Document:

Exhibit 10.10

 

Execution Copy

 

AMENDED MANAGEMENT AGREEMENT

 

This Amended Management Agreement (the “Agreement”) is entered into as of March 20, 2009 (the “Amendment Date”) by and between J.W. Childs Associates, L.P., a Delaware limited partnership (the “Consultant”), Mattress Intermediate Holdings, Inc., a Delaware corporation (“Intermediate Holdings”), Mattress Holding Corp., a Delaware corporation (the “Company”) and Mattress Firm, Inc., a Delaware corporation (“Mattress Firm”).

 

Intermediate Holdings, the Company and Mattress Firm, and any of their direct or indirect subsidiaries that receive services performed by the Consultant under this Agreement, are hereinafter referred to as the “Clients”.  The Consultant and the Clients are hereinafter referred to as the “Parties”.

 

RECITALS

 

A.            The Consultant is specifically skilled in corporate finance, strategic corporate planning and other management services.

 

B.            The Consultant, the Company and Mattress Firm entered into a Management Agreement (the “Original Management Agreement”) on January 18, 2007 in connection with the acquisition by investment funds indirectly controlled by the Consultant (the “JWC Funds”) of an indirect controlling interest in the capital stock of the Company (the “Acquisition”).

 

C.             Concurrently with the execution and deliver of this Agreement, the Company, Intermediate Holdings and the holders of the Company’s senior subordinated loans (the “Mezzanine Lenders”) intend to consummate a transaction (the “Mezzanine Restructuring”) pursuant to which, among other things, Intermediate Holdings will become the obligor under those senior subordinated loans and the Company will be released therefrom, all as more fully set forth in the Amended and Restated Loan Agreement (the “Mezzanine Loan Agreement”) dated as of the date hereof among Intermediate Holdings, the Mezzanine Lenders and TCW/Crescent Mezzanine Partners IV, L.P., as administrative agent (the “Administrative Agent”).

 

D.             J.W. Childs Equity Partners III, L.P., which is one of the JWC Funds, has agreed pursuant to a letter to Mattress Interco, Inc., a Delaware corporation and parent company of Intermediate Holdings (“Mattress Interco”), dated the date hereof to make or cause there to be made up to $17,000,000 in additional equity investments in Mattress Interco, to be contributed to the capital of the Company, subject to the terms and conditions contained in that letter (the “Equity Support Letter”).

 

E.             The Company, Mattress Firm and their subsidiaries continue to require the Consultant’s special skills and management advisory services in connection with their general business operations and therefore desire to continue the arrangements in place under the Original Management Agreement, but as an inducement to the Mezzanine Lenders to consummate the Mezzanine Restructuring, which is expected to benefit the JWC Funds’ indirect equity investment in the Company and therefore benefit the Consultant, the Company, Mattress Firm and the Consultant have agreed to amend the Original Management Agreement on the terms set forth herein.

 

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the foregoing and the promises hereinafter set forth, Intermediate Holdings, the Company, Mattress Firm and the Consultant, intending to be legally bound, do hereby agree as follows:

 

1.             Engagement.  Intermediate Holdings hereby engages, and the  Clients  (other than Intermediate Holdings) hereby  reconfirm their engagement, of the Consultant for the Term (as hereinafter defined) and upon the terms and conditions herein set forth to provide consulting and management advisory services to the Clients and/or any of their subsidiaries, as requested from time to time by the Clients and/or any of their subsidiaries.  These services will be in the field of financial and strategic corporate planning and such other management areas as the Consultant and the Clients shall mutually agree.  In consideration of the compensation to the Consultant herein specified and the benefit that is expected to inure to the JWC Funds and the Consultant by virtue of the transactions contemplated by the Mezzanine Restructuring, the Consultant reconfirms its acceptance of such engagement and its agreement to perform the services specified herein.

 

2.             Term.  The engagement hereunder shall be for a term commencing on the Amendment Date and expiring on January 18, 2013 (the “Initial Term”).  Upon expiration of the Initial Term, this Agreement shall automatically extend for successive periods of one (1) year each unless the Consultant or the Company shall give notice to the other at least ninety (90) days prior to the end of the Initial Term (or any annual extension thereof) indicating that it does not intend to extend the term of this Agreement; provided, however, that (a) either the Consultant or the Company will have the right to terminate this Agreement following a material breach of the terms of this Agreement by the other party hereto and a failure to cure such breach within thirty (30) days following written notice thereof and (b) the Consultant may terminate this Agreement for any reason upon not less than ten (10) days written notice to the Company; and provided further that each of (i) the obligations of Intermediate Holdings, the Company and Mattress Firm under Section 5.2 below, (ii) any and all accrued and unpaid obligations of the Company and Mattress Firm owed under Section 5.1 below and (iii) the provisions of Section 5.3, Section 5.4 and Sections 6 through 16 below shall survive any termination of this Agreement to the maximum extent permitted under applicable law.  The Initial Term, together with all such annual extensions of the Initial Term, is referred to herein as the “Term.”

 

3.             Services to be Performed.  The Consultant shall devote reasonable time and efforts to the performance of the consulting and management advisory services contemplated by this Agreement.  However, no minimum number of hours is required to be devoted by the Consultant on a weekly, monthly, annual or other basis.  The Consultant may perform services under this Agreement directly, through its employees or agents, or with such outside consultants as the Consultant may engage for such purpose.  Each Client acknowledges that such services to them will not be exclusive, and that the Consultant and its affiliates will render similar services to other persons.  In providing services to each Client, the Consultant will act as an independent contractor and it is expressly understood and agreed that this Agreement is not intended to create, and does not create, any partnership, agency, joint venture or similar relationship and that neither

 

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party has the right or ability to contract for or on behalf of the other party or to effect any transaction for the account of the other.

