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EXECUTION COPY STOCKHOLDERS' AGREEMENT

Shareholder Agreement

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SEALY CORP

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Title: EXECUTION COPY STOCKHOLDERS' AGREEMENT
Governing Law: New York     Date: 6/30/2005
Law Firm: Simpson Thacher & Bartlett LLP; Pepe & Hazard, LLP    

EXECUTION COPY   STOCKHOLDERS' AGREEMENT, Parties: sealy corp
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Exhibit 10.12

 

EXECUTION COPY

 

STOCKHOLDERS’ AGREEMENT

 

This Stockholders’ Agreement (this “Agreement”), is entered into as of July 16, 2004 by and among Sealy Corporation, a Delaware corporation (the “Company”), The Northwestern Mutual Life Insurance Company (“Northwestern”), Teachers Insurance and Annuity Association of America (“TIAA”) and Sealy Paterson LLC (“SP”) (each, other than the Company, a “Minority Investor” and collectively, the “Minority Investors”) and Sealy Holding LLC, a Delaware limited liability company (the “KKR Investor”).

 

RECITALS

 

WHEREAS, the KKR Investor, an affiliate of Kohlberg Kravis Roberts & Co. L.P., acquired approximately 92% of the then outstanding shares of class A common stock, par value $.01 per share, of the Company (the “Common Stock”) on April 6, 2004;

 

WHEREAS, pursuant to the terms of the Share Subscription Agreement dated as of the date hereof between the Company and SP (the “Subscription Agreement”), SP will acquire shares of Common Stock;

 

WHEREAS, pursuant to the terms of the Note and Stock Purchase Agreement dated as of the date hereof between the Company, Northwestern and TIAA (the “Note Purchase Agreement”), each of Northwestern and TIAA will acquire shares of Common Stock; and

 

WHEREAS, simultaneously with entering into the Subscription Agreement or the Note Purchase Agreement, as the case may be, each Minority Investor is entering into this Agreement;

 

WHEREAS, each Minority Investor, the KKR Investor and the Company wish to enter into this Agreement providing for certain rights and obligations of the Minority Investors, the KKR Investor and the Company.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the mutual covenants herein contained and for other good and valuable consideration, the parties hereto agree as follows:

 

1.                                        Definitions

 

As used in this Agreement, the following capitalized terms shall have the following meanings:

 

Affiliate :  When used with respect to a specified Person, another Person that, either directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, the Person specified.

 

Exempt Transaction :  Has the meaning set forth in Section 2(c) hereof.

 



 

KKR Affiliate :  With respect to the KKR Investor shall mean a Person that directly or indirectly through one or more intermediaries controls, is controlled by or is under common control with the KKR Investor; provided , however , that KKR Affiliate shall not in any event include the limited partners of the members of the KKR Investor.

 

KKR Holder :  The KKR Investor and any Person to whom the KKR Investor transfers shares of Common Stock and any transferee thereof who is required by this Agreement to be bound by the provisions of this Agreement.

 

KKR Shares :  As of any date of determination, the shares of Common Stock then held by the KKR Holders.

 

Minority Shares :  As of any date of determination, the shares of Common Stock then held by the Minority Investors; provided that Minority Shares shall not include any shares of Common Stock held by Northwestern or TIAA that (i) were acquired in a Public Offering or (ii) were acquired in a brokers transaction and were freely tradeable without restriction and unlegended at the time such shares were acquired by Northwestern or TIAA.

 

Person :  An individual, partnership, limited liability company, joint venture, corporation, trust or unincorporated organization, a government or any department, agency or political subdivision thereof or other entity.

 

Private Sale :  Any sale of securities other than a sale made in a public distribution pursuant to an effective registration statement under the Securities Act.

 

Public Offering :  Any sale of the issued and outstanding shares of Common Stock made in a public distribution pursuant to an effective registration statement under the Securities Act (other than a registration statement on Form S-4 or Form S-8 or any similar or successor forms).

 

Securities Act :  The Securities Act of 1933, as amended from time to time and the rules and regulations promulgated thereunder.

 

2.              (a)  “ Tag-Along” Right With Respect to Private Sales by KKR Holders .  (i)  Private Sales of Shares by KKR Holders .  Subject to the last sentence of Section 3(a), with respect to any proposed Private Sale of any KKR Shares by a KKR Holder or KKR Holders (collectively, for purposes of this Section 2, the “KKR Holder”) during the term of this Agreement to a Person (a “Proposed Purchaser”), other than pursuant to an Exempt Transaction (as defined in Section 2(c)), each Minority Investor shall have the right and option, but not the obligation, to participate in such sale, on the same terms and subject to the same conditions as the sale by the KKR Holder, for the number of Minority Shares owned by such Minority Investor equaling the number derived by multiplying the total number of KKR Shares which the KKR Holder proposes to sell (the “Proposed Number of Shares”) by a fraction, the numerator of which is the total number of Minority Shares held by such Minority Investor and the denominator of which is the sum of (A) the total number of Minority Shares, (B) the total number of KKR Shares, and (C) the total number of shares of Common Stock (determined on a fully diluted

 

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basis) owned by Persons entitled to the benefits of any other “tag-along” rights arising as a result of such sale.

