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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 1, 1996 Commission file number 1-8738
SEALY CORPORATION
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(Exact name of registrant as specified in its charter)
DELAWARE 36-3284147
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
520 PIKE STREET
SEATTLE, WASHINGTON 98101
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(Address of principal executive offices)* (Zip Code)
Registrant's telephone number, including area code (206) 625-1233
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Warrants to Purchase Class B Common Stock
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of February 25, 1997 was $9,855,197.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
The number of shares of the registrant's common stock outstanding as of February
25, 1997 was 29,934,185.
DOCUMENTS OR PARTS THEREOF INCORPORATED BY REFERENCE: None
* All Corporate and administrative services are provided by Sealy, Inc., 10th
Floor Halle Building, 1228 Euclid Avenue, Cleveland, Ohio 44115.
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PART I
ITEM 1. BUSINESS
GENERAL
Sealy Corporation (the "Company"), through its subsidiaries, is the
largest bedding manufacturer in North America and manufactures a diversified
line of mattress, boxspring and wood furniture products. The Company's
conventional bedding products (mattresses and boxsprings) include the SEALY(R),
SEALY POSTUREPEDIC(R), SEALY POSTUREPEDIC CROWN JEWEL(R), and the STEARNS &
FOSTER(R) brands and account for approximately 90% of the Company's total net
sales for the year ended December 1, 1996. The Company also manufactures and
markets its wood furniture under the SAMUEL LAWRENCE(TM) brand name. In
January, 1997, the Company completed the sale of its Samuel Lawrence subsidiary
and no longer manufactures or markets wood furniture. The Company has a
components parts manufacturing subsidiary which produces substantially all of
the Company's mattress innerspring requirements and approximately 50% of the
Company's boxspring component parts requirements. Another subsidiary, Sealy,
Inc., provides corporate and administrative services for the Company.
HISTORY OF THE COMPANY
The Company was founded in 1907 under the name Ohio Mattress Company. In
1924, the Company was granted its first license to produce Sealy-brand products.
Starting in 1956, the Company began acquiring Sealy-brand licenses in other
geographic areas, and by 1987, had acquired all of the capital stock of its
licensor, then named Sealy, Incorporated (which prior to that time was
independent of the Company), along with all but one of the remaining Sealy
conventional bedding domestic licensees. The Company expanded its bedding
manufacturing operations in 1983 by acquiring Stearns & Foster, a producer of
premium mattresses, boxsprings and convertible sleep sofas. In 1985, the Company
acquired Woodstuff Manufacturing, Inc., a manufacturer of waterbed furniture,
which with a later decline of waterbed sales was converted to manufacturing
solely conventional wood bedroom furniture and doing business as Samuel Lawrence
Furniture Company. In January, 1997, the Company completed the sale of its
Samuel Lawrence subsidiary and no longer manufactures or markets wood furniture.
In 1989, the Company's common stock was acquired through a leveraged buyout
(the "LBO") which was financed in part by First Boston Securities Corporation
("FBSC"), an affiliate of The First Boston Corporation ("First Boston"). In
April 1990, the Company exchanged certain outstanding debt issued to FBSC for
new debt at lower interest rates plus additional common stock (the "Exchange").
In December 1990, FBSC transferred its equity and debt interest in the Company
to its affiliate MB L.P. I ("MBLP"). In November 1991, the Company successfully
completed a recapitalization (the "Recapitalization") in which the Company's
capital structure was significantly improved, the face amount of its
indebtedness and interest thereon was reduced by approximately $417 million, the
Company's interest expense obligations were substantially reduced and the
principal repayment schedule on a portion of its existing bank term loan
facility was extended. As a result of the Recapitalization, MBLP's equity
interest in the Company increased to approximately 94%, consisting of shares of
Class A Common Stock, $.01 par value (the "Shares").
On February 12, 1993, Zell/Chilmark Fund, L.P., a Delaware limited
partnership ("Zell/Chilmark"), led an investor group which purchased MBLP's 94%
equity interest in the Company (the "Acquired Shares") for a cash purchase price
of $250 million (the "Acquisition").
On May 7, 1993, the Company completed a refinancing plan (the
"Refinancing"), which consisted of (i) the sale of $200.0 million of 9 1/2%
Senior Subordinated Notes Due 2003 (the "Notes") pursuant to a public offering,
(ii) the application of $194.5 million of net proceeds therefrom to redeem all
of the then outstanding 12.4% Senior Subordinated Notes of the Company Due 2001
(approximately $139.6 million), and to reduce amounts outstanding under the
Company's then existing credit agreement and (iii) the execution of a new
secured credit agreement (the "1993 Credit Agreement") by and among the Company,
certain banks and other financial institutions and Banque Paribas, Citicorp USA,
Inc., Bank of America (formerly Continental Bank N.A.) and General Electric
Capital Corporation, as managing agents.
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On May 27, 1994, the Company entered into a restated secured credit
agreement (the "1994 Credit Agreement") with a majority of its then current
group of senior lenders (the "Senior Lenders"), which modified the terms of the
1993 Credit Agreement by reducing the amounts available under its existing term
loan facilities thereunder from an aggregate of $250 million to a single
facility of $150 million (the "Term Loan Facility") and by increasing the amount
available under its existing revolving credit facility thereunder from $75
million to $125 million (the "Revolving Credit Facility").
Pursuant to a Solicitation of Consents dated as of January 24, 1997, as
subsequently amended (the "Consent Solicitation"), the Company has solicited
consents from the record holders (the "Registered Holders") of its Notes to
certain amendments, consents and waivers under the Indenture (the "Indenture"),
dated as of May 7, 1993, between the Company and Mellon Bank, F.S.B., as
successor trustee (the "Trustee"), under which the Notes were issued.
Following receipt of the requisite consents of the Registered Holders, on
February 21, 1997, the Company and the Trustee executed a Supplemental
Indenture incorporating the amendments to the Indenture. The Supplemental
Indenture provides for (i) an increase in the interest rate on the Notes to 10
1/4%, (ii) provision to allow for the payment of a special dividend of up to
One Hundred Million Dollars ($100,000,000) (the "Dividend") to qualifying
equity security holders of the Company, (iii) an increase in the redemption
premiums paid to Registered Holders in the event the Notes are repurchased by
the Company, and (iv) the corresponding waiver of Section 4.05 of the
Indenture, such that the Dividend will not constitute a "Restricted Payment"
(as defined in the Indenture). The Company paid an aggregate of Four Million
Dollars ($4,000,000) on a pro rata basis to those Registered Holders that had
timely consented.
Concurrent with the distribution of the Consent Solicitation
documentation, the Company entered into negotiations for a new senior secured
financing facility. On February 25, 1997, the Company entered into the
$275,000,000 Second Restated Secured Credit Agreement (the "1997 Credit
Agreement") with a majority of its then current group of senior lenders. The
proceeds of the 1997 Credit Agreement were used (a) to refinance approximately
$48.7 million of indebtedness under the Company's 1994 Credit Agreement, (b) to
pay a $99.8 million Dividend, and (c) for general corporate purposes,
including, without limitation, for working capital.
CONVENTIONAL BEDDING
INDUSTRY AND COMPETITION. According to industry sales data compiled by the
International Sleep Products Association ("ISPA"), a bedding industry trade
group, approximately 700 manufacturers of mattresses and boxsprings make up the
domestic conventional bedding industry, generating wholesale revenues estimated
at $3.3 billion during calendar year 1996. The market for conventional bedding
represents more than 85% of the entire bedding market in North America.
According to ISPA, approximately 75% of conventional bedding is sold to
furniture stores and specialty sleep shops. Most of the remaining conventional
bedding is sold to department stores, national mass merchandisers, membership
clubs and contract customers such as motels, hotels and hospitals. Management
estimates that approximately two-thirds of conventional bedding is sold for
replacement purposes and that the average time between consumer purchases of
conventional mattresses is approximately 10 to 12 years. Factors such as
disposable income and sales of homes also have some effect on bedding purchases.
Management believes that sales by companies with recognized national
brands account for more than half of total conventional bedding sales. The
Company supplies such nationally recognized brands as Sealy, Sealy
Posturepedic and Stearns & Foster. Sealy branded products are considered
by management to be the most well-recognized in the domestic conventional
bedding industry. Competition in conventional bedding is generally based on
quality, brand name recognition, service and price. The Company's largest
competitors include Simmons Company, Serta, Inc. and Spring Air Company.
Management believes the Company derives a competitive advantage over its
conventional bedding competitors as a result of strong consumer recognition of
Sealy branded products.
PRODUCTS. The Company manufactures a variety of Sealy and Stearns &
Foster brand conventional bedding in various sizes ranging in retail price
from under $200 to approximately $3,700. Sealy Posturepedic
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brand mattress is the largest selling mattress brand in North America.
Approximately 97% of the Sealy brand conventional bedding products sold in
North America are produced by the Company, with the remainder being produced
by Sealy Mattress Company of New Jersey, Inc. ("Sealy New Jersey"), a licensee.
The Stearns & Foster product line consists of top quality, premium
mattresses sold under the Stearns & Foster brand name.
CUSTOMERS. The Company serves over 7,000 retail outlets (approximately
3,200 customers), which include furniture stores, national mass merchandisers,
specialty sleep shops, department stores, contract customers and other stores.
The top five conventional bedding customers accounted for approximately 17% of
the Company's net sales for the year ended December 1, 1996 and no single
customer accounted for over 10% of the Company's net sales.
SALES AND MARKETING. The Company's sales depend primarily on its ability to
provide quality products with recognized brand names at competitive prices. The
Company's marketing emphasis has been on increasing the brand loyalty of its
ultimate consumers, principally through national advertising and cooperative
advertising with its dealers, along with superior "point-of-sale" materials
designed to emphasize the various features and benefits of the Company's
products which differentiate them from other brands.
The Company's sales force structure is generally based on regions of the
country and districts within those regions, and also includes a sales staff for
specific national accounts. The Company believes that it has one of the most
comprehensive training and development programs for its sales force, including
its University of Sleep(R) curriculum, which provides ongoing training sessions
with programs focusing on advertising, merchandising and sales education,
including techniques to help analyze a dealer's business and profitability.
The Company's sales force emphasizes follow-up service to retail stores and
provides retailers with promotional and merchandising assistance as well as
extensive specialized professional training and instructional materials.
Training for retail sales personnel focuses on several programs, designed to
assist retailers in maximizing the effectiveness of their own sales personnel,
store operations, and advertising and promotional programs, thereby creating
loyalty to, and enhanced sales of, the Company's products.
SUPPLIERS. The Company purchases fabric, polyfiber, wire and foam from a
variety of vendors. The Company purchases approximately 50% of its Sealy
boxspring parts from a single third-party source, which has patents on various
interlocking wire configurations (the "Wire Patents"), and manufactures the
remainder of these parts as a licensee under the Wire Patents. The Company
purchases substantially all of its Stearns & Foster boxspring parts from the
same single third-party source. In order to reduce the risks of dependence on
external supply sources and to enhance profitability, the Company has expanded
its own internal components parts manufacturing capacity and, as a licensee of
the Wire Patents, internally produces the remainder of its Sealy boxspring
parts. See "Components Division". As is the case with all of the Company's
product lines, the Company does not consider itself dependent upon any single
outside vendor as a source of supply to its conventional bedding business and
believes that sufficient alternative sources of supply for the same, similar or
alternative components are available.
MANUFACTURING AND FACILITIES. The Company manufactures most conventional
bedding to order and has adopted "just-in-time" inventory techniques in its
manufacturing process to more efficiently serve its dealers' needs and to
minimize their inventory carrying costs. Most bedding orders are scheduled,
produced and shipped within 72 hours of receipt. This rapid delivery capability
allows the Company to minimize its inventory of finished products and better
satisfy customer demand for prompt shipments.
The Company operates 30 plants, which manufacture conventional bedding in
20 states, three Canadian provinces, Puerto Rico and Mexico. See Item 2.
"Properties" herein. The Company also operates a research and development center
in Cleveland, Ohio with a staff which tests new materials and machinery, trains
personnel, compares the quality of the Company's products with those of its
competitors and develops new processes. The Company has developed and patented a
computerized model of an adult person, known as Dataman(R), which is used in
testing the support level of its mattresses.
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COMPONENTS DIVISION
The Company operates a Components Division with headquarters in Rensselaer,
Indiana. The Components Division sells its component parts at current market
prices exclusively to the Company's bedding plants and licensees. The Components
Division currently provides substantially all of the Company's mattress
innerspring unit requirements. The Components Division also supplies
approximately 50% of the Company's Sealy boxspring parts requirements under a
license of the Wire Patents. The Components Division began operation of an
insulator pad plant in September, 1995. The Components Division operates four
owned manufacturing sites located in Rensselaer, Indiana; Delano, Pennsylvania;
Colorado Springs, Colorado; and South Brunswick, New Jersey. See Item 2.
"Properties" herein.
Over the last seven years, the Company has made substantial commitments to
ensure that the coil-making equipment at its component plants remains
state-of-the-art. Since 1989, the Company has installed 26 automated
coil-producing machines. This equipment has resulted in higher capacity at lower
per-unit costs and has increased self-production capacity for the Company's
innerspring requirements over that time period from approximately 60% to
approximately 100%.
In addition to reducing the risks associated with relying on single sources
of supply for certain essential raw materials, the Company believes the vertical
integration resulting from its component manufacturing capability provides it
with a significant competitive advantage. The Company believes that it is the
only conventional bedding manufacturer in the United States with substantial
innerspring, form wire and insulator pad component-making capacity.
WOOD FURNITURE
The Company manufactured and marketed conventional bedroom furniture
through its Samuel Lawrence subsidiary under the Samuel Lawrence label. In 1996,
Samuel Lawrence had approximately 500 customers as one of many manufacturers of
wood bedroom furniture. In January, 1997, the Company completed the sale of its
Samuel Lawrence subsidiary and no longer manufactures wood bedroom furniture.
LICENSING
At December 1, 1996, there are 13 separate license arrangements in
effect with domestic independent and foreign bedding independent, licensees.
Sealy New Jersey (a bedding manufacturer), Sealy Furniture of Maryland (a
sleep sofa manufacturer) and Kolcraft Enterprises, Inc. (a crib mattress
manufacturer) are the only domestic manufacturers that are licensed to use the
Sealy trademark, subject to the terms of license agreements. Under the license
agreement between Sealy New Jersey and the Company, Sealy New Jersey has the
perpetual right to use certain Sealy trademarks in the manufacture and sale of
Sealy brand products in the United States. Sealy entered into a long-term
license agreement with Klaussner Corporation Services ("Klaussner") on December
19, 1996 under which Klaussner will manufacture and market sofas, sleep sofas,
chairs, recliners and other upholstered furniture products in North America,
primarily under the Sealy Furniture(TM) logo.
The Company's licensing division generates royalties by licensing Sealy
brand technology and trademarks to manufacturers located throughout the world.
The Company also provides its licensees with product specifications, quality
control inspections, research and development, statistical services and
marketing programs. In the fiscal year ended December 1, 1996, the licensing
division as a whole generated royalties of approximately $6 million, which were
accounted for as a reduction of selling, general and administrative expenses in
the Consolidated Financial Statements included herein.
WARRANTIES
Sealy and Stearns & Foster bedding offer limited warranties on their
manufactured products. The periods for "no-charge" warranty service varies among
products. Prior to fiscal year 1995, such warranties ranged from one year on
promotional bedding to 20 years on certain Posturepedic and Stearns & Foster
bedding. All currently manufactured Sealy Posturepedic models, Stearns & Foster
bedding and some other Sealy-brand products offer a 10-year non-prorated
warranty service period. Historically, the Company's warranty costs have been
immaterial for each of its product lines.
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TRADEMARKS AND LICENSES
The Company owns, among others, the Sealy and Stearns & Foster trademarks
and tradenames and also owns the Posturepedic, Posturepedic Crown Jewel, Comfort
Series, Dataman and University of Sleep trademarks, service marks and certain
related logos and design marks.
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EMPLOYEES
As of December 1, 1996, the Company had 4,875 full-time employees, of
which 867 were employed at the Company's Samuel Lawrence subsidiary which was
sold in January, 1997. Approximately half of the Company's employees at its 30
North American bedding plants are represented by various labor unions with
separate collective bargaining agreements. Due to the large number of
collective bargaining agreements, the Company is periodically in negotiations
with certain of the unions representing its employees. The Company considers
its overall relations with its work force to be satisfactory.
SEASONALITY/OTHER
The Company's business is somewhat seasonal, with lower sales usually
experienced during the first quarter of each fiscal year and higher bedding
sales usually experienced in the last three quarters of each fiscal year. See
Note 11 to the Consolidated Financial Statements of the Company included in Part
II, Item 8 herein.
The Company has no material long-term contractual relationships with any
customer for its products. Since the level of production of products is
generally promptly adjusted to meet customer order demand, the Company has a
negligible backlog of orders. Most finished goods inventories of bedding
products are physically stored at manufacturing locations until shipped (usually
within days of manufacture).
Sealy's Canadian and Mexican facilities comprise all of the Company's
foreign-owned manufacturing operations at December 1, 1996. The Company's
licensee for Mexico agreed to terminate its license, thus making it possible for
Sealy to enter the Mexico market directly. The Company began marketing and
manufacturing bedding products in Mexico in May, 1996. The Company began
marketing its Sealy brand in South Korea during 1995. The Company does not
derive a material portion of its sales or revenues from its foreign-owned
operations or from customers in any other foreign country.
ITEM 2. PROPERTIES
The offices of the Company are located at 520 Pike Street, Seattle,
Washington 98101. Corporate, licensing and marketing services are provided to
the Company by Sealy, Inc. (a wholly-owned subsidiary of the Company), located
in Cleveland, Ohio. The principal address of Sealy, Inc. is Halle Building, 10th
Floor, 1228 Euclid Avenue, Cleveland, Ohio 44115.
The Company services certain national account customers in offices located
in Chicago, Illinois, and also administers component operations at its
Rensselaer, Indiana facility. The Company leases a research and development
facility in Cleveland, Ohio. The Company's leased facilities are occupied under
leases which expire from 1997 to 2015, including renewal options.
The following table sets forth certain information regarding manufacturing
facilities operated by the Company at February 28, 1997:
<TABLE>
<CAPTION>
APPROXIMATE
SQUARE
LOCATION FOOTAGE TITLE
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<S> <C> <C> <C>
UNITED STATES
Arizona Phoenix 76,000 Owned (a)
California Richmond 238,000 Owned (a)
South Gate 185,000 Owned (a)
Colorado Colorado Springs 70,000 Owned (a)
Denver 92,900 Owned (a)
Florida Orlando 97,600 Owned (a)
Georgia Atlanta 292,500 Owned (a) (b)
Illinois Batavia 212,700 Leased (c)
Indiana Rensselaer 131,000 Owned (a)
</TABLE>
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<TABLE>
<CAPTION>
APPROXIMATE
SQUARE
LOCATION FOOTAGE TITLE
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<S> <C> <C> <C>
Rensselaer 124,000 Leased(d)
Kansas Kansas City 102,600 Leased
Maryland Williamsport 144,000 Leased
Massachusetts Randolph 187,000 Owned (a)
Michigan Taylor 156,000 Leased
Minnesota St. Paul 93,600 Owned
New Jersey South Brunswick 100,000 Owned (a)
New York Albany 102,300 Owned (a)
North Carolina Lexington 97,400 Owned (a)
Ohio Medina 140,000 Owned (a)
Oregon Portland 140,000 Owned (a)
Pennsylvania Clarion 85,000 Owned (a)
Delano 143,000 Owned (a)
Tennessee Memphis 225,000 Owned (a)
Texas Brenham 220,000 Owned (a)
North Richland Hills 124,500 Owned (a)
CANADA
Alberta Edmonton 144,500 Owned (a)
Quebec Saint Narcisse 76,000 Owned (a)
Ontario Toronto 80,200 Leased
PUERTO RICO Carolina 58,600 Owned (a)
MEXICO Toluca 95,200 Owned
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4,034,600
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<FN>
(a) The Company has granted a mortgage or otherwise encumbered its interest in
this facility as collateral for secured indebtedness.
(b) The Company has leased 154,800 square feet to an unrelated tenant.
(c) The Company has subleased 76,000 square feet to an unrelated tenant.
(d) The Company has the option to purchase the property for specified costs at
certain intervals during the lease term.
</TABLE>
The Company considers its present facilities to be generally well
maintained, in sound operating condition and adequate for its needs. When viewed
as a whole, the Company has excess capacity available in its facilities and the
necessary equipment (as owner or lessee) to carry on its business.
REGULATORY MATTERS
The Company's principal wastes are wood, cardboard and other nonhazardous
materials derived from product component supplies and packaging. The Company
also periodically disposes (primarily by recycling) of small amounts of used
machine lubricating oil and air compressor waste oil. The Company, generally, is
subject to the Federal Water Pollution Control Act, the Comprehensive
Environmental Response, Compensation and Liability Act and amendments and
regulations thereunder and corresponding state statutes and regulations. The
Company's Phoenix, Arizona furniture operations are also subject to the Resource
Conservation and Recovery Act, the Clean Air Act and amendments and regulations
thereunder and corresponding state statutes and regulations. The Company
believes that it is in material compliance with all applicable federal and state
environmental statutes and regulations. Except as set forth in Item 3. "Legal
Proceedings" below, compliance with federal, state or local provisions which
have been enacted or adopted regulating the discharge of materials into the
environment, or otherwise relating to the protection of the
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environment, should not have any material effect upon the capital expenditures,
earnings or competitive position of the Company. The Company is not aware of any
pending federal environmental legislation (including the amendments to the Clean
Air Act which have been adopted) which would have a material impact on the
Company's operations. Except as set forth in Item 3, "Legal Proceedings," the
Company has not been required to make, and during the next two fiscal years,
does not expect to make any material capital expenditures for environmental
control facilities.
The Company's conventional bedding and other product lines are subject to
various federal and state laws and regulations relating to flammability,
sanitation and other standards. The Company believes that it is in material
compliance with all such laws and regulations.
ITEM 3. LEGAL PROCEEDINGS
In accordance with procedures established under the Environmental Cleanup
Responsibility Act (now known as the Industrial Site Recovery Act), Sealy and
one of its subsidiaries are parties to an Administrative Consent Order ("ACO")
issued by the New Jersey Department of Environmental Protection ("DEP").
Pursuant to the ACO the Company and such subsidiary agreed to conduct soil and
groundwater investigation and remediation at the plant owned by the subsidiary
in South Brunswick, New Jersey. The Company does not believe that its
manufacturing processes were a source of the contaminants found to exist above
regulatorily acceptable levels in the groundwater. As the current owners of the
facility, however, the Company and its subsidiary are primarily responsible for
the investigation and any necessary clean up plan approved by the DEP under the
terms of the ACO.
The DEP previously approved both the Company's soil remediation plans and
its initial groundwater remediation plans. Further investigation in 1996
revealed certain additional areas of soil contamination resulting from
activities at the South Brunswick facility prior to the Company's acquisition
of the site. The Company anticipates that in 1997, subject to DEP approval, it
will complete essentially all soil remediation and will conduct a pilot test
for a Company-proposed revision to the groundwater remediation program.
While the Company cannot predict the ultimate timing or cost to remediate
this facility based on facts currently known, management believes the
previously established accrual for site investigation and remediation costs is
adequate to cover the Company's reasonably estimable liability and does
not believe the resolution of this matter will have a material adverse effect
on the Company's financial position or future operations.
In March, 1994, the Company filed a claim in the U.S. District Court for
the District of New Jersey against former owners of the site and their lenders
under the Comprehensive Environmental Response, Compensation and Liability Act
seeking contribution for site investigation and remedial costs. Settlement
terms have been tentatively reached in this matter and are projected to be
completed in the second quarter of fiscal 1997.
The Company has also voluntarily proceeded to develop a remediation plan
for isolated soil and groundwater contamination at its Oakville, Connecticut
property that the Company believes is solely attributable to the manufacturing
operations of previous unaffiliated occupants. Based on the facts currently
known, management does not believe that resolution of this matter will have a
material adverse effect on the Company's financial position or future
operations.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's merger warrants to acquire shares of Class B common stock
(which warrants were issued in conjunction with the LBO and which became
exercisable subsequent to August 9, 1995) (the "Merger Warrants") are registered
for trading in the over-the-counter market; however, because of the extremely
limited and sporadic nature of quotations for such Merger Warrants, there is no
established public trading market for the Merger Warrants. There is no
established public trading market for any other class of common equity of the
Company.
As of February 25, 1997, there are 104 holders of record of the Company's
Class A shares, 74 holders of record of the Company's Class B shares, 1,143
holders of record of the Merger Warrants and 47 holders of record of the
warrants issued in the Recapitalization (the "Restructure Warrants"). See Note 8
to the Consolidated Financial Statements, Part II, Item 8 herein.
On May 17, 1996, a $35.5 million dividend was paid to all holders of record
as of May 7, 1996 of Sealy common stock and to holders of Merger Warrants. In
addition, on February 28, 1997, a $99.8 million dividend was paid to all
holders of record as of February 27, 1997 of Sealy common stock and to holders
of Merger Warrants. See Note 15 to Consolidated Financial Statements. Prior
to the May 17, 1996 dividend, no dividends had been paid on any class of common
equity of the Company during the prior three fiscal years of the Company. The
Company's 1997 Credit Agreement provides that the Company may pay cash
dividends, subject to certain limitations, in an amount of up to 50% of future
consolidated net income on such capital stock. The Company's 10 1/4% (formerly,
9 1/2%) Senior Subordinated Notes contain other provisions which provide
certain similar limitations on the payment of dividends.
ITEM 6. SELECTED FINANCIAL DATA
The following tables set forth selected consolidated financial and other
data of the Company (some periods of which are less than one year due to
accounting requirements for acquisition transactions) for the years ended
December 1, 1996, November 30, 1995 and 1994, for the ten months ended November
30, 1993, for the two months ended January 31, 1993 and for the year ended
November 30, 1992.
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During the period from December 1, 1991 through December 1, 1996, the
Company's capital structure changed significantly, in large part as a result of
the Acquisition in February 1993. Due to required purchase accounting
adjustments relating to such transactions, and the resultant changes in control,
the consolidated financial and other data for each period reflected in the
following tables during this period are not comparable to such data for the
other such periods.
The selected consolidated financial and other data set forth in the
following tables have been derived from the Company's audited consolidated
financial statements. The report of KPMG Peat Marwick LLP, independent auditors,
covering the Company's Consolidated Financial Statements for the years ended
December 1, 1996, November 30, 1995 and November 30, 1994, is included elsewhere
herein. These tables should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
Consolidated Financial Statements of the Company included elsewhere herein.
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
<TABLE>
<CAPTION>
Successor (a) Pre-Successor (a)
----------------------------------------- -----------------
Ten Two
Year Year Year Months Months Year
Ended Ended Ended Ended Ended Ended
Dec. 1, Nov. 30, Nov. 30, Nov. 30, Jan. 31, Nov. 30,
1996 1995 1994 1993 1993 1992
---- ---- ---- ---- ---- ----
(dollars in millions)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales $ 697.6 $ 653.9 $ 697.7 $ 579.7 $ 103.5 $ 654.2
Costs and expenses 672.8 610.9 641.6 531.0 100.9 628.8
Income before income tax
and extraordinary item 24.8 43.0 56.1 48.7 2.6 25.4
Extraordinary loss (b) -- -- -- 2.9 -- --
Net income (loss) $ (0.5)(c) $ 19.5 $ 29.2 $ 24.7 $ 1.0 $ 10.0
OTHER DATA:
Depreciation and amortization of
intangibles $ 26.6 $ 24.2 $ 23.6 $ 19.1 $ 4.3 $ 26.4
Operating income (d) 53.6 74.1 89.5 79.9 9.3 68.1
EBITDA (e) 80.2 98.3 113.1 99.0 13.7 94.5
Capital expenditures 12.0 11.8 12.8 10.4 3.3 11.6
Interest expense, net 28.8 31.0 33.4 31.2 6.7 42.7
Ratio of EBITDA to interest expense,
net/(earnings deficiency) 2.8x 3.2x 3.4x 3.2x 2.0x 2.2x
Ratio of earnings to fixed charges/
(earnings deficiency) (f) 1.8x 2.3x 2.5x 2.4x 1.4x 1.6x
</TABLE>
<TABLE>
<CAPTION>
Successor (a) Pre-Successor (a)
------------------------------------------------------- ----------------------
12/01/96 11/30/95 11/30/94 11/30/93 11/30/92
(dollars in millions)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets $739.9 $776.2 $810.6 $823.1 $780.3
Long-term
obligations 269.5 269.4 329.5 384.5 404.0
Total debt 288.1 286.9 349.9 406.2 443.5
Stockholder's equity 293.0 330.9 322.2 284.3 179.2
<FN>
(a) The Company employed the purchase method of accounting for the February,
1993 Acquisition. Accordingly, historical financial and other data for the
Successor and Pre-Successor periods are not comparable.
(b) During 1993, the Company recorded an extraordinary loss of $2.9 million,
net of income tax of $1.5 million, representing the remaining unamortized
debt issuance costs related to long term obligations repaid as a result of
the Refinancing.
</TABLE>
11
<PAGE> 13
(c) On January 15, 1997, the Company completed the sale of Woodstuff
Manufacturing, Inc., a wholly-owned subsidiary that manufactured and
marketed solid wood bedroom furniture under the "Samuel Lawrence" brand
name. The divestiture resulted in an aggregate book loss of $17.6 million,
which was recorded in the fiscal year ended December 1, 1996. The loss is
comprised of a loss on net assets held for sale of $11.8 million and
income tax expense of $5.8 million arising from the tax gain on the
transaction.
(d) Operating income is calculated by adding interest expense, net to net sales
less costs and expenses.
(e) EBITDA is calculated by adding interest expense, net, income tax (benefit)
and depreciation and amortization of intangibles to net income (loss)
before extraordinary item. EBITDA is presented because it is a widely
accepted financial indicator of a company's ability to service and incur
debt. EBITDA does not represent net income or cash flows from operations as
those terms are defined by generally accepted accounting principles
("GAAP") and does not necessarily indicate whether cash flows will be
sufficient to fund cash needs.
(f) For purposes of calculating the ratio of earnings to fixed charges,
earnings represent income before income tax and extraordinary item plus
fixed charges. Fixed charges consist of interest expense, net, including
amortization of discount and financing costs and the portion of operating
rental expense which management believes is representative of the interest
component of rent expense.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
YEAR ENDED DECEMBER 1, 1996 COMPARED WITH YEAR ENDED NOVEMBER 30, 1995
Net sales for the year ended December 1, 1996 ("Fiscal 1996"), were $697.6
million, an increase of $43.7 million, or 6.7% from the year ended November 30,
1995 ("Fiscal 1995"). This increase is primarily attributable to a $37.0 million
increase in conventional bedding sales and a $10.0 million increase in wood
bedroom furniture sales. These increases were partially offset by the
elimination of sleep sofa sales as a result of the closing of this business unit
in March, 1995.
The strong bedding sales performance represents an 8.2%, or $48.6 million
increase in conventional bedding unit shipments, offset partially by a 1.8%, or
$11.6 million decrease in the average unit selling price. Increased unit volume
is attributed to increased distribution and same store sales of Stearns & Foster
luxury bedding, along with incremental placements of new Sealy Posturepedic
products. The decrease in average unit selling price is primarily attributed to
pricing initiatives and increased volume of lower priced Sealy Posturepedic
products.
Sales of wood bedroom furniture increased due to increased product
distribution and same store sales, primarily due to favorable results from new
furniture collections.
Cost of goods sold for Fiscal 1996, as a percentage of net sales, increased
1.5 percentage points to 56.9%. This increase is primarily attributed to the
previously mentioned decrease in average unit selling price, the start-up costs
associated with the new insulator pad facility and inflationary bedding raw
material increases.
Selling, general and administrative expenses increased $0.3 million, but
decreased as a percent of net sales by 2.0 percentage points to 31.1%. Increased
operating expenses of $17.1 million were partially offset by a decrease in
marketing spending of $14.1 million and a prior year $2.7 million charge
associated with closing the sleep sofa business. The increase in operating
expenses is due primarily to increases in incentive bonus, administrative and
sales salaries, and executive severance and transition expenses. Marketing
spending declined from $117.8 million in Fiscal 1995 to $103.7 million in Fiscal
1996 as a result of adjustments in the Company's marketing strategies.
Loss on net assets held for sale of $11.8 million relates to the
divestiture of Woodstuff Manufacturing, Inc., which sold wood bedroom furniture
under the Samuel Lawrence brand name, and is comprised of excess of net assets
sold over the proceeds received, as well as transaction costs related to the
sale. See Note 14 to Consolidated Financial Statements.
12
<PAGE> 14
The Company recorded a non-cash charge of $4.5 million, representing final
year vesting in the Company's Performance Share Plan (the "Plan"). During Fiscal
1995, the Company recorded a non-cash credit of $13.3 million for the estimated
reduction in the value of the benefits issuable under the Plan. See Note 10 to
Consolidated Financial Statements.
Interest expense, net for Fiscal 1996 decreased $2.2 million primarily due
to a $27.8 million decrease in average outstanding debt, along with lower debt
issuance cost amortization.
The Company's effective income tax rates for Fiscal 1996 and 1995 differ
from the Federal statutory rate because of the application of purchase
accounting, effect of certain foreign tax rate differentials and state and local
income taxes. The Company's effective tax rate for Fiscal 1996 versus Fiscal
1995 was approximately 102% compared to 55% for Fiscal 1995. The higher
effective tax rate for Fiscal 1996 is due primarily to taxes arising from the
sale of the Company's Samuel Lawrence subsidiary and the impact of permanent
differences related to the February, 1993 Acquisition. See Note 6 to the
Consolidated Financial Statements.
For the reasons set forth above, net income for Fiscal 1996 declined $20.0
million to a loss of $0.5 million.
YEAR ENDED NOVEMBER 30, 1995 COMPARED WITH YEAR ENDED NOVEMBER 30, 1994
Net sales for Fiscal 1995 were $653.9 million, a decrease of $43.7 million,
or 6.3%. This decrease is attributable to a $34.6 million decrease in
conventional bedding sales and a $9.1 million net decrease in upholstered and
wood furniture sales.
The bedding sales decrease represents an 11.5%, or $72.3 million decline in
conventional bedding unit shipments, offset partially by a 6.8%, or $37.7
million increase in the average unit selling price. Bedding shipments declined
due to lower volume of promotional and private label bedding units, primarily
attributable to the loss of Sears, Roebuck & Co. ("Sears") private label
business in the year ended November 30, 1994 ("Fiscal 1994"). In addition, sales
decreased due to the loss of Sealy brand product placements at lower retail
price points in the second and third quarters. The loss of placements occurred
as a result of certain changes associated with new bedding lines introduced in
March, 1995. Management believes that the Company has since recaptured a
significant number of the lost product placements through improved product
assortment and pricing strategies.
The decrease in sales of wood and upholstered furniture sales is due
primarily to the Company's decision in March, 1995 to close its unprofitable
sleep sofa business, resulting in decreased sales of $10.0 million. Sales of
wood bedroom furniture products increased $0.9 million due to expanded retail
distribution.
Cost of goods sold for Fiscal 1995, as a percentage of net sales, increased
1.6 percentage points to 55.4%. This increase is primarily attributable to
increased bedding raw material costs and the impact of lower sales volume on
fixed manufacturing expenses.
Selling, general and administrative expenses increased $7.8 million,
primarily due to a $9.4 million increase in marketing spending from $108.4
million to $117.8 million. The Company continued to focus its marketing emphasis
on building brand preference through national advertising, cooperative
advertising and promotions.
During Fiscal 1995, the Company recorded a non-cash credit of $13.3 million
for the estimated reduction in the value of the Company's Performance Share
Plan, compared to a non-cash charge of $9.7 million in Fiscal 1994. See Note 10
to Consolidated Financial Statements.
Interest expense, net for Fiscal 1995 decreased $2.4 million primarily due
to a net reduction of approximately $63 million in Senior Debt. Although the
Company did experience increased interest rates in Fiscal 1995, the impact was
not significant as the majority of the Company's debt, $200 million in Senior
Subordinated Notes, is fixed at a rate of 9.5%.
13
<PAGE> 15
The Company's effective income tax rate for Fiscal 1995 and 1994 differ
from the Federal statutory rate because of the application of purchase
accounting, certain foreign tax rate differentials and state and local income
taxes. The Company's effective tax rate for Fiscal 1995 versus Fiscal 1994 was
approximately 55% compared to 48% for Fiscal 1994. The higher effective tax rate
for Fiscal 1995 reflects the impact of permanent differences related to the
February, 1993 Acquisition and effects of foreign earnings repatriation during
1995. See Note 6 to the Consolidated Financial Statements.
For the reasons set forth above, net income for Fiscal 1995 declined $9.7
million to $19.5 million.
LIQUIDITY AND CAPITAL RESOURCES
During Fiscal 1996, the Company's principal sources of funds consisted of
cash flow from operations and borrowings under the Revolving Credit Facility.
Its principal uses of funds consisted of payments of principal and interest on
its secured indebtedness, the dividend described below, capital expenditures and
interest payments on its outstanding Notes.
During May, 1994, the Company entered into the 1994 Credit Agreement. The
1994 Credit Agreement provided the Company with a $150 million Term Loan
Facility and a $125 million Revolving Credit Facility. At December 1, 1996, $63
million was outstanding under the Term Loan Facility. The Company made regularly
scheduled principal payments on the Term Loan Facility of $20 million in each of
Fiscal 1995 and 1994. During Fiscal 1996, the Company made scheduled principal
payments aggregating $16 million. During Fiscal 1996 and 1995, the Company made
voluntary prepayments aggregating $6 million and $25 million. These prepayments
were applied pro rata against the remaining mandatory payments. The Term Loan
Facility amortizes according to the following revised schedule: $19 million in
fiscal year 1997, $13 million in fiscal year 1998, $22 million in fiscal year
1999 and $9 million in fiscal year 2000. At December 1, 1996, approximately $87
million was available under the Revolving Credit Facility. The 1994 Credit
Agreement provides that amounts outstanding under the Revolving Credit Facility
may not exceed $75 million for 30 consecutive calendar days in the period
beginning September 1 and ending December 31 in each year. During Fiscal 1996
and 1995, the maximum amount outstanding under the Revolving Credit Facility,
excluding letters of credit, was $52 million and $21 million, respectively.
Amounts outstanding under the 1994 Credit Agreement are secured by substantially
all of the Company's assets, and bear interest at a variable rate based on an
applicable margin over the greater of a corporate base rate or federal funds
rate, or Eurodollar rate, at the Company's option. The applicable margin
fluctuates depending on the Company's performance, as measured by certain
financial ratios. The 1994 Credit Agreement requires that interest rate
protection be maintained on an aggregate notional amount equal to at least 50%
of the amount outstanding from time to time under the Term Loan Facility from
inception through at least May 7, 1996.
The Notes are unsecured, subordinated obligations of the Company. Interest
on the Notes is payable in semi-annual installments, currently at the rate of
9.5% per annum (see below). The outstanding principal amount of the Notes is
payable on May 1, 2003. The Notes may be redeemed at the option of the Company
on or after May 1, 1998, under the conditions and at the redemption prices
specified in the Indenture, under which the Notes were issued.
On May 17, 1996, the Company paid a special dividend to all stockholders
and holders of Merger Warrants of record as of May 7, 1996. The dividend
amounted to $35.5 million, or $1.20 per share, and was financed primarily
through borrowings under the Revolving Credit Facility.
On January 15, 1997, the Company sold its subsidiary that manufactured wood
bedroom furniture under the Samuel Lawrence brand name. Gross proceeds from the
sale amounted to $35.0 million. See Note 14 of Notes to Consolidated Financial
Statements.
The 1994 Credit Agreement and the Note Indenture contain certain negative
and affirmative covenants including, without limitation, requirements and
restrictions relating to capital expenditures, dividends, working capital, net
worth and other financial ratios. At December 1, 1996, the Company was in
compliance with the financial covenants contained in these agreements. Similar
types of covenants are contained in the 1997 Credit Agreement described below.
Pursuant to a Solicitation of Consents dated as of January 24, 1997, as
subsequently amended (the "Consent Solicitation"), the Company has solicited
consents from the Registered Holders of its Notes to certain amendments,
consents and waivers under the Indenture, dated as of May 7, 1993, between the
Company and the Trustee. Following receipt of the requisite consents of the
Registered Holders, on February 21, 1997, the Company and the Trustee executed
a Supplemental Indenture incorporating the amendments to the Indenture. The
Supplemental Indenture provides for (i) an increase in the interest rate on the
Notes to 10 1/4%, (ii) provision to allow for the payment of a special Dividend
of up to One Hundred Million Dollars ($100,000,000) to qualifying equity
security holders of the Company, (iii) an increase in the redemption premiums
paid to Registered Holders in the event the Notes are repurchased by the
Company, and (iv) the corresponding waiver of Section 4.05 of the Indenture,
such that the Dividend will not constitute a "Restricted Payment" (as defined
in the Indenture). The Company paid an aggregate of Four Million Dollars
($4,000,000) on a pro rata basis to those Registered Holders that had timely
consented.
14
<PAGE> 16
Concurrent with the distribution of the Consent Solicitation
documentation, the Company entered into negotiations for a new senior secured
financing facility. On February 25, 1997, the Company entered into the 1997
Credit Agreement with a majority of its then current group of senior lenders,
which modified the terms of the 1994 Credit Agreement by increasing the amounts
available under the revolving credit portion of the facility from $125 million
to $275 million, and eliminating the term loan portion of the 1994 Credit
Agreement. The 1997 Credit Agreement provides for a reducing revolving credit
facility with a $25 million discretionary letter of credit facility and a
discretionary swing loan facility of up to $20 million.
On February 28, 1997, the Company made an initial borrowing under the
1997 Credit Agreement of $156.4 million. Letters of credit of $13.1 million
also were outstanding, leaving approximately $105.5 million of undrawn
availability under the 1997 Credit Agreement. The proceeds of the 1997 Credit
Agreement were used (a) to refinance approximately $48.7 million of
indebtedness under the Company's 1994 Credit Agreement, (b) to pay a $99.8
million Dividend, and (c) for general corporate purposes, including, without
limitation, for working capital.
The 1997 Credit Agreement has a final maturity date of January 15, 2003,
and provides for periodic reductions in the amounts of available credit in
accordance with the following schedule:
<TABLE>
<CAPTION>
Remaining
Reduction Date Commitment Reduction Revolver Commitment
-------------- -------------------- -------------------
<S> <C> <C>
November 29, 1988 $15 million $260 million
November 28, 1999 $20 million $240 million
December 3, 2000 $30 million $210 million
December 2, 2001 $30 million $180 million
June 2, 2002 $30 million $150 million
</TABLE>
Additional mandatory commitment reductions will occur equal to 100% of net
after-tax cash proceeds from the sale of assets in excess of $15 million in
each fiscal year, and equal to 50% of net proceeds from the issuance of
permitted subordinated debt.
Base rate loans and Eurodollar rate loans are based on a pricing grid
which provides for an interest rate plus a margin. The margin is adjustable
based on the Company's total senior debt to adjusted EBITDA ratio. For the
first six months of the 1997 Credit Agreement, the margin on Eurodollar rate
borrowings will be the greater of 1.25% or the applicable level of the pricing
grid. The initial commitment fee, which is also subject to a pricing grid is
0.375%.
The 1997 Credit Agreement is secured in substantially the same fashion as
the 1994 Credit Agreement (See Note 3 to Consolidated Financial Statements),
however such security is subject to release upon the Company attaining
specified senior unsecured (either actual or implied) credit ratings. The
Company is also subject to certain affirmative and negative covenants under
both the 1997 Credit Agreement and the Indenture including requirements and
restrictions with respect to capital expenditures, dividends, maximum leverage
and other financial ratios.
In addition, the 1997 Credit Agreement amended other provisions of the
1994 Credit Agreement to provide for greater flexibility to the Company with
respect to, among other things, investments and reporting provisions.
The Company made capital expenditures aggregating $12.0 million and
$11.8 million during Fiscal 1996 and 1995, respectively. Management expects to
exceed the historical level of capital expenditures in fiscal year 1997 with
additional expenditures for enhanced management information systems, the
automation of manufacturing processes, and machinery and equipment for the new
Sealy Posturepedic Crown Jewel line of bedding. The Company intends to fund
Fiscal 1997 capital expenditures with cash generated by operations. Management
believes that the annual capital expenditure limitations contained in the 1997
Credit Agreement will not significantly inhibit the Company's ability to meet
its ongoing operating needs. Based upon its results of operations during
periods subsequent to the execution of the 1994 Credit Agreement and its
current financial condition, management believes that cash flow from
operations, together with amounts available under the 1997 Credit Agreement,
will provide the Company with the resources necessary to meet its anticipated
capital requirements. As part of the Company's routine analysis of its capital
structure, management continues to review financing alternatives. The Company's
net weighted average borrowing cost was 9.0% for Fiscal 1996 and 1995.
15
<PAGE> 17
FOREIGN OPERATIONS AND EXPORT SALES
The Company has foreign manufacturing operations in Canada and Mexico with
three manufacturing facilities in Canada and one in Mexico. The Company's
licensee for Mexico agreed to terminate its license, thus permitting Sealy to
enter the market directly during Fiscal 1995 and production commenced in May,
1996. The Company began marketing its Sealy brand in South Korea during 1995
upon expiration of its Korean license agreement.
NEW ACCOUNTING PRONOUNCEMENTS
During 1995, the Financial Accounting Standards Board issued two
pronouncements effective for financial statements for year beginning after
December 15, 1995 that would apply to the Company. The Company has considered
the requirements of Statement No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of" and has determined
that it will not require recognition of any impairment losses. The Company has
also determined to remain within the accounting prescribed by APB Opinion No.
25, "Accounting for Stock Issued to Employees", and accordingly the
implementation of Statement No. 123, "Accounting for Stock-Based Compensation"
will result in additional disclosures without any impact on the statements of
operations or financial condition.
CHANGE IN FISCAL YEAR
A Form 8-K was filed October 11, 1995 reporting that the Board of Directors
of the Company approved the change of the Company's fiscal year from one ending
on November 30 in each year to a 52-53 week fiscal year. The first such fiscal
year commenced on Friday, December 1, 1995 and ended on the 53rd Sunday
thereafter or Sunday, December 1, 1996. Subsequent fiscal years will end on the
Sunday nearest the last day of November.
16
<PAGE> 18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Sealy Corporation
Consolidated Financial Statements
December 1, 1996 and November 30, 1995
(With Independent Auditors' Report Thereon)
17
<PAGE> 19
REPORT OF INDEPENDENT AUDITORS
------------------------------
The Board of Directors and Stockholders
Sealy Corporation:
We have audited the accompanying consolidated balance sheets of Sealy
Corporation and subsidiaries as of December 1, 1996 and November 30, 1995, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the years in the three-year period ended December 1,
1996. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Sealy Corporation
and subsidiaries as of December 1, 1996 and November 30, 1995, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 1, 1996 in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Cleveland, Ohio
January 22, 1997
Except for Note 15,
as to which the date is
February 28, 1997
18
<PAGE> 20
SEALY CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PAR VALUE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 1, NOVEMBER 30,
1996 1995
------ -----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 16,619 $ 17,348
Accounts receivable, less allowance for
doubtful accounts (1996 - $6,814; 1995 - $7,475) 77,179 82,288
Inventories 33,992 35,356
Net assets held for sale 35,492 --
Deferred income taxes 6,337 11,612
Prepaid expenses 4,109 1,812
--------- ---------
173,728 148,416
Property, plant and equipment - at cost:
Land 12,109 12,809
Buildings and improvements 53,741 54,855
Machinery and equipment 82,664 88,182
Construction in progress 7,549 3,853
--------- ---------
156,063 159,699
Less accumulated depreciation 34,697 25,161
-------- --------
121,366 134,538
Other assets:
Goodwill - net of accumulated amortization
(1996 - $45,532; 1995 - $36,037) 428,460 471,741
Patents and other intangibles - net of accumulated
amortization (1996 - $5,187; 1995 - $3,834) 5,844 7,197
Debt issuance costs, net, and other assets 10,530 14,289
-------- ---------
444,834 493,227
$739,928 $776,181
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE> 21
SEALY CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PAR VALUE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 1, NOVEMBER 30,
1996 1995
------ -----
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion - long-term obligations $ 18,620 $ 17,488
Accounts payable 35,797 37,037
Accrued expenses:
Customer incentives and advertising 20,704 27,848
Compensation 14,047 9,899
Other 23,691 20,065
-------- -------
112,859 112,337
-------- -------
Long-term obligations 269,507 269,449
Other noncurrent liabilities 34,822 34,539
Deferred income taxes 29,746 28,975
Stockholders' equity:
Preferred stock, $.01 par value; Authorized,
10,000 shares; Issued, none -- --
Class A common stock, $.01 par value;
Authorized, 49,500 shares;
Issued (1996 - 29,409; 1995 - 29,451) 294 295
Class B common stock, $.01 par value;
Authorized, 500 shares, Issued (1996 - 11; 1995 - 9) -- --
Additional paid-in capital 256,489 258,336
Retained earnings 37,418 73,387
Foreign currency translation adjustment (1,207) (1,137)
-------- -------
292,994 330,881
-------- -------
Commitment and contingencies -- --
-------- -------
$739,928 $776,181
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE> 22
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21
<PAGE> 23
SEALY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------------------------------
DECEMBER 1, NOVEMBER 30, NOVEMBER 30,
1996 1995 1994
------ ------ -----
<S> <C> <C> <C>
Net sales $697,638 $653,942 $697,664
-------- -------- --------
Cost and expenses:
Cost of goods sold 397,259 362,416 375,500
Selling, general and administrative
(including provisions for bad debts of
$918, $812 and $1,625, respectively) 216,943 216,670 208,879
Loss on net assets held for sale 11,762 -- --
Performance share plan 4,510 (13,260) 9,681
Amortization of intangibles 13,594 14,056 14,060
Interest expense, net 28,797 31,018 33,454
-------- -------- --------
Income before income taxes 24,773 43,042 56,090
Income taxes 25,279 23,572 26,898
-------- -------- --------
Net income/(loss) $ (506) $ 19,470 $ 29,192
======== ======== ========
Earnings/(loss) per common share $ (0.02) $ 0.65 $ 0.95
Weighted average number of common
shares and equivalents outstanding
during period 29,428 30,143 30,878
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE> 24
SEALY CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
CLASS A CLASS B FOREIGN
------------------- --------------- ADDITIONAL CURRENCY
COMMON STOCK COMMON STOCK PAID-IN RETAINED TRANSLATION
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT TOTAL
------ ------ ------ ------ ------- -------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
November 30, 1993 29,457 $295 -- -- $260,581 $24,725 $(1,256) $284,345
Net income -- -- -- -- -- 29,192 -- 29,192
Performance share plan -- -- -- -- 9,681 -- -- 9,681
Valuation adjustment on
common stock and warrants
subject to repurchase -- -- -- -- (1,065) -- -- (1,065)
Repurchase of management
stock, net of stock options
exercised (23) (1) -- -- 32 -- -- 31
Foreign currency translation -- -- -- -- -- 49 49
--------- ------ ----- --- ------------ ---------- ---------- ------------
November 30, 1994 29,434 294 -- -- 269,229 53,917 (1,207) 322,233
Net income -- -- -- -- -- 19,470 -- 19,470
Performance share plan -- -- -- -- (13,260) -- -- (13,260)
Management stock award 10 1 -- -- -- -- -- 1
Valuation adjustment on
common stock and warrants
subject to repurchase -- -- -- -- 2,300 -- -- 2,300
Stock options exercised 7 -- -- -- 67 -- -- 67
Warrants exercised -- -- 9 -- -- -- -- --
Foreign currency translation -- -- -- -- -- -- 70 70
--------- ------ ----- --- ------------ ---------- ---------- ------------
November 30, 1995 29,451 295 9 -- 258,336 73,387 (1,137) 330,881
Net loss -- -- -- -- (506) -- (506)
Performance share plan -- -- -- -- 4,510 -- -- 4,510
Management stock award 68 -- -- -- 269 -- -- 269
Valuation adjustment on
common stock and warrants
subject to repurchase -- -- -- -- (308) -- -- (308)
Warrants exercised -- -- 2 -- -- -- -- --
Repurchase of management
stock (110) (1) -- -- -- -- -- (1)
Dividend -- -- -- -- -- (35,463) -- (35,463)
Withdrawals from performance
share plan -- -- -- -- (3,498) -- -- (3,498)
Shares tendered under
performance share plan -- -- -- -- (2,820) -- -- (2,820)
Foreign currency translation (70) (70)
--------- ------ ----- --- ------------ ---------- ---------- ------------
December 1, 1996 29,409 $294 11 -- $256,489 $37,418 $(1,207) $292,994
========= ====== ===== === ============ ========== ========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE> 25
SEALY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------------------------
DECEMBER 1, NOVEMBER 30, NOVEMBER 30,
1996 1995 1994
------ ------ -----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income/(loss) $ (506) $ 19,470 $ 29,192
Adjustments to reconcile net income/(loss) to net
cash provided by operating activities:
Depreciation 13,037 10,144 9,512
Loss on net assets held for sale 11,762 -- --
Loss on disposal of assets 178 813 444
Noncash stock incentive expense 4,779 (13,260) 9,681
Deferred income taxes 5,781 11,974 3,473
Amortization of:
Intangibles 13,594 14,056 14,060
Debt issuance cost 2,683 3,136 3,248
Other, net 922 (1,502) (142)
Changes in operating assets and liabilities:
Accounts receivable (4,119) (3,975) (6,185)
Inventories (5,543) 7,267 (878)
Prepaid expenses (2,343) 952 556
Accounts payable/accrued expenses/
other noncurrent liabilities 4,192 14,252 6,030
-------- -------- --------
Net cash provided by operating activities 44,417 63,327 68,991
-------- -------- ------
Cash flows from investing activities:
Purchase of property, plant and equipment (12,045) (11,804) (12,753)
Proceeds from disposal of property, plant
and equipment 1,089 7,468 1,659
-------- -------- -------
Net cash used in investing activities (10,956) (4,336) (11,094)
-------- -------- --------
Cash flows from financing activities:
Repayment of long-term obligations, net (23,727) (62,952) (56,290)
Net borrowing from Revolving Credit
Facility 25,000 -- --
Dividend (35,463)
Debt issuance costs -- -- (858)
Management investor redemptions -- -- (359)
-------- -------- --------
Net cash used in financing activities (34,190) (62,952) (57,507)
-------- -------- --------
Change in cash and cash equivalents (729) (3,961) 390
Cash and cash equivalents:
Beginning of period 17,348 21,309 20,919
-------- -------- --------
End of period $ 16,619 $ 17,348 $ 21,309
======== ======== ========
Supplemental disclosures:
Taxes paid, net $ 14,334 $ 9,405 $ 9,215
Interest paid, net $ 26,487 $ 28,670 $ 31,198
</TABLE>
See accompanying notes to consolidated financial statements.
24
<PAGE> 26
SEALY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies used in the preparation of the
consolidated financial statements are summarized below.
(a) BUSINESS
Sealy Corporation (the "Company"), is engaged in the home furnishings
business and produces mattresses, boxsprings and bedroom furniture.
Substantially all of the Company's trade accounts receivable are from retail
businesses. The Company recognizes revenue upon shipment of goods to customers.
(b) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated in consolidation.
(c) CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers
all highly liquid debt instruments with a maturity at the time of purchase of
three months or less to be cash equivalents. Cash equivalents are stated at
cost which approximates market value.
(d) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are depreciated over their expected
useful lives principally by the straight-line method for financial reporting
purposes and by both accelerated and straight-line methods for tax reporting
purposes.
(e) AMORTIZATION OF INTANGIBLES
Goodwill represents the excess of the purchase price paid over the
fair value of net assets acquired and is amortized on a straight-line basis over
a forty year period. The Company assesses the recoverability of this intangible
asset by determining whether the amortization of the goodwill balance over its
remaining life can be recovered through projected undiscounted future earnings.
The amount of goodwill impairment, if any, would be measured based on projected
discounted future results using a discount rate reflecting the Company's average
cost of funds.
Other intangibles include patents and trademarks which are amortized
on the straight-line method over periods ranging from 5 to 17 years.
The costs related to the issuance of debt are capitalized and
amortized to interest expense using the effective-interest method over the lives
of the related debt.
(f) EARNINGS PER COMMON SHARE
Net earnings per common share is based upon weighted average number
of shares of the Company's common stock and common stock equivalents outstanding
for the periods presented. Common stock equivalents included in the computation,
using the treasury stock method, represent shares issuable upon the assumed
exercise of warrants, stock options and performance shares that would have a
dilutive effect in periods in which there were earnings.
25
<PAGE> 27
SEALY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(g) INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
(h) ADVERTISING COSTS
The Company expenses all advertising costs as incurred. Advertising
expenses for the years ended December 1, 1996, November 30, 1995 and November
30, 1994 amounted to $74,649, $92,726 and $83,726, respectively.
(i) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(j) RECLASSIFICATION
Certain reclassifications of previously reported financial
information were made to conform to the 1996 presentation.
(k) FISCAL YEAR
Effective December 1, 1995, the Company changed its fiscal year end
from November 30 to a 52- or 53-week year ending on the Sunday closest to
November 30. Accordingly, the 1996 fiscal year ended on December 1, whereas the
previous two fiscal years ended on November 30. All general references to years
relate to fiscal years unless otherwise noted.
(2) INVENTORIES
Inventories are valued at cost not in excess of market, using the
first-in, first-out (FIFO) method. The major components of inventory as of
December 1, 1996 and November 30, 1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
------- ---------
(IN THOUSANDS)
<S> <C> <C>
Raw materials $18,300 $19,861
Work in process 11,624 11,195
Finished goods 4,068 4,300
------- ---------
$33,992 $35,356
======= =======
</TABLE>
26
<PAGE> 28
SEALY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(3) LONG-TERM OBLIGATIONS
Long-term debt as of December 1, 1996 and November 30, 1995 consisted of
the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
(IN THOUSANDS)
<S> <C> <C>
1994 Restated Credit Agreement:
Revolving Credit Facility $ 25,000 $ --
Term Loan Facility 63,052 85,000
9 1/2% Senior Subordinated Notes 200,000 200,000
Other 75 1,937
-------- --------
288,127 286,937
Less current portion 18,620 17,488
-------- --------
$269,507 $269,449
======== ========
</TABLE>
On May 27, 1994, the Company entered into a restated secured credit
agreement (the "1994 Credit Agreement") with a majority of its then current
group of senior lenders (the "Senior Lenders"), which modified the terms of the
1993 Credit Agreement by reducing the amounts under its existing term loan
facilities thereunder from an aggregate of $250 million to a single facility of
$150 million (the "Term Loan Facility") and by increasing the amount available
under its existing revolving credit facility thereunder from $75 million to $125
million (the "Revolving Credit Facility"). The Revolving Credit Facility
provides sublimits for a $30 million discretionary letter of credit facility
("Letters of Credit") and a discretionary swing loan facility of up to $5
million. The Revolving Credit Facility terminates and is due and payable on
November 30, 1999.
Under the terms of the 1994 Restated Credit Agreement, the Company is
required to make certain mandatory principal payments of the Term Loan Facility
in the event of the sale of any of the Company's principal operating
subsidiaries, certain sales of assets, sales of stock and issuances of new debt
securities and in certain other circumstances. In addition, the Company is
permitted to make voluntary prepayments. During each of the years ended November
30, 1995 and 1994, the Company made scheduled principal payments aggregating $20
million. During the year ended December 1, 1996, the Company made scheduled
principal payments aggregating $16 million. During the years ended December 1,
1996 and November 30, 1995, the Company made voluntary prepayments aggregating
$6 million and $25 million, respectively. These prepayments were applied pro
rata against the remaining mandatory payments. The Term Loan Facility amortizes
according to the following revised schedule:
<TABLE>
<CAPTION>
ANNUAL AMOUNTS
FISCAL YEAR TO BE AMORTIZED
- ----------- ---------------
(IN THOUSANDS)
<S> <C>
1997 $18,545
1998 13,352
1999 22,254
2000 8,901
-------
$63,052
=======
</TABLE>
In addition, the outstanding principal amount of the Revolving Credit
Facility must not exceed $75 million for thirty consecutive calendar days in the
period beginning September 1 and ending December 31 during each year. The
Company has met this requirement for calendar years 1996, 1995 and 1994. The
Company
27
<PAGE> 29
SEALY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
is also subject to certain affirmative and negative covenants under both the
1994 Credit Agreement and the 1993 indenture, including, without limitation,
requirements and restrictions with respect to capital expenditures, dividends,
working capital, net worth and other financial ratios.
At December 1, 1996, the Company had approximately $87 million available
under the Revolving Credit Facility, with Letters of Credit issued totaling
approximately $13 million. Under the terms of the 1994 Restated Credit
Agreement, the Company is initially obligated to pay a commitment fee rate of
0.375% per annum on the unused portion of the Revolving Credit Facility. The
fee, which is payable quarterly in arrears, is reduced or increased depending on
certain financial ratios.
The May 27, 1994 refinancing lowered the Company's contractual interest
rates and debt service obligations. Two separate interest rate options exist
under the 1994 Credit Agreement and are available to the Company at its option
as follows:
(a) A Floating Rate which is the greater of
(i) A Corporate Base Rate plus a margin, if applicable, or
(ii) A Federal Funds Rate plus 0.25% plus a margin, if applicable, or
(b) A Eurodollar Rate plus an applicable margin.
The applicable margin is zero for the Floating Rate option and 1.25% for
the Eurodollar Rate option. The applicable margin is reduced or increased
depending on certain financial ratios. At December 1, 1996, the weighted average
interest rate on the Term Loan and Revolving Credit Facilities was 7.0%.
In addition, certain other provisions of the 1994 Credit Agreement were
amended to provide more flexibility to the Company relating to, among other
things, investments, capital expenditures and incurrence of debt.
The 1994 Credit Agreement required that interest rate protection be
maintained on an aggregate notional amount at least equal to 50% of outstanding
Term Loan Facility from inception through at least May 7, 1996.
All obligations of the Company under the 1994 Credit Agreement are jointly
and severally guaranteed by each direct and indirect domestic subsidiary of the
Company and secured by first priority liens on and security interests in
substantially all of the assets of the Company and its domestic subsidiaries and
by first priority pledges of substantially all of the capital stock of most of
the subsidiaries of the Company.
The 9 1/2% Senior Subordinated Notes (the "Notes") sold pursuant to a
public offering on May 7, 1993 mature on May 1, 2003 with interest payable
semiannually in cash on May 1 and November 1 of each year. The Notes may be
redeemed at the option of the Company on or after May 1, 1998, under the
conditions and at the redemption prices as specified in the note indenture,
dated as of May 7, 1993, under which the Notes were issued (the "Note
Indenture"). Notwithstanding the foregoing, at any time prior to May 1, 1996,
the Company may redeem with the net proceeds of one or more Public Equity
Offerings as defined in the Note Indenture, up to $60.0 million aggregate
principal amount of the Notes at the redemption prices as specified in the Note
Indenture. The Notes are subordinated to all existing and future Senior Debt of
the Company as defined in the Note Indenture.
In January, 1997, the Company initiated a consent solicitation related to
the Notes and a refinancing of its 1994 Restated Credit Agreement. See Note 15,
Subsequent Events.
28
<PAGE> 30
SEALY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(4) LEASE COMMITMENTS
The Company leases certain operating facilities, offices and equipment.
The following is a schedule of future minimum annual lease commitments and
sublease rentals at December 1, 1996.
<TABLE>
<CAPTION>
COMMITMENTS UNDER
-----------------------------------------------
SUBLEASE
OPERATING CAPITALIZED RENTAL
FISCAL YEAR LEASES LEASES INCOME
(IN THOUSANDS)
<S> <C> <C> <C>
1997 $ 6,212 $114 $153
1998 4,943 36 102
1999 3,012 15 -
2000 1,898 - -
2001 1,234 - -
Later years 2,477 - -
------- ------ --------
$19,776 $165 $255
======= ====
Less amount representing interest 7
Present value of minimum lease
payments of capitalized leases $158
======
</TABLE>
At December 1, 1996, property, plant and equipment included approximately
$0.4 million of aggregate cost and net book value related to assets under
capitalized leases.
Rental expense charged to operations is as follows:
<TABLE>
<CAPTION>
YEAR YEAR YEAR
ENDED ENDED ENDED
DEC. 1, 1996 NOV. 30, 1995 NOV. 30, 1994
------------- -------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Minimum rentals $ 9,096 $9,084 $8,625
Contingent rentals (based
upon delivery equipment
mileage) 1,067 809 1,361
------- ------ ------
$10,163 $9,893 $9,986
======= ====== ======
</TABLE>
The Company has the option to renew certain plant operating leases, with
the longest renewal period extending through 2015. Most of the operating leases
provide for increased rent through increases in general price levels.
(5) STOCK OPTION AND RESTRICTED STOCK PLANS
The Company adopted the 1989 Stock Option Plan ("1989 Plan") in 1989, the
1992 Stock Option Plan ("1992 Plan") in 1992 and reserved 100,000 shares and
600,000 shares, respectively, of Class A Common Stock of the Company (the
"Shares") for future issuance. Options under the 1989 Plan and the 1992 Plan may
be granted either as Incentive Stock Options as defined in Section 422A of the
Internal Revenue Code or Nonqualified Stock Options subject to the provisions of
Section 83 of the Internal Revenue Code.
29
<PAGE> 31
SEALY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Prior to fiscal year 1995, the Company issued options under the 1989 Plan
totaling 5,400 Shares (net of subsequent forfeitures), all of which are
exercisable on or after November 30, 1994. Any unexercised options terminate on
the tenth anniversary of the date of grant or earlier, in connection with
termination of employment. The exercise price for all 1989 Plan options as of
December 1, 1996 is $50.00 per Share. No 1989 Plan options have been exercised
since the date of grant.
Outstanding options (net of subsequent forfeitures) under the 1992 Plan
are as follows: 49,000 granted in June, 1992 with an exercise price of $7.52 per
Share; 56,500 granted in June, 1993 with an exercise price of $9.05 per Share;
64,500 granted in June, 1994 with an exercise price of $13.48 per Share; 83,000
granted in June, 1995 with an exercise price of $15.95 per Share and 104,000
granted in June, 1996 with an exercise price of $10.63 per Share. The 1992 Plan
options are exercisable 25% upon grant and 25% per year thereafter. The exercise
price is equal to the estimated fair value of the Company's stock at the date of
grant. 1992 Plan options totaling 10,600 shares were exercised during the
Reporting Periods. At December 1, 1996, options for 221,375 Shares issued under
the 1992 Plan are exercisable.
During Fiscal 1993, the Company adopted the 1993 Non-Employee Director
Stock Option Plan (the "1993 Plan"), which was subsequently amended on April 6,
1994 and June 27, 1995. The 1993 Plan provides for the one-time automatic grant
of ten-year options to acquire up to 10,000 Shares to all current and future
directors who are not employed by the Company, by Zell/Chilmark or by their
respective affiliates ("Non-Employee Directors"). Options granted under the 1993
Plan vest immediately and are initially exercisable at a price equal to the fair
market value of the Shares on the date of grant. For options granted prior to
March 1, 1994, the exercise price of options granted pursuant to this Plan
increased on the first anniversary date of such grant by 4%, which became the
fixed exercise price for all such options. Options issued thereafter, if any,
will be exercisable over their term at the fair market value on the date of
grant. Pursuant to the 1993 Plan, the Company granted options to acquire up to
50,000 Shares to Non-Employee Directors in fiscal year 1993 at an initial
exercise price of $9.05 per Share. No options under the 1993 Plan have been
exercised. The 1993 Plan was amended on June 27, 1995 to provide for the grant
of an additional option to purchase 5,000 Shares to each eligible director and
thereafter providing for the automatic annual grant of an option to each
eligible director to purchase an additional 5,000 Shares at fair market value on
the date of grant. Pursuant to the 1993 Plan, the Company granted options to
acquire up to 5,000 Shares to each eligible director in fiscal 1995 and 1996
with a fixed exercise price of $15.95 and $10.63, per Share, respectively. The
options outstanding (net of forfeitures) and their related strike prices at
December 1, 1996 adjusted for the dividend declared on May 17, 1996 are 45,078
Shares and $8.35, 22,544 Shares and $14.15, 20,000 Shares and $9.43 for the
1993, 1995 and 1996 grants, respectively.
In 1996, pursuant to an employment agreement with the Company's current
President and Chief Executive Officer, the Company granted him an aggregate of
67,635 shares of restricted stock. The restricted stock vests at a rate of
approximately 25% at each anniversary date of the grant. The Company also
awarded a grant of ten-year stock options to acquire up to an aggregate of
400,000 Shares of an exercise price of $10.63 per Share (representing fair
market value at the time of grant). The stock options vest at a rate of 25% at
each anniversary date of the grant.
In 1996, the Company adopted the 1996 Transitional Restricted Stock Plan
(the "Plan") effective December 1, 1996 which terminates on January 3, 2000, and
no grants shall thereafter be awarded under the Plan. All grants awarded under
the Plan prior to such date shall remain in effect until they have been
exercised or terminated in accordance with the terms and provisions of the Plan.
On January 6, 1997, 281,400 shares, which vest on January 3, 2000, were granted
under the Plan. The Plan provides for partial vesting at a rate of 50% if a
grantee incurs a "termination" (as defined in the Plan) from January 3, 1999 to
January 2, 2000.
In 1996, the Company adopted the 1997 Stock Option Plan ("1997 Plan").
Options under the Plan may be granted either as Incentive Stock Options as
defined in Section 422A of the Internal Revenue Code or
30
<PAGE> 32
SEALY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Nonqualified Stock Options subject to the provisions of Section 83 of the
Internal Revenue Code. No options have been granted under the 1997 Plan.
(6) INCOME TAXES
The Company and its domestic subsidiaries file a consolidated U.S. Federal
income tax return. Income tax expense attributable to income from continuing
operations consists of:
<TABLE>
<CAPTION>
YEAR YEAR YEAR
ENDED ENDED ENDED
DEC. 1, 1996 NOV. 30, 1995 NOV. 30, 1994
------------- --------------- --------------
(IN THOUSANDS)
Current:
<S> <C> <C> <C>
Federal $15,494 $6,384 $15,650
State and local 1,196 1,404 3,287
Canada, Commonwealth
of Puerto Rico and Mexico 2,808 3,810 4,488
------- ------- --------
19,498 11,598 23,425
Deferred 5,781 11,974 3,473
------ ------- --------
Income tax expense $25,279 $23,572 $26,898
======= ======= =======
</TABLE>
Income before income taxes from Canadian operations amounted to $7,042,
$7,247 and $8,720, for the years ended December 1, 1996, November 30, 1995 and
November 30, 1994.
The differences between the effective tax rate and the statutory U.S.
Federal income tax rate are explained as follows:
<TABLE>
<CAPTION>
YEAR YEAR YEAR
ENDED ENDED ENDED
DEC. 1, 1996 NOV. 30, 1995 NOV. 30, 1994
------------- -------------- --------------
<S> <C> <C> <C>
Income tax expense (benefit) computed at
statutory U.S. Federal income tax rate 35.0% 35.0% 35.0%
State and local income taxes, net of
Federal tax benefit 3.2 4.5 4.6
Permanent differences resulting from
purchase accounting 16.1 9.6 7.4
Foreign tax rate differential and effects of
foreign earnings repatriation 6.5 5.4 1.5
Sale of subsidiary 40.2 -- --
Other items, net 1.0 0.3 (0.5)
------ ----- -----
102.0% 54.8% 48.0%
====== ===== =====
</TABLE>
At December 1, 1996 and November 30, 1995, the total deferred tax assets
and deferred tax liabilities were $19,265 and $23,689, $42,674 and $41,052,
respectively. The significant components of the deferred tax assets were accrued
salaries and benefits of $7,447 and $9,462, respectively and net operating loss
carryforwards of $3,577 and $4,796, and the deferred tax liabilities relating to
property, plant and equipment were $23,601 and $26,929 and intangible assets of
$13,204 and $13,913, respectively.