 

4.             Confidentiality.  The Consultant shall hold in confidence all proprietary and confidential information of the Clients and/or any of their subsidiaries which may come into the Consultant’s possession or knowledge as a result of its performance of services hereunder, exercising a degree of care in maintaining such confidence as is used by the Consultant to protect its own proprietary or confidential information that it does not wish to disclose.  The Consultant shall use all reasonable efforts to ensure that its employees, agents and outside consultants similarly maintain the confidentiality of such proprietary and confidential information of the Clients and/or any of their subsidiaries.

 

5.             Compensation; Expense Reimbursement.

 

5.1.          Management Fee.

 

5.1.1             Except as otherwise provided in Section 5.1.2, in consideration of the Consultant’s ongoing management advisory services hereunder, the Consultant shall be paid an aggregate annual fee (hereinafter the “Management Fee”) equal to $360,000, which Management Fee shall be paid to the Consultant by Intermediate Holdings, the Company and/or Mattress Firm in equal monthly installments of $30,000 per month; provided that the monthly installment due in respect of any calendar month during which the Term commences shall be appropriately pro-rated for the number of days in such calendar month for which the Term was in effect.  Except as otherwise provided in Section 5.1.2, such Management Fee is to be paid monthly in arrears on the first day of each calendar month.

 

5.1.2             During the period commencing on the Amendment Date and ending on the first Interest Payment Date (as defined in the Mezzanine Loan Agreement) after the Amendment Date that Intermediate Holdings pays all interest due under the Mezzanine Loan Agreement on that Interest Payment Date in cash rather than in kind (the “Deferral Period”), all payments in respect of the Management Fee that would otherwise be due and payable pursuant to Section 5.1.1 (each such payment otherwise due and payable, a “Deferred Fee”) will be deferred and, until paid in cash in accordance with this Section 5.1.2, will bear interest at a per annum rate of 16%, compounded quarterly and accruing daily in arrears, calculated on the basis of a 365-day year.  Provided that the condition specified in the next sentence is then satisfied, all Deferred Fees, together with all interest accrued thereon, will become immediately due and payable in cash by Intermediate Holdings on the earlier of (a) the first anniversary of the first Interest Payment Date after the Amendment Date that begins a period of 365 consecutive days throughout which Intermediate Holdings pays all interest due under the Mezzanine Loan Agreement on each Interest Payment Date during such period in cash rather than in kind and (b) the first date after the Amendment Date as of which Intermediate Holdings has made, in the aggregate, $15 million or more in cash payments in respect of the principal amount of the loans outstanding under the Mezzanine Loan Agreement.  The Consultant will be entitled to receive payment of the Deferred Fees only if, at the time the Deferred Fees become due and payable under the preceding sentence, the Consultant is then engaged by the

 

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Clients or any of their successors or assigns to provide services that are of the type contemplated by this Agreement.

 

5.2.          Expenses.  The Company and/or Mattress Firm will pay on demand all expenses incurred by the Consultant or by the JWC Funds: (i) in connection with this Agreement, the Acquisition, the Mezzanine Restructuring or any related transactions, (ii) relating to operations of, or services provided by the Consultant to, the Clients or their affiliates from time to time or (iii) otherwise in any way relating to the Clients or in any way relating to, or arising out of, any of the JWC Funds’ equity investments in Mattress Holdings, LLC or any of its affiliates.  Without limiting the generality of the foregoing, the Clients agree to pay on demand all expenses incurred by the Consultant and the JWC Funds (or any of them) in connection with, or relating to, (x) the preparation, negotiation and execution of this Agreement and any other agreement executed in connection with, or related to, this Agreement, the Acquisition, the Mezzanine Restructuring, the JWC Funds’ equity investments in Mattress Holdings, LLC or any of its affiliates or the consummation of the transactions contemplated hereby or thereby or (y) any and all amendments, modifications, restructurings and waivers, and exercises and preservations of rights and remedies relating to any of the foregoing, and in each case specifically will include the fees and disbursements of Ropes & Gray LLP, special counsel to the Consultant and the JWC Funds, Ernst & Young, LLP, accountant to the Consultant and the JWC Funds and any other consultants or advisors retained by the Consultant, the JWC Funds or their respective consultants or advisors and any out-of-pocket expenses incurred by the Consultant in connection with the provision of services to the Clients from time to time or the attendance at any meeting of the board of directors (or any committee thereof) of the Clients or any of their affiliates.  Notwithstanding the foregoing, amounts invested as debt or equity securities of Mattress Interco or Mattress Holdings, LLC pursuant to the Note Purchase Agreement dated as of the date hereof between Mattress Interco, Mattress Holdings, LLC and JWC Equity Funding III, Inc. or pursuant to the Equity Support Letter shall not be subject to reimbursement as an expense hereunder.  Consultant may from time to time establish an estimated monthly reimbursement rate whereby the Company and/or Mattress Firm shall remit on a monthly basis a fixed sum to offset Consultant’s estimated expenses.  Consultant shall periodically reconcile the Company’s and/or Mattress Firm’s estimated expense payments with actual expenses, and the parties shall adjust future expense reimbursement payments accordingly.

 

5.3.          Form of Payment.  Each cash payment made pursuant to this Agreement will be paid by wire transfer of immediately available federal funds to such account(s) as the Consultant may specify to the Company or Intermediate Holdings in writing prior to such payment.

 

5.4.          Joint and Several Obligations.  Except for the payments required of Intermediate Holdings under Section 5.1.2., with respect to which Intermediate Holdings will be solely responsible, Intermediate Holdings, the Company and Mattress Firm will be jointly and severally obligated to pay to the Consultant all fees, expenses and other amounts set forth in this Section 5.

 

6.             Indemnification.  In addition to their other agreements and obligations under this Agreement, the Clients agree, jointly and severally, to indemnify and hold harmless the

 

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Consultant and each JWC Fund and each of their respective affiliates, including officers, directors, stockholders, partners, members, employees, advisors and agents (collectively, the “Indemnitees”) from and against any and all claims, liabilities, losses and damages or actions, suits or proceedings in respect thereof, including without limitation reasonable attorney’s fees and charges (collectively, the “Obligations”), as and when incurred by the Indemnitees, in any way related to or arising out of the performance by the Consultant of services under this Agreement, and to reimburse the Indemnitees for reasonable out-of-pocket legal and other expenses (“Expenses”) as and when incurred by any of them in connection with or relating to investigating, preparing to defend, or defending any actions, claims or other proceedings (including any investigation or inquiry) arising in any manner out of or in connection with the Consultant’s performance of services under this Agreement (whether or not such Indemnitee is a named party in such proceeding), and if and to the extent that the foregoing undertaking may be unenforceable for any reason, the Clients hereby agree to make the maximum contribution to the payment and satisfaction of each of the indemnifiable Obligations and reimbursable Expenses which is permissible under applicable law; provided, however, that the Clients shall not be responsible under this Section 6 for any Obligations or Expenses incurred by an Indemnitee to the extent that such Obligations and Expenses are finally determined by a court of competent jurisdiction (in an action to which such Indemnitee is a party) to have resulted from such Indemnitee’s gross negligence or willful misconduct.

 

7.             Disclaimer and Limitation of Liability; Opportunities.

 

7.1.          Disclaimer; Standard of Care. The Consultant makes no representations or warranties, express or implied, in respect of the services to be provided by it hereunder.  The Consultant will not be liable, in any event, to the Clients or any of their affiliates for any act, alleged act, omission or alleged omission on the part of the Consultant that does not constitute gross negligence or willful misconduct as determined by a final, non-appealable determination of a court of competent jurisdiction.

 

7.2.          Freedom to Pursue Opportunities.  In recognition that the Consultant and its affiliates currently have, and will in the future have or will consider acquiring, investments in numerous companies with respect to which the Consultant or its affiliates may serve as an advisor, a director or in some other capacity, and recognition that the Consultant and its affiliates have myriad duties to various investors and partners, and in anticipation that the Clients and the Consultant (or one or more affiliates, associated investment funds or portfolio companies, or clients of the Consultant) may engage in the same or similar activities or lines of business and have an interest in the same areas of corporate opportunities, and in recognition of the benefits to be derived by the Clients hereunder and in recognition of the difficulties which may confront any advisor who desires and endeavors fully to satisfy such advisor’s duties in determining the full scope of such duties in any particular situation, the provisions of this Section 7 are set forth to regulate, define and guide the conduct of certain affairs of the Clients as they may involve the Consultant.  Except as the Consultant may otherwise agree in writing after the date hereof:

 

7.2.1             The Consultant and each of its officers, directors, employees, partners, affiliates and associated entities shall have the right to, and shall have no duty (contractual or otherwise) not to, directly or indirectly:  (A) engage in the same or similar

 

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business activities or lines of business as any Client, including those competing with any Client and (B) do business with any client or customer of any Client;

 

7.2.2             Neither the Consultant nor any officer, director, employee, partner, affiliate or associated entity thereof shall be liable to any Client or any affiliate of any Client for breach of any duty (contractual or otherwise) by reason of any such activities of or of such person’s participation therein; and

 

7.2.3             In the event that the Consultant acquires knowledge of a potential transaction or matter that may be a corporate opportunity for any Client or any other person, the Consultant shall have no duty (contractual or otherwise) to communicate or present such corporate opportunity to any Client and, notwithstanding any provision of this Agreement to the contrary, shall not be liable to any Client or any of affiliate of any Client for breach of any duty (contractual or otherwise) by reason of the fact that the Consultant directly or indirectly pursues or acquires such opportunity for itself, directs such opportunity to another person, or does not present such opportunity to the Clients.

 

8.             Third-Party Beneficiaries.  All Indemnitees not signatory to this Agreement are intended beneficiaries of Section 6 of this Agreement.

 

9.             Notices.  All notices hereunder, to be effective, shall be in writing and shall be mailed by first class certified mail, postage prepaid, as follows:

 

(i)            If to the Consultant, addressed to it at:

 

J.W. Childs Associates, L.P.

111 Huntington Avenue, Suite 2900

Boston, Massachusetts 02199

Attention:  Adam L. Suttin

David A. Fiorentino

 

with a copy (which shall not constitute notice) to:

 

Ropes & Gray LLP

One International Place

Boston, Massachusetts 02110

Attention:  Adolfo R. Garcia

 

(ii)           If to Intermediate Holdings, the Company or to Mattress Firm, addressed to the Company at:

 

Mattress Holding Corp.

5815 Gulf Freeway

Houston, TX 77023

Attn:  Jim R. Black

 

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10.           Modifications.  This Agreement amends the Original Management Agreement and constitutes the entire agreement among the Parties hereto with regard to the subject matter hereof with respect to all periods commencing on or after the Amendment Date, superseding, except to the extent set forth in the next sentence, all prior understandings and agreements, whether written or oral, with respect to that subject matter.  Without otherwise limiting the generality of the foregoing sentence, the Parties agree that this Agreement does not in any way affect any rights, interests, claims, obligations or liabilities arising under the Original Management Agreement with respect to any period ending prior to the Amendment Date, as to which the Original Management Agreement will continue to apply.  This Agreement may not be amended, waived or revised except by a writing signed by the Parties; provided, however, that neither Section 5.1 above nor this proviso may be amended, waived or revised without the prior written consent of TCW/Crescent Mezzanine IV, L.P. as Administrative Agent for the lenders under the Mezzanine Loan Agreement.  No waiver on any one occasion will extend to or effect or be construed as a waiver of any right or remedy on any future occasion.  No course of dealing of any person nor any delay or omission in exercising any right or remedy will constitute an amendment of this Agreement or a waiver of any right or remedy of any party hereto.

 

11.           Successors and Assigns.  This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors and permitted assigns, but may not be assigned by any Party without the prior written consent of the other Parties hereto.  Notwithstanding the foregoing, (a) the Consultant may assign all or part of its rights and obligations hereunder to any affiliate of the Consultant which provides services similar to those called for by this Agreement, in which event the Consultant will be released of all of its rights and obligations hereunder and (b) the provisions hereof for the benefit of the JWC Funds will inure to the benefit of their successors and assigns.

 

12.           Captions.  Captions have been inserted solely for the convenience of reference and in no way define, limit or describe the scope or substance of any provision and shall not affect the validity of any other provision.

 

13.           Governing Law; Jurisdiction; Service of Process.  This Agreement shall, in accordance with Section 5-1401 of the General Obligations Law of the State of New York, be governed by the laws of the State of New York, without regard to any conflicts of laws principles thereof that would call for the application of the laws of any other jurisdiction.  Any action or proceeding seeking to enforce any provision of, or based on any right arising out of, this Agreement may be brought against any of the Parties in the courts of the State of New York, or if it has or can acquire jurisdiction, in any United States District Court for the Southern District of New York, and each of the Parties hereby consents to the jurisdiction of such courts (and of the appropriate appellate courts) in any such action or proceeding and waives any objection to venue laid therein.  Process in any action or proceeding referred to in the preceding sentence may be served on any party anywhere in the world, whether within or without the State of New York.

 

14.           WAIVER OF JURY TRIAL.  TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW WHICH CANNOT BE WAIVED, EACH OF THE PARTIES HERETO HEREBY WAIVES, AND COVENANTS THAT IT WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT, OR OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN RESPECT OF ANY ISSUE, CLAIM, DEMAND, CAUSE OF ACTION, ACTION,

 

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SUIT OR PROCEEDING ARISING OUT OF OR BASED UPON THIS AGREEMENT OR THE SUBJECT MATTER HEREOF, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING AND WHETHER IN CONTRACT OR TORT OR OTHERWISE.  EACH OF THE PARTIES HERETO ACKNOWLEDGES THAT IT HAS BEEN INFORMED BY EACH OTHER PARTY THAT THE PROVISIONS OF THIS SECTION 14 CONSTITUTE A MATERIAL INDUCEMENT UPON WHICH SUCH PARTY IS RELYING AND WILL RELY IN ENTERING INTO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY.  ANY OF THE PARTIES HERETO MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF EACH OF THE PARTIES HERETO TO THE WAIVER OF ITS RIGHT TO TRIAL BY JURY.

 

15.           Severability.  If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions hereof shall not in any way be affected or impaired thereby.

 

16.           Counterparts.  This Agreement may be executed in several counterparts each of which shall be deemed an original and all of which shall together constitute one and the same instrument.

 

[Remainder of Page Intentionally Blank]

 

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IN WITNESS WHEREOF, the Parties have duly executed this Amended Management Agreement as of the date first above written.

 

 

	
J.W. Childs Associates, L.P.
    	
 
    
	
 
    	
 
    
	
By:
    	
J.W.   Childs Associates, Inc.,
    	
 
    
	
 
    	
General   Partner
    	
 
    
	
 
    	
 
    	
 
    
	
By:
    	
/s/   Adam L. Sutin
    	
 
    
	
 
    	
Name:   Adam L. Suttin
    	
 
    
	
 
    	
Title:   Authorized Person
    	
 
    

 

Signature page to Amended Management Agreement

 

 

	
Mattress Intermediate Holdings, Inc.
    	
 
    
	
 
    	
 
    
	
By:
    	
/s/   Jim R. Black
    	
 
    
	
 
    	
Name:   Jim R. Black
    	
 
    
	
 
    	
Title:   Chief Financial Officer
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
Mattress Holding Corp.
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
By:
    	
/s/   Jim R. Black
    	
 
    
	
 
    	
Name:   Jim R. Black
    	
 
    
	
 
    	
Title:   Chief Financial Officer
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
Mattress Firm, Inc.
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
By:
    	
/s/   Jim R. Black
    	
 
    
	
 
    	
Name:   Jim R. Black
    	
 
    
	
 
    	
Title:   Chief Financial Officer
    	
 
    

 

Signature page to Amended Management AgreementExhibit 10.12

 

March 20, 2009

 

Mattress Interco, Inc.

c/o Mattress Holding Corp.

