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Exhibit 10.25  

 
 

MATTRESS HOLDING CORP.
  GEORGIA MATTRESS CORP.
  5815 Gulf Freeway
  Houston, TX 77023    
    

December    ,
2004 

To
each of the former Stockholders

of Elite Management Team, Inc. 

        Re:
Earnout Agreement (this "Agreement")

        Reference
is made to the Acquisition Agreement and Plan of Reorganization dated as of December    , 2004 (the "Acquisition
Agreement") among Mattress Holding Corp., a Delaware corporation ("Mattress Firm"), Georgia Mattress Corp., a Georgia
corporation and a wholly-owned subsidiary of Mattress Firm ("Newco"), and each of the stockholders (the  "Stockholders") of Elite Management Team, Inc.,
 a Georgia corporation ("Elite"). Capitalized
terms used but not defined herein have the meanings assigned to them in the Acquisition Agreement. 

        As
you know, the Acquisition Agreement provides that the Acquisition Consideration may be increased on the terms set forth herein. Such increase, if any, would be based upon, among other
things, the computation of Net Operating Cash Flow (as hereafter defined). 

        Accordingly,
we agree as follows: 

        Section 1    Definitions, Etc.    

        Section 1.1    Definitions.    The following terms shall have the meanings indicated: 

        (a)   "Dispute Notice" is defined in Section 2(b). 

        (b)   "Earnout Amount" means, for any Stockholder one or more certificates representing one-third of the number of
shares of Mattress Firm Common Stock set forth next to such Stockholder's name in column (1) of Schedule 3.3 to the Acquisition Agreement
and Warrants to purchase one-third of the number of shares of Mattress Firm Common Stock set forth next to such Stockholder's name in column (2) of  Schedule 3.3 to the Acquisition Agreement.

        (c)   "Earnout Statement" is defined in Section 2(a). 

        (d)   "Exit Event" means an IPO or a Sale Transaction. 

        (e)   "Final Net Operating Cash Flow" is defined in Section 2(c). 

        (f)    "IPO" means an initial public offering of Mattress Firm's common stock. 

        (g)   "Net Operating Cash Flow" shall be computed in the manner set forth on  Schedule A consistent with the practices set forth on such Schedule and will be computed for
the stores listed on  Schedule B; provided, however, that Net Operating
Cash Flow shall include any such stores that are relocated but shall not include any such stores that are closed or any new stores. 

        (h)   "Performance Target" means, with respect to any of the first three anniversaries of the last day of the month in which
the Closing Date shall occur, Net Operating Cash Flow equal to not less than $8,542,713. 

1

 

        (i)    "Sale Transaction" means a transaction referred to in Section 5(a)(i), (ii) or (iii) of the
Stockholders' Agreement (whether or not the stockholders of the Company are entitled to vote thereon). 

        (j)    "Shortfall" means, with respect to either of the first two 12-month periods referred to in
Section 2(a), the amount, if any, by which the Performance Target exceeds Final Net Operating Cash Flow. 

        (k)   "Transaction" means any transaction (including, without limitation, a merger, consolidation, sale of all or substantially
all of Mattress Firm's assets, liquidation or recapitalization or other Sale Transaction) in which previously outstanding Mattress Firm Common Stock shall be changed into or exchanged or sold for
different securities of the Mattress Firm (other than by subdivision of its outstanding shares of Mattress Firm Common Stock by reason of which an adjustment to the number of shares of Mattress Firm
Common Stock issuable under this Agreement pursuant to Section 3.2(a) below) or common stock or other securities of another corporation or interests in a noncorporate entity or other property
(including cash) or any combination of any of the foregoing. 

        Section 1.2    Number, Gender, Etc.    

        (a)   The
definitions in this Agreement shall apply equally to both the singular and plural form of the terms defined. Whenever the context may require, any pronoun shall
include the corresponding masculine, feminine and neuter form. The words "include," "includes," and "including" shall be deemed to be followed by the phrase "without limitation." 