The future usage of net operating losses generated prior to November 6,
1991 will be substantially limited as to annual usage due to a recapitalization
that occurred on that date. The Company has net operating loss carryforwards of
approximately $10 million for U.S. Federal income tax purposes. These losses
cannot be carried back against income of prior periods, and will expire, if not
utilized, by the year 2008.
A provision has not been made for U.S. or foreign taxes on undistributed
earnings of subsidiaries which operate in Canada and Puerto Rico. Upon
repatriation of such earnings, withholding taxes might be imposed that are then
available for use as credits against a U.S. Federal income tax liability,
subject to certain limitations. The amount of taxes that would be payable on
repatriation of the entire amount of undistributed earnings is immaterial.
31
<PAGE> 33
SEALY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(7) RETIREMENT PLANS
Substantially all employees are covered by profit sharing plans, where
specific amounts are set aside in trust for retirement benefits. The total
profit sharing expense was $5.0 million, $5.4 million and $5.3 million for the
years ended December 1, 1996, November 30, 1995 and November 30, 1994,
respectively.
(8) WARRANTS
SERIES A AND SERIES B WARRANTS
Series A and Series B Warrants (collectively, "Restructure Warrants") were
issued under a Warrant Agreement (the "Agreement") dated as of November 6, 1991
between the Company and its subsidiary, Sealy, Inc., as warrant agent. The
Restructure Warrants, when exercised, will entitle the Holder thereof to receive
one Share in exchange for the exercise price per Share for Series A warrants and
Series B warrants, subject to adjustment under certain circumstances. As of
December 1, 1996, the Series A and Series B Warrants are exercisable into
4,337,959 and 1,668,446 Shares, respectively.
Under the Agreement, adjustments are to be made to the exercise ratio and
exercise price of the Restructure Warrants in the event the Company issues
shares of its capital stock at less than Current Market Value (including under
employee benefit plans). The Company has issued shares under its Performance
Share Plan, Restricted Stock Plan and certain employee issuances, triggering the
anti-dilution adjustments, and these adjustments have been made pursuant to the
Warrant Agreement. The Series A and Series B Warrants conversion ratio and
exercise price at December 1, 1996 have been adjusted to 1.0115 and $15.8182 per
share and 1.0115 and $22.2444 per share, respectively, from 1.0000 and $16.0000
per share and 1.0000 and $22.50 per share at November 30, 1995. On January 6,
1997, the Company issued additional shares under the 1996 Transitional
Restricted Stock Plan resulting in further adjustments to the Series A and
Series B Warrants conversion ratio and exercise price of 1.0207 and $15.6751 per
share and 1.0207 and $22.0431 per share, respectively. As of January 6, 1997,
the Series A and Series B Warrants are exercisable into 4,377,571 and 1,683,682
Shares, respectively.
The Restructure Warrants are exercisable at any time and from time to time
on or prior to November 6, 2001 ("Expiration Date"). The Restructure Warrants
may terminate and become void prior to the Expiration Date in the event that
such warrants are redeemed by the Company pursuant to its right to redeem the
Restructure Warrants on any date after November 6, 1996 at a redemption price
per Share as defined in the Warrant Agreement.
MERGER WARRANTS
Merger Warrants were issued under a Warrant Agreement ("Warrant
Agreement") dated as of August 1, 1989 between the Company and KeyCorp
Shareholder Services, Inc., as successor warrant agent. Each Merger Warrant,
when exercised, will entitle the holder thereof to receive one fiftieth of one
share of Class B Common Stock ("Warrant Shares") of the Company (50 to 1 ratio)
in exchange for the exercise price of $.01 per share, subject to adjustment
under certain circumstances. The Company has issued shares under its Performance
Share Plan, Restricted Stock Plan and certain employee issuances, triggering the
anti-dilution adjustment provision, and these adjustments have been made
pursuant to the Warrant Agreement resulting in a revised conversion ratio of
48.64 to 1. On January 6, 1997, the Company issued additional shares under the
1996 Transitional Restricted Stock Plan resulting in a revised conversion ratio
of 47.98 to 1.
The Merger Warrants became exercisable subsequent to August 9, 1995. As a
result of exercised Merger Warrants, 2,085 and 8,590 shares of Class B Common
Stock were issued in Fiscal 1996 and 1995, respectively.
32
<PAGE> 34
SEALY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The Company is required to offer to repurchase the Merger Warrants and
Warrant Shares upon the removal of any limitations to repurchase or upon the
occurrence of certain other events. Merger Warrants and Warrant Shares are,
therefore, not considered to be a part of the Company's stockholders' equity
but, are included in other noncurrent liabilities in the accompanying
consolidated balance sheets. Authorized Merger Warrants at December 1, 1996 and
January 6, 1997 are exercisable into an aggregate of 207,747 and 210,754 shares
of Class B Common Stock, respectively.
(9) COMMON STOCK
Holders of Class A Common Stock are entitled to one vote per share on all
matters submitted to a vote of stockholders while the holders of Class B Common
Stock are entitled to one-half vote per share. Except with respect to voting
rights, the terms of the Class A Common Stock and the Class B Common Stock are
identical. Shares of Class B Common Stock, under certain circumstances, are
convertible into shares of Class A Common Stock.
(10) PERFORMANCE SHARE PLAN
Effective April 1, 1992, the Company adopted a Performance Share Plan
("Plan") for certain employees of the Company. Under the Plan, the Board of
Directors may approve the issuance of up to 3.0 million performance share units
each representing the right to receive up to one Share if the Company meets
specified cumulative operating cash flow targets over the five-year period
ending December 1, 1996. During fiscal 1996, two participants withdrew from the
Plan resulting in an adjustment to additional paid-in capital. As of December 1,
1996, the conclusion of the Plan, 451,740 Shares were awarded under the Plan of
which 207,549 Shares were tendered to the Company by Plan participants to cover
their estimated tax liability, resulting in the issuance of 244,191 Shares
subsequent to fiscal year end.
The Plan is a variable stock compensation plan pursuant to which the fair
value of Shares issuable under the Plan will be recorded as compensation expense
over the Plan's five-year term ending December 1, 1996. In addition to the
annual amount of compensation expense under the Plan, such amount will be
adjusted to give cumulative effect to any change in the amount of non-cash
compensation expense previously recorded in prior reporting periods, resulting
from subsequent increases or decreases in the fair value of the Shares or the
number of performance share units outstanding since such reporting period and to
any change in management's estimate of its ability to achieve the cumulative
operating cash flow targets as defined in the Plan. Performance Share Plan
expense for the year ended December 1, 1996 amounted to $4.5 million. The
Company recorded a $13.3 million credit to non-cash compensation expense under
the Plan for the year ended November 30, 1995. For the year ended November 30,
1994, the Company recorded $9.7 million of non-cash compensation expense under
the Plan.
(11) SUMMARY OF INTERIM FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
EARNINGS
PER
GROSS NET COMMON
NET SALES PROFIT INCOME SHARE
--------- ------ ------ -----
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1996:
<S> <C> <C> <C> <C>
First quarter $159,475 $69,583 $ 2,854 $ 0.09
Second quarter 165,177 68,935 2,909 0.10
Third quarter 192,546 84,434 7,083 0.24
Fourth quarter 180,440 77,427 (13,352) (0.45)
</TABLE>
33
<PAGE> 35
SEALY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<CAPTION>
EARNINGS
PER
GROSS NET COMMON
NET SALES PROFIT INCOME SHARE
--------- ------ ------ -----
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1995:
<S> <C> <C> <C> <C>
First quarter $149,895 $65,950 $ (216) $(0.01)
Second quarter 153,189 66,376 4,735 0.15
Third quarter 179,880 83,054 8,231 0.27
Fourth quarter 170,978 76,146 6,720 0.22
</TABLE>
During the fourth quarter of Fiscal 1996, the Company recorded an
after-tax loss on the pending sale of subsidiary of $17.6 million and a noncash
charge of $3.2 million in connection with the Company's Performance Share Plan.
During the second, third and fourth quarters of Fiscal 1995, the Company
recorded noncash credits of $4.6 million, $2.7 million and $7.4 million,
respectively, in connection with the Company's Performance Share Plan.
(12) CONTINGENCIES
In accordance with procedures established under the Environmental Cleanup
Responsibility Act (now known as the Industrial Site Recovery Act), Sealy and
one of its subsidiaries are parties to an Administrative Consent Order ("ACO")
issued by the New Jersey Department of Environmental Protection ("DEP").
Pursuant to the ACO the Company and such subsidiary agreed to conduct soil and
groundwater investigation and remediation at the plant owned by the subsidiary
in South Brunswick, New Jersey. The Company does not believe that its
manufacturing processes were a source of the contaminants found to exist above
regulatorily acceptable levels in the groundwater. As the current owners of the
facility, however, the Company and its subsidiary are primarily responsible for
the investigation and any necessary clean up plan approved by the DEP under the
terms of the ACO.
The DEP previously approved both the Company's soil remediation plans and
its initial groundwater remediation plans. Further investigation in 1996
revealed certain additional areas of soil contamination resulting from
activities at the South Brunswick facility prior to the Company's acquisition
of the site. The Company anticipates that in 1997, subject to DEP approval, it
will complete essentially all soil remediation and will conduct a pilot test
for a Company-proposed revision to the groundwater remediation program.
While the Company cannot predict the ultimate timing or cost to remediate
this facility based on facts currently known, management believes the
previously established accrual for site investigation and remediation costs is
adequate to cover the Company's reasonably estimable liability and does not
believe the resolution of this matter will have a material adverse effect on
the Company's financial position or future operations.
In March, 1994, the Company filed a claim in the U.S. District Court for
the District of New Jersey against former owners of the site and their lenders
under the Comprehensive Environmental Response, Compensation and Liability Act
seeking contribution for site investigation and remedial costs. Settlement
terms have been tentatively reached in this matter and are projected to be
completed in the second quarter of fiscal 1997.
The Company has also voluntarily proceeded to develop a remediation plan
for isolated soil and groundwater contamination at its Oakville, Connecticut
property that the Company believes is solely attributable to the manufacturing
operations of previous unaffiliated occupants. Based on the facts currently
known, management does not believe that resolution of this matter will have a
material adverse effect on the Company's financial position or future
operations.
34
<PAGE> 36
SEALY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(13) FINANCIAL INSTRUMENTS
Due to the short maturity of cash and cash equivalents, accounts
receivable, accounts payable and accrued expenses, their carrying values
approximate fair value. The carrying amount of long-term debt under the Term
Loan Facility and Revolving Credit Facility approximate fair value because the
interest rate adjusts to market interest rates. The fair value of long-term
debt under the 9 1/2% Senior Subordinated Notes, based on a quoted market
price, was $201 million and $198 million at December 1, 1996 and November 30,
1995, respectively.
(14) DISPOSITION
On January 15, 1997, the Company completed the sale of Woodstuff
Manufacturing, Inc., a wholly owned subsidiary that manufactured and marketed
solid wood bedroom furniture under the "Samuel Lawrence" brand name. The
divestiture produced cash proceeds of $35.0 million and resulted in a book loss
of $17.6 million. The loss on sale of this subsidiary includes income tax
expense of $5.8 million arising from the tax gain on the transaction, as well as
transaction costs related to the sale. A summary of the net assets held for sale
at December 1, 1996 is as follows (amounts in thousands):
<TABLE>
<S> <C>
Accounts receivable $ 9,228
Inventory 6,907
Other current assets 480
Property, plant and equipment, net 10,329
Other assets 26,246
Accounts payable and accrued expenses (4,939)
Other liabilities (1,998)
Excess of net assets over proceeds from sale (10,761)
--------
Net assets held for sale $ 35,492
========
</TABLE>
(15) SUBSEQUENT EVENTS
Pursuant to a Solicitation of Consents dated as of January 24, 1997, as
subsequently amended (the "Consent Solicitation"), the Company has solicited
consents from the record holders (the "Registered Holders") of its 9 1/2% Senior
Subordinated Notes due 2003 (the "Notes") to certain amendments, consents and
waivers under the Indenture (the "Indenture"), dated as of May 7, 1993, between
the Company and Mellon Bank, F.S.B., as successor trustee (the "Trustee"), under
which the notes were issued. Following receipt of the requisite consents of the
Registered Holders, on February 21, 1997, the Company and the Trustee executed a
Supplemental Indenture incorporating the amendments to the Indenture. The
35
<PAGE> 37
SEALY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Supplemental Indenture provides for (i) an increase in the interest rate on the
Notes to 10 1/4%, (ii) provision to allow for the payment of a special dividend
of up to One Hundred Million Dollars ($100,000,000) (the "Dividend") to
qualifying equity security holders of the Company, (iii) an increase in the
redemption premiums paid to Registered Holders in the event the Notes are
repurchased by the Company, and (iv) the corresponding waiver of Section 4.05 of
the Indenture, such that the Dividend will not constitute a "Restricted Payment"
(as defined in the Indenture). The Company paid an aggregate of Four Million
Dollars ($4,000,000) on a pro rata basis to those Registered Holders that had
timely consented.
Concurrent with the distribution of the Consent Solicitation documentation,
the Company entered into negotiations for a new senior secured financing
facility. On February 25, 1997, the Company entered into the $275,000,000 Second
Restated Secured Credit Agreement (the "1997 Credit Agreement) with a majority
of its then current group of senior lenders, which modified the terms of the
1994 Credit Agreement by increasing the amounts available under the revolving
credit portion of the facility from $125 million to $275 million, and
eliminating the term loan portion of the 1994 Credit Agreement. The 1997 Credit
Agreement provides for reducing revolving credit facility with a $25 million
discretionary letter of credit facility and a discretionary swing loan facility
of up to $20 million.
On February 28, 1997, the Company made an initial borrowing under the
1997 Credit Agreement of $156.4 million. Letters of credit of $13.1 million
also were outstanding, leaving approximately $105.5 million of undrawn
availability under the 1997 Credit Agreement. The proceeds of the 1997 Credit
Agreement were used (a) to refinance approximately $48.7 million of
indebtedness under the Company's 1994 Credit Agreement, (b) to pay a $99.8
million Dividend, and (c) for general corporate purposes, including, without
limitation, for working capital.
The 1997 Credit Agreement has a final maturity date of January 15, 2003, and
provides for periodic reductions in the amounts of available credit in
accordance with the following schedule:
Remaining
Reduction Date Commitment Reduction Revolver Commitment
-------------- -------------------- -------------------
November 29, 1988 $15 million $260 million
November 28, 1999 $20 million $240 million
December 3, 2000 $30 million $210 million
December 2, 2001 $30 million $180 million
June 2, 2002 $30 million $150 million
Additional mandatory commitment reductions will occur equal to 100% of net
after-tax cash proceeds from the sale of assets in excess of $15 million in
each fiscal year, and equal to 50% of net proceeds from the issuance of
permitted subordinated debt.
Base rate loans and Eurodollar rate loans are based on a pricing grid which
provides for an interest rate plus a margin. The margin is adjustable based on
the Company's total senior debt to adjusted EBITDA ratio. For the first six
months of the 1997 Credit Agreement the margin on Eurodollar rate borrowings
will be the greater of 1.25% or the applicable level of the pricing grid. The
initial commitment fee, which is also subject to a pricing grid, is 0.375%.
The 1997 Credit Agreement is secured in substantially the same fashion as the
1994 Credit Agreement (See Note 3 to Consolidated Financial Statements),
however such security is subject to release upon the Company attaining
specified senior unsecured (either actual or implied) credit ratings. The
Company is also subject to certain affirmative and negative covenants under
both the 1997 Credit Agreement and the Indenture including requirements and
restrictions with respect to capital expenditures, dividends, maximum leverage
and other financial ratios.
In addition, the 1997 Credit Agreement amended other provisions of the 1994
Credit Agreement to provide for greater flexibility to the Company with
respect to among other things, investments and reporting provisions.
(16) NEW ACCOUNTING PRONOUNCEMENTS
During 1995, the Financial Accounting Standards Board issued two
pronouncements effective for financial statements for years beginning after
December 15, 1995 that would apply to the Company. The Company has considered
the requirements of Statement No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" and has
determined that it will not require recognition of any impairment losses. The
Company has also determined to remain within the accounting prescribed by APB
Opinion No. 25, "Accounting for Stock Issued to Employees," and accordingly the
implementation of Statement No. 123, "Accounting for Stock-Based Compensation"
will result in additional disclosures without any impact on the statements of
operations or financial condition.
36
<PAGE> 38
SEALY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(This page intentionally left blank)
37
<PAGE> 39
ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
The following sets forth the name, age, principal occupation and
employment and business experience during at least the last five years of each
of the Company's directors:
ROD F. DAMMEYER
Mr. Dammeyer, age 56, has been a director of the Company since December,
1995. Mr. Dammeyer is the managing director of EGI-Corporate Investments, which
has among other things, a controlling interest in approximately 30 companies,
several of which are public entities. Mr. Dammeyer is also the Chief Executive
Officer and a director of Anixter International, Inc. Since 1985, Mr. Dammeyer
has held the positions of President and Chief Executive Officer of Anixter
International, Inc. From 1983 to 1985, Mr. Dammeyer was Senior Vice President
and Chief Financial Officer of Household International, Inc. Prior to Household
International, Mr. Dammeyer was Executive Vice President and Chief Financial
Officer of Northwest Industries, Inc. from 1979 to 1983. Mr. Dammeyer is a
director of Antec Corporation, Capsure Holdings Corporation, Falcon Building
Products, Inc., IMC Global, Inc., Jacor Communications, Inc., Lukens, Inc.,
Revco D.S., Inc. and TeleTech Holdings, Inc. He is also a trustee of Van Kampen
American Capital, Inc. closed end funds and a member of the Chase Manhattan
Corporation National Advisory Board.
GEORGE L. DAVIS
Mr. Davis, age 63, has been a director of the Company since February 12,
1993 . Mr. Davis is, and since October 1990 has been, President and Chief
Executive Officer of Scarborough Partners, Inc., consultants to the financial
services industry. From November, 1993 to December, 1995, Mr. Davis was Chairman
and Chief Executive Officer of Banco de Venezuela, Inc., Miami, Florida. From
December, 1991 to November, 1992, Mr. Davis was also President of First American
Bankshares Inc. Previously, since 1987, Mr. Davis was Group Executive, North
America, for Citibank, N.A., a subsidiary of Citicorp.
CHRISTIE A. HEFNER
Ms. Hefner, age 44, has been a director of the Company since June 23,
1993. Ms. Hefner is, and since November 1988 has been, Chairman and Chief
Executive Officer of Playboy Enterprises, Inc. Ms. Hefner also serves on the
Board of Directors of the Magazine Publishers Association and is on Advisory
Boards of the American Civil Liberties Union of Illinois and the National
Council on Crime and Delinquency.
JAMES W. JOHNSTON
Mr. Johnston, age 50, is President and Chief Executive Officer of
Stonemarker Enterprises, Inc., a consulting and investment company. He has been
a director of Sealy, Inc. since March 4,1993. Mr. Johnston was Vice Chairman RJR
Nabisco, Inc. from 1995 to 1996. He also served as Chairman and CEO of R. J.
Reynolds Tobacco Co. from 1989 to 1995, Chairman R. J. Reynolds Tobacco Co. from
1995 to 1996 and Chairman R.J. Reynolds Tobacco International from 1993 to 1996.
Mr. Johnston served on the board of RJR Nabisco, Inc. and RJR Nabisco Holdings
Corp. from 1992 to 1996. From 1984 until joining Reynolds, Mr. Johnston was
Division Executive, Northeast Division, of Citibank, N.A., a subsidiary of
Citicorp, where he was responsible for Citibank's New York Banking Division, its
banking activities in upstate New York, Maine and Mid-Atlantic regions, and its
national student loan business. Mr. Johnston is also a director of The Wachovia
Corporation.
38
<PAGE> 40
RONALD L. JONES
Mr. Jones, age 54, since March 2, 1996 has been President and Chief
Executive Officer of the Company. From October, 1988 until joining the Company,
Mr. Jones served as President of Masco Home Furnishings. From 1983 to 1988, Mr.
Jones was President of HON Industries.
SHELI Z. ROSENBERG
Ms. Rosenberg, age 55, has been a director of the Company since December,
1995 . Ms. Rosenberg is and since 1990 has been a director of Anixter
International, Inc. (formerly known as Itel Corporation until August 31, 1995),
and is a Principal of the law firm Rosenberg & Liebentritt P.C., and since 1994
has been President and Chief Executive Officer of Equity Group Investments, Inc.
and its subsidiary Equity Financial and Management Company. Ms. Rosenberg is
Board Chair of Jacor Communications, Inc. and a director of Capsure Holdings
Corp., Quality Food Centers, Inc., Falcon Building Products, Inc., American
Classic Voyages Co., Revco D.S., Inc.; trustee of Equity Residential Properties
Trust and Manufactured Home Communities, Inc.; was an Executive officer and
director until October 4, 1991 of Madison Management Group, Inc., which filed a
petition under the Federal bankruptcy laws in November 1991; and was Vice
President of First Capital Benefit Administrators, Inc. which filed a petition
under the Federal bankruptcy laws in January 1995.
ROLF H. TOWE
Mr. Towe, age 58, since July 10, 1991 has been a director of the Company.
Mr. Towe is, and since April 1991 has been Vice President of Clipper Asset
Management Corporation, the sole general partner of The Clipper Group L.P., a
Delaware limited partnership, which managed the investments of MBLP in the
Company until the Acquisition; and, since 1989, has been Chairman of Executive
Partner Limited, a management advisory firm. Mr. Towe is also a director of The
American Heritage Life Insurance Company, Long John Silver's Restaurants, Inc.,
G.S. Blodgett Corporation, Travel Centers of America, Inc. and the Jack Morton
Company.
SAMUEL ZELL
Mr. Zell, age 55, has been a director of the Company since February 12,
1993. Mr. Zell is, and since 1981 has been Chairman of the Board of Equity
Financial and Management Company and, since 1986 has been Chairman of the Board
of Equity Group Investments, Inc., two privately owned affiliated investment and
management companies; is, and since mid-1990 has been, one of two individuals
(the other being Mr. David Schulte) who act as general partners of the general
partnership of Zell/Chilmark Fund, L.P., is, and since 1985 has been, Chairman
of the Board of Anixter International, Inc. (formerly known as Itel Corporation
until August 31, 1995), a company engaged in the distribution of wiring systems
products; from 1987 has served as Chairman of the Board of Capsure Holdings
Corp. (formerly called Nucorp, Inc.), a company engaged in the business of
specialty property and casualty insurance; is, and since 1992 has been,
Co-Chairman of Revco D.S., Inc., a company that operates a chain of retail
drugstores; is, and since 1993 has been, Chairman of the Board of Equity
Residential Properties Trust, a self-administered, self-managed equity real
estate investment trust; and is, and from 1993 to January 1994 has been
Co-Chairman, and from January 1994, Chairman of the Board and Chief Executive
Officer of Manufactured Home Communities, Inc., a self-administered and
self-managed equity real estate investment trust which owns and operates
properties in 16 states. Mr. Zell is a member of the board of directors of
American Classic Voyages Co., Quality Food Centers, Inc., and Revco D.S., Inc.
Prior to October 4, 1991, Mr. Zell was President of Madison Management Group,
Inc., which filed a petition under Chapter 11 of the Bankruptcy Code on November
8, 1991.
EXECUTIVE OFFICERS
The following sets forth the name, age, title and certain other
information with respect to the executive and certain other appointed officers
of the Company:
BRUCE G. BARMAN
Dr. Barman, age 48, since January, 1995 has been Vice President Research
and Development of the Company. From 1991 until he joined the Company, Dr.
Barman was Vice President-Research and
39
<PAGE> 41
Development of Griffith Laboratories N.A., a custom food products producer for a
customer base of major North American food service and food processing
companies.
JOHN G. BARTIK
Mr. Bartik, age 45, since March, 1995 has been Vice President Tax and
Assistant Treasurer of the Company. From 1990 to 1995, he was Treasurer of the
Company and from 1985 has served as the Company's Director of Taxation.
JEFFREY C. CLAYPOOL
Mr. Claypool, age 49, since September, 1991 has been Vice President Human
Resources of the Company.
GARY T. FAZIO
Mr. Fazio, age 46, since 1990 has been Vice President Sales of the
Company. Mr. Fazio joined the Company as a general manager in 1981. From 1987 to
1990, he was Regional Vice President of the Company.
DOUGLAS E. FELLMY
Mr. Fellmy, age 47, since July, 1992 has been Vice President Operations of
the Company. Previously, Mr. Fellmy served as Regional Vice President-Operations
since April 1990 and also as President of the Components Division since December
1989. Mr. Fellmy has served, since 1971, in numerous other capacities with the
Company's Components Division.
THOMAS M. FORMAN
Mr. Forman, age 51, since June, 1994 has been Vice President General
Counsel of the Company. Previously, Mr. Forman was President of Forman Venture
Capital, Inc. and from 1981 to 1990 held various executive positions with
Bridgestone/Firestone, Inc., an international tire manufacturer, most recently
as an Executive Vice President and member of the board of directors. Mr. Forman
is a director of Olympic Steel, Inc., a NASDAQ-listed steel distribution
company.
JESSE E. HOGAN
Mr. Hogan, age 50, since June, 1994 has been Senior Vice President and
Chief Financial Officer of the Company. Previously, from 1992, Mr. Hogan served
as President, Columbo Fresh Products, a division of Bongrain, S.A., a worldwide
dairy company and from 1991 to 1992 as General Manager of Alta Dena Certified
Dairy.
DAVID J. MCILQUHAM
Mr. McIlquham, age 42, since April, 1990 has been Vice President-Marketing
of the Company.
LAWRENCE J. ROGERS
Mr. Rogers, age 48, since February, 1994 has been Vice President
International of the Company. Previously, Mr. Rogers has served, since 1979, in
numerous other capacities within the Company's operations, including
President-Sealy Canada.
RICHARD F. SOWERBY
Mr. Sowerby, age 42, since April, 1995 has been Vice President Controller
of the Company. Previously, from 1991, Mr. Sowerby served as Corporate
Controller of Elliott Company, a manufacturer and servicer of turbo machinery
equipment.
40
<PAGE> 42
RONALD H. STOLLE
Mr. Stolle, age 48, since March, 1995 has been Vice President and
Treasurer of the Company. Previously, from 1987, Mr. Stolle served as Director,
Treasury Operations for Reliance Electric Company, a manufacturer of industrial
and telecommunication products.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Based solely upon a review of Forms 3 and 4, and amendments thereto,
furnished to the Company pursuant to Rule 16a-3(e) during Fiscal 1996 and Form
5, and amendments thereto, furnished to the Company with respect to Fiscal 1996,
the Company is not aware of any person that is subject to Section 16 of the
Securities Exchange Act of 1934 (the "Exchange Act") with respect to the
Company, that has failed to file, on a timely basis, (as disclosed in the
aforementioned Forms) reports required by Section 16(a) of the Exchange Act
during Fiscal 1996 or prior fiscal years.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth information concerning the annual and
long-term compensation for services in all capacities to the Company for each of
the years ended December 1, 1996, November 30, 1995 and November 30, 1994, of
those persons who served as (i) the chief executive officer during Fiscal 1996,
and (ii) the other four most highly compensated executive officers of the
Company for Fiscal 1996 (collectively, the "Named Executive Officers"):
41
<PAGE> 43
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------- ----------------------
SECURITIES
OTHER RESTRICTED UNDERLYING
NAME AND ANNUAL STOCK OPTIONS/ LTIP ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION AWARD(s) SARS PAYOUTS COMPENSATION
-------------------- ------ -------- ------ ------------ -------- ------ ------- ------------
(f) (i) (b)
- -------------------------------------------- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ronald L. Jones (a)
Chief Executive 1996 $381,262 $423,584 $456,168(a) $637,800(g) 400,000(h) -- $2,476
Officer and President 1995 -- -- -- -- -- -- --
1994 -- -- -- -- -- -- --
Lyman M. Beggs (j) 1996 153,318 91,988 -- -- -- -- 3,059,545(j)
Chairman, Chief 1995 525,336 0 75,914(c) 107,000(d) -- -- 21,262
Executive Officer and 1994 522,918 550,807 78,778(c) -- -- -- 19,569
President
Jesse E. Hogan 1996 212,137 120,539 -- -- -- $348,570 17,125
Sr. Vice President and 1995 203,830 0 28,613(e) -- -- -- 16,402
Chief Financial Officer 1994 100,000 52,811 -- -- -- -- 711
Gary T. Fazio 1996 196,226 86,559 -- -- -- 426,030 15,864
Vice President - Sales 1995 187,765 0 -- -- -- -- 15,151
1994 178,785 56,136 -- -- -- -- 14,457
Lawrence J. Rogers 1996 175,812 100,385 -- -- -- 395,046 13,884
Vice President - 1995 164,551 15,503 -- -- -- -- 13,049
International 1994 160,274 36,957 -- -- -- -- 12,739
David J. McIlquham 1996 188,505 83,302 -- -- -- 426,030 15,268
Vice President - 1995 171,052 0 -- -- -- -- 13,794
Marketing 1994 162,470 57,045 -- -- -- -- 13,106
<FN>
(a) Pursuant to his Employment Agreement, Mr. Jones commenced employment with
the Company as of February 27, 1996. The terms of the Employment Agreement
are described more fully in "Compensation Pursuant to Plans and Other
Arrangements - Executive Employment Agreements." Such amount primarily
consists of a $250,000 payment upon commencement of employment and $205,000
in relocation and other transitional matters.
(b) Represents amounts paid on behalf of each of the Named Executive Officers
for the following three respective categories of compensation: (i) Company
premiums for life and accidental death and dismemberment insurance, (ii)
Company premiums for long-term disability benefits, and (iii) Company
contributions to the Company's defined contribution plans. Amounts for each
of the Named Executive Officers for each of the three respective preceding
categories is as follows: Mr. Jones: (1996-$1,943, $533, $0); Mr. Beggs:
(1996-$3,525, $267, $0; 1995-$3,501, $800, $16,960; 1994- $2,220, $840,
$16,509); Mr. Hogan: (1996-$1,409, $867, $14,849; 1995-$1,334, $800,
$14,268; 1994-$444, $267, $0); Mr. Fazio: (1996-$1,305, $849, $13,710;
1995-$1,254, $753, $13,144; 1994- $1,191, $751, $12,515); Mr. Rogers
(1996-$747, $763, $12,374;1995-$947, $583, $11,519; 1994-$955, $565,
$11,219 ); Mr. McIlquham: (1996-$1,255, $817, $13,195; 1995-$1,137, $683,
$11,974; 1994-$1,083, $650, $11,373).
(c) Mr. Beggs commenced employment with the Company as of August 24, 1992.
Under the terms of his Employment Agreement, Mr. Beggs received $75,914 and
$78,778 in 1995 and 1994, respectively, as the result of: (i) the
forgiveness of a portion of an equity loan from the Company to Mr. Beggs,
reflecting the loss of equity in his previous residence (1995-$45,383;
1994-$47,029); (ii) professional fees, personal use of auto, travel and
entertainment expenses; and (iii) payments to cover Mr. Beggs' tax
liabilities on the foregoing items.
</TABLE>
42
<PAGE> 44
[FN]
(d) Such amount reflects the Company's determination of the fair value at the
date of grant of 10,000 shares issued to Mr. Beggs as of November 30, 1995
pursuant to his Employment Agreement. These Shares were repurchased by the
Company in connection with Mr. Beggs' termination of employment. The
Employment Agreement also provided for the issuance to Mr. Beggs of an
additional 90,000 Shares, which were forfeited upon his termination. See
"Compensation Pursuant to Plans and Other Arrangements--Executive
Employment Agreements." Hence, Mr. Beggs no longer had any restricted stock
holdings at the end of Fiscal 1996.
(e) The amount paid to Mr. Hogan represents reimbursement for moving expenses
and the tax liabilities thereon.
(f) On January 6, 1997, the Company issued restricted stock, pursuant to the
Company's 1996 Transitional Restricted Stock Plan to, among others,
certain Named Executive Officers as follows: Jesse E. Hogan: 20,000
shares; Gary T. Fazio: 15,800 shares; David J. McIlquham: 15,800 shares;
and Lawrence J. Rogers: 15,800 shares.
(g) Such amount reflects the Company's determination of the fair value at the
date of grant of 67,635 shares issued to Mr. Jones, pursuant to his
Employment Agreement. Although the 1997 Credit Agreement and Note Indenture
contain restrictions on the Company's ability to pay dividends, if declared
and paid on the Company's Shares, such dividends would be paid on such
Shares issued to Mr. Jones. The February 28, 1997 Dividend was paid on
such shares. As of December 1, 1996, the value of Mr. Jones' restricted
stock holdings was $873,168.
(h) Pursuant to his Employment Agreement, the Company granted Mr. Jones
ten-year options to acquire up to 400,000 Shares at an exercise price of
$10.63 per Share as further described in "Compensation Pursuant to Plans
and Other Arrangements - Executive Employment Agreements."
(i) Such amount reflects the value of Shares earned under the Performance
Share Plan which concluded on December 1, 1996.
(j) Mr. Beggs' employment with the Company terminated on March 15, 1996.
Mr. Beggs was awarded $2,578,902 in connection with his withdrawal from
the Performance Share Plan in addition to receiving $394,236 in salary
continuation. Mr. Beggs' remaining equity loan balance (see footnote
(c) above) was forgiven in addition to a gross up payment to cover
his tax liability, together totaling $80,890. His Employment
Agreement and the terms of his termination and certain payments
made in connection therewith are described more fully in "Compensation
Pursuant to Plans and Other Arrangements -- Executive Employment
Agreements."
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- ---------------------------------------------------------------------------------------------- -------------------------------------
NUMBER OF % OF TOTAL POTENTIAL REALIZABLE VALUE AT ASSUMED
SECURITIES OPTIONS/SARS EXERCISE ANNUAL RATES OF STOCK PRICE
UNDERLYING GRANTED TO OR BASE APPRECIATION FOR OPTION TERM (a)
OPTIONS/SARS EMPLOYEES IN PRICE EXPIRATION -------------------------------------
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
- ----------------------- ---------------- ------------------ ------------------- ------------- ----------------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Ronald L. Jones 400,000 79% $10.63 3/1/2006 $2,676,000 $6,776,000
Chief Executive Officer
and President
<FN>
(a) Potential Realizable Value is based on certain assumed rates of
appreciation pursuant to rules prescribed by the Securities and Exchange
Commission and are not intended to be a forecast of the Company's stock
price. Actual gains, if any, on stock option exercises are dependent on
the future performance of the stock. There can be no assurance that the
amounts reflected in this table will be achieved. In accordance with rules
promulgated by the Securities and Exchange Commission, Potential
Realizable Value is based upon the exercise price of the options.
</TABLE>
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS/SARS IN-THE-MONEY OPTIONS/SARS
NAME ACQUIRED VALUE AT FY-END (#) AT FY-END ($)
ON EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
(#) (a) (b) (c)
- ----------------------------- ---------------- ------------ ---------------------------------- ------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Ronald L. Jones -- -- -- / 400,000 -- / $912,000
Chief Executive Officer
and President
</TABLE>
43
<PAGE> 45
(a) Includes options exercisable within 60 days after December, 1, 1996.
(b) Options are in-the-money if the fair market value of the Common Stock
exceeds the exercise price.
(c) Represents the total gain which would be realized if all in-the-money
options beneficially held at December 1, 1996 were exercised, determined by
multiplying the number of Shares underlying the options by the difference
between the per share option exercise price and the estimated fair market
value as of December 1, 1996.
44
<PAGE> 46
LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
PERFORMANCE
NUMBER OF OR OTHER
SHARES, UNITS PERIOD UNTIL
OR OTHER RIGHT MATURITY OR THRESHOLD TARGET MAXIMUM
NAME (#) (a) PAYOUT (#) (#) (#)
- ---------------------------- ----------------------------------- ------------------------------------------------
<S> <C> <C> <C> <C> <C>
Lyman M. Beggs* (b) 1,000,000 12/1/96 100,000 417,000 1,000,000
Gary T. Fazio* 110,000 12/1/96 11,000 45,870 110,000
Jesse E. Hogan* 90,000 12/1/96 9,000 37,530 90,000
David J. McIlquham* 110,000 12/1/96 11,000 45,870 110,000
Lawrence J. Rogers* 102,000 12/1/96 10,200 42,534 102,000
Ronald L. Jones -- -- -- -- --
<FN>
* Awards were previously reported.
(a) The Company's Performance Share Plan (the "Plan"), which became effective
in 1992, provided for the issuance to key employees of the Company and its
subsidiaries (the "Participants") of performance share units ("Performance
Shares"), each of which represented the right to receive, without any
additional consideration, up to one Share, based on the extent to which the
Company achieved specified cumulative operating cash flow ("COCF") targets
over the five-year period ending December 1, 1996 (the "Measurement
Period"). As of December 1, 1996, the conclusion of the Plan, 451,740
Shares were awarded under the Plan, of which 207,549 Shares were tendered
to the Company by Plan participants to cover their estimated tax liability,
resulting in the issuance (net of such shares tendered) of 244,191 Shares
subsequent to Fiscal 1996.
The Performance Shares generally vested over a five-year period. For
participants who terminated employment during the periods indicated, the
following percentages of Initial Performance Shares became vested: from
December 1, 1992 through November 30, 1993 -- 30%; from December 1, 1993
through November 30, 1994 -- 45%; from December 1, 1994 through November
30, 1995 -- 60%; from December 1, 1995 through November 29, 1996 -- 80%;
and on or after November 30, 1996 -- 100%. In the event that a Participant
incurred a termination of employment for cause (as defined in the Plan) or
engages in a breach of certain noncompetition covenants following a
voluntary termination, the Participant forfeited all Performance Shares,
whether or not vested.
(b) Mr. Beggs withdrew from the Plan and certain of his Performance Shares were
repurchased pursuant to the terms of his severance agreement. See
"Compensation Pursuant to Plans and Other Arrangements -- Executive
Employment Agreements."
</TABLE>
COMPENSATION PURSUANT TO PLANS AND OTHER ARRANGEMENTS
SEVERANCE BENEFIT PLANS. Effective December 1, 1992, the Company
established the Sealy Executive Severance Benefit Plan (the "Executive Severance
Plan") for employees in certain salary grades. Benefit eligibility includes,
with certain exceptions, termination as a result of a permanent reduction in
work force or the closing of a plant or other facility, termination for
inadequate job performance, termination of employment by the participant
following a reduction in base compensation, reduction in salary grade which
would result in the reduction in potential plan benefits or involuntary transfer
to another location. Benefits include cash severance payments calculated using
various multipliers varying by salary grade, subject to specified minimums and
maximums depending on such salary grades. Such cash severance payments are made
in equal semi-monthly installments calculated in accordance with the Executive
Severance Plan until paid in full. Certain executive-level officers would be
entitled to a minimum of one-year's salary and a maximum of two-year's salary
under the Executive Severance Plan. However, if a Participant becomes employed
prior to completion of the payment of benefits, such semi-monthly installments
shall be reduced by the Participant's base compensation for the corresponding
period from the Participant's new employer. Participants receiving cash
severance payments under the Executive Severance Plan also would receive six
months of contributory health and dental coverage and six months of group term
life insurance coverage.
The Company currently follows the terminal accrual approach to accounting
for severance benefits under the Executive Severance Plan and records the
estimated cost of these benefits as expense at the date of the event giving rise
to payment of the benefits.
45
<PAGE> 47
EXECUTIVE EMPLOYMENT AGREEMENTS. Effective February 27, 1996, the Company
entered into an employment agreement and related reimbursement letter agreement
(collectively, the "Jones Agreement") with Mr. Jones, pursuant to which Mr.
Jones became employed as President and Chief Executive Officer of the Company
for an initial term ending March 31, 1999 and continuing on a year-to-year basis
thereafter until retirement or 90 days prior written notice of either party of
intent to terminate at the end of such renewal period. Pursuant to the Jones
Agreement, Mr. Jones' minimum base salary is $500,000 annually and he is
eligible to receive a cash bonus in an amount to be determined by the Board of
Directors or a committee thereof, with a guaranteed minimum bonus of 40% of
salary payments for the fiscal year ending December 1, 1996 and he received a
$250,000 payment upon commencing employment.
Pursuant to the terms of the Jones Agreement and a related Restricted
Stock Agreement and Stock Option Agreement, Mr. Jones received an aggregate of
67,635 Shares based on the following vesting schedule: March 4, 1997 - 16,900
Shares; March 4, 1998 - 16,900 Shares; March 4, 1999 - 16,900 Shares; March 4,
2000 - 16,935 Shares. Mr. Jones also received ten-year options to acquire up to
400,000 Shares at an exercise price of $10.63 per Share, the number and
exercise price of which will be equitably adjusted for special large and
non-recurring dividends and which options will vest on the following basis:
March 4, 1997 - 100,000 options; March 4, 1998 - 100,000 options; March 4,
1999 - 100,000 options; and March 4, 2000 - 100,000 options.
Mr. Jones also entered into a Stockholder's Agreement with the Company
(the "Jones Stockholder's Agreement") in connection with the Employment
Agreement, which provided that, prior to March 4, 2001, Mr. Jones could sell
any Company Stock (as defined) that he owns, including the Restricted Stock
referenced above, only after the Company's first registered public offering of
its common stock ("Initial IPO") or approval by the Board of Directors. After
March 4, 2001, the Company shall have certain rights of first refusal with
respect to any proposed transfers of Mr. Jones' Company Stock (other than to
certain permitted transferees) if no Initial IPO has occurred. In addition, if
Mr. Jones' employment is terminated prior to an Initial IPO other than by
reason of his resignation, then the Jones Stockholder's Agreement grants to Mr.
Jones or his representative the right to cause the Company to repurchase all
of Mr. Jones' Company Stock at the "fair market value" (determined in
accordance with the Jones Stockholder's Agreement). In the event that Mr.
Jones' employment is terminated by reason of his resignation prior to an
Initial IPO, then the Company shall have the option to repurchase Mr. Jones'
Company Stock for the "fair market value."
Effective October 31, 1992, the Company entered into an employment
agreement and related reimbursement letter agreement (collectively, the
"Employment Agreement") with Mr. Beggs, pursuant to which Mr. Beggs was employed
as Chairman, President and Chief Executive Officer of the Company for a period
(the "Employment Period") commencing on August 24, 1992 and continuing through
November 30, 1997 (the "Expiration Date"). Pursuant to the Employment Agreement,
Mr. Beggs received a minimum base salary of $500,000 annually.
Pursuant to the Employment Agreement, Mr. Beggs was granted an aggregate
of 200,000 Shares, 100,000 of which were issued as of October 31, 1992 subject
to certain forfeiture provisions which lapsed as of November 30, 1995 and 10,000
issued at November 30, 1995. In addition, the following number of additional
Shares were issuable had he remained employed by the Company through the dates
indicated: November 30, 1996 --40,000 shares; and November 30, 1997 -- 50,000
shares. Mr. Beggs also entered into a Stockholder's Agreement with the Company
(the "Stockholder's Agreement") in connection with the Employment Agreement,
which provided that, prior to the Expiration Date, Mr. Beggs could sell his
Shares only after an Initial IPO or approval by the Board of Directors and,
after the Expiration Date, the Company shall have certain rights of first
refusal with respect to any proposed transfers of Mr. Beggs' Shares (other than
to certain permitted transferees). In addition, Mr. Beggs was granted an award
of 1,000,000 Performance Shares, representing the right to receive up to
1,000,000 Shares pursuant to, and subject to the terms of, the Plan. Mr. Beggs
subsequently withdrew from the Performance Share Plan in connection with his
termination of employment with the Company.
Pursuant to the Employment Agreement, Mr. Beggs received relocation
expenses and was entitled to health and life insurance and certain other
benefits. The Company purchased Mr. Beggs' previous residence from him for
$712,500 and sold such residence for $690,000 in February 1993. Mr. Beggs
borrowed $157,673 from the Company (the "Equity Loan") upon the purchase of a
new home in the Cleveland area, reflecting the loss of equity in his previous
residence. Such Equity Loan was interest free to the extent allowed under
applicable tax laws and otherwise bears interest at the applicable federal rate.
In accordance with the terms of the Employment Agreement, $20,000 of the Equity
Loan was forgiven on each of November 30, 1995, 1994 and 1993. In addition,
$2,442, $3,256 and $4,070 in interest related to such Equity Loan was also
forgiven on November 30, 1995, 1994 and 1993, respectively, and the Company paid
Mr. Beggs an additional $45,383, $47,029 and $44,034, as additional compensation
for his tax liability as a result of such forgiveness of indebtedness in each
period, respectively. The balance of the Equity Loan has two equal annual
payments of principal due on November 30, 1996 and 1997.
46
<PAGE> 48
The Employment Agreement provided that if, prior to the Expiration Date,
Mr. Beggs' employment was terminated by the Company other than for cause
(as defined in the Employment Agreement), death or disability or if Mr. Beggs
terminated his employment for good reason, he would continue to receive his
base salary until the later of November 30, 1997 or one year, and he would also
receive forgiveness of the Equity Loan, the payment of a portion of any
then-applicable bonus on a pro-rata basis and the issuance of the remainder of
the unissued Shares noted above. In addition, it provided that if Mr. Beggs'
employment terminated prior to the Expiration Date under certain circumstances,
then the Stockholder's Agreement grants to Mr. Beggs or his representative the
right to cause the Company to repurchase all of Mr. Beggs' Shares at their
"fair market value" (determined in accordance with the Stockholder's
Agreement). It further provided that in the event that Mr. Beggs' employment
terminated prior to the Expiration Date for "cause" or if he voluntarily
terminates his employment other than for "good reason," then the Company had
the option to repurchase Mr. Beggs' Shares for their "fair market value."
Mr. Beggs' last day of employment was March 15, 1996. Mr. Beggs and the
Company entered into a settlement agreement dated March 1, 1996, which provided
that it superseded all previous agreements. Pursuant to its terms, Mr. Beggs
will continue to receive his base salary through November 30, 1997 and, in
January, 1997, received a bonus equal to 60% of the salary payments for the
period December 1, 1995 to March 15, 1996. The remaining Equity Loan balance of
$40,000 has been forgiven and the Company will pay Mr. Beggs an amount necessary
to offset any tax liability to him as a result of such forgiveness of
indebtedness. In exchange for Mr. Beggs' transferring the 110,000 Shares which
had been issued to him and relinquishing any rights to the remaining 90,000
shares that would have been issued to him had Mr. Beggs remained employed, the
Company paid Mr. Beggs $2,126,000.
Mr. Beggs withdrew from the Performance Share Plan and in exchange was
deemed to have been vested in 800,000 Performance Share Units. Instead of
remaining as a participant and converting his Units into Shares within the Plan
at the conclusion of the fiscal year ending December 1, 1996, the Company agreed
to pay Mr. Beggs an amount determined by multiplying the number of Shares into
which Performance Share Units would have been converted in accordance with the
formula then set forth in the Performance Share Plan by the higher of (a) the
per Share value as of November 30, 1996 as determined pursuant to the Plan or
(b) $10.63 per Share plus interest at the rate of 6% per annum from March 15,
1996 to date of payment. As a result, the Company owes Mr. Beggs $2,578,902.
REMUNERATION OF DIRECTORS. Effective upon the Acquisition, the Company
began compensating its directors who are not employees with a retainer at the
rate of $30,000 on an annual basis, reduced by $1,000 for each Board meeting not
attended, plus $1,000 ($1,250 for Committee Chairmen, if any) for each Committee
meeting attended if such meeting is on a date other than a Board meeting date,
and incidental expenses in connection with traveling to or attending such
meetings. Directors Zell, Dammeyer, Rosenberg, Davis, Towe, Johnston and Hefner
are eligible for such remuneration.
During Fiscal 1993, the Company adopted the 1993 Non-Employee Director
Stock Option Plan (the "1993 Plan"), which was subsequently amended on April 6,
1994, June 27, 1995 and as of May 1, 1996. The 1993 Plan provides for the
one-time automatic grant of ten-year options to acquire up to 10,000 Shares to
all current and future directors who are not employed by the Company, by
Zell/Chilmark or by their respective affiliates ("Non-Employee Directors").
Options granted under the 1993 Plan vest immediately and are initially
exercisable at a price equal to the fair market value of the Shares on the date
of grant. For options granted prior to March 1, 1994, the exercise price of
options granted pursuant to this Plan increased on the first anniversary date of
such grant by 4%, which became the fixed exercise price for all such options.
Options issued thereafter, are exercisable over their term at the fair market
value on the date of grant. Pursuant to the 1993 Plan, the Company granted
options to acquire up to 50,000 Shares to Non-Employee Directors in fiscal year
1993 at an initial exercise price of $9.05 per Share, which therefore have a
fixed exercise price of $9.41 per Share. No options under the 1993 Plan have
been exercised. The 1993 Plan was amended on June 27, 1995 to provide for the
grant of an additional option to purchase 5,000 Shares to each eligible director
and thereafter providing for the automatic annual grant of an option to each
eligible director to purchase an additional 5,000 Shares at fair market value on
the date of grant. Pursuant to the 1993 Plan, the Company granted options to
acquire up to 5,000 Shares to each eligible director in Fiscal 1995 with a fixed
exercise price of $15.95 per Share. The 1993 Plan was amended effective May 1,
1996 to provide that as of the record date of any special, large and
non-recurring cash dividend to be paid on common shares, the option price per
share will be automatically decreased and the number of options automatically
increased to the maximum extent allowable without the Company having to account
for additional expense.
47
<PAGE> 49
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to those
holders which, according to the records of the Company, beneficially own more
than 5% of the outstanding Shares as of February 25, 1997:
<TABLE>
<CAPTION>
NUMBER PERCENT
NAME OF SHARES OF CLASS (A)
---- --------- ------------
<S> <C> <C>
Zell/Chilmark Fund, L.P.
Two North Riverside Plaza
Suite 600
Chicago Illinois 60606 26,172,685(b) 87.3%
The Fulcrum III Limited Partnership
600 Madison Avenue
New York, New York 10022 2,675,424(c) 8.4%(c)
The Second Fulcrum III Limited
Partnership
600 Madison Avenue 1,818,660(c) 5.8%(c)
New York, New York 10022
<FN>
(a) The percent of class calculation assumes that the stockholder for whom the
percent of class is being calculated has exercised all Merger and
Restructure Warrants (as described in Note 8 of the Notes to the
Consolidated Financial Statements) owned by such stockholder and that no
other stockholder has exercised any other Merger and Restructure Warrants.
Accordingly, the total of the percentages for all the stockholders listed
exceeds 100%.
(b) For further information with respect to Zell/Chilmark, see Item 10,
"Directors and Executive Officers" and Item 13, "Certain Relationships and
Related Transactions."
(c) Assumes the exercise of Restructure Warrants owned by such Partnerships.
See Note 8 of the Notes to the Consolidated Financial Statements contained
in Part II, Item 8 included herein.
</TABLE>
The following table sets forth certain information with respect to the
beneficial ownership of the Shares by each of the directors and Named Executive
Officers of the Company and by all directors and executive officers of the
Company as a group, as of February 25, 1997:
<TABLE>
<CAPTION>
SHARES
NAME AND ADDRESS OF BENEFICIALLY PERCENT OF
BENEFICIAL OWNER OWNED CLASS (a)
------------------ --------------- ----------
<S> <C> <C>
Samuel Zell 26,172,685(b) 87.3%
Rod F. Dammeyer 26,172,685(b) 87.3%
Sheli Z. Rosenberg 26,172,685(b) 87.3%
George L. Davis 21,906 **
Rolf H. Towe 49,536 **
James W. Johnston 21,906 **
Christie A. Hefner 21,906 **
Ronald L. Jones 67,635 **
Jesse E. Hogan 33,120(c) **
Gary T. Fazio 32,415(c) **
Lawrence J. Rogers 32,894(c) **
David J. McIlquham 40,328(c) **
All directors and executive
officers as a group 26,648,281(c) 88.6%
<FN>
** Less than 1%
</TABLE>
48
<PAGE> 50
(a) The percent of class calculation for each of the listed individuals assumes
that the stockholder for whom the percent of class is being calculated has
exercised all Merger and Restructure Warrants owned by such stockholder and
that no other stockholder has exercised any other Merger and Restructure
Warrants. Accordingly, the total of the percentages for each of the listed
individuals exceeds 100%. However, the total percent of class for all
executive officers and directors as a group assumes that each of the
executive officers and directors have exercised any Merger and Restructure
Warrants beneficially owned by them and that no other stockholder has
exercised any other Merger and Restructure Warrants.
(b) The securities reported herein are beneficially owned by the Zell/Chilmark
Fund, L.P., a Delaware limited partnership ("Zell/Chilmark"). The sole
general partner of Zell/Chilmark is ZC Limited Partnership, an Illinois
limited partnership ("ZC Limited"). The sole general partner of ZC Limited
is ZC Partnership, a Delaware general partnership. The sole partners of ZC
Partnership are CZ Inc., a Delaware corporation, and ZC, Inc., an Illinois
corporation. The Samuel Zell Revocable Trust under trust agreement dated
January 17, 1990 ("Trust") is the sole shareholder of ZC, Inc. Samuel Zell
is the trustee and beneficiary of the Trust and may be deemed to be the
beneficial owner of the shares reported herein. One of the limited partners
of ZC Limited is COP General Partnership, an Illinois general partnership
("COP"). One of the general partners of COP is COP Seniors General
Partnership, an Illinois general partnership ("COP Seniors"). Two of the
general partners of COP Seniors are Rod F. Dammeyer and Sheli Z. Rosenberg.
As a result, Mr. Dammeyer and Ms. Rosenberg may be deemed to be beneficial
owners of the securities reported herein.
The management of ZC Limited, the sole general partner of Zell/Chilmark is
conducted through an executive committee. Mr. Dammeyer, Ms. Rosenberg and
Mr. Zell are members of the executive committee and as such may share the
right to vote or direct the vote and may share the right to dispose or
direct the disposition of the securities reported herein and as such may be
deemed to be a beneficial owner of the securities reported herein. Mr.
Dammeyer, Ms. Rosenberg and Mr. Zell each disclaims beneficial ownership of
the securities reported herein.
(c) The Shares listed for certain of the executive officers include Shares
of Restricted Stock issued by the Company. On January 6, 1997, the Company
issued an aggregate of 241,800 Shares of the Company's Restricted Stock ,
pursuant to the Company's 1996 Transitional Restricted Stock Plan adopted
August 27, 1996. These Shares were issued to the following executive
officers of the Company: Bruce G. Barman: 7,700 Shares; John G. Bartik:
7,000 shares; Jeffrey C. Claypool: 15,800 shares; Gary T. Fazio: 15,800
Shares; Douglas E. Fellmy: 15,800 Shares; Thomas M. Forman: 15,800 Shares;
Jesse E. Hogan; 20,000 Shares; David J. McIlquham: 15,800 Shares;
Lawrence J. Rogers: 15,800 shares; and Ronald H. Stolle: 7,000 Shares.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In Fiscal 1995, the Human Resources Committee (which functions as the
Compensation Committee) of the Board of Directors consisted of Ms. Hefner and
Messrs. Zell, Johnston, Towe and Joel Friedland. Effective December 5, 1995, the
Committee consisted of Ms. Hefner, Ms. Rosenberg, Mr. Johnston, Mr. Dammeyer,
Mr. Towe and Mr. Zell.
As part of the Acquisition and pursuant to the Stock Purchase Agreement
(defined below), Zell/Chilmark, MBLP and the Company entered into a registration
rights agreement relating to the Acquired Shares, including the 27,630 Shares
purchased by Mr. Towe. Pursuant to the Stock Purchase Agreement, the holders of
a majority of such Acquired Shares have the right to demand, up to five times
but no more than once every six months, registration of their Acquired Shares
under the Securities Act of 1933 as amended. In addition, under certain
conditions, the holders of the Acquired Shares have a right to include some or
all of their Acquired Shares in any subsequent registration statement filed by
the Company with respect to the sale of Shares. The Company has agreed to bear
all expenses associated with any registration statement relating to the Acquired
Shares other than any underwriting discounts or commissions, brokerage
commissions and fees.
49
<PAGE> 51
MANAGEMENT SUBSCRIPTION AND BENEFIT ARRANGEMENTS. See "Management --
Compensation Pursuant to Plans and Other Arrangements -- Severance Arrangements"
for a description of the Company's severance arrangements with certain executive
officers. See "Management -- Compensation Pursuant to Plans and Other
Arrangements -- Executive Employment Agreements" for a description of the
Company's employment arrangements with Mr. Beggs.
STOCK REPURCHASE AGREEMENTS. Certain officers, key employees of the Company and
certain former employees of the Company (collectively, the "Management
Investors") are the beneficial owners of 63,830 Shares, (the "Management
Investors' Shares"). Such Shares were acquired in connection with the LBO
pursuant to subscription agreements between the Company and such individuals
(the "Subscription Agreements") or subsequently acquired as stock bonuses
pursuant to the same Subscription Agreements. The Subscription Agreements
provide that the Management Investors' Shares were subject to put options
whereby the Company may be required to redeem such Shares at fair market value
in the event of a Management Investor's death, disability, or termination of
employment under certain circumstances, prior to January 1, 994, at the option
of the Management Investor or his estate. Under certain circumstances, such
Shares also are subject to call options whereby the Company, at its option, may
purchase such Shares from a Management Investor at fair market value, so long as
the Company has not effected a public offering of its common stock, in the event
of either (i) a Management Investor's voluntary termination of employment on or
before January 1, 1994, or (ii) a Management Investor's termination for cause
(as defined). Due to the possibility of repurchase in connection with the put
options, such Management Investors' Shares were not considered to be part of the
Company's stockholders' equity for periods prior to January 1, 1994. The
Subscription Agreements also grant to the Management Investors certain
registration rights in the event that the Company (or, in certain circumstances,
other investors in the Company) registers any common stock under the Securities
Act.
FULCRUM. In connection with the LBO, The Fulcrum III Limited Partnership and The
Second Fulcrum III Limited Partnership (together, the "Fulcrum Partnerships"),
purchased, after giving effect to the reverse stock split, 961,400 Shares
pursuant to a stock subscription agreement with the Company (the "Fulcrum Stock
Subscription Agreement") which provides that, under certain circumstances, the
Company has a right of first refusal in the event of a proposed sale of such
Shares by the Fulcrum Partnerships. The Fulcrum Subscription Agreement also
grants to the Fulcrum Partnerships certain rights to demand the registration of
their Shares and certain registration rights in the event that the Company (or,
in certain circumstances, other investors in the Company) registers any common
stock under the Securities Act. In addition, in connection with the
Recapitalization, the Fulcrum Partnerships were issued Restructure Warrants to
acquire up to an aggregate of 3,532,684 Shares.
50
<PAGE> 52
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) The following consolidated financial statements of Sealy Corporation
and its subsidiaries are included in Part II, Item 8:
Sealy Corporation
Report of Independent Auditors
Consolidated Balance Sheets at December 1, 1996 and November
30, 1995
Consolidated Statements of Operations for the years ended
December 1, 1996, November 30, 1995 and November 30, 1994
Consolidated Statements of Stockholders' Equity for the years
ended December 1, 1996, November 30, 1995 and November 30,
1994
Consolidated Statements of Cash Flows for the years ended
December 1, 1996, November 30, 1995 and November 30, 1994
Notes to consolidated financial statements
(a)(2) The exhibits to this report are listed in section (c) of Item 14 below.
(b) A Form 8-K was filed January 27, 1997 to report the issuance of two
press releases describing the Company's sale of its wood furniture
subsidiary and describing the Consent Solicitation and certain
financial results for the Company's fiscal year ended December 1, 1996.
A Form 8-K was filed February 24, 1997 to report the issuance of two
press releases describing the Company's declaration of the Dividend and
describing the Company's successful completion of the Consent
Solicitation.
(c) Exhibits
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------ -------------------
3.1 Restated Certificate of Incorporation of Sealy Corporation dated as of
November 5, 1991. (Incorporated herein by reference to the appropriate
exhibit to Sealy Corporation's Annual Report on Form 10-K for the
fiscal year ended November 30, 1991 (File No. 1-8738)).
3.2 By-Laws of Sealy Corporation adopted as of November 4, 1991.
(Incorporated herein by reference to the appropriate exhibit to Sealy
Corporation's Annual Report on Form 10-K for the fiscal year ended
November 30, 1991 (File No. 1-8738)).
4.1 Warrant Agreement, dated as of November 6, 1991 between Sealy
Corporation and Sealy, Inc., Warrant Agent, including the form of
Series A and Series B Warrant. (Incorporated herein by reference to
the appropriate exhibit to Sealy Corporation's Annual Report on Form
10-K for the fiscal year ended November 30, 1991 (File No. 1-8738)).
4.2 Form of Series A and Series B Warrant (included as Exhibit A to the
Warrant Agreement filed as Exhibit 4.1). (Incorporated herein by
reference to the appropriate exhibit to Sealy Corporation's Annual
Report on Form 10-K for the fiscal year ended November 30, 1991 (File
No. 1-8738)).
51
<PAGE> 53
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------ -------------------
4.3 Warrant Agreement, dated as of August 1, 1989 between GGvA Holding
Corp. (renamed Sealy Holdings, Inc. and merged with and into Sealy
Corporation) and First Chicago Trust Company of New York, Warrant
Agent, including the form of Merger Warrant (Incorporated herein by
reference to Exhibit 4.1 to Annual Report on Form 10-K of The Ohio
Mattress Holding Company and The Ohio Mattress Company for the year
ended November 30, 1989, File No. 33-29246, filed March 2, 1990.)
4.4 Form of Merger Warrant (included as Exhibit A to the Warrant Agreement
filed as Exhibit 4.3) (Incorporated herein by reference to Exhibit 4.2
to Annual Report on Form 10-K of Sealy Holdings, Inc. and Sealy
Holdings, Inc. (merged with and into Sealy Corporation) for the year
ended November 30, 1990, File No. 33-29246, filed February 28, 1991.)
4.5 Indenture dated as of November 1, 1991, among Sealy Corporation,
certain subsidiaries of Sealy Corporation listed on the signature
pages thereto and Ameritrust company National Association.
(Incorporated herein by reference to the appropriate exhibit to Sealy
Corporation's Annual Report on Form 10-K for the fiscal year ended
November 30, 1991 (File No. 1-8738.)
4.6 Stock Subscription Agreement, dated as of March 30, 1989 by and among
GGvA Holding Corp. (renamed Sealy Holdings, Inc. and merged with and
into Sealy Corporation) and the purchasers listed therein.
(Incorporated herein by reference to Exhibit 4.4 to Registration
Statement of The Ohio Mattress Holding Company and The Ohio Mattress
Company of Form S-4, File no. 33-29246, filed June 13, 1989.)
4.7 Management Stock Subscription Agreement, dated as of March 30, 1989 by
and among GGvA Holding Corp. (renamed Sealy Holdings, and merged with
and into Sealy Corporation) and the management purchasers listed
therein. (Incorporated herein by reference to Exhibit 4.5 to
Registration Statement of The Ohio Mattress Holding Company on form
S-4, File No. 33-29246, filed June 13, 1989.)
4.8 First Supplemental Indenture, dated as of February 12, 1993, by and
among Sealy Corporation, certain subsidiaries of Sealy Corporation
listed on the signature pages thereto as Ameritrust Company National
Association (n.k.a. Society National Bank). (Incorporated herein by
reference to the appropriate exhibit to the Form 10-K for the fiscal
year ended November 30, 1992, File No. 1-8738.)
4.9 Indenture, dated as of May 7, 1993, by and between Sealy Corporation
and Society National Bank relating to the Sealy Corporation's 9 1/2%
Senior Subordinated Notes. (Incorporated herein by reference to the
appropriate exhibit to the Form 8-K Current Report of Sealy
Corporation dated May 7, 1993.)
4.10 Form of 9 1/2% Senior Subordinated Note Due 2003. (Incorporated herein
by reference to the appropriate exhibit to the Form 8-K Current Report
of Sealy Corporation dated May 7, 1993.)
4.11 Restated Secured Credit Agreement, dated as of May 27, 1994, by and
among Sealy Corporation, Certain Banks and Other Financial
Institutions and Banque Paribas, Citicorp USA, Inc., Bank of America
(formerly Continental Bank N.A.) and General Electric Capital
Corporation, as Managing Agents. (Incorporated herein by reference to
the appropriate exhibit to the Form 10-Q Quarterly Report of Sealy
Corporation dated May 31, 1994 (File No. 1-8738)).
4.12 Amendment No. 1 to Warrant Agreement between Sealy Corporation and
Society National Bank as Warrant Agent, dated April 1, 1995.
(Incorporated herein by reference to the appropriate exhibit to the
Form 10-Q Quarterly Report of Sealy Corporation dated August 31, 1995
(File No. 1-8738)).
52
<PAGE> 54
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------ -------------------
4.13 First Amendment and consent to Restated Secured Credit Agreement,
dated May 27, 1994 by and among Sealy Corporation, Certain Banks and
Other Financial Institutions and Banque Paribas, Citicorp USA, Inc.,
Bank of America and General Electric Capital Corporation, as Managing
Agents. (Incorporated herein by reference to the appropriate exhibit
to the Form 10-K for the fiscal year ended November 30, 1995 (File
No. 1-8738)).
4.14 Second Amendment to Restated Secured Credit Agreement, dated May 27,
1994 by and among Sealy Corporation, Certain Banks and Other Financial
Institutions and Banque Paribas, Citicorp USA, Inc., Bank of America
and General Electric Capital Corporation, as Managing Agents.
(Incorporated herein by reference to the appropriate exhibit to the
Form 10-K for the fiscal year ended November 30, 1995 (File No.
1-8738)).
4.15 Third Amendment to the Restated Secured Credit Agreement, dated as of
May 27, 1994, by and among Sealy Corporation, Certain Banks and Other
Financial Institutions and Banque Paribas, Citicorp USA, Inc., Bank of
America and General Electric Capital Corporation, as Managing Agents.
(Incorporated herein by reference to the appropriate exhibit to the
Form 10-Q Quarterly Report of Sealy Corporation dated June 2, 1996
(File No. 1-8738)).
4.16 Supplemental Indenture dated as of February 21, 1997, by and between
Sealy Corporation and Mellon Bank, F.S.B. (as successor trustee to
Key Bank National Association, formerly known as Society National
Bank).
4.17 $275,000,000 Second Restated Secured Credit Agreement dated as of
February 25, 1997 among Sealy Corporation, as Borrower, Various
Financial Institutions, as Banks, Banque Paribas, as Documentation
Agent, Nationsbank, N.A., as Syndication Agent, and Bank OF America
Illinois, as Administrative Agent.
*10.1 Sealy Profit Sharing Plan, Amended and Restated Date: December 1,
1989. (Incorporated herein by reference to the appropriate exhibit
to the Form 10-K for the fiscal year ended November 30, 1995 (File
No. 1-8738)).
*10.2 Sealy Benefit Equalization Plan, dated December 1, 1994.
(Incorporated herein by reference to the appropriate exhibit to the
Form 10-K for the fiscal year ended November 30, 1995 (File No.
1-8738)).
*10.3 Sealy Trust Agreement dated June 1, 1990. (Incorporated herein by
reference to the appropriate exhibit to Sealy Corporation's Annual
Report on Form 10-K for the fiscal year ended November 30, 1991 (File
No. 1-8738)).
*10.4 The Ohio Mattress Holding Company 1989 Stock Option Plan.
(Incorporated herein by reference to Exhibit 10.16 to Annual Report on
Form 10-K of The Ohio Mattress Holding Company and The Ohio Mattress
Company for the year ended November 30, 1989, File No. 33-29246, filed
March 2, 1990).
*10.5 Sealy Corporation Bonus Program. (Incorporated herein by reference
to the appropriate exhibit to the Form 10-K for the fiscal year ended
November 30, 1995 (File No. 1-8738)).
10.6 Severance Agreement dated March 1, 1996 by and between Sealy
Corporation and Lyman M. Beggs. (Incorporated herein by reference to
the appropriate exhibit to the Form 10-Q Quarterly Report of Sealy
Corporation dated March 3, 1996 (File No. 1-8738)).
*10.7 Sealy Corporation 1992 Stock Option Plan. (Incorporated herein by
reference to the appropriate exhibit to Sealy Corporation's Annual
Report on Form 10-K for the fiscal year ended November 30, 1992 (File
No. 1-8738)).
53
<PAGE> 55
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------ -------------------
*10.8 Sealy Corporation Performance Share Plan. (Incorporated herein by
reference to the appropriate exhibit to Sealy Corporation's Annual
Report on Form 10-K for the fiscal year ended November 30, 1992 (File
No. 1-8738)).
*10.9 Employment Agreement dated as of October 31, 1992, by and between
Sealy Corporation and Lyman M. Beggs. (Incorporated herein by
reference to the appropriate exhibit to Sealy Corporation's Annual
Report on Form 10-K for the fiscal year ended November 30, 1992 (File
No. 1-8738)).
*10.10 Letter Agreement, dated as of October 31, 1992 by and between Sealy
Corporation and Lyman M. Beggs. (Incorporated herein by reference to
the appropriate exhibit to Sealy Corporation's Annual Report on Form
10-K for the fiscal year ended November 30, 1992 (File No. 1-8738)).
*10.11 Stockholder Agreement, dated as of October 31, 1992 by and between
Sealy Corporation and Lyman M. Beggs. (Incorporated herein by
reference to the appropriate exhibit to Sealy Corporation's Annual
Report on Form 10-K for the fiscal year ended November 30, 1992 (File
No. 1-8738)).
54
<PAGE> 56
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------ -------------------
*10.12 Letter Agreement, dated June 5, 1991 by and between Sealy
Corporation and Sam F. Smith, Jr. (Incorporated herein by reference to
the appropriate exhibit to Sealy Corporation's Annual Report on Form
10-K for the fiscal year ended November 30, 1992 (File No. 1-8738)).
10.13 Sealy Corporation 1993 Non-Employee Director Stock Option Plan.
(Incorporated herein by reference to the appropriate exhibit to the
Form S-1 Registration Statement of Sealy Corporation (File No.
33-59134)). (As amended by Amendment No. 1 dated April 6, 1994.)
10.14 Amendment No. 2 to Sealy Corporation 1993 Non-Employee Director Stock
Option Plan, dated June 27, 1995.
10.15 Amendment No. 3 to Sealy Corporation 1993 Non-Employee Director Stock
Option Plan dated as of May 1, 1996.
*10.16 Employment Agreement dated March 4, 1996 by and between Sealy
Corporation and Ronald L. Jones. (Incorporated herein by reference
to the appropriate exhibit to the Form 10-Q Quarterly Report of Sealy
Corporation dated March 3, 1996.)
*10.17 Amendment No. 1 to Sealy Bonus Plan.
*10.18 Sealy Corporation Bonus Plan.
*10.19 Amendment No. 1 to Sealy Corporation 1992 Stock Option Plan.
*10.20 Amendment No. 1 to Sealy Corporation Performance Share Plan.
*10.21 Amendment No. 1 to Sealy Profit Sharing Plan.
*10.22 Amendment No. 2 to Sealy Profit Sharing Plan.
*10.23 1996 Transitional Restricted Stock Plan.
*10.24 Sealy Corporation 1997 Stock Option Plan.
*10.25 Stock Option Agreement dated March 4, 1996 by and between Sealy
Corporation and Ronald L. Jones.
*10.26 Stockholder Agreement dated March 4, 1996 by and among Sealy
Corporation and Ronald L. Jones.
*10.27 Restricted Stock Agreement dated March 4, 1996 by and between Sealy
Corporation and Ronald L. Jones.
21.1 List of subsidiaries of Sealy Corporation (Incorporated herein by
reference to the appropriate exhibit to Sealy Corporation's Annual
Report on Form 10-K for the fiscal year ended November 30, 1992 (File
No. 1-8738)).
