<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 3, 1998
REGISTRATION NO. 333-48187
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
SEALY MATTRESS COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
OHIO 2510 34-0439410
(PRIMARY STANDARD (I.R.S. EMPLOYER
(STATE OR OTHER INDUSTRIAL CLASSIFICATION IDENTIFICATION NUMBER)
JURISDICTION CODE NUMBER)
OFINCORPORATION OR
ORGANIZATION) (continued on next page)
HALLE BUILDING
10TH FLOOR
1228 EUCLID AVENUE
CLEVELAND, OHIO 44115
TELEPHONE: (216) 522-1310
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
KENNETH L. WALKER
HALLE BUILDING
10TH FLOOR
1228 EUCLID AVENUE
CLEVELAND, OHIO 44115
TELEPHONE: (216) 522-1310
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPY TO:
LANCE C. BALK
KIRKLAND & ELLIS
153 EAST 53RD STREET
NEW YORK, NEW YORK 10022-4675
TELEPHONE: (212) 446-4800
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
(continued from preceding page)
SEALY CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 2510 36-3284147
(PRIMARY STANDARD (I.R.S. EMPLOYER
(STATE OR OTHER INDUSTRIAL IDENTIFICATION NUMBER)
JURISDICTION CLASSIFICATION CODE
OFINCORPORATION OR NUMBER)
ORGANIZATION)
SEALY MATTRESS COMPANY OF PUERTO RICO
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
OHIO 2510 34-6544153
(PRIMARY STANDARD (I.R.S. EMPLOYER
(STATE OR OTHER INDUSTRIAL IDENTIFICATION NUMBER)
JURISDICTION CLASSIFICATION CODE
OFINCORPORATION OR NUMBER)
ORGANIZATION)
OHIO-SEALY MATTRESS MANUFACTURING CO., INC.
(RANDOLPH)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MASSACHUSETTS 2510 04-2611765
(PRIMARY STANDARD (I.R.S. EMPLOYER
(STATE OR OTHER INDUSTRIAL IDENTIFICATION NUMBER)
JURISDICTION CLASSIFICATION CODE
OFINCORPORATION OR NUMBER)
ORGANIZATION)
OHIO-SEALY MATTRESS MANUFACTURING CO.--FT. WORTH
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 2510 75-1491047
(PRIMARY STANDARD (I.R.S. EMPLOYER
(STATE OR OTHER INDUSTRIAL IDENTIFICATION NUMBER)
JURISDICTION CLASSIFICATION CODE
OFINCORPORATION OR NUMBER)
ORGANIZATION)
OHIO-SEALY MATTRESS MANUFACTURING CO.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
GEORGIA 2510 58-1186228
(PRIMARY STANDARD (I.R.S. EMPLOYER
(STATE OR OTHER INDUSTRIAL IDENTIFICATION NUMBER)
JURISDICTION CLASSIFICATION CODE
OFINCORPORATION OR NUMBER)
ORGANIZATION)
OHIO-SEALY MATTRESS MANUFACTURING CO.--HOUSTON
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 2510 74-1275140
(PRIMARY STANDARD (I.R.S. EMPLOYER
(STATE OR OTHER INDUSTRIAL IDENTIFICATION NUMBER)
JURISDICTION CLASSIFICATION CODE
OFINCORPORATION OR NUMBER)
ORGANIZATION)
SEALY MATTRESS COMPANY OF MICHIGAN, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MICHIGAN 2510 38-1256567
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION INDUSTRIAL IDENTIFICATION NUMBER)
OFINCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
SEALY MATTRESS COMPANY OF KANSAS CITY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MISSOURI 2510 44-0523533
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION INDUSTRIAL IDENTIFICATION NUMBER)
OFINCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
SEALY OF MARYLAND AND VIRGINIA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND 2510 52-1192669
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION INDUSTRIAL IDENTIFICATION NUMBER)
OFINCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
SEALY MATTRESS COMPANY OF ILLINOIS
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
ILLINOIS 2510 36-1853967
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION INDUSTRIAL IDENTIFICATION NUMBER)
OFINCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
(continued on next page)
<PAGE>
(continued from preceding page)
A. BRANDWEIN & CO.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
ILLINOIS 2510 36-2525330
(PRIMARY STANDARD (I.R.S. EMPLOYER
(STATE OR OTHER INDUSTRIAL IDENTIFICATION NUMBER)
JURISDICTION CLASSIFICATION CODE
OFINCORPORATION OR NUMBER)
ORGANIZATION)
SEALY MATTRESS COMPANY OF ALBANY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW YORK 2510 14-1325596
(PRIMARY STANDARD (I.R.S. EMPLOYER
(STATE OR OTHER INDUSTRIAL IDENTIFICATION NUMBER)
JURISDICTION CLASSIFICATION CODE
OFINCORPORATION OR NUMBER)
ORGANIZATION)
SEALY OF MINNESOTA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MINNESOTA 2510 41-1227650
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION INDUSTRIAL IDENTIFICATION NUMBER)
OFINCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
SEALY MATTRESS COMPANY OF MEMPHIS
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TENNESSEE 2510 62-0357534
(PRIMARY STANDARD (I.R.S. EMPLOYER
(STATE OR OTHER INDUSTRIAL IDENTIFICATION NUMBER)
JURISDICTION CLASSIFICATION CODE
OFINCORPORATION OR NUMBER)
ORGANIZATION)
THE STEARNS & FOSTER BEDDING COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 2510 36-2515193
(PRIMARY STANDARD (I.R.S. EMPLOYER
(STATE OR OTHER INDUSTRIAL IDENTIFICATION NUMBER)
JURISDICTION CLASSIFICATION CODE
OFINCORPORATION OR NUMBER)
ORGANIZATION)
THE STEARNS & FOSTER UPHOLSTERY FURNITURE COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
OHIO 2510 34-1449445
(PRIMARY STANDARD (I.R.S. EMPLOYER
(STATE OR OTHER INDUSTRIAL IDENTIFICATION NUMBER)
JURISDICTION CLASSIFICATION CODE
OFINCORPORATION OR NUMBER)
ORGANIZATION)
SEALY INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
OHIO 2510 34-1439379
(PRIMARY STANDARD (I.R.S. EMPLOYER
(STATE OR OTHER INDUSTRIAL IDENTIFICATION NUMBER)
JURISDICTION CLASSIFICATION CODE
OFINCORPORATION OR NUMBER)
ORGANIZATION)
THE OHIO MATTRESS COMPANY LICENSING AND COMPONENTS GROUP
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 2510 36-1750335
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION INDUSTRIAL IDENTIFICATION NUMBER)
OFINCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
SEALY MATTRESS MANUFACTURING COMPANY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 2510 36-3209918
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION INDUSTRIAL IDENTIFICATION NUMBER)
OFINCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JUNE , 1998
PROSPECTUS
[LOGO] SEALY MATTRESS COMPANY [LOGO]
OFFER TO EXCHANGE ITS SERIES B 9 7/8% SENIOR SUBORDINATED NOTES DUE
2007 FOR ANY AND ALL OF ITS OUTSTANDING 9 7/8% SENIOR SUBORDINATED NOTES
DUE 2007 AND ITS SERIES B 10 7/8% SENIOR SUBORDINATED DISCOUNT NOTES DUE 2007
FOR ANY AND ALL OF ITS OUTSTANDING 10 7/8% SENIOR SUBORDINATED DISCOUNT NOTES
DUE 2007
-----------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON ,
1998, UNLESS EXTENDED.
-----------
Sealy Mattress Company, an Ohio corporation ("Sealy"), hereby offers (the
"Exchange Offer"), upon the terms and conditions set forth in this Prospectus
(the "Prospectus") and the accompanying Letter of Transmittal (the "Letter of
Transmittal"), to exchange (i) $1,000 principal amount of its Series B 9 7/8%
Senior Subordinated Notes due 2007 (the "Senior Subordinated Exchange Notes")
for each $1,000 principal amount of its outstanding 9 7/8% Senior Subordinated
Notes due 2007 (the "Senior Subordinated Notes"), of which $125,000,000
principal amount is outstanding and (ii) $1,000 principal amount at maturity of
its Series B 10 7/8% Senior Subordinated Discount Notes due 2007 (the "Senior
Subordinated Discount Exchange Notes" and, together with the Senior
Subordinated Exchange Notes, the "Exchange Notes") for each $1,000 of principal
amount at maturity of its outstanding 10 7/8% Senior Subordinated Discount
Notes due 2007 (the "Senior Subordinated Discount Notes" and, together with the
Senior Subordinated Notes, the "Notes"), of which $128,000,000 principal amount
at maturity is outstanding. The Exchange Notes will have been registered under
the Securities Act of 1933, as amended (the "Securities Act") pursuant to a
Registration Statement of which this Prospectus is a part. The form and terms
of the Exchange Notes are the same as the form and term of the Notes (which
they replace) except that the Exchange Notes will bear a Series B designation
and will have been registered under the Securities Act and, therefore, will not
bear legends restricting their transfer and will not contain certain provisions
relating to an increase in the interest rate which were included in the terms
of the Notes in certain circumstances relating to the timing of the Exchange
Offer. The Exchange Notes will be fully and unconditionally guaranteed, on a
joint and several basis, by Parent and certain of Sealy's subsidiaries. The
Exchange Notes will evidence the same debt as the Notes (which they replace)
and will be issued under and be entitled to the benefits of the Indentures
dated December 18, 1997 among Sealy, the guarantors named therein (the
"Guarantors") and the Bank of New York (the "Indentures") governing the Notes.
See "The Exchange Offer" and "Description of Exchange Notes".
Sealy has not issued, and does not have any current firm arrangements to
issue, any significant indebtedness to which the Exchange Notes would rank
senior or pari passu in right of payment. The Exchange Notes will be
subordinated in right of payment to all Senior Debt of Sealy, including all of
the obligations under the Senior Credit Agreements, and will rank pari passu
with all future senior subordinated debt of the Issuer and will rank senior in
right of payment to all of Issuer's future subordinated debt. As of March 1,
1998, the aggregate amount of outstanding Indebtedness to which the Notes would
have been subordinated was $479.0 million, consisting of secured borrowings
under the Senior Credit Agreements.
Sealy will accept for exchange any and all Notes validly tendered and not
withdrawn prior to 5:00 p.m., New York City time, on , 1998, unless extended
by Sealy in its sole discretion (the "Expiration Date"). Notwithstanding the
foregoing, Sealy will not extend the Expiration Date beyond , 1998. Tenders
of Notes may be withdrawn at any time prior to 5:00 p.m. on the Expiration
Date. The Exchange Offer is subject to certain customary conditions. The Notes
were sold by Sealy on December 18, 1997 to the Initial Purchasers (as defined
herein under the caption "Summary--The Offering") in a transaction not
registered under the Securities Act in reliance upon an exemption under the
Securities Act. The Initial Purchasers subsequently placed the Notes with
qualified institutional buyers in reliance upon Rule 144A under the Securities
Act and with a limited number of institutional accredited investors that agreed
to comply with certain transfer restrictions and other conditions. Accordingly,
the Notes may not be reoffered, resold or otherwise transferred in the United
States unless registered under the Securities Act or unless an applicable
exemption from the registration requirements of the Securities Act is
available. The Exchange Notes are being offered hereunder in order to satisfy
the obligations of Sealy under the Registration Rights Agreement entered into
by Sealy in connection with the offering of the Notes. See "The Exchange
Offer".
Based on no-action letters issued by the staff of the Securities and Exchange
Commission (the "Commission") to third parties, Sealy believes the Exchange
Notes issued pursuant to the Exchange Offer may be offered for resale, resold
and otherwise transferred by any holder thereof (other than any such holder
that is an "affiliate" of Sealy within the meaning of Rule 405 under the
Securities Act) without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that such Exchange Notes
are acquired in the ordinary course of such holder's business and such holder
has no arrangement or understanding with any person to participate in the
distribution of such Exchange Notes. See "The Exchange Offer--Purpose and
Effect of the Exchange Offer" and "The Exchange Offer--Resale of the Exchange
Notes". Each broker-dealer (a "Participating Broker-Dealer") that receives
Exchange Notes for its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. The Letter of Transmittal states that by so acknowledging
and by delivering a prospectus, a participating Broker-Dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from time
to time, may be used by a Participating Broker-Dealer in connection with
resales of Exchange Notes received in exchange for Notes where such Notes were
acquired by such Participating Broker-Dealer as a result of market-making
activities or other trading activities. Sealy has agreed that, for a period of
180 days after the Expiration Date, it will make this Prospectus available to
any participating Broker-Dealer for use in connection with any such resale. See
"Plan of Distribution".
Holders of Notes not tendered and accepted in the Exchange Offer will
continue to hold such Notes and will be entitled to all the rights and benefits
and will be subject to the limitations applicable thereto under the Indenture
and with respect to transfer under the Securities Act. Sealy will pay all the
expenses incurred by it incident to the Exchange Offer. See "The Exchange
Offer".
SEE "RISK FACTORS" ON PAGE 16 FOR A DESCRIPTION OF CERTAIN RISKS TO BE
CONSIDERED BY HOLDERS WHO TENDER THEIR NOTES IN THE EXCHANGE OFFER.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-----------
The date of this Prospectus is June , 1998
<PAGE>
There has not previously been any public market for the Notes or the
Exchange Notes. Sealy does not intend to list the Exchange Notes on any
securities exchange or to seek approval for quotation through any automated
quotation system. There can be no assurance that an active market for the
Exchange Notes will develop. See "Risk Factors--Lack of Public Market;
Transfer Restrictions". Moreover, to the extent that Notes are tendered and
accepted in the Exchange Offer, the trading market for untendered and tendered
but unaccepted Notes could be adversely affected.
The Exchange Notes will be available initially only in book-entry form.
Sealy expects that the Exchange Notes issued pursuant to this Exchange Offer
will be issued in the form of a Global Certificate (as defined), which will be
deposited with, or on behalf of, The Depository Trust Company (the
"Depositary") and registered in its name or in the name of Cede & Co., its
nominee. Beneficial interests in the Global Certificate representing the
Exchange Notes will be shown on, and transfers thereof to qualified
institutional buyers will be effected through, records maintained by the
Depositary and its participants. After the initial issuance of the Global
Certificate, Exchange Notes in certified form will be issued in exchange for
the Global Certificate only on the terms set forth in the Indenture. See
"Description of Exchange Notes--Book-Entry; Delivery and Form".
AVAILABLE INFORMATION
Sealy has filed with the Commission a Registration Statement on Form S-4
(the "Exchange Offer Registration Statement", which term shall encompass all
amendments, exhibits, annexes and schedules thereto) pursuant to the
Securities Act, and the rules and regulations promulgated thereunder, covering
the Exchange Notes being offered hereby. This Prospectus does not contain all
the information set forth in the Exchange Offer Registration Statement. For
further information with respect to Sealy and the Exchange Offer, reference is
made to the Exchange Offer Registration Statement. Statements made in this
Prospectus as to the contents of any contract, agreement or other document
referred to are not necessarily complete. With respect to each such contract,
agreement or other document filed as an exhibit to the Exchange Offer
Registration Statement, reference is made to the exhibit for a more complete
description of the document or matter involved, and each such statement shall
be deemed qualified in its entirety by such reference. The Exchange Offer
Registration Statement, including the exhibits thereto, can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, at the Regional Offices
of the commission at 75 Park Place, New York, New York 10007 and at
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such materials can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates. Additionally, the Commission maintains a web
site (http://www.sec.gov) that contains reports, proxy and information
statements and other information regarding registrants that file
electronically with the Commission, including the Company.
As a result of the filing of the Exchange Offer Registration Statement with
the Commission, Sealy will become subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith will be required to file periodic reports and other
information with the Commission. The obligation of Sealy to file periodic
reports and other information with the Commission will be suspended if the
Exchange Notes are held of record by fewer than 300 holders as of the
beginning of any fiscal year of Sealy other than the fiscal year in which the
Exchange Offer Registration Statement is declared effective. Sealy will
nevertheless be required to continue to file reports with the Commission if
the Exchange Notes are listed on a national securities exchange. In the event
Sealy ceases to be subject to the informational requirements of the Exchange
Act, Sealy will be required under the Indentures to continue to file with the
Commission the annual and quarterly reports, information, documents or other
reports, including, without limitation, reports on Forms 10-K, 10-Q and 8-K,
which would be required pursuant to the informational requirements of the
i
<PAGE>
Exchange Act. Under the Indentures, Sealy shall file with the Trustee annual,
quarterly and other reports within fifteen days after it files such reports
with the Commission. Further, to the extent that annual or quarterly reports
are furnished by Sealy to stockholders generally it will mail such reports to
holders of Exchange Notes. Sealy will furnish annual and quarterly financial
reports to stockholders of Sealy and will mail such reports to holders of
Exchange Notes pursuant to the Indenture, thus holders of Exchange Notes will
receive financial reports every quarter. Annual reports delivered to the
Trustee and the holders of Exchange Notes will contain financial information
that has been examined and reported upon, with an opinion expressed by an
independent public or certified public accountant. Sealy will also furnish
such other reports as may be required by law.
FORWARD LOOKING STATEMENTS
THE PROSPECTUS CONTAINS CERTAIN FORWARD LOOKING STATEMENTS WITH RESPECT TO
THE FINANCIAL CONDITION, RESULTS OF OPERATIONS AND BUSINESS OF THE COMPANY,
INCLUDING STATEMENTS UNDER THE CAPTIONS "SUMMARY", "UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL INFORMATION", "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS". ALL
OF THESE FORWARD LOOKING STATEMENTS ARE BASED ON ESTIMATES AND ASSUMPTIONS
MADE BY THE MANAGEMENT OF THE COMPANY WHICH, ALTHOUGH BELIEVED TO BE
REASONABLE, ARE INHERENTLY UNCERTAIN. THEREFORE, UNDUE RELIANCE SHOULD NOT BE
PLACED UPON SUCH ESTIMATES AND STATEMENTS. NO ASSURANCE CAN BE GIVEN THAT ANY
OF SUCH ESTIMATES WILL BE REALIZED AND IT IS LIKELY THAT ACTUAL RESULTS WILL
DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY SUCH FORWARD LOOKING STATEMENTS.
FACTORS THAT MAY CAUSE SUCH DIFFERENCES INCLUDE: (1) INCREASED COMPETITION;
(2) INCREASED COSTS; (3) LOSS OR RETIREMENT OF KEY MEMBERS OF MANAGEMENT; (4)
INCREASES IN THE COMPANY'S COST OF BORROWING OR INABILITY OR UNAVAILABILITY OF
ADDITIONAL DEBT OR EQUITY CAPITAL; (5) ADVERSE STATE OR FEDERAL LEGISLATION OR
REGULATION OR ADVERSE DETERMINATIONS IN PENDING LITIGATION; AND (6) CHANGES IN
GENERAL ECONOMIC CONDITIONS AND/OR IN THE MARKETS IN WHICH THE COMPANY MAY,
FROM TIME TO TIME, COMPETE. MANY OF SUCH FACTORS ARE BEYOND THE CONTROL OF THE
COMPANY AND ITS MANAGEMENT. FOR FURTHER INFORMATION OR OTHER FACTORS WHICH
COULD AFFECT THE FINANCIAL RESULTS OF THE COMPANY AND SUCH FORWARD LOOKING
STATEMENTS, SEE "RISK FACTORS".
----------------
TRADEMARKS AND TRADENAMES
THE FOLLOWING ITEMS REFERRED TO IN THIS DOCUMENT ARE TRADEMARKS WHICH ARE
FEDERALLY REGISTERED IN THE UNITED STATES PURSUANT TO APPLICABLE INTELLECTUAL
PROPERTY LAWS AND ARE THE PROPERTY OF SEALY CORPORATION OR ITS SUBSIDIARIES:
SEALY, POSTUREPEDIC, STEARNS & FOSTER, CROWN JEWEL, CORRECT COMFORT
(STYLIZED), BACK SAVER, ORTHO-ZONE (STYLIZED), POSTURE PREMIER, EVEREDGE,
EDGEGUARD, MIRACLE EDGE, POSTURETECH, SENSE & RESPOND, STEELSPAN, TRU-LOK,
ULTRAEDGE, ULTRASTEEL, AND UNIVERSITY OF SLEEP.
THE FOLLOWING ITEMS REFERRED TO IN THIS DOCUMENT ARE TRADEMARKS OWNED BY
SEALY CORPORATION, OR ITS SUBSIDIARIES, FOR WHICH APPLICATIONS FOR
REGISTRATION ARE PENDING IN THE UNITED STATES PURSUANT TO APPLICABLE
INTELLECTUAL PROPERTY LAWS. SEALY POSTUREPEDIC, SEALY POSTUREPEDIC CROWN
JEWEL, INFINILUX, AND POSTURESTEEL.
ii
<PAGE>
SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes therein, appearing
elsewhere in this Prospectus. Unless the context otherwise requires, references
in this Prospectus to the "Issuer" refer to Sealy Mattress Company and
references to "Sealy" or the "Company" (other than in the presentation of
financial data) refer collectively to Sealy Mattress Company, its wholly-owned
subsidiaries, and its sole shareholder, Sealy Corporation ("Parent"), after
giving effect to the Transactions (as defined herein under the caption "The
Transactions"). For purposes of the presentation of all financial data herein,
the "Company" refers to Parent and its consolidated subsidiaries with respect
to historical information and to the Issuer and its consolidated subsidiaries
with respect to pro forma information. All references to the Company's domestic
operations include its operations in Puerto Rico. All references in this
Prospectus to "fiscal year" for years prior to 1996 refer to the year ended on
November 30 of that calendar year and for subsequent years refer to the year
ended on the Sunday closest to November 30 of that calendar year. For example,
fiscal 1997 and 1996 refer to the years ended November 30, 1997 and December 1,
1996, respectively.
OVERVIEW
THE COMPANY
Sealy Mattress Company, headquartered in Cleveland, Ohio, has been the
leading conventional bedding manufacturer in North America for over two decades
and the Sealy brand name has been in existence for over 100 years. The Company
manufactures, distributes and sells a broad line of conventional bedding
products, including mattresses and foundations, under the Sealy, Sealy
Posturepedic, Stearns & Foster and recently introduced Sealy Correct Comfort
and Sealy Posturepedic Crown Jewel brand names. The Company's branded
merchandise accounted for approximately 99% of total net sales for the fiscal
year ended November 30, 1997. Based on market growth estimates by the
International Sleep Products Association ("ISPA"), the Company estimates that
it held a 22% share of the U.S. bedding market for 1997. The Company offers a
complete line of conventional bedding options in the promotional, premium,
ultra-premium and luxury categories, which sell at retail price points from
under $200 to approximately $3,000 per queen-size set. For the fiscal year
ended November 30, 1997, on a pro forma basis, the Company generated net sales
and Adjusted EBITDA (as defined herein) of $799.5 million and $103.1 million,
respectively.
The Company has a diversified customer base and serves all major bedding
distribution channels. The Company manufactures and supplies conventional
bedding to over 7,000 retail outlets, representing approximately 3,200
customers, including furniture stores, department stores, specialty sleep shops
and warehouse clubs. The Company operates 21 domestic bedding manufacturing
facilities and four international bedding manufacturing facilities,
strategically located to reduce transportation costs and facilitate just-in-
time deliveries. The Company also operates three component manufacturing
facilities which produce substantially all of the Company's mattress
innersprings and approximately 50% of its foundation component parts. The
Company believes that because it is vertically integrated and operates its own
manufacturing facilities, it possesses numerous advantages over certain of its
national, brand-name competitors that operate as a group of independent
licensees. These benefits include: (i) production of consistent, high-quality
products, (ii) centralized decision-making, (iii) consistent local marketing
and servicing of national accounts and (iv) effective and balanced utilization
of manufacturing facilities.
INDUSTRY
The U.S. conventional bedding industry is mature and stable. For the year
ended December 31, 1996, manufacturers and retailers generated revenue of $3.3
billion and $6.2 billion, respectively,
1
<PAGE>
according to ISPA. Over the last 20 years, sales have declined only once (1.9%
in 1982), and the industry has grown an average of 6.4% per year. Industry
growth is driven primarily by: (i) population expansion, (ii) demographic
shifts and (iii) manufacturer and retailer advertising and education
emphasizing larger-size, higher quality beds. Because consumers shop for
bedding infrequently and often have limited specific product knowledge, they
typically rely on the retail salesperson in the purchase decision process.
Management believes that those manufacturers best able to meet the retailers'
needs--including differentiated, brand name products, retail salesforce
training in product specifications and merchandising and logistics support--
should continue to gain market share. From 1989 to 1996, the combined market
share of the top four manufacturers has steadily increased from 48% to 59%.
COMPANY STRENGTHS AND BUSINESS STRATEGY
The Company's main objective is to grow sales and market share by maximizing
its share of the retailers' floor space while managing costs. The key elements
of the Company's strategy are as follows:
LEVERAGE MARKET LEADERSHIP POSITION AND HIGH BRAND AWARENESS. The Company is
the largest manufacturer of conventional bedding products in the United States,
a position it has held for more than two decades. Based on 1997 industry growth
estimated by the ISPA, management estimates that the Company held a 22% share
of the U.S. market, approximately 1.3 times that of its next largest
competitor. Strong relative market share, coupled with numerous strong brands,
including Sealy, Sealy Posturepedic and Stearns & Foster, provide the Company
with significant marketing strength relative to its competitors, who primarily
offer only one brand to retailers. Brand recognition is critical in the bedding
industry, where strong brand names help define consumer preference and drive
retail floor space allocation.
ENHANCE POSITION AS LEADING SUPPLIER TO THE BEDDING INDUSTRY. The Company is
uniquely positioned to benefit from current industry trends, including the
consolidation of manufacturers and the increase in sole-source vendor
arrangements. Management believes that its: (i) broad product offering, (ii)
product design leadership, (iii) national manufacturing and distribution and
(iv) commitment to retailer education and training provide support to its
existing dealer network while helping to attract new accounts. Such strong
dealer relationships should result in sales growth through increased floor
space allocation, superior product positioning and enhanced commitment by
retail salesforces.
. BROAD PRODUCT OFFERING. Management believes that the Company currently
offers the most complete line of conventional bedding products in the
industry, enabling retailers to offer consumers a full range of bedding
alternatives from a single source. The Company's product line ranges from
higher-margin, higher-priced mattresses, sold under the Sealy
Posturepedic, Sealy Posturepedic Crown Jewel, Sealy Correct Comfort and
Stearns & Foster names, to lower-priced promotional, private label and
contract bedding products. The consistently advertised, lower-priced
product line is instrumental in attracting customers, thereby offering
retailers the in-store opportunity to promote higher-priced products with
incrementally higher margins. In addition, the Company's broad product
line has enabled it to secure sole-source, multi-year arrangements with
several retailers, including a significant number of those in the high-
growth, specialty channel, such as Mattress Discounters, Mattress Firm
and Bedding Experts.
. PRODUCT DESIGN LEADERSHIP. Since December 1, 1994 the Company has, on
average, invested approximately 0.75% of its net sales in research and
development, a rate which management believes to be in excess of twice
that of its next largest competitor, to create and commercialize
innovative products that broaden the Company's product lines and
differentiate its products from those of its competitors. Management
believes that this investment in product
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enhancements and new products, such as Sealy Correct Comfort, the
Company's recently introduced, individually-wrapped coil product, allows
the Company to claim additional floor space and compete effectively for
sole-source vendor positions. A majority of the Company's net sales for
the fiscal year ended November 30, 1997 were from products introduced or
reengineered in the prior two years.
. NATIONAL MANUFACTURING AND DISTRIBUTION. In surveys, retailers have
stated that delivery times and product quality are among the most
important criteria used to evaluate manufacturers. The Company believes
that its current structure and operating strategy directly address these
needs. The Company is one of only two national manufacturers operating as
a single company rather than as a group of independent licensees. Because
it owns 21 manufacturing and distribution facilities strategically
located throughout the United States, the Company can quickly respond to
retailers' logistical and product design requirements. Such just-in-time
deliveries enable retailers to minimize inventory carrying costs and meet
the growing demand of consumers for product variety and shortened
delivery times. Additionally, the Company is the only national
manufacturer to have taken advantage of vertical integration in a
majority of its product lines. Vertically integrated manufacturing
permits the Company to safeguard proprietary technology and new product
design while better controlling costs.
. COMMITMENT TO RETAILER EDUCATION AND SUPPORT. The Company assists its
retailers in re-merchandising their showrooms and actively marketing more
profitable lines of bedding through ongoing investment in retailer
relationships. The Company supports its retailers by providing: (i)
cooperative advertising dollars and creative assistance, (ii) ongoing
retail sales force training focused on product education and
merchandising instruction, (iii) customized product lines which allow
retailers to differentiate their products from those of their competitors
and (iv) direct mail campaigns. Management believes that retail support
serves to educate consumers about the benefits of higher-end models and
therefore encourages additional sales at higher price points.
INCREASE OPERATIONAL EFFICIENCIES AND LEVERAGE INFORMATION TECHNOLOGY. By
virtue of its size and leadership position in the bedding industry, the Company
benefits from significant operational efficiencies. The Company is able to
capture economies of scale in research and development, advertising and raw
material purchases. Management believes that several opportunities remain to
leverage the current infrastructure to realize meaningful cost reductions,
including greater utilization of existing facilities, improved scrap management
and improved distribution and transportation. Additionally, the Company is in
the process of upgrading its management information systems ("MIS") to improve
manufacturing operations and profitability analysis.
LEVERAGE THE SEALY NAME THROUGH LICENSEES. Significant opportunities exist to
leverage the strong Sealy brand names in bedding-related product categories
through strategic licensing agreements rather than through direct
manufacturing. In the past year, the Company has entered into a number of
licensing arrangements with various manufacturers, including: (i) Klaussner
Furniture Industries, one of the largest upholstered furniture manufacturers in
the United States, for the manufacture of upholstered furniture under the Sealy
Furniture brand name; (ii) Pacific Coast Feather Company for the manufacture
and sale of pillows, comforters and mattress pads under the Sealy brand name;
and (iii) Dorel Industries for the manufacture and sale of futons under the
Sealy Furniture brand name. Management believes that these licensing agreements
broaden consumer recognition of the Sealy name while generating significant
income for the Company.
CAPITALIZE ON STRONG MANAGEMENT TEAM. Led by Chief Executive Officer Ron
Jones, who joined the Company in early 1996, the Company has assembled one of
the strongest management
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teams in the bedding industry. The Company's senior management team has
approximately 150 years of experience in the bedding and home furnishings
industries and has made a significant equity investment in Sealy Corporation at
the close of the Transactions. This management team has instituted a number of
strategic initiatives, including: (i) divestiture of non-core operations and
renewed focus on the Company's core bedding business, (ii) improved long-term
strategic and product planning which has resulted in a new product rollout
schedule through 1999, (iii) increased focus on retailer relationships, (iv) a
shift to a more balanced marketing program that includes significant
cooperative and focused national advertising and (v) the implementation of a
disciplined international strategy. The execution of these and other
initiatives has resulted in significant improvements in the financial and
market position of the Company. Since December 1995, the Company has increased
its market share from 18% to an estimated 22% in 1997. Additionally, on a pro
forma basis, net sales and Adjusted EBITDA have increased 26.7% and 18.7%,
respectively, for the fiscal year ended November 30, 1997 versus fiscal 1996.
THE SPONSOR
Bain Capital, Inc. ("Bain") manages capital in excess of $2.0 billion and has
invested in more than 100 companies. Bain is one of the most experienced and
successful private equity investors in the United States and the firm's
principals have extensive experience working with companies on a wide range of
operational challenges. Bain's investment strategy is to acquire companies in
partnership with exceptional management teams and to improve the long-term
value of businesses. The firm typically identifies companies with strong
strategic positions and significant opportunities for growth. Bain's investment
in the Company is among its largest to date.
THE TRANSACTIONS
On December 18, 1997, the Company consummated (i) the Merger whereby, among
other things, funds managed by Bain (the "Bain Funds"), together with other
equity investors, including the Company's Chief Executive Officer and other
members of senior management (the "Management Investors" and collectively with
the other investors, the "Investors"), acquired an approximate 90% equity stake
(85.3% voting stake) in Parent, (ii) the Tender Offer (as defined herein under
the caption "The Transactions") to purchase for cash all of the Parent Notes
(as defined herein under the caption "The Transactions") and the related
Consent Solicitation (as defined herein under the caption "The Transactions")
to modify certain terms of the Parent Note Indenture (as defined herein), (iii)
a refinancing (the "Refinancing") whereby the Company entered into and borrowed
under the Senior Credit Agreements (as defined herein under the caption "The
Transactions") and repaid Parent indebtedness outstanding under the Old Credit
Agreement (as defined herein under the caption "The Transactions") and the
offerings of the Notes (the "Offerings"). The Merger has been accounted for as
a recapitalization (the "Recapitalization"). The Offerings, the Merger and
Recapitalization, the Tender Offer and related Consent Solicitation and the
Refinancing are collectively referred to herein as the "Transactions". See "The
Transactions" and "Security Ownership."
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THE OFFERING
NOTES....................... The Notes were sold by the Company on December
18, 1997 to Goldman, Sachs & Co., J.P. Morgan
Securities Inc. and BT Alex. Brown Incorporated
(the "Initial Purchasers") pursuant to a Purchase
Agreement dated December 11, 1997 (the "Purchase
Agreement"). The Initial Purchasers subsequently
resold the Notes to qualified institutional
buyers pursuant to Rule 144A under the Securities
Act and to a limited number of institutional
accredited investors that agreed to comply with
certain transfer restrictions and other
conditions.
REGISTRATION RIGHTS Pursuant to the Purchase Agreement, the Company
AGREEMENT................... and the Initial Purchasers entered into a
Registration Rights Agreement dated December 11,
1997, which grants the holder of the Notes
certain exchange and registration rights. The
Exchange Offer is intended to satisfy such
exchange rights which terminate upon the
consummation of the Exchange Offer.
THE EXCHANGE OFFER
SECURITIES OFFERED.......... $125.0 million in aggregate principal amount of
Series B 9 7/8% Senior Subordinated Notes due
December 15, 2007 (the "Senior Subordinated
Exchange Notes") and $128.0 million in aggregate
principal amount at maturity of Series B 10 7/8%
Senior Subordinated Discount Notes due December
15, 2007 (the "Senior Subordinated Discount
Exchange Notes" and, together with the Senior
Subordinated Exchange Notes, the "Exchange
Notes").
THE EXCHANGE OFFER.......... $1,000 principal amount of the Senior
Subordinated Exchange Notes in exchange for each
$1,000 principal amount of Senior Subordinated
Notes and $1,000 principal amount of the Senior
Subordinated Discount Exchange Notes in exchange
for each $1,000 principal amount of Senior
Subordinated Discount Notes. As of the date
hereof, $125.0 million in aggregate principal
amount of Senior Subordinated Notes and $128.0
million in aggregate principal amount at maturity
of Senior Subordinated Discount Notes are
outstanding. The Company will issue the Exchange
Notes to holders on or promptly after the
Expiration Date.
Based on an interpretation by the staff of the
Commission set forth in no-action letters issued
to third parties, the Company believes that
Exchange Notes issued pursuant to the Exchange
Offer in exchange for Notes may be offered for
resale, resold and otherwise transferred by any
holder thereof (other than any such holder which
is an "affiliate" of the Company within the
meaning of Rule 405 under the Securities Act)
without compliance with the registration and
prospectus delivery provisions of the Securities
Act, provided that such Exchange Notes are
acquired in the ordinary course of such holder's
business and that such holder does not intend to
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<PAGE>
participate and has no arrangement or
understanding with any person to participate in
the distribution of such Exchange Notes.
Each Participating Broker-Dealer that receives
Exchange Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any
resale of such Exchange Notes. The Letter of
Transmittal states that by so acknowledging and
by delivering a prospectus, a Participating
Broker-Dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be
amended or supplemented from time to time, may be
used by a Participating Broker-Dealer in
connection with resales of Exchange Notes
received in exchange for Notes where such Notes
were acquired by such Participating Broker-Dealer
as a result of market-making activities or other
trading activities. The Company has agreed that,
for a period of 180 days after the Expiration
Date, it will make this Prospectus available to
any Participating Broker-Dealer for use in
connection with any such resale. See "Plan of
Distribution".
Any holder who tenders in the Exchange Offer with
the intention to participate, or for the purpose
of participating, in a distribution of the
Exchange Notes could not rely on the position of
the staff of the Commission enunciated in no-
action letters and, in the absence of an
exemption therefrom, must comply with the
registration and prospectus delivery requirements
of the Securities Act in connection with any
resale transaction. Failure to comply with such
requirements in such instance may result in such
holder incurring liability under the Securities
Act for which the holder is not indemnified by
the Company.
EXPIRATION DATE.............
5:00 p.m., New York City time, on , 1998
unless the Exchange Offer is extended, in which
case the term "Expiration Date" means the latest
date and time to which the Exchange Offer is
extended. The Company has no current plans to
extend the Exchange Offer. In order to extend the
Exchange Offer, the Company will notify the
Exchange Agent (as defined) of any extension by
oral or written notice and will mail to the
registered holders an arrangement thereof prior
to the next business day after the previously
announced expiration date.
ACCRUED INTEREST ON THE
EXCHANGE NOTES AND THE Each Senior Subordinated Exchange Note will bear
NOTES...................... interest from its issuance date. No interest will
accrue or be payable on the Senior Subordinated
Discount Exchange Notes prior to December 15,
2002. Holders of Senior Subordinated Notes that
are accepted for exchange will receive, in cash,
accrued interest thereon to, but not including,
the issuance date of the Senior Subordinated
Exchange Notes. Such interest will be
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<PAGE>
paid with the first interest payment on the
Senior Subordinated Exchange Notes. Interest on
the Senior Subordinated Notes accepted for
exchange will cease to accrue upon issuance of
the Senior Subordinated Exchange Notes.
CONDITIONS TO THE EXCHANGE
OFFER...................... The Exchange Offer is subject to certain
customary conditions, which may be waived by the
Company. See "The Exchange Offer--Conditions".
PROCEDURES FOR TENDERING Each holder of Notes wishing to accept the
NOTES...................... Exchange Offer must complete, sign and date the
accompanying Letter of Transmittal, or a
facsimile thereof, in accordance with the
instructions contained herein and therein, and
mail or otherwise deliver such Letter of
Transmittal, or such facsimile, together with the
Notes and any other required documentation to the
Exchange Agent (as defined under the caption "The
Exchange Offer") at the address set forth herein.
Delivery of the Notes may also be made by book-
entry transfer in accordance with the procedures
described below. Confirmation of such book-entry
transfer must be received by the Exchange Agent
prior to the Expiration Date. By executing the
Letter of Transmittal or effecting delivery by
book-entry transfer, each holder will represent
to the Company that, among other things, the
Exchange Notes acquired pursuant to the Exchange
Offer are being obtained in the ordinary course
of business of the person receiving such Exchange
Notes, whether or not such person is the holder,
that neither the holder nor any such other person
has any arrangement or understanding with any
person to participate in the distribution of such
Exchange Notes and that neither the holder nor
any such other person is an "affiliate," as
defined under Rule 405 of the Securities Act, of
the Company. See "The Exchange Offer--Purpose and
Effect of the Exchange Offer" and "--Procedures
for Tendering".
UNTENDERED NOTES............ Following the consummation of the Exchange Offer,
holders of Notes eligible to participate but who
do not tender their Notes will not have any
further exchange rights and such Notes will
continue to be subject to certain restrictions on
transfer. Accordingly, the liquidity of the
market for such Notes could be adversely
affected.
CONSEQUENCES OF FAILURE TO
EXCHANGE................... The Notes that are not exchanged pursuant to the
Exchange Offer will remain restricted securities.
Accordingly, such Notes may be resold only (i) to
the Company, (ii) pursuant to Rule 144A or Rule
144 under the Securities Act or pursuant to some
other exemption under the Securities Act, (iii)
outside the United States to a foreign person
pursuant to the requirements of Rule 904 under
the Securities Act, or (iv) pursuant to an
effective registration statement under the
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<PAGE>
Securities Act. See "The Exchange Offer--
Consequences of Failure to Exchange".
SHELF REGISTRATION If any holder of the Notes (other than any such
STATEMENT.................. holder which is an "affiliate" of the Company
within the meaning of Rule 405 under the
Securities Act) is not eligible under applicable
securities laws to participate in the Exchange
Offer, and such holder has provided information
regarding such holder and the distribution of
such holder's Notes to the Company for use
therein, the Company has agreed to register the
Notes on a shelf registration statement (the
"Shelf Registration Statement") and use its best
efforts to cause it to be declared effective by
the Commission as promptly as practical on or
after the consummation of the Exchange Offer. The
Company has agreed to maintain the effectiveness
of the Shelf Registration Statement for, under
certain circumstances, a period of at least 2
years, to cover resales of the Notes held by any
such holders. See "The Exchange Offer--Purpose
and Effect of the Exchange Offer."
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS.......... Any beneficial owner whose Notes are registered
in the name of a broker, dealer, commercial bank,
trust company or other nominee and who wishes to
tender should contact such registered holder
promptly and instruct such registered holder to
tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such owner's
own behalf, such owner must, prior to completing
and executing the Letter of Transmittal and
delivering its Notes, either make appropriate
arrangements to register ownership of the Notes
in such owner's name or obtain a properly
completed bond power from the registered holder.
The transfer of registered ownership may take
considerable time. The Company will keep the
Exchange Offer open for not less than twenty days
in order to provide for the transfer of
registered ownership.
GUARANTEED DELIVERY Holders of Notes who wish to tender their Notes
PROCEDURES................. and whose Notes are not immediately available or
who cannot deliver their Notes, the Letter of
Transmittal or any other documents required by
the Letter of Transmittal to the Exchange Agent
(or comply with the procedures for book-entry
transfer) prior to the Expiration Date must
tender their Notes according to the guaranteed
delivery procedures set forth in "The Exchange
Offer--Guaranteed Delivery Procedures".
WITHDRAWAL RIGHTS........... Tenders may be withdrawn at any time prior to
5:00 p.m., New York City time, on the Expiration
Date.
ACCEPTANCE OF NOTES AND
DELIVERY OF EXCHANGE The Company will accept for exchange any and all
NOTES...................... Notes which are properly tendered in the Exchange
Offer prior to 5:00 p.m., New York City time, on
the Expiration Date. The Exchange Notes issued
pursuant to the Exchange Offer will
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<PAGE>
be delivered promptly following the Expiration
Date. See "The Exchange Offer--Terms of the
Exchange Offer".
USE OF PROCEEDS............. There will be no cash proceeds to the Company
from the exchange pursuant to the Exchange Offer.
EXCHANGE AGENT.............. The Bank of New York.
THE EXCHANGE NOTES
GENERAL..................... The form and terms of each class of Exchange
Notes are the same as the form and terms of the
relevant class of Notes (which they replace)
except that (i) the Exchange Notes bear a Series
B designation, (ii) the Exchange Notes have been
registered under the Securities Act and,
therefore, will not bear legends restricting the
transfer thereof, and (iii) the holders of
Exchange Notes will not be entitled to certain
rights under the Exchange and Registration Rights
Agreement, including the provisions providing for
an increase in the interest rate on the Notes in
certain circumstances relating to the timing of
the Exchange Offer, which rights will terminate
when the Exchange Offer is consummated. See "The
Exchange Offer--Purpose and Effect of the
Exchange Offer". Each class of Exchange Notes
will evidence the same debt as the relevant class
of Notes and will be entitled to the benefits of
the Indentures. See "Description of Exchange
Notes". The Notes and the Exchange Notes are
referred to herein collectively as the "Senior
Subordinated Notes".
GUARANTEES..................
The Issuer's payment obligations under the
Exchange Notes will be fully and unconditionally
guaranteed on a senior subordinated and joint and
several basis (the "Note Guarantees") by Parent
and certain of the Issuer's current and all of
the Issuer's future U.S. Subsidiaries (the
"Subsidiary Guarantors" and, together with
Parent, the "Guarantors"). The Exchange Notes
will not be guaranteed by certain other of the
Issuer's U.S. Subsidiaries or by any of its
current or future foreign Subsidiaries. For the
years ended November 30, 1995, December 1, 1996
and November 30, 1997, the Non-Guarantor
Subsidiaries (as defined herein under the caption
"Description of Exchange Notes") accounted for
14.7%, 17.2% and 9.3% of net sales, respectively,
and generated Adjusted EBITDA of $6.9 million,
$12.7 million and $10.0 million, respectively.
For additional information relating to the Non-
Guarantor Subsidiaries, see Note 19 of the
Consolidated Financial Statements. The Guarantees
will be subordinated to the guarantees of Senior
Debt issued by the Guarantors under the Senior
Credit Agreements. See "Description of Exchange
Notes--Note Guarantees".
CERTAIN COVENANTS........... The indenture governing the Senior Subordinated
Notes (the "Senior Subordinated Note Indenture")
and the indenture governing the Senior
Subordinated Discount Notes (the
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<PAGE>
"Senior Subordinated Discount Note Indenture"
and, together with the Senior Subordinated Note
Indenture, the "Indentures") contain certain
covenants that, among other things, limit the
ability of the Issuer and its Restricted
Subsidiaries (as defined herein under the caption
"Description of Exchange Notes") to incur
additional indebtedness and issue Disqualified
Stock (as defined herein under the caption
"Description of Exchange Notes"), pay dividends
or distributions or make investments or make
certain other Restricted Payments (as defined
herein under the caption "Description of Exchange
Notes"), enter into certain transactions with
affiliates, dispose of certain assets, incur
liens and engage in mergers and consolidations.
See "Description of Exchange Notes".
SENIOR SUBORDINATED EXCHANGE NOTES
MATURITY DATE............... December 15, 2007.
INTEREST PAYMENT DATES...... Interest accrues from the date of issuance at an
annual rate of 9 7/8% and will be payable in cash
semi-annually in arrears on June 15 and December
15 of each year, commencing on June 15, 1998.
OPTIONAL REDEMPTION......... Except as described below, the Senior
Subordinated Exchange Notes are not redeemable at
the Issuer's option prior to December 15, 2002.
From and after December 15, 2002, the Senior
Subordinated Exchange Notes will be subject to
redemption at the option of the Issuer, in whole
or in part, at the redemption prices set forth in
the Senior Subordinated Note Indenture, plus
accrued and unpaid interest, if any, thereon to
the applicable redemption date. See "Description
of Exchange Notes--Optional Redemption".
In addition, prior to December 15, 2000, up to
35% of the aggregate principal amount of Senior
Subordinated Exchange Notes will be redeemable at
the option of the Issuer, in whole or in part, on
one or more occasions, from the net proceeds of
any Equity Offerings (as defined herein under the
caption "Description of Exchange Notes"), at a
price of 109.875% of the principal amount of the
Senior Subordinated Exchange Notes, together with
accrued and unpaid interest, if any, to the date
of the redemption; provided that at least $80.0
million in aggregate principal amount of Senior
Subordinated Exchange Notes remains outstanding
immediately after the occurrence of such
redemption. See "Description of Exchange Notes--
Optional Redemption".
CHANGE OF CONTROL........... In the event of a Change of Control, Holders of
the Senior Subordinated Exchange Notes will have
the right to require the Issuer to repurchase
their Senior Subordinated Notes, in whole or in
part, at a price equal to 101% of the aggregate
principal amount thereof, plus accrued and unpaid
interest, if any, to the date of repurchase. The
Senior Subordinated Note Indenture will require
that prior to such a repurchase, the
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<PAGE>
Issuer must either repay all outstanding
indebtedness under the Senior Credit Agreements
or obtain any required consent to such
repurchase.
At any time on or prior to December 15, 2002, the
Senior Subordinated Exchange Notes may also be
redeemed in whole, but not in part, at the option
of the Company, upon the occurrence of a Change
of Control (but in no event more than 90 days
after the occurrence of such Change of Control),
at a redemption price equal to 100% of the
principal amount thereof plus the Senior
Subordinated Note Applicable Premium as of the
Senior Subordinated Note Redemption Date (subject
to the right of holders on the relevant record
date to receive interest due on the relevant
interest payment date). See "Description of
Exchange Notes--Optional Redemption".
SENIOR SUBORDINATED DISCOUNT EXCHANGE NOTES
MATURITY DATE............... December 15, 2007.
EFFECTIVE YIELD............. 10 7/8% per annum (computed on a semi-annual bond
equivalent basis).
INTEREST PAYMENT DATES...... The Senior Subordinated Discount Exchange Notes
will be sold at a substantial discount to their
face amount. See "Certain Federal Income Tax
Considerations". No interest will accrue or be
payable on the Senior Subordinated Discount
Exchange Notes prior to December 15, 2002 (the
"Full Accretion Date"). Interest on the Senior
Subordinated Discount Exchange Notes will accrue
and will be payable in cash semi-annually in
arrears on June 15 and December 15 of each year,
commencing on June 15, 2003.
OPTIONAL REDEMPTION......... Except as described below, the Senior
Subordinated Discount Exchange Notes are not
redeemable at the Issuer's option prior to
December 15, 2002. From and after December 15,
2002, the Senior Subordinated Discount Exchange
Notes will be subject to redemption at the option
of the Issuer, in whole or in part, at the
redemption prices set forth in the Senior
Subordinated Discount Note Indenture, plus
accrued and unpaid interest thereon to the
applicable redemption date. See "Description of
Notes--Optional Redemption".
In addition, prior to December 15, 2000, up to
35% of the Accreted Value of the Senior
Subordinated Discount Exchange Notes will be
redeemable at the option of the Issuer, in whole
or in part, on one or more occasions, from the
net proceeds of any Equity Offerings, at a price
of 110.875% of the Accreted Value of the Senior
Subordinated Discount Exchange Notes plus accrued
and unpaid interest, if any; provided, that at
least $50.0 million in aggregate Accreted Value
of Senior Subordinated Discount Exchange Notes
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<PAGE>
remains outstanding immediately after the
occurrence of such redemption. See "Description
of Exchange Notes--Optional Redemption".
CHANGE OF CONTROL........... In the event of a Change of Control, Holders of
the Senior Subordinated Discount Exchange Notes
will have the right to require the Issuer to
repurchase their Senior Subordinated Discount
Exchange Notes, in whole or in part, at a price
equal to 101% of the Accreted Value thereof (or,
if after the Full Accretion Date, 101% of the
principal amount thereof plus accrued and unpaid
interest, including Liquidated Damages, if any,
to the date of repurchase). The Senior
Subordinated Discount Note Indenture will require
that prior to such a repurchase, the Issuer must
either repay all outstanding indebtedness under
the Senior Credit Agreements or obtain any
required consent to such repurchase.
At any time on or prior to December 15, 2002, the
Senior Subordinated Discount Exchange Notes may
also be redeemed in whole, but not in part, at
the option of the Company, upon the occurrence of
a Change of Control (but in no event more than 90
days after the occurrence of such Change of
Control), at a redemption price equal to 100% of
the Accreted Value thereof plus the Senior
Subordinated Discount Note Applicable Premium as
of, and Liquidated Damages, if any, to the Senior
Subordinated Discount Note Redemption Date. See
"Description of Exchange Notes--Optional
Redemption".
ORIGINAL ISSUE DISCOUNT..... For Federal income tax purposes, each Senior
Subordinated Discount Exchange Note will be
deemed to be issued with "original issue
discount" equal to the difference between the
issue price thereof and the sum of all cash
payments (whether denominated as principal or
interest) to be made thereon. Each Holder of a
Senior Subordinated Discount Exchange Note must
include in gross income for Federal income tax
purposes the sum of the daily portions of such
original issue discount for each day during each
taxable year in which the Senior Subordinated
Discount Exchange Note is held, even though no
interest payments will be received prior to
December 15, 2002.
RISK FACTORS
Holders of the Notes should consider carefully all of the information set
forth in this Prospectus and, in particular, the information set forth under
"Risk Factors" before tendering any Notes.
ADDITIONAL INFORMATION
For additional information regarding the Exchange Notes, see "Notice to
Investors", "Description of Exchange Notes" and "Certain Federal Income Tax
Considerations".
12
<PAGE>
SUMMARY HISTORICAL CONSOLIDATED AND PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL DATA
Set forth below are (i) summary historical consolidated financial data of
Parent, as of and for the fiscal years ended November 30, 1995, December 1,
1996 and November 30, 1997 and as of and for the three months ended March 2,
1997 and March 1, 1998, and (ii) pro forma condensed consolidated financial
data for the Issuer for the year ended November 30, 1997 and for the three
months ended March 1, 1998. The summary historical financial data as of
November 30, 1995, December 1, 1996, November 30, 1997, March 2, 1997 and March
1, 1998 were derived from the Consolidated Financial Statements and Condensed
Consolidated Financial Statements of Parent. Consolidated information of Parent
is presented for historical periods and dates and consolidated information of
the Issuer is presented for the pro forma periods. For a discussion of pro
forma adjustments, see "Unaudited Pro Forma Condensed Consolidated Financial
Data".
The information contained in this table should be read in conjunction with
"Selected Historical Consolidated Financial and Other Data", "Unaudited Pro
Forma Condensed Consolidated Financial Data", "Management's Discussion and
Analysis of Financial Condition and Results of Operations", the Consolidated
Financial Statements and the Condensed Consolidated Financial Statements and
accompanying notes thereto appearing elsewhere in this Prospectus.
13
<PAGE>
SUMMARY HISTORICAL CONSOLIDATED AND PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
THREE MONTHS
FISCAL YEAR ENDED PRO FORMA(1) PRO FORMA(1)
------------------------ ----------------- ------------ ------------
THREE MONTHS
MARCH 2, MARCH 1, FISCAL YEAR ENDED
1995 1996 1997 1997 1998 1997 3/1/98
------ ------ ------ -------- -------- ------------ ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... $653.9 $697.6 $804.8 $168.9 $209.3 $799.5 $209.3
Costs and expenses...... 610.9 672.8 764.2 162.5 227.8 793.0 209.9
Income (loss) before
income tax,
extraordinary item and
cumulative effect of
change in accounting
principle.............. 43.0 24.8 40.6 6.4 (18.5) 6.5 0.6
Extraordinary loss, net
of taxes(2)............ -- -- 2.0 2.0 14.5
Cumulative effect of
change in accounting
principle, net of
taxes(3)............... -- -- 4.3 -- --
Net income (loss)....... $ 19.5 $ (0.5)(4) $ 11.7 $ 1.2 $(32.2)
OTHER DATA:
Operating income
(loss)(5).............. $ 74.0 $ 53.6 $ 72.0 $ 13.2 $ (3.0) $ 70.5 $ 15.8
Depreciation and
amortization of
intangibles............ 24.2 26.6 24.1 6.6 5.9 24.0 5.9
Capital expenditures.... 11.8 12.0 29.1 4.0 5.4 29.1 5.4
Interest expense, net... 31.0 28.8 31.4 6.8 15.5 64.0 16.4
Ratio of pro forma earnings to fixed
charges(6).................................................... 1.1x 1.0x
Adjusted EBITDA(7)...... $ 85.0 $ 86.8 $103.1 $ 20.4 $ 22.7 $103.1 $ 22.7
Ratio of pro forma Adjusted EBITDA to cash interest expense.... 2.0x 1.7x
Ratio of pro forma Adjusted EBITDA to total interest expense,
net........................................................... 1.6x 1.4x
</TABLE>
<TABLE>
<CAPTION>
AS OF
-----------------------------------------
NOV. 30, DEC. 1, NOV. 30, MAR. 2, MAR. 1,
1995 1996 1997 1997 1998
-------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets........................ $776.2 $739.9 $721.1 $715.5 $ 750.7
Long-term obligations............... 269.4 269.5 330.0 356.4 705.3
Total debt.......................... 286.9 288.1 330.0 356.5 709.0
Stockholder's equity (deficit)...... 330.9 293.0 205.1 194.3 (127.8)
</TABLE>
14
<PAGE>
NOTES TO SUMMARY HISTORICAL CONSOLIDATED AND PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL DATA
(1) Amounts represent the pro forma condensed statement of income data and
other financial data of the Issuer after giving effect to the Transactions,
the Samuel Lawrence Divestiture (as defined in note 4 below) and the
divestiture of the Company's South Brunswick, New Jersey mattress pad
manufacturing plant (together with the Samuel Lawrence Divestiture, the
"Divestitures") in the manner described under "Unaudited Pro Forma
Condensed Consolidated Financial Data".
(2) During February 1997, the Company recorded an extraordinary loss of $2.0
million, net of an income tax benefit of $1.4 million representing the
remaining unamortized debt issuance costs related to long-term obligations
repaid as a result of a refinancing transaction. During December 1997, the
Company recorded an extraordinary loss of $14.5 million, net of an income
tax benefit of $9.6 million representing the Tender Offer premium and
consent fees and the write-off of unamortized debt issuance costs related
to the Transactions.
(3) On November 20, 1997 the Emerging Issues Task Force ("EITF") reached a
final consensus that business process reengineering costs incurred in
connection with an overall information technology transformation project
should be expensed as incurred ("EITF 97-13"). Previously capitalized
business process reengineering costs were required to be identified and
written-off as a cumulative effect of a change in accounting principle. The
Company adopted EITF-97-13 which resulted in the Company recording a loss
of $4.3 million, net of income tax benefits of $2.9 million during the
fourth quarter of fiscal 1997.
(4) 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 "Samuel Lawrence Divestiture"). The Samuel Lawrence 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.
(5) Operating income is calculated by adding interest expense, net to net sales
less costs and expenses.
(6) For purposes of calculating the ratio of earnings to fixed charges,
earnings represent income (loss) before income tax, extraordinary items and
cumulative effect of change in accounting principle, 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.
(7) Adjusted EBITDA is calculated by adding to or deducting from EBITDA (as
described below) certain items of income and expense consisting of: (i)
discontinued stock-based compensation plans, (ii) executive severance and
transition costs, (iii) loss on write-off of Montgomery Ward accounts
receivable and related factoring expense incurred in connection with
bankruptcy of Montgomery Ward, (iv) annual Bain management fee of $2.0
million, (v) operating results of the divested South Brunswick pad
manufacturing plant for the year ended November 30, 1997 and three months
ended March 2, 1997, (vi) any expenses related to addressing the Company's
"Year 2000" information systems issue and EITF 97-13 reengineering efforts
and (vii) non-recurring expenses related to the Company's Recapitalization.
EBITDA is calculated by adding interest expense, net and depreciation and
amortization of intangibles to income (loss) before income tax,
extraordinary items and cumulative effect of change in accounting
principle. EBITDA 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. Adjusted EBITDA is
presented because it conforms to the definition of "Consolidated EBITDA" in
the Notes Indenture except for the exclusion of the Bain management fee for
the three months ended March 1, 1998, the Pro Forma year ended November 30,
1997 and the Pro Forma three months ended March 1, 1998 and the exclusion
of the operating results of the divested South Brunswick pad manufacturing
plant for the year ended November 30, 1997 and the three months ended March
2, 1997 (see "'Description of Exchange Notes" and "Certain Definitions"
within such section). These two items are not included in the Indenture
definition of "Consolidated EBITDA"; however, the Company believes that the
adjustment for these items in "Adjusted EBITDA" is appropriate for such
periods in order to provide an appropriate analysis of recent historical
results. The Company's measure of EBITDA and Adjusted EBITDA may not be
comparable to those reported by other companies. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations".
The following is a summary of the historical adjustments to EBITDA:
<TABLE>
<CAPTION>
THREE MONTHS
FISCAL YEAR ENDED PRO FORMA
----------------- -------------- -------------------
MAR. 2, MAR 1, FISCAL THREE MONTHS
1995 1996 1997 1997 1998 1997 ENDED 3/1/98
------ ---- ---- ------- ------ ------ ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Adjustments:
South Brunswick pad
manufacturing plant... $ -- $-- $0.4 $0.3 $ -- $-- $ --
Stock-based
compensation.......... (13.3) 4.7 1.6 0.3 -- 1.6 --
Executive severance and
transition............ -- 1.9 -- -- -- -- --
Recapitalization non-
recurring expenses.... -- -- -- -- 18.8 -- 18.8
Bain management fee.... -- -- -- -- 0.4 2.0 0.4
Montgomery Ward bad
debt and factoring
losses................ -- -- 4.0 -- -- 4.0 --
EITF 97-13
reengineering
efforts............... -- -- 1.0 -- 0.6 1.0 0.6
------ ---- ---- ---- ----- ---- -----
Total adjustments..... $(13.3) $6.6 $7.0 $0.6 $19.8 $8.6 $19.8
====== ==== ==== ==== ===== ==== =====
</TABLE>
15
<PAGE>
RISK FACTORS
Holders of the Notes should consider carefully the following factors as well
as the other information and data included in this Prospectus prior to
tendering their Notes in the Exchange Offer.
SUBSTANTIAL LEVERAGE
The Issuer has incurred significant debt in connection with the
Transactions. As of March 1, 1998 the Issuer had outstanding indebtedness of
$681.2 million and its stockholders' deficit was $92.1 million. In addition,
the Issuer would have available borrowings of up to $59.0 million under the
Senior Credit Agreements with Letters of Credit issued totaling $12.0 million.
In addition, subject to restrictions in the Senior Credit Agreements and the
Indentures, the Issuer may incur additional indebtedness from time to time to
finance acquisitions or capital expenditures. For the fiscal year ended
November 30, 1997, after giving pro forma effect to the Transactions and the
Divestitures, the Company's ratio of earnings to fixed charges would have been
1.1 to 1.0 (1.0 to 1.0 for the three months ended March 1, 1998).
The Company's ability to make scheduled payments of principal of, or to pay
the interest or Liquidated Damages, if any, on, or to refinance, its
indebtedness (including the Exchange Notes), or to fund planned capital
expenditures will depend on its future performance, which, to a certain
extent, is subject to general economic, financial, competitive, legislative,
regulatory and other factors that are beyond its control. Based upon the
current level of operations, management believes that cash flow from
operations and available cash, together with available borrowings under the
Senior Credit Agreements, will be adequate to meet the Company's future
liquidity needs for at least the next several years. The Company, however,
will need to refinance all or a portion of the principal of the Exchange Notes
on or prior to maturity. There can be no assurance that the Company will be
able to effect any such refinancing on commercially reasonable terms or at
all. In addition, there can be no assurance that the Company's business will
generate sufficient cash flow from operations, that anticipated revenue growth
and operating improvements will be realized or that future borrowings will be
available under the Senior Credit Agreements in an amount sufficient to enable
the Company to service its indebtedness, including the Exchange Notes, or to
fund its other liquidity needs. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources".
The degree to which the Company will be leveraged following the Transactions
could have important consequences to holders of the Exchange Notes, including,
but not limited to: (i) making it more difficult for the Company to satisfy
its obligations with respect to the Exchange Notes, (ii) increasing the
Company's vulnerability to general adverse economic and industry conditions,
(iii) limiting the Company's ability to obtain additional financing to fund
future working capital, capital expenditures, research and development and
other general corporate requirements, (iv) requiring the dedication of a
substantial portion of the Company's cash flow from operations to the payment
of principal of, and interest on, its indebtedness, thereby reducing the
availability of such cash flow to fund working capital, capital expenditures,
research and development or other general corporate purposes, (v) limiting the
Company's flexibility in planning for, or reacting to, changes in its business
and the industry and (vi) placing the Company at a competitive disadvantage
relative to less leveraged competitors. In addition, the Parent Indenture, the
Indentures and the Senior Credit Agreements contain financial and other
restrictive covenants that will limit the ability of the Company to, among
other things, borrow additional funds. Failure by the Company to comply with
such covenants could result in an event of default which, if not cured or
waived, could have a material adverse effect on the Company's financial
condition or results of operations. In addition, the degree to which the
Company is leveraged could prevent it from repurchasing all of the Exchange
Notes tendered to it upon the occurrence of a Change of Control. See
"Description of Exchange Notes--Repurchase at Option of Holders--Change of
Control" and "Description of Senior Credit Agreements".
16
<PAGE>
SUBORDINATION OF EXCHANGE NOTES; GUARANTEES
The Exchange Notes will be contractually subordinated to all Senior Debt
including all obligations under the Senior Credit Agreements. Upon any
distribution to creditors of the Company in a liquidation or dissolution of
the Company or in a bankruptcy, reorganization, insolvency, receivership or
similar proceeding relating to the Company or its property, the holders of
Senior Debt will be entitled to be paid in full in cash before any payment may
be made with respect to the Exchange Notes. In addition, the subordination
provisions of the Indentures provide that payments with respect to the
Exchange Notes will be blocked in the event of a payment default on Senior
Debt. In the event of a bankruptcy, liquidation or reorganization of the
Company, holders of the Exchange Notes will participate ratably with all
holders of subordinated indebtedness of the Company that is deemed to be of
the same class as the Exchange Notes, and potentially with all other general
creditors of the Company, based upon the respective amounts owed to each
holder or creditor, in the remaining assets of the Company. In any of the
foregoing events, there can be no assurance that there would be sufficient
assets to pay amounts due on the Notes. As a result, holders of Exchange Notes
may receive less, ratably, than the holders of Senior Debt. As of March 1,
1998, the aggregate amount of consolidated indebtedness and other liabilities
to which the Exchange Notes are subordinated was approximately $479.0 million,
consisting of secured borrowings under the Senior Credit Agreements. In
addition, the Company will have available additional borrowings of up to $59.0
million under the Senior Credit Agreements, (with Letters of Credit issued
totaling $12.0 million) all of which would constitute Senior Debt. Subject to
certain limitations, the Indentures will permit the Company to incur
additional indebtedness. See "The Transactions" and "Description of Exchange
Notes". Substantially all of the assets of the Company will or may in the
future be pledged to secure other indebtedness of the Issuer or its
subsidiaries. See "Description of Senior Credit Agreements".
The Exchange Notes will be guaranteed on a senior subordinated basis by
certain of the Issuer's current and all of the Issuer's future U.S.
Subsidiaries. The Exchange Notes will not be guaranteed by certain other of
the Issuer's U.S. Subsidiaries or by any of foreign Subsidiaries of the
Issuer. For the fiscal years ended November 30, 1995, December 1, 1996 and
November 30, 1997, the Non-Guarantor Subsidiaries accounted for 14.7%, 17.2%
and 9.3% of net sales, respectively, and generated Adjusted EBITDA of $6.9
million, $12.7 million and $10.0 million, respectively. The claims of
creditors (including trade creditors) of any Non-Guarantor Subsidiary will
generally have priority as to the assets of such subsidiaries over the claims
of the holders of the Exchange Notes. As of March 1, 1998, the amount of
liabilities of such Non-Guarantor Subsidiaries was approximately $43.6 million
(of which $29.6 million represent intercompany liabilities). For additional
information relating to Non-Guarantor Subsidiaries, see Note I of the
Condensed Consolidated Financial Statements.
RECENT LOSSES
The Company has experienced a pro forma loss for the year ended November 30,
1997 and historical and pro forma losses for the three months ended March 1,
1998. These losses were chiefly attributable to the incurrence of expenses
related to the Recapitalization. The Company expects to incur a significant
additional charge (estimated to be approximately $8.5 million on a pre-tax
basis) in connection with the relocation of its corporate headquarters, such
charge is expected to be recognized primarily in fiscal 1998 with the balance
in fiscal 1999. If the Company continues to experience losses, the Company
will be required to find additional sources of financing to fund its debt
service, working capital requirements and anticipated capital expenditures.
There can be no assurance that such financing will be available on terms and
conditions acceptable to the Company in such circumstances or that, if debt
financing is required, such financing would be permitted under the terms of
the Company's indebtedness. If the Company experiences operating losses in the
future, that fact, combined with the absence of additional financing, could
impair the Company's ability to pay principal and interest on the Exchange
Notes. See "Unaudited Pro Forma Condensed Consolidated Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
17
<PAGE>
RESTRICTIONS IMPOSED BY THE SENIOR CREDIT AGREEMENTS AND THE INDENTURES
The Senior Credit Agreements require the Issuer to maintain specified
financial ratios and tests, among other obligations, including a minimum
interest coverage ratio, a maximum leverage ratio, and a minimum EBITDA
requirement. In addition, the Senior Credit Agreements restrict, among other
things, the Issuer's ability to incur additional indebtedness and to make
acquisitions and capital expenditures beyond a certain level. A failure to
comply with the restrictions contained in the Senior Credit Agreements could
lead to an event of default thereunder which could result in an acceleration
of such indebtedness. Such an acceleration would constitute an event of
default under the Indentures relating to the Exchange Notes. In addition, the
Indentures restrict, among other things, the Issuer's ability to incur
additional indebtedness, sell assets, make certain payments and dividends or
merge or consolidate. A failure to comply with the restrictions in the
Indentures could result in an event of default under the Indentures. See
"Description of Senior Credit Agreements" and "Description of Exchange Notes".
ORIGINAL ISSUE DISCOUNT CONSEQUENCES
The Senior Subordinated Discount Exchange Notes will be issued at a
substantial discount from their principal amount. Consequently, the purchasers
of the Senior Subordinated Discount Exchange Notes generally will be required
to include amounts in gross income for Federal income tax purposes in advance
of receipt of any cash payment on the Senior Subordinated Discount Exchange
Notes to which the income is attributable. See "Certain Federal Income Tax
Considerations" for a more detailed discussion of the Federal income tax
consequences to the holders of the Senior Subordinated Discount Exchange Notes
of the purchase, ownership and disposition of the Senior Subordinated Discount
Exchange Notes.
If a bankruptcy case is commenced by or against the Company under the U.S.
Bankruptcy Code (the "Bankruptcy Code") after the issuance of the Senior
Subordinated Discount Exchange Notes, the claim of a holder of Senior
Subordinated Discount Exchange Notes with respect to the principal amount
thereof will likely be limited to an amount equal to the sum of (i) the
Accreted Value of the Senior Subordinated Discount Exchange Notes as of the
date of issuance of the Senior Subordinated Discount Exchange Notes and (ii)
the original issue discount that is not deemed to constitute "unmatured
interest" for the purposes of the Bankruptcy Code. Any original issue discount
that was not amortized as of any such bankruptcy filing would most likely
constitute "unmatured interest".
COMPETITION
The bedding industry is highly competitive, and the Company encounters
competition from several manufacturers in both domestic and foreign markets.
Certain of the Company's principal competitors are less highly-leveraged than
the Company and may be better able to withstand market conditions within the
bedding industry. Additionally, there can be no assurance that the Company
will not encounter increased future competition, which could have a material
adverse effect on the Company's financial condition or results of operations.
See "Business--Competition".
YEAR 2000 ISSUE; COMPUTER SYSTEM UPGRADE
The Company believes that the new Business Systems, including appropriate
software, being installed both alongside and as part of an upgrade of its
existing computer system will address the dating system flaw inherent in most
operating systems (the "Year 2000 Issue"). There can be no assurance, however,
that the new Business Systems will be installed and fully operational at all
locations and for all applications prior to the turn of the century, and
management has therefore deemed it necessary to convert its current system to
be Year 2000 compliant. The Company has conducted a comprehensive impact
analysis to determine what computing platforms and date-aware functions with
respect to its existing computer operating systems will be disrupted by the
Year 2000
18
<PAGE>
Issue. In January, 1998, the Company completed a prioritization of the
impacted areas identified to date and commenced the detailed program code
changes through a contracted third party vendor which has experience in Year
2000 conversions for the Company's existing system including the same release
of such system. The Company is in the preliminary stages of assessment of its
vendors and customers status with respect to the Year 2000 Issue. The required
code changes, testing and implementation necessary to address the Year 2000
Issue is projected to be completed by May, 1999, and is expected to cost
approximately $4.0 million. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Year 2000 Issue" and
"Business--Manufacturing and Facilities".
DEPENDENCE ON KEY PERSONNEL
The Company is dependent on the continued services of its senior management
team. Although the Company believes it could replace key employees in an
orderly fashion should the need arise, the loss of such key personnel could
have a material adverse effect on the Company's financial condition or results
of operations. The Company does not maintain key-man life insurance on any of
its employees. See "Management--Directors and Executive Officers".
DEPENDENCE UPON SIGNIFICANT CUSTOMERS
The Company's top five conventional bedding customers accounted for
approximately 21% of the Company's net sales for the fiscal year ended
November 30, 1997 and no single customer represented more than 6% of the
Company's net sales for such period. While the Company believes its
relationships with such customers are stable, most arrangements are by
purchase order and are terminable at will at the option of either party. In
addition, the Company's business depends upon the financial viability of its
customers, which operate largely within the retail industry. The bankruptcy of
Montgomery Ward in 1997 resulted in increased bad debt reserves of $2.7
million and related factoring expense of $1.3 million by the Issuer. A
significant decrease or interruption in business from the Company's
significant customers could result in write-offs or in the loss of future
business, and could have a material adverse effect on the Company's financial
condition or results of operations. See "Business--Customers, Sales and
Marketing".
POSSIBLE FLUCTUATIONS IN THE COST OF RAW MATERIALS; POSSIBLE LOSS OF SUPPLIERS
The major raw materials that the Company purchases for production are
cotton, insulator pads, innersprings, fabrics and roll goods consisting of
foam, fiber and non-wovens. The price and availability of these raw materials
are subject to market conditions affecting supply and demand. The Company's
financial condition or results of operations may be materially and adversely
affected by increases in raw material costs to the extent the Company is
unable to pass on such higher costs to customers.
The Company purchases its raw materials and certain components from a
variety of vendors, including Hoover Wire Products, a division of Leggett &
Platt, Inc. ("Hoover"), Foamex International and other national raw material
and component suppliers. The Company purchases substantially all of its
Stearns & Foster foundation parts and approximately 50% of its Sealy
foundation parts from Hoover, which has patents on various interlocking wire
configurations. While the Company attempts to reduce the risks of dependence
on a single external source, there can be no assurance that there would not be
an interruption of production if Hoover or any other supplier were to
discontinue supplying the Company for any reason. See "Business--Manufacturing
and Facilities".
DEPENDENCE ON COMPONENTS DIVISION
The Company currently purchases substantially all of its mattress
innerspring unit requirements, including 100% of the proprietary innersprings
for the Posturepedic and Stearns & Foster lines, from
19
<PAGE>
its components division (the "Components Division"), which operates three
manufacturing facilities. There are limited alternative suppliers for these
classes of components. Although several months of supplies of such components
are currently available from the Company's inventories, any reductions or
interruptions in future supply or limitations in the Company's manufacturing
capacity could cause the Company to suffer disruptions or delays in the
operation of its business or incur higher than expected costs, which could
have a material adverse effect on the Company's financial condition or results
of operations. See "Business--Manufacturing and Facilities".
RELIANCE ON TRADEMARKS AND OTHER INTELLECTUAL PROPERTY
The Company holds over 200 trademarks, which management believes have
significant value and are important to the marketing of its products to
retailers. The Company owns numerous U.S. and foreign patents and has patent
applications pending domestically and abroad. In addition, the Company owns
U.S. and foreign registered trade names and service marks and has applications
for the registration of trade names and service marks pending domestically and
abroad. The Company also owns several U.S. copyright registrations. In
addition, the Company owns a wide array of unpatented proprietary technology
and know-how. Further, the Company licenses certain intellectual property
rights from third parties.
The Company's ability to compete effectively with other companies depends,
to a significant extent, on its ability to maintain the proprietary nature of
its owned and licensed intellectual property. Although the Company's
trademarks are currently registered in all 50 states and registered or pending
in 87 foreign countries, there can be no assurance that the Company's
trademarks cannot and will not be circumvented, do not or will not violate the
proprietary rights of others, or that the Company would not be prevented from
using its trademarks if challenged. Any challenge to the Company for its use
of its trademarks could have a material adverse effect on the Company's
financial condition or results of operations, through either a negative ruling
with regard to the Company's use, validity or enforceability of its
trademarks, or through the time consumed and the legal costs of defending
against such a claim. In addition, there can be no assurance that the Company
will have the financial resources necessary to enforce or defend its
trademarks. In addition, there can be no assurance as to the degree of
protection offered by the various patents, the likelihood that patents will be
issued for pending patent applications or, with regard to the licensed
intellectual property, that the licenses will not be terminated. If the
Company were unable to maintain the proprietary nature of its intellectual
property and its significant current or proposed products, the Company's
financial condition or results of operations could be materially adversely
affected. See "Business--Proprietary Technology; Trademarks and Patents".
LABOR RELATIONS
As of November 30, 1997, the Company had 5,456 full-time employees.
Approximately 66% of the Company's employees at its 28 North American
facilities 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. Although the Company believes that its
relations with its union employees are generally satisfactory, there can be no
assurance that the Company will not at some point be subject to work stoppages
by some of its employees and, if such events were to occur, that there would
not be a material adverse effect on the Company's financial condition or
results of operations. See "Business--Employees".
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
The Company conducts significant international operations. Such operations
are subject to the customary risks of operating in an international
environment, including the potential imposition of trade
20
<PAGE>
or foreign exchange restrictions, tariff and other tax increases, fluctuations
in exchange rates, inflation and unstable political situations. Fluctuations
in the rate of exchange between the U.S. dollar and other currencies may
affect stockholders' equity and the results of operations. The Company does
not currently engage in any material hedging activities, but continues to
evaluate the possibility of doing so. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Foreign Operations
and Export Sales".
CONTROLLING SHAREHOLDERS
As a result of the Transactions, the Bain Funds and related investors and
certain other institutional investors, the Management Investors and Zell (as
herein defined), beneficially own all of the outstanding common stock of
Parent, and through collective majority voting rights, can effectively control
the affairs and policies of the Company. Circumstances may occur in which the
interests of these shareholders conflict with the interests of the holders of
the Exchange Notes. In addition, these shareholders may have an interest in
pursuing acquisitions, divestitures or other transactions that, in their
judgment, enhance their equity investment, even though such transactions might
involve risks to the holders of the Exchange Notes. See "Security Ownership".
LIMITATIONS ON CHANGE OF CONTROL
In the event of a Change of Control, the Company will be required to make an
offer for cash to repurchase the Exchange Notes at 101% of the principal
amount thereof (or Accreted Value, as the case may be), plus accrued and
unpaid interest, if any, thereon to the repurchase date. A Change of Control
will result in an event of default under the Senior Credit Agreements and may
result in a default under other indebtedness of the Company that may be
incurred in the future. The Senior Credit Agreements will prohibit the
purchase of outstanding Exchange Notes prior to repayment of the borrowings
under the Senior Credit Agreements and any exercise by the holders of the
Notes of their right to require the Company to repurchase the Exchange Notes
will cause an event of default under the Senior Credit Agreements. Finally,
there can be no assurance that the Company will have the financial resources
necessary to repurchase the Exchange Notes upon a Change of Control. See
"Description of Exchange Notes--Repurchase at the Option of Holders--Change of
Control".
RISK OF FRAUDULENT TRANSFER
A significant portion of the net proceeds of the Offerings were paid as a
dividend to Parent and used to consummate the Merger and to repay the Parent
Notes. Under applicable provisions of the U.S. Bankruptcy Code or comparable
provisions of state fraudulent transfer or conveyance laws, if the Company, at
the time it issued the Notes, (i) incurred such indebtedness with intent to
hinder, delay or defraud creditors, or (ii)(a) received less than reasonably
equivalent value or fair consideration for incurring such indebtedness and
(b)(1) was insolvent at the time of incurrence, (2) was rendered insolvent by
reason of such incurrence (and the application of the proceeds thereof), (3)
was engaged or was about to engage in a business or transaction for which the
assets remaining with the Company constituted unreasonably small capital to
carry on its businesses, or (4) intended to incur, or believed that it would
incur, debts beyond its ability to pay such debts as they mature, then, in
each case, a court of competent jurisdiction could void, in whole or in part,
the Notes and/or the Exchange Notes, or, in the alternative, subordinate the
Notes and/or the Exchange Notes to existing and future indebtedness of the
Company. The measure of insolvency for purposes of the foregoing will vary
depending upon the law applied in such case. Generally, however, the Company
would be considered insolvent if the sum of its debts, including contingent
liabilities, was greater than all of its assets at fair valuation or if the
present fair saleable value of its assets was less than the amount that would
be required to pay the probable liability on its existing debts, including
contingent liabilities, as they become absolute and matured. Management
believes that, for purposes of all such insolvency, bankruptcy and fraudulent
transfer or conveyance laws, the Notes were issued and the Exchange
21
<PAGE>
Notes are being issued without the intent to hinder, delay or defraud
creditors and for proper purposes and in good faith and that the Company,
after the issuance of the Notes and the application of the proceeds thereof,
was solvent and, after the issuance of the Exchange Notes, will be solvent,
will have sufficient capital for carrying on its business and will be able to
pay its debts as they mature. There can be no assurance, however, that a court
passing on such questions would agree with management's view.
ENVIRONMENTAL, HEALTH AND SAFETY REQUIREMENTS
The Company is subject to Federal, state and local laws and regulations
relating to pollution, environmental protection and occupational health and
safety. There can be no assurance that the Company is at all times in complete
compliance with all such requirements. The Company has made and will continue
to make capital and other expenditures to comply with environmental
requirements. As is the case with manufacturers in general, if a release of
hazardous substances occurs on or from the Company's properties or any
associated offsite disposal location, or if contamination from prior
activities is discovered at any of the Company's properties, the Company may
be held liable and the amount of such liability could be material. The Company
is conducting environmental cleanups at a formerly owned facility in South
Brunswick, New Jersey and at an inactive facility in Oakville, Connecticut.
The Company has recorded accruals to reflect future costs associated with
these cleanups. However, because of the uncertainties associated with
environmental remediation, it is possible that the costs incurred with respect
to the cleanups could exceed the recorded accruals. See "Business--
Environmental, Health and Safety Matters".
LACK OF PUBLIC MARKET; TRANSFER RESTRICTIONS
Prior to the Exchange Offer, there has not been any public market for the
Notes. The Notes have not been registered under the Securities Act and will be
subject to restrictions on transferability to the extent that they are not
exchanged for Exchange Notes by holders who are entitled to participate in
this Exchange Offer. The holders of Notes (other than any such holder that is
an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act) who are not eligible to participate in the Exchange Offer are
entitled to certain registration rights, and the Company is required to file a
Shelf Registration Statement with respect to such Notes. See "The Exchange
Offer--Purpose and Effect of the Exchange Offer." The Exchange Notes are a new
issue of securities for which there is currently no trading market. Because
the Exchange Notes are being sold pursuant to an exemption from registration
under the applicable securities laws and, therefore, may not be publicly
offered, sold or otherwise transferred in any jurisdiction where such
registration may be required, no public market for the Exchange Notes will
develop. The Exchange Notes are eligible for trading by qualified buyers in
the Private Offering, Resales and Trading through Automated Linkages
("PORTAL") market. The Issuer has been advised by the Initial Purchasers that
following the completion of the Exchange Offer, the Initial Purchasers
currently intend to make a market in the Exchange Notes. However, they are not
obligated to do so and any market-making activities with respect to the
Exchange Notes may be discontinued at any time without notice. In addition,
such market-making activity will be subject to the limits imposed by the
Securities Act and the Exchange Act, and may be limited during the Exchange
Offer pendency of any Shelf Registration Statement. Although under the
Registration Rights Agreement, the Issuer is required to consummate an offer
to exchange the Notes for equivalent registered securities, or to register the
Notes under the Securities Act, there can be no assurance that an active
trading market for the Notes or the Exchange Notes will develop. If a market
were to exist, the Exchange Notes could trade at prices that may be lower than
the initial offering price thereof depending on many factors, including
prevailing interest rates and the markets for similar securities, general
economic conditions and the financial condition and performance of, and
prospects for, the Company. See "The Exchange Offer."
22
<PAGE>
EXCHANGE OFFER PROCEDURES
Issuance of the Exchange Notes in exchange for the Notes pursuant to the
Exchange Offer will be made only after a timely receipt by the Company of such
Notes, a properly completed and duly executed Letter of Transmittal and all
other required documents. Therefore, holders of the Notes desiring to tender
such Notes in exchange for Exchange Notes should allow sufficient time to
ensure timely delivery. The Company is under no duty to give notification of
defects or irregularities with respect to the tenders of Notes for exchange.
Notes that are not tendered or are tendered but not accepted will, following
the consummation of the Exchange Offer, continue to be subject to the existing
restrictions upon transfer thereof and, upon consummation of the Exchange
Offer, certain registration rights under the Registration Rights Agreement
will terminate. In addition, any holder of Notes who tenders in the Exchange
Offer for the purpose of participating in a distribution of the Exchange Notes
may be deemed to have received restricted securities and, if so, will be
required to comply with the registration and prospectus delivery requirements
of the Securities Act in connection with any resale transactions. Each
Participating Broker-Dealer that receives Exchange Notes for its own account
in exchange for Notes, where such Notes were acquired by such Participating
Broker-Dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. See "Plan of Distribution". To the
extent that Notes are tendered and accepted in the Exchange Offer, the trading
market for untendered and tendered but unaccepted Notes could be adversely
affected. See "The Exchange Offer".
23
<PAGE>
THE TRANSACTIONS
OVERVIEW
On December 18, 1997, Parent consummated a merger (the "Merger") pursuant to
an agreement and plan of merger, dated as of October 30, 1997, as amended,
(the "Merger Agreement"), with Sandman Merger Corporation, a transitory
Delaware merger corporation ("Sandman"), and Zell/Chilmark Fund, L.P., a
Delaware limited partnership ("Zell"). Prior to the Merger, Zell beneficially
owned approximately 87% of the voting securities of Parent. Pursuant to the
Merger Agreement, Sandman was merged with and into Parent with Parent being
the surviving corporation. Prior to the Merger, Parent converted certain of
the existing common stock held by Zell into shares of Parent's voting
preferred stock (the "Preference Stock"). In connection with the Merger (i)
the Preference Stock was converted into $25.0 million in aggregate principal
amount of junior subordinated notes of Parent (the "Parent Junior Subordinated
Notes") and the Zell Equity (as defined below) and (ii) the aggregate issued
and outstanding shares of the existing common stock at the time of the Merger
were converted into the right to receive an aggregate amount of cash equal to
(x) $419.3 million minus (y) certain fees and expenses of the Merger minus (z)
certain costs in connection with the extinguishment of certain outstanding
options and warrants of Parent.
The transactions contemplated by the Merger Agreement, including the Merger,
the Tender Offer and related Consent Solicitation (each as defined below) and
the refinancing of Parent's existing indebtedness were funded by: (i) $450.0
million of term loan borrowings by the Company pursuant to the Senior Credit
Agreements (as defined below); (ii) $10.0 million of revolving borrowings
under the Senior Credit Agreements; (iii) the Offerings, with aggregate gross
proceeds of $200.4 million; (iv) the issuance of the Junior Subordinated Notes
to Zell; (v) an equity investment in Parent by funds managed by Bain, its
related investors, including members of management, and other institutional
investors (collectively, the "New Investors") of approximately $130.4 million
and (vi) a retained equity investment in Parent by Zell with fair value of
approximately $14.3 million (such equity investment, the "Zell Equity"). As a
result of the Merger and Recapitalization, the New Investors beneficially own
approximately 85.3% of the voting securities of Parent.
STRUCTURE OF THE RECAPITALIZATION
Immediately prior to the closing of the Transactions (the "Closing"), Parent
contributed (the "Capital Contribution") all of the issued and outstanding
capital stock of Sealy, Inc., an Ohio corporation, The Stearns & Foster
Bedding Company, a Delaware corporation, Advanced Sleep Products, a California
corporation, Sealy Components-Pads, Inc., a Delaware corporation, and Sealy
Mattress Company of San Diego, a California corporation, to the capital of the
Issuer. As a result of the Capital Contribution, the Issuer is the only direct
subsidiary of Parent and owns 100% of the operations of Parent.
TENDER OFFER AND CONSENT SOLICITATION
On November 18, 1997, Parent commenced an offer (the "Tender Offer") to
purchase for cash up to all (but not less than a majority in principal amount
outstanding) of its 10 1/4% Senior Subordinated Notes due 2003 (the "Old
Notes") and a related solicitation (the "Consent Solicitation") of consents to
modify certain terms of the indenture under which the Old Notes were issued.
The purchase price paid in respect of validly tendered Old Notes was $1,057.03
per $1,000 of principal amount tendered and the payment with respect to the
Consent Solicitation was $20 per $1,000 of principal amount tendered prior to
the consent expiration date therefor. Old Notes in the aggregate principal
amount of $197.8 million were tendered and accepted for payment and the
related consents received. The Tender Offer was consummated concurrently with
the Merger and a supplemental indenture with respect to the Old Notes took
effect at such time.
24
<PAGE>
SENIOR CREDIT AGREEMENTS
Upon consummation of the Merger, the Issuer entered into the AXELs* credit
agreement (the "Senior AXELs Credit Agreement") and a credit agreement
providing for Tranche A term Loans and revolving borrowings (the "Senior
Revolving Credit Agreement" and, together with the Senior AXELs Credit
Agreement, the "Senior Credit Agreements") with Goldman Sachs Credit Partners
L.P., as arranger and syndication agent, Morgan Guaranty Trust Company of New
York, as administrative agent, and Bankers Trust Company, as documentation
agent; and other institutions party thereto. The Senior Credit Agreements
provide for loans of up to $550.0 million, consisting of a $450.0 million term
loan facility (the "Term Loan Facility") and a $100.0 million revolving credit
facility (the "Revolving Credit Facility"). The Issuer distributed the
proceeds of the Term Loan Facility and its initial borrowings under the
Revolving Credit Facility to Parent to provide a portion of the funds
necessary to consummate the Merger and related Recapitalization transactions.
Indebtedness of the Issuer under the Senior Credit Agreements is secured and
guaranteed by Parent and certain of the Issuer's current and all of the
Issuer's future U.S. subsidiaries and will bear interest at a floating rate.
The Senior Credit Agreements require the Company to meet certain financial
tests, including minimum levels of EBITDA, minimum interest coverage and
maximum leverage ratio. The Senior Credit Agreements also contain covenants
which, among other things, limit capital expenditures, indebtedness and/or the
incurrence of additional indebtedness, investments, dividends, transactions
with affiliates, asset sales, mergers and consolidations, prepayments of other
indebtedness (including the Notes and the Exchange Notes), liens and
encumbrances and other matters customarily restricted in such agreements. See
"Description of Senior Credit Agreements".
- --------
* "AXELs" is a registered servicemark of Goldman, Sachs & Co.
25
<PAGE>
USE OF PROCEEDS
The Exchange Offers are intended to satisfy certain of the Company's
obligations under the Registration Rights Agreement. The Company will not
receive any cash proceeds from the issuance of the Exchange Notes in the
Exchange Offer. The aggregate gross proceeds from the issuance of the Notes,
together with borrowings under the Senior Credit Agreements and proceeds from
the equity infusion by the Investors, were used to consummate the Merger,
refinance existing debt, repurchase the Parent Notes pursuant to the Tender
Offer and pay the related fees and expenses. See "The Transactions".
The following table illustrates the total sources and uses of funds for the
Transactions, on a pro forma basis, assuming the Transactions occurred as of
November 30, 1997.
<TABLE>
<CAPTION>
AMOUNT
---------------------
(DOLLARS IN MILLIONS)
<S> <C>
SOURCES OF FUNDS:
Existing cash(1)................................... $ 9.0
Senior Credit Agreements:
Revolving Credit Facility(2)..................... 10.0
Term Loans....................................... 450.0
Senior Subordinated Notes.......................... 125.0
Senior Subordinated Discount Notes................. 75.4
Parent Junior Subordinated Notes(3)................ --
Zell Equity(3)..................................... --
Equity proceeds to Parent(5)....................... 121.3
------
Total sources.................................. $790.7
======
USES OF FUNDS:
Merger consideration(4)............................ $411.0
Repurchase of Parent Notes(6)...................... 215.7
Repayment of borrowings under the Old Credit
Agreement(1)...................................... 130.0
Accrued interest................................... 0.6
Estimated fees and expenses(7)..................... 33.4
------
Total uses..................................... $790.7
======
</TABLE>
- --------
(1) Funding requirements as of the Closing were less than pro forma
requirements as of November 30, 1997 due to positive operating cash flows
from post-November 30, 1997 results and certain expenses not being paid at
Closing.
(2) The Revolving Credit Facility has a total availability of $100.0 million,
with $10.0 million drawn at Closing.
(3) The Parent Junior Subordinated Notes of $25.0 million, together with the
Zell Equity, with an implied fair value of $14.3 million, represent non-
cash Merger consideration paid to Zell. Payment of cash interest to Parent
to service this debt will be limited by the Senior Credit Agreements and
the Indentures. The Parent Junior Subordinated Notes are scheduled to
mature after the Notes.
(4) Includes cash payments to Zell, warrant and option holders and for Seller
Expenses of $411.0 million. Excludes non-cash Merger consideration of
$25.0 million of Parent Junior Subordinated Notes, the retained Zell
Equity (fair value of $14.3 million) and the converted management equity
and deferred compensation ($8.3 million).
(5) Excludes approximately $8.3 million of equity held by current management
of the Company that was converted at Closing into deferred compensation
accounts and options to acquire common stock.
(6) Includes the tender premium and consent payment of 107.703% or $15.2
million and the accrued interest on the tendered Parent Notes of
approximately $2.7 million for the period from November 2, 1997 through
the Tender Offer closing date of December 18, 1997. Parent Notes in the
aggregate principal amount of approximately $197.8 million were tendered
and the related consents received.
(7) Reflects fees and expenses associated with issuance of the Notes and
borrowings under the Senior Credit Agreements and estimated fees and
expenses of approximately $13.8 million of Attorneys, Accountants, Bain,
Printers and other professionals related to the Transactions. See "Certain
Transactions".
26
<PAGE>
CAPITALIZATION
The following table sets forth the actual cash and cash equivalents and the
capitalization of the Parent and of the Issuer as of March 1, 1998. The
information in this table should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations", the
Consolidated Financial Statements and the Condensed Consolidated Financial
Statements and accompanying notes thereto appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
UNAUDITED
---------------------------
PARENT ISSUER
MARCH 1, 1998 MARCH 1, 1998
(ACTUAL) (ACTUAL)
------------- -------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Cash and cash equivalents...................... $ -- $ --
======= ======
Long-term debt obligations, including current
portion:
Senior Credit Agreements:
Revolving Credit Facility(1)............... $ -- $ 29.0
Term Loans................................. -- 450.0
Senior Subordinated Notes.................... -- 125.0
Senior Subordinated Discount Notes(2)........ -- 77.2
Junior Subordinated Notes(2)................. 25.6 --
Untendered Parent Notes(3)................... 2.2 --
------- ------
Total long-term debt..................... 27.8 681.2
------- ------
Stockholders' equity (deficit)(4).............. (127.8) (92.1)
------- ------
Total capitalization..................... $(100.0) $589.1
======= ======
</TABLE>
- --------
(1) The Revolving Credit Facility has total availability of $100.0 million,
with $29.0 million drawn at March 1, 1998 and Letters of Credit issued
totaling $12.0 million.
(2) Includes accretion of interest on the Senior Subordinated Discount Notes
of approximately $1.8 million and accrued interest on the Junior
Subordinated Notes of $0.6 million.
(3) On March 30, 1998, the Company announced a call for redemption of all of
its outstanding Parent Notes. The redemption price of 106.33%, plus
accrued interest, of approximately $2.5 million was paid on May 1, 1998,
after which time interest will cease to accrue on the Notes. The
redemption was funded with the Revolving Credit Facility.
(4) Parent's stockholders' deficit is larger than the Issuer's deficit
primarily due to Parent's distribution of the $25.0 million Parent Junior
Subordinated Notes and $2.2 million of Parent Notes not tendered.
27
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA
Set forth below are selected historical consolidated financial and other
data of the Parent (some periods of which are less than one year due to
accounting requirements for acquisition transactions) for the years ended
November 30, 1997, December 1, 1996, November 30, 1995 and 1994, for the ten
months ended November 30, 1993 and for the two months ended January 31, 1993,
as well as the three months ended March 1, 1998 and March 2, 1997. During the
period from December 1, 1991 through December 1, 1996, the Parent's capital
structure changed significantly, in large part as a result of the purchase of
the Parent in February, 1993 by an investor group led by Zell (the "1993
Acquisition"). Due to required purchase accounting adjustments relating to
such transactions, and the resultant changes in control, the selected
historical consolidated financial and other data reflected in the following
table during this period are not comparable to such data for the other such
periods. The selected historical consolidated financial and other data set
forth in the following tables have been derived from the Parent's audited
consolidated financial statements and unaudited financial statements as of and
for the three months ended March 2, 1997 and March 1, 1998. The report of KPMG
Peat Marwick LLP, independent auditors, covering the Parent's Consolidated
Financial Statements for the years ended November 30, 1997, December 1, 1996
and November 30, 1995 is included elsewhere herein.
The information contained in this table and accompanying notes should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations", the audited Consolidated Financial
Statements and the Condensed Consolidated Financial Statements and
accompanying notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
TWO TEN THREE MONTHS
MONTHS MONTHS FISCAL YEAR ENDED
ENDED ENDED -------------------------------------- ----------------
JAN. 31, NOV. 30, MAR. 2, MAR. 1,
1993 1993 1994 1995 1996 1997 1997 1998
-------- -------- -------- -------- ------- -------- ------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... $103.5 $579.7 $697.7 $653.9 $697.6 $804.8 $168.9 $209.3
Costs and expenses...... 100.9 531.0 641.6 610.9 672.8 764.2 162.5 227.8
Income (loss) before
income tax,
extraordinary item and
cumulative effect of
change in accounting
principle.............. 2.6 48.7 56.1 43.0 24.8 40.6 6.4 (18.5)
Extraordinary loss, net
of taxes(1)............ -- 2.9 -- -- -- 2.0 2.0 14.5
Cumulative effect of
change in accounting
principle, net of
taxes(2)............... -- -- -- -- -- 4.3 -- --
Net income (loss)....... $ 1.0 $ 24.7 $ 29.2 $ 19.5 $ (0.5)(3) $ 11.7 $ 1.2 $(32.2)
OTHER DATA:
Operating income
(loss)(4).............. $ 9.3 $ 79.9 $ 89.5 $ 74.0 $ 53.6 $ 72.0 $ 13.2 $ (3.0)
Net cash provided by
(used in) operating
activities............. (1.3) 82.7 69.0 63.3 44.4 42.0 -- (23.3)
Depreciation and
amortization of
intangibles............ 4.3 19.1 23.6 24.2 26.6 24.1 6.6 5.9
Capital expenditures.... 3.3 10.4 12.8 11.8 12.0 29.1 4.0 5.4
Interest expense, net... 6.7 31.2 33.4 31.0 28.8 31.4 6.8 15.5
Ratio of earnings to
fixed charges(5)....... 1.4x 2.4x 2.5x 2.3x 1.8x 2.2x 1.8x --
EBITDA(6)............... $ 13.7 $ 99.0 $113.1 $ 98.3 $ 80.2 $ 96.1 $ 19.8 $ 2.9
Adjusted EBITDA(7)...... 14.6 101.2 122.8 85.0 86.8 103.1 20.4 22.7
<CAPTION>
AS OF
----------------------------------------------------------------
NOV. 30, NOV. 30, NOV. 30, DEC. 1, NOV. 30, MAR. 2, MAR. 1,
1993 1994 1995 1996 1997 1997 1998
-------- -------- -------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets..................... $823.1 $810.6 $776.2 $739.9 $721.1 $715.5 $750.7
Long-term obligations............ 384.5 329.5 269.4 269.5 330.0 356.4 705.3
Total debt....................... 406.2 349.9 286.9 288.1 330.0 356.5 709.0
Stockholders' equity............. 284.3 322.2 330.9 293.0 205.1 194.3 (127.8)
</TABLE>
28
<PAGE>
NOTES TO SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA
(1) During 1993 and in February 1997, Parent recorded an extraordinary loss of
$2.9 million and $2.0 million, respectively, net of an income tax benefit
of $1.5 million and $1.4 million, respectively, representing the remaining
unamortized debt issuance costs related to long-term obligations repaid as
a result of refinancing transactions in such years. In December 1997, the
Parent recorded an extraordinary loss of $14.5 million, net of an income
tax benefit of $9.6 million, related to the Tender Offer premium and
consent fees and the write-off of unamortized debt issuance costs arising
from the Transactions.
(2) On November 20, 1997 the EITF reached a final consensus that business
process reengineering costs incurred in connection with an overall
information technology transformation project should be expensed as
incurred (EITF-97-13). Previously capitalized business process
reengineering costs were required to be identified and written-off as a
cumulative effect of a change in accounting principle. The Company adopted
EITF-97-13 which resulted in the Company recording a loss of $4.3 million,
net of income tax benefits of $2.9 million during the fourth quarter of
fiscal 1997.
(3) On January 15, 1997, Parent completed the Samuel Lawrence Divestiture,
which 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.
(4) Operating income is calculated by adding interest expense, net to net
sales less costs and expenses.
(5) For purposes of calculating the ratio of earnings to fixed charges,
earnings represent income (loss) before income tax, extraordinary items
and cumulative effect of change in accounting principle, 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. Earnings for the quarter ended March 1, 1998
were insufficient to cover fixed charges by $18.5 million.
(6) EBITDA is calculated as described in footnote (6) below.
(7) Adjusted EBITDA is calculated by adding to or deducting from EBITDA (as
described below) certain items of income and expense consisting of: (i)
discontinued stock-based compensation plans, (ii) executive severance and
transition costs, (iii) loss on write-off of Montgomery Ward accounts
receivable and related factoring expense incurred in connection with
bankruptcy of Montgomery Ward, (iv) operating results of the divested
South Brunswick pad manufacturing plant for the year ended November 30,
1997 and three months ended March 2, 1997, (v) any expenses related to
addressing the Company's "Year 2000" information systems issue and EITF
97-13 reengineering efforts and (vi) non-recurring expenses related to the
Company's Recapitalization. EBITDA is calculated by adding interest
expense, net and depreciation and amortization of intangibles to income
(loss) before income tax, extraordinary items and cumulative effect of
change in accounting principle. EBITDA 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 GAAP and does not necessarily indicate whether cash flows will
be sufficient to fund cash needs. Adjusted EBITDA is presented because it
conforms to the definition of "Consolidated EBITDA" in the Notes Indenture
except for the exclusion of the Bain management fee for the three months
ended March 1, 1998 and the divested South Brunswick pad manufacturing
plant operating results for the year ended November 30, 1997 and the three
months ended March 2, 1997 (see "Description of Exchange Notes" and
"Certain Definitions" within such section). These two items are not
included in the Indenture definition of "Consolidated EBITDA"; however,
the Company believes that the adjustment for these items in "Adjusted
EBITDA" is appropriate for such periods in order to provide an appropriate
analysis of recent historical results. Parent's measure of EBITDA and
Adjusted EBITDA may not be comparable to those reported by other
companies. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations". The following is a reconciliation of
EBITDA to Adjusted EBITDA:
<TABLE>
<CAPTION>
TWO TEN THREE MONTHS
MONTHS MONTHS FISCAL YEAR ENDED
ENDED ENDED --------------------------- -------------
JAN. 31, NOV. 30, MAR 2, MAR 1,
1993 1993 1994 1995 1996 1997 1997 1998
-------- -------- ------ ------ ----- ------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
EBITDA.................. $13.7 $ 99.0 $113.1 $ 98.3 $80.2 $ 96.1 $19.8 $ 2.9
----- ------ ------ ------ ----- ------ ----- -----
Adjustments:
South Brunswick pad
manufacturing plant... -- -- -- -- -- 0.4 0.3 --
Stock-based
compensation.......... 0.9 2.2 9.7 (13.3) 4.7 1.6 0.3 --
Executive severance and
transition............ -- -- -- -- 1.9 -- -- --
Recapitalization non-
recurring expenses.... -- -- -- -- -- -- -- 18.8
Bain management fee.... -- -- -- -- -- -- -- 0.4
Montgomery Ward bad
debt and factoring
losses................ -- -- -- -- -- 4.0 -- --
EITF 97-13
reengineering
efforts............... -- -- -- -- -- 1.0 -- 0.6
----- ------ ------ ------ ----- ------ ----- -----
Total adjustments..... 0.9 2.2 9.7 (13.3) 6.6 7.0 0.6 19.8
----- ------ ------ ------ ----- ------ ----- -----
Adjusted EBITDA......... $14.6 $101.2 $122.8 $ 85.0 $86.8 $103.1 $20.4 $22.7
===== ====== ====== ====== ===== ====== ===== =====
</TABLE>
29
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The Unaudited Pro Forma Condensed Consolidated Financial Data are based on
the historical financial statements of Parent and the adjustments described in
the accompanying notes. Since Parent is a holding company with no operations
other than those of Issuer, and its subsidiaries, the consolidated financial
statements represent the results of operations of Issuer. However, interest
expense on approximately $27.2 million of Parent debt is excluded from
Issuer's pro forma and historical results of operations.
The following Unaudited Pro Forma Condensed Consolidated Statements of
Income for the year ended November 30, 1997 and the three months ended March
1, 1998 give effect to the Divestitures and the Transactions as if they each
had occurred on December 2, 1996. The Unaudited Pro Forma Condensed
Consolidated Statements of Income do not (a) purport to represent what the
Issuer's results of operations actually would have been if the Divestitures
and the Transactions had occurred as of the date indicated or what such
results will be for any future periods or (b) reflect the non-recurring
charges, which were recorded during the three months ended March 1, 1998, of
approximately: (i) $3.4 million related to a special bonus to certain members
of the Issuer's management in connection with the Transactions of which $3.2
million was paid at Closing; (ii) $14.9 million related to deferred
compensation agreements and accelerated vesting and cash out of stock options
and restricted stock as a result of the Transactions; (iii) $0.5 million of
Seller Expenses of Parent or (iv) the $14.5 million after-tax extraordinary
loss of Parent related to the refinancing of the Old Credit Agreement and the
redemption of the Parent Notes in connection with the Tender Offer and Consent
Solicitation.
The Unaudited Pro Forma Condensed Consolidated Financial Data are based upon
assumptions that the Issuer believes are reasonable and should be read in
conjunction with the Consolidated Financial Statements and the Condensed
Consolidated Financial Statements of Parent and the accompanying notes thereto
included elsewhere in this Prospectus.
30
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED NOVEMBER 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADJUSTMENTS
PARENT DIVESTITURES ADJUSTED FOR THE ISSUER
HISTORICAL ADJUSTMENTS HISTORICAL TRANSACTIONS PRO FORMA
---------- ------------ ---------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Net sales............... $804,834 $(5,331)(1) $799,503 $ -- $799,503
-------- ------- -------- -------- --------
Costs and expenses:
Cost of goods sold..... 455,905 (5,221)(1)(2) 450,684 -- 450,684
Selling, general and
administrative........ 262,023 (574)(1) 261,449 2,000 (3) 263,449
Stock based
compensation.......... 1,635 -- 1,635 -- 1,635
Amortization of
intangibles........... 13,264 -- 13,264 -- 13,264
Interest expense, net.. 31,396 -- 31,396 32,580 (5) 63,976
-------- ------- -------- -------- --------
Total costs and
expenses.............. 764,223 (5,795) 758,428 34,580 793,008
Income (loss) before
income taxes,
extraordinary item and
cumulative effect of
change in accounting
principle............. 40,611 464 41,075 (34,580) 6,495
Income tax (benefit)
expense............... 22,509 260 (1) 22,769 (14,865)(6) 7,904
-------- ------- -------- -------- --------
Income (loss) before
extraordinary item and
cumulative effect of
change in accounting
principle............. $ 18,102 $ 204 $ 18,306 $(19,715) $ (1,409)
======== ======= ======== ======== ========
OTHER DATA:
Ratio of earnings to fixed charges(7).................................. 1.1x
Adjusted EBITDA(8)..................................................... $103,095
Depreciation........................................................... 10,731
Capital expenditures................................................... 29,124
Ratio of Adjusted EBITDA to cash
interest expense...................................................... 2.0x
Ratio of Adjusted EBITDA to total
interest expense, net................................................. 1.6x
</TABLE>
31
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
THREE MONTHS ENDED MARCH 1, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADJUSTMENTS
PARENT DIVESTITURE ADJUSTED FOR THE ISSUER
HISTORICAL ADJUSTMENTS HISTORICAL TRANSACTIONS PRO FORMA
---------- ----------- ---------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Net sales............... $209,259 $ -- $209,259 $ -- $209,259
-------- ----- -------- ------- --------
Costs and expenses:
Cost of goods sold..... 121,484 -- 121,484 -- 121,484
Selling, general and
administrative........ 87,597 -- 87,597 55 (3) 68,825
(18,827)(4)
Amortization of
intangibles........... 3,162 -- 3,162 -- 3,162
Interest expense, net.. 15,528 -- 15,528 912 (5) 16,440
-------- ----- -------- ------- --------
Total costs and
expenses.............. 227,771 -- 227,771 (17,860) 209,911
Income (loss) before
income taxes and
extraordinary item.... (18,512) -- (18,512) 17,860 (652)
Income tax (benefit)
expense............... (747) -- (747) 1,751(6) 1,004
-------- ----- -------- ------- --------
Income (loss) before
extraordinary item.... $(17,765) $ -- $(17,765) $16,109 $ (1,656)
======== ===== ======== ======= ========
OTHER DATA:
Ratio of earnings to fixed charges(7)................................. 1.0x
Adjusted EBITDA(8).................................................... $ 22,748
Depreciation.......................................................... 2,711
Capital expenditures.................................................. 5,400
Ratio of Adjusted EBITDA to cash
interest expense..................................................... 1.7x
Ratio of Adjusted EBITDA to total
interest expense, net................................................ 1.4x
</TABLE>
32
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED NOVEMBER 30, 1997 AND THREE MONTHS ENDED MARCH 1, 1998
(DOLLARS IN THOUSANDS)
(1) Reflects exclusion of net sales, cost of goods sold, selling, general and
administrative expenses and income tax expense related to the Samuel
Lawrence Divestiture in January 1997.
(2) Reflects the net reduction in cost of goods sold of $464 as a result of
the Company divesting the operations of the South Brunswick, New Jersey
mattress pad plant (the "Brunswick Plant") in March 1997 and entering into
a mattress pad supply agreement with the buyer of the Brunswick Plant.
While in operation, the Brunswick Plant had no sales to third parties as
it was a vertically integrated supply plant. Management has determined the
net reduction in costs of goods sold for the periods presented by
computing the difference between the costs incurred by the Brunswick Plant
to make mattress pads at actual, historical production levels and the
price the Issuer is now paying under terms of the long-term supply
agreement entered into with the buyer.
(3) Represents $2,000 annual management fee ($500 per quarter, of which only
$445 was recorded during the three months ended March 1, 1998) to be paid
to an affiliated party for consulting and financial services to be
provided to the Issuer. See "Certain Relationship and Related
Transactions--Management Services Agreement".
(4) Represents reduction in selling, general and administrative expense for
the three months ended March 1, 1998 as a result of the following non-
recurring charges recorded in connection with the Transactions: (a) $3.4
million of a special bonus to certain members of the Issuer's management
as compensation for completing the Transactions of which $3.2 was paid at
Closing; (b) $13.3 million of accelerated vesting and cash out of stock
options and restricted stock; (c) $1.6 million related to deferred
compensation agreements entered into as non-recurring signing bonuses in
connection with the Transactions and (d) $0.5 million of Seller Expenses.
An additional $0.6 million of special bonus will be earned over the
balance of fiscal 1998 and will be paid in early fiscal 1999.
(5) The increase in pro forma interest expense as a result of the Transactions
is as follows:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
NOVEMBER 30, MARCH 1,
1997 1998(D)
------------ ------------------
<S> <C> <C>
Elimination of historical interest expense.. $(31,396) $(1,542)(d)
-------- -------
Interest on new borrowings:
Senior Credit Agreements(a)............... 39,749 1,960
Senior Subordinated Notes (9.875% rate)... 12,344 609
-------- -------
Cash interest expense................... 52,093 2,569
Senior Subordinated Discount Notes(b)....... 8,205 405
Amortization of deferred financing fees(c).. 3,678 181
-------- -------
Total interest from the debt
requirements of the Transactions....... 63,976 3,155
-------- -------
Less: Interest expense on the Parent Junior
Subordinated Notes and untendered Parent
Notes(e)................................... -- (701)
-------- -------
Net increase in interest expense........ $ 32,580 $ 912
======== =======
</TABLE>
--------
(a) Represents interest on each tranche of bank debt at the LIBOR rate
option (5.94%) plus: (i) 2.25% for the Revolving Credit Facility
($10,000) and Term A tranche ($120,000); (ii) 2.50% for AXELs Series B
($125,000); (iii) 2.75% for AXELs Series C ($90,000); and (iv) 3.00%
for AXELs Series D ($115,000), as well as an unused commitment fee of
0.50% on the unused portion of the Revolving Credit Facility ($90,000).
(b) Senior Subordinated Discount Notes will be accreting at an annual rate
of 10.875% for the first five years after date of issuance and will be
cash pay thereafter.
(c) Represents amortization expense utilizing a weighted average maturity
on all borrowings of 8.32 years.
(d) As the Transactions were effected on December 18, 1997, the pro forma
interest expense calculation for the three months ended March 1, 1998
reflects the period from December 1, 1997 through December 18, 1997.
Consequently, the $1,542 represents the reversal of actual historical
interest expense during this period.
(e) Historical interest expense relative to Parent's Junior Subordinated
Notes and untendered Parent Notes has been excluded from pro forma
interest expense of Issuer for the three months ended March 1, 1998 as
such debt represents obligations of the Parent and not of the Issuer.
33
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED NOVEMBER 30, 1997 AND THREE MONTHS ENDED MARCH 1, 1998
(DOLLARS IN THOUSANDS)
(6) Represents the income tax adjustment required to result in a pro forma
income tax provision based on: (a) the Issuer's pro forma pretax income
plus nondeductible amortization of intangibles; and (b) the direct tax
effects at an estimated effective tax rate of 40%.
(7) For purposes of computing this ratio, earnings consist of income (loss)
before income taxes, extraordinary item and cumulative effect of change in
accounting principle, plus fixed charges. Fixed charges consist of total
interest expense and the estimated interest portion of rent expense.
(8) Adjusted EBITDA is defined herein as income (loss) before provision for
income taxes, extraordinary item and cumulative effect of change in
accounting principle, plus depreciation, amortization of intangibles and
interest expense, net, adjusted for certain items of income and expense
consisting of: (a) stock-based compensation related to Parent's
Performance Share Plan and Restricted Stock Plan (both of which will not
continue post-Closing) in the aggregate of $1,635 for the year ended
November 30, 1997; (b) loss on write-off of Montgomery Ward accounts
receivable and related factoring expense incurred in connection with
bankruptcy of Montgomery Ward of $4,027 for the year ended November 30,
1997; (c) Bain management fee of $2,000 for the year ended November 30,
1997 and $500 for the three months ended March 1, 1998; (d) operating
results and closure costs associated with the Divestitures for the year
ended November 30, 1997; (e) non-recurring expenses incurred in connection
with the Transactions (see Note (4) above) and (f) $967 and $587 of
expenses for the year ended November 30, 1997 and three months ended March
1, 1998, respectively, related to business process reengineering costs as
defined by EITF 97-13. See further explanation of these items in
"Management's Discussion and Analysis of Financial Condition and Results
of Operations". Adjusted EBITDA is presented because it conforms to the
definition of "Consolidated EBITDA" in the Notes Indenture except for the
exclusion of the Bain management fee and the operating results and closure
costs associated with the Divestitures which are not included in the
Indenture definition of "Consolidated EBITDA"; however, the Company
believes that the adjustment for these items in "Adjusted EBITDA" is
appropriate in the most recent periods shown in order to provide an
appropriate analysis of recent historical results (see "Description of
Exchange Notes" and "Certain Definitions" within such section) and the
Issuer believes it is frequently used by security analysts in the
evaluation of companies. However, Adjusted EBITDA should not be considered
as an alternative to net income as a measure of operating results or to
cash flows from operations as a measure of liquidity in accordance with
GAAP.
34
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following discussion should be read in conjunction with the "Selected
Historical Consolidated Financial and Other Data", the Consolidated Financial
Statements and accompanying notes thereto included elsewhere in this
Prospectus.
RESULTS OF OPERATIONS
QUARTER ENDED MARCH 1, 1998 COMPARED WITH QUARTER ENDED MARCH 2, 1997
NET SALES. Net sales increased $40.4 million, or 23.9% for the quarter ended
March 1, 1998, when compared to the quarter ended March 2, 1997. The increase
is attributable to a $45.7 million increase in conventional bedding sales
offset by a $5.3 million decrease in sales of wood bedroom furniture.
Conventional bedding sales increased 27.9% over the prior year, driven by a
25.0% or $40.9 million increase in conventional bedding unit shipments and a
2.3% or $4.8 million increase in average unit selling price. These increases
were due to sales growth in Posturepedic, Stearns & Foster and promotional
product lines, in addition to continued positive results from successful
strategic distribution initiatives that included sole-source, multi-year
arrangements of varying lengths with several retailers. The increase in
average unit selling price is primarily attributable to the introduction of
new or re-engineered higher-end products.
The decrease in sales of wood bedroom furniture, sold under the Samuel
Lawrence brand, is due to the sale of this business on January 15, 1997. A
description of the disposition of this business unit is provided in Note 14 to
the consolidated financial statements contained in the Company's Form 10-K for
the year ended November 30, 1997.
COST OF GOODS SOLD. Cost of goods sold for the quarter, as a percentage of
net sales, increased 0.8 percentage point to 58.1%. This increase is primarily
attributable to the introduction of lower price point Posturepedic products,
along with selective pricing initiatives partially offset by economies of
scale from increased volume and the impact of lower sales of the lower margin
wood bedroom furniture.
SELLING, GENERAL, AND ADMINISTRATIVE. Selling, general, and administrative
expenses increased $32.0 million due to increased operating expenses of $13.5
million and compensation related costs associated with the Recapitalization of
$18.5 million. Increased operating costs were primarily due to increases in
marketing spending, $8.9 million, and delivery expenses, $2.5 million, as a
result of increased sales volume. Marketing spending also was impacted by an
increased spending rate for cooperative advertising and promotions partially
offset by lower national advertising. Recapitalization costs of $18.5 million
were primarily comprised of accelerated vesting of stock options and
restricted stock and other incentive based compensation payments to employees
in connection with the transaction.
OPERATING INCOME. Operating income was a loss of $3.0 million for the
quarter ended March 1, 1998, a decrease of $16.2 million, as compared to
income of $13.2 million for the quarter ended March 2, 1997.
EBITDA. EBITDA decreased $16.9 million or 85.4% to $2.9 million, or 1.4% of
net sales, for the quarter ended March 1, 1998 versus $19.8 million, or 11.7%
of net sales, for the quarter ended March 2, 1997.
ADJUSTED EBITDA. Adjusted EBITDA increased $2.3 million or 11.3% to $22.7
million, or 10.8% of net sales, for the quarter ended March 1, 1998 versus
$20.4 million, or 12.1% of net sales, for the quarter ended March 2, 1997.
INTEREST EXPENSE. Interest expense, net of interest income, increased $8.7
million primarily as a result of significantly higher debt levels due to the
Recapitalization and a higher interest rate spread.
35
<PAGE>
INCOME TAX. The Company"s provision for income taxes decreased $3.9 million
to a benefit of $0.7 million, due to an $18.5 million pretax loss as compared
to $6.4 million pretax income, respectively for the quarter ended March 1,
1998 and March 2, 1997, partially offset by a lower effective tax rate. The
effective income tax rate for 1998 is approximately 4.0% as compared to 49.8%
in 1997. The relatively low effective tax rate is due to low full year
projected pretax income resulting from increased leverage and compensation
charges associated with the Recapitalization.
EXTRAORDINARY ITEM. The Company recorded a $14.5 million charge, net of
income tax benefit of $9.6 million, representing the writeoff of the remaining
unamortized debt issue costs related to long-term obligations repaid in
connection with the Recapitalization as well as consent fees and premiums paid
related to the Tender Offer of the Parent Notes in connection with the
Recapitalization.
NET (LOSS) INCOME. For the reasons set forth above, the Company recorded a
net loss of $32.2 million for the quarter ended March 1, 1998 versus net
income of $1.2 million for the quarter ended March 2, 1997.
NET CASH USED IN OPERATING ACTIVITIES. Net cash used in operating activities
was $23.3 million for the quarter ended March 1, 1998, a decrease of $23.3
million as compared to the quarter ended March 2, 1997 of $0.0. The
significant increase in net cash used is directly attributed to the
Recapitalization.
FISCAL 1997 COMPARED TO FISCAL 1996
NET SALES. Net sales for the fiscal 1997 were $804.8 million, an increase of
$107.2 million, or 15.4% from fiscal 1996. This increase is attributable to a
$168.3 million increase in conventional bedding sales offset by a $61.1
million decrease in sales of wood bedroom furniture. Conventional bedding
sales increased 26.7% over the prior year, driven by a 24.1% increase in
conventional bedding unit shipments and a 2.1% increase in average unit
selling price. These increases were due to sales growth in the Posturepedic,
Stearns & Foster and promotional product lines, in addition to successful
strategic distribution initiatives that included sole-source, multi-year
arrangements of varying lengths with several retailers. The increase in
average unit selling price is primarily attributable to the introduction of
new or reengineered higher-end products.
The decrease in sales of wood bedroom furniture, sold under the Samuel
Lawrence brand, is due to the sale of this business on January 15, 1997. A
description of this business unit is provided in Note 14 to the Consolidated
Financial Statements.
COST OF GOODS SOLD. Cost of goods sold as a percentage of net sales
decreased 0.3% to 56.6%. This improvement is primarily attributable to the
impact of lower sales of the lower margin wood bedroom furniture, partially
offset by an increase in bedding cost of goods sold. The increase in bedding
cost of goods sold as a percentage of net sales is primarily attributable to
the introduction of lower price point Posturepedic products, along with
selective pricing initiatives, partially offset by economies of scale from
increased sales volume.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased by $45.3 million, and increased as a percent of net sales
from 31.1% to 32.6%. This increase was primarily attributable to increases in
bedding marketing spending of $35.1 million, delivery expenses of $5.7 million
and incentive compensation of $3.5 million. Increased marketing spending was
due to increased sales volume, along with an increased spending rate for
cooperative advertising and promotions. The increase in delivery expense was
due to the increase in sales volume. The Company also experienced a $4.9
million increase in bad debt and other financing expenses, of which $4.0
million related to the bankruptcy filing of Montgomery Ward.
OPERATING INCOME. Operating income was $72.0 million for fiscal 1997, an
increase of $18.4 million or 34.4% over fiscal 1996.
EBITDA. EBITDA increased $15.9 million or 19.9%, to $96.1 million, or 11.9%
of net sales, for fiscal 1997 versus $80.2 million, or 11.5% of net sales, for
fiscal 1996.
36
<PAGE>
ADJUSTED EBITDA. Adjusted EBITDA increased $16.3 million or 18.7% to $103.1
million, or 12.8% of net sales, for fiscal 1997 versus $86.8 million, or 12.4%
of net sales, for fiscal 1996.
INTEREST EXPENSE. Interest expense, net for fiscal 1997 increased $2.6
million primarily as a result of increased average debt levels resulting from
the February 1997 dividend and increased rate related to the February 1997
restructuring of the Parent Notes.
INCOME TAXES. The Company's effective income tax rates for fiscal 1997 and
1996 differ from the Federal statutory rate because of the application of
purchase accounting, the effect of certain foreign tax rate differentials and
state and local income taxes. The Company's effective tax rate for fiscal 1997
was approximately 55.4% compared to 102.0% for fiscal 1996. The higher
effective tax rate for fiscal 1996 was due primarily to taxes arising from the
Samuel Lawrence Divestiture and the impact of the permanent differences
related to the 1993 Acquisition. See Note 6 to the Consolidated Financial
Statements.
EXTRAORDINARY ITEM. The Company recorded a $2.0 million charge, net of
income tax benefit of $1.4 million, representing the write-off of the
remaining unamortized debt issuance costs related to long-term obligations
repaid as a result of the February 25, 1997 refinancing.
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING POLICY. During the fourth quarter
of fiscal 1997, the Company changed its accounting policy to comply with EITF
97-13, "Accounting for Costs Incurred in Connection with a Consulting Contract
that Combines Business Process Reengineering and Information Technology
Transformation," which resulted in a loss of $4.3 million, net of income tax
of $2.9 million, representing the write-off of previously capitalized costs
primarily related to the Company's new Business Systems project. All business
process reengineering costs subsequent to August 31, 1997 have been expensed
and totaled $1.0 million for the fourth quarter of fiscal 1997.
NET INCOME (LOSS). For the reasons set forth above, net income was $11.7
million for fiscal 1997 versus a loss of $0.5 million for fiscal 1996.
NET CASH PROVIDED BY OPERATING ACTIVITIES. Net cash provided by operating
activities was $42.0 million for fiscal 1997, a decrease of $2.4 million, or
5.4% versus fiscal 1996.
FISCAL 1996 COMPARED WITH FISCAL 1995
NET SALES. Net sales for fiscal 1996 were $697.6 million, an increase of
$43.7 million, or 6.7%, from fiscal 1995. This increase was 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 was attributable 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 was
primarily attributable 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. Cost of goods sold was $397.3 million for fiscal 1996,
compared to $362.4 million for fiscal 1995, and increased from 55.4% to 56.9%
of net sales. This increase was primarily attributable to the previously
mentioned decrease in average unit selling price, the start-up costs
associated with the insulator pad facility that was subsequently sold and
inflationary bedding raw material increases.
37
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were flat versus the prior year, but decreased as a
percent of net sales from 33.1% to 31.1%. Increased operating expenses of
$16.8 million were 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 was due primarily to increases in
incentive bonuses and administrative and sales salaries. Additionally, the
Company incurred executive severance and transition expenses of $1.9 million.
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. Loss on net assets held for sale of $11.8
million relates to the Samuel Lawrence Divestiture, 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.
STOCK BASED COMPENSATION. 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.
OPERATING INCOME. Operating income was $53.6 million for fiscal 1996, a
decrease of $20.4 million, or 27.6%, versus fiscal 1995.
EBITDA. EBITDA decreased $18.0 million, or 18.4%, to $80.2 million, or 11.5%
of net sales, for fiscal 1996 versus $98.2 million, or 15.0% of net sales, for
fiscal 1995.
ADJUSTED EBITDA. Adjusted EBITDA increased $1.8 million, or 2.1%, to $86.8
million, or 12.4% of net sales, for fiscal 1996 versus $85.0 million, or 13.0%
of net sales, for fiscal 1995.
INTEREST EXPENSE. 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.
INCOME TAXES. 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, the effect of certain foreign tax rate differentials and
state and local income taxes. The Company's effective tax rate for fiscal 1996
was approximately 102.0% compared to 54.8% for fiscal 1995. The higher
effective tax rate for fiscal 1996 was due primarily to taxes arising from the
Samuel Lawrence Divestiture and the impact of permanent differences related to
the 1993 Acquisition. See Note 6 to the Consolidated Financial Statements.
NET INCOME (LOSS). For the reasons set forth above, net income for fiscal
1996 declined $20.0 million to a loss of $0.5 million.
NET CASH PROVIDED BY OPERATING ACTIVITIES. Net cash provided by operating
activities was $44.4 million for fiscal 1996, a decrease of $18.9 million, or
29.9%, versus fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of funds are cash flows from operations and
borrowings under its Revolving Credit Facility. The Company's principal use of
funds consists of payments of principal and interest on its Senior Credit
Agreements, capital expenditures and interest payments on its outstanding
Notes. Capital expenditures totaled $5.4 million for the quarter ended March
1, 1998 as compared to $4.0 million for the quarter ended March 2, 1997.
Capital expenditures totaled $29.1 million and $12.0 million during fiscal
1997 and 1996, respectively. The increase in capital spending in fiscal 1997
versus fiscal 1996 and for the quarter ended March 1, 1998 versus the quarter
ended March 2, 1997 was primarily attributed to the Company's upgrade of its
computer system. Management believes that annual capital expenditure
limitations in its current debt agreements will not significantly inhibit the
Company from meeting its ongoing capital needs. However, the Company is
currently reviewing financing alternatives with respect to its property
purchase and corporate
38
<PAGE>
headquarters construction in connection with its relocation to Archdale, North
Carolina and the ultimate financing may require an amendment to current year
capital expenditure limitations. See "'Business--Properties." The projected
full year capital expenditures for fiscal 1998 are $35.0 million.
Additionally, the Company estimates total costs associated with this
relocation will result in a pretax charge of approximately $8.5 million which
will be recognized primarily in fiscal 1998 with the balance in fiscal 1999.
At March 1, 1998, the Company had approximately $59.0 million available under
its Revolving Credit Facility with Letters of Credit issued totaling
approximately $12.0 million. The Company's net weighted average borrowing cost
was 8.7% for the quarter ended March 1, 1998 and 9.0% for fiscal 1997 and
fiscal 1996, respectively.
The Old Credit Agreement, the Parent Note Indentures, the Senior Credit
Agreements and the Indentures contain certain negative and affirmative
covenants including, but not limited to, requirements and restrictions
relating to capital expenditures, dividends, working capital, net worth and
other financial ratios. At November 30, 1997, the Company was in compliance
with the financial covenants contained in the Old Credit Agreement and the
Parent Note Indenture. See "Description of Exchange Notes" and "Description of
Senior Credit Agreements".
The Parent Notes are unsecured, subordinated obligations of Parent. Interest
on the Parent Notes is payable in semi-annual installments, currently at the
rate of 10 1/4% per annum (see below). The outstanding principal amount of the
Parent Notes is payable on May 1, 2003. The Parent 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 Parent Note Indenture.
In March 1997, the Company divested the assets of its mattress insulator pad
manufacturing operation in South Brunswick, New Jersey for approximately net
book value.
On February 25, 1997, the Company entered into the Old Credit Agreement with
a majority of its then current group of senior lenders, which modified the
terms of the prior credit agreement by increasing the amounts available under
the revolving credit portion of the facility from $125.0 million to $275.0
million, and eliminating the term loan portion of such agreement, amending the
pricing terms, certain covenants and other provisions and revising the
composition of the lending group. The Old Credit Agreement was terminated upon
consummation of the Transactions.
On February 6, 1997, the board of directors of the Company authorized the
payment of a dividend to all stockholders and holders of certain warrants of
record as of February 27, 1997. The dividend, which was paid on February 28,
1997, amounted to approximately $99.8 million, or $3.31 per share, and was
financed through borrowings under the Old Credit Agreement.
On January 15, 1997, the Company sold its subsidiary that manufactured wood
bedroom furniture under the Samuel Lawrence brand name. Gross proceeds from
the Samuel Lawrence Divestiture amounted to $35.0 million, and the Company
recorded a loss of $17.6 million in connection with such transaction. 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. See
Note 14 of Notes to Consolidated Financial Statements.
On November 18, 1997, Parent commenced an offer (the "Tender Offer") to
purchase for cash up to all (but not less than a majority in principal amount
outstanding) of its 10 1/4% Senior Subordinated Notes due 2003 (the "Old
Notes") and a related solicitation (the "Consent Solicitation") of consents to
modify certain terms of the indenture under which the Old Notes were issued.
The purchase price paid in respect of validly tendered Old Notes was $1,057.03
per $1,000 of principal amount tendered and the payment with respect to the
Consent Solicitation was $20 per $1,000 of principal amount tendered prior to
the consent expiration date therefor. Old Notes in the aggregate principal
amount of $197.8 million were tendered and accepted for payment and the
related consents received. The Tender Offer was consummated concurrently with
the Merger and a supplemental indenture with respect to the Old Notes took
effect at such time.
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On March 30, 1998, the Company announced a call for redemption of all of its
remaining outstanding Parent Notes. The redemption price of 106.33%, plus
accrued interest, or approximately $2.5 million, was paid on May 1, 1998 and
interest ceased to accrue on the Notes.
The Company financed the Merger, the Tender Offer and related Consent
Solicitation and repaid borrowings under the Old Credit Agreement with the net
proceeds of the Offerings, borrowings under the Senior Credit Agreements and
the equity infusion of approximately $128.7 million from the New Investors. As
a result of the Transactions, interest payments on the Notes and the Exchange
Notes and interest and principal payments under the Senior Credit Agreements
are one of the Company's primary uses of cash. The Notes and the Exchange
Notes require semi-annual cash interest payments of approximately $6.2 million
(at an interest rate on the Senior Subordinated Notes and Senior Subordinated
Exchange Notes of 9.875%). Borrowings under the Senior Credit Agreements bear
interest at floating rates and require interest payments on varying dates
depending on the interest option selected by the Company. The Senior Credit
Agreements consist of a $120.0 million Tranche A Term Facility, a $125.0
million AXELs Series B Facility, an $90.0 million AXELs Series C Facility, a
$115.0 million AXELs Series D Facility and a $100.0 million Revolving Credit
Facility. Such facilities will require aggregate annual principal amortization
payments of $1.5 million, $11.5 million and $28.5 million over the first three
years. Interest rates are variable and, based on current interest rates, pro
forma annual interest expense under the Senior Credit Agreements is estimated
to be $39.7 million. See "Description of Senior Credit Agreements".
Management believes that the Company will have the necessary liquidity
through cash flow from operations, and availability under the Revolving Credit
Facility for the next several years to fund its expected capital expenditures,
the estimated $8.5 million of headquarters relocation costs, obligations under
its Senior Credit Agreement and subordinated note indentures, environmental
liabilities, and for other needs required to manage and operate its business.
The Company's ability to make scheduled payments of principal of, or to pay
the interest or Liquidated Damages, if any, on, or to refinance, its
indebtedness (including the Notes), or to fund planned capital expenditures
will depend on its future performance, which, to a certain extent, is subject
to general economic, financial, competitive, legislative, regulatory and other
factors that are beyond its control. Based upon the current level of
operations, management believes that cash flow from operations and available
cash, together with available borrowings under the Senior Credit Agreements,
will be adequate to meet the Company's future liquidity needs for at least the
next several years. The Company will, however, need to refinance all or a
portion of the principal of the Notes on or prior to maturity. There can be no
assurance that the Company will be able to effect any such refinancing on
commercially reasonable terms or at all. In addition, there can be no
assurance that the Company's business will generate sufficient cash flow from
operations, that anticipated revenue growth and operating improvements will be
realized or that future borrowings will be available under the Senior Credit
Agreements in an amount sufficient to enable the Company to service its
indebtedness, including the Notes, or to fund its other liquidity needs. See
"Risk Factors--Substantial Leverage".
FOREIGN OPERATIONS AND EXPORT SALES
The Company has three manufacturing facilities in Canada and one in Mexico.
The Company's licensee for Mexico agreed to terminate its license, permitting
Sealy to enter the market directly and commence production in May, 1996. The
Company began marketing its Sealy brand in South Korea during 1995 upon
expiration of its Korean license agreement. In addition, the Company has
licensing agreements in Thailand, Japan, the United Kingdom, Australia, New
Zealand, southern Africa, Israel and Jamaica. The Company is exploring
additional international opportunities in the Pacific Rim, Latin America and
Western Europe with test markets currently operating in Spain and Brazil. 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. See
"Risk Factors--Risks Associated with International Operations".
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INFLATION
The Company maintains operations in Mexico which has experienced high
inflation levels. Neither the operations of Mexico nor the effects of the
inflation are material to the results of operations of the Company.
NEW ACCOUNTING PRONOUNCEMENTS
On November 20, 1997 the Emerging Issues Task Force (EITF) reached a final
consensus that business process reengineering costs incurred in connection
with an overall information technology transformation project should be
expensed as incurred (EITF 97-13). The transition provisions require companies
that had previously capitalized such business process reengineering costs to
identify these costs and quantify the unamortized amounts remaining on the
balance sheet as of the beginning of the quarter which includes November 20,
1997. These unamortized amounts are required to be written off as a cumulative
effect of a change in accounting principle in such quarter. The Company has
adopted EITF 97-13 resulting in a loss of $4.3 million, net of income tax
benefit of $2.9 million, representing the cumulative write-off of previously
capitalized costs as of August 31, 1997 primarily relating to the Company's
new Business Systems project. All business process reengineering costs
subsequent to August 31, 1997 have been expensed and totaled $1.0 million for
the fourth quarter of fiscal 1997.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 128, Earnings per Share. SFAS
No. 128 supersedes APB Opinion No. 15, Earnings per Share ("Opinion No. 15"),
and requires the calculation and dual presentation of basic and diluted
earnings per share ("EPS"), replacing the measures of primary and fully-
diluted EPS as reported under Opinion No. 15. SFAS No. 128 is effective for
financial statements issued for periods ending after December 15, 1997,
earlier application is not permitted. Accordingly, EPS presented on the
accompanying statements of income are calculated under the guidance of Opinion
15. Under SFAS No. 128, the basic and diluted EPS on net income for fiscal
1997 would have been $0.39 and $0.38, respectively.
In June 1997, SFAS No. 130, "Reporting Comprehensive Income", and SFAS No.
131, "Disclosure about Segments of an Enterprise and Related Information",
were issued. The Company plans to adopt these standards when required in
fiscal 1999.
SEASONALITY
The Company has experienced in the past and will experience in the future
quarterly variations in net sales and net income as a result of many factors,
including product cycles of suppliers that are not controlled or influenced by
the Company, product availability, supplier relationships, customer
relationships, the level of selling, general and administrative expenses and
the condition of the bedding industry in general. In the bedding supply
industry, seasonality generally affects quarterly sales performance.
Historically, the Company's quarterly sales are lowest in the first fiscal
quarter and highest in the third fiscal quarter.
CHANGE IN FISCAL YEAR
A Form 8-K was filed October 11, 1995 reporting that the Board of Directors
of Parent 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.
YEAR 2000 ISSUE
The Company believes that the new Business Systems, including appropriate
software, being installed both alongside and as part of an upgrade of its
existing computer system will address the
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dating system flaw inherent in most operating systems (the "Year 2000 Issue").
There can be no assurance, however, that the new Business Systems will be
installed and fully operational at all locations and for all applications
prior to the turn of the century, and management has therefore deemed it
necessary to convert its current system to be Year 2000 compliant. The Company
has conducted a comprehensive impact analysis to determine what computing
platforms and date-aware functions with respect to its existing computer
operating systems will be disrupted by the Year 2000 Issue. In January, 1998,
the Company completed a prioritization of the impacted areas identified to
date and commenced the detailed program code changes through a contracted
third party vendor which has experience in Year 2000 conversions for the
Company's existing system including the same release of such system. The
Company is in the preliminary stages of assessment of its vendors and
customers status with respect to the Year 2000 Issue. The required code
changes, testing and implementation necessary to address the Year 2000 Issue
is projected to be completed by May, 1999, and is expected to cost
approximately $4.0 million.
FORWARD LOOKING STATEMENTS
This document contains forward-looking statements. Although the Company
believes its plans are based upon reasonable assumptions as of the current
date, it can give no assurances that such expectations can be attained.
Factors that could cause actual results to differ materially from the
Company's expectations include: general business and economic conditions,
competitive factors, raw materials pricing, and fluctuations in demand.
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BUSINESS
Sealy Mattress Company, headquartered in Cleveland, Ohio, has been the
leading conventional bedding manufacturer in North America for over two
decades and the Sealy brand name has been in existence for over 100 years. The
Company manufactures, distributes and sells a broad line of conventional
bedding products, including mattresses and foundations, under the Sealy, Sealy
Posturepedic, Stearns & Foster and recently introduced Sealy Correct Comfort
and Sealy Posturepedic Crown Jewel brand names. The Company's branded
merchandise accounted for approximately 99% of total net sales for the fiscal
year ended November 30, 1997. Based on market growth estimates by the ISPA,
the Company estimates it held a 22% share of the U.S. bedding market for 1997.
The Company offers a complete line of conventional bedding options in the
promotional, premium, ultra-premium and luxury categories, which sell at
retail price points from under $200 to approximately $3,000 per queen-size
set. For the fiscal year ended November 30, 1997, on a pro forma basis, the
Company generated net sales and Adjusted EBITDA of $799.5 million and $103.1
million, respectively.
INDUSTRY OVERVIEW
The U.S. conventional bedding industry is mature and stable. For the year
ended December 31, 1996, manufacturers and retailers generated revenue of $3.3
billion and $6.2 billion, respectively, according to ISPA. Over the last 20
years, sales have declined only once (1.9% in 1982) and the industry has grown
on average 6.4% per year. Industry growth is driven primarily by: (i)
population expansion, (ii) demographic shifts and (iii) manufacturer and
retailer advertising and education emphasizing larger-size, higher quality
beds. Because consumers shop for bedding infrequently and often have limited
specific product knowledge, they typically rely on the retail salesperson in
the purchase decision process. Management believes that those manufacturers
best able to meet the retailers' needs--including differentiated, brand name
products, retail salesforce training in product specifications and
merchandising and logistics support--should continue to gain market share.
From 1989 to 1996, the combined market share of the top four manufacturers has
steadily increased from 48% to 59%.
INDUSTRY GROWTH. The market for conventional bedding is growing, both in
sales and in average unit selling price ("AUSP"). The industry's revenue
growth rate has averaged approximately 6.4% per year since 1976. The growth in
unit sales is due to population growth, as well as trends toward more beds per
home and more frequent replacement of bedding products. The growth in AUSP is
a result of a demographic shift to older consumers who spend more per unit on
average than younger consumers, an increase in the level of education among
retailers relating to product quality and merchandising and continued growth
in industry advertising relating to the health benefits of more supportive
bedding.
INDUSTRY STABILITY. The bedding industry has been relatively insulated from
cyclical swings, experiencing only a single year of sales decline in the past
20 years, when, in 1982, sales declined approximately 1.9%. The industry has
remained stable largely as a result of the following characteristics: (i) low
manufacturer and retail inventory levels mitigate the swings experienced by
the furniture and appliance industries, since mattresses are largely
manufactured to order; (ii) a significant portion of costs, especially cost of
goods sold expenses, are variable, which limits the impact of an economic
downturn on margins and, accordingly, allows industry participants to continue
to invest in necessary sales promotion and research and development; (iii)
major raw materials costs for the Company's mattresses have historically
cycled with the economy, thereby limiting potential margin contraction; (iv)
replacement sales, which account for approximately 70% of conventional bedding
sales, contribute to the market's relative stability as the average household
purchases a new mattress set every seven to eight years; and (v) bedding
manufacturers fund a substantial portion of consumer promotional expenses
("cooperative advertising") which invites retailers to continue to advertise
bedding products
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even in a weak economic environment. The conventional bedding industry's
stability is evidenced by its average annual 2% to 3% growth throughout the
1989-1992 recession during which the home furnishings industry as a whole
experienced a decline in sales.
RETAILERS INCREASINGLY DEMAND BRANDED, BROAD, AND DIFFERENTIATED PRODUCT
LINE. Retailers have recognized that a broad product line with identifiable
value gradations is an effective way to market bedding to consumers. According
to market surveys, most consumer bedding purchases are made within one month
of the customer's initial decision to buy a new mattress and customers are
most likely to buy at the first or second store shopped. As such, a strong
brand name and favorable opinion of the product's quality by the retail floor
sales staff are crucial to the sales process. As a result, manufacturers and
retailers typically focus on popular price points with most major
manufacturers producing a flagship mattress at a retail price of $399 per
queen-size set (which includes both the mattress and the foundation) in an
effort to generate store traffic. However, once consumers are in the store,
retailers are often able to motivate consumers to make purchases at retail
price points of $599, $699, $799 and above for a queen-size set. This strategy
requires a manufacturer to supply retailers with a broad product line which in
turn results in increased sales of incrementally higher margin products for
retailers and increased market share for the manufacturer.
COMPANY STRENGTHS AND BUSINESS STRATEGY
The Company's main objective is to grow sales and market share by maximizing
its share of the retailers' floor space while managing costs. The key elements
of the Company's strategy are as follows:
LEVERAGE MARKET LEADERSHIP POSITION AND HIGH BRAND AWARENESS. The Company is
the largest manufacturer of conventional bedding products in the United
States, a position it has held for more than two decades. Based on 1997
industry growth estimated by the ISPA, management estimates that the Company
held a 22% share of the U.S. market, approximately 1.3 times that of its next
largest competitor. Strong relative market share, coupled with numerous strong
brands, including Sealy, Sealy Posturepedic and Stearns & Foster, provide the
Company with significant marketing strength relative to its competitors, who
primarily offer only one brand to retailers. Brand recognition is critical in
the bedding industry, where strong brand names help define consumer preference
and drive retail floor space allocations.
ENHANCE POSITION AS LEADING SUPPLIER TO THE BEDDING INDUSTRY. The Company is
uniquely positioned to benefit from current industry trends, including the
consolidation of manufacturers and the increase in sole-source vendor
arrangements. Management believes that its: (i) broad product offering, (ii)
product design leadership, (iii) national manufacturing and distribution and
(iv) commitment to retailer education and training all provide support to its
existing dealer network while helping to attract new accounts. Such strong
dealer relationships should result in sales growth through increased floor
space allocation, superior product positioning and enhanced commitment by
retail salesforces.
. BROAD PRODUCT OFFERING. Management believes that the Company currently
offers the most complete line of conventional bedding products in the
industry, enabling retailers to offer consumers a full range of bedding
alternatives from a single source. The Company's product line ranges from
higher-margin, higher-priced mattresses, sold under the Sealy
Posturepedic, Sealy Posturepedic Crown Jewel, Sealy Correct Comfort and
Stearns & Foster names, to lower-priced promotional, private label and
contract bedding products. The consistently advertised, lower-priced
product line is instrumental in attracting customers, thereby offering
retailers the in-store opportunity to promote higher-priced products with
incrementally higher margins. In addition, the Company's broad product
line has enabled it to secure sole-source, multi-year arrangements with
several retailers, including a significant number of those in the high-
growth, specialty channel, such as Mattress Discounters, Mattress Firm
and Bedding Experts.
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. PRODUCT DESIGN LEADERSHIP. Since December 1, 1994 the Company has, on
average, invested approximately 0.75% of its net sales in research and
development, a rate which management believes to be in excess of twice
that of its next largest competitor, to create and commercialize
innovative products that broaden the Company's product lines and
differentiate its products from those of its competitors. Management
believes that this investment in product enhancements and new products,
such as Sealy Correct Comfort, the Company's recently introduced,
individually-wrapped coil product, allows the Company to claim additional
floor space and compete effectively for sole-source vendor positions. A
majority of the Company's net sales for the fiscal year ended November
30, 1997 were from products introduced or reengineered in the prior two
years.
. NATIONAL MANUFACTURING AND DISTRIBUTION. In surveys, retailers have
stated that delivery times and product quality are among the most
important criteria used to evaluate manufacturers. The Company believes
that its current structure and operating strategy directly address these
needs. The Company is one of only two national manufacturers operating as
a single company rather than as a group of independent licensees. Because
it owns 21 manufacturing and distribution facilities strategically
located throughout the United States, the Company can quickly respond to
retailers' logistical and product design requirements. Such just-in-time
deliveries enable retailers to minimize inventory carrying costs and meet
the growing demand of consumers for product variety and shortened
delivery times. Additionally, the Company is the only national
manufacturer to have taken advantage of vertical integration in a
majority of its product lines. Vertically integrated manufacturing
permits the Company to safeguard proprietary technology and new product
design while better controlling costs.
. COMMITMENT TO RETAILER EDUCATION AND SUPPORT. The Company assists its
retailers in re-merchandising their showrooms and actively marketing more
profitable lines of bedding through ongoing investment in retailer
relationships. The Company supports its retailers by providing: (i)
cooperative advertising dollars and creative assistance, (ii) ongoing
retail sales force training focused on product education and
merchandising instruction, (iii) customized product lines which allow
retailers to differentiate their products from those of their competitors
and (iv) direct mail campaigns. Management believes that retail support
serves to educate consumers about the benefits of higher-end models and
therefore encourages additional sales at higher price points.
INCREASE OPERATIONAL EFFICIENCIES AND LEVERAGE INFORMATION TECHNOLOGY. By
virtue of its size and leadership position in the bedding industry, the
Company benefits from significant operational efficiencies. The Company is
able to capture economies of scale in research and development, advertising
and raw material purchases. Management believes that several opportunities
remain to leverage the current infrastructure to realize meaningful cost
reductions, including greater utilization of existing facilities, improved
scrap management and improved distribution and transportation. Additionally,
the Company is in the process of an MIS upgrade to improve manufacturing
operations and profitability analysis.
LEVERAGE THE SEALY NAME THROUGH LICENSEES. Significant opportunities exist
to leverage the strong Sealy brand names in bedding-related product categories
through strategic licensing agreements rather than through direct
manufacturing. In the past year, the Company has entered into a number of
licensing arrangements with various manufacturers, including: (i) Klaussner
Furniture Industries, one of the largest upholstered furniture manufacturers
in the United States, for the manufacture of upholstered furniture under the
Sealy Furniture brand name; (ii) Pacific Coast Feather Company for the
manufacture and sale of pillows, comforters and mattress pads under the Sealy
brand name; and (iii) Dorel Industries for the manufacture and sale of futons
under the Sealy Furniture brand name. Management believes that these licensing
agreements broaden consumer recognition of the Sealy name while generating
significant income for the Company.
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MAINTAIN CORE FOCUS ON CONVENTIONAL BEDDING. The Company's management team
is committed to focusing on the core bedding business, which includes
manufacturing, distributing and selling a broad line of mattresses and
foundations, while continuing to leverage the Sealy name through licensing
arrangements. To this end, the Company completed the sale of its Woodstuff
Manufacturing, Inc. subsidiary which manufactured wood bedroom furniture under
the Samuel Lawrence brand name in January 1997. Management believes that
maintaining its manufacturing focus on conventional bedding is the best way to
maximize profitability.
PURSUE INTERNATIONAL GROWTH OPPORTUNITIES. The Company is currently
implementing a disciplined and focused international strategy based on
leveraging its strong reputation and brand recognition in the United States to
build solid international franchises. The Company currently manufactures
products in Canada and Mexico, distributes products directly in Korea and has
licensing agreements in Thailand, Japan, the United Kingdom, Australia, New
Zealand, southern Africa, Israel and Jamaica. The Company is exploring
additional international opportunities in the Pacific Rim, Latin America and
Western Europe, with test markets currently operating in Spain and Brazil. The
Company plans to continue to operate via licensing and/or distribution
agreements in new international markets until sales reach a level that
warrants the building or purchase of a Company-operated facility.
PURSUE ATTRACTIVE ACQUISITION OPPORTUNITIES. The Company will evaluate
potential acquisition and joint venture opportunities that should help to
support and strengthen its core business. Such acquisitions should allow the
Company to capitalize on its existing marketing, manufacturing and
distribution capabilities and to expand its presence in selected geographical
regions. From time to time the Company reviews potential acquisition
candidates, but it is not currently in discussions with respect to any
material acquisition.
CAPITALIZE ON STRONG MANAGEMENT TEAM. Led by Chief Executive Officer Ron
Jones, who joined the Company in early 1996, the Company has assembled one of
the strongest management teams in the bedding industry. The Company's senior
management team has approximately 150 years of experience in the bedding and
home furnishings industries and has made a significant equity interest in
Sealy Corporation at the close of the Transactions. This management team has
instituted a number of strategic initiatives, including: (i) divestiture of
non-core operations and renewed focus on the Company's core bedding business,
(ii) improved long-term strategic and product planning which has resulted in a
new product rollout schedule through 1999, (iii) increased focus on retailer
relationships, (iv) a shift to a more balanced marketing program that includes
significant cooperative and focused national advertising and (v) the
implementation of a disciplined international strategy. The execution of these
and other initiatives has resulted in significant improvements in the
financial and market position of the Company. Since December 1995, the Company
has increased its market share from 18% to an estimated 22% in 1997.
Additionally, on a pro forma basis, net sales and Adjusted EBITDA have
increased 26.7% and 18.7%, respectively, for the fiscal year ended November
30, 1997 versus fiscal 1996.
PRODUCT OFFERINGS
The Company's broad proprietary product line allows retailers to streamline
purchasing and provide consumers with a range of brand names, gradations of
quality and corresponding price points. As a result, the Company has been able
to expand its overall market share and to increase its penetration with sole-
source or Sealy-predominant accounts. The Company's major branded product
lines include Sealy Posturepedic, Sealy Posturepedic Crown Jewel, Stearns &
Foster, Sealy Correct Comfort and Sealy, which collectively represented
approximately 99% of the Company's sales for the fiscal year ended November
30, 1997. Together with its private label products, these brands allow the
Company to offer a full range of products to retailers and provide retail
sales associates with a platform from which to upgrade consumer purchasing
decisions within the Company's product lines. The Company's queen-size sets
range in price from under $200 for promotional bedding to approximately $3,000
for the highest priced Stearns & Foster product.
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Sealy, Sealy Posturepedic and Stearns & Foster are among the strongest brand
names of any bedding manufacturer in North America. According to a consumer
attitude and brand perception study performed by Kaplan MRD, Inc., Sealy
Posturepedic ranked first in value, construction, quality, durability, and
popularity. In addition, according to a consumer survey performed by Home
Furnishings News, Sealy, Sealy Posturepedic and Stearns & Foster ranked first,
fourth and eighth, respectively, in brand recognition within the bedding
category. Moreover, according to Home Furnishing Executive, the Stearns &
Foster brand is recognized by consumers and retailers for industry excellence
in overall product, dealer support and product delivery. The Company
continually reaffirms its strong brand names through both national and
regional advertising campaigns, point-of-sale promotional materials and sales
associate training programs. The Company believes that in the competitive
bedding industry, a strong brand name is paramount in the selling process,
where the retail sales associate is an integral part of the sale and where
consumers most often make purchases in the first or second store visited.
SEALY POSTUREPEDIC. Sealy Posturepedic, the Company's flagship brand for
over 40 years, is the largest selling mattress brand in North America and
enjoys unaided brand awareness of 41%, nearly twice that of any other flagship
brand. Perceived as the number one mattress for proper back support, the Sealy
Posturepedic is offered at various retail price points from $399 to $1,299 per
queen-size set. The Sealy Posturepedic features numerous proprietary
components, including the PostureTech innerspring with the Sense & Respond
system, the EdgeGuard and EverEdge edge support systems, and the PostureSteel
and SteelSpan foundations. The EverEdge support system, a rigid foam frame
that completely embraces and locks into the perimeter coils, provides a firmer
seating edge and a more usable sleep surface. Management believes that the
proprietary components provide the Sealy Posturepedic product line with a
variety of advantages over competing products, including the Simmons
BeautyRest(R). These advantages include: (i) coils that automatically adjust
firmness to provide correct support, (ii) edge support systems that increase
sleep surfaces by an average of 10% and (iii) foundations that are more
durable.
SEALY POSTUREPEDIC CROWN JEWEL. Sealy Posturepedic Crown Jewel, an extension
of the Company's successful Sealy Posturepedic line, was introduced in January
1997. The Sealy Posturepedic Crown Jewel utilizes the PostureTech coil,
SteelSpan foundation, EverEdge support system and Resilium cushioning
material, which differentiate the Sealy Posturepedic Crown Jewel from
competing products. The PostureTech coil with the patented Sense & Respond
support system and the SteelSpan II foundation with specially engineered steel
crossbeams combine to provide superior back support. Resilium cushioning
material, a cotton-soft breathable synthetic fiber, retains its plumpness,
shape and support far longer than traditional cushioning material. The Sealy
Posturepedic Crown Jewel is offered at several retail price points from $1,199
to $1,999 per queen-size set.
STEARNS & FOSTER. Known in the bedding industry for over 150 years and
acquired by the Company in 1983, the Stearns & Foster product line consists of
high quality, luxury mattresses. The Company realized that a significant
market gap existed in the high-end product segment and therefore relaunched
the brand in 1995 as a premium priced product line. Stearns & Foster net sales
have grown in excess of 40% annually since the repositioning. Stearns & Foster
products feature proprietary components, including the UltraEdge border and
UltraSteel foundation, for superior comfort and back support. In addition,
Stearns & Foster products are made with premium bedding upholstery; matching
cloth handles, edge closures and foundation surface upholstery; brass-plated
vents and corner guards; and all-steel foundation supports. In 1998, the
Company plans to introduce new styles for its Stearns & Foster products to
enhance further the product's aesthetics and to continue to differentiate the
Stearns & Foster products from competing products. Stearns & Foster mattresses
are offered at a wide variety of retail price points from $719 to
approximately $3,000 per queen-size set. Management believes that Stearns &
Foster products are among the most profitable mattress products offered by
retailers.
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SEALY CORRECT COMFORT. The Sealy Correct Comfort line was introduced in June
1997 as part of a bid to secure a single source contract with Mattress
Discounters, one of the largest sleep shop chains in the United States. The
Sealy Correct Comfort uses an individually wrapped coil and provides retailers
and consumers with a direct Sealy alternative to the Simmons BeautyRest(R). In
addition, the product line offers: (i) the Tru-Lok Stabilizer, a non-woven
fabric that provides a more stable spring unit and prevents pinching of
upholstery between the rows of coils, (ii) the Miracle Edge, which provides
demonstrable edge support on all four sides and increases the sleep surface
and (iii) a steel center rail in the foundation for increased durability, all
of which differentiate the Sealy Correct Comfort from the Simmons
BeautyRest(R). The Sealy Correct Comfort is a premium product with various
retail price points ranging from $699 to $999 per queen-size set.
SEALY PROMOTIONAL. Sealy promotional lines are value oriented introductory
products that are offered at retail price points ranging from under $200 to
$599 per queen-size set. In 1997, the Company repositioned its promotional
products by creating three different promotional brands: Backsaver, Orthozone
and Posture Premier, which replaced a number of discontinued promotional
products. The new lines feature Sealy's 312 Bonnell innerspring at lower price
points and its new high profile 336 Bonnell innerspring at higher price
points. In addition, the Posture Premier utilizes the 520 PostureTech
innerspring at its highest price point and is positioned as a "high-tech"
promotional mattress.
SEALY CONTRACT. The Sealy Contract division sells a wide range of quality
bedding products to institutions in the hospitality, health care and military
markets. Contract products are sold under both Posturepedic and non-
Posturepedic labels, as well as some non-Sealy private labels. Contract
products are sold through a network of independent, commissioned sales
representatives who sell within a defined geographic region. While the largest
segment of the contract business is hospitality, the fastest growing segment
is the military, where the Company sells to military bases for use in sleeping
quarters and for resale to military personnel. The Company's largest
hospitality customers include Hyatt Hotels, Sheraton Hotels, Omni Hotels and
Four Seasons Hotels.
PRIVATE LABEL. Private label products are lower priced, private-branded
products that are offered at a variety of price points as alternatives to
branded merchandise. Sealy's private label products help position the Company
as an ideal vendor for retailers looking to consolidate vendor structures.
CUSTOMERS, SALES AND MARKETING
CUSTOMERS. The Company's broad and stable customer base consists of over
7,000 retail outlets representing approximately 3,200 companies across all
major distribution channels. The Company's key customers are: (i) major
bedding chains including Mattress Discounters, Mattress Firm, and Bedding
Experts; (ii) national furniture retailers including Haverty's; (iii) regional
furniture stores including Art Van in Michigan, Kittle's in Indiana and Ohio,
Louis Shanks and Finger's in Texas, Raymour/Flanigan in upstate New York, and
Rooms To Go in the Southeast; (iv) national chains including Sears and J.C.
Penney; (v) wholesale buying clubs including Costco; (vi) major department
stores including Bloomingdale's, Macy's and Dillards; (vii) and contract
hospitality customers including Sheraton Hotels and Four Seasons Hotels. The
majority of the Company's sales are made to furniture stores, specialty sleep
shops and department stores, which collectively represented 82% of the
Company's 1997 domestic sales.
Because of its strong brand names, national manufacturing and distribution
and broad product line, the Company has been very successful in capitalizing
on the trend of retailers to move toward sole-source vendors. Since the
management transition in early 1996, the Company has secured sole-source
supplier roles with several retailers, including Mattress Discounters,
Mattress Firm and Bedding Experts. As one of only two companies that has
national, company operated manufacturing and distribution capabilities, the
Company is in a strong position to capture additional market share as a sole-
source supplier to high-growth national chains.
48
<PAGE>
The Company's sales, including recent market share gains, have been widely
diversified across a broad customer base. The Company's five largest
conventional bedding customers accounted for approximately 21% of the
Company's net sales for the fiscal year ended November 30, 1997 and no single
customer represented more than 6% of the Company's net sales for such period.
While the composition of the five largest customers has varied over time,
their percentage of net sales has remained relatively constant over the last
several years. The Company also has an active customer base of smaller
customers. These customers, composed primarily of family-owned furniture
stores, provide Sealy's products exposure to smaller markets and local
communities.
SALES. Sealy employs a sales organization of approximately 200 people who
sell the Company's products exclusively to authorized dealers of Sealy
products. The Company's major points of distribution are furniture stores,
specialty sleep shops and department stores. The Company's sales force is
aided by a balanced advertising and marketing strategy that focuses both on
retail relationships through the use of cooperative advertising programs and
on brand awareness through focused national advertising campaigns.
The Company believes that it provides the most extensive sales training
program in the bedding industry through its internal program, the University
of Sleep. Every member of the sales team, from Sales Representative to Vice
President of Sales, attends the seven-course program created and facilitated
by the Company. In addition to this program, the Company offers specific
courses on product display, retail sales training, retail advertising and
sales management. The Company's sales force emphasizes follow-up services 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.
ADVERTISING AND MARKETING. The Company's advertising and marketing strategy
emphasizes retail relationships through the use of cooperative advertising
programs, in-store product demonstrations, and promotional incentives to
retail sales associates, balanced with a focused national advertising campaign
to support the Company's strong brand names. Stearns & Foster has developed a
targeted marketing program that allows retailers to identify groups of
potential consumers based on known demographic profiles. This profiling allows
retailers to mail an advertisement to a small group of consumers whose
incidence of purchase is expected to generate more sales than would have been
generated through a mass mailing.
COMPETITION
The Company is the largest conventional bedding manufacturer in North
America and primarily competes with three national companies: Simmons Company,
Serta, Inc. and Spring Air Company. Of the top four manufacturers, only the
Company and Simmons have national, company operated manufacturing and
distribution capabilities. Moreover, the Company is the only national
manufacturer to have taken advantage of vertical integration in a majority of
its product lines, thereby providing it with significant product development
and cost advantages. Additionally, the Company believes that it is the only
such company with international, company operated manufacturing and
distribution capabilities. For the year ended December 31, 1996 the Company
and its three primary competitors accounted for approximately 59% of the
domestic market. The remaining 41% of the market is highly fragmented and
consists of six second tier companies--King Koil, Restonic, Springwall, Ther-
a-Pedic, Bassett and Englander--which collectively represented 15% of the
market, and approximately 700 independent local and regional manufacturers,
which mainly manufacture lower quality products for sale at lower price points
than the products sold by the Company and its primary competitors. While the
Company primarily manufactures higher margin, differentiated bedding products,
it also
49
<PAGE>
manufactures lower priced, lower margin promotional, private label and
contract bedding in order to compete with smaller manufacturers and provide
retailers with a platform from which to upgrade consumer purchases.
INTERNATIONAL OPERATIONS
The Company's international division is separated into six business
segments: Sealy-Canada, Sealy-Mexico, expansion markets, distribution direct
countries, off-shore importers, and licensees. The Company is currently
implementing a disciplined and focused international strategy based on
leveraging its strong reputation and brand recognition in the United States to
build solid international franchises. The Company currently manufactures
products in Canada and Mexico, distributes products directly in Korea and has
licensing agreements in Thailand, Japan, the United Kingdom, Australia, New
Zealand, southern Africa, Israel and Jamaica. The Company is exploring
additional international opportunities in the Pacific Rim, Latin America and
Western Europe and is currently operating test markets in Spain and Brazil.
The Company plans to continue to operate via licensing and/or distribution
agreements in new international markets until sales reach a level that
warrants the building or purchase of a Sealy-operated facility.
PROPRIETARY TECHNOLOGY; TRADEMARKS AND PATENTS
The Company's research and development division has developed numerous
proprietary innovations that the Company uses in select products. Over the
past two years, the Company has introduced the SteelSpan II foundation,
EverEdge edge systems, Infinilux foam and Resilium fiber, and has developed an
advanced technology innerspring and composite foundation system, all of which
have been patented or have patents pending. Since December 1, 1994 the Company
has, on average, invested approximately 0.75% of its net sales in research and
development, a rate which management believes to be in excess of twice that of
its largest competitor. In addition, the Company has increased attention on
cross-functional input into product development. As a result, the Company
believes that it is able to build a more meaningful and differentiated product
pipeline than its primary competitors.
The Company holds over 200 trademarks, which management believes have
significant value and are important to the marketing of its products to
retailers. The Company owns numerous U.S. and foreign patents and has patent
applications pending domestically and abroad. In addition, the Company owns
U.S. and foreign registered trade names and service marks and has applications
for the registration of trade names and service marks pending domestically and
abroad. The Company also owns several U.S. copyright registrations and a wide
array of unpatented proprietary technology and know-how. Further, the Company
licenses certain intellectual property rights from third parties.
As of November 30, 1997, the Company held 25 U.S. patents and more than 52
international patents. Over the last two years, the Company has patented seven
innovations developed by the Company's research and development division.
Currently, nine domestic patents are pending, two domestic patents are in
process and four domestic patents are in the queue for other product
innovations. In addition, the Company owns numerous trademarks, trade names
and logos, including those related to Sealy, Stearns & Foster, Sealy
Posturepedic, Sealy Posturepedic Crown Jewel, Sealy Correct Comfort, and the
University of Sleep.
WARRANTIES
The Company offers a 10-year, non-prorated warranty for all manufactured
Sealy Posturepedic models, Stearns & Foster bedding and other selected Sealy
brand products. According to an independent survey of 1,698 consumers
performed by NPD Group, Inc. in September 1995, Sealy ranked first in the
warranty category among the top three domestic brands. Over the past ten
years, less than 1% of all products sold have been returned to the Company on
warranty.
50
<PAGE>
LICENSES
The Company currently has 14 separate licensing arrangements in effect,
covering both mattress manufacturing (primarily internationally) and related
products. Of the Company's six North American licensees, Sealy-New Jersey is
the sole North American licensee for adult mattress manufacturing, which is a
result of an historical license arrangement. Sales volume of Sealy-New Jersey
represented approximately 3% of Sealy and Stearns & Foster branded sales in
1997. To maintain quality and control margins, the Company has made a
strategic decision not to further license conventional core bedding products
in North America. The Company has eight international licensees, five of which
are perpetual licensees which manufacture Sealy bedding products in their
respective countries. The Company's current licensees are in Thailand, Japan,
the United Kingdom, Australia, New Zealand, southern Africa, Israel and
Jamaica. In addition, the Company continually explores additional
international licensing opportunities, with test markets currently operating
in Spain and Brazil.
Sealy has licensed its name for use to five manufacturers of furniture
and/or bedding-related products, including Klaussner Furniture Industries,
Sealy Furniture of Maryland, Kolcraft Enterprises, Pacific Coast Feather
Company and Dorel Industries. Klaussner is licensed to manufacture and market
sofas, sleep sofas, and other upholstered furniture products in North America,
primarily under the Sealy Furniture logo. Sealy Furniture of Maryland is
currently producing sleep sofas under the Sealy brand name and Kolcraft
Enterprises is licensed to manufacture and market crib mattresses under the
Sealy name. In October 1997, the Company entered into licenses which will
commence in April 1998 with Pacific Coast Feather Company for the manufacture
and sale of pillows, comforters and mattress pads under the Sealy brand name
and Dorel Industries for the manufacture and sale of futons under the Sealy
Furniture name. The Company believes that additional opportunities exist to
leverage the strong Sealy brand name through licensing of affiliated products.
The Company believes that such licensing should increase sales and strengthen
consumer awareness without diverting manufacturing attention from the core
bedding business.
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 25 bedding manufacturing facilities and three component
manufacturing facilities in 19 states, three Canadian provinces, Puerto Rico
and Mexico. Management believes that through the utilization of extra shifts,
it will be able to continue to meet growing demand for its products without a
significant investment in facilities. 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.
MATTRESS MANUFACTURING. The typical Sealy bedding manufacturing facility
assembles a complete line of conventional bedding and is strategically located
to service one or more major metropolitan areas. The average facility contains
approximately 140,000 square feet of manufacturing space, most of which is
devoted to production. Raw material inventory is minimized through just-in-
time delivery from the Company's major suppliers. Finished stock inventory,
which is typically stored at the manufacturing facility until shipped, is also
minimized through made-to-order production. The Company has found that made-
to-order production most efficiently serves the needs of its retailers as well
as
51
<PAGE>
minimizes their inventory carrying costs. As such, the majority of bedding
orders are scheduled, produced and shipped within 72 hours of receipt. Because
the Company adjusts production levels to meet customer order demand, the
Company has no material backlog of orders.
All of the Company's plants use 12 basic units of operation, with customized
layouts based on individual plant geometry and available square footage to
produce mattresses and foundations. The manufacturing process begins with the
receipt of raw materials and component parts such as cotton, insulator pads,
innersprings, fabrics and roll goods consisting of foam, fiber and non-wovens.
The price of the Company's raw materials tends to decline during recessions,
historically insulating the Company's margins in economic downturns. The
manufacturing process takes place simultaneously for both parts of a bedding
set (mattress and foundation) and involves several operations that are common
in the construction of both a mattress and a foundation. In general, both
processes involve the creation of subassemblies from raw materials and then
the assembly of these subassembles into the finished mattress and foundation.
COMPONENTS MANUFACTURING. The Components Division, headquartered in
Rensselaer, Indiana, operates three innerspring manufacturing facilities, two
of which run three shifts, five days a week and one that continuously
operates. The division sells its component parts at current market prices
exclusively to the Company's bedding plants and licensees. The division
provides substantially all of the Company's mattress innerspring unit
requirements, including 100% of the proprietary innersprings for the Sealy
Posturepedic and Stearns & Foster lines. In addition, the division
manufactures approximately 50% of the Company's foundation parts as a licensee
of Hoover.
Over the last eight 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 30 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 nearly 100%.
The Company believes the vertical integration resulting from its component
manufacturing capability provides it with a significant competitive advantage
in both cost and technology. Moreover, the Company is the only conventional
bedding manufacturer in the United States with substantial innerspring and
form wire component-making capacity.
INDEPENDENT SUPPLIERS. The Company purchases raw materials and certain
components from a variety of vendors, including Hoover, Foamex International
and other national raw material and component suppliers. The Company purchases
substantially all of its Stearns & Foster foundation parts and approximately
50% of its Sealy foundation parts from Hoover which has patents on various
interlocking wire configurations. To increase profitability and reduce the
risks of dependence on a single external supply source, the Company licenses
these wire patents from Hoover and manufactures the remaining 50% of Sealy
foundation parts through its components division.
RESEARCH AND DEVELOPMENT. The Company's proprietary product pipeline is
driven by its extensive research and development effort focused on developing
new technologies to differentiate its products from those of its competitors.
Since December 1, 1994 the Company has, on average, invested approximately
0.75% of its net sales in research and development, a rate which management
believes to be in excess of twice that of its next largest competitor. In
addition, the Company has increased attention on cross-functional input into
product development. Sealy's research and development efforts allow the
Company to build a strong product pipeline. As a result, the Company currently
has in place plans for new proprietary products through 1999. The Company
operates a research and development facility in Cleveland, Ohio with a 15
person staff that is well-educated in a wide range of physical sciences,
including mechanical and chemical engineering, physics, chemistry, polymer
science and biophysics. Management believes that the Company's research and
development
52
<PAGE>
efforts are critical to maintaining the Company's profitability and are
important to retailers. By keeping the product line fresh and continually
generating new product enhancements that are both visible and meaningful to
the consumer, the Company is able to increase retail floor space allocation
and provide retail salespeople with tools to generate higher AUSP's and higher
overall sales. In 1997, a majority of the Company's net sales were generated
from products developed or reengineered in the prior two years.
The Company's research and development operation has developed numerous
proprietary innovations that the Company uses in select products. Over the
past two years, the Company has introduced the SteelSpan II foundation, Hi-
Performance torsion modules, EdgeGuard and EverEdge edge systems, Infinilux
foam and Resilium fiber, and has developed an advanced innerspring and
composite foundation system, all of which have been patented or have patents
pending.
EFFICIENCY IMPROVEMENTS. The Company is in the process of implementing an
MIS upgrade, which will provide the Company with a platform for further MIS
enhancements to enable it to improve manufacturing operations and
profitability analysis. The MIS upgrade is expected to address the Year 2000
Issue and link the Company's plants, operations and functional departments
into a cohesive network, increasing the Company's corporate agility and
decision-making capabilities. There can be no assurance, however, that the new
Business Systems will be installed and fully operational at all locations and
for all applications prior to the turn of the century, and management has
therefore deemed it necessary to convert its current system to be Year 2000
compliant.
53
<PAGE>
PROPERTIES
The offices of Parent are located at 520 Pike Street, Seattle, Washington
98101 and the offices of the Issuer are located at Halle Building, 10th Floor,
1228 Euclid Avenue, Cleveland, Ohio 44115. Corporate, licensing and marketing
services are provided to Issuer and Parent by Sealy, Inc. (a wholly owned
subsidiary), located in Cleveland, Ohio.
The Company services certain national account customers from 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.
On March 10, 1998, the Company announced its plans to relocate its Corporate
headquarters and Research & Development Center from Cleveland, Ohio to
Archdale, North Carolina. The Company will also relocate its Lexington, North
Carolina manufacturing plant to Archdale, North Carolina. The Company
consummated the purchase on April 13, 1998 of a property which currently
includes an office building and a manufacturing facility. The initial purchase
price of $8.4 million was financed with a draw from the Revolving Credit
Facility and paid at closing. The Company will construct an additional office
building on this property to house its Corporate headquarters. The Company is
currently reviewing long-term financing alternatives with respect to the
property purchase and construction project which it expects to finalize in the
second quarter of fiscal 1998. The Company estimates total costs associated
with this relocation will result in a pretax charge of approximately $8.5
million which will be recognized primarily in fiscal 1998 with the balance in
fiscal 1999.
The following table sets forth certain information regarding manufacturing
facilities operated by the Company as of February 23, 1998:
<TABLE>
<CAPTION>
APPROXIMATE
LOCATION SQUARE FOOTAGE TITLE
----------------------------------------- -------------- -----
<S> <C> <C> <C>
UNITED STATES
Arizona Phoenix 76,000 Owned
California Richmond 238,000 Owned
South Gate 185,000 Owned
Colorado Colorado Springs(1) 70,000 Owned
Denver 92,900 Owned
Florida Orlando 97,600 Owned
Georgia Atlanta 292,500 Owned
Illinois Batavia 212,700 Leased(2)
Indiana Rensselaer(1) 131,000 Owned
Rensselaer(1) 124,000 Owned
Kansas Kansas City 102,600 Leased
Maryland Williamsport 144,000 Leased
Massachusetts Randolph 187,000 Owned
Michigan Taylor 156,000 Leased
Minnesota St. Paul 93,600 Owned
New York Albany 102,300 Owned
North Carolina Lexington 97,400 Owned
Ohio Medina 140,000 Owned
Oregon Portland 140,000 Owned
Pennsylvania Clarion 85,000 Owned
Delano(1) 143,000 Owned
Tennessee Memphis 225,000 Owned
Texas Brenham 220,000 Owned
North Richland Hills 124,500 Owned
CANADA
Alberta Edmonton 144,500 Owned
Quebec Saint Narcisse 76,000 Owned
Ontario Toronto 80,200 Leased
Puerto Rico Carolina 58,600 Owned
Mexico Toluca 95,200 Owned
---------
3,934,600
=========
</TABLE>
- --------
(1) Component manufacturing facility.
(2) The Company has subleased 76,000 square feet to an unaffiliated tenant.
54
<PAGE>
The Company considers its present facilities to be generally well
maintained, in sound operating condition and adequate for its needs. The
Company has excess capacity available in its facilities and the necessary
equipment (as owner or lessee) to carry on its business.
LEGAL PROCEEDINGS
The Company is conducting environmental cleanups at a formerly owned
property in South Brunswick, New Jersey and at an inactive property in
Oakville, Connecticut. The South Brunswick cleanup is being conducted pursuant
to an Administrative Consent Order issued by the New Jersey Department of the
Environment. In 1994, the Company filed a claim in U.S. District Court against
former owners of the South Brunswick site and their lenders under the
Comprehensive Environmental Response, Compensation, and Liability Act
("CERCLA") seeking contributions for site cleanup costs. In March 1997, the
Company received $1.7 million in final settlement of this litigation. In
January 1997, the Company filed a claim in the U.S. District Court of New
Jersey against former insurance companies for the Company under the
Comprehensive Environmental Response, Compensation and Liability Act seeking
contribution for site investigation and remedial costs. A parallel case
seeking a judgment of non-liability was filed by some (but not all) of these
insurance companies in the U.S. District Court for the Northern District of
Ohio. The Company is awaiting a ruling by the District Courts involved. In
1994, the Company filed a cost recovery action in U.S. District Court against
former operators of the Oakville facility to require them to complete the
remediation and reimburse the Company for its cleanup costs. This litigation
is pending. See "Business--Environmental, Health and Safety Matters".
On May 22, 1997 the Company filed in the United States District Court for
the Northern District of Illinois a motion to terminate certain antitrust
final judgments (the "Judgments") entered on December 30, 1964 and December
26, 1967. These Judgments, among other things, prohibited the Company from
suggesting resale prices to its dealers. During the pendency of the Company's
motion to terminate the Judgments, and based upon allegations received by the
Department of Justice (the "Department") concerning a possible resale price
maintenance agreement with a Stearns & Foster dealer, the Department, on
September 8, 1997, issued to the Company a Civil Investigative Demand seeking
documents relating to, among other things, communications between the Company
and dealers concerning the retail prices of mattresses. In response to the
Civil Investigative Demand, the Company produced certain documents and the
deposition of a Company executive was taken. Immediately following such
document production and deposition, the Department consented to the
termination of the Judgments and an order terminating the Judgments was
entered by the Court on September 19, 1997. After the Court terminated the
Judgments, the Department notified the Company on September 29, 1997 that it
was limiting the Civil Investigative Demand to certain narrow specifications.
In October 1997, the Company produced additional documents in response to the
Civil Investigative Demand. On November 24, 1997 the Company received a
request from the Department for clarification and additional information. The
Company has responded to that request. On April 17, 1998 the Company formally
responded to the Civil Investigative Demand.
From time to time, the Company is involved in various legal proceedings
arising in the ordinary course of business. The Company does not expect that
these matters will have a material adverse effect on the Company's financial
position or future operations.
ENVIRONMENTAL, HEALTH AND SAFETY MATTERS
The Company is subject to Federal, state, and local laws and regulations
relating to pollution, environmental protection, and occupational health and
safety. In addition, the Company's conventional bedding and other product
lines are subject to various Federal and state laws and regulations relating
to flammability, sanitation and consumer protection standards. The Company
believes that it is in material compliance with these requirements.
The Company is not aware of any pending Federal environmental legislation
which it expects to have a material impact on the Company. The Company does
not expect to make any material capital expenditures for environmental control
facilities during the next two fiscal years.
55
<PAGE>
The Company's principal wastes are nonhazardous materials such as wood,
cardboard, and packaging materials. Nonetheless, as is the case with
manufacturers in general, if a release of hazardous substances occurs on or
from the Company's properties or any associated offsite disposal location, or
if contamination from prior activities is discovered at any of the Company's
properties, the Company may be held liable and the amount of such liability
could be material.
The Company is currently conducting an environmental cleanup at a formerly
owned facility in South Brunswick, New Jersey pursuant to the New Jersey
Industrial Site Recovery Act. The Company 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 its subsidiary agreed to conduct soil and groundwater remediation
at the property. The Company does not believe that its manufacturing processes
were a source of the contamination. The Company sold the property in 1997, but
the Company and its subsidiary retained primary responsibility for the
required remediation. The Company has completed essentially all soil
remediation with DEP approval, and has concluded a pilot test of a groundwater
remediation system.
In 1994, the Company filed a claim in U.S. District Court against former
owners of the site and their lenders under CERCLA seeking contribution for
site investigation and remedial costs. In 1997, the Company received $1.7
million from a former owner of the site and one of the lenders to the former
owner in final settlement of this litigation. The Company is currently
pursuing a cost recovery action in U.S. District Court against several of its
past insurers.
The Company also has begun to remediate soil and groundwater contamination
at an inactive facility located in Oakville, Connecticut. Although the Company
is conducting the remediation voluntarily, it obtained Connecticut Department
of Environmental Protection approval of remediation plan. The Company believes
the contamination is attributable to the manufacturing operations of previous
unaffiliated occupants of the facility. In 1994, the Company filed a cost
recovery action in U.S. District Court to require these entities to complete
the remediation and reimburse the Company for its cleanup costs. This
litigation is pending.
While the Company cannot predict the ultimate timing or cost with respect to
South Brunswick and Oakville remediation, based on facts currently known,
management believes that the accruals are adequate and does not believe the
resolution of these matters will have a material adverse effect on the
Company's financial position or future operations. However, because of the
uncertainties associated with environmental remediation, it is possible that
the costs incurred with respect to these matters could exceed the recorded
accruals.
The Company has been identified as a potentially responsible party pursuant
to CERCLA with regard to two waste disposal sites and under analogous state
law with regard to a third. Although liability under CERCLA and state statutes
is generally joint and several, as a practical matter, liability is usually
allocated among all financially responsible parties. Based on the nature and
quantity of the Company's wastes, the Company believes that its liability at
each of these sites is unlikely to be material.
EMPLOYEES
As of November 30, 1997, the Company had 5,456 full-time employees.
Approximately 66% of the Company's employees at its 28 North American
facilities are represented by various labor unions with separate collective
bargaining agreements. The Company is not a party to any master labor
agreement covering production employees at more than a single manufacturing
facility. The Company has only experienced one day of lost work in one plant
in the last six years due to a labor dispute. In addition, the Company has not
encountered any significant organizing activity at its non-union facilities in
that time frame. The Company believes that its employee relations are
satisfactory.
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names, ages as of March 1998, and a brief
account of the business experience of each person who is a director or
executive officer of Parent and the Issuer.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Ronald L. Jones................. 55 Chief Executive Officer, President and
Director
Bruce G. Barman................. 52 Vice President Research and Development
John G. Bartik.................. 46 Vice President Tax and Assistant Treasurer
Jeffrey C. Claypool............. 50 Vice President Human Resources
Gary T. Fazio................... 47 Vice President Sales
Douglas E. Fellmy............... 48 Vice President Operations
James Goughenour................ 60 Vice President Technology and Strategic
Planning
David J. Mcllquham.............. 43 Vice President Marketing
Sharon J. Petrella.............. 41 Vice President Information Technology
Lawrence J. Rogers.............. 49 Vice President International
Richard F. Sowerby.............. 43 Vice President Controller
Ronald H. Stolle................ 49 Vice President Treasurer
Kenneth L. Walker............... 49 Vice President, General Counsel and
Secretary
Josh Bekenstein................. 39 Director
Paul Edgerley................... 42 Director
James W. Johnston............... 51 Director
Michael Krupka.................. 32 Director
John M. Sallay.................. 42 Director
Jonas Steinman.................. 32 Director
</TABLE>
RONALD L. JONES
Mr. Jones, age 55, since March 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.
BRUCE G. BARMAN
Dr. Barman, age 52, 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 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 46, 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 50, since September 1991 has been Vice President Human
Resources of the Company.
57
<PAGE>
GARY T. FAZIO
Mr. Fazio, age 47, 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 48, 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.
JAMES F. GOUGHENOUR
Mr. Goughenour, age 60, since June 1997 has been Vice President Technology
and Strategic Planning of the Company. From 1979 until he joined the Company,
Mr. Goughenour had been with the HON Company, serving as Vice President.
DAVID J. MCILQUHAM
Mr. McIlquham, age 43, since April 1990 has been Vice President Marketing of
the Company.
SHARON J. PETRELLA
Ms. Petrella, age 41, since January 1995 has been Vice President Information
Technology of the Company. From 1983 until she joined the Company, Ms.
Petrella had been with The Little Tikes Toy Company, Division of Rubbermaid,
in various positions.
LAWRENCE J. ROGERS
Mr. Rogers, age 49, 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 43, 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.
RONALD H. STOLLE
Mr. Stolle, age 49, since March 1995 has been Vice President 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.
KENNETH L. WALKER
Mr. Walker, age 49, since May 1997 has been Vice President, General Counsel
and Secretary of the Company. Previously, from 1991, Mr. Walker served as Vice
President, General Counsel and Secretary of Varity Corporation, a manufacturer
of automotive components, diesel engines, and farm machinery.
58
<PAGE>
JOSH BEKENSTEIN
Mr. Bekenstein, age 39, is a Managing Director of Bain. Mr. Bekenstein
helped start Bain in 1984 and has been involved in numerous venture capital
and leveraged acquisitions over the past thirteen years. Mr. Bekenstein
presently serves on the Board of Directors of a number of public and private
companies, including Waters Corporation, Bright Horizons Childrens Centers,
Inc. and Small Fry Snack Foods. Prior to Bain, Mr. Bekenstein was a consultant
at Bain & Company, where he worked on strategy consulting projects for a
number of Fortune 500 clients.
PAUL EDGERLEY
Mr. Edgerley, age 42, has been Managing Director of Bain since 1993. From
1990 to 1993 he was a General Partner of Bain Venture Capital, and from 1988
to 1990 he was a Principal of Bain Capital Partners. He serves on the Boards
of Directors of Steel Dynamics, Inc., GS Industries, Inc. and AMF Group Inc.
JAMES W. JOHNSTON
Mr. Johnston, age 51, 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.
MICHAEL KRUPKA
Mr. Krupka, age 32, joined Bain in 1991 and became a Managing Director in
1997. Prior to joining Bain, Mr. Krupka spent several years as a consultant at
Bain & Company where he focused on technology and technology-related
companies. In addition, he has served in several senior operating roles at
Bain portfolio companies. He serves on the Board of Directors of Jostens
Learning Corp. and J Tech, Inc.
JOHN M. SALLAY
Mr. Sallay, age 42, is a Managing Director of Harvard Private Capital Group,
Inc. ("HPC"), which manages the private equity and real estate portfolios of
the Harvard University endowment fund. Prior to joining HPC in 1990, Mr.
Sallay was a consultant with McKinsey & Company, Inc. of New York. Mr. Sallay
serves on the Board of Directors of E-Z Serve Corporation and United Auto
Group, Inc.
JONAS STEINMAN
Mr. Steinman, age 32, since June, 1995 has been a Principal at Chase Capital
Partners. Previously he was employed as an Associate by Chase Capital Partners
and its predecessor, Chemical Venture Partners.
COMPENSATION OF DIRECTORS
Mr. Johnston is being compensated on the same basis as he was for being a
Company director prior to December 18, 1997. For his services as a director he
receives 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 if he is
Committee Chairman) for each Board of Directors Committee meeting attended if
such meeting is on a date other than a Board meeting date. The Company
reimburses all directors for any out-of-pocket expenses incurred by them in
connection with services provided in such capacity. In addition, the Company
may in the future compensate directors for services provided in such capacity.
59
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Since December 18, 1997, the Company's Board of Directors has not had any
standing committees. The two compensation matters considered by the Company's
Board of Directors since December 18, 1997 were handled by a temporary
compensation committee made up of all the Company's directors other than Mr.
Jones.
In Fiscal 1997 and through December 18, 1997, the Human Resources Committee
(which functioned as the Compensation Committee) of the Board of Directors
consisted of Mr. Johnston and former directors Mr. Rod Dammeyer (an officer of
Zell/Chilmark) and Mr. Rolf H. Towe.
Pursuant to a stock purchase agreement, Zell/Chilmark, MBLP and the Company
in 1993 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, prior to December 18, 1997, the holder of a majority
of such Acquired Shares had 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 had 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 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.
COMPENSATION OF EXECUTIVE OFFICERS
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 November 30, 1997, December 1, 1996, and November 30, 1995, of
those persons who served as (i) the chief executive officer during Fiscal 1996
and 1997, and (ii) the other four most highly compensated executive officers
of the Company for Fiscal 1997 (collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------ -----------------------------------------------------
RESTRICTED SECURITIES
NAME AND PRINCIPAL OTHER ANNUAL STOCK UNDERLYING LTIP ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION AWARD($) OPTIONS/SARS PAYOUTS(A) COMPENSATION(B)
------------------ ---- -------- -------- ------------ ---------- ------------ ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ronald L. Jones(c)...... 1997 $527,516 $633,052 $ 1,168 -- 75,000(d) -- $ 21,583
Chief Executive 1996 381,262 423,584 456,168(c) $637,800(e) 400,000(f) -- 2,476
Officer and President 1995 -- -- -- -- -- -- --
Lyman M. Beggs(g)....... 1997 -- -- -- -- -- -- 1,495,821(g)
Chairman, Chief 1996 153,318 91,988 -- -- -- -- 3,059,545(g)
Executive Officer and 1995 525,336 -- 75,914(h) 107,000(i) -- -- 21,262
President
Gary T. Fazio........... 1997 203,833 182,289 248 203,978(j) 32,000(d) -- 16,524
Vice President-- 1996 196,226 86,559 -- -- -- 426,030 15,864
Sales 1995 187,765 -- -- -- -- -- 15,151
Douglas Fellmy.......... 1997 197,333 177,739 -- 203,978(j) 32,000(d) -- 16,016
Vice President-- 1996 188,134 83,135 -- -- -- 426,030 15,237
Operations 1995 171,052 -- -- -- -- -- 13,434
David J. McIlquham...... 1997 199,167 179,023 242 203,978(j) 32,000(d) -- 16,165
Vice President-- 1996 188,505 83,302 -- -- -- 426,030 15,268
Marketing 1995 171,052 -- -- -- -- -- 13,794
Lawrence J. Rogers...... 1997 180,305 158,953 -- 203,978(j) 32,000(d) -- 14,271
Vice President-- 1996 175,812 100,385 -- -- -- 395,046 13,884
International 1995 164,551 15,503 -- -- -- -- 13,049
</TABLE>
- --------
(a) Such amount reflects the value of Shares earned under the Performance
Share Plan which concluded on December 1, 1996.
60
<PAGE>
(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: (1997-$3,083, $1,000,
$17,500; 1996-$1,943, $533, $0); Mr. Beggs: (1997-$3,083, $0, $0; 1996-
$3,525, $267, $0; 1995-$3,501, $800, $16,960); Mr. Fazio: (1997-$1,257,
$999, $14,268; 1996-$1,305, $849, $13,710; 1995-$1,254, $753, $13,144);
Mr. McIlquham: (1997-$1,227, $996, $13,942; 1996-$1,255, $817, $13,195;
1995-$1,137, $683, $11,974); Mr. Fellmy: (1997-$1,216, $987, $13,813;
1996-$1,252, $816, $13,169; 1995-$1,106, $665, $11,623); Mr. Rogers (1997-
$622, $1,027, $12,621; 1996-$747, $763, $12,374; 1995-$947, $583,
$11,519).
(c) 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.
(d) On May 31, 1997, the Company issued ten-year non-qualified stock options
at an exercise price of $9.60, pursuant to the Company's 1997 Stock Option
Plan to, among others, certain Named Executive Officers as follows: Ronald
L. Jones: 75,000 shares; Gary T. Fazio: 32,000 shares; David J. McIlquham:
32,000 shares; Douglas Fellmy: 32,000 shares; and Lawrence J. Rogers:
32,000 shares.
(e) 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 November 30,1997, the value of Mr. Jones' restricted
stock holdings was $967,363.
(f) 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."
(g) Mr. Beggs' employment with the Company terminated on March 15, 1996. Mr.
Beggs was awarded $2,578,902 in 1996 and $844,475 in 1997 in connection
with his withdrawal from the Performance Share Plan and settlement of all
related claims. In addition, he received $394,236 in 1996 and $525,648 in
1997 in salary continuation. Mr. Beggs' remaining equity loan balance (see
footnote (h) below) was forgiven in addition to a gross up payment to
cover his tax liability, together totaling $80,890. He was also reimbursed
$1,725 in 1997 for professional fees incurred relating to the preceding
transactions. 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."
(h) Mr. Beggs commenced employment with the Company as of August 24, 1992.
Under the terms of his Employment Agreement, Mr. Beggs received $75,914 in
1995 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 of $45,383; (ii) professional fees, personal use of
auto, travel and entertainment expenses; and (iii) payments to cover Mr.
Beggs' tax liabilities on the foregoing items.
(i) 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.
(j) Such amount reflects the Company's determination of the fair value at the
date of grant of restricted stock issued, on January 6, 1997, pursuant to
the Company's 1996 Transitional Restricted Stock Plan to, among others,
certain Named Executive Officers as follows: Gary T. Fazio: 15,800 shares;
David J. McIlquham: 15,800 shares; Douglas Fellmy: 15,800 shares; and
Lawrence J. Rogers: 15,800 shares. As of November 30, 1997 the value of
each of the above noted Named Executive Officers holdings pursuant to this
plan was $225,983.
61
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES
OF STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM (A)
- -------------------------------------------------------------------------- ---------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
---- ------------ ------------ ----------- ---------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
Ronald L. Jones......... 75,000 8.0% $9.60 6/1/2007 $ 453,000 $ 1,147,500
Chief Executive Officer
and President
Gary T. Fazio........... 32,000 3.5% $9.60 6/1/2007 $ 193,280 $ 489,600
Vice President--Sales
Douglas Fellmy.......... 32,000 3.5% $9.60 6/1/2007 $ 193,280 $ 489,600
Vice President--Opera-
tions
David McIlquham......... 32,000 3.5% $9.60 6/1/2007 $ 193,280 $ 489,600
Vice President--Market-
ing
Lawrence J. Rogers...... 32,000 3.5% $9.60 6/1/2007 $ 193,280 $ 489,600
Vice President--Interna-
tional
</TABLE>
- --------
(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.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS/SARS IN-THE-MONEY OPTIONS/SARS
ACQUIRED AT FY-END (#) AT FY-END ($)
ON EXERCISE VALUE EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
NAME (#) REALIZED (A) (B) (C)
---- ----------- -------- ------------------------------- -------------------------
<S> <C> <C> <C> <C>
Ronald L. Jones......... -- -- 146,836/515,506 $1,038,527/$3,468,270
Chief Executive Officer
and President
Gary T. Fazio........... -- -- --/ 32,000 --/ $150,486
Vice President--Sales
Douglas Fellmy.......... -- -- --/ 32,000 --/ $150,486
Vice President--
Operations
David McIlquham......... -- -- --/ 32,000 --/ $150,486
Vice President--Market-
ing
Lawrence J. Rogers...... -- -- --/ 32,000 --/ $150,486
Vice President--
International
</TABLE>
- --------
(a) Includes options exercisable within 60 days after November 30, 1997.
(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 November 30, 1997 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 November 30, 1997.
62
<PAGE>
EMPLOYMENT AGREEMENTS
Ronald Jones has entered into an employment agreement with Parent providing
for his employment as Chief Executive Officer and President. The agreement has
an initial term of three years and a perpetual two-year term thereafter. The
agreement currently provides for an annual base salary of US$530,000, subject
to annual increase by Parent's Board of Directors, plus a performance bonus
and grants Mr. Jones the right to require Parent to repurchase certain
securities of Parent held by Mr. Jones. In addition, six employees of the
Company, including Gary T. Fazio, Douglas Fellmy, Lawrence J. Rogers and David
J. McIlquham, have entered into employment agreements that provide, among
other things, for an initial employment term of two years and a perpetual one-
year employment term thereafter, during which such employees will receive base
salary (respectively at least US$204,500, US$198,000, Canadian$249,500, and
US$200,000) and a performance bonus between zero and seventy percent of their
base salary and substantially the same benefits as they received as of the
date of such agreements. For the fiscal year ending November 30, 1998, the
temporary compensation committee of the Company's Board of Directors has
determined that the bonuses to be paid pursuant to those employment agreements
shall be based 75% on the Company's achievement of an Adjusted EBITDA target
and 25% on the Company's achievement of a Return on Net Tangible Assets
target. Each such target represents an improvement over the Company's prior
year performance. Several members of management are parties to agreements that
provide, for a period of one year following consummation of the Transactions,
that their annual base salary and benefits cannot be reduced.
DEFERRED COMPENSATION AGREEMENTS
On December 18, 1997, Mr. Jones entered into a deferred compensation
agreement with Parent pursuant to which Mr. Jones elected to defer $1,114,538
of compensation until either December 18, 2007 or, in certain instances, such
earlier date as provided in such deferred compensation agreement. In addition,
on December 18, 1997, six employees, including Gary T. Fazio, Douglas Fellmy
and Lawrence J. Rogers, entered into deferred compensation agreements with
Parent pursuant to which such employees elected to defer an aggregate $522,518
of compensation, in each case, until either December 18, 2007 or, in certain
instances, such earlier date as provided in such deferred compensation
agreements.
SEVERANCE BENEFIT PLANS
In addition, certain executives and other employees are eligible for
benefits under the Company's severance benefit plans and certain other
agreements, which provide for cash severance payments equal to their base
salary and, in some instances, bonuses (for periods ranging from two weeks to
two years) and for the continuation of certain benefits.
MANAGEMENT INCENTIVE PLAN
The Company provides performance-based compensation awards to executive
officers and key employees for achievement each year as part of a bonus plan.
Such compensation awards are a function of individual performance and
corporate results. The qualitative and quantitative criteria will be
determined from time to time by Parent's Board of Directors.
MANAGEMENT EQUITY PARTICIPATION IN THE TRANSACTIONS
In connection with the Transactions, in order to provide financial
incentives for certain of the Company's employees, the Management Investors
acquired common stock of Parent and/or fully vested options to acquire common
stock of Parent in exchange for either (i) cash or (ii) preferred stock and/or
options held by such Management Investors prior to the Merger. Upon a
Management Investor's termination of employment with the Company, the exercise
period of such options held by such Management Investor will be reduced to a
period ending no later than six months after such Management Investor's
termination. If such termination occurs prior to a qualified initial public
offering of Parent's common stock, then Parent shall have the right to
repurchase the common stock of Parent held by such Management Investor and, in
certain instances, such Management Investor shall have the right to require
Parent to repurchase the common stock of Parent held by such Management
Investor. See "Security Ownership."
63
<PAGE>
SEALY CORPORATION 1998 STOCK OPTION PLAN
In order to provide additional financial incentives for certain of the
Company's employees, subsequent to the consummation of the Transactions the
Management Investors and certain other employees of the Company were granted
and are expected to periodically be granted options to purchase additional
common stock of Parent pursuant to the Sealy Corporation 1998 Stock Option
Plan. Such options vest and become exercisable upon (i) certain threshold
dates or (ii) a change of control or sale of Parent. Upon an employee's
termination of employment with the Company, all of such employee's unvested
options will expire, the exercise period of all such employee's vested options
will be reduced to a period ending no later than six months after such
employee's termination, and if such termination occurs prior to a qualified
initial public offering of the Parent's common stock, then Parent shall have
the right to repurchase the common stock of Parent held by such employee.
64
<PAGE>
SECURITY OWNERSHIP
The Issuer is a wholly owned subsidiary of Parent. The issued and
outstanding capital stock of Parent consists of 19,518,953 shares of Class A
common stock, par value $0.01 per share ("Class A Common"), 7,791,327.6440
shares of Class B common stock, par value $0.01 per share ("Class B Common"),
2,168,772.5555 shares of Class L common stock, par value $0.01 per share
("Class L Common"), and 865,703.0716 shares of Class M common stock, par value
$0.01 per share ("Class M Common" and collectively with the Class A Common,
Class B Common and Class L Common, "Common Stock"). The shares of Class A
Common and Class L Common each entitle the holder thereof to one vote per
share on all matters to be voted upon by the stockholders of the Company,
including the election of directors, and are otherwise identical, except that
the shares of Class L Common are entitled to a preference over Class A Common
with respect to any distribution by the Company to holders of its capital
stock equal to the original cost of such share ($40.50) plus an amount which
accrues on a daily basis at a rate of 10% per annum, compounded annually. The
Class B Common is identical to the Class A Common and the Class M Common is
identical to the Class L Common except that the Class B Common and the Class M
Common are nonvoting. The Class B Common and the Class M Common are
convertible into Class A Common and Class L Common, respectively,
automatically upon consummation of an initial public offering by the Company.
The Board of Directors of the Company is authorized to issue preferred stock,
par value $0.01 per share, with such designations and other terms as may be
stated in the resolutions providing for the issue of any such preferred stock
adopted from time to time by the Board of Directors.
The following table sets forth certain information regarding the beneficial
ownership of (i) each class of common stock held by each person (other than
directors and executive officers of the Company) known to the Company to own
more than 5% of the outstanding voting common stock of Parent, (ii) the
Management Investors and (iii) each class of common stock held by each
director of the Company, each Named Executive Officer and all of the Company's
directors and executive officers as group. To the knowledge of the Company,
each of such stockholders has sole voting and investment power as to the
shares shown unless otherwise noted. Beneficial ownership of the securities
listed in the table has been determined in accordance with the applicable
rules and regulations promulgated under the Exchange Act.
65
<PAGE>
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
-----------------------------------------------------------------------------------------------
CLASS A COMMON CLASS B COMMON CLASS L COMMON CLASS M COMMON
--------------------- ----------------------- ------------------------- -----------------------
NUMBER PERCENTAGE NUMBER PERCENTAGE NUMBER PERCENTAGE NUMBER PERCENTAGE
OF SHARES OF CLASS OF SHARES OF CLASS OF SHARES OF CLASS OF SHARES OF CLASS
---------- ---------- ------------ ---------- -------------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRINCIPAL STOCKHOLDERS:
Bain Funds (1)(2)....... 9,450,000 48.4% 612,284.54 7.9% 1,050,000 48.4% 68,031.62 7.9%
c/o Bain Capital, Inc.
Two Copley Place
Boston, MA 02116
Harvard Private Capital
Holdings, Inc. ........ 4,000,000 20.5 -- -- 444,444.4444 20.5 -- --
c/o Harvard Management
Company, Inc.
600 Atlantic Avenue
Boston, MA 02210
Sealy Investors 1, 973,989 5.0 5,086,617.06 65.3 108,221 5.0 565,179.6733 65.3
LLC (2)................
c/o Bain Capital, Inc.
Two Copley Avenue
Boston, MA 02116
Sealy Investors 2, LLC 973,989 5.0 2,056,314.03 26.4 108,221 5.0 228,479.3367 26.4
(2)....................
c/o Bain Capital, Inc.
Two Copley Place
Boston, MA 02116
Sealy Investors 3, LLC 973,989 5.0 36,112.01 * 108,221 5.0 4,012.4456 *
(2)....................
c/o Bain Capital, Inc.
Two Copley Place
Boston, MA 02116
Zell/Chilmark Fund, 2,862,000 14.7 -- -- 318,000 14.7 -- --
L.P. ..................
Two North Riverside
Plaza
Suite 1500
Chicago, IL 60606
DIRECTORS AND EXECUTIVE
OFFICERS:
Josh Bekenstein (1)(3).. 9,450,000 48.4 -- -- 1,050,000 48.4 -- --
c/o Bain Capital, Inc.
Two Copley Place
Boston, MA 02116
Paul Edgerley (1)(3).... 9,450,000 48.4 -- -- 1,050,000 48.4 -- --
c/o Bain Capital, Inc.
Two Copley Place
Boston, MA 02116
Michael Krupka (1)(3)... 9,450,000 48.4 -- -- 1,050,000 48.4 -- --
c/o Bain Capital, Inc.
Two Copley Place
Boston, MA 02116
John M. Sallay (4)...... 4,000,000 20.5 -- -- 444,444.4444 20.5 -- --
c/o Harvard Management
Company, Inc.
600 Atlantic Avenue
Boston, MA 02210
Ronald Jones (5)........ 939,996 4.6 -- -- 104,444 4.6 -- --
c/o Sealy Corporation
1228 Euclid Avenue
Cleveland, OH 44115
Gary T. Fazio (6)....... 75,285 * -- -- 8,365 * -- --
c/o Sealy Corporation
1228 Euclid Avenue
Cleveland, OH 44115
Douglas Fellmy (6)...... 75,285 * -- -- 8,365 * -- --
c/o Sealy Corporation
1228 Euclid Avenue
Cleveland, OH 44115
David McIlquham......... 41,994 * -- -- 4,666 * -- --
c/o Sealy Corporation
1228 Euclid Avenue
Cleveland, OH 44115
Lawrence J. Rogers (6).. 75,285 * -- -- 8,365 * -- --
c/o Sealy Corporation
1228 Euclid Avenue
Cleveland, OH 44115
Management Investors as 1,494,630 7.2 -- -- 166,070 7.2 -- --
a group (11 persons)
(7)....................
All directors and
executive officers as a
group
(15 persons)........... 14,944,630 71.8% -- -- 1,660,514.4444 71.8%
</TABLE>
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- --------
*Less than one percent
(1) Amounts shown reflect the aggregate number of shares of Class A Common and
Class L Common held by Bain Capital Fund V, L.P. ("Fund V"), Bain Capital
Fund V-B, L.P., BCIP Trust Associates, L.P. ("BCIP Trust") and BCIP
Associates ("BCIP") (collectively, the "Bain Funds"), for the Bain Funds
and Messrs. Bekenstein, Edgerley and Krupka.
(2) The members of Sealy Investors 1, LLC ("SI1") are Chase Equity Associates,
L.P. and Bain Capital Partners V, L.P. ("BCPV"). The members of Sealy
Investors 2, LLC ("SI2") are CIBC WG Argosy Merchant Fund 2, L.L.C. and
BCPV. The members of Sealy Investors 3, LLC ("SI3" and, collectively with
SI1 and SI2, the "LLCs") are BancBoston Capital Inc. and BCPV. BCPV is the
administrative member of each LLC and beneficially owns 1% of the equity of
each LLC. Accordingly, BCPV may be deemed to be beneficially own certain
shares owned by the LLCs, although BCPV disclaims such beneficial
ownership.
(3) Messrs. Bekenstein, Edgerley and Krupka are each Managing Directors of
Bain Capital Investors V, Inc., the sole general partner of BCPV, and are
limited partners of BCPV, the sole general partner of Fund V and Fund V-B.
Accordingly, Messrs. Bekenstein, Edgerley and Krupka may be deemed to
beneficially own shares owned by Fund V and Fund V-B. In addition, Messrs.
Bekenstein, Edgerley and Krupka are each general partners of BCIP and BCIP
Trust and, accordingly, may be deemed to beneficially own shares owned by
such funds. Each such person disclaims beneficial ownership of any such
shares in which he does not have a pecuniary interest.
(4) Mr. Sallay is a Managing Director of HPC, an affiliate of Harvard Private
Capital Holdings, Inc. ("Harvard"). Accordingly, Mr. Sallay may be deemed
to beneficially own shares owned by Harvard. Mr. Sallay disclaims
beneficial ownership of any such shares in which he does not have a
pecuniary interest.
(5) Includes 891,630 shares of Class A Common and 99,070 shares of Class L
Common issuable upon exercise of outstanding and currently exercisable
options.
(6) Amounts shown reflect shares issuable upon exercise of outstanding and
currently exercisable options.
(7) The Management Investors consist of Messrs. Jones, Fazio, Fellmy,
McIlquham and Rogers and Bruce Barman, John Bartik, Jeffrey Claypool, James
Goughenour, Richard Sowerby and Kenneth Walker. Includes 1,309,644 shares
of Class A Common and 145,516 shares of Class L Common issuable upon
exercise of currently exercisable options.
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CERTAIN TRANSACTIONS
STOCKHOLDERS AGREEMENT
Upon the consummation of the Merger, Parent, and certain of its
stockholders, including the Bain Funds, Harvard, the LLCs and Zell
(collectively, the "Stockholders") entered into a stockholders agreement (the
"Stockholders Agreement"). The Stockholders Agreement: (i) requires that each
of the parties thereto vote all of its voting securities of Parent and take
all other necessary or desirable actions to cause the size of the Board of
Directors of Parent to be established at seven members and to cause three
designees of the Bain Funds and one designee of Harvard to be elected to the
Board of Directors; (ii) grants Parent and the Bain Funds a right of first
offer on any proposed transfer of shares of capital stock of Parent held by
Zell, Harvard or the LLCs; (iii) grants Harvard a right of first offer on any
proposed transfer of shares of capital stock of Parent held by the Bain Funds;
(iv) grants tag-along rights (rights to participate on a pro rata basis in
sales of stock by other shareholders) on certain transfers of shares of
capital stock of Parent; (v) requires the Stockholders to consent to a sale of
Parent to an independent third party if such sale is approved by holders
constituting a majority of the then outstanding shares of voting common stock
of Parent; and (vi) except in certain instances, prohibits Zell from
transferring any shares of capital stock of Parent until the tenth anniversary
of the date of the consummation of the Merger. Certain of the foregoing
provisions of the Stockholders Agreement will terminate upon the consummation
of an initial Public Offering or an Approved Sale (as each is defined in the
Stockholders Agreement). Certain of the Stockholders, including Bain, received
one-time transaction fees aggregating $8.9 million upon consummation of the
Transactions.
MANAGEMENT SERVICES AGREEMENT
In connection with the Transactions, Parent and the Issuer entered into a
Management Services Agreement with Bain pursuant to which Bain has agreed to
provide: (i) general management services; (ii) identification, support,
negotiation and analysis of acquisitions and dispositions; (iii) support,
negotiation and analysis of financial alternatives; and (iv) other services
agreed upon by Parent and Bain. In exchange for such services, Bain will
receive: (i) an annual management fee of $2.0 million, plus reasonable out-of-
pocket expenses (payable quarterly); and (ii) a transaction fee in an amount
equal to 1.0% of the aggregate transaction value in connection with the
consummation of any additional acquisition or divestiture by the Company and
of each financing or refinancing. The Management Services Agreement has an
initial term of five years, subject to automatic one-year extensions unless
Parent or Bain provides written notice of termination.
PARENT REGISTRATION RIGHTS AGREEMENT
Upon the consummation of the Merger, Parent, and certain of its
stockholders, including the Bain Funds, Harvard, the LLCs and Zell entered
into a registration rights agreement (the "Parent Registration Rights
Agreement"). Under the Parent Registration Rights Agreement, the holders of a
majority of the Registrable Securities (as defined in the Parent Registration
Rights Agreement) owned by the Bain Funds have the right, subject to certain
conditions, to require Parent to register any or all of their shares of common
stock of Parent under the Securities Act at Parent's expense. In addition, all
holders of Registrable Securities are entitled to request the inclusion of any
shares of common stock of Parent subject to the Parent Registration Rights
Agreement in any registration statement at Parent's expense whenever Parent
proposes to register any of its common stock under the Securities Act. In
connection with all such registrations, Parent has agreed to indemnify all
holders of Registrable Securities against certain liabilities, including
liabilities under the Securities Act.
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DESCRIPTION OF SENIOR CREDIT AGREEMENTS
Upon consummation of the Transactions, the Issuer entered into the Senior
Credit Agreements with Goldman Sachs Credit Partners L.P., as arranger and
syndication agent, Morgan Guaranty Trust Company of New York, as
administrative agent, Bankers Trust Company, as documentation agent
(collectively, Goldman Sachs Credit Partners L.P., Morgan Guaranty Trust
Company of New York and Bankers Trust Company are, in such capacity, the
"Agents"), and other institutions party thereto (the "Banks"), which provides
loans of up to $550.0 million. Loans under the Senior Credit Agreements
consist of $120.0 million in aggregate principal amount of Tranche A Term
Loans, $125.0 million in aggregate principal amount of amortization extended
term loans ("AXELsSM")* Series B, $90.0 million in aggregate principal amount
of AXELs Series C and $115.0 million in aggregate principal amount of AXELs
Series D (the "Tranche A Term Loans", the "AXELs Series B", the "AXELs Series
C", and the "AXELs Series D" are referred to collectively as the "Term
Loans"), which were used by the Issuer to provide a portion of the funds
necessary to consummate the Transactions and the $100.0 million Revolving
Credit Facility, which will permit the Issuer to finance working capital,
letters of credit, acquisitions (up to a limit of $50.0 million) and other
general corporate needs. This information relating to the Senior Credit
Agreements is qualified in its entirety by reference to the complete text of
the documents entered into in connection therewith. The following is a
description of the general terms of the Senior Credit Agreements.
Indebtedness of the Issuer under the Senior Credit Agreements is guaranteed
by Parent, certain current and all future U.S. subsidiaries of the Issuer and
is secured by (i) a first priority security interest in all, subject to
certain customary exceptions, of the material tangible and intangible assets
of the Issuer and certain of its current and all of its future U.S.
subsidiaries, including all of the capital stock of certain of its current and
all of its future U.S. subsidiaries, and (ii) a first priority perfected
pledge of 65% of the capital stock of each first-tier foreign subsidiary.
Indebtedness under the Senior Credit Agreements bears interest at a floating
rate. Indebtedness under the Revolving Credit Facility and the Term Loans
initially (subject to reduction based on attainment of certain leverage ratio
levels) bears interest at a rate based upon (i) the Base Rate (defined as the
highest of (x) the rate of interest announced publically by Morgan Guaranty
Trust Company of New York from time to time, as its base rate and (y) the
Federal funds effective rate from time to time plus 0.50%) plus 1.25% in
respect of the Tranche A Term Loans and the loans under the Revolving Credit
Facility (the "Revolving Loans"), 1.50% in respect of the AXELs Series B,
1.75% in respect of the AXELs Series C and 2.00% in respect of the AXELs
Series D, or (ii) the Adjusted Eurodollar Rate (as defined in the Senior
Credit Agreements) for one, two, three or six months (or, subject to general
availability, two weeks or twelve months), in each case plus 2.25% in respect
of Tranche A Term Loans and Revolving Loans, 2.50% in respect of AXELs Series
B, 2.75% in respect of AXELs Series C and 3.00% in respect of AXELs Series D.
The Tranche A Term Loans will mature in December 2002. The AXELs Series B
will mature in December 2004. The AXELs Series C will mature in December 2005.
The AXELs Series D will mature in December 2006. The Tranche A Term Loans will
be subject to quarterly amortization payments commencing in March 1999, the
AXELs Series B, the AXELs Series C and the AXELs Series D will be subject to
quarterly amortization payments commencing in March 1998 with the AXELs Series
B amortizing in nominal amounts until the maturity of the Tranche A Term
Loans, the AXELs Series C amortizing in nominal amounts until the maturity of
the AXELs Series B and the AXELs Series D amortizing in nominal amounts until
the maturity of the AXELs Series C. The Revolving Credit Facility will mature
in December 2002. In addition, the Senior Credit Agreements provide for
mandatory repayments, subject to certain exceptions, of the Term Loans, and
reductions in the Revolving Credit
- --------
*"AXELs" is a registered servicemark of Goldman, Sachs & Co.
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<PAGE>
Facility, based on the net proceeds of certain asset sales outside the
ordinary course of business of the Issuer and its subsidiaries, the net
proceeds of insurance, the net proceeds of certain debt and equity issuances,
and excess cash flow.
The Revolving Loans (other than amounts up to $50.0 million used to make
permitted acquisitions) may be repaid and reborrowed. The Issuer will be
required to pay to the Banks participating in the Revolving Credit Facility a
commitment fee initially (subject to reduction based on attainment of certain
leverage ratio levels) equal to 0.50% per annum, on the average unused portion
of the Revolving Credit Facility during each quarter. The Issuer also will be
required to pay to the Banks participating in the Revolving Credit Facility
letter of credit fees initially (subject to reduction based on attainment of
certain leverage ratio levels) equal to 2.25% per annum on the average daily
stated amount of each letter of credit outstanding and to the Bank issuing a
letter of credit a fronting fee of 1/8 of 1% on the average daily stated
amount of each outstanding letter of credit issued by such Bank, in each case
payable in arrears on a quarterly basis. The Agents and the Banks will receive
and continue to receive such other fees as have been separately agreed upon
with the Agents.
The Senior Revolving Credit Agreement requires the Company to meet certain
financial tests, including minimum levels of EBITDA (initially $92.5 million
and increasing over time to $120 million), minimum interest coverage ratio
(initially 1.5 to 1 and increasing over time to 1.9 to 1) and maximum leverage
ratio (initially 7.4 to 1 and decreasing over time to 5.1 to 1). The Senior
Credit Agreements also contain covenants which, among other things, limit
indebtedness and/or the incurrence of additional indebtedness, investments,
contingent obligations, dividends, transactions with affiliates, asset sales,
mergers and consolidations, prepayments of other indebtedness (including the
Notes), liens and encumbrances and other matters customarily restricted in
such agreements.
The Senior Credit Agreements contain customary events of default, including
payment defaults, breach of representations and warranties, covenant defaults,
cross-defaults to certain other indebtedness, certain events of bankruptcy and
insolvency, events relating to ERISA plans, judgment defaults, failure of any
guaranty or security document supporting the Senior Credit Agreements to be in
full force and effect and change of control of the Issuer and Parent.
DESCRIPTION OF EXCHANGE NOTES
GENERAL
The Senior Subordinated Exchange Notes will be issued pursuant to an
Indenture (the "Senior Subordinated Note Indenture") among the Company, the
Guarantors and The Bank of New York, as trustee (the "Senior Subordinated Note
Trustee"). The Senior Subordinated Discount Exchange Notes will be issued
pursuant to an Indenture (the "Senior Subordinated Discount Note Indenture"
and, together with the Senior Subordinated Note Indenture, the "Indentures")
among the Company, the Guarantors and The Bank of New York, as trustee (the
"Senior Subordinated Discount Note Trustee" and, together with the Senior
Subordinated Note Trustee, the "Trustees"). Each of the Senior Subordinated
Exchange Notes and the Senior Subordinated Discount Exchange Notes is referred
to herein as a "class" of Exchange Notes and each of the Senior Subordinated
Notes and the Senior Subordinated Discount Notes is referred to herein as a
"class" of Notes. The terms of the Notes include those stated in the
Indentures and those made part of the Indentures by reference to the Trust
Indenture Act of 1939 (the "Trust Indenture Act"). The Exchange Notes are
subject to all such terms, and Holders of Notes are referred to the Indentures
and the Trust Indenture Act for a statement thereof. The following summary of
the material provisions of the Indentures and the Registration Rights
Agreement does not purport to be complete and is qualified in its entirety by
reference to the Indentures and the Registration Rights Agreement, including
the definitions therein of certain terms used below. Copies of the proposed
form of Indentures and Registration Rights Agreement are available as set
forth below under "--Additional Information". The definitions of certain terms
used in
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the following summary are set forth below under "--Certain Definitions". For
purposes of this summary, the term "Company" refers only to Sealy Mattress
Company and not to any of its Subsidiaries.
Initially, the Trustee will act as paying agent and registrar for the
Exchange Notes. The form and terms of the Exchange Notes are the same as the
form and terms of the Notes (which they replace) except that (i) the Exchange
Notes bear a Series B designation, (ii) the Exchange Notes have been
registered under the Securities Act and, therefore, will not bear legends
restricting the transfer thereof, and (iii) the holders of Exchange Notes will
not be entitled to certain rights under the Registration Rights Agreement,
including the provisions providing for an increase in the interest rate on the
Notes in certain circumstances relating to the timing of the Exchange Offer,
which rights will terminate when the Exchange Offer is consummated.
The Exchange Notes will be general unsecured obligations of the Company and
will be subordinated in right of payment to all current and future Senior
Debt. The Senior Subordinated Exchange Notes and the Senior Subordinated
Discount Exchange Notes will be pari passu with each other. As of March 1,
1998, the Issuer had Senior Debt of approximately $479.0 million and, through
its Subsidiaries, had additional liabilities (including trade payables and
lease obligations) aggregating approximately $169.5 million. The Indentures
will permit the incurrence of additional Senior Debt in the future.
The operations of the Company are primarily conducted through its
Subsidiaries and, therefore, the Company is primarily dependent upon the cash
flow of its Subsidiaries to meet its obligations, including its obligations
under the Exchange Notes. As a result, the Exchange Notes will be effectively
subordinated to all Indebtedness and other liabilities and commitments
(including trade payables and lease obligations) of the Company's Subsidiaries
except to the extent of the Note Guarantees. Only certain of the Company's
U.S. Subsidiaries will be Subsidiary Guarantors of the Notes. Any right of the
Company to receive assets of any of its Non-Guarantor Subsidiaries upon the
latter's liquidation or reorganization (and the consequent right of the
Holders of the Exchange Notes to participate in those assets) will be
effectively subordinated to the claims of that Subsidiary's creditors
(including trade creditors), except to the extent that the Company is itself
recognized as a creditor of such Subsidiary, in which case the claims of the
Company would still be subordinate to any security in the assets of such
Subsidiary and any Indebtedness of such Subsidiary senior to that held by the
Company. As of March 1, 1998, the Company's Non-Guarantor Subsidiaries had, in
the aggregate, approximately $43.6 million of liabilities (of which $29.6
million represent intercompany liabilities). See "Risk Factors--Subordination
of Notes; Guarantees".
As of the date of the Indentures, all of the Company's Subsidiaries were
Restricted Subsidiaries. However, under certain circumstances, the Company
will be able to designate current or future Subsidiaries as Unrestricted
Subsidiaries. Unrestricted Subsidiaries will not be subject to many of the
restrictive covenants set forth in the Indentures. See "--Certain Covenants--
Restricted Payments".
SUBORDINATION
The payment of the Company's Obligations with respect to each class of
Exchange Notes will be subordinated in right of payment, as set forth in the
Indentures, to the prior payment in full in cash or Cash Equivalents of all
Senior Debt, whether outstanding on the date of the Indentures or thereafter
incurred.
Upon any distribution to creditors of the Company in a liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property, an
assignment for the benefit of creditors or any marshalling of the Company's
assets and liabilities, the holders of Senior Debt will be entitled to receive
payment in full
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in cash or Cash Equivalents of all Obligations due in respect of such Senior
Debt (including interest after the commencement of any such proceeding at the
rate specified in the applicable Senior Debt) before the Holders of Exchange
Notes will be entitled to receive any payment with respect to the Exchange
Notes, and until all Obligations with respect to Senior Debt are paid in full
in cash or Cash Equivalents, any distribution to which the Holders of Exchange
Notes would be entitled shall be made to the holders of Senior Debt (except
that Holders of Exchange Notes may receive and retain Permitted Junior
Securities and payments made from the trust described under "--Legal
Defeasance and Covenant Defeasance").
The Company also may not make any payment upon or in respect of the Exchange
Notes (except in Permitted Junior Securities or from the trust described under
"--Legal Defeasance and Covenant Defeasance") if (i) a default in the payment
of the principal of, premium, if any, interest or Liquidated Damages, if any,
on Designated Senior Debt occurs and is continuing beyond any applicable
period of grace or (ii) any other default occurs and is continuing with
respect to Designated Senior Debt that permits holders of the Designated
Senior Debt as to which such default relates to accelerate its maturity and
the applicable Trustee receives a notice of such default (a "Payment Blockage
Notice") from the Company or the holders of any Designated Senior Debt.
Payments on the Exchange Notes may and shall be resumed (a) in the case of a
payment default, upon the date on which such default is cured or waived and
(b) in case of a nonpayment default, the earlier of the date on which such
nonpayment default is cured or waived or 179 days after the date on which the
applicable Payment Blockage Notice is received, unless the maturity of any
Designated Senior Debt has been accelerated. No new period of payment blockage
may be commenced unless and until (i) 360 days have elapsed since the
effectiveness of the immediately prior Payment Blockage Notice and (ii) all
scheduled payments of principal, premium, if any, interest and Liquidated
Damages on the Notes that have come due have been paid in full in cash. No
nonpayment default that existed or was continuing on the date of delivery of
any Payment Blockage Notice to the applicable Trustee shall be, or be made,
the basis for a subsequent Payment Blockage Notice unless such default shall
have been waived for a period of not less than 180 days.
The Indentures further require that the Company promptly notify holders of
Senior Debt if payment of the Notes is accelerated because of an Event of
Default.
"Designated Senior Debt" means (i) any Indebtedness outstanding under the
Senior Credit Agreements and (ii) after payment in full of all Indebtedness
outstanding under the Senior Credit Agreements, any other Senior Debt
permitted under the Indentures, the principal amount of which is $25.0 million
or more, and that has been designated by the Company as "Designated Senior
Debt".
"Permitted Junior Securities" means Equity Interests in the Company or any
Guarantor or debt securities that are unsecured and are subordinated to all
Senior Debt (and any debt securities issued in exchange for Senior Debt) to
substantially the same extent as, or to a greater extent than, the Notes are
subordinated to Senior Debt pursuant to Article 10 of each of the Indentures
(without limiting the foregoing, such securities shall have no required
principal payments until after the final maturity of all Senior Debt).
"Senior Debt" means (i) all Indebtedness of the Company or any of the
Guarantors outstanding under Credit Facilities and all Hedging Obligations
with respect thereto, (ii) any other Indebtedness permitted to be incurred by
the Company under the terms of the Indentures, unless the instrument under
which such Indebtedness is incurred expressly provides that it is on a parity
with or subordinated in right of payment to the Exchange Notes and (iii) all
Obligations with respect to the foregoing. Notwithstanding anything to the
contrary in the foregoing, Senior Debt will not include (w) any liability for
Federal, state, local or other taxes owed or owing by the Company, (x) any
Indebtedness of the Company to any of its Subsidiaries or other Affiliates,
(y) any trade payables or (z) any Indebtedness that is incurred in violation
of the Indentures.
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NOTE GUARANTEES
The Company's payment obligations under each class of Exchange Notes will be
fully and unconditionally guaranteed (the "Note Guarantees"), on a joint and
several basis, by the Subsidiary Guarantors and Parent (together with the
Subsidiary Guarantors, the "Guarantors"). Note Guarantees will not be provided
by the Non-Guarantor Subsidiaries. The Note Guarantee of each Guarantor will
be subordinated to the prior payment in full in cash or cash equivalents of
all Senior Debt of such Guarantor, which would include approximately $460.0
million of Senior Debt outstanding on a pro forma basis as of November 30,
1997, and the amounts for which the Guarantors will be liable under the
Guarantees issued from time to time with respect to Senior Debt. The
obligations of each Guarantor under its Note Guarantees will be limited so as
not to constitute a fraudulent conveyance under applicable law. See, however,
"Risk Factors--Risk of Fraudulent Transfer".
Subject to the provisions of the following paragraph, the Indentures provide
that no Subsidiary Guarantor may consolidate with or merge with or into
(whether or not such Subsidiary Guarantor is the surviving Person), another
corporation, Person or entity whether or not affiliated with such Subsidiary
Guarantor unless (i) subject to the provisions of the following paragraph, the
Person formed by or surviving any such consolidation or merger (if other than
such Subsidiary Guarantor) assumes all the obligations of such Subsidiary
Guarantor pursuant to a supplemental indenture in form and substance
reasonably satisfactory to the applicable Trustee, under the Exchange Notes,
the applicable Indenture and the Registration Rights Agreement; (ii)
immediately after giving effect to such transaction, no Default or Event of
Default exists; and (iii) the Company would be permitted by virtue of the
Company's pro forma Consolidated Fixed Charge Coverage Ratio, immediately
after giving effect to such transaction, to incur at least $1.00 of additional
Indebtedness pursuant to the Consolidated Fixed Charge Coverage Ratio test set
forth in the covenant described below under the caption "--Incurrence of
Indebtedness and Issuance of Preferred Stock". Except as set forth in this
paragraph, the Indentures do not prohibit the merger of two of the Company's
Restricted Subsidiaries or the merger of a Restricted Subsidiary into the
Company.
The Indentures provide that in the event of a sale or other disposition of
all of the assets of any Subsidiary Guarantor, by way of merger, consolidation
or otherwise, or a sale or other disposition of all of the capital stock of
any Subsidiary Guarantor, then such Subsidiary Guarantor (in the event of a
sale or other disposition, by way of such a merger, consolidation or
otherwise, of all of the capital stock of such Subsidiary Guarantor) or the
corporation acquiring the property (in the event of a sale or other
disposition of all of the assets of such Subsidiary Guarantor) will be
released and relieved of any obligations under its Note Guarantees; provided
that the Net Proceeds of such sale or other disposition are applied in
accordance with the applicable provisions of the applicable Indenture. See
"Redemption or Repurchase at Option of Holders--Asset Sales". The limitations
and restrictions in the Indentures do not apply to, limit or restrict the
operations of Parent.
PRINCIPAL, MATURITY AND INTEREST
SENIOR SUBORDINATED EXCHANGE NOTES. The Senior Subordinated Exchange Notes
will be limited in aggregate principal amount to $300.0 million, of which
$125.0 million are expected to be issued in the Exchange Offer, and will
mature on December 15, 2007. Interest on the Senior Subordinated Exchange
Notes will accrue at the rate of 9 7/8% per annum and will be payable semi-
annually in arrears on June 15 and December 15 of each year, commencing on
June 15, 1998, to Holders of record on the immediately preceding June 1 and
December 1. Additional Senior Subordinated Exchange Notes may be issued from
time to time after the date of the Senior Subordinated Note Indenture, subject
to the provisions of the Senior Subordinated Note Indenture, including those
described below under the caption "--Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock". Interest on the Senior
Subordinated Exchange Notes will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from the date of
original issuance. Interest will be computed on the basis of a 360-day year
comprised of twelve
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30-day months. Principal, premium, if any, interest and Liquidated Damages, if
any, on the Senior Subordinated Exchange Notes will be payable at the office
or agency of the Company maintained for such purpose within the City and State
of New York or, at the option of the Company, payment of interest and
Liquidated Damages, if any, may be made by check mailed to the Holders of the
Senior Subordinated Exchange Notes at their respective addresses set forth in
the register of Holders of Senior Subordinated Exchange Notes; provided that
all payments of principal, premium, interest and Liquidated Damages with
respect to Senior Subordinated Exchange Notes the Holders of which have given
wire transfer instructions to the Company will be required to be made by wire
transfer of immediately available funds to the accounts specified by the
Holders thereof. Until otherwise designated by the Company, the Company's
office or agency in New York will be the office of the applicable Trustee
maintained for such purpose. The Senior Subordinated Exchange Notes will be
issued in denominations of $1,000 and integral multiples thereof.
SENIOR SUBORDINATED DISCOUNT EXCHANGE NOTES. The Senior Subordinated
Discount Exchange Notes will be limited in aggregate principal amount at
maturity to $275.0 million, of which $128.0 million are expected to be issued
in the Offering, and will mature on December 15, 2007. The Senior Subordinated
Discount Exchange Notes are being offered at a substantial discount from their
principal amount at maturity. Until December 15, 2002 (the "Full Accretion
Date"), no interest (other than Liquidated Damages, if applicable) will accrue
or be paid in cash on the Senior Subordinated Discount Exchange Notes, but the
Accreted Value will accrete (representing the amortization of original issue
discount) between the Issuance Date and the Full Accretion Date, on a semi-
annual bond equivalent basis using a 360-day year comprised of twelve 30-day
months such that the Accreted Value shall be equal to the full principal
amount at maturity of the Senior Subordinated Discount Exchange Notes on the
Full Accretion Date. Beginning on the Full Accretion Date, interest on the
Senior Subordinated Discount Exchange Notes will accrue at the rate of 10 7/8%
per annum and will be payable in cash semi-annually in arrears on June 15 and
December 15 of each year, commencing on June 15, 2003, to Holders of record on
the immediately preceding June 1 and December 1. Additional Senior
Subordinated Discount Exchange Notes may be issued from time to time after the
date of the Senior Subordinated Discount Note Indenture, subject to the
provisions of the Senior Subordinated Discount Note Indenture, including those
described below under the caption "--Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock". Interest on the Senior
Subordinated Discount Exchange Notes will accrue from the most recent date to
which interest has been paid or, if no interest has been paid, from the Full
Accretion Date. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months. Principal, premium, if any, interest and
Liquidated Damages, if any, on the Senior Subordinated Discount Exchange Notes
will be payable at the office or agency of the Company maintained for such
purpose within the City and State of New York or, at the option of the
Company, payment of interest and Liquidated Damages, if any, may be made by
check mailed to the Holders of the Senior Subordinated Discount Exchange Notes
at their respective addresses set forth in the register of Holders of Senior
Subordinated Discount Exchange Notes; provided that all payments of principal,
premium, interest and Liquidated Damages, if any, with respect to Senior
Subordinated Discount Exchange Notes the Holders of which have given wire
transfer instructions to the Company will be required to be made by wire
transfer of immediately available funds to the accounts specified by the
Holders thereof. Until otherwise designated by the Company, the Company's
office or agency in New York will be the office of the applicable Trustee
maintained for such purpose. The Senior Subordinated Discount Exchange Notes
will be issued in denominations of $1,000 and integral multiples thereof.
OPTIONAL REDEMPTION
SENIOR SUBORDINATED EXCHANGE NOTES. Except as provided below, the Senior
Subordinated Exchange Notes will not be redeemable at the Company's option
prior to December 15, 2002. Thereafter, the Senior Subordinated Exchange Notes
will be subject to redemption at any time at the option of the Company, in
whole or in part, upon not less than 30 nor more than 60 days' notice, at
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the redemption prices (expressed as percentages of principal amount) set forth
below plus accrued and unpaid interest and Liquidated Damages thereon to the
applicable redemption date, if redeemed during the twelve-month period
beginning on December 15 of the years indicated below:
<TABLE>
<CAPTION>
PERCENTAGE OF
PRINCIPAL
YEAR AMOUNT
---- -------------
<S> <C>
2002..................................... 104.937%
2003..................................... 103.292%
2004..................................... 101.646%
2005 and thereafter...................... 100.000%
</TABLE>
Notwithstanding the foregoing, during the first 36 months after December 11,
1997, the Company may on any one or more occasions redeem up to 35% of the
aggregate principal amount of Senior Subordinated Exchange Notes originally
issued under the Senior Subordinated Note Indenture at a redemption price of
109.875% of the principal amount thereof, plus accrued and unpaid interest and
Liquidated Damages thereon, if any, to the redemption date, with the net cash
proceeds of any Equity Offerings; provided that at least $80.0 million in
aggregate principal amount of Senior Subordinated Exchange Notes remain
outstanding immediately after the occurrence of such redemption (excluding
Senior Subordinated Exchange Notes held by the Company and its Subsidiaries);
and provided further that such redemption shall occur within 120 days of the
date of the closing of any such Equity Offering.
At any time prior to December 15, 2002, the Senior Subordinated Exchange
Notes may also be redeemed, as a whole but not in part, at the option of the
Company upon the occurrence of a Change of Control, upon not less than 30 nor
more than 60 days prior notice (but in no event may any such redemption occur
more than 90 days after the occurrence of such Change of Control) mailed by
first-class mail to each Holder's registered address, at a redemption price
equal to 100% of the principal amount thereof plus the Senior Subordinated
Note Applicable Premium as of, and accrued and unpaid interest and Liquidated
Damages, if any, to, the date of redemption (the "Senior Subordinated Note
Redemption Date").
"Senior Subordinated Note Applicable Premium" means, with respect to any
Senior Subordinated Exchange Note on any Senior Subordinated Note Redemption
Date, the greater of (i) 1.0% of the principal amount of such Senior
Subordinated Note or (ii) the excess of (A) the present value at such Senior
Subordinated Note Redemption Date of (1) the redemption price of such Senior
Subordinated Exchange Note at December 15, 2002 (such redemption price being
set forth in the table above) plus (2) all required interest payments due on
such Senior Subordinated Exchange Note through December 15, 2002 (excluding
accrued but unpaid interest), computed using a discount rate equal to the
Treasury Rate at such Senior Subordinated Note Redemption Date plus 75 basis
points over (B) the principal amount of such Senior Subordinated Exchange
Note, if greater.
SENIOR SUBORDINATED DISCOUNT EXCHANGE NOTES. Except as provided below, the
Senior Subordinated Discount Exchange Notes will not be redeemable at the
Company's option prior to December 15, 2002. Thereafter, the Senior
Subordinated Discount Exchange Notes will be subject to redemption at any time
at the option of the Company, in whole or in part, upon not less than 30 nor
more than 60 days' notice, at the redemption prices (expressed as percentages
of principal amount) set forth below plus accrued and unpaid interest and
Liquidated Damages thereon to the applicable redemption date, if redeemed
during the twelve-month period beginning on December 15 of the years indicated
below:
<TABLE>
<CAPTION>
PERCENTAGE OF
PRINCIPAL
YEAR AMOUNT
---- -------------
<S> <C>
2002..................................... 105.437%
2003..................................... 103.625%
2004..................................... 101.812%
2005 and thereafter...................... 100.000%
</TABLE>
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<PAGE>
Notwithstanding the foregoing, during the first 36 months after December 11,
1997, the Company may on any one or more occasions redeem up to 35% of the
Accreted Value of Senior Subordinated Discount Exchange Notes originally
issued under the Senior Subordinated Discount Note Indenture at a redemption
price of 110.875% of the Accreted Value, plus accrued and unpaid Liquidated
Damages thereon, if any, to the redemption date, with the net cash proceeds of
any Equity Offerings; provided that at least $50.0 million in aggregate
Accreted Value of Senior Subordinated Discount Exchange Notes remain
outstanding immediately after the occurrence of such redemption (excluding
Senior Subordinated Discount Exchange Notes held by the Company and its
Subsidiaries); and provided, further, that such redemption shall occur within
120 days of the date of the closing of any such Equity Offering.
At any time prior to December 15, 2002, the Senior Subordinated Discount
Exchange Notes may also be redeemed, as a whole but not in part, at the option
of the Company upon the occurrence of a Change of Control, upon not less than
30 nor more than 60 days prior notice (but in no event may any such redemption
occur more than 90 days after the occurrence of such Change of Control) mailed
by first-class mail to each Holder's registered address, at a redemption price
equal to 100% of the Accreted Value thereof plus the Senior Subordinated
Discount Note Applicable Premium as of, and accrued and unpaid Liquidated
Damages, if any, to, the date of redemption (the "Senior Subordinated Discount
Note Redemption Date" and, together with the Senior Subordinated Note
Redemption Date, the "Redemption Dates").
"Senior Subordinated Discount Note Applicable Premium" means, with respect
to any Senior Subordinated Discount Exchange Note on any Senior Subordinated
Discount Note Redemption Date, the greater of (i) 1.0% of the Accreted Value
of such Senior Subordinated Discount Exchange Note or (ii) the excess of (A)
the present value at such Senior Subordinated Discount Note Redemption Date of
(1) the redemption price of such Senior Subordinated Discount Exchange Note at
December 15, 2002 (such redemption price being set forth in the table above)
plus (2) all Accreted Value on such Senior Subordinated Discount Exchange Note
through December 15, 2002, computed using a discount rate equal to the
Treasury Rate at such Senior Subordinated Discount Note Redemption Date plus
75 basis points over (B) the Accreted Value of such Senior Subordinated
Discount Exchange Note as of the Senior Subordinated Discount Note Redemption
Date, if greater.
SELECTION AND NOTICE. If less than all of the Notes of either series are to
be redeemed at any time, selection of Exchange Notes for redemption will be
made by the applicable Trustee from among the Exchange Notes of such series
that are then outstanding in compliance with the requirements of the principal
national securities exchange, if any, on which the Exchange Notes are listed,
or, if the Exchange Notes are not so listed, on a pro rata basis, by lot or by
such method as the applicable Trustee shall deem fair and appropriate;
provided that no Exchange Notes of $1,000 or less shall be redeemed in part.
Notices of redemption shall be mailed by first class mail at least 30 but not
more than 60 days before the redemption date to each Holder of Exchange Notes
to be redeemed at its registered address. Notices of redemption may not be
conditional. If any Exchange Note is to be redeemed in part only, the notice
of redemption that relates to such Exchange Note shall state the portion of
the principal amount thereof to be redeemed. A new Exchange Note in principal
amount equal to the unredeemed portion thereof will be issued in the name of
the Holder thereof upon cancellation of the original Exchange Note. Exchange
Notes called for redemption become due on the date fixed for redemption. On
and after the redemption date, interest ceases to accrue on Exchange Notes or
portions of them called for redemption.
MANDATORY REDEMPTION
The Company is not required to make mandatory redemption or sinking fund
payments with respect to the Exchange Notes.
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<PAGE>
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder of Exchange Notes
will have the right to require the Company to repurchase all or any part
(equal to $1,000 or an integral multiple thereof) of such Holder's Exchange
Notes pursuant to the offer described below (the "Change of Control Offer") at
an offer price in cash (the "Change of Control Payment") equal to 101% of the
aggregate principal amount thereof plus accrued and unpaid interest and
Liquidated Damages thereon, if any, to the date of purchase (or, with respect
to the Senior Subordinated Discount Exchange Notes, if such Change of Control
Offer is prior to the Full Accretion Date, 101% of the Accreted Value thereof
on the date of repurchase, plus accrued and unpaid Liquidated Damages, if any,
thereon to the date of repurchase). Within ten days following any Change of
Control, the Company will mail a notice to each Holder describing the
transaction or transactions that constitute the Change of Control and offering
to repurchase Exchange Notes on the date specified in such notice, which date
shall be no earlier than 30 days and no later than 60 days from the date such
notice is mailed (the "Change of Control Payment Date"), pursuant to the
procedures required by the applicable Indenture and described in such notice.
The Company will comply with the requirements of Rule 14e-1 under the Exchange
Act and any other securities laws and regulations thereunder to the extent
such laws and regulations are applicable in connection with the repurchase of
the Exchange Notes as a result of a Change of Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (1) accept for payment all Exchange Notes or portions thereof properly
tendered pursuant to the Change of Control Offer, (2) deposit with the Paying
Agent an amount equal to the Change of Control Payment in respect of all
Exchange Notes or portions thereof so tendered and (3) deliver or cause to be
delivered to the applicable Trustee the Exchange Notes so accepted together
with an Officers' Certificate stating the aggregate principal amount of
Exchange Notes or portions thereof being purchased by the Company. The Paying
Agent will promptly mail to each Holder of Exchange Notes so tendered the
Change of Control Payment for such Exchange Notes, and the applicable Trustee
will promptly authenticate and mail (or cause to be transferred by book entry)
to each Holder a new Exchange Note equal in principal amount to any
unpurchased portion of the Exchange Notes surrendered, if any; provided that
each such new Exchange Note will be in a principal amount of $1,000 or an
integral multiple thereof. The Company will publicly announce the results of
the Change of Control Offer on or as soon as practicable after the Change of
Control Payment Date.
The Indentures provide that, prior to the mailing of any notice required by
the applicable Indenture, but in any event within 30 days following any Change
of Control, the Company will (i) repay in full in cash and terminate all
commitments under Indebtedness under the Senior Credit Agreements and all
other Senior Debt the terms of which require repayment upon a Change of
Control or offer to repay in full in cash and terminate all commitments under
all Indebtedness under the Senior Credit Agreements and all other such Senior
Debt and to repay the Indebtedness owed to each lender under the Senior Credit
Agreements that has accepted such offer or (ii) obtain the requisite consents
under the Senior Credit Agreements and all such other Senior Debt to permit
the repurchase of the Notes as provided above. The Company shall first comply
with this covenant before it shall be required to repurchase Exchange Notes
pursuant to the provisions described in the applicable Indenture. The
Company's failure to comply with the immediately preceding sentence shall
constitute an Event of Default described in clause (iii) and not in clause
(ii) under "Events of Default" below.
The Senior Credit Agreements restrict the Company's ability to prepay debt,
including the Exchange Notes, and also provide that certain change of control
events with respect to the Company would constitute a default thereunder. Any
future credit agreements or other agreements relating to Senior Debt to which
the Company becomes a party may contain similar restrictions and provisions.
In the event a Change of Control occurs at a time when the Company is
prohibited from purchasing
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<PAGE>
Exchange Notes, the Company could seek the consent of its lenders to the
purchase of Exchange Notes or could attempt to refinance the borrowings that
contain such prohibition. If the Company does not obtain such a consent or
repay such borrowings, the Company will remain prohibited from purchasing
Exchange Notes. In such case, the Company's failure to purchase tendered
Exchange Notes would constitute an Event of Default under the Indentures which
would, in turn, constitute a default under the Senior Credit Agreements. In
such circumstances, the subordination provisions in the Indentures would
likely restrict payments to the Holders of Exchange Notes.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the applicable Indenture are applicable. Except
as described above with respect to a Change of Control, the applicable
Indenture does not contain provisions that permit the Holders of the Notes to
require that the Company repurchase or redeem the Exchange Notes in the event
of a takeover, recapitalization or similar transaction.
The Company will not be required to make a Change of Control Offer upon a
Change of Control (i) if a third party makes the Change of Control Offer in
the manner, at the times and otherwise in compliance with the requirements set
forth in the applicable Indenture applicable to a Change of Control Offer made
by the Company and purchases all Exchange Notes validly tendered and not
withdrawn under such Change of Control Offer or (ii) the Company exercises its
option to purchase all the Exchange Notes upon a Change of Control as
described above under the caption "Optional Redemption".
"Change of Control" means the occurrence of one or more of the following
events: (i) any sale, lease, exchange or other transfer (in one transaction or
a series of related transactions) of all or substantially all of the assets of
the Company to any Person or group of related Persons, as defined in Section
13(d) of the Exchange Act (a "Group"), whether or not otherwise in compliance
with the provisions of the applicable Indenture, other than Bain Capital, Inc.
and its Related Parties; (ii) the approval by the holders of Capital Stock of
the Company of any plan or proposal for the liquidation or dissolution of the
Company (whether or not otherwise in compliance with the provisions of the
applicable Indenture); (iii) any Person or Group (other than Bain Capital,
Inc. and its Related Parties) shall become the owner, directly or indirectly,
beneficially or of record, of shares representing more than 50% of the
aggregate ordinary voting power represented by the issued and outstanding
Voting Stock of Parent or any successor to all or substantially all of its
assets; (iv) the first day on which a majority of the members of the Board of
Directors of the Company or Parent are not Continuing Directors; or (v) the
first day on which Parent ceases to hold 100% of the outstanding Equity
Interests of the Company (other than as a result of a Merger of the Company
and Parent permitted by the applicable Indenture).
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company and its Subsidiaries taken as a whole. Although
there is a developing body of case law interpreting the phrase "substantially
all", there is no precise established definition of the phrase under
applicable law. Accordingly, the ability of a Holder of Exchange Notes to
require the Company to repurchase such Exchange Notes as a result of a sale,
lease, transfer, conveyance or other disposition of less than all of the
assets of the Company and its Subsidiaries taken as a whole to another Person
or group may be uncertain.
"Continuing Directors" means, as of any date of determination, any member of
the Board of Directors of the Company who (i) was a member of such Board of
Directors on the date of the Indentures or (ii) was nominated for election or
elected to such Board of Directors by any of the Principals or with the
approval of a majority of the Continuing Directors who were members of such
Board at the time of such nomination or election.
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<PAGE>
"Principals" means the Parent, Bain Capital, Inc. and any other stockholder
of Parent that owns at least 10% of the outstanding Equity Interests of Parent
as of the date of issuance of the Exchange Notes.
"Related Party" with respect to any Principal means (A) any controlling
stockholder, 80% (or more) owned Subsidiary, or spouse or immediate family
member (in the case of an individual) of such Principal or (B) any trust,
corporation, partnership or other entity, the beneficiaries, stockholders,
partners, owners or Persons beneficially holding an 80% or more controlling
interest of which consist of such Principal and/or such other Persons referred
to in the immediately preceding clause (A).
ASSET SALES
The Indentures provide that the Company will not, and will not permit any of
its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the
Company or the applicable Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the fair market
value of the assets sold or otherwise disposed of (as determined in good faith
by the Company's Board of Directors), (ii) at least 75% of the consideration
received by the Company or the Restricted Subsidiary, as the case may be, from
such Asset Sale shall be cash or Cash Equivalents; provided that the amount of
(a) any liabilities (as shown on the Company's or such Restricted Subsidiary's
most recent balance sheet) of the Company or any such Restricted Subsidiary
(other than liabilities that are by their terms subordinated to the Exchange
Notes) that are assumed by the transferee of any such assets, (b) any notes or
other obligations received by the Company or any such Restricted Subsidiary
from such transferee that are immediately converted by the Company or such
Restricted Subsidiary into cash (to the extent of the cash received) and (c)
any Designated Noncash Consideration received by the Company or any of its
Restricted Subsidiaries in such Asset Sale having an aggregate fair market
value, taken together with all other Designated Noncash Consideration received
pursuant to this clause (c) that is at that time outstanding, not to exceed
10% of Total Assets
at the time of the receipt of such Designated Noncash Consideration (with the
fair market value of each item of Designated Noncash Consideration being
measured at the time received and without giving effect to subsequent changes
in value), shall be deemed to be cash for the purposes of this provision, and
(iii) upon the consummation of an Asset Sale, the Company shall apply, or
cause such Restricted Subsidiary to apply, the Net Cash Proceeds relating to
such Asset Sale within 365 days of receipt thereof either (A) to repay any
Senior Debt and, in the case of any Senior Debt under any revolving credit
facility, effect a commitment reduction under such revolving credit facility,
(B) to reinvest in Productive Assets, or (C) a combination of prepayment,
repurchase and investment permitted by the foregoing clauses (iii)(A) and
(iii)(B). Pending the final application of any such Net Cash Proceeds, the
Company or such Restricted Subsidiary may temporarily reduce Indebtedness
under a revolving credit facility, if any, or otherwise invest such Net Cash
Proceeds in Cash Equivalents. On the 366th day after an Asset Sale or such
earlier date, if any, as the Board of Directors of the Company or of such
Restricted Subsidiary determines not to apply the Net Cash Proceeds relating
to such Asset Sale as set forth in clauses (iii)(A), (iii)(B) or (iii)(C) of
the next preceding sentence (each, a "Net Proceeds Offer Trigger Date"), the
aggregate amount of Net Cash Proceeds that have not been applied on or before
such Net Proceeds Offer Trigger Date as permitted in clauses (iii)(A),
(iii)(B) and (iii)(C) of the next preceding sentence (each a "Net Proceeds
Offer Amount") shall be applied by the Company or such Restricted Subsidiary
to make an offer to purchase (the "Net Proceeds Offer") on a date (the "Net
Proceeds Offer Payment Date") not less than 30 nor more than 45 days following
the applicable Net Proceeds Offer Trigger Date, from all Holders on a pro rata
basis that amount of Exchange Notes equal to the Net Proceeds Offer Amount at
a price equal to 100% of the principal amount of the Exchange Notes to be
purchased, plus accrued and unpaid interest and Liquidated Damages thereon, if
any, to the date of purchase (or, if such Net Proceeds Offer is to be
consummated prior to the Full Accretion Date, 100% of the Accreted Value of
Senior Subordinated Discount Exchange Notes, plus accrued and unpaid
liquidated damages thereon, if any, to the date of purchase); provided,
however, that if at any time any non-cash consideration (including any
Designated Noncash Consideration)
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received by the Company or any Restricted Subsidiary of the Company, as the
case may be, in connection with any Asset Sale is converted into or sold or
otherwise disposed of for cash (other than interest received with respect to
any such non-cash consideration), then such conversion or disposition shall be
deemed to constitute an Asset Sale hereunder and the Net Cash Proceeds thereof
shall be applied in accordance with this covenant.
Notwithstanding the foregoing, if a Net Proceeds Offer Amount is less than
$10.0 million, the application of the Net Cash Proceeds constituting such Net
Proceeds Offer Amount to a Net Proceeds Offer may be deferred until such time
as such Net Proceeds Offer Amount plus the aggregate amount
of all Net Proceeds Offer Amounts arising subsequent to the Net Proceeds Offer
Trigger Date relating to such initial Net Proceeds Offer Amount from all Asset
Sales by the Company and its Restricted Subsidiaries aggregates at least $10.0
million, at which time the Company or such Restricted Subsidiary shall apply
all Net Cash Proceeds constituting all Net Proceeds Offer Amounts that have
been so deferred to make a Net Proceeds Offer (the first date the aggregate of
all such deferred Net Proceeds Offer Amounts is equal to $10.0 million or more
shall be deemed to be a "Net Proceeds Offer Trigger Date").
Notwithstanding the two immediately preceding paragraphs, the Company and
its Restricted Subsidiaries will be permitted to consummate an Asset Sale
without complying with such paragraphs to the extent (i) at least 75% of the
consideration for such Asset Sale constitutes Productive Assets, cash, Cash
Equivalents and/or Marketable Securities and (ii) such Asset Sale is for fair
market value (as determined in good faith by the Company's Board of
Directors); provided that any consideration not constituting Productive Assets
received by the Company or any of its Restricted Subsidiaries in connection
with any Asset Sale permitted to be consummated under this paragraph shall be
subject to the provisions of the two preceding paragraphs.
Each Net Proceeds Offer will be mailed to the record Holders as shown on the
register of Holders within 25 days following the Net Proceeds Offer Trigger
Date, with a copy to the applicable Trustee, and shall comply with the
procedures set forth in the applicable Indenture. Upon receiving notice of the
Net Proceeds Offer, Holders may elect to tender their Exchange Notes in whole
or in part in integral multiples of $1,000 in exchange for cash. To the extent
Holders properly tender Exchange Notes in an amount exceeding the Net Proceeds
Offer Amount, Exchange Notes of tendering Holders will be purchased on a pro
rata basis (based on amounts tendered). A Net Proceeds Offer shall remain open
for a period of 20 business days or such longer period as may be required by
law. To the extent that the aggregate amount of Exchange Notes tendered
pursuant to a Net Proceeds Offer is less than the Net Proceeds Offer Amount,
the Company may use any remaining Net Proceeds Offer Amount for general
corporate purposes. Upon completion of any such Net Proceeds Offer, the Net
Proceeds Offer Amount shall be reset at zero.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Exchange Notes pursuant to a Net Proceeds Offer. To the extent
that the provisions of any securities laws or regulations conflict with the
Asset Sale provisions of the applicable Indenture, the Company shall comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations under the Asset Sale provisions of the
applicable Indenture by virtue thereof.
CERTAIN COVENANTS
RESTRICTED PAYMENTS
The Indentures provide that the Company will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay any
dividend or make any other payment or distribution on account of the Company's
Equity Interests (including, without limitation, any payment in
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connection with any merger or consolidation involving the Company) or to the
direct or indirect holders of the Company's Equity Interests in their capacity
as such (other than dividends or distributions payable in Qualified Capital
Stock of the Company); (ii) purchase, redeem or otherwise acquire or retire
for value (including, without limitation, in connection with any merger or
consolidation involving the Company) any Equity Interests of the Company or
any direct or indirect parent of the Company; or (iii) make any Restricted
Investment (all such payments and other actions set forth in clauses (i)
through (iii) above being collectively referred to as "Restricted Payments"),
unless, at the time of and after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof; and
(b) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made
at the beginning of the applicable Four-Quarter Period, have been permitted
to incur at least $1.00 of additional Indebtedness pursuant to the
Consolidated Fixed Charge Coverage Ratio test set forth in the first
paragraph of the covenant described below under caption "--Incurrence of
Indebtedness and Issuance of Preferred Stock"; and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company and its Restricted
Subsidiaries after the date of the Indentures (excluding Restricted
Payments permitted by clauses (3), (5), (6), (8) and (9) of the next
succeeding paragraph), is less than the sum, without duplication, of (i)
50% of the Consolidated Net Income of the Company for the period (taken as
one accounting period) from the beginning of the first fiscal quarter
commencing after the date of the Indentures to the end of the Company's
most recently ended fiscal quarter for which internal financial statements
are available at the time of such Restricted Payment (or, if such
Consolidated Net Income for such period is a deficit, less 100% of such
deficit), plus (ii) 100% of the aggregate net cash proceeds (including the
fair market value of property other than cash that would constitute
Marketable Securities or a Permitted Business) received by the Company since
the date of the Indentures as a contribution to its common equity capital
(other than from a Subsidiary or that were financed with loans from the
Company or any Restricted Subsidiary) or from the issue or sale of Qualified
Capital Stock (including Capital Stock issued upon the conversion of
convertible Indebtedness or in exchange for outstanding Indebtedness) of the
Company (excluding any net proceeds from an Equity Offering or capital
contribution to the extent used to redeem Exchange Notes in accordance with
the optional redemption provisions of the Exchange Notes) or from the issue
or sale of Disqualified Stock or debt securities of the Company that have
been converted into Qualified Capital Stock (other than Qualified Capital
Stock (or Disqualified Stock or convertible debt securities) sold to a
Subsidiary of the Company), plus (iii) 100% of the aggregate net proceeds
(including the fair market value of property other than cash that would
constitute Marketable Securities or a Permitted Business) of any (A) sale or
other disposition of Restricted Investments made by the Company and its
Restricted Subsidiaries or (B) dividend from, or the sale of the stock of, an
Unrestricted Subsidiary.
Notwithstanding the foregoing, the provisions set forth in the immediately
preceding paragraph do not prohibit (1) the payment of any dividend or the
consummation of any irrevocable redemption within 60 days after the date of
declaration of such dividend or notice of such redemption if the dividend or
payment of the redemption price, as the case may be, would have been permitted
on the date of declaration or notice; (2) if no Event of Default shall have
occurred and be continuing or shall occur as a consequence thereof, the
acquisition of any shares of Capital Stock of the Company (the "Retired
Capital Stock"), either (i) solely in exchange for shares of Qualified Capital
Stock of the Company (the "Refunding Capital Stock"), or (ii) through the
application of the net proceeds of a substantially concurrent sale for cash
(other than to a Subsidiary of the Company) of shares of Qualified Capital
Stock of the Company, and, in the case of subclause (i) of this clause (2), if
immediately prior to the
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retirement of the Retired Capital Stock the declaration and payment of
dividends thereon was permitted under clause (3) of this paragraph, the
declaration and payment of dividends on the Refunding Capital Stock in an
aggregate amount per year no greater than the aggregate amount of dividends
per annum that was declarable and payable on such Retired Capital Stock
immediately prior to such retirement; provided that at the time of the
declaration of any such dividends on the Refunding Capital Stock, no Default
or Event of Default shall have occurred and be continuing or would occur as a
consequence thereof; (3) if no Default or Event of Default shall have occurred
and be continuing or would occur as a consequence thereof, the declaration and
payment of dividends to holders of any class or series of Designated Preferred
Stock (other than Disqualified Stock) issued after the date of the Indentures
(including, without limitation, the declaration and payment of dividends on
Refunding Capital Stock in excess of the dividends declarable and payable
thereon pursuant to clause (2) of this paragraph); provided that, at the time
of such issuance, the Company, after giving effect to such issuance on a pro
forma basis, would have had a Consolidated Fixed Charge Coverage Ratio of at
least 2.0 to 1.0 for the most recent Four-Quarter Period; (4) payments to
Parent for the purpose of permitting, and in an amount equal to the amount
required to permit, Parent to redeem or repurchase Parent's common equity or
options in respect thereof, in each case in connection with the repurchase
provisions of employee stock option or stock purchase agreements or other
agreements to compensate management employees; provided that all such
redemptions or repurchases pursuant to this clause (4) shall not exceed $12.5
million (which amount shall be increased by the amount of any net cash
proceeds received from the sale since the date of the Indentures of Equity
Interests (other than Disqualified Stock) to members of the Company's
management team that have not otherwise been applied to the payment of
Restricted Payments pursuant to the terms of the preceding paragraph (c) and
by the cash proceeds of any "key-man" life insurance policies which are used
to make such redemptions or repurchases) in the aggregate since the date of
the Indentures; provided, further, that the cancellation of Indebtedness owing
to the Company from members of management of the Company or any of its
Restricted Subsidiaries in connection with such a repurchase of Capital Stock
of Parent will not be deemed to constitute a Restricted Payment under the
Indentures; (5) the making of distributions, loans or advances to Parent in an
amount not to exceed $1.5 million per annum in order to permit Parent to pay
the ordinary operating expenses of Parent (including, without limitation,
directors' fees, indemnification obligations, professional fees and expenses,
but excluding any payments on or repurchases of the Seller Note); (6) payments
to Parent in respect of taxes pursuant to the terms of the Tax Allocation
Agreement as in effect on the date of the Indenture and as amended from time
to time pursuant to amendments that do not increase the amounts payable by the
Company or any of its Restricted Subsidiaries thereunder; (7) if no Default or
Event of Default shall have occurred and be continuing or would occur as a
consequence thereof and the Company would be permitted to incur at least $1.00
of additional Indebtedness (other than Permitted Indebtedness) in compliance
with the covenant described below under the caption "--Incurrence of
Indebtedness and Issuance of Preferred Stock", other Restricted Payments in an
aggregate amount not to exceed $12.5 million since the date of the Indentures;
(8) repurchases of Capital Stock deemed to occur upon the exercise of stock
options if such Capital Stock represents a portion of the exercise price
thereof; and (9) distributions to Parent to fund the Transactions (as
described under "Use of Proceeds") and payments with respect to Parent Notes
whether made at or subsequent to the Closing.
In determining the aggregate amount of Restricted Payments made subsequent
to the date of the Indentures in accordance with clause (c) of the immediately
preceding paragraph, (a) amounts expended pursuant to clauses (1), (2), (4),
and (7) shall be included in such calculation; provided such expenditures
pursuant to clause (4) shall not be included to the extent of the cash
proceeds received by the Company from any "key man" life insurance policies
and (b) amounts expended pursuant to clauses (3), (5), (6), (8) or (9) shall
be excluded from such calculation.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default. For
purposes of making such determination, all
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outstanding Investments by the Company and its Restricted Subsidiaries (except
to the extent repaid in cash) in the Subsidiary so designated will be deemed
to be Restricted Payments at the time of such designation and will reduce the
amount available for Restricted Payments under the first paragraph of this
covenant. All such outstanding Investments will be deemed to constitute
Investments in an amount equal to the fair market value of such Investments at
the time of such designation. Such designation will only be permitted if such
Restricted Payment would be permitted at such time and if such Restricted
Subsidiary otherwise meets the definition of an Unrestricted Subsidiary.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by the Company or such
Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
The Indentures provide that the Company will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "incur") any
Indebtedness and that the Company will not issue any Disqualified Stock and
will not permit any of its Restricted Subsidiaries to issue any shares of
preferred stock; provided, however, that the Company may incur Indebtedness or
issue shares of Disqualified Stock if (i) no Default or Event of Default shall
have occurred and be continuing at the time or as a consequence of the
incurrence of any such Indebtedness or the issuance of any such Disqualified
Stock and (ii) the Consolidated Fixed Charge Coverage Ratio for the Company's
most recently ended Four-Quarter Period would have been at least 2.0 to 1.0,
determined on a pro forma basis (including a pro forma application of the net
proceeds therefrom), as if the additional Indebtedness had been incurred, or
the Disqualified Stock had been issued, at the beginning of such Four-Quarter
Period.
The provisions of the first paragraph of this covenant do not apply to the
incurrence of any of the following items of Indebtedness (collectively,
"Permitted Indebtedness"):
(i) the Exchange Notes and the Note Guarantees thereof;
(ii) Indebtedness incurred pursuant to one or more Credit Facilities in
an aggregate principal amount at any time outstanding (with letters of
credit being deemed to have a principal amount equal to the maximum
potential liability of the Company and its Subsidiaries thereunder) not to
exceed $550.0 million less (A) the aggregate amount of Indebtedness of
Securitization Entities at the time outstanding less (B) the amount of all
optional or mandatory principal payments actually made by the Company or
any of its Restricted Subsidiaries since the date of the Indentures in
respect of term loans under Credit Facilities (excluding any such payments
to the extent refinanced at the time of payment under a Credit Facility)
and (C) further reduced by any repayments of revolving credit borrowings
under Credit Facilities that are accompanied by a corresponding commitment
reduction thereunder; provided that the amount of Indebtedness permitted to
be incurred pursuant to the Senior Credit Agreements in accordance with
this clause (ii) shall be in addition to any Indebtedness permitted to be
incurred pursuant to the Senior Credit Agreements in reliance on, and in
accordance with, clauses (x) and (xvi) below;
(iii) the incurrence of Indebtedness and/or the issuance of Permitted
Foreign Subsidiary Preferred Stock by Foreign Subsidiaries of the Company,
which together with the aggregate principal amount of Indebtedness incurred
pursuant to this clause (iii) and the aggregate liquidation value of all
Permitted Foreign Subsidiary Preferred Stock issued pursuant to this clause
(iii), does not exceed $15.0 million at any one time outstanding; provided
that such amount shall increase to $30.0 million upon the consummation of
an Initial Public Offering;
(iv) other Indebtedness of the Company and its Subsidiaries outstanding
on the date of the Indentures for so long as such Indebtedness remains
outstanding;
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(v) Interest Swap Obligations of the Company covering Indebtedness of the
Company; provided that any Indebtedness to which any such Interest Swap
Obligations correspond is otherwise permitted to be incurred under the
applicable Indenture; and provided, further, that such Interest Swap
Obligations are entered into, in the judgment of the Company, to protect
the Company from fluctuation in interest rates on its outstanding
Indebtedness;
(vi) Indebtedness of the Company under Currency Agreements;
(vii) the incurrence by the Company or any of its Restricted Subsidiaries
of intercompany Indebtedness between or among the Company and any of its
Restricted Subsidiaries; provided, however, that (i) if the Company is the
obligor on such Indebtedness, such Indebtedness is expressly subordinated
to the prior payment in full in cash of all Obligations with respect to the
Notes and (ii)(A) any subsequent issuance or transfer of Equity Interests
that results in any such Indebtedness being held by a Person other than the
Company or a Subsidiary thereof and (B) any sale or other transfer of any
such Indebtedness to a Person that is not either the Company or a
Restricted Subsidiary thereof shall be deemed, in each case, to constitute
an incurrence of such Indebtedness by the Company or such Restricted
Subsidiary, as the case may be, that was not permitted by this clause
(vii);
(viii) the incurrence of Acquired Indebtedness of Restricted Subsidiaries
of the Company to the extent the Company could have incurred such
Indebtedness in accordance with the first paragraph of this covenant on the
date such Indebtedness became Acquired Indebtedness;
(ix) Guarantees by the Company and the Guarantors of each other's
Indebtedness; provided that such Indebtedness is permitted to be incurred
under the applicable Indenture;
(x) Indebtedness (including Capitalized Lease Obligations) incurred by
the Company or any of its Restricted Subsidiaries to finance the purchase,
lease or improvement of property (real or personal) or equipment (whether
through the direct purchase of assets or the Capital Stock of any Person
owning such assets) in an aggregate principal amount outstanding not to
exceed 5% of Total Assets at the time of any incurrence thereof (including
any Refinancing Indebtedness with respect thereto) (which amount may, but
need not, be incurred in whole or in part under the Senior Credit
Agreements);
(xi) Indebtedness incurred by the Company or any of its Restricted
Subsidiaries constituting reimbursement obligations with respect to letters
of credit issued in the ordinary course of business, including, without
limitation, letters of credit in respect of workers' compensation claims or
self-insurance, or other Indebtedness with respect to reimbursement type
obligations regarding workers' compensation claims;
(xii) Indebtedness arising from agreements of the Company or a Restricted
Subsidiary of the Company providing for indemnification, adjustment of
purchase price, earn out or other similar obligations, in each case,
incurred or assumed in connection with the disposition of any business,
assets or a Restricted Subsidiary of the Company, other than guarantees of
Indebtedness incurred by any Person acquiring all or any portion of such
business, assets or Restricted Subsidiary for the purpose of financing such
acquisition; provided that the maximum assumable liability in respect of
all such Indebtedness shall at no time exceed the gross proceeds actually
received by the Company and its Restricted Subsidiaries in connection with
such disposition;
(xiii) obligations in respect of performance and surety bonds and
completion guarantees provided by the Company or any Restricted Subsidiary
of the Company in the ordinary course of business;
(xiv) any refinancing, modification, replacement, renewal, restatement,
refunding, deferral, extension, substitution, supplement, reissuance or
resale of existing or future Indebtedness (other than intercompany
Indebtedness), including any additional Indebtedness incurred to pay
interest or premiums required by the instruments governing such existing or
future Indebtedness as in
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effect at the time of issuance thereof ("Required Premiums") and fees in
connection therewith ("Refinancing Indebtedness"); provided that any such
event shall not (1) directly or indirectly result in an increase in the
aggregate principal amount of Permitted Indebtedness (except to the extent
such increase is a result of a simultaneous incurrence of additional
Indebtedness (A) to pay Required Premiums and related fees or (B) otherwise
permitted to be incurred under the applicable Indenture) of the Company and
its Restricted Subsidiaries and (2) create Indebtedness with a Weighted
Average Life to Maturity at the time such Indebtedness is incurred that is
less than the Weighted Average Life to Maturity at such time of the
Indebtedness being refinanced, modified, replaced, renewed, restated,
refunded, deferred, extended, substituted, supplemented, reissued or resold
(except that this subclause (2) will not apply in the event the
Indebtedness being refinanced, modified, replaced, renewed, restated,
refunded, deferred, extended, sub- stituted, supplemented, reissued or
resold was originally incurred in reliance upon clause (xvi) of this
paragraph);
(xv) the incurrence by a Securitization Entity of Indebtedness in a
Qualified Securitization Transaction that is Non-Recourse Debt with respect
to the Company and its other Restricted Subsidiaries (except for Standard
Securitization Undertakings);
(xvi) the incurrence of additional Indebtedness by the Company or any of
its Restricted Subsidiaries and/or the issuance of Permitted Domestic
Subsidiary Preferred Stock by the Company's U.S. Subsidiaries, which
together with the aggregate principal amount of other Indebtedness incurred
pursuant to this clause (xvi) and the aggregate liquidation value of all
other Permitted Domestic Subsidiary Preferred Stock issued pursuant to this
clause (xvi), does not exceed $30.0 million at any one time outstanding
(which amount, in the case of Indebtedness, may, but need not, be incurred
in whole or in part under the Senior Credit Agreements); provided that such
amount shall increase to $50.0 million upon the consummation of an Initial
Public Offering.
For purposes of determining compliance with this covenant, in the event that
an item of Indebtedness meets the criteria of more than one of the categories
of Permitted Indebtedness described in clauses (i) through (xvi) above or is
entitled to be incurred pursuant to the first paragraph of this covenant, the
Company shall, in its sole discretion, classify such item of Indebtedness in
any manner that complies with this covenant. Accrual of interest, accretion or
amortization of original issue discount, the payment of interest on any
Indebtedness in the form of additional Indebtedness with the same terms, and
the payment of dividends on Disqualified Stock in the form of additional
shares of the same class of Disqualified Stock will not be deemed to be an
incurrence of Indebtedness or an issuance of Disqualified Stock for purposes
of this covenant; provided, in each such case, that the amount thereof is
included in Consolidated Fixed Charges of the Company as accrued.
NO SENIOR SUBORDINATED DEBT
The Indentures provide that (i) the Company will not incur, create, issue,
assume, Guarantee or otherwise become liable for any Indebtedness that is
subordinate or junior in right of payment to any Senior Debt and senior in any
respect in right of payment to the Notes, and (ii) no Subsidiary Guarantor
will incur, create, issue, assume, guarantee or otherwise become liable for
any Indebtedness that is subordinate or junior in right of payment to any
Senior Debt of any Subsidiary Guarantor and senior in any respect in right of
payment to the Note Guarantees.
LIENS
The Company will not, and will not permit any of its Restricted Subsidiaries
to, create, incur, assume or suffer to exist any Liens of any kind against or
upon any of its property or assets, or any proceeds therefrom, unless (i) in
the case of Liens securing Indebtedness that is expressly subordinate or
junior in right of payment to the Exchange Notes, the Exchange Notes are
secured by a Lien on such property, assets or proceeds that is senior in
priority to such Liens and (ii) in all other cases, the
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Exchange Notes are equally and ratably secured, except for (A) Liens existing
as of the date of the Indentures and any extensions, renewals or replacements
thereof, (B) Liens securing Senior Debt, (C) Liens securing the Exchange
Notes, (D) Liens securing intercompany Indebtedness of the Company or a
Restricted Subsidiary of the Company on assets of any Subsidiary of the
Company, (E) Liens securing Indebtedness that is incurred to refinance
Indebtedness that was secured by a Lien permitted under the applicable
Indenture that was incurred in accordance with the provisions of the
applicable Indenture; provided, however, that such Liens do not extend to or
cover any property or assets of the Company or any of its Restricted
Subsidiaries not securing the Indebtedness so refinanced, and (F) Permitted
Liens.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES
The Company will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, create or otherwise cause or permit to exist or
become effective any consensual encumbrance or consensual restriction on the
ability of any Restricted Subsidiary to (a) pay dividends or make any other
distributions on or in respect of its Capital Stock, (b) make loans or
advances or to pay any Indebtedness or other obligation owed to the Company or
any other Restricted Subsidiary of the Company or (c) transfer any of its
property or assets to the Company or any other Restricted Subsidiary of the
Company, except for such encumbrances or restrictions existing under or by
reason of: (1) applicable law; (2) the Indentures; (3) non-assignment provisions
of any contract or any lease entered into in the ordinary course of business;
(4) any instrument governing Acquired Indebtedness, which encumbrance or
restriction is not applicable to any Person, or the properties or assets of any
Person, other than the Person or the properties or assets of the Person so
acquired; (5) agreements existing on the date of the Indentures (including,
without limitation, the Senior Credit Agreements and the Parent Note Indenture);
(6) restrictions on the transfer of assets subject to any Lien permitted under
the applicable Indenture imposed by the holder of such Lien; (7) restrictions
imposed by any agreement to sell assets or Capital Stock permitted under the
applicable Indenture to any Person pending the closing of such sale; (8) any
agreement or instrument governing Capital Stock of any Person that is in effect
on the date such Person is acquired by the Company or a Restricted Subsidiary of
the Company; (9) any Purchase Money Note, or other Indebtedness or other
contractual requirements of a Securitization Entity in connection with a
Qualified Securitization Transaction; provided that such restrictions apply only
to such Securitization Entity; (10) any agreement or instrument governing
Indebtedness or Permitted Foreign Subsidiary Preferred Stock (whether or not
outstanding) of Foreign Subsidiaries of the Company that was permitted by the
applicable Indenture to be incurred; (11) other Indebtedness or Domestic
Subsidiary Preferred Stock permitted to be incurred subsequent to the date of
the Indentures pursuant to the provisions of the covenant described above under
the caption "--Incurrence of Additional Indebtedness and Issuance of Preferred
Stock"; provided that any such restrictions are ordinary and customary with
respect to the type of Indebtedness or preferred stock being incurred or issued
(under the relevant circumstances); (12) restrictions on cash or other deposits
or net worth imposed by customers under contracts entered into in the ordinary
course of business; and (13) any encumbrances or restrictions imposed by any
amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings of the contracts, instruments or
obligations referred to in clauses (1) through (12) above; provided that such
amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings are, in the good faith judgment of the
Company's Board of Directors, no more restrictive with respect to such dividend
and other payment restrictions than those contained in the dividend or other
payment restrictions prior to such amendment, modification, restatement,
renewal, increase, supplement, refunding, replacement or refinancing.
MERGER, CONSOLIDATION, OR SALE OF ASSETS
The Indentures provide that the Company may not consolidate or merge with or
into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially
all of its properties or assets in one or more related transactions, to
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another corporation, Person or entity unless (i) the Company is the surviving
corporation or the entity or the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the United
States, any state thereof or the District of Columbia; (ii) the entity or
Person formed by or surviving any such consolidation or merger (if other than
the Company) or the entity or Person to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made assumes all the
obligations of the Company under the Registration Rights Agreement, the
Exchange Notes and the Indentures pursuant to supplemental indentures in forms
reasonably satisfactory to the applicable Trustee; (iii) immediately after
such transaction no Default or Event of Default exists; and (iv) except in the
case of a merger of the Company with or into a Wholly Owned Subsidiary of the
Company and except in the case of a merger entered into solely for the purpose
of reincorporating the Company in another jurisdiction, the Company or the
entity or Person formed by or surviving any such consolidation or merger (if
other than the Company), or to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made will, at the time of such
transaction and after giving pro forma effect thereto as if such transaction
had occurred at the beginning of the applicable Four-Quarter Period, be
permitted to incur at least $1.00 of additional Indebtedness pursuant to the
Consolidated Fixed Charge Coverage Ratio test set forth in the first paragraph
of the covenant described above under the caption "--Incurrence of
Indebtedness and Issuance of Preferred Stock".
TRANSACTIONS WITH AFFILIATES
The Company will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, enter into or permit to occur any transaction or
series or related transactions (including, without limitation, the purchase,
sale, lease or exchange of any property or the rendering of any service) with,
or for the benefit of, any of its Affiliates involving aggregate consideration
in excess of $2.5 million (an "Affiliate Transaction"), other than (x)
Affiliate Transactions permitted under paragraph (b) below and (y) Affiliate
Transactions on terms that are not materially less favorable than those that
might reasonably have been obtained in a comparable transaction at such time
on an arm's-length basis from a Person that is not an Affiliate of the
Company; provided, however, that for a transaction or series of related
transactions with an aggregate value of $7.5 million or more, at the Company's
option, either (i) a majority of the disinterested members of the Board of
Directors of the Company shall determine in good faith that such Affiliate
Transaction is on terms that are not materially less favorable than those that
might reasonably have been obtained in a comparable transaction at such time
on an arm's-length basis from a Person that is not an Affiliate of the Company
or (ii) the Board of Directors of the Company or any such Restricted
Subsidiary party to such Affiliate Transaction shall have received an opinion
from a nationally recognized investment banking firm that such Affiliate
Transaction is on terms not materially less favorable than those that might
reasonably have been obtained in a comparable transaction at such time on an
arm's-length basis from a Person that is not an Affiliate of the Company; and
provided, further, that for an Affiliate Transaction with an aggregate value
of $10.0 million or more the Board of Directors of the Company or any such
Restricted Subsidiary party to such Affiliate Transaction shall have received
an opinion from a nationally recognized investment banking firm that such
Affiliate Transaction is on terms not materially less favorable than those
that might reasonably have been obtained in a comparable transaction at such
time on an arm's-length basis from a Person that is not an Affiliate of the
Company.
The foregoing restrictions shall not apply to (i) reasonable fees and
compensation paid to and indemnity provided on behalf of, officers, directors,
employee or consultants of the Company or any Subsidiary as determined in good
faith by the Company's Board of Directors or senior management; (ii)
transactions exclusively between or among the Company and any of its
Restricted Subsidiaries or exclusively between or among such Restricted
Subsidiaries, provided such transactions are not otherwise prohibited by the
applicable Indenture; (iii) transactions effected as part of a Qualified
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Securitization Transaction; (iv) any agreement as in effect as of the date of
the Indentures or any amendment or replacement thereto or any transaction
contemplated thereby (including pursuant to any amendment or replacement
thereto) so long as any such amendment or replacement agreement is not more
disadvantageous to the Holders in any material respect than the original
agreement as in effect on the date of the Indentures; (v) Restricted Payments
permitted by the applicable Indenture; (vi) the payment of customary annual
management, consulting and advisory fees and related expenses to the
Principals and their Affiliates made pursuant to any financial advisory,
financing, underwriting or placement agreement or in respect of other
investment banking activities, including, without limitation, in connection
with acquisitions or divestitures which are approved by the Board of Directors
of the Company or such Restricted Subsidiary in good faith; (viii) payments or
loans to employees or consultants that are approved by the Board of Directors
of the Company in good faith, (ix) the existence of, or the performance by the
Company or any of its Restricted Subsidiaries of its obligations under the
terms of, any stockholders agreement (including any registration rights
agreement or purchase agreement related thereto) to which it is a party as of
the date of the Indentures and any similar agreements which it may enter into
thereafter; provided, however, that the existence of, or the performance by
the Company or any of its Restricted Subsidiaries of obligations under, any
future amendment to any such existing agreement or under any similar agreement
entered into after the date of the Indentures shall only be permitted by this
clause (ix) to the extent that the terms of any such amendment or new
agreement are not disadvantageous to the Holders of the applicable series of
Notes in any material respect; (x) transactions permitted by, and complying
with, the provisions of the covenant described under "--Merger, Consolidation,
or Sale of Assets"; and (xi) transactions with customers, clients, suppliers,
joint venture partners or purchasers or sellers of goods or services, in each
case in the ordinary course of business (including, without limitation,
pursuant to joint venture agreements) and otherwise in compliance with the
terms of the applicable Indenture which are fair to the Company or its
Restricted Subsidiaries, in the reasonable determination of the Board of
Directors of the Company or the senior management thereof, or are on terms at
least as favorable as might reasonably have been obtained at such time from an
unaffiliated party.
ADDITIONAL NOTE GUARANTEES
The Indentures provide that if the Company or any of its Restricted
Subsidiaries shall acquire or create another U.S. Subsidiary after the date of
the Indentures, or if any Subsidiary becomes a U.S. Subsidiary after the date
of the Indentures, then such newly acquired or created Subsidiary, shall
execute a Note Guarantee and deliver an Opinion of Counsel, in accordance with
the terms of the applicable Indenture; provided, that all Subsidiaries that
have properly been designated as Unrestricted Subsidiaries in accordance with
the applicable Indenture shall not be subject to the requirements of this
covenant for so long as they continue to constitute Unrestricted Subsidiaries.
CONDUCT OF BUSINESS
The Indentures provide that the Company will not, and will not permit any of
its Restricted Subsidiaries to, engage in any businesses a majority of whose
revenues are not derived from the same or reasonably similar, ancillary or
related to, or a reasonable extension, development or expansion of, the
businesses in which the Company and its Restricted Subsidiaries are engaged on
the date of the Indentures.
REPORTS
The Indentures provide that, whether or not required by the rules and
regulations of the Commission, so long as any Notes are outstanding, the
Company will furnish to the Holders of Notes (i) all quarterly and annual
financial information that would be required to be contained in a filing with
the Commission on Forms 10-Q and 10-K if the Company were required to file
such Forms, including a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" that
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describes the financial condition and results of operations of the Company and
its consolidated Subsidiaries (showing in reasonable detail, either on the
face of the financial statements or in the footnotes thereto and in
Management's Discussion and Analysis of Financial Condition and Results of
Operations, the financial condition and results of operations of the Company
and its Restricted Subsidiaries separate from the financial condition and
results of operations of the Unrestricted Subsidiaries of the Company) and,
with respect to the annual information only, a report thereon by the Company's
certified independent accountants and (ii) all current reports that would be
required to be filed with the Commission on Form 8-K if the Company were
required to file such reports, in each case within the time periods specified
in the Commission's rules and regulations. For so long as Parent is a
Guarantor of the Notes, the Indentures will permit the Company to satisfy its
obligations in this covenant with respect to financial information relating to
the Company by furnishing financial information relating to Parent; provided
that the same is accompanied by consolidating information that explains in
reasonable detail the differences between the information relating to Parent,
on the one hand, and the information relating to the Company and its
Restricted Subsidiaries on a stand-alone basis, on the other hand. In
addition, following the consummation of the exchange offer contemplated by the
Registration Rights Agreement, whether or not required by the rules and
regulations of the Commission, the Company will file a copy of all such
information and reports with the Commission for public availability within the
time periods specified in the Commission's rules and regulations (unless the
Commission will not accept such a filing) and make such information available
to securities analysts and prospective investors upon request. In addition,
the Company and the Subsidiary Guarantors have agreed that, for so long as any
Exchange Notes remain outstanding, they will furnish to the Holders and to
securities analysts and prospective investors, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act.
EVENTS OF DEFAULT AND REMEDIES
The following events are defined in the Indentures as "Events of Default":
(i) the failure to pay interest on any Exchange Notes when the same becomes
due and payable if the default continues for a period of 30 days, whether or
not such payment shall be prohibited by the subordination provisions of the
applicable Indenture; (ii) the failure to pay the principal on any Exchange
Notes when such principal becomes due and payable, at maturity, upon
redemption or otherwise (including the failure to make a payment to purchase
Exchange Notes tendered pursuant to a Change of Control Offer or a Net
Proceeds Offer), whether or not such payment shall be prohibited by the
subordination provisions of the applicable Indenture; (iii) a default in the
observance or performance of any other covenant or agreement contained in the
applicable Indenture if the default continues for a period of 30 days after
the Company receives written notice specifying the default (and demanding that
such default be remedied) from the applicable Trustee or the Holders of at
least 25% of the outstanding principal amount of the Exchange Notes of either
series; (iv) the failure to pay at final stated maturity (giving effect to any
extensions thereof) the principal amount of any Indebtedness of the Company or
any Restricted Subsidiary (other than a Securitization Entity), which failure
continues for at least 10 days, or the acceleration of the maturity of any
such Indebtedness, which acceleration remains uncured and unrescinded for at
least 10 days, if the aggregate principal amount of such Indebtedness,
together with the principal amount of any other such Indebtedness in default
for failure to pay principal at final maturity or which has been accelerated,
aggregates $20.0 million or more at any time; (v) one or more judgments in an
aggregate amount in excess of $20.0 million shall have been rendered against
the Company or any of its Significant Subsidiaries and such judgments remain
undischarged, unpaid or unstayed for a period of 60 days after such judgment
or judgments become final and non-appealable; (vi) except as permitted by the
Indenture, any Subsidiary Guarantee shall be held in any judicial proceeding
to be unenforceable or invalid or shall cease for any reason to be in full
force and effect or any Guarantor, or any Person acting on behalf of any
Guarantor shall deny or disaffirm its obligations under its Subsidiary
Guarantee; and (vii) certain events of bankruptcy affecting the Company or any
of its Significant Subsidiaries.
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Upon the happening of any Event of Default specified in the applicable
Indenture, the applicable Trustee or the Holders of at least 25% in principal
amount of outstanding Exchange Notes of either series may declare the
principal of and accrued interest on all the Exchange Notes of such series to
be due and payable by notice in writing to the Company and the applicable
Trustee specifying the respective Event of Default and that such notice is a
"notice of acceleration" (the "Acceleration Notice"), and the same (i) shall
become immediately due and payable or (ii) if there are any amounts
outstanding under either of the Senior Credit Agreements, shall become
immediately due and payable upon the first to occur of an acceleration under
either of the Senior Credit Agreements or five Business Days after receipt by
the Company and the Representative under the applicable Senior Credit
Agreement of such Acceleration Notice but only if such Event of Default is
then continuing. If an Event of Default with respect to bankruptcy proceedings
of the Company occurs and is continuing, then such amount shall ipso facto
become and be immediately due and payable without any declaration or other act
on the part of the applicable Trustee or any Holder of Exchange Notes.
The Indentures provide that, at any time after a declaration of acceleration
with respect to the Exchange Notes as described in the preceding paragraph,
the Holders of a majority in principal amount of either series of Exchange
Notes may rescind and cancel such declaration and its consequences as to such
series (i) if the rescission would not conflict with any judgment or decree,
(ii) if all existing Events of Default have been cured or waived except
nonpayment of principal or interest that has become due solely because of the
acceleration, (iii) to the extent the payment of such interest is lawful,
interest on overdue installments of interest and overdue principal, which has
become due otherwise than by such declaration of acceleration, has been paid,
(iv) if the Company has paid the applicable Trustee its reasonable
compensation and reimbursed the applicable Trustee for its expenses,
disbursements and advances and (v) in the event of the cure or waiver of an
Event of Default of the type described in clause (vi) of the description above
of Events of Default, the applicable Trustee shall have received an Officers'
Certificate and an Opinion of Counsel that such Event of Default has been
cured or waived. The holders of a majority in principal amount of either
series of Exchange Notes may waive any existing Default or Event of Default
under the applicable Indenture, and its consequences, except a default in the
payment of the principal of or interest on any Exchange Notes.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company,
as such, shall have any liability for any obligations of the Company under the
Exchange Notes or the applicable Indenture or for any claim based on, in
respect of, or by reason of, such obligations or their creation. Each Holder
of Exchange Notes by accepting an Exchange Note waives and releases all such
liability. The waiver and release are part of the consideration for issuance
of the Exchange Notes. Such waiver may not be effective to waive liabilities
under the federal securities laws and it is the view of the Commission that
such a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to either class of Exchange Notes ("Legal
Defeasance") except for (i) the rights of Holders of outstanding Exchange
Notes of such series to receive payments in respect of the principal of,
premium, if any, and interest and Liquidated Damages on such series of
Exchange Notes when such payments are due from the trust referred to below,
(ii) the Company's obligations with respect to such Exchange Notes concerning
issuing temporary Exchange Notes, registration of Exchange Notes, mutilated,
destroyed, lost or stolen Exchange Notes and the maintenance of an office or
agency for payment and money for security payments held in trust, (iii) the
rights, powers, trusts, duties and immunities of the applicable Trustees, and
the Company's obligations in connection therewith and (iv) the Legal
Defeasance provisions of the applicable Indenture. In addition, the Company
may, at its option and at any time, elect to have the obligations of the
Company released with respect to certain
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covenants that are described in the applicable Indenture ("Covenant
Defeasance") and thereafter any omission to comply with such obligations shall
not constitute a Default or Event of Default with respect to such series of
Exchange Notes. In the event Covenant Defeasance occurs, certain events (not
including non-payment, bankruptcy, receivership, rehabilitation and insolvency
events) described under "Events of Default" will no longer constitute an Event
of Default with respect to such series of Exchange Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Company must irrevocably deposit with the applicable Trustee, in trust, for
the benefit of the Holders of the applicable series of Exchange Notes, cash in
U.S. dollars, non-callable Government Securities, or a combination thereof, in
such amounts as will be sufficient, in the opinion of a nationally recognized
firm of independent public accountants, to pay the principal of, premium, if
any, interest and Liquidated Damages, if any, on all outstanding Exchange
Notes of the applicable series on the stated maturity or on the applicable
redemption date, as the case may be, and the Company must specify whether such
series of Exchange Notes are being defeased to maturity or to a particular
redemption date; (ii) in the case of Legal Defeasance, the Company shall have
delivered to the applicable Trustee an Opinion of Counsel in the United States
reasonably acceptable to the applicable Trustee confirming that (A) the
Company has received from, or there has been published by, the Internal
Revenue Service a ruling or (B) since the date of the applicable Indenture,
there has been a change in the applicable federal income tax law, in either
case to the effect that, and based thereon such Opinion of Counsel shall
confirm that, the Holders of the outstanding Exchange Notes of such series
will not recognize income, gain or loss for federal income tax purposes as a
result of such Legal Defeasance and will be subject to federal income tax on
the same amounts, in the same manner and at the same times as would have been
the case if such Legal Defeasance had not occurred; (iii) in the case of
Covenant Defeasance, the Company shall have delivered to the applicable
Trustee an Opinion of Counsel in the United States reasonably acceptable to
such Trustee confirming that the Holders of the outstanding Exchange Notes of
such series will not recognize income, gain or loss for federal income tax
purposes as a result of such Covenant Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Covenant Defeasance had not
occurred; (iv) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of
Default resulting from the borrowing of funds to be applied to such deposit)
or insofar as Events of Default from bankruptcy or insolvency events are
concerned, at any time in the period ending on the 91st day after the date of
deposit; (v) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under any material agreement
or instrument (including the applicable Indenture and the Senior Credit
Agreements) (other than a default resulting from the borrowing of funds to be
applied to such deposit) to which the Company or any of its Subsidiaries is a
party or by which the Company or any of its Subsidiaries is bound; (vi) the
Company must have delivered to the applicable Trustee an Opinion of Counsel to
the effect that after the 91st day following the deposit, the trust funds will
not be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally; (vii)
the Company must deliver to the applicable Trustee an Officers' Certificate
stating that the deposit was not made by the Company with the intent of
preferring the Holders of such series of Exchange Notes over the other
creditors of the Company with the intent of defeating, hindering, delaying or
defrauding creditors of the Company or others; and (viii) the Company must
deliver to the applicable Trustee an Officers' Certificate and an Opinion of
Counsel, each stating that all conditions precedent provided for relating to
the Legal Defeasance or the Covenant Defeasance have been complied with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Exchange Notes in accordance with the
applicable Indenture. The applicable Registrar and the applicable Trustee may
require a Holder, among other things, to furnish appropriate endorsements and
transfer documents and the Company may require a Holder to
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pay any taxes and fees required by law or permitted by the applicable
Indenture. The Company is not required to transfer or exchange any Note
selected for redemption. Also, the Company is not required to transfer or
exchange any Exchange Note for a period of 15 days before a selection of
Exchange Notes to be redeemed.
The registered Holder of an Exchange Note will be treated as the owner of it
for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, either of the
Indentures and either class of Exchange Notes may be amended or supplemented
with the consent of the Holders of at least a majority in principal amount of
the Exchange Notes of such series then outstanding (including, without
limitation, consents obtained in connection with a purchase of, or tender
offer or exchange offer for, Exchange Notes of such class), and any existing
default or compliance with any provision of the applicable Indenture or the
Exchange Notes of such class may be waived with the consent of the Holders of
a majority in principal amount of the then outstanding Exchange Notes of such
class (including, without limitation, consents obtained in connection with a
purchase of, or tender offer or exchange offer for, Exchange Notes of such
series).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes of a particular series held by a non-consenting
Holder): (i) reduce the principal amount of Exchange Notes of such series
whose Holders must consent to an amendment, supplement or waiver, (ii) reduce
the principal of or change the fixed maturity of any Exchange Note of a
particular series or alter the provisions with respect to the redemption of
the Exchange Notes of such series (other than provisions relating to the
covenants described above under the caption "--Repurchase at the Option of
Holders"), (iii) reduce the rate of or change the time for payment of interest
on any Exchange Note of such series, (iv) waive a Default or Event of Default
in the payment of principal of or premium, if any, or interest on the Exchange
Notes of such series (except a rescission of acceleration of the Exchange
Notes of such series by the Holders of at least a majority in aggregate
principal amount of the Exchange Notes of such series and a waiver of the
payment default that resulted from such acceleration), (v) make any Exchange
Note of such series payable in money other than that stated in the Exchange
Notes of such series, (vi) make any change in the provisions of the applicable
Indenture relating to waivers of past Defaults or the rights of Holders of
Exchange Notes of such series to receive payments of principal of or premium,
if any, or interest on the Exchange Notes of such series, (vii) waive a
redemption payment with respect to any Exchange Note of such series (other
than a payment required by one of the covenants described above under the
caption "--Repurchase at the Option of Holders") or (viii) make any change in
the foregoing amendment and waiver provisions. In addition, any amendment to
the provisions of Article 10 of the applicable Indenture (which relate to
subordination) will require the consent of the Holders of at least 75% in
aggregate principal amount of the Exchange Notes of such series then
outstanding if such amendment would adversely affect the rights of Holders of
Exchange Notes of such series. Any amendment to the provisions of Article 10
of the applicable Indenture or the related definitions will also require the
consent of the majority of the lenders under each of the Senior Credit
Agreements.
Notwithstanding the foregoing, without the consent of any Holder of Exchange
Notes of a particular class, the Company and the applicable Trustee may amend
or supplement the applicable Indenture or the Exchange Notes of such class to
cure any ambiguity, defect or inconsistency, to provide for uncertificated
Exchange Notes of such class in addition to or in place of certificated
Exchange Notes of such class, to provide for the assumption of the Company's
obligations to Holders of Exchange Notes of such class in the case of a merger
or consolidation or sale of all or substantially all of the Company's assets,
to make any change that would provide any additional rights or benefits to the
Holders of Exchange Notes of such class or that does not adversely affect the
legal rights under
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the applicable Indenture of any such Holder, or to comply with requirements of
the Commission in order to effect or maintain the qualification of the
applicable Indenture under the Trust Indentures Act.
CONCERNING THE TRUSTEES
The Indentures contain certain limitations on the rights of the Trustees,
should either of the Trustees become a creditor of the Company, to obtain
payment of claims in certain cases, or to realize on certain property received
in respect of any such claim as security or otherwise. The Trustees will be
permitted to engage in other transactions; however, if either of the Trustees
acquires any conflicting interest such Trustee must eliminate such conflict
within 90 days, apply to the Commission for permission to continue or resign.
The Holders of a majority in principal amount of the then outstanding
Exchange Notes will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the
applicable Trustee, subject to certain exceptions. The Indentures provide that
in case an Event of Default shall occur (which shall not be cured), the
applicable Trustee will be required, in the exercise of its power, to use the
degree of care of a prudent man in the conduct of his own affairs. Subject to
such provisions, the applicable Trustee will be under no obligation to
exercise any of its rights or powers under the applicable Indenture at the
request of any Holder of Exchange Notes, unless such Holder shall have offered
to the applicable Trustee security and indemnity satisfactory to it against
any loss, liability or expense.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain copies of the Indentures and
Registration Rights Agreement, without charge, by writing to Sealy Mattress
Company, Halle Building, 10th Floor, 1228 Euclid Avenue, Cleveland, Ohio
44115, Attention: General Counsel.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indentures. Reference
is made to the Indentures for a full disclosure of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.
"Accreted Value" means, as of any date of determination prior to the Full
Accretion Date, the sum of (a) the initial offering price of each Senior
Subordinated Discount Exchange Note and (b) the portion of the excess of the
principal amount of each Senior Subordinated Discount Exchange Note over such
initial offering price which shall have been accreted thereon through such
date, such amount to be so accreted on a daily basis at 10 7/8% per annum of
the initial offering price of the Senior Subordinated Discount Exchange Notes,
compounded semi-annually on each June 15 and December 15 from the date of
issuance of the Senior Subordinated Discount Exchange Notes through the date
of determination; provided that, on and after the Full Accretion Date, the
Accreted Value of each Senior Subordinated Discount Exchange Note shall be
equal to the principal amount of such Senior Subordinated Discount Exchange
Note.
"Acquired Indebtedness" means Indebtedness of a Person or any of its
Subsidiaries existing at the time such Person becomes a Restricted Subsidiary
of the Company or that is assumed by the Company or any of its Restricted
Subsidiaries in connection with the acquisition of assets from such Person, in
each case excluding any Indebtedness incurred by such Person in connection
with, or in anticipation or contemplation of, such Person becoming a
Restricted Subsidiary of the Company or such acquisition.
"Affiliate" means a Person who directly or indirectly through one or more
intermediaries controls, or is controlled by, or is under common control with,
the Company. The term "control" means the
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possession directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person whether through the
ownership of voting securities, by contract or otherwise. Notwithstanding the
foregoing, no Person (other than the Company or any Subsidiary of the Company)
in whom a Securitization Entity makes an Investment in connection with a
Qualified Securitization Transaction shall be deemed to be an Affiliate of the
Company or any of its Subsidiaries solely by reason of such Investment.
"all or substantially all" shall have the meaning given such phrase in the
Revised Model Business Corporation Act.
"Asset Acquisition" means (a) an Investment by the Company or any Restricted
Subsidiary of the Company in any other Person if, as a result of such
Investment, such Person shall become a Restricted Subsidiary of the Company,
or shall be merged with or into the Company or any Restricted Subsidiary of
the Company, or (b) the acquisition by the Company or any Restricted
Subsidiary of the Company of all or substantially all of the assets of any
other Person or any division or line of business of any other Person.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, lease (other than operating leases entered into in the ordinary
course of business), assignment or other transfer for value by the Company or
any of its Restricted Subsidiaries to any Person other than the Company or a
Restricted Subsidiary of the Company of (a) any Capital Stock of any
Restricted Subsidiary of the Company or (b) any other property or assets of
the Company or any Restricted Subsidiary of the Company other than in the
ordinary course of business; provided, however, that Asset Sales shall not
include (i) a transaction or series of related transactions for which the
Company or its Restricted Subsidiaries receive aggregate consideration of less
than $1.0 million, (ii) the sale, lease, conveyance, disposition or other
transfer of all substantially all of the assets of the Company as permitted
under the provisions described above under the caption "--Certain Covenants--
Merger, Consolidation and Sale of Assets" or any disposition that constitutes
a Change of Control, (iii) the sale or discount, in each case without
recourse, of accounts receivable arising in the ordinary course of business,
but only in connection with the compromise or collection thereof, (iv) the
factoring of accounts receivable arising in the ordinary course of business
pursuant to arrangements customary in the industry, (v) the licensing of
intellectual property, (vi) disposals or replacements of obsolete,
uneconomical, negligible, worn out or surplus property in the ordinary course
of business, (vii) the sale, lease conveyance, disposition or other transfer
by the Company or any Restricted Subsidiary of assets or property to one or
more Restricted Subsidiaries in connection with Investments permitted by the
covenant described under the caption "--Restricted Payments", (viii) sales of
accounts receivable, equipment and related assets (including contract rights)
of the type specified in the definition of "Qualified Securitization
Transaction" to a Securitization Entity for the fair market value thereof,
including cash in an amount at least equal to 75% of the fair market value
thereof. For the purposes of clause (viii), Purchase Money Notes shall be
deemed to be cash.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of,
the issuing Person.
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"Cash Equivalents" means: (i) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States,
in each case maturing within one year from the date of acquisition thereof;
(ii) marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either S&P or Moody's; (iii) commercial paper maturity no more
than one year from the date of creation thereof and at the time of
acquisition, having a rating of at least A-1 from S&P or at least P-1 from
Moody's; (iv) certificates of deposit or bankers' acceptances (or, with
respect to foreign banks, similar instruments) maturing within one year from
the date of acquisition thereof issued by any bank organized under the laws of
the United States of America or any state thereof or the District of Columbia,
Japan or any member of the European Economic Community or any U.S. branch of a
foreign bank having at the date of acquisition thereof combined capital and
surplus of not less than $200.0 million; provided that instruments issued by
banks not having one for the two highest ratings obtainable from either S&P or
Moody's or by banks organized under the laws of Japan or any member of the
European Economic Community shall not constitute Cash Equivalents for purposes
of the subordination provisions of the applicable Indenture; (v) repurchase
obligations with a term of not more than seven days for underlying securities
of the types described in clause (i) above entered into with any bank meeting
the qualifications specified in clause (iv) above; and (vi) investments in
money market funds which invest substantially all their assets in securities
of the types described in clauses (i) through (v) above.
"Consolidated EBITDA" means, with respect to any Person, for any period, the
sum (without duplication) of such Person's (i) Consolidated Net Income and
(ii) to the extent Consolidated Net Income has been reduced thereby, (A) all
income taxes and foreign withholding taxes of such Person and its Restricted
Subsidiaries paid or accrued in accordance with GAAP for such period, (B)
Consolidated Interest Expense, (C) Consolidated Noncash Charges, (D) all one-
time cash compensation payments made in connection with the Transactions, (E)
any payments related to addressing the Company's or any of its Restricted
Subsidiary's "Year 2000" information systems issue and EITF 97-13
"reengineering" efforts and (F) all bad debt and factoring losses incurred
specifically with respect to the bankruptcy of Montgomery Ward.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to any
Person, the ratio of Consolidated EBITDA of such Person during the most recent
four full fiscal quarters for which internal financial statements are
available (the "Four-Quarter Period") ending on or prior to the date of the
transaction giving rise to the need to calculate the Consolidated Fixed Charge
Coverage Ratio (the "Transaction Date") to Consolidated Fixed Charges of such
Person for the Four-Quarter Period. In addition to and without limitation of
the foregoing, for purposes of this definition, Consolidated EBITDA and
Consolidated Fixed Charges shall be calculated after giving effect on a pro
forma basis for the period of such calculation to (i) the incurrence of any
Indebtedness or the issuance of any preferred stock of such Person or any of
its Restricted Subsidiaries (and the application of the proceeds thereof) and
any repayment of other Indebtedness or redemption of other preferred stock
occurring during the Four-Quarter Period or at any time subsequent to the last
day of the Four-Quarter Period and on or prior to the Transaction Date, as if
such incurrence, repayment, issuance or redemption, as the case may be (and
the application of the proceeds thereof), occurred on the first day of the
Four-Quarter Period and (ii) any Asset Sale or Asset Acquisition (including,
without limitation, any Asset Acquisition giving rise to the need to make such
calculation as a result of such Person or one of its Restricted Subsidiaries
(including any Person who becomes a Restricted Subsidiary as a result of the
Asset Acquisition) incurring, assuming or otherwise being liable for Acquired
Indebtedness and also including any Consolidated EBITDA (including any Pro
Forma Cost Savings) associated with any such Asset Acquisition) occurring
during the Four-Quarter Period or at any time subsequent to the last day of
the Four-Quarter Period and on or prior to the Transaction Date, as if such
Asset Sale or Asset Acquisition
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(including the incurrence of, or assumption or liability for any such
Indebtedness or Acquired Indebtedness) occurred on the first day of the Four-
Quarter Period. If such Person or any of its Restricted Subsidiaries directly
or indirectly Guarantees Indebtedness of a third Person, the preceding
sentence shall give effect to the incurrence of such guaranteed Indebtedness
as if such Person or any Restricted Subsidiary of such Person had directly
incurred or otherwise assumed such guaranteed Indebtedness. Furthermore, in
calculating Consolidated Fixed Charges for purposes of determining the
denominator (but not the numerator) of this Consolidated Fixed Charge Coverage
Ratio, (1) interest on outstanding Indebtedness determined on a fluctuating
basis as of the Transaction Date and which will continue to be so determined
thereafter shall be deemed to have accrued at a fixed rate per annum equal to
the rate of interest on such Indebtedness in effect on the Transaction Date;
(2) if interest on any Indebtedness actually incurred on the Transaction Date
may optionally be determined at an interest rate based upon a factor of a
prime or similar rate, a eurocurrency interbank offered rate, or other rates,
then the interest rate in effect on the Transaction Date will be deemed to
have been in effect during the Four-Quarter Period; and (3) notwithstanding
clause (1) above, interest on Indebtedness determined on a fluctuating basis,
to the extent such interest is covered by agreements relating to Interest Swap
Obligations, shall be deemed to accrue at the rate per annum resulting after
giving effect to the operation of such agreements.
"Consolidated Fixed Charges" means, with respect to any Person for any
period, the sum, without duplication, of (i) Consolidated Interest Expense
(before amortization or write-off of debt issuance costs) plus (ii) the amount
of all cash dividend payments on any series of preferred stock of such Person
plus (iii) the amount of all dividend payments on any series of Permitted
Foreign Subsidiary Preferred Stock or Permitted Domestic Subsidiary Preferred
Stock; provided that with respect to any series of preferred stock that was
not paid cash dividends during such period but that is eligible to be paid
cash dividends during any period prior to the maturity date of the Exchange
Notes, cash dividends shall be deemed to have been paid with respect to such
series of preferred stock during such period for purposes of clause (ii) of
this definition.
"Consolidated Interest Expense" means, with respect to any Person for any
period, the sum of, without duplication, (i) the aggregate of all cash and
non-cash interest expense with respect to all outstanding Indebtedness of such
Person and its Restricted Subsidiaries, including the net costs associated
with Interest Swap Obligations, for such period determined on a consolidated
basis in conformity with GAAP, (ii) the consolidated interest expense of such
Person and its Restricted Subsidiaries that was capitalized during such
period, and (iii) the interest component of Capitalized Lease Obligations
paid, accrued and/or scheduled to be paid or accrued by such Person and its
Restricted Subsidiaries during such period as determined on a consolidated
basis in accordance with GAAP.
"Consolidated Net Income" of the Company means, for any period, the
aggregate net income (or loss) of the Company and its Restricted Subsidiaries
for such period on a consolidated basis,
determined in accordance with GAAP, provided that there shall be excluded
therefrom (a) gains and losses from Asset Sales (without regard to the $1.0
million limitation set forth in the definition thereof) or abandonments or
reserves relating thereto and the related tax effects according to GAAP, (b)
gains and losses due solely to fluctuations in currency values and the related
tax effects according to GAAP, (c) items classified as a cumulative effect
accounting change or as extraordinary, unusual or nonrecurring gains and
losses (including, without limitation, severance, relocation and other
restructuring costs), and the related tax effects according to GAAP, (d) the
net income (or loss) of any Person acquired in a pooling of interests
transaction accrued prior to the date it becomes a Restricted Subsidiary of
the Company or is merged or consolidated with the Company or any Restricted
Subsidiary of the Company, (e) the net income of any Restricted Subsidiary of
the Company to the extent that the declaration of dividends or similar
distributions by that Restricted Subsidiary of the Company of that income is
restricted by contract, operation, operation of law or otherwise, (f) the net
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loss of any Person, other than a Restricted Subsidiary of the Company, (g) the
net income of any Person, other than a Restricted Subsidiary of the Company,
except to the extent of cash dividends or distributions paid to the Company or
a Restricted Subsidiary of the Company by such Person, (h) only for purposes
of clause (c)(i) of the first paragraph of the covenant described under the
caption "--Restricted Payments", any amounts included pursuant to clause
(c)(iii) of the first paragraph of such covenant, and (i) one time non-cash
compensation charges, including any arising from existing stock options
resulting from any merger or recapitalization transaction. For purposes of
clause (c)(i) of the first paragraph of the covenant described under the
caption "--Restricted Payments", Consolidated Net Income shall be reduced by
any cash dividends paid with respect to any series of Designated Preferred
Stock.
"Consolidated Noncash Charges" means, with respect to any Person for any
period, the aggregate depreciation, amortization and other non-cash expenses
of such Person and its Restricted Subsidiaries reducing Consolidated Net
Income of such Person for such period, determined on a consolidated basis in
accordance with GAAP excluding any such non-cash charge constituting an
extraordinary item or loss or any such non-cash charge which requires an
accrual of or a reserve for cash charges for any future period.
"Credit Facilities" means one or more debt facilities (including, without
limitation, the Senior Credit Agreements) or commercial paper facilities with
banks or other institutional lenders providing for revolving credit loans,
term loans, receivables financing (including through the sale of receivables
to such lenders or to special purpose entities formed to borrow from such
lenders against such receivables) and/or letters of credit.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any Restricted Subsidiary of the Company against fluctuations in
currency values.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Designated Noncash Consideration" means any non-cash consideration received
by the Company or one of its Restricted Subsidiaries in connection with an
Asset Sale that is so designated as Designated Noncash Consideration pursuant
to an Officers' Certificate executed by the principal executive officer and
the principal financial officer of the Company or such Restricted Subsidiary.
Such Officers' Certificate shall state the basis of such valuation, which
shall be a report of a nationally recognized investment banking firm with
respect to the receipt in one or a series of related transactions of
Designated Noncash Consideration with a fair market value in excess of $10.0
million.
"Designated Preferred Stock" means Preferred Stock that is so designated as
Designated Preferred Stock, pursuant to an Officers' Certificate executed by
the principal executive officer and the
principal financial officer of the Company, on the issuance date thereof, the
cash proceeds of which are excluded from the calculation set forth in clause
(iii) of the first paragraph of the covenant described under the caption "--
Restricted Payments".
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable, at the option of the holder thereof), or upon the happening of
any event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable at the option of the Holder thereof, in
whole or in part, on or prior to the date that is 91 days after the date on
which the Exchange Notes mature; provided, however, that any Capital Stock
that would constitute Disqualified Stock solely because the holders thereof
have the right to require the Company to repurchase such Capital Stock upon
the occurrence of a Change of Control or an Asset Sale shall not constitute
Disqualified Stock if the terms of such
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Capital Stock provide that the Company may not repurchase or redeem any such
Capital Stock pursuant to such provisions unless such repurchase or redemption
complies with the covenant described above under the caption "--Restricted
Payments".
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Equity Offering" means any offering of Qualified Capital Stock of Parent or
the Company; provided that, in the event of any Equity Offering by Parent,
Parent contributes to the common equity capital of the Company (other than as
Disqualified Stock) the portion of the net cash proceeds of such Equity
Offering necessary to pay the aggregate redemption price (plus accrued
interest to the redemption date) of the Notes to be redeemed pursuant to the
preceding paragraph.
"Existing Indebtedness" means Indebtedness of the Company and its
Subsidiaries (other than Indebtedness under the Senior Credit Agreements) in
existence on the date of the Indentures, until such amounts are repaid.
"Foreign Subsidiaries" means the Company's current and future non-U.S.
Subsidiaries.
"Four-Quarter Period" has the meaning specified in the definition of
Consolidated Fixed Charge Coverage Ratio.
"Full Accretion Date" means December 15, 2002.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date of the Indentures.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof), of all or any part of any Indebtedness.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements (including Interest Swap
Obligations) and (ii) other agreements or arrangements designed to protect
such Person against fluctuations in interest rates (including Currency
Agreements).
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced
by bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of
the purchase price of any property or representing any Hedging Obligations,
except any such balance that constitutes an accrued expense or trade payable,
if and to the extent any of the foregoing (other than letters of credit and
Hedging Obligations) would appear as a liability upon a balance sheet of such
Person prepared in accordance with GAAP, as well as all Indebtedness of others
secured by a Lien on any asset of such Person (whether or not such
Indebtedness is assumed by such Person) and, to the extent not otherwise
included, the Guarantee by such Person of any indebtedness of any other
Person. The amount of any Indebtedness outstanding as of any date shall be (i)
the accreted value thereof, in the case of any Indebtedness issued with
original issue discount, and (ii) the principal amount thereof, together with
any interest thereon that is more than 30 days past due, in the case of any
other Indebtedness. For purposes of calculating the amount of Indebtedness of
a Securitization
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Entity outstanding as of any date, the face or notional amount of any interest
in receivables or equipment that is outstanding as of such date shall be
deemed to be Indebtedness but any such interests held by Affiliates of such
Securitization Entity shall be excluded for purposes of such calculation.
"Initial Public Offering" means the first underwritten public offering of
Qualified Capital Stock by either Parent or by the Company pursuant to a
registration statement filed with the Commission in accordance with the
Securities Act for aggregate net cash proceeds of a least $50.0 million;
provided that in the event the Initial Public Offering is consummated by
Parent, Parent contributes to the common equity capital of the Company at
least $50.0 million of the net cash proceeds of the Initial Public Offering.
"Interest Swap Obligations" means the obligations of any Person, pursuant to
any arrangement with any other Person, whereby, directly or indirectly, such
Person is entitled to receive from time to time periodic payments calculated
by applying either a floating or a fixed rate of interest on a stated notional
amount in exchange for periodic payments made by such other Persons calculated
by applying a fixed or a floating rate of interest on the same notional
amount.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If the Company or any Subsidiary of the Company sells or otherwise disposes of
any Equity Interests of any direct or indirect Subsidiary of the Company such
that, after giving effect to any such sale or disposition, such Person is no
longer a Subsidiary of the Company, the Company shall be deemed to have made
an Investment on the date of any such sale or disposition equal to the fair
market value of the Equity Interests of such Subsidiary not sold or disposed
of in an amount determined as provided in the final paragraph of the covenant
described above under the caption "--Restricted Payments".
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise
perfected under applicable law (including any conditional sale or other title
retention agreement, any lease in the nature thereof, any option or other
agreement to sell or give a security interest in and any filing of or
agreement to give any financing statement under the Uniform Commercial Code
(or equivalent statutes) of any jurisdiction).
"Marketable Securities" means publicly traded debt or equity securities that
are listed for trading on a national securities exchange and that were issued
by a corporation whose debt securities are rated in one of the three highest
rating categories by either S&P or Moody's.
"Moody's" means Moody's Investors Service, Inc.
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of
any non-cash consideration received in any Asset Sale), net of the direct
costs relating to such Asset Sale (including, without limitation, legal,
accounting and investment banking fees, and sales commissions) and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements) and any reserve for adjustment in
respect of the sale price of such asset or assets established in accordance
with GAAP.
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"Non-Recourse Debt" means Indebtedness (i) as to which neither the Company
nor any of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable (as a guarantor or
otherwise), or (c) constitutes the lender; and (ii) no default with respect to
which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Company or any of its Restricted Subsidiaries to declare a default on such
other Indebtedness or cause the payment thereof to be accelerated or payable
prior to its stated maturity; and (iii) as to which the lenders have been
notified in writing that they will not have any recourse to the stock or
assets of the Company or any of its Restricted Subsidiaries.
"Non-Guarantor Subsidiaries" means (i) the Foreign Subsidiaries and (ii)
Advanced Sleep Products, a California corporation, Sealy Components--Pads,
Inc., a Delaware corporation, Sealy Mattress Company of San Diego, a
California corporation, Sealy Connecticut, Inc., a Connecticut corporation,
and Sealy Mattress Company of S.W. Virginia, a Virginia corporation.
"Obligations" means any principal, interest (including, without limitation,
interest that, but for the filing of a petition in bankruptcy with respect to
an obligor, would accrue on such obligations), penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Parent" means Sealy Corporation, a Delaware corporation.
"Parent Note Indenture" means the indenture governing the Existing Exchange
Notes between The Bank of New York (as successor trustee to Mellon Bank,
F.S.B. (as successor trustee to KeyBank National Association)) and Parent.
"Parent Notes" means the existing 10 1/4% Senior Subordinated Exchange Notes
due 2003 of Parent.
"Permitted Business" means any business (including stock or assets) that
derives a majority of its revenues from the manufacture, distribution and sale
of mattresses, foundation and other bedding products and activities that are
reasonably similar, ancillary or related to, or a reasonable extension,
development or expansion of, the businesses in which the Company and its
Restricted Subsidiaries are engaged on the date of the Indentures.
"Permitted Domestic Subsidiary Preferred Stock" means any series of
Preferred Stock of a domestic restricted Subsidiary of the Company that
constitutes Qualified Capital Stock and has a fixed dividend rate, the
liquidation value of all series of which, when combined with the aggregate
amount of Indebtedness of the Company and its Restricted Subsidiaries incurred
pursuant to clause (xvi) of
the definition of Permitted Indebtedness, does not exceed $30.0 million;
provided that such amount shall increase to $50.0 million upon consummation of
an Initial Public Offering.
"Permitted Investments" means (i) Investments by the Company or any
Restricted Subsidiary of the Company in any Restricted Subsidiary of the
Company that is a Guarantor or a Foreign Subsidiary (whether existing on the
date of the Indentures or created thereafter) or in any other Person
(including by means of any transfer of cash or other property) if as a result
of such Investment such Person shall become a Restricted Subsidiary of the
Company that is a Guarantor or a Foreign Subsidiary and Investments in the
Company by any Restricted Subsidiary of the Company, (ii) cash and Cash
Equivalents, (iii) Investments existing on the date of the Indentures, (iv)
loans and advances to employees and officers of the Company and its Restricted
Subsidiaries in the ordinary course of Business, (v) accounts receivable
created or acquired in the ordinary course of Business, (vi) Currency
Agreements and Interest Swap Obligations entered into in the ordinary course
of the Company's
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businesses and otherwise in compliance with the applicable Indenture, (vii)
Investments in Unrestricted Subsidiaries in an amount at any one time
outstanding not to exceed $20.0 million; (viii) Investments in securities of
trade creditors or customers received pursuant to any plan of reorganization
or similar arrangement upon the bankruptcy or insolvency of such trade
creditors or customers, (ix) guarantees by the Company of Indebtedness
otherwise permitted to be incurred by Restricted Subsidiaries of the Company
that are either Guarantors or Foreign Subsidiaries under the applicable
Indenture, (x) additional Investments having an aggregate fair market value,
taken together with all other Investments made pursuant to this clause (x)
that are at that time outstanding, not to exceed 5% of Total Assets at the
time of such Investment (with the fair market value of each Investment being
measured at the time made and without giving effect to subsequent changes in
value), (xi) any Investment by the Company or a Subsidiary of the Company in a
Securitization Entity or any Investment by a Securitization Entity in any
other Person in connection with a Qualified Securitization Transaction;
provided that any Investment in a Securitization Entity is in the form of a
Purchase Money Note or an equity interest, (xii) any transaction to the extent
it constitutes an Investment that is permitted by, and made in accordance
with, clause (b) of the "Limitations on Transactions with Affiliates" covenant
(other than transactions described in clause (v) of such clause (b)), (xiii)
Investments the payment for which consists exclusively of Qualified Capital
Stock of the Company and (xiv) Investments received by the Company or its
Restricted Subsidiaries as consideration for asset sales, including Asset
Sales; provided that in the case of an Asset Sale, such Asset Sale is effected
in compliance with the covenant described under the caption "--Redemption or
Repurchase at Option of Holders--Asset Sales".
"Permitted Foreign Subsidiary Preferred Stock" means any series of Preferred
Stock of a foreign Restricted Subsidiary of the Company that constitutes
Qualified Capital Stock and has a fixed dividend rate, the liquidation value
of all series of which, when combined with the aggregate amount of
Indebtedness of foreign Restricted Subsidiaries of the Company incurred
pursuant to clause (iii) of the definition of Permitted Indebtedness, does not
exceed $15.0 million; provided that such amount shall increase to $30.0
million upon consummation of an Initial Public Offering.
"Permitted Liens" means the following types of Liens:
(i) Liens for taxes, assessments or governmental charges or claims either
(a) not delinquent or (b) contested in good faith by appropriate
proceedings and as to which the Company or its Restricted Subsidiaries
shall have set aside on its books such reserves as may be required pursuant
to GAAP;
(ii) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for sums not yet delinquent or
being contested in good faith, if such reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made in
respect thereof;
(iii) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
types of social security, including any Lien securing letters of credit
issued in the ordinary course of business consistent with past practice in
connection therewith, or to secure the performance of tenders, statutory
obligations, surety and appeal bonds, bids, leases, government contracts,
performance and return-of-money bonds and other similar obligations
(exclusive of obligations for the payment of borrowed money);
(iv) judgment Liens not giving rise to an Event of Default;
(v) easements, rights-of-way, zoning restrictions and other similar
charges or encumbrances in respect of real property not interfering in any
material respect with the ordinary conduct of the business of the Company
or any of its Restricted Subsidiaries;
(vi) any interest or title of a lessor under any Capitalized Lease
Obligation;
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(vii) purchase money Liens to finance property or assets of the Company
or any Restricted Subsidiary of the Company acquired in the ordinary course
of business; provided, however, that (A) the related purchase money
Indebtedness shall not exceed the cost of such property or assets and shall
not be secured by any property or assets of the Company or any Restricted
Subsidiary of the Company other than the property and assets so acquired
and (B) the Lien securing such Indebtedness shall be created with 90 days
of such acquisition;
(viii) Liens upon specific items of inventory or other goods and proceeds
of any Person securing such Person's obligations in respect of bankers'
acceptances issued or created for the account of such Person to facilitate
the purchase, shipment, or storage of such inventory or other goods;
(ix) Liens securing reimbursement obligations with respect to commercial
letters of credit which encumber documents and other property relating to
such letters of credit and products and proceeds thereof;
(x) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual, or warranty requirements of the Company
or any of its Restricted Subsidiaries, including rights of offset and set-
off;
(xi) Liens securing Interest Swap Obligations which Interest Swap
Obligations relate to Indebtedness that is otherwise permitted under the
applicable Indenture;
(xii) Liens securing Indebtedness under Currency Agreements;
(xiii) Liens securing Indebtedness of foreign Restricted Subsidiaries of
the Company incurred in reliance on clause (iii) of the second paragraph of
the covenant described above under the caption "--Incurrence of
Indebtedness and Issuance of Preferred Stock";
(xiv) Liens securing Acquired Indebtedness incurred in reliance on clause
(viii) of the second paragraph of the covenant described above under the
caption "--Incurrence of Indebtedness and Issuance of Preferred Stock";
(xv) Liens incurred in the ordinary course of business of the Company or
any Restricted Subsidiary with respect to obligations that do not in the
aggregate exceed $10.0 million at any one time outstanding;
(xvi) Liens on assets transferred to a Securitization Entity or on assets
of a Securitization Entity, in either case incurred in connection with a
Qualified Securitization Transaction;
(xvii) leases or subleases granted to others that do not materially
interfere with the ordinary course of business of the Company and its
Restricted Subsidiaries;
(xviii) Liens arising from filing Uniform Commercial Code financing
statements regarding leases;
(xix) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customer duties in connection with the
importation of goods;
(xx) Liens on assets of Unrestricted Subsidiaries that secure Non-
Recourse Debt of Unrestricted Subsidiaries; and
(xxi) Liens existing on the date of the Indentures, together with any
Liens securing Indebtedness incurred in reliance on clause (xiv) of the
definition of Permitted Indebtedness in order to refinance the Indebtedness
secured by Liens existing on the date of the Indentures; provided that the
Liens securing the refinancing Indebtedness shall not extend to property
other than that pledged under the Liens securing the Indebtedness being
refinanced.
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"Pro Forma Cost Savings" means, with respect to any period, the reduction in
costs that occurred during the Four-Quarter Period or after the end of the
Four-Quarter Period and on or prior to the Transaction Date that were (i)
directly attributable to an Asset Acquisition and calculated on a basis that
is consistent with Regulation S-X under the Securities Act as in effect and
applied as of January 1, 1997 or (ii) implemented by the business that was the
subject of any such Asset Acquisition within six months of the date of the
Asset Acquisition and that are supportable and quantifiable by the underlying
accounting records of such business, as if, in the case of each of clause (i)
and (ii), all such reductions in costs had been effected as of the beginning
of such period.
"Productive Assets" means assets (including Capital Stock) that are used or
usable by the Company and its Restricted Subsidiaries in Permitted Businesses.
"Purchase Money Note" means a promissory note of a Securitization Entity
evidencing a line of credit, which may be irrevocable, from the Company or any
Restricted Subsidiary of the Company in connection with a Qualified
Securitization Transaction, which note shall be repaid from cash available to
the Securitization Entity, other than amounts required to be established as
reserves pursuant to agreements, amounts paid to investors in respect of
interest, principal and other amounts owing to such investors and amounts paid
in connection with the purchase of newly generated receivables or newly
acquired equipment.
"Qualified Capital Stock" means any Capital Stock that is not Disqualified
Stock.
"Qualified Securitization Transaction" means any transaction or series of
transactions pursuant to which the Company or any of its Restricted
Subsidiaries may sell, convey or otherwise transfer to (a) a Securitization
Entity (in the case of a transfer by the Company or any of its Restricted
Subsidiaries) and (b) any other Person (in case of a transfer by a
Securitization Entity), or may grant a security interest in, any accounts
receivable or equipment (whether now existing or arising or acquired in the
future) of the Company or any of its Restricted Subsidiaries, and any assets
related thereto including, without limitation, all collateral securing such
accounts receivable and equipment, all contracts and contract rights and all
Guarantees or other obligations in respect such accounts receivable and
equipment, proceeds of such accounts receivable and equipment and other assets
(including contract rights) which are customarily transferred or in respect of
which security interests are customarily granted in connection with asset
securitization transactions involving accounts receivable and equipment.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"S&P" means Standard & Poor's.
"Securitization Entity" means a Wholly Owned Subsidiary of the Company (or
another Person in which the Company or any Subsidiary of the Company makes an
Investment and to which the Company or any Subsidiary of the Company transfers
accounts receivable or equipment and related assets) that engages in no
activities other than in connection with the financing of accounts receivable
or equipment and that is designated by the Board of Directors of the Company
(as provided below) as a Securitization Entity (a) no portion of the
Indebtedness or any other Obligations (contingent or otherwise) of which (i)
is guaranteed by the Company or any Restricted Subsidiary of the Company
(excluding guarantees of Obligations (other than the principal of, and
interest on, Indebtedness)) pursuant to Standard Securitization Undertakings,
(ii) is recourse to or obligates the Company or any Restricted Subsidiary of
the Company in any way other than pursuant to Standard Securitization
Undertakings or (iii) subjects any property or asset of the Company or any
Restricted Subsidiary of the
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Company, directly or indirectly, contingently or otherwise, to the
satisfaction thereof, other than pursuant to Standard Securitization
Undertakings, (B) with which neither the Company nor any Restricted Subsidiary
of the Company has any material contract, agreement, arrangement or
understanding other than on terms no less favorable to the Company or such
Restricted Subsidiary than those that might be obtained at the time from
Persons that are not Affiliates of the Company, other than fees payable in the
ordinary course of business in connection with servicing receivables of such
entity, and (c) to which neither the Company nor any Restricted Subsidiary of
the Company has any obligation to maintain or preserve such entity's financial
condition or cause such entity to achieve certain levels of operating results.
Any such designation by the Board of Directors of the Company shall be
evidenced to each of the Trustees by filing with the Trustees a certified copy
of the resolution of the Board of Directors of the Company giving effect to
such designation and an Officers' Certificate certifying that such designation
complied with the foregoing conditions.
"Senior Credit Agreements" mean, collectively, (i) that certain Credit
Agreement, dated as of December 18, 1997, and (ii) that certain AXELs Credit
Agreement, dated as of December 18, 1997, in each case by and among the
Company, Goldman Sachs Credit Partners L.P., as arranging agent and
syndication agent, Morgan Guaranty and Trust Company of New York, as
administrative agent, Bankers Trust Company, as documentation agent, and the
financial institutions party thereto, initially providing for up to $550.0
million of revolving and term credit borrowings, including any related notes,
guarantees, collateral documents, instruments and agreements executed in
connection therewith, and in each case as amended (including any amendment and
restatement thereof), modified, renewed, refunded, replaced, refinanced or
restructured (including, without limitation, any amendment increasing the
amount of available borrowing thereunder) from time to time and whether with
the same or any other agent, lender or group of lenders.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Act, as such Regulation is in effect on the date hereof.
"Standard Securitization Undertakings" means representations, warranties,
covenants and indemnities entered into by the Company or any Subsidiary of the
Company that are reasonably customary in an accounts receivable or equipment
transactions.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations
to repay, redeem or repurchase any such interest or principal prior to the
date originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total
voting power of shares of Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers
or trustees thereof is at the time owned or controlled, directly or
indirectly, by such Person or one or more of the other Subsidiaries of that
Person (or a combination thereof) and (ii) any partnership (a) the sole
general partner or the managing general partner of which is such Person or a
Subsidiary of such Person or (b) the only general partners of which are such
Person or of one or more Subsidiaries of such Person (or any combination
thereof), but shall not include any Unrestricted Subsidiary.
"Subsidiary Guarantors" means each of (i) all Restricted Subsidiaries (but
excluding the Non-Guarantor Subsidiaries) and (ii) any other subsidiary that
executes a Note Guarantee in accordance with the provisions of the applicable
Indenture, and their respective successors and assigns.
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"Total Assets" means the total consolidated assets of the Company and its
Restricted Subsidiaries, as set forth on the Company's most recent
consolidated balance sheet.
"Treasury Rate" means, as of any Redemption Date, the yield to maturity as
of such Redemption Date of United States Treasury securities with a constant
maturity (as compiled and published in the most recent Federal Reserve
Statistical Release H.15 (519) that has become publicly available at least two
Business Days prior to such Redemption Date (or, if such Statistical Release
is no longer published, any publicly available source of similar market data))
most nearly equal to the period from such Redemption Date to December 15,
2002; provided, however, that if the period from such Redemption Date to
December 15, 2002 is less than one year, the weekly average yield on actually
traded United States Treasury securities adjusted to a constant maturity of
one year shall be used.
"Unrestricted Subsidiary" means (i) any Subsidiary that is designated by the
Board of Directors as an Unrestricted Subsidiary pursuant to a Board
Resolution, but only to the extent that such Subsidiary: (a) has no
Indebtedness other than Non-Recourse Debt; (b) is not party to any agreement,
contract, arrangement or understanding with the Company or any Restricted
Subsidiary of the Company unless the terms of any such agreement, contract,
arrangement or understanding are no less favorable to the Company or such
Restricted Subsidiary than those that might be obtained at the time from
Persons who are not Affiliates of the Company; (c) is a Person with respect to
which neither the Company nor any of its Restricted Subsidiaries has any
direct or indirect obligation (x) to subscribe for additional Equity Interests
or (y) to maintain or preserve such Person's financial condition or to cause
such Person to achieve any specified levels of operating results; (d) has not
guaranteed or otherwise directly or indirectly provided credit support for any
Indebtedness of the Company or any of its Restricted Subsidiaries; and (e) has
at least one director on its board of directors that is not a director or
executive officer of the Company or any of its Restricted Subsidiaries and has
at least one executive officer that is not a director or executive officer of
the Company or any of its Restricted Subsidiaries. Any such designation by the
Board of Directors shall be evidenced to the applicable Trustee by filing with
the applicable Trustee a certified copy of the Board Resolution giving effect
to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing conditions and was permitted by the
covenant described above under the caption "Certain Covenants--Restricted
Payments". If, at any time, any Unrestricted Subsidiary would fail to meet the
foregoing requirements as an Unrestricted Subsidiary, it shall thereafter
cease to be an Unrestricted Subsidiary for purposes of the applicable
Indenture and any Indebtedness of such Subsidiary shall be deemed to be
incurred by a Restricted Subsidiary of the Company as of such date (and, if
such Indebtedness is not permitted to be incurred as of such date under the
covenant described under the caption "--Incurrence of Indebtedness and
Issuance of Preferred Stock", the Company shall be in default of such
covenant). The Board of Directors of the Company may at any time designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such
designation shall be deemed to be an incurrence of Indebtedness by a
Restricted Subsidiary of the Company of any outstanding Indebtedness of such
Unrestricted Subsidiary and such designation shall only be permitted if (i)
such Indebtedness is permitted under the covenant described under the caption
"--Incurrence of Indebtedness and Issuance of Preferred Stock", calculated on
a pro forma basis as if such designation had occurred at the beginning of the
four-quarter reference period, (ii) such Subsidiary shall execute a Note
Guarantee and deliver an Opinion of Counsel, in accordance with the terms of
the applicable Indenture and (iii) no Default or Event of Default would be in
existence following such designation.
"U.S. Subsidiary" means any Subsidiary of the Company that is incorporated
in a State in the United States or the District of Columbia or that Guarantees
or otherwise becomes an obligor with respect to any Indebtedness of the
Company or another Guarantor.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
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"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the
nearest one-twelfth) that will elapse between such date and the making of such
payment, by (ii) the then outstanding principal amount of such Indebtedness.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person and one or
more Wholly Owned Subsidiaries of such Person.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall
at the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person and one or more Wholly Owned Restricted
Subsidiaries of such Person.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Notes were originally sold by the Company on December 11, 1997 to the
Initial Purchaser pursuant to the Purchase Agreement. The Initial Purchaser
subsequently resold the Notes to qualified institutional buyers in reliance on
Rule 144A under the Securities Act and to a limited number of institutional
accredited investors that agreed to comply with certain transfer restrictions
and other conditions. As a condition to the Purchase Agreement, the Company
entered into the Registration Rights Agreement with the Initial Purchaser
pursuant to which the Company has agreed to: (i) file an Exchange Offer
Registration Statement with the Commission on or prior to 90 days after the
Closing Date, (ii) use its best efforts to have the Exchange Offer
Registration Statement declared effective by the Commission on or prior to 150
days after the Closing Date, (iii) unless the Exchange Offer would not be
permitted by applicable law or Commission policy, commence the Exchange Offer
and use its best efforts to issue on or prior to 30 business days after the
date on which the Exchange Offer Registration Statement was declared effective
by the Commission, New Notes in exchange for all Notes tendered prior thereto
in the Exchange Offer and (iv) if obligated to file the Shelf Registration
Statement, use its best efforts to file the Shelf Registration Statement with
the Commission on or prior to 45 days after such filing obligation arises and
to cause the Shelf Registration to be declared effective by the Commission on
or prior to 90 days after such obligation arises. For each Note surrendered to
the Company pursuant to the Exchange Offer, the holder of such Note will
receive an Exchange Note having a principal amount equal to that of the
surrendered Note. Interest on each Exchange Note will accrue from the date of
its original issue.
Under existing interpretations of the staff of the Commission contained in
several no-action letters to third parties, the Exchange Notes would in
general be freely tradeable after the Exchange Offer without further
registration under the Securities Act. However, any purchaser of Notes who is
an "affiliate" of the Company, a broker-dealer who owns Notes acquired
directly from the Company or an affiliate of the Company or who intends to
participate in the Exchange Offer for the purpose of distributing the Exchange
Notes (i) will not be able to rely on the interpretation of the staff of the
Commission, (ii) will not be able to tender its Notes in the Exchange Offer
and (iii) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any sale or transfer of
the Notes, unless such sale or transfer is made pursuant to an exemption from
such requirements.
If (i) the Company is not required to file the Exchange Offer Registration
Statement or permitted to consummate the Exchange Offer because the Exchange
Offer is not permitted by applicable law or Commission policy or (ii) any
Holder of Transfer Restricted Securities notifies the Company prior to the
20th day following consummation of the Exchange Offer that (A) it is
prohibited by law or Commission policy from participating in the Exchange
Offer or (B) that it may not resell the New Notes acquired by it in the
Exchange Offer to the public without delivering a prospectus and the
prospectus contained in the Exchange Offer Registration Statement is not
appropriate or available for such resales or (C) that it is a broker-dealer
and owns Notes acquired directly from the Company or an affiliate of the
Company, the Company will file with the Commission a Shelf Registration
Statement to cover resales of the Notes by the Holders thereof who satisfy
certain conditions relating to the provision of information in connection with
the Shelf Registration Statement. The Company will use its best efforts to
cause the applicable registration statement to be declared effective as
promptly as possible by the Commission. For purposes of the foregoing,
"Transfer Restricted Securities" means each Note until (i) the date on which
such Note has been exchanged by a person other than a broker-dealer for a New
Note in the Exchange Offer, (ii) following the exchange by a broker-dealer in
the Exchange Offer of a Note for a New Note, the date on which such New Note
is sold to a purchaser who receives from such broker-dealer on or prior to the
date of such sale a copy of the prospectus contained in the Exchange Offer
Registration Statement, (iii) the date on which such Note has been effectively
registered under
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the Securities Act and disposed of in accordance with the Shelf Registration
Statement or (iv) the date on which such Note is distributed to the public
pursuant to Rule 144 under the Act.
If (a) the Company fails to file any of the Registration Statements required
by the Registration Rights Agreement on or before the date specified for such
filing, (b) any of such Registration Statements is not declared effective by
the Commission on or prior to the date specified for such effectiveness (the
"Effectiveness Target Date"), or (c) the Company fails to consummate the
Exchange Offer within 30 business days of the Effectiveness Target Date with
respect to the Exchange Offer Registration Statement, or (d) the Shelf
Registration Statement or the Exchange Offer Registration Statement is
declared effective but thereafter ceases to be effective or usable in
connection with resales of Transfer Restricted Securities during the periods
specified in the Registration Rights Agreement (each such event referred to in
clauses (a) through (d) above a "Registration Default"), then the Company will
pay Liquidated Damages to each Holder of Notes, with respect to the first 90-
day period immediately following the occurrence of the first Registration
Default in an amount equal to $.05 per week per $1,000 principal amount of
Notes held by such Holder. The amount of the Liquidated Damages will increase
by an additional $.05 per week per $1,000 principal amount of Notes with
respect to each subsequent 90-day period until all Registration Defaults have
been cured, up to a maximum amount of Liquidated Damages for all Registration
Defaults of $.50 per week per $1,000 principal amount of Notes. All accrued
Liquidated Damages will be paid by the Company on each Damages Payment Date to
the Global Note Holder by wire transfer of immediately available funds or by
federal funds check and to Holders of Certificated Securities by wire transfer
to the accounts specified by them or by mailing checks to their registered
addresses if no such accounts have been specified. Following the cure of all
Registration Defaults, the accrual of Liquidated Damages will cease.
Holders of Notes will be required to make certain representations to the
Company (as described in the Registration Rights Agreement) in order to
participate in the Exchange Offer and will be required to deliver certain
information to be used in connection with the Shelf Registration Statement and
to provide comments on the Shelf Registration Statement within the time
periods set forth in the Registration Rights Agreement in order to have their
Notes included in the Shelf Registration Statement and benefit from the
provisions regarding Liquidated Damages set forth above.
The Commission has taken the position that Participating Broker-Dealers may
fulfill their prospectus delivery requirements with respect to the Exchange
Notes (other than a resale of an unsold allotment from the original sale of
the Notes) with the prospectus contained in the Exchange Offer Registration
Statement. Under the Registration Rights Agreement, the Company is required to
allow Participating Broker-Dealers and other persons, if any, subject to
similar prospectus delivery requirements to use the prospectus contained in
the Exchange Offer Registration Statement in connection with the resale of
such Exchange Notes.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Notes
validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
the Expiration Date. The Company will issue $1,000 principal amount of
Exchange Notes in exchange for each $1,000 principal amount of outstanding
Notes accepted in the Exchange Offer. Holders may tender some or all of their
Notes pursuant to the Exchange Offer. However, Notes may be tendered only in
integral multiples of $1,000.
The form and terms of the Exchange Notes are the same as the form and terms
of the Notes except that (i) the Exchange Notes bear a Series B designation
and a different CUSIP Number from the Notes, (ii) the Exchange Notes have been
registered under the Securities Act and hence will not bear legends
restricting the transfer thereof and (iii) the holders of the Exchange Notes
will not be entitled to certain rights under the Registration Rights
Agreement, including the provisions providing
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for an increase in the interest rate on the Notes in certain circumstances
relating to the timing of the Exchange Offer, all of which rights will
terminate when the Exchange Offer is terminated. The Exchange Notes will
evidence the same debt as the Notes and will be entitled to the benefits of
the Indenture.
As of the date of this Prospectus, $125,000,000 aggregate principal amount
of Senior Subordinated Notes and $128,000,000 aggregate principal amount of
Senior Subordinated Discount Notes were outstanding. The Company has fixed the
close of business on , 1998 as the record date for the Exchange Offer
for purposes of determining the persons to whom this Prospectus and the Letter
of Transmittal will be mailed initially.
Holders of Notes do not have any appraisal or dissenters' rights under the
General Corporation Law of Delaware or the Indenture in connection with the
Exchange Offer. The Company intends to conduct the Exchange Offer in
accordance with the applicable requirements of the Exchange Act and the rules
and regulations of the Commission thereunder.
The Company shall be deemed to have accepted validly tendered Notes when, as
and if the Company has given oral or written notice thereof to the Exchange
Agent. The Exchange Agent will act as agent for the tendering holders for the
purpose of receiving the Exchange Notes from the Company.
If any tendered Notes are not accepted for exchange because of an invalid
tender, the occurrence of certain other events set forth herein or otherwise,
the certificates for any such unaccepted Notes will be returned, without
expense, to the tendering holder thereof as promptly as practicable after the
Expiration Date.
Holders who tender Notes in the Exchange Offer will not be required to pay
brokerage commissions or fees or, subject to the instructions in the Letter of
Transmittal, transfer taxes with respect to the exchange of Notes pursuant to
the Exchange Offer. The Company will pay all charges and expenses, other than
transfer taxes in certain circumstances, in connection with the Exchange
Offer. See "--Fees and Expenses".
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
, 1998, unless the Company, in its sole discretion, extends the Exchange
Offer, in which case the term "Expiration Date" shall mean the latest date and
time to which the Exchange Offer is extended. Notwithstanding the foregoing,
the Company will not extend the Expiration Date beyond , 1998.
The Company has no current plans to extend the Exchange Offer. In order to
extend the Exchange Offer, the Company will notify the Exchange Agent of any
extension by oral or written notice and will mail to the registered holders an
announcement thereof, each prior to 9:00 a.m., New York City time, on the next
business day after the previously scheduled expiration date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Notes, to extend the Exchange Offer or to terminate the Exchange
Offer if any of the conditions set forth below under "--Conditions" shall not
have been satisfied, by giving oral or written notice of such delay, extension
or termination to the Exchange Agent or (ii) to amend the terms of the
Exchange Offer in any manner. Any such delay in acceptance, extension,
termination or amendment will be followed as promptly as practicable by oral
or written notice thereof to the registered holders.
INTEREST ON THE EXCHANGE NOTES
The Senior Subordinated Exchange Notes will bear interest from their date of
issuance. Holders of Senior Subordinated Notes that are accepted for exchange
will receive, in cash, accrued interest
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thereon to, but not including, the date of issuance of the Exchange Notes.
Such interest will be paid with the first interest payment on the Senior
Subordinated Exchange Notes on June 15, 1998. Interest on the Notes accepted
for exchange will cease to accrue upon issuance of the Exchange Notes.
Interest on the Senior Subordinated Exchange Notes is payable semi-annually on
each June 15 and December 15, commencing on June 15, 1998.
The Senior Subordinated Discount Exchange Notes are being issued at a
substantial discount from their principal amount so as to yield gross proceeds
of approximately $75.4 million. No interest will accrue or be payable on the
Senior Subordinated Discount Exchange Notes prior to December 15, 2002.
Thereafter, interest on the Senior Subordinated Discount Exchange Notes will
accrue and will be payable in cash semi-annually in arrears on June 15 and
December 15 of each year, commencing June 15, 2003.
PROCEDURES FOR TENDERING
Only a holder of Notes may tender such Notes in the Exchange Offer. To
tender in the Exchange Offer, a holder must complete, sign and date the Letter
of Transmittal, or a facsimile thereof, have the signatures thereon guaranteed
if required by the Letter of Transmittal, and mail or otherwise deliver such
Letter of Transmittal or such facsimile, together with the Notes and any other
required documents, to the Exchange Agent prior to 5:00 p.m., New York City
time, on the Expiration Date. To be tendered effectively, the Notes, Letter of
Transmittal and other required documents must be completed and received by the
Exchange Agent at the address set forth below under "Exchange Agent" prior to
5:00 p.m., New York City time, on the Expiration Date. Delivery of the Notes
may be made by book-entry transfer in accordance with the procedures described
below. Confirmation of such book-entry transfer must be received by the
Exchange Agent prior to the Expiration Date.
By executing the Letter of Transmittal, each holder will make to the Company
the representations set forth above in the third paragraph under the heading
"--Purpose and Effect of the Exchange Offer."
The tender by a holder and the acceptance thereof by the Company will
constitute agreement between such holder and the Company in accordance with
the terms and subject to the conditions set forth herein and in the Letter of
Transmittal.
THE METHOD OF DELIVERY OF NOTES AND THE LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND SOLE RISK OF
THE HOLDER. AS AN ALTERNATIVE TO DELIVERY BY MAIL, HOLDERS MAY WISH TO
CONSIDER OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE
EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR NOTES SHOULD BE SENT TO THE
COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL
BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH
HOLDERS.
Any beneficial owner whose Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to
tender should contact the registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf. See
"Instruction to Registered Holder and/or Book-Entry Transfer Facility
Participant from Owner" included with the Letter of Transmittal.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Notes tendered pursuant thereto are tendered (i) by a registered
holder who has not completed the box entitled "Special Registration
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Instructions" or "Special Delivery Instructions" on the Letter of Transmittal
or (ii) for the account of an Eligible Institution. In the event that
signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, are required to be guaranteed, such guarantee must be by a member firm
of the Medallion System (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the registered
holder of any Notes listed therein, such Notes must be endorsed or accompanied
by a properly completed bond power, signed by such registered holder as such
registered holder's name appears on such Notes with the signature thereon
guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, offices of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and evidence satisfactory to the
Company of their authority to so act must be submitted with the Letter of
Transmittal.
The Company understands that the Exchange Agent will make a request promptly
after the date of this Prospectus to establish accounts with respect to the
Notes at the book-entry transfer facility, The Depository Trust Company (the
"Book-Entry Transfer Facility"), for the purpose of facilitating the Exchange
Offer, and subject to the establishment thereof, any financial institution
that is a participant in the Book-Entry Transfer Facility's system may make
book-entry delivery of Notes by causing such Book-Entry Transfer Facility to
transfer such Notes into the Exchange Agent's account with respect to the
Notes in accordance with the Book-Entry Transfer Facility's procedures for
such transfer. Although delivery of the Notes may be effected through book-
entry transfer into the Exchange Agent's account at the Book-Entry Transfer
Facility, an appropriate Letter of Transmittal properly completed and duly
executed with any required signature guarantee and all other required
documents must in each case be transmitted to and received or confirmed by the
Exchange Agent at its address set forth below on or prior to the Expiration
Date, or, if the guaranteed delivery procedures described below are complied
with, within the time period provided under such procedures. Delivery of
documents to the Book-Entry Transfer Facility does not constitute delivery to
the Exchange Agent.
The Depositary and DTC have confirmed that the Exchange Offer is eligible
for the DTC Automated Tender Offer Program ("ATOP"). Accordingly, DTC
participants may electronically transmit their acceptance of the Exchange
Offer by causing DTC to transfer Notes to the Depositary in accordance with
DTC's ATOP procedures for transfer. DTC will then send an Agent's Message to
the Depositary. The term "Agent's Message" means a message transmitted by DTC,
received by the Depositary and forming part of the confirmation of a book-
entry transfer, which states that DTC has received an express acknowledgment
from the participant in DTC tendering Notes which are the subject of such
book-entry confirmation, that such participant has received and agrees to be
bound by the terms of the Letter of Transmittal and that Sealy may enforce
such agreement against such participant. In the case of an Agent's Message
relating to guaranteed delivery, the term means a message transmitted by DTC
and received by the Depositary, which states that DTC has received an express
acknowledgment from the participant in DTC tendering Notes that such
participant has received and agrees to be bound by the Notice of Guaranteed
Delivery.
Notwithstanding the foregoing, in order to validly tender in the Exchange
Offer with respect to Securities transferred pursuant to ATOP, a DTC
participant using ATOP must also properly complete and duly execute the
applicable Letter of Transmittal and deliver it to the Depositary. Pursuant to
authority granted by DTC, any DTC participant which has Notes credited to its
DTC account at any time (and thereby held of record by DTC's nominee) may
directly provide a tender as though it were the registered holder by so
completing, executing and delivering the applicable Letter of Transmittal to
the Depositary. DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO
THE DEPOSITARY.
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All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Notes and withdrawal of tendered Notes will
be determined by the Company in its sole discretion, which determination will
be final and binding. The Company reserves the absolute right to reject any
and all Notes not properly tendered or any Notes the Company's acceptance of
which would, in the opinion of counsel for the Company, be unlawful. The
Company also reserves the right in its sole discretion to waive any defects,
irregularities or conditions of tender as to particular Notes. The Company's
interpretation of the terms and conditions of the Exchange Offer (including
the instructions in the Letter of Transmittal) will be final and binding on
all parties. Unless waived, any defects or irregularities in connection with
tenders of Notes must be cured within such time as the Company shall
determine. Although the Company intends to notify holders of defects or
irregularities with respect to tenders of Notes, neither the Company, the
Exchange Agent nor any other person shall incur any liability for failure to
give such notification. Tenders of Notes will not be deemed to have been made
until such defects or irregularities have been cured or waived. Any Notes
received by the Exchange Agent that are not properly tendered and as to which
the defects or irregularities have not been cured or waived will be returned
by the Exchange Agent to the tendering holders, unless otherwise provided in
the Letter of Transmittal, as soon as practicable following the Expiration
Date.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Notes and (i) whose Notes are not
immediately available, (ii) who cannot deliver their Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent or (iii) who
cannot complete the procedures for book-entry transfer, prior to the
Expiration Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder, the certificate number(s)
of such Notes and the principal amount of Notes tendered, stating that the
tender is being made thereby and guaranteeing that, within five New York
Stock Exchange trading days after the Expiration Date, the Letter of
Transmittal (or facsimile thereof) together with the certificate(s)
representing the Notes (or a confirmation of book-entry transfer of such
Notes into the Exchange Agent's account at the Book-Entry Transfer
Facility), and any other documents required by the Letter of Transmittal
will be deposited by the Eligible Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (of
facsimile thereof), as well as the certificate(s) representing all tendered
Notes in proper form for transfer (or a confirmation of book-entry transfer
of such Notes into the Exchange Agent's account at the Book-Entry Transfer
Facility), and all other documents required by the Letter of Transmittal
are received by the Exchange Agent upon five New York Stock Exchange
trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Notes may be withdrawn at
any time prior to 5:00 p.m., New York City time, on the Expiration Date.
To withdraw a tender of Notes in the Exchange Offer, a telegram, telex,
letter or facsimile transmission notice of withdrawal must be received by the
Exchange Agent at its address set forth herein prior to 5:00 p.m., New York
City time, on the Expiration Date. Any such notice of withdrawal must (i)
specify the name of the person having deposited the Notes to be withdrawn (the
"Depositor"), (ii) identify the Notes to be withdrawn (including the
certificate number(s) and principal amount of such
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Notes, or, in the case of Notes transferred by book-entry transfer, the name
and number of the account at the Book-Entry Transfer Facility to be credited),
(iii) be signed by the holder in the same manner as the original signature on
the Letter of Transmittal by which such Notes were tendered (including any
required signature guarantees) or be accompanied by documents of transfer
sufficient to have the Trustee with respect to the Notes register the transfer
of such Notes into the name of the person withdrawing the tender and (iv)
specify the name in which any such Notes are to be registered, if different
from that of the Depositor. All questions as to the validity, form and
eligibility (including time of receipt) of such notices will be determined by
the Company, whose determination shall be final and binding on all parties.
Any Notes so withdrawn will be deemed not to have been validly tendered for
purposes of the Exchange Offer and no Exchange Notes will be issued with
respect thereto unless the Notes so withdrawn are validly retendered. Any
Notes which have been tendered but which are not accepted for exchange will be
returned to the holder thereof without cost to such holder as soon as
practicable after withdrawal, rejection of tender or termination of the
Exchange Offer. Properly withdrawn Notes may be retendered by following one of
the procedures described above under "--Procedures for Tendering" at any time
prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange Exchange Notes for, any Notes,
and may terminate or amend the Exchange Offer as provided herein before the
acceptance of such Notes, if:
(a) any action or proceeding is instituted or threatened in any court or
by or before any governmental agency with respect to the Exchange Offer
which, in the sole judgment of the Company, might materially impair the
ability of the Company to proceed with the Exchange Offer or any material
adverse development has occurred in any existing action or proceeding with
respect to the Company or any of its subsidiaries; or
(b) any law, statute, rule, regulation or interpretation by the staff of
the Commission is proposed, adopted or enacted, which, in the sole judgment
of the Company, might materially impair the ability of the Company to
proceed with the Exchange Offer or materially impair the contemplated
benefits of the Exchange Offer to the Company; or
(c) any governmental approval has not been obtained, which approval the
Company shall, in its sole discretion, deem necessary for the consummation
of the Exchange Offer as contemplated hereby.
If the Company determines in its sole discretion that any of the conditions
are not satisfied, the Company may (i) refuse to accept any Notes and return
all tendered Notes to the tendering holders, (ii) extend the Exchange Offer
and retain all Notes tendered prior to the expiration of the Exchange Offer,
subject, however, to the rights of holders to withdraw such Notes (see "--
Withdrawal of Tenders") or (iii) waive such unsatisfied conditions with
respect to the Exchange Offer and accept all properly tendered Notes which
have not been withdrawn.
EXCHANGE AGENT
The Bank of New York has been appointed as Exchange Agent for the Exchange
Offer. Questions and requests for assistance, requests for additional copies
of this Prospectus or of the Letter of Transmittal and requests for Notice of
Guaranteed Delivery should be directed to the Exchange Agent addressed as
follows:
The Bank of New York
101 Barclay Street
21st Floor
New York, New York 10286
Delivery to an address other than as set forth above will not constitute a
valid delivery.
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FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telecopy, telephone or in person by officers and
regular employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers, or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay
the Exchange Agent reasonable and customary fees for its services and will
reimburse it for its reasonable out-of-pocket expenses in connection
therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company. Such expenses include fees and expenses of the
Exchange Agent and Trustee, accounting and legal fees and printing costs,
among others.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the Notes,
which is face value, as reflected in the Company's accounting records on the
date of exchange. Accordingly, no gain or loss for accounting purposes will be
recognized by the Company. The expenses of the Exchange Offer will be expensed
over the term of the Exchange Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
The Notes that are not exchanged for Exchange Notes pursuant to the Exchange
Offer will remain restricted securities. Accordingly, such Notes may be resold
only (i) to the Company (upon redemption thereof or otherwise), (ii) so long
as the Notes are eligible for resale pursuant to Rule 144A, to a person inside
the United States whom the seller reasonably believes is a qualified
institutional buyer within the meaning of Rule 144A under the Securities Act
in a transaction meeting the requirements of Rule 144A, in accordance with
Rule 144 under the Securities Act, or pursuant to another exemption from the
registration requirements of the Securities Act (and based upon an opinion of
counsel reasonably acceptable to the Company), (iii) outside the United States
to a foreign person in a transaction meeting the requirements of Rule 904
under the Securities Act, or (iv) pursuant to an effective registration
statement under the Securities Act, in each case in accordance with any
applicable securities laws of any state of the United States.
RESALE OF THE EXCHANGE NOTES
With respect to resales of Exchange Notes, based on interpretations by the
staff of the Commission set forth in no-action letters issued to third
parties, the Company believes that a holder or other person who receives
Exchange Notes, whether or not such person is the holder (other than a person
that is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act) who receives Exchange Notes in exchange for Notes in the
ordinary course of business and who is not participating, does not intend to
participate, and has no arrangement or understanding with person to
participate, in the distribution of the Exchange Notes, will be allowed to
resell the Exchange Notes to the public without further registration under the
Securities Act and without delivering to the purchasers of the Exchange Notes
a prospectus that satisfies the requirements of Section 10 of the Securities
Act. However, if any holder acquires Exchange Notes in the Exchange Offer for
the purpose of distributing or participating in a distribution of the Exchange
Notes, such holder cannot rely on the position of the staff of the Commission
enunciated in such no-action letters or any similar interpretive letters, and
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction, unless an exemption
from registration is otherwise available. Further, each Participating Broker-
Dealer that receives Exchange Notes for its own account
114
<PAGE>
in exchange for Notes, where such Notes were acquired by such Participating
Broker-Dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes.
As contemplated by these no-action letters and the Registration Rights
Agreement, each holder accepting the Exchange Offer is required to represent
to the Company in the Letter of Transmittal that (i) the Exchange Notes are to
be acquired by the holder or the person receiving such Exchange Notes, whether
or not such person is the holder, in the ordinary course of business, (ii) the
holder or any such other person (other than a broker-dealer referred to in the
next sentence) is not engaging and does not intend to engage, in the
distribution of the Exchange Notes, (iii) the holder or any such other person
has no arrangement or understanding with any person to participate in the
distribution of the Exchange Notes, (iv) neither the holder nor any such other
person is an "affiliate" of the Company within the meaning of Rule 405 under
the Securities Act, and (v) the holder or any such other person acknowledges
that if such holder or other person participates in the Exchange Offer for the
purpose of distributing the Exchange Notes it must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale of the Exchange Notes and cannot rely on those no-
action letters. As indicated above, each Participating Broker-Dealer that
receives an Exchange Note for its own account in exchange for Notes must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. For a description of the procedures for such resales by
Participating Broker-Dealers, see "Plan of Distribution".
115
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion (including the opinion of special counsel described
below) is based upon current provisions of the Internal Revenue Code of 1986,
as amended, applicable Treasury regulations, judicial authority and
administrative rulings and practice. There can be no assurance that the
Internal Revenue Service (the "Service") will not take a contrary view, and no
ruling from the Service has been or will be sought. Legislative, judicial or
administrative changes or interpretations may be forthcoming that could alter
or modify the statements and conditions set forth herein. Any such changes or
interpretations may or may not be retroactive and could affect the tax
consequences to holders. Certain holders (including insurance companies, tax-
exempt organizations, financial institutions, broker-dealers, foreign
corporations and persons who are not citizens or residents of the United
States) may be subject to special rules not discussed below. The Company
recommends that each holder consult such holder's own tax advisor as to the
particular tax consequences of exchanging such holder's Notes for Exchange
Notes, including the applicability and effect of any state, local or foreign
tax laws.
Kirkland & Ellis, special counsel to the Company, has advised the Company
that in its opinion, the exchange of the Notes for Exchange Notes pursuant to
the Exchange Offer will not be treated as an "exchange" for federal income tax
purposes because the Exchange Notes will not be considered to differ
materially in kind or extent from the Notes. Rather, the Exchange Notes
received by a holder will be treated as a continuation of the Notes in the
hands of such holder. As a result, there will be no federal income tax
consequences to holders exchanging Notes for Exchange Notes pursuant to the
Exchange Offer.
PLAN OF DISTRIBUTION
Each Participating Broker-Dealer that receives Exchange Notes for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be
used by a Participating Broker-Dealer in connection with resales of Exchange
Notes received in exchange for Notes where such Notes were acquired as a
result of market-making activities or other trading activities. The Company
has agreed that for a period of 180 days after the Expiration Date, it will
make this Prospectus, as amended or supplemented, available to any
Participating Broker-Dealer for use in connection with any such resale. In
addition, until [ ], 1998, all dealers effecting transactions in the
Exchange Notes may be required to deliver a prospectus.
The Company will not receive any proceeds from any sales of the Exchange
Notes by Participating Broker-Dealers. Exchange Notes received by
Participating Broker-Dealers for their own account pursuant to the Exchange
Offer may be sold from time to time in one or more transactions in the over-
the-counter market, in negotiated transactions, through the writing of options
on the Exchange Notes or a combination of such methods of resale, at market
prices prevailing at the time of resale, at prices related to such prevailing
market prices or negotiated prices. Any such resale may be made directly to
purchaser or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any such Participating Broker-
Dealer and/or the purchasers of any such Exchange Notes. Any Participating
Broker-Dealer that resells the Exchange Notes that were received by it for its
own account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of Exchange Notes and any commissions or concessions received by
any such persons may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states that by acknowledging that it
will deliver and by delivering a prospectus, a Participating Broker-Dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
116
<PAGE>
For a period of 180 days after the Expiration Date the Company will promptly
send additional copies of this Prospectus and any amendment or supplement to
this Prospectus to any Participating Broker-Dealer that requests such
documents in the Letter of Transmittal.
LEGAL MATTERS
Certain legal matters in connection with the issuance of the Exchange Notes
offered hereby will be passed upon for the Company by Kirkland & Ellis, New
York, New York.
EXPERTS
The financial statements of Sealy Corporation as of November 30, 1997 and
December 1, 1996 and for each of the years in the three-year period ended
November 30, 1997, have been included herein and in the registration statement
in reliance upon the report of KPMG Peat Marwick LLP, independent certified
public accountants, appearing elsewhere herein, and upon the authority of said
firm as experts in accounting and auditing.
117
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
SEALY CORPORATION
<TABLE>
<S> <C>
Consolidated Financial Statements:
Report of independent auditors.......................................... F-2
Consolidated balance sheets as of November 30, 1997 and December 1,
1996................................................................... F-3
Consolidated statements of operations for the years ended November 30,
1997, December 1, 1996 and November 30, 1995........................... F-6
Consolidated statements of stockholders' equity for the years ended
November 30, 1997, December 1, 1996 and November 30, 1995.............. F-7
Consolidated statements of cash flows for the years ended November 30,
1997, December 1, 1996 and November 30, 1995........................... F-8
Notes to consolidated financial statements.............................. F-9
Condensed Consolidated Financial Statements:
Condensed consolidated statements of income for the quarters ended March
1, 1998 and March 2, 1997.............................................. F-37
Condensed consolidated balance sheets as of March 1, 1998 and November
30, 1997............................................................... F-38
Condensed consolidated statements of cash flows for the quarters ended
March 1, 1998 and March 2, 1997........................................ F-39
Notes to condensed consolidated financial statements.................... F-40
</TABLE>
F-1
<PAGE>
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 November 30, 1997 and December 1, 1996, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the years in the three-year period ended November 30,
1997. 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 November 30, 1997 and December 1, 1996, and
the results of their operations and their cash flows for each of the years in
the three-year period ended November 30, 1997 in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Cleveland, Ohio
January 7, 1998
F-2
<PAGE>
SEALY CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PAR VALUE AMOUNTS)
<TABLE>
<CAPTION>
NOVEMBER 30, DECEMBER 1,
1997 1996
------------ -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $ 6,057 $ 16,619
Accounts receivable, less allowance for doubtful
accounts (1997--$7,696; 1996--$6,814).............. 93,918 77,179
Inventories......................................... 46,007 33,992
Net assets held for sale............................ -- 35,492
Prepaid expenses.................................... 7,935 2,587
Prepaid taxes....................................... 14,594 1,522
Deferred income taxes............................... -- 6,337
-------- --------
168,511 173,728
Property, plant and equipment--at cost:
Land................................................ 9,760 12,109
Buildings and improvements.......................... 53,890 53,741
Machinery and equipment............................. 86,248 82,664
Construction in progress............................ 19,705 7,549
-------- --------
169,603 156,063
Less accumulated depreciation....................... 43,995 34,697
-------- --------
125,608 121,366
Other assets:
Goodwill--net of accumulated amortization (1997--
$57,261; 1996--$45,532)............................ 406,778 428,460
Patents and other intangibles--net of accumulated
amortization (1997--$6,540; 1996--$5,187).......... 4,491 5,844
Debt issuance costs, net, and other assets.......... 15,679 10,530
-------- --------
426,948 444,834
-------- --------
$721,067 $739,928
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
SEALY CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PAR VALUE AMOUNTS)
<TABLE>
<CAPTION>
NOVEMBER 30, DECEMBER 1,
1997 1996
------------ -----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion--long-term obligations.............. $ -- $ 18,620
Accounts payable.................................... 49,676 35,797
Accrued expenses:
Customer incentives and advertising............... 30,704 20,704
Compensation...................................... 17,771 14,047
Other............................................. 20,200 23,691
Deferred income taxes............................. 1,936 --
-------- --------
120,287 112,859
-------- --------
Long-term obligations................................. 330,000 269,507
Other noncurrent liabilities.......................... 35,713 34,822
Deferred income taxes................................. 30,001 29,746
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 (1997--29,932; 1996--
29,409)............................................ 299 294
Class B common stock, $.01 par value; Authorized,
500 shares, Issued (1997--11; 1996--11)............ -- --
Additional paid-in capital.......................... 257,320 256,489
Retained (deficit) earnings......................... (50,614) 37,418
Foreign currency translation adjustment............. (1,939) (1,207)
-------- --------
205,066 292,994
-------- --------
Commitment and contingencies.......................... -- --
-------- --------
$721,067 $739,928
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
F-5
<PAGE>
SEALY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------
NOVEMBER 30, DECEMBER 1, NOVEMBER 30,
1997 1996 1995
------------ ----------- ------------
<S> <C> <C> <C>
Net sales................................ $804,834 $697,638 $653,942
-------- -------- --------
Cost and expenses:
Cost of goods sold..................... 455,905 397,259 362,416
Selling, general and administrative
(including provisions for bad debts of
$4,528, $918 and $812, respectively).. 262,023 216,674 216,670
Loss on net assets held for sale....... -- 11,762 --
Stock based compensation............... 1,635 4,779 (13,260)
Amortization of intangibles............ 13,264 13,594 14,056
Interest expense, net.................. 31,396 28,797 31,018
-------- -------- --------
Income before income taxes,
extraordinary item, and cumulative
effect of change in accounting
principle........................... 40,611 24,773 43,042
Income taxes............................. 22,509 25,279 23,572
-------- -------- --------
Income/(loss) before extraordinary item
and cumulative effect of change in
accounting principle.................. 18,102 (506) 19,470
Extraordinary item--loss from early
extinguishment of debt (net of income
tax benefit of $1,353) (Note 16)........ 2,030 -- --
Cumulative effect of change in accounting
principle (net of income tax benefit of
$2,885) (Note 15)....................... 4,329 -- --
-------- -------- --------
Net income/(loss).................... $ 11,743 $ (506) $ 19,470
======== ======== ========
Earnings/(loss) per common share:
Before extraordinary item and
cumulative effect of change in
accounting principle.................. $ 0.59 $ (0.02) $ 0.65
Extraordinary item..................... (0.07) -- --
Cumulative effect of change in
accounting principle.................. (0.14) -- --
-------- -------- --------
Net earnings/(loss) per common
share............................... $ 0.38 $ (0.02) $ 0.65
======== ======== ========
Weighted average number of common shares
and equivalents outstanding during
period.................................. 30,880 29,428 30,143
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
SEALY CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
CLASS A CLASS B FOREIGN
-------------- ------------- ADDITIONAL RETAINED CURRENCY
COMMON STOCK COMMON STOCK PAID-IN EARNINGS TRANSLATION
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT) ADJUSTMENT TOTAL
------ ------ ------ ------ ---------- --------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
Net Income............. -- -- -- -- -- 11,743 -- 11,743
Management stock
award................. 285 3 -- -- 1,299 -- -- 1,302
Performance share
plan.................. 233 2 -- -- (134) -- -- (132)
Exercised stock
options............... 5 -- -- -- 29 -- -- 29
Valuation adjustment on
common stock and
warrants subject to
repurchase............ -- -- -- -- (363) -- -- (363)
Dividend............... -- -- -- -- -- (99,775) -- (99,775)
Foreign currency
translation........... -- -- -- -- -- -- (732) (732)
------ ---- --- ---- -------- -------- ------- --------
November 30, 1997....... 29,932 $299 11 $-- $257,320 $(50,614) $(1,939) $205,066
====== ==== === ==== ======== ======== ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
SEALY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------
NOVEMBER 30, DECEMBER 1, NOVEMBER 30,
1997 1996 1995
------------ ----------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income/(loss)...................... $ 11,743 $ (506) $ 19,470
Adjustments to reconcile net
income/(loss) to net cash provided by
operating activities:
Depreciation........................... 10,851 13,037 10,144
Cumulative effect of change in
accounting principle.................. 7,214 -- --
Extraordinary item--early
extinguishment of debt................ 3,383 -- --
Loss on net assets held for sale....... -- 11,762 --
Loss on disposal of assets............. 1,061 178 813
Stock based compensation............... 1,165 4,779 (13,260)
Deferred income taxes.................. 8,528 5,781 11,974
Amortization of:
Intangibles.......................... 13,264 13,594 14,056
Debt issuance cost................... 1,841 2,683 3,136
Other, net............................. (4,449) 922 (1,502)
Changes in operating assets and
liabilities:
Accounts receivable.................... (16,739) (4,119) (3,975)
Inventories............................ (12,015) (5,543) 7,267
Prepaid expenses....................... (5,348) (821) 952
Prepaid taxes.......................... (3,119) (1,522) --
Accounts payable/accrued expenses/other
noncurrent liabilities................ 24,669 4,192 14,252
-------- -------- --------
Net cash provided by operating
activities........................ 42,049 44,417 63,327
-------- -------- --------
Cash flows from investing activities:
Purchase of property, plant and
equipment............................. (29,140) (12,045) (11,804)
Proceeds from sale of subsidiary....... 35,000 -- --
Proceeds from sale of property, plant
and equipment......................... 5,561 1,089 7,468
-------- -------- --------
Net cash provided by (used in)
investing activities.............. 11,421 (10,956) (4,336)
-------- -------- --------
Cash flows from financing activities:
Repayment of long-term obligations..... (63,127) (23,727) (62,952)
Net borrowing from Revolving Credit
Facility.............................. 105,000 25,000 --
Dividend............................... (99,775) (35,463) --
Debt issuance costs.................... (6,130) -- --
-------- -------- --------
Net cash used in financing activi-
ties.............................. (64,032) (34,190) (62,952)
-------- -------- --------
Change in cash and cash equivalents...... (10,562) (729) (3,961)
Cash and cash equivalents:
Beginning of period.................... 16,619 17,348 21,309
-------- -------- --------
End of period.......................... $ 6,057 $ 16,619 $ 17,348
======== ======== ========
Supplemental disclosures:
Taxes paid, net........................ $ 12,432 $ 14,334 $ 9,405
Interest paid, net..................... $ 29,523 $ 26,487 $ 28,670
Other non-cash activity:
Goodwill reduction resulting from pre-
acquisition net operating loss
utilization........................... $ 9,953 -- --
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
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" or the "Parent"), is engaged in the home
furnishings business and manufactures, distributes and sells conventional
bedding products including mattresses and foundations. Substantially all of
the Company's trade accounts receivable are from retail businesses. The
Company recognizes revenue upon shipment of goods to customers.
The Company purchases substantially all of its Stearns & Foster foundation
parts and approximately 50% of its Sealy foundation parts from one vendor,
which has patents on various interlocking wire configurations. While the
Company attempts to reduce the risks of dependence on a single external
source, there can be no assurance that there would not be an interruption of
production if this vendor or any other vendor were to discontinue supplying
the Company for any reason.
(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) INTERNATIONAL OPERATIONS
The Company translates the assets and liabilities of its non-U.S.
subsidiaries at the exchange rates in effect at year-end and the results of
operations at the average rate throughout the year. The translation
adjustments are recorded directly as a separate component of shareholders'
equity, while transaction gains (losses) are included in net income.
(D) 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.
(E) 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.
(F) 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 cash
flows. 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.
F-9
<PAGE>
SEALY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Other intangibles include patents and trademarks which are amortized on the
straight-line method over periods ranging from 5 to 20 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.
(G) 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.
(H) 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.
(I) ADVERTISING COSTS
The Company expenses all advertising costs as incurred. Advertising expenses
for the years ended November 30, 1997, December 1, 1996, and November 30, 1995
amounted to $97,314, $74,649 and $92,726, respectively.
(J) COMMITMENTS AND CONTINGENCIES
Liabilities for loss contingencies, including environmental remediation
costs, arising from claims, assessments, litigation, fines and penalties, and
other sources are recorded when it is probable that a liability has been
incurred and the amount of the assessment and/or remediation can be reasonably
estimated. Recoveries from third parties which are probable of realization are
separately recorded, and are not offset against the related environmental
liability, in accordance with Financial Accounting Standards Board
Interpretation No. 39, Offsetting of Amounts Related to Certain Contracts.
(K) 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.
(L) RECLASSIFICATION
Certain reclassifications of previously reported financial information were
made to conform to the 1997 presentation.
F-10
<PAGE>
SEALY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(M) 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 1997 fiscal year ended on November 30, the 1996 fiscal
year ended on December 1 and the 1995 fiscal year 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 November 30,
1997 and December 1, 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Raw materials.............................................. $26,251 $18,300
Work in process............................................ 12,594 11,624
Finished goods............................................. 7,162 4,068
------- -------
$46,007 $33,992
======= =======
</TABLE>
(3) LONG-TERM OBLIGATIONS
Long-term debt as of November 30, 1997 and December 1, 1996 consisted of the
following:
<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
$275,000,000 Second Restated Secured Credit Agreement-
Revolving Credit Facility............................ $130,000 $ --
1994 Restated Credit Agreement:
Revolving Credit Facility........................... -- 25,000
Term Loan Facility.................................. -- 63,052
10 1/4% Senior Subordinated Notes..................... 200,000 200,000
Other................................................. -- 75
-------- --------
330,000 288,127
Less current portion.................................. -- 18,620
-------- --------
$330,000 $269,507
======== ========
</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 provided sublimits for a $30 million discretionary letter of
credit facility ("Letters of Credit") and a discretionary swing loan facility
of up to $5 million.
F-11
<PAGE>
SEALY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The $275,000,000 Second Restated Secured Credit Agreement (the "1997 Credit
Agreement") was consummated on February 25, 1997 and consists of a $275
million reducing revolving credit facility with a $25 million discretionary
letter of credit facility and a discretionary swing loan facility of up to $20
million ("Revolving Credit Facility"). 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
COMMITMENT REVOLVER
REDUCTION DATE REDUCTION COMMITMENT
-------------- ----------- ------------
<S> <C> <C>
November 29, 1998................................. $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 any 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 on the
Company's total senior debt to adjusted EBITDA ratio. For the first six months
of the 1997 Credit Agreement, the margin on the Eurodollar rate borrowing was
1.25%. In September, 1997, the margin decreased to 1.0% and remained as such
through November 30, 1997. The initial commitment fee, which is also subject
to a pricing grid, was 0.375% during the first six months of the 1997 Credit
Agreement. In September 1997, the commitment fee decreased to 0.3% and
remained as such through November 30, 1997.
During the twelve months ended November 30, 1997, the maximum amount
outstanding under the Revolving Credit Facility, excluding Letters of Credit,
was $160 million. At November 30, 1997, the Company had approximately $135
million available under the Revolving Credit Facility, with Letters of Credit
issued totaling approximately $10 million. The Company's net weighted average
borrowing cost was 9.0% for fiscal 1997 and 1996.
All obligations of the Company under the 1997 Credit Agreement are jointly
and severally guaranteed by each direct and indirect domestic subsidiary of
the Company and secured by the 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; however, such security is
subject to release upon the Company attaining specified senior unsecured
(either actual or implied) credit ratings. The Company also is subject to
certain affirmative and negative covenants under both the 1997 Credit
Agreement and the Indenture relating to its 10 1/4% Senior Subordinated Notes
due 2003, including requirements and restrictions with respect to capital
expenditures, dividends, maximum leverage and other financial ratios.
The 10 1/4% (formerly 9 1/2%) Senior Subordinated Notes (the "Parent 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 Parent Notes were
issued (the "Parent Note Indenture"). The Parent Notes are subordinated to all
existing and future Senior Debt of the Company as defined in the Parent Note
Indenture.
F-12
<PAGE>
SEALY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Pursuant to a Solicitation of Consents dated as of January 24, 1997, as
subsequently amended (the "Consent Solicitation"), the Company solicited
consents from the record holders (the "Registered Holders") of its Parent
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 provided 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.
In December, 1997, the Company completed a Recapitalization which included
the tendering of Parent Notes and repayment of Parent indebtedness under the
1997 Credit Agreement. See Note 16, Subsequent Events.
(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 November 30, 1997.
<TABLE>
<CAPTION>
COMMITMENTS UNDER
------------------
SUBLEASE
OPERATING RENTAL
FISCAL YEAR LEASES INCOME
----------- --------- --------
(IN THOUSANDS)
<S> <C> <C>
1998.................................................... $ 8,028 $102
1999.................................................... 6,357 --
2000.................................................... 5,663 --
2001.................................................... 4,349 --
2002.................................................... 3,830
Later years............................................. 10,264 --
------- ----
$38,491 $102
======= ====
</TABLE>
Rental expense charged to operations is as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
NOV. 30, 1997 DEC. 1, 1996 NOV. 30, 1995
------------- ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Minimum rentals................... $ 9,153 $ 9,096 $9,084
Contingent rentals (based upon
delivery equipment mileage)...... 1,361 1,067 809
------- ------- ------
$10,514 $10,163 $9,893
======= ======= ======
</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.
F-13
<PAGE>
SEALY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(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 the 1997 Stock Option Plan
("1997 Plan") in 1996 and reserved 100,000 shares, 600,000 shares and
2,400,000 shares, respectively, of Class A Common Stock of the Company (the
"Shares") for future issuance. Options under the 1989 Plan, the 1992 Plan and
the 1997 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.
Prior to fiscal year 1995, the Company issued options under the 1989 Plan
totaling 3,300 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 options outstanding (net of forfeitures) and the related exercise price
for all 1989 Plan options as of November 30, 1997 adjusted for the dividends
paid on May 17, 1997 and February 28, 1997 were 4,862 Shares and $34.02. No
1989 Plan options have been exercised since the date of grant.
Outstanding options (net of subsequent forfeitures) and the related exercise
prices adjusted for the dividends paid in May 17, 1996 and February 28, 1997
under the 1992 Plan are as follows: 63,158 granted in June, 1992 with an
exercise price of $5.12 per Share; 67,584 granted in June, 1993 with an
exercise price of $6.16 per Share; 77,175 granted in June, 1994 with an
exercise price of $9.17 per Share; 105,105 granted in June, 1995 with an
exercise price of $10.85 per Share and 130,830 granted in June, 1996 with an
exercise price of $7.23 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 11,958 shares were exercised during the three years ended
November 30, 1997. At November 30, 1997, options for 351,833 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. 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, 1996 and 1997 with a fixed exercise price of $15.95,
$10.63 and $9.60 per Share, respectively. The options outstanding (net of
forfeitures) and their related strike prices at November 30, 1997 adjusted for
the dividends paid on May 17, 1996 and February 28, 1997 are 60,780 Shares at
$6.21, 30,384 Shares at $10.52, 26,872 Shares at $7.01, and 20,000 Shares at
$9.60 for the 1993, 1995, 1996 and 1997 grants, respectively. As of November
30, 1997 no options under the 1993 Plan have been exercised.
F-14
<PAGE>
SEALY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In 1996, pursuant to an employment agreement with the Company's CEO, the
Company granted him an aggregate of 67,635 shares of restricted stock with a
fair value of $637,800 at date of grant. The restricted stock was to vest 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 587,342 Shares at an exercise price of $7.23 per Share (representing fair
market value at the time of grant) adjusted for the dividends paid on May 17,
1997 and February 28, 1997. The stock options were to vest at a rate of 25% at
each anniversary date of the grant. On May 31, 1997 the Human Resources
Committee, under the 1997 Plan, granted the CEO a ten-year stock option to
acquire up to 75,000 Shares at an exercise price of $9.60 per Share
(representing fair market value of the time of grant).
In May 1997, the Company granted ten-year stock options to acquire 921,400
shares at an exercise price of $9.60 per share (representing fair market value
at the time of grant). The options vest 50% on the third anniversary date of
the grant and 50% on the fourth anniversary date of the grant. Outstanding
options (net of forfeitures) at November 30, 1997 were 910,200.
As permitted by SFAS No. 123, Accounting for Stock-Based Compensation, the
Company continues to account for its stock option and stock incentive plans in
accordance with Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees, and makes no charges against capital with respect
to options granted. SFAS No. 123 does however require the disclosure of pro
forma information regarding Net income and Earnings per share determined as if
the Company had accounted for its stock options under the fair value method.
For purposes of this pro forma disclosure the estimated fair value of the
options is amortized to expense over the options' vesting period.
<TABLE>
<CAPTION>
1997 1996
------- ------
<S> <C> <C> <C>
Net income (loss)............................. As reported $11,743 $ (506)
Pro forma $10,814 $ (892)
Net Earnings (loss) per share................. As reported $ 0.38 $(0.02)
Pro forma $ 0.35 $(0.03)
</TABLE>
Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to Fiscal 1996 and all related Plans were terminated
effective December 18, 1997, the above pro forma effect may not be
representative of that to be expected in future years.
F-15
<PAGE>
SEALY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The fair value for all options granted in Fiscal 1997 and 1996 were
estimated at the date of grant using a Black-Scholes option pricing model with
the following weighted-average assumptions: the expected life for all options
is seven years; the expected dividend yield for all stock is zero percent and
the expected volatility of all stock is zero percent. Adjustments were made to
the then outstanding options and related stock prices as a result of the
dividends paid on May 17, 1996 and February 28, 1997. Such adjustments were
treated as modifications of outstanding awards in accordance with SFAS No.
123. The risk free interest rates utilized for the grants made during Fiscal
1997 and 1996 and for the May 1996 and February 1997 modifications of all then
outstanding grants are as follows:
<TABLE>
<CAPTION>
RISK FREE INTEREST RATE
-----------------------------------
ORIGINAL MODIFICATION MODIFICATION
OPTION GRANT DATE GRANT MAY 1996 FEBRUARY 1997
----------------- -------- ------------ -------------
<S> <C> <C> <C>
1989 Plan:
December 1989........................ -- -- 5.15%
1992 Plan:
June 1992............................ -- -- 6.06%
June 1993............................ -- -- 6.22%
June 1994............................ -- -- 6.31%
June 1995............................ -- -- 6.38%
June 1996............................ 6.77% -- 6.46%
1993 Plan:
March 1993........................... -- 6.26% 6.46%
June 1995............................ -- 6.51% 6.46%
June 1996............................ 6.77% -- 6.46%
May 1997............................. 6.64% -- --
CEO Award:
March 1996........................... 5.82% -- 6.46%
1997 Plan:
June 1997............................ 6.64% -- --
</TABLE>
A summary of the status and changes of shares subject to options and the
related average price per share is as follows:
<TABLE>
<CAPTION>
SHARES SUBJECT AVERAGE OPTION
TO OPTIONS PRICE PER SHARE
-------------- ---------------
<S> <C> <C>
Outstanding November 30, 1995............... 346,450 $12.41
--------- ------
Granted................................... 531,500 $10.58
Adjustment................................ 7,622 --
Canceled.................................. (37,500) 11.66
--------- ------
Outstanding December 1, 1996................ 848,072 11.19
--------- ------
Granted................................... 941,400 9.40
Adjustment................................ 341,478 --
Exercised................................. (4,958) 5.82
Canceled.................................. (41,700) 10.81
--------- ------
Outstanding November 30, 1997............... 2,084,292 $ 8.52
========= ======
</TABLE>
F-16
<PAGE>
SEALY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Options exercisable and shares available for future grant at Fiscal Year
End:
<TABLE>
<CAPTION>
1997 1996 1995
--------- ------- -------
<S> <C> <C> <C>
Options exercisable.............................. 641,895 312,447 225,450
Weighted-average option price per share of
options exercisable............................. $7.91 $11.29 $11.39
Weighted-average fair value of options granted
during the year................................. $9.60 $10.63 $15.95
Shares available to grant........................ 1,741,086 339,550 413,550
</TABLE>
The ranges of exercise prices and the remaining contractual life of options
as of November 30, 1997 were:
<TABLE>
<CAPTION>
RANGE OF EXERCISE PRICES $5.12 TO $10.85 $34.02
------------------------ --------------- --------
<S> <C> <C>
Options outstanding:
Outstanding as of November 30, 1997............ 2,079,430 4,862
Weighted-average remaining contractual life.... 8.4 Yrs. 2.0 Yrs.
Weighted-average exercise price................ $8.44 $34.02
Options exercisable:
Outstanding as of November 30, 1997............ 637,033 4,862
Weighted-average remaining contractual life.... 7.0 Yrs. 2.0 Yrs.
Weighted-average exercise price................ $7.66 $34.02
</TABLE>
In 1996, the Company adopted the 1996 Transitional Restricted Stock Plan
(the "1996 Transitional 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 to 32 senior executives of the Company
(including 15,800 shares each to Mr. Fazio, Mr. Fellmy, Mr. McIlquham and Mr.
Rogers) under the Plan with a fair value of $3,632,874 at date of grant. 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. During Fiscal 1997, 35,800 Shares were forfeited and 39,700 additional
Shares were issued to three senior executives of the Company (none of whom
were Named Executive Officers) resulting in Shares outstanding at November 30,
1997 of 285,300.
As a result of the Recapitalization (see Note 16) effective on December 18,
1997, the Human Resources Committee of the Company's Board of Directors
removed all restrictions on the then outstanding restricted stock issued under
the 1996 Transitional Plan and those shares were paid out as a result of the
Recapitalization at the Recapitalization share price of $14.3027. As of
December 18, 1997, the Human Resources Committee accelerated vesting of the
Company issued and then outstanding stock options under the 1989 Plan, 1992
Plan, 1993 Plan and 1997 Plan (collectively the "Terminated Stock Option
Plans"); terminated the Terminated Stock Option Plans; and paid each holder of
options under the Terminated Stock Option Plans reasonable compensation for
such terminations which compensation was equal to the spread between the
Merger share price of $14.3027 and the respective per share exercise price for
the terminated stock options. Prior to December 18, 1997 certain members of
senior management were offered and elected to cancel their options under the
Terminated Stock Option Plans and their restricted stock under the 1996
Transitional Plan. Those senior executives received nonqualified stock options
which were subsequently cancelled and exchanged on December 18, 1997 for ten-
year stock options to acquire 145,516 shares of the Company's post-
Recapitalization Class L Common Stock at an exercise price of $10.125 per
share
F-17
<PAGE>
SEALY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
and ten-year stock options to acquire 1,309,644 shares of the Company's post-
Recapitalization Class A Common Stock at an exercise price of $0.125 per
share. See Note 16 for description of new Class A and Class L Common shares.
These options were fully vested at the time of grant and the exercise price
was set at 25% of fair market value at the time of grant.
(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 ENDED YEAR ENDED YEAR ENDED
NOV. 30, 1997 DEC. 1, 1996 NOV. 30, 1995
------------- ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal......................... $10,679 $15,494 $ 6,384
State and local................. 2,616 1,196 1,404
Canada, Commonwealth of Puerto
Rico and Mexico................ 4,016 2,808 3,810
------- ------- -------
17,311 19,498 11,598
Deferred.......................... 5,198 5,781 11,974
------- ------- -------
Income tax expense................ $22,509 $25,279 $23,572
======= ======= =======
</TABLE>
Income before income taxes from Canadian operations amounted to $8,643,
$7,042 and $7,247, for the years ended November 30, 1997, December 1, 1996 and
November 30, 1995.
The differences between the effective tax rate and the statutory U.S.
Federal income tax rate are explained as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
NOV. 30, 1997 DEC. 1, 1996 NOV. 30, 1995
------------- ------------ -------------
<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........... 6.2 6.1 4.5
Permanent differences resulting
from purchase accounting......... 9.4 16.1 9.6
Foreign tax rate differential and
effects of foreign earnings
repatriation..................... 3.5 6.5 5.4
Sale of subsidiary................ 1.8 37.3 --
Other items, net.................. (0.5) 1.0 0.3
---- ----- ----
55.4% 102.0% 54.8%
==== ===== ====
</TABLE>
At November 30, 1997 and December 1, 1996, the total deferred tax assets and
deferred tax liabilities were $15,571 and $19,265, $47,508 and $42,674,
respectively. The significant components of the deferred tax assets were
accrued salaries and benefits of $7,669 and $7,447, respectively and net
operating loss carryforwards of $3,577 in Fiscal 1996, and the deferred tax
liabilities relating to property, plant and equipment were $21,445 and $23,601
and intangible assets of $12,262 and $13,204, respectively.
F-18
<PAGE>
SEALY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
During 1997, goodwill was reduced by $9,953 for the utilization of
previously unrecognized pre-acquisition net operating loss carryforwards.
(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 $5.9 million, $5.0 million, and $5.4 million for
the years ended November 30, 1997, December 1, 1996, and November 30, 1995,
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, entitled 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 November 30, 1997, the Series A and Series B Warrants
were exercisable into 4,337,959 and 1,686,446 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, 1996 Transitional 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 November 30, 1997 were 1.0207 and $15.6751 per share and
1.0207 and $22.0431 per share, respectively and at December 1, 1996 were
1.0115 and $15.8182 per share and 1.0115 and $22.2444 per share, respectively,
The Restructure Warrants were 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. On October 27, 1997, the
Company's Board of Directors, in connection with the Recapitalization (see
Note 16), authorized such a redemption effective February 3, 1998 (the
"Redemption Date") of all outstanding Restructure Warrants. In accordance with
criteria set forth in the Warrant Agreement and as defined in the Warrant
Agreement, two independent financial firms performed a valuation effective
December 2, 1997 and established a redemption price. The redemption price was
$0.9411 for each Series A Warrant and $0.3777 for each Series B Warrant.
Holders were given the option to exercise their Restructure Warrants prior to
the redemption date, surrender their certificates representing their
Restructure Warrants and receive the redemption price within five business
days of the surrender, or receive the redemption price within five business
days of the Redemption Date.
F-19
<PAGE>
SEALY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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, 1996 Transitional 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 December 1, 1996 and
47.98 to 1 on November 30, 1997.
The Merger Warrants became exercisable subsequent to August 9, 1995. As a
result of exercised Merger Warrants, 607 and 2,085 shares of Class B Common
Stock were issued in Fiscal 1997 and 1996, respectively.
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 November 30, 1997
and December 1, 1996 are exercisable into an aggregate of 203,751 and 207,747
shares of Class B Common Stock, respectively.
As a result of the Recapitalization (see Note 16) effective on December 18,
1997, Merger Warrant holders upon exercise of their Merger Warrants at a
conversion rate of 47.98 to 1 are entitled only to receive a cash payment of
$14.2927 which is the spread between the Recapitalization share price of
$14.3027 and the Merger Warrant exercise price of $0.01. As a result of the
Recapitalization, Warrants not exercised prior to such Recapitalization can no
longer be converted to Class B shares and upon subsequent exercise will
receive the same amount in cash without interest. As of December 17, 1997, the
Company forwarded to a third party paying agent the amount necessary to fund
the future cash requirements with respect to remaining then outstanding Merger
Warrants and Class B Common Stock.
(9) COMMON STOCK
Prior to the Merger, holders of Class A Common Stock were entitled to one
vote per share on all matters submitted to a vote of stockholders while the
holders of Class B Common Stock were 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 were identical. Shares of Class B Common Stock,
under certain circumstances, were convertible into shares of Class A Common
Stock. In connection with the Recapitalization (see Note 16), new Class A, B,
L and M Common Shares were issued.
(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 in January 1997.
F-20
<PAGE>
SEALY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
(11) SUMMARY OF INTERIM FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
NET INCOME/ EARNINGS PER
NET SALES GROSS PROFIT (LOSS) COMMON SHARE
------------ ------------- ------------ -------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1997:
First quarter......... $ 168,904 $ 72,890 $ 1,158 $ 0.04
Second quarter........ 180,625 80,951 3,282 0.11
Third quarter......... 229,919 101,864 7,917 0.26
Fourth quarter........ 225,386 93,224 (614) (0.02)
1996:
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>
During the first and fourth quarters of Fiscal 1997, the Company recorded an
after-tax loss of $2.0 million ($0.07 per share), from early extinguishment of
debt in connection with the Refinancing, and
$4.3 million ($0.14 per share), from write-offs in connection with EITF 97-13
(see Note 15), respectively. During the fourth quarter of Fiscal 1996, the
Company recorded an after-tax loss on 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.
(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 previously 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. The Company and its
subsidiary have retained primary responsibility 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
F-21
<PAGE>
SEALY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
of the site. In 1997, the Company with DEP approval completed essentially all
soil remediation and conducted 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. In March,
1997, the Company received $1.7 million from a former owner of the site and
one of the lenders to the former owner in final settlement of this litigation
which was recorded as an increase to other non-current liabilities.
In January 1997, the Company filed a claim in the U.S. District Court of New
Jersey against former insurance companies for the Company under the
Comprehensive Environmental Response, Compensation and Liability Act seeking
contribution for site investigation and remedial costs. A parallel case
seeking a judgement of non-liability was filed by some (but not all) of these
insurance companies in the U.S. District Court for the Northern District of
Ohio. The Company is awaiting a ruling by the District Courts involved.
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.
On May 22, 1997, the Company filed in the United States District Court for
the Northern District of Illinois a motion to terminate certain antitrust
final judgments ("the Judgments") entered on December 30, 1964 and December
26, 1967. These Judgements, among other things, prohibited the Company from
suggesting resale prices to its dealers. During the pendency of the Company's
motion to terminate the Judgments, and based upon allegations received by the
Department of Justice ("the Department") concerning a possible resale price
maintenance agreement with a Stearns & Foster dealer, the Department, on
September 8, 1997, issued to the Company a Civil Investigative Demand seeking
documents relating to, among other things, communications between the Company
and dealers concerning the retail price of mattresses. In response to the
Civil Investigative Demand, the Company produced certain documents and the
deposition of a Company executive was taken. Immediately following such
document production and deposition, the Department consented to the
termination of the Judgments and an order terminating the Judgments was
entered by the Court on September 19, 1997. After the Court terminated the
Judgments, the Department notified the Company on September 29, 1997 that it
was limiting the Civil Investigative Demand to certain narrow specifications.
In October 1997, the Company produced additional documents in response to the
Civil Investigative Demand. On November 24, 1997 the Company received a
request from the Department for clarification and additional information. The
Company has responded to that request.
(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
F-22
<PAGE>
SEALY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
interest rate adjusts to market interest rates. The fair value of long-term
debt under the 10 1/4% Senior Subordinated Notes, based on a quoted market
price, was $215 million and $201 million at November 30, 1997 and December 1,
1996, 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) CUSTOMER RECEIVABLE
On July 7, 1997, Montgomery Ward, which is a major customer of the Company,
filed for protection under Chapter 11 of the U.S. Bankruptcy Code. During
fiscal 1997, the Company recorded increases in bad debt reserves of $2,766
million and related factoring expenses of $1,261 million, in response to this
situation. The Company has since reinstated shipments to Montgomery Ward and
will continue to monitor and attempt to limit its exposure in this situation.
Management believes that this situation will not have a material adverse
effect on the Company's financial position or future operations.
(16) YEAR 2000 ISSUE (UNAUDITED)
The Company believes that the new Business Systems, including appropriate
software, being installed both alongside and as part of an upgrade of its
existing computer system will address the dating system flaw inherent in most
operating systems (the "Year 2000 Issue"). There can be no assurance, however,
that the new Business Systems will be installed and fully operational at all
locations and for all applications prior to the turn of the century, and
management has therefore deemed it necessary to convert its current system to
be Year 2000 compliant. The Company has conducted a comprehensive impact
analysis to determine what computing platforms and date-aware functions with
respect to its existing computer operating systems will be disrupted by the
Year 2000 Issue. In January, 1998, the Company completed a prioritization of
the impacted areas identified to date and commenced the detailed program code
changes through a contracted third party vendor which has experience in Year
2000 conversions for the Company's existing system including the same release
of such system. The Company is in the preliminary stages of assessment of its
vendors and customers status with respect to the Year 2000 Issue. The required
code changes, testing and implementation necessary to address the Year 2000
Issue is projected to be completed by May, 1999, and is expected to cost
approximately $4.0 million.
F-23
<PAGE>
SEALY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(17) NEW ACCOUNTING PRONOUNCEMENTS
On November 20, 1997 the Emerging Issues Task Force (EITF) reached a final
consensus that business process reengineering costs incurred in connection
with an overall information technology transformation project should be
expensed as incurred (EITF 97-13). The transition provisions require companies
that had previously capitalized such business process reengineering costs to
identify these costs and quantify the unamortized amounts remaining on the
balance sheet as of the beginning of the quarter which includes November 20,
1997. These unamortized amounts are required to be written off as a cumulative
effect of a change in accounting principle in such quarter. The Company has
adopted EITF 97-13 resulting in a loss of $4.3 million, net of income tax
benefit of $2.9 million, representing the cumulative write-off of previously
capitalized costs as of August 31, 1997 primarily relating to the Company's
new Business Systems project. All business process reengineering costs
subsequent to August 31, 1997 have been expensed.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 128, Earning per Share. SFAS
No. 128 supersedes APB Opinion No. 15, Earnings per Share ("Opinion No. 15"),
and requires the calculation and dual presentation of basic and diluted
earnings per share ("EPS"), replacing the measures of primary and fully-
diluted EPS as reported under Opinion No. 15. SFAS No. 128 is effective for
financial statements issued for periods ending after December 15, 1997,
earlier application is not permitted. Accordingly, EPS presented on the
accompanying statements of income are calculated under the guidance of Opinion
15. Under SFAS No. 128, the basic and diluted EPS on net income for fiscal
1997 would have been $0.39 and $0.38, respectively.
In June 1997, SFAS No. 130, "Reporting Comprehensive Income", and SFAS No.
131, "Disclosure about Segments of an Enterprise and Related Information",
were issued. The Company plans to adopt these standards when required in
fiscal 1999.
(18) SUBSEQUENT EVENTS
On October 30, 1997, Parent entered into an agreement and plan of merger
(the "Merger Agreement") with Sandman Merger Corporation, a transitory
Delaware merger corporation ("Sandman"), and Zell/Chilmark Fund, L.P., a
Delaware limited partnership ("Zell"). Zell owned approximately 87% of the
issued and outstanding common stock of Parent (the "Existing Common Stock").
Pursuant to the Merger Agreement, upon the satisfaction of certain conditions,
Sandman was merged with and into Parent with Parent being the surviving
corporation effective on December 18, 1997 (the "Closing Date") and the
Company was recapitalized (the "Recapitalization") whereby certain equity
investors, including members of management, acquired an approximate 90.0%
economic equity stake (85.3% voting equity stake) in the Company. A portion of
the issued and outstanding shares of common stock of the Company was converted
into the right to receive aggregate cash equal to $419.3 million less (i)
certain seller fees and expenses and (ii) certain costs in connection with the
extinguishment of certain outstanding options and warrants of the Company and
the remaining portion was converted into voting preferred stock and then
reconverted into $25.0 million in aggregate principal amount of junior
subordinated notes of the Company and a retained voting common stock interest
in the Company of approximately 14.7%. Concurrent with the Recapitalization,
the Company refinanced existing indebtedness (the "Refinancing") by Sealy
Mattress Company (the "Issuer"), a wholly owned subsidiary of the Parent,
entering into and borrowing $460 million under the Senior Credit Agreements
and by issuing $125 million of Senior Subordinated Notes and $128 million of
Senior Subordinated Discount Notes.
F-24
<PAGE>
SEALY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
After the Recapitalization, the issued and outstanding capital stock of the
Company will consist of Class A common stock, par value $0.01 per share
("Class A Common"), Class B common stock, par value $0.01 per share ("Class B
Common"), Class L common stock, par value $0.01 per share ("Class L Common"),
and Class M common stock, par value $0.01 per share ("Class M Common" and
collectively with the Class A Common, Class B Common and Class L Common,
"Common Stock"). The Class L Common and the Class M Common are senior in right
of payment to the Class A Common and Class B Common. Holders of Class B Common
and Class M Common have no voting rights except as required by law. The
holders of Class A Common and Class L Common are entitled to one vote per
share on all matters to be voted upon by the stockholders of the Company,
including the election of directors. The Board of Directors of the Company is
authorized to issue preferred stock, par value $0.01 per share, with such
designations and other terms as may be stated in the resolutions providing for
the issue of any such preferred stock adopted from time to time by the Board
of Directors.
Upon the consummation of the Recapitalization, Parent and certain of its
stockholders, including the Bain Funds, Harvard Private Capital, Inc.
("Harvard"), Sealy Investors 1, LLC, Sealy Investors 2, LLC, Sealy Investors
3, LLC (the "LLCs") and Zell (collectively, the "Stockholders") entered into a
stockholders agreement (the "Stockholders Agreement"). The Stockholders
Agreement (i) required that each of the parties thereto vote all of its voting
securities of Parent and take all other necessary or desirable actions to
cause the size of the Board of Directors of Parent to be established at seven
members and to cause three designees of the Bain Funds and one designee of
Harvard to be elected to the Board of Directors; (ii) granted Parent and the
Bain Funds a right of first offer on any proposed transfer of shares of
capital stock of Parent held by Zell, Harvard or the LLCs; (iii) granted
Harvard a right of first offer on any proposed transfer of shares of capital
stock of Parent held by the Bain Funds; (iv) granted tag-along rights on
certain transfers of shares of capital stock of Parent; (v) required the
Stockholders to consent to a sale of Parent to an independent third party if
such sale is approved by holders constituting a majority of the then
outstanding shares of voting common stock of Parent; and (vi) except in
certain instances, prohibits Zell from transferring any shares of capital
stock of Parent until the tenth anniversary of the date of the consummation of
the Recapitalization. Certain of the foregoing provisions of the Stockholders
Agreement terminate upon the consummation of an initial Public Offering or an
Approved Sale (as each is defined in the Stockholders Agreement).
Immediately prior to the closing of the Recapitalization (the "Closing"),
Parent contributed (the "Capital Contribution") all of the issued and
outstanding capital stock of Sealy, Inc., an Ohio corporation, The Stearns &
Foster Bedding Company, a Delaware corporation, Advanced Sleep Products, a
California corporation, Sealy Components-Pads, Inc., a Delaware corporation,
and Sealy Mattress Company of San Diego, a California corporation, to the
capital of the Issuer. Immediately after the Capital Contribution, the Issuer
became the only direct subsidiary of Parent and owns 100% of the operations of
Parent. At the Closing, Sandman was merged with and into Parent with Parent
the surviving corporation.
On November 18, 1997 Parent commenced an offer (the "Tender Offer") to
purchase for cash up to all (but not less than a majority in principal amount
outstanding) of its 10 1/4% Senior Subordinated Notes due 2003 (the "Parent
Notes") and a related solicitation (the "Consent Solicitation") of consents to
modify certain terms of the Indenture under which the Parent Notes were issued
(the "Parent Note Indenture"). The purchase price to be paid in respect to
validly tendered Parent Notes and related consents were determined by a
formula set forth in the offer to purchase with respect to the Tender Offer.
The Offerings were conditioned upon the consummation of the Tender Offer for,
and the obtaining of consents with respect to, at least a majority in
aggregate principal amount of the Parent Notes outstanding. Parent's
obligation to accept for purchase and to pay for the Parent Notes validly
F-25
<PAGE>
SEALY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
tendered pursuant to the Tender Offer was conditioned upon, among other
things, consummation of the other elements of the Recapitalization.
The Company's 1997 Credit Agreement was terminated in connection with the
Recapitalization. The 1997 Credit Agreement provided for a $275.0 million
reducing revolving credit facility and a discretionary swing loan facility of
up to $20.0 million. Upon consummation of the Transactions, the Issuer entered
into the AXELs credit agreement (the "Senior AXELs Credit Agreement") and a
credit agreement providing for Tranche A Term Loans and revolving borrowings
(the "Senior Revolving Credit Agreement" and, together with the Senior AXELs
Credit Agreement, the "Senior Credit Agreements"). The Senior Credit
Agreements provided for loans of up to $550.0 million, consisting of a $450.0
million term loan facility (the "Term Loan Facility") and a $100.0 million
revolving credit facility (the "Revolving Credit Facility"). The Issuer
distributed the proceeds of the Term Loan Facility and its initial borrowings
under the Revolving Credit Facility to Parent to provide a portion of the
funds necessary to consummate the Transactions. Indebtedness of the Issuer
under the Senior Credit Agreements is secured and guaranteed by Parent and
certain of the Issuer's current and all of the Issuer's future U.S.
subsidiaries and will bear interest at a floating rate. See Note 17 for
further details regarding guarantees including consolidating condensed
financial statements for guarantors and non-guarantors. The Senior Credit
Agreements will require the Company to meet certain financial tests, including
minimum levels of adjusted EBITDA as determined in the agreements, minimum
interest coverage and maximum leverage ratio. The Senior Credit Agreements
also contains covenants which, among other things, limit capital expenditures,
indebtedness and/or the incurrence of additional indebtedness, investments,
dividends, transactions with affiliates, asset sales, mergers and
consolidations, prepayments of other indebtedness (including the Notes), liens
and encumbrances and other matters customarily restricted in such agreements.
Indebtedness under the Senior Credit Agreements bears interest at a floating
rate. Indebtedness under the Revolving Credit Facility and the Term Loans
initially (subject to reduction based on attainment of certain leverage ratio
levels) bears interest at a rate based upon (i) the Base Rate (defined as the
highest of (x) the rate of interest announced publicly by Morgan Guaranty
Trust Company of New York from time to time, as its base rate and (y) the
Federal funds effective rate from time to time plus 0.50%) plus 1.25% in
respect of the Tranche A Term Loans and the loans under the Revolving Credit
Facility (the "Revolving Loans"), 1.50% in respect of the AXELs Series B,
1.75% in respect of the AXELs Series C and 2.00% in respect of the AXELs
Series D, or (ii) the Adjusted Eurodollar Rate (as defined in the Senior
Credit Agreements) for one, two, three or six months (or, subject to general
availability, two weeks or twelve months), in each case plus 2.25% in respect
of Tranche A Term Loans and Revolving Loans, 2.50% in respect of AXELs Series
B, 2.75% in respect of AXELs Series C and 3.00% in respect to AXELs Series D.
The Tranche A Term Loans mature in December 2002. The AXELs Series B mature
in December 2004. The AXELs Series C mature in December 2005. The AXELs Series
D mature in December 2006. The Tranche A Term Loans are subject to quarterly
amortization payments commencing in March 1999, the AXELs Series B, the AXELs
Series C and the AXELs Series D are subject to quarterly amortization payments
commencing in March 1998 with the AXELs Series B amortizing in nominal amounts
until the maturity of the Tranche A Term Loans, the AXELs Series C amortizing
in nominal amounts until the maturity of the AXELs Series B and the AXELs
Series D amortizing in nominal amounts until the maturity of the AXELs Series
C. The Revolving Credit Facility matures in December 2002. In addition, the
Senior Credit Agreements provide for mandatory repayments, subject to certain
exceptions, of the Term Loans, and reductions in the Revolving Credit
Facility, based on the net proceeds of certain asset sales outside the
ordinary course of business of the Issuer and its
F-26
<PAGE>
SEALY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
subsidiaries, the net proceeds of insurance, the net proceeds of certain debt
and equity issuances, and excess cash flow (as defined in the Senior Credit
Agreements).
The Notes were issued pursuant to an Indenture (the "Senior Subordinated
Note Indenture") among the Issuer, the Guarantors and The Bank of New York, as
trustee (the "Senior Subordinated Note Trustee"). The Senior Subordinated
Discount Notes were issued pursuant to an Indenture (the "Senior Subordinated
Discount Note Indenture" and, together with the Senior Subordinated Note
Indenture, the "Indentures") among the Issuer, the Guarantors and The Bank of
New York, as trustee (the "Senior Subordinated Discount Note Trustee" and,
together with the Senior Subordinated Note Trustee, the "Trustees").
The Senior Subordinated Notes are limited in aggregate principal amount to
$300.0 million, of which $125.0 million was issued in the Offering, and
matures on December 15, 2007. Interest on the Senior Subordinated Notes accrue
at the rate of 9 7/8% per annum and is payable semi-annually in arrears on
June 15 and December 15 of each year, commencing on June 15, 1998, to Holders
of record on the immediately preceding June 1 and December 1. Additional
Senior Subordinated Notes may be issued from time to time after the date of
the Senior Subordinated Note Indenture, subject to the provisions of the
Senior Subordinated Note Indenture.
Except as provided below, the Senior Subordinated Notes are not redeemable
at the Company's option prior to December 15, 2002. Thereafter, the Senior
Subordinated Notes are subject to redemption at any time at the option of the
Company, in whole or in part, upon not less than 30 nor more than 60 days'
notice, at the redemption prices (expressed as percentages of principal
amount) set forth below plus accrued and unpaid interest and Liquidated
Damages thereon to the applicable redemption date, if redeemed during the
twelve-month period beginning on December 15 of the years indicated below:
<TABLE>
<CAPTION>
PERCENTAGE OF
YEAR PRINCIPAL AMOUNT
---- ----------------
<S> <C>
2002........................ 104.937%
2003........................ 103.292%
2004........................ 101.646%
2005 and thereafter......... 100.000%
</TABLE>
Notwithstanding the foregoing, during the first 36 months after December 11,
1997, the Company may on any one or more occasions redeem up to 35% of the
aggregate principal amount of Senior Subordinated Notes originally issued
under the Senior Subordinated Note Indenture at a redemption price of 109.875%
of the principal amount thereof, plus accrued and unpaid interest and
liquidated damages thereon, if any, to the redemption date, with the net cash
proceeds of any Equity Offerings; (as defined in the indentures) provided that
at least $80.0 million in aggregate principal amount of Senior Subordinated
Notes remain outstanding immediately after the occurrence of such redemption
(excluding Senior Subordinated Notes held by the Company and its
Subsidiaries); and provided further that such redemption shall occur within
120 days of the date of the closing of any such Equity Offering.
The Senior Subordinated Discount Notes are limited in aggregate principal
amount at maturity to $275.0 million, of which $128.0 million were issued in
the Offering, and mature on December 15, 2007. The Senior Subordinated
Discount Notes were offered at a substantial discount from their principal
amount at maturity. Until December 15, 2002 (the "Full Accretion Date"), no
interest (other than liquidated damages, if applicable) will accrue or be paid
in cash on the Senior Subordinated Discount Notes, but the Accreted Value will
accrete (representing the amortization of original issue discount)
F-27
<PAGE>
SEALY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
between the issuance date and the Full Accretion Date, on a semi-annual bond
equivalent basis. Beginning on the Full Accretion Date, interest on the Senior
Subordinated Discount Notes will accrue at the rate of 10 7/8% per annum and
will be payable in cash semi-annually in arrears on June 15 and December 15 of
each year, commencing on June 15, 2003, to Holders of record on the
immediately preceding June 1 and December 1. Additional Senior Subordinated
Discount Notes may be issued from time to time after the date of the Senior
Subordinated Discount Note Indenture, subject to the provisions of the Senior
Subordinated Discount Note Indenture. Interest on the Senior Subordinated
Discount Notes will accrue from the most recent date to which interest has
been paid or, if no interest has been paid, from the Full Accretion Date.
Except as provided below, the Senior Subordinated Discount Notes will not be
redeemable at the Company's option prior to December 15, 2002. Thereafter, the
Senior Subordinated Discount Notes will be subject to redemption at any time
at the option of the Company, in whole or in part, upon not less than 30 nor
more than 60 days' notice, at the redemption prices (expressed as percentages
of principal amount) set forth below plus accrued and unpaid interest and
liquidated damages thereon to the applicable redemption date, if redeemed
during the twelve-month period beginning on December 15 of the years indicated
below:
<TABLE>
<CAPTION>
PERCENTAGE OF
YEAR PRINCIPAL AMOUNT
---- ----------------
<S> <C>
2002........................ 105.437%
2003........................ 103.625%
2004........................ 101.812%
2005 and thereafter......... 100.000%
</TABLE>
Notwithstanding the foregoing, during the first 36 months after December 11,
1997, the Company may on any one or more occasions redeem up to 35% of the
Accreted Value of Senior Subordinated Discount Notes originally issued under
the Senior Subordinated Discount Note Indenture at a redemption price of
110.875% of the Accreted Value, plus accrued and unpaid liquidated damages
thereon, if any, to the redemption date, with the net cash proceeds of any
Equity Offerings; (as defined in the Indentures) provided that at least $50.0
million in aggregate Accreted Value of Senior Subordinated Discount Notes
remain outstanding immediately after the occurrence of such redemption
(excluding Senior Subordinated Discount Notes held by the Company and its
Subsidiaries); and provided, further, that such redemption shall occur within
120 days of the date of the closing of any such Equity Offering.
The unaudited pro forma balance sheet data of the Company as of November 30,
1997 shown below gives effect to the Recapitalization and the Refinancing as
if they each had occurred on November 30, 1997 (in 000's):
<TABLE>
<S> <C>
ASSETS
Current assets.................................................. $ 177,717
Other assets.................................................... 574,231
---------
Total assets.................................................. $ 751,948
=========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities............................................. $ 118,250
Long-term debt obligations, including current portion........... 687,648
Other liabilities............................................... 67,982
---------
Total liabilities............................................. 873,880
Stockholders' deficit........................................... (121,932)
---------
Total liabilities and stockholders' deficit................... $ 751,948
=========
</TABLE>
F-28
<PAGE>
SEALY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The unaudited pro forma statement of operations data for the year ended
November 30, 1997 shown below gives effect to (i) the Recapitalization; (ii)
the Refinancing; and (iii) the divestitures of the Company's Samuel Lawrence
subsidiary and South Brunswick plant in January, 1997 and March, 1997,
respectively, as if they each occurred on December 2, 1996 (in 000's) but does
not reflect certain non-recurring Recapitalization charges and an
extraordinary loss related to the Refinancing:
<TABLE>
<S> <C>
Revenue......................................................... $799,503
========
Net loss........................................................ $ (9,403)
========
Net loss per common share....................................... $ (0.30)
========
</TABLE>
(19) GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION
As discussed in Note 16, the Parent and each of the Guarantor Subsidiaries
has fully and unconditionally guaranteed, on a joint and several basis, the
obligation to pay principal and interest with respect to the Notes. The
Guarantor Subsidiaries are wholly-owned subsidiaries of the Company.
Substantially all of the Issuer's operating income and cashflow is generated
by its subsidiaries. As a result, funds necessary to meet the Issuer's debt
service obligations are provided in part by distributions or advances from its
subsidiaries. Under certain circumstances, contractual and legal restrictions,
as well as the financial condition and operating requirements of the Issuer's
subsidiaries, could limit the Issuer's ability to obtain cash from its
subsidiaries for the purpose of meeting its debt service obligations,
including the payment of principal and interest on the Notes. The Notes
contain certain covenants that, among other things, limit the ability of the
Issuer and its Restricted Subsidiaries (as defined) to incur additional
indebtedness and issue Disqualified Stock (as defined), pay dividends or
distributions or make investments or make certain other Restricted Payments
(as defined), enter into certain transactions with affiliates, dispose of
certain assets, incur liens and engage in mergers and consolidations. Although
holders of the Notes will be direct creditors of the Issuer's principal direct
subsidiaries by virtue of the guarantees, the Issuer has subsidiaries ("Non-
Guarantor Subsidiaries") that are not included among the Guarantor
Subsidiaries, and such subsidiaries will not be obligated with respect to the
Notes. As a result, the claims of creditors of the Non-Guarantor Subsidiaries
will effectively have priority with respect to the assets and earnings of such
companies over the claims of creditors of the Issuer, including the holders of
the Notes.
The following supplemental consolidating condensed financial statements
present:
1. Consolidating condensed balance sheets as of November 30, 1997 and
December 1, 1996, consolidating condensed statements of operations and cash
flows for each of the years in the three year period ended November 30,
1997.
2. Sealy Corporation (the "Parent" and a "guarantor"), Sealy Mattress
Company (the "Issuer"), combined Guarantor Subsidiaries and combined Non-
Guarantor Subsidiaries with their investments in subsidiaries accounted for
using the equity method.
3. Elimination entries necessary to consolidate the Parent and all of its
subsidiaries.
Management does not believe that separate financial statements of the
Guarantor Subsidiaries are material to investors.
F-29
<PAGE>
SEALY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEALY CORPORATION
SUPPLEMENTAL CONSOLIDATING CONDENSED BALANCE SHEET
NOVEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEALY COMBINED COMBINED
SEALY MATTRESS GUARANTOR NON-GUARANTOR
CORPORATION COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- -------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents........... $ -- $ 20 $ 2,062 $ 3,975 $ -- $ 6,057
Accounts receivable,
net................... -- 3,434 79,150 11,334 -- 93,918
Inventories............ -- 1,912 39,240 5,190 (335) 46,007
Prepaid expenses and
other assets.......... (9,206) 294 29,819 1,622 -- 22,529
-------- ------- -------- ------- --------- --------
(9,206) 5,660 150,271 22,121 (335) 168,511
Property, plant and
equipment--at cost..... -- 4,664 152,045 12,894 -- 169,603
Less accumulated
depreciation........... -- 1,254 40,603 2,138 -- 43,995
-------- ------- -------- ------- --------- --------
-- 3,410 111,442 10,756 -- 125,608
Other assets:
Goodwill and other
intangibles, net...... -- 14,461 361,976 34,832 -- 411,269
Net investment in and
advances to (from)
subsidiaries and
affiliates............ 543,783 2,636 (357,823) (28,591) (160,005) --
Debt issuance costs,
net and other
assets................ 8,918 35 6,641 85 -- 15,679
-------- ------- -------- ------- --------- --------
552,701 17,132 10,794 6,326 (160,005) 426,948
-------- ------- -------- ------- --------- --------
Total assets......... $543,495 $26,202 $272,507 $39,203 ($160,340) $721,067
======== ======= ======== ======= ========= ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Current portion--long-
term obligations...... $ -- $ -- -- $ -- $ -- $ --
Accounts payable....... -- 2,086 40,743 6,847 -- 49,676
Accrued incentives and
advertising........... -- 1,473 26,782 2,449 -- 30,704
Accrued compensation... -- 246 16,244 1,281 -- 17,771
Other accrued
expenses.............. 2,287 222 18,172 1,573 (118) 22,136
-------- ------- -------- ------- --------- --------
2,287 4,027 101,941 12,150 (118) 120,287
Long-term obligations... 330,000 -- -- -- -- 330,000
Other noncurrent
liabilities............ 2,969 -- 32,744 -- -- 35,713
Deferred income taxes... 3,173 896 22,693 3,239 -- 30,001
Stockholders' equity.... 205,066 21,279 115,129 23,814 (160,222) 205,066
-------- ------- -------- ------- --------- --------
Total liabilities and
stockholders'
equity.............. $543,495 $26,202 $272,507 $39,203 ($160,340) $721,067
======== ======= ======== ======= ========= ========
</TABLE>
F-30
<PAGE>
SEALY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEALY CORPORATION
SUPPLEMENTAL CONSOLIDATING CONDENSED BALANCE SHEET
DECEMBER 1, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEALY COMBINED COMBINED
SEALY MATTRESS GUARANTOR NON-GUARANTOR
CORPORATION COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- -------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equiva-
lents................. $ -- $ 54 $ 3,118 $ 13,447 $ -- $ 16,619
Accounts receivable,
net................... -- 2,861 67,296 7,022 -- 77,179
Inventories............ -- 1,551 28,251 4,464 (274) 33,992
Net assets held for
sale.................. -- -- -- 35,492 -- 35,492
Prepaid expenses and
deferred taxes........ (5,603) 228 13,925 1,896 -- 10,446
-------- ------- --------- -------- --------- --------
(5,603) 4,694 112,590 62,321 (274) 173,728
Property, plant and
equipment--at cost..... -- 4,214 135,581 16,268 -- 156,063
Less accumulated
depreciation........... -- 976 31,593 2,128 -- 34,697
-------- ------- --------- -------- --------- --------
-- 3,238 103,988 14,140 -- 121,366
Other assets:
Goodwill and other in-
tangibles, net........ -- 14,873 383,692 35,739 -- 434,304
Net investment in and
advances to (from)
subsidiaries and af-
filiates.............. 586,883 24,776 (337,985) (35,875) (237,799) --
Debt issuance costs,
net and other assets.. 7,981 -- 2,495 54 -- 10,530
-------- ------- --------- -------- --------- --------
594,864 39,649 48,202 (82) (237,799) 444,834
-------- ------- --------- -------- --------- --------
Total assets........... $589,261 $47,581 $ 264,780 $ 76,379 $(238,073) $739,928
======== ======= ========= ======== ========= ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Current portion--long- $ 18,620 $ -- $ -- $ -- $ -- $ 18,620
term obligations......
Accounts payable....... -- 1,556 30,161 4,080 -- 35,797
Accrued incentives and -- 1,101 17,668 1,935 -- 20,704
advertising...........
Accrued compensation... -- 227 12,687 1,133 -- 14,047
Other accrued ex-
penses................ 6,251 157 17,837 (458) (96) 23,691
-------- ------- --------- -------- --------- --------
24,871 3,041 78,353 6,690 (96) 112,859
Long-term obligations... 269,398 -- 74 35 -- 269,507
Other noncurrent
liabilities............ 2,606 -- 32,210 6 -- 34,822
Deferred income taxes... (608) 901 24,925 4,528 -- 29,746
Stockholders' equity.... 292,994 43,639 129,218 65,120 (237,977) 292,994
-------- ------- --------- -------- --------- --------
Total liabilities and
stockholders' equity.. $589,261 $47,581 $ 264,780 $ 76,379 $(238,073) $739,928
======== ======= ========= ======== ========= ========
</TABLE>
F-31
<PAGE>
SEALY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEALY CORPORATION
SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENTS OF OPERATIONS
YEAR ENDED NOVEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEALY COMBINED COMBINED
SEALY MATTRESS GUARANTOR NON-GUARANTOR
CORPORATION COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- -------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net sales............... $ -- $37,973 $708,914 $75,042 $(17,095) $804,834
Costs and expenses:
Cost of goods sold..... -- 23,256 400,785 48,878 (17,014) 455,905
Selling, general and
administrative........ 1,336 11,464 233,512 17,346 -- 263,658
Amortization of
intangibles........... -- 411 11,764 1,089 -- 13,264
Interest expense, net.. 32,114 -- (75) (643) -- 31,396
Loss (Income) from
equity investees...... 8,969 8,258 -- -- (17,227) --
Loss (Income) from non-
guarantor equity
investees............. -- 20 (4,104) -- 4,084 --
Capital charge and
intercompany interest
allocation............ (69,376) 3,689 64,821 866 -- --
-------- ------- -------- ------- -------- --------
Income/(loss) before
income taxes,
extraordinary item and
cumulative effect of a
change in accounting
principle.............. 26,957 (9,125) 2,211 7,506 13,062 40,611
Income taxes............ 13,103 (156) 6,140 3,422 -- 22,509
-------- ------- -------- ------- -------- --------
Income/(loss) before
extraordinary item and
cumulative effect of
change in accounting
principle.............. 13,854 (8,969) (3,929) 4,084 13,062 18,102
Extraordinary item..... 2,030 -- -- -- -- 2,030
Cumulative effect of a
change in accounting
principle............. -- -- 4,329 -- -- 4,329
-------- ------- -------- ------- -------- --------
Net income/(loss)....... $ 11,824 $(8,969) $ (8,258) $ 4,084 $ 13,062 $ 11,743
======== ======= ======== ======= ======== ========
</TABLE>
F-32
<PAGE>
SEALY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEALY CORPORATION
SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 1, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEALY COMBINED COMBINED
SEALY MATTRESS GUARANTOR NON-GUARANTOR
CORPORATION COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- -------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net sales............... $ -- $ -- $560,540 $120,223 $(16,421) $697,638
Costs and expenses: 33,296
Cost of goods sold..... -- 19,867 305,100 88,592 (16,300) 397,259
Selling, general and
administrative........ 150 9,082 190,628 21,593 -- 221,453
Loss on net assets held
for sale.............. -- 11,762 -- -- -- 11,762
Amortization of
intangibles........... -- 411 11,450 1,733 -- 13,594
Interest expense, net.. 30,364 -- 91 (1,658) -- 28,797
Loss (Income) from
equity investees...... (2,608) 1,796 -- -- 812 --
Income from non-
guarantor equity
investees............. -- (15,829) (2,920) -- 18,749 --
Capital charge and
intercompany interest
allocation............ (35,043) 3,209 41,595 (9,761) -- --
-------- ------- -------- -------- -------- --------
Income/(loss) before
income taxes........... 7,137 2,998 14,596 19,724 (19,682) 24,773
Income taxes............ 7,522 390 16,392 975 -- 25,279
-------- ------- -------- -------- -------- --------
Net income/(loss)....... $ (385) $ 2,608 $ (1,796) $ 18,749 $(19,682) $ (506)
======== ======= ======== ======== ======== ========
</TABLE>
SEALY CORPORATION
SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENTS OF OPERATIONS
YEAR ENDED NOVEMBER 30, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEALY COMBINED COMBINED
SEALY MATTRESS GUARANTOR NON-GUARANTOR
CORPORATION COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- -------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net sales............... $ -- $30,460 $537,672 $96,296 $(10,486) $653,942
Costs and expenses:
Cost of goods sold..... -- 16,548 286,088 70,209 (10,429) 362,416
Selling, general and
administrative........ (13,080) 8,382 192,205 15,903 -- 203,410
Amortization of
intangibles........... -- 411 12,143 1,502 -- 14,056
Interest expense, net.. 33,113 -- (819) (1,276) -- 31,018
Income from equity
investees............. (11,870) (9,001) -- -- 20,871 --
Income from non-
guarantor equity
investees............. -- (1,346) (4,160) -- 5,506 --
Capital charge and
intercompany interest
allocation............ (32,794) 2,773 29,678 343 -- --
-------- ------- -------- ------- -------- --------
Income/(loss) before
income taxes........... 24,631 12,693 22,537 9,615 (26,434) 43,042
Income taxes............ 5,104 823 13,536 4,109 -- 23,572
-------- ------- -------- ------- -------- --------
Net income/(loss)....... $ 19,527 $11,870 $ 9,001 $ 5,506 $(26,434) $ 19,470
======== ======= ======== ======= ======== ========
</TABLE>
F-33
<PAGE>
SEALY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEALY CORPORATION
SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENTS OF CASH FLOWS
YEAR ENDED NOVEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEALY COMBINED COMBINED
SEALY MATTRESS GUARANTOR NON-GUARANTOR
CORPORATION COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- -------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net cash provided by
(used in) operating
activities............. $ 29,901 $(40,205) $ 7,532 $ 44,782 $ 39 $ 42,049
-------- -------- -------- -------- -------- --------
Cash flows from
investing activities:
Proceeds from sale of
subsidiary............ -- 35,000 -- -- -- 35,000
Purchase of property,
plant and equipment... -- (450) (27,109) (1,581) -- (29,140)
Proceeds from sale of
property, plant and
equipment............. -- 5,150 410 1 -- 5,561
Net activity in
investment in and
advances to (from)
subsidiaries and
affiliates............ 34,131 13,862 23,942 (7,284) (64,651) --
-------- -------- -------- -------- -------- --------
Net proceeds provided
by (used in) investing
activities............ 34,131 53,562 (2,757) (8,864) (64,651) 11,421
Cash flows from
financing activities:
Dividend............... (99,775) -- -- -- -- (99,775)
Repayment of long-term
obligations, net...... (63,127) -- -- -- -- (63,127)
Net borrowing--
revolving credit
facility.............. 105,000 -- -- -- -- 105,000
Debt issuance costs.... (6,130) -- -- -- -- (6,130)
Net equity activity
with Parent........... -- (13,391) (5,831) (45,390) 64,612 --
-------- -------- -------- -------- -------- --------
Net cash provided by
(used in) financing
activities............ (64,032) (13,391) (5,831) (45,390) 64,612 (64,032)
-------- -------- -------- -------- -------- --------
Change in cash and cash
equivalents............ -- (34) (1,056) (9,472) -- (10,562)
Cash and cash
equivalents:
Beginning of period..... -- 54 3,118 13,447 -- 16,619
-------- -------- -------- -------- -------- --------
End of period........... $ -- $ 20 $ 2,062 $ 3,975 $ -- $ 6,057
======== ======== ======== ======== ======== ========
</TABLE>
F-34
<PAGE>
SEALY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEALY CORPORATION
SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 1, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEALY COMBINED COMBINED
SEALY MATTRESS GUARANTOR NON-GUARANTOR
CORPORATION COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- -------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net cash provided by
(used in) operating
activities............. $ 15,398 $16,923 $ 32,242 $19,105 $(39,251) $ 44,417
-------- ------- -------- ------- -------- --------
Cash flows from
investing activities:
Purchase of property,
plant and equipment... -- (134) (11,581) (870) 540 (12,045)
Proceeds from sale of
property, plant and
equipment............. -- -- 1,579 50 (540) 1,089
Net activity in
investment in and
advances to (from)
subsidiaries and
affiliates............ 17,267 (8,175) (26,695) 1,888 15,715 --
-------- ------- -------- ------- -------- --------
Net proceeds provided
by (used in)
investing
activities.......... 17,267 (8,309) (36,697) 1,068 15,715 (10,956)
Cash flows from
financing activities:
Dividend............... (35,463) -- -- -- -- (35,463)
Repayment of long-term
obligations, net...... (22,202) -- (1,608) 83 -- (23,727)
Net borrowing--
revolving credit
facility.............. 25,000 -- -- -- -- 25,000
Debt issuance costs.... -- -- -- -- -- --
Net equity activity
with Parent........... -- (8,569) (4,830) (10,137) 23,536 --
-------- ------- -------- ------- -------- --------
Net cash provided by
(used in) financing
activities.......... (32,665) (8,569) (6,438) (10,054) 23,536 (34,190)
-------- ------- -------- ------- -------- --------
Change in cash and cash
equivalents............ -- 45 (10,893) 10,119 -- (729)
Cash and cash
equivalents:
Beginning of period..... -- 9 14,011 3,328 -- 17,348
-------- ------- -------- ------- -------- --------
End of period........ $ -- $ 54 $ 3,118 $13,447 $ -- $ 16,619
======== ======= ======== ======= ======== ========
</TABLE>
F-35
<PAGE>
SEALY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEALY CORPORATION
SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENTS OF CASH FLOWS
YEAR ENDED NOVEMBER 30, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEALY COMBINED COMBINED
SEALY MATTRESS GUARANTOR NON-GUARANTOR
CORPORATION COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- -------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net cash provided by
(used in) operating
activities............. $ 26,749 $ 22,771 $ 42,832 $ 23,472 $(52,497) $ 63,327
-------- -------- -------- -------- -------- --------
Cash flows from
investing activities:
Purchase of property,
plant and equipment... -- (79) (8,204) (3,521) -- (11,804)
Proceeds from sale of
property, plant and
equipment............. -- -- 7,417 51 -- 7,468
Net activity in
investment in and
advances to (from)
subsidiaries and
affiliates............ 32,251 (5,468) (11,113) (25,456) 9,786 --
-------- -------- -------- -------- -------- --------
Net proceeds provided
by (used in) investing
activities............ 32,251 (5,547) (11,900) (28,926) 9,786 (4,336)
Cash flows from
financing activities:
Dividend............... -- -- -- -- -- --
Repayment of long-term
obligations, net...... (59,000) -- (3,918) (34) -- (62,952)
Net borrowing--
revolving credit
facility.............. -- -- -- -- -- --
Debt issuance costs.... -- -- -- -- -- --
Net equity activity
with Parent........... -- (17,162) (16,484) (8,404) 42,050 --
-------- -------- -------- -------- -------- --------
Net cash provided by
(used in) financing
activities............ (59,000) (17,162) (20,402) (8,438) 42,050 (62,952)
-------- -------- -------- -------- -------- --------
Change in cash and cash
equivalents............ -- 62 10,530 (13,892) (661) (3,961)
Cash and cash
equivalents:
Beginning of period.... -- (53) 3,481 17,220 661 21,309
-------- -------- -------- -------- -------- --------
End of period.......... $ -- $ 9 $ 14,011 $ 3,328 $ -- $ 17,348
======== ======== ======== ======== ======== ========
</TABLE>
F-36
<PAGE>
SEALY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED QUARTER ENDED
MARCH 1, MARCH 2,
1998 1997
------------- -------------
<S> <C> <C>
Net sales.......................................... $209,259 $168,904
Costs and expenses:
Cost of goods sold............................... 121,484 96,697
Selling, general and administrative.............. 87,597 55,574
Amortization of intangibles...................... 3,162 3,480
Interest expense, net............................ 15,528 6,801
-------- --------
227,771 162,552
-------- --------
(Loss) income before income tax and extraordinary
item.............................................. (18,512) 6,352
Income tax (benefit) expense....................... (747) 3,164
-------- --------
(Loss) income before extraordinary item.......... (17,765) 3,188
Extraordinary item--loss from early extinguishment
of debt (net of
income tax benefit of $9,636 and $1,353, respec-
tively)........................................... 14,455 2,030
-------- --------
Net (loss) income................................ $(32,220) $ 1,158
======== ========
(Loss)/earnings per common share--basic:
(Loss) income before extraordinary item............ $ (0.59) $ 0.11
Extraordinary item................................. (0.47) (0.07)
-------- --------
Net (loss) income................................ $ (1.06) $ 0.04
======== ========
(Loss)/earnings per common share--diluted:
(Loss)income before extraordinary item............. $ (0.59) $ 0.11
Extraordinary item................................. (0.47) (0.07)
-------- --------
Net (loss) income................................ $ (1.06) $ 0.04
======== ========
Weighted average number of common shares outstand-
ing:
Basic............................................ 30,345 29,726
Diluted.......................................... 30,345 30,035
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-37
<PAGE>
SEALY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 1, NOVEMBER 30,
1998 1997
---------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $ 6,170 $ 6,057
Accounts receivable, less allowance for doubtful
accounts (1998-$8,175; 1997-$7,696)................ 105,341 93,918
Inventories......................................... 50,718 46,007
Prepaid expenses and deferred taxes................. 13,783 22,529
---------- --------
176,012 168,511
Property, plant and equipment--at cost................ 174,547 169,603
Less: accumulated depreciation........................ (46,493) (43,995)
---------- --------
128,054 125,608
Other assets:
Goodwill and other intangibles--net of accumulated
amortization (1998-$66,963; 1997-$63,801).......... 408,107 411,269
Debt issuance costs, net, and other assets.......... 38,530 15,679
---------- --------
446,637 426,948
---------- --------
$ 750,703 $721,067
========== ========
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Current portion of long-term obligations............ $ 3,701 $ --
Accounts payable.................................... 44,566 49,676
Accrued interest.................................... 10,629 2,038
Accrued incentives and advertising.................. 33,301 30,704
Accrued compensation................................ 6,946 17,771
Other accrued expenses.............................. 24,470 20,098
---------- --------
123,613 120,287
Long-term obligations................................. 705,272 330,000
Other noncurrent liabilities.......................... 36,261 35,713
Deferred income taxes................................. 13,376 30,001
Stockholders' (deficit) equity:
Common stock........................................ 303 299
Additional paid-in capital.......................... 134,414 257,320
Retained deficit.................................... (260,303) (50,614)
Foreign currency translation adjustment............. (2,233) (1,939)
---------- --------
(127,819) 205,066
Commitments and contingencies......................... -- --
---------- --------
$750,703 $721,067
========== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-38
<PAGE>
SEALY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER
QUARTER ENDED
ENDED MARCH
MARCH 1, 2,
1998 1997
--------- -------
<S> <C> <C>
Net cash (used in) provided by operating activities.......... $ (23,346) $ 27
--------- -------
Investing activities:
Proceeds from sale of subsidiary........................... -- 35,000
Purchase of property and equipment, net.................... (5,300) (3,955)
--------- -------
Net cash (used in) provided by investing activities...... (5,300) 31,045
--------- -------
Financing activities:
Treasury stock repurchase.................................. (413,078) --
Proceeds from long-term obligations, net................... 351,648 68,348
Equity contributions....................................... 121,317 --
Dividend................................................... -- (99,776)
Debt issuance costs........................................ (31,128) (6,130)
--------- -------
Net cash provided by (used in) financing activities...... 28,759 (37,558)
--------- -------
Change in cash and cash equivalents.......................... 113 (6,486)
Cash and cash equivalents:
Beginning of period........................................ 6,057 16,619
--------- -------
End of period.............................................. $ 6,170 $10,133
========= =======
Supplemental disclosures:
Cash paid for:
Taxes paid, net............................................ $ 1,567 $ 3,250
Cash interest paid......................................... $ 12,340 $ 1,361
Selected noncash items:
Depreciation............................................... $ 2,711 $ 3,141
Issuance of Junior Notes................................... $ 25,000 $ --
Rollover Equity............................................ $ 15,235 $ --
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-39
<PAGE>
SEALY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 1, 1998
NOTE A--BASIS OF PRESENTATION
This report covers Sealy Corporation and its subsidiaries (collectively, the
"Company").
The accompanying unaudited condensed consolidated financial statements
should be read together with the Company's Annual Report on Form 10-K for the
year ended November 30, 1997.
The accompanying unaudited condensed consolidated financial statements
contain all adjustments which, in the opinion of management, are necessary to
present fairly the financial position of the Company at March 1, 1998, and its
results of operations and cash flows for the periods presented herein. All
adjustments in the periods presented herein are normal and recurring in
nature.
Certain reclassifications of previously reported financial information were
made to conform to the 1998 presentation.
NOTE B--INVENTORIES
The major components of inventories were as follows:
<TABLE>
<CAPTION>
MARCH 1, NOVEMBER 30,
1998 1997
-------- ------------
(IN THOUSANDS)
<S> <C> <C>
Raw materials....................................... $28,939 $26,251
Work in process..................................... 13,884 12,594
Finished goods...................................... 7,895 7,162
------- -------
$50,718 $46,007
======= =======
</TABLE>
NOTE C--RECAPITALIZATION
On October 30, 1997, Sealy Corporation ("Parent") entered into an agreement
and plan of merger (the "Merger Agreement") with Sandman Merger Corporation, a
transitory Delaware merger corporation ("Sandman"), and Zell/Chilmark Fund,
L.P., a Delaware limited partnership ("Zell"). Zell owned approximately 87% of
the issued and outstanding common stock of Parent (the "Existing Common
Stock"). Pursuant to the Merger Agreement, upon the satisfaction of certain
conditions, Sandman was merged with and into Parent with Parent being the
surviving corporation effective on December 18, 1997 (the "Closing Date") and
the Company was recapitalized (the "Recapitalization") whereby certain equity
investors, including members of management, acquired an approximate 90.0%
economic equity stake (85.3% voting equity stake) in the Company. A portion of
the issued and outstanding shares of common stock of the Company was converted
into the right to receive aggregate cash equal to $419.3 million less (i)
certain seller fees and expenses and (ii) certain costs in connection with the
extinguishment of certain outstanding options and warrants of the Company and
the remaining portion was converted into voting preferred stock and then
reconverted into $25.0 million in aggregate principal amount of a junior
subordinated note of the Company ("Junior Note") and a retained voting common
stock interest in the Company of approximately 14.7%. Concurrent with the
Recapitalization, the Company refinanced existing indebtedness (the
"Refinancing") by Sealy Mattress Company (the "Issuer"), a wholly owned
subsidiary of the Parent, issuing $125 million of Senior Subordinated Notes
and $128 million, with net proceeds to the Company of $75.4 million, of Senior
Subordinated Discount Notes (the "Notes") and by entering into and borrowing
$460 million under the Senior Credit Agreements.
F-40
<PAGE>
SEALY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
THREE MONTHS ENDED MARCH 1, 1998
After the Recapitalization, the issued and outstanding capital stock of the
Company consists of Class A common stock, par value $0.01 per share ("Class A
Common"), Class B common stock, par value $0.01 per share ("Class B Common"),
Class L common stock, par value $0.01 per share ("Class L Common"), and Class
M common stock, par value $0.01 per share ("Class M Common" and collectively
with the Class A Common, Class B Common and Class L Common, "Common Stock").
The Class L Common and the Class M Common are senior in right of payment to
the Class A Common and Class B Common. Holders of Class B Common and Class M
Common have no voting rights except as required by law. The holders of Class A
Common and Class L Common are entitled to one vote per share on all matters to
be voted upon by the stockholders of the Company, including the election of
directors. The Board of Directors of the Company is authorized to issue
preferred stock, par value $0.01 per share, with such designations and other
terms as may be stated in the resolutions providing for the issue of any such
preferred stock adopted from time to time by the Board of Directors.
Upon the consummation of the Recapitalization, Parent and certain of its
stockholders, including the Bain Funds, Harvard Private Capital, Inc.
("Harvard"), Sealy Investors 1, LLC, Sealy Investors 2, LLC, Sealy Investors
3, LLC (the "LLCs") and Zell (collectively, the "Stockholders") entered into a
stockholders agreement (the "Stockholders Agreement"). The Stockholders
Agreement (i) required that each of the parties thereto vote all of its voting
securities of Parent and take all other necessary or desirable actions to
cause the size of the Board of Directors of Parent to be established at seven
members and to cause three designees of the Bain Funds and one designee of
Harvard to be elected to the Board of Directors; (ii) granted Parent and the
Bain Funds a right of first offer on any proposed transfer of shares of
capital stock of Parent held by Zell, Harvard or the LLCs, (iii) granted
Harvard a right of first offer on any proposed transfer of shares of capital
stock of Parent held by Bain Funds; (iv) granted tag-along rights on certain
transfers of shares of capital stock of Parent; (v) required the Stockholders
to consent to a sale of Parent to an independent third party if such sale is
approved by holders constituting a majority of the then outstanding shares of
voting common stock of Parent; and (vi) except in certain instances, prohibits
Zell from transferring any shares of capital stock of Parent until the tenth
anniversary of the date of the consummation of the Recapitalization. Certain
of the foregoing provisions of the Stockholders Agreement terminate upon the
consummation of an Initial Public Offering or an Approved Sale (as each is
defined in the Stockholders Agreement).
Immediately prior to the closing of the Recapitalization (the "Closing"),
Parent contributed (the "Capital Contribution") all of the issued and
outstanding stock of Sealy, Inc., an Ohio corporation, the Stearns & Foster
Bedding Company, a Delaware corporation, Advanced Sleep Products, a California
corporation, Sealy Components-Pad, Inc., a Delaware corporation and Sealy
Mattress Company of San Diego, a California corporation, to the capital of the
Issuer. Immediately after the Capital Contribution, the Issuer became the only
direct subsidiary of Parent and owns 100% of the operations of Parent. At the
Closing, Sandman was merged with and into Parent with Parent the surviving
corporation.
The Recapitalization transaction resulted in an aggregate direct net charge
to APIC and retained deficit totaling $421.7 million primarily comprised of
the costs associated with the purchase of the then outstanding Class A and
Class B Common Stock, the repurchase of Merger Warrants and the repurchase of
Series A and Series B Restructure Warrants. The Recapitalization transaction
also resulted in a pretax charge within selling, general and administrative
expense of $18.8 million comprised of accelerated vesting of stock options and
restricted stock and other incentive based compensation payments to employees
in connection with the transaction. The Company recorded a
F-41
<PAGE>
SEALY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
THREE MONTHS ENDED MARCH 1, 1998
$14.5 million charge, net of income tax benefit of $9.6 million, representing
the writeoff of the remaining unamortized debt issue costs related to long-
term obligations repaid in connection with the Recapitalization as well as
consent fees and premiums paid related to the Tender Offer of the Parent Notes
(each of which as defined in Note D below) in connection with the
Recapitalization.
NOTE D--LONG-TERM OBLIGATIONS
<TABLE>
<CAPTION>
MARCH 1, NOVEMBER 30,
1998 1997
-------- ------------
(IN THOUSANDS)
<S> <C> <C>
Senior Axels Credit Agreement........................ $330,000 $ --
Senior Revolving Credit Agreement:
Tranche A Term Loans............................... 120,000 --
Revolving Credit Facility.......................... 29,000 --
Senior Subordinated Notes............................ 125,000 --
Senior Subordinated Discount Notes................... 77,153 --
Junior Subordinated Note............................. 25,619 --
$275,000,000 Second Restated Secured Credit
Agreement--Revolving Credit Facility................ -- 130,000
10 1/4% Senior Subordinated Notes Due 2003........... 2,201 200,000
-------- --------
708,973 330,000
Less current portion................................. 3,701 --
-------- --------
$705,272 $330,000
======== ========
</TABLE>
On November 18, 1997 Parent commenced an offer (the "Tender Offer") to
purchase for cash up to all (but not less than a majority in principal amount
outstanding) of its 10 1/4% Senior Subordinated Notes due 2003 (the "Parent
Notes") and a related solicitation (the "Consent Solicitation") of consents to
modify certain terms of the Indenture under which the Parent Notes were issued
(the "Parent Note Indenture"). The purchase price to be paid in respect to
validly tendered Parent Notes and related consents were determined by a
formula set forth in the offer to purchase with respect to the Tender Offer.
The Offerings were conditioned upon the consummation of the Tender Offer for,
and the obtaining of consents with respect to, at least a majority in
aggregate principal amount of the Parent Notes outstanding. Parent's
obligation to accept for purchase and to pay for the Parent Notes validly
tendered pursuant to the Tender Offer was conditioned upon, among other
things, consummation of the other elements of the Recapitalization.
The Company's 1997 Credit Agreement was terminated in connection with the
Recapitalization. The 1997 Credit Agreement provided for a $275.0 million
reducing revolving credit facility and a discretionary swing loan facility of
up to $20.0 million. Upon consummation of the Transactions, the Issuer entered
into the AXELs credit agreement (the "Senior AXELs Credit Agreement") and a
credit agreement providing for Tranche A Term Loans and revolving borrowings
(the "Senior Revolving Credit Agreement" and, together with the Senior AXELs
Credit Agreement, the "Senior Credit Agreements"). The Senior Credit
Agreements provide for loans of up to $550.0 million, consisting of a $450.0
million term loan facility (the "Term Loan Facility") and a $100.0 million
revolving credit facility (the "Revolving Credit Facility"). The Issuer
distributed the proceeds of the Term Loan Facility and its initial borrowings
under the Revolving Credit Facility to Parent to provide a portion of the
funds necessary to consummate the Recapitalization. Indebtedness of the Issuer
under the Senior Credit
F-42
<PAGE>
SEALY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
THREE MONTHS ENDED MARCH 1, 1998
Agreements is secured and guaranteed by Parent and certain of the Issuer's
current and all of the Issuer's future U.S. subsidiaries and will bear
interest at a floating rate. See Note I for further details regarding
guarantees including consolidating condensed financial statements for
guarantors and non-guarantors. The Senior Credit Agreements will require the
Company to meet certain financial tests, including minimum levels of adjusted
EBITDA as determined in the agreements, minimum interest coverage and maximum
leverage ratio. The Senior Credit Agreements also contains covenants which,
among other things, limit capital expenditures, indebtedness and/or the
incurrence of additional indebtedness, investments, dividends, transactions
with affiliates, asset sales, mergers and consolidations, prepayments of other
indebtedness (including the Notes), liens and encumbrances and other matters
customarily restricted in such agreements.
Indebtedness under the Senior Credit Agreements bears interest at a floating
rate. Indebtedness under the Revolving Credit Facility and the Term Loans
initially (subject to reduction based on attainment of certain leverage ratio
levels) bears interest at a rate based upon (i) the Base Rate (defined as the
highest of (x) the rate of interest announced publicly by Morgan Guaranty
Trust Company of New York from time to time, as its base rate and (y) the
Federal funds effective rate from time to time plus 0.50%) plus 1.25% in
respect of the Tranche A Term Loans and the loans under the Revolving Credit
Facility (the "Revolving Loans"), 1.50% in respect of the AXELs Series B,
1.75% in respect of the AXELs Series C and 2.00% in respect of the AXELs
Series D, or (ii) the Adjusted Eurodollar Rate (as defined in the Senior
Credit Agreements) for one, two, three or six months (or, subject to general
availability, two weeks or twelve months), in each case plus 2.25% in respect
of Tranche A Term Loans and Revolving Loans, 2.50% in respect of AXELs Series
B, 2.75% in respect of AXELs Series C and 3.00% in respect to AXELs Series D.
The Tranche A Term Loans mature in December 2002. The AXELs Series B mature
in December 2004. The AXELs Series C mature in December 2005. The AXELs Series
D mature in December 2006. The Tranche A Term Loans are subject to quarterly
amortization payments commencing in March 1999, the AXELs Series B, the AXELs
Series C and the AXELs Series D are subject to quarterly amortization payments
commencing in March 1998 with the AXELs Series B amortizing in nominal amounts
until the maturity of the Tranche A Term Loans, the AXELs Series C amortizing
in nominal amounts until the maturity of the AXELs Series B and the AXELs
Series D amortizing in nominal amounts until the maturity of the AXELs Series
C. The Revolving Credit Facility matures in December 2002. In addition, the
Senior Credit Agreements provide for mandatory repayments, subject to certain
exceptions, of the Term Loans, and reductions in the Revolving Credit
Facility, based on the net proceeds of certain asset sales outside the
ordinary course of business of the Issuer and its subsidiaries, the net
proceeds of insurance, the net proceeds of certain debt and equity issuances,
and excess cash flow (as defined in the Senior Credit Agreements).
The Junior Note has an initial principal balance outstanding of $25.0
million and mature on December 18, 2008. Interest on the Junior Note accrues
at 10% per annum if paid within ten days of the end of each calendar quarter
or at 12% if the Company elects to add accrued interest for such quarter to
the then outstanding principal balance. The Company has the option, at each
quarter end, to elect to pay the interest due for the quarter or add such
interest to the principal balance through the term of the Note.
The Notes were issued pursuant to an Indenture (the "Senior Subordinated
Note Indenture") among the Issuer, the Guarantors and The Bank of New York, as
trustee (the "Senior Subordinated Note Trustee"). The Senior Subordinated
Discount Notes were issued pursuant to an Indenture (the
F-43
<PAGE>
SEALY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
THREE MONTHS ENDED MARCH 1, 1998
"Senior Subordinated Discount Note Indenture" and together with the Senior
Subordinated Note Indenture, the "Indentures") among the Issuer, the
Guarantors, and The Bank of New York, as trustee (the "Senior Subordinated
Discount Note Trustee" and, together with the Senior Subordinated Note
Trustee, the "Trustees").
The Senior Subordinated Notes are limited in aggregate principal amount to
$300.0 million, of which $125.0 million was issued in the Offering, and
matures on December 15, 2007. Interest on the Senior Subordinated Notes accrue
at the rate of 9 7/8% per annum and is payable semi-annually in arrears on
June 15 and December 15 of each year, commencing on June 15, 1998, to Holders
of record on the immediately preceding June 1 and December 1. Additional
Senior Subordinated Notes may be issued from time to time after the date of
the Senior Subordinated Note Indenture, subject to the provisions of the
Senior Subordinated Note Indenture.
Except as provided below, the Senior Subordinated Notes are not redeemable
at the Company's option prior to December 15, 2002. Thereafter, the Senior
Subordinated Notes are subject to redemption at any time at the option of the
Company, in whole or in part, upon not less than 30 nor more than 60 days'
notice, at the redemption prices (expressed as percentages of principal
amount) set forth below plus accrued and unpaid interest and Liquidated
Damages thereon to the applicable redemption date, if redeemed during the
twelve-month period beginning on December 15 of the years indicated below:
<TABLE>
<CAPTION>
PERCENTAGE OF
PRINCIPAL
YEAR AMOUNT
---- -------------
<S> <C>
2002................................ 104.937%
2003................................ 103.292%
2004................................ 101.646%
2005 and thereafter................. 100.000%
</TABLE>
Notwithstanding the foregoing, during the first 36 months after December 11,
1997, the Company may on any one or more occasions redeem up to 35% of the
aggregate principal amount of Senior Subordinated Notes originally issued
under the Senior Subordinated Note Indenture at a redemption price of 109.875%
of the principal amount thereof, plus accrued and unpaid interest and
liquidated damages thereon, if any, to the redemption date, with the net cash
proceeds of any Equity Offerings; (as defined in the Indentures) provided that
at least $80.0 million in aggregate principal amount of Senior Subordinated
Notes remain outstanding immediately after the occurrence of such redemption
(excluding Senior Subordinated Notes held by the Company and its
Subsidiaries); and provided further that such redemption shall occur within
120 days of the date of closing of any such Equity Offering.
The Senior Subordinated Discount Notes are limited in aggregate principal
amount at maturity to $275.0 million, of which $128.0 million were issued in
the Offering, and mature on December 15, 2007. The Senior Subordinated
Discount Notes were offered at a substantial discount from their principal
amount at maturity. Until December 15, 2002 (the "Full Accretion Date"), no
interest (other than liquidated damages, if applicable) will accrue or be paid
in cash on the Senior Subordinated Discount Notes, but the Accreted Value will
accrete (representing the amortization of original issue discount) between the
issuance date and the Full Accretion Date, on a semi-annual bond equivalent
basis. Beginning on the Full Accretion Date, interest on the Senior
Subordinated Discount Notes will accrue at the rate of 10 7/8% per annum and
will be payable in cash semi-annually in arrears on June 15 and
F-44
<PAGE>
SEALY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
THREE MONTHS ENDED MARCH 1, 1998
December 15 of each year, commencing on June 15, 2003, to Holders of record on
the immediately preceding June 1 and December 1. Additionally Senior
Subordinated Discount Notes may be issued from time to time after the date of
the Senior Subordinated Discount Note Indenture, subject to the provisions of
the Senior Subordinated Discount Note Indenture. Interest on the Senior
Subordinated Discount Notes will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from the Full
Accretion Date.
Except as provided below, the Senior Subordinated Discount Notes will not be
redeemable at the Company's option prior to December 15, 2002. Thereafter, the
Senior Subordinated Discount Notes will be subject to redemption at any time
at the option of the Company, in whole or in part, upon not less than 30 nor
more than 60 days' notice, at the redemption prices (expressed as percentages
of principal amount) set forth below plus accrued and unpaid interest and
liquidated damages thereon to the applicable redemption date, if redeemed
during the twelve-month period beginning on December 15 of the years indicated
below:
<TABLE>
<CAPTION>
PERCENTAGE OF
PRINCIPAL
YEAR AMOUNT
---- -------------
<S> <C>
2002................................ 105.437%
2003................................ 103.625%
2004................................ 101.812%
2005 and thereafter................. 100.000%
</TABLE>
Notwithstanding the foregoing, during the first 36 months after December 11,
1997, the Company may on any one or more occasions redeem up to 35% of the
Accreted Value of Senior Subordinated Discount Notes originally issued under
the Senior Subordinated Discount Note Indenture at a redemption price of
110.875% of the Accreted Value, plus accrued and unpaid liquidated damages
thereon, if any, to the redemption date, with the net cash proceeds of any
Equity Offerings; (as defined in the Indentures) provided that at least $50.0
million in aggregate Accreted Value of Senior Subordinated Discount Notes
remain outstanding immediately after the occurrence of such redemption
(excluding Senior Subordinated Discount Notes held by the Company and its
Subsidiaries); and provided, further, that such redemption shall occur within
120 days of the date of the closing of any such Equity Offering.
NOTE E--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 previously 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. The Company and
its subsidiary have retained primary responsibility for the investigation and
any necessary clean up plan approved by the DEP under the terms of the ACO.
Since issuance of the ACO, the DEP has approved the Company's soil
remediation plans and its initial groundwater remediation plan. Further
investigation in 1996 revealed certain additional areas of
F-45
<PAGE>
SEALY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
THREE MONTHS ENDED MARCH 1, 1998
soil contamination resulting from activities at the South Brunswick facility
prior to the Company's acquisition of the site. In 1997, the Company, with DEP
approval, completed essentially all soil remediation and conducted a pilot
test for a company-proposed revision to the groundwater remediation program.
The Company's revised groundwater remediation plan will be submitted to the
DEP for approval in 1998.
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. In March,
1997, the Company received $1.7 million from a former owner of the site and
one of the lenders to the former owner in the final settlement of this
litigation which was recorded as an increase to other non-current liabilities.
In January 1997, the Company filed a claim in the U.S. District Court of New
Jersey against former insurance companies for the Company under the
Comprehensive Environmental Response, Compensation and Liability Act seeking
contribution for site investigation and remedial costs. A parallel case
seeking a judgement of non-liability was filed by some (but not all) of these
insurance companies in the U.S. District Court for the Northern District of
Ohio. Both the New Jersey and Ohio District Courts have ruled that New Jersey
law applies and the Company has filed a motion seeking a favorable decision
holding the insurance companies liable for investigation and remediation costs
without the need for trial.
The Company also has begun to remediate soil and groundwater contamination
at an inactive facility located in Oakville, Connecticut. Although the Company
is conducting the remediation voluntarily, it obtained Connecticut Department
of Environmental Protection approval of the remediation plan. The Company
believes the contamination is attributable to the manufacturing operations of
previous unaffiliated occupants of the facility. In 1994, the Company filed a
cost recovery action in U.S. District Court to require these entities to
complete the remediation and reimburse the Company for its cleanup costs. This
litigation is pending. 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.
On May 22, 1997, the Company filed in the United States District Court for
the Northern District of Illinois a motion to terminate certain antitrust
final judgments (the "Judgments") entered on December 30, 1964 and December
26, 1967. These Judgments, among other things, prohibited the Company from
suggesting resale prices to its dealers. During the pendency of the Company's
motion to terminate the Judgments, and based upon allegations received by the
Department of Justice ("the Department") concerning a possible resale price
maintenance agreement with a Stearns & Foster dealer, the Department, on
September 8, 1997, issued to the Company a Civil Investigative Demand seeking
documents relating to, among other things, communications between the Company
and dealers concerning the retail price of mattresses. In response to the
Civil Investigative Demand, the Company produced certain documents and the
deposition of a Company executive was taken. Immediately following such
document production and deposition, the Department consented to the
F-46
<PAGE>
SEALY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
THREE MONTHS ENDED MARCH 1, 1998
termination of the Judgments and an order terminating the Judgments was
entered by the Court on September 19, 1997. After the Court terminated the
Judgments, the Department notified the Company on September 29, 1997 that it
was limiting the Civil Investigative Demand to certain narrow specifications.
In October 1997, the Company produced additional documents in response to the
Civil Investigative Demand. On November 24, 1997 the Company received a
request from the Department for clarification and additional information. The
Company has responded to that request.
NOTE F--STOCK OPTION PLAN
On December 18, 1997, the Company's Board of Directors adopted the 1998
Stock Option Plan ("1998 Plan") and reserved 5,000,000 shares of Class A
Common Stock of the Company for issuance. Options under the 1998 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. On March 18, 1998, the Company
granted ten-year stock options to acquire 2,072,250 shares of Class A Common
Stock at an exercise price of $0.50 per share (representing fair market value
at the time of grant) and 1,175,000 shares of Class A Common Stock at an
exercise price of $4.18 per share (representing a premium to fair market value
at the time of grant). The options vest 40% upon the second anniversary, and
20% on the third, fourth and fifth anniversary dates of the grant.
NOTE G--YEAR 2000 ISSUE
The Company believes that the new Business Systems, including appropriate
software, being installed both alongside and as part of an upgrade of its
existing computer system will address the dating system flaw inherent in most
operating systems (the "Year 2000 Issue"). There can be no assurance, however,
that the new Business Systems will be installed and fully operational at all
locations and for all applications prior to the turn of the century, and
management has therefore deemed it necessary to convert its current system to
be Year 2000 compliant. The Company has conducted a comprehensive impact
analysis to determine what computing platforms and date-aware functions with
respect to its existing computer operating systems will be disrupted by the
Year 2000 Issue. In January, 1998, the Company completed a prioritization of
the impacted areas identified to date and commenced the detailed program code
changes through a contracted third party vendor which has experience in Year
2000 conversions for the Company's existing system including the same release
of such system. The Company is in the preliminary stages of assessment of its
vendors and customers status with respect to the Year 2000 Issue. The required
code changes, testing and implementation necessary to address the Year 2000
Issue is projected to be completed by May, 1999, and is expected to cost
approximately $4.0 million.
NOTE H--SUBSEQUENT EVENTS
On March 10, 1998, the Company announced its plans to relocate its Corporate
headquarters and Research & Development Center from Cleveland, Ohio to
Archdale, North Carolina. The Company will also relocate its Lexington, North
Carolina manufacturing plant to Archdale, North Carolina. The Company has
entered into an agreement to purchase a property which currently includes an
office building and a manufacturing facility. The Company will construct an
additional office building on this property to house its Corporate
headquarters. The Company is currently reviewing financing alternatives with
respect to the property purchase and construction project which it expects to
finalize
F-47
<PAGE>
SEALY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
THREE MONTHS ENDED MARCH 1, 1998
in the second quarter of fiscal 1998. The Company estimates total costs
associated with this relocation will result in a pretax charge of
approximately $8.5 million which will be recognized primarily in fiscal 1998
with the balance in fiscal 1999.
On March 30, 1998, the Company announced a call for redemption of all
outstanding Parent Notes. The redemption price of 106.33%, plus accrued
interest, or approximately $2.5 million, will be paid on May 1, 1998, after
which time interest will cease to accrue on the Notes.
NOTE I--GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION
As discussed in Note D, the Parent and each of the Guarantor Subsidiaries
have fully and unconditionally guaranteed, on a joint and several basis, the
obligation to pay principal and interest with respect to the Notes. The
Guarantor Subsidiaries are wholly-owned subsidiaries of the Company.
Substantially all of the Issuer's operating income and cashflow is generated
by its subsidiaries. As a result, funds necessary to meet the Issuer's debt
service obligations are provided in part by distributions or advances from its
subsidiaries. Under certain circumstances, contractual and legal restrictions,
as well as the financial condition and operating requirements of the Issuer's
subsidiaries, could limit the Issuer's ability to obtain cash from its
subsidiaries for the purpose of meeting its debt service obligations,
including the payment of principal and interest on the Notes. The Notes
contain certain covenants that, among other things, limit the ability of the
Issuer and its Restricted Subsidiaries (as defined) to incur additional
indebtedness and issue Disqualified Stock (as defined), pay dividends or
distributions or make investments or make certain other Restricted Payments
(as defined), enter into certain transactions with affiliates, dispose of
certain assets, incur liens and engage in mergers and consolidations. Although
holders of the Notes will be direct creditors of the Issuer's principal direct
subsidiaries by virtue of the guarantees, the Issuer has subsidiaries ("Non-
Guarantor Subsidiaries") that are not included among the Guarantor
Subsidiaries, and such subsidiaries will not be obligated with respect to the
Notes. As a result, the claims of creditors of the Non-Guarantor Subsidiaries
will effectively have priority with respect to the assets and earnings of such
companies over the claims of creditors of the Issuer, including the holders of
the Notes.
The following supplemental consolidating condensed financial statements
present:
1. Consolidating condensed balance sheets as of March 1, 1998 and
November 30, 1997, consolidating condensed statements of operations and
cash flows for the three-month periods ended March 1, 1998 and March 2,
1997.
2. Sealy Corporation (the "Parent" and a "Guarantor"), Sealy Mattress
Company (the "Issuer"), combined Guarantor Subsidiaries and combined Non-
Guarantor Subsidiaries with their investments in subsidiaries accounted for
using the equity method.
3. Elimination entries necessary to consolidate the Parent and all of its
subsidiaries.
Management does not believe that separate financial statements of the
Guarantor Subsidiaries are material to investors.
F-48
<PAGE>
SEALY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEALY CORPORATION
SUPPLEMENTAL CONSOLIDATING CONDENSED BALANCE SHEET
MARCH 1, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED
SEALY COMBINED NON-
SEALY MATTRESS GUARANTOR GUARANTOR
CORPORATION COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- -------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents........... $ -- $ 20 $ 31 $ 6,119 $ -- $ 6,170
Accounts receivable,
net................... -- 3,587 92,244 9,510 -- 105,341
Inventories............ -- 2,001 43,945 5,209 (437) 50,718
Prepaid expenses and
deferred taxes........ (9,237) 294 21,265 1,461 -- 13,783
--------- -------- -------- ------- -------- --------
(9,237) 5,902 157,485 22,299 (437) 176,012
Property, plant and
equipment--at cost..... -- 4,818 156,829 12,900 -- 174,547
Less: accumulated
depreciation........... -- (1,335) (42,953) (2,205) -- (46,493)
--------- -------- -------- ------- -------- --------
-- 3,483 113,876 10,695 -- 128,054
Other assets:
Goodwill and other
intangibles, net...... -- 14,362 359,063 34,682 -- 408,107
Net investment in and
advances to (from)
subsidiaries and
affiliates............ (92,054) 549,815 (368,025) (29,562) (60,174) --
Debt issuance costs,
net and other
assets................ -- 30,878 7,621 31 -- 38,530
--------- -------- -------- ------- -------- --------
(92,054) 595,055 (1,341) 5,151 (60,174) 446,637
--------- -------- -------- ------- -------- --------
Total assets......... $(101,291) $604,440 $270,020 $38,145 $(60,611) $750,703
========= ======== ======== ======= ======== ========
LIABILITIES AND
STOCKHOLDER'S
(DEFICIT) EQUITY
Current liabilities:
Current portion--long-
term obligations...... $ 2,201 $ 1,500 $ -- $ -- $ -- $ 3,701
Accounts payable....... -- 2,316 34,474 7,776 -- 44,566
Accrued interest....... 3 10,626 -- -- -- 10,629
Accrued incentives and
advertising........... -- 1,408 29,985 1,908 -- 33,301
Accrued compensation... -- 151 5,893 902 -- 6,946
Other accrued
expenses.............. 2,369 469 22,028 (307) (89) 24,470
--------- -------- -------- ------- -------- --------
4,573 16,470 92,380 10,279 (89) 123,613
Long-term obligations... 25,619 679,653 -- -- -- 705,272
Other noncurrent
liabilities............ 3,585 -- 32,676 -- -- 36,261
Deferred income taxes... (7,249) 371 16,467 3,787 -- 13,376
Stockholders' (deficit)
equity................. (127,819) (92,054) 128,497 24,079 (60,522) (127,819)
--------- -------- -------- ------- -------- --------
Total liabilities and
stockholders'
(deficit) equity.... $(101,291) $604,440 $270,020 $38,145 $(60,611) $750,703
========= ======== ======== ======= ======== ========
</TABLE>
F-49
<PAGE>
SEALY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEALY CORPORATION
SUPPLEMENTAL CONSOLIDATING CONDENSED BALANCE SHEET
NOVEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEALY COMBINED COMBINED
SEALY MATTRESS GUARANTOR NON-GUARANTOR
CORPORATION COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- -------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...... $ -- $ 20 $ 2,062 $ 3,975 $ -- $ 6,057
Accounts receivable, net....... -- 3,434 79,150 11,334 -- 93,918
Inventories.................... -- 1,912 39,240 5,190 (335) 46,007
Prepaid expenses and deferred
taxes......................... (9,206) 294 29,819 1,622 -- 22,529
-------- ------- -------- ------- --------- --------
(9,206) 5,660 150,271 22,121 (335) 168,511
Property, plant and equipment--
at cost........................ -- 4,664 152,045 12,894 -- 169,603
Less: accumulated depreciation.. -- (1,254) (40,603) (2,138) -- (43,995)
-------- ------- -------- ------- --------- --------
-- 3,410 111,442 10,756 -- 125,608
Other assets:
Goodwill and other
intangibles, net.............. -- 14,461 361,976 34,832 -- 411,269
Net investment in and advances
to (from) subsidiaries and
affiliates.................... 543,783 2,636 (357,823) (28,591) (160,005) --
Debt issuance costs, net and
other assets.................. 8,918 35 6,641 85 -- 15,679
-------- ------- -------- ------- --------- --------
552,701 17,132 10,794 6,326 (160,005) 426,948
-------- ------- -------- ------- --------- --------
Total assets................. $543,495 $26,202 $272,507 $39,203 $(160,340) $721,067
======== ======= ======== ======= ========= ========
LIABILITIES AND STOCKHOLDER'S
EQUITY
Current liabilities:
Current portion--long-term
obligations................... $ -- $ -- $ -- $ -- $ -- $ --
Accounts payable............... -- 2,086 40,743 6,847 -- 49,676
Accrued interest............... 1,973 -- 65 -- -- 2,038
Accrued incentives and
advertising................... -- 1,473 26,782 2,449 -- 30,704
Accrued compensation........... -- 246 16,244 1,281 -- 17,771
Other accrued expenses......... 314 222 18,107 1,573 (118) 20,098
-------- ------- -------- ------- --------- --------
2,287 4,027 101,941 12,150 (118) 120,287
Long-term obligations........... 330,000 -- -- -- -- 330,000
Other noncurrent liabilities.... 2,969 -- 32,744 -- -- 35,713
Deferred income taxes........... 3,173 896 22,693 3,239 -- 30,001
Stockholders' equity............ 205,066 21,279 115,129 23,814 (160,222) 205,066
-------- ------- -------- ------- --------- --------
Total liabilities and
stockholders' equity........ $543,495 $26,202 $272,507 $39,203 $(160,340) $721,067
======== ======= ======== ======= ========= ========
</TABLE>
F-50
<PAGE>
SEALY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEALY CORPORATION
SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 1, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEALY COMBINED COMBINED
SEALY MATTRESS GUARANTOR NON-GUARANTOR
CORPORATION COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- -------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net sales............... $ -- $ 9,781 $185,535 $18,022 $ (4,079) $209,259
Costs and expenses:
Cost of goods sold..... -- 6,251 108,012 11,300 (4,079) 121,484
Selling, general and
administrative........ 17,426 2,880 61,331 5,960 -- 87,597
Amortization of intan-
gibles................ -- 99 2,914 149 -- 3,162
Interest expense, net.. 2,197 13,395 (41) (23) -- 15,528
Loss (income) from
equity investees...... (1,066) (13,519) -- -- 14,585 --
Loss (income) from
nonguarantor equity
investees............. -- -- (181) -- 181 --
Capital charge and
intercompany interest
allocation............ -- 134 (581) 447 -- --
-------- ------- -------- ------- -------- --------
Income/(loss) before in-
come taxes and extraor-
dinary item............ (18,557) 541 14,081 189 (14,766) (18,512)
Income taxes............ (792) (525) 562 8 -- (747)
-------- ------- -------- ------- -------- --------
Income/(loss) before ex-
traordinary item....... (17,765) 1,066 13,519 181 (14,766) (17,765)
Extraordinary item...... 14,455 -- -- -- -- 14,455
-------- ------- -------- ------- -------- --------
Net income/(loss)....... $(32,220) $ 1,066 $ 13,519 $ 181 $(14,766) $(32,220)
======== ======= ======== ======= ======== ========
</TABLE>
F-51
<PAGE>
SEALY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEALY CORPORATION
SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 2, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEALY COMBINED COMBINED
SEALY MATTRESS GUARANTOR NON-GUARANTOR
CORPORATION COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- -------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net sales............... $ -- $ 7,550 $145,262 $19,099 $ (3,007) $168,904
Costs and expenses:
Cost of goods sold..... -- 4,825 81,157 13,722 (3,007) 96,697
Selling, general and
administrative........ 254 2,261 49,011 4,048 -- 55,574
Amortization of
intangibles........... -- 99 3,030 351 -- 3,480
Interest expense, net.. 7,299 -- (15) (483) -- 6,801
Loss (income) from
equity investees...... (6,981) (7,238) -- -- 14,219 --
Loss (income) from
nonguarantor equity
investees............. -- 398 (1,013) -- 615 --
Capital charge and
intercompany interest
allocation............ -- 85 (321) 236 -- --
------- ------- -------- ------- -------- --------
Income/(loss) before
income taxes and
extraordinary item..... (572) 7,120 13,413 1,225 (14,834) 6,352
Income taxes............ (3,760) 139 6,175 610 -- 3,164
------- ------- -------- ------- -------- --------
Income/(loss) before
extraordinary item..... 3,188 6,981 7,238 615 (14,834) 3,188
Extraordinary item...... 2,030 -- -- -- -- 2,030
------- ------- -------- ------- -------- --------
Net income/(loss)....... $ 1,158 $ 6,981 $ 7,238 $ 615 $(14,834) $ 1,158
======= ======= ======== ======= ======== ========
</TABLE>
F-52
<PAGE>
SEALY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEALY CORPORATION
SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 1, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEALY COMBINED COMBINED
SEALY MATTRESS GUARANTOR NON-GUARANTOR
CORPORATION COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- --------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net cash provided by
(used in) operating
activities............. $ (17,348) $(25,706) $(7,031) $1,184 $25,555 $ (23,346)
--------- --------- ------- ------ ------- ---------
Cash flows from
investing activities:
Purchase of property
and equipment, net.... -- (174) (5,031) (95) -- (5,300)
Net activity in
investment in and
advances to (from)
subsidiaries and
affiliates............ 636,345 (621,760) 10,182 971 (25,738) --
--------- --------- ------- ------ ------- ---------
Net proceeds provided
by (used in) investing
activities............ 636,345 (621,934) 5,151 876 (25,738) (5,300)
Cash flows from
financing activities:
Treasury stock
repurchase costs ..... (413,078) -- -- -- -- (413,078)
Proceeds from
(repayment of) long-
term obligations,
net................... (327,799) 679,447 -- -- -- 351,648
Equity contributions... 121,317 -- -- -- -- 121,317
Debt issuance costs ... 563 (31,691) -- -- -- (31,128)
Net equity activity
with Parent........... -- (116) (151) 84 183 --
--------- --------- ------- ------ ------- ---------
Net cash (used in)
provided by financing
activities............ (618,997) 647,640 (151) 84 183 28,759
--------- --------- ------- ------ ------- ---------
Change in cash and cash
equivalents............ -- -- (2,031) 2,144 -- 113
Cash and cash
equivalents:
Beginning of period.... -- 20 2,062 3,975 -- 6,057
--------- --------- ------- ------ ------- ---------
End of period.......... $ -- $ 20 $ 31 $6,119 -- $ 6,170
========= ========= ======= ====== ======= =========
</TABLE>
F-53
<PAGE>
SEALY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEALY CORPORATION
SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 2, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEALY COMBINED COMBINED
SEALY MATTRESS GUARANTOR NON-GUARANTOR
CORPORATION COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- -------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net cash provided by
(used in)
operating activities... $ 10,030 $ 6,760 $ 6,450 $ 1,887 $(25,100) $ 27
-------- -------- -------- ------- -------- --------
Cash flows from investing activities:
Proceeds from sale of
subsidiary............ -- 35,000 -- -- -- 35,000
Purchases of property
and equipment, net.... -- (175) (3,703) (77) -- (3,955)
Net activity in invest-
ment in and advances
to (from) subsidiaries
and affiliates........ 27,494 5,642 10,413 (6,105) (37,444) --
-------- -------- -------- ------- -------- --------
Net proceeds provided
by (used in) investing
activities............ 27,494 40,467 6,710 (6,182) (37,444) 31,045
Cash flows from financing activities:
Proceeds from
(repayment of) long-
term obligations, et.. 68,382 -- 1 (35) -- 68,348
Dividend............... (99,776) -- -- -- -- (99,776)
Debt issuance costs.... (6,130) -- -- -- -- (6,130)
Net equity activity
with Parent .......... -- (47,200) (10,141) (5,203) 62,544 --
-------- -------- -------- ------- -------- --------
Net cash used in fi-
nancing activities.... (37,524) (47,200) (10,140) (5,238) 62,544 (37,558)
-------- -------- -------- ------- -------- --------
Change in cash and cash
equivalents............ -- 27 3,020 (9,533) -- (6,486)
Beginning of period.... -- 54 3,118 13,447 -- 16,619
-------- -------- -------- ------- -------- --------
End of period.......... $ -- $ 81 $ 6,138 $ 3,914 $ -- $ 10,133
======== ======== ======== ======= ======== ========
</TABLE>
Cash and cash equivalents:
F-54
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY EXCHANGE MADE HERE-
UNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary.................................................................. 1
Risk Factors............................................................. 16
The Transactions......................................................... 24
Use of Proceeds.......................................................... 26
Capitalization........................................................... 27
Selected Historical Consolidated Financial and Other Data................ 28
Unaudited Pro Forma Condensed Consolidated Financial Data................ 30
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 35
Business................................................................. 43
Management............................................................... 57
Security Ownership....................................................... 65
Certain Transactions..................................................... 68
Description of Senior Credit Agreements.................................. 69
Description of Exchange Notes............................................ 70
The Exchange Offer....................................................... 107
Certain Federal Income Tax Consequences.................................. 116
Plan of Distribution..................................................... 116
Legal Matters............................................................ 117
Experts.................................................................. 117
Index to Consolidated Financial Statements............................... F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SEALY MATTRESS COMPANY
-----------
LOGO SEALY LOGO STEARNS & FOSTER
-----------
OFFER TO EXCHANGE ITS SERIES B 9 7/8% SENIOR SUBORDINATED NOTES DUE 2007 FOR
ANY AND ALL OF ITS OUTSTANDING SERIES A SENIOR SUBORDINATED NOTES DUE 2007 AND
ITS SERIES B 10 7/8% SENIOR SUBORDINATED DISCOUNT NOTES DUE 2007 FOR ANY AND
ALL OF ITS OUTSTANDING SERIES A SENIOR SUBORDINATED DISCOUNT NOTES DUE 2007
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company is incorporated under the laws of the State of Ohio. Section
1701.13 of the General Corporation Law of the State of Ohio, inter alia,
("Section 1701.13") provides that an Ohio corporation may indemnify any person
who was or is a party, or is threatened to be made a party, to any threatened,
pending or completed action, suit, or proceeding, whether civil, criminal,
administrative or investigative, other than an action by or in the right of
the corporation, by reason of the fact he is or was a director, officer,
employee, or agent of the corporation, or is or was serving at the request of
the corporation as a director, trustee, officer, employee, member, manager, or
agent of another corporation, domestic or foreign, nonprofit or for profit, a
limited liability company, or a partnership, joint venture, trust, or other
enterprise. The indemnity may include expenses, including attorneys' fees,
judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding, if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, if he had no reasonable cause to believe that
his conduct was unlawful. An Ohio corporation may indemnify or agree to
indemnify any person who was or is a party, or is threatened to be made a
party, to any threatened, pending or completed action or suit by or in the
right of the corporation to procure a judgment in its favor, by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, trustee, officer, employee, member, manager, or agent of another
corporation, domestic or foreign, nonprofit or for profit, a limited liability
company, or a partnership, joint venture, trust, or other enterprise. The
indemnity may include expenses, including attorneys' fees, actually and
reasonably incurred by him in connection with the defense or settlement of
such action or suit, if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation,
except that no indemnification is permitted (i) without judicial approval if
the person is adjudged to be liable for negligence or misconduct in the
performance of his duty to the corporation or (ii) with respect to any action
or suit in which the only liability asserted against a director is pursuant to
unlawful loans, dividends, or distribution of assets (Section 1701.95). Where
an officer, director, employee or agent is successful on the merits or
otherwise in the defense of any action referred to above, the corporation must
indemnify him against the expenses, including attorney's fees, which such
officer or director has actually and reasonably incurred.
The Company's Certificate of Incorporation provides for the indemnification
of directors and officers of the Company to the fullest extent permitted by
the General Corporation Law of the State of Ohio, as it currently exists or
may hereafter be amended.
Section 1701.13 further authorizes a corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee
or agent of the corporation, or is or was serving at the request of the
corporation as a director, trustee, officer, employee or agent of another
corporation or enterprise, against any liability asserted against him and
incurred by him in any such capacity, arising out of his status as such,
whether or not the corporation would have the power to indemnify him under
Section 1701.13.
The Company maintains and has in effect insurance policies covering all of
the Company's directors and officers against certain liabilities for actions
taken in such capacities, including liabilities under the Securities Act of
1933.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS.
<TABLE>
<C> <S>
*2.1 Agreement and Plan of Merger, dated as of October 30, 1997, by and
among Sealy Corporation, Sandman Merger Corporation and Zell/Chilmark
Fund, L.P. (Incorporated by reference to Exhibit 2.1 filed with the
Parent's Current Report on Form 8-K dated December 18, 1997).
*2.2 First Amendment to the Agreement and Plan of Merger, dated as of
December 18, 1997, by and among Sealy Corporation, Sandman Merger
Corporation and Zell/Chilmark Fund, L.P. (Incorporated by reference
to Exhibit 2.2 filed with the Parent's Current Report on Form 8-K
dated December 18, 1997).
3.1 Amended and Restated Certificate of Incorporation of Sealy Mattress
Company.
3.2 By-laws of Sealy Mattress Company.
*4.1 Indenture, dated as of December 18, 1997, by and among Sealy Mattress
Company, the Guarantors named therein and The Bank of New York, as
trustee, with respect to the Series A and Series B 9 7/8% Senior
Subordinated Notes due 2007. (Incorporated by reference to Exhibit
4.1 filed with the Parent's Current Report on Form 8-K dated December
18, 1997).
*4.2 Indenture, dated as of December 18, 1997, by and among Sealy Mattress
Company, the Guarantors named therein and The Bank of New York, as
trustee, with respect to the Series A and Series B 10 7/8% Senior
Subordinated Notes due 2007. (Incorporated by reference to Exhibit
4.2 filed with the Parent's Current Report on Form 8-K dated December
18, 1997).
*4.3 Second Supplemental Indenture, dated as of December 5, 1997, by and
between Sealy Corporation and The Bank of New York, as trustee.
(Incorporated by reference to Exhibit 4.3 filed with the Parent's
Current Report on Form 8-K dated December 18, 1997).
5.1 Opinion and consent of Kirkland & Ellis.
8.1 Opinion of Kirkland & Ellis as to federal income tax consequences.
*10.1 Dealer Manager Agreement, dated as of November 18, 1997, among Sandman
Merger Corporation, Sealy Corporation and Goldman, Sachs & Co.
(Incorporated by reference to Exhibit 10.1 filed with the Parent's
Current Report on Form 8-K dated December 18, 1997).
*10.2 Purchase Agreement, dated as of December 11, 1997, by and among Sealy
Mattress Company, the Guarantors named therein, Goldman, Sachs & Co.,
J.P. Morgan Securities Inc. and BT Alex. Brown Incorporated.
(Incorporated by reference to Exhibit 10.2 filed with the Parent's
Current Report on Form 8-K dated December 18, 1997).
*10.3 Registration Rights Agreement, dated as of December 18, 1997, by and
among Sealy Mattress Company, the Guarantors named therein, Goldman,
Sachs & Co., J.P. Morgan Securities Inc. and BT Alex. Brown
Incorporated. (Incorporated by reference to Exhibit 10.3 filed with
the Parent's Current Report on Form 8-K dated December 18, 1997).
10.4 Credit Agreement, dated as of December 18, 1997, among Sealy Mattress
Company, the Guarantors named therein, Goldman Sachs Credit Partners
L.P., as arranger and syndication agent, Morgan Guaranty Trust
Company of New York, as administrative agent, Bankers Trust Company,
as documentation agent, and the other institutions named therein.
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
10.5 AXEL Credit Agreement, dated as of December 18, 1997, among Sealy
Mattress Company, the Guarantors named therein, Goldman Sachs Credit
Partners L.P., as arranger and syndication agent, Morgan Guaranty
Trust Company of New York, as administrative agent, Bankers Trust
Company, as documentation agent, and the other institutions named
therein.
*10.6 Amended and Restated Employment Agreement, dated as of August 1, 1997,
by and between Sealy Corporation and Ronald L. Jones. (Incorporated by
reference to Exhibit 10.6 filed with the Parent's Current Report on
Form 8-K dated December 18, 1997).
*10.7 Employment Agreement, dated as of August 25, 1997, by and between Sealy
Corporation and Bruce G. Barman. (Incorporated by reference to Exhibit
10.7 filed with the Parent's Current Report on Form 8-K dated December
18, 1997).
*10.8 Employment Agreement, dated as of August 12, 1997, by and between Sealy
Corporation and Jeffrey C. Claypool. (Incorporated by reference to
Exhibit 10.8 filed with the Parent's Current Report on Form 8-K dated
December 18, 1997).
*10.9 Employment Agreement, dated as of July 30, 1997, by and between Sealy
Corporation and Gary T. Fazio. (Incorporated by reference to Exhibit
10.9 filed with the Parent's Current Report on Form 8-K dated December
18, 1997).
*10.10 Employment Agreement, dated as of August 25, 1997, by and between Sealy
Corporation and Douglas E. Fellmy. (Incorporated by reference to
Exhibit 10.10 filed with the Parent's Current Report on Form 8-K dated
December 18, 1997).
*10.11 Employment Agreement, dated as of August 28, 1997, by and between Sealy
Corporation and David J. McIlquham. (Incorporated by reference to
Exhibit 10.11 filed with the Parent's Current Report on Form 8-K dated
December 18, 1997).
*10.12 Employment Agreement, dated as of August 1, 1997, by and between Sealy
Corporation and Lawrence J. Rogers. (Incorporated by reference to
Exhibit 10.12 filed with the Parent's Current Report on Form 8-K dated
December 18, 1997).
*10.13 Change of Control Agreement, dated as of September 3, 1997, by and
between Sealy Corporation and John G. Bartik. (Incorporated by
reference to Exhibit 10.13 filed with the Parent's Current Report on
Form 8-K dated December 18, 1997).
*10.14 Change of Control Agreement, dated as of August 4, 1997, by and between
Sealy Corporation and James G. Goughenour. (Incorporated by reference
to Exhibit 10.14 filed with the Parent's Current Report on Form 8-K
dated December 18, 1997).
*10.15 Change of Control Agreement, dated as of August 27, 1997, by and
between Sealy Corporation and Richard F. Sowerby. (Incorporated by
reference to Exhibit 10.15 filed with the Parent's Current Report on
Form 8-K dated December 18, 1997).
*10.16 Change of Control Agreement, dated as of August 1, 1997, by and between
Sealy Corporation and Ronald H. Stolle. (Incorporated by reference to
Exhibit 10.16 filed with the Parent's Current Report on Form 8-K dated
December 18, 1997).
*10.17 Change of Control Agreement, dated as of August 11, 1997, by and
between Sealy Corporation and Kenneth L. Walker. (Incorporated by
reference to Exhibit 10.17 filed with the Parent's Current Report on
Form 8-K dated December 18, 1997).
*10.18 Amendment to Amended and Restated Employment Agreement and Termination
of Stockholders Agreement, dated as of December 17, 1997, between
Ronald L. Jones and Sealy Corporation. (Incorporated by reference to
Exhibit 10.18 filed with the Parent's Current Report on Form 8-K dated
December 18, 1997).
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
*10.19 Amendment to Employment Agreements, dated as of December 17, 1997,
between the employee named therein and Sealy Corporation.
(Incorporated by reference to Exhibit 10.19 filed with the Parent's
Current Report on Form 8-K dated December 18, 1997).
*10.20 Form of Amendment to Change of Control Agreements, dated as of December
17, 1997. (Incorporated by reference to Exhibit 10.20 filed with the
Parent's Current Report on Form 8-K dated December 18, 1997).
*10.21 Sealy Profit Sharing Plan, Amended and Restated Date: December 1, 1989.
(Incorporated herein by reference to Exhibit 10.1 to the Form 10-K for
the fiscal year ended November 30, 1995 (File No. 1-8738)).
*10.22 Sealy Benefit Equalization Plan, dated December 1, 1994. (Incorporated
herein by reference to Exhibit 10.2 to the Form 10-K for the fiscal
year ended November 30, 1995 (File No. 1-8738)).
*10.23 Sealy Trust Agreement dated June 1, 1990. (Incorporated herein by
reference to Exhibit 10.3 to Parent's Annual Report on Form 10-K for
the fiscal year ended November 30, 1991 (File No. 1-8738)).
*10.24 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).
*10.25 Sealy Corporation Bonus Program. (Incorporated herein by reference to
Exhibit 10.5 to the Form 10-K for the fiscal year ended November 30,
1995 (File No. 1-8738)).
*10.26 Severance Agreement dated March 1, 1996 by and between Sealy
Corporation and Lyman M. Beggs. (Incorporated herein by reference to
Exhibit 10.6 to the Form 10-Q Quarterly Report of Parent dated March
3, 1996 (File No. 1-8738)).
*10.27 Sealy Corporation 1992 Stock Option Plan. (Incorporated herein by
reference to Exhibit 10.7 to Parent's Annual Report on Form 10-K for
the fiscal year ended November 30, 1992 (File No. 1-8738)).
*10.28 Sealy Corporation Performance Share Plan. (Incorporated herein by
reference to Exhibit 10.8 to Parent's Annual Report on Form 10-K for
the fiscal year ended November 30, 1992 (File No. 1-8738)).
*10.29 Employment Agreement dated as of October 31, 1992, by and between Sealy
Corporation and Lyman M. Beggs. (Incorporated herein by reference to
Exhibit 10.9 to Parent's Annual Report on Form 10-K for the fiscal
year ended November 30, 1992 (File No. 1-8738)).
*10.30 Letter Agreement, dated as of October 31, 1992 by and between Sealy
Corporation and Lyman M. Beggs. (Incorporated herein by reference to
Exhibit 10.10 to Parent's Annual Report on Form 10-K for the fiscal
year ended November 30, 1992 (File No. 1-8738)).
*10.31 Stockholder Agreement, dated as of October 31, 1992 by and between
Sealy Corporation and Lyman M. Beggs. (Incorporated herein by
reference to Exhibit 10.11 to Parent's Annual Report on Form 10-K for
the fiscal year ended November 30, 1992 (File No. 1-8738)).
*10.32 Letter Agreement, dated June 5, 1991 by and between Sealy Corporation
and Sam F. Smith, Jr. (Incorporated herein by reference to Exhibit
10.15 to Parent's Annual Report on Form 10-K for the fiscal year ended
November 30, 1992 (File No. 1-8738)).
*10.33 Sealy Corporation 1993 Non-Employee Director Stock Option Plan.
(Incorporated herein by reference to Exhibit 10.17 to the Form S-1
Registration Statement of Parent (File No. 33-59134)). (As amended by
Amendment No. 1 dated April 6, 1994 and filed as Exhibit 10.13 to
Parent's Annual Report on Form 10-K for the fiscal year ended November
30, 1994.)
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <S>
*10.34 Amendment No. 2 to Sealy Corporation 1993 Non-Employee Director Stock
Option Plan, dated June 27, 1995. (Incorporated herein by reference to
Exhibit 10.14 to Parent's Annual Report on Form 10-K for the fiscal
year ended December 1, 1996 (File No. 1-8738)).
*10.35 Amendment No. 3 to Sealy Corporation 1993 Non-Employee Director Stock
Option Plan dated as of May 1, 1996. (Incorporated herein by reference
to Exhibit 10.15 to Parent's Annual Report on Form 10-K for the fiscal
year ended December 1, 1996 (File No. 1-8738)).
*10.36 Employment Agreement dated March 4, 1996 by and between Sealy
Corporation and Ronald L. Jones. (Incorporated herein by reference to
Exhibit 10.15 to the Form 10-Q Quarterly Report of Parent dated March
3, 1996 (File No. 1-8738)).
*10.37 Amendment No. 1 to Sealy Bonus Plan. (Incorporated herein by reference
to Exhibit 10.17 to Parent's Annual Report on Form 10-K for the fiscal
year ended December 1, 1996 (File No. 1-8738)).
*10.38 Sealy Corporation Bonus Plan. (Incorporated herein by reference to
Exhibit 10.18 to Parent's Annual Report on Form 10-K for the fiscal
year ended December 1, 1996 (File No. 1-8738)).
*10.39 Amendment No. 1 to Sealy Corporation 1992 Stock Option Plan.
(Incorporated herein by reference to Exhibit 10.19 to Parent's Annual
Report on Form 10-K for the fiscal year ended December 1, 1996 (File
No. 1-8738)).
*10.40 Amendment No. 1 to Sealy Corporation Performance Share Plan.
(Incorporated herein by reference to Exhibit 10.20 to Parent's Annual
Report on Form 10-K for the fiscal year ended December 1, 1996 (File
No. 1-8738)).
*10.41 Amendment No. 1 to Sealy Profit Sharing Plan. (Incorporated herein by
reference to Exhibit 10.21 to Parent's Annual Report on Form 10-K for
the fiscal year ended December 1, 1996 (File No. 1-8738)).
*10.42 Amendment No. 2 to Sealy Profit Sharing Plan. (Incorporated herein by
reference to Exhibit 10.22 to Parent's Annual Report on Form 10-K for
the fiscal year ended December 1, 1996 (File No. 1-8738)).
*10.43 1996 Transitional Restricted Stock Plan. (Incorporated herein by
reference to Exhibit 10.23 to Parent's Annual Report on Form 10-K for
the fiscal year ended December 1, 1996 (File No. 1-8738)).
*10.44 Sealy Corporation 1997 Stock Option Plan. (Incorporated herein by
reference to Exhibit 10.24 to Parent's Annual Report on Form 10-K for
the fiscal year ended December 1, 1996 (File No. 1-8738)).
*10.45 Stock Option Agreement dated March 4, 1996 by and between Sealy
Corporation and Ronald L. Jones. (Incorporated herein by reference to
Exhibit 10.25 to Parent's Annual Report on Form 10-K for the fiscal
year ended December 1, 1996 (File No. 1-8738)).
*10.46 Stockholder Agreement dated March 4, 1996 by and among Sealy
Corporation and Ronald L. Jones. (Incorporated herein by reference to
Exhibit 10.26 to Parent's Annual Report on Form 10-K for the fiscal
year ended December 1, 1996 (File No. 1-8738)).
*10.47 Restricted Stock Agreement dated March 4, 1996 by and between Sealy
Corporation and Ronald L. Jones. (Incorporated herein by reference to
Exhibit 10.27 to Parent's Annual Report on Form 10-K for the fiscal
year ended December 1, 1996 (File No. 1-8738)).
*10.48 Stockholders Agreement dated as of December 18, 1997 by and among Sealy
Corporation and the Stockholders named therein.
</TABLE>
II-5
<PAGE>
<TABLE>
<C> <S>
*10.49 Registration Rights Agreement dated as of December 18, 1997 by and
among Sealy Corporation and the Stockholders named therein.
*10.50 Management Services Agreement dated as of December 18, 1997 by and
between Sealy Corporation, Sealy Mattress and Bain Capital, Inc.
10.51 Purchase Agreement dated January 1, 1998 between Hollingsworth and
Stout Enterprises, LLC and Sealy, Inc. and Amendment No. 1 thereto
dated April 13, 1998.
12.1 Statement of Computation of Ratios.
*21.1 Subsidiaries of Sealy Mattress Company.
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of Kirkland & Ellis (included in Exhibit 5.1).
*24.1 Powers of Attorney (included on signature page hereto).
*25.1 Statement of Eligibility of Trustee on Form T-1.
*27.1 Financial Data Schedule (Incorporated herein by reference to Exhibit
27.1 to Parent's Annual Report on Form 10-K for the fiscal year ended
December 1, 1996).
*99.1 Form of Letter of Transmittal.
*99.2 Form of Notice of Guaranteed Delivery.
*99.3 Form of Tender Instructions.
</TABLE>
- --------
* Previously filed
(B) FINANCIAL STATEMENT SCHEDULES.
Not Applicable.
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at the time shall be deemed to
be the initial bona fide offering thereof;
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering; and
(4) If the registrant is a foreign private issuer, to file a post-
effective amendment to the registration statement to include any financial
statements required by Rule 3-19 of the chapter at the start of any delayed
offering or throughout a continuous offering. Financial statements and
II-6
<PAGE>
information otherwise required by Section 10(a)(3) of the Act need not be
furnished, provided, that the registrant includes in the prospectus, by
means of a post-effective amendment, financial statements required pursuant
to this paragraph (a)(4) and other information necessary to ensure that all
other information in the prospectus is at least as current as the date of
those financial statements. Notwithstanding the foregoing, with respect to
registration statements on Form F-3, a post-effective amendment need not be
filed to include financial statements and information required by Section
10(a)(3) of the Act or Rule 3-19 of this chapter if such financial
statements and information are contained in periodic reports filed with or
furnished to the Commission by the registrant pursuant to section 13 or
section 15(d) of the Securities Exchange Act of 1934 that are incorporated
by reference in the Form F-3.
(1) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c),
the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
(2) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the registrant pursuant to the provisions described
under Item 20 or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-7
<PAGE>
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a post-
effective amendment all information concerning a transaction, and the company
being acquired involved therein, that was not the subject of and included in
the registration statement when it became effective.
II-8
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF CLEVELAND, STATE OF
OHIO, ON JUNE 3, 1998.
Sealy Mattress Company
/s/ Ronald L. Jones
By: _________________________________
Name: Ronald L. Jones
Title: Chief Executive Officer and
President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT AND POWER OF ATTORNEY HAVE BEEN SIGNED BY OR ON BEHALF
OF THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<S> <C>
SIGNATURE CAPACITY
DATE
/s/ Ronald L. Jones Chief Executive June 3, 1998
- ------------------------------------- Officer, President
RONALD L. JONES and Director
(principal
executive officer)
/s/ Richard F. Sowerby Vice President of June 3, 1998
- ------------------------------------- Finance (principal
RICHARD F. SOWERBY financial and
accounting officer)
/s/ Kenneth L. Walker Vice President, June 3, 1998
- ------------------------------------- General Counsel and
KENNETH L. WALKER Secretary
* Director June 3, 1998
- -------------------------------------
JOSH BEKENSTEIN
* Director June 3, 1998
- -------------------------------------
PAUL EDGERLEY
* Director June 3, 1998
- -------------------------------------
MICHAEL KRUPKA
</TABLE>
II-9
<PAGE>
<TABLE>
<S> <C>
SIGNATURE CAPACITY
DATE
* Director June 3, 1998
- -------------------------------------
JOHN M. SALLAY
* Director June 3, 1998
- -------------------------------------
JAMES W. JOHNSTON
* Director June 3, 1998
- -------------------------------------
JONAS STEINMAN
</TABLE>
II-10
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF CLEVELAND, STATE OF
OHIO, ON JUNE 3, 1998.
Sealy Corporation
/s/ Ronald L. Jones
By: _________________________________
Name: Ronald L. Jones
Title: Chief Executive Officer and
President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT AND POWER OF ATTORNEY HAVE BEEN SIGNED BY OR ON BEHALF
OF THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<S> <C>
SIGNATURE CAPACITY
DATE
/s/ Ronald L. Jones Chief Executive June 3, 1998
- ------------------------------------- Officer, President
RONALD L. JONES and Director
(principal
executive officer)
/s/ Richard F. Sowerby Vice President of June 3, 1998
- ------------------------------------- Finance
RICHARD F. SOWERBY (principal
financial and
accounting officer)
/s/ Kenneth L. Walker Vice President, June 3, 1998
- ------------------------------------- General Counsel and
KENNETH L. WALKER Secretary
</TABLE>
II-11
<PAGE>
<TABLE>
<S> <C>
SIGNATURE CAPACITY
DATE
* Director June 3, 1998
- -------------------------------------
JOSH BEKENSTEIN
* Director June 3, 1998
- -------------------------------------
PAUL EDGERLEY
* Director June 3, 1998
- -------------------------------------
MICHAEL KRUPKA
* Director June 3, 1998
- -------------------------------------
JOHN M. SALLAY
* Director June 3, 1998
- -------------------------------------
JAMES W. JOHNSTON
* Director June 3, 1998
- -------------------------------------
JONAS STEINMAN
</TABLE>
II-12
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF CLEVELAND, STATE OF
OHIO, ON JUNE 3, 1998.
Sealy Mattress Company of Puerto
Rico
/s/ Ronald L. Jones
By: _________________________________
Name: Ronald L. Jones
Title: Chief Executive Officer and
President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT AND POWER OF ATTORNEY HAVE BEEN SIGNED BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<S> <C>
SIGNATURE CAPACITY
DATE
/s/ Ronald L. Jones Chief Executive June 3, 1998
- ------------------------------------- Officer, President
RONALD L. JONES and Director
(principal
executive officer)
/s/ Richard F. Sowerby Vice President of June 3, 1998
- ------------------------------------- Finance (principal
RICHARD F. SOWERBY financial and
accounting officer)
/s/ Kenneth L. Walker Vice President, June 3, 1998
- ------------------------------------- General Counsel,
KENNETH L. WALKER Secretary
and Director
/s/ Ronald H. Stolle Director June 3, 1998
- -------------------------------------
RONALD H. STOLLE
</TABLE>
II-13
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF CLEVELAND, STATE OF
OHIO, ON JUNE 3, 1998.
Ohio-Sealy Mattress Manufacturing
Co., Inc. (Randolph)
/s/ Ronald L. Jones
By: _________________________________
Name: Ronald L. Jones
Title: Chief Executive Officer and
President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT AND POWER OF ATTORNEY HAVE BEEN SIGNED BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<S> <C>
SIGNATURE CAPACITY
DATE
/s/ Ronald L. Jones Chief Executive June 3, 1998
- ------------------------------------- Officer, President
RONALD L. JONES and Director
(principal
executive officer)
/s/ Richard F. Sowerby Vice President of June 3, 1998
- ------------------------------------- Finance (principal
RICHARD F. SOWERBY financial and
accounting officer)
/s/ Kenneth L. Walker Vice President, June 3, 1998
- ------------------------------------- General Counsel,
KENNETH L. WALKER Secretary
and Director
/s/ Ronald H. Stolle Director June 3, 1998
- -------------------------------------
RONALD H. STOLLE
</TABLE>
II-14
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF CLEVELAND, STATE OF
OHIO, ON JUNE 3, 1998.
Ohio-Sealy Mattress Manufacturing
Co.--Ft. Worth
/s/ Ronald L. Jones
By: _________________________________
Name: Ronald L. Jones
Title: Chief Executive Officer and
President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT AND POWER OF ATTORNEY HAVE BEEN SIGNED BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<S> <C>
SIGNATURE CAPACITY
DATE
/s/ Ronald L. Jones Chief Executive June 3, 1998
- ------------------------------------- Officer, President
RONALD L. JONES and Director
(principal
executive officer)
/s/ Richard F. Sowerby Vice President of June 3, 1998
- ------------------------------------- Finance (principal
RICHARD F. SOWERBY financial and
accounting officer)
/s/ Kenneth L. Walker Vice President, June 3, 1998
- ------------------------------------- General Counsel,
KENNETH L. WALKER Secretary
and Director
/s/ Ronald H. Stolle Director June 3, 1998
- -------------------------------------
RONALD H. STOLLE
</TABLE>
II-15
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF CLEVELAND, STATE OF
OHIO, ON JUNE 3, 1998.
Ohio-Sealy Mattress Manufacturing
Co.
/s/ Ronald L. Jones
By: _________________________________
Name: Ronald L. Jones
Title: Chief Executive Officer and
President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT AND POWER OF ATTORNEY HAVE BEEN SIGNED BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED:
SIGNATURE CAPACITY DATE
<TABLE>
<S> <C>
/s/ Ronald L. Jones Chief Executive June 3, 1998
- ------------------------------------- Officer, President
RONALD L. JONES and Director
(principal
executive officer)
/s/ Richard F. Sowerby Vice President of June 3, 1998
- ------------------------------------- Finance (principal
RICHARD F. SOWERBY financial and
accounting officer)
/s/ Kenneth L. Walker Vice President, June 3, 1998
- ------------------------------------- General Counsel,
KENNETH L. WALKER Secretary
and Director
/s/ Ronald H. Stolle Director June 3, 1998
- -------------------------------------
RONALD H. STOLLE
</TABLE>
II-16
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF CLEVELAND, STATE OF
OHIO, ON JUNE 3, 1998.
Ohio-Sealy Mattress Manufacturing
Co.--Housto
/s/ Ronald L. Jones
By: _________________________________
Name: Ronald L. Jones
Title: Chief Executive Officer and
President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT AND POWER OF ATTORNEY HAVE BEEN SIGNED BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<S> <C>
SIGNATURE CAPACITY
DATE
/s/ Ronald L. Jones Chief Executive June 3, 1998
- ------------------------------------- Officer, President
RONALD L. JONES and Director
(principal
executive officer)
/s/ Richard F. Sowerby Vice President of June 3, 1998
- ------------------------------------- Finance (principal
RICHARD F. SOWERBY financial and
accounting officer)
/s/ Kenneth L. Walker Vice President, June 3, 1998
- ------------------------------------- General Counsel,
KENNETH L. WALKER Secretary
and Director
/s/ Ronald H. Stolle Director June 3, 1998
- -------------------------------------
RONALD H. STOLLE
</TABLE>
II-17
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF CLEVELAND, STATE OF
OHIO, ON JUNE 3, 1998.
Sealy Mattress Company of Michigan,
Inc.
/s/ Ronald L. Jones
By: _________________________________
Name: Ronald L. Jones
Title: Chief Executive Officer and
President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT AND POWER OF ATTORNEY HAVE BEEN SIGNED BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<S> <C>
SIGNATURE CAPACITY
DATE
/s/ Ronald L. Jones Chief Executive June 3, 1998
- ------------------------------------- Officer, President
RONALD L. JONES and Director
(principal
executive officer)
/s/ Richard F. Sowerby Vice President of June 3, 1998
- ------------------------------------- Finance (principal
RICHARD F. SOWERBY financial and
accounting officer)
/s/ Kenneth L. Walker Vice President, June 3, 1998
- ------------------------------------- General Counsel,
KENNETH L. WALKER Secretary
and Director
/s/ Ronald H. Stolle Director June 3, 1998
- -------------------------------------
RONALD H. STOLLE
</TABLE>
II-18
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF CLEVELAND, STATE OF
OHIO, ON JUNE 3, 1998.
Sealy Mattress Company of Kansas
City, Inc.
/s/ Ronald L. Jones
By: _________________________________
Name: Ronald L. Jones
Title: Chief Executive Officer and
President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT AND POWER OF ATTORNEY HAVE BEEN SIGNED BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED:
SIGNATURE CAPACITY DATE
<TABLE>
<S> <C>
/s/ Ronald L. Jones Chief Executive June 3, 1998
- ------------------------------------- Officer, President
RONALD L. JONES and Director
(principal
executive officer)
/s/ Richard F. Sowerby Vice President of June 3, 1998
- ------------------------------------- Finance (principal
RICHARD F. SOWERBY financial and
accounting officer)
/s/ Kenneth L. Walker Vice President, June 3, 1998
- ------------------------------------- General Counsel,
KENNETH L. WALKER Secretary
and Director
/s/ Ronald H. Stolle Director June 3, 1998
- -------------------------------------
RONALD H. STOLLE
</TABLE>
II-19
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF CLEVELAND, STATE OF
OHIO, ON JUNE 3, 1998.
Sealy of Maryland and Virginia, Inc.
/s/ Ronald L. Jones
By: _________________________________
Name: Ronald L. Jones
Title: Chief Executive Officer and
President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT AND POWER OF ATTORNEY HAVE BEEN SIGNED BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<S> <C>
SIGNATURE CAPACITY
DATE
/s/ Ronald L. Jones Chief Executive June 3, 1998
- ------------------------------------- Officer, President
RONALD L. JONES and Director
(principal
executive officer)
/s/ Richard F. Sowerby Vice President of June 3, 1998
- ------------------------------------- Finance (principal
RICHARD F. SOWERBY financial and
accounting officer)
/s/ Kenneth L. Walker Vice President, June 3, 1998
- ------------------------------------- General Counsel,
KENNETH L. WALKER Secretary
and Director
/s/ Ronald H. Stolle Director June 3, 1998
- -------------------------------------
RONALD H. STOLLE
</TABLE>
II-20
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF CLEVELAND, STATE OF
OHIO, ON JUNE 3, 1998.
Sealy Mattress Company of Illinois
/s/ Ronald L. Jones
By: _________________________________
Name: Ronald L. Jones
Title: Chief Executive Officer and
President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT AND POWER OF ATTORNEY HAVE BEEN SIGNED BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<S> <C>
SIGNATURE CAPACITY
DATE
/s/ Ronald L. Jones Chief Executive June 3, 1998
- ------------------------------------- Officer, President
RONALD L. JONES and Director
(principal
executive officer)
/s/ Richard F. Sowerby Vice President of June 3, 1998
- ------------------------------------- Finance (principal
RICHARD F. SOWERBY financial and
accounting officer)
/s/ Kenneth L. Walker Vice President, June 3, 1998
- ------------------------------------- General Counsel,
KENNETH L. WALKER Secretary
and Director
/s/ Ronald H. Stolle Director June 3, 1998
- -------------------------------------
RONALD H. STOLLE
</TABLE>
II-21
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF CLEVELAND, STATE OF
OHIO, ON JUNE 3, 1998.
A. Brandwein & Co.
/s/ Ronald L. Jones
By: _________________________________
Name: Ronald L. Jones
Title: Chief Executive Officer and
President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT AND POWER OF ATTORNEY HAVE BEEN SIGNED BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<S> <C>
SIGNATURE CAPACITY
DATE
/s/ Ronald L. Jones Chief Executive June 3, 1998
- ------------------------------------- Officer, President
RONALD L. JONES and Director
(principal
executive officer)
/s/ Richard F. Sowerby Vice President of June 3, 1998
- ------------------------------------- Finance (principal
RICHARD F. SOWERBY financial and
accounting officer)
/s/ Kenneth L. Walker Vice President, June 3, 1998
- ------------------------------------- General Counsel,
KENNETH L. WALKER Secretary
and Director
/s/ Ronald H. Stolle Director June 3, 1998
- -------------------------------------
RONALD H. STOLLE
</TABLE>
II-22
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF CLEVELAND, STATE OF
OHIO, ON JUNE 3, 1998.
Sealy Mattress Company of Albany,
Inc.
/s/ Ronald L. Jones
By: _________________________________
Name: Ronald L. Jones
Title: Chief Executive Officer and
President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT AND POWER OF ATTORNEY HAVE BEEN SIGNED BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<S> <C>
SIGNATURE CAPACITY
DATE
/s/ Ronald L. Jones Chief Executive June 3, 1998
- ------------------------------------- Officer, President
RONALD L. JONES and Director
(principal
executive officer)
/s/ Richard F. Sowerby Vice President of June 3, 1998
- ------------------------------------- Finance (principal
RICHARD F. SOWERBY financial and
accounting officer)
/s/ Kenneth L. Walker Vice President, June 3, 1998
- ------------------------------------- General Counsel,
KENNETH L. WALKER Secretary
and Director
/s/ Ronald H. Stolle Director June 3, 1998
- -------------------------------------
RONALD H. STOLLE
</TABLE>
II-23
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF CLEVELAND, STATE OF
OHIO, ON JUNE 3, 1998.
Sealy of Minnesota, Inc.
/s/ Ronald L. Jones
By: _________________________________
Name: Ronald L. Jones
Title: Chief Executive Officer and
President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT AND POWER OF ATTORNEY HAVE BEEN SIGNED BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<S> <C>
SIGNATURE CAPACITY
DATE
/s/ Ronald L. Jones Chief Executive June 3, 1998
- ------------------------------------- Officer, President
RONALD L. JONES and Director
(principal
executive officer)
/s/ Richard F. Sowerby Vice President of June 3, 1998
- ------------------------------------- Finance (principal
RICHARD F. SOWERBY financial and
accounting officer)
/s/ Kenneth L. Walker Vice President, June 3, 1998
- ------------------------------------- General Counsel,
KENNETH L. WALKER Secretary
and Director
/s/ Ronald H. Stolle Director June 3, 1998
- -------------------------------------
RONALD H. STOLLE
</TABLE>
II-24
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF CLEVELAND, STATE OF
OHIO, ON JUNE 3, 1998.
Sealy Mattress Company of Memphis
/s/ Ronald L. Jones
By: _________________________________
Name: Ronald L. Jones
Title: Chief Executive Officer and
President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT AND POWER OF ATTORNEY HAVE BEEN SIGNED BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<S> <C>
SIGNATURE CAPACITY
DATE
/s/ Ronald L. Jones Chief Executive June 3, 1998
- ------------------------------------- Officer, President
RONALD L. JONES and Director
(principal
executive officer)
/s/ Richard F. Sowerby Vice President of June 3, 1998
- ------------------------------------- Finance (principal
RICHARD F. SOWERBY financial and
accounting officer)
/s/ Kenneth L. Walker Vice President, June 3, 1998
- ------------------------------------- General Counsel,
KENNETH L. WALKER Secretary
and Director
/s/ Ronald H. Stolle Director June 3, 1998
- -------------------------------------
RONALD H. STOLLE
</TABLE>
II-25
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF CLEVELAND, STATE OF
OHIO, ON JUNE 3, 1998.
The Stearns & Foster Bedding Company
/s/ Ronald L. Jones
By: _________________________________
Name: Ronald L. Jones
Title: Chief Executive Officer and
President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT AND POWER OF ATTORNEY HAVE BEEN SIGNED BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<S> <C>
SIGNATURE CAPACITY
DATE
/s/ Ronald L. Jones Chief Executive June 3, 1998
- ------------------------------------- Officer, President
RONALD L. JONES and Director
(principal
executive officer)
/s/ Richard F. Sowerby Vice President of June 3, 1998
- ------------------------------------- Finance (principal
RICHARD F. SOWERBY financial and
accounting officer)
/s/ Kenneth L. Walker Vice President, June 3, 1998
- ------------------------------------- General Counsel,
KENNETH L. WALKER Secretary
and Director
/s/ Ronald H. Stolle Director June 3, 1998
- -------------------------------------
RONALD H. STOLLE
</TABLE>
II-26
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF CLEVELAND, STATE OF
OHIO, ON JUNE 3, 1998.
The Stearns & Foster Upholstery
Furniture Company
/s/ Ronald L. Jones
By: _________________________________
Name: Ronald L. Jones
Title: Chief Executive Officer and
President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT AND POWER OF ATTORNEY HAVE BEEN SIGNED BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<S> <C>
SIGNATURE CAPACITY
DATE
/s/ Ronald L. Jones Chief Executive June 3, 1998
- ------------------------------------- Officer, President
RONALD L. JONES and Director
(principal
executive officer)
/s/ Richard F. Sowerby Vice President of June 3, 1998
- ------------------------------------- Finance (principal
RICHARD F. SOWERBY financial and
accounting officer)
/s/ Kenneth L. Walker Vice President, June 3, 1998
- ------------------------------------- General Counsel,
KENNETH L. WALKER Secretary
and Director
/s/ Ronald H. Stolle Director June 3, 1998
- -------------------------------------
RONALD H. STOLLE
</TABLE>
II-27
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF CLEVELAND, STATE OF
OHIO, ON JUNE 3, 1998.
Sealy, Inc.
/s/ Ronald L. Jones
By: _________________________________
Name: Ronald L. Jones
Title: Chief Executive Officer and
President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT AND POWER OF ATTORNEY HAVE BEEN SIGNED BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<S> <C>
SIGNATURE CAPACITY
DATE
/s/ Ronald L. Jones Chief Executive June 3, 1998
- ------------------------------------- Officer, President
RONALD L. JONES and Director
(principal
executive officer)
/s/ Richard F. Sowerby Vice President of June 3, 1998
- ------------------------------------- Finance (principal
RICHARD F. SOWERBY financial and
accounting officer)
/s/ Kenneth L. Walker Vice President, June 3, 1998
- ------------------------------------- General Counsel,
KENNETH L. WALKER Secretary
and Director
/s/ Ronald H. Stolle Director June 3, 1998
- -------------------------------------
RONALD H. STOLLE
</TABLE>
II-28
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF CLEVELAND, STATE OF
OHIO, ON JUNE 3, 1998.
The Ohio Mattress Company Licensing
and Components Group
/s/ Ronald L. Jones
By: _________________________________
Name: Ronald L. Jones
Title: Chief Executive Officer and
President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT AND POWER OF ATTORNEY HAVE BEEN SIGNED BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<S> <C>
SIGNATURE CAPACITY
DATE
/s/ Ronald L. Jones Chief Executive June 3, 1998
- ------------------------------------- Officer, President
RONALD L. JONES and Director
(principal
executive officer)
/s/ Richard F. Sowerby Vice President of June 3, 1998
- ------------------------------------- Finance (principal
RICHARD F. SOWERBY financial and
accounting officer)
/s/ Kenneth L. Walker Vice President, June 3, 1998
- ------------------------------------- General Counsel,
KENNETH L. WALKER Secretary
and Director
/s/ Ronald H. Stolle Director June 3, 1998
- -------------------------------------
RONALD H. STOLLE
</TABLE>
II-29
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF CLEVELAND, STATE OF
OHIO, ON JUNE 3, 1998.
Sealy Mattress Manufacturing
Company, Inc.
/s/ Ronald L. Jones
By: _________________________________
Name: Ronald L. Jones
Title: Chief Executive Officer and
President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT AND POWER OF ATTORNEY HAVE BEEN SIGNED BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<S> <C>
SIGNATURE CAPACITY
DATE
/s/ Ronald L. Jones Chief Executive June 3, 1998
- ------------------------------------- Officer, President
RONALD L. JONES and Director
(principal
executive officer)
/s/ Richard F. Sowerby Vice President of June 3, 1998
- ------------------------------------- Finance (principal
RICHARD F. SOWERBY financial and
accounting officer)
/s/ Kenneth L. Walker Vice President, June 3, 1998
- ------------------------------------- General Counsel,
KENNETH L. WALKER Secretary
and Director
/s/ Ronald H. Stolle Director June 3, 1998
- -------------------------------------
RONALD H. STOLLE
</TABLE>
II-30
<PAGE>
EXHIBIT 3.1
C-108 Prescribed by
TED W. BROWN Charter #________
Secretary of State Approved by______
Date_____________
Fee$_____________
CERTIFICATE
OF
AMENDED ARTICLES OF INCORPORATION
OF
Sealy Mattress Company (formerly Ohio-Sealy Mattress Manufacturing Co.)
- --------------------------------------------------------------------------------
(Name of Incorporation)
Thomas L. Smudz , who is ( ) Chairman of the Board
- --------------------------------- ( ) President (check one)
(X) Vice President
and John D. Moran , who is ( ) Secretary (check one)
------------------------------ (X) Assistant Secretary
of the above named Ohio corporation for profit with its principal location at
Cleveland, Ohio do hereby certify that: (check the appropriate box and complete
- ---------
the appropriate statements)
[ ] a meeting of the shareholders was duly called and held on
__________, 19__, at which meeting a quorum of the shareholders was
present in person or by proxy, and by the affirmative vote of the
holders of shares entitling them to exercise _____% of the voting
power of the corporation,
[X] in a writing signed by all of the shareholders who would be entitled
to a notice of a meeting held for that purpose,
the following Amended Articles of Incorporation were adopted to supersede and
take the place of the existing Articles and all amendments thereto:
AMENDED ARTICLES OF INCORPORATION
FIRST: The name of the corporation is Sealy Mattress Company .
----------------------------
SECOND: The place in the State of Ohio where its principal office is
located is the City of Cleveland , Cuyahoga County.
--------------- --------------
<PAGE>
THIRD: The purposes of the corporation are as follows:
To engage in any lawful act or activity for which a corporation
may be formed in Ohio.
FOURTH: The number of shares which the corporation is authorized to have
outstanding is 1,000 shares of common stock with a par value of
$1.00 per share.
FIFTH: These amended articles of incorporation take the place of and
supersede the existing articles of incorporation as heretofore
amended.
IN WITNESS WHEREOF, the above named officers, acting for and on behalf of
the corporation, have subscribed their names this 28 day of January ,
------ -----------
1988.
X[signed] Thomas L. Smudz
-----------------------------------------------
(Chairman, President or Vice President)
X[signed] John D. Moran
-----------------------------------------------
(Secretary of Assistant Secretary)
NOTE: Ohio law does not permit one officer to sign in two capacities. Two
separate signatures are required, even if this necessitates the
election of a second officer before the filing can be made.
-2-
<PAGE>
AMENDED ARTICLES OF INCORPORATION
---------------------------------
OF
--
OHIO-SEALY MATTRESS MANUFACTURING CO.
-------------------------------------
ARTICLE I
--------
NAME
The name of the corporation shall be OHIO-SEALY MATTRESS MANUFACTURING CO.
(hereinafter called the "Corporation").
ARTICLE II
----------
PRINCIPAL PLACE OF BUSINESS
The place in Ohio where the principal of ice of the Corporation is to be located
is Cleveland, Cuyahoga County, Ohio.
ARTICLE III
-----------
PURPOSES
The said Corporation is formed for the purpose of engaging in the business of
manufacturing, buying, selling, and generally dealing in mattresses, springs,
bedding and in fabrics, cloth, materials, articles and commodities.
In furtherance and not in limitation of the general powers conferred by the
laws of the State of Ohio, and the objectives and purposes herein set
forth, it is expressly provided that this Corporation shall also have the
following powers, to-wit:
To purchase, acquire, hold, convey, lease, mortgage, or dispose of
property, real or personal, tangible or intangible.
To have one or more offices, warehouses and/or manufacturing facilities to
carry on any or all of its operations and business, and without
restrictions or limitations as to amount, to purchase, lease or otherwise
acquire, hold and own, and to mortgage, sell, convey, lease, or otherwise
dispose of real and personal property of every class and description in any
of the states, territories or possessions of the United States and in the
District of Columbia, and in any and all foreign
<PAGE>
countries, including the Commonwealth of Puerto Rico, subject to the laws
of such state, district, territory, possession or country.
To invest in, buy and sell, long or short, on margin or otherwise, stocks
(whether common or preferred) bonds, securities, commodities, undivided
interests in any real or personal property, shares or interest in
investment companies or investment trusts, or discretionary Common Trust
Funds and any other property, real or personal, foreign or domestic; and
for the foregoing purposes, to borrow money or pledge the credit or any
assets of the Corporation.
To purchase or other vise acquire, hold, sell and transfer the shares of
its own common shares, provided it shall not use its funds or property for
the purchase or acquisition of its own shares of common shares when such
use would cause any impairment of its capital except as otherwise permitted
by law, and provided further that shares of its own common shares belonging
to it shall not be voted directly or indirectly. This power shall include,
but not by way of limitation, the right to re-purchase its shares upon the
termination of employment or the death of a shareholder.
To acquire in whole or in part the business, good will, rights, property
and assets of all kinds of any corporation, association, partnership,
combination, organization, entity, or individual, domestic or foreign; and
to pay for the same in cash, stocks, bonds, notes, debentures or other
securities or obligations of the Corporation or otherwise; and to hold,
possess and improve such properties and to conduct in any legal manner the
whole or any part of the business so acquired; and to pledge, mortgage,
sell or otherwise dispose of the same.
To endorse or guarantee the payment of principal or interest, or both, or
dividends upon any stocks, bonds, obligations or other securities or
evidences of indebtedness issued or created by any other corporation of the
State of Ohio, or any other state, or of any country, nation or government,
or political authority, so far as the same may be permitted by law.
To do any or all of the things herein set forth to the same extent as
natural persons might or could do in any part of the world, as principals,
agents, contractors, trustees or otherwise, alone or in company with
others.
It is the intention that the purposes, objects, and powers specified in this
Article III and all subdivisions thereof shall, except as otherwise expressly
provided, in no wise be limited or restricted by reference to or inference from
the terms of any other clause or paragraph of this Article, and that each of the
purposes, objects, and powers specified in this Article III shall be regarded as
independent purposes, objects, and powers.
-2-
<PAGE>
ARTICLE IV
----------
CAPITAL STOCK
A. AUTHORIZED SHARES
-----------------
The number of shares which the Corporation is authorized to have
issued and outstanding is 25,500,000 shares, consisting of 25,000,000
shares of Common Stock with a par value of $1.00 per share
(hereinafter designated "Common Stock") and 500,000 shares of
Preferred Stock with a par value of $1.00 per share (hereinafter
designated "Preferred Stock").
B. COMMON STOCK
------------
The Common Stock shall be subject to the express terms of the
Preferred Stock and any series thereof. Each share of Common Stock
shall be equal to every other share of Common Stock.
C. PREFERRED STOCK
---------------
(1) General
-------
(a) In the discretion of the Board of Directors, shares of
Preferred Stock may be issued from time to time in one or
more series. The express terms of shares of Preferred Stock
of different series shall be identical, except that there may
be variations in respect of: (i) the dividend rate, (ii) the
dates of payment of dividends and the dates from which they
are cumulative, (iii) redemption rights and price, (iv)
liquidation price, (v) sinking fund requirements, (vi)
conversion rights, (vii) restrictions on the issuance of
shares of the same series or of any other class or series,
and (viii) any and all other terms in respect of which
variations may be from time to time permitted by law.
(b) The Board of Directors is hereby authorized and empowered to
adopt amendments to these .Amended Articles of Incorporation
in respect of any unissued or treasury shares of Preferred
Stock and thereby to fix or change: (i) the division of such
shares into series and the designation and authorized number
of shares of each series, (ii) the dividend rate, (iii) the
dates of payment of dividends and the dates from which they
are cumulative, (iv) liquidation price, (v) redemption rights
and price, (vi) sinking fund requirements, (vii) restrictions
on the issuance of shares of any class or series, and (ix)
any and all other terms in respect of which the adoption of
such amendments by the Board of Directors may be from time to
time permitted by law.
-3-
<PAGE>
(c) Nothing in the immediately preceding Clauses (a) and (b) is
intended to require that shares of any series in fact possess
any or all of the terms referred to in the enumerations
contained in said Clauses or permitted bylaw, whether or not
shares of any one or more other series do in fact possess
such terms.
(2) Dividends
---------
(a) Holders of Preferred Stock of each series shall be entitled
to receive dividends, when and as declared by the Board of
Directors, which shall be payable at such times and at such
rates, but not in excess thereof, as maybe fixed by the Board
of Directors, in preference to and in priority over dividends
on the Common Stock. Such dividends on the Preferred Stock
shall be cumulative with respect to each such series from the
date determined by the Board of Directors.
(b) So long as any shares of Preferred Stock are outstanding, the
Corporation shall not declare or pay any dividend on or make
any distribution of assets on account of Common Stock, or
purchase directly or indirectly any Common Stock, unless all
accumulated dividends on the Preferred Stock have been
declared and paid.
(3) Liquidation
-----------
Upon any dissolution, liquidation or winding-up of the
Corporation, the holders of Preferred Stock shall be entitled to
receive out of the assets of the Corporation, whether from
capital, surplus or earnings, and before any distribution of any
assets shall be made on account of Common Stock, the amount per
share fixed by the Board of Directors plus unpaid dividends to
the date fixed for distribution. Holders of Preferred Stock shall
be entitled to no further participation in any distribution made
in conjunction with any such dissolution, liquidation or winding-
up. Neither the consolidation or merger of the Corporation nor
the sale of all or substantially all of its assets shall be
deemed a dissolution, liquidation or winding-up within the
meaning of this Paragraph.
(4) Redemption
----------
(a) Any series of Preferred Stock which is redeemable shell be
subject to the following provisions of this Paragraph (4),
except as the Board of Directors shall otherwise provide
pursuant to the provisions of Clause (b) of Paragraph (1) of
this Section C.
(b) The Corporation, at its option to be exercised by the Board
of Directors, may redeem the whole or any part of the shares
of such
-4-
<PAGE>
series, at any time or from time to time, at the redemption
price fixed for such shares by the Board of Directors plus
unpaid dividends to the redemption date fixed by the Board of
Directors. If at any time less than all of the shares of such
Preferred Stock then outstanding shall be called for
redemption, the Board of Directors may select the series of
such Preferred Stock to be redeemed, and if less than all the
shares of such series are to be called for redemption, the
shares to be redeemed may be selected by lot, or pro rata, or
by such other method as the Board of Directors may deem
equitable. Notice of every such redemption, stating the
redemption date, the redemption price, and the place of
payment thereof, shall be given by mailing a copy of such
notice to the holders of record of the shares to be redeemed
at their addresses as the same appear in the records of the
Corporation and by publishing such notice at least once in a
newspaper of general circulation in the cities of Cleveland,
Ohio, and New York, New York, but not less than thirty (30)
days nor more than sixty (60) days prior to the date fixed
for redemption.
(c) If such notice of redemption shall have been duly given, and
if on or before the redemption date specified in such notice
all funds necessary for such redemption shall have been set
aside so as to be available herefor, then, notwithstanding
that any certificate for shares so called for redemption
shall not have been surrendered for cancellation, from and
after the redemption date, the shares represented thereby
shall no longer be deemed outstanding and all rights with
respect to such shares shall cease and terminate, except only
the right of the holders thereof to receive the amount
payable upon redemption, but without interest, upon
endorsement, if required, and surrender of the certificates
for such shares.
(d) If, before the redemption date specified in such notice, the
Corporation shall deposit with a bank or trust company named
in such notice, doing business in Cleveland, Ohio, or New
York, New York, and having a capital and surplus aggregating
at least $5,000,000, in trust, to be applied to the
redemption of the shares so called for redemption, all funds
necessary for such redemption, payable at any time after such
deposit to the holders entitled thereto, but without
interest, upon endorsement, if required, and surrender of the
certificates for such shares, then, notwithstanding that any
certificate for shares so called for redemption shall not
have been surrendered for cancellation, from and after the
date of such deposit, the shares represented thereby shall no
longer be deemed outstanding and all rights with respect to
such shares shall cease and terminate except (i) the right of
the holders thereof to receive from such bank or trust
company the amount payable upon
-5-
<PAGE>
redemption, but without interest, upon endorsement, if
required, and surrender of the certificates for such shares
and (ii) any conversion rights then in effect with respect to
such shares, such conversion rights to cease and terminate on
the redemption date or on such earlier date as may now or
hereafter be provided in these Amended Articles of
Incorporation. Any funds so deposited which shall not be
required for such redemption by reason of the exercise of any
such conversion rights subsequent to the date of such deposit
shall be returned to the Corporation. All interest accrued on
funds so deposited shall belong to the Corporation and shall
be paid to it from time to time. In case the holders of
shares called for redemption shall not, within three (3)
years after such deposit, claim the amount deposited with
respect to the redemption thereof, such bank or trust company
shall, upon demand, without the necessity of notifying any
then holders of the shares so called for redemption, pay over
to the Corporation such unclaimed amounts, and thereupon such
bank or trust company shall be relieved of any responsibility
in respect thereof, and the holders of the shares so called
for redemption shall thereafter look only to the Corporation
for the payment thereof, but without interest.
D. VOTING RIGHTS
-------------
(1) General
-------
Each shareholder shall be entitled to cast one vote for each share.
Except as otherwise provided by law or by these Amended Articles of
Incorporation, the shareholders of all classes shall vote as a single
class. In case of any action for which the affirmative vote of the
holders of a designated proportion of the shares of any class is
required by law or by these Amended Articles of Incorporation, the
shareholders of such class shall vote as a single class irrespective
of series.
(2) Protective Provisions as to Preferred Stock
-------------------------------------------
(a) The Corporation shall not, without first obtaining the affirmative
vote of the holders of at least a majority of the outstanding
shares of Preferred Stock, authorize or create, or increase the
authorized amount of, Preferred Stock or a class of stock ranking
on a parity with or prior to the Preferred Stock (or any security
convertible into such Preferred Stock or class or stock ranking on
a parity with or prior to the Preferred Stock); provided, however,
that the holders of the shares of Preferred Stock shall not have
any rights under the provisions of this Clause (a) to vote in
respect of any action specified in this Clause (a) if, in
connection with the accomplishment of such action, provision is to
be made for the redemption of all of the shares of Preferred Stock
at the time outstanding.
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<PAGE>
(b) If and whenever dividends on the Preferred Stock shall be in
arrears and such arrears shall aggregate an amount at least equal
to six (6) quarterly dividends upon such stock, the holders of the
Preferred Stock, voting separately as a class, shall be entitled,
at any annual meeting of the shareholders or at a special meeting
of the holders of the Preferred Stock called as hereinafter
provided, to elect two (2) Directors (hereinafter sometimes called
the "Preferred Directors") in addition to all other rights to vote
for Directors. Whenever all arrears in dividends on the Preferred
Stock then outstanding shall have been paid and dividends thereon
for the then current dividend period shall have been paid, or
declared and a sum sufficient in payment thereof set apart, the
right of the holders of the Preferred Stock to elect two (2)
Directors shall cease, subject always to the same provisions for
the vesting of such voting rights in the case of any similar
future arrearages in dividends. At any time after such voting
power shall have been so vested in the holders of the Preferred
Stock, the Secretary of the Corporation may, and, upon the written
request of the holders of record of twenty-five per cent (25%) or
more of the Preferred Stock then outstanding, addressed to him at
the principal office of the Corporation, shall, call a special
meeting of the holders of the Preferred Stock for the election of
the Preferred Directors, to be held within thirty (30) days after
such call and at the place and upon the notice provided by law and
by the Code of Regulations of the Corporation for the holding of
meetings of shareholders; provided, however, that the Secretary
shall not be required to call such special meeting in the case of
any such request received less than ninety (90) days before the
date fixed for any annual meeting of shareholders. If any such
special meeting required to be called as provided shall not be
called by the Secretary within the thirty (30) days after the
receipt of any such request, then the holders of record of twenty-
five per cent (25%) or more of the shares of the Preferred Stock
then outstanding may designate in writing one of their number to
call such meeting, and the person so designated may call such
meeting to be held at the place and upon the notice above provided
and for that purpose shall have access to the stock ledger of the
Corporation. No such special meeting and no adjournment thereof
shall be held on a date later than thirty (30) days before the
annual meeting of the shareholders next succeeding the time when
the holders of the Preferred Stock become entitled to elect the
Preferred Directors. At any special or annual meeting at which
Preferred Directors are to be elected, the holders of at least a
majority of the issued and outstanding shares of Preferred Stock,
present in person or by proxy, shall constitute a quorum for the
holding of such election. In the absence of such quorum, the
holders of a majority of such shares present or represented may
adjourn such election by resolution to a date fixed therein and no
further notice thereof shall be required. At any special meeting
or annual meeting at which Preferred Directors are to be elected,
provided a quorum of the holders of Preferred Stock is present in
person or by proxy, then by vote of the holders of at least a
majority of the
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<PAGE>
shares of Preferred Stock present or represented at such meeting,
the holders of the Preferred Stock shall be entitled to elect the
Preferred Directors, and, unless an increase in the authorized
number of Directors theretofore made pursuant to this Clause (b)
is then in effect, the then authorized number of Directors of the
Corporation shall be increased by two (2) for such meeting.
Preferred Directors shall hold office until the next annual
election of Directors and until their respective successors shall
have been duly elected and qualified. In the event that any
vacancy shall occur among the Preferred Directors, the remaining
Preferred Director shall within one (1) month after its occurrence
designate in a writing filed with the Secretary of the Corporation
the person to fill such vacancy, but if such remaining Preferred
Director shall not file such designation within such time, or if
there be no remaining Preferred Director, such vacancy or
vacancies may be filled by a majority of the remaining members of
the Board of Directors. In the event that any vacancy shall occur
among the Directors other than Preferred Directors, such vacancy
shall be filled by a majority of the remaining Directors other
than Preferred Directors. Whenever the holders of the Preferred
Stock shall be divested of the voting power as above provided, the
terms of office of the Preferred Directors shall forthwith
terminate and the number of the Board of Directors shall be
reduced accordingly.
E. ELIMINATION OF PRE-EMPTIVE AND OTHER RIGHTS
-------------------------------------------
Except for the conversion rights now or hereafter expressly provided for in
these Amended Articles of Incorporation, no shareholder of any class shall
have any pre emptive or other right to subscribe for, purchase or acquire
shares of the same or any other class, or any securities convertible into
or evidencing or accompanied by any right to subscribe for, purchase or
acquire shares of the same or any other class, whether now or hereafter
authorized.
ARTICLE V
---------
VOTING REQUIREMENTS
A. VOTE REQUIRED FOR CERTAIN BUSINESS COMBINATIONS
-----------------------------------------------
(1) Vote Requirements
-----------------
The affirmative vote of the holders of not less than eighty (80)
percent of the outstanding shares of Common Stock of the Corporation
and the affirmative vote of the holders of not less than sixty-seven
(67) percent of the outstanding shares of Common Stock of the
Corporation held by shareholders other than a "Related Person" (as
defined in this Article) who is a party to any "Business Combination"
(as defined in this Article) shall be required for the approval or
authorization of
-8-
<PAGE>
such Business Combination of the Corporation with a Related Person;
provided, however, that the eighty (80) percent and sixty-seven (67)
percent voting requirements shall not be applicable if:
(a) The "Continuing Directors" of the Corporation (as defined in this
Article) by a two-thirds (2/3) vote (i) have expressly approved
the acquisition of outstanding shares of Common Stock of the
Corporation that caused the Related Person involved in the
Business Combination to become a Related Person, such approval
being made prior to said acquisition, or (ii) have expressly
approved the Business Combination prior to that time at which the
Related Person involved in the Business Combination became a
Related Person; or
(b) The Business Combination is solely between the Corporation and
another corporation, 50 percent or more of the voting stock of
which is owned by the Corporation and none of which is owned by
the Related Person; provided that if the Corporation is not the
surviving entity each shareholder of the Corporation receives the
same type of consideration in such transaction in proportion to
the shares owned; or
(c) The Business Combination is a merger or consolidation, and the
cash or fair market value (as Determined by the Continuing
Directors) of the property, securities or other consideration to
be received per share by holders of Common Stock of the
Corporation pursuant to the Business Combination is not less than
the higher of (i) the highest per share price paid by the Related
Person involved in the Business Combination in acquiring any of
its holdings of the Corporation's Common Stock or (ii) an amount
that bears the same or greater percentage relationship to the
market price of the Corporation's Common Stock immediately prior
to the announcement of such Business Combination as the highest
per share price determined in Clause (i) above bears to the market
price of the Corporation's Common Stock immediately prior to the
commencement of the acquisition of the Corporation's Common Stock
that caused such Related Person to become a Related Person.
Appropriate adjustments shall be made regarding both clauses (i)
and (ii) above for recapitalizations and for stock splits, stock
dividends, and like distributions.
(2) Definitions
-----------
For the purposes of this Article:
(a) The term "Business Combination" shall mean (i) any merger or
consolidation of the Corporation with or into a Related
Person; (ii) any sale, lease, exchange, transfer or other
disposition, including without limitation a mortgage or any
other security device of all or any "Substantial Part" (as
defined in this Article) of
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<PAGE>
the assets of the Corporation (including without limitation
any voting securities of a subsidiary) or of the assets of a
subsidiary of the Corporation, to a Related Person; (iii) any
merger or consolidation of a Related Person with or into the
Corporation or a subsidiary of the Corporation; (iv) any sale,
lease, exchange, transfer or other disposition of all or any
Substantial Part of the assets of a Related Person to the
Corporation or a subsidiary of the Corporation; (v) the
issuance of am securities of the Corporation or a subsidiary
of the Corporation to a Related Person; (vi) the acquisition
by the Corporation or a subsidiary of the Corporation of any
securities of a Related Person; and (vii) any agreement,
contract or other arrangement providing for any transactions
herein described in Clauses (i) to (vi) of this definition of
Business Combination.
(b) The term "Related Person" shall mean and include any
individual, corporation, partnership or other person or entity
which, together with their "Affiliates" and "Associates" (as
defined on January 7, 1983, in Rule 12b-2 promulgated under
the Securities Exchange Act of 1934), "Beneficially Owns" (as
defined on January 7, 1983, in Rule 13d-3 promulgated under
the Securities Exchange Act of 1934) in the aggregate twenty
(20) percent or more of the outstanding shares of Common Stock
of the Corporation, and shall mean any Affiliate or Associate
of such Related Person.
(c) The term "Substantial Part" shall mean more than thirty (30)
percent of the fair market value of the total assets of the
Corporation in question, as determined by the Continuing
Directors, at the end of the Corporation's most recent fiscal
year ending prior to the time said determination is made.
(d) The term "Continuing Director" shall mean a director who was a
member of the Board of Directors of the Corporation
immediately prior to the time the Related Person involved in a
Business Combination became a Related Person.
(e) For the purposes of subparagraph A(1 )(c) of this Article, the
term "other consideration to be received" shall include,
without limitation, Common Stock of the Corporation retained
by its existing public shareholders in the event of a Business
Combination in which the Corporation is the surviving
corporation.
(f) Without limitation, any shares of Common Stock of the
Corporation that any Related Person has the right to acquire
pursuant to any agreement, or upon exercise of conversion
rights,
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<PAGE>
warrants or options. or otherwise, shall be deemed
beneficially owned by a Related Person.
B. REPEAL OR AMENDMENT OF VOTE REQUIREMENTS FOR CERTAIN BUSINESS COMBINATIONS
--------------------------------------------------------------------------
The provisions set forth at this Section B of Article V and at Section A of
Article V herein may not be repealed or amended in any respect, unless such
action is approved by the affirmative vote of the holders of not less than
eighty (80) percent of the outstanding shares of Common Stock of the
Corporation; provided, however, that if there is a Related Person such
eighty (80) percent vote must include the affirmative vote of at least
sixty-seven (67) percent of the outstanding shares of Common Stock held by
shareholders other than a Related Person.
C. OTHER VOTING REQUIREMENTS
-------------------------
Notwithstanding any provision of the Ohio Revised Code, now or hereafter in
force, requiring for any purpose the vote or consent of the holders of
shares entitling them to exercise two-thirds (2/3) or any other proportion
of the voting power of the Corporation or of any class or classes of shares
thereof, such action may be taken by the vote or consent of the holders of
shares entitling them to exercise a majority of the voting power of the
Corporation or of such class or classes. This Clause shall not apply to the
voting requirements of Sections A and B of this Article V.
ARTICLE VI
----------
PURCHASE OF STOCK
Any provision hereof to the contrary notwithstanding, the Corporation shall have
the power upon the affirmative note of a simple majority of its Board of
Directors to purchase, to hold, to sell and to transfer shares of its own
capital stock.
ARTICLE VII
-----------
INTERDEALING
No officer, Director or shareholder of the Corporation shall be disqualified by
his office, membership or stock ownership from dealing or contracting with the
Corporation, whether as vendor, purchaser, employee, agent or in any other
similar or dissimilar capacity, nor shall any transaction, contract or act of
the Corporation be either void or voidable or in any other way affected or
invalidated by reason of the fact that any such officer, Director or shareholder
of the corporation, any firm of which he may be a member or any other
corporation of which he may be an officer, Director or shareholder is in any way
interested in such transaction, contract or act, provided the interest of such
officer, Director or shareholder is disclosed to or known by the
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<PAGE>
Board of Directors of the Corporation or such members thereof as shall be
present at any meeting at which action is taken upon any such transaction,
contract or act. No such officer, Director or shareholder shall be accountable
or otherwise responsible to the Corporation for or in connection with any such
act, contract or transaction or for any gains or profits realized by him by
reason of the fact that he, any firm of which he is a member or any other
corporation of which he is an officer, Director or shareholder, is interested in
any such transaction, contract or act. Any such officer, Director or
shareholder, if he is a Director, may be counted in determining the existence of
a quorum at any meeting of the Board of Directors of the Corporation which shall
authorize or take action upon any such transaction, contract or act, and he may
vote at any such meeting to authorize, adopt, ratify or approve any such
transaction, contract or act to the same extent as if he, any firm of which he
is a member or any other corporation of which he is an officer, Director or
shareholder, were not interested in such transaction, contract or act.
ARTICLE VIII
------------
PREVIOUS AMENDED ARTICLES SUPERSEDED
These Amended Articles of Incorporation supersede the present Amended Articles
of the Corporation and all amendments thereto filed with the Secretary of State
of Ohio.
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<PAGE>
EXHIBIT 3.2
4/1/88
BY-LAWS
OF
SEALY MATTRESS COMPANY
ARTICLE I
OFFICES
-------
SECTION 1.1. Registered Office. The registered office of the corporation
-----------------
in the State of Ohio shall be located at 815 Superior Avenue, N.E., in the City
of Cleveland, and the name of the corporation's registered agent is C T
Corporation System.
SECTION 1.2. Other Offices. The corporation may have offices at such other
-------------
places both within or without the State of Ohio as the Board of Directors may
from time to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF SHAREHOLDERS
------------------------
SECTION 2.1. Annual Meeting. The annual meeting of the shareholders of the
--------------
corporation shall be held at such place and time as the Board of Directors shall
fix, on the first Wednesday in April of each year commencing in 1989 or on such
other date as the Board shall fix, for the purpose of electing directors and
transacting of such other business as may come before the meeting.
SECTION 2.2. Special Meetings. Special meetings of the shareholders for
----------------
any purpose or purposes may be called and the tIme, date and location thereof
designated by the Board of Directors or the Chairman of the Board of Directors
(if a Chairman of the Board of Directors shall have been elected).
SECTION 2.3. Notice of Meetings. Written notice stating the time, date and
------------------
place of each annual or special meeting of shareholders and, in the case of a
special meeting, the purpose or purposes for which the meeting is called, shall
be given not less than ten nor more than sixty days before the date of the
meeting.
SECTION 2.4. Quorum. The holders of at least a majority of the shares
------
entitled to vote at the meeting, present in person or represented by proxy,
shall constitute a quorum for the transaction of business at any meeting of
shareholders. If a quorum shall not be present at any meeting, the persons
holding or entitled to vote by proxy a majority of the shares entitled to vote
at the meeting present or represented at the meeting may
<PAGE>
adjourn the meeting without notice other than announcement at the meeting
(unless other notice is required by law) to any other time, date and place. At
any such adjourned meeting at which a quorum is present or represented, any
business may be transacted that could have been transacted at the original
meeting had a quorum been present or represented.
SECTION 2.5. Action by Consent. Any action required or permitted to be
-----------------
taken by the shareholders of the corporation may be taken without a meeting if a
consent in writing, setting forth the action so taken, shall be signed by all of
the shareholders entitled to vote with respect to the subject matter thereof.
ARTICLE III
DIRECTORS
---------
SECTION 3.1. Number and Election. The number of directors shall be fixed
-------------------
at three (3), but may be increased or, subject to the provisions of Ohio law,
decreased from time to time by resolution of the Board of Directors, provided,
that at no time shall the number of directors be less than one (1), and no
decrease shall have the effect of shortening the term of any incumbent director.
Directors shall be elected annually by the shareholders, and the persons
receiving the greatest number of votes shall be the directors. Each director
elected shall hold office until the successor of such director is elected and
qualified or until the death or resignation of such director or the removal of
such director. Directors need not be residents of the State of Ohio or
shareholders of this corporation.
SECTION 3.2. Resignation. Any director may resign by giving written notice
-----------
to the corporation. Any such resignation shall take effect at the time of
receipt of notice thereof or at any later time specified therein, and, unless
expressly required, acceptance of such resignation shall not be necessary to
make it effective.
SECTION 3.3. Vacancies and Newly Created Directorships. Any vacancy in the
-----------------------------------------
Board of Directors (whether resulting from death, resignation, removal or
otherwise) and any newly created directorship may be filled by the affirmative
vote of a majority of the directors then in office, though less than a quorum.
SECTION 3.4. Regular Meetings. An annual meeting of the Board of Directors
----------------
shall be held, without notice other than this by-law, immediately after, and at
the same place as, the annual meeting of shareholders of the corporation.
Additional regular meetings of the Board of Directors may be held without
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<PAGE>
notice at such times, dates and places as may be fixed by the Board of
Directors.
SECTION 3.5. Special Meetings. Special meetings of the Board of Directors
----------------
may be called by the Chairman of the Board of Directors (if a Chairman shall
have been elected), or any two directors, and such meetings shall be held at
such time, date and place as shall be designated in the call. Except as
otherwise prescribed by the Ohio General Corporation Law as amended from time to
time (the "Ohio Statute") written or actual oral notice of the time, date and
place of each special meeting, addressed to each director at such director's
business address, shall be given at least 48 hours prior to such meeting. Such
written notice may be delivered in person, mailed or transmitted by telegram,
or, if the addressee has such equipment, by telex or teletype, and shall be
deemed to have been given when delivered in person or to the telegraph company,
when transmitted on telex or teletype equipment, or 48 hours after deposit in
the United States mail postage prepaid. .Any director may waive notice of any
meeting.
SECTION 3.6. Quorum. A majority of the whole Board of Directors shall
------
constitute a quorum for the transaction of business at any meeting of the Board
of Directors unless a greater number is required by law or the articles of
incorporation. If a quorum shall not be present at any meeting a majority of the
directors present may adjourn the meeting without notice other than announcement
at the meeting to any other time, date and place.
Any member of the Board of Directors or of any committee designated by the
Board may participate in a meeting of the directors or committee by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can near each other, and participation in a
meeting by means of such equipment shall constitute presence in person at such
meeting.
SECTION 3.7. Presumption of Assent. Unless otherwise provided by the Ohio
---------------------
Statute, a director of the corporation who is present at a meeting of the Board
of Directors at which action is taken on any corporate matter shall be presumed
to have assented to the action taken unless the dissent of such director shall
be entered in the minutes of the meeting or unless such director shall file a
written dissent to such action with the person acting as Secretary of the
meeting before the adjournment hereof or shall forward such dissent by
registered mail to the Secretary of the corporation immediately after the
adjournment of the meeting. Such right or dissent shall not apply to a director
who voted in favor of such action.
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<PAGE>
SECTION 3.8. Action without Meeting. Unless otherwise restricted by the
----------------------
certificate of incorporation or these by-laws, any action required or permitted
to be taken at any meeting of he Board of Directors, or of any committee
thereof, may be taken without a meeting, if a written consent thereto is signed
by all members of the board or of such committee, as the case may be, and such
written consent is filed with the minutes of proceedings of the board or
committee.
SECTION 3.9. Executive Committee. The Board of Directors may, by
-------------------
resolution passed by a majority of the number of directors fixed by these by-
laws, designate three or more directors of the corporation to constitute an
executive committee, which, to the extent provided in such resolution and by
Ohio law, shall have and may exercise all the powers and authority of the Board
of Directors in the management of the business and affairs of the corporation
and may authorize the seal of the corporation to be affixed to all papers that
may require it.
SECTION 3.10. Other Committees. The Board of Directors may, by resolution
----------------
passed by a majority of the number of directors fixed by these by-laws,
designate such other committees as it may from time to time determine. Each such
committee shall consist of three or more directors, shall serve for such term
and shall have and may exercise, during intervals between meetings of the Board
of Directors, such lawfully delegable duties, functions and powers as the Board
of Directors may from time to time prescribe.
SECTION 3.11. Quorum and Manner of Acting --Committees. The presence of a
----------------------------------------
majority or members or any committee shall constitute a quorum for the
transaction of business at any meeting of such committee, and the act of a
majority of those present shall be necessary for the taking of any action at
such meeting.
SECTION 3.12. Committee Chairman, Books and Records, Etc. The chairman of
------------------------------------------
each committee shall be selected from among the members of the committee by the
Board of Directors. Each committee shall keep a record of its acts and
proceedings, and all actions of each committee shall be reported to the Board of
Directors at its next meeting. Each committee shall fix its own rules of
procedure not inconsistent with these bylaws or the resolution of the Board of
Directors designating such committee and shall meet at such times and places and
upon such call or notice as shall be provided by such rules.
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<PAGE>
ARTICLE IV
OFFICERS
--------
SECTION 4.1. Designation of Officers. The officers of the corporation
-----------------------
shall be a President, one or more Vice Presidents (who may be designated by
class or function), a Treasurer, a Secretary and such other officers (including
Assistant Treasurers and Assistant Secretaries) as the Board of Directors may
elect. The Board of Directors may at any time, in its discretion, elect a
Chairman of the Board or Directors (the "Chairman") to be the chief executive
officer of the corporation and to have the other powers and duties set forth
herein.
SECTION 4.2. Election and Term. Each officer shall be elected by the
-----------------
Board of Directors to serve until the successor thereof is elected or until the
earlier resignation or removal of such officer.
SECTION 4.3. Resignation, Removal and Vacancies. Any officer may
----------------------------------
resign by giving written notice to the Chairman or the Secretary. Any such
resignation shall take effect at the time of receipt of notice thereof or at any
later time specified therein, and, unless expressly required, acceptance of such
resignation shall not be necessary to make it effective. Any officer may be
removed, with or without cause, by a majority of the directors then in office,
and a vacancy in any office (whether resulting from death, resignation, removal
or otherwise) may be filled by the Board of Directors. The removal of any
officer shall be without prejudice to any rights such officer may have under any
agreement.
SECTION 4.4. Chairman. In the event that the Board of Directors
--------
determines to elect a Chairman pursuant to Section 4.1 hereof, the Chairman
shall be the chief executive officer of the corporation and shall have authority
and responsibility for the general management, direction and overall
supervision, subject to the authority of the Board of Directors, or the
corporation's business and affairs and its officers and employees, and shall
have the power to appoint, remove and discharge any and all employees of the
corporation not elected or appointed directly by the Board of Directors. The
Chairman shall preside at all meetings of the Board of Directors and
shareholders and shall have authority to designate the duties and powers of
other officers and delegate special powers and duties to specified officers, so
long as such designation shall not be inconsistent with any statute, these by-
laws or any action of the Board of Directors. The Chairman shall also have power
to execute, and shall execute deeds, mortgages, bonds, contracts or other
instruments of the corporation except where required or permitted by law to be
otherwise signed and executed and except where the
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<PAGE>
signing and execution thereof shall be expressly delegated by the Board of
Directors or by the Chairman to some other officer or agent of the corporation.
the Chairman may sign, pursuant to Section 6.1 hereof, certificates for shares
of stock of the corporation, the issuance of which shall have been duly
authorized by the Board of Directors. the stock in general shall have all other
powers and shall perform all other duties that are normally incident to the
chief executive officer of a corporation or as may be prescribed by the Board of
Directors from time to time.
SECTION 4.5. President. Prior to the time, if any, at which the Board
---------
of Directors shall elect a Chairman pursuant to Section 4.4 hereof, the
President shall have the duties, responsibilities and powers set forth in
Section 4.4 hereof. In the event that the Board of Directors elects a Chairman,
the President, under the Chairman, and subject to the authority of the Board of
Directors and the Chairman, shall be the chief operating officer of the
corporation and shall be charged with implementing the policies of the
corporation as determined by the Chairman and the Board or Directors. In the
event that the Chairman, due to absence or any other cause, shall refuse or be
unable at any time to attend to or to perform the duties of Chairman as above
prescribed, the President shall perform the duties of the Chairman. The
President may sign, pursuant to Section 6.1 hereof, certificates for shares of
stock in the corporation, the issuance of which shall have been duly authorized
by the Board of Directors. The President shall have such other powers and duties
as the Board of Directors or the Chairman (if a Chairman shall have been
elected) may from time to time determine.
SECTION 4.6. Vice Presidents. In the absence of the President, or in
---------------
the event or the President's inability or refusal to act, the Vice Presidents,
in order of their rank as fixed by the Board of Directors or, if not ranked, the
Vice President designated by the Board of Directors or the Chairman (if a
Chairman shall have been elected), shall perform all duties of the President
and, when so acting, shall have all the powers of, and be subject to all the
restrictions upon, the President. The Vice Presidents shall have such other
powers and perform such other duties, not inconsistent with statute, these by-
laws, or any action of the Board of Directors, as from time to time may be
prescribed for them, respectively, by the Board of Directors or the Chairman (if
a Chairman shall have been elected), which may include the execution of deeds,
mortgages, bonds, contracts or other instruments of the corporation. Any Vice
President may sign, pursuant to Section 6.1 hereof, certificates for shares of
stock of the corporation, the issuance of which shall have been duly authorized
by the Board of Directors.
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<PAGE>
SECTION 4.7. Treasurer. The Treasurer shall: (a) be responsible to
---------
the Board of Directors for the receipt, custody and disbursement of all funds
and securities of the corporation; (b) receive and give receipts for funds due
and payable to the corporation from any source whatsoever and deposit all such
funds in the name of the corporation in such banks, trust companies or other
depositories as shall from time to time be selected in accordance with the
provisions of Section 5.2 of these by-laws; (c) disburse the funds of the
corporation as ordered by the Board of Directors or the Chairman or as otherwise
required in the conduct of the business of the corporation; (d) render to the
Chairman or the Board of Directors, upon request, an account of all transactions
of such officer as Treasurer and of the financial condition of the corporation;
and (e) in general, perform all the duties normally incident to the office of
Treasurer and such other duties as may from time to time be assigned by the
Chairman (if a Chairman shall have been elected), the President, the Board of
Directors or these by-laws. The Treasurer may sign, pursuant to Section 6.1
hereof, certificates for shares of stock of the corporation, the issuance of
which shall have been duly authorized by resolution of the Board of Directors.
The Treasurer may delegate such details of the performance of duties of the
office of Treasurer as may be appropriate in the exercise of reasonable care to
one or more persons in the place of such officer, but shall not thereby be
relieved of responsibility for the performance of such duties.
SECTION 4.8. Secretary. The Secretary shall: (a) keep the minutes of
---------
the meetings of the shareholders, the Board of Directors and committees of the
Board of Directors in one or more books provided for that purpose; (b) see that
all notices are duly given in accordance with the provisions of these by-laws or
as required by law; (c) have charge of the corporate records and of the seal of
the corporation; (d) affix the seal of the corporation or a facsimile hereof, or
cause the same to be affixed, to all certificates for shares prior to the issue
thereof and to all documents the execution of which on behalf of the corporation
under its seal is duly authorized by the Board of Directors or otherwise in
accordance with the provisions of these by-laws; (e) keep a register of the post
office addresses of each shareholder, director and committee member that shall
from time to time be furnished to the Secretary by such shareholder, director or
member; (f) sign, pursuant to Section 6.1 hereof, certificates for shares or
stock of the corporation, the issuance of which shall have been duly authorized
by resolution of the Board of Directors; (g) have general charge of the stock
transfer books of the corporation; and (h) in general, perform all duties
normally incident to the office of Secretary and such other duties as may from
time to time be assigned by the Chairman (if a Chairman shall have been
elected), the President or the Board of
-7-
<PAGE>
Directors. The Secretary may delegate such details of the performance of the
duties of the office of Secretary as may be appropriate in the exercise of
reasonable care to one or more persons in the place of such officer, but shall
not thereby be relieved of responsibility for the performance of such duties.
SECTION 4.9. Assistant Treasurers and Assistant Secretaries. The
----------------------------------------------
Assistant Treasurers and Assistant Secretaries, if any, shall perform all
functions and duties that may be assigned to them by the Treasurer or Secretary,
respectively, or by the Chairman (if a Chairman shall have been elected), the
President or the Board of Directors. If authorized by the Treasurer or the
Secretary, as the case may be, any Assistant Treasurer or Assistant Secretary
may sign, pursuant to Section 6.1 hereof, certificates for shares of the
corporation in place of the Treasurer or Secretary, respectively.
SECTION 4.10. Other Officers. The Board of Directors may from time to
--------------
time elect such other officers to perform such duties and responsibilities as it
shall prescribe.
SECTION 4.11. Salaries. The compensation of the officers of the
--------
corporation shall be fixed from time to time by the Board of Directors or by
such officer as it shall designate for such purpose or as it shall otherwise
direct. No officer snail be prevented from receiving a salary or other
compensation by reason of the fact that such officer is also a director of the
corporation.
ARTICLE V
CHECKS AND DEPOSITS
-------------------
SECTION 5.1. Checks, Drafts, Etc.. All checks, demands, drafts or
--------------------
other orders for the payment of money, notes or other evidences of indebtedness
issued in the name of the corporation shall be signed by such officer or
officers or agent or agents of the corporation, and in such manner, as shall
from time to time be authorized by the Board of Directors.
SECTION 5.2. Deposits. All funds of the corporation not otherwise
--------
employed shall be deposited from time to t me to the credit of the corporation
in such banks, trust companies or other depositories as the Board of Directors
may select.
-8-
<PAGE>
ARTICLE VI
SHARE RECORDS AND TRANSFERS
---------------------------
SECTION 6.1. Share Certificates. Every shareholder shall be entitled
------------------
to have a certificate in such form as the Board of Directors shall from time to
time approve, signed on behalf of the corporation by the President or any
elected Vice President, and by the Treasurer or the Secretary (or, if so
authorized, any Assistant Treasurer or Assistant Secretary) certifying the
number of shares held of record by such shareholder.
SECTION 6.2. Record Ownership. A record of the name and address of
----------------
the holder of each certificate, the number of shares represented thereby, and
the date of issue thereof shall be made on the corporation's books. The
corporation shall be entitled to treat the holder of record of any share or
shares of stock as the holder in fact thereof, and shall not be bound to
recognize any equitable or other claim to or interest in any snare on the part
of any other person, whether or not it shall have express or other notice
thereof, except as otherwise required by the laws of Ohio.
SECTION 6.3. Lost Certificates. Any person claiming a share
-----------------
certificate in lieu of one lost, stolen, mutilated or destroyed shall give the
corporation an affidavit as to its loss, theft, mutilation or destruction. Such
holder shall also, if required by the Board of Directors, give the corporation a
bond, in such form and amount as may be approved by the Board of Directors (or
any agent of the corporation to which authority for such approval shall have
been delegated by the Board) sufficient to indemnify the corporation against any
claim that may be made against it on account of the alleged loss, theft,
mutilation or destruction of the certificate or the issuance of a new
certificate.
SECTION 6.4. Transfer of Shares. Transfer of shares of stock shall be
------------------
made on the books of the corporation only by direction of the person named in
the certificate or such person's attorney, lawfully constituted in writing, and
only upon the surrender or cancellation of the certificate therefor, duly
endorsed or accompanied by a written assignment of the shares evidenced thereby.
SECTION 6.5. Transfer Agent and Registrar. The corporation may
----------------------------
appoint one or more transfer offices or agencies, each in charge of a transfer
agent designated by the Board of Directors (who shall have custody, subject to
the direction of the Secretary, of the original stock ledger and stock records
of the corporation) where the shares of the capital stock of the corporation of
any class or series specified in such appointment
-9-
<PAGE>
shall be registered. The corporation may also appoint one or more registry
offices, each in charge of a registrar designated by the Board of Directors,
where its stock of any class or series specified in such appointment shall be
registered. Except as otherwise provided by resolution of the Board of Directors
with respect to temporary certificates, no certificate for shares of capital
stock of the corporation for which a transfer agent or registrar has been
appointed shall be valid unless countersigned by such transfer agent and
registered by such registrar authorized as aforesaid.
SECTION 6.6. Restrictions on Transfer. Any shareholder may enter into
------------------------
an agreement with other shareholders or with the corporation providing for
reasonable limitation or restriction on the right of such shareholder to
transfer shares of capital stock of the corporation held by such shareholder,
including, without limiting the generality of the foregoing, agreements granting
to such other shareholders or to the corporation the right to purchase for a
given period of time any of such shares. Any such limitation or restriction on
the transfer of shares of this corporation may be set forth on certificates
representing shares of capital stock, in which case the corporation or the
transfer agent shall not be required to transfer such shares upon the books of
the corporation without receipt of satisfactory evidence of compliance with the
terms of such limitation or restriction.
ARTICLE VII
GENERAL PROVISIONS
------------------
SECTION 7.1. Fiscal Year. The fiscal year of the corporation shall
-----------
end on November 30 of each year.
SECTION 7.2. Voting of Securities. Subject to control and direction
--------------------
of the Board of Directors, the Chairman of the Board (if a Chairman shall have
been elected) or such other person as the Board of Directors may designate for
such purpose either generally or in any particular instance shall have full
power and authority, in the name and on behalf of the corporation, to attend,
act and vote at any meeting of security holders of any company in which the
corporation may hold any securities, or to consent as a security holder to any
action proposed to be taken by such company. At any such meeting, or in
connection with any such action, the Chairman or the Board (if a Chairman shall
have been elected) or such other person shall possess and may exercise any and
all rights and powers incident to the ownership of such securities which, as the
holder thereof, the corporation might possess and exercise, and such person may
exercise such power and authority through the execution of proxies or written
consents or may delegate such power and
-10-
<PAGE>
authority to any other officer, agent or employee of the corporation.
SECTION 7.3. Amendments to By-Laws. Unless otherwise provided in the
---------------------
Ohio Statute or the articles of incorporation, these by-laws may be altered or
repealed by majority vote of the shareholders.
ARTICLE VIII
INDEMNIFICATION AND INSURANCE
-----------------------------
SECTION 8.1. Right to Indemnification. In addition to any
------------------------
indemnification provision in the articles of incorporation, each person who was
or is made a party or is threatened to be made a party to or is involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that he or
she, or a person of whom he or she is the legal representative, is or was a
director or officer of the corporation or is or was serving at the request of
the corporation as a director, officer, employee or agent of another corporation
or of a partnership, joint venture, trust or other enterprise, including service
with respect to employee benefit plans, whether the basis of such proceeding is
alleged action in an official capacity as a director, officer, employee or agent
or in any other capacity while serving as a director, officer, employee or
agent, shall be indemnified and held harmless by the corporation to the fullest
extent authorized by the Ohio Statute, as the same exists or may hereafter be
amended (but, in the case of any such amendment, only to the extent that such
amendment permits the corporation to provide broader indemnification rights than
said law permitted the corporation to provide prior to such amendment), against
ail expense, liability and loss (including attorneys' fees, judgments, fines,
ERISA excise taxes or penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of his or her heirs,
executors and administrators; provided, however, that, except as provided in
-------- -------
Section 8.2, the corporation shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person only if such proceeding (or part thereof) was authorized by the
Board of Directors of the corporation. The right to indemnification conferred in
this Section 8.1 shall be a contract right and shall include the right to be
paid by the corporation the expenses incurred in defending any such proceeding
in advance of its final disposition; provided, however, that, if the Ohio
-------- -------
Statute requires, the payment of such expenses incurred by a director or officer
in his or her capacity as a director or officer (and not
-11-
<PAGE>
in any other capacity in which service was or is rendered by such person while a
director or officer, including, without limitation, service to an employee
benefit plan) in advance of the final disposition of a proceeding, shall be made
only upon delivery to the corporation of an undertaking, by or on behalf of such
director or officer, to repay all amounts so advanced if it shall ultimately be
determined that such director or officer is not entitled to be indemnified under
Section 8.2 or otherwise. The corporation may, by action of its Board of
Directors, provide indemnification to employees and agents of the corporation
with the same scope and effect as the foregoing indemnification of directors and
officers.
SECTION 8.2. Right of Claimant to Bring Suit. If a claim under
-------------------------------
Section 8.1 is not paid in full by the corporation within thirty days after a
written claim has been received by the corporation, the claimant may at any time
thereafter bring suit against the corporation to recover the unpaid amount of
the claim and, if successful in whole or in part, the claimant shall be entitled
to be paid also the expense of prosecuting such claim. It shall be a defense to
any such action (other than an action brought to enforce a claim for expenses
incurred in defending any proceeding in advance of its final disposition where
the required undertaking, if any is required, has been tendered to the
Corporation) that the claimant has not met the standards of conduct which make
it permissible under the Ohio Statute for the corporation to indemnify the
claimant for the amount claimed, but the burden of proving such defense shall be
on the corporation. Neither the failure of the corporation (including its Board
of Directors, independent legal counsel, or its shareholders) to have made a
determination prior to the commencement of such act on that indemnification of
the claimant is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in the Ohio Statute, nor an actual
determination by the corporation (including its Board of Directors, independent
legal counsel, or its shareholders) that the claimant has not met such
applicable standard of conduct, shall be a defense to the action or create a
presumption that the claimant has not met the applicable standard of conduct.
SECTION 8.3. Non-Exclusivity of Rights. The right to indemnification
-------------------------
and the payment of expenses incurred in defending a proceeding in advance of its
final disposition conferred in this Article VIII shall not be exclusive of any
other right which any person may have or hereafter acquire under any statute,
provision of the Certificate of Incorporation, by-law, agreement, vote of
shareholders or disinterested directors or otherwise.
SECTION 8.4. Insurance. The corporation may maintain insurance, at
---------
its expense, to protect itself and any director,
-12-
<PAGE>
officer, employee or agent of the corporation or another corporation,
partnership, joint venture, trust or other enterprise against any such expense,
liability or loss, whether or not the corporation would have the power to
indemnify such person against such expense, liability or loss under the Ohio
Statute.
-13-
<PAGE>
EXHIBIT 5.1
KIRKLAND & ELLIS
PARTNERSHIPS INCLUDING PROFESSIONAL CORPORATIONS
Citicorp Center
153 East 53rd Street
New York, New York 10022-4675
212 446-4800
Facsimile:
212 446-4900
May __, 1998
Sealy Mattress Company
Halle Building
10th Floor
1228 Euclid Avenue
Cleveland, Ohio 44115
Re: Offer by Sealy Mattress Company to Exchange its (i) Series B 97/8% Senior
Subordinated Notes due 2007 for any and all its 97/8% Senior Subordinated
Notes due 2007 and (ii) Series B 107/8% Senior Subordinated Discount Notes
due 2007 for any and all its 107/8% Senior Subordinated Discount Notes due
2007
Ladies and Gentlemen:
We are acting as special counsel to Sealy Mattress Company, an Ohio
corporation (the "Company"), in connection with the proposed registration by the
Company of (i) up to $125,000,000 in aggregate principal amount of the Company's
Series B 97/8% Senior Subordinated Notes due 2007 (the "Senior Subordinated
Exchange Notes") and (ii) up to $128,000,000 in aggregate principal amount of
the Company's Series B 107/8% Senior Subordinated Discount Notes due 2007 (the
"Senior Subordinated Discount Exchange Notes" and, together with the Senior
Subordinated Exchange Notes, the "Exchange Notes"), pursuant to a Registration
Statement on Form S-4 originally filed with the Securities and Exchange
Commission (the "Commission") on March 18, 1998 under the Securities Act of
1933, as amended (the "Securities Act") (such Registration Statement, as amended
or supplemented, is hereinafter referred to as the "Registration Statement"),
for the purpose of effecting an exchange offer (the "Exchange Offer") for (i)
the Company's 97/8% Senior Subordinated Notes due 2007 (the "Senior Subordinated
Notes") and (ii) the Company's 107/8% Senior Subordinated Discount Notes due
2007 (the "Senior Subordinated Discount Notes" and, together with the Senior
<PAGE>
Sealy Mattress Company
May __, 1998
Page 2
Subordinated Notes, the "Notes"), respectively. The Senior Subordinated Exchange
Notes are to be issued pursuant to the Senior Subordinated Note Indenture (the
"Senior Subordinated Note Indenture"), dated as of December 18, 1997, among the
Company, the guarantors named therein (the "Guarantors"), and The Bank of New
York, as trustee (the "Trustee"), in exchange for and in replacement of the
Company's outstanding Senior Subordinated Notes, of which $125,000,000 in
aggregate principal amount is outstanding. The Senior Subordinated Discount
Notes are to be issued pursuant to the Senior Subordinated Discount Note
Indenture (the "Senior Subordinated Discount Note Indenture" and, together with
the Senior Subordinated Note Indenture, the "Indentures"), dated as of December
18, 1997, between the Company, the Guarantors, and the Trustee, in exchange for
and in replacement of the Company's outstanding Senior Subordinated Discount
Notes, of which $128,000,000 in aggregate principal amount at maturity is
outstanding. The Exchange Notes will be guaranteed on a senior subordinated
basis by the Guarantors (the "Guarantees").
In connection with the Exchange Offer, we have examined originals, or copies
certified or otherwise identified to our satisfaction, of such documents,
corporate records and other instruments as we have deemed necessary for the
purposes of this opinion, including (i) the corporate and organizational
documents of the Company and the Guarantors, (ii) minutes and records of the
corporate proceedings of the Company and the Guarantors with respect to the
issuance of the Exchange Notes, (iii) the Registration Statement and exhibits
thereto and (iv) the Registration Rights Agreement, dated as of December 18,
1997, among the Company, the guarantors named therein, Goldman Sachs & Co., J.P.
Morgan Securities Inc. and BT Alex. Brown Incorporated.
For purposes of this opinion, we have assumed the authenticity of all
documents submitted to us as originals, the conformity to the originals of all
documents submitted to us as copies and the authenticity of the originals of all
documents submitted to us as copies. We have also assumed the genuineness of the
signatures of persons signing all documents in connection with which this
opinion is rendered, the authority of such persons signing on behalf of the
parties thereto other than the Company and the Guarantors, and the due
authorization, execution and delivery of all documents by the parties thereto
other than the Company and the Guarantors. As to any facts material to the
opinions expressed herein which we have not independently established or
verified, we have relied upon statements and representations of officers and
other representatives of the Company, the Guarantors, and others.
<PAGE>
Sealy Mattress Company
May __, 1998
Page 3
Based upon and subject to the foregoing qualifications, assumptions and
limitations and the further limitations set forth below, we are of the opinion
that:
(1) The Company is a corporation existing and in good standing under the
General Corporation Law of the State of Ohio.
(2) The issuance of the Exchange Notes has been duly authorized by the
Company.
(3) Each Guarantee has been duly authorized by the respective Guarantor.
(4) When, as and if (i) the Registration Statement shall have become
effective pursuant to the provisions of the Securities Act, (ii) the Indentures
shall have been qualified pursuant to the provisions of the Trust Indenture Act
of 1939, as amended, (iii) the Notes shall have been validly tendered to the
Company, (iv) the Exchange Notes shall have been issued in the form and
containing the terms described in the Registration Statement, the Indentures,
the resolutions of the Company's Board of Directors (or authorized committee
thereof) authorizing the foregoing and any legally required consents, approvals,
authorizations and other order of the Commission and any other regulatory
authorities to be obtained, the Exchange Notes when issued pursuant to the
Exchange Offer will be legally issued, fully paid and nonassessable and will
constitute valid and binding obligations of the Company and the Guarantees will
constitute valid and binding obligations of the Guarantors under the terms and
conditions described in the Registration Statement, the Indentures, the
resolutions of the Guarantors' Board of Directors (or authorized committee
thereof) authorizing the foregoing and any legally required consents, approvals,
authorizations and other order of the Commission and any other regulatory
authorities to be obtained.
Our opinions expressed above are subject to the qualifications that we
express no opinion as to the applicability of, compliance with, or effect of (i)
any bankruptcy, insolvency, reorganization, fraudulent transfer, fraudulent
conveyance, moratorium or other similar law affecting the enforcement of
creditors' rights generally, (ii) general principles of equity (regardless of
whether enforcement is considered in a proceeding in equity or at law), (iii)
public policy considerations which may limit the rights of parties to obtain
certain remedies and (iv) any laws except the laws of the State of New York and
the General Corporation Law of the State of Ohio. We advise you that issues
addressed by this letter may be governed in whole or in part by other laws, but
we express no opinion as to whether any relevant difference exists between the
laws upon which our opinions are based and any other laws which may actually
govern. For
<PAGE>
Sealy Mattress Company
May __, 1998
Page 4
purposes of the opinion in paragraph 1, we have relied exclusively upon recent
certificates issued by the Ohio Secretary of State, and such opinion is not
intended to provide any conclusion or assurance beyond that conveyed by such
certificates. We have assumed without investigation that there has been no
relevant change or development between the respective dates of such certificates
and the date of this letter.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement. We also consent to the reference to our firm under the
heading "Legal Matters" in the Registration Statement. In giving this consent,
we do not thereby admit that we are in the category of persons whose consent is
required under Section 7 of the Securities Act of the rules and regulations of
the Commission.
We do not find it necessary for the purposes of this opinion, and accordingly
we do not purport to cover herein, the application of the securities or "Blue
Sky" laws of the various states to the issuance of the Exchange Notes.
This opinion is limited to the specific issues addressed herein, and no
opinion may be inferred or implied beyond that expressly stated herein. We
assume no obligation to revise or supplement this opinion should the present
laws of the States of Ohio or New York be changed by legislative action,
judicial decision or otherwise.
This opinion is furnished to you in connection with the filing of the
Registration Statement, and is not to be used, circulated, quoted or otherwise
relied upon for any other purposes.
Yours very truly,
/s/ Kirkland & Ellis
KIRKLAND & ELLIS
<PAGE>
EXHIBIT 8.1
KIRKLAND & ELLIS
PARTNERSHIPS INCLUDING PROFESSIONAL CORPORATIONS
Citicorp Center
153 East 53rd Street
New York, New York 10022-4675
212 446-4800
Facsimile:
212 446-4900
May __, 1998
Sealy Mattress Company
Halle Building
10th Floor
1228 Euclid Avenue
Cleveland, Ohio 44115
Re: Offer by Sealy Mattress Company to Exchange its (i) Series B 97/8% Senior
-------------------------------------------------------------------------
Subordinated Notes due 2007 for any and all its 97/8% Senior Subordinated
-------------------------------------------------------------------------
Notes due 2007 and (ii) Series B 107/8% Senior Subordinated Discount Notes
--------------------------------------------------------------------------
due 2007 for any and all its 107/8% Senior Subordinated Discount Notes due
--------------------------------------------------------------------------
2007
----
We have acted as special counsel to Sealy Mattress Company (the "Company") in
-------
connection with its offer (the "Exchange Offer") to Exchange its: (i) Series B
--------------
97/8% Senior Subordinated Notes due 2007 (the "Senior Subordinated Exchange
----------------------------
Notes") for any and all of its 97/8% Senior Subordinated Notes due 2007 (the
- -----
"Senior Subordinated Notes"); and (ii) Series B 107/8% Senior Subordinated
-------------------------
Discount Notes due 2007 (the "Senior Subordinated Discount Exchange Notes" and,
-------------------------------------------
together with the Senior Subordinated Exchange Notes, the "Exchange Notes") for
--------------
any and all of its 107/8% Senior Subordinated Discount Notes due 2007 (the
"Senior Subordinated Discount Notes" and, together with the Senior Subordinated
----------------------------------
Notes, the "Notes").
-----
You have requested our opinion as to certain United States federal income tax
consequences of the Exchange Offer. In preparing our opinion, we have reviewed
and relied upon the Company's Registration Statement on Form S-4, filed with the
Securities and Exchange Commission (the "Commission") on March 18, 1998, as
amended by Amendment No. 1 thereto filed with the Commission on May 5, 1998 and
Amendment No. 2 thereto filed with the Commission on the date hereof (the
"Registration Statement"), and such other documents as we deemed necessary.
----------------------
<PAGE>
On the basis of the foregoing, it is our opinion that the exchange of the
Notes for Exchange Notes pursuant to the Exchange Offer will not be treated as
an "exchange" for United States federal income tax purposes.
The opinions set forth above are based upon the applicable provisions of the
Internal Revenue Code of 1986, as amended; the Treasury Regulations promulgated
or proposed thereunder; current positions of the Internal Revenue Service (the
"IRS") contained in published revenue rulings, revenue procedures, and
---
announcements; existing judicial decisions; and other applicable authorities. No
tax rulings have been sought from the IRS with respect to any of the matters
discussed herein. Unlike a ruling from the IRS, opinions of counsel are not
binding on the IRS. Hence, no assurance can be given that the opinions stated in
this letter will not be successfully challenged by the IRS or by a court. We
express no opinion concerning any United States federal income tax consequences
of the Exchange Offer except as expressly set forth above.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm and the summarization
of this opinion under the section titled "Certain Federal Income Tax
Consequences" in the Registration Statement.
Very truly yours,
/s/ Kirkland & Ellis
Kirkland & Ellis
<PAGE>
EXHIBIT 10.4
EXHIBIT I
[FORM OF NOTICE OF BORROWING]
NOTICE OF BORROWING
Pursuant to that certain Credit Agreement dated as of December 18, 1997, as
amended, supplemented or otherwise modified to the date hereof (said Credit
Agreement, as so amended, supplemented or otherwise modified, being the ``CREDIT
AGREEMENT'', the terms defined therein and not otherwise defined herein being
used herein as therein defined), by and among Sealy Mattress Company, an Ohio
corporation, as borrower (``COMPANY''), Sealy Corporation, a Delaware
corporation, as guarantor, Goldman Sachs Credit Partners L.P., as arranger and
syndication agent, the financial institutions listed therein as Lenders
(``LENDERS''), Morgan Guaranty Trust Company of New York, as administrative
agent (``ADMINISTRATIVE AGENT''), and Bankers Trust Company, as documentation
agent, this represents Company's request to borrow as follows:
1. Date of borrowing:
----------------- ---------------------------, ------------
2. Amount of borrowing: $
------------------- ---------------------------
3. Lender(s): [ ] a. Lenders, in
----------
accordance with their applicable Pro
Rata Shares
[ ] b. Swing Line Lender
4. Type of Loans: [ ] a. Tranche A Term Loans
-------------
[ ] b. Revolving Loans
[ ] c. Swing Line Loan
5. Interest rate option: [ ] a. Base Rate Loan(s)
--------------------
[ ] b. Eurodollar Rate Loans with an
initial Interest
Period of ____________ month(s)
The proceeds of such Loans are to be deposited in Company's account at
Administrative Agent.
The undersigned officer, to the best of his or her knowledge, on behalf of
the Company certifies that:
(i) The representations and warranties contained in the Credit
Agreement and the other Loan Documents are or shall be true, correct and
complete in all material respects on and as of the date hereof to the same
extent as though made on and as of the Funding Date, except to the extent
such representations and warranties specifically relate
<PAGE>
to an earlier date, in which case such representations and warranties were
true, correct and complete in all material respects on and as of such
earlier date;
[(i) No event has occurred and is continuing or would result from the
consummation of the borrowing contemplated hereby that would constitute an
Event of Default or a Potential Event of Default; [and]
[(ii) FOR REVOLVING LOANS: The amount of the proposed borrowing will
not cause the Total Utilization of Revolving Loan Commitments to exceed the
Revolving Loan Commitments.].
DATED: ____________________ SEALY MATTRESS COMPANY
By:
--------------------------------
Name:
Title:
<PAGE>
EXHIBIT II
[FORM OF NOTICE OF CONVERSION/CONTINUATION]
NOTICE OF CONVERSION/CONTINUATION
Pursuant to that certain Credit Agreement dated as of December 18, 1997, as
amended, supplemented or otherwise modified to the date hereof (said Credit
Agreement, as so amended, supplemented or otherwise modified, being the "CREDIT
AGREEMENT", the terms defined therein and not otherwise defined herein being
used herein as therein defined), by and among Sealy Mattress Company, an Ohio
corporation, as borrower ("COMPANY"), Sealy Corporation, a Delaware corporation,
as guarantor, Goldman Sachs Credit Partners L.P., as arranger and syndication
agent, the financial institutions listed therein as Lenders, Morgan Guaranty
Trust Company of New York, as administrative agent, and Bankers Trust Company,
as documentation agent, this represents Company's request to convert or continue
Loans as follows:
1. Date of conversion/continuation:
------------------------------- ----------------,------
2. Amount of Loans being converted/continued: $
----------------------------------------- -----------
3. Type of Loans being [_] a. Tranche A Term Loans
converted/continued: [_] b. Revolving Loans
-------------------
4. Nature of conversion/continuation:
---------------------------------
[_] a. Conversion of Base Rate Loans to Eurodollar Rate Loans
[_] b. Conversion of Eurodollar Rate Loans to Base Rate Loans
[_] c. Continuation of Eurodollar Rate Loans as such
5. If Loans are being continued as or converted to Eurodollar Rate
Loans, the duration of the new Interest Period that commences on the
conversion/continuation date: month(s)
---------------
II-I-1
<PAGE>
In the case of a conversion to or continuation of Eurodollar Rate Loans, the
undersigned officer, to the best of his or her knowledge, and Company certify
that no Event of Default has occurred and is continuing under the Credit
Agreement.
DATED: SEALY MATTRESS COMPANY
-------------------------
By:
---------------------------------
Name:
Title:
II-I-2
<PAGE>
EXHIBIT III
[FORM OF NOTICE OF ISSUANCE OF LETTER OF CREDIT]
NOTICE OF ISSUANCE OF LETTER OF CREDIT
Pursuant to that certain Credit Agreement dated as of December 18, 1997, as
amended, supplemented or otherwise modified to the date hereof (said Credit
Agreement, as so amended, supplemented or otherwise modified, being the "CREDIT
AGREEMENT", the terms defined therein and not otherwise defined herein being
used herein as therein defined), by and among Sealy Mattress Company, an Ohio
corporation, as borrower ("COMPANY"), Sealy Corporation, a Delaware corporation,
as guarantor, Goldman Sachs Credit Partners L.P., as arranger and syndication
agent, the financial institutions listed therein as Lenders, Morgan Guaranty
Trust Company of New York, as administrative agent ("ADMINISTRATIVE AGENT"), and
Bankers Trust Company, as documentation agent, this represents Company's request
for the issuance of a Letter of Credit by Administrative Agent as follows:
1. Date of issuance of Letter of Credit: ________________, ________
------------------------------------
2. Type of Letter of Credit: [_] a. Commercial Letter of Credit
------------------------
[_] b. Standby Letter of Credit
3. Face amount of Letter of Credit: $________________________
-------------------------------
4. Currency of Letter of Credit (if not in U.S. Dollars):
----------------------------------------------------- ----------
5. Expiration date of Letter of Credit: ________________, ________
-----------------------------------
6. Name and address of beneficiary:
-------------------------------
___________________________________________
___________________________________________
___________________________________________
___________________________________________
7. Attached hereto is:
------------------
[_] a. the verbatim text of such proposed Letter of Credit
[_] b. a description of the proposed terms and conditions of such
Letter of Credit, including a precise description of any
documents to be presented by the beneficiary which, if
presented by the beneficiary prior to the expiration date of
such Letter of Credit, would require the Issuing Lender to
make payment under such Letter of Credit.
III-1
<PAGE>
The undersigned officer, to the best of his or her knowledge, on behalf of
the Company certifies that:
(i) The representations and warranties contained in the Credit
Agreement and the other Loan Documents are or shall be true, correct and
complete in all material respects on and as of the date of issuance of the
proposed Letter of Credit, to the same extent as though made on and as of
the date hereof, except to the extent such representations and warranties
specifically relate to an earlier date, in which case such representations
and warranties were true, correct and complete in all material respects on
and as of such earlier date;
(ii) No event has occurred and is continuing or would result from the
issuance of the Letter of Credit contemplated hereby that would constitute
an Event of Default or a Potential Event of Default; and
(iii) The issuance of the proposed Letter of Credit will not cause (a)
the Letter of Credit Usage to exceed $20,000,000 or (b) the Total
Utilization of Revolving Loan Commitments to exceed the Revolving Loan
Commitments.
DATED: ____________________ SEALY MATTRESS COMPANY
By:
----------------------------
Name:
Title:
III-2
<PAGE>
EXHIBIT IV
[FORM OF TRANCHE A TERM NOTE]
SEALY MATTRESS COMPANY
PROMISSORY NOTE DUE DECEMBER __, 2002
$[1] New York, New York
[Closing Date]
FOR VALUE RECEIVED, SEALY MATTRESS COMPANY, an Ohio corporation ("COMPANY"),
promises to pay to [2] ("PAYEE") or its registered assigns the principal amount
of [3] ($[1]) in the installments referred to below.
Company also promises to pay interest on the unpaid principal amount hereof,
from the date hereof until paid in full, at the rates and at the times which
shall be determined in accordance with the provisions of that certain Credit
Agreement dated as of December 18, 1997 by and among Company, Sealy Corporation,
a Delaware corporation, as guarantor, Goldman Sachs Credit Partners L.P., as
arranger and syndication agent, the financial institutions listed therein,
Morgan Guaranty Trust Company of New York, as administrative agent
("ADMINISTRATIVE AGENT"), and Bankers Trust Company, as documentation agent
(said Credit Agreement, as it may be amended, supplemented or otherwise modified
from time to time, being the "CREDIT AGREEMENT", the terms defined therein and
not otherwise defined herein being used herein as therein defined).
Company shall make principal payments on this Note in consecutive quarterly
installments, commencing on March __, 1998 and ending on December __, 2002.
Each such installment shall be due on the date specified in the Credit Agreement
and in an amount determined in accordance with the provisions thereof; provided
--------
that the last such installment shall be in an amount sufficient to repay the
entire unpaid principal balance of this Note, together with all accrued and
unpaid interest thereon.
This Note is one of Company's "Tranche A Term Notes" in the aggregate
principal amount of $120,000,000 and is issued pursuant to and entitled to the
benefits of the Credit Agreement, to which reference is hereby made for a more
complete statement of the terms and
- --------------------
[1] Insert amount of Lender's Tranche A Term Loan in numbers.
[2] Insert Lender's name in capital letters.
[3] Insert amount of Lender's Tranche A Term Loan in words.
IV-1
<PAGE>
conditions under which the Tranche A Term Loan evidenced hereby was made and is
to be repaid.
All payments of principal and interest in respect of this Note shall be made
in lawful money of the United States of America in same day funds at the Funding
and Payment Office or at such other place as shall be designated in writing for
such purpose in accordance with the terms of the Credit Agreement. Unless and
until an Assignment Agreement effecting the assignment or transfer of this Note
shall have been accepted by Agent and recorded in the Register as provided in
subsection 10.1B(ii) of the Credit Agreement, Company and Agent shall be
entitled to deem and treat Payee as the owner and holder of this Note and the
Loan evidenced hereby. Payee hereby agrees, by its acceptance hereof, that
before disposing of this Note or any part hereof it will make a notation hereon
of all principal payments previously made hereunder and of the date to which
interest hereon has been paid; provided, however, that the failure to make a
-------- -------
notation of any payment made on this Note shall not limit or otherwise affect
the obligations of Company hereunder with respect to payments of principal of or
interest on this Note.
Whenever any payment on this Note shall be stated to be due on a day which
is not a Business Day, such payment shall be made on the next succeeding
Business Day and such extension of time shall be included in the computation of
the payment of interest on this Note.
This Note is subject to mandatory prepayment as provided in subsection
2.4B(iii) of the Credit Agreement and to prepayment at the option of Company as
provided in subsection 2.4B(i) of the Credit Agreement.
THIS NOTE AND THE RIGHTS AND OBLIGATIONS OF COMPANY AND PAYEE HEREUNDER
SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING WITHOUT LIMITATION SECTION
5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD
TO CONFLICTS OF LAWS PRINCIPLES.
Upon the occurrence of an Event of Default, the unpaid balance of the
principal amount of this Note, together with all accrued and unpaid interest
thereon, may become, or may be declared to be, due and payable in the manner,
upon the conditions and with the effect provided in the Credit Agreement.
The terms of this Note are subject to amendment only in the manner provided
in the Credit Agreement.
This Note is subject to restrictions on transfer or assignment as provided
in subsections 10.1 and 10.16 of the Credit Agreement.
IV-2
<PAGE>
No reference herein to the Credit Agreement and no provision of this Note or
the Credit Agreement shall alter or impair the obligations of Company, which are
absolute and unconditional, to pay the principal of and interest on this Note at
the place, at the respective times, and in the currency herein prescribed.
After the occurrence of an Event of Default, Company promises to pay all
costs and expenses, including reasonable attorneys' fees, all as provided in
subsection 10.2 of the Credit Agreement, incurred in the collection and
enforcement of this Note. Company hereby consents to renewals and extensions of
time at or after the maturity hereof, without notice, and hereby waives
diligence, presentment, protest, demand and notice of every kind and, to the
full extent permitted by law, the right to plead any statute of limitations as a
defense to any demand hereunder.
IN WITNESS WHEREOF, Company has caused this Note to be duly executed and
delivered by its officer thereunto duly authorized as of the date and at the
place first written above.
SEALY MATTRESS COMPANY
By:
--------------------------------
Name:
Title:
IV-3
<PAGE>
EXHIBIT V
[FORM OF REVOLVING NOTE]
SEALY MATTRESS COMPANY
PROMISSORY NOTE DUE DECEMBER __, 2002
$[1] New York, New York
[Closing Date]
FOR VALUE RECEIVED, SEALY MATTRESS COMPANY, an Ohio corporation ("COMPANY"),
promises to pay to [2] ("PAYEE") or its registered assigns, on or before
December 18, 2002, the lesser of (x) [3] ($[1]) and (y) the unpaid principal
amount of all advances made by Payee to Company as Revolving Loans under the
Credit Agreement referred to below.
Company also promises to pay interest on the unpaid principal amount hereof,
from the date hereof until paid in full, at the rates and at the times which
shall be determined in accordance with the provisions of that certain Credit
Agreement dated as of December 18, 1997 by and among Company, Sealy Corporation,
a Delaware corporation, as guarantor, Goldman Sachs Credit Partners L.P., as
arranger and syndication agent, the financial institutions listed therein,
Morgan Guaranty Trust Company of New York, as administrative agent
("ADMINISTRATIVE AGENT"), and Bankers Trust Company, as documentation agent
(said Credit Agreement, as it may be amended, supplemented or otherwise modified
from time to time, being the "CREDIT AGREEMENT", the terms defined therein and
not otherwise defined herein being used herein as therein defined).
This Note is one of Company's "Revolving Notes" in the aggregate principal
amount of $100,000,000 and is issued pursuant to and entitled to the benefits of
the Credit Agreement, to which reference is hereby made for a more complete
statement of the terms and conditions under which the Revolving Loans evidenced
hereby were made and are to be repaid.
All payments of principal and interest in respect of this Note shall be made
in lawful money of the United States of America in same day funds at the Funding
and Payment Office or at such other place as shall be designated in writing for
such purpose in accordance with the terms of the Credit Agreement. Unless and
until an Assignment Agreement effecting the
- ----------------------
[1] Insert amount of Lender's Revolving Loan Commitment in numbers.
[2] Insert Lender's name in capital letters.
[3] Insert amount of Lender's Revolving Loan Commitment in words.
V-1
<PAGE>
assignment or transfer of this Note shall have been accepted by Agent and
recorded in the Register as provided in subsection 10.1B(ii) of the Credit
Agreement, Company and Agent shall be entitled to deem and treat Payee as the
owner and holder of this Note and the Loans evidenced hereby. Payee hereby
agrees, by its acceptance hereof, that before disposing of this Note or any part
hereof it will make a notation hereon of all principal payments previously made
hereunder and of the date to which interest hereon has been paid; provided,
--------
however, that the failure to make a notation of any payment made on this Note
- -------
shall not limit or otherwise affect the obligations of Company hereunder with
respect to payments of principal of or interest on this Note.
Whenever any payment on this Note shall be stated to be due on a day which
is not a Business Day, such payment shall be made on the next succeeding
Business Day and such extension of time shall be included in the computation of
the payment of interest on this Note.
This Note is subject to mandatory prepayment as provided in subsection
2.4B(iii) of the Credit Agreement and to prepayment at the option of Company as
provided in subsection 2.4B(i) of the Credit Agreement.
THIS NOTE AND THE RIGHTS AND OBLIGATIONS OF COMPANY AND PAYEE HEREUNDER
SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING WITHOUT LIMITATION SECTION
5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD
TO CONFLICTS OF LAWS PRINCIPLES.
Upon the occurrence of an Event of Default, the unpaid balance of the
principal amount of this Note, together with all accrued and unpaid interest
thereon, may become, or may be declared to be, due and payable in the manner,
upon the conditions and with the effect provided in the Credit Agreement.
The terms of this Note are subject to amendment only in the manner provided
in the Credit Agreement.
This Note is subject to restrictions on transfer or assignment as provided
in subsections 10.1 and 10.16 of the Credit Agreement.
No reference herein to the Credit Agreement and no provision of this Note or
the Credit Agreement shall alter or impair the obligations of Company, which are
absolute and unconditional, to pay the principal of and interest on this Note at
the place, at the respective times, and in the currency herein prescribed.
After the occurrence of an Event of Default, Company promises to pay all
costs and expenses, including reasonable attorneys' fees, all as provided in
subsection 10.2 of the Credit
V-2
<PAGE>
Agreement, incurred in the collection and enforcement of this Note. Company
hereby consents to renewals and extensions of time at or after the maturity
hereof, without notice, and hereby waives diligence, presentment, protest,
demand and notice of every kind and, to the full extent permitted by law, the
right to plead any statute of limitations as a defense to any demand hereunder.
IN WITNESS WHEREOF, Company has caused this Note to be duly executed and
delivered by its officer thereunto duly authorized as of the date and at the
place first written above.
SEALY MATTRESS COMPANY
By:
-----------------------------------
Name:
Title:
V-3
<PAGE>
TRANSACTIONS
ON
REVOLVING NOTE
<TABLE>
<CAPTION>
Outstanding
Type of Amount of Amount of Principal
Loan Made Loan Made Principal Paid Balance Notation
Date This Date This Date This Date This Date Made By
- ------- --------- --------- -------------- ----------- --------
<S> <C> <C> <C> <C> <C>
</TABLE>
V-4
<PAGE>
EXHIBIT VI
[FORM OF SWING LINE NOTE]
SEALY MATTRESS COMPANY
PROMISSORY NOTE DUE DECEMBER __, 2002
$10,000,000 New York, New York
[Closing Date]
FOR VALUE RECEIVED, SEALY MATTRESS COMPANY, an Ohio corporation
("COMPANY"), promises to pay to MORGAN GUARANTY TRUST COMPANY OF NEW YORK
("PAYEE") or its registered assigns, on or before December __, 2002, the
lesser of (x) TEN MILLION AND NO/100 Dollars ($10,000,000.00) and (y) the unpaid
principal amount of all advances made by Payee to Company as Swing Line Loans
under the Credit Agreement referred to below.
Company also promises to pay interest on the unpaid principal amount hereof,
from the date hereof until paid in full, at the rates and at the times which
shall be determined in accordance with the provisions of that certain Credit
Agreement dated as of December 18, 1997 by and among Company, Sealy Corporation,
a Delaware corporation, as guarantor, Goldman Sachs Credit Partners L.P., as
arranger and syndication agent, the financial institutions listed therein,
Morgan Guaranty Trust Company of New York, as administrative agent
("ADMINISTRATIVE AGENT"), and Bankers Trust Company, as documentation agent
(said Credit Agreement, as it may be amended, supplemented or otherwise modified
from time to time, being the "CREDIT AGREEMENT", the terms defined therein and
not otherwise defined herein being used herein as therein defined).
This Note is Company's "Swing Line Note" and is issued pursuant to and
entitled to the benefits of the Credit Agreement, to which reference is hereby
made for a more complete statement of the terms and conditions under which the
Swing Line Loans evidenced hereby were made and are to be repaid.
All payments of principal and interest in respect of this Note shall be made
in lawful money of the United States of America in same day funds at the Funding
and Payment Office or at such other place as shall be designated in writing for
such purpose in accordance with the terms of the Credit Agreement.
Whenever any payment on this Note shall be stated to be due on a day which
is not a Business Day, such payment shall be made on the next succeeding
Business Day and such extension of time shall be included in the computation of
the payment of interest on this Note.
VI-1
<PAGE>
This Note is subject to mandatory prepayment as provided in subsection
2.4B(iii) of the Credit Agreement and to prepayment at the option of Company as
provided in subsection 2.4B(i) of the Credit Agreement.
THIS NOTE AND THE RIGHTS AND OBLIGATIONS OF COMPANY AND PAYEE HEREUNDER
SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING WITHOUT LIMITATION SECTION
5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD
TO CONFLICTS OF LAWS PRINCIPLES.
Upon the occurrence of an Event of Default, the unpaid balance of the
principal amount of this Note, together with all accrued and unpaid interest
thereon, may become, or may be declared to be, due and payable in the manner,
upon the conditions and with the effect provided in the Credit Agreement.
The terms of this Note are subject to amendment only in the manner provided
in the Credit Agreement.
This Note is subject to restrictions on transfer or assignment as provided
in subsections 10.1 and 10.16 of the Credit Agreement.
No reference herein to the Credit Agreement and no provision of this Note or
the Credit Agreement shall alter or impair the obligations of Company, which are
absolute and unconditional, to pay the principal of and interest on this Note at
the place, at the respective times, and in the currency herein prescribed.
After the occurrence of an Event of Default, Company promises to pay all
costs and expenses, including reasonable attorneys' fees, all as provided in
subsection 10.2 of the Credit Agreement, incurred in the collection and
enforcement of this Note. Company hereby consents to renewals and extensions of
time at or after the maturity hereof, without notice, and hereby waives
diligence, presentment, protest, demand and notice of every kind and, to the
full extent permitted by law, the right to plead any statute of limitations as a
defense to any demand hereunder.
VI-2
<PAGE>
IN WITNESS WHEREOF, Company has caused this Note to be duly executed and
delivered by its officer thereunto duly authorized as of the date and at the
place first written above.
SEALY MATTRESS COMPANY
By:
--------------------------------------
Name:
Title:
VI-3
<PAGE>
TRANSACTIONS
ON
SWING LINE NOTE
<TABLE>
<CAPTION>
Outstanding
Amount of Amount of Principal
Loan Made Principal Paid Balance Notation
Date This Date This Date This Date Made By
- ------- --------- -------------- ----------- --------
<S> <C> <C> <C> <C>
</TABLE>
VI-4
<PAGE>
EXHIBIT VII
[FORM OF COMPLIANCE CERTIFICATE]
COMPLIANCE CERTIFICATE
THE UNDERSIGNED HEREBY CERTIFY ON BEHALF OF HOLDINGS (AS DEFINED BELOW) THAT:
(1) We are the duly elected [Title] and [Title] of Sealy Corporation, a
Delaware corporation ("HOLDINGS");
(2) We have reviewed the terms of that certain Credit Agreement dated
as of December 18, 1997, as amended, supplemented or otherwise modified to
the date hereof (said Credit Agreement, as so amended, supplemented or
otherwise modified, being the "CREDIT AGREEMENT", the terms defined
therein and not otherwise defined in this Certificate (including Attachment
No. 1 annexed hereto and made a part hereof) being used in this Certificate
as therein defined), by and among Company, Holdings, Goldman Sachs Credit
Partners L.P., as arranger and syndication agent, the financial institutions
listed therein, Morgan Guaranty Trust Company of New York, as administrative
agent ("ADMINISTRATIVE AGENT"), and Bankers Trust Company, as
documentation agent, and the terms of the other Loan Documents, and we have
made, or have caused to be made under our supervision, a review in
reasonable detail of the transactions and condition of Holdings and its
Subsidiaries during the accounting period covered by the attached financial
statements; and
(3) The examination described in paragraph (2) above did not disclose,
and we have no knowledge of, the existence of any condition or event which
constitutes an Event of Default or Potential Event of Default during or at
the end of the accounting period covered by the attached financial
statements or as of the date of this Certificate.
[Set forth [below] [in a separate attachment to this Certificate] are
all exceptions to paragraph (3) above listing, in detail, the nature of the
condition or event, the period during which it has existed and the action which
Holdings has taken, is taking, or proposes to take with respect to each such
condition or event:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------]
VII-1
<PAGE>
The foregoing certifications, together with the computations set forth
in Attachment No. 1 annexed hereto and made a part hereof and the financial
statements delivered with this Certificate in support hereof, are made and
delivered this ____ day of ____________, [199_] [200_] pursuant to subsection
6.1(iv) of the Credit Agreement.
SEALY CORPORATION
By:
--------------------------------
Name:
Title:
By:
--------------------------------
Name:
Title:
VII-2
<PAGE>
ATTACHMENT NO. 1
TO COMPLIANCE CERTIFICATE
This Attachment No. 1 is attached to and made a part of a Compliance
Certificate dated as of ______________, [199_][200_] and pertains to the period
from ____________, [199_][200_] to ____________, [199_][200_]. Subsection
references herein relate to subsections of the Credit Agreement.
A. MINIMUM INTEREST COVERAGE RATIO (for the four-Fiscal Quarter
period ending _____________, [199_][200_])
1. Consolidated Net Income: $_____________
2. Consolidated Interest Expense, together with any
non-cash interest expense with respect to the Junior
Subordinated Seller Notes not included in
Consolidated Interest Expense:
$_____________
3. Provisions for taxes based on income (including,
without duplication, foreign withholding tax): $_____________
4. Total depreciation expense: $_____________
5. Total amortization expense: $_____________
6. Other non-cash items reducing Consolidated
Net Income:
7. Less other non-cash items increasing Consolidated
----
Net Income: $_____________
8. Schedule 1.1(i) deductions: $_____________
9. Cumulative effect of accounting changes
to the extent such changes result in a
reduction of Consolidated Net Income: $_____________
10. Cumulative effect of accounting changes
to the extent such changes result in an
increase in Consolidated Net Income $_____________
VII-3
<PAGE>
11. Consolidated Adjusted EBITDA
(1+2+3+4+5+6-7+8+9-10): $_____________
12. Interest Coverage Ratio (11):(2): ____:1.00
13. Minimum ratio required under subsection 7.6A: ____:1.00
B. MAXIMUM LEVERAGE RATIO (as of _____________, [199_][200_])
1. Consolidated Total Debt: $_____________
2. Consolidated Adjusted EBITDA (A.11 above): $_____________
3. Leverage Ratio (1):(2): ____:1.00
4. Maximum Leverage Ratio permitted under subsection
7.6B: ____:1.00
C. MINIMUM CONSOLIDATED ADJUSTED EBITDA (for the four-
Fiscal Quarter period ending ____________, [199_][200_])
1. Consolidated Adjusted EBITDA (A.11 above): $_____________
2. Minimum required under subsection 7.6C: $_____________
D. CONSOLIDATED CAPITAL EXPENDITURES
1. Consolidated Capital Expenditures for Fiscal
Year-to-date: $_____________
2. Maximum amount of Consolidated Capital
Expenditures permitted under subsection 7.8A for
Fiscal Year (as adjusted in accordance with the
provisos to such subsection; calculations attached
hereto): $_____________
3. MIS Upgrade Expenditures not included in
calculations under D.1 above: $_____________
4. Maximum permitted under subsection 7.8B $12,000,000
5. Consolidated Capital Expenditures (not
included in calculations under D.1 or D.3 above)
VII-4
<PAGE>
made in reliance on subsection 7.8C
(calculations against Excess Proceeds Amount at
the time of each such expenditure attached
hereto): $_____________
VII-5
<PAGE>
EXHIBIT VIII
KIRKLAND & ELLIS
A PARTNERSHIP INCLUDING PROFESSIONAL CORPORATIONS
Citicorp Center
153 East 53rd Street
New York, NY 10022-4675
To Call Writer Direct: 212 446-4800 Facsimile:
212 446-4800 212 446-4900
December 18, 1997
To the Administrative Agent,
the Collateral Agent, the Documentation
Agent, the Syndication Agent and
each of the Lenders party to the
Credit Agreement referred to below:
Ladies and Gentlemen:
We are issuing this opinion letter in our capacity as special legal
counsel to Sealy Corporation, a Delaware corporation ("Holdings"), Sealy
--------
Mattress Company, an Ohio corporation (the "Borrower"), and each other Domestic
--------
Subsidiary of Borrower that is a party to a Subsidiary Guaranty (collectively,
the "Subsidiary Guarantors" and, together with Holdings and the Borrower, the
---------------------
"Credit Parties," and each a "Credit Party"), in response to the requirement in
- --------------- ------------
(a) subsections 4.1J(vii) and 4.1(P) of the Credit Agreement (the "Term
----
A/Revolver Credit Agreement") dated as of the date hereof by and among Holdings,
- ---------------------------
the Borrower, the various lending institutions party thereto (the "Term
----
A/Revolver Lenders"), Goldman Sachs Credit Partners L.P., as Arranger and
- ------------------
Syndication Agent, Morgan Guaranty Trust Company of New York, as Administrative
Agent, and Bankers Trust Company, as Documentation Agent, and (b) subsection
3.1J(vi) and 3.1(P) of the AXEL Credit Agreement (the "AXEL Credit Agreement,"
---------------------
and together with the Term A/Revolver Credit Agreement, the "Credit
------
Agreements"), dated as of the date hereof by and among Holdings, the Borrower,
the various lending institutions party thereto (the "AXEL Lenders," collectively
------------
with the AXEL Lenders and Term A/Revolver Lenders, (the "Lenders")), Goldman
-------
Sachs Credit Partners L.P., as Arranger and Syndication Agent, Morgan Guaranty
Trust Company of New York, as Administrative Agent and Bankers Trust Company, as
Documentation Agent (the Lenders and the various aforementioned agents under the
Credit Agreements being herein called "you"). The term "Transaction Documents"
--- ---------------------
whenever it is used in this letter means the Credit Agreements and the
following additional documents: (a) the Notes, (b) the Guaranties and Collateral
Documents executed on or before the date hereof listed on Schedule E (the
----------
"Collateral Documents"), (c) the Financing Statements (as defined in opinion
- ---------------------
paragraph 9 of this letter) executed by the Credit Parties, (d) the
Recapitalization Agreement and (e) the Related Documents listed on Schedule F.
----------
Unless otherwise indicated, capitalized terms used herein but not otherwise
defined herein have the respective meanings set forth in the Credit Agreements.
CHICAGO DENVER LONDON LOS ANGELES NEW YORK
<PAGE>
KIRKLAND & ELLIS
December 18, 1997
Page 2
Subject to the assumptions, qualifications, exclusions and other
limitations which are identified in this letter and in the schedules attached to
this letter, we advise you, and with respect to each legal issue addressed in
this letter, it is our opinion, that:
1. Holdings is a corporation existing and in good standing under the
General Corporation Law of the State of Delaware. Each Subsidiary
Guarantor is a corporation existing under the general corporate law of
its state of incorporation. Each Credit Party is in good standing in
the jurisdictions set forth below such Credit Party's name on Schedule
--------
G. For purposes of the foregoing opinions in this paragraph, we have
-
relied exclusively upon the certificates issued by the governmental
authorities in each respective state of incorporation and other
relevant jurisdictions for the other Credit Parties incorporated in
states other than Delaware, Illinois and New York and such opinions
are not intended to provide any conclusion or assurance beyond that
conveyed by such certificates. Based upon our review of the
Certificate (or Articles, as the case may be) of Incorporation and
Bylaws of each Credit Party (other than the Borrower), each Credit
Party (other than the Borrower) has the corporate power to own its
property and assets of which we are aware and to transact the business
in which, to our actual knowledge, it is engaged or presently proposes
to engage (as such business is described in the Offering Circular
dated December 11, 1997, relating to the Senior Subordinated Notes and
the Discount Notes).
2. Each Credit Party (other than the Borrower) has the corporate power to
enter into each of the Transaction Documents (other than the
Recapitalization Agreement) to which it is a party and perform its
obligations under each of the Credit Agreements, the Notes, the
Collateral Documents and the Related Documents to which it is a party.
3. The Board of Directors of each Credit Party (other than the Borrower)
has adopted by requisite vote the resolutions necessary to authorize
such Credit Party's execution and delivery of the Transaction
Documents (other than the Recapitalization Agreement) to which it is a
party and the performance of the Transaction Documents (other than the
Recapitalization Agreement and the Financing Statements) to which it
is a party and no approval by the shareholders of such Credit Parties
is required in connection with the authorization of such execution,
delivery and performance of the
<PAGE>
KIRKLAND & ELLIS
December 18, 1997
Page 3
Transaction Documents (other than the Recapitalization Agreement) to
which it is a party.
4. Each Credit Party (other than the Borrower) has duly executed and
delivered the Transaction Documents (other than the Recapitalization
Agreement) to which it is a party.
5. Each of the Transaction Documents (other than the Recapitalization
Agreement and the Financing Statements) is a valid and binding
obligation of each Credit Party that is a party thereto and is
enforceable against each such Credit Party in accordance with its
terms.
6. The execution and delivery of the Transaction Documents (other than
the Recapitalization Agreement) to which it is a party by each Credit
Party and performance of the obligations under the Transaction
Documents (other than the Recapitalization Agreement and the Financing
Statements) to which it is a party will not (a) conflict with any of
the Transaction Documents, (b) violate any existing provisions of such
Credit Party's Certificate (or Articles, as the case may be) of
Incorporation or Bylaws, (c) constitute a violation by such Credit
Party of any applicable provision of existing statutory law or
governmental regulation covered by this letter, (d) result in the
creation or imposition of any lien, charge or encumbrance upon any of
the property of any Credit Party other than liens, charges and
encumbrances in your favor or (e) violate any existing order, writ,
injunction or decree applicable to any Credit Party of which we are
aware of any court or governmental instrumentality. Without limiting
the foregoing, the making of the Loans and the application of the
proceeds thereof as provided in the Credit Agreements do not violate
Regulations G, T, U or X of the Board of Governors of the Federal
Reserve System.
7. No Credit Party is presently required to obtain any consent, approval,
authorization or order of any court or governmental agency in order to
obtain the right to enter into any of the Transaction Documents (other
than the Recapitalization Agreement) or to take any of the actions
taken by such Credit Party in connection with the consummation of the
transactions contemplated by the Transaction Documents (other than the
Recapitalization Agreement), except for: (a) those obtained or made on
or prior to the Closing Date, (b) any actions or filings to perfect
the liens and security
<PAGE>
KIRKLAND & ELLIS
December 18, 1997
Page 4
interests granted under the Collateral Documents, (c) actions or
filings required in connection with ordinary course conduct by the
Credit Parties of their respective businesses and ownership or
operation by the Credit Parties of their respective assets and (d)
actions and filings required under the Securities Act of 1933, as
amended, or any state "blue sky" law or related regulation and the
Trust Indenture Act of 1939, as amended (as to which matters, except
as specifically set forth in paragraph 18, we express no opinion).
8. Each of the Holdings Security Agreement, the Company Security
Agreement, the Company Patent and Trademark Security Agreement, the
Subsidiary Security Agreement, the Subsidiary Patent and Trademark
Security Agreement and Section 4 of the Mortgage (the "New York
--------
Mortgage") dated the date hereof executed by Sealy Mattress of Albany,
--------
Inc. ("Sealy Albany") (collectively, the "Security Agreements")
------------ -------------------
creates a valid and enforceable security interest in favor of the
Collateral Agent in the collateral therein respectively described (the
"Collateral") which constitutes property in which a security interest
----------
can be granted under Article 9 of the Uniform Commercial Code as
enacted in New York (the "New York UCC"). Such Collateral is referred
------------
to herein as the "Code Collateral."
---------------
9. The Uniform Commercial Code financing statements (Form UCC-1) which
have been signed by representatives of each of the applicable Credit
Parties and delivered on or before the date of this letter in
connection with the transactions specified in the Collateral Documents
(the "Financing Statements"), have been duly executed and delivered by
--------------------
each such Credit Party. When certain of the Financing Statements have
been duly filed or recorded, as appropriate, in the Offices of the
Secretary of State of the States of New York and Illinois (and, with
respect to certain of the Financing Statements signed by Sealy Albany,
the Office of the Clerk, Albany County), the security interests under
the Security Agreements in the Code Collateral presently located or
deemed located in the States of New York and Illinois under Section 9-
103 of the New York UCC will be perfected to the extent such security
interests in such Code Collateral can be perfected by the filing of
financing statements in the States of New York and Illinois.
10. Under Section 9-103 of the New York UCC, the perfection and effect of
perfection of the security interests in favor of the Collateral Agent
in the remaining Code Collateral will be governed by laws other than
those of the States of New York and
<PAGE>
KIRKLAND & ELLIS
December 18, 1997
Page 5
Illinois. Although we express no opinion as to such laws, we have
reviewed the Commerce Clearing House, Inc. Secured Transactions Guide
as supplemented through November 25, 1997 (the "Guide") and, based
-----
solely on such review, we advise you that when the remaining
Financing Statements executed by each Credit Party are duly filed or
recorded, as appropriate, in the filing offices set forth on Schedule
--------
H, the security interests under the Security Agreements in
-
such Code Collateral described therein will be perfected to the extent
such security interests can be perfected by the filing of financing
statements in such other states.
11. Upon the filing and recordation of the Company Patent and Trademark
Security Agreement and the Subsidiary Patent and Trademark Security
Agreement with the United States Patent and Trademark Office (and the
payment of required filing fees) and the filing of appropriate
financing statements as described in paragraphs 9 and 10 of this
letter, the security interest for the benefit of the Collateral Agent
in the United States patents and registered trademarks described
therein will be perfected under applicable Federal law to the extent
that security interests in such Collateral may be perfected under such
Federal laws.
12. Assuming (in addition to all other assumptions upon which this letter
is based) that the Collateral Agent has taken and is retaining
possession in the State of New York of the certificates representing
the securities which are certificated and pledged pursuant to the
Holdings Pledge Agreement, the Company Pledge Agreement and the
Subsidiary Pledge Agreement (collectively, the "Pledge Agreements"),
-----------------
duly endorsed to the Collateral Agent or in blank by an effective
endorsement (within the meaning of Section 8-102(a)(11) of the New
York UCC), the security interest in favor of the Collateral Agent in
such pledged securities is perfected by "control" under the New York
UCC; and assuming further (in addition to all other assumptions upon
which this letter is based) that the Collateral Agent has taken
possession of such pledged certificated securities and such
accompanying endorsements without notice (actual or constructive), at
or prior to the time of the delivery of such pledged certificated
securities and endorsements to the Collateral Agent, of any adverse
claim within the meaning of Section 8-102(a)(1) of the New York UCC,
the Collateral Agent has acquired a security interest in such pledged
securities free of any such adverse claims.
<PAGE>
KIRKLAND & ELLIS
December 18, 1997
Page 6
13. The New York Mortgage is in proper form for recording and, upon
recordation in the Office of the Clerk, Albany County and the payment
of all applicable recording fees
and taxes, will create in favor of the Collateral Agent a valid and
enforceable mortgage lien on Sealy Albany's interest in that portion
of the "Mortgaged Property", as defined therein, that constitutes real
property (including fixtures, to the extent the same constitute real
property).
14. The Credit Parties are not "investment companies" within the meaning
of the Investment Company Act of 1940, as amended.
15. The Credit Parties are not "holding companies" or "subsidiary
companies" of a "holding company," or an "affiliate" of a "holding
company" or of a "subsidiary company" of a "holding company" within
the meaning of the Public Utility Holding Company Act of 1935, as
amended.
16. To the best of our actual knowledge (based solely upon lien searches,
inquiries of officers of the Credit Parties and the certificates
executed and delivered to us by officers of such parties), (i) there
are no actions, suits or proceedings pending or threatened (a) against
any Credit Parties (other than those identified in Schedules 4.10(A)-
(G) to the Recapitalization Agreement), which have not been disclosed
to you or your counsel or (b) against any Credit Parties with respect
to any of the Transaction Documents and (ii) there does not exist any
judgment, order or injunction prohibiting or imposing any material
adverse condition upon the consummation of the transactions
contemplated by the Transaction Documents.
17. All monetary obligations of the Borrower under the Credit Agreements
are within the definition of "Senior Debt" under, and as defined in,
the Senior Subordinated Note Indenture, the Discount Note Indenture
and the Junior Subordinated Seller Notes.
18. It is not necessary in connection with the execution and delivery of
the Notes and the Credit Agreements to the Lenders to register the
Notes or the Credit Agreements or the Loans under the Securities Act
of 1933, as amended, or to qualify any indenture in respect thereof
under the Trust Indenture Act of 1939, as amended.
<PAGE>
KIRKLAND & ELLIS
December 18, 1997
Page 7
In preparing this letter, we have relied without any independent
verification upon the assumptions recited in Schedule B to this letter and upon:
----------
(i) information contained in certificates obtained from governmental
authorities; (ii) factual information represented to be true in the Credit
Agreements and the other Transaction Documents; (iii) factual information
provided to us in a support certificate signed by the Credit Parties; and (iv)
factual information we have obtained from such other sources as we have deemed
reasonable. We have assumed without investigation that there has been no
relevant change or development between the dates as of which the information
cited in the preceding sentence was given and the date of this letter and that
the information upon which we have relied is accurate and does not omit
disclosures necessary to prevent such information from being misleading.
While we have not conducted any independent investigation to determine
facts upon which our opinions are based or to obtain information about which
this letter advises you, we confirm that we do not have any actual knowledge
which has caused us to conclude that our reliance and assumptions cited in the
preceding paragraph are unwarranted or that any information supplied in this
letter is wrong. The terms "knowledge," "actual knowledge" and "aware" whenever
used in this letter with respect to our firm means conscious awareness at the
time this letter is delivered on the date it bears by the following Kirkland &
Ellis lawyers who have had significant involvement with negotiation or
preparation of the Transaction Documents (herein called "our Designated
Transaction Lawyers"): Lance C. Balk, Linda K. Riley Myers, Debra B. Arenare,
Mark J. Eagan, Frederick Tanne, Brian Land, Jeffrey W. Stevenson, Robert J.
Frances, Brian W. Raftery, Andrew E. Nagel, Jordon L. Kruse and Jeff A. Hess.
Our advice on every legal issue addressed in this letter is based
exclusively on the internal laws of New York and Illinois or the Federal law of
the United States except that (i) the opinions in paragraphs 1 through 4 are
also based on the General Corporation Law of the State of Delaware and our
review of summary compilations of the corporate statutes of the jurisdictions of
incorporation of the Subsidiary Guarantors that are incorporated in states other
than Delaware, Illinois and New York and (ii) our advice in paragraph 10 is
based on the laws as summarized in the Guide to the extent indicated in that
paragraph. We advise you that issues addressed by this letter may be governed
in whole or in part by other laws, but we express no opinion as to whether any
relevant difference exists between the laws upon which our opinions are based
and any other laws which may actually govern. Our opinions are subject to all
qualifications in Schedule A and do not cover or otherwise address any law or
----------
legal issue which is identified in the attached Schedule C or any provision in
----------
the Credit Agreement or any of the other Transaction Documents of any type
identified in Schedule D. Provisions in the Transaction Documents which are not
----------
excluded by
<PAGE>
KIRKLAND & ELLIS
December 18, 1997
Page 8
Schedule D or any other part of this letter or its attachments are called the
- ----------
"Relevant Agreement Terms."
------------------------
Our advice on each legal issue addressed in this letter represents our
opinion as to how that issue would be resolved were it to be considered by the
highest court of the jurisdiction upon whose law our opinion on that issue is
based. The manner in which any particular issue would be treated in any actual
court case would depend in part on facts and circumstances particular to the
case, and this letter is not intended to guarantee the outcome of any legal
dispute which may arise in the future. It is possible that some Relevant
Agreement Terms of a remedial nature contained in the Collateral Documents may
not prove enforceable for reasons other than those cited in this letter should
an actual enforcement action be brought, but (subject to all the exceptions,
qualifications, exclusions and other limitations contained in this letter) such
unenforceability would not in our opinion prevent you from realizing the
principal benefits purported to be provided by the Relevant Agreement Terms of a
remedial nature contained in the Collateral Documents.
This letter speaks as of the time of its delivery on the date it bears. We
do not assume any obligation to provide you with any subsequent opinion or
advice by reason of any fact about which our Designated Transaction Lawyers did
not have actual knowledge at that time, by reason of any change subsequent to
that time in any law covered by any of our opinions, or for any other reason.
The attached schedules are an integral part of this letter, and any term defined
in this letter or any schedule has that defined meaning wherever it is used in
this letter or in any schedule to this letter.
You may rely upon this letter only for the purpose served by the provisions
in the Credit Agreements cited in the initial paragraph of this letter in
response to which it has been delivered. Without our written consent: (i) no
person other than you may rely on this letter for any purpose and (ii) this
letter may not be cited or quoted in any financial statement, prospectus,
private placement memorandum or other similar document. Notwithstanding the
foregoing, persons who subsequently become Lenders (or participants in
accordance with the terms of the Credit Agreements) may rely on this letter as
of the time of its delivery on the date hereof as if this letter were addressed
to them.
Sincerely,
/s/ Kirkland & Ellis
Kirkland & Ellis
<PAGE>
SCHEDULE A
GENERAL QUALIFICATIONS
All of our opinions ("our opinions") in the letter to which this Schedule
is attached ("our letter") are subject to each of the qualifications set forth
in this Schedule.
1. Bankruptcy and Insolvency Exception. Each of our opinions in our
-----------------------------------
letter is subject to the effect of bankruptcy, insolvency,
reorganization, receivership, moratorium and other similar laws
relating to or affecting creditors' rights. This exception includes:
a. the federal Bankruptcy Code and thus comprehends, among others,
matters of turn-over, automatic stay, avoiding powers, fraudulent
transfer, preference, discharge, conversion of a non-recourse
obligation into a recourse claim, limitations on ipso facto and
anti-assignment clauses and the coverage of pre-petition security
agreements applicable to property acquired after a petition is
filed;
b. all other federal and state bankruptcy, insolvency,
reorganization, receivership, moratorium, arrangement and
assignment for the benefit of creditors laws that affect the
rights of creditors generally or that have reference to or affect
only creditors of specific types of debtors;
c. state fraudulent transfer and conveyance laws; and
d. judicially developed doctrines in this area, such as substantive
consolidation of entities and equitable subordination.
2. Equitable Principles Limitation. Each of our opinions as to the
-------------------------------
validity, binding effect or enforceability of any of the Transaction
Documents or to the availability of injunctive relief and other
equitable remedies is subject to the effect of general principles of
equity, whether applied by a court of law or equity. This limitation
includes principles:
a. governing the availability of specific performance, injunctive
relief or other equitable remedies, which generally place the
award of such remedies, subject to certain guidelines, in the
discretion of the court to which application for such relief is
made;
b. affording equitable defenses (e.g., waiver, laches and estoppel)
against a party seeking enforcement;
A-1
<PAGE>
c. requiring good faith and fair dealing in the performance and
enforcement of a contract by the party seeking its enforcement;
d. requiring reasonableness in the performance and enforcement of an
agreement by the party seeking enforcement of the contract;
e. requiring consideration of the materiality of (i) a breach and
(ii) the consequences of the breach to the party seeking
enforcement;
f. requiring consideration of the commercial impracticability or
impossibility of performance at the time of attempted
enforcement; and
g. affording defenses based upon the unconscionability of the
enforcing party's conduct after the parties have entered into the
contract.
3. Other Common Qualifications. Each of our opinions as to the validity,
---------------------------
binding effect or enforceability of any of the Transaction Documents
or to the availability of injunctive relief and other equitable
remedies is subject to the effect of rules of law that:
a. limit or affect the enforcement of provisions of a contract that
purport to waive, or to require waiver of, the obligations of
good faith, fair dealing, diligence and reasonableness;
b. provide that forum selection clauses in contracts are not
necessarily binding on the court(s) in the forum selected;
c. limit the availability of a remedy under certain circumstances
where another remedy has been elected;
d. provide a time limitation after which a remedy may not be
enforced;
e. limit the right of a creditor to use force or cause a breach of
the peace in enforcing rights;
f. relate to the sale or disposition of collateral or the
requirements of a commercially reasonable sale;
g. limit the enforceability of provisions releasing, exculpating or
exempting a party from, or requiring indemnification of a party
for, liability for its own action or inaction, to the extent the
action or inaction involves negligence, recklessness, willful
misconduct, unlawful conduct, violation of public policy or
litigation against another party determined adversely to such
party;
A-2
<PAGE>
h. may, where less than all of a contract may be unenforceable,
limit the enforceability of the balance of the contract to
circumstances in which the unenforceable portion is not an
essential part of the agreed exchange;
i. govern and afford judicial discretion regarding the determination
of damages and entitlement to attorneys' fees and other costs;
j. may permit a party that has materially failed to render or offer
performance required by the contract to cure that failure unless
(i) permitting a cure would unreasonably hinder the aggrieved
party from making substitute arrangements for performance, or
(ii) it was important in the circumstances to the aggrieved party
that performance occur by the date stated in the contract; and/or
k. may render guarantees unenforceable under circumstances where
your actions, failures to act or waivers, amendments or
replacement of the Transaction Documents so radically change the
essential nature of the terms and conditions of the guaranteed
obligations and the related transactions that, in effect, a new
relationship has arisen between you and the Borrower and/or other
Credit Parties which is substantially and materially different
from that presently contemplated by the Transaction Documents.
4. Referenced Provision Qualification. Each opinion regarding the
----------------------------------
validity, binding effect or enforceability of a provision (the "First
-----
Provision")in any of the Transaction Documents requiring any Credit
---------
Party to perform its obligations under, or to cause any other person
to perform its obligations under, any other provision (a "Second
------
Provision") of any Transaction Document, or stating that any action
---------
will be taken as provided in or in accordance with such Second
Provision are subject to the same qualifications as the corresponding
opinion in this letter relating to the validity, binding effect and
enforceability of such Second Provision. Requirements in the
Transaction Documents that provisions therein may only be waived or
amended in writing may not be enforceable to the extent that an oral
agreement or an implied agreement by trade practice or course of
conduct has been created modifying any such provision.
5. Collateral Qualifications. The opinions and advice contained in our
-------------------------
letter are subject to the following advice:
a. certain rights of debtors and duties of secured parties referred
to in Sections 1-102(3) and 9-501(3) of the New York UCC may not
be waived, released, varied or disclaimed by agreement prior to a
default;
b. our opinions regarding the creation and perfection of security
interests are subject to the effect of (i) the limitations on the
existence and perfection of security interests in proceeds
resulting from the operation of Section 9-306,
A-3
<PAGE>
Section 9-115 or Section 8-321(1) [1977 version] of any
applicable Uniform Commercial Code; (ii) the limitations in favor
of buyers imposed by Sections 9-307 and 9-308 of any applicable
Uniform Commercial Code; (iii) the limitations with respect to
documents, instruments and securities imposed by Section 9-309
and 8-303 of any applicable Uniform Commercial Code; (iv) other
rights of persons in possession of money, instruments and
proceeds constituting certificated or uncertificated securities;
and (v) section 547 of the Bankruptcy Code with respect to
preferential transfers and section 552 of the Bankruptcy Code
with respect to any Collateral acquired by any Credit Party
subsequent to the commencement of a case against or by any Credit
Party under the Bankruptcy Code;
c. Article 9 of each applicable Uniform Commercial Code requires the
filing of continuation statements within specified periods in
order to maintain the effectiveness of the filings referred to in
our letter;
d. Additional filings may be necessary if any Credit Party changes
its name, identity or corporate structure or the jurisdiction in
which any of its places of business, its chief executive office
or any Collateral is located;
e. your security interest in certain of the Collateral may not be
perfected by the filing of financing statements under the Uniform
Commercial Code;
f. we express no opinion regarding the perfection of any security
interest except as specifically set forth in our letter or
regarding the continued perfection of any security interest in
any Collateral upon or following the removal of such Collateral
to another jurisdiction and we express no opinion regarding the
priority of any security interest (except for the limited opinion
set forth in paragraph 12 regarding the acquisition of certain
security interests free of adverse claims);
g. the assignment of any contract, lease, license, or permit may
require the approval of the issuer thereof or the other parties
thereto (other than to the extent provided in Section 9-318(4) of
the New York UCC, security interests in the right to receive the
payment of money under any such contract);
h. we express no opinion with respect to any self-help remedies to
the extent they vary from those available under the New York UCC
or with respect to any remedies otherwise inconsistent with the
New York UCC to the extent that the New York UCC is applicable
thereto;
i. a substantial body of case law treats guarantors as "debtors"
under the New York UCC, thereby according guarantors rights and
remedies of debtors established by the New York UCC;
A-4
<PAGE>
j. we express no opinion as to whether the guarantee would remain
enforceable if you release the primary obligor either directly or
by electing a remedy which precludes you from proceeding directly
against the primary obligor;
k. we express no opinion with respect to the creation, perfection or
enforceability of security interests in property in which it is
illegal or violative of governmental rules or regulations to
grant a security interest (such as, for example, governmental
permits and licenses), general intangibles which terminate or
become terminable if a security interest is granted therein,
property subject to negative pledge clauses of which you have
knowledge, vehicles, ships, vessels, barges, boats, railroad
cars, locomotives or other rolling stock, aircraft, aircraft
engines, propellers and related parts, or other property for
which a state or federal statute or treaty provides for
registration or certification of title or which specifies a place
of filing different than that specified in Section 9-401 of any
applicable Uniform Commercial Code, cash which is not in your
possession, uncertificated securities, crops, timber to be cut,
fixtures, accounts subject to subsection (5) of Section 9-103 of
any applicable Uniform Commercial Code, consumer goods, farm
products, equipment used in farming operations, accounts or
general intangibles arising from or relating to the sale of farm
products by a farmer, property identified to a contract with, or
in the possession of, the United States of America or any state,
county, city, municipality or other governmental body or agency,
goods for which a negotiable document of title has been issued,
and copyrights, patents and trademarks (except as expressly set
forth in opinion paragraph 11), other literary property rights,
service marks, know-how, processes, trade secrets, undocumented
computer software, unrecorded and unwritten data and information,
and rights and licenses thereunder;
l. we express no opinion with respect to the enforceability of any
security interest in any accounts, chattel paper, documents,
instruments or general intangibles with respect to which the
account debtor or obligor is the United States of America, any
state, county, city, municipality or other governmental body, or
any department, agency or instrumentality thereof;
m. we express no opinion with respect to the enforceability of any
provision of any Transaction Document which purports to authorize
you to sign or file financing statements or other documents
without the signature of the debtor (except to the extent a
secured party may execute and file financing statements without
the signature of the debtor under Section 9-402(2) of the
applicable Uniform Commercial Code);
n. we express no opinion with respect to the enforceability of any
provision of any Transaction Document which purports to authorize
you to purchase at a
A-5
<PAGE>
private sale collateral which is not subject to widely
distributed standard price quotations or sold on a recognized
market;
o. we note that the remedies under the Pledge Agreements to sell or
offer for sale the Pledged Collateral (as defined in the Pledge
Agreements) are subject to compliance with applicable state and
federal securities laws;
p. we express no opinion in this letter regarding creation or
perfection of any security interest in, and the term "Code
----
Collateral" shall not include, any property in which a security
----------
interest may be granted under the Uniform Commercial Code in the
New York UCC but which is property in which a security interest
may not be granted under Article 9 of the Uniform Commercial Code
as in effect in any of the following jurisdictions: the
jurisdiction in which such property is located, the jurisdiction
in which the debtor is located (as defined in Section 9-103(3)(d)
of the New York UCC) or (in the case of a deposit account) the
jurisdiction in which the office of the depositary institution at
which the deposit account is maintained is located;
q. we express no opinion regarding the enforceability of any pre-
default waiver of redemption rights; and
r. we express no opinion regarding the enforceability of any
provisions asserting that Collateral is owned by or is property
of a secured party prior to such secured party's foreclosure of
such Collateral in accordance with the applicable Uniform
Commercial Code or, in the case of cash collateral, the
application of such cash collateral in payment of the secured
obligations.
A-6
<PAGE>
SCHEDULE B
ASSUMPTIONS
For purposes of our letter, we have relied, without investigation, upon
each of the following assumptions:
1. The Borrower is existing and in good standing in its jurisdiction of
incorporation.
2. You are existing and in good standing in your jurisdiction of
organization.
3. The Borrower has the full corporate power and authority to execute,
deliver and to perform its obligations under each of the Transaction
Documents to which it is a party and each of the Transaction Documents
to which it is a party has been duly authorized by all necessary
action and has been duly executed and delivered by the Borrower.
4. You have full power and authority (including without limitation under
the laws of your jurisdiction of organization) to execute, deliver and
to perform your obligations under each of the Transaction Documents to
which you are a party and each of the Transaction Documents to which
you are a party has been duly authorized by all necessary action on
your part and has been duly executed and duly delivered by you.
5. The Transaction Documents to which you are a party constitute valid
and binding obligations of yours and are enforceable against you in
accordance with their terms (subject to qualifications, exclusions and
other limitations similar to those applicable to our letter).
6. You have complied with all legal requirements pertaining to your
status as such status relates to your rights to enforce the
Transaction Documents to which you are a party against any of the
Credit Parties.
7. Each document submitted to us for review is accurate and complete,
each such document that is an original is authentic, each such
document that is a copy conforms to an authentic original, and all
signatures (other than those of or on behalf of the Credit Parties) on
each such document are genuine.
8. There has not been any mutual mistake of fact or misunderstanding,
fraud, duress or undue influence.
9. The conduct of the parties to the Transaction Documents has complied
with any requirement of good faith, fair dealing and conscionability.
B-1
<PAGE>
10. You have acted in good faith and without notice of any defense against
the enforcement of any rights created by, or adverse claim to any
property or security interest transferred or created as part of, the
transactions effected under the Transaction Documents (herein called
the "Transactions").
------------
11. There are no agreements or understandings among the parties, written
or oral, and there is no usage of trade or course or prior dealing
among the parties that would, in either case, define, supplement or
qualify the terms of the Credit Agreements or any of the other
Transaction Documents.
12. With respect to the opinions set forth in opinion paragraphs 6 and 7,
we assume that no Credit Party will in the future take any
discretionary action (including a decision not to act) permitted under
the Transaction Documents that would result in a violation of law or
constitute a breach or default under any other agreements or court
orders to which such Credit Party may be subject.
13. With respect to the opinions set forth in opinion paragraphs 5, 6 and
7, we assume that each Credit Party will in the future obtain all
permits and governmental approvals required, and will in the future
take all actions required, relevant to the consummation of the
Transactions or performance of the Transaction Documents.
14. Each Credit Party's Certificate (or Articles, as the case may be) of
Incorporation (or equivalent governing instrument), all amendments to
that Certificate (or those Articles, as the case may be) of
Incorporation all resolutions adopted establishing classes or series
of stock under that Certificate (or those Articles, as the case may
be) of Incorporation and each Credit Party's Bylaws and all amendments
to its Bylaws have been adopted in accordance with all applicable
legal requirements (except that this assumption is limited to those of
the preceding items with respect to the adoption of which we did not
have involvement).
15. With respect to the opinions set forth in opinion paragraph 18, we
assume that you are acquiring Notes for investment and not with a view
to the distribution thereof, and that each of you is an "Accredited
Investor" as such term is defined in Regulation D under the Securities
Act of 1933, as amended.
16. Collateral Assumptions. The opinions and advice contained in our
----------------------
letter are subject to the following assumptions:
a. Each applicable Credit Party (i) has the requisite title and rights
to any property involved in the Transactions including, without
limiting the generality of the foregoing, each item of Collateral
existing on the date hereof and (ii) will have the requisite title
and rights to each item of Collateral arising after the date
hereof.
B-2
<PAGE>
b. The descriptions of Collateral in the Collateral Documents and the
Financing Statements reasonably describe the property intended to
be described as Collateral and the legal descriptions of real
estate described in the Financing Statements to be filed as fixture
filings are accurate.
c. Value (as defined in Section 1-201(44) of the New York UCC) has
been given by you to each Credit Party for the security interests
and other rights in and assignments of Collateral described in or
contemplated by the Collateral Documents.
d. The representations made by each Credit Party in the Security
Agreements to which it is a party with respect to its chief
executive office and location of equipment and inventory are and
will remain true and correct.
B-3
<PAGE>
SCHEDULE C
EXCLUDED LAW AND LEGAL ISSUES
None of the opinions or advice contained in our letter covers or otherwise
addresses any of the following laws, regulations or other governmental
requirements or legal issues:
1. except with respect to the Investment Company Act of 1940, as amended,
to the extent of our opinion in opinion paragraph 14, except with
respect to the Public Utility Holdings Company Act of 1935, as amended,
to the extent of our opinion in opinion paragraph 15, and except with
respect to the Securities Act of 1933, as amended, and the Trust
Indenture Act of 1939, as amended, to the extent of our opinions in
opinion paragraph 18, federal securities laws and regulations (including
all other laws and regulations administered by the United States
Securities and Exchange Commission), state "Blue Sky" laws and
regulations, and laws and regulations relating to commodity (and other)
futures and indices and other similar instruments;
2. pension and employee benefit laws and regulations (e.g., ERISA);
3. federal and state antitrust and unfair competition laws and
regulations;
4. compliance with fiduciary duty requirements;
5. the statutes and ordinances, the administrative decisions and the
rules and regulations of counties, towns, municipalities and special
political subdivisions and judicial decisions to the extent that they
deal with any of the foregoing;
6. federal and state environmental, land use and subdivision, tax,
racketeering (e.g., RICO), health and safety (e.g., OSHA), and labor
---- ----
laws and regulations;
7. federal patent, trademark (except to the extent of our opinion in
paragraph 11) and copyright, state trademark, and other federal and
state intellectual property laws and regulations;
8. federal and state laws, regulations and policies concerning (i)
national and local emergency, (ii) possible judicial deference to acts
of sovereign states, and (iii) criminal and civil forfeiture laws;
9. other federal and state statutes of general application to the extent
they provide for criminal prosecution (e.g., mail fraud and wire fraud
statutes);
C-1
<PAGE>
10. any laws, regulations, directives and executive orders that prohibit or
limit the enforceability of obligations based on attributes of the party
seeking enforcement (e.g., the Trading with the Enemy Act and the
International Emergency Economic Powers Act); and
11. the effect of any law, regulation or order which hereafter is enacted,
promulgated or issued.
We have not undertaken any research for purposes of determining whether any
Credit Party or any of the Transactions which may occur in connection with the
Credit Agreements or any of the other Transaction Documents is subject to any
law or other governmental requirement other than to those laws and requirements
which in our experience would generally be recognized as applicable both to
general business corporations which are not engaged in regulated business
activities and to transactions of the type contemplated by the Transaction
Documents to occur on the date hereof, and none of our opinions covers any such
law or other requirement unless (i) one of our Designated Transaction Lawyers
had actual knowledge of its applicability at the time our letter was delivered
on the date it bears and (ii) it is not excluded from coverage by other
provisions in our letter or in any Schedule to our letter.
C-2
<PAGE>
SCHEDULE D
EXCLUDED PROVISIONS
None of the opinions in the letter to which this Schedule is attached
covers or otherwise addresses any of the following types of provisions which may
be contained in the Transaction Documents:
1. Indemnification for negligence, willful misconduct or other wrongdoing
or strict product liability or any indemnification for liabilities
arising under securities laws.
2. Provisions mandating contribution towards judgments or settlements
among various parties.
3. Waivers of (i) legal or equitable defenses, (ii) rights to damages,
(iii ) rights to counter claim or set off, (iv) statutes of
limitations, (v) rights to notice, (vi) the benefits of statutory,
regulatory, or constitutional rights, unless and to the extent the
statute, regulation, or constitution explicitly allows waiver, and
(vii) other benefits to the extent they cannot be waived under
applicable law.
4. Provisions providing for forfeitures or the recovery of amounts deemed
to constitute penalties, or for liquidated damages to the extent
deemed to be penalties, acceleration of future amounts due (other than
principal) without appropriate discount to present value, and, (to the
extent deemed to constitute penalties) late charges, prepayment
charges, and increased interest rates upon default.
5. Time-is-of-the-essence clauses.
6. Provisions which provide a time limitation after which a remedy may
not be enforced.
7. Agreements to submit to the jurisdiction of any particular court or
other governmental authority (either as to personal jurisdiction or
subject matter jurisdiction); waiver of service of process
requirements which would otherwise be applicable; and provisions
otherwise purporting to affect the jurisdiction and venue of courts.
8. Provisions appointing one party as an attorney-in-fact for an adverse
party or providing that the decision of any particular person will be
conclusive or binding on others.
9. Provisions purporting to limit rights of third parties who have not
consented thereto or purporting to grant rights to third parties.
D-1
<PAGE>
10. Provisions which purport to award attorneys' fees solely to one party.
11. Provisions purporting to create a trust or constructive trust without
compliance with applicable trust law.
12. Provisions that provide for the appointment of a receiver.
13. Provisions or agreements regarding proxies, shareholders agreements,
shareholder voting rights, voting trusts, and the like.
14. Provisions in any of the Transaction Documents requiring any Credit
Party to perform its obligations under, or to cause any other person
to perform its obligations under, or stating that any action will be
taken as provided in or in accordance with, any agreement or other
document that is not a Transaction Document.
15. Provisions, if any, which are contrary to the public policy of any
jurisdiction.
D-2
<PAGE>
SCHEDULE E
COLLATERAL DOCUMENTS
1. Holdings Guaranty
2. Holdings Security Agreement
3. Holdings Pledge Agreement
4. Company Pledge Agreement
5. Company Security Agreement
6. Company Patent and Trademark Security Agreement
7. Subsidiary Guaranty
8. Subsidiary Pledge Agreement
9. Subsidiary Security Agreement
10. Subsidiary Patent and Trademark Security Agreement
11. Intercreditor Agreement
12. New York Mortgage
E-1
<PAGE>
SCHEDULE F
RELATED DOCUMENTS
1. Junior Subordinated Seller Notes
2. Senior Subordinated Note Indenture
3. Senior Subordinated Notes
4. Discount Note Indenture
5. Senior Subordinated Discount Notes
F-1
<PAGE>
SCHEDULE G
GOOD STANDING JURISDICTIONS
1. Sealy Corporation
-----------------
Delaware
2. Sealy Mattress Company
----------------------
Ohio
3. A. Brandwein & Co.
------------------
Illinois
Wisconsin
4. Sealy Mattress Company of Albany, Inc.
--------------------------------------
New York
5. Ohio-Sealy Mattress Manufacturing Co.
-------------------------------------
Georgia
6. Ohio-Sealy Mattress Company of Puerto Rico
------------------------------------------
Ohio
7. Ohio-Sealy Mattress Manufacturing Co., Inc.
-------------------------------------------
Massachusetts
8. Sealy Mattress Company of Michigan, Inc.
----------------------------------------
Michigan
9. Sealy Mattress Company of Memphis
---------------------------------
Louisiana
Tennessee
G-1
<PAGE>
10. Ohio-Sealy Mattress Manufacturing Co. -- Houston
------------------------------------------------
Texas
11. The Ohio Mattress Company Licensing and Components Group
--------------------------------------------------------
Colorado
Delaware
Illinois
Indiana
Ohio
Pennsylvania
12. Sealy of Maryland and Virginia, Inc.
------------------------------------
Maryland
13. Sealy of Minnesota, Inc.
------------------------
Minnesota
14. Ohio-Sealy Mattress Manufacturing Co. -- Fort Worth
---------------------------------------------------
Texas
15. Sealy Mattress Company of Kansas City, Inc.
-------------------------------------------
Kansas
Missouri
16. Sealy Mattress Manufacturing Company, Inc.
------------------------------------------
Arizona
California
Colorado
Delaware
Florida
Hawaii
Iowa
New Jersey
North Carolina
Oregon
Pennsylvania
Utah
G-2
<PAGE>
17. Sealy Mattress Company of Illinois
----------------------------------
Illinois
Wisconsin
18. The Stearns & Foster Bedding Company
------------------------------------
Arizona
California
Delaware
Florida
Georgia
Illinois
New Jersey
Ohio
Texas
19. The Stearns & Foster Upholstery Furniture Company
-------------------------------------------------
Mississippi
Ohio
20. Sealy, Inc.
-----------
Ohio
G-3
<PAGE>
SCHEDULE H
FILING OFFICES
Reflected on Attached Chart
H-1
<PAGE>
CALFEE, HALTER & GRISWOLD LLP
Attorneys at Law
-------------------------------------------------
1400 McDonald Investment Center
800 Superior Avenue Cleveland, Ohio 44114-2688
216/622-8200 Fax 216/241-0816
Direct Dial No. 216/622-8446
December 18, 1997
To the Administrative Agent,
the Syndication Agent, the
Documentation Agent and each
of the Lenders party
to the Credit Agreement or the
AXEL Credit Agreement
Ladies and Gentlemen:
We have acted as counsel to Sealy Mattress Company, an Ohio corporation
(the "Borrower"), in connection with the execution and delivery of (i) that
certain Credit Agreement, dated as of December 18, 1997 (the "Credit Agreement")
and (ii) that certain AXEL Credit Agreement dated, as of December 18, 1997 (the
"AXEL Credit Agreement"), each among the Borrower, Sealy Corporation, a Delaware
corporation and shareholder of the Borrower ("Sealy Corp."), Goldman Sachs
Credit Partners, L.P., as arranger and Syndication Agent, Morgan Guaranty Trust
Company of New York, as Administrative Agent, Bankers Trust Company, as
Documentation Agent, and those financial institutions signatory thereto (the
"Lenders"). Except as specified herein to the contrary, all capitalized terms
used in this opinion shall have the meanings given lo them in the Credit
Agreement and the AXEL Credit Agreement.
This opinion is being delivered to you pursuant to and in satisfaction of
subsection 4.1P of the Credit Agreement and subsection 3.1P of the AXEL Credit
Agreement. In connection with this opinion, we have examined originals, or
copies certified or otherwise authenticated to our satisfaction, of the
following documents and records:
(a) the Articles of Incorporation of the Borrower, certified as being true
and correct as of December 17, 1997, by the Secretary of State of Ohio, and
certified as being true and correct as of the date hereof by the Vice
President and General Counsel of the Borrower;
(b) a copy of the Code of Regulations of the Borrower, certified as being
true and correct as of the date hereof by the Vice President and General
Counsel of the Borrower;
<PAGE>
CALFEE, HALTER & GRISWOLD LLP
December 18, 1997
Page 2
(c) a copy of resolutions adopted by the Board of Directors of the Borrower
by written consent on December 18, 1997, authorizing, inter alia, the
----- ----
Borrower's execution and delivery of and performance under each of the Loan
Documents to which the Borrower is a party, certified as being true and
correct as of the date hereof by the Vice President and General Counsel of the
Borrower;
(d) a Certificate from the Secretary of State of the State of Ohio, dated
December 17, 1997, with respect to the status of the Borrower as a corporation
in good standing under the laws of the State of Ohio;
(e) a Certificate executed by the Vice President and General Counsel of the
Borrower, a copy of which Certificate is attached hereto as Exhibit A (the
"General Counsel Certificate");
(f) an executed copy of the Credit Agreement and the AXEL Credit Agreement;
(g) executed copies of the Notes to be issued on the Closing Date;
(h) an executed copy of the Company Pledge Agreement;
(i) an executed copy of the Company Security Agreement;
(j) an executed copy of the Company Patent and Trademark Security
Agreement;
(k) the Closing Date Mortgage executed by Company;
(l) the Intercreditor Agreement;
(m) each of the Uniform Commercial Code financing statements executed by
the Borrower (as itemized on Schedule I hereto) (the "Financing Statements"),
and filed, respectively, in the offices referred to on such Financing
Statements; and
(n) such other documents and records, and such other certifications or
representations as to factual matters of public officials or officers of the
Borrower as we have deemed necessary to appropriate for the purpose of
rendering this opinion.
<PAGE>
CALFEE, HALTER & GRISWOLD LLP
December 18, 1997
Page 3
The documents, instruments, and financing Statements set forth in
subparagraphs (f) through (m) above are collectively referred to as the "Loan
Documents."
In rendering this opinion we have relied upon the above-described certified
copies of the Articles of Incorporation and Code of Regulations, as amended, of
the Borrower and certified copies of the authorizing resolutions of the
Borrower, and factual good standing certificates with respect to the Borrower,
and, with respect to certain legal matters, the General Counsel Certificate. Any
opinion hereinafter set forth with respect to the incorporation, existence,
qualification to do business or good standing of the Borrower, is based solely
thereon and we have not conducted an independent review or investigation of the
matters set forth therein. Insofar as an opinion relates to matters set forth
in the General Counsel Certificate, we have relied, with your consent, solely
upon such General Counsel Certificate with respect to the accuracy of the
factual matters and legal conclusions contained therein and, except as
specifically set forth in the following sentence of this opinion, we have not
independently verified or established the accuracy of such matters. We do note
that the stock records and corporate records of the Borrower are incomplete and
we are unable to verify the accuracy of certain information contained in the
General Counsel Certificate. However, nothing has come to the attention of the
attorneys in this firm who have directly and substantially participated in this
transaction (consisting of Lawrence N. Schultz, Dale C. LaPorte, Thomas A.
Cicarella, Douglas A. Neary, M. Ann Harlan and Tracy W. Smirnoff) providing
clear evidence that the statements in the General Counsel's Certificate are
incorrect with respect to such matters. Except to the extent expressly set
forth herein, we have not undertaken any independent investigation with respect
to such matters, and no inference as to our knowledge should be drawn from the
fact of our legal representation of the Borrower in connection with other
matters.
In rendering our opinions, we have not conducted an investigation into the
specific types of business and activities in which the Borrower engages or the
manner in which it conducts business as would enable us to render an opinion
(and, accordingly, we express no opinion) as to the applicability of any law or
regulation of the United States or the State of Ohio not of general
applicability to business corporations.
On the basis of and in reliance upon the foregoing, and subject to the
assumptions, limitations, qualifications and exceptions set forth below, we are
of the opinion that:
1. The Borrower is a corporation validly existing and in good standing
under the laws of the State of Ohio. Based upon our review of the Articles of
Incorporation and Code of Regulations of the Borrower, the Borrower has the
corporate power to own its property and assets of which we are aware and to
transact the business in which, to our actual knowledge, it is
<PAGE>
CALFEE, HALTER & GRISWOLD LLP
December 18, 1997
Page 4
engaged or presently proposes to engage (as such business is described in the
Offering Circular dated December 11, 1997, relating to the Senior Subordinated
Notes and Discount Notes).
2. The Borrower has the corporate power and authority to execute, deliver
and perform the Loan Documents to which it is a party. The Borrower has duly
executed the Loan Documents.
3. The execution, delivery and performance by the Borrower of those Loan
Documents to which it is a party, and its Consummation of the transactions
provided for therein, have been authorized by all necessary corporate action on
behalf of the Borrower.
4. Neither the execution nor the delivery by the Borrower of the Loan
Documents will conflict with, result in a breach or violation of, or constitute
a default under, any of the terms, conditions or provisions of any present
statute, rule or regulation binding on the Borrower.
In rendering the opinions set forth above, we have assumed, without any
independent investigation but without any knowledge to the contrary, that:
(a) all records and documents that have been submitted to us as
originals are authentic, and all records and documents that have been
submitted to us as copies conform to authentic, original records and
documents;
(b) no action has been taken which amends, revokes or otherwise
terminates or affects any of the documents or records which have reviewed;
(c) the genuineness of all facsimile signatures;
(d) the conformity to original documents of all documents submitted to
us as certified, conformed, facsimile or photostatic copies;
(e) the authenticity of the originals of such copies; and
(f) all persons executing agreements, instruments or documents examined
or relied upon by us had the capacity to sign such agreements, instruments
or documents, and all such signatures are genuine (other than with respect
to the signatures of officers of the Borrower).
We render no opinion as to whether any of the Loan Documents is the valid,
binding and enforceable obligation of the Borrower.
<PAGE>
CALFEE, HALTER & GRISWOLD LLP
December 18, 1997
Page 5
We are admitted to the practice of law in the State of Ohio and the
opinions expressed herein relate solely to the laws of the State of Ohio, and
the federal laws of the United States, and no opinion is expressed with respect
to any applicable law of any other jurisdiction or with respect to any law not
of general applicability to business corporations which would impact the
opinions provided herein.
The information set forth herein is as of the date hereof. We assume no
obligation to advise you of changes that may thereafter be brought to our
attention. Our opinions are based on statutory laws and judicial decisions that
are in effect on the date hereof, and we express no opinion with respect to any
law, regulation, rule or governmental policy that may be enacted or adopted
after the date hereof nor do we assume any responsibility to advise you of
future changes in our opinions.
A copy of this opinion letter may be delivered by any of you to any
Eligible Assignee (as defined in the Credit Agreement or the AXEL Credit
Agreement, as applicable) in connection with and at the time of any assignment
and delegation by any of you as a Lender to such Eligible Assignee of all or a
portion of your Loans and Commitments in accordance with the provisions of the
Credit Agreement or the AXEL Credit Agreement, and such Eligible Assignee may
rely on the opinions expressed above as if this opinion letter were addressed
and delivered to such Eligible Assignee on the date hereof.
This opinion is limited to the matters expressly stated herein. Except as
set forth in the immediately preceding paragraph, the opinions expressed herein
are solely for use by the Administrative Agent and the Lenders in connection
with the Credit Agreement and may not be used, quoted or relied upon by you for
any other purpose, or by any other person or entity for any purpose, without our
prior written consent.
Very truly yours,
/s/ Calfee, Halter & Griswold LLP
CALFEE, HALTER & GRISWOLD LLP
<PAGE>
Schedule I
[Copies of 75 UCC-1 Filings received December 18, 1997--List to be compiled
and supplied post-closing.]
<PAGE>
Exhibit A
CERTIFICATE OF THE VICE PRESIDENT
---------------------------------
AND GENERAL COUNSEL OF SEALY MATTRESS COMPANY
---------------------------------------------
AND SEALY CORPORATION
---------------------
TO: Calfee, Halter & Griswold LLP
I, Kenneth L. Walker, do hereby certify that I am the duly elected and
qualified Vice President and General Counsel of Sealy Mattress Company, an Ohio
corporation (the "Borrower"), and Sealy Corporation, a Delaware corporation
("Sealy Corp."), and that as of the date hereof:
1. Attached hereto as Appendix 1 is a true and correct copy of the
Articles of Incorporation of the Borrower as in effect on the date hereof,
certified as of December 17th, 1997, by the Secretary of State of the State of
----
Ohio.
2. Attached hereto as Appendix 2 is a true and correct copy of the Code of
Regulations, as amended, of the Borrower as in effect on the date hereof.
3. Attached hereto as Appendix 3 is a true and correct copy of resolutions
duly adopted by the Board of Directors of the Borrower by written consent on
December 18th, 1997, which resolutions have not been modified, revoked or
----
rescinded and remain in full force and effect on the date hereof.
4. The officers listed below are duly elected officers of the Borrower,
holding the offices indicated opposite their respective names, duly authorized
by the Directors of the Borrower to execute, deliver and perform the Loan
Documents on behalf of the Borrower and to take all further action and to
execute, deliver and perform all other documents as they deem advisable in
connection with the transactions provided for therein, and the signatures set
forth below are the genuine signatures of such officers:
Offices Officer Signature
- ------- ------- ---------
President and Chief Executive Ronald L. Jones _______________________
Officer
Vice President and Treasurer Ronald H. Stolle /s/ Ronald H. Stolle
-----------------------
5. The individuals listed below are the only directors of the Borrower and
have all been duly elected by Sealy Corp., the sole shareholder of the Borrower:
<PAGE>
December 18, 1997
Page 7
Directors Signature
--------- ---------
Ronald L. Jones _______________________
Kenneth L. Walker /s/ Kenneth L. Walker
-----------------------
Ronald H. Stolle /s/ Ronald H. Stolle
-----------------------
6. Sealy Corp. owns 1,000 shares of common stock, par value one dollar
($1.00) per share (the "Shares"), of the Borrower consisting of all of the
issued and outstanding shares of capital stock of the Borrower. All of the
Shares have been fully paid for by Sealy Corp. The Borrower has not issued or
authorized any outstanding options, warrants or similar rights to subscribe for
or purchase any capital stock of the borrower or outstanding securities
convertible into, exchangeable for, or evidencing the right to subscribe for,
any shares of capital stock or other equity securities of the Borrower.
Please note, however, that the stock records and the corporate records of
the Borrower are incomplete and I am unable to verify the accuracy of certain of
the information including, without limitation, information regarding the
election of directors and the issuance of shares of the Borrower. However,
nothing has come to my attention which leads me to believe the statements set
forth in this certificate are incorrect as to such matters.
All capitalized terms not otherwise defined in this Certificate are used
herein as defined in the opinion of Calfee, Halter & Griswold LLP delivered
pursuant to subsection 4.1P of that certain Credit Agreement, dated as of
December 18, 1997 (the "Credit Agreement") and subsection 3.1P of that certain
AXEL Credit Agreement, dated as of December 18, 1997 (the "AXEL Credit
Agreement"). The undersigned acknowledges and agrees that Calfee, Halter &
Griswold LLP intend to, and may, rely on this Certificate and the matters
contained herein, in rendering opinions in connection with the transactions
contemplated by the Credit Agreement and the AXEL Credit Agreement.
SEALY MATTRESS COMPANY
By:/s/ Kenneth L. Walker
--------------------------
Kenneth L. Walker
Vice President and General Counsel
Effective Date:_____________, 1997
<PAGE>
December 18, 1997
Page 8
SEALY CORPORATION
By:/s/ Kenneth L. Walker
---------------------------
Kenneth L. Walker
Vice President and General Counsel
<PAGE>
EXHIBIT IX
[FORM OF OPINION OF O'MELVENY & MYERS LLP]
[O'M&M Letterhead]
[Date]
1 9 9 7
[file number]
[doc ID]
Goldman Sachs Credit Partners L.P.,
as Arranger and Syndication Agent
Morgan Guaranty Trust Company
of New York,
as Administrative Agent
Bankers Trust Company,
as Documentation Agent
and
The Lenders Party to the Credit
Agreement Referenced Below
Re: Loans to Sealy Mattress Company
-------------------------------
Ladies and Gentlemen:
We have acted as counsel to Goldman Sachs Credit Partners L.P., as
arranger and syndication agent (in such capacity, "Syndication Agent"), and
Morgan Guaranty Trust Company of New York, as administrative agent (in such
capacity, "Administrative Agent"; collectively, Syndication Agent and
Administrative Agent are referred to herein as "Agents"), in connection with
the preparation and delivery of (i) a Credit Agreement dated as of December 18,
1997 (the "Revolver/Tranche A Term Loan Credit Agreement") and (ii) an AXEL
Credit Agreement dated as of December 18, 1997 (the "AXEL Credit Agreement";
together with the
IX-1
<PAGE>
Revolver/Tranche A Term Loan Credit Agreement, the "Credit Agreements"), each
among Sealy Mattress Company, an Ohio corporation ("Company"), Sealy
Corporation, a Delaware corporation ("Holdings"), the financial institutions
listed therein as lenders, Agents and Bankers Trust Company, as documentation
agent, and in connection with the preparation and delivery of certain related
documents.
We have participated in various conferences with representatives of
Company and Agents and conferences and telephone calls with Kirkland & Ellis,
counsel to Company and Holdings, during which the Credit Agreements and related
matters have been discussed, and we have also participated in the meeting held
on the date hereof (the "Closing") incident to the funding of the initial
loans made under the Credit Agreements. We have reviewed the forms of the
Credit Agreements and the respective exhibits thereto, including the forms of
the promissory notes annexed thereto (the "Notes"), and the opinions of
Kirkland & Ellis and Calfee, Halter & Griswold LLP (collectively, the
"Opinions") and the officers' certificates and other documents delivered at
the Closing. We have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals or copies and the due
authority of all persons executing the same, and we have relied as to factual
matters on the documents that we have reviewed.
Although we have not independently considered all of the matters
covered by the Opinions to the extent necessary to enable us to express the
conclusions therein stated, we believe that the Credit Agreements and the
respective exhibits thereto are in substantially acceptable legal form and that
the Opinions and the officers' certificates and other documents delivered in
connection with the execution and delivery of, and as conditions to the making
of the initial loans under, the Credit Agreements and the Notes are
substantially responsive to the respective requirements of the Credit
Agreements.
Respectfully submitted,
IX-2
<PAGE>
EXHIBIT X
[FORM OF ASSIGNMENT AGREEMENT]
ASSIGNMENT AGREEMENT
This ASSIGNMENT AGREEMENT (this "AGREEMENT") is entered into by and
between the parties designated as Assignor ("ASSIGNOR") and Assignee
("ASSIGNEE") above the signatures of such parties on the Schedule of Terms
attached hereto and hereby made an integral part hereof (the "SCHEDULE OF
TERMS") and relates to that certain Credit Agreement described in the Schedule
of Terms (said Credit Agreement, as amended, supplemented or otherwise modified
to the date hereof and as it may hereafter be amended, supplemented or otherwise
modified from time to time, being the "CREDIT AGREEMENT", the terms defined
therein and not otherwise defined herein being used herein as therein defined).
IN CONSIDERATION of the agreements, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
SECTION 1. ASSIGNMENT AND ASSUMPTION.
-------------------------
(a) Effective upon the Settlement Date specified in Item 4 of the Schedule
of Terms (the "SETTLEMENT DATE"), Assignor hereby sells and assigns to
Assignee, without recourse, representation or warranty (except as expressly set
forth herein), and Assignee hereby purchases and assumes from Assignor, that
percentage interest in all of Assignor's rights and obligations as a Lender
arising under the Credit Agreement and the other Loan Documents with respect to
Assignor's Commitments and outstanding Loans, if any, which represents, as of
the Settlement Date, the percentage interest specified in Item 3 of the Schedule
of Terms of all rights and obligations of Lenders arising under the Credit
Agreement and the other Loan Documents with respect to the Commitments and any
outstanding Loans (the "ASSIGNED SHARE"). Without limiting the generality of
the foregoing, the parties hereto hereby expressly acknowledge and agree that
any assignment of all or any portion of Assignor's rights and obligations
relating to Assignor's Revolving Loan Commitment shall include (i) in the event
Assignor is an Issuing Lender with respect to any outstanding Letters of Credit
(any such Letters of Credit being "ASSIGNOR LETTERS OF CREDIT"), the sale to
Assignee of a participation in the Assignor Letters of Credit and any drawings
thereunder as contemplated by subsection 3.1C of the Credit Agreement and (ii)
the sale to Assignee of a ratable portion of any participations previously
purchased by Assignor pursuant to said subsection 3.1C with respect to any
Letters of Credit other than the Assignor Letters of Credit.
X-1
<PAGE>
(b) In consideration of the assignment described above, Assignee hereby
agrees to pay to Assignor, on the Settlement Date, the principal amount of any
outstanding Loans included within the Assigned Share, such payment to be made by
wire transfer of immediately available funds in accordance with the applicable
payment instructions set forth in Item 5 of the Schedule of Terms.
(c) Assignor hereby represents and warrants (i) that Item 3 of the Schedule
of Terms correctly sets forth the amount of the Commitments, the outstanding
Term Loan and the Pro Rata Share corresponding to the Assigned Share and (ii)
that the assignment complies with clause (a) or (b), as applicable, of
subsection 10.1B(i).
(d) Assignor and Assignee hereby agree that, upon giving effect to the
assignment and assumption described above, (i) Assignee shall be a party to the
Credit Agreement and shall have all of the rights and obligations under the Loan
Documents, and shall be deemed to have made all of the covenants and agreements
contained in the Loan Documents, arising out of or otherwise related to the
Assigned Share, and (ii) Assignor shall be absolutely released from any of such
obligations, covenants and agreements assumed or made by Assignee in respect of
the Assigned Share. Assignee hereby acknowledges and agrees that the agreement
set forth in this Section 1(d) is expressly made for the benefit of Company,
Agents, Assignor and the other Lenders and their respective successors and
permitted assigns.
(e) Assignor and Assignee hereby acknowledge and confirm their understanding
and intent that (i) this Agreement shall effect the assignment by Assignor and
the assumption by Assignee of Assignor's rights and obligations with respect to
the Assigned Share, (ii) any other assignments by Assignor of a portion of its
rights and obligations with respect to the Commitments and any outstanding Loans
shall have no effect on the Commitments, the outstanding Term Loan and the Pro
Rata Share corresponding to the Assigned Share as set forth in Item 3 of the
Schedule of Terms or on the interest of Assignee in any outstanding Revolving
Loans corresponding thereto, and (iii) from and after the Settlement Date,
Administrative Agent shall make all payments under the Credit Agreement in
respect of the Assigned Share (including without limitation all payments of
principal and accrued but unpaid interest, commitment fees and letter of credit
fees with respect thereto) (A) in the case of any such interest and fees that
shall have accrued prior to the Settlement Date, to Assignor, and (B) in all
other cases, to Assignee; provided that Assignor and Assignee shall make
--------
payments directly to each other to the extent necessary to effect any
appropriate adjustments in any amounts distributed to Assignor and/or Assignee
by Administrative Agent under the Loan Documents in respect of the Assigned
Share in the event that, for any reason whatsoever, the payment of consideration
contemplated by Section 1(b) occurs on a date other than the Settlement Date.
X-2
<PAGE>
SECTION 2. CERTAIN REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
--------------------------------------------------
(a) Assignor represents and warrants that it is the legal and beneficial
owner of the Assigned Share, free and clear of any adverse claim.
(b) Assignor shall not be responsible to Assignee for the execution,
effectiveness, genuineness, validity, enforceability, collectibility or
sufficiency of any of the Loan Documents or for any representations, warranties,
recitals or statements made therein or made in any written or oral statements or
in any financial or other statements, instruments, reports or certificates or
any other documents furnished or made by Assignor to Assignee or by or on behalf
of Company or any of its Subsidiaries to Assignor or Assignee in connection with
the Loan Documents and the transactions contemplated thereby or for the
financial condition or business affairs of Company or any other Person liable
for the payment of any Obligations, nor shall Assignor be required to ascertain
or inquire as to the performance or observance of any of the terms, conditions,
provisions, covenants or agreements contained in any of the Loan Documents or as
to the use of the proceeds of the Loans or the use of the Letters of Credit or
as to the existence or possible existence of any Event of Default or Potential
Event of Default.
(c) Assignee represents and warrants that it is an Eligible Assignee; that
it has experience and expertise in the making of loans such as the Loans; that
it has acquired the Assigned Share for its own account in the ordinary course of
its business and without a view to distribution of the Loans within the meaning
of the Securities Act or the Exchange Act or other federal securities laws (it
being understood that, subject to the provisions of subsection 10.1 of the
Credit Agreement, the disposition of the Assigned Share or any interests therein
shall at all times remain within its exclusive control); and that it has
received, reviewed and approved a copy of the Credit Agreement (including all
Exhibits and Schedules thereto).
(d) Assignee represents and warrants that it has received from Assignor such
financial information regarding Company and its Subsidiaries as is available to
Assignor and as Assignee has requested, that it has made its own independent
investigation of the financial condition and affairs of Company and its
Subsidiaries in connection with the assignment evidenced by this Agreement, and
that it has made and shall continue to make its own appraisal of the
creditworthiness of Company and its Subsidiaries. Assignor shall have no duty
or responsibility, either initially or on a continuing basis, to make any such
investigation or any such appraisal on behalf of Assignee or to provide Assignee
with any other credit or other information with respect thereto, whether coming
into its possession before the making of the initial Loans or at any time or
times thereafter, and Assignor shall not have any responsibility with respect to
the accuracy of or the completeness of any information provided to Assignee.
X-3
<PAGE>
(e) Each party to this Agreement represents and warrants to the other party
hereto that it has full power and authority to enter into this Agreement and to
perform its obligations hereunder in accordance with the provisions hereof, that
this Agreement has been duly authorized, executed and delivered by such party
and that this Agreement constitutes a legal, valid and binding obligation of
such party, enforceable against such party in accordance with its terms, except
as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors' rights
generally and by general principles of equity.
SECTION 3. MISCELLANEOUS.
-------------
(a) Each of Assignor and Assignee hereby agrees from time to time, upon
request of the other such party hereto, to take such additional actions and to
execute and deliver such additional documents and instruments as such other
party may reasonably request to effect the transactions contemplated by, and to
carry out the intent of, this Agreement.
(b) Neither this Agreement nor any term hereof may be changed, waived,
discharged or terminated, except by an instrument in writing signed by the party
(including, if applicable, any party required to evidence its consent to or
acceptance of this Agreement) against whom enforcement of such change, waiver,
discharge or termination is sought.
(c) Unless otherwise specifically provided herein, any notice or other
communication herein required or permitted to be given shall be in writing and
may be personally served, telexed or sent by telefacsimile or United States mail
or courier service and shall be deemed to have been given when delivered in
person or by courier service, upon receipt of telefacsimile or telex, or three
Business Days after depositing it in the United States mail with postage prepaid
and properly addressed. For the purposes hereof, the notice address of each of
Assignor and Assignee shall be as set forth on the Schedule of Terms or, as to
either such party, such other address as shall be designated by such party in a
written notice delivered to the other such party. In addition, the notice
address of Assignee set forth on the Schedule of Terms shall serve as the
initial notice address of Assignee for purposes of subsection 10.8 of the Credit
Agreement.
(d) In case any provision in or obligation under this Agreement shall be
invalid, illegal or unenforceable in any jurisdiction, the validity, legality
and enforceability of the remaining provisions or obligations, or of such
provision or obligation in any other jurisdiction, shall not in any way be
affected or impaired thereby.
(e) THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING WITHOUT LIMITATION
X-4
<PAGE>
SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT
REGARD TO CONFLICTS OF LAWS PRINCIPLES.
(f) This Agreement shall be binding upon, and shall inure to the benefit of,
the parties hereto and their respective successors and assigns.
(g) This Agreement may be executed in one or more counterparts and by
different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all such counterparts
together shall constitute but one and the same instrument; signature pages may
be detached from multiple separate counterparts and attached to a single
counterpart so that all signature pages are physically attached to the same
document.
(h) This Agreement shall become effective upon the date (the "EFFECTIVE
DATE") upon which all of the following conditions are satisfied: (i) the
execution of a counterpart hereof by each of Assignor and Assignee, (ii) the
execution of a counterpart hereof by Company as evidence of its consent hereto
to the extent required under subsection 10.1B(i) of the Credit Agreement, (iii)
the receipt by Administrative Agent of the processing and recordation fee
referred to in subsection 10.1B(i) of the Credit Agreement, (iv) in the event
Assignee is a Non-US Lender (as defined in subsection 2.7B(iii)(a) of the Credit
Agreement), the delivery by Assignee to Administrative Agent of such forms,
certificates or other evidence with respect to United States federal income tax
withholding matters as Assignee may be required to deliver to Administrative
Agent pursuant to said subsection 2.7B(iii)(a), (v) the execution of a
counterpart hereof by Administrative Agent as evidence of its acceptance hereof
in accordance with subsection 10.1B(ii) of the Credit Agreement, and (vi) the
receipt by Administrative Agent of originals or telefacsimiles of the
counterparts described above and authorization of delivery thereof, and (vii)
the recordation by Administrative Agent in the Register of the pertinent
information regarding the assignment effected hereby in accordance with
subsection 10.1B(ii) of the Credit Agreement.
[Remainder of page intentionally left blank]
X-5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their respective officers thereunto duly
authorized, such execution being made as of the Effective Date in the applicable
spaces provided on the Schedule of Terms.
X-6
<PAGE>
SCHEDULE OF TERMS
31. BORROWER: Sealy Mattress Company, an Ohio corporation
--------
32. NAME AND DATE OF CREDIT AGREEMENT: Credit Agreement dated as of December
---------------------------------
18, 1997 by and among the Borrower, Sealy Corporation, a Delaware
corporation, as guarantor, Goldman Sachs Credit Partners L.P., as arranger
and syndication agent, the financial institutions listed therein, Morgan
Guaranty Trust Company of New York, as administrative agent, and Bankers
Trust Company, as documentation agent.
AMOUNTS:
-------
RE: REVOLVING
RE: TERM LOANS LOAN
-------------- -------
(a) Aggregate Commitments of all
all Lenders: $______ $_____
(b) Assigned Share/Pro Rata Share: ______% _____%
(c) Amount of Assigned Share of
Commitments: $______ $_____
(d) Amount of Assigned Share of
Term Loans: $______
34. SETTLEMENT DATE: ____________, [199_][200_]
---------------
35. PAYMENT INSTRUCTIONS:
--------------------
ASSIGNOR: ASSIGNEE:
See Annex A See Annex B
36. NOTICE ADDRESSES:
----------------
ASSIGNOR: ASSIGNEE:
See Annex A See Annex B
X-7
<PAGE>
37. SIGNATURES:
----------
[NAME OF ASSIGNOR], [NAME OF ASSIGNEE],
as Assignor as Assignee
By: _____________________ By: _______________________
Name: Name:
Title: Title:
Consented to and accepted in accor-
dance with subsections 10.1B(i) and
(ii) of the Credit Agreement
MORGAN GUARANTY TRUST
COMPANY OF NEW YORK,
as Administrative Agent
By: _____________________
Name:
Title:
[Consented to and accepted in accordance with
subsection 10.1B(i) of the Credit Agreement
SEALY MATTRESS COMPANY
By: _____________________________
Name:
Title:]
X-8
<PAGE>
ANNEX A
-------
ASSIGNOR PAYMENT INSTRUCTIONS:
- -----------------------------
_____________________________
_____________________________
_____________________________
Attention:___________________
Reference:___________________
ASSIGNOR NOTICE ADDRESSES:
- -------------------------
_____________________________
_____________________________
_____________________________
Attention:___________________
Reference:___________________
X-9
<PAGE>
ANNEX B
-------
ASSIGNEE PAYMENT INSTRUCTIONS:
- -----------------------------
_____________________________
_____________________________
_____________________________
Attention:___________________
Reference:___________________
ASSIGNEE NOTICE ADDRESSES:
- -------------------------
_____________________________
_____________________________
_____________________________
Attention:___________________
Reference:___________________
X-10
<PAGE>
EXHIBIT XI
[FORM OF CERTIFICATE RE NON-BANK STATUS]
CERTIFICATE RE NON-BANK STATUS
Reference is hereby made to that certain Credit Agreement dated as of
December 18, 1997, as amended, supplemented or otherwise modified to the date
hereof (said Credit Agreement, as so amended, supplemented or otherwise
modified, being the "CREDIT AGREEMENT", the terms defined therein and not
otherwise defined herein being used herein as therein defined), by and among
Sealy Mattress Company, an Ohio corporation, as borrower, Sealy Corporation, a
Delaware corporation, as guarantor, Goldman Sachs Credit Partners L.P., as
arranger and syndication agent, the financial institutions listed therein as
Lenders, Morgan Guaranty Trust Company of New York, as administrative agent, and
Bankers Trust Company, as documentation agent. Pursuant to subsection 2.7B(iii)
of the Credit Agreement, the undersigned hereby certifies that it is not a
"bank" or other Person described in Section 881(c)(3) of the Internal Revenue
Code of 1986, as amended.
DATED: __________________________ [NAME OF LENDER]
By: ____________________________________
Name:
Title:
XI-1
<PAGE>
EXHIBIT XII
[FORM OF FINANCIAL CONDITION CERTIFICATE]
This FINANCIAL CONDITION CERTIFICATE (this "CERTIFICATE") is delivered in
connection with that certain Credit Agreement dated as of December 18, 1997 (the
"CREDIT AGREEMENT"), by and among Sealy Mattress Company, an Ohio corporation
("COMPANY"), Sealy Corporation, a Delaware corporation ("HOLDINGS"), the
financial institutions referred to therein as lenders (the "CREDIT AGREEMENT
LENDERS"), Goldman Sachs Credit Partners L.P. ("GSCP"), as arranger and
syndication agent, Morgan Guaranty Trust Company of New York ("MORGAN
GUARANTY"), as administrative agent (the "CA ADMINISTRATIVE AGENT"), and
Bankers Trust Company ("BTCO"), as documentation agent, and that certain AXEL
Credit Agreement dated as of December 18, 1997 ("AXEL CREDIT AGREEMENT") by
and among Company, Holdings, the financial institutions listed therein as
lenders (the"AXEL LENDERS"), GSCP as arranger and syndication agent, Morgan
Guaranty, as administrative agent (the "AXEL ADMINISTRATIVE AGENT"), and BTCo,
as documentation agent. Capitalized terms used herein without definition have
the same meanings as in the Credit Agreement.
A. I am, and at all pertinent times mentioned herein have been, the duly
qualified and acting vice president, controller and principal accounting officer
of Holdings. I am familiar with the terms and conditions of the Credit
Agreement and the AXEL Credit Agreement.
B. I have carefully reviewed the contents of this Certificate, and I have
conferred with counsel for Holdings for the purpose of discussing the meaning of
its contents.
C. In connection with preparing for the consummation of the transactions
and financings contemplated by the Credit Agreement and the AXEL Credit
Agreement (the "PROPOSED TRANSACTIONS"), I have participated in the
preparation of, and I have reviewed, pro forma projections of net income and
cash flows for Holdings and its Subsidiaries for the fiscal years of Holdings
ending November 30, 1998 through November 30, 2008, inclusive (the "PROJECTED
FINANCIAL STATEMENTS"). The Projected Financial Statements, attached hereto as
Exhibit A, give effect to the consummation of the Proposed Transactions and
- ---------
assume that the debt obligations of Holdings will be paid from the cash flow
generated by the operations of Holdings and its Subsidiaries and other cash
resources. The Projected Financial Statements were prepared on the basis of
information available at August 31, 1997. I know of no facts that have occurred
since such date that would lead me to believe that the Projected Financial
Statements are inaccurate in any material respect. The Projected Financial
Statements do not reflect (i) any potential changes in interest rates from those
assumed in the Projected Financial Statements, (ii) any potential material,
adverse changes in general business conditions, or (iii) any potential changes
in income tax laws.
D. In connection with the preparation of the Projected Financial
Statements, I have made such investigations and inquiries as I have deemed
necessary and prudent therefor and, specifically, have relied on historical
information with respect to revenues, expenses and other relevant items supplied
by the supervisory personnel of Holdings and its Subsidiaries directly
responsible for the various operations involved. The assumptions upon which the
Projected Financial Statements are
<PAGE>
based are stated therein. Although any assumptions and any projections by
necessity involve uncertainties and approximations, I believe, based on my
discussions with other members of management, that the assumptions on which the
Projected Financial Statements are based are reasonable. Based thereon, I
believe that the projections for Holdings and its Subsidiaries, taken as a
whole, reflected in the Projected Financial Statements provide reasonable
estimations of future performance, subject, as stated above, to the
uncertainties and approximations inherent in any projections.
Based on the foregoing, I have, in my capacity as vice president, controller
and principal accounting officer of Holdings, reached the following conclusions:
1. Holdings and its Subsidiaries are not now, nor will the incurrence
of the Obligations under the Credit Agreement and the Obligations (as such
term is defined in the AXEL Credit Agreement) under the AXEL Credit
Agreement, and the incurrence of the other obligations contemplated by the
Proposed Transactions render Holdings and its Subsidiaries "insolvent" as
defined in this paragraph 1. The recipients of this Certificate and I have
agreed that, in this context, "insolvent" means that the present fair
saleable value of assets (on a going concern basis based on the valuation
procedures performed by Valuation Research Corporation in their letter of
even date herewith (the "VRC OPINION")) is less than the amount that will
be required to pay the probable liability on existing debts as they become
absolute and matured. We have also agreed that the term "debts" includes
any legal liability, whether matured or unmatured, liquidated or
unliquidated, absolute, fixed or contingent. My conclusion expressed above
is supported by the VRC Opinion. The assumptions on which the VRC Opinion
is based are stated therein. I believe that the assumptions on which the
VRC Opinion is based are reasonable.
2. By the incurrence of the Obligations under the Credit Agreement,
the Obligations (as such term is defined in the AXEL Credit Agreement) under
the AXEL Credit Agreement, and the incurrence of the other obligations
contemplated by the Proposed Transactions, Holdings and its Subsdiaries will
not incur debts beyond its ability to pay as such debts mature. I have
based my conclusion in part on the Projected Financial Statements, which
demonstrate that Holdings and its Subsidiaries will have positive cash flow
after paying all of its scheduled anticipated indebtedness (including
scheduled payments under the Credit Agreement, the AXEL Credit Agreement,
the other obligations contemplated by the Proposed Transactions and other
permitted indebtedness). I have concluded that the realization of current
assets in the ordinary course of business will be sufficient to pay
recurring current debt and short-term and long-term debt service as such
debts mature, and that the cash flow (including earnings plus non-cash
charges to earnings) will be sufficient to provide cash necessary to repay
the Loans and other Obligations under the Credit Agreement and the Loans (as
such term is defined in the AXEL Credit Agreement) and other Obligations (as
such term is defined in the AXEL Credit Agreement) under the AXEL Credit
Agreement, the other obligations contemplated by the Proposed Transactions
and other long-term indebtedness as such debt matures. The foregoing
conclusion also assumes that Holdings and its Subsidiaries will refinance
their outstanding debt in the year in which the Senior Subordinated Notes
and the Discount Notes mature.
XII-2
<PAGE>
3. As of the Closing Date, the incurrence of the Obligations under the
Credit Agreement, the Obligations (as such term is defined in the AXEL
Credit Agreement) under the AXEL Credit Agreement, and the incurrence of the
other obligations contemplated by the Proposed Transactions will not leave
Holdings and its Subsidiaries with property remaining in their hands
constituting "unreasonably small capital." In reaching this conclusion, I
understand that "unreasonably small capital" depends upon the nature of
the particular business or businesses conducted or to be conducted, and I
have reached my conclusion based on the needs and anticipated needs for
capital of the businesses conducted or anticipated to be conducted by
Holdings and its Subsidiaries in light of the Projected Financial Statements
and available credit capacity.
4. To the best of my knowledge, Holdings and its Subsidiaries have not
executed the Credit Agreement, the AXEL Credit Agreement, or any documents
mentioned therein, or made any transfer or incurred any obligations
thereunder, with actual intent to hinder, delay or defraud either present or
future creditors.
I understand that Administrative Agent, AXEL Administrative Agent, Credit
Agreement Lenders, and AXEL Lenders are relying on the truth and accuracy of the
foregoing in connection with the extension of credit to Company pursuant to the
Credit Agreement and the AXEL Credit Agreement.
On behalf of Holdings, in my capacity as vice president, controller and
principal accounting officer, I represent the foregoing information to be, to
the best of my knowledge and belief, true and correct and execute this
Certificate this ___ day of December, 1997.
SEALY CORPORATION
By: ____________________________
Name:
Vice President, Controller and
Principal Accounting Officer
XII-3
<PAGE>
EXHIBIT XIII
[FORM OF] INTERCREDITOR AGREEMENT
This Intercreditor Agreement is dated as of December 18, 1997, and
entered into by and among Morgan Guaranty Trust Company of New York, as
administrative agent (in such capacity, the "Revolving Facility Agent") for the
lenders and the issuer of letters of credit under the Revolving Credit Agreement
referred to below, Morgan Guaranty Trust Company of New York, as administrative
agent (in such capacity, the "AXEL Facility Agent") for the lenders under the
AXEL Credit Agreement referred to below, and Morgan Guaranty Trust Company of
New York, as collateral agent (in such capacity, together with its successors in
such capacity, the "Collateral Agent") under each of the Security Documents, the
Subsidiary Guaranty and the Holdings Guaranty dated of even date herewith
referred to below.
RECITALS
WHEREAS, Sealy Mattress Company (the "Company"), as the borrower, the
several lenders from time to time parties thereto (the "Revolving Facility
Lenders"), Goldman Sachs Credit Partners L.P. ("GSCP"), as arranger and
syndication agent, and the Revolving Facility Agent have entered into a Credit
Agreement dated as of December 18, 1997 (said agreement, as it may hereafter be
amended, supplemented or otherwise modified from time to time, being the
"Revolving Credit Agreement"; the terms defined therein and not otherwise
defined herein being used herein as therein defined);
WHEREAS, the Company, the various financial institutions parties
thereto (the "AXEL Facility Lenders"), GSCP, as arranger and syndication agent,
and the AXEL Facility Agent have entered into an AXEL Credit Agreement dated as
of December 18, 1997 (said agreement, as it may hereafter be amended,
supplemented or otherwise modified from time to time, being the "AXEL Credit
Agreement");
WHEREAS, the Company may from time to time enter into one or more
Interest Rate Agreements (collectively, the "Lender Interest Rate Agreements")
with one or more Lenders (in such capacity, collectively, "Interest Rate
Exchangers") in accordance with the terms of the Financing Agreements (as
hereinafter defined);
WHEREAS, the terms of the Revolving Credit Agreement and the AXEL
Credit Agreement require that the Company execute and deliver to the Collateral
Agent the Company Security Agreement, the Company Pledge Agreement and the
Company Patent and Trademark
XIII-1
<PAGE>
Security Agreement securing the Company's obligations to the Revolving Facility
Lenders, the AXEL Facility Lenders, the Revolving Facility Agent and the AXEL
Facility Agent as provided therein;
WHEREAS, the terms of the Revolving Credit Agreement and the AXEL
Credit Agreement also require that all of the Domestic Subsidiaries of the
Company execute and deliver to the Collateral Agent a guaranty (the "Subsidiary
Guaranty") guaranteeing the Company's obligations to the Revolving Facility
Lenders (including the obligations of the Company to the Issuing Lender in
respect of any Letters of Credit), the AXEL Facility Lenders, the Revolving
Facility Agent and the AXEL Facility Agent as provided therein (such Domestic
Subsidiaries and any future Domestic Subsidiaries executing the Subsidiary
Guaranty being referred to herein as the "Subsidiary Guarantors"; the Subsidiary
Guarantors and Holdings collectively being referred to herein as the
"Guarantors"), and that all Domestic Subsidiaries of the Company execute and
deliver to the Collateral Agent the Subsidiary Pledge Agreement, the Subsidiary
Security Agreement and the Subsidiary Patent and Trademark Security Agreement
securing the obligations of such Subsidiaries under the Subsidiary Guaranty;
WHEREAS, the terms of the Revolving Credit Agreement and the AXEL
Credit Agreement also require that Holdings execute and deliver to the
Collateral Agent a guaranty (the "Holdings Guaranty"; together with the
Subsidiary Guaranty, the "Guaranties") guaranteeing the Company's obligations to
the Revolving Facility Lenders (including the obligations of the Company to the
Issuing Lender in respect of any Letters of Credit), the AXEL Facility Lenders,
the Revolving Facility Agent and the AXEL Facility Agent as provided therein,
and that Holdings execute and deliver to the Collateral Agent the Holdings
Pledge Agreement and the Holdings Security Agreement securing the obligations of
Holdings under the Holdings Guaranty (the Holdings Pledge Agreement, the
Holdings Security Agreement, together with the Subsidiary Pledge Agreement, the
Subsidiary Security Agreement, the Subsidiary Patent and Trademark Security
Agreement, the Company Security Agreement, the Company Pledge Agreement and the
Company Patent and Trademark Security Agreement and any other security
agreements, mortgages and deeds of trust entered into by any Loan Party (as
hereinafter defined) for the benefit of any Secured Parties and any other
security agreements, mortgages and deeds of trust entered into by any Loan Party
(as hereinafter defined) for the benefit of any Secured Parties (hereinafter
defined), being collectively referred to herein as the "Security Documents");
WHEREAS, the Revolving Facility Agent, the AXEL Facility Agent and the
Collateral Agent (such parties collectively referred to as the "Parties") desire
to set forth certain provisions regarding the appointment, duties and
responsibilities of the Collateral Agent and to set forth certain other
provisions concerning the obligations of the Company, Holdings and the
Subsidiaries of Holdings executing the Guaranties and the Security Documents
(collectively, the "Loan Parties") to the Parties, the Revolving Facility
Lenders, the AXEL Facility Lenders and any Interest Rate Exchangers
(collectively, together with the Parties, the "Secured Parties") under the
agreements referred to in the foregoing recitals; and
XIII-2
<PAGE>
WHEREAS, the Parties wish to set forth their agreement as to the
decisions relating to the exercise of remedies under the Security
Documents, the Guaranties and certain limitations on the exercise of such
remedies.
NOW, THEREFORE, the Parties and, by their acceptance of the benefits
hereof and of the Guaranties and the Security Documents, the Interest Rate
Exchangers agree as follows:
Appointment As Collateral Agent. The Revolving Facility Agent on behalf
-------------------------------
of the Revolving Facility Lenders, the AXEL Facility Agent on behalf of the AXEL
Facility Lenders, and the Interest Rate Exchangers hereby severally appoint
Morgan Guaranty Trust Company of New York to serve as the Collateral Agent and
representative of the Secured Parties, and each such Party and Interest Rate
Exchanger authorizes the Collateral Agent to act as agent for the Secured
Parties (a) for the purposes of executing and delivering on its behalf the
Security Documents to be executed and delivered by the Loan Parties and, subject
to the provisions of this Agreement, enforcing the Secured Parties' rights in
respect of the Collateral and the obligations of the Loan Parties under the
Security Documents, and (b) for the purpose of enforcing the Secured Parties'
rights under the Guaranties and the obligations of the Guarantors under the
Guaranties. The Collateral Agent hereby accepts such appointment and agrees to
act as Collateral Agent hereunder and to enter into and act as Collateral Agent
under each of the Security Documents and the Guaranties in accordance with the
terms thereof and of this Agreement.
Decisions Relating to Exercise of Remedies Vested in Requisite Obligees.
-----------------------------------------------------------------------
The Collateral Agent agrees to make such demands, to give such notices
and to take such other actions under this Agreement, the Guaranties and the
Security Documents as are expressly required under the terms hereof and thereof
or as Requisite Obligees may request, and to take such action to enforce the
Guaranties and the Security Documents and to foreclose upon, collect and dispose
of the Collateral or any portion thereof as may be expressly required under the
terms of this Agreement, the Guaranties or the Security Documents or as
Collateral Agent may be directed by Requisite Obligees. The Collateral Agent
shall not be required to take any action that is in its opinion contrary to law
or to the terms of this Agreement, any or all of the Security Documents or the
Guaranties or that would in its opinion subject it or any of its officers,
employees, agents or directors to liability, and the Collateral Agent shall not
be required to take any action under this Agreement, any or all of the Security
Documents or the Guaranties unless and until the Collateral Agent shall be
indemnified to its satisfaction by the Secured Parties against any and all loss,
cost, expense or liability in connection therewith.
Each Party executing this Agreement agrees that the Collateral Agent
may act as Requisite Obligees may request (regardless of whether any individual
Party or any other Secured Party agrees, disagrees or abstains with respect to
such request), that the Collateral Agent shall have no liability for acting in
accordance with such request and that no Party or Secured Party shall have any
liability to any other Party or Secured Party for any such request. The
Collateral
XIII-3
<PAGE>
Agent shall give prompt notice to all Parties of actions taken pursuant to the
instructions of Requisite Obligees; provided, however, that the failure to give
-------- -------
any such notice shall not impair the right of the Collateral Agent to take any
such action or the validity or enforceability under this Agreement of the action
so taken.
The Collateral Agent may at any time request directions from
the Requisite Obligees as to any course of action or other matters relating
hereto or to the Security Documents or the Guaranties. Directions given by
Requisite Obligees to the Collateral Agent shall be binding on the Parties, the
Revolving Facility Lenders, the AXEL Facility Lenders and all Secured Parties
for all purposes.
Each Party, on behalf of the Secured Parties, and each Interest Rate
Exchanger, agrees not to take any action whatsoever to enforce any term or
provision of the Security Documents or the Guaranties or to enforce any of its
rights in respect of the Collateral, except through the Collateral Agent in
accordance with this Agreement.
Application of Proceeds of Security, Guaranty Payments, Etc.
-----------------------------------------------------------
The Collateral Agent shall establish and maintain two accounts into
which it shall deposit (i) all amounts received by it in its capacity as the
Collateral Agent in respect of any Security Document or the Guaranties
(including all monies received on account of any sale of or other realization
upon any of the Collateral pursuant to any Security Document or pursuant to
Section 5(b) hereof and all monies received by it on account of the enforcement
of the Guaranties), and (ii) all amounts received by it as a result of payments
described in Section 5(c). One of the two accounts referred to in the preceding
sentence shall be established and maintained for the benefit of all Secured
Parties (other than with respect to L/C Obligations) (the "General Collateral
Account") and the second such account shall be established and maintained solely
for the benefit of the Issuing Lender (the "L/C Collateral Account", and
together with the General Collateral Account, the "Collateral Accounts"). The
Collateral Agent shall have exclusive dominion and control over the Collateral
Accounts.
All amounts which the Collateral Agent is required at any time to
deposit in the respective Collateral Accounts pursuant to Section 3(a) shall be
allocated between, and deposited in, such General Collateral Account and such
L/C Collateral Account, respectively, pro rata in accordance with (i) the
aggregate amount of such Secured Obligations (other than L/C Obligations) then
outstanding and (ii) the aggregate amount of the L/C Obligations then
outstanding. If any amounts are delivered to the Collateral Agent as cash
collateral for the Letters of Credit pursuant to Section 8 of the Revolving
Credit Agreement or as collateral for the liability of the Issuing Lender under
outstanding Letters of Credit, they shall be deposited in the L/C Collateral
Account. If after giving effect to such deposit or at any other time the balance
in the L/C Collateral Account exceeds all L/C Obligations then outstanding, the
excess shall be transferred to the General Collateral Account. After giving
effect to any such deposit to the L/C
XIII-4
<PAGE>
Collateral Account, subsequent allocations pursuant to the first sentence of
this Section 3(b) shall be adjusted to the extent necessary to cause the ratio
of the aggregate amount of the Secured Obligations (other than L/C Obligations)
then outstanding to the balance in the General Collateral Account to be equal to
the ratio of the aggregate amount of the L/C Obligations then outstanding to the
balance in the L/C Collateral Account. Prior to the delivery of a Notice of
Acceleration any amounts deposited in the Collateral Accounts may be disbursed
from the Collateral Accounts only upon the prior written consent of the
Requisite Obligees. After the occurrence of a Notice of Acceleration and until
such Notice is rescinded, the Collateral Agent shall disburse funds from the
Collateral Accounts only as provided in this Section 3.
When a Notice of Acceleration is in effect, all amounts deposited in
the General Collateral Account shall be applied in the following order of
priority:
First, to the extent not theretofore paid by or on behalf of
-----
any Loan Party, to pay all fees, costs, expenses of the Collateral
Agent incurred in connection with the performance of its duties
hereunder or under the Security Documents or the Guaranties, as the
case may be, including reasonable attorneys' fees and expenses and all
Collateral Agent Obligations and any other amounts payable to the
Collateral Agent hereunder or under any of the Security Documents or
the Guaranties in respect of any indemnities or other obligations of
the Loan Parties with such application made pro rata from the General
Collateral Account and the L/C Collateral Account based on the amounts
on deposit therein;
Second, to the other Secured Parties pro rata in accordance
------ --- ----
with the aggregate amount of all Secured Obligations (other than L/C
Obligations) held by such Secured Parties;
Third, if any L/C Obligations shall remain unpaid, to the L/C
-----
Collateral Account to the extent the aggregate amount in such L/C
Collateral Account does not exceed the aggregate amount of such L/C
Obligations; and
Fourth, the balance, if any, to the Company or such other
------
person or persons as are entitled thereto.
When a Notice of Acceleration is in effect, all amounts
deposited in the L/C Collateral Account shall be applied in the following order
of priority (provided that an amount not to exceed all L/C Obligations which are
not then L/C Current Obligations shall not be so applied, and shall instead be
held by Collateral Agent in the L/C Collateral Account as collateral for such
L/C Obligations, until they become L/C Current Obligations):
First, to the extent not theretofore paid by or on behalf of
-----
any Loan Party, to pay all fees, costs, expenses of the Collateral
Agent incurred in connection with the
XIII-5
<PAGE>
performance of its duties hereunder or under the Security Documents or
the Guaranties, as the case may be, including reasonable attorneys'
fees and expenses and all Collateral Agent Obligations and any other
amounts payable to the Collateral Agent hereunder or under any of the
Security Documents or the Guaranties in respect of any indemnities or
other obligations of the Loan Parties with such application made pro
rata from the General Collateral Account and the L/C Collateral Account
based on the amounts on deposit therein;
Second, to the holders of any L/C Current Obligations pro rata
------
in accordance with the aggregate amount of all L/C Current Obligations)
held by them,
Third, if any Secured Obligations (other than L/C Obligations)
-----
shall remain unpaid, to the General Collateral Account to the extent
the aggregate amount in the General Collateral Account does not exceed
the aggregate amount of such Secured Obligations; and
Fourth, the balance, if any, to the Company or such other
------
person or persons as are entitled thereto.
Unless the Collateral Agent shall have received instructions from the
Requisite Obligees as to the times at which any amounts are to be distributed
pursuant to Sections 3(c) or 3(d), all distributions or transfers pursuant to
Sections 3(c) or 3(d) shall be made at such times and as promptly as the
Collateral Agent shall in its good faith discretion determine to be reasonable
and practicable under the circumstances, given the amount available for
distribution or transfer in the relevant Collateral Account, the time at which
the next addition to such Collateral Account is expected to be made, and the
cost of distributing funds to the Secured Parties entitled to receive the same.
The Collateral Agent shall at all times have the right to request distribution
instructions as contemplated by the preceding sentence.
Pending the disbursement thereof pursuant to the terms of this
Agreement, all amounts in the Collateral Accounts shall be invested by the
Collateral Agent in such Cash Equivalents as it shall determine from time to
time or such other investments as shall be approved by Requisite Obligees;
provided that so long as no Event of Default shall have occurred and be
- --------
continuing, the Collateral Agent shall make such other investments at the
direction of the Company. All reasonable commissions and other reasonable costs
and expenses incurred by the Collateral Agent in connection with the acquisition
or disposition by it of Cash Equivalents or such other investments may be
deducted by the Collateral Agent from the income received by the Collateral
Agent with respect thereto.
Payments by the Collateral Agent in respect of the Revolving Credit
Agreement Obligations (other than L/C Obligations) shall be made to the
Revolving Facility Agent for
XIII-6
<PAGE>
distribution to the Revolving Facility Lenders in accordance with the terms of
the Revolving Credit Agreement; payments with respect to the L/C Obligations
shall be made to the Revolving Facility Agent for distribution to the Issuing
Lender in accordance with the terms of the Revolving Credit Agreement; payments
by the Collateral Agent in respect of the AXEL Credit Agreement Obligations
shall be made to the AXEL Facility Agent for distribution to the AXEL
FacilityLenders in accordance with the terms of the AXEL Credit Agreement; and
payments by the Collateral Agent in respect of the Lender Interest Rate
Agreement Obligations shall be distributed to the Interest Rate Exchangers pro
---
rata in accordance with the aggregate amount of Lender Interest Rate Agreement
- ----
Obligations held by such Interest Rate Exchanger.
Information.
-----------
Upon the request of the Collateral Agent, each Party and Interest Rate
Exchanger agrees to promptly inform the Collateral Agent of the existence and
amount of the Secured Obligations owing to such Party or such Interest Rate
Exchanger and such other Secured Parties for whom such Party is acting as agent,
trustee or other representative and of any commitments to extend additional
credit which will constitute Secured Obligations by such Party or other Secured
Parties. Upon request of the Collateral Agent, each Party (other than the
Collateral Agent) and each Interest Rate Exchanger will inform the Collateral
Agent of such payments on the Secured Obligations as may be received from time
to time by such Party and such other Secured Parties for whom such Party is
acting as agent, trustee or other representative.
If, notwithstanding the request of the Collateral Agent, any Party or
Interest Rate Exchanger shall fail or refuse reasonably promptly to certify as
to the existence or amount of any Secured Obligation or such other information
concerning the Secured Obligations as the Collateral Agent may reasonably
request, the Collateral Agent shall be entitled to determine such existence or
amount of such Secured Obligations by such method as the Collateral Agent may,
in its sole discretion, determine in good faith, including by reliance upon a
certificate of an officer of the Company. The Collateral Agent may rely
conclusively, and shall be fully protected in so relying, on any determination
made by it in good faith in accordance with the provisions of this Section (or
as otherwise directed by a court of competent jurisdiction after notice and
hearing on the merits) and, in the absence of gross negligence, shall have no
liability to Company, any Subsidiary, any holder of any Secured Obligation or
any other person as a result of such determination.
If the Collateral Agent receives any Notice of Acceleration or
certificate rescinding a Notice of Acceleration or any request by the Company
for any consent, waiver or amendment with respect hereto or any Security
Document or the Guaranties, it shall give prompt notice thereof to each Party at
the address for such Party provided for in Section 8 hereof.
A Notice of Acceleration shall be deemed to have been given only when
the Notice of Acceleration has actually been received by the Collateral Agent
and to have been rescinded
XIII-7
<PAGE>
when the Collateral Agent has actually received from the creditor or creditor
group which gave such Notice of Acceleration a notice withdrawing such Notice of
Acceleration. A Notice of Acceleration shall be deemed to be outstanding at all
times after such Notice of Acceleration has been given until such time, if any,
as such Notice of Acceleration has been rescinded.
The Collateral Agent shall keep executed counterparts of this
Agreement, the Security Documents and the Guaranties at the Collateral Agent's
address as set forth under Collateral Agent's signature on the signature page to
this Agreement and shall permit any Secured Party to inspect this Agreement, the
Security Documents and the Guaranties upon request and to take copies thereof.
Intercreditor Arrangements.
--------------------------
Each of the Collateral Agent, each of the other Parties (on behalf of
the respective Secured Parties) and each Interest Rate Exchanger hereby agrees,
and each of the Loan Parties hereby acknowledges, that the liens and security
interests granted to the Collateral Agent under the Security Documents shall be
treated as having equal priority and shall at all times be shared by the Secured
Parties as provided herein.
If any Secured Party acquires custody, control or possession of any
Collateral or proceeds therefrom, or payments with respect to the Guaranties,
other than by distribution from the Collateral Agent pursuant to the terms of
this Agreement, such Secured Party shall promptly cause such Collateral,
proceeds or payments to be delivered to or put in the custody, possession or
control of the Collateral Agent for disposition or distribution in accordance
with the provisions of Section 3. Until such time as the provisions of the
immediately preceding sentence have been complied with, such Secured Party shall
be deemed to hold all such Collateral, proceeds and payments in trust for the
parties entitled thereto hereunder. Nothing in this Section shall prevent a
Secured Party from receiving and retaining payments (a) for the provision of
services to any Loan Party, or (b) in connection with any extension of credit or
other financial accommodation to any Loan Party if the obligations of such Loan
Party incurred in connection with such extension of credit or other financial
accommodation do not constitute Secured Obligations, or (c) as security for any
such extension of credit or other financial accommodation if the obligations of
such Loan Party incurred in connection with such services, extension of credit
or other financial accommodation do not constitute Secured Obligations, and if
such obligations are not incurred and such security is not given in breach of
the Financing Agreements (as defined in Section 6).
If (a) at any time after the occurrence of an Acceleration and for so
long as such Acceleration is continuing, any Secured Party shall receive payment
(voluntary or involuntary) on account of any Secured Obligation (i) from or on
behalf of the Company or any Subsidiary or any guarantor of payment or
performance of any of the Secured Obligations, or (ii) pursuant to any turnover
or similar provision contained in any agreement evidencing or relating to
XIII-8
<PAGE>
subordinated indebtedness of the Company or any Loan Party or other obligor, or
(b) at any time any Secured Party shall receive payment (voluntary or
involuntary) on account of any Secured Obligation by way of the exercise of any
right of setoff (or similar right) with respect to any assets (whether or not
such assets shall constitute Collateral) of any Loan Party or as a result of any
counterclaim, purchase of any participation by any Loan Party or otherwise, then
such payment, prepayment or repayment (herein, a "Secured Obligation Payment")
shall be deemed to be the proceeds of Collateral and shall be delivered to or
put in the custody, possession or control of the Collateral Agent by the Secured
Party receiving such Secured Obligation Payment for disposition or distribution
by the Collateral Agent in accordance with Section 3.
Any Secured Party receiving a Secured Obligation Payment that is
required pursuant to this Section to be turned over to the Collateral Agent for
application under Section 3 is deemed to have received such Secured Obligation
Payment solely as agent for the Secured Parties and the Collateral Agent, and
will immediately turn such Secured Obligation Payment, in the form received
except for the endorsement of such receiving party where appropriate, over to
the Collateral Agent, and until so turned over, will hold such Secured
Obligation Payment in trust for the Secured Parties and the Collateral Agent.
Each Party shall execute and deliver such other documents and
instruments, in form and substance reasonably satisfactory to the other Parties,
and shall take such other action, in each case as any other Party may reasonably
have requested (at the cost and expense of the Company which, by countersigning
this Agreement, agrees to pay such reasonable costs and expenses), to effectuate
and carry out the provisions of this Agreement, including by recording or filing
in such places as the requesting party may deem desirable, this Agreement or
such other documents or instruments.
In no event will the Revolving Facility Lenders or the AXEL
Facility Lenders consent to any amendment of the provisions of the Revolving
Credit Agreement or the AXEL Credit Agreement, respectively, or to any payment
consistent with an amendment thereof or a change thereto, or enter into any
other agreement with the Company or any of its Subsidiaries that would have the
effect of (i) changing (to earlier dates) any dates upon which payments of
principal or interest are due on loans or letter of credit reimbursement
obligations, (ii) reducing the percentage specified in the definition of
"Requisite Lenders" in the Revolving Credit Agreement or the AXEL Credit
Agreement, or (iii) changing any mandatory prepayments or commitment reductions
of the Revolving Credit Agreement or the AXEL Credit Agreement in a manner that
disproportionately disadvantages one Class relative to the other Class, or
confers additional rights on one Class which would be adverse to the other
Class, in each case without the prior written consent of Requisite Obligees.
Each Secured Party agrees that to the extent either Credit Agreement is amended
in accordance with the terms of this Agreement and the Credit Agreements to
increase the commitments and/or Secured Obligations outstanding thereunder, such
Secured Obligations shall be entitled to share in the benefits of the Guaranties
and the Security Documents on a pro rata basis.
XIII-9
<PAGE>
The Revolving Facility Agent agrees to deliver to the AXEL Facility
Agent upon execution thereof any amendment, waiver or modification of the
Revolving Credit Agreement, and the AXEL Facility Agent agrees to deliver to the
Revolving Facility Agent any amendment, waiver or modification of the AXEL
Credit Agreement.
Subject to clause (h) below, without further written consent or
authorization from Secured Parties, Collateral Agent may execute any documents
or instruments necessary to (a) release any Lien encumbering any item of
Collateral that is the subject of a sale or other disposition of assets
permitted by the Revolving Credit Agreement and the AXEL Credit Agreement, or to
which Requisite Obligees have otherwise consented, or (b) release any Subsidiary
Guarantor from the Subsidiary Guaranty if all the capital stock of such
Subsidiary Guarantor is sold to any Person pursuant to a sale or other
disposition permitted hereunder or to which Requisite Obligees have otherwise
consented; provided, however, that nothing herein shall require or permit
-------- -------
Collateral Agent to release any such entity which prior to such sale is a
Subsidiary Guarantor from the Subsidiary Guaranty if any of the Financing
Agreements require that such entity be party to the Subsidiary Guaranty after
such sale. Such termination and release shall be without prejudice to the rights
of the Collateral Agent to charge and be reimbursed for any expenditure which it
may incur in connection therewith. The proceeds of any disposition of Collateral
released in accordance with this Section are not required to be delivered to the
Collateral Agent or deposited in the Collateral Accounts pursuant to Section 3.
Any release of the Collateral by the Collateral Agent from the Liens
created by the Security Documents (other than in connection with the exercise of
remedies with respect to such Collateral under a Security Document pursuant to
instructions from Requisite Obligees) that is not permitted pursuant to the
Revolving Credit Agreement and the AXEL Credit Agreement, or any release of a
New Subsidiary by the Collateral Agent from the Subsidiary Guaranty that is not
permitted pursuant to the Revolving Credit Agreement and the AXEL Credit
Agreement, shall require the prior written consent of the Requisite Obligees
(except for the release of all or substantially all of the Collateral, in which
case the prior written consent of all of the Revolving Facility Lenders and all
of the AXEL Facility Lenders are required; it being understood that an increase
in the amount of any Indebtedness of the Company secured ratably by the
Collateral shall not be deemed to be a release of the Collateral).
Each of the Parties on its own behalf and on behalf of other Secured
Parties, and each of the Interest Rate Exchangers, hereby covenants and agrees
that it (a) will not accept any guarantee of any of the Secured Obligations by
any Subsidiary or Affiliate of the Company unless such Subsidiary or Affiliate
guarantees the payment of all the Secured Obligations and (b) will not take any
security interest in or lien on any assets of the Company or any of its
Subsidiaries to secure the payment or performance of any of the Secured
Obligations unless all the Secured Parties are granted a pari passu security
interest in or lien on such assets and the instrument creating such lien becomes
a Security Document for all purposes of this Agreement.
XIII-10
<PAGE>
No Secured Party may require the Collateral Agent to take or refrain
from taking any action hereunder or under any of the Security Documents or with
respect to any of the Collateral except as and to the extent expressly set forth
in this Agreement.
Disclaimers, Indemnity, Etc.
---------------------------
The Collateral Agent shall have no duties or responsibilities to the
Secured Parties except those expressly set forth in this Agreement, the Security
Documents and the Guaranties and the Collateral Agent shall not by reason of
this Agreement, the Security Documents or the Guaranties be a trustee for any
Secured Party or have any other fiduciary obligation to any Secured Party
(including any obligation under the Trust Indenture Act of 1939, as amended).
The Collateral Agent shall not be responsible to any Secured Party for any
recitals, statements, representations or warranties contained in this Agreement,
the Revolving Credit Agreement, the AXEL Credit Agreement and the Loan Documents
(as defined in each of the Revolving Credit Agreement and the AXEL Credit
Agreement; collectively, the "Financing Agreements") or in any certificate or
other document referred to or provided for in, or received by any of them under,
any of the Financing Agreements, or for the value, validity, effectiveness,
genuineness, enforceability or sufficiency of any of the Financing Agreements or
any other document referred to or provided for therein or any Lien under the
Security Documents or the perfection or priority of any such Lien or the value
or condition of the Collateral or the title of the Loan Parties to the
Collateral or for any failure by any Loan Party to perform any of its
obligations under any of the Financing Agreements. The Collateral Agent may
employ agents and attorneys-in-fact and shall not be responsible for the
negligence or misconduct of any such agents or attorneys-in-fact selected by it
with reasonable care. Neither the Collateral Agent nor any of its directors,
officers, employees or agents shall be liable or responsible for any action
taken or omitted to be taken by it or them hereunder or in connection herewith,
except for its or their own gross negligence or willful misconduct.
The Collateral Agent shall be entitled to rely upon any certification,
notice or other communication (including any thereof by telex, telecopy,
telegram or cable) believed by it to be genuine and correct and to have been
signed or sent by or on behalf of the proper Person or Persons, and upon advice
and statements of legal counsel (including counsel to the Company or any
Subsidiary of the Company), independent accountants and other experts selected
by the Collateral Agent. The Collateral Agent shall not be deemed to have
actual, constructive, direct or indirect notice or knowledge of the occurrence
of any Acceleration unless and until the Collateral Agent shall have received a
Notice of Acceleration. The Collateral Agent shall have no obligation whatsoever
either prior to or after receiving a Notice of Acceleration to inquire whether
an Acceleration has, in fact, occurred and shall be entitled to rely
conclusively, and shall be fully protected in so relying, on any Notice of
Acceleration certificate so furnished to it. As to any matters not expressly
provided for by this Agreement, the Collateral Agent shall in all cases be fully
protected in acting, or in refraining from acting, hereunder in accordance with
XIII-11
<PAGE>
instructions signed by Requisite Obligees, and such instructions of Requisite
Obligees, and any action taken or failure to act pursuant thereto, shall be
binding on all of the Secured Parties.
The Revolving Facility Lenders and the AXEL Facility Lenders
(collectively, the "Paying Indemnifying Parties") agree that such Secured
Parties shall indemnify the Collateral Agent, its Affiliates and their
respective directors, officers, employees and agents in its capacity as
Collateral Agent, ratably in accordance with the amount of the Secured
Obligations held by such Secured Parties to the extent neither reimbursed by any
Loan Party nor reimbursed out of any proceeds, recoveries or payments under any
Security Documents or the Guaranties, for any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind and nature whatsoever that may be imposed on, incurred
by or asserted against the Collateral Agent in any way relating to or arising
out of any of the Financing Agreements or any other document contemplated by or
referred to therein or the transactions contemplated thereby or the enforcement
of any of the terms of any thereof; provided, however, that no such Secured
Party shall be liable for any of the foregoing to the extent they arise from the
gross negligence or willful misconduct of the Collateral Agent.
The Collateral Agent shall, notwithstanding anything to the contrary in
Section 6(c) hereof, in all cases be fully justified in failing or refusing to
act hereunder unless it shall be further indemnified to its satisfaction by the
Parties against any and all liability and expense that may be incurred by it by
reason of taking or continuing to take any such action.
The Collateral Agent may deem and treat the payee of any promissory
note or other evidence of indebtedness relating to the Secured Obligations as
the owner thereof for all purposes hereof unless and until a written notice of
the assignment or transfer thereof, signed by such payee and in form
satisfactory to the Collateral Agent, shall have been filed with the Collateral
Agent. 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 such note
or other evidence of indebtedness shall be conclusive and binding on any
subsequent holder, transferee or assignee of such note or other evidence of
indebtedness and of any note or notes or other evidences of indebtedness issued
in exchange therefor.
Except as expressly provided herein, in the Security Documents or in
the Guaranties, the Collateral Agent shall have no duty to take any affirmative
steps with respect to the collection of amounts payable in respect of the
Collateral or under the Guaranties. The Collateral Agent shall incur no
liability (absent gross negligence or willful misconduct) as a result of any
sale of any Collateral at any private sale.
(i) The Collateral Agent may resign at any time by giving at least 30
days notice thereof to the Parties (such resignation to take effect as
hereinafter provided) and the Collateral Agent may be removed as Collateral
Agent at any time by Requisite Obligees. In the event of any such resignation or
removal of the Collateral Agent, Requisite Obligees shall
XIII-12
<PAGE>
thereupon have the right to appoint a successor Collateral Agent which
appointment shall, unless an Event of Default has occurred and is continuing, be
subject to the approval of the Company. If no successor Collateral Agent shall
have been so appointed by Requisite Obligees and shall have accepted such
appointment within 30 days after the notice of the intent of the Collateral
Agent to resign, then the retiring Collateral Agent may, on behalf of the other
Parties, appoint a successor Collateral Agent. Any successor Collateral Agent
appointed pursuant to this clause (i) shall be a bank party to the Revolving
Credit Agreement or the AXEL Credit Agreement or a commercial bank organized
under the laws of the United States of America or any state thereof and having a
combined capital and surplus of at least $250,000,000.
(ii) Upon the acceptance of any appointment as Collateral Agent
hereunder by a successor Collateral Agent, such successor Collateral Agent shall
thereupon succeed to and become vested with all the rights, powers, privileges
and duties of the retiring or removed Collateral Agent, and the retiring or
removed Collateral Agent shall thereupon be discharged from its duties and
obligations hereunder. After any retiring or removed Collateral Agent's
resignation or removal hereunder as Collateral Agent, the provisions of this
Section 6 shall continue in effect for its benefit in respect of any actions
taken or omitted to be taken by it while it was acting as the Collateral Agent.
Definitions.
-----------
"Acceleration" shall mean any of the Revolving Credit Agreement
Obligations or the AXEL Credit Agreement Obligations have been declared, or have
become, immediately due and payable, or the commitments to extend credit of the
Revolving Facility Lenders or the AXEL Facility Lenders shall have been
terminated under Section 8 or Section 7 of the Revolving Credit Agreement or the
AXEL Credit Agreement, respectively.
"Actionable Default" shall mean (i) any failure of the Company to pay
upon its final stated maturity, the Revolving Credit Agreement Obligations or
the AXEL Credit Agreement Obligations or (ii) any breach or default by the
Company under the Revolving Credit Agreement or the AXEL Credit Agreement if the
effect of such breach or default is to cause, or to permit the Revolving
Facility Lenders or the AXEL Facility Lenders then to cause the Revolving Credit
Agreement Obligations or the AXEL Credit Agreement Obligations to become or be
declared due prior to their stated maturity.
"AXEL Credit Agreement Obligations" shall mean all obligations of every
nature of Company and its Subsidiaries from time to time owed to the AXEL
Facility Lenders, the AXEL Facility Agent or any of them under the Loan
Documents (as defined in the AXEL Credit Agreement).
"Class" shall mean each class of lenders under the Revolving Credit
Agreement and the AXEL Credit Agreement, with there being two separate classes
of lenders, i.e., (i) lenders under
----
XIII-13
<PAGE>
the Revolving Credit Agreement and (ii) the lenders under the AXEL Credit
Agreement.
"Collateral" shall mean all the properties and assets of whatever
nature, tangible or intangible, now owned or existing or hereafter acquired or
arising, of any of the Loan Parties on or in which the Collateral Agent has been
granted a Lien pursuant to any of the Security Documents.
"Collateral Agent Obligations" shall mean all indemnity, reimbursement
and payment obligations of the Company and any Subsidiary to the Collateral
Agent under this Agreement, any Security Document or the Guaranties.
"Event of Default" shall mean any "Event of Default" as defined in any
Financing Agreement or the occurrence of an Event of Default in which Company is
the Defaulting Party and which results in the designation of an Early
Termination Date (as such terms are defined in a Master Agreement or an Interest
Rate Swap Agreement or Interest Rate and Currency Exchange Agreement in the form
prepared by the International Swap and Derivatives Association Inc. or a similar
event under any similar swap agreement) under any Lender Interest Rate
Agreement.
"L/C Current Obligations" shall mean, at any time of determination, the
sum of the amounts referred to in clauses (b) and (c) of the definition of L/C
Obligations.
"L/C Obligations" shall mean, at any time of determination, the sum of
(a) the aggregate then undrawn and unexpired amount of then outstanding Letters
of Credit, (b) the aggregate amount of drawings under Letters of Credit which
have not then been reimbursed pursuant to the Revolving Credit Agreement, and
(c) all interest which has accrued in respect of drawings that have been made
under Letters of Credit and which is then unpaid.
"Lender Interest Rate Agreement Obligations" shall mean all obligations
of every nature of Company from time to time owed to Interest Rate Exchangers or
any of them under the Lender Interest Rate Agreements, including without
limitation payments for early termination thereof.
"Letter of Credit" shall mean a letter of credit issued by the Issuing
Lender under the Revolving Credit Agreement.
"Notice of Acceleration" shall mean a notice by the Revolving Facility
Agent in the case of the Revolving Facility Lenders or the AXEL Facility Agent
in case of AXEL Facility Lenders, in each case delivered to the Collateral Agent
stating that an Acceleration has occurred.
"Requisite AXEL Facility Lenders" shall mean "Requisite Lenders" as
defined in the AXEL Credit Agreement.
XIII-14
<PAGE>
"Requisite Obligees" shall mean (i) (A) unless an Acceleration shall
have occurred and be continuing, the Requisite Revolving Facility Lenders and
the Requisite AXEL Facility Lenders, and (B) if an Acceleration has occurred and
is continuing, Secured Parties holding more than 50% in amount of the Revolving
Credit Agreement Obligations and the AXEL Credit Agreement Obligations or (ii)
after payment in full of all Revolving Credit Agreement Obligations and all AXEL
Credit Agreement Obligations, the holders of a majority of the aggregate
notional amount (or, with respect to any Lender Interest Rate Agreement that has
been terminated in accordance with its terms, the amount then due and payable
(exclusive of expenses and similar payments but including any early termination
payments then due) under such Lender Interest Rate Agreement) under all Lender
Interest Rate Agreements..
"Requisite Revolving Facility Lenders" shall mean "Requisite Lenders"
as defined in the Revolving Credit Agreement.
"Revolving Credit Agreement Obligations" shall mean all obligations of
every nature of Company and its Subsidiaries from time to time owed to Revolving
Facility Agent, the Revolving Facility Lenders, the Issuing Lender or any of
them under the Loan Documents (as defined in the Revolving Credit Agreement),
including, without limitation, the L/C Obligations.
"Secured Obligations" shall mean the Revolving Credit Agreement
Obligations, the AXEL Credit Agreement Obligations and the Lender Interest Rate
Agreement Obligations.
Miscellaneous.
-------------
All notices and other communications provided for herein shall
be in writing and may be personally served, telecopied, telexed or sent by
United States mail and shall be deemed to have been given when delivered in
person, upon receipt of telecopy or telex, or four Business Days after deposit
in the United States mail, registered or certified, with postage prepaid and
properly addressed. For the purposes hereof, the addresses of the parties hereto
(until notice of a change thereof is delivered as provided in this Section 8(a))
shall be as set forth under each party's name on the signature pages hereof.
This Agreement, the Security Documents and the Guaranties may be
modified or waived only by an instrument or instruments in writing signed by
Collateral Agent and Requisite Obligees and, if applicable, the Loan Party
signatory to this Agreement or any such Collateral Document.
This Agreement shall be binding upon and inure to the benefit of the
Collateral Agent, each other Party and each Secured Party and their respective
successors and assigns.
This Agreement may be executed in any number of counterparts, all of
which taken together shall constitute one and the same instrument, and any of
the parties hereto may execute
XIII-15
<PAGE>
this Agreement by signing any such counterpart.
This Agreement shall become effective as to the Revolving Facility
Lenders and the Revolving Facility Agent upon execution thereof by Revolving
Facility Agent and as to the AXEL Facility Lenders and the AXEL Facility Agent
upon execution by AXEL Facility Agent thereof.
Upon receipt by the Collateral Agent of evidence satisfactory to it of
the termination of all commitments to extend credit which would constitute
Secured Obligations and the indefeasible payment in full of all Secured
Obligations (including, without limitation, the reasonable compensation,
expenses and disbursements of the Collateral Agent) and expiration or
cancellation of all Letters of Credit, this Agreement shall terminate and the
Collateral Agent, at the request and expense of the Company, will execute and
deliver to the Company a proper instrument or instruments acknowledging the
satisfaction and termination of the Collateral Documents and of this Agreement,
and will duly assign, transfer and deliver to the Company all of the rights and
moneys at the time held by the Collateral Agent under the Collateral Documents
and hereunder, provided that Section 6(c) of this Agreement shall survive, and
--------
remain operative and in full force and effect, regardless of the termination of
this Agreement.
THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS OF LAWS
PRINCIPLES.
By countersigning or otherwise accepting the terms of this Agreement,
the Company and each other Loan Party acknowledges and consents to and agrees to
perform and be bound by each of the provisions hereof stated to be applicable to
it.
ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST ANY LOAN PARTY ARISING
OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY
OBLIGATIONS THEREUNDER, MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF
COMPETENT JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK. BY EXECUTING
AND DELIVERING THIS AGREEMENT, EACH LOAN PARTY, FOR ITSELF AND IN CONNECTION
WITH ITS PROPERTIES, IRREVOCABLY (I) ACCEPTS GENERALLY AND UNCONDITIONALLY THE
NONEXCLUSIVE JURISDICTION AND VENUE OF SUCH COURTS; (II) WAIVES ANY DEFENSE OF
FORUM NON CONVENIENS; (III) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH
PROCEEDING IN ANY SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN
RECEIPT REQUESTED, TO SUCH LOAN PARTY AT ITS ADDRESSES PROVIDED ON THE
APPLICABLE SIGNATURE PAGE HERETO; (IV) AGREES THAT SERVICE AS PROVIDED IN CLAUSE
(III) ABOVE IS SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER SUCH LOAN PARTY
IN ANY SUCH PROCEEDING IN ANY SUCH COURT, AND OTHERWISE
XIII-16
<PAGE>
CONSTITUTES EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT; (V) AGREES THAT
COLLATERAL AGENT RETAINS THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST SUCH LOAN PARTY IN THE COURTS
OF ANY OTHER JURISDICTION; AND (VI) AGREE THAT THE PROVISIONS OF THIS SECTION
8(i) RELATING TO JURISDICTION AND VENUE SHALL BE BINDING AND ENFORCEABLE TO THE
FULLEST EXTENT PERMISSIBLE UNDER NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-
1402 OR OTHERWISE.
EACH LOAN PARTY, COLLATERAL AGENT AND EACH PARTY HEREBY AGREES TO WAIVE
ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON
OR ARISING OUT OF THIS AGREEMENT. The scope of this waiver is intended to be
all-encompassing of any and all disputes that may be filed in any court and that
relate to the subject matter of this transaction, including without limitation
contract claims, tort claims, breach of duty claims and all other common law and
statutory claims. Each Loan Party, Collateral Agent and each Party acknowledges
that this waiver is a material inducement to enter into a business relationship,
that each has already relied on this waiver in entering into this Agreement, and
that each will continue to rely on this waiver in their related future dealings.
Each Loan Party, Collateral Agent and each Party further warrants and represents
that it has reviewed this waiver with its legal counsel and that it knowingly
and voluntarily waives its jury trial rights following consultation with legal
counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER
ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY
REFERRING TO THIS SECTION 8(j) AND EXECUTED BY EACH OF THE PARTIES HERETO), AND
THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR
MODIFICATIONS TO THIS AGREEMENT. In the event of litigation, this Agreement may
be filed as a written consent to a trial by the court.
XIII-17
<PAGE>
Each Loan Party, by its execution of this Agreement in the space
provided below, hereby accepts and agrees to be bound by the foregoing
provisions of this Agreement.
COMPANY:
SEALY MATTRESS COMPANY
By:
Name:
Title:
Notice Address:
HOLDINGS:
SEALY CORPORATION
By:
Name:
Title:
Notice Address:
<PAGE>
SUBSIDIARIES:
[NAME OF SUBSIDIARY]
By:
Name:
Title:
Notice Address:
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK,
as Collateral Agent, Revolving Facility
Agent and AXEL Facility Agent
By:
Name:
Title:
Notice Address:
<PAGE>
EXHIBIT XIV
[FORM OF COMPANY PLEDGE AGREEMENT]
COMPANY PLEDGE AGREEMENT
This COMPANY PLEDGE AGREEMENT (this "AGREEMENT") is dated as of December
18, 1997 and entered into by and between SEALY MATTRESS COMPANY, an Ohio
corporation ("PLEDGOR"), and MORGAN GUARANTY TRUST COMPANY OF NEW YORK
("MORGAN GUARANTY"), as Collateral Agent for and representative of (in such
capacity herein called "COLLATERAL AGENT") the Secured Parties (as hereinafter
defined) and any Interest Rate Exchangers (as hereinafter defined).
RECITALS
A. Pledgor is the legal and beneficial owner of (i) the shares of stock
(the "PLEDGED SHARES") described in Part A of Schedule I annexed hereto and
----------
issued by the corporations named therein and (ii) the indebtedness (the
"PLEDGED DEBT") described in Part B of said Schedule I and issued by the
----------
obligors named therein.
B. Sealy Corporation, a Delaware Corporation ("HOLDINGS"), the financial
institutions from time to time parties thereto (the "CREDIT AGREEMENT
LENDERS"), Goldman Sachs Credit Partners L.P. ("GSCP"), as arranger and
syndication agent (in such capacity, "CA SYNDICATION AGENT"), Morgan Guaranty,
as administrative agent (in such capacity, "CA ADMINISTRATIVE AGENT"), and
Bankers Trust Company ("BTCO"), as documentation agent (in such capacity, "CA
DOCUMENTATION AGENT") have entered into a Credit Agreement dated as of December
18, 1997 (said Credit Agreement, as it may hereafter be amended, restated,
supplemented or otherwise modified from time to time, being the "CREDIT
AGREEMENT") with Pledgor pursuant to which Credit Agreement Lenders have made
certain commitments, subject to the terms and conditions set forth in the Credit
Agreement, to extend certain credit facilities to Pledgor.
C. Pledgor, Holdings, the financial institutions from time to time parties
thereto (the "AXEL LENDERS"), GSCP, as arranger and syndication agent (in such
capacity, "AXEL SYNDICATION AGENT"), Morgan Guaranty, as administrative agent
(in such capacity, "AXEL ADMINISTRATIVE AGENT"), and BTCo., as documentation
agent (in such capacity, "AXEL DOCUMENTATION AGENT") and have entered into an
AXEL Credit Agreement dated as of December 18, 1997 (said AXEL Credit Agreement,
as it may hereafter be amended, restated, supplemented or otherwise modified
from time to time, being the "AXEL CREDIT AGREEMENT"; the Credit Agreement
Lenders, the CA Syndication Agent, the CA Administrative Agent, the CA
Documentation Agent, the AXEL Lenders, the AXEL Syndication Agent, the AXEL
Administrative Agent, and the AXEL Documentation Agent each being a "SECURED
PARTY" and collectively the "SECURED PARTIES") pursuant to which AXEL Lenders
have made certain commitments, subject to
XIV-1
<PAGE>
the terms and conditions set forth in the AXEL Credit Agreement, to extend
certain credit facilities to Pledgor.
D. Pledgor may from time to time enter into one or more Interest Rate
Agreements (collectively, the "LENDER INTEREST RATE AGREEMENTS") with one or
more Credit Agreement Lenders or their Affiliates or AXEL Lenders or their
Affiliates (in such capacity, collectively, "INTEREST RATE EXCHANGERS") in
accordance with the terms of the Financing Agreements (as hereinafter defined),
and it is desired that the obligations of Pledgor under the Lender Interest Rate
Agreements, including without limitation the obligation of Pledgor to make
payments, if any, thereunder in the event of early termination thereof, together
with all obligations of Pledgor under the Financing Agreements and any other
Loan Documents (as hereinafter defined), be secured hereunder.
E. It is a condition precedent to the initial extensions of credit by
Secured Parties under the Financing Agreements that Pledgor shall have granted
the security interests and undertaken the obligations contemplated by this
Agreement.
NOW, THEREFORE, in consideration of the premises and to induce (i) the CA
Administrative Agent, the CA Syndication Agent and the Credit Agreement Lenders
to enter into the Credit Agreement, (ii) the Credit Agreement Lenders to make
their respective loans to, and issue Letters of Credit for the account of, the
Pledgor, (iii) the AXEL Administrative Agent, the AXEL Syndication Agent and the
AXEL Lenders to enter into the AXEL Loan Agreement, (iv) the AXEL Lenders to
make their respective loans to the Pledgor and (v) to induce Interest Rate
Exchangers to enter into the Lender Interest Rate Agreements, and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Pledgor hereby agrees with Collateral Agent as follows:
SECTION 1. DEFINED TERMS
-------------
(a) Unless otherwise defined herein, terms defined in the Credit Agreement
and used herein shall have the meanings given to such terms in the Credit
Agreement;
(b) The following terms shall have the following meanings:
"ACCELERATION" shall mean any of the Credit Agreement Obligations or the
AXEL Credit Agreement Obligations have been declared, or have become,
immediately due and payable, or the commitments to extend credit of the Credit
Agreement Lenders or the AXEL Lenders shall have been terminated under Section 8
of the Credit Agreement or Section 7 of the AXEL Credit Agreement, respectively.
"ADDITIONAL PLEDGED SHARES" has the meaning assigned to that term in
Section 2(c) of this Agreement.
"AGREEMENT" means this Company Pledge Agreement dated as of December 18,
1997, as it may be amended, supplemented or otherwise modified from time to
time.
XIV-2
<PAGE>
"AXEL COMMITMENTS" means the "Commitments" as defined in the AXEL Credit
Agreement.
"AXEL CREDIT AGREEMENT" has the meaning assigned to that term in the
recitals to this Agreement.
"AXEL OBLIGATIONS" shall mean "Obligations" as defined in the AXEL
Credit Agreement.
"COLLATERAL ACCOUNTS" shall mean "Collateral Accounts" as defined in the
Intercreditor Agreement.
"COMMITMENTS" means the Credit Agreement Commitments and the AXEL
Commitments.
"CREDIT AGREEMENT" has the meaning assigned to that term in the recitals
to this Agreement.
"CREDIT AGREEMENT COMMITMENTS" shall mean the "Commitments" as defined
in the Credit Agreement.
"CREDIT AGREEMENT OBLIGATIONS" shall mean the "Obligations" as defined
in the Credit Agreement.
"EVENT OF DEFAULT" means any "Event of Default" as defined in any
Financing Agreement or the occurrence of an Event of Default in which Company is
the Defaulting Party and which results in the designation of an Early
Termination Date (as such terms are defined in a Master Agreement or an Interest
Rate Swap Agreement or Interest Rate and Currency Exchange Agreement in the form
prepared by the International Swap and Derivatives Association Inc. or a similar
event under any similar swap agreement) under any Lender Interest Rate
Agreement.
"FINANCING AGREEMENT" means the Credit Agreement or the AXEL Credit
Agreement, and "Financing Agreements" means the Credit Agreement and the AXEL
Credit Agreement, collectively.
"FINANCING AGREEMENT OBLIGATIONS" means Credit Agreement Obligations and
AXEL Obligations.
"HOLDINGS" has the meaning assigned to that term in the recitals to this
Agreement.
"INTERCREDITOR AGREEMENT" means the Intercreditor Agreement, dated as of
December 18, 1997, by and among CA Administrative Agent, AXEL Administrative
Agent and Collateral Agent.
"INTEREST RATE EXCHANGERS" has the meaning assigned to that term in the
recitals to this Agreement.
XIV-3
<PAGE>
"LENDER INTEREST RATE AGREEMENT" has the meaning assigned to that term in
the recitals to this Agreement.
"LOAN" means any "Loan" as defined in any Financing Agreement, and
"LOANS" means all such Loans collectively.
"LOAN DOCUMENT" means any "Loan Document" as defined in any Financing
Agreement, and "LOAN DOCUMENTS" means all such Loan Documents collectively.
"NEW PLEDGED SHARES" has the meaning assigned to that term in Section 2(e)
of this Agreement.
"PLEDGE AMENDMENT" has the meaning assigned to that term in Section 7 of
this Agreement.
"PLEDGED COLLATERAL" has the meaning assigned to that term in Section 2 of
this Agreement.
"PLEDGED DEBT" has the meaning assigned to that term in the recitals of
this Agreement.
"PLEDGED SHARES" has the meaning assigned to that term in the recitals to
this Agreement.
"PLEDGOR" has the meaning assigned to that term in the introduction of
this Agreement.
"POTENTIAL EVENT OF DEFAULT" means any "Potential Event of Default" as
defined in any Financing Agreement.
"REQUISITE AXEL LENDERS" means "Requisite Lenders" as defined in the
AXEL Credit Agreement.
"REQUISITE CREDIT AGREEMENT LENDERS" means "Requisite Lenders" as
defined in the Credit Agreement.
"REQUISITE LENDERS" means (A) unless an Acceleration shall have occurred
and be continuing, the Requisite Credit Agreement Lenders and the Requisite AXEL
Lenders, and (B) if an Acceleration has occurred and is continuing, Secured
Parties holding more than 50% of the Financing Agreement Obligations.
"REQUISITE OBLIGEES" has the meaning assigned to that term in Section
17(a) of this Agreement.
"SECURED OBLIGATIONS" has the meaning assigned to that term in Section 3
of this Agreement.
"SECURED PARTIES" has the meaning assigned to that term in the recitals to
this Agreement.
XIV-4
<PAGE>
SECTION 2. PLEDGE OF SECURITY
------------------
Pledgor hereby pledges and assigns to Collateral Agent, and hereby grants to
Collateral Agent a security interest in, all of Pledgor's right, title and
interest in and to the following (the "PLEDGED COLLATERAL"):
(a) the Pledged Shares and the certificates representing the Pledged
Shares and any interest of Pledgor in the entries on the books of any
financial intermediary pertaining to the Pledged Shares, and all dividends,
cash, warrants, rights, instruments and other property or proceeds from time
to time received, receivable or otherwise distributed in respect of or in
exchange for any or all of the Pledged Shares; provided, however, that to
-------- -------
the extent the issuer of any of the Pledged Shares is a controlled foreign
corporation (used hereinafter as such term is defined in Section 957(a) or a
successor provision of the Internal Revenue Code), Pledgor shall only be
required to pledge Pledged Shares of, certificates representing Pledged
Shares of, and such interests pertaining to Pledged Shares of such issuer
possessing up to but not exceeding 65% of the voting power of all classes of
capital stock entitled to vote of such issuer, and all dividends, cash,
warrants, rights, instruments and other property or proceeds from time to
time received, receivable or otherwise distributed in respect of or in
exchange for any or all of such Pledged Shares;
(b) the Pledged Debt and the instruments evidencing the Pledged Debt,
and all interest, cash, instruments and other property or proceeds from time
to time received, receivable or otherwise distributed in respect of or in
exchange for any or all of the Pledged Debt;
(c) all additional shares of, and all securities convertible into and
warrants, options and other rights to purchase or otherwise acquire, stock
of any issuer of the Pledged Shares from time to time acquired by Pledgor in
any manner (which shares shall be deemed to be part of the Pledged Shares),
the certificates or other instruments representing such additional shares,
securities, warrants, options or other rights and any interest of Pledgor in
the entries on the books of any financial intermediary pertaining to such
additional shares (all such shares, securities, warrants, options, rights,
certificates, instruments and interests collectively being "ADDITIONAL
PLEDGED SHARES"), and all dividends, cash, warrants, rights, instruments
and other property or proceeds from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of such
Additional Pledged Shares; provided, however, that to the extent that the
-------- -------
issuer of any Additional Pledged Shares is a controlled foreign corporation,
Pledgor shall only be required to pledge Additional Pledged Shares of such
issuer possessing up to but not exceeding 65% of the voting power of all
classes of capital stock entitled to vote of such issuer, and all dividends,
cash, warrants, rights, instruments and other property or proceeds from time
to time received, receivable or otherwise distributed in respect of or in
exchange for any or all of such Additional Pledged Shares;
(d) all additional indebtedness from time to time owed to Pledgor by
any obligor on the Pledged Debt and the instruments evidencing such
indebtedness, and all interest, cash,
XIV-5
<PAGE>
instruments and other property or proceeds from time to time received,
receivable or otherwise distributed in respect of or in exchange for any or
all of such indebtedness;
(e) all shares of, and all securities convertible into and warrants,
options and other rights to purchase or otherwise acquire, stock of any
Person that, after the date of this Agreement, becomes, as a result of any
occurrence, a direct Subsidiary of Pledgor (which shares shall be deemed to
be part of the Pledged Shares), the certificates or other instruments
representing such shares, securities, warrants, options or other rights and
any interest of Pledgor in the entries on the books of any financial
intermediary pertaining to such shares (all such shares, securities,
warrants, options, rights, certificates, instruments and interests
collectively being "NEW PLEDGED SHARES"), and all dividends, cash,
warrants, rights, instruments and other property or proceeds from time to
time received, receivable or otherwise distributed in respect of or in
exchange for any or all of such shares, securities, warrants, options or
other rights; provided, however, that in the event that any such direct
-------- -------
Subsidiary is a controlled foreign corporation, Pledgor shall only be
required to pledge New Pledged Shares of such Subsidiary possessing up to
but not exceeding 65% of the voting power of all classes of capital stock
entitled to vote of such Subsidiary, and all dividends, cash, warrants,
rights, instruments and other property or proceeds from time to time
received, receivable or otherwise distributed in respect of or in exchange
for any or all of such New Pledged Shares;
(f) all indebtedness from time to time owed to Pledgor by any Person
that, after the date of this Agreement, becomes, as a result of any
occurrence, a Subsidiary of Pledgor, and all interest, cash, instruments and
other property or proceeds from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of such
indebtedness; and
(g) to the extent not covered by clauses (a) through (f) above, all
proceeds of any or all of the foregoing Pledged Collateral. For purposes of
this Agreement, the term "PROCEEDS" includes whatever is receivable or
received when Pledged Collateral or proceeds are sold, exchanged, collected
or otherwise disposed of, whether such disposition is voluntary or
involuntary, and includes, without limitation, proceeds of any indemnity or
guaranty payable to Pledgor or Collateral Agent from time to time with
respect to any of the Pledged Collateral.
SECTION 3. SECURITY FOR OBLIGATIONS.
------------------------
This Agreement secures, and the Pledged Collateral is collateral security
for, the prompt payment or performance in full when due, whether at stated
maturity, by required prepayment, declaration, acceleration, demand or otherwise
(including the payment of amounts that would become due but for the operation of
the automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C.
(S)362(a)), of all obligations and liabilities of every nature of Pledgor now or
hereafter existing under or arising out of or in connection with any Financing
Agreements and any other Loan Documents and the Lender Interest Rate Agreements
and all extensions or renewals thereof, whether for principal, interest
(including without limitation interest that, but for the filing of a petition in
bankruptcy with respect to Pledgor, would accrue on such obligations),
reimbursement
XIV-6
<PAGE>
of amounts drawn under Letters of Credit, payments for early termination of
Lender Interest Rate Agreements, fees, expenses, indemnities or otherwise,
whether voluntary or involuntary, direct or indirect, absolute or contingent,
liquidated or unliquidated, whether or not jointly owed with others, and whether
or not from time to time decreased or extinguished and later increased, created
or incurred, and all or any portion of such obligations or liabilities that are
paid, to the extent all or any part of such payment is avoided or recovered
directly or indirectly from Collateral Agent or any Secured Party or Interest
Rate Exchanger as a preference, fraudulent transfer or otherwise, and all
obligations of every nature of Pledgor now or hereafter existing under this
Agreement (all such obligations of Pledgor being the "SECURED OBLIGATIONS").
SECTION 4. DELIVERY OF PLEDGED COLLATERAL.
------------------------------
All certificates or instruments representing or evidencing the Pledged
Collateral shall be delivered to and held by or on behalf of Collateral Agent
pursuant hereto and shall be in suitable form for transfer by delivery or, as
applicable, shall be accompanied by Pledgor's endorsement, where necessary, or
duly executed instruments of transfer or assignment in blank, all in form and
substance reasonably satisfactory to Collateral Agent. Upon the occurrence and
during the continuance of an Event of Default, Collateral Agent shall have the
right, without notice to Pledgor, to transfer to or to register in the name of
Collateral Agent or any of its nominees any or all of the Pledged Collateral,
subject only to the revocable rights specified in Section 8(a). In addition,
upon the occurrence and during the continuance of an Event of Default,
Collateral Agent shall have the right at any time to exchange certificates or
instruments representing or evi dencing Pledged Collateral for certificates or
instruments of smaller or larger denominations.
SECTION 5. REPRESENTATIONS AND WARRANTIES.
------------------------------
Pledgor represents and warrants as follows:
(a) Due Authorization, etc. of Pledged Collateral. All of the Pledged
---------------------------------------------
Shares have been duly authorized and validly issued and are fully paid and
non-assessable. All of the Pledged Debt has been duly authorized,
authenticated or issued, and delivered and is the legal, valid and binding
obligation of the issuers thereof and is not in default.
(b) Description of Pledged Collateral. The Pledged Shares constitute
---------------------------------
the percentage of the issued and outstanding shares of stock of each issuer
thereof set forth on Schedule I annexed hereto, and there are no outstanding
----------
warrants, options or other rights to purchase, or other agreements
outstanding with respect to, or property that is now or hereafter
convertible into, or that requires the issuance or sale of, any Pledged
Shares. The Pledged Debt constitutes all of the issued and outstanding
intercompany indebtedness evidenced by a promissory note of the respective
issuers thereof owing to Pledgor.
(c) Ownership of Pledged Collateral. Pledgor is the legal, record and
-------------------------------
beneficial owner of the Pledged Collateral free and clear of any Lien except
for the security interest created by this Agreement.
SECTION 6. TRANSFERS AND OTHER LIENS; ADDITIONAL PLEDGED COLLATERAL; ETC.
--------------------------------------------------------------
XIV-7
<PAGE>
Pledgor shall:
(a) not, except as expressly permitted by the Financing Agreements, (i)
sell, assign (by operation of law or otherwise) or otherwise dispose of, or
grant any option with respect to, any of the Pledged Collateral, (ii) create
or suffer to exist any Lien upon or with respect to any of the Pledged
Collateral, except for the security interest under this Agreement, or (iii)
permit any issuer of Pledged Shares to merge or consolidate unless all the
outstanding capital stock of the surviving or resulting corporation is, upon
such merger or consolidation, pledged hereunder and no cash, securities or
other property is distributed in respect of the outstanding shares of any
other constituent corporation provided that if the surviving or resulting
--------
corporation upon any such merger or consolidation involving an issuer of
Pledged Shares which is a controlled foreign corporation is a controlled
foreign corporation, then Pledgor shall only be required to pledge
outstanding capital stock of such surviving or resulting corporation
possessing up to but not exceeding 65% of the voting power of all classes of
capital stock of such issuer entitled to vote; provided that in the event
--------
Pledgor makes an Asset Sale permitted by the Financing Agreements and the
assets subject to such Asset Sale are Pledged Shares, Collateral Agent shall
release the Pledged Shares that are the subject of such Asset Sale to
Pledgor free and clear of the lien and security interest under this
Agreement concurrently with the consummation of such Asset Sale; provided,
--------
further that, as a condition precedent to such release, Collateral Agent
-------
shall have received evidence reasonably satisfactory to it that arrangements
reasonably satisfactory to it have been made for delivery to Collateral
Agent of the Net Asset Sale Proceeds of such Asset Sale in the event and to
the extent that all or any portion of such Net Asset Sale Proceeds are
required to be applied to prepay the Loans under the Financing Agreements;
(b) (i) cause each issuer of Pledged Shares not to issue any stock or
other securities in addition to or in substitution for the Pledged Shares
issued by such issuer, except to Pledgor, (ii) pledge hereunder, immediately
upon its acquisition (directly or indirectly) thereof, any and all
additional shares of stock or other securities of each issuer of Pledged
Shares, and (iii) pledge hereunder, immediately upon its acquisition
(directly or indirectly) thereof, any and all shares of stock of any Person
that, after the date of this Agreement, becomes, as a result of any
occurrence, a direct Subsidiary of Pledgor; provided, that notwithstanding
--------
anything contained in this clause (b) to the contrary, Pledgor shall only be
required to pledge the outstanding capital stock of a foreign controlled
corporation possessing up to but not exceeding 65% of the voting power of
all classes of capital stock of such controlled foreign corporation entitled
to vote;
(c) (i) pledge hereunder, immediately upon their issuance, any and all
instruments or other evidences of additional indebtedness from time to time
owed to Pledgor by any obligor on the Pledged Debt, and (ii) pledge
hereunder, immediately upon their issuance, any and all instruments or other
evidences of indebtedness from time to time owed to Pledgor by any Person
that after the date of this Agreement becomes, as a result of any
occurrence, a Subsidiary of Pledgor; and
XIV-8
<PAGE>
(d) pay promptly when due all taxes, assessments and governmental
charges or levies imposed upon, and all claims against, the Pledged
Collateral, except to the extent the validity thereof is being contested in
good faith.
SECTION 7. FURTHER ASSURANCES; PLEDGE AMENDMENTS.
-------------------------------------
(a) Pledgor agrees that from time to time, at the expense of Pledgor,
Pledgor will promptly execute and deliver all further instruments and documents,
and take all further action, that Collateral Agent may reasonably request, in
order to perfect and protect any security interest granted or purported to be
granted hereby or to enable Collateral Agent to exercise and enforce its rights
and remedies hereunder with respect to any Pledged Collateral. Without limiting
the generality of the foregoing, Pledgor will: (i) execute and file such
financing or continuation statements, or amendments thereto, and such other
instruments or notices as Collateral Agent may reasonably request, in order to
perfect and preserve the security interests granted or purported to be granted
hereby and (ii) at Collateral Agent's reasonable request, appear in and defend
any action or proceeding that may affect Pledgor's title to or Collateral
Agent's security interest in all or any part of the Pledged Collateral.
(b) Pledgor further agrees that it will, upon obtaining any additional
shares of stock or other securities required to be pledged hereunder as provided
in Section 6(b) or (c), promptly (and in any event within five Business Days)
deliver to Collateral Agent a Pledge Amendment, duly executed by Pledgor, in
substantially the form of Schedule II annexed hereto (a "PLEDGE AMENDMENT"),
-----------
in respect of the additional Pledged Shares or Pledged Debt to be pledged
pursuant to this Agreement. Pledgor hereby authorizes Collateral Agent to
attach each Pledge Amendment to this Agreement and agrees that all Pledged
Shares or Pledged Debt listed on any Pledge Amendment delivered to Collateral
Agent shall for all purposes hereunder be considered Pledged Collateral;
provided that the failure of Pledgor to execute a Pledge Amendment with respect
- --------
to any additional Pledged Shares or Pledged Debt pledged pursuant to this
Agreement shall not impair the security interest of Collateral Agent therein or
otherwise adversely affect the rights and remedies of Collateral Agent hereunder
with respect thereto.
SECTION 8. VOTING RIGHTS; DIVIDENDS; ETC.
------------------------------
(a) So long as no Event of Default shall have occurred and be continuing:
(i) Pledgor shall be entitled to exercise any and all voting and other
consensual rights pertaining to the Pledged Collateral or any part thereof
for any purpose not inconsistent with the terms of this Agreement or the
Financing Agreements;
(ii) Pledgor shall be entitled to receive and retain, and to utilize
free and clear of the lien of this Agreement, any and all dividends and
interest paid in respect of the Pledged Collateral; provided, however, that
-------- -------
any and all dividends and interest paid or payable other than in cash in
respect of, and instruments and other property received, receivable or
otherwise distributed in respect of, or in exchange for, any Pledged
Collateral, shall be, and shall forthwith be delivered to Collateral Agent
to hold as, Pledged Collateral and shall, if received by Pledgor, be
received in trust for the benefit of Collateral Agent, be segregated
XIV-9
<PAGE>
from the other property or funds of Pledgor and be forthwith delivered to
Collateral Agent as Pledged Collateral in the same form as so received (with
all necessary endorsements); provided, that Pledgor shall not be required to
--------
deliver the outstanding capital stock of a foreign controlled corporation
paid as a dividend or interest to the Pledgor, if Collateral Agent would
hold as Pledged Collateral outstanding capital stock of such controlled
foreign corporation possessing greater than 65% of the voting power of all
classes of capital stock of such controlled foreign corporation entitled to
vote; and
(iii) Collateral Agent shall promptly execute and deliver (or cause to
be executed and delivered) to Pledgor all such proxies, dividend payment
orders and other instruments as Pledgor may from time to time reasonably
request for the purpose of enabling Pledgor to exercise the voting and other
consensual rights which it is entitled to exercise pursuant to paragraph (i)
above and to receive the dividends, principal or interest payments which it
is authorized to receive and retain pursuant to paragraph (ii) above.
(b) Upon the occurrence and during the continuation of an Event of Default:
(i) upon written notice from Collateral Agent to Pledgor, all rights of
Pledgor to exercise the voting and other consensual rights which it would
otherwise be entitled to exercise pursuant to Section 8(a)(i) shall cease,
and all such rights shall thereupon become vested in Collateral Agent who
shall thereupon have the sole right to exercise such voting and other
consensual rights;
(ii) all rights of Pledgor to receive the dividends and interest
payments which it would otherwise be authorized to receive and retain
pursuant to Section 8(a)(ii) shall cease, and all such rights shall
thereupon become vested in Collateral Agent who shall thereupon have the
sole right to receive and hold as Pledged Collateral such dividends and
interest payments; and
(iii) all dividends, principal and interest payments which are
received by Pledgor contrary to the provisions of paragraph (ii) of this
Section 8(b) shall be (A) forthwith (and in any event within two Business
Days) deposited by the Pledgor to the exact form received, duly endorsed by
the Pledgor to the Collateral Agent if required, in a Collateral Account
maintained under the sole dominion and control of the Collateral Agent for
the account of the Secured Parties only as provided in Section 15, (B) until
so turned over in accordance with the preceding subsection (A), all such
amounts and proceeds received by Grantor shall be received in trust for the
benefit of Collateral Agent hereunder -- and shall be segregated from other
funds of Pledgor.
(c) In order to permit Collateral Agent to exercise the voting and other
consensual rights which it may be entitled to exercise pursuant to Section
8(b)(i) and to receive all dividends and other distributions which it may be
entitled to receive under Section 8(a)(ii) or Section 8(b)(ii), (i) Pledgor
shall promptly execute and deliver (or cause to be executed and delivered) to
Collateral Agent all such proxies, dividend payment orders and other instruments
as Collateral Agent may from time to time reasonably request and (ii) without
limiting the effect of the immediately preceding clause (i), Pledgor hereby
grants to Collateral Agent an irrevocable proxy to vote the Pledged Shares and
to
XIV-10
<PAGE>
exercise all other rights, powers, privileges and remedies to which a holder
of the Pledged Shares would be entitled (including, without limitation, giving
or withholding written consents of shareholders, calling special meetings of
shareholders and voting at such meetings), which proxy shall be effective,
automatically and without the necessity of any action (including any transfer of
any Pledged Shares on the record books of the issuer thereof) by any other
Person (including the issuer of the Pledged Shares or any officer or agent
thereof), upon the occurrence and during the continuance of an Event of Default
and which proxy shall only terminate upon the payment in full of the Secured
Obligations.
SECTION 9. COLLATERAL AGENT APPOINTED ATTORNEY-IN-FACT.
-------------------------------------------
Pledgor hereby irrevocably appoints Collateral Agent as Pledgor's attorney-
in-fact, with full authority in the place and stead of Pledgor and in the name
of Pledgor, Collateral Agent or otherwise, from time to time, upon the
occurrence and during the continuance of an Event of Default, in Collateral
Agent's reasonable discretion to take any action and to execute any instrument
that Collateral Agent may reasonably deem necessary or advisable to accomplish
the purposes of this Agreement, including without limitation:
(a) to file one or more financing or continuation statements, or
amendments thereto, relative to all or any part of the Pledged Collateral
without the signature of Pledgor to the extent allowed under applicable law;
(b) to ask, demand, collect, sue for, recover, compound, receive and
give acquittance and receipts for moneys due and to become due under or in
respect of any of the Pledged Collateral;
(c) to receive, endorse and collect any instruments made payable to
Pledgor representing any dividend, principal or interest payment or other
distribution in respect of the Pledged Collateral or any part thereof and to
give full discharge for the same; and
(d) to file any claims or take any action or institute any proceedings
that Collateral Agent may reasonably deem necessary or desirable for the
collection of any of the Pledged Collateral or otherwise to enforce the
rights of Collateral Agent with respect to any of the Pledged Collateral.
SECTION 10. COLLATERAL AGENT MAY PERFORM.
----------------------------
If Pledgor fails to perform any agreement contained herein, Collateral Agent
may itself perform, or cause performance of, such agreement, and the reasonable
expenses of Collateral Agent incurred in connection therewith shall be payable
by Pledgor under Section 16(b).
SECTION 11. STANDARD OF CARE.
----------------
The powers conferred on Collateral Agent hereunder are solely to protect its
interest in the Pledged Collateral and shall not impose any duty upon it to
exercise any such powers. Except for the exercise of reasonable care in the
custody of any Pledged Collateral in its possession and the
XIV-11
<PAGE>
accounting for moneys actually received by it hereunder, Collateral Agent shall
have no duty as to any Pledged Collateral, it being understood that Collateral
Agent shall have no responsibility for (a) ascertaining or taking action with
respect to calls, conversions, exchanges, maturities, tenders or other matters
relating to any Pledged Collateral, whether or not Collateral Agent has or is
deemed to have knowledge of such matters, (b) taking any necessary steps (other
than steps taken in accordance with the standard of care set forth above to
maintain possession of the Pledged Collateral) to preserve rights against any
parties with respect to any Pledged Collateral, (c) taking any necessary steps
to collect or realize upon the Secured Obligations or any guarantee therefor, or
any part thereof, or any of the Pledged Collateral, or (d) initiating any action
to protect the Pledged Collateral against the possibility of a decline in market
value. Collateral Agent shall be deemed to have exercised reasonable care in the
custody and preservation of Pledged Collateral in its possession if such Pledged
Collateral is accorded treatment substantially equal to that which Collateral
Agent accords its own property consisting of negotiable securities.
XIV-12
<PAGE>
SECTION 12. REMEDIES.
--------
(a) If any Event of Default shall have occurred and be continuing,
Collateral Agent may exercise in respect of the Pledged Collateral, in addition
to all other rights and remedies provided for herein or otherwise available to
it, all the rights and remedies of a secured party on default under the Uniform
Commercial Code as in effect in any relevant jurisdiction (the "CODE")
(whether or not the Code applies to the affected Pledged Collateral), and
Collateral Agent may also in its sole discretion, without notice except as
specified below, sell the Pledged Collateral or any part thereof in one or more
parcels at public or private sale, at any exchange or broker's board or at any
of Collateral Agent's offices or elsewhere, for cash, on credit or for future
delivery, at such time or times and at such price or prices and upon such other
terms as Collateral Agent may deem commercially reasonable, irrespective of the
impact of any such sales on the market price of the Pledged Collateral.
Collateral Agent or any Secured Party or Interest Rate Exchanger may be the
purchaser of any or all of the Pledged Collateral at any such sale and
Collateral Agent, as agent for and representative of Secured Parties and
Interest Rate Exchangers (but not any Secured Party or Secured Parties or
Interest Rate Exchanger or Interest Rate Exchangers in its or their respective
individual capacities unless Requisite Obligees shall otherwise agree in
writing), shall be entitled, for the purpose of bidding and making settlement or
payment of the purchase price for all or any portion of the Pledged Collateral
sold at any such public sale, to use and apply any of the Secured Obligations as
a credit on account of the purchase price for any Pledged Collateral payable by
Collateral Agent at such sale. Each purchaser at any such sale shall hold the
property sold absolutely free from any claim or right on the part of Pledgor,
and Pledgor hereby waives (to the extent permitted by applicable law) all rights
of redemption, stay and/or appraisal which it now has or may at any time in the
future have under any rule of law or statute now existing or hereafter enacted.
Pledgor agrees that, to the extent notice of sale shall be required by law, at
least ten days' notice to Pledgor of the time and place of any public sale or
the time after which any private sale is to be made shall constitute reasonable
notification. Collateral Agent shall not be obligated to make any sale of
Pledged Collateral regardless of notice of sale having been given. Collateral
Agent may adjourn any public or private sale from time to time by announcement
at the time and place fixed therefor, and such sale may, without further notice,
be made at the time and place to which it was so adjourned. Pledgor hereby
waives any claims against Collateral Agent arising by reason of the fact that
the price at which any Pledged Collateral may have been sold at such a private
sale was less than the price which might have been obtained at a public sale,
even if Collateral Agent accepts the first offer received and does not offer
such Pledged Collateral to more than one offeree. If the proceeds of any sale
or other disposition of the Pledged Collateral are insufficient to pay all the
Secured Obligations, Pledgor shall be liable for the deficiency and the
reasonable fees of any attorneys employed by Collateral Agent to collect such
deficiency.
(b) Pledgor recognizes that, by reason of certain prohibitions contained in
the Securities Act and applicable state securities laws, Collateral Agent may be
compelled, with respect to any sale of all or any part of the Pledged Collateral
conducted without prior registration or qualification of such Pledged Collateral
under the Securities Act and/or such state securities laws, to limit purchasers
to those who will agree, among other things, to acquire the Pledged Collateral
for their own account, for investment and not with a view to the distribution or
resale thereof. Pledgor acknowledges that any such private sales may be at
prices and on terms less favorable than those obtainable through a public sale
without such restrictions (including, without limitation, a public
XIV-13
<PAGE>
offering made pursuant to a registration statement under the Securities Act)
and, notwithstanding such circumstances, Pledgor agrees that any such private
sale shall be deemed to have been made in a commercially reasonable manner and
that Collateral Agent shall have no obligation to engage in public sales and no
obligation to delay the sale of any Pledged Collateral for the period of time
necessary to permit the issuer thereof to register it for a form of public sale
requiring registration under the Securities Act or under applicable state
securities laws, even if such issuer would, or should, agree to so register it.
(c) If Collateral Agent determines to exercise its right to sell any or all
of the Pledged Collateral, upon written request, Pledgor shall and shall cause
each issuer of any Pledged Shares to be sold hereunder from time to time to
furnish to Collateral Agent all such information as Collateral Agent may
reasonably request in order to determine the number of shares and other
instruments included in the Pledged Collateral which may be sold by Collateral
Agent in exempt transactions under the Securities Act and the rules and
regulations of the Securities and Exchange Commission thereunder, as the same
are from time to time in effect.
SECTION 13. PROCEEDS TO BE TURNED OVER TO COLLATERAL AGENT.
----------------------------------------------
In addition to the rights of the Collateral Agent and the Secured Parties
specified in Section 8(b) with respect to payment of Accounts, if an Event of
Default shall occur and be continuing, upon request of the Collateral Agent, all
proceeds received by the Pledgor consisting of cash, checks and other near-cash
items shall be held by the Pledgor in trust for the Collateral Agent and the
Secured Parties, segregated from other funds of the Pledgor, and shall,
forthwith upon receipt by the Pledgor, be turned over to the Collateral Agent in
the exact form received by the Pledgor (duly indorsed by the Pledgor to the
Collateral Agent, if required) and held by the Collateral Agent in a Collateral
Account maintained under the Intercreditor Agreement. All proceeds while held
by the Collateral Agent in a Collateral Account (or by the Pledgor in trust for
the Collateral Agent and the Secured Parties) shall continue to be held as
collateral security for all the Secured Obligations and shall not constitute
payment thereof until applied as provided in Section 15.
SECTION 14. APPLICATION OF PROCEEDS.
-----------------------
All proceeds held in any Collateral Account and all other proceeds received
by Collateral Agent in respect of any sale of, collection from, or other
realization upon all or any part of the Pledged Collateral shall be applied as
provided in subsection 3 of the Intercreditor Agreement.
SECTION 15. CONTINUING SECURITY INTEREST; TRANSFER OF LOANS.
-----------------------------------------------
This Agreement shall create a continuing security interest in the Pledged
Collateral and shall (a) remain in full force and effect until the payment in
full of all Secured Obligations (other than inchoate indemnification obligations
with respect to claims, losses or liabilities which have not yet arisen and are
not yet due and payable), the cancellation or termination of the Commitments and
the cancellation or expiration of all outstanding Letters of Credit, (b) be
binding upon Pledgor, its successors and assigns, and (c) inure, together with
the rights and remedies of Collateral Agent
XIV-14
<PAGE>
hereunder, to the benefit of Collateral Agent and its successors, transferees
and assigns. Without limiting the generality of the foregoing clause (c), but
subject to the provisions of subsection 10.1 of the Credit Agreement and
subsection 10.1 of the AXEL Credit Agreement, any Secured Party may assign or
otherwise transfer any Loans held by it to any other Person, and such other
Person shall thereupon become vested with all the benefits in respect thereof
granted to herein or otherwise. Upon the payment in full of all Secured
Obligations (other than inchoate indemnification obligations with respect to
claims, losses or liabilities which have not yet arisen and are not yet due and
payable), the cancellation or termination of the Commitments and the
cancellation or expiration of all outstanding Letters of Credit, the security
interest granted hereby shall terminate and all rights to the Pledged Collateral
shall revert to Pledgor. Upon any such termination Collateral Agent will, at
Pledgor's expense, execute and deliver to Pledgor such documents as Pledgor
shall reasonably request to evidence such termination in accordance with the
terms of the Intercreditor Agreement and Pledgor shall be entitled to the
return, upon its request and at its expense, against receipt and without
recourse to Collateral Agent, of such of the Pledged Collateral as shall not
have been sold or otherwise applied pursuant to the terms hereof.
SECTION 16. COLLATERAL AGENT AS ADMINISTRATIVE AGENT.
----------------------------------------
(a) Collateral Agent has been appointed to act as Collateral Agent hereunder
by CA Administrative Agent on behalf of the Credit Agreement Lenders and AXEL
Administrative Agent on behalf of the AXEL Lenders pursuant to Intercreditor
Agreement and, by their acceptance of the benefits hereof, Interest Rate
Exchangers and shall be entitled to the benefits of the Intercreditor Agreement.
Collateral Agent shall be obligated, and shall have the right hereunder, to make
demands, to give notices, to exercise or refrain from exercising any rights, and
to take or refrain from taking any action (including, without limitation, the
release or substitution of Pledged Collateral), solely in accordance with this
Agreement and the Intercreditor Agreement; provided that Collateral Agent shall
--------
exercise, or refrain from exercising, any remedies provided for in Section 12 in
accordance with the instructions of (i) Requisite Lenders or (ii) after payment
in full of all Financing Agreement Obligations under the Financing Agreements
and any other Loan Documents, the holders of a majority of the aggregate
notional amount (or, with respect to any Lender Interest Rate Agreement that has
been terminated in accordance with its terms, the amount then due and payable
(exclusive of expenses and similar payments but including any early termination
payments then due) under such Lender Interest Rate Agreement) under all Lender
Interest Rate Agreements (Requisite Lenders or, if applicable, such holders
being referred to herein as "REQUISITE OBLIGEES"). In furtherance of the
foregoing provisions of this Section 18(a), each Interest Rate Exchanger, by its
acceptance of the benefits hereof, agrees that it shall have no right
individually to realize upon any of the Pledged Collateral hereunder, it being
understood and agreed by such Interest Rate Exchanger that all rights and
remedies hereunder may be exercised solely by Collateral Agent for the benefit
of and Interest Rate Exchangers in accordance with the terms of this Section
18(a).
(b) Collateral Agent shall at all times be the same Person that is appointed
Collateral Agent under the Intercreditor Agreement. The Collateral Agent may
resign and a successor Collateral Agent may be appointed in the manner provided
in the Intercreditor Agreement. Upon the acceptance of any appointment as
Collateral Agent by a successor Collateral Agent, that successor Collateral
Agent shall thereupon succeed to and become vested with all the rights, powers,
XIV-15
<PAGE>
privileges and duties of the retiring or removed Collateral Agent under this
Agreement, and the retiring or removed Collateral Agent under this Agreement
shall promptly (i) transfer to such successor Collateral Agent all sums,
securities and other items of Collateral held hereunder, together with all
records and other documents necessary or appropriate in connection with the
performance of the duties of the successor Collateral Agent under this
Agreement, and (ii) execute and deliver to such successor Collateral Agent such
amendments to financing statements, and take such other actions, as may be
necessary or appropriate in connection with the assignment to such successor
Collateral Agent of the security interests created hereunder, whereupon such
retiring or removed Collateral Agent shall be discharged from its duties and
obligations under this Agreement. After any retiring or removed Collateral
Agent's resignation or removal hereunder as Collateral Agent, the provisions of
this Agreement shall inure to its benefit as to any actions taken or omitted to
be taken by it under this Agreement while it was Collateral Agent hereunder.
SECTION 17. AMENDMENTS; ETC.
---------------
No amendment, modification, termination or waiver of any provision of this
Agreement, and no consent to any departure by Pledgor therefrom, shall in any
event be effective unless the same shall be in writing and signed by Collateral
Agent and, in the case of any such amendment or modification, by Pledgor. Any
such waiver or consent shall be effective only in the specific instance and for
the specific purpose for which it was given.
SECTION 18. NOTICES.
-------
Any notice or other communication herein required or permitted to be given
shall be in writing and may be personally served, telexed or sent by
telefacsimile or United States mail or courier service and shall be deemed to
have been given when delivered in person or by courier service, upon receipt of
telefacsimile or telex (with received answerback), or three Business Days after
depositing it in the United States mail with postage prepaid and properly
addressed; provided that notices to Collateral Agent or Pledgor shall not be
--------
effective until received. For the purposes hereof, the address of each party
hereto shall be as provided in subsection 10.8 of the Credit Agreement or
subsection 10.8 of the AXEL Credit Agreement, as applicable, or as set forth
under such party's name on the signature pages hereof or such other address as
shall be designated by such party in a written notice delivered to the other
parties hereto.
SECTION 19. SEVERABILITY.
------------
In case any provision in or obligation under this Agreement shall be
invalid, illegal or unenforceable in any jurisdiction, the validity, legality
and enforceability of the remaining provisions or obligations, or of such
provision or obligation in any other jurisdiction, shall not in any way be
affected or impaired thereby.
SECTION 20. HEADINGS.
--------
XIV-16
<PAGE>
Section and subsection headings in this Agreement are included herein for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose or be given any substantive effect.
SECTION 21. GOVERNING LAW; TERMS.
--------------------
THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL
BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE
INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING WITHOUT LIMITATION SECTION 5-
1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO
CONFLICTS OF LAWS PRINCIPLES, EXCEPT TO THE EXTENT THAT THE CODE PROVIDES THAT
THE PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN
RESPECT OF ANY PARTICULAR PLEDGED COLLATERAL ARE GOVERNED BY THE LAWS OF A
JURISDICTION OTHER THAN THE STATE OF NEW YORK. Unless otherwise defined herein
or in the Financing Agreements, terms used in Articles 8 and 9 of the Uniform
Commercial Code in the State of New York are used herein as therein defined.
SECTION 22. COUNTERPARTS.
------------
This Agreement may be executed in one or more counterparts and by different
parties hereto in separate counterparts, each of which when so executed and
delivered shall be deemed an original, but all such counterparts together shall
constitute but one and the same instrument; signature pages may be detached from
multiple separate counterparts and attached to a single counterpart so that all
signature pages are physically attached to the same document.
[Remainder of page intentionally left blank]
XIV-17
<PAGE>
IN WITNESS WHEREOF, Pledgor and Collateral Agent have caused this
Agreement to be duly executed and delivered by their respective officers
thereunto duly authorized as of the date first written above.
SEALY MATTRESS COMPANY
By: ________________________________
Name:
Title:
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK, as Collateral Agent
By: ________________________________
Name:
Title:
XIV-18
<PAGE>
SCHEDULE I
Attached to and forming a part of the Company Pledge Agreement dated as of
December 18, 1997 between Sealy Mattress Company, as Pledgor, and Morgan
Guaranty Trust Company of New York, as Collateral Agent.
PART A
<TABLE>
<CAPTION>
================================================================================
PERCENTAGE OF
STOCK NUMBER OUTSTANDING
CLASS OF CERTIFICATE PAR OF SHARES
STOCK ISSUER STOCK NOS. VALUE SHARES PLEDGED
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
</TABLE>
PART B
<TABLE>
<CAPTION>
============================================================
AMOUNT OF
DEBT ISSUER INDEBTEDNESS
------------------------------------------------------------
<S> <C>
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
============================================================
</TABLE>
XIV-19
<PAGE>
SCHEDULE II
PLEDGE AMENDMENT
This Pledge Amendment, dated ____________, [199_][200_], is delivered
pursuant to Section 6(b) of the Pledge Agreement referred to below. The
undersigned hereby agrees that this Pledge Amendment may be attached to the
Company Pledge Agreement dated as of December 18, 1997, between the undersigned
and Morgan Guaranty Trust Company of New York, as Collateral Agent (the "PLEDGE
AGREEMENT," capitalized terms defined therein being used herein as therein
defined), and that the [Pledged Shares] [Pledged Debt] listed on this Pledge
Amendment shall be deemed to be part of the [Pledged Shares] [Pledged Debt] and
shall become part of the Pledged Collateral and shall secure all Secured
Obligations.
SEALY MATTRESS COMPANY
By: ___________________________________
Name:
Title:
<TABLE>
<CAPTION>
================================================================================
PERCENTAGE OF
CLASS STOCK NUMBER OUTSTANDING
OF CERTIFICATE PAR OF SHARES PLEDGED
STOCK ISSUER STOCK NOS. VALUE SHARES
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
</TABLE>
<TABLE>
<CAPTION>
============================================================
AMOUNT OF
DEBT ISSUER INDEBTEDNESS
------------------------------------------------------------
<S> <C>
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
============================================================
</TABLE>
XIV-20
<PAGE>
EXHIBIT XV
[FORM OF COMPANY SECURITY AGREEMENT]
COMPANY SECURITY AGREEMENT
This COMPANY SECURITY AGREEMENT (this "AGREEMENT") is dated as of December
18, 1997 and entered into by and between SEALY MATTRESS COMPANY, an Ohio
corporation ("GRANTOR"), and MORGAN GUARANTY TRUST COMPANY OF NEW YORK
("MORGAN GUARANTY"), as Collateral Agent for and representative of (in such
capacity, herein called "COLLATERAL AGENT") the Secured Parties (as
hereinafter defined) and any Interest Rate Exchangers (as hereinafter defined).
RECITALS
A. Grantor, Sealy Corporation, a Delaware Corporation ("HOLDINGS") the
financial institutions from time to time parties thereto (the "CREDIT AGREEMENT
LENDERS"), Goldman Sachs Credit Partners L.P. ("GSCP"), as arranger and
syndication agent (in such capacity, "CA SYNDICATION AGENT"), Morgan Guaranty,
as administrative agent (in such capacity, "CA ADMINISTRATIVE AGENT"), and
Bankers Trust Company ("BTCO."), as documentation agent (in such capacity,
"CA DOCUMENTATION AGENT") have entered into a Credit Agreement dated as of
December 18, 1997 (said Credit Agreement, as it may hereafter be amended,
restated, supplemented or otherwise modified from time to time, being the
("CREDIT AGREEMENT") pursuant to which Credit Agreement Lenders have made
certain commitments, subject to the terms and conditions set forth in the Credit
Agreement, to extend certain credit facilities to Grantor.
B. Grantor, Holdings, the financial institutions from time to time parties
thereto (the "AXEL LENDERS"), GSCP, as arranger and syndication agent (in such
capacity the "AXEL SYNDICATION AGENT"), Morgan Guaranty, as administrative
agent (in such capacity "AXEL ADMINISTRATIVE AGENT"), and BTCo., as
documentation agent (in such capacity "AXEL DOCUMENTATION AGENT") have entered
into an AXEL Credit Agreement dated as of December 18, 1997 (said AXEL Credit
Agreement, as it may hereafter be amended, restated, supplemented or otherwise
modified from time to time, being the "AXEL CREDIT AGREEMENT"; the Credit
Agreement Lenders, the CA Syndication Agent, the CA Administrative Agent, the CA
Documentation Agent, the AXEL Lenders, the AXEL Syndication Agent, the AXEL
Administrative Agent, and the AXEL Documentation Agent each being a "SECURED
PARTY" and collectively the "SECURED PARTIES") pursuant to which AXEL Lenders
have made certain commitments, subject to the terms and conditions set forth in
the AXEL Credit Agreement, to extend certain credit facilities to Grantor.
C. Grantor may from time to time enter into one or more Interest Rate
Agreements (collectively, the "LENDER INTEREST RATE AGREEMENTS") with one or
more CA Lenders or their Affiliates or AXEL Lenders or their Affiliates (in such
capacity, collectively, "INTEREST RATE EXCHANGERS") in accordance with the
terms of the Financing Agreements (as hereinafter defined),
XV-1
<PAGE>
and it is desired that the obligations of Grantor under the Lender Interest Rate
Agreements, including without limitation the obligation of Grantor to make
payments, if any, thereunder in the event of early termination thereof, together
with all obligations of Grantor under the Financing Agreements and any other
Loan Documents (as hereinafter defined), be secured hereunder.
D. It is a condition precedent to the initial extensions of credit by
Secured Parties under the Financing Agreements that Grantor shall have granted
the security interests and undertaken the obligations contemplated by this
Agreement.
NOW, THEREFORE, in consideration of the premises and to induce (i) the CA
Administrative Agent, the CA Syndication Agent and the Credit Agreement Lenders
to enter into the Credit Agreement, (ii) the Credit Agreement Lenders to make
their respective loans to, and issue Letters of Credit for the account of, the
Grantor, (iii) the AXEL Administrative Agent, the AXEL Syndication Agent and the
AXEL Lenders to enter into the AXEL Loan Agreement, (iv) the AXEL Lenders to
make their respective loans to the Grantor and (v) to induce Interest Rate
Exchangers to enter into the Lender Interest Rate Agreements and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the Grantor hereby agrees with the Collateral Agent as follows:
1. DEFINED TERMS.
-------------
(a) Unless otherwise defined herein, terms defined in the Credit Agreement
and used herein shall have the meanings given to such terms in the Credit
Agreement;
(b) The following terms shall have the following meanings:
"ACCELERATION" shall mean any of the Credit Agreement Obligations or the
AXEL Credit Agreement Obligations have been declared, or have become,
immediately due and payable, or the commitments to extend credit of the Credit
Agreement Lenders or the AXEL Lenders shall have been terminated under Section 8
of the Credit Agreement or Section 7 of the AXEL Credit Agreement, respectively.
"ACCOUNTS" has the meaning assigned to that term in Section 2 of this
Agreement.
"AGREEMENT" means this Company Security Agreement dated as of December 18,
1997, as it may be amended, supplemented or otherwise modified from time to
time.
"ASSIGNED AGREEMENT" has the meaning assigned to that term in Section 2 of
this Agreement.
"AXEL COMMITMENTS" shall mean the "Commitments" as defined in the AXEL
Credit Agreement.
"AXEL CREDIT AGREEMENT" has the meaning assigned to that term in the
recitals to this Agreement.
XV-2
<PAGE>
"AXEL OBLIGATIONS" shall mean the "Obligations" as defined in the AXEL
Credit Agreement.
"COLLATERAL" has the meaning assigned to that term in Section 2 of this
Agreement.
"COLLATERAL ACCOUNTS" shall mean "Collateral Accounts" as defined in the
Intercreditor Agreement.
"COMMITMENTS" means the Credit Agreement Commitments and the AXEL
Commitments.
"CREDIT AGREEMENT" has the meaning assigned to that term in the recitals
to this Agreement.
"CREDIT AGREEMENT COMMITMENTS" shall mean the "Commitments" as defined
in the Credit Agreement.
"CREDIT AGREEMENT OBLIGATIONS" shall mean the "Obligations" as defined
in the Credit Agreement.
"EQUIPMENT" has the meaning assigned to that term in Section 2 of this
Agreement.
"EVENT OF DEFAULT" means any "Event of Default" as defined in any
Financing Agreement or the occurrence of an Event of Default in which Company is
the Defaulting Party and which results in the designation of an Early
Termination Date (as such terms are defined in a Master Agreement or an Interest
Rate Swap Agreement or Interest Rate and Currency Exchange Agreement in the form
prepared by the International Swap and Derivatives Association Inc. or a similar
event under any similar swap agreement) under any Lender Interest Rate
Agreement.
"FINANCING AGREEMENT" means either the Credit Agreement or the AXEL Credit
Agreement, and "Financing Agreements" means the Credit Agreement and the AXEL
Credit Agreement, collectively.
"FINANCING AGREEMENT OBLIGATIONS" means Credit Agreement Obligations and
AXEL Obligations.
"GRANTOR" has the meaning assigned to that term in the introduction of
this Agreement.
"HOLDINGS" has the meaning assigned to that term in the recitals to this
Agreement.
"INTERCREDITOR AGREEMENT" means the Intercreditor Agreement, dated as of
December 18, 1997, by and among CA Administrative Agent, AXEL Administrative
Agent and Collateral Agent.
"INTEREST RATE EXCHANGERS" has the meaning assigned to that term in the
recitals to this Agreement.
XV-3
<PAGE>
"INVENTORY" has the meaning assigned to that term in Section 2 of this
Agreement.
"LENDER INTEREST RATE AGREEMENT" has the meaning assigned to that term in
the recitals to this Agreement.
"LOAN" means any "Loan" as defined in any Financing Agreement, and
"LOANS" means all such Loans collectively.
"LOAN DOCUMENT" means any "Loan Document" as defined in any Financing
Agreement, and "LOAN DOCUMENTS" means all such Loan Documents collectively.
"NEGOTIABLE DOCUMENT OF TITLE" has the meaning assigned to that term in
Section 2 of this Agreement.
"POTENTIAL EVENT OF DEFAULT" means any "Potential Event of Default" as
defined in any Financing Agreement.
"RELATED CONTRACTS" has the meaning assigned to that term in Section 2 of
this Agreement.
"REQUISITE AXEL LENDERS" means "Requisite Lenders" as defined in the
AXEL Credit Agreement.
"REQUISITE CREDIT AGREEMENT LENDERS" means "Requisite Lenders" as
defined in the Credit Agreement.
"REQUISITE LENDERS" means (A) unless an Acceleration shall have occurred
and be continuing, the Requisite Credit Agreement Lenders and the Requisite AXEL
Lenders, and (B) if an Acceleration has occurred and is continuing, Secured
Parties holding more than 50% of the Financing Agreement Obligations.
"REQUISITE OBLIGEES" has the meaning assigned to that term in Section 23
of this Agreement.
"SECURED OBLIGATIONS" has the meaning assigned to that term in Section 2
of this Agreement.
"SECURED PARTIES" has the meaning assigned to that term in the recitals to
this Agreement.
2. GRANT OF SECURITY.
-----------------
Grantor hereby assigns to Collateral Agent and hereby grants to Collateral
Agent, a security interest in, all of Grantor's right, title and interest in and
to the following, in each case whether now or hereafter existing or in which
Grantor now has or hereafter acquires an interest and wherever the same may be
located (the "COLLATERAL"):
XV-4
<PAGE>
(a) all equipment in all of its forms, all parts thereof and all
accessions thereto (any and all such equipment, parts and accessions being
the "EQUIPMENT");
(b) all inventory in all of its forms (including, but not limited to,
(i) all goods held by Grantor for sale or lease or to be furnished under
contracts of service or so leased or furnished, (ii) all raw materials, work
in process, finished goods, and materials used or consumed in the
manufacture, packing, shipping, advertising, selling, leasing, furnishing or
production of such inventory or otherwise used or consumed in Grantor's
business, (iii) all goods in which Grantor has an interest in mass or a
joint or other interest or right of any kind, and (iv) all goods which are
returned to or repossessed by Grantor) and all accessions thereto and
products thereof (all such inventory, accessions and products being the
"INVENTORY") and all negotiable and non-negotiable documents of title
(including without limitation warehouse receipts, dock receipts and bills of
lading) issued by any Person covering any Inventory (any such negotiable
document of title being a "NEGOTIABLE DOCUMENT OF TITLE");
(c) all accounts, contract rights, chattel paper, documents,
instruments, general intangibles and other rights and obligations of any
kind and all rights in, to and under all security agreements, leases and
other contracts securing or otherwise relating to any such accounts,
contract rights, chattel paper, documents, instruments, general intangibles
or other obligations (any and all such accounts, contract rights, chattel
paper, documents, instruments, general intangibles and other obligations
being the "ACCOUNTS", and any and all such security agreements, leases and
other contracts being the "RELATED CONTRACTS");
(d) all agreements and contracts to which Grantor is a party as of the
date hereof or becomes a party after the date hereof, as each such agreement
may be amended, supplemented or otherwise modified from time to time (said
agreements, as so amended, supplemented or otherwise modified, being
referred to herein individually as an "ASSIGNED AGREEMENT" and collectively
as the "ASSIGNED AGREEMENTS"), including (i) all rights of Grantor to
receive moneys due or to become due under or pursuant to the Assigned
Agreements, (ii) all rights of Grantor to receive proceeds of any insurance,
indemnity, warranty or guaranty with respect to the Assigned Agreements,
(iii) all claims of Grantor for damages arising out of any breach of or
default under the Assigned Agreements, and (iv) all rights of Grantor to
terminate, amend, supplement, modify or exercise rights or options under the
Assigned Agreements, to perform thereunder and to compel performance and
otherwise exercise all remedies thereunder;
(e) all deposit accounts, including without limitation all deposit
accounts maintained with Collateral Agent;
(f) all tradesecrets, licenses, copyrights, registrations and franchise
rights, and all goodwill associated with any of the foregoing;
(g) to the extent not included in any other paragraph of this Section
2, all other general intangibles (including without limitation tax refunds,
rights to payment or
XV-5
<PAGE>
performance, choses in action and judgments taken on any rights or claims
included in the Collateral);
(h) all plant fixtures, business fixtures and other fixtures and
storage and office facilities, and all accessions thereto and products
thereof;
(i) all books, records, ledger cards, files, correspondence, computer
programs, tapes, disks and related data processing software that at any time
evidence or contain information relating to any of the Collateral or are
otherwise necessary or helpful in the collection thereof or realization
thereupon; and
(j) all proceeds, products, rents and profits of or from any and all of
the foregoing Collateral and, to the extent not otherwise included, all
payments under insurance (whether or not Collateral Agent is the loss payee
thereof), or any indemnity, warranty or guaranty, payable by reason of loss
or damage to or otherwise with respect to any of the foregoing Collateral.
For purposes of this Agreement, the term "PROCEEDS" includes whatever is
receivable or received when Collateral or proceeds are sold, exchanged,
collected or otherwise disposed of, whether such disposition is voluntary or
involuntary.
Notwithstanding anything herein to the contrary, in no event shall the
Collateral include, and Grantor shall not be deemed to have granted a security
interest in, any of Grantor's rights or interests in any license, contract or
agreement to which Grantor is a party or any of its rights or interests
thereunder to the extent, but only to the extent, that such a grant would, under
the terms of such license, contract or agreement or otherwise, result in a
breach of the terms of, or constitute a default under any license, contract or
agreement to which Grantor is a party (other than to the extent that any such
term would be rendered ineffective pursuant to Section 9-318(4) of the Uniform
Commercial Code of any relevant jurisdiction or any other applicable law
(including the Bankruptcy Code) or principles of equity); provided, that
--------
immediately upon the ineffectiveness, lapse or termination of any such
provision, the Collateral shall include, and Grantor shall be deemed to have
granted a security interest in, all such rights and interests as if such
provision had never been in effect.
3. SECURITY FOR OBLIGATIONS.
------------------------
This Agreement secures, and the Collateral is collateral security for, the
prompt payment or performance in full when due, whether at stated maturity, by
required prepayment, declaration, acceleration, demand or otherwise (including
the payment of amounts that would become due but for the operation of the
automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C.
(S)362(a)), of all obligations and liabilities of every nature, of Grantor now
or hereafter existing under or arising out of or in connection with any
Financing Agreement and any other Loan Documents and the Lender Interest Rate
Agreements and all extensions or renewals thereof, whether for principal,
interest (including without limitation interest that, but for the filing of a
petition in bankruptcy with respect to Grantor, would accrue on such
obligations), reimbursement of amounts drawn under Letters of Credit, payments
for early termination of Lender Interest Rate Agreements, fees, expenses,
indemnities or otherwise, whether voluntary or involuntary, direct or indirect,
absolute or
XV-6
<PAGE>
contingent, liquidated or unliquidated, whether or not jointly owed with others,
and whether or not from time to time decreased or extinguished and later
increased, created or incurred, and all or any portion of such obligations or
liabilities that are paid, to the extent all or any part of such payment is
avoided or recovered directly or indirectly from Collateral Agent or any Secured
Party or Interest Rate Exchanger as a preference, fraudulent transfer or
otherwise and all obligations of every nature of Grantor now or hereafter
existing under this Agreement (all such obligations of Grantor being the
"SECURED OBLIGATIONS").
4. GRANTOR REMAINS LIABLE.
----------------------
Anything contained herein to the contrary notwithstanding, (a) Grantor shall
remain liable under any contracts and agreements included in the Collateral, to
the extent set forth therein, to perform all of its duties and obligations
thereunder to the same extent as if this Agreement had not been executed, (b)
the exercise by Collateral Agent of any of its rights hereunder shall not
release Grantor from any of its duties or obligations under the contracts and
agreements included in the Collateral, and (c) Collateral Agent shall not have
any obligation or liability under any contracts and agreements included in the
Collateral by reason of this Agreement, nor shall Collateral Agent be obligated
to perform any of the obligations or duties of Grantor thereunder or to take any
action to collect or enforce any claim for payment assigned hereunder.
5. REPRESENTATIONS AND WARRANTIES.
------------------------------
Grantor represents and warrants as follows:
(a) Ownership of Collateral. Except for the security interest created
-----------------------
by this Agreement, Grantor owns the Collateral free and clear of any Lien
subject to Liens permitted by the Financing Agreements.
(b) Location of Equipment and Inventory. All of the Equipment and
-----------------------------------
Inventory is, as of the date hereof, located at the places specified in
Schedule 5(b) annexed hereto.
-------------
(c) Negotiable Documents of Title. No Negotiable Documents of Title
-----------------------------
are outstanding with respect to any of the Inventory (other than in respect
of (i) Inventory with an aggregate value not in excess of $1,000,000 or (ii)
Inventory which, in the ordinary course of business, is in transit either
(A) from a supplier to Grantor, (B) between the locations specified in
Schedule 5(b) hereto, or (C) to customers of Grantor).
-------------
(d) Office Locations; Other Names. The chief place of business, the
-----------------------------
chief executive office and the office where Grantor keeps its records
regarding the Accounts and all originals of all chattel paper that evidence
Accounts is, and has been for the four month period preceding the date
hereof, located at the places indicated on Schedule 5d. Grantor has not in
-----------
the past done, and does not now do, business under any other name (including
any trade-name or fictitious business name) except for those names set forth
on Schedule 5d.
-----------
XV-7
<PAGE>
6. FURTHER ASSURANCES.
------------------
(a) Grantor agrees that from time to time, at the expense of Grantor,
Grantor will promptly execute and deliver all further instruments and documents,
and take all further action, that Collateral Agent may reasonably request, in
order to perfect and protect any security interest granted or purported to be
granted hereby or to enable Collateral Agent to exercise and enforce its rights
and remedies hereunder with respect to any Collateral. Without limiting the
generality of the foregoing, Grantor will: (i) mark conspicuously each item of
chattel paper included in the Accounts, each Related Contract and, at the
reasonable request of Collateral Agent, each of its records pertaining to the
Collateral, with a legend, in form and substance reasonably satisfactory to
Collateral Agent, indicating that such Collateral is subject to the security
interest granted hereby, (ii) at the reasonable request of Collateral Agent,
deliver and pledge to Collateral Agent hereunder all promissory notes and other
instruments (excluding checks) and all original counterparts of chattel paper
constituting Collateral, duly endorsed and accompanied by duly executed
instruments of transfer or assignment, all in form and substance reasonably
satisfactory to Collateral Agent, (iii) execute and file such financing or
continuation statements, or amendments thereto, and such other instruments or
notices, as Collateral Agent may reasonably request, in order to perfect and
preserve the security interests granted or purported to be granted hereby, (iv)
after the acquisition by Grantor of any item of Equipment which is covered by a
certificate of title under a statute of any jurisdiction under the law of which
indication of a security interest on such certificate is required as a condition
of perfection thereof, upon the reasonable request of Collateral Agent, execute
and file with the registrar of motor vehicles or other appropriate authority in
such jurisdiction an application or other document requesting the notation or
other indication of the security interest created hereunder on such certificate
of title, (v) upon the reasonable request of Collateral Agent, deliver to
Collateral Agent copies of all such applications or other documents filed during
such calendar quarter and copies of all such certificates of title issued during
such calendar quarter indicating the security interest created hereunder in the
items of Equipment covered thereby, and (vi) at Collateral Agent's reasonable
request, appear in and defend any action or proceeding that may affect Grantor's
title to or Collateral Agent's security interest in all or any part of the
Collateral.
(b) Grantor hereby authorizes Collateral Agent to file one or more financing
or continuation statements, and amendments thereto, relative to all or any part
of the Collateral without the signature of Grantor to the extent permitted by
applicable law. Grantor agrees that a carbon, photographic or other
reproduction of this Agreement or of a financing statement signed by Grantor
shall be sufficient as a financing statement and may be filed as a financing
statement in any and all jurisdictions.
7. CERTAIN COVENANTS OF GRANTOR.
----------------------------
Grantor shall:
(a) notify Collateral Agent of any change in Grantor's name, identity
or corporate structure within 30 days of such change;
XV-8
<PAGE>
(b) give Collateral Agent 30 days' written notice following any change
in Grantor's chief place of business, chief executive office or residence or
the office where Grantor keeps its records regarding the Accounts and all
originals of all chattel paper that evidence Accounts;
(c) pay promptly when due all property and other taxes, assessments
and governmental charges or levies imposed upon, and all claims (including
claims for labor, materials and supplies) against, the Collateral, except to
the extent the validity thereof is being contested in good faith.
8. SPECIAL COVENANTS WITH RESPECT TO EQUIPMENT AND INVENTORY.
---------------------------------------------------------
Grantor shall:
(a) keep the Equipment and Inventory at the places therefor specified
on Schedule 5(b) annexed hereto or, upon 30 days' written notice to
-------------
Collateral Agent following any change in location, at such other places in
jurisdictions where all action that Collateral Agent may reasonably request,
in order to perfect and protect any security interest granted or purported
to be granted hereby, or to enable Collateral Agent to exercise and enforce
its rights and remedies hereunder, with respect to such Equipment and
Inventory shall have been taken;
(b) cause the Equipment to be maintained and preserved in working
order, ordinary wear and tear and damage by casualty excepted, and in
accordance with Grantor's past practices, and shall forthwith make or cause
to be made all repairs, replacements and other improvements in connection
therewith that are necessary in the Grantor's reasonable business judgment
to such end;
(c) keep correct and accurate records of the Inventory, itemizing and
describing the kind, type and quantity of Inventory, Grantor's cost therefor
and (where applicable) the current list prices for the Inventory;
(d) if any Inventory is in possession or control of any of Grantor's
agents or processors, upon the occurrence of an Event of Default, instruct
such agent or processor to hold all such Inventory for the account of
Collateral Agent and subject to the instructions of Collateral Agent; and
(e) promptly upon the issuance and delivery to Grantor of any
Negotiable Document of Title (other than any one or more Negotiable
Documents of Title covering (i) Inventory with an aggregate value not in
excess of $1,000,000 or (ii) Inventory which, in the ordinary course of
business, is in transit either (A) from a supplier to Grantor, (B) between
the locations specified in Schedule 5(b) hereto, or (C) to customers of
-------------
Grantor), deliver such Negotiable Document of Title to Collateral Agent.
XV-9
<PAGE>
9. INSURANCE.
---------
Grantor shall, at its own expense, maintain insurance with respect to the
Equipment and Inventory in accordance with the terms of the Financing
Agreements.
10. SPECIAL COVENANTS WITH RESPECT TO ACCOUNTS AND RELATED CONTRACTS.
----------------------------------------------------------------
(a) Grantor shall keep its chief place of business and chief executive
office and the office where it keeps its records concerning the Accounts and
Related Contracts, and all originals of all chattel paper that evidence
Accounts, at the location therefor specified in Section 5 or, upon 30 days'
written notice to Collateral Agent following any change in location, at such
other location in a jurisdiction where all action that Collateral Agent may
request, in order to perfect and protect any security interest granted or
purported to be granted hereby, or to enable Collateral Agent to exercise and
enforce its rights and remedies hereunder, with respect to such Accounts and
Related Contracts shall have been taken. Promptly upon the reasonable request
of Collateral Agent, Grantor shall deliver to Collateral Agent complete and
correct copies of each Related Contract.
(b) Grantor shall, maintain (i) complete records of each Account, including
records of all payments received, credits granted and merchandise returned, and
(ii) all documentation relating thereto in accordance with prudent business
practices.
(c) Except as otherwise provided in this subsection (c), Grantor shall
continue to collect, at its own expense, all amounts due or to become due to
Grantor under the Accounts and Related Contracts. In connection with such
collections, Grantor shall take such action as Grantor or Collateral Agent may
deem necessary or advisable to enforce collection of amounts due or to become
due under the Accounts; provided, however, that Collateral Agent shall have the
-------- -------
right at any time, upon the occurrence and during the continuation of an Event
of Default and upon written notice to Grantor of its intention to do so, to
notify the account debtors or obligors under any Accounts of the assignment of
such Accounts to Collateral Agent and to direct such account debtors or obligors
to make payment of all amounts due or to become due to Grantor thereunder
directly to Collateral Agent, to notify each Person maintaining a lockbox or
similar arrangement to which account debtors or obligors under any Accounts have
been directed to make payment to remit all amounts representing collections on
checks and other payment items from time to time sent to or deposited in such
lockbox or other arrangement directly to Collateral Agent and, upon such
notification and at the expense of Grantor, to enforce collection of any such
Accounts and to adjust, settle or compromise the amount or payment thereof, in
the same manner and to the same extent as Grantor might have done. After receipt
by Grantor of the notice from Collateral Agent referred to in the proviso to
-------
the preceding sentence, (i) any payments of Accounts, received by the Grantor
shall be forthwith (and in any event within two Business Days) deposited by the
Grantor in the exact form received, duly indorsed by the Grantor to the
Collateral Agent if required, in a Collateral Account maintained under the sole
dominion and control of the Collateral Agent, subject to withdrawal by the
Collateral Agent for the account of the Secured Parties only as provided in
Section 21, (ii) until so turned over in accordance with the preceding
subsection (i), all amounts and proceeds (including checks and other
instruments) received by Grantor in respect of the Accounts and the Related
XV-10
<PAGE>
Contracts shall be received in trust for the benefit of Collateral Agent
hereunder and shall be segregated from other funds of Grantor and (iii) Grantor
shall not adjust, settle or compromise the amount or payment of any Account, or
release wholly or partly any account debtor or obligor thereof, or allow any
credit or discount thereon.
11. DEPOSIT ACCOUNTS.
----------------
Upon the occurrence and during the continuation of an Event of Default,
Collateral Agent may exercise dominion and control over, and refuse to permit
further withdrawals (whether of money, securities, instruments or other
property) from any deposit accounts maintained with Collateral Agent
constituting part of the Collateral.
12. LICENSE OF COPYRIGHTS, ETC.
--------------------------
Grantor hereby assigns, transfers and conveys to Collateral Agent, effective
upon the occurrence of any Event of Default, the nonexclusive right and license
to use all copyrights or technical processes owned or used by Grantor that
relate to the Collateral and any other collateral granted by Grantor as security
for the Secured Obligations, together with any goodwill associated therewith,
all to the extent necessary to enable Collateral Agent to use, possess and
realize on the Collateral and to enable any successor or assign to enjoy the
benefits of the Collateral. This right and license shall inure to the benefit
of all successors, assigns and transferees of Collateral Agent and its
successors, assigns and transferees, whether by voluntary conveyance, operation
of law, assignment, transfer, foreclosure, deed in lieu of foreclosure or
otherwise. Such right and license is granted free of charge, without
requirement that any monetary payment whatsoever be made to Grantor.
13. TRANSFERS AND OTHER LIENS.
-------------------------
Grantor shall not:
(a) sell, assign (by operation of law or otherwise) or otherwise
dispose of any of the Collateral, except as permitted by the Financing
Agreements; or
(b) except for the security interest created by this Agreement and
Liens permitted by the Financing Agreements, create or suffer to exist any
Lien upon or with respect to any of the Collateral to secure the
indebtedness or other obligations of any Person.
14. COLLATERAL AGENT APPOINTED ATTORNEY-IN-FACT.
-------------------------------------------
Grantor hereby irrevocably appoints Collateral Agent as Grantor's attorney-
in-fact, with full authority in the place and stead of Grantor and in the name
of Grantor, Collateral Agent or otherwise, from time to time, upon the
occurrence and continuance of an Event of Default, in Collateral Agent's
reasonable discretion to take any action and to execute any instrument that
Collateral Agent may reasonably deem necessary or advisable to accomplish the
purposes of this Agreement, including without limitation:
XV-11
<PAGE>
(a) to obtain and adjust insurance required to be maintained by Grantor
or paid to Collateral Agent pursuant to Section 9;
(b) to ask for, demand, collect, sue for, recover, compound, receive
and give acquittance and receipts for moneys due and to become due under or
in respect of any of the Collateral;
(c) to receive, endorse and collect any drafts or other instruments,
documents and chattel paper in connection with clauses (a) and (b) above;
(d) to file any claims or take any action or institute any proceedings
that Collateral Agent may reasonably deem necessary or desirable for the
collection of any of the Collateral or otherwise to enforce the rights of
Collateral Agent with respect to any of the Collateral;
(e) to pay or discharge taxes or Liens (other than Liens permitted
under this Agreement or the Financing Agreements) levied or placed upon or
threatened against the Collateral, the legality or validity thereof and the
amounts necessary to discharge the same to be determined by Collateral Agent
in its reasonable discretion, any such payments made by Collateral Agent to
become obligations of Grantor to Collateral Agent, due and payable
immediately without demand;
(f) to sign and endorse any invoices, freight or express bills, bills
of lading, storage or warehouse receipts, drafts against debtors,
assignments, verifications and notices in connection with Accounts and other
documents relating to the Collateral; and
(g) upon the occurrence and during the continuation of an Event of
Default, generally to sell, transfer, pledge, make any agreement with
respect to or otherwise deal with any of the Collateral as fully and
completely as though Collateral Agent were the absolute owner thereof for
all purposes, and to do, at Collateral Agent's option and Grantor's expense,
at any time or from time to time, all acts and things that Collateral Agent
reasonably deems necessary to protect, preserve or realize upon the
Collateral and Collateral Agent's security interest therein in order to
effect the intent of this Agreement, all as fully and effectively as Grantor
might do.
15. COLLATERAL AGENT MAY PERFORM.
----------------------------
If Grantor fails to perform any agreement contained herein, Collateral Agent
may itself perform, or cause performance of, such agreement, and the reasonable
expenses of Collateral Agent incurred in connection therewith shall be payable
by Grantor under Section 17.
XV-12
<PAGE>
16. INDEMNITY AND EXPENSES.
----------------------
(a) Grantor agrees to indemnify Collateral Agent, each Secured Party and
each Interest Rate Exchanger from and against any and all claims, losses and
liabilities in any way relating to, growing out of or resulting from this
Agreement and the transactions contemplated hereby (including without limitation
enforcement of this Agreement), except to the extent such claims, losses or
liabilities result from Collateral Agent's or such Secured Party's or Interest
Rate Exchanger's gross negligence or willful misconduct as determined by a court
of competent jurisdiction.
(b) Grantor agrees to pay to Collateral Agent promptly following written
demand the amount of any and all reasonable costs and reasonable expenses,
including the reasonable fees and expenses of its counsel and of any experts and
agents, that Collateral Agent may incur in connection with (i) the
administration of this Agreement, (ii) the custody, preservation, use or
operation of, or the sale of, collection from, or other realization upon, any of
the Collateral, (iii) the exercise or enforcement of any of the rights of
Collateral Agent hereunder, or (iv) the failure by Grantor to perform or observe
any of the provisions hereof.
(c) The obligations of Grantor in this Section 17 shall survive the
termination of this Agreement and the discharge of Grantor's other obligations
under this Agreement, the Interest Rate Agreements, the Financing Agreements and
any other Loan Documents.
17. STANDARD OF CARE.
----------------
The powers conferred on Collateral Agent hereunder are solely to protect its
interest in the Collateral and shall not impose any duty upon it to exercise any
such powers. Except for the exercise of reasonable care in the custody of any
Collateral in its possession and the accounting for moneys actually received by
it hereunder, Collateral Agent shall have no duty as to any Collateral or as to
the taking of any necessary steps to preserve rights against prior parties or
any other rights pertaining to any Collateral. Collateral Agent shall be deemed
to have exercised reasonable care in the custody and preservation of Collateral
in its possession if such Collateral is accorded treatment substantially equal
to that which Collateral Agent accords its own property.
XV-13
<PAGE>
18. REMEDIES.
--------
If any Event of Default shall have occurred and be continuing, Collateral
Agent may exercise in respect of the Collateral, in addition to all other rights
and remedies provided for herein or otherwise available to it, all the rights
and remedies of a secured party on default under the Uniform Commercial Code as
in effect in any relevant jurisdiction (the "CODE") (whether or not the Code
applies to the affected Collateral), and also may (a) require Grantor to, and
Grantor hereby agrees that it will at its expense and upon request of Collateral
Agent forthwith, assemble all or part of the Collateral as directed by
Collateral Agent and make it available to Collateral Agent at a place to be
designated by Collateral Agent that is reasonably convenient to both parties,
(b) enter onto the property where any Collateral is located and take possession
thereof with or without judicial process, (c) prior to the disposition of the
Collateral, store, process, repair or recondition the Collateral or otherwise
prepare the Collateral for disposition in any manner to the extent Collateral
Agent deems appropriate, (d) take possession of Grantor's premises or place
custodians in exclusive control thereof, remain on such premises and use the
same and any of Grantor's equipment for the purpose of completing any work in
process, taking any actions described in the preceding clause (c) and collecting
any Secured Obligation, and (e) without notice except as specified below, sell
the Collateral or any part thereof in one or more parcels at public or private
sale, at any of Collateral Agent's offices or elsewhere, for cash, on credit or
for future delivery, at such time or times and at such price or prices and upon
such other terms as Collateral Agent may deem commercially reasonable.
Collateral Agent or any Secured Party or Interest Rate Exchanger may be the
purchaser of any or all of the Collateral at any such sale and Collateral Agent,
as agent for and representative of Secured Parties and Interest Rate Exchangers
(but not any Secured Party or Secured Parties or Interest Rate Exchanger or
Interest Rate Exchangers in its or their respective individual capacities unless
Requisite Obligees shall otherwise agree in writing), shall be entitled, for the
purpose of bidding and making settlement or payment of the purchase price for
all or any portion of the Collateral sold at any such public sale, to use and
apply any of the Secured Obligations as a credit on account of the purchase
price for any Collateral payable by Collateral Agent at such sale. Each
purchaser at any such sale shall hold the property sold absolutely free from any
claim or right on the part of Grantor, and Grantor hereby waives (to the extent
permitted by applicable law) all rights of redemption, stay and/or appraisal
which it now has or may at any time in the future have under any rule of law or
statute now existing or hereafter enacted. Grantor agrees that, to the extent
notice of sale shall be required by law, at least ten days' notice to Grantor of
the time and place of any public sale or the time after which any private sale
is to be made shall constitute reasonable notification. Collateral Agent shall
not be obligated to make any sale of Collateral regardless of notice of sale
having been given. Collateral Agent may adjourn any public or private sale from
time to time by announcement at the time and place fixed therefor, and such sale
may, without further notice, be made at the time and place to which it was so
adjourned. Grantor hereby waives any claims against Collateral Agent arising by
reason of the fact that the price at which any Collateral may have been sold at
such a private sale was less than the price which might have been obtained at a
public sale, even if Collateral Agent accepts the first offer received and does
not offer such Collateral to more than one offeree. If the proceeds of any sale
or other disposition of the Collateral are insufficient to pay all the Secured
Obligations, Grantor shall be liable for the deficiency and the reasonable fees
of any attorneys employed by Collateral Agent to collect such deficiency.
19. PROCEEDS TO BE TURNED OVER TO COLLATERAL AGENT.
----------------------------------------------
XV-14
<PAGE>
In addition to the rights of the Collateral Agent and the Secured Parties
specified in Section 10 with respect to payments of Accounts, if an Event of
Default shall occur and be continuing, upon request of the Collateral Agent, all
proceeds received by the Grantor consisting of cash, checks and other near-cash
items shall be held by the Grantor in trust for the Collateral Agent and the
Secured Parties, segregated from other funds of the Grantor, and shall,
forthwith upon receipt by the Grantor, be turned over to the Collateral Agent in
the exact form received by the Grantor (duly indorsed by the Grantor to the
Collateral Agent, if required) and held by the Collateral Agent in a Collateral
Account maintained under the Intercreditor Agreement. All proceeds while held
by the Collateral Agent in a Collateral Account (or by the Borrower in trust for
the Collateral Agent and the Secured Parties) shall continue to be held as
collateral security for all the Obligations and shall not constitute payment
thereof until applied as provided in subsection 21.
20. APPLICATION OF PROCEEDS.
-----------------------
Except as expressly provided elsewhere in this Agreement, all proceeds held
in any Collateral Account and all other proceeds received by Collateral Agent in
respect of any sale of, collection from, or other realization upon all or any
part of the Collateral shall be applied as provided in subsection 3 of the
Intercreditor Agreement.
21. CONTINUING SECURITY INTEREST; TRANSFER OF LOANS.
-----------------------------------------------
This Agreement shall create a continuing security interest in the Collateral
and shall (a) remain in full force and effect until the payment in full of the
Secured Obligations (other than inchoate indemnification obligations with
respect to claims, losses or liabilities which have not yet arisen and are not
yet due and payable), the cancellation or termination of the Commitments and the
cancellation or expiration of all outstanding Letters of Credit, (b) be binding
upon Grantor, its successors and assigns, and (c) inure, together with the
rights and remedies of Collateral Agent hereunder, to the benefit of Collateral
Agent and its successors, transferees and assigns. Without limiting the
generality of the foregoing clause (c), but subject to the provisions of
subsection 10.1 of the Credit Agreement and subsection 10.1 of the AXEL Credit
Agreement, any Secured Party may assign or otherwise transfer any Loans held by
it to any other Person, and such other Person shall thereupon become vested with
all the benefits in respect thereof granted to Secured Parties herein or
otherwise. Upon the payment in full of all Secured Obligations (other than
inchoate indemnification obligations with respect to claims, losses or
liabilities which have not yet arisen and are not yet due and payable), the
cancellation or termination of the Commitments and the cancellation or
expiration of all outstanding Letters of Credit, the security interest granted
hereby shall terminate and all rights to the Collateral shall revert to Grantor.
Upon any such termination Collateral Agent will, at Grantor's expense, execute
and deliver to Grantor such documents as Grantor shall reasonably request to
evidence such termination in accordance with the terms of the Intercreditor
Agreement.
XV-15
<PAGE>
22. COLLATERAL AGENT AS ADMINISTRATIVE AGENT.
----------------------------------------
(a) Collateral Agent has been appointed to act as Collateral Agent hereunder
by CA Administrative Agent on behalf of the Credit Agreement Lenders and AXEL
Administrative Agent on behalf of the AXEL Lenders pursuant to the Intercreditor
Agreement and, by their acceptance of the benefits hereof, Interest Rate
Exchangers, and shall be entitled to the benefits of the Intercreditor
Agreement. Collateral Agent shall be obligated, and shall have the right
hereunder, to make demands, to give notices, to exercise or refrain from
exercising any rights, and to take or refrain from taking any action (including,
without limitation, the release or substitution of Collateral), solely in
accordance with this Agreement and the Intercreditor Agreement; provided that
--------
Collateral Agent shall exercise, or refrain from exercising, any remedies
provided for in Section 21 in accordance with the instructions of (i) Requisite
Lenders or (ii) after payment in full of all Financing Agreement Obligations
under the Financing Agreements and any other Loan Documents, the holders of a
majority of the aggregate notional amount (or, with respect to any Lender
Interest Rate Agreement that has been terminated in accordance with its terms,
the amount then due and payable (exclusive of expenses and similar payments but
including any early termination payments then due) under such Lender Interest
Rate Agreement) under all Lender Interest Rate Agreements (Requisite Lenders or,
if applicable, such holders being referred to herein as "REQUISITE OBLIGEES").
In furtherance of the foregoing provisions of this Section 23(a), each Interest
Rate Exchanger, by its acceptance of the benefits hereof, agrees that it shall
have no right individually to realize upon any of the Collateral hereunder, it
being understood and agreed by such Interest Rate Exchanger that all rights and
remedies hereunder may be exercised solely by Collateral Agent for the benefit
of Secured Parties and Interest Rate Exchangers in accordance with the terms of
this Section 23(a).
(b) Collateral Agent shall at all times be the same Person that is appointed
Collateral Agent under the Intercreditor Agreement. The Collateral Agent may
resign and a successor Collateral Agent may be appointed in the manner provided
in the Intercreditor Agreement. Upon the acceptance of any appointment as
Collateral Agent by a successor Collateral Agent, that successor Collateral
Agent shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring or removed Collateral Agent under this
Agreement, and the retiring or removed Collateral Agent under this Agreement
shall promptly (i) transfer to such successor Collateral Agent all sums,
securities and other items of Collateral held hereunder, together with all
records and other documents necessary or appropriate in connection with the
performance of the duties of the successor Collateral Agent under this
Agreement, and (ii) execute and deliver to such successor Collateral Agent such
amendments to financing statements, and take such other actions, as may be
necessary or appropriate in connection with the assignment to such successor
Collateral Agent of the security interests created hereunder, whereupon such
retiring or removed Collateral Agent shall be discharged from its duties and
obligations under this Agreement. After any retiring or removed Collateral
Agent's resignation or removal hereunder as Collateral Agent, the provisions of
this Agreement shall inure to its benefit as to any actions taken or omitted to
be taken by it under this Agreement while it was Collateral Agent hereunder.
XV-16
<PAGE>
23. AMENDMENTS; ETC.
---------------
No amendment, modification, termination or waiver of any provision of this
Agreement, and no consent to any departure by Grantor therefrom, shall in any
event be effective unless the same shall be in writing and signed by Collateral
Agent and, in the case of any such amendment or modification, by Grantor. Any
such waiver or consent shall be effective only in the specific instance and for
the specific purpose for which it was given.
24. NOTICES.
-------
Any notice or other communication herein required or permitted to be given
shall be in writing and may be personally served, telexed or sent by
telefacsimile or United States mail or courier service and shall be deemed to
have been given when delivered in person or by courier service, upon receipt of
telefacsimile or telex (with received answerback), or three Business Days after
depositing it in the United States mail with postage prepaid and properly
addressed; provided that notices to Collateral Agent and Grantor shall not be
--------
effective until received. For the purposes hereof, the address of each party
hereto shall be as provided in subsection 10.8 of the Credit Agreement or
subsection 10.8 of the AXEL Credit Agreement, as applicable, or as set forth
under such party's name on the signature pages hereof or such other address as
shall be designated by such party in a written notice delivered to the other
parties hereto.
25. SEVERABILITY.
------------
In case any provision in or obligation under this Agreement shall be
invalid, illegal or unenforceable in any jurisdiction, the validity, legality
and enforceability of the remaining provisions or obligations, or of such
provision or obligation in any other jurisdiction, shall not in any way be
affected or impaired thereby.
XV-17
<PAGE>
26. HEADINGS.
--------
Section and subsection headings in this Agreement are included herein for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose or be given any substantive effect.
27. GOVERNING LAW; TERMS.
--------------------
THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL
BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE
INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING WITHOUT LIMITATION SECTION 5-
1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO
CONFLICTS OF LAWS PRINCIPLES, EXCEPT TO THE EXTENT THAT THE CODE PROVIDES THAT
THE PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN
RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION
OTHER THAN THE STATE OF NEW YORK. Unless otherwise defined herein or in the
Credit Agreement, terms used in Articles 8 and 9 of the Uniform Commercial Code
in the State of New York are used herein as therein defined.
SECTION 26. COUNTERPARTS.
------------
This Agreement may be executed in one or more counterparts and by different
parties hereto in separate counterparts, each of which when so executed and
delivered shall be deemed an original, but all such counterparts together shall
constitute but one and the same instrument; signature pages may be detached from
multiple separate counterparts and attached to a single counterpart so that all
signature pages are physically attached to the same document.
[Remainder of page intentionally left blank]
XV-18
<PAGE>
IN WITNESS WHEREOF, Grantor and Collateral Agent have caused this Agreement to
be duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
SEALY MATTRESS COMPANY
By:
----------------------------------
Name:
Title:
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK, as Collateral Agent
By:
----------------------------------
Name:
Title:
XV-19
<PAGE>
SCHEDULE 5(b)
TO COMPANY SECURITY AGREEMENT
Locations of Equipment:
Locations of Inventory:
XV-20
<PAGE>
EXHIBIT XVI
[FORM OF COMPANY PATENT AND TRADEMARK SECURITY AGREEMENT]
COMPANY PATENT AND TRADEMARK SECURITY AGREEMENT
This COMPANY PATENT AND TRADEMARK SECURITY AGREEMENT (this "AGREEMENT") is
dated as of December 18, 1997 and entered into by and among SEALY MATTRESS
COMPANY, an Ohio corporation ("COMPANY")(Company being referred to herein as a
"GRANTOR"), and MORGAN GUARANTY TRUST COMPANY OF NEW YORK ("MORGAN
GUARANTY"), as Collateral Agent for and representative of (in such capacity
herein called "COLLATERAL AGENT") the Secured Parties (as hereinafter defined)
and any Interest Rate Exchangers (as hereinafter defined).
RECITALS
(A) Grantor, Sealy Corporation, a Delaware Corporation ("HOLDINGS"), the
financial institutions from time to time parties thereto (the "CREDIT AGREEMENT
LENDERS"), Goldman Sachs Credit Partners L.P. ("GSCP"), as arranger and
syndication agent (in such capacity, "CA SYNDICATION AGENT"), Morgan Guaranty,
as administrative agent (in such capacity, "CA ADMINISTRATIVE AGENT"), and
Bankers Trust Company ("BTCO."), as documentation agent (in such capacity,
"CA DOCUMENTATION AGENT") have entered into a Credit Agreement dated as of
December 18, 1997 (said Credit Agreement, as it may hereafter be amended,
restated, supplemented or otherwise modified from time to time, being the
"CREDIT AGREEMENT") pursuant to which Credit Agreement Lenders have made
certain commitments, subject to the terms and conditions set forth in the Credit
Agreement, to extend certain credit facilities to Grantor.
B. Grantor, Holdings, the financial institutions from time to time parties
thereto (the "AXEL LENDERS"), GSCP, as arranger and syndication agent (in such
capacity, "AXEL SYNDICATION AGENT"), Morgan Guaranty, as administrative agent
(in such capacity, "AXEL ADMINISTRATIVE AGENT"), and BTCo. as documentation
agent (in such capacity, "AXEL DOCUMENTATION AGENT") have entered into an AXEL
Credit Agreement dated as of December 18, 1997 (said AXEL Credit Agreement, as
it may hereafter be amended, restated, supplemented or otherwise modified from
time to time, being the "AXEL CREDIT AGREEMENT"; the Credit Agreement Lenders,
the CA Syndication Agent, the CA Administrative Agent, the CA Documentation
Agent, the AXEL Lenders, the AXEL Syndication Agent, the AXEL Administrative
Agent, and the AXEL Documentation Agent each being a "SECURED PARTY" and
collectively the "SECURED PARTIES") pursuant to which AXEL Lenders have made
certain commitments, subject to the terms and conditions set forth in the AXEL
Credit Agreement, to extend certain credit facilities to Grantor.
C. Company may from time to time enter, or may from time to time have
entered, into one or more Interest Rate Agreements (collectively, the "LENDER
INTEREST RATE AGREEMENTS") with one or more CA Lenders or their Affiliates or
AXEL Lenders or their Affiliates (in such
XVI-1
<PAGE>
capacity, collectively, "INTEREST RATE EXCHANGERS") in accordance with the terms
of the Financing Agreements (as hereinafter defined), and it is desired that the
obligations of Company under the Lender Interest Rate Agreements, including
without limitation the obligation of Company to make payments thereunder in the
event of early termination thereof (all such obligations being the "INTEREST
RATE OBLIGATIONS"), together with all obligations of Company under the Financing
Agreements and any other Loan Documents (as hereinafter defined), be secured
hereunder.
D. Grantor has and may in the future have rights, title and interests in
and to various Patents and other related Collateral (as such terms are
hereinafter defined).
E. Grantor owns and uses in its business, and will in the future adopt and
so use, various intangible assets, including trademarks, service marks, designs,
logos, indicia, tradenames, corporate names, company names, business names,
fictitious business names, trade styles and/or other source and/or business
identifiers and applications pertaining thereto (collectively, the
"TRADEMARKS").
F. Collateral Agent desires Grantor to grant to it a lien on and security
interest in all of Grantor's existing and future Patents, existing and future
Trademarks, all registrations that have been or may hereafter be issued or
applied for thereon in the United States and any state thereof (the
"REGISTRATIONS"), all common law and other rights in and to the Trademarks in
the United States and any state thereof (the "TRADEMARK RIGHTS"), all goodwill
of Grantor's business symbolized by the Trademarks and associated therewith,
including without limitation the documents and things described in Section 2(b)
(the "ASSOCIATED GOODWILL"), any other Collateral and all proceeds of the
Patents, the Trademarks, the Registrations, the Trademark Rights, the Associated
Goodwill and any other Collateral, and Grantor agrees to grant to Collateral
Agent a secured and protected interest in the Trademarks, the Registrations, the
Trademark Rights, the Associated Goodwill, any other Collateral and all the
proceeds thereof as provided herein.
G. Pursuant to the Company Security Agreement, Grantor has granted to
Collateral Agent a lien on and security interest in, among other assets, all
Grantor's equipment, inventory, accounts and general intangibles relating to the
products and services sold or delivered under or in connection with the
Trademarks such that, upon the occurrence and during the continuation of an
Event of Default, Collateral Agent would be able to exercise its remedies
consistent with the Security Agreement, this Agreement and applicable law to
foreclose upon Grantor's business and use the Trademarks, the Registrations and
the Trademark Rights in conjunction with the continued operation of such
business, maintaining substantially the same product and service specifications
and quality as maintained by Grantor, and benefit from the Associated Goodwill.
H. It is a condition precedent to the initial extensions of credit by
Secured Parties under the Credit Agreement that Grantor shall have granted the
security interests and undertaken the obligations contemplated by this
Agreement.
NOW, THEREFORE, in consideration of the premises and to induce (i) the CA
Administrative Agent, the CA Syndication Agent and the Credit Agreement Lenders
to enter into the Credit Agreement, (ii) the Credit Agreement Lenders to make
their respective loans to, and issue Letters of Credit for the account of, the
Grantor, (iii) the AXEL Administrative Agent, the AXEL
XVI-2
<PAGE>
Syndication Agent and the AXEL Lenders to enter into the AXEL Loan Agreement,
(iv) the AXEL Lenders to make their respective loans to the Grantor, and (v) to
induce Interest Rate Exchangers to enter into the Lender Interest Rate
Agreements and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the Grantor hereby agrees with the
Collateral Agent as follows:
1. DEFINED TERMS.
-------------
(a) Unless otherwise defined herein, terms defined in the Credit Agreement
and used herein shall have the meanings given to such terms in the Credit
Agreement;
(b) The following terms shall have the following meanings:
"ACCELERATION" shall mean any of the Credit Agreement Obligations or the
AXEL Credit Agreement Obligations have been declared, or have become,
immediately due and payable, or the commitments to extend credit of the Credit
Agreement Lenders or the AXEL Lenders shall have been terminated under Section 8
of the Credit Agreement or Section 7 of the AXEL Credit Agreement, respectively.
"AGREEMENT" means this Company Security Agreement dated as of December 18,
1997, as it may be amended, supplemented or otherwise modified from time to
time.
"ASSOCIATED GOODWILL" has the meaning assigned to that term in the
recitals to this Agreement.
"AXEL COMMITMENTS" shall mean the "Commitments" as defined in the AXEL
Credit Agreement.
"AXEL CREDIT AGREEMENT" has the meaning assigned to that term in the
recitals to this Agreement.
"AXEL LENDERS" has the meaning assigned to that term in the recitals to
this Agreement.
"AXEL OBLIGATIONS" shall mean the "Obligations" as defined in the AXEL
Credit Agreement.
"AXEL SYNDICATION AGENT" has the meaning assigned to that term in the
recitals to this Agreement.
"COLLATERAL" has the meaning assigned to that term in Section 5 of this
Agreement.
"COLLATERAL ACCOUNTS" shall mean "Collateral Accounts" as defined in the
Intercreditor Agreement.
"COLLATERAL AGENT" has the meaning assigned to that term in the
introduction.
XVI-3
<PAGE>
"COMMITMENTS" means the Credit Agreement Commitments and the AXEL
Commitments.
"CREDIT AGREEMENT" has the meaning assigned to that term in the recitals
to this Agreement.
"CREDIT AGREEMENT COMMITMENTS" shall mean the "Commitments" as defined
in the Credit Agreement.
"CREDIT AGREEMENT OBLIGATIONS" shall mean the "Obligations" as defined
in the Credit Agreement.
"EVENT OF DEFAULT" means any "Event of Default" as defined in any
Financing Agreement or the occurrence of an Event of Default in which Company is
the Defaulting Party and which results in the designation of an Early
Termination Date (as such terms are defined in a Master Agreement or an Interest
Rate Swap Agreement or Interest Rate and Currency Exchange Agreement in the form
prepared by the International Swap and Derivatives Association Inc. or a similar
event under any similar swap agreement) under any Lender Interest Rate
Agreement.
"FINANCING AGREEMENT" means the Credit Agreement or the AXEL Credit
Agreement, and "FINANCING AGREEMENTS" means the Credit Agreement and the AXEL
Credit Agreement, collectively.
"FINANCING AGREEMENT OBLIGATIONS" means Credit Agreement Obligations and
AXEL Obligations.
"GRANTOR" has the meaning assigned to that term in the introduction of
this Agreement.
"HOLDINGS" has the meaning assigned to that term in the recitals to this
Agreement.
"INTERCREDITOR AGREEMENT" means the Intercreditor Agreement, dated as of
December 18, 1997, by and among CA Administrative Agent, AXEL Administrative
Agent and Collateral Agent.
"INTEREST RATE EXCHANGERS" has the meaning assigned to that term in the
recitals to this Agreement.
"INTEREST RATE OBLIGATIONS" has the meaning assigned to that term in the
recitals to this Agreement.
"LENDER INTEREST RATE AGREEMENT" has the meaning assigned to that term in
the recitals to this Agreement.
"LOAN" means any "Loan" as defined in any Financing Agreement, and
"LOANS" means all such Loans collectively.
XVI-4
<PAGE>
"LOAN DOCUMENT" means any "Loan Document" as defined in any Financing
Agreement, and "LOAN DOCUMENTS" means all such Loan Documents collectively.
"MATERIAL PATENT" has the meaning assigned to that term in Section 5 of
this Agreement.
"MATERIAL TRADEMARK PROPERTY" has the meaning assigned to that term in
Section 5 of this Agreement.
"PATENTS" has the meaning assigned to that term in Section 2 of this
Agreement.
"PERMITTED PATENT LIENS" has the meaning assigned to that term in Section
5 of this Agreement.
"PERMITTED TRADEMARK LIENS" has the meaning assigned to that term in
Section 5 of this Agreement.
"POTENTIAL EVENT OF DEFAULT" means any "Potential Event of Default" as
defined in any Financing Agreement.
"REGISTRATIONS" has the meaning assigned to that term in the recitals to
this Agreement.
"REQUISITE AXEL LENDERS" means "Requisite Lenders" as defined in the
AXEL Credit Agreement.
"REQUISITE CREDIT AGREEMENT LENDERS" means "Requisite Lenders" as
defined in the Credit Agreement.
"REQUISITE LENDERS" means (A) unless an Acceleration shall have occurred
and be continuing, the Requisite Credit Agreement Lenders and the Requisite AXEL
Lenders, and (B) if an Acceleration has occurred and is continuing, Secured
Parties holding more than 50% of the Financing Agreement Obligations.
"REQUISITE OBLIGEES" has the meaning assigned to that term in Section 19
of this Agreement.
"SECURED OBLIGATIONS" has the meaning assigned to that term in Section 3
of this Agreement.
"SECURED PARTIES" has the meaning assigned to that term in the recitals to
this Agreement.
"TRADEMARKS" has the meaning assigned to that term in the recitals to this
Agreement.
"TRADEMARK RIGHTS" has the meaning assigned to that term in the recitals
to this Agreement.
XVI-5
<PAGE>
2. GRANT OF SECURITY.
-----------------
Grantor hereby grants to Collateral Agent a security interest in all of
Grantor's right, title and interest in and to the following, in each case
whether now or hereafter existing or in which Grantor now has or hereafter
acquires an interest and wherever the same may be located (the "COLLATERAL"):
A. each of the U.S. Trademarks and rights and interests in Trademarks
which are presently, or in the future may be, owned, held (whether pursuant
to a license or otherwise) or used by Grantor, in whole or in part
(including without limitation the U.S. Trademarks specifically identified in
Schedule I), and including all Trademark Rights with respect thereto and all
----------
federal and state Registrations therefor heretofore or hereafter granted or
applied for, the right (but not the obligation) to file for registration
claims under any state or federal trademark law or regulation and to apply
for, renew and extend the Trademarks, Registrations and Trademark Rights,
the right (but not the obligation) to sue or bring opposition or
cancellation proceedings in the name of Grantor or in the name of Collateral
Agent or otherwise for past, present and future infringements of the
Trademarks, Registrations or Trademark Rights and all rights (but not
obligations) corresponding thereto in the United States, and the Associated
Goodwill; it being understood that the rights and interests included herein
shall include, without limitation, all rights and interests pursuant to
licensing or other contracts in favor of Grantor pertaining to any
Trademarks, Registrations or Trademark Rights presently or in the future
owned, held or used by third parties but, in the case of third parties which
are not Affiliates of Grantor, only to the extent permitted by such
licensing or other contracts or otherwise permitted by applicable law and,
if not so permitted under any such contracts and applicable law, only with
the consent of such third parties;
B. the following documents and things in Grantor's possession, or
subject to Grantor's right to possession, related to (Y) the production,
sale and delivery by Grantor, or by any Affiliate, licensee or subcontractor
of Grantor, of products or services sold or delivered by or under the
authority of Grantor in connection with the Trademarks, Registrations or
Trademark Rights (which products and services shall, for purposes of this
Agreement, be deemed to include, without limitation, products and services
sold or delivered pursuant to merchandising operations utilizing any
Trademarks, Registrations or Trademark Rights); or (Z) any retail or other
merchandising operations conducted under the name of or in connection with
the Trademarks, Registrations or Trademark Rights by Grantor or any
Affiliate, licensee or subcontractor of Grantor:
i. all lists and ancillary documents that identify and describe
any of Grantor's customers, or those of its Affiliates, licensees or
subcontractors, for products sold and services delivered under or in
connection with the Trademarks or Trademark Rights, including without
limitation any lists and ancillary documents that contain a customer's
name and address, the name and address of any of its warehouses,
branches or other places of business, the identity of the Person or
Persons having the principal responsibility on a customer's behalf for
ordering
XVI-6
<PAGE>
products or services of the kind supplied by Grantor, or the
credit, payment, discount, delivery or other sale terms applicable to
such customer, together with information setting forth the total
purchases, by brand, product, service, style, size or other criteria,
and the patterns of such purchases;
ii. all product and service specification documents and
production and quality control manuals used in the manufacture or
delivery of products and services sold or delivered under or in
connection with the Trademarks or Trademark Rights;
iii. all documents which reveal the name and address of any source
of supply, and any terms of purchase and delivery, for any and all
materials, components and services used in the production of products
and services sold or delivered under or in connection with the
Trademarks or Trademark Rights; and
iv. all documents constituting or concerning the then current or
proposed advertising and promotion by Grantor or its Affiliates,
licensees or subcontractors of products and services sold or delivered
under or in connection with the Trademarks or Trademark Rights
including, without limitation, all documents which reveal the media
used or to be used and the cost for all such advertising conducted
within the described period or planned for such products and services;
and
(c) all patents and patent applications and rights and interests in
U.S. patents and patent applications that are presently, or in the future
may be, owned, held (whether pursuant to a license or otherwise) or used by
Grantor in whole or in part (including, without limitation, the U.S. patents
and patent applications listed in Schedule II annexed hereto, all rights
-----------
(but not obligations) corresponding thereto (including without limitation
the right (but not the obligation) to sue for past, present and future
infringements in the name of Grantor or in the name of Collateral Agent),
and all re-issues, divisions, continuations, renewals, extensions and
continuations-in-part thereof (all of the foregoing being collectively
referred to as the "PATENTS"); it being understood that the rights and
interests granted hereby shall include, without limitation, all rights and
interests pursuant to licensing or other contracts in favor of Grantor
pertaining to any Patent presently or in the future owned, held or used by
third parties but, in the case of third parties which are not Affiliates of
Grantor, only to the extent permitted by such licensing or other contracts
or otherwise permitted by applicable law and, if not so permitted under any
such contracts and applicable law, only with the consent of such third
parties;
(d) all books, records, ledger cards, files, correspondence, computer
programs, tapes, disks and related data processing software that at any time
evidence or contain information relating to any of the Collateral or are
otherwise necessary or helpful in the collection thereof or realization
thereupon;
(e) to the extent not included in the foregoing clauses (a) - (d), all
general intangibles relating to the Collateral; and
XVI-7
<PAGE>
(f) all proceeds, products, and profits (including without limitation
license royalties and proceeds of infringement suits) of or from any and all
of the foregoing Collateral and, to the extent not otherwise included, all
payments under insurance (whether or not Collateral Agent is the loss payee
thereof), or any indemnity, warranty or guaranty, payable by reason of loss
or damage to or otherwise with respect to any of the foregoing Collateral.
For purposes of this Agreement, the term "PROCEEDS" includes whatever is
receivable or received when Collateral or proceeds are sold, exchanged,
collected or otherwise disposed of, whether such disposition is voluntary or
involuntary.
3. SECURITY FOR OBLIGATIONS.
------------------------
This Agreement secures, and the Collateral is collateral security for, the
prompt payment or performance in full when due, whether at stated maturity, by
required prepayment, declaration, acceleration, demand or otherwise (including
without limitation the payment of amounts that would become due but for the
operation of the automatic stay under Section 362(a) of the Bankruptcy Code, 11
U.S.C. (S)362(a)), of all Secured Obligations with respect to Grantor. "SECURED
OBLIGATIONS" means all obligations and liabilities of every nature of Company
now or hereafter existing under or arising out of or in connection with any
Financing Agreements and any other Loan Documents and any Lender Interest Rate
Agreement, and in each case together with all extensions or renewals thereof,
whether for principal, interest (including without limitation interest that, but
for the filing of a petition in bankruptcy with respect to Grantor, would accrue
on such obligations), reimbursement of amounts drawn under Letters of Credit,
payments for early termination of Lender Interest Rate Agreements, fees,
expenses, indemnities or otherwise, whether voluntary or involuntary, direct or
indirect, absolute or contingent, liquidated or unliquidated, whether or not
jointly owed with others, and whether or not from time to time decreased or
extinguished and later increased, created or incurred, and all or any portion of
such obligations or liabilities that are paid, to the extent all or any part of
such payment is avoided or recovered directly or indirectly from Collateral
Agent or any Secured Party or Interest Rate Exchanger as a preference,
fraudulent transfer or otherwise, and all obligations of every nature of Grantor
now or hereafter existing under this Agreement.
4. GRANTOR REMAINS LIABLE.
----------------------
Anything contained herein to the contrary notwithstanding, (a) Grantor shall
remain liable under any contracts and agreements included in the Collateral, to
the extent set forth therein, to perform all of its duties and obligations
thereunder to the same extent as if this Agreement had not been executed, (b)
the exercise by Collateral Agent of any of its rights hereunder shall not
release Grantor from any of its duties or obligations under the contracts and
agreements included in the Collateral, and (c) Collateral Agent shall not have
any obligation or liability under any contracts and agreements included in the
Collateral by reason of this Agreement, nor shall Collateral Agent be obligated
to perform any of the obligations or duties of Grantor thereunder or to take any
action to collect or enforce any claim for payment assigned hereunder.
XVI-8
<PAGE>
5. REPRESENTATIONS AND WARRANTIES.
------------------------------
Grantor represents and warrants as follows:
(a) OWNERSHIP OF COLLATERAL. Except as expressly permitted by the
Financing Agreements and for the security interest and conditional
assignment created by this Agreement (other than ownership and other rights
reserved by third party owners with respect to each Material Trademark
Property and each Material Patent that Grantor is licensed to use), Grantor
is the legal and beneficial owner of the entire right, title and interest in
and to (i) each Material Trademark Property, free and clear of any Lien
other than Liens of mechanics, materialmen, attorneys and other similar
liens imposed by laws in the ordinary course of business in connection with
the establishment, creation or application for registration of any
Trademarks, Registrations or Trademark Rights for sums not yet delinquent or
being contested in good faith (such Liens being referred to herein as
"PERMITTED TRADEMARK LIENS"), and (ii) each Material Patent, free and
clear of any Lien other than Liens of mechanics, materialmen, attorneys and
other similar liens imposed by law in the ordinary course of business in
connection with the establishment, creation or application for any Patent
for sums not yet delinquent or being contested in good faith (such Liens
being referred to herein as "PERMITTED PATENT LIENS"). Except such as may
have been filed in favor of Collateral Agent relating to this Agreement or
except as permitted by the Financing Agreements, no effective financing
statement or other instrument similar in effect covering all or any part of
the Collateral is on file in any filing or recording office, including the
United States Patent and Trademark Office.
(b) DESCRIPTION OF COLLATERAL. A true and complete list of all
Registrations, tradenames, corporate names, fictitious business names and
Trademark license agreements owned, held (whether pursuant to a license or
otherwise) or used by Grantor, in whole or in part, as of the date of this
Agreement is set forth in Schedule I annexed hereto. Each Registration,
----------
tradename, corporate name, fictitious business name and Trademark license
designated on Schedule I annexed hereto as a Material Trademark Property,
----------
and each other Trademark, Registration or Trademark Right hereafter arising
or otherwise owned, held or used by Grantor that is material to any of
Grantor's business or operations is referred to herein as a "MATERIAL
TRADEMARK PROPERTY". A true and complete list of all Patents owned or held
(whether pursuant to a license or otherwise) by Grantor, in whole or in
part, as of the date of this Agreement is set forth in Schedule II annexed
-----------
hereto. Each Patent designated on Schedule II annexed hereto as a Material
-----------
Patent and each other Patent hereafter arising or otherwise owned or held by
Grantor that is material to any of Grantor's business or operations is
referred to herein as a "MATERIAL PATENT".
(c) VALIDITY AND ENFORCEABILITY OF COLLATERAL. Each Material Trademark
Property and each Material Patent is subsisting and had not been adjudged
invalid or unenforceable, in whole or in part and Grantor is not aware of
any pending or threatened claim by any third party that any Material
Trademark Property or any Material Patent is invalid or unenforceable or
that the use of any Material Trademark Property or any Material Patent
violates the rights of any third person.
XVI-9
<PAGE>
(d) PERFECTION. This Agreement together with the filing of UCC
financing statements naming Grantor as "debtor", naming secured party as
"Collateral Agent" and describing the Collateral in the filing offices set
forth on Schedule III annexed hereto and the recording of this Agreement
------------
with the United States Patent and Trademark Office, creates a valid,
perfected and First Priority security interest in the U.S. Collateral
(subject only to Permitted Patent Liens and Permitted Trademark Liens)
securing the payment of the Secured Obligations, and all filings and other
actions necessary to perfect and protect such security interest under the
laws of the United States or any State thereof have been or will promptly
following execution hereof be duly made or taken.
(e) OTHER INFORMATION. All information hereto, herein or hereafter
supplied to Collateral Agent by or on behalf of Grantor with respect to the
Collateral is accurate and complete in all material respects.
6. FURTHER ASSURANCES; NEW TRADEMARKS, REGISTRATIONS AND TRADEMARK RIGHTS; NEW
---------------------------------------------------------------------------
PATENTS AND PATENT APPLICATIONS; CERTAIN INSPECTION RIGHTS.
- ----------------------------------------------------------
(a) Grantor agrees that from time to time, at the expense of Grantor,
Grantor will promptly execute and deliver all further instruments and documents,
and take all further action that Collateral Agent may reasonably request, in
order to perfect and protect any security interest or conditional assignment
granted or purported to be granted hereby or to enable Collateral Agent to
exercise and enforce its rights and remedies hereunder with respect to any
Collateral. Without limiting the generality of the foregoing, Grantor will: (i)
at the reasonable request of Collateral Agent, mark conspicuously each of its
records pertaining to the Collateral with a legend, in form and substance
reasonably satisfactory to Collateral Agent indicating that such Collateral is
subject to the security interest granted hereby, (ii) execute and file such
financing or continuation statements, or amendments thereto, and such other
instruments or notices, as Collateral Agent may reasonably request, in order to
perfect and preserve the security interests granted or purported to be granted
hereby, (iii) use its best efforts to obtain any necessary consents of third
parties to the grant and perfection of a security interest to Collateral Agent
with respect to any Collateral, and (iv) at Collateral Agent's request, appear
in and defend any action or proceeding that would reasonably be expected to
affect Grantor's title to or Collateral Agent's security interest in all or any
part of the Collateral.
(b) Grantor hereby authorizes Collateral Agent to file one or more financing
or continuation statements, and amendments thereto, relative to all or any part
of the Collateral without the signature of Grantor to the extent permitted by
applicable law. Grantor agrees that a carbon, photographic or other
reproduction of this Agreement or of a financing statement signed by Grantor
shall be sufficient as a financing statement and may be filed as a financing
statement in any and all jurisdictions.
(c) Grantor will furnish to Collateral Agent from time to time statements
and schedules further identifying and describing the Collateral and such other
reports in connection with the Collateral as Collateral Agent may reasonably
request, all in reasonable detail.
XVI-10
<PAGE>
(d) If Grantor shall obtain rights to any new Trademarks, Registrations or
Trademark Rights, or to any patentable inventions, or become entitled to the
benefit of any U.S. patent application or patent or any reissue, division,
continuation, renewal, extension, or continuation-in-part of any Patent or any
improvement in any Patent, the provisions of this Agreement shall automatically
apply thereto. Once per calendar year, Grantor shall notify Collateral Agent in
writing of any Registrations or Patents acquired by Grantor during such calendar
year and of any Registrations or Patents issued or applications for Registration
or Patents made during such calendar year, which notice shall state whether such
Registration constitutes a Material Trademark Property or whether such Patent
constitutes a Material Patent. Concurrently with the filing of an application
for Registration for any Trademark, or an application for any Patent the Grantor
shall execute, deliver and record in all places where this Agreement is recorded
an appropriate Patent and Trademark Security Agreement, substantially in the
form hereof, with appropriate insertions, or an amendment to this Agreement, in
form and substance reasonably satisfactory to Collateral Agent, pursuant to
which Grantor shall grant a security interest to the extent of its interest in
such Registration or Patent as provided herein to Collateral Agent unless so
doing would, in the reasonable judgment of Grantor, after due inquiry, result in
the grant of a Patent or Registration in the name of Collateral Agent, in which
event Grantor shall give written notice to Collateral Agent as soon as
reasonably practicable and the filing shall instead be undertaken as soon as
practicable but in no case later than immediately following the grant of such
Patent or Registration.
(e) No authorization, approval or other action by, and no notice to or
filing with, any governmental authority or regulatory body is required for
either (i) the grant by Grantor of the security interest and conditional
assignment granted hereby, (ii) the execution, delivery or performance of this
Agreement by grantor, or (iii) the perfection of or the exercise by Collateral
Agent of its rights and remedies hereunder (except as may have been taken by or
at the direction of Grantor).
7. CERTAIN COVENANTS OF GRANTOR.
----------------------------
Grantor shall:
(a) notify Collateral Agent of any change in Grantor's name, identity
or corporate structure within 30 days of such change;
(b) give Collateral Agent 30 days' written notice following any change
in Grantor's chief place of business or chief executive office or the office
where Grantor keeps its records regarding the Collateral;
(c) pay promptly when due all property and other taxes, assessments and
governmental charges or levies imposed upon, and all claims (including
claims for labor, materials and supplies) against, the Collateral, except to
the extent the validity thereof is being contested in good faith;
(d) not sell, assign (by operation of law or otherwise) or otherwise
dispose of any of the Collateral, except as permitted by the Financing
Agreements;
XVI-11
<PAGE>
(e) except for Permitted Patent Liens and Permitted Trademark Liens and
the security interest and conditional assignment created by this Agreement,
not create or suffer to exist any Lien upon or with respect to any of the
Collateral to secure the indebtedness or other obligations of any Person
other than Liens permitted by the Financing Agreements;
(f) diligently keep reasonable records respecting the Collateral and at
all times keep at least one complete set of its records concerning
substantially all of the Patents and Registrations at its chief executive
office or principal place of business;
(g) take all steps reasonably necessary in Grantor's business judgment
to protect the secrecy of all trade secrets relating to the products and
services sold or delivered under or in connection with the Patents,
Trademarks and Trademark Rights;
(h) use proper statutory notice in connection with its use of each
Material Patent and Material Trademark Property to the extent reasonably
necessary for the protection of such Material Patent or Material Trademark
Property; and
(i) use consistent standards of high quality (which may be consistent
with Grantor's past practices or with Grantor's business judgment) in the
manufacture, sale and delivery of products and services sold or delivered
under or in connection with the Patents, Trademarks, Registrations and
Trademark Rights, including, to the extent applicable, in the operation and
maintenance of its merchandising operations.
8. AMOUNTS PAYABLE IN RESPECT OF THE COLLATERAL.
--------------------------------------------
Except as otherwise provided in this Section 8, Grantor shall continue to
collect, at its own expense, all amounts due or to become due to Grantors in
respect of the Collateral or any portion thereof. In connection with such
collections, each Grantor may take (and, at Collateral Agent's direction, shall
take) such action as Grantor may deem necessary or advisable to enforce
collection of such amounts; provided, however, that Collateral Agent shall have
-------- -------
the right at any time, upon the occurrence and during the continuation of an
Event of Default and upon written notice to Grantor of its intention to do so,
to notify the obligors with respect to any such amounts of the existence of the
security interest and the conditional assignment created hereby, and to direct
such obligors to make payment of all such amounts directly to Collateral Agent,
and, upon such notification and at the expense of Grantor, to enforce collection
of any such amounts and to adjust, settle or compromise the amount or payment
thereof, in the same manner and to the same extent as Grantor might have done.
After receipt by Grantor of the notice from Collateral Agent referred to in the
proviso to the preceding sentence, (i) all amounts and proceeds (including
checks and other instruments) received by Grantor in respect of amounts due to
Grantor in respect of Collateral or any portion thereof received by the Grantor
shall be forthwith (and in any event within two Business Days) deposited by the
Grantor in the exact form received, duly indorsed by the Grantor to the
Collateral Agent if required, in a Collateral Account maintained under the sole
dominion and control of the Collateral Agent, subject to withdrawal by the
Collateral Agent for the account of Secured Parties only as provided in Section
16, (ii) until so turned over in accordance with the preceding subsection (i),
all such amounts and proceeds received by Grantor shall be received in trust for
the benefit of Collateral Agent hereunder- and shall be segregated from other
funds of Grantor and (iii) Grantor shall not
XVI-12
<PAGE>
adjust, settle or compromise the amount or payment of any such amount or release
wholly or partly any obligor with respect thereto or allow any credit or
discount thereon.
9. PATENT OR TRADEMARK APPLICATIONS AND LITIGATION.
-----------------------------------------------
(a) Grantor shall have the duty diligently, to prosecute any trademark
application relating to any Material Trademark Property that is pending as of
the date of this Agreement, to make federal application on any existing or
future registerable but unregistered Material Trademark Property (whenever it is
commercially reasonable in the reasonable judgement of Grantor to do so), and to
file and prosecute opposition and cancellation proceedings, renew Registrations
and do any and all acts which are necessary or desirable to preserve and
maintain all rights in all Material Trademark Properties; provided, however,
-------- -------
that Grantor shall not be obligated to prosecute or apply for registration of
any Trademark or Registration that Grantor determines in its reasonable business
judgment is no longer necessary or desirable in the conduct of its business.
Any expenses incurred in connection therewith shall be borne solely by Grantor.
Grantor shall not abandon any Material Trademark Property; provided, however,
-------- -------
that Grantor shall not be obligated to maintain any Trademark or Registration
that Grantor determines in its reasonable business judgment is no longer
necessary or desirable in the conduct of its business.
(b) Grantor shall have the duty diligently to prosecute any patent
application relating to any Material Patent that is pending as of the date of
this Agreement and to do any and all acts which are necessary or desirable to
preserve and maintain all rights in all Material Patents; provided, however,
-------- -------
that Grantor shall not be obligated to prosecute or maintain any Patent that
Grantor determines in its reasonable business judgment is no longer necessary or
desirable in the conduct of its business. Any expenses incurred in connection
therewith shall be borne solely by Grantor. Grantor shall not, as to any
patentable invention or Patent that constitutes or could constitute a Material
Patent, abandon any pending patent application or any Patent without the prior
written consent of Collateral Agent; provided, however, that Grantor shall not
-------- -------
be obligated to prosecute or maintain any Patent that Grantor determines in its
reasonable business judgment is no longer necessary or desirable in the conduct
of its business.
(c) Except as provided in Section 9(e), Grantor shall have the right to
commence and prosecute in its own name, as real party in interest, for its own
benefit and at its own expense, such suits, proceedings or other actions for
infringement, unfair competition, dilution or other damage as are in its
reasonable business judgment necessary to protect the Collateral. Collateral
Agent shall provide, at Grantor's expense, all reasonable and necessary
cooperation in connection with any such suit, proceeding or action including,
without limitation, joining as a necessary party.
(d) Grantor shall promptly, following its becoming aware thereof, notify
Collateral Agent of the institution of, or of any adverse determination in, any
proceeding (whether in the United States Patent and Trademark Office or any
federal, state, local or foreign court) described in subsection 9(a), 9(b) or
9(c) or regarding Grantor's claim of ownership in or right to use any of the
Trademarks, Registrations or Trademark Rights, its right to register the same,
or its right to keep and maintain such Registration. Grantor shall provide to
Collateral Agent any information with respect thereto requested by Collateral
Agent.
XVI-13
<PAGE>
(e) Anything contained herein to the contrary notwithstanding, upon the
occurrence and during the continuation of an Event of Default, Collateral Agent
shall have the right (but not the obligation) to bring suit, in the name of
Grantor, Collateral Agent or otherwise, to enforce any Patent, Trademark,
Registration, Trademark Right, Associated Goodwill and any license thereunder,
in which event Grantor shall, at the request of Collateral Agent, do any and all
lawful acts and execute any and all documents required by Collateral Agent in
aid of such enforcement and Grantor shall promptly, upon demand, reimburse and
indemnify Collateral Agent as provided in Section 17 in connection with the
exercise of its rights under this Section 9. To the extent that Collateral
Agent shall elect not to bring suit to enforce any Patent, Trademark,
Registration, Trademark Right Associated Goodwill or any license thereunder as
provided in this Section 9(e), Grantor agrees to use all reasonable measures,
whether by action, suit, proceeding or otherwise, to prevent the infringement of
any of the Patents, Trademarks, Registrations, Trademark Rights or Associated
Goodwill by others and for that purpose agrees to diligently maintain in
accordance with reasonable business practice any action, suit or proceeding
against any Person so infringing necessary to prevent such infringement.
10. NON-DISTURBANCE AGREEMENTS, ETC.
--------------------------------
If and to the extent that Grantor is permitted to license the Collateral,
Collateral Agent shall enter into a non-disturbance agreement or other similar
arrangement, at Grantor's request and expense, with Grantor and any licensee of
any Collateral permitted hereunder in form and substance reasonably satisfactory
to Collateral Agent pursuant to which (a) Collateral Agent shall agree not to
disturb or interfere with such licensee's rights under its license agreement
with Grantor so long as such licensee is not in default thereunder and (b) such
licensee shall acknowledge and agree that the Collateral licensed to it is
subject to the security interest and conditional assignment created in favor of
Collateral Agent and the other terms of this Agreement.
11. COLLATERAL AGENT APPOINTED ATTORNEY-IN-FACT.
-------------------------------------------
Grantor hereby irrevocably appoints Collateral Agent as Grantor's attorney-
in-fact, with full authority in the place and stead of Grantor and in the name
of Grantor, Collateral Agent or otherwise, from time to time, upon the
occurrence and during the continuance of an Event of Default, in Collateral
Agent's reasonable discretion to take any action and to execute any instrument
that Collateral Agent may reasonably deem necessary or advisable to accomplish
the purposes of this Agreement, including without limitation:
(a) to endorse Grantor's name on all applications, documents, papers
and instruments necessary for Collateral Agent in the use or maintenance of
the Collateral;
(b) to ask for, demand, collect, sue for, recover, compound, receive
and give acquittance and receipts for moneys due and to become due under or
in respect of any of the Collateral;
(c) to receive, endorse and collect any drafts or other instruments,
documents and chattel paper in connection with clause (b) above;
XVI-14
<PAGE>
(d) to file any claims or take any action or institute any proceedings
that Collateral Agent may reasonably deem necessary or desirable for the
collection of any of the Collateral or otherwise to enforce the rights of
Collateral Agent with respect to any of the Collateral;
(e) to pay or discharge taxes or Liens (other than Liens permitted
under this Agreement or the Financing Agreements) levied or placed upon or
threatened against the Collateral, the legality or validity thereof and the
amounts necessary to discharge the same to be determined by Collateral Agent
in its sole discretion, any such payments made by Collateral Agent to become
obligations of Grantor to Collateral Agent, due and payable immediately
without demand; and
(f) upon the occurrence and during the continuance of an Event of
Default, (i) to execute and deliver any of the assignments or documents
requested by Collateral Agent pursuant to Section 14(b), (ii) to grant or
issue an exclusive or non-exclusive license to the Collateral or any portion
thereof to any Person, and (iii) otherwise generally to sell, transfer,
pledge, make any agreement with respect to or otherwise deal with any of the
Collateral as fully and completely as though Collateral Agent were the
absolute owner thereof for all purposes, and to do, at Collateral Agent's
option and Grantor's expense, at any time or from time to time, all acts and
things that Collateral Agent deems necessary to protect, preserve or realize
upon the Collateral and Collateral Agent's security interest therein in
order to effect the intent of this Agreement, all as fully and effectively
as Grantor might do.
12. COLLATERAL AGENT MAY PERFORM.
----------------------------
If Grantor fails to perform any agreement contained herein, Collateral Agent
may itself perform, or cause performance of, such agreement, and the reasonable
expenses of Collateral Agent incurred in connection therewith shall be payable
by Grantor under Section 17.
13. STANDARD OF CARE.
----------------
The powers conferred on Collateral Agent hereunder are solely to protect its
interest in the Collateral and shall not impose any duty upon it to exercise any
such powers. Except for the exercise of reasonable care in the custody of any
Collateral in its possession and the accounting for monies actually received by
it hereunder, Collateral Agent shall have no duty as to any Collateral or as to
the taking of any necessary steps to preserve rights against prior parties or
any other rights pertaining to any Collateral. Collateral Agent shall be deemed
to have exercised reasonable care in the custody and preservation of any
Collateral in its possession if such Collateral is accorded treatment
substantially equal to that which Collateral Agent accords its own property.
XVI-15
<PAGE>
14. REMEDIES.
--------
If any Event of Default shall have occurred and be continuing:
XVI-16
<PAGE>
(a) Collateral Agent may exercise in respect of the Collateral, in
addition to all other rights and remedies provided for herein or otherwise
available to it, all the rights and remedies of a secured party on default
under the Uniform Commercial Code as in effect in any relevant jurisdiction
(the "CODE") (whether or not the Code applies to the affected Collateral),
and also may (i) require Grantor to, and Grantor hereby agrees that it will
at its expense and upon request of Collateral Agent forthwith, assemble all
or part of the Collateral as directed by Collateral Agent and make it
available to Collateral Agent at a place to be designated by Collateral
Agent that is reasonably convenient to both parties, (ii) enter onto the
property where any Collateral is located and take possession thereof with or
without judicial process, (iii) prior to the disposition of the Collateral,
store the Collateral or otherwise prepare the Collateral for disposition in
any manner to the extent Collateral Agent deems appropriate, (iv) take
possession of Grantor's premises or place custodians in exclusive control
thereof, remain on such premises and use the same for the purpose of taking
any actions described in the preceding clause (iii) and collecting any
Secured Obligation, (v) exercise any and all rights and remedies of Grantor
under or in connection with the contracts related to the Collateral or
otherwise in respect of the Collateral, including without limitation any and
all rights of Grantor to demand or otherwise require payment of any amount
under, or performance of any provision of, such contracts, and (vi) without
notice except as specified below, sell the Collateral or any part thereof in
one or more parcels at public or private sale, at any of Collateral Agent's
offices or elsewhere, for cash, on credit or for future delivery, at such
time or times and at such price or prices and upon such other terms as
Collateral Agent may deem commercially reasonable. Collateral Agent or any
Secured Party or Interest Rate Exchanger may be the purchaser of any or all
of the Collateral at any such sale and Collateral Agent, as agent for and
representative of Secured Parties and Interest Rate Exchangers (but not any
Secured Party or Secured Parties or Interest Rate Exchanger or Interest Rate
Exchangers in its or their respective individual capacities unless Requisite
Obligees, (shall otherwise agree in writing), shall be entitled, for the
purpose of bidding and making settlement or payment of the purchase price
for all or any portion of the Collateral sold at any such public sale, to
use and apply any of the Secured Obligations as a credit on account of the
purchase price for any Collateral payable by Collateral Agent at such sale.
Each purchaser at any such sale shall hold the property sold absolutely free
from any claim or right on the part of Grantor, and Grantor hereby waives
(to the extent permitted by applicable law) all rights of redemption, stay
and/or appraisal which it now has or may at any time in the future have
under any rule of law or statute now existing or hereafter enacted. Grantor
agrees that, to the extent notice of sale shall be required by law, at least
ten days' notice to Grantor of the time and place of any public sale or the
time after which any private sale is to be made shall constitute reasonable
notification. Collateral Agent shall not be obligated to make any sale of
Collateral regardless of notice of sale having been given. Collateral Agent
may adjourn any public or private sale from time to time by announcement at
the time and place fixed therefor, and such sale may, without further
notice, be made at the time and place to which it was so adjourned. Grantor
hereby waives any claims against Collateral Agent arising by reason of the
fact that the price at which any Collateral may have been sold at such a
private sale was less than the price which might have been obtained at a
public sale, even if Collateral Agent accepts the first offer received and
does not offer such Collateral to more than one offeree. If the proceeds of
any sale or other disposition of the Collateral are insufficient to pay all
the Secured Obligations, Grantor shall be liable for the
XVI-17
<PAGE>
deficiency and the reasonable fees of any attorneys employed by Collateral
Agent to collect such deficiency.
(b) Upon written demand from Collateral Agent, Grantor shall execute
and deliver to Collateral Agent an assignment or assignments of the Patents,
Trademarks, Registrations, Trademark Rights and the Associated Goodwill and
such other documents as are requested by Collateral Agent. Grantor agrees
that such an assignment and/or recording shall be applied to reduce the
Secured Obligations outstanding only to the extent that Collateral Agent (or
any Secured Party) receives cash proceeds in respect of the sale of, or
other realization upon, the Collateral.
(c) Within five Business Days after written notice from Collateral
Agent, Grantor shall make available to Collateral Agent, to the extent
within Grantor's power and authority, such personnel in Grantor's employ on
the date of such Event of Default as Collateral Agent may reasonably
designate, by name, title or job responsibility, to permit Grantor to
continue, directly or indirectly, to produce, advertise and sell the
products and services sold or delivered by Grantor under or in connection
with the Patents, Trademarks, Registrations and Trademark Rights, such
persons to be available to perform their prior functions on Collateral
Agent's behalf and to be compensated by Collateral Agent at Grantor's
expense on a per diem, pro-rata basis consistent with the salary and benefit
structure applicable to each as of the date of such Event of Default.
15. PROCEEDS TO BE TURNED OVER TO COLLATERAL AGENT.
----------------------------------------------
In addition to the rights of the Collateral Agent and the Secured Parties
specified in Section 8 with respect to payments of Accounts, if an Event of
Default shall occur and be continuing, upon request of the Collateral Agent, all
proceeds received by the Grantor consisting of cash, checks and other near-cash
items shall be held by the Grantor in trust for the Collateral Agent and the
Secured Parties, segregated from other funds of the Grantor, and shall,
forthwith upon receipt by the Grantor, be turned over to the Collateral Agent in
the exact form received by the Grantor (duly indorsed by the Grantor to the
Collateral Agent, if required) and held by the Collateral Agent in a Collateral
Account maintained under the Intercreditor Agreement. All proceeds while held
by the Collateral Agent in a Collateral Account (or by the Grantor in trust for
the Collateral Agent and the Secured Parties) shall continue to be held as
collateral security for all the Obligations and shall not constitute payment
thereof until applied as provided in Section 16.
16. APPLICATION OF PROCEEDS.
-----------------------
Except as expressly provided elsewhere in this Agreement, all proceeds held
in any Collateral Account and all other proceeds received by Collateral Agent in
respect of any sale of, collection from, or other realization upon all or any
part of the Collateral shall be applied as provided in subsection 3 of the
Intercreditor Agreement.
XVI-18
<PAGE>
17. INDEMNITY AND EXPENSES.
----------------------
(a) Grantor agrees to indemnify Collateral Agent, each Secured Party and
each Interest Rate Exchanger from and against any and all claims, losses and
liabilities in any way relating to, growing out of or resulting from this
Agreement and the transactions contemplated hereby (including without limitation
enforcement of this Agreement), except to the extent such claims, losses or
liabilities result from Collateral Agent's or such Secured Party's or Interest
Rate Exchanger's gross negligence or willful misconduct as finally determined by
a court of competent jurisdiction.
(b) Grantor agrees to pay to Collateral Agent promptly following written
demand the amount of any and all costs and expenses, including the reasonable
fees and expenses of its counsel and of any experts and agents, that Collateral
Agent may incur in connection with (i) the administration of this Agreement,
(ii) the custody, preservation, use or operation of, or the sale of, collection
from, or other realization upon, any of the Collateral, (iii) the exercise or
enforcement of any of the rights of Collateral Agent hereunder, or (iv) the
failure by Grantor to perform or observe any of the provisions hereof.
(c) The obligations of Grantor in this Section 17 shall survive the
termination of this Agreement and the discharge of Grantor's other obligations
under this Agreement, the Interest Rate Agreements, the Credit Agreement and the
other Loan Documents.
18. CONTINUING SECURITY INTEREST; TRANSFER OF LOANS.
-----------------------------------------------
This Agreement shall create a continuing security interest in, and a
conditional assignment of the Collateral effective upon the occurrence and
during the continuance of an Event of Default and shall (a) remain in full force
and effect until the payment in full of the Secured Obligations (other than
inchoate indemnification obligations with respect to claims, losses or
liabilities which have not yet arisen and are not yet due and payable), the
cancellation or termination of the Commitments and the cancellation or
expiration of all outstanding Letters of Credit, (b) be binding upon Grantor and
its respective successors and assigns, and (c) inure, together with the rights
and remedies of Collateral Agent hereunder, to the benefit of Collateral Agent
and its successors, transferees and assigns. Without limiting the generality of
the foregoing clause (c), but subject to the provisions of subsection 10.1 of
the Credit Agreement and subsection 10.1 of the AXEL Credit Agreement, any
Secured Party may assign or otherwise transfer any Loans held by it to any other
Person, and such other Person shall thereupon become vested with all the
benefits in respect thereof granted to Secured Parties herein or otherwise. Upon
the payment in full of all Secured Obligations (other than inchoate
indemnification obligations with respect to claims, losses or liabilities which
have not yet arisen and are not yet due and payable), the cancellation or
termination of the Commitments and the cancellation or expiration of all
outstanding Letters of Credit, the security interest and conditional assignment
granted hereby shall terminate and all rights to the Collateral shall revert to
Grantor. Upon any such termination Collateral Agent will, at Grantor's expense,
execute and deliver to Grantor such documents as Grantor shall reasonably
request to evidence such termination in accordance with the terms of the
Intercreditor Agreement.
XVI-19
<PAGE>
19. COLLATERAL AGENT AS ADMINISTRATIVE AGENT.
----------------------------------------
(a) Collateral Agent has been appointed to act as Collateral Agent hereunder
by CA Administrative Agent on behalf of the Credit Agreement Lenders and AXEL
Administrative Agent on behalf of the AXEL Lenders pursuant to the Intercreditor
Agreement and, by their acceptance of the benefits hereof, Interest Rate
Exchangers, and shall be entitled to the benefits of the Intercreditor
Agreement. Collateral Agent shall be obligated, and shall have the right
hereunder, to make demands, to give notices, to exercise or refrain from
exercising any rights, and to take or refrain from taking any action (including
without limitation the release or substitution of Collateral), solely in
accordance with this Agreement and the Intercreditor Agreement; provided that
--------
Collateral Agent shall exercise, or refrain from exercising, any remedies
provided for in Section 14 in accordance with the instructions of (i) Requisite
Lenders or (ii) after payment in full of all Financing Agreement Obligations
under the Financing Agreements and any other Loan Documents, the holders of a
majority of the aggregate notional amount (or, with respect to any Lender
Interest Rate Agreement that has been terminated in accordance with its terms,
the amount then due and payable (exclusive of expenses and similar payments but
including any early termination payments then due) under such Lender Interest
Rate Agreement) under all Lender Interest Rate Agreements (Requisite Lenders or,
if applicable, such holders being referred to herein as "REQUISITE OBLIGEES").
In furtherance of the foregoing provisions of this Section 19(a), each Interest
Rate Exchanger, by its acceptance of the benefits hereof, agrees that it shall
have no right individually to realize upon any of the Collateral hereunder, it
being understood and agreed by such Interest Rate Exchanger that all rights and
remedies hereunder may be exercised solely by Collateral Agent for the benefit
of Secured Parties and Interest Rate Exchangers in accordance with the terms of
this Section 19(a).
(b) Collateral Agent shall at all times be the same Person that is appointed
Collateral Agent under the Intercreditor Agreement. The Collateral Agent may
resign and a successor Collateral Agent may be appointed in the manner provided
in the Intercreditor Agreement. Upon the acceptance of any appointment as
Collateral Agent by a successor Collateral Agent, that successor Collateral
Agent shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring or removed Collateral Agent under this
Agreement, and the retiring or removed Collateral Agent under this Agreement
shall promptly (i) transfer to such successor Collateral Agent all sums,
securities and other items of Collateral held hereunder, together with all
records and other documents necessary or appropriate in connection with the
performance of the duties of the successor Collateral Agent under this
Agreement, and (ii) execute and deliver to such successor Collateral Agent such
amendments to financing statements, and take such other actions, as may be
necessary or appropriate in connection with the assignment to such successor
Collateral Agent of the security interests created hereunder, whereupon such
retiring or removed Collateral Agent shall be discharged from its duties and
obligations under this Agreement. After any retiring or removed Collateral
Agent's resignation or removal hereunder as Collateral Agent, the provisions of
this Agreement shall inure to its benefit as to any actions taken or omitted to
be taken by it under this Agreement while it was Collateral Agent hereunder.
XVI-20
<PAGE>
20. AMENDMENTS; ETC.
---------------
No amendment, modification, termination or waiver of any provision of this
Agreement, and no consent to any departure by Grantor therefrom, shall in any
event be effective unless the same shall be in writing and signed by Collateral
Agent and, in the case of any such amendment or modification, by Grantor. Any
such waiver or consent shall be effective only in the specific instance and for
the specific purpose for which it was given.
21. NOTICES.
-------
Any notice or other communication herein required or permitted to be given
shall be in writing and may be personally served, telexed or sent by
telefacsimile or United States mail or courier service and shall be deemed to
have been given when delivered in person or by courier service, upon receipt of
telefacsimile or telex (with received answerback), or three Business Days after
depositing it in the United States mail with postage prepaid and properly
addressed; provided that notices to Collateral Agent or Grantor shall not be
--------
effective until received. For the purposes hereof, the address of each party
hereto shall be provided in subsection 10.8 of the Credit Agreement or
subsection 10.8 of the AXEL Credit Agreement, as applicable, or as set forth
under such party's name on the signature pages hereof or such other address as
shall be designated by such party in a written notice delivered to the other
parties hereto.
22. FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE.
-----------------------------------------------------
No failure or delay on the part of Collateral Agent in the exercise of any
power, right or privilege hereunder shall impair such power, right or privilege
or be construed to be a waiver of any default or acquiescence therein, nor shall
any single or partial exercise of any such power, right or privilege preclude
any other or further exercise thereof or of any other power, right or privilege.
All rights and remedies existing under this Agreement are cumulative to, and not
exclusive of, any rights or remedies otherwise available.
23. SEVERABILITY.
------------
In case any provision in or obligation under this Agreement shall be
invalid, illegal or unenforceable in any jurisdiction, the validity, legality
and enforceability of the remaining provisions or obligations, or of such
provision or obligation in any other jurisdiction, shall not in any way be
affected or impaired thereby.
24. HEADINGS.
--------
Section and subsection headings in this Agreement are included herein for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose or be given any substantive effect.
XVI-21
<PAGE>
25. GOVERNING LAW; TERMS.
--------------------
THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL
BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE
INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING WITHOUT LIMITATION SECTION 5-
1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO
CONFLICTS OF LAWS PRINCIPLES, EXCEPT TO THE EXTENT THAT THE CODE PROVIDES THAT
THE PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN
RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION
OTHER THAN THE STATE OF NEW YORK. Unless otherwise defined herein or in the
Credit Agreement, terms used in Articles 8 and 9 of the Uniform Commercial Code
in the State of New York are used herein as therein defined.
26. COUNTERPARTS.
------------
This Agreement may be executed in one or more counterparts and by different
parties hereto in separate counterparts, each of which when so executed and
delivered shall be deemed an original, but all such counterparts together shall
constitute but one and the same instrument; signature pages may be detached from
multiple separate counterparts and attached to a single counterpart so that all
signature pages are physically attached to the same document.
[Remainder of page intentionally left blank]
XVI-22
<PAGE>
IN WITNESS WHEREOF, Grantor and Collateral Agent have caused this
Agreement to be duly executed and delivered by their respective officers
thereunto duly authorized as of the date first written above.
SEALY MATTRESS COMPANY
By: ________________________________
Name: __________________________
Title:__________________________
MORGAN GUARANTY TRUST COMPANY OF NEW YORK,
as Collateral Agent
By: ________________________________
Name: __________________________
Title:__________________________
XVI-23
<PAGE>
SCHEDULE I
TO
COMPANY PATENT AND TRADEMARK SECURITY AGREEMENT
REGISTERED UNITED STATES TRADEMARK REGISTRATION REGISTRATION
OWNER DESCRIPTION NUMBER DATE
- ------------- ----------------------- ------------ ------------
XVI-24
<PAGE>
SCHEDULE II
TO
COMPANY PATENT AND SECURITY AGREEMENT
PATENTS ISSUED
--------------
Patent No. Issue Date Invention
---------- ---------- ---------
PATENTS PENDING
---------------
Applicant's Date Application
Name Filed No. Invention Inventor
- ----------- ----- ----------- --------- --------
XVI-25
<PAGE>
SCHEDULE III
TO
COMPANY PATENT AND TRADEMARK SECURITY AGREEMENT
FILING OFFICES
--------------
XVI-26
<PAGE>
EXHIBIT XVII
[FORM OF SUBSIDIARY GUARANTY]
SUBSIDIARY GUARANTY
This SUBSIDIARY GUARANTY is entered into as of December 18, 1997 by
THE UNDERSIGNED (each a "GUARANTOR" and collectively, "GUARANTORS") in favor
of and for the benefit of MORGAN GUARANTY TRUST COMPANY OF NEW YORK ("MORGAN
GUARANTY"), as collateral agent for and representative of (in such capacity
herein called "GUARANTIED PARTY") the Secured Parties (as hereinafter defined)
and any Interest Rate Exchangers (as hereinafter defined), and, subject to
subsection 3.12, for the benefit of the other Beneficiaries (as hereinafter
defined).
RECITALS
A. Sealy Mattress Company, an Ohio corporation ("COMPANY"), Sealy
Corporation, a Delaware corporation ("HOLDINGS"), the financial institutions
from time to time parties thereto (the "CREDIT AGREEMENT LENDERS"), Goldman
Sachs Credit Partners L.P. ("GSCP"), as arranger and syndication agent (in
such capacity, "CA SYNDICATION AGENT"), Morgan Guaranty, as administrative
agent (in such capacity, "CA ADMINISTRATIVE AGENT"), and Bankers Trust Company
("BTCO."), as documentation agent (in such capacity, "CA DOCUMENTATION
AGENT") have entered into a Credit Agreement dated as of December 18, 1997
(said Credit Agreement, as it may hereafter be amended, restated, supplemented
or otherwise modified from time to time, being the ("CREDIT AGREEMENT")
pursuant to which Credit Agreement Lenders have made certain commitments,
subject to the terms and conditions set forth in the Credit Agreement, to extend
certain credit facilities to Company.
B. Company, Holdings, the financial institutions from time to time
parties thereto(the "AXEL LENDERS"), GSCP, as arranger and syndication agent
(in such capacity, "AXEL SYNDICATION AGENT"), Morgan Guaranty, as
administrative agent (in such capacity, "AXEL ADMINISTRATIVE AGENT"), and
BTCo., as documentation agent (in such capacity, "AXEL DOCUMENTATION AGENT")
have entered into an AXEL Credit Agreement dated as of December 18, 1997 (said
AXEL Credit Agreement, as it may hereafter be amended, restated, supplemented or
otherwise modified from time to time, being the "AXEL CREDIT AGREEMENT"; the
Credit Agreement Lenders, the CA Syndication Agent, the CA Administrative Agent,
CA Documentation Agent, the AXEL Lenders, the AXEL Syndication Agent, the AXEL
Administrative Agent, and the AXEL Documentation Agent each being a "SECURED
PARTY" and collectively the "SECURED PARTIES") pursuant to which AXEL Lenders
have made certain commitments, subject to the terms and conditions set forth in
the AXEL Credit Agreement, to extend certain credit facilities to Company.
C. Company may from time to time enter, or may from time to time
have entered, into one or more Interest Rate Agreements (collectively, the
"LENDER INTEREST RATE AGREEMENTS") with or one or more Credit Agreement
Lenders or their Affiliates or AXEL Lenders
XVII-1
<PAGE>
or their Affiliates (in such capacity, collectively, "INTEREST RATE EXCHANGERS")
in accordance with the terms of the Financing Agreements (as hereinafter
defined), and it is desired that the obligations of Company under the Lender
Interest Rate Agreements, including without limitation the obligation of Company
to make payments thereunder in the event of early termination thereof (all such
obligations being the "INTEREST RATE OBLIGATIONS"), together with all
obligations of Company under the Financing Agreements and any other Loan
Documents (as hereinafter defined), be guarantied hereunder.
D. A portion of the proceeds of the Loans (as hereinafter defined)
may be advanced to Guarantors and thus the Guarantied Obligations (as
hereinafter defined) are being incurred for and will inure to the benefit of
Guarantors (which benefits are hereby acknowledged).
E. It is a condition precedent to the making of the initial Loans
under the Financing Agreements that Company's obligations thereunder be
guarantied by Guarantors.
F. Guarantors are willing irrevocably and unconditionally to
guaranty such obligations of Company.
NOW, THEREFORE, in consideration of the premises and to induce (i) the
CA Administrative Agent, the CA Syndication Agent and the Credit Agreement
Lenders to enter into the Credit Agreement, (ii) the Credit Agreement Lenders to
make their respective loans to, and issue Letters of Credit for the account of,
the Company, (iii) the AXEL Administrative Agent, the AXEL Syndication Agent and
the AXEL Lenders to enter into the AXEL Loan Agreement and (iv) the AXEL Lenders
to make their respective loans to the Company, and (v) to induce Interest Rate
Exchangers to enter into the Lender Interest Rate Agreements and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the Guarantors hereby agree as follows:
SECTION 1. DEFINITIONS
1.1 CERTAIN DEFINED TERMS.
---------------------
(a) Unless otherwise defined herein, terms defined in the Credit
Agreement and used herein shall have the meanings given to such terms in the
Credit Agreement;
(b) The following terms shall have the following meanings:
"ACCELERATION" shall mean any of the Credit Agreement Obligations or
the AXEL Credit Agreement Obligations have been declared, or have become,
immediately due and payable, or the commitments to extend credit of the Credit
Agreement Lenders or the AXEL Lenders shall have been terminated under Section 8
of the Credit Agreement or Section 7 of the AXEL Credit Agreement, respectively.
XVII-2
<PAGE>
"ADDITIONAL GUARANTOR" has the meaning assigned to that term ins
subsection 3.12.
"ADJUSTED MAXIMUM AMOUNT" has the meaning assigned to that term ins
subsection 2.2.
"AGGREGATE PAYMENTS" has the meaning assigned to that term ins
subsection 2.2.
"AXEL COMMITMENTS" shall mean the "Commitments" as defined in the
AXEL Credit Agreement.
"AXEL CREDIT AGREEMENT" has the meaning assigned to that term in the
recitals to this Agreement.
"AXEL OBLIGATIONS" shall mean the "Obligations" as defined in the
AXEL Credit Agreement.
"BENEFICIARIES" means Guarantied Party, Secured Parties and any
Interest Rate Exchangers.
"COLLATERAL ACCOUNTS" shall mean "Collateral Accounts" as defined
in the Intercreditor Agreement.
"COMMITMENTS" means the Credit Agreement Commitments and the AXEL
Commitments.
"CONTRIBUTING GUARANTORS" has the meaning assigned to that term ins
subsection 2.2.
"CREDIT AGREEMENT" has the meaning assigned to that term in the
recitals to this Agreement.
"CREDIT AGREEMENT COMMITMENTS" shall mean the "Commitments" as
defined in the Credit Agreement.
"CREDIT AGREEMENT OBLIGATIONS" shall mean the "Obligations" as
defined in the Credit Agreement.
"EVENT OF DEFAULT" means any "Event of Default" as defined in any
Financing Agreement or the occurrence of an Event of Default in which Company is
the Defaulting Party and which results in the designation of an Early
Termination Date (as such terms are defined in a Master Agreement or an Interest
Rate Swap Agreement or Interest Rate and Currency Exchange Agreement in the form
prepared by the International Swap and Derivatives Association Inc. or a similar
event under any similar swap agreement) under any Lender Interest Rate
Agreement.
XVII-3
<PAGE>
"FAIR SHARE" has the meaning assigned to that term ins subsection
2.2.
"FINANCING AGREEMENT" means either the Credit Agreement or the AXEL
Credit Agreement, and "Financing Agreements" means the Credit Agreement and
the AXEL Credit Agreement, collectively.
"FINANCING AGREEMENT OBLIGATIONS" means Credit Agreement Obligations
and AXEL Obligations.
"FRAUDULENT TRANSFER LAWS" has the meaning assigned to that term ins
subsection 2.2.
"FAIR SHARE SHORTFALL" has the meaning assigned to that term ins
subsection 2.2.
"FUNDING GUARANTOR" has the meaning assigned to that term ins
subsection 2.2.
"GUARANTIED OBLIGATIONS" has the meaning assigned to that term in
subsection 2.1.
"GUARANTY" means this Subsidiary Guaranty dated as of December 18,
1997, as it may be amended, supplemented or otherwise modified from time to
time.
"GRANTOR" has the meaning assigned to that term in the introduction
of this Agreement.
"HOLDINGS" has the meaning assigned to that term in the recitals to
this Agreement.
"INTERCREDITOR AGREEMENT" means the Intercreditor Agreement, dated
as of December 18, 1997, by and among CA Administrative Agent, AXEL
Administrative Agent and Collateral Agent.
"INTEREST RATE EXCHANGERS" has the meaning assigned to that term in
the recitals to this Agreement.
"LENDER INTEREST RATE AGREEMENT" has the meaning assigned to that
term in the recitals to this Agreement.
"LOAN" means any "Loan" as defined in any Financing Agreement, and
"LOANS" means all such Loans collectively.
XVII-4
<PAGE>
"LOAN DOCUMENT" means any "Loan Document" as defined in any
Financing Agreement, and "LOAN DOCUMENTS" means all such Loan Documents
collectively.
"POTENTIAL EVENT OF DEFAULT" means any "Potential Event of
Default" as defined in any Financing Agreement.
"REQUISITE AXEL LENDERS" means "Requisite Lenders" as defined in
the AXEL Credit Agreement.
"REQUISITE CREDIT AGREEMENT LENDERS" means "Requisite Lenders" as
defined in the Credit Agreement.
"REQUISITE LENDERS" means (A) unless an Acceleration shall have
occurred and be continuing, the Requisite Credit Agreement Lenders and the
Requisite AXEL Lenders, and (B) if an Acceleration has occurred and is
continuing, Secured Parties holding more than 50% of the Financing Agreement
Obligations.
"REQUISITE OBLIGEES" has the meaning assigned to that term in
subsection 3.14 of this Agreement.
"SECURED PARTIES" has the meaning assigned to that term in the
recitals to this Agreement.
"PAYMENT IN FULL", "PAID IN FULL" or any similar term means
payment in full of the Guarantied Obligations (other than inchoate
indemnification obligations with respect to claims, losses or liabilities which
have not yet arisen and are not yet due and payable), including without
limitation all principal, interest, costs, fees and expenses (including, without
limitation, reasonable legal fees and expenses) of Beneficiaries as required
under the Loan Documents and the Lender Interest Rate Agreements.
1.2 INTERPRETATION. References to "Sections" and "subsections"
--------------
shall be to Sections and subsections, respectively, of this Guaranty unless
otherwise specifically provided.
SECTION 2. THE GUARANTY
2.1 GUARANTY OF THE GUARANTIED OBLIGATIONS. Subject to the
--------------------------------------
provisions of subsection 2.2(a), Guarantors jointly and severally hereby
irrevocably and unconditionally guaranty, as primary obligors and not merely as
sureties, the due and punctual payment in full of all Guarantied Obligations
when the same shall become due, whether at stated maturity, by required
prepayment, declaration, acceleration, demand or otherwise (including amounts
that would become due but for the operation of the automatic stay under Section
362(a) of the Bankruptcy Code, 11 U.S.C. (S) 362(a)). The term "GUARANTIED
OBLIGATIONS" is used herein in its most comprehensive sense and includes:
XVII-5
<PAGE>
(a) any and all Financing Agreement Obligations of Company and any and
all Interest Rate Obligations, in each case now or hereafter made, incurred or
created, whether absolute or contingent, liquidated or unliquidated, whether due
or not due, and however arising under or in connection with any Financing
Agreement and any other Loan Documents and the Lender Interest Rate Agreements,
including those arising under successive borrowing transactions under any
Financing Agreement which shall either continue the Financing Agreement
Obligations of Company or from time to time renew them after they have been
satisfied and including interest which, but for the filing of a petition in
bankruptcy with respect to Company, would have accrued on any Guarantied
Obligations, whether or not a claim is allowed against Company for such interest
in the related bankruptcy proceeding; and
(b) those expenses set forth in subsection 2.9 hereof.
2.2 LIMITATION ON AMOUNT GUARANTIED; CONTRIBUTION BY GUARANTORS.
-----------------------------------------------------------
(a) Anything contained in this Guaranty to the contrary notwithstanding, if any
Fraudulent Transfer Law (as hereinafter defined) is determined by a court of
competent jurisdiction to be applicable to the obligations of any Guarantor
under this Guaranty, such obligations of such Guarantor hereunder shall be
limited to a maximum aggregate amount equal to the largest amount that would not
render its obligations hereunder subject to avoidance as a fraudulent transfer
or conveyance under Section 548 of Title 11 of the United States Code or any
applicable provisions of comparable state law (collectively, the "FRAUDULENT
TRANSFER LAWS"), in each case after giving effect to all other liabilities of
such Guarantor, contingent or otherwise, that are relevant under the Fraudulent
Transfer Laws (specifically excluding, however, any liabilities of such
Guarantor (x) in respect of intercompany indebtedness to Company or other
affiliates of Company to the extent that such indebtedness would be discharged
in an amount equal to the amount paid by such Guarantor hereunder and (y) under
any guaranty of Subordinated Indebtedness which guaranty contains a limitation
as to maximum amount similar to that set forth in this subsection 2.2(a),
pursuant to which the liability of such Guarantor hereunder is included in the
liabilities taken into account in determining such maximum amount) and after
giving effect as assets to the value (as determined under the applicable
provisions of the Fraudulent Transfer Laws) of any rights to subrogation,
reimbursement, indemnification or contribution of such Guarantor pursuant to
applicable law or pursuant to the terms of any agreement (including without
limitation any such right of contribution under subsection 2.2(b) or under the
Holdings Guaranty as contemplated by subsection 2.2(b)).
(b) Guarantors under this Guaranty, and Holdings under the Holdings
Guaranty, together desire to allocate among themselves (collectively, the
"CONTRIBUTING GUARANTORS"), in a fair and equitable manner, their obligations
arising under this Guaranty and the Holdings Guaranty. Accordingly, in the
event any payment or distribution is made on any date by any Guarantor under
this Guaranty or Holdings under the Holdings Guaranty (a "FUNDING GUARANTOR")
that exceeds its Fair Share (as defined below) as of such date, that Funding
Guarantor shall be entitled to a contribution from each of the other
Contributing Guarantors in the amount of such other Contributing Guarantor's
Fair Share Shortfall (as defined below) as of such date, with the result that
all such contributions will cause each Contributing Guarantor's Aggregate
Payments (as defined below) to
XVII-6
<PAGE>
equal its Fair Share as of such date. "FAIR SHARE" means, with respect to a
Contributing Guarantor as of any date of determination, an amount equal to (i)
the ratio of (x) the Adjusted Maximum Amount (as defined below) with respect to
such Contributing Guarantor to (y) the aggregate of the Adjusted Maximum Amounts
with respect to all Contributing Guarantors multiplied by (ii) the aggregate
---------- --
amount paid or distributed on or before such date by all Funding Guarantors
under this Guaranty and the Holdings Guaranty in respect of the obligations
guarantied. "FAIR SHARE SHORTFALL" means, with respect to a Contributing
Guarantor as of any date of determination, the excess, if any, of the Fair Share
of such Contributing Guarantor over the Aggregate Payments of such Contributing
Guarantor. "ADJUSTED MAXIMUM AMOUNT" means, with respect to a Contributing
Guarantor as of any date of determination, the maximum aggregate amount of the
obligations of such Contributing Guarantor under this Guaranty or the Holdings
Guaranty, as applicable, determined as of such date, in the case of any
Guarantor, in accordance with subsection 2.2(a); provided that, solely for
--------
purposes of calculating the "Adjusted Maximum Amount" with respect to any
Contributing Guarantor for purposes of this subsection 2.2(b), any assets or
liabilities of such Contributing Guarantor arising by virtue of any rights to
subrogation, reimbursement or indemnification or any rights to or obligations of
contribution hereunder or under subsection 2.2 of the Holdings Guaranty shall
not be considered as assets or liabilities of such Contributing Guarantor.
"AGGREGATE PAYMENTS" means, with respect to a Contributing Guarantor as of any
date of determination, an amount equal to (i) the aggregate amount of all
payments and distributions made on or before such date by such Contributing
Guarantor in respect of this Guaranty or the Holdings Guaranty, as applicable
(including, without limitation, in respect of this subsection 2.2(b) or
subsection 2.2 of the Holdings Guaranty) minus (ii) the aggregate amount of all
-----
payments received on or before such date by such Contributing Guarantor from the
other Contributing Guarantors as contributions under this subsection 2.2(b) or
subsection 2.2 of the Holdings Guaranty. The amounts payable as contributions
hereunder and under subsection 2.2 of the Holdings Guaranty shall be determined
as of the date on which the related payment or distribution is made by the
applicable Funding Guarantor. The allocation among Contributing Guarantors of
their obligations as set forth in this subsection 2.2(b) and subsection 2.2 of
the Holdings Guaranty shall not be construed in any way to limit the liability
of any Contributing Guarantor hereunder or under the Holdings Guaranty. Holdings
is a third party beneficiary to the contribution agreement set forth in this
subsection 2.2(b).
2.3 PAYMENT BY GUARANTORS; APPLICATION OF PAYMENTS. Subject to the
----------------------------------------------
provisions of subsection 2.2(a), Guarantors hereby jointly and severally agree,
in furtherance of the foregoing and not in limitation of any other right which
any Beneficiary may have at law or in equity against any Guarantor by virtue
hereof, that upon the failure of Company to pay any of the Guarantied
Obligations when and as the same shall become due, whether at stated maturity,
by required prepayment, declaration, acceleration, demand or otherwise
(including amounts that would become due but for the operation of the automatic
stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. (S) 362(a)),
Guarantors will promptly following written demand pay, or cause to be paid, in
cash, to Guarantied Party for the ratable benefit of Beneficiaries, an amount
equal to the sum of the unpaid principal amount of all Guarantied Obligations
then due as aforesaid, accrued and unpaid interest on such Guarantied
Obligations (including, without limitation, interest which, but for the filing
of a petition in bankruptcy with respect to Company, would have accrued on such
Guarantied Obligations, whether or not a claim is allowed against Company for
such interest in the related bankruptcy proceeding) and all other Guarantied
Obligations then owed to Beneficiaries as
XVII-7
<PAGE>
aforesaid. All such payments shall be applied promptly from time to time by
Guarantied Party as provided in subsection 3 of the Intercreditor Agreement.
2.4 LIABILITY OF GUARANTORS ABSOLUTE. Each Guarantor agrees that its
--------------------------------
obligations hereunder are irrevocable, absolute, independent and unconditional
and shall not be affected by any circumstance which constitutes a legal or
equitable discharge of a guarantor or surety other than payment in full of the
Guarantied Obligations. In furtherance of the foregoing and without limiting
the generality thereof, each Guarantor agrees as follows:
A. This Guaranty is a guaranty of payment when due and not of
collectibility.
B. The obligations of each Guarantor hereunder are independent of
the obligations of Company under the Loan Documents or the Lender Interest Rate
Agreements and the obligations of any other guarantor (including any other
Guarantor) of the obligations of Company under the Loan Documents or the Lender
Interest Rate Agreements, and a separate action or actions may be brought and
prosecuted against such Guarantor whether or not any action is brought against
Company or any of such other guarantors and whether or not Company is joined in
any such action or actions.
C. Payment by any Guarantor of a portion, but not all, of the
Guarantied Obligations shall in no way limit, affect, modify or abridge any
Guarantor's liability for any portion of the Guarantied Obligations which has
not been paid. Without limiting the generality of the foregoing, if Guarantied
Party is awarded a judgment in any suit brought to enforce any Guarantor's
covenant to pay a portion of the Guarantied Obligations, such judgment shall not
be deemed to release such Guarantor from its covenant to pay the portion of the
Guarantied Obligations that is not the subject of such suit, and such judgment
shall not, except to the extent satisfied by such Guarantor, limit, affect,
modify or abridge any other Guarantor's liability hereunder in respect of the
Guarantied Obligations.
D. Any Beneficiary, upon such terms as it deems appropriate,
without notice or demand and without affecting the validity or enforceability of
this Guaranty or giving rise to any reduction, limitation, impairment, discharge
or termination of any Guarantor's liability hereunder, from time to time may (i)
renew, extend, accelerate, increase the rate of interest on, or otherwise change
the time, place, manner or terms of payment of the Guarantied Obligations, (ii)
settle, compromise, release or discharge, or accept or refuse any offer of
performance with respect to, or substitutions for, the Guarantied Obligations or
any agreement relating thereto and/or subordinate the payment of the same to the
payment of any other obligations; (iii) request and accept other guaranties of
the Guarantied Obligations and take and hold security for the payment of this
Guaranty or the Guarantied Obligations; (iv) release, surrender, exchange,
substitute, compromise, settle, rescind, waive, alter, subordinate or modify,
with or without consideration, any security for payment of the Guarantied
Obligations, any other guaranties of the Guarantied
XVII-8
<PAGE>
Obligations, or any other obligation of any Person (including any other
Guarantor) with respect to the Guarantied Obligations; (v) enforce and apply any
security now or hereafter held by or for the benefit of such Beneficiary in
respect of this Guaranty or the Guarantied Obligations and direct the order or
manner of sale thereof, or exercise any other right or remedy that such
Beneficiary may have against any such security, in each case as such Beneficiary
in its discretion may determine consistent with the applicable Financing
Agreement or the applicable Lender Interest Rate Agreement and any applicable
security agreement, including foreclosure on any such security pursuant to one
or more judicial or nonjudicial sales, whether or not every aspect of any such
sale is commercially reasonable, and even though such action operates to impair
or extinguish any right of reimbursement or subrogation or other right or remedy
of any Guarantor against Company or any security for the Guarantied Obligations;
and (vi) exercise any other rights available to it under the Loan Documents or
the Lender Interest Rate Agreements.
E. This Guaranty and the obligations of Guarantors hereunder
shall be valid and enforceable and shall not be subject to any reduction,
limitation, impairment, discharge or termination for any reason (other than
payment in full of the Guarantied Obligations), including without limitation the
occurrence of any of the following, whether or not any Guarantor shall have had
notice or knowledge of any of them: (i) any failure or omission to assert or
enforce or agreement or election not to assert or enforce, or the stay or
enjoining, by order of court, by operation of law or otherwise, of the exercise
or enforcement of, any claim or demand or any right, power or remedy (whether
arising under the Loan Documents or the Lender Interest Rate Agreements, at law,
in equity or otherwise) with respect to the Guarantied Obligations or any
agreement relating thereto, or with respect to any other guaranty of or security
for the payment of the Guarantied Obligations; (ii) any rescission, waiver,
amendment or modification of, or any consent to departure from, any of the terms
or provisions (including without limitation provisions relating to events of
default) of any Financing Agreement, any of the other Loan Documents, any of the
Lender Interest Rate Agreements or any agreement or instrument executed pursuant
thereto, or of any other guaranty or security for the Guarantied Obligations, in
each case whether or not in accordance with the terms of such Financing
Agreement or such Loan Document, such Lender Interest Rate Agreement or any
agreement relating to such other guaranty or security; (iii) the application of
payments received from any source (other than payments received pursuant to the
other Loan Documents or any of the Lender Interest Rate Agreements or from the
proceeds of any security for the Guarantied Obligations, except to the extent
such security also serves as collateral for indebtedness other than the
Guarantied Obligations) to the payment of indebtedness other than the Guarantied
Obligations, even though any Beneficiary might have elected to apply such
payment to any part or all of the Guarantied Obligations; (iv) any Beneficiary's
consent to the change, reorganization or termination of the corporate structure
or existence of Holdings or any of its Subsidiaries and to any corresponding
restructuring of the Guarantied Obligations; (v) any failure to perfect or
continue perfection of a security interest in any collateral which secures any
of the Guarantied Obligations; (vi) any defenses, set-offs or
XVII-9
<PAGE>
counterclaims which Company may allege or assert against any Beneficiary in
respect of the Guarantied Obligations, including but not limited to failure of
consideration, breach of warranty, payment, statute of frauds, statute of
limitations, accord and satisfaction and usury; and (vii) any other act or thing
or omission, or delay to do any other act or thing, which may or might in any
manner or to any extent vary the risk of any Guarantor as an obligor in respect
of the Guarantied Obligations.
2.5 WAIVERS BY GUARANTORS. Each Guarantor hereby waives, for the
---------------------
benefit of Beneficiaries:
(a) any right to require any Beneficiary, as a condition of payment
or performance by such Guarantor, to (i) proceed against Company, any other
guarantor (including any other Guarantor) of the Guarantied Obligations or any
other Person, (ii) proceed against or exhaust any security held from Company,
any such other guarantor or any other Person, (iii) proceed against or have
resort to any balance of any deposit account or credit on the books of any
Beneficiary in favor of Company or any other Person, or (iv) pursue any other
remedy in the power of any Beneficiary whatsoever;
(b) any defense arising by reason of the incapacity, lack of authority
or any disability or other defense of Company including, without limitation, any
defense based on or arising out of the lack of validity or the unenforceability
of the Guarantied Obligations or any agreement or instrument relating thereto or
by reason of the cessation of the liability of Company from any cause other than
payment in full of the Guarantied Obligations;
(c) any defense based upon any statute or rule of law which provides
that the obligation of a surety must be neither larger in amount nor in other
respects more burdensome than that of the principal;
(d) any defense based upon any Beneficiary's errors or omissions in
the administration of the Guarantied Obligations, except behavior which amounts
to bad faith, gross negligence or willful misconduct;
(e) (i) any principles or provisions of law, statutory or otherwise,
which are or might be in conflict with the terms of this Guaranty, (ii) the
benefit of any statute of limitations affecting such Guarantor's liability
hereunder or the enforcement hereof, (iii) any rights to set-offs, recoupments
and counterclaims, and (iv) promptness, diligence and any requirement that any
Beneficiary protect, secure, perfect or insure any security interest or lien or
any property subject thereto; and
(f) notices, demands, presentments, protests, notices of protest,
notices of dishonor and notices of any action or inaction, including acceptance
of this Guaranty, notices of default under the Financing Agreements, the Lender
Interest Rate Agreements or any agreement or instrument related thereto, notices
of any
XVII-10
<PAGE>
renewal, extension or modification of the Guarantied Obligations or any
agreement related thereto, notices of any extension of credit to Company and
notices of any of the matters referred to in subsection 2.4 and any right to
consent to any thereof.
2.6 CERTAIN CALIFORNIA LAW WAIVERS. As used in this subsection 2.6,
------------------------------
any reference to "the principal" includes Company, and any reference to "the
creditor" includes each Beneficiary. In accordance with Section 2856 of the
California Civil Code:
(a) each Guarantor agrees (i) to waive any and all rights of
subrogation and reimbursement against Company or against any collateral or
security granted by Company for any of the Guarantied Obligations and (ii) to
withhold the exercise of any and all rights of contribution against any other
guarantor of any of the Guarantied Obligations and against any collateral or
security granted by any such other guarantor for any of the Guarantied
Obligations until the Guarantied Obligations shall have been paid in full and
the Commitments shall have terminated and all Letters of Credit shall have
expired or been cancelled, all as more fully set forth in subsection 2.7;
(b) each Guarantor waives any and all other rights and defenses
available to such Guarantor by reason of Sections 2787 to 2855, inclusive, 2899
and 3433 of the California Civil Code, including without limitation any and all
rights or defenses such Guarantor may have by reason of protection afforded to
the principal with respect to any of the Guarantied Obligations, or to any other
guarantor (including any other Guarantor) of any of the Guarantied Obligations
with respect to any of such guarantor's obligations under its guaranty, in
either case pursuant to the antideficiency or other laws of the State of
California limiting or discharging the principal's indebtedness or such
guarantor's obligations, including without limitation Section 580a, 580b, 580d,
or 726 of the California Code of Civil Procedure; and
(c) each Guarantor waives all rights and defenses arising out of an
election of remedies by the creditor, even though that election of remedies,
such as a nonjudicial foreclosure with respect to security for any Guarantied
Obligation, has destroyed such Guarantor's rights of subrogation and
reimbursement against the principal by the operation of Section 580d of the Code
of Civil Procedure or otherwise; and even though that election of remedies by
the creditor, such as nonjudicial foreclosure with respect to security for an
obligation of any other guarantor (including any other Guarantor) of any of the
Guarantied Obligations, has destroyed such Guarantor's rights of contribution
against such other guarantor.
No other provision of this Guaranty shall be construed as limiting the
generality of any of the covenants and waivers set forth in this subsection 2.6.
In accordance with subsection 3.6 below, this Guaranty shall be governed by, and
shall be construed and enforced in accordance with, the internal laws of the
State of New York, without regard to conflicts of laws principles. This
subsection 2.6 is included solely out of an abundance of caution, and shall not
be construed to mean that any of the above-referenced provisions of California
law are in any way applicable to this Guaranty or to any of the Guarantied
Obligations.
XVII-11
<PAGE>
2.7 GUARANTORS' RIGHTS OF SUBROGATION, CONTRIBUTION, ETC. Each
----------------------------------------------------
Guarantor hereby waives any claim, right or remedy, direct or indirect, that
such Guarantor now has or may hereafter have against Company or any of its
assets in connection with this Guaranty or the performance by such Guarantor of
its obligations hereunder, in each case whether such claim, right or remedy
arises in equity, under contract, by statute (including without limitation under
California Civil Code Section 2847, 2848 or 2849), under common law or otherwise
and including without limitation (a) any right of subrogation, reimbursement or
indemnification that such Guarantor now has or may hereafter have against
Company with respect to the Guarantied Obligations, (b) any right to enforce, or
to participate in, any claim, right or remedy that any Beneficiary now has or
may hereafter have against Company, and (c) any benefit of, and any right to
participate in, any collateral or security now or hereafter held by any
Beneficiary. In addition, until the Guarantied Obligations shall have been
indefeasibly paid in full and the Commitments shall have terminated and all
Letters of Credit shall have expired or been cancelled, each Guarantor shall
withhold exercise of any right of contribution such Guarantor may have against
any other guarantor (including any other Guarantor) of the Guarantied
Obligations (including without limitation any such right of contribution under
California Civil Code Section 2848 or under subsection 2.2(b) or under the
Holdings Guaranty as contemplated by subsection 2.2(b). Each Guarantor further
agrees that, to the extent the waiver or agreement to withhold the exercise of
its rights of subrogation, reimbursement, indemnification and contribution as
set forth herein is found by a court of competent jurisdiction to be void or
voidable for any reason, any rights of subrogation, reimbursement or
indemnification such Guarantor may have against Company or against any
collateral or security, and any rights of contribution such Guarantor may have
against any such other guarantor, shall be junior and subordinate to any rights
any Beneficiary may have against Company, to all right, title and interest any
Beneficiary may have in any such collateral or security, and to any right any
Beneficiary may have against such other guarantor. If any amount shall be paid
to any Guarantor on account of any such subrogation, reimbursement,
indemnification or contribution rights at any time when all Guarantied
Obligations shall not have been paid in full, such amount shall be held in trust
for Guarantied Party on behalf of Beneficiaries and shall forthwith be paid over
to Guarantied Party for the benefit of Beneficiaries to be credited and applied
against the Guarantied Obligations, whether matured or unmatured, in accordance
with the terms hereof.
2.8 SUBORDINATION OF OTHER OBLIGATIONS. Any indebtedness of Company
----------------------------------
now or hereafter held by any Guarantor is hereby subordinated in right of
payment to the Guarantied Obligations, and any such indebtedness of Company to
such Guarantor collected or received by such Guarantor after an Event of Default
has occurred and is continuing shall be held in trust for Guarantied Party on
behalf of Beneficiaries and shall forthwith be paid over to Guarantied Party for
the benefit of Beneficiaries to be credited and applied against the Guarantied
Obligations but without affecting, impairing or limiting in any manner the
liability of such Guarantor under any other provision of this Guaranty.
2.9 EXPENSES. Guarantors jointly and severally agree to pay, or
--------
cause to be paid, promptly upon written demand, and to save Beneficiaries
harmless against liability for, any and all reasonable costs and reasonable
expenses (including reasonable fees and reasonable disbursements of counsel and
allocated costs of internal counsel) incurred or expended by any Beneficiary in
connection with the enforcement of or preservation of any rights under this
Guaranty.
XVII-12
<PAGE>
2.10 CONTINUING GUARANTY. This Guaranty is a continuing guaranty and
-------------------
shall remain in effect until all of the Guarantied Obligations shall have been
paid in full and the Commitments shall have terminated and all Letters of Credit
shall have expired or been cancelled. Each Guarantor hereby irrevocably waives
any right (including without limitation any such right arising under California
Civil Code Section 2815) to revoke this Guaranty as to future transactions
giving rise to any Guarantied Obligations.
2.11 AUTHORITY OF GUARANTORS OR COMPANY. It is not necessary for any
----------------------------------
Beneficiary to inquire into the capacity or powers of any Guarantor or Company
or the officers, directors or any agents acting or purporting to act on behalf
of any of them.
2.12 FINANCIAL CONDITION OF COMPANY. Any Loans may be granted to
------------------------------
Company or continued from time to time, and any Lender Interest Rate Agreements
may be entered into from time to time, in each case without notice to or
authorization from any Guarantor regardless of the financial or other condition
of Company at the time of any such grant or continuation or at the time such
Lender Interest Rate Agreement is entered into, as the case may be. No
Beneficiary shall have any obligation to disclose or discuss with any Guarantor
its assessment, or any Guarantor's assessment, of the financial condition of
Company. Each Guarantor has adequate means to obtain information from Company
on a continuing basis concerning the financial condition of Company and its
ability to perform its obligations under the Loan Documents and the Lender
Interest Rate Agreements, and each Guarantor assumes the responsibility for
being and keeping informed of the financial condition of Company and of all
circumstances bearing upon the risk of nonpayment of the Guarantied Obligations.
Each Guarantor hereby waives and relinquishes any duty on the part of any
Beneficiary to disclose any matter, fact or thing relating to the business,
operations or conditions of Company now known or hereafter known by any
Beneficiary.
2.13 RIGHTS CUMULATIVE. The rights, powers and remedies given to
-----------------
Beneficiaries by this Guaranty are cumulative and shall be in addition to and
independent of all rights, powers and remedies given to Beneficiaries by virtue
of any statute or rule of law or in any of the other Loan Documents, any of the
Lender Interest Rate Agreements or any agreement between any Guarantor and any
Beneficiary or Beneficiaries or between Company and any Beneficiary or
Beneficiaries. Any forbearance or failure to exercise, and any delay by any
Beneficiary in exercising, any right, power or remedy hereunder shall not impair
any such right, power or remedy or be construed to be a waiver thereof, nor
shall it preclude the further exercise of any such right, power or remedy.
2.14 BANKRUPTCY; POST-PETITION INTEREST; REINSTATEMENT OF GUARANTY.
-------------------------------------------------------------
(a) So long as any Guarantied Obligations remain outstanding, no Guarantor
shall, without the prior written consent of Guarantied Party acting pursuant to
the instructions of Requisite Obligees (as defined in subsection 3.12), commence
or join with any other Person in commencing any bankruptcy, reorganization or
insolvency proceedings against Company. The obligations of Guarantors under
this Guaranty shall not be reduced, limited, impaired, discharged, deferred,
suspended or terminated by any proceeding, voluntary or involuntary, involving
the bankruptcy, insolvency, receivership, reorganization, liquidation or
arrangement of Company or by any defense which Company may have by reason of the
order, decree or decision of any court or administrative body resulting from any
such proceeding.
XVII-13
<PAGE>
(b) Each Guarantor acknowledges and agrees that any interest on any
portion of the Guarantied Obligations which accrues after the commencement of
any proceeding referred to in clause (a) above (or, if interest on any portion
of the Guarantied Obligations ceases to accrue by operation of law by reason of
the commencement of said proceeding, such interest as would have accrued on such
portion of the Guarantied Obligations if said proceedings had not been
commenced) shall be included in the Guarantied Obligations because it is the
intention of Guarantors and Beneficiaries that the Guarantied Obligations which
are guarantied by Guarantors pursuant to this Guaranty should be determined
without regard to any rule of law or order which may relieve Company of any
portion of such Guarantied Obligations. Guarantors will permit any trustee in
bankruptcy, receiver, debtor in possession, assignee for the benefit of
creditors or similar person to pay Guarantied Party, or allow the claim of
Guarantied Party in respect of, any such interest accruing after the date on
which such proceeding is commenced.
(c) In the event that all or any portion of the Guarantied
Obligations are paid by Company, the obligations of Guarantors hereunder shall
continue and remain in full force and effect or be reinstated, as the case may
be, in the event that all or any part of such payment(s) are rescinded or
recovered directly or indirectly from any Beneficiary as a preference,
fraudulent transfer or otherwise, and any such payments which are so rescinded
or recovered shall constitute Guarantied Obligations for all purposes under this
Guaranty until indefeasibly paid in full.
2.15 SET OFF. In addition to any other rights any Beneficiary may
-------
have under law or in equity, if any amount shall at any time be due and owing by
any Guarantor to any Beneficiary under this Guaranty, such Beneficiary is
authorized at any time or from time to time, without notice (any such notice
being hereby expressly waived), to set off and to appropriate and to apply any
and all deposits (general or special, including but not limited to indebtedness
evidenced by certificates of deposit, whether matured or unmatured) and any
other indebtedness of such Beneficiary owing to such Guarantor and any other
property of such Guarantor held by any Beneficiary to or for the credit or the
account of such Guarantor against and on account of the Guarantied Obligations
and liabilities of such Guarantor to any Beneficiary under this Guaranty.
2.16 DISCHARGE OF GUARANTY UPON SALE OF GUARANTOR. If all of the
--------------------------------------------
stock of any Guarantor or any of its successors in interest under this Guaranty
shall be sold or otherwise disposed of (including by merger or consolidation) in
an Asset Sale not prohibited by subsection 7.7 of the Credit Agreement or
otherwise consented to by Requisite Lenders, the Guaranty of such Guarantor or
such successor in interest, as the case may be, hereunder shall automatically be
discharged and released without any further action by any Beneficiary or any
other Person effective as of the time of such Asset Sale; provided that, as a
--------
condition precedent to such discharge and release, Guarantied Party shall have
received evidence satisfactory to it that arrangements satisfactory to it have
been made for disposition of the applicable Net Asset Sale Proceeds in
accordance with the requirements of the Credit Agreement.
SECTION 3. MISCELLANEOUS
3.1 SURVIVAL OF WARRANTIES. All agreements, representations and
----------------------
warranties made herein shall survive the execution and delivery of this Guaranty
and the other Loan Documents
XVII-14
<PAGE>
and the Lender Interest Rate Agreements and any increase in the Commitments
under any Financing Agreement.
3.2 NOTICES. Any communications between Guarantied Party and any
-------
Guarantor and any notices or requests provided herein to be given may be given
by mailing the same, postage prepaid, or by telex, facsimile transmission or
cable to each such party at its addresses set forth in the Financing Agreements,
on the signature pages hereof or to such other addresses as each such party may
in writing hereafter indicate. Any notice, request or demand to or upon
Guarantied Party or any Guarantor shall not be effective until received.
3.3 SEVERABILITY. In case any provision in or obligation under this
------------
Guaranty shall be invalid, illegal or unenforceable in any jurisdiction, the
validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction, shall
not in any way be affected or impaired thereby.
3.4 AMENDMENTS AND WAIVERS. No amendment, modification, termination
----------------------
or waiver of any provision of this Guaranty, and no consent to any departure by
any Guarantor therefrom, shall in any event be effective without the written
concurrence of Guarantied Party and, in the case of any such amendment or
modification, each Guarantor against whom enforcement of such amendment or
modification is sought. Any such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which it was given.
3.5 HEADINGS. Section and subsection headings in this Guaranty are
--------
included herein for convenience of reference only and shall not constitute a
part of this Guaranty for any other purpose or be given any substantive effect.
3.6 APPLICABLE LAW. THIS GUARANTY AND THE RIGHTS AND OBLIGATIONS OF
--------------
GUARANTORS AND BENEFICIARIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW
YORK (INCLUDING WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW
OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
3.7 SUCCESSORS AND ASSIGNS. This Guaranty is a continuing guaranty
----------------------
and shall be binding upon each Guarantor and its respective successors and
assigns. This Guaranty shall inure to the benefit of Beneficiaries and their
respective successors and assigns. No Guarantor shall assign this Guaranty or
any of the rights or obligations of such Guarantor hereunder without the prior
written consent of all Secured Parties. Any Beneficiary may, without notice or
consent, assign its interest in this Guaranty in whole or in part. The terms
and provisions of this Guaranty shall inure to the benefit of any transferee or
assignee of any Loan, and in the event of such transfer or assignment the rights
and privileges herein conferred upon such Beneficiary shall automatically extend
to and be vested in such transferee or assignee, all subject to the terms and
conditions hereof.
3.8 CONSENT TO JURISDICTION AND SERVICE OF PROCESS. ALL JUDICIAL
----------------------------------------------
PROCEEDINGS BROUGHT AGAINST ANY GUARANTOR ARISING OUT OF OR
XVII-15
<PAGE>
RELATING TO THIS GUARANTY, OR ANY OBLIGATIONS HEREUNDER, MAY BE BROUGHT IN ANY
STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE, COUNTY AND CITY
OF NEW YORK. BY EXECUTING AND DELIVERING THIS AGREEMENT, EACH GUARANTOR, FOR
ITSELF AND IN CONNECTION WITH ITS PROPERTIES, IRREVOCABLY
(I) ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE
JURISDICTION AND VENUE OF SUCH COURTS;
(II) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS;
(III) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN
ANY SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT
REQUESTED, TO SUCH GUARANTOR AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH
SUBSECTION 3.2;
(IV) AGREES THAT SERVICE AS PROVIDED IN CLAUSE (III) ABOVE IS
SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER SUCH GUARANTOR IN ANY SUCH
PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND BINDING
SERVICE IN EVERY RESPECT;
(V) AGREES THAT BENEFICIARIES RETAIN THE RIGHT TO SERVE PROCESS IN ANY
OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST SUCH GUARANTOR IN
THE COURTS OF ANY OTHER JURISDICTION; AND
(VI) AGREES THAT THE PROVISIONS OF THIS SUBSECTION 3.8 RELATING TO
JURISDICTION AND VENUE SHALL BE BINDING AND ENFORCEABLE TO THE FULLEST EXTENT
PERMISSIBLE UNDER NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1402 OR OTHERWISE.
3.9 WAIVER OF TRIAL BY JURY. EACH GUARANTOR AND, BY ITS ACCEPTANCE
-----------------------
OF THE BENEFITS HEREOF, EACH BENEFICIARY EACH HEREBY AGREES TO WAIVE ITS
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS GUARANTY. The scope of this waiver is intended to be all
encompassing of any and all disputes that may be filed in any court and that
relate to the subject matter of this transaction, including without limitation
contract claims, tort claims, breach of duty claims and all other common law and
statutory claims. Each Guarantor and, by its acceptance of the benefits hereof,
each Beneficiary, each (i) acknowledges that this waiver is a material
inducement for such Guarantor and Beneficiaries to enter into a business
relationship, that such Guarantor and Beneficiaries have already relied on this
waiver in entering into this Guaranty or accepting the benefits thereof, as the
case may be, and that each will continue to rely on this waiver in their related
future dealings and (ii) further warrants and
XVII-16
<PAGE>
represents that each has reviewed this waiver with its legal counsel, and that
each knowingly and voluntarily waives its jury trial rights following
consultation with legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY
NOT BE MODIFIED EITHER ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL WRITTEN
WAIVER SPECIFICALLY REFERRING TO THIS SUBSECTION 3.9 AND EXECUTED BY GUARANTIED
PARTY AND EACH GUARANTOR), AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT
AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS GUARANTY. In the
event of litigation, this Guaranty may be filed as a written consent to a trial
by the court.
3.10 NO OTHER WRITING. This writing is intended by Guarantors and
----------------
Beneficiaries as the final expression of this Guaranty and is also intended as a
complete and exclusive statement of the terms of their agreement with respect to
the matters covered hereby. No course of dealing, course of performance or trade
usage, and no parol evidence of any nature, shall be used to supplement or
modify any terms of this Guaranty. There are no conditions to the full
effectiveness of this Guaranty.
3.11 FURTHER ASSURANCES. At any time or from time to time, upon the
------------------
request of Guarantied Party, Guarantors shall execute and deliver such further
documents and do such other acts and things as Guarantied Party may reasonably
request in order to effect fully the purposes of this Guaranty.
3.12 ADDITIONAL GUARANTORS. The initial Guarantors hereunder
---------------------
shall be such of the Subsidiaries of Company as are signatories hereto on the
date hereof. From time to time subsequent to the date hereof, additional
Subsidiaries of Company may become parties hereto, as additional Guarantors
(each an "ADDITIONAL GUARANTOR"), by executing a counterpart of this Guaranty.
Upon delivery of any such counterpart to Collateral Agent, notice of which is
hereby waived by Guarantors, each such Additional Guarantor shall be a Guarantor
and shall be as fully a party hereto as if such Additional Guarantor were an
original signatory hereof. Each Guarantor expressly agrees that its obligations
arising hereunder shall not be affected or diminished by the addition or release
of any other Guarantor hereunder, nor by any election of Collateral Agent not to
cause any Subsidiary of Company to become an Additional Guarantor hereunder.
This Guaranty shall be fully effective as to any Guarantor that is or becomes a
party hereto regardless of whether any other Person becomes or fails to become
or ceases to be a Guarantor hereunder.
3.13 COUNTERPARTS; EFFECTIVENESS. This Guaranty may be executed in
---------------------------
any number of counterparts and by the different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to be
an original for all purposes; but all such counterparts together shall
constitute but one and the same instrument. This Guaranty shall become
effective as to each Guarantor upon the execution of a counterpart hereof by
such Guarantor (whether or not a counterpart hereof shall have been executed by
any other Guarantor) and receipt by Guarantied Party of written or telephonic
notification of such execution and authorization of delivery thereof.
3.14 GUARANTIED PARTY AS COLLATERAL AGENT.
------------------------------------
XVII-17
<PAGE>
(a) Guarantied Party has been appointed to act as Guarantied Party
hereunder by CA Administrative Agent on behalf of the Credit Agreement Lenders
and by AXEL Administrative Agent on behalf of the AXEL Lenders pursuant to the
Intercreditor Agreement, and, by their acceptance of the benefits hereof,
Interest Rate Exchangers and shall be entitled to the benefits of the
Intercreditor Agreement. Guarantied Party shall be obligated, and shall have
the right hereunder, to make demands, to give notices, to exercise or refrain
from exercising any rights, and to take or refrain from taking any action,
solely in accordance with this Guaranty and the Intercreditor Agreements;
provided that Guarantied Party shall exercise, or refrain from exercising, any
- --------
remedies hereunder in accordance with the instructions of (i) Requisite Lenders
or (ii) after payment in full of all Financing Agreement Obligations under the
Financing Agreements and any other Loan Documents, the holders of a majority of
the aggregate notional amount (or, with respect to any Lender Interest Rate
Agreement that has been terminated in accordance with its terms, the amount then
due and payable (exclusive of expenses and similar payments but including any
early termination payments then due) under such Lender Interest Rate Agreement)
under all Lender Interest Rate Agreements (Requisite Lenders or, if applicable,
such holders being referred to herein as "REQUISITE OBLIGEES"). In
furtherance of the foregoing provisions of this subsection 3.14, each Interest
Rate Exchanger, by its acceptance of the benefits hereof, agrees that it shall
have no right individually to enforce this Guaranty, it being understood and
agreed by such Interest Rate Exchanger that all rights and remedies hereunder
may be exercised solely by Guarantied Party for the benefit of Beneficiaries in
accordance with the terms of this subsection 3.14.
(b) Guarantied Party shall at all times be the same Person that is
Collateral Agent under the Intercreditor Agreement. The Collateral Agent may
resign and a successor Collateral Agent may be appointed in the manner provided
in the Intercreditor Agreement. Written notice of resignation by Collateral
Agent pursuant to the Intercreditor Agreement shall also constitute notice of
resignation as Guarantied Party under this Guaranty; removal of Collateral Agent
pursuant to the Intercreditor Agreement shall also constitute removal as
Guarantied Party under this Guaranty; and appointment of a successor Collateral
Agent pursuant to the Intercreditor Agreement shall also constitute appointment
of a successor Guarantied Party under this Guaranty. Upon the acceptance of any
appointment as Collateral Agent by a successor Collateral Agent, that successor
Collateral Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring or removed Guarantied
Party under this Guaranty, and the retiring or removed Guarantied Party under
this Guaranty shall promptly (i) transfer to such successor Guarantied Party all
sums held hereunder, together with all records and other documents necessary or
appropriate in connection with the performance of the duties of the successor
Guarantied Party under this Guaranty, and (ii) take such other actions as may be
necessary or appropriate in connection with the assignment to such successor
Guarantied Party of the rights created hereunder, whereupon such retiring or
removed Guarantied Party shall be discharged from its duties and obligations
under this Guaranty. After any retiring or removed Guarantied Party's
resignation or removal hereunder as Guarantied Party, the provisions of this
Guaranty shall inure to its benefit as to any actions taken or omitted to be
taken by it under this Guaranty while it was Guarantied Party hereunder.
[Remainder of page intentionally left blank]
XVII-18
<PAGE>
IN WITNESS WHEREOF, each of the undersigned Guarantors has caused this
Guaranty to be duly executed and delivered by its officer thereunto duly
authorized as of the date first written above.
[NAMES OF GUARANTORS]
By: -----------------
Name:
Title:
Notice Address:
_____________________
_____________________
_____________________
XVII-19
<PAGE>
IN WITNESS WHEREOF, the undersigned Additional Guarantor has caused
this Guaranty to be duly executed and delivered by its officer thereunto duly
authorized as of ______________, [199_][200_].
[NAME OF ADDITIONAL GUARANTOR]
By:___________________________
Name:
Title:
Notice Address:
_____________________
_____________________
_____________________
XVII-20
<PAGE>
EXHIBIT XVIII
[FORM OF SUBSIDIARY PLEDGE AGREEMENT]
SUBSIDIARY PLEDGE AGREEMENT
This SUBSIDIARY PLEDGE AGREEMENT (this "AGREEMENT") is dated as of
December 18, 1997 and entered into by and among THE UNDERSIGNED DIRECT AND
INDIRECT SUBSIDIARIES (each of such undersigned Subsidiaries being a "PLEDGOR"
and collectively "PLEDGORS"; provided that after the Closing Date,
--------
"Pledgors" shall be deemed to include any Additional Pledgors (as hereinafter
defined)) of Sealy Mattress Company, an Ohio corporation ("COMPANY"), and
MORGAN GUARANTY TRUST COMPANY OF NEW YORK ("MORGAN GUARANTY"), as Collateral
Agent for and representative of (in such capacity herein called "COLLATERAL
AGENT") the Secured Parties (as hereinafter defined) and any Interest Rate
Exchangers (as hereinafter defined).
RECITALS
A. Pledgors are the legal and beneficial owners of (i) the shares of
stock (the "PLEDGED SHARES") described in Part A of Schedule I annexed hereto
----------
and issued by the corporations named therein and (ii) the indebtedness (the
"PLEDGED DEBT") described in Part B of said Schedule I and issued by the
----------
obligors named therein.
B. Sealy Corporation, a Delaware Corporation ("HOLDINGS"), the
financial institutions from time to time parties thereto (the "CREDIT AGREEMENT
LENDERS"), Goldman Sachs Credit Partners L.P. ("GSCP"), as arranger and
syndication agent (in such capacity, "CA SYNDICATION AGENT"), Morgan Guaranty,
as administrative agent ( in such capacity, "CA ADMINISTRATIVE AGENT"), and
Bankers Trust Company ("BTCO."), as documentation agent (in such capacity "CA
DOCUMENTATION AGENT") have entered into a Credit Agreement dated as of December
18, 1997 (said Credit Agreement, as it may hereafter be amended, restated,
supplemented or otherwise modified from time to time, being the "CREDIT
AGREEMENT") with Company pursuant to which Credit Agreement Lenders have made
certain commitments, subject to the terms and conditions set forth in the Credit
Agreement, to extend certain credit facilities to Company.
C. Company, Holdings, the financial institutions from time to time
parties thereto (the "AXEL LENDERS"), GSCP, as arranger and syndication agent
(in such capacity the "AXEL SYNDICATION AGENT"), Morgan Guaranty, as
administrative agent (in such capacity "AXEL ADMINISTRATIVE AGENT"), and
BTCo., as documentation agent (in such capacity, "AXEL DOCUMENTATION
AGENT")have entered into an AXEL Credit Agreement dated as of December 18, 1997
(said AXEL Credit Agreement, as it may hereafter be amended, restated,
supplemented or otherwise modified from time to time, being the "AXEL CREDIT
XVIII-1
<PAGE>
AGREEMENT"; the Credit Agreement Lenders, the CA Syndication Agent, the CA
Administrative Agent, the CA Documentation Agent, the AXEL Lenders, the AXEL
Syndication Agent, the AXEL Administrative Agent, and the AXEL Documentation
Agent each being a "SECURED PARTY" and collectively the "SECURED PARTIES")
pursuant to which AXEL Lenders have made certain commitments, subject to the
terms and conditions set forth in the AXEL Credit Agreement, to extend certain
credit facilities to Company.
D. Company may from time to time enter, or may from time to time
have entered, into one or more Interest Rate Agreements (collectively, the
"LENDER INTEREST RATE AGREEMENTS") with one or more CA Lenders and their
Affiliates or AXEL Lenders and their Affiliates (in such capacity, collectively,
"INTEREST RATE EXCHANGERS").
E. Pledgors have executed and delivered that certain Subsidiary
Guaranty dated as of December 18, 1997 (said Subsidiary Guaranty, as it may
hereafter be amended, supplemented or otherwise modified from time to time,
being the "GUARANTY") in favor of Collateral Agent for the benefit of Secured
Parties and any Interest Rate Exchangers, pursuant to which Pledgors have
guarantied the prompt payment and performance when due of all obligations of
Company under the Financing Agreements and all obligations of Company under the
Lender Interest Rate Agreements, including without limitation the obligation of
Company to make payments, if any, thereunder in the event of early termination
thereof.
F. It is a condition precedent to the initial extensions of credit
by Secured Parties under the Financing Agreements that each Pledgor shall have
granted the security interests and undertaken the obligations contemplated by
this Agreement.
NOW, THEREFORE, in consideration of the premises and to induce (i) the
CA Administrative Agent, the CA Syndication Agent and the Credit Agreement
Lenders to enter into the Credit Agreement, (ii) the Credit Agreement Lenders to
make their respective loans to, and issue Letters of Credit for the account of,
Company, (iii) the AXEL Administrative Agent, the AXEL Syndication Agent and the
AXEL Lenders to enter into the AXEL Loan Agreement, (iv) the AXEL Lenders to
make their respective loans to Company and (v) to induce Interest Rate
Exchangers to enter into the Lender Interest Rate Agreements, and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, each Pledgor hereby agrees with Collateral Agent as follows:
SECTION 1. DEFINED TERMS
-------------
(a) Unless otherwise defined herein, terms defined in the Credit
Agreement and used herein shall have the meanings given to such terms in the
Credit Agreement;
(b) The following terms shall have the following meanings:
"ACCELERATION" shall mean any of the Credit Agreement Obligations or
the AXEL Credit Agreement Obligations have been declared, or have become,
immediately due and payable, or the commitments to extend credit of the Credit
Agreement Lenders or the
XVIII-2
<PAGE>
AXEL Lenders shall have been terminated under Section 8 of the Credit Agreement
or Section 7 of the AXEL Credit Agreement, respectively.
"ADDITIONAL PLEDGED SHARES" has the meaning assigned to that term in
Section 2(c) of this Agreement.
"AGREEMENT" means this Company Pledge Agreement dated as of December
18, 1997, as it may be amended, supplemented or otherwise modified from time to
time.
"AXEL COMMITMENTS" shall mean the "Commitments" as defined in the
AXEL Credit Agreement.
"AXEL CREDIT AGREEMENT" has the meaning assigned to that term in the
recitals to this Agreement.
"AXEL OBLIGATIONS" shall mean "Obligations" as defined in the AXEL
Credit Agreement.
"COLLATERAL ACCOUNTS" shall mean "Collateral Accounts" as defined
in the Intercreditor Agreement.
"COMMITMENTS" means the Credit Agreement Commitments and the AXEL
Commitments.
"CREDIT AGREEMENT" has the meaning assigned to that term in the
recitals to this Agreement.
"CREDIT AGREEMENT COMMITMENTS" shall mean the "Commitments" as
defined in the Credit Agreement.
"CREDIT AGREEMENT OBLIGATIONS" shall mean the "Obligations" as
defined in the Credit Agreement.
"EVENT OF DEFAULT" means any "Event of Default" as defined in any
Financing Agreement or the occurrence of an Event of Default in which the
Company is the Defaulting Party and which results in the designation of an Early
Termination Date (as such terms are defined in a Master Agreement or an Interest
Rate Swap Agreement or Interest Rate and Currency Exchange Agreement in the form
prepared by the International Swap and Derivatives Association Inc. or a similar
event under any similar swap agreement) under any Lender Interest Rate
Agreement.
"FINANCING AGREEMENT" means the Credit Agreement or the AXEL Credit
Agreement, and "Financing Agreements" means the Credit Agreement and the AXEL
Credit Agreement, collectively.
XVIII-3
<PAGE>
"FINANCING AGREEMENT OBLIGATIONS" means Credit Agreement Obligations
and AXEL Obligations.
"HOLDINGS" has the meaning assigned to that term in the recitals to
this Agreement.
"INTERCREDITOR AGREEMENT" means the Intercreditor Agreement, dated
as of December 18, 1997, by and among CA Administrative Agent, AXEL
Administrative Agent and Collateral Agent.
"INTEREST RATE EXCHANGERS" has the meaning assigned to that term in
the recitals to this Agreement.
"LENDER INTEREST RATE AGREEMENT" has the meaning assigned to that
term in the recitals to this Agreement.
"LOAN" means any "Loan" as defined in any Financing Agreement, and
"LOANS" means all such Loans collectively.
"LOAN DOCUMENT" means any "Loan Document" as defined in any
Financing Agreement, and "LOAN DOCUMENTS" means all such Loan Documents
collectively.
"NEW PLEDGED SHARES" has the meaning assigned to that term in
Section 2(e) of this Agreement.
"PLEDGE AMENDMENT" has the meaning assigned to that term in Section
7 of this Agreement.
"PLEDGED COLLATERAL" has the meaning assigned to that term in
Section 2 of this Agreement.
"PLEDGED DEBT" has the meaning assigned to that term in the recitals
to this Agreement.
"PLEDGED SHARES" has the meaning assigned to that term in the
recitals to this Agreement.
"PLEDGOR" has the meaning assigned to that term in the introduction
of this Agreement.
"POTENTIAL EVENT OF DEFAULT" means any "Potential Event of
Default" as defined in any Financing Agreement.
"REQUISITE AXEL LENDERS" means "Requisite Lenders" as defined in
the AXEL Credit Agreement.
XVIII-4
<PAGE>
"REQUISITE CREDIT AGREEMENT LENDERS" means "Requisite Lenders" as
defined in the Credit Agreement.
"REQUISITE LENDERS" means (A) unless an Acceleration shall have
occurred and be continuing, the Requisite Credit Agreement Lenders and the
Requisite AXEL Lenders, and (B) if an Acceleration has occurred and is
continuing, Secured Parties holding more than 50% of the Financing Agreement
Obligations.
"REQUISITE OBLIGEES" has the meaning assigned to that term in
Section 17(a) of this Agreement.
"SECURED OBLIGATIONS" has the meaning assigned to that term in
Section 3 of this Agreement.
"SECURED PARTIES" has the meaning assigned to that term in the
recitals to this Agreement.
SECTION 2. PLEDGE OF SECURITY.
------------------
Each Pledgor hereby pledges and assigns to Collateral Agent, and
hereby grants to Collateral Agent a security interest in, all of such Pledgor's
right, title and interest in and to the following (the "PLEDGED COLLATERAL"):
(a) the Pledged Shares and the certificates representing the
Pledged Shares and any interest of Pledgor in the entries on the books
of any financial intermediary pertaining to the Pledged Shares, and
all dividends, cash, warrants, rights, instruments and other property
or proceeds from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of the Pledged
Shares;
(b) the Pledged Debt and the instruments evidencing the Pledged
Debt, and all interest, cash, instruments and other property or
proceeds from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of the Pledged
Debt;
(c) all additional shares of, and all securities convertible into
and warrants, options and other rights to purchase or otherwise
acquire, stock of any issuer of the Pledged Shares from time to time
acquired by such Pledgor in any manner (which shares shall be deemed
to be part of the Pledged Shares), the certificates or other
instruments representing such additional shares, securities, warrants,
options or other rights and any interest of such Pledgor in the
entries on the books of any financial intermediary pertaining to such
additional shares (all such shares, securities, warrants, options,
rights, certificates, instruments and interests collectively being
"ADDITIONAL PLEDGED SHARES"), and all dividends, cash, warrants,
rights, instruments and other property or proceeds from time to time
received, receivable or otherwise distributed in respect of or
XVIII-5
<PAGE>
in exchange for any or all of such Additional Pledged Shares;
provided, however, that to the extent that the issuer of any
------- -------
Additional Pledged Shares is a controlled foreign corporation, such
Pledgor shall only be required to pledge Additional Pledged Shares of
such issuer possessing up to but not exceeding 65% of the voting power
of all classes of capital stock entitled to vote of such issuer, and
all dividends, cash, warrants, rights, instruments and other property
or proceeds from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of such
Additional Pledged Shares;
(d) all additional indebtedness from time to time owed to such
Pledgor by any obligor on the Pledged Debt and the instruments
evidencing such indebtedness, and all interest, cash, instruments and
other property or proceeds from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of
such indebtedness;
(e) all shares of, and all securities convertible into and
warrants, options and other rights to purchase or otherwise acquire,
stock of any Person that, after the date of this Agreement, becomes,
as a result of any occurrence, a direct Subsidiary of such Pledgor
(which shares shall be deemed to be part of the Pledged Shares), the
certificates or other instruments representing such shares (all such
shares, securities, warrants, options, rights, certificates,
instruments and interests collectively being "NEW PLEDGED SHARES"),
securities, warrants, options or other rights and any interest of such
Pledgor in the entries on the books of any financial intermediary
pertaining to such shares, and all dividends, cash, warrants, rights,
instruments and other property or proceeds from time to time received,
receivable or otherwise distributed in respect of or in exchange for
any or all of such shares, securities, warrants, options or other
rights; provided, however, that in the event that any such direct
-------- -------
Subsidiary is a controlled foreign corporation, such Pledgor shall
only be required to pledge New Pledged Shares of such Subsidiary
possessing up to but not exceeding 65% of the voting power of all
classes of capital stock entitled to vote of such Subsidiary, and all
dividends, cash, warrants, rights, instruments and other property or
proceeds from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of such New
Pledged Shares;
(f) all indebtedness from time to time owed to such Pledgor by any
Person that, after the date of this Agreement, becomes, as a result of
any occurrence, a Subsidiary of such Pledgor, and all interest, cash,
instruments and other property or proceeds from time to time received,
receivable or otherwise distributed in respect of or in exchange for
any or all of such indebtedness; and
(g) to the extent not covered by clauses (a) through (f) above,
all proceeds of any or all of the foregoing Pledged Collateral. For
purposes of this Agreement, the term "PROCEEDS" includes whatever is
receivable or received when Pledged Collateral or proceeds are sold,
exchanged, collected or otherwise
XVIII-6
<PAGE>
disposed of, whether such disposition is voluntary or involuntary, and
includes, without limitation, proceeds of any indemnity or guaranty
payable to such Pledgor or Collateral Agent from time to time with
respect to any of the Pledged Collateral.
SECTION 3. SECURITY FOR OBLIGATIONS.
------------------------
This Agreement secures, and the Pledged Collateral is collateral
security for, the prompt payment or performance in full when due, whether at
stated maturity, by required prepayment, declaration, acceleration, demand or
otherwise (including the payment of amounts that would become due but for the
operation of the automatic stay under Section 362(a) of the Bankruptcy Code, 11
U.S.C. (S)362(a)), of all obligations and liabilities of every nature of
Pledgors now or hereafter existing under or arising out of or in connection with
the Guaranty and all extensions or renewals thereof, whether for principal,
interest (including without limitation interest that, but for the filing of a
petition in bankruptcy with respect to Company, would accrue on such
obligations, whether or not a claim is allowed against Company for such interest
in the related bankruptcy proceeding), reimbursement of amounts drawn under
Letters of Credit, payments for early termination of Lender Interest Rate
Agreements, fees, expenses, indemnities or otherwise, whether voluntary or
involuntary, direct or indirect, absolute or contingent, liquidated or
unliquidated, whether or not jointly owed with others, and whether or not from
time to time decreased or extinguished and later increased, created or incurred,
and all or any portion of such obligations or liabilities that are paid, to the
extent all or any part of such payment is avoided or recovered directly or
indirectly from Collateral Agent or any Secured Party or Interest Rate Exchanger
as a preference, fraudulent transfer or otherwise, and all obligations of every
nature of Pledgors now or hereafter existing under this Agreement (all such
obligations of Pledgors being the "SECURED OBLIGATIONS").
SECTION 4. DELIVERY OF PLEDGED COLLATERAL.
------------------------------
All certificates or instruments representing or evidencing the Pledged
Collateral shall be delivered to and held by or on behalf of Collateral Agent
pursuant hereto and shall be in suitable form for transfer by delivery or, as
applicable, shall be accompanied by the applicable Pledgor's endorsement, where
necessary, or duly executed instruments of transfer or assignment in blank, all
in form and substance reasonably satisfactory to Collateral Agent. Upon the
occurrence and during the continuation of an Event of Default, Collateral Agent
shall have the right, without notice to any Pledgor, to transfer to or to
register in the name of Collateral Agent or any of its nominees any or all of
the Pledged Collateral, subject only to the revocable rights specified in
Section 8(a). In addition, upon the occurrence and during the continuance of an
Event of Default, Collateral Agent shall have the right at any time to exchange
certificates or instruments representing or evidencing Pledged Collateral for
certificates or instruments of smaller or larger denominations.
SECTION 5. REPRESENTATIONS AND WARRANTIES.
------------------------------
Each Pledgor represents and warrants as follows:
XVIII-7
<PAGE>
(a) Due Authorization, etc. of Pledged Collateral. All of the
---------------------------------------------
Pledged Shares have been duly authorized and validly issued and are
fully paid and non-assessable. All of the Pledged Debt has been duly
authorized, authenticated or issued, and delivered and is the legal,
valid and binding obligation of the issuers thereof and is not in
default.
(b) Description of Pledged Collateral. The Pledged Shares
---------------------------------
constitute the percentage of the issued and outstanding shares of
stock of each issuer thereof set forth on Schedule I annexed hereto,
----------
and there are no outstanding warrants, options or other rights to
purchase, or other agreements outstanding with respect to, or property
that is now or hereafter convertible into, or that requires the
issuance or sale of, any Pledged Shares. The Pledged Debt consti tutes
all of the issued and outstanding intercompany indebtedness evidenced
by a promissory note of the respective issuers thereof owing to
Pledgor.
(c) Ownership of Pledged Collateral. Pledgors are the legal,
-------------------------------
record and beneficial owners of the Pledged Collateral free and clear
of any Lien except for the security interest created by this
Agreement.
SECTION 6. TRANSFERS AND OTHER LIENS; ADDITIONAL PLEDGED COLLATERAL; ETC.
--------------------------------------------------------------
Each Pledgor shall:
(a) not, except as expressly permitted by the Financing
Agreements, (i) sell, assign (by operation of law or otherwise) or
otherwise dispose of, or grant any option with respect to, any of the
Pledged Collateral, (ii) create or suffer to exist any Lien upon or
with respect to any of the Pledged Collateral, except for the security
interest under this Agreement, or (iii) permit any issuer of Pledged
Shares to merge or consolidate unless all the outstanding capital
stock of the surviving or resulting corporation is, upon such merger
or consolidation, pledged hereunder and no cash, securities or other
property is distributed in respect of the outstanding shares of any
other constituent corporation; provided that if the surviving or
--------
resulting corporation upon any such merger or consolidation involving
an issuer of Pledged Shares which is a controlled foreign corporation
is a controlled foreign corporation, then such Pledgor shall only be
required to pledge outstanding capital stock of such surviving or
resulting corporation possessing up to but not exceeding 65% of the
voting power of all classes of capital stock of such issuer entitled
to vote; provided that in the event a Pledgor makes an Asset Sale
--------
permitted by the Financing Agreements and the assets subject to such
Asset Sale are Pledged Shares, Collateral Agent shall release the
Pledged Shares that are the subject of such Asset Sale to Pledgor free
and clear of the lien and security interest under this Agreement
concurrently with the consummation of such Asset Sale; provided,
--------
further that, as a condition precedent to such release, Collateral
-------
Agent shall have received evidence reasonably satisfactory to it that
arrangements reasonably satisfactory to it have been made for delivery
to Collateral Agent of the Net Asset Sale Proceeds of
XVIII-8
<PAGE>
such Asset Sale in the event and to the extent that all or any portion of such
Net Asset Sale Proceeds are required to be applied to prepay the Loans under the
Financing Agreements;
(b) (i) cause each issuer of Pledged Shares not to issue any stock
or other securities in addition to or in substitution for the Pledged
Shares issued by such issuer, except to a Pledgor, (ii) pledge
hereunder, immediately upon its acquisition (directly or indirectly)
thereof, any and all additional shares of stock or other securities of
each issuer of Pledged Shares, and (iii) pledge hereunder, immediately
upon its acquisition (directly or indirectly) thereof, any and all
shares of stock of any Person that, after the date of this Agreement,
becomes, as a result of any occurrence, a direct Subsidiary of such
Pledgor; provided, that notwithstanding anything contained in this
--------
clause (b) to the contrary, such Pledgor shall only be required to
pledge the outstanding capital stock of a foreign controlled
corporation possessing up to but not exceeding 65% of the voting power
of all classes of capital stock of such controlled foreign corporation
entitled to vote;
(c) (i) pledge hereunder, immediately upon their issuance, any and
all instruments or other evidences of additional indebtedness from
time to time owed to such Pledgor by any obligor on the Pledged Debt,
and (ii) pledge hereunder, immediately upon their issuance, any and
all instruments or other evidences of indebtedness from time to time
owed to such Pledgor by any Person that after the date of this
Agreement becomes, as a result of any occurrence, a Subsidiary of such
Pledgor; and
(d) pay promptly when due all taxes, assessments and governmental
charges or levies imposed upon, and all claims against, the Pledged
Collateral, except to the extent the validity thereof is being
contested in good faith.
SECTION 7. FURTHER ASSURANCES; PLEDGE AMENDMENTS; ADDITIONAL PLEDGORS.
----------------------------------------------------------
(a) Each Pledgor agrees that from time to time, at the expense of
Pledgors, such Pledgor will promptly execute and deliver all further instruments
and documents, and take all further action that Collateral Agent may reasonably
request, in order to perfect and protect any security interest granted or
purported to be granted hereby or to enable Collateral Agent to exercise and
enforce its rights and remedies hereunder with respect to any Pledged
Collateral. Without limiting the generality of the foregoing, each Pledgor will:
(i) execute and file such financing or continuation statements, or amendments
thereto, and such other instruments or notices as Collateral Agent may
reasonably request, in order to perfect and preserve the security interests
granted or purported to be granted hereby and (ii) at Collateral Agent's
reasonable request, appear in and defend any action or proceeding that may
affect such Pledgor's title to or Collateral Agent's security interest in all or
any part of the Pledged Collateral.
(b) Each Pledgor further agrees that it will, upon obtaining any
additional shares of stock or other securities required to be pledged hereunder
as provided in Section 6(b)
XVIII-9
<PAGE>
or (c), promptly (and in any event within five Business Days) deliver to
Collateral Agent a Pledge Amendment, duly executed by such Pledgor, in
substantially the form of Schedule II annexed hereto (a "PLEDGE AMENDMENT"),
-----------
in respect of the additional Pledged Shares or Pledged Debt to be pledged
pursuant to this Agreement. Each Pledgor hereby authorizes Collateral Agent to
attach each Pledge Amendment to this Agreement and agrees that all Pledged
Shares or Pledged Debt listed on any Pledge Amendment delivered to Collateral
Agent shall for all purposes hereunder be considered Pledged Collateral;
provided that the failure of any Pledgor to execute a Pledge Amendment with
- --------
respect to any additional Pledged Shares or Pledged Debt pledged pursuant to
this Agreement shall not impair the security interest of Collateral Agent
therein or otherwise adversely affect the rights and remedies of Collateral
Agent hereunder with respect thereto.
(c) The initial Pledgors hereunder shall be those Subsidiaries of
Company as are signatories hereto on the date hereof. From time to time
subsequent to the date hereof, additional Subsidiaries of Company may become
parties hereto, as additional Pledgors (each an "ADDITIONAL PLEDGOR"), by
executing a counterpart of this Agreement substantially in the form of Schedule
--------
III annexed hereto. Upon delivery of any such counterpart to the Collateral
- ---
Agent, notice of which is hereby waived by the Pledgors, each Additional Pledgor
shall be a Pledgor and shall be as fully a party hereto as if such Additional
Pledgor were an original signatory hereof. Each Pledgor expressly agrees that
its obligations arising hereunder shall not be affected or diminished by the
addition or release of any other Pledgor hereunder, nor by any election of
Collateral Agent not to cause any Subsidiary to become an Additional Pledgor
hereunder. This Agreement shall be fully effective as to any Pledgor that is or
becomes a party hereto regardless of whether any other Person becomes or fails
to become or ceases to be a Pledgor hereunder. Each Additional Pledgor shall
execute and file such financing statements and such other instruments or notices
as may be necessary or desirable, or as Collateral Agent may reasonably request,
in order to perfect the security interests granted or purported to be granted
hereunder.
SECTION 8. VOTING RIGHTS; DIVIDENDS; ETC.
------------------------------
(a) So long as no Event of Default shall have occurred and be
continuing:
(i) Each Pledgor shall be entitled to exercise any and all voting
and other consensual rights pertaining to the Pledged Collateral or
any part thereof for any purpose not inconsistent with the terms of
this Agreement or the Financing Agreements;
(ii) Each Pledgor shall be entitled to receive and retain, and to
utilize free and clear of the lien of this Agreement, any and all
dividends and interest paid in respect of the Pledged Collateral;
provided, however, that any and all dividends and interest paid
-------- -------
or payable other than in cash in respect of, and instruments and other
property received, receivable or otherwise distributed in respect of,
or in exchange for, any Pledged Collateral, shall be, and shall
forthwith be delivered to Collateral Agent to hold as, Pledged
Collateral and shall, if received by such Pledgor, be received in
trust for the benefit of
XVIII-10
<PAGE>
Collateral Agent, be segregated from the other property or funds of
such Pledgor and be forthwith delivered to Collateral Agent as Pledged
Collateral in the same form as so received (with all necessary
endorsements); provided, that such Pledgor shall not be required
--------
to deliver the outstanding capital stock of a foreign controlled
corporation paid as a dividend or interest to such Pledgor, if
Collateral Agent would hold as Pledged Collateral outstanding capital
stock of such controlled foreign corporation possessing greater than
65% of the voting power of all classes of capital stock of such
controlled foreign corporation entitled to vote; and
(iii) Collateral Agent shall promptly execute and deliver (or
cause to be executed and delivered) to each Pledgor all such proxies,
dividend payment orders and other instruments as such Pledgor may from
time to time reasonably request for the purpose of enabling such
Pledgor to exercise the voting and other consensual rights which it is
entitled to exercise pursuant to paragraph (i) above and to receive
the dividends, principal or interest payments which it is authorized
to receive and retain pursuant to paragraph (ii) above.
(b) Upon the occurrence and during the continuation of an Event of
Default:
(i) upon written notice from Collateral Agent to a Pledgor, all
rights of such Pledgor to exercise the voting and other consensual
rights which it would otherwise be entitled to exercise pursuant to
Section 8(a)(i) shall cease, and all such rights shall thereupon
become vested in Collateral Agent who shall thereupon have the sole
right to exercise such voting and other consensual rights;
(ii) all rights of such Pledgor to receive the dividends and
interest payments which it would otherwise be authorized to receive
and retain pursuant to Section 8(a)(ii) shall cease, and all such
rights shall thereupon become vested in Collateral Agent who shall
thereupon have the sole right to receive and hold as Pledged
Collateral such dividends and interest payments; and
(iii) all dividends, principal and interest payments which are
received by such Pledgor contrary to the provisions of paragraph (ii)
of this Section 8(b) shall be (A) forthwith (and in any event within
two Business Days) deposited by the Grantor in the exact form
received, duly indorsed by the Pledgor to the Collateral Agent if
required, in a Collateral Account maintained under the sole dominion
and control of the Collateral Agent, subject to withdrawal by the
Collateral Agent for the account of the Secured Parties only as
provided in Section 15, (B) until turned over in accordance with the
preceding subsection (A), all such amounts and proceeds received by
Pledgor shall be received in trust for the benefit of Collateral Agent
hereunder and shall be segregated from other funds of Pledgor.
(c) In order to permit Collateral Agent to exercise the voting and
other consensual rights which it may be entitled to exercise pursuant to Section
8(b)(i) and to receive
XVIII-11
<PAGE>
all dividends and other distributions which it may be entitled to receive under
Section 8(a)(ii) or Section 8(b)(ii), (i) each Pledgor shall promptly execute
and deliver (or cause to be executed and delivered) to Collateral Agent all such
proxies, dividend payment orders and other instruments as Collateral Agent may
from time to time reasonably request and (ii) without limiting the effect of the
immediately preceding clause (i), each Pledgor hereby grants to Collateral Agent
an irrevocable proxy to vote the Pledged Shares and to exercise all other
rights, powers, privileges and remedies to which a holder of the Pledged Shares
would be entitled (including, without limitation, giving or withholding written
consents of shareholders, calling special meetings of shareholders and voting at
such meetings), which proxy shall be effective, automatically and without the
necessity of any action (including any transfer of any Pledged Shares on the
record books of the issuer thereof) by any other Person (including the issuer of
the Pledged Shares or any officer or agent thereof), upon the occurrence and
during the continuance of an Event of Default and which proxy shall only
terminate upon the payment in full of the Secured Obligations.
SECTION 9. COLLATERAL AGENT APPOINTED ATTORNEY-IN-FACT.
-------------------------------------------
Each Pledgor hereby irrevocably appoints Collateral Agent as such
Pledgor's attorney-in-fact, with full authority in the place and stead of such
Pledgor and in the name of such Pledgor, Collateral Agent or otherwise, from
time to time, upon the occurrence and during the continuance of an Event of
Default, in Collateral Agent's reasonable discretion to take any action and to
execute any instrument that Collateral Agent may reasonably deem necessary or
advisable to accomplish the purposes of this Agreement, including without
limitation:
(a) to file one or more financing or continuation statements, or
amendments thereto, relative to all or any part of the Pledged Collateral
without the signature of such Pledgor;
(b) to ask, demand, collect, sue for, recover, compound, receive and
give acquittance and receipts for moneys due and to become due under or in
respect of any of the Pledged Collateral;
(c) to receive, endorse and collect any instruments made payable to
such Pledgor representing any dividend, principal or interest payment or other
distribution in respect of the Pledged Collateral or any part thereof and to
give full discharge for the same; and
(d) to file any claims or take any action or institute any proceedings
that Collateral Agent may reasonably deem necessary or desirable for the
collection of any of the Pledged Collateral or otherwise to enforce the rights
of Collateral Agent with respect to any of the Pledged Collateral.
SECTION 10. COLLATERAL AGENT MAY PERFORM.
----------------------------
If any Pledgor fails to perform any agreement contained herein,
Collateral Agent may itself perform, or cause performance of, such agreement,
and the reasonable expenses of
XVIII-12
<PAGE>
Collateral Agent incurred in connection therewith shall be payable by Pledgors
under Section 16(b).
SECTION 11. STANDARD OF CARE.
----------------
The powers conferred on Collateral Agent hereunder are solely to
protect its interest in the Pledged Collateral and shall not impose any duty
upon it to exercise any such powers. Except for the exercise of reasonable care
in the custody of any Pledged Collateral in its possession and the accounting
for moneys actually received by it hereunder, Collateral Agent shall have no
duty as to any Pledged Collateral, it being understood that Collateral Agent
shall have no responsibility for (a) ascertaining or taking action with respect
to calls, conversions, exchanges, maturities, tenders or other matters relating
to any Pledged Collateral, whether or not Collateral Agent has or is deemed to
have knowledge of such matters, (b) taking any necessary steps (other than steps
taken in accordance with the standard of care set forth above to maintain
possession of the Pledged Collateral) to preserve rights against any parties
with respect to any Pledged Collateral, (c) taking any necessary steps to
collect or realize upon the Secured Obligations or any guarantee therefor, or
any part thereof, or any of the Pledged Collateral, or (d) initiating any action
to protect the Pledged Collateral against the possibility of a decline in market
value. Collateral Agent shall be deemed to have exercised reasonable care in
the custody and preservation of Pledged Collateral in its possession if such
Pledged Collateral is accorded treatment substantially equal to that which
Collateral Agent accords its own property consisting of negotiable securities.
XVIII-13
<PAGE>
SECTION 12. REMEDIES.
--------
(a) If any Event of Default shall have occurred and be continuing,
Collateral Agent may exercise in respect of the Pledged Collateral, in addition
to all other rights and remedies provided for herein or otherwise available to
it, all the rights and remedies of a secured party on default under the Uniform
Commercial Code as in effect in any relevant jurisdiction (the "CODE")
(whether or not the Code applies to the affected Pledged Collateral), and
Collateral Agent may also in its sole discretion, without notice except as
specified below, sell the Pledged Collateral or any part thereof in one or more
parcels at public or private sale, at any exchange or broker's board or at any
of Collateral Agent's offices or elsewhere, for cash, on credit or for future
delivery, at such time or times and at such price or prices and upon such other
terms as Collateral Agent may deem commercially reasonable, irrespective of the
impact of any such sales on the market price of the Pledged Collateral.
Collateral Agent or any Secured Party or Interest Rate Exchanger may be the
purchaser of any or all of the Pledged Collateral at any such sale and
Collateral Agent, as administrative agent for and representative of Secured
Parties and Interest Rate Exchangers (but not any Secured Party or Secured
Parties or Interest Rate Exchanger or Interest Rate Exchangers in its or their
respective individual capacities unless Requisite Obligees shall otherwise agree
in writing), shall be entitled, for the purpose of bidding and making settlement
or payment of the purchase price for all or any portion of the Pledged
Collateral sold at any such public sale, to use and apply any of the Secured
Obligations as a credit on account of the purchase price for any Pledged
Collateral payable by Collateral Agent at such sale. Each purchaser at any such
sale shall hold the property sold absolutely free from any claim or right on the
part of any Pledgor, and each Pledgor hereby waives (to the extent permitted by
applicable law) all rights of redemption, stay and/or appraisal which it now has
or may at any time in the future have under any rule of law or statute now
existing or hereafter enacted. Each Pledgor agrees that, to the extent notice
of sale shall be required by law, at least ten days' notice to such Pledgor of
the time and place of any public sale or the time after which any private sale
is to be made shall constitute reasonable notification. Collateral Agent shall
not be obligated to make any sale of Pledged Collateral regardless of notice of
sale having been given. Collateral Agent may adjourn any public or private sale
from time to time by announcement at the time and place fixed therefor, and such
sale may, without further notice, be made at the time and place to which it was
so adjourned. Each Pledgor hereby waives any claims against Collateral Agent
arising by reason of the fact that the price at which any Pledged Collateral may
have been sold at such a private sale was less than the price which might have
been obtained at a public sale, even if Collateral Agent accepts the first offer
received and does not offer such Pledged Collateral to more than one offeree.
If the proceeds of any sale or other disposition of the Pledged Collateral are
insufficient to pay all the Secured Obligations, Pledgors shall be jointly and
severally liable for the deficiency and the reasonable fees of any attorneys
employed by Collateral Agent to collect such deficiency.
(b) Each Pledgor recognizes that, by reason of certain prohibitions
contained in the Securities Act and applicable state securities laws, Collateral
Agent may be compelled, with respect to any sale of all or any part of the
Pledged Collateral conducted without prior registration or qualification of such
Pledged Collateral under the Securities Act and/or such state securities laws,
to limit purchasers to those who will agree, among other things, to acquire
XVIII-14
<PAGE>
the Pledged Collateral for their own account, for investment and not with a view
to the distribution or resale thereof. Each Pledgor acknowledges that any such
private sales may be at prices and on terms less favorable than those obtainable
through a public sale without such restrictions (including, without limitation,
a public offering made pursuant to a registration statement under the Securities
Act) and, notwithstanding such circumstances, Pledgor agrees that any such
private sale shall be deemed to have been made in a commercially reasonable
manner and that Collateral Agent shall have no obligation to engage in public
sales and no obligation to delay the sale of any Pledged Collateral for the
period of time necessary to permit the issuer thereof to register it for a form
of public sale requiring registration under the Securities Act or under
applicable state securities laws, even if such issuer would, or should, agree to
so register it.
(c) If Collateral Agent determines to exercise its right to sell any
or all of the Pledged Collateral, upon written request, such Pledgor shall and
shall cause each issuer of any Pledged Shares to be sold hereunder from time to
time to furnish to Collateral Agent all such information as Collateral Agent may
reasonably request in order to determine the number of shares and other
instruments included in the Pledged Collateral which may be sold by Collateral
Agent in exempt transactions under the Securities Act and the rules and
regulations of the Securities and Exchange Commission thereunder, as the same
are from time to time in effect.
SECTION 13. PROCEEDS TO BE TURNED OVER TO COLLATERAL AGENT.
----------------------------------------------
In addition to the rights of the Collateral Agent and the Secured
Parties specified in Section 8, if an Event of Default shall occur and be
continuing, upon request of the Collateral Agent, all proceeds received by the
Grantor consisting of cash, checks and other near-cash items shall be held by
the Grantor in trust for the Collateral Agent and the Secured Parties,
segregated from other funds of the Grantor, and shall, forthwith upon receipt by
the Grantor, be turned over to the Collateral Agent in the exact form received
by the Grantor (duly indorsed by the Grantor to the Collateral Agent, if
required) and held by the Collateral Agent in a Collateral Account maintained
under the Intercreditor Agreement. All proceeds while held by the Collateral
Agent in a Collateral Account (or by the Grantor in trust for the Collateral
Agent and the Secured Parties) shall continue to be held as collateral security
for all the Secured Obligations and shall not constitute payment thereof until
applied as provided in Section 15.
SECTION 14. APPLICATION OF PROCEEDS.
-----------------------
All proceeds held in any Collateral Account and all other proceeds
received by Collateral Agent in respect of any sale of, collection from, or
other realization upon all or any part of the Pledged Collateral shall be
applied as provided in subsection 3 of the Intercreditor Agreement.
SECTION 15. INDEMNITY AND EXPENSES.
----------------------
(a) Pledgors jointly and severally agree to indemnify Collateral
Agent, each Lender and each Interest Rate Exchanger from and against any and all
claims, losses and liabilities in any way relating to, growing out of or
resulting from this Agreement and the
XVIII-15
<PAGE>
transactions contemplated hereby (including, without limitation, enforcement of
this Agreement), except to the extent such claims, losses or liabilities result
solely from Collateral Agent's or such Secured Party's or Interest Rate
Exchanger's gross negligence or willful misconduct as finally determined by a
court of competent jurisdiction.
(b) Pledgors jointly and severally agree to pay to Collateral Agent
promptly following written demand the amount of any and all reasonable costs and
reasonable expenses, including the reasonable fees and expenses of its counsel
and of any experts and agents, that Collateral Agent may incur in connection
with (i) the administration of this Agreement, (ii) the custody or preservation
of, or the sale of, collection from, or other realization upon, any of the
Pledged Collateral, (iii) the exercise or enforcement of any of the rights of
Collateral Agent hereunder, or (iv) the failure by any Pledgor to perform or
observe any of the provisions hereof.
SECTION 16. CONTINUING SECURITY INTEREST; TRANSFER OF LOANS.
-----------------------------------------------
This Agreement shall create a continuing security interest in the
Pledged Collateral and shall (a) remain in full force and effect until the
payment in full of all Secured Obligations (other than inchoate indemnification
obligations with respect to claims, losses or liabilities which have not yet
arisen and are not yet due and payable), the cancellation or termination of the
Commitments and the cancellation or expiration of all outstanding Letters of
Credit, (b) be binding upon each Pledgor, its successors and assigns, and (c)
inure, together with the rights and remedies of Collateral Agent hereunder, to
the benefit of Collateral Agent and its successors, transferees and assigns.
Without limiting the generality of the foregoing clause (c), but subject to the
provisions of subsection 10.1 of the Credit Agreement and subsection 10.1 of the
AXEL Credit Agreement, any Secured Party may assign or otherwise transfer any
Loans held by it to any other Person, and such other Person shall thereupon
become vested with all the benefits in respect thereof granted to Lenders herein
or otherwise. Upon the payment in full of all Secured Obligations (other than
inchoate indemnification obligations with respect to claims, losses or
liabilities which have not yet arisen and are not yet due and payable), the
cancellation or termination of the Commitments and the cancellation or
expiration of all outstanding Letters of Credit, the security interest granted
hereby shall terminate and all rights to the Pledged Collateral shall revert to
the applicable Pledgors. Upon any such termination Collateral Agent will, at
the joint and several expense of Pledgors, execute and deliver to Pledgors such
documents as Pledgors shall reasonably request to evidence such termination in
accordance with the terms of the Intercreditor Agreement and Pledgors shall be
entitled to the return, upon its request and at its expense, against receipt and
without recourse to Collateral Agent, of such of the Pledged Collateral as shall
not have been sold or otherwise applied pursuant to the terms hereof.
SECTION 17. COLLATERAL AGENT AS ADMINISTRATIVE AGENT.
----------------------------------------
(a) Collateral Agent has been appointed to act as Collateral Agent
hereunder by CA Administrative Agent on behalf of the Credit Agreement Lenders
and AXEL Administrative Agent on behalf of the AXEL Lenders pursuant to the
Intercreditor Agreement and, by their acceptance of the benefits hereof,
Interest Rate Exchangers and shall be entitled to
XVIII-16
<PAGE>
the benefits of the Intercreditor Agreement. Collateral Agent shall be
obligated, and shall have the right hereunder, to make demands, to give notices,
to exercise or refrain from exercising any rights, and to take or refrain from
taking any action (including, without limitation, the release or substitution of
Pledged Collateral), solely in accordance with this Agreement and the
Intercreditor Agreement; provided that Collateral Agent shall exercise, or
--------
refrain from exercising, any remedies provided for in Section 12 in accordance
with the instructions of (i) Requisite Lenders or (ii) after payment in full of
all Financing Agreement Obligations under the Financing Agreements and any other
Loan Documents, the holders of a majority of the aggregate notional amount (or,
with respect to any Lender Interest Rate Agreement that has been terminated in
accordance with its terms, the amount then due and payable (exclusive of
expenses and similar payments but including any early termination payments then
due) under such Lender Interest Rate Agreement) under all Lender Interest Rate
Agreements (Requisite Lenders or, if applicable, such holders being referred to
herein as "REQUISITE OBLIGEES"). In furtherance of the foregoing provisions of
this Section 18(a), each Interest Rate Exchanger, by its acceptance of the
benefits hereof, agrees that it shall have no right individually to realize upon
any of the Pledged Collateral hereunder, it being understood and agreed by such
Interest Rate Exchanger that all rights and remedies hereunder may be exercised
solely by Collateral Agent for the benefit of Lenders and Interest Rate
Exchangers in accordance with the terms of this Section 18(a).
(b) Collateral Agent shall at all times be the same Person that is
appointed Collateral Agent under the Intercreditor Agreement. The Collateral
Agent may resign and a successor Collateral Agent may be appointed in the manner
provided in the Intercreditor Agreement. Upon the acceptance of any appointment
as Collateral Agent by a successor Collateral Agent, that successor Collateral
Agent shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring or removed Collateral Agent under this
Agreement, and the retiring or removed Collateral Agent under this Agreement
shall promptly (i) transfer to such successor Collateral Agent all sums,
securities and other items of Collateral held hereunder, together with all
records and other documents necessary or appropriate in connection with the
performance of the duties of the successor Collateral Agent under this
Agreement, and (ii) execute and deliver to such successor Collateral Agent such
amendments to financing statements, and take such other actions, as may be
necessary or appropriate in connection with the assignment to such successor
Collateral Agent of the security interests created hereunder, whereupon such
retiring or removed Collateral Agent shall be discharged from its duties and
obligations under this Agreement. After any retiring or removed Collateral
Agent's resignation or removal hereunder as Collateral Agent, the provisions of
this Agreement shall inure to its benefit as to any actions taken or omitted to
be taken by it under this Agreement while it was Collateral Agent hereunder.
SECTION 18. AMENDMENTS; ETC.
---------------
No amendment, modification, termination or waiver of any provision of
this Agreement, and no consent to any departure by any Pledgor therefrom, shall
in any event be effective unless the same shall be in writing and signed by
Collateral Agent and, in the case of any such amendment or modification, by
Pledgors; provided that any Pledge Amendment in the form of Schedule II annexed
-------- -----------
hereto or any amendment hereto pursuant to Section 6(c) shall be
XVIII-17
<PAGE>
effective upon execution by any Pledgor and Pledgors hereby waive any
requirement of notice or of consent to any such Pledge Amendment or amendment.
Any such waiver or consent shall be effective only in the specific instance and
for the specific purpose for which it was given.
SECTION 19. NOTICES.
-------
Any notice or other communication herein required or permitted to be
given shall be in writing and may be personally served, telexed or sent by
telefacsimile or United States mail or courier service and shall be deemed to
have been given when delivered in person or by courier service, upon receipt of
telefacsimile or telex (with received answerback), or three Business Days after
depositing it in the United States mail with postage prepaid and properly
addressed; provided that notices to Collateral Agent and Pledgors shall not be
--------
effective until received. For the purposes hereof, the address of each party
hereto shall be as provided in subsection 10.8 of the Credit Agreement and
subsection 10.8 AXEL Credit Agreement, as applicable, or as set forth under
such party's name on the signature pages hereof or such other address as shall
be designated by such party in a written notice delivered to the other parties
hereto.
SECTION 20. FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE.
-----------------------------------------------------
No failure or delay on the part of Collateral Agent in the exercise of
any power, right or privilege hereunder shall impair such power, right or
privilege or be construed to be a waiver of any default or acquiescence therein,
nor shall any single or partial exercise of any such power, right or privilege
preclude any other or further exercise thereof or of any other power, right or
privilege. All rights and remedies existing under this Agreement are cumulative
to, and not exclusive of, any rights or remedies otherwise available.
SECTION 21. SEVERABILITY.
------------
In case any provision in or obligation under this Agreement shall be
invalid, illegal or unenforceable in any jurisdiction, the validity, legality
and enforceability of the remaining provisions or obligations, or of such
provision or obligation in any other jurisdiction, shall not in any way be
affected or impaired thereby.
SECTION 22. HEADINGS.
--------
Section and subsection headings in this Agreement are included herein
for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose or be given any substantive effect.
SECTION 23. GOVERNING LAW; TERMS. THIS AGREEMENT AND THE RIGHTS AND
--------------------
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW
YORK (INCLUDING WITHOUT
XVIII-18
<PAGE>
LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW
YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES, EXCEPT TO THE EXTENT THAT
THE CODE PROVIDES THAT THE PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR
REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR PLEDGED COLLATERAL ARE GOVERNED
BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK. Unless otherwise
defined herein or in the Financing Agreements, terms used in Articles 8 and 9 of
the Uniform Commercial Code in the State of New York are used herein as therein
defined.
SECTION 24. CONSENT TO JURISDICTION AND SERVICE OF PROCESS.
----------------------------------------------
ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST ANY PLEDGOR ARISING OUT OF OR
RELATING TO THIS AGREEMENT, OR ANY OBLIGATIONS HEREUNDER, MAY BE BROUGHT IN ANY
STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE, COUNTY AND CITY
OF NEW YORK. BY EXECUTING AND DELIVERING THIS AGREEMENT, EACH PLEDGOR, FOR
ITSELF AND IN CONNECTION WITH ITS PROPERTIES, IRREVOCABLY
(I) ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE
JURISDICTION AND VENUE OF SUCH COURTS;
(II) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS;
(III) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN
ANY SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT
REQUESTED, TO SUCH PLEDGOR AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH SECTION
20;
(IV) AGREES THAT SERVICE AS PROVIDED IN CLAUSE (III) ABOVE IS
SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER SUCH PLEDGOR IN ANY SUCH
PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND BINDING
SERVICE IN EVERY RESPECT;
(V) AGREES THAT COLLATERAL AGENT RETAINS THE RIGHT TO SERVE PROCESS
IN ANY OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST SUCH
PLEDGOR IN THE COURTS OF ANY OTHER JURISDICTION; AND
(VI) AGREES THAT THE PROVISIONS OF THIS SECTION 25 RELATING TO
JURISDICTION AND VENUE SHALL BE BINDING AND ENFORCEABLE TO THE FULLEST EXTENT
PERMISSIBLE UNDER NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1402 OR OTHERWISE.
XVIII-19
<PAGE>
SECTION 25. WAIVER OF JURY TRIAL.
--------------------
EACH PLEDGOR AND COLLATERAL AGENT HEREBY AGREE TO WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS AGREEMENT. The scope of this waiver is intended to be all-
encompassing of any and all disputes that may be filed in any court and that
relate to the subject matter of this transaction, including without limitation
contract claims, tort claims, breach of duty claims, and all other common law
and statutory claims. Pledgors and Collateral Agent each acknowledge that this
waiver is a material induce ment for Pledgors and Collateral Agent to enter
into a business relationship, that each Pledgor and Collateral Agent have
already relied on this waiver in entering into this Agreement and that each will
continue to rely on this waiver in their related future dealings. Each Pledgor
and Collateral Agent further warrant and represent that each has reviewed this
waiver with its legal counsel, and that each knowingly and voluntarily waives
its jury trial rights following consultation with legal counsel. THIS WAIVER IS
IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING
(OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY REFERRING TO THIS SECTION 26
AND EXECUTED BY EACH OF THE PARTIES HERETO), AND THIS WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT.
In the event of litigation, this Agreement may be filed as a written consent to
a trial by the court.
SECTION 26. COUNTERPARTS.
------------
This Agreement may be executed in one or more counterparts and by
different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all such counterparts
together shall constitute but one and the same instrument; signature pages may
be detached from multiple separate counterparts and attached to a single
counterpart so that all signature pages are physically attached to the same
document.
[Remainder of page intentionally left blank]
XVIII-20
<PAGE>
IN WITNESS WHEREOF, Pledgors and Collateral Agent have caused this
Agreement to be duly executed and delivered by their respective officers
thereunto duly authorized as of the date first written above.
SEALY, INC.
THE STEARNS & FOSTER
BEDDING COMPANY
THE STEARNS & FOSTER
UPHOLSTERY FURNITURE
COMPANY
ADVANCED SLEEP
PRODUCTS
SEALY MATTRESS
COMPANY OF SAN DIEGO
SEALY MATTRESS
COMPANY OF PUERTO RICO
OHIO-SEALY MATTRESS
MANUFACTURING CO. INC.
OHIO-SEALY MATTRESS
MANUFACTURING CO. --
FORT WORTH
OHIO-SEALY MATTRESS
MANUFACTURING CO.
OHIO-SEALY MATTRESS
MANUFACTURING CO. --
HOUSTON
[OTHER PLEDGORS]
By: _________________________
Name:
Title:
Notice Address:
_____________________
_____________________
_____________________
XVIII-21
<PAGE>
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK
By: _________________________
Name:
Title:
Notice Address:
_____________________
_____________________
_____________________
XVIII-22
<PAGE>
SCHEDULE I
Attached to and forming a part of the Subsidiary Pledge Agreement
dated as of December 18, 1997 between the subsidiaries of Sealy Mattress Company
party thereto from time to time, as Pledgors, and Morgan Guaranty Trust Company
of New York, as Collateral Agent.
PART A
<TABLE>
<CAPTION>
=================================================================================
PERCENTAGE
STOCK NUMBER OF OF
CLASS OF CERTIFI- PAR SHARES OUTSTANDING
PLEDGOR STOCK ISSUER STOCK CATE VALUE SHARES
NOS. PLEDGED
=================================================================================
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
=================================================================================
</TABLE>
Part B
<TABLE>
<CAPTION>
=========================================================
AMOUNT OF
PLEDGOR DEBT ISSUER INDEBTEDNESS
=========================================================
<S> <C> <C>
---------------------------------------------------------
---------------------------------------------------------
---------------------------------------------------------
=========================================================
</TABLE>
XVIII-23
<PAGE>
SCHEDULE II
PLEDGE AMENDMENT
This Pledge Amendment, dated ____________, [199_][200_], is delivered
pursuant to Section 6(b) of the Pledge Agreement referred to below. The
undersigned hereby agrees that this Pledge Amendment may be attached to the
Subsidiary Pledge Agreement dated as of December 18, 1997, between the
undersigned, the other Pledgors party thereto from time to time, and Morgan
Guaranty Trust Company of New York, as Collateral Agent (the "PLEDGE
AGREEMENT," capitalized terms defined therein being used herein as therein
defined), and that the [Pledged Shares] [Pledged Debt] listed on this Pledge
Amendment shall be deemed to be part of the [Pledged Shares] [Pledged Debt] and
shall become part of the Pledged Collateral and shall secure all Secured
Obligations.
[NAME OF PLEDGOR]
By: ____________________
Name:
Title:
<TABLE>
<CAPTION>
===========================================================================
PERCENTAGE OF
STOCK NUM- OUTSTANDING
CLASS OF CERTIFICATE PAR BER OF SHARES PLEDGED
STOCK ISSUER STOCK NOS. VALUE SHARES
===========================================================================
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
===========================================================================
</TABLE>
<TABLE>
<CAPTION>
====================================
AMOUNT OF
DEBT ISSUER INDEBTEDNESS
====================================
<S> <C>
------------------------------------
------------------------------------
------------------------------------
====================================
</TABLE>
XVIII-24
<PAGE>
SCHEDULE III
[FORM OF COUNTERPART TO SUBSIDIARY PLEDGE AGREEMENT]
This counterpart, dated ___________, [199_][200_] is delivered
pursuant to Section 6(c) of that certain Subsidiary Pledge Agreement dated as of
December 18, 1997, among the Pledgors party thereto from time to time, and
Morgan Guaranty Trust Company of New York, as Collateral Agent (the "PLEDGE
AGREEMENT," capitalized terms defined therein being used herein as therein
defined). The undersigned hereby agrees (i) that this counterpart may be
attached to the Pledge Agreement, (ii) that the undersigned will comply with all
the terms and conditions of the Pledge Agreement as if it were an original
signatory thereto, and (iii) that the [Pledged Shares] [Pledged Debt] listed
below shall be deemed to be part of the [Pledged Shares] [Pledged Debt] and
shall become part of the Pledged Collateral and shall secure all Secured
Obligations.
[NAME OF ADDITIONAL PLEDGOR]
By: ________________________
Name:
Title:
<TABLE>
<CAPTION>
==========================================================================
PERCENTAGE OF
STOCK NUM- OUTSTANDING
CLASS OF CERTIFICATE PAR BER OF SHARES
STOCK ISSUER STOCK NOS. VALUE SHARES PLEDGED
==========================================================================
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
==========================================================================
</TABLE>
<TABLE>
<CAPTION>
========================================
AMOUNT OF
DEBT ISSUER INDEBTEDNESS
========================================
<S> <C>
----------------------------------------
----------------------------------------
----------------------------------------
========================================
</TABLE>
XVIII-25
<PAGE>
EXHIBIT XIX
[FORM OF SUBSIDIARY SECURITY AGREEMENT]
SUBSIDIARY SECURITY AGREEMENT
This SUBSIDIARY SECURITY AGREEMENT (this "AGREEMENT") is dated as of
December 18, 1997 and entered into by and among THE UNDERSIGNED DIRECT AND
INDIRECT SUBSIDIARIES (each of such undersigned Subsidiaries being a "GRANTOR"
and collectively "GRANTORS"; provided that after the Closing Date,
--------
"Grantors" shall be deemed to include any Additional Grantors (as hereinafter
defined)) of Sealy Mattress Company, an Ohio corporation ("COMPANY"), and
MORGAN GUARANTY TRUST COMPANY OF NEW YORK ("MORGAN GUARANTY"), as Collateral
Agent for and representative of (in such capacity herein called "COLLATERAL
AGENT") the Secured Parties (as hereinafter defined) and any Interest Rate
Exchangers (as hereinafter defined).
RECITALS
A. Company, Sealy Corporation, a Delaware Corporation
("HOLDINGS"), the financial institutions from time to time parties thereto
(the "CREDIT AGREEMENT LENDERS"), Goldman Sachs Credit Partners L.P.
("GSCP"), as arranger and syndication agent (in such capacity, "CA
SYNDICATION AGENT"), Morgan Guaranty, as administrative agent (in such
capacity, "CA ADMINISTRATIVE AGENT"), and Bankers Trust Company ("BTCO."),
as documentation agent (in such capacity, "CA DOCUMENTATION AGENT") have
entered into a Credit Agreement dated as of December 18, 1997 (said Credit
Agreement, as it may hereafter be amended, restated, supplemented or otherwise
modified from time to time, being the ("CREDIT AGREEMENT") pursuant to which
Credit Agreement Lenders have made certain commitments, subject to the terms and
conditions set forth in the Credit Agreement, to extend certain credit
facilities to Company.
B. Company, Holdings, the financial institutions from time to time
parties thereto (the "AXEL LENDERS"), GSCP, as arranger and syndication agent
(in such capacity, "AXEL SYNDICATION AGENT"), Morgan Guaranty, as
administrative agent (in such capacity, "AXEL ADMINISTRATIVE AGENT"), and
BTCo., as documentation agent (in such capacity, "AXEL DOCUMENTATION AGENT")
have entered into an AXEL Credit Agreement dated as of December 18, 1997 (said
AXEL Credit Agreement, as it may hereafter be amended, restated, supplemented or
otherwise modified from time to time, being the "AXEL CREDIT AGREEMENT"; the
Credit Agreement Lenders, the CA Syndication Agent, the CA Administrative Agent,
the CA Documentation Agent, the AXEL Lenders, the AXEL Syndication Agent, the
AXEL Administrative Agent, and the AXEL Documentation Agent each being a
"SECURED PARTY" and collectively the "SECURED PARTIES") pursuant to which
AXEL Lenders have made certain commitments, subject to the terms and conditions
set forth in the AXEL Credit Agreement, to extend certain credit facilities to
Company.
XIX-1
<PAGE>
C. Company may from time to time enter, or may from time to time
have entered, into one or more Interest Rate Agreements (collectively, the
"LENDER INTEREST RATE AGREEMENTS") with one or more CA Lenders or their
Affiliates or AXEL Lenders or their Affiliates (in such capacity, collectively,
"INTEREST RATE EXCHANGERS").
D. Grantors have executed and delivered that certain Subsidiary
Guaranty dated as of December 18, 1997 (said Subsidiary Guaranty, as it may
hereafter be amended, supplemented or otherwise modified from time to time,
being the "GUARANTY") in favor of Collateral Agent for the benefit of Secured
Parties and any Interest Rate Exchangers, pursuant to which Grantors have
guarantied the prompt payment and performance when due of all obligations of
Company under the Financing Agreements and any other Loan Documents and all
obligations of Company under the Lender Interest Rate Agreements, including
without limitation the obligation of Company to make payments, if any,
thereunder in the event of early termination thereof.
E. It is a condition precedent to the initial extensions of credit
by Secured Parties under the Financing Agreements that each Grantor shall have
granted the security interests and undertaken the obligations contemplated by
this Agreement.
NOW, THEREFORE, in consideration of the premises and to induce (i) the
CA Administrative Agent, the CA Syndication Agent and the Credit Agreement
Lenders to enter into the Credit Agreement, (ii) the Credit Agreement Lenders to
make their respective loans to, and issue Letters of Credit for the account of,
Company, (iii) the AXEL Administrative Agent, the AXEL Syndication Agent and the
AXEL Lenders to enter into the AXEL Loan Agreement, (iv) the AXEL Lenders to
make their respective loans to Company and (v) to induce Interest Rate
Exchangers to enter into the Lender Interest Rate Agreements and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, each Grantor hereby agrees with the Collateral Agent as follows:
1. DEFINED TERMS.
-------------
(a) Unless otherwise defined herein, terms defined in the Credit
Agreement and used herein shall have the meanings given to such terms in the
Credit Agreement;
(b) The following terms shall have the following meanings:
"ACCELERATION" shall mean any of the Credit Agreement Obligations or
the AXEL Credit Agreement Obligations have been declared, or have become,
immediately due and payable, or the commitments to extend credit of the Credit
Agreement Lenders or the AXEL Lenders shall have been terminated under Section 8
of the Credit Agreement or Section 7 of the AXEL Credit Agreement, respectively.
"ACCOUNTS" has the meaning assigned to that term in Section 2 of
this Agreement.
XIX-2
<PAGE>
"AGREEMENT" means this Company Security Agreement dated as of
December 18, 1997, as it may be amended, supplemented or otherwise modified from
time to time.
"ASSIGNED AGREEMENT" has the meaning assigned to that term in
Section 2 of this Agreement.
"AXEL COMMITMENTS" shall mean the "Commitments" as defined in the
AXEL Credit Agreement.
"AXEL CREDIT AGREEMENT" has the meaning assigned to that term in the
recitals to this Agreement.
"AXEL OBLIGATIONS" shall mean the "Obligations" as defined in the
AXEL Credit Agreement.
"COLLATERAL" has the meaning assigned to that term in Section 2 of
this Agreement.
"COLLATERAL ACCOUNTS" shall mean "Collateral Accounts" as defined
in the Intercreditor Agreement.
"COMMITMENTS" means the Credit Agreement Commitments and the AXEL
Commitments.
"CREDIT AGREEMENT" has the meaning assigned to that term in the
recitals to this Agreement.
"CREDIT AGREEMENT COMMITMENTS" shall mean the "Commitments" as
defined in the Credit Agreement.
"CREDIT AGREEMENT OBLIGATIONS" shall mean the "Obligations" as
defined in the Credit Agreement.
"EQUIPMENT" has the meaning assigned to that term in Section 2 of
this Agreement.
"EVENT OF DEFAULT" means any "Event of Default" as defined in any
Financing Agreement or the occurrence of an Event of Default in which Company is
the Defaulting Party and which results in the designation of an Early
Termination Date (as such terms are defined in a Master Agreement or an Interest
Rate Swap Agreement or Interest Rate and Currency Exchange Agreement in the form
prepared by the International Swap and Derivatives Association Inc. or a similar
event under any similar swap agreement) under any Lender Interest Rate
Agreement.
XIX-3
<PAGE>
"FINANCING AGREEMENT" means either the Credit Agreement or the AXEL
Credit Agreement, and "Financing Agreements" means the Credit Agreement and
the AXEL Credit Agreement, collectively.
"FINANCING AGREEMENT OBLIGATIONS" means Credit Agreement Obligations
and AXEL Obligations.
"GRANTOR" has the meaning assigned to that term in the introduction
of this Agreement.
"HOLDINGS" has the meaning assigned to that term in the recitals to
this Agreement.
"INTERCREDITOR AGREEMENT" means the Intercreditor Agreement, dated
as of December 18, 1997, by and among CA Administrative Agent, AXEL
Administrative Agent and Collateral Agent.
"INTEREST RATE EXCHANGERS" has the meaning assigned to that term in
the recitals to this Agreement.
"INVENTORY" has the meaning assigned to that term in Section 2 of
this Agreement.
"LENDER INTEREST RATE AGREEMENT" has the meaning assigned to that
term in the recitals to this Agreement.
"LOAN" means any "Loan" as defined in any Financing Agreement, and
"LOANS" means all such Loans collectively.
"LOAN DOCUMENT" means any "Loan Document" as defined in any
Financing Agreement, and "LOAN DOCUMENTS" means all such Loan Documents
collectively.
"NEGOTIABLE DOCUMENT OF TITLE" has the meaning assigned to that term
in Section 2 of this Agreement.
"POTENTIAL EVENT OF DEFAULT" means any "Potential Event of
Default" as defined in any Financing Agreement.
"RELATED CONTRACTS" has the meaning assigned to that term in Section
2 of this Agreement.
"REQUISITE AXEL LENDERS" means "Requisite Lenders" as defined in
the AXEL Credit Agreement.
"REQUISITE CREDIT AGREEMENT LENDERS" means "Requisite Lenders" as
defined in the Credit Agreement.
XIX-4
<PAGE>
"REQUISITE LENDERS" means (A) unless an Acceleration shall have
occurred and be continuing, the Requisite Credit Agreement Lenders and the
Requisite AXEL Lenders, and (B) if an Acceleration has occurred and is
continuing, Secured Parties holding more than 50% of the Financing Agreement
Obligations.
"REQUISITE OBLIGEES" has the meaning assigned to that term in
Section 23 of this Agreement.
"SECURED OBLIGATIONS" has the meaning assigned to that term in
Section 2 of this Agreement.
"SECURED PARTIES" has the meaning assigned to that term in the
recitals to this Agreement.
SECTION 2. GRANT OF SECURITY.
-----------------
Each Grantor hereby assigns to Collateral Agent, and hereby grants to
Collateral Agent a security interest in, all of such Grantor's right, title and
interest in and to the following, in each case whether now or hereafter existing
or in which such Grantor now has or hereafter acquires an interest and wherever
the same may be located (the "COLLATERAL"):
(a) all equipment in all of its forms, all parts thereof and all
accessions thereto (any and all such equipment, parts and accessions being the
"EQUIPMENT");
(b) all inventory in all of its forms (including, but not limited to,
(i) all goods held by such Grantor for sale or lease or to be furnished under
contracts of service or so leased or furnished, (ii) all raw materials, work in
process, finished goods, and materials used or consumed in the manufacture,
packing, shipping, advertising, selling, leasing, furnishing or production of
such inventory or otherwise used or consumed in such Grantor's business, (iii)
all goods in which such Grantor has an interest in mass or a joint or other
interest or right of any kind, and (iv) all goods which are returned to or
repossessed by such Grantor) and all accessions thereto and products thereof
(all such inventory, accessions and products being the "INVENTORY") and all
negotiable and non-negotiable documents of title (including without limitation
warehouse receipts, dock receipts and bills of lading) issued by any Person
covering any Inventory (any such negotiable document of title being a
"NEGOTIABLE DOCUMENT OF TITLE");
(c) all accounts, contract rights, chattel paper, documents,
instruments, general intangibles and other rights and obligations of any kind
and all rights in, to and under all security agreements, leases and other
contracts securing or otherwise relating to any such accounts, contract rights,
chattel paper,
XIX-5
<PAGE>
documents, instruments, general intangibles or other obligations (any and all
such accounts, contract rights, chattel paper, documents, instruments, general
intangibles and other obligations being the "ACCOUNTS", and any and all such
security agreements, leases and other contracts being the "RELATED
CONTRACTS");
(d) all agreements and contracts to which such Grantor is a party as
of the date hereof or becomes a party after the date hereof, as each such
agreement may be amended, supplemented or otherwise modified from time to time
(said agreements, as so amended, supplemented or otherwise modified, being
referred to herein individually as an "ASSIGNED AGREEMENT" and collectively as
the "ASSIGNED AGREEMENTS"), including (i) all rights of such Grantor to receive
moneys due or to become due under or pursuant to the Assigned Agreements, (ii)
all rights of such Grantor to receive proceeds of any insurance, indemnity,
warranty or guaranty with respect to the Assigned Agreements, (iii) all claims
of such Grantor for damages arising out of any breach of or default under the
Assigned Agreements, and (iv) all rights of such Grantor to terminate, amend,
supplement, modify or exercise rights or options under the Assigned Agreements,
to perform thereunder and to compel performance and otherwise exercise all
remedies thereunder;
(e) all deposit accounts, including without limitation all deposit
accounts maintained with Collateral Agent;
(f) all tradesecrets, licenses, copyrights, registrations and
franchise rights, and all goodwill associated with any of the foregoing;
(g) to the extent not included in any other paragraph of this Section
2, all other general intangibles (including without limitation tax refunds,
rights to payment or performance, choses in action and judgments taken on any
rights or claims included in the Collateral);
(h) all plant fixtures, business fixtures and other fixtures and
storage and office facilities, and all accessions thereto and products thereof;
(i) all books, records, ledger cards, files, correspondence, computer
programs, tapes, disks and related data processing software that at any time
evidence or contain information relating to any of the Collateral or are
otherwise necessary or helpful in the collection thereof or realization
thereupon; and
(j) all proceeds, products, rents and profits of or from any and all
of the foregoing Collateral and, to the extent not otherwise included, all
payments under insurance (whether or not Collateral Agent is the loss payee
thereof), or any indemnity, warranty or guaranty, payable by reason of loss or
damage to or otherwise with respect to any of the foregoing Collateral. For
purposes of this Agreement, the term "PROCEEDS" includes whatever is
receivable or received
XIX-6
<PAGE>
when Collateral or proceeds are sold, exchanged, collected or otherwise disposed
of, whether such disposition is voluntary or involuntary.
Notwithstanding anything herein to the contrary, in no event shall the
Collateral include, and each Grantor shall not be deemed to have granted a
security interest in, any of such Grantor's rights or interests in any license,
contract or agreement to which such Grantor is a party or any of its rights or
interests thereunder to the extent, but only to the extent, that such a grant
would, under the terms of such license, contract or agreement or otherwise,
result in a breach of the terms of, or constitute a default under any license,
contract or agreement to which such Grantor is a party (other than to the extent
that any such term would be rendered ineffective pursuant to Section 9-318(4) of
the Uniform Commercial Code of any relevant jurisdiction or any other applicable
law (including the Bankruptcy Code) or principles of equity); provided, that
--------
immediately upon the ineffectiveness, lapse or termination of any such
provision, the Collateral shall include, and each Grantor shall be deemed to
have granted a security interest in, all such rights and interests as if such
provision had never been in effect.
SECTION 3. SECURITY FOR OBLIGATIONS.
------------------------
This Agreement secures, and the Collateral is collateral security for,
the prompt payment or performance in full when due, whether at stated maturity,
by required prepayment, declaration, acceleration, demand or otherwise
(including the payment of amounts that would become due but for the operation of
the automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C.
(S)362(a)), of all obligations and liabilities of every nature of Grantors now
or hereafter existing under or arising out of or in connection with the Guaranty
and all extensions or renewals thereof, whether for principal, interest
(including without limitation interest that, but for the filing of a petition in
bankruptcy with respect to Company, would accrue on such obligations, whether or
not a claim is allowed against Company for such interest in the related
bankruptcy proceeding), reimbursement of amounts drawn under Letters of Credit,
payments for early termination of Lender Interest Rate Agreements, fees,
expenses, indemnities or otherwise, whether voluntary or involuntary, direct or
indirect, absolute or contingent, liquidated or unliquidated, whether or not
jointly owed with others, and whether or not from time to time decreased or
extinguished and later increased, created or incurred, and all or any portion of
such obligations or liabilities that are paid, to the extent all or any part of
such payment is avoided or recovered directly or indirectly from Collateral
Agent or any Lender or Interest Rate Exchanger as a preference, fraudulent
transfer or otherwise and all obligations of every nature of Grantors now or
hereafter existing under this Agreement (all such obligations of Grantors being
the "SECURED OBLIGATIONS").
SECTION 4. GRANTORS REMAIN LIABLE.
----------------------
Anything contained herein to the contrary notwithstanding, (a) each
Grantor shall remain liable under any contracts and agreements included in the
Collateral, to the extent set forth therein, to perform all of its duties and
obligations thereunder to the same extent as if this Agreement had not been
executed, (b) the exercise by Collateral Agent of any of its rights hereunder
shall not release Grantor from any of its duties or obligations under the
contracts and
XIX-7
<PAGE>
agreements included in the Collateral, and (c) Collateral Agent shall not have
any obligation or liability under any contracts and agreements included in the
Collateral by reason of this Agreement, nor shall Collateral Agent be obligated
to perform any of the obligations or duties of any Grantor thereunder or to take
any action to collect or enforce any claim for payment assigned hereunder.
SECTION 5. REPRESENTATIONS AND WARRANTIES.
------------------------------
Each Grantor represents and warrants as follows:
(a) Ownership of Collateral. Except for the security interest created
-----------------------
by this Agreement, Grantors own the Collateral free and clear of any Lien
subject to liens permitted by the Financing Agreements.
(b) Location of Equipment and Inventory. All of the Equipment and
-----------------------------------
Inventory is, as of the date hereof, located at the places specified in Schedule
--------
5(b) annexed hereto.
- ----
(c) Negotiable Documents of Title. No Negotiable Documents of Title
-----------------------------
are outstanding with respect to any of the Inventory (other than in respect of
(i) Inventory with an aggregate value not in excess of $1,000,000 or (ii)
Inventory which, in the ordinary course of business, is in transit either (A)
from a supplier to Grantor, (B) between the locations specified in Schedule 5(b)
-------------
hereto, or (C) to customers of Grantor).
(d) Office Locations; Other Names. The chief place of business, the
-----------------------------
chief executive office and the office where such Grantor keeps its records
regarding the Accounts and all originals of all chattel paper that evidence
Accounts is, and has been for the four month period preceding the date hereof,
located at the offices set forth on Schedule 5(d) annexed hereto. Grantors have
-------------
not in the past done, and do not now do, business under any other name
(including any trade-name or fictitious business name) except as set forth on
Schedule 5(d) annexed hereto.
- -------------
XIX-8
<PAGE>
SECTION 6. FURTHER ASSURANCES; ADDITIONAL GRANTORS.
---------------------------------------
(a) Each Grantor agrees that from time to time, at the expense of
Grantors, such Grantor will promptly execute and deliver all further instruments
and documents, and take all further action, that Collateral Agent may reasonably
request, in order to perfect and protect any security interest granted or
purported to be granted hereby or to enable Collateral Agent to exercise and
enforce its rights and remedies hereunder with respect to any Collateral.
Without limiting the generality of the foregoing, each Grantor will: (i) mark
conspicuously each item of chattel paper included in the Accounts, each Related
Contract and, at the reasonable request of Collateral Agent, each of its records
pertaining to the Collateral, with a legend, in form and substance reasonable
satisfactory to Collateral Agent, indicating that such Collateral is subject to
the security interest granted hereby, (ii) at the reasonable request of
Collateral Agent, deliver and pledge to Collateral Agent hereunder all
promissory notes and other instruments (excluding checks) and all original
counterparts of chattel paper constituting Collateral, duly endorsed and
accompanied by duly executed instruments of transfer or assignment, all in form
and substance satisfactory to Collateral Agent, (iii) execute and file such
financing or continuation statements, or amendments thereto, and such other
instruments or notices, or as Collateral Agent may reasonably request, in order
to perfect and preserve the security interests granted or purported to be
granted hereby, (iv) after the acquisition by such Grantor of any item of
Equipment which is covered by a certificate of title under a statute of any
jurisdiction under the law of which indication of a security interest on such
certificate is required as a condition of perfection thereof, upon the
reasonable request of Collateral Agent, execute and file with the registrar of
motor vehicles or other appropriate authority in such jurisdiction an
application or other document requesting the notation or other indication of the
security interest created hereunder on such certificate of title, (v) upon the
reasonable request of Collateral Agent, deliver to Collateral Agent copies of
all such applications or other documents filed during such calendar quarter and
copies of all such certificates of title issued during such calendar quarter
indicating the security interest created hereunder in the items of Equipment
covered thereby, and (vi) at Collateral Agent's reasonable request, appear in
and defend any action or proceeding that may affect such Grantor's title to or
Collateral Agent's security interest in all or any part of the Collateral.
(b) Each Grantor hereby authorizes Collateral Agent to file one or
more financing or continuation statements, and amendments thereto, relative to
all or any part of the Collateral without the signature of such Grantor to the
extent permitted by applicable law. Each Grantor agrees that a carbon,
photographic or other reproduction of this Agreement or of a financing statement
signed by such Grantor shall be sufficient as a financing statement and may be
filed as a financing statement in any and all jurisdictions.
XIX-9
<PAGE>
(c) The initial Grantors hereunder shall be those Subsidiaries of
Company as are signatories hereto on the date hereof. From time to time
subsequent to the date hereof, additional Subsidiaries of Company may become
parties hereto, as additional Grantors (each an "ADDITIONAL GRANTOR"), by
executing a counterpart of this Agreement substantially in the form of Schedule
--------
6(d) annexed hereto. Upon delivery of any such counterpart to the Collateral
- ----
Agent, notice of which is hereby waived by the Grantors, each Additional Grantor
shall be a Grantor and shall be as fully a party hereto as if such Additional
Grantor were an original signatory hereof. Each Grantor expressly agrees that
its obligations arising hereunder shall not be affected or diminished by the
addition or release of any other Grantor hereunder, nor by any election of
Collateral Agent not to cause any Subsidiary to become an Additional Grantor
hereunder. This Agreement shall be fully effective as to any Grantor that is or
becomes a party hereto regardless of whether any other Person becomes or fails
to become or ceases to be a Grantor hereunder. Each Additional Grantor shall
execute and file such financing statements and such other instruments or notices
or as Collateral Agent may reasonably request, in order to perfect the security
interests granted or purported to be granted hereunder.
SECTION 7. CERTAIN COVENANTS OF GRANTORS.
-----------------------------
Each Grantor shall:
(a) notify Collateral Agent of any change in such Grantor's name,
identity or corporate structure within 30 days of such change;
(b) give Collateral Agent 30 days' written notice following any change
in such Grantor's chief place of business, chief executive office or residence
or the office where such Grantor keeps its records regarding the Accounts and
all originals of all chattel paper that evidence Accounts;
(c) pay promptly when due all property and other taxes, assessments
and governmental charges or levies imposed upon, and all claims (including
claims for labor, materials and supplies) against, the Collateral, except to the
extent the validity thereof is being contested in good faith.
SECTION 8. SPECIAL COVENANTS WITH RESPECT TO EQUIPMENT AND INVENTORY.
---------------------------------------------------------
Each Grantor shall:
(a) keep the Equipment and Inventory at the places therefor specified
on Schedule 5(b) annexed hereto or, upon 30 days' written notice to Collateral
-------------
Agent following any change in location, at such other places in jurisdictions
where all action, or that Collateral Agent may reasonably request, in order to
perfect and protect any security interest granted or purported to be granted
hereby, or to enable Collateral Agent to exercise and enforce its rights and
remedies hereunder, with respect to such Equipment and Inventory shall have been
taken;
XIX-10
<PAGE>
(b) cause the Equipment to be maintained and preserved working order
as when new, ordinary wear and tear and damage by casualty excepted, and in
accordance with such Grantor's past practices, and shall forthwith make or cause
to be made all repairs, replacements and other improvements in connection
therewith that are necessary in the Grantor's reasonable business judgment to
such end;
(c) keep correct and accurate records of the Inventory, itemizing and
describing the kind, type and quantity of Inventory, such Grantor's cost
therefor and (where applicable) the current list prices for the Inventory;
(d) if any Inventory is in possession or control of any of such
Grantor's agents or processors, upon the occurrence of an Event of Default,
instruct such agent or processor to hold all such Inventory for the account of
Collateral Agent and subject to the instructions of Collateral Agent; and
(e) promptly upon the issuance and delivery to such Grantor of any
Negotiable Document of Title (other than any one or more Negotiable Documents of
Title covering (i) Inventory with an aggregate value not in excess of $1,000,000
or (ii) Inventory which, in the ordinary course of business, is in transit
either (A) from a supplier to such Grantor, (B) between the locations specified
in Schedule 5(b) hereto, or (C) to customers of such Grantor), deliver such
-------------
Negotiable Document of Title to Collateral Agent.
SECTION 9. SPECIAL COVENANTS WITH RESPECT TO ACCOUNTS AND RELATED CONTRACTS.
----------------------------------------------------------------
(a) Each Grantor shall keep its chief place of business and chief
executive office and the office where it keeps its records concerning the
Accounts and Related Contracts, and all originals of all chattel paper that
evidence Accounts, at the location therefor specified in Section 5 or, upon 30
days' written notice to Collateral Agent following any change in location, at
such other location in a jurisdiction where all action that Collateral Agent may
request, in order to perfect and protect any security interest granted or
purported to be granted hereby, or to enable Collateral Agent to exercise and
enforce its rights and remedies hereunder, with respect to such Accounts and
Related Contracts shall have been taken. Promptly upon the reasonable request
of Collateral Agent, Grantors shall deliver to Collateral Agent complete and
correct copies of each Related Contract.
(b) Grantors shall, maintain (i) complete records of each Account,
including records of all payments received, credits granted and merchandise
returned, and (ii) all documentation relating thereto in accordance with prudent
business practices.
(c) Except as otherwise provided in this subsection (c), each Grantor
shall continue to collect, at its own expense, all amounts due or to become due
to each Grantor under the Accounts and Related Contracts. In connection with
such collections, each Grantor shall
XIX-11
<PAGE>
take such action as such Grantor or Collateral Agent may deem necessary or
advisable to enforce collection of amounts due or to become due under the
Accounts; provided, however, that Collateral Agent shall have the right at any
-------- -------
time, upon the occurrence and during the continuation of an Event of Default and
upon written notice to such Grantor of its intention to do so, to notify the
account debtors or obligors under any Accounts of the assignment of such
Accounts to Collateral Agent and to direct such account debtors or obligors to
make payment of all amounts due or to become due to such Grantor thereunder
directly to Collateral Agent, to notify each Person maintaining a lockbox or
similar arrangement to which account debtors or obligors under any Accounts have
been directed to make payment to remit all amounts representing collections on
checks and other payment items from time to time sent to or deposited in such
lockbox or other arrangement directly to Collateral Agent and, upon such
notification and at the expense of Grantors, to enforce collection of any such
Accounts and to adjust, settle or compromise the amount or payment thereof, in
the same manner and to the same extent as such Grantors might have done. After
receipt by a Grantor of the notice from Collateral Agent referred to in the
proviso to the preceding sentence, (i) any payments of Accounts, received by the
- -------
Grantor shall be forthwith (and in any event within two Business Days) deposited
by the Grantor in the exact form received, duly indorsed by the Grantor to the
Collateral Agent if required, in a Collateral Account maintained under the sole
dominion and control of the Collateral Agent, subject to withdrawal by the
Collateral Agent for the account of the Secured Parties only as provided in
subsection 19, (ii) until so turned over in accordance with the proceeding
subsection (i), all amounts and proceeds (including checks and other
instruments) received by Grantor in respect of the Accounts and the Related
Contracts shall be received in trust for the benefit of Collateral Agent
hereunder and shall be segregated from other funds of Grantor and (iii) Grantor
shall not adjust, settle or compromise the amount or payment of any Account, or
release wholly or partly any account debtor or obligor thereof, or allow any
credit or discount thereon.
SECTION 10. DEPOSIT ACCOUNTS.
----------------
Upon the occurrence and during the continuation of an Event of
Default, Collateral Agent may exercise dominion and control over, and refuse to
permit further withdrawals (whether of money, securities, instruments or other
property) from any deposit accounts maintained with Collateral Agent
constituting part of the Collateral.
SECTION 11. LICENSE OF COPYRIGHTS, ETC.
--------------------------
Each Grantor hereby assigns, transfers and conveys to Collateral
Agent, effective upon the occurrence of any Event of Default, the nonexclusive
right and license to use all copyrights or technical processes owned or used by
such Grantor that relate to the Collateral and any other collateral granted by
such Grantor as security for the Secured Obligations, together with any goodwill
associated therewith, all to the extent necessary to enable Collateral Agent to
use, possess and realize on the Collateral and to enable any successor or assign
to enjoy the benefits of the Collateral. This right and license shall inure to
the benefit of all successors, assigns and transferees of Collateral Agent and
its successors, assigns and transferees, whether by voluntary conveyance,
operation of law, assignment, transfer, foreclosure, deed in lieu of foreclosure
or otherwise. Such right and license is granted free of charge, without
requirement that any monetary payment whatsoever be made to any Grantor.
XIX-12
<PAGE>
SECTION 12. TRANSFERS AND OTHER LIENS.
-------------------------
Each Grantor shall not:
(a) sell, assign (by operation of law or otherwise) or otherwise
dispose of any of the Collateral, except as permitted by the Financing
Agreements; or
(b) except for the security interest created by this Agreement and
Liens permitted by the Financing Agreements, create or suffer to exist any Lien
upon or with respect to any of the Collateral to secure the indebtedness or
other obligations of any Person.
SECTION 13. COLLATERAL AGENT APPOINTED ATTORNEY-IN-FACT.
-------------------------------------------
Each Grantor hereby irrevocably appoints Collateral Agent as such
Grantor's attorney-in-fact, with full authority in the place and stead of such
Grantor and in the name of such Grantor, Collateral Agent or otherwise, from
time to time upon the occurrence and during the continuance of an Event of
Default in Collateral Agent's reasonable discretion to take any action and to
execute any instrument that Collateral Agent may reasonably deem necessary or
advisable to accomplish the purposes of this Agreement, including without
limitation:
(a) to obtain and adjust insurance required to be maintained on the
Collateral or paid to Collateral Agent under the Financing Agreements;
(b) to ask for, demand, collect, sue for, recover, compound, receive
and give acquittance and receipts for moneys due and to become due under or in
respect of any of the Collateral;
(c) to receive, endorse and collect any drafts or other instruments,
documents and chattel paper in connection with clauses (a) and (b) above;
(d) to file any claims or take any action or institute any proceedings
that Collateral Agent may reasonably deem necessary or desirable for the
collection of any of the Collateral or otherwise to enforce the rights of
Collateral Agent with respect to any of the Collateral;
(e) to pay or discharge taxes or Liens (other than Liens permitted
under this Agreement or the Credit Agreement) levied or placed upon or
threatened against the Collateral, the legality or validity thereof and the
amounts necessary to discharge the same to be determined by Collateral Agent in
its reasonable discretion, any such payments made by Collateral Agent to become
obligations of such Grantor to Collateral Agent, due and payable immediately
without demand;
XIX-13
<PAGE>
(f) to sign and endorse any invoices, freight or express bills, bills
of lading, storage or warehouse receipts, drafts against debtors, assignments,
verifications and notices in connection with Accounts and other documents
relating to the Collateral; and
(g) upon the occurrence and during the continuation of an Event of
Default, generally to sell, transfer, pledge, make any agreement with respect to
or otherwise deal with any of the Collateral as fully and completely as though
Collateral Agent were the absolute owner thereof for all purposes, and to do, at
Collateral Agent's option and Grantors' expense, at any time or from time to
time, all acts and things that Collateral Agent reasonably deems necessary to
protect, preserve or realize upon the Collateral and Collateral Agent's security
interest therein in order to effect the intent of this Agreement, all as fully
and effectively as any Grantor might do.
SECTION 14. COLLATERAL AGENT MAY PERFORM.
----------------------------
If any Grantor fails to perform any agreement contained herein,
Collateral Agent may itself perform, or cause performance of, such agreement,
and the reasonable expenses of Collateral Agent incurred in connection therewith
shall be payable by Grantors under Section 20.
SECTION 15. STANDARD OF CARE.
----------------
The powers conferred on Collateral Agent hereunder are solely to
protect its interest in the Collateral and shall not impose any duty upon it to
exercise any such powers. Except for the exercise of reasonable care in the
custody of any Collateral in its possession and the accounting for moneys
actually received by it hereunder, Collateral Agent shall have no duty as to any
Collateral or as to the taking of any necessary steps to preserve rights against
prior parties or any other rights pertaining to any Collateral. Collateral
Agent shall be deemed to have exercised reasonable care in the custody and
preservation of Collateral in its possession if such Collateral is accorded
treatment substantially equal to that which Collateral Agent accords its own
property.
SECTION 16. REMEDIES.
--------
If any Event of Default shall have occurred and be continuing,
Collateral Agent may exercise in respect of the Collateral, in addition to all
other rights and remedies provided for herein or otherwise available to it, all
the rights and remedies of a secured party on default under the Uniform
Commercial Code as in effect in any relevant jurisdiction (the "CODE")
(whether or not the Code applies to the affected Collateral), and also may (a)
require Grantors to, and each Grantor hereby agrees that it will at its expense
and upon request of Collateral Agent forthwith, assemble all or part of the
Collateral as directed by Collateral Agent and make it available to Collateral
Agent at a place to be designated by Collateral Agent that is reasonably
convenient to both parties, (b) enter onto the property where any Collateral is
located and take possession thereof with or without judicial process, (c) prior
to the disposition of the Collateral,
XIX-14
<PAGE>
store, process, repair or recondition the Collateral or otherwise prepare the
Collateral for disposition in any manner to the extent Collateral Agent deems
appropriate, (d) take possession of any or each Grantor's premises or place
custodians in exclusive control thereof, remain on such premises and use the
same and any of such Grantor's equipment for the purpose of completing any work
in process, taking any actions described in the preceding clause (c) and
collecting any Secured Obligation, and (e) without notice except as specified
below, sell the Collateral or any part thereof in one or more parcels at public
or private sale, at any of Collateral Agent's offices or elsewhere, for cash, on
credit or for future delivery, at such time or times and at such price or prices
and upon such other terms as Collateral Agent may deem commercially reasonable.
Collateral Agent or any Secured Party or Interest Rate Exchanger may be the
purchaser of any or all of the Collateral at any such sale and Collateral Agent,
as agent for and representative of Secured Parties and Interest Rate Exchangers
(but not any Secured Party or Secured Parties or Interest Rate Exchanger or
Interest Rate Exchangers in its or their respective individual capacities unless
Requisite Obligees shall otherwise agree in writing), shall be entitled, for the
purpose of bidding and making settlement or payment of the purchase price for
all or any portion of the Collateral sold at any such public sale, to use and
apply any of the Secured Obligations as a credit on account of the purchase
price for any Collateral payable by Collateral Agent at such sale. Each
purchaser at any such sale shall hold the property sold absolutely free from any
claim or right on the part of any Grantor, and each Grantor hereby waives (to
the extent permitted by applicable law) all rights of redemption, stay and/or
appraisal which it now has or may at any time in the future have under any rule
of law or statute now existing or hereafter enacted. Each Grantor agrees that,
to the extent notice of sale shall be required by law, at least ten days' notice
to such Grantor of the time and place of any public sale or the time after which
any private sale is to be made shall constitute reasonable notification.
Collateral Agent shall not be obligated to make any sale of Collateral
regardless of notice of sale having been given. Collateral Agent may adjourn any
public or private sale from time to time by announcement at the time and place
fixed therefor, and such sale may, without further notice, be made at the time
and place to which it was so adjourned. Each Grantor hereby waives any claims
against Collateral Agent arising by reason of the fact that the price at which
any Collateral may have been sold at such a private sale was less than the price
which might have been obtained at a public sale, even if Collateral Agent
accepts the first offer received and does not offer such Collateral to more than
one offeree. If the proceeds of any sale or other disposition of the Collateral
are insufficient to pay all the Secured Obligations, Grantors shall be jointly
and severally liable for the deficiency and the reasonable fees of any attorneys
employed by Collateral Agent to collect such deficiency.
SECTION 17. PROCEEDS TO BE TURNED OVER TO COLLATERAL AGENT.
----------------------------------------------
In addition to the rights of the Collateral Agent and the Secured
Parties specified in Section 9 with respect to payments of Accounts, if an Event
of Default shall occur and be continuing, upon request of the Collateral Agent,
all proceeds received by the Grantor consisting of cash, checks and other near-
cash items shall be held by the Grantor in trust for the Collateral Agent and
the Secured Parties, segregated from other funds of the Grantor, and shall,
forthwith upon receipt by the Grantor, be turned over to the Collateral Agent in
the exact form received by the Grantor (duly indorsed by the Grantor to the
Collateral Agent, if required) and held by the Collateral Agent in a Collateral
Account maintained under the Intercreditor
XIX-15
<PAGE>
Agreement. All proceeds while held by the Collateral Agent in a Collateral
Account (or by the Borrower in trust for the Collateral Agent and the Secured
Parties) shall continue to be held as collateral security for all the Secured
Obligations and shall not constitute payment thereof until applied as provided
in Section 19.
SECTION 18. APPLICATION OF PROCEEDS.
-----------------------
Except as expressly provided elsewhere in this Agreement, all proceeds
held in any Collateral Account and all other proceeds received by Collateral
Agent in respect of any sale of, collection from, or other realization upon all
or any part of the Collateral shall be applied as provided in subsection 3 of
the Intercreditor Agreement.
SECTION 19. INDEMNITY AND EXPENSES.
----------------------
(a) Grantors jointly and severally agree to indemnify Collateral
Agent, each Lender and each Interest Rate Exchanger from and against any and all
claims, losses and liabilities in any way relating to, growing out of or
resulting from this Agreement and the transactions contemplated hereby
(including, without limitation, enforcement of this Agreement), except to the
extent such claims, losses or liabilities result from Collateral Agent's or such
Lender's or Interest Rate Exchanger's gross negligence or willful misconduct as
determined by a court of competent jurisdiction.
(b) Grantors jointly and severally agree to pay to Collateral Agent,
promptly following written upon demand the amount of any and all reasonable
costs and reasonable expenses, including the reasonable fees and expenses of its
counsel and of any experts and agents, that Collateral Agent may incur in
connection with (i) the administration of this Agreement, (ii) the custody,
preservation, use or operation of, or the sale of, collection from, or other
realization upon, any of the Collateral, (iii) the exercise or enforcement of
any of the rights of Collateral Agent hereunder, or (iv) the failure by Grantor
to perform or observe any of the provisions hereof.
SECTION 20. CONTINUING SECURITY INTEREST; TRANSFER OF LOANS.
-----------------------------------------------
This Agreement shall create a continuing security interest in the
Collateral and shall (a) remain in full force and effect until the payment in
full of the Secured Obligations (other than inchoate indemnification obligations
with respect to claims, losses or liabilities which have not yet arisen and are
not yet due and payable), the cancellation or termination of the Commitments and
the cancellation or expiration of all outstanding Letters of Credit, (b) be
binding upon each Grantor, its successors and assigns, and (c) inure, together
with the rights and remedies of Collateral Agent hereunder, to the benefit of
Collateral Agent and its successors, transferees and assigns. Without limiting
the generality of the foregoing clause (c), but subject to the provisions of
subsection 10.1 of the Credit Agreement and subsection 10.1 of the AXEL Credit
Agreement, any Secured Party may assign or otherwise transfer any Loans held by
it to any other Person, and such other Person shall thereupon become vested with
all the benefits in respect thereof granted to Secured Parties herein or
otherwise. Upon the payment in full of all Secured Obligations (other than
inchoate indemnification obligations with
XIX-16
<PAGE>
respect to claims, losses or liabilities which have not yet arisen and are not
yet due and payable), the cancellation or termination of the Commitments and the
cancellation or expiration of all outstanding Letters of Credit, the security
interest granted hereby shall terminate and all rights to the Collateral shall
revert to the applicable Grantors. Upon any such termination Collateral Agent
will, at the joint and several expense of Grantors, expense, execute and deliver
to Grantors such documents as Grantors shall reasonably request to evidence such
termination in accordance with the terms of the Intercreditor Agreement.
SECTION 21. COLLATERAL AGENT AS ADMINISTRATIVE AGENT.
----------------------------------------
(a) Collateral Agent has been appointed to act as Collateral Agent
hereunder by CA Administrative Agent on behalf of the Credit Agreement Lenders
and AXEL administrative agent on behalf of the AXEL Lenders pursuant to the
Intercreditor Agreement and, by their acceptance of the benefits hereof,
Interest Rate Exchangers, and shall be entitled to the benefits of the
Intercreditor Agreement. Collateral Agent shall be obligated, and shall have
the right hereunder, to make demands, to give notices, to exercise or refrain
from exercising any rights, and to take or refrain from taking any action
(including, without limitation, the release or substitution of Collateral),
solely in accordance with this Agreement and the Credit Agreement; provided that
--------
Collateral Agent shall exercise, or refrain from exercising, any remedies
provided for in Section 17 in accordance with the instructions of (i) Requisite
Lenders or (ii) after payment in full of all Financing Agreement Obligations
under the Financing Agreements and any other Loan Documents, the holders of a
majority of the aggregate notional amount (or, with respect to any Lender
Interest Rate Agreement that has been terminated in accordance with its terms,
the amount then due and payable (exclusive of expenses and similar payments but
including any early termination payments then due) under such Lender Interest
Rate Agreement) under all Lender Interest Rate Agreements (Requisite Lenders or,
if applicable, such holders being referred to herein as "REQUISITE OBLIGEES").
In furtherance of the foregoing provisions of this Section 22(a), each Interest
Rate Exchanger, by its acceptance of the benefits hereof, agrees that it shall
have no right individually to realize upon any of the Collateral hereunder, it
being understood and agreed by such Interest Rate Exchanger that all rights and
remedies hereunder may be exercised solely by Collateral Agent for the benefit
of Lenders and Interest Rate Exchangers in accordance with the terms of this
Section 22(a).
(b) Collateral Agent shall at all times be the same Person that is
appointed Collateral Agent under the Intercreditor Agreement. The Collateral
Agent may resign and a successor Collateral Agent may be appointed in the manner
provided in the Intercreditor Agreement. Upon the acceptance of any
appointment as Collateral Agent by a successor Collateral Agent, that successor
Collateral Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring or removed Collateral
Agent under this Agreement, and the retiring or removed Collateral Agent under
this Agreement shall promptly (i) transfer to such successor Collateral Agent
all sums, securities and other items of Collateral held hereunder, together with
all records and other documents necessary or appropriate in connection with the
performance of the duties of the successor Collateral Agent under this
Agreement, and (ii) execute and deliver to such successor Collateral Agent such
amendments to financing statements, and take such other actions, as may be
necessary or
XIX-17
<PAGE>
appropriate in connection with the assignment to such successor Collateral Agent
of the security interests created hereunder, whereupon such retiring or removed
Collateral Agent shall be discharged from its duties and obligations under this
Agreement. After any retiring or removed Collateral Agent's resignation or
removal hereunder as Collateral Agent, the provisions of this Agreement shall
inure to its benefit as to any actions taken or omitted to be taken by it under
this Agreement while it was Collateral Agent hereunder.
SECTION 23. AMENDMENTS; ETC.
---------------
No amendment, modification, termination or waiver of any provision of
this Agreement, and no consent to any departure by any Grantor therefrom, shall
in any event be effective unless the same shall be in writing and signed by
Collateral Agent and, in the case of any such amendment or modification, by
Grantors; provided that any amendment hereto pursuant to Section 5(d) shall be
--------
effective upon execution by any Grantor and Grantors hereby waive any
requirement of notice or of consent to any such amendment.
SECTION 23. NOTICES.
-------
Any notice or other communication herein required or permitted to be
given shall be in writing and may be personally served, telexed or sent by
telefacsimile or United States mail or courier service and shall be deemed to
have been given when delivered in person or by courier service, upon receipt of
telefacsimile or telex (with received answerback), or three Business Days after
depositing it in the United States mail with postage prepaid and properly
addressed; provided that notices to Collateral Agent and Grantor shall not be
--------
effective until received. For the purposes hereof, the address of each party
hereto shall be as provided in subsection 10.8 of the Credit Agreement or
subsection 10.8 of the AXEL Credit Agreement, as applicable, or as set forth
under such party's name on the signature pages hereof or such other address as
shall be designated by such party in a written notice delivered to the other
parties hereto.
SECTION 24. FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE.
-----------------------------------------------------
No failure or delay on the part of Collateral Agent in the exercise of
any power, right or privilege hereunder shall impair such power, right or
privilege or be construed to be a waiver of any default or acquiescence therein,
nor shall any single or partial exercise of any such power, right or privilege
preclude any other or further exercise thereof or of any other power, right or
privilege. All rights and remedies existing under this Agreement are cumulative
to, and not exclusive of, any rights or remedies otherwise available.
SECTION 25. SEVERABILITY.
------------
In case any provision in or obligation under this Agreement shall be
invalid, illegal or unenforceable in any jurisdiction, the validity, legality
and enforceability of the remaining provisions or obligations, or of such
provision or obligation in any other jurisdiction, shall not in any way be
affected or impaired thereby.
XIX-18
<PAGE>
SECTION 26. HEADINGS.
--------
Section and subsection headings in this Agreement are included herein
for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose or be given any substantive effect.
SECTION 27. GOVERNING LAW; TERMS.
--------------------
THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING WITHOUT LIMITATION SECTION
5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD
TO CONFLICTS OF LAWS PRINCIPLES, EXCEPT TO THE EXTENT THAT THE CODE PROVIDES
THAT THE PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER,
IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A
JURISDICTION OTHER THAN THE STATE OF NEW YORK. Unless otherwise defined herein
or in the Credit Agreement, terms used in Articles 8 and 9 of the Uniform
Commercial Code in the State of New York are used herein as therein defined.
SECTION 28. CONSENT TO JURISDICTION AND SERVICE OF PROCESS.
----------------------------------------------
ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST ANY GRANTOR ARISING OUT OF OR
RELATING TO THIS AGREEMENT, OR ANY OBLIGATIONS HEREUNDER, MAY BE BROUGHT IN ANY
STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE, COUNTY AND CITY
OF NEW YORK. BY EXECUTING AND DELIVERING THIS AGREEMENT, EACH GRANTOR, FOR
ITSELF AND IN CONNECTION WITH ITS PROPERTIES, IRREVOCABLY
(I) ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE
JURISDICTION AND VENUE OF SUCH COURTS;
(II) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS;
(III) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN
ANY SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT
REQUESTED, TO SUCH GRANTOR AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH SECTION
24;
(IV) AGREES THAT SERVICE AS PROVIDED IN CLAUSE (III) ABOVE IS
SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER SUCH GRANTOR IN ANY SUCH
PROCEEDING IN ANY SUCH
XIX-19
<PAGE>
COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT;
(V) AGREES THAT COLLATERAL AGENT RETAINS THE RIGHT TO SERVE PROCESS IN
ANY OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST SUCH GRANTOR
IN THE COURTS OF ANY OTHER JURISDICTION; AND
(VI) AGREES THAT THE PROVISIONS OF THIS SECTION 29 RELATING TO
JURISDICTION AND VENUE SHALL BE BINDING AND ENFORCEABLE TO THE FULLEST EXTENT
PERMISSIBLE UNDER NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1402 OR OTHERWISE.
SECTION 29. WAIVER OF JURY TRIAL.
--------------------
EACH GRANTOR AND COLLATERAL AGENT HEREBY AGREE TO WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS AGREEMENT. The scope of this waiver is intended to be all-
encompassing of any and all disputes that may be filed in any court and that
relate to the subject matter of this transaction, including without limitation
contract claims, tort claims, breach of duty claims, and all other common law
and statutory claims. Grantors and Collateral Agent each acknowledge that this
waiver is a material inducement for Grantors and Collateral Agent to enter into
a business relationship, that each Grantor and Collateral Agent have already
relied on this waiver in entering into this Agreement and that each will
continue to rely on this waiver in their related future dealings. Each Grantor
and Collateral Agent further warrant and represent that each has reviewed this
waiver with its legal counsel, and that each knowingly and voluntarily waives
its jury trial rights following consultation with legal counsel. THIS WAIVER IS
IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING
(OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY REFERRING TO THIS SECTION 28
AND EXECUTED BY EACH OF THE PARTIES HERETO), AND THIS WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT.
In the event of litigation, this Agreement may be filed as a written consent to
a trial by the court.
SECTION 30. COUNTERPARTS.
------------
This Agreement may be executed in one or more counterparts and by
different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all such counterparts
together shall constitute but one and the same instrument; signature pages may
be detached from multiple separate counterparts and attached to a single
counterpart so that all signature pages are physically attached to the same
document.
[Remainder of page intentionally left blank]
XIX-20
<PAGE>
IN WITNESS WHEREOF, Grantors and Collateral Agent have caused this Agreement
to be duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
SEALY, INC.
THE STEARNS & FOSTER
BEDDING COMPANY
THE STEARNS & FOSTER
UPHOLSTERY FURNITURE
COMPANY
ADVANCED SLEEP
PRODUCTS
SEALY MATTRESS
COMPANY OF SAN DIEGO
SEALY MATTRESS
COMPANY OF PUERTO
RICO
OHIO-SEALY MATTRESS
MANUFACTURING CO.
INC.
OHIO-SEALY MATTRESS
MANUFACTURING CO. --
FORT WORTH
OHIO-SEALY MATTRESS
MANUFACTURING CO.
OHIO-SEALY MATTRESS
MANUFACTURING CO. --
HOUSTON
[OTHER GRANTORS]
By:
-------------------
Name:
Title:
Notice Address:
--------------------------
--------------------------
--------------------------
XIX-21
<PAGE>
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK, AS COLLATERAL AGENT
By:
---------------------------------
Name:
Title:
Notice Address:
- --------------------------
- --------------------------
- --------------------------
XIX-22
<PAGE>
SCHEDULE 5(b)
TO SUBSIDIARY SECURITY AGREEMENT
Locations of Equipment:
Locations of Inventory:
XIX-23
<PAGE>
SCHEDULE 5(d)
TO SUBSIDIARY SECURITY AGREEMENT
Office Locations; Other Names
XIX-24
<PAGE>
SCHEDULE 6(d)
TO SUBSIDIARY SECURITY AGREEMENT
[FORM OF COUNTERPART TO SUBSIDIARY SECURITY AGREEMENT]
This counterpart, dated ___________, [199__][200__] is delivered
pursuant to Section 5(d) of that certain Subsidiary Security Agreement dated as
of December 18, 1997, among the Grantors party thereto from time to time, and
Morgan Guaranty Trust Company of New York, as Collateral Agent (the "SECURITY
AGREEMENT," capitalized terms defined therein being used herein as therein
defined). The undersigned hereby agrees (i) that this counterpart may be
attached to the Security Agreement, and (ii) that the undersigned will comply
with all the terms and conditions of the Pledge Agreement as if it were an
original signatory thereto.
[NAME OF ADDITIONAL GRANTOR]
By:
---------------------------------
Name:
Title:
XIX-25
<PAGE>
EXHIBIT XX
[FORM OF SUBSIDIARY PATENT AND TRADEMARK SECURITY AGREEMENT]
SUBSIDIARY PATENT AND TRADEMARK SECURITY AGREEMENT
This SUBSIDIARY PATENT AND TRADEMARK SECURITY AGREEMENT (this
"AGREEMENT") is dated as of December 18, 1997 and entered into by and among THE
UNDERSIGNED DIRECT AND INDIRECT SUBSIDIARIES (each of such undersigned
Subsidiaries being a "GRANTOR" and collectively "GRANTORS"; provided that after
--------
the Closing Date, "Grantors" shall be deemed to include any Additional Grantors
(as hereinafter defined)) of Sealy Mattress Company, an Ohio corporation
("COMPANY"), and MORGAN GUARANTY TRUST COMPANY OF NEW YORK ("MORGAN GUARANTY"),
as Collateral Agent for and representative of (in such capacity herein called
"COLLATERAL AGENT") the Secured Parties (as hereinafter defined) and any
Interest Rate Exchangers (as hereinafter defined).
RECITALS
A. Sealy Corporation, a Delaware Corporation ("HOLDINGS"), the
financial institutions from time to time parties thereto (the "CREDIT AGREEMENT
LENDERS"), Goldman Sachs Credit Partners L.P. ("GSCP"), as arranger and
syndication agent (in such capacity, "CA SYNDICATION AGENT"), Morgan Guaranty,
as administrative agent (in such capacity, "CA ADMINISTRATIVE AGENT"), and
Bankers Trust Company ("BTCO."), as documentation agent (in such capacity, "CA
DOCUMENTATION AGENT") have entered into a Credit Agreement dated as of December
18, 1997 (said Credit Agreement, as it may hereafter be amended, restated,
supplemented or otherwise modified from time to time, being the "CREDIT
AGREEMENT"), with Company pursuant to which Credit Agreement Lenders have made
certain commitments, subject to the terms and conditions set forth in the Credit
Agreement, to extend certain credit facilities to Company.
B. Company, Holdings, the financial institutions from time to time
parties thereto (the "AXEL LENDERS"), GSCP, as arranger and syndication agent
(in such capacity, "AXEL SYNDICATION AGENT"), Morgan Guaranty, as administrative
agent (in such capacity, "AXEL ADMINISTRATIVE AGENT"), and BTCo., as
documentation agent (in such capacity, "AXEL DOCUMENTATION AGENT") have entered
into an AXEL Credit Agreement dated as of December 18, 1997 (said AXEL Credit
Agreement, as it may hereafter be amended, restated, supplemented or otherwise
modified from time to time, being the "AXEL CREDIT AGREEMENT"; the Credit
Agreement Lenders, the CA Syndication Agent, the CA Administrative Agent, the CA
Documentation Agent, the AXEL Lenders, the AXEL Syndication Agent, the AXEL
Administrative Agent, and the AXEL Documentation Agent each being a "SECURED
PARTY" and collectively the "SECURED PARTIES") pursuant to which AXEL Lenders
have made certain commitments, subject to the terms and conditions set forth in
the AXEL Credit Agreement, to extend certain credit facilities to Company.
XX-1
<PAGE>
C. Company may from time to time enter, or may from time to time
have entered, into one or more Interest Rate Agreements (collectively, the
"LENDER INTEREST RATE AGREEMENTS") with one or more CA Lenders or their
Affiliates or AXEL Lenders or their Affiliates (in such capacity, collectively,
"INTEREST RATE EXCHANGERS") in accordance with the terms of the Financing
Agreements (as hereinafter defined), and it is desired that the obligations of
Company under the Lender Interest Rate Agreements, including without limitation
the obligation of Company to make payments thereunder in the event of early
termination thereof (all such obligations being the "INTEREST RATE
OBLIGATIONS"), together with all obligations of Company under the Financing
Agreements and the any other Loan Documents, be secured hereunder.
D. Grantors have executed and delivered that certain Subsidiary
Guaranty dated as of December 18, 1997 (said Subsidiary Guaranty, as it may
hereafter be amended, supplemented or otherwise modified from time to time,
being the "SUBSIDIARY GUARANTY") in favor of Collateral Agent for the benefit
of Secured Parties and any Interest Rate Exchangers, pursuant to which Grantors
have guarantied the prompt payment and performance when due of all obligations
of Company under the Financing Agreements and any other Loan Documents and all
obligations of Company under the Lender Interest Rate Agreements, including
without limitation the obligation of Company to make payments thereunder in the
event of early termination thereof.
E. Additional Grantors shall execute and deliver counterparts to the
Subsidiary Guaranty in favor of Collateral Agent for the benefit of Secured
Parties and any Interest Rate Exchangers, pursuant to which each Additional
Grantor shall guaranty the prompt payment and performance when due of all
obligations of Company under the Financing Agreements and any other Loan
Documents and all obligations of Company under the Lender Interest Rate
Agreements, including without limitation the obligation of Company to make
payments thereunder in the event of early termination thereof.
F. Grantors have and may in the future have rights, title and
interests in and to various Patents and other related Collateral (as such terms
are hereinafter defined).
G. Grantors own and use in their business, and will in the future
adopt and so use, various intangible assets, including trademarks, service
marks, designs, logos, indicia, tradenames, corporate names, company names,
business names, fictitious business names, trade styles and/or other source
and/or business identifiers and applications pertaining thereto (collectively,
the "TRADEMARKS").
G. Collateral Agent desires Grantors to grant to it a lien on and
security interest in all of Grantors' existing and future Patents, existing and
future Trademarks, all registrations that have been or may hereafter be issued
or applied for thereon in the United States and any state thereof (the
"REGISTRATIONS"), all common law and other rights in and to the Trademarks in
the United States and any state thereof (the "TRADEMARK RIGHTS"), all goodwill
of Grantors' business symbolized by the Trademarks and associated therewith,
including without limitation the documents and things described in Section 2(b)
(the "ASSO-
XX-2
<PAGE>
CIATED GOODWILL") and any other Collateral, and all proceeds of the Patents,
Trademarks, the Registrations, the Trademark Rights, the Associated Goodwill and
any other Collateral, and Grantors agree to grant to Collateral Agent a secured
and protected interest in the Trademarks, the Registrations, the Trademark
Rights, the Associated Goodwill and all the proceeds thereof as provided herein.
I. Pursuant to the Subsidiary Security Agreement, each Grantor has
granted to Collateral Agent a lien on and security interest in, among other
assets, all Grantors' equipment, inventory, accounts and general intangibles
relating to the products and services sold or delivered under or in connection
with the Trademarks such that, upon the occurrence and during the continuation
of an Event of Default (as hereinafter defined) Collateral Agent would be able
to exercise its remedies consistent with the Security Agreement, this Agreement
and applicable law to foreclose upon Grantors' business and use the Trademarks,
the Registrations and the Trademark Rights in conjunction with the continued
operation of such business, maintaining substantially the same product and
service specifications and quality as maintained by Grantors, and benefit from
the Associated Goodwill.
J. It is a condition precedent to the initial extensions of credit
by Lenders under the Financing Agreements that Grantors shall have granted the
security interests and undertaken the obligations contemplated by this
Agreement.
NOW, THEREFORE, in consideration of the premises and to induce (i) the
CA Administrative Agent, the CA Syndication Agent and the Credit Agreement
Lenders to enter into the Credit Agreement, (ii) the Credit Agreement Lenders to
make their respective loans to, and issue Letters of Credit for the account of,
Company, (iii) the AXEL Administrative Agent, the AXEL Syndication Agent and the
AXEL Lenders to enter into the AXEL Loan Agreement, (iv) the AXEL Lenders to
make their respective loans to Company, and (v) to induce Interest Rate
Exchangers to enter into the Lender Interest Rate Agreements and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, each Grantor hereby agrees with the Collateral Agent as follows:
1. DEFINED TERMS.
-------------
(a) Unless otherwise defined herein, terms defined in the Credit
Agreement and used herein shall have the meanings given to such terms in the
Credit Agreement;
(b) The following terms shall have the following meanings:
"ACCELERATION" shall mean any of the Credit Agreement Obligations or
the AXEL Credit Agreement Obligations have been declared, or have become,
immediately due and payable, or the commitments to extend credit of the Credit
Agreement Lenders or the AXEL Lenders shall have been terminated under Section 8
of the Credit Agreement or Section 7 of the AXEL Credit Agreement, respectively.
"AGREEMENT" means this Company Security Agreement dated as of
December 18, 1997, as it may be amended, supplemented or otherwise modified from
time to time.
XX-3
<PAGE>
"ASSOCIATED GOODWILL" has the meaning assigned to that term in the
recitals to this Agreement.
"AXEL COMMITMENTS" shall mean the "Commitments" as defined in the
AXEL Credit Agreement.
"AXEL CREDIT AGREEMENT" has the meaning assigned to that term in the
recitals to this Agreement.
"AXEL LENDERS" has the meaning assigned to that term in the recitals
to this Agreement.
"AXEL OBLIGATIONS" shall mean "Obligations" as defined in the AXEL
Credit Agreement.
"AXEL SYNDICATION AGENT" has the meaning assigned to that term in
the recitals to this Agreement.
"COLLATERAL" has the meaning assigned to that term in Section 5 of
this Agreement.
"COLLATERAL ACCOUNTS" shall mean "Collateral Accounts" as defined
in the Intercreditor Agreement.
"COLLATERAL AGENT" has the meaning assigned to that term in the
introduction.
"COMMITMENTS" means the Credit Agreement Commitments and the AXEL
Commitments.
"CREDIT AGREEMENT" has the meaning assigned to that term in the
recitals to this Agreement.
"CREDIT AGREEMENT COMMITMENTS" shall mean the "Commitments" as
defined in the Credit Agreement.
"CREDIT AGREEMENT OBLIGATIONS" shall mean the "Obligations" as
defined in the Credit Agreement.
"EVENT OF DEFAULT" means any "Event of Default" as defined in any
Financing Agreement or the occurrence of an Event of Default in which Company in
the Defaulting Party and which results in the designation of an Early
Termination Date (as defined in a Master Agreement or an Interest Rate Swap
Agreement or Interest Rate and Currency Exchange Agreement in the form prepared
by the International Swap and Derivatives Association Inc. or a similar event
under any similar swap agreement) under any Lender Interest Rate Agreement.
XX-4
<PAGE>
"HOLDINGS" has the meaning assigned to that term in the recitals to
this Agreement.
"FINANCING AGREEMENT" means the Credit Agreement or the AXEL Credit
Agreement, and "Financing Agreements" means the Credit Agreement and the AXEL
Credit Agreement, collectively.
"FINANCING AGREEMENT OBLIGATIONS" means "Credit Agreement
Obligations and AXEL Obligations.
"GRANTOR" has the meaning assigned to that term in the introduction
of this Agreement.
"INTERCREDITOR AGREEMENT" means the Intercreditor Agreement, dated
as of December 18, 1997, by and among CA Administrative Agent, AXEL
Administrative Agent and Collateral Agent.
"INTEREST RATE EXCHANGERS" has the meaning assigned to that term in
the recitals to this Agreement.
"INTEREST RATE OBLIGATIONS" has the meaning assigned to that term in
the recitals to this Agreement.
"LENDER INTEREST RATE AGREEMENT" has the meaning assigned to that
term in the recitals to this Agreement.
"LOAN" means any "Loan" as defined in any Financing Agreement, and
"LOANS" means all such Loans collectively.
"LOAN DOCUMENT" means any "Loan Document" as defined in any
Financing Agreement, and "LOAN DOCUMENTS" means all such Loan Documents
collectively.
"MATERIAL PATENT" has the meaning assigned to that term in Section 5
of this Agreement.
"MATERIAL TRADEMARK PROPERTY" has the meaning assigned to that term
in Section 5 of this Agreement.
"PATENTS" has the meaning assigned to that term in Section 2 of this
Agreement.
"PERMITTED PATENT LIENS" has the meaning assigned to that term in
Section 5 of this Agreement.
XX-5
<PAGE>
"PERMITTED TRADEMARK LIENS" has the meaning assigned to that term in
Section 5 of this Agreement.
"POTENTIAL EVENT OF DEFAULT" means any "Potential Event of
Default" as defined in any Financing Agreement.
"REGISTRATIONS" has the meaning assigned to that term in the
recitals to this Agreement.
"REQUISITE AXEL LENDERS" means "Requisite Lenders" as defined in
the AXEL Credit Agreement.
"REQUISITE CREDIT AGREEMENT LENDERS" means "Requisite Lenders" as
defined in the Credit Agreement.
"REQUISITE LENDERS" means (A) unless an Acceleration shall have
occurred and be continuing, the Requisite Credit Agreement Lenders and the
Requisite AXEL Lenders, and (B) if an Acceleration has occurred and is
continuing, Secured Parties holding more than 50% of the Financing Agreement
Obligations.
"REQUISITE OBLIGEES" has the meaning assigned to that term in
Section 19 of this Agreement.
"SECURED OBLIGATIONS" has the meaning assigned to that term in
Section 3 of this Agreement.
"SECURED PARTIES" has the meaning assigned to that term in the
recitals to this Agreement.
"TRADEMARKS" has the meaning assigned to that term in the recitals
to this Agreement.
"TRADEMARK RIGHTS" has the meaning assigned to that term in the
recitals to this Agreement.
2. GRANT OF SECURITY.
-----------------
Each Grantor hereby grants to Collateral Agent a security interest in
all of such Grantor's right, title and interest in and to the following, in each
case whether now or hereafter existing or in which Grantor now has or hereafter
acquires an interest and wherever the same may be located (the "COLLATERAL"):
A. each of the U.S. Trademarks and rights and interests in
Trademarks which are presently, or in the future may be, owned, held
(whether pursuant to a license or otherwise) or used by such Grantor,
in whole or in part (including without limitation the U.S. Trademarks
specifically identified in Schedule I
----------
XX-6
<PAGE>
annexed hereto) and including all Trademark Rights with respect
thereto and all federal and state Registrations heretofore or
hereafter granted or applied for, the right (but not the obligation)
to file for registration claims under any state or federal trademark
law or regulation and to apply for, renew and extend the Trademarks,
Registrations and Trademark Rights, the right (but not the obligation)
to sue or bring opposition or cancellation proceedings in the name of
such Grantor or in the name of Collateral Agent or otherwise for past,
present and future infringements of the Trademarks, Registrations or
Trademark Rights and all rights (but not obligations) corresponding
thereto in the United States, and the Associated Goodwill; it being
understood that the rights and interests included herein shall
include, without limitation, all rights and interests pursuant to
licensing or other contracts in favor of such Grantor pertaining to
any Trademarks, Registrations or Trademark Rights presently or in the
future owned, held or used by third parties but, in the case of third
parties which are not Affiliates of such Grantor, only to the extent
permitted by such licensing or other contracts or otherwise permitted
by applicable law and, if not so permitted under any such contracts
and applicable law, only with the consent of such third parties;
B. the following documents and things in such Grantor's
possession, or subject to such Grantor's right to possession, related
to (Y) the production, sale and delivery by such Grantor, or by any
Affiliate, licensee or subcontractor of such Grantor, of products or
services sold or delivered by or under the authority of such Grantor
in connection with the Trademarks, Registrations or Trademark Rights
(which products and services shall, for purposes of this Agreement, be
deemed to include, without limitation, products and services sold or
delivered pursuant to merchandising operations utilizing any
Trademarks, Registrations or Trademark Rights); or (Z) any retail or
other merchandising operations conducted under the name of or in
connection with the Trademarks, Registrations or Trademark Rights by
such Grantor or any Affiliate, licensee or subcontractor of such
Grantor:
1. all lists and ancillary documents that identify and
describe any of such Grantor's customers, or those of their
Affiliates, licensees or subcontractors, for products sold and
services delivered under or in connection with the Trademarks or
Trademark Rights, including without limitation any lists and
ancillary documents that contain a customer's name and address,
the name and address of any of its warehouses, branches or other
places of business, the identity of the Person or Persons having
the principal responsibility on a customer's behalf for ordering
products or services of the kind supplied by such Grantor, or the
credit, payment, discount, delivery or other sale terms applicable
to such customer, together with information setting forth the
total purchases, by brand, product, service, style, size or other
criteria, and the patterns of such purchases;
XX-7
<PAGE>
2. all product and service specification documents and
production and quality control manuals used in the manufacture or
delivery of products and services sold or delivered under or in
connection with the Trademarks or Trademark Rights;
3. all documents which reveal the name and address of
any source of supply, and any terms of purchase and delivery, for
any and all materials, components and services used in the
production of products and services sold or delivered under or in
connection with the Trademarks or Trademark Rights; and
4. all documents constituting or concerning the then
current or proposed advertising and promotion by such Grantor or
its Affiliates, licensees or subcontractors of products and
services sold or delivered under or in connection with the
Trademarks or Trademark Rights including, without limitation, all
documents which reveal the media used or to be used and the cost
for all such advertising conducted within the described period or
planned for such products and services; and
C. all patents and patent applications and rights and interests
in U.S. patents and patent applications that are presently, or in the
future may be, owned, held (whether pursuant to a license or otherwise)
or used by such Grantor in whole or in part (including, without
limitation, the U.S. patents and patent applications listed in Schedule
--------
II annexed hereto, all rights (but not obligations) corresponding thereto
--
(including without limitation the right (but not the obligation) to sue
for past, present and future infringements in the name of such Grantor or
in the name of Secured Party), and all re-issues, divisions,
continuations, renewals, extensions and continuations-in-part thereof
(all of the foregoing being collectively referred to as the "PATENTS");
it being understood that the rights and interests granted hereby shall
include, without limitation, all rights and interests pursuant to
licensing or other contracts in favor of such Grantor pertaining to any
Patent presently or in the future owned, held or used by third parties
but, in the case of third parties which are not Affiliates of such
Grantor, only to the extent permitted by such licensing or other
contracts or otherwise permitted by applicable law and, if not so
permitted under any such contracts and applicable law, only with the
consent of such third parties;
D. all books, records, ledger cards, files, correspondence,
computer programs, tapes, disks and related data processing software that
at any time evidence or contain information relating to any of the
Collateral or are otherwise necessary or helpful in the collection
thereof or realization thereupon;
E. to the extent not included in the foregoing clauses (a) -(d),
all general intangibles relating to the Collateral; and
XX-8
<PAGE>
F. all proceeds, products, and profits (including without
limitation license royalties and proceeds of infringement suits) of or
from any and all of the foregoing Collateral and, to the extent not
otherwise included, all payments under insurance (whether or not
Collateral Agent is the loss payee thereof), or any indemnity, warranty
or guaranty, payable by reason of loss or damage to or otherwise with
respect to any of the foregoing Collateral. For purposes of this
Agreement, the term "PROCEEDS" includes whatever is receivable or
received when Collateral or proceeds are sold, exchanged, collected or
otherwise disposed of, whether such disposition is voluntary or
involuntary.
3. SECURITY FOR OBLIGATIONS.
------------------------
This Agreement secures, and the Collateral is collateral security for,
the prompt payment or performance in full when due, whether at stated maturity,
by required prepayment, declaration, acceleration, demand or otherwise
(including without limitation the payment of amounts that would become due but
for the operation of the automatic stay under Section 362(a) of the Bankruptcy
Code, 11 U.S.C. (S)362(a)), of all Secured Obligations with respect to such
Grantor. "SECURED OBLIGATIONS" means all obligations and liabilities of every
nature of Grantors now or hereafter existing under or arising out of or in
connection with the Subsidiary Guaranty, in each case together with all
extensions or renewals thereof, whether for principal, interest (including
without limitation interest that, but for the filing of a petition in bankruptcy
with respect to Grantor, would accrue on such obligations), reimbursement of
amounts drawn under Letters of Credit, payments for early termination of Lender
Interest Rate Agreements, fees, expenses, indemnities or otherwise, whether
voluntary or involuntary, direct or indirect, absolute or contingent, liquidated
or unliquidated, whether or not jointly owed with others, and whether or not
from time to time decreased or extinguished and later increased, created or
incurred, and all or any portion of such obligations or liabilities that are
paid, to the extent all or any part of such payment is avoided or recovered
directly or indirectly from Collateral Agent or any Secured Party or Interest
Rate Exchanger as a preference, fraudulent transfer or otherwise, and all
obligations of every nature of Grantors now or hereafter existing under this
Agreement.
4. GRANTORS REMAINS LIABLE.
-----------------------
Anything contained herein to the contrary notwithstanding, (a) each
Grantor shall remain liable under any contracts and agreements included in the
Collateral, to the extent set forth therein, to perform all of its duties and
obligations thereunder to the same extent as if this Agreement had not been
executed, (b) the exercise by Collateral Agent of any of its rights hereunder
shall not release any Grantor from any of its duties or obligations under the
contracts and agreements included in the Collateral, and (c) Collateral Agent
shall not have any obligation or liability under any contracts and agreements
included in the Collateral by reason of this Agreement, nor shall Collateral
Agent be obligated to perform any of the obligations or duties of any Grantor
thereunder or to take any action to collect or enforce any claim for payment
assigned hereunder.
XX-9
<PAGE>
5. REPRESENTATIONS AND WARRANTIES.
------------------------------
Each Grantor represents and warrants as follows:
(a) OWNERSHIP OF COLLATERAL. Except as expressly permitted by
the Financing Agreements and for the security interest and conditional
assignment created by this Agreement (and other than ownership and
other rights reserved by third party owners with respect to each
Material Trademark Property and each Material Patent that Grantor is
licensed to use), such Grantor is the legal and beneficial owner of
the entire right, title and interest in and to (i) each Material
Trademark Property, free and clear of any Lien other than Liens of
mechanics, materialmen, attorneys and other similar liens imposed by
laws in the ordinary course of business in connection with the
establishment, creation or application for registration of any
Trademarks, Registrations or Trademark Rights for sums not yet
delinquent or being contested in good faith (such Liens being referred
to herein as "PERMITTED TRADEMARK LIENS"), and (ii) each Material
Patent, free and clear of any Lien other than Liens of mechanics,
materialmen, attorneys and other similar liens imposed by law in the
ordinary course of business in connection with the establishment,
creation or application for any Patent for sums not yet delinquent or
being contested in good faith (such Liens being referred to herein as
"PERMITTED PATENT LIENS"). Except such as may have been filed in favor
of Collateral Agent relating to this Agreement except as permitted by
the Financing Agreements, no effective financing statement or other
instrument similar in effect covering all or any part of the
Collateral is on file in any filing or recording office, including the
United States Patent and Trademark Office.
(b) DESCRIPTION OF COLLATERAL. A true and complete list of all
Registrations, trade names, corporate names, fictitious business names
and Trademark license agreements owned, held (whether pursuant to a
license or otherwise) or used by such Grantor, in whole or in part, as
of the date such Grantor has entered into this Agreement is set forth
in Schedule I annexed hereto. Each Registration, trade name, corporate
----------
name, fictitious business name and Trademark license designated on
Schedule I annexed hereto as a Material Trademark Property, and each
other Trademark, Registration or Trademark Right hereafter arising or
otherwise owned, held or used by any Grantor that is material to any
of such Grantor's business or operations is referred to herein as a
"MATERIAL TRADEMARK PROPERTY". A true and complete list of all Patents
owned or held (whether pursuant to a license or otherwise) by such
Grantor, in whole or in part, as of the date such Grantor has entered
into this Agreement is set forth in Schedule II annexed hereto. Each
-----------
Patent designated on Schedule II annexed hereto as a Material Patent
-----------
and each other Patent hereafter arising or otherwise owned or held by
such Grantor that is material to any of such Grantor's business or
operations is referred to herein as a "MATERIAL PATENT".
XX-10
<PAGE>
(c) VALIDITY AND ENFORCEABILITY OF COLLATERAL. Each Material
Trademark Property and each Material Patent is subsisting and has not
been adjudged invalid or unenforceable, in whole or in part, and
Grantor has entered into this Agreement, such Grantor is not aware of
any pending or threatened claim by any third party that any Material
Trademark Property or any Material Patent is invalid or unenforceable
or that the use of any Material Trademark Property or any Material
Patent violates the rights of any third person.
(d) PERFECTION. This Agreement together with the filing of UCC
financing statements naming each Grantor as "debtor", naming
Collateral Agent as "secured party" and describing the U.S. Collateral
in the filing offices set forth on Schedule III annexed hereto and the
------------
recording of this Agreement with the United States Patent and
Trademark Office, creates a valid, perfected and First Priority
security interest in the Collateral (subject only to Permitted Patent
Liens and Permitted Trademark Liens) securing the payment of the
Secured Obligations, and all filings and other actions necessary to
perfect and protect such security interests under the laws of the
United States or any State thereunder have been or will promptly be
following execution hereof duly made or taken.
(e) OTHER INFORMATION. All information hereto, herein or
hereafter supplied to Collateral Agent by or on behalf of each Grantor
with respect to the Collateral is accurate and complete in all
material respects.
6. FURTHER ASSURANCES; NEW TRADEMARKS, REGISTRATIONS AND
-----------------------------------------------------
TRADEMARK RIGHTS; NEW PATENTS AND PATENT APPLICATIONS; CERTAIN INSPECTION
- -------------------------------------------------------------------------
RIGHTS.
- ------
(a) Each Grantor agrees that from time to time, at the expense of
Grantors, such Grantor will promptly execute and deliver all further instruments
and documents, and take all further action, or that Collateral Agent may
reasonably request, in order to perfect and protect any security interest or
conditional assignment granted or purported to be granted hereby or to enable
Collateral Agent to exercise and enforce its rights and remedies hereunder with
respect to any Collateral. Without limiting the generality of the foregoing,
each Grantor will: (i) at the reasonable request of Collateral Agent, mark
conspicuously each of its records pertaining to the Collateral with a legend, in
form and substance reasonably satisfactory to Collateral Agent indicating that
such Collateral is subject to the security interest granted hereby, (ii) execute
and file such financing or continuation statements, or amendments thereto, and
such other instruments or notices, or as Collateral Agent may reasonably
request, in order to perfect and preserve the security interests granted or
purported to be granted hereby, (iii) use its best efforts to obtain any
necessary consents of third parties to the grant and perfection of a security
interest to Collateral Agent with respect to any Collateral, and (iv) at
Collateral Agent's request, appear in and defend any action or proceeding that
would reasonably be expected to affect such Grantor's title to or Collateral
Agent's security interest in all or any part of the Collateral.
XX-11
<PAGE>
(b) Each Grantor hereby authorizes Collateral Agent to file one or
more financing or continuation statements, and amendments thereto, relative to
all or any part of the Collateral without the signature of any Grantor to the
extent permitted by applicable law. Each Grantor agrees that a carbon,
photographic or other reproduction of this Agreement or of a financing statement
signed by such Grantor shall be sufficient as a financing statement and may be
filed as a financing statement in any and all jurisdictions.
(c) Each Grantor will furnish to Collateral Agent from time to time
statements and schedules further identifying and describing the Collateral and
such other reports in connection with the Collateral as Collateral Agent may
reasonably request, all in reasonable detail.
(d) If any Grantor shall obtain rights to any new Trademarks,
Registrations or Trademark Rights, or to any patentable inventions, or become
entitled to the benefit of any U.S. patent application or patent or any reissue,
division, continuation, renewal, extension, or continuation-in-part of any
Patent or any improvement in any Patent, the provisions of this Agreement shall
automatically apply thereto. Once per calendar year, each Grantor shall notify
Collateral Agent in writing of any Registrations or Patents acquired by such
Grantor during such calendar year and of any Registrations issued or
applications for Registration made during such calendar year, which notice shall
state whether such Registration constitutes a Material Trademark Property or
whether such Patent constitutes a Material Patent. Concurrently with the filing
of an application for Registration for any Trademark, or an application for any
Patent the applicable Grantor shall execute, deliver and record in all places
where this Agreement is recorded an appropriate Patent and Trademark Security
Agreement, substantially in the form hereof, with appropriate insertions, or an
amendment to this Agreement, in form and substance reasonably satisfactory to
Collateral Agent, pursuant to which such Grantor shall grant a security interest
to the extent of its interest in such Registration or Patent as provided herein
to Collateral Agent unless so doing would, in the reasonable judgment of such
Grantor, after due inquiry, result in the grant of a Patent or Registration in
the name of Collateral Agent, in which event such Grantor shall give written
notice to Collateral Agent as soon as reasonably practicable and the filing
shall instead be undertaken as soon as practicable but in no case later than
immediately following the grant of such Patent or Registration.
7. CERTAIN COVENANTS OF GRANTORS.
-----------------------------
Each Grantor shall:
(a) notify Collateral Agent of any change in such Grantor's
name, identity or corporate structure within 30 days of such change;
(b) give Collateral Agent 30 days' written notice following any
change in such Grantor's chief place of business or chief executive
office or the office where such Grantor keeps its records regarding
the Collateral;
(c) pay promptly when due all property and other taxes,
assessments and governmental charges or levies imposed upon, and all
claims (including
XX-12
<PAGE>
claims for labor, materials and supplies) against, the Collateral,
except to the extent the validity thereof is being contested in good
faith;
(d) not sell, assign (by operation of law or otherwise) or
otherwise dispose of any of the Collateral, except as permitted by the
Financing Agreements;
(e) except for Permitted Patent Liens and Permitted Trademark
Liens and the security interest and conditional assignment created by
this Agreement, not create or suffer to exist any Lien upon or with
respect to any of the Collateral to secure the indebtedness or other
obligations of any Person other than Lien permitted by the Financing
Agreements;
(f) diligently keep reasonable records respecting the Collateral
and at all times keep at least one complete set of its records
concerning substantially all of the Patents and Registrations at its
chief executive office or principal place of business;
(g) take all steps reasonably necessary in such Grantor's
business judgment to protect the secrecy of all trade secrets relating
to the products and services sold or delivered under or in connection
with the Patents, Trademarks and Trademark Rights;
(h) use proper statutory notice in connection with its use of
each Material Patent and Material Trademark Property to the extent
reasonably necessary for the protection of such Material Patent or
Material Trademark Property; and
(i) use consistent standards of high quality (which may be
consis tent with such Grantor's past practices or with such Grantor's
business judgment) in the manufacture, sale and delivery of products
and services sold or delivered under or in connection with the
Trademarks, Registrations and Trademark Rights, including, to the
extent applicable, in the operation and maintenance of its
merchandising operations.
8. AMOUNTS PAYABLE IN RESPECT OF THE COLLATERAL.
--------------------------------------------
Except as otherwise provided in this Section 8, each Grantor shall
continue to collect, at its own expense, all amounts due or to become due to
Grantors in respect of the Collateral or any portion thereof. In connection
with such collections, each Grantor may take (and, at Collateral Agent's
direction, shall take) such action as such Grantor may deem necessary or
advisable to enforce collection of such amounts; provided, however, that
-------- -------
Collateral Agent shall have the right at any time, upon the occurrence and
during the continuation of an Event of Default and upon written notice to such
Grantor of its intention to do so, to notify the obligors with respect to any
such amounts of the existence of the security interest and the conditional
assignment created hereby, and to direct such obligors to make
XX-13
<PAGE>
payment of all such amounts directly to Collateral Agent, and, upon such
notification and at the expense of Grantors, to enforce collection of any such
amounts and to adjust, settle or compromise the amount or payment thereof, in
the same manner and to the same extent as such Grantor might have done. After
receipt by such Grantor of the notice from Collateral Agent referred to in the
proviso to the preceding sentence, (i) all amounts and proceeds (including
checks and other instruments) received by such Grantor in respect of amounts due
to such Grantor in respect of the Collateral or any portion thereof shall be
forthwith (and in any event within two Business Days) deposited by the Grantor
in the exact form received, duly indorsed by the Grantor to the Collateral Agent
if required, in a Collateral Account maintained under the sole dominion and
control of the Collateral Agent, subject to withdrawal by the Collateral Agent
for the account of Secured Parties only as provided in Section 16, (ii) until so
turned over in accordance with the preceding subsection (i), all such amounts
and proceeds received by such Grantor shall be received in trust for the benefit
of Collateral Agent hereunder- and shall be segregated from other funds of
Grantor and (iii)such Grantor shall not adjust, settle or compromise the amount
or payment of any such amount or release wholly or partly any obligor with
respect thereto or allow any credit or discount thereon.
9. PATENT OR TRADEMARK APPLICATIONS AND LITIGATION.
-----------------------------------------------
(a) Each Grantor shall have the duty diligently, to prosecute any
trademark application relating to any Material Trademark Property that is
pending as of the date of this Agreement, to make federal application on any
existing or future registerable but unregistered Material Trademark Property
(whenever it is commercially reasonable in the reasonable judgement of such
Grantor to do so), and to file and prosecute opposition and cancellation
proceedings, renew Registrations and do any and all reasonable acts which are
necessary or desirable to preserve and maintain all rights in all Material
Trademark Properties; provided, however, that Grantor shall not be obligated to
-------- -------
prosecute or apply for registration of any Trademark or Registration that Grant
determines in its reasonable business judgment is no longer necessary or
desirable in the conduct of its business. Any expenses incurred in connection
therewith shall be borne solely by Grantors. No Grantor shall abandon any
Material Trademark Property; provided, however, that Grantor shall not be
-------- -------
obligated to maintain any Trademark or Registration that Grantor determines in
its reasonable business judgment is no longer necessary or desirable in the
conduct of its business.
(b) Each Grantor shall have the duty diligently, through counsel
reasonably acceptable to Collateral Agent, to prosecute any patent application
relating to any Material Patent that is pending as of the date of this Agreement
and to do any and all acts which are necessary or desirable to preserve and
maintain all rights in all Material Patents; provided, however, that Grantor
-------- -------
shall not be obligated to prosecute or maintain any Patent that Grantor
determines in its reasonable business judgment is no longer necessary or
desirable in the conduct of its business. Any expenses incurred in connection
therewith shall be borne solely by Grantors. Each Grantor shall not, as to any
patentable invention or Patent that constitutes or could constitute a Material
Patent, abandon any pending patent application or any Patent without the prior
written consent of Collateral Agent; provided, however, that Grantor shall not
-------- -------
be obligated to prosecute or maintain any Patent that Grantor determines in its
reasonable business judgment is no longer necessary or desirable in the conduct
of its business.
XX-14
<PAGE>
(c) Except as provided in Section 9(e), each Grantor shall have the
right to commence and prosecute in its own name, as real party in interest, for
its own benefit and at its own expense, such suits, proceedings or other actions
for infringement, unfair competition, dilution or other damage as are in its
reasonable business judgment necessary to protect the Collateral. Collateral
Agent shall provide, at Grantor's expense, all reasonable and necessary
cooperation in connection with any such suit, proceeding or action including,
without limitation, joining as a necessary party.
(d) Each Grantor shall promptly, following its becoming aware thereof,
notify Collateral Agent of the institution of, or of any adverse determination
in, any proceeding (whether in the United States Patent and Trademark Office or
any federal, state, local or foreign court) described in subsection 9(a), 9(b)
or 9(c) or regarding such Grantor's claim of ownership in or right to use any of
the Trademarks, Registrations or Trademark Rights, its right to register the
same, or its right to keep and maintain such Registration. Such Grantor shall
provide to Collateral Agent any information with respect thereto requested by
Collateral Agent.
(e) Anything contained herein to the contrary notwithstanding, upon
the occurrence and during the continuation of an Event of Default, Collateral
Agent shall have the right (but not the obligation) to bring suit, in the name
of any Grantor, Collateral Agent or otherwise, to enforce any Patent, Trademark,
Registration, Trademark Right, Associated Goodwill and any license thereunder,
in which event each Grantor shall, at the request of Collateral Agent, do any
and all lawful acts and execute any and all documents required by Collateral
Agent in aid of such enforcement and each Grantor shall promptly, upon demand,
reimburse and indemnify Collateral Agent as provided in Section 17 in connection
with the exercise of its rights under this Section 9. To the extent that
Collateral Agent shall elect not to bring suit to enforce any Patent, Trademark,
Registration, Trademark Right, Associated Goodwill or any license thereunder as
provided in this Section 9(e), each Grantor agrees to use all reasonable
measures, whether by action, suit, proceeding or otherwise, to prevent the
infringement of any of the Patents, Trademarks, Registrations, Trademark Rights
or Associated Goodwill by others and for that purpose agrees to diligently
maintain in accordance with reasonable business practice any action, suit or
proceeding against any Person so infringing necessary to prevent such
infringement.
10. NON-DISTURBANCE AGREEMENTS, ETC.
--------------------------------
If and to the extent that any Grantor is permitted to license the
Collateral, Collateral Agent shall enter into a non-disturbance agreement or
other similar arrangement, at Grantors' request and expense, with such Grantor
and any licensee of any Collateral permitted hereunder in form and substance
reasonably satisfactory to Collateral Agent pursuant to which (a) Collateral
Agent shall agree not to disturb or interfere with such licensee's rights under
its license agreement with such Grantor so long as such licensee is not in
default thereunder and (b) such licensee shall acknowledge and agree that the
Collateral licensed to it is subject to the security interest and conditional
assignment created in favor of Collateral Agent and the other terms of this
Agreement.
XX-15
<PAGE>
11. COLLATERAL AGENT APPOINTED ATTORNEY-IN-FACT.
-------------------------------------------
Each Grantor hereby irrevocably appoints Collateral Agent as such
Grantor's attorney-in-fact, with full authority in the place and stead of such
Grantor and in the name of such Grantor, Collateral Agent or otherwise, from
time to time, upon the occurrence during the continuance of an Event of Default,
in Collateral Agent's reasonable discretion to take any action and to execute
any instrument that Collateral Agent may reasonably deem necessary or advisable
to accomplish the purposes of this Agreement, including without limitation:
A. to endorse such Grantor's name on all applications,
documents, papers and instruments necessary for Collateral Agent in the
use or maintenance of the Collateral;
B. to ask for, demand, collect, sue for, recover, compound,
receive and give acquittance and receipts for moneys due and to become
due under or in respect of any of the Collateral;
C. to receive, endorse and collect any drafts or other
instruments, documents and chattel paper in connection with clause (b)
above;
D. upon the occurrence and during the continuance of an Event of
Default, to file any claims or take any action or institute any
proceedings that Collateral Agent may reasonably deem necessary or
desirable for the collection of any of the Collateral or otherwise to
enforce the rights of Collateral Agent with respect to any of the
Collateral;
E. to pay or discharge taxes or Liens (other than Liens
permitted under this Agreement or the Financing Agreements) levied or
placed upon or threatened against the Collateral, the legality or
validity thereof and the amounts necessary to discharge the same to be
determined by Collateral Agent in its sole discretion, any such
payments made by Collateral Agent to become obligations of such Grantor
to Collateral Agent, due and payable immediately without demand; and
F. upon the occurrence and during the continuance of an Event of
Default, (i) to execute and deliver any of the assignments or documents
requested by Collateral Agent pursuant to Section 14(b), (ii) to grant
or issue an exclusive or non-exclusive license to the Collateral or any
portion thereof to any Person, and (iii) otherwise generally to sell,
transfer, pledge, make any agreement with respect to or otherwise deal
with any of the Collateral as fully and completely as though Collateral
Agent were the absolute owner thereof for all purposes, and to do, at
Collateral Agent's option and Grantors' expense, at any time or from
time to time, all acts and things that Collateral Agent deems necessary
to protect, preserve or realize upon the Collateral and Collateral
Agent's security interest therein in order to effect the intent of this
Agreement, all as fully and effectively as such Grantor might do.
XX-16
<PAGE>
12. COLLATERAL AGENT MAY PERFORM.
----------------------------
If any Grantor fails to perform any agreement contained herein,
Collateral Agent may itself perform, or cause performance of, such agreement,
and the reasonable expenses of Collateral Agent incurred in connection therewith
shall be payable by such Grantor under Section 17.
13. STANDARD OF CARE.
----------------
The powers conferred on Collateral Agent hereunder are solely to
protect its interest in the Collateral and shall not impose any duty upon it to
exercise any such powers. Except for the exercise of reasonable care in the
custody of any Collateral in its possession and the accounting for monies
actually received by it hereunder, Collateral Agent shall have no duty as to any
Collateral or as to the taking of any necessary steps to preserve rights against
prior parties or any other rights pertaining to any Collateral. Collateral
Agent shall be deemed to have exercised reasonable care in the custody and
preservation of any Collateral in its possession if such Collateral is accorded
treatment substantially equal to that which Collateral Agent accords its own
property.
XX-17
<PAGE>
14. REMEDIES.
--------
If any Event of Default shall have occurred and be continuing:
XX-18
<PAGE>
A. Collateral Agent may exercise in respect of the Collateral, in
addition to all other rights and remedies provided for herein or otherwise
available to it, all the rights and remedies of a collateral agent on default
under the Uniform Commercial Code as in effect in any relevant jurisdiction (the
"CODE") (whether or not the Code applies to the affected Collateral), and also
may (i) require each Grantor to, and each Grantor hereby agrees that it will at
its expense and upon request of Collateral Agent forthwith, assemble all or part
of the Collateral as directed by Collateral Agent and make it available to
Collateral Agent at a place to be designated by Collateral Agent that is
reasonably convenient to both parties, (ii) enter onto the property where any
Collateral is located and take possession thereof with or without judicial
process, (iii) prior to the disposition of the Collateral, store the Collateral
or otherwise prepare the Collateral for disposition in any manner to the extent
Collateral Agent deems appropriate, (iv) take possession of any Grantor's
premises or place custodians in exclusive control thereof, remain on such
premises and use the same for the purpose of taking any actions described in the
preceding clause (iii) and collecting any Secured Obligation, (v) exercise any
and all rights and remedies of Grantors under or in connection with the
contracts related to the Collateral or otherwise in respect of the Collateral,
including without limitation any and all rights of Grantors to demand or
otherwise require payment of any amount under, or performance of any provision
of, such contracts, and (vi) without notice except as specified below, sell the
Collateral or any part thereof in one or more parcels at public or private sale,
at any of Secured Party's offices or elsewhere, for cash, on credit or for
future delivery, at such time or times and at such price or prices and upon such
other terms as Collateral Agent may deem commercially reasonable. Collateral
Agent or any Secured Party or Interest Rate Exchanger may be the purchaser of
any or all of the Collateral at any such sale and Collateral Agent, as agent for
and representative of Secured Parties and Interest Rate Exchangers (but not any
Secured Party or Secured Parties or Interest Rate Exchanger or Interest Rate
Exchangers in its or their respective individual capacities unless Requisite
Obligees shall otherwise agree in writing), shall be entitled, for the purpose
of bidding and making settlement or payment of the purchase price for all or any
portion of the Collateral sold at any such public sale, to use and apply any of
the Secured Obligations as a credit on account of the purchase price for any
Collateral payable by Collateral Agent at such sale. Each purchaser at any such
sale shall hold the property sold absolutely free from any claim or right on the
part of any Grantor, and each Grantor hereby waives (to the extent permitted by
applicable law) all rights of redemption, stay and/or appraisal which it now has
or may at any time in the future have under any rule of law or statute now
existing or hereafter enacted. Each Grantor agrees that, to the extent notice
of sale shall be required by law, at least ten days' notice to such Grantor of
the time and place of any public sale or the time after which any private sale
is to be made shall constitute reasonable notification. Collateral Agent shall
not be obligated to make any sale of Collateral regardless of notice of sale
having been given. Collateral Agent may adjourn any public or private sale from
time to time by announcement at the
XX-19
<PAGE>
time and place fixed therefor, and such sale may, without further notice, be
made at the time and place to which it was so adjourned. Each Grantor hereby
waives any claims against Collateral Agent arising by reason of the fact that
the price at which any Collateral may have been sold at such a private sale was
less than the price which might have been obtained at a public sale, even if
Collateral Agent accepts the first offer received and does not offer such
Collateral to more than one offeree. If the proceeds of any sale or other
disposition of the Collateral are insufficient to pay all the Secured
Obligations, Grantors shall be jointly and severally liable for the deficiency
and the reasonable fees of any attorneys employed by Collateral Agent to collect
such deficiency.
B. Upon written demand from Secured Party, each Grantor shall execute and
deliver to Collateral Agent an assignment or assignments of the Patents,
Trademarks, Registrations, Trademark Rights and the Associated Goodwill and such
other documents as are requested by Collateral Agent. Each Grantor agrees that
such an assignment and/or recording shall be applied to reduce the Secured
Obligations outstanding only to the extent that Collateral Agent (or any
Secured) receives cash proceeds in respect of the sale of, or other realization
upon, the Collateral.
C. Within five Business Days after written notice from Collateral Agent,
each Grantor shall make available to Collateral Agent, to the extent within each
applicable Grantor's power and authority, such personnel in such Grantor's
employ on the date of such Event of Default as Collateral Agent may reasonably
designate, by name, title or job responsibility, to permit such Grantor to
continue, directly or indirectly, to produce, advertise and sell the products
and services sold or delivered by such Grantor under or in connection with the
Patents, Trademarks, Registrations and Trademark Rights, such persons to be
available to perform their prior functions on Collateral Agent's behalf and to
be compensated by Collateral Agent at Grantors' expense on a per diem, pro-rata
basis consistent with the salary and benefit structure applicable to each as of
the date of such Event of Default.
XX-20
<PAGE>
15. PROCEEDS TO BE TURNED OVER TO COLLATERAL AGENT.
----------------------------------------------
In addition to the rights of the Collateral Agent and the Secured
Parties specified in Section 8 with respect to payments of Accounts, if an Event
of Default shall occur and be continuing, upon request of the Collateral Agent,
all proceeds received by the Grantor consisting of cash, checks and other near-
cash items shall be held by the Grantor in trust for the Collateral Agent and
the Secured Parties, segregated from other funds of the Grantor, and shall,
forthwith upon receipt by the Grantor, be turned over to the Collateral Agent in
the exact form received by the Grantor (duly indorsed by the Grantor to the
Collateral Agent, if required) and held by the Collateral Agent in a Collateral
Account maintained under the Intercreditor Agreement. All proceeds while held
by the Collateral Agent in a Collateral Account (or by the Grantor in trust for
the Collateral Agent and the Secured Parties) shall continue to be held as
collateral security for all the Secured Obligations and shall not constitute
payment thereof until applied as provided in Section 16.
16. APPLICATION OF PROCEEDS.
-----------------------
Except as expressly provided elsewhere in this Agreement, all proceeds
held in any Collateral Account and all other proceeds received by Collateral
Agent in respect of any sale of, collection from, or other realization upon all
or any part of the Collateral shall be applied as provided in subsection 3 of
the Intercreditor Agreement.
17. INDEMNITY AND EXPENSES.
----------------------
(a) Grantors jointly and severally agree to indemnify Collateral
Agent, each Secured Party and each Interest Rate Exchanger from and against any
and all claims, losses and liabilities in any way relating to, growing out of or
resulting from this Agreement and the transactions contemplated hereby
(including without limitation enforcement of this Agreement), except to the
extent such claims, losses or liabilities result solely from Collateral Agent's
or such Secured Party's or Interest Rate Exchanger's gross negligence or willful
misconduct as finally determined by a court of competent jurisdiction.
(b) Grantors jointly and severally agree to pay to Collateral Agent
promptly following written demand the amount of any and all costs and expenses,
including the reasonable fees and expenses of its counsel and of any experts and
agents, that Collateral Agent may incur in connection with (i) the
administration of this Agreement, (ii) the custody, preservation, use or
operation of, or the sale of, collection from, or other realization upon, any of
the Collateral, (iii) the exercise or enforcement of any of the rights of
Collateral Agent hereunder, or (iv) the failure by any Grantor to perform or
observe any of the provisions hereof.
(c) The obligations of Grantors in this Section 17 shall survive the
termination of this Agreement and the discharge of Grantors' other obligations
under this Agreement, the Interest Rate Agreements, the Credit Agreement and the
other Loan Documents.
XX-21
<PAGE>
18. CONTINUING SECURITY INTEREST; TRANSFER OF LOANS.
-----------------------------------------------
This Agreement shall create a continuing security interest in and
conditional assignment of the Collateral effective only upon the occurrence and
during the continuance of an Event of Default and shall (a) remain in full force
and effect until the payment in full of the Secured Obligations (other than
inchoate indemnification obligations with respect to claims, losses or
liabilities which have not yet arisen and are not yet due and payable), the
cancellation or termination of the Commitments and the cancellation or
expiration of all outstanding Letters of Credit, (b) be binding upon Grantors
and their respective successors and assigns, and (c) inure, together with the
rights and remedies of Collateral Agent hereunder, to the benefit of Collateral
Agent and its successors, transferees and assigns. Without limiting the
generality of the foregoing clause (c), but subject to the provisions of
subsection 10.1 of the Credit Agreement and subsection 10.1 of the AXEL Credit
Agreement, any Secured Party may assign or otherwise transfer any Loans held by
it to any other Person, and such other Person shall thereupon become vested with
all the benefits in respect thereof granted to Secured Parties herein or
otherwise. Upon the payment in full of all Secured Obligations (other than
inchoate indemnification obligations with respect to claims, losses or
liabilities which have not yet arisen and are not yet due and payable), the
cancellation or termination of the Commitments and the cancellation or
expiration of all outstanding Letters of Credit, the security interest and
conditional assignment granted hereby shall terminate and all rights to the
Collateral shall revert to the applicable Grantors. Upon any such termination
Collateral Agent will, at Grantors' expense, execute and deliver to Grantors
such documents as Grantors shall reasonably request to evidence such termination
in accordance with the terms of the Intercreditor Agreement.
XX-22
<PAGE>
19. COLLATERAL AGENT AS ADMINISTRATIVE AGENT.
----------------------------------------
(a) Collateral Agent has been appointed to act as Collateral Agent
hereunder by CA Administrative Agent on behalf of the Credit Agreement Lenders
and AXEL Administrative Agent on behalf of the AXEL Lenders pursuant to the
Intercreditor Agreement and, by their acceptance of the benefits hereof,
Interest Rate Exchangers, and shall be entitled to the benefits of the
Intercreditor Agreement. Collateral Agent shall be obligated, and shall have
the right hereunder, to make demands, to give notices, to exercise or refrain
from exercising any rights, and to take or refrain from taking any action
(including without limitation the release or substitution of Collateral), solely
in accordance with this Agreement and the Intercreditor Agreement; provided that
--------
Collateral Agent shall exercise, or refrain from exercising, any remedies
provided for in Section 14 in accordance with the instructions of (i) Requisite
Lenders or (ii) after payment in full of all Financing Agreement Obligations
under the Financing Agreements and any other Loan Documents, the holders of a
majority of the aggregate notional amount (or, with respect to any Lender
Interest Rate Agreement that has been terminated in accordance with its terms,
the amount then due and payable (exclusive of expenses and similar payments but
including any early termination payments then due) under such Lender Interest
Rate Agreement) under all Lender Interest Rate Agreements (Requisite Lenders or,
if applicable, such holders being referred to herein as "REQUISITE OBLIGEES").
In furtherance of the foregoing provisions of this Section 19(a), each Interest
Rate Exchanger, by its acceptance of the benefits hereof, agrees that it shall
have no right individually to realize upon any of the Collateral hereunder, it
being understood and agreed by such Interest Rate Exchanger that all rights and
remedies hereunder may be exercised solely by Collateral Agent for the benefit
of Secured Parties and Interest Rate Exchangers in accordance with the terms of
this Section 19(a).
(b) Collateral Agent shall at all times be the same Person that is
appointed Collateral Agent under the Intercreditor Agreement. The Collateral
Agent may resign and a successor Collateral Agent may be appointed in the manner
provided in the Intercreditor Agreement. Upon the acceptance of any appointment
as Collateral Agent by a successor Collateral Agent, that successor Collateral
Agent shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring or removed Collateral Agent under this
Agreement, and the retiring or removed Collateral Agent under this Agreement
shall promptly (i) transfer to such successor Collateral Agent all sums,
securities and other items of Collateral held hereunder, together with all
records and other documents necessary or appropriate in connection with the
performance of the duties of the successor Collateral Agent under this
Agreement, and (ii) execute and deliver to such successor Collateral Agent such
amendments to financing statements, and take such other actions, as may be
necessary or appropriate in connection with the assignment to such successor
Collateral Agent of the security interests created hereunder, whereupon such
retiring or removed Collateral Agent shall be discharged from its duties and
obligations under this Agreement. After any retiring or removed Collateral
Agent's resignation or removal hereunder as Collateral Agent, the provisions of
this Agreement shall inure to its benefit as to any actions taken or omitted to
be taken by it under this Agreement while it was Collateral Agent hereunder.
XX-23
<PAGE>
20. AMENDMENTS; ETC.
---------------
No amendment, modification, termination or waiver of any provision of
this Agreement, and no consent to any departure by any Grantor therefrom, shall
in any event be effective unless the same shall be in writing and signed by
Collateral Agent and, in the case of any such amendment or modification, by
Grantors; provided that any amendment hereto pursuant to Section 22 or Section
--------
6(c) shall be effective upon execution by any Additional Grantor and Grantors
hereby waive any requirement of notice of or consent to any such amendment. Any
such waiver or consent shall be effective only in the specific instance and for
the specific purpose for which it was given.
21. NOTICES.
-------
Any notice or other communication herein required or permitted to be
given shall be in writing and may be personally served, telexed or sent by
telefacsimile or United States mail or courier service and shall be deemed to
have been given when delivered in person or by courier service, upon receipt of
telefacsimile or telex (with received answerback), or three Business Days after
depositing it in the United States mail with postage prepaid and properly
addressed; provided that notices to Collateral Agent or Grantor shall not be
--------
effective until received. For the purposes hereof, the address of each party
hereto shall be provided in subsection 10.8 of the Credit Agreement or
subsection 10.8 of the AXEL Credit Agreement, or as set forth under such party's
name on the signature pages hereof or such other address as shall be designated
by such party in a written notice delivered to the other parties hereto.
22. FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE.
-----------------------------------------------------
No failure or delay on the part of Collateral Agent in the exercise of
any power, right or privilege hereunder shall impair such power, right or
privilege or be construed to be a waiver of any default or acquiescence therein,
nor shall any single or partial exercise of any such power, right or privilege
preclude any other or further exercise thereof or of any other power, right or
privilege. All rights and remedies existing under this Agreement are cumulative
to, and not exclusive of, any rights or remedies otherwise available.
XX-24
<PAGE>
23. ADDITIONAL GRANTORS.
-------------------
From time to time subsequent to the date hereof, Subsidiaries of
Company may become parties hereto as additional Grantors (each an "ADDITIONAL
GRANTOR") by executing an acknowledgement to this Agreement substantially in
the form of Schedule IV annexed hereto. Upon delivery of any such
-----------
acknowledgment to Collateral Agent and Secured Party, notice of which is hereby
waived by Grantors, each such Additional Grantor shall be a Grantor and shall be
as fully a party hereto as if such Additional Grantor were an original signatory
hereto. Each Grantor expressly agrees that its obligations arising hereunder
shall not be affected or diminished by the addition or release of any other
Grantor hereunder, nor by any election of Collateral Agent not to cause any
Subsidiary of Company to become an Additional Grantor hereunder. This Agreement
shall be fully effective as to any Grantor that is or becomes a party hereto
regardless of whether any other Person becomes or fails to become or ceases to
be a Grantor hereunder.
24. SEVERABILITY.
------------
In case any provision in or obligation under this Agreement shall be
invalid, illegal or unenforceable in any jurisdiction, the validity, legality
and enforceability of the remaining provisions or obligations, or of such
provision or obligation in any other jurisdiction, shall not in any way be
affected or impaired thereby.
25. HEADINGS.
--------
Section and subsection headings in this Agreement are included herein
for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose or be given any substantive effect.
26. GOVERNING LAW; TERMS.
--------------------
THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING WITHOUT LIMITATION SECTION
5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD
TO CONFLICTS OF LAWS PRINCIPLES, EXCEPT TO THE EXTENT THAT THE CODE PROVIDES
THAT THE PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER,
IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A
JURISDICTION OTHER THAN THE STATE OF NEW YORK. Unless otherwise defined herein
or in the Credit Agreement, terms used in Articles 8 and 9 of the Uniform
Commercial Code in the State of New York are used herein as therein defined.
XX-25
<PAGE>
27. CONSENT TO JURISDICTION AND SERVICE OF PROCESS.
----------------------------------------------
ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST ANY GRANTOR ARISING OUT OF OR
RELATING TO THIS AGREEMENT, OR ANY OBLIGATIONS HEREUNDER, MAY BE BROUGHT IN ANY
STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE, COUNTY AND CITY
OF NEW YORK. BY EXECUTING AND DELIVERING THIS AGREEMENT, EACH GRANTOR, FOR
ITSELF AND IN CONNECTION WITH ITS PROPERTIES, IRREVOCABLY
a) ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE
JURISDICTION AND VENUE OF SUCH COURTS;
b) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS;
c) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN
ANY SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN
RECEIPT REQUESTED, TO SUCH GRANTOR AT ITS ADDRESS PROVIDED IN
ACCORDANCE WITH SECTION 21;
d) AGREES THAT SERVICE AS PROVIDED IN CLAUSE (III) ABOVE IS
SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER SUCH GRANTOR IN ANY
SUCH PROCEED ING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES
EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT;
e) AGREES THAT COLLATERAL AGENT RETAINS THE RIGHT TO SERVE
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS
AGAINST SUCH GRANTOR IN THE COURTS OF ANY OTHER JURISDICTION; AND
f) AGREES THAT THE PROVISIONS OF THIS SECTION 25 RELATING TO
JURISDICTION AND VENUE SHALL BE BINDING AND ENFORCEABLE TO THE FULLEST
EXTENT PERMISSIBLE UNDER NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-
1402 OR OTHERWISE.
XX-26
<PAGE>
28. WAIVER OF JURY TRIAL.
--------------------
GRANTORS AND COLLATERAL AGENT HEREBY AGREE TO WAIVE THEIR RESPECTIVE
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF THIS AGREEMENT. The scope of this waiver is intended to be all-encompassing
of any and all disputes that may be filed in any court and that relate to the
subject matter of this transaction, including without limitation contract
claims, tort claims, breach of duty claims, and all other common law and
statutory claims. Each Grantor and Collateral Agent acknowledge that this
waiver is a material inducement for Grantors and Collateral Agent to enter into
a business relationship, that Grantors and Collateral Agent have already relied
on this waiver in entering into this Agreement and that each will continue to
rely on this waiver in their related future dealings. Each Grantor and
Collateral Agent further warrant and represent that each has reviewed this
waiver with its legal counsel, and that each knowingly and voluntarily waives
its jury trial rights following consultation with legal counsel. THIS WAIVER IS
IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING
(OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY REFERRING TO THIS SECTION 28
AND EXECUTED BY EACH OF THE PARTIES HERETO), AND THIS WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT.
In the event of litigation, this Agreement may be filed as a written consent to
a trial by the court.
29. COUNTERPARTS.
------------
This Agreement may be executed in one or more counterparts and by
different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all such counterparts
together shall constitute but one and the same instrument; signature pages may
be detached from multiple separate counterparts and attached to a single
counterpart so that all signature pages are physically attached to the same
document.
[Remainder of page intentionally left blank]
XX-27
<PAGE>
IN WITNESS WHEREOF, Grantors and Collateral Agent have caused this
Agreement to be duly executed and delivered by their respective officers
thereunto duly authorized as of the date first written above.
SEALY, INC.
THE STEARNS & FOSTER BEDDING COMPANY
THE STEARNS & FOSTER UPHOLSTERY
FURNITURE COMPANY
ADVANCED SLEEP PRODUCTS
SEALY MATTRESS COMPANY OF SAN DIEGO
SEALY MATTRESS COMPANY OF PUERTO
RICO
OHIO-SEALY MATTRESS MANUFACTURING
CO. INC.
OHIO-SEALY MATTRESS MANUFACTURING
CO. -- FORT WORTH
OHIO-SEALY MATTRESS MANUFACTURING
CO.
OHIO-SEALY MATTRESS MANUFACTURING
CO. -- HOUSTON
[OTHER GRANTORS]
By: __________________
Name:
Title:
Notice Address:
_____________________
_____________________
_____________________
XX-28
<PAGE>
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK,
as Secured Party
By: -----------------
Name:
Title:
XX-29
<PAGE>
SCHEDULE I
TO
SUBSIDIARY PATENT AND TRADEMARK SECURITY AGREEMENT
<TABLE>
<CAPTION>
REGISTERED UNITED STATES TRADEMARK REGISTRATION REGISTRATION
OWNER DESCRIPTION NUMBER DATE
- ------------- ----------------------- ------------ ------------
<S> <C> <C> <C>
</TABLE>
XX-30
<PAGE>
SCHEDULE II
TO
SUBSIDIARY PATENT AND SECURITY AGREEMENT
PATENTS ISSUED
--------------
Patent No. Issue Date Invention
---------- ---------- ---------
PATENTS PENDING
---------------
Applicant's Date Application
Name Filed No. Invention Inventor
- ----------- ----- ----------- --------- --------
XX-31
<PAGE>
SCHEDULE III
TO
SUBSIDIARY PATENT AND TRADEMARK SECURITY AGREEMENT
FILING OFFICES
--------------
XX-32
<PAGE>
SCHEDULE IV
TO
SUBSIDIARY PATENT AND TRADEMARK SECURITY AGREEMENT
[FORM OF ACKNOWLEDGEMENT]
This Acknowledgement, dated _______________, [199_] [200_], is delivered
pursuant to Section 23 of the Patent and Trademark Security Agreement referred
to below. The undersigned hereby agrees that this Acknowledgement may be
attached to the Patent and Trademark Security Agreement dated December 18, 1996,
by and among the Grantors referred to therein and Morgan Guaranty Trust Company
of New York, as Collateral Agent (the "PATENT AND TRADEMARK SECURITY
AGREEMENT", capitalized terms defined therein being used herein as therein
defined), that the undersigned by executing and delivering this Acknowledgement
hereby becomes a Grantor under the Patent and Trademark Security Agreement in
accordance with Section 20 thereof and agrees to be bound by all of the terms
thereof, and that the Patents, Registrations and Trademark Rights described on
this Acknowledgement shall be deemed to be part of the and shall become part of
the Collateral and shall secure all Secured Obligations.
[NAME OF ADDITIONAL GRANTOR]
By: ___________________________________
Name:
Title:
Notice Address:
-----------------------------
-----------------------------
-----------------------------
-----------------------------
TRADEMARK REGISTRATIONS
-----------------------
<TABLE>
<CAPTION>
REGISTERED TRADEMARK REGISTRATION REGISTRATION
OWNER DESCRIPTION NUMBER DATE JURISDICTION
- ------------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
</TABLE>
PATENTS ISSUED
--------------
XX-33
<PAGE>
PATENT NO. ISSUE DATE INVENTION INVENTOR
---------- ---------- --------- --------
PATENTS PENDING
---------------
APPLICANT'S NAME DATE FILED APPLICATION NO. INVENTION INVENTOR
- ---------------- ---------- --------------- --------- --------
XX-34
<PAGE>
EXHIBIT XXI
[FORM OF HOLDINGS GUARANTY]
HOLDINGS GUARANTY
This HOLDINGS GUARANTY is entered into as of December 18, 1997 and
entered into by and between SEALY CORPORATION, a Delaware corporation
("GUARANTOR"), in favor and for the benefit of MORGAN GUARANTY TRUST COMPANY
OF NEW YORK ("MORGAN GUARANTY"), as collateral for and representative of (in
such capacity herein called "GUARANTIED PARTY") the Secured Parties (as
hereinafter defined) and any Interest Rate Exchangers (as hereinafter defined),
and, subject to subsection 3.12, for the benefit of the other Beneficiaries (as
hereinafter defined).
RECITALS
A. Sealy Mattress Company, an Ohio corporation and a wholly-owned
subsidiary of Guarantor ("COMPANY"), Guarantor, the financial institutions
from time to time parties thereto (the "CREDIT AGREEMENT LENDERS"), Goldman
Sachs Credit Partners L.P. ("GSCP"), as arranger and syndication agent (in
such capacity, "CA SYNDICATION AGENT"), Morgan Guaranty, as administrative
agent (in such capacity, "CA ADMINISTRATIVE AGENT"), and Bankers Trust Company
("BTCO."), as documentation agent (in such capacity, "CA DOCUMENTATION
AGENT") have entered into a Credit Agreement dated as of December 18, 1997
(said Credit Agreement, as it may hereafter be amended, restated, supplemented
or otherwise modified from time to time, being the ("CREDIT AGREEMENT")
pursuant to which Credit Agreement Lenders have made certain commitments,
subject to the terms and conditions set forth in the Credit Agreement, to extend
certain credit facilities to Company.
B. Company, Guarantor, the financial institutions from time to time
parties thereto (the "AXEL LENDERS"), GSCP, as arranger and syndication agent
(in such capacity, "AXEL SYNDICATION AGENT"), Morgan Guaranty, as
administrative agent (in such capacity, "AXEL ADMINISTRATIVE AGENT"), and
BTCo., as documentation agent (in such capacity, "AXEL DOCUMENTATION AGENT")
have entered into an AXEL Credit Agreement dated as of December 18, 1997 (said
AXEL Credit Agreement, as it may hereafter be amended, restated, supplemented or
otherwise modified from time to time, being the "AXEL CREDIT AGREEMENT"; the
Credit Agreement Lenders, the CA Syndication Agent, the CA Administrative Agent,
the CA Documentation Agent, the AXEL Lenders, the AXEL Syndication Agent, the
AXEL Administrative Agent, and the AXEL Documentation Agent each being a
"SECURED PARTY" and collectively the "SECURED PARTIES") pursuant to which
AXEL Lenders have made certain commitments, subject to the terms and conditions
set forth in the AXEL Credit Agreement, to extend certain credit facilities to
Company.
C. Company may from time to time enter into one or more Interest Rate
Agreements (collectively, the "LENDER INTEREST RATE AGREEMENTS") with or one
or more Credit Agreement Lenders or their Affiliates or AXEL Lenders or their
Affiliates (in such
XXI-1
<PAGE>
capacity, collectively, "INTEREST RATE EXCHANGERS") in accordance with the terms
of the Financing Agreements (as hereinafter defined), and it is desired that the
obligations of Company under the Lender Interest Rate Agreements, including
without limitation the obligation of Company to make payments thereunder in the
event of early termination thereof (all such obligations being the "INTEREST
RATE OBLIGATIONS"), together with all obligations of Company under the Financing
Agreements and any other Loan Documents, be guarantied hereunder.
D. It is a condition precedent to the making of the initial Loans under
the Financing Agreements that Company's obligations thereunder be guarantied by
Guarantor.
E. Guarantor is willing irrevocably and unconditionally to guaranty
such obligations of Company.
NOW, THEREFORE, in consideration of the premises and to induce (i) the CA
Administrative Agent, the CA Syndication Agent and the Credit Agreement Lenders
to enter into the Credit Agreement, (ii) the Credit Agreement Lenders to make
their respective loans to, and issue Letters of Credit for the account of, the
Company, (iii) the AXEL Administrative Agent, the AXEL Syndication Agent and the
AXEL Lenders to enter into the AXEL Loan Agreement and (iv) the AXEL Lenders to
make their respective loans to the Company, and (v) to induce Interest Rate
Exchangers to enter into the Lender Interest Rate Agreements and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the Guarantor hereby agrees as follows:
SECTION 1. DEFINITIONS
(a) Unless otherwise defined herein, terms defined in the Credit
Agreement and used herein shall have the meanings given to such terms in the
Credit Agreement;
(b) The following terms shall have the following meanings:
"ACCELERATION" shall mean any of the Credit Agreement Obligations or
the AXEL Credit Agreement Obligations have been declared, or have become,
immediately due and payable, or the commitments to extend credit of the
Credit Agreement Lenders or the AXEL Lenders shall have been terminated
under Section 8 of the Credit Agreement or Section 7 of the AXEL Credit
Agreement, respectively.
"AGGREGATE PAYMENTS" has the meaning assigned to that term ins
subsection 2.2.
"AXEL COMMITMENTS" shall mean the "Commitments" as defined in the
AXEL Credit Agreement.
"AXEL CREDIT AGREEMENT" has the meaning assigned to that term in the
recitals to this Agreement.
XXI-2
<PAGE>
"AXEL OBLIGATIONS" shall mean the "Obligations" as defined in the
AXEL Credit Agreement.
"BENEFICIARIES" means Guarantied Party, Secured Parties and any
Interest Rate Exchangers.
"COLLATERAL ACCOUNTS" shall mean "Collateral Accounts" as defined in
the Intercreditor Agreement.
"COMMITMENTS" means the Credit Agreement Commitments and the AXEL
Commitments.
"CONTRIBUTING GUARANTORS" has the meaning assigned to that term ins
subsection 2.2.
"CREDIT AGREEMENT" has the meaning assigned to that term in the
recitals to this Agreement.
"CREDIT AGREEMENT COMMITMENTS" shall mean the "Commitments" as
defined in the Credit Agreement.
"CREDIT AGREEMENT OBLIGATIONS" shall mean the "Obligations" as
defined in the Credit Agreement.
"EVENT OF DEFAULT" means any "Event of Default" as defined in any
Financing Agreement or the occurrence of an Event of Default in which
Company is the Defaulting Party and which results in the designation of an
Early Termination Date (as such terms are defined in a Master Agreement or
an Interest Rate Swap Agreement or Interest Rate and Currency Exchange
Agreement in the form prepared by the International Swap and Derivatives
Association Inc. or a similar event under any similar swap agreement) under
any Lender Interest Rate Agreement.
"FAIR SHARE" has the meaning assigned to that term ins subsection 2.2.
"FAIR SHARE CONTRIBUTION AMOUNT" has the meaning assigned to that term
ins subsection 2.2.
"FINANCING AGREEMENT" means either the Credit Agreement or the AXEL
Credit Agreement, and "Financing Agreements" means the Credit Agreement
and the AXEL Credit Agreement, collectively.
"FINANCING AGREEMENT OBLIGATIONS" means Credit Agreement Obligations
and AXEL Obligations.
XXI-3
<PAGE>
"FRAUDULENT TRANSFER LAWS" has the meaning assigned to that term ins
subsection 2.2.
"FAIR SHARE SHORTFALL" has the meaning assigned to that term ins
subsection 2.2.
"FUNDING GUARANTOR" has the meaning assigned to that term ins
subsection 2.2.
"GUARANTIED OBLIGATIONS" has the meaning assigned to that term in
subsection 2.1.
"GUARANTY" means this Holdings Guaranty dated as of December 18, 1997,
as it may be amended, supplemented or otherwise modified from time to time.
"GRANTOR" has the meaning assigned to that term in the introduction of
this Agreement.
"INTERCREDITOR AGREEMENT" means the Intercreditor Agreement, dated as
of December 18, 1997, by and among CA Administrative Agent, AXEL
Administrative Agent and Collateral Agent.
"INTEREST RATE EXCHANGERS" has the meaning assigned to that term in the
recitals to this Agreement.
"LENDER INTEREST RATE AGREEMENT" has the meaning assigned to that term
in the recitals to this Agreement.
"LOAN" means any "Loan" as defined in any Financing Agreement, and
"LOANS" means all such Loans collectively.
"LOAN DOCUMENT" means any "Loan Document" as defined in any Financing
Agreement, and "LOAN DOCUMENTS" means all such Loan Documents
collectively.
"POTENTIAL EVENT OF DEFAULT" means any "Potential Event of Default"
as defined in any Financing Agreement.
"REQUISITE AXEL LENDERS" means "Requisite Lenders" as defined in the
AXEL Credit Agreement.
"REQUISITE CREDIT AGREEMENT LENDERS" means "Requisite Lenders" as
defined in the Credit Agreement.
"REQUISITE LENDERS" means (A) unless an Acceleration shall have
occurred and be continuing, the Requisite Credit Agreement Lenders and the
Requisite AXEL
XXI-4
<PAGE>
Lenders, and (B) if an Acceleration has occurred and is continuing, Secured
Parties holding more than 50% of the Financing Agreement Obligations.
"REQUISITE OBLIGEES" has the meaning assigned to that term in
subsection 3.14 of this Agreement.
"SECURED PARTIES" has the meaning assigned to that term in the recitals
to this Agreement.
"PAYMENT IN FULL", "PAID IN FULL" or any similar term means payment
in full of the Guarantied Obligations (other than inchoate indemnification
obligations with respect to claims, losses or liabilities which have not yet
arisen and are not yet due and payable), including without limitation all
principal, interest, costs, fees and expenses (including, without
limitation, reasonable legal fees and expenses) of Beneficiaries as required
under the Loan Documents and the Lender Interest Rate Agreements.
1.2 INTERPRETATION. References to "Sections" and "subsections"
--------------
shall be to Sections and subsections, respectively, of this Guaranty unless
otherwise specifically provided.
SECTION 2. THE GUARANTY
2.1 GUARANTY OF THE GUARANTIED OBLIGATIONS. Guarantor hereby
--------------------------------------
irrevocably and unconditionally guaranties, as primary obligor and not merely as
surety, the due and punctual payment in full of all Guarantied Obligations when
the same shall become due, whether at stated maturity, by required prepayment,
declaration, acceleration, demand or otherwise (including amounts that would
become due but for the operation of the automatic stay under Section 362(a) of
the Bankruptcy Code, 11 U.S.C. (S) 362(a)). The term "GUARANTIED OBLIGATIONS"
is used herein in its most comprehensive sense and includes:
(a) any and all Financing Agreement Obligations of Company and any and
all Interest Rate Obligations, in each case now or hereafter made, incurred
or created, whether absolute or contingent, liquidated or unliquidated,
whether due or not due, and however arising under or in connection with any
Financing Agreement and any other Loan Documents and the Lender Interest
Rate Agreements, including those arising under successive borrowing
transactions under any Financing Agreement which shall either continue the
Financing Agreement Obligations of Company or from time to time renew them
after they have been satisfied and including interest which, but for the
filing of a petition in bankruptcy with respect to Company, would have
accrued on any Guarantied Obligations, whether or not a claim is allowed
against Company for such interest in the related bankruptcy proceeding; and
(b) those expenses set forth in subsection 2.9 hereof.
2.2 CONTRIBUTION BY GUARANTOR. Guarantor under this Guaranty, and each
-------------------------
Subsidiary Guarantor under the Subsidiary Guaranty, together desire to allocate
among
XXI-5
<PAGE>
themselves (collectively, the "CONTRIBUTING GUARANTORS"), in a fair and
equitable manner, their obligations arising under this Guaranty and the
Subsidiary Guaranty. Accordingly, in the event any payment or distribution is
made on any date by Guarantor under this Guaranty or a Subsidiary Guarantor
under the Subsidiary Guaranty (a "FUNDING GUARANTOR") that exceeds its Fair
Share (as defined below) as of such date, that Funding Guarantor shall be
entitled to a contribution from each of the other Contributing Guarantors in the
amount of such other Contributing Guarantor's Fair Share Shortfall (as defined
below) as of such date, with the result that all such contributions will cause
each Contributing Guarantor's Aggregate Payments (as defined below) to equal its
Fair Share as of such date. "FAIR SHARE" means, with respect to a Contributing
Guarantor as of any date of determination, an amount equal to (i) the ratio of
(x) the Fair Share Contribution Amount (as defined below) with respect to such
Contributing Guarantor to (y) the aggregate of the Fair Share Contribution
Amounts with respect to all Contributing Guarantors multiplied by (ii) the
---------- --
aggregate amount paid or distributed on or before such date by all Funding
Guarantors under this Guaranty and the Subsidiary Guaranty in respect of the
obligations guarantied. "FAIR SHARE SHORTFALL" means, with respect to a
Contributing Guarantor as of any date of determination, the excess, if any, of
the Fair Share of such Contributing Guarantor over the Aggregate Payments of
such Contributing Guarantor. "FAIR SHARE CONTRIBUTION AMOUNT" means, with
respect to a Contributing Guarantor as of any date of determination, the maximum
aggregate amount of the obligations of such Contributing Guarantor under this
Guaranty or the Subsidiary Guaranty, as applicable, that would not render its
obligations hereunder or thereunder subject to avoidance as a fraudulent
transfer or conveyance under Section 548 of Title 11 of the United States Code
or any applicable provisions of comparable state law; provided that, solely for
--------
purposes of calculating the "Fair Share Contribution Amount" with respect to
any Contributing Guarantor for purposes of this subsection 2.2, any assets or
liabilities of such Contributing Guarantor arising by virtue of any rights to
subrogation, reimbursement or indemnification or any rights to or obligations of
contribution hereunder or under subsection 2.2(b) of the Subsidiary Guaranty
shall not be considered as assets or liabilities of such Contributing Guarantor.
"AGGREGATE PAYMENTS" means, with respect to a Contributing Guarantor as of any
date of determination, an amount equal to (i) the aggregate amount of all
payments and distributions made on or before such date by such Contributing
Guarantor in respect of this Guaranty or the Subsidiary Guaranty, as applicable
(including, without limitation, in respect of this subsection 2.2 or subsection
2.2(b) of the Subsidiary Guaranty), minus (ii) the aggregate amount of all
-----
payments received on or before such date by such Contributing Guarantor from the
other Contributing Guarantors as contributions under this subsection 2.2 or
subsection 2.2(b) of the Subsidiary Guaranty. The amounts payable as
contributions hereunder and under subsection 2.2(b) of the Subsidiary Guaranty
shall be determined as of the date on which the related payment or distribution
is made by the applicable Funding Guarantor. The allocation among Contributing
Guarantors of their obligations as set forth in this subsection 2.2 and
subsection 2.2(b) of the Subsidiary Guaranty shall not be construed in any way
to limit the liability of any Contributing Guarantor hereunder or under the
Subsidiary Guaranty. Each Subsidiary Guarantor is a third party beneficiary to
the contribution agreement set forth in this subsection 2.2.
2.3 PAYMENT BY GUARANTOR; APPLICATION OF PAYMENTS. Guarantor hereby
---------------------------------------------
agrees, in furtherance of the foregoing and not in limitation of any other right
which any Beneficiary may have at law or in equity against Guarantor by virtue
hereof, that upon the
XXI-6
<PAGE>
failure of Company to pay any of the Guarantied Obligations when and as the same
shall become due, whether at stated maturity, by required prepayment,
declaration, acceleration, demand or otherwise (including amounts that would
become due but for the operation of the automatic stay under Section 362(a) of
the Bankruptcy Code, 11 U.S.C. (S) 362(a)), Guarantor will promptly following
written demand pay, or cause to be paid, in cash, to Guarantied Party for the
ratable benefit of Beneficiaries, an amount equal to the sum of the unpaid
principal amount of all Guarantied Obligations then due as aforesaid, accrued
and unpaid interest on such Guarantied Obligations (including, without
limitation, interest which, but for the filing of a petition in bankruptcy with
respect to Company, would have accrued on such Guarantied Obligations, whether
or not a claim is allowed against Company for such interest in the related
bankruptcy proceeding) and all other Guarantied Obligations then owed to
Beneficiaries as aforesaid. All such payments shall be applied promptly from
time to time by Guarantied Party as provided in subsection 3 of the
Intercreditor Agreement.
2.4 LIABILITY OF GUARANTOR ABSOLUTE. Guarantor agrees that its
-------------------------------
obligations hereunder are irrevocable, absolute, independent and unconditional
and shall not be affected by any circumstance which constitutes a legal or
equitable discharge of a guarantor or surety other than payment in full of the
Guarantied Obligations. In furtherance of the foregoing and without limiting
the generality thereof, Guarantor agrees as follows:
(a) This Guaranty is a guaranty of payment when due and not of
collectibility.
(b) The obligations of Guarantor hereunder are independent of the
obligations of Company under the Loan Documents or the Lender Interest Rate
Agreements and the obligations of any other guarantor (including any
Subsidiary Guarantor) of the obligations of Company under the Loan Documents
or the Lender Interest Rate Agreements, and a separate action or actions may
be brought and prosecuted against Guarantor whether or not any action is
brought against Company or any of such other guarantors and whether or not
Company is joined in any such action or actions.
(c) Guarantor's payment of a portion, but not all, of the Guarantied
Obligations shall in no way limit, affect, modify or abridge Guarantor's
liability for any portion of the Guarantied Obligations which has not been
paid. Without limiting the generality of the foregoing, if Guarantied Party
is awarded a judgment in any suit brought to enforce Guarantor's covenant to
pay a portion of the Guarantied Obligations, such judgment shall not be
deemed to release Guarantor from its covenant to pay the portion of the
Guarantied Obligations that is not the subject of such suit.
(d) Any Beneficiary, upon such terms as it deems appropriate, without
notice or demand and without affecting the validity or enforceability of
this Guaranty or giving rise to any reduction, limitation, impairment,
discharge or termination of Guarantor's liability hereunder, from time to
time may (i) renew, extend, accelerate, increase the rate of interest on, or
otherwise change the time, place, manner or terms of payment of the
Guarantied Obligations, (ii) settle, compromise, release or discharge, or
XXI-7
<PAGE>
accept or refuse any offer of performance with respect to, or substitutions
for, the Guarantied Obligations or any agreement relating thereto and/or
subordinate the payment of the same to the payment of any other obligations;
(iii) request and accept other guaranties of the Guarantied Obligations and
take and hold security for the payment of this Guaranty or the Guarantied
Obligations; (iv) release, surrender, exchange, substitute, compromise,
settle, rescind, waive, alter, subordinate or modify, with or without
consideration, any security for payment of the Guarantied Obligations, any
other guaranties (including the Subsidiary Guaranty) of the Guarantied
Obligations, or any other obligation of any Person with respect to the
Guarantied Obligations; (v) enforce and apply any security now or hereafter
held by or for the benefit of such Beneficiary in respect of this Guaranty
or the Guarantied Obligations and direct the order or manner of sale
thereof, or exercise any other right or remedy that such Beneficiary may
have against any such security, in each case as such Beneficiary in its
discretion may determine consistent with the applicable Financing Agreement
or the applicable Lender Interest Rate Agreement and any applicable security
agreement, including foreclosure on any such security pursuant to one or
more judicial or nonjudicial sales, whether or not every aspect of any such
sale is commercially reasonable, and even though such action operates to
impair or extinguish any right of reimbursement or subrogation or other
right or remedy of Guarantor against Company or any security for the
Guarantied Obligations; and (vi) exercise any other rights available to it
under the Loan Documents or the Lender Interest Rate Agreements.
(e) This Guaranty and the obligations of Guarantor hereunder shall be
valid and enforceable and shall not be subject to any reduction, limitation,
impairment, discharge or termination for any reason (other than payment in
full of the Guarantied Obligations), including without limitation the
occurrence of any of the following, whether or not Guarantor shall have had
notice or knowledge of any of them: (i) any failure or omission to assert
or enforce or agreement or election not to assert or enforce, or the stay or
enjoining, by order of court, by operation of law or otherwise, of the
exercise or enforcement of, any claim or demand or any right, power or
remedy (whether arising under the Loan Documents or the Lender Interest Rate
Agreements, at law, in equity or otherwise) with respect to the Guarantied
Obligations or any agreement relating thereto, or with respect to the
Subsidiary Guaranty or any other guaranty of or security for the payment of
the Guarantied Obligations; (ii) any rescission , waiver, amendment or
modification of, or any consent to departure from, any of the terms or
provisions (including without limitation provisions relating to events of
default) of any Financing Agreement, any of the other Loan Documents, any of
the Lender Interest Rate Agreements or any agreement or instrument executed
pursuant thereto, or of the Subsidiary Guaranty or any other guaranty or
security for the Guarantied Obligations, in each case whether or not in
accordance with the terms of such Financing Agreement or such Loan Document,
such Lender Interest Rate Agreement or any agreement relating to the
Subsidiary Guaranty or such other guaranty or security; (iii) the
application of payments received from any source (other than payments
received pursuant to the other Loan Documents or any of the Lender Interest
Rate Agreements or from the proceeds of any security for the Guarantied
Obligations, except to the extent such security also serves as collateral
for indebtedness other than the Guarantied Obligations) to the
XXI-8
<PAGE>
payment of indebtedness other than the Guarantied Obligations, even though
any Beneficiary might have elected to apply such payment to any part or all
of the Guarantied Obligations; (iv) any Beneficiary's consent to the change,
reorganization or termination of the corporate structure or existence of
Company or any of its Subsidiaries and to any corresponding restructuring of
the Guarantied Obligations; (v) any failure to perfect or continue
perfection of a security interest in any collateral which secures any of the
Guarantied Obligations; (vi) any defenses, set-offs or counterclaims which
Company may allege or assert against any Beneficiary in respect of the
Guarantied Obligations, including but not limited to failure of
consideration, breach of warranty, payment, statute of frauds, statute of
limitations, accord and satisfaction and usury; and (vii) any other act or
thing or omission, or delay to do any other act or thing, which may or might
in any manner or to any extent vary the risk of Guarantor as an obligor in
respect of the Guarantied Obligations.
2.5 WAIVERS BY GUARANTOR. Guarantor hereby waives, for the benefit of
--------------------
Beneficiaries:
(a) any right to require any Beneficiary, as a condition of payment or
performance by Guarantor, to (i) proceed against Company, any other
guarantor (including any Subsidiary Guarantor) of the Guarantied Obligations
or any other Person, (ii) proceed against or exhaust any security held from
Company, any such other guarantor or any other Person, (iii) proceed against
or have resort to any balance of any deposit account or credit on the books
of any Beneficiary in favor of Company or any other Person, or (iv) pursue
any other remedy in the power of any Beneficiary whatsoever;
(b) any defense arising by reason of the incapacity, lack of authority or
any disability or other defense of Company including, without limitation,
any defense based on or arising out of the lack of validity or the
unenforceability of the Guarantied Obligations or any agreement or
instrument relating thereto or by reason of the cessation of the liability
of Company from any cause other than payment in full of the Guarantied
Obligations;
(c) any defense based upon any statute or rule of law which provides that
the obligation of a surety must be neither larger in amount nor in other
respects more burdensome than that of the principal;
(d) any defense based upon any Beneficiary's errors or omissions in the
administration of the Guarantied Obligations, except behavior which amounts
to bad faith, gross negligence or willful misconduct;
(e) (i) any principles or provisions of law, statutory or otherwise,
which are or might be in conflict with the terms of this Guaranty, (ii) the
benefit of any statute of limitations affecting Guarantor's liability
hereunder or the enforcement hereof, (iii) any rights to set-offs,
recoupments and counterclaims, and (iv) promptness,
XXI-9
<PAGE>
diligence and any requirement that any Beneficiary protect, secure, perfect
or insure any security interest or lien or any property subject thereto; and
(f) notices, demands, presentments, protests, notices of protest, notices
of dishonor and notices of any action or inaction, including acceptance of
this Guaranty, notices of default under the Financing Agreements, the Lender
Interest Rate Agreements or any agreement or instrument related thereto,
notices of any renewal, extension or modification of the Guarantied
Obligations or any agreement related thereto, notices of any extension of
credit to Company and notices of any of the matters referred to in
subsection 2.4 and any right to consent to any thereof.
2.6 CERTAIN CALIFORNIA LAW WAIVERS. As used in this subsection 2.6, any
------------------------------
reference to "the principal" includes Company, and any reference to "the
creditor" includes each Beneficiary. In accordance with Section 2856 of the
California Civil Code:
(a) Guarantor agrees (i) to waive any and all rights of subrogation and
reimbursement against Company or against any collateral or security granted
by Company for any of the Guarantied Obligations and (ii) to withhold the
exercise of any and all rights of contribution against any other guarantor
(including any Subsidiary Guarantor) of any of the Guarantied Obligations
and against any collateral or security granted by any such other guarantor
for any of the Guarantied Obligations until the Guarantied Obligations shall
have been paid in full and the Commitments shall have terminated and all
Letters of Credit shall have expired or been cancelled, all as more fully
set forth in subsection 2.7;
(b) Guarantor waives any and all other rights and defenses available to
Guarantor by reason of Sections 2787 to 2855, inclusive, 2899 and 3433 of
the California Civil Code, including without limitation any and all rights
or defenses Guarantor may have by reason of protection afforded to the
principal with respect to any of the Guarantied Obligations, or to any other
guarantor (including any Subsidiary Guarantor) of any of the Guarantied
Obligations with respect to any of such guarantor's obligations under its
guaranty, in either case pursuant to the antideficiency or other laws of the
State of California limiting or discharging the principal's indebtedness or
such guarantor's obligations, including without limitation Section 580a,
580b, 580d, or 726 of the California Code of Civil Procedure; and
(c) Guarantor waives all rights and defenses arising out of an election
of remedies by the creditor, even though that election of remedies, such as
a nonjudicial foreclosure with respect to security for any Guarantied
Obligation, has destroyed Guarantor's rights of subrogation and
reimbursement against the principal by the operation of Section 580d of the
Code of Civil Procedure or otherwise; and even though that election of
remedies by the creditor, such as nonjudicial foreclosure with respect to
security for an obligation of any other guarantor (including any Subsidiary
Guarantor) of any of the Guarantied Obligations, has destroyed Guarantor's
rights of contribution against such other guarantor.
XXI-10
<PAGE>
No other provision of this Guaranty shall be construed as limiting the
generality of any of the covenants and waivers set forth in this subsection 2.6.
In accordance with subsection 3.6 below, this Guaranty shall be governed by, and
shall be construed and enforced in accordance with, the internal laws of the
State of New York, without regard to conflicts of laws principles. This
subsection 2.6 is included solely out of an abundance of caution, and shall not
be construed to mean that any of the above-referenced provisions of California
law are in any way applicable to this Guaranty or to any of the Guarantied
Obligations.
2.7 GUARANTOR'S RIGHTS OF SUBROGATION, CONTRIBUTION, ETC. Guarantor
----------------------------------------------------
hereby waives any claim, right or remedy, direct or indirect, that Guarantor now
has or may hereafter have against Company or any of its assets in connection
with this Guaranty or the performance by Guarantor of its obligations hereunder,
in each case whether such claim, right or remedy arises in equity, under
contract, by statute (including without limitation under California Civil Code
Section 2847, 2848 or 2849), under common law or otherwise and including without
limitation (a) any right of subrogation, reimbursement or indemnification that
Guarantor now has or may hereafter have against Company with respect to the
Guarantied Obligations, (b) any right to enforce, or to participate in, any
claim, right or remedy that any Beneficiary now has or may hereafter have
against Company, and (c) any benefit of, and any right to participate in, any
collateral or security now or hereafter held by any Beneficiary. In addition,
until the Guarantied Obligations shall have been indefeasibly paid in full and
the Commitments shall have terminated and all Letters of Credit shall have
expired or been cancelled, Guarantor shall withhold exercise of any right of
contribution Guarantor may have against any other guarantor of the Guarantied
Obligations (including without limitation any such right of contribution under
California Civil Code Section 2848 or under the Subsidiary Guaranty as
contemplated by subsection 2.2). Guarantor further agrees that, to the extent
the waiver or agreement to withhold the exercise of its rights of subrogation,
reimbursement, indemnification and contribution as set forth herein is found by
a court of competent jurisdiction to be void or voidable for any reason, any
rights of subrogation, reimbursement or indemnification Guarantor may have
against Company or against any collateral or security, and any rights of
contribution Guarantor may have against any such other guarantor, shall be
junior and subordinate to any rights any Beneficiary may have against Company,
to all right, title and interest any Beneficiary may have in any such collateral
or security, and to any right any Beneficiary may have against such other
guarantor. If any amount shall be paid to Guarantor on account of any such
subrogation, reimbursement, indemnification or contribution rights at any time
when all Guarantied Obligations shall not have been paid in full, such amount
shall be held in trust for Guarantied Party on behalf of Beneficiaries and shall
forthwith be paid over to Guarantied Party for the benefit of Beneficiaries to
be credited and applied against the Guarantied Obligations, whether matured or
unmatured, in accordance with the terms hereof.
XXI-11
<PAGE>
2.8 SUBORDINATION OF OTHER OBLIGATIONS. Any indebtedness of Company now
----------------------------------
or hereafter held by Guarantor is hereby subordinated in right of payment to the
Guarantied Obligations (except for indebtedness of Company arising from tax
payments made by Guarantor on behalf of Company), and any such indebtedness of
Company to Guarantor collected or received by Guarantor after an Event of
Default has occurred and is continuing shall be held in trust for Guarantied
Party on behalf of Beneficiaries and shall forthwith be paid over to Guarantied
Party for the benefit of Beneficiaries to be credited and applied against the
Guarantied Obligations but without affecting, impairing or limiting in any
manner the liability of Guarantor under any other provision of this Guaranty.
2.9 EXPENSES. Guarantor agrees to pay, or cause to be paid, promptly
--------
upon written demand, and to save Beneficiaries harmless against liability for,
any and all reasonable costs and reasonable expenses (including reasonable fees
and reasonable disbursements of counsel and allocated costs of internal counsel)
incurred or expended by any Beneficiary in connection with the enforcement of or
preservation of any rights under this Guaranty.
2.10 CONTINUING GUARANTY; TERMINATION OF GUARANTY. This Guaranty is a
--------------------------------------------
continuing guaranty and shall remain in effect until all of the Guarantied
Obligations shall have been paid in full and the Commitments shall have
terminated and all Letters of Credit shall have expired or been cancelled.
Guarantor hereby irrevocably waives any right (including without limitation any
such right arising under California Civil Code Section 2815) to revoke this
Guaranty as to future transactions giving rise to any Guarantied Obligations.
2.11 AUTHORITY OF GUARANTOR OR COMPANY. It is not necessary for any
---------------------------------
Beneficiary to inquire into the capacity or powers of Guarantor or Company or
the officers, directors or any agents acting or purporting to act on behalf of
any of them.
2.12 FINANCIAL CONDITION OF COMPANY. Any Loans may be granted to Company
------------------------------
or continued from time to time, and any Lender Interest Rate Agreements may be
entered into from time to time, in each case without notice to or authorization
from Guarantor regardless of the financial or other condition of Company at the
time of any such grant or continuation or at the time such Lender Interest Rate
Agreement is entered into, as the case may be. No Beneficiary shall have any
obligation to disclose or discuss with Guarantor its assessment, or Guarantor's
assessment, of the financial condition of Company. Guarantor has adequate means
to obtain information from Company on a continuing basis concerning the
financial condition of Company and its ability to perform its obligations under
the Loan Documents and the Lender Interest Rate Agreements, and Guarantor
assumes the responsibility for being and keeping informed of the financial
condition of Company and of all circumstances bearing upon the risk of
nonpayment of the Guarantied Obligations. Guarantor hereby waives and
relinquishes any duty on the part of any Beneficiary to disclose any matter,
fact or thing relating to the business, operations or conditions of Company now
known or hereafter known by any Beneficiary .
2.13 RIGHTS CUMULATIVE. The rights, powers and remedies given to
-----------------
Beneficiaries by this Guaranty are cumulative and shall be in addition to and
independent of all rights, powers and remedies given to Beneficiaries by virtue
of any statute or rule of law or in any of the other Loan Documents, any of the
Lender Interest Rate Agreements or any agreement
XXI-12
<PAGE>
between Guarantor and any Beneficiary or Beneficiaries or between Company and
any Beneficiary or Beneficiaries. Any forbearance or failure to exercise, and
any delay by any Beneficiary in exercising, any right, power or remedy hereunder
shall not impair any such right, power or remedy or be construed to be a waiver
thereof, nor shall it preclude the further exercise of any such right, power or
remedy.
2.14 BANKRUPTCY; POST-PETITION INTEREST; REINSTATEMENT OF GUARANTY. (a)
-------------------------------------------------------------
So long as any Guarantied Obligations remain outstanding, Guarantor shall not,
without the prior written consent of Guarantied Party acting pursuant to the
instructions of Requisite Obligees (as defined in subsection 3.12), commence or
join with any other Person in commencing any bankruptcy, reorganization or
insolvency proceedings of or against Company. The obligations of Guarantor
under this Guaranty shall not be reduced, limited, impaired, discharged,
deferred, suspended or terminated by any proceeding, voluntary or involuntary,
involving the bankruptcy, insolvency, receivership, reorganization, liquidation
or arrangement of Company or by any defense which Company may have by reason of
the order, decree or decision of any court or administrative body resulting from
any such proceeding. The agreements of Guarantor in this subsection 2.14(a)
shall not alter or impair its rights as a shareholder of Borrower.
(b) Guarantor acknowledges and agrees that any interest on any portion
of the Guarantied Obligations which accrues after the commencement of any
proceeding referred to in clause (a) above (or, if interest on any portion of
the Guarantied Obligations ceases to accrue by operation of law by reason of the
commencement of said proceeding, such interest as would have accrued on such
portion of the Guarantied Obligations if said proceedings had not been
commenced) shall be included in the Guarantied Obligations because it is the
intention of Guarantor and Beneficiaries that the Guarantied Obligations which
are guarantied by Guarantor pursuant to this Guaranty should be determined
without regard to any rule of law or order which may relieve Company of any
portion of such Guarantied Obligations. Guarantor will permit any trustee in
bankruptcy, receiver, debtor in possession, assignee for the benefit of
creditors or similar person to pay Guarantied Party, or allow the claim of
Guarantied Party in respect of, any such interest accruing after the date on
which such proceeding is commenced.
(c) In the event that all or any portion of the Guarantied Obligations
are paid by Company, the obligations of Guarantor hereunder shall continue and
remain in full force and effect or be reinstated, as the case may be, in the
event that all or any part of such payment(s) are rescinded or recovered
directly or indirectly from any Beneficiary as a preference, fraudulent transfer
or otherwise, and any such payments which are so rescinded or recovered shall
constitute Guarantied Obligations for all purposes under this Guaranty until
indefeasibly paid in full.
2.15 SET OFF. In addition to any other rights any Beneficiary may have
-------
under law or in equity, if any amount shall at any time be due and owing by
Guarantor to any Beneficiary under this Guaranty, such Beneficiary is authorized
at any time or from time to time, without notice (any such notice being hereby
expressly waived), to set off and to appropriate and to apply any and all
deposits (general or special, including but not limited to indebtedness
evidenced by certificates of deposit, whether matured or unmatured) and any
other indebtedness of such Beneficiary owing to Guarantor and any other property
of Guarantor held by any
XXI-13
<PAGE>
Beneficiary to or for the credit or the account of Guarantor against and on
account of the Guarantied Obligations and liabilities of Guarantor to any
Beneficiary under this Guaranty.
SECTION 3. MISCELLANEOUS
3.1 SURVIVAL OF WARRANTIES. All agreements, representations and
----------------------
warranties made herein shall survive the execution and delivery of this Guaranty
and the other Loan Documents and the Lender Interest Rate Agreements and any
increase in the Commitments under any Financing Agreement.
3.2 NOTICES. Any communications between Guarantied Party and Guarantor
-------
and any notices or requests provided herein to be given may be given by mailing
the same, postage prepaid, or by telex, facsimile transmission or cable to each
such party at its addresses set forth in the Financing Agreements, on the
signature pages hereof or to such other addresses as each such party may in
writing hereafter indicate. Any notice, request or demand to or upon Guarantied
Party or Guarantor shall not be effective until received.
3.3 SEVERABILITY. In case any provision in or obligation under this
------------
Guaranty shall be invalid, illegal or unenforceable in any jurisdiction, the
validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction, shall
not in any way be affected or impaired thereby.
3.4 AMENDMENTS AND WAIVERS. No amendment, modification, termination or
----------------------
waiver of any provision of this Guaranty, and no consent to any departure by
Guarantor therefrom, shall in any event be effective without the written
concurrence of Guarantied Party and, in the case of any such amendment or
modification, Guarantor. Any such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which it was given.
3.5 HEADINGS. Section and subsection headings in this Guaranty are
--------
included herein for convenience of reference only and shall not constitute a
part of this Guaranty for any other purpose or be given any substantive effect.
3.6 APPLICABLE LAW. THIS GUARANTY AND THE RIGHTS AND OBLIGATIONS OF
--------------
GUARANTOR AND BENEFICIARIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW
YORK (INCLUDING WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW
OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
3.7 SUCCESSORS AND ASSIGNS. This Guaranty is a continuing guaranty and
----------------------
shall be binding upon Guarantor and its successors and assigns. This Guaranty
shall inure to the benefit of Beneficiaries and their respective successors and
assigns. Guarantor shall not assign this Guaranty or any of the rights or
obligations of Guarantor hereunder without the prior written consent of all
Lenders. Any Beneficiary may, without notice or consent, assign its
XXI-14
<PAGE>
interest in this Guaranty in whole or in part. The terms and provisions of this
Guaranty shall inure to the benefit of any transferee or assignee of any Loan,
and in the event of such transfer or assignment the rights and privileges herein
conferred upon such Beneficiary shall automatically extend to and be vested in
such transferee or assignee, all subject to the terms and conditions hereof.
3.8 NO OTHER WRITING. This writing is intended by Guarantor and
----------------
Beneficiaries as the final expression of this Guaranty and is also intended as a
complete and exclusive statement of the terms of their agreement with respect to
the matters covered hereby. No course of dealing, course of performance or
trade usage, and no parol evidence of any nature, shall be used to supplement or
modify any terms of this Guaranty. There are no conditions to the full
effectiveness of this Guaranty.
3.9 FURTHER ASSURANCES. At any time or from time to time, upon the
------------------
request of Guarantied Party, Guarantor shall execute and deliver such further
documents and do such other acts and things as Guarantied Party may reasonably
request in order to effect fully the purposes of this Guaranty.
3.10 GUARANTIED PARTY AS COLLATERAL AGENT.
------------------------------------
(a) Guarantied Party has been appointed to act as Guarantied Party
hereunder by CA Administrative Agent on behalf of the Credit Agreement Lenders
and by AXEL Administrative Agent on behalf of the AXEL Lenders pursuant to the
Intercreditor Agreement, and by their acceptance of the benefits hereof,
Interest Rate Exchangers and shall be entitled to the benefits of the
Intercreditor Agreement. Guarantied Party shall be obligated, and shall have
the right hereunder, to make demands, to give notices, to exercise or refrain
from exercising any rights, and to take or refrain from taking any action,
solely in accordance with this Guaranty and Intercreditor Agreement; provided
--------
that Guarantied Party shall exercise, or refrain from exercising, any remedies
hereunder in accordance with the instructions of (i) Requisite Lenders or (ii)
after payment in full of all Financing Agreement Obligations under the Financing
Agreements and any other Loan Documents, the holders of a majority of the
aggregate notional amount (or, with respect to any Lender Interest Rate
Agreement that has been terminated in accordance with its terms, the amount then
due and payable (exclusive of expenses and similar payments but including any
early termination payments then due) under such Lender Interest Rate Agreement)
under all Lender Interest Rate Agreements (Requisite Lenders or, if applicable,
such holders being referred to herein as "REQUISITE OBLIGEES"). In
furtherance of the foregoing provisions of this subsection 3.12, each Interest
Rate Exchanger, by its acceptance of the benefits hereof, agrees that it shall
have no right individually to enforce this Guaranty, it being understood and
agreed by such Interest Rate Exchanger that all rights and remedies hereunder
may be exercised solely by Guarantied Party for the benefit of Beneficiaries in
accordance with the terms of this subsection 3.12.
(b) Guarantied Party shall at all times be the same Person that is
Collateral Agent under the Intercreditor Agreement. The Collateral Agent may
resign and a successor Collateral Agent may be appointed in the manner provided
in the Intercreditor Agreement. Written notice of resignation by Collateral
Agent pursuant to the Intercreditor Agreement shall also constitute
XXI-15
<PAGE>
notice of resignation as Guarantied Party under this Guaranty; removal of
Collateral Agent pursuant to the Intercreditor Agreement shall also constitute
removal as Guarantied Party under this Guaranty; and appointment of a successor
Collateral Agent pursuant to the Intercreditor Agreement shall also constitute
appointment of a successor Guarantied Party under this Guaranty. Upon the
acceptance of any appointment as Collateral Agent by a successor Collateral
Agent, that successor Collateral Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring or
removed Guarantied Party under this Guaranty, and the retiring or removed
Guarantied Party under this Guaranty shall promptly (i) transfer to such
successor Guarantied Party all sums held hereunder, together with all records
and other documents necessary or appropriate in connection with the performance
of the duties of the successor Guarantied Party under this Guaranty, and (ii)
take such other actions as may be necessary or appropriate in connection with
the assignment to such successor Guarantied Party of the rights created
hereunder, whereupon such retiring or removed Guarantied Party shall be
discharged from its duties and obligations under this Guaranty. After any
retiring or removed Guarantied Party's resignation or removal hereunder as
Guarantied Party, the provisions of this Guaranty shall inure to its benefit as
to any actions taken or omitted to be taken by it under this Guaranty while it
was Guarantied Party hereunder.
[Remainder of page intentionally left blank]
XXI-16
<PAGE>
IN WITNESS WHEREOF, Guarantor has caused this Guaranty to be duly executed and
delivered by its officer thereunto duly authorized as of the date first written
above.
SEALY CORPORATION
By: --------------------------------------
Name:
Title:
XXI-17
<PAGE>
EXHIBIT XXII
[FORM OF HOLDINGS PLEDGE AGREEMENT]
HOLDINGS PLEDGE AGREEMENT
This HOLDINGS PLEDGE AGREEMENT (this "AGREEMENT") is dated as of
December 18, 1997 and entered into by and between SEALY CORPORATION, a Delaware
corporation ("PLEDGOR"), and MORGAN GUARANTY TRUST COMPANY OF NEW YORK
("MORGAN GUARANTY"), as Collateral Agent for and representative of (in such
capacity herein called "COLLATERAL AGENT") the Secured Parties (as hereinafter
defined) and any Interest Rate Exchangers (as hereinafter defined).
RECITALS
A. Pledgor is the legal and beneficial owner of (i) the shares of stock
(the "PLEDGED SHARES") described in Part A of Schedule I annexed hereto and
----------
issued by the corporations named therein and (ii) the indebtedness (the
"PLEDGED DEBT") described in Part B of said Schedule I and issued by the
----------
obligors named therein.
B. Sealy Mattress Company, an Ohio Corporation ("COMPANY"), Pledgor,
the financial institutions from time to time parties thereto (the "CREDIT
AGREEMENT LENDERS"), Goldman Sachs Credit Partners L.P. ("GSCP"), as arranger
and syndication agent (in such capacity, "CA SYNDICATION AGENT"), Morgan
Guaranty, as administrative agent (in such capacity, "CA ADMINISTRATIVE
AGENT"), and Bankers Trust Company ("BTCO."), as documentation agent (in such
capacity, "CA DOCUMENTATION AGENT") have entered into a Credit Agreement dated
as of December 18, 1997 (said Credit Agreement, as it may hereafter be amended,
restated, supplemented or otherwise modified from time to time, being the
("CREDIT AGREEMENT") pursuant to which Credit Agreement Lenders have made
certain commitments, subject to the terms and conditions set forth in the Credit
Agreement, to extend certain credit facilities to Company.
C. Company, Pledgor, the financial institutions from time to time
parties thereto (the "AXEL LENDERS"), GSCP, as arranger and syndication agent
(in such capacity, "AXEL SYNDICATION AGENT"), Morgan Guaranty, as
administrative agent (in such capacity, "AXEL ADMINISTRATIVE AGENT"), and
BTCo., as documentation agent (in such capacity, "AXEL DOCUMENTATION AGENT")
have entered into an AXEL Credit Agreement dated as of December 18, 1997 (said
AXEL Credit Agreement, as it may hereafter be amended, restated, supplemented or
otherwise modified from time to time, being the "AXEL CREDIT AGREEMENT"; the
Credit Agreement Lenders, the CA Syndication Agent, the CA Administrative Agent,
the CA Documentation Agent, the AXEL Lenders, the AXEL Syndication Agent, the
AXEL Administrative Agent, and the AXEL Documentation Agent each being a
"SECURED PARTY" and collectively the "SECURED PARTIES") pursuant to which
AXEL
XXII-1
<PAGE>
Lenders have made certain commitments, subject to the terms and conditions
set forth in the AXEL Credit Agreement, to extend certain credit facilities to
Company.
D. Company may from time to time enter into one or more Interest Rate
Agreements (collectively, the "LENDER INTEREST RATE AGREEMENTS") with one or
more CA Lenders or their Affiliates or AXEL Lenders or their Affiliates (in such
capacity, collectively, "INTEREST RATE EXCHANGERS").
E. Pledgor has executed and delivered that certain Holdings Guaranty
dated as of December 18, 1997 (said Holdings Guaranty, as it may hereafter be
amended, supplemented or otherwise modified from time to time, being the
"GUARANTY") in favor of Collateral Agent for the benefit of Secured Parties
and any Interest Rate Exchangers, pursuant to which Pledgor has guarantied the
prompt payment and performance when due of all obligations of Company under the
Financing Agreements and all obligations of Company under the Lender Interest
Rate Agreements, including without limitation the obligation of Company to make
payments, if any, thereunder in the event of early termination thereof.
F. It is a condition precedent to the initial extensions of credit by
Secured Parties under the Financing Agreements that Pledgor shall have granted
the security interests and undertaken the obligations contemplated by this
Agreement.
NOW, THEREFORE, in consideration of the premises and to induce (i) the CA
Administrative Agent, the CA Syndication Agent and the Credit Agreement Lenders
to enter into the Credit Agreement, (ii) the Credit Agreement Lenders to make
their respective loans to, and issue Letters of Credit for the account of, the
Company, (iii) the AXEL Administrative Agent, the AXEL Syndication Agent and the
AXEL Lenders to enter into the AXEL Loan Agreement, (iv) the AXEL Lenders to
make their respective loans to the Company and (v) to induce Interest Rate
Exchangers to enter into the Lender Interest Rate Agreements, and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Pledgor hereby agrees with Collateral Agent as follows:
SECTION 1. DEFINED TERMS
-------------
(a) Unless otherwise defined herein, terms defined in the Credit
Agreement and used herein shall have the meanings given to such terms in the
Credit Agreement;
(b) The following terms shall have the following meanings:
"ACCELERATION" shall mean any of the Credit Agreement Obligations or
the AXEL Credit Agreement Obligations have been declared, or have become,
immediately due and payable, or the commitments to extend credit of the Credit
Agreement Lenders or the AXEL Lenders shall have been terminated under Section 8
of the Credit Agreement or Section 7 of the AXEL Credit Agreement, respectively.
XXII-2
<PAGE>
"ADDITIONAL PLEDGED SHARES" has the meaning assigned to that term in
Section 2(c) of this Agreement.
"AGREEMENT" means this Company Pledge Agreement dated as of December
18, 1997, as it may be amended, supplemented or otherwise modified from time to
time.
"AXEL CREDIT AGREEMENT" has the meaning assigned to that term in the
recitals to this Agreement.
"AXEL COMMITMENTS" shall mean "Commitments" as defined in the AXEL
Credit Agreement.
"AXEL OBLIGATIONS" shall mean "Obligations" as defined in the AXEL
Credit Agreement.
"COLLATERAL ACCOUNTS" shall mean "Collateral Accounts" as defined in
the Intercreditor Agreement.
"COMMITMENTS" means the Credit Agreement Commitments and the AXEL
Commitments.
"CREDIT AGREEMENT" has the meaning assigned to that term in the
recitals to this Agreement.
"CREDIT AGREEMENT COMMITMENTS" shall mean the "Commitments" as
defined in the Credit Agreement.
"CREDIT AGREEMENT OBLIGATIONS" shall mean the "Obligations" as
defined in the Credit Agreement.
"EVENT OF DEFAULT" means any "Event of Default" as defined in any
Financing Agreement or the occurrence of an Event of Default in which Company is
the Defaulting Party and which results in the designation of an Early
Termination Date (as such terms are defined in a Master Agreement or an Interest
Rate Swap Agreement or Interest Rate and Currency Exchange Agreement in the form
prepared by the International Swap and Derivatives Association Inc. or a similar
event under any similar swap agreement) under any Lender Interest Rate
Agreement.
"FINANCING AGREEMENT" means the Credit Agreement or the AXEL Credit
Agreement, and "Financing Agreements" means the Credit Agreement and the AXEL
Credit Agreement, collectively.
"FINANCING AGREEMENT OBLIGATIONS" means Credit Agreement Obligations
and AXEL Obligations.
XXII-3
<PAGE>
"INTERCREDITOR AGREEMENT" means the Intercreditor Agreement, dated as
of December 18, 1997, by and among CA Administrative Agent, AXEL Administrative
Agent and Collateral Agent.
"INTEREST RATE EXCHANGERS" has the meaning assigned to that term in the
recitals to this Agreement.
"LENDER INTEREST RATE AGREEMENT" has the meaning assigned to that term
in the recitals to this Agreement.
"LOAN" means any "Loan" as defined in any Financing Agreement, and
"LOANS" means all such Loans collectively.
"LOAN DOCUMENT" means any "Loan Document" as defined in any Financing
Agreement, and "LOAN DOCUMENTS" means all such Loan Documents collectively.
"NEW PLEDGED SHARES" has the meaning assigned to that term in Section
2(e) of this Agreement.
"PLEDGE AMENDMENT" has the meaning assigned to that term in Section 7
of this Agreement.
"PLEDGED COLLATERAL" has the meaning assigned to that term in Section 2
of this Agreement.
"PLEDGED DEBT" has the meaning assigned to that term in the recitals to
this Agreement.
"PLEDGED SHARES" has the meaning assigned to that term in the recitals
to this Agreement.
"PLEDGOR" has the meaning assigned to that term in the introduction of
this Agreement.
"POTENTIAL EVENT OF DEFAULT" means any "Potential Event of Default"
as defined in any Financing Agreement.
"REQUISITE AXEL LENDERS" means "Requisite Lenders" as defined in the
AXEL Credit Agreement.
"REQUISITE CREDIT AGREEMENT LENDERS" means "Requisite Lenders" as
defined in the Credit Agreement.
"REQUISITE LENDERS" means (A) unless an Acceleration shall have
occurred and be continuing, the Requisite Credit Agreement Lenders and the
Requisite AXEL Lenders, and (B)
XXII-4
<PAGE>
if an Acceleration has occurred and is continuing, Secured Parties holding more
than 50% of the Financing Agreement Obligations.
"REQUISITE OBLIGEES" has the meaning assigned to that term in Section
17(a) of this Agreement.
"SECURED OBLIGATIONS" has the meaning assigned to that term in Section
3 of this Agreement.
"SECURED PARTIES" has the meaning assigned to that term in the recitals
to this Agreement.
SECTION 2. PLEDGE OF SECURITY.
------------------
Pledgor hereby pledges and assigns to Secured Party, and hereby grants to
Collateral Agent a security interest in, all of Pledgor's right, title and
interest in and to the following (the "PLEDGED COLLATERAL"):
(a) the Pledged Shares and the certificates representing the Pledged
Shares and any interest of Pledgor in the entries on the books of any
financial intermediary pertaining to the Pledged Shares, and all dividends,
cash, warrants, rights, instruments and other property or proceeds from time
to time received, receivable or otherwise distributed in respect of or in
exchange for any or all of the Pledged Shares;
(b) the Pledged Debt and the instruments evidencing the Pledged Debt, and
all interest, cash, instruments and other property or proceeds from time to
time received, receivable or otherwise distributed in respect of or in
exchange for any or all of the Pledged Debt;
(c) all additional shares of, and all securities convertible into and
warrants, options and other rights to purchase or otherwise acquire, stock
of any issuer of the Pledged Shares from time to time acquired by Pledgor in
any manner (which shares shall be deemed to be part of the Pledged Shares),
the certificates or other instruments representing such additional shares,
securities, warrants, options or other rights and any interest of Pledgor in
the entries on the books of any financial intermediary pertaining to such
additional shares (all such shares, securities, warrants, options, rights,
certificates, instruments and interests collectively being "ADDITIONAL
PLEDGED SHARES"), and all dividends, cash, warrants, rights, instruments
and other property or proceeds from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of such
Additional Pledged Shares;
(d) all additional indebtedness from time to time owed to Pledgor by any
obligor on the Pledged Debt and the instruments evidencing such
indebtedness, and all interest, cash, instruments and other property or
proceeds from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of such indebtedness;
XXII-5
<PAGE>
(e) all shares of, and all securities convertible into and warrants,
options and other rights to purchase or otherwise acquire, stock of any
Person that, after the date of this Agreement, becomes, as a result of any
occurrence, a Subsidiary of Pledgor (which shares shall be deemed to be part
of the Pledged Shares), the certificates or other instruments representing
such shares, securities, warrants, options or other rights and any interest
of Pledgor in the entries on the books of any financial intermediary
pertaining to such shares (all such shares, securities, warrants, options,
rights, certificates, instruments and interests collectively being "NEW
PLEDGED SHARES"), and all dividends, cash, warrants, rights, instruments
and other property or proceeds from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of such
shares, securities, warrants, options or other rights;
(f) all indebtedness from time to time owed to Pledgor by any Person
that, after the date of this Agreement, becomes, as a result of any
occurrence, a Subsidiary of Pledgor, and all interest, cash, instruments and
other property or proceeds from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of such
indebtedness; and
(g) to the extent not covered by clauses (a) through (f) above, all
proceeds of any or all of the foregoing Pledged Collateral. For purposes of
this Agreement, the term "PROCEEDS" includes whatever is receivable or
received when Pledged Collateral or proceeds are sold, exchanged, collected
or otherwise disposed of, whether such disposition is voluntary or
involuntary, and includes, without limitation, proceeds of any indemnity or
guaranty payable to Pledgor or Collateral Agent from time to time with
respect to any of the Pledged Collateral.
SECTION 3. SECURITY FOR OBLIGATIONS.
------------------------
This Agreement secures, and the Pledged Collateral is collateral security
for, the prompt payment or performance in full when due, whether at stated
maturity, by required prepayment, declaration, acceleration, demand or otherwise
(including the payment of amounts that would become due but for the operation of
the automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C.
(S)362(a)), of all obligations and liabilities of every nature of Pledgor now or
hereafter existing under or arising out of or in connection with the Guaranty
and all extensions or renewals thereof, whether for principal, interest
(including without limitation interest that, but for the filing of a petition in
bankruptcy with respect to Company, would accrue on such obligations, whether or
not a claim is allowed against Company for such interest in the related
bankruptcy proceeding), reimbursement of amounts drawn under Letters of Credit,
payments for early termination of Lender Interest Rate Agreements, fees,
expenses, indemnities or otherwise, whether voluntary or involuntary, direct or
indirect, absolute or contingent, liquidated or unliquidated, whether or not
jointly owed with others, and whether or not from time to time decreased or
extinguished and later increased, created or incurred, and all or any portion of
such obligations or liabilities that are paid, to the extent all or any part of
such payment is avoided or recovered directly or indirectly from Collateral
Agent or any Secured Party or Interest Rate Exchanger as a preference,
fraudulent transfer or otherwise, and all
XXII-6
<PAGE>
obligations of every nature of Pledgor now or hereafter existing under this
Agreement (all such obligations of Pledgor being the "SECURED OBLIGATIONS").
SECTION 4. DELIVERY OF PLEDGED COLLATERAL.
------------------------------
All certificates or instruments representing or evidencing the Pledged
Collateral shall be delivered to and held by or on behalf of Collateral Agent
pursuant hereto and shall be in suitable form for transfer by delivery or, as
applicable, shall be accompanied by Pledgor's endorsement, where necessary, or
duly executed instruments of transfer or assignment in blank, all in form and
substance reasonably satisfactory to Collateral Agent. Upon the occurrence and
during the continuation of an Event of Default, Collateral Agent shall have the
right, without notice to Pledgor, to transfer to or to register in the name of
Collateral Agent or any of its nominees any or all of the Pledged Collateral,
subject only to the revocable rights specified in Section 8(a). In addition,
upon the occurrence and during the continuance of an Event of Default,
Collateral Agent shall have the right at any time to exchange certificates or
instruments representing or evidencing Pledged Collateral for certificates or
instruments of smaller or larger denominations.
SECTION 5. REPRESENTATIONS AND WARRANTIES.
------------------------------
Pledgor represents and warrants as follows:
(a) Due Authorization, etc. of Pledged Collateral. All of the Pledged
---------------------------------------------
Shares have been duly authorized and validly issued and are fully paid and
non-assessable. All of the Pledged Debt has been duly authorized,
authenticated or issued, and delivered and is the legal, valid and binding
obligation of the issuers thereof and is not in default.
(b) Description of Pledged Collateral. The Pledged Shares constitute the
---------------------------------
percentage of the issued and outstanding shares of stock of each issuer
thereof set forth on Schedule I annexed hereto, and there are no outstanding
----------
warrants, options or other rights to purchase, or other agreements
outstanding with respect to, or property that is now or hereafter
convertible into, or that requires the issuance or sale of, any Pledged
Shares. The Pledged Debt constitutes all of the issued and outstanding
intercompany indebtedness evidenced by a promissory note of the respective
issuers thereof owing to Pledgor.
(c) Ownership of Pledged Collateral. Pledgor is the legal, record and
-------------------------------
beneficial owner of the Pledged Collateral free and clear of any Lien except
for the security interest created by this Agreement.
XXII-7
<PAGE>
SECTION 6. TRANSFERS AND OTHER LIENS; ADDITIONAL PLEDGED COLLATERAL; ETC.
--------------------------------------------------------------
Pledgor shall:
(a) not, except as expressly permitted by the Financing Agreements (i)
sell, assign (by operation of law or otherwise) or otherwise dispose of, or
grant any option with respect to, any of the Pledged Collateral, (ii) create
or suffer to exist any Lien upon or with respect to any of the Pledged
Collateral, except for the security interest under this Agreement, or (iii)
permit any issuer of Pledged Shares to merge or consolidate;
(b) (i) cause each issuer of Pledged Shares not to issue any stock or
other securities in addition to or in substitution for the Pledged Shares
issued by such issuer, except to Pledgor, (ii) pledge hereunder, immediately
upon its acquisition (directly or indirectly) thereof, any and all
additional shares of stock or other securities of each issuer of Pledged
Shares, and (iii) pledge hereunder, immediately upon its acquisition
(directly or indirectly) thereof, any and all shares of stock of any Person
that, after the date of this Agreement, becomes, as a result of any
occurrence, a direct Subsidiary of Pledgor;
(c) (i) pledge hereunder, immediately upon their issuance, any and all
instruments or other evidences of additional indebtedness from time to time
owed to Pledgor by any obligor on the Pledged Debt, and (ii) pledge
hereunder, immediately upon their issuance, any and all instruments or other
evidences of indebtedness from time to time owed to Pledgor by any Person
that after the date of this Agreement becomes, as a result of any
occurrence, a Subsidiary of Pledgor;
(d) pay promptly when due all taxes, assessments and governmental charges
or levies imposed upon, and all claims against, the Pledged Collateral,
except to the extent the validity thereof is being contested in good faith.
SECTION 7. FURTHER ASSURANCES; PLEDGE AMENDMENTS.
-------------------------------------
(a) Pledgor agrees that from time to time, at the expense of Pledgor,
Pledgor will promptly execute and deliver all further instruments and documents,
and take all further action that Collateral Agent may reasonably request, in
order to perfect and protect any security interest granted or purported to be
granted hereby or to enable Collateral Agent to exercise and enforce its rights
and remedies hereunder with respect to any Pledged Collateral. Without limiting
the generality of the foregoing, Pledgor will: (i) execute and file such
financing or continuation statements, or amendments thereto, and such other
instruments or notices, or as Collateral Agent may reasonably request, in order
to perfect and preserve the security interests granted or purported to be
granted hereby and (ii) at Secured Party's reasonable request, appear in and
defend any action or proceeding that may affect Pledgor's title to or Secured
Party's security interest in all or any part of the Pledged Collateral.
XXII-8
<PAGE>
(b) Pledgor further agrees that it will, upon obtaining any additional
shares of stock or other securities required to be pledged hereunder as provided
in Section 6(b) or (c), promptly (and in any event within five Business Days)
deliver to Collateral Agent a Pledge Amendment, duly executed by Pledgor, in
substantially the form of Schedule II annexed hereto (a "PLEDGE AMENDMENT"),
-----------
in respect of the additional Pledged Shares or Pledged Debt to be pledged
pursuant to this Agreement. Pledgor hereby authorizes Collateral Agent to
attach each Pledge Amendment to this Agreement and agrees that all Pledged
Shares or Pledged Debt listed on any Pledge Amendment delivered to Collateral
Agent shall for all purposes hereunder be considered Pledged Collateral;
provided that the failure of Pledgor to execute a Pledge Amendment with respect
- --------
to any additional Pledged Shares or Pledged Debt pledged pursuant to this
Agreement shall not impair the security interest of Collateral Agent therein or
otherwise adversely affect the rights and remedies of Collateral Agent hereunder
with respect thereto.
SECTION 8. VOTING RIGHTS; DIVIDENDS; ETC.
------------------------------
(a) So long as no Event of Default shall have occurred and be continuing:
(i) Pledgor shall be entitled to exercise any and all voting and other
consensual rights pertaining to the Pledged Collateral or any part thereof
for any purpose not inconsistent with the terms of this Agreement or the
Financing Agreements;
(ii) Pledgor shall be entitled to receive and retain, and to utilize free
and clear of the lien of this Agreement, any and all dividends and interest
paid in respect of the Pledged Collateral; provided, however, that any and
-------- -------
all dividends and interest paid or payable other than in cash in respect of,
and instruments and other property received, receivable or otherwise
distributed in respect of, or in exchange for, any Pledged Collateral, shall
be, and shall forthwith be delivered to Collateral Agent to hold as, Pledged
Collateral and shall, if received by Pledgor, be received in trust for the
benefit of Collateral Agent, be segregated from the other property or funds
of Pledgor and be forthwith delivered to Collateral Agent as Pledged
Collateral in the same form as so received (with all necessary
endorsements); and
(iii) Collateral Agent shall promptly execute and deliver (or cause to
be executed and delivered) to Pledgor all such proxies, dividend payment
orders and other instruments as Pledgor may from time to time reasonably
request for the purpose of enabling Pledgor to exercise the voting and other
consensual rights which it is entitled to exercise pursuant to paragraph (i)
above and to receive the dividends, principal or interest payments which it
is authorized to receive and retain pursuant to paragraph (ii) above.
(b) Upon the occurrence and during the continuation of an Event of
Default:
(i) upon written notice from Collateral Agent to Pledgor, all rights of
Pledgor to exercise the voting and other consensual rights which it would
otherwise be entitled to exercise pursuant to Section 8(a)(i) shall cease,
and all such rights shall
XXII-9
<PAGE>
thereupon become vested in Collateral Agent who shall thereupon have the
sole right to exercise such voting and other consensual rights;
(ii) all rights of Pledgor to receive the dividends and interest payments
which it would otherwise be authorized to receive and retain pursuant to
Section 8(a)(ii) shall cease, and all such rights shall thereupon become
vested in Collateral Agent who shall thereupon have the sole right to
receive and hold as Pledged Collateral such dividends and interest payments;
and
(iii) all dividends, principal and interest payments which are received
by Pledgor contrary to the provisions of paragraph (ii) of this Section 8(b)
shall be (A) forthwith (and in any event within two Business Days) deposited
by the Pledgor to the exact form received, duly endorsed by the Pledgor to
the Collateral Agent if required, in a Collateral Account maintained under
the sole dominion and control of the Collateral Agent for the account of the
Secured Parties only as provided in Section 15, (B) until so turned over in
accordance with the preceding subsection (A), all such amounts and proceeds
received by Grantor shall be received in trust for the benefit of Collateral
Agent hereunder -- and shall be segregated from other funds of Pledgor.
(c) In order to permit Collateral Agent to exercise the voting and other
consensual rights which it may be entitled to exercise pursuant to Section
8(b)(i) and to receive all dividends and other distributions which it may be
entitled to receive under Section 8(a)(ii) or Section 8(b)(ii), (i) Pledgor
shall promptly execute and deliver (or cause to be executed and delivered) to
Collateral Agent all such proxies, dividend payment orders and other instruments
as Collateral Agent may from time to time reasonably request and (ii) without
limiting the effect of the immediately preceding clause (i), Pledgor hereby
grants to Collateral Agent an irrevocable proxy to vote the Pledged Shares and
to exercise all other rights, powers, privileges and remedies to which a holder
of the Pledged Shares would be entitled (including, without limitation, giving
or withholding written consents of shareholders, calling special meetings of
shareholders and voting at such meetings), which proxy shall be effective,
automatically and without the necessity of any action (including any transfer of
any Pledged Shares on the record books of the issuer thereof) by any other
Person (including the issuer of the Pledged Shares or any officer or agent
thereof), upon the occurrence and during the continuance of an Event of Default
and which proxy shall only terminate upon the payment in full of the Secured
Obligations.
SECTION 9. COLLATERAL AGENT APPOINTED ATTORNEY-IN-FACT.
-------------------------------------------
Pledgor hereby irrevocably appoints Collateral Agent as Pledgor's
attorney-in-fact, with full authority in the place and stead of Pledgor and in
the name of Pledgor, Collateral Agent or otherwise, from time to time, upon the
occurrence and during the continuance of an Event of Default, in Collateral
Agents's reasonable discretion to take any action and to execute any instrument
that Collateral Agent may reasonably deem necessary or advisable to accomplish
the purposes of this Agreement, including without limitation:
XXII-10
<PAGE>
(a) to file one or more financing or continuation statements, or
amendments thereto, relative to all or any part of the Pledged Collateral
without the signature of Pledgor;
(b) to ask, demand, collect, sue for, recover, compound, receive and give
acquittance and receipts for moneys due and to become due under or in
respect of any of the Pledged Collateral;
(c) to receive, endorse and collect any instruments made payable to
Pledgor representing any dividend, principal or interest payment or other
distribution in respect of the Pledged Collateral or any part thereof and to
give full discharge for the same; and
(d) to file any claims or take any action or institute any proceedings
that Collateral Agent may reasonably deem necessary or desirable for the
collection of any of the Pledged Collateral or otherwise to enforce the
rights of Collateral Agent with respect to any of the Pledged Collateral.
SECTION 10. COLLATERAL AGENT MAY PERFORM.
----------------------------
If Pledgor fails to perform any agreement contained herein, Collateral
Agent may itself perform, or cause performance of, such agreement, and the
reasonable expenses of Collateral Agent incurred in connection therewith shall
be payable by Pledgor under Section 16(b).
SECTION 11. STANDARD OF CARE.
----------------
The powers conferred on Collateral Agent hereunder are solely to protect
its interest in the Pledged Collateral and shall not impose any duty upon it to
exercise any such powers. Except for the exercise of reasonable care in the
custody of any Pledged Collateral in its possession and the accounting for
moneys actually received by it hereunder, Collateral Agent shall have no duty as
to any Pledged Collateral, it being understood that Collateral Agent shall have
no responsibility for (a) ascertaining or taking action with respect to calls,
conversions, exchanges, maturities, tenders or other matters relating to any
Pledged Collateral, whether or not Collateral Agent has or is deemed to have
knowledge of such matters, (b) taking any necessary steps (other than steps
taken in accordance with the standard of care set forth above to maintain
possession of the Pledged Collateral) to preserve rights against any parties
with respect to any Pledged Collateral, (c) taking any necessary steps to
collect or realize upon the Secured Obligations or any guarantee therefor, or
any part thereof, or any of the Pledged Collateral, or (d) initiating any action
to protect the Pledged Collateral against the possibility of a decline in market
value. Collateral Agent shall be deemed to have exercised reasonable care in
the custody and preservation of Pledged Collateral in its possession if such
Pledged Collateral is accorded treatment substantially equal to that which
Collateral Agent accords its own property consisting of negotiable securities.
XXII-11
<PAGE>
SECTION 12. REMEDIES.
--------
(a) If any Event of Default shall have occurred and be continuing,
Collateral Agent may exercise in respect of the Pledged Collateral, in addition
to all other rights and remedies provided for herein or otherwise available to
it, all the rights and remedies of a secured party on default under the Uniform
Commercial Code as in effect in any relevant jurisdiction (the "CODE")
(whether or not the Code applies to the affected Pledged Collateral), and
Collateral Agent may also in its sole discretion, without notice except as
specified below, sell the Pledged Collateral or any part thereof in one or more
parcels at public or private sale, at any exchange or broker's board or at any
of Collateral Agent's offices or elsewhere, for cash, on credit or for future
delivery, at such time or times and at such price or prices and upon such other
terms as Collateral Agent may deem commercially reasonable, irrespective of the
impact of any such sales on the market price of the Pledged Collateral.
Collateral Agent or any Secured Party or Interest Rate Exchanger may be the
purchaser of any or all of the Pledged Collateral at any such sale and Secured
Party, as agent for and representative of Secured Parties and Interest Rate
Exchangers (but not any Secured Party or Secured Parties or Interest Rate
Exchanger or Interest Rate Exchangers in its or their respective individual
capacities unless Requisite Obligees (shall otherwise agree in writing), shall
be entitled, for the purpose of bidding and making settlement or payment of the
purchase price for all or any portion of the Pledged Collateral sold at any such
public sale, to use and apply any of the Secured Obligations as a credit on
account of the purchase price for any Pledged Collateral payable by Collateral
Agent at such sale. Each purchaser at any such sale shall hold the property
sold absolutely free from any claim or right on the part of Pledgor, and Pledgor
hereby waives (to the extent permitted by applicable law) all rights of
redemption, stay and/or appraisal which it now has or may at any time in the
future have under any rule of law or statute now existing or hereafter enacted.
Pledgor agrees that, to the extent notice of sale shall be required by law, at
least ten days' notice to Pledgor of the time and place of any public sale or
the time after which any private sale is to be made shall constitute reasonable
notification. Collateral Agent shall not be obligated to make any sale of
Pledged Collateral regardless of notice of sale having been given. Collateral
Agent may adjourn any public or private sale from time to time by announcement
at the time and place fixed therefor, and such sale may, without further notice,
be made at the time and place to which it was so adjourned. Pledgor hereby
waives any claims against Collateral Agent arising by reason of the fact that
the price at which any Pledged Collateral may have been sold at such a private
sale was less than the price which might have been obtained at a public sale,
even if Collateral Agent accepts the first offer received and does not offer
such Pledged Collateral to more than one offeree. If the proceeds of any sale
or other disposition of the Pledged Collateral are insufficient to pay all the
Secured Obligations, Pledgor shall be liable for the deficiency and the
reasonable fees of any attorneys employed by Collateral Agent to collect such
deficiency.
(b) Pledgor recognizes that, by reason of certain prohibitions contained
in the Securities Act and applicable state securities laws, Collateral Agent may
be compelled, with respect to any sale of all or any part of the Pledged
Collateral conducted without prior registration or qualification of such Pledged
Collateral under the Securities Act and/or such state securities laws, to limit
purchasers to those who will agree, among other things, to acquire the Pledged
Collateral for their own account, for investment and not with a view to the
XXII-12
<PAGE>
distribution or resale thereof. Pledgor acknowledges that any such private
sales may be at prices and on terms less favorable than those obtainable through
a public sale without such restrictions (including, without limitation, a public
offering made pursuant to a registration statement under the Securities Act)
and, notwithstanding such circumstances and the registration rights granted to
Collateral Agent by Pledgor pursuant to Section 13, Pledgor agrees that any such
private sale shall be deemed to have been made in a commercially reasonable
manner and that Collateral Agent shall have no obligation to engage in public
sales and no obligation to delay the sale of any Pledged Collateral for the
period of time necessary to permit the issuer thereof to register it for a form
of public sale requiring registration under the Securities Act or under
applicable state securities laws, even if such issuer would, or should, agree to
so register it.
(c) If Collateral Agent determines to exercise its right to sell any or
all of the Pledged Collateral, upon written request, Pledgor shall and shall
cause each issuer of any Pledged Shares to be sold hereunder from time to time
to furnish to Collateral Agent all such information as Collateral Agent may
reasonably request in order to determine the number of shares and other
instruments included in the Pledged Collateral which may be sold by Collateral
Agent in exempt transactions under the Securities Act and the rules and
regulations of the Securities and Exchange Commission thereunder, as the same
are from time to time in effect.
SECTION 13. REGISTRATION RIGHTS.
-------------------
If Collateral Agent shall determine to exercise its right to sell all or
any of the Pledged Collateral pursuant to Section 12, Pledgor agrees that, upon
request of Collateral Agent (which request may be made by Collateral Agent in
its sole discretion), Pledgor will, at its own expense:
(a) execute and deliver, and cause each issuer of the Pledged Collateral
contemplated to be sold and the directors and officers thereof to execute
and deliver, all such instruments and documents, and do or cause to be done
all such other acts and things, as may be necessary or, in the opinion of
Collateral Agent, advisable to register such Pledged Collateral under the
provisions of the Securities Act and to cause the registration statement
relating thereto to become effective and to remain effective for such period
as prospectuses are required by law to be furnished, and to make all
amendments and supplements thereto and to the related prospectus which, in
the opinion of Collateral Agent, are necessary or advisable, all in
conformity with the requirements of the Securities Act and the rules and
regulations of the Securities and Exchange Commission applicable thereto;
(b) use its best efforts to qualify the Pledged Collateral under all
applicable state securities or "Blue Sky" laws and to obtain all necessary
governmental approvals for the sale of the Pledged Collateral, as requested
by Collateral Agent;
(c) cause each such issuer to make available to its security holders, as
soon as practicable, an earnings statement which will satisfy the provisions
of Section 11(a) of the Securities Act;
XXII-13
<PAGE>
(d) do or cause to be done all such other acts and things as may be
necessary to make such sale of the Pledged Collateral or any part thereof
valid and binding and in compliance with applicable law; and
(e) bear all costs and expenses, including reasonable attorneys' fees, of
carrying out its obligations under this Section 13.
Pledgor further agrees that a breach of any of the covenants contained in
this Section 13 will cause irreparable injury to Collateral Agent, that
Collateral Agent has no adequate remedy at law in respect of such breach and, as
a consequence, that each and every covenant contained in this Section 13 shall
be specifically enforceable against Pledgor, and Pledgor hereby waives and
agrees not to assert any defenses against an action for specific performance of
such covenants except for a defense that no default has occurred giving rise to
the Secured Obligations becoming due and payable prior to their stated
maturities. Nothing in this Section 13 shall in any way alter the rights of
Collateral Agent under Section 13.
SECTION 14. PROCEEDS TO BE TURNED OVER TO COLLATERAL AGENT.
----------------------------------------------
In addition to the rights of the Collateral Agent and the Secured Parties
specified in Section 8(b), if an Event of Default shall occur and be continuing,
upon request of the Collateral Agent, all proceeds received by the Pledgor
consisting of cash, checks and other near-cash items shall be held by the
Pledgor in trust for the Collateral Agent and the Secured Parties, segregated
from other funds of the Pledgor and shall, forthwith upon receipt by the
Pledgor, be turned over to the Collateral Agent in the exact form received by
the Pledgor (duly indorsed by the Pledgor to the Collateral Agent, if required)
and held by the Collateral Agent in a Collateral Account maintained under the
Intercreditor Agreement. All proceeds while held by the Collateral Agent in a
Collateral Account (or by the Pledgor in trust for the Collateral Agent and the
Secured Parties) shall continue to be held as collateral security for all the
Secured Obligations and shall not constitute payment thereof until applied as
provided in Section 15.
SECTION 15. APPLICATION OF PROCEEDS.
-----------------------
All proceeds held in any Collateral Account and all other proceeds
received by Collateral Agent in respect of any sale of, collection from, or
other realization upon all or any part of the Pledged Collateral shall be
applied as provided in subsection 3 of the Intercreditor Agreement.
SECTION 16. INDEMNITY AND EXPENSES.
----------------------
(a) Pledgor agrees to indemnify Collateral Agent, each Secured Party and
each Interest Rate Exchanger from and against any and all claims, losses and
liabilities in any way relating to, growing out of or resulting from this
Agreement and the transactions contemplated hereby (including, without
limitation, enforcement of this Agreement), except to the extent such claims,
losses or liabilities result solely from Collateral Agents's or such Secured
Party's or
XXII-14
<PAGE>
Interest Rate Exchanger's gross negligence or willful misconduct as finally
determined by a court of competent jurisdiction.
(b) Pledgor shall pay to Collateral Agent promptly following written
demand the amount of any and all reasonable costs and reasonable expenses,
including the reasonable fees and expenses of its counsel and of any experts and
agents, that Collateral Agent may incur in connection with (i) the
administration of this Agreement, (ii) the custody or preservation of, or the
sale of, collection from, or other realization upon, any of the Pledged
Collateral, (iii) the exercise or enforcement of any of the rights of Collateral
Agent hereunder, or (iv) the failure by Pledgor to perform or observe any of the
provisions hereof.
(c) In the event of any public sale described in Section 13, Pledgor
agrees to indemnify and hold harmless Collateral Agent, each Secured Party and
each Interest Rate Exchanger and each of their respective directors, officers,
employees and agents (collectively, called the "INDEMNITEES") from and against
any and all Indemnified Liabilities (as hereinafter defined); provided that
Pledgor shall not have an obligation to any Indemnitee hereunder with respect to
any Indemnified Liabilities to the extent such Indemnified Liabilities arise
from the bad faith, gross negligence or wilful misconduct of that Indemnitee as
determined by a final, non-appealable judgement of a court of competent
jurisdiction. This indemnity shall be in addition to any liability which
Pledgor may otherwise have and shall extend upon the same terms and conditions
to each Person, if any, that controls Collateral Agent or such Persons within
the meaning of the Securities Act.
As used herein, "INDEMNIFIED LIABILITIES" means, collectively any
and all liabilities, obligations, losses, fees, costs, expenses, damages, or
claims, joint or several, to which any such Indemnitee may become subject or for
which any Indemnitee may be liable, under the Securities Act or otherwise,
insofar as such losses, fees, costs, expenses, damages, liabilities or claims
(or any litigation commenced or threatened in respect thereof) arise out of or
are based upon an untrue statement or alleged untrue statement of a material
fact made by Pledgor or its Subsidiaries or based on information provided by
Pledgor or its Subsidiaries, contained in any preliminary prospectus,
registration statement, prospectus or other such document published or filed in
connection with such public sale, or any amendment or supplement thereto, or
arise out of or are based upon an omission or alleged omission by Pledgor or its
Subsidiaries or caused by the inaction of Pledgor or its Subsidiaries to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and any legal or other expenses reasonably
incurred by any Indemnitee in connection with any litigation, of any nature
whatsoever, commenced or threatened in respect thereof (including without
limitation any and all fees, costs and expenses whatsoever reasonably incurred
by any Indemnitee and counsel for any Indemnitee in investigating, preparing
for, defending against or providing evidence, producing documents or taking any
other action in respect of, any such commenced or threatened litigation or any
claims asserted).
SECTION 17. CONTINUING SECURITY INTEREST; TRANSFER OF LOANS.
-----------------------------------------------
This Agreement shall create a continuing security interest in the Pledged
Collateral and shall (a) remain in full force and effect until the payment in
full of all Secured Obligations
XXII-15
<PAGE>
(other than inchoate indemnification obligations with respect to claims, losses
or liabilities which have not yet arisen and are not yet due and payable), the
cancellation or termination of the Commitments and the cancellation or
expiration of all outstanding Letters of Credit, (b) be binding upon Pledgor,
its successors and assigns, and (c) inure, together with the rights and remedies
of Collateral Agent hereunder, to the benefit of Collateral Agent and its
successors, transferees and assigns. Without limiting the generality of the
foregoing clause (c), but subject to the provisions of subsection 10.1 of the
Credit Agreement and subsection 10.1 of the AXEL Credit Agreement, any Secured
Party may assign or otherwise transfer any Loans held by it to any other Person,
and such other Person shall thereupon become vested with all the benefits in
respect thereof granted to Lenders herein or otherwise. Upon the payment in full
of all Secured Obligations (other than inchoate indemnification obligations with
respect to claims, losses or liabilities which have not yet arisen and are not
yet due and payable), the cancellation or termination of the Commitments and the
cancellation or expiration of all outstanding Letters of Credit, the security
interest granted hereby shall terminate and all rights to the Pledged Collateral
shall revert to Pledgor. Upon any such termination Collateral Agent will, at
Pledgor's expense, execute and deliver to Pledgor such documents as Pledgor
shall reasonably request to evidence such termination in accordance with the
terms of the Intercreditor Agreement and Pledgor shall be entitled to the
return, upon its request and at its expense, against receipt and without
recourse to Collateral Agent, of such of the Pledged Collateral as shall not
have been sold or otherwise applied pursuant to the terms hereof.
SECTION 18. COLLATERAL AGENT AS ADMINISTRATIVE AGENT.
----------------------------------------
(a) Collateral Agent has been appointed to act as Collateral Agent
hereunder by CA Administrative Agent on behalf of the Credit Agreement Lenders
and AXEL Administrative Agent on behalf of the AXEL Lenders pursuant to
Intercreditor Agreement and, by their acceptance of the benefits hereof,
Interest Rate Exchangers and shall be entitled to the benefits of the
Intercreditor Agreement. Collateral Agent shall be obligated, and shall have
the right hereunder, to make demands, to give notices, to exercise or refrain
from exercising any rights, and to take or refrain from taking any action
(including, without limitation, the release or substitution of Pledged
Collateral), solely in accordance with this Agreement and the Intercreditor
Agreement; provided that Collateral Agent shall exercise, or refrain from
--------
exercising, any remedies provided for in Section 12 in accordance with the
instructions of (i) Requisite Lenders or (ii) after payment in full of all
Financing Agreement Obligations under the Financing Agreements and any other
Loan Documents, the holders of a majority of the aggregate notional amount (or,
with respect to any Lender Interest Rate Agreement that has been terminated in
accordance with its terms, the amount then due and payable (exclusive of
expenses and similar payments but including any early termination payments then
due) under such Lender Interest Rate Agreement) under all Lender Interest Rate
Agreements (Requisite Lenders or, if applicable, such holders being referred to
herein as "REQUISITE OBLIGEES"). In furtherance of the foregoing provisions
of this Section 18(a), each Interest Rate Exchanger, by its acceptance of the
benefits hereof, agrees that it shall have no right individually to realize upon
any of the Pledged Collateral hereunder, it being understood and agreed by such
Interest Rate Exchanger that all rights and remedies hereunder may be exercised
solely by Collateral Agent for the benefit of Secured Parties and Interest Rate
Exchangers in accordance with the terms of this Section 18(a).
XXII-16
<PAGE>
(b) Collateral Agent shall at all times be the same Person that is
appointed Collateral Agent under the Intercreditor Agreement. The Collateral
Agent may resign and a successor Collateral Agent may be appointed in the manner
provided in the Intercreditor Agreement. Upon the acceptance of any appointment
as Collateral Agent by a successor Collateral Agent, that successor Collateral
Agent shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring or removed Collateral Agent under this
Agreement, and the retiring or removed Collateral Agent under this Agreement
shall promptly (i) transfer to such successor Collateral Agent all sums,
securities and other items of Collateral held hereunder, together with all
records and other documents necessary or appropriate in connection with the
performance of the duties of the successor Collateral Agent under this
Agreement, and (ii) execute and deliver to such successor Collateral Agent such
amendments to financing statements, and take such other actions, as may be
necessary or appropriate in connection with the assignment to such successor
Collateral Agent of the security interests created hereunder, whereupon such
retiring or removed Collateral Agent shall be discharged from its duties and
obligations under this Agreement. After any retiring or removed Collateral
Agent's resignation or removal hereunder as Collateral Agent, the provisions of
this Agreement shall inure to its benefit as to any actions taken or omitted to
be taken by it under this Agreement while it was Collateral Agent hereunder.
SECTION 19. AMENDMENTS; ETC.
---------------
No amendment, modification, termination or waiver of any provision of
this Agreement, and no consent to any departure by Pledgor therefrom, shall in
any event be effective unless the same shall be in writing and signed by
Collateral Agent and, in the case of any such amendment or modification, by
Pledgor. Any such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which it was given.
SECTION 20. NOTICES.
-------
Any notice or other communication herein required or permitted to be
given shall be in writing and may be personally served, telexed or sent by
telefacsimile or United States mail or courier service and shall be deemed to
have been given when delivered in person or by courier service, upon receipt of
telefacsimile or telex, or three Business Days after depositing it in the United
States mail with postage prepaid and properly addressed; provided that notice to
--------
Collateral Agent and Pledgor shall not be effective until received. For the
purposes hereof, the address of each party hereto shall be as set forth under
such party's name on the signature pages hereof or, as to either party, such
other address as shall be designated by such party in a written notice delivered
to the other party hereto.
SECTION 21. FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE.
-----------------------------------------------------
No failure or delay on the part of Collateral Agent in the exercise of
any power, right or privilege hereunder shall impair such power, right or
privilege or be construed to be a waiver of any default or acquiescence therein,
nor shall any single or partial exercise of any such power, right or privilege
preclude any other or further exercise thereof or of any other
XXII-17
<PAGE>
power, right or privilege. All rights and remedies existing under this Agreement
are cumulative to, and not exclusive of, any rights or remedies otherwise
available.
SECTION 22. SEVERABILITY.
------------
In case any provision in or obligation under this Agreement shall be
invalid, illegal or unenforceable in any jurisdiction, the validity, legality
and enforceability of the remaining provisions or obligations, or of such
provision or obligation in any other jurisdiction, shall not in any way be
affected or impaired thereby.
SECTION 23. HEADINGS.
--------
Section and subsection headings in this Agreement are included herein for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose or be given any substantive effect.
SECTION 24. GOVERNING LAW; TERMS.
--------------------
THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING WITHOUT LIMITATION SECTION
5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD
TO CONFLICTS OF LAWS PRINCIPLES, EXCEPT TO THE EXTENT THAT THE CODE PROVIDES
THAT THE PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER,
IN RESPECT OF ANY PARTICULAR PLEDGED COLLATERAL ARE GOVERNED BY THE LAWS OF A
JURISDICTION OTHER THAN THE STATE OF NEW YORK. Unless otherwise defined herein
or in the Credit Agreement, terms used in Articles 8 and 9 of the Uniform
Commercial Code in the State of New York are used herein as therein defined.
SECTION 25. COUNTERPARTS.
------------
This Agreement may be executed in one or more counterparts and by
different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all such counterparts
together shall constitute but one and the same instrument; signature pages may
be detached from multiple separate counterparts and attached to a single
counterpart so that all signature pages are physically attached to the same
document.
[Remainder of page intentionally left blank]
XXII-18
<PAGE>
IN WITNESS WHEREOF, Pledgor and Collateral Agent have caused this
Agreement to be duly executed and delivered by their respective officers
thereunto duly authorized as of the date first written above.
SEALY CORPORATION
By: ______________________________________
Name:
Title:
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK, as Collateral Agent
By: ______________________________________
Name:
Title:
XXII-19
<PAGE>
SCHEDULE I
Attached to and forming a part of the Holdings Pledge Agreement dated as
of December 18, 1997 between Sealy Corporation, as Pledgor, and Morgan Guaranty
Trust Company of New York, as Collateral Agent.
PART A
<TABLE>
<CAPTION>
================================================================================
PERCENTAGE OF
STOCK NUMBER OUTSTANDING
CLASS OF CERTIFICATE PAR OF SHARES
STOCK ISSUER STOCK NOS. VALUE SHARES PLEDGED
================================================================================
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
</TABLE>
PART B
<TABLE>
<CAPTION>
============================================
AMOUNT OF
DEBT ISSUER INDEBTEDNESS
============================================
<S> <C>
--------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
============================================
</TABLE>
XXII-20
<PAGE>
SCHEDULE II
PLEDGE AMENDMENT
This Pledge Amendment, dated ____________, [199_][200_], is delivered
pursuant to Section 6(b) of the Pledge Agreement referred to below. The
undersigned hereby agrees that this Pledge Amendment may be attached to the
Holdings Pledge Agreement dated as of December 18, 1997, between the undersigned
and Morgan Guaranty Trust Company of New York, as Collateral Agent (the "PLEDGE
AGREEMENT," capitalized terms defined therein being used herein as therein
defined), and that the [Pledged Shares] [Pledged Debt] listed on this Pledge
Amendment shall be deemed to be part of the [Pledged Shares] [Pledged Debt] and
shall become part of the Pledged Collateral and shall secure all Secured
Obligations.
SEALY CORPORATION
By: ___________________________________
Name:
Title:
<TABLE>
<CAPTION>
================================================================================
PERCENTAGE OF
STOCK NUMBER OUTSTANDING
CLASS OF CERTIFICATE PAR OF SHARES
STOCK ISSUER STOCK NOS. VALUE SHARES PLEDGED
================================================================================
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
</TABLE>
PART B
<TABLE>
<CAPTION>
============================================
AMOUNT OF
DEBT ISSUER INDEBTEDNESS
============================================
<S> <C>
--------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
============================================
</TABLE>
XXII-21
<PAGE>
EXHIBIT XXIII
[FORM OF HOLDINGS SECURITY AGREEMENT]
HOLDINGS SECURITY AGREEMENT
This HOLDINGS SECURITY AGREEMENT (this "AGREEMENT") is dated as of
December 18, 1997 and entered into by and between SEALY CORPORATION, a Delaware
corporation ("GRANTOR"), and MORGAN GUARANTY TRUST COMPANY OF NEW YORK
("MORGAN GUARANTY"), as Collateral Agent, for and representative of (in such
capacity herein called "COLLATERAL AGENT") the Secured Parties (as hereinafter
defined) and any Interest Rate Exchangers (as hereinafter defined).
RECITALS
A. Sealy Mattress Company, an Ohio Corporation ("COMPANY"), Grantor,
the financial institutions from time to time parties thereto (the "CREDIT
AGREEMENT LENDERS"), Goldman Sachs Credit Partners L.P. ("GSCP"), as arranger
and syndication agent (in such capacity, "CA SYNDICATION AGENT"), Morgan
Guaranty, as administrative agent (in such capacity, "CA ADMINISTRATIVE
AGENT"), and Bankers Trust Company ("BTCO."), as documentation agent (in
such capacity, "CA DOCUMENTATION AGENT") have entered into a Credit Agreement
dated as of December 18, 1997 (said Credit Agreement, as it may hereafter be
amended, restated, supplemented or otherwise modified from time to time, being
the "CREDIT AGREEMENT") pursuant to which Credit Agreement Lenders have made
certain commitments, subject to the terms and conditions set forth in the Credit
Agreement, to extend certain credit facilities to Company.
B. Company, Grantor, the financial institutions from time to time
parties thereto (the "AXEL LENDERS"), GSCP, as arranger and syndication agent
(in such capacity, "AXEL SYNDICATION AGENT"), Morgan Guaranty, as
administrative agent (in such capacity, "AXEL ADMINISTRATIVE AGENT"), and
BTCo., as documentation agent (in such capacity, "AXEL DOCUMENTATION AGENT")
have entered into an AXEL Credit Agreement dated as of December 18, 1997 (said
AXEL Credit Agreement, as it may hereafter be amended, restated, supplemented or
otherwise modified from time to time, being the "AXEL CREDIT AGREEMENT"; the
Credit Agreement Lenders, the CA Syndication Agent, the CA Administrative Agent,
the CA Documentation Agent, the AXEL Lenders, the AXEL Syndication Agent, the
AXEL Administrative Agent, and the AXEL Documentation Agent each being a
"SECURED PARTY" and collectively the "SECURED PARTIES") pursuant to which
AXEL Lenders have made certain commitments, subject to the terms and conditions
set forth in the AXEL Credit Agreement, to extend certain credit facilities to
Company.
C. Company may from time to time enter, or may from time to time have
entered, into one or more Interest Rate Agreements (collectively, the "LENDER
INTEREST RATE
XXIII-1
<PAGE>
AGREEMENTS") with one or more CA Lenders or their Affiliates or AXEL Lenders or
their Affiliates (in such capacity, collectively, "INTEREST RATE EXCHANGERS").
D. Grantor has executed and delivered that certain Holdings Guaranty
dated as of December 18, 1997 (said Holdings Guaranty, as it may hereafter be
amended, supplemented or otherwise modified from time to time, being the
"GUARANTY") in favor of Collateral Agent for the benefit of Secured Parties
and any Interest Rate Exchangers, pursuant to which Grantor has guarantied the
prompt payment and performance when due of all obligations of Company under the
Finance Agreements and any other Loan Documents and all obligations of Company
under the Lender Interest Rate Agreements, including without limitation the
obligation of Company to make payments, if any, thereunder in the event of early
termination thereof.
E. It is a condition precedent to the initial extensions of credit by
Secured Parties under the Financing Agreements that Grantor shall have granted
the security interests and undertaken the obligations contemplated by this
Agreement.
NOW, THEREFORE, in consideration of the premises and to induce (i) the CA
Administrative Agent, the CA Syndication Agent and the Credit Agreement Lenders
to enter into the Credit Agreement, (ii) the Credit Agreement Lenders to make
their respective loans to, and issue Letters of Credit for the account of
Company, (iii) the AXEL Administrative Agent, the AXEL Syndication Agent and the
AXEL Lenders to enter into the AXEL Loan Agreement, (iv) the AXEL Lenders to
make their respective loans to Company and (v) to induce Interest Rate
Exchangers to enter into the Lender Interest Rate Agreements and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the Grantor hereby agrees with the Collateral Agent as follows:
SECTION 1. DEFINED TERMS.
-------------
(a) Unless otherwise defined herein, terms defined in the Credit
Agreement and used herein shall have the meanings given to such terms in the
Credit Agreement;
(b) The following terms shall have the following meanings:
"ACCELERATION" shall mean any of the Credit Agreement Obligations or
the AXEL Credit Agreement Obligations have been declared, or have become,
immediately due and payable, or the commitments to extend credit of the Credit
Agreement Lenders or the AXEL Lenders shall have been terminated under Section 8
of the Credit Agreement or Section 7 of the AXEL Credit Agreement, respectively.
"ACCOUNTS" has the meaning assigned to that term in Section 2 of this
Agreement.
"AGREEMENT" means this Company Security Agreement dated as of December
18, 1997, as it may be amended, supplemented or otherwise modified from time to
time.
XXIII-2
<PAGE>
"ASSIGNED AGREEMENT" has the meaning assigned to that term in Section 2
of this Agreement.
"AXEL COMMITMENTS" shall mean the "Commitments" as defined in the AXEL
Credit Agreement.
"AXEL CREDIT AGREEMENT" has the meaning assigned to that term in the
recitals to this Agreement.
"AXEL OBLIGATIONS" shall mean the "Obligations" as defined in the AXEL
Credit Agreement.
"COLLATERAL" has the meaning assigned to that term in Section 2 of this
Agreement.
"COLLATERAL ACCOUNTS" shall mean "Collateral Accounts" as defined in the
Intercreditor Agreement.
"COMMITMENTS" means the Credit Agreement Commitments and the AXEL
Commitments.
"CREDIT AGREEMENT" has the meaning assigned to that term in the recitals
to this Agreement.
"CREDIT AGREEMENT COMMITMENTS" shall mean the "Commitments" as defined in
the Credit Agreement.
"CREDIT AGREEMENT OBLIGATIONS" shall mean the "Obligations" as defined in
the Credit Agreement.
"EQUIPMENT" has the meaning assigned to that term in Section 2 of this
Agreement.
"EVENT OF DEFAULT" means any "Event of Default" as defined in any
Financing Agreement or the occurrence of an Event of Default in which Company is
the Defaulting Party and which results in the designation of an Early
Termination Date (as such terms are defined in a Master Agreement or an Interest
Rate Swap Agreement or Interest Rate and Currency Exchange Agreement in the form
prepared by the International Swap and Derivatives Association Inc. or a similar
event under any similar swap agreement) under any Lender Interest Rate
Agreement.
"FINANCING AGREEMENT" means either the Credit Agreement or the AXEL
Credit Agreement, and "Financing Agreements" means the Credit Agreement and the
AXEL Credit Agreement, collectively.
"FINANCING AGREEMENT OBLIGATIONS" means Credit Agreement Obligations
and AXEL Obligations.
XXIII-3
<PAGE>
"GRANTOR" has the meaning assigned to that term in the introduction of
this Agreement.
"HOLDINGS" has the meaning assigned to that term in the recitals to this
Agreement.
"INTERCREDITOR AGREEMENT" means the Intercreditor Agreement, dated as
of December 18, 1997, by and among CA Administrative Agent, AXEL Administrative
Agent and Collateral Agent.
"INTEREST RATE EXCHANGERS" has the meaning assigned to that term in the
recitals to this Agreement.
"INVENTORY" has the meaning assigned to that term in Section 2 of this
Agreement.
"LENDER INTEREST RATE AGREEMENT" has the meaning assigned to that term
in the recitals to this Agreement.
"LOAN" means any "Loan" as defined in any Financing Agreement, and
"LOANS" means all such Loans collectively.
"LOAN DOCUMENT" means any "Loan Document" as defined in any Financing
Agreement, and "LOAN DOCUMENTS" means all such Loan Documents collectively.
"NEGOTIABLE DOCUMENT OF TITLE" has the meaning assigned to that term in
Section 2 of this Agreement.
"POTENTIAL EVENT OF DEFAULT" means any "Potential Event of Default" as
defined in any Financing Agreement.
"RELATED CONTRACTS" has the meaning assigned to that term in Section 2 of
this Agreement.
"REQUISITE AXEL LENDERS" means "Requisite Lenders" as defined in the AXEL
Credit Agreement.
"REQUISITE CREDIT AGREEMENT LENDERS" means "Requisite Lenders" as defined
in the Credit Agreement.
"REQUISITE LENDERS" means (A) unless an Acceleration shall have occurred
and be continuing, the Requisite Credit Agreement Lenders and the Requisite AXEL
Lenders, and (B) if an Acceleration has occurred and is continuing, Secured
Parties holding more than 50% of the Financing Agreement Obligations.
XXIII-4
<PAGE>
"REQUISITE OBLIGEES" has the meaning assigned to that term in Section 23
of this Agreement.
"SECURED OBLIGATIONS" has the meaning assigned to that term in Section 2
of this Agreement.
"SECURED PARTIES" has the meaning assigned to that term in the recitals
to this Agreement.
SECTION 2. GRANT OF SECURITY.
-----------------
Grantor hereby assigns to Collateral Agent, and hereby grants to
Collateral Agent a security interest in, all of Grantor's right, title and
interest in and to the following, in each case whether now or hereafter existing
or in which Grantor now has or hereafter acquires an interest and wherever the
same may be located (the "COLLATERAL"):
(a) all equipment in all of its forms, all parts thereof and all
accessions thereto (any and all such equipment, parts and accessions being
the "EQUIPMENT");
(b) all inventory in all of its forms (including, but not limited to, (i)
all goods held by Grantor for sale or lease or to be furnished under
contracts of service or so leased or furnished, (ii) all raw materials, work
in process, finished goods, and materials used or consumed in the
manufacture, packing, shipping, advertising, selling, leasing, furnishing or
production of such inventory or otherwise used or consumed in Grantor's
business, (iii) all goods in which Grantor has an interest in mass or a
joint or other interest or right of any kind, and (iv) all goods which are
returned to or repossessed by Grantor) and all accessions thereto and
products thereof (all such inventory, accessions and products being the
"INVENTORY") and all negotiable and non-negotiable documents of title
(including without limitation warehouse receipts, dock receipts and bills of
lading) issued by any Person covering any Inventory (any such negotiable
document of title being a "NEGOTIABLE DOCUMENT OF TITLE");
(c) all accounts, contract rights, chattel paper, documents, instruments,
general intangibles and other rights and obligations of any kind and all
rights in, to and under all security agreements, leases and other contracts
securing or otherwise relating to any such accounts, contract rights,
chattel paper, documents, instruments, general intangibles or other
obligations (any and all such accounts, contract rights, chattel paper,
documents, instruments, general intangibles and other obligations being the
"ACCOUNTS", and any and all such security agreements, leases and other
contracts being the "RELATED CONTRACTS");
(d) all agreements and contracts to which Grantor is a party as of the
date hereof or becomes a party after the date hereof, as each such agreement
may be amended, supplemented or otherwise modified from time to time (said
agreements, as so amended, supplemented or otherwise modified, being
referred to herein individually as an "ASSIGNED AGREEMENT" and collectively
as the "ASSIGNED AGREEMENTS"), including
XXIII-5
<PAGE>
(i) all rights of Grantor to receive moneys due or to become due under or
pursuant to the Assigned Agreements, (ii) all rights of Grantor to receive
proceeds of any insurance, indemnity, warranty or guaranty with respect to
the Assigned Agreements, (iii) all claims of Grantor for damages arising out
of any breach of or default under the Assigned Agreements, and (iv) all
rights of Grantor to terminate, amend, supplement, modify or exercise rights
or options under the Assigned Agreements, to perform thereunder and to
compel performance and otherwise exercise all remedies thereunder;
(e) all deposit accounts, including without limitation all deposit
accounts maintained with Collateral Agent;
(f) all trademarks, tradenames, tradesecrets, business names, patents,
patent applications, licenses, copyrights, registrations and franchise
rights, and all goodwill associated with any of the foregoing;
(g) to the extent not included in any other paragraph of this Section 2,
all other general intangibles (including without limitation tax refunds,
rights to payment or performance, choses in action and judgments taken on
any rights or claims included in the Collateral);
(h) all plant fixtures, business fixtures and other fixtures and storage
and office facilities, and all accessions thereto and products thereof;
(i) all books, records, ledger cards, files, correspondence, computer
programs, tapes, disks and related data processing software that at any time
evidence or contain information relating to any of the Collateral or are
otherwise necessary or helpful in the collection thereof or realization
thereupon; and
(j) all proceeds, products, rents and profits of or from any and all of
the foregoing Collateral and, to the extent not otherwise included, all
payments under insurance (whether or not Collateral Agent is the loss payee
thereof), or any indemnity, warranty or guaranty, payable by reason of loss
or damage to or otherwise with respect to any of the foregoing Collateral.
For purposes of this Agreement, the term "PROCEEDS" includes whatever is
receivable or received when Collateral or proceeds are sold, exchanged,
collected or otherwise disposed of, whether such disposition is voluntary or
involuntary.
Notwithstanding anything herein to the contrary, in no event shall the
Collateral include, and Grantor shall not be deemed to have granted a security
interest in, any of Grantor's rights or interests in any license, contract or
agreement to which Grantor is a party or any of its rights or interests
thereunder to the extent, but only to the extent, that such a grant would, under
the terms of such license, contract or agreement or otherwise, result in a
breach of the terms of, or constitute a default under any license, contract or
agreement to which Grantor is a party (other than to the extent that any such
term would be rendered ineffective pursuant to Section 9-318(4) of the Uniform
Commercial Code of any relevant jurisdiction or any other applicable law
(including the Bankruptcy Code) or principles of equity); provided,
--------
XXIII-6
<PAGE>
that immediately upon the ineffectiveness, lapse or termination of any such
provision, the Collateral shall include, and Grantor shall be deemed to have
granted a security interest in, all such rights and interests as if such
provision had never been in effect.
SECTION 3. SECURITY FOR OBLIGATIONS.
------------------------
This Agreement secures, and the Collateral is collateral security for,
the prompt payment or performance in full when due, whether at stated maturity,
by required prepayment, declaration, acceleration, demand or otherwise
(including the payment of amounts that would become due but for the operation of
the automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C.
(S)362(a)), of all obligations and liabilities of every nature of Grantor now or
hereafter existing under or arising out of or in connection with the Guaranty
and all extensions or renewals thereof, whether for principal, interest
(including without limitation interest that, but for the filing of a petition in
bankruptcy with respect to Company, would accrue on such obligations, whether or
not a claim is allowed against Company for such interest in the related
bankruptcy proceeding), reimbursement of amounts drawn under Letters of Credit,
payments for early termination of Lender Interest Rate Agreements, fees,
expenses, indemnities or otherwise, whether voluntary or involuntary, direct or
indirect, absolute or contingent, liquidated or unliquidated, whether or not
jointly owed with others, and whether or not from time to time decreased or
extinguished and later increased, created or incurred, and all or any portion of
such obligations or liabilities that are paid, to the extent all or any part of
such payment is avoided or recovered directly or indirectly from Collateral
Agent or any Lender or Interest Rate Exchanger as a preference, fraudulent
transfer or otherwise and all obligations of every nature of Grantor now or
hereafter existing under this Agreement (all such obligations of Grantor being
the "SECURED OBLIGATIONS").
SECTION 4. GRANTOR REMAINS LIABLE.
----------------------
Anything contained herein to the contrary notwithstanding, (a) Grantor
shall remain liable under any contracts and agreements included in the
Collateral, to the extent set forth therein, to perform all of its duties and
obligations thereunder to the same extent as if this Agreement had not been
executed, (b) the exercise by Collateral Agent of any of its rights hereunder
shall not release Grantor from any of its duties or obligations under the
contracts and agreements included in the Collateral, and (c) Collateral Agent
shall not have any obligation or liability under any contracts and agreements
included in the Collateral by reason of this Agreement, nor shall Collateral
Agent be obligated to perform any of the obligations or duties of Grantor
thereunder or to take any action to collect or enforce any claim for payment
assigned hereunder.
SECTION 5. REPRESENTATIONS AND WARRANTIES.
------------------------------
Grantor represents and warrants as follows:
(a) Ownership of Collateral. Except for the security interest created by
-----------------------
this Agreement, Grantor owns the Collateral free and clear of any Lien
subject to Liens permitted by the Financing Agreements.
XXIII-7
<PAGE>
(b) Location of Equipment and Inventory. All of the Equipment and
-----------------------------------
Inventory is, as of the date hereof, located at the places specified in
Schedule 5(b) annexed hereto.
-------------
(c) Negotiable Documents of Title. No Negotiable Documents of Title are
-----------------------------
outstanding with respect to any of the Inventory (other than in respect of
(i) Inventory with an aggregate value not in excess of $1,000,000 or (ii)
Inventory which, in the ordinary course of business, is in transit either
(A) from a supplier to Grantor, (B) between the locations specified in
Schedule 5(b) hereto, or (C) to customers of Grantor).
-------------
(d) Office Locations; Other Names. The chief place of business, the
-----------------------------
chief executive office and the office where Grantor keeps its records
regarding the Accounts and all originals of all chattel paper that evidence
Accounts is, and has been for the four month period preceding the date
hereof, located at the places indicated on Schedule 5d. Grantor has not in
-----------
the past done, and does not now do, business under any other name (including
any trade-name or fictitious business name) except for those names set forth
on Schedule 5d.
-----------
XXIII-8
<PAGE>
SECTION 6. FURTHER ASSURANCES.
------------------
(a) Grantor agrees that from time to time, at the expense of Grantor,
Grantor will promptly execute and deliver all further instruments and documents,
and take all further action, that Collateral Agent may reasonably request, in
order to perfect and protect any security interest granted or purported to be
granted hereby or to enable Collateral Agent to exercise and enforce its rights
and remedies hereunder with respect to any Collateral. Without limiting the
generality of the foregoing, Grantor will: (i) mark conspicuously each item of
chattel paper included in the Accounts, each Related Contract and, at the
reasonable request of Collateral Agent, each of its records pertaining to the
Collateral, with a legend, in form and substance reasonably satisfactory to
Collateral Agent, indicating that such Collateral is subject to the security
interest granted hereby, (ii) at the reasonable request of Collateral Agent,
deliver and pledge to Collateral Agent hereunder all promissory notes and other
instruments (excluding checks) and all original counterparts of chattel paper
constituting Collateral, duly endorsed and accompanied by duly executed
instruments of transfer or assignment, all in form and substance reasonably
satisfactory to Collateral Agent, (iii) execute and file such financing or
continuation statements, or amendments thereto, and such other instruments or
notices, or as Collateral Agent may reasonably request, in order to perfect and
preserve the security interests granted or purported to be granted hereby, (iv)
after the acquisition by Grantor of any item of Equipment which is covered by a
certificate of title under a statute of any jurisdiction under the law of which
indication of a security interest on such certificate is required as a condition
of perfection thereof, upon the reasonable request of Collateral Agent, execute
and file with the registrar of motor vehicles or other appropriate authority in
such jurisdiction an application or other document requesting the notation or
other indication of the security interest created hereunder on such certificate
of title, (v) upon the reasonable request of Collateral Agent, deliver to
Collateral Agent copies of all such applications or other documents filed during
such calendar quarter and copies of all such certificates of title issued during
such calendar quarter indicating the security interest created hereunder in the
items of Equipment covered thereby, and (vi) at Collateral Agent's reasonable
request, appear in and defend any action or proceeding that may affect Grantor's
title to or Collateral Agent's security interest in all or any part of the
Collateral.
(b) Grantor hereby authorizes Collateral Agent to file one or more
financing or continuation statements, and amendments thereto, relative to all or
any part of the Collateral without the signature of Grantor to the extent
permitted by applicable law. Grantor agrees that a carbon, photographic or
other reproduction of this Agreement or of a financing statement signed by
Grantor shall be sufficient as a financing statement and may be filed as a
financing statement in any and all jurisdictions.
SECTION 7. CERTAIN COVENANTS OF GRANTOR.
----------------------------
Grantor shall:
1. notify Collateral Agent of any change in Grantor's name, identity or
corporate structure within 30 days of such change;
XXIII-9
<PAGE>
2. give Collateral Agent 30 days' written notice following any change
in Grantor's chief place of business, chief executive office or residence or
the office where Grantor keeps its records regarding the Accounts and all
originals of all chattel paper that evidence Accounts;
3. pay promptly when due all property and other taxes, assessments and
governmental charges or levies imposed upon, and all claims (including
claims for labor, materials and supplies) against, the Collateral, except to
the extent the validity thereof is being contested in good faith.
SECTION 8. SPECIAL COVENANTS WITH RESPECT TO EQUIPMENT AND INVENTORY.
---------------------------------------------------------
Grantor shall:
(a) keep the Equipment and Inventory at the places therefor specified on
Schedule 5(b) annexed hereto or, upon 30 days' written notice to Collateral
-------------
Agent following any change in location, at such other places in
jurisdictions where all action that Collateral Agent may reasonably request,
in order to perfect and protect any security interest granted or purported
to be granted hereby, or to enable Collateral Agent to exercise and enforce
its rights and remedies hereunder, with respect to such Equipment and
Inventory shall have been taken;
(b) cause the Equipment to be maintained and preserved in working order,
ordinary wear and tear and damage by casualty excepted, and in accordance
with Grantor's past practices, and shall forthwith make or cause to be made
all repairs, replacements and other improvements in connection therewith
that are necessary in the Grantor's reasonable business judgment to such
end.
(c) keep correct and accurate records of the Inventory, itemizing and
describing the kind, type and quantity of Inventory, Grantor's cost therefor
and (where applicable) the current list prices for the Inventory;
(d) if any Inventory is in possession or control of any of Grantor's
agents or processors, upon the occurrence of an Event of Default, instruct
such agent or processor to hold all such Inventory for the account of
Collateral Agent and subject to the instructions of Collateral Agent; and
(e) promptly upon the issuance and delivery to Grantor of any Negotiable
Document of Title (other than any one or more Negotiable Documents of Title
covering (i) Inventory with an aggregate value not in excess of $1,000,000
or (ii) Inventory which, in the ordinary course of business, is in transit
either (A) from a supplier to Grantor, (B) between the locations specified
in Schedule 5(b) hereto, or (C) to customers of Grantor), deliver such
-------------
Negotiable Document of Title to Collateral Agent.
SECTION 9. INSURANCE.
---------
XXIII-10
<PAGE>
Grantor shall, at its own expense, maintain insurance with respect to the
Equipment and Inventory in accordance with the terms of the Financing
Agreements.
SECTION 10. SPECIAL COVENANTS WITH RESPECT TO ACCOUNTS AND RELATED CONTRACTS.
----------------------------------------------------------------
(a) Grantor shall keep its chief place of business and chief executive
office and the office where it keeps its records concerning the Accounts and
Related Contracts, and all originals of all chattel paper that evidence
Accounts, at the location therefor specified in Section 4 or, upon 30 days'
written notice to Collateral Agent following any change in location, at such
other location in a jurisdiction where all action that Collateral Agent may
request, in order to perfect and protect any security interest granted or
purported to be granted hereby, or to enable Collateral Agent to exercise and
enforce its rights and remedies hereunder, with respect to such Accounts and
Related Contracts shall have been taken. Promptly upon the reasonable request of
Collateral Agent, Grantor shall deliver to Collateral Agent complete and correct
copies of each Related Contract.
(b) Grantor shall, maintain (i) complete records of each Account,
including records of all payments received, credits granted and merchandise
returned, and (ii) all documentation relating thereto in accordance with prudent
business practices.
(c) Except as otherwise provided in this subsection (c), Grantor shall
continue to collect, at its own expense, all amounts due or to become due to
Grantor under the Accounts and Related Contracts. In connection with such
collections, Grantor shall take such action as Grantor or Collateral Agent may
deem necessary or advisable to enforce collection of amounts due or to become
due under the Accounts; provided, however, that Collateral Agent shall have the
-------- -------
right at any time, upon the occurrence and during the continuation of an Event
of Default and upon written notice to Grantor of its intention to do so, to
notify the account debtors or obligors under any Accounts of the assignment of
such Accounts to Collateral Agent and to direct such account debtors or obligors
to make payment of all amounts due or to become due to Grantor thereunder
directly to Collateral Agent, to notify each Person maintaining a lockbox or
similar arrangement to which account debtors or obligors under any Accounts have
been directed to make payment to remit all amounts representing collections on
checks and other payment items from time to time sent to or deposited in such
lockbox or other arrangement directly to Collateral Agent and, upon such
notification and at the expense of Grantor, to enforce collection of any such
Accounts and to adjust, settle or compromise the amount or payment thereof, in
the same manner and to the same extent as Grantor might have done. After
receipt by Grantor of the notice from Collateral Agent referred to in the
proviso to the preceding sentence, (i) any payments of Accounts, received by the
- -------
Grantor shall be forthwith (and in any event within two Business Days) deposited
by the Grantor in the exact form received, duly indorsed by the Grantor to the
Collateral Agent if required, in a Collateral Account maintained under the sole
dominion and control of the Collateral Agent, subject to withdrawal by the
Collateral Agent for the account of the Secured Parties only as provided in
Section 20, (ii) until so turned over in accordance with the proceeding
subsection (i), all amounts and proceeds (including checks and other
instruments) received by Grantor in respect of the Accounts and the Related
Contracts shall be received in trust for the benefit of Collateral Agent
hereunder and shall be segregated from other funds of Grantor and (iii) Grantor
shall not
XXIII-11
<PAGE>
adjust, settle or compromise the amount or payment of any Account, or release
wholly or partly any account debtor or obligor thereof, or allow any credit or
discount thereon.
SECTION 11. DEPOSIT ACCOUNTS.
----------------
Upon the occurrence and during the continuation of an Event of Default,
Collateral Agent may exercise dominion and control over, and refuse to permit
further withdrawals (whether of money, securities, instruments or other
property) from any deposit accounts maintained with Collateral Agent
constituting part of the Collateral.
SECTION 12. LICENSE OF PATENTS, TRADEMARKS, COPYRIGHTS, ETC.
-----------------------------------------------
Grantor hereby assigns, transfers and conveys to Collateral Agent,
effective upon the occurrence of any Event of Default, the nonexclusive right
and license to use all trademarks, tradenames, copyrights, patents or technical
processes owned or used by Grantor that relate to the Collateral and any other
collateral granted by Grantor as security for the Secured Obligations, together
with any goodwill associated therewith, all to the extent necessary to enable
Collateral Agent to use, possess and realize on the Collateral and to enable any
successor or assign to enjoy the benefits of the Collateral. This right and
license shall inure to the benefit of all successors, assigns and transferees of
Collateral Agent and its successors, assigns and transferees, whether by
voluntary conveyance, operation of law, assignment, transfer, foreclosure, deed
in lieu of foreclosure or otherwise. Such right and license is granted free of
charge, without requirement that any monetary payment whatsoever be made to
Grantor.
SECTION 13. TRANSFERS AND OTHER LIENS.
-------------------------
Grantor shall not:
(a) sell, assign (by operation of law or otherwise) or otherwise dispose
of any of the Collateral, except as permitted by the Financing Agreements;
or
(b) except for the security interest created by this Agreement and Liens
permitted by the Financing Agreements, create or suffer to exist any Lien
upon or with respect to any of the Collateral to secure the indebtedness or
other obligations of any Person.
SECTION 14. COLLATERAL AGENT APPOINTED ATTORNEY-IN-FACT.
-------------------------------------------
Grantor hereby irrevocably appoints Collateral Agent as Grantor's
attorney-in-fact, with full authority in the place and stead of Grantor and in
the name of Grantor, Collateral Agent or otherwise, from time to time, upon the
occurrence and during the continuance of an Event of Default, in Collateral
Agent's reasonable discretion to take any action and to execute any instrument
that Collateral Agent may reasonably deem necessary or advisable to accomplish
the purposes of this Agreement, including without limitation:
XXIII-12
<PAGE>
(a) to obtain and adjust insurance required to be maintained by Grantor
or paid to Collateral Agent pursuant to Section 9;
(b) to ask for, demand, collect, sue for, recover, compound, receive and
give acquittance and receipts for moneys due and to become due under or in
respect of any of the Collateral;
(c) to receive, endorse and collect any drafts or other instruments,
documents and chattel paper in connection with clauses (a) and (b) above;
(d) to file any claims or take any action or institute any proceedings
that Collateral Agent may reasonably deem necessary or desirable for the
collection of any of the Collateral or otherwise to enforce the rights of
Collateral Agent with respect to any of the Collateral;
(e) to pay or discharge taxes or Liens (other than Liens permitted under
this Agreement or the Credit Agreements) levied or placed upon or threatened
against the Collateral, the legality or validity thereof and the amounts
necessary to discharge the same to be determined by Collateral Agent in its
reasonable discretion, any such payments made by Collateral Agent to become
obligations of Grantor to Collateral Agent, due and payable immediately
without demand;
(f) to sign and endorse any invoices, freight or express bills, bills of
lading, storage or warehouse receipts, drafts against debtors, assignments,
verifications and notices in connection with Accounts and other documents
relating to the Collateral; and
(g) upon the occurrence and during the continuation of an Event of
Default, generally to sell, transfer, pledge, make any agreement with
respect to or otherwise deal with any of the Collateral as fully and
completely as though Collateral Agent were the absolute owner thereof for
all purposes, and to do, at Collateral Agent's option and Grantor's expense,
at any time or from time to time, all acts and things that Collateral Agent
reasonably deems necessary to protect, preserve or realize upon the
Collateral and Collateral Agent's security interest therein in order to
effect the intent of this Agreement, all as fully and effectively as Grantor
might do.
SECTION 15. COLLATERAL AGENT MAY PERFORM.
----------------------------
If Grantor fails to perform any agreement contained herein, Collateral
Agent may itself perform, or cause performance of, such agreement, and the
reasonable expenses of Collateral Agent incurred in connection therewith shall
be payable by Grantor under Section 21.
XXIII-13
<PAGE>
SECTION 16. STANDARD OF CARE.
----------------
The powers conferred on Collateral Agent hereunder are solely to protect
its interest in the Collateral and shall not impose any duty upon it to exercise
any such powers. Except for the exercise of reasonable care in the custody of
any Collateral in its possession and the accounting for moneys actually received
by it hereunder, Collateral Agent shall have no duty as to any Collateral or as
to the taking of any necessary steps to preserve rights against prior parties or
any other rights pertaining to any Collateral. Collateral Agent shall be deemed
to have exercised reasonable care in the custody and preservation of Collateral
in its possession if such Collateral is accorded treatment substantially equal
to that which Collateral Agent accords its own property.
SECTION 17. REMEDIES.
--------
If any Event of Default shall have occurred and be continuing, Collateral
Agent may exercise in respect of the Collateral, in addition to all other rights
and remedies provided for herein or otherwise available to it, all the rights
and remedies of a secured party on default under the Uniform Commercial Code as
in effect in any relevant jurisdiction (the "CODE") (whether or not the Code
applies to the affected Collateral), and also may (a) require Grantor to, and
Grantor hereby agrees that it will at its expense and upon request of Collateral
Agent forthwith, assemble all or part of the Collateral as directed by
Collateral Agent and make it available to Collateral Agent at a place to be
designated by Collateral Agent that is reasonably convenient to both parties,
(b) enter onto the property where any Collateral is located and take possession
thereof with or without judicial process, (c) prior to the disposition of the
Collateral, store, process, repair or recondition the Collateral or otherwise
prepare the Collateral for disposition in any manner to the extent Collateral
Agent deems appropriate, (d) take possession of Grantor's premises or place
custodians in exclusive control thereof, remain on such premises and use the
same and any of Grantor's equipment for the purpose of completing any work in
process, taking any actions described in the preceding clause (c) and collecting
any Secured Obligation, and (e) without notice except as specified below, sell
the Collateral or any part thereof in one or more parcels at public or private
sale, at any of Collateral Agent's offices or elsewhere, for cash, on credit or
for future delivery, at such time or times and at such price or prices and upon
such other terms as Collateral Agent may deem commercially reasonable.
Collateral Agent or any Secured Party or Interest Rate Exchanger may be the
purchaser of any or all of the Collateral at any such sale and Collateral Agent,
as agent for and representative of Secured Parties and Interest Rate Exchangers
(but not any Secured Party or Secured Parties or Interest Rate Exchanger or
Interest Rate Exchangers in its or their respective individual capacities unless
Requisite Obligees shall otherwise agree in writing), shall be entitled, for the
purpose of bidding and making settlement or payment of the purchase price for
all or any portion of the Collateral sold at any such public sale, to use and
apply any of the Secured Obligations as a credit on account of the purchase
price for any Collateral payable by Collateral Agent at such sale. Each
purchaser at any such sale shall hold the property sold absolutely free from any
claim or right on the part of Grantor, and Grantor hereby waives (to the extent
permitted by applicable law) all rights of redemption, stay and/or appraisal
which it now has or may at any time in the future have under any rule of law or
statute now existing or hereafter enacted. Grantor agrees that, to the extent
notice of sale shall be required by law, at least ten
XXIII-14
<PAGE>
days' notice to Grantor of the time and place of any public sale or the time
after which any private sale is to be made shall constitute reasonable
notification. Collateral Agent shall not be obligated to make any sale of
Collateral regardless of notice of sale having been given. Collateral Agent may
adjourn any public or private sale from time to time by announcement at the time
and place fixed therefor, and such sale may, without further notice, be made at
the time and place to which it was so adjourned. Grantor hereby waives any
claims against Collateral Agent arising by reason of the fact that the price at
which any Collateral may have been sold at such a private sale was less than the
price which might have been obtained at a public sale, even if Collateral Agent
accepts the first offer received and does not offer such Collateral to more than
one offeree. If the proceeds of any sale or other disposition of the Collateral
are insufficient to pay all the Secured Obligations, Grantor shall be liable for
the deficiency and the reasonable fees of any attorneys employed by Collateral
Agent to collect such deficiency.
SECTION 18. PROCEEDS TO BE TURNED OVER TO COLLATERAL AGENT.
----------------------------------------------
In addition to the rights of the Collateral Agent and the Secured Parties
specified in Section 10 with respect to payments of Accounts, if an Event of
Default shall occur and be continuing, upon request of the Collateral Agent, all
proceeds received by the Grantor consisting of cash, checks and other near-cash
items shall be held by the Grantor in trust for the Collateral Agent and the
Secured Parties, segregated from other funds of the Grantor, and shall,
forthwith upon receipt by the Grantor, be turned over to the Collateral Agent in
the exact form received by the Grantor (duly indorsed by the Grantor to the
Collateral Agent, if required) and held by the Collateral Agent in a Collateral
Account maintained under the Intercreditor Agreement. All proceeds while held
by the Collateral Agent in a Collateral Account (or by the Grantor in trust for
the Collateral Agent and the Secured Parties) shall continue to be held as
collateral security for all the Secured Obligations and shall not constitute
payment thereof until applied as provided in Section 20.
SECTION 19. APPLICATION OF PROCEEDS.
-----------------------
Except as expressly provided elsewhere in this Agreement, all proceeds
held in any Collateral Account and all other proceeds received by Collateral
Agent in respect of any sale of, collection from, or other realization upon all
or any part of the Collateral shall be applied as provided in subsection 3 of
the Intercreditor Agreement.
SECTION 20. INDEMNITY AND EXPENSES.
----------------------
(a) Grantor agrees to indemnify Collateral Agent, each Secured Party
Lender and each Interest Rate Exchanger from and against any and all claims,
losses and liabilities in any way relating to, growing out of or resulting from
this Agreement and the transactions contemplated hereby (including, without
limitation, enforcement of this Agreement), except to the extent such claims,
losses or liabilities result from Collateral Agent's or such Secured Party's or
Interest Rate Exchanger's gross negligence or willful misconduct as finally
determined by a court of competent jurisdiction.
XXIII-15
<PAGE>
(b) Grantor shall pay to Collateral Agent promptly following written
demand the amount of any and all reasonable costs and reasonable expenses,
including the reasonable fees and reasonable expenses of its counsel and of any
experts and agents, that Collateral Agent may incur in connection with (i) the
administration of this Agreement, (ii) the custody, preservation, use or
operation of, or the sale of, collection from, or other realization upon, any of
the Collateral, (iii) the exercise or enforcement of any of the rights of
Collateral Agent hereunder, or (iv) the failure by Grantor to perform or observe
any of the provisions hereof.
SECTION 21. CONTINUING SECURITY INTEREST; TRANSFER OF LOANS.
-----------------------------------------------
This Agreement shall create a continuing security interest in the
Collateral and shall (a) remain in full force and effect until the payment in
full of the Secured Obligations (other than inchoate indemnification obligations
with respect to claims, losses or liabilities which have not yet arisen and are
not yet due and payable), the cancellation or termination of the Commitments and
the cancellation or expiration of all outstanding Letters of Credit, (b) be
binding upon Grantor, its successors and assigns, and (c) inure, together with
the rights and remedies of Collateral Agent hereunder, to the benefit of
Collateral Agent and its successors, transferees and assigns. Without limiting
the generality of the foregoing clause (c), but subject to the provisions of
subsection 10.1 of the Credit Agreement and subsection 10.1 of the AXEL Credit
Agreement, any Secured Party may assign or otherwise transfer any Loans held by
it to any other Person, and such other Person shall thereupon become vested with
all the benefits in respect thereof granted to Secured Parties herein or
otherwise. Upon the payment in full of all Secured Obligations (other than
inchoate indemnification obligations with respect to claims, losses or
liabilities which have not yet arisen and are not yet due and payable), the
cancellation or termination of the Commitments and the cancellation or
expiration of all outstanding Letters of Credit, the security interest granted
hereby shall terminate and all rights to the Collateral shall revert to Grantor.
Upon any such termination Collateral Agent will, at Grantor's expense, execute
and deliver to Grantor such documents as Grantor shall reasonably request to
evidence such termination in accordance with the terms of the Intercreditor
Agreement.
SECTION 22. COLLATERAL AGENT AS ADMINISTRATIVE AGENT.
----------------------------------------
(a) Collateral Agent has been appointed to act as Collateral Agent
hereunder by CA Administrative Agent on behalf of the Credit Agreement Lenders
and AXEL Administrative Agent on behalf of the AXEL Lenders pursuant to the
Intercreditor Agreement and, by their acceptance of the benefits hereof,
Interest Rate Exchangers, and shall be entitled to the benefits of the
Intercreditor Agreement. Collateral Agent shall be obligated, and shall have
the right hereunder, to make demands, to give notices, to exercise or refrain
from exercising any rights, and to take or refrain from taking any action
(including, without limitation, the release or substitution of Collateral),
solely in accordance with this Agreement and the Intercreditor Agreement;
provided that Collateral Agent shall exercise, or refrain from exercising, any
- --------
remedies provided for in Section 18 in accordance with the instructions of (i)
Requisite Lenders or (ii) after payment in full of all Financing Agreement
Obligations under the Financing Agreements and any other Loan Documents, the
holders of a majority of the aggregate notional amount (or, with respect to any
Lender Interest Rate Agreement that has been terminated in accordance with its
terms, the amount then due and payable (exclusive of expenses and similar
XXIII-16
<PAGE>
payments but including any early termination payments then due) under such
Lender Interest Rate Agreement) under all Lender Interest Rate Agreements
(Requisite Lenders or, if applicable, such holders being referred to herein as
"REQUISITE OBLIGEES"). In furtherance of the foregoing provisions of this
Section 23(a), each Interest Rate Exchanger, by its acceptance of the benefits
hereof, agrees that it shall have no right individually to realize upon any of
the Collateral hereunder, it being understood and agreed by such Interest Rate
Exchanger that all rights and remedies hereunder may be exercised solely by
Collateral Agent for the benefit of Secured Parties and Interest Rate Exchangers
in accordance with the terms of this Section 23(a).
(b) Collateral Agent shall at all times be the same Person that is
appointed Collateral Agent under the Intercreditor Agreement. The Collateral
Agent may resign and a successor Collateral Agent may be appointed in the manner
provided in the Intercreditor Agreement. Upon the acceptance of any
appointment as Collateral Agent by a successor Collateral Agent, that successor
Collateral Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring or removed Collateral
Agent under this Agreement, and the retiring or removed Collateral Agent under
this Agreement shall promptly (i) transfer to such successor Collateral Agent
all sums, securities and other items of Collateral held hereunder, together with
all records and other documents necessary or appropriate in connection with the
performance of the duties of the successor Collateral Agent under this
Agreement, and (ii) execute and deliver to such successor Collateral Agent such
amendments to financing statements, and take such other actions, as may be
necessary or appropriate in connection with the assignment to such successor
Collateral Agent of the security interests created hereunder, whereupon such
retiring or removed Collateral Agent shall be discharged from its duties and
obligations under this Agreement. After any retiring or removed Collateral
Agent's resignation or removal hereunder as Collateral Agent, the provisions of
this Agreement shall inure to its benefit as to any actions taken or omitted to
be taken by it under this Agreement while it was Collateral Agent hereunder.
SECTION 23. AMENDMENTS; ETC.
---------------
No amendment, modification, termination or waiver of any provision of
this Agreement, and no consent to any departure by Grantor therefrom, shall in
any event be effective unless the same shall be in writing and signed by
Collateral Agent and, in the case of any such amendment or modification, by
Grantor. Any such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which it was given.
XXIII-17
<PAGE>
SECTION 24. NOTICES.
-------
Any notice or other communication herein required or permitted to be
given shall be in writing and may be personally served, telexed or sent by
telefacsimile or United States mail or courier service and shall be deemed to
have been given when delivered in person or by courier service, upon receipt of
telefacsimile or telex, or three Business Days after depositing it in the United
States mail with postage prepaid and properly addressed; provided that notices
--------
to Collateral Agent and Grantor shall not be effective until received. For the
purposes hereof, the address of each party hereto shall be as set forth under
such party's name on the signature pages hereof or, as to either party, such
other address as shall be designated by such party in a written notice delivered
to the other party hereto.
SECTION 25. FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE.
-----------------------------------------------------
No failure or delay on the part of Collateral Agent in the exercise of
any power, right or privilege hereunder shall impair such power, right or
privilege or be construed to be a waiver of any default or acquiescence therein,
nor shall any single or partial exercise of any such power, right or privilege
preclude any other or further exercise thereof or of any other power, right or
privilege. All rights and remedies existing under this Agreement are cumulative
to, and not exclusive of, any rights or remedies otherwise available.
SECTION 26. SEVERABILITY.
------------
In case any provision in or obligation under this Agreement shall be
invalid, illegal or unenforceable in any jurisdiction, the validity, legality
and enforceability of the remaining provisions or obligations, or of such
provision or obligation in any other jurisdiction, shall not in any way be
affected or impaired thereby.
SECTION 27. HEADINGS.
--------
Section and subsection headings in this Agreement are included herein for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose or be given any substantive effect.
SECTION 28. GOVERNING LAW; TERMS.
--------------------
THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING WITHOUT LIMITATION SECTION
5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD
TO CONFLICTS OF LAWS PRINCIPLES, EXCEPT TO THE EXTENT THAT THE CODE PROVIDES
THAT THE PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER,
IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A
JURISDICTION OTHER THAN THE STATE OF NEW YORK. Unless otherwise defined
XXIII-18
<PAGE>
herein or in the Credit Agreement, terms used in Articles 8 and 9 of the Uniform
Commercial Code in the State of New York are used herein as therein defined.
SECTION 29. COUNTERPARTS.
------------
This Agreement may be executed in one or more counterparts and by
different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all such counterparts
together shall constitute but one and the same instrument; signature pages may
be detached from multiple separate counterparts and attached to a single
counterpart so that all signature pages are physically attached to the same
document.
[Remainder of page intentionally left blank]
XXIII-19
<PAGE>
IN WITNESS WHEREOF, Grantor and Collateral Agent have caused this Agreement
to be duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
SEALY CORPORATION
By:
-------------------------------------
Name:
Title:
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK, as Collateral Agent
By:
-------------------------------------
Name:
Title:
XXIII-20
<PAGE>
SCHEDULE 5(b)
TO HOLDINGS SECURITY AGREEMENT
Locations of Equipment:
Locations of Inventory:
XXIII-21
<PAGE>
EXHIBIT XXIV
[FORM OF MORTGAGE]
--------------------------------------------------------
MORTGAGE, ASSIGNMENT OF RENTS AND LEASES,
SECURITY AGREEMENT AND FIXTURE FILING
([**STATE**])
made from
[** SEALY OWNERSHIP ENTITY **],
"Mortgagor"
to
MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent,
"Mortgagee"
Date: As of December 18, 1997
--------------------------------------------------------
PREPARED BY, RECORDING REQUESTED BY,
AND WHEN RECORDED MAIL TO:
O'Melveny & Myers LLP
153 East 53rd Street
New York, New York 10022-4611
Attention: Francis J. Burgweger, Esq.
File #317,790-084[1]
- -------------------
[16]NOTE: If this Mortgage or the Notes which this Mortgage secures are in
your possession, DO NOT DESTROY THEM. State law may require presentation of
this Mortgage and/or the Notes in order to obtain a termination or release of
this Mortgage upon satisfaction of the indebtedness secured hereby. The
termination or release must be recorded in the city, town, county or parish
records for the jurisdiction in which the land described in the Exhibit A is
---------
located.
XXIV-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Definition of Mortgaged Property,
Granting Clauses......................................................................... 1
SECTION 1
OBLIGATIONS OF BORROWER UNDER THE CREDIT AGREEMENT.......................... 8
SECTION 2
COVENANTS AND AGREEMENTS OF MORTGAGOR....................................... 8
2.1 Payment and Performance of Obligations......................................... 8
2.2 Assignment of Policies Upon Foreclosure........................................ 8
2.3 Inspections.................................................................... 9
2.4 Actions by Mortgagee To Preserve Mortgaged Property............................ 10
2.5 Action by Mortgagee to Protect Interests; Subrogation; Waiver of Offset........ 11
2.6 Restrictions on Transfer of Mortgaged Property by Mortgagor.................... 12
2.7 Incorporation by Reference; Full Performance Required; Survival of Warranties.. 13
2.8 Additional Security............................................................ 13
2.9 Further Acts................................................................... 13
2.10 Offsite Improvements........................................................... 14
2.11 Utilities...................................................................... 15
2.12 Leasehold Estate............................................................... 15
SECTION 3
ASSIGNMENT OF RENTS AND LEASES.............................................. 22
3.1 Assignment of Rents and Leases................................................. 22
</TABLE>
XXIV-i
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
3.2 No Limitation of Rights......................................................... 22
3.3 Sale of Mortgaged Property...................................................... 23
3.4 Term of Assignment.............................................................. 23
3.5 Perfection Upon Recordation..................................................... 24
3.6 Bankruptcy Provisions........................................................... 24
SECTION 4
SECURITY AGREEMENT.......................................................... 24
4.1 Grant of Security; Incorporation by Reference................................... 24
4.2 Fixture Filing Financing Statements............................................. 25
4.3 Mortgagee as Secured Party...................................................... 25
SECTION 5
DEFAULTS AND REMEDIES....................................................... 25
5.1 Events of Default............................................................... 25
5.2 Fixtures........................................................................ 26
5.3 Remedies........................................................................ 26
5.4 Costs and Expenses.............................................................. 32
5.5 Additional Rights of Mortgagee.................................................. 32
5.6 Application of Proceeds......................................................... 32
SECTION 6
INDEMNIFICATION............................................................. 33
SECTION 7
TERMINATION................................................................. 33
</TABLE>
XXIV-ii
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 8
MISCELLANEOUS COVENANTS AND AGREEMENTS...................................... 34
8.1 Cumulative Rights; Waivers; Modifications....................................... 34
8.2 Partial Releases................................................................ 34
8.3 Severability.................................................................... 34
8.4 Subrogation..................................................................... 35
8.5 Mortgagee's Powers.............................................................. 35
8.6 Enforceability of Mortgage...................................................... 36
8.7 Interest........................................................................ 36
8.8 Choice of Law................................................................... 36
8.9 Counterparts.................................................................... 36
8.10 Recording References............................................................ 37
8.11 Notices......................................................................... 37
8.12 Successors and Assigns.......................................................... 37
8.13 Expenses........................................................................ 38
8.14 Nonforeign Entity............................................................... 38
8.15 Purpose of the Loans............................................................ 38
8.16 No Joint Venture or Partnership................................................. 39
8.17 Amendments and Waivers.......................................................... 39
8.18 Covenants and Agreements Run with Land.......................................... 39
</TABLE>
XXIV-iii
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
8.19 Statements by Mortgagor......................................................... 39
8.20 Non-Waiver...................................................................... 39
8.21 Survival of Obligations......................................................... 40
8.22 Consent to Jurisdiction and Service of Process.................................. 40
8.23 Waiver of Jury Trial............................................................ 41
</TABLE>
EXHIBIT A - LEGAL DESCRIPTION OF LAND
EXHIBIT B - DESCRIPTION OF ADDITIONAL MORTGAGED
PROPERTY
EXHIBIT C - UCC INFORMATION
SCHEDULE I - MORTGAGEE'S ADDITIONAL RIGHTS
XXIV-iv
<PAGE>
MORTGAGE, ASSIGNMENT OF RENTS AND LEASES,
SECURITY AGREEMENT AND FIXTURE FILING ([**STATE**])
THIS MORTGAGE, ASSIGNMENT OF RENTS AND LEASES, SECURITY AGREEMENT AND
FIXTURE FILING ([**STATE**]) (this "MORTGAGE") is dated as of December 18, 1997,
from [** SEALY OWNERSHIP ENTITY **], a _________ corporation ("MORTGAGOR"),
whose address is [** ________ **], to MORGAN GUARANTY TRUST COMPANY OF NEW YORK,
a [** ________ **] corporation, as Administrative Agent for the Lenders listed
in the Credit Agreement (as hereinafter defined), having an address at [** _____
**] and all successors and assigns as agents (in such capacity, "AGENT"; Agent,
together with its successors and assigns, "MORTGAGEE").
All capitalized terms used but not otherwise defined herein shall have
the same meanings ascribed to such terms in the Credit Agreement.
MORTGAGOR IS THE OWNER OF THE RECORD INTEREST IN THE PARCELS OF LAND AS
INDICATED IN EXHIBIT A HERETO.
---------
THIS MORTGAGE COVERS GOODS WHICH ARE OR ARE TO BECOME AFFIXED TO OR FIXTURES ON
THE LAND DESCRIBED IN EXHIBIT A HERETO. THIS MORTGAGE IS A FIXTURE FILING AND
---------
IS TO BE INDEXED, AMONG OTHER PLACES, IN THE REAL ESTATE RECORDS OF EACH COUNTY
(OR, TO THE EXTENT SIMILAR RECORDS ARE MAINTAINED AT THE CITY OR TOWN LEVEL
INSTEAD OF THE COUNTY LEVEL, EACH SUCH CITY OR TOWN) IN WHICH SAID LAND OR ANY
PORTION THEREOF IS LOCATED.
NOW, THEREFORE, for good and valuable consideration, the receipt and
legal sufficiency of which are hereby acknowledged, and the mutual covenants
herein contained, and in order to secure the Obligations (as hereinafter
defined), MORTGAGOR HEREBY COVENANTS AND AGREES WITH AND REPRESENTS AND WARRANTS
TO MORTGAGEE AS FOLLOWS:
A. GRANTING CLAUSES. Mortgagor hereby:
(i) grants, bargains, sells, assigns, pledges, transfers, mortgages
and conveys, as security for the Obligations, those portions of the following
described Mortgaged Property (as hereinafter defined) that constitute real
property under the laws of the State wherein located to Mortgagee, WITH POWER OF
SALE, pursuant to this Mortgage and Applicable Law, but subject to the Security
Agreement (as hereinafter defined) and the assignment made in paragraph (iii)
---------------
below, and subject to the Permitted Encumbrances, TO HAVE AND TO HOLD such
portions of the Mortgaged Property, to Mortgagee and its successors and assigns
forever, subject to all of the terms, conditions, covenants and agreements
herein set forth, for the security and benefit of Mortgagee and its successors
and assigns; and
<PAGE>
(ii) grants, as security for the Obligations, a security interest to
Mortgagee in that portion of the Mortgaged Property constituting fixtures or
personal property; and
(iii) assigns and transfers to Mortgagee, as security for the
Obligations, all of the Leases (as defined in Exhibit B) and all of the Rents
---------
(as hereinafter defined) and other benefits derived from any Leases, whether now
existing or hereafter created.
All of Mortgagor's right, title and interest in and to the following described
property now or hereafter located upon the Premises (as hereinafter defined), or
appurtenant thereto, or used or to be used in connection with the present or
future use, construction upon, leasing, sale, operation or occupancy of the
Premises is herein collectively referred to as the "MORTGAGED PROPERTY":
GRANTING CLAUSE FIRST
LAND
1. The parcel of land located at ______________ in the City
of_______________, County of _______________________ and State of
_________________, as more particularly described in Exhibit A attached hereto
---------
and by this reference incorporated herein, together with all strips and gores
within or adjoining such property, all estate, right, title, interest, claim or
demand whatsoever of Mortgagor in the streets, roads, sidewalks, alleys, and
ways adjacent thereto (whether or not vacated and whether public or private and
whether open or proposed), all vaults or chutes adjoining such land, all of the
tenements, hereditaments, easements, reciprocal easement agreements, rights
pursuant to any trackage agreement, rights to the use of common drive entries,
rights-of-way and other rights, privileges and appurtenances thereunto belonging
or in any way pertaining thereto, all reversions, remainders, dower and right of
dower, curtesy and right of curtesy, all of the air space and right to use said
air space above such property, all transferable development rights arising
therefrom or transferred thereto, all water and water rights (whether riparian,
appropriative or otherwise, and whether or not appurtenant) and shares of stock
evidencing the same, all mineral, mining, gravel, oil, gas, hydrocarbon
substances and other rights to produce or share in the production of anything
related to such property, all drainage, crop, timber, agricultural, and
horticultural rights with respect to such property, and all other appurtenances
appurtenant to such property, including without limitation, any now or hereafter
belonging or in anywise appertaining thereto, and all claims or demands of
Mortgagor, either at law or in equity, in possession or expectancy, now or
hereafter acquired, of, in or to the same (all of the foregoing being referred
to herein, collectively, as the "LAND");
GRANTING CLAUSE SECOND
IMPROVEMENTS
2. The Improvements described in Exhibit B attached hereto and by this
---------
reference incorporated herein. The Land and the Improvements are referred to
herein, collectively, as the "PREMISES";
XXIV-2
<PAGE>
GRANTING CLAUSE THIRD
RENTS, LEASES AND LEASE PROVISIONS
3. The Rents, Leases and Lease Provisions described in Exhibit B
---------
attached hereto and by this reference incorporated herein, and that certain
Subsidiary Pledge Agreement dated as of even date herewith from Mortgagor and
the other pledgors listed on the signature pages thereof, as debtors, to
Mortgagee, as secured party and as executed by any additional Subsidiary
Guarantor from time to time thereafter as the same may hereafter be amended,
modified, supplemented, restated or renewed (such Subsidiary Pledge Agreement,
together with any and all amendments, modifications, supplements, restatements,
extensions, renewals or replacements thereof are collectively referred to herein
as the "SUBSIDIARY PLEDGE AGREEMENT" and that certain Subsidiary Security
Agreement dated as of even date herewith from Mortgagor and the other grantors
listed on the signature pages thereof, as debtors, to Mortgagee, as secured
party, as the same may hereafter be amended, modified, supplemented, restated or
renewed (such Subsidiary Security Agreement, together with any and all
amendments, modifications, supplements, restatements, extensions, renewals or
replacements thereof are collectively referred to herein as the "SUBSIDIARY
SECURITY AGREEMENT") (the Subsidiary Pledge Agreement and the Subsidiary
Security Agreement are collectively referred to as the "SECURITY AGREEMENT");
GRANTING CLAUSE FOURTH
VARIOUS COLLATERAL
4. The Equipment, Materials, Specifications, Security Deposits,
Financing Commitments, Inventory, Negotiable Documents of Title, Rolling Stock,
Payment Rights, Accounts, Related Contracts, Assigned Related Agreements,
Deposit Accounts, Deposit Account Collateral, Intellectual Property and General
Intangibles described in Exhibit B attached hereto and by this reference
---------
incorporated herein and any other property described in Exhibit B and not
---------
described in any other Granting Clause (collectively, the "VARIOUS COLLATERAL"),
subject to the terms and provisions of the Security Agreement;
GRANTING CLAUSE FIFTH
REFUNDS
5. The Refunds described in Exhibit B attached hereto and by this
---------
reference incorporated herein, subject to the terms and provisions of the
Security Agreement;
GRANTING CLAUSE SIXTH
INSURANCE/CONDEMNATION PROCEEDS
6. The Insurance/Condemnation Proceeds described in Exhibit B
---------
attached hereto and by this reference incorporated herein, subject to the terms
and provisions of the Security Agreement and Section 6.11 of the Credit
------------
Agreement;
XXIV-3
<PAGE>
GRANTING CLAUSE SEVENTH
RECORDS AND PERMITS
7. The Records and Permits described in Exhibit B attached hereto and
---------
by this reference incorporated herein, subject to the terms and provisions of
the Security Agreement;
GRANTING CLAUSE EIGHTH
OPTIONS
8. The Options described in Exhibit B attached hereto and by this
---------
reference incorporated herein, subject to the terms and provisions of the
Security Agreement;
GRANTING CLAUSE NINTH
PROCEEDING RIGHTS
9. The Proceeding Rights described in Exhibit B attached hereto and by
---------
this reference incorporated herein, subject to the terms and provisions of the
Security Agreement;
GRANTING CLAUSE TENTH
ENCUMBRANCE RIGHTS
10. The Encumbrance Rights described in Exhibit B attached hereto and by
---------
this reference incorporated herein, subject to the terms and provisions of
the Security Agreement;
GRANTING CLAUSE ELEVENTH
GREATER ESTATE RIGHTS
11. The Greater Estate Rights described in Exhibit B attached hereto and
---------
by this reference incorporated herein, subject to the terms and provisions of
the Security Agreement;
GRANTING CLAUSE TWELFTH
AFTER ACQUIRED PROPERTY
12. All property hereafter acquired or constructed by Mortgagor of the
type described in the foregoing Granting Clauses and located upon the Premises,
or appurtenant thereto, or used or to be used in connection with the present or
future use, construction upon, leasing, sale, operation or occupancy of the
Premises, which shall forthwith, upon acquisition or construction thereof by
Mortgagor and without any act or deed by Mortgagor or Mortgagee, become subject
to the lien and security interest of this Mortgage as if such property were now
owned by Mortgagor and were specifically described in this Mortgage and were
specifically conveyed or encumbered hereby; and
XXIV-4
<PAGE>
GRANTING CLAUSE THIRTEENTH
ACCESSIONS AND PROCEEDS
13. All accessions, additions, replacements, substitutions, renewals
or attachments to, and proceeds of, any of the foregoing,
TO HAVE AND TO HOLD the Mortgaged Property unto Mortgagee and its
successors and assigns, for the uses and purposes set forth herein, forever.
B. OBLIGATIONS.
This Mortgage is given to secure ratably and equally the payment and
performance of the following obligations (collectively referred to as the
"OBLIGATIONS"):
1. Payment of and performance of (a) all "Guarantied Obligations" (the
"GUARANTIED OBLIGATIONS") of Mortgagor under, and as defined in, that
certain Subsidiary Guaranty dated as of even date herewith (the "SUBSIDIARY
GUARANTY") from Mortgagor and other subsidiaries of Company and Holdings
(Company and Holdings collectively, "BORROWER") in favor of and for the
benefit of Mortgagee, pursuant to which Mortgagor is unconditionally and
irrevocably, as a primary obligor and not merely as a surety, guarantying
the due and punctual payment in full of the "Obligations" of Borrower under
and as defined in that certain Credit Agreement dated as of even date
herewith by and among Borrower, as borrower, Goldman Sachs Credit Partners,
as syndication agent and arranger, the financial institutions listed on the
signature pages thereof (each individually referred to herein as a "LENDER"
and collectively as "LENDERS") and Mortgagee, and any and all amendments,
modifications, supplements, restatements, extensions, renewals or
replacements thereof (such Senior Secured Revolving Credit Agreement and
any and all amendments, modifications, supplements, restatements,
extensions, renewals or replacements thereof are collectively referred to
herein as the "CREDIT AGREEMENT"); and (b) all obligations of Mortgagor
under, with respect to or arising in connection with this Mortgage,
including, without limitation, all obligations to Mortgagee for fees, costs
and expenses (including attorneys' fees and disbursements) as provided
therein and herein;
2. Payment and performance of all obligations of Mortgagor to the
Lenders and/or Mortgagee for fees, costs and expenses required to be paid
by Mortgagor under the other Loan Documents including, without limitation
fees, costs and expenses (including attorneys' fees and disbursements), all
becoming due as provided therein;
XXIV-5
<PAGE>
3. Payment of all sums advanced by the Lenders or Mortgagee in
accordance with the provisions of this Mortgage or the other Loan Documents
to protect the Mortgaged Property, with interest thereon at the rate
specified in Section 2.2.E of the Credit Agreement (the "AGREED RATE");
-------------
4. Payment of all sums advanced and costs and expenses incurred by the
Lenders or Mortgagee in accordance with the terms of the Loan Documents in
connection with the Obligations or any part thereof, any renewal, extension
or change of or substitution for the Obligations or any part thereof, or
the acquisition or perfection of the security therefor, whether such
advances, costs and expenses were made or incurred at the request of
Borrower, Mortgagor, Mortgagee or any Lender;
5. Payment of all other sums, with interest thereon, which may
hereafter be loaned to Mortgagor, or its successors or assigns, by the
Lenders or Mortgagee, or their respective successors or assigns, or by the
holder of any of the Notes, pursuant to an agreement that recites that the
repayment of such sums and Mortgagor's other obligations under such
agreement are secured by this Mortgage;
6. Payment of all sums with respect to the Obligations that would
become due but for the operation of the automatic stay under Section 362(a)
of the Bankruptcy Code, 11 U.S.C. (S)362(a), including, without limitation,
interest, fees and other charges that, but for the filing of a petition in
bankruptcy with respect to Mortgagor would accrue on the Obligations,
whether or not a claim is alleged against Mortgagor for such sums in any
such bankruptcy proceeding;
7. Due, prompt and complete performance of every obligation, covenant
and agreement of Mortgagor contained in any agreement now or hereafter
executed by Mortgagor which recites that the obligations thereunder are
secured by this Mortgage from and after the date on which all mortgage
recording taxes, general intangible taxes or other taxes payable in respect
of obligations have been paid; and
8. All renewals, extensions, amendments, modifications and changes and
supplements of, or substitutions or replacements for, all or any part of
the items described in Paragraphs 1 through 7 above.
----------------------
C. FUTURE ADVANCES.
In addition to all other indebtedness secured by this Mortgage, this
Mortgage shall also secure and constitute a first Lien on the Mortgaged Property
for:
XXIV-6
<PAGE>
1. Mortgagor's guaranty of all future advances (including all
extensions, renewals and modifications of such future advances) that relate
directly or indirectly to the Credit Agreement (including advances pursuant
to Section 2.1 thereof) or to this Mortgage and are made as provided in any
-----------
of the Loan Documents by the Lenders or Mortgagee to Borrower or Mortgagor
or otherwise as provided in any of the Loan Documents for any purpose so
related after the date of this Mortgage, and Mortgagor acknowledges that
the irrevocable and unconditional guaranty of such future advances is among
the Obligations; and
2. all sums advanced or paid pursuant to the terms of this Mortgage
by Mortgagee upon a default or Event of Default under the terms of this
Mortgage (a) for real estate taxes, charges and assessments that may be
imposed by law upon the Premises, (b) for premiums on insurance policies
covering the Premises, (c) for expenses incurred in upholding the Lien of
this Mortgage, including but not limited to the expenses of any litigation
to prosecute or defend the rights and Lien created by this Mortgage, (d) to
which Mortgagee becomes subrogated, upon payment, under recognized
principles of law or equity, or under express statutory authority or (e)
for any other purpose, in each case, with interest thereon at the Agreed
Rate; and
3. all other sums expended by Mortgagee in accordance with the terms
of this Mortgage (including without limitation the amounts advanced
pursuant to Sections 2.3, 2.4, 2.5 and 5.5 hereof),
------------ --- --- ---
just as if such advances were made on the date of this Mortgage. Any future
advances may be made in accordance with the terms of the Credit Agreement, or at
the option of Mortgagee, as provided herein or in the other Loan Documents. The
total amount of the indebtedness that may be secured by this Mortgage may
increase or decrease from time to time.
D. DEFINITIONS AND INTERPRETATION.
Supplementing the definitions listed below in this Paragraph D, the
-----------
definitions set forth in Section 1.1 of the Credit Agreement and the provisions
-----------
with respect to interpretation and construction of the Loan Documents as set
forth in Sections 1.3 and 9.16 of the Credit Agreement are hereby incorporated
------------ ----
by reference into this Mortgage with the same effect as if set forth in full
herein. The following terms used in this Mortgage shall have the following
meanings:
"APPLICABLE LAW" means, collectively, all statutes, laws, rules,
regulations, ordinances, orders, decisions, writs, judgments, decrees and
injunctions of governmental authorities (including Environmental Laws) affecting
Borrower or the Collateral or any part thereof (including the acquisition,
development, construction, renovation, occupancy, use, improvement, alteration,
management, operation, maintenance, repair or restoration thereof), whether now
or hereafter enacted and in force, and all authorizations relating thereto, and
all covenants, conditions and restrictions contained in any instruments, either
of record or known to Borrower, at any time in
XXIV-7
<PAGE>
force affecting any Property or any part thereof, including any such covenants,
conditions and restrictions which may (i) require improvements, repairs or
alterations in or to such Property or any part thereof or (ii) in any way limit
the use and enjoyment thereof; for purposes of usury, Applicable Law means the
law of the State of New York applicable to maximum rates of interest.
"SECURED PARTY" means Mortgagee, in its capacity as administrative agent
for and representative of the Lenders and any Interest Rate Exchangers (as
defined in the Security Agreement (defined below)).
"SECURITY AGREEMENT" means the Security Agreement executed and delivered
by Borrower and the Mortgagee on or before the Closing Date, pursuant to which
Borrower will pledge and grant a security interest in the Collateral described
therein to Mortgagee for the benefit of the Mortgagee and the Lenders, as such
Security Agreement may be amended, restated, supplemented or otherwise modified
from time to time in accordance with the terms thereof and hereof.
"TRANSFER" means any conveyance, assignment, sale, mortgaging,
encumbrance, pledging, hypothecation, granting of a security interest in,
granting of options with respect to or other disposition of (directly or
indirectly, voluntarily or involuntarily, by operation of law or otherwise, and
whether or not for consideration or of record) all or any portion of any legal
or beneficial interest (i) in all or any portion of any Property or (ii) in any
other assets of Borrower or any of Borrower's subsidiaries.
Section 1
OBLIGATIONS OF BORROWER UNDER THE CREDIT AGREEMENT
The "Obligations" of Borrower under and as defined in the Credit
Agreement include, without limitation: (a) the due and punctual payment of the
indebtedness, together with interest thereon and other amounts payable with
respect thereto, owed under the Notes up to the maximum aggregate principal
amount set forth in Section 2.1 of the Credit Agreement; (b) the due and
-----------
punctual payment of all reimbursement obligations in respect of Letters of
Credit together with interest thereon and other amounts payable with respect
thereto; and (c) the due and punctual payment of any fee payable in accordance
with Section 2.4 of the Credit Agreement (together with interest thereon and
-----------
other amounts payable with respect thereto).
XXIV-8
<PAGE>
Section 2
COVENANTS AND AGREEMENTS OF MORTGAGOR
2.1 PAYMENT AND PERFORMANCE OF OBLIGATIONS.
--------------------------------------
Mortgagor shall pay when due and perform the Obligations, including,
without limitation, all amounts payable under and with respect to the Subsidiary
Guaranty (including interest thereon as provided in the Subsidiary Guaranty);
all charges, fees and other sums (including, without limitation, attorneys' fees
and disbursements, late charges, prepayment charges and other amounts and all
costs of collection) to be paid by Mortgagor as provided in this Mortgage or in
the other Loan Documents; the principal and interest on any future advances
secured by this Mortgage; and the principal of and interest on any other
indebtedness secured by this Mortgage.
2.2 ASSIGNMENT OF POLICIES UPON FORECLOSURE.
---------------------------------------
In the event of foreclosure of this Mortgage or other transfer of
title or assignment of the Mortgaged Property, the acceptance by Mortgagee (or a
nominee of Mortgagee) of a deed to any part of the Mortgaged Property in lieu of
foreclosure of this Mortgage or in connection with a plan of reorganization
filed under Chapter 11 of the Bankruptcy Code, or the exercise by Mortgagee of
any remedy set forth herein, in extinguishment, in whole or in part, of the debt
secured hereby or upon the acceptance by Mortgagee (or a nominee of Mortgagee)
of a deed to any part of the Mortgaged Property in lieu of foreclosure of this
Mortgage but not in extinguishment, in whole or in part, of the debt secured
hereby, all right, title and interest of Mortgagor in and to all policies of
insurance required pursuant to Section 6.4 of the Credit Agreement shall inure
-----------
to the benefit of and pass to the successor in interest to Mortgagor or the
purchaser or grantee of the Mortgaged Property.
XXIV-9
<PAGE>
2.3 INSPECTIONS.
-----------
Mortgagee and its agents, representatives and employees are authorized
to enter, at any reasonable time and upon reasonable prior notice to Mortgagor,
upon or in any part of the Mortgaged Property as set forth in the Credit
Agreement for the purpose of inspecting the same and for the purpose of
performing any of the acts they are authorized to perform hereunder or under the
terms of the Loan Documents, including performing any architectural,
environmental and engineering audits and assessments. Mortgagee agrees that
employees of Mortgagor shall be entitled to accompany Mortgagee and its agents,
representatives and employees during any such inspection or other entry upon the
Mortgaged Property, and Mortgagee and its agents, representatives and employees
shall use reasonable efforts not to interfere with Mortgagor's operations at the
Premises in connection with such inspection or other entry. Mortgagor shall, at
Mortgagor's sole expense, conduct and complete all environmental investigations
(including Phase I, Phase II and Phase III environmental investigations),
inspections, monitoring, studies, sampling, testing, boring, reporting, clean
up, containment, remediation and/or removal of any Hazardous Materials as and
when required, and if the same are not timely conducted and completed by
Mortgagor due to the fault of Mortgagor or any of its employees, then Mortgagee
shall have the right to do so (at Mortgagee's option and without any obligation
to do so) on Mortgagor's behalf and at Mortgagor's expense. Mortgagor hereby
grants Mortgagee and its employees and agents an irrevocable and non-exclusive
royalty-free license, to enter the Mortgaged Property and to investigate
(including conducting Phase I, Phase II and Phase III environmental
investigations), inspect, monitor, study, sample, test and conduct borings, to
make such reports of the findings as may be required by Applicable Law, and to
clean up, contain, remediate and/or remove Hazardous Materials (but Mortgagee
shall have no obligation to do so). Without limitation of any other rights or
remedies of Mortgagee, Mortgagor hereby irrevocably appoints and constitutes
Mortgagee as its lawful attorney-in-fact, coupled with an interest and with full
power of substitution, for the purpose of taking any of the actions described in
the immediately preceding sentence and all acts incidental thereto. The costs
of any investigation, inspection, monitoring, studying, sampling, testing,
boring, clean-up, containment, remediation and/or removal shall be paid by
Mortgagor and shall be secured by this Mortgage. Notwithstanding the foregoing,
Mortgagee shall have no duty to make any inspection of the Mortgaged Property
(including, without limitation, any environmental inspection) and shall not
incur any liability for making or not making any such inspection, and shall not
be required to report the results of any such inspection to Mortgagor.
XXIV-10
<PAGE>
2.4 ACTIONS BY MORTGAGEE TO PRESERVE MORTGAGED PROPERTY.
---------------------------------------------------
From and after the occurrence of an Event of Default, Mortgagee may,
without obligation so to do and without releasing Mortgagor from any Obligation,
make any payment or perform any act required to be paid or performed by
Mortgagor under the terms of any of the Loan Documents, if Mortgagee in its sole
discretion shall deem such payment or act necessary or proper to protect the
security hereof. In connection therewith (without limiting its general and
other powers, whether conferred herein, in any other Loan Document or by law),
Mortgagee shall have and is hereby given the right (without limiting the rights
otherwise available to Mortgagee under any of the other Loan Documents or any
other provisions of this Mortgage), but not the obligation, after Mortgagor's
failure to cure within the period described above, and upon the occurrence and
during the continuance of an Event of Default: (a) to enter upon and take
possession of the Mortgaged Property, (b) to make additions, alterations,
repairs and improvements to the Mortgaged Property which Mortgagee may consider
necessary or proper to keep the Mortgaged Property in good condition and repair,
(c) to appear and participate in any action or proceeding affecting or which may
affect the security hereof or the rights or powers of Mortgagee, (d) to pay,
purchase, contest or compromise any claim, charge, Lien or debt which in the
judgment of Mortgagee may materially and adversely affect or appears to
materially and adversely affect the security of this Mortgage or to be prior or
superior hereto except for any claims, charges, Liens or debts being diligently
contested in good faith by Mortgagor in appropriate proceedings in accordance
with the terms of Sections 6.3 or 6.6 of the Credit Agreement, (e) to pay any
Impositions except those Impositions being diligently contested in good faith by
Mortgagor in appropriate proceedings in accordance with the terms of Section 6.3
of the Credit Agreement and to procure, maintain and pay premiums on the
insurance policies referred to herein, and (f) in exercising such powers, to pay
necessary expenses, including fees and disbursements of counsel or other
necessary and desirable consultants. No such advance or performance shall be
deemed to have cured any or Event of Default. Mortgagor shall, within ten (10)
days after Mortgagee's written demand therefor, pay to Mortgagee an amount equal
to all costs and expenses actually incurred by Mortgagee in accordance with the
provisions set forth herein and in the other Loan Documents in connection with
the exercise by Mortgagee of the foregoing rights including, without limitation,
costs of evidence of title and of endorsements to the Closing Date Mortgage
Policies, court costs, architectural or engineering studies, appraisals, surveys
and architect's, engineer's, accountant's, receiver's, trustee's and attorneys'
fees, together with interest thereon from the date of such expenditures at the
Agreed Rate. All sums advanced and all expenses incurred by Mortgagee in
accordance with the provisions set forth herein and in the other Loan Documents
in connection with such advances or actions and all other sums advanced or
expenses incurred by Mortgagee hereunder in accordance with the provisions set
forth herein and in the other Loan Documents (whether required or optional and
whether indemnified hereunder or not) shall be deemed Obligations owing by
Mortgagor and shall bear interest from the date incurred or paid by Mortgagee
until paid by Mortgagor at the Agreed Rate. All such amounts advanced or
incurred, and all such interest thereon, shall be a part of the Obligations and
shall be secured by this Mortgage. Mortgagee, upon making such advance, shall be
subrogated to all of the rights of the person receiving such advance.
XXIV-11
<PAGE>
2.5 ACTION BY MORTGAGEE TO PROTECT INTERESTS; SUBROGATION; WAIVER OF
----------------------------------------------------------------
OFFSET.
------
A. ACTION BY MORTGAGEE TO PROTECT INTERESTS. If the title,
interest or Lien, as the case may be, of Mortgagor or Mortgagee in and to the
Mortgaged Property or any part thereof, or the security of this Mortgage, or the
rights or powers of Mortgagee or Mortgagor hereunder, shall be attacked, either
directly or indirectly, or if any legal proceedings are commenced involving
Mortgagor (which proceedings require notice to Agent or the Lenders pursuant to
Section 6.1(x) of the Credit Agreement), Mortgagee or the Mortgaged Property,
Mortgagor shall promptly upon obtaining knowledge of the same give written
notice thereof to Mortgagee and at Mortgagor's own expense shall take all
reasonable steps diligently to defend against any such attack or proceedings,
employing attorneys reasonably acceptable to Mortgagee; and if an Event of
Default shall have occurred and be continuing, Mortgagee may take such
independent action in connection therewith as it may in its discretion deem
advisable, and all reasonable costs and expenses, including, without limitation,
reasonable attorneys' fees and disbursements, actually incurred by Mortgagee in
connection therewith shall be an Obligation owing by Mortgagor and payable to
Mortgagee, within ten (10) days of Mortgagee's written demand for payment, and
shall bear interest at the Agreed Rate. Mortgagor agrees that, if Mortgagor
fails to perform any act which Mortgagor is required to perform under this
Section 2.5A, Mortgagee may (after ten (10) days' written notice to Mortgagor),
- ------------
but shall not be obligated to, perform or cause to be performed such act, and
any expense actually incurred by Mortgagee in connection therewith shall be an
Obligation owing by Mortgagor and payable to Mortgagee within ten (10) days of
Mortgagee's written demand for payment, and shall bear interest at the Agreed
Rate, and shall be secured by this Mortgage, and Mortgagee shall be subrogated
to all of the rights of the party receiving such payment. The liabilities of
Mortgagor as set forth in this Section 2.5 shall survive the termination of this
-----------
Mortgage or of any other Loan Document.
B. SUBROGATION. Mortgagor hereby waives any and all right to
claim or recover against Mortgagee and the Lenders, and their respective
officers, employees, agents and representatives, for loss of or damage to
Mortgagor, the Mortgaged Property, Mortgagor's other property or the property of
others under Mortgagor's control from any cause insured against or required to
be insured against by the provisions of this Mortgage.
C. WAIVER OF OFFSET. All sums payable by Mortgagor pursuant to
this Mortgage shall be paid (except as otherwise expressly provided herein or in
any other Loan Document) without notice, demand, counterclaim, setoff, deduction
or defense and without abatement, suspension, deferment, diminution or
reduction, and the Obligations and liabilities of Mortgagor hereunder shall in
no way be released, discharged or otherwise affected (except as otherwise
expressly provided herein) by reason of: (i) any damage to or destruction of or
any condemnation or similar taking of the Mortgaged Property or any part
thereof; (ii) any restriction or prevention of or interference by any third
party with any use of the Mortgaged Property or any part thereof; (iii) any
title defect or encumbrance or any eviction from the Premises or any part
thereof by title paramount or otherwise; (iv) any bankruptcy, insolvency,
reorganization,
XXIV-12
<PAGE>
composition, adjustment, dissolution, liquidation or other like proceeding
relating to Mortgagee or the Lenders, or any action taken with respect to this
Mortgage by any trustee or receiver of Mortgagee, or by any court, in any such
proceeding; (v) any claim which Mortgagor has or might have against Mortgagee;
(vi) any default or failure on the part of Mortgagee to perform or comply with
any of the terms hereof or of any other agreement with Mortgagor; or (vii) any
other occurrence whatsoever, whether or not Mortgagor shall have notice or
knowledge of any of the foregoing. Except as expressly provided herein,
Mortgagor waives all rights now or hereafter conferred by statute or otherwise
to any abatement, suspension, deferment, diminution or reduction of any sum
secured hereby and payable by Mortgagor.
2.6 RESTRICTIONS ON TRANSFER OF MORTGAGED PROPERTY BY MORTGAGOR.
-----------------------------------------------------------
The financial stability and managerial and operational ability of
Mortgagor are substantial and material considerations to Mortgagee and the
Lenders in their agreement to accept the Notes from Borrower and other Loan
Documents from Mortgagor and Borrower and to enter into the transactions
contemplated thereby. Mortgagor understands and acknowledges that a Transfer of
the Mortgaged Property may significantly and materially alter and reduce
Mortgagee's security for the Obligations. Therefore, in order to induce
Mortgagee and the Lenders to make the loans secured hereby, Mortgagor agrees
that, except as expressly permitted under the terms of the Credit Agreement,
Mortgagor will not Transfer the Mortgaged Property, or any portion thereof,
without the prior written consent of Mortgagee. In the event of any Transfer of
the Mortgaged Property, or any portion thereof, that is not expressly permitted
under the terms of the Credit Agreement, or consented to by Mortgagee in
writing, Mortgagee shall have the absolute right at its option, without prior
demand or notice, to declare all of the Obligations immediately due and payable.
Consent to one such Transfer shall not be deemed to be a waiver of the right to
require consent to future or successive Transfers. If consent should be given
to a Transfer and if this Mortgage is not released to the extent of the
transferred portion of the Mortgaged Property by a writing signed by Mortgagee,
as required by Applicable Law, and recorded in the proper city, town, county or
parish records, then (unless otherwise provided in the Credit Agreement) any
such Transfer shall be subject to this Mortgage and any such transferee shall
assume all obligations hereunder and agree to be bound by all provisions
contained herein. Any such assumption shall not, however, release Mortgagor or
any maker or guarantor of the Obligations from any liability thereunder without
the prior written consent of Mortgagee. This covenant shall run with the land
and remain in full force and effect until all of the Obligations are fully paid
(or this Mortgage is released of record), and Mortgagee may, without notice to
Mortgagor, deal with any transferees with reference to the Obligations in the
same manner as Mortgagor, without in any way altering or discharging Mortgagor's
liability or the liability of any guarantor of Mortgagor with respect thereto.
The provisions of this Section 2.6 shall apply to each and every Transfer of the
-----------
Mortgaged Property or any portion thereof, regardless of whether or not
Mortgagee has consented to or waived, by its action or inaction, its rights with
respect to any previous Transfer.
XXIV-13
<PAGE>
2.7 INCORPORATION BY REFERENCE; FULL PERFORMANCE REQUIRED; SURVIVAL OF
------------------------------------------------------------------
WARRANTIES.
----------
Mortgagor hereby makes to Mortgagee all of the affirmative and
negative covenants relating to the Mortgaged Property that are set forth in
Sections 6 and 7 of the Credit Agreement, which affirmative and negative
- ---------- -
covenants are incorporated herein by reference as of the date hereof. All
representations, warranties and covenants of Mortgagor made to Mortgagee in the
Loan Documents or incorporated by reference therein shall run to the benefit of
Mortgagee, shall survive the execution and delivery of this Mortgage and shall
remain continuing obligations, warranties and representations of Mortgagor so
long as any portion of the Obligations has accrued and remains outstanding and
Mortgagor shall fully and faithfully satisfy and perform all such Obligations,
representations, warranties and covenants as required by the terms of the Loan
Documents. In the event of a conflict between the provisions of this Mortgage
and the Credit Agreement, it is the intention of Mortgagor and Mortgagee that
both such documents shall be read together and construed, to the fullest extent
possible, to be in concert with each other. In the event of a conflict that
cannot be resolved as aforesaid, the provisions of the Credit Agreement shall
control and govern and Mortgagor shall comply therewith.
2.8 ADDITIONAL SECURITY.
-------------------
No other security now existing, or hereafter taken, to secure the
Obligations shall be impaired or affected by the execution of this Mortgage; and
all additional security shall be taken, considered and held as cumulative. The
taking of additional security, execution of partial releases of the security, or
any extension of the time of payment or performance of the Obligations shall not
diminish the force, effect or Lien of this Mortgage and shall not affect or
impair the liability of any maker, surety, guarantor or endorser for the payment
or performance of said Obligations. Neither the acceptance of this Mortgage nor
its enforcement, whether by court action or pursuant to the power of sale or
other powers herein contained, shall prejudice or in any manner affect
Mortgagee's right, to realize upon or enforce any other security now or
hereafter held by Mortgagee, it being agreed that Mortgagee shall be entitled to
enforce this Mortgage and any other security now or hereafter held by Mortgagee
in such order and manner as it may in its absolute discretion determine.
XXIV-14
<PAGE>
2.9 FURTHER ACTS.
------------
XXIV-15
<PAGE>
Mortgagor shall do and perform all acts as required under Section 7.2
-----------
of the Credit Agreement or as necessary to keep valid and effective the Lien
hereof and to carry into effect its objective and purposes, in order to protect
the lawful owner and holder of this Mortgage and the other Obligations.
Promptly upon request, from time to time, of Mortgagee and at Mortgagor's
expense, Mortgagor shall execute, acknowledge and deliver to Mortgagee such
other and further instruments and do such other acts as in the reasonable
opinion of Mortgagee may be necessary or reasonably requested by Mortgagee to
(a) grant to Mortgagee a first priority perfected Lien on all of the Mortgaged
Property to secure all of the Obligations, (b) grant to Mortgagee, to the
fullest extent permitted by Applicable Law, the right to foreclose on the
Mortgaged Property nonjudicially, upon the occurrence and during the continuance
of an Event of Default, (c) correct any defect or error which may be discovered
in the contents of this Mortgage (including, without limitation, all exhibits
and/or schedules hereto) or any other Loan Document or in the recording or
filing of this Mortgage or any other Loan Document, (d) identify more fully and
subject to the Liens created hereby and by the other Loan Documents any property
intended by the terms hereof and of the other Loan Documents to be covered
hereby and thereby (including any renewals, additions, substitutions,
replacements or appurtenances to the Mortgaged Property), (e) assure the first
priority of this Mortgage and of such Liens, and (f) otherwise effectuate the
intent of this Mortgage. In the event of the acquisition by Mortgagor or any
affiliate of Mortgagor of any greater estate in the Premises or in any other
part of the Mortgaged Property or the acquisition by Mortgagor of any after
acquired property as described in Granting Clause Twelfth, Mortgagor shall
-----------------------
notify Mortgagee and, concurrently with the consummation of such acquisition,
shall execute and record (and shall cause Grantor's affiliate, as the case may
be, to execute and record) an instrument sufficient in Mortgagee's sole
discretion to extend and spread the Lien of this Mortgage to encumber such
acquired interest or after acquired interest as a first priority mortgage Lien.
To the full extent permitted under Applicable Law and in accordance with the
grants made by Mortgagor in Granting Clause Eleventh and Granting Clause Twelfth
------------------------ -----------------------
whether or not Mortgagor has executed and recorded the instrument described in
the preceding sentence, this Mortgage shall automatically be a Lien on such
acquired interest or after acquired interest. Upon request by Mortgagee,
Mortgagor shall supply evidence of fulfillment of each of the covenants herein
contained concerning which a request for such evidence has been made. Mortgagor
hereby irrevocably appoints Mortgagee as its attorney-in-fact, coupled with an
interest and with full power of substitution, to take the above actions and to
perform such obligations on behalf of Mortgagor, at Mortgagor's sole expense, if
Mortgagor fails to fully comply with Mortgagor's obligations under this Section
-------
2.9. Without limiting the generality of the foregoing, Mortgagor shall promptly
- ---
and, insofar as not contrary to Applicable Law, at Mortgagor's own expense,
record, rerecord, file and refile in such offices, at such times and as often as
may be necessary, this Mortgage, additional mortgages, deeds of trust and deeds
to secure debt, and every other instrument in addition or supplemental hereto,
including applicable financing statements, as may be necessary to create,
perfect, maintain and preserve the Liens (and priority thereof) intended to be
created hereby and by the other Loan Documents and the rights and remedies of
Mortgagee hereunder and thereunder. Upon request by Mortgagee, Mortgagor shall
supply evidence reasonably satisfactory to Mortgagee of fulfillment of each of
the covenants herein contained concerning which a request for such evidence has
been made.
XXIV-16
<PAGE>
2.10 OFFSITE IMPROVEMENTS.
--------------------
Mortgagor shall not construct or install improvements or Equipment (as
defined in Exhibit B hereto) necessary or desirable for the operation of the
---------
Premises on real property or any interest in real property (for example, an
easement, license or lease) that is not subject to the Lien of this Mortgage
without the prior written consent of Mortgagee (which consent may be granted or
withheld in Mortgagee's sole discretion), but only to the extent that: (a) the
construction or installation of such improvements or Equipment on such other
real property is commercially reasonable when compared to, and commercially
preferable to, construction or installation on the real property that is subject
to the Lien of this Mortgage; and (b) Mortgagor grants Mortgagee rights
(including, but not limited to, easements or reciprocal easement agreements)
with respect to such improvements, Equipment and land that are appurtenant to
the Land encumbered by this Mortgage and are sufficient in Mortgagee's judgment
(i) to enable Mortgagee and any future owner or holder of Mortgagor's interest
in the Premises to enjoy the full and unrestricted use of such improvements and
Equipment and (ii) to continue Mortgagee's first priority Lien on any such
Equipment. Mortgagor's obligations under this Section 2.10 shall be full
------------
recourse obligations of Mortgagor and shall survive any assignment or
foreclosure of this Mortgage, the acceptance by Mortgagee (or a nominee of
Mortgagee) of a deed to any part of the Mortgaged Property in lieu of
foreclosure or in connection with a plan of reorganization filed under Chapter
11 of the Bankruptcy Code, or the exercise by Mortgagee of any remedy set forth
herein.
2.11 UTILITIES.
---------
Mortgagor shall pay or cause to be paid prior to becoming delinquent
all utility charges which are incurred for the benefit of the Mortgaged Property
or which may become a Lien against the Mortgaged Property for gas, steam,
electricity, telephone, water, sewer services and all other utilities furnished
to the Mortgaged Property and all other assessments or charges of a similar
nature, whether public or private, affecting or related to the Mortgaged
Property or any portion thereof, whether or not such taxes, assessments or
charges are or may become Liens thereon.
2.12 HAZARDOUS MATERIALS AND ENVIRONMENTAL LAWS.
------------------------------------------
Mortgagor shall exercise all due diligence in order to comply with any
and all applicable Environmental Laws. Without limiting the foregoing,
Mortgagor shall comply with the provisions of Section 6.7 of the Credit
-----------
Agreement.
2.13 LEASEHOLD ESTATE.
----------------
This Section 2.13 shall apply only if Mortgagor's interest in either
------------
the Land or the Improvements is as the tenant under a leasehold estate at the
Premises (the "SUBJECT LEASE"). If Mortgagor is a tenant under a Subject Lease,
Mortgagor hereby covenants, represents and warrants to Mortgagee with respect to
the Subject Lease as follows:
XXIV-17
<PAGE>
A. No default by Mortgagor as lessee has occurred and is
continuing under the Subject Lease and no event has occurred which, with
the passage of time or service of notice, or both would constitute an event
of default under the Subject Lease. The Subject Lease is in full force and
effect. Mortgagor has obtained from the lessor with respect to the Subject
Lease all consents to this Mortgage required to be obtained from such
lessor and Mortgagor has provided (or within 5 days from the date hereof
shall provide) such lessor with all notices required to be given to such
lessor with respect to this Mortgage together with copies of all documents
required to be delivered to such lessor with respect to this Mortgage under
the terms of the Subject Lease.
B. All rents, additional rents, percentage rents and all other
charges due and payable under the Subject Lease have been fully paid
through a date no earlier than 30 days before the date hereof.
C. The Subject Lease covers 100% of that part of the Land and
Improvements that are not owned in fee by Mortgagor, and Mortgagor is the
owner of the entire lessee's interest in and under the Subject Lease and
has the right and authority under the Subject Lease to execute this
Mortgage and to encumber Mortgagor's interest therein.
D. Mortgagor shall, at its sole cost and expense, promptly and
timely perform and observe all the terms, covenants and conditions required
to be performed and observed by Mortgagor as lessee under the Subject Lease
(including, but not limited to, the payment of all rent, additional rent,
percentage rent and other charges required to be paid under the Subject
Lease).
E. If Mortgagor shall violate any of the covenants specified in
Section 2.13D above, Mortgagor grants Mortgagee the right (but not the
-------------
obligation), to take any action as may be necessary to prevent or cure any
default of Mortgagor under the Subject Lease, if necessary to protect
Mortgagee's interest hereunder, and Mortgagee shall have the right to enter
all or any portion of the Premises at such times and in such manner as
Mortgagee deems necessary, in order to prevent or to cure any such default.
Mortgagee may exercise its rights under this Section 2.12E at any time
-------------
after, but only after, Mortgagor shall have (i) received from the lessor
under the Subject Lease or any other Person notice of such default, and
(ii) failed to promptly commence curing such default.
F. No action taken or payment or made by Mortgagee to prevent any
default by Mortgagor under the Subject Lease shall remove or waive, as
between Mortgagor and Mortgagee, the default which occurred hereunder by
virtue of the default by Mortgagor under the Subject Lease. All sums
actually expended by Mortgagee in accordance with the terms of this Section
-------
2.13 in order to cure any such default shall be paid by Mortgagor to
----
Mortgagee, within ten (10) days of Mortgagee's written demand, with
interest thereon at the Agreed Rate. All such indebtedness shall be deemed
to be secured by this Mortgage.
XXIV-18
<PAGE>
G. Mortgagor shall, promptly upon obtaining knowledge of the
following events, notify Mortgagee in writing of (i) the occurrence of any
material default by the lessor under the Subject Lease or the occurrence of
any event which, with the passage of time or service of notice, or both,
would constitute a material default by the lessor under the Subject Lease,
and (ii) the receipt by Mortgagor of any notice (written or otherwise) from
the lessor under the Subject Lease noting or claiming the occurrence of any
default by Mortgagor under the Subject Lease or the occurrence of any event
which, with the passage of time or service of notice, or both, would
constitute a default by Mortgagor under the Subject Lease. Mortgagor shall
deliver to Mortgagee a copy of any such written notice of default.
H. Promptly upon demand by Mortgagee from time to time, Mortgagor
shall use reasonable efforts (other than payment to the lessor) to obtain
from the lessor under the Subject Lease and furnish to Mortgagee the
estoppel certificate of such lessor stating the date through which rent has
been paid and whether or not there are any defaults under its lease and
specifying the nature of such claimed defaults, if any, and stating any
other information that the lessor is obligated to provide.
I. Mortgagor shall promptly notify Mortgagee, in writing, of any
request made by either party to the Subject Lease for arbitration or
appraisal proceedings pursuant to the Subject Lease and of the institution
of any arbitration or appraisal proceedings, as well as of all proceedings
thereunder, and shall promptly deliver to Mortgagee a copy of the
determination of the arbitrators or appraisers in each such arbitration or
appraisal proceeding. Mortgagee shall have the right (but not the
obligation), following the delivery of written notice by Mortgagor, to
participate in the appointment of any arbitrator or appraiser to be
appointed by Mortgagor and (to the extent permitted under the Subject
Lease) to participate (at Mortgagee's expense unless an Event of Default
shall have occurred and be continuing, in which case at Mortgagor's
expense) in such arbitration or appraisal proceedings in association with
Mortgagor or on its own behalf as an interested party. Mortgagor shall
promptly notify Mortgagee, in writing, upon learning of the institution of
any legal proceedings involving obligations under the Subject Lease.
Mortgagee may intervene (at Mortgagee's expense unless an Event of Default
shall have occurred and be continuing, in which case at Mortgagor's
expense) in any such legal proceedings and be made a party to them.
Mortgagor shall promptly provide Mortgagee with a copy of any decision
rendered in connection with such proceedings.
J. Mortgagor shall promptly execute, acknowledge and deliver to
Mortgagee such instruments as may reasonably be required to permit
Mortgagee (subject to the provisions of Section 2.13E above) (i) to cure
-------------
any default under the Subject Lease or (ii) to take such other action
required to enable Mortgagee to cure or remedy the matter in default and
preserve the security interest of Mortgagee under this Mortgage with
respect to the Subject Lease. Mortgagor hereby irrevocably appoints
Mortgagee as its true and lawful
XXIV-19
<PAGE>
attorney-in-fact, coupled with an interest and with full power of
substitution, to do, in its name or otherwise, any and all acts and to
execute any and all documents (in each case only upon Mortgagor's failure
or refusal to do so) which are necessary to preserve any rights of
Mortgagor under or with respect to the Subject Lease, including, without
limitation, the right to effectuate any extension or renewal of the Subject
Lease, or to preserve any rights of Mortgagor whatsoever in respect of any
part of the Subject Lease.
K. Mortgagor shall not, without Mortgagee's prior written
consent, surrender, terminate, forfeit, or suffer or permit the surrender,
termination or forfeiture of, or change, modify or amend in a material or
adverse manner, the Subject Lease. Consent to one amendment, change,
agreement or modification shall not be deemed to be a waiver of the right
to require consent to other, future or successive amendments, changes,
agreements or modifications. The acquisition by Mortgagor or any affiliate
of Mortgagor of any lessor's interest in the Subject Lease or of any fee
holder's interest in the property subject to the Subject Lease shall not
require Mortgagee's consent and shall not be a breach of the covenants set
forth in this Section 2.13K provided that: (i) such acquisition is
-------------
accomplished by Mortgagor in such a manner so as to avoid a merger of the
interests of lessor and lessee in the Subject Lease; and (ii) Mortgagor,
concurrently with the consummation of such acquisition, executes and
records an instrument sufficient in Mortgagee's sole discretion to extend
and spread the Lien of this Mortgage to encumber such acquired interest as
a first priority mortgage Lien. To the full extent permitted under
Applicable Law and in accordance with the grant made by Mortgagor in
Granting Clause Twelfth, whether or not Mortgagor has executed and recorded
-----------------------
the instrument described in the preceding sentence, this Mortgage shall
automatically be a Lien on such acquired interest.
L. Notwithstanding anything to the contrary herein contained
with respect to the Subject Lease:
(i) The Lien of this Mortgage attaches to all of Mortgagor's
rights and remedies at any time arising under or pursuant to
Subsection 365(h) of the Bankruptcy Code, including, without
limitation, all of Mortgagor's rights to remain in possession of the
Land.
(ii) Mortgagor shall not, without Mortgagee's written consent,
elect to treat the Subject Lease as terminated under Subsection
365(h)(1) of the Bankruptcy Code. Any such election made without
Mortgagee's prior written consent shall be void. If any lessor of the
Subject Lease rejects the Subject Lease under Section 365 of the
Bankruptcy Code, Mortgagor shall remain in possession of the Premises.
Neither the Lien of this Mortgage nor Mortgagee's rights with respect
to the Subject Lease shall be affected or impaired by any lessor's
rejection of the Subject Lease under Section 365 of the Bankruptcy
Code.
XXIV-20
<PAGE>
(iii) As security for the Obligations, Mortgagor hereby
unconditionally assigns, transfers and sets over to Mortgagee all of
Mortgagor's claims and rights to the payment of damages arising from
any rejection by any lessor of the Subject Lease under the Bankruptcy
Code. Mortgagee and Mortgagor shall proceed jointly or in the name of
Mortgagor (and Mortgagor hereby irrevocably appoints Mortgagee as its
attorney-in-fact, coupled with an interest and with full power of
substitution, from and after the occurrence of an Event of Default, to
proceed in the name of Mortgagor and to otherwise take such actions as
Mortgagee may deem necessary or desirable) in respect of any claim,
suit, action or proceeding relating to the rejection of the Subject
Lease, including, without limitation, the right to file and prosecute
any proofs of claim, complaints, motions, applications, notices and
other documents in any case in respect of such lessor under the
Bankruptcy Code. This assignment constitutes a present, irrevocable
and unconditional assignment of the foregoing claims, rights and
remedies, and shall continue in effect until this Mortgage has been
released of record or all of the Obligations secured by this Mortgage
shall have been satisfied and discharged in full. Any amounts
received by Mortgagee or Mortgagor as damages arising out of the
rejection of the Subject Lease as aforesaid shall be applied first to
all reasonable costs and expenses of Mortgagee (including, without
limitation, attorneys' fees and costs) incurred in connection with the
exercise of any of its rights or remedies under this Section 2.13L and
-------------
then in accordance with the other applicable provisions of this
Mortgage.
(iv) If, pursuant to Subsection 365(h)(2) of the Bankruptcy
Code, Mortgagor seeks to offset, against the rent reserved in the
Subject Lease, the amount of any damages caused by the nonperformance
by the lessor thereunder of any of such lessor's obligations under the
Subject Lease after the rejection by lessor of the Subject Lease under
the Bankruptcy Code, Mortgagor shall, prior to effecting such offset,
notify Mortgagee in writing of its intent so to do, setting forth the
amounts proposed to be so offset, and, in the event Mortgagee objects,
Mortgagor shall not effect any offset of the amounts so objected to by
Mortgagee. If Mortgagee has failed to object as aforesaid within ten
(10) days after notice from Mortgagor in accordance with the first
sentence of this Section 2.13L(iv), Mortgagor may proceed to offset
-----------------
the amounts set forth in Mortgagor's notice.
(v) If any action, proceeding, motion or notice shall be
commenced or filed in respect of any lessor or the Land or any portion
thereof in connection with any case under the Bankruptcy Code,
Mortgagee and Mortgagor shall cooperatively conduct and control any
such litigation (provided that after the occurrence and during the
continuance of an Event of Default, Mortgagee shall have the exclusive
right (but not the obligation) to control such litigation, and
Mortgagor hereby irrevocably appoints Mortgagee as its attorney-in-
fact, coupled with an interest and with full power of substitution for
such purpose) with counsel agreed upon between
XXIV-21
<PAGE>
Mortgagor and Mortgagee (or, if an Event of Default shall then have
occurred and be continuing, counsel selected by Mortgagee) in
connection therewith. Within ten (10) days after Mortgagee's written
demand upon Mortgagor, Mortgagor shall pay to Mortgagee, as
applicable, all reasonable costs and expenses (including reasonable
attorneys' fees and costs) actually paid or incurred by Mortgagee in
connection with the cooperative prosecution or conduct of any such
proceedings. All such costs and expenses shall be secured by the Lien
of this Mortgage.
(vii) Mortgagor shall promptly, after obtaining knowledge
thereof, notify Mortgagee orally of any filing by or against any
lessor of a petition under the Bankruptcy Code. Mortgagor shall
thereafter promptly give written notice of such filing to Mortgagee,
setting forth any information available to Mortgagor as to the date of
such filing, the court in which such petition was filed, and the
relief sought therein. Mortgagor shall promptly deliver to Mortgagee,
following its receipt thereof, copies of any and all notices,
summonses, pleadings, applications and other documents received by
Mortgagor in connection with any such petition and any proceedings
relating thereto.
M. The occurrence of any of the following events shall, at
Mortgagee's option, constitute an "Event of Default" hereunder in which
event Mortgagee shall have all of the rights and remedies available to it
under Section 5 hereof:
---------
(i) A breach or default under any material condition or
obligation contained in the Subject Lease which is not cured within
any applicable cure period provided therein to Mortgagor (provided,
--------
however, that upon the occurrence and during the continuance of any
-------
breach or default under any condition or obligation contained in the
Subject Lease, and prior to the expiration of all applicable cure
periods, Mortgagee shall have the cure rights set forth in Section
-------
2.13E of this Mortgage);
-----
(ii) The occurrence of any event or condition which gives the
lessor under the Subject Lease a right to terminate or cancel, as
against Mortgagor, the Subject Lease and the expiration of any notice,
grace or cure period with respect thereto; or
(iii) Mortgagor's failure to permit Mortgagee and/or its
representatives at all reasonable times upon reasonable prior written
notice to make investigation or examination concerning Mortgagor's
performance and observance of the terms, covenants and conditions of
the Subject Lease.
N. To the extent permitted by Applicable Law, the price payable
by Mortgagor or any other party in the exercise of the right of redemption,
if any (which right Mortgagor has waived), from any sale under or decree of
foreclosure of this Mortgage shall include all rents and other amounts paid
and other sums advanced by Mortgagee on behalf of
XXIV-22
<PAGE>
Mortgagor as the lessee under the Subject Lease in accordance with the
provisions of this Mortgage and the other Loan Documents.
O. Mortgagor hereby grants and assigns to Mortgagee a security
interest in all prepaid rent and security deposits and all other security
which the lessor under the Subject Lease may hold now or later for the
performance of Mortgagor's obligations as the lessee under the Subject
Lease.
P. Mortgagor shall not, without Mortgagee's written consent,
fail to exercise any option or right to renew or extend the term of the
Subject Lease if such renewal or extension is necessary to extend the term
of the Subject Lease to a date which is at least twelve (12) months after
the Maturity Date (any such renewal or extension, a "REQUIRED EXTENSION").
Mortgagor shall effect each Required Extension at least six (6) months (or
the earliest date permitted under the Subject Lease, if later) prior to the
date of termination of any such option or right, shall give immediate
written notice thereof to Mortgagee, and shall execute, acknowledge,
deliver and record any document reasonably requested by Mortgagee to
evidence the Lien of this Mortgage on such extended or renewed lease term;
provided, however, Mortgagor shall not be required to effect any
-------- -------
particular Required Extension to the extent Mortgagor shall have received
the prior written consent of Mortgagee (which consent may be withheld by
Mortgagee in its sole and absolute discretion) allowing Mortgagor to forego
effecting such Required Extension. If Mortgagor shall fail to exercise any
such option or right to effect any Required Extension as aforesaid,
Mortgagee may exercise the option or right to effect any Required Extension
(provided that unless an Event of Default shall have occurred and be
continuing, Mortgagee shall have no right to determine the amount of rent
payable under the Subject Lease during any such extension period without
Mortgagor's prior written consent thereto, which consent shall not be
unreasonably withheld or delayed) as Mortgagor's agent and attorney-in-fact
pursuant to Section 2.13J of this Mortgage, or in Mortgagee's own name or
-------------
in the name of and on behalf of a nominee of Mortgagee, as Mortgagee may
determine in the exercise of its sole and absolute discretion.
Q. Subject to the provisions of the Credit Agreement, Mortgagor
shall not assign its interest in the Subject Lease or sublease all or any
of the Mortgaged Property without the prior written consent of Mortgagee,
which consent may be withheld by Mortgagee in its sole discretion. All
subleases entered into by Mortgagor after the date of this Mortgage shall
provide, and Mortgagor shall use reasonable efforts to ensure that all
existing subleases modified, amended or renewed by Mortgagor after the date
of this Mortgage shall provide, that such subleases are, at the option and
election of Mortgagee, subordinate to the Lien of this Mortgage and any
extensions, replacements and modifications of this Mortgage and the
Obligations and that if Mortgagee forecloses under this Mortgage or enters
into a new lease with the lessor under the Subject Lease whether or not
pursuant to the provisions for a new lease, if any, contained in the
Subject Lease, then the sublessee shall attorn to Mortgagee or its
assignee(s) and the sublease will remain in full
XXIV-23
<PAGE>
force and effect in accordance with its terms notwithstanding the
termination of the Subject Lease.
R. Mortgagor hereby represents that the Subject Lease has not
been amended, modified, extended, renewed, substituted or assigned except
as described in Exhibit A-2 hereto and that Mortgagor has delivered to
-----------
Mortgagee true, accurate and complete copies of all items noted on Exhibit
-------
A-2. Upon the request of Mortgagee, Mortgagor shall deposit with Mortgagee
---
the tenant's original fully executed copy of the Subject Lease, as further
security to Mortgagee, until this Mortgage is released of record or all of
the Obligations are fully paid and performed. Mortgagor hereby represents
that the Subject Lease or a legally valid memorandum thereof has been
properly filed or recorded in the city, town, county or parish records (as
appropriate) in which the Land covered thereby is located and that the
filing and recording data for the same is accurately set forth in Exhibit
-------
A-2 hereto.
---
S. Mortgagor shall not waive, excuse, condone or in any way
release or discharge the lessor under the Subject Lease of or from such
lessor's material obligations, covenants and/or conditions under the
Subject Lease without the prior written consent of Mortgagee.
The generality of the provisions of this Section 2.13 relating to the Subject
------------
Lease shall not be limited by other provisions of this Mortgage setting forth
particular obligations of Mortgagor which are also required of Mortgagor with
respect to the Subject Lease or the Premises.
XXIV-24
<PAGE>
Section 3
ASSIGNMENT OF RENTS AND LEASES
3.1 ASSIGNMENT OF RENTS AND LEASES.
------------------------------
In furtherance of and in addition to the assignment made by Mortgagor
in Granting Clause Third of this Mortgage, Mortgagor hereby absolutely and
---------------------
unconditionally assigns, sells, transfers and conveys to Mortgagee all of its
right, title and interest in and to all Leases, whether now existing or
hereafter entered into, and all of its right, title and interest in and to all
Rents. It is the intention of Mortgagor and Mortgagee that this assignment be
treated and construed as an absolute assignment and not an assignment for
additional security only. So long as no Event of Default shall have occurred
and be continuing, Mortgagor shall have a revocable license from Mortgagee to
exercise all rights extended to the landlord under the Leases, including the
right to observe, perform, comply with and discharge all of the obligations of
the landlord thereunder, the right to demand and receive performance under the
Leases, the right to enforce all rights and exercise all remedies under the
Leases, the right to terminate or amend any Lease and the right to receive and
collect all Rents and to hold the Rents in trust for use in the payment and
performance of the Obligations and to otherwise use the same; provided, however,
-------- -------
that such rights may be exercised by Mortgagor only to the extent they are not
restricted under Section 7.9 of the Credit Agreement. The foregoing license is
granted subject to the conditional limitation that no Event of Default shall
have occurred and be continuing. Upon the occurrence and during the continuance
of an Event of Default, whether or not legal proceedings have commenced, and
without regard to waste, adequacy of security for the Obligations or solvency of
Mortgagor, the license herein granted shall automatically expire and terminate,
without notice by Mortgagee (any such notice being hereby expressly waived by
Mortgagor).
3.2 NO LIMITATION OF RIGHTS.
-----------------------
The assignment of Rents and Leases herein made shall not be construed
to limit in any way Mortgagee's other rights hereunder, including the right to
accelerate the Obligations upon an Event of Default. Monies received under the
assignments herein made shall not be deemed to have been applied in payment of
any portion of the Obligations unless and until such monies actually are applied
thereto by Mortgagee.
3.3 SALE OF MORTGAGED PROPERTY.
--------------------------
A. FREE AND CLEAR OF ASSIGNMENTS. Upon any sale of any of the
Mortgaged Property by or for the benefit of Mortgagee pursuant to Section 5
---------
hereof, the Rents attributable to the part of the Mortgaged Property so sold
shall be included in such sale and shall pass to the purchaser free and clear of
(i) the assignment by Mortgagor in Granting Clause Third of this Mortgage and
---------------------
(ii) the provisions of this Section 3.
---------
XXIV-25
<PAGE>
B. NO OBLIGATIONS ON MORTGAGEE. It is neither the intent nor the
effect of this Mortgage nor the other Loan Documents (other than any
Subordination, Non-Disturbance and Attornment Agreement between Mortgagee and
any Tenant) to impose any obligation on Mortgagee, including (i) any liability
under the covenant of quiet enjoyment contained in any Lease or contained in any
Applicable Law, in the event of a sale of the Mortgaged Property or any part
thereof pursuant to this Mortgage or (ii) any liability to any Tenant arising
(whether in connection with the elimination of such Tenant's equity of
redemption in the Mortgaged Property or otherwise) out of (A) the naming of such
Tenant as a party defendant in any action to foreclose this Mortgage, or (B) the
sale of the Mortgaged Property pursuant to the power of sale reserved to
Mortgagee herein. Notwithstanding anything herein to the contrary, under no
circumstances shall Mortgagee be subject to any offsets, claims or defenses
which a Tenant might have against Mortgagor or any prior landlord with respect
to any Lease, whether or not Mortgagee shall have succeeded to the interests of
landlord under any such Lease.
3.4 TERM OF ASSIGNMENT.
------------------
The assignment and grant made in Granting Clause Third of this
---------------------
Mortgage and in this Section 3 shall continue in effect until release of this
---------
Mortgage of record or indefeasible payment in full of the Obligations. The
execution of this Mortgage constitutes and evidences the irrevocable consent of
Mortgagor to the entry upon and the taking possession of the Premises, or any
part thereof, by Mortgagee pursuant to such grant in accordance with the terms
set forth in this Mortgage and the terms hereof whether by foreclosure or other
remedy and at Mortgagee's option and election, with or without application for a
receiver. Mortgagor represents and warrants to Mortgagee that Mortgagee has
taken all actions necessary to obtain, and Mortgagee shall (upon recordation of
this Mortgage) have, as and to the extent permitted under Applicable Law, a
valid and fully perfected, first priority, present assignment of the Rents
arising out of the Leases and all security for such Leases, including cash or
securities deposited as security under such Leases subject to the prior right of
the Tenants making such deposits. Mortgagee has no obligation whatsoever in
respect of security for any Leases except and only to the extent such security
is actually delivered to Mortgagee, whether or not Mortgagor now has or
previously had possession of such security.
3.5 PERFECTION UPON RECORDATION.
---------------------------
Mortgagor acknowledges and agrees that, upon recordation of this
Mortgage, Mortgagee's interest in the Rents shall be deemed to be fully
perfected, ``choate" and enforced as to Mortgagor and all third parties,
including, without limitation, any subsequently appointed trustee in any case
under the Bankruptcy Code, without the necessity of (a) commencing a foreclosure
action with respect to this Mortgage, (b) furnishing notice to Mortgagor or
Tenants under the Leases, (c) making formal demand for the Rents, (d) taking
possession of the Premises as a lender-in-possession, (e) obtaining the
appointment of a receiver of the rents and profits of the Premises, (f)
sequestering or impounding the Rents or (g) taking any other affirmative action.
XXIV-26
<PAGE>
3.6 BANKRUPTCY PROVISIONS.
---------------------
Without limitation of the provisions of Section 4 hereof or the
---------
absolute nature of the assignment of the Rents hereunder, Mortgagor and
Mortgagee agree that (a) this Mortgage shall constitute a "security agreement"
for purposes of Section 552(b) of the Bankruptcy Code, (b) the security interest
created by this Mortgage extends to property of Mortgagor acquired before the
commencement of a case in bankruptcy and to all amounts paid as Rents and (c)
such security interest shall extend to all Rents acquired by the estate after
the commencement of any case in bankruptcy. Without limitation of the absolute
nature of the assignment of the Rents hereunder, to the extent Mortgagor (or
Mortgagor's bankruptcy estate) shall be deemed to hold any interest in the Rents
after the commencement of a voluntary or involuntary bankruptcy case, Mortgagor
hereby acknowledges and agrees that such Rents are and shall be deemed to be
"cash collateral" under Section 363 of the Bankruptcy Code. Mortgagor may not
use the cash collateral without the consent of Mortgagee and/or an order of any
bankruptcy court pursuant to 11 U.S.C. 363(c)(2), and Mortgagor hereby waives
any right it may have to assert that such Rents do not constitute cash
collateral. No consent by Mortgagee to the use of cash collateral by Mortgagor
shall be deemed to constitute Mortgagee's approval, as the case may be, of the
purpose for which such cash collateral was expended.
XXIV-27
<PAGE>
Section 4
SECURITY AGREEMENT
4.1 GRANT OF SECURITY; INCORPORATION BY REFERENCE.
---------------------------------------------
This Mortgage shall, in addition to constituting a mortgage Lien as to
those parts of the Mortgaged Property classified as real property (including
fixtures to the extent they are real property), constitute a security agreement
within the meaning of the Uniform Commercial Code or within the meaning of the
common law with respect to those parts of the Mortgaged Property classified as
personal property (including fixtures to the extent they are personal property).
Mortgagor hereby grants Mortgagee a security interest in and to those parts of
the Mortgaged Property classified as personal property (including (a) fixtures
to the extent they are personal property and (b) personal property and fixtures
that are leased, but only to the extent Mortgagor can grant to Mortgagee a
security interest therein without breaching the terms of such lease)
(collectively, the "PERSONAL PROPERTY COLLATERAL") for the benefit of
Mortgagee to further secure the payment and performance of the Obligations and
the performance of all of Mortgagor's Obligations, covenants and agreements
under the other Loan Documents. Mortgagee shall have all rights granted to the
Secured Party pursuant to the Security Agreement. The provisions set forth in
the Security Agreement are hereby incorporated by reference into this Mortgage
with the same effect as if set forth in full herein. In the event of a conflict
between the provisions of Section 4 of this Mortgage and the Security Agreement,
---------
it is the intention of Mortgagor and Mortgagee that both such documents shall be
read together and construed, to the fullest extent possible, to be in concert
with each other. In the event of a conflict that cannot be resolved as
aforesaid, the provisions of the Security Agreement shall control and govern and
Mortgagor shall comply therewith.
4.2 FIXTURE FILING FINANCING STATEMENTS.
-----------------------------------
Portions of the Mortgaged Property are goods which are or are to
become fixtures, and the real estate concerned is described in Exhibit A hereto,
---------
Mortgagor expressly covenants and agrees that the filing of this Mortgage in the
real property records of the county where the Premises is located shall operate,
at the time of filing therein, as a financing statement filed as a fixture
filing in accordance with Section 9-401(1)(b) of the Uniform Commercial Code of
the state in which the Premises is located. The address of Mortgagor (the
debtor) and the address of Mortgagee (the secured party) appear in Exhibit C
---------
attached to this Mortgage. The name of the record owner of the Land appears in
Exhibit A attached hereto.
- ---------
4.3 MORTGAGEE AS SECURED PARTY.
--------------------------
If and to the extent that Mortgagee shall act as the secured party for
any security interest created in the Mortgaged Property, Mortgagor acknowledges
and agrees that Mortgagee may do so. As such, Mortgagee shall have all the
rights of the secured party, and shall observe all of the requirements of the
secured party, contained in this Section 4 and the Security Agreement.
---------
XXIV-28
<PAGE>
Section 5
DEFAULTS AND REMEDIES
5.1 EVENTS OF DEFAULT.
-----------------
The occurrence of any of the following events ("EVENTS OF DEFAULT")
shall, as provided in the Credit Agreement, make all amounts then remaining
unpaid on the Obligations due and payable, all without further demand,
presentment, notice or other requirements of any kind, all of which are hereby
expressly waived by Mortgagor, and this Mortgage and the Lien evidenced or
created hereby shall be subject to foreclosure and may be foreclosed or the
Mortgaged Property may be sold pursuant to the power of sale reserved to
Mortgagee herein, in any manner provided for herein or provided for by law:
A. Any "Event of Default" as defined in the Credit Agreement
shall occur (after giving effect to any applicable notice or grace periods
provided therein), including, without limitation, any such event caused by a
failure to pay when due any fee due under the Credit Agreement or any
installment of principal of or interest on the Obligations; or
B. Any "Event of Default" described in Section 2.12M hereof
-------------
shall occur, if Mortgagor is the tenant under a Subject Lease.
5.2 FIXTURES.
--------
Upon the occurrence and during the continuance of any of the Events of
Default, Mortgagee may, to the extent permitted under Applicable Law, elect to
treat the fixtures included in the Mortgaged Property either as real property or
as personal property, or both, and proceed to exercise such rights as apply
thereto. With respect to any sale of real property included in the Mortgaged
Property made under the powers of sale herein granted and conferred, Mortgagee
may, to the extent permitted by Applicable Law, include in such sale any
personal property and fixtures included in the Mortgaged Property and relating
to such real property.
XXIV-29
<PAGE>
5.3 REMEDIES.
--------
A. RIGHTS OF MORTGAGEE; RIGHTS OF ENTRY; RIGHTS OF SALE. Upon the
occurrence and during the continuance of any of the Events of Default, in
addition to all other powers, rights and remedies herein granted or by law or at
equity conferred, Mortgagee, in its sole discretion and at its sole election and
without further demand, may do any one or more of the following in any order or
manner that Mortgagee elects, it being expressly understood that no remedy
provided herein is intended to be exclusive of any other remedy provided herein
or in any of the other Loan Documents, but each and every such remedy shall be
cumulative and shall be in addition to every other remedy given herein or now or
hereafter existing under Applicable Law (including all rights and remedies
provided under the applicable provisions of the laws of the state in which the
Premises is located):
(i) Mortgagee may either foreclose upon all or any portion
of the Mortgaged Property or sell all or any portion of the Mortgaged
Property pursuant to the power of sale granted to Mortgagee herein (the
power of sale permitted and provided by applicable statute being hereby
expressly granted by Mortgagor to Mortgagee) with respect to all or any
portion of the Mortgaged Property, provided that Mortgagee may proceed
--------
as to both real and personal property in accordance with its and their
rights and remedies as to real property as required by Applicable Law, and
no such sale shall affect any other rights which Mortgagee may have or
enjoy at law or pursuant to this Mortgage, including, without limitation,
the right to seek a personal or deficiency judgment against Mortgagor. And
in addition Mortgagee shall have all of the rights and remedies of a
mortgagee under a mortgage granted, conferred or permitted by Applicable
Law, and shall, to the extent permitted by Applicable Law, have the right
and power, but not the obligation, to enter upon and take immediate
possession of the Premises or any part thereof, without interference from
Mortgagor to exclude Mortgagor therefrom, to hold, use, operate, manage and
control such real property, to make all such repairs, replacements,
additions and improvements to the same as Mortgagee in its sole discretion
deems necessary, and to demand, collect and retain the Rents as provided in
Section 3 hereof.
---------
(ii) Mortgagee, with respect to any or all of the Mortgaged
Property, in lieu of or in addition to exercising any other power, right or
remedy herein granted or by law or equity conferred, may, without notice,
demand or declaration of default, which are hereby waived by Mortgagor, and
without regard to the solvency of Mortgagor and without regard to the then
value of the Mortgaged Property or waste, proceed by an action or actions
in equity or at law for the seizure and sale of the Mortgaged Property or
any part thereof, for the specific performance of any covenant or agreement
herein contained or in aid of the execution of any power, right or remedy
herein granted or by law or equity conferred, for the foreclosure or sale
of the Mortgaged Property or any part thereof under the judgment or decree
of any court of competent jurisdiction, for the appointment of a receiver
(without any requirement to post a receiver's bond and without regard to
the value of the Mortgaged
XXIV-30
<PAGE>
Property or solvency of Mortgagor) pending any foreclosure hereunder or the
sale of any Mortgaged Property or any part thereof or for the enforcement
of any other appropriate equitable or legal remedy. Such receiver shall
have the power to collect the rents, issues, profits, earnings, and income
from the Mortgaged Property and shall have all other powers which may be
necessary or usual in such cases for the protection, possession, control,
management and operation of the Mortgaged Property. Such receiver may apply
the net income from the Mortgaged Property as payment of the Obligations
secured hereby in the manner and order set forth in the applicable Loan
Documents. Mortgagor agrees that a receiver may be appointed without any
notice to Mortgagor whatsoever and hereby waives notice.
(iii) Mortgagee shall have all of the rights and remedies of an
assignee and secured party granted by Applicable Law, including the Uniform
Commercial Code, and shall, to the extent permitted by Applicable Law, have
the right and power, but not the obligation, to take possession of the
Personal Property Collateral, and for that purpose Mortgagee may enter upon
any premises on which any or all of the Personal Property Collateral is
located and take possession of and operate such Personal Property
Collateral or remove the same therefrom. Mortgagee, pursuant to Section 9-
501(4) of the Uniform Commercial Code, as such Section is currently
constituted or may be hereafter amended, shall have the option of
proceeding under the Uniform Commercial Code as to that portion of the
Mortgaged Property constituting personal property or of proceeding as to
the Mortgaged Property and without regard to the adequacy of Mortgagee's
security for the Obligations, or any part or component thereof, including
both the real and personal property, in accordance with Mortgagee's rights
and remedies in respect of the real property. Mortgagee may require
Mortgagor to assemble the Personal Property Collateral and make it
available to Mortgagee at a place to be designated by Mortgagee which is
reasonably convenient to both parties. The following presumptions shall
exist and shall be deemed conclusive with regard to the exercise by
Mortgagee of any of its remedies with respect to the Personal Property
Collateral:
XXIV-31
<PAGE>
(a) If notice is required by Applicable Law, ten (10) days'
prior written notice of the time and place of any public sale or of
the time after which any private sale or any other intended
disposition thereof is to be made shall be reasonable notice to
Mortgagor. No such notice is necessary if such property is
perishable, threatens to decline speedily in value or is of a type
customarily sold on a recognized market.
(b) Without in any way limiting the right and authority of
Mortgagee to sell or otherwise dispose of Personal Property Collateral
in a commercially reasonable manner, the following, or any of them,
shall be considered commercially reasonable: (1) Mortgagee may hold a
public sale of the Personal Property Collateral in New York, New York
or in the city, town or county where the Personal Property Collateral
is located or in the city, town or county where the Premises to which
such Personal Property Collateral relates, if any, is located, after
having provided Mortgagor with ten (10) days' notice of such sale and
after having published notice of such sale by an advertisement not
less than three inches in height and one column in width in a
newspaper of general circulation where the Personal Property
Collateral is located or where the Premises to which such Personal
Property Collateral relates, if any, is located, as Mortgagee
determines to be appropriate (which advertisement may be placed in the
"classified" section), for a period of not less than five issues
commencing not more than ten days prior to the sale; (2) the Personal
Property Collateral may be sold for cash; and (3) Mortgagee or any
other person owning, directly or indirectly, any interest in any of
the Obligations may be a purchaser at such sale.
(c) If Mortgagee in good faith believes that the Securities
Act of 1933 or any other state or Federal law prohibits or restricts
the customary manner of sale or distribution of any of such property,
Mortgagee may sell such property privately in a commercially
reasonable manner or in any other commercially reasonable manner
deemed advisable by Mortgagee at such price or prices as Mortgagee
determines in the sole discretion of Mortgagee. Mortgagor recognizes
that such prohibition or restriction may cause such property to have
less value than it otherwise would have and that, consequently, such
sale or disposition by Mortgagee may result in a lower sales price
than if the sale were otherwise held.
(iv) Mortgagee shall, subject to any mandatory requirements of
Applicable Law, sell or have sold the Mortgaged Property or interests
therein or any part thereof at one or more sales, as an entirety or in
separate parcels, at such place or places and otherwise in such manner and
upon such notice as may be required by law or by this Mortgage, or, in the
absence of any such requirement, as Mortgagee may deem appropriate.
Mortgagee shall make a conveyance to the purchaser or purchasers thereof
without, to the extent permitted by Applicable Law, any warranties express
or implied. Subject to Applicable
XXIV-32
<PAGE>
Law, Mortgagee may postpone the sale of such Mortgaged Property or
interests therein or any part thereof by public announcement at the time
and place of such sale, and from time to time thereafter may further
postpone such sale by public announcement made at the time of sale fixed by
the preceding postponement. Sale of a part of the Mortgaged Property or
interests therein or any defective or irregular sale hereunder will not
exhaust the power of sale, and sales may be made from time to time until
all such property is sold without defect or irregularity or the Obligations
are paid and performed in full. Mortgagee shall have the right to appoint
one or more auctioneers or attorneys-in-fact to act in conducting the
foreclosure sale and executing a deed to the purchaser. It shall not be
necessary for any of the Mortgaged Property at any such sale to be
physically present or constructively in the possession of Mortgagee and,
subject to Applicable Law, Mortgagor shall deliver all of the Mortgaged
Property to the purchaser at such sale. If it should be impossible or
impracticable to take actual delivery of the Mortgaged Property, then the
title and right of possession to the Mortgaged Property shall pass to the
purchaser at such sale as completely as if the same had been actually
present and delivered.
(v) Mortgagee may, personally or by its agents or attorneys,
take such steps to protect and enforce its rights whether by action, suit
or proceeding in equity or at law for the specific performance of any
covenant, condition or agreement in the Subsidiary Guaranty, in this
Mortgage or in any of the other Loan Documents or in aid of the execution
of any power herein or therein granted, or sale of the Mortgaged Property
as herein permitted or for any foreclosure hereunder, or for the
enforcement of any other appropriate legal or equitable remedy or otherwise
as Mortgagee shall elect.
(vi) In the event Mortgagor shall fail to pay any amounts due
and owing in accordance with the terms of this Mortgage, the Subsidiary
Guaranty or the other Loan Documents, Mortgagee, at its right and option,
may institute an action or proceeding at law or in equity for the
collection of any sums due and unpaid and may prosecute any such action or
proceeding to judgment or final decree. Mortgagee may enforce any such
judgment or final decree against Mortgagor as provided in this Mortgage,
and against any guarantor of the Obligations, as provided in any guarantee.
Mortgagee may collect moneys adjudged or decreed to be payable to Mortgagee
and shall be entitled to recover such judgment either before, after or
during the pendency of any proceeding for the enforcement of the provisions
of this Mortgage or any such guarantee. The right of Mortgagee to recover
such judgment shall not be affected by any entry or sale, by the exercise
of any other right, power or remedy provided by and for the enforcement of
the provisions of this Mortgage or of the Loan Documents or the foreclosure
of the Lien hereof or sale of the Mortgaged Property hereunder. In case of
insolvency or bankruptcy proceedings against Mortgagor or any
reorganization or liquidation proceedings, Mortgagee shall be entitled to
prove the whole amount of Obligations due and owing under this Mortgage and
any of the other Loan Documents without deducting therefrom any proceeds
obtained from the sale of the whole or any part of the Mortgaged Property;
provided, however, that in no instance shall Mortgagee receive a greater
-------- -------
amount than the Obligations and any other payments,
XXIV-33
<PAGE>
charges or costs due and owing to Mortgagee under any of the Loan Documents
from the aggregate amount of the proceeds of the sale of the Mortgaged
Property and the distribution from the estates of Mortgagor.
B. RIGHT TO PURCHASE. Mortgagee (or any other person owning,
directly or indirectly, any interest in any of the Obligations) and its agents
and attorneys shall have the right to become the purchaser at any sale made
pursuant to the provisions of this Section 5.3 and shall have the right to
-----------
credit upon the amount of the bid made therefor the amount payable to it out of
the net proceeds of such sale. All other sales shall be, to the extent
permitted by Applicable Law, on a cash basis. Recitals contained in any
conveyance to any purchaser at any sale made hereunder will conclusively
establish the truth and accuracy of the matters therein stated, including
without limitation nonpayment of the Obligations and advertisement and conduct
of such sale in the manner provided herein or provided by law. Mortgagor does
hereby ratify and confirm all legal acts that Mortgagee may do in carrying out
the provisions of this Mortgage.
C. CONVEYANCE OF TITLE UPON SALE. Any sale of the Mortgaged
Property or any part thereof in accordance with the provisions of this Section
-------
5.3 will operate to divest all right, title, interest, claim and demand of
- ---
Mortgagor in and to the property sold and will be a perpetual bar against
Mortgagor. Nevertheless, if requested by Mortgagee so to do, Mortgagor shall
join in the execution, acknowledgement and delivery of all proper conveyances,
assignments and transfers of the property so sold. Subject to Applicable Law,
any purchaser at a foreclosure sale will receive immediate possession of the
property purchased, and Mortgagor agrees that if Mortgagor retains possession of
the property or any part thereof subsequent to such sale, Mortgagor will be
considered a tenant at sufferance of the purchaser, and will, if Mortgagor
remains in possession after demand to remove, be guilty of forcible detainer and
will be subject to eviction and removal, forcible or otherwise, with or without
process of law, and all damages to Mortgagor by reason thereof are hereby
expressly waived by Mortgagor.
D. WAIVER OF RIGHTS AND DEFENSES. Mortgagor acknowledges that it
is aware of and has had the advice of counsel of its choice with respect to its
rights under Applicable Law with respect to this Mortgage, the Obligations and
the Mortgaged Property. Nevertheless, Mortgagor hereby (i) waives and
relinquishes (to the maximum extent permitted by Applicable Law) and (ii) agrees
that Mortgagor shall not (subject to any mandatory requirements of Applicable
Law) at any time hereafter have or assert, any right under any Applicable Law
pertaining to: marshalling, whether of assets or Liens, the sale of property in
the inverse order of alienation, the exemption of homesteads, the administration
of estates of decedents, appraisement, valuation, stay, extension, redemption,
statutory right of redemption, the maturing or declaring due of the whole or any
part of the Obligations, notice of intention of such maturing or declaring due,
other notice (whether of defaults, advances, the creation, existence, extension
or renewal of any of the Obligations or otherwise, except for rights to notices
expressly granted in the Credit Agreement, herein or in the other Loan
Documents), subrogation, or abatement, suspension, deferment, diminution or
reduction of any of the Obligations (including, without limitation, set-off),
now or hereafter in force.
XXIV-34
<PAGE>
E. RIGHT TO SUBORDINATE. Mortgagee, at its option, is authorized
to foreclose this Mortgage or sell the Mortgaged Property or any portion
thereof, subject to the rights of any tenants of the Premises, and the failure
to make any such tenants parties to any such foreclosure or sale proceedings and
to foreclose their rights will not be, nor be asserted by Mortgagor to be, a
defense to any proceedings instituted by Mortgagee to collect the Obligations.
F. RIGHT TO PRESERVE OBLIGATIONS. Mortgagee shall, to the extent
permitted by Applicable Law, have the option to proceed with foreclosure or to
exercise the power of sale in satisfaction of any installment or part of the
Obligations that has not been paid or performed without declaring the whole of
the Obligations as immediately mature, and such foreclosure or sale may be made
subject to the unmatured part of the Obligations, and it is agreed that such
foreclosure, if so made, shall not in any manner affect the unmatured part of
the Obligations, but as to such unmatured part of the Obligations, this
Mortgage, the Subsidiary Guaranty and the Credit Agreement shall remain in full
force and effect just as though no foreclosure or sale had been made. Several
foreclosures or sales may be made without exhausting the right of foreclosure or
the power of sale for any unmatured part of the Obligations, it being the
purpose to provide for a foreclosure and sale of the security for any matured
portion of the Obligations without exhausting the power of foreclosure and the
power to sell the Mortgaged Property for any other part of the Obligations.
G. NO WAIVER. No delay or omission of Mortgagee to exercise any
right or power accruing upon any Event of Default shall impair any such right or
power, or shall be construed to be a waiver of any such right or power or any
such Event of Default or an acquiescence thereto. Every power and remedy
provided by this Mortgage may be exercised, from time to time, as often as may
be deemed expedient by Mortgagee. Nothing in this Mortgage, the Subsidiary
Guaranty or any of the other Loan Documents shall affect the obligation of
Mortgagor to pay and perform the Obligations in the manner and at the time and
place, respectively, expressed therein.
H. RIGHT TO DISCONTINUE PROCEEDINGS. If Mortgagee shall have
proceeded to enforce any right or remedy under this Mortgage by foreclosure,
entry or otherwise and such proceedings shall have been discontinued or
abandoned for any reason or such proceedings shall have resulted in a final
determination adverse to Mortgagee, then and in every such case Mortgagor and
Mortgagee shall be restored to their former positions and rights hereunder, and
all rights, power and remedies of Mortgagee shall continue as if no such
proceedings had occurred or had been taken.
XXIV-35
<PAGE>
I. NOTICES TO THIRD PARTIES. Mortgagee shall have the right, but
not the obligation, to notify franchisors or ground lessors of any Event of
Default or any exercise of remedies by Mortgagee hereunder, and Mortgagee shall
have the right, but not the obligation, to notify other third parties of any
Event of Default or exercise of remedies by Mortgagee hereunder, whether or not
Mortgagee has agreed with any franchisor, ground lessor or other third party to
provide such notice.
5.4 COSTS AND EXPENSES.
------------------
All costs and expenses (including, without limitation, reasonable
attorneys' fees, legal expenses, title premiums, title report and work charges,
filing fees, general intangible taxes and mortgage, mortgage registration,
transfer, stamp and other excise taxes) actually incurred by Mortgagee in
perfecting, protecting, or enforcing its rights hereunder, whether or not an
Event of Default shall have occurred, shall be payable by Mortgagor within ten
(10) days after written demand by Mortgagee accompanied by (upon Mortgagor's
request) such reasonable documentation of such costs and expenses as is
reasonably available to Mortgagee, as the case may be, and shall bear interest
at the Agreed Rate from the date such cost or expense is incurred until the date
of payment. All such costs, expenses and interest, shall be part of the
Obligations and shall be secured by this Mortgage.
5.5 ADDITIONAL RIGHTS OF MORTGAGEE.
------------------------------
Mortgagee shall have the right, at its election, to exercise any and
all other remedies in the Subsidiary Guaranty, in the Credit Agreement or in any
of the Loan Documents or available at law or in equity, including, but not
limited to, the additional rights if any set forth on Schedule I attached hereto
----------
and by this reference incorporated herein.
5.6 APPLICATION OF PROCEEDS.
-----------------------
A. The proceeds of any sale of the Mortgaged Property or any part
thereof made pursuant to this Section 5 shall be applied as follows:
---------
FIRST: to the payment of all costs and expenses incident to the
enforcement of this Mortgage, including, a reasonable
compensation to the agents, attorneys and in-house counsel of
Mortgagee;
SECOND: to the payment or prepayment of the Obligations, in such order as
Mortgagee shall elect; and
THIRD: the remainder, if any, after full and final payment of the
Obligations shall be paid to Mortgagor or such other person or
persons as may be entitled thereto by law;
XXIV-36
<PAGE>
provided, however, that if Applicable Law require such proceeds to be paid or
- -------- -------
applied in a manner other than as set forth above in this Section 5.6A, then
------------
such proceeds shall be paid or applied in accordance with such Applicable Law.
B. Upon any sale made under the powers of sale herein granted
and conferred, the receipt of Mortgagee will be sufficient discharge to the
purchaser or purchasers at any sale for the purchase money, and such purchaser
or purchasers and the heirs, devisees, personal representatives, successors and
assigns thereof will not, after paying such purchase money and receiving such
receipt of Mortgagee, be obligated to see to the application thereof or be in
any way answerable for any loss, misapplication or non-application thereof.
Section 6
INDEMNIFICATION
Pursuant to and in accordance with the provisions set forth more fully
in Section 10.3 of the Credit Agreement, Mortgagor shall defend, indemnify, pay
and hold harmless Mortgagee and the other Indemnitees (as defined in the Credit
Agreement) from and against any and all claims, liabilities, losses, damages,
penalties, fines, forfeitures, judgments, and expenses or other Obligations of
any kind or nature whatsoever (including reasonable fees and disbursements of
counsel to such Indemnitees) incurred on account of any matter or thing or
alleged action or failure to act by Mortgagee, whether in suit or not, arising
out of the operation, leasing, management, maintenance, repair, use or occupancy
of the Premises (should Mortgagee elect to enter upon and assume the same upon
an Event of Default), the construction of Improvements on or about the Premises,
any accident, injury, death or damage to any Person or property occurring in, on
or about the Premises or any street, drive, sidewalk, curb or passageway
adjacent thereto, any misappropriation by Mortgagor of any prepayments of Rent
or Security Deposits paid or payable by Mortgagor pursuant to this Mortgage,
prior to payment in full of the Obligations of Mortgagor to Mortgagee or in
connection therewith, except to the extent that such suit, claim or damage is
caused by the gross negligence or willful misconduct of Mortgagee.
XXIV-37
<PAGE>
Section 7
TERMINATION
If all of the Obligations shall be paid in full pursuant to the terms
and conditions of this Mortgage and the other Loan Documents, or if this
Mortgage shall be released of record in accordance with the provisions of the
Credit Agreement or the other Loan Documents, then Mortgagee shall, promptly
after the request of Mortgagor, execute, acknowledge and deliver to Mortgagor
proper instruments evidencing the termination and release of this Mortgage.
Mortgagor shall pay all reasonable legal fees and other expenses incurred by
Mortgagee for preparing and reviewing such instruments and the execution and
delivery thereof, and Mortgagee may require payment of the same prior to
delivery of such instruments. Upon the receipt by Mortgagor of terminations or
releases signed by Mortgagee, and in recordable form and evidencing the
termination of this Mortgage, Mortgagor shall promptly and at its own expense
record or file such terminations or releases in each of the cities, towns,
counties and parishes, as appropriate, in which portions of the Mortgaged
Property may be located, in such a manner so as to effect a release of all of
the Mortgaged Property of record. Upon the request of Mortgagee, Mortgagor
shall promptly deliver to Mortgagee evidence reasonably satisfactory to
Mortgagee of such recordation or filing. The obligations of Mortgagor under this
Section 7 shall survive the termination of this Mortgage.
- ---------
Section 8
MISCELLANEOUS COVENANTS AND AGREEMENTS
8.1 CUMULATIVE RIGHTS; WAIVERS; MODIFICATIONS.
-----------------------------------------
Each and every right, power and remedy hereby granted to Mortgagee
shall be cumulative and not exclusive, and each and every right, power and
remedy whether specifically hereby granted or otherwise existing may be
exercised from time to time and as often and in such order as may be deemed
expedient by Mortgagee, and the exercise of any such right, power or remedy will
not be deemed a waiver of the right to exercise, at the same time or thereafter,
any other right, power or remedy. No delay or omission by Mortgagee in the
exercise of any right, power or remedy will impair any such right, power or
remedy or operate as a waiver thereof or of any other right, power or remedy
then or thereafter existing. All changes to and modifications of this Mortgage
must be in writing and signed by Mortgagor and Mortgagee.
8.2 PARTIAL RELEASES.
----------------
No release from the Lien of this Mortgage of any part of the Mortgaged
Property by Mortgagee shall in any way alter, vary or diminish the force or
effect of this Mortgage on the balance of the Mortgaged Property or the priority
of the Lien of this Mortgage on the balance of the Mortgaged Property.
XXIV-38
<PAGE>
8.3 SEVERABILITY.
------------
In case any provision in or obligation under this Mortgage shall be
invalid, illegal or unenforceable in any jurisdiction or under any set of
circumstances, the validity, legality and enforceability of the remaining
provisions or obligations, or of such provision or obligation in any other
jurisdiction or under any other set of circumstances, shall not in any way be
affected or impaired thereby. If any Lien evidenced or created by this Mortgage
is invalid or unenforceable, in whole or in part, as to any part of the
Obligations, or is invalid or unenforceable, in whole or in part, as to any part
of the Mortgaged Property, such portion, if any, of the Obligations as is not
secured by all of the Mortgaged Property hereunder shall be paid prior to the
payment of the portion of the Obligations secured by all of the Mortgaged
Property, and all payments made on the Obligations (including, without
limitation, cash and/or property received in connection with sales of Mortgaged
Property pursuant to Section 5 hereof) shall, unless prohibited by Applicable
---------
Law or unless Mortgagee, in its sole and absolute discretion, otherwise elects,
be deemed to have been first paid on and applied to payment in full of the
unsecured or partially secured portion of the Obligations, and the remainder to
the secured portion of the Obligations.
8.4 SUBROGATION.
-----------
This Mortgage is made with full substitution and subrogation of
Mortgagee in and to all covenants and warranties by others heretofore given or
made in respect of the Mortgaged Property or any part thereof. If any or all of
the proceeds of the indebtedness secured hereby have been used to extinguish,
extend or renew any indebtedness heretofore existing against all or any portion
of the Mortgaged Property or to satisfy any indebtedness or obligation secured
by a Lien of any kind (including Liens securing the payment of any taxes), such
proceeds have been advanced by Mortgagee at Mortgagor's request and, to the
extent of such funds so used, the indebtedness and obligations in this Mortgage
shall be subrogated to and extend to all of the rights, claim, Liens, titles and
interests heretofore existing against the Mortgaged Property (or such portion
thereof) to secure the indebtedness or obligation so extinguished, paid,
extended or renewed, and the former rights, claims, Liens, titles and interests,
if any, shall not be waived but rather shall be continued in full force and
effect and in favor of Mortgagee and shall be merged with the Lien created
herein as cumulative security for the repayment of the indebtedness and
satisfaction of the Obligations, but the terms of the Loan Documents shall
govern and control the relationship between Mortgagor and Mortgagee.
XXIV-39
<PAGE>
8.5 MORTGAGEE'S POWERS.
------------------
Without affecting the liability of any other Person liable for the
payment of any obligations herein mentioned and without affecting the Lien of
this Mortgage upon any portion of the Mortgaged Property not then or theretofore
released as security for the full amount of all unpaid Obligations, from time to
time, regardless of consideration and without notice to or consent by the holder
of any subordinate Lien, right, title or interest in or to the Mortgaged
Property, Mortgagee may, (a) release any persons liable, (b) extend the maturity
or alter any of the terms of any such Obligation, (c) modify the interest rate
payable on the principal balance of the Obligations, (d) grant other
indulgences, (e) release or reconvey, or cause to be released or reconveyed at
any time at Mortgagee's option any parcel, portion or all of the Mortgaged
Property, (f) take or release any other or additional security for any
obligations herein mentioned, or (g) make compositions or other arrangements
with debtors in relation thereto.
8.6 ENFORCEABILITY OF MORTGAGE.
--------------------------
This Mortgage is deemed to be and may be enforced from time to time as
an assignment, chattel mortgage, contract, deed of trust, deed to secure debt,
financing statement, real estate mortgage, or security agreement, and from time
to time as any one or more thereof, as is appropriate under Applicable Law. A
carbon, photographic or other reproduction of this Mortgage or any financing
statement in connection herewith shall be sufficient as a financing statement
for any and all purposes.
8.7 INTEREST.
--------
NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED HEREIN, THE AMOUNT
OF INTEREST REQUIRED HEREUNDER OR UNDER THE CREDIT AGREEMENT, THE NOTES OR ANY
OF THE OTHER LOAN DOCUMENTS SHALL BE LIMITED TO THE MAXIMUM AMOUNT IN ACCORDANCE
WITH SECTION [** _____ **] OF THE CREDIT AGREEMENT. ONE OF THE PURPOSES OF THIS
PARAGRAPH IS TO PROVIDE RECORD NOTICE OF THE RIGHT OF MORTGAGEE TO INCREASE OR
DECREASE THE INTEREST RATE ON ANY OF THE OBLIGATIONS IN ACCORDANCE WITH THE
TERMS OF THE LOAN DOCUMENTS WHERE THE TERMS AND PROVISIONS OF SUCH LOAN
DOCUMENTS PROVIDE FOR A VARIABLE INTEREST RATE.
XXIV-40
<PAGE>
8.8 CHOICE OF LAW.
-------------
Insofar as permitted by otherwise Applicable Law, this Mortgage and
the Obligations shall be and the other Loan Documents provide that they are to
be construed under and governed by the laws of the State of New York without
regard to conflict of law rules and principles; provided, however, that the laws
-------- -------
of the place in which the Mortgaged Property is located shall apply to the
extent, and only to the extent, necessary to permit Mortgagor to create the Lien
of this Mortgage and to permit Mortgagee to perfect the Lien of this Mortgage
and to enforce or realize upon their rights and remedies hereunder with respect
to such Mortgaged Property.
8.9 COUNTERPARTS.
------------
This Mortgage and any amendments, waivers, consents or supplements
hereto or in connection herewith may be executed and acknowledged in any number
of counterparts and by different parties hereto in separate counterparts, each
of which when so executed and delivered shall be deemed an original, but all
such counterparts together shall constitute but one and the same instrument;
signature and acknowledgement pages may be detached from multiple separate
counterparts and attached to a single counterpart so that all signature and
acknowledgement pages are physically attached to the same document. Mortgagee
shall also have the option to exercise all rights and remedies available to
Mortgagee hereunder and under Applicable Law as though each counterpart hereof
were a separate mortgage, deed of trust, deed to secure debt, chattel mortgage
or other security instrument covering only the portions of the Mortgaged
Property located in the city, town, county or parish wherein such counterpart is
recorded.
8.10 RECORDING REFERENCES.
--------------------
Unless otherwise specified in Exhibit A hereto, all recording
---------
references in Exhibit A are to the official real property records of the city,
---------
town, county or parish, as appropriate, in which the Land is located.
XXIV-41
<PAGE>
8.11 NOTICES.
-------
All notices, requests and demands to be made hereunder shall be made
in accordance with Section 10.8 of the Credit Agreement.
8.11 SUCCESSORS AND ASSIGNS.
----------------------
This Mortgage shall be the joint and several obligation of Mortgagor
and all of its heirs, devisees, representatives, trustees, successors and
assigns, including successors in interest of Mortgagor in and to any part of the
Mortgaged Property, and all references in this Mortgage to Mortgagor shall be
deemed to include all of the foregoing Persons. This Mortgage shall be
assignable by Mortgagee in accordance with the provisions for assignment of the
Loans set forth in the Credit Agreement and shall inure to the benefit of
Mortgagee, and all of its heirs, successors, substitutes and assigns including,
without limitation, (a) any other Eligible Assignee under the terms of the
Credit Agreement, and (b) any and all other banks, lending institutions and
parties which may participate in the indebtedness evidenced by the Notes or any
of them (all such banks, lending institutions and parties who participate in the
indebtedness evidenced by the Notes or any of them being referred to herein as
the "PARTICIPANTS"). The Participants may, by agreement among them, provide
for and regulate the exercise of their rights and remedies hereunder, but
Mortgagor and all others shall be entitled to rely on the releases, waivers,
consents, approvals, notifications and other acts of Mortgagee, without inquiry
into any such agreements or the existence of required consents or approvals of
the Participants therefor. As used herein, the term "MORTGAGEE" shall mean, at
any particular time, any Person holding any interest of Mortgagee hereunder (as
provided in and subject to the provisions of Sections 9.5 and 10.1 of the
Credit Agreement) at that time including, without limitation, any Eligible
Assignee designated as Agent under the Credit Agreement. Any waiver, consent,
approval, notification or other action required or permitted to be obtained from
or taken by Mortgagee may be obtained from or taken by the agent or agents of
Mortgagee appointed from time to time for that purpose. Mortgagor and all
others shall be entitled to rely on the waivers, consents, approvals,
notifications and other acts of Mortgagee. As of the date of this Mortgage,
Mortgagee is the Person identified as Mortgagee in the introductory paragraph of
this Mortgage. Notwithstanding any other provision contained herein, if any
property interest granted by this Mortgage does not vest on the execution and
delivery of this Mortgage, it shall vest, if at all, no later than 20 years and
364 days after the death of the last surviving descendant of Joseph P. Kennedy
(the late father of the former President of the United States) who is alive on
the execution and delivery of this Mortgage.
8.13 EXPENSES.
--------
The provisions set forth in Section 10.2 of the Credit Agreement are
incorporated herein by this reference and shall apply with the same force and
effect as if the terms of such section was set forth herein in full.
XXIV-42
<PAGE>
8.14 NONFOREIGN ENTITY.
-----------------
Section 1445 of the Internal Revenue Code of 1986, as amended (the
"INTERNAL REVENUE CODE") provides that a transferee of a U.S. real property
interest must withhold tax if the transferor is a foreign person. To inform
Mortgagee that the withholding of tax will not be required in the event of the
disposition of the Premises, or any portion thereof, pursuant to the terms of
this Mortgage, Mortgagor hereby certifies, under penalty of perjury, that:
(i) Mortgagor is not a foreign corporation, foreign partnership,
foreign trust or foreign estate, as those terms are defined in the Internal
Revenue Code and the regulations promulgated thereunder; and
(ii) Mortgagor's U.S. employer identification number is
_______________; and
(iii) Mortgagor's principal place of business is [** _______ **].
It is understood that Mortgagee may disclose the contents of this certification
to the Internal Revenue Service and that any false statement contained herein
could be punished by fine, imprisonment or both. Mortgagor covenants and agrees
to execute such further certificates, which shall be signed under penalty of
perjury, as Mortgagee shall reasonably require. The covenant set forth herein
shall survive the foreclosure of the Lien of this Mortgage or acceptance of a
deed in lieu thereof.
8.15 PURPOSE OF THE LOANS.
--------------------
Mortgagor hereby represents and agrees that the Loans evidenced or
guaranteed by the Loan Documents and secured by this Mortgage are being obtained
for business or commercial purposes, and the proceeds thereof will not be used
for personal, family, residential, household or agricultural purposes.
8.16 NO JOINT VENTURE OR PARTNERSHIP.
-------------------------------
The relationship created hereunder or under the other Loan Documents
is that of creditor/debtor. The Lenders individually and collectively, do not
owe any fiduciary or special obligation to Mortgagor and/or any of Borrower's
partners, agents, or representatives. Nothing herein or in any other Loan
Document is intended to create a joint venture, partnership, tenancy-in-common,
or joint tenancy relationship between Mortgagor, any other Loan Party or
Subsidiary thereof and Agent and the Lenders nor to grant the Agent or the
Lenders any interest in the Mortgaged Property other than that of mortgagee or
lender.
XXIV-43
<PAGE>
8.17 AMENDMENTS AND WAIVERS.
----------------------
No amendment, modification, termination or waiver of any provision of
this Mortgage or consent to any departure by any Loan Party therefrom, shall in
any event be effective without the written concurrence of Mortgagee. Any waiver
or consent shall be effective only in the specific instance and for the specific
purpose for which it was given. No notice to or demand on Mortgagor in any case
shall entitle Mortgagor to any other or further notice or demand in similar or
other circumstances.
8.18 COVENANTS AND AGREEMENTS RUN WITH LAND.
--------------------------------------
All of Mortgagor's covenants and agreements hereunder shall run with
the land.
8.19 STATEMENTS BY MORTGAGOR.
-----------------------
Mortgagor shall, within ten (10) days after written notice thereof
from Mortgagee, deliver to Mortgagee a written statement stating the outstanding
principal amount of the Guarantied Obligations under the Subsidiary Guaranty,
any accrued and unpaid interest thereon and any other amounts secured by this
Mortgage and stating whether any offset or defense then known to Mortgagor after
inquiry exists against such principal and interest.
8.20 NON-WAIVER.
----------
A. CERTAIN ACTIONS NOT A RELEASE OF MORTGAGOR. Mortgagor shall not
be relieved of Mortgagor's obligation to pay and perform the Obligations at the
time and in the manner provided in the Subsidiary Guaranty and the other Loan
Documents by reason of, and the rights of Mortgagee hereunder shall not be
affected by, (i) any failure of Mortgagee to comply with any request of
Mortgagor or any guarantor to take any action to foreclose this Mortgage or
otherwise enforce any of the provisions of the Subsidiary Guaranty, the Credit
Agreement or any other Loan Document, (ii) any release, regardless of
consideration, of the whole or any part of the Mortgaged Property or any other
security for the Obligations, (iii) any alteration, extension, renewal, change,
modification, release, amendment, compromise or cancellation, in whole or in
part, of any term, covenant or provision of any of the Loan Documents, including
any increase or decrease in the principal amount of the Obligations or any
increase or decrease in the rate of interest applicable thereto or any extension
of time for payment thereof, or (iv) any agreement or stipulation between
Mortgagee and any subsequent owner or owners of the Mortgaged Property or other
Person extending the time of payment or otherwise modifying or supplementing the
terms of this Mortgage, the Subsidiary Guaranty, the Credit Agreement or any
other Loan Document, without first having obtained the consent of Mortgagor, and
in the latter event, Mortgagor shall continue to be obligated to pay and perform
the Obligations at the time and in the manner provided in the Subsidiary
Guaranty and the other Loan Documents, as so extended, modified and
supplemented, unless expressly released and discharged from such obligation by
Mortgagee in writing.
XXIV-44
<PAGE>
B. PRIORITY OVER SUBORDINATE LIENS. Without affecting the liability
of any other Person liable for the payment and performance of the Obligations
and without affecting the Lien of this Mortgage or of any other Loan Document
upon any portion of the Mortgaged Property not then or theretofore released as
security for the payment and performance in full of all of the Obligations, from
time to time, regardless of consideration and without notice to or consent by
the holder of any subordinate Lien, encumbrance, right, title or interest in or
to the Mortgaged Property, Mortgagee may, (i) release any persons liable for the
payment or performance of the Obligations, (ii) extend the maturity or alter any
of the terms of any of the Obligations as provided in the Loan Documents, (iii)
modify the interest rate payable on the principal balance of the Obligations as
provided in the Loan Documents, (iv) grant other indulgences, (v) release or
reconvey, or cause to be released or reconveyed at any time at Mortgagee's
option any parcel, portion or all of the Mortgaged Property, (vi) take or
release any other or additional security for the Obligations herein mentioned,
or (vii) make compositions or other arrangements with debtors in relation
thereto.
8.21 SURVIVAL OF OBLIGATIONS.
-----------------------
This Mortgage shall continue to secure the entire Obligations until
the entire Obligations are paid in full or until this Mortgage has been released
of record by Mortgagee pursuant to the terms of the Credit Agreement or any of
the other Loan Documents.
8.22 CONSENT TO JURISDICTION AND SERVICE OF PROCESS.
----------------------------------------------
ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST MORTGAGOR ARISING OUT OF OR
RELATING TO THE SUBSIDIARY GUARANTY, THIS MORTGAGE OR ANY OTHER LOAN DOCUMENT,
OR ANY OBLIGATIONS THEREUNDER, MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF
COMPETENT JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK. BY EXECUTING
AND DELIVERING THIS MORTGAGE, MORTGAGOR, FOR ITSELF AND IN CONNECTION WITH ITS
PROPERTIES, IRREVOCABLY:
(i) ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE
JURISDICTION AND VENUE OF SUCH COURTS;
(ii) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS;
(iii) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN
ANY SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT
REQUESTED, TO MORTGAGOR AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH SECTION
10.8 OF THE CREDIT AGREEMENT;
XXIV-45
<PAGE>
(iv) AGREES THAT SERVICE AS PROVIDED IN CLAUSE (III) ABOVE IS
SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER MORTGAGOR IN ANY SUCH
PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND
BINDING SERVICE IN EVERY RESPECT;
(v) AGREES THAT MORTGAGEE RETAINS THE RIGHT TO SERVE PROCESS IN ANY
OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST MORTGAGOR IN
THE COURTS OF ANY OTHER JURISDICTION; AND
(vi) AGREES THAT THE PROVISIONS OF THIS SECTION 8.22 RELATING TO
------------
JURISDICTION AND VENUE SHALL BE BINDING AND ENFORCEABLE TO THE FULLEST
EXTENT PERMISSIBLE UNDER NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1402 OR
OTHERWISE.
8.23 WAIVER OF JURY TRIAL.
--------------------
EACH OF THE PARTIES TO THIS MORTGAGE HEREBY AGREES TO WAIVE ITS
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THE SUBSIDIARY GUARANTY, THIS MORTGAGE OR ANY OTHER LOAN DOCUMENT
OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS LOAN
TRANSACTION OR THE LENDER/GUARANTOR RELATIONSHIP THAT IS BEING ESTABLISHED
HEREBY AND THEREBY. The scope of this waiver is intended to be all-encompassing
of any and all disputes that may be filed in any court and that relate to the
subject matter of this transaction, including contract claims, tort claims,
breach of duty claims and all other common law and statutory claims. Each party
hereto acknowledges that this waiver is a material inducement to enter into a
business relationship, that each has already relied on this waiver in entering
into this Mortgage and the other Loan Documents, and that each will continue to
rely on this waiver in their related future dealings. Each party hereto further
warrants and represents that it has reviewed this waiver with its legal counsel
and that it knowingly and voluntarily waives its jury trial rights following
consultation with legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT
MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL WRITTEN
WAIVER SPECIFICALLY REFERRING TO THIS SECTION 8.23 AND EXECUTED BY EACH OF THE
------------
PARTIES HERETO), AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS MORTGAGE OR ANY OF THE OTHER LOAN
DOCUMENTS OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE LOANS MADE
UNDER THE CREDIT AGREEMENT OR GUARANTIED UNDER THE SUBSIDIARY GUARANTY. In the
event of litigation, this Mortgage may be filed as a written consent to a trial
by the court.
XXIV-46
<PAGE>
8.24 MORTGAGEE'S ADDITIONAL RIGHTS.
-----------------------------
The provisions of Schedule I attached hereto are made a part hereof.
----------
LXIX.
MISCELLANEOUS COVENANTS AND AGREEMENTS
[TO COME.]
[ THE REMAINDER OF THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY ]
XXIV-47
<PAGE>
IN WITNESS WHEREOF, Mortgagor has on the date set forth in the
acknowledgement hereto, effective as of the date first above written, caused
this instrument to be duly EXECUTED AND DELIVERED.
Mortgagor:
---------
[** SEALY OWNERSHIP ENTITY **],
a _____________
By:
By:
By:______________________________________
Name:
Title:
S-1
<PAGE>
STATE OF NEW YORK )
) SS.:
COUNTY OF NEW YORK )
ON THE ____ DAY OF ___________ IN THE YEAR 1997 BEFORE ME, THE UNDERSIGNED,
A NOTARY PUBLIC IN AND FOR SAID STATE, PERSONALLY APPEARED
__________________, PERSONALLY KNOWN TO ME OR PROVED TO ME ON THE BASIS OF
SATISFACTORY EVIDENCE TO BE THE INDIVIDUALS WHOSE NAMES ARE SUBSCRIBED TO
THE WITHIN INSTRUMENT AND ACKNOWLEDGED TO ME THAT THEY EXECUTED THE SAME IN
THEIR CAPACITIES, AND THAT BY THEIR SIGNATURES ON THE INSTRUMENT, THE
INDIVIDUALS EXECUTED THE INSTRUMENT.
__________________________________________________
(SIGNATURE AND OFFICE OF INDIVIDUAL TAKING
ACKNOWLEDGEMENT)
STATE OF NEW YORK )
) SS.:
COUNTY OF NEW YORK )
ON THE ____ DAY OF __________ IN THE YEAR 1997 BEFORE ME, THE UNDERSIGNED,
A NOTARY PUBLIC IN AND FOR SAID STATE, PERSONALLY APPEARED ______________,
PERSONALLY KNOWN TO ME OR PROVED TO ME ON THE BASIS OF SATISFACTORY
EVIDENCE TO BE THE INDIVIDUAL WHOSE NAME IS SUBSCRIBED TO THE WITHIN
INSTRUMENT AND ACKNOWLEDGED TO ME THAT HE EXECUTED THE SAME IN HIS
CAPACITY, AND THAT BY HIS SIGNATURE ON THE INSTRUMENT, THE INDIVIDUAL
EXECUTED THE INSTRUMENT.
__________________________________________________
(SIGNATURE AND OFFICE OF INDIVIDUAL TAKING
N-1
<PAGE>
EXHIBIT A
---------
LEGAL DESCRIPTION OF LAND
The Name of the Record Owner of the Land is [** SEALY OWNERSHIP ENTITY. **]
[See Attached Page(s) for Legal Description]
Exh. A-1
<PAGE>
EXHIBIT B
---------
DESCRIPTION OF ADDITIONAL MORTGAGED PROPERTY
All of Mortgagor's right, title and interest in and to the following, in each
case whether now or hereafter existing or in which Mortgagor now has or
hereafter acquires an interest, now or hereafter located upon or attached to or
to be incorporated in (regardless of where located) the Premises or appurtenant
thereto, or used or to be used in connection with the present or future use,
construction upon, leasing, sale, operation or occupancy of the Premises:
(1) all right, title and interest of Mortgagor in and to all buildings,
structures, fixtures, tenant improvements and other improvements of every
kind and description now or hereafter located in or on the Premises,
including all Materials, water, sanitary and storm sewers, drainage,
electricity, steam, gas, telephone and other utility facilities, parking
areas, roads, driveways, walks and other site improvements; and all additions
and betterments thereto and all renewals, substitutions and replacements
thereof, owned or to be owned by Mortgagor or in which Mortgagor has or shall
acquire an interest, to the extent of Mortgagor's interest therein (all of
the foregoing being referred to herein, collectively, as the
"IMPROVEMENTS");
(2) all supplies and materials in which Mortgagor has an interest
arising in conjunction with Mortgagor's ownership or operation of the
Premises, including any supplies or materials intended for incorporation or
installation in the Improvements, prior to the time the same are so
incorporated or installed, including building materials and components (all
of the foregoing being referred to herein, collectively, as the
"MATERIALS");
(3) all equipment, machinery, apparatus, fittings, fixtures, furniture,
furnishings and articles of personal property of every kind and nature
whatsoever owned or leased (but only to the extent Mortgagor can grant to
Mortgagee a security interest therein without breaching the terms of such
lease) now or in the future by Mortgagor, and either located upon the
Premises, or any part thereof, or used in connection with the present use,
maintenance, operation or occupancy of the Improvements as a manufacturing
plant and/or warehouse or any other future occupancy or use of the
Improvements, including all heating, lighting, laundry, incinerating,
compacting, loading, unloading, landscaping, garage and power equipment and
supplies, tools, engines, pipes, pumps, tanks, motors, generators, conduits,
switchboards, plumbing, fittings, lifting, cleaning, fire prevention, fire
extinguishing, refrigerating, ventilating, and communications apparatus, rack
and shelving systems, air cooling and air conditioning apparatus, elevators,
escalators, shades, awnings, screens, storm doors and windows, carpeting,
computers, software, telephone switchboards, partitions, ducts, compressors,
cables, boilers, stokers, furnaces, tables, desks, chairs, telephones,
bathroom fixtures, cleaning equipment and supplies, and all additions,
substitutions and
Exh. B-1
<PAGE>
replacements thereof, wherever located, together with all attachments,
components, parts, equipment and accessories installed thereon or affixed
thereto and all of Mortgagor's present and future "goods", "equipment" and
"fixtures" (as such terms are defined in the Uniform Commercial Code) and
other personal property, including without limitation any such personal
property and fixtures which are leased (but only to the extent Mortgagor can
grant to Mortgagee a security interest therein without breaching the terms of
such lease), and all repairs, attachments, betterments, renewals,
replacements, substitutions and accessions thereof and thereto (all of the
foregoing being referred to herein, collectively, as the "EQUIPMENT");
Exh. B-2
<PAGE>
(4) all right, title and interest now owned or hereafter acquired by
Mortgagor in and to all options and rights of first refusal to purchase or
lease any Mortgaged Property or any portion thereof or interest therein, and
in and to any greater estate in the Premises or any other part of any
Mortgaged Property including, but not limited to all rights of first refusal
to purchase the fee estate in the Land (all of the foregoing being referred
to herein as the "OPTIONS");
(5) all the right, in the name and on behalf of Mortgagor, to appear in
and defend any action or proceeding brought with respect to any Mortgaged
Property, and to commence any action or proceeding to protect the interest of
Mortgagor in any Mortgaged Property (collectively, the "PROCEEDING
RIGHTS");
(6) subject to the terms of the Credit Agreement, all of Mortgagor's
right and power to encumber further any Mortgaged Property or any part
thereof (the "ENCUMBRANCE RIGHTS");
(7) all rights, titles, interests, estates or other claims, both in law
and in equity, which Mortgagor now has or may hereafter acquire in the
Premises or in and to any greater estate in the Premises or in and to any
greater estate in any Mortgaged Property (the "GREATER ESTATE RIGHTS");
(8) all prepaid rent and security deposits and all other security which
the lessor under any ground lease may hold now or later for the performance
of Mortgagor's obligations as the lessee under any such ground lease
("SECURITY DEPOSITS");
(9) subject to the terms of Section 6.4 of the Credit Agreement, all
insurance policies and the proceeds thereof, now or hereafter in effect with
respect to the Premises or any other Mortgaged Property, including, without
limitation, any and all title insurance proceeds, and all unearned premiums
and premium refunds, accrued, accruing or to accrue under insurance policies,
and all awards made for any taking of or damage to all or any part of the
Premises or any other Mortgaged Property by eminent domain, or by any
purchase in lieu thereof, and all awards resulting from a change of grade of
streets or for severance damages, and all other proceeds of the conversion,
voluntary or involuntary, of any Mortgaged Property into cash or other
liquidated claims, and all judgments, damages, awards, settlements and
compensation (including interest thereon) heretofore or hereafter made to the
present and all subsequent owners of any Mortgaged Property or any part
thereof for any injury to or decrease in the value thereof for any reason
(collectively, the "INSURANCE/CONDEMNATION PROCEEDS");
(10) all right, title and interest of Mortgagor as landlord in and to
all leaseholds and all leases, subleases, licenses, franchises, concessions
or grants of other possessory interests, tenancies, and any other agreements
affecting the use, possession or occupancy of the Premises (or any other part
of any Mortgaged Property) or any part thereof, whether now or
Exh. B-3
<PAGE>
hereafter existing or entered into (including, without limitation, any use or
occupancy arrangements created pursuant to Section 365(d) of the Bankruptcy
Code or otherwise in connection with the commencement or continuance of any
bankruptcy, reorganization, arrangement, insolvency, dissolution,
receivership or similar proceedings, or any assignment for the benefit of
creditors, in respect of any tenant or occupant of any portion of the
Premises (or any other part of any Mortgaged Property)) and all amendments,
modifications, supplements, extensions or renewals thereof, and all
guaranties thereof or of leasing commissions, whether now or hereafter
existing and all amendments, modifications, supplements, extensions or
renewals thereof, (all of the foregoing being collectively referred to as the
"LEASES"), and all rents, issues, profits, royalties (including all oil and
gas or other hydrocarbon substances), earnings, receipts, revenues, accounts,
accounts receivable, security deposits and other deposits (subject to the
prior right of the tenants making such deposits) and income, including,
without limitation, fixed, additional and percentage rents, vending receipts,
service charges, telephone charges, and all other fees, charges, accounts and
other payments for the use or occupancy of facilities and/or the services
rendered and goods provided in connection therewith, and all operating
expense reimbursements, reimbursements for increases in taxes, sums paid by
tenants to Mortgagor to reimburse Mortgagor for amounts originally paid or to
be paid by Mortgagor or Mortgagor's agents or affiliates for which such
tenants were liable, as, for example, tenant improvements costs in excess of
any work letter, lease takeover costs, moving expenses and tax and operating
expense pass-throughs for which a tenant is solely liable, parking,
maintenance, common area, tax, insurance, utility and service charges and
contributions, proceeds of sale of electricity, gas, heating, air-
conditioning and other utilities and services, deficiency rents and
liquidated damages, and other benefits now or hereafter derived from any
portion of the Premises or otherwise due and payable or to become due and
payable as a result of any ownership, use, possession, occupancy or operation
thereof and/or services rendered, goods provided and business conducted in
connection therewith (including any payments received pursuant to Section
502(b) of the Bankruptcy Code or otherwise in connection with the
commencement or continuance of any bankruptcy, reorganization, arrangement,
insolvency, dissolution, receivership or similar proceedings, or any
assignment for the benefit of creditors, in respect of any tenant or other
occupants of any portion of the Premises and all claims as a creditor in
connection with any of the foregoing) and all cash or security deposits,
advance rentals, and all deposits or payments of a similar nature relating
thereto, now or hereafter, including during any period of redemption, derived
from the Premises or any other portion of any Mortgaged Property and all
proceeds from the cancellation, surrender, sale or other disposition of the
Leases (all of the foregoing being referred to collectively, as the
"RENTS") and the right to receive and apply the Rents to the payment of the
Obligations, subject to the right hereinafter given to Mortgagor to collect
the Rents;
(11) the right to enforce, whether at law or in equity or by any other
means, all terms, covenants and provisions of the Leases (collectively, the
"LEASE PROVISIONS");
Exh. B-4
<PAGE>
(12) all impounds paid by Mortgagor pursuant to the provisions of the
Mortgage and all refunds or rebates of real and personal property taxes or
charges in lieu of taxes, heretofore or now or hereafter assessed or levied
against the Premises or any other part of any Mortgaged Property, including
interest thereon, and the right to receive the same, whether such refunds or
rebates relate to fiscal periods before or during the term hereof
(collectively, the "REFUNDS");
(13) any loan commitment for financing of the Improvements, including
refinancing of any existing loans, and all amounts to be advanced to or on
behalf of Mortgagor thereunder (collectively, the "FINANCING COMMITMENTS");
(14) all motor vehicle equipment in all of its forms, wherever located,
now or hereafter existing (including, but not limited to, all trucks,
tractors, trailers, forklifts and automobiles), and all parts thereof
(whether or not at any time of determination incorporated or installed
therein or attached thereto, and including, without limitation, spare parts
and tires), and all additions and accessions to, and replacements for, any of
the foregoing Mortgaged Property (any and all such motor vehicle equipment,
parts, additions, accessions and replacements being the "ROLLING STOCK");
(15) any and all accounts receivable and rights to payment for use or
occupancy of space or for goods sold or leased or for services rendered,
whether or not yet earned by performance, arising from the operation of the
Improvements (including the use or occupancy thereof) or any other facility
on the Premises, including, without limitation, (a) all accounts arising from
the operation of any Improvements (specifically including any accounts
receivable) and (b) all rights to receive payment under Leases, all
substitutions therefor, proceeds thereof (whether cash or non-cash, movable
or immovable, tangible or intangible) received upon the sale, exchange,
transfer, collection or other disposition or substitution thereof and any and
all of the foregoing and proceeds therefrom (all of the foregoing being
referred to herein, collectively, as the "PAYMENT RIGHTS");
(16) subject to the terms of the Credit Agreement, all accounts, goods,
contract rights, chattel paper, documents, instruments, general intangibles,
accounts receivable, other rights to payment of any nature and other rights
and obligations of any kind and all rights in, to and under all security
agreements, pledges, chattel mortgages, leases and other contracts securing
or otherwise relating to any such accounts, goods, contract rights, chattel
paper, documents, instruments, general intangibles, accounts receivable,
other rights to payment of any nature or other obligations (any and all such
accounts, goods, contract rights, chattel paper, documents, instruments,
general intangibles, accounts receivable, other rights to payment of any
nature and other obligations, together with the Payment Rights being the
"ACCOUNTS", and any and all such security agreements, pledges, chattel
mortgages, leases and other contracts being the "RELATED CONTRACTS");
Exh. B-5
<PAGE>
(17) all franchise agreements, management agreements, agreements for the
acquisition of the Mortgaged Property or any portion thereof, license
agreements and all similar future agreements, as each such agreement may be
amended, supplemented, replaced or otherwise modified from time to time (said
agreements, as so amended, supplemented, replaced or otherwise modified,
being referred to herein individually as an "ASSIGNED RELATED AGREEMENT" and
collectively as the "ASSIGNED RELATED AGREEMENTS"), including without
limitation (i) all rights of Mortgagor to receive moneys due or to become due
under or pursuant to the Assigned Related Agreements, (ii) all rights of
Mortgagor to receive proceeds of any insurance, indemnity, warranty or
guaranty with respect to the Assigned Related Agreements, (iii) all claims of
Mortgagor for damages arising out of any breach of or default under the
Assigned Related Agreements, and (iv) all rights of Mortgagor to terminate,
amend, supplement, modify or exercise rights or options under the Assigned
Related Agreements, to perform thereunder and to compel performance and
otherwise exercise all remedies thereunder;
(18) all abstracts of title, plans, specifications, operating manuals,
computer programs, computer data, maps, surveys, studies, reports,
appraisals, architectural, engineering and construction drawings and
contracts, or whatever kind or character, whether now or hereafter existing,
relating to the Premises (all of the foregoing being referred to herein as
the "SPECIFICATIONS");
(19) all books, records, ledger cards, files, correspondence, computer
programs, tapes, disks and related data processing software that at any time
evidence or contain information relating to any of the Mortgaged Property or
are otherwise necessary or helpful in the collection thereof or realization
thereupon (collectively, the "RECORDS");
(20) at such times and to the extent the granting of a security interest
therein is permitted by Applicable Law, all approvals, authorizations,
building permits, certifications, entitlements, exemptions, franchises,
licenses, orders, variances, plat plan approvals, environmental approvals
(including, without limitation, an environmental impact statement or report
if required under Applicable Law), air pollution authorities to construct and
permits to operate, sewer and waste discharge permits, national pollutant
discharge elimination system permits, water permits, zoning and land use
entitlements and all other permits, whether now existing or hereafter issued
to or obtained by or on behalf of Mortgagor, that relate to or concern in any
way the Premises and are given or issued by any governmental or quasi-
governmental authority, whether now existing or hereafter created (as the
same may be amended, modified, renewed or extended from time to time, and
including all substitutions and replacements therefor) (collectively, the
"PERMITS");
(21) subject to the terms of the Credit Agreement, all proceeds,
products, rents and profits of or from any and all of the foregoing Mortgaged
Property and, to the extent not
Exh. B-6
<PAGE>
otherwise included, all payments under insurance (whether or not Mortgagee is
the loss payee thereof), or any indemnity, warranty or guaranty, payable by
reason of loss or damage to or otherwise with respect to any of the foregoing
Mortgaged Property. For purposes hereof, the term "PROCEEDS" includes
whatever is receivable or received when Mortgaged Property or proceeds are
sold, exchanged, collected or otherwise disposed of, whether such disposition
is voluntary or involuntary;
provided, however, that in no event shall the Mortgaged Property include, and no
- -------- -------
Mortgagor shall be deemed to have granted a security interest in, any of
Mortgagor's rights or interests in any agreement to which Mortgagor is a party
or any of its rights or interests thereunder to the extent but only to the
extent that such a grant would result in a breach of the terms of, or constitute
a default under, any such agreement, and the other party to such agreement has
not consented to the granting of such security interest in such agreement (other
than to the extent that any such term would be rendered ineffective pursuant to
Section 9-318(4) of the Uniform Commercial Code of any relevant jurisdiction or
any other Applicable Law (including the Bankruptcy Code) or principles of
equity); and provided further, that immediately upon the ineffectiveness, lapse
-------- -------
or termination of any such provision, the Mortgaged Property shall include and
Mortgagor shall be deemed to have granted a security interest in, all such
rights or interests in the applicable Mortgaged Property as if such provision
had never been in effect.
The term "Premises" means the Premises described in the Mortgage to which this
Exhibit B is attached.
- ---------
Exh. B-7
<PAGE>
EXHIBIT C
---------
UCC INFORMATION
DEBTOR:
- ------
Name: [** Sealy Ownership Entity **]
Corporate Structure:
Notice Address:
Principal Place of Business:
SECURED PARTY:
- -------------
Secured Party acts as Agent for the Lenders (the "LENDERS") party from time to
time to the Credit Agreement dated as of even date herewith among [** _____ **]
the Lenders and Secured Party, as it may hereafter be amended, restated,
replaced, supplemented or otherwise modified from time to time. Information
regarding the security interest held by the Lenders, for which Secured Party
acts as Agent, may be obtained by contacting Secured Party at the address set
forth above.
Exh. C-8
<PAGE>
SCHEDULE I
MORTGAGEE'S ADDITIONAL RIGHTS
[To Come]
Sch.I-1
<PAGE>
EXHIBIT XXV
[FORM OF COLLATERAL ACCESS AGREEMENT]
RECORDING REQUESTED BY:
O'Melveny & Myers LLP
AND WHEN RECORDED MAIL TO:
O'Melveny & Myers LLP
153 East 53rd Street
New York, New York 10022
Attn: _____________________
Re: [Name of Company]
- --------------------------------------------------------------------------------
Space above this line for recorder's use only
REAL PROPERTY HOLDER'S WAIVER AND CONSENT AGREEMENT
This REAL PROPERTY HOLDER'S WAIVER AND CONSENT AGREEMENT (this
"AGREEMENT") is dated as of ___________, [199_][200_] and entered into by
_________________________, a ____________________ ("REAL PROPERTY HOLDER"), to
and for the benefit of MORGAN GUARANTY TRUST COMPANY OF NEW YORK, a
___________________ having offices at ______________________________
("ADMINISTRATIVE AGENT"), as administrative agent for the financial
institutions ("LENDERS") which are or may hereafter become parties to the
Credit Agreement (as hereinafter defined).
R E C I T A L S
- - - - - - - -
9.1 ____________________, a _______________ corporation
("COMPANY"), has possession of and occupies all or a portion of the property
described on Exhibit A annexed hereto (the "PREMISES").
---------
9.2 Company's interest in the Premises [arises under the lease
agreement (the "LEASE")][is subject to the [mortgage][deed of trust] (the
"MORTGAGE")] more particularly described on Exhibit B annexed hereto,
---------
pursuant to which Real Property Holder has rights, upon the terms and conditions
set forth therein, to take possession of, and otherwise assert control over, the
Premises.
Sch.I-1
<PAGE>
9.3 Administrative Agent and Lenders have entered into that certain
Credit Agreement dated as of December 18, 1997 (said Credit Agreement, as
amended, supplemented or otherwise modified from time to time, being the "CREDIT
AGREEMENT") with [Company], [Sealy Mattress Company, an Ohio corporation of
which Company is a subsidiary ("BORROWER")], Sealy Corporation, a Delaware
corporation ("HOLDINGS"), and Company has executed [a guaranty,] a security
agreement and other collateral documents in relation to the Credit Agreement.
9.4 [Company's guaranty of] the extensions of credit made by
Lenders to [Company] [Borrower] under the Credit Agreement will be secured, in
part, by all raw materials, work-in-process and finished goods inventory of
Company (including, without limitation, all inventory of Company now or
hereafter located on the Premises (the "INVENTORY")) and all equipment,
machinery and other goods used in Company's business (including, without
limitation, all equipment of Company now or hereafter located on the Premises
(the "EQUIPMENT" and, together with the Inventory, the "COLLATERAL")).
9.5 Administrative Agent has requested that Real Property Holder
execute this Agreement as a condition to the extension of credit to [Company]
[Borrower] under the Credit Agreement.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Real Property Holder hereby represents and warrants to, and
covenants and agrees with, Administrative Agent as follows:
1. Real Property Holder hereby (a) waives and releases unto
Administrative Agent and its successors and assigns any and all rights granted
by or under any present or future laws to levy or distraint for rent or any
other charges which may be due to Real Property Holder against the Collateral,
and any and all other claims, liens and demands of every kind which it now has
or may hereafter have against the Collateral, and (b) agrees that any rights it
may have in or to the Collateral, no matter how arising (to the extent not
effectively waived pursuant to clause (a) of this paragraph 1), shall be second
and subordinate to the rights of Administrative Agent in respect thereof. Real
Property Holder acknowledges that the Collateral is and will remain personal
property and not fixtures even though it may be affixed to or placed on the
Premises.
2. Real Property Holder certifies that (a) Real Property Holder is the
[landlord under the Lease][beneficiary under the Mortgage], (b) the
[Lease][Mortgage] is in full force and effect and has not been amended,
modified, or supplemented except as set forth on Exhibit B annexed hereto, (c)
---------
there is no defense, offset, claim or counterclaim by or in favor of Real
Property Holder against Company under the [Lease][Mortgage] or against the
obligations of Real Property Holder under the [Lease][Mortgage], (d) no notice
of default has been given under or in connection with the [Lease][Mortgage]
which has not been cured, and Real Property Holder has no knowledge of
Sch.I-2
<PAGE>
the occurrence of any other default under or in connection with the
[Lease][Mortgage], and (e) except as disclosed to Administrative Agent, no
portion of the Premises is encumbered in any way by any deed of trust or
mortgage lien or ground or superior lease.
3. Real Property Holder consents to the installation or placement of the
Collateral on the Premises, and Real Property Holder grants to Administrative
Agent a license to enter upon and into the Premises to do any or all of the
following with respect to the Collateral: assemble, have appraised, display,
remove, maintain, prepare for sale or lease, repair, transfer, or sell (at
public or private sale). In entering upon or into the Premises, Administrative
Agent hereby agrees to indemnify, defend and hold Real Property Holder harmless
from and against any and all claims, judgments, liabilities, costs and expenses
incurred by Real Property Holder caused solely by Administrative Agent's
entering upon or into the Premises and taking any of the foregoing actions with
respect to the Collateral. Such costs shall include, without limitation, any
damage to the Premises made by Administrative Agent in severing and/or removing
the Collateral therefrom.
4. Real Property Holder agrees that it will not prevent Administrative
Agent or its designee from entering upon the Premises at all reasonable times to
inspect or remove the Collateral. In the event that Real Property Holder has
the right to, and desires to, obtain possession of the Premises [(either through
expiration of the Lease or termination thereof due to the default of Company
thereunder)] [(through the exercise of its rights under the Mortgage upon a
default by Company thereunder)], Real Property Holder will deliver notice (the
"REAL PROPERTY HOLDER'S NOTICE") to Administrative Agent to that effect.
Within the 45 day period after Administrative Agent receives the Real Property
Holder's Notice, Administrative Agent shall have the right, but not the
obligation, to cause the Collateral to be removed from the Premises. During
such 45 day period, Real Property Holder will not remove the Collateral from the
Premises nor interfere with Administrative Agent's actions in removing the
Collateral from the Premises or Administrative Agent's actions in otherwise
enforcing its security interest in the Collateral. Notwithstanding anything to
the contrary in this paragraph, Administrative Agent shall at no time have any
obligation to remove the Collateral from the Premises.
5. Real Property Holder shall send to Administrative Agent a copy of any
notice of default under the [Lease][Mortgage] sent by Real Property Holder to
Company. In addition, Real Property Holder shall send to Administrative Agent a
copy of any notice received by Real Property Holder of a breach or default under
any other lease, mortgage, deed of trust, security agreement or other instrument
to which Real Property Holder is a party which may affect Company's rights in,
or possession of, the Premises.
6. All notices to Administrative Agent under this Agreement shall be in
writing and sent to Administrative Agent at its address set forth on the
signature page hereof by telefacsimile, by United States mail, or by overnight
delivery service.
Sch.I-3
<PAGE>
7. The provisions of this Agreement shall continue in effect until Real
Property Holder shall have received Administrative Agent's written certification
that all amounts advanced under the Credit Agreement have been paid in full.
8. This Agreement and the rights and obligations of the parties
hereunder shall be governed by, and shall be construed and enforced in
accordance with, the internal laws of the State of ___________, without regard
to conflicts of laws principles.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be duly
executed and delivered as of the day and year first set forth above.
[NAME OF REAL PROPERTY HOLDER]
By: _________________________________
Name:
Title:
By its acceptance hereof, as of the day and year first set forth above,
Administrative Agent agrees to be bound by the provisions hereof.
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK, as Administrative Agent
By: _________________________________
Name:
Title:
Sch.I-4
<PAGE>
EXHIBIT A
---------
LEGAL DESCRIPTION OF PREMISES
Sch.I-5
<PAGE>
EXHIBIT B
---------
DESCRIPTION OF [LEASE] [MORTGAGE]
Sch.I-6
<PAGE>
EXHIBIT XXV
[FORM OF COLLATERAL ACCESS AGREEMENT]
RECORDING REQUESTED BY:
O'Melveny & Myers LLP
AND WHEN RECORDED MAIL TO:
O'Melveny & Myers LLP
153 East 53rd Street
New York, New York 10022
Attn: _____________________
Re: [Name of Company]
- -------------------------------------------------------------------------------
Space above this line for recorder's use only
REAL PROPERTY HOLDER'S WAIVER AND CONSENT AGREEMENT
This REAL PROPERTY HOLDER'S WAIVER AND CONSENT AGREEMENT (this
"AGREEMENT") is dated as of ___________, [199_][200_] and entered into by
_________________________, a ____________________ ("REAL PROPERTY HOLDER"), to
and for the benefit of MORGAN GUARANTY TRUST COMPANY OF NEW YORK, a
___________________ having offices at ______________________________
("ADMINISTRATIVE AGENT"), as administrative agent for the financial
institutions ("LENDERS") which are or may hereafter become parties to the
Credit Agreement (as hereinafter defined).
R E C I T A L S
- - - - - - - -
9.1 ____________________, a _______________ corporation
("COMPANY"), has possession of and occupies all or a portion of the property
described on Exhibit A annexed hereto (the "PREMISES").
---------
9.2 Company's interest in the Premises [arises under the lease
agreement (the "LEASE")][is subject to the [mortgage][deed of trust] (the
"MORTGAGE")] more particularly described on Exhibit B annexed hereto,
---------
pursuant to which Real Property Holder has rights, upon the terms and conditions
set forth therein, to take possession of, and otherwise assert control over, the
Premises.
9.3 Administrative Agent and Lenders have entered into that
certain Credit Agreement dated as of December 18, 1997 (said Credit Agreement,
as amended, supplemented
XXV-1
<PAGE>
or otherwise modified from time to time, being the "CREDIT AGREEMENT") with
[Company], [Sealy Mattress Company, an Ohio corporation of which Company is a
subsidiary ("BORROWER")], Sealy Corporation, a Delaware corporation
("HOLDINGS"), and Company has executed [a guaranty,] a security agreement and
other collateral documents in relation to the Credit Agreement.
9.4 [Company's guaranty of] the extensions of credit made by
Lenders to [Company] [Borrower] under the Credit Agreement will be secured, in
part, by all raw materials, work-in-process and finished goods inventory of
Company (including, without limitation, all inventory of Company now or
hereafter located on the Premises (the "INVENTORY")) and all equipment,
machinery and other goods used in Company's business (including, without
limitation, all equipment of Company now or hereafter located on the Premises
(the "EQUIPMENT" and, together with the Inventory, the "COLLATERAL")).
9.5 Administrative Agent has requested that Real Property Holder
execute this Agreement as a condition to the extension of credit to [Company]
[Borrower] under the Credit Agreement.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Real Property Holder hereby represents and warrants to, and
covenants and agrees with, Administrative Agent as follows:
1. Real Property Holder hereby (a) waives and releases unto
Administrative Agent and its successors and assigns any and all rights granted
by or under any present or future laws to levy or distraint for rent or any
other charges which may be due to Real Property Holder against the Collateral,
and any and all other claims, liens and demands of every kind which it now has
or may hereafter have against the Collateral, and (b) agrees that any rights it
may have in or to the Collateral, no matter how arising (to the extent not
effectively waived pursuant to clause (a) of this paragraph 1), shall be second
and subordinate to the rights of Administrative Agent in respect thereof. Real
Property Holder acknowledges that the Collateral is and will remain personal
property and not fixtures even though it may be affixed to or placed on the
Premises.
2. Real Property Holder certifies that (a) Real Property Holder is the
[landlord under the Lease][beneficiary under the Mortgage], (b) the
[Lease][Mortgage] is in full force and effect and has not been amended,
modified, or supplemented except as set forth on Exhibit B annexed hereto, (c)
---------
there is no defense, offset, claim or counterclaim by or in favor of Real
Property Holder against Company under the [Lease][Mortgage] or against the
obligations of Real Property Holder under the [Lease][Mortgage], (d) no notice
of default has been given under or in connection with the [Lease][Mortgage]
which has not been cured, and Real Property Holder has no knowledge of the
occurrence of any other default under or in connection with the
[Lease][Mortgage], and (e) except as disclosed to Administrative Agent, no
portion of the Premises is encumbered in any way by any deed of trust or
mortgage lien or ground or superior lease.
XXV-2
<PAGE>
3. Real Property Holder consents to the installation or placement of the
Collateral on the Premises, and Real Property Holder grants to Administrative
Agent a license to enter upon and into the Premises to do any or all of the
following with respect to the Collateral: assemble, have appraised, display,
remove, maintain, prepare for sale or lease, repair, transfer, or sell (at
public or private sale). In entering upon or into the Premises, Administrative
Agent hereby agrees to indemnify, defend and hold Real Property Holder harmless
from and against any and all claims, judgments, liabilities, costs and expenses
incurred by Real Property Holder caused solely by Administrative Agent's
entering upon or into the Premises and taking any of the foregoing actions with
respect to the Collateral. Such costs shall include, without limitation, any
damage to the Premises made by Administrative Agent in severing and/or removing
the Collateral therefrom.
4. Real Property Holder agrees that it will not prevent Administrative
Agent or its designee from entering upon the Premises at all reasonable times to
inspect or remove the Collateral. In the event that Real Property Holder has
the right to, and desires to, obtain possession of the Premises [(either through
expiration of the Lease or termination thereof due to the default of Company
thereunder)] [(through the exercise of its rights under the Mortgage upon a
default by Company thereunder)], Real Property Holder will deliver notice (the
"REAL PROPERTY HOLDER'S NOTICE") to Administrative Agent to that effect.
Within the 45 day period after Administrative Agent receives the Real Property
Holder's Notice, Administrative Agent shall have the right, but not the
obligation, to cause the Collateral to be removed from the Premises. During
such 45 day period, Real Property Holder will not remove the Collateral from the
Premises nor interfere with Administrative Agent's actions in removing the
Collateral from the Premises or Administrative Agent's actions in otherwise
enforcing its security interest in the Collateral. Notwithstanding anything to
the contrary in this paragraph, Administrative Agent shall at no time have any
obligation to remove the Collateral from the Premises.
5. Real Property Holder shall send to Administrative Agent a copy of any
notice of default under the [Lease][Mortgage] sent by Real Property Holder to
Company. In addition, Real Property Holder shall send to Administrative Agent a
copy of any notice received by Real Property Holder of a breach or default under
any other lease, mortgage, deed of trust, security agreement or other instrument
to which Real Property Holder is a party which may affect Company's rights in,
or possession of, the Premises.
6. All notices to Administrative Agent under this Agreement shall be in
writing and sent to Administrative Agent at its address set forth on the
signature page hereof by telefacsimile, by United States mail, or by overnight
delivery service.
7. The provisions of this Agreement shall continue in effect until Real
Property Holder shall have received Administrative Agent's written certification
that all amounts advanced under the Credit Agreement have been paid in full.
8. This Agreement and the rights and obligations of the parties
hereunder shall be governed by, and shall be construed and enforced in
accordance with, the internal laws of the State of ___________, without regard
to conflicts of laws principles.
XXV-3
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be duly
executed and delivered as of the day and year first set forth above.
[NAME OF REAL PROPERTY HOLDER]
By:
-----------------------------
Name:
Title:
By its acceptance hereof, as of the day and year first set forth above,
Administrative Agent agrees to be bound by the provisions hereof.
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Administrative Agent
By:
-----------------------------
Name:
Title:
XXV-4
<PAGE>
EXHIBIT A
---------
LEGAL DESCRIPTION OF PREMISES
XXV-5
<PAGE>
EXHIBIT B
---------
DESCRIPTION OF [LEASE] [MORTGAGE]
XXV-6
<PAGE>
EXHIBIT XXVI
[FORM OF SUBORDINATION PROVISIONS]
"INDEBTEDNESS" means (i) all obligations for borrowed money or for the
deferred purchase price of property or services (including, without limitation,
all obligations contingent or otherwise in connection with acceptance, letter of
credit or similar facilities, but excluding any such obligations incurred under
ERISA and any accrued expenses or trade payables, (ii) all obligations evidenced
by bonds, notes, debentures or other similar instruments, (iii) all indebtedness
created or arising under any sale and leaseback arrangement, conditional sale or
other title retention agreement with respect to property owned or acquired
(whether or not the rights and remedies of the seller or lender under such
agreement in the event of default are limited to repossession or sale of such
property), (iv) all rental obligations under capital leases to the extent not
included in clause (iii) above to the extent properly classified as a liability
on a balance sheet in conformity with GAAP, (v) all guarantees (direct or
indirect) to the extent properly classified as a liability on a balance sheet in
conformity with GAAP, all contingent reimbursement obligations under undrawn
letters of credit and all other contingent obligations in respect of, or
obligations to purchase or otherwise acquire or to assure payment of,
Indebtedness of others and (vi) indebtedness of others secured by any lien upon
property, whether or not assumed, but only to the extent of the lesser of such
property's fair market value and the stated amount of such obligation.
"PERSON" means an individual, a partnership, a corporation, an association,
a limited liability company, a joint stock company, a trust, a joint venture, an
unincorporated organization and a governmental entity or any department, agency
or political subdivision thereof.
"SENIOR AGENT" shall mean Morgan Guaranty Trust Company of New York, as
Administrative Agent for the Lenders under the Senior Credit Agreements, and its
successors in such capacity, or if there is then no acting Administrative Agent
under the Senior Credit Agreements, financial institutions holding a majority in
principal amount of the Senior Debt outstanding thereunder.
"SENIOR CREDIT AGREEMENTS" shall mean, collectively, (i) the Credit
Agreement dated as of December 18, 1997 and (ii) the AXEL Credit Agreement dated
as of December 18, 1997, in each case by and among the Borrower, Sealy
Corporation, the financial institutions listed therein as Lenders, Senior Agent,
Goldman Sachs Credit Partners L.P., as Syndication Agent, and Bankers Trust
Company, as Documentation Agent, as each such agreement has heretofore been and
may hereafter be amended, restated, modified or supplemented from time to time,
together with any credit agreement or similar document from time to time
executed by the Borrower to evidence any Refinancing (as defined in the
definition of Senior Indebtedness) or successive Refinancings.
1
<PAGE>
"SENIOR DEBT DOCUMENTS" shall mean the Senior Credit Agreements and all
other documents and instruments delivered or filed in connection with the
creation or incurrence of any Senior Indebtedness (including, without
limitation, the promissory notes, guaranties, security agreements, pledge
agreements and mortgages executed and delivered by the Borrower, Sealy
Corporation and the subsidiaries of the Borrower in respect of the Obligations
under the Senior Credit Agreements).
"SENIOR INDEBTEDNESS" shall mean (i) all Obligations (as defined in the
Senior Credit Agreements) now or hereafter incurred pursuant to and in
accordance with the terms of the Senior Debt Documents, (ii) any additional
Indebtedness incurred under or pursuant to the Senior Credit Agreements and the
other Senior Debt Documents whether such Obligations or additional Indebtedness
involve principal prepayment charges, interest (including, without limitation,
interest accruing after the filing of a petition initiating any proceeding under
the Bankruptcy Code, whether or not allowed as a claim in such proceeding),
indemnities (other than inchoate indemnification obligations with respect to
claims, losses or liabilities which have not yet arisen after all other
Obligations have been repaid in full and all commitments to lend thereunder have
terminated) or reimbursement of fees, expenses or other amounts, and (iii) any
indebtedness incurred (other than those not due and payable when all other
Obligations have been repaid and Commitments are terminated) for the purpose of
refinancing, restructuring, extending or renewing (collectively, "REFINANCING")
the obligations of the Borrower under the Senior Credit Agreements as set forth
in clauses (i) and (ii) above.
"SENIOR LENDERS" shall mean the financial institutions party to either of
the Senior Credit Agreements as "Lenders" from time to time.
1. SUBORDINATION.
(a) Agreement to Subordinate. The Borrower and, by its acceptance hereof,
------------------------
each Holder agree that the indebtedness of the Borrower evidenced by this Note,
whether for principal, interest on any other amount payable under or in respect
hereof and all rights or claims arising out of or associated with such
Indebtedness (the "SUBORDINATED OBLIGATIONS"), shall be junior and subordinate
in right of payment to the prior payment in full in cash of all Senior
Indebtedness, in accordance with the provisions of this Section X. Each holder
of Senior Indebtedness shall be deemed to have acquired Senior Indebtedness in
reliance upon the agreements of the Borrower and the holder of this Note
contained in this Section X. The provisions of this Section X shall be
reinstated if at any time any payment of any of the Senior Indebtedness is
rescinded or must otherwise be returned by any holder of Senior Indebtedness or
any representative of such holder upon the insolvency, bankruptcy or
reorganization of the Borrower. Any provision of this Note to the contrary
notwithstanding, the Borrower shall not make, and no Holder shall accept, any
payment or prepayment of principal, or prepayment of other amounts due
thereunder, of any kind whatsoever (including without limitation by distribution
of assets, set off, exchange or any other manner) with respect to the
Subordinated Obligations at any time when any of the Senior Indebtedness remains
outstanding. Holder may receive interest payments in respect of the Subordinated
Obligations in accordance with the terms of this Note except to the extent and
at the times prohibited or restricted
2
<PAGE>
by the provisions of this Section X. In no event shall the Holder commence any
action or proceeding to contest the provisions of this Section X or the priority
of the Liens (as defined in the Senior Credit Agreements) granted to the holders
of the Senior Indebtedness by the Borrower. No Holder shall take, accept or
receive any collateral security from the Borrower for the payment of the
Subordinated Obligations.
(b) Liquidation Dissolution. Bankruptcy. In the event of any insolvency,
-----------------------------------
bankruptcy, dissolution, winding up, liquidation, arrangement, reorganization,
marshalling of assets or liabilities, composition, assignment for the benefit of
creditors or other similar proceedings relating to the Borrower, its debts, its
property or its operations, whether voluntary or involuntary, including, without
limitation the filing of any petition or the taking of any action to commence
any of the foregoing (which, in the case of action by a third party, is not
dismissed within 60 days) (a "BANKRUPTCY EVENT"), all Senior Indebtedness shall
first be paid in full in cash or other immediately available funds before Holder
shall be entitled to receive or retain any payment or distribution of assets of
the Borrower with respect to any Subordinated Obligations. In the event of any
such Bankruptcy Event, any payment or distribution of assets to which Holder
would be entitled if the Subordinated Obligations were not subordinated to the
Senior Indebtedness in accordance with this Section X, whether in cash,
property, securities or otherwise, shall be paid or delivered by the debtor,
custodian, trustee or agent or other Person making such payment or distribution,
or by the Holder if received by it, directly to the Senior Agent on behalf of
the holders of the Senior Indebtedness for application to the payment of the
Senior Indebtedness remaining unpaid, to the extent necessary to make payment in
full in cash or other immediately available funds of all Senior Indebtedness
remaining unpaid, after giving effect to any concurrent payment or distribution
to or for the holders of the Senior Indebtedness.
(c) No Payments with Respect to Subordinated Obligations in Certain
---------------------------------------------------------------
Cicumstances.
------------
(i) In circumstances in which Section X(b) is not applicable, no
payment of any nature (including, without limitation, any distribution of
assets) in respect of the Subordinated Obligations (including, without
limitation, pursuant to any judgment with respect thereto or on account of the
purchase or redemption or other acquisition of Subordinated Obligations, by set
off, prepayment exchange or other manner) shall be made by or on behalf of the
Borrower if, at the time of such payment:
(A) a default in the payment when due (whether at the maturity
thereof, or upon acceleration of maturity or otherwise and without giving
effect to any applicable grace periods) of all or any portion of the Senior
Indebtedness (whether of principal, interest or any other amount with
respect thereto) shall have occurred, and such default shall not have been
cured or waived in accordance with the terms of the Senior Debt Documents;
or
3
<PAGE>
(B) subject to the last sentence of this Section X(c), (x) the
Borrower shall have received notice from the Senior Agent or the Lenders of
the occurrence of one or more Events of Default (as defined in either of
the Senior Credit Agreement) in respect of any Senior Indebtedness (other
than payment defaults described in Section X(c)(i)(A) above), (y) each such
Event of Default shall not have been cured or waived in accordance with the
terms of the Senior Debt Documents, and (z) 180 days shall not have elapsed
since the date such notice was received.
The Borrower may resume payments (and may make any payments
missed due to the application of Section X(c)(i) in respect of the
Subordinated Obligations or any judgment with respect thereto:
(A) in the case of a default referred to in clause (A) of this
Section X(c)(i), upon a cure or waiver thereof in accordance with the terms
of the Senior Debt Documents; or
(B) in the case of an Event of Default or Events of Default
referred to in clause (B) of this Section X(c)(i), upon the earlier to
occur of (1) the cure or waiver of all such Events of Default in accordance
with the terms of the Senior Debt Documents, or (2) the expiration of such
period of 180 days.
(ii) Following any acceleration of the maturity of any Senior
Indebtedness and as long as such acceleration shall continue unrescinded and
unannulled, such Senior Indebtedness shall first be paid in full in cash, or
provision for such payment shall be made in a manner reasonably satisfactory to
the holders of the Senior Indebtedness, before any payment is made on account of
or applied on the Subordinated Obligations.
(iii) The Borrower shall give prompt written notice to the Holder of
(i) any default in respect of Senior Obligations referred to in Section
X(c)(i)(A) and (ii) any notice of the type described in Section X(c)(i)(B) from
the Senior Agent.
(d) When Distribution Must Be Paid Over. In the event that Holder shall
-----------------------------------
receive any payment or distribution of assets that Holder is not entitled to
receive or retain under the provisions of this Note, Holder shall hold any
amount so received in trust for the holders of Senior Indebtedness, shall
segregate such assets from other assets held by Holder and shall forthwith turn
over such payment or distribution (without liability for interest thereon) to
the Senior Agent on behalf of the holders of Senior Indebtedness in the form
received (with any necessary endorsement) to be applied to Senior Indebtedness.
(e) Exercise of Remedies. So long as any Senior Indebtedness is outstanding
--------------------
(including any loans, any letters of credit, any commitments to lend or any
lender guarantees), Holder (solely in its capacity as a holder of this Note)
shall not exercise any rights or remedies with respect to an Event of Default
under this Note, including, without limitation, any action (l) to demand or sue
for
4
<PAGE>
collection of amounts payable hereunder, (2) to accelerate the principal of this
Note, or (3) to commence or join with any other creditor (other than the holder
of a majority in principal amount of the Senior Indebtedness) in commencing any
proceeding in connection with or premised on the occurrence of a Bankruptcy
Event prior to the earlier of:
(A) the payment in full in cash or other immediately available
funds of all Senior Indebtedness;
(B) the initiation of a proceeding (other than a proceeding
prohibited by clause (3) of this Section X(e)) in connection with or
premised upon the occurrence of a Bankruptcy Event;
(C) the expiration of 180 days immediately following the receipt
by the Senior Agent of notice of the occurrence of such Event of Default
from the Holder; and
(D) the acceleration of the maturity of the Senior Indebtedness;
provided, however, that if, with respect to (B) and (D) above, such proceeding
or acceleration, respectively, is rescinded, or with respect to (C) above,
during such 180-day period such Event of Default has been cured or waived, the
prohibition against taking the actions described in this Section X(e) shall
automatically be reinstated as of the date of the rescission, cure or waiver, as
applicable. In all events, unless an event described in clause (A), (B) or (D)
above has occurred and not been rescinded, the Holder shall give thirty (30)
days prior written notice to the Senior Agent before taking any action described
in this Section X(e), which notice shall describe with specificity the action
that the Holder in good faith intends to take.
(f) Acceleration of Payment of Note. If this Note is declared due and
-------------------------------
payable prior to the Maturity Date, no direct or indirect payment that is due
solely by reason of such declaration shall be made, nor shall application be
made of any distribution of assets of the Borrower (whether by set off or in any
other manner, including, without limitation, from or by way of collateral) to
the payment, purchase or other acquisition or retirement of this Note, unless,
in either case, (i) all amounts due or to become due on or in respect of the
Senior Indebtedness (including with respect to any outstanding letters of
credit) shall have been previously paid in full in cash or other immediately
available funds or in any other manner satisfactory to all holders of such
Senior Indebtedness, (ii) all commitments to lend under Senior Indebtedness
shall have been terminated and (iii) all guarantees constituting Senior
Indebtedness shall have been terminated.
(g) Proceedings Against Borrower. So long as any Senior Indebtedness
----------------------------
is outstanding (including any loans, any commitments to lend or open lender
guarantees or any lender guarantees, Holder (solely in its capacity as a holder
of this Note) shall not commence any bankruptcy, insolvency, reorganization or
other similar proceeding against Borrower.
5
<PAGE>
(h) Amending Senior Indebtedness. Any holder of Senior Indebtedness
----------------------------
may, at any time and from time to time, without the consent of or notice to
Holder (i) modify or amend the terms of the Senior Indebtedness, (ii) sell,
exchange, release, fail to perfect a lien on or a security interest in or
otherwise in any manner deal with or apply any property pledged or mortgaged to
secure, or otherwise securing, Senior Indebtedness, (iii) release any guarantor
or any other person liable in any manner for the Senior Indebtedness, (iv)
exercise or refrain from exercising any rights against Borrower or any other
person, (v) apply any sums by whomever paid or however realized to Senior
Indebtedness or (vi) take any other action that might be deemed to impair in any
way the rights of the holder of this Note. Any and all of such actions may be
taken by the holders of Senior Indebtedness without incurring responsibility to
Holder and without impairing or releasing the obligations of Holder to the
holders of Senior Indebtedness.
(i) Certain Rights in Bankruptcy. Holder hereby irrevocably authorizes
----------------------------
and empowers each holder of Senior Indebtedness (and its representative or
representatives) to demand, sue for, collect and receive all payments and
distributions under the terms of this Note, to file and prove all claims
(including claims in bankruptcy) relating to this Note, to exercise any right to
vote arising with respect to this Note and any claims hereunder in any
bankruptcy, insolvency or similar proceeding and take any and all other actions
in the name of Holder (solely in its capacity as a holder of this Note), as such
holder of Senior Indebtedness determines to be necessary or appropriate.
(j) Subrogation. No payment or distribution to any holder of Senior
-----------
Indebtedness pursuant to the provisions of this Note shall entitle Holder to
exercise any right of subrogation in respect thereof until (i)(x) all Senior
Indebtedness shall have been paid in full in cash or other immediately available
funds or in any other manner satisfactory to all holders of Senior Indebtedness,
(y) all commitments to lend under Senior Indebtedness shall have been terminated
and (z) all guarantees constituting Senior Indebtedness shall have been
terminated or (ii) all holders of Senior Indebtedness have consented in writing
to the taking of such action.
(k) Relative Rights. The provisions of this Section X are for the benefit
---------------
of the holders of Senior Indebtedness (and their successors and assigns) and
shall be enforceable by them directly against Holder. Holder acknowledges and
agrees that any breach of the provisions of this Section X will cause
irreparable harm for which the payment of monetary damages may be inadequate.
For this reason, Holder agrees that, in addition to any remedies at law or
equity to which a holder of the Senior Indebtedness may be entitled, a holder of
the Senior Indebtedness will be entitled to an injunction or other equitable
relief to prevent breaches of the provisions of this Section X and/or to compel
specific performance of such provisions. The provisions of this Section X shall
continue to be effective or be reinstated, as the case may be, if at any time
any payment of Senior Indebtedness is rescinded or must otherwise be returned by
any holder of Senior Indebtedness upon the occurrence of a Bankruptcy Event or
otherwise, all as though such payment had not been made. The provisions of this
Section X are not intended to impair and shall not impair as between Borrower
and Holder, the obligation of Borrower, which is absolute and unconditional, to
pay Holder all amounts owing under this Note.
6
<PAGE>
(l) Reliance on Orders and Decrees. Subject to the provisions of Section
------------------------------
X(d) hereof, upon any payment or distribution of assets of Borrower, whether in
cash, property, securities or otherwise, Holder shall be entitled to rely upon
any order or decree entered by any court of competent jurisdiction in which any
insolvency, bankruptcy, receivership, liquidation, reorganization, dissolution,
winding up or similar case or proceeding is pending, or a certificate of the
trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee for
the benefit of creditors, agent or other Person making such payment or
distribution, delivered to Holder for the purpose of ascertaining the Persons
entitled to participate in such payment or distribution, the holders of Senior
Indebtedness, the amount thereof or payable thereon, the amount or amounts paid
or distributed thereon and all other facts pertinent thereto or to this Section
X.
7
<PAGE>
EXHIBIT 10.5.SCHA
SCHEDULE 1.1(i)
ADDBACKS TO EBITI)A
-------------------
Without duplication:
(i) MIS Upgrade Expenditures, Year 2000 Expenditures, EITF 97-13
Expenditures and Other MIS Expenditures, in each case to the extent
deducted in determining Consolidated Net Income;
(ii) any bad debt and factoring losses incurred specifically with respect to
the bankruptcy of Montgomery Ward;
(iii) items classified as unusual or nonrecurring gains and losses (including
restructuring costs, severance and relocation costs, any one-time
expenses related to (or resulting from) any merger, recapitalization or
Permitted Acquisition);
(iv) one-time compensation charges, including any arising from any
recapitalization of Holdings' special bonus program or existing stock
options, performance share or restricted stock plans resulting from any
merger or recapitalization transaction or expensed in any period prior
to the consummation of the Merger;
(v) non-recurring cash restructuring charges incurred in connection with the
Recapitalization Transactions and related transactions to the extent
deducted in determining Consolidated Net Income; provided that such
charges are incurred on or before December 18, 1998 and do not exceed in
the aggregate the sum of (a) premiums paid in connection with the Debt
Tender Offer plus (b) $1,000,000;
(vi) non-recurring cash restructuring charges incurred in connection with
Permitted Acquisitions to the extent deducted in determining
Consolidated Net Income; and
(vii) Bain Management Fees (excluding any portion thereof representing
reimbursement of expenses or fees for acquisitions, financings or
divestitures) paid during such period under the Bain Advisory Services
Agreement, and any Harvard Management Fees (excluding any portion
thereof representing reimbursement of expenses paid during such period);
(viii) non-recurring cash charges incurred prior to June 18, 1999 in connection
with the relocation of any of Company's facilities and transition
expenses related thereto, but only to the extent that such non-recurring
charges do not exceed $6,000,000; and
(ix) to the extent deducted in determining Consolidated Net Income, premiums
and transaction costs on Existing Subordinated Notes not tendered in the
Debt Tender Offer.
1.1(i)-1
<PAGE>
SCHEDULE 1.1(ii)
Recapitalization Transactions
Immediately prior to the Closing Date, Holdings will contribute (the
"Capital Contribution") all of the issued and outstanding capital stock of
Sealy, Inc., an Ohio corporation, The Stearns & Foster Bedding Company, a
Delaware corporation, Advanced Sleep Products, a California corporation, Sealy
Components-Pads, Inc., a Delaware corporation, and Sealy Mattress Company of San
Diego, a California corporation, to the capital of the Company. Immediately
after the Capital Contribution, Company will be the only direct subsidiary of
Holdings and will own 100% of the operations of Holdings. On the Closing Date
Merger Corp. will be merged with and into Holdings with Holdings being the
surviving corporation.
<PAGE>
Schedule 2.1
Lender's Commitments, Loans and Pro Rata Shares
Schedule 2.1
Lender's Commitments, Loans and Pro Rata Shares
<TABLE>
<CAPTION>
PRO RATA PRO RATA PRO RATA PRO RATA
SHARE RE SHARE RE SHARE RE SHARE RE
AXELs AXELs AXELs ALL
LENDER AXELs SERIES B SERIES B AXELs SERIES C SERIES C AXELs SERIES D SERIES D LOANS
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Goldman Sachs Credit Partners
L.P. $63,636,361 50.9% $45,818,181 50.9% $58,545,456 50.9% 32.6%
Morgan Guaranty Trust
Company of New York $ 9,848,485 7.9% $ 7,090,909 7.9% $ 9,060,606 7.9% 6.8%
Bankers Trust Company $ 1,893,940 1.5% $ 1,363,636 1.5% $ 1,742,424 1.5% 4.0%
General Electric Capital
Corporation $ 1,893,940 1.5% $ 1,363,636 1.5% $ 1,742,424 1.5% 4.0%
Merita Bank Ltd. $ 1,136,363 0.9% $ 818,182 0.9% $ 1,045,455 0.9% 3.3%
Royal Bank of CAnada $ 1,136,363 0.9% $ 818,182 0.9% $ 1,045,455 0.9% 3.3%
Wells Fargo Bank $ 1,136,363 0.9% $ 818,182 0.9% $ 1,045,455 0.9% 3.3%
BankBoston, N.A. $ 1,893,940 1.5% $ 1,363,636 1.5% $ 1,742,424 1.5% 4.0%
Commerzbank AG $ 1,515,152 1.2% $ 1,090,909 1.2% $ 1,393,939 1.2% 2.2%
Credit Agricole Indosuez $ 1,515,152 1.2% $ 1,090,909 1.2% $ 1,393,939 1.2% 2.2%
Skandinaviska Enskilda Banken,
New York Branch $ 1,136,363 0.9% $ 818,182 0.9% $ 1,045,455 0.9% 3.3%
Merrill Lynch Senior Floating
Rate Fund $ 3,030,303 2.4% $ 2,181,818 2.4% $ 2,787,879 2.4% 1.5%
Toronto Dominion Bank $ 4,545,455 3.6% $ 3,272,727 3.6% $ 4,171,818 3.6% 2.2%
Ares Leveraged Investment
Fund, L.P. $ 3,787,879 3.0% $ 2,727,273 3.0% $ 3,484,848 3.0% 1.8%
Oak Hill Securities Fund, L.P. $ 3,787,879 3.0% $ 2,727,273 3.0% $ 3,484,848 3.0% 1.8%
Transamerica Life Insurance and
Annuity Company $ 3,787,879 3.0% $ 2,727,273 3.0% $ 3,484,848 3.0% 1.8%
Prime Income Trust $ 3,030,303 2.4% $ 2,181,818 2.4% $ 2,787,879 2.4% 1.5%
KZH-Crescent Corporation $ 1,893,940 1.5% $ 1,363,636 1.5% $ 1,742,424 1.5% 4.0%
Lehman Commercial Paper, Inc. $ 2,272,727 1.8% $ 1,636,364 1.8% $ 2,090,909 1.8% 1.1%
ORIX USA Corporation $ 2,272,727 1.8% $ 1,636,364 1.8% $ 2,090,909 1.8% 1.1%
PPM America, Inc. $ 2,272,727 1.8% $ 1,636,364 1.8% $ 2,090,909 1.8% 1.1%
The Northwestern Mutual Life
Insurance Company $ 1,893,940 1.5% $ 1,363,636 1.5% $ 1,742,424 1.5% 4.0%
Octagon Credit Investors Loan
Portfolio $ 1,893,940 1.5% $ 1,363,636 1.5% $ 1,742,424 1.5% 4.0%
KZH Holding Corporation III $ 1,515,151 1.2% $ 1,090,909 1.2% $ 1,393,940 1.2% 0.7%
Bank of America NT & SA $ 1,515,151 1.2% $ 1,090,909 1.2% $ 1,393,940 1.2% 0.7%
Franklin Floating Rate Trust $ 757,576 0.6% $ 545,455 0.6% $ 696,970 0.6% 0.4%
</TABLE>
<PAGE>
SCHEDULE 3.1C
Corporate and Capital Structure; Ownership
<TABLE>
<CAPTION>
Company Ownership/1/
------- ------------
<S> <C>
Sealy Corporation Bain Funds (49%)/2/
Sealy Investors LLC (17%)
Harvard Private Capital Holdings, Inc. (19%)
Zell/Chilmark Fund, L.P. (14%)
Sealy Mattress Company Sealy Corporation
The Sealy Mattress Company of Puerto Rico Sealy Mattress Company
Ohio-Sealy Mattress Manufacturing Co., Inc. - Randolph Sealy Mattress Company
Ohio-Sealy Mattress Manufacturing Co. -- Forth Worth Sealy Mattress Company
Ohio-Sealy Mattress Manufacturing Co. Sealy Mattress Company
Ohio-Sealy Mattress Manufacturing Co. -- Houston Sealy Mattress Company
Sealy Mattress Company of Michigan, Inc. Sealy Mattress Company
Sealy Mattress Company S.W. Virginia Sealy Mattress Company
Sealy Connecticut, Inc. Sealy Mattress Company
Sealy Mattress Company of Kansas City, Inc. Sealy Mattress Company
Sealy of Maryland and Virginia, Inc. Sealy Mattress Company
Sealy Mattress Company of Illinois Sealy Mattress Company
A. Brandwein & Company Sealy Mattress Company of Illinois
Sealy Mattress Company of Albany, Inc. Sealy Mattress Company
Sealy of Minnesota, Inc. Sealy Mattress Company
Sealy Mattress Company of Memphis Sealy Mattress Company
The Ohio Mattress Company Licensing and Components Group Sealy Mattress Company
Sealy Mattress Manufacturing Company, Inc. Ohio Mattress Company Licensing and
Components Group
Sealy Canada, Ltd. Ohio Mattress Company Licensing and
Components Group
</TABLE>
- ----------
/1/ The stock records of the Subsidiaries are incomplete. During the decade or
more that Holdings has owned the Subsidiaries, however, to the knowledge of
Holdings, no third party has made any claim with respect to its ownership
of stock of any of the Subsidiaries.
/2/ The percentage ownership of Sealy Corporation are rough estimates.
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Gestion Centurion, Inc. Sealy Canada, Ltd.
Sealy Descanso S.A. Ohio Mattress Company Licensing and
Components Group
Sealy, Inc. Sealy Mattress Company
Sealy Mattress Company Mexico S. de R.L. de C.V. Sealy, Inc./3/
The Stearns & Foster Bedding Company Sealy Mattress Company
The Stearns & Foster Upholstery Furniture Company The Stearns & Foster Bedding Company
Advanced Sleep Products Sealy Mattress Company
Sealy Components - Pads, Inc. Sealy Mattress Company
Sealy Mattress Company of San Diego Sealy Mattress Company
</TABLE>
- ----------
/3/ 999 shares held by Sealy Inc.; 1 share by The Ohio Mattress Licensing and
Components Group.
<PAGE>
SCHEDULE 3.1I
Closing Date Mortgaged Properties
THE STEARNS & FOSTER BEDDING COMPANY
- ------------------------------------
4802 West Van Buren Street
Phoenix, AZ 85043
1705 Rockdale Ind. Blvd.
Conyers, GA 30207
SEALY MATTRESS COMPANY
- ----------------------
1070 Lake Road
Medina, OH 44258
THE SEALY MATTRESS COMPANY OF PUERTO RICO
- -----------------------------------------
El Comandanta Industrial Center
#1 San Marcos
Carolina, Puerto Rico 00982
OHIO-SEALY MATTRESS MANUFACTURING CO., INC.-RANDOLPH
- ----------------------------------------------------
671 North Street
One Posturepedic Drive
Randolph, MA 02368
OHIO-SEALY MATTRESS MANUFACTURING CO., INC.--FORT WORTH
- -------------------------------------------------------
6550 Wuliger Way
North Richland Hills, TX 76180
OHIO-SEALY MATTRESS MANUFACTURING CO., INC.-HOUSTON
- ---------------------------------------------------
Highway Loop 290
Brenham, TX 77833
SEALY MATTRESS COMPANY OF CONNECTICUT, INC.
- -------------------------------------------
100 Canal/Street
Putnam, CT 06260
<PAGE>
SEALY MATTRESS COMPANY OF ALBANY, INC.
- --------------------------------------
99 Railroad Avenue
Albany, NY 12205
SEALY OF MINNESOTA, INC.
- ------------------------
825 Transfer Road
St. Paul, MN 55114
SEALY MATTRESS COMPANY OF MEMPHIS, INC.
- ---------------------------------------
4120 Air Trans Road
Memphis, TN 38118
THE OHIO MATTRESS COMPANY LICENSING AND COMPONENTS GROUP
- --------------------------------------------------------
6275 Lake Shore Court
Colorado Springs, CO 80915
1132 North Culled Street
Rensselaer, IN 47978
1133 North Cullen Street
Rensselaer, IN 47978
Magic Industrial Park
Delano, PA 18220
SEALY MATTRESS MANUFACTURING COMPANY, INC.
- ------------------------------------------
1130 Seventh Street
Richmond, CA 94801
4361 East Firestone Boulevard
South Gate, CA 90280
12555 East 39th Avenue
Denver, CO 80239
11220 Space Boulevard
Regency Industrial Park
Orlando, FL 32821
<PAGE>
700 South State Street
at 7th Avenue
Lexington, NC 27293
13635 N. Lombard
Rivergate Industrial Dis.
Portland, OR 97203
RD #1, Rt. 322
Clarion, PA 16214
SEALY MATTRESS COMPANY OF KANSAS CITY, INC.
- -------------------------------------------
3100 Fairfax Traffic Way
Kansas City, KS 66115
<PAGE>
SCHEDULE 3.1K
Closing Date Environmental Report
1. 4802 West Van Buren Street
Phoenix, AZ 85043
2. 1130 Seventh Street
Richmond, CA 94801
3. 4361 East Firestone Boulevard
South Gate, CA 90280
4. 6275 Lake Shore Court
Colorado Springs, CO 80915
5. 12555 East 39th Avenue
Denver, CO 80239
6. 100 Canal Street
Putnam, CT 06260
7. 11220 Space Boulevard
Regency Industrial Park
Orlando, FL 32821
8. 1705 Rockdale Ind. Boulevard
Conyers, GA 30207
9. 1030 East Fabian Parkway
Batavia, IL
10. 1132 & 1133 North Cullen Street
Rensselaer, IN 47978
11. 3100 Fairfax Traffic Way
Kansas City, KS
12. 16114 Elliott Parkway
70-81 Industrial Park
Williamsport, MD
13. 671 North Street
One Posturepedic Drive
Randolph, MA 02368
<PAGE>
14. 21450 Trolley Industrial Drive
Taylor, MI
15. 825 Transfer Road
St. Paul, MN 55114
16. 99 Railroad Avenue
Albany, NY 12205
17. 700 South State Street
at 7th Avenue
Lexington, NC 27293
18. 1070 Lake Road
Medina, OH 44258
19. 13635 N. Lombard
Rivergate Industrial Dis.
Portland, OR 97203
20. RD#1, Rt. 322
Clarion, PA 16214
21. Magic Industrial Park
Delano, PA 18220
22. 4120 Air Trans Road
Memphis, TN 38118
23. Highway Loop 290
Brenham, TX 77833
24. 6550 Wuliger Way
North Richland Hills, TX 76180
25. 14550 112th Avenue, NW
Edmonton, Alberta, Canada
26. 555 Rue Panneton
St. Narcisse, Quebec, Canada
27. 685 Warden Avenue
Toronto, Ontario, Canada
<PAGE>
28. Lots 17 & 18 Exportec II Industrial Park
Toluca, Mexico
29. El Comandante Industrial Center
#1 San Marcos
Carolina, Puerto Rico 00982
<PAGE>
SCHEDULE 4.1
Subsidiaries
<TABLE>
<CAPTION>
Subsidiary Direct Owner of Subsidiary/4/ Jurisdiction of Incorporation
---------- ----------------------------- -----------------------------
<S> <C> <C>
Sealy Mattress Company Sealy Corporation Ohio
The Sealy Mattress Company of Puerto Rico Sealy Mattress Company Ohio
Ohio-Sealy Mattress Manufacturing Co., Inc. Sealy Mattress Company Massachusetts
- Randolph
Ohio-Sealy Mattress Manufacturing Co.--Forth Worth Sealy Mattress Company Texas
Ohio-Sealy Mattress Manufacturing Co. Sealy Mattress Company Georgia
Ohio-Sealy Mattress Manufacturing Co.--Houston Sealy Mattress Company Texas
Sealy Mattress Company of Michigan, Inc. Sealy Mattress Company Michigan
Sealy Mattress Company of S.W. Virginia Sealy Mattress Company Virginia
Sealy Connecticut, Inc. Sealy Mattress Company Connecticut
Sealy Mattress Company of Kansas City, Inc. Sealy Mattress Company Missouri
Sealy of Maryland and Virginia, Inc. Sealy Mattress Company Maryland
Sealy Mattress Company of Illinois Sealy Mattress Company Illinois
A. Brandwein & Company Sealy Mattress Company of Illinois Illinois
Sealy Mattress Company of Albany, Inc. Sealy Mattress Company New York
Sealy of Minnesota, Inc. Sealy Mattress Company Minnesota
Sealy Mattress Company of Memphis Sealy Mattress Company Tennessee
The Ohio Mattress Company Licensing and Sealy Mattress Company Delaware
Components Group
Sealy Mattress Manufacturing Company, Inc. Ohio Mattress Company Licensing and Delaware
Components Group
Slay Canada, Ltd. Ohio Mattress Company Licensing and Alberta
Components Group
Gestion Centurion, Inc. Sealy Canada, Ltd. Quebec
</TABLE>
- ----------
/4/ The stock records of the Subsidiaries are incomplete. During the decade
or more that Holdings has owned the Subsidiaries, however, to the knowledge
of Holdings, no third party has made any claim with respect to its
ownership of stock of any of the Subsidiaries. All ownership interests are
100%, except as indicated.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Sealy Descanso S.A. Ohio Mattress Company Licensing and Spain
Components Group
Sealy, Inc. Sealy Mattress Company Ohio
Sealy Mattress Company Sealy, Inc./5/ Mexico
Mexico S. de R.L. de C.V.
The Stearns & Foster Bedding Company Sealy Mattress Company Delaware
The Stearns & Foster Upholstery Furniture The Stearns & Foster Bedding Company Ohio
Company
Advanced Sleep Products Sealy Mattress Company Ohio
Sealy Components - Pads, Inc. Sealy Mattress Company Delaware
Sealy Mattress Company of San Diego Sealy Mattress Company California
</TABLE>
- ----------
/5/ 999 Shares held by Sealy Inc.; 1 share by The Ohio Mattress Licensing and
Components Group.
<PAGE>
SCHEDULE 4.5
Real Property
<TABLE>
<CAPTION>
COMPANY LOCATION LEASED/OWNED TENANT/LANDLORD
<S> <C> <C> <C>
SEALY, INC.
- -----------
International Home Leased Tenant
Furnishings Center
High Point,NC 27261
10th Floor/4th Floor, Halle Bldg. Leased Tenant
1228 Euclid Avenue
Cleveland, OH 44115
12th Floor Storage, Halle Bldg. Leased Tenant
1228 Euclid Avenue
Cleveland, OH 44115
17500 Engle Lake Dr. Leased Tenant
Middleburg Hts., OH 44130
17520 Engle Lake Dr. Leased Tenant
Middleburg Hts., OH 44190
THE STEARNS & FOSTER BEDDING COMPANY
- ------------------------------------
4802 West Van Buren Street Owned
Phoenix, AZ 85043
1705 Rockdale Ind. Blvd. Owned
Conyers, GA 30207
1030 Fabyan Parkway Leased Tenant (with 100,000
Batavia. IL 60510 square feet subleased
to Legget & Platt)
ADVANCED SLEEP PRODUCTS
- -----------------------
1261 Industrial Parkway North Leased Tenant
Brunswick, OH 44212
SEALY MATTRESS COMPANY
- ----------------------
1070 Lake Road Owned
Medina, OH 44258
18-22 Main Street Extension Leased Tenant
Plymouth, MA
4100 Spring Valley Rd. Leased Tenant
Suite 800
Dallas, TX 75244
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SEALY MATTRESS COMPANY
- ----------------------
48 South Service Road Leased Tenant
Melville, NY 11747
200 CenterPort Drive Leased Tenant
Greensboro, NC 27409
THE SEALY MATTRESS COMPANY OF PUERTO RICO
- -----------------------------------------
El Comandante Industrial Center Owned
# I San Marcos
Carolina, Puerto Rico 00982
OHIO-SEALY MATTRESS MANUFACTURING CO., INC.-RANDOLPH
- ----------------------------------------------------
One Posturepedic Drive Owned
Randolph, MA 02368
OHIO-SEALY MATTRESS MANUFACTURING CO., INC.--FORT WORTH
- -------------------------------------------------------
6550 Wuliger Way Owned
North Richland Hills, TX 76180
6400-J Wuliger Way Leased Tenant
North Richland Hills, TX 76180
OHIO-SEALY MATTRESS MANUFACTURING CO., INC.--HOUSTON
- ----------------------------------------------------
Highway Loop 290 Owned
Brenham, TX 77833
13111 Westheimer Suite 118 Leased Tenant
Leased Tenant
Houston, TX 77077
SEALY MATTRESS COMPANY OF MICHIGAN, INC.
- ----------------------------------------
21450 Trolley Industrial Drive Leased Tenant
Taylor, MI 48180
SEALY MATTRESS COMPANY OF CONNECTICUT, INC.
- -------------------------------------------
25 Hillside Avenue Owned Leased to private family
Oakville, CT 06779
31 Hillside Avenue Owned Leased to private family
Oakville, CT 06779
100 Canal Street Owned Leased to Nutmeg Realty Co.
Putnam, CT 06260
SEALY MATTRESS COMPANY OF KANSAS CITY, INC.
- -------------------------------------------
3100 Fairfax Traffic Way Leased Tenant
Kansas City, KS 66115
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SEALY OF MARYLAND AND VIRGINIA, INC.
- ------------------------------------
70-81 Industrial Park Leased Tenant
Williamsport, MD 21795
11606 Greencastle Pike Leased Tenant
Hagerstown, MD 21740
16121 Business Parkway Leased Tenant
Hagerstown, MD 21740
Topflight Air Park Leased Tenant
18450 Showalter Rd.
Hagerstown, MD 21740
SEALY MATTRESS COMPANY OF ILLINOIS
- ----------------------------------
1130 Lake Cook Rd. #170 Leased Tenant
Buffalo Grove, IL 60089
SEALY MATTRESS COMPANY OF ALBANY INC.
- -------------------------------------
99 Railroad Avenue Owned
(Railroad Avenue & Brown Road)
Albany, NY 12205
45 Railroad Avenue Leased Tenant
Colonie, NY
SEALY OF MINNESOTA, INC.
- ------------------------
825 Transfer Road Owned
St. Paul, MN 55114
SEALY MATTRESS COMPANY OF MEMPHIS
- ---------------------------------
4120 Air Trans Road Owned
Memphis, TN 38118
4401 N. Roman Street Leased Tenant
New Orleans, LA
THE OHIO MATTRESS COMPANY LICENSING AND COMPONENTS GROUP
- --------------------------------------------------------
6275 Lake Shore Court Owned
Colorado Springs, CO 80915
Vapor Trail Bldg. Leased Tenant
Colorado Springs, CO 80915
525 West Monroe Leased Assigned to Katten, Muchin
Chicago, IL 60606 & Zavis
111 N. Canal Street Leased Tenant
Chicago, IL 60606
1132 North Cullen Street Owned
Rensselaer, IN 47978
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1133 North Cullen Street Owned
Rensselaer, IN 47978
Magic Industrial Park Owned Owned
Delano, PA 18220
Rt. 54 & 309 Leased Tenant
Hometown, PA
SEALY MATTRESS MANUFACTURING COMPANY, INC.
- ------------------------------------------
1130 7th Street Owned
Richmond, CA 94801
4361 East Firestone Blvd. Owned
South Gate, CA 90280
12555 East 39th Avenue Owned
Denver, CO 80239
11220 Space Blvd. Owned
Regency Industrial Park
Orlando, FL 32821
1440 Central Florida Parkway Leased Tenant
Orlando, FL 32821
700 S. State St. Owned
at 7th Avenue
Lexington, NC 27293
3 East First Street Leased Tenant
Lexington, NC 27293
Industrial Drive Leased Tenant
Welcome, NC
8th Ave./State Street Leased Tenant
Lexington
13635 N. Lombard Owned
Rivergate Industrial Dis.
Portland, OR 97203
(U.S. Route 322 & Owned Owned
Washington Avenue)
R.D. #I Rte. 322
Clarion, PA 16214
R.D. #1, Rt. 322 Leased Tenant
Clarion, PA 16214
San Francisco Mart Leased Tenant
San Francisco, CA
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
17291 Irvine Road Leased Tenant
Tustin, CA 92680
1930 E. Mariton Pike Leased Tenant
Cherry Hill, NJ
SEALY CANADA, LTD.
- ------------------
685 Warden Avenue Leased Tenant
Scarborough, Ontario M I L 3Z5
14550 112th Avenue Owned
Edmonton, Alberta TSM 2VI
431 Thames Avenue Leased Tenant
Winnipeg, Manitoba
14550-112 Ave. Leased Tenant
Edmonton, Alberta TSM 2V 1
SEALY MATTRESS COMPANY (MEXICO)
- -------------------------------
Lot 18 Owned Owned
Industrial Park Exportec 11
Toulcam Mexico
</TABLE>
<PAGE>
SCHEDULE 4.12
Certain Fees
1. Approximately $5,600,000 fee to Merrill Lynch for representation in the sale
of Holdings.
2. Approximately $250,000 fee to NationsBanc Montgomery Securities, Inc. for
warrant valuation.
3. Approximately $251,550 fee to ABN Ambro for warrant valuation.
4. Approximately $3,663,830 in payments made to certain employees as a result of
the change in control caused by the Recapitalization Transactions.
<PAGE>
SCHEDULE 4.13
Environmental Matters
South Brunswick. NJ. A Holdings subsidiary is the former owner of a
- -------------------
commercial/industrial facility in Monmouth Junction (South Brunswick Township),
New Jersey ("Property"). Prior to 1953, the Property was used as a horse farm.
In 1953, the original portion of the current main building was constructed and
thereafter operated until 1979 by Stop-Fire, Inc., a fire extinguisher
manufacturer. The Property was purchased in 1979 by The Stearns & Foster Bedding
Company (which was acquired by Holdings in 1983) and the Property was used as a
mattress assembly facility until 1991. After being vacant for four (4) years,
Holdings reopened the Property as a mattress pad manufacturing facility in 1995.
In 1997, Holdings sold the business and Property to Leggett & Platt which has
continued to use the Property for pad manufacturing.
Holdings believes that operation/disposal practices by Stop-Fire at the Property
resulted in the release of volatile organic compounds to the soil and
groundwater. Solvents used to clean factory machinery and degrease fire
extinguisher casings prior to painting were reportedly disposed on-site in a
large area south of the secondary building and in the area outside the exit door
at the former paint room. Paint sludge was also reportedly disposed through a
wooded area at the Property near the large spent solvent disposal area.
Holdings's environmental consultant has indicated that spent solvents were
disposed at a rate of three to four 55 gallon drums per month over a 25 year
period.
In 1989, as the result of a leveraged buyout, a "triggering event" under New
Jersey environmental law (Environmental Cleanup Responsibility Act; "ECRA", now
known as the Industrial Site Recovery Act; "ISRA") the New Jersey Department of
Environmental Protection ("NJDEP") required Holdings to conduct certain soil and
groundwater testing activities that resulted in the discovery of volatile
organic compounds in the impacted soil disposal areas and the groundwater.
Pursuant to Administrative Consent Order ("ACO") signed by Holdings and its
subsidiary, environmental investigation and focused remediation activities have
continued at the facility through 1996.
In 1995, NJDEP approved Holdings's soil remediation plan. As of July, 1997,
Holdings completed required soil remediation at the Property. In August, 1997,
NJDEP approved Holdings's interim groundwater remediation plan involving a pilot
test program for groundwater containment and recycling of a portion of the
contaminant plume with natural attenuation of the remaining plume. Installation
of the pilot system is scheduled to begin in September, 1997 with full
implementation planned for November or December, 1997.
In January, 1997, Holdings settled a New Jersey U.S. District Court cost
recovery litigation filed in March, 1994 against former owners of the Property
and their lenders. Holdings is currently prosecuting a cost recovery action in
New Jersey state court against certain insurance companies of The Steams &
Foster Bedding Company. Holdings is also defending a declaratory judgment action
filed in Ohio state court by the same insurance companies which seeks a
determination of non-liability under the policies. It is conceivable that NJ DEP
may seek to intervene in the insurance cost recovery action and/or pursue a
portion of the cost recovery award Holdings obtained in early 1997.
Oakville, CT. Holdings is the owner of commercial/industrial property in
- ------------
Oakville, Connecticut at which two vacant buildings are located ("Property").
Until 1993, Holdings used one of the buildings to assemble mattresses. The other
building was used by various manufacturing companies as tenants ("Tenants")
until 1991. None ofthe Tenants were affiliated with Holdings. There is soil and
groundwater contamination at the Property under the Tenants' building which
Holdings believes is attributable to the Tenants' metal plating operations which
involved the use of various metals and organic chemical solvents. There is also
possible PCB and PAH soil contamination at the transformer areas and parking lot
areas of the Property resulting from historical use practices.
As owner, Holdings has developed a remediation plan for both soil and
groundwater that has been reviewed and approved by the Connecticut Department of
Environmental Protection. The plan anticipates the demolition of the Tenants'
building with the exception of the floor slab; the further delineation of
impacted areas under the floor slab; and the removal of contaminated soils and
the dewatering of areas with impacted groundwater. Demolition is scheduled for
October, 1997. Additional delineation activities are planned for early Spring,
1998.
<PAGE>
Holdings has filed a cost recovery action in the Connecticut U.S. District Court
seeking to require the Tenants to complete the remediation and/or reimburse
Holdings for all site investigation and remedial costs.
Oakville, CT. In 1993, a Holdings subsidiary was identified as a Potential
- ------------
Responsible Party ("PRP") at a municipal landfill in Naugatuck, Connecticut at
which solid, non-hazardous waste from the Oakville plant was previously
deposited. The landfill had been identified as a Superfund Site by U.S. EPA at
the time of the notice. Holdings has received no further correspondence and is
aware of no further activity on this matter since 1993.
Lockland, OH. In 1991, Holdings received notice from U.S. EPA that a landfill in
- ------------
West Chester, Ohio ("Skinner Landfill") - previously used by a textile and
upholstered furniture manufacturing company purchased by Holdings in 1983 - had
been identified as a Superfund Site. Holdings responded to U.S. EPA's CERCLA
inquiry in 1991 and advised the former seller of U.S. EPA's interest and
involvement in the Landfill. Since then, Holdings has heard nothing about this
matter from either the U.S. EPA or the seller. On September 12, 1997, Holdings,
Inc. was named as a defendant to a cost recovery action by certain Potential
Responsible Parties ("PRP's") that had, by order of the U.S. EPA, commenced
clean-up of the Skinner Landfill. Holdings intends to vigorously defend the
action.
St. Paul, MN. In 1994, a Holdings subsidiary was identified as a Potentially
- ------------
Responsible Party ("PRP") at a municipal landfill in Minneapolis, MN at which
solid, non-hazardous waste from the St. Paul plant was previously deposited. In
1994, the landfill was identified as subject to the Minnesota Landfill Clean-up
Act under which the State takes responsibility for the cleanup. As part of this
State program, Holdings recently responded to an information request by the
Minnesota Department of Environmental Protection as to prior use of the landfill
by Holdings's subsidiary.
St. Paul, MN. A 1997 environmental report indicated that the Pine Bend Sanitary
- ------------
Landfill in Inver Grove Heights used by the plant in 1993 is on the Natural
Priorities List ("NPL"). The plant has confirmed that it has not used this
landfill since 1994 and has to present used scrap metal dealers as an
alternative disposal method.
Rensselaer, IN. A 1997 environmental report revealed that the Rensselaer
- --------------
facility leased by Holdings (from October, 1995 to October, 1997 when the site
was purchased by Holdings) was previously used as an amusement train
manufacturing plant from 1947 through 1957. Such activities routinely involve
hazardous materials such as paints, solvents and metal waste which may serve as
the basis for possible subsurface contamination.
Rensselaer, lN. A 1995 environmental report revealed that the Rensselaer
- --------------
facility leased by Holdings was previously used as a porcelain fixture and wood
cabinet manufacturing plant from 1954 to 1994. Such activities routinely involve
hazardous materials such as paints. solvents, acetone, toluene (and perhaps
other flammable solids) and dichloromethane, i.e., methylene chloride which may
serve as a basis for possible subsurface contamination.
Rensselaer, IN. A 1997 environmental report suggested that certain chemical
- --------------
constituents of the isocyanate and resin compounds used at the newly-purchased
plant location for the manufacture of foam encased mattress units may be present
in quantities at or above the specified reporting threshold levels in SARA Title
III (Sections 312 and 313). Purchase and production information was reviewed and
the 312/313 reporting forms for the years 1995 and 1996 as required by SARA
Title III were submitted to the appropriate agencies.
Colorado Springs. CO. A 1997 environmental report reflected the fact that the
- --------------------
Holdings property abuts railroad property used as a railcar dismantling area and
that approximately one (1) acre of the Holdings site was previously owned by the
railroad. The report noted that railcar facilities generally deal with a wide
assortment of hazardous materials and suggested the potential of railcar-related
contamination issues. The 1997 report also noted that prior to 1987, Holdings
stored incoming raw materials and waste outdoors on paved areas now used for
parking, shipping and receiving. Although no spills or releases were identified,
the report suggested the potential of subsurface contamination. Finally, the
1997 report noted the existence of oil stains on soil resulting from the past
unprotected discharge of oil from the Holdings plant air compressor. Soil
aeration on-site is being employed to address this air compressor discharge
matter.
Delano, PA. A 1993 environmental report noted that three (3) waste disposal
- ----------
facilities used by the Holdings plant for waste oil disposal listed on the
Comprehensive Environmental Response, Compensation and Liability Information
System (CERCLIS) database. Of these, one facility (and the then transporter
utilized by the Holdings plant) have been
<PAGE>
designated as requiring no further action. At the second facility, an
environmental investigation begun in 1986, continued in 1990, and remained
ongoing in 1993. The third disposal facility underwent initial site
investigation in February, 1992. The Holdings plant no longer utilizes any of
these CERCLIS landfills and no notice of a possible recovery action based upon
past use has been received. The 1993 report also noted minor areas of oil-
stained soil which have since been addressed.
Richmond, CA. A 1997 environmental report indicated that prior to Holdings's
- ------------
purchase of the property in 1973, a variety of operations were conducted at the
plant including the manufacture of plumbing fixtures and. Iater, steel bath
tubs. No spills or releases were identified. A prior 1993 report also noted the
abutting property as being owned and operated by a registered hazardous waste
transfer/hazardous material handling company. Although neither the 1993 or 1997
database search revealed any documented spills or releases, the Holdings plant
manager recalls an acid release in the area in 1993 which resulted in a cloud
cast over the Holdings plant and the neighboring area. The plant manager also
recalls: (a) a mercaptan drum spill in either 1989 or 1990 which caused a strong
odor to be present for some time; and (b) a diesel fuel spill of approximately 5
gallons a few years ago from a storage tanker in the driveway of the plant. The
diesel fuel spill was immediately contained and the area cleaned by the adjacent
hazardous material handling company. The 1997 environmental report also
suggested that certain chemical constituents of the isocyanate and resin
components used at the facility for the manufacture of foam encased mattress
units may be present in quantities at or above the specified reporting threshold
levels in SARA Title III, Section 313. Purchase and production information was
reviewed and the 313 reporting forms for the years 1994, 1995 and 1996 as
required by SARA Title III were submitted to the appropriate agency.
Southgate, CA . A 1997 environmental report indicated that prior to Holdings's
- -------------
purchase of the property in 1973, the plant was owned by the Holley division of
Lear Sigler Co., which manufactured air conditioner units. A prior 1993 report
also noted that a former tenant of Holdings at the plant, Hall Metals Company,
used the leased area as an engine and scrap metal storage site. When the
business failed, Holdings evicted the tenant and cleared the leased area of the
stored engines, scrap metal and various other materials, including some
unidentified chemicals. The 1993 and 1997 reports suggested that these
historical activities could have resulted in possible subsurface contamination.
Convers, GA. The rear portion of the Holdings plant was leased to a urethane
- -----------
foam manufacturer from 1980 to 1997. A 1997 environmental report noted that the
tenants' facility was listed on the CERCLIS database and the Toxic Release
Inventory System ("TRIS") database, and that the U.S. EPA had designated the
site as requiring no further action after three (3) site assessments in 1980,
1985 and 1989. The TRIS report noted the release of dichloromethane, toluene-2,
6-diisocyanate and toluene-2, 4-diisucyanate. Recent testing by the tenant as
part of its cessation of business at the property and the termination of the
lease revealed no adverse environmental conditions.
Orlando, FL. A urethane foam manufacturer owns and operates the property to the
- -----------
rear of the Holdings plant. A spill in 1992 at the foam manufacturer's property
resulted in the commencement of environmental investigation under a consent
order with the Florida Department of Environmental Protection which
investigation, over the past four (4) years, has confirmed the migration of
groundwater contamination in the form of 1,1 dichloroethylene, vinyl chloride,
acetone, 2-butanone, formaldehyde, toluene and 1,2, dichlorethane under the
Holdings property. In 1997, Holdings requested the foam manufacturer to advise
Holdings of its future investigation and remediation plan before Holdings allows
continued access to Holdings's property.
Clarion, PA. A 1997 environmental report revealed that the property was owned
- -----------
and operated by a trailer and mobile home manufacturer from 1968 to 1983.
Although such an operation was noted to have likely made use of hazardous
materials, the 1997 report indicated no spills or other contamination problems.
Carolina, Puerto Rico. A 1997 environmental report revealed that of the three
- ---------------------
(3) buildings presently occupied by Holdings at this location, one building was
used previously as a printing shop and another was used as a machine shop and as
an office and warehouse for an air conditioner service company. The third
building had no significant prior use history. The 1997 report noted that while
these operations commonly handle hazardous materials, no report of environmental
problems were revealed by an environmental database search.
<PAGE>
Ft. Worth, TX. A diesel fuel spill occurred on June 8, 1996 as the result of a
- -------------
vehicle accident involving a Holdings delivery truck in Longview, Texas. The
authorities were notified and the spill area cleaned. The resultant report was
submitted to Texas authorities. Holdings is awaiting a no further action letter.
Batavia, IL. A diesel fuel spill occurred on May 21, 1996 as the result of a
- -----------
vehicle accident involving a Holdings delivery truck in Sturtevant, Wisconsin.
The authorities were notified and the spill area cleaned. The resultant report
was submitted to Wisconsin authorities. A no further action letter was issued on
August 19, 1996.
Randolph, MA. A diesel fuel spill occurred on June 30, 1994 as the result of a
- ------------
fuel tank rupture at Holdings's Randolph plant. The authorities were notified
and the spill area was cleaned. A 1997 database review confirmed the matter was
closed by Massachusetts authorities.
Randolph, MA. In 1996, the asbestos containing material in the Holdings plant
- ------------
boiler room was removed as part of the boiler decommission and overflow tank
removal. Beginning June 1996 and continuing to completion in 1997, the outside
above ground 20,000 storage tank for #2 heating oil to power the boiler was
decommissioned; the 10,000 outside above ground diesel fuel tank and fuel pump
were removed: and the associated lines closed in place. Random and isolated oil
stained areas were addressed by soil removal as part of these environmental
activities.
Kansas City. KS. A 1997 environmental report indicated the possible migration of
- ---------------
subsurface contamination from an automobile manufacturing facility one-quarter
mile north of the plant. The manufacturing site is listed on multiple
environmental databases and both soil and groundwater contamination has been
confirmed to exist at the manufacturing site at concentrations above regulatory
action levels.
Putnam, CT. Environmental reports from 1993 and 1994 revealed that the Holdings
- ----------
property in Putnam, Connecticut was used in the 1920's by a manufacturer of
fabric inserts for rubber tires and from the late 1940's to the 1970's (until
purchased by Holdings) by a safety material manufacturer, i.e., safety goggle,
glove and helmet assembly. The 1994 report noted that the use of chemicals and
the generation of wastes by the first manufacturer was unknown. The same report
also stated that while no industrial wastes were generated by the second
manufacturer, trichloroethylene was used as a degreasing solvent on site. A 1992
environmental report revealed that land adjacent to the Putnam property was used
as a steel manufacturing facility and that waste from metal working processes
and/or process wastewater of steel pickling may have discharged to the
groundwater and may potentially impact the Holdings property. A 1997
environmental report revealed no additional information regarding the site.
Phoenix, AZ. The Arizona Department of Environmental Quality (ADEQ) is
- -----------
conducting a groundwater contamination study in a roughly 45 square mile area
that includes the Holdings plant. The effort is known as the West Van Buren
Study. Several contaminated wells have been identified including one well
located approximately one-quarter mile south of the Holdings plant. Using 1994
data, the groundwater contamination plume has been identified by ADEQ on an
isoconcentration map which shows a PCE plume at the boundary line of the plant
and moving in a westerly direction under the plant site. Numerous sources of
groundwater contamination have been identified although neither Holdings nor the
plant has been listed as a contributor to the contamination. Other principal
contaminants are 1,1, DCE; TCA; TCE and their breakdown products. These
compounds are not consistent with materials used at the plant.
Woodstuff Manufacturing Oak/Pine Plants: Phoenix AZ. In 1997, Holdings sold the
- ---------------------------------------------------
assets of its furniture manufacturing subsidiary, Woodstuff Manufacturing, Inc.,
to Sammy, Inc. Holdings agreed to indemnify Sammy from:
All Losses (including reasonable legal and accounting fees, resulting from or
arising out of (1 ) limitations, reductions or other adverse changes in the
permissible level of emissions or other terms and conditions of the Original
Pine Plant Permit (as such term is defined in Section 7.3(k) above) as in effect
as of the Closing if such changes (a) result from violations of Air Quality
Regulations by the Company of the Seller prior to the Closing and (b) are
imposed in connection with the Company's original application for a Title 5
Permit for the Pine Plant or the processing thereof or any related review by the
Maricopa County Environmental Services Department of Air Pollution Control (the
"Company's Original Title 5 Application"), or (2) violations of Air Quality
Regulations by the Company or the Seller prior to the Closing, or government or
private actions or suits alleging such violations, which violations are alleged
or asserted in connection with the Company's Original Title 5 Application or any
related review by the Maricopa County Environmental Services Department of Air
Pollution Control; provided, however, that this Section 8.1 (iv) shall not cover
<PAGE>
any Losses resulting from or arising out of any changes in the terms,
application or interpretation of any Air Quality Regulations that become
effective after the Closing.
Environmental investigations and resultant reports conducted in 1997 revealed
the existence of the West Van Buren Study and the location of one contaminated
well approximately one-half mile north of the Oak plant and one mile north of
the Pine plant. Subsurface investigations at both the Pine and Oak plants did
not reveal petroleum hydrocarbons or volatile organic compounds at
concentrations above regulatory action levels.
<PAGE>
As of the 1997 divestment, the following Hazardous Substances have been used by
or located at the Company's Oak plant: ethyl benzene; toluene; xylene; 1,1,1 -
trichloroethane (1, 1,1 TCA); freon 11 (TCFM). freon 113 (TCFE); benzene,
dibromochloromethane; and methyl tert butyl ether.
As of the 1997 divestment, the following Hazardous Substances have not, to
Holdings's knowledge, been used by or located at the Company's Oak plant:
tetrachloroethene (PCE); trichloroethene (TCE); 1,1-dichloroethane (1,1 DCA);
1,2-dichloroethane (1,2 DCA); ,1dichloroethene (l,lI DCE); 1,2-dichloroethene
(1,2 DCE); bromodichloromethane (BDCM); carbon tetrachloride; chloroform; 1,1,2
trichloroethane (1,1,2 TCA); and vinyl chloride.
The current management of Woodstuff Manufacturing intends to file the Title V
Permit Application in early October, 1997. The State of Arizona is under no time
obligation to act upon the Application, however, the current management has
indicated that it intends to seek an expedited conclusion.
Lexington, NC. In 1997, Holdings conducted soil and groundwater investigation
- -------------
for petroleum hydrocarbon contamination at three (3) former UST removal areas at
the Lexington plant. Groundwater analytical data indicated contamination. Soil
analytical data revealed only one of six samples to contain total petroleum
hydrocarbons at 1500 ppm, 300 ppm in excess of the 1200 ppm State standard.
Holdings's environmental consultant concluded that this isolated reading is not
representative of a contamination problem and Holdings has requested a no
further action determination from North Carolina.
Lexington, NC. A 1997 environmental report indicated the possible migration of
- -------------
subsurface contamination from three (3) upgradient sites listed as active LUST
(Leaking Underground Storage Tank) sites with the North Carolina authorities.
Southgate, CA. In 1994, the three (3) underground storage tanks located under
- -------------
the area leased to a tenant of Holdings were removed. Soil contamination caused
by gasoline, diesel fuel and waste oil releases at the tank pit area was
addressed by the removal of the soil. Groundwater contamination involving the
same contaminants is being addressed first by the passive removal of free
products pending approval of a natural attenuation program by Los Angeles
County. Renssealer. IN: A 1997 environmental report notes the possible existence
of a UST of approximately 1,000 gallons abandoned by prior owner. Possible
underground storage tank abandoned by the prior owner.
Toronto, Canada: A 1997 environmental report notes the possible existence of an
- ---------------
abandoned UST, size not specified, previously used to power the facility boiler.
Quebec, Canada: A 1997 environmental report confirms that the facility boiler is
- --------------
currently powered with heating fuel contained in existing 1,000 gallon UST.
Edmonton, Canada: A 1997 environmental report notes the possible migration of
- ----------------
subsurface contamination from two USTs (one for diesel fuel; the other for
either gasoline or lubricating oil) removed by the City of Edmonton from its
Public Works Department Facility in 1988. The report recommended that the matter
be further investigated to determine what the City of Edmonton has done since a
1990 environmental report to the City recommended further investigation at the
former UST location.
Toronto Canada: A 1997 environmental report indicated the existence of thermal
- --------------
system insolation at the facility which, because of its age, may be asbestos-
containing. The report recommends that an asbestos inspection be conducted.
Ouebec, Canada: A 1997 environmental report indicated the existence of spray-
- --------------
applied fire proofing at the Facility which, because of its age, may be
asbestors-containing. The report recommended that an asbestos inspection be
conducted.
Matters set forth in the report titled "Environmental Review of Sealy
Corporation," prepared by ENVIRON Corporation, dated December 1997, and the
Memorandum to File from Mark Grummer, Kirkland & Ellis, Regarding "Scaly
Environmental Liabilities: Offsite and Former Facility," copies of which have
been provided to Agent, are incorporated herein by reference and are deemed set
forth on this Schedule 5.13.
<PAGE>
Schedule 5.12
POST-CLOSING DELIVERIES
-----------------------
A. Company shall deliver, and shall cause its Subsidiaries to deliver, each of
the following items to Administrative Agent no later than 30 days after the
Closing Date, in each case in form and substance reasonably satisfactory to
Administrative Agent:
1. A Mortgage, in proper form for recording, encumbering the following Real
Property Assets:
. El Comandante Industrial Center, #1 San Marcos, Carolina, Puerto Rico
. Additional Properties at 11220 Space Blvd., Regency Industrial Park,
Orlando, Florida
. Highway Loop 290, Brenham, Texas (satisfactory survey not yet received)
. 100 Canal Street, Putnam, Connecticut (title being transferred to
another Subsidiary Guarantor)
2. A Closing Date Mortgage Policy for each of the Closing Date Mortgaged
Properties described in paragraph A.1 above.
3. The results of a recent search (and copies of all such filings disclosed
by such search), by a Person reasonably satisfactory to Syndication Agent
and Administrative Agent, of all effective UCC financing statements and
fixture filings and all judgment and tax lien filings which may have been
made with respect to any personal or mixed property of the Loan Parties
listed below in the jurisdictions set forth on Annex A hereto.
4. Any UCC termination statements, duly executed by all applicable Persons
for filing in all applicable jurisdictions as may be necessary to
terminate any effective UCC financing statements or fixture filings
disclosed in any search described in paragraph A.3 above (other than any
such financing statements or fixture filings in respect of Liens permitted
to remain outstanding pursuant to the terms of this Agreement).
5. Executed fixture filings with respect to all mixed property Collateral of
The Sealy Mattress Company of Puerto Rico, for filing in Puerto Rico.
6. Executed fixture filings with respect to all mixed property Collateral of
Sealy Mattress Manufacturing Company, Inc. at the Orlando, Florida
additional properties described in paragraph A.1 above, for filing in
Orange County, Florida.
B. Company shall use, and shall cause its Subsidiaries to use, commercially
reasonable efforts to deliver each of the following items to Administrative
Agent no later than 30 days after the Closing Date, in each case in form and
substance reasonably satisfactory to Administrative Agent:
1. At least one original of a memorandum of lease for the property at 3100
Fairfax Traffic Way, Kansas City, Kansas, in a form acceptable for
recording in the applicable jurisdiction.
2. A Mortgage, in proper form for recording, encumbering the leasehold
Closing Date Mortgaged Property described in paragraph B.1 above.
3. A Closing Date Mortgage Policy containing a survey exception in the form
set forth in the Global Title Letter for the Closing Date Mortgaged
Property described in paragraph B.2 above.
4. A Collateral Access Agreement with respect to the properties at Industrial
Drive, Welcome, North Carolina.
<PAGE>
Notwithstanding the foregoing, if Company fails to deliver any of the
foregoing items to Administrative Agent within such 30 day period,
Administrative Agent may (but shall not be obligated to) (i) consent to an
additional period of time for such delivery, in the case of failure to
deliver an item described in any of paragraphs A.1 through A.6, or (ii)
consent to an additional period of time for such delivery or waive the
delivery requirement as set forth in this Schedule, in the case of failure
to deliver an item described in any of paragraphs B.1 through B.4.
C. In the event that Company and its Subsidiaries shall fail to sell the 31
Hillside Avenue, Oakville, Connecticut property to a third party by November
30, 1998, Company shall no later than December 1, 1998 deliver, or shall
cause its applicable Subsidiary to deliver, each of the items set forth in
subsection 6.9 of the Credit Agreement with respect to such properties as if
they were an Additional Mortgaged Properties as defined in such subsection.
D. Company shall, and shall cause its Subsidiaries to, use commercially
reasonable efforts to commence and consummate such corporate and other
proceedings as Company and its counsel shall determine to be advisable to
ratify the issuances of outstanding capital stock of Company and its
Subsidiaries as set forth in the applicable Schedules to the Holdings Pledge
Agreement, the Company Pledge Agreement and the Subsidiary Pledge Agreement.
<PAGE>
Annex A
ENTITIES & JURISDICTIONS
NOT SEARCHED.
Sealy of Maryland and Virginia, Inc.
- ------------------------------------
State of Delaware
State of Virginia
Independent City of Richmond
Ohio-Sealy Mattress Manufacturing Co., Inc.
- -------------------------------------------
State of Connecticut
The Stearns & Foster Bedding Company
- ------------------------------------
DeKalb County, Georgia/1/
Hall County, Georgia
Richmond County, Georgia
Dougherty County, Georgia
Chatham County, Georgia
Fulton County, Georgia
State of Florida
State of Alabama
State of Tennessee
Sealy Mattress Manufacturing Company, Inc.
- ------------------------------------------
Mecklenburg County, North Carolina
Forsyth County, North Carolina
New Hanover County, North Carolina
State of South Carolina
State of Virginia
Independent City of Chesapeake
State of Florida
State of Hawaii
State of Washington
State of Utah
Sealy Mattress Company of Kansas City, Inc.
- -------------------------------------------
State of Missouri
Independent City of St. Louis
Ohio-Sealy Mattress Manufacturlng Co.--Fort Worth
- -------------------------------------------------
State of Louisiana
Sealy Mattress Companv of Memphis
- ---------------------------------
State of Mississippi
Madison County, Mississippi
State of Alabama
State of Arkansas
Pulaski County, Arkansas
Jefferson County, Arkansas
State of Florida
State of Kentucky
- ----------
/1/ Clerk's Cooperative was searched. No records found.
<PAGE>
SCHEDULE 7.1(v)
Existing Foreign Subsidiary Intercompany Indebtedness
None
<PAGE>
SCHEDULE 7.1(xv)
Certain Existing Indebtedness
1. Note by The Sealy Mattress Company Licensing and Components Group payble to
Jose Ades Tawil, a former licenseee, with an outstanding pricipal balance of
$1,200,000.
2. Note from The Sealy Mattress Company of Puerto Rico to Sealy Corporation with
an outstanding principal balance of $2,500,000.
3. Letters of Credit issued issued by Banque Paribas for Sealy Corporation:
<PAGE>
Beneficiary LC Number Amount Effective Date Maturity Tvue
Lumbermen's 21365/93 $426,994.00 517/93 5/6/98 Standby Mutual
Hartford Fire 21369/93 54,739,577.00 6/1/93 6/2/98 Standby Insurance
Hartford Fire 21375/94 $3,360,423.00 8/18/94 8/19/98 Standby Insurance
Transcontinental 21404/96 $382,000 00 9/20/96 9/19/98 Standby Tech.
Continental 21405/96 $2,831.000.00 9/20/96 9/19/98 Standby Casualty
<PAGE>
SCHEDULE 7.3(vii)
Certain Existing Investments
<PAGE>
OWNER INVESTMENT
Gestion Centurion, Inc. One-third ownership of outstanding
stock of Alpha Springs, Ltd.
The Ohio Mattress Company 14 shares of Southwest Ohio Water
Class "A" common stock
Sealy, Inc. Ownership of personal residences in
connection with corporate relocation
program
<PAGE>
SCHEDULE 7.3(xiii)
Existing Foreign Subsidiary Capital Contributions
<PAGE>
CONTRIBUTOR AMOUNT FOREIGN SUBSIDIARY
The Ohio Mattress Company
$31,000,000
Sealy Canada, Ltd.
Licensing and Components Group
<PAGE>
SCHEDULE 7.3(xviii)
Certain Proposed Investments
1. The Ohio Mattress Company Licensing and Components Group and Kurlon Limited
executed a letter of intent dated October 20, 1997 for a joint venture in
India to produce and market inner-spring mattresses under the Sealy brand
name.
<PAGE>
SCHEDULE 7.4
Certain Existing Contingent Obligations
None
<PAGE>
SCHEDULE 7.9
Sale-Leaseback Transactions
Proposed relocation of certain of Sealy Mattress Company's assets may
involve the purchase of an existing facility, with the subsequent sale and
leaseback of the same facility.
<PAGE>
EXHIBIT 10.5
EXHIBIT I
[FORM OF NOTICE OF BORROWING]
NOTICE OF BORROWING
Pursuant to that certain AXEL Credit Agreement dated as of December 18,
1997, as amended, supplemented or otherwise modified to the date hereof (said
Credit Agreement, as so amended, supplemented or otherwise modified, being the
"CREDIT AGREEMENT", the terms defined therein and not otherwise defined herein
being used herein as therein defined), by and among Sealy Mattress Company, an
Ohio corporation, as borrower ("COMPANY"), Sealy Corporation, a Delaware
corporation, as guarantor, Goldman Sachs Credit Partners L.P., as arranger and
syndication agent, the financial institutions listed therein as Lenders
("LENDERS"), Morgan Guaranty Trust Company of New York, as administrative
agent ("ADMINISTRATIVE AGENT"), and Bankers Trust Company, as documentation
agent, this represents Company's request to borrow as follows:
1. Date of borrowing:
----------------- -------------------, ---------
2. Amount of borrowing: $
------------------- -------------------
Lender(s): [_] a. Lenders, in
---------
accordance with their applicable Pro Rata Shares
[_] b. Swing Line Lender
3. Type of Loans: [_] a. AXELs Series B
-------------
[_] b. AXELs Series C
[_] c. AXELs Series D
4. Interest rate option: [_] a. Base Rate Loan(s)
--------------------
[_] b. Eurodollar Rate Loans with an
initial Interest Period
of ____________ month(s)
The proceeds of such Loans are to be deposited in Company's account at
Administrative Agent.
The undersigned officer, to the best of his or her knowledge, on behalf of
the Company certifies that:
(i) The representations and warranties contained in the Credit
Agreement and the other Loan Documents are or shall be true, correct and
complete in all material respects on and as of the date hereof to the same
extent as though made on and as of the Funding Date, except to the extent
such representations and warranties specifically relate
I-1
<PAGE>
to an earlier date, in which case such representations and warranties were
true, correct and complete in all material respects on and as of such
earlier date;
(ii) No event has occurred and is continuing or would result from the
consummation of the borrowing contemplated hereby that would constitute an
Event of Default or a Potential Event of Default; [and]
DATED: ____________________ SEALY MATTRESS COMPANY
By:
------------------------------------
Name:
Title:
I-2
<PAGE>
EXHIBIT II
[FORM OF NOTICE OF CONVERSION/CONTINUATION]
NOTICE OF CONVERSION/CONTINUATION
Pursuant to that certain AXEL Credit Agreement dated as of December 18,
1997, as amended, supplemented or otherwise modified to the date hereof (said
Credit Agreement, as so amended, supplemented or otherwise modified, being the
"CREDIT AGREEMENT", the terms defined therein and not otherwise defined herein
being used herein as therein defined), by and among Sealy Mattress Company, an
Ohio corporation, as borrower ("COMPANY"), Sealy Corporation, a Delaware
corporation, as guarantor, Goldman Sachs Credit Partners L.P., as arranger and
syndication agent, the financial institutions listed therein as Lenders, Morgan
Guaranty Trust Company of New York, as administrative agent, and Bankers Trust
Company, as documentation agent, this represents Company's request to convert or
continue Loans as follows:
1. Date of conversion/continuation:
------------------------------- ------------------, -------
2. Amount of Loans being converted/continued: $
----------------------------------------- ------------------
3. Type of Loans being [_] a. AXELs Series B
converted/continued: [_] b. AXELs Series C
------------------- [_] c. AXELs Series D
4. Nature of conversion/continuation:
---------------------------------
[_] a. Conversion of Base Rate Loans to Eurodollar Rate Loans
[_] b. Conversion of Eurodollar Rate Loans to Base Rate Loans
[_] c. Continuation of Eurodollar Rate Loans as such
5. If Loans are being continued as or converted to Eurodollar Rate Loans,
the duration of the new Interest Period that commences on the
conversion/continuation date: _______________ month(s)
II-1
<PAGE>
In the case of a conversion to or continuation of Eurodollar Rate Loans, the
undersigned officer, to the best of his or her knowledge, and Company certify
that no Event of Default has occurred and is continuing under the Credit
Agreement.
DATED: ____________________ SEALY MATTRESS COMPANY
By:
---------------------------------
Name:
Title:
II-2
<PAGE>
EXHIBIT IV
[FORM OF AXEL SERIES B NOTE]
SEALY MATTRESS COMPANY
PROMISSORY NOTE DUE DECEMBER __, 2004
$[1] New York, New York
[Closing Date]
FOR VALUE RECEIVED, SEALY MATTRESS COMPANY, an Ohio corporation
("COMPANY"), promises to pay to [1] ("PAYEE") or its registered assigns
the principal amount of [1] ($[4]) in the installments referred to below.
Company also promises to pay interest on the unpaid principal amount hereof,
from the date hereof until paid in full, at the rates and at the times which
shall be determined in accordance with the provisions of that certain AXEL
Credit Agreement dated as of December 18, 1997 by and among Company, Sealy
Corporation, a Delaware corporation, as guarantor, Goldman Sachs Credit Partners
L.P., as arranger and syndication agent, the financial institutions listed
therein, Morgan Guaranty Trust Company of New York, as administrative agent
("ADMINISTRATIVE AGENT"), and Bankers Trust Company, as documentation agent
(said Credit Agreement, as it may be amended, supplemented or otherwise modified
from time to time, being the "CREDIT AGREEMENT", the terms defined therein and
not otherwise defined herein being used herein as therein defined).
Company shall make principal payments on this Note in consecutive quarterly
installments, commencing on March __, 1998 and ending on December __, 2004.
Each such installment shall be due on the date specified in the Credit Agreement
and in an amount determined in accordance with the provisions thereof; provided
--------
that the last such installment shall be in an amount sufficient to repay the
entire unpaid principal balance of this Note, together with all accrued and
unpaid interest thereon.
This Note is one of Company's "AXEL Series B Notes" in the aggregate
principal amount of $125,000,000 and is issued pursuant to and entitled to the
benefits of the Credit Agreement, to which reference is hereby made for a more
complete statement of the terms and conditions under which the AXEL Series B
evidenced hereby was made and is to be repaid.
- -----------------------
[4] Insert amount of Lender's AXEL Series B in numbers.
[5] Insert Lender's name in capital letters.
[6] Insert amount of Lender's AXEL Series B in words.
IV-1
<PAGE>
All payments of principal and interest in respect of this Note shall be made
in lawful money of the United States of America in same day funds at the Funding
and Payment Office or at such other place as shall be designated in writing for
such purpose in accordance with the terms of the Credit Agreement. Unless and
until an Assignment Agreement effecting the assignment or transfer of this Note
shall have been accepted by Agent and recorded in the Register as provided in
subsection [10.1B(ii)] of the Credit Agreement, Company and Agent shall be
entitled to deem and treat Payee as the owner and holder of this Note and the
Loan evidenced hereby. Payee hereby agrees, by its acceptance hereof, that
before disposing of this Note or any part hereof it will make a notation hereon
of all principal payments previously made hereunder and of the date to which
interest hereon has been paid; provided, however, that the failure to make a
-------- -------
notation of any payment made on this Note shall not limit or otherwise affect
the obligations of Company hereunder with respect to payments of principal of or
interest on this Note.
Whenever any payment on this Note shall be stated to be due on a day which
is not a Business Day, such payment shall be made on the next succeeding
Business Day and such extension of time shall be included in the computation of
the payment of interest on this Note.
This Note is subject to mandatory prepayment as provided in subsection
[2.4B(iii)] of the Credit Agreement and to prepayment at the option of Company
as provided in subsection [2.4B(i)] of the Credit Agreement.
THIS NOTE AND THE RIGHTS AND OBLIGATIONS OF COMPANY AND PAYEE HEREUNDER
SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING WITHOUT LIMITATION SECTION
5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD
TO CONFLICTS OF LAWS PRINCIPLES.
Upon the occurrence of an Event of Default, the unpaid balance of the
principal amount of this Note, together with all accrued and unpaid interest
thereon, may become, or may be declared to be, due and payable in the manner,
upon the conditions and with the effect provided in the Credit Agreement.
The terms of this Note are subject to amendment only in the manner provided
in the Credit Agreement.
This Note is subject to restrictions on transfer or assignment as provided
in subsections [10.1 and 10.16] of the Credit Agreement.
No reference herein to the Credit Agreement and no provision of this Note or
the Credit Agreement shall alter or impair the obligations of Company, which are
absolute and
IV-2
<PAGE>
unconditional, to pay the principal of and interest on this Note at the place,
at the respective times, and in the currency herein prescribed.
After the occurrence of an Event of Default, Company promises to pay all
costs and expenses, including reasonable attorneys' fees, all as provided in
subsection [10.2] of the Credit Agreement, incurred in the collection and
enforcement of this Note. Company hereby consents to renewals and extensions of
time at or after the maturity hereof, without notice, and hereby waives
diligence, presentment, protest, demand and notice of every kind and, to the
full extent permitted by law, the right to plead any statute of limitations as a
defense to any demand hereunder.
IN WITNESS WHEREOF, Company has caused this Note to be duly executed and
delivered by its officer thereunto duly authorized as of the date and at the
place first written above.
SEALY MATTRESS COMPANY
By:
____________________________
Name:
Title:
IV-3
<PAGE>
EXHIBIT V
[FORM OF AXEL SERIES C NOTE]
SEALY MATTRESS COMPANY
PROMISSORY NOTE DUE DECEMBER __, 2005
$[7] New York, New York
[Closing Date]
FOR VALUE RECEIVED, SEALY MATTRESS COMPANY, an Ohio corporation ("COMPANY"),
promises to pay to [8] ("PAYEE") or its registered assigns the principal amount
of [9] ($[7]) in the installments referred to below.
Company also promises to pay interest on the unpaid principal amount hereof,
from the date hereof until paid in full, at the rates and at the times which
shall be determined in accordance with the provisions of that certain AXEL
Credit Agreement dated as of December 18, 1997 by and among Company, Sealy
Corporation, a Delaware corporation, as guarantor, Goldman Sachs Credit Partners
L.P., as arranger and syndication agent, the financial institutions listed
therein, Morgan Guaranty Trust Company of New York, as administrative agent
("ADMINISTRATIVE AGENT"), and Bankers Trust Company, as documentation agent
(said Credit Agreement, as it may be amended, supplemented or otherwise modified
from time to time, being the "CREDIT AGREEMENT", the terms defined therein and
not otherwise defined herein being used herein as therein defined).
Company shall make principal payments on this Note in consecutive quarterly
installments, commencing on March __, 1998 and ending on December __, 2005.
Each such installment shall be due on the date specified in the Credit Agreement
and in an amount determined in accordance with the provisions thereof; provided
--------
that the last such installment shall be in an amount sufficient to repay the
entire unpaid principal balance of this Note, together with all accrued and
unpaid interest thereon.
This Note is one of Company's "AXEL Series C Notes" in the aggregate
principal amount of $90,000,000 and is issued pursuant to and entitled to the
benefits of the Credit Agreement, to which reference is hereby made for a more
complete statement of the terms and conditions under which the AXEL Series C
evidenced hereby was made and is to be repaid.
- -------------------------
[7] Insert amount of Lender's AXEL Series C in numbers.
[8] Insert Lender's name in capital letters.
[9] Insert amount of Lender's AXEL Series C in words.
V-1
<PAGE>
All payments of principal and interest in respect of this Note shall be made
in lawful money of the United States of America in same day funds at the Funding
and Payment Office or at such other place as shall be designated in writing for
such purpose in accordance with the terms of the Credit Agreement. Unless and
until an Assignment Agreement effecting the assignment or transfer of this Note
shall have been accepted by Agent and recorded in the Register as provided in
subsection [10.1B(ii)] of the Credit Agreement, Company and Agent shall be
entitled to deem and treat Payee as the owner and holder of this Note and the
Loan evidenced hereby. Payee hereby agrees, by its acceptance hereof, that
before disposing of this Note or any part hereof it will make a notation hereon
of all principal payments previously made hereunder and of the date to which
interest hereon has been paid; provided, however, that the failure to make a
-------- -------
notation of any payment made on this Note shall not limit or otherwise affect
the obligations of Company hereunder with respect to payments of principal of or
interest on this Note.
Whenever any payment on this Note shall be stated to be due on a day which
is not a Business Day, such payment shall be made on the next succeeding
Business Day and such extension of time shall be included in the computation of
the payment of interest on this Note.
This Note is subject to mandatory prepayment as provided in subsection
[2.4B(iii)] of the Credit Agreement and to prepayment at the option of Company
as provided in subsection [2.4B(i)] of the Credit Agreement.
THIS NOTE AND THE RIGHTS AND OBLIGATIONS OF COMPANY AND PAYEE HEREUNDER
SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING WITHOUT LIMITATION SECTION
5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD
TO CONFLICTS OF LAWS PRINCIPLES.
Upon the occurrence of an Event of Default, the unpaid balance of the
principal amount of this Note, together with all accrued and unpaid interest
thereon, may become, or may be declared to be, due and payable in the manner,
upon the conditions and with the effect provided in the Credit Agreement.
The terms of this Note are subject to amendment only in the manner provided
in the Credit Agreement.
This Note is subject to restrictions on transfer or assignment as provided
in subsections [10.1 and 10.16] of the Credit Agreement.
No reference herein to the Credit Agreement and no provision of this Note or
the Credit Agreement shall alter or impair the obligations of Company, which are
absolute and
V-2
<PAGE>
unconditional, to pay the principal of and interest on this Note at the place,
at the respective times, and in the currency herein prescribed.
After the occurrence of an Event of Default, Company promises to pay all
costs and expenses, including reasonable attorneys' fees, all as provided in
subsection [10.2] of the Credit Agreement, incurred in the collection and
enforcement of this Note. Company hereby consents to renewals and extensions of
time at or after the maturity hereof, without notice, and hereby waives
diligence, presentment, protest, demand and notice of every kind and, to the
full extent permitted by law, the right to plead any statute of limitations as a
defense to any demand hereunder.
IN WITNESS WHEREOF, Company has caused this Note to be duly executed and
delivered by its officer thereunto duly authorized as of the date and at the
place first written above.
SEALY MATTRESS COMPANY
By:
________________________
Name:
Title:
V-3
<PAGE>
EXHIBIT VI
[FORM OF AXEL SERIES D NOTE]
SEALY MATTRESS COMPANY
PROMISSORY NOTE DUE DECEMBER __, 2006
$[10] New York, New York
[Closing Date]
FOR VALUE RECEIVED, SEALY MATTRESS COMPANY, an Ohio corporation ("COMPANY"),
promises to pay to [11] ("PAYEE") or its registered assigns the principal amount
of [12] ($[10]) in the installments referred to below.
Company also promises to pay interest on the unpaid principal amount hereof,
from the date hereof until paid in full, at the rates and at the times which
shall be determined in accordance with the provisions of that certain AXEL
Credit Agreement dated as of December 18, 1997 by and among Company, Sealy
Corporation, a Delaware corporation, as guarantor, Goldman Sachs Credit Partners
L.P., as arranger and syndication agent, the financial institutions listed
therein, and Morgan Guaranty Trust Company of New York, as administrative agent
("ADMINISTRATIVE AGENT"), and Bankers Trust Company, as documentation agent
(said Credit Agreement, as it may be amended, supplemented or otherwise modified
from time to time, being the "CREDIT AGREEMENT", the terms defined therein and
not otherwise defined herein being used herein as therein defined).
Company shall make principal payments on this Note in consecutive quarterly
installments, commencing on March __, 1998 and ending on December __, 2006.
Each such installment shall be due on the date specified in the Credit Agreement
and in an amount determined in accordance with the provisions thereof; provided
--------
that the last such installment shall be in an amount sufficient to repay the
entire unpaid principal balance of this Note, together with all accrued and
unpaid interest thereon.
This Note is one of Company's "AXEL Series D Notes" in the aggregate
principal amount of $115,000,000 and is issued pursuant to and entitled to the
benefits of the Credit Agreement, to which reference is hereby made for a more
complete statement of the terms and conditions under which the AXEL Series D
evidenced hereby was made and is to be repaid.
- ----------------------
[10] Insert amount of Lender's AXEL Series D in numbers.
[11] Insert Lender's name in capital letters.
[12] Insert amount of Lender's AXEL Series D in words.
VI-1
<PAGE>
All payments of principal and interest in respect of this Note shall be made
in lawful money of the United States of America in same day funds at the Funding
and Payment Office or at such other place as shall be designated in writing for
such purpose in accordance with the terms of the Credit Agreement. Unless and
until an Assignment Agreement effecting the assignment or transfer of this Note
shall have been accepted by Agent and recorded in the Register as provided in
subsection [10.1B(ii)] of the Credit Agreement, Company and Agent shall be
entitled to deem and treat Payee as the owner and holder of this Note and the
Loan evidenced hereby. Payee hereby agrees, by its acceptance hereof, that
before disposing of this Note or any part hereof it will make a notation hereon
of all principal payments previously made hereunder and of the date to which
interest hereon has been paid; provided, however, that the failure to make a
-------- -------
notation of any payment made on this Note shall not limit or otherwise affect
the obligations of Company hereunder with respect to payments of principal of or
interest on this Note.
Whenever any payment on this Note shall be stated to be due on a day which
is not a Business Day, such payment shall be made on the next succeeding
Business Day and such extension of time shall be included in the computation of
the payment of interest on this Note.
This Note is subject to mandatory prepayment as provided in subsection
[2.4B(iii)] of the Credit Agreement and to prepayment at the option of Company
as provided in subsection [2.4B(i)] of the Credit Agreement.
THIS NOTE AND THE RIGHTS AND OBLIGATIONS OF COMPANY AND PAYEE HEREUNDER
SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING WITHOUT LIMITATION SECTION
5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD
TO CONFLICTS OF LAWS PRINCIPLES.
Upon the occurrence of an Event of Default, the unpaid balance of the
principal amount of this Note, together with all accrued and unpaid interest
thereon, may become, or may be declared to be, due and payable in the manner,
upon the conditions and with the effect provided in the Credit Agreement.
The terms of this Note are subject to amendment only in the manner provided
in the Credit Agreement.
This Note is subject to restrictions on transfer or assignment as provided
in subsections [10.1 and 10.16] of the Credit Agreement.
No reference herein to the Credit Agreement and no provision of this Note or
the Credit Agreement shall alter or impair the obligations of Company, which are
absolute and
VI-2
<PAGE>
unconditional, to pay the principal of and interest on this Note at the place,
at the respective times, and in the currency herein prescribed.
After the occurrence of an Event of Default, Company promises to pay all
costs and expenses, including reasonable attorneys' fees, all as provided in
subsection [10.2] of the Credit Agreement, incurred in the collection and
enforcement of this Note. Company hereby consents to renewals and extensions of
time at or after the maturity hereof, without notice, and hereby waives
diligence, presentment, protest, demand and notice of every kind and, to the
full extent permitted by law, the right to plead any statute of limitations as a
defense to any demand hereunder.
IN WITNESS WHEREOF, Company has caused this Note to be duly executed and
delivered by its officer thereunto duly authorized as of the date and at the
place first written above.
SEALY MATTRESS COMPANY
By:
___________________________
Name:
Title:
VI-3
<PAGE>
EXHIBIT VII
[FORM OF COMPLIANCE CERTIFICATE]
COMPLIANCE CERTIFICATE
THE UNDERSIGNED HEREBY CERTIFY ON BEHALF OF HOLDINGS (AS DEFINED BELOW) THAT:
(1) We are the duly elected [Title] and [Title] of Sealy Corporation, a
Delaware corporation ("HOLDINGS");
(2) We have reviewed the terms of that certain AXEL Credit Agreement
dated as of December 18, 1997, as amended, supplemented or otherwise
modified to the date hereof (said Credit Agreement, as so amended,
supplemented or otherwise modified, being the "AXEL CREDIT AGREEMENT", the
terms defined therein and not otherwise defined in this Certificate
(including Attachment No. 1 annexed hereto and made a part hereof) being
used in this Certificate as therein defined), by and among Company,
Holdings, Goldman Sachs Credit Partners L.P., as arranger and syndication
agent, the financial institutions listed therein, Morgan Guaranty Trust
Company of New York, as administrative agent ("ADMINISTRATIVE AGENT"), and
Bankers Trust Company, as documentation agent, and the terms of the other
Loan Documents, and we have made, or have caused to be made under our
supervision, a review in reasonable detail of the transactions and condition
of Holdings and its Subsidiaries during the accounting period covered by the
attached financial statements; and
(3) The examination described in paragraph (2) above did not disclose,
and we have no knowledge of, the existence of any condition or event which
constitutes an Event of Default or Potential Event of Default during or at
the end of the accounting period covered by the attached financial
statements or as of the date of this Certificate.
[Set forth [below] [in a separate attachment to this Certificate] are
all exceptions to paragraph (3) above listing, in detail, the nature of the
condition or event, the period during which it has existed and the action which
Holdings has taken, is taking, or proposes to take with respect to each such
condition or event:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
_______________________________________________________________________________]
VII-1
<PAGE>
The foregoing certifications, together with the computations set forth
in Attachment No. 1 annexed hereto and made a part hereof and the financial
statements delivered with this Certificate in support hereof, are made and
delivered this ____ day of ____________, [199_] [200_] pursuant to subsection
5.1(iv) of the AXEL Credit Agreement.
SEALY CORPORATION
By: _____________________________
Name:
Title:
By: _____________________________
Name:
Title:
VII-2
<PAGE>
ATTACHMENT NO. 1
TO COMPLIANCE CERTIFICATE
This Attachment No. 1 is attached to and made a part of a Compliance
Certificate dated as of ______________, [199_][200_] and pertains to the period
from ____________, [199_][200_] to ____________, [199_][200_]. Subsection
references herein relate to subsections of the AXEL Credit Agreement.
A. CONSOLIDATED FIXED CHARGE COVERAGE RATIO (for the Four-Quarter
Period ending _____________, [199_][200_])
1. Consolidated Net Income: $_____________
2. Income taxes and foreign withholding taxes paid
or accrued in accordance with GAAP: $_____________
3. Consolidated Interest Expense: $_____________
4. Consolidated Noncash Charges: $_____________
5. one-time cash compensation payments made in
connection with the Recapitalization Transactions: $_____________
6. Payments related to addressing Company's or any
Restricted Subsidiary's "Year 2000" information
systems issue: $_____________
7. Bad debt and factoring losses incurred specifically
with respect to the bankruptcy of Montgomery Ward:
8. EITF 97-13 Expenditures: $_____________
9. Consolidated EBITDA (1+2+3+4+5+6+7+8) (items 2
through 8 above to be included in such calculation
to the extent Consolidated Net Income was reduced
by such amounts): $_____________
10. Consolidated Interest Expense (before amortization
or write-off of debt issuance costs): $_____________
11. Amount of cash dividend payments on any series of
VII-3
<PAGE>
preferred stock: $_____________
12. Amount of dividend payments on any series of
Permitted Foreign Subsidiary Preferred Stock
or Permitted Domestic Subsidiary Preferred Stock: $_____________
13. Consolidated Fixed Charges (10+11+12): $_____________
14. Consolidated Fixed Charge Coverage Ratio
((9):(13)): ____:1.00
14. Minimum Consolidated Fixed Charge Coverage Ratio
required under subsection 6.3: 2.0:1.0
VII-4
<PAGE>
EXHIBIT VIII
KIRKLAND & ELLIS
A PARTNERSHIP INCLUDING PROFESSIONAL CORPORATIONS
Citicorp Center
153 East 53rd Street
New York, NY 10022-4675
To Call Writer Direct: 212 446-4800 Facsimile:
212 446-4800 212 446-4900
December 18, 1997
To the Administrative Agent,
the Collateral Agent, the Documentation
Agent, the Syndication Agent and
each of the Lenders party to the
Credit Agreement referred to below:
Ladies and Gentlemen:
We are issuing this opinion letter in our capacity as special legal
counsel to Sealy Corporation, a Delaware corporation ("Holdings"), Sealy
--------
Mattress Company, an Ohio corporation (the "Borrower"), and each other Domestic
--------
Subsidiary of Borrower that is a party to a Subsidiary Guaranty (collectively,
the "Subsidiary Guarantors" and, together with Holdings and the Borrower, the
---------------------
"Credit Parties," and each a "Credit Party"), in response to the requirement in
- --------------- ------------
(a) subsections 4.1J(vii) and 4.1(P) of the Credit Agreement (the "Term
----
A/Revolver Credit Agreement") dated as of the date hereof by and among Holdings,
- ---------------------------
the Borrower, the various lending institutions party thereto (the "Term
----
A/Revolver Lenders"), Goldman Sachs Credit Partners L.P., as Arranger and
- ------------------
Syndication Agent, Morgan Guaranty Trust Company of New York, as Administrative
Agent, and Bankers Trust Company, as Documentation Agent, and (b) subsection
3.1J(vi) and 3.1(P) of the AXEL Credit Agreement (the "AXEL Credit Agreement,"
---------------------
and together with the Term A/Revolver Credit Agreement, the "Credit
------
Agreements"), dated as of the date hereof by and among Holdings, the Borrower,
the various lending institutions party thereto (the "AXEL Lenders," collectively
------------
with the AXEL Lenders and Term A/Revolver Lenders, (the "Lenders")), Goldman
-------
Sachs Credit Partners L.P., as Arranger and Syndication Agent, Morgan Guaranty
Trust Company of New York, as Administrative Agent and Bankers Trust Company, as
Documentation Agent (the Lenders and the various aforementioned agents under the
Credit Agreements being herein called "you"). The term "Transaction Documents"
--- ---------------------
whenever it is used in this letter means the Credit Agreements and the
following additional documents: (a) the Notes, (b) the Guaranties and Collateral
Documents executed on or before the date hereof listed on Schedule E (the
----------
"Collateral Documents"), (c) the Financing Statements (as defined in opinion
- ---------------------
paragraph 9 of this letter) executed by the Credit Parties, (d) the
Recapitalization Agreement and (e) the Related Documents listed on Schedule F.
----------
Unless otherwise indicated, capitalized terms used herein but not otherwise
defined herein have the respective meanings set forth in the Credit Agreements.
<PAGE>
KIRKLAND & ELLIS
December 18, 1997
Page 2
Subject to the assumptions, qualifications, exclusions and other
limitations which are identified in this letter and in the schedules attached to
this letter, we advise you, and with respect to each legal issue addressed in
this letter, it is our opinion, that:
1. Holdings is a corporation existing and in good standing under the
General Corporation Law of the State of Delaware. Each Subsidiary
Guarantor is a corporation existing under the general corporate law of
its state of incorporation. Each Credit Party is in good standing in
the jurisdictions set forth below such Credit Party's name on Schedule
--------
G. For purposes of the foregoing opinions in this paragraph, we have
-
relied exclusively upon the certificates issued by the governmental
authorities in each respective state of incorporation and other
relevant jurisdictions for the other Credit Parties incorporated in
states other than Delaware, Illinois and New York and such opinions
are not intended to provide any conclusion or assurance beyond that
conveyed by such certificates. Based upon our review of the
Certificate (or Articles, as the case may be) of Incorporation and
Bylaws of each Credit Party (other than the Borrower), each Credit
Party (other than the Borrower) has the corporate power to own its
property and assets of which we are aware and to transact the business
in which, to our actual knowledge, it is engaged or presently proposes
to engage (as such business is described in the Offering Circular
dated December 11, 1997, relating to the Senior Subordinated Notes and
the Discount Notes).
2. Each Credit Party (other than the Borrower) has the corporate power to
enter into each of the Transaction Documents (other than the
Recapitalization Agreement) to which it is a party and perform its
obligations under each of the Credit Agreements, the Notes, the
Collateral Documents and the Related Documents to which it is a party.
3. The Board of Directors of each Credit Party (other than the Borrower)
has adopted by requisite vote the resolutions necessary to authorize
such Credit Party's execution and delivery of the Transaction
Documents (other than the Recapitalization Agreement) to which it is a
party and the performance of the Transaction Documents (other than the
Recapitalization Agreement and the Financing Statements) to which it
is a party and no approval by the shareholders of such Credit Parties
is required in connection with the authorization of such execution,
delivery and performance of the
<PAGE>
KIRKLAND & ELLIS
December 18, 1997
Page 3
Transaction Documents (other than the Recapitalization Agreement) to
which it is a party.
4. Each Credit Party (other than the Borrower) has duly executed and
delivered the Transaction Documents (other than the Recapitalization
Agreement) to which it is a party.
5. Each of the Transaction Documents (other than the Recapitalization
Agreement and the Financing Statements) is a valid and binding
obligation of each Credit Party that is a party thereto and is
enforceable against each such Credit Party in accordance with its
terms.
6. The execution and delivery of the Transaction Documents (other than
the Recapitalization Agreement) to which it is a party by each Credit
Party and performance of the obligations under the Transaction
Documents (other than the Recapitalization Agreement and the Financing
Statements) to which it is a party will not (a) conflict with any of
the Transaction Documents, (b) violate any existing provisions of such
Credit Party's Certificate (or Articles, as the case may be) of
Incorporation or Bylaws, (c) constitute a violation by such Credit
Party of any applicable provision of existing statutory law or
governmental regulation covered by this letter, (d) result in the
creation or imposition of any lien, charge or encumbrance upon any of
the property of any Credit Party other than liens, charges and
encumbrances in your favor or (e) violate any existing order, writ,
injunction or decree applicable to any Credit Party of which we are
aware of any court or governmental instrumentality. Without limiting
the foregoing, the making of the Loans and the application of the
proceeds thereof as provided in the Credit Agreements do not violate
Regulations G, T, U or X of the Board of Governors of the Federal
Reserve System.
7. No Credit Party is presently required to obtain any consent, approval,
authorization or order of any court or governmental agency in order to
obtain the right to enter into any of the Transaction Documents (other
than the Recapitalization Agreement) or to take any of the actions
taken by such Credit Party in connection with the consummation of the
transactions contemplated by the Transaction Documents (other than the
Recapitalization Agreement), except for: (a) those obtained or made on
or prior to the Closing Date, (b) any actions or filings to perfect
the liens and security
<PAGE>
KIRKLAND & ELLIS
December 18, 1997
Page 4
interests granted under the Collateral Documents, (c) actions or
filings required in connection with ordinary course conduct by the
Credit Parties of their respective businesses and ownership or
operation by the Credit Parties of their respective assets and (d)
actions and filings required under the Securities Act of 1933, as
amended, or any state "blue sky" law or related regulation and the
Trust Indenture Act of 1939, as amended (as to which matters, except
as specifically set forth in paragraph 18, we express no opinion).
8. Each of the Holdings Security Agreement, the Company Security
Agreement, the Company Patent and Trademark Security Agreement, the
Subsidiary Security Agreement, the Subsidiary Patent and Trademark
Security Agreement and Section 4 of the Mortgage (the "New York
--------
Mortgage") dated the date hereof executed by Sealy Mattress of Albany,
--------
Inc. ("Sealy Albany") (collectively, the "Security Agreements")
------------ -------------------
creates a valid and enforceable security interest in favor of the
Collateral Agent in the collateral therein respectively described (the
"Collateral") which constitutes property in which a security interest
----------
can be granted under Article 9 of the Uniform Commercial Code as
enacted in New York (the "New York UCC"). Such Collateral is referred
------------
to herein as the "Code Collateral."
---------------
9. The Uniform Commercial Code financing statements (Form UCC-1) which
have been signed by representatives of each of the applicable Credit
Parties and delivered on or before the date of this letter in
connection with the transactions specified in the Collateral Documents
(the "Financing Statements"), have been duly executed and delivered by
--------------------
each such Credit Party. When certain of the Financing Statements have
been duly filed or recorded, as appropriate, in the Offices of the
Secretary of State of the States of New York and Illinois (and, with
respect to certain of the Financing Statements signed by Sealy Albany,
the Office of the Clerk, Albany County), the security interests under
the Security Agreements in the Code Collateral presently located or
deemed located in the States of New York and Illinois under Section 9-
103 of the New York UCC will be perfected to the extent such security
interests in such Code Collateral can be perfected by the filing of
financing statements in the States of New York and Illinois.
10. Under Section 9-103 of the New York UCC, the perfection and effect of
perfection of the security interests in favor of the Collateral Agent
in the remaining Code Collateral will be governed by laws other than
those of the States of New York and
<PAGE>
KIRKLAND & ELLIS
December 18, 1997
Page 5
Illinois. Although we express no opinion as to such laws, we have
reviewed the Commerce Clearing House, Inc. Secured Transactions Guide
as supplemented through November 25, 1997 (the "Guide") and, based
-----
solely on such review, we advise you that when the remaining Financing
Statements executed by each Credit Party are duly filed or recorded,
as appropriate, in the filing offices set forth on Schedule H, the
----------
security interests under the Security Agreements in such Code
Collateral described therein will be perfected to the extent such
security interests can be perfected by the filing of financing
statements in such other states.
11. Upon the filing and recordation of the Company Patent and Trademark
Security Agreement and the Subsidiary Patent and Trademark Security
Agreement with the United States Patent and Trademark Office (and the
payment of required filing fees) and the filing of appropriate
financing statements as described in paragraphs 9 and 10 of this
letter, the security interest for the benefit of the Collateral Agent
in the United States patents and registered trademarks described
therein will be perfected under applicable Federal law to the extent
that security interests in such Collateral may be perfected under such
Federal laws.
12. Assuming (in addition to all other assumptions upon which this letter
is based) that the Collateral Agent has taken and is retaining
possession in the State of New York of the certificates representing
the securities which are certificated and pledged pursuant to the
Holdings Pledge Agreement, the Company Pledge Agreement and the
Subsidiary Pledge Agreement (collectively, the "Pledge Agreements"),
-----------------
duly endorsed to the Collateral Agent or in blank by an effective
endorsement (within the meaning of Section 8-102(a)(11) of the New
York UCC), the security interest in favor of the Collateral Agent in
such pledged securities is perfected by "control" under the New York
UCC; and assuming further (in addition to all other assumptions upon
which this letter is based) that the Collateral Agent has taken
possession of such pledged certificated securities and such
accompanying endorsements without notice (actual or constructive), at
or prior to the time of the delivery of such pledged certificated
securities and endorsements to the Collateral Agent, of any adverse
claim within the meaning of Section 8-102(a)(1) of the New York UCC,
the Collateral Agent has acquired a security interest in such pledged
securities free of any such adverse claims.
<PAGE>
KIRKLAND & ELLIS
December 18, 1997
Page 6
13. The New York Mortgage is in proper form for recording and, upon
recordation in the Office of the Clerk, Albany County and the payment
of all applicable recording fees and taxes, will create in favor of
the Collateral Agent a valid and enforceable mortgage lien on Sealy
Albany's interest in that portion of the "Mortgaged Property", as
defined therein, that constitutes real property (including fixtures,
to the extent the same constitute real property).
14. The Credit Parties are not "investment companies" within the meaning
of the Investment Company Act of 1940, as amended.
15. The Credit Parties are not "holding companies" or "subsidiary
companies" of a "holding company," or an "affiliate" of a "holding
company" or of a "subsidiary company" of a "holding company" within
the meaning of the Public Utility Holding Company Act of 1935, as
amended.
16. To the best of our actual knowledge (based solely upon lien searches,
inquiries of officers of the Credit Parties and the certificates
executed and delivered to us by officers of such parties), (i) there
are no actions, suits or proceedings pending or threatened (a) against
any Credit Parties (other than those identified in Schedules 4.10(A)-
(G) to the Recapitalization Agreement), which have not been disclosed
to you or your counsel or (b) against any Credit Parties with respect
to any of the Transaction Documents and (ii) there does not exist any
judgment, order or injunction prohibiting or imposing any material
adverse condition upon the consummation of the transactions
contemplated by the Transaction Documents.
17. All monetary obligations of the Borrower under the Credit Agreements
are within the definition of "Senior Debt" under, and as defined in,
the Senior Subordinated Note Indenture, the Discount Note Indenture
and the Junior Subordinated Seller Notes.
18. It is not necessary in connection with the execution and delivery of
the Notes and the Credit Agreements to the Lenders to register the
Notes or the Credit Agreements or the Loans under the Securities Act
of 1933, as amended, or to qualify any indenture in respect thereof
under the Trust Indenture Act of 1939, as amended.
<PAGE>
KIRKLAND & ELLIS
December 18, 1997
Page 7
In preparing this letter, we have relied without any independent
verification upon the assumptions recited in Schedule B to this letter and upon:
----------
(i) information contained in certificates obtained from governmental
authorities; (ii) factual information represented to be true in the Credit
Agreements and the other Transaction Documents; (iii) factual information
provided to us in a support certificate signed by the Credit Parties; and (iv)
factual information we have obtained from such other sources as we have deemed
reasonable. We have assumed without investigation that there has been no
relevant change or development between the dates as of which the information
cited in the preceding sentence was given and the date of this letter and that
the information upon which we have relied is accurate and does not omit
disclosures necessary to prevent such information from being misleading.
While we have not conducted any independent investigation to determine
facts upon which our opinions are based or to obtain information about which
this letter advises you, we confirm that we do not have any actual knowledge
which has caused us to conclude that our reliance and assumptions cited in the
preceding paragraph are unwarranted or that any information supplied in this
letter is wrong. The terms "knowledge," "actual knowledge" and "aware" whenever
used in this letter with respect to our firm means conscious awareness at the
time this letter is delivered on the date it bears by the following Kirkland &
Ellis lawyers who have had significant involvement with negotiation or
preparation of the Transaction Documents (herein called "our Designated
Transaction Lawyers"): Lance C. Balk, Linda K. Riley Myers, Debra B. Arenare,
Mark J. Eagan, Frederick Tanne, Brian Land, Jeffrey W. Stevenson, Robert J.
Frances, Brian W. Raftery, Andrew E. Nagel, Jordon L. Kruse and Jeff A. Hess.
Our advice on every legal issue addressed in this letter is based
exclusively on the internal laws of New York and Illinois or the Federal law of
the United States except that (i) the opinions in paragraphs 1 through 4 are
also based on the General Corporation Law of the State of Delaware and our
review of summary compilations of the corporate statutes of the jurisdictions of
incorporation of the Subsidiary Guarantors that are incorporated in states other
than Delaware, Illinois and New York and (ii) our advice in paragraph 10 is
based on the laws as summarized in the Guide to the extent indicated in that
paragraph. We advise you that issues addressed by this letter may be governed
in whole or in part by other laws, but we express no opinion as to whether any
relevant difference exists between the laws upon which our opinions are based
and any other laws which may actually govern. Our opinions are subject to all
qualifications in Schedule A and do not cover or otherwise address any law or
----------
legal issue which is identified in the attached Schedule C or any provision in
----------
the Credit Agreement or any of the other Transaction Documents of any type
identified in Schedule D. Provisions in the Transaction Documents which are not
----------
excluded by
<PAGE>
KIRKLAND & ELLIS
December 18, 1997
Page 8
Schedule D or any other part of this letter or its attachments are
- ----------
called the "Relevant Agreement Terms."
------------------------
Our advice on each legal issue addressed in this letter represents our
opinion as to how that issue would be resolved were it to be considered by the
highest court of the jurisdiction upon whose law our opinion on that issue is
based. The manner in which any particular issue would be treated in any actual
court case would depend in part on facts and circumstances particular to the
case, and this letter is not intended to guarantee the outcome of any legal
dispute which may arise in the future. It is possible that some Relevant
Agreement Terms of a remedial nature contained in the Collateral Documents may
not prove enforceable for reasons other than those cited in this letter should
an actual enforcement action be brought, but (subject to all the exceptions,
qualifications, exclusions and other limitations contained in this letter) such
unenforceability would not in our opinion prevent you from realizing the
principal benefits purported to be provided by the Relevant Agreement Terms of a
remedial nature contained in the Collateral Documents.
This letter speaks as of the time of its delivery on the date it bears. We
do not assume any obligation to provide you with any subsequent opinion or
advice by reason of any fact about which our Designated Transaction Lawyers did
not have actual knowledge at that time, by reason of any change subsequent to
that time in any law covered by any of our opinions, or for any other reason.
The attached schedules are an integral part of this letter, and any term defined
in this letter or any schedule has that defined meaning wherever it is used in
this letter or in any schedule to this letter.
You may rely upon this letter only for the purpose served by the provisions
in the Credit Agreements cited in the initial paragraph of this letter in
response to which it has been delivered. Without our written consent: (i) no
person other than you may rely on this letter for any purpose and (ii) this
letter may not be cited or quoted in any financial statement, prospectus,
private placement memorandum or other similar document. Notwithstanding the
foregoing, persons who subsequently become Lenders (or participants in
accordance with the terms of the Credit Agreements) may rely on this letter as
of the time of its delivery on the date hereof as if this letter were addressed
to them.
Sincerely,
/s/ Kirkland & Ellis
Kirkland & Ellis
<PAGE>
SCHEDULE A
GENERAL QUALIFICATIONS
All of our opinions ("our opinions") in the letter to which this Schedule
is attached ("our letter") are subject to each of the qualifications set forth
in this Schedule.
1. Bankruptcy and Insolvency Exception. Each of our opinions in our
-----------------------------------
letter is subject to the effect of bankruptcy, insolvency,
reorganization, receivership, moratorium and other similar laws
relating to or affecting creditors' rights. This exception includes:
a. the federal Bankruptcy Code and thus comprehends, among others,
matters of turn-over, automatic stay, avoiding powers, fraudulent
transfer, preference, discharge, conversion of a non-recourse
obligation into a recourse claim, limitations on ipso facto and
anti-assignment clauses and the coverage of pre-petition security
agreements applicable to property acquired after a petition is
filed;
b. all other federal and state bankruptcy, insolvency,
reorganization, receivership, moratorium, arrangement and
assignment for the benefit of creditors laws that affect the
rights of creditors generally or that have reference to or affect
only creditors of specific types of debtors;
c. state fraudulent transfer and conveyance laws; and
d. judicially developed doctrines in this area, such as substantive
consolidation of entities and equitable subordination.
2. Equitable Principles Limitation. Each of our opinions as to the
-------------------------------
validity, binding effect or enforceability of any of the Transaction
Documents or to the availability of injunctive relief and other
equitable remedies is subject to the effect of general principles of
equity, whether applied by a court of law or equity. This limitation
includes principles:
a. governing the availability of specific performance, injunctive
relief or other equitable remedies, which generally place the
award of such remedies, subject to certain guidelines, in the
discretion of the court to which application for such relief is
made;
b. affording equitable defenses (e.g., waiver, laches and estoppel)
against a party seeking enforcement;
A-1
<PAGE>
c. requiring good faith and fair dealing in the performance and
enforcement of a contract by the party seeking its enforcement;
d. requiring reasonableness in the performance and enforcement of an
agreement by the party seeking enforcement of the contract;
e. requiring consideration of the materiality of (i) a breach and (ii)
the consequences of the breach to the party seeking enforcement;
f. requiring consideration of the commercial impracticability or
impossibility of performance at the time of attempted enforcement;
and
g. affording defenses based upon the unconscionability of the
enforcing party's conduct after the parties have entered into the
contract.
3. Other Common Qualifications. Each of our opinions as to the validity,
---------------------------
binding effect or enforceability of any of the Transaction Documents
or to the availability of injunctive relief and other equitable
remedies is subject to the effect of rules of law that:
a. limit or affect the enforcement of provisions of a contract that
purport to waive, or to require waiver of, the obligations of good
faith, fair dealing, diligence and reasonableness;
b. provide that forum selection clauses in contracts are not
necessarily binding on the court(s) in the forum selected;
c. limit the availability of a remedy under certain circumstances
where another remedy has been elected;
d. provide a time limitation after which a remedy may not be enforced;
e. limit the right of a creditor to use force or cause a breach of the
peace in enforcing rights;
f. relate to the sale or disposition of collateral or the requirements
of a commercially reasonable sale;
g. limit the enforceability of provisions releasing, exculpating or
exempting a party from, or requiring indemnification of a party
for, liability for its own action or inaction, to the extent the
action or inaction involves negligence, recklessness, willful
misconduct, unlawful conduct, violation of public policy or
litigation against another party determined adversely to such
party;
A-2
<PAGE>
h. may, where less than all of a contract may be unenforceable, limit
the enforceability of the balance of the contract to circumstances
in which the unenforceable portion is not an essential part of the
agreed exchange;
i. govern and afford judicial discretion regarding the determination
of damages and entitlement to attorneys' fees and other costs;
j. may permit a party that has materially failed to render or offer
performance required by the contract to cure that failure unless
(i) permitting a cure would unreasonably hinder the aggrieved party
from making substitute arrangements for performance, or (ii) it was
important in the circumstances to the aggrieved party that
performance occur by the date stated in the contract; and/or
k. may render guarantees unenforceable under circumstances where your
actions, failures to act or waivers, amendments or replacement of
the Transaction Documents so radically change the essential nature
of the terms and conditions of the guaranteed obligations and the
related transactions that, in effect, a new relationship has arisen
between you and the Borrower and/or other Credit Parties which is
substantially and materially different from that presently
contemplated by the Transaction Documents.
4. Referenced Provision Qualification. Each opinion regarding the
----------------------------------
validity, binding effect or enforceability of a provision (the "First
-----
Provision")in any of the Transaction Documents requiring any Credit
---------
Party to perform its obligations under, or to cause any other person
to perform its obligations under, any other provision (a "Second
------
Provision") of any Transaction Document, or stating that any action
---------
will be taken as provided in or in accordance with such Second
Provision are subject to the same qualifications as the corresponding
opinion in this letter relating to the validity, binding effect and
enforceability of such Second Provision. Requirements in the
Transaction Documents that provisions therein may only be waived or
amended in writing may not be enforceable to the extent that an oral
agreement or an implied agreement by trade practice or course of
conduct has been created modifying any such provision.
5. Collateral Qualifications. The opinions and advice contained in our
-------------------------
letter are subject to the following advice:
a. certain rights of debtors and duties of secured parties referred to
in Sections 1-102(3) and 9-501(3) of the New York UCC may not be
waived, released, varied or disclaimed by agreement prior to a
default;
b. our opinions regarding the creation and perfection of security
interests are subject to the effect of (i) the limitations on the
existence and perfection of security interests in proceeds
resulting from the operation of Section 9-306,
A-3
<PAGE>
Section 9-115 or Section 8-321(1) [1977 version] of any applicable
Uniform Commercial Code; (ii) the limitations in favor of buyers
imposed by Sections 9-307 and 9-308 of any applicable Uniform
Commercial Code; (iii) the limitations with respect to documents,
instruments and securities imposed by Section 9-309 and 8-303 of
any applicable Uniform Commercial Code; (iv) other rights of
persons in possession of money, instruments and proceeds
constituting certificated or uncertificated securities; and (v)
section 547 of the Bankruptcy Code with respect to preferential
transfers and section 552 of the Bankruptcy Code with respect to
any Collateral acquired by any Credit Party subsequent to the
commencement of a case against or by any Credit Party under the
Bankruptcy Code;
c. Article 9 of each applicable Uniform Commercial Code requires the
filing of continuation statements within specified periods in order
to maintain the effectiveness of the filings referred to in our
letter;
d. Additional filings may be necessary if any Credit Party changes its
name, identity or corporate structure or the jurisdiction in which
any of its places of business, its chief executive office or any
Collateral is located;
e. your security interest in certain of the Collateral may not be
perfected by the filing of financing statements under the Uniform
Commercial Code;
f. we express no opinion regarding the perfection of any security
interest except as specifically set forth in our letter or
regarding the continued perfection of any security interest in any
Collateral upon or following the removal of such Collateral to
another jurisdiction and we express no opinion regarding the
priority of any security interest (except for the limited opinion
set forth in paragraph 12 regarding the acquisition of certain
security interests free of adverse claims);
g. the assignment of any contract, lease, license, or permit may
require the approval of the issuer thereof or the other parties
thereto (other than to the extent provided in Section 9-318(4) of
the New York UCC, security interests in the right to receive the
payment of money under any such contract);
h. we express no opinion with respect to any self-help remedies to the
extent they vary from those available under the New York UCC or
with respect to any remedies otherwise inconsistent with the New
York UCC to the extent that the New York UCC is applicable thereto;
i. a substantial body of case law treats guarantors as "debtors" under
the New York UCC, thereby according guarantors rights and remedies
of debtors established by the New York UCC;
A-4
<PAGE>
j. we express no opinion as to whether the guarantee would remain
enforceable if you release the primary obligor either directly or
by electing a remedy which precludes you from proceeding directly
against the primary obligor;
k. we express no opinion with respect to the creation, perfection or
enforceability of security interests in property in which it is
illegal or violative of governmental rules or regulations to grant
a security interest (such as, for example, governmental permits and
licenses), general intangibles which terminate or become terminable
if a security interest is granted therein, property subject to
negative pledge clauses of which you have knowledge, vehicles,
ships, vessels, barges, boats, railroad cars, locomotives or other
rolling stock, aircraft, aircraft engines, propellers and related
parts, or other property for which a state or federal statute or
treaty provides for registration or certification of title or which
specifies a place of filing different than that specified in
Section 9-401 of any applicable Uniform Commercial Code, cash which
is not in your possession, uncertificated securities, crops, timber
to be cut, fixtures, accounts subject to subsection (5) of Section
9-103 of any applicable Uniform Commercial Code, consumer goods,
farm products, equipment used in farming operations, accounts or
general intangibles arising from or relating to the sale of farm
products by a farmer, property identified to a contract with, or in
the possession of, the United States of America or any state,
county, city, municipality or other governmental body or agency,
goods for which a negotiable document of title has been issued, and
copyrights, patents and trademarks (except as expressly set forth
in opinion paragraph 11), other literary property rights, service
marks, know-how, processes, trade secrets, undocumented computer
software, unrecorded and unwritten data and information, and rights
and licenses thereunder;
l. we express no opinion with respect to the enforceability of any
security interest in any accounts, chattel paper, documents,
instruments or general intangibles with respect to which the
account debtor or obligor is the United States of America, any
state, county, city, municipality or other governmental body, or
any department, agency or instrumentality thereof;
m. we express no opinion with respect to the enforceability of any
provision of any Transaction Document which purports to authorize
you to sign or file financing statements or other documents without
the signature of the debtor (except to the extent a secured party
may execute and file financing statements without the signature of
the debtor under Section 9-402(2) of the applicable Uniform
Commercial Code);
n. we express no opinion with respect to the enforceability of any
provision of any Transaction Document which purports to authorize
you to purchase at a
A-5
<PAGE>
private sale collateral which is not subject to widely distributed
standard price quotations or sold on a recognized market;
o. we note that the remedies under the Pledge Agreements to sell or
offer for sale the Pledged Collateral (as defined in the Pledge
Agreements) are subject to compliance with applicable state and
federal securities laws;
p. we express no opinion in this letter regarding creation or
perfection of any security interest in, and the term "Code
----
Collateral" shall not include, any property in which a security
----------
interest may be granted under the Uniform Commercial Code in the
New York UCC but which is property in which a security interest may
not be granted under Article 9 of the Uniform Commercial Code as in
effect in any of the following jurisdictions: the jurisdiction in
which such property is located, the jurisdiction in which the
debtor is located (as defined in Section 9-103(3)(d) of the New
York UCC) or (in the case of a deposit account) the jurisdiction in
which the office of the depositary institution at which the deposit
account is maintained is located;
q. we express no opinion regarding the enforceability of any pre-
default waiver of redemption rights; and
r. we express no opinion regarding the enforceability of any
provisions asserting that Collateral is owned by or is property of
a secured party prior to such secured party's foreclosure of such
Collateral in accordance with the applicable Uniform Commercial
Code or, in the case of cash collateral, the application of such
cash collateral in payment of the secured obligations.
A-6
<PAGE>
SCHEDULE B
ASSUMPTIONS
For purposes of our letter, we have relied, without investigation, upon
each of the following assumptions:
1. The Borrower is existing and in good standing in its jurisdiction of
incorporation.
2. You are existing and in good standing in your jurisdiction of
organization.
3. The Borrower has the full corporate power and authority to execute,
deliver and to perform its obligations under each of the Transaction
Documents to which it is a party and each of the Transaction Documents
to which it is a party has been duly authorized by all necessary
action and has been duly executed and delivered by the Borrower.
4. You have full power and authority (including without limitation under
the laws of your jurisdiction of organization) to execute, deliver and
to perform your obligations under each of the Transaction Documents to
which you are a party and each of the Transaction Documents to which
you are a party has been duly authorized by all necessary action on
your part and has been duly executed and duly delivered by you.
5. The Transaction Documents to which you are a party constitute valid
and binding obligations of yours and are enforceable against you in
accordance with their terms (subject to qualifications, exclusions and
other limitations similar to those applicable to our letter).
6. You have complied with all legal requirements pertaining to your
status as such status relates to your rights to enforce the
Transaction Documents to which you are a party against any of the
Credit Parties.
7. Each document submitted to us for review is accurate and complete,
each such document that is an original is authentic, each such
document that is a copy conforms to an authentic original, and all
signatures (other than those of or on behalf of the Credit Parties) on
each such document are genuine.
8. There has not been any mutual mistake of fact or misunderstanding,
fraud, duress or undue influence.
9. The conduct of the parties to the Transaction Documents has complied
with any requirement of good faith, fair dealing and conscionability.
B-1
<PAGE>
10. You have acted in good faith and without notice of any defense against
the enforcement of any rights created by, or adverse claim to any
property or security interest transferred or created as part of, the
transactions effected under the Transaction Documents (herein called
the "Transactions").
------------
11. There are no agreements or understandings among the parties, written
or oral, and there is no usage of trade or course or prior dealing
among the parties that would, in either case, define, supplement or
qualify the terms of the Credit Agreements or any of the other
Transaction Documents.
12. With respect to the opinions set forth in opinion paragraphs 6 and 7,
we assume that no Credit Party will in the future take any
discretionary action (including a decision not to act) permitted under
the Transaction Documents that would result in a violation of law or
constitute a breach or default under any other agreements or court
orders to which such Credit Party may be subject.
13. With respect to the opinions set forth in opinion paragraphs 5, 6 and
7, we assume that each Credit Party will in the future obtain all
permits and governmental approvals required, and will in the future
take all actions required, relevant to the consummation of the
Transactions or performance of the Transaction Documents.
14. Each Credit Party's Certificate (or Articles, as the case may be) of
Incorporation (or equivalent governing instrument), all amendments to
that Certificate (or those Articles, as the case may be) of
Incorporation all resolutions adopted establishing classes or series
of stock under that Certificate (or those Articles, as the case may
be) of Incorporation and each Credit Party's Bylaws and all amendments
to its Bylaws have been adopted in accordance with all applicable
legal requirements (except that this assumption is limited to those of
the preceding items with respect to the adoption of which we did not
have involvement).
15. With respect to the opinions set forth in opinion paragraph 18, we
assume that you are acquiring Notes for investment and not with a view
to the distribution thereof, and that each of you is an "Accredited
Investor" as such term is defined in Regulation D under the Securities
Act of 1933, as amended.
16. Collateral Assumptions. The opinions and advice contained in our
----------------------
letter are subject to the following assumptions:
a. Each applicable Credit Party (i) has the requisite title and rights
to any property involved in the Transactions including, without
limiting the generality of the foregoing, each item of Collateral
existing on the date hereof and (ii) will have the requisite title
and rights to each item of Collateral arising after the date
hereof.
B-2
<PAGE>
b. The descriptions of Collateral in the Collateral Documents and the
Financing Statements reasonably describe the property intended to
be described as Collateral and the legal descriptions of real
estate described in the Financing Statements to be filed as fixture
filings are accurate.
c. Value (as defined in Section 1-201(44) of the New York UCC) has
been given by you to each Credit Party for the security interests
and other rights in and assignments of Collateral described in or
contemplated by the Collateral Documents.
d. The representations made by each Credit Party in the Security
Agreements to which it is a party with respect to its chief
executive office and location of equipment and inventory are and
will remain true and correct.
B-3
<PAGE>
SCHEDULE C
EXCLUDED LAW AND LEGAL ISSUES
None of the opinions or advice contained in our letter covers or otherwise
addresses any of the following laws, regulations or other governmental
requirements or legal issues:
1. except with respect to the Investment Company Act of 1940, as amended,
to the extent of our opinion in opinion paragraph 14, except with
respect to the Public Utility Holdings Company Act of 1935, as
amended, to the extent of our opinion in opinion paragraph 15, and
except with respect to the Securities Act of 1933, as amended, and the
Trust Indenture Act of 1939, as amended, to the extent of our opinions
in opinion paragraph 18, federal securities laws and regulations
(including all other laws and regulations administered by the United
States Securities and Exchange Commission), state "Blue Sky" laws and
regulations, and laws and regulations relating to commodity (and
other) futures and indices and other similar instruments;
2. pension and employee benefit laws and regulations (e.g., ERISA);
3. federal and state antitrust and unfair competition laws and
regulations;
4. compliance with fiduciary duty requirements;
5. the statutes and ordinances, the administrative decisions and the
rules and regulations of counties, towns, municipalities and special
political subdivisions and judicial decisions to the extent that they
deal with any of the foregoing;
6. federal and state environmental, land use and subdivision, tax,
racketeering (e.g., RICO), health and safety (e.g., OSHA), and labor
---- ----
laws and regulations;
7. federal patent, trademark (except to the extent of our opinion in
paragraph 11) and copyright, state trademark, and other federal and
state intellectual property laws and regulations;
8. federal and state laws, regulations and policies concerning (i)
national and local emergency, (ii) possible judicial deference to acts
of sovereign states, and (iii) criminal and civil forfeiture laws;
9. other federal and state statutes of general application to the extent
they provide for criminal prosecution (e.g., mail fraud and wire fraud
statutes);
C-1
<PAGE>
10. any laws, regulations, directives and executive orders that prohibit
or limit the enforceability of obligations based on attributes of the
party seeking enforcement (e.g., the Trading with the Enemy Act and
the International Emergency Economic Powers Act); and
11. the effect of any law, regulation or order which hereafter is enacted,
promulgated or issued.
We have not undertaken any research for purposes of determining whether
any Credit Party or any of the Transactions which may occur in connection with
the Credit Agreements or any of the other Transaction Documents is subject to
any law or other governmental requirement other than to those laws and
requirements which in our experience would generally be recognized as applicable
both to general business corporations which are not engaged in regulated
business activities and to transactions of the type contemplated by the
Transaction Documents to occur on the date hereof, and none of our opinions
covers any such law or other requirement unless (i) one of our Designated
Transaction Lawyers had actual knowledge of its applicability at the time our
letter was delivered on the date it bears and (ii) it is not excluded from
coverage by other provisions in our letter or in any Schedule to our letter.
C-2
<PAGE>
SCHEDULE D
EXCLUDED PROVISIONS
None of the opinions in the letter to which this Schedule is attached
covers or otherwise addresses any of the following types of provisions which may
be contained in the Transaction Documents:
1. Indemnification for negligence, willful misconduct or other wrongdoing
or strict product liability or any indemnification for liabilities
arising under securities laws.
2. Provisions mandating contribution towards judgments or settlements
among various parties.
3. Waivers of (i) legal or equitable defenses, (ii) rights to damages,
(iii ) rights to counter claim or set off, (iv) statutes of
limitations, (v) rights to notice, (vi) the benefits of statutory,
regulatory, or constitutional rights, unless and to the extent the
statute, regulation, or constitution explicitly allows waiver, and
(vii) other benefits to the extent they cannot be waived under
applicable law.
4. Provisions providing for forfeitures or the recovery of amounts deemed
to constitute penalties, or for liquidated damages to the extent
deemed to be penalties, acceleration of future amounts due (other than
principal) without appropriate discount to present value, and, (to the
extent deemed to constitute penalties) late charges, prepayment
charges, and increased interest rates upon default.
5. Time-is-of-the-essence clauses.
6. Provisions which provide a time limitation after which a remedy may
not be enforced.
7. Agreements to submit to the jurisdiction of any particular court or
other governmental authority (either as to personal jurisdiction or
subject matter jurisdiction); waiver of service of process
requirements which would otherwise be applicable; and provisions
otherwise purporting to affect the jurisdiction and venue of courts.
8. Provisions appointing one party as an attorney-in-fact for an adverse
party or providing that the decision of any particular person will be
conclusive or binding on others.
9. Provisions purporting to limit rights of third parties who have not
consented thereto or purporting to grant rights to third parties.
D-1
<PAGE>
10. Provisions which purport to award attorneys' fees solely to one party.
11. Provisions purporting to create a trust or constructive trust without
compliance with applicable trust law.
12. Provisions that provide for the appointment of a receiver.
13. Provisions or agreements regarding proxies, shareholders agreements,
shareholder voting rights, voting trusts, and the like.
14. Provisions in any of the Transaction Documents requiring any Credit
Party to perform its obligations under, or to cause any other person
to perform its obligations under, or stating that any action will be
taken as provided in or in accordance with, any agreement or other
document that is not a Transaction Document.
15. Provisions, if any, which are contrary to the public policy of any
jurisdiction.
D-2
<PAGE>
SCHEDULE E
COLLATERAL DOCUMENTS
1. Holdings Guaranty
2. Holdings Security Agreement
3. Holdings Pledge Agreement
4. Company Pledge Agreement
5. Company Security Agreement
6. Company Patent and Trademark Security Agreement
7. Subsidiary Guaranty
8. Subsidiary Pledge Agreement
9. Subsidiary Security Agreement
10. Subsidiary Patent and Trademark Security Agreement
11. Intercreditor Agreement
12. New York Mortgage
E-1
<PAGE>
SCHEDULE F
RELATED DOCUMENