TABLE CONTENTS

 

		Page
SECTION 1.	DEFINITIONS
1.1.	Defined Terms	1
1.2.	Exchange Rates	36
SECTION 2.	AMOUNT AND TERMS OF CREDIT
2.1.	Commitments	36
2.2.	Minimum Amount of Each Borrowing; Maximum Number of Borrowings	38
2.3.	Notice of Borrowing	39
2.4.	Disbursement of Funds	39
2.5.	Repayment of Loans; Evidence of Debt	40
2.6.	Conversions and Continuations	41
2.7.	Pro rata Borrowings	42
2.8.	Interest	42
2.9.	Interest Periods	43
2.10.	Increased Costs, Illegality, etc .	44
2.11.	Compensation	46
2.12.	Change of Lending Office	46
2.13.	Notice of Certain Costs	46
2.14.	Defaulting Lenders	46
2.15.	Incremental Facilities	49
SECTION 3.	LETTERS OF CREDIT
3.1.	Letters of Credit	50
3.2.	Letter of Credit Requests	51
3.3.	Letter of Credit Participations	51
3.4.	Agreement to Repay Letter of Credit Drawings	53
3.5.	Increased Costs	54
3.6.	Successor Letter of Credit Issuer	55
3.7.	Existing Letters of Credit	55
SECTION 4.	FEES; COMMITMENTS
4.1.	Fees	55
4.2.	Voluntary Reduction of Commitments	56
4.3.	Mandatory Termination of Commitments	56
SECTION 5.	PAYMENTS
5.1.	Voluntary Prepayments	56
5.2.	Mandatory Prepayments	57

 

 

		Page
5.3.	Payments Generally	58
5.4.	Net Payments	60
5.5.	Computations of Interest and Fees	63
5.6.	Limit on Rate of Interest	63
SECTION 6.	CONDITIONS PRECEDENT TO INITIAL BORROWING
6.1.	Credit Documents	64
6.2.	Collateral	64
6.3.	Legal Opinions	64
6.4.	No Default	64
6.5.	Concurrent Financings	64
6.6.	Existing Credit Agreement	64
6.7.	Effective Date Certificates	64
6.8.	Corporate Proceedings of Each Credit Party	64
6.9.	Corporate Documents	65
6.10.	Fees	65
6.11.	Representations and Warranties	65
6.12.	Borrowing Base Certificate	65
6.13.	Closing Availability	65
6.14.	Solvency	65
6.15.	Pledged Stock; Stock Powers; Pledged Notes	65
6.16.	Lien Searches	65
6.17.	Insurance	65
6.18.	Perfection Certificate	66
SECTION 7.	CONDITIONS PRECEDENT TO ALL CREDIT EVENTS
7.1.	No Default; Representations and Warranties	66
7.2.	Notice of Borrowing; Letter of Credit Request	66
7.3.	Availability	66
SECTION 8.	REPRESENTATIONS, WARRANTIES AND AGREEMENTS
8.1.	Corporate Status	66
8.2.	Corporate Power and Authority	67
8.3.	No Violation	67
8.4.	Litigation	67
8.5.	Margin Regulations	67
8.6.	Governmental Approvals	67
8.7.	Investment Company Act	68
8.8.	True and Complete Disclosure	68
8.9.	Financial Condition; Financial Statements	68
8.10.	Tax Returns and Payments	68
8.11.	Compliance with ERISA	68
8.12.	Subsidiaries	69
8.13.	Labor Matters	69
8.14.	Patents, etc .	69
8.15.	Environmental Laws	70

 

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		Page
8.16.	Properties	70
8.17.	Solvency	70
SECTION 9.	AFFIRMATIVE COVENANTS
9.1.	Information Covenants	70
9.2.	Books, Records and Inspections	73
9.3.	Maintenance of Insurance	74
9.4.	Payment of Taxes	74
9.5.	Consolidated Corporate Franchises	74
9.6.	Compliance with Statutes, Obligations, etc .	74
9.7.	ERISA	75
9.8.	Good Repair	75
9.9.	Transactions with Affiliates	75
9.10.	End of Fiscal Years; Fiscal Quarters	76
9.11.	Additional Subsidiary Guarantors and Grantors	76
9.12.	Pledges of Additional Stock and Evidence of Indebtedness	76
9.13.	Use of Proceeds	77
9.14.	Changes in Business	77
9.15.	Further Assurances	77
9.16.	Appraisals	78
9.17.	Field Examinations	78
9.18.	Asset Sales; Casualty and Condemnation	78
9.19.	Post-Closing Covenant	79
SECTION 10.	NEGATIVE COVENANTS
10.1.	Limitation on Indebtedness	81
10.2.	Limitation on Liens	83
10.3.	Limitation on Fundamental Changes	84
10.4.	Limitation on Sale of Assets	87
10.5.	Limitation on Investments	88
10.6.	Limitation on Restricted Payments	89
10.7.	Limitations on Debt Payments and Certain Amendments	90
10.8.	Limitations on Sale Leasebacks	91
10.9.	Fixed Charge Coverage Ratio	91
SECTION 11.	EVENTS OF DEFAULT
11.1.	Payments	92
11.2.	Representations, etc .	92
11.3.	Covenants	92
11.4.	Default Under Other Agreements	92
11.5.	Bankruptcy, etc .	93
11.6.	ERISA	93
11.7.	Guarantee	94
11.8.	Pledge Agreement	94
11.9.	Security Agreement	94
11.10.	Mortgages	94

 

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		Page
11.11.	Subordination	94
11.12.	Judgments	94
11.13.	Change of Control	94
SECTION 12.	THE AGENTS
12.1.	Appointment	95
12.2.	Delegation of Duties	95
12.3.	Exculpatory Provisions	95
12.4.	Reliance by Administrative Agent and Security Agents	96
12.5.	Notice of Default	96
12.6.	Non-Reliance on Administrative Agent, Security Agents and Other Lenders	96
12.7.	Indemnification	97
12.8.	Administrative Agent and Security Agents in Their Individual Capacities	97
12.9.	Successor Agent	97
12.10.	Withholding Tax	98
12.11.	Reports	98
12.12.	Security Agents	99
SECTION 13.	[RESERVED]
SECTION 14.	MISCELLANEOUS
14.1.	Amendments and Waivers	99
14.2.	Notices	100
14.3.	No Waiver; Cumulative Remedies	102
14.4.	Survival of Representations and Warranties	102
14.5.	Payment of Expenses and Taxes	102
14.6.	Successors and Assigns; Participations and Assignments	103
14.7.	Replacements of Lenders under Certain Circumstances	107
14.8.	Adjustments; Set-off	108
14.9.	Counterparts	108
14.10.	Severability	108
14.11.	Integration	108
14.12.	GOVERNING LAW	109
14.13.	Submission to Jurisdiction; Waivers	109
14.14.	Acknowledgments	109
14.15.	WAIVERS OF JURY TRIAL	110
14.16.	Confidentiality	110
14.17.	USA PATRIOT Act	110

 

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SCHEDULES
Schedule 1.1(a)	Mortgaged Properties
Schedule 1.1(b)	Commitments of Lenders
Schedule 1.1(c)	Immaterial Subsidiaries
Schedule 1.1(d)	Existing Letters of Credit
Schedule 8.12	Subsidiaries
Schedule 10.1	Effective Date Indebtedness
Schedule 10.2	Effective Date Liens
Schedule 10.3	Effective Date Parent Assets
Schedule 10.5	Effective Date Investments

 

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CREDIT AGREEMENT dated as of May 13, 2009, among SEALY MATTRESS COMPANY, an Ohio corporation (the “ Borrower ”), SEALY MATTRESS CORPORATION, a Delaware corporation (“ Holdings ”), SEALY CORPORATION, a Delaware corporation (“ Parent ”), the lending institutions from time to time parties hereto (each a “ Lender ” and, collectively, the “ Lenders ”), GENERAL ELECTRIC CAPITAL CORPORATION, as Co-Collateral Agent, and JPMORGAN CHASE BANK, N.A. (as Administrative Agent and Collateral Agent (such term and each other capitalized term used but not defined in this introductory statement having the meaning provided in Section 1)).

 

The parties hereto hereby agree as follows:

 

SECTION 1.           Definitions

 

1.1.           Defined Terms .

 

(a)           As used herein, the following terms shall have the meanings specified in this Section 1.1 unless the context otherwise requires (it being understood that defined terms in this Agreement shall include in the singular number the plural and in the plural the singular):

 

“ ABR ” shall mean, for any day, a rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greatest of (a) the Prime Rate in effect on such day, (b) the Federal Funds Effective Rate in effect on such day plus ½ of 1% and (c) the Eurodollar Rate for a three month Interest Period on such day (or if such day is not a Business Day, the immediately preceding Business Day) plus 1%; provided that, for the avoidance of doubt, the Eurodollar Rate for any day shall be calculated on a daily basis in a manner consistent with the definition of “Eurodollar Rate”.  Any change in the ABR due to a change in the Prime Rate, the Federal Funds Effective Rate or the Eurodollar Rate shall be effective as of the opening of business on the effective day of such change in the Prime Rate, the Federal Funds Effective Rate or the Eurodollar Rate, respectively.

 

“ ABR Loan ” shall mean each Loan bearing interest at the rate provided in Section 2.8(a) and, in any event, shall include all Swingline Loans and Protective Advances.

 

“ ABR Margin ” shall mean 3.00% per annum.

 

“ Account ” shall mean, individually and collectively, any “Account” referred to in the Security Agreement.

 

“ Account Debtor ” shall mean any Person obligated on an Account.

 

“ Account Reserves ” shall mean any and all reserves which the Security Agents deem necessary, in their Permitted Discretion, to maintain (including, without limitation, Dilution Reserves, reserves for rebates, discounts, warranty claims and inventory returns and reserves for Permitted Liens on Eligible Accounts ranking prior to the Lien of the Administrative Agent for the benefit of the Secured Parties) with respect to the Eligible Accounts.  The Security Agents may, from time to time, in their Permitted Discretion, adjust Account Reserves used in

 

 

computing the Borrowing Base upon not less than one Business Day’s prior written notice to the Borrower.

 

“ Adjusted Eligible Accounts ” shall mean the excess, if any, of (i) Eligible Accounts over (ii) Account Reserves.

 

“ Adjusted Eligible Inventory ” shall mean the excess, if any, of (i) Eligible Inventory over (ii) Inventory Reserves.

 

“ Administrative Agent ” shall mean JPMorgan Chase Bank, N.A., together with its affiliates, as the arranger of the Commitments and as the administrative agent for the Lenders under this Agreement and the other Credit Documents.

 

“ Administrative Agent’s Office ” shall mean the office of the Administrative Agent located at 270 Park Avenue, New York, New York 10017, or such other office as the Administrative Agent may hereafter designate in writing as such to the other parties hereto.

 

“ Affiliate ” shall mean, with respect to any Person, any other Person directly or indirectly controlling, controlled by, or under direct or indirect common control with such Person.  A Person shall be deemed to control a corporation if such Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such corporation, whether through the ownership of voting securities, by contract or otherwise.

 

“ Agents ” shall mean each Joint Lead Arranger, the Administrative Agent, the Security Agents and the Syndication Agent.

 

“ Agreement ” shall mean this Credit Agreement, as the same may be amended, amended and restated, supplemented or otherwise modified from time to time.

 

“ Applicable Percentage ” shall mean, with respect to any Lender, (a) with respect to Revolving Credit Loans, Letters of Credit Outstanding or Swingline Loans, a percentage equal to a fraction the numerator of which is such Lender’s Commitment and the denominator of which is the Total Commitment (if the Total Commitment has terminated or expired, the Applicable Percentages shall be determined based upon such Lender’s share of the Total Credit Exposure at that time); provided that in the case of Section 2.14 when a Defaulting Lender shall exist, any such Defaulting Lender’s Commitment shall be disregarded in the calculation and (b) with respect to Protective Advances or with respect to the Total Credit Exposure, a percentage based upon its share of the Total Credit Exposure and the unused Commitments; provided that in the case of Section 2.14 when a Defaulting Lender shall exist, any such Defaulting Lender’s Commitment shall be disregarded in the calculation.

 

“ Approved Fund ” shall have the meaning provided in Section 14.6.

 

“ Assignment and Acceptance ” shall mean a customary assignment and acceptance substantially in form reasonably satisfactory to the Administrative Agent.

 

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“ Authorized Officer ” shall mean the Chairman of the Board, the President, the Chief Financial Officer, the Treasurer or any other senior officer of the Borrower designated as such in writing to the Administrative Agent and Collateral Agent by the Borrower.

 

“ Availability ” shall mean, at any time, an amount equal to (a) the lesser of (i) the Total Commitment and (ii) the Borrowing Base minus (b) the Total Credit Exposure.

 

“ Available Commitment ” shall mean an amount equal to the excess, if any, of (a) the amount of the Total Commitment over (b) the sum of (i) the aggregate principal amount of all Revolving Credit Loans then outstanding and (ii) the aggregate Letters of Credit Outstanding at such time.

 

“ Bankruptcy Code ” shall have the meaning provided in Section 11.5.

 

“ Board ” shall mean the Board of Governors of the Federal Reserve System of the United States (or any successor).

 

“ Borrower ” shall have the meaning provided in the preamble to this Agreement.

 

“ Borrowing ” shall mean and include (a) the incurrence of Swingline Loans from the Swingline Lender on a given date, (b) the incurrence of a Protective Advance from the Administrative Agent on a given date, and (c) the incurrence of one Type of Revolving Credit Loan on a given date (or resulting from conversions on a given date) having, in the case of Eurodollar Loans, the same Interest Period ( provided that ABR Loans incurred pursuant to Section 2.10(b) shall be considered part of any related Borrowing of Eurodollar Loans).

 

“ Borrowing Base ” shall mean, at any time, the sum of (a) the product of 85% multiplied   by the Adjusted Eligible Accounts at such time, plus (b) the lesser of (i) the product of 65% multiplied   by the Adjusted Eligible Inventory, valued at the lower of cost or market value, determined on a first-in-first-out basis, at such time and (ii) the product of 85% multiplied   by the Net Orderly Liquidation Value percentage identified in the most recent inventory appraisal ordered by the Security Agents multiplied   by Adjusted Eligible Inventory, valued at the lower of cost or market value, determined on a first-in-first-out basis, at such time, minus (c) Reserves.

 

“ Borrowing Base Certificate ” shall mean a certificate, duly completed and signed by an Authorized Officer of the Borrower, in a form on the Effective Date which is satisfactory to each Initial Lender and following the Effective Date in such form or another form which is reasonably acceptable to the Security Agents in their sole discretion.