27.1 Financial Data Schedule
99.1 Certificate of Ownership and Merger merging Sealy Holdings, Inc. with
and into Sealy Corporation dated as of November 5, 1991. (Incorporated
herein by reference to the appropriate exhibit to Sealy Corporation's
Annual Report on Form 10-K for the fiscal year ended November 30, 1991
(File No. 1-8738)).
99.2 Sealy Corporation Executive Severance Benefit Plan dated January 25,
1993. (Incorporated herein by reference to the appropriate exhibit to
Sealy Corporation's Annual Report on Form 10-K for the fiscal year
ended November 30, 1992 (File No. 1-8738)).
- -------------
* Management contract or compensatory plan or arrangement identified pursuant
to Item 14(a) of this Form 10-K.
55
<PAGE> 57
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, SEALY CORPORATION HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
SEALY CORPORATION
SIGNATURE TITLE
--------- -----
By: /s/ Ronald L. Jones President and Chief Executive Officer
----------------------------- (Principal Executive Officer)
Ronald L. Jones
Date: February 28, 1997
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<S> <C> <C>
/s/ Jesse E. Hogan Senior Vice President and February 28, 1997
- ------------------------------------ Chief Financial Officer
Jesse E. Hogan (Principal Financial and
Accounting Officer)
/s/ Samuel Zell Chairman February 28, 1997
- ------------------------------------
Samuel Zell
/s/ Rod F. Dammeyer Director February 28, 1997
- ------------------------------------
Rod F. Dammeyer
/s/ George L. Davis Director February 28, 1997
- ------------------------------------
George L. Davis
/s/ Christie A. Hefner Director February 28, 1997
- ------------------------------------
Christie A. Hefner
/s/ James W. Johnston Director February 28, 1997
- ------------------------------------
James W. Johnston
/s/ Sheli Z. Rosenberg Director February 28, 1997
- ------------------------------------
Sheli Z. Rosenberg
/s/ Rolf H. Towe Director February 28, 1997
- ------------------------------------
Rolf H. Towe
</TABLE>
56
<PAGE> 1
Exhibit 4.16
--------------------------------------------------------------
FIRST SUPPLEMENTAL INDENTURE
-------------------
Sealy Corporation
issuer
to
Mellon Bank, F.S.B
(as successor Trustee to KeyBank National Association, formerly known as Society
National Bank), a federal savings bank
trustee
----------------------
Dated as of February 21, 1997
-----------------------
(First Amendment to the Indenture Dated as of May 7, 1993, and related
Securities)
------------------------------------------------------------------------
1
<PAGE> 2
FIRST SUPPLEMENTAL INDENTURE
This First Supplemental Indenture (this "Supplemental Indenture") dated
as of the 21th day of February, 1997, is between Sealy Corporation, a Delaware
corporation (the "Company") and Mellon Bank, F.S.B, (as successor Trustee to
KeyBank National Association, formerly known as Society National Bank), a
federal savings bank, as Trustee (the "Trustee").
RECITALS
A. The Company has executed and delivered to the Trustee a certain
Indenture, dated as of May 7, 1993 (the "Indenture"), pursuant to which the
Company issued 9 1/2 % Senior Subordinated Notes Due 2003.
B. The Company is in the process of refinancing and restructuring its
Bank Debt with a new senior secured, revolving credit facility (the "New Senior
Financing Facility").
C. In connection with the New Senior Financing Facility, the Company
desires to amend Section 4.03(b)(2) of the Indenture for purposes of
clarification.
D. In connection with the New Senior Financing Facility, the Company
intends to pay a cash dividend of up to $100,000,000 (the "Dividend") to certain
holders of its Capital Stock, notwithstanding the provisions of Section 4.05 of
the Indenture.
E. In connection with the New Senior Financing Facility and Dividend, the
Company has agreed to increase the interest rate payable on the Securities from
9 1/2 % per annum to 10 1/4 % per annum.
F. In connection with the above, the Company has agreed to increase the
applicable redemption price in the event the Company exercises its option to
redeem the Notes on or after May 1, 1998.
G. Section 9.02 of the Indenture provides, among other things, that the
Company and the Trustee may, with the consent of the Holders of at least a
majority in principal amount of the Securities, amend the Indenture and the
Securities for any purpose, subject to certain restrictions set forth therein.
H. The Company has obtained the requisite consent of the Holders of at
least a majority in principal amount of the Securities, and the Company desires
and has asked the Trustee to join with it in the execution and delivery of this
Supplemental Indenture to waive and amend the Indenture and the Securities for
the purpose of permitting the Dividend, clarifying the provisions of Section
4.03(b)(1) and (2) of the Indenture, and modifying the interest rate to be paid
on the Securities, all as provided hereinbelow.
2
<PAGE> 3
AGREEMENT
In consideration of the foregoing, and for other good and valuable
consideration, the Company and the Trustee agree as follows:
Section 1. DEFINITIONS
Capitalized terms used in this Supplemental Indenture without
definition have the meanings ascribed to such terms in the Indenture.
Section 2. AMENDMENTS, WAIVERS AND CONSENTS
2.1 THE DIVIDEND. Effective as of the date of this Supplemental
Indenture, the Trustee, on behalf of the Securityholders, consents to the
Dividend and agrees that the provisions of Section 4.05 of the Indenture will
have no application thereto. Without limiting the generality of the foregoing,
the Dividend is not and will not be deemed or otherwise constitute a "Restricted
Payment" for any purpose under the Indenture.
2.2 SECTION 4.03(B) OF THE INDENTURE. For purposes of clarification,
clause (2) of Section 4.03(b) of the Indenture is hereby amended by adding
thereto the proviso set forth below, such that clauses (1) and (2) of Section
4.03(b) together shall read as follows:
(1) Debt issued pursuant to the Revolving Credit Facility or any
other revolving credit arrangement in an aggregate amount outstanding
at any time not to exceed $100,000,000;
(2) Debt issued pursuant to the Term Loan Facility or any other
agreement or agreements in an aggregate principal amount outstanding
at any time not to exceed $250,000,000; PROVIDED, HOWEVER, that (a)
the combined Debt of the Company permitted under clause (1) of this
Section 4.03(b) and this clause (2) may not exceed $350,000,000 in
aggregate principal amount outstanding at any time, and (b) such
combined Debt may be issued on a revolving credit, term loan or any
other basis, so long as at least $100,000,000 in aggregate principal
amount is issued or reserved for issuance on a revolving credit basis;
2.3 OPTIONAL REDEMPTION. Effective on the date of the closing of the
New Senior Financing Facility, the Indenture and the Securities are hereby
amended such that, in the event the Company exercises its option to redeem the
Notes, the applicable redemption price payable (expressed in percentages of
principal amount) shall be the following (plus accrued interest to the
redemption date) during the 12-month periods beginning May 1:
Year Percentage
---- ----------
1998........................................106.330%
1999........................................104.750%
2000........................................103.170%
2001........................................101.580%
2002 and thereafter.........................100.000%
3
<PAGE> 4
Section 2.4 INTEREST RATE. Effective on the date of the closing of the
New Senior Financing Facility, the Indenture and the Securities are hereby
amended such that all references in the Indenture and the Securities to the
Company's "9 1/2 % Senior Subordinated Notes Due 2003" shall read "10 1/4 %
Senior Subordinated Notes Due 2003."
Section 2.5 EXTINGUISHMENT OF AMENDMENTS, WAIVERS AND CONSENTS. In the
event that the consummation of the New Senior Financing Facility shall not have
occurred on or before June 30, 1997, then the amendments, waivers and consents
set forth in Section 2.1, Section 2.3 and Section 2.4 of this Supplemental
Indenture shall be extinguished and of no further force or effect.
Section 3 REPRESENTATIONS OF THE COMPANY
Section 3.1 CONSENT OF HOLDERS. The Company has obtained and filed with
the Trustee evidence of the written consent of the Holders of at least a
majority in principal amount of the outstanding Securities on the date hereof to
the amendments, consents and other agreements set forth in Section 2 of this
Supplemental Indenture.
Section 3.2 AUTHORIZATION. The execution and delivery of this
Supplemental Indenture have been duly authorized and approved by resolution of
the Board of Directors of the Company.
Section 4 MISCELLANEOUS
Section 4.1 THE INDENTURE. Each of the Indenture and the Securities, as
amended hereby, remains in full force and effect and is hereby ratified and
confirmed.
Section 4.2 GOVERNING LAW. This Supplemental Indenture is to be
governed by and construed under the laws of the State of New York, without
giving effect to applicable principles of conflicts of law to the extent that
the application of the laws of another jurisdiction would be required thereby.
Section 4.3 SUCCESSORS. All agreements of the Company in this
Supplemental Indenture are binding on its successors, and all agreements of the
Trustee in this Supplemental Indenture are binding on its successors.
Section 4.4 TRUSTEE ACCEPTANCE. The Trustee accepts the consents,
amendments and waivers of the Indenture as effected by this Supplemental
Indenture, but only upon the terms and conditions set forth in the Indenture, as
amended by this Supplemental Indenture.
Section 4.5 MULTIPLE ORIGINALS. The parties may sign any number of
copies of this Supplemental Indenture. Each signed copy shall be an original,
but all of them together represent the same agreement. One signed copy is enough
to prove this Supplemental Indenture.
Section 4.6 HEADINGS. The headings of the Sections of this Supplemental
Indenture have been inserted for convenience of reference only, are not intended
to be considered a part hereof and shall not modify or restrict any of the terms
or provisions hereof.
4
<PAGE> 5
IN WITNESS WHEREOF, the parties have caused this Supplemental Indenture
to be duly executed and delivered as of the date first above written.
Attest: SEALY CORPORATION
/s/ Ronald Stolle
- ---------------------------------- ---------------------------------------
Name: Name: Ronald Stolle
----------------------------- -----------------------------------
Title: Title: V.P. and Treasurer
---------------------------- ----------------------------------
MELLON BANK, F.S.B.
Attest: (as successor Trustee to KeyBank
National Association, formerly known as
Society National Bank), a federal savings
bank, as Trustee
/s/ D. Kovach /s/ R. Schmidt
- ---------------------------------- -----------------------------------------
Name: D. Kovach Name: R. Schmidt
----------------------------- -------------------------------------
Title: Trust Officer Title: Vice President
---------------------------- -----------------------------------
5
<PAGE> 1
Exhibit 4.17
===============================================================================
$275,000,000
SECOND RESTATED SECURED CREDIT AGREEMENT
dated as of
February 25, 1997
among
SEALY CORPORATION,
as Borrower,
Various Financial Institutions,
as Banks,
BANQUE PARIBAS,
as Documentation Agent,
NATIONSBANK, N.A.,
as Syndication Agent,
and
BANK OF AMERICA ILLINOIS,
as Administrative Agent
Arranged by
BANCAMERICA SECURITIES, INC.
===============================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
ARTICLE I
DEFINITIONS AND INTERPRETATION; ASSIGNMENTS
<S> <C> <C>
1.01. Definitions.................................................. 1
1.02. Interpretation............................................... 24
1.03. Reallocation of Loans and Commitments........................ 26
ARTICLE II
THE CREDIT
2.01. Commitments to Make Revolving Loans.......................... 27
2.02. Reductions of Total Commitment Amount........................ 27
2.03. Fees......................................................... 28
2.04. Method of Borrowing of Revolving Loans;
Ratable Loans................................................ 29
2.05. Method of Selecting Rate Options and Interest
Periods; Telephonic Notices.................................. 29
2.06. Amount of Each Advance....................................... 30
2.07. Swing Loans.................................................. 30
2.08. Notes........................................................ 32
2.09. Final Maturity............................................... 32
2.10. Optional Principal Prepayments............................... 32
2.11. Mandatory Prepayments Resulting From
Commitment Reductions........................................ 33
2.12. Rate Options; Interest Payment Dates;
Interest Basis; Payments Due on Days Not
Business Days................................................ 33
2.13. Rate after Default........................................... 34
2.14. Method of Payment; Application of Payment.................... 34
2.15. Notification of Advances, Interest Rates,
Prepayments and Total Commitment Reductions.................. 35
2.16. Lending Installations........................................ 35
2.17. Non-Receipt of Funds by the Administrative
Agent........................................................ 35
2.18. Continuation and Conversion Elections........................ 36
2.19. Net Payments; Tax Exemptions................................. 37
2.20. Letters of Credit............................................ 38
2.20.01. Issuance of Letters of Credit...................... 38
2.20.02. Issuance Requests.................................. 39
2.20.03. Amendments......................................... 40
2.20.04. Letter of Credit Fees.............................. 40
2.20.05. Other Banks' Participations;
Reimbursements..................................... 41
2.20.06. Disbursements...................................... 42
2.20.07. Reimbursement...................................... 42
2.20.08. Deemed Disbursements............................... 43
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
2.20.09. Nature of Reimbursement
Obligations................................. 43
ARTICLE III
CHANGE IN CIRCUMSTANCES
3.01. Yield Protection............................................. 45
3.02. Availability of Rate Options; Illegality..................... 47
3.03. Funding Indemnification...................................... 47
3.04. Change of Lending Office, Replacement of
Bank, etc.................................................... 48
ARTICLE IV
CONDITIONS PRECEDENT
4.01. All Credit Extensions........................................ 49
4.01.01. Required Notice................................... 49
4.01.02. No Default........................................ 49
4.01.03. Representations and Warranties
Correct........................................... 49
4.01.04. No Litigation, etc................................ 49
4.01.05. Further Requests.................................. 50
4.01.06. Satisfactory Legal Form........................... 50
4.02. Amendment Effective Time..................................... 51
4.02.01. Resolutions, etc.................................. 51
4.02.02. No Materially Adverse Effect...................... 51
4.02.03. Closing Fees and Expenses......................... 52
4.02.04. Notes............................................. 52
4.02.05. Opinions of Counsel............................... 52
4.02.06. Confirmation...................................... 52
4.02.07. Real Estate....................................... 52
4.02.08. Other Conditions.................................. 53
4.02.09. All Proceedings and Instruments
Satisfactory...................................... 53
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.01. Corporate Existence and Power................................ 53
5.02. Corporate and Governmental Authorization;
Contravention................................................ 53
5.03. Binding Effect; Ranking...................................... 54
5.04. Financial Statements......................................... 54
5.05. Materially Adverse Effect.................................... 55
5.06. Solvency..................................................... 55
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
5.07. Subsidiaries; Capitalization................................. 55
5.08. Litigation................................................... 55
5.09. Investment Company........................................... 56
5.10. Public Utility Company....................................... 56
5.11. Absence of Default........................................... 56
5.12. Disclosure................................................... 56
5.13. Regulations G, T, U and X.................................... 56
5.14. Securities Regulations....................................... 57
5.15. Taxes........................................................ 57
5.16. Pension and Welfare Plans.................................... 57
5.17. Labor Controversies.......................................... 57
5.18. Ownership of Properties; Liens............................... 57
5.19. Patents, Trademarks, etc..................................... 58
5.20. Subordinated Debt, etc....................................... 58
5.21. The Collateral Documents..................................... 59
5.22. Hazardous Materials.......................................... 60
ARTICLE VI
COVENANTS
<S> <C> <C>
6.01. Certain Affirmative Covenants................................ 62
6.01.01. Financial Information, etc........................ 62
6.01.02. Maintenance of Corporate Existence,
etc............................................... 63
6.01.03. Foreign Qualification............................. 63
6.01.04. Payment of Taxes, etc............................. 64
6.01.05. Maintenance of Property........................... 64
6.01.06. Notice of Default, Litigation,
etc............................................... 64
6.01.07. Performance of Instruments........................ 65
6.01.08. Collateral Audits; Books and
Records........................................... 66
6.01.09. Compliance with Laws, etc......................... 66
6.01.10. Security.......................................... 66
6.01.11. Cash Management System............................ 67
6.01.12. Insurance......................................... 67
6.01.13. Environmental Matters............................. 68
6.01.14 Real Estate Matters............................... 69
6.02. Certain Negative Covenants................................... 69
6.02.01. Business Activities............................... 70
6.02.02. Debt.............................................. 70
6.02.03. Liens............................................. 71
6.02.04. Financial Condition............................... 73
6.02.05. Investments....................................... 74
6.02.06. Restricted Payments, etc.......................... 76
6.02.07. Overseas Expenditures............................. 78
6.02.08. Guarantees........................................ 78
</TABLE>
iii
<PAGE> 5
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
6.02.09. Lease Obligations..................................... 79
6.02.10. Take or Pay Contracts................................. 79
6.02.11. Consolidation, Merger, Sale of
Assets, etc........................................... 79
6.02.12. Modification, etc. of Certain
Agreements............................................ 81
6.02.13. Transactions with Affiliates.......................... 81
6.02.14. Negative Pledges; Subsidiary
Payments.............................................. 81
6.02.15. Subordinated Debt Instruments......................... 82
6.02.16. Inconsistent Agreements............................... 82
6.02.17. Fiscal Year........................................... 82
6.02.18. Use of Proceeds....................................... 82
6.02.19. Tax Sharing Agreements................................ 82
6.02.20. Swap Agreements....................................... 82
ARTICLE VII
DEFAULTS
7.01. Events of Default............................................... 83
7.02. Notice of Default............................................... 85
ARTICLE VIII
AMENDMENTS AND REMEDIES
8.01. Amendments...................................................... 86
8.02. Preservation of Rights.......................................... 86
8.03. Collateral Matters.............................................. 87
ARTICLE IX
GENERAL PROVISIONS
9.01. Survival of Representations..................................... 88
9.02. Governmental Regulation......................................... 88
9.03. Taxes........................................................... 88
9.04. Headings........................................................ 88
9.05. Entire Agreement................................................ 88
9.06. Several Obligations............................................. 88
9.07. Expenses; Indemnification....................................... 89
9.08. Numbers of Documents............................................ 90
9.09. Severability of Provisions...................................... 90
9.10. Nonliability of Banks........................................... 90
9.11. CHOICE OF LAW................................................... 90
9.12. CONSENT TO JURISDICTION......................................... 90
9.13. WAIVER OF JURY TRIAL............................................ 91
</TABLE>
iv
<PAGE> 6
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
9.14. Limitation on Administrative Agent and Bank
Liability......................................................... 91
9.15. Confidentiality................................................... 92
ARTICLE X
THE ADMINISTRATIVE AGENT
10.01. Appointment and Authorization..................................... 92
10.02. Delegation of Duties.............................................. 93
10.03. Liability of Administrative Agent................................. 93
10.04. Reliance by Administrative Agent.................................. 93
10.05. Notice of Default................................................. 94
10.06. Credit Decision................................................... 94
10.07. Indemnification of Administrative Agent........................... 95
10.08. Administrative Agent in Individual Capacity....................... 95
10.09. Successor Administrative Agent.................................... 96
10.10. Withholding Tax................................................... 96
10.11. Syndication Agent; Documentation Agent............................ 98
ARTICLE XI
SETOFF; RATABLE PAYMENTS
11.01. Setoff............................................................. 98
11.02. Ratable Payments................................................... 98
ARTICLE XII
BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS
SECTION 12.01. Successors and Assigns........................... 99
12.02. Assignments and Participations..................................... 99
12.03. Tax Treatment......................................................104
ARTICLE XIII
NOTICES
13.01. Giving Notice......................................................104
13.02. Change of Address..................................................105
ARTICLE XIV
COUNTERPARTS; REFERENCES; CONFIRMATION
14.01. Counterparts.......................................................105
14.02. References.........................................................105
14.03. Confirmation.......................................................105
</TABLE>
v
<PAGE> 7
<TABLE>
<CAPTION>
SCHEDULES
- ---------
<S> <C>
Schedule I - Disclosure Schedule
Schedule II - Pricing Schedule
Schedule 2.01 - Initial Commitments and Percentages
Schedule 2.20.01(a) - Issuers of Letters of Credit
Schedule 2.20.01(b) - Letters of Credit Outstanding
EXHIBITS
- --------
Exhibit A - Form of Global Revolving Note
Exhibit B - Form of Swing Note
Exhibit C - Form of Confirmation
Exhibit D - Form of Borrowing Notice
Exhibit E-1 - Form of Issuance Request
Exhibit E-2 - Form of Request for Letter of Credit
Amendment
Exhibit F - Form of Repayment Notice
Exhibit G - Form of Continuation/Conversion Notice
and Certificate
Exhibit H-1 - Form of Amendment to Subsidiary Guarantees
Exhibit H-2 - Form of Amendment to Contribution Agreement
Exhibit H-3 - Form of Amendment to Pledge Agreements
Exhibit H-4 - Form of Amendment to Security Agreements
Exhibit H-5 - Form of Assignment of and Amendment to
Trademark Security Agreement
Exhibit H-6 - Form of Assignment of and Amendment to
Patent Security Agreement
Exhibit H-7 - Form of Intercompany Note
Exhibit I - Form of Compliance Certificate
Exhibit J-1 - Form of Mortgage Amendment
Exhibit J-2 - Form of Mortgage
Exhibit K-1 - Form of Opinion of Calfee, Halter & Griswold
Exhibit K-2 - Form of Opinion of Kramer, Levin, Naftalis
& Frankel
Exhibit K-3 - Form of Opinion of Rosenberg &
Liebentritt, P.C.
Exhibit K-4 - Form of Opinion of Mayer, Brown & Platt
Exhibit L - Form of Assignment and Acceptance
Exhibit M - Form of Cash Management Letter
Exhibit N - Form of Intercompany Subordination Agreement
Exhibit O-1 - Subsidiary Guarantee
Exhibit O-2 - Contribution Agreement
Exhibit O-3 - Pledge Agreement
Exhibit O-4 - Security Agreement
Exhibit O-5 - Trademark Security Agreement
Exhibit O-6 - Patent Security Agreement
Exhibit P - Form of Insurance Endorsement
</TABLE>
vi
<PAGE> 8
SECOND RESTATED SECURED CREDIT AGREEMENT
THIS SECOND RESTATED SECURED CREDIT AGREEMENT, dated as of February 25,
1997, is among SEALY CORPORATION (the "BORROWER"), a Delaware corporation, the
financial institutions whose signatures appear on the signature pages hereof or
which hereafter become parties hereto (collectively the "BANKS" and individually
each a "BANK"), BANQUE PARIBAS, a French banking corporation ("PARIBAS"), as
Documentation Agent, NATIONSBANK, N.A., a national banking association
("NATIONSBANK") as Syndication Agent, and BANK OF AMERICA ILLINOIS, an Illinois
banking corporation ("BAI"), as administrative agent for the Banks (in such
capacity, the "ADMINISTRATIVE AGENT").
W I T N E S S E T H:
WHEREAS, pursuant to the Restated Secured Credit Agreement dated as of
May 27, 1994 (the "EXISTING AGREEMENT"), the Borrower borrowed $150,000,000 in
term loans and obtained commitments for up to $125,000,000 in revolving loans
and letters of credit;
WHEREAS, the parties hereto have agreed to amend and restate the
Existing Agreement so as to, among other things, (a) reduce the principal amount
of the term loans thereunder to zero, (b) increase the amount of the revolving
credit facility to $275,000,000, (c) amend the pricing, certain covenants and
various other provisions of the Existing Agreement and (d) revise in certain
respects the composition of the lender group; and
WHEREAS, the parties hereto intend that this Agreement and the Credit
Documents executed in connection herewith not effect a novation of the
obligations of the Borrower under the Existing Agreement and the "Credit
Documents" (as defined in the Existing Agreement), but merely a restatement and,
where applicable, an amendment of the terms governing such obligations;
NOW, THEREFORE, in consideration of the mutual agreements contained
herein, and subject to the terms and conditions hereof, the Existing Agreement
is hereby restated in its entirety, and the parties hereto, intending to be
legally bound hereby, further agree as follows:
ARTICLE I
DEFINITIONS AND INTERPRETATION; ASSIGNMENTS
SECTION 1.01. DEFINITIONS. The following terms, as used herein and in the
other Credit Documents (unless a clear contrary intention appears), have the
following meanings:
<PAGE> 9
"Adjusted Capital Expenditures" means, for any period, Consolidated
Capital Expenditures for such period minus Overseas Capital Expenditures for
such period.
"Adjusted EBITDA" means, for any period, the total of Consolidated
EBITDA for such period PLUS, to the extent deducted in determining Consolidated
EBITDA for such period (or MINUS to the extent it is a positive number added in
determining Consolidated EBITDA), Overseas EBITDA.
"Adjusted Senior Leverage Ratio" means, as of the last day of any
Fiscal Quarter, the ratio of (a) Consolidated Funded Debt minus Subordinated
Debt plus any Debt excluded from the definition of "Consolidated Funded Debt"
pursuant to CLAUSE (D) of such definition to (b) Adjusted EBITDA for the period
of four consecutive Fiscal Quarters ending on such day.
"Administrative Agent" is defined in the PREAMBLE.
"Advance" means a group of Revolving Loans hereunder consisting of the
aggregate amount of the Revolving Loans made (or converted or continued) on the
same Borrowing Date (or date of conversion or continuation), at the same Rate
Option and, in the case of Eurodollar Rate Loans, for the same Interest Period.
"Affected Bank" is defined in SECTION 3.04(A).
"Affected Loan" is defined in SECTION 3.02(B).
"Affiliate" means, with respect to any Person, any other Person that,
directly or indirectly through one or more intermediaries, is in control of, is
controlled by or is under common control with such Person. A Person shall be
deemed to control another Person if the controlling Person possesses, directly
or indirectly, the power (a) to direct or cause the direction of the management
and policies of the other Person, whether through the ownership of voting
securities, membership interests, by contract, or otherwise, or (b) to vote 10%
or more of the securities (on a fully diluted basis) having ordinary voting
power for the election of directors, managing general partners or similar
officials of the other Person.
"Agent-Related Person" means BAI in its capacity as Administrative
Agent hereunder and any successor administrative agent arising under SECTION
10.9, together with their respective Affiliates (including BancAmerica
Securities, Inc. in its capacity as arranger) and the officers, directors,
employees, agents and attorneys-in-fact of such Persons and Affiliates.
"Agreement" means this Second Restated Secured Credit
Agreement including SCHEDULES and EXHIBITS.
2
<PAGE> 10
"Amendment Effective Time" means the time when the conditions precedent
for the effectiveness of this Agreement specified in SECTION 4.02 shall have
been met.
"Applicable Law" with respect to any Person or matter means any law,
rule, regulation, order, decree or other requirement having the force of law
relating to such Person or matter and, where applicable, any interpretation
thereof by any Person having jurisdiction with respect thereto or charged with
the administration or interpretation thereof.
"Approval" means each and every approval, consent, filing and
registration by or with any Federal, state or other regulatory authority
necessary to authorize or permit the execution, delivery or performance by any
Person of this Agreement, any other Credit Document, or any other agreement or
instrument executed in connection with any of the foregoing or for the validity
or enforceability of any thereof against any Person.
"Assignment and Acceptance" is defined in SECTION 12.02(B)(V).
"Authorized Employee" means an Authorized Officer of the Borrower or
any other employee of the Borrower who has been designated as an "Authorized
Employee" in a certificate signed by an Authorized Officer and delivered to the
Administrative Agent (it being understood that the Administrative Agent may rely
on any such certificate until advised by a like certificate of any changes
therein).
"Authorized Officer" means any of the president, the general counsel,
the chief financial officer or the treasurer, acting singly, of the Borrower or,
as applicable, any Subsidiary.
"Attorney Costs" means all reasonable fees and disbursements of any law
firm or other external counsel and, without duplication, the allocated cost of
internal legal services and all disbursements of internal counsel.
"BAI" is defined in the PREAMBLE.
"Bank" is defined in the PREAMBLE.
"Beneficial Owner" is used as defined in Rule 13d-3 promulgated by the
Commission under the Securities Exchange Act of 1934.
"Borrower" is defined in the PREAMBLE.
"Borrowing Date" means any date on which Revolving Loans or Swing Loans
are made hereunder.
3
<PAGE> 11
"Borrowing Notice" is defined in SECTION 2.05(A).
"Business Day" means (a) any day except a Saturday, Sunday or other day
on which commercial banks in Chicago or New York are authorized by law to close
and (b) relative to the date of (i) making or continuing any Loans as, or
converting any Loans from or into, Eurodollar Rate Loans, or (ii) making any
payment of principal or interest on any portion of the Loans being maintained as
Eurodollar Rate Loans, or (iii) giving any notice in connection with CLAUSE (I)
or (II) above, any such day on which dealings in U.S. Dollars are carried on in
the interbank eurodollar market.
"Canadian Subsidiary" means a Subsidiary of the Borrower incorporated
or organized under the federal laws of Canada or the laws of a province of
Canada or substantially all the business of which is carried on in Canada.
"Capitalized Lease" means any lease or similar arrangement of the
Borrower or any Subsidiary which is or should be classified on the Borrower's
consolidated balance sheet as a capitalized lease.
"Capitalized Lease Liabilities" means all monetary obligations of the
Borrower or any Subsidiary under any Capitalized Lease.
"Cash Management Letter" means a letter agreement, substantially in the
form of EXHIBIT M or otherwise reasonably satisfactory to the Administrative
Agent, among the Borrower, each applicable U.S. Subsidiary, the Administrative
Agent, and any financial institution which is providing cash collection services
or collection accounts to, or maintaining a lockbox for, the Borrower or such
Subsidiary.
"CERCLA" means the Comprehensive Environmental Response,
Compensation and Liability Act of 1980.
"Change in Control" means the occurrence of any of the
following:
(a) the failure by Zell/Chilmark to be the Beneficial Owner of
issued and outstanding capital stock of the Borrower representing at
least 51%, on a fully diluted basis, of the voting power in elections
for directors of the Borrower, without regard to the occurrence of any
contingency; or
(b) a majority of the Board of Directors of the Borrower
ceases to be comprised of Continuing Directors; or
(c) any "Change of Control" as defined in the Senior
Subordinated Note Indenture or any other Subordinated Debt Document or
Senior Debt Document, as in effect from time to time, or any like
event, the occurrence of which would
4
<PAGE> 12
obligate the Borrower to purchase, redeem or repay any Subordinated
Debt or Senior Debt prior to its stated maturity.
"Code" means the Internal Revenue Code of 1986.
"Collateral" means, relative to the Borrower or any of its
Subsidiaries, collateral under each Collateral Document to which the Borrower or
such Subsidiary is a party and in, under or to which the Borrower or such
Subsidiary has any right, title or interest.
"Collateral Documents" means, collectively, each Pledge Agreement, each
Security Agreement, each Patent Security Agreement, each Trademark Security
Agreement, each Mortgage, each Subsidiary Guarantee, the Contribution Agreement,
each Mortgage Amendment, and each other instrument or document executed and
delivered pursuant to or in connection with any thereof in accordance with the
terms of this Agreement or the Existing Agreement.
"Collateral Release Date" means the date on which no Default exists AND
the Borrower provides evidence to the Administrative Agent that the senior
credit rating (either actual or implied) of the long term unsecured debt,
without credit enhancement, of the Borrower is BBB- or better as determined by
Standard & Poor's Ratings Group ("S&P") or Baa3 or better as determined by
Moody's Investors Service, Inc. ("Moody's"); PROVIDED that the Collateral
Release Date shall not occur unless both such ratings are realized or, if only
one such rating is realized, the other rating is BB+ or better from S&P or Ba1
or better from Moody's, as the case may be.
"Commercial Letter of Credit" means any Letter of Credit which is
drawable upon presentation of a sight draft and other documents evidencing the
sale or shipment of goods purchased by the Borrower or Subsidiary in the
ordinary course of business.
"Commission" means the United States Securities and Exchange
Commission.
"Commitment" of any Bank means its obligation to make Revolving Loans
and to participate in Swing Loans and Letters of Credit pursuant hereto. The
initial amount of the Commitment of each Bank is set forth on SCHEDULE 2.01.
"Commitment Fee Rate" means a rate per annum equal to (i) initially,
0.375% and (ii) commencing on the date on which the Borrower delivers (or, if
earlier, is required to deliver) its financial statements pursuant to SECTION
6.01.01 for the Fiscal Quarter ending February 28, 1997, the rate determined in
accordance with the Pricing Schedule.
5
<PAGE> 13
"Compliance Certificate" means a certificate duly executed by an
Authorized Officer of the Borrower, substantially in the form of EXHIBIT I (with
such changes thereto as may be agreed upon from time to time by the
Administrative Agent and the Borrower for purposes of monitoring the compliance
of the Borrower and its Subsidiaries herewith).
"Confirmation" means the Confirmation of the Borrower and each
Subsidiary party to any Credit Document, substantially in the form of EXHIBIT C.
"Consolidated Capital Expenditures" means, for any period,
without duplication, the sum of
(a) the gross amount of additions (excluding repair and
maintenance and environmental costs and additions pursuant to
Capitalized Leases) during such period to property, plant and equipment
of the Borrower and its Subsidiaries; PLUS
(b) the aggregate amount of Capitalized Lease Liabilities
incurred in such period (to the extent not included as a Consolidated
Capital Expenditure in any prior period) by the Borrower and its
Subsidiaries (excluding the portion thereof, if any, allocable to
Interest Expense);
PROVIDED that no such amounts shall include additions resulting from Investments
accounted for under SECTION 6.02.05(E) or (H).
With respect to the purchase of any asset that is subsequently sold
within the 12-month period following such purchase in accordance with CLAUSE (B)
of the proviso to the definition of "Net Disposition Proceeds", Consolidated
Capital Expenditures shall not include such purchase, but shall include any
Capitalized Lease Liability resulting from the subsequent sale and leaseback
transaction; PROVIDED that if the sale price of such asset in such sale and
leaseback transaction is less than the purchase price therefor, Consolidated
Capital Expenditures shall include the excess of such purchase price over such
sale price.
"Consolidated EBITDA" means, for any period, the total (without
duplication) of: (a) Consolidated Net Income for such period, PLUS (b) to the
extent deducted in determining Consolidated Net Income for such period, all
expenses of the Borrower and its Subsidiaries for such period in respect of
Interest Expense, Taxes with respect to income, depreciation, amortization and
other non-cash charges (including any non-cash expense with respect to Non-Cash
Compensation Plans), MINUS (c) to the extent included in determining
Consolidated Net Income for such period, (i) any non-cash income with respect to
Non-Cash Compensation Plans and (ii) the income of any Subsidiary to the extent
that the declaration or payment of dividends or similar distributions by such
Subsidiary
6
<PAGE> 14
from such income is not at the time permitted by the terms of its charter or
by-laws or any judgment, decree, order, statute, rule or regulation which is
binding on such Subsidiary.
"Consolidated Funded Debt" means all Debt of the Borrower and its
Subsidiaries determined on a consolidated basis, excluding (a) contingent
obligations in respect of undrawn letters of credit; (b) Debt described in
CLAUSES (F) and (G) of the definition of Debt, (c) Debt described in CLAUSES (H)
and (I) of the definition of Debt to the extent that such Debt relates to
obligations of other Persons of the types described in CLAUSES (A) and (B) of
this definition; and (d) any Debt described in CLAUSE (H) of SECTION 6.02.02 so
long as neither the Borrower nor any U.S. Subsidiary or Canadian Subsidiary has
any liability (in the form of a Guarantee or otherwise) in respect of such Debt,
PROVIDED that any such Debt in excess of $25,000,000 shall not be excluded from
Consolidated Funded Debt.
"Consolidated Net Income" means, for any Fiscal Quarter, all amounts
which would be included as net earnings on the consolidated statements of
earnings of the Borrower and its Subsidiaries at such time; PROVIDED that in any
event:
(a) no such amounts shall include any gain or loss arising
from the sale or disposition of any assets (other than (i) inventory
sold in the ordinary course of business or (ii) any gain or loss
arising from the sale or disposition of obsolete assets in the ordinary
course of business not to exceed in the aggregate $3,000,000 in any
Fiscal Year) or from the write-up of assets or any other extraordinary
gains; and
(b) no such amounts determined with respect to any Person
shall be included for any such period during which it was not at all
times a Subsidiary, except that amounts actually received from any such
Person may be included.
"Continuation/Conversion Notice" means a notice of continuation or
conversion duly executed by an Authorized Employee, substantially in the form of
EXHIBIT G (with such changes thereto as may be agreed upon from time to time by
the Borrower and the Administrative Agent).
"Continuing Director" means a director who either (a) was a member of
the Board of Directors of the Borrower prior to the Amendment Effective Time and
continuously thereafter or (b) after the Amendment Effective Time became a
director of the Borrower and whose election or nomination for election
subsequent to such date was approved by (i) a vote of the majority of the
Continuing Directors then on the Board of Directors of the Borrower or (ii)
Zell/Chilmark.
7
<PAGE> 15
"Contractual Obligation" means, relative to any Person, any provision
of any security issued by such Person or of any agreement, instrument or
undertaking to which such Person is a party or by which it or any of its
property is bound.
"Contribution Agreement" means the Contribution Agreement among the
Subsidiaries executing Subsidiary Guarantees, a copy of which is attached as
EXHIBIT O-2, as amended concurrently with the effectiveness of the 1993
Agreement by an amendment substantially in the form of EXHIBIT H-2.
"Controlled Group" means all members of a controlled group of
corporations and all trades or businesses (whether or not incorporated) under
common control which, together with the Borrower, are treated as a single
employer under section 414 of the Code or section 4001 of ERISA.
"Corporate Base Rate" means for any day the rate of interest in effect
for such day as publicly announced from time to time by BAI as its "reference
rate." (The "reference rate" is a rate set by BAI based upon various factors
including BAI's costs and desired return, general economic conditions and other
factors, and is used as a reference point for pricing some loans, which may be
priced at, above, or below such announced rate.)
"Credit Documents" means this Agreement, the Notes, the Letters of
Credit, the Collateral Documents, the Intercompany Notes, the Intercompany
Subordination Agreement, each Borrowing Notice, each Issuance Request, each
Letter of Credit Amendment Request, each Rate Swap Agreement or FX Swap
Agreement with any Bank, the Contribution Agreement, each Cash Management
Letter, the Confirmation and each other instrument, agreement, certificate,
financing statement, stock power and notice executed and/or delivered by the
Borrower or any Subsidiary pursuant hereto or thereto or otherwise furnished by
or on behalf of the Borrower or any Subsidiary to the Administrative Agent or
any Bank in connection herewith or therewith.
"Credit Extension" means any Revolving Loan, Swing Loan,
Letter of Credit or Reimbursement Obligation.
"Debt" of any Person at any date means, without duplication, (a) the
principal of and premium (if any) in respect of (i) all obligations of such
Person for borrowed money and (ii) all obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments, (b) all obligations of
such Person for the payment of money issued as payment in consideration of the
purchase by such Person of the stock or substantially all of the assets of other
Persons or in a merger or consolidation to which such Person was a party, (c)
all obligations, contingent or otherwise, relative to the face amount of all
letters of credit,
8
<PAGE> 16
whether or not drawn, and banker's acceptances issued for the account of such
Person and similar credit transactions, (d) all obligations of such Person to
pay the deferred purchase price of property or services, except trade accounts
payable and other like current liabilities arising in the ordinary course of
business, (e) all obligations of such Person as lessee under Capitalized Leases,
(f) net obligations under interest rate or foreign exchange swap, exchange, cap
or similar arrangements, (g) any dividends declared but not yet paid on any
capital stock of such Person, (h) all obligations of the kind described in
CLAUSES (A) through (G) above secured by a Lien on any asset owned or being
purchased by such Person, whether or not such Debt is assumed by such Person,
provided that the amount of any such Debt shall be limited to the lesser of the
principal amount of the obligations so secured and the fair market value of the
property subject to such Lien, and (i) all obligations of the kind described in
CLAUSES (A) through (G) above Guaranteed by such Person.
"Default" means any condition or event which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived as permitted or provided hereby, become an Event or
Default.
"Default Rate" is defined in SECTION 2.13(A).
"Disbursement" is defined in SECTION 2.20.06.
"Disbursement Date" is defined in SECTION 2.20.06.
"Disclosure Schedule" means the schedule attached hereto as
SCHEDULE I.
"Dollar" and the sign "$" mean lawful money of the United
States.
"Effective Time Dividend" means a dividend payable by the Borrower
concurrently with the Amendment Effective Time in an amount not exceeding
$100,000,000.
"Eligible Assignee" is defined in SECTION 12.02(A).
"Employment Incentive Agreement" means any employment agreement between
the Borrower or any Subsidiary and a senior executive officer of the Borrower or
such Subsidiary providing for, among other compensation, the grant to such
officer of shares of capital stock of the Borrower.
"ERISA" means the Employee Retirement Income Security Act of
1974.
9
<PAGE> 17
"Eurodollar Base Rate" means, relative to a Eurodollar Rate Advance for
the relevant Interest Period, the rate determined by the Administrative Agent to
be the arithmetic average of the respective rates reported to the Administrative
Agent by each Reference Bank as the rate at which deposits in Dollars in
immediately available funds are offered to such Reference Bank by major banks in
the interbank eurodollar market at approximately 11 a.m., New York time, two
Business Days prior to the first day of such Interest Period, in the approximate
amount of such Reference Bank's relevant Eurodollar Rate Loan and having a
maturity approximately equal to such Interest Period. If any Reference Bank
fails to provide such quotation to the Administrative Agent, then the
Administrative Agent shall determine the Eurodollar Base Rate on the basis of
the quotations of the remaining Reference Bank(s).
"Eurodollar Rate" means, relative to a Eurodollar Rate Advance
for the relevant Interest Period, the sum of
(a) the quotient (rounded upwards, if necessary, to the next
1/16 of 1%) of (i) the Eurodollar Base Rate applicable to that Interest
Period, DIVIDED BY (ii) one minus the Reserve Requirement (expressed as
a decimal) applicable to that Interest Period, PLUS
(b) the then-applicable Margin.
"Eurodollar Rate Advance" means an Advance which bears interest at a
Eurodollar Rate.
"Eurodollar Rate Loan" means a Loan which bears interest at a
Eurodollar Rate.
"Event of Default" is defined in SECTION 7.01.
"Excluded Taxes" is defined in the definition of "Taxes".
"Exemption Agreement" is defined in SECTION 2.19(B).
"Exemption Representation" is defined in SECTION 2.19(C).
"Existing Agreement" is defined in the RECITALS.
"Existing Bank" means a "Bank" under and as defined in the Existing
Agreement immediately prior to the Amendment Effective Time.
"Existing Revolving Loan" means a "Revolving Loan" under and as defined
in the Existing Agreement immediately prior to the Amendment Effective Time.
10
<PAGE> 18
"Federal Funds Rate" means, for any day, the rate set forth in the
weekly statistical release designated as H.15(519), or any successor
publication, published by the Federal Reserve Bank of New York (including any
such successor, "H.15(519)") on the preceding Business Day opposite the caption
"Federal Funds (Effective)"; or, if for any relevant day such rate is not so
published on any such preceding Business Day, the rate for such day will be the
arithmetic mean as determined by the Administrative Agent of the rates for the
last transaction in overnight Federal funds arranged prior to 9:00 a.m. (New
York City time) on that day by each of three leading brokers of Federal funds
transactions in New York City selected by the Administrative Agent.
"Fee Letter" means each of the letter agreement, dated January 22, 1997
between the Borrower, BancAmerica Securities, Inc. and the Administrative Agent,
the letter agreement dated January 23, 1997 between the Borrower and
NationsBank, as Syndication Agent, and the letter agreement dated January 28,
1997 between the Borrower and Paribas, as Documentation Agent.
"Fiscal Quarter" means each of the four consecutive quarterly periods
of the Borrower collectively forming a Fiscal Year.
"Fiscal Year" means each period of four consecutive Fiscal Quarters
ending on December 1, 1996, November 30, 1997, November 29, 1998, November 28,
1999, December 3, 2000, December 2, 2001 and, December 1, 2002, respectively.
"Floating Rate" means a per annum interest rate equal to the sum of (a)
the greater at any time of (i) the Corporate Base Rate and (ii) the sum of the
Federal Funds Rate plus 0.25% PLUS (b) the then-applicable Margin, such sum
changing when and as the Corporate Base Rate, the Federal Funds Rate and/or the
Margin changes.
"Floating Rate Advance" means an Advance which bears interest at the
Floating Rate.
"Floating Rate Loan" means a Loan which bears interest at the Floating
Rate.
"FX Swap Agreement" means any foreign currency swap, exchange or
similar arrangement intended to protect against fluctuations in foreign currency
exchange rates.
"GAAP" means generally accepted accounting principles as set forth in
the opinions and pronouncements of the Commission and the Accounting Principles
Board of the American Institute of Certified Public Accountants and the
statements and pronouncements of the Financial Accounting Standards Board and in
such other statements and pronouncements by such other Person as may be approved
by a significant segment of the accounting profession and concurred in
11
<PAGE> 19
by the independent certified public accountants certifying such
audited financial statement.
"Global Revolving Note" is defined in SECTION 2.08(A).
"Guarantee" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Debt or other
obligation of any other Person, including any obligation, direct or indirect,
contingent or otherwise, of such Person (a) to purchase or pay (or advance or
supply funds for the purchase or payment of) such Debt or other obligation
(whether arising by virtue of partnership arrangements, by agreement to
keep-well, to purchase assets, goods, securities or services, to take-or-pay, or
to maintain financial statement conditions or otherwise) or (b) entered into for
the purpose of assuring in any other manner the obligee of such Debt or other
obligation of the payment thereof or to protect such obligee against loss in
respect thereof (in whole or in part); PROVIDED that the term Guarantee shall
not include endorsements for collection or deposit in the ordinary course of
business. The term "Guarantee" used as a verb has a corresponding meaning.
"Hazardous Materials" is defined in SECTION 5.22(A).
"Impermissible Qualification" means, relative to the opinion or
certification of any Independent Public Accountant as to any financial statement
of the Borrower or any of its Subsidiaries, any qualification or exception to
such opinion or certification:
(a) which is of a "going concern" or similar nature;
(b) which relates to the limited scope of examination of matters
relevant to such financial statement; or
(c) which relates to the treatment or classification of any item
in such financial statement and which, as a condition to its removal,
would require an adjustment to such item the effect of which would be
to cause the Borrower to be in default of any of its obligations under
SECTION 6.02.04.
"Indemnified Liabilities" is defined in SECTION 9.07.
"Indemnified Party" is defined in SECTION 9.07.
"Independent Public Accountant" means any of the six largest public
accounting firms in the United States, or any other public accounting firm of
recognized national standing selected by the Borrower.
"Initial Financial Projections" means projections of the
Borrower's financial performance on an annual basis for Fiscal
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<PAGE> 20
Years 1997 through 2004, prepared by Borrower's management, as previously
delivered to the Banks.
"Intercompany Note" means a promissory note, substantially in
the form of EXHIBIT H-7.
"Intercompany Subordination Agreement" means an agreement among the
Borrower and its Subsidiaries substantially in the form of EXHIBIT N.
"Interest Coverage Ratio" means, as of the last day of any Fiscal
Quarter, the ratio of (a) Adjusted EBITDA for the period of four consecutive
Fiscal Quarters ending on such day minus Adjusted Capital Expenditures for such
period to (b) Interest Expense for such period, excluding any non-cash interest
expense or interest income for such period.
"Interest Expense" means, for any period, the aggregate net interest
expense of the Borrower and its Subsidiaries for such period, including all
commissions, discounts and other fees and charges incurred in connection with
commitment fees hereunder, net costs or net benefits under Rate Swap Agreements
and the portion of any interest expense payable with respect to Capitalized
Lease Liabilities.
"Interest Period" means, relative to a Eurodollar Rate Advance, a
period of one, two, three or six months commencing on a Business Day, each
selected by the Borrower pursuant to this Agreement. Such Interest Period shall
end on the day that is one, two, three or six months after, and which
corresponds numerically to, the beginning day of such Interest Period; PROVIDED
that if there is no such numerically corresponding day in such ending month,
such Interest Period shall end on the last Business Day of such ending month. If
an Interest Period would otherwise end on a day which is not a Business Day,
such Interest Period shall end on the immediately succeeding Business Day;
PROVIDED that if said immediately succeeding Business Day falls in a new month,
such Interest Period shall end on the immediately preceding Business Day. The
Borrower may not select any Interest Period which would (a) end after the
scheduled Termination Date or (b) result in the aggregate principal amount of
all Eurodollar Rate Loans having Interest Periods ending after any Commitment
Reduction Date plus the stated amount of all Letters of Credit with expiry dates
after such Commitment Reduction Date being in excess of the Total Commitment
Amount which is scheduled to be in effect after the reduction thereof on such
Commitment Reduction Date.
"Investment" means, relative to any investment of the Borrower
or any Subsidiary,
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<PAGE> 21
(a) any loan, advance or other extension of credit made by it
to any other Person (excluding (i) reasonable commission, travel,
salary, relocation, and similar advances or loans to officers and
employees made in the ordinary course of business, (ii) reasonable
advances against royalties or management fees arising in the ordinary
course of business and (iii) reasonable loans and advances in the
ordinary course of business made by the Borrower or any Subsidiary to a
dealer or distributor located in the United States or Canada);
(b) any Guarantee made by the Borrower or such Subsidiary;
and
(c) any capital contribution by the Borrower or such
Subsidiary to, or purchase of stock or other securities or partnership
interests by the Borrower or such Subsidiary in, any other Person, or
any other investment evidencing an ownership or similar interest of the
Borrower or such Subsidiary in any other Person;
and the amount of any Investment shall be the original principal or
capital amount thereof LESS
(i) all cash returns of principal thereof or equity
thereon, and
(ii) in the case of any Guarantee, any reduction in
the aggregate amount of liability under such Guarantee to the
extent that such reduction is made strictly in accordance with
the terms of such Guarantee (and, in each case, without
adjustment by reason of the financial condition of such other
Person);
and the amount of such Investment shall, if made by the transfer or exchange of
property other than cash, be deemed to have been made in an original principal
or capital amount equal to the fair market value of such property.
"Issuance Request" is defined in SECTION 2.20.02.
"Issuer" means any Bank listed from time to time on SCHEDULE 2.20.01(A)
(as such SCHEDULE may be amended or supplemented from time to time with the
consent of the Administrative Agent); and "Issuer" means, with respect to any
Letter of Credit, the issuer of such Letter of Credit.
"L/C Fee Rate" means a rate per annum equal to (i) initially, 1.25% in
the case of each Standby Letter of Credit and 0.75% in the case of each
Commercial Letter of Credit, and (ii) commencing on the date on which the
Borrower delivers (or, if earlier, is required to deliver) its financial
statements pursuant to SECTION
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<PAGE> 22
6.01.01 for the Fiscal Quarter ending February 28, 1997, the applicable rate
determined in accordance with the Pricing Schedule.
"Lending Installation" means any office, branch, Subsidiary or other
Affiliate of any Bank or the Administrative Agent.
"Letter of Credit" means any Standby Letter of Credit and/or Commercial
Letter of Credit, as the context may require or allow.
"Letter of Credit Amendment Request" is defined in SECTION
2.20.03.
"Lien" means, relative to any asset, any mortgage, lien (statutory or
otherwise), pledge, charge, security interest, assignment, deposit arrangement,
priority, encumbrance or preferential arrangement of any kind in respect of such
asset. For the purposes of this Agreement, the Borrower or any Subsidiary shall
be deemed to own subject to a Lien any asset which it has acquired or holds
subject to the interest of a vendor or lessor under any conditional sale
agreement, Capitalized Lease or other title retention agreement relating to such
asset.
"Loan" means a Revolving Loan and/or a Swing Loan, as the context may
require or allow.
"Margin" means, for purposes of determining the Eurodollar Rate for any
Interest Period or the Floating Rate, as applicable, a rate per annum equal to
(i) initially, 1.25% for purposes of the Eurodollar Rate and zero for purposes
of the Floating Rate, and (ii) commencing on the date on which the Borrower
delivers (or, if earlier, is required to deliver) its financial statements
pursuant to SECTION 6.01.01 for the Fiscal Quarter ending February 28, 1997, the
applicable rate determined in accordance with the Pricing Schedule.
"Materially Adverse Effect" means, relative to any occurrence of
whatever nature (including any adverse determination in any litigation,
arbitration, or governmental investigation or proceeding), a materially adverse
effect on:
(a) the consolidated business, assets, revenues, financial
condition, operations or prospects of the Borrower and its
Subsidiaries, taken as a whole; or
(b) the ability of the Borrower or, as applicable, any of its
Subsidiaries to perform any of its payment or other material
obligations under this Agreement, the Notes or any other Credit
Document to which it is a party.
"Mortgage" means each real estate mortgage or deed of trust
executed by the Borrower or a Subsidiary, in substantially the form
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<PAGE> 23
of EXHIBIT R-1 or R-2 to the Original Amended Credit Agreement or EXHIBIT J-2
hereto.
"Mortgage Amendment" means each amendment to each Mortgage previously
executed by the Borrower or a Subsidiary, in substantially the form of EXHIBIT
J-1.
"N.A.S.D." means the National Association of Securities
Dealers.
"NationsBank" is defined in the PREAMBLE.
"Net Debt Proceeds" means, relative to the sale or incurrence by the
Borrower or any Subsidiary of any Permitted Senior Debt or Subordinated Debt,
the excess of
(a) the gross cash proceeds received by the Borrower or any
Subsidiary from such sale or incurrence
OVER
(b) (i) all necessary or incidental reasonable fees and
expenses with respect to underwriting commissions, private placement
fees, legal, investment banking, and accounting fees and disbursements,
printing expenses, and any governmental or N.A.S.D. fees incurred (or
reasonably expected to be incurred) in connection with such sale or
incurrence which are not payable to Affiliates of the Borrower unless
such fees and disbursements are permitted by SECTION 6.02.13; plus
(ii) solely in the case of the sale or incurrence of
Subordinated Debt, the amount of such gross proceeds applied to the
repayment of existing Subordinated Debt, so long as the existing
Subordinated Debt had a maturity date the same as or prior to the
maturity date of such Subordinated Debt (with no amortization or
sinking fund payments prior to such date) and such Subordinated Debt
was issued at market rates.
"Net Disposition Proceeds" means the gross cash proceeds received by
the Borrower or any Subsidiary from the sale or other disposition of any of
their respective assets (excluding inventory sold in the ordinary course of
business but including condemnation awards, casualty loss insurance recoveries
and other similar payments received in respect of assets that are no longer
fully useful to the extent such assets are not replaced or repaired in
accordance with the applicable Collateral Documents) LESS (i) necessary or
incidental reasonable selling expenses incurred in connection therewith, (ii)
good faith estimated taxes (if any) payable as a result thereof, and (iii)
amounts necessary to retire Debt secured by any Liens permitted under SECTION
6.02.03 which encumber the subject assets; PROVIDED that Net Disposition
Proceeds
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<PAGE> 24
shall not include (A) the proceeds of any Restructure Investment or (B) the
proceeds of any sale and leaseback of real property or equipment expressly
permitted pursuant to and in accordance with SECTION 6.02.11(G) SO LONG AS such
proceeds of a sale and leaseback transaction represent a return or reimbursement
to the Borrower or any Subsidiary, within the same 12-month period as the
purchase of such real property or equipment, of any original purchase price for
such real property or equipment; IT BEING UNDERSTOOD that if the Borrower or
such Subsidiary receives proceeds from such sale in excess of the purchase price
thereof, such excess shall constitute Net Disposition Proceeds.
"New Royalty Income" means, for any period, royalty income received by
the Borrower or any U.S. Subsidiary or Canadian Subsidiary from licensing
arrangements other than (i) licenses granted for use in the United States or
Canada and (ii) other licensing arrangements existing at the Amendment Effective
Time (as extended from time to time).
"1993 Agreement" means the Secured Credit Agreement dated as of May 7,
1993 among the Borrower, various financial institutions and Paribas, Citicorp
USA, Inc., BAI (then known as Continental Bank N.A.) and General Electric
Capital Corporation, as Managing Agents.
"Non-Cash Compensation Plan" means (i) the Sealy Corporation
Performance Share Plan dated January 11, 1993, effective April 1, 1992, executed
by the Borrower, whereby the Borrower provided for certain unfunded long-term
incentive compensation for key employees of the Borrower and its Subsidiaries in
the form of shares convertible into capital stock of the Borrower, (ii) the
Sealy Corporation 1992 Stock Option Plan dated January 25, 1993, executed by the
Borrower, whereby the Borrower provided for options for the purchase of the
Borrower's stock to be extended to certain officers and executive, managerial
and professional employees of, and consultants to, the Borrower or any
Subsidiary and (iii) any plan replacing, or similar to, the above-referenced
Plans whereby the Borrower and its Subsidiaries provide for non-cash incentive
compensation in the form of, or permit employees or consultants to purchase,
stock of the Borrower or warrants or options in respect thereof.
"Note" means the Global Revolving Note and/or the Swing Note, as the
context may require or allow, and includes any note issued pursuant to SECTION
12.02(H) to evidence the Loans of any Bank.
"Obligations" means all unpaid principal of and accrued and unpaid
interest on the Notes, all accrued and unpaid fees and expenses, the stated
amount of any outstanding Letter of Credit, all Reimbursement Obligations, and
all other obligations of the
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<PAGE> 25
Borrower or, as applicable, any of its Subsidiaries to any Bank, the
Administrative Agent or any Issuer arising under or in connection with the
Credit Documents.
"Organic Document" means, relative to any Person, its certificate of
incorporation, its by-laws, and all shareholder agreements, voting trusts, and
similar arrangements applicable to any of its authorized shares of capital stock
or, as applicable, its partnership agreement and certificate of partnership.
"Original Amended Credit Agreement" has the meaning assigned
thereto in the 1993 Agreement.
"Overseas Capital Expenditures" means, for any period, the portion of
Consolidated Capital Expenditures in such period made by (a) Overseas
Subsidiaries and (b) the Borrower, any U.S. Subsidiary or any Canadian
Subsidiary in respect of assets located outside the United States and Canada.
"Overseas Expenditures" means the total, without duplication, of (a)
all Investments (including any Guarantee except to the extent terminated without
being called upon) made by the Borrower and its U.S. Subsidiaries and Canadian
Subsidiaries in Subsidiaries or other entities outside the United States and
Canada, PLUS (b) all Consolidated Capital Expenditures made by the Borrower and
its U.S. Subsidiaries and Canadian Subsidiaries in respect of assets located
outside the United States and Canada, PLUS (c) all expenses of the Borrower and
its U.S. Subsidiaries and Canadian Subsidiaries incurred in connection with the
investigation, analysis, development and management of businesses and business
opportunities outside the United States and Canada, MINUS (d) all New Royalty
Income received after the Amendment Effective Time.
"Overseas EBITDA" means, for any period, the total (without
duplication) of (a) the portion (either positive or negative) of Consolidated
EBITDA for such period which the Borrower reasonably determines (in accordance
with its customary practice prior to the Amendment Effective Time) is
attributable to Overseas Subsidiaries, MINUS (b) all expenses of the Borrower
and its U.S. Subsidiaries and Canadian Subsidiaries during such period incurred
in connection with the investigation, analysis, development and management of
businesses and business opportunities outside the United States and Canada, PLUS
(c) New Royalty Income for such period.
"Overseas Subsidiary" means a Subsidiary of the Borrower which
is not a U.S. Subsidiary or a Canadian Subsidiary.
"Paribas" is defined in the PREAMBLE.
"Patent Security Agreement" means each security agreement, in
substantially the form of EXHIBIT O-6, executed and delivered by a
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<PAGE> 26
Subsidiary, as amended (if applicable) concurrently with the effectiveness of
the 1993 Agreement by an amendment substantially in the form of EXHIBIT H-6.
"PBGC" means the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.
"Pension Plan" means a "pension plan", as such term is defined in
section 3(2) of ERISA, which is subject to title IV of ERISA and to which the
Borrower, either directly or as a member of a Controlled Group, may have any
liability, including any liability by reason of having been a substantial
employer within the meaning of section 4063 of ERISA at any time during the
preceding five years, or by reason of being deemed to be a contributing sponsor
under section 4069 of ERISA.
"Percentage" of a Bank at any time means the percentage set forth
opposite such Bank's name in the column labeled "Percentage" on SCHEDULE 2.01
(or if such Bank has, subsequent to the signing of this Agreement, executed an
Assignment and Acceptance relating to its Commitment, as recorded in the
Register).
"Permitted Senior Debt" is defined in SECTION 6.02.02(J).
"Person" means an individual, a corporation, a partnership, an
association, a limited liability company, a trust or any other entity or
organization, including a government or political subdivision or an agency or
instrumentality thereof.
"Pledge Agreement" means each pledge agreement, substantially in the
form of EXHIBIT O-3, executed and delivered by the Borrower or a Subsidiary, as
amended (if applicable) concurrently with the effectiveness of the 1993
Agreement by an amendment substantially in the form of EXHIBIT H-3.
"Pricing Schedule" means the Schedule attached hereto as
SCHEDULE II.
"Quarterly Payment Date" means the last Business Day of each Fiscal
Quarter, subject to the terms of SECTION 2.12.
"Rate Option" means the Eurodollar Rate or the Floating Rate as the
context may require or allow.
"Rate Swap Agreement" means any interest rate swap, exchange, cap or
similar interest rate protection arrangement (including a firm option to
purchase such protection).
"Recipient Taxes" is defined in SECTION 2.19(A).
"Reference Banks" means Paribas, NationsBank and BAI.
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"Register" is defined in SECTION 12.02(D).
"Regulation D" means Regulation D of the Board of Governors of the
Federal Reserve System and shall include any successor or other regulation or
official interpretation of said Board of Governors relating to reserve
requirements applicable to member banks of the Federal Reserve System.
"Regulation G, T, U or X" means Regulation G, T, U or X, respectively,
of the Board of Governors of the Federal Reserve System.
"Reimbursement Obligation" is defined in SECTION 2.20.07.
"Release" is defined in SECTION 5.22(A).
"Repayment Notice" means a notice of repayment or prepayment duly
executed by an Authorized Employee, substantially in the form of EXHIBIT F (with
such changes thereto as may be agreed upon from time to time by the Borrower and
the Administrative Agent).
"Required Banks" means at any time Banks having aggregate Percentages
of more than 50%.
"Reserve Requirement" means, relative to an Interest Period, the
reserve percentage (expressed as a decimal) equal to the maximum aggregate
reserve requirement (including all basic, emergency, supplemental, marginal and
other reserves and taking into account any transitional adjustments or other
scheduled changes in reserve requirements), if any, specified under regulations
issued from time to time by the Board of Governors of the Federal Reserve System
and then applicable to assets or liabilities consisting of and including
"Eurocurrency liabilities", as presently defined in Regulation D (or on similar
liabilities under any successor regulation), having a term approximately equal
to such Interest Period.
"Restructure Investments" is defined in SECTION 6.02.05(C).
"Revolving Loan" is defined in SECTION 2.01.
"Second Amended Credit Agreement" has the meaning assigned
thereto in the 1993 Agreement.
"Security Agreement" means each security agreement, in substantially
the form of EXHIBIT O-4, executed and delivered by the Borrower or a Subsidiary,
as amended (if applicable) concurrently with the effectiveness of the 1993
Agreement by an amendment substantially in the form of EXHIBIT H-4.
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"Senior Leverage Ratio" means, as of the last day of any Fiscal
Quarter, the ratio of (a) Consolidated Funded Debt minus Subordinated Debt to
(b) Adjusted EBITDA for the period of four consecutive Fiscal Quarters ending on
such day.
"Senior Debt" means, collectively, without duplication (the amount of
all such Debt to be calculated by reference to the face amount outstanding or,
in the case of such Debt issued at a discount, by reference to the face amount
outstanding less the initial discount at issuance plus any accreted value to any
date of calculation), all Debt (including Permitted Senior Debt) of the Borrower
or any Subsidiary for money borrowed which is not subordinated to the
Obligations.
"Senior Debt Document" means any instrument evidencing or issued in
connection with Senior Debt, or pursuant to which any Senior Debt may be
incurred.
"Senior Subordinated Notes" means any of the senior subordinated notes
due 2003 issued pursuant to the Senior Subordinated Note Indenture.
"Senior Subordinated Note Indenture" means the senior subordinated note
indenture, dated as of May 7, 1993, between the Borrower and Mellon Bank,
F.S.B., as successor trustee, pursuant to which $200,000,000 in original
principal amount of the Senior Subordinated Notes have been issued by the
Borrower.
"Solvent" means, as to any Person at any time, that (a) the fair value
of the property of such Person is greater than the amount of such Person's
liabilities (including contingent and unliquidated liabilities, determined after
taking into account the likelihood that such contingency will occur or such
liability will become fixed) as such value is established and liabilities
evaluated for purposes of Section 101(31) of the Bankruptcy Code and, in the
alternative, for purposes of the Uniform Fraudulent Transfer Act or the Uniform
Fraudulent Conveyance Act; (b) the present fair saleable value of the property
of such Person is not less than the amount that will be required to pay the
probable liability of such Person on its debts as they become absolute and
matured; (c) such Person is able to realize upon its property and pay its debts
and other liabilities (including disputed, contingent and unliquidated
liabilities) as they mature in the normal course of business; (d) such Person
does not intend to, and does not believe that it will, incur debts or
liabilities beyond such Person's ability to pay as such debts and liabilities
mature; and (e) such Person is not engaged in business or a transaction, and is
not about to engage in business or a transaction, for which such Person's
property would constitute unreasonably small capital.
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<PAGE> 29
"Standby Letter of Credit" means any Letter of Credit other than a
Commercial Letter of Credit.
"Stated Expiry Date" is defined in SECTION 2.20.02(B)(I).
"Subordinated Debt" means, collectively, without duplication (the
amount of all such Debt to be calculated by reference to the face amount
outstanding or, in the case of such Debt issued at a discount, by reference to
the face amount outstanding less the initial discount at issuance plus any
accreted value to any date of calculation):
(a) the Senior Subordinated Notes; and
(b) all other Debt of the Borrower or any Subsidiary for money
borrowed which is subordinated in form and substance to the
Obligations, and which has subordination provisions, terms of payment,
interest rates, covenants, remedies, defaults and other material terms,
in each case satisfactory in form and substance to the Required Banks,
as evidenced by their prior written consent thereto.
"Subordinated Debt Document" means any Senior Subordinated Note, the
Senior Subordinated Note Indenture, and any other instrument evidencing or
issued in connection with Subordinated Debt, or pursuant to which any
Subordinated Debt may be incurred.
"Subsidiary" relative to any Person means any corporation or other
entity of which securities or other ownership interests having ordinary voting
power to elect a majority of the board of directors or other persons performing
similar functions are at the time directly or indirectly owned by such Person.
Unless the context otherwise requires, all references herein to a Subsidiary
shall mean and be a reference to a Subsidiary of the Borrower.
"Subsidiary Guarantee" means each guarantee of a U.S. Subsidiary, in
substantially the form of EXHIBIT O-1, as amended (if applicable) concurrently
with the effectiveness of the 1993 Agreement by an amendment substantially in
the form of EXHIBIT H-1.
"Swap Party" means any Bank or Affiliate of any Bank, any commercial
bank of recognized standing having capital and surplus in excess of $500,000,000
or any Person the unsecured commercial paper of whom is rated at least "A-1" (or
the then-equivalent) by Standard & Poor's Ratings Group or at least "P-1" (or
the then-equivalent) by Moody's Investors Service, Inc., which has entered or
has agreed to enter into a Rate Swap Agreement or an FX Swap Agreement.
"Swing Loan" is defined in SECTION 2.07(A).
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<PAGE> 30
"Swing Note" is defined in SECTION 2.08(B).
"Taxes" relative to any Person means taxes, assessments or other
governmental charges or levies imposed upon such Person, its income or any of
its properties, franchises or assets (excluding, in the case of payments made to
a Bank or the Administrative Agent, taxes imposed upon the overall net income of
such Bank or the Administrative Agent, franchise taxes imposed upon such Bank or
the Administrative Agent with respect to its net income by the jurisdiction
under the laws of which such Bank or the Administrative Agent, as the case may
be, is organized or any political subdivision thereof and franchise taxes
imposed upon such Bank or the Administrative Agent with respect to its net
income by the jurisdiction in which such Bank's or the Administrative Agent's
Lending Installation is located or any political subdivision thereof, all such
Taxes being "EXCLUDED TAXES").
"Temporary Cash Investment" means any Investment in (i) securities
issued or directly and fully guaranteed or insured by the United States or any
agency or instrumentality thereof (provided that the full faith and credit of
the United States is pledged in support thereof) having maturities of not more
than 24 months from the date of acquisition by the Borrower, (ii) time deposits
and certificates of deposit of any Bank with maturities of not more than 24
months from the date of acquisition by the Borrower, (iii) repurchase
obligations with a term of not more than 7 days for underlying securities of the
types described in CLAUSE (I) above entered into with any Bank, (iv) commercial
paper issued by the parent corporation of any Bank or any domestic or
international commercial bank of recognized standing having capital and surplus
in excess of $500,000,000 and commercial paper issued by any Person rated at
least "A-2" (or the then-equivalent thereof) by Standard & Poor's Ratings Group
or at least "P-2" (or the then-equivalent thereof) by Moody's Investors
Service, Inc. and in each case maturing not more than 6 months after the date of
acquisition by the Borrower, (v) investments in money market funds substantially
all of whose assets are comprised of securities of the types described in
CLAUSES (I) through (IV) above, and (vi) if such Investment is held by any
non-U.S. Subsidiary of the Borrower, Investments comparable to those in CLAUSES
(I)-(V) above in obligations issued by comparable Persons organized or existing
under the country of incorporation of such Subsidiary, for comparable maturities
and with comparable creditworthiness.
"Termination Date" means the earlier to occur of:
(a) January 15, 2003; and
(b) the date of any termination of the Commitments hereunder
pursuant to SECTION 7.01.
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"Total Commitment Amount" is defined in SECTION 2.02(A).
"Total Leverage Ratio" means, as of the last day of any Fiscal Quarter,
the ratio of (a) Consolidated Funded Debt to (b) Adjusted EBITDA for the period
of four consecutive Fiscal Quarters ending on such day.
"Total Outstandings" means at any time the sum of the aggregate
principal amount of all Revolving Loans plus the undrawn amount of all
outstanding Letters of Credit plus (without duplication) all outstanding
Reimbursement Obligations plus the aggregate principal amount of all Swing
Loans.
"Trademark Security Agreement" means each security agreement, in
substantially the form of EXHIBIT O-5, executed and delivered by a Subsidiary,
as amended (if applicable) concurrently with the effectiveness of the 1993
Agreement by an amendment substantially in the form of EXHIBIT H-5.
"Transferee" is defined in SECTION 12.03.
"United States" or "U.S." means the United States of America, its fifty
States, the District of Columbia and Puerto Rico.
"Unused Total Commitment Amount" means, for any period, the
average daily amount for such period by which
(a) the Total Commitment Amount on each day during such
period, EXCEEDS
(b) the Total Outstandings (excluding solely for purposes of
calculation of the commitment fee under SECTION 2.03(A), all Swing
Loans) on each day during such period.
"U.S. Person" means any citizen, national or resident of the United
States, any corporation or other entity created or organized in or under the
laws of the United States or any political subdivision thereof or any estate or
trust, in each case that is subject to United States Federal income taxation
regardless of the source of its income.
"U.S. Subsidiary" means a Subsidiary of the Borrower incorporated or
organized under the laws of a state of the United States or substantially all of
the business of which is carried on in the United States.
"Zell/Chilmark" means Zell/Chilmark Fund, L.P., a Delaware
limited partnership.
