
improvement is dependent for its access, operation or utility on any land,
building or other improvement not included in the Leased Real Property. Except
as set forth on Schedule 2.13(c), there is no pending or any threatened
condemnation proceeding affecting any portion of the Leased Real Property.
Except as set forth on Schedule 2.13(c), there are no outstanding options or
rights of first refusal with respect to the purchase or use of any of the Leased
Real Property, any portion thereof or interest therein. The Company is not
obligated to purchase any real property.
(d) The Company is not a party to any sublease, either as
sublessor or sublessee.
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2.14 Transactions with Affiliates. Except as set forth on
Schedule 2.14 and the ▇▇▇▇▇▇ Employment Agreement, no director, officer or
Affiliate of the Company or Affiliate or Associate of such director or officer
(a) has any contractual or other claim, express or implied, of any kind
whatsoever against the Subject Assets; or (b) will have as of the Closing Date
any interest in any of the Subject Assets.
2.15 Accounts Receivable. All Accounts Receivable reflected on
the Latest Balance Sheet, and all Accounts Receivable arising subsequent to the
date of the Latest Balance Sheet (net of an allowance for doubtful accounts of
$50,000), (a) have arisen from bona fide sales transactions in the ordinary
course of business consistent with past custom and practice of the Company on
ordinary trade terms, (b) represent valid and binding obligations due to the
Company, enforceable in accordance with their terms, and (c) have been collected
or are collectible in the ordinary course of business of the Company in the
aggregate recorded amounts thereof in accordance with their terms without valid
set-off or counterclaim other than set-off for rebates, cooperative advertising
and other similar allowances provided by the Company in the ordinary course of
business consistent with past custom and practice. Schedule 2.15 lists any
obligor which together with all of its Affiliates owes uncollected amounts to
the Company in an aggregate amount of $25,000 or more.
2.16 Compensation Arrangements: Officers, Directors and
Employees. Schedule 2.16 sets forth: (a) the name and current annual salary (or
other compensation), including any bonus or commitment to pay any other amount
or benefit in connection with a termination of employment, if applicable, of all
present officers, directors, employees and agents of the Company whose current
annual salary (or other compensation), including any promised, expected or
customary bonus or such other amount or benefit, equals or exceeds $100,000 and
(b) the names and titles of all directors and officers of the Company. Except as
specified on Schedule 2.20, the Company has not made a commitment or agreement
(verbally or in writing) to increase the compensation or to modify the
conditions or terms of employment of any Person listed on Schedule 2.16 or of
any other Person if the increase would cause such Person to be required to be
listed on Schedule 2.16. None of such Persons has made a threat or otherwise
indicated any intent to the Company or to any of the officers or directors of
the Company to cancel or otherwise terminate such Person's relationship with the
Company.
2.17 Operations. Except as disclosed on Schedule 2.17 or
expressly authorized by this Agreement, since December 31, 1998, through the
date hereof, the Company has conducted its business only in the ordinary course
of business consistent with past custom and practice, and the Company has not:
(a) amended its certificate or articles of amalgamation (other
than the amalgamation of the Company as of January 1, 1999) or by-Laws or
comparable instruments or merged with or into or consolidated with any other
Person, or changed or agreed to rearrange in any manner the character of its
business;
(b) entered into, amended or terminated any (i) employment
agreement or collective bargaining agreement or (ii) adopted, entered into or
amended any arrangement which is, or would be, an Employee Plan;
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23
(c) knowingly waived any right of material value to the
Business;
(d) made any change in its accounting methods or practices or
made any changes in depreciation or amortization policies or rates adopted by it
or made any material write-down of Inventory or material write-off as
uncollectible of Accounts Receivable;
(e) made any wage or salary increase or other compensation
payable or to become payable or bonus, or increase in any other direct or
indirect compensation, for or to any of its officers, directors, employees,
consultants, agents or other representatives, or any accrual for or commitment
or agreement to make or pay the same, other than increases made in the ordinary
course consistent with past practice;
(f) made any payment or commitment to pay any severance or
termination pay to any Person or any of its officers, directors, employees,
consultants, agents or other representatives, other than payments or commitments
to pay such Persons or its officers, directors, employees in the ordinary course
of business;
(g) (i) entered into any Material Contract, (ii) sold,
abandoned or made any other disposition of any of its assets or properties other
than in the ordinary course of business consistent with past practice; (iii)
granted or suffered any Lien on any of its assets or properties other than sales
of Inventory in the ordinary course of business consistent with past practice;
or (iv) amended any Material Contract;
(h) except in the ordinary course of business consistent with
past practice, incurred or assumed any debt, obligation or liability (whether
absolute or contingent and whether or not currently due and payable);
(i) except for Inventory or equipment acquired in the ordinary
course of business consistent with past practice, made any acquisition of all or
any part of the assets, properties, capital stock or business of any other
Person;
(j) paid, directly or indirectly, any of its liabilities or
obligations before the same became due in accordance with its terms or otherwise
than in the ordinary course of business consistent with past practice, except to
obtain the benefit of discounts available for early payment;
(k) created, incurred or assumed any indebtedness for borrowed
money, or guaranteed any indebtedness for borrowed money or any capitalized
lease obligation, in each case in excess of $25,000 individually or in the
aggregate;
(l) made any capital expenditures or commitments for capital
expenditures in aggregate amount exceeding $25,000;
(m) delayed, postponed or canceled the payment of any accounts
payable or any other liability or obligation or agreed or negotiated with any
Person to extend the payment date of any accounts payable or accelerated the
collection of any accounts or notes receivables;
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(n) except in the ordinary course of business consistent with
past practice, terminated or failed to renew any Material Contract; or
(o) agreed, whether orally or in writing, to do any of the
foregoing.
2.18 Tangible Property. The Company owns or leases all
categories of tangible personal property (other than Inventory), including
equipment, furniture, leasehold improvements, fixtures, vehicles, structures,
any related capitalized items and other similar tangible property, necessary for
the conduct of the Business as presently conducted (collectively, the "Tangible
Property") and Schedule 2.18 sets forth a description of any leases or subleases
of Tangible Property to which the Company is the lessor, sublessor, lessee or
sublessee and any options to purchase or sell the underlying property. The
Tangible Property is in good operating condition and repair (subject to
continued repair and replacement in the ordinary course of business consistent
with past custom and practice) and is suitable for the purpose for which it
presently is used and presently is prepared to be used. The Company has not
received notice that any of the Tangible Property is in violation of any
existing Law or Order. During the past three (3) years there has not been any
interruption of the operations of the Company due to inadequate maintenance of
the Tangible Property. Except as separately identified on Schedule 2.18, no
approval or consent of any Person is needed so that the interest of the Company
in the Tangible Property shall continue to be enforceable by the Purchaser
following the transactions contemplated by this Agreement.
2.19 Intellectual Property.
(a) Set forth on Schedule 2.19 is a list of all (i) patented
and registered Intellectual Property and applications therefor owned by the
Company; (ii) material computer software and databases owned or used by the
Company; (iii) material unregistered trademarks, trade names, service marks,
copyrights and designs owned or used by the Company; and (iv) licenses and
registered user agreements granted by the Company to any third party or by any
third party to the Company, in each case with respect to Intellectual Property.
(b) (i) The Company owns or has a valid and enforceable
license to use all Intellectual Property necessary for the operation of the
Business as currently conducted, free and clear of any Liens or adverse claims;
(ii) there have been no claims by any third party contesting the validity,
enforceability, ownership or use of any of the Intellectual Property owned or
used by the Company or alleging that the Company has infringed or
misappropriated any Intellectual Property of any third party; (iii) to the
knowledge of the Company, no third party is infringing or misappropriating any
Intellectual Property owned or used by the Company; and (iv) subject to
obtaining the consent of Serta, Inc. and its stockholders referred to in Section
2.4, all Intellectual Property owned or used by the Company immediately prior to
the Closing will be owned or available for use by the Purchaser on identical
terms and conditions immediately subsequent to the Closing.
(c) Schedule 2.19 sets forth an outline of the procedures that
the Company has taken to date and plans to take (together with a schedule of the
target dates for the completion of each such planned procedure) to ensure that
the computer software, computer firmware, computer hardware (whether general or
special purpose) or other similar or related items of automated,
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computerized or software systems ("Computer Systems") that are used or relied on
by the Company in the conduct of the Business will be Year 2000 Compliant, and
to the best knowledge of the Company such Computer Systems will be Year 2000
Compliant. The Company is using its commercially reasonable best efforts to
ensure that the Computer Systems that are used or relied on by the Company in
the conduct of the Business will be Year 2000 Compliant. "Year 2000 Compliant"
means that none of the Computer Systems of a particular Person will malfunction,
will cease to function, will generate incorrect data or will produce incorrect
results when processing, providing or receiving (i) date-related data from, into
and between the twentieth and twenty-first centuries or (ii) date-related data
in connection with any valid date in the twentieth and twenty-first centuries.
(d) The Company has made available to the Purchaser copies of
all material in-house correspondence and memoranda and all material
correspondence between the Company with any insurance companies, vendors,
suppliers and service providers of the Company concerning whether such Persons
are or expect to be Year 2000 Compliant.
(e) The Company has no knowledge, after reasonable inquiry, of
any customer, supplier, contractor, distributor, insurance company, or other
vendor or service provider which has failed to take commercially reasonable
steps to be Year 2000 Compliant in any respect that would have a Material
Adverse Effect on the Company.
2.20 Employees.
(a) Except as set forth on Schedule 2.20, the Company is not
party to or bound by any contract or agreement for the employment of any Person.
(b) Except as set forth on Schedule 2.20, since December 31,
1998, no group of employees of the Company relating to the business has
terminated, or given notice of his or her intent to terminate, employment with
the Company. Except as set forth on Schedule 2.20, the Company is not a party to
or bound by any collective bargaining agreement, nor has it experienced any
strike, slowdown, work stoppage, material union grievance, material claim of
unfair labor practice or other collective bargaining dispute relating to the
Business since January 1, 1997. Except as set forth on Schedule 2.20, there is
no pending union grievance or claim of unfair labor practice and to the
knowledge of the Company no organizational effort is being made or threatened by
or on behalf of any labor union with respect to employees of the Company. The
Company has not received any notification of and to the knowledge of the Company
no labor union has applied to have the Company declared a related employer
pursuant to the Labor Relations Act (Ontario). The Company has not committed any
unfair labor practice or violated any Canadian federal, provincial or local law
or regulation regulating employers or the terms and conditions of its employees'
employment, including laws regulating employee wages and hours, pay equity,
employment discrimination, employee civil rights, equal employment opportunity
and employment of foreign nationals other than such practice or violations which
would not cause a Material Adverse Effect.
(c) Any notice required under any law or collective bargaining
agreement has been given, and all bargaining obligations with any employee
representative have been satisfied. The
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Company has not implemented any plant closing or mass layoff of employees, and
no layoffs that could implicate such laws or regulations will be implemented
before Closing without advance notification to the Purchaser.
(d) All current assessments which are due and payable under
the Workplace Safety and Insurance Act (Ontario) in relation to the Company have
been paid and there are no outstanding special or penalty assessments which are
due and payable but unpaid.
(e) All accruals for unpaid vacation pay, premiums for
employment insurance, health premiums, Canada Pension Plan premiums, accrued
wages, salaries and commissions and employee benefit plan payments in each case
in respect of employees of the Company have been reflected in the Books and
Records of the Company.
(f) The Company is in compliance with the requirements of the
Pay Equity Act (Ontario) and no complaint has been received by the Company
alleging a contravention of the Pay Equity Act (Ontario).
(g) Schedule 2.20 contains a complete and accurate list of the
names of all individuals who are employees of the Company employed or engaged in
the Business as of the date of this Agreement specifying their length of
service, age, salary or hourly wage, title, commission or bonus structure and
whether or not such employee is currently absent from employment for any reason
and the expected date of return to active employment.
2.21 Employee Benefits.
(a) Schedule 2.21 lists and describes all Employee Plans. The
Company has furnished to the Purchaser true, correct and complete copies of all
the Employee Plans as amended as of the date hereof, together with all related
documentation including, without limitation, summary plan descriptions. The
Company does not have, maintain or sponsor any pension plans, whether registered
or unregistered, including group registered retirement savings plans other than
as provided for Unionized Employees.
(b) All obligations regarding the Employee Plans have been
satisfied, there are no outstanding defaults or violations by the Company, or to
the Company's knowledge any other party, to any Employee Plan and no taxes,
penalties, or fees are owing or exigible under or in respect of any of the
Employee Plans.
(c) The Company may unilaterally amend or terminate, in whole
or in part, each Employee Plan subject only to the terms of the Employee Plans,
approvals required by Laws and, with respect to amendment or termination, the
collective agreements disclosed in Schedule 2.21.
(d) To the knowledge of the Company, no Employee Plan is
subject to any pending investigation or examination and no other proceeding,
action or claim is pending or has been initiated by any regulatory authority, or
by any other party (other than routine claims for benefits), and there exists no
state of facts which could reasonably be expected to give rise to any such
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investigation, examination or other proceeding, action or claim or to affect the
registration of any Employee Plan required to be registered.
(e) All contributions or premiums required to be paid by the
Company under the terms of each Employee Plans or by Laws have been made in a
timely fashion in accordance with Laws and the terms. Contributions or premiums
for the period up to the Closing Date shall have been paid or accrued for on the
Closing Balance Sheet.
(f) No commitments to improve or otherwise amend any Employee
Plans have been made, except as required by applicable Laws.
(g) None of the Employee Plans enjoy any special tax status
under any Laws, nor have any advance tax rulings been sought or received in
respect of any Employee Plan.
(h) All employee data necessary to administer each Employee
Plan has been provided by the Company to the Purchaser and, to the Company's
knowledge, is true and correct as of the date of this Agreement and the Company
will notify the Purchaser of any changes thereto.
(i) None of the Employee Plans provide benefits to retired
employees or to the beneficiaries or dependants of retired employees.
2.22 Environmental and Health and Safety Matters.
Except as set forth on the attached Schedule 2.22:
(a) The Company has complied with and is currently in
compliance with all Environmental Laws. The Company has not received any oral or
written notice, report or information regarding any violations of or any
liabilities (whether accrued, absolute, contingent, unliquidated or otherwise)
or corrective, investigatory or remedial obligations arising under Environmental
Laws which relate to the Company or any of its current or former properties or
facilities.
(b) Schedule 2.22 lists all reports and documents relating to
environmental matters affecting the Company or any of the Real Property and the
Subject Assets. To the knowledge of the Company, there are no other reports or
documents relating to environmental matters affecting the Company or any of the
Real Property or the Subject Assets which have not been made available to the
Purchaser whether by reason of confidentiality restrictions or otherwise.
(c) Without limiting the generality of the foregoing, the
Company has obtained and complied with, and is currently in compliance with, all
permits, licenses and other authorizations that may be required pursuant to any
Environmental Laws for the occupancy of its properties or facilities or the
operation of the Business. A list of all such permits, licenses and other
authorizations is set forth on the attached Schedule 2.22.
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(d) Neither this Agreement nor the consummation of the
transactions contemplated by this Agreement shall impose any obligations on the
Company for site investigation or cleanup, or notification to or consent of any
government agencies or third parties under any Environmental Laws (including any
so called "transaction-triggered" or "responsible property transfer" laws and
regulations).
(e) To the knowledge of the Company, none of the following
exists or has ever existed at any property including the Leased Real Property or
any facility owned, occupied or operated by the Company, nor has the Leased Real
Property ever been used by any Person for any of the following uses:
(i) underground or aboveground storage tanks or systems,
active or abandoned;
(ii) asbestos-containing materials in any form or
condition;
(iii) materials or equipment containing polychlorinated
biphenyls;
(iv) radioactive substances; or
(v) landfills, licensed or otherwise, surface
impoundments or other disposal areas, including
waste disposal areas.
(f) The Company has not treated, stored, disposed of, arranged
for or permitted the disposal of, transported, handled or Released any substance
(including any hazardous substance) or owned, occupied or operated any facility
or property (and no such property or facility is contaminated by any such
substance) in a manner that has given or could give rise to any liabilities
(including any liability for response costs, corrective action costs, personal
injury, natural resource damages, property damage or attorneys fees or any
investigative, corrective or remedial obligations) pursuant to any Environmental
Laws. To this end, the Company has not been required by any Governmental or
Regulatory Body to alter any of the Real Property in a material way in order to
be in compliance with Environmental Laws, or to perform any environmental
closure, decommissioning, rehabilitation, restoration or post-remedial
investigations, on, about, or in connection with any real property.
(g) To the knowledge of the Company, no properties adjacent to
any of the Real Property are contaminated.
(h) To the knowledge of the Company, there are no contaminants
located in the ground or in the groundwater under any of the Real Property.
(i) The Company has not, either expressly or by operation of
law, assumed or undertaken any liability or corrective, investigatory or
remedial obligation of any other Person relating to any Environmental Laws.
