Exhibit 4.4
Execution Copy
SEALY CORPORATION
10% Senior Subordinated Notes due
2015
Common Stock, par value $0.01 per
share
NOTE AND STOCK PURCHASE
AGREEMENT
Dated as of July 16, 2004
between
SEALY CORPORATION
and
THE PURCHASERS LISTED ON SCHEDULE 1
HERETO
TABLE OF CONTENTS
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NOTE AND STOCK PURCHASE AGREEMENT,
dated as of July 16, 2004 (this “ Agreement ”),
between SEALY CORPORATION, a Delaware corporation (the “
Corporation ”) and the Purchasers listed on Schedule 1
hereto (collectively, the “ Purchasers ”)
.
Each party to this Agreement agrees,
for the benefit of the other parties and for the equal and ratable
benefit of the Holders of the Corporation’s Notes and Shares,
as follows:
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. Definitions
.
For all purposes of this Agreement,
except as otherwise expressly provided or unless the context
otherwise requires:
(a)
the terms defined in this Article have the meanings assigned to
them in this Article, and include the plural as well as the
singular;
(b)
the words “herein”, “hereof” and
“hereunder” and other words of similar import refer to
this Agreement as a whole and not to any particular Article,
Section or other subdivision.
“ Affiliate ” of
any specified Person means any other Person directly or indirectly
controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this
definition, “control” (including, with correlative
meanings, the terms “controlling,” “controlled
by” and “under common control with”), as used
with respect to any Person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the
management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise.
For purposes of this Agreement, the Purchasers shall be deemed not
to be Affiliates of the Corporation or any of its
Subsidiaries.
“ Affiliate Transaction
” has the meaning specified in Section 807 of this
Agreement.
“ Agreement ” has
the meaning set forth in the preamble to this Agreement.
“ Acquired Indebtedness
” means, with respect to any specified Person:
(1)
Indebtedness of any other Person existing at the time such other
Person is merged with or into or became a Restricted Subsidiary of
such specified Person, including, without limitation, Indebtedness
incurred in connection with, or in contemplation of, such other
Person merging with or into or becoming a Restricted Subsidiary of
such specified Person; and
(2)
Indebtedness secured by a Lien encumbering any asset acquired by
such specified Person.
“ Asset Sale ”
means:
(3)
the sale, conveyance, transfer or other disposition, whether in a
single transaction or a series of related transactions, of property
or assets (including by way of a sale and leaseback) of the
Corporation or any Restricted Subsidiary (each referred to in this
definition as a “disposition”), or
(4)
the issuance or sale of Equity Interests of any Restricted
Subsidiary, whether in a single transaction or a series of related
transactions, in each case, other than:
(a)
a disposition of Cash Equivalents or Investment Grade Securities or
obsolete or worn out equipment in the ordinary course of business
or inventory or goods held for sale in the ordinary course of
business;
(b)
the disposition of all or substantially all of the assets of the
Corporation in a manner permitted pursuant to Article Six or any
disposition that constitutes a Change of Control pursuant to this
Agreement;
(c)
the making of any Restricted Payment or Permitted Investment that
is permitted to be made, and is made, under Section 804;
(d)
any disposition of assets or issuance or sale of Equity Interests
of any Restricted Subsidiary in any transaction or series of
transactions with an aggregate fair market value of less than $2.5
million;
(e)
any disposition of property or assets or issuance of securities by
a Restricted Subsidiary to the Corporation or by the Corporation or
a Restricted Subsidiary to a Restricted Subsidiary;
(f)
to the extent allowable under Section 1031 of the Internal Revenue
Code of 1986, any exchange of like property (excluding any boot
thereon) for use in a Similar Business;
(g)
the lease, assignment or sub-lease of any real or personal property
in the ordinary course of business;
(h)
any sale of Equity Interests in, or Indebtedness or other
securities of, an Unrestricted Subsidiary (with the exception of
Investments in Unrestricted Subsidiaries acquired pursuant to
clause (x) of the definition of Permitted Investments);
(i)
foreclosures on assets;
(j)
sales of accounts receivable, or participations therein, in
connection with any Receivables Facility; and
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(k)
any financing transaction with respect to property built or
acquired by the Corporation or any Restricted Subsidiary after the
Senior Subordinated Notes Issue Date, including, without
limitation, sale leasebacks and asset securitizations permitted by
this Agreement.
“ Asset Sale Offer
” has the meaning specified in Section 809 of this
Agreement.
“ Bankruptcy Law
” means Title 11, United States Bankruptcy Code of 1978, as
amended, or any similar United States federal or state law relating
to bankruptcy, insolvency, receivership, winding-up, liquidation,
reorganization or relief of debtors or any amendment to, succession
to or change in any such law.
“ Board of Directors
” means:
(1)
with respect to a corporation, the board of directors of the
corporation or any duly authorized committee of such
board;
(2)
with respect to a partnership, the board of directors of the
general partner or manager of the partnership; and
(3)
with respect to any other Person, the board or committee of such
Person serving a similar function.
“ Business Day ”
means each Monday, Tuesday, Wednesday, Thursday and Friday which is
not a day on which banking institutions in The City of New York are
authorized or obligated by law, regulation or executive order to
close (other than by virtue of a moratorium or general banking
holiday exceeding four days).
“ Capital Stock ”
means:
(i)
in the case of a corporation, corporate stock;
(ii)
in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents
(however designated) of corporate stock;
(iii)
in the case of a partnership or limited liability company,
partnership or membership interests (whether general or limited);
and
(iv)
any other interest or participation that confers on a Person the
right to receive a share of the profits and losses of, or
distributions of assets of, the issuing Person.
“ Capitalized Lease
Obligation ” means, at the time any determination thereof
is to be made, the amount of the liability in respect of a capital
lease that would at such time be required to be capitalized and
reflected as a liability on a balance sheet (excluding the
footnotes thereto) in accordance with GAAP.
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“ Cash Equivalents
” means:
(i)
U.S. dollars:
(ii)
pounds sterling;
(iii)
(A) euro, or any national currency of any participating member
state in the European Union or (B) in the case of any Foreign
Subsidiary that is a Restricted Subsidiary, such local currencies
held by them from time to time in the ordinary course of
business;
(iv)
securities issued or directly and fully and unconditionally
guaranteed or insured by the United States government or any agency
or instrumentality thereof the securities of which are
unconditionally guaranteed as a full faith and credit obligation of
such government with maturities of 24 months or less from the date
of acquisition;
(v)
certificates of deposit, time deposits and eurodollar time deposits
with maturities of one year or less from the date of acquisition,
bankers’ acceptances with maturities not exceeding one year
and overnight bank deposits, in each case with any commercial bank
having capital and surplus in excess of $500.0 million;
(vi)
repurchase obligations for underlying securities of the types
described in clauses (iv) and (v) above, entered into with any
financial institution meeting the qualifications specified in
clause (v) above;
(vii)
commercial paper rated at least P-1 by Moody’s or at least
A-1 by S&P and in each case maturing within 12 months after the
date of creation thereof;
(viii)
investment funds investing 95% of their assets in securities of the
types described in clauses (i) through (vii) above;
(ix)
readily marketable direct obligations issued by any state of the
United States of America or any political subdivision thereof
having one of the two highest rating categories obtainable from
either Moody’s or S&P with maturities of 24 months or
less from the date of acquisition; and
(x)
Indebtedness or preferred stock issued by Persons with a rating of
“A” or higher from S&P or “A2” or
higher from Moody’s with maturities of 12 months or less from
the date of acquisition.
Notwithstanding the foregoing, Cash
Equivalents shall include amounts denominated in currencies other
than those set forth in clauses (i) through (iii) above,
provided that such amounts are converted into any currency
listed in clauses (i) through (iii) above, as promptly as
practicable and in any event within ten Business Days following the
receipt of such amounts.
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“ Change of Control
” means the occurrence of any of the following:
(i)
the sale, lease, transfer or other conveyance, in one or a series
of related transactions, of all or substantially all of the assets
of the Corporation and its Subsidiaries, taken as a whole, to any
Person other than a Permitted Holder; or
(ii)
(a) Kohlberg Kravis Roberts & Co. L.P., its Affiliates,
Permitted Holders and the Management Investors shall at any time
not own, in the aggregate, directly or indirectly, beneficially and
of record, at least 30% of the outstanding Voting Stock of the
Corporation (other than as the result of one or more widely
distributed offerings of the Corporation common stock, in each case
whether by the Corporation, or by Kohlberg Kravis Roberts & Co.
L.P., its Affiliates, Permitted Holders or the Management
Investors) and/or (b) any person, entity or
“group” (within the meaning of Section 13(d) or 14(d)
of the Securities Exchange Act of 1934, as amended) shall at any
time have acquired direct or indirect beneficial ownership of a
percentage of the outstanding Voting Stock of the Corporation that
exceeds the percentage of such Voting Stock then beneficially
owned, in the aggregate, by Kohlberg Kravis Roberts & Co. L.P.,
its Affiliates, Permitted Holders and Management Investors, unless,
in the case of either clause (a) or (b) above, Kohlberg Kravis
Roberts & Co. L.P., its Affiliates, Permitted Holders and
Management Investors have, at such time, the right or the ability
by voting power, contract or otherwise to elect or designate for
election a majority of the Board of Directors of the
Corporation.