SECTION 1.02. INTERPRETATION. In this Agreement and each other Credit
Document, unless a clear contrary intention appears:
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<PAGE> 32
(a) the singular number includes the plural number and
VICE VERSA;
(b) reference to any Person includes such Person's successors
and assigns but, if applicable, only if such successors and assigns are
permitted by the Credit Documents, and reference to a Person in a
particular capacity excludes such Person in any other capacity or
individually;
(c) reference to any gender includes each other gender;
(d) reference to any agreement (including this Agreement and
the Credit Documents), document or instrument means such agreement,
document or instrument as amended or modified and in effect from time
to time in accordance with the terms thereof and, if applicable, the
terms hereof and the other Credit Documents and reference to any
promissory note includes any promissory note which is an extension or
renewal thereof or a substitute or replacement therefor;
(e) reference to any Applicable Law means such Applicable Law
as amended, modified, codified, replaced or reenacted, in whole or in
part, and in effect from time to time, including rules and regulations
promulgated thereunder;
(f) reference to any ARTICLE, SECTION, SCHEDULE or EXHIBIT
means, unless otherwise specified, an ARTICLE or SECTION hereof or a
SCHEDULE or EXHIBIT hereto;
(g) "hereunder", "hereof", "hereto" and words of similar
import shall be deemed references to this Agreement as a whole and not
to any particular ARTICLE, SECTION or other provision hereof;
(h) "including" (and the correlative meaning "include") means
including without limiting the generality of any description preceding
such term;
(i) relative to the determination of any period of time,
"from" means "from and including" and "to" means "to but excluding";
(j) references to financial statements include notes thereto
in accordance with GAAP; and accounting terms used but not defined
herein shall be construed in accordance with GAAP, and whenever the
character or amount of any asset or liability or item of income or
expense is required to be determined, or any consolidation or other
accounting computation is required to be made, for purposes hereof,
such determination or computation shall be made in accordance with
GAAP; PROVIDED that such determinations and computations with respect
to
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financial covenants and ratios hereunder shall be made in accordance
with GAAP as in effect on the date of this Agreement; PROVIDED,
FURTHER, that if there shall be any change in accounting principles
from GAAP as in effect at the Amendment Effective Time, then the
Required Banks shall make adjustments to such financial covenants as
are determined in good faith to be appropriate to reflect such changes
so that the criteria for evaluating the financial condition and
operations of the Borrower shall be the same after such changes as if
such changes had not been made; and
(k) in the event of any direct conflict between any express
provision of this Agreement and any express provision of another Credit
Document, the express provision of this Agreement shall govern.
SECTION 1.03. REALLOCATION OF LOANS AND COMMITMENTS.
(a) The Borrower and each Bank agree that, effective as of the
Amendment Effective Time, this Agreement amends and restates in its entirety the
Existing Agreement. At the Amendment Effective Time, the Commitments of the
Banks shall be reallocated in accordance with the terms hereof and each Bank
shall have a direct or participation share equal to its Percentage of all
outstanding Credit Extensions.
(b) To facilitate the reallocation described in CLAUSE (A), at the
Amendment Effective Time, (i) all loans under the Existing Agreement shall be
deemed to be Loans hereunder, (ii) each Bank which is a party to the Existing
Agreement shall transfer to the Administrative Agent an amount equal to the
excess, if any, of such Banks Percentage of all outstanding Loans hereunder
(including any Loans requested by the Borrower at the Amendment Effective Time)
over the amount of all of such Bank's loans under the Existing Agreement, (iii)
each Bank which is not a party to the Existing Agreement shall transfer to the
Administrative Agent an amount equal to such Bank's Percentage of all
outstanding Loans hereunder (including any Loans requested by the Borrower at
the Amendment Effective Time), (iv) the Administrative Agent shall apply the
funds received from the Banks pursuant to CLAUSES (II) and (III), FIRST, on
behalf of the Banks (pro rata according to the amount of the loans each is
required to purchase to achieve the reallocation described in CLAUSE (A), to
purchase from each Existing Bank which is not a party hereto the loans of such
Existing Bank under the Existing Agreement (and, if applicable to purchase from
any Existing Bank which is a party hereto but which has loans under the Existing
Agreement in excess of such Bank's Percentage of all then-outstanding Loans
hereunder (including any Loans requested by the Borrower at the Amendment
Effective Time), a portion of such loans equal to such excess), SECOND, to pay
to each Existing Bank all interest, fees and other amounts (including amounts
payable to
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<PAGE> 34
Section 3.03 of the Existing Agreement, assuming for such purpose that the loans
under the Existing Agreement were prepaid rather than reallocated at the
Amendment Effective Time) owed to such Existing Bank under the Existing
Agreement (whether or not otherwise then due) and, THIRD, as the Borrower shall
direct, (v) the Borrower shall select new Interest Periods to apply to all Loans
hereunder (or, to the extent the Borrower fails to do so, such Loans shall
become Floating Rate Loans.
(c) The Borrower and the Banks which are Existing Banks (which Existing
Banks, together with certain other Existing Banks which have consented hereto,
constitute the "Required Banks" under and as defined in the Existing Agreement)
hereby agree that, effective as of the Amendment Effective Time, the "Total
Revolving Credit Commitment Amount" under and as defined in the Existing
Agreement shall be reduced to zero.
ARTICLE II
THE CREDIT
SECTION 2.01. COMMITMENTS TO MAKE REVOLVING LOANS. On the terms and subject
to the conditions set forth in this Agreement, each Bank severally (and not
jointly) agrees to make loans to the Borrower (each such loan a "Revolving
Loan"), from time to time during the period from the Amendment Effective Time to
the Termination Date, in an amount equal to such Bank's Percentage of the
aggregate amount of each Advance requested pursuant to SECTION 2.05; PROVIDED
that no Bank shall be permitted or required to make any Revolving Loan if, after
giving effect thereto, the Total Outstandings would exceed the Total Commitment
Amount. Subject to the terms hereof, the Borrower may from time to time borrow,
prepay and reborrow Revolving Loans.
SECTION 2.02. REDUCTIONS OF TOTAL COMMITMENT AMOUNT.
(a) The aggregate amount of all Commitments (the "TOTAL COMMITMENT
AMOUNT") on any date on or prior to the Termination Date shall be $275,000,000
LESS all reductions to such amount made pursuant to CLAUSES (B), (C), (D) and
(E) below.
(b) The Total Commitment Amount shall be reduced on each of the
following dates by the amount set forth opposite such date:
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<PAGE> 35
<TABLE>
<CAPTION>
Amount of
Date Reduction
---- ---------
<S> <C>
November 29, 1998 $15,000,000
November 28, 1999 20,000,000
December 3, 2000 30,000,000
December 2, 2001 30,000,000
June 2, 2002 30,000,000.
</TABLE>
Any voluntary reduction of the Total Commitment Amount pursuant to
CLAUSE (C) below shall reduce the remaining scheduled reductions of the Total
Commitment Amount by a corresponding amount (such amount to be applied to reduce
such scheduled reductions in chronological order, beginning with the next
scheduled reduction). No reduction of the Total Commitment Amount pursuant to
CLAUSE (D) or (E) below shall reduce any scheduled reduction of the Total
Commitment Amount pursuant to this CLAUSE (B).
(c) The Borrower may permanently reduce the Total Commitment Amount in
whole, or in part in a minimum aggregate amount of $5,000,000 or in larger
integral multiples of $1,000,000, upon at least five Business Days' written
notice to the Administrative Agent, which notice shall specify the amount of any
such reduction; PROVIDED that the Total Commitment Amount may not be reduced
below the Total Outstandings.
(d) The Total Commitment Amount shall be reduced no later than 45 days
after receipt by the Borrower or any of its Subsidiaries of any Net Disposition
Proceeds in excess of $15,000,000 in any Fiscal Year by an amount equal to 100%
of such excess Net Disposition Proceeds.
(e) The Total Commitment Amount shall be reduced five days after
receipt by the Borrower of any Net Debt Proceeds from the sale or incurrence of
any Permitted Senior Debt or Subordinated Debt by an amount equal to 50% of such
Net Debt Proceeds.
(f) All reductions of the Total Commitment Amount shall ratably reduce
the Commitments of the Banks according to their Percentages.
SECTION 2.03. FEES.
(a) COMMITMENT FEE. The Borrower agrees to pay to the Administrative
Agent for the account of each Bank a commitment fee at the Commitment Fee Rate
on such Bank's Percentage of the Unused Total Commitment Amount from the
Amendment Effective Time to the Termination Date, payable in arrears on each
Quarterly Payment Date, commencing with the first such date following the
Amendment Effective Time, and on the Termination Date, in each case for the
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<PAGE> 36
period then ended for which such commitment fee shall not have been theretofore
paid.
(b) AGENT'S FEES. The Borrower agrees to pay to each of the
Administrative Agent, NationsBank, as Syndication Agent, and Paribas, as
Documentation Agent, fees in such amounts and at such times as are agreed in the
applicable Fee Letter.
SECTION 2.04. METHOD OF BORROWING OF REVOLVING LOANS; RATABLE LOANS.
(a) Not later than 12 noon, Chicago time, on each Borrowing Date for Revolving
Loans, each Bank shall make available its Revolving Loan or Loans in immediately
available funds, in Chicago, to the Administrative Agent at its address
specified pursuant to ARTICLE XIII. Subject to the satisfaction of the
conditions precedent to such Revolving Loans, the Administrative Agent will make
the funds so received from the Banks available to the Borrower at the
Administrative Agent's aforesaid address.
(b) Each Advance shall consist of Loans made from the several Banks
ratably in proportion to their Percentages.
SECTION 2.05. METHOD OF SELECTING RATE OPTIONS AND INTEREST PERIODS;
TELEPHONIC NOTICES. (a) The Borrower shall give the Administrative Agent
irrevocable notice, in the form of EXHIBIT D (a "BORROWING NOTICE") not later
than 11:00 a.m., Chicago time, at least one Business Day before the Borrowing
Date of each Floating Rate Advance and at least three Business Days before the
Borrowing Date for each Eurodollar Rate Advance, specifying:
(i) the proposed Borrowing Date, which shall be a
Business Day, of such Advance,
(ii) the aggregate amount of such Advance,
(iii) the Rate Option selected for such Advance, and
(iv) in the case of each Eurodollar Rate Advance, the Interest
Period applicable thereto.
(b) The Borrower hereby authorizes the Banks and the Administrative
Agent to extend Advances and effect Rate Option selections based on telephonic
notices made by any person or persons the Administrative Agent or any Bank in
good faith believes to be acting on behalf of the Borrower. The Borrower agrees
to deliver promptly to the Administrative Agent a written confirmation of each
telephonic notice signed by an Authorized Employee. If the written confirmation
differs in any material respect from the action taken by the Administrative
Agent and the Banks, the records of the Administrative Agent and the Banks shall
govern absent manifest error.
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SECTION 2.06. AMOUNT OF EACH ADVANCE. Each Eurodollar Rate Advance
shall be in a principal amount of $5,000,000 or a higher integral multiple of
$500,000, and each Floating Rate Advance shall be in a principal amount of
$3,000,000 or a higher integral multiple of $500,000; PROVIDED that any Floating
Rate Advance made on any date may be in the amount by which the Total Commitment
Amount on such date EXCEEDS the Total Outstandings on such date; and PROVIDED,
FURTHER, that the principal amount of any Floating Rate Advance made to repay
Swing Loans in accordance with SECTION 2.07(C)(I) may be in the principal amount
required to repay such Swing Loans.
SECTION 2.07. SWING LOANS.
(a) MAKING OF SWING LOANS. BAI may elect in its sole discretion to make
revolving loans ("SWING LOANS") to the Borrower solely for the account of BAI
from time to time on or after the Amendment Effective Time and prior to the
Termination Date up to an aggregate principal amount at any one time outstanding
not to exceed $20,000,000; PROVIDED that BAI shall not make any Swing Loan which
would cause the Total Outstandings to exceed the Total Commitment Amount. Each
Swing Loan shall be in a principal amount of $200,000 or a higher integral
multiple of $100,000. BAI may make Swing Loans (subject to the conditions
precedent set forth in SECTION 4.01, except SECTION 4.01.01 which shall be
deemed satisfied by the terms of this sentence); PROVIDED that (x) BAI has
received a request in writing or via telephone from an Authorized Employee of
the Borrower for funding of a Swing Loan no later than 12 noon, Chicago time, on
the Business Day on which such Swing Loan is requested to be made and (y) BAI
has promptly notified the Administrative Agent in writing or via telephone of
such request from the Borrower. BAI shall not make any Swing Loan in the period
commencing one Business Day after BAI receives notice that one or more of the
conditions precedent contained in SECTION 4.01 is not satisfied and ending upon
the satisfaction or waiver of such condition(s). Each outstanding Swing Loan
shall be payable on the Business Day following demand therefor in accordance
with SECTION 2.07(C), shall be secured as part of the Obligations by the
Collateral and shall otherwise be subject to all the terms and conditions
applicable to Revolving Loans, except that all interest thereon shall be payable
to the Administrative Agent solely for the account of BAI.
(b) SWING LOAN BORROWING CONFIRMATIONS. The Borrower agrees to deliver
promptly to each of BAI and the Administrative Agent a written confirmation of
each telephonic notice for a Swing Loan signed by an Authorized Employee. If the
written confirmation differs in any material respect from the action taken by
BAI, the records of BAI shall govern, absent manifest error.
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<PAGE> 38
(c) REPAYMENT OF SWING LOANS.
(i) At or prior to 9 a.m., Chicago time, on any Business Day
after making a Swing Loan, BAI may request the Borrower to, and upon
such request the Borrower shall, promptly borrow Revolving Loans from
all the Banks and apply the proceeds of such Revolving Loans to the
repayment of the principal amount of any Swing Loan owing by the
Borrower not later than the Business Day following such request;
PROVIDED that any such request made after 9 a.m., Chicago time, on any
Business Day, shall be deemed to have been made prior to 9 a.m.,
Chicago time, on the immediately succeeding Business Day.
Notwithstanding the foregoing, upon the earlier to occur of (A) one
Business Day after demand is made by BAI upon each Bank (of which
demand BAI or the Administrative Agent shall notify the Borrower) and
(B) the Termination Date, each Bank (other than BAI) shall irrevocably
and unconditionally purchase from BAI, without recourse or warranty, an
undivided interest and participation in the Swing Loans in an amount
equal to such Bank's Percentage thereof, and each Bank shall promptly
pay such amount to the Administrative Agent, for the sole account of
BAI, in immediately available funds. Such payment shall be made by the
other Banks whether or not a Default is then continuing or any other
condition precedent set forth in SECTION 4.01 is then met and whether
or not the Borrower has then requested an Advance in such amount; and
each such Swing Loan shall thereupon be deemed to be a Floating Rate
Advance hereunder made on the date of such purchase (notwithstanding,
as aforesaid, the existence of any Default or the failure to meet any
condition precedent specified in SECTION 4.01 on such date). If and to
the extent that any such payment is not in fact made to the
Administrative Agent by any Bank, the Borrower and such Bank shall be
jointly and severally liable to BAI for such payment, such amount to be
payable on demand together with accrued interest thereon from the due
date therefor until the date such amount is paid to the Administrative
Agent (x) in the case of the Borrower, at the Floating Rate and (y) in
the case of such Bank, at the Federal Funds Rate for the first three
Business Days after such Bank receives notice of such required purchase
and thereafter at the Floating Rate. The failure of any Bank to pay
such amount to the Administrative Agent shall not relieve any other
Bank of its obligation to pay such amount hereunder.
(ii) Upon the making of any Advance pursuant to a Borrowing
Notice, any Swing Loan then outstanding shall be repaid in full, and
the Borrower hereby irrevocably authorizes the Administrative Agent to
apply all or any necessary portion of the proceeds of any such Advance
to the repayment of any Swing Loan then outstanding.
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<PAGE> 39
SECTION 2.08. NOTES. The Loans of each Bank shall be evidenced:
(a) in the case of Revolving Loans, by a global promissory note of the
Borrower substantially in the form of EXHIBIT A (the "GLOBAL REVOLVING NOTE"),
payable to the order of the Administrative Agent in an original principal amount
equal to $275,000,000 or, if less, the principal amount of all Revolving Loans
at any time outstanding, and
(b) in the case of Swing Loans by a promissory note of the Borrower
substantially in the form of EXHIBIT B (the "SWING NOTE"), payable to the order
of the Administrative Agent in an original principal amount equal to $20,000,000
or, if less, the principal amount of Swing Loans at any time outstanding.
(c) The Administrative Agent shall hold the Global Revolving Note for
the ratable benefit of each Bank, and the Global Revolving Note shall evidence
each Bank's Percentage of the aggregate outstanding Revolving Loans. The
Administrative Agent shall hold the Swing Note for the benefit of BAI.
(d) The Administrative Agent shall record in its records, or at its
option on the schedule attached to the applicable Note, the date and amount of
each Loan, each repayment or prepayment thereof, and, in the case of any
Eurodollar Rate Loans, the dates on which each Interest Period for such Loan
shall begin and end. The aggregate unpaid principal amount so recorded shall be
rebuttable presumptive evidence of the principal amount owing and unpaid on such
Note. The failure to so record or any error in so recording any such amount in
such records or on such schedule shall not, however, limit or otherwise affect
the obligations of the Borrower hereunder or under any Note to repay the
principal amount of the applicable Loans together with all interest accruing
thereon.
As of the Amendment Effective Time, each of the promissory notes issued
under the Existing Agreement shall be null and void (having been replaced by the
Notes hereunder).
SECTION 2.09. FINAL MATURITY. Without limiting any of the other
provisions hereof regarding payments, all Loans and all other Obligations shall
be due and payable in full on the Termination Date.
SECTION 2.10. OPTIONAL PRINCIPAL PREPAYMENTS.
(a) The Borrower may, by giving a Repayment Notice (which shall be
irrevocable) to the Administrative Agent not later than 11:00 a.m., Chicago
time, one Business Day prior to any prepayment of a Floating Rate Advance and
two Business Days prior to any prepayment of a Eurodollar Rate Advance, prepay
any Advance in
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<PAGE> 40
whole at any time or from time to time in part. Each partial prepayment of an
Advance pursuant to this CLAUSE (A) shall be in a principal amount of $5,000,000
or a higher integral multiple of $500,000, in the case of Eurodollar Rate
Advances, and $3,000,000 or a higher integral multiple of $500,000, in the case
of Floating Rate Advances (and if, after giving effect to any such prepayment,
the amount of any Eurodollar Rate Advance is less than $5,000,000, such Advance
shall automatically convert to a Floating Rate Advance). Any prepayment of a
Eurodollar Rate Advance shall (a) be accompanied by unpaid accrued interest
thereon to the date of prepayment and (b) if made on a day other than the last
day of an Interest Period therefor, be subject to SECTION 3.03.
(b) The Borrower may, by notice to BAI and the Administrative Agent not
later than 12 noon, Chicago time, on any Business Day, prepay any Swing Loan in
whole or in part from time to time. Each partial prepayment of a Swing Loan
shall be in a minimum principal amount of $200,000 or a higher integral multiple
of $100,000.
(c) Each prepayment made pursuant to this SECTION 2.10 shall be made on
a Business Day. No prepayment made pursuant to this SECTION 2.10 shall, in and
of itself, cause a reduction in the Total Commitment Amount.
SECTION 2.11. MANDATORY PREPAYMENTS RESULTING FROM COMMITMENT
REDUCTIONS. Concurrently with any reduction of the Total Commitment Amount
pursuant to SECTION 2.02(B), (D) or (E), the Borrower shall make a prepayment of
Loans (or otherwise reduce the Total Outstandings) in the amount, if any, by
which the Total Outstandings exceed the Total Commitment Amount as so reduced.
Each prepayment made pursuant to this SECTION 2.11 shall (x) be accompanied by a
Repayment Notice of the Borrower, dated as of the date of such payment, and (y)
be without premium or penalty, except as may be required by SECTION 3.03.
SECTION 2.12. RATE OPTIONS; INTEREST PAYMENT DATES; INTEREST BASIS;
PAYMENTS DUE ON DAYS NOT BUSINESS DAYS. Advances may be Floating Rate Advances
or Eurodollar Rate Advances, or a combination thereof, selected by the Borrower
in accordance with SECTION 2.05 or 2.18. Swing Loans shall bear interest at the
Floating Rate. Except as provided in SECTION 2.13, Floating Rate Advances and
Swing Loans shall bear interest at the Floating Rate and Eurodollar Rate
Advances shall bear interest at the Eurodollar Rate. Interest accrued on each
Eurodollar Rate Advance shall be payable on the last day of each Interest Period
therefor, on the Termination Date, on any date on which such Advance is prepaid
(whether due to acceleration or otherwise) and, with respect to any Interest
Period of six months, at the date three months after the beginning of such
Interest Period. Interest accrued on each Floating Rate Advance and each Swing
Loan shall be payable on each Quarterly Payment Date and on the Termination
Date. Interest and
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fees shall be calculated for actual days elapsed on the basis of a 360-day year.
Interest shall be payable by the Borrower for the day an Advance or Swing Loan
is made but not for the day of any payment on the amount paid if payment is
received prior to 12 noon, local time, at the place of payment provided herein.
If any payment of principal of or interest on an Advance or Swing Loan or any
fee or other amount payable hereunder shall become due on a day which is not a
Business Day, such payment shall be made on the immediately succeeding Business
Day, and such extension of time shall be included in computing interest in
connection with such payment in the case of a principal payment.
SECTION 2.13. RATE AFTER DEFAULT.
(a) During the existence of any Event of Default, each Floating Rate
Advance and each Swing Loan shall bear interest, payable upon demand, until
payment in full at a rate per annum equal to the Floating Rate in effect from
time to time PLUS 2.0% per annum (the "DEFAULT RATE").
(b) During the existence of any Event of Default, each Eurodollar Rate
Advance shall bear interest, payable upon demand, (i) until the earlier of (A)
payment in full of such Advance, or (B) the end of the applicable Interest
Period, at the Eurodollar Rate then applicable to such Advance PLUS 2.0% per
annum, and (ii) thereafter at the Default Rate until paid in full.
SECTION 2.14. METHOD OF PAYMENT; APPLICATION OF PAYMENT. All payments
of principal, interest and fees hereunder shall be made in Dollars in
immediately available funds to the Administrative Agent at the Administrative
Agent's address specified pursuant to ARTICLE XIII (or at any other Lending
Installation of the Administrative Agent specified in writing by the
Administrative Agent to the Borrower) by 12 noon, Chicago time, on the date when
due, accompanied by a Repayment Notice, and shall be made ratably among the
Banks. Each payment delivered to the Administrative Agent for the account of
any Bank shall be delivered promptly by the Administrative Agent to such Bank in
the same type of funds which the Administrative Agent received at its address
specified pursuant to ARTICLE XIII or at any Lending Installation specified in a
notice received by the Administrative Agent from such Bank. Prior to the
occurrence of an Event of Default and either termination of the Commitments or
acceleration of the Loans hereunder, the Administrative Agent and the Banks
shall apply such payments as provided in the applicable Repayment Notice.
Following the occurrence of any Event of Default and either termination of the
Commitments or acceleration of the Loans hereunder, the Administrative Agent and
the Banks shall apply such payments and any amounts realized from the Collateral
as provided in the Collateral Documents to the extent provided therein, and if
not
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provided therein, PRO RATA in proportion to the outstanding Obligations owed to
each Bank.
SECTION 2.15. NOTIFICATION OF ADVANCES, INTEREST RATES, PREPAYMENTS AND
TOTAL COMMITMENT REDUCTIONS. Promptly after receipt thereof, the Administrative
Agent will notify each Bank of the contents of each Total Commitment Amount
reduction notice, Borrowing Notice and Repayment Notice received by it
hereunder. The Administrative Agent will notify each Bank and the Borrower of
the interest rate applicable to each Interest Period for a Eurodollar Rate
Advance promptly upon determination of such interest rate and will give each
Bank and the Borrower prompt notice of each change in the Corporate Base Rate.
All determinations by the Administrative Agent of any rate of interest
applicable to any Loan shall be conclusive in the absence of manifest error.
SECTION 2.16. LENDING INSTALLATIONS. Subject to SECTION 3.04, each Bank
may book its Loans at any Lending Installation selected by such Bank and may
change its Lending Installation from time to time. All terms of this Agreement
shall apply to any such Lending Installation and the Notes shall be deemed held
by the Administrative Agent for the benefit of any such Lending Installation.
Each Bank may, by written or facsimile notice to the Administrative Agent and
the Borrower, designate a Lending Installation through which Loans will be made
by it and for whose account Loan payments are to be made. Notwithstanding any
such designation of a Lending Installation by a Bank, such Bank shall remain
solely responsible to the other parties hereto for the performance of its
obligations hereunder.
SECTION 2.17. NON-RECEIPT OF FUNDS BY THE ADMINISTRATIVE AGENT. Unless
the Borrower or a Bank, as the case may be, notifies the Administrative Agent
prior to the date on which it is scheduled to make payment to the Administrative
Agent of (i) in the case of a Bank, the proceeds of a Loan, or (ii) in the case
of the Borrower, a payment of principal, interest or fees to the Administrative
Agent for the account of the Banks, that it does not intend to make such
payment, the Administrative Agent may assume that such payment has been made.
The Administrative Agent may, but shall not be obligated to, make the amount of
such payment available to the intended recipient in reliance upon such
assumption. If and to the extent that any Bank or the Borrower, as the case may
be, has not in fact made such payment to the Administrative Agent, the Person
obligated to make such payment and the recipient of such payment shall be
jointly and severally obligated to repay to the Administrative Agent the amount
so made available, such amount to be payable on demand together with interest
thereon in respect of each day during the period commencing on the date such
amount was so made available by the Administrative Agent until the date the
Administrative Agent
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recovers such amount at a rate per annum equal to (x) in the case of payment by
a Bank, the Federal Funds Rate for the first three Business Days after demand by
the Administrative Agent and thereafter at the interest rate applicable to the
relevant Loan and (y) in the case of payment by the Borrower, the Floating Rate
(or, if applicable, the Default Rate).
SECTION 2.18. CONTINUATION AND CONVERSION ELECTIONS. Pursuant to a
Continuation/Conversion Notice delivered to the Administrative Agent on or
before 11:00 a.m., Chicago time, the Borrower may elect, from time to time on
not less than three Business Days' notice (or not less than one Business Day's
notice in the case of conversions to Floating Rate Loans):
(a) that all, or any portion in a principal amount of
$5,000,000 or a higher integral multiple of $500,000, of any Advance be
converted from Floating Rate Loans into Eurodollar Rate Loans (or,
subject to SECTION 3.03, from Eurodollar Rate Loans into Floating Rate
Loans); and
(b) on the expiration of the Interest Period applicable to any
Eurodollar Rate Loans comprising all or part of any Advance, that all,
or any portion in a principal amount of $5,000,000 or a higher integral
multiple of $500,000, of the outstanding principal amount of such
Advance be continued as Eurodollar Rate Loans or all or any portion in
a minimum principal amount of $3,000,000 be converted into Floating
Rate Loans;
PROVIDED that:
(i) no portion of the outstanding principal amount of
any Advance may be continued as, or converted into, Eurodollar
Rate Loans after any notice of Default is due or has been
given pursuant to SECTION 6.01.06(A)(I) and the relevant
Default is continuing;
(ii) no portion of the outstanding principal amount
of any Advance may be made or continued as, or converted into,
Floating Rate Loans or Eurodollar Rate Loans unless, after
giving effect to such action, the principal amount of Loans of
each type outstanding from each Bank then being so made,
continued or converted shall be equal to such Bank's
Percentage of the outstanding principal amount of the Advance
then being so made, continued or converted;
(iii) no portion of the outstanding principal amount
of any Advance may be made or continued as, or converted into,
Eurodollar Rate Loans or Floating Rate Loans if, after giving
effect to such action, the
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aggregate principal amount of any Eurodollar Rate Advance
would be less than $5,000,000;
(iv) the Borrower shall not be permitted to select
Interest Periods to be in effect at any one time which have
expiration dates falling on more than 10 different dates; and
(v) absent the timely selection of a new Interest
Period for a then outstanding Eurodollar Rate Advance, such
Eurodollar Rate Advance shall, immediately upon the expiration
of such Interest Period, automatically and without further
action be converted into a Floating Rate Advance.
The Borrower shall, in each Continuation/Conversion Notice electing that all, or
any portion, of the principal amount of Advances of any type be continued as, or
be converted into, Eurodollar Rate Advances, select the duration of the Interest
Period commencing upon such continuation or conversion.
SECTION 2.19. NET PAYMENTS; TAX EXEMPTIONS.
(a) All payments by the Borrower of principal, interest, fees,
indemnities and other amounts payable hereunder and under the Notes shall be
made without setoff or counterclaim and free and clear of, and without
withholding or deduction for or on account of, any present or future Taxes
(other than Excluded Taxes) now or hereafter imposed on such recipient or its
income, property, assets or franchises (such recipient's "RECIPIENT TAXES"),
except to the extent that such withholding or deduction (i) is required by
Applicable Law, (ii) results from the breach by such recipient of its Exemption
Agreement (as hereinafter defined) or (iii) would not be required if such
recipient's Exemption Representation (as hereinafter defined) were true. If any
such withholding or deduction is required by Applicable Law, the Borrower will:
(A) pay to the relevant authorities the full amount so
required to be withheld or deducted;
(B) promptly forward to the Administrative Agent an official
receipt or other documentation satisfactory to the Administrative Agent
evidencing such payment to such authorities; and
(C) except to the extent that such withholding or deduction
results from the breach, by a recipient of a payment, of its Exemption
Agreement or would not be required if such recipient's Exemption
Representation were true, pay to the Administrative Agent for the
account of the relevant recipient such additional amount as is
necessary to ensure
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that the net amount actually received by each recipient will equal the
full amount such recipient would have received had no such withholding
or deduction been required.
(b) In consideration of the Borrower's agreements in SECTION 2.19(A),
each Bank which is not a U.S. Person hereby agrees (such Bank's "EXEMPTION
AGREEMENT"), to the extent permitted by Applicable Law (including any applicable
double taxation treaty of the jurisdiction of its incorporation and the
jurisdiction in which its Lending Installation is located), to execute and
deliver to the Borrower (i) on or before the first scheduled payment date after
the Amendment Effective Time, a United States Internal Revenue Service Form 1001
or 4224 as appropriate (or successor forms), properly completed and claiming a
complete or partial exemption, as the case may be, from withholding or deduction
for or on account of Recipient Taxes of such Bank, and (ii) a new Form 1001 or
4224 (or successor form), as appropriate, upon the expiration or obsolescence of
any previously delivered Form.
(c) Each Bank which is not a U.S. Person hereby represents and warrants
(such Bank's "EXEMPTION REPRESENTATION") to the Borrower that at the Amendment
Effective Time, its Lending Installation is entitled to receive payments of
principal of, and interest on, Loans made by such Bank from such Lending
Installation without withholding or deduction for or on account of such Bank's
Recipient Taxes imposed by the United States or any political subdivision
thereof.
SECTION 2.20. LETTERS OF CREDIT.
SECTION 2.20.01. ISSUANCE OF LETTERS OF CREDIT. On the
terms and subject to the conditions set forth in this Agreement:
(a) Any Issuer may in its sole discretion issue from time to
time on or after the Amendment Effective Time and prior to the
Termination Date one or more irrevocable Letters of Credit on behalf of
and for the account of the Borrower or any Subsidiary, each of which
Letters of Credit shall be denominated in Dollars and issued to support
obligations of the Borrower or a Subsidiary incurred in the ordinary
course of business; and
(b) Paribas as Issuer has issued, prior to the Amendment
Effective Time, the Letters of Credit listed on SCHEDULE 2.20.01(B),
and each such Letter of Credit shall be deemed to be outstanding under
this Agreement after giving effect to the Amendment Effective Time for
all purposes of this Agreement and each of the other Credit Documents,
and each Bank will be deemed to have an undivided participation in each
such Letter of Credit to the extent of its Percentage in accordance
with SECTION 2.20.05;
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PROVIDED that no Letter of Credit shall be issued (a) unless the applicable
Issuer has received confirmation from the Administrative Agent that the
applicable Issuance Request is in acceptable form or (b) if after the issuance
thereof the Total Outstandings would exceed the Total Commitment Amount or if
the sum of the undrawn stated amount of all outstanding Letters of Credit plus
the unpaid Reimbursement Obligations would exceed $25,000,000.
SECTION 2.20.02. ISSUANCE REQUESTS.
(a) By delivering a duly completed issuance request (an "ISSUANCE
REQUEST") in the form of EXHIBIT E-1, accompanied by a duly completed
application for a Letter of Credit, on or before 11:00 a.m., Chicago time, at
least two Business Days prior to the requested Business Day of issuance, to the
Administrative Agent and the applicable Issuer, the Borrower may request the
issuance from time to time of Letters of Credit; IT BEING UNDERSTOOD that such
Issuer may require by notice to the Borrower a postponement of such requested
issuance date to the extent reasonably necessary for the preparation and
negotiation of such Letter of Credit and all related documentation. Each
Issuance Request and application shall be irrevocable, and upon its receipt
thereof, the Administrative Agent shall promptly notify the Banks thereof.
Issuance Requests and applications (and all attachments thereto) may be
delivered to the Administrative Agent and the applicable Issuer by facsimile or
telex if such deliveries are confirmed with the delivery of the original
executed Issuance Requests and applications (and all attachments thereto) to
such Persons not later than two Business Days prior to the date of issuance. The
Administrative Agent shall promptly notify the applicable Issuer and the
Borrower if, after giving effect to the issuance of any requested Letter of
Credit, the limitation set forth in the PROVISO to SECTION 2.20.01 would be
violated.
(b) Each Letter of Credit shall be in a form mutually
satisfactory to the applicable Issuer and the Borrower and shall,
by its terms,
(i) be stated to expire on a date (its "STATED EXPIRY DATE")
not later than the earlier of (A) one year after the date of issuance
thereof and (B) 25 days prior to the scheduled Termination Date,
(ii) unless the Administrative Agent shall otherwise agree,
terminate on or prior to its Stated Expiry Date immediately upon notice
to the applicable Issuer from the beneficiary thereunder that all
obligations covered thereby have been terminated, paid or otherwise
satisfied in full, and
(iii) provide for payment not earlier than three
Business Days (unless the applicable Issuer shall otherwise
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agree) after demand for payment under such Letter of Credit and full
satisfaction of the conditions precedent thereto, and provide solely
for payment upon the presentation of a sight draft rather than a time
draft.
(c) Each Issuer shall make the original of each Letter of Credit it
issues available (but in the case of replacement Letters of Credit, only against
delivery by such beneficiary of the Letter of Credit being replaced) to the
beneficiary indicated in the respective Issuance Request (and provide on the
date of issuance a copy thereof to the Administrative Agent).
SECTION 2.20.03. AMENDMENTS. Any extension of the Stated Expiry Date,
increase in the stated amount, or other modification of a Letter of Credit shall
be made only upon satisfaction of all of the procedures and conditions for the
issuance of a new Letter of Credit of the same type, except that the Borrower's
request therefor shall be in the form of EXHIBIT E-2 (a "LETTER OF CREDIT
AMENDMENT REQUEST").
SECTION 2.20.04. LETTER OF CREDIT FEES. (a) The Borrower agrees to pay
to the Administrative Agent with respect to each Letter of Credit, for the
account of the applicable Issuer and each other Bank, ratably in accordance with
their respective Percentages, accrual fees at the applicable L/C Fee Rate for a
Letter of Credit of such type (calculated in each case from and including the
date of issuance (or date of renewal or extension, if any) thereof to but not
including the Stated Expiry Date thereof or, if earlier, the date upon which
such Letter of Credit is cancelled, fully drawn or terminated), in each case on
the daily average undrawn stated amount thereof, payable in arrears for each
Fiscal Quarter within 10 days after the Borrower's receipt of any statement of
such fees provided by the Administrative Agent for such Fiscal Quarter; PROVIDED
that during the existence of any Event of Default, each of such accrual fees
shall be increased by 2.0% per annum.
(b) The Borrower further agrees to pay upon demand made by each Issuer
from time to time, solely to such Issuer:
(i) all reasonable and customary fees and expenses of such
Issuer, as advised by such Issuer from time to time, in connection with
the issuance, negotiation, maintenance, modification (if any),
amendment, renewal, administration and collection of, or drawing under,
Letters of Credit issued by such Issuer; and
(ii) without duplication of payments made under ARTICLE III,
any applicable reserve, assessment, insurance charge, premium or levy
imposed on such Issuer by any governmental
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authority, including Federal Deposit Insurance Corporation
assessments and charges.
(c) The Borrower further agrees to pay to each Issuer solely for its
own account such other fees as may be agreed from time to time by the Borrower
and such Issuer.
SECTION 2.20.05. OTHER BANKS' PARTICIPATIONS; REIMBURSEMENTS.
(a) Each Letter of Credit shall, effective upon issuance and without
further action (or, if issued prior to the Amendment Effective Time, effective
at the Amendment Effective Time), be issued on behalf of all Banks (including
the Issuer thereof) in accordance with the immediately succeeding sentence, in
each case PRO RATA according to each Bank's Percentage. Each Bank shall be
deemed to have irrevocably purchased a participation in the amount of its
Percentage in each Letter of Credit issued on its behalf and shall reimburse
promptly the Issuer thereof for Reimbursement Obligations not reimbursed in
accordance with SECTION 2.20.07 by the Borrower, or which have been reimbursed
by the Borrower but must be returned, restored or disgorged by such Issuer for
any reason, and each Bank (including such Issuer) shall, to the extent of its
Percentage, be entitled to receive from the Administrative Agent a ratable
portion of the fees received by the Administrative Agent, pursuant to SECTION
2.20.04(A), with respect to such Letter of Credit.
(b) If the Borrower fails to satisfy its obligations set forth in
SECTIONS 2.20.06 and 2.20.07 to reimburse any Issuer in an amount equal to the
amount of any drawing honored by such Issuer under a Letter of Credit, such
Issuer shall promptly notify the Administrative Agent and each Bank of the
unreimbursed amount of such drawing and of such Bank's respective participation
therein. If such notice is delivered, each Bank shall make available to such
Issuer, whether or not any Default shall have occurred and is continuing, an
amount equal to the amount of such participation, in same day or immediately
available funds, at such Issuer's office specified in such notice, not later
than 12 noon, Chicago time, on the Business Day after the date notified by such
Issuer. If any Bank fails to make available to such Issuer, as provided herein,
the amount of such participation, such Issuer shall be entitled to recover such
amount, together in each case with interest thereon at the Federal Funds Rate
for three Business Days and thereafter at the Floating Rate, (x) on demand to
such Bank, (y) by setoff against any payments made to such Issuer hereunder for
the account of such Bank, or (z) by payment to such Issuer by the Administrative
Agent of amounts otherwise payable to such Bank under this Agreement. Each Bank
hereby authorizes the Administrative Agent to make the payments described in
CLAUSE (Z) of the preceding sentence. Nothing in this Section shall be deemed
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to prejudice the right of any Bank to recover from any Issuer any amount made
available by such Bank to such Issuer pursuant to this Section if a court of
competent jurisdiction determines that the making of any payment by such Issuer
with respect to its Letter of Credit, and in respect of which a participation
payment was made by such Bank, constituted gross negligence or willful
misconduct on the part of such Issuer. Each Issuer shall (to the extent it has
received funds from the other Banks pursuant to the foregoing provisions of this
Section) transfer to the Administrative Agent, not later than the Business Day
following receipt, all payments received by such Issuer from the Borrower in, or
otherwise applied to, reimbursement of drawings honored by such Issuer under any
Letter of Credit and the Administrative Agent shall promptly distribute to each
Bank that has paid all amounts payable by such Bank under this Section with
respect to any Letter of Credit, such Bank's Percentage of such payments.
SECTION 2.20.06. DISBURSEMENTS. The applicable Issuer will notify the
Administrative Agent and the Borrower in writing no later than the Business Day
following receipt of the presentment of any demand for payment under any Letter
of Credit, together with notice of the amount of such payment and the date (the
"DISBURSEMENT DATE") such payment shall be made. Subject to the terms and
provisions of such Letter of Credit, such Issuer shall make such payment
("DISBURSEMENT") to the respective beneficiary (or its designee). Prior to 12
noon, Chicago time, on the applicable Disbursement Date, the Borrower shall
reimburse such Issuer for such Disbursement. To the extent such Issuer is not,
by 12 noon, Chicago time, on the Disbursement Date of any Disbursement under a
Letter of Credit, reimbursed in full by the Borrower, such unreimbursed (or any
returned or disgorged) amount shall accrue interest on and after such date at
the Default Rate, payable on demand.
SECTION 2.20.07. REIMBURSEMENT. The obligations of the Borrower
("REIMBURSEMENT OBLIGATIONS") under SECTION 2.20.06 to reimburse the applicable
Issuer for each Disbursement (including interest thereon) made under such
Issuer's Letters of Credit, and the obligations of each Bank under SECTION
2.20.05 to make participation payments in each unreimbursed, returned or
disgorged drawing thereunder, shall be, to the fullest extent permitted by
Applicable Law, absolute and unconditional under any and all circumstances and
irrespective of any setoff, counterclaim or defense to payment which the
Borrower may have or have had against the Administrative Agent, any Issuer, any
Bank or the beneficiary of any Letter of Credit, including any defense based
upon the occurrence of any Default, any draft, demand or certificate or other
document presented under such Letter of Credit proving to be forged, fraudulent,
invalid or insufficient or any non-application or misapplication by such
beneficiary of the proceeds of such
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Disbursement, or the legality, validity, form, regularity or enforceability of
such Letter of Credit.
SECTION 2.20.08. DEEMED DISBURSEMENTS. Upon the occurrence and during
the continuation of any Event of Default, amounts equal to the respective
amounts undrawn and available under each Letter of Credit shall, at the option
of the Administrative Agent or at the direction of the Required Banks and
without demand upon or notice to the Borrower, be deemed to have been paid or
disbursed by the Issuers (notwithstanding that such amounts may not in fact have
been so paid or disbursed) and, upon notification by the Administrative Agent to
the Issuers and the Borrower of the Borrower's obligations under this Section,
the Borrower shall be immediately obligated to reimburse the Administrative
Agent for the benefit of each Issuer the amount deemed to have been so paid or
disbursed with respect to the Letters of Credit; PROVIDED that, with respect to
any such amounts deemed disbursed but not reimbursed by the Borrower to the
Administrative Agent, such amounts shall not be deemed to bear interest until
such time as a Reimbursement Obligation with respect thereto shall arise. All
amounts so received by the Administrative Agent from the Borrower pursuant to
this Section shall be held as collateral security for the repayment of the
Borrower's obligations in connection with the Letters of Credit. To the extent
the aggregate amount deposited by the Borrower with the Administrative Agent
pursuant to this Section and not previously applied by the Administrative Agent
to any Reimbursement Obligation exceeds the sum of (x) the aggregate undrawn
stated amounts of all Letters of Credit PLUS (y) all unpaid Reimbursement
Obligations, the Administrative Agent will promptly return the amount of such
excess to the Borrower (except to the extent applied by the Administrative Agent
to the payment of amounts then due and owing hereunder). When all Events of
Default have been cured or waived, the Administrative Agent shall promptly
return to the Borrower all amounts, including interest as described in the
immediately succeeding sentence, then on deposit pursuant to this Section with
the Administrative Agent. All amounts on deposit pursuant to this Section shall,
until their application to any Reimbursement Obligation or their return to the
Borrower, bear interest at the Federal Funds Rate from time to time in effect
(net of the costs of any reserve requirements, in respect of amounts on deposit
pursuant to this SECTION 2.20.08, pursuant to Regulation D), which interest
shall be held by the Administrative Agent as additional collateral security for
the repayment of the Reimbursement Obligations of the Borrower in connection
with the Letters of Credit.
SECTION 2.20.09. NATURE OF REIMBURSEMENT OBLIGATIONS. The
Borrower shall assume all risks of acts, omissions or misuse by the
beneficiary of each Letter of Credit issued on behalf of the
Borrower or any Subsidiary. Neither the Issuer thereof (except to
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the extent of its own gross negligence or willful misconduct), any Bank nor the
Administrative Agent shall be responsible for:
(a) the form, validity, sufficiency, accuracy, genuineness or
legal effect of such Letter of Credit or any particular conditions
stipulated in the documents or superimposed thereon, or any document
presented under such Letter of Credit, or any document submitted by
any party in connection with the application for and issuance of such
Letter of Credit, even if it should be in any or all respects invalid,
insufficient, inaccurate, fraudulent or forged;
(b) the form, validity, sufficiency, accuracy, genuineness or
legal effect of any instrument transferring or assigning or purporting
to transfer or assign such Letter of Credit or the rights or benefits
thereunder or proceeds thereof in whole or in part, which instrument
may be invalid or ineffective for any reason;
(c) failure of such beneficiary to comply fully with conditions
required to demand payment under such Letter of Credit (other than the
delivery of documents which on their face substantially comply with
the requirements for drawing thereunder);
(d) errors, omissions, interruptions or delays in transmission or
delivery of any messages, by mail, cable, facsimile, telex or
otherwise;
(e) any loss or delay in the transmission or otherwise of any
document or draft required in order to make a Disbursement under such
Letter of Credit or of the proceeds thereof;
(f) the existence of the property purporting to be represented by
documents;
(g) any difference in character, quality, quantity, condition or
value between any property description in documents presented under
the Letter of Credit and the property purporting to be represented by
such documents;
(h) partial or incomplete shipment or failure or omission to ship
any and all of the property referred to in such Letter of Credit;
(i) the character, validity, adequacy or genuineness of any
insurance or any risk connected with insurance;
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(j) any deviation from instructions, delay, default or fraud by
the shipper or anyone else in connection with the property or shipment
thereof;
(k) the solvency, responsibility or relationship to the property
of any Person issuing any documents relating thereto;
(l) any delay in giving or failure to give any necessary notices;
(m) any breach of contract between the shippers or vendors and
the Borrower; or
(n) the failure of any instrument to bear any reference or
adequate reference to such Letter of Credit, or the failure of any
draft to be accompanied by documents at negotiation, or the failure of
any Person to note the amount of any draft on the reverse of such
Letter of Credit or to surrender or take up such Letter of Credit or
to send forward documents apart from drafts as required by the terms
of such Letter of Credit.
None of the foregoing shall affect, impair or prevent the vesting of any rights
or powers granted the Issuer thereof or any Bank or the Administrative Agent
hereunder. In furtherance of any of the foregoing, any action taken or omitted
to be taken by the Issuer of a Letter of Credit in good faith shall be binding
upon the Borrower and shall not put such Issuer under any resulting liability to
any Person.
ARTICLE III
CHANGE IN CIRCUMSTANCES
SECTION 3.01. YIELD PROTECTION. (a) If any Applicable Law or any
governmental or regulatory policy, guideline or directive (whether or not having
the force of law), or any interpretation thereof, adopted or changed after the
Amendment Effective Time, or compliance of any Bank with such,
(i) subjects any Bank or any applicable Lending Installation
to any tax, duty, charge or withholding on or from payments due from
the Borrower (other than Excluded Taxes), or changes the basis of
taxation (excluding changes in tax rates applicable to Excluded Taxes)
of payments to any Bank in respect of its Commitment, Credit Extensions
or other amounts due it hereunder, or
(ii) imposes or increases or deems applicable any reserve,
assessment, insurance charge, special deposit or similar requirement
against commitments by, assets of,
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deposits with or for the account of, or credit extended by, any Bank or
any applicable Lending Installation (other than reserves and
assessments taken into account in determining the interest rate
applicable to Eurodollar Rate Advances), or
(iii) imposes any other condition the result of which is to
increase the cost to any Bank or any applicable Lending Installation of
making its Commitment or making, funding or maintaining Credit
Extensions or reduces any amount receivable by any Bank or any
applicable Lending Installation in connection with its Commitment or
Credit Extensions, or requires any Bank or any applicable Lending
Installation to make any payment calculated by reference to the amount
of Credit Extensions held, the Commitment made, or interest received by
it by an amount deemed material by such Bank, or
(iv) affects the amount of capital required or expected to be
maintained by any Bank or Lending Installation or any corporation
controlling any Bank and such Bank determines the amount of capital
required is increased by or based upon the existence of this Agreement
or its obligation to make Credit Extensions hereunder or of commitments
of this type,
then, within 90 days after demand by such Bank or at the immediately succeeding
Quarterly Payment Date, whichever period is shorter (but in no event less than
ten Business Days), the Borrower shall pay such Bank that portion (after giving
effect to any payment made or to be made under SECTION 2.19, if applicable) of
such increased expense incurred (including, in the case of SECTION 3.01(A)(IV),
any reduction in the rate of return on capital to an amount below that which it
could have achieved but for such regulation after taking into account such
Bank's policies as to capital adequacy) or reduction in an amount received which
such Bank determines is attributable to making, funding and maintaining its
Credit Extensions or its Commitment.
(b) In determining such increased expense, reduction in rate of return
of capital or reduction in an amount received pursuant to SECTION 3.01(A), each
Bank shall act reasonably and in good faith and will, to the extent the
increased costs or reductions in amounts received or receivable relate to such
Bank's loans in general and are not specifically attributable to the Credit
Extensions hereunder, use averaging and attribution methods which are reasonable
and which cover all loans and other credit extensions similar to the Credit
Extensions made by such Bank whether or not the loan documentation for such
other loans permits the Bank to receive increased costs of the type described in
SECTION 3.01(A), with written notice as to the additional amounts owed to such
Bank, showing the basis for the calculation thereof and containing a description
of the event giving rise to such increased expense, reduction in rate of return
of capital or
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reduction in amount received hereunder, to the Borrower by such Bank to be,
absent manifest error, final and conclusive and binding upon all the parties
hereto.
SECTION 3.02. AVAILABILITY OF RATE OPTIONS; ILLEGALITY.
(a) If the Required Banks determine that (i) deposits of a
type and maturity appropriate to match fund Eurodollar Rate Advances
are not available or (ii) the Eurodollar Base Rate does not accurately
reflect the cost of making or maintaining a Eurodollar Rate Loan, then
the Administrative Agent may, and at the request of the Required Banks
shall, suspend the availability of the Eurodollar Rate Advances and
require that, at the option of the Borrower, any Eurodollar Rate
Advances outstanding either be repaid or converted to Floating Rate
Advances on the last day of the relevant Interest Period therefor.
(b) If any Bank determines that maintenance of its Eurodollar
Rate Loans at a suitable Lending Installation would violate any
Applicable Law, or any policy, guideline or directive of any
governmental authority having jurisdiction over such Bank, whether or
not having the force of law, then such Bank shall promptly notify the
Borrower and the Administrative Agent and, so long as such
circumstances shall continue, (i) such Bank shall have no obligation to
make or convert into Eurodollar Rate Loans (but shall make Floating
Rate Loans concurrently with the making of or conversion into
Eurodollar Rate Loans by the Banks which are not so affected, in each
case in an amount equal to such Bank's Percentage of all Eurodollar
Rate Loans which would be made or converted into at such time in the
absence of such circumstances) and (ii) on the last day of the current
Interest Period for each Rate Loan of such Bank (or, in any event, if
such Bank so requests, on such earlier date as may be required by such
Applicable Law, policy, guideline or directive), such Eurodollar Rate
Loan shall, unless then repaid in full, automatically convert to a
Floating Rate Loan. Each Floating Rate Loan made by a Bank which, but
for the circumstances described in the foregoing sentence, would be a
Eurodollar Rate Loan (an "AFFECTED LOAN") shall, notwithstanding any
other provision of this Agreement, remain outstanding for the same
period as the Eurodollar Rate Advance of which such Affected Loan would
be a part absent such circumstances.
SECTION 3.03. FUNDING INDEMNIFICATION. If any payment of a Eurodollar
Rate Advance occurs on a date which is not the last day of an Interest Period,
whether because of acceleration, prepayment or otherwise, or a Eurodollar Rate
Advance is not made on the date specified by the Borrower for any reason other
than default by the Banks or other than following a Required Bank determination
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pursuant to SECTION 3.02, the Borrower will indemnify each Bank for any loss
(including lost profits) or cost incurred by it resulting therefrom, including
any loss or cost in liquidating or employing deposits acquired to fund or
maintain such Eurodollar Rate Advance.
SECTION 3.04. CHANGE OF LENDING OFFICE, REPLACEMENT OF BANK, ETC.
(a) Each Bank agrees that, upon the occurrence of any event giving rise
to the operation of SECTION 2.19, 3.01 or 3.02 with respect to such Bank, it
will, (i) promptly notify the Borrower and the Administrative Agent and (ii) to
the extent permitted by Applicable Law or by the relevant governmental
authority, in consultation with the Administrative Agent, for a period of 30
days endeavor in good faith to avoid or minimize the increase in costs or
reduction in payments resulting from such event (including, but not limited to,
endeavoring to change its Lending Installation); PROVIDED, HOWEVER, that such
avoidance or minimization can be made in such a manner that such Bank, in its
sole determination, suffers no economic, legal or regulatory disadvantage. If
any Bank (an "AFFECTED BANK") shall make a demand for payment under any of such
SECTIONS (or, in the case of SECTION 3.02(B), be required to make or convert to
Floating Rate Loan(s)), and the Borrower shall find a Bank or an Eligible
Assignee which offers in writing to purchase the Commitment and Credit
Extensions of such Affected Bank without recourse at par on a specified date,
together with accrued and unpaid interest and commitment fees owed to such Bank
to the date of purchase, and tenders the purchase price of such Commitment and
Credit Extensions on such specified date, and if, in the reasonable opinion of
such Affected Bank, its acceptance of such offer would be permitted by
Applicable Law and all relevant governmental authorities and would not result in
its suffering any economic, legal or other regulatory disadvantage, then the
Borrower shall be excused from the payment of the increased costs claimed by
such Affected Bank under any of such SECTIONS accruing after the first interest
payment date pursuant to SECTION 2.12 for each Loan of such Affected Bank on or
following such specified date, if the Affected Bank demanding payment under
either such SECTION declines such purchase offer, PROVIDED that the
Administrative Agent shall first consent to any such Eligible Assignee becoming
a Bank under this Agreement, which consent the Administrative Agent shall not
unreasonably withhold. If such Affected Bank accepts such purchase offer, upon
consummation of such purchase offer such Affected Bank shall cease to be a party
hereto. Except as provided in the immediately preceding sentence, nothing in
this SECTION 3.04(A) shall affect or postpone the obligations of the Borrower to
make payments as provided in SECTION 2.19 or 3.01. Any reasonable expenses
incurred by such Affected Bank under this SECTION 3.04(A) shall be paid by the
Borrower upon delivery to the Borrower of a certificate as to the amount of such
expenses, which certificate shall be conclusive and binding, in the absence of
manifest error.
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(b) A certificate of a Bank as to the amount due under SECTION 3.01 or
3.03 shall be final, conclusive and binding on the Borrower in the absence of
manifest error; PROVIDED, in the case of amounts due under SECTION 3.01, that
such certificate is accompanied by the written notice from the Bank specified in
SECTION 3.01(B). Determination of amounts payable under such Sections in
connection with a Eurodollar Rate Loan shall be reasonable and customary and
calculated as though each Bank funded its Eurodollar Rate Loan through the
purchase of a deposit of the type and maturity corresponding to the deposit used
as a reference in determining the Eurodollar Rate applicable to such Loan,
whether in fact that is the case or not. Unless otherwise provided herein, the
amount specified in the certificate shall be payable on demand after receipt by
the Borrower of the certificate. The obligations of the Borrower under SECTIONS
3.01 and 3.03 shall survive payment of the Obligations and termination of this
Agreement.
ARTICLE IV
CONDITIONS PRECEDENT
The obligation of each Bank to make a Loan on the occasion of each
Advance or of any Issuer to issue a Letter of Credit (and the right of the
Borrower to request any Swing Loan) is subject to the satisfaction of all the
following conditions:
SECTION 4.01. ALL CREDIT EXTENSIONS. In the case of each Credit Extension
(except as provided in SECTION 2.07(C) and except for Reimbursement
Obligations):
SECTION 4.01.01. REQUIRED NOTICE. The Administrative Agent shall have
received a Borrowing Notice for such Advance, a request for such Swing Loan or
an Issuance Request for such Letter of Credit, as the case may be.
SECTION 4.01.02. NO DEFAULT. Immediately prior to and after such Credit
Extension, no Default shall have occurred and be continuing.
SECTION 4.01.03. REPRESENTATIONS AND WARRANTIES CORRECT. The
representations and warranties of the Borrower contained in this Agreement and
the other Credit Documents (excluding, after the Collateral Release Date, the
representation and warranty set forth in SECTION 5.21 and any representation or
warranty set forth in any Collateral Document) shall be true and correct in all
material respects on and as of the date of such Credit Extension.
SECTION 4.01.04. NO LITIGATION, ETC. Except as set forth in ITEM A
("Litigation [SECTION 5.08]") of the Disclosure Schedule, no litigation,
arbitration, governmental investigation, proceeding or
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inquiry shall be pending, or, to the best knowledge of the Borrower
(after due inquiry), threatened
(a) which seeks to enjoin or otherwise prevent the
consummation of, or to recover any damages or obtain relief as a result
of, the transactions contemplated by the Credit Documents, any Senior
Debt Document, any Subordinated Debt Document, any material agreement
pursuant to which equity capital is contributed to the Borrower or the
Borrower's capital stock is issued, or any agreement, instrument or
other document related to any of the foregoing, or which relates to the
validity or enforceability of any of the foregoing agreements or
instruments; or
(b) which is a development in the litigation, arbitration,
governmental investigation, proceeding or inquiry set forth in such
ITEM C ("Litigation [SECTION. 5.08]") that has or is reasonably likely
to have a Materially Adverse Effect with respect to any of the
agreements described in CLAUSE (A) above or any transactions
contemplated hereby or thereby; or
(c) which has or is reasonably likely to have a Materially
Adverse Effect with respect to any of the agreements described in
CLAUSE (A) above or any transactions contemplated hereby or thereby.
SECTION 4.01.05. FURTHER REQUESTS. The Administrative Agent shall have
received all documents any Bank through the Administrative Agent may reasonably
request relating to the existence of the Borrower or any Subsidiary, the
corporate authority for and the validity of this Agreement and each Credit
Document and any other matters relevant hereto, and all documents any Bank
through the Administrative Agent may reasonably request to update, as of the
date of such Credit Extension, any of the documents or assurances provided
pursuant to SECTION 4.02, all in form and substance reasonably satisfactory to
the Administrative Agent.
SECTION 4.01.06. SATISFACTORY LEGAL FORM. All documents executed or
submitted pursuant hereto by or on behalf of the Borrower and any Subsidiary
shall be reasonably satisfactory in form and substance to the Administrative
Agent and its counsel; the Administrative Agent and its counsel shall have
received all information and such counterpart originals or such certified or
other copies of such materials as any Bank through the Administrative Agent may
reasonably request; and all legal matters incident to the transactions
contemplated by this Agreement shall be reasonably satisfactory to the
Administrative Agent.
Each Credit Extension hereunder shall be deemed to be a
representation and warranty by the Borrower on the date of such
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Credit Extension as to the facts specified in SECTIONS 4.01.02 through 4.01.04,
except as to any such SECTION waived as provided herein.
SECTION 4.02. AMENDMENT EFFECTIVE TIME. On and from the first date that
the Administrative Agent shall have received counterparts of this Agreement duly
executed by the Borrower and each Bank listed on the signature pages hereof, and
that each of the following conditions in this SECTION 4.02 shall have been
satisfied, the terms and conditions of the Existing Agreement shall be
superseded and restated in their entirety by the terms and conditions of this
Agreement and this Agreement shall take effect. This Agreement shall not
constitute a novation, and the execution and delivery by the Borrower of this
Agreement and the Notes is in substitution for, but not in payment of, the
Borrower's obligations incurred under or evidenced by the Existing Agreement and
the "Notes" delivered thereunder and as defined therein.
The Administrative Agent shall give notice to the Borrower and to each
Bank that the Amendment Effective Time has occurred. Each agreement, opinion or
certificate described in this SECTION 4.02 shall be dated the date of the
Amendment Effective Time (or an earlier date satisfactory to the Administrative
Agent).
SECTION 4.02.01. RESOLUTIONS, ETC. The Administrative Agent shall have
received, for the Borrower and each Subsidiary executing Credit Documents at the
Amendment Effective Time, a certificate of an Authorized Officer thereof as to:
(a) resolutions of the Board of Directors of such Person then
in full force and effect authorizing the execution, delivery and
performance by such Person of, as applicable, this Agreement, the
Notes, the Collateral Documents and each other Credit Document to be
executed by it;
(b) the incumbency and signatures of the Authorized Officers
of such Person authorized to act relative to, as applicable, this
Agreement, the Notes, the Collateral Documents and each other Credit
Document to be executed by it (upon which certificate the
Administrative Agent and each Bank may conclusively rely until the
Administrative Agent or such Bank shall have received a further
certificate of an Authorized Officer of such Person cancelling or
amending such prior certificate); and
(c) such other matters as the Administrative Agent or any Bank
through the Administrative Agent may reasonably request.
SECTION 4.02.02. NO MATERIALLY ADVERSE EFFECT. There shall not have
been any Materially Adverse Effect since December 1, 1996.
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SECTION 4.02.03. CLOSING FEES AND EXPENSES. The Administrative Agent shall
have received payment in full of all reasonable fees, expenses and out-of-pocket
costs then or theretofore payable hereunder (an invoice for which fees, expenses
and out-of-pocket costs shall have been previously delivered to the Borrower),
and the Borrower shall have paid all amounts then due and payable pursuant to
the Fee Letters.
SECTION 4.02.04. NOTES. The Administrative Agent shall have received the
duly executed Global Revolving Note and Swing Note, in each case complying with
the provisions of SECTION 2.08.
SECTION 4.02.05. OPINIONS OF COUNSEL. The Administrative Agent shall have
received opinions addressed to the Administrative Agent and all Banks, from each
of:
(a) Calfee, Halter & Griswold, counsel for the Borrower and its
Subsidiaries, substantially in the form of EXHIBIT K-1;
(b) Kramer, Levin, Naftalis & Frankel, special New York counsel for
the Borrower and its Subsidiaries, substantially in the form of EXHIBIT
K-2;
(c) Rosenberg & Liebentritt, counsel for Zell/Chilmark, substantially
in the form of EXHIBIT K-3; and
(d) Mayer, Brown & Platt, counsel for the Administrative Agent,
substantially in the form of EXHIBIT K-4.
SECTION 4.02.06. CONFIRMATION. The Administrative Agent shall have received
the Confirmation, duly executed by the Borrower and each Subsidiary party to any
Credit Document.
SECTION 4.02.07. REAL ESTATE. The Administrative Agent shall have received
(a) a duly-executed Mortgage Amendment with respect to each Mortgage on real
property of the Borrower or any Subsidiary (other than the real property located
in South Brunswick, New Jersey, Mason, Ohio, Carolina, Puerto Rico, Orlando,
Florida and Albany, New York) and (b) assurances from the title insurance
company providing title insurance with respect to each such Mortgage the
Administrative Agent will receive, promptly following the Amendment Effective
Time, (i) date down endorsements of the title insurance policy as to such
Mortgage, effective as of the Amendment Effective Time, in form and substance
satisfactory to the Administrative Agent or (ii) such other documentation as any
Bank through the Administrative Agent may reasonably request, in form and
substance satisfactory to such Bank, as to the priority and continued validity
of such Mortgage.
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SECTION 4.02.08. OTHER CONDITIONS. Immediately prior to and after
giving effect to the Amendment Effective Time, the conditions set forth in
SECTIONS 4.01.02 through 4.01.06 shall have been satisfied as if such SECTIONS
were set forth herein (except that references to a "Credit Extension" shall be
references to the "Amendment Effective Time").
SECTION 4.02.09. ALL PROCEEDINGS AND INSTRUMENTS SATISFACTORY. All
corporate and legal proceedings and all instruments and agreements delivered in
connection with the transactions contemplated by this Agreement and each other
Credit Document shall be reasonably satisfactory in form and substance to the
Banks, and the Administrative Agent shall have received all information and
copies of all documents and papers, including records of corporate existence,
authority and proceedings and governmental approvals, if any, which any Bank
reasonably may have requested in connection therewith, and such documents and
papers, where appropriate, shall be certified by proper corporate or
governmental authorities.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants that:
SECTION 5.01. CORPORATE EXISTENCE AND POWER. The Borrower and each of
its Subsidiaries is a corporation validly organized and existing and in good
standing under the laws of the jurisdiction of its incorporation, is duly
qualified to do business and is in good standing as a foreign corporation in
each jurisdiction where the nature of its business makes such qualification
necessary and where the failure to so qualify is reasonably likely to have a
Materially Adverse Effect, and has full corporate power and authority and holds
all requisite governmental licenses, permits and other approvals to own and hold
under lease its property and to conduct its business substantially as presently
conducted by it which the failure to so have or hold is reasonably likely,
individually or in the aggregate, to have a Materially Adverse Effect.
SECTION 5.02. CORPORATE AND GOVERNMENTAL AUTHORIZATION; CONTRAVENTION.
The execution and delivery by the Borrower and, where applicable, each
Subsidiary of the Borrower of this Agreement, the Notes, the Collateral
Documents to which it is or is to be a party, and each other Credit Document to
which it is or is to be a party, the performance by the Borrower and, where
applicable, each Subsidiary of its obligations hereunder and thereunder, and all
Credit Extensions obtained hereunder by the Borrower, have been duly authorized
by all necessary corporate action, do not require any Approvals (other than
Approvals which
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have been obtained and are in full force and effect), do not and will not
conflict with, result in any violation of, or constitute any default under, any
provision of any Organic Document or Contractual Obligation of the Borrower or
any Subsidiary (except for conflicts, violations or defaults under Contractual
Obligations which, individually or in the aggregate, are not reasonably likely
to have a Materially Adverse Effect) or any law or governmental regulation or
court decree or order applicable to it or its property and will not result in or
require the creation or imposition of any Lien on any of its properties pursuant
to the provisions of any Contractual Obligation (excluding, however, the Liens
created by the Collateral Documents).
SECTION 5.03. BINDING EFFECT; RANKING. This Agreement and each of the
Collateral Documents to which the Borrower is a party has been duly executed and
delivered by the Borrower and is, and each of the Notes upon the execution and
delivery thereof by the Borrower will be, the legal, valid and binding
obligation of the Borrower, enforceable in accordance with its terms, subject to
any applicable bankruptcy, insolvency, reorganization, moratorium or other laws
affecting creditors' rights generally and to general principles of equity. Each
Collateral Document to which a Subsidiary is a party constitutes the legal,
valid and binding obligation of the Subsidiary party thereto, enforceable in
accordance with its terms, subject to any applicable bankruptcy, insolvency,
reorganization, moratorium or other laws affecting creditors' rights generally
and to general principles of equity.
SECTION 5.04. FINANCIAL STATEMENTS. (a) All balance sheets, all
statements of earnings, stockholders' equity and cash flow, and all other
financial information which have been furnished by or on behalf of the Borrower
and its Subsidiaries or by any other Person at the direction of the Borrower or
any of its Subsidiaries to any Bank or the Administrative Agent for the purposes
of or in connection with this Agreement or any transaction contemplated hereby,
including a draft of the audited consolidated balance sheet at December 1, 1996
and a draft of the related audited consolidated statements of earnings,
stockholders' equity and cash flow, for the Fiscal Year then ended, of the
Borrower and its Subsidiaries, prepared by KPMG Peat Marwick, have been prepared
in accordance with GAAP consistently applied (subject, where applicable, to
normal year-end adjustments), except where not applicable thereto or as
otherwise disclosed therein, throughout the periods involved and present fairly
the financial condition of the Borrower and its Subsidiaries, taken as a whole,
covered thereby as at the dates thereof and the results of their operations for
the periods then ended. Neither the Borrower nor any of its Subsidiaries had, as
of such date, any material contingent liability or liabilities for taxes,
long-term leases or unusual forward or long-term commitments which are not
reflected in such financial statements or in the
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Disclosure Schedule and which, in accordance with GAAP, should have been
reflected in such financial statements.
(b) The Initial Financial Projections delivered to the Administrative
Agent and the Banks prior to the execution of this Agreement represent
reasonable estimates of the future performance of the Borrower and its
Subsidiaries and were prepared by the Borrower based upon historical financial
information and assumptions the Borrower deems reasonable and appropriate in
light of current circumstances.
SECTION 5.05. MATERIALLY ADVERSE EFFECT. Since December 1, 1996, no
events have occurred or contracts have been entered into which, individually or
in the aggregate, constitute or are reasonably likely to constitute a Materially
Adverse Effect.
SECTION 5.06. SOLVENCY. Before and after giving effect to the initial
Credit Extensions and the application of the proceeds thereof (including the
payment of the Effective Time Dividend), the Borrower is Solvent.
SECTION 5.07. SUBSIDIARIES; CAPITALIZATION. (a) As of the Amendment
Effective Time, the Borrower has no Subsidiaries except the corporations that
are identified in ITEM B-1 ("Existing Subsidiaries [SECTION 5.07(A)]") of the
Disclosure Schedule.
(b) The Borrower has no authorized capital stock outstanding as of the
Amendment Effective Time other than 30,155,735 shares of Class A common stock,
$0.01 par value, all of which are issued and outstanding and Beneficially Owned,
as of the Amendment Effective Time, by the Persons listed, and in the
approximate respective amounts listed, in ITEM B-2 ("Stock Ownership [SECTION
5.07(B)]") of the Disclosure Schedule.
SECTION 5.08. LITIGATION. Except as set forth in ITEM A ("Litigation
[SECTION 5.08]") of the Disclosure Schedule or disclosed by the Borrower in
accordance with SECTION 6.01.06(B), no litigation, arbitration, governmental
investigation, proceeding or inquiry is pending or, to the best knowledge of the
Borrower (after due inquiry) threatened:
(a) which seeks to enjoin or otherwise prevent the
consummation of, or to recover any damages or obtain relief as a result
of, the transactions contemplated by the Credit Documents, any material
agreement pursuant to which equity capital is contributed to the
Borrower or the Borrower's capital stock is issued, or any agreement,
instrument or other document related to any of the foregoing, or which
relates to the validity of any of the foregoing agreements or
instruments; or
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(b) which is a development in the litigation, arbitration,
governmental investigation, proceeding or inquiry set forth in such
ITEM C that would have or is reasonably likely to have a Materially
Adverse Effect or with respect to any of the agreements described in
CLAUSE (A) above or any transactions contemplated hereby or thereby; or
(c) which otherwise could reasonably be expected to have a
Materially Adverse Effect or with respect to any of the agreements
described in CLAUSE (A) above or any transactions contemplated hereby
or thereby.
SECTION 5.09. INVESTMENT COMPANY. Neither the Borrower nor any
Subsidiary is an "investment company" or a company "controlled" by an
"investment company" within the meaning of the Investment Company Act of 1940.
SECTION 5.10. PUBLIC UTILITY COMPANY. Neither the Borrower nor any
Subsidiary is a "public-utility company", or a "holding company", or a
"subsidiary company" of a "holding company", or an "affiliate" of a "holding
company" or a "subsidiary company" of a "holding company", within the meaning of
the Public Utility Holding Company Act of 1935.
SECTION 5.11. ABSENCE OF DEFAULT. Neither the Borrower nor any of its
Subsidiaries is in default in the payment of (or in the performance of any
obligation applicable to) any Debt, or in violation of any Applicable Law, in
any such case which has had, or is reasonably likely to have, a Materially
Adverse Effect.
SECTION 5.12. DISCLOSURE. Except as otherwise disclosed in ITEM C
("Update of Factual Information [SECTION 5.12]") of the Disclosure Schedule, all
factual information heretofore or contemporaneously furnished by or on behalf of
the Borrower in writing to the Administrative Agent or any Bank for purposes of
or in connection with this Agreement or any other Credit Document or any
transaction contemplated hereby is, and all such other factual information
hereafter furnished by or on behalf of the Borrower in writing to the
Administrative Agent or any Bank will be, taken as a whole, true and accurate in
all material respects on the date as of which such information is or will be
dated or certified and does not or will not omit to state any material fact
necessary to make such information not misleading in light of the circumstances
at the time prevailing.
SECTION 5.13. REGULATIONS G, T, U AND X. Neither the Borrower nor any
of its Subsidiaries is engaged principally, or as one of its important
activities, in the business of extending credit for the purpose of purchasing or
carrying margin stock. None of the proceeds of any Loan will be used for the
purpose of, or be made available by the Borrower or any of its Subsidiaries in
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any manner to any other Person to enable or assist such Person in, purchasing or
carrying "margin stock". Terms for which meanings are provided in Regulations G,
T, U and X or any regulations substituted therefor, as from time to time in
effect, are used in this SECTION 5.13 with such meanings.