        (b)   Unless
the context otherwise requires: (i) all references to Articles, Sections, paragraphs, subparagraphs, clauses and Schedules are to Articles, Sections,
paragraphs, subparagraphs and clauses in, and Schedules to, this Agreement; and (ii) the terms "herein," hereof," "hereto" and "hereunder" and words of similar import refer to this Agreement. 

        Section 2    Computation of Net Operating Cash Flow.    

        (a)   Mattress
Firm and Newco shall use their commercially reasonable efforts to deliver to the Stockholders' Representative on or prior to the expiration of the
120-day period following each of the first three anniversaries of the last day of the month in which the Closing Date shall occur their good faith written estimate of Net Operating Cash
Flow for the 12-month period ending on such anniversary of the last day of the month in which the Closing Date shall occur (each, an "Earnout
Statement"), which the Stockholders' Representative shall have the right to approve; provided,  however, that in the event that an
Exit Event shall occur prior to the expiration of a 12-month period to which an Earnout Statement
relates, then: (i) Mattress Firm and Newco shall use their commercially reasonable efforts to deliver such Earnout Statement on or prior to the expiration of the 120-day period
following the date of such Exit Event; (ii) such Earnout Statement shall set forth their good faith written estimate of Net Operating Cash Flow during the 12-month period ending on
the last day of the month prior to the month in which such Exit Event shall occur; and (iii) Mattress Firm and Newco shall not be required to deliver an estimate of Net Operating Cash Flow for
any subsequent period. 

        (b)   The
Stockholders' Representative shall notify Mattress Firm and Newco in writing (the "Dispute Notice") within
30 days after receipt of the Earnout Statement if the Stockholders' Representative, in good faith, disagrees with the calculation of Net Operating Cash Flow as set forth in the Earnout
Statement, which disagreement shall be limited to whether such calculation of Net Operating Cash Flow is mathematically correct and/or has been prepared in accordance with the definition of Net
Operating Cash Flow. The Dispute Notice, if any, shall set forth in reasonable detail the basis for such disagreement, the dollar amounts involved and the Stockholders' Representatives' calculation of
Net Operating Cash Flow, and shall be accompanied by a certificate executed by the Stockholders' Representative to the effect that the Stockholders' Representative's calculation of Net Operating Cash
Flow has been prepared in good faith in accordance with this Section 2(b), and in 

2

 

accordance
with the definition of Net Operating Cash Flow. Mattress Firm and Newco will, upon the Stockholder Representative's request, provide the Stockholders' Representative and its representatives
reasonable access during normal business hours to such of the books and records of Elite and its subsidiaries as are reasonably requested by the Stockholders' Representative in connection with the
preparation of a Dispute Notice. If no Dispute Notice is received by Mattress Firm and Newco from the Stockholders' Representative within such 30-day period, the calculation of Net
Operating Cash Flow by Mattress Firm and Newco as set forth in the Earnout Statement will be final and binding upon the parties. 

        (c)   Upon
receipt by Mattress Firm and Newco of a Dispute Notice, if any, Mattress Firm and Newco, on the one hand, and the Stockholders' Representative, on the other hand,
shall negotiate in good faith to resolve any disagreement with respect to Net Operating Cash Flow set forth in the Dispute Notice. To the extent Mattress Firm and Newco, on the one hand, and the
Stockholders' Representative, on the other hand, are unable to resolve any disagreement with respect to Net Operating Cash Flow within 30 days after receipt by Mattress Firm and Newco of the
Dispute Notice, Mattress Firm and Newco, on the one hand, and the Stockholders' Representative, on the other hand, shall submit their dispute to the national office of the Independent Auditor as
promptly as practicable. The parties hereto agree that the determination of such accounting firm as to the computation of the Independent Auditor will be final and binding absent manifest error, and
that judgment may be entered thereon in any court having jurisdiction over the party or parties against whom such determination is sought to be enforced. In resolving any disputed item, such
accounting firm: (x) shall be bound by the provisions of this Section 2 and the definition of Net Operating Cash Flow; (y) shall limit its review to matters specifically set forth
in the Dispute Notice; and (z) shall further limit its review solely to whether the Earnout Statement has been prepared in accordance with this Section 2. The determination of any item
that is a component of Net Operating Cash Flow and is the subject of a dispute cannot, however, be in excess of, or less than, the greatest or lowest value, respectively, claimed for any particular
item in the Earnout Statement or the Dispute Notice. The Net Operating Cash Flow, as determined by such accounting firm in accordance herewith, or as otherwise agreed upon by Mattress Firm and Newco,
on the one hand, and the Stockholders' Representative, on the other hand, or deemed agreed upon by Mattress Firm and Newco, on the one hand, and the Stockholders, on the other hand, pursuant to this
Section 2(c), will be deemed the "Final Net Operating Cash Flow." The fees and expenses of any accounting firm selected by Mattress Firm and
Newco, on the one hand, and the Stockholders' Representative, on the other hand, pursuant to and in accordance with this Section 2(c) will be paid, in its entirety, by the party hereto (either
Mattress Firm and Newco, on the one hand, or the Stockholders, on the other hand) whose calculation of Net Operating Cash Flow as initially submitted to such accounting firm is furthest away from the
Final Net Operating Cash Flow. 