“ Change of Control
Offer ” has the meaning specified in Section 808 of this
Agreement.
“ Change of Control
Payment ” has the meaning specified in Section 808 of
this Agreement.
“ Change of Control Payment
Date ” has the meaning specified in Section 808 of this
Agreement.
“ Code ” means
the Internal Revenue Code of 1986, as amended from time to time,
and the rules and regulations promulgated thereunder from time to
time.
“ Commission ”
means the Securities and Exchange Commission, as from time to time
constituted, created under the Exchange Act, or if at any time
after the Issue Date such Commission is not existing and performing
the duties now assigned to it under the Securities Act and Exchange
Act then the body performing such duties at such time.
“ Common Stock ”
means the shares of common stock, par value $0.01, of the
Corporation.
“ consolidated ”
or “ Consolidated ” means, with respect to any
Person, such Person consolidated with its Restricted Subsidiaries,
and shall not include any Unrestricted Subsidiary.
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“ Consolidated Depreciation
and Amortization Expense ” means with respect to any
Person for any period, the total amount of depreciation and
amortization expense, including the amortization of deferred
financing fees and other non-cash charges, excluding any non-cash
item that represents an accrual or reserve for a cash expenditure
for a future period, of such Person and its Restricted Subsidiaries
for such period on a consolidated basis and otherwise determined in
accordance with GAAP.
“ Consolidated Interest
Expense ” means, with respect to any Person for any
period, the sum, without duplication, of:
(i)
consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, to the extent such expense was
deducted in computing Consolidated Net Income (including
amortization of original issue discount resulting from the issuance
of Indebtedness at less than par, the interest component of
Capitalized Lease Obligations and net payments, if any, pursuant to
interest rate Hedging Obligations, and excluding non-cash interest
expense, amortization of deferred financing fees and any expensing
of bridge or other financing fees), plus
(ii)
consolidated capitalized interest of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued,
less
(iii)
interest income for such period.
“ Consolidated Net
Income ” means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its
Restricted Subsidiaries for such period, on a consolidated basis,
and otherwise determined in accordance with GAAP; provided,
however , that
(i)
any net after-tax extraordinary, non-recurring or unusual gains or
losses (less all fees and expenses relating thereto) or expenses
(including, without limitation, relating to severance, relocation,
new product introductions and the Transactions) shall be
excluded,
(ii)
the Net Income for such period shall not include the cumulative
effect of a change in accounting principles during such
period,
(iii)
any net after-tax income (loss) from disposed or discontinued
operations and any net after-tax gains or losses on disposal of
disposed or discontinued operations shall be excluded,
(iv)
any net after-tax gains or losses (less all fees and expenses
relating thereto) attributable to asset dispositions other than in
the ordinary course of business, as determined in good faith by the
Board of Directors of the Corporation, shall be
excluded,
(v)
the Net Income for such period of any Person that is not a
Subsidiary, or is an Unrestricted Subsidiary, or that is accounted
for by the equity method of accounting, shall be excluded;
provided that Consolidated Net Income
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of the Corporation shall be
increased by the amount of dividends or distributions or other
payments that are actually paid in cash (or to the extent converted
into cash) to the referent Person or a Restricted Subsidiary
thereof in respect of such period,
(vi)
solely for the purpose of determining the amount available for
Restricted Payments under Section 804(A)(c) of this Agreement, the
Net Income for such period of any Restricted Subsidiary shall be
excluded if the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of its Net Income is
not at the date of determination wholly permitted without any prior
governmental approval (which has not been obtained) or, directly or
indirectly, by the operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule, or
governmental regulation applicable to such Restricted Subsidiary or
its stockholders, unless such restriction with respect to the
payment of dividends or in similar distributions (x) has been
legally waived or (y) is contained in any Existing Indebtedness or
any refinancing thereof or any other Indebtedness with
restrictions, taken as a whole, not materially more restrictive
than those in the most restrictive of such Existing Indebtedness,
provided that Consolidated Net Income of the Corporation
shall be increased by the amount of dividends or other
distributions or other payments actually paid in cash (or to the
extent converted into cash) to the Corporation or a Restricted
Subsidiary thereof in respect of such period, to the extent not
already included therein,
(vii)
any increase in amortization or depreciation or other non-cash
charges resulting from the application of purchase accounting in
relation to the Transactions or any acquisition that is consummated
after the Senior Subordinated Notes Issue Date, net of taxes, shall
be excluded,
(viii)
any net after-tax income (loss) from the early extinguishment of
Indebtedness or Hedging Obligations or other derivative instruments
shall be excluded,
(ix)
any impairment charge or asset write-off pursuant to Financial
Accounting Standards Board Statement No. 142 and No. 144 and the
amortization of intangibles arising pursuant to No. 141 shall be
excluded, and
(x)
any non-cash compensation expense recorded from grants of stock
appreciation or similar rights, stock options or other rights to
officers, directors or employees shall be excluded.
Notwithstanding the foregoing, for
the purpose of Section 804(A) of this Agreement only (other than
clause (c)(iii) thereof), there shall be excluded from Consolidated
Net Income any income arising from any sale or other disposition of
Restricted Investments made by the Corporation and the Restricted
Subsidiaries, any repurchases and redemptions of Restricted
Investments from the Corporation and the Restricted Subsidiaries,
any repayments of loans and advances which constitute Restricted
Investments by the Corporation or any Restricted
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Subsidiary, any sale of the stock of an
Unrestricted Subsidiary or any distribution or dividend from an
Unrestricted Subsidiary, in each case only to the extent such
amounts increase the amount of Restricted Payments permitted under
such covenant pursuant to clause (c)(iii) thereof.
“ Contingent
Obligations ” means, with respect to any Person, any
obligation of such Person guaranteeing any leases, dividends or
other obligations that do not constitute Indebtedness
(“primary obligations”) of any other Person (the
“primary obligor”) in any manner, whether directly or
indirectly, including, without limitation, any obligation of such
Person, whether or not contingent,
(i)
to purchase any such primary obligation or any property
constituting direct or indirect security therefor,
(ii)
to advance or supply funds
(A)
for the purchase or payment of any such primary obligation
or
(B)
to maintain working capital or equity capital of the primary
obligor or otherwise to maintain the net worth or solvency of the
primary obligor, or
(iii)
to purchase property, securities or services primarily for the
purpose of assuring the owner of any such primary obligation of the
ability of the primary obligor to make payment of such primary
obligation against loss in respect thereof.
“ Corporation ”
means Sealy Corporation, a Delaware corporation, until a successor
Person shall have become such pursuant to the applicable provisions
of this Agreement, and thereafter “Corporation” shall
mean such successor Person.
“ Credit Agreement
” means the Credit Agreement, dated as of April 6, 2004, by
and among Sealy Mattress Corporation, the Corporation, Sealy
Canada, Ltd., SMC, the other credit parties signatory thereto, J.P.
Morgan Securities Inc., Goldman Sachs Credit Partners L.P., General
Electric Capital Corporation, ING Financial Markets LLC, Royal Bank
of Canada, the lenders signatory thereto from time to time and
JPMorgan Chase Bank, as Administrative Agent, including any
guarantees, collateral documents, instruments and agreements
executed in connection therewith, and any amendments, supplements
and modifications thereto.
“ Credit Facilities
” means, with respect to the Corporation, SMC or any of their
Restricted Subsidiaries, one or more debt facilities, including,
without limitation, the Senior Credit Facilities and the Senior
Unsecured Term Loan, or commercial paper facilities with banks or
other institutional lenders or investors or indentures providing
for revolving credit loans, term loans, receivables financing,
including through the sale of receivables to such lenders or to
special purpose entities formed to borrow from such lenders against
receivables, letters of credit or other long-term indebtedness,
including any guarantees, collateral documents, instruments and
agreements executed in connection therewith, and any amendments,
supplements, modifications, extensions, renewals, restatements or
refundings thereof and any indentures or credit facilities
or
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commercial paper facilities with banks or other
institutional lenders or investors that replace, refund or
refinance any part of the loans, notes, other credit facilities or
commitments thereunder, including any such replacement, refunding
or refinancing facility or indenture that increases the amount
borrowable thereunder or alters the maturity thereof.
“ Default ” means
any event which is, or after notice or passage of time or both
would be, an Event of Default.
“ Designated Non-cash
Consideration ” means the fair market value of non-cash
consideration received by the Corporation or a Restricted
Subsidiary in connection with an Asset Sale that is so designated
as Designated Non-cash Consideration pursuant to an Officer’s
Certificate, setting forth the basis of such valuation, executed by
an executive vice president and the principal financial officer of
the Corporation, less the amount of cash or Cash Equivalents
received in connection with a subsequent sale of such Designated
Non-cash Consideration.
