EXECUTION COPY
 
PLAN SUPPORT AGREEMENT
 
This PLAN SUPPORT AGREEMENT (together with the Term Sheet (as defined below),
the “Agreement”), dated as of July 18, 2010, is made by and among Jennifer
Convertibles, Inc., a Delaware corporation, (“Jennifer” or the “Company”, which
term, for the avoidance of doubt, includes the debtor in possession following
the filing of the Petitions (as defined below)), and Haining Mengnu Group Co.
Ltd (“Mengnu”) (the time and date when this Agreement has been executed by each
of Jennifer and Mengnu being hereinafter referred to as the “date of this
Agreement” or the “date hereof”).
 
     WHEREAS, the Company and Mengnu have engaged in negotiations with the
objective of reaching an agreement for a Restructuring (as defined below) of the
Company;
 
     WHEREAS, the Company now desires to implement a financial restructuring
(the “Restructuring”) of the Company and its subsidiaries (together, the
“Jennifer Companies”) consistent with the terms and conditions set forth in the
term sheet ( the “Term Sheet”) attached hereto as Exhibit A;
 
     WHEREAS, in order to implement the Restructuring, the Company has agreed,
on the terms and conditions set forth in this Agreement, to use its best
reasonable efforts to consummate the Restructuring through a plan of
reorganization (“Plan of Reorganization” or “Reorganization Plan”), the
requisite acceptances of which shall be solicited following commencement of
voluntary cases (“Chapter 11 Cases”) by the Jennifer Companies under chapter 11
of title 11 of the United States Code, 11 U.S.C. §§ 101-1532 (as amended, the
“Bankruptcy Code”) in the United States Bankruptcy Court for the Southern
District of New York (the “Bankruptcy Court”);
 
     WHEREAS, Mengnu is prepared to commit, on the terms and subject to the
conditions of this Agreement and to the extent legally permissible, to, if and
when solicited in accordance with applicable bankruptcy law, vote to accept the
Plan of Reorganization and support its confirmation;
 
     NOW THEREFORE, in consideration of the premises and the mutual covenants
and agreements set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the Company and
Mengnu hereby agree as follows:
 
          1. Term Sheet. The principal terms and conditions of the Restructuring
are set forth in the Term Sheet and shall be incorporated by Jennifer in the
Reorganization Plan.
 
          2. Condition Precedent. It is a condition precedent to the
effectiveness of this Agreement that voluntary petitions (“the Petitions”) are
filed with the Bankruptcy Court and the Chapter 11 Cases are commenced no later
than 9:00 p.m. (NY Time) on July 18, 2012, unless previously extended by Mengnu
in writing (the time and date of filing of the Petitions being hereinafter
called the “Petition Date”). If this condition is not satisfied, this Agreement
shall be void and of no effect.
 
          3. Means for Effectuating the Restructuring. The Company shall seek to
effectuate the Restructuring through the commencement of the voluntary Chapter
11 Cases and the confirmation and consummation of the Plan of Reorganization in
accordance with this Agreement.
 
          4. Preparation of Restructuring Documents.
 

               
The Company shall, in consultation with Mengnu, prepare all of the documents
(collectively, the “Chapter 11 Documents”, which shall include without
limitation each of the documents referred to in paragraph 4 b)(i) through (iv)
below), necessary for the Jennifer Companies to commence the Chapter 11 Cases
and obtain confirmation and consummation of the Reorganization Plan, all of
which shall be submitted to Mengnu and

 

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its counsel in draft form as soon as practicable but in any event not later than
5:00 p.m. on the second business day prior to filing with the Bankruptcy Court
(or such earlier date as shall be specified below or such later date as Mengnu
shall consent to in writing), for its review and comment, shall be satisfactory
to Mengnu in form and substance and shall not be submitted to or filed with the
Bankruptcy Court unless Mengnu shall have advised Jennifer (orally or in
writing) that it does not object thereto. In aid of the foregoing, Jennifer
shall:

 

          
          i Prepare and file with the Bankruptcy Court no later than 5:00 p.m.
on the first business day following the Petition Date first day motions, which
motions shall include a critical vendor motion (“Mengnu Critical Vendor Motion”)
in respect of Mengnu providing for the grant to Mengnu of a purchase money
security interest in inventory acquired by the Jennifer Companies from Mengnu
after the filing of the Petitions and all proceeds thereof, the payment to
Mengnu of $400,000 per week for application to pre-petition indebtedness owed to
Mengnu in accordance with the terms and provisions thereof and having other
terms and conditions as specified in the Term Sheet, which are not inconsistent
with the terms and conditions in the Term Sheet and which is otherwise in form
and substance satisfactory to Mengnu;
 
          ii Prepare and file with the Bankruptcy Court statements of financial
affairs and required schedules under chapter 11 of the Bankruptcy Code for the
Jennifer Companies no later than twenty (20) days following the Petition Date
(complete draft to be provided Mengnu and its counsel no later than three days
prior to filing); and
 
          iii Prepare and file with the Bankruptcy Court no later than thirty
(30) days following the Petition Date a disclosure statement (the “Disclosure
Statement”) relating to a Plan of Reorganization that incorporates the terms and
conditions of the Term Sheet and is not inconsistent with the Term Sheet and is
otherwise in form and substance satisfactory to Mengnu and complies with
Sections 1122, 1123 and 1124 of the Bankruptcy Code, including customary
exhibits, and which disclosure statement complies with section 1125 of the
Bankruptcy Code (complete draft including Plan of Reorganization and all
exhibits to be provided Mengnu and its counsel not less than 10 days prior to
filing).