SECTION 5.14. SECURITIES REGULATIONS. All offerings or sales of any
Debt or securities issued or guaranteed by the Borrower or any Subsidiary will
be made in compliance with, or pursuant to an exemption to, the registration or
qualification requirements of the Securities Act of 1933, applicable state
securities or blue sky laws and the rules and regulations promulgated
thereunder.
SECTION 5.15. TAXES. Each of the Borrower and its Subsidiaries has
filed all federal and other material tax returns and reports required by law to
have been filed by it and has paid all taxes and governmental charges thereby
shown to be owing, except any such taxes or charges which are being contested in
good faith by appropriate proceedings and for which adequate reserves in
accordance with GAAP shall have been set aside on its books. No tax Liens (other
than Liens for taxes which are not yet due and payable) have been filed with
respect to the Borrower or any of its Subsidiaries and, to the best knowledge of
the Borrower, except as otherwise disclosed in ITEM A ("Litigation [SECTION
5.08]") of the Disclosure Schedule, no claims are being asserted with respect to
any such taxes or charges, which Liens and claims, individually or in the
aggregate, have had, or could reasonably be expected to have, a Materially
Adverse Effect.
SECTION 5.16. PENSION AND WELFARE PLANS. During the four consecutive
Fiscal Quarters prior to the date of this Agreement and as of the date of any
Credit Extension hereunder, no formal action has been taken to terminate any
Pension Plan (except for terminations of Pension Plans which, as of the date of
this Agreement or any Credit Extension, can be terminated without incurring any
liability under section 4062 of ERISA) and no contribution failure has occurred
with respect to any Pension Plan sufficient to give rise to a Lien under section
302(f) of ERISA. No condition exists or event or transaction has occurred with
respect to any Pension Plan which has had, or could reasonably be expected to
have, a Materially Adverse Effect.
SECTION 5.17. LABOR CONTROVERSIES. Except as set forth in ITEM A
("Litigation" [SECTION 5.08]) of the Disclosure Schedule, there are no labor
controversies pending or, to the best knowledge of the Borrower, threatened
against the Borrower or any of its Subsidiaries, which, if adversely determined,
could reasonably be expected to have a Materially Adverse Effect.
SECTION 5.18. OWNERSHIP OF PROPERTIES; LIENS. The Borrower and each of
its Subsidiaries has valid fee or leasehold interests
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in all real property, and good and valid title to all of its respective
properties and assets, real and personal, of any nature whatsoever the
termination or loss of which could reasonably be expected to cause any
Materially Adverse Effect and is not in default beyond the expiration of any
applicable grace period of any material obligation under any leases creating
any of its leasehold interests in real property the termination or loss of
which could reasonably be expected to cause any Materially Adverse Effect, and
none of such property is subject to any Lien, except as permitted pursuant to
SECTION 6.02.03 and except for Liens upon leased property securing Debt of
landlords or owners thereof. The real property described in ITEM D ("Major
Properties [SECTION 5.18]") of the Disclosure Schedule constitutes all real
property of the Borrower and its Subsidiaries the termination or loss of which
could reasonably be expected to cause any Materially Adverse Effect. As of the
Amendment Effective Time, the real property described in ITEM E ("Locker
Stock/Third Party Warehouse Inventory [SECTION 5.18]") of the Disclosure
Schedule constitutes all locations of real property at which significant
inventory of the Borrower or such Subsidiaries is held subject to consignment
arrangements or in public warehouses, and the approximate amount of such
inventory held at such locations.
SECTION 5.19. PATENTS, TRADEMARKS, ETC. The Borrower and each of its
Subsidiaries owns (or is licensed to use) and possesses all such patents,
patent rights, trademarks, trademark rights, trade names, trade name rights,
service marks, service mark rights, and copyrights as the Borrower considers
necessary for the conduct of the businesses of the Borrower and its
Subsidiaries as now conducted without, individually or in the aggregate, any
infringement or alleged infringement, except as disclosed in ITEM A
("Litigation [SECTION 5.08]") of the Disclosure Schedule, upon rights of other
Persons which might reasonably be expected to have a Materially Adverse Effect,
and (except as disclosed on ITEM I ("Patents and Trademarks [SECTION 5.19]") of
the Disclosure Schedule) (or, in the case of any intellectual property right
acquired or arising after the Amendment Effective Time, as disclosed in writing
to the Administrative Agent) there is no individual patent or patent license or
trademark or trademark right the loss of which might reasonably be expected to
have a Materially Adverse Effect.
SECTION 5.20. SUBORDINATED DEBT, ETC. The Senior Subordinated Notes and
the Senior Subordinated Note Indenture constitute the legal, valid and binding
obligations of the Borrower enforceable against the Borrower in accordance with
their respective terms, subject to any applicable bankruptcy, insolvency,
reorganization, moratorium or other laws affecting the rights of creditors
generally and to general principles of equity. The subordination provisions of
the Senior Subordinated Notes and the Senior Subordinated Note Indenture are
enforceable against the holders of the Senior Subordinated Notes by the holder
of any
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"Senior Debt" (as defined in the Senior Subordinated Note Indenture) which has
not effectively waived the benefits thereof. All monetary Obligations, including
the Obligations to pay principal of and interest on the Loans, the Letters of
Credit, the Reimbursement Obligations, and fees and expenses in connection
therewith, constitute "Bank Debt" and "Senior Debt", as defined in the Senior
Subordinated Note Indenture, and all such Obligations are entitled to the
benefits of subordination created by the Senior Subordinated Note Indenture and
the Senior Subordinated Notes. The principal of and interest on the Notes and
all other Obligations will constitute "Senior Debt" as that or any similar term
is or may be used in any other instrument evidencing or applicable to any other
Subordinated Debt. As of the date of the execution and delivery of the Senior
Subordinated Notes, the Senior Subordinated Notes were duly registered or
qualified under all applicable United States Federal and state securities laws
or exempt therefrom. The Borrower acknowledges that each Bank is entering into
this Agreement, and is extending its Commitment in reliance upon, the
subordination provisions of the Senior Subordinated Note Indenture, the Senior
Subordinated Notes and this Section. All payments of principal of or interest on
any Subordinated Debt made by the Borrower or from the liquidation of its
property will be subject to such subordination provisions.
SECTION 5.21. THE COLLATERAL DOCUMENTS. The provisions of the
Collateral Documents executed by the Borrower or any Subsidiary in favor of the
Administrative Agent securing the Notes and all other Obligations from time to
time outstanding are effective to create, in favor of the Administrative Agent,
on behalf of the Banks, a legal, valid and enforceable Lien in all right, title
and interest of the Borrower and such Subsidiary in any and all of the
Collateral described therein, and each of such Collateral Documents constitutes
a fully perfected Lien in all right, title and interest of the Borrower or such
Subsidiary in such Collateral superior in right to any Liens, existing or
future, which the Borrower or such Subsidiary or any creditors thereof or
purchasers therefrom, or any other Person, may have against such collateral or
interests therein, except to the extent, if any, otherwise provided therein or
in this Agreement. The Collateral described in the Collateral Documents
constitutes all of the real and personal property of the Borrower and its
Subsidiaries, except property described in ITEM G, SECTION 1 ("Property Not
Pledged [SECTION 5.21]") of the DisclosurE Schedule or as may hereafter be
agreed by the Required Banks. As of the Amendment Effective Time, each parcel
of owned real property and the leasehold interest in leased real property of
the Borrower and its Subsidiaries listed in ITEM G, SECTION 2 ("Property Not
Pledged [SECTION 5.21]") of the Disclosure Schedule has, to the best of the
Borrower's knowledge and belief, a fair market value of less than $2,000,000.
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SECTION 5.22. HAZARDOUS MATERIALS. Except as set forth in ITEM H
("Hazardous Materials [SECTION 5.22]") of the Disclosure Schedule:
(a) No notice, notification, demand, request for information,
citation, summons or order has been issued, no complaint has been
filed, no penalty has been assessed and no investigation or review is
pending or threatened by any governmental or other entity with respect
to any alleged failure by the Borrower or any Subsidiary to have any
permit, certificate, license, approval, registration or authorization
required in connection with the conduct of the Borrower's or such
Subsidiary's business or with respect to any generation, treatment,
storage, recycling, transportation or disposal or release as defined in
42 U.S.C. SECTION 9601(22) (a "RELEASE") of any substance regulated
under federal, state or local environmental statutes, ordinances,
rules, regulations or orders ("HAZARDOUS MATERIALS") generated by the
Borrower or such Subsidiary, except for any of the foregoing which do
not, and are not reasonably likely to, individually or in the
aggregate, have a Materially Adverse Effect.
(b) Neither the Borrower nor any Subsidiary has handled any
Hazardous Material on any property now or previously owned or leased by
the Borrower or such Subsidiary to an extent that has, or is reasonably
likely to have, a Materially Adverse Effect; and
(i) no PCB is or has been present at any property now
or previously owned or leased by the Borrower or any
Subsidiary to an extent that has, or is reasonably likely to
have, a Materially Adverse Effect;
(ii) no asbestos is or has been present at any
property now or previously owned or leased by the Borrower or
any Subsidiary to an extent that has, or is reasonably likely
to have, a Materially Adverse Effect;
(iii) there are no underground storage tanks for
Hazardous Materials, active or abandoned, at any property now
or previously owned or leased by the Borrower or any
Subsidiary to an extent that has, or is reasonably likely to
have, a Materially Adverse Effect;
(iv) no Hazardous Materials have been Released at, on
or under any property now or previously owned or leased by the
Borrower or any Subsidiary to an extent that has, or is
reasonably likely to have, a Materially Adverse Effect; and
(v) no Hazardous Materials have been Released, in
a reportable quantity, where such a quantity has been
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established by statute, ordinance, rule, regulation or order,
at, on or under any property now or previously owned by the
Borrower or any Subsidiary to an extent that has, or is
reasonably likely to have, a Materially Adverse Effect.
(c) Neither the Borrower nor any Subsidiary has directly
transported or directly arranged for the transportation of any
Hazardous Material to any location which is listed under CERCLA or on
any similar state list or which is the subject of federal, state or
local enforcement actions or other investigations which may lead to
claims against the Borrower or any Subsidiary for clean-up costs,
remedial work, damages to natural resources or for personal injury
claims, including, but not limited to, claims under CERCLA, where the
fact of any such act is, or is reasonably likely to have, a Materially
Adverse Effect.
(d) No Hazardous Material generated by the Borrower or any
Subsidiary has been recycled, treated, stored, disposed of or
transported by any entity other than those listed in ITEM H
("Hazardous Materials [SECTION 5.22]") of the Disclosure Schedule or
Released by the Borrower or such Subsidiary at any location other than
those listed in ITEM H ("Hazardous Materials [SECTION 5.22]") of the
Disclosure Schedule where the fact of any such act has, or is
reasonably likely to have, a Materially Adverse Effect.
(e) No oral or written notification of a Release of a
Hazardous Material has been filed by or on behalf of the Borrower or
any Subsidiary and no property now or previously owned or leased by the
Borrower or any Subsidiary is listed or proposed for listing on the
National Priority list promulgated pursuant to CERCLA, or on any
similar state list of sites requiring investigation or clean-up, where
any such listing has, or is reasonably likely to have, a Materially
Adverse Effect.
(f) There are no environmental Liens on any of the real
property or properties owned or leased by the Borrower or any
Subsidiary, and no government actions have been taken or are in process
which could subject any of such properties to such Liens, where such
subjection has, or is reasonably likely to have, a Materially Adverse
Effect, and neither the Borrower nor any Subsidiary would be required
to place any notice or restriction relating to the presence of
Hazardous Materials at any property owned by it in any deed to such
property where the failure to so place any such notice has, or is
reasonably likely to have, a Materially Adverse Effect.
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(g) As of the Amendment Effective Time, except as set forth in
ITEM H ("Hazardous Materials [SECTION 5.22]") of the Disclosure
Schedule, there have been no environmental investigations, studies,
audits, tests, reviews or other analyses conducted by or which are in
the possession of the Borrower or any Subsidiary in relation to any
property or facility now or previously owned or leased by the Borrower
or any Subsidiary and which have not been made available to the Banks.
ARTICLE VI
COVENANTS
SECTION 6.01. CERTAIN AFFIRMATIVE COVENANTS. The Borrower agrees that,
unless the Required Banks consent thereto in writing, so long as any Bank has
any Commitment hereunder or any Obligation remains outstanding or unpaid:
SECTION 6.01.01. FINANCIAL INFORMATION, ETC. The Borrower will furnish,
or will cause to be furnished, to each Bank and to the Administrative Agent
copies of the following financial statements, reports and information:
(a) within 95 days after the close of each Fiscal Year,
(i) a consolidated balance sheet at the close of such
Fiscal Year, and related consolidated statements of earnings,
stockholders' equity and cash flow for such Fiscal Year, of
the Borrower and its Subsidiaries, audited and certified
without Impermissible Qualification by an Independent Public
Accountant, and
(ii) a Compliance Certificate calculated as of the
computation date at the close of such Fiscal Year;
(b) within 60 days after the close of each of the first three
Fiscal Quarters of each Fiscal Year,
(i) consolidated balance sheets at the close of such
Fiscal Quarter, and related consolidated statements of
earnings and cash flow for such Fiscal Quarter and for the
period from the commencement of such Fiscal Year to the end of
such Fiscal Quarter, of the Borrower and its Subsidiaries,
setting forth comparative figures at the close of and for the
corresponding Fiscal Quarter and period of the prior Fiscal
Year, certified by the chief accounting or financial
Authorized Officer of the Borrower, and
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(ii) a Compliance Certificate calculated as of the
computation date at the close of such Fiscal Quarter;
(c) promptly after any filing thereof by the Borrower with the
Commission, any annual, periodic or special report or registration
statement generally available to the public;
(d) promptly after completion or receipt thereof, a copy of
all notices, documents, or other instruments required to be delivered
pursuant to any Subordinated Debt Document or Senior Debt Document and
not otherwise required to be delivered hereunder;
(e) promptly after completion thereof, but in no event later
than January 31 of each year, a copy of the Borrower's annual sales and
profit forecast, including a forecasted balance sheet and statement of
cash flow (and a sales and profit forecast), on a monthly basis;
(f) promptly after the execution and delivery thereof, copies
of any material shareholder or similar agreement entered into by the
Borrower and any holder of the capital stock of the Borrower; and
(g) promptly, such additional financial and other information
with respect to the Borrower and its Subsidiaries as any Bank may from
time to time reasonably request through the Administrative Agent.
SECTION 6.01.02. MAINTENANCE OF CORPORATE EXISTENCE, ETC. Subject to
Section 6.02.05 and 6.02.11, (a) the Borrower will cause to be done at all times
all things necessary to maintain and preserve the corporate existences, rights
(charter and statutory) and franchises of the Borrower and each Subsidiary and
(b) the Borrower will continue to own and hold, directly or indirectly, free and
clear of all Liens (except such as have been created or permitted pursuant
hereto), all of the outstanding shares of capital stock (excluding directors'
qualifying shares, if any) or other ownership interests of each of its existing
Subsidiaries; PROVIDED that the Borrower shall not be required to preserve any
such existence, right or franchise if the Borrower shall determine that the
preservation thereof is not material or no longer desirable in the conduct of
the business of the Borrower and its Subsidiaries as a whole and that the loss
thereof will not result in a Materially Adverse Effect.
SECTION 6.01.03. FOREIGN QUALIFICATION. The Borrower will, and will
cause each Subsidiary to, cause to be done at all times all things necessary to
be duly qualified to do business and be in good standing as a foreign
corporation in each jurisdiction where the nature of its business makes such
qualification necessary
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and where the failure to so qualify is reasonably likely to have a Materially
Adverse Effect.
SECTION 6.01.04. PAYMENT OF TAXES, ETC. The Borrower will, and will
cause each Subsidiary to, pay and discharge, as the same may become due and
payable, all federal and other material taxes, assessments, and other
governmental charges or levies against or on any of its income, profits or
property, as well as claims of any kind which, if unpaid, might become a Lien
upon any of its properties; PROVIDED that the foregoing shall not require the
Borrower or any Subsidiary to pay or discharge any such tax, assessment, charge,
levy or Lien, so long as it shall contest the validity thereof in good faith by
appropriate proceedings and shall set aside on its books adequate reserves in
accordance with GAAP with respect thereto.
SECTION 6.01.05. MAINTENANCE OF PROPERTY. The Borrower will, and will
cause each of its Subsidiaries to, at their respective expense:
(a) acquire and maintain its property which is, or is intended
to be, Collateral in a manner that will enable the Borrower or such
Subsidiary to cause such property to be subject to the Liens of the
Collateral Documents; and
(b) maintain and keep its properties which are used or useful
to its business in good repair, working order and condition (ordinary
wear and tear excepted.
SECTION 6.01.06. NOTICE OF DEFAULT, LITIGATION, ETC. The Borrower will,
upon an Authorized Officer of Borrower obtaining knowledge thereof, give notice
promptly to the Administrative Agent (which shall promptly notify each Bank) of:
(a) the occurrence of
(i) any Default, or
(ii) any event of default or unmatured event of
default under any Subordinated Debt Document
or Senior Debt Document;
(b) any litigation, arbitration, or governmental investigation
or proceeding not previously disclosed in writing by the Borrower to
the Banks which has been instituted or, to the knowledge of the
Borrower, is threatened against, the Borrower or any Subsidiary or to
which any of its properties is subject which
(i) if adversely determined, could reasonably be
expected to have a Materially Adverse Effect (unless the
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Borrower shall, in good faith and upon consultation with
counsel, have determined such Materially Adverse Effect to be
unlikely), or
(ii) relates to this Agreement, any Note, any
Collateral Document, any other Credit Document, any
Subordinated Debt Document, any Senior Debt Document or any
agreement pursuant to which equity capital is contributed to
the Borrower or the Borrower's capital stock is issued;
(c) any material adverse development which shall occur in any
litigation, arbitration, or governmental investigation or proceeding
required to be disclosed by the Borrower to the Banks, or any
development which shall occur in any litigation, arbitration or
governmental investigation or proceeding, regardless of whether
previously disclosed by the Borrower to the Banks, if such development
has or would be reasonably likely to have a Materially Adverse Effect;
(d) any development in the business, operations, financial
condition or prospects of the Borrower and its Subsidiaries (taken as a
whole) which, in the reasonable judgment of the Borrower is reasonably
likely to have a Materially Adverse Effect;
(e) the taking of any formal action by the Borrower or any
other Person to terminate any Pension Plan (other than in a standard
termination described in section 4041(b) of ERISA with respect to which
the Borrower would have no liability), or the failure to make a
required contribution to any Pension Plan if such failure is sufficient
to give rise to a Lien on any assets of the Borrower or any Subsidiary
under section 302(f) of ERISA, or the taking of any action with respect
to a Pension Plan which could result in the requirement that the
Borrower or any Subsidiary furnish a bond or other security to the PBGC
or such Pension Plan, or the occurrence of any event with respect to
any Pension Plan which could result in the incurrence by the Borrower
or any Subsidiary of any material liability, fine or penalty; and
(f) any material notices (including notices of default or of
acceleration thereunder) received from any holder or trustee of any
Subordinated Debt Document or Senior Debt Document.
SECTION 6.01.07. PERFORMANCE OF INSTRUMENTS. The Borrower will, and
will cause each Subsidiary to, perform all of its Obligations under the Notes
and each Credit Document executed by it, subject to any applicable grace
periods.
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SECTION 6.01.08. COLLATERAL AUDITS; BOOKS AND RECORDS. Prior to the
Collateral Release Date, the Administrative Agent may conduct physical audits of
the inventory and accounts of the Borrower as often as the Administrative Agent
may deem necessary or desirable, each of which shall (unless a Default shall
have occurred and be continuing) be held on reasonable notice and at reasonable
times and intervals during ordinary business hours; provided that the Collateral
Agent shall conduct only one such audit in any year so long as no Default
exists. The Borrower will, and will cause each of its Subsidiaries to, (a) keep
proper books and records reflecting all of its business affairs and transactions
(including all loans and advances by the Borrower to any of its Subsidiaries) in
a manner which will permit the preparation of consolidated financial statements
in accordance with GAAP and (b) permit the Administrative Agent and the Banks,
on reasonable notice and at reasonable times and intervals during ordinary
business hours, to visit all of its offices, discuss its financial matters with
officers of the Borrower or any of its Subsidiaries and its independent public
accountants (PROVIDED that each Bank shall give the Borrower prior
notice of any meeting with such independent public accountants and permit a
representative of the Borrower to be present at such meeting), and examine and
make abstracts from any of its books or other corporate records. The Borrower
shall pay any fees of such independent public accountants incurred in connection
with the exercise by the Administrative Agent and the Banks of their rights
pursuant to this Section. The Borrower will, and will cause each of its
Subsidiaries to, continue in full force and effect all of its inventory control
procedures in effect on the date of this Agreement, except for improvements
thereto.
SECTION 6.01.09. COMPLIANCE WITH LAWS, ETC. The Borrower will, and will
cause each Subsidiary to, comply with the requirements of all Applicable Laws,
noncompliance with which might have a Materially Adverse Effect.
SECTION 6.01.10. SECURITY. (a) The Borrower hereby agrees that prior to
the Collateral Release Date it will, and will cause each U.S. Subsidiary to,
take such actions as the Administrative Agent or the Required Banks may from
time to time reasonably request to establish and maintain first-priority,
perfected security interests in and Liens on all of their real and personal
property Collateral, except (i) to the extent otherwise expressly provided
herein or in any Collateral Document, and (ii) with respect to inventory held
subject to consignment arrangements or in public warehouses described from time
to time to the Administrative Agent, with an aggregate fair market value not to
exceed $10,000,000 at any time; PROVIDED that if the Borrower and its
Subsidiaries should own inventory held subject to consignment arrangements or in
public warehouses with an aggregate fair market value in excess of $10,000,000,
then the Borrower or such Subsidiary, respectively, shall have 30 days to obtain
such waivers
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or agreements, make such filings or take such other actions as the
Administrative Agent may require to ensure that the aggregate fair market value
of such inventory as to which the Administrative Agent and the Banks do not have
a first-priority, perfected security interest does not exceed $10,000,000.
(b) The Borrower agrees to cause each Person that becomes a U.S.
Subsidiary after the Amendment Effective Time to promptly (i) execute and
deliver to the Administrative Agent a Subsidiary Guarantee, (ii) execute and
deliver to the Administrative Agent a counterpart of the Intercompany
Subordination Agreement, (iii) execute and deliver to the Borrower an
Intercompany Note payable to the order of the Borrower, which Intercompany Note
the Borrower will, unless the Collateral Release Date has occurred, endorse to
the order of the Administrative Agent and deliver to the Administrative Agent,
and (iv) unless the Collateral Release Date has occurred, grant to the
Administrative Agent, for the benefit of the Banks, such security interests and
Liens as are required under SECTION 6.01.10(A). The Borrower further agrees
that, unless the Collateral Release Date has occurred, it will, or will cause
the applicable Subsidiary owning each Person that becomes a Subsidiary after the
Amendment Effective Time to, pledge pursuant to the Pledge Agreement executed by
the Borrower or such applicable Subsidiary, as the case may be, 100% of the
shares of capital stock or other ownership interests of such Person (65% of such
shares of such Person if such Person is a corporate Subsidiary which is not
incorporated in the United States) owned by the Borrower or such applicable
Subsidiary, as the case may be.
SECTION 6.01.11. CASH MANAGEMENT SYSTEM. So long as the Collateral
Release Date has not occurred, the Borrower will not, nor will it permit any of
its U.S. Subsidiaries to, establish or maintain any lockbox account or similar
arrangement with any financial institution unless such financial institution,
the Administrative Agent and the Borrower or such U.S. Subsidiary shall have
entered into a Cash Management Letter.
SECTION 6.01.12. INSURANCE. (a) The Borrower shall maintain, and shall
cause each Subsidiary to maintain, at its sole cost and expense, insurance
(which may include self-insurance) to such extent and against such hazards and
liabilities, and including such reasonable deductibles, retention amounts or
similar risk management arrangements, as is commonly maintained by Persons
similarly situated.
(b) So long as the Collateral Release Date has not occurred, the
Borrower shall, and shall cause each Subsidiary to, cause each issuer of an
insurance policy to provide the Administrative Agent, on or prior to the date of
effectiveness of such policy, with an endorsement or an independent instrument
(i) substantially in the form of EXHIBIT P and (ii) showing loss payable to the
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Administrative Agent and, if required by the Administrative Agent, naming the
Administrative Agent as an additional insured. So long as the Collateral Release
Date has not occurred, the Borrower shall (x) deliver to the Administrative
Agent a certificate for each policy of insurance covering any of the Collateral
and (y) notify the Administrative Agent promptly of any insured loss, in excess
of any applicable deductible, with respect to any real or personal property and
the estimated (or actual, if available) amount of such loss.
(c) The Borrower hereby directs all insurers under such policies of
insurance to pay, after the occurrence and during the continuance of an Event of
Default (but only so long as the Collateral Release Date has not occurred), all
proceeds payable thereunder directly to the Administrative Agent (other than in
respect to workers' compensation and liability, health, life and disability
insurance) to be held and/or disbursed by the Administrative Agent in accordance
with this Agreement and the Collateral Documents. The Borrower hereby appoints
the Administrative Agent and any Person whom the Administrative Agent may from
time to time designate (and all officers, employees or agents designated by the
Administrative Agent or such Person) as the Borrower's true and lawful attorney
and agent-in-fact with power, after the occurrence and during the continuance of
an Event of Default (but only so long as the Collateral Release Date has not
occurred), to make, settle and adjust claims under such policies of insurance
(provided that the Administrative Agent or such Person shall consult with the
Borrower prior to finally making, settling or adjusting claims under such
policies of insurance), to endorse the name of the Borrower on any check, draft,
instrument or other item of payment for the proceeds of such policies of
insurance, and to make all other determinations and decisions with respect to
such policies of insurance. The foregoing appointment and power, being coupled
with an interest, is irrevocable until all Obligations are paid and performed in
full and the Commitments are terminated (or the Collateral Release Date has
occurred). In the event that the Borrower, at any time or times hereafter prior
to the Collateral Release Date, shall fail to obtain or maintain any of the
policies of insurance required above or to pay any premium in whole or in part
relating thereto, the Administrative Agent, without waiving or releasing any
obligations or default by the Borrower hereunder, may at any time or times
thereafter (but shall not be obligated to) obtain and maintain such policies of
insurance and pay such premium and take any other action with respect thereto
which the Administrative Agent deems advisable.
SECTION 6.01.13. ENVIRONMENTAL MATTERS. The Borrower will, and will
cause each of its Subsidiaries to,
(a) use and operate all of its facilities and properties in
compliance with all Applicable Laws relating to the
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environment or Hazardous Materials, maintain all necessary permits,
approvals, certificates, licenses and other authorizations relating to
environmental matters in effect and maintain in compliance therewith,
and handle all Hazardous Materials in compliance with all such
Applicable Laws, to the extent that any failure to so use, operate,
maintain or handle would reasonably be likely to have a Materially
Adverse Effect;
(b) immediately notify the Administrative Agent and provide
copies upon receipt of all written claims, complaints, notices or
inquiries relating to the condition of its facilities and properties or
compliance with such Applicable Laws, to the extent that such condition
or non-compliance would reasonably be likely to have a Materially
Adverse Effect, and promptly cure, and have dismissed with prejudice to
the satisfaction of the Administrative Agent, any actions and
proceedings relating to compliance with such Applicable Laws, to the
extent that non-compliance would reasonably be likely to have a
Materially Adverse Effect;
(c) promptly following the receipt thereof by an Authorized
Officer of the Borrower, deliver to the Administrative Agent a copy of
each material written environmental study, audit, test report, review
or other analysis conducted by or on behalf of, or which is received
by, the Borrower or any Subsidiary after the Amendment Effective Time
in relation to any property or facility now or previously owned or
leased by the Borrower or any Subsidiary; and
(d) provide such information and certifications which the
Administrative Agent may reasonably request from time to time to
evidence compliance with this Section.
SECTION 6.01.14 REAL ESTATE MATTERS. No later than 30 days after the
Amendment Effective Time, the Borrower will deliver to the Administrative Agent
(a) date down endorsements, in form and substance satisfactory to the
Administrative Agent, from the title insurance company providing title insurance
with respect to all Mortgages on real property of the Borrower or any Subsidiary
or (b) such other documentation as the Administrative Agent or any Bank through
the Administrative Agent may reasonably request, in form and substance
satisfactory to the Administrative Agent, as to the priority and continued
validity of such Mortgages.
SECTION 6.02. CERTAIN NEGATIVE COVENANTS. The Borrower agrees that,
unless the Required Banks consent thereto in writing, so long as any Bank has
any Commitment hereunder or any Obligation remains outstanding or unpaid:
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SECTION 6.02.01. BUSINESS ACTIVITIES. The Borrower will not, and will
not permit any Subsidiary to, engage primarily in any business activity except
the historic business of the Borrower and its Subsidiaries and such activities
as may be incidental or related thereto or closely-related extensions thereof.
SECTION 6.02.02. DEBT. The Borrower will not, and will not permit any
Subsidiary to, create, incur, assume, or suffer to exist or otherwise become or
be liable in respect of any Debt other than:
(a) Debt in respect of the Credit Extensions;
(b) other Debt of the Borrower or any Subsidiary outstanding
on the date of this Agreement and identified in ITEM I ("Ongoing Debt"
[SECTION 6.02.02]) of the Disclosure Schedule;
(c) Subordinated Debt;
(d) Debt of the Borrower or any U.S. Subsidiary arising under
Capitalized Leases or which is hereafter incurred in connection with
the acquisition of fixed assets, PROVIDED that the aggregate principal
amount of all such Debt shall not at any time exceed $15,000,000;
(e) Debt incurred by the Borrower under any Rate Swap
Agreement or FX Swap Agreement in accordance with SECTION 6.02.20;
(f) Guarantees by the Borrower or any Subsidiary permitted by
SECTION 6.02.08;
(g) Debt of the Borrower or any Subsidiary owing to any other
Subsidiary subject to the Intercompany Subordination Agreement, Debt of
any U.S. Subsidiary owing to the Borrower evidenced by Intercompany
Notes, and Debt of any non-U.S. Subsidiary owing to the Borrower
evidenced by Intercompany Notes so long as such Debt is permitted to
exist under SECTION 6.02.05(J) or (K).
(h) Debt which is hereafter incurred by any non-U.S.
Subsidiary of the Borrower (other than Debt permitted pursuant to
CLAUSE (G) of this SECTION 6.02.02) in an aggregate principal amount
not to exceed $50,000,000;
(i) Debt which is hereafter incurred by the Borrower or any
Subsidiary in connection with industrial revenue, pollution control or
similar tax incentive bonds issued to construct new facilities for the
Borrower or such Subsidiary, in an aggregate principal amount not at
any time to exceed $20,000,000;
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(j) other Senior Debt in an aggregate amount not to exceed
$50,000,000 at any one time outstanding, which Senior Debt, if secured,
shall be secured on terms no more favorable to the lenders of such
Senior Debt than PARI PASSU with the Obligations (such Senior Debt
being "PERMITTED SENIOR DEBT") in accordance with SECTION
6.02.03(A)(II); and
(k) Debt in respect of declared but unpaid dividends pursuant
to and in accordance with SECTION 6.02.06(C).
SECTION 6.02.03. LIENS. The Borrower will not, and will not permit any
Subsidiary to, create, incur, assume, or suffer to exist any Lien upon any of
its revenues, property or assets, whether now owned or hereafter acquired,
except:
(a) Liens in favor of the Administrative Agent under the
Collateral Documents to secure (i) the Credit Extensions and other
Obligations and (ii) Permitted Senior Debt subject to an intercreditor
agreement in form and substance satisfactory to the Required Banks;
(b) Liens on assets which were granted prior to the date of
this Agreement to secure any Debt permitted by SECTION 6.02.02 and
which are described in ITEM I ("Ongoing Debt [SECTION 6.02.02]") of the
Disclosure Schedule;
(c) Liens securing obligations under any purchase money Debt
permitted by SECTION 6.02.02(D) in the property acquired with the
proceeds thereof; PROVIDED that such Debt shall not be secured by any
other property;
(d) Liens on assets located outside of the United States of
any non-U.S. Subsidiary securing obligations of such non-U.S.
Subsidiary under any Debt permitted by CLAUSE (H) of SECTION 6.02.02;
(e) Liens for taxes, assessments or other governmental charges
or levies to the extent that payment thereof shall not at the time be
required to be made in accordance with the provisions of SECTION
6.01.04 and for which appropriate reserves with respect thereto have
been established and maintained on the consolidated books of the
Borrower or any Subsidiary in accordance with GAAP to the extent
required under GAAP; PROVIDED that any such Liens securing overdue
amounts being contested in good faith shall be stayed during the
pendency of such contest;
(f) Liens of carriers, warehousemen, mechanics, materialmen
and landlords incurred in the ordinary course of business for sums not
overdue or being contested in good faith by appropriate proceedings and
for which appropriate reserves
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with respect thereto have been established and maintained on the
consolidated books of the Borrower or any Subsidiary in accordance with
GAAP to the extent required under such principles; PROVIDED that any
such Liens securing overdue amounts being contested in good faith shall
be stayed during the pendency of such contest;
(g) Liens incurred in the ordinary course of business in
connection with worker's compensation, unemployment insurance, or other
forms of governmental insurance or benefits, or to secure performance
of tenders, statutory obligations, leases, and contracts (other than
Debt for borrowed money) entered into in the ordinary course of
business or to secure obligations on surety or appeal bonds;
(h) easements, rights-of-way, zoning and similar covenants and
restrictions and other similar encumbrances or title defects which, in
the aggregate, are not substantial in amount, and which do not in any
case materially detract from the value of the property subject thereto
or interfere with the ordinary conduct of the business of the Borrower
or its Subsidiaries;
(i) rights of leasees or subleasees in assets leased by the
Borrower or any Subsidiary which do not interfere with the ordinary
conduct of the business of the Borrower or such Subsidiary, as the case
may be, and which are made on customary and usual terms applicable to
similar assets;
(j) judgment Liens securing amounts not in excess of
$5,000,000 (to the extent not covered by insurance provided by a
reputable and creditworthy insurance carrier that has acknowledged
coverage) in existence or bonded pending appeal less than 30 days after
the entry thereof or with respect to which execution has been stayed;
(k) Liens arising by reason of the entering into of
Capitalized Leases permitted under SECTION 6.02.02(D), but only if such
Liens apply to the property financed under such Capitalized Leases and
not to any other property;
(l) Liens securing the payment of the industrial revenue bonds
listed under ITEM I ("Ongoing Debt [SECTION 6.02.02]") of the
Disclosure Schedule or any refinancing thereof, PROVIDED that the
assets of the Borrower serving as security therefor are substantially
identical to those assets of the Borrower securing such payment as of
March 1, 1989;
(m) Liens securing the payment of industrial revenue,
pollution control or similar tax incentive bonds to the extent the Debt
related thereto is permitted by CLAUSE (I) of SECTION
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6.02.02, but only if such Liens apply to the property financed
thereby and not to any other property;
(n) bankers' liens arising in the ordinary course of business
by operation of law; and
(o) any Lien securing an extension, renewal or refinancing of
Debt secured by a Lien described in CLAUSE (B) or (C) above so long as
the aggregate principal amount of the Debt secured thereby is not
increased and the applicable Lien does not extend to any additional
property.
SECTION 6.02.04. FINANCIAL CONDITION. The Borrower will not permit:
(a) The Senior Leverage Ratio on the last day of any Fiscal Quarter
occurring during any period set forth below to be greater than the ratio set
forth opposite such period below:
Maximum Senior
Period Leverage Ratio
------ --------------
Fiscal Years 1997 and 1998 3.25 to 1.0
Fiscal Year 1999 3.00 to 1.0
Fiscal Year 2000 2.75 to 1.0
Thereafter 2.50 to 1.0.
(b) The Total Leverage Ratio on the last day of any Fiscal Quarter
occurring during any period set forth below to be greater than the ratio set
forth opposite such period below:
Maximum Total
Period Leverage Ratio
------ --------------
Fiscal Year 1997 5.00 to 1.0
Fiscal Year 1998 4.75 to 1.0
Fiscal Year 1999 4.50 to 1.0
Fiscal Year 2000 4.25 to 1.0
Thereafter 4.00 to 1.0.
(c) The Interest Coverage Ratio on the last day of any Fiscal Quarter
occurring during any period set forth below to be less than the ratio set forth
opposite such period below:
Minimum Interest
Period Coverage Ratio
------ --------------
Fiscal Year 1997 1.75 to 1.0
Fiscal Year 1998 2.00 to 1.0
Fiscal Year 1999 2.25 to 1.0
Thereafter 2.50 to 1.0.
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SECTION 6.02.05. INVESTMENTS. The Borrower will not, and will not
permit any Subsidiary to, make, incur, assume, or suffer to exist any Investment
in any other Person, except:
(a) Investments existing on the date of this Agreement by the
Borrower or any Subsidiary in any Person identified in ITEM B-1
("Existing Subsidiaries [section 5.07]") or ITEM J ("Ongoing
Investments [section 6.02.05]") of the DisclosurE Schedule;
(b) Temporary Cash Investments by the Borrower or any
Subsidiary; PROVIDED that Temporary Cash Investments of non-U.S.
Subsidiaries pursuant to CLAUSE (VI) of the definition of "Temporary
Cash Investment" shall not exceed $50,000,000 at any one time
outstanding;
(c) Investments by the Borrower or any Subsidiary in any
Person which (i) (A) result in the creation of an account arising in
the ordinary course of the Borrower's or any Subsidiary's business or
(B) result from the restructure, reorganization, or similar composition
of trade account obligations which had arisen in the ordinary course of
the Borrower's or such Subsidiary's business and which are owing to the
Borrower or such Subsidiary from financially distressed debtors
("RESTRUCTURE INVESTMENTS"), and (ii) in each case are, at any time
prior to the Collateral Release Date, subject to the Lien of the
Administrative Agent for the benefit of the Banks under a Security
Agreement;
(d) Guarantees by the Borrower or any Subsidiary permitted by
CLAUSE (A), (B), (D) and (E) of SECTION 6.02.08;
(e) Investments by the Borrower or any U.S. Subsidiary or
Canadian Subsidiary, or the acquisition of all or substantially all of
the assets of any Person or any business unit of any Person by the
Borrower or any U.S. Subsidiary or Canadian Subsidiary; PROVIDED that
(i) the aggregate amount of the consideration for all such Investments
and acquisitions shall not exceed $30,000,000 in any Fiscal Year and
$50,000,000 during the term of this Agreement; (ii) in the case of any
such Investment or acquisition involving consideration of $15,000,000
or more, the Borrower shall have delivered to the Administrative Agent
and the Banks a certificate to the effect that, and containing
projections in reasonable detail which demonstrate that, the Borrower
will be in compliance with all financial covenants set forth in this
Agreement during the 12-month period following such Investment or
acquisition; and (iii) after giving effect to such Investment or
acquisition, the Unused Total Commitment Amount will be $20,000,000 or
more;
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(f) any promissory note received by the Borrower or any
Subsidiary in the sale or other disposition of any asset (including the
capital stock of any of its Affiliates) in accordance with SECTION
6.02.11;
(g) obligations under the Rate Swap Agreements and FX Swap
Agreements;
(h) the Investment by the Borrower or any Subsidiary, or the
acquisition of all or substantially all of the assets of any Person or
any business unit of any Person by the Borrower or any Subsidiary, so
long as the aggregate consideration for such Investment or acquisition
(other than assumed Debt) has been received by the Borrower as a
capital contribution (by the issuance of stock or otherwise) during the
180-day period preceding the date of such Investment or acquisition;
(i) so long as there does not then exist a public trading
market in the Borrower's capital stock, any promissory note received by
the Borrower from an officer or executive, managerial or professional
employee of, or a consultant to, the Borrower or any Subsidiary in
order to satisfy the Borrower's obligation to finance the purchase of
stock of the Borrower, or warrants or options in respect thereof,
pursuant to a Non-Cash Compensation Plan (PROVIDED that if, after
giving effect to any such loan, the aggregate amount of all such loans
made by the Borrower in any Fiscal Year would exceed $2,000,000, the
Borrower may only make such loan if the Borrower has previously
delivered to the Administrative Agent and the Banks a certificate to
the effect that, and containing projections in reasonable detail which
demonstrate that, the Borrower will be in compliance with all financial
covenants set forth in this Agreement during the 12-month period
following such loan);
(j) Investments by the Borrower in any U.S. Subsidiary or
Canadian Subsidiary; and
(k) other Investments, PROVIDED that the aggregate amount of
all Investments permitted solely by this CLAUSE (K) plus (without
duplication) all Overseas Expenditures shall not exceed $20,000,000 in
any Fiscal Year or $50,000,000 during the term of this Agreement;
PROVIDED that no Investment otherwise permitted by CLAUSE (D), (E), (F), (H),
(I) or (K) above shall be permitted to be made if, immediately before or after
giving effect thereto, any Default shall have occurred and be continuing; and
PROVIDED, FURTHER, that no Investment otherwise permitted by CLAUSE (E), (H) or
(K) above shall be permitted to be made if (x) the representations and
warranties of the Borrower hereunder would be incorrect or
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misleading in any material respect if made both immediately before and after
giving effect to such Investment or (y) in the case of the acquisition of any
Person, the purchase or acquisition of such Person by the Borrower or any
Subsidiary shall be challenged by the Board of Directors or other governing body
of such Person.
SECTION 6.02.06. RESTRICTED PAYMENTS, ETC. On or after the Amendment
Effective Time:
(a) the Borrower will not declare, pay, or make any dividend
or distribution (in cash, property, or obligations) on any shares of
any class of capital stock (now or hereafter outstanding) of the
Borrower or on any warrants, options, or other rights with respect to
any shares of any class of capital stock (now or hereafter outstanding)
of the Borrower (other than dividends or distributions payable in its
stock, or warrants to purchase its stock, or options to purchase its
stock granted to management or directors of the Borrower or any
Subsidiary, or splitups or reclassifications of its stock into
additional or other shares of its stock) or apply, or permit any
Subsidiary to apply, any of its funds, property, or assets to the
purchase, redemption, sinking fund, or other retirement of any shares
of any class of capital stock (now or hereafter outstanding) of the
Borrower or of any warrants, options or other rights to acquire shares
of any class of capital stock of the Borrower;
(b) the Borrower will not, and will not permit any Subsidiary
to, prepay or repay any principal of, or make any payment of interest
on, or redeem, purchase or defease, the Senior Subordinated Notes or
any other Subordinated Debt;
(c) the Borrower will not, and will not permit any Subsidiary
to, prepay any principal of any Debt (other than (i) prepayments of the
Credit Extensions and (ii) prepayments of other Debt (other than
Subordinated Debt) existing as of the Amendment Effective Time in a
principal amount under this CLAUSE (II) not to exceed $3,000,000);
(d) the Borrower will not, and will not permit any Subsidiary
to, make any deposit for any of the foregoing purposes;
PROVIDED that, if no Default (or, in the case of CLAUSES (A) and (B) below, no
Event of Default and no Default described in CLAUSES (H) or (I) of SECTION 7.01)
shall then exist or arise therefrom:
(A) the Borrower may, subject to the subordination provisions
of the Senior Subordinated Note Indenture, pay interest when due on the
Senior Subordinated Notes and make consent payments to some or all of
the holders of the Senior
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Subordinated Notes at the Amendment Effective Time in an
aggregate amount not exceeding $4,000,000;
(B) the Borrower may, subject to the subordination provisions
applicable to any of its other Subordinated Debt, pay interest when due
under the relevant Subordinated Debt Document entered into in
accordance with SECTION 6.02.15;
(C) the Borrower may declare and pay dividends on its capital
stock, or purchase or redeem (or permit any Subsidiary to purchase) any
Senior Subordinated Note, so long as (i) the Borrower shall have
delivered to the Administrative Agent and the Banks a certificate to
the effect that, and containing projections in reasonable detail which
demonstrate that, the Borrower will be in compliance with all financial
covenants set forth in this Agreement during the 12-month period
following such transaction; (ii) after giving effect to such
transaction, the Unused Total Commitment Amount will be $20,000,000 or
more; and (iii) the aggregate amount of all dividends after March 1,
1993 (excluding the Effective Time Dividend) will not, at the time any
such dividend is paid, exceed 50% of Consolidated Net Income after
March 1, 1993;
(D) the Borrower may purchase capital stock of the Borrower,
and options or warrants for such capital stock, owned by management of
the Borrower or its Subsidiaries whose employment with the Borrower or
such Subsidiary has terminated (including by reason of death,
disability or retirement), in an aggregate amount not to exceed
$2,000,000 in each Fiscal Year (PROVIDED that any unused amounts in any
Fiscal Year, up to a maximum amount of $2,000,000, may be carried over
and used in succeeding Fiscal Years);
(E) so long as there does not then exist a public trading
market in the Borrower's capital stock, the Borrower may acquire
capital stock of the Borrower owned by an officer or executive,
managerial or professional employee of, or consultant to, the Borrower
or any Subsidiary in order to satisfy the Borrower's obligations under
a Non-Cash Compensation Plan; PROVIDED that the Borrower may only
purchase such capital stock if the Borrower has previously delivered to
the Administrative Agent and the Banks a certificate to the effect
that, and containing projections in reasonable detail which demonstrate
that, the Borrower will be in compliance with all financial covenants
set forth in this Agreement during the 12-month period following such
purchase; PROVIDED, FURTHER, that no such certificate shall be required
in connection with acquisitions of capital stock under Non- Cash
Compensation Plans in an aggregate amount in any Fiscal Year of
$1,000,000 or less;
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(F) the Borrower may purchase from the applicable executive
officer(s) of the Borrower or any Subsidiary capital stock of the
Borrower for a total consideration not in excess of $1,000,000;
(G) the Borrower may repay or prepay Debt incurred after the
Amendment Effective Time pursuant to SECTION 6.02.02(D), (G), (H), (I)
or (J); and
(H) the Borrower may declare and pay the Effective Time
Dividend so long as the required percentage of the holders of the
Senior Subordinated Notes have consented thereto.
SECTION 6.02.07. OVERSEAS EXPENDITURES. The Borrower will not permit
the aggregate amount of all Overseas Expenditures plus (without duplication) all
Investments permitted solely by CLAUSE (K) of SECTION 6.02.05 to exceed
$20,000,000 in any Fiscal Year or $50,000,000 during the term of this Agreement.
SECTION 6.02.08. GUARANTEES. The Borrower will not, and will not permit
any Subsidiary to, create, incur, assume, suffer to exist or otherwise be or
become liable with respect to any Guarantees, except:
(a) the Subsidiary Guarantees;
(b) Guarantees of Debt of the Borrower or any U.S. Subsidiary
or Canadian Subsidiary permitted under SECTION 6.02.02 and leases of
the Borrower or any U.S. Subsidiary or Canadian Subsidiary permitted
under SECTION 6.02.09 made (i) (A) by the Borrower with respect to
obligations of a Subsidiary or (B) by Subsidiaries in the ordinary
course of the Subsidiaries' business and (ii) on customary and usual
terms applicable to similar transactions for companies similarly
situated;
(c) Guarantees of Debt of any Overseas Subsidiary or of
any other non-U.S. entity to the extent permitted by SECTION
6.02.05(K);
(d) Guarantees of obligations incurred by any Subsidiary under
any worker's compensation self-insurance program of such Subsidiary
administered in accordance with any Applicable Law relating to worker's
compensation; and
(e) Guarantees of obligations of any Subsidiary, which
obligations and Guarantees shall be entered into in the ordinary course
of business, consistent with the business requirements of such
Subsidiary and the Borrower, respectively, in an aggregate outstanding
amount not to exceed $2,000,000.
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SECTION 6.02.09. LEASE OBLIGATIONS. The Borrower will not, and will not
permit any Subsidiary to, enter into at any time any arrangement (other than a
Capitalized Lease) which involves the leasing by the Borrower or such Subsidiary
from any lessor of any real or personal property (or any interest therein) if
such arrangement, together with all other such arrangements then in effect, will
require the payment in any Fiscal Year of an aggregate amount of rentals by the
Borrower and all Subsidiaries in excess of $20,000,000 (excluding rentals due
with respect to any sale and leaseback transaction permitted pursuant to CLAUSE
(G) of SECTION 6.02.11); PROVIDED that any calculation made for the purposes of
this Section shall exclude any amounts required to be expended for maintenance
and repairs, insurance, taxes, assessments and other similar charges.
SECTION 6.02.10. TAKE OR PAY CONTRACTS. The Borrower will not, and will
not permit any Subsidiary to, enter into or be a party to any arrangement for
the purchase of materials, supplies, other property, or services if such
arrangement by its express terms requires that payment be made by the Borrower
or such Subsidiary regardless of whether or not such materials, supplies, other
property, or services are delivered or furnished to the Borrower or such
Subsidiary.
SECTION 6.02.11. CONSOLIDATION, MERGER, SALE OF ASSETS, ETC. The
Borrower will not, and will not permit any Subsidiary to, windup, liquidate or
dissolve itself (or suffer any thereof), consolidate or amalgamate with or merge
into or with any other corporation or any other Person, or purchase or otherwise
acquire all or substantially all of the assets of any Person (or of any business
unit thereof) or convey, sell, transfer, lease or otherwise dispose of all or
any part of its assets (including any stock or receivables) or issue any capital
stock, in one transaction or a series of transactions, to any Person or Persons
except:
(a) the sale of inventory in the ordinary course of business;
(b) so long as no Default has occurred and is continuing or
would occur after giving effect thereto, the purchase or acquisition by
the Borrower of all or substantially all of the assets of any Person
(or of any business unit thereof) if permitted by SECTION 6.02.05(E),
(H) or (K);
(c) so long as no Default has occurred and is continuing or
would occur after giving effect thereto, the sale of assets by the
Borrower or any of its Subsidiaries (it being understood that all
proceeds of such sales constitute Net Disposition Proceeds for purposes
of SECTION 2.02(D));
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(d) leases or subleases of real property which do not detract
from the value of the property subject thereto or interfere with the
ordinary conduct of the business of the Borrower or any Subsidiary, as
the case may be, and which are made on customary and usual terms
applicable to similar properties;
(e) sales by the Borrower or any Subsidiary of Restructure
Investments or sales by the Borrower or any Subsidiary of any account
arising in the ordinary course of business owing by a Person which
management of the Borrower has reasonably determined is in financial
distress;
(f) sales by the Borrower or any Subsidiary of obsolete
equipment on customary and usual terms applicable to similar equipment
(including equipment which has been wholly or partially destroyed and
is being sold to the insurance company which insured such equipment);
(g) sales by the Borrower or any Subsidiary as part of sale
and leaseback transactions, executed on usual and customary terms, of
any facility or equipment so long as the related rent or lease
obligations, net of imputed interest, do not exceed $5,000,000 at any
time (it being understood that all proceeds of such sales constitute
Net Disposition Proceeds for purposes of SECTION 2.02(D));
(h) issuance by the Borrower of capital stock for cash
consideration;
(i) the merger or consolidation of any U.S. Subsidiary into
the Borrower or with or into another U.S. Subsidiary, or the sale by
any U.S. Subsidiary of all or any part of its assets to another U.S.
Subsidiary, subject to full and concurrent compliance by the relevant
entities with their obligations pursuant to SECTION 6.01.10, in each
case in a manner reasonably satisfactory to the Administrative Agent;
(j) the merger, consolidation or amalgamation of any
wholly-owned Canadian Subsidiary into another wholly-owned Canadian
Subsidiary, or the sale by any wholly-owned Canadian Subsidiary of all
or any part of its assets to another wholly-owned Canadian Subsidiary;
(k) the voluntary liquidation, not under any bankruptcy or
insolvency law, of any Subsidiary so long as such Subsidiary does not
have any material assets;
(l) any license agreement executed by the Borrower or any
Subsidiary as licensor entered into in the ordinary course
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of business of the Borrower or such Subsidiary consistent with business
requirements of the Borrower or such Subsidiary.
SECTION 6.02.12. MODIFICATION, ETC. OF CERTAIN AGREEMENTS. The Borrower
shall not consent to or enter into any amendment, supplement or other
modification of
(a) the Senior Subordinated Notes, the Senior Subordinated
Indenture or any other Subordinated Debt Document; or
(b) any material term, provision or agreement contained in the
certificate of incorporation of the Borrower.
SECTION 6.02.13. TRANSACTIONS WITH AFFILIATES. The Borrower will not,
and will not permit any Subsidiary to, enter into, or cause, suffer, or permit
to exist:
(a) any arrangement or contract with any of its Affiliates of
a nature customarily entered into by Persons which are Affiliates of
each other (including management or similar contracts or arrangements
relating to the allocation of revenues, taxes, and expenses or
otherwise) requiring any payments to be made by the Borrower or any
Subsidiary to any Affiliate unless such arrangement is fair and
equitable to the Borrower or such Subsidiary; or
(b) any other transaction, arrangement, or contract with any
of its Affiliates which would not be entered into by a prudent Person
in the position of the Borrower or such Subsidiary with, or which is on
terms which are less favorable than are obtainable from, any Person
which is not one of its Affiliates.
Without limiting the foregoing, the Borrower will not, and will not
permit any Subsidiary to, pay or become obligated to pay any management,
consulting or similar fee to Zell/Chilmark or any of its Affiliates (other than
reasonable and customary (x) fees for directors and professional services and
(y) out-of-pocket expenses for services actually rendered).
SECTION 6.02.14. NEGATIVE PLEDGES; SUBSIDIARY PAYMENTS. The Borrower
will not, and will not permit any Subsidiary to, enter into any agreement
(excluding this Agreement, any other Credit Document, the Senior Subordinated
Note Indenture and any other Subordinated Debt Document or Senior Debt Document
governing any Permitted Senior Debt) (a) prohibiting the creation or assumption
of any Lien upon its properties, revenues or assets, whether now owned or
hereafter acquired, or (b) which would restrict the ability of any Subsidiary to
pay or make dividends or distributions in cash or kind, to make loans, advances
or other payments of
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whatsoever nature, or to make transfers or distributions of all or any part of
its assets, in each case to the Borrower or to any corporation as to which such
Subsidiary is a Subsidiary, except, with respect only to CLAUSE (A), (i)
non-assignment clauses in existing leases and leases entered into after the date
of this Agreement (PROVIDED, with respect to any lease entered into after the
date of this Agreement, the Borrower or such Subsidiary, as the case may be,
shall use its best efforts to avoid the inclusion of such non-assignment clauses
in such lease), (ii) security agreements, pledge agreements and similar
instruments existing on the date of this Agreement and (iii) loan, security and
similar agreements entered into by any non-U.S. Subsidiary with respect to Debt
permitted pursuant to SECTION 6.02.02(H).
SECTION 6.02.15. SUBORDINATED DEBT INSTRUMENTS. The Borrower will not,
and will not permit any Subsidiary to, enter into any Subordinated Debt
Document, except the Senior Subordinated Notes and the Senior Subordinated Note
Indenture, unless such Subordinated Debt Document is satisfactory in form and
substance to the Required Banks.
SECTION 6.02.16. INCONSISTENT AGREEMENTS. The Borrower will not, and
will not permit any Subsidiary to, enter into any agreement containing any
provision which would be violated or breached by any Credit Extension or by the
performance by the Borrower or such Subsidiary, as the case may be, of its
obligations hereunder or under any Credit Document.
SECTION 6.02.17. FISCAL YEAR. The Borrower will not change its Fiscal
Year.
SECTION 6.02.18. USE OF PROCEEDS. The Borrower will not use the
proceeds of any Credit Extension except for general corporate purposes,
including to pay the Effective Time Dividend, subject to the terms of this
Agreement and Applicable Law.
SECTION 6.02.19. TAX SHARING AGREEMENTS. The Borrower will not enter
into any tax sharing or similar agreement or arrangement other than as may be
approved in writing by the Required Banks.
SECTION 6.02.20. SWAP AGREEMENTS. Neither the Borrower nor any
Subsidiary shall enter into or become liable (directly or indirectly, absolutely
or contingently) in any way under or with respect to any Rate Swap Agreement or
FX Swap Agreement except (a) any Rate Swap Agreement entered into with a Swap
Party intended to protect the Borrower or such Subsidiary against interest rate
fluctuations directly related to Debt of the Borrower or such Subsidiary
(including Debt hereunder) and (b) any FX Swap Agreement entered into with a
Swap Party intended to protect the Borrower or such Subsidiary against foreign
currency fluctuations arising in
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the ordinary course of business consistent with its business requirements.
ARTICLE VII
DEFAULTS
SECTION 7.01. EVENTS OF DEFAULT. If one or more of the following events
("EVENTS OF DEFAULT") shall have occurred and be continuing:
(a) the Borrower shall fail to pay when due any principal of
any Note or any Reimbursement Obligation or shall fail to pay within 5
days of the same becoming due any interest on any Note or any
Reimbursement Obligation or any fee or other amount payable hereunder;
(b) the Borrower or any Subsidiary shall fail to observe or
perform any covenant, agreement or other obligation contained in
ARTICLE VI other than SECTION 6.01.01, 6.01.03, 6.01.04, 6.01.05,
6.01.08 (with respect only to maintenance of books and records),
6.01.09, 6.02.01, 6.02.02, 6.02.03, 6.02.05, 6.02.08, 6.02.09, 6.02.10,
6.02.13, 6.02.14 or 6.02.17;
(c) the Borrower or any Subsidiary shall fail to observe or
perform any covenant, agreement or other obligation contained in
SECTION 6.02.02, 6.02.03, 6.02.05, or 6.02.08 and such failure shall
continue for more than 10 days;
(d) the Borrower or any Subsidiary shall fail to observe or
perform any covenant, agreement or other obligation contained in this
Agreement or any other Credit Document (other than those covered by
CLAUSE (A) or (B) above) and such failure shall continue for more than
30 days after an Authorized Officer of the Borrower has knowledge
thereof or written notice thereof has been given to the Borrower by the
Administrative Agent;
(e) any representation, warranty, certification or statement
made by the Borrower or, where applicable, any Subsidiary in this
Agreement or any Credit Document or made by any Person party to any
Collateral Document, or any certificate, financial statement or other
document delivered pursuant to any of such agreements, shall prove to
have been incorrect or misleading in any material respect when made or
deemed to be repeated;
(f) the Borrower or any Subsidiary shall fail to make any
payment in respect of any Debt (other than hereunder) when
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due, subject to any applicable grace period; PROVIDED that such payment
with respect to any such Debt is in an aggregate amount greater than
$5,000,000;
(g) any event or condition shall occur which results in the
acceleration of the maturity of any other Debt (other than hereunder)
in an aggregate principal amount greater than $5,000,000 of the
Borrower or any Subsidiary, or which enables (or, with the giving of
notice or lapse of time or both, would enable) the holder of such Debt
or any Person acting on such holder's behalf to accelerate the maturity
thereof;
(h) the Borrower or any Subsidiary shall commence a voluntary
case or other proceeding seeking liquidation, reorganization or other
relief with respect to itself or its debts under any bankruptcy,
insolvency or other similar law now or hereafter in effect or seeking
the appointment of a trustee, receiver, liquidator, custodian or other
similar official of it or any substantial part of its property (other
than pursuant to a voluntary liquidation permitted by SECTION
6.02.11(K), or shall consent to any such relief or to the appointment
of or taking of possession by any such official in an involuntary case
or other proceeding commenced against it, or shall make a general
assignment for the benefit of creditors, or shall fail generally to pay
its debts as they become due, or shall take any corporate action to
authorize any of the foregoing;
(i) an involuntary case or other proceeding shall be commenced
against the Borrower or any Subsidiary seeking liquidation,
reorganization or other relief with respect to it or its debts under
any bankruptcy, insolvency, reorganization or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or other
proceeding shall remain undismissed and unstayed for a period of 60
days; or an order for relief shall be entered against the Borrower or
any Subsidiary under the federal bankruptcy laws as now or hereafter in
effect;
(j) a judgment or judgments or order for the payment of money
in an aggregate amount in excess of $5,000,000 (to the extent not
covered by insurance provided by a reputable and creditworthy insurance
carrier that has acknowledged coverage) shall be rendered against the
Borrower or any Subsidiary and such judgment or order shall not have
been vacated, discharged, stayed or bonded pending appeal for a period
of 30 days;
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(k) any Subsidiary Guarantee shall, for any reason, fail to be
in full force and effect (except as contemplated by the terms thereof);
or any Subsidiary shall repudiate its obligations or liability under
any Subsidiary Guarantee;
(l) at any time prior to the Collateral Release Date, the
Administrative Agent shall fail to have a first-priority perfected
security interest in any Collateral under the Collateral Documents,
except (i) to the extent expressly provided herein or by the Collateral
Documents and (ii) for Collateral having a fair market value not to
exceed $1,000,000; PROVIDED that the Borrower and each Subsidiary shall
comply in all respects with SECTION 6.01.10 with respect to such
Collateral;
(m) any Change in Control shall occur; or
(n) any Person shall take formal action to terminate any
Pension Plan, if as a result of such termination the Borrower or any
Subsidiary could incur a liability to such Pension Plan or to the PBGC
in excess of $5,000,000, or a contribution failure occurs with respect
to any Pension Plan sufficient to give rise to a Lien under section
302(f) of ERISA;
then, and in every such event, the Administrative Agent may, and if requested by
the Required Banks shall, by notice to the Borrower (i) terminate each Bank's
Commitment (to the extent of any unfunded obligations thereunder), and it shall
thereupon terminate, and/or (ii) declare the Notes, the Reimbursement
Obligations, accrued interest thereon and all accrued commitment fees and other
amounts payable hereunder and under the Credit Documents to be, and such Notes,
Reimbursement Obligations and other amounts shall thereupon become, immediately
due and payable without presentment, demand, protest or other notice of any
kind, all of which are hereby waived by the Borrower, and/or (iii) require the
reimbursement referred to in SECTION 2.20.08; PROVIDED that in the case of any
of the Events of Default specified in CLAUSE (H) or (I) above, without any
notice to the Borrower or any other act by the Administrative Agent or the
Banks, each Bank's Commitment (to the extent of any unfunded obligations
thereunder) shall thereupon terminate and the Notes, Reimbursement Obligations,
accrued interest thereon and all accrued commitment fees and other amounts
payable hereunder and under the Credit Documents shall become immediately due
and payable without presentment, demand, protest or other notice of any kind,
all of which are hereby waived by the Borrower.
SECTION 7.02. NOTICE OF DEFAULT. The Administrative Agent shall give
notice to the Borrower under SECTION 7.01(C) promptly upon being requested to do
so by any Bank and shall thereupon notify all the Banks thereof.
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ARTICLE VIII
AMENDMENTS AND REMEDIES
SECTION 8.01. AMENDMENTS. Subject to the provisions of this ARTICLE
VIII, the Required Banks (or the Administrative Agent with the consent in
writing of the Required Banks) and the Borrower may enter into agreements
supplemental hereto for the purpose of adding or modifying any provisions to the
Credit Documents or changing in any manner the rights of the Banks or the
Borrower hereunder or waiving any Event of Default hereunder; PROVIDED that no
such supplemental agreement shall, without the consent of all of the Banks:
(a) reduce the percentage specified in the definition of
Required Banks;
(b) permit the Borrower to assign its rights under this
Agreement or under any other Credit Document;
(c) amend this SECTION 8.01;
(d) release all or substantially all of the Collateral or
change the definition of Collateral Release Date;
(e) extend the maturity of any Note, or reduce the principal
amount thereof or the rate of interest thereon, or extend the time for
payment of any interest thereon, or reduce any commitment fee payable
hereunder;
(f) reduce or postpone any scheduled reduction of the Total
Commitment Amount set forth in SECTION 2.02(B); or
(g) increase the amount of the Commitment of any Bank
hereunder.
No amendment of any provision of this Agreement or any Credit Document relating
to the Administrative Agent (in such capacity) shall be effective without the
written consent of the Administrative Agent; and no amendment of any provision
of this Agreement or any Credit Document relating to any Issuer (in such
capacity) shall be effective without the written consent of such Issuer.
SECTION 8.02. PRESERVATION OF RIGHTS. No delay or omission of the Banks
or the Administrative Agent to exercise any right under the Credit Documents
shall impair such right or be construed to be a waiver of any Event of Default
or any acquiescence therein, and the making or issuance of a Credit Extension
notwithstanding the existence of an Event of Default or the inability of the
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Borrower to satisfy the conditions precedent to such Credit Extension shall not
constitute any waiver or acquiescence therein. Any single or partial exercise of
any such right shall not preclude other or further exercise thereof or the
exercise of any other right, and no waiver, amendment or other variation of the
terms, conditions or provisions of the Credit Documents whatsoever shall be
valid unless in writing signed by the Banks required pursuant to SECTION 8.01,
and then only to the extent in such writing specifically set forth. All remedies
contained in the Credit Documents or by law afforded shall be cumulative and all
shall be available to the Administrative Agent and the Banks until the
Obligations have been paid in full.
SECTION 8.03. COLLATERAL MATTERS.
(a) The Administrative Agent is authorized on behalf of all Banks,
without the necessity of any notice to or further consent from the Banks, from
time to time to take any action with respect to any Collateral or the Collateral
Documents which may be necessary to perfect and maintain perfected the security
interest in and Liens upon the Collateral granted pursuant to the Collateral
Documents.
(b) The Banks irrevocably authorize the Administrative Agent, at its
option and in its discretion (and without regard to any limitation in any
Collateral Document), to release any Lien granted to or held by the
Administrative Agent upon any Collateral (i) upon termination of the Commitments
and payment in full of all Advances and all other Obligations payable under this
Agreement and under any other Credit Document; (ii) constituting property sold
or to be sold or disposed of as part of or in connection with any disposition
permitted hereunder; (iii) constituting property in which the Borrower or any
Subsidiary of the Borrower owned no interest at the time the Lien was granted or
at any time thereafter; (iv) constituting property leased to the Borrower or any
Subsidiary of the Borrower under a lease which has expired or been terminated in
a transaction permitted under this Agreement or is about to expire and which has
not been, and is not intended by the Borrower or such Subsidiary to be, renewed
or extended; (v) consisting of an instrument evidencing Debt if the Debt
evidenced thereby has been paid in full; or (vi) if approved, authorized or
ratified in writing by the Required Banks, subject to SECTION 8.01(D). Upon
request by the Administrative Agent at any time, the Banks will confirm in
writing the Administrative Agent's authority to release particular types or
items of Collateral pursuant to this subsection 8.03(B). The Administrative
Agent will notify the Banks of any such release of Collateral in a single
transaction or series of related transactions having a fair market value of
$10,000,000 or more.
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(c) Promptly after the Collateral Release Date, the Administrative
Agent shall (and the Banks hereby instruct the Administrative Agent to), upon
the request and at the expense of the Borrower, release all liens and security
interests securing the obligations of the Borrower and its Subsidiaries under
the Collateral Documents.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01. SURVIVAL OF REPRESENTATIONS. All representations and
warranties of the Borrower contained in this Agreement or any other Credit
Document and of any of its Subsidiaries contained in any Credit Document shall
survive delivery of the Notes and the making or issuance of the Credit
Extensions herein contemplated.
SECTION 9.02. GOVERNMENTAL REGULATION. Anything contained in this
Agreement to the contrary notwithstanding, no Bank shall be obligated to extend
credit to the Borrower in violation of any limitation or prohibition provided by
any Applicable Law.
SECTION 9.03. TAXES. Subject to SECTION 12.03, any taxes (other than
Excluded Taxes) payable or ruled payable by any Federal or State authority in
respect of the Credit Documents (other than taxes specifically covered to the
contrary by other provisions of this Agreement) shall be paid by the Borrower,
together with interest and penalties, if any.
SECTION 9.04. HEADINGS. Section headings in the Credit Documents are
for convenience of reference only, and shall not govern the interpretation of
any of the provisions of the Credit Documents.
SECTION 9.05. ENTIRE AGREEMENT. The Credit Documents embody the entire
agreement and understanding among the Borrower, the Administrative Agent and the
Banks and supersede all prior agreements and understandings among the Borrower,
the Administrative Agent and the Banks relating to the subject matter thereof.
SECTION 9.06. SEVERAL OBLIGATIONS. The respective obligations of the
Banks hereunder are several and not joint and no Bank shall be the partner or
agent of any other (except to the extent to which any Administrative Agent is
authorized to act as such). The failure of any Bank to perform any of its
obligations hereunder shall not relieve any other Bank from any of its
obligations hereunder. This Agreement shall not be construed so as to confer any
right or benefit upon any Person other than the
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parties to this Agreement and their respective successors and assigns.
SECTION 9.07. EXPENSES; INDEMNIFICATION. (a) The Borrower shall
reimburse the Administrative Agent for any reasonable costs and out-of-pocket
expenses (including Attorney Costs) paid or incurred by the Administrative Agent
in connection with (i) the preparation, review, execution, delivery, amendment,
modification, administration and collection of the Credit Documents and (ii) the
syndication of the Total Commitment Amount to the Banks (but not any assignment
or participation pursuant to ARTICLE XII). The Borrower shall reimburse the
Administrative Agent and each Bank for any reasonable costs, internal legal
charges and out-of-pocket expenses (including reasonable fees and time charges
of any attorneys for such Bank or the Administrative Agent, which attorneys may
be employees of such Bank or the Administrative Agent) paid or incurred by such
Bank or Administrative Agent in connection with the enforcement of the Credit
Documents. The Borrower acknowledges that the Administrative Agent has
determined that the requirements of Title XI of the Financial Institutions
Reform, Recovery and Enforcement Act of 1989 and regulations promulgated
pursuant thereto by the Board of Governors of the Federal Reserve System and the
Office of the Comptroller of the Currency concerning appraisals for certain real
estate financings do not apply to the transactions contemplated by this
Agreement. If such requirements are subsequently determined to apply to the
transactions contemplated hereby, the Borrower shall reimburse the
Administrative Agent for any costs and expenses incurred in connection with
appraisals obtained pursuant to such requirements.
(b) The Borrower further agrees to indemnify the Administrative Agent,
each Bank, and each of their respective directors, officers, employees and
agents (each an "INDEMNIFIED PARTY") against all losses, claims, damages,
penalties, judgments, liabilities and expenses (including all Attorney Costs and
other expenses of litigation or preparation therefor, whether or not the
Administrative Agent or any Bank is a party thereto) (all of the foregoing, the
"INDEMNIFIED LIABILITIES") which any of them may pay or incur arising out of or
relating to this Agreement, the other Credit Documents, the "Refinancing
Documents" (as defined in the 1993 Agreement), the "Zell/Chilmark Acquisition
Documents" (as defined in the 1993 Agreement), the "Tender Credit Documents" (as
defined in the Original Amended Credit Agreement), the transactions contemplated
hereby or the direct or indirect application or proposed application of the
proceeds of any Loan hereunder (including any loss, damage, penalty, judgment,
liability and expense that would not have been paid or incurred but for (x) a
portion of the Credit Extensions hereunder having been extended under the
Original Amended Credit Agreement, the Second Amended Credit Agreement, the 1993
Agreement or the Existing Agreement or (y) this Agreement being a restatement of
the Existing Agreement),
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except to the extent it is determined by a judgment of a court that is binding
on the relevant Indemnified Party and is final and not subject to appeal, that
such losses, claims, damages, penalties, judgments, liabilities or expenses were
the result of acts or omissions on the part of such Indemnified Party
constituting gross negligence or willful misconduct. If and to the extent that
the foregoing indemnity is unenforceable for any reason, the Borrower hereby
agrees to make the maximum contribution to the payment and satisfaction of each
of such amounts which is permissible under Applicable Law. The obligations of
the Borrower under this SECTION 9.07 (and the obligations of the Borrower under
Section 9.07 of each of the Existing Agreement, the 1993 Agreement, the Second
Amended Credit Agreement and the Original Amended Credit Agreement shall survive
the termination of this Agreement.
SECTION 9.08. NUMBERS OF DOCUMENTS. All statements, notices, closing
documents and requests hereunder shall be furnished to the Administrative Agent
with sufficient counterparts so that the Administrative Agent may furnish one to
each of the Banks, and the Administrative Agent shall furnish such counterparts
to the Banks.
SECTION 9.09. SEVERABILITY OF PROVISIONS. Any provision in any Credit
Document that are held to be inoperative, unenforceable or invalid in any
jurisdiction shall, as to that jurisdiction be inoperative, unenforceable or
invalid without affecting the remaining provisions in that jurisdiction or the
operation, enforceability or validity of such provisions in any other
jurisdiction, and to this end the provisions of all Credit Documents are
declared to be severable.
SECTION 9.10. NONLIABILITY OF BANKS. The relationship between the
Borrower and the Banks and the Administrative Agent shall be solely that of
borrower and lenders. Neither the Administrative Agent nor any Bank shall have
any fiduciary responsibilities to the Borrower under or in connection with the
Credit Documents. Neither the Administrative Agent nor any Bank undertakes any
responsibility to the Borrower to review or inform the Borrower of any matter in
connection with any phase of the Borrower's business or operations.
SECTION 9.11. CHOICE OF LAW. THE CREDIT DOCUMENTS (OTHER THAN THOSE
CONTAINING A CONTRARY EXPRESS CHOICE OF LAW PROVISION) SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE
AND TO BE FULLY PERFORMED IN SUCH STATE, BUT GIVING EFFECT TO FEDERAL LAWS
APPLICABLE TO NATIONAL BANKS.
SECTION 9.12. CONSENT TO JURISDICTION. THE BORROWER, THE ADMINISTRATIVE
AGENT AND EACH BANK HEREBY IRREVOCABLY SUBMIT TO THE NON-EXCLUSIVE JURISDICTION
OF ANY UNITED STATES FEDERAL OR NEW YORK STATE COURT SITTING IN THE CITY OF NEW
YORK IN ANY ACTION OR
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PROCEEDING ARISING OUT OF OR RELATING TO ANY CREDIT DOCUMENTS AND THE BORROWER,
THE ADMINISTRATIVE AGENT AND EACH BANK HEREBY IRREVOCABLY AGREE THAT ALL CLAIMS
IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH
COURT AND IRREVOCABLY WAIVE ANY OBJECTION THEY MAY NOW OR HEREAFTER HAVE AS TO
THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT
SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE
ADMINISTRATIVE AGENT, ANY BANK OR THE BORROWER TO BRING PROCEEDINGS AGAINST THE
BORROWER OR THE ADMINISTRATIVE AGENT OR ANY BANK, AS THE CASE MAY BE, IN THE
COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY THE BORROWER
AGAINST THE ADMINISTRATIVE AGENT OR ANY BANK OR ANY AFFILIATE OF THE
ADMINISTRATIVE AGENT OR ANY BANK INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER
IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY CREDIT DOCUMENT
SHALL BE BROUGHT ONLY IN A COURT IN NEW YORK, NEW YORK, TO THE EXTENT THAT
JURISDICTION MAY BE EFFECTED AGAINST THE ADMINISTRATIVE AGENT OR SUCH BANK, WITH
RESPECT TO THE APPLICABLE SUBJECT MATTER, IN NEW YORK, NEW YORK.
SECTION 9.13. WAIVER OF JURY TRIAL. THE BORROWER, THE ADMINISTRATIVE
AGENT AND EACH BANK HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING
INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT,
CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH
ANY CREDIT DOCUMENT OR THE RELATIONSHIP ESTABLISHED THEREUNDER.
SECTION 9.14. LIMITATION ON ADMINISTRATIVE AGENT AND BANK LIABILITY.
The Borrower agrees that (i) neither the Administrative Agent nor any Bank shall
have any liability to the Borrower (whether sounding in tort, contract or
otherwise) for losses suffered by the Borrower in connection with, arising out
of, or in any way related to the transactions contemplated and the relationship
established by the Credit Documents, or any act, omission or event occurring in
connection therewith, except to the extent it is determined by a judgment of a
court that is binding on the Administrative Agent or such Bank and is final and
not subject to appeal that such losses were the result of acts or omissions on
the part of the Administrative Agent or such Bank, as the case may be,
constituting gross negligence or willful misconduct, and (ii) the Borrower
waives, releases and agrees not to sue upon any claim against the Administrative
Agent or any Bank (whether sounding in tort, contract or otherwise) except to
the extent a claim is based upon gross negligence or willful misconduct. Whether
or not such damages are related to a claim that is subject to the waiver
effected above and whether or not such waiver is effective, neither the
Administrative Agent nor any Bank shall have any liability with respect to, and
the Borrower hereby waives, releases and agrees not to sue upon any claim for,
any special, indirect or consequential damages suffered by the Borrower in
connection with, arising out of, or in any way related to the transactions
contemplated or the relationship established by the Credit Documents, or any
act,
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omission or event occurring in connection therewith, except to the extent it is
determined by a judgment of a court that is binding on the Administrative Agent
or such Bank, as the case may be, and is final and not subject to review on
appeal, that such damages were the result of acts or omissions on the part of
the Administrative Agent or such Bank, as the case may be, constituting gross
negligence or willful misconduct.
SECTION 9.15. CONFIDENTIALITY. The Administrative Agent and each Bank
shall hold confidential all non-public information (which has been identified as
such by the Borrower) obtained pursuant to the requirements of this Agreement in
accordance with their customary and reasonable procedures for handling
confidential information of this nature and in accordance with safe and sound
lending practices, but in any event may (a) make disclosure to their respective
examiners, Affiliates, outside auditors, counsel and other professional advisors
reasonably necessary in connection with this Agreement or as reasonably required
by any then-current or prospective transferee or participant, subject to SECTION
12.02(G), in connection with the contemplated transfer or participation by a
Bank of any Obligations or as required or requested by any governmental agency
or representative thereof or pursuant to legal process or (b) make disclosure of
any such information that becomes publicly available other than through the
actions of the Administrative Agent or any Bank constituting a breach of its
obligations under this SECTION 9.15. For purposes hereof, such confidential
information shall include the financial statements, reports and information
provided to the Administrative Agent and the Banks pursuant to SECTIONS 6.01.01
(D), (E), (F), and (g), SECTION 6.01.08 and SECTION 6.01.13.
ARTICLE X
THE ADMINISTRATIVE AGENT
SECTION 10.01. APPOINTMENT AND AUTHORIZATION. Each Bank hereby
irrevocably (subject to Section 10.09) appoints, designates and authorizes the
Administrative Agent to take such action on its behalf under the provisions of
this Agreement and each other Credit Document and to exercise such powers and
perform such duties as are expressly delegated to it by the terms of this
Agreement or any other Credit Document, together with such powers as are
reasonably incidental thereto. Notwithstanding any provision to the contrary
contained elsewhere in this Agreement or in any other Credit Document, the
Administrative Agent shall not have any duties or responsibilities, except those
expressly set forth herein, nor shall the Administrative Agent have or be deemed
to have any fiduciary relationship with any Bank, and no implied covenants,
functions, responsibilities, duties, obligations or liabilities
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shall be read into this Agreement or any other Credit Document or otherwise
exist against the Administrative Agent.
SECTION 10.02. DELEGATION OF DUTIES. The Administrative Agent may
execute any of its duties under this Agreement or any other Credit Document by
or through agents, employees or attorneys-in-fact and shall be entitled to
advice of counsel concerning all matters pertaining to such duties. The
Administrative Agent shall not be responsible for the negligence or misconduct
of any agent or attorney-in-fact that it selects with reasonable care.
SECTION 10.03. LIABILITY OF ADMINISTRATIVE AGENT. None of the
Agent-Related Persons shall (i) be liable for any action taken or omitted to be
taken by any of them under or in connection with this Agreement or any other
Credit Document or the transactions contemplated hereby (except for its own
gross negligence or willful misconduct), or (ii) be responsible in any manner to
any of the Banks for any recital, statement, representation or warranty made by
the Borrower or any Subsidiary or Affiliate of the Borrower, or any officer
thereof, contained in this Agreement or in any other Credit Document, or in any
certificate, report, statement or other document referred to or provided for in,
or received by the Administrative Agent under or in connection with, this
Agreement or any other Credit Document, or for the value of or title to any
Collateral, or the validity, effectiveness, genuineness, enforceability or
sufficiency of this Agreement or any other Credit Document, or for any failure
of the Borrower or any other party to any Credit Document to perform its
obligations hereunder or thereunder. No Agent-Related Person shall be under any
obligation to any Bank to ascertain or to inquire as to the observance or
performance of any of the agreements contained in, or conditions of, this
Agreement or any other Credit Document, or to inspect the properties, books or
records of the Borrower or any of the Borrower's Subsidiaries or Affiliates.
SECTION 10.04. RELIANCE BY ADMINISTRATIVE AGENT.
(a) The Administrative Agent shall be entitled to rely, and
shall be fully protected in relying, upon any writing, resolution,
notice, consent, certificate, affidavit, letter, telegram, facsimile,
telex or telephone message, statement or other document or conversation
believed by it to be genuine and correct and to have been signed, sent
or made by the proper Person or Persons, and upon advice and statements
of legal counsel (including counsel to the Borrower), independent
accountants and other experts selected by the Administrative Agent. The
Administrative Agent shall be fully justified in failing or refusing to
take any action under this Agreement or any other Credit Document
unless it shall first receive such advice or concurrence of the
Required Banks (or, if required by SECTION 8.01, all Banks) as it deems
appropriate and, if it
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so requests, it shall first be indemnified to its satisfaction by the
Banks against any and all liability and expense which may be incurred
by it by reason of taking or continuing to take any such action. The
Administrative Agent shall in all cases be fully protected in acting,
or in refraining from acting, under this Agreement or any other Credit
Document in accordance with a request or consent of the Required Banks
(or, if required by SECTION 8.01, all Banks) and such request and any
action taken or failure to act pursuant thereto shall be binding upon
all of the Banks.
(b) For purposes of determining compliance with the conditions
specified in SECTION 4.02, each Bank that has executed this Agreement
shall be deemed to have consented to, approved or accepted or to be
satisfied with, each document or other matter either sent by the
Administrative Agent to such Bank for consent, approval, acceptance or
satisfaction, or required thereunder to be consented to or approved by
or acceptable or satisfactory to the Bank.
SECTION 10.05. NOTICE OF DEFAULT. The Administrative Agent shall not be
deemed to have knowledge or notice of the occurrence of any Default, except with
respect to defaults in the payment of principal, interest and fees required to
be paid to the Administrative Agent for the account of the Banks, unless the
Administrative Agent shall have received written notice from a Bank or the
Borrower referring to this Agreement, describing such Default and stating that
such notice is a "notice of default". The Administrative Agent will notify the
Banks of its receipt of any such notice. The Administrative Agent shall take
such action with respect to such Default as may be requested by the Required
Banks in accordance with ARTICLE VII; PROVIDED, HOWEVER, that unless and until
the Administrative Agent has received any such request, the Administrative Agent
may (but shall not be obligated to) take such action, or refrain from taking
such action, with respect to such Default as it shall deem advisable or in the
best interest of the Banks.
SECTION 10.06. CREDIT DECISION. Each Bank acknowledges that none of the
Agent-Related Persons has made any representation or warranty to it, and that no
act by the Administrative Agent hereinafter taken, including any review of the
affairs of the Borrower and its Subsidiaries, shall be deemed to constitute any
representation or warranty by any Agent-Related Person to any Bank. Each Bank
represents to the Administrative Agent that it has, independently and without
reliance upon any Agent-Related Person and based on such documents and
information as it has deemed appropriate, made its own appraisal of and
investigation into the business, prospects, operations, property, financial and
other condition and creditworthiness of the Borrower and its Subsidiaries, the
value of and title to any Collateral, and all
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applicable bank regulatory laws relating to the transactions contemplated
hereby, and made its own decision to enter into this Agreement and to extend
credit to the Borrower hereunder. Each Bank also represents that it will,
independently and without reliance upon any Agent-Related Person and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit analysis, appraisals and decisions in taking or
not taking action under this Agreement and the other Credit Documents, and to
make such investigations as it deems necessary to inform itself as to the
business, prospects, operations, property, financial and other condition and
creditworthiness of the Borrower. Except for notices, reports and other
documents expressly herein required to be furnished to the Banks by the
Administrative Agent, the Administrative Agent shall not have any duty or
responsibility to provide any Bank with any credit or other information
concerning the business, prospects, operations, property, financial and other
condition of creditworthiness of the Borrower which may come into the possession
of any of the Agent-Related Persons.
SECTION 10.07. INDEMNIFICATION OF ADMINISTRATIVE AGENT. Whether or not
the transactions contemplated hereby are consummated, the Banks shall indemnify
upon demand the Agent-Related Persons (to the extent not reimbursed by or on
behalf of the Borrower and without limiting the obligation of the Borrower to do
so), pro rata, from and against any and all Indemnified Liabilities; PROVIDED,
HOWEVER, that no Bank shall be liable for the payment to the Agent-Related
Persons of any portion of such Indemnified Liabilities resulting from such
Person's gross negligence or willful misconduct. Without limitation of the
foregoing, each Bank shall reimburse the Administrative Agent upon demand for
its ratable share of any costs or out-of-pocket expenses (including Attorney
Costs) incurred by the Administrative Agent in connection with the preparation,
execution, delivery, administration, modification, amendment or enforcement
(whether through negotiations, legal proceedings or otherwise) of, or legal
advice in respect of rights or responsibilities under, this Agreement, any other
Credit Document, or any document contemplated by or referred to herein, to the
extent that the Administrative Agent is not reimbursed for such expenses by or
on behalf of the Borrower. The undertaking in this Section shall survive the
payment of all Obligations hereunder and the resignation or replacement of the
Administrative Agent.
SECTION 10.08. ADMINISTRATIVE AGENT IN INDIVIDUAL CAPACITY. BAI and its
Affiliates may make loans to, issue letters of credit for the account of, accept
deposits from, acquire equity interests in and generally engage in any kind of
banking, trust, financial advisory, underwriting or other business with the
Borrower and its Subsidiaries and Affiliates as though BAI were not the
Administrative Agent hereunder and without notice to or consent of the Banks.
The Banks acknowledge that, pursuant to such
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activities, BAI or its Affiliates may receive information regarding the Borrower
or its Affiliates (including information that may be subject to confidentiality
obligations in favor of the Borrower or such Subsidiary) and acknowledge that
the Administrative Agent shall be under no obligation to provide such
information to them. With respect to its Loans, BAI shall have the same rights
and powers under this Agreement as any other Bank and may exercise the same as
though it were not the Administrative Agent, and the terms "Bank" and "Banks"
include BAI in its individual capacity.
SECTION 10.09. SUCCESSOR ADMINISTRATIVE AGENT. The Administrative Agent
may, and at the request of the Required Banks shall, resign as Administrative
Agent upon 30 days' notice to the Banks. If the Administrative Agent resigns
under this Agreement, the Required Banks shall appoint from among the Banks a
successor administrative agent for the Banks which successor administrative
agent shall be approved by the Borrower. If no successor administrative agent is
appointed prior to the effective date of the resignation of the Administrative
Agent, the Administrative Agent may appoint, after consulting with the Banks and
the Borrower, a successor administrative agent from among the Banks. Upon the
acceptance of its appointment as successor administrative agent hereunder, such
successor administrative agent shall succeed to all the rights, powers and
duties of the retiring Administrative Agent and the term "Administrative Agent"
shall mean such successor administrative agent and the retiring Administrative
Agent's appointment, powers and duties as Administrative Agent shall be
terminated. After any retiring Administrative Agent's resignation hereunder as
Administrative Agent, the provisions of this ARTICLE X and SECTION 9.07 shall
inure to its benefit as to any actions taken or omitted to be taken by it while
it was Administrative Agent under this Agreement. If no successor administrative
agent has accepted appointment as Administrative Agent by the date which is 30
days following a retiring Administrative Agent's notice of resignation, the
retiring Administrative Agent's resignation shall nevertheless thereupon become
effective and the Banks shall perform all of the duties of the Administrative
Agent hereunder until such time, if any, as the Required Banks appoint a
successor administrative agent as provided for above.
SECTION 10.10. WITHHOLDING TAX.
(a) If any Bank is a "foreign corporation, partnership or
trust" within the meaning of the Code and such Bank claims exemption from, or a
reduction of, U.S. withholding tax under Sections 1441 or 1442 of the Code, such
Bank agrees with and in favor of the Administrative Agent, to deliver to the
Administrative Agent:
(i) if such Bank claims an exemption from, or a
reduction of, withholding tax under a United States tax
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treaty, properly completed IRS Forms 1001 and W-8 before the payment of
any interest in the first calendar year and before the payment of any
interest in each third succeeding calendar year during which interest
may be paid under this Agreement;
(ii) if such Bank claims that interest paid under
this Agreement is exempt from United States withholding tax because it
is effectively connected with a United States trade or business of such
Bank, two properly completed and executed copies of IRS Form 4224
before the payment of any interest is due in the first taxable year of
such Bank and in each succeeding taxable year of such Bank during which
interest may be paid under this Agreement, and IRS Form W-9; and
(iii) such other form or forms as may be required
under the Code or other laws of the United States as a condition to
exemption from, or reduction of, United States withholding tax.
Such Bank agrees to promptly notify the Administrative Agent
of any change in circumstances which would modify or render invalid any claimed
exemption or reduction.
(b) If any Bank claims exemption from, or reduction of,
withholding tax under a United States tax treaty by providing IRS Form 1001 and
such Bank sells, assigns, grants a participation in, or otherwise transfers all
or part of the Obligations of the Borrower to such Bank, such Bank agrees to
notify the Administrative Agent of the percentage amount in which it is no
longer the beneficial owner of Obligations of the Borrower to such Bank. To the
extent of such percentage amount, the Administrative Agent will treat such
Bank's IRS Form 1001 as no longer valid.
(c) If any Bank claiming exemption from United States
withholding tax by filing IRS Form 4224 with the Administrative Agent sells,
assigns, grants a participation in, or otherwise transfers all or part of the
Obligations of the Borrower to such Bank, such Bank agrees to undertake sole
responsibility for complying with the withholding tax requirements imposed by
Sections 1441 and 1442 of the Code.
(d) If any Bank is entitled to a reduction in the applicable
withholding tax, the Administrative Agent may withhold from any interest payment
to such Bank an amount equivalent to the applicable withholding tax after taking
into account such reduction. If the forms or other documentation required by
subsection (a) of this Section are not delivered to the Administrative Agent,
then the Administrative Agent may withhold from any interest payment to such
Bank not providing such forms or other documentation an amount equivalent to the
applicable withholding tax.
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(e) If the IRS or any other governmental authority of the
United States or other jurisdiction asserts a claim that the Administrative
Agent did not properly withhold tax from amounts paid to or for the account of
any Bank (because the appropriate form was not delivered, was not properly
executed, or because such Bank failed to notify the Administrative Agent of a
change in circumstances which rendered the exemption from, or reduction of,
withholding tax ineffective, or for any other reason) such Bank shall indemnify
the Administrative Agent fully for all amounts paid, directly or indirectly, by
the Administrative Agent as tax or otherwise, including penalties and interest,
and including any taxes imposed by any jurisdiction on the amounts payable to
the Administrative Agent under this Section, together with all costs and
expenses (including Attorney Costs). The obligation of the Banks under this
subsection shall survive the payment of all Obligations and the resignation or
replacement of the Administrative Agent.
SECTION 10.11. SYNDICATION AGENT; DOCUMENTATION AGENT. None of the
Banks identified on the facing page or signature pages of this Agreement as a
"Syndication Agent" or "Documentation Agent" shall have any right, power,
obligation, liability, responsibility or duty under this Agreement other than
those applicable to all Banks as such. Without limiting the foregoing, none of
the Banks so identified as a "Syndication Agent" or "Documentation Agent" shall
have or be deemed to have any fiduciary relationship with any Bank. Each Bank
acknowledges that it has not relied, and will not rely, on any of the Banks so
identified in deciding to enter into this Agreement or in taking or not taking
action hereunder.
ARTICLE XI
SETOFF; RATABLE PAYMENTS
SECTION 11.01. SETOFF. In addition to, and without limitation of, any
rights of the Banks under Applicable Law, if the Borrower becomes insolvent,
however evidenced, or any Event of Default (or any Default described in SECTION
7.01(H) or (I)) occurs and is continuing, any indebtedness from any Bank to the
Borrower (including all account balances, whether provisional or final and
whether or not collected or available) may be set off and applied toward the
payment of the Obligations owing to such Bank, whether or not the Obligations,
or any part thereof, shall then be due; PROVIDED that the Required Banks shall
consent thereto and that such Bank shall notify the Borrower of any such setoff
promptly thereafter.
SECTION 11.02. RATABLE PAYMENTS. If any Bank, whether by setoff or
otherwise, has payment made to it upon its Credit Extensions in a greater
proportion than that received by any other
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Bank (other than as expressly permitted hereunder), such Bank agrees, promptly
upon demand, to purchase a portion of the Credit Extensions held by the other
Banks so that after such purchase each Bank will hold its ratable proportion of
Credit Extensions. If any Bank, whether in connection with setoff or amounts
which might be subject to setoff or otherwise, receives collateral or other
protection for its Obligations on such amounts which may be subject to set off,
such Bank agrees, promptly upon demand, to take such action necessary such that
all Banks share in the benefits of such collateral ratably in proportion to
their Credit Extensions. In case any such payment is disturbed by legal process
or otherwise, appropriate further adjustments shall be made.
ARTICLE XII
BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS
SECTION 12.01. SUCCESSORS AND ASSIGNS. The terms and provisions of the
Credit Documents shall be binding upon and inure to the benefit of the Borrower
and the Banks and their respective successors and assigns, except that the
Borrower shall not have the right to assign its rights under the Credit
Documents and any assignment by any Bank must be made in compliance with SECTION
12.02. Any request, authority or consent of any Person, who at the time of
making such request or giving such authority or consent is the holder of any
Credit Extension, shall be conclusive and binding on any subsequent holder,
transferee or assignee of such Credit Extension.
SECTION 12.02. ASSIGNMENTS AND PARTICIPATIONS. Assignments by Banks of,
and the granting of participations in, their rights and obligations arising
under and with respect to this Agreement shall be permitted as follows:
(a) Subject to the provisos set forth at the end of this
CLAUSE (A), each Bank may, upon the giving in writing to the
Administrative Agent of at least three Business Days' prior notice or
the delivery of the Assignment and Acceptance referred to in CLAUSE
(B)(V) below (of which notice or Assignment and Acceptance the
Administrative Agent shall promptly inform the Borrower), assign to one
or more Banks, or to other banks, savings and loan associations,
insurance companies, pension funds, mutual funds, commercial finance
companies and other similar financial institutions having capital and
surplus of at least $100,000,000 (an "ELIGIBLE ASSIGNEE"), all or a
portion of its rights and obligations under this Agreement (including
all or a portion of its Commitment, Loans and Reimbursement Obligations
and its obligation to participate, and its participations, in Letters
of Credit and Swing Loans) subject only to the conditions set
99
<PAGE> 107
forth in CLAUSE (B) below; PROVIDED that, so long as no Default exists,
upon disclosing any non-public information (which has been identified
as such by the Borrower) relating to the Borrower to any prospective
assignee (and at least three Business Days before the date such Bank
gives the notice or delivers the Assignment and Acceptance referred to
above), such Bank shall notify the Borrower of its intention to make an
assignment; and PROVIDED FURTHER, that any assignment to any Eligible
Assignee other than an Affiliate of such Bank shall require the prior
written consents of the Administrative Agent and the Borrower, which
consents shall not be unreasonably withheld or delayed (it being
understood that failure of a Bank to comply with its obligations under
the first proviso to this CLAUSE (A) shall not, in and of itself,
constitute a reasonable basis to withhold consent to an assignment).
(b) Any assignments made pursuant to this SECTION 12.02 shall
comply with the following conditions:
(i) each such assignment shall be of a constant, and
not a varying, percentage of all of the assigning Bank's
rights and obligations hereunder (including its Commitment,
its Loans, its right to payment of Reimbursement Obligations
and its obligations to participate, and its participations, in
Letters of Credit and Swing Loans);
(ii) the amount of the Commitment of the assigning
Bank being assigned pursuant to each such assignment
(determined as of the date of the Assignment and Acceptance
with respect to such assignment) shall (except in the case of
assignments to other Banks or an assignment by a Bank of all
of its Commitment and Credit Extensions) in no event be less
than $5,000,000 and the aggregate amount of the Commitment
retained by such assigning Bank, after giving effect to such
assignment, shall be not less than $5,000,000;
(iii) each such assignment shall be to another Bank
or to an Eligible Assignee;
(iv) no such assignment shall violate any "blue sky"
or other securities law of any jurisdiction or shall require
the Borrower to file a registration statement with the
Commission or apply to qualify any Commitment or Credit
Extension, or any interest in any thereof, under the "blue
sky" or other securities law of any jurisdiction; and
100
<PAGE> 108
(v) the parties to each such assignment shall execute
and deliver to the Administrative Agent at least three
Business Days prior to its effective date, for its recording
in the Register, an Assignment and Acceptance substantially in
the form of EXHIBIT L (an "ASSIGNMENT AND ACCEPTANCE"),
together with any Note subject to such assignment and a
processing and recordation fee of $4000, payable by the
assignee. Upon such execution, delivery, acceptance and
recording, from and after the effective date specified in such
Assignment and Acceptance, and subject to CLAUSE (A) above,
(x) the assignee thereunder shall be a party hereto and, to
the extent that rights and obligations hereunder have been
assigned to it pursuant to such Assignment and Acceptance,
have the rights and obligations of a Bank hereunder with
respect to the Credit Extensions and Commitment thereby
assigned, including the right to approve or disapprove actions
with respect to such Credit Extensions and Commitment which
require the approval of the Required Banks or all Banks, and
(y) the assigning Bank thereunder shall, to the extent that
rights and obligations hereunder have been assigned by it
pursuant to such Assignment and Acceptance, relinquish its
rights and be released from its unmatured obligations under
this Agreement (and, in the case of an Assignment and
Acceptance covering all or the remaining portion of an
assigning Bank's rights and obligations under this Agreement,
such Bank shall cease to be a party hereto).
(c) By executing and delivering an Assignment and Acceptance,
the assigning Bank thereunder and the assignee thereunder confirm to
and agree with each other and the other parties hereto as follows: (i)
other than as provided in such Assignment and Acceptance, such
assigning Bank makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or
representations made in or in connection with this Agreement or with
respect to the execution, legality, validity, enforceability,
genuineness, sufficiency or value of this Agreement or any other
instrument or document furnished pursuant hereto; (ii) such assigning
Bank makes no representation or warranty and assumes no responsibility
with respect to the financial condition of the Borrower or the
performance or observance by the Borrower of any of its obligations
under this Agreement or any other instrument or document furnished
pursuant hereto; (iii) such assignee confirms that it has received a
copy of this Agreement and such other documents and information as it
has deemed appropriate to make its own credit analysis and decision to
enter into such Assignment and Acceptance; (iv) such assignee will,
independently and without reliance upon the Administrative Agent, such
assigning Bank or any other
101
<PAGE> 109
Bank and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in
taking or not taking action under this Agreement; (v) unless such
assignee is a Bank, such assignee confirms that it is an Eligible
Assignee; (vi) such assignee appoints and authorizes the Administrative
Agent to take such action as agent on its behalf and to exercise such
powers under this Agreement as are delegated to the Administrative
Agent by the terms hereof, together with such powers as are reasonably
incidental thereto; and (vii) such assignee agrees that it will perform
in accordance with their terms all of the obligations which by the
terms of this Agreement are required to be performed by it as a Bank.
(d) The Administrative Agent shall maintain at its address
specified pursuant to ARTICLE XIII a copy of each Assignment and
Acceptance delivered to and accepted by it and a register for the
recordation of the names and addresses of the Banks and the Commitment
of, and principal amounts of the Credit Extensions owing to, each Bank
from time to time (the "REGISTER"). The entries in the Register shall
be conclusive and binding for all purposes, absent manifest error, and
the Borrower, the Administrative Agent and the Banks may treat each
Person whose name is recorded in the Register as a Bank hereunder for
all purposes of this Agreement. The Register shall be available for
inspection by the Borrower or any Bank at any reasonable time upon
reasonable prior notice.
(e) Upon its receipt of an Assignment and Acceptance executed
by an assigning Bank and an assignee representing (unless it is a Bank)
that it is an Eligible Assignee, the Administrative Agent shall, if
such Assignment and Acceptance has been completed and is in
substantially the form of EXHIBIT L, (i) accept such Assignment and
Acceptance, (ii) record the information contained therein in the
Register and (iii) give prompt notice thereof to the Borrower.
(f) Each Bank may, subject to giving prior written notice to
the Borrower, sell participations to participants in or to all or a
portion of its rights and obligations under this Agreement (including
all or a portion of its Commitment, Loans, Reimbursement Obligations,
and obligations to participate, and participations, in Letters of
Credit); PROVIDED that (i) such Bank's obligations under this Agreement
(including its Commitment to the Borrower hereunder) shall remain
unchanged; (ii) such Bank shall remain solely responsible to the other
parties hereto for the performance of such obligations; (iii) such Bank
shall remain the holder of any applicable Note for all purposes of this
Agreement; (iv) the Borrower, the Administrative Agent and the other
Banks shall continue to deal solely and directly with such Bank in
102
<PAGE> 110
connection with such Bank's rights and obligations under this
Agreement; (v) any participant which is not an Affiliate of such Bank
shall have no right to require such Bank to take or omit to take any
action under this Agreement, except action extending the maturity of
any Loan, reducing the interest rate or fees on any Loan in which such
participation was sold, forgiving any principal of or interest or fees
payable hereunder or releasing all or substantially all of the
Collateral to the extent such Bank has a right to take or omit to take
such action; and (vi) any participant shall have the right to payments
from the Borrower pursuant to SECTION 2.19, 3.01(A) or 3.03 only to the
extent such Bank had such right. Each Bank agrees to incorporate the
requirements set forth in the preceding sentence into each
participation agreement which such Bank enters into with any
participant. The Borrower agrees that if amounts outstanding under this
Agreement are due and unpaid, or shall have been declared or shall have
become due and payable, each participant shall, to the extent permitted
by Applicable Law, be deemed to have the right of setoff in respect of
its participating interest in amounts owing under this Agreement to the
same extent as if the amount of its participating interest were owing
directly to it as a Bank under this Agreement; PROVIDED that any
participant exercising such right shall be obligated to share with the
Banks, as if such participant were a "Bank" hereunder, the amount of
any such setoff.
(g) Any Bank may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this
SECTION 12.02, disclose to the assignee or participant, or proposed
assignee or participant, any information relating to the Borrower
furnished to such Bank by or on behalf of the Borrower; PROVIDED that,
prior to any such disclosure, the assignee or participant or proposed
assignee or participant shall agree to preserve the confidentiality of
any confidential information relating to the Borrower received by it
from such Bank to the same extent as the Banks hereunder.
(h) Notwithstanding the foregoing provisions of this SECTION
12.02, each Bank may at any time create a security interest in all or
any portion of its rights hereunder (including the Loans owing to it)
in favor of any Federal Reserve Bank in accordance with Regulation A of
the Board of Governors of the Federal Reserve System. For purposes of
facilitating any such pledge, the Borrower will, promptly upon request
of any Bank, execute and deliver to such Bank one or more notes (in
form and substance reasonably satisfactory to the Borrower and such
Bank) evidencing such Bank's Revolving Loans in partial substitution
for the Global Revolving Note (and the Administrative Agent will attach
an allonge to the
103
<PAGE> 111
Global Revolving Note to indicate that such Bank's Revolving Loans are
evidenced by the note issued to such Bank and that the principal amount
of Revolving Loans evidenced by the Global Revolving Note is reduced by
the principal amount of such note).
SECTION 12.03. TAX TREATMENT. If, pursuant to this ARTICLE XII, any
interest in any Credit Document is transferred to any assignee or participant
(each a "TRANSFEREE") which is organized under the laws of any jurisdiction
other than the United States or any State thereof, the transferor Bank shall
cause such Transferee, concurrently with the effectiveness of such transfer, (i)
to represent to the transferor Bank (for the benefit of the transferor Bank, the
Administrative Agent and the Borrower) that under Applicable Law and treaties no
Taxes will be required to be withheld by the Administrative Agent, the Borrower
or the transferor Bank with respect to any payments to be made to such
Transferee in respect of the Loans, (ii) to furnish to the transferor Bank, the
Administrative Agent and the Borrower either U.S. Internal Revenue Service Form
4224 or U.S. Internal Revenue Service Form 1001 or successor form (wherein such
Transferee claims entitlement to complete exemption from U.S. Federal
withholding tax on all interest payments hereunder) and (iii) to agree (for the
benefit of the transferor Bank, the Administrative Agent and the Borrower) to
provide the transferor Bank, the Administrative Agent and the Borrower a new
Form 4224 or Form 1001 upon the obsolescence of any previously delivered form
and comparable statements in accordance with applicable U.S. laws and
regulations, duly executed and completed by such Transferee, and to comply from
time to time with all applicable U.S. laws and regulations with regard to such
withholding tax exemption.
ARTICLE XIII
NOTICES
SECTION 13.01. GIVING NOTICE. Any notice required or permitted to be
given under this Agreement may be, and shall be deemed, given (a) three Business
Days after being deposited in the United States mail, postage prepaid, or (b) by
overnight delivery service on the Business Day after being delivered to
representatives of any major overnight delivery service, charges prepaid,
addressed to the Borrower, the applicable Bank or the Administrative Agent at
the address indicated below its signature to this Agreement or on the applicable
Assignment and Acceptance (subject to change pursuant to SECTION 13.02) or (c)
by facsimile when transmitted by facsimile; PROVIDED that notices and
communications to the Administrative Agent shall not be effective until received
by the Administrative Agent.
104
<PAGE> 112
SECTION 13.02. CHANGE OF ADDRESS. The Borrower, the Administrative
Agent and any Bank may each change the address for service of notice upon it by
a notice in writing to the Borrower and the Administrative Agent.
ARTICLE XIV
COUNTERPARTS; REFERENCES; CONFIRMATION
SECTION 14.01. COUNTERPARTS. This Agreement and any other Credit
Document may be executed in any number of counterparts, all of which taken
together shall constitute one agreement, and any of the parties hereto or
thereto may execute this Agreement or any such other Credit Document,
respectively, by signing any such counterpart.
SECTION 14.02. REFERENCES. References to the Original Amended Credit
Agreement, the Second Amended Credit Agreement, the 1993 Agreement or the
Existing Agreement in any Credit Document shall be deemed to include such
document as restated hereby, whether or not reference is made to this Agreement.
SECTION 14.03. CONFIRMATION. The Borrower hereby confirms to the Banks
and the Administrative Agent that (i) each Credit Document to which the Borrower
is a party continues in full force and effect on and after the date hereof and
is the legal, valid and binding obligation of the Borrower, enforceable against
the Borrower in accordance with its terms and (ii) the obligations and
liabilities secured under each Credit Document include any and all obligations
and liabilities of the Borrower to the Banks under this Agreement.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
105
<PAGE> 113
IN WITNESS WHEREOF, the Borrower, the Banks and the Administrative
Agent have executed this Agreement as of the date first above written.
SEALY CORPORATION
By:
-----------------------------------
Title:
-----------------------------------
The Halle Building
10th Floor
1228 Euclid Avenue
Cleveland, Ohio 44115
Telephone: 216-522-1310
Facsimile: 216-522-1366
Attention: Ronald Stolle
BANK OF AMERICA ILLINOIS,
as Administrative Agent
By:
-----------------------------------
Title:
-----------------------------------
Agency Administrative Services
#5596, 12th Floor
1455 Market Street
San Francisco, California 94103
Telephone: 415-436-3433
Facsimile: 415-436-2700
Attention: Dana Tom
BANK OF AMERICA ILLINOIS,
as a Bank
By:
-----------------------------------
Title:
-----------------------------------
231 South LaSalle Street
Chicago, Illinois 60697
Telephone: 312-828-6517
Facsimile: 312-828-3555
Attention: Mr. Eric A. Schubert
106
<PAGE> 114
BANQUE PARIBAS, individually and as
Documentation Agent
By:
-----------------------------------
Title:
-----------------------------------
By:
-----------------------------------
Title:
-----------------------------------
227 West Monroe
Suite 3300
Chicago, Illinois 60606
Telephone: 312-853-6011
Facsimile: 312-853-6020
Attention: Karen Coons
NATIONSBANK, N.A., individually
and as Syndication Agent
By:
-----------------------------------
Title:
-----------------------------------
100 North Tryon Street
NC1-007-08-04
Charlotte, NC 28255
Telephone: 704-388-6919
Facsimile: 704-388-0960
Attention: Michael B. McKay
THE BANK OF NEW YORK
By:
-----------------------------------
Title:
-----------------------------------
Midwest Division
One Wall Street
22nd Floor
New York, New York 10286
Telephone: 212-635-7919
Facsimile: 212-635-6434
Attention: Robert J. Joyce
107
<PAGE> 115
BANK OF NOVA SCOTIA
By:
-----------------------------------
Title:
-----------------------------------
600 Peachtree Street
Suite 2700
Atlanta, Georgia 30308
Telephone: 404-877-1557
Facsimile: 404-888-8998
Attention: Vicki Gibson
with a copy to:
181 West Madison Street
Suite 3700
Chicago, Illinois 60602
Telephone: 312-201-4180
Facsimile: 312-201-4108
Attention: Rachael Li
CAISSE NATIONALE DE CREDIT AGRICOLE S.A.
By:
-----------------------------------
Title:
-----------------------------------
55 East Monroe Street
47th Floor
Chicago, Illinois 60603-5702
Telephone: 312-917-7549
Facsimile: 312-372-2830
Attention: Leslie McMillan
108
<PAGE> 116
CREDIT LYONNAIS CHICAGO BRANCH
By:
-----------------------------------
Title:
-----------------------------------
227 West Monroe Street
Suite 3800
Chicago, Illinois 60606
Telephone: 312-220-7314
Facsimile: 312-641-0527
Attention: Eric Tobin
DRESDNER BANK AG NEW YORK AND GRAND
CAYMAN BRANCHES
By:
-----------------------------------
Title:
-----------------------------------
By:
-----------------------------------
Title:
-----------------------------------
75 Wall Street
33rd Floor
New York, New York 10005
Telephone: 212-429-2266
Facsimile: 212-429-2130
Attention: Tom Nadramia
with a copy to:
190 South LaSalle Street
Suite 2700
Chicago, Illinois 60603
Telephone: 312-444-1336
Facsimile: 312-444-1305
Attention: Jeffrey Mumm
109
<PAGE> 117
FIRST BANK NATIONAL ASSOCIATION
By:
-----------------------------------
Title:
-----------------------------------
First Bank Place
601 Second Avenue South
Minneapolis, Minnesota 55402
Telephone: 612-973-1819
Facsimile: 612-973-0824
Attention: Robert Miller
NBD BANK
By:
-----------------------------------
Title:
-----------------------------------
Mail Suite 8073
611 Woodward Avenue
Detroit, Michigan 48226
Telephone: 313-225-1940
Facsimile: 313-225-1671
Attention: Patrick Dunphy
With a copy to:
183 Glen Road
Moreland Hills, Ohio 44022
Telephone: 216-248-0743
Facsimile: 216-247-0315
Attention: Robert L. Jackson
110
<PAGE> 118
MELLON BANK, N.A.
By:
-----------------------------------
Title:
-----------------------------------
One Mellon Bank Center
45th Floor
Pittsburgh, Pennsylvania 15258
Telephone: 412-236-2793
Facsimile: 412-236-1914
Attention: Mark Johnston
With a copy to:
55 West Monroe
Suite 2600
Chicago, Illinois 60603
Telephone: 312-357-3405
Facsimile: 312-357-3414
Attention: Jeff Anderson
NATIONAL BANK OF CANADA
By:
-----------------------------------
Title:
-----------------------------------
By:
-----------------------------------
Title:
-----------------------------------
1375 East 9th Street
Suite 2430
Cleveland, Ohio 44114
Telephone: 216-696-2923
Facsimile: 216-574-9236
Attention: John Gierowski
111
<PAGE> 119
NATIONAL CITY BANK
By:
-----------------------------------
Title:
-----------------------------------
Metro/Ohio Locator #2104
1900 East Ninth Street
Cleveland, OH 44114
Telephone: 216-575-9440
Facsimile: 216-575-9396
Attention: Timothy G. Healy
PNC BANK, NATIONAL ASSOCIATION
By:
-----------------------------------
Title:
-----------------------------------
One PNC Plaza
249 Fifth Avenue
P1-POPP-02-2
Pittsburgh, Pennsylvania 15222-2707
Telephone: 412-768-4323
Facsimile: 412-762-6484
Attention: Joe Richardson
112
<PAGE> 120
SCHEDULE I
----------
DISCLOSURE SCHEDULE
-------------------
See Attached.
I-1
<PAGE> 121
SCHEDULE II
-----------
PRICING SCHEDULE
----------------
The Commitment Fee Rate, the Margin and the L/C Fee Rate (the
"Applicable Rates") shall be determined based upon the applicable Adjusted
Senior Leverage Ratio set forth below.
<TABLE>
<CAPTION>
====================================================================================================================================
L/C Fee Rate Margin
--------------------------------------------------------
Standby Commercial
Commitment Fee Letter of Letter of Eurodollar Floating
Adjusted Senior Leverage Ratio Rate Credit Credit Rate Rate
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Greater than or equal to 2.75 to 1 0.375% 1.750% 1.250% 1.750% 0.500%
- ------------------------------------------------------------------------------------------------------------------------------------
Greater than or equal to 2.5 to 1 but less than 2.75 to 1 0.375% 1.625% 1.125% 1.625% 0.375%
- ------------------------------------------------------------------------------------------------------------------------------------
Greater than or equal to 2.25 to 1 but less than 2.5 to 1 0.375% 1.500% 1.000% 1.500% 0.250%
- ------------------------------------------------------------------------------------------------------------------------------------
Greater than or equal to 2.0 to 1 but less than 2.25 to 1 0.375% 1.375% 0.875% 1.375% 0.125%
- ------------------------------------------------------------------------------------------------------------------------------------
Greater than or equal to 1.75 to 1 but less than 2.0 to 1 0.375% 1.250% 0.750% 1.250% 0.000%
- ------------------------------------------------------------------------------------------------------------------------------------
Greater than or equal to 1.5 to 1 but less than 1.75 to 1 0.300% 1.125% 0.750% 1.125% 0.000%
- ------------------------------------------------------------------------------------------------------------------------------------
Greater than or equal to 1.25 to 1 but less than 1.5 to 1 0.300% 1.000% 0.750% 1.000% 0.000%
- ------------------------------------------------------------------------------------------------------------------------------------
Greater than or equal to 1.0 to 1 but less than 1.25 to 1 0.250% 0.875% 0.750% 0.875% 0.000%
- ------------------------------------------------------------------------------------------------------------------------------------
Less than 1.0 to 1 0.250% 0.750% 0.750% 0.750% 0.000%
====================================================================================================================================
</TABLE>
The Applicable Rates shall be adjusted from time to time based on the
Adjusted Senior Leverage Ratio determined as of the end of the most
recently-ended Fiscal Quarter for which the Borrower has delivered financed
statements pursuant to CLAUSE (A) or (B) of SECTION 6.01.01, as the case may be,
as shown in a certificate delivered by the Borrower to the Administrative Agent,
IT BEING UNDERSTOOD that (i) each Applicable Rate shall be effective from and
after the fifth Business Day after any such financial statements are delivered
and (ii) if the Borrower fails to deliver any such financial statements by the
date required by SECTION 6.01.01, each Applicable Rate shall be adjusted, until
the date such statements are delivered, to the rate which would apply if the
Adjusted Senior Leverage Ratio were greater than 2.75 to 1. Notwithstanding
anything set forth above, prior to August 31, 1997 the Commitment Fee Rate shall
not be less than 0.375%, the L/C Fee Rate shall not be less than 1.25% for
Standby Letters of Credit and 0.75% for Commercial Letters of Credit, and the
Margin shall not be less than 1.25% for the Eurodollar Rate (it being understood
that on such date, if applicable, each of the foregoing shall be adjusted based
on the Adjusted Senior Leverage Ratio as of June 1, 1997).
II-1
<PAGE> 122
SCHEDULE 2.01
-------------
INITIAL COMMITMENTS AND PERCENTAGES
-----------------------------------
<TABLE>
<CAPTION>
=========================================================================================================================
BANK COMMITMENT PERCENTAGE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Bank of America Illinois $ 27,500,000 10.000000000%
- -------------------------------------------------------------------------------------------------------------------------
Banque Paribas $ 27,500,000 10.000000000%
- -------------------------------------------------------------------------------------------------------------------------
NationsBank, N.A. $ 27,500,000 10.000000000%
- -------------------------------------------------------------------------------------------------------------------------
The Bank of New York $ 17,500,000 6.363636364%
- -------------------------------------------------------------------------------------------------------------------------
Bank of Nova Scotia $ 17,500,000 6.363636364%
- -------------------------------------------------------------------------------------------------------------------------
Caisse Nationale De Credit Agricole $ 17,500,000 6.363636364%
- -------------------------------------------------------------------------------------------------------------------------
Credit Lyonnais $ 17,500,000 6.363636364%
- -------------------------------------------------------------------------------------------------------------------------
Dresdner Bank AG $ 17,500,000 6.363636364%
- -------------------------------------------------------------------------------------------------------------------------
First National Bank Association $ 17,500,000 6.363636364%
- -------------------------------------------------------------------------------------------------------------------------
NBD Bank $ 17,500,000 6.363636364%
- -------------------------------------------------------------------------------------------------------------------------
Mellon Bank, N.A. $ 17,500,000 6.363636364%
- -------------------------------------------------------------------------------------------------------------------------
National Bank of Canada $ 17,500,000 6.363636364%
- -------------------------------------------------------------------------------------------------------------------------
National City Bank $ 17,500,000 6.363636364%
- -------------------------------------------------------------------------------------------------------------------------
PNC Bank, National Association $ 17,500,000 6.363636364%
------------
- -------------------------------------------------------------------------------------------------------------------------
TOTAL $275,000,000 100%*
=========================================================================================================================
<FN>
- --------
* Percentages do not total exactly 100% due to rounding.
</TABLE>
1
<PAGE> 123
SCHEDULE 2.20.01(A)
-------------------
ISSUERS OF LETTERS OF CREDIT
----------------------------
Banque Paribas
Bank of America Illinois
1
<PAGE> 124
SCHEDULE 2.20.01(B)
-------------------
LETTERS OF CREDIT OUTSTANDING
-----------------------------
<TABLE>
<CAPTION>
ISSUER BENEFICIARY AMOUNT MATURITY TYPE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Banque Paribas Lumbermen's $1,020,552.00 5/6/97 Standby
Mutual
Banque Paribas Lumbermen's $1,107,879.00 5/6/97 Standby
Mutual
Banque Paribas Hartford Fire $4,739,577.00 6/2/97 Standby
Insurance
Banque Paribas Hartford Fire $4,485,124.00 9/19/97 Standby
Insurance
Banque Paribas Transcontinental $222,000.00 9/19/97 Standby
Tech.
Banque Paribas Continental $ 1,491,000.00 9/19/97 Standby
Casualty --------------
$13,066.132.00
==============
</TABLE>
1
<PAGE> 1
Exhibit 10.15
SEALY CORPORATION
AMENDMENT NO. 3 TO
1993 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
Sealy Corporation, hereinafter called the "Company", hereby adopts an
amendment to the Company's 1993 Non-Employee Director Stock Option Plan, as
amended by Amendment No. 1 and Amendment No. 2 (the "Plan"), which amendment
adds the following additional paragraphs to Section 4 of the Plan, as heretofore
in effect:
Until such time as the Common Shares (or any successor common
equity) are registered under the Securities Exchange Act of
1934, as amended, as of the record date for any special,
large and non-recurring cash dividend to be paid on the
Common Shares, the option price per share on each outstanding
option shall be reduced automatically and the number of
Common Shares relating to each outstanding option shall be
increased automatically to give effect to such special, large
and non-recurring cash dividend, to the maximum extent
allowable without the Company having to account for
additional compensation expense under then-current generally
accepted accounting principals, such that
(a) the aggregate intrinsic value (the difference
between the fair market value per share and
the exercise price) of each outstanding option
immediately after the payment of the special,
large and non-recurring cash dividend is not
greater than the intrinsic value of the option
immediately prior to such dividend; and
(b) the ratio of the exercise price per share to
the fair market value per share for such
option is not reduced.
IN WITNESS WHEREOF, SEALY CORPORATION, by its appropriate officers duly
authorized, has executed this instrument effective as of the 27 day of
June, 1996.
SEALY CORPORATION
By: /s/ Ron L. Jones
---------------------------------
Its: President - CEO
-------------------------------
By: /s/
-------------------------------
Its: Vice President, Human Resources
-------------------------------
<PAGE> 1
Exhibit 10.17
AMENDMENT NUMBER ONE
TO THE
SEALY BONUS PLAN
WHEREAS, The Sealy Corporation, a Delaware Corporation ("Company"), maintains
this incentive compensation plan ("Plan") for the benefit of its eligible
employees; and
WHEREAS, Section 8 of the Plan reserves to the Company the right to
amend the Plan; and
WHEREAS, the Company now desires to amend the Plan to increase the
potential bonus payout for certain participants,
NOW, THEREFORE, the Company does hereby amend the Plan, to be effective
retroactive to December 1, 1995, as follows:
FIRST: Section 3 of the Plan is deleted in its entirety and the
following is substituted therefor:
3. PARTICIPATION. Participants in the Plan are
selected during each fiscal year by the Board from exempt
salaried employees. Participants are assigned to a bonus
group at the sole discretion of the Board, with groupings
generally as follows:
Group 8: Selected Senior Company Executives
Group 7: Senior Company Executives
Group 6: Corporate and Regional Vice Presidents
Group 5: Other Senior Management
Group 4: Plant Managers, Sales Managers
Group 3: Other Middle Management
Group 2: Plant Controllers, Senior Professionals
and Supervisors
Group 1: Selected Exempt Employees
SECOND: Section 4 of the Plan is deleted in its entirety and the
following is substituted therefor:
4. AMOUNT OF AWARD. Bonus awards under the Plan are
based on the degree to which the financial performance of
the Company, its operating plants, regions and selected
subsidiaries meet the goals established for each fiscal
year.
1
<PAGE> 2
Individual awards under the Plan are based on the
performance of the business segment (i.e., Company, division,
plant and/or region) to which such participant is assigned.
The percentage of salary used in the bonus award calculation
for each Group increases from zero to a stated maximum as
performance exceeds the minimum goal according to the
following Schedule of Bonus Awards:
<TABLE>
<CAPTION>
GROUP MINIMUM TARGET MAXIMUM
----- ------- ------ -------
<S> <C> <C> <C>
8 (As determined by the Board for each
participant)
7 0% 35% 70%
6 0% 30% 60%
5 0% 25% 50%
4 0% 20% 40%
3 0% 15% 30%
2 0% 10% 20%
1 0% 5% 10%
</TABLE>
Subject to section 5 below, bonus awards will be
calculated as a percentage of a participant's weighted average
annual rate of base salary in effect for the fiscal year for
which a bonus is payable.
IN WITNESS WHEREOF, the Company, by its duly authorized officers, has executed
this instrument in several counterparts this 30th day of October, 1996.
SEALY CORPORATION
By: /s/ Ron L. Jones
----------------------------
Its: President/C.E.O.
----------------------------
And: /s/
----------------------------
Its: V.P. Human Resources
----------------------------
2
<PAGE> 1
Exhibit 10.18
THE SEALY CORPORATION BONUS PLAN
--------------------------------
Sealy Corporation (the "Company") hereby adopts the bonus Plan (the
"Plan") for the benefit of certain employees and subject to the terms and
provisions set forth below.
1. PURPOSE. The Sealy Corporation Bonus Plan is intended to attract and
retain employees in key positions of Sealy Corporation and selected subsidiaries
(the "Company"), to motivate participants toward achieving the Company's
objectives and to reward participants for their contributions to the success of
the Company.
2. ADMINISTRATION. The Plan is administered by the Board of Directors of
the Company. The Board may delegate any of its rights and duties under the Plan
to the Human Resources Committee or an officer of the Company. The Board
establishes administrative rules, determines employee eligibility, establishes
the awards to be made under the Plan and their terms and conditions. In
addition, the Board has authority to adjust or modify the Plan or its operations
to deal with unusual or unanticipated events in a fair and equitable manner. The
Board shall construe and interpret the Plan and its determinations shall be
final and binding upon all Plan participants.
3. PARTICIPATION. Participants in the Plan are selected during each fiscal
year by the Board from exempt salaried employees. Participants are assigned to a
bonus group at the sole discretion of the Board, with groupings generally as
follows:
Group 8: Selected Senior Company Executives
Group 7: Senior Company Executives
Group 6: Corporate and Regional Vice Presidents
Group 5: Other Senior Management
Group 4: Plant Managers, Sales Managers
Group 3: Other Middle Management
Group 2: Plant Controllers, Senior Professionals and Supervisors
Group 1: Selected Exempt Employees
Non-exempt employees (eligible for overtime) and Sales Representatives
shall not participate in the Bonus Plan. Participation in the Plan in one year
does not establish an employment relationship for a fixed duration and does not
confer the right to continue in the employ of the Company or to participate in
the Plan or any similar plan in any subsequent year. Participants may be added
or have their bonus group changed during a fiscal year on a pro-rated basis at
the discretion of the Board.
1
<PAGE> 2
4. AMOUNT OF AWARD. Bonus awards under the Plan are based on the degree
to which the financial performance of the Company, its operating plants, regions
and selected subsidiaries meet the goals established for each fiscal year.
Individual awards under the Plan are based on the performance of the
business segment (i.e., Company, division, plant and/or region) to which such
participant is assigned. The percentage of salary used in the bonus award
calculation for each Group increases from zero to a stated maximum as
performance exceeds the minimum goal according to the following Schedule of
Bonus Awards:
<TABLE>
<CAPTION>
GROUP MINIMUM TARGET MAXIMUM
----- ------- ------ -------
<S> <C> <C> <C>
8 (As determined by the Board for each participant)
7 0% 35% 70%
6 0% 30% 60%
5 0% 25% 50%
4 0% 20% 40%
3 0% 15% 30%
2 0% 10% 20%
1 0% 5% 10%
</TABLE>
Subject to section 5 below, bonus awards will be calculated as a
percentage of a participant's weighted average annual rate of base salary in
effect for the fiscal year for which a bonus is payable.
5. SPECIAL CIRCUMSTANCES. A participant's bonus award will be prorated
based upon the number of days of active employment during the fiscal year under
any of the following circumstances
occurring during the fiscal year:
a) the participant is hired or rehired after the beginning of the
fiscal year;
b) the participant terminates employment by reason of (1) death, (2)
long term disability, or (3) retirement (after attainment of age
65 or attainment of age 62 with 10 or more years of service); or
c) the participant experiences a period of unpaid leave of absence
(whether by layoff, workers compensation leave or other leave of
absence) for a continuous period of 30 days or more.
A participant who is transferred or promoted during the fiscal year will
receive a prorated bonus based upon the number of days worked at each
location/segment and/or in each bonus classification group.
2
<PAGE> 3
6. GOALS. The goals for the participating segments will be based on
corporate cash requirements, budgets and expected results. The bonus goals are
defined as follows:
MAXIMUM is the goal assigned to each segment that provides a bonus
payout of two times the target payment.
TARGET is the goal assigned to each segment that provides a bonus
payout at target.
MINIMUM is the goal assigned to each segment that must be achieved
prior to any bonus payout.
Segments will be measured on one or more from among the following goals,
as reported for each segment per Sealy internal financial statements;
specifically, Report 60 (Income Statements) and Report 70 (Balance Sheets)
issued monthly:
a) CORPORATE OPERATING CASH FLOW (COCF), defined as:
Income from Operations
Plus Depreciation
Minus Corporate General and Administrative Expenses
Plus or minus Other Income and Expenses
b) CORPORATE RETURN ON INVESTMENT (CROI) defined as:
Net Income before Extraordinary Items
Divided by Average Net Tangible Assets
Net Tangible Assets is defined as:
Current Assets
plus Property, Plant, & Equipment
minus Current Liabilities (excluding current portion of debt)
Average Net Tangible Assets is further defined as: (Net Tangible
Assets at the close of the prior fiscal year plus Net Tangible
Assets at the close of the current fiscal year) divided by two
c) SEGMENT OPERATING CASH FLOW/CAPITAL CHARGE (SOCF) defined as:
Income from Operations
Plus Depreciation
Minus Business Unit General and Administrative Expenses (where
applicable)
Minus Capital Charge
plus or minus Other Income or Expenses
Capital Charge is further defined as a fixed percentage of:
(Accounts Receivable plus Inventory minus Accounts Payable)
3
<PAGE> 4
d) SEGMENT RETURN ON INVESTMENT (SROI) defined as:
Segment Operating Cash Flow/Capital Charge (SOCF)
Divided by Average Net Tangible Assets for the Business Unit
calulated as in (c) and (b) above, respectively
e) AGGREGATE INCOME FROM PLANT OPERATIONS (IPO/A) which is defined
as aggregate income from plant operations attributed to certain
customers. The Aggregate IPO for any customer is based on the
products sold to those accounts, the gross profit margin of the
products sold from the plants where they were produced and the
fully apportioned selling, administrative and overhead expenses
associated with the accounts.
f) Other Targets approved by the Board
Adjustments will be provided for: i) Extraordinary Items as defined by APB 30,
e.g. "unusual in nature and infrequent in occurrence"; ii) any financial impact
of new accounting pronouncements; and iii) any other items approved by the Board
or the HR Committee.
The following table describes the segment percentage and measurement
before taking into account the application of any other targets described in (f)
above:
<TABLE>
<CAPTION>
Goal as Percent of Overall Target Bonus*
Segment COCF CROI SOCF SROI IPO/A Other
- -------------- ---- ---- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Sealy, Inc. 50% 50%
USA Bedding 25% 25% 25% 25%
US Sales Districts 25% 25% 50%
US Sales Regions 25% 25% 50%
National Accounts 25% 25% 50%
Contract Sales 25% 25% 50%
Sealy/S&F Plants 25% 25% 25% 25%
US Operations Regions 25% 25% 25% 25%
Components-Spring 25% 25% 25% 25%
Components-Pad 25% 25% 25% 25%
Components-Total 25% 25% 25% 25%
Sealy Canada 25% 25% 25% 25%
Sealy Mexico 25% 25% 25% 25%
Sealy Intnatl-Devel 25% 25% 25% 25%
Sealy Intnatl-Total 25% 25% 25% 25%
Samuel Lawrence Furn 25% 25% 25% 25%
Other (As determined by the Board)
<FN>
* The percentage allocation of goals may be modified where necessary to
provide for the most appropriate reflection of the organizational
structure and goals.
</TABLE>
4
<PAGE> 5
7. ELIGIBILITY AND METHOD OF PAYMENT OF AWARD. A participant must be
employed by the Company on November 30 of the fiscal year for which a bonus is
payable, to be eligible to receive a bonus award for such fiscal year, unless
employment is terminated by reason set forth in Section 5(b). All such bonus
awards shall be paid in a single cash lump sum, less applicable withholding, on
the January 31 immediately succeeding the end of such fiscal year, or, if later,
promptly after the completion of the audit of the Company's financial
statements.
8. AMENDMENT AND TERMINATION. The Plan is effective December 1, 1996.
The Board may amend, terminate or otherwise modify the Plan at any time.
IN WITNESS HEREOF, SEALY CORPORATION, by its appropriate officers duly
authorized, has executed this instrument this 30th day of Oct., 1996.
SEALY CORPORATION
/s/ Ron L. Jones - President/C.E.O.
-----------------------------------
By Title
/s/ VP Human Resoures
------------------------------------
By Title
5
<PAGE> 1
Exhibit 10.19
AMENDMENT NO. 1 TO SEALY CORPORATION
1992 STOCK OPTION PLAN
Sealy Corporation, hereinafter called the "Company", hereby adopts an
amendment to the Company's 1992 Stock Option Plan effective May 1, 1996 which
amendment adds the following additional paragraphs to Section 3.6 of the Plan,
as heretofore in effect:
Until such time as the Common Shares (or any successor common
equity) are registered under the Securities Exchange Act of
1934, as amended, as of the record date for any special,
large and non-recurring cash dividend to be paid on the
Common Shares, the option price per share on each outstanding
option shall be reduced automatically and the number of
Common Shares relating to each outstanding option shall be
increased automatically to give effect to such special, large
and non-recurring cash dividend, to the maximum extent
allowable without the Company having to account for
additional compensation expense under then-current generally
accepted accounting principals, such that
(a) the aggregate intrinsic value (the difference
between the fair market value per share and
the exercise price) of each outstanding option
immediately after the payment of the special,
large and non-recurring cash dividend is not
greater than the intrinsic value of the option
immediately prior to such dividend; and
(b) the ratio of the exercise price per share to
the fair market value per share for such
option is not reduced.
IN WITNESS WHEREOF, SEALY CORPORATION, by its appropriate officers duly
authorized, has executed this instrument effective as of the 27 day of June,
1996.
SEALY CORPORATION
By: /s/ Ron L. Jones
---------------------------------
Its: President - CEO
---------------------------------
By: /s/
---------------------------------
Its: Vice Pressident, Human Resources
---------------------------------
<PAGE> 1
AMENDMENT NO. 1 Exhibit 10.20
TO
SEALY CORPORATION
PERFORMANCE SHARE PLAN
This Amendment No. 1 is executed as of the date set forth
below by the Human Resources Committee (the "Committee") of the Board of
Directors of Sealy Corporation, a corporation organized and existing under and
by virtue of the laws of the State of Delaware (the "Company").
WITNESSETH:
-----------
WHEREAS, the Company maintains the Sealy Corporation
Performance Share Plant (the "Plan") to provide unfunded long-term incentive
compensation for certain employees of the Company and its subsidiaries; and
WHEREAS, pursuant to Section 8.1 of the Plan, the Committee
has the right to amend the Plan, and
WHEREAS, the Committee desires to amend the Plan in order to
make certain necessary and desirable changes;
NOW, THEREFORE, pursuant to Section 8.1 of the Plan, the
Committee hereby amends the Plan, effective November 30, 1996, with respect to
all Participants under the Plan, as follows:
1. Section 2.11 of the Plan is hereby amended by the deletion
of Section 2.11 and the substitution in lieu thereof of the following:
"2.11 'Conversion Ratio' shall mean the ratio utilized to
convert Performance Share into Common Shares"
2. Section 2.23 of the Plan is hereby amended by the deletion
of Section 2.23 and the substitution in lieu thereof of the following:
"2.23 'Payment Date' shall mean the later of:
(a) a date between January 1, 1997 and February 15, 1997,
but not later than February 15, 1997; and
(b) the date determined under Section 7.2 hereof."
3. Section 2.35 of the Plan is hereby amended by the deletion
of Section 2.35 and the substitution in lieu thereof of the following:
<PAGE> 2
"2.35 'Withholding Amount' shall mean an amount sufficient to
satisfy the aggregate federal, state and local tax withholding amounts elected
by the Participant (or Beneficiary if applicable) to be paid with respect to
income realized by a Participant or Beneficiary relating to the distribution of
Common Shares, including all amounts required by law to be withheld including
taxes under the Federal Insurance Contributions Act ("FICA") and Medicare and,
with respect to Participants that are not residents of the United States,
"Withholding Amount" shall refer to similar types of taxes of an equivalent
nature. The Withholding Amount shall be no less than the amount required by law
to be withheld by the Company (or the applicable employer) and not greater than
the maximum statutory rates for all such taxes in the aggregate and is to be
determined at the election of the Participant (or Beneficiary, if applicable)
based on their estimated tax liability. If no such election is made by the
Participant (or Beneficiary, if applicable) on or before sixty (60) days after
the Payment Date, then the Withholding Amount shall mean the amount required by
the relevant taxing authorities to be withheld by the Company (or the applicable
employer) for all such taxes."
4. Section 7.1 of the Plan is hereby amended by the deletion
of said Section and the substitution in lieu thereof of the following:
"7.1 CONVERSION OF PERFORMANCE SHARES. Upon the Payment Date,
each one (1) of a Participant's Vested Performance Shares shall be
converted into three-tenths (0.3) of a Common Share."
5. Sections 7.4, 7.5 and 7.6 of the Plan are hereby amended by
the insertion of the words "Withholding Amount" in the number of places in
substitution for the following clauses to be deleted:
IN SECTION 7.4:
In the first sentence, delete: ",any Federal and state withholding taxes
applicable to the distribution of Common Shares under this Plan"
In Subparagraph (b), delete: "such amount, inclusive of the Withholding Amount,
which is necessary to pay his estimated income taxes"
In Subparagraph (c), delete: "his estimated income tax liability"
In the last sentence of the second paragraph, delete: "the withholding taxes
advanced by the Company"
In Subparagraph (i), delete: "the amount of the withholding taxes"
-2-
<PAGE> 3
In Subparagraph (ii), delete: "his estimated income tax liability"
In the last sentence of the third paragraph, delete: "the withholding taxes
advanced by the Company"
In the first sentence of the fourth paragraph, delete: "the amount of the
withholding taxes advanced by the Company"
In the last sentence of the last paragraph, delete: "the withholding taxes"
IN SECTION 7.5
In the first sentence, delete: "his estimated total income tax liability" and
"an amount as determined by the Committee, to equal the estimated total federal
and state income tax liability which the Participant will incur on the
distribution of Common Shares to the Participant (exclusive of FICA or similar
taxes even if such taxes were included in the Withholding Amount)"
IN SECTION 7.6
In the first sentence, delete: "the number of Common Shares having a value equal
to either (i) the Withholding Amount less any FICA or similar taxes included
therein or (ii) such higher amount determined by the Participant but not to
exceed the estimated total federal and state income tax liability as determined
by the Committee on the distribution of Common Shares (any such amount shall
exclude any FICA or similar taxes even if such taxes were included in the
Withholding Amount)"
In the last sentence, delete "the Withholding Amount by the Company and second
shall be paid to the appropriate taxing authorities in order to satisfy the
Participant's or Beneficiary's estimated income tax liability relating to the
distribution of Common Shares under this Plan"
6. Section 7.7 of the Plan is hereby amended by the deletion
of said Section and the substitution in lieu of the following:
"7.7 [RESERVED]."
7. Section 8.1 of the Plan is hereby amended by the deletion
of the second sentence thereof.
8. Section 8.2 of the Plan is hereby amended by the deletion
of said Section and the substitution in lie of the following:
"8.2 [RESERVED]."
-3-
<PAGE> 4
9. Article IX of the Plan is hereby amended by the addition
thereto of a new Section 9.17 to read as follows:
"9.17 APPLICABILITY OF AMENDMENT NO. 1. The provisions of
Amendment No. 1 to the Plan, effective November 30, 1996, shall apply
to all Participants under the Plan. For all Participants, their
Participation Agreements shall be construed to give full effect to this
Amendment No. 1 (and references therein to the Plan shall mean the Plan
as so amended)."
10. The Plan is hereby clarified to confirm that the primary
obligor (as the employer) is Sealy, Inc., with respect to Participants that are
United States residents, Sealy Canada, Ltd. with respect to Participants that
are Canadian residents, and Sealy Mattress Company Mexico, S. de R.L. de C.V.
with respect to Participants that are Mexican residents. The Company and its
applicable officers are hereby authorized to sell a sufficient number of Common
Shares to such obligors to allow them to fulfill their obligations to
Participants under the Plan and shall be entitled to repurchase any such Common
Shares that are not necessary for that purpose (including any that might be sold
back to such obligor in satisfaction of a loan amount or in payment of any of
the Withholding Amount) and to take all other necessary or appropriate actions
in connection therewith.
IN WITNESS WHEREOF, the Committee has executed this Amendment
No. 1 this ________ day of November, 1996.
THE HUMAN RESOURCES COMMITTEE
OF THE BOARD OF DIRECTORS
OF SEALY CORPORATION
/s/ Rolf H. Towe
-----------------------------------
Rolf H. Towe
/s/ Rod Dammeyer
-----------------------------------
Rod Dammeyer
/s/ James W. Johnston
-----------------------------------
James W. Johnston
-4-
<PAGE> 1
Exhibit 10.21
AMENDMENT NO. 1
TO
SEALY PROFIT SHARING PLAN
-------------------------
This Amendment No. 1 is executed as of the date set forth
below, by Sealy Corporation (hereinafter called the "Company");
WITNESSETH:
-----------
WHEREAS, the Company amended and restated the Sealy Profit
Sharing Plan (hereinafter called the "Plan"), effective December 1, 1989, in
order bring it into compliance with the Tax Reform Act of 1986 and regulations
issued thereunder and various other laws and regulations currently in effect for
the period on and after December 1, 1989; and
WHEREAS, the Company desires to amend the Plan in order to
conform the Plan to changes made to the Plan of an affiliate, as requested by
the Internal Revenue Service in its review of such affiliate's plan, to secure a
favorable determination letter from the Internal Revenue Service with respect to
the Plan, and to correct an inadvertent drafting error in the amendment and
restatement of the Plan; and
WHEREAS, the Company retains the right, pursuant to Section
16.1 of the Plan, to make amendments thereto;
NOW, THEREFORE, pursuant to Section 16.1 of the Plan, the
Company hereby amends the Plan, effective December 1, 1989, as follows:
1. Section 2.18 of the Plan is hereby amended by the deletion
of the parentheticals in subparagraphs (a)(ii), (iii) and (iv) regarding the
cost of living increases
<PAGE> 2
determined by the Secretary of the Treasury or his delegate and the substitution
in lieu thereof of the following parenthetical in each such subparagraph:
"(plus any adjustment of such amount pursuant to Sections 401(a)(17)
and 415(d) as shall be prescribed by the Secretary of the Treasury or
his delegate)."
2. Section 2.20 of the Plan is hereby amended by the deletion
of said Section 2.20 and the substitution in lieu thereof of the following:
"2.20 LEASED EMPLOYEE. The words `Leased Employee' shall mean
any individual (other than a common-law Employee of a Participating
Company or an Affiliate) who, pursuant to an agreement between the
Participating Company or any Affiliate and any leasing organization,
has performed services for the Participating Company, an Affiliate or
for related persons, as determined in accordance with Section 414(n)(6)
of the Code, on a substantially full-time basis for a period of at
least one (1) year; provided, however, that such services are of a type
historically performed by employees in the business field of the
Participating Company. Contributions or benefits provided on behalf of
a Leased Employee by the leasing organization which are attributable to
services performed for the Participating Company shall be treated as
provided by the Participating Company.
A Leased Employee shall not be considered an Employee of a
Participating Company or any Affiliate if:
(a) such employee is covered by a money purchase pension
plan which provides the following:
(i) a nonintegrated employer contribution
formula of at least ten percent (10%) of a
participant's Testing Compensation, as
defined in Section 2.35 hereof, together
with amounts contributed on his behalf
pursuant to a salary reduction agreement
which are excludable from the employee's
gross
2
<PAGE> 3
income pursuant to Sections 125,
402(e)(3), 402(h) or 403(b) of the Code;
(ii) immediate participation in said money
purchase pension plan; and
(iii) full and immediate vesting under said money
purchase pension plan; and
(b) Leased Employees do not constitute more than twenty
percent (20%) of the Participating Company's or
Affiliate's nonhighly compensated employees."