“ Designated Preferred
Stock ” means Preferred Stock of the Corporation, SMC or
any direct or indirect parent entity of the Corporation formed to
hold substantially all of the common stock of the Corporation, as
applicable (other than Disqualified Stock), that is issued for cash
(other than to the Corporation or any of its Subsidiaries or an
employee stock ownership plan or trust established by the
Corporation or any of its Subsidiaries) and is so designated as
Designated Preferred Stock, pursuant to an Officer’s
Certificate of the Corporation, on the issuance date thereof, the
cash proceeds of which are excluded from the calculation set forth
in Section 804(A)(c) of this Agreement.
“ Designated Senior
Indebtedness ” means:
(1)
any Indebtedness outstanding under the Senior Credit Facilities;
and
(2)
any other Senior Indebtedness permitted under this Agreement, the
principal amount of which is $25.0 million or more and that has
been designated by the Corporation as “Designated Senior
Indebtedness.”
“ Disqualified Stock
” means, with respect to any Person, any Capital Stock of
such Person which, by its terms (or by the terms of any security
into which it is convertible or for which it is putable or
exchangeable), or upon the happening of any event, matures or is
mandatorily redeemable (other than as a result of a change of
control or asset sale), pursuant to a sinking fund obligation or
otherwise, or is redeemable at the option of the holder thereof
(other than as a result of a change of control or asset sale), in
whole or in part, in each case prior to the date 91 days after the
earlier of July 15, 2015 or the date the Notes are no longer
outstanding; provided, however , that if such Capital Stock
is issued to any plan for the benefit of employees of the
Corporation or its Subsidiaries or by any such plan to such
employees, such Capital Stock shall not constitute Disqualified
Stock solely because it may be required to be repurchased by the
Corporation or its Subsidiaries in order to satisfy applicable
statutory or regulatory obligations.
“ EBITDA ” means,
with respect to any Person for any period, the Consolidated Net
Income of such Person for such period plus :
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(i)
provision for taxes based on income or profits, plus franchise or
similar taxes, of such Person for such period deducted in computing
Consolidated Net Income, plus
(ii)
Consolidated Interest Expense and any non-cash interest expense of
such Person for such period to the extent the same was deducted in
calculating such Consolidated Net Income, plus
(iii)
Consolidated Depreciation and Amortization Expense of such Person
for such period to the extent such depreciation and amortization
were deducted in computing Consolidated Net Income,
plus
(iv)
any expenses or charges related to any Equity Offering, Permitted
Investment, acquisition, disposition, recapitalization or
Indebtedness permitted to be incurred by this Agreement (whether or
not successful), including such fees, expenses or charges related
to the offering of SMC’s 8.25% Senior Subordinated Notes due
June 15, 2014 and the Credit Facilities, and deducted in computing
Consolidated Net Income, plus
(v)
the amount of any restructuring charge deducted in such period in
computing Consolidated Net Income, including any one-time costs
incurred in connection with acquisitions after the Senior
Subordinated Notes Issue Date, plus
(vi)
without duplication, any other non-cash charges reducing
Consolidated Net Income for such period, excluding any such charge
that represents an accrual or reserve for a cash expenditure for a
future period, plus
(vii)
the amount of any minority interest expense deducted in calculating
Consolidated Net Income (less the amount of any cash dividends paid
to the holders of such minority interests), plus
(viii)
any net gain or loss resulting from currency exchange risk Hedging
Obligations, plus
(ix)
the amount of management, monitoring, consulting and advisory fees
and related expenses paid to Bain Capital, LLC or Kohlberg Kravis
Roberts & Co., L.P. or any of their respective affiliates,
plus
(x)
expenses related to the implementation of enterprise resource
planning systems, plus
(xi)
without duplication, the Historical Adjustments,
less
(xii)
non-cash items increasing Consolidated Net Income of such Person
for such period, excluding any items which represent the reversal
of any accrual of, or cash reserve for, anticipated cash charges in
any prior period.
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“ EMU ” means
economic and monetary union as contemplated in the Treaty on
European Union.
“ Equity Interests
” means Capital Stock and all warrants, options or other
rights to acquire Capital Stock, but excluding any debt security
that is convertible into, or exchangeable for, Capital
Stock.
“ Equity Offering
” means any public or private sale of common stock or
preferred stock of the Corporation or any or its direct or indirect
parent entities (excluding Disqualified Stock), other than (i)
public offerings with respect to Common Stock of the Corporation or
of any direct or indirect parent entity of the Corporation
registered on Form S-8 and (ii) any such public or private sale
that constitutes an Excluded Contribution.
“ ERISA ” means
the Employee Retirement Income Security Act of 1974, as amended
from time to time, and the rules and regulations promulgated
thereunder from time to time in effect.
“ euro ” means
the single currency of participating member states of the
EMU.
“ Event of Default
” has the meaning set forth in Section 501 of this
Agreement.
“ Excess Proceeds
” has the meaning set forth in Section 809 of this
Agreement.
“ Exchange Act ”
means the Securities Exchange Act of 1934, as amended, and the
rules and regulations of the Commission promulgated
thereunder.
“ Excluded Contribution
” means net cash proceeds, marketable securities or Qualified
Proceeds, in each case received by the Corporation or SMC
from:
(i)
contributions to its common equity capital; and
(ii)
the sale (other than to a Subsidiary or to any management equity
plan or stock option plan or any other management or employee
benefit plan or agreement of the Corporation or any Subsidiary) of
Capital Stock (other than Disqualified Stock),
in each case designated as Excluded
Contributions pursuant to an Officer’s Certificate of the
Corporation on the date such capital contributions are made or the
date such Equity Interests are sold, as the case may be, which are
excluded from the calculation set forth in Section 804(A)(c) of
this Agreement.
“ Existing Indebtedness
” means Indebtedness of the Corporation and its Subsidiaries
in existence on the Issue Date, plus interest accruing
thereon.
“ Fixed Charge Coverage
Ratio ” means, with respect to any Person for any period,
the ratio of EBITDA of such Person for such period to the Fixed
Charges of such Person for such period. In the event that the
Corporation or any Restricted Subsidiary incurs, assumes,
guarantees or redeems any Indebtedness or issues or redeems
Disqualified Stock or preferred stock
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subsequent to the commencement of the period for
which the Fixed Charge Coverage Ratio is being calculated but prior
to the event for which the calculation of the Fixed Charge Coverage
Ratio is made (the “ Calculation Date ”), then
the Fixed Charge Coverage Ratio shall be calculated giving pro
forma effect to such incurrence, assumption, guarantee or
redemption of Indebtedness, or such issuance or redemption of
Disqualified Stock or preferred stock, as if the same had occurred
at the beginning of the applicable four-quarter period.
For purposes of making the
computation referred to above, Investments, acquisitions,
dispositions, mergers, consolidations and disposed operations (as
determined in accordance with GAAP) that have been made by such
Person or any Restricted Subsidiary thereof during the four quarter
reference period or subsequent to such reference period and on or
prior to or simultaneously with the Calculation Date shall be
calculated on a pro forma basis assuming that all such
Investments, acquisitions, dispositions, mergers, consolidations
and disposed operations (and the change in any associated fixed
charge obligations and the change in EBITDA resulting therefrom)
had occurred on the first day of the four-quarter reference
period. If since the beginning of such period any other
Person (that subsequently became a Restricted Subsidiary or was
merged with or into such Person or any Restricted Subsidiary
thereof since the beginning of such period) shall have made any
Investment, acquisition, disposition, merger, consolidation or
disposed operation that would have required adjustment pursuant to
this definition, then the Fixed Charge Coverage Ratio shall be
calculated giving pro forma effect thereto for such period
as if such Investment, acquisition, disposition, merger,
consolidation or disposed operation had occurred at the beginning
of the applicable four quarter period.
For purposes of this definition,
whenever pro forma effect is to be given to a transaction,
the pro forma calculations shall be made in good faith by a
responsible financial or accounting officer of the Corporation. If
any Indebtedness bears a floating rate of interest and is being
given pro forma effect, the interest on such Indebtedness shall be
calculated as if the rate in effect on the Calculation Date had
been the applicable rate for the entire period (taking into account
any Hedging Obligations applicable to such Indebtedness).
Interest on a Capitalized Lease Obligation shall be deemed to
accrue at an interest rate reasonably determined by a responsible
financial or accounting officer of the Corporation to be the rate
of interest implicit in such Capitalized Lease Obligation in
accordance with GAAP. For purposes of making the computation
referred to above, interest on any Indebtedness under a revolving
credit facility computed on a pro forma basis shall be
computed based upon the average daily balance of such Indebtedness
during the applicable period. Interest on Indebtedness that
may optionally be determined at an interest rate based upon a
factor of a prime or similar rate, a eurocurrency interbank offered
rate, or other rate, shall be deemed to have been based upon the
rate actually chosen, or, if none, then based upon such optional
rate chosen as the Corporation or SMC may designate.
“ Fixed Charges ”
means, with respect to any Person for any period, the sum of (i)
Consolidated Interest Expense of such Person for such period, (ii)
all cash dividends payments (excluding items eliminated in
consolidation) on any series of preferred stock (including any
Designated Preferred Stock) or any Refunding Capital Stock of such
Person, and (iii) all cash dividend payments (excluding items
eliminated in consolidation) on any series of Disqualified
Stock.
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“ Foreign Subsidiary
” means, with respect to any Person, any Restricted
Subsidiary of such Person that is not organized or existing under
the laws of the United States, any state thereof, the District of
Columbia, or any territory thereof.
“ GAAP ” means
generally accepted accounting principles in the United States in
effect on the Senior Subordinated Notes Issue Date.
“ Government Securities
” means securities that are
(i)
direct obligations of the United States of America for the timely
payment of which its full faith and credit is pledged,
or
(ii)
obligations of a Person controlled or supervised by and acting as
an agency or instrumentality of the United States of America the
timely payment of which is unconditionally guaranteed as a full
faith and credit obligation by the United States of
America,
which, in either case, are not callable or
redeemable at the option of the issuers thereof, and shall also
include a depository receipt issued by a bank (as defined in
Section 3(a)(2) of the Securities Act), as custodian with respect
to any such Government Securities or a specific payment of
principal of or interest on any such Government Securities held by
such custodian for the account of the holder of such depository
receipt; provided that (except as required by law) such
custodian is not authorized to make any deduction from the amount
payable to the holder of such depository receipt from any amount
received by the custodian in respect of the Government Securities
or the specific payment of principal of or interest on the
Government Securities evidenced by such depository
receipt.
“ guarantee ”
means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business),
direct or indirect, in any manner (including, without limitation,
through letters of credit or reimbursement agreements in respect
thereof), of all or any part of any Indebtedness or other
obligations.
“ Hedging Obligations
” means, with respect to any Person, the obligations of such
Person under:
(i)
currency exchange, interest rate or commodity swap agreements,
currency exchange, interest rate or commodity cap agreements and
currency exchange, interest rate or commodity collar agreements;
and
(ii)
other agreements or arrangements designed to protect such Person
against fluctuations in currency exchange, interest rates or
commodity prices.
“ Historical
Adjustments ” means with respect to any Person, without
duplication, the following items to the extent incurred prior to
the Senior Subordinated Notes Issue Date:
(i)
costs and expenses associated with the introduction of new products
(as determined by management of the Corporation or SMC);
13
(ii)
management fees incurred by the Corporation or SMC relating to Bain
Capital Management;
(iii)
consulting fees incurred by the Corporation or SMC relating to Bain
Consulting;
(iv)
charges associated with changes in estimates related to workers
compensation and vacation pay reserves;
(v)
facilities rationalization and closed facilities
expenses;
(vi)
non cash charges associated with: (A) write offs and impairments
related to affiliates, (B) deferred debt and derivative costs and
(C) stock based compensation;
(vii)
unusual relocation costs (as determined by management of the
Corporation or SMC);
(viii)
accounts receivable process improvement costs; and
(ix)
other unusual gains or expenses (as determined by management of the
Corporation or SMC) consisting of: (A) consulting expenses incurred
in connection with establishment of a financial subsidiary, (B)
changes in preference claim reserves, (C) severance expenses
associated with former employees, (D) exclusion of gains associated
with affiliate notes receivable, (E) cancellation of a management
consulting contract, (F) interest income and (G) write off of
accounts receivable associated with Homelife.
“ Holder ” means
a holder of Notes.
“ incur ” has the
meaning specified in Section 805(A) of this Agreement.
“ Indebtedness ”
means, with respect to any Person,
(i)
any indebtedness (including principal and premium) of such Person,
whether or not contingent:
(A)
in respect of borrowed money;
(B)
evidenced by bonds, notes, debentures or similar instruments or
letters of credit (or, without double counting, reimbursement
agreements in respect thereof);
(C)
representing the balance deferred and unpaid of the purchase price
of any property (including Capitalized Lease Obligations), except
any such balance that constitutes a trade payable or similar
obligation to a trade creditor, in each case accrued in the
ordinary course of business; or
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(D)
representing any Hedging Obligations,
if and to the extent that any of the foregoing
Indebtedness (other than letters of credit and Hedging Obligations)
would appear as a liability upon a balance sheet (excluding the
footnotes thereto) of such Person prepared in accordance with
GAAP;
(ii)
to the extent not otherwise included, any obligation by such Person
to be liable for, or to pay, as obligor, guarantor or otherwise, on
the Indebtedness of another Person, other than by endorsement of
negotiable instruments for collection in the ordinary course of
business; and
(iii)
to the extent not otherwise included, Indebtedness of another
Person secured by a Lien on any asset owned by such Person, whether
or not such Indebtedness is assumed by such Person;
provided , however , that Contingent Obligations
incurred in the ordinary course of business shall be deemed not to
constitute Indebtedness; and obligations under or in respect of
Receivables Facilities shall not be deemed to constitute
Indebtedness.
“ Independent Financial
Advisor ” means an accounting, appraisal or investment
banking firm or consultant to Persons engaged in Similar Businesses
of nationally-recognized standing that is, in the good faith
judgment of the Corporation or SMC, qualified to perform the task
for which it has been engaged.
“ Intellectual Property
” has the meaning set forth in Section 201(k) of this
Agreement.
“ Interest Payment Date
” has the meaning specified in Exhibit A hereto.
“ Interest Rate ”
has the meaning specified in Exhibit A hereto.
“ Investment Company
Act ” has the meaning set forth in Section 201(o) of this
Agreement.
“ Investment Grade
Securities ” means:
(i)
securities issued or directly and fully guaranteed or insured by
the United States government or any agency or instrumentality
thereof (other than Cash Equivalents);
(ii)
debt securities or debt instruments with a rating of BBB- or higher
by S&P or Baa3 or higher by Moody’s or the equivalent of
such rating by such rating organization, or, if no rating of
S&P or Moody’s then exists, the equivalent of such rating
by any other nationally recognized securities rating agency, but
excluding any debt securities or instruments constituting loans or
advances among the Corporation and its Subsidiaries;
15
(iii)
investments in any fund that invests exclusively in investments of
the type described in clauses (i) and (ii) above, which fund may
also hold immaterial amounts of cash pending investment and/or
distribution; and
(iv)
corresponding instruments in countries other than the United States
customarily utilized for high quality investments.
“ Investments ”
means, with respect to any Person, all investments by such Person
in other Persons (including Affiliates) in the form of loans
(including guarantees), advances or capital contributions
(excluding accounts receivable, trade credit, advances to
customers, commission, travel and similar advances to officers and
employees, in each case made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness,
Equity Interests or other securities issued by any other Person and
investments that are required by GAAP to be classified on the
balance sheet (excluding the footnotes) of the Corporation in the
same manner as the other investments included in this definition to
the extent such transactions involve the transfer of cash or other
property. For purposes of the definition of
“Unrestricted Subsidiary” and Section 804 of this
Agreement,
(i)
“Investments” shall include the portion (proportionate
to the Corporation’s equity interest in such Subsidiary) of
the fair market value of the net assets of a Subsidiary of the
Corporation at the time that such Subsidiary is designated an
Unrestricted Subsidiary; provided , however , that
upon a redesignation of such Subsidiary as a Restricted Subsidiary,
the Corporation shall be deemed to continue to have a permanent
“Investment” in an Unrestricted Subsidiary in an amount
(if positive) equal to:
(x)
the Corporation’s “Investment” in such Subsidiary
at the time of such redesignation less
(y)
the portion (proportionate to the Corporation’s equity
interest in such Subsidiary) of the fair market value of the net
assets of such Subsidiary at the time of such redesignation;
and
(ii)
any property transferred to or from an Unrestricted Subsidiary
shall be valued at its fair market value at the time of such
transfer, in each case as determined in good faith by the
Corporation.
“ Issue Date ”
means July 16, 2004.
“ Lien ” means,
with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such
asset, whether or not filed, recorded or otherwise perfected under
applicable law, including any conditional sale or other title
retention agreement, any lease in the nature thereof, any option or
other agreement to sell or give a security interest in and any
filing of or agreement to give any financing statement under the
Uniform Commercial Code (or equivalent statutes) of any
jurisdiction; provided that in no event shall an operating
lease be deemed to constitute a Lien.
16
“ Management Group
” means 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 or other
executive officer of any of the Corporation or any Subsidiary at
such time.
“ Management Investors
” means the management officers and employees of the
Corporation and its Subsidiaries who are investors in the
Corporation on July 16, 2004.
“ Material Adverse
Effect ” has the meaning set forth in Section 201(b) of
this Agreement.
“ Moody’s ”
means Moody’s Investors Service, Inc.
“ Net Income ”
means, with respect to any Person, the net income (loss) of such
Person, determined in accordance with GAAP and before any reduction
in respect of preferred stock dividends.
“ Net Proceeds ”
means the aggregate cash proceeds received by the Corporation or
any Restricted Subsidiary in respect of any Asset Sale, including,
without limitation, any cash received upon the sale or other
disposition of any Designated Non-cash Consideration received in
any Asset Sale, net of the direct costs relating to such Asset Sale
and the sale or disposition of such Designated Non-cash
Consideration, including, without limitation, legal, accounting and
investment banking fees, and brokerage and sales commissions, any
relocation expenses incurred as a result thereof, taxes paid or
payable as a result thereof (after taking into account any
available tax credits or deductions and any tax sharing
arrangements), amounts required to be applied to the repayment of
principal, premium, if any, and interest on Senior Indebtedness
required (other than required by Section 809(b)(1)) to be paid as a
result of such transaction and any deduction of appropriate amounts
to be provided by the Corporation as a reserve in accordance with
GAAP against any liabilities associated with the asset disposed of
in such transaction and retained by the Corporation after such sale
or other disposition thereof, including, without limitation,
pension and other post-employment benefit liabilities and
liabilities related to environmental matters or against any
indemnification obligations associated with such
transaction.
“ Notes ” means
the Corporation’s 10% Senior Subordinated Notes due 2015
issued pursuant to this Agreement.
“ Obligations ”
means any principal, interest, penalties, fees, indemnifications,
reimbursements (including, without limitation, reimbursement
obligations with respect to letters of credit and banker’s
acceptances), damages and other liabilities, and guarantees of
payment of such principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities,
payable under the documentation governing any
Indebtedness.
“ Officer ” means
the Chairman of the Board of Directors, the Chief Executive
Officer, the President, any Executive Vice President, Senior Vice
President or Vice President, the Treasurer, or Secretary of the
Corporation.
17
“ Officer’s
Certificate ” means a certificate signed on behalf of the
Corporation by one Officer of the Corporation that meets the
requirements set forth in this Agreement.
“ Permitted Asset Swap
” means the concurrent purchase and sale or exchange of
Related Business Assets or a combination of Related Business Assets
and cash or Cash Equivalents between the Corporation or any of its
Restricted Subsidiaries and another Person; provided , that
any cash or Cash Equivalents received must be applied in accordance
with Section 809.
“ Permitted Holders
” means Kohlberg Kravis Roberts & Co. L.P., its
Affiliates and the Management Group.
“ Permitted Investments
” means:
(i)
any Investment in the Corporation or any Restricted
Subsidiary;
(ii)
any Investment in cash and Cash Equivalents or Investment Grade
Securities;
(iii)
any Investment by the Corporation or any Restricted Subsidiary of
the Corporation in a Person that is engaged in a Similar Business
if as a result of such Investment;
(A)
such Person becomes a Restricted Subsidiary, or
(B)
such Person, in one transaction or a series of related
transactions, is merged, consolidated or amalgamated with or into,
or transfers or conveys substantially all of its assets to, or is
liquidated into, the Corporation or a Restricted
Subsidiary;
(iv)
any Investment in securities or other assets not constituting cash
or Cash Equivalents and received in connection with an Asset Sale
made pursuant to Section 809, or any other disposition of assets
not constituting an Asset Sale;
(v)
any Investment existing on the Issue Date;
(vi)
advances to employees not in excess of $10.0 million outstanding at
any one time, in the aggregate;
(vii)
any Investment acquired by the Corporation or any Restricted
Subsidiary
(A)
in exchange for any other Investment or accounts receivable held by
the Corporation or any such Restricted Subsidiary in connection
with or as a result of a bankruptcy, workout, reorganization or
recapitalization of the Corporation of such other Investment or
accounts receivable or
18
(B)
as a result of a foreclosure by the Corporation or any Restricted
Subsidiary with respect to any secured Investment or other transfer
of title with respect to any secured Investment in
default;
(viii)
Hedging Obligations permitted under Section 805(B)(9) of this
Agreement;
(ix)
loans and advances to officers, directors and employees for
business related travel expenses, moving expenses and other similar
expenses, in each case incurred in the ordinary course of
business;
(x)
any Investment in a Similar Business having an aggregate fair
market value, taken together with all other Investments made
pursuant to this clause (x) that are at that time outstanding
(without giving effect to the sale of an Unrestricted Subsidiary to
the extent the proceeds of such sale do not consist of cash and/or
marketable securities), not to exceed the greater of (x) $100.0
million and (y) 10% of Total Assets at the time of such Investment
(with the fair market value of each Investment being measured at
the time made and without giving effect to subsequent changes in
value);
(xi)
Investments the payment for which consists of Equity Interests of
the Corporation, or any of its direct or indirect parent entities
(exclusive of Disqualified Stock); provided, however , that
such Equity Interests shall not increase the amount available for
Restricted Payments under Section 804(A)(c) of this
Agreement;
(xii)
guarantees of Indebtedness permitted under Section 805 of this
Agreement;
(xiii)
any transaction to the extent it constitutes an investment that is
permitted and made in accordance with Section 807(B) (except
transactions described in clauses (2), (7), (8) and (12) thereof)
of this Agreement;
(xiv)
Investments consisting of purchases and acquisitions of inventory,
supplies, material or equipment or the licensing or contribution of
intellectual property pursuant to joint marketing arrangements with
other Persons;
(xv)
additional Investments having an aggregate fair market value, taken
together with all other Investments made pursuant to this clause
(xv) that are at that time outstanding (without giving effect to
the sale of an Unrestricted Subsidiary to the extent the proceeds
of such sale do not consist of cash and/or marketable securities),
not to exceed the greater of (x) $50.0 million and (y) 5.0% of
Total Assets at the time of such Investment (with the fair market
value of each Investment being measured at the time made and
without giving effect to subsequent changes in value);
(xvi)
Investments relating to any special purpose wholly owned subsidiary
of the Corporation organized in connection with a Receivables
Facility
19
that, in the good faith
determination of the Board of Directors of the Corporation or SMC,
are necessary or advisable to effect such Receivables Facility;
and
(xvii) and
Investment permitted by the terms of the Senior Credit Facilities
and the SMC Senior Subordinated Notes.
“ Permitted Liens
” means, with respect to any Person:
(1)
pledges or deposits by such Person under workmen’s
compensation laws, unemployment insurance laws or similar
legislation, or good faith deposits in connection with bids,
tenders, contracts (other than for the payment of Indebtedness) or
leases to which such Person is a party, or deposits to secure
public or statutory obligations of such Person or deposits of cash
or U.S. government bonds to secure surety or appeal bonds to which
such Person is a party, or deposits as security for contested taxes
or import duties or for the payment of rent, in each case incurred
in the ordinary course of business;
(2)
liens imposed by law, such as carriers’, warehousemen’s
and mechanics’ Liens, in each case for sums not yet due or
being contested in good faith by appropriate proceedings or other
Liens arising out of judgments or awards against such Person with
respect to which such Person shall then be proceeding with an
appeal or other proceedings for review;
(3)
Liens for taxes, assessments or other governmental charges not yet
due or payable or subject to penalties for nonpayment or which are
being contested in good faith by appropriate
proceedings;
(4)
Liens in favor of issuers of performance and surety bonds or bid
bonds or with respect to other regulatory requirements or letters
of credit issued pursuant to the request of and for the account of
such Person in the ordinary course of its business;
(5)
minor survey exceptions, minor encumbrances, easements or
reservations of, or rights of others for, licenses, rights-of-way,
sewers, electric lines, telegraph and telephone lines and other
similar purposes, or zoning or other restrictions as to the use of
real properties or Liens incidental, to the conduct of the business
of such Person or to the ownership of its properties which were not
incurred in connection with Indebtedness and which do not in the
aggregate materially adversely affect the value of said properties
or materially impair their use in the operation of the business of
such Person;
(6)
(A) Liens securing Senior Indebtedness permitted to be
incurred pursuant to Section 805 hereof and (B) Liens securing
Indebtedness pursuant to Section 805(B)(6) or 805(B)(15)
hereof;
(7)
Liens existing on the Issue Date;
(8)
Liens on property or shares of stock of a Person at the time such
Person becomes a Subsidiary; provided , however ,
such Liens are not created or incurred in connection with, or in
contemplation of, such other Person becoming such a
subsidiary;
20
provided, further, however, that
such Liens may not extend to any other property owned by the
Corporation or any Restricted Subsidiary;
(9)
Liens on property at the time the Corporation or any of its
Restricted Subsidiaries acquired the property, including any
acquisition by means of a merger or consolidation with or into the
Corporation or any Restricted Subsidiary; provided ,
however , that such Liens are not created or incurred in
connection with, or in contemplation of, such acquisition;
provided, further, however , that the Liens may not extend
to any other property owned by the Corporation or any Restricted
Subsidiary;
(10)
Liens securing Indebtedness or other obligations of SMC or a
Restricted Subsidiary of SMC owing to the Corporation, SMC or
another Restricted Subsidiary of SMC permitted to be incurred in
accordance with Section 805 hereof;
(11)
Liens securing Hedging Obligations so long as the related
Indebtedness is, and is permitted under this Agreement to be,
secured by a Lien on the same property securing such Hedging
Obligations;
(12)
Liens on specific items of inventory of other goods and proceeds of
any Person securing such Person’s obligations in respect of
bankers’ acceptances issued or created for the account of
such Person to facilitate the purchase, shipment or storage of such
inventory or other goods;
(13)
leases and subleases of real property which do not materially
interfere with the ordinary conduct of the business of the
Corporation or any of its Restricted Subsidiaries;
(14)
Liens arising from Uniform Commercial Code financing statement
filings regarding operating leases entered into by the Corporation
and its Restricted Subsidiaries in the ordinary course of
business;
(15)
Liens in favor of the Corporation or any of its Restricted
Subsidiaries;
(16)
Liens on equipment of the Corporation or any of its Restricted
Subsidiaries granted in the ordinary course of business to the
Corporation’s client at which such equipment is
located;
(17)
Liens on accounts receivable and related assets incurred in
connection with a Receivables Facility;
(18)
Liens to secure any refinancing, refunding, extension, renewal or
replacement (or successive refinancing, refunding, extensions,
renewals or replacements) as a whole, or in part, of any
Indebtedness secured by any Lien referred to in the foregoing
clauses (6)(B), (7), (8), (9), (10), (11) and (15); provided
however , that (x) such new Lien shall be limited to all or
part of the same property that secured the original Lien (plus
improvements on such property), and (y) the Indebtedness secured by
such Lien at such time is not increased to any amount greater than
the sum of (A) the outstanding principal amount or, if greater,
committed amount of the Indebtedness described under
21
clauses (6)(B), (7), (8), (9), (10),
(11) and (15) at the time the original Lien became a Permitted Lien
under this Agreement, and (B) an amount necessary to pay any fees
and expenses, including premiums, related to such refinancing,
refunding, extension, renewal or replacement; and
(19)
other Liens securing obligations incurred in the ordinary course of
business which obligations do to exceed $25 million at any one time
outstanding.