 
          5. Company Undertakings. The Company hereby agrees to use reasonable
efforts and do all other things reasonably necessary to effectuate and
consummate the Restructuring and obtain confirmation of and consummate the Plan
of Reorganization as expeditiously as possible. The Company hereby agrees that
none of the Jennifer Companies will take any action that conflicts with or is
inconsistent with this Agreement or that would interfere with or adversely
affect its ability to consummate the Plan of Reorganization as contemplated
hereby.
 
          6. Agreement to Support Company Restructuring. For so long as this
Agreement remains in effect, and subject to the satisfaction of each of the
conditions precedent to Mengnu’s obligations set forth in Section 7 below,
Mengnu agrees to (i) use reasonable efforts to support approval of the Plan of
Reorganization; (ii) not to take any action that it knows will interfere in any
material respect with the approval of the Plan of Reorganization by the
Bankruptcy Court; and (iii) provide the Company with information about Mengnu
that, based upon written advice of counsel, the Company reasonably believes is
required to be included in the Disclosure Statement to the extent legally
permissible for Mengnu and which would not cause Mengnu to breach any
confidentiality agreement or understanding heretofore entered into in the
ordinary course of business; in each case referred to in any of clauses (i),
(ii) or (iii) above so long as the Company’s Plan of Reorganization and
Disclosure Statement do not conflict with and meet all requirements and
conditions relating thereto as set forth in this Agreement and are not
inconsistent with the Term Sheet.
 
          7. Conditions to Mengnu’s Obligations. It shall be a condition
precedent to Mengnu’s obligations to perform or observe any term, provision or
condition of this Agreement to be performed or observed by it at any time,
including without limitation, it obligations in Section 6 hereof, that none of
the following events, occurrences or conditions ( each a “Mengnu Condition”)
shall exist, whatever the reason therefor and whether or not occurring as a
result of action or inaction by any of the Jennifer Companies, by operation of
law, or otherwise:
 
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          i Any representation or warranty made by the Company to Mengnu in this
Agreement or any information in any document prepared by the Company or any of
the other Jennifer Companies and provided to Mengnu shall be false or misleading
in any material respect when made or provided;
 
          ii Any of the following milestones (“Milestones”) shall not be
achieved within the time specified below:

 

                         
     (aa) Obtain an interim order of the Bankruptcy Court granting the Mengnu
Critical Vendor Motion in form and substance satisfactory to Mengnu with such
changes, if any, as are satisfactory to Mengnu not later than five business days
following the Petition Date;
 
     (bb) Obtain a final order of the Bankruptcy Court granting the Mengnu
Critical Vendor Motion, with such changes, if any, as are satisfactory to Mengnu
not later than the thirtieth day immediately following the Petition Date;
 
     (cc) Obtain an order of the Bankruptcy Court approving the Disclosure
Statement, with such changes, if any as are satisfactory to Mengnu, not later
than seventy five (75) days immediately following the Petition Date; and
 
     (dd) Obtain an order (the “Confirmation Order”) of the Bankruptcy Court
confirming a Plan of Reorganization in the form attached to the Disclosure
Statement approved by the Bankruptcy Court, with such changes, if any, as are
approved by Mengnu, no later than one hundred thirty(130) days following the
Petition Date

 

          
          iii. On the effective date (“Effective Date”) of the Plan of
Reorganization there shall be any appeal of the Confirmation Order other than
any such appeal which Mengnu determines in its sole discretion does not
materially interfere with consummation of the Plan of Reorganization and if
successful would not materially adversely affect the interests of Mengnu upon
consummation of the Plan of Reorganization or thereafter.
 
          iv. The Bankruptcy Court shall have terminated Jennifer’s exclusive
period to file the a plan of reorganization or such exclusivity period shall
have lapsed;
 
          v. Any preference recovery action against Mengnu shall have been
successfully prosecuted at any time prior to the Effective Date;
 
          vi. The Company at any time shall fail to make any payment required to
be made by it in accordance with the Mengnu Critical Vendor Motion or shall
terminate Mengnu’s status as a critical vendor for any reason other than
Mengnu’s default in honoring the production and shipping schedule agreed to by
the parties from time to time;
 
          vii At any time prior to the Effective Date, the Company or any other
of the Jennifer Companies shall file any motion or take any other action to
challenge any proof of claim submitted by Mengnu for an aggregate amount of
pre-petition indebtedness (before giving effect to any payments received by
Mengnu in accordance with the critical vendor motion applicable to Mengnu)