3. Section 2.39 of the Plan is hereby amended by the deletion
of subsection (b) and the substitution in lieu thereof of the following, revised
subsection (b):
"(b) equals his Vested Percentage multiplied by the sum
of:
(i) his Profit Sharing Account; plus
(ii) any distributions made to the Participant
from his Profit Sharing Account since his
earliest Date of Hire which has not been
followed by five (5) consecutive One (1)
Year Breaks-In-Service; and"
4. Section 2.41 of the Plan is hereby amended by the deletion
of said Section 2.41 and the substitution in lieu thereof of the following:
"2.41 VESTING SERVICE. The words `Vesting Service' shall mean
for any Employee the sum of (a) plus (b) plus (c) below, where:
(a) equals the aggregate of all his periods of Continuous
Service prior to December 1, 1988;
(b) equals one (1) year for the Plan Year commencing
immediately prior to December 1, 1988, provided that
such Employee completed at least one thousand (1,000)
Hours for a Participating Company or an Affiliate
during said Plan Year; and
(c) equals the number of Plan Years, commencing on and
after December 1, 1988, during which such Employee
completed at least
3
<PAGE> 4
one thousand (1,000) Hours for a Participating
Company or an Affiliate.
A Participant's Vesting Service shall exclude any years of Vesting
Service which a rehired Employee had prior to the date of his most
recent Termination of Employment, determined as of such date of
Termination of Employment pursuant to this Section 2.41 and this
sentence provided that such rehired Employee:
(i) did not have a Vested Interest under this
Plan on such date of Termination of
Employment;
(ii) has had either five (5) consecutive One (1)
Year Breaks-In-Service since the last day of
such Vesting Service; and
(iii) the number of years of such Vesting Service
is less than or equal to the number of
consecutive One (1) Year Breaks-In-Service
which he had after the last day of such
Vesting Service."
5. Section 4.1 of the Plan is hereby amended by the deletion
of the first word of the second sentence of said Section 4.1 and the
substitution in lieu thereof of the words "An Active" so that such second
sentence begins as follows "An Active Participant's election hereunder shall be
conditioned...."
6. Section 6.1 of the Plan is hereby amended by the addition
thereto of the following paragraph:
"For purposes of this Article 6 the rules and procedures set
forth below in this Section 6.1 shall apply:
(1) For purposes of determining a Participant's deferral
percentage pursuant to Section 6.3 hereof, all
elective contributions that are made under two (2) or
more plans that are aggregated for purposes of
Sections 401(a)(4) or 410(b) (other than Section
410(b)(2)(A)(ii)) of the Code shall be treated as
made under a single plan.
4
<PAGE> 5
(2) If two (2) or more plans are permissively aggregated
for purposes of Section 401(k) of the Code, the
aggregated plans shall also satisfy Sections
401(a)(4) and 410(b) of the Code as though they were
a single plan.
(3) The deferral percentage of any Highly Compensated
Employee shall be determined by treating all plans
maintained by the Participating Companies and any
Affiliates that are subject to Section 401(k) of the
Code (other than those that may not be permissively
aggregated) as a single plan."
7. Section 6.3 of the Plan is hereby amended by the deletion
of said Section 6.3 and the substitution in lieu thereof of the following:
"6.3 DEFERRAL PERCENTAGE LIMIT. The contributions made for a
Plan Year pursuant to a Participant's deferral election under Section
4.1 hereof shall be limited so that the average deferral percentage for
the Participants who are Highly Compensated Employees shall not exceed
an amount determined based upon the average deferral percentage for the
Participants who are not Highly Compensated Employees, as follows:
(A) (B)
Average Deferral Limit on Average
Percentage for Deferral Percentage for
Active Participants Highly Compensated
who are not Active Participants
Highly Compensated ---------------------
------------------
Less than 2% 2 times Column (A)
2% or more but less than 8% Column (A) plus 2%
8% or more 1.25 times Column (A)
For purposes of the foregoing, the `deferral percentage' for an Active
Participant for any Plan Year shall equal a fraction, the numerator of
which shall equal the total of the employee deferred pay contributions
made on his behalf for such Plan Year
5
<PAGE> 6
pursuant to Article 4 hereof plus, the employer base contributions
(which are intended to be treated as qualified nonelective
contributions for purposes of Section 401(k) of the Code and
regulations thereunder) made on his behalf for such Plan Year pursuant
to Article 5 hereof and the denominator of which shall equal his
Testing Compensation for such Plan Year."
8. Section 6.5 of the Plan is hereby amended by the deletion
of the last sentence thereof.
9. Section 6.5 of the Plan is hereby amended by the addition
at the end thereof of the ollowing sentence:
"The amount of excess contributions to be distributed with respect to a
Highly Compensated Employee for a Plan Year, pursuant to this Section
6.5, shall be reduced by excess deferrals previously distributed for
the Highly Compensated Employee's taxable year ending with or within
such Plan Year."
10. Section 9.5 of the Plan is hereby amended by the deletion
of the word "and" at the end of paragraph (a) of said Section 9.5 and the
substitution in lieu thereof of the word "or."
11. Sections 12.1 and 12.2 of the Plan are hereby amended by
the deletion of said Sections 12.1 and 12.2 and the substitution in lieu thereof
of the following:
"12.1 DATE OF DISTRIBUTION. Distributions will normally
commence as of the dates specified in Articles 9, 10 and 11 hereof.
However, if a Participant whose Vested Interest exceeds, or at the time
of any prior distribution exceeded, Three Thousand Five Hundred Dollars
($3,500.00) retires, becomes disabled, dies or
6
<PAGE> 7
otherwise incurs a Termination of Employment, then, subject to the
distribution requirements set forth in Section 12.8 hereof:
(a) the Participant, or his Beneficiary in the event of
his death, may elect pursuant to a procedure
acceptable to the Plan Administrator, to defer any
distribution to a date which is later than the dates
specified in Articles 9, 10 or 11, whichever is
applicable; and
(b) such Vested Interest may not be distributed to the
Participant prior to his attainment of his Normal
Retirement Date without:
(i) the consent of the Participant and his
spouse if such consents are required by
Section 12.6 hereof; or
(ii) in all other cases, the consent of the
Participant.
Furthermore, if a Participant continues in the employ of a
Participating Company or an Affiliate until his attainment of age
seventy and one-half (70-1/2), distributions must commence as of the
date specified in Section 12.8 hereof even if he remains so employed at
the time of distribution.
Finally, notwithstanding the foregoing provisions of this
Section 12.1 and the contrary provisions of Articles 9, 10 and 11, the
requirement that a distribution commence within sixty (60) days after
the close of the Plan Year in which a Participant's Normal Retirement
Date occurs shall not apply if the amount of payment required to be
made on such date cannot be ascertained by such date or the Plan
Administrator is unable to locate the Participant after making
reasonable efforts to do so, provided that, within sixty (60) days
after such amount can be ascertained or the Participant is located, a
payment is made retroactive to such date. This paragraph is not
intended to permit a Participant, former Participant or Beneficiary to
elect to defer payment beyond the dates otherwise provided therefor in
this Plan.
7
<PAGE> 8
12.2 DISTRIBUTION PROCEDURES. Each Participant, former
Participant or Beneficiary who is eligible for benefits under Article
9, 10 or 11 shall apply therefor pursuant to a procedure acceptable to
the Plan Administrator. Upon finding that such Participant satisfies
the eligibility requirements for benefits under Article 9, 10 or 11,
the Plan Administrator shall promptly notify the Trustee of his
eligibility and of the method of distribution selected in accordance
with this Article 12."
12. Section 12.6 of the Plan is hereby amended by the deletion
of said Section 12.6 and the substitution in lieu thereof of the following:
"12.6 ELECTION PROCEDURES FOR OPTIONAL PAYMENTS UNDER SECTION
12.4 HEREOF; SPOUSAL CONSENT. To elect one or a combination of the
optional methods of distribution set forth in Section 12.4 above with
respect to amounts credited to his Rollover Account pursuant to Article
18 hereof and which are subject to the joint and survivor annuity
requirements under Section 401(a)(11) of the Code, a Participant,
former Participant or Beneficiary shall notify the Plan Administrator
of such election with respect to such amounts in a manner acceptable to
the Plan Administrator prior to the date his retirement benefits become
distributable pursuant to Article 9, 10 or 11 and Section 12.1 hereof.
The Plan Administrator shall, no less than thirty (30) days and no more
than ninety (90) days prior to such Participant's Annuity Starting
Date, provide such Participant with a written explanation of:
(a) the terms and conditions of the normal form set forth
in Section 12.3 hereof, with respect to retirement
benefits subject thereto;
(b) his right to make, and the effect of, (i) an election
under this Section 12.6 not to receive his retirement
benefits pursuant to the normal form set forth in
Section 12.3, and (ii) an election under Section
12.4;
8
<PAGE> 9
(c) the rights of his spouse in regard to such election,
with respect to retirement benefits subject to
Sections 12.3 and 12.4;
(d) his right to make, and the effect of, a revocation of
any such elections; and
(e) the relative values of the forms of retirement
benefits described in Section 12.4 hereof.
Any election of another form of retirement benefits shall be
made by a Participant during the ninety (90) day period ending on his
Annuity Starting Date determined under Section 12.1 hereof; provided,
that a Participant's Annuity Starting Date shall be delayed, if
necessary, to insure that a Participant shall have received the
foregoing written explanation at least thirty (30) days prior to his
Annuity Starting Date. Any such election may be revoked and made again
any number of times as long as such ninety (90) day period has not
expired. For purposes of this Section 12.6, a Participant's "Annuity
Starting Date" is the first day of the first period for which an amount
is payable as an annuity under the terms of this Plan or in the case of
a benefit which is not payable in the form of an annuity, the first day
on which all events have occurred which shall entitle a Participant to
such benefit.
If a married Participant or former Participant receives
retirement benefits subject to Sections 12.3 and 12.4 hereof and elects
to receive such retirement benefits under a form other than the joint
and survivor annuity form, described in Section 12.3(a) hereof, such
election shall not be of any effect and the Participant or former
Participant shall be treated the same as though his election had not
been made unless the Participant's spouse consents in writing to such
election in
9
<PAGE> 10
accordance with Section 22.6 hereof. Any such election by a
married Participant shall designate a specific optional method of
distribution which shall not be changed without his spouse's consent,
unless the spouse's original consent expressly permits further changes
by the Participant."
13. Section 13.6 of the Plan is hereby amended by the addition
thereto of a new paragraph (d) to read as follows:
"(d) SPOUSAL CONSENT TO LOANS FROM ROLLOVER ACCOUNT. In
the event that a loan is to be made from a borrower's
Rollover Account that is subject to the provisions of
Section 12.3 hereof, the borrower's spouse, if any,
consents to the loan in accordance with Section 22.6
hereof within the ninety (90) day period ending on
the date the loan is made."
14. Section 17.2 of the Plan is hereby amended by the deletion
of paragraph (b) of said Section 17.2 and the substitution in lieu thereof of
the following:
"(b) `key employee' shall mean a `key employee' as
described in Section 416(i) of the Code which is
hereby incorporated by reference and which is
described for informational purposes herein as any
Employee or former Employee of a Participating
Company or an Affiliate who at any time during the
Plan Year, or the four (4) preceding Plan Years is:
(i) an officer of a Participating Company or an
Affiliate having Gross Remuneration from the
Participating Company and all Affiliates for
the Plan Year of determination greater than
Forty-Five Thousand Dollars ($45,000) or, if
greater, fifty percent (50%) of the amount
specified in Section 415(b)(1)(A) of the
Code (plus any increase for cost-of-living
as determined from time to time pursuant to
regulations issued by the Secretary of the
Treasury or his delegate pursuant to Section
415(d) of the Code);
(ii) a one-half of one percent (.5%) actual or
constructive owner of a Participating
Company or an Affiliate who owns one of the
ten (10) largest interests in a
Participating Company or an Affiliate and
who is an Employee of a Participating
Company or an Affiliate having Gross
Remuneration from a
10
<PAGE> 11
Participating Company and all Affiliates for
the Plan Year of determination greater than
Thirty Thousand Dollars ($30,000) or, if
greater, the amount specified in Section
415(c)(1)(A) of the Code (plus any increase
for cost-of-living as determined from time to
time pursuant to regulations issued by the
Secretary of the Treasury or his delegate
pursuant to Section 415(d) of the Code);
(iii) a five percent (5%) actual or constructive
owner of a Participating Company or an
Affiliate; or
(iv) a one percent (1%) actual or constructive
owner of a Participating Company or an
Affiliate having Gross Remuneration from a
Participating Company and all Affiliates for
the Plan Year of determination greater than
One Hundred Fifty Thousand Dollars
($150,000.00);
provided that any such Employee also performed
service for a Participating Company or an Affiliate
during the five (5) Plan Year period ending on the
Determination Date; and provided that an amount held
for the Beneficiary of a key employee who is deceased
shall be deemed to be an amount held for a key
employee."
15. Section 17.2 of the Plan is hereby further amended by the
addition thereto of the following paragraphs (h) and (i):
"(h) 'Gross Remuneration' shall mean, for any Participant,
his Testing Compensation, as defined in Section 2.35
hereof, but excluding Total Remuneration from a
Related Employer which is neither a Participating
Company nor an Affiliate, adjusted to include amounts
contributed by a Participating Company to the Trustee
pursuant to a Participant's elective contributions to
a qualified retirement plan pursuant to Section
401(k) of the Code and a Participant's elective
contributions to a cafeteria plan pursuant to Section
125 of the Code; and
(i) `Capped Section 415 Compensation' shall mean, for any
Participant, his Gross Remuneration, as defined in
(h) above, not to exceed Two Hundred Thousand Dollars
($200,000.00) on or after January 1, 1989 and prior
to January 1, 1994 or One Hundred Fifty Thousand
Dollars ($150,000.00) on or after January 1, 1994,
both subject to adjustments from increases in the
cost of living as shall be prescribed by the
Secretary of the Treasury pursuant to Section
401(a)(17) and 415(d) of the Code."
11
<PAGE> 12
16. Section 17.3 of the Plan is hereby amended by the
deletion of said Section 17.3 and the substitution in lieu thereof of the
following:
"17.3 TOP-HEAVY MINIMUM CONTRIBUTIONS. During any Plan Year
that this Plan is top-heavy, a Participating Company shall make a
contribution on behalf of each non-key employee employed by such
Participating Company who is a Participant on the Allocation Date
coinciding with the last day of such year, or was a Participant whose
employment terminated on or as of said Allocation Date which is at
least equal to the greater of (a) or (b) below where:
(a) equals the lesser of (i) or (ii) below where:
(i) equals three percent (3%) of the non-key
employee's Capped Section 415 Compensation
from the Participating Company and all
Affiliates during the Plan Year; and
(ii) equals the largest percentage of Capped
Section 415 Compensation from the
Participating Company and all Affiliates
provided to any key employee by the
contributions of the Participating Company;
and
(b) equals such other percent of the non-key employee's
Capped Section 415 Compensation from the
Participating Company and all Affiliates as may be
necessary to satisfy the requirements of Section 401
and 416 of the Code as prescribed by the Secretary of
the Treasury in lawful regulations.
For purposes of determining the percentage set forth in subparagraph
(a)(ii) above, a Participating Company's contribution made pursuant to
Section 401(k) of the Code with respect to a key employee shall be
taken into account, but a Participating Company's contribution made
pursuant to Section 401(k) of the Code with respect to a non-key
employee shall not be taken into account in determining compliance with
this Section.
12
<PAGE> 13
If this Plan is top-heavy for a Plan Year and if a Participant
who is a non-key employee is also a participant in any other defined
contribution plan maintained by a Participating Company, the minimum
provided hereunder shall be provided before any minimum under such
other plan and shall reduce the amount of the top-heavy minimum, if
any, required thereunder. Furthermore, if this Plan is top-heavy for a
Plan Year and if a Participant who is a non-key employee is also a
participant in any defined benefit plan maintained by a Participating
Company, the minimum provided under such defined benefit plan shall be
provided before any minimum under this Plan and the benefit provided
under such defined benefit plan shall be offset by the actuarial
equivalent of the amounts, if any, in the Participant's Accounts under
this Plan and any other defined contribution plan maintained by a
Participating Company."
17. Section 17.5 of the Plan is hereby amended by the deletion
of the first sentence of said Section 17.5 and the substitution in lieu thereof
of the following:
"17.5 LIMITATIONS ON ANNUAL ADDITIONS UNDER TOP-HEAVY PLAN.
During any Plan Year that this Plan is top-heavy or super top-heavy,
the limitations on Annual Additions and annual benefits under Section
415 of the Code as described in Article 21 hereof shall be modified by
the substitution of the phrase "one hundred percent (100%)" for the
phrase one hundred twenty-five percent (125%)" wherever the latter
phrase appears in said Section 415 and by the substitution of the
amount "Forty-One Thousand Five Hundred Dollars ($41,500.00)" for the
amount "Fifty-One Thousand Eight Hundred Seventy-Five Dollars
($51,875.00)" wherever the latter amount appears in Section 415 of the
Code."
13
<PAGE> 14
18. Sections 21.1 and 21.2 of the Plan are hereby amended by
the deletion of said Sections 21.1 and 21.2 and the substitution in lieu thereof
of the following:
"21.1 MAXIMUM ANNUAL ADDITIONS. Notwithstanding anything
contained in this Plan to the contrary, in no event shall a
Participant's Annual Additions and annual amount of retirement benefits
be greater than the maximum allowable amounts determined in accordance
with Section 415 of the Code (including without limitation subsection
(e) of said Section 415) and regulations thereunder, taking into
account Section 1106 of the Tax Reform Act of 1986, Section 235(g) of
the Tax Equity and Fiscal Responsibility Act of 1982 and Section
2004(d) of ERISA which, respectively, are incorporated herein by
reference.
21.2 REDUCTION OF EXCESS BENEFITS. In the event that a
Participant, who would otherwise be credited with excess Annual
Additions, benefits or projected benefits, is also a participant under
any other defined contribution plan of a Participating Company or any
Related Employer and/or any defined benefit pension plan of a
Participating Company or any Related Employer, adjustment under Section
415 of the Code shall be made in the following order:
(a) first, the excess of the Participant's projected
employer funded annual benefit under any defined
benefit pension plan of a Participating Company or a
Related Employer over the Participant's accrued
employer funded annual benefit under such plan shall
be reduced;
(b) second, employee deferred pay contributions made
pursuant to a Participant's election under Section
4.1 hereof shall be reduced;
(c) third, employer base contributions made pursuant to
Section 5.1 hereof shall be reduced;
14
<PAGE> 15
(d) fourth, profit sharing contributions made pursuant to
Section 5.1 hereof shall be reduced;
(e) fifth, annual additions under any other defined
contribution plan of a Participating Company or a
Related Employer, other than contributions, if any,
made by the Participating Company or Related Employer
at the election of the Participant, in lieu of cash
compensation pursuant to Section 401(k) of the Code,
shall be reduced;
(f) sixth, the accrued employer benefit of such
Participant under any defined benefit plan of a
Participating Company or a Related Employer shall be
reduced; and
(g) seventh, contributions, if any, made under any other
defined contribution plan of a Participating Company
or a Related Employer by the Participating Company or
Related Employer at the election of the Participant
in lieu of cash compensation pursuant to Section
401(k) of the Code, shall be reduced.
In lieu of the foregoing, the Administrator and the Participant may
agree to an alternative order for reduction of the Participant's annual
benefits and Annual Additions.
Notwithstanding the foregoing, in the event a Participant's
excess annual benefits or projected benefits would only result in a
violation under Section 415(b) of the Code, his benefits under a
defined benefit pension plan of a Participating Company or a Related
Employer shall be reduced in the order set forth in subparagraphs (a)
and (f) above. Furthermore, in the event a Participant's excess Annual
Additions would only result in a violation under Section 415(c) of the
Code, his Annual Additions shall be reduced under the Company's defined
contribution plans, including the Plan, and any defined benefit pension
plan of a Participating Company or a Related Employer in the order set
forth in subparagraphs (b), (c), (d), (e) and (g) above."
15
<PAGE> 16
IN WITNESS WHEREOF, Sealy Corporation, by its appropriate
officer, duly authorized, has caused this Amendment No. 1 to be executed as of
the _____ day of ______________, 1996.
SEALY CORPORATION
("Company")
By /s/ Sealy Corporation
-----------------------------
STATE OF OHIO )
) SS:
COUNTY OF CUYAHOGA )
Before me, a Notary Public in and for said County and State,
personally appeared the above-named Sealy Corporation by
_______________________, its _____________________ who acknowledged that he did
sign the foregoing instrument.
IN TESTIMONY WHEREOF, I have hereunto set my hand and official
seal at Cleveland, Ohio, this ___ day of ________, 1996.
---------------------------------
Notary Public
16
<PAGE> 1
Exhibit 10.22
AMENDMENT NO. 2
TO
SEALY PROFIT SHARING PLAN
-------------------------
This Amendment No. 2 is executed as of the date set forth
below, by Sealy Corporation (hereinafter called the "Company");
WITNESSETH:
-----------
WHEREAS, the Company amended and restated the Sealy Profit
Sharing Plan (hereinafter called the "Plan"), effective December 1, 1989, in
order to bring it into compliance with the Tax Reform Act of 1986 and
regulations issued thereunder and various other laws and regulations currently
in effect for the period on and after December 1, 1989; and
WHEREAS, the Company desires to amend the Plan in order to
provide for payments with respect to minors and those under an incapacity; and
WHEREAS, the Company retains the right, pursuant to Section
16.1 of the Plan, to make amendments thereto;
NOW, THEREFORE, pursuant to Section 16.1 of the Plan, the
Company hereby amends the Plan, effective December 1, 1989, as follows:
Article 12 of the Plan is hereby amended by the addition at
the end thereof of a new Section 12.15 to read as follows:
"12.15 MINORITY AND INCAPACITY. During the minority or
incapacity of any person entitled to benefits under the Plan, the
Trustee shall make payment to such minor or incapacitated person or to
an appropriate member, as determined by the
<PAGE> 2
Plan Administrator, of such person's family for the care, maintenance
and support of such person in such amounts and at such times as the
Plan Administrator may determine. The receipt of such minor or
incapacitated person or members of such minor's or incapacitated
person's family to whom payment has been made shall be a full discharge
and acquittance to the Trustee for the amount so paid."
IN WITNESS WHEREOF, Sealy Corporation, by its appropriate
officer, duly authorized, has caused this Amendment No. 2 to be executed as of
the _____ day of ______________, 1996.
SEALY CORPORATION
("Company")
By /s/ Sealy Corporation
---------------------------------
STATE OF OHIO )
) SS:
COUNTY OF CUYAHOGA )
Before me, a Notary Public in and for said County and State,
personally appeared the above-named Sealy Corporation by
_______________________, its _____________________, who acknowledged that he did
sign the foregoing instrument.
IN TESTIMONY WHEREOF, I have hereunto set my hand and official
seal at Cleveland, Ohio, this ___ day of ________, 1996.
---------------------------------
Notary Public
<PAGE> 1
Exhibit 10.23
SEALY CORPORATION
1996 TRANSITIONAL RESTRICTED STOCK PLAN
---------------------------------------
Sealy Corporation (the "Company") hereby adopts the 1996
Transitional Restricted Stock Plan (the "Plan") for the benefit of certain
persons and subject to the terms and provisions set forth below.
ARTICLE I
---------
GENERAL
-------
1.1 PURPOSE OF THE PLAN. The purpose of this Plan is to
provide certain persons with (i) an incentive to join and remain in the service
of the Company and its Subsidiaries, (ii) an incentive to maintain and enhance
the long-term performance and profitability of the Company and its Subsidiaries,
and (iii) an opportunity to acquire a proprietary interest in the success of the
Company.
1.2 DEFINITIONS. Unless the context otherwise indicates, the
following words shall have the following meanings whenever used in this
instrument,
(a) "Average Borrowing Rate" shall mean the
Company's net weighted average borrowing
cost. The net weighted average borrowing
cost is calculated by dividing average
monthly interest expense by average monthly
debt outstanding. The average interest
expense is calculated by dividing the annual
interest expense, on an accrual basis, by
twelve. The average debt outstanding is
calculated by summing the month-end debt
balances for each month in the fiscal year
and dividing the sum by twelve. Month-end
debt balance consists of any debt instrument
outstanding such as but not limited to term
loan facilities, revolving credit
facilities, IRB's and capital leases. The
annual interest expense consists of interest
charges as well as certain fees associated
with the debt instruments which are
amortized to interest expense over the term
of the related debt. The Company has
traditionally disclosed the net weighted
average borrowing cost in the Form 10-K
filing under Item 7 Management's
<PAGE> 2
Discussion and Analysis of Financial
Condition and Results of Operations
(Liquidity and Capital Resources section).
(b) "Board" shall mean the Board of Directors of
the Company as constituted from time to
time.
(c) "Breach of the Noncompetition Requirement"
shall mean "Breach of the Noncompetition
Requirement" as defined in the Sealy
Executive Severance Plan, or comparable
provision of any successor to such Plan.
(d) "Cause" shall mean "Cause" as defined in the
Sealy Executive Severance Plan, or
comparable provision of any successor to
such Plan.
(e) "Code" shall mean the United States Internal
Revenue Code (Title 26 of the United States
Code).
(f) "Committee" shall mean the Human Resources
Committee of the Board as constituted from
time to time. Notwithstanding the above, in
accordance with the provisions of Section
1.3(e) hereof, the term "Committee" may be
deemed to mean the Board as may be
appropriate from time to time.
(g) "Common Shares" shall mean shares of Class A
common stock of the Company, par value $.01
per share, and any other shares into which
such Common Shares shall thereafter be
changed by reason of recapitalization,
merger, consolidation, split-up,
combination, exchange of shares or the like.
(h) "Company" shall mean Sealy Corporation, a
Delaware corporation, or any corporation or
other entity which assumes the obligations
of Sealy Corporation by operation of law or
otherwise under the Plan.
(i) "Continuous Employment" shall mean
employment for any uninterrupted period
during which a Grantee is an employee of the
Company and/or any Subsidiary and shall
include any authorized leaves of absence.
(j) "Non-Employee Director" shall mean a
Non-Employee Director within the meaning of
Rule 16b-3.
(k) "Eligible Personnel" shall mean officers and
executive, managerial, or professional
employees of the Company or any Subsidiary
and consultants to the Company or a
Subsidiary.
2
<PAGE> 3
(l) "Fair Market Value" shall mean, as of any
date and in respect of Common Shares, the
fair market value of one Common Share on
such date, as determined hereunder:
(I) in the event the Common Shares are
Publicly Traded on such date, Fair
Market Value shall equal the average
for the ten trading days preceding
such date of (A) the closing price
of a Common Share on such national
securities exchange or the NASDAQ
Stock Market, as may be designated
by the Committee, or, (B) in the
event that the Common Shares are not
listed for trading on a national
securities exchange or trading on
the NASDAQ Stock Market, but are
quoted on an automated quotation
system, the closing bid price per
share of Common Shares on such
automated quotation system; or
(II) in the event the Common Shares are
not Publicly Traded on such date,
Fair Market Value shall be the
appraised value of a Common Share as
of the last day of the fiscal year
preceding such date, determined by a
nationally recognized independent
financial appraiser engaged at the
expense of the Company taking into
account, INTER ALIA, the inherent
value of the Company's assets
(including brand names and trade
names), the value of the Company's
income, cash flow, the fair market
value of the Company's equity in the
marketplace, and any other relevant
factors.
(m) "Grant" as used herein means a grant of
Common Shares subject to the terms and
conditions contained herein.
(n) "Grantee" shall mean a person to whom a
Grant pursuant to the Plan has been awarded.
(o) "Nonvested Common Shares" shall mean any
Common Shares which have not become vested
in accordance with this Plan.
(p) "Plan" shall mean this document as
originally executed and as it may be later
amended.
(q) "Publicly Traded" shall mean listed on a
national securities exchange registered
under Section 6 of the Securities Exchange
Act of 1934 or quoted on a system sponsored
by a national securities association
registered under section 15A(b) of the
Securities Exchange Act of 1934.
3
<PAGE> 4
(r) "Restricted Stock" shall mean Common Shares
which have been awarded to a Grantee in
accordance with this Plan.
(s) "Restricted Stock Agreement" shall mean a
written agreement executed by the Committee
and a Grantee in accordance with the
provisions of this Plan.
(t) "Rule 16b-3" shall mean Rule 16b-3
promulgated under the Securities Exchange
Act of 1934 or any amendment of or successor
to such rule as may be in effect from time
to time.
(u) "Subsidiary" shall mean any entity in which
the Company owns, directly or indirectly,
stock possessing at least eighty percent
(80%) or more of the total combined voting
power of all classes of stock entitled to
vote or at least eighty percent (80%) of the
total value of shares of all classes of
stock of such corporation as determined
pursuant to Section 1563(a)(1) of the Code,
but only during the period any such
corporation would be so defined.
(v) "Tax Date" shall mean the date as of which
tax withholding shall be required with
respect to any Restricted Stock.
(w) "Termination of Employment" shall mean the
severance of an individual's employment
relationship with the Company and all
Subsidiaries for any reason, including the
sale or transfer of the stock or assets of
the business unit by which the individual is
employed to a person or entity other than
the Company or a Subsidiary or to a joint
venture which is not a Subsidiary even
though the Company or a Subsidiary is one of
the joint venture partners.
(x) "Vested Common Shares" shall mean any Common
Shares which have become vested in
accordance with this Plan.
1.3 ADMINISTRATION.
---------------
(a) Except as otherwise provided in Section 1.3(e) hereof, the
Plan shall be administered by the Committee, which shall consist of not less
than two directors, a majority of which shall not be employees of the Company or
a Subsidiary, and which shall have the power of the Board to authorize the
issuance of Common Shares pursuant to the Grants. The members of the Committee
shall be appointed by, and may be changed from time to time in the discretion
of, the
4
<PAGE> 5
Board. To the extent required for the Plan to qualify for the exemptions
available under Rule 16b-3, the members of the Committee shall be Non-Employee
Directors.
(b) The Committee shall have the authority (i) to exercise all
of the powers granted to it under the Plan, (ii) to construe, interpret and
implement the Plan and any Restricted Stock Agreements executed pursuant to
Article IV, (iii) to prescribe, amend and rescind rules and regulations relating
to the Plan, (iv) to make all determinations necessary or advisable in
administering the Plan, and (v) to correct any defect, supply any omission and
reconcile any inconsistency in the Plan, and (vi) delegate to employees of the
Company any of its nondiscretionary ministerial duties under the Plan as it
shall determine appropriate.
(c) The determination of the Committee on all matters relating
to the Plan or any Restricted Stock Agreement shall be conclusive.
(d) No member of the Committee shall be liable for any action
or determination made in good faith with respect to the Plan or any award
thereunder.
(e) Notwithstanding anything to the contrary contained herein,
the Board may, in its sole discretion, at any time and from time to time, by an
action of the Board, resolve to administer the Plan effective as of a date
specified in such action.
(f) All actions of the Committee shall require the affirmative
vote of a majority of the members thereof.
1.4 PERSONS ELIGIBLE FOR AWARDS. Awards under the Plan may be
made to Eligible Personnel as the Committee shall in its sole discretion select.
1.5 SHARES AVAILABLE FOR AWARDS.
(a) Subject to the provisions of Section 4.5 hereof, the total
number of Common Shares with respect to which Grants may be made shall be equal
to 600,000 Common Shares. In
5
<PAGE> 6
accordance with (and without limitation upon) the preceding sentence, Common
Shares available under this Plan and covered by Grants which expire, terminate
or are cancelled for any reason whatsoever shall not again become available for
awards under the Plan.
(b) Common Shares that shall be issuable pursuant to Grants
shall be authorized and unissued or treasury Common Shares.
ARTICLE II
----------
STOCK GRANTS
------------
2.1 AWARD OF STOCK GRANTS. The Committee may award Grants to
such Eligible Personnel, and in such amounts and subject to such terms and
conditions, as the Committee shall from time to time determine in its sole
discretion, subject to the terms and provisions of this Plan. The Committee
shall have the sole and exclusive right to determine those Eligible Personnel
who will be awarded Grants hereunder and the terms and conditions under which
such Grants will be awarded.
2.2 GRANTEES. An employee shall become a Grantee as of such
date as of which the Committee first awards Restricted Stock to such employee.
Such an employee shall remain a Grantee until such time as he no longer has any
Restricted Stock under this Plan.
2.3 RESTRICTED STOCK AGREEMENTS. The granting of any
Restricted Stock to an employee under this Plan shall be contingent on such
employee executing a Restricted Stock Agreement in the form prescribed by the
Committee. Each such Restricted Stock Agreement shall indicate the number of
shares of Restricted Stock which will be awarded to him and any modification of
the Plan's vesting provisions, and any other terms and conditions, as the
Committee shall deem necessary or desirable.
6
<PAGE> 7
ARTICLE III
-----------
VESTING OF RESTRICTED STOCK
---------------------------
3.1 FULL VESTING. If a Grantee remains in Continuous
Employment until January 3, 2000, subject to all of the other provisions of this
Plan, all Restricted Stock awarded to him pursuant to this Plan shall become
Vested Restricted Stock.
3.2 VESTING IN RESTRICTED STOCK. If a Grantee incurs a
Termination of Employment prior to January 3, 2000, subject to all of the other
provisions of this Plan, a percentage of the Grantee's Restricted Stock shall
become Vested Restricted Stock in accordance with the following table:
<TABLE>
<CAPTION>
Date of Vested Percentage
Termination of Employment of Restricted Stock
------------------------- -------------------
<S> <C>
On or before January 2, 1999 0%
From January 3, 1999 to January 2, 2000 50%
On or after January 3, 2000 100%
</TABLE>
3.3 FORFEITURE OF ALL RESTRICTED STOCK. In the event a
Grantee, prior to January 3, 2000, incurs a Termination of Employment for Cause
or, in connection with a Voluntary Termination, engages in a Breach of the
Noncompetition Requirement, the Grantee shall forfeit all Restricted Stock
(whether Vested Restricted Stock or Nonvested Restricted Stock) awarded him
pursuant to this Plan.
3.4 FORFEITURE OF NONVESTED RESTRICTED STOCK. A Grantee shall
forfeit his Nonvested Restricted Stock upon his Termination of Employment.
Subject to restrictions under Rule 16b-3, Restricted Stock forfeited under this
Article III may be regranted to other employees of the Company or a Subsidiary
by the Committee in accordance with this Plan following such
7
<PAGE> 8
forfeiture. The Committee may in its discretion determine (i) whether any leave
of absence constitutes a Termination of Employment within the meaning of the
Plan, (ii) the impact, if any, of any such leave of absence on Grants under the
Plan awarded to a Grantee who takes such leave of absence, and (iii) whether a
change in a non-employee's association with the Company constitutes a
Termination of Employment for purposes of the Plan.
ARTICLE IV
----------
DISPOSITION OF RESTRICTED STOCK
-------------------------------
4.1 RESTRICTIONS ON STOCK. Each share of Restricted Stock
shall be subject to the following restrictions:
(a) The Restricted Stock may be acquired from
the Company by a Grantee only if he
furnishes the Company with a signed
statement that he is acquiring the shares of
Restricted Stock for investment for his own
account and not with a view to distribute,
resell or otherwise transfer such shares
unless such requirement is waived by the
Company.
(b) The Restricted Stock may not be resold or
otherwise transferred by a Grantee prior to
January 3, 2000.
(c) The Restricted Stock may be resold or
otherwise transferred by a Grantee only on
or after January 3, 2000, and only if such
shares of Restricted Stock have been first
offered to the Company in accordance with
the provisions of this Article.
(d) No share of Restricted Stock may be pledged
as security or otherwise encumbered except
in connection with a loan for tax
withholding pursuant to Section 4.10 while
it is subject to repurchase by the Company
in accordance with the provisions of this
Article.
(e) A reference to all of the foregoing
restrictions shall be inscribed on all
certificates representing shares of
Restricted Stock.
(f) The Company may require that all shares of
Restricted Stock awarded pursuant to this
Plan be held in escrow.
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<PAGE> 9
4.2 COMPANY'S RIGHT OF FIRST REFUSAL. In the event that, at a
time when the Common Shares are not Publicly Traded, a Grantee wishes to sell or
otherwise transfer some or all of his Restricted Stock which has been owned for
a period of at least six (6) months, and provided that such sale or other
transfer would occur on or after January 3, 2000, the Grantee may sell or
otherwise transfer such Restricted Stock but only if the Company has failed to
exercise its right of first refusal to purchase such Restricted Stock. The
Company shall have the right, but not the obligation, to purchase the Grantee's
Restricted Stock proposed to be sold or transferred for a period of thirty (30)
days commencing with the date on which the Company receives written notice from
the Grantee stating that he wishes to sell or otherwise transfer some or all of
his Restricted Stock. Such exercise shall be made in accordance with Section 4.5
hereof. If the Company shall not exercise its right of first refusal during such
thirty (30) day period, such right shall permanently lapse with respect to the
Restricted Stock offered by the Grantee.
The purchase price payable by the Company if it exercises its
right under this Section to purchase Restricted Stock from the Grantee shall be
the Fair Market Value of the Restricted Stock being acquired during the thirty
(30) day exercise period. If such Fair Market Value changes during the thirty
(30) day period, the greater Fair Market Value shall be used.
In addition to any other legal restrictions applicable to the
Restricted Stock acquired under this Plan, such Restricted Stock may not be sold
or otherwise transferred by the Grantee until it has been held for at least six
(6) months by such Grantee. In the discretion of the Committee, such six (6)
month holding period may be waived in the case of death or disability of the
Grantee.
4.3 DELIVERY OF RESTRICTED STOCK TO GRANTEE. The Company may
deliver to each Grantee stock certificates representing the number of shares of
Restricted Stock which have been
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<PAGE> 10
awarded as soon as practicable after the award date or may hold such shares in
escrow until not later than January 3, 2000.
The stock certificates representing shares of Restricted Stock
shall be registered in the name of Grantee who has been awarded the Restricted
Stock and shall bear an inscription, in addition to such other legends as the
counsel to the Company may deem appropriate, as set forth in this Article.
4.4 RIGHTS OF GRANTEES AS STOCKHOLDERS. Except as otherwise
provided in this Plan and the Restricted Stock Agreement, each Grantee shall
have all of the rights of a stockholder of the Company with respect to the
shares represented by stock certificates registered in his name, including the
right to vote such share, and receive the dividends and other distributions paid
or made with respect to such shares.
4.5 COMPANY'S EXERCISE OF RIGHT OF FIRST REFUSAL. If the
Company desires to exercise its option to repurchase Restricted Stock pursuant
to its right of first refusal in Section 4.2 hereof, the Company shall notify
the Grantee, or in case of death, his representative, in writing of its intent
to repurchase the Restricted Stock and the price at which the Restricted Stock
will be purchased. Such written notice may be mailed by the Company up to and
including the last day of the time period provided for in this Plan for exercise
of the Company's right of first refusal.
The written notice to the Grantee should also specify the
address at, and the time and date on, which payment to the Grantee of the
purchase price is to be made. The date specified shall not be less than ten (10)
days nor more than sixty (60) days from the date of the mailing of the notice,
and the Grantee or his successor in interest with respect to the Restricted
Stock shall have no further rights as the owner thereof from and after the date
specified in the notice. On that date, the purchase price shall be delivered to
the Grantee with the Company deducting from the purchase
10
<PAGE> 11
price the amount, if any, due to it under any Promissory Note issued under this
Article with respect to tax liability, including, but not limited to, accrued
but unpaid interest to such date. The Restricted Stock, together with any stock
powers, shall, to the extent that they are not then in the possession of the
Company, be delivered to the Company by the Grantee or his successor in
interest. In the event payment of the purchase price cannot be made to Grantee
or his successor in interest on the date specified, the Company shall deposit
the amount of the purchase price with a bank which shall be designated by the
Committee as agent for the Grantee or for his successor in interest. Payment of
any and all applicable stock transfer taxes shall be made by the Company.
4.6 COSTS AND EXPENSES. All costs and expenses incurred in
connection with the administration of the Plan shall be borne by the Company.
4.7 LIABILITY OF COMPANY. The liability of the Company under
this Plan and in a transaction in Restricted Stock made pursuant to this Plan is
limited to the obligations set forth with respect to such transaction and
nothing herein contained shall be interpreted as imposing any liability on the
Company in favor of a purchaser of Restricted Stock with respect to any loss,
cost or expense which such purchaser may incur in connection with, or arising
out of, any transaction involving the Restricted Stock that is subject to the
provisions of this Plan.
4.8 NOTICES. Any notices provided for under this Plan shall be
in writing and sent by certified mail. Notices to the Company shall be addressed
to the address of the Company's principal office; Attention: Human Resources
Committee. Notices sent to Grantees and other holders of Restricted Stock shall
be sufficiently made if sent by certified mail addressed to such person at his
address as it appears in the regular records of the Company.
4.9 PAYMENT OF WITHHOLDING TAXES. As of the Tax Date, the
Company shall pay, on behalf of each Grantee and Beneficiary, any Federal and
state withholding taxes applicable
11
<PAGE> 12
to the taxation of Restricted Stock under this Plan. Such payment shall be in
the nature of a loan and all Restricted Stock distributable to the Grantee shall
be held by the Company as security for the repayment of such loan.
If the Grantee is still an employee of the Company on the Tax
Date and either the Restricted Stock is not Publicly Traded or the Restricted
Stock of the Grantee is not, in the opinion of the Company's counsel, freely
transferable without the filing of a registration statement under the Securities
Act of 1933, the Grantee shall have the following options:
(a) the Grantee can pay to the Company the
Withholding Amount, in cash, within sixty
(60) days of the Tax Date and, upon receipt
thereof, the Company shall release the
Restricted Stock to the Grantee;
(b) the Grantee can borrow from the Company such
amount, inclusive of the Withholding Amount,
which is necessary to pay his estimated
income taxes pursuant to Section 4.10
hereof; or
(c) the Grantee can sell to the Company
sufficient Restricted Stock to cover his
estimated income tax liability pursuant to
Section 4.11 hereof.
An election by a Grantee under this Section 4.9 can be made at any time during
the period from one (1) year prior to the Tax Date until sixty (60) days
following the Tax Date. If the Grantee fails to make an election during such
period, the Grantee shall be deemed to have elected as of the sixtieth day
following the Tax Date to sell sufficient Common Shares to the Company to repay
the withholding taxes advanced by the Company pursuant to Section 4.11, and the
Company shall distribute the balance of the Restricted Stock to the Grantee.
If the recipient of the Restricted Stock is either a Grantee
who is not still an employee of the Company on the Tax Date or a Beneficiary and
either the Common Shares are not Publicly Traded or the Restricted Stock of the
Grantee or Beneficiary are not, in the opinion of the
12
<PAGE> 13
Company's counsel, freely transferable without the filing of a registration
statement under the Securities Act of 1933, the Grantee or Beneficiary shall
have the following options:
(i) the Grantee or Beneficiary can pay to the
Company the amount of the withholding taxes
advanced by the Company within sixty (60)
days of the Tax Date and, upon receipt
thereof, the Company shall release the
Restricted Stock to the Grantee or
Beneficiary; or
(ii) the Grantee can sell to the Company
sufficient Common Shares to cover his
estimated income tax liability pursuant to
Section 4.11 hereof.
Elections by a Grantee or Beneficiary under this Section 4.9 can be made at any
time during the period from one (1) year prior to the Tax Date until sixty (60)
days following the Tax Date. If the Grantee or Beneficiary fails to make an
election during such period, the Grantee or Beneficiary shall be deemed to have
elected on the sixtieth day following the Tax Date to sell sufficient Common
Shares to the Company pursuant to Section 4.11 to repay the withholding taxes
advanced by the Company and Company shall distribute the balance of the Common
Shares to the Grantee or Beneficiary.
If, on the Tax Date, the Company is Publicly Traded and the
Common Shares of a Grantee or Beneficiary are, in the opinion of the Company's
counsel, freely transferable without the filing of a registration statement
under the Securities Act of 1933, the Grantee or Beneficiary shall pay to the
Company the amount of the withholding taxes advanced by the Company within sixty
(60) days of the Tax Date. As soon as practicable after receipt of such payment,
the Company shall deliver to the Grantee or Beneficiary a certificate or
certificates for such Common Shares; provided, however, that if the method of
payment of the withholding taxes employed by the Grantee or Beneficiary so
requires, and if applicable law permits, the Grantee or Beneficiary may direct
the Company to deliver the certificate or certificates to the Grantee's or
Beneficiary's stockbroker.
13
<PAGE> 14
4.10 LOANS TO COVER TAX LIABILITY. In the event that a Grantee
elects, pursuant to Section 4.9 hereof, to borrow his estimated total income tax
liability from the Company, the Company shall lend to such Grantee making such
an election who is an employee on the date of such election, an amount as
determined by the Committee, to equal the estimated total federal, state and
local income tax liability which the Grantee will incur on the taxation of
Restricted Stock to the Grantee (exclusive of FICA or similar taxes even if such
taxes were included in the Withholding Amount). Such loan shall be evidenced by
a loan agreement between the Company and the Grantee in such form as prescribed
by the Company executed on or before the sixtieth (60th) day following the Tax
Date. The interest on any such loan shall accrue at the Company's Average
Borrowing Rate determined and accruing as of the Tax Date and adjusted annually
thereafter on the first day of the calendar year and shall be payable on the
last day of each calendar year (or such other date as the Committee shall
determine) while the loan remains outstanding. The outstanding principal
together with all interest accrued but not paid shall be due two hundred and ten
(210) days after the Common Shares first become Publicly Traded or such other
date as shall be specified by the Company in the loan agreements. During any
period that any amount of principal or interest remains outstanding on any such
loan, all Common Shares distributable to the Grantee shall be held by the
Company as security for payment of the amount outstanding. As soon as the loan
is fully paid, the Common Shares distributable under this Plan shall be
distributed to the Grantee.
4.11 SALE OF COMMON SHARES TO THE COMPANY. In the event that a
Grantee elects pursuant to Section 4.9(c), or a Grantee or Beneficiary elects
pursuant to Section 4.9(ii) hereof, or is deemed by the passage of time to have
made such an election, to sell Common Shares to the Company, the Company shall
purchase, on such terms as the Company may reasonably require,
14
<PAGE> 15
from the Common Shares to be received by such Grantee or Beneficiary such number
of Common Shares which, when valued at their aggregate Fair Market Value on the
Tax Date, constitutes the number of Common Shares having a value equal to either
(i) the Withholding Amount less any FICA or similar taxes included therein or
(ii) such higher amount determined by the Grantee but not to exceed the
estimated total federal, state and local income tax liability as determined by
the Committee on the distribution of Common Shares (any such amount shall
exclude any FICA or similar taxes even if such taxes were included in the
Withholding Amount). Fractional Common Share amounts arising out of such
purchase shall be settled in cash. Upon completion of the purchase, a
certificate representing the balance of the Common Shares distributable to the
Grantee or Beneficiary shall be delivered to the Grantee or Beneficiary by the
Company. The proceeds of any such sale shall first be used by the Grantee or
Beneficiary to reimburse the Company for the Withholding Amount advanced by the
Company and second shall be paid to the appropriate taxing authorities in order
to satisfy the Grantee's or Beneficiary's estimated income tax liability
relating to the distribution of Common Shares under this Plan.
4.12 SALE AND REGISTRATION OF SHARES. For a period of five
years after the Restricted Stock becomes fully vested but only:
(a) while the Common Shares of a Grantee are
not, in the opinion of the Company's
counsel, freely transferable without the
filing of a registration statement under the
Securities Act of 1933 and will not be
freely transferable within the following six
(6) months; and
(b) after the Company's first underwritten
public offering of Common Shares by the
Company at least a part of which is for its
own account;
each time the Company shall determine to proceed with a proposed primary or
secondary public offer and sale (for cash or otherwise) of Common Shares by it
or by any stockholder, the Company
15
<PAGE> 16
will give thirty (30) days advance written notice of its determination to each
Grantee who has been distributed Common Shares hereunder which are not freely
transferable. Upon written request of any such Grantee given to the Company
within twenty (20) days after the mailing of the foregoing notice by the
Company, the Company will, on such terms and conditions as are customary in such
offerings, use its best efforts to cause all Common Shares which such Grantee
has requested to be included in the sale of Common Shares and, as may be
necessary, to be included at its expense in any registration statement to be
prepared and filed under the Securities Act of 1933 in connection with such
proposed offer and sale of Common Shares. Notwithstanding the foregoing, no
Grantee or Beneficiary shall have the right hereunder to participate in the
first underwritten public offering of Common Shares by the Company for its own
account, and the Company shall have no obligation to provide any Grantee or
Beneficiary with written notice thereof.
4.13 INVESTMENT INTENT. Any distribution of Common Shares
hereunder may be conditioned by the Company upon its receipt of a representation
and warranty by the Grantee that such Common Shares shall be held for investment
purposes only and not with a view to distribution or resale; provided, however,
that any such representation and warranty shall become inoperative in the event
such Common Shares shall be registered for resale by the Grantee under the
Securities Act of 1933, as amended, and any applicable state laws or in the
event there is presented to the Committee evidence satisfactory to the Committee
to the effect that the offer or sale of such Common Shares distributed hereunder
will be lawfully made without registration under the Securities Act of 1933, as
amended and any applicable state laws.
No Grantee or Beneficiary will effect a disposition of the
Common Shares until either (i) the Company has notified him that, in the opinion
of counsel for the Company, no registration of such Common Shares under the
Securities Act of 1933 or registration or
16
<PAGE> 17
qualification under the securities or "blue sky" laws of any state is required
in connection with such a disposition, or (ii) a registration statement under
the Securities Act of 1933 covering such disposition has been filed by the
Company with the Commission and has become effective under the Securities Act
of 1933 and compliance with applicable state securities or "blue sky" laws has
been effected.
4.14 LEGEND OF CERTIFICATES. Unless, in the opinion of counsel
for the Company, the Common Shares represented thereby need not be subject to
the restrictions contained in Section 4.13 of this Plan, each stock certificate
of the Company issued to represent any Common Shares shall bear the following
(or a substantially equivalent) legend on the face or reverse side thereof:
"The transfer of these securities is subject to restrictions
set forth in the Company's 1996 Transitional Restricted Stock
Plan, dated as of __________, 1996, and any amendments
thereto, a copy of which is available for inspection at the
office of the Corporation. The securities represented hereby
have not been registered under the Securities Act of 1933, as
amended, and no sale, gift, transfer or other disposition
thereof or of any interest therein shall be valid or effective
(i) unless and until registered pursuant to the provisions of
such Act and registered or qualified under applicable state
securities or 'blue sky' laws, or (ii) unless in the opinion
of Counsel to the Company exemption from registration and
qualification (determined pursuant to the provisions of said
Plan) is available."
Any stock certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon the
completion of a public distribution of Common Shares represented thereby) shall
also bear such legend, unless in the opinion of counsel for the Company the
Common Shares represented thereby need no longer be subject to the restrictions
contained in Section 4.13 of this Plan. The provisions of Sections 4.13 and 4.14
of this Plan, to the extent still applicable, shall be binding upon the Grantee
or Beneficiary and all subsequent record or beneficial holders of Common Shares
who acquired the same directly or indirectly from the
17
<PAGE> 18
Grantee or Beneficiary in a transaction or series of transactions not involving
any public offering. The Company will not, in any event, transfer on its books
any certificate for Common Shares in violation of the provisions of this Plan.
ARTICLE V
---------
MISCELLANEOUS
-------------
5.1 AMENDMENT OF THE PLAN; MODIFICATION OF AWARDS. The Board
may from time to time suspend or discontinue the Plan or revise or amend it in
any respect whatsoever, except that no such amendment shall materially impair
any rights or materially increase any obligations under any Grant previously
made under the Plan without the consent of the Grantee (or, upon the Grantee's
death, the person having the right to such Grantee's Restricted Stock) Except as
otherwise permitted by Section 5.7, stockholder approval shall be required with
respect to any amendment which increases the aggregate number of Common Shares
which may be issued under the Plan or changes the class of employees eligible to
receive Grants of Restricted Stock, and with respect to any amendment for which
such approval is required in order to take advantage of the exemptions provided
by Rule 16b-3.
5.2 CONSENTS.
(a) If the Committee shall at any time determine that any
Consent (as defined in subsection (b) below) is necessary or desirable as a
condition to, or in connection with, the award of any Grant under the Plan, the
issuance of Common Shares or other rights thereunder or the taking of any other
action thereunder (each such action being hereinafter referred to as a "Plan
Action"), then such Plan Action shall not be taken, in whole or in part, unless
and until such Consent shall
18
<PAGE> 19
have been effected or obtained to the full satisfaction of the Committee, or the
Committee may require that such Plan Action be taken only in such manner as to
make such Consent unnecessary.
(b) The term "Consent" as used herein with respect to any Plan
Action means (i) any and all listings, registrations or qualifications in
respect thereof upon any securities exchange or under any federal, state or
local law, rule or regulation, (ii) any and all written agreements and
representations by the Grantee with respect to the acquisition or disposition of
Common Shares, or with respect to any other matter, which the Committee shall
deem necessary or desirable to comply with the terms of any such listing,
registration or qualification or to obtain an exemption from the requirement
that any such listing, qualification or registration be made and (iii) any and
all consents, clearances and approvals by any governmental or other regulatory
bodies.
5.3 RIGHT OF DISCHARGE RESERVED. Nothing in the Plan or in any
Restricted Stock Agreement shall be construed to confer upon any officer,
director, employee or other person the right to continue in the employment or
service of the Company or any Subsidiary, or to be employed or serve in any
particular position therewith, or affect any right which the Company or any
Subsidiary may have to terminate the employment or service of such officer,
director, employee or other person.
5.4 NATURE OF GRANTS.
(a) Any and all awards of Grants and issuances of Common
Shares hereunder shall be in consideration of services performed for the Company
or for a Subsidiary by the Grantee.
(b) All such awards and issuances shall constitute a special
incentive payment to the Grantee and shall not be taken into account in
computing the amount of salary or compensation of the Grantee for the purposes
of determining any pension, retirement, death or other benefits under (i) any
pension, retirement, profit-sharing, bonus, life insurance or other benefit plan
of the
19
<PAGE> 20
Company or any Subsidiary or (ii) any agreement between the Company or
any Subsidiary, on the one hand, and the Grantee, on the other hand, except as
such plan or agreement shall otherwise expressly provide.
5.5 NON-UNIFORM DETERMINATIONS. The Committee's or Company's
determinations under the Plan need not be uniform and may be made by it
selectively among persons who receive, or are eligible to receive, awards under
the Plan (whether or not such persons are similarly situated). Without limiting
the generality of the foregoing, the Committee shall be entitled, among other
things, to make non-uniform and selective determinations, and to enter into
non-uniform and selective Restricted Stock Agreements, as to (i) the persons to
receive awards under the Plan, (ii) the terms and provisions of awards under the
Plan, and (iii) the treatment of leaves of absence pursuant to Section 3.4
hereof.
5.6 OTHER PAYMENTS OR AWARDS. Nothing contained in the Plan
shall be deemed to in any way limit or restrict the Company, any Subsidiary or
the Committee from making any award or payment to any person under any other
plan, arrangement or understanding, whether now existing or hereafter in effect.
5.7 REORGANIZATION.
(a) In the event that, prior to January 3, 2000, the Company
or any Subsidiary is merged or consolidated with another corporation (whether or
not the Company or such Subsidiary is the surviving corporation) and if there
shall be any change in the Common Shares by reason of such merger or
consolidation, or in the event that all or substantially all of the assets of
the Company or of any Subsidiary are acquired by another corporation, or in the
event of the reorganization or liquidation of the Company or any Subsidiary (a
"Reorganization"), or in the event that the Board shall propose that the Company
or any Subsidiary enter into a Reorganization,
20
<PAGE> 21
then the Committee may, in its discretion, take any or all of the following
actions following reasonable notice to each Grantee of such Reorganization or
proposed Reorganization:
(I) advance the dates upon which any or
all outstanding Restricted Stock
shall become Vested Restricted
Stock; or
(ii) by written notice to each Grantee,
cancel his Unvested Restricted Stock
subject to the payment, with respect
to the Unvested Restricted Stock, of
such consideration as the Committee
shall deem equitable in the
circumstances.
(b) Whenever deemed appropriate by the Committee, any action
referred to in subsection (a) above may be made conditional upon the
consummation of the Reorganization.
5.8 SECTION HEADINGS. The section headings contained herein
are for purposes of convenience only and are not intended to define or limit the
contents of said sections.
5.9 NUMBER. The singular herein shall include the plural, or
vice versa, wherever the context so requires.
5.10 GENDER. A pronoun in the masculine, feminine, or neuter
gender shall be deemed, where appropriate, to include also the masculine,
feminine or neuter gender.
5.11 EFFECTIVE DATE AND TERM OF PLAN.
(a) This Plan shall become effective December 2, 1996;
provided that, notwithstanding any other provision of the Plan, no award made
under the Plan shall be effective unless the Plan is approved by stockholders
representing a majority of the Company's total outstanding voting stock (or such
greater percentage as may be required under applicable law) voting in person or
by proxy at a duly held stockholders' meeting or by written consent, in either
case within 12 months after the date on which the Board approves the Plan.
(b) The Plan shall terminate on January 3, 2000, and no Grants
shall thereafter be awarded under the Plan. Notwithstanding the foregoing, all
Grants awarded under the Plan prior
21
<PAGE> 22
to such date shall remain in effect until they have been exercised or terminated
in accordance with the terms and provisions of the Plan.
5.11 GOVERNING LAW. This Plan shall be governed by, construed
and enforced in accordance with the internal laws of the State of Delaware,
without reference to principles of conflict of laws.
IN WITNESS HEREOF, SEALY CORPORATION, by its appropriate
officers duly authorized, has executed this instrument this ____ day of
__________, 1996.
SEALY CORPORATION
-----------------------------------
By:
Title:
-----------------------------------
By:
Title:
<PAGE> 1
Exhibit 10.24
SEALY CORPORATION
1997 STOCK OPTION PLAN
Sealy Corporation (the "Company") hereby adopts the 1997 Stock
Option Plan (the "Plan") for the benefit of certain persons and subject to the
terms and provisions set forth below.
ARTICLE I
GENERAL
1.1 PURPOSE OF THE PLAN. The purpose of this Plan is to provide certain
persons with (i) an incentive to join and remain in the service of the Company
and its Subsidiaries, (ii) an incentive to maintain and enhance the long-term
performance and profitability of the Company and its Subsidiaries, and (iii) an
opportunity to acquire a proprietary interest in the success of the Company.
1.2 DEFINITIONS. Unless the context otherwise indicates, the following
words shall have the following meanings whenever used in this instrument:
(a) "Board" shall mean the Board of Directors of the
Company as constituted from time to time.
(b) "Cause" shall mean "Cause" as defined in the Sealy
Executive Severance Plan, or comparable provision of
any successor to such Plan.
(c) "Code" shall mean the United States Internal Revenue
Code (Title 26 of the United States Code).
(d) "Committee" shall mean the Human Resources Committee
of the Board as constituted from time to time.
Notwithstanding the above, in accordance with the
provisions of Section 1.3(e) hereof, the term
"Committee" may be deemed to mean the Board as may be
appropriate from time to time.
<PAGE> 2
(e) "Common Shares" shall mean shares of Class A common
stock of the Company, par value $.01 per share, and
any other shares into which such Common Shares may be
changed by reason of recapitalization, merger,
consolidation, split-up, combination, exchange of
shares or the like.
(f) "Company" shall mean Sealy Corporation, a Delaware
corporation, or any corporation or other entity which
assumes the obligations of Sealy Corporation by
operation of law or otherwise under the Plan.
(g) "Non-Employee Director" shall mean a non-employee
director within the meaning of Rule 16b-3.
(h) "Eligible Personnel" shall mean officers and
executive, managerial, or professional employees of
the Company or any Subsidiary and consultants to the
Company or a Subsidiary.
(i) "Exercise Price" shall mean the amount payable per
Common Share by the Grantee to the Company upon
exercise of the Option as set forth in the applicable
Option Agreement. The Exercise Price per Common Share
subject to an Incentive Stock Option shall not be
less than the Fair Market Value of a Common Share on
the date such Incentive Stock Option is granted. The
Exercise Price per Common Share subject to a
Nonqualified Stock Option shall not be less than the
par value of a Common Share.
(j) "Fair Market Value" shall mean, as of any date and in
respect of Common Shares, the fair market value of
one Common Share on such date, as determined
hereunder:
(I) in the event the Common Shares are Publicly
Traded on such date, Fair Market Value shall
equal the average for the ten trading, days
preceding, such date of (A) the closing
price of a Common Share on such national
securities exchange or the NASDAQ Stock
Market, as may be designated by the
Committee, or, (B) in the event that the
Common Shares are not listed for trading on
a national securities exchange or trading,
on the NASDAQ Stock Market, but are quoted
on an automated quotation system, the
closing bid price per share of Common Shares
on such automated quotation system, or
(II) in the event the Common Shares are not
Publicly Traded on such date, Fair Market
Value shall be deemed to be the appraised
value of a Common Share as of the last day
of the fiscal year preceding such date,
determined by a nationally recognized
independent financial appraiser engaged at
the expense of the Company taking into
account, INTER ALIA, the inherent value of
the Company's assets
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(including brand names and trade names), the
value of the Company's income, cash flow,
the fair market value of the Company's
equity in the marketplace, and any other
relevant factors. Any such appraisal shall
be done in a manner which is consistent with
prior appraisals under this Plan or its
predecessor and with appraisals being
performed under all other employee
compensation or benefit plans of the
Company.
(k) "Grantee" shall mean a person to whom an award
pursuant to the Plan has been granted.
(l) "Incentive Stock Option" shall mean an Option
satisfying the requirements of Section 422 of the
Code.
(m) "Nonqualified Stock Option" shall mean an Option
which does not satisfy the requirements of Section
422 of the Code.
(n) "Option" as used herein means an option to purchase
Common Shares granted subject to the terms and
conditions contained herein.
(o) "Option Agreement" shall mean a written agreement
executed by the Committee and a Grantee in accordance
with the provisions of Section 2.2(a) of the Plan.
(p) "Plan" shall mean this document as originally
executed and as it may be later amended.
(q) "Publicly Traded" shall mean listed on a national
securities exchange registered under Section 6 of the
Securities Exchange Act of 1934 or quoted on a system
sponsored by a national securities association
registered under section 15A(b) of the Securities
Exchange Act of 1934.
(r) "Rule 16b-3" shall mean Rule 16b-3 promulgated under
the Securities Exchange Act of 1934 or any amendment
of or successor to such rule as may be in effect from
time to time.
(s) "Subsidiary" shall mean any entity in which the
Company owns, directly or indirectly, stock
possessing, at least eighty percent (80%) or more of
the total combined voting power of all classes of
stock entitled to vote or at least eighty percent
(80%) of the total value of shares of all classes of
stock of such corporation as determined pursuant to
Section 1563(a)(1) of the Code, but only during the
period any such corporation would be so defined.
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(t) "Termination of Employment" shall mean the severance
of an individual's employment relationship with the
Company and all Subsidiaries for any reason,
including the sale or transfer of the stock or assets
of the business unit by which the individual is
employed to a person or entity other than the Company
or a Subsidiary or to a joint venture which is not a
Subsidiary even though the Company or a Subsidiary is
one of the joint venture partners.
1.3 ADMINISTRATION.
(a) Except as otherwise provided in Section 1.3(e) hereof, the
Plan shall be administered by the Committee, which shall consist of not less
than two directors, a majority of which shall not be employees of the Company or
a Subsidiary, and which shall have the power of the Board to authorize the
issuance of Common Shares pursuant to the Options. The members of the Committee
shall be appointed by, and may be changed from time to time in the discretion
of, the Board. To the extent required for the Plan to qualify for the exemptions
available under Rule 16b-3, the members of the Committee shall be Non-Employee
Directors.
(b) The Committee shall have the authority (i) to exercise all
of the powers granted to it under the Plan, (ii) to construe, interpret and
implement the Plan and any Option Agreements executed pursuant to Section 2.2,
(iii) to prescribe, amend and rescind rules and regulations relating, to the
Plan, (iv) to make all determinations necessary or advisable in administering
the Plan, and (v) to correct any defect, supply any omission and reconcile any
inconsistency in the Plan, and (vi) delegate to employees of the Company any of
its nondiscretionary ministerial duties under the Plan as it shall determine
appropriate.
(c) The determination of the Committee on all matters relating
to the Plan or any Option Agreement shall be conclusive.
(d) No member of the Committee shall be liable for any action
or determination made in good faith with respect to the Plan or any award
thereunder.
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(e) Notwithstanding, anything to the contrary contained
herein, the Board may, in its sole discretion, at any time and from time to
time, by an action of the Board, resolve to administer the Plan effective as of
a date specified in such action.
(f) All actions of the Committee shall require the affirmative
vote of a majority of the members thereof
1.4 PERSONS ELIGIBLE FOR AWARDS. Awards under the Plan may be made to
Eligible Personnel as the Committee shall in its sole discretion select.
1.5 TYPES OF AWARDS UNDER PLAN. The Options awarded under the Plan
shall, in the Committee's discretion, be granted either as (a) Incentive Stock
Options or (b) Nonqualified Stock Options.
1.6 SHARES AVAILABLE FOR AWARDS.
(a) Subject to the provisions of Section 3.6 hereof, the total
number of Common Shares with respect to which Options may be granted shall be
equal to the excess (if any) of (i) 2,400,000 Common Shares, over (ii) the sum
of (A) the number of Common Shares subject to outstanding Options and (B) the
number of Common Shares previously issued pursuant to the exercise of Options In
accordance with (and without limitation upon) the preceding sentence, Common
Shares available under this Plan and covered by Options which expire, terminate
or are cancelled for any reason whatsoever shall again become available for
awards under the Plan. In addition, subject to the provisions of Section 3.6
hereof, the maximum aggregate number of Common Shares with respect to which
Options may be granted to any person during any calendar year during the term of
this Plan is 1,000,000 Common Shares.
(b) Common Shares that shall be issuable pursuant to Options
shall be authorized and unissued or treasury Common Shares.
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<PAGE> 6
(c) Without limiting the generality of the preceding
provisions of this Section 1.5, the Committee may, but solely with the Grantee's
consent, cancel any award of Options and issue a new award in substitution
therefor, provided that the award so substituted shall satisfy all of the
requirements of the Plan as of the date such new award is made.
ARTICLE II
STOCK OPTIONS
2.1 GRANT OF STOCK OPTIONS. The Committee may grant Options to such
Eligible Personnel, and in such amounts and subject to such terms and
conditions, as the Committee shall from time to time determine in its sole
discretion, subject to the terms and provisions of this Plan. The Committee
shall have the sole and exclusive right to determine those Eligible Personnel
who will be granted Options hereunder and the terms and conditions under which
such Options will be granted.
2.2 AGREEMENTS EVIDENCING STOCK OPTIONS.
(a) The Options shall be evidenced by Option Agreements which
shall not be inconsistent with the terms and provisions of the Plan, and, in the
case of Incentive Stock Options, the terms and provisions of Section 422 of the
Code, and which shall contain such provisions as the Committee may in its sole
discretion deem necessary or desirable. Each Grantee shall agree that such award
shall be subject to all of the terms and provisions of the Plan and the terms
and provisions of the Option Agreement with respect to such award. A Grantee
shall have no rights with respect to any award unless, within 60 days after the
grant of such award (or such other period as the Committee may specify), the
Grantee shall have executed and delivered to the Company a copy of the Option
Agreement with respect to such award.
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<PAGE> 7
(b) Each Option Agreement shall set forth the number of Common
Shares subject to the Option granted thereby and the Exercise Price payable by
the Grantee to the Company upon exercise of the Option.
(c) An Option granted under this Plan shall be an Incentive
Stock Option only if the relevant Option Agreement by its terms expressly states
that it is intended to qualify as an Incentive Stock Option and the Option is
designated as an Incentive Stock Option in such Option Agreement. Any Option
granted under this Plan which does not satisfy the foregoing requirements of
this Section 2.2(c) is intended to be a Nonqualified Stock Option.
2.3 TERM OF OPTIONS. Each Option Agreement shall set forth the period
during which the Option evidenced thereby shall be exercisable, whether in whole
or in part, such periods to be determined by the Committee in its discretion;
provided that, notwithstanding the foregoing or any other provision of the Plan,
no Option Agreement shall permit an Option to be exercisable more than ten (10)
years after the date of grant.
2.4 LIMITATION ON GRANT OF INCENTIVE STOCK OPTIONS.
(a) To the extent that the aggregate Fair Market Value
(determined as of the date such Options are granted) of the Common Shares with
respect to which Incentive Stock Options are first exercisable by any Grantee in
any calendar year shall exceed $100,000 (or such higher limit as may be
permitted from time to time under Section 422 of the Code), such Options shall
be treated as Nonqualified Stock Options.
(b) The limitations contained in subsection (a) above shall
apply to (i) Incentive Stock Options received by such Grantee under this Plan,
and (ii) incentive stock options received by such Grantee under all other stock
option plans or agreements of the
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<PAGE> 8
Company or any parent or subsidiary corporation thereof (within the meaning, of
Section 424(e) and (f) of the Code).
(c) The foregoing provisions of this Section 2.4 shall in no
way limit or restrict the aggregate Fair Market Value of the Common Shares with
respect to which any individual may be granted Nonqualified Stock Options under
the Plan or under any other stock option plan or agreements of the Company or a
Subsidiary; provided, that this Section 2.4(c) shall not increase the total
number of Common Shares in respect of which Options may be granted to all
Eligible Personnel under the Plan pursuant to Section 1.6 hereof.
2.5 EXERCISE OF OPTIONS. Unless otherwise provided herein or in the
applicable Option Agreement, each Option shall be exercisable as follows:
(a) An Option shall become exercisable in two (2)
substantially equal installments, the first of which
shall become exercisable on the third anniversary of
the date of grant and the second of which shall
become exercisable on the fourth anniversary of the
date of grant.
(b) Once an installment becomes exercisable, it shall
remain exercisable until expiration, surrender,
cancellation or termination of the Option.
(c) An Option may be exercised from time to time as to
all or part of the Common Shares as to which such
Option shall then be exercisable subject to a minimum
exercise of one hundred (100) Common Shares and a
limitation of one exercise per calendar year quarter.
(d) An Option shall be exercisable by the filing of a
written notice of exercise with the Company, on such
form and in such manner as the Committee shall in its
sole discretion prescribe.
(e) Any written notice of exercise of an Option shall be
accompanied by payment of the Exercise Price for the
Common Shares being purchased. Such payment shall be
made: (i) by certified or official bank check payable
to the Company (or the equivalent thereof acceptable
to the Company), or (ii) by delivery to the Company
of a certificate or certificates for a number of
Common Shares having a Fair Market Value equal to all
or a portion of the Exercise Price, provided that
such Common Shares must have been owned by the
Grantee for a period of at least six
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<PAGE> 9
(6) months, or (iii) with the consent of the
Committee, by delivery of the Grantee's promissory
note for all or a portion of the Exercise Price, upon
such terms and conditions as the Committee shall
prescribe; provided, however, that if only a portion
of the Exercise Price is paid by promissory note, the
balance of the Exercise Price shall be paid as
prescribed in clause (i) or (ii) of this Section
2.5(e). As soon as practicable after receipt of such
payment, the Company shall, subject to the provisions
of Section 3.2, deliver to the Grantee a certificate
or certificates for such Common Shares, provided,
however, that if the method of payment employed upon
option exercise so requires, and if applicable law
permits, a Grantee may direct the Company to deliver
the certificate or certificates to the Grantee's
stockbroker.
2.6 COMPENSATION IN LIEU OF EXERCISE.
(a) Upon written application by a Grantee, the Committee may,
in its sole discretion, substitute for the exercise of an Option compensation to
the Grantee not in excess of the difference between the Exercise Price and the
Fair Market Value (determined as of the date such application is made to the
Committee) of the Common Shares specified in such application. Such compensation
shall be in cash and the payment thereof may be subject to conditions, as the
Committee may determine. In the event compensation is substituted pursuant to
this Section 2.6 for the exercise, in whole or in part, of an Option, the Option
shall be reduced by the number of Common Shares specified in such application
and for which such compensation is substituted, and the number of Common Shares
by which such Option is so reduced shall not again be available for subsequent
Options under this Plan.
(b) In the case of such a written application by a Grantee
whose transactions in Common Shares issued pursuant to an award under this Plan
are subject to section 16(b) of the Securities Exchange Act of 1934, such
application and exercise of the Option may, at the discretion of the Committee,
be made only in a "window period" comprising the 10 business
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<PAGE> 10
days beginning on the third business day following release of the Company's
quarterly or annual summary statement of earnings, as set forth in Rule 16b-3.