        Section 3    Payment of the Earnout Amount; Adjustment.    

        Section 3.1    Payment of the Earnout Amount.    

        (a)   Following
the first determination of Final Net Operating Cash Flow pursuant to Section 2, Mattress Firm shall, only if such Final Net Operating Cash Flow is at
least equal to the Performance Target, issue the Earnout Amount to each Stockholder; provided, however,
that if such determination is made following the occurrence of an Exit Event and such Final Net Operating Cash Flow is at least equal to the Performance Target, Mattress Firm shall instead issue three
times the Earnout Amount to each Stockholder. 

        (b)   Following
the second determination (if any) of Final Net Operating Cash Flow pursuant to Section 2, Mattress Firm shall, only if such Final Net Operating Cash
Flow is at least equal to the Performance Target: 

          (i)  issue
the Earnout Amount to each Stockholder; 

3

 

         (ii)  if
such determination is made following the occurrence of an Exit Event and such Final Net Operating Cash Flow is at least equal to the Performance Target, Mattress
Firm shall instead of issuing the Earnout Amount pursuant to Section 3.1(b)(i) issue two times the Earnout Amount to each Stockholder; and 

        (iii)  if
the Earnout Amount was not issued to the Stockholders pursuant to Section 3.1(a) due to a Shortfall and such second determination of Final Net Operating Cash
Flow (whether or not such determination is made following the occurrence of an Exit Event) exceeds the Performance Target by at least the amount of such Shortfall, then Mattress Firm shall also issue
the Earnout Amount to each Stockholder. 

        (c)   Following
the third determination (if any) of Final Net Operating Cash Flow pursuant to Section 2, Mattress Firm shall, only if such Final Net Operating Cash Flow
is at least equal to the Performance Target: 

          (i)  issue
the Earnout Amount to each Stockholder; and 

         (ii)  if
the Earnout Amount was not issued to the Stockholders pursuant to Section 3.1(b)(i) due to a Shortfall and such third determination of Final Net
Operating Cash Flow (whether or not such determination is made following the occurrence of an Exit Event) exceeds the Performance Target by at least the amount of such Shortfall, then Mattress Firm
shall also issue the Earnout Amount to each Stockholder. 

        (d)   In
no event shall any Stockholder be issued more than three times the Earnout Amount, in the aggregate. 

        Section 3.2    Adjustments.    Prior to an issuance of the Earnout Amount to the Stockholders, the number of
shares of Mattress Firm Common Stock that comprise such Earnout Amount (including, without limitation, the number of shares of Mattress Firm Common Stock issuable upon exercise of the Warrants
issuable pursuant to this Agreement and the Warrant Price (as defined therein) payable in connection therewith) shall be subject to adjustment from time to time as follows: 