 
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of not in excess of $17,000,000 or any objection to any such proof of claim
submitted by Mengnu is allowed;
 
          viii Any of the Jennifer Companies shall, after the filing with the
Bankruptcy Court of the Disclosure Statement, propose any amendment or
modification thereto which, in Mengnu’s opinion, is material and to which Mengnu
objects and such amendment or modification is not withdrawn within five days
after notice thereof from Mengnu to Jennifer;
 
          ix Any of the Chapter 11 Documents, including, without limitation, the
Plan of Reorganization, shall contain any term or condition (aa) different from
the terms and conditions set forth in the Term Sheet, (bb) inconsistent with the
Term Sheet , (cc) which Mengnu believes, or has reason to believe, could
adversely affect Mengnu’s interests upon consummation of the Plan of
Reorganization or thereafter or (dd) which in Mengnu’s opinion is otherwise
material and to which Mengnu objects by notice to the Company and, in the case
of the condition specified in this subclause (dd), such term or provision is not
changed in a manner in form and substance satisfactory to Mengnu within five
days after receipt by the Company of such notice;
 
          x At any time on or prior to the Effective Date there shall have been
issued or remain in force any order, decree, or ruling by any court or
governmental body having jurisdiction restraining or enjoining the consummation
of or declaring or rendering illegal the Restructuring or any of the
transactions contemplated by this Agreement;
 
          xi The Company shall propose, consent to, support, acquiesce or
participate in the formulation of any out-of-court restructuring, any chapter 7
or chapter 11 plan of reorganization or liquidation or any other such similar
reorganization or liquidation (whether foreign or domestic) other than the
Restructuring as described in the Term Sheet and other than as agreed to by
Mengnu;
 
          xii At any time after the date of this Agreement and prior to the
Effective Date, (i) any event or occurrence or condition shall happen or occur,
whatever the reason therefor and whether happening or existing by operation of
law or otherwise, not disclosed in writing to Mengnu by Jennifer prior to the
date hereof that Mengnu reasonably believes has had, has or could reasonably be
expected to have a Material Adverse Effect (“Material Adverse Effect” means any
change, event, occurrence, effect, or state of facts that, individually, or
aggregated with other such matters, is materially adverse to the business,
assets (including intangible assets), properties, condition (financial or
other), or results of operations or prospects of the Jennifer Companies taken as
a whole, but excluding actions, events, occurrences, effects or conditions that
result by operation of law from the filing of a case under chapter 11 of the
Bankruptcy Code) or (ii) there shall be or have been, in the reasonable opinion
of Mengnu, any material adverse change or development involving a prospective
material adverse change in the business, properties, assets (tangible and
intangible), condition (financial or other), results of operations or prospects
of the Jennifer Companies taken as a whole from that which exists on the date of
this Agreement other than any such arising solely by operation of law as a
result of the filing of the Petitions;
 
          xiii If any of the pleadings filed by the debtor with the Bankruptcy
Court or the final forms of the documents prepared in connection with or related
to the Restructuring (including, without limitation, any

 
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stockholders' agreement, any certificate of incorporation, any bylaws, any
document concerning the corporate governance of any of the Jennifer Companies
upon the consummation of the Reorganization Plan or any document concerning the
rights of Company shareholders or debtholders upon the consummation of the
Reorganization Plan) necessary for the implementation of the Restructuring shall
not be in form and substance satisfactory to Mengnu;
 
          xiv A trustee or examiner with enlarged powers shall have been
appointed under section 1104 or 105 of the Bankruptcy Code for service in the
Chapter 11 Cases;
 
          xv Any of the Chapter 11 Cases shall be converted to a case under
chapter 7 of the Bankruptcy Code:
 
          xvi The Confirmation Order shall not contain any condition to
Confirmation proposed by Mengnu to Jennifer that is not inconsistent with the
Term Sheet;
 
          xvii Any of the Jennifer Companies shall, at any time following the
date of this Agreement and prior to the Effective Date, directly or indirectly,
(aa) engage in, agree to or consummate any transaction (other than the
Restructuring) other than in the ordinary course of business and on an arms'
length basis, or (bb) incur any liability other than in the ordinary course of
business and on an arms' length basis, and, if between unaffiliated parties,
also on market terms;
 
          xviii At any time after the date of this Agreement and prior to the
Effective Date, any of the Jennifer Companies shall fail to (aa) maintain its
corporate existence in good standing under the laws of Delaware or other
jurisdiction in which it is organized, (bb) maintain its qualification to do
business in each jurisdiction where it is presently qualified to do business
except for jurisdictions in which Jennifer has ceased or plans to cease
operations as set forth in the description of Jennifer’s proposed store closing
program ( the “Store Closing Program”) set forth in the initial Store Closing
Program Report (as defined in clause xxiii below) or such other jurisdictions
where Jennifer later proposes to cease operations and to which Mengnu does not
object after reasonable notice and receipt of an accompanying analysis from
Jennifer of such proposal or (cc) qualify to do business in any other
jurisdictions where the nature of the business done by it makes such
qualification necessary;
 