 

“ Business Day ” shall mean any day excluding Saturday, Sunday and any day that shall be in The City of New York a legal holiday or a day on which banking institutions are authorized by law or other governmental actions to close, provided that, when used in connection with a Eurodollar Loan, the term “Business Day” shall also exclude any day on which banks are not open for dealings in dollar deposits in the London interbank market.

 

“ Canadian Dollars ” and shall mean the lawful money of Canada.

 

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“ Canadian Letter of Credit Sublimit ” shall mean $5,000,000, as the same may be reduced from time to time pursuant to Section 3.1.

 

“ Capital Expenditures ” shall mean, for any period, the aggregate of all expenditures (whether paid in cash or accrued as liabilities and including in all events all amounts expended or capitalized under Capital Leases, but excluding any amount representing capitalized interest or amounts expended or expensed under leases that are not Capital Leases) by Parent, Holdings, the Borrower and the Restricted Subsidiaries during such period that, in conformity with GAAP, are or are required to be included as additions during such period to property, plant or equipment reflected in the consolidated balance sheet of the Parent, provided that the term “Capital Expenditures” shall not include (a) expenditures made in connection with the replacement, substitution or restoration of assets to the extent financed (i) from insurance proceeds paid on account of the loss of or damage to the assets being replaced or restored or (ii) with awards of compensation arising from the taking by eminent domain or condemnation of the assets being replaced, (b) the purchase price of equipment that is purchased simultaneously with the trade-in of existing equipment to the extent that the gross amount of such purchase price is reduced by the credit granted by the seller of such equipment for the equipment being traded in at such time or (c) the purchase of plant, property or equipment made within one year of the sale of any asset (other than sales of inventory in the ordinary course of business) to the extent purchased with the proceeds of such sale.

 

“ Capital Lease ” shall mean, as applied to any Person, any lease of any property (whether real, personal or mixed) by that Person as lessee that, in conformity with GAAP, is, or is required to be, accounted for as a capital lease on the balance sheet of that Person.

 

“ Capitalized Lease Obligations ” shall mean, as applied to any Person, all obligations under Capital Leases of such Person or any of its Subsidiaries, in each case taken at the amount thereof accounted for as liabilities in accordance with GAAP.

 

“ Cash Dominion Period ” shall mean (i) each period commencing on any date that Availability shall have either (A) been less than the greater of (x) 15.0% of the Total Commitment and (y) $15.0 million for five consecutive Business Days or (B) been less than the lower of (x) 10.0% of the Borrowing Base and (y) 10.0% of the Total Commitment on any Business Day and ending on the date that Availability shall have been at least equal to the greater of (x) 15.0% of the Total Commitment and (y) $15.0 million for 30 consecutive calendar days, (ii) each period during which an Event of Default under Section 11.1 or 11.5 shall have occurred and is continuing or (iii) each period commencing on the later of (A) the occurrence of an Event of Default under (x) Section 11.3(a), 11.4, 11.7, 11.8, 11.9, 11.10 or 11.11 or (y) Section 11.3(b) (but in the case of Section 11.3(b), solely to the extent resulting from a breach of Section 9.1(a), 9.1(b), 9.2, 9.16 or 9.17) or (z) Section 11.2 (but solely to the extent that such representation or warranty relates to financial statements referred to in Section 9.1(a) or 9.1(b) or a Borrowing Base Certificate delivered pursuant to Section 9.1(e) and an inaccuracy therein resulting in such Event of Default (I) resulted in a Borrowing that would not have been otherwise permitted by this Agreement, (II) resulted in the violation of a covenant set forth in Section 10 or (III) was the basis for avoiding an earlier Cash Dominion Period) and (B) the date on which the Administrative Agent, the Security Agents or the Required Lenders have provided written notice to the Borrower of an

 

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statements (or similar filings under other personal property security legislation) filed pursuant to the Credit Documents and (ii) as “collateral agent” for the Secured Parties under the Security Documents, together with its successors in any such capacity (it being understood that JPMorgan Chase Bank, N.A. shall serve in such capacity as “secured party” subject to direction by the Security Agents).

 

“ Collection Account ” shall have the meaning assigned to such term in the Security Agreement.

 

“ Commitment ” shall mean (a) with respect to each Initial Lender, the amount set forth opposite such Initial Lender’s name on Schedule 1.1(b) as such Initial Lender’s “Commitment” and (b) in the case of any Lender that becomes a Lender after the Signing Date, the amount specified as such Lender’s “Commitment” in the Assignment and Acceptance pursuant to which such Lender assumed a portion of the Total Commitment, in each case of the same may be changed from time to time pursuant to terms hereof.  The aggregate amount of the Commitments as of the Signing Date is $100,000,000.

 

“ Commitment Fee Rate ” shall mean, with respect to the Available Commitment on any day, the rate per annum set forth below opposite the Status in effect on such day:

 

Status		Commitment Fee Rate
Level I Status		1.00	%
Level II Status		0.75	%

 

Notwithstanding the foregoing, the term “Commitment Fee Rate” shall mean 1.00%, during the period from and including the Effective Date to but excluding November 30, 2009.

 

“ Commitment Utilization Percentage ” shall mean, on any date, the percentage equivalent to a fraction (a) the numerator of which is the Total Credit Exposure and (b) the denominator of which is the Total Commitment.

 

“ Confidential Information ” shall have the meaning provided in Section 14.16.

 

“ Consolidated Earnings ” shall mean, for any period, “income (loss) before the deduction of income taxes” of Parent, Holdings, the Borrower and the Restricted Subsidiaries, excluding extraordinary losses and extraordinary gains, for such period, determined in accordance with GAAP, provided that any “income (loss) before the deduction of income taxes” from disposed or discontinued operations shall be excluded.

 

“ Consolidated EBITDA ” shall mean, for any period, the sum, without duplication, of the amounts for such period of (a) Consolidated Earnings and to the extent already deducted in arriving at Consolidated Earnings for such period: (b) Consolidated Interest Expense, (c) depreciation expense, (d) amortization expense, including amortization of deferred financing fees, (e) unusual or non-recurring charges and restructuring charges or reserves (including severance, relocation costs and one-time compensation charges and other costs related to closure of facilities) in an amount not to exceed $15,000,000 in any Test Period, (f) non-cash charges (other than accruals

 

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of liabilities in the ordinary course of business) ( provided that if any such non cash charges represent an accrual or reserve for potential cash items in any future period, the cash payment in respect thereof in such future period shall be subtracted from Consolidated EBITDA to such extent, and excluding amortization of a prepaid cash item that was paid in a prior period), (g) losses on asset sales (other than sales of inventory in the ordinary course of business), (h)  Transaction Expenses, (i) any expenses or charges incurred in connection with any issuance of debt, equity securities or any refinancing transaction and (j) any fees and expenses related to Permitted Acquisitions, (k) any deduction for minority interest expense (except to the extent of dividends to minority stockholders during such period), (l) the amount of consulting and advisory fees and related expenses paid to KKR Capstone, KKR or any of their respective Affiliates and directors and officers’ insurance premiums paid for the account of any of the foregoing in an amount not to exceed $4,000,000 in any Test Period, less , without duplication, the sum of the following amounts for such period to the extent they increased Consolidated Earnings in such period of (m) non-recurring gains, (n) non-cash gains (excluding (i) accruals of revenue in the ordinary course of business and (ii) any such non-cash gain to the extent it represents the reversal of an accrual or reserve for potential cash items that reduced Consolidated EBITDA in any prior period) and (o) gains on asset sales (other than sales of inventory in the ordinary course of business), all as determined on a consolidated basis for Parent, Holdings, the Borrower and the Restricted Subsidiaries in accordance with GAAP, provided that (i) there shall be excluded from Consolidated Earnings for any period the income from continuing operations before income taxes and extraordinary items of all Unrestricted Subsidiaries for such period to the extent otherwise included in Consolidated Earnings, except to the extent actually received in cash by Holdings, the Borrower or its Restricted Subsidiaries during such period through dividends or other distributions, (ii) there shall be excluded in determining Consolidated EBITDA non-operating currency transaction gains and losses and (iii) to the extent included in Consolidated Earnings, there shall be excluded in determining Consolidated EBITDA for any period any non-cash adjustments resulting from the application of Statement of Financial Accounting Standards No. 133 and its related pronouncements and interpretations.

 

“ Consolidated Interest Expense ” shall mean, for any period, the cash interest expense (including that attributable to Capital Leases in accordance with GAAP), net of cash interest income, of Parent, Holdings, the Borrower and the Restricted Subsidiaries on a consolidated basis with respect to all outstanding Indebtedness of Parent, Holdings, the Borrower and the Restricted Subsidiaries, including all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers’ acceptance financing and net costs under Hedge Agreements (other than (x) currency swap agreements, currency future or option contracts and other similar agreements and (y) any non-cash interest expense attributable to the movement in the mark to market valuation of obligations under Hedge Agreements or other derivative instruments pursuant to Statement of Financial Accounting Standards No. 133), but excluding, however, (a) amortization of deferred financing costs, debt issuance costs, commissions, fees and expenses, (b) expensing of financing fees and (c) any other amounts of non-cash interest, all as calculated on a consolidated basis in accordance with GAAP; provided that there shall be excluded from Consolidated Interest Expense for any period the cash interest expense (or income) of all Unrestricted Subsidiaries for such period to the extent otherwise included in Consolidated Interest Expense.

 

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“ Consolidated Senior Secured Debt ” shall mean, as of any date of determination, the sum of all Indebtedness of Parent, Holdings, the Borrower and the Restricted Subsidiaries for borrowed money outstanding on such date under this Agreement, the Initial Secured Notes and any Permitted Additional Secured Notes.

 

“ Consolidated Senior Secured Debt to Consolidated EBITDA Ratio ” shall mean, as of any date of determination, the ratio of (a) Consolidated Senior Secured Debt as of the last day of the relevant Test Period to (b) Consolidated EBITDA for such Test Period, provided that the Consolidated Senior Secured Debt to Consolidated EBITDA Ratio shall be calculated on a Pro Forma Basis.

 

“ Credit Documents ” shall mean this Agreement, the Intercreditor Agreement, the Security Documents, each Letter of Credit and any promissory notes issued by the Borrower hereunder.

 

“ Credit Event ” shall mean and include the making (but not the conversion or continuation) of a Loan and the issuance, extension or amendment (to the extent such amendment increases the amount thereof) or renewal of a Letter of Credit.

 

“ Credit Exposure ” shall mean with respect to any Lender the sum of the following on such date:  (i) the outstanding amount of Revolving Credit Loans of such Lender plus (ii) the Letter of Credit Exposure of such Lender plus (iii) the Swingline Exposure of such Lender plus (iv) an amount equal to such Lender’s Applicable Percentage, if any, of the aggregate principal amount of Protective Advances outstanding at such time.

 

“ Credit Party ” shall mean each of the Borrower and the Guarantors.

 

“ Default ” shall mean an Event of Default or any event, act or condition that with notice or lapse of time, or both, would constitute an Event of Default.

 

“ Defaulting Lender ” shall mean any Lender, as reasonably determined by the Administrative Agent in good faith, that has (a) failed to fund any portion of its Loans or participations in Letters of Credit, Swingline Loans or Protective Advances within three Business Days of the date required to be funded by it hereunder, (b) notified the Borrower, the Administrative Agent, the Letter of Credit Issuer, the Swingline Lender or any Lender in writing that it does not intend to comply with any of its funding obligations under this Agreement or has made a public statement to the effect that it does not intend to comply with its funding obligations under this Agreement or under other agreements generally (as reasonably determined by the Administrative Agent) under which it has committed to extend credit, (c) failed, within three Business Days after written request by the Administrative Agent, to confirm that it will comply with the terms of this Agreement relating to its obligations to fund prospective Revolving Credit Loans and participations in then outstanding Letters of Credit, Swingline Loans and Protective Advances, (d) otherwise failed to pay over to the Administrative Agent or any other Lender any other amount required to be paid by it hereunder within three Business Days of the date when due, unless the subject of a good faith dispute, or (e) (i) become or is insolvent or has a parent company that has become or is insolvent or (ii) become the subject of a bankruptcy or insolvency proceeding, or has had a receiver, conservator, trustee or custodian appointed for it, or has taken any action in

 

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furtherance of, or indicating its consent to, approval of or acquiescence in any such proceeding or appointment or has a parent company that has become the subject of a bankruptcy or insolvency proceeding, or has had a receiver, conservator, trustee or custodian appointed for it, or has taken any action in furtherance of, or indicating its consent to, approval of or acquiescence in any such proceeding or appointment.

 

“ Dilution Factors ” shall mean, without duplication, with respect to any period, the aggregate amount of all deductions, credit memos, returns, adjustments, allowances, bad debt write-offs and other non-cash credits which are recorded to reduce accounts receivable.

 

“ Dilution Ratio ” shall mean, at any date, the amount (expressed as a percentage) equal to (a) the aggregate amount of the applicable Dilution Factors for the 12 most recently ended fiscal months divided by (b) total gross sales for the 12 most recently ended fiscal months.

 

“ Dilution Reserve ” shall mean, at any date, the product of (a) the excess (if positive) of (i) the applicable Dilution Ratio minus (ii) 5.0% multiplied   by (b) the Eligible Accounts of the applicable Credit Parties, as the context may require, on such date.

 

“ Document ” shall have the meaning assigned to such term in the Security Agreement.

 

“ Dollar Equivalent ” shall mean, on any date of determination, (a) with respect to any amount denominated in Dollars, such amount, and (b) with regard to any Letter of Credit denominated in Canadian Dollars, the amount of Dollars which is equivalent to the amount so expressed in Canadian Dollars at the applicable quoted spot rate on the appropriate page of the Reuter’s Screen as determined by the Administrative Agent at the relevant time.

 

“ Dollars ” and “ $ ” shall mean dollars in lawful currency of the United States of America.

 

“ Domestic Subsidiary ” shall mean each Subsidiary of the Borrower that is organized under the laws of the United States, any state thereof, or the District of Columbia.

 

“ Drawing ” shall have the meaning provided in Section 3.4(b).

 

“ Effective Date ” shall mean the date upon which the conditions set forth in Section 6 are satisfied.

 

“ Eligible Accounts ” shall mean, at any time, the Accounts of any Credit Party (other than Holdings) which in accordance with the terms hereof are eligible as the basis for the extension of Revolving Loans and Swingline Loans and the issuance of Letters of Credit hereunder.  Eligible Accounts shall not include any Account:

 

(a)           which is not subject to a first priority perfected security interest in favor of the Administrative Agent (for the benefit of the Secured Parties);

 

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(b)           which is subject to any Lien other than (i) a Lien in favor of the Collateral Agent for the benefit of the Secured Parties, (ii) a Permitted Lien and (iii) Liens permitted hereunder pursuant to clause (h) of Section 10.2(A);

 

(c)           (i) which is unpaid more than 90 days after the date of the original invoice therefor (except that up to $2,500,000 of Accounts which are unpaid more than 120 days after the date of the original invoice but otherwise meet the requirements of this definition may be included) or more than 60 days after the original due date, or (ii) which has been written off the books of the Credit Parties or otherwise designated as uncollectible;

 

(d)           which is owing by an Account Debtor for which more than 50% of the Accounts owing from such Account Debtor and its Affiliates are ineligible;

 

(e)           which is owing by an Account Debtor to the extent the aggregate amount of Accounts owing from such Account Debtor and its Affiliates to the Credit Parties exceeds 10.0% (or, in the case of an Account Debtor (i) identified in writing to the Security Agents prior to the Signing Date (and acknowledged in writing by the Security Agents), 15%, (ii) with an Investment Grade Rating but not a High Investment Grade Rating, 20.0% or (ii) with a High Investment Grade Rating, 30.0%) of the aggregate amount of Eligible Accounts of the Credit Parties but only to the extent of such excess over the applicable threshold;

 

(f)            with respect to which any covenant, representation, or warranty contained in this Agreement or in the Security Agreement has been breached or is not true in any material respect;

 

(g)           which (i) does not arise from the sale of goods or performance of services in the ordinary course of business, (ii) is not evidenced by an invoice or other documentation reasonably satisfactory to the Security Agents which has been sent to the Account Debtor, (iii) represents a progress billing, (iv) is contingent upon a Credit Party’s completion of any further performance, (v) represents a sale on a bill-and-hold, guaranteed sale, sale-and-return, sale on approval, consignment, cash-on-delivery or any other repurchase or return basis or (vi) relates to payments of interest;

 

(h)           for which (i) the goods giving rise to such Account have not been shipped to the Account Debtor or (ii) the services giving rise to such Account have not been performed by the applicable Credit Party or if such Account was invoiced more than once, unless, (A) in the case of clause (h)(i) preceding, the Account Debtor on such Account has instructed the applicable Credit Party in writing to deliver such goods to a designated area at or near the applicable Credit Party’s facility or otherwise store such goods for the account of such Account Debtor and has agreed, pursuant to the terms of the quotation or purchase order for such Account or by separate agreement, that such delivery or storage constitutes delivery of such goods by the Borrower, in any such case in form and substance reasonably satisfactory to the Security Agents;

 

(i)            which is owed by an Account Debtor which has (i) applied for, suffered, or consented to the appointment of any receiver, custodian, trustee, or liquidator of its

 

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assets, (ii) had possession of all or a material part of its property taken by any receiver, custodian, trustee or liquidator, (iii) filed, or had filed against it, any request or petition for liquidation, reorganization, arrangement, adjustment of debts, adjudication as bankrupt, winding-up or voluntary or involuntary case under any state or federal bankruptcy laws unless the Security Agents shall have determined in their sole discretion to include such Accounts, (iv) admitted in writing its inability to pay its debts as they become due, (v) become insolvent or (vi) ceased operation of its business;

 

(j)            which is owed by any Account Debtor which has sold all or a substantially all of its assets;

 

(k)           which is owed by an Account Debtor which (i) does not maintain an office in the U.S. or Canada (other than Quebec) or (ii) is not organized under applicable law of the U.S., any state of the U.S. or the District of Columbia, Canada, or any province or other political subdivision of Canada (other than Quebec) unless, in either case, such Account is backed by a letter of credit reasonably acceptable to the Security Agents which is in the possession of, has been assigned to and is directly drawable by the Collateral Agent;

 

(l)            which is owed in any currency other than U.S. dollars;

 

(m)          which is owed by (i) the government (or any department, agency, public corporation, or instrumentality thereof) of any country other than the U.S. unless such Account is backed by a letter of credit reasonably acceptable to the Security Agents which is in the possession of and directly drawable by the Collateral Agent or (ii) the government of the U.S., or any department, agency, public corporation, or instrumentality thereof, unless the Federal Assignment of Claims Act of 1940, as amended (31 U.S.C. § 3727 et seq . and 41 U.S.C. § 15 et seq .), and any other steps necessary to perfect the Lien of the Collateral Agent in such Account have been complied with to the Security Agents’ reasonable satisfaction;

 

(n)           which is owed by (i) any employee, officer, director, agent or direct stockholder of any Credit Party or (ii) any other Affiliate of any Credit Party with respect to which such Credit Party does not deal on an arms-length basis;

 

(o)           which is owed by an Account Debtor or any Affiliate of such Account Debtor to which such Credit Party is indebted, but only to the extent of such indebtedness or is subject to any security, deposit, progress payment, advance payment or deposit, retainage or other similar advance made by or for the benefit of an Account Debtor, in each case to the extent thereof;

 

(p)           which is subject to any counterclaim, deduction, defense, setoff or dispute but only to the extent of any such counterclaim, deduction, defense, setoff or dispute;

 

(q)           which is evidenced by any promissory note, chattel paper, or instrument;

 

(r)            which is owed by an Account Debtor located in any jurisdiction which requires filing of a “Notice of Business Activities Report” or other similar report in order to

 

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permit the Borrower to seek judicial enforcement in such jurisdiction of payment of such Account, unless the Borrower has filed such report or qualified to do business in such jurisdiction;

 

(s)           with respect to which such Credit Party has made any agreement with the Account Debtor for any reduction thereof, other than discounts and adjustments given in the ordinary course of business, or any Account which was partially paid and such Credit Party created a new receivable for the unpaid portion of such Account;

 

(t)            which does not comply in all material respects with the requirements of all applicable laws and regulations, whether Federal, state or local, including without limitation the Federal Consumer Credit Protection Act, the Federal Truth in Lending Act and Regulation Z of the Board;

 

(u)           which is for goods that have been sold under a purchase order or pursuant to the terms of a contract or other agreement or understanding (written or oral) that indicates or purports that any Person other than a Credit Party has or has had an ownership interest in such goods, or which indicates any party other than a Credit Party as payee or remittance party;

 

(v)           which was created on cash on delivery terms; or

 

(w)          which the Security Agents in their Permitted Discretion otherwise determine to be ineligible.

 

In determining the amount of an Eligible Account, the face amount of an Account may, in the Security Agents’ Permitted Discretion, be reduced by, without duplication, to the extent not reflected in such face amount, (i) the amount of all accrued and actual discounts, claims, credits or credits pending, promotional program allowances, price adjustments, finance charges or other allowances (including any amount that the applicable Credit Party may be obligated to rebate to an Account Debtor pursuant to the terms of any agreement or understanding (written or oral)) and (ii) the aggregate amount of all cash received in respect of such Account but not yet applied by such Credit Party to reduce the amount of such Account.

 

Standards of eligibility may be made more restrictive (and such increased restrictiveness subsequently reversed in whole or in part) from time to time solely by the Security Agents in the exercise of their Permitted Discretion, with any such changes to be effective one Business Day after delivery of written notice thereof to the Borrower and the Lenders.

 

“ Eligible Inventory ” shall mean, at any time, the Inventory of any Credit Party (other than Holdings) which in accordance with the terms hereof is eligible as the basis for the extension of Revolving Loans, Swingline Loans and the issuance of Letters of Credit hereunder.  Eligible Inventory shall not include any Inventory:

 

(a)           which is not subject to a first priority perfected Lien in favor of the Administrative Agent (for the benefit of the Secured Parties);

 

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(b)           which is subject to any Lien other than (i) a Lien in favor of the Administrative Agent for the benefit of the Secured Parties, (ii) a Permitted Lien and (iii) Liens permitted hereunder pursuant to clause (h) of Section 10.2(A);

 

(c)           which is, in the Security Agents’ Permitted Discretion, slow moving, obsolete, unmerchantable, defective, unfit for sale or unacceptable due to age, type, category and/or quantity;

 

(d)           with respect to which any covenant, representation, or warranty contained in this Agreement or the Security Agreement has been breached or is not true in any material respect and which does not conform in any material respect to all standards imposed by any Governmental Authority;

 

(e)           in which any Person other than a Credit Party shall (i) have any direct or indirect ownership, interest or title to such Inventory or (ii) be indicated on any purchase order or invoice with respect to such Inventory as having or purporting to have an interest therein;

 

(f)            which constitutes spare or replacement parts, subassemblies, packaging and shipping material, manufacturing supplies, samples, prototypes, displays or display items, bill-and-hold goods, repossessed goods, defective or damaged goods, goods held on consignment, or goods which are not of a type held for sale in the ordinary course of business;

 

(g)           which is not located in the U.S. or is in transit with a common carrier from vendors and suppliers; provided that up to $5,000,000 of Inventory in transit of the Credit Parties from vendors and suppliers may be included as eligible pursuant to this clause (g) so long as (i) the Security Agents shall have received (1) a true and correct copy of the bill of lading and other shipping documents for such Inventory, (2) evidence of satisfactory casualty insurance naming the Collateral Agent as loss payee and otherwise covering such risks as the Security Agents may reasonably request and (3) if the bill of lading is (A) non-negotiable and the inventory is in transit within the United States, a duly executed Collateral Access Agreement from the applicable customs broker for such Inventory or (B) negotiable, confirmation that the bill is issued in the name of the Borrower and consigned to the order of the Collateral Agent, and an acceptable agreement has been executed with the Borrower’s customs broker, in which the customs broker agrees that it holds the negotiable bill as agent for the Collateral Agent and has granted the Collateral Agent access to the Inventory and (ii) the common carrier is not an Affiliate of the applicable vendor or supplier;

 

(h)           which is located in any location leased by a Credit Party unless (A) the lessor has delivered to the Collateral Agent a Collateral Access Agreement or (B) a Reserve for rent, charges and other amounts due or to become due with respect to such facility has been established by the Security Agents in their Permitted Discretion (which Reserve may be reduced if a subsequent Collateral Access Agreement has been received by the Collateral Agent);

 

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(i)            which is located in any third party warehouse or is in the possession of a bailee (other than a third party processor) and is not evidenced by a Document (other than bills of lading to the extent permitted by clause (g) above), unless (i) such warehouseman or bailee has delivered to the Collateral Agent a Collateral Access Agreement and such other documentation as the Security Agents may require or (ii) an appropriate Inventory Reserve has been established by the Security Agents in their Permitted Discretion;

 

(j)            which is being processed offsite at a third party location or outside processor or is in-transit to or from said third party location or outside processor;

 

(k)           which is a discontinued product or component thereof;

 

(l)            which is the subject of a consignment by such Credit Party as consignor, unless (i) a protective UCC-1 financing statement has been properly filed against the consignee and (ii) there is a written agreement acknowledging that such Inventory is held on consignment, that such Credit Party retains title to such Inventory, that no Lien arising by, through or under such consignee has attached or will attach to such Inventory and requiring consignee to segregate the consigned Inventory from the consignee’s other personal or movable property and having such other terms as the Security Agents may require for consigned Inventory in their Permitted Discretion;

 

(m)          which contains or bears any intellectual property rights licensed to such Credit Party unless the Security Agents are satisfied that the Collateral Agent may sell or otherwise dispose of such Inventory without (i) infringing the rights of such licensor, (ii) violating any contract with such licensor, or (iii) incurring any liability with respect to payment of royalties other than royalties incurred pursuant to sale of such Inventory in the ordinary course under the current licensing agreement;

 

(n)           which is not reflected in a current perpetual inventory report of such Credit Party (unless such Inventory is reflected in a report to the Collateral Agent as “in transit” Inventory); or

 

(o)           for which reclamation rights have been asserted by the seller.

 

Standards of eligibility may be made more restrictive from time to time (and such increased restrictiveness subsequently reversed in whole or in part) solely by the Security Agents in the exercise of their Permitted Discretion, with any such changes to be effective one Business Day after delivery of written notice thereof to the Borrower and the Lenders.

 

“ Environmental Claims ” shall mean any and all administrative, regulatory or judicial actions, suits, demands, demand letters, claims, liens, notices of noncompliance or violation, investigations (other than internal reports prepared by the Borrower or any of the Subsidiaries (a) in the ordinary course of such Person’s business or (b) as required in connection with a financing transaction or an acquisition or disposition of Real Estate) or proceedings relating in any way to any Environmental Law or any permit issued, or any approval given, under any such Environmental Law (hereinafter, “ Claims ”), including (i) any and all Claims by governmental or regulatory authorities for enforcement, cleanup, removal, response, remedial or other actions or damages pursuant to any applicable Environmental Law and (ii) any and all Claims by any third

 

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“ Exchange Act ” shall mean the Securities Exchange Act of 1934, as amended.

 

“ Excluded Subsidiary ” shall mean shall mean (a) each Domestic Subsidiary that is not a Material Subsidiary, (b) any Domestic Subsidiary substantially all the assets of which consist of capital stock or other equity interests of Foreign Subsidiaries, (c) each Domestic Subsidiary that is prohibited by (i) any Requirement of Law or (ii) any applicable contractual requirement existing at the time such Subsidiary becomes a Restricted Subsidiary (and for so long as such restriction or any replacement or renewal thereof is in effect), in each case, from guaranteeing or granting Liens to secure the Obligations,  (d) each Domestic Subsidiary that is a Subsidiary of a Foreign Subsidiary, (e) any other Domestic Subsidiary with respect to which, in the reasonable judgment of the Administrative Agent (confirmed in writing by notice to the Borrower), the cost or other consequences (including any adverse tax consequences) of guaranteeing or granting Liens to secure the Obligations shall be excessive in view of the benefits to be obtained by the Lenders therefrom, (f) each Unrestricted Subsidiary and (g) any non-wholly owned Subsidiary.  Each Domestic Subsidiary that is not a Material Subsidiary as of the Signing Date is listed on Schedule 1.1(c) .

 

“ Existing Credit Agreement ” shall mean the Third Amended and Restated Credit Agreement, dated as of August 25, 2006, among the Borrower, Holdings, Parent, Sealy Canada Ltd. Ltee, as Canadian Borrower, the lending institutions from time to time parties thereto, J. P. Morgan Securities Inc., as joint lead arranger and joint bookrunner, Citigroup Global Markets Inc., as joint lead arranger and joint bookrunner, Citibank, N.A., as syndication agent, JPMorgan Chase Bank, N.A., as administrative agent, JPMorgan Chase Bank, N.A., Toronto Branch, as Canadian administrative agent, and General Electric Capital Corporation, Wachovia Bank, National Association, and LaSalle Bank National Association, as co-documentation agents.

 

“ Existing Letters of Credit ” shall mean the letters of credit identified on Schedule 1.1(d)  hereto and shall in any event include amendments, extensions and renewals thereof.

 

“ Federal Funds Effective Rate ” shall mean, for any day, the weighted average of the per annum rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average of the quotations for the day of such transactions received by the Administrative Agent from three federal funds brokers of recognized standing selected by it.

 

“ Fees ” shall mean all amounts payable pursuant to, or referred to in, Section 4.1.

 

“ Final Date ” shall mean the date on which the Commitments shall have terminated, no Loans shall be outstanding, the Letters of Credit Outstanding shall have been reduced to zero and all other Obligations under this Agreement (other than (a) obligations under Secured Hedge Agreements not yet due and payable, (b) obligations under Cash Management Agreements not yet due and payable and (c) contingent indemnification and expense reimbursement obligations with respect to which no claim has been asserted) shall have been paid in full.

 

“ Fitch ” means Fitch Ratings, Ltd., a division of Fitch, Inc., or any successor by merger or consolidation to its business.

 

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“ Fixed Charge Coverage Ratio ” shall mean the ratio, for any Test Period, of (a) Consolidated EBITDA for such Test Period minus the unfinanced portion of Capital Expenditures made by Holdings, the Borrower and the Restricted Subsidiaries during such Test Period minus expense for taxes paid in cash during such Test Period net of cash refunds received during such Test Period to (b) Fixed Charges for such Test Period, all calculated for Parent, Holdings, the Borrower and the Restricted Subsidiaries on a consolidated basis, provided that the Fixed Charge Coverage Ratio shall be calculated on a Pro Forma Basis.

 

“ Fixed Charges ” shall mean, with reference to any Test Period, without duplication, cash Consolidated Interest Expense paid during such Test Period plus payments of Capitalized Lease Obligations during such Test Period plus scheduled principal payments on Indebtedness made during such Test Period plus Restricted Payments (other than refinancings of Indebtedness with the proceeds of Permitted Refinancing Indebtedness) paid in cash during such Test Period pursuant to Section 10.6(c) or (d), all calculated for Parent, Holdings, the Borrower and the Restricted Subsidiaries on a consolidated basis, provided that there shall be excluded from Fixed Charges for any Test Period any of the foregoing items to the extent attributable to Unrestricted Subsidiaries for such Test Period and to the extent otherwise included in Fixed Charges for such Test Period, except to the extent actually paid in cash by Parent, Holdings, the Borrower or its Restricted Subsidiaries during such period (other than from dividends or other distributions from an Unrestricted Subsidiary).

 

“ Flood Insurance Laws ” shall mean, collectively, (i) the National Flood Insurance Act of 1968 as now or hereafter in effect or any successor statute thereto, (ii) the Flood Disaster Protection Act of 1973 as now or hereafter in effect or any successor statute thereto, (iii) the National Flood Insurance Reform Act of 1994 as now or hereafter in effect or any successor statute thereto and (iv) the Flood Insurance Reform Act of 2004 as now or hereafter in effect or any successor statute thereto.

 

“ Foreign Subsidiary ” shall mean each Subsidiary of the Borrower that is not a Domestic Subsidiary.

 

“ Forward Purchase Contract ” shall mean the letter agreement to be dated prior to the Effective Date, by and among the Borrower, Parent and Sealy Holding LLC in form reasonably satisfactory to each Initial Lender.

 

“ Fronting Fee ” shall have the meaning provided in Section 4.1(c).

 

“ GAAP ” shall mean generally accepted accounting principles in the United States of America as in effect from time to time; provided , however , that if there occurs after the date hereof any change in GAAP that affects in any respect the calculation of any covenant contained in Section 10, the Lenders and the Borrower shall negotiate in good faith amendments to the provisions of this Agreement that relate to the calculation of such covenant with the intent of having the respective positions of the Lenders and the Borrower after such change in GAAP conform as nearly as possible to their respective positions as of the date of this Agreement and, until any such amendments have been agreed upon, the covenants in Section 10 shall be calculated as if no such change in GAAP has occurred.  Notwithstanding any other provision contained herein, all terms of an accounting or financial nature used herein shall be construed, and all computations

 

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of amounts and ratios referred to herein shall be made, without giving effect to any election under Statement of Financial Accounting Standards 159 (or any other Financial Accounting Standard having a similar result or effect) to value any Indebtedness or other liabilities of Parent, Holdings, the Borrower or any Restricted Subsidiary at “fair value”, as defined therein.

 

“ Governmental Authority ” shall mean any nation or government, any state, province, territory or other political subdivision thereof, and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government.

 

“ Guarantee ” shall mean the Guarantee, made by each Guarantor in favor of the Administrative Agent for the benefit of the Secured Parties, in form reasonably satisfactory to each Initial Lender, as the same may be amended, supplemented or otherwise modified from time to time.

 

“ Guarantee Obligations ” shall mean, as to any Person, any obligation of such Person guaranteeing or intended to guarantee any Indebtedness of any other Person (the “ primary obligor ”) in any manner, whether directly or indirectly, including any obligation of such Person, whether or not contingent, (a) to purchase any such Indebtedness or any property constituting direct or indirect security therefor, (b) to advance or supply funds (i) for the purchase or payment of any such Indebtedness or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (c) to purchase property, securities or services primarily for the purpose of assuring the owner of any such Indebtedness of the ability of the primary obligor to make payment of such Indebtedness or (d) otherwise to assure or hold harmless the owner of such Indebtedness against loss in respect thereof; provided , however , that the term “Guarantee Obligations” shall not include endorsements of instruments for deposit or collection in the ordinary course of business.  The amount of any Guarantee Obligation shall be deemed to be an amount equal to the stated or determinable amount of the Indebtedness in respect of which such Guarantee Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such Person is required to perform thereunder) as determined by such Person in good faith.

 

“ Guarantors ” shall mean Holdings and the Subsidiary Guarantors.

 

“ Hazardous Materials ” shall mean (a) any petroleum or petroleum products, radioactive materials, friable asbestos, urea formaldehyde foam insulation, transformers or other equipment that contain dielectric fluid containing regulated levels of polychlorinated biphenyls, and radon gas; (b) any chemicals, materials or substances defined as or included in the definition of “hazardous substances”, “hazardous waste”, “hazardous materials”, “extremely hazardous waste”, “restricted hazardous waste”, “toxic substances”, “toxic pollutants”, “contaminants”, or “pollutants”, or words of similar import, under any applicable Environmental Law; and (c) any other chemical, material or substance, which is prohibited, limited or regulated by any Environmental Law.

 

“ Hedge Agreements ” shall mean interest rate swap, cap or collar agreements, interest rate future or option contracts, currency swap agreements, currency future or option contracts, commodity price protection agreements or other commodity price hedging agreements, and other similar agreements entered into by the Borrower or any Restricted Subsidiary.

 

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“ Hedge Bank ” shall mean any Person that (a) at the time it enters into a Secured Hedge Agreement is a Lender or an Affiliate of a Lender or (b) with respect to any Hedge Agreement entered into prior to the Signing Date, any Person that is a Lender or an Affiliate of a Lender on the Signing Date, in its capacity as a party to such Secured Hedge Agreement.

 

“ High Investment Grade Rating ” shall mean with respect to any Person, such Person has at least the minimum rating indicated below from two out of the three ratings agencies named below:

 

 

“ Historical Financial Statements ” means as of the Signing Date, the audited financial statements of Parent and its Subsidiaries, for the immediately preceding three fiscal years, consisting of balance sheets and the related consolidated statements of income, stockholders’ equity and cash flows for such fiscal years.

 

“ Holdings ” shall have the meaning provided in the preamble to this Agreement.

 

“ Increased Amount Date ” shall have the meaning provided in Section 2.15.

 

“ Indebtedness ” of any Person shall mean (a) all indebtedness of such Person for borrowed money, (b) the deferred purchase price of assets or services that in accordance with GAAP would be included as liabilities in the balance sheet of such Person, (c) the face amount of all letters of credit issued for the account of such Person and, without duplication, all drafts drawn thereunder, (d) all Indebtedness of a second Person secured by any Lien on any property owned by such first Person, whether or not such Indebtedness has been assumed, (e) all Capitalized Lease Obligations of such Person, (f) all obligations of such Person under Hedge Agreements and (g) without duplication, all Guarantee Obligations of such Person with respect to the obligations of another Person of a type described in clauses (a) through (f) above, provided that (i) Indebtedness shall not include trade payables and accrued expenses, in each case payable directly or through a bank clearing arrangement and arising in the ordinary course of business and (ii) for purposes of Section 11.4, the amount of any Indebtedness in respect of any Hedge Agreement at any time, shall be the amount of any required early termination payment by the Borrower or any Subsidiary at such time.

 

“ Initial Lender ” shall mean each Lender listed on Schedule 1.1(b) .

 

“ Initial PIK Convertible Notes ” shall mean an initial aggregate principal amount of 8.0% convertible senior secured third lien notes due 2016 of Parent and the Borrower, as co-issuers that, when aggregated with the aggregate principal amount of the Initial Secured Notes, does not exceed $555,000,000 and shall include any increase in such convertible senior secured

 

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third lien notes as a result of the payment of in kind interest thereon, provided that the covenants and other material terms in the Convertible Notes are consistent with the description of notes delivered to the Initial Lenders on the Effective Date pursuant to the Forward Purchase Contract.

 

“ Initial Secured Notes ” shall mean an aggregate principal amount of the Borrower’s Senior Secured Notes due 2016 issued on the Effective Date that when aggregated with the aggregate initial principal amount of the Initial PIK Convertible Notes subject to the Forward Purchase Contract does not exceed $555,000,000.

 

“ Intercreditor Agreement ” shall mean the Intercreditor Agreement, to be dated as of the Effective Date, by and among, the Administrative Agent, the collateral agent under the Secured Notes Indenture and the collateral agent under the PIK Convertible Notes Indenture in form reasonably acceptable to each Initial Lender, as the same may be amended or supplemented or otherwise modified from time to time.

 

“ Interest Payment Date ” shall mean (a) with respect to any ABR Loan (other than a Swingline Loan), the first day of each January, April, July and October and the Maturity Date, (b) with respect to any Eurodollar Loan, the last day of the Interest Period applicable to the Borrowing of which such Loan is a part and, in the case of a Eurodollar Loan Borrowing with an Interest Period of more than three months’ duration, each day prior to the last day of such Interest Period that occurs at intervals of three months’ duration after the first day of such Interest Period and the Maturity Date, and (c) with respect to any Swingline Loan, the day that such Loan is repaid and the Maturity Date.

 

“ Interest Period ” shall mean, with respect to any Eurodollar Loan, the interest period applicable thereto, as determined pursuant to Section 2.9.

 

“ Inventory ” shall have the meaning assigned to such term in the Security Agreement.

 

“ Inventory Reserves ” shall mean any and all reserves which the Security Agents deem necessary, in their Permitted Discretion, to maintain (including, without limitation, reserves for slow moving Inventory, intercompany profits and Inventory shrinkage and Permitted Liens on any Eligible Inventory ranking prior to the Liens of the Administrative Agent for the benefit of the Secured Parties) with respect to the Inventory or any Credit Party.  The Security Agents may, from time to time, in their Permitted Discretion, adjust Inventory Reserves used in computing the Borrowing Base upon not less than one Business Day’s prior written notice to the Borrower.

 

“ Investment ” shall have the meaning provided in Section 10.5.

 

“ Investment Grade Rating ” shall mean with respect to any Person, such Person has at least the minimum rating indicated below from two out of the three ratings agencies named below:

 

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“ Joinder Agreement ” shall mean an agreement pursuant to which a New Commitment is implemented pursuant to Section 2.15 in form reasonably satisfactory to the Administrative Agent.

 

“ Joint Lead Arrangers ” shall mean J.P. Morgan Securities Inc., GE Capital Markets, Inc. and Citigroup Global Markets Inc., as the joint lead arrangers for the Lenders under this Agreement and the other Credit Documents.

 

“ JPMCB ” shall mean JPMorgan Chase Bank, N.A. and any successor thereto by merger, consolidation or otherwise.

 

“ KKR ” shall mean each of Kohlberg Kravis Roberts & Co., L.P. and KKR Associates, L.P.

 

“ L/C Maturity Date ” shall mean the date that is five Business Days prior to the Maturity Date.

 

“ L/C Participant ” shall have the meaning provided in Section 3.3(a).

 

“ L/C Participation ” shall have the meaning provided in Section 3.3(a).

 

“ Lender ” shall have the meaning provided in the preamble to this Agreement.

 

“ Letter of Credit ” shall mean each standby letter of credit issued pursuant to Section 3.1 and shall include the Existing Letters of Credit.

 

“ Letter of Credit Commitment ” shall mean $35,000,000, as the same may be reduced from time to time pursuant to Section 3.1.

 

“ Letter of Credit Exposure ” shall mean, with respect to any Lender at any time, such Lender’s Applicable Percentage of the Letters of Credit Outstanding at such time.

 

“ Letter of Credit Fee ” shall have the meaning provided in Section 4.1(b).

 

“ Letter of Credit Issuer ” shall mean JPMCB, any of its Affiliates or any successor pursuant to Section 3.6.  The Letter of Credit Issuer may, in its discretion, arrange for one or more Letters of Credit to be issued by Affiliates of the Letter of Credit Issuer (including, without limitation, JPMorgan Chase Bank, N.A., Toronto Branch), and in each such case the term “Letter of Credit Issuer” shall include any such Affiliate with respect to Letters of Credit issued by such Affiliate.  In the event that there is more than one Letter of Credit Issuer at any time, references herein and in the other Credit Documents to the Letter of Credit Issuer shall be deemed to refer to the Letter of Credit Issuer in respect of the applicable Letter of Credit or to all Letter of Credit Issuers, as the context requires.

 

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“ Letter of Credit Request ” shall have the meaning provided in Section 3.2.

 

“ Letters of Credit Outstanding ” shall mean, at any time, the sum of, without duplication, (a) the aggregate Stated Amount of all outstanding Letters of Credit and (b) the aggregate amount of all Unpaid Drawings in respect of all Letters of Credit.

 

“ Level I Status ” shall mean, on any date, the Commitment Utilization Percentage for the fiscal quarter most recently ended prior to such date was less than or equal to 50%.

 

“ Level II Status ” shall mean, on any date, the Commitment Utilization Percentage for the fiscal quarter most recently ended prior to such date was greater than 50%.

 

“ Lien ” shall mean any mortgage, pledge, security interest, hypothecation, assignment, lien (statutory or other) or similar encumbrance (including any agreement to give any of the foregoing, any conditional sale or other title retention agreement or any lease in the nature thereof).

 

“ Loan ” shall mean any Revolving Credit Loan, Swingline Loan or Protective Advance.

 

“ Management Group ” shall mean, at any time, the Chairman of the Board, any President, any Executive Vice President or Vice President, any Managing Director, any Treasurer and any Secretary of any of Holdings, the Borrower or any Subsidiaries at such time.

 

“ Mandatory Borrowing ” shall have the meaning provided in Section 2.1(c).

 

“ Material Adverse Effect ” shall mean a circumstance or condition affecting the business, assets, operations, properties or financial condition of Holdings, the Borrower and the Restricted Subsidiaries, taken as a whole, that would materially adversely affect (a) the ability of Holdings, the Borrower and the other Credit Parties, taken as a whole, to perform their obligations under this Agreement or any of the other Credit Documents or (b) the rights and remedies of the Administrative Agent, the Security Agents and the Lenders under this Agreement or any of the other Credit Documents.

 

“ Material Subsidiary ” shall mean any Restricted Subsidiary other than (i) a Restricted Subsidiary set forth on Schedule 1.1(c) or (ii) any other Restricted Subsidiary of the Borrower (a) whose total assets at the last day of the Test Period ending on the last day of the most recent fiscal period for which Section 9.1 Financials have been delivered were less than or equal 5% of the consolidated total assets of Parent, Holdings, the Borrower and the Restricted Subsidiaries at such date or (b) whose gross revenues for such Test Period were less than or equal to 5% of the consolidated gross revenues of Parent, Holdings, the Borrower and the Restricted Subsidiaries for such period, in each case determined in accordance with GAAP;  provided that, notwithstanding subclauses (i) and (ii) above, “Material Subsidiary” shall also include any of the Borrower’s Subsidiaries selected by the Borrower which is required to ensure that all Material Subsidiaries have in the aggregate (x) total assets at the last day of the Test Period ending on the last day of the most recent fiscal period for which Section 9.1 Financials have been delivered equal to or greater than 95% of the total assets of Parent, Holdings, the Borrower and the Restricted Subsidiaries at such date and (y) gross revenues for such Test Period that were equal to

 

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or greater than 95% of the consolidated gross revenues of Parent, Holdings, the Borrower and the Restricted Subsidiaries for such period, in each case determined in accordance with GAAP.

 

“ Maturity Date ” shall mean the date that is four years after the Effective Date, or, if such date is not a Business Day, the immediately preceding Business Day.

 

“ Minimum Availability Period ” shall mean any period (a) commencing when Availability for any consecutive two calendar day period is less than the greater of (i) 15% of the Total Commitment and (ii) $15,000,000 and (b) ending after Availability is at least the greater of (i) 15% of the Total Commitment and (ii) $15,000,000 for a period of 30 consecutive days.

 

“ Moody’s ” shall mean Moody’s Investors Service, Inc. or any successor by merger or consolidation to its business.

 

“ Mortgage ” shall mean a Mortgage, Assignment of Leases and Rents, Security Agreement and Financing Statement or other security document entered into by the owner of a Mortgaged Property (or, to the extent any Credit Party holds a leasehold interest in any Mortgaged Property, by the lessee of such Mortgaged Property) in favor of the Collateral Agent for the benefit of the Secured Parties in respect of that Mortgaged Property, in form reasonably satisfactory to each Initial Lender, as the same may be amended, supplemented or otherwise modified from time to time.

 

“ Mortgaged Property ” shall mean, initially, each parcel of real estate and the improvements thereto identified on Schedule 1.1(a), and includes each other parcel of real property and improvements thereto with respect to which a Mortgage is granted pursuant to Section 9.15.

 

“ Net Orderly Liquidation Value ” shall mean, with respect to Inventory of any Person, the net orderly liquidation value thereof as determined in a manner reasonably acceptable to the Security Agents by an appraiser reasonably acceptable to the Security Agents.

 

“ New Commitments ” shall have the meaning provided in Section 2.15.

 

“ New Lender ” shall have the meaning provided in Section 2.15.

 

“ Non-Excluded Taxes ” shall have the meaning provided in Section 5.4(a).

 

“ Notice of Borrowing ” shall have the meaning provided in Section 2.3.

 

“ Notice of Conversion or Continuation ” shall have the meaning provided in Section 2.6.

 

“ Obligations ” shall have the meaning assigned to such term in the Security Agreement.

 

“ Parent ” shall have the meaning provided in the preamble to this Agreement.

 

“ Participant ” shall have the meaning provided in Section 14.6(c)(i).

 

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“ PBGC ” shall mean the Pension Benefit Guaranty Corporation established pursuant to Section 4002 of ERISA, or any successor thereto.

 

“ Perfection Certificate ” shall mean a certificate of the Borrower in a form approved by the Security Agents.

 

“ Permitted Acquisition ” shall mean the acquisition, by merger or otherwise, by the Borrower or any of the Restricted Subsidiaries of assets or capital stock or other equity interests, so long as (a) such acquisition and all transactions related thereto shall be consummated in accordance with applicable law; (b) such acquisition shall result in the issuer of such capital stock or other equity interests becoming a Subsidiary Guarantor to the extent required by Section 9.11; and (c) such acquisition shall result in the Administrative Agent for the benefit of the applicable Lenders, being granted a security interest in any capital stock or any assets so acquired to the extent required by Sections 9.11, 9.12 and/or 9.15.

 

“ Permitted Additional PIK Convertible Notes ” shall mean up to $25,000,000 aggregate initial principal amount of convertible senior secured third lien notes due 2016 (including any increase in such convertible senior secured third lien notes as a result of the payment of in kind interest thereon) of Parent and the Borrower, as co-issuers, having terms and conditions not less favorable to the Lenders than the Initial PIK Convertible Notes and with respect to which the holders (or a trustee or agent on behalf of such holders) shall have executed a supplement to the Intercreditor Agreement agreeing to be bound thereby on the same terms applicable to the holders of Initial PIK Convertible Notes.

 

“ Permitted Additional Secured Notes ” shall mean any Indebtedness of the Borrower (other than the Initial Secured Notes) that is secured by a Lien ranking pari   passu with the Lien of the Initial Secured Notes pursuant to the terms of the Intercreditor Agreement; provided that (a) the terms of such Indebtedness do not provide for any scheduled repayment, mandatory redemption or sinking fund obligation prior to the Maturity Date (other than customary offers to purchase upon a change of control, asset sale or event of loss and customary acceleration rights after an event of default), (b) no Subsidiary of the Borrower other than a Subsidiary Guarantor is a guarantor or obligor with respect to such Indebtedness, (c) the holders of such Permitted Additional Secured Notes (or a trustee or agent authorized to act on behalf of such holders) shall have executed a supplement to the Intercreditor Agreement agreeing to be bound thereby on the same terms applicable to the holders of Initial Secured Notes, (d) no Event of Default shall have occurred and is continuing immediately after giving effect to the issuance thereof and the application of proceeds therefrom and (e) either (x) on a Pro Forma Basis immediately after giving effect to the issuance of any Permitted Additional Secured Notes (i) the Consolidated Senior Secured Debt to Consolidated EBITDA Ratio as of the last day of the most recent Test Period for which Section 9.1 Financials have been delivered is less than 2.75 to 1.0 and (ii) the Fixed Charge Coverage Ratio for the most recent Test Period for which Section 9.1 Financials have been delivered would be at least 1.1 to 1.0 (or, in the case of Permitted Additional Secured Notes issued as Permitted Refinancing Indebtedness, the Fixed Charge Coverage Ratio for such Test Period is higher than immediately prior to such refinancing transaction) or (y) the aggregate amount of Permitted Additional Secured Notes outstanding at the time of issuance thereof does not exceed $50,000,000.

 

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to be bound thereby on the same terms applicable to the holders of Initial PIK Convertible Notes giving effect to the priority of the Lien securing such Indebtedness and (d) on a Pro Forma Basis after giving effect to the issuance of such Permitted Junior Lien or Unsecured Notes and the application of proceeds therefrom, (i) no Event of Default shall have occurred and is continuing and (ii) the Fixed Charge Coverage Ratio for the most recent Test Period for which Section 9.1 Financials have been delivered would be at least 1.1 to 1.0 (or, in the case of Permitted Junior Lien or Unsecured Notes issued as Permitted Refinancing Indebtedness, the Fixed Charge Coverage Ratio for such Test Period is higher than immediately prior to such refinancing transaction).

 

“ Permitted Liens ” shall mean (a) Liens for taxes, assessments or governmental charges or claims not yet due or which are being contested in good faith and by appropriate proceedings for which appropriate reserves have been established in accordance with GAAP; (b) Liens in respect of property or assets of the Borrower or any of the Subsidiaries imposed by law, such as carriers’, warehousemen’s and mechanics’ Liens and other similar Liens arising in the ordinary course of business, in each case so long as such Liens arise in the ordinary course of business and do not individually or in the aggregate have a Material Adverse Effect; (c) Liens arising from judgments or decrees in circumstances not constituting an Event of Default under Section 11.12; (d) Liens incurred or deposits made in connection with workers’ compensation, unemployment insurance and other types of social security, or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, government contracts, performance and return-of-money bonds and other similar obligations incurred in the ordinary course of business; (e) ground leases in respect of real property on which facilities owned or leased by the Borrower or any of its Subsidiaries are located; (f) easements, rights-of-way, restrictions, minor defects or irregularities in title and other similar charges or encumbrances not interfering in any material respect with the business of the Borrower and its Subsidiaries, taken as a whole; (g) any interest or title of a lessor or secured by a lessor’s interest under any lease permitted by this Agreement; (h) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods; (i) Liens on goods the purchase price of which is financed by a documentary letter of credit issued for the account of the Borrower or any of its Subsidiaries, provided that such Lien secures only the obligations of the Borrower or such Subsidiaries in respect of such letter of credit to the extent permitted under Section 10.1(A); (j) leases or subleases granted to others not interfering in any material respect with the business of the Borrower and its Subsidiaries, taken as a whole and (k) Liens (i) of a collecting bank arising in the ordinary course of business under Section 4-210 of the Uniform Commercial Code in effect in the relevant jurisdiction covering only the items being collected upon or (ii) in favor of a banking institution arising as a matter of law, encumbering amounts credited to deposit or securities accounts (including the right of set-off) and which are within the general parameters customary in the banking industry.

 

“ Permitted Refinancing Indebtedness ” shall mean any Indebtedness (“ Refinancing Indebtedness ”) incurred to refinance, refund, renew or extend (including, without limitation, pursuant to any exchange offer) any Indebtedness (the “ Initial Indebtedness ”) specified in clause (i) or (k) of Section 10.1(A), provided that (a) the principal amount of any Refinancing Indebtedness is not increased above the principal amount of the Initial Indebtedness refinanced thereby (except by the amount of any accrued and unpaid interest thereon and by the amount of any fees and expenses payable in connection with such refinancing), (b) Initial Indebtedness of the Borrower

 

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or a Subsidiary Guarantor may not be refinanced with Refinancing Indebtedness incurred or guaranteed by any Restricted Subsidiary that is not a Guarantor, (c) except in the case of a refinancing of the Subordinated Notes, if the Initial Indebtedness is subordinated to the Obligations, then such Refinancing Indebtedness shall be subordinated to the Obligations to at least the same extent, (d) such Refinancing Indebtedness (x) does not have a final maturity prior to the final maturity of the Initial Indebtedness refinanced thereby and (y) does not have a Weighted Average Life to Maturity that is less than the Weighted Average Life to Maturity of the Initial Indebtedness and (e) except in the case of Refinancing Indebtedness constituting Permitted Additional Secured Notes or Permitted Junior Lien or Unsecured Notes, the Refinancing Indebtedness is not secured by a Lien on any assets of the Borrower or any of the Restricted Subsidiaries other than any assets subject to a Lien securing the Initial Indebtedness, provided   further that no Permitted Refinancing Indebtedness in respect of the Initial PIK Convertible Notes or any Permitted Additional PIK Convertible Notes (or any Permitted Refinancing Indebtedness in respect thereof) shall provide (a) for any cash interest payments or other cash distributions in respect thereof on or prior to the Maturity Date, (b) by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable or exercisable) or upon the happening of any event that such Indebtedness (i)(x) matures or becomes mandatorily redeemable pursuant to a sinking fund obligation or otherwise (other than for equity interests of Parent), (y) that such Indebtedness becomes convertible or exchangeable at the option of the holder thereof for Indebtedness or other securities that do not meet the requirements of this proviso or (z) become redeemable at the option of the holder thereof (other than as a result of a change of control event or in exchange for equity interests of Parent), in whole or in part, in each case on or prior to the first anniversary of the Maturity Date or (c) provide holders thereunder with any rights to require redemption or repayment (other than in equity interests of Parent) upon the occurrence of a “change of control” event prior to the Final Date.

 

“ Permitted Sale Leaseback ” shall mean any Sale Leaseback consummated by the Borrower or any of the Restricted Subsidiaries after the Effective Date, provided that (i) with respect to any property owned as of the Signing Date, the value of such Sale Leasebacks shall not exceed $50,000,000 in the aggregate and (ii) such Sale Leaseback is consummated for fair value as determined at the time of consummation in good faith by the Borrower and, in the case of any Sale Leaseback (or series of related Sales Leasebacks) the aggregate proceeds of which exceed $20,000,000, the board of directors of the Borrower (which such determination may take into account any retained interest or other investment of the Borrower or such Restricted Subsidiary in connection with, and any other material economic terms of, such Sale Leaseback).

 

“ Person ” shall mean any individual, partnership, joint venture, firm, corporation, limited liability company, association, trust or other enterprise or any Governmental Authority.

 

“ PIK Convertible Note Indenture ” shall mean the Indenture among Parent, the Borrower, the guarantors party thereto and the trustee thereunder in the form contemplated by the Forward Purchase Contract, pursuant to which the Initial PIK Convertible Notes are issued, as the same may be amended, supplemented or otherwise modified from time to time.

 

“ Plan ” shall mean any multiemployer or single-employer plan, as defined in Section 4001 of ERISA and subject to Title IV of ERISA, that is or was within any of the preceding

 

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five plan years maintained or contributed to by (or to which there is or was an obligation to contribute or to make payments to) the Borrower, a Subsidiary or an ERISA Affiliate.

 

“ Pledge Agreement ” shall mean the Pledge Agreement, entered into by Holdings, the Borrower, the other pledgors party thereto and the Collateral Agent for the benefit of the Secured Parties, in form reasonably satisfactory to each Initial Lender, as the same may be amended, supplemented or otherwise modified from time to time.

 

“ Prime Rate ” shall mean the rate of interest per annum publicly announced from time to time by the Administrative Agent as its reference rate in effect at its principal office in New York City (the Prime Rate not being intended to be the lowest rate of interest charged by JPMCB in connection with extensions of credit to debtors).

 

“ Pro Forma Adjustment ” shall mean, for any Test Period that includes any of the six fiscal quarters first ending following any acquisition or disposition of any Restricted Subsidiary or division or line of business, the pro forma increase or decrease in Consolidated EBITDA, projected by the Borrower in good faith as a result of reasonably identifiable and factually supportable recurring net cost savings or recurring additional net costs, as the case may be, realizable during such period as a result of such transaction, provided that so long as such net cost savings or additional net costs will be realizable at any time during such six-quarter period, it shall be assumed, for purposes of projecting such pro forma increase or decrease to Consolidated EBITDA, that such net cost savings or additional net costs will be realizable during the entire such period; provided   further that any such pro forma increase or decrease to Consolidated EBITDA shall be without duplication of net cost savings or additional net costs actually realized during such period and already included in Consolidated EBITDA.

 

“ Pro Forma Adjustment Certificate ” shall mean any certificate of an Authorized Officer of the Borrower delivered pursuant to Section 9.1(i) or setting forth the information described in clause (iv) to Section 9.1(d).

 

“ Pro Forma Basis ” shall mean, with respect to any financial test specified herein as of any date (a “ Determination Date ”) such test shall be determined on a pro forma basis after giving effect to:

 

(A)          any acquisition or disposition of any Restricted Subsidiary or division or line of business made following the first day of the most recent Test Period ending prior to the Determination Date (the “ Relevant Test Period ”) and on or prior to such Determination Date as though such acquisition or disposition had occurred on the first day of the Relevant Test Period;

 

(B)           any designation of a Restricted Subsidiary as an Unrestricted Subsidiary or any redesignation of an Unrestricted Subsidiary as a Restricted Subsidiary and any Restricted Payment, in each case, following the first day of the Relevant Test Period and on or prior to the Determination Date as though such designation, redesignation or Restricted Payment had occurred on the first day of the Relevant Test Period;

 

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(C)           any incurrence or repayment of Indebtedness during the Relevant Test Period and on or prior to the Determination Date as though such incurrence or repayment had occurred on the first day of the Relevant Test Period;

 

(D)          any other transaction to occur on or prior to the Determination Date which requires that any financial ratio be calculated on a Pro Forma Basis as though such Transaction had occurred on the first day of the Relevant Test Period; and

 

(E)           any applicable Pro Forma Adjustment.

 

“ Protective Advance ” shall have the meaning assigned to such term in Section 2.1.

 

“ Qualified PIK Securities ” shall mean (1) any preferred capital stock or preferred equity interest of Parent (a) that does not provide for any cash dividend payments or other cash distributions in respect thereof on or prior to the Maturity Date and (b) that by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable or exercisable) or upon the happening of any event does not (i)(x) mature or become mandatorily redeemable pursuant to a sinking fund obligation or otherwise, (y) become convertible or exchangeable at the option of the holder thereof for Indebtedness or preferred stock that is not Qualified PIK Securities or (z) become redeemable at the option of the holder thereof (other than as a result of a change of control event), in whole or in part, in each case on or prior to the first anniversary of the Maturity Date and (ii) provide holders thereunder with any rights upon the occurrence of a “change of control” event prior to the Final Date and (2) any Indebtedness of Parent which has payments terms at least as favorable to the Borrower and Lenders as described in clause (1)(a) above and is subordinated and has other terms, other than with respect to interest rates, at least as favorable to the Borrower and Lenders as the Subordinated Notes.

 

“ Real Estate ” shall have the meaning given to that term in Section 9.1(g).

 

“ Register ” shall have the meaning provided in Section 14.6(b)(iv).

 

“ Regulation D ” shall mean Regulation D of the Board as from time to time in effect and any successor to all or a portion thereof establishing reserve requirements.

 

“ Regulation T ” shall mean Regulation T of the Board as from time to time in effect and any successor to all or a portion thereof establishing margin requirements.

 

“ Regulation U ” shall mean Regulation U of the Board as from time to time in effect and any successor to all or a portion thereof establishing margin requirements.

 

“ Regulation X ” shall mean Regulation X of the Board as from time to time in effect and any successor to all or a portion thereof establishing margin requirements.

 

“ Regulation Z ” shall mean Regulation Z of the Board as from time to time in effect and any successor to all or a portion thereof establishing margin requirements.

 

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“ Related Parties ” shall mean, with respect to any specified Person, such Person’s Affiliates and the directors, officers, employees, agents, trustees, advisors of such Person and any Person that possesses, directly or indirectly, the power to direct or cause the direction of the management or policies of such Person, whether through the ability to exercise voting power, by contract or otherwise.

 

“ Report ” shall mean reports prepared by the Administrative Agent, any Security Agent or another Person showing the results of appraisals, field examinations or audits pertaining to the Credit Parties’ assets from information furnished by or on behalf of the Credit Parties, after the Administrative Agent or any Security Agent has exercised its rights of inspection pursuant to this Agreement, which Reports may be distributed to the Lenders by the Administrative Agent or any such Security Agent.

 

“ Reportable Event ” shall mean an event described in Section 4043 of ERISA and the regulations thereunder.

 

“ Required Lenders ” shall mean, at any date, Lenders having or holding a majority of the Total Commitment at such date or, if the Total Commitment has been terminated, Lenders having a majority of the Total Credit Exposure at such date.

 

“ Required Supermajority Lenders ” shall mean, at any date, Lenders having Commitments representing at least 75% of the Total Commitment at such date or, if the Total Commitment has terminated, having at least 75% of the Total Credit Exposure at such date.

 

“ Requirement of Law ” shall mean, as to any Person, the Certificate of Incorporation and By-Laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or assets or to which such Person or any of its property or assets is subject.

 

“ Reserves ” shall mean any and all reserves (other than Account Reserves and Inventory Reserves) which the Security Agents deem necessary, in their Permitted Discretion, to maintain (including, without limitation, reserves for accrued and unpaid interest on the Obligations, reserves for rent at locations leased by any Credit Party and for consignee’s, warehousemen’s and bailee’s charges (unless a Collateral Access Agreement shall be in effect with respect to the subject property), reserves for Secured Hedge Agreements (but in the case of such Secured Hedge Agreements, only with the consent of the Borrower), reserves for contingent liabilities of any Credit Party, reserves for uninsured losses of any Credit Party, reserves for uninsured, underinsured, un-indemnified or under-indemnified liabilities or potential liabilities with respect to any litigation and reserves for taxes, fees, assessments and other governmental charges) with respect to the Collateral or any Credit Party.  The Security Agents may, from time to time, in their Permitted Discretion, adjust Reserves upon not less than one Business Day’s prior written notice to the Borrower.

 

“ Restricted Domestic Subsidiary ” shall mean each Restricted Subsidiary that is also a Domestic Subsidiary.

 

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“ Restricted Foreign Subsidiary ” shall mean a Foreign Subsidiary that is a Restricted Subsidiary.

 

“ Restricted Payment ” shall mean (a) any dividend or other distribution (whether in cash, securities or other property) with respect to any equity interests of Parent, Holdings or the Borrower, or any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any such equity interests in Parent, Holdings or the Borrower or any option, warrant or other right to acquire any such equity interests in Parent, Holdings or the Borrower (including the Initial PIK Convertible Notes and any Permitted Additional PIK Convertible Notes) and any payment under any cash-settled incentive awards payable to employees or directors of Parent or any of its Subsidiaries with reference to any such equity interest, warrant or right to acquire, other than (i) dividends, distributions, payments or purchases made with common stock of Parent or warrants or options to purchase such common stock or made with common stock upon the conversion or exercise of any options, warrants or rights (including upon conversion of any Initial PIK Convertible Notes or Permitted Additional PIK Convertible Notes) or (ii) the receipt of replacement rights (excluding payments except as provided above) under any replacement incentive award program, (b) the designation of any Restricted Subsidiary as an Unrestricted Subsidiary (which shall be deemed to be a Restricted Payment in an amount equal to the sum of (i) the net worth of such designated Subsidiary immediately prior to such designation (such net worth to be calculated without regard to any guarantee provided by such designated Subsidiary) and (ii) the aggregate principal amount of any Indebtedness owed by such designated Subsidiary to the Borrower or any Restricted Subsidiary immediately prior to such designation), all calculated, except as set forth in the parenthetical to clause (b), on a consolidated basis in accordance with GAAP and (c) any payment pursuant to the Forward Purchase Contract by Holdings, the Borrower or any Restricted Subsidiary including any return of cash collateral or any other property or securities of any Credit Party other than (i) the issuance of the Initial PIK Convertible Notes or common stock of Parent or warrants or options to purchase common stock, (ii) a return by Holdings, the Borrower and the Restricted Subsidiaries of a portion of the cash collateral deposited pursuant to the Forward Purchase Contract to Sealy Holding LLC solely upon issuance of the Initial PIK Convertible Notes and solely to the extent of and with the net cash proceeds received by the Borrower from the issuance and sale of Initial PIK Convertible Notes or (iii) payments to Sealy Holding LLC by Holdings, the Borrower and the Restricted Subsidiaries of (x) fees paid on the date of execution of the Forward Purchase Contract of up to $1,000,000 and (y) cash interest on the cash collateral deposited pursuant to the Forward Purchase Contract (prior to settlement or return to Sealy Holding LLC) in respect of the period from deposit to no later than September 30, 2009 at a rate equal to one month LIBOR plus 3.00% per annum.

 

“ Restricted Subsidiary ” shall mean any Subsidiary of the Borrower other than an Unrestricted Subsidiary.

 

“ Revolving Credit Loans ” shall have the meaning provided in Section 2.1(a).

 

“ S&P ” shall mean Standard & Poor’s Ratings Services or any successor by merger or consolidation to its business.

 

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“ Sale Leaseback ” shall mean any transaction or series of related transactions pursuant to which the Borrower or any of the Restricted Subsidiaries (a) sells, transfers or otherwise disposes of any property, real or personal, whether now owned or hereafter acquired, and (b) as part of such transaction, thereafter rents or leases such property or other property that it intends to use for substantially the same purpose or purposes as the property being sold, transferred or disposed.

 

“ SEC ” shall mean the Securities and Exchange Commission or any successor thereto.

 

“ Section 9.1 Financials ” shall mean the financial statements delivered, or required to be delivered, pursuant to Section 9.1(a) or (b) together with the accompanying officer’s certificate delivered, or required to be delivered, pursuant to Section 9.1(d).

 

“ Secured Cash Management Agreement ” shall mean any Cash Management Agreement that is entered into by and between the Borrower or any of its Restricted Subsidiaries and any Cash Management Bank.

 

“ Secured Hedge Agreement ” shall mean any Hedge Agreement that is entered into by and between the Borrower or any of its Restricted Subsidiaries and any Hedge Bank.

 

“ Secured Note Indenture ” shall mean the Indenture to be dated as of the Effective Date, among the Borrower, the guarantors party thereto and The Bank of New York Mellon Trust Company, N.A., as trustee, in form reasonably satisfactory to each Initial Lender pursuant to which the Initial Secured Notes are issued, as the same may be amended, supplemented or otherwise modified from time to time.

 

“ Secured Parties ” shall have the meaning assigned to such term in the applicable Security Documents.

 

“ Security Agents ” shall mean the Collateral Agent and the Co-Collateral Agent.

 

“ Security Agreement ” shall mean the Security Agreement entered into by the Borrower, the other grantors party thereto and the Collateral Agent for the benefit of the Secured Parties, in form reasonably satisfactory to each Initial Lender, as the same may be amended, supplemented or otherwise modified from time to time.

 

“ Security Documents ” shall mean, collectively, (a) the Guarantee, (b) the Pledge Agreement, (c) the Security Agreement, (d) the Mortgages and (e) each other security agreement or other instrument or document executed and delivered pursuant to Section 9.11, 9.12 or 9.15 or pursuant to any of the Security Documents to secure any of the Obligations.

 

“ Signing Date ” shall mean the date of execution and delivery of the Credit Agreement by each of the parties listed on the signature pages hereto, which date was May 13, 2009.

 

“ Solvent ” shall mean, with respect to the Borrower, that as of the Effective Date, both (i) (a) the sum of the Borrower’s debts (including contingent liabilities) does not exceed the present fair saleable value of the Borrower’s present assets; (b) the Borrower’s capital is not unreasonably

 

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small in relation to its business as contemplated on the Effective Date; and (c) the Borrower has not incurred and does not intend to incur, or believe that it will incur, debts including current obligations beyond its ability to pay such debts as they become due (whether at maturity or otherwise); and (ii) the Borrower is “solvent” within the meaning given that term and similar terms under applicable laws relating to fraudulent transfers and conveyances.  For purposes of this definition, the amount of any contingent liability at any time shall be computed as the amount that, in light of all of the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability (irrespective of whether such contingent liabilities meet the criteria for accrual under Statement of Financial Accounting Standard No. 5).

 

“ Specified Secured Hedge Agreement ” shall mean any Secured Hedge Agreement with respect to which, with the consent of the Borrower at the time such Reserve is established, the Security Agents maintain a Reserve.

 

“ Specified Subsidiary ” shall mean, at any date of determination, (a) any Material Subsidiary or (b) any Unrestricted Subsidiary (i) whose total assets at the last day of the Test Period ending on the last day of the most recent fiscal period for which Section 9.1 Financials have been delivered (when taken together with all other Unrestricted Subsidiaries as to which a specified condition applies) were equal to or greater than 15% of the consolidated total assets of the Borrower and the Subsidiaries at such date or (ii) whose gross revenues for such Test Period (when taken together with all other Unrestricted Subsidiaries as to which a specified condition applies) were equal to or greater than 15% of the consolidated gross revenues of the Borrower and the Subsidiaries for such period, in each case determined in accordance with GAAP.

 

“ Stated Amount ” of any Letter of Credit shall mean, at any time, the Dollar Equivalent of the maximum amount available to be drawn thereunder at such time, determined without regard to whether any conditions to drawing could then be met.

 

“ Status ” shall mean, as to the Borrower as of any date, the existence of Level I Status or Level II Status, as the case may be, on such date.  Changes in Status shall become effective as of the end of each fiscal quarter of Holdings.

 

“ Statutory Reserve Rate ” shall mean for any day as applied to any Eurodollar Loan, a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentages that are in effect on that day (including any marginal, special, emergency or supplemental reserves), expressed as a decimal, as prescribed by the Board and to which the Administrative Agent is subject, for eurocurrency funding (currently referred to as “Eurocurrency Liabilities” in Regulation D of the Board).  Such reserve percentages shall include those imposed pursuant to such Regulation D.  Eurodollar Loans shall be deemed to constitute eurocurrency funding and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under such Regulation D or any comparable regulation.  The Statutory Reserve Rate shall be adjusted automatically on and as of the effective date of any change in any reserve percentage.

 

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“ Subordinated Note Indenture ” shall mean the Indenture dated as of April 6, 2004, among the Borrower, the guarantors party thereto and The Bank of New York, as trustee, pursuant to which the Subordinated Notes were issued, as the same may be amended, supplemented or otherwise modified from time to time.

 

“ Subordinated Notes ” shall mean the Borrower’s 8.25% Subordinated Notes due 2014 outstanding on the Effective Date.

 

“ Subsidiary ” of any Person shall mean and include (a) any corporation more than 50% of whose stock of any class or classes having by the terms thereof ordinary voting power to elect a majority of the directors of such corporation (irrespective of whether or not at the time stock of any class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time owned by such Person directly or indirectly through Subsidiaries and (b) any partnership, association, joint venture or other entity in which such Person directly or indirectly through Subsidiaries has more than a 50% equity interest at the time.  Unless otherwise expressly provided, all references herein to a “Subsidiary” shall mean a Subsidiary of the Borrower.

 

“ Subsidiary Guarantors ” shall mean (a) each Domestic Subsidiary on the Effective Date (other than any Excluded Subsidiary) and (b) each Restricted Domestic Subsidiary that becomes a party to the Guarantee after the Effective Date pursuant to Section 9.11.

 

“ Swingline Commitment ” shall mean $25,000,000.

 

“ Swingline Exposure ” shall mean, with respect, to any Lender at any time, such Lender’s Applicable Percentage of the outstanding Swingline Loans at such time.

 

“ Swingline Lender ” shall mean JPMCB in its capacity as lender of Swingline Loans hereunder.

 

“ Swingline Loans ” shall have the meaning provided in Section 2.1(b).

 

“ Swingline Maturity Date ” shall mean, with respect to any Swingline Loan, the date that is five Business Days prior to the Maturity Date.

 

“ Syndication Agent ” shall mean Mizuho Corporate Bank, Ltd., as the syndication agent for the Lenders under this Agreement and the other Credit Documents.

 

“ Test Period ” shall mean, for any date of determination under this Agreement, the four consecutive fiscal quarters of the Borrower then last ended.

 

“ Total Commitment ” shall mean the sum of the Commitments of all Lenders.

 

“ Total Credit Exposure ” shall mean, at any date, the sum of the Credit Exposures of all Lenders.

 

“ Transaction Expenses ” shall mean any fees or expenses incurred or paid by Holdings or any of its Subsidiaries in connection with the Transactions, including, without limitation,

 

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multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payment of principal, including payment at final maturity, in respect thereof by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment by (2) the then outstanding principal amount of such Indebtedness.

 

(b)            The words “hereof”, “herein” and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section references are to Sections of this Agreement unless otherwise specified.  The words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”.

 

1.2.           Exchange Rates .  For purposes of determining compliance under Section  10.4, 10.5 or 10.6  with respect to any amount in a foreign currency, such amount shall be deemed to equal the Dollar equivalent thereof based on the average exchange rate for such foreign currency for the most recent twelve-month period immediately prior to the date of determination in a manner consistent with that used in calculating Consolidated EBITDA for the related period.  For purposes of determining compliance with Sections 10.1 and 10.2, with respect to any amount of Indebtedness in a foreign currency, compliance will be determined at the time of incurrence thereof using the Dollar equivalent thereof at the exchange rate in effect for such currency at the time of such incurrence.

 

SECTION 2.                     Amount and Terms of Credit

 

2.1.           Commitments .

 

(a)            (i)  Subject to and upon the terms and conditions herein set forth, each Lender severally agrees to make a loan or loans denominated in Dollars (each a “Revolving Credit Loan”) to the Borrower which Revolving Credit Loans (A) shall be made at any time and from time to time on and after the Effective Date and prior to the Maturity Date, (B) may, at the option of the Borrower be incurred and maintained as, and/or converted into, ABR Loans or Eurodollar Loans, provided that all Revolving Credit Loans made by each of the Lenders pursuant to the same Borrowing shall, unless otherwise specifically provided herein, consist entirely of Revolving Credit Loans of the same Type, (C) may be repaid and reborrowed in accordance with the provisions hereof, (D) shall not, for any such Lender, result in such Lender’s Credit Exposure at such time exceeding such Lender’s Commitment at such time and (E) shall not result in the Total Credit Exposure exceeding the lesser of (i) the Total Commitment at such time and (ii) the Borrowing Base at such time.

 

(ii)            Each Lender may at its option make any Eurodollar Loan by causing any domestic or foreign branch or Affiliate of such Lender to make such Loan, provided that (A) any exercise of such option shall not affect the obligation of the Borrower to repay such Loan and (B) in exercising such option, such Lender shall use its reasonable efforts to minimize any increased costs to the Borrower resulting therefrom (which obligation of the Lender shall not require it to take, or refrain from taking, actions that it determines would result in increased costs for which it will not be compensated hereunder or that it determines would be otherwise disadvantageous to it and in the event of such request for costs for which compensation is provided under this Agreement, the provisions of Section 3.5 shall apply).

 

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(b)            Subject to and upon the terms and conditions herein set forth, the Swingline Lender in its individual capacity agrees, at any time and from time to time on and after the Effective Date and prior to the Swingline Maturity Date, to make a loan or loans (each a “ Swingline Loan ” and, collectively, the “ Swingline Loans ”) to the Borrower in Dollars, which Swingline Loans (i) shall be ABR Loans, (ii) shall have the benefit of the provisions of Section 2.1(c), (iii) shall not exceed at any time outstanding the Swingline Commitment, (iv) shall not result at any time in the Total Credit Exposure at such time exceeding the lesser of (i) the Total Commitment at such time and (ii) the Borrowing Base at such time and (v) may be repaid and reborrowed in accordance with the provisions hereof.  On the Swingline Maturity Date, each outstanding Swingline Loan shall be repaid in full.  The Swingline Lender shall not make any Swingline Loan after receiving a written notice from the Borrower or any Lender stating that a Default exists and is continuing until such time as the Swingline Lender shall have received written notice of (i) rescission of all such notices from the party or parties originally delivering such notice or (ii) the waiver of such Default in accordance with the provisions of Section 14.1.

 

(c)            On any Business Day, the Swingline Lender may, in its sole discretion, give notice to the Lenders that all then-outstanding Swingline Loans shall be funded with a Borrowing of Revolving Credit Loans (and, if any Swingline Loan is outstanding on the seventh calendar day following the date of Borrowing of such Swingline Loan, then on the first Business Day following such seventh calendar day, the Swingline Lender shall be required to give such notice), in which case Revolving Credit Loans constituting ABR Loans (each such Borrowing, a “ Mandatory Borrowing ”) shall be made on the immediately succeeding Business Day by all Lenders with Commitments pro   rata based on each Lender’s Applicable Percentage, and the proceeds thereof shall be applied directly to the Swingline Lender to repay the Swingline Lender for such outstanding Swingline Loans.  Each Lender hereby irrevocably agrees to make such Revolving Credit Loans upon one Business Day’s notice pursuant to each Mandatory Borrowing in the amount and in the manner specified in the preceding sentence and on the date specified to it in writing by the Swingline Lender notwithstanding (i) that the amount of the Mandatory Borrowing may not comply with the minimum amount for each Borrowing specified in Section 2.2, (ii) whether any conditions specified in Section 7 are then satisfied, (iii) whether a Default has occurred and is continuing, (iv) the date of such Mandatory Borrowing or (v) any reduction in the Total Commitment or Availability after any such Swingline Loans were made.  In the event that, in the sole judgment of the Swingline Lender, any Mandatory Borrowing cannot for any reason be made on the date otherwise required above (including as a result of the commencement of a proceeding under the Bankruptcy Code in respect of the Borrower), each Lender hereby agrees that it shall forthwith purchase from the Swingline Lender (without recourse or warranty) such participation of the outstanding Swingline Loans as shall be necessary to cause such Lenders to share in such Swingline Loans ratably based upon their Applicable Percentages, provided that all principal and interest payable on such Swingline Loans shall be for the account of the Swingline Lender until the date the respective participation is purchased and, to the extent attributable to the purchased participation, shall be payable to the Lender purchasing the same from and after such date of purchase.

 

(d)            Subject to the limitations set forth below, the Administrative Agent is authorized by the Borrower and the Lenders, from time to time in the Administrative Agent’s sole discretion (but shall have absolutely no obligation to), to make Loans to the Borrower, on behalf of all Lenders, which the Administrative Agent, in its reasonable discretion, deems necessary or

 

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desirable (i) to preserve or protect the Collateral, or any portion thereof, (ii) to enhance the likelihood of, or maximize the amount of, repayment of the Loans and other Obligations or (iii) to pay any other amount chargeable to or required to be paid by the Credit Parties pursuant to the terms of this Agreement, including payments of reimbursable expenses (including costs, fees, and expenses as described in Section 14.5) and other sums payable under the Credit Documents (any of such Loans are herein referred to as “ Protective Advances ”); provided that, the aggregate amount of Protective Advances outstanding at any time shall not at any time exceed the lesser of (x) $7,500,000 and (y) 7.5% of the Total Commitment; provided   further that the aggregate amount of outstanding Protective Advances plus the aggregate amount of the other Total Credit Exposure shall not exceed the Total Commitment.  Protective Advances may be made even if the conditions precedent set forth in Section 7 have not been satisfied.  The Protective Advances shall be secured by the Security Documents and shall constitute Obligations hereunder and under the other Credit Documents.  All Protective Advances shall be ABR Loans.  The Administrative Agent’s authorization to make Protective Advances may be revoked at any time by the Required Lenders.  Any such revocation must be in writing and shall become effective prospectively upon the Administrative Agent’s receipt thereof.  At any time that there is sufficient Availability and the conditions precedent set forth in Section 7 have been satisfied, the Administrative Agent may request the Lenders to make a Revolving Credit Loan to repay a Protective Advance.  At any other time the Administrative Agent may require the Lenders to fund their risk participations described in Section 2.1(e).

 

(e)            Upon the making of a Protective Advance by the Administrative Agent (whether before or after the occurrence of a Default), each Lender shall be deemed, without further action by any party hereto, to have unconditionally and irrevocably purchased from the Administrative Agent without recourse or warranty an undivided interest and participation in such Protective Advance in proportion to its Applicable Percentage.  On any Business Day, the Administrative Agent may, in its sole discretion, give notice to the Lenders that the Lenders are required to fund their risk participations in Protective Advances (and, if any Protective Advance is outstanding on the thirtieth calendar day following the date of Borrowing of such Protective Advance, then on the first Business Day following such thirtieth calendar day, the Administrative Agent shall give such notice) in which case each Lender shall fund its participation on the date specified in such notice. From and after the date, if any, on which any Lender is required to fund its participation in any Protective Advance purchased hereunder, the Administrative Agent shall promptly distribute to such Lender, such Lender’s Applicable Percentage of all payments of principal and interest and all proceeds of Collateral received by the Administrative Agent in respect of such Protective Advance.

 

2.2.           Minimum Amount of Each Borrowing; Maximum Number of Borrowings .  Each Borrowing of Revolving Credit Loans shall be in a minimum amount of $2,000,000 and in an integral multiple of $1,000,000 and Swingline Loans shall be in a multiple of $100,000 (except that Mandatory Borrowings shall be made in the amounts required by Section 2.1(c) and Revolving Credit Loans made to refinance Protective Advances pursuant to Section 2.1(e)).  More than one Borrowing may be incurred on any date, provided that at no time shall there be outstanding more than 10 Borrowings of Eurodollar Loans under this Agreement.

 

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2.3.           Notice of Borrowing .

 

(a)            Whenever the Borrower desires to incur Revolving Credit Loans hereunder (other than Mandatory Borrowings, Borrowings to repay Unpaid Drawings or Borrowings to repay Protective Advances), it shall give the Administrative Agent at the Administrative Agent’s Office, (i) prior to 12:00 Noon (New York time) at least three Business Days’ prior written notice (or telephonic notice promptly confirmed in writing) of each Borrowing of Eurodollar Loans, and (ii) prior to 12:00 Noon (New York time) at least one Business Day’s prior written notice (or telephonic notice promptly confirmed in writing) of each Borrowing of ABR Loans (each such notice, a “ Notice of Borrowing ”).  Each such Notice of Borrowing, except as otherwise expressly provided in Section 2.10, shall be irrevocable and shall specify (i) the aggregate principal amount of the Revolving Credit Loans to be made pursuant to such Borrowing, (ii) the date of Borrowing (which shall be a Business Day) and (iii) whether the respective Borrowing shall consist of ABR Loans or Eurodollar Loans and, if Eurodollar Loans, the Interest Period to be initially applicable thereto.  The Administrative Agent shall promptly give each Lender written notice (or telephonic notice promptly confirmed in writing) of each proposed Borrowing of Revolving Credit Loans, of such Lender’s Applicable Percentage thereof and of the other matters covered by the related Notice of Borrowing.

 

(b)            Whenever the Borrower desires to incur Swingline Loans hereunder, it shall give the Administrative Agent written notice (or telephonic notice promptly confirmed in writing) of each Borrowing of Swingline Loans prior to 2:30 p.m. (New York time) on the date of such Borrowing.  Each such notice shall be irrevocable and shall specify (i) the aggregate principal amount of the Swingline Loans to be made pursuant to such Borrowing and (ii) the date of Borrowing (which shall be a Business Day).  The Administrative Agent shall promptly give the Swingline Lender written notice (or telephonic notice promptly confirmed in writing) of each proposed Borrowing of Swingline Loans and of the other matters covered by the related Notice of Borrowing.

 

(c)            Mandatory Borrowings shall be made upon the notice specified in Section 2.1(c), with the Borrower irrevocably agreeing, by its incurrence of any Swingline Loan, to the making of Mandatory Borrowings as set forth in such Section.