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2.23 Insurance. Schedule 2.23 sets forth a list and brief
description (specifying the insurer, the policy number or covering note number
with respect to binders and the amount of any deductible, describing the pending
claims if such claims exceed applicable policy limits and setting forth the
aggregate amount paid out under each such policy through the date hereof and the
aggregate limit, if any, of the insurer's liability thereunder in respect of
such pending claims) of all policies or binders of fire, liability, vehicular,
and other insurance held by or on behalf of the Company. Such policies and
binders are valid and enforceable in accordance with their terms in all material
respects, are in full force and effect, and insure against risks and liabilities
to the extent and in respect of amounts, types and risks insured. The Company is
not in default with respect to any material provision contained in any such
policy or binder and has not failed to give any notice or present any claim
under any such policy or binder in due and timely fashion. Except for claims
disclosed on Schedule 2.23, there are no outstanding unpaid claims under any
such policy or binder which have gone unpaid for more than forty-five (45) days
or as to which the carrier has disclaimed liability. All known claims or
circumstances likely to give rise to any claims, if any, made against the
Company have been disclosed and tendered to the appropriate insurance companies
and are being defended by such appropriate insurance companies in accordance
with the policy terms and limits. The Company has not received any notice of
cancellation or non-renewal of any such policy or binder. The Company has not
received any notice from any of its insurance carriers that any insurance
premiums will be materially increased in the future or that any insurance
coverage listed on Schedule 2.23 will not be available in the future on
substantially the same terms as now in effect. None of the policies disclosed on
Schedule 2.23 provides that premiums paid in respect of periods may be adjusted
or recomputed based on claims-paying experience of such policies or otherwise.
2.24 Licenses and Permits. Schedule 2.24 lists all of the
permits, licenses, registrations, orders, approvals and other governmental
consents and authorizations of any Governmental or Regulatory Body
(collectively, the "Permits") which the Company has obtained in connection with
the Subject Assets including those located on the Premises, and those that are
used to conduct the Business. Except as set forth on Schedule 2.24, no Permits
(including Permits under Environmental Laws) are required to be obtained by the
Company in connection with the Subject Assets or Business. All such Permits are
in full force and effect and in good standing, except as separately identified
on Schedule 2.24. The Company has not received any notice of any claim of
revocation of any such Permits and the Company has no knowledge of any event
which might give rise to such a claim. The Company has no knowledge of any fact
or circumstances which would prevent the Purchaser from obtaining such Permits.
2.25 Title; Liens. The Company owns outright and has good and
marketable title (except for leasehold interests specifically set forth on
Schedule 2.13 and Schedule 2.18) to all of the Subject Assets, and no director,
officer, Affiliate or Associate of the Company or Affiliate of such director or
officer has any right, title or interest in or to any of the Subject Assets. At
the Closing Date, the Company will have good and marketable title to all of the
Subject Assets, in each case free and clear of any Lien, except for (a) Liens
set forth on Schedule 2.25; (b) assets and properties disposed of in the
ordinary course of business consistent with past custom and practice since the
date of the Latest Balance Sheet without violation of Section 2.17 or 4.10; or
(c) Permitted Liens.
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2.26 Compliance with Laws. Except as set forth in Schedule
2.26, the Company (a) is in compliance with all, and is not in violation of any,
and has not received any claim or notice that it is not in compliance in any
material respect with, or that its is in violation in any material respect of,
any Law or Order to which the Business or the Subject Assets (including the use
and occupancy thereof) are subject and (b) the Company has not failed to obtain
or to adhere to the requirements of any governmental permit, license,
registration and other governmental consent or authorization necessary in
connection with the Business or the Subject Assets which failure would have a
Material Adverse Effect on the Company. The Company has no knowledge of any
proposed environmental, safety, health or other law, rule or regulation which
could reasonably be expected to have a Material Adverse Effect on the Company or
the Purchaser, or which could reasonably be expected to require substantial new
capital investments by the Purchaser in the Business.
2.27 Sufficiency of Subject Assets. The sale of the Subject
Assets to be sold by the Company to the Purchaser pursuant to this Agreement
will effectively convey to the Purchaser the entire Business of, and all of the
tangible and intangible property used by, the Company (whether owned, leased or
held under license by the Company, by any of the Affiliates of the Company or
▇▇▇▇▇▇ or by others) in connection with the conduct of the Business as presently
conducted, including all tangible assets and properties of the Company reflected
in the Latest Balance Sheet and assets and properties acquired since the Latest
Balance Sheet Date in the conduct of the Business of the Company, other than the
Excluded Assets and assets and properties disposed of in the ordinary course of
business consistent with past custom and practice since such date without
violation of this Agreement. Except as disclosed in Schedule 2.27, there are no
material facilities, services, assets or properties shared with any other Person
which are used by the Company.
2.28 Inventory. All the Inventory of the Company consists of
raw materials and supplies manufactured and purchased parts, goods in progress,
and finished goods, all of which are merchantable and fit for the purpose for
which it was procured or manufactured, and none of which is slow moving,
obsolete, damaged, or defective, subject only to the reserve for inventory shown
on the Latest Balance Sheet and the reserve for inventory to be shown on the
Closing Balance Sheet (as determined in accordance with GAAP consistently
applied with respect to each such financial statement), and such inventory
consists or shall consist of a quantity and quality usable and saleable in the
ordinary course of business consistent with past custom and practice, subject to
normal and customary allowances in the industry for spoilage, damage and
outdated items. Except as otherwise disclosed on Schedule 2.28, all items
included in the Inventory are the property of the Company, free and clear of any
Lien, have not been pledged as collateral, are not held by the Company on
consignment from others and conform in all material respects to all standards
applicable to such Inventory or its use or sale imposed by any Law or Order.
2.29 Product Liability. Except for ordinary course liabilities
arising in a manner consistent with past custom and practice from the Company's
standard warranties, the Company has no liability (and the Company has no
knowledge of any basis for any present or future action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand against the Company
giving rise to any liability) arising out of any injury to individuals or
property as a result of the ownership, possession, or use of any product
manufactured, sold, leased, or delivered by the Company.
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2.30 Brokers. There are no claims for brokerage commissions,
finders' fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement to which
the Company or ▇▇▇▇▇▇ is a party or to which the Company or ▇▇▇▇▇▇ is subject.
The Company shall pay, indemnify, defend and hold the Purchaser harmless
against, any liability, loss or expense (including reasonable attorneys' fees
and out-of-pocket expenses) arising in connection with any such claim.
2.31 Disclosure. Neither this Agreement, nor any Schedule or
Exhibit to this Agreement, contains with respect to the Business, the Subject
Assets, or the Assumed Liabilities an untrue statement of a material fact or
omits a material fact necessary to make the statements contained herein or
therein not misleading. All information provided to the Purchaser and its agents
by the Company and its Affiliates or their respective agents with respect to the
Business, the Subject Assets, or the Assumed Liabilities is true, complete and
correct in all material respects. All disclosures relating to the Company, the
Business, the Subject Assets or the Assumed Liabilities contained in a
particular section of this Agreement, the Exhibits, or the Schedules hereto are
disclosed with respect to such section and shall be deemed disclosed for any
other section of this Agreement, the Exhibits, or the Schedules which, based on
the express language of such disclosure, would obviously apply.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
As a material inducement to each of the Company and ▇▇▇▇▇▇ to
enter into this Agreement and to sell the Subject Assets hereunder, each of the
Purchaser and Sleepmaster hereby, jointly and severally, represents and warrants
to each of the Company and ▇▇▇▇▇▇ that the following statements contained in
this Article III are correct and complete as of the date hereof and as of the
Closing Date.
3.1 Organization and Qualification. Each of the Purchaser and
Sleepmaster is duly organized and validly existing and in good standing under
the laws of its jurisdiction of organization and has all requisite power and
lawful authority to execute and deliver this Agreement and each related document
to which it is a party and to carry out the terms hereof and thereof.
3.2 Authorization; No Breach. The execution, delivery and
performance of this Agreement and all other agreements or instruments
contemplated hereby to which each of the Purchaser and Sleepmaster is a party or
by which each of the Purchaser and Sleepmaster is bound have been duly
authorized by such Person. This Agreement and all other agreements contemplated
hereby to which any of the Purchaser and Sleepmaster is a party, when executed
and delivered by such Person in accordance with the terms hereof, shall each
constitute a valid and binding obligation of such Person, enforceable in
accordance with its terms, except as such enforceability may be limited by (x)
applicable insolvency, bankruptcy, reorganization, moratorium or other similar
laws affecting creditors' rights generally and (y) applicable equitable
principles (whether considered in a proceeding at law or in equity). The
execution, delivery and performance by each of the Purchaser and Sleepmaster of
this Agreement and all other agreements contemplated hereby to which any of
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the Purchaser and Sleepmaster is a party, and the fulfillment of and compliance
with the respective terms hereof and thereof by each of the Purchaser and
Sleepmaster, do not and shall not (i) conflict with or result in a breach of the
terms, conditions or provisions of, (ii) constitute a default under (whether
with or without the passage of time, the giving of notice or both), (iii) give
any third party the right to modify, terminate or accelerate any obligation
under, (iv) result in a violation of the organizational documents of such
Person, or any Law to which such Person is subject, or any agreement,
instrument, order, judgment or decree to which such Person is subject.
3.3 Consents. No consent, approval or authorization of, or
designation, declaration or filing with any Canadian or United States
Governmental Entity or other third party is necessary for the execution,
delivery or performance of this Agreement by each of the Purchaser and
Sleepmaster or the consummation of the transactions contemplated hereby, except
for applicable requirements of the Bank Act, the Investment Canada Act (both of
which are obligations of the Purchaser and/or Sleepmaster), the consents of
Serta, Inc. and its stockholders and the approval of the Company's shareholders
(both of which are obligations of the Company and ▇▇▇▇▇▇), or as set forth on
the attached Schedule 3.3.
3.4 Brokers. There are no claims for brokerage commissions,
finders' fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement to which
any of the Purchaser and Sleepmaster is a party or to which any of the Purchaser
and Sleepmaster is subject. Each of the Purchaser and Sleepmaster shall pay,
indemnify, defend and hold the Company harmless against, any liability, loss or
expense (including reasonable attorneys' fees and out-of-pocket expenses)
arising in connection with any such claim.
3.5 No Prior Activity. The Purchaser was formed for the
purpose of acquiring the Subject Assets of the Company and has not engaged in
any activity as of the date hereof, except in connection with the transactions
contemplated by this Agreement.
3.6 Disclosure. Neither this Agreement, nor any Schedule or
Exhibit to this Agreement, contains an untrue statement of a material fact or
omits a material fact necessary to make the statements contained herein or
therein not misleading. All information provided to the Company or ▇▇▇▇▇▇ and
their agents by the Purchaser and Sleepmaster and their Affiliates or their
respective agents is true, complete and correct in all material respects.
ARTICLE IV
PRECLOSING COVENANTS OF THE
COMPANY AND ▇▇▇▇▇▇
Each of the Company and ▇▇▇▇▇▇ hereby covenants and agrees
with the Purchaser that from and after the date hereof to and including the
Closing Date, the Parties shall do or refrain from doing the following:
4.1 Corporate Examinations and Investigations.
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(a) From the date hereof, the Purchaser and the Purchaser's
accounting, legal and other representatives shall be entitled, through their
employees and representatives, full and complete access to make such
investigation of management personnel, accountants, representatives, assets,
properties, contracts, business and operations of the Company and the Company
shall furnish such financial and operating data, business plans, strategic
plans, books, records, Tax Returns, and other data of the Company as the
Purchaser or its lenders may wish. Any such investigation and examination shall
be conducted at reasonable times and under reasonable circumstances and the
Company shall cooperate fully therein. In order that the Purchaser and its
lenders may have full opportunity to make such a business, accounting and legal
review, examination or investigation as it or they may wish of the business and
affairs of the Company, the Company shall furnish the representatives of the
Purchaser and the Purchaser's accounting, legal and other representatives and
its lenders during such period with all such information and copies of such
documents concerning the affairs of the Company as such representatives may
reasonably request and cause its officers, employees, consultants, agents,
accountants and attorneys to cooperate fully with such representatives in
connection with such review and examination and to make full disclosure to the
Purchaser and its lenders and the Purchaser's accounting, legal and other
representatives of all material facts affecting the financial condition and
business operations of the Company.
(b) Until the Closing, and if the Closing shall not occur,
thereafter, the Purchaser and its Affiliates shall keep confidential and shall
not use in any manner inconsistent with the transactions contemplated by this
Agreement and after termination of this Agreement, the Purchaser and its
Affiliates shall not disclose, nor use for their own benefit, any information or
documents obtained from the Company concerning the management personnel,
accountants, representatives, assets, properties, contracts, business and
operations of the Company, unless (i) readily ascertainable from public or
published information, or trade sources, (ii) already known or subsequently
developed by the Purchaser independently of any investigation of the Company,
(iii) received from a third party not under an obligation to the Company to keep
such information confidential, (iv) required by any Law or Order, (v) used in
the preparation of and contained in the Offering Memorandum prepared in
conjunction with the offering of the Senior Sub Notes or (vi) disclosed in the
process of marketing the Senior Sub Notes. In the event this transaction does
not close for any reason, the Purchaser and its Affiliates shall return or
destroy all such confidential information and compilations thereof as is
practicable, and shall certify such destruction or return to the Company.
4.2 Notice of Events. Each Party shall give prompt written
notice to the other Parties of (i) any variances in any of its representations
or warranties contained in this Agreement, (ii) any breach of any covenant
hereunder by such Party, and (iii) any other material development which would
render any of the conditions in Article V incapable of being satisfied.
4.3 Filings and Authorizations. Each of the Parties shall, as
promptly as practicable after the execution of this Agreement, make, or cause to
be made, all such filings, applications and submissions under all Laws
applicable to it, as may be required for it to consummate the purchase and sale
of the Subject Assets in accordance with the terms of this Agreement other than
in connection with bulk sales laws.
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4.4 Taxes. The Company shall pay and discharge when due and
payable all Taxes, assessments and governmental charges imposed upon it or upon
its properties or upon the income or profits therefrom (in each case before the
same becomes delinquent and before penalties accrue thereon) and all claims in
respect of labor, materials, supplies or services.
4.5 Best Efforts; Further Assurances. Subject to the terms and
conditions herein provided, each of the Parties hereto shall 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 reasonably necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
the transactions contemplated by this Agreement and to fulfill all of the
conditions set forth in Article V below and the execution and delivery of the
agreements and instruments contemplated hereby to be executed and delivered at
the Closing. In the event any claim, action, suit, investigation or other
proceeding by any Canadian or United States Governmental Authority or other
Person is commenced which questions the validity or legality of the transactions
contemplated hereby or seeks damages in connection therewith, the Parties agree
to cooperate and use commercially reasonable best efforts to defend against such
claim, action, suit, investigation or other proceeding and, if an injunction or
other order is issued in any such action, suit or other proceeding, to use
commercially reasonable best efforts to have such injunction or other order
lifted, and to cooperate reasonably regarding any other impediment to the
consummation of the transactions contemplated hereby.
4.6 Mutual Assistance. The Company and the Purchaser agree
that they will mutually cooperate in the expeditious filing of all applications,
notices, reports and other filings with any Canadian or United States
Governmental or Regulatory Body required to be submitted by any of the Company,
the Purchaser and Sleepmaster or solely by any one of them in connection with
the execution and delivery of this Agreement, the other agreements contemplated
hereby and the consummation of the transactions contemplated hereby or thereby.
4.7 Exclusivity. The Company, or any of its representatives,
officers, directors, agents, stockholders or Affiliates (all such persons and
entities, the "Company Group") shall not directly or indirectly initiate,
solicit, entertain, negotiate, accept or discuss any proposal or offer (an
"Acquisition Proposal") to acquire all or any significant part of the Company,
whether by merger, purchase of stock, purchase of assets, tender offer or
otherwise (a "Third Party Acquisition"), or knowingly provide any nonpublic
information to any third party in connection with an Acquisition Proposal or a
Third Party Acquisition, or enter into any agreement, arrangement or
understanding requiring the Company to abandon, terminate or fail to consummate
the transactions contemplated under this Agreement. The Company shall (i)
immediately notify the Purchaser if any member of the Company Group receives any
indication of interest, request for information or offer in respect of an
Acquisition Proposal, (ii) communicate to the Purchaser in reasonable detail the
terms of any such indication, request or proposal, and (iii) provide the
Purchaser with copies of all written communications relating to any such
indication, request or proposal. The Company represents that no member of the
Company Group is party to or bound by any agreement with respect to an
Acquisition Proposal or a Third Party Acquisition other than under this
Agreement and the members of the Company Group have terminated all discussions
with third parties (other than the Purchaser) regarding Acquisition Proposals or
Third Party Acquisitions. The Company shall use its best efforts
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to cause each other member of the Company Group to comply with the provisions of
this Section 4.7.
4.8 Name Changes. Simultaneously with the Closing, ▇▇▇▇▇▇
shall cause the Company to amend its certificate and articles of amalgamation or
similar governing document to change its name to a name which does not contain
the words "Star," ▇▇▇▇▇▇▇," "Bedding," or substantially similar words. Following
the Closing, the Company and ▇▇▇▇▇▇ agree that they will not and will cause
their Affiliates to not use such words in connection with any other Person,
business or activity.
4.9 Third Party Notices and Consents. The Company shall use
its best efforts to (i) give required notices to third parties, (ii) obtain any
required Consents (including the consents of Serta and its stockholders and the
lessor of the Leased Real Property), and (iii) take any actions reasonably
required by any third party, in each case in connection with the matters
contemplated by this Agreement.