5815 Gulf Freeway

Houston, TX 77023

 

Ladies and Gentlemen:

 

J. W. Childs Equity Partners III, L.P. (the “Investor”) is an investor in Mattress Interco, Inc., a Delaware corporation (the “Company”). The Company owns all of the issued and outstanding capital stock of Mattress Intermediate Holdings, Inc., a Delaware corporation (“Intermediate Holdings”), which in turn owns all of the issued and outstanding stock of Mattress Holdco, Inc., a Delaware corporation (“Holdings”), which in turn owns all of the issued and outstanding stock of Mattress Holding Corp., a Delaware corporation (the “Borrower”). Holdings and the Borrower arc party to the Credit Agreement dated as of January 18, 2007 and amended and restated as of February 16, 2007, by and among the Borrower, Holdings and the guarantors, lenders and agents from time to time party thereto (as further amended, modified or supplemented from time to time, the “Credit Agreement”). Capitalized terms that are used but not defined herein have the respective meanings contained in the Credit Agreement.

 

Under Section 6.10(a) and Section 6.10(b) of the Credit Agreement, the Borrower is required to maintain compliance with certain financial-ratio covenants, although in certain circumstances non-compliance with such covenants may be remedied under Section 8.04 of the Credit Agreement by increasing Consolidated EBITDA for purposes of calculating such financial ratios with the proceeds of additional contributions to the capital of the Borrower. The purpose of this letter is to specify the terms and conditions under Which the Investor will make or cause there to be made equity investments in the Company to provide the Company with a source of funds to permit the Borrower and Holdings to use the Cure Right to comply with such covenants.

 

Accordingly, the undersigned parties to this letter agree as follows:

 

1.                                       Additional Equity Investments.

 

(a)                                  If, following the close of any fiscal quarter of the Borrower ending after the date hereof up to and including the fiscal quarter ending January 31, 2012, (i) the Borrower is in breach, or becomes aware of a potential breach, of any of the financial-ratio covenants contained in Section 6.10(a) or Section 6.10(b) of the Credit Agreement for the Test Period ending as of the close of such fiscal quarter and such breach or potential breach is of the type that after giving effect to the below-defined Equity Cure Limit and the other terms and conditions of this letter, is capable of being fully remedied through the exercise of the Cure Right using the proceeds of an equity investment under this letter and (ii) Holdings is not then restricted under Section 8.04(b) of the Credit Agreement from exercising the Cure Right, then the Company shall promptly following such breach or the Borrower’s becoming aware of such potential breach, as the case may be, but in no event later than the fifteenth business day prior to

 

 

the last day the Cure Right can be validly exercised under the Credit Agreement with respect to such fiscal quarter (the “Cure Deadline”), request in writing that the Investor make or cause there to be made an equity investment in the Company in exchange for the issuance of equity securities. Upon its receipt of such request, unless the breach or potential breach of the financial-ratio covenants giving rise to such request shall have been remedied through a valid amendment or waiver of the Credit Agreement or otherwise and subject to the other terms and conditions of this letter, the Investor shall make or cause there to be made the requested equity investment in the Company not later than the applicable Cure Deadline, in exchange for the issuance of equity securities; provided, however, that in no event shall the Investor be obligated to invest more than $17 million in the aggregate (the “Equity Cure Limit”) under this letter, with any amounts actually funded under this letter as a co-investment pursuant to Section 3.07 of the Investor’s limited partnership agreement to count toward the Equity Cure Limit as a deemed investment by the Investor. Notwithstanding the requirement that the Company make any request for an equity investment no later than the fifteenth business day prior to the applicable Cure Deadline, in no event shall the Investor’s obligations hereunder be excused solely by the failure of the Company to timely deliver such request if the Investor receives notice or otherwise becomes aware of the applicable breach or potential breach of the financial-ratio covenants in Section 6.10(a) or Section 6.10(b) of the Credit Agreement within ten business days before the applicable Cure Deadline or such shorter period as permits the Investor to obtain the necessary amounts to make the requested equity investment by the applicable Cure Deadline. The Company shall contribute the proceeds of any such investment immediately upon its receipt thereof to Intermediate Holdings, which in turn shall contribute such proceeds immediately upon its receipt thereof to Holdings and, concurrently with such contribution, cause Holdings to exercise the Cure Right by contributing such proceeds immediately upon its receipt thereof to the Borrower and deliver notice of such exercise to the administrative agent as contemplated by Section 8.04(a) of the Credit Agreement so that the Borrower comes into and remains in compliance with the financial-ratio covenants under Section 6.10(a) and Section 6.10(b) of the Credit Agreement for the Test Period ending as of the fiscal quarter in respect of which the Company made its request for such equity investment. The Investor may elect to satisfy any obligation under this letter with respect to the making of an equity investment in the Company by making such investment indirectly through an investment in Mattress Holdings, LLC (“Mattress Holdings”; each of Mattress Holdings, the Company and Intermediate Holdings, a “Mattress Firm Company”), the Company’s parent company. If the Investor makes such an election, then Mattress Holdings shall contribute the proceeds of any such equity investment immediately upon its receipt thereof to the Company, so that the contribution and Cure Right exercise transactions described above in this Section 1(a) may be effected as contemplated.

 

(b)                                 The Company shall deliver to the Investor, on the business day immediately prior to the date on which the Investor is required to fund the amount of any equity investment required under Section 1(a) above or if earlier, the date the Investor actually funds such amount, a certificate from the Chief Financial Officer of the Company to the effect that the conditions set forth in Section 2 will be satisfied as of such required or earlier funding date, as the case may be, or if any such conditions will not be satisfied, a reasonably detailed statement of the reasons therefor.

 

(c)                                  For the avoidance of doubt, the Investor shall not be required to fund any required equity investment in the Company directly if, as a matter of administrative convenience, 

 

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the Company requests that the Investor deliver the amount of any equity investment under this letter directly to the Borrower in order to simplify the transfer of funds contemplated under Section 1(a). In such event, the contributions required pursuant to Section 1(a) from the Company to Intermediate Holdings, from Intermediate Holdings to Holdings, and from Holdings to the Borrower (and if applicable, any initial contributions from Mattress Holdings to the Company, if the Investor elects in accordance with Section 1(a) to make such equity investment in Mattress Holdings) shall nonetheless be deemed to have occurred and the appropriate book entries at each entity will be made.

 

2.                                       Conditions. The obligation of the Investor to make any equity investment pursuant to Section 1(a) above shall be subject to the prior or concurrent satisfaction of each of the following conditions:

 

(a)                                  After giving effect to the exercise of the Cure Right by Holdings or the Borrower using the proceeds of such equity investment (but in any event giving no effect to any other source of funds that may be available to Holdings and the Borrower to effect such Cure Right), no Default or Event of Default shall exist, other than a Default as to which any stated cure period under the Credit Agreement has not yet expired; provided, however, that any Default or Event of Default resulting solely from actions undertaken by the Investor or any of its managers, members, partners, officers, directors, employees, Affiliates or affiliated funds with the intended purpose of causing the Borrower to intentionally breach any of its covenants under the Credit Agreement as part of a plan by the Investor to prevent the satisfaction of the foregoing condition will not be considered a Default or Event of Default, as the case may be, for purposes of the foregoing condition.

 

(b)                                 LTM EBITDA (as defined on Schedule I hereto) is equal to or greater than the amount set forth opposite the most recently completed LTM Test Date of the Borrower set forth on Schedule I hereto.

 

3.                                       Termination. This letter and the respective rights and obligations of the Investor and the other parties under this letter shall terminate automatically and immediately upon the earliest to occur of (a) such time as the aggregate amount of equity investments made in the Company under this letter equals or exceeds the Equity Cure Limit (including for this purpose indirect equity investments in the Company that are made directly in Mattress Holdings in the manner contemplated by Section 1(a), which equity investments, for the avoidance of doubt, shall not again count toward the Equity Cure Limit when the proceeds thereof are contributed to the Company as contemplated by Section 1(a)), (b) June 5, 2012 and (c) the acceleration of any amounts due and payable due to the occurrence and continuance of either (i) an Event of Default pursuant to Section 8.01 of the Credit Agreement or (ii) an event of default pursuant to Section 8.01 of the Amended and Restated Loan Agreement dated as of the date hereof (the “Mezzanine Loan Agreement”), among Intermediate Holdings, the lenders from time to time party thereto and TCW/Crescent Mezzanine Partners IV, L.P., as Administrative Agent for such lenders; provided, however, the foregoing clause (c) will not apply if (A) the Investor or any Mattress Firm Company is in breach of its funding obligations under Section 1(a) of this letter (including for this purposes, in the case of Intermediate Holdings, its obligation to cause Holdings to exercise the Cure Right by making a capital contribution to the Borrower and notify the administrative agent under the Credit Agreement of such exercise in the manner contemplated by

 

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Section 1(a)) at the time of such acceleration or (B) the Event of Default or event of default, as the case may be, giving rise to such acceleration occurred when Holdings was not restricted under the Credit Agreement from exercising the Cure Right and was of the type that, subject to the Equity Cure Limit and the other terms and conditions of this letter, could have been avoided by the exercise of the Cure Right using the proceeds of an equity investment under this letter; provided, further, however, that any such Event of Default or event of default resulting solely from actions undertaken by the Investor or any of its managers, members, partners, officers, directors, employees, Affiliates or affiliated funds with the intended purpose of causing the Borrower to intentionally breach any of its covenants under the Credit Agreement as part of a plan by the Investor to cause the termination of its obligations hereunder will not be considered an Event of Default or event of default, as the case may be, for purposes of the foregoing clause (c).

 

4.                                       Third Party Beneficiary. TCW/Crescent Mezzanine Partners IV, L.P., in its capacity as Administrative Agent for the lenders under the Mezzanine Loan Agreement (“TCW”), is a third party beneficiary of this letter, entitled to specifically enforce the Investor’s and any Mattress Firm Company’s respective obligations under this letter as provided in Section 5 hereof. Except for (a) the Non-Recourse Parties, who shall be entitled to rely on and enforce the provisions of Section 5(b) that prohibit any recourse against them, and (b) to the extent provided in this letter, TCW, no person other than the Company and the Investor shall be entitled to rely on or enforce this letter and nothing herein, express or implied, is intended to or shall confer upon any person other than the Company, the Investor, the Non-Recourse Parties and, to the extent provided in this letter, TCW, any rights, benefits or remedies whatsoever under or by reason of this letter.

 

5.                                       Remedies.

 

(a)                                  The Investor and each Mattress Firm Company agrees that irreparable damage would occur in the event that it breached its respective obligations under this letter and therefore that the Company and TCW will be entitled to specific performance on the terms and conditions provided in Section 5(b) to remedy any breach or threatened breach by either the Investor or any Mattress Firm Company of its respective obligations of this letter without the necessity of posting a bond or any other security.