“ Person ” means
any individual, corporation, limited liability company,
partnership, joint venture, association, joint stock company,
trust, unincorporated organization, government or any agency or
political subdivision thereof or any other entity.
“ preferred stock
” means any Equity Interest with preferential rights of
payment of dividends upon liquidation, dissolution or winding
up.
“ Purchasers ”
has the meaning set forth in the preamble to this
Agreement.
“ Receivables Facility
” means one or more receivables financing facilities, as
amended from time to time, the Indebtedness of which is
non-recourse (except for standard representations, warranties,
covenants and indemnities made in connection with such facilities)
to the Corporation and the Restricted Subsidiaries pursuant to
which the Corporation and/or any of its Restricted Subsidiaries
sells its accounts receivable to a Person that is not a Restricted
Subsidiary.
“ Receivables Fees
” means distributions or payments made directly or by means
of discounts with respect to any participation interest issued or
sold in connection with, and other fees paid to a Person that is
not a Restricted Subsidiary in connection with, any Receivables
Facility.
“ Redemption Date
” with respect to any Note, means the date on which such Note
is redeemed by the Corporation.
“ Redemption Notice
” has the meaning specified in Section 902 of this
Agreement.
“ Redemption Price
” means the consideration due to the Holders on a Redemption
Date as specified in Section 901 of this Agreement.
“ Refinancing
Indebtedness ” has the meaning specified in Section 805
of this Agreement.
“ Refunding Capital
Stock ” has the meaning specified in Section 804(B) of
this Agreement.
“ Regular Record Date
” has the meaning specified in Exhibit A hereto.
“ Related Business
Assets ” means assets (other than cash or Cash
Equivalents) used or useful in a Similar Business, provided
that any assets received by the Corporation or a
22
Restricted Subsidiary in exchange for assets
transferred by the Corporation or a Restricted Subsidiary shall not
be deemed to be Related Business Assets if they consist of
securities of a Person, unless upon receipt of the securities of
such Person, such Person would become a Restricted
Subsidiary.
“ Restricted Investment
” means an Investment other than (x) a Permitted Investment
and (y) any payments made with respect to the Notes.
“ Restricted Payment
” has the meaning specified in Section 804(A) of this
Agreement.
“ Restricted Subsidiary
” means, at any time, any direct or indirect Subsidiary of
the Corporation (including any Foreign Subsidiary) that is not then
an Unrestricted Subsidiary (including Sealy Mattress Corporation
and SMC); provided, however , that upon the occurrence of an
Unrestricted Subsidiary ceasing to be an Unrestricted Subsidiary,
such Subsidiary shall be included in the definition of
“Restricted Subsidiary.”
“ Retired Capital Stock
” has the meaning specified in Section 804(B) of this
Agreement.
“ S&P ” means
Standard and Poor’s Ratings Services, a division of The
McGraw-Hill Companies, Inc.
“ Securities Act
” means the Securities Act of 1933, as amended, and the rules
and regulations of the Commission promulgated
thereunder.
“ Senior Credit
Facilities ” means the Credit Agreement, dated as of
April 6, 2004, by and among Sealy Mattress Corporation, the
Corporation, Sealy Canada, Ltd., SMC, the other credit parties
signatory thereto, J.P. Morgan Securities Inc., Goldman Sachs
Credit Partners L.P., General Electric Capital Corporation, ING
Financial Markets LLC, Royal Bank of Canada, the lenders signatory
thereto from time to time and JPMorgan Chase Bank, as
Administrative Agent, including any guarantees, collateral
documents, instruments and agreements executed in connection
therewith, and any amendments, supplements, modifications,
extensions, renewals, restatements or refundings thereof and any
indentures or credit facilities or commercial paper facilities with
banks or other institutional lenders or investors that replace,
refund or refinance any part of the loans, notes, other credit
facilities or commitments thereunder, including any such
replacement, refunding or refinancing facility or indenture that
increases the amount borrowable thereunder or alters the maturity
thereof.
“ Senior Indebtedness
” means:
(1)
all Indebtedness of the Corporation outstanding under the Credit
Facilities (including interest accruing on or after the filing of
any petition in bankruptcy or for reorganization of the
Corporation, regardless of whether or not a claim for post-filing
interest is allowed in such proceedings);
(2)
all Hedging Obligations (and guarantees thereof) permitted to be
incurred under the terms of this Agreement;
23
(3)
any other Indebtedness of the Corporation permitted to be incurred
under the terms of this Agreement, unless the instrument under
which such Indebtedness is incurred expressly provides that it is
on a parity with or subordinated in right of payment to the Notes;
and
(4)
all Obligations with respect to the items listed in the preceding
clauses (1), (2) and (3).
“ Senior Subordinated
Indebtedness ” means Indebtedness of the Corporation
which ranks equal in right of payment to the Notes.
“ Senior Subordinated Notes
Issue Date ” means April 6, 2004.
“ Senior Unsecured Term
Loan ” means the Senior Unsecured Credit Agreement, dated
as of April 6, 2004, among SMC, Sealy Mattress Corporation, the
Corporation, J.P. Morgan Securities, Inc., as joint lead arranger
and joint bookrunner, Goldman Sachs Credit Parties L.P., as joint
lead arranger, joint bookrunner and syndication agent, and JPMorgan
Chase Bank, as Administrative Agent, and the other agents and the
lenders party thereto, including any guarantees, instruments and
agreements executed in connection therewith, and any amendments,
supplements, modifications, extensions, renewals, restatements or
refundings thereof and any indentures or credit facilities or
commercial paper facilities with banks or other institutional
lenders or investors that replace, refund or refinance any part of
the loans, notes, other credit facilities or commitments
thereunder, including any such replacement, refunding or
refinancing facility or indenture that increases the amount
borrowable thereunder or alters the maturity thereof.
“ Shares ” means
shares of the Corporation’s Common Stock sold to the
Purchasers pursuant to this Agreement.
“ Significant
Subsidiary ” means any Restricted Subsidiary that would
be a “significant subsidiary” as defined in Article 1,
Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities
Act, as such regulation is in effect on the date hereof.
“ Similar Business
” means any business conducted or proposed to be conducted by
the Corporation and its Restricted Subsidiaries on the date of this
Agreement or any business that is similar, reasonably related,
incidental or ancillary thereto.
“ SMC ” means
Sealy Mattress Company, a subsidiary of Sealy Mattress Corporation,
a Delaware corporation, or any successor thereto by merger,
consolidation or otherwise.
“ SMC Senior Subordinated
Notes ” means the 8.25% Senior Subordinated Notes due
June 15, 2014 and any refinancing thereof.
“ Stockholders
Agreement ” means the agreement among the stockholders of
the Corporation named therein substantially in the form of Exhibit
C hereto.
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“ Subordinated
Indebtedness ” means any Indebtedness of the Corporation
which is by its terms subordinated in right of payment to the
Notes.
“ Subsidiary ”
means, with respect to any Person:
(i)
any corporation, association, or other business entity (other than
a partnership, joint venture, limited liability company or similar
entity) of which more than 50% of the total voting power of shares
of Capital Stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or
trustees thereof is at the time of determination owned or
controlled, directly or indirectly, by such Person or one or more
of the other Subsidiaries of that Person or a combination thereof;
and
(ii)
any partnership, joint venture, limited liability company or
similar entity of which:
(x)
more than 50% of the capital accounts, distribution rights, total
equity and voting interests or general or limited partnership
interests, as applicable, are owned or controlled, directly or
indirectly, by such Person or one or more of the other Subsidiaries
of that Person or a combination thereof whether in the form of
membership, general, special or limited partnership or otherwise,
and
(y)
such Person or any Restricted Subsidiary of such Person is a
controlling general partner or otherwise controls such
entity.
“ Successor Corporation
” has the meaning specified in Section 601 of this
Agreement.
“ Total Assets ”
means the total consolidated assets of the Corporation and its
Restricted Subsidiaries, as shown on the most recent balance sheet
of the Corporation.
“ Transactions ”
means the (i) the merger of an entity controlled by affiliates of
Kohlberg Kravis Roberts & Co., L.P. pursuant to the merger
agreement dated March 3, 2004, whereby this entity merged with and
into the Corporation, with the Corporation being the surviving
entity; (ii) the equity investment by Kohlberg Kravis Roberts &
Co., L.P. in the Corporation of approximately $436.1 million; (iii)
the repayment in full of all of SMC’s outstanding junior
subordinated promissory notes dated December 31, 2003; (iv) the
closing of SMC’s Senior Credit Facilities and the Senior
Unsecured Term Loan on April 6, 2004; (v) the receipt of
approximately $13.6 million from the settlement of remaining notes
receivable from Mattress Firm, Inc; (vi) the issuance of the 8.25%
Senior Subordinated Notes due 2014 of SMC; (vii) the repayment of
SMC’s outstanding $300 million aggregate principal amount of
9 7 / 8 % Senior Subordinated Notes due
December 15, 2007 and $128 million aggregate principal amount of 10
7 / 8 % Senior Subordinated Discount Notes
due December 15, 2007; (viii) the repayment in full of outstanding
indebtedness under that certain Credit Agreement, dated as of
February 14, 2001, as amended, among Sealy Canada Ltd./LTEE, the
lenders from time to time thereto, and Bank of America Canada, as
agent, and that certain Amended and Restated Credit Agreement,
dated as of November 8, 2002, as amended, among SMC, the
Corporation, the lenders from time
25
to time party thereto, JPMorgan Chase Bank, as
administrative agent, Goldman Sachs Credit Partners L.P., as
co-lead arranger and syndication agent, and JPMorgan Securities
Inc., as co-lead arranger; and (ix) the issuance, after April 6,
2004, of new options to purchase shares of Class A common stock to
certain members of management relating to the election by such
members of management on or prior to April 6, 2004 to rollover
their outstanding options to purchase common stock of the
Corporation in connection with the merger described in clause
(i).
“ Uniform Commercial
Code ” means the New York Uniform Commercial Code as in
effect from time to time.
“ Unrestricted
Subsidiary ” means:
(i)
any Subsidiary of the Corporation which at the time of
determination is an Unrestricted Subsidiary (as designated by the
Board of Directors of the Corporation, as provided below),
and
(ii)
any Subsidiary of an Unrestricted Subsidiary.
The Board of Directors of the
Corporation may designate any Subsidiary of the Corporation
(including any existing Subsidiary and any newly acquired or newly
formed Subsidiary) to be an Unrestricted Subsidiary unless such
Subsidiary or any of its Subsidiaries owns any Equity Interests or
Indebtedness of, or owns or holds any lien on, any property of, the
Corporation or any Subsidiary of the Corporation (other than any
Subsidiary of the Subsidiary to be so designated), provided
that
(A)
any Unrestricted Subsidiary must be an entity of which shares of
the Capital Stock or other equity interests (including partnership
interests) entitled to cast at least a majority of the votes that
may be cast by all shares or equity interests having ordinary
voting power for the election of directors or other governing body
are owned, directly or indirectly, by the Corporation,
(B)
such designation complies with Section 804 of this Agreement,
and
(C)
each of the Subsidiary to be so designated and its Subsidiaries has
not at the time of designation, and does not thereafter, create,
incur, issue, assume, guarantee or otherwise become directly or
indirectly liable with respect to any Indebtedness pursuant to
which the lender has recourse to any of the assets of the
Corporation or any Restricted Subsidiary.
The Board of Directors of the
Corporation may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; provided that, immediately after
giving effect to such designation either:
(x)
in the case of any Subsidiary of the Corporation other than SMC and
any of its Subsidiaries, either
26
(1)
the Corporation could incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set
forth in Section 805(A)(1) of this Agreement or
(2)
the Fixed Charge Coverage Ratio for the Corporation and its
Restricted Subsidiaries would be greater than immediately prior to
such designation, in each case on a pro forma basis taking
into account such designation, and
(y)
in the case of SMC and any of its Subsidiaries, either
(1)
SMC could incur at least $1.00 of additional Indebtedness pursuant
to the Fixed Charge Coverage Ratio test set forth in Section
805(A)(2) of this Agreement or
(2)
the Fixed Charge Coverage Ratio for SMC and its Restricted
Subsidiaries would be greater than immediately prior to such
designation, in each case on a pro forma basis taking into
account such designation.
“ Voting Stock ”
of any Person as of any date means the Capital Stock of such Person
that is at the time entitled to vote in the election of the Board
of Directors of such Person.
“ Weighted Average Life to
Maturity ” means, when applied to any Indebtedness,
Disqualified Stock or preferred stock, as the case may be, at any
date, the quotient obtained by dividing:
(i)
the sum of the products of the number of years from the date of
determination to the date of each successive scheduled principal
payment of such Indebtedness or redemption or similar payment with
respect to such Disqualified Stock or preferred stock multiplied
by the amount of such payment, by
(ii)
the sum of all such payments.
“ Wholly Owned
Subsidiary ” of any Person means a Subsidiary of such
Person, 100% of the outstanding Capital Stock or other ownership
interests of which (other than directors’ qualifying shares)
shall at the time be owned by such Person or by one or more Wholly
Owned Subsidiaries of such Person.
27
SECTION 102. Notic
es, Etc., to
Corporation.
Any request, demand, authorization,
direction, notice, consent, waiver or Act of Holders or other
document provided or permitted by this Agreement to be made upon,
given or furnished to, or filed with the Corporation by any Holder
shall be sufficient for every purpose hereunder (unless otherwise
herein expressly provided) if made, given, furnished or delivered
in writing and mailed, first-class postage prepaid, or delivered by
recognized overnight courier, to the Corporation addressed to it at
the address set forth below, or at any other address previously
furnished in writing to the Holders by the Corporation.
c/o Sealy Mattress Company
One Office Parkway
Trinity, North Carolina 27230
Attention: Secretary
SECTION 103. Notice t
o Holders; Waiver
.
Where this Agreement provides for
notice of any event to Holders by the Corporation, such notice
shall be sufficiently given (unless otherwise herein expressly
provided) if in writing and mailed, first-class postage prepaid or
sent by a nationally recognized overnight courier to each Holder
affected by such event, at the address set forth on the signature
pages to this Agreement or at any other address previously
furnished in writing by a Holder to the Corporation, not later than
the latest date, and not earlier than the earliest date, prescribed
for the giving of such notice. In any case where notice to
Holders is given by mail, neither the failure to mail such notice,
nor any defect in any notice so mailed, to any particular Holder
shall affect the sufficiency of such notice with respect to other
Holders. Notices given by first-class mail, postage prepaid,
shall be deemed given five calendar days after mailing.
Where this Agreement provides for
notice in any manner, such notice may be waived in writing by the
Person entitled to receive such notice, either before or after the
event, and such waiver shall be the equivalent of such
notice.
SECTION 104. Effe
ct of Headings and Table of
Contents .
The Article and Section headings
herein and the Table of Contents are for convenience only and shall
not affect the construction hereof.
SECTION 105. Integrat
ion and Severability
.
This Agreement (including the
schedules and exhibits hereto) and the Notes embody the entire
agreement and understanding between the parties hereto and
supersede all prior agreements and understandings relating to the
subject matter hereof. In case any provision in this
Agreement or in the Notes shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired
thereby.
28
SECTION 106. Ben
efits of Agreement
.
Nothing in this Agreement or in the
Notes, express or implied, shall give to any Person, other than the
parties hereto, and the Holders any benefit or any legal or
equitable right, remedy or claim under this Agreement. None
of the rights set forth in Section 503 are assignable.
SECTION 107. GOVER
NING LAW
.
THIS AGREEMENT AND THE NOTES
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK.
SECTION 108. Le
gal Holidays
.
In any case where any Interest
Payment Date, Redemption Date or stated maturity or maturity of any
Note shall not be a Business Day, then (notwithstanding any other
provision of this Agreement or of the Notes) payment of principal
(or premium, if any) or interest need not be made on such date, but
may be made on the next succeeding Business Day with the same force
and effect as if made on the Interest Payment Date, Redemption
Date, or at the stated maturity or maturity; provided that
no interest shall accrue for the period from and after such
Interest Payment Date, Redemption Date, stated maturity or
maturity, as the case may be.
SECTION 109. No
Personal Liability of Directors,
Officers, Employees and Stockholders .
No director, officer, employee,
incorporator or stockholder of the Corporation or any of its parent
companies shall have any liability for any obligations of the
Corporation under the Notes or this Agreement or for any claim
based on, in respect of, or by reason of such obligations. Each
Holder by accepting a Note waives and releases all such liability.
The waiver and release are part of the consideration for issuance
of the Notes.
SECTION 110. Coun
terparts .
This Agreement may be executed in
any number of counterparts, each of which shall be original; but
such counterparts shall together constitute but one and the same
instrument.
SECTION 111. Submi
ssion to Jurisdiction
.
Each party to this Agreement agrees
that any suit, action or proceeding against such party arising out
of or relating to this Agreement or the Notes may be instituted in
any New York state or U.S. federal court in the Borough of
Manhattan, The City of New York, New York, and any appellate court
from any thereof, and each such party irrevocably submits to the
non-exclusive jurisdiction of such courts in any suit, action or
proceeding. Each party to this Agreement irrevocably waives,
to the fullest extent permitted by law, any objection to any suit,
action, or proceeding that may be brought in connection with this
Agreement or the Notes, including such actions, suits or
proceedings relating to securities laws of the Unites States of
America or any state thereof, in such courts whether on the grounds
of venue, residence or
29
domicile or on the ground that any such suit,
action or proceeding has been brought in an inconvenient
forum. Each party to this Agreement agrees that final
judgment in any such suit, action or proceeding brought in such
court shall be conclusive and binding upon such party and may be
enforced in any court to the jurisdiction of which such party is
subject by a suit upon such judgment.
SECTION 201. Representat
ions of the
Corporation
The Corporation represents and
warrants to, and agrees with, each of the Purchasers
that:
(a)
The Corporation has not sustained since the date of the latest
audited financial statements provided to the Purchasers any
material loss or interference with its business from fire,
explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental
action, order or decree; and, since the date of the latest audited
financial statements provided to the Purchasers, there has not been
any material change in the capital stock or long-term debt of the
Corporation (other than as a result of the Transactions and the
issuance of the Notes) or any material adverse change, or any
development involving a prospective material adverse change, in or
affecting the general affairs, management, financial position,
stockholders’ equity or results of operations of the
Corporation;
(b)
The Corporation has good and marketable title in fee simple to all
real property and good and marketable title to all personal
property owned by it, in each case free and clear of all liens,
encumbrances and defects except as do not materially affect the
value of such property and do not interfere with the use made and
proposed to be made of such property by the Corporation; and except
as could not reasonably be expected to have a material adverse
effect on the business, properties, financial condition or earnings
of the Corporation and its consolidated subsidiaries, taken as a
whole (a “ Material Adverse Effect ”), any real
property and buildings held under lease by the Corporation are held
by it under valid, subsisting and enforceable leases;
(c)
The Corporation has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of
Delaware with power and authority (corporate and other) to own its
properties and conduct its business as currently conducted, and has
been duly qualified as a foreign corporation for the transaction of
business and is in good standing under the laws of each other
jurisdiction in which it owns or leases properties or conducts any
business so as to require such qualification, except where the
failure to so qualify or to be in good standing could not
reasonably be expected to have a Material Adverse
Effect;
(d)
All of the issued shares of Capital Stock of the Corporation have
been duly and validly authorized and issued and are fully paid and
non-assessable;
30
(e)
Each of this Agreement and the Stockholders Agreement has been duly
authorized, executed and delivered by the Corporation;
(f)
The Notes have been duly authorized and executed by the Corporation
and, when issued and delivered against payment therefor as provided
in this Agreement, will have been duly authorized, executed, issued
and delivered and will constitute valid and legally binding
obligations of the Corporation;
(g)
The Shares have been duly authorized and issued by the Corporation
and, when delivered against payment therefor as provided in this
Agreement, will have been duly authorized, issued and delivered and
will be fully paid and non-assessable and free of preemptive rights
on the part of others;
(h)
The issue and sale of the Notes and the Shares and the compliance
by the Corporation with all of the provisions of the Notes, this
Agreement and the Stockholders Agreement and the consummation of
the transactions herein and therein contemplated will not, except
as could not reasonably be expected to have a Material Adverse
Effect, conflict with or result in a breach or violation of any of
the terms or provisions of, or constitute a default under, any
indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which the Corporation is a party or by
which the Corporation is bound or to which any of the property or
assets of the Corporation is subject, nor will such action result
in any violation of the provisions of the Certificate of
Incorporation or By-laws of the Corporation or, except as could not
reasonably be expected to have a Material Adverse Effect, any
statute, order, rule or regulation of any court or governmental
agency or body having jurisdiction over the Corporation or any of
its properties; and no consent, approval, authorization, order,
registration or qualification of or with any such court or
governmental agency or body is required for the issue and sale of
the Notes and the Shares or the consummation by the Corporation of
the transactions contemplated by this Agreement and the
Stockholders Agreement;
(i)
The Corporation is not in violation of its Certificate of
Incorporation or By-laws or, except as could not reasonably be
expected to have a Material Adverse Effect, in default in the
performance or observance of any material obligation, covenant or
condition contained in any indenture, mortgage, deed of trust, loan
agreement, lease or other agreement or instrument to which it is a
party or by which it or any of its properties may be
bound;
(j)
There are no legal or governmental proceedings pending to which the
Corporation is a party or of which any property of the Corporation
is the subject which, if determined adversely to the Corporation,
could, individually or in the aggregate, reasonably be expected to
have a material adverse effect on the current or future financial
position, stockholders’ equity or results of operations of
the Corporation and its subsidiaries, taken as a whole; and, to the
Corporation’s knowledge, no such proceedings are threatened
or contemplated by governmental authorities or threatened by
others;
(k)
The Corporation is not, and after giving effect to the offering and
sale of the Notes and the Shares, will not be, an “investment
company”, as such term is defined
31
in the United
States Investment Company Act of 1940, as amended (the “
Investment Company Act ”);
(l)
No registration of the under the Securities Act is required for the
sale of the Notes and the Shares to the Purchasers in the manner
contemplated by this Agreement;
(m)
The Corporation has complied in all respects with all laws,
regulations and orders applicable to it or its businesses the
violation of which could reasonably be expected to have a Material
Adverse Effect;
(n)
(i) No labor disturbance by the employees of the Corporation exists
or, to the knowledge of the Corporation, is imminent and (ii) there
are no unfair labor practice complaints pending against the
Corporation or, to the knowledge of the Corporation, threatened
against it, which, in the case of either (i) or (ii), could
reasonably be expected to result in a Material Adverse Effect;
and
(o)
The Corporation owns or possesses or has the right to use the
patents, patent rights, licenses, inventions, copyrights, know-how
(including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures),
trademarks, service marks and trade names (collectively, the
“ Intellectual Property ”) presently employed by
it in connection with, and material to, collectively or in the
aggregate, the operation of the businesses now operated by it, and,
the Corporation has not received any notice of infringement of or
conflict with asserted rights of others with respect to the
foregoing which, individually or in the aggregate, if the subject
of an unfavorable decision, ruling or finding, would result in a
Material Adverse Effect;
(p)
The Corporation has delivered to the Holders the offering
memorandum dated March 30, 2004 relating to the offer and sale of
the SMC Senior Subordinated Notes (the “ Memorandum
”). As of its date, the Memorandum did not contain any
untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein not misleading in
light of the circumstances under which they were made;
and
(q)
The authorized capital of the Corporation immediately prior to the
Closing consists of 150,000,000 shares of Common Stock,
95,150,519.5426 of which are outstanding and 92,487,082.5405 of
which will be outstanding after the Closing and 50,000,000 shares
of Preferred Stock, none of which are outstanding. Other than
options granted pursuant to the Corporation’s 1998 Stock
Option Plan, there are, (i) no subscriptions, warrants, options,
convertible security, or other right (contingent or other) to
purchase or otherwise acquire from the Corporation (or, to the best
of the Corporation’s knowledge, from any other person or
entity) any equity securities of the Corporation outstanding, and
(ii) other than pursuant to this Agreement and Share Subscription
Agreement dated July 16, 2004 between the Corporation and Sealy
Paterson LLC, there is no commitment by the Cor