 

(d)            Borrowings to reimburse Unpaid Drawings shall be made upon the notice specified in Section 3.4(a).

 

(e)            Without in any way limiting the obligation of the Borrower to confirm in writing any notice it may give hereunder by telephone, the Administrative Agent may act prior to receipt of written confirmation without liability upon the basis of such telephonic notice believed by the Administrative Agent in good faith to be from an Authorized Officer of the Borrower.  In each such case, the Borrower hereby waives the right to dispute the Administrative Agent’s record of the terms of any such telephonic notice.

 

2.4.           Disbursement of Funds .

 

(a)            No later than 12:00 Noon (New York time) on the date specified in each Notice of Borrowing (including Mandatory Borrowings) of Revolving Credit Loans, each Lender

 

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will make available its Applicable Percentage, if any, of each Borrowing of Revolving Credit Loans requested to be made on such date in the manner provided below.  No later than 3:00 p.m. (New York time) on the date specified in each Notice of Borrowing relating to Swingline Loans, the Swingline Lender shall make available to the Borrower its Swingline Loan to be made on such date.

 

(b)            Each Lender shall make available all amounts it is to fund to the Borrower under any Borrowing in Dollars in immediately available funds to the Administrative Agent at the Administrative Agent’s Office and the Administrative Agent will (except in the case of Mandatory Borrowings and Borrowings to repay Unpaid Drawings and Protective Advances) make available to the Borrower, by depositing to the Borrower’s account at the Administrative Agent’s Office the aggregate of the amounts so made available in Dollars.  Unless the Administrative Agent shall have been notified by any Lender prior to the date of any such Borrowing that such Lender does not intend to make available to the Administrative Agent its portion of the Borrowing or Borrowings to be made on such date, the Administrative Agent may assume that such Lender has made such amount available to the Administrative Agent on such date of Borrowing, and the Administrative Agent, in reliance upon such assumption, may (in its sole discretion and without any obligation to do so) make available to the Borrower a corresponding amount.  If such corresponding amount is not in fact made available to the Administrative Agent by such Lender and the Administrative Agent has made available the same to the Borrower, the Administrative Agent shall be entitled to recover such corresponding amount from such Lender.  If such Lender does not pay such corresponding amount forthwith upon the Administrative Agent’s demand therefor the Administrative Agent shall promptly notify the Borrower and the Borrower shall immediately pay such corresponding amount to the Administrative Agent.  The Administrative Agent shall also be entitled to recover from such Lender or the Borrower interest on such corresponding amount in respect of each day from the date such corresponding amount was made available by the Administrative Agent to the Borrower to the date such corresponding amount is recovered by the Administrative Agent, at a rate per annum equal to (i) if paid by such Lender, the greater of (x) the Federal Funds Effective Rate and (y) a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation or (ii) if paid by the Borrower, the then-applicable rate of interest for ABR Loans.

 

(c)            Nothing in this Section 2.4 shall be deemed to relieve any Lender from its obligation to fulfill its commitments hereunder or to prejudice any rights that the Borrower may have against any Lender as a result of any default by such Lender hereunder (it being understood, however, that no Lender shall be responsible for the failure of any other Lender to fulfill its commitments hereunder).

 

2.5.           Repayment of Loans; Evidence of Debt .

 

(a)            The Borrower shall repay to the Administrative Agent in Dollars, for the benefit of the Lenders, on the Maturity Date, the then-unpaid Revolving Credit Loans.  The Borrower shall repay to the Administrative Agent in Dollars, for the account of the Swingline Lender, on the Swingline Maturity Date, the then-unpaid Swingline Loans.  The Borrower shall repay to the Administrative Agent the then-unpaid amount of each Protective Advance on the earlier of the Maturity Date and demand by the Administrative Agent.

 

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(b)            On each Business Day during any Cash Dominion Period, the Administrative Agent shall apply all funds credited to the Collection Account the previous Business Day (whether or not immediately available) first to prepay any Protective Advances that may be outstanding, second to prepay any Swingline Loans outstanding, third to prepay any Revolving Credit Loans and fourth to cash collateralize outstanding Letter of Credit Exposure at one hundred five percent (105%).

 

(c)            Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrower to the appropriate lending office of such Lender resulting from each Loan made by such lending office of such Lender from time to time, including the amounts of principal and interest payable and paid to such lending office of such Lender from time to time under this Agreement.

 

(d)            The Administrative Agent shall maintain the Register pursuant to Section 14.6(b), and a subaccount for each Lender, in which Register and subaccounts (taken together) shall be recorded (i) the amount of each Loan made hereunder, whether such Loan is a Revolving Credit Loan, a Swingline Loan or a Protective Advance, the Type of each Loan made and the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender, the Swingline Lender or the Administrative Agent hereunder and (iii) the amount of any sum received by the Administrative Agent hereunder from the Borrower and each Lender’s share thereof.

 

(e)            The entries made in the Register and accounts and subaccounts maintained pursuant to paragraphs (c) and (d) of this Section 2.5 shall, to the extent permitted by applicable law, be prima facie evidence of the existence and amounts of the obligations of the Borrower therein recorded; provided ,  however , that the failure of any Lender or the Administrative Agent to maintain such account, such Register or such subaccount, as applicable, or any error therein, shall not in any manner affect the obligation of the Borrower to repay (with applicable interest) the Loans made to the Borrower in accordance with the terms of this Agreement.

 

2.6.           Conversions and Continuations .

 

(a)            The Borrower shall have the option on any Business Day to convert all or a portion equal to at least $2,000,000 of the outstanding principal amount of Revolving Credit Loans made to the Borrower from one Type into a Borrowing or Borrowings of another Type and the Borrower shall have the option on any Business Day to continue the outstanding principal amount of any Eurodollar Loans as Eurodollar Loans for an additional Interest Period, provided that (i) no partial conversion of Eurodollar Loans shall reduce the outstanding principal amount of Eurodollar Loans made pursuant to a single Borrowing to less than $2,000,000, (ii) ABR Loans may not be converted into Eurodollar Loans if a Default is in existence on the date of the conversion and the Administrative Agent has or the Required Lenders have determined in its or their sole discretion not to permit such conversion, (iii) Eurodollar Loans may not be continued as Eurodollar Loans for an additional Interest Period if a Default is in existence on the date of the proposed continuation and the Administrative Agent has or the Required Lenders have determined in its or their sole discretion not to permit such continuation, (iv) no conversion or continuation of Eurodollar Loans may be made on a day other than the last day of the Interest Period applicable thereto and (v) Borrowings resulting from conversions pursuant to this Section 

 

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2.6 shall be limited in number as provided in Section 2.2.  Each such conversion or continuation shall be effected by the Borrower by giving the Administrative Agent at the Administrative Agent’s Office prior to 12:00 noon (New York time) at least three Business Days’ (or one Business Day’s notice in the case of a conversion into ABR Loans) prior written notice (or telephonic notice promptly confirmed in writing) (each a “ Notice of Conversion or Continuation ”) specifying the Revolving Credit Loans to be so converted or continued, the Type of Revolving Credit Loans to be converted or continued into and, if such Revolving Credit Loans are to be converted into or continued as Eurodollar Loans, the Interest Period to be initially applicable thereto.  The Administrative Agent shall give each Lender notice as promptly as practicable of any such proposed conversion or continuation affecting any of its Revolving Credit Loans.

 

(b)            If any Default is in existence at the time of any proposed continuation of any Eurodollar Loans and the Administrative Agent has or the Required Lenders have determined in its or their sole discretion not to permit such continuation, such Eurodollar Loans shall be automatically converted on the last day of the current Interest Period into ABR Loans.  If upon the expiration of any Interest Period in respect of Eurodollar Loans, the Borrower has failed to elect a new Interest Period to be applicable thereto as provided in paragraph (a) above, the Borrower shall be deemed to have elected to continue such Borrowing of Eurodollar Loans into a Borrowing of ABR Loans effective as of the expiration date of such current Interest Period.

 

2.7.           Pro   rata   Borrowings .  Each Borrowing of Revolving Credit Loans under this Agreement shall be granted by the Lenders pro   rata on the basis of their Applicable Percentages.  It is understood that no Lender shall be responsible for any default by any other Lender in its obligation to make Loans hereunder and that each Lender shall be obligated to make the Loans provided to be made by it hereunder, regardless of the failure of any other Lender to fulfill its commitments hereunder.

 

2.8.           Interest .

 

(a)            The unpaid principal amount of each ABR Loan shall bear interest from the date of the Borrowing thereof until maturity (whether by acceleration or otherwise) at a rate per annum that shall at all times be the ABR Margin plus the ABR in effect from time to time.

 

(b)            The unpaid principal amount of each Eurodollar Loan shall bear interest from the date of the Borrowing thereof until maturity thereof (whether by acceleration or otherwise) at a rate per annum that shall at all times be the Eurodollar Margin in effect from time to time plus the relevant Eurodollar Rate.

 

(c)            If all or a portion of (i) the principal amount of any Loan or (ii) any interest payable thereon or Fee shall not be paid when due (whether at the stated maturity, by acceleration or otherwise), such overdue amount shall bear interest at a rate per annum that is (x) in the case of overdue principal, the rate that would otherwise be applicable thereto plus 2% or (y) in the case of any overdue interest or Fee, to the extent permitted by applicable law, the rate described in Section 2.8(a)  plus 2% from and including the date of such non-payment to but excluding the date on which such amount is paid in full (after as well as before judgment).

 

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(d)            Accrued interest on each Loan shall be payable in arrears on each Interest Payment Date for such Loan and upon termination of the Commitments; provided that (i) in the event of any repayment or prepayment of any Loan (other than a prepayment of an ABR Loan that is a Revolving Credit Loan prior to the Maturity Date), accrued interest on the principal amount repaid or prepaid shall be payable on the date of such repayment or prepayment and (ii) in the event of any conversion of any Eurodollar Loan prior to the end of the current Interest Period therefor, accrued interest on such Loan shall be payable on the effective date of such conversion.

 

(e)            All computations of interest hereunder shall be made in accordance with Section 5.5.

 

(f)             The Administrative Agent, upon determining the interest rate for any Borrowing of Eurodollar Loans, shall promptly notify the Borrower and the relevant Lenders thereof.  Each such determination shall, absent clearly demonstrable error, be final and conclusive and binding on all parties hereto.

 

2.9.           Interest Periods .  At the time the Borrower gives a Notice of Borrowing or Notice of Conversion or Continuation in respect of the making of, or conversion into or continuation as, a Borrowing of Eurodollar Loans (in the case of the initial Interest Period applicable thereto) or prior to 10:00 a.m. (New York time) on the third Business Day prior to the expiration of an Interest Period applicable to a Borrowing of Eurodollar Loans, the Borrower shall have the right to elect by giving the Administrative Agent written notice (or telephonic notice promptly confirmed in writing) the Interest Period applicable to such Borrowing, which Interest Period shall, at the option of the Borrower, be a three, six or, if agreed to by each Lender, a nine or twelve month period or any shorter period.  Notwithstanding anything to the contrary contained above:

 

(i)             the initial Interest Period for any Borrowing of Eurodollar Loans shall commence on the date of such Borrowing (including the date of any conversion from a Borrowing of ABR Loans) and each Interest Period occurring thereafter in respect of such Borrowing shall commence on the day on which the next preceding Interest Period expires;

 

(ii)            if any Interest Period relating to a Borrowing of Eurodollar Loans begins on the last Business Day of a calendar month or begins on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period, such Interest Period shall end on the last Business Day of the calendar month at the end of such Interest Period;

 

(iii)           if any Interest Period would otherwise expire on a day that is not a Business Day, such Interest Period shall expire on the next succeeding Business Day, provided that if any Interest Period in respect of a Eurodollar Loan would otherwise expire on a day that is not a Business Day but is a day that is after the last Business Day in such month, such Interest Period shall expire on the next preceding Business Day; and

 

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(iv)           the Borrower shall not be entitled to elect any Interest Period in respect of any Eurodollar Loan if such Interest Period would extend beyond the Maturity Date.

 

2.10.         Increased Costs, Illegality, etc .

 

(a)            In the event that (x) in the case of clause (i) below, the Administrative Agent or (y) in the case of clauses (ii) and (iii) below, any Lender shall have reasonably determined (which determination shall, absent clearly demonstrable error, be final and conclusive and binding upon all parties hereto):

 

(i)             on any date for determining the Eurodollar Rate for any Interest Period that (x) deposits in the principal amounts of the Loans comprising such Eurodollar Loan Borrowing are not generally available in the relevant market, (y) by reason of any changes arising on or after the Signing Date affecting the interbank eurodollar market, adequate and fair means do not exist for ascertaining the applicable interest rate on the basis provided for in the definition of Eurodollar Rate or (z) the Administrative Agent is advised in writing by the Required Lenders that the Eurodollar Rate for such Interest Period will not adequately and fairly reflect the cost to such Lenders of making or maintaining their Loans included in such Borrowing for such Interest Period; or

 

(ii)            at any time, that such Lender shall incur increased costs or reductions in the amounts received or receivable hereunder with respect to any Eurodollar Loans (other than any such increase or reduction attributable to taxes) because of (x) any change since the date hereof in any applicable law, governmental rule, regulation, guideline or order (or in the interpretation or administration thereof and including the introduction of any new law or governmental rule, regulation, guideline or order), such as, for example, without limitation, a change in official reserve requirements, and/or (y) other circumstances affecting the interbank eurodollar market or the position of such Lender in such market; or

 

(iii)           at any time, that the making or continuance of any Eurodollar Loan has become unlawful by compliance by such Lender in good faith with any law, governmental rule, regulation, guideline or order (or would conflict with any such governmental rule, regulation, guideline or order not having the force of law even though the failure to comply therewith would not be unlawful), or has become impracticable as a result of a contingency occurring after the date hereof that materially and adversely affects the interbank eurodollar market;

 

then, and in any such event, such Lender (or the Administrative Agent, in the case of clause (i) above) shall within a reasonable time thereafter give notice (if by telephone, confirmed in writing) to the Borrower and to the Administrative Agent of such determination (which notice the Administrative Agent shall promptly transmit to each of the other Lenders).  Thereafter (x) in the case of clause (i) above, Eurodollar Loans shall no longer be available until such time as the Administrative Agent notifies the Borrower and the Lenders that the circumstances giving rise to such notice by the Administrative Agent no longer exist (which notice the Administrative Agent agrees to give at such time when such circumstances no longer exist), and any Notice of Borrowing or Notice of Conversion given by the Borrower with respect to Eurodollar Loans that have

 

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