2.7 TERMINATION OF EMPLOYMENT; DEATH.
(a) Except as otherwise provided in subsection (b), (c) or (d)
below, if a Grantee has a Termination of Employment, such Grantee may exercise
any Option granted to him under the Plan on the following terms and conditions:
(A) such exercise may be made only to the extent that the Grantee was entitled
to exercise such Option on the date of his Termination of Employment; and (B)
such exercise must be made by the earlier of the expiration date of such Option
(set forth in the applicable Option Agreement) or the ninetieth (90th) day after
such Termination of Employment; provided, however, that if the Grantee's
Termination of Employment shall be by reason of a disability referred to in
Section 422(c)(6) of the Code, such 90-day period shall be increased to one
year.
(b) If a Grantee dies while in the employ of the Company or a
Subsidiary, or dies after his Termination of Employment and during a period in
which his Options are exercisable pursuant to subsection (a) above, any Option
granted to him under the Plan shall be exercisable within one (1) year after the
date of his death (but in no event later than the expiration date of such Option
set forth in the applicable Option Agreement), to the extent that such Grantee
was entitled to exercise such Option on the date of his death. Any such exercise
of an Option following a Grantee's death may be made only by the representative
of such Grantee's estate, unless the Grantee's will specifically disposes of
such Option, in which case such exercise may be made only by the recipient of
such specific disposition. If the representative of the Grantee's estate or the
recipient of a specific disposition under the Grantee's will shall be entitled
to exercise any Option pursuant to the preceding sentence, such representative
or recipient shall
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<PAGE> 11
be bound by all the terms and conditions of the Plan and the applicable Option
Agreement which would have applied to the Grantee's exercise of his Option (if
he had lived).
(c) If a Grantee's Termination of Employment is for Cause, all
of the Grantee's outstanding options shall expire upon his Termination of
Employment.
(d) The Committee may, in the applicable Option Agreement, or
an amendment thereto, waive or modify, in any respect, the foregoing provisions
of this Section 2.7.
(e) Notwithstanding, the foregoing provisions of this Section
2.7, in no event shall any Option be exercisable more than ten (10) years after
the date of grant of such Option.
(f) Subject to the provisions of Section 1.4 hereof and the
applicable Option Agreement, references in this Section 2.7 to an individual's
employment as an employee of the Company or any Subsidiary may, in the sole
discretion of the Committee, include all periods during which such individual
serves as a director of or consultant to the Company or a Subsidiary but is not
otherwise an employee.
(g) The Committee may in its discretion determine (i) whether
any leave of absence constitutes a Termination of Employment within the meaning
of the Plan, (ii) the impact, if any, of any such leave of absence on Options
under the Plan awarded to a Grantee who takes such leave of absence, and (iii)
whether a change in a non-employee's association with the Company constitutes a
Termination of Employment for purposes of the Plan.
2.8 INVESTMENT INTENT. Any issuance of Common Shares hereunder may be
conditioned by the Company upon its receipt of a representation and warranty by
the Grantee that such Common Shares shall be held for investment purposes only
and not with a view to distribution or resale, provided, however, that any such
representation and warranty shall become inoperative in the event such Common
Shares shall be registered for resale by the Grantee under
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<PAGE> 12
the Securities Act of 1933, as amended, and any applicable state laws or in the
event there is presented to the Committee evidence satisfactory to the Committee
to the effect that the offer or sale of such Common Shares distributed hereunder
will be lawfully made without registration under the Securities Act of 1933, as
amended and any applicable state laws.
No Grantee or Beneficiary will effect a disposition of the
Common Shares until either (i) the Company has notified all that, in the opinion
of counsel for the Company, no registration of such Common Shares under the
Securities Act of 1933 or registration or qualification under the securities or
"blue sky" laws of any state is required in connection with such a disposition,
or (ii) a registration statement under the Securities Act of 1933 covering such
disposition has been filed by the Company with the Commission and has become
effective under the Securities Act of 1933 and compliance with applicable state
securities or "blue sky" laws has been effected.
2.9 LEGEND OF CERTIFICATES. Unless, in the opinion of counsel for the
Company, the Common Shares represented thereby need not be subject to the
restrictions contained in Section 2.8 of this Plan, each stock certificate of
the Company issued to represent any Common Shares shall bear the following (or a
substantially equivalent) legend on the face or reverse side thereof:
"The transfer of these securities is subject to
restrictions set forth in the Company's 1997 Stock
Option Plan, dated as of _______ __, 1996, and any
amendments thereto, a copy of which is available for
inspection at the office of the Corporation. The
securities represented hereby have not been registered
under the Securities Act of 1933, as amended, and no
sale, gift, transfer or other disposition thereof or of
any interest therein shall be valid or effective (i)
unless and until registered pursuant to the provisions
of such Act and registered or qualified under applicable
state securities or 'blue sky' laws, or (ii) unless in
the opinion of Counsel to the Company exemption from
registration and qualification (determined pursuant to
the provisions of said Plan) is available."
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Any stock certificate issued at any time exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon the
completion of a public distribution of Common Shares represented thereby) shall
also bear such legend, unless in the opinion of counsel for the Company the
Common Shares represented thereby need no longer be subject to the restrictions
contained in Section 2.8 of this Plan. The provisions of Sections 2.8 and 2.9 of
this Plan, to the extent still applicable, shall be binding upon the Grantee or
Beneficiary and all subsequent record or beneficial holders of Common Shares who
acquired the same directly or indirectly from the Grantee or Beneficiary in a
transaction or series of transactions not involving any public offering. The
Company will not, in any event, transfer on its books any certificate for Common
Shares in violation of the provisions of this Plan.
2.10 ADDITIONAL RESTRICTIONS ON RESALE. In addition to any other
restrictions on the right of a Grantee or Beneficiary to resell Common Shares
acquired by the exercise of an Option granted under this Plan there may be other
periods, including periods following a public offering of other Common Shares of
the Company, during which the Grantee or Beneficiary will not be allowed to
resell such Common Shares by reason of law, the rules and regulations of a
securities exchange, an agreement with an underwriter, or any other reason.
ARTICLE III
MISCELLANEOUS
3.1 AMENDMENT OF THE PLAN; MODIFICATION OF AWARDS.
(a) The Board may from time to time suspend or discontinue the
Plan or revise or amend it in any respect whatsoever, except that no such
amendment shall materially impair any rights or materially increase any
obligations under any award previously made under
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<PAGE> 14
the Plan without the consent of the Grantee (or, upon the Grantee's death, the
person having the right to exercise such award). Except as otherwise permitted
by Section 3.6 or 3.12, stockholder approval shall be required with respect to
any amendment which increases the aggregate number of Common Shares which may be
issued under to the Plan or changes the class of employees eligible to receive
such options, and with respect to any amendment for which such approval is
required in order to take advantage of the exemptions provided by Rule 16b-3.
(b) With the consent of the Grantee and subject to the terms
and conditions of the Plan and applicable laws, the Committee may amend
outstanding Option Agreements with such Grantee, including, without limitation,
any amendment which would (i) accelerate the time or times at which the Option
may be exercised and/or (ii) extend, subject to Section 2.7(e), the scheduled
expiration date of the Option.
3.2 CONSENTS.
(a) If the Committee shall at any time determine that any
Consent (as defined in subsection (b) below) is necessary or desirable as a
condition to, or in connection with, the granting of any award under the Plan,
the issuance or purchase of Common Shares or other rights thereunder or the
taking of any other action thereunder (each such action being hereinafter
referred to as a "Plan Action"), then such Plan Action shall not be taken, in
whole or in part, unless and until such Consent shall have been effected or
obtained to the full satisfaction of the Committee, or the Committee may require
that such Plan Action be taken only in such manner as to make such Consent
unnecessary.
(b) The term "Consent" as used herein with respect to any Plan
Action means (i) any and all listings, registrations or qualifications in
respect thereof upon any securities exchange or under any federal, state or
local law, rule or regulation, (ii) any and all written
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<PAGE> 15
agreements and representations by the Grantee with respect to the acquisition or
disposition of Common Shares, or with respect to any other matter, which the
Committee shall deem necessary or desirable to comply with the terms of any such
listing, registration or qualification or to obtain an exemption from the
requirement that any such listing, qualification or registration be made and
(iii) any and all consents, clearances and approvals by any governmental or
other regulatory bodies.
3.3 NONASSIGNABILITY. No Option or other right granted under the Plan
or under any Option Agreement shall be assignable or transferable other than by
will or by the laws of descent and distribution. During, the life of the
Grantee, all rights of the Grantee under the Plan or under any Option Agreement
shall be exercisable only by him or his legal representative.
3.4 SECTION 421(B) NOTIFICATION. Each Option Agreement with respect to
an Incentive Stock Option shall require the Grantee to notify the Company of any
disposition of any Common Shares issued pursuant to the exercise of such Option
under the circumstances described in Section 421(b) of the Code (relating to
certain disqualifying dispositions) within ten (10) days of such disposition.
3.5 WITHHOLDING TAXES.
(a) Whenever cash is to be paid pursuant to an award under the
Plan, the Company shall be entitled to deduct therefrom an amount sufficient in
its opinion to satisfy all federal, state and other governmental tax
withholding, requirements related to such payment, including taxes under the
Federal Insurance Contributions Act ("FICA") taxes or similar taxes.
(b) Whenever Common Shares are to be delivered pursuant to an
award under the Plan, the Company shall be entitled to require as a condition of
delivery that the Grantee remit to the Company an amount sufficient in the
opinion of the Company to satisfy all federal,
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<PAGE> 16
state and other governmental tax withholding requirements related thereto. With
the prior approval of the Committee, which it shall have sole discretion to
grant, the Grantee may satisfy the foregoing condition by electing to have the
Company withhold a number of Common Shares otherwise issuable having, a Fair
Market Value equal to the amount of tax to be withheld less any FICA or similar
taxes included therein or such higher amount determined by the Grantee but not
to exceed the estimated tax liability on the exercise of the Option (any such
amount shall exclude any FICA or similar taxes even if such taxes were included
in the withholding amount). Such Common Shares shall be valued at their Fair
Market Value as of the date on which the amount of tax to be withheld is
determined (the "Tax Date"). Fractional Common Share amounts shall be settled in
cash. Such a withholding election may be made with respect to all or any portion
of the Common Shares to be delivered pursuant to an award. If the Tax Date of
such a Grantee making such an election is deferred pursuant to Section 83 of the
Code until after the date as of which Common Shares are delivered to him
pursuant to an award, the full number of Common Shares due pursuant to the award
shall be delivered to him but he shall be unconditionally obligated to surrender
the proper number of Common Shares to the Company on the Tax Date.
3.6 ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. In the event there
occurs any change in the number of Common Shares or the terms thereof, or of any
issued and outstanding capital stock or other securities into which Common
Shares shall have been converted, or for which they shall have been exchanged,
and such change shall occur other than through a stock dividend or split or
combination of shares of stock of the Company, then if (and only if) the
Committee shall, in its sole discretion, determine that such change equitably
requires an adjustment in the number of Common Shares with respect to which
Options may be granted under the Plan, the maximum number of Common Shares with
respect to which Options may be
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<PAGE> 17
granted to any one individual during a calendar year, the number of Common
Shares subject to Options previously granted, and the Exercise Price of such
Options, such adjustment as the Committee shall, in its sole discretion,
determine is equitable, shall be made and shall be effective and binding for all
purposes with respect to Options awarded under the Plan. The Committee shall
also make appropriate adjustments to the number of Common Shares with respect to
which Options may be granted under the Plan, the number of Common Shares subject
to Options previously granted and the Exercise Price of such Options to reflect
any and all stock splits, cash or stock dividends, or reductions in the number
of Common Shares. Adjustments pursuant to this Section 3.6 shall be made by the
Committee, whose determination as to what adjustments shall be made, and the
extent thereof, shall be final, binding, and conclusive.
3.7 RIGHT OF DISCHARGE RESERVED. Nothing in the Plan or in any Option
Agreement shall be construed to confer upon any officer, director, employee or
other person the right to continue in the employment or service of the Company
or any Subsidiary, or to be employed or serve in any particular position
therewith, or affect any right which the Company or any Subsidiary may have to
terminate the employment or service of such officer, director, employee or other
person.
3.8 NO RIGHTS AS A STOCKHOLDER. No Grantee or other person exercising
an Option shall have any of the rights of a Stockholder of the Company with
respect to Common Shares subject to any Option until the issuance of a stock
certificate to him for such Common Shares. Except as otherwise expressly
provided in Section 3.6 hereof, no adjustment shall be made for dividends,
distributions or other rights (whether ordinary or extraordinary, and whether in
cash, securities or other property) for which the record date is prior to the
date such stock certificate is issued.
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3.9 NATURE OF PAYMENTS.
(a) Any and all grants of Options and issuances of Common
Shares hereunder shall be in consideration of services performed for the Company
or for a Subsidiary by the Grantee and the payment by the Grantee of the
Exercise Price.
(b) All such grants and issuances shall constitute a special
incentive payment to the Grantee and shall not be taken into account in
computing the amount of salary or compensation of the Grantee for the purposes
of determining, any pension, retirement, death or other benefits under (i) any
pension, retirement, profit-sharing, bonus, life insurance or other benefit plan
of the Company or any Subsidiary or (ii) any agreement between the Company or
any Subsidiary, on the one hand, and the Grantee, on the other hand, except as
such plan or agreement shall otherwise expressly provide.
3.10 NON-UNIFORM DETERMINATIONS. The Committee's or Company's
determinations under the Plan need not be uniform and may be made by it
selectively among persons who receive, or are eligible to receive, awards under
the Plan (whether or not such persons are similarly situated). Without limiting
the generality of the foregoing, the Committee shall be entitled, among other
things, to make non-uniform and selective determinations, and to enter into
non-uniform and selective Option Agreements, as to (i) the persons to receive
awards under the Plan, (ii) the terms and provisions of awards under the Plan,
and (iii) the treatment of leaves of absence pursuant to Section 2.7(a) hereof.
3.11 OTHER PAYMENTS OR AWARDS. Nothing contained in the Plan shall be
deemed to in any way limit or restrict the Company, any Subsidiary or the
Committee from making any award or payment to any person under any other plan,
arrangement or understanding, whether now existing or hereafter in effect.
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3.12 REORGANIZATION.
(a) In the event that the Company or any Subsidiary is merged
or consolidated with another corporation (whether or not the Company or such
Subsidiary is the surviving corporation) and if there shall be any change in the
Common Shares by reason of such merger or consolidation, or in the event that
all or substantially all of the assets of the Company or of any Subsidiary are
acquired by another corporation, or in the event of the reorganization or
liquidation of the Company or any Subsidiary (a "Reorganization"), or in the
event that the Board shall propose that the Company or any Subsidiary enter into
a Reorganization, then the Committee may, in its discretion, take any or all of
the following actions following reasonable notice to each Grantee of such
Reorganization or proposed Reorganization:
(i) by written notice to each Grantee, declare
that his Options will be terminated unless
exercised within thirty (30) days (or such
longer period as the Committee shall, in its
sole discretion, determine) after the date
of such notice (without acceleration of the
exercisability of such Options);
(ii) advance the dates upon which any or all
outstanding Options shall be exercisable; or
(iii) by written notice to each Grantee, terminate
his Option subject to the payment, with
respect to the vested portion of such
Option, of such consideration as the
Committee shall deem equitable in the
circumstances.
(b) Whenever deemed appropriate by the Committee, any action
referred to in subsection (a) above may be made conditional upon the
consummation of the Reorganization.
3.13 SECTION HEADINGS. The section headings contained herein are for
purposes of convenience only and are not intended to define or limit the
contents of said sections.
3.14 NUMBER. The singular herein shall include the plural, or vice
versa, wherever the context so requires.
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<PAGE> 20
3.15 GENDER. A pronoun in the masculine, feminine, or neuter gender
shall be deemed, where appropriate, to include also the masculine, feminine or
neuter gender.
3.16 EFFECTIVE DATE AND TERM OF PLAN.
(a) This Plan shall become effective December 2, 1996;
provided that, notwithstanding, any other provision of the Plan, no award made
under the Plan shall be exercisable unless the Plan is approved by stockholders
representing a majority of the Company's total outstanding voting stock (or such
greater percentage as may be required under applicable law) voting in person or
by proxy at a duly held stockholders' meeting or by written consent, in either
case within 12 months before or after the effective date of the Plan.
(b) The Plan shall terminate December 1, 2006, and no Options
shall thereafter be awarded under the Plan. Notwithstanding the foregoing, all
Options awarded under the Plan prior to such date shall remain in effect until
they have been exercised or terminated in accordance with the terms and
provisions of the Plan.
3.17 GOVERNING LAW. This Plan shall be governed by, construed and
enforced in accordance with the internal laws of the State of Delaware, without
reference to principles of conflict of laws.
3.18 COMPANY'S RIGHT OF FIRST REFUSAL. In the event that at a time when
Common Shares are not Publicly Traded, a Grantee wishes to sell or otherwise
transfer some or all of his Common Shares acquired under this Plan and which he
has owned for a period of at least six (6) months, the Grantee may sell or
otherwise transfer such Common Shares but only if the Company has failed to
exercise its right of first refusal to purchase such Common Shares. The Company
shall have the right, but not the obligation, to purchase the Grantee's Common
Shares proposed to be sold or transferred for a period of thirty (30) days
commencing with the date on
20
<PAGE> 21
which the Company receives written notice from the Grantee stating that he
wishes to sell or otherwise transfer some or all of his Common Shares. Such
exercise shall be made in accordance with Section 3.19 hereof. If the Company
shall not exercise its right of first refusal during such thirty (30) day
period, such right shall permanently lapse with respect to the Common Shares
offered by the Grantee.
The purchase price payable by the Company if it exercises its
right under this Section to purchase Common Shares from the Grantee shall be the
Fair Market Value of the Common Shares being acquired during the thirty (30) day
exercise period. If such Fair Market Value changes during the thirty (30) day
period, the greater Fair Market Value shall be used.
In addition to any other legal restrictions applicable to the
Common Shares acquired under this Plan, such Common Shares may not be sold or
otherwise transferred by the Grantee until they have been held for at least six
(6) months by such Grantee. In the discretion of the Committee, such six (6)
month holding period may be waived in the case of death or disability of the
Grantee.
3.19 COMPANY'S EXERCISE OF RIGHT OF FIRST REFUSAL. If the Company
desires to exercise its option to repurchase Common Shares pursuant to its right
of first refusal in Section 3.18 hereof, the Company shall notify the Grantee,
or in case of death, his representative, in writing of its intent to repurchase
the Common Shares and the price at which the Common Shares will be purchased.
Such written notice may be mailed by the Company up to and including the last
day of the period provided for in this Plan for exercise of the Company's right
of first refusal.
The written notice to the Grantee should also specify the
address at, and the time and date on, which payment to the Grantee of the
purchase price is to be made. The date specified shall not be less than ten (10)
days nor more than sixty (60) days from the date of the
21
<PAGE> 22
mailing of the notice, and the Grantee or his successor in interest with respect
to the Common Shares shall have no further rights as the owner thereof from and
after the date specified in the notice. On that date, the purchase price shall
be delivered to the Grantee with the Company deducting from the purchase price
the amount, if any, due to it under any promissory note issued under this Plan
with respect to tax liability, including, but not limited to, accrued but unpaid
interest to such date. The Common Shares, together with any stock powers, shall,
to the extent that they are not then in the possession of the Company, be
delivered to the Company by the Grantee or his successor in interest. In the
event payment of the purchase price cannot be made to Grantee or his successor
in interest on the date specified, the Company shall deposit the amount of the
purchase price with a bank which shall be designated by the Committee as agent
for the Grantee or for his successor in interest. Payment of any and all
applicable stock transfer taxes shall be made by the Company.
IN WITNESS HEREOF, SEALY CORPORATlON, by its appropriate officers duly
authorized, has executed this instrument this ____ day of ____________ , 1996.
SEALY CORPORATION
-----------------------------------
By:
Title:
-----------------------------------
By:
Title:
22
<PAGE> 1
Exhibit 10.25
SEALY CORPORATION
STOCK OPTION AGREEMENT
THIS AGREEMENT, is made and entered into to be effective as of the 4th day of
March, 1996, by and between SEALY CORPORATION, a Delaware corporation, and Ron
L. Jones (the "Optionee").
W I T N E S S E T H:
l. DEFINITIONS.
-----------
a) "AGREEMENT" shall mean this stock option agreement.
b) "BOARD" shall mean the Board of Directors of the Corporation,
as constituted from time to time.
c) "CODE" shall mean the Internal Revenue Code of 1986, as
amended.
d) "COMMITTEE" shall mean the Human Resources Committee of the
Board of Directors.
e) "CORPORATION" shall mean Sealy Corporation, a Delaware
corporation.
f) "DATE OF GRANT" shall mean the date as of which this Agreement
is effective, which shall be the date on which the Committee
resolved to grant this Option.
g) "EMPLOYEE" shall mean an individual who is an employee (within
the meaning of Section 3401(c) of the Code and the regulations
thereunder) of the Corporation or of a Subsidiary.
h) "EMPLOYMENT TERMINATION" shall mean the termination of the
Optionee's status as an Employee for any reason.
i) "EXERCISE PRICE" shall mean the amount for which one Share may
be purchased upon exercise of this Option, as specified in
Paragraph 2 of this Agreement.
j) "NONSTATUTORY STOCK OPTION" shall mean an option not described
in Sections 422(b), 422A(b), 423(b), or 424(b) of the Code.
k) "OPTION" shall mean the option to purchase Shares granted by
this Agreement.
l) "OPTION PERIOD" shall mean the term of this Option, as
specified in Paragraph 4 of this Agreement.
m) "PARENT" shall mean any corporation which owns at least fifty
percent (50%) of the total combined voting power of all
1
<PAGE> 2
classes of stock in the Corporation or in another Parent.
n) "PARTIAL EXERCISE" shall mean an exercise with respect to less
than all of the remaining Shares subject to this Option.
o) "PURCHASE PRICE" shall mean the Exercise Price multiplied by
the number of Shares with respect to which this Option is
exercised.
p) "SECURITIES ACT" shall mean the Securities Act of 1933, as
amended.
q) "SHARE" shall mean one (1) share of Stock as adjusted in
accordance with Paragraph 5 of this Agreement (if applicable).
r) "STOCK" shall mean the Class A Common Stock of the Corporation
with par value of $.01 per share.
s) "STOCKHOLDER AGREEMENT" shall mean the Stockholder Agreement
between the Optionee and the Corporation dated March 4, 1996.
t) "SUBSIDIARY" shall mean any corporation, if the Corporation
and/or one or more other Subsidiaries own at least fifty
percent (50%) of the total combined voting power of all
classes of outstanding stock in such corporation.
2. GRANT OF OPTION
---------------
On the terms and conditions stated below, the Corporation hereby grants
to the Optionee the option to purchase four hundred thousand (400,000)
Shares for the sum of ten dollars and sixty-three cents ($10.63) per
Share.
3. RIGHT TO EXERCISE
-----------------
Subject to the conditions set forth below and the exceptions set forth
in Paragraphs 4 and 5 of this Agreement, this Option shall become
exercisable pursuant to Schedule A attached hereto.
No Partial Exercise of this Option may be made for a number of Shares
other than ten (10) Shares or a multiple thereof (without regard to
adjustments).
4. TERM OF OPTION
--------------
This Option shall in any event expire ten (10) years after the Date of
Grant. In addition, this Option shall expire upon the termination of
the Optionee's service as an Employee, if such termination occurs
first, subject to the following provisions:
a) If the Employment Termination is caused by the Optionee's
death, then this Option (to the extent not previously
exercised) may be exercised within twelve (12) months after
the Optionee's death by the Optionee's executors or
administrators or by any person or persons who have acquired
2
<PAGE> 3
this Option directly from the Optionee by bequest or
inheritance, but only to the extent that this Option was
exercisable (or would have been exercisable but for the
existence of an outstanding earlier granted Incentive Stock
Option) under Paragraph 3 of this Agreement on date of death.
b) If Employment Termination is caused by any reason other than
death, then this Option (to the extent not previously
exercised) may be exercised within a period of 90 days after
the termination, but only to the extent that this option was
exercisable (or would have been exercisable but for the
existence of an outstanding earlier granted Incentive Stock
Option). If the Optionee dies within such period, this Option
(to the extent not previously exercised) may be exercised
within twelve (12) months after the Optionee's death by the
Optionee's executors or administrators or by any person or
persons who have acquired this Option directly from the
Optionee by bequest or inheritance, but only to the extent
that this Option was exercisable (or would have been
exercisable but for the existence of an outstanding earlier
granted Incentive Stock Option) under Paragraph 3 of this
Agreement on the date of the termination.
Any other provision of this Agreement to the contrary notwithstanding,
this Option shall not be exercisable after the expiration date set
forth in the first sentence of this Paragraph 4.
For purposes of this Paragraph 4, the Employee relationship shall be
deemed to continue while the Optionee is on military leave, sick leave
or other bona fide leave of absence (to be determined in the sole
discretion of the Committee).
5. SHARES AND ADJUSTMENT
---------------------
The Corporation agrees that it will at all times during the Option
Period reserve and keep available sufficient authorized but unissued or
reacquired Stock to satisfy the requirements of this Agreement.
The Exercise Price in effect at any time and the number and kind of
securities purchasable upon exercise of this Option shall be subject to
adjustment from time to time upon the happening of certain events, as
follows:
a) In case the Corporation shall (i) pay a dividend in shares of
Stock or make a distribution in shares of Stock to its
Stockholders, (ii) subdivide its outstanding shares of Stock,
(iii) combine its outstanding shares of Stock into a smaller
number of shares of Stock or (iv) issue by reclassification of
its shares of Stock other securities of the Corporation
(including any such reclassification in connection with a
consolidation or merger in which the Corporation is the
continuing corporation), the number of Shares purchasable upon
exercise of this Option immediately prior thereto shall be
3
<PAGE> 4
adjusted so that the Optionee shall be entitled to receive the
kind and number of Shares or other securities of the Company
which the Optionee would have owned or have been entitled to
receive after the happening of any of the events described
above, had this Option been exercised immediately prior to the
happening of such event or any record date with respect
thereto. An adjustment made pursuant to this Paragraph (a)
shall become effective immediately after the effective date of
such event retroactive to immediately after the record date,
if any, for such event.
b) In case the Corporation shall issue rights, options, or
warrants to all holders of its shares of Stock, without any
charge to such holders, entitling them (for a period expiring
within 45 days after the record date mentioned below in this
Paragraph (b) to subscribe for or purchase shares of Stock at
a price per share which is lower at the record date mentioned
below than the then Current Market Price per share of Stock
(as defined in Paragraph (d) below), the number of Shares
thereafter purchasable upon the exercise of this Option shall
be determined by multiplying the number of Shares theretofore
purchasable by a fraction, of which the numerator shall be the
number of shares of Stock outstanding on such record date plus
the number of additional shares of Stock offered for
subscription or purchase, and of which the denominator shall
be the number of shares of its Stock outstanding on such
record date plus the number of shares which the aggregate
offering price of the total number of shares of Stock so
offered would purchase at the then Current Market Price per
share of its Stock. Such adjustment shall be made whenever
such rights, options or warrants are issued, and shall become
effective retroactively immediately after the record date for
the determination of shareholders entitled to receive such
rights, options or warrants.
c) In case the Corporation shall distribute to all holders of its
share of Stock (i) shares of stock other than its Stock, (ii)
evidences of its indebtedness, (iii) assets or cash (excluding
ordinary cash dividends payable out of consolidated earnings
or retained earnings and dividends or distributions referred
to in Paragraph (a) above), or (iv) rights, options or
warrants or convertible or exchangeable securities containing
the right to subscribe for or purchase shares of Stock
(excluding those referred to in Paragraph (b) above), then in
each case the number of Shares thereafter purchasable upon the
exercise of this Option shall be determined by multiplying the
number of Shares theretofore purchasable upon the exercise of
this Option, by a fraction, the numerator of which shall be
the Current Market Price per share of Stock on the record date
mentioned below in this Paragraph (c), and the denominator of
which shall be the Current Market Price per share of Stock on
such record date, less the then fair value of the portion of
the shares of stock other than its Stock or assets or
evidences of indebtedness so distributed or of such
subscription rights, options or warrants, or of such
4
<PAGE> 5
convertible or exchangeable securities applicable to one share
of its Stock. Such adjustment shall be made whenever any such
distribution is made, and shall become effective on the date
of distribution retroactive to immediately after the record
date for the determination of shareholders entitled to receive
such distribution.
d) For the purpose of any computation under Paragraphs (b) and
(c) of above, the Current Market Price per share of Stock at
any date shall be the average of the daily closing prices for
15 consecutive trading days commencing 20 trading days before
the date of such computation. The closing price for each day
shall be the last reported sale price or, in case no such
reported sale takes place on such day, the average of the
closing bid and asked prices for such day, in either case on
the principal national securities exchange on which the shares
are listed or admitted to trading, or if they are not listed
or admitted to trading, on any national securities exchange,
but are traded in the over the counter market, the closing
sale price of the Stock, or in case no sale is publicly
reported, the average of the representative closing bid and
asked quotations for the Stock on NASDAQ or any comparable
system, or if the Stock is not listed on NASDAQ or a
comparable system, the closing sale price of the Stock, or in
case no sale is publicly reported, the average of the closing
bid and asked prices as furnished by two members of the
National Association of Securities Dealers, Inc. selected from
time to time by the Corporation for that purpose.
e) No adjustment in the number of Shares purchasable hereunder
shall be required unless such adjustment would require an
increase or decrease of at least 1% in the number of Shares
purchasable upon the exercise of this Option; PROVIDED,
HOWEVER, that any adjustments which by reason of this
Paragraph (e) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment,
but not later than three years after the happening of the
specified event or events. All calculations shall be made to
the nearest one thousandth of a share. Anything in these
provisions to the contrary notwithstanding, the Corporation
shall be entitled, but shall not be required, to make such
changes in the number of Shares purchasable upon the exercise
of this Option, in addition to those required by this
Paragraph 5, as it in its discretion shall determine to be
advisable in order that any dividend or distribution in shares
of Stock, issuance of rights, warrants or options to purchase
Stock, or distribution of shares of stock other than its
Stock, evidences of indebtedness or assets or cash (other than
ordinary cash dividends out of consolidated earnings or
retained earnings) or convertible or exchangeable securities
hereafter made by the Corporation to the holders of its Stock
shall not result in any tax to the holders of its Stock or
securities convertible into Stock.
f) Whenever the number of Shares purchasable upon the exercise of
5
<PAGE> 6
this Option is adjusted, as herein provided, the Exercise
Price payable upon exercise of this Option shall be adjusted
by multiplying such Exercise Price immediately prior to such
adjustment by a fraction, of which the numerator shall be the
number of Shares purchasable upon the exercise of this Option
immediately prior to such adjustment, and of which the
denominator shall be the number of Shares so purchasable
immediately thereafter.
g) For the purpose of these provisions, the term "shares of
Stock" shall mean (i) the class of stock designated as the
Common Stock of the Corporation at the date of this Agreement
or (ii) any other class of stock resulting from successive
changes or reclassification of such shares consisting solely
of changes in par value, or from par value to no par value, or
from no par value to par value. In the event that at any
time, as a result of an adjustment made pursuant to Paragraph
(a) above, the Optionee shall become entitled to purchase any
shares of capital stock of the Corporation other than shares
of Stock, thereafter the number of such other shares so
purchasable upon exercise of this Option and the Exercise
Price of such shares shall be subject to adjustment from time
to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Shares
contained in Paragraphs (a) through (f), inclusive, above, and
Paragraphs (h) through (k), inclusive below, and the
provisions of this Agreement with respect to Shares shall
apply on like terms to such other shares.
h) Upon the expiration of any rights, options, warrants or
conversion or exchange privileges, if any thereof shall not
have been exercised, the Exercise Price and the number of
shares of Stock purchasable upon the exercise of this Option
shall, upon such expiration, be readjusted and shall
thereafter be such as it would have been had it been
originally adjusted (or had the original adjustment not been
required, as the case may be) as if (x) the only shares of
Stock so issued were the shares of Stock, if any, actually
issued or sold upon the exercise of such rights, options,
warrants or conversion or exchange rights and (y) such shares
of Stock, if any, were issued or sold for the consideration
actually received by the Corporation upon such exercise plus
the aggregate consideration, if any, actually received by the
Corporation for the issuance, sale or grant of all such
rights, options, warrants or conversion or exchange rights
whether or not exercised; PROVIDED, HOWEVER, that no such
readjustment shall have the effect of increasing the Exercise
Price by an amount in excess of the amount of adjustment
initially made in respect of the issuance, sale or grant of
such rights, options, warrants or conversion or exchange
rights.
i) Whenever the number of Shares purchasable upon the exercise of
this Option or the Exercise Price this Option is adjusted, as
herein provided, the Corporation shall promptly mail by first
class mail, postage prepaid, to the Optionee notice of such
6
<PAGE> 7
adjustment or adjustments. The Corporation may retain a firm
of independent public accountants (who may be the regular
accountants employed by the Corporation) to make any
computation required by these provisions and shall cause such
accountants to prepare a certificate setting forth the number
of Shares purchasable upon the exercise of the Option and the
Exercise Price of such Shares after such adjustment, setting
forth a brief statement of the facts requiring such adjustment
and setting forth the computation by which such adjustment was
made. Such certificate shall be conclusive of the correctness
of such adjustment and the Optionee shall have the right to
inspect such certificate during reasonable business hours.
j) Except as provided in these provisions, no adjustment in
respect of any dividends shall be made during the term of this
Option or upon the exercise of this Option.
k) In case of any consolidation of the Corporation with or merger
of the Corporation with or into another corporation or in case
of any sale or conveyance to another corporation of the
property of the Corporation as an entirety or substantially as
an entirety, the Corporation or such successor or purchasing
corporation (or an affiliate of such successor or purchasing
corporation), as the case may be, agrees that the Optionee
shall have the right thereafter upon payment of the Exercise
Price in effect immediately prior to such action to purchase
upon exercise of this Option the kind and amount of shares
and other securities and property (including cash) which the
Optionee would have owned or have been entitled to receive
after the happening of such consolidation, merger, sale or
conveyance had this Option been exercised immediately prior
to such action. The provisions of this Paragraph (k) shall
similarly apply to successive consolidations, mergers, sales
or conveyances.
6. EXERCISE OF OPTION
------------------
The Optionee or the Optionee's representative may exercise this Option
by giving written notice to the Secretary of the Corporation. The
notice shall specify the election to exercise the Option, the number of
Shares for which it is being exercised and, if Paragraph 16(b) of this
Agreement is applicable to this Option, the form of payment. The notice
shall be signed by the person or persons exercising this Option. In the
event that this Option is being exercised by the representative of the
Optionee, the notice shall be accompanied by proof satisfactory to the
Corporation of the representative's right to exercise this Option. The
Optionee or the Optionee's representative shall deliver to the
Secretary of the Corporation, at the time of giving the notice, payment
in the form which conforms to the applicable subparagraph of Paragraph
16 of this Agreement for the full amount of the Purchase Price.
The Corporation shall thereafter cause to be issued a certificate or
certificates for the Shares as to which this Option has been exercised,
registered in the name of the person exercising the Option (or in the
names of such person and his or her spouse as
7
<PAGE> 8
community property or as joint tenants with right of survivorship).
Except as otherwise provided in this Agreement, the Corporation shall
cause such certificate or certificates to be delivered to or upon the
order of the person exercising this Option.
Any shares issued pursuant to the exercise of this Option shall be
subject to the provisions of the Stockholder Agreement. In the event of
any conflict between the provisions of this Agreement and the
provisions of the Stockholder Agreement, the provisions which are most
beneficial to the Corporation, in the opinion of counsel to the
Corporation shall control.
7. WITHHOLDING TAXES
-----------------
In the event that the Corporation determines that it is required to
withhold Federal, state or local tax as a result of the exercise of
this Option, the Optionee, as a condition to the exercise of this
Option, shall make arrangements satisfactory to the Corporation to
enable it to satisfy such withholding requirements. The Optionee shall
also make arrangements satisfactory to the Corporation to enable it to
satisfy any withholding requirements that may arise in connection with
the lapse of the Right of Repurchase or in connection with the
disposition of Shares purchased by exercising this Option.
8. RIGHTS AS A SHAREHOLDER
-----------------------
Neither the Optionee nor the Optionee's representative shall have any
rights as a shareholder with respect to any shares subject to this
Option until the Option has been properly exercised and the Shares
subject to the Option have been issued in the name of the Optionee or
the Optionee's representative.
9. LEGALITY OF ISSUANCE
--------------------
No Shares shall be issued upon the exercise of this Option unless and
until the Corporation has determined that:
a) It and the Optionee have taken all actions required to
register the Shares under the Securities Act or to perfect an
exemption from the registration requirements thereof;
b) Any applicable listing requirement of any stock exchange on
which stock is listed has been satisfied; and
c) Any other applicable provision of state or Federal law has
been satisfied.
10. RESTRICTIONS ON TRANSFER OF SHARES
----------------------------------
Regardless of whether the offering and sale of Shares under the Plan
have been registered under the Securities Act or have been registered
or qualified under the securities laws of any state, the Corporation
may impose restrictions upon the sale, pledge or other transfer of such
Shares (including the placement of appropriate legends on stock
certificates) if, in the judgment of the
8
<PAGE> 9
Corporation and its counsel, such restrictions are necessary or
desirable in order to achieve compliance with the provisions of the
Securities Act, the securities laws of any state or any other law.
In the event that the sale of shares under the Plan is not registered
under the Securities Act but an exemption is available which requires
an investment representation or other representation, the Optionee
shall represent and agree that the Shares to be acquired pursuant to
the exercise of this Option are being acquired for investment, and not
with a view to the sale or distribution thereof, and shall make such
other representations as are deemed necessary or appropriate by the
Corporation and its counsel.
Stock certificates evidencing Shares acquired under this Agreement in
an unregistered transaction shall bear the following restrictive legend
(and
such other restrictive legends as are required or deemed advisable
under the provisions of any applicable law):
"THE SALE OF THE SECURITIES REPRESENTED HEREBY HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 ('ACT'). ANY
TRANSFER OF SUCH SECURITIES WILL BE INVALID UNLESS A
REGISTRATION STATEMENT UNDER THE ACT IS IN EFFECT AS TO SUCH
TRANSFER OR IN THE OPINION OF COUNSEL FOR THE ISSUER SUCH
REGISTRATION IS UNNECESSARY IN ORDER FOR SUCH TRANSFER TO
COMPLY WITH THE ACT."
The Corporation shall also place legends on stock certificates
representing its Right of Repurchase (if applicable).
Any determination by the Corporation and its counsel in connection with
any of the matters set forth in this Paragraph 10 shall be conclusive
and binding on the Optionee and all other persons.
11. REGISTRATION OF SECURITIES
--------------------------
The Corporation may, but shall not be obligated to, register or qualify
the sale of Shares under the Securities Act or any other applicable
law. The Corporation shall not be obligated to take any affirmative
action in order to cause the sale of Shares acquired under this
Agreement to comply with any law.
12. REMOVAL OF LEGENDS
------------------
If, in the opinion of the Corporation and its counsel, any legend
placed on a stock certificate representing Shares sold under this
Agreement is no longer required, the holder of such certificate shall
be entitled to exchange such certificate for a certificate representing
the same number of Shares but lacking such legend.
9
<PAGE> 10
13. NO TRANSFER OR ASSIGNMENT OF OPTION
-----------------------------------
Except as otherwise provided in Paragraph 4 this Agreement, this Option
and the rights and privileges conferred hereby shall not be
transferred, assigned, pledged or hypothecated in any way (whether by
operation of law or otherwise) and shall not be subject to sale under
execution, attachment or similar process. Upon any attempt to transfer,
assign, pledge, hypothecate or otherwise dispose of this Option, or of
any right or privilege conferred hereby, contrary to the provisions
hereof, or upon any attempted sale under any execution, attachment or
similar process upon the rights and privileges conferred hereby, this
Option and the rights and privileges conferred hereby shall immediately
become null and void.
14. NO EMPLOYMENT RIGHTS
--------------------
Nothing in this Agreement shall be construed as giving the Optionee the
right to be retained as an Employee or as impairing the right of the
Corporation to terminate his or her service at any time, with or
without cause.
15. DESIGNATION OF OPTION
---------------------
The Committee hereby designates this Option as a Nonstatutory Stock
option.
16. PAYMENT FOR STOCK
-----------------
a) PAYMENT IN CASH
---------------
The entire Purchase Price may be paid in U.S. dollars.
b) SURRENDER OF STOCK
------------------
All or part of the Purchase Price may be paid by the surrender
of Shares in good form for transfer. Such Shares must have
been owned by the Optionee or the Optionee's representative
for three (3) months or more and must have a fair market value
(as determined by the Committee) on the date of exercise of
this Option which, together with any amount paid in a form
other than Shares, is equal to the Purchase Price.
17. CHANGES AND INTERPRETATION
--------------------------
This Agreement may be modified only in writing authorized by the
Committee and by either the Optionee to whom the modification is being
applied or by holders of a majority of options to purchase Stock issued
to Employees by the Corporation to whom the modification is being
applied. Notwithstanding the foregoing, the Committee shall have the
authority to interpret and administer the provisions of this Agreement
and such actions by the Committee shall be final and binding.
10
<PAGE> 11
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be executed on
its behalf by its officer duly authorized to act on behalf of the Committee, and
the Optionee has personally executed this Agreement.
SEALY CORPORATION,
a Delaware corporation OPTIONEE
By:/s/ Sealy Corporation
- ------------------------ -------------------------
Title:
11
<PAGE> 12
SCHEDULE A
----------
1. 100,000 Shares shall become exercisable on March 4, 1997.
2. 100,000 Shares shall become exercisable on March 4, 1998.
3. 100,000 Shares shall become exercisable on March 4, 1999.
4. The remaining Shares shall become exercisable on March 4, 2000.
12
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Exhibit 10.26
STOCKHOLDER AGREEMENT
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This Shareholder Agreement, dated as of March 4, 1996 by and among
Sealy Corporation, a Delaware corporation (the "Company"), and Ron L. Jones (the
"Executive").
WHEREAS, the Company pursuant to the terms of an employment agreement
with the Executive dated March 4, 1996 (the "Employment Agreement") and as an
inducement to the Executive to become an employee of the Company desires to:
(a) issue to the Executive 60,000 restricted shares of the
Company's Class A Common Stock par value $.01 per share,
issued effective March 4, 1996 subject to forfeiture as
provided in a separate Restricted Stock Agreement, and
(b) grant to the Executive options to purchase 400,000 shares of
the Company's Class A Common Stock, par value $.01 per share,
as provided in a separate Stock Option Agreement.
(such Class A Common Stock hereinafter referred to as the "Stock"); and
WHEREAS, the Executive desires to receive such Stock and to enter into
an agreement concerning, INTER ALIA, the transfer or other disposition of
securities of the Company; and
WHEREAS, the Executive acknowledges he has requested and received all
information relating to the Company as is necessary or appropriate under the
circumstances;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the parties hereto agree as follows:
1. ACQUISITION FOR INVESTMENT. (a) As used in this Agreement, (i) the
term "Securities" includes the Stock, any shares of common stock issued to the
Executive upon the exercise of options granted under the Company's Stock
Option Plan, shares of common stock issued to the
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Executive under the Company's Performance Share Plan and all shares of capital
stock of the Company issued as a result of any stock dividend on, or stock split
or reclassification or conversion of, any other Securities, or issued with
respect to any other Securities in connection with any merger or reorganization
involving the Company, and (ii) the term "Common Stock" includes all shares of
common stock of the Company included within the term "Securities".
(b) The Executive represents and warrants to the Company that
(i) all Securities acquired by him are being acquired by him for his own account
for investment, and (ii) he will not sell or otherwise dispose of any Securities
except in compliance with the Securities Act of 1933, as amended (the "Act"),
the rules and regulations of the Securities and Exchange Commission (the
"Commission") thereunder and the terms of this Agreement. By taking delivery of
any Securities, the Executive shall be deemed to have reaffirmed such
representation and warranty at and as of the date of delivery.
(c) The Executive agrees that, prior to making any disposition
of any Securities (other than a disposition to the Company or a disposition
pursuant to Section 7), he will give written notice to the Company describing
the manner of such proposed disposition. The Executive further agrees that he
will not effect such proposed disposition until either (i) the Company has
notified him that, in the opinion of counsel for the Company, no registration of
such Securities under the Act or registration or qualification under the
securities or "blue sky" laws of any state is required in connection with such
proposed disposition, or (ii) a registration statement under the Act covering
such proposed disposition has been filed by the Company with the Commission and
has become effective under the Act and compliance with applicable state
securities or "blue sky"
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laws has been effected. The Company will use reasonable efforts to comply
with any such applicable state securities or "blue sky" laws, but shall in no
event be required, in connection therewith, to qualify to do business in any
state where it is not then qualified or to take any action that would
subject it to tax or to the general service of process in any state where it is
not then subject. The restrictions on transfer contained in Sections 1 and 2
hereof shall be in addition to, and not by way of limitation of, any other
restrictions on transfer contained in any other Section of this Agreement.
(d) The Executive acknowledges that he is familiar with Rule
144, as amended, under the Act, and that he has been advised that Rule 144
permits, only under certain circumstances, the resale of restricted securities
such as the Stock, but that Rule 144 is not currently, and may not in the future
become, available to permit resales by him of any Securities. The Executive
understands that, to the extent that Rule 144 is not available, he will be
unable to sell any Securities without either registration under the Act or the
existence of another exemption from such registration requirement. The Company
has no obligation to register any Securities except as expressly provided in
Section 7 of this Agreement.
2. LEGEND OF CERTIFICATES. Each stock certificate of the
Company issued to represent any Securities shall bear the following (or a
substantially equivalent) legend on the face or reverse side thereof:
"The transfer of these securities is subject to restrictions
set forth in a Stockholder Agreement, dated as of March 4,
1996, and any amendments thereto, a copy of which is available
for inspection at the office of the Corporation. The
securities represented hereby have not been registered under
the Securities Act of 1933, as amended, and no sale, gift,
transfer or other disposition thereof or
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of any interest therein shall be valid or effective (i)
unless and until registered pursuant to the provisions of
such Act and registered or qualified under applicable state
securities or`blue sky' laws, or (ii) unless exemption from
registration (determined pursuant to the provisions of said
Agreement) is available."
Any stock certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon the
completion of a public distribution of Securities represented thereby) shall
also bear such legend, unless in the opinion of counsel for the Company the
securities represented thereby need no longer be subject to the restrictions
contained in Sections 1 and 2 of this Agreement. The provisions of Sections 1,
2, 3, 4, 5, 6 and 7 of this Agreement shall be binding upon, and shall inure to
the benefit of, the Executive and all subsequent record or beneficial holders of
Securities who acquired the same directly or indirectly from the Executive in a
transaction or series of transactions not involving any public offering (a
"Holder"). The Company agrees that it will not transfer on its books any
certificate for Securities in violation of the provisions of this Agreement.
3. TRANSFER OF SECURITIES. (a) The Executive agrees with the Company
that he will not, prior to March 4, 2001, directly or indirectly, sell, pledge
(except as provided in Section 3(d)), give, bequeath, transfer, assign or in any
other way whatsoever encumber or dispose of (hereinafter collectively called
"transfer") any Securities (or any interest therein), any stock certificate
representing same or any voting trust certificate issued with respect to said
securities, now or hereafter at any time owned by him, except as permitted by
this Agreement or as may be specifically authorized by the Board of Directors of
the Company provided, however, that the restrictions imposed by this subsection
shall cease and terminate upon the completion of the first
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offering of shares of the Company's common stock to the public pursuant to a
registration statement filed under the Act.
(b) If, after March 4, 2001, but prior to the time of the
completion of the first offering of shares of the Company's common stock to the
public pursuant to a registration statement filed under the Act, the Executive
desires to sell any Securities owned by him other than to the Company and if the
Executive shall have received a bona fide arms' length written offer (a "Bona
Fide Offer") from an independent party unrelated to the Executive (the "Outside
Party") for the purchase of such Securities, the Executive shall give a notice
in writing (the "Option Notice") to the Company setting forth such desire, which
notice shall set forth at least the name and address of the Outside Party and
the price and terms of the Bona Fide Offer and be accompanied by a copy of the
Bona Fide Offer. Upon the giving of such Option Notice, the Company shall have
the option to purchase all (but not less than all) of the securities specified
in the Option Notice, said option to be exercised within twenty (20) days after
the giving of such Option Notice, by giving a counter notice to the Executive.
If the Company elects to purchase all of such securities, it shall be obligated
to purchase, and the Executive shall be obligated to sell, such Securities at
the price and on the terms indicated in the Bona Fide Offer, except that the
closing shall be held on the 45th day after the giving of the Option Notice (or
if such day is not a business day, on the next following business day) at 10:30
A.M., local time, at the registered office of the Company in the State of
Delaware, or at such other time and place as may be mutually agreed to by the
Company and the Executive. If the Company does not elect to purchase all of such
Securities as aforesaid, the Executive thereafter, at any time within a period
of three
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months from the giving of said Option Notice, may transfer all (but not
less than all) of such Securities to the Outside Party at the price and on the
terms contained in the Bona Fide Offer (and such Outside Party shall take such
Securities subject to the provisions of Sections 1(c) and 2 hereof);
provided, however, that in the event the Executive has not so transferred said
Securities to the Outside Party within said three month period, then said
Securities thereafter shall continue to be subject to all of the restrictions
contained in this Agreement. Notwithstanding the foregoing, if the Company
elects to purchase all of such Securities covered by the Option Notice but such
purchase would result in materially adverse tax consequences to the Executive,
the Executive may, at his option, withdraw his Option Notice and retain the
securities covered by the Option Notice, which shall continue to be subject to
the terms and provisions of this Agreement.
(c) Notwithstanding anything to the contrary contained in this
Agreement, Executive shall not be under any restriction contained in this
Section 3 as to the transfer by him of his Securities to his Related Transferees
(as defined herein) provided that each such Related Transferee shall first (i)
execute a written consent in form and substance satisfactory to the Company to
be bound by all of the provisions of this Agreement and (ii) give a duplicate
original of such consent to the Company. The "Related Transferees" of Executive
shall consist of the Executive's spouse, his adult lineal descendants, the adult
spouses of his lineal descendants, custodians for his minor lineal descendants,
trusts solely for the benefit of the Executive, his spouse or his minor or adult
lineal descendants, court-appointed representatives of the Executive, his
spouse, any of his lineal descendants or the spouse of any thereof, and, in the
event of death, his personal representatives (in their capacities as such),
estate and named beneficiaries. In the
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event of any transfer by the Executive to his Related Transferees of all or
any part of his Securities (or in the event of any subsequent transfer by any
such Related Transferee to another Related Transferee), such Related
Transferees shall receive and hold said Securities subject to the terms of this
Agreement and the rights and obligations hereunder as though said Securities
were still owned by the Executive, and such Related Transferees shall be deemed
the Executive for the purposes of this Agreement. There shall be no further
transfer of such Securities by a Related Transferee except between and among
such Related Transferee, the Executive, and the other Related Transferees of
the Executive, or except as permitted by this Agreement.
(d) Notwithstanding anything to the contrary contained in this
Agreement, the Executive shall be entitled to pledge the Stock issued to him (or
his interest therein) to secure a loan made to him by the Company, a bank or
other recognized financial institution for the sole purpose of financing (to the
full extent of such loan) the taxes required with respect to the issuance of the
Stock to him; provided that any such pledgee bank or financial institution
accepts such pledge subject to all of the provisions of this Agreement. All
stock acquired or transferred by any such pledge bank in connection with any
such pledge shall be subject to all of the provisions of this Agreement.
4. TERMINATION OTHER THAN BY EMPLOYEE. Upon the termination of
Executive's employment for any reason other than Executive's resignation (a
"Sale Event"), but only if the event occurs on or before the completion of the
first offering of shares of the Company's common stock to the public pursuant to
a registration statement filed under the Act (and subject also to the provisions
of the next succeeding sentence), the personal representative of the deceased
Executive,
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the disabled Executive or the terminated Executive, as the case may
be (herein called the "Seller"), may, at his option exercisable by written
notice (a "Sale Notice") delivered to the Company within 90 days after the
applicable Sale Event (or, in the event the applicable Sale Event is the death
of the Executive, within 60 days after the appointment and qualification of the
deceased Executive's personal representative), elect to sell all, but not less
than all, of the Securities owned at the time of the Sale Event by the deceased
or terminated Executive (and the Related Transferees, if any, of such deceased
or terminated Executive) or thereafter acquired pursuant to option agreements
with the Company, and upon the giving of such Sale Notice the Seller (and his
Related Transferees, if applicable) shall be obligated to sell and the Company
shall be obligated to buy the Securities covered by the Sale Notice at the
purchase price and on the terms provided in Section 6 hereof. In the event a
purchase of Securities pursuant to this Section 4 shall be prohibited or would
cause a default under the terms of any institutional credit agreement,
indenture or other like instrument with respect to the borrowing of money, in
each case as the same may be amended from time to time, the obligations of the
Seller and the Company pursuant to this Section shall be suspended until such
time as such prohibition first lapses or is waived and no such default would be
caused. (For the purposes of Section 6, the date of such lapse or waiver shall
be deemed the relevant Sale Event for purposes of the purchase and sale of
Securities pursuant to this Section 4 which are subject to any such
prohibition.) The Company shall use reasonable efforts to obtain a waiver of
any such prohibition, but shall not be obligated to incur any additional
interest or other costs or charges or to make any prepayment with respect to
any indebtedness in connection with such efforts.
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5. TERMINATION BY RESIGNATION. In the event of the resignation by the
Executive of his employment with the Company and its subsidiaries (a
"Purchase Event"), but only if before the completion of the first offering of
shares of the Company's common stock to the public pursuant to a registration
statement filed under the Act, the Company may, at its option exercisable by
written notice (a "Purchase Notice") delivered to the Executive within 90
days after the applicable Purchase Event, elect to purchase, and, upon the
giving of such notice, the Company shall be obligated to purchase and the
Executive (and his Related Transferees, if any) shall be obligated to sell,
all, but not less than all, of the Securities owned at the time of the
Purchase Event by the Executive (and his Related Transferees, if any) or
which shall thereafter be acquired pursuant to option agreements with the
Company at the purchase price and on the terms provided in Section 6 hereof.
For the purposes of this Section 5, the term "Related Transferees" shall
refer to those persons identified in Section 3(c) hereof.
6. PURCHASE PRICE, CLOSING AND TERMS OF PAYMENT. (a) The purchase
price to be paid for each share of Common Stock purchased pursuant to Section 4
or Section 5 hereof shall be the "Fair Market Value" of such share as of the
end of the Company's most recent fiscal year prior to the Sale Event or
Purchase Event, less the amount of any distributions with respect to such share
made by the Company since that date. The "Fair Market Value" of each share of
Common Stock shall be determined as follows: For a period of thirty (30) days
after the giving of a Sale Notice or a Purchase Notice pursuant to Section 4 or
Section 5, as the case may be, the Company and the Seller shall use their best
efforts to agree upon such "Fair Market Value". Should they fail to reach
agreement within such thirty-day period, such "Fair Market Value" shall be
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determined by Duff & Phelps or such other firm of investment bankers or
valuation consultants as may be designated by the Company subject to the
approval of the Seller not unreasonably withheld (which designation shall be
made within fifteen (15) days after end of such thirty-day period), which
determination shall be final and binding upon the Company and
the Seller (and his Related Transferees, if any). The Company shall pay the fees
and expenses of such investment bankers or valuation consultants.
(b) The closing for all purchases and sales of Securities
provided for in Sections 4 and 5 hereof shall be held at the principal executive
offices of the Company at 10:30 o'clock A.M., on the 60th day after the giving
of the applicable Sale Notice or Purchase Notice, or, if later, on the day any
securities are acquired pursuant to option agreements with the Company, but
subject, in all cases, to the provisions of Section 6(a) hereof; provided,
however, that if the Executive or a Related Transferee who has become obligated
to sell Securities hereunder is deceased on the closing date as aforesaid and
such deceased person's personal representative shall not have been appointed and
qualified by such date, then the closing shall be postponed until the l0th day
after the appointment and qualification of such personal representative. If the
aforesaid closing date falls on a day which is not a business day, then the
closing shall be held on the next succeeding business day.
(c) The purchase price for the purchase and sale of Securities
pursuant to the provisions hereof shall be paid in cash, by certified or
official bank check.
(d) The sellers of Securities sold pursuant to Section 4 or 5
hereof shall cause such Securities to be delivered to the Company at the
aforesaid closing free and clear of all liens,
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charges and encumbrances of any kind. Such sellers shall take all actions as the
Company shall request as necessary to vest in the Company at such closing good
and marketable title to such Securities, free and clear of all liens, charges
and encumbrances.
7. REGISTRATION RIGHTS. (a) If the Company at any time
proposes to register any shares of its common stock under the Act, whether or
not for sale for its own account, for sale to the public under the Act, the
Company shall give written notice of the proposed registration to each Holder
at least 30 days prior to the filing thereof. Each Holder shall have the right
to request that all or any part of his shares of Common Stock be included in
such registration by giving written notice to the Company within 15 days after
the giving of such notice by the Company (any Holder giving the Company a
notice requesting that shares of Common Stock owned by him be included in such
proposed registration being hereinafter referred to in this Section 7 as a
"Registering Holder"); provided, however, that (i) if the registration is an
underwritten primary registration on behalf of the Company and the managing
underwriters of such offering determine that the aggregate amount of shares of
the Company which all Registering Holders and all other security holders of the
Company ("Other Holders") propose to include in such registration statement
would interfere with such underwritten public offering, the Company will
include in such registration, first, the shares which the Company proposes to
sell and, second, the number of shares of Common Stock of such Registering
Holders and the number of shares to be sold for the account of Other Holders
requested to be included in such registration that, in the opinion of the
managing underwriters, would not interfere with such primary public offering,
pro rata among all such Registering prospective underwriters selected or
approved by the Company and on the
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terms and subject to the conditions of one or more underwriting agreements
negotiated between the Company and/or Other Holders demanding registration and
the prospective underwriters. The Company may withdraw any registration
statement described in this Section 7(a) at any time before it becomes
effective, or postpone the offering of securities, without obligation or
liability to any Holder. Notwithstanding the foregoing, no Holder shall have
the right hereunder to participate in the first underwritten public offering of
shares of common stock by the Company for its own account, and the Company
shall have no obligation to provide any Holder with written notice thereof.
The rights provided in this Section 7(a) shall not apply to any Holder to whom
the Company shall deliver an opinion of its counsel that all of the shares of
Common Stock which such Holder proposes to sell may lawfully be sold or
distributed publicly without registration within a period of six months
commencing on the date which is sixty days after the date of such Holder's
registration request.
(b) In connection with any registration of shares of Common
Stock under the Act pursuant to this Agreement, the Company will furnish each
Holder whose shares of Common Stock are registered thereunder with a copy of the
registration statement and all amendments thereto and will supply each such
Holder with copies of any prospectus included therein (including a preliminary
prospectus and all amendments and supplements thereto), in such quantities as
may be reasonably necessary for the purposes of the proposed sale or
distribution covered by such registration. The Company shall not, however, be
required to maintain the registration statement and to supply copies of a
prospectus for a period beyond 90 days after the effective date of such
registration statement and, at the end of such period, the Company may
deregister any shares of
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Common Stock covered by such registration statement and not then sold or
distributed. In connection with any such registration of shares of Common
Stock, the Company will, at the request of the managing underwriters with
respect thereto, use reasonable efforts to qualify such registered shares for
sale under the securities or "blue sky" laws of such states as is reasonably
required to permit the distribution of such registered shares, provided that
the Company shall not be required in connection therewith or as a condition
thereof to qualify to do business in any state where it is not then qualified
or to take any action that would subject it to tax or to the general service of
process in any state where it is not then subject.
(c) Notwithstanding any other provision of this Section 7, the
Executive agrees that he will not (and it shall be a condition to the rights of
each Holder under this Section 7 that such Holder does not) offer for public
sale any Securities during the 7 days prior to and the 90 days after the
effective date of any registration statement in connection with an underwritten
public offering, unless such Securities are covered by such registration
statement or a separate effective registration statement.
(d) Except as otherwise required by state securities or "blue
sky" laws or the rules and regulations promulgated thereunder, all expenses,
disbursements and fees incurred by the Company in connection with carrying out
its obligations under this Section 7 shall be borne by the Company; however,
each Holder shall pay (i) all costs and expenses of counsel for such Holder, if
such counsel is not also counsel for the Company, (ii) all underwriting
discounts, commissions and expenses and all transfer taxes with respect to the
shares sold by such Holder,
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and (iii) all other expenses incurred by such Holder and incidental to the sale
and delivery of the shares to be sold by such Holder.
(e) It shall be a condition of each Holder's rights
hereunder to have shares of Common Stock owned by him registered that:
(i) such Holder shall cooperate with the Company by
supplying information and executing appropriate documents
relating to such Holder or the securities of the Company owned
by such Holder in connection with such registration;
(ii) such Holder shall enter into any undertakings
and take such other action relating to the conduct of the
proposed offering which the Company or the underwriters may
reasonably request as being necessary to insure compliance
with federal and state securities laws and the rules or other
requirements of The National Association of Securities
Dealers, Inc. or otherwise to effectuate the offering; and
(iii) such Holder shall execute and deliver an
agreement to indemnify and hold harmless the Company, each of
its directors, each of its officers who has signed the
registration statement, any underwriter ( defined in the Act),
and each person, if any, who controls the Company or such
underwriter within the meaning of the Act, against such
losses, claims, damages liabilities (including
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reimbursement for legal and other expenses) to which the
Company or any such director officer, underwriter or
controlling person may become subject under the Act or
otherwise, in such manner as customary for registrations of
the type then proposed and, in any event, equivalent in scope
to indemnity given by the Company in connection with such
registration, but only with respect to information furnished
b such Holder in connection with such registration.
(f) In the event of any registration under the Act of shares
of Common Stock pursuant to this Section 7, the Company hereby agrees to
indemnify and hold harmless each Holder disposing of such shares against such
losses, claims, damages or liabilities (including reimbursement for legal and
other expenses) to which such Holder may become subject under the Act or
otherwise, in such manner as is customary for registrations of the type then
proposed but not with respect to information furnished by such Holder in
connection with such registration.
8. NOTICES. All notices or other communications under this Agreement
shall be given in writing and shall be deemed duly given on the third full
business day following the day of the mailing thereof by registered or certified
mail, return receipt requested, or when delivered personally, as follows:
(a) if to the Company, at its principal executive offices at
the time of the giving of such notice, or at such other place as the Company
shall have designated by notice as herein provided to the Executive;
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(b) if to the Executive, at the address which appears below
his name on the Signature Page, or at such other place as the Executive shall
have designated by notice as herein provided to the Company; and
(c) if to any other Holder, at such Holder's last address
appearing in the Company's stock transfer records.
9. SPECIFIC PERFORMANCE. Due to the fact that the securities of the
Company cannot be readily purchased or sold in the open market, and for other
reasons, the parties will be irreparably damaged in the event that this
Agreement is not specifically enforced. In the event of a breach or threatened
breach of the terms, covenants and/or conditions of this Agreement by any of
the parties hereto, the other parties shall, in addition to all other remedies,
be entitled (without any bond or other security being required) to a temporary
and/or permanent injunction, without showing any actual damage or that monetary
damages would not provide an adequate remedy, and/or a decree for specific
performance, in accordance with the provisions hereof.
10. MISCELLANEOUS. (a) This writing, TOGETHER WITH THE RESTRICTED
STOCK AGREEMENT AND THE STOCK OPTION AGREEMENT, constitute the entire agreement
of the parties with respect to the subject matter hereof and may not be
modified or amended except by a written agreement signed by the Company
(following the specific approval of such modification or amendment by the
Company's Board of Directors) and the Executive. Anything in this Agreement to
the contrary notwithstanding (and without limiting the rights of the owners of
all of the then outstanding securities to amend, modify or terminate this
Agreement), any modification or amendment of this Agreement by a written
agreement signed by, or binding upon,
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the Executive shall be valid and binding upon any and all persons or entities
who may, at any time, have or claim any rights under or pursuant to this
Agreement (including all Holders hereunder) in respect of the Securities
originally acquired by the Executive.
(b) No waiver of any breach or default hereunder shall be
considered valid unless in writing, and no such waiver shall be deemed a waiver
of any subsequent breach or default of the same or similar nature. Anything in
this Agreement to the contrary notwithstanding, any waiver, consent or other
instrument under or pursuant to this Agreement signed by, or binding upon, the
Executive shall be valid and binding upon any and all persons or entities (other
than the Company) who may, at any time, have or claim any rights under or
pursuant to this Agreement (including all Holders hereunder) in respect of the
Securities originally acquired by the Executive.
(c) Except as otherwise expressly provided herein, this
Agreement shall be binding upon and inure to the benefit of the Company, its
successors and assigns, and the Executive and his heirs, personal
representatives, successors and assigns; provided, however, that (i) nothing
contained herein shall be construed as granting the Executive the right to
transfer any of his Securities except in accordance with this Agreement, and
(ii) the Executive shall have no rights hereunder (other than in respect of the
indemnification provisions herein contained) after he ceases to own any
Securities.
(d) If any provision of this Agreement shall be invalid or
unenforceable, such invalidity or unenforceability shall attach only to such
provision and shall not in any manner affect or render invalid or unenforceable
any other severable provision of this Agreement, and this Agreement shall be
carried out as if any such invalid or unenforceable provision were not contained
herein.
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(e) The section headings contained herein are for the purposes
of convenience only and are not intended to define or limit the contents of the
sections.
(f) Each party hereto shall cooperate and shall take such
further action and shall execute and deliver such further documents may be
reasonably requested by the other party in order to carry out the provisions and
purposes of this Agreement.
(g) Whenever the pronouns "he" or "his" are used herein
they shall also be deemed to mean "she" or "hers" or "it" or "its" whenever
applicable. Words in the singular shall be read and construed as through in the
plural and words in the plural shall be read and construed as though in the
singular in all cases where they would so apply.
(h) This Agreement may be executed in counterparts, all
of which taken together shall be deemed one original.
(i) This Agreement shall be deemed to be a contract
under the laws of the State of Delaware and for all purposes shall be construed
and enforced in accordance with the internal laws of said state without regard
to the principles of conflicts of law.
(j) Notwithstanding anything to the contrary contained in this Agreement, the
Executive may pay the taxes required with respect to the vesting of restricted
shares of stock by transferring vested shares of Stock to the Company. For this
purpose the per share value of the shares to be transferred to the Company
shall be the same as the per share value used in computing the taxes on the
shares which are vesting.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
SEALY CORPORATION
By: /s/ Sealy Corporation
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Executive
Address-----------------------
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Exhibit 10.27
RESTRICTED STOCK GRANT AGREEMENT
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This RESTRICTED STOCK GRANT AGREEMENT is entered into effective March
4, 1996 ("Date of Grant") by and between SEALY CORPORATION, a Delaware
corporation, (the "Company") and RON L. JONES (the "Employee"), for the purpose
of subjecting 60,000 shares of the common stock of the Company and any
distributions thereon (the "Stock") granted to the Employee as a Restricted
Stock Grant subject to certain forfeiture provisions contained herein.
W I T N E S S E T H:
WHEREAS, to provide an incentive to the Employee to use Employee's best
efforts to increase the value of the Company, the Employee has been granted the
Stock subject to the forfeiture provisions contained herein; and
NOW THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
Section 1. VESTING AND FORFEITURE. Fifteen thousand (15,000) of the
shares of Stock shall vest on each anniversary of the Date of Grant. If at a
time any shares of Stock are not vested (I) the employment of Employee by the
Company and its subsidiaries is terminated by reason of the death or permanent
disability of Employee or the Employee's resignation (unless such resignation is
forced by the Company) or (ii) any transfer of Stock shall be made in violation
of this Agreement, or the stockholder agreement dated March 4, 1996 between the
Company and the Employee (the "Stockholder Agreement"), such unvested shares of
Stock may be reacquired by the Company, upon notice to the Employee or any
permitted transferee, at no cost to the Company (with distributions thereon
being valued at their current value, which in the case of cash shall be assumed
to have grown at the compound rate of 8% per year). Such notice of forfeiture
shall be given by the Company no later than 90 days after the date on which the
Company receives actual notice of the occurrence of such event. In the case of
any other termination of employment, all shares shall vest.
Section 2. ADDITIONAL SHARES. In lieu of receiving any dividends
payable on the Stock during 1996, the number of shares of common stock included
in the Stock shall be increased by a number of shares equal to the result of
dividing the amount of the dividends
1
<PAGE> 2
by 9.43. Any dividends payable on the Stock after 1996 shall be distributed to
the Employee.
Section 3. PROHIBITED TRANSFERS. Any sale, hypothecation, encumbrance
or other transfer other than transfer by death of any of the shares of Stock
which are subject to forfeiture is prohibited unless the same shall have been
consented to in advance in writing by the Company (which consent may be withheld
in the sole discretion of the Company) or permitted by the Stockholder
Agreement. After vesting, shares of stock will continue to be subject to the
provisions of the Stockholder Agreement.
Section 4. LEGENDS. Each instrument representing unvested Stock shall
be endorsed with the following legend and with any other legends required by law
or the Stockholder Agreement:
THE SALE OR TRANSFER OF SHARES OF STOCK REPRESENTED BY THIS
CERTIFICATE, WHETHER VOLUNTARY, OR BY OPERATION OF LAW, IS SUBJECT TO
THE RESTRICTIONS ON TRANSFER AND FORFEITURE CONDITIONS (WHICH INCLUDE
THE SATISFACTION OF CERTAIN EMPLOYMENT SERVICE REQUIREMENTS) SET FORTH
IN A RESTRICTED STOCK GRANT AGREEMENT. A COPY OF SUCH AGREEMENT MAY BE
INSPECTED AT THE OFFICE OF THE SECRETARY OF THE CORPORATION.
Section 5. WITHHOLDING TAXES. As a condition to the grant or the
vesting of the Stock acquired hereunder, the Grantee shall make such
arrangements as the Company may require for the satisfaction of any Federal,
state or local withholding tax obligations that may arise in connection with
such grant or vesting.
Section 6. PARTIES IN INTEREST. This Agreement shall be binding upon
and shall inure to the benefit of the parties hereto, their respective heirs,
executors, administrators, successors, assigns and personal representatives.
Section 7. SPECIFIC PERFORMANCE. In the event of a breach of this
Agreement by any party hereto, any other party hereto shall be entitled to
secure specific performance of this Agreement in any court of competent
jurisdiction.
Section 8. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
shall constitute one and the same instrument.
Section 9. NOTICES, ETC. All notices and other communications required
or permitted hereunder will be in writing and will be mailed by first-class
mail, postage prepaid, addressed (a) if to Company at
Sealy Corporation
2
<PAGE> 3
1228 Euclid Avenue, 10th Floor
Cleveland, OH 44115
Attn.: Chairman of the Board of Directors
or at such other address as Company will have furnished to Employee in writing,
or (b) if to Employee at
or at such other address as Employee will have furnished to Company in writing
in accordance with this Section.
All notices and other communications to be given hereunder shall be
given in writing. Except as otherwise specifically provided herein, all notices
and other communications hereunder shall be deemed to have been given if
personally delivered to the party being served, or two business days after
mailing thereof by registered mail, return receipt requested, postage prepaid,
to the requisite address set forth above (until notice of change thereof is
served in the manner provided in this Section).
Section 10. NO RIGHT TO EMPLOYMENT. Nothing in this Agreement or in
the act of granting the Stock to Employee shall give the Employee any rights to
continue to be employed by the Company.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
Company:
SEALY CORPORATION
a Delaware corporation
By _______________________________
Its_______________________________
Employee:
3
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