        (a)   If
at any time the number of outstanding shares of Mattress Firm Common Stock shall increase by virtue of or in connection with any dividend on the Mattress Firm Common
Stock or any stock split or other subdivision of the outstanding shares of Mattress Firm Common Stock or a reclassification, then the number of shares of Mattress Firm Common Stock issuable pursuant
to this Agreement shall be adjusted, concurrently with the effectiveness of such increase, so that the Stockholders are entitled to receive, upon issuance thereof, the same percentage of the
outstanding shares of Mattress Firm Common Stock that they would have received on issuance thereof to the extent permitted hereunder immediately prior to such increase. If the outstanding shares of
Mattress Firm Common Stock shall be combined or consolidated, by reclassification or otherwise, into a lesser number of shares of Mattress Firm Common Stock (including, without limitation, pursuant to
a reverse stock split), then the number of shares of Mattress Firm Common Stock issuable pursuant to this Agreement shall be adjusted, concurrently with the effectiveness of such decrease, so that the
Stockholders are entitled to receive, upon issuance thereof, the same percentage of the outstanding shares of Mattress Firm Common Stock that they have received upon issuance thereof to the extent
permitted hereunder immediately prior to such combination or consolidation. 

        (b)   In
case at any time Mattress Firm shall be a party to any Transaction (other than by subdivision of its outstanding shares of Mattress Firm Common Stock by reason of
which an adjustment is made under Section 3.2(a) above), then immediately following consummation of the Transaction, and without any action on the part of the Stockholders, the number of shares
of Mattress Firm Common Stock issuable pursuant to this Agreement shall be adjusted to provide, in lieu of the Mattress Firm Common Stock or other securities issuable upon such exercise prior to such
consummation, the highest amount of securities, cash or other property to which such holder would 

4

 

actually
have been entitled as a shareholder upon the consummation of the Transaction if such Mattress Firm Common Stock had been issued pursuant to this Agreement immediately prior thereto. 

        (c)   All
calculations under this Section 3.2 shall be made to the nearest one-tenth of a share of Common Stock. 

        (d)   Whenever
the number of shares of Mattress Firm Common Stock issuable pursuant to this Agreement is adjusted or readjusted pursuant to Section 3.2(a) or
(b) above, the Warrant Price payable upon exercise of the Warrants shall be adjusted or readjusted by multiplying such Warrant Price in effect immediately prior to such adjustment by a
fraction, the numerator of which shall be the number of shares of Mattress Firm Common Stock issuable upon the exercise of the Warrants immediately preceding such adjustment, and the denominator of
which shall be the number of shares of Mattress Firm Common Stock so issuable immediately thereafter. 

        (e)   Nothing
in this Section 3.2 shall changes the circumstances under which the Earnout Amount is issuable pursuant to Section 3.1. 

        Section 3.3    Time of Adjustments.    Except as otherwise expressly provided in Section 3.2, each
adjustment required by Section 3.2 shall be effective as and when the event requiring such adjustment occurs. 

        Section 3.4    No Adjustment for Dividends.    Except as provided in Section 3.2, no adjustment shall be
made in respect of any dividends declared or paid on the Mattress Firm Common Stock. 

        Section 4    Miscellaneous    

        Section 4.1    Notices.    Any and all notices, consents, demands, instructions, requests and other
communications required or permitted hereunder must be in writing and shall be deemed to have been duly given only if delivered personally, by facsimile transmission, by first-class mail (postage
prepaid, return receipt requested), or by overnight delivery by a recognized overnight courier service (all costs prepaid) to the parties at their respective addresses or facsimile numbers, as set
forth in the Acquisition Agreement. 

        All
such notices, requests and other communications will be deemed given upon delivery. Any party from time to time may change its address, facsimile number or other information for the
purpose of notices to that party by giving like notice specifying such change to the other party hereto. 

        Section 4.2    Binding Effect; Assignability.    The provisions of this Agreement shall be binding upon and
inure to the benefit of the parties hereto (including, without limitation, Parent) and their respective successors and assigns. Neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assignable by any of the parties hereto without the prior written consent of the other parties, except that: (a) the rights of Mattress Firm and Newco (and, from and after
the consummation of the Merger, the Surviving Corporation) may be assigned, without the consent of the other parties hereto, to any corporation all of the outstanding capital stock of which is owned
or controlled, directly or indirectly, by Mattress Firm or Newco (or, from and after the consummation of the Merger, the Surviving Corporation) or to any Person investing in and/or lending monies to
either of them; and (b) from and after the consummation of the Merger, Mattress Firm or the Surviving Corporation (including each subsequent assignee of either of them) shall have the right to
assign any or all of its rights and obligations hereunder to any other person who acquires all or substantially all of the assets and business of either of them. 