          xix At any time after the date of this Agreement and prior to the
Effective Date, any of the Jennifer Companies shall, directly or indirectly:
(aa) issue, sell, pledge, dispose of, or encumber any additional shares of, or
any options, warrants, conversion privileges or rights of any kind to acquire
any shares of, any of its equity interests; (bb) amend or propose to amend its
respective articles of incorporation, by-laws or comparable organizational
documents; (cc) split, combine, or reclassify any outstanding shares of its
capital stock or other equity interests, or declare, set aside, or pay any
dividend or other distribution payable in cash, stock, property, or otherwise
with respect to any of its equity interests; (dd) redeem, purchase, or acquire
or offer to acquire any of its equity interests; (ee) acquire, transfer, or sell
(by merger, exchange, consolidation, acquisition of stock or assets, or
otherwise) any interest in or any indebtedness of any corporation, partnership,
joint venture, or other business organization or division, or, other than in the
ordinary course of

 
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business or as contemplated pursuant to the Store Closing Program and to which
Mengnu does not object after reasonable notice from Jennifer , any assets; (ff)
merge with or into or consolidate with any corporation or other person other
than, in the case of Jennifer Companies other than Jennifer, a merger or
consolidation with or into another Jennifer Company or in the case of Jennifer a
merger with another Jennifer Company in which Jennifer is the surviving
corporation; or (gg) engage in or agree to engage in or consummate or agree to
consummate any transaction or agreement other than in the ordinary course of
business and consistent with past practice or as is necessary to effect the
Store Closing Program or the Lease Renegotiation Program ( as defined in clause
xxiii below) or to consummate the Plan of Reorganization and to which, in all
cases, Mengnu does not object after reasonable notice from Jennifer;
 
          xx At any time after the date of this Agreement and prior to the
Effective Date, any of the Jennifer Companies shall create, incur, assume or
suffer to exist any lien, charge, security interest or other encumbrance
(“Lien”) on any of its properties or assets now owned or hereafter acquired
other than (i) warehousemen’s, carriers, workmen’s and similar liens arising in
the ordinary course of business and not delinquent, (ii) taxes, assessment and
other governmental charges arising in the ordinary course of business and not
delinquent, (iii) pledges or deposits arising under workmen’s compensation or
similar laws, (iv) statutory liens and other similar liens arising in the
ordinary course of business that do not secure the payment of borrowed money and
(v) Liens in favor of Mengnu;
 
          xxi At any time after the date of this Agreement and prior to the
Effective Date, the Jennifer Companies taken together shall have created,
incurred, assumed or suffered to exist indebtedness for borrowed money that
aggregates in excess of $25,000;
 
          xxii Jennifer shall have failed to prepare and submit to Mengnu’s
financial advisor no later than 5:00 pm on July 16, 2010, a monthly operating
budget, for the period August – December 2010 (the “Budget”) in form and
substance satisfactory to Mengnu and that is consistent with the weekly cash
flow and monthly fiscal year 2011 projections provided to Mengnu’s financial
advisor on or about June 23, 2010 as updated on a basis acceptable to Mengnu;
 
          xxiii Jennifer shall have failed to prepare and submit to Mengnu and
its financial advisor, (aa) monthly within twenty-seven (27) days following the
end of each of Jennifer’s fiscal monthly periods, commencing with the first
fiscal monthly period ending following the date of this Agreement a financial
statement report for the monthly fiscal period just ended and for the cumulative
periods to date commencing with (x) the start of fiscal year 2010 and (y) with
the July 2010 fiscal month, reflecting accurately the items and amounts recorded
in the Company’s books and records and in form and substance satisfactory to
Mengnu and including EBITDA and comparisons to the Budget and to the comparable
periods of the prior fiscal year ; (bb) on the first business day of every
second week beginning with the first week following the date of this agreement a
cash flow forecast in form and substance satisfactory to Mengnu and including
the actual closing cash balance for the last business day of each of the two
weeks immediately preceding the forecast period for the thirteen week period
beginning with the week in which the forecast is required to be delivered (each
a “Cash Flow Forecast”); (cc) weekly on the first business day of each week
commencing with the first week