 

(ii)            Notices .  The KKR Holder shall notify, or cause to be notified, the Minority Investors in writing of each proposed Private Sale subject to Section 2(a)(i) above.  Such notice shall set forth:  (A) the Proposed Number of Shares, (B) the name and address of the Proposed Purchaser, (C) the proposed amount of consideration, the material terms and conditions of such sale (and if the proposed consideration is not cash, the notice shall describe the terms of the proposed consideration) and the proposed closing date of such sale, (D) the total number of KKR Shares and the total number of shares of Common Stock (determined on a fully diluted basis) owned by Persons entitled to the benefits of any other “tag-along” rights arising as a result of such sale and (D) that the Proposed Purchaser has been informed of the “tag-along” right provided for in this Section 2(a) and has agreed to purchase Minority Shares held by the Minority Investors in accordance with the terms hereof.  The “tag-along” right may be exercised by each Minority Investor by delivery of a written notice from such Minority Investor to the KKR Holder (the “Tag-Along Notice”) within 15 days following receipt of the notice specified in the preceding sentence.  The Tag-Along Notice shall state the amount of Minority Shares that the Minority Investor proposes to include in such sale to the Proposed Purchaser.  If any Minority Investor delivers a Tag-Along Notice to the KKR Holder, each Minority Investor participating in the proposed Private Sale shall (A) prior to closing of any such sale, execute and deliver (or cause to be executed and delivered) any purchase agreement or other documentation required by the Proposed Purchaser to consummate the sale (including without limitation all legal opinions, cross-receipts and certificates), which purchase agreement and other documentation shall be on terms no less favorable in respect of any material term to such Minority Investor than those executed by the KKR Holder and (B) at the closing of any such sale, deliver to the Proposed Purchaser the certificate or certificates representing the Minority Shares to be sold pursuant to such sale by such Minority Investor, duly endorsed for transfer, against receipt of the purchase price thereof.

 

(iii)           Number of Shares to be Sold .  If a Tag-Along Notice is received pursuant to Section 2(a)(ii), each Minority Investor shall be permitted to sell to the Proposed Purchaser up to the number of Minority Shares determined as set forth in Section 2(a)(i) above (the “Proposed Minority Shares”), and the KKR Holder shall be permitted to sell to the Proposed Purchaser up to a number of shares of Common Stock (the “Proposed KKR Shares”) equal to the Proposed Number of Shares, less the aggregate number of Proposed Minority Shares and all other shares of Common Stock being sold to such Proposed Purchaser in such transaction pursuant to tag-along rights arising as a result of such sale; provided that the KKR Holder and each Minority Investor shall have the right to sell their pro rata share of a number of additional shares of Common Stock up to the excess of the Proposed Number of Shares over the number of Proposed KKR Shares, if the Proposed Purchaser wants to purchase such additional shares.  If no Tag-Along Notice is received by the KKR Holder pursuant to Section 2(a)(ii), the KKR Holder shall have the right to sell to the Proposed Purchaser up to the Proposed Number of Shares on terms and conditions no more favorable in any material respect to the KKR Holder than those stated in the Tag-Along Notice.

 

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(b)            Piggyback Registration Rights With Respect to Public Sales by KKR Holders .  (i)  Public Offering of Shares by KKR Holders .  With respect to any proposed Public Offering of any KKR Shares by a KKR Holder during the term of this Agreement, each Minority Investor shall have the right and option, but not the obligation, to participate in such public distribution on the same terms and subject to the same conditions as the sale by the KKR Holder for a number of Minority Shares up to the total number of Minority Shares owned by such Minority Investor, subject to Section 2(b)(iii) below.

 

(ii)            Notices .  The KKR Holder shall notify, or cause to be notified, the Minority Investors in writing (a “Notice”) of each proposed Public Offering (a “Proposed Registration”).  Such notice may be given before the filing of such registration statement and need not specify any price or other terms or conditions of such sale.  If within 15 days of the delivery of such Notice to the Minority Investors, the KKR Holder receives from any Minority Investor a written request (a “Request”) to register shares of Common Stock held by such Minority Investor (which Request will be irrevocable), shares of Common Stock will be so registered as and to the extent provided in this Section 2(b) if KKR Shares are so registered.  If a Minority Investor delivers a Request to the KKR Holder, such Minority Investor will participate in such public distribution, if any, at the same price and on the same terms and conditions as the KKR Holder, which price and other terms and conditions will be determined on behalf of the KKR Holder and the Minority Investor by the KKR Holder in its sole discretion.  Nothing in this Agreement shall create any obligation on the part of the KKR Holder to cause a registration statement to become effective under the Securities Act or to sell any shares of Common Stock pursuant to an effective registration statement under the Securities Act.