        Section 4.3    No Waiver.    No failure or delay by any party in exercising any right, power or privilege
hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The
rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. 

5

 

        Section 4.4    Governing Law.    This Agreement shall be governed by, and construed and enforced in accordance
with, the laws of the State of New York applicable to contracts made and to be performed therein. 

        Section 4.5    Jurisdiction.    Each of the parties hereto hereby irrevocably consents and submits to the
exclusive jurisdiction of the United States District Court for the Southern District of New York or the United States District Court for the Eastern District of Texas in connection with any Proceeding
arising out of or relating to this Agreement or the transactions contemplated hereby, waives any objection to venue in such Districts (unless such court lacks jurisdiction with respect to such
Proceeding, in which case, each of the parties hereto irrevocably consents to the jurisdiction of the courts of the State of New York or the State of Texas in connection with such Proceeding and
waives any objection to venue in the State of New York and the State of Texas), and agrees that service of any summons, complaint, notice or other process relating to such dispute may be effected in
the manner provided by Section 4.1. 

        Section 4.6    Waiver of Jury Trial.    EACH PARTY HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY AGREEMENT, INSTRUMENT OR DOCUMENT EXECUTED AND DELIVERED IN CONNECTION HEREWITH OR THEREWITH, INCLUDING THE TRANSACTION DOCUMENTS OR IN
THE NEGOTIATION, ADMINISTRATION, PERFORMANCE OR ENFORCEMENT HEREOF OR THEREOF. 

        Section 4.7    Construction.    The parties acknowledge and agree that each party and its counsel have reviewed
and negotiated the terms and provisions of this Agreement and have contributed to their revision; the normal rule of construction, to the effect that any ambiguities are resolved against the drafting
party shall not be employed in the interpretation of it; and its terms and provisions shall be construed fairly as to all parties hereto and not in favor of or against any party, regardless of which
party was generally responsible for the preparation of this Agreement. 

        Section 4.8    No Third Party Beneficiaries.    Nothing contained in this Agreement, whether express or
implied, is intended, or shall be deemed, to create or confer any right, interest or remedy for the benefit of any Person other than as otherwise provided in this Agreement. 

        Section 4.9    Severability.    It is the desire and intent of the parties to this Agreement that the
provisions of this Agreement shall be enforced to the fullest extent permitted under the Laws and public policies of each jurisdiction in which enforcement is sought. If any court determines that any
provision of this Agreement is unenforceable, such court will have the power to reduce the duration or scope of such provision, as the case may be, or terminate such provision and, in reduced form,
such provision shall be enforceable. It is the intention of the parties hereto that any such provision shall not be terminated, unless so terminated by a court, but shall be deemed amended to the
extent required to render it valid and enforceable, such amendment to apply only with respect to such provision in the jurisdiction of the court that has made such determination. 

        Section 4.10    Entire Agreement.    This Agreement and the Acquisition Agreement supersedes all prior and/or
contemporaneous negotiations, understandings, discussions and agreements (written or oral) between the parties with respect to the subject matter hereof (all of which are merged herein and therein)
and contains the sole and entire agreement among the parties hereto with respect to the subject matter hereof. 

        Section 4.11    Modifications, Amendments and Waivers.    Any term of this Agreement may be modified or amended
only by the written consent of Mattress Firm, Newco (prior to the consummation of the Merger), the Surviving Corporation (from and after the consummation of the Merger) and the Stockholders'
Representative. Any agreement on the part of a party to any extension or waiver (either generally or in a particular instance, either retroactively or prospectively, and either for a specified 

6

 

period
of time or indefinitely), shall only be valid if set forth in an instrument in writing signed on behalf of such party. Any such waiver or extension shall not, unless expressly set forth
therein, operate as waiver or extension of any other subsequent condition or obligation. 

        Section 4.12    Headings.    The headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement. 

        Section 4.13    Counterparts; Effectiveness.    This Agreement may be executed simultaneously in one or more
counterparts, each of which shall be deemed an original. This Agreement shall become effective when each party hereto shall have received counterparts hereof signed by all of the other parties hereto. 

[The
next page is the signature page] 

7

   
        Please confirm our understanding below. 

	 	 	MATTRESS HOLDING CORP.
	

 	
 	

By:	
 	

 Name:

Title:
	

 	
 	

GEORGIA MATTRESS CORP.
	

 	
 	

By:	
 	

 Name:

Title:

[Stockholder
signatures appear on the next page] 

S-1

 

	

Agreed:	
 	

 
	

 R. Stephen Stagner	
 	

 
	

 Darin Lewin	
 	

 
	

 Jeff Quinn	
 	

 
	

 Scott Scoggins	
 	

 
	

 Ed Ferguson	
 	

 
	

 Steven Ness	
 	

 
	

 Nick Quinn	
 	

 

S-2

  

 
 

SCHEDULE A
  NET OPERATING CASH FLOW    
    

	YEAR TO DATE- OCT 2004
 
	 	ELITE
	 	 
	 
	ELITE MANAGEMENT TEAM INC	 	 	 	 	 
	Revenue	 	 	 	 	 
	 	SALES	 	46,520,946	 	93.22	%
	 	FURNITURE SALES	 	1,822,698	 	3.65	%
	 	DELIVERY SALES	 	724,760	 	1.45	%
	 	EXPRESS DELIVERY SALES	 	729,132	 	1.46	%
	 	INSTALL SALES	 	109,573	 	0.22	%
	 	 	
	 	
	 
	 	Total for Revenue	 	49,907,109	 	100.00	%
	 	 	
	 	
	 
	COGS	 	 	 	 	 
	 	COST OF GOODS SOLD	 	25,171,922	 	50.65	%
	 	 	
	 	
	 
	 	Total for COGS	 	25,171,922	 	50.65	%
	 	 	
	 	
	 
	Gross Profit	 	24,735,187	 	49.56	%
	 	 	
	 	
	 
	Property	 	 	 	 	 
	 	CLEANING EXPENSE	 	586	 	0.00	%
	 	UTILITES	 	357,111	 	0.72	%
	 	RENT	 	3,762,802	 	7.54	%
	 	CAM & OTHER PROPERTY EXPENSES	 	548,910	 	1.10	%
	 	PROPERTY LICENSE & FEES	 	58,191	 	0.12	%
	 	GAAP RENT ADJUSTMENTS	 	(134,582	)	-0.27	%
	 	TRASH REMOVAL	 	16,914	 	0.03	%
	 	 	
	 	
	 
	 	Total for Property	 	4,609,934	 	9.24	%
	 	 	
	 	
	 
	Payroll & Selling	 	 	 	 	 
	 	STORE SALARIES	 	2,425,532	 	4.86	%
	 	COMMISSIONS EARNED	 	668,924	 	1.34	%
	 	STORE MGR BONUSES	 	627,045	 	1.26	%
	 	CITY MGR SALARIES	 	350,114	 	0.70	%
	 	PART TIME SALARIES	 	492,123	 	0.99	%
	 	PMS AND SPIFFS PR	 	575,135	 	1.15	%
	 	PMS AND SPIFFS INCOME	 	(252,822	)	-0.51	%
	 	PAYROLL TAXES/FEES	 	449,314	 	0.90	%
	 	PART TIME COMMISSIONS	 	58,031	 	0.12	%
	 	OFFICE SUPPLIES	 	67,569	 	0.14	%
	 	TELEPHONE EXPENSE	 	188,431	 	0.38	%
	 	SALES EXPENSE	 	46,678	 	0.09	%
	 	REPAIRS & MAINT	 	104,155	 	0.21	%
	 	STORE EQUIPMENT LEASE	 	22,114	 	0.04	%
	 	 	
	 	
	 
	Total for Payroll & Selling	 	5,822,341	 	11.67	%
	 	 	
	 	
	 
	 	 	 	 	 	 

A-1

 

	Credit	 	 	 	 	 
	 	BAD CHECKS	 	7,565	 	0.02	%
	 	AMEX DISCOUNTS	 	141,581	 	0.29	%
	 	DISCOVER DISCOUNTS	 	19,097	 	0.04	%
	 	TELECHECK DISCOUNTS	 	112,807	 	0.23	%
	 	VISA/MC DISCOUNTS	 	407,048	 	0.82	%
	 	FINANCE DISCOUNTS	 	653,561	 	1.30	%
	 	CHARGE BACKS (CC)	 	15,552	 	0.03	%
	 	CASH SHORT/OVER	 	2,197	 	0.01	%
	 	 	
	 	
	 
	 	Total for Credit	 	1,359,407	 	2.73	%
	 	 	
	 	
	 
	Total Store Expenses	 	11,791,682	 	23.63	%
	 	 	
	 	
	 
	Contribution Margin	 	12,943,505	 	25.94	%
	 	 	
	 	
	 
	ANNUALIZED 2004 CONTRIBUTION	 	15,532,206	 	 	 
	 	 	
	 	
	 
	EARNOUT THRESHOLD (55%)	 	8,542,713	 	 	 
	 	 	
	 	
	 

A-2

  

 
 

SCHEDULE B
  STORES    
    

Elite
Management Team Inc

Merger Earnout Schedule

December 28, 2004 

	Atlanta	 	 	 	 
	East	 	 	 	 
	 	 	701	 	INCLUDED
	 	 	702	 	INCLUDED
	 	 	715	 	CLOSED
	 	 	716	 	INCLUDED
	 	 	717	 	INCLUDED
	 	 	718	 	INCLUDED
	 	 	719	 	INCLUDED
	 	 	721	 	INCLUDED
	 	 	724	 	INCLUDED
	 	 	726	 	INCLUDED
	Total East	 	9	 	 
	

West	
 	

 	
 	

 
	 	 	705	 	INCLUDED
	 	 	706	 	INCLUDED
	 	 	710	 	INCLUDED
	 	 	712	 	INCLUDED
	 	 	714	 	INCLUDED
	 	 	720	 	INCLUDED
	 	 	723	 	INCLUDED
	 	 	725	 	INCLUDED
	 	 	727	 	INCLUDED
	Total West	 	9	 	 
	

Clearance	
 	

 	
 	

 
	 	 	704	 	INCLUDED
	 	 	708	 	CLOSED
	 	 	709	 	CLOSED
	 	 	711	 	INCLUDED
	 	 	713	 	INCLUDED
	 	 	722	 	INCLUDED
	 	 	728	 	TO REPLACE STORE 722 WHEN OPENED
	Total Clearance	 	4	 	 
	 	 	 	 	 

B-1

 

	

Raleigh	
 	

 	
 	

 
	 	 	1301	 	INCLUDED
	 	 	1303	 	INCLUDED
	 	 	1304	 	INCLUDED
	 	 	1306	 	INCLUDED
	 	 	1307	 	INCLUDED
	 	 	1309	 	CLOSED
	 	 	1310	 	INCLUDED
	 	 	1311	 	INCLUDED
	 	 	1312	 	INCLUDED
	Total Raleigh	 	8	 	 
	

Greensboro	
 	

 	
 	

 
	 	 	1701	 	INCLUDED
	 	 	1703	 	INCLUDED
	 	 	1704	 	INCLUDED
	 	 	1705	 	INCLUDED
	 	 	1706	 	INCLUDED
	 	 	1707	 	INCLUDED
	Total Greensboro	 	6	 	 
	

Charlotte	
 	

 	
 	

 
	 	 	2401	 	Replaced by 2409
	 	 	2403	 	INCLUDED
	 	 	2404	 	INCLUDED
	 	 	2405	 	INCLUDED
	 	 	2406	 	INCLUDED
	 	 	2407	 	INCLUDED
	 	 	2408	 	INCLUDED
	 	 	2409	 	INCLUDED
	Total Charlotte	 	7	 	 
	

Greenville	
 	

 	
 	

 
	 	 	3801	 	INCLUDED
	 	 	3802	 	INCLUDED
	 	 	3803	 	INCLUDED
	 	 	3804	 	INCLUDED
	Total Greenville	 	4	 	 
	

Charleston	
 	

 	
 	