 
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following the date of this Agreement a report of the Company’s consolidated cash
balance as of the close of business on the last business day of the immediately
preceding week; (dd) not later than 5:00 p.m. on July 21, 2010, and monthly
thereafter within five (5) days following the end of each of Jennifer’s fiscal
monthly periods, commencing with the first fiscal monthly period ending
following the date of this Agreement a report (the “Store Closing Program
Report”) showing all stores and distribution centers closed or proposed to be
closed by any of the Jennifer Companies, the status of going out of business
sales or other comparable closing activity at such stores including projected
receipts and disbursements, actual receipts and disbursements,, and such other
information with respect thereto as Mengnu shall have reasonably requested, all
in reasonable detail and otherwise in form and substance satisfactory to Mengnu;
and (ee) not later than 5:00 p.m. on July 21, 2010, and monthly thereafter
within five (5) days following the end of each of Jennifer’s fiscal monthly
periods, commencing with the first fiscal monthly period ending following the
date of this Agreement, a report (the “Lease Renegotiation Program Report”)
showing all stores and distribution centers and office locations proposed to be
maintained by the Jennifer Companies upon exit from bankruptcy or under
consideration for closing but for which a final determination has yet to be made
and the status of lease renegotiations with landlords with such stores and
distribution centers, including target back and forward rent reductions, and
actual back and forward rent reductions (the “Lease Renegotiation Program”), and
such other information with respect thereto as Mengnu shall have reasonably
requested, all in reasonable detail and otherwise in form and substance
satisfactory to Mengnu;
 
          xxiv At any time after the date of this Agreement and prior to the
Effective Date, (aa) the Company’s consolidated EBITDA for the cumulative period
commencing fiscal August 2010 is less than 80% of the comparable amount in the
Company’s Budget, (bb) on a consolidated basis the Company shall have incurred
expenses or expenditures in the cumulative period commencing with fiscal August
2010 that, in respect of any line item other than Cost of Goods Sold, volume
related home delivery expenses, commission based employee compensation, or other
expenses or expenditures directly resulting from sales, exceeds ten percent
(10%) of the amount budgeted therefor in the Budget or that in the aggregate
exceeds five percent (5%) of the total amount of expenses and expenditures
budgeted in such Budget, (cc) any of the Jennifer Companies shall make any
payment on account of prepetition indebtedness (other than to Mengnu or to
Ashley Homestores, Ltd.) or which is inconsistent with the most recent Budget
provided to Mengnu without the prior written consent of Mengnu, or (dd) the
Company’s consolidated freely available cash balance shall be less than $2.0
million;
 
          xxv The pro forma balance sheet included in the Disclosure Statement
approved by the Bankruptcy Court, or any amendment or supplement thereto, shall
show the consolidated freely available cash balance of the Jennifer Companies as
of the date of consummation of the Plan of Reorganization to be less than $2.0
million;
 
          xxvi Jennifer shall fail to provide Mengnu with notice from time to
time of the proposed terms of any agreement with any liquidator for the
disposition of inventory of any of Jennifer’s stores or distribution centers
being closed or the proposed terms of any agreement with any lease renegotiation
advisor for the renegotiation of leases, in each case sufficiently in advance of
Jennifer’s entering into any such agreement to enable Mengnu’s advisors to

 
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comment thereon and discuss the same with Jennifer’s management and advisors, or
any such agreement shall be entered into to which Mengnu shall have timely and
reasonably objected;
 
          xxvii (aa) the Disclosure Statement, or any amendment or supplement
thereto, or the Plan of Reorganization approved pursuant to the Confirmation
Order provides for the payment upon consummation of the Plan of Reorganization
or at any time thereafter of (x) administrative expenses allowed in accordance
with Section 503(a)(2) of the Bankruptcy Code (other than expenses arising from
the purchase of inventory or customer deposits) such that, on a pro forma basis
after giving effect thereto as if all such expenses were paid on the Effective
Date, the Company’s consolidated free cash balance on the next day following the
Effective Date would be less than $2.0 million; or (y) any allowed claims
entitled to priority under Section 507 of the Bankruptcy Code other than claims
entitled to priority under Section 507(a)(4) or Section 507(a)(7) of the
Bankruptcy Code or (bb) or at any time prior to the issuance of the Confirmation
Order or thereafter prior to the Effective Date, after consultation with
Jennifer, Mengnu reasonably believes that on the Effective Date there will
actually be any such administrative expenses or that there will be any such
claims;
 
          xxviii Ten days prior to the date set for the hearing on confirmation
of the Plan of Reorganization (“Confirmation Hearing Date”) pursuant to Section
1128 of the Bankruptcy Code Rami Abada and Jennifer shall have failed to agree
to modify his employment agreement with Jennifer on terms and conditions and
otherwise in form and substance satisfactory to Mengnu and entered into an
amendment to such employment agreement as so modified with Jennifer; or the
Bankruptcy Court shall not have approved such modifications or Jennifer shall
not have assumed such employment agreement as so modified at or prior to the
time of issuance of the Confirmation Order;
 
          xxix Ten days prior to the Confirmation Hearing Date Harley Greenfield
and Jennifer shall have failed to agree to modify his employment agreement with
Jennifer on terms and conditions and otherwise in form and substance
satisfactory to Mengnu and entered into an amendment to such employment
agreement as so modified with Jennifer; or the Bankruptcy Court shall not have
approved such modifications or Jennifer shall not have assumed such employment
agreement as so modified at or prior to the time of issuance of the Confirmation
Order;
 