4.10 Operation of Business. During the period from the date
hereof to the Closing Date, the Company shall operate the Business only in the
usual and ordinary course of business consistent with past custom and practice
and in accordance with all Laws and will preserve the goodwill and organization
of the Business and the relationships with its customers, suppliers, employees
and other Persons having business relations with the Company. Without limiting
the generality of the foregoing, prior to the Closing, without the prior written
consent of the Purchaser, the Company covenants that:
(a) the Company shall not, directly or indirectly, except as
expressly contemplated by this Agreement, take or omit to take any action that
would require disclosure under Section 2.17 hereof or that would otherwise
result in a breach of any of the representations, warranties or covenants made
by the Company in this Agreement; and
(b) the Company will use its commercially reasonable best
efforts to (1) preserve intact the organization and goodwill of the Company, (2)
keep available the services of each of its officers, employees and sales
representatives, and (3) maintain satisfactory relationships with each of its
material suppliers and customers.
(c) the Company shall not sell, assign, transfer, lease,
license, or abandon any of its assets, tangible or intangible, except in the
ordinary course of business consistent with past custom and practice for a fair
consideration.
4.11 Press Release and Announcements. No Party shall make any
public announcement with respect to this Agreement or the transactions
contemplated hereby without the prior written consent of the other Parties. The
foregoing notwithstanding, any such public announcement may be made if required
by applicable Law or a securities exchange rule, provided that, the Party
required to make such public announcement shall confer with the other Parties
concerning the timing and content of such public announcement before the same is
made.
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4.12 Compliance with Agreements and Laws. The Company shall
(i) comply with all material obligations pursuant to any Material Contract,
whether oral or written, express or implied and (ii) comply in all material
respects with all applicable Laws.
4.13 Registrations. The Purchaser will obtain a PST
registration and a GST registration prior to the Closing.
ARTICLE V
CONDITIONS PRECEDENT TO THE CLOSING
5.1 Conditions Precedent to the Obligations of the Purchaser
to Complete the Closing. The obligations of the Purchaser to enter into and
complete the Closing are subject to the fulfillment on or prior to the Closing
Date of the following conditions, any one or more of which may be waived by the
Purchaser:
(a) Representations, Warranties and Covenants. The
representations and warranties of each of the Company and ▇▇▇▇▇▇ contained in
this Agreement shall be true, complete and correct in all material respects on
and as of the Closing Date with the same force and effect as though made on and
as of the Closing Date. Each of the Company and ▇▇▇▇▇▇ shall have performed and
complied in all material respects with all covenants and agreements required by
this Agreement to be performed or complied with by it or him on or prior to the
Closing Date.
(b) Opinion of the Company's Counsel. The Purchaser shall have
received from ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ an opinion with respect to the matters set forth in
Exhibit D attached hereto, which shall be addressed to the Purchaser and dated
as of the Closing Date.
(c) Litigation. No suit, action or other proceeding, or
injunction, order, decree or judgment relating thereto, shall be threatened or
shall be pending in which it is sought to restrain or prohibit or to obtain
damages or other relief in connection with the transactions contemplated hereby
or that would reasonably be expected to have a Material Adverse Effect, and no
injunction, judgment, order, decree or ruling with respect thereto shall be in
effect.
(d) Consents and Approvals. The Company shall have made all
filings and shall have obtained and delivered to the Purchaser all governmental
and/or third party permits, authorizations, consents and approvals required to
be obtained by the Company to consummate the transactions contemplated by this
Agreement (the "Consents") as set forth on the Schedule 2.4 and the Purchaser
shall have received any governmental and/or third party consents, orders or
approvals required to be obtained in connection with the transactions
contemplated hereby, including the consents of Serta and its stockholders, the
lessor of the Leased Real Property and the Canadian Minister of Finance pursuant
to the Bank Act (Canada).
(e) Escrow Agreement. Each of the Company, the Purchaser and
the Escrow Agent will have executed and delivered the Escrow Agreement and the
Escrow Agreement shall be in full force and effect as of the Closing and shall
not have been amended or modified.
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(f) Material Adverse Change. Since December 31, 1998, there
shall not have occurred any material adverse change, including any litigation,
in the business, assets, condition (financial or otherwise), results of
operations, cash flows, or prospects of the Business.
(g) Due Diligence. The Purchaser shall be satisfied in its
reasonable discretion with the results of its business, legal, environmental and
accounting due diligence review of the Business.
(h) Employment and Noncompetition Arrangement. The Purchaser
shall have entered into an employment and noncompetition agreement with ▇▇▇▇▇▇
in form and substance satisfactory to ▇▇▇▇▇▇ and the Purchaser, and such
employment and noncompetition arrangement shall be in full force and effect as
of the Closing and shall not have been amended or modified.
(i) Workers' Compensation Certificate. On or prior to Closing,
the Company shall deliver to the Purchaser a Purchase Certificate issued from
the Workplace Safety and Insurance Board (Ontario) confirming that as of the
Closing, there are no amounts outstanding and owing to the Workplace Safety and
Insurance Board in respect of the employees of Business.
(j) Real Estate Matters.
(i) A title insurance company selected by the Purchaser
(the "Title Company") shall be willing to insure at standard rates the
Purchaser's or its Affiliate's leasehold estate in any financeable Leased Real
Property (a "Financeable Leasehold"), and the Purchaser's lender's ("Lender")
mortgage lien on the Financeable Leasehold, in each case free and clear of all
Liens (other than Permitted Liens) and including such endorsements and
affirmative coverages as the Purchaser and Lender shall reasonably require. The
Company shall, at the Purchaser's expense, provide all such affidavits and
indemnities as the Title Company reasonably shall require in order to afford
such coverages.
(ii) The Purchaser shall have obtained an up-to-date
survey of the Leased Real Property, certified to the Company, the Lender, the
Purchaser and the Title Company and showing no Liens except for Permitted Liens.
(iii) the Purchaser shall have received from the landlord
under the Real Property Lease, in form and substance reasonably satisfactory to
the Purchaser, written consent to:
(1) the registration of the Real Property Lease in
the appropriate land registry office;
(2) the mortgage by the Purchaser or its Affiliate
of the leasehold interest under the Real Property Lease; and
(3) the assignment of the Real Property Lease by the
Company to the Purchaser or its Affiliate and the exercise by the Purchaser or
its Affiliate of the term extension
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option under the Real Property Lease, notwithstanding any language to the
contrary contained in the Real Property Lease.
(iv) The Leased Real Property shall be in substantially
the same condition and repair as that on the date of this Agreement, reasonable
wear and tear excepted.
(v) The Purchaser shall have received from each mortgagee
and ground lessor of the Leased Real Property, at the Purchaser's expense, a
nondisturbance agreement in form and substance reasonably satisfactory to the
Purchaser and the Lender.
(k) Closing Documents. At the Closing, the Company shall have
delivered to the Purchaser all of the following:
(i) certified copies of the Articles of Amalgamation
(including any amendments thereto), the by-laws and a Secretary's Certificate of
the Company certifying all authorizing resolutions (including directors and
shareholders and any committees of the foregoing) and the incumbency of the
directors and officers of the Company executing this Agreement and the Related
Documents;
(ii) a certificate of an officer of the Company, dated as
of the Closing Date stating that the conditions specified in Sections 5.1(a),
(c), (d), (f) and (o) have been fully satisfied;
(iii) all Books and Records of the Company that relate to
the Business or the Subject Assets (other than the Tax Returns and related and
supporting materials and Corporate Records of the Company);
(iv) a Certificate of Status from the Ministry of Consumer
and Commercial Relations of Ontario, in each case dated within 5 days prior to
the Closing Date;
(v) A certificate of payment issued by the Minister of
Finance (Ontario) under Section 6 of the Retail Sales Tax Act (Ontario) to the
effect that, as of the Closing Date, all requisite taxes under such Act and
similar legislation relating to the Subject Assets (other than relating to the
conveyance and transfer of the Subject Assets to the Purchaser) have been paid
by the Company;
(vii) The duly executed elections referred to in Section
1.8 in respect of (1) the sale of the Accounts Receivable pursuant to Section 22
on the Income Tax Act (Canada), and (2) the joint election pursuant to Section
167 of the Excise Tax Act (Canada);
(viii) An estoppel certificate or landlord's
acknowledgment from the lessor under the Real Property Lease, confirming the
matters set forth in Section 2.13, copies of any non-disturbance agreements with
secured creditors of the landlord;
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(ix) A ▇▇▇▇ of Sale to transfer the Subject Assets to the
Purchaser with a good title, free and clear of all Liens other than Permitted
Liens;
(x) copies of all Consents; and
(xi) such other documents relating to the transactions
contemplated by this Agreement as the Purchaser or its special counsel may
reasonably request in a timely manner.
(l) Financing. The Purchaser and/or Sleepmaster shall have
received at least $25.75 million of cash proceeds of the financing transactions
in order to consummate the transactions contemplated hereby and to fund the
ongoing working capital needs of the Business, all on terms and conditions
satisfactory to the Purchaser.
(m) Release of Liens. The Company shall have obtained releases
of all Liens (other than any Permitted Liens) relating to the assets and
properties of the Company and shall have delivered satisfactory evidence, as
determined by the Purchaser, of such releases to the Purchaser.
(n) Transactions with Affiliates. All transactions, agreements
or other arrangements with the Company, ▇▇▇▇▇▇ or any of their respective
Affiliates to which any of the Subject Assets is subject, other than this
Agreement and the ▇▇▇▇▇▇ Employment Agreement, shall have been terminated.
(o) Injunction, etc. At the Closing, there shall not be any
Order outstanding against any Party or Law promulgated that restrains,
prohibits, invalidates or otherwise prevents consummation of the transactions
contemplated by, or seeks damages as a result of or otherwise interferes with
this Agreement or any of the conditions to the consummation of the transactions
contemplated by this Agreement or would be likely to have any Material Adverse
Effect on the Business or the Subject Assets.
(p) Conveyancing Documents. The Company shall have executed
and delivered to the Purchaser an assignment and assumption agreement (an
"Assignment and Assumption Agreement") in the form of Exhibit E hereto, and a
▇▇▇▇ of Sale (a "▇▇▇▇ of Sale") in the form of Exhibit F hereto.
(q) Waiver. Any condition specified in this Section 2 may be
waived if consented to in writing by the Purchaser.
5.2 Conditions Precedent to the Obligations of the Company and
▇▇▇▇▇▇ to Complete the Closing. The obligations of the Company and ▇▇▇▇▇▇ to
enter into and complete the Closing are subject to the fulfillment on or prior
to the Closing Date, of the following conditions, any one or more of which may
be waived by the Company and ▇▇▇▇▇▇:
(a) Representations, Warranties and Covenants. The
representations, warranties and covenants of each of the Purchaser and
Sleepmaster shall be true, complete and correct in all material respects as of
the Closing Date with the same force and effect as though made on and as of
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the Closing Date. Each of the Purchaser and Sleepmaster shall have performed and
complied in all material respects with all covenants and agreements required by
this Agreement to be performed or complied with by such Person on or prior to
the Closing Date.
(b) Escrow Agreement. Each of the Purchaser, the Company and
the Escrow Agent will have executed and delivered the Escrow Agreement, and the
Escrow Agreement shall be in full force and effect as of the Closing and shall
not have been amended or modified.
(c) Employment Agreement. The Purchaser and Sleepmaster shall
have entered into the ▇▇▇▇▇▇ Employment Agreement in form and substance
satisfactory to the Purchaser and ▇▇▇▇▇▇ and such employment agreement shall be
in full force and effect as of the Closing and shall not have been amended or
modified.
(d) Litigation. No suit, action or other proceeding, or
injunction, order, decree or judgment relating thereto, shall be threatened or
shall be pending in which it is sought to restrain or prohibit or to obtain
damages or other relief in connection with the transactions contemplated hereby
and no injunction, judgment, order, decree or ruling with respect thereto shall
be in effect.
(e) Opinion of the Purchaser's Counsel. The Company and ▇▇▇▇▇▇
shall have received from Stikeman, Elliot, special Ontario counsel to the
Purchaser, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, special New Jersey counsel to the Purchaser and
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Stirling Scales, special New Brunswick counsel to the
Purchaser, an opinion with respect to the matters set forth in the attached
Exhibit G-1, G-2 and G-3, respectively, which shall be addressed to the Company
and ▇▇▇▇▇▇ and dated as of the Closing Date.
(f) Closing Documents. At the Closing, the Purchaser shall
have delivered to the Company all of the following:
(i) a certificate of an officer of the Purchaser and
Sleepmaster, dated as of the Closing Date, stating that the conditions specified
in Section 5.2(a), (d), (g) and (h) shall have been fully satisfied;
(ii) certified copies of the Articles of Organization
(including any amendments thereto) of the Purchaser;
(iii) the by-laws of the Purchaser;
(iv) a Secretary's Certificate of the Purchaser and
Sleepmaster certifying all authorizing resolutions and the incumbency of the
officers of such Person executing this Agreement and the Related Documents; and
(v) the Assignment and Assumption Agreement executed by
the Purchaser.
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(g) Consents and Approvals. The consent of the Canadian
Minister of Finance pursuant to the Bank Act shall have been obtained in
connection with the transactions.
(h) Injunction, etc. At the Closing, there shall not be any
Order outstanding against any Party or Law promulgated that restrains,
prohibits, invalidates or otherwise prevents consummation of the transactions
contemplated by, or seeks damages as a result of or otherwise interferes with
this Agreement or any of the conditions to the consummation of the transactions
contemplated by this Agreement or would be likely to have any Material Adverse
Effect on the Business or the Subject Assets.
(i) Conveyancing Documents. The Purchaser shall have executed
and delivered to the Company the Assignment and Assumption Agreement and the
▇▇▇▇ of Sale.
(j) Waiver. Any condition specified in this Section 5.2 may be
waived if consented to in writing by the Company.
ARTICLE VI
POST-CLOSING COVENANTS
The Parties covenant to take the following actions after the
Closing Date:
6.1 Further Information; Assistance. (a) Following the
Closing, each Party will afford to the other Parties, their counsel and
accountants, during normal business hours, reasonable access to the Books and
Records and other data relating to the Business, the Subject Assets, the
Excluded Assets, the Assumed Liabilities or the Excluded Liabilities in its
possession with respect to periods prior to the Closing and the right to make
copies and extracts therefrom, to the extent that such access may be reasonably
required by the requesting Party (i) to facilitate the investigation, litigation
and final disposition of any claims which may have been or may be made against
any Party or its Affiliates and (ii) for any other reasonable business purposes,
including the preparation of Tax Returns.
(b) The Company, on the one hand, and the Purchaser, on the
other hand, will provide each other with such assistance as may reasonably be
requested in connection with the preparation of any Tax Return, any audit or
other examination by any taxing authority, or any judicial or administrative
proceedings relating to liability for Taxes, and each will retain and provide
the requesting party with any records or information that may be reasonably
relevant to such return, audit or examination, proceedings or determination. The
Party requesting assistance shall reimburse the other Party for reasonable
out-of-pocket expenses (other than salaries or wages of any employees of the
Parties) incurred in providing such assistance. Any information obtained
pursuant to this Section 6.1 or pursuant to any other Section hereof providing
for the sharing of information or the review of any Tax Return or other Schedule
relating to Taxes shall be kept confidential by the Parties hereto.
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6.2 Record Retention. Each Party agrees that for a period of
not less than seven (7) years following the Closing Date, it shall not destroy
or otherwise dispose of any of the Books and Records relating to the Business,
the Subject Assets, the Assumed Liabilities, the Excluded Assets or the Excluded
Liabilities in its possession with respect to periods prior to the Closing. Each
Party shall have the right to destroy all or part of such Books and Records
after the seventh anniversary of the Closing Date or, at an earlier time by
giving each other Party hereto thirty (30) days prior written notice of such
intended disposition and by offering to deliver to the other Party, at the other
Party's expense, custody of such Books and Records as such Party may intend to
destroy.
6.3 Post-Closing Transfer Taxes. The Purchaser agrees to pay
all sales, use, transfer, real property transfer, recording, gains, stock
transfer, value added and other similar taxes and fees ("Transfer Taxes")
arising out of or in connection with the transactions effected pursuant to this
Agreement.
6.4 Accounts Receivable; Mail.
(a) In the event that any payment of the accounts receivable
or other asset included in the Subject Assets is received by the Company after
the Closing Date, the Company will hold such amounts received or paid as trustee
for and remit such payments to the Purchaser by wire transfer of immediately
available funds as soon as practicable (and in any event within two (2) Business
Days following receipt thereof).
(b) The Company authorizes and empowers the Purchaser from and
after the Closing Date (i) to receive and open mail addressed to the Company and
(ii) to deal with the contents thereof in any manner the Purchaser sees fit;
provided, in the case of clause (ii), such mail and the contents thereof relate
to the Subject Assets or otherwise to the Business or to any of the Assumed
Liabilities. Each Party agrees to deliver to the relevant Party promptly upon
receipt of any mail, checks or documents which it receives to which it is not
entitled by reason of this Agreement or otherwise and to which that other Party
is entitled.
6.5 No Assignment Causing Breach. Notwithstanding anything in
this Agreement, neither this Agreement nor any document or instrument delivered
pursuant hereto shall constitute an assignment of any claim, contract, Business
License, Business Contract, lease, commitment, sales order or purchase order or
any claim or right or any benefit arising thereunder or resulting therefrom if
an attempted assignment thereof without the consent of any other Person would
constitute a breach thereof or in any way adversely affect the rights to be
assigned. Until such consent is obtained, or if an attempted assignment
thereunder would be ineffective or would affect the rights of the Company
thereunder so that the Purchaser would not in fact receive all such rights, each
of the Company and the Purchaser will cooperate with each other to provide the
Purchaser the benefits of, and to permit the Purchaser to assume all liabilities
under, any such claim, contract, Business License, Business Contract, lease,
commitment, sales order or purchase order, including enforcement at the request
and expense of the Purchaser for the benefit of the Purchaser of any and all
rights of the Company against a third party thereto arising out of the breach or
cancellation thereof by such third party; and any transfer or assignment to the
Purchaser by the Company of any
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property or property rights or any contract or agreement which shall require the
consent or approval of any third party shall be made subject to such consent or
approval being obtained.