 

(iii)           Number of Shares to be Sold .  If a registration pursuant to this Section 2(b) involves an underwritten offering and the managing underwriter advises the Company in writing that, in its opinion, the number of shares of Common Stock requested to be included in such registration exceeds the number of shares of Common Stock which can be sold in such offering, so as to be likely to have an adverse effect on the price, timing or distribution of the shares of Common Stock offered in such offering as contemplated by the Company or that the inclusion of additional selling stockholders is likely to have such an adverse effect, then the Company will include in such registration (A) the number of shares of Common Stock held by each Minority Investor equal to the number derived by multiplying the total number of shares which, in the opinion of such managing underwriter, can be sold without having the adverse effect referred to above (the “Piggyback Aggregate Registration Number”) by a fraction, the numerator of which is the total number of Minority Shares held by such Minority Investor and the denominator of which is the sum of (i) the total number of Minority Shares, (ii) the total number of KKR Shares, and (iii) the total number of shares of Common Stock (determined on a fully diluted basis) held by Persons entitled to the benefits of any other piggyback registration rights arising as a result of such registration and (B) the number of shares of Common Stock held by the KKR Holder equal to the Piggyback Aggregate Registration Number, less the aggregate number of Minority Shares and all other shares of Common Stock being registered in such transaction pursuant to piggyback registration rights arising as a result of such registration; provided that in the event the aggregate number of shares of Common Stock to be sold in any such public distribution is increased or decreased, then the number of Minority Shares which

 

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such Minority Investor shall sell in such public distribution shall be increased or decreased by the product of (i) the number of shares of Common Stock by which the total number of shares of Common Stock in such public distribution is increased or decreased and (ii) a fraction the numerator of which equals the number of Minority Shares held by such Minority Investor originally so registered and the denominator of which is the total number of shares of Common Stock originally so registered.

 

(iv)           Custody Agreement and Power of Attorney .  Upon delivery of a Request, the participating Minority Investors will, if requested by the KKR Holder, execute and deliver to the KKR Holder a custody agreement and power of attorney in form and substance reasonably satisfactory to the KKR Holder with respect to the shares of Common Stock to be registered pursuant to this Section 2(b) (a “Custody Agreement and Power of Attorney”).  The custodian and attorney-in-fact under the Custody Agreement and Power of Attorney will be the KKR Holder or its designee.  The Custody Agreement and Power of Attorney will provide, among other things, that such Minority Investor will deliver to and deposit in custody with the custodian and attorney-in-fact named therein a certificate or certificates representing such shares of Common Stock (duly endorsed in blank by the registered owner or owners thereof or accompanied by duly executed stock powers in blank) and irrevocably appoint said custodian and attorney-in-fact as such Minority Investor’s agent and attorney-in-fact with full power and authority to act under the Custody Agreement and Power of Attorney on such Minority Investor’s behalf with respect to the matters specified therein (including without limitation executing an underwriting agreement and cross-receipts).

 

(v)            Holdback Agreement .  (A) In connection with the initial Public Offering, each Minority Investor agrees not to effect any public sale or distribution, including any sale pursuant to Rule 144 (or any successor provision) under the Securities Act, of any shares of Common Stock (other than dispositions made pursuant to the piggyback registration rights described in this Section 2(b)), within 7 days before or such number of days (not to exceed 180 days) as the managing underwriters may require, after the effective date of such registration, and (B) in connection with each subsequent Public Offering, each Minority Investor agrees not to effect any public sale or distribution, including any sale pursuant to Rule 144 (or any successor provision) under the Securities Act, of any Minority Shares (other than dispositions made pursuant to the piggyback registration rights described in this Section 2(b)) within 7 days before and a number of days after to be determined by the managing underwriter and the KKR Investor; provided however , that such restrictions will be no more restrictive than those applicable to the KKR Investor for each such Public Offering.

 

(vi)           Additional Agreements .  Each Minority Investor agrees that it will execute and deliver or cause to be executed and delivered such other agreements and other documents (such as legal opinions, cross-receipts and certificates) as the KKR Holder itself is delivering or as the KKR Holder may otherwise reasonably request to implement the provisions of this Section 2(b); provided that such additional agreements will be on terms and conditions reasonably acceptable to the Minority Investors.

 

(c)            Exempt Transaction Defined .  As used herein, the term “Exempt Transaction” shall mean (i) sales by the KKR Investor to any KKR Affiliates, (ii) sales by any

 

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KKR Affiliate to another KKR Affiliate or to the KKR Investor, (iii) transfers by the KKR Investor and its KKR Affiliates to its partners or members (and any subsequent sales by such partners or members) in the form of dividends or distributions (whether upon liquidation or otherwise), or (iv) sales by any KKR Holders made in a Public Offering; provided that in the case of clauses (i) and (iii) above that such buyer or member agrees in writing to be bound by the provisions of this Agreement, including this paragraph (c).

 

3.             “Drag-Along” Right with Respect to Minority Shares .  (a)  Sales by KKR Holders.  In the event that the KKR Holders determine, during the term of this Agreement, to transfer more than 50% of the KKR Shares to a Proposed Purchaser not affiliated with the KKR Holders, other


 
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