          xxx At any time after the date of this Agreement and prior to the
Effective Date, Jennifer change the rate of compensation or terms of
compensation (including, without limitation, terms providing for fringe benefits
or termination benefits) of, or entered into any new contractual arrangements
(other than new contractual arrangements with Rami Abada or Harley Greenfield in
accordance with the immediately preceding clause xxviii or clause xxix of this
Section 7, as applicable) with, or provide or agree to provide any new or
additional employee benefits to, the employees (“Key Employees”) shown on the
organization chart on page 8 of the Management Presentation dated June 2010
presented to Mengnu’s advisors by TM Capital without the prior written consent
of Mengnu; or proposed any new employment contracts (other than in respect of
Rami Abada or Harley Greenfield as aforesaid) or any new incentive compensation
or other employee benefit plans, contracts or arrangements for any of the Key
Employees either as part of the Plan of Reorganization or otherwise without the
prior written consent of Mengnu;

 
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          xxxi Ten days prior to the date of the hearing on the confirmation of
the Plan of Reorganization, the termination date of Jennifer’s credit card
processing agreement with Merrick Bank/Renaissance shall not have been extended
by Merrick Bank/Renaissance to a date no earlier than thirteen months
immediately following the date specified in the Disclosure Statement, or any
amendment or supplement thereto, as the date proposed for confirmation of the
Plan of Reorganization or Jennifer and Merrick Bank/Renaissance shall have
failed to make such other changes thereto as regards the right to reserve and to
withhold monies reserved and as to other matters as Mengnu shall reasonably
request unless prior to that time Jennifer shall have obtained a binding
agreement commitment from a new credit card processor in form and substance
satisfactory to Mengnu to process credit card sales drafts with a stated expiry
date no earlier than thirteen months immediately following such proposed date
for confirmation of the Plan;
 
          xxxii At any time after the date of this Agreement and prior to the
Effective Date, any of the Jennifer Companies shall assume or reject any store
lease or a material contract or close any store or modify or amend the terms of
or waive compliance with the terms of any store lease or material contract or
enter into any new store lease or material contract unless Mengnu has been given
reasonable notice in writing of such proposed action and has not reasonably
objected thereto prior to the time such action is taken;
 
          xxxiii At any time after the date of this Agreement and prior to the
Effective Date, Jennifer shall fail to timely file any report or other
information required to be filed by it under the Securities Exchange Act of 1934
, as amended (“Exchange Act”) or any such report or other information so filed
shall contain an untrue statement of material fact or omit to state a material
fact necessary to be stated therein to make the statements made, in light of the
circumstances under which they were made, not misleading or otherwise not be in
compliance in any material respect with the applicable requirements of the
Exchange Act or the rules and regulations of the Securities and Exchange
Commission (“SEC”) under the Exchange Act;
 
          xxxiv At any time after the date of this Agreement and prior to the
Effective Date, any of the Jennifer Companies shall fail to keep proper books of
account in compliance with the applicable rules and regulations under the
Exchange Act or fail to make full and correct entries of all its financial
transactions and assets and liabilities;
 
          xxxv At any time after the date of this Agreement and prior to the
Effective Date, any of the Jennifer Companies shall fail to be in compliance in
all material respects with all laws, rules and regulations and orders of any
court, arbitrator or other tribunal having jurisdiction applicable to it or any
of its properties;
 
          xxxvi At any time after the date of this Agreement and prior to the
Effective Date, (aa) any of the Jennifer Companies receives notice of or obtains
any knowledge of any governmental or third party notices, complaints,
investigations, hearings, orders, decrees or judgments (or communications
indicating that any of the foregoing may be contemplated or threatened)
concerning any actions, events , occurrences or conditions which could
reasonably be anticipated to (x) have a Material Adverse Effect or (y) prevent
or delay the timely consummation of the Restructuring, or (bb) Jennifer shall
fail as promptly as reasonably practicable, and in any event within two (2)
business days after receiving such notice or obtaining such knowledge to

 
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notify Mengnu in writing and provide a statement of the facts with respect
thereto to Mengnu;
 
          xxxvii At any time after the date of this Agreement and prior to the
Effective Date, any of the Jennifer Companies shall, at any time during normal
business hours, fails to (x) permit Mengnu and its representatives (including
without limitation its financial and legal advisors, auditors, appraisers and
any other consultants engaged by Mengnu) to visit its corporate offices and any
of its store locations or other properties to examine and make copies of and
extracts from the books, records, accounts and files of any of the Jennifer
Companies and discuss the same with the officers and employees of any of the
Jennifer Companies; or (y) provide to Mengnu and its representatives any
information reasonably requested by Mengnu in writing, including, without
limitation, any information requested in writing by Mengnu prior to the date of
this Agreement and not theretofore provided;
 
          xxxviii Jennifer fails to observe or perform any obligations or
condition to be performed or observed by it in accordance with any order of the
Bankruptcy Court that has become final or which has not been stayed on appeal;
 
          xxxix At any time Mengnu believes, or has reason to believe, that the
milestone specified in Section 7 ii (dd) cannot, or could not reasonably be
expected to, be achieved within the time period specified and, after advising
Jennifer to such effect and providing Jennifer with not less than five (5) days’
opportunity to consult with and discuss the same with Mengnu, Mengnu so notifies
Jennifer; or
 
          xl Any subsidiary of Jennifer not included in the Petitions as a
debtor filing a voluntary case under chapter 11 of the Bankruptcy Code shall not
have been substantively consolidated with Jennifer and procedurally consolidated
in the Chapter 11 Cases prior to or pursuant to the issuance of the Confirmation
Order unless Mengnu shall expressly agree that such subsidiary need not be
substantively and procedurally so consolidated."