6.6 Insurance Coverage. If any of the insurance policies
listed on Schedule 2.23 cannot be assigned to the Purchaser on the date hereof,
at the Purchaser's request and expense, including payment of all premiums,
before or after the date hereof, the Company shall use reasonable efforts to
have the Purchaser named as an additional insured and loss payee, as its
interest may appear, on all such current insurance policies maintained by the
Company covering time periods beginning prior to the date hereof and extending
beyond the date hereof, until the expiration date of such policy or policies.
With respect to any liabilities of the Company which the Purchaser has agreed to
assume pursuant to this Agreement or to indemnify the Company pursuant to
Section 7.2 or any other liabilities to which the Purchaser may become subject
for pre-Closing occurrences, in each case to the extent such liabilities may be
covered by insurance maintained by the Company or as to which the Company is an
additional insured, the Company agrees, at the Purchaser's request, to prosecute
diligently any insurance claims which may be asserted in respect thereof and to
promptly notify the Purchaser of the assertion of each such claim. From and
after the date hereof in the event that the Company recovers insurance proceeds
in respect of any amounts in respect of the liabilities described in the
preceding sentence, the Company shall promptly remit such proceeds to the
Purchaser and the Purchaser shall pay such liabilities with such proceeds.
6.7 Employee Matters.
(a) The Company agrees to provide the Purchaser with an
up-to-date list of the names of all unionized and non-unionized employees of the
Company employed in the Business (collectively, the "Employees" and individually
the "Unionized Employees" and the "Non-Unionized Employees") at least two
Business Days and not more than five Business Days prior to the Closing Date.
(b) The Purchaser shall offer employment, effective as of the
Closing Date, to all Non-Unionized Employees on terms and conditions of
employment which are substantially similar in the aggregate to the terms and
conditions of employment as are then applicable to the Non-Unionized Employees
(except ▇▇▇▇▇▇, whose employment shall be pursuant to the terms and conditions
of the ▇▇▇▇▇▇ Employment Agreement).
(c) The Purchaser will be the successor to the Company under
the collective agreement disclosed on Schedule 2.20 and applicable to the
Unionized Employees pursuant to the provision of applicable labor legislation
and on and after the Closing Date will be bound by and observe all of the terms,
conditions, rights and obligations of the Company under the collective
agreement.
(d) The Non-Unionized Employees who accept and commence
employment with the Purchase and the Unionized Employees shall be referred to
herein as "Transferred Employees".
(e) The Purchaser will provide Transferred Employees with
benefits under the Purchaser's employee plans which are substantially similar in
the aggregate to those provided to such
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Transferred Employees pursuant to the Employee Plans of the Company set forth in
Schedule 2.21 and will provide Unionized Employees with such benefits as shall
be required under the terms of any applicable collective agreement.
(f) Except as otherwise provided in this Section 6.7 or as
required by the terms of the collective agreement, the terms of the Transferred
Employee's employment shall be on such terms and conditions as the Purchaser, in
its sole discretion, shall determine. The Purchaser will recognize, to the
extent previously recognized by the Company, the service of the Transferred
Employees for all purposes, including eligibility to participate in any of the
Purchaser's employee plans, vesting in such plans, determination of benefits and
entitlement to notice of termination of employment or pay in lieu thereof.
(g) Except for any of the following to the extent they are
accrued liabilities on the Closing Balance Sheet, the Company will be
responsible for and shall indemnify the Purchaser for (i) any liabilities for
salary, wages, bonuses, commissions, vacation pay and other compensation payable
to or in respect of the Employees of the Company for the period immediately
preceding the Closing Date; (ii) all costs in respect of the termination of any
Employee of the Company (other than Transferred Employees) including all
severance payments, damages for wrongful dismissal and all related costs and for
greater certainty, all such costs in respect of the termination by the Company
of the employment of any Non-Unionized Employee who does not accept the
Purchaser's offer of employment; (iii) all premiums and contributions owing to
the Employee Plans relating to employment of the Employees and all benefit
claims incurred by the Employees and their dependants prior to the Closing Date.
In addition, the Company shall retain responsibility for claims under the
Employee Plans with respect to Employees who are not Transferred Employees or
who are former employees of the Company, whether such claims are incurred before
or after the Closing Date. For purposes hereof, a disability or sickness benefit
claim will be deemed to be incurred on the date of the relevant service or
supply was purchased or received.
6.8 Noncompete; Nonsolicitation.
(a) For a period of three (3) years following the Closing Date
(the "Noncompete Period"), neither the Company nor ▇▇▇▇▇▇ shall directly or
indirectly own, operate, lease, manage, control, participate in, consult with,
advise, permit his name to be used by, provide services for, or in any manner
engage in (x) any business (including by himself or in association with any
person, firm, corporate or other business organization or through any other
entity) that manufactures any product or provides any service that may be used
as a substitute for or otherwise compete with any product or service of the
Business or (y) any business in competition with, or potential competition with,
the Businesses of the Purchaser, within any geographical area in which any of
Sleepmaster and its Subsidiaries has obtained or is in the process of obtaining
a Serta license at any time during the Noncompete Period. For the avoidance of
doubt, ▇▇▇▇▇▇ acknowledges that, in addition to his obligations pursuant to this
Section 6.8, he has agreed to be bound by the provisions of Section 5 of the
▇▇▇▇▇▇ Employment Agreement.
(b) During the Noncompete Period, neither the Company nor
▇▇▇▇▇▇ shall directly or indirectly (x) induce or attempt to induce any employee
of the Purchaser to leave the employ of
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the Purchaser, or in any way interfere with the relationship between the
Purchaser and any employee thereof, including, inducing or attempting to induce
any union, employee or group of employees to interfere with the business or
operations of the Purchaser, (y) hire any person who was an employee of the
Purchaser, or (z) induce or attempt to induce any customer, supplier,
distributor, franchisee, licensee or other business relation of the Business to
cease doing business with the Purchaser, or in any way interfere with the
relationship between any such customer, supplier, distributor, franchisee,
licensee or business relation and the Purchaser, provided that the foregoing
shall not prohibit ▇▇▇▇▇▇ from hiring members of his family during the
Noncompete Period if ▇▇▇▇▇▇ is no longer employed by the Purchaser.
(c) Each of the Company and ▇▇▇▇▇▇ agrees and acknowledges
that: (i) the covenants set forth in this Section 6.8 are reasonably limited in
both time and geographical scope and in all other respects, (ii) the covenants
set forth in this Section 6.8 are reasonably necessary for the protection of the
Purchaser, (iii) the Purchaser would not have entered into this Agreement but
for the covenants of the Company and ▇▇▇▇▇▇ contained herein, and (iv) the
covenants contained herein have been made in order to induce the Purchaser to
enter into this Agreement.
(d) If, at the time of enforcement of this Section 6.8, a
court shall hold that the duration, scope or area restrictions stated herein are
unreasonable under the circumstances then existing, the Parties agree that the
maximum duration, scope or area reasonable under such circumstances shall be
substituted for the stated duration, scope or area and that the court shall be
allowed to revise the restrictions contained herein to cover the maximum period,
scope and area permitted by law.
(e) Each of the Company and ▇▇▇▇▇▇ recognizes and affirms that
in the event of his breach of any provision of this Section 6.8, money damages
would be inadequate and the Purchaser would have no adequate remedy at law.
Accordingly, the Company agrees that in the event of a breach or a threatened
breach by either of the Company or ▇▇▇▇▇▇ of any of the provisions of this
Section 6.8, the Purchaser, in addition and supplementary to other rights and
remedies existing in their favor, may apply to any court of law or equity of
competent jurisdiction for specific performance and/or injunctive or other
relief in order to enforce or prevent any violations of the provisions hereof
(without posting a bond or other security).
6.9 Further Assurances. From and after the Closing, each of
the Purchaser and the Company will, and will cause its respective Affiliates to,
execute and deliver such further instruments of sale, conveyance, transfer,
assignment, assumption and delivery and such consents, assurances, powers of
attorney and other instruments and take such other action as reasonably may be
necessary to in order to vest in the Purchaser all right, title and interest of
the Company in and to the Subject Assets and to otherwise further effectuate and
carry out the transactions contemplated by this Agreement and the Related
Documents, including the retention by the Company of the Excluded Liabilities
and the assumption by the Purchaser of the Assumed Liabilities. The Purchaser
agrees to make the appropriate post-closing notification pursuant to the
Investment Canada Act.
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ARTICLE VII
SURVIVAL; INDEMNIFICATION
7.1 Survival of Representations and Warranties. The
representations and warranties in this Agreement and the Schedules and Exhibits
attached hereto shall survive the Closing as follows:
(a) the representations and warranties in Section 2.10 (Tax
Matters) shall terminate on the sixtieth (60th) day following the expiration of
the applicable statutes of limitations (after giving effect to any extensions or
waivers thereof);
(b) the representations and warranties in Sections 2.2
(Capitalization; Title to Securities), Sections 2.3 and 3.2 (Authorization; No
Breach), Sections 2.30 and 3.4 (Brokers), Section 2.14 (Transactions with
Affiliates), Section 2.18 (Tangible Property), Section 2.25 (Title; Liens), and
Section 2.27 (Sufficiency of Subject Assets) shall terminate on the fourth
anniversary of the Closing Date;
(c) all other representations and warranties in this Agreement
and the Schedules and Exhibits attached hereto shall terminate on the second
anniversary of the Closing Date; provided, that any representation or warranty
in respect of which indemnity may be sought under Section 7.2, and the indemnity
with respect thereto, shall survive the time at which it would otherwise
terminate pursuant to this Section 7.1 if a notice setting out in reasonable
detail the inaccuracy or breach or potential inaccuracy or breach thereof giving
rise to such right or potential right of indemnity shall have been given to the
Party against whom such indemnity may be sought prior to such time.
7.2 General Indemnification.
(a) Indemnification for the Benefit of the Purchaser by each
of the Company and ▇▇▇▇▇▇. Following the Closing and subject to the provisions
of this Article VII, each of the Company and ▇▇▇▇▇▇ jointly and severally, shall
indemnify the Purchaser and its Affiliates, shareholders, partners, officers,
directors, employees, agents, representatives, successors and permitted assigns
(collectively, the "Company Indemnified Parties") and save and hold each of them
harmless against and pay on behalf of or reimburse such Company Indemnified
Parties as and when incurred for any direct or indirect loss, liability, demand,
claim, action, cause of action, cost, damage (excluding consequential damages
and damages for lost profits), deficiency, Tax, penalty, fine or expense,
whether or not arising out of third party claims (including interest, penalties,
reasonable attorneys', consultants' and experts' fees and expenses and all
amounts paid in investigation, defense or settlement of any of the foregoing)
(collectively, "Losses"), which any such Company Indemnified Party may suffer,
sustain or become subject to, as a result of, in connection with, relating or
incidental to or by virtue of: (i) any facts or circumstances which constitute a
breach of any representation or warranty of any of the Company and ▇▇▇▇▇▇ under
this Agreement, or in any of the certificates or other instruments or documents
furnished by any of the Company and ▇▇▇▇▇▇ pursuant to this Agreement; (ii) any
nonfulfillment or breach of any covenant, agreement or other provision
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by any of the Company and ▇▇▇▇▇▇ under this Agreement or (iii) any Excluded
Liabilities. If and to the extent any provision of this Section 7.2 is
unenforceable for any reason, each of the Parties hereby agrees to make the
maximum contribution to the payment and satisfaction of any Loss for which
indemnification is provided for in this Section 7.2 which would be enforceable
under applicable Law.
(b) Indemnification for the Benefit of each of the Company and
▇▇▇▇▇▇ by each of the Purchaser and Sleepmaster. Following the Closing, the
Purchaser and Sleepmaster shall indemnify the Company and ▇▇▇▇▇▇ and their
respective Affiliates, shareholders, officers, directors, employees, agents,
representatives, successors and permitted assigns (collectively, the "Purchaser
Indemnified Parties") and save and hold them harmless against any Losses which
the Purchaser Indemnified Parties may suffer, sustain or become subject to, as a
result of, in connection with, relating or incidental to or by virtue of: (i)
any facts or circumstances which constitute a breach of any representation or
warranty of the Purchaser or Sleepmaster under this Agreement, or in any of the
certificates or other instruments or documents furnished by the Purchaser or
Sleepmaster pursuant to this Agreement; (ii) any nonfulfillment or breach of any
covenant, agreement or other provision by the Purchaser and Sleepmaster under
this Agreement; or (iii) any Assumed Liabilities or Transfer Taxes.
(c) Manner of Payment.
(i) Subject to Section 7.2(f), any indemnification
obligations of each of the Company and ▇▇▇▇▇▇ pursuant to Section 7.2(a) shall
be satisfied out of the Indemnity Escrow Fund or, following the release of all
or any portion of the Indemnity Escrow Fund to the Company or ▇▇▇▇▇▇, shall be
paid by wire transfer of immediately available funds to an account designated in
writing by the applicable Company Indemnified Party within 15 days after the
determination thereof.
(ii) Any indemnification obligations of the Purchaser or
Sleepmaster pursuant to Section 7.2(b) shall be paid by wire transfer of
immediately available funds to an account designated in writing by the
applicable Purchaser Indemnified Party within 15 days after the determination
thereof.
(d) Instructions to Escrow Agent. In the event of a
determination that a payment is due to any Company Indemnified Party, the
Purchaser and the Company shall issue joint written instructions to the Escrow
Agent to distribute a portion of the Indemnity Escrow Fund equal to such
payment.
(e) Defense of Third Party Claims. Any Person making a claim
for indemnification under this Section 7.2(e) (an "Indemnitee") shall notify the
indemnifying party (an "Indemnitor") of the claim in writing promptly after
receiving written notice of any action, lawsuit, proceeding, investigation or
other claim against it (if by a third party), describing the claim, the amount
thereof (if known and quantifiable) and the basis thereof; provided, that the
failure to so notify an Indemnitor shall not relieve the Indemnitor of its
obligations hereunder unless the Indemnitor shall be actually prejudiced by such
failure to so notify. Any Indemnitor shall be entitled to participate in the
defense of such action, lawsuit, proceeding, investigation or other claim giving
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rise to an Indemnitee's claim for indemnification at such Indemnitor's expense,
and at its option (subject to the limitations set forth below) shall be entitled
to assume the defense thereof by appointing a reputable counsel reasonably
acceptable to the Indemnitee to be the lead counsel in connection with such
defense; provided, that prior to the Indemnitor assuming control of such defense
it shall first demonstrate to the Indemnitee in writing such Indemnitor's
financial ability to provide full indemnification to the Indemnitee with respect
to such action, lawsuit, proceeding, investigation or other claim giving rise to
such claim for indemnification hereunder; and provided further, that:
(i) the Indemnitee shall be entitled to participate in the
defense of such claim and to employ counsel of its choice for such purpose;
provided, that the fees and expenses of such separate counsel shall be borne by
the Indemnitee (other than any fees and expenses of such separate counsel that
are incurred prior to the date the Indemnitor effectively assumes control of
such defense which, notwithstanding the foregoing, shall be borne by the
Indemnitor);
(ii) the Indemnitor shall not be entitled to assume
control of such defense and shall pay the fees and expenses of counsel retained
by the Indemnitee if: (1) the claim for indemnification relates to or arises in
connection with any criminal proceeding, action, indictment, allegation or
investigation; (2) the Indemnitee reasonably believes an adverse determination
with respect to the action, lawsuit, investigation, proceeding or other claim
giving rise to such claim for indemnification would be severely detrimental to
or materially injurious to the Indemnitee's reputation or future business
prospects; (3) the claim seeks an injunction or equitable relief against the
Indemnitee; (4) a conflict of interest exists between the Indemnitor and the
Indemnitee (other than the mere existence of the Indemnitor's obligation to
indemnify the Indemnitee pursuant to this Section 7.2) which renders the
Indemnitor incapable of defending against any such claim or prevents the fair
representation of the Indemnitee; or (5) the Indemnitor failed or is failing to
vigorously prosecute or defend such claim;
(iii) if the Indemnitor shall control the defense of any
such claim, the Indemnitor shall obtain the prior written consent of the
Indemnitee before entering into any settlement of a claim or ceasing to defend
such claim if, pursuant to or as a result of such settlement or cessation,
injunctive or other equitable relief will be imposed against the Indemnitee or
if such settlement does not expressly and unconditionally release the Indemnitee
from all liabilities and obligations with respect to such claim, without
prejudice; and
(iv) if the claim for Indemnification relates to Taxes,
the Indemnitor's rights to control the defense of such matter shall extend only
to the specific issue for which indemnification is claimed (and not the entire
return or taxable period).
(f) Limitations on Indemnification. Notwithstanding any
provision herein to the contrary, the maximum liability of the Company and
▇▇▇▇▇▇, together, with respect to any and all Losses suffered by the Company
Indemnified Parties as a result of any facts or circumstances which constitute a
breach of any representation or warranty contained in this Agreement shall be an
aggregate amount equal to $1,000,000; provided, that each of the Company and
▇▇▇▇▇▇ will only be required to indemnify the Company Indemnified Parties for
any breaches of the representations and
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warranties described in Section 7.1(c) if such Losses in the aggregate exceed
$100,000 (the "Basket Amount") and then only to the extent such Losses exceed
the Basket Amount up to the maximum amount.