 

(b)                                 Notwithstanding any provision of this letter or any other document delivered in connection herewith or otherwise related to this letter or the transactions contemplated hereby or thereby, the sole and exclusive remedy of the Company, TCW, the other lenders under the Mezzanine Loan Agreement and any other person for any breach or threatened breach by the Investor or any Mattress Firm Company of this letter or any such other document shall be the respective rights of (i) the Company to seek specific performance of the Investor’s obligations under this letter and (ii) TCW to seek specific performance of the Investor’s or any Mattress Firm Company’s respective obligations under this letter, in either case (i) or (ii) in accordance with the terms, and subject to the conditions, contained herein. Accordingly, each of the Company and TCW covenants and agrees that it shall not, and shall cause its affiliates and its and its affiliates’ respective directors, officers, employees, agents, advisors, co-investors, co-lenders, partners, successors and transferees not to, institute any proceeding or bring any claim or cause of action under any theory of damages or remedy in any way under or in connection with

 

4

 

this letter, any document delivered in connection herewith or otherwise related to this letter, the transactions contemplated hereby or thereby or otherwise (whether at law or in equity, whether sounding in contract, tort, statute or otherwise, whether for losses with respect to any loans under the Mezzanine Loan Agreement or any other debt or equity investments in Mattress Holdings, LLC or any of its subsidiaries), against the Investor, any Mattress Firm Company or any Non-Recourse Party (as defined below), except for actions by (A) the Company against the Investor for specific performance of the Investor’s obligations under this letter or (13) TCW against the Investor or any Mattress Firm Company for specific performance of the Investor’s or such Mattress Firm Company’s respective obligations under this letter, in either case (A) or (B) as provided in the preceding sentence. Each of the Company and TCW further agrees that no recourse under or in connection with this letter, any other document delivered in connection herewith or otherwise related to this letter, the transactions contemplated hereby or thereby or otherwise shall be sought or had against (and no liability shall attach to) any Non-Recourse Party, whether through the Company, any of its subsidiaries or parent companies or any other Person interested in the transactions contemplated by this letter (including TCW), by or through attempted piercing of the corporate, limited liability company or limited partnership veil, by or through a claim by, on behalf of or in the name of the Company, any of its subsidiaries or parent companies, TCW, any other lender under the Mezzanine Loan Agreement or any other Person, by virtue of any applicable law or otherwise. As used herein, the term “Non-Recourse Parties” means any and all former, current or future equity holders, controlling persons, directors, officers, employees, agents, members, managers, advisors, general or limited partners, successors, assignees or affiliates of the Investor and any and all former, current or future equity holders, controlling persons, directors, officers, employees, agents, members, managers, advisors, general or limited partners, assignees or affiliates of any of the foregoing, and any and all former, current or future heirs, executors, administrators, trustees, successors or assignees of any of the foregoing. For the avoidance of doubt, nothing in this Section 5(b) is intended to restrict TCW or the other lenders under the Mezzanine Loan Agreement from bringing claims or causes of action against Intermediate Holdings under and in accordance with the Mezzanine Loan Agreement for any breach thereof by Intermediate Holdings or against any of Intermediate Holdings, Holdings or the Borrower under and in accordance with any agreement or document (other than this letter) delivered in connection with or otherwise related to the Mezzanine Loan Agreement for any breach of such agreement or document by any of Intermediate Holdings, Holdings or the Borrower.

 

6.                                       Entire Agreement, Etc. This letter, together with the separate letter that is dated the date hereof and being delivered in connection herewith by the Investor to TCW (the “TCW Letter”), constitutes the entire agreement of the Mattress Firm Companies, the Investor and TCW and their respective Affiliates with respect to the subject matter hereof and supersedes any and all prior discussions, negotiations, proposals, undertakings, understandings and agreements, whether written or oral, among the Mattress Firm Companies, the Investor and/or TCW or any of their respective Affiliates with respect to that subject matter. Any breach by the Investor of its obligations under the TCW Letter will be considered a breach of this letter and be subject to Section 5 hereof and the other terms and conditions of this letter applicable to breaches hereof.

 

7.                                       Amendments and Waivers. No waiver, amendment, supplement or other modification of this letter will be enforceable unless made by the Company, the Investor and TCW in writing. No waiver by any party of any breach or violation of, or default under, this

 

5

 

letter, whether intentional or not, will be deemed to extend to any prior or subsequent breach, violation or default hereunder or affect in any way any rights arising by virtue of any prior or subsequent such occurrence.

 

8.                                       Governing Law; Jurisdiction; Venue; Legal Fees. This letter will be governed by, and construed and interpreted in accordance with, the laws of the State of New York. Each of the Mattress Firm Companies, the Investor and TCW, by its execution hereof, (a) hereby irrevocably submits to the exclusive jurisdiction and venue of the state and federal courts sitting in the Borough of Manhattan of the City of New York for the purpose of any action between any of such parties arising in whole or in part under or in connection with this letter or the rights of any such parties, under or in connection with this letter or any of the transactions contemplated hereby (whether at law or in equity, whether sounding in contract, tort, statute or otherwise), (b) hereby waives to the extent not prohibited by applicable law, and agrees not to assert, by way of motion, as a defense or otherwise, in any such action, any claim that it is not subject personally to the jurisdiction of the above-named courts, that its property is exempt or immune from attachment or execution, that any such action brought in one of the above-named courts should be dismissed on grounds of improper venue or forum non conveniens, should be transferred or removed to any court other than one of the above-named courts, or should be stayed by reason of the pendency of some other proceeding in any other court other than one of the above-named courts, or that this letter or the subject matter hereof may not be enforced in or by such court, and (c) hereby agrees not to commence or prosecute any such action other than before one of the above-named courts. Notwithstanding the previous sentence, any of the Mattress Firm Companies, the Investor or TCW may commence any action in a court other than the above-named courts solely for the purpose of enforcing an order or judgment issued by one of the above-named courts. In the event of any action arising under this letter between the Mattress Firm Companies, the Investor and TCW (or any of such parties), the losing party or parties will be required to reimburse the prevailing party or parties for all reasonable legal fees and expenses that are actually incurred by the prevailing party or parties in connection with such action, including any appeals.

 

9.                                       No Assignment. This letter will be binding on each of the undersigned parties and their respective successors and permitted assigns. Neither any Mattress Firm Company, nor the Investor, nor TCW may assign any of their rights, interests or obligations under or in connection with this letter to any other person (except by operation of law) without the prior written consent of each other such party, and any purported assignment without such consent shall be null and void; provided, however, that notwithstanding the foregoing, the Investor can assign any of its rights, interests and obligations hereunder to an Affiliate or a current or prospective direct or indirect equity investor in the Company without the requirement of such consent (but, for the avoidance of doubt, without relieving the Investor from liability for the performance of its obligations hereunder).

 

10.                                 Waiver of Jury Trial. TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW THAT CANNOT BE WAIVED, EACH OF THE MATTRESS FIRM COMPANIES, THE INVESTOR AND TCW HEREBY WAIVES, AND COVENANTS THAT IT WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY ACTION ARISING IN WHOLE OR IN PART UNDER OR IN CONNECTION WITH THIS LETTER OR THE

 

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RIGHTS OF ANY OF SUCH PARTIES UNDER OR IN CONNECTION WITH THIS LETTER OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE. THE MATTRESS FIRM COMPANIES, THE INVESTOR AND TCW AGREE THAT ANY OF THEM MAY FILE A COPY OF THIS PARAGRAPH WITH ANY COURT AS WRITTEN EVIDENCE OF THE KNOWING, VOLUNTARY AND BARGAINED-FOR AGREEMENT AMONG SUCH PARTIES IRREVOCABLY TO WAIVE THEIR RIGHT TO TRIAL BY JURY IN ANY SUCH ACTION, AND THAT ANY SUCH ACTION WILL INSTEAD BE TRIED BY A JUDGE SITTING WITHOUT A JURY.

 

[The remainder of this page is intentionally left blank]

 

7

 

	
 
    	
Very   truly yours,
    
	
 
    	
 
    
	
 
    	
 
    
	
THE INVESTOR:
    	
J.W. CHILDS EQUITY PARTNERS III, L.P.
    
	
 
    	
 
    
	
 
    	
By: J.W. Childs Advisors III. L.P., its General Partner
    
	
 
    	
By: J.W. Childs Associates, L.P., its General Partner
    
	
 
    	
By: J.W. Childs Associates, Inc., its General Partner
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ David Fiorentino
    
	
 
    	
 
    	
Name: David Fiorentino
    
	
 
    	
 
    	
Title: Vice President
    
	
 
    	
 
    	
 
    
	
Agreed to and accepted as   of the date first set forth above.
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
THE MATTRESS FIRM COMPANIES:
    	
MATTRESS HOLDINGS, LLC
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
/s/ Jim R. Black
    
	
 
    	
 
    	
Name: Jim R. Black
    
	
 
    	
 
    	
Title: Chief Financial Officer
    
	
 
    	
 
    	
 
    
	
 
    	
 
    
	
 
    	
MATTRESS INTERCO, INC.
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
/s/ Jim R. Black
    
	
 
    	
 
    	
Name: Jim R. Black
    
	
 
    	
 
    	
Title: Chief Financial Officer
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
MATTRESS INTERMEDIATE HOLDINGS, INC.
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
/s/ Jim R. Black
    
	
 
    	
 
    	
Name: Jim R. Black
    
	
 
    	
 
    	
Title: Chief Financial Officer
    

 

Signature Page to Equity Support Letter

 

 

	
TCW:
    	
TCW/CRESCENT MEZZANINE PARTNERS IV, L.P.,
    
	
 
    	
as Administrative Agent for the lenders under   the Mezzanine Loan Agreement
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
TCW/Crescent Mezzanine Management IV, L.L.C.,
   its Investment Manager.
    
	
 
    	
By:
    	
TCW Asset Management Company, its Sub-Advisor
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
/s/ Daniel Honeker
    
	
 
    	
 
    	
Name:
    	
Daniel Honeker
    
	
 
    	
 
    	
Title:
    	
Senior Vice President
    

 

Signature Page to Equity Support Letter

 

 

Schedule I

 

	
“LTM Test Date”
    	
 
    	
“LTM EBITDA”
    	
 
    
	
April 30, 2009
    	
 
    	
$
    	
38,400,000
    	
 
    
	
July 31, 2009
    	
 
    	
$
    	
33,100,000
    	
 
    
	
October 31, 2009
    	
 
    	
$
    	
28,900,000
    	
 
    
	
January 31, 2010
    	
 
    	
$
    	
27,900,000
    	
 
    
	
April 30, 2010
    	
 
    	
$
    	
32,100,000
    	
 
    
	
July 31, 2010
    	
 
    	
$
    	
34,900,000
    	
 
    
	
October 31, 2010
    	
 
    	
$
    	
40,100,000
    	
 
    
	
January 31, 2011
    	
 
    	
$
    	
45,000,000
    	
 
    
	
April 30, 2011
    	
 
    	
$
    	
46,850,000
    	
 
    
	
July 31, 2011
    	
 
    	
$
    	
48,700,000
    	
 
    
	
October 31, 2011
    	
 
    	
$
    	
50,550,000
    	
 
    
	
January 31, 2012
    	
 
    	
$
    	
52,400,000
    	
 
    

 

For purposes of this Agreement, “LTM EBITDA” will mean, when calculated on any LTM Test Date of the Borrower set forth above, Consolidated EBITDA (as defined in the Credit Agreement) for the trailing twelve-month period ending on such LTM Test Date, less the amounts of any equity investments funded under this letter prior to such LTM Test Date.

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