 
     If any Mengnu Condition shall exist at any time prior to the Effective
Date, Mengnu may in its discretion do any one or more of the following: (i)
suspend performance of any obligation or observance of any condition to be
performed or observed by it hereunder at any time; (ii) by notice in writing to
Jennifer declared this Agreement to be terminated, whereupon neither Mengnu nor
Jennifer shall have any further obligation hereunder and this Agreement shall
from and after the giving of such notice be and become void and of no further
force or effect; or (iii) if Mengnu has voted for the Plan of Reorganization but
it has not been consummated, rescind its vote on the Plan of Reorganization
(which vote shall thereupon be null and void and have no further force or
effect). Mengnu may exercise such rights singly or cumulatively and the single
or partial exercise of any such right shall not prevent Mengnu from exercising
any one or more of such rights at any later time. Such rights shall be in
addition to any other rights or remedies Mengnu may have at law, in equity or
otherwise.
 
          8. Representations and Warranties; Hearing on Relief from Stay. The
Company represents and warrants to and agrees with Mengnu that (i) Jennifer and
each of the other Jennifer Companies is duly organized, validly existing, and is
in good standing under the laws of the jurisdiction of its formation, (ii)
Jennifer’s Form 10-K for its fiscal year ended August 29, 2009, as amended, its
Form 10-Q for its fiscal quarter ended February 28, 2009, its Form 8-K dated
February 19, 2010 and its Schedule 14A in respect of its annual meeting of
stockholder held February 9, 2010, in each case filed with the SEC, complied in
all material respects with the applicable requirements of the Exchange Act and
the rules and regulations of the SEC thereunder and none of such documents, when
so filed, contained an untrue statement of material fact or omitted to state any
material fact
 
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required to be stated therein or necessary to make the statements made, in light
of the circumstances under which they were made, not misleading; (iii) its
execution, delivery, and performance of this Agreement are within the power and
authority of Jennifer and have been duly authorized by Jennifer and no other
approval or authorization is required, (iv) this Agreement has been duly
executed and delivered by it and constitutes its legal, valid, and binding
obligation, enforceable in accordance with the terms hereof, subject to
bankruptcy, insolvency, fraudulent conveyance, and similar laws affecting the
rights or remedies of creditors generally, and (v) none of the execution and
delivery of this Agreement or compliance with the terms and provisions hereof by
Jennifer will violate, conflict with, or result in a breach of, its certificate
of incorporation or bylaws or other constitutive document, any applicable law or
regulation, any order, writ, injunction, or decree of any court or governmental
authority or agency, or any agreement or instrument to which it is a party or by
which it is bound or to which it is subject.
 
     Mengnu represents and warrants that (i) it is validly existing as a
corporation in good standing under the laws of the People’s Republic of China
and has all the requisite corporate power and authority to enter into this
Agreement and to perform its obligations hereunder and (ii) assuming this
Agreement has been duly executed by Jennifer and constitutes the valid and
legally binding obligation of Jennifer, this Agreement constitutes the valid and
legally binding obligation of Mengnu.
 
     Jennifer on behalf of itself and each of the other Jennifer Companies
hereby consents to any application by Mengnu for a hearing on any motion to
obtain relief from the stay under Section 362 of the Bankruptcy Code upon no
more than five days’ notice.
 
          9. Governing Law; Jurisdiction. This Agreement shall be governed by
and construed in accordance with the internal laws of the state of New York,
without regard to any conflicts of law provisions which would require the
application of the law of any other jurisdiction. By its execution and delivery
of this agreement, each of the parties hereby irrevocably and unconditionally
agrees for itself that any legal action, suit, or proceeding against it with
respect to any matter under or arising out of or in connection with this
Agreement or for recognition or enforcement of any judgment rendered in any such
action, suit, or proceeding, shall be brought in the United States District
Court for the Southern District of New York, and, by execution and delivery of
this Agreement, each of the parties hereby irrevocably accepts and submits
itself to the exclusive jurisdiction of such court, in any action, suit or
proceeding to enforce any of the terms or provisions of this Agreement,
unconditionally, with respect to any such action, suit, or proceeding and agrees
that service of process in connection therewith shall be effective if made by
first class mail, postage prepaid and, if mailed to Mengnu, with the highest
priority and most expeditious delivery available for delivery overseas, and
shall not contest the form of manner of such service. Notwithstanding the
foregoing consent to New York jurisdiction, upon the commencement of the Chapter
11 Cases, the parties agree that the Bankruptcy Court shall have exclusive
jurisdiction of all matters arising out of or in connection with Mengnu’s and
Jennifer’s obligations under this Agreement and that the parties shall not seek
to enforce this Agreement in any other court so long as the Bankruptcy Court
retains jurisdiction of the Chapter 11 Cases.
 
          10. Specific Performance. It is understood and agreed by the parties
to this Agreement that money damages would not be a sufficient remedy for any
breach of this Agreement by any party, and each non-breaching party shall be
entitled to seek specific performance and injunctive or other equitable relief
as a remedy of any such breach, including, without limitation, an order of the
Bankruptcy Court requiring any party to comply promptly with any of its
obligations hereunder.
 
          11. Reservation of Rights. This Agreement is part of a proposed
settlement of disputes between the parties hereto. Except as expressly provided
in this Agreement, nothing herein is intended to, or does, in any manner waive,
limit, impair or restrict the ability of the Company or Mengnu to protect and
preserve its rights, remedies and interests, or its full participation in any
bankruptcy case filed by the Company. If the transactions contemplated herein or
in the Plan of Reorganization are not consummated, or if this Agreement is
terminated, the parties hereto fully reserve any and all of their rights.
Pursuant to Rule 408 of the Federal Rules of Evidence and any applicable state
rules of evidence, this Agreement shall not be admitted into evidence in any
proceeding other than a proceeding to enforce its terms.
 
          12. Headings. The headings of the Sections and Subsections of this
Agreement are inserted for convenience only and shall not affect the
interpretation hereof.
 
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          13. Successors and Assigns. This Agreement is intended to bind and
inure to the benefit of the parties and their respective successors, assigns,
heirs, executors, administrators and representatives.
 
          14. Notices. Notices given under this agreement shall be given by, if
to the Company, by first class mail, postage prepaid, return receipt requested,
or, if to Mengnu, by Federal Express priority international delivery, or if to
either party by e-mail through the internet, as follows:
 
          If to the Company:
 

                    
Jennifer Convertibles, Inc.
417 Crossways Park Drive
Woodbury, NY 11797
Attn: Harley Greenfield
          Rami Abada
e-mail: hjgharley@aol.com AND mrm79@aol.com
 
     with a copy to
 
Olshan Grundman Frome Rosenzweig & Wolosky LLP
Park Avenue Tower
65 East 55th Street
New York, New York 10022-1106
Attn: Michael Fox, Esq.
          Jordanna Nadritch, Esq.
e-mail mfox@olshanlaw.com AND
jnaditch@jnadritch@olshanlaw.com
 
If to Mengnu:
 
Mengnu Group
101 Longxling Road
Economic Development Zone
Haining Zhejiang, 31440
Attn: Morris Zou
e-mail: morriszou@mengnu.com
 
     with a copy to
 
Lawrence A. Darby, III
410 Park Avenue
Suite 1530
New York, New York 10022
e-mail: ladarby@gmail.com
 
     -and-
 
James Jiang
King & Wood
444 Madison Avenue
42d Floor
New York, New York 10022
e-mail: jiangyiwei@kingandwood.com

 
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     -and-
 
Neiger LLP
317 Madison Avenue, 21st Floor
New York, NY 10017
Attn: Edward E. Neiger, Esq.
e-mail: eneiger@neigerllp.com

 
          15. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which shall
constitute one and the same Agreement. This Agreement may be executed and
delivered by hand, facsimile, or by electronic mail in portable document format.
 
          16. Amendments and Waivers. This Agreement may not be modified,
amended, or supplemented except in writing signed by the party against which
enforcement of such modification, amendment or waiver is sought.
 
          17. No Third Party Beneficiaries. Unless expressly stated herein, this
Agreement shall be solely for the benefit of the parties hereto and no other
person or entity is intended as a beneficiary hereof.
 
          18.. No Solicitation. This Agreement is not and shall not be deemed to
be a solicitation for votes in favor of the Reorganization Plan in the Chapter
11 Cases in contravention of section 1125 of the Bankruptcy Code. Mengnu's vote
with respect to the Plan of Reorganization will not be solicited until Mengnu
has received the Plan of Reorganization and Disclosure Statement, in each case
as approved by the Bankruptcy Court. Each party hereto acknowledges that it has
been represented by counsel in connection with this Agreement and the
transactions contemplated hereby.
 
          19. 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 shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
 
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          IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed and delivered by its duly authorized officer as of the
date first above written.
 
JENNIFER CONVERTIBLES, INC.
    By:  
/s/ Harley J. Greenfield
Name:   
Harley J. Greenfield
Title:
Chairman/CEO
   
HAINING MENGNU GROUP CO. LTD
    By:
/s/ YaoXiang Yue
Name:
YaoXiang Yue
Title:
Chairman of the Board

 
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