(g) Other Indemnification Provisions. The provisions of
Section 7 shall be the exclusive remedy and procedure for all claims for breach
or indemnification pursuant to this Agreement or the Schedules hereto; provided,
however that any (i) finding by a court of competent jurisdiction for common law
fraud, or (ii) suit for specific performance with respect to matters addressed
in Sections 4.7 or 6.8, shall not be subject to the limitations set forth in
this Section 7.2.
ARTICLE VIII
TERMINATION OF AGREEMENT
8.1 Termination. This Agreement may be terminated at any time
prior to the Closing:
(i) by the mutual written consent of the Parties;
(ii) by the Purchaser if the Purchaser shall have received
notice of a breach of the representations and warranties set forth in Article II
or a breach of a covenant hereunder which in either case renders the condition
in Section 5.1(a) incapable of being satisfied; or
(iii) by the Company if the Company shall have received
notice of a breach of the representations and warranties set forth in Article
III or a breach of a covenant hereunder which in either case renders the
condition in Section 5.2(a) incapable of being satisfied; or
(iv) by the Purchaser on the one hand, or the Company on
the other hand, if the transactions contemplated hereby have not been
consummated by June 30, 1999; provided, that the reason for the delay beyond
June 30, 1999 shall not have been caused by the Party initiating such
termination.
8.2 Effect of Termination. In the event of termination of this
Agreement as provided above:
(a) this Agreement shall forthwith become void and of no
further force and effect, except that the covenants and agreements set forth in
the second to last sentence of Section 4.7 and in Sections 4.1(b), 10.1, 10.5,
10.6, 10.8, 10.10, 10.11, 10.15, and 10.16 shall survive such termination
indefinitely, and except that nothing in this Section 8.2 shall be deemed to
release any Party from any liability for any breach by such Party of the terms
and provisions of this Agreement or to impair the right of any Party to compel
specific performance by another Party of its obligations under this Agreement;
and
(b) the Purchaser and the Company shall be deemed to have
issued joint written instructions to ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ instructing it to deliver
the total amount of the Deposits to
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the Company; provided, that the reason for termination shall not have been
caused by any act or failure to act of the Company, in which case the Deposits
shall be returned to the Purchaser.
ARTICLE IX
CERTAIN DEFINITIONS
9.1 Certain Definitions. As used in this Agreement, the
following terms have the following meanings unless the context otherwise
requires:
"Accounts Receivable" has the meaning specified in Section
1.1(c).
"Accounting Principles" has the meaning specified in Section
1.6(b).
"Acquisition Proposal" has the meaning specified in Section
4.7.
"Action or Proceeding" means any action, suit, proceeding or
arbitration by any Person or any investigation or audit by any Governmental or
Regulatory Body.
"Affiliate" of any Person means (i) any other Person directly
or indirectly, through one or more intermediaries, controlling, controlled by or
under common control with such first Person and includes (a) any partner,
shareholder, officer, director or employee of a particular Person, and (b) any
individual related by blood, marriage or adoption to a Person or any partner,
shareholder, officer, director or employee of a particular Person, or (ii) any
Person in which any of the foregoing owns a beneficial interest. For purposes of
this definition, the term "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting securities, by
contract or otherwise, and the terms "controlled" and "controlling" have
meanings correlative thereto.
"Agreement" means this Asset Purchase Agreement.
"Assignment and Assumption Agreement" has the meaning
specified in Section 5.1(p).
"Associate" means, with respect to any Person, any corporation
or other business organization of which such Person is an officer or partner or
is the beneficial owner, directly or indirectly, of ten percent (10%) or more of
any class of equity securities, any trust or estate in which such Person has a
substantial beneficial interest or as to which such Person serves as a trustee
or in a similar capacity and any relative or spouse of such Person, or any
relative of such spouse, who has the same home as such Person or any child or
sibling of such Person or such Person's spouse.
"Assumed Liabilities" has the meaning specified in Section
1.3.
"Base Rate" means the rate of interest announced from time to
time by Citibank N.A. at its principal office in New York, New York as its prime
commercial lending rate.
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"▇▇▇▇ of Sale" has the meaning specified in Section 5.l(p).
"Books and Records" of any Person means all files, documents,
instruments, papers, books and records relating to the business, operations,
conditions of (financial or other), results of operations and assets and
properties of such Person, including financial statements, Tax Returns and
related work papers and letters from accountants, budgets, pricing guidelines,
ledgers, journals, deeds, title policies, Corporate Records, contracts and other
agreements, customer lists, computer files and programs, retrieval programs,
operating data and plans and environmental studies and plans.
"▇▇▇▇▇▇ Employment Agreement" means the Employment Agreement
by and among the Purchaser, ▇▇▇▇▇▇, and Sleepmaster L.L.C., dated as of the date
hereof, attached as Exhibit H hereto.
"▇▇▇▇▇▇▇" means ▇▇▇▇▇▇▇ Bedding Limited.
"Business Contracts" has the meaning specified in Section
1.1(f).
"Business Day" means any day other than a Saturday, Sunday or
day on which commercial banks are authorized or required by law to close in New
York, New York or Toronto, Ontario.
"Business Licenses" has the meaning specified in Section
1.1(i).
"Cash Payment" has the meaning specified in Section 1.5(a).
"Closing" has the meaning specified in Section 1.9.
"Closing Balance Sheet" has the meaning specified in Section
1.6(b).
"Closing Date" has the meaning specified in Section 1.9.
"Company Group" has the meaning specified in Section 4.7.
"contracts and other agreements" means all executory
contracts, agreements, indentures, notes, bonds, loans, instruments, leases,
mortgages, franchises, licenses, commitments or other legally binding
arrangements.
"Corporate Records" of any Person means the corporate records
of such Person, including, without limitation, all constating documents and
by-laws, all minutes of meetings and resolutions of shareholders and directors
(and any committees), and the share certificate books, securities register,
register of transfers and register of directors.
"Deposits" has the meaning specified in Section 1.5(b).
"$ or Dollars" shall mean Canadian Dollars.
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"Employee Plans" means all the employee benefit, fringe
benefit, supplemental unemployment benefit, bonus, incentive, profit sharing,
termination, change of control, pension, retirement, stock option, stock
purchase, stock appreciation, health, welfare, medical, dental, disability, life
insurance and similar plans, programs, arrangements or practices relating to the
current or former employees, officers of directors of the Company maintained,
sponsored or funded by the Company, whether written or oral, funded or unfunded,
insured or self-insured, registered or unregistered.
"Environmental Law" means any and all applicable Laws
pertaining to the protection of land, water, air, health, safety or the
environment in force on the date hereof and on the Closing Date.
"Escrow Agreement" means the Escrow Agreement by and among the
Purchaser, the Company, and the Escrow Agent substantially in the form of
Exhibit C attached hereto.
"Excluded Assets" has the meaning specified in Section 1.2.
"Excluded Liabilities" has the meaning specified in Section
1.4.
"GAAP" means at any time, accounting principles generally
accepted in Canada as recommended in the Handbook of the Canadian Institute of
Chartered Accountants at the relevant time applied on a consistent basis.
"Governmental or Regulatory Body" means any multinational,
federal, provincial, state, municipal, local or other governmental or public
department, central bank, court, commission, board, bureau, agency or
instrumentality, domestic or foreign, or any subdivision or authority of any of
the foregoing, or any quasi-governmental or private body exercising any
regulatory, expropriation or taxing authority under or for the account of any of
the above.
"Guarantee" means any guarantee of the payment or performance
of any Indebtedness or other obligation and any other arrangement whereby credit
is extended to one obligor on the basis of any promise of such Person, whether
that promise is expressed in terms of an obligation to pay the Indebtedness of
such obligor, to provide reimbursement, or to purchase an obligation owed by
such obligor, or to purchase goods and services from such obligor pursuant to a
take-or-pay contract, or to maintain the capital, working capital, solvency or
general financial condition of such obligor, whether or not any such arrangement
is listed in the balance sheet of such Person, or referred to in a footnote
thereto, but shall not include endorsements of items for collection in the
ordinary course of business consistent with past custom and practice.
"Hazardous Material" means (A) any petroleum or petroleum
products, flammable explosives, radioactive materials, asbestos in any form that
is or could become friable, urea formaldehyde foam insulation and transformers
or other equipment that contain dielectric fluid containing levels of
polychlorinated biphenyls (PCBs); (B) any chemicals or other materials or
substances which are defined as or included in the definition of "hazardous
substances," "hazardous wastes," "hazardous materials," "extremely hazardous
wastes," "restricted hazardous wastes," "toxic
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substances," "toxic pollutants" or words of similar import under any
Environmental Law; and (C) any other chemical or other material or substance,
exposure to which is now or hereafter prohibited, limited or regulated by any
Governmental or Regulatory Body under any Environmental Law.
"Income Tax Act (Canada)" means the Income Tax Act, R.S.C.,
1985, 5th Supplement, as amended from time to time.
"Indebtedness" means at a particular time, without
duplication, (i) any obligations under any indebtedness for borrowed money
(including all principal, interest premiums, penalties, fees, expenses and
brokerage costs), (ii) any obligations for deferred compensation, (iii) any
obligations to pay the deferred purchase price of property or services (except
for accounts payable in the ordinary course of business consistent with past
custom and practice), (iv) any indebtedness evidenced by any note, bond,
debenture or other debt security, (v) any commitment by which a Person assures a
creditor against loss (including contingent reimbursement obligations with
respect to letters of credit), (vi) any indebtedness pursuant to a Guarantee,
(vii) any obligations under capitalized leases or with respect to which a Person
is liable, contingently or otherwise, as obligor, guarantor or otherwise, or
with respect to which obligations a Person assures a creditor against loss, and
(viii) any indebtedness secured by a Lien on a Person's assets, but, in each
case, excludes any liabilities included in the calculation of Closing Net
Working Capital.
"Intellectual Property" means all (i) patents, patent
applications and patent disclosures, as well as any reissues, continuations,
continuations-in-part, divisional applications, extensions or reexaminations
thereof, (ii) trademarks, service marks, trade dress, trade, business, corporate
and brand names, Internet domain names, logos and registrations and applications
for registration thereof, together with all of the goodwill associated
therewith, (iii) copyrights and copyrightable works (including any performing,
author or moral rights) and registrations and applications for registration
thereof, (iv) industrial designs, design patents and other designs and all
registrations and applications for registration thereof, (v) mask works and
registrations and applications for registration thereof, (vi) computer software,
data, data bases and documentation thereof, (vii) franchises, trade secrets and
all other confidential or proprietary information (including ideas, formulas,
compositions, inventions (whether patentable or unpatentable and whether or not
reduced to practice), know-how, manufacturing and production processes and
techniques, research and development information, drawings, specifications,
designs, plans, proposals, technical data, financial and marketing plans and
customer and supplier lists and information) and (viii) all other intellectual
and industrial property.
"Inventory" has the meaning specified in Section 1.1(b).
"knowledge" of the Company means the actual knowledge of ▇▇▇▇▇
▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇▇.
"Latest Balance Sheet" has the meaning as set forth in Section
2.7(a).
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"Law" means any and all applicable laws including all
statutes, codes, ordinances, municipal by-laws, judicial or arbitral or
administrative or ministerial or departmental or regulatory judgments, orders,
decisions, rulings, awards, decrees, rules, regulations, or other
pronouncements, policies or guidelines and general principles of common and
civil law and equity having the force and effect of law of Canada, any relevant
foreign country or any domestic or relevant foreign state, country, city or
other political subdivision or of any applicable Governmental or Regulatory
Body.
"Lien" or "Liens" means any mortgage, pledge, hypothecation,
security interest, encumbrance, assignment, encroachment, claim, lease, right of
possession, other defect in title or lien, statutory or otherwise, or charge of
any kind (including any conditional sale or other title retention agreement or
lease in the nature thereof in respect of the Subject Assets or the Business),
any sale of receivables with recourse against the Company, any filing or
agreement to file a financing statement as debtor under the Personal Property
Security Act (Ontario) or any similar statute (other than to reflect ownership
by a third party of property leased to the Company under a lease which is not in
the nature of a conditional sale or title retention agreement), or any
subordination arrangement in favor of another Person.
"Losses" has the meaning specified in Section 7.2.
"Material Adverse Effect" means, in the case of any Person,
any change or changes or effect or effects that individually or in the aggregate
are materially adverse to (i) the business, assets, properties, operations,
income, prospects, condition (financial or otherwise) or customer, employee,
distributor or supplier relations of such Person or the transactions
contemplated by this Agreement or (ii) the ability of such Person to perform its
obligations under this Agreement.
"Material Contracts" has the meaning specified in Section
2.12(b).
"Net Sales" means the Company's sales less returns.
"Net Working Capital" means the excess of the current assets
(other than cash and cash equivalents) of the Company as of the close of
business on the date of determination over the consolidated current liabilities
of the Company as of the close of business on the date of determination
determined in accordance with GAAP on a basis consistent with the Company's
consolidated audited financial statements as of December 31, 1998, except as
adjusted below. Current assets will include (a) net accounts receivable; (b)
inventories of raw materials, work in progress, finished goods and goods for
resale; (c) prepaid assets (including point of purchase materials under the
current advertising campaign and including deposits, to the extent
transferable), except prepaid income taxes and deferred tax assets; and (d)
other current assets. Current liabilities will include (i) trade accounts
payable, (ii) accrued employee bonuses, payroll, benefit plan liabilities and
vacation pay, (iii) accrued liabilities in the ordinary course of business
consistent with past custom and practice, including, without limitation,
accruals for customer allowances for rebates and advertising and customer
deposits. Cash and cash equivalents, prepaid income taxes, deferred income Tax
assets and liabilities, income Tax liabilities, Excluded Assets and Excluded
Liabilities shall be excluded from the calculation of Net Working Capital.
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"Order" means any order, writ, judgment, decree, injunction or
similar order of any Canadian or United States Governmental or Regulatory Body,
as applicable, in each case whether preliminary or final.
"Permits" has the meaning specified in Section 2.24.
"Permitted Liens" means (i) Liens for Taxes or assessments and
similar charges, which are not delinquent, (ii) mechanics', materialmen's or
contractors' Liens or encumbrances or any similar statutory Lien or restriction;
provided, that such Liens are related to obligations not due or delinquent, are
not registered against title to any Subject Assets and in respect of which
adequate hold backs are being maintained as required by applicable Law for
amounts not yet due and payable, (iii) zoning, building and other land use
regulations imposed by governmental agencies having jurisdiction over the Leased
Real Property which are not violated by the current occupation, use and
operation of the Leased Real Property, and (iv) covenants, conditions,
restrictions, easements and other similar matters currently of record affecting
title to the Leased Real Property which do not materially impair the occupancy
or use, value or marketability of the parcel of Leased Real Property which they
encumber for the purposes for which it is currently used in connection with the
Business of the Company.
"Person" means any individual, corporation, partnership, firm,
limited liability company, joint venture, association, joint-stock company,
trust, unincorporated organization, Governmental or Regulatory Body or other
entity.
"Personal Property Leases" has the meaning specified in
Section 1.1(e).
"Premises" has the meaning specified in Section 1.1.
"Real Property Lease" has the meaning specified in Section
1.1(a).
"Related Documents" means all documents and instruments to be
executed by the Company in connection herewith, including the Subordinated
Promissory Note, the ▇▇▇▇▇▇ Employment Agreement, the Escrow Agreement, the ▇▇▇▇
of Sale and the Assignment and Assumption Agreement.
"Release" means any seeping, spilling, leaking, pumping,
pouring, migrating, emitting, discharging, injecting, escaping, leaching,
dumping, disposing, or the releasing of Hazardous Materials into the environment
or migrating to or from the Leased Real Property.
"Senior Sub Notes" means the Senior Subordinated Notes of
Sleepmaster, L.L.C. to be purchased by qualified institutional buyers through
▇▇▇▇▇▇▇ ▇▇▇▇▇.
"Subordinated Note" has the meaning specified in Section
1.5(a).
"Tangible Property" has the meaning specified in Section 2.18.
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"Target Net Working Capital" means $1.25 million.
"Tax Return" means any return, report, information return,
election, designation or other document (including any related or supporting
information) filed or required to be filed with any federal, state, provincial,
local, or foreign governmental entity or other authority in connection with the
determination, assessment or collection of any Tax or the administration of any
laws, regulations or administrative requirements relating to any Tax.
"Tax" and "Taxes" means all taxes, charges, fees, levies or
other assessments imposed by any federal, state, provincial, local or foreign
taxing authority, whether disputed or not, including income, capital, estimated,
excise, goods and services, business, property, sales, transfer, value added,
withholding, employment, payroll, and franchise taxes and such terms shall
include any interest, penalties or additions attributable to or imposed on or
with respect to such assessments.
"Third Party Acquisition" has the meaning specified in Section
4.7.
"Transfer Taxes" has the meaning specified in Section 6.3.
"Unionized Employees" has the meaning specified in Section 6.7
ARTICLE X
MISCELLANEOUS
10.1 Fees and Expenses. Except as otherwise set forth herein,
each Party will be responsible for all of its own costs and expenses incurred in
connection with the negotiation, preparation and entry into this Agreement and
the consummation of the transactions contemplated hereby.
10.2 Remedies. Any Party having any rights under any provision
of this Agreement shall be entitled to enforce such rights specifically (without
posting a bond or other security), to recover damages by reason of any breach of
any provision of this Agreement and to exercise all other rights granted by Law
in accordance with the terms and conditions of this Agreement. All such rights
and remedies shall be cumulative and non-exclusive, and may be exercised
singularly or concurrently. One or more successive actions may be brought
against a Party, either in the same action or in separate actions, as often as a
Party deems advisable, until all of the obligations to such Party are paid and
performed in full in accordance with the terms and conditions of this Agreement.
10.3 Consent to Amendments; Waivers. This Agreement may be
amended, or any provision of this Agreement may be waived upon the approval, in
a writing, executed by the Parties. No course of dealing between or among the
Parties shall be deemed effective to modify, amend or discharge any part of this
Agreement or any rights or obligations of any such Party or such holder under or
by reason of this Agreement.
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10.4 Successors and Assigns.
(a) This Agreement and all covenants and agreements contained
herein and rights, interests or obligations hereunder, by or on behalf of any of
the Parties hereto, shall bind and inure to the benefit of the respective
successors and permitted assigns of the Parties hereto whether so expressed or
not, except that neither this Agreement nor any of the covenants and agreements
herein or rights, interests or obligations hereunder may be assigned or
delegated by the Company prior to the Closing, without the prior written consent
of the Purchaser and except as otherwise provided by Section 10.4(b) below,
neither this Agreement nor any of the covenants and agreements herein or rights,
interests or obligations hereunder may be assigned or delegated by the Purchaser
or Sleepmaster without the prior written consent of the Company.
(b) The Purchaser may assign this Agreement and its rights and
obligations hereunder to an Affiliate of Sleepmaster and to its lenders for
collateral assignment purposes; provided, that no such assignment shall relieve
the Purchaser or Sleepmaster from its obligations hereunder. Following the
Closing Date, each of the Purchaser and Sleepmaster may assign this Agreement
and its rights and obligations hereunder in connection with a merger or
consolidation involving the Purchaser or in connection with a sale of all or
substantially all of the stock or assets of the Purchaser; provided, that no
such assignment shall relieve the Purchaser or Sleepmaster from its obligations
hereunder.
10.5 Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable Law, but if any provision of this Agreement or the application of any
such provision to any Person or circumstance shall be held to be prohibited by,
illegal or unenforceable under applicable Law or rule in any respect by a court
of competent jurisdiction, such provision shall be ineffective only to the
extent of such prohibition, illegality or unenforceability, without invalidating
the remainder of such provision or the remaining provisions of this Agreement.
10.6 Counterparts. This Agreement may be executed in
counterparts (including by means of telecopied signature pages), any one of
which need not contain the signatures of more than one Party, but all such
counterparts taken together shall constitute one and the same agreement.
10.7 Descriptive Headings; Interpretation. The headings and
captions used in this Agreement and the table of contents to this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Any capitalized terms used in any Schedule or
Exhibit attached hereto and not otherwise defined therein shall have the
meanings set forth in this Agreement. The use of the word "including" herein
shall mean "including without limitation."
10.8 Entire Agreement. This Agreement and the Related
Documents contain the entire agreement and understanding among the Parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings, whether written or oral, relating to such subject matter in any
way, including the letter of agreement dated January 8, 1999 by and among the
Company and the Purchaser.
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10.9 No Third-Party Beneficiaries. Except as provided in
Sections 7.2(a) and 7.2(b), this Agreement is for the sole benefit of the
Parties and their permitted successors and assigns and nothing herein expressed
or implied shall give or be construed to give any Person, other than the Parties
and such permitted successors and assigns, any legal or equitable rights
hereunder. The Company is and shall be deemed to be acting as agent or trustee
on behalf of and for the benefit of each of the Purchaser Indemnified Parties
and the Purchaser is and shall be deemed to be acting as agent or trustee on
behalf of and for the benefit of each of the Company Indemnified Parties.
10.10 Schedules and Exhibits. All Schedules and Exhibits
attached hereto or referred to herein are hereby incorporated in and made a part
of this Agreement as if set forth in full herein.
10.11 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE PROVINCE OF ONTARIO AND THE
FEDERAL LAWS OF CANADA APPLICABLE THEREIN.
10.12 Notices. All notices, demands or other communications to
be given or delivered under or by reason of the provisions of this Agreement
shall be in writing and shall be deemed to have been given when delivered
personally to the recipient or when sent by facsimile followed by delivery by
reputable overnight courier service, one day after being sent to the recipient
by reputable overnight courier service (charges prepaid) or five days after
being mailed to the recipient by certified or registered mail, return receipt
requested and postage prepaid. Such notices, demands and other communications
shall be sent to the Parties at the addresses indicated below or to such other
address or to the attention of such other person as the recipient Party has
specified by prior written notice to the sending Party. All notices, demands and
other communications hereunder may be given by any other means (including
telecopy or electronic mail), but shall not be deemed to have been duly given
unless and until it is actually received by the intended recipient.
The Company:
Star Bedding Products (1986) Limited
▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇ ▇▇▇▇▇▇
Attention: ▇▇. ▇▇▇▇▇ ▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
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with copies to:
(which shall not constitute notice to the Company)
▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
The Purchaser:
Sleepmaster L.L.C.
c/o Serta Mattress Company
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
(which shall not constitute notice to the Purchaser)
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
10.13 Jurisdiction and Venue. Each of the Parties irrevocably
attorn and submit to the non-exclusive jurisdiction of the Ontario Court
(General Division).
10.14 WAIVER OF RIGHT TO JURY TRIAL. THE COMPANY AND THE
PURCHASER HEREBY WAIVE, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TRIAL BY JURY
IN ANY LITIGATION IN ANY COURT WITH RESPECT TO, IN CONNECTION WITH, OR ARISING
OUT OF THIS AGREEMENT, ANY OTHER AGREEMENT CONTEMPLATED HEREBY OR THEREBY OR THE
VALIDITY, PROTECTION, INTERPRETATION, COLLECTION OR ENFORCEMENT THEREOF.
10.15 No Strict Construction. The Parties have participated
jointly in the negotiation and drafting of this Agreement. In the event an
ambiguity or question of intent or interpretation arises, this Agreement shall
be construed as if drafted jointly by the Parties, and no presumption or burden
of proof shall arise favoring or disfavoring any Party by virtue of the
authorship of any of the provisions of this Agreement.
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10.16 Dispute Resolution.
(a) Arbitration. In the event of disputes between the Parties
with respect to the terms and conditions of this Agreement (other than disputes
with respect to Section 1.6), such disputes may be resolved by and through an
arbitration proceeding to be conducted under the auspices of the International
Commercial Arbitration Act and subject to the UNCITRAL Arbitration Rules thereof
(or any like organization successor thereto). Such arbitration proceeding shall
be conducted in as expedited a manner as is practical, and the arbitrator or
arbitrators in any such arbitration (an "Arbitration") shall be persons who are
expert in the subject of the dispute in the context of mergers and acquisitions.
Both the foregoing agreement of the Parties to arbitrate any and all such
claims, and the results, determination, finding, judgment and/or award rendered
through such Arbitration, shall be final and binding on the Parties hereto and
may be specifically enforced by legal proceedings. The Parties agree and
acknowledge that money damages may not be an adequate remedy for any breach of
the provisions of this Agreement and that any Party may, in its sole discretion,
ask for specific performance and/or injunctive relief in order to enforce or
prevent any violations of the provisions of this Agreement.
(b) Procedure. The Arbitration shall be conducted before a
panel of arbitrators selected in accordance with the UNCITRAL Arbitration Rules.
Each Party shall bear separately the cost of their respective attorneys,
witnesses and experts in connection with such arbitration. Time is of the
essence of this arbitration procedure, and the arbitrators shall be instructed
and required to render their decision within ten (10) days following completion
of the Arbitration.
* * * * *
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IN WITNESS WHEREOF, the Parties hereto have executed this
Asset Purchase Agreement on the date first written above.
STAR BEDDING PRODUCTS (1986) LIMITED
By:_________________________________
Name:
Title:
____________________________________
▇▇▇▇▇ ▇▇▇▇▇▇
STAR BEDDING PRODUCTS LIMITED
By:_________________________________
Name:
Title:
SLEEPMASTER L.L.C.
By:_________________________________
Name:
Title:
62
EXHIBIT A
Exceptions to GAAP
No provision is made for warranties or returns.
The Parties agree that the allowance for doubtful accounts on the Closing
Balance Sheet shall be $50,000.
Because of the Company's stated vacation policy for non-unionized employees of
"use it or lose it," no vacation accrual has historically been required at the
Company's year end, December 31, and the Company has historically not recorded
any accrual during any interim period. In accordance with GAAP, the Closing
Balance Sheet shall include an accrual for vacation pay.
A - 1
63
EXHIBIT B
Subordinated Note
B - 1
64
EXHIBIT C
Escrow Agreement
C - 1
65
EXHIBIT D
Opinion of the Company's Counsel
D - 1
66
EXHIBIT E
Assignment and Assumption Agreement
E - 1
67
EXHIBIT F
▇▇▇▇ of Sale
F - 1
68
EXHIBIT G
Opinions of Counsel to the Purchaser
G - 1
69
May 18, 1999
First Union National Bank, as Agent
for the Lenders
and
The Lenders which are parties to the
Credit Agreement
Re: $25,000,000 Credit Agreement dated as of the date hereof (the
"Credit Agreement") among Sleepmaster L.L.C. (the "Borrower"),
Sleepmaster Holdings L.L.C. (the "Parent") and certain
subsidiaries of the Borrower identified therein as guarantors
(together with the Parent, the "Guarantors"), the lenders
identified therein (the "Lenders") and First Union National
Bank, as Lender and as Administrative Agent for the Lenders
(the "Agent").
Ladies and Gentlemen:
We have acted as counsel to the Borrower and the Guarantors in
connection with the execution and delivery by each of them of the Credit
Agreement and the other Loan Documents (as defined below), as applicable.
This opinion is given in accordance with the requirements of
Section 4.1(c) of the Credit Agreement. Capitalized terms used but not otherwise
defined herein shall have the meanings provided in the Credit Agreement. The
Borrower and the Guarantors are collectively referred to herein as the "Company
Parties" and each individually as a "Company Party".
In addition to the Credit Agreement, we have reviewed (a) the
Revolving Note dated the date hereof issued by the Borrower to the Agent (the
"Revolving Note"), (b) the Security Agreement among the Agent, the Borrower and
the Guarantors of even date herewith (the "Security Agreement"), (c) the Pledge
Agreement among the Agent, the Borrower and the Guarantors of even date herewith
(the "Pledge Agreement"), (d) the Mortgage Instruments of even date herewith
(the "Mortgages"). The Credit Agreement, the Revolving Note, the Security
Agreement, the Pledge Agreement and the Mortgages, are referred to herein
collectively as the "Loan Documents."
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First Union National Bank
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Page 2
We have also examined originals or copies of the Certificate
of Formation and the limited liability company agreement of each of the
Borrower, the Parent and Lower Road Associates, LLC (collectively, the "LLC
Agreements"), and the Certificates or Articles of Incorporation and ByLaws of
each of PBBC, ▇▇▇▇ Manufacturing Company and Sleepmaster Finance Corporation
(collectively, the "Charter Documents").
Subject to the assumptions, qualifications, exclusions and
other limitations which are identified in this opinion letter and in the
schedules attached to this opinion letter, it is our opinion that:
1. Borrower is a limited liability company active and in good standing
under the Limited Liability Company Act of the State of New Jersey. For
purposes of the foregoing opinion in this paragraph, we have relied
exclusively upon the certificates issued by the governmental
authorities in the State of New Jersey, and such opinion is not
intended to provide any conclusion or assurance beyond that conveyed by
such certificates.
2. Parent is a limited liability company active and in good standing under
the Limited Liability Company Act of the State of New Jersey. For
purposes of the foregoing opinion in this paragraph, we have relied
exclusively upon the certificates issued by the governmental
authorities in the State of New Jersey, and such opinion is not
intended to provide any conclusion or assurance beyond that conveyed by
such certificates.
3. Lower Road Associates, L.L.C. ("LRA") is a limited liability company
active and in good standing under the Limited Liability Company Act of
the State of New Jersey. For purposes of the foregoing opinion in this
paragraph, we have relied exclusively upon the certificates issued by
the governmental authorities in the State of New Jersey, and such
opinion is not intended to provide any conclusion or assurance beyond
that conveyed by such certificates.
4. PBBC is a corporation existing, and in good standing under the General
Corporation Act of the State of Florida. For purposes of the foregoing
opinion in this paragraph, we have relied exclusively upon the
certificates issued by the governmental authorities in the State of
Florida and such opinion is not intended to provide any conclusion or
assurance beyond that conveyed by such certificates.
5. ▇▇▇▇ Manufacturing Company ("▇▇▇▇") is a subsisting association under
the Pennsylvania Corporation Law of the Commonwealth of Pennsylvania.
For purposes of the foregoing opinion in this paragraph, we have relied
conclusively upon the certificates issued by the governmental
authorities in the Commonwealth of Pennsylvania, and such opinion is
not intended to provide any conclusion or assurance beyond that
conveyed by such certificates.
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First Union National Bank
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Page 3
6. Sleepmaster Finance Corporation ("Sleepmaster Finance") is a
corporation existing and in good standing under the General Corporation
Law of the State of Delaware. For purposes of the foregoing opinion in
this paragraph, we have relied conclusively upon the certificates
issued by the governmental authorities in the State of Delaware, and
such opinion is not intended to provide any conclusion or assurance
beyond that conveyed by such certificates.
7. Each Company Party has the corporate or limited liability company power
(as the case may be) to execute and deliver the Loan Documents to which
it is party, to borrow money under the Credit Agreement (in the case of
Borrower), to pledge and grant or convey security interests in and
liens upon its assets as collateral as required under the Loan
Documents to which it is a party, and to perform its obligations under
the Loan Documents to which it is party.
8. The Board of Advisors of Borrower has authorized Borrower's execution
and delivery of the Loan Documents to which it is a party and
performance of the Loan Documents to which it is a party. The Managing
Member of Parent has authorized Parent's execution and delivery of the
Loan Documents to which it is a party and performance of the Loan
Documents to which it is a party. The Board of Advisors of LRA has
authorized LRA's execution and delivery of the Loan Documents to which
it is a party and performance of the Loan Documents to which it is a
party. The Board of Directors of each of PBBC, ▇▇▇▇ and Sleepmaster
Finance has adopted by requisite vote the resolutions necessary to
authorize such Company Party's execution and delivery of the Loan
Documents to which it is a party and the performance of the Loan
Documents to which it is a party.
9. Each Loan Document (other than the Mortgages) to which any Company
Party is a party has been duly executed and delivered by an authorized
officer of such Company Party.
10. Each of the Loan Documents (other than the Mortgages) is a valid and
binding obligation of each Company Party that is a party thereto and is
enforceable against such Company Party in accordance with its terms.
11. The execution and delivery, to occur on or prior to the date hereof, by
each of the Company Parties of the Loan Documents to which it is a
party and the consummation of the transactions contemplated thereby in
accordance with their respective terms will not (a) based upon existing
facts of which we are aware, constitute a violation by such Company
Party of any applicable provision of any Law or (b) constitute a
violation of any agreement listed on the Schedule of Specified
Agreements attached hereto (the "Specified Agreements") (except that we
express no opinion with respect to violations under cross-default or
cross-acceleration provisions referring to or based upon agreements
that are not included in the Specified Agreements or with respect to
compliance with financial covenants or tests). The term "Laws" means
laws not excluded from the coverage of this opinion. The execution and
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First Union National Bank
May 18, 1999
Page 4
delivery by each of the Company Parties of the Loan Documents to which
it is a party and the consummation of the transactions contemplated
thereby to occur on or prior to the date hereof in accordance with
their respective terms will not constitute a violation of the LLC
Agreement or Charter Documents of such Company Party.
12. Each of the Pledge Agreement and the Security Agreement creates valid
security interests in your favor in the Collateral therein respectively
described which constitutes property in which a security interest can
be granted under Article 9 of the Uniform Commercial Code as enacted in
the State of New York (the "New York UCC"). Such Collateral is referred
to herein as the "Code Collateral."
13. The Uniform Commercial Code financing statements (Form UCC-1) which
have been signed by representatives of each of the respective Company
Parties in connection with the transactions specified in the Loan
Documents (the "Financing Statements") have been duly executed and
delivered by each of the respective Company Parties.
14. Under Section 9-103 of the New York UCC, the perfection and effect of
perfection of your security interests in the Code Collateral will be
governed by laws other than those of the State of New York. Although we
express no opinion as to such laws, we have reviewed the Commerce
Clearing House, Inc. Secured Transactions Guide as supplemented through
May 18, 1999 (the "Guide") and, based solely on such review, it appears
that when the appropriate financing statements executed by the
respective Company Party are duly filed or recorded, as appropriate, in
the filing offices in the states set forth on Annex I attached hereto
under the name of the respective Company Party set forth thereon, the
security interests of the Agent under the Security Agreement in such
remaining Code Collateral owned by such Company Party described therein
presently located or deemed located in such state set forth on Annex
III, will be perfected to the extent such security interests can be
perfected by the filing of financing statements in such other states.
15. Assuming (in addition to all other assumptions upon which this letter
is based) that you have taken and are retaining possession in the State
of New York of the certificates representing the securities (within the
meaning of Section 8-102(a)(15) of the New York UCC) identified on
Annex I hereto and which are certificated and pledged pursuant to the
Pledge Agreement (the "Pledged Securities"), duly endorsed to you or in
blank by an effective endorsement (within the meaning of Section
8-102(a)(11) of the New York UCC), your security interest in such
Pledged Securities (the creation of which is addressed in paragraph 12
above) is perfected by "control" under the New York UCC; and assuming
further (in addition to all other assumptions upon which this letter is
based) that you have taken possession of such Pledged Securities and
such accompanying endorsements without notice (actual or constructive),
at or prior to the time of delivery of such Pledged Securities and
endorsements to you, of any adverse claim within the meaning of Section
8-102(a)(1) of the New York
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First Union National Bank
May 18, 1999
Page 5
UCC, you have acquired your security interest in such Pledged
Securities, free of any such adverse claims.
16. No consent, approval, authorization or order of any United States
Federal or State of New York governmental authority (except for actions
and filings required in connection with the conduct in the ordinary
course by any Company Party of its respective businesses or the
ownership or operation by any Company Party of its respective assets,
actions and filings required under any of the laws, regulations or
governmental requirements set forth on Schedule C hereto (as to which
matters we express no opinion), actions and filings required to release
existing liens and to perfect security interests in your favor and any
actions or filings that may be required by any banking, insurance or
other regulatory statute to which you may be subject (as to which
matters we express no opinion except as expressly set forth in
paragraphs 14 and 15 above)), is presently required by any Law to be
obtained by any Company Party to obtain the right to enter into any of
the Loan Documents or is otherwise required to take any of the actions
to be taken by the Company Parties (i) today in connection with the
consummation by any Company Party of the lending transactions
contemplated by the Loan Documents to occur on the date hereof (except
those which have been obtained on or prior to the date hereof) and (ii)
to borrow, repay and secure the loans contemplated under the Loan
Documents (except those which have been obtained on or prior to the
date hereof).
17. No Company Party is an "investment company" or a company "controlled"
by an "investment company" within the meaning of the Investment Company
Act of 1940, as amended.
18. The consummation on the date hereof of the making and borrowing of
Loans as provided under the Loan Documents will not violate or result
in a violation of Regulation T, U or X of the Board of Governors of the
Federal Reserve System.
19. We do not have actual knowledge that any provision in any Court Order
would be breached or otherwise violated by any Company Party's
execution or delivery of the Loan Documents or by any Company Party's
performance of any of its agreements in the Loan Documents to which it
is a party. For purposes of this letter, the term "Court Order" means a
court or administrative order, writ, judgment or decree that names any
of the Company Parties and is specifically directed to any of the
Company Parties or its property. For purposes of this letter, our
Designated Transaction Lawyers (as defined below) have not undertaken
any investigation to identify Court Orders to which any Company Party
may be subject.
20. To our actual knowledge, no litigation which on the date of this letter
is pending against the Company Parties with a court seeks to enjoin or
obtain damages by reason of the Company Parties' execution or delivery
of any of the Loan Documents or the performance by any of
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First Union National Bank
May 18, 1999
Page 6
the Company Parties of any of its agreements in the Loan Documents. For
purposes of this letter, our Designated Transaction Lawyers have not
undertaken any investigation to identify any litigation which is
pending or threatened against the Company Parties.
While we have not conducted any independent investigation to
determine facts upon which our opinions are based or to obtain information about
which this opinion letter advises you, we confirm that we do not have any actual
knowledge which has caused us to conclude that our reliance and assumptions
cited in the preceding paragraph are unwarranted or that any information
supplied in this opinion letter is wrong. The term "actual knowledge" whenever
it is used in this opinion letter with respect to our firm means conscious
awareness at the time this opinion letter is delivered on the date it bears by
the following ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇ lawyers who have had significant involvement with
negotiation or preparation of the Credit Agreement (herein called "our
Designated Transaction Lawyers"): ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇.
Each opinion in this opinion letter is subject to the General
Qualifications that are recited in Schedule A to this opinion letter to the
extent relevant to such opinion. In preparing this opinion letter we have relied
without any independent verification upon the assumptions recited in Schedule B
to this opinion letter and upon: (i) information contained in certificates
obtained from governmental authorities; (ii) factual information represented to
be true in the Credit Agreement and the other Loan Documents; (iii) factual
information provided to us by the Company Parties including without limitation,
the information set forth in a Support Certificate provided to us by the Company
Parties in connection with this opinion letter; and (iv) factual information we
have obtained from such other sources as we have deemed reasonable. We have
assumed without investigation that there has been no relevant change or
development between the dates as of which the information cited in the preceding
sentence was given and the date of this opinion letter and that the information
upon which we have relied is accurate and does not omit disclosures necessary to
prevent such information from being misleading.
Our advice on every legal issue addressed in this opinion
letter is based exclusively on such federal law of the United States and such
law of the State of New York which is in our experience normally applicable to
general business corporations, partnerships and limited liability companies not
engaged in regulated business activities and to transactions of the type
contemplated in the Loan Documents between the Company Parties, on the one hand,
and you on the other hand (but without our having made any special investigation
as to any other laws), except that we express no opinion or advice as to any law
(i) the violation of which would not have any material adverse effect on the
Company Parties, (ii) which might be violated by any misrepresentation or
omission or a fraudulent act, (iii) to which any Company Party may be subject as
a result of your legal or regulatory status, your sale or transfer of the Loans
or interests therein or your (as opposed to any other lender's) involvement in
the transactions contemplated by the Loan Documents, or (iv) identified on
Schedule C, and except that (x) the opinions in paragraphs 1 - 6 are based as
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First Union National Bank
May 18, 1999
Page 7
applicable exclusively on the Limited Liability Company Act of the State of New
Jersey, the General Corporation Act of the State of Florida, the Pennsylvania
Corporation Law of the Commonwealth of Pennsylvania, the General Corporation Law
of the State of Delaware, (y) the opinion in paragraph 14 is based exclusively
on our review of the Guide to the extent provided therein, and (z) the opinions
in paragraphs 1 - 6 are based solely on the certificates referenced in such
paragraphs. We advise you that some issues addressed by this opinion letter may
be governed in whole or in part by other laws, but we express no opinion as to
whether any relevant difference exists between the laws upon which our opinions
are based and any other laws which may actually govern. Our opinions are subject
to all qualifications in Schedule A and do not cover or otherwise address any
law or legal issue which is identified in the attached Schedule C or any
provision in the Credit Agreement or any of the other Loan Documents of any type
identified in Schedule D. Provisions in the Loan Documents which are not
excluded by Schedule D or any other part of this opinion letter or its
attachments are called the "Relevant Agreement Terms."
Our advice on each legal issue addressed in this letter
represents our opinion as to how that issue would be resolved were it to be
considered by the highest court of the jurisdiction upon whose law our opinion
on that issue is based. The manner in which any particular issue would be
treated in any actual court case would depend in part on facts and circumstances
particular to the case, and this letter is not intended to guarantee the outcome
of any legal dispute which may arise in the future. It is possible that some
Relevant Agreement Terms may not prove enforceable for reasons other than those
cited in this letter should an actual enforcement action be brought, but
(subject to all the exceptions, qualifications, exclusions and other limitations
contained in this letter) such unenforceability would not in our opinion prevent
you from realizing the principal benefits purported to be provided by such
Relevant Agreement Terms.
This opinion letter speaks as of the time of its delivery on
the date it bears. We do not assume any obligation to provide you with any
subsequent opinion or advice by reason of any fact about which our Designated
Transaction Lawyers did not have actual knowledge at that time, by reason of any
change subsequent to that time in any law covered by any of our opinions, or for
any other reason. The attached schedules are an integral part of this opinion
letter, and any term defined in this opinion letter or any schedule has that
defined meaning wherever it is used in this opinion letter or in any schedule to
this opinion letter.
The Agent and the Lenders may rely upon this letter only for
the purpose served by the provision in the Credit Agreement cited in the initial
paragraph of this opinion letter in response to which it has been delivered.
Without our written consent: (i) no person other than the Agent and the Lenders
(and their permitted assignees under the Credit Agreement) may rely on this
opinion letter for any purpose; (ii) this opinion letter may not be cited or
quoted in any financial statement, prospectus, private placement memorandum or
other similar document; (iii) this opinion letter may not be cited or quoted in
any other document or communication which might encourage reliance
76
First Union National Bank
May 18, 1999
Page 8
upon this opinion letter by any person or for any purpose excluded by the
restrictions in this paragraph; and (iv) copies of this opinion letter may not
be furnished to anyone for purposes of encouraging such reliance.
Sincerely,
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇
77
SCHEDULE A
GENERAL QUALIFICATIONS
All of our opinions ("our opinions") in the opinion letter to
which this Schedule A is attached ("our letter") are subject to each of the
following qualifications:
1. Bankruptcy and Insolvency Exception. Each of our opinions in our letter
is subject to the effect of bankruptcy, insolvency, reorganization,
receivership, moratorium and other similar laws. This exception
includes:
a. the Federal Bankruptcy Code and thus comprehends, among
others, matters of turnover, automatic stay, avoiding powers,
fraudulent transfer, preference, discharge, conversion of a
non-recourse obligation into a recourse claim, limitations on
ipso facto and anti-assignment clauses and the coverage of
pre-petition security agreements applicable to property
acquired after a petition is filed;
b. all other Federal and state bankruptcy, insolvency,
reorganization, receivership, moratorium, arrangement and
assignment for the benefit of creditors laws that affect the
rights of creditors generally or that have reference to or
affect only creditors of specific types of debtors;
c. state fraudulent transfer and conveyance laws; and
d. judicially developed doctrines in this area, such as
substantive consolidation of entities and equitable
subordination.
2. Equitable Principles Limitation. Each of our opinions is subject to the
effect of general principles of equity, whether applied by a court of
law or equity. This limitation includes principles:
a. governing the availability of specific performance, injunctive
relief or other equitable remedies, which generally place the
award of such remedies, subject to certain guidelines, in the
discretion of the court to which application for such relief
is made;
b. affording equitable defenses (e.g., waiver, laches and
estoppel) against a party seeking enforcement;
c. requiring good faith and fair dealing in the performance and
enforcement of a contract by the party seeking its
enforcement;
d. requiring reasonableness in the performance and enforcement of
an agreement by the party seeking enforcement of the contract;
e. requiring consideration of the materiality of (i) a breach and
(ii) the consequences of the breach to the party seeking
enforcement;
A-1
78
f. requiring consideration of the impracticability or
impossibility of performance at the time of attempted
enforcement; and
g. affording defenses based upon the unconscionability of the
enforcing party's conduct after the parties have entered into
the contract.
3. Other Common Qualifications. Each of our opinions is subject to the
effect of rules of law that:
a. limit or affect the enforcement of provisions of a contract
that purport to waive, or to require waiver of, the
obligations of good faith, fair dealing, diligence and
reasonableness;
b. provide that forum selection clauses in contracts are not
necessarily binding on the court(s) in the forum selected;
c. limit the availability of a remedy under certain circumstances
where another remedy has been elected;
d. provide a time limitation after which a remedy may not be
enforced;
e. limit the right of a creditor to use force or cause a breach
of the peace in enforcing rights;
f. relate to the sale or disposition of collateral or the
requirements of a commercially reasonable sale;
g. limit the enforceabilty of provisions releasing, exculpating
or exempting a party from, or requiring indemnification of a
party for, liability for its own action or inaction, to the
extent the action or inaction involves negligence,
recklessness, willful misconduct, unlawful conduct, violation
of public policy or litigation against another party
determined adversely to such party;
h. may, where less than all of a contract may be unenforceable,
limit the enforceabilty of the balance of the contract to
circumstances in which the unenforceable portion is not an
essential part of the agreed exchange;
i. govern and afford judicial discretion regarding the
determination of damages and entitlement to attorneys' fees
and other costs;
j. may permit a party that has materially failed to render or
offer performance required by the contract to cure that
failure unless (i) permitting a cure would unreasonably hinder
the aggrieved party from making substitute arrangements for
performance, or (ii) it was important in the circumstances to
the aggrieved party that performance occur by the date stated
in the contract;
k. may render guarantees or similar instruments or agreements
unenforceable under circumstances where your actions, failures
to act or waivers, amendments or
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79
or replacement of the Loan Documents so radically change the
essential nature of the terms and conditions of the guaranteed
obligations and the related transactions that, in effect, a
new relationship has arisen between you and any Company Party
or the person issuing such guarantee or similar promise which
is substantially and materially different from that presently
contemplated by the Loan Documents; and/or
l. we express no opinion with respect to the adequacy of waivers
set forth in any guaranty insofar as they might not be broad
enough for all situations which might arise for which you
would find a waiver desirable, and we express no opinion as to
whether the guaranty would remain enforceable if you release
the primary obligor either directly or by electing a remedy
which precludes you from proceeding directly against the
obligor.
4. Referenced Provision Qualifications. In addition, our opinions, insofar
as they relate to the validity, binding effect or enforceabilty of a
provision in any of the Loan Documents requiring any Company Party to
perform its obligations under, or to cause any other person to perform
its obligations under, any provision (a "Referenced Provision") of such
Loan Documents or of any of the other Loan Documents or stating that
any action will be taken as provided in or in accordance with any
provision (also a "Referenced Provision") of any other Loan Document,
are subject to the same qualifications as the corresponding opinion in
this letter relating to the validity, binding effect and enforceabilty
of such Referenced Provision. Requirements in the Loan Documents that
provisions therein may only be waived or amended in writing may not be
enforceable to the extent that an oral agreement or an implied
agreement by trade practice or course of conduct has been created
modifying any such provision.
5. The opinions and advice contained in our letter are subject to the
following qualifications:
a. certain rights of debtors and duties of secured parties
referred to in Sections l-102(3) and 9-501(3) of the New York
UCC may not be waived, released, varied or disclaimed by
agreement prior to a default;
b. our opinions are subject to the effect of (i) the limitations
on the existence and perfection of security interests in
proceeds resulting from the operation of Section 9-306,
Section 9-115 or Section 8-321(l) [1977 version] of any
applicable Uniform Commercial Code; (ii) the limitations in
favor of buyers imposed by Sections 9-307 and 9-308 of any
applicable Uniform Commercial Code; (iii) the limitations with
respect to documents, instruments and securities imposed by
Section 9-309 and 8-302 [1977 version] or 8-303 [1994 version]
of any applicable Uniform Commercial Code; (iv) other rights
of persons in possession of money, instruments and proceeds
constituting certificated or uncertificated securities; and
(v) section 547 of the Bankruptcy Code with respect to
preferential transfers and section 552 of the Bankruptcy Code
with respect to any Collateral acquired by any Company Party;
A-3
80
c. Article 9 of each applicable Uniform Commercial Code requires
the filing of continuation statements within specified periods
in order to maintain the effectiveness of the filings referred
to in our letter;
d. Additional filings may be necessary if any Company Party
changes its name, identity or corporate structure or if the
jurisdiction in which any of their (i) places of business,
(ii) chief executive offices, or (iii) Collateral is located;
e. your security interest in certain of the Code Collateral may
not be perfected by the filing of financing statements under
the applicable Uniform Commercial Code;
f. we express no opinion regarding the perfection of any security
interest except as specifically set forth in our letter or
regarding the continued perfection of any security interest in
any Collateral upon or following the removal of such
Collateral to another jurisdiction;
g. the assignment of any contract, lease, license, or permit may
require the approval of the issuer thereof or the other
parties thereto;
h. we express no opinion with respect to any self-help remedies
to the extent they vary from those available under the New
York UCC or with respect to any remedies otherwise
inconsistent with the New York UCC to the extent that the New
York UCC is applicable thereto;
i. a substantial body of case law treats guarantors as "debtors"
under the New York UCC, thereby according guarantors rights
and remedies of debtors established by the New York UCC;
j. we express no opinion with respect to the adequacy of the
waivers set forth in any guaranty insofar as they might not be
broad enough for all situations which might arise for which
you would find a waiver desirable, and we express no opinion
as to whether the guarantee would remain enforceable if you
release the primary obligor either directly or by electing a
remedy which precludes you from proceeding directly against
the primary obligor;
k. We express no opinion regarding the priority of any security
interest or, to the extent that the enforceabilty of any
security interest is dependent upon the priority thereof, the
enforceabilty of such security interest except the limited
opinion set forth in paragraph 15 regarding the acquisition of
certain security interests free of adverse claims;
l. We express no opinion regarding the creation, perfection or
enforceabilty of security interests in property in which it is
illegal or violative of governmental rules or regulations to
grant a security interest, general intangibles which terminate
or become terminable if a security interest is granted
therein, property subject to negative pledge clauses of which
you have knowledge, vehicles, ships, vessels, barges, boats,
railroad cars, locomotives or other rolling stock, aircraft,
aircraft engines, propellers and related parts, or other
property for which a state or federal statute or treaty
provides
A-4
81
for registration or certification of title or which specifies
a place a filing different than that specified in Section
9-401 of any applicable Uniform Commercial Code, cash which is
not in your possession, uncertificated securities, crops,
timber to be cut, fixtures, accounts subject to subsection (5)
of Section 9-103 of any applicable Uniform Commercial Code,
consumer goods, farm products, equipment used in farming
operations, accounts or general intangibles arising from or
relating to the sale of farm products by a ▇▇▇▇▇▇, property
identified to a contract with, or in the possession of, the
United States of America or any state, county, city,
municipality or other governmental body or agency, goods for
which a negotiable document of title has been issued, FCC
licenses, franchise agreements and copyrights, other literary
property rights, service marks, know-how, processes, trade
secrets, undocumented computer software, unrecorded and
unwritten data and information, and rights and licenses
thereunder;
m. we express no opinion with respect to the enforceabilty of any
security interest in any accounts, chattel paper, documents,
instruments or general intangibles with respect to which the
account debtor or obligor is the United States of America, any
state, county, city, municipality or other governmental body,
or any department, agency or instrumentality thereof;
n. the Agent's remedies with regard to the sale or after the sale
of any securities or other Collateral subject to any security
interest are subject to compliance with state and federal
securities laws, the Federal Communications Act of 1934, as
amended and the respective rules and regulations thereunder
and thereof and any other federal, state and local laws, rules
and regulations of other regulatory or governmental bodies
(including, without limitation, any municipality that has
issued any franchise to a Company Party or any of its
Subsidiaries) applicable to or having jurisdiction over the
Company Parties (or any entity under the control of the
Company Parties);
o. we express no opinion regarding the characterization of a
transaction as one involving the creation of a lien on real
property, the characterization of a contract as one in a form
sufficient to create a lien or a security interest in real
property, the creation, perfection, priority or enforcement of
a lien on real property or matters involving ownership or
title to any real property;
p. we express no opinion regarding the enforceabilty of any
pre-default waiver of redemption rights;
q. we express no opinion regarding the enforceabilty of any
provisions asserting that collateral is owned by or is
property of a secured party prior to such secured party's
foreclosure of such collateral in accordance with the
applicable Uniform Commercial Code or, in the case of cash
collateral, the application of such cash collateral in payment
of the secured obligations; and
r. our opinions in paragraph 10, as to the validity, binding
effect and enforceabilty of the Loan Documents specified
therein do not constitute opinions as to the creation,
existence or perfection of any security interest. Such
opinions are given only to the extent set forth in opinion
paragraphs 12, 14 and 15, and are subject to the
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82
assumptions, qualifications and limitations applicable to such
opinions set forth in this letter and the accompanying
attachments.
6. Usury Qualifications. We express no opinion with regard to usury or
other laws limiting or regulating the maximum amount of interest that
may be charged, collected, received or contracted for other than the
internal laws of the State of New York and the Federal laws of the
United States, and without limited the foregoing, we expressly disclaim
any opinion as to the usury or other such laws of any other
jurisdiction (including laws of other states made applicable through
principles of Federal preemption or otherwise) which may be applicable
to the transactions contemplated by the Loan Documents.
A-6
83
SCHEDULE B
ASSUMPTIONS
For purposes of the letter to which this Schedule B is
attached ("our letter"), we have relied, without investigation, upon each of the
following assumptions:
1. Each Company Party (i) has the requisite title and rights to any
property involved in the transactions effected under the Loan Documents
(herein called the "Transactions") including without limiting the
generality of the foregoing, each item of Collateral existing on the
date hereof and (ii) will have the requisite title and rights to each
item and Collateral arising after the date hereof.
2. Each natural person who is executing any Loan Document on behalf of any
Company Party has sufficient legal capacity to enter into such Loan
Document, and we have no actual knowledge of any such incapacity.
3. Each document submitted to us for review is accurate and complete, each
such document that is an original is authentic, each such document that
is a copy conforms to an authentic original and all signatures (other
than those of or on behalf of any Company Party) on each such document
are genuine.
4. Each certificate obtained from a governmental authority relied on by us
is accurate, complete and authentic and all relevant official public
records to which each such certificate relates are accurate and
complete.
5. There has not been any mutual mistake of fact or misunderstanding,
fraud, duress or undue influence.
6. You are existing and in good standing in your jurisdiction of
organization.
7. You have full power and authority (including without limitation under
the laws of your jurisdiction of organization) to execute, deliver and
to perform your obligations under each of the Loan Documents and each
of the Loan Documents has been duly authorized by all necessary action
on your part and has been duly executed and duly delivered by you.
8. The Loan Documents constitute valid and binding obligations of yours
and are enforceable against you in accordance with their terms (subject
to qualifications, exclusions and other limitations similar to those
applicable to our letter).
9. You have satisfied those legal requirements that are applicable to you
to the extent necessary to make the Loan Documents enforceable against
you.
10. You have complied with all legal requirements pertaining to your status
as such status relates to your rights to enforce the Loan Documents
against the respective Company Party.
11. All statutes, judicial and administrative decisions, and rules and
regulations of governmental agencies, in each of the jurisdictions upon
whose law our opinions are based are generally
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84
available (i.e., in terms of access and distribution following
publication or other release) to lawyers practicing in that
jurisdiction, and are in a format that makes legal research reasonably
feasible.
12. The constitutionality or validity of a relevant statute, rule,
regulation or agency action is not in issue.
13. Each Company Party will obtain all third party or governmental
consents, permits and approvals required in the future, and will take
all actions similarly required, relevant to the subsequent consummation
of the transactions effected under the Loan Documents (herein called
the "Transactions") or performance of the Loan Documents.
14. All parties to the Transactions (other than the Company Parties) will
act in accordance with, and will refrain from taking any action that is
forbidden by, the terms and conditions of the Loan Documents.
15. Any information required to be disclosed to the Company Parties or
their governing bodies in connection with any matter relevant to any
legal issue covered by our opinions has been fully and fairly disclosed
to such Persons and no such disclosure contains any relevant error or
omission.
16. Insofar as any security interest is the subject of any of our opinions,
the grantor of such security interest has rights in the Collateral
subject to such security interest sufficient to support such security
interest, "value" (as defined in applicable Uniform Commercial Code)
has been given by you to the grantor of such security interest for such
security interest and the description of the Collateral subject to such
security interest in any Loan Document (including without limitation
any Uniform Commercial Code financing statement) reasonably describes
such Collateral.
17. The conduct of the parties to the Loan Documents has complied with any
requirement of good faith, fair dealing and conscionability.
18. You have acted in good faith and without notice of any defense against
the enforcement of any rights created by, or adverse claim to any
property or security interest transferred or created as part of, the
Transactions.
19. There are no agreements or understandings among the parties, written or
oral (other than the Loan Documents), and there is no usage of trade or
course of prior dealing among the parties that would, in either case,
define, supplement or qualify the terms of the Credit Agreement or any
of the other Loan Documents.
20. All agreements other than the Loan Documents (if any) with respect to
which we have provided an opinion or advice in our letter or reviewed
in connection with our letter would be enforced as written.
21. The constitutionality or validity of a relevant statute, rule,
regulation or agency action is not in issue.
▇-▇
▇▇
▇▇. We have assumed with respect to any provisions in the Loan Documents
providing that any Company Party will submit to jurisdiction in state
or federal courts in North Carolina, or arbitration located in North
Carolina, that courts in fact have appropriate jurisdiction over such
Company Party and with respect to the disputes arising under the Loan
Documents.
23. All parties to the Loan Documents will not in the future take any
discretionary action (including a decision not to act) permitted under
the Loan Documents that would result in a violation of law or
constitute a breach or default under any other agreements or court
orders to which the Company Parties may be subject.
24. Each Company Party's LLC Agreement, Charter Document or equivalent
document, all amendments to that LLC Agreement, Charter Document or
equivalent document, all resolutions adopted establishing classes or
series of stock or other equity interest under that LLC Agreement,
Charter Document or equivalent document and all amendments to such LLC
Agreement, Charter Document or equivalent document have been adopted in
accordance with all applicable legal requirements (except that this
assumption is limited to those of the preceding items with respect to
the adoption of which we did not have involvement).
25. The representations made by each Company Party in the Loan Documents to
which it is a party with respect to its chief executive office and
location of equipment and inventory are and will remain true and
correct.
26. Other than with respect to our opinions as to execution and delivery in
paragraphs 9 and 13, each person who has taken any action relevant to
any of our opinions in the capacity of director or officer was duly
elected to that director or officer position and held that position
when such action was taken.
27. The transactions contemplated by the Transaction Documents (other than
the Loan Documents) have been consummated in accordance with all
applicable law and the Transaction Documents (other than the Loan
Documents).
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SCHEDULE C
EXCLUDED LAW AND LEGAL ISSUES
None of the opinions or advice contained in the letter to
which this Schedule C is attached (herein called "our letter") covers or
otherwise addresses any of the following legal issues:
1. Federal securities laws and regulations administered by the Securities
and Exchange Commission (excluding, solely to the extent of our
opinions set forth in paragraph 17 of our letter, the Investment
Company Act of 1940), state "Blue Sky" laws and regulations, and laws
and regulations relating to commodity (and other) futures and indices
and other similar instruments;
2. pension and employee benefit laws and regulations (e.g., ERISA);
3. Federal and state antitrust and unfair competition laws and regulations
(other than ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ compliance);
4. Except to the extent provided in paragraph 14 of our opinion, Federal
Reserve Board margin regulations;
5. any laws, regulations, directives and executive orders that prohibit or
limit the enforceability of obligations based on attributes of the
party seeking enforcement (e.g., the Trading with the Enemy Act and the
International Emergency Economic Powers Act);
6. Federal and state laws and regulations concerning filing and notice
requirements (other than requirements applicable to charter-related
documents such as a certificate of formation of a limited liability
company and, to the extent specifically provided in paragraph 13 of our
opinion letter, filings to perfect security interests);
7. compliance with fiduciary duty requirements;
8. the statutes and ordinances, the administrative decisions and the rules
and regulations of counties, towns, municipalities and special
political subdivisions and judicial decisions to the extent that they
deal with any of the foregoing;
9. fraudulent transfer and fraudulent conveyance laws;
10. Federal and state environmental laws and regulations;
11. Federal and state tax laws and regulations;
12. Federal patent, copyright and trademark, state trademark, and other
Federal and state intellectual property laws and regulations;
13. Federal and state health and safety laws and regulations (e.g., OSHA);
▇-▇
▇▇
▇▇. Federal and state labor laws and regulations;
15. Communications Act of 1934, as amended, the Cable Communications Policy
Act of 1984, as amended, the Cable Television Consumer Protection and
Competition Act of 1992, as amended, the Telecommunications Act of
1996, as amended, all rules and regulations promulgated under any of
the foregoing statutes, the rules, regulations and policies of the
Federal Communications Commission and all other federal, state and
local laws, orders, regulations, licensing requirements and policies
relating to the ownership, operation and provision of, or otherwise
regulating, cable television and telecommunication services;
16. Federal and state laws, regulations and policies concerning (i)
national and local emergency, (ii) possible judicial deference to acts
of sovereign states, and (iii) criminal and civil forfeiture laws;
17. other Federal and state statutes of general application to the extent
they provide for criminal prosecution (e.g., mail fraud and wire fraud
statutes);
18. the effect of any law, regulation or order which hereafter becomes
effective;
19. title to any property;
20. Federal and state racketeering laws and regulations (e.g., RICO);
21. the effect of any law, regulation or order which hereafter becomes
effective; and
22. the PBBC Industrial Development Bonds, the PBBC Bond Indenture and
related documents (other than the Credit Agreement).
We have not undertaken any research for purposes of
determining whether any Company Party or any of the Transactions which may occur
in connection with any of the Loan Documents is subject to any law or other
governmental requirement other than to those laws and requirements which in our
experience would generally be recognized as applicable in the absence of
research by lawyers in New York, and none of our opinions covers any such law or
other requirement unless (i) one of our Designated Transaction Lawyers had
actual knowledge of its applicability at the time our letter was delivered on
the date it bears and (ii) it is not excluded from coverage by other provisions
in our letter or in any Schedule to our letter.
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88
SCHEDULE D
EXCLUDED PROVISIONS
None of the opinions in the letter to which this Schedule D is
attached covers or otherwise addresses any of the following types of provisions
which may be contained in the Loan Documents:
1. Choice-of-law provisions.
2. Indemnification for negligence, willful misconduct or other wrongdoing
or strict product liability or any indemnification for liabilities
arising under securities laws.
3. Provisions mandating contribution towards judgments or settlements
among various parties.
4. Waivers of (i) legal or equitable defenses, (ii) rights to damages,
(iii) rights to counter claim or set off, (iv) statutes of limitations,
(v) rights to notice, (vi) the benefits of statutory, regulatory, or
constitutional rights, unless and to the extent the statute,
regulation, or constitution explicitly allows waiver, (vii) broadly or
vaguely stated rights, and (viii) other benefits to the extent they
cannot be waived under applicable law.
5. Provisions providing for forfeitures or the recovery of amounts deemed
to constitute penalties, or for liquidated damages, acceleration of
future amounts due (other than principal) without appropriate discount
to present value, late charges and prepayment charges, interest upon
interest, and increased interest rates upon default.
6. Time-is-of-the-essence clauses.
7. Provisions which provide a time limitation after which a remedy may not
be enforced.
8. Confession of judgment clauses.
9. Agreements to submit to the jurisdiction of any particular court or
other governmental authority (either as to personal jurisdiction and
subject matter jurisdiction); provisions restricting access to courts;
waiver of the right to jury trial; waiver of service of process
requirements which would otherwise be applicable; and provisions
otherwise purporting to affect the jurisdiction and venue of courts.
10. Provisions that attempt to change or waive rules of evidence or fix the
method or quantum of proof to be applied in litigation or similar
proceedings.
11. Provisions appointing one party as an attorney-in-fact for an adverse
party or providing that the decision of any particular person will be
conclusive or binding on others.
12. Provisions purporting to limit rights of third parties who have not
consented thereto or purporting to grant rights to third parties.
13. Provisions which purport to award attorneys' fees solely to one party.
▇-▇
▇▇
▇▇. Arbitration agreements.
15. Provisions purporting to create a trust or constructive trust without
compliance with applicable trust law.
16. Provisions relating to the application of condemnation awards.
17. Provisions that provide for the appointment of a receiver.
18. Provisions or agreements regarding proxies, shareholders agreements,
shareholder voting rights, voting trusts, and the like.
19. Confidentiality agreements.
20. Provisions in any of the Loan Documents requiring any Company Party to
perform its obligations under, or to cause any other person to perform
its obligations under, or stating that any action will be taken as
provided in or in accordance with, any agreement or other document that
is not a Loan Document.
21. Provisions, if any, which are contrary to the public policy of any
jurisdiction.
22. The enforceability of any provision of any Loan Document which purports
to authorize you to sign or file financing statements or other
documents without the signature of the debtor (except to the extent a
secured party may execute and file financing statements without the
signature of the debtor under Section 9-402(2) of the applicable
Uniform Commercial Code).
23. The enforceability of any provision of any Loan Document which purports
to authorize you to purchase at a private sale collateral which is not
subject to widely distributed standard price quotations or sold on a
recognized market.
24. Provisions of the Loan Documents insofar as they authorize you or your
affiliates to set off and apply any deposits at any time held, and any
other indebtedness at any time owing, by you to or for the account of
any Company Party.
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ANNEX I
Financing Statements
See attached schedule.
Annex I, Page 1
91
ANNEX II
PLEDGED SECURITIES
See attached Schedule 2(a) of the Pledge Agreement.
Annex II, Page 1
92
SCHEDULE OF SPECIFIED AGREEMENTS
1. License Agreement dated, January 12, 1995, between Sleepmaster L.L.C.
and Serta, Inc., covering certain territories in Northern New Jersey,
New York and Connecticut, as amended.
2. License Agreement, dated January 12, 1995, between Sleepmaster L.L.C.
and Serta, Inc. covering certain territories in Pennsylvania, New
Jersey, Maryland and Delaware, as amended.
3. Memorandum of Agreement, dated January 12, 1995, between Sleepmaster
L.L.C. and Serta, Inc. relating to the License Agreement described in
Item No. 1 above, as amended.
4. Memorandum of Agreement, dated January 12, 1995, between Sleepmaster
L.L.C. and Serta, Inc. relating to the License Agreement described in
Item No. 2 above, as amended.
5. License Agreement dated November 4, ▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ Bedding
Company and Serta, Inc., covering certain territories in Florida, as
amended.
6. Memorandum of Agreement, dated November 4, 1989, between Palm Beach
Bedding Company and Serta, Inc. relating to License Agreement described
in Item No. 5 above, as amended.
7. License Agreement dated November 4, 1989, between ▇▇▇▇ Manufacturing
Co. and Serta, Inc. covering certain territories in Pennsylvania, New
York and New Jersey, as amended.
8. Memorandum of Agreement, dated December 1, 1969 between ▇▇▇▇
Manufacturing Co. and Serta Associates, Inc. relating to License
Agreement described in Item No. 7 above, as amended.
9. Indenture.
10. Asset Purchase Agreement dated as of April 8, 1999 by and among
Borrower, Star Bedding Products (1986) Limited, Star Bedding Products
Limited and ▇▇▇▇▇ ▇▇▇▇▇▇.
11. Subordinated Promissory Note of Sleepmaster Holding LLC issued to Sleep
Investor LLC dated as of November 14, 1996, as may be amended.
12. Junior Subordinated Note of Sleepmaster Holdings LLC issued to Star
Bedding Products (1986) Limited to be renamed Nancourt Inc. dated May
18, 1999.
13. Employment Agreement among Sleepmaster LLC, Sleepmaster Holdings LLC
and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ dated November 14, 1996.
14. Employment Agreement among Sleepmaster LLC, Sleepmaster Holdings LLC
and ▇▇▇▇▇ ▇▇▇▇▇▇▇ dated November 14, 1996.
Sch. of Spec. Agts. - i