 
	 	 	4001	 	INCLUDED
	 	 	4002	 	INCLUDED
	 	 	4003	 	INCLUDED
	Total Charleston	 	3	 	 
	Total Stores Included in Earnout	 	50	 	 

B-2

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MATTRESS HOLDING CORP. GEORGIA MATTRESS CORP. 5815 Gulf Freeway Houston, TX 77023

SCHEDULE A NET OPERATING CASH FLOW

SCHEDULE B STORES<PAGE>

                                                                Exhibit 10.1

[SOLUTIA logo]
                                   News

                                               SOLUTIA INC.
                                               575 Maryville Centre Drive
                                               St. Louis, Missouri 63141

                                               P.O. Box 66760
                                               St. Louis, Missouri 63166-6760

FOR IMMEDIATE RELEASE
------------------------------------------------------------------------------

                                       MEDIA: Dan Jenkins (314) 674-8552
                                       INVESTORS: Tim Spihlman (314) 674-5206

               SOLUTIA AGREES TO SALE OF ASTARIS JOINT VENTURE

             TRANSACTION CONSISTENT WITH REORGANIZATION STRATEGY

ST. LOUIS - SEPTEMBER 1, 2005 - Solutia Inc. (OTCBB: SOLUQ), today announced
it and FMC Corporation have reached a definitive agreement to sell Astaris,
their 50/50 specialty phosphates joint venture. Under the terms of the
agreement, Israel Chemicals Limited (ICL) will purchase substantially all of
the assets of Astaris for $255 million. This transaction is subject to
bankruptcy court approval, regulatory clearance and various other conditions
and contingencies.

         "The Astaris divestiture is the latest step forward in a key
component of our reorganization strategy: building a portfolio of
high-potential businesses to form the core of reorganized Solutia," said Jim
Sullivan, senior vice president and chief financial officer, Solutia Inc.
"While Astaris has benefited greatly from restructuring actions taken during
2004, it is a non-core asset to Solutia that is a better strategic fit for a
company such as ICL."

         Solutia will use the proceeds of the Astaris sale to partially pay
down the term loan portion of its debtor-in-possession (DIP) financing. The
sale will be liquidity neutral for Solutia; however, it will save the
company interest costs associated with its DIP term loan.

                                    # # #

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FORWARD LOOKING STATEMENTS

         This press release may contain forward-looking statements, which
can be identified by the use of words such as "believes," "expects," "may,"
"will," "intends," "plans," "estimates" or "anticipates," or other
comparable terminology, or by discussions of strategy, plans or intentions.
These statements are based on management's current expectations and
assumptions about the industries in which Solutia operates. Forward-looking
statements are not guarantees of future performance and are subject to
significant risks and uncertainties that may cause actual results or
achievements to be materially different from the future results or
achievements expressed or implied by the forward-looking statements. These
risks and uncertainties include, but are not limited to, those described in
Solutia's most recent Annual Report on Form 10-K, under "Cautionary
Statement About Forward-Looking Statements," Solutia's quarterly reports on
Form 10-Q, and in filings with the U.S. Bankruptcy Court in connection with
the Chapter 11 case of Solutia Inc. and 14 of its U.S. subsidiaries. These
reports and filings can be accessed through the "Reorganization" and
"Investors" sections of Solutia's website at www.solutia.com. Solutia
disclaims any intent or obligation to update or revise any forward-looking
statements in response to new information, unforeseen events, changed
circumstances or any other occurrence.

CORPORATE PROFILE

         Solutia (http://www.Solutia.com) uses world-class skills in applied
chemistry to create value-added solutions for customers, whose products
improve the lives of consumers every day. Solutia is a world leader in
performance films for laminated safety glass and after-market applications;
process development and scale-up services for pharmaceutical fine chemicals;
specialties such as water treatment chemicals, heat transfer fluids and
aviation hydraulic fluid and an integrated family of nylon products
including high-performance polymers and fibers.
Solutia ... Solutions for a Better Life.

SOURCE: SOLUTIA INC.

ST. LOUIS

9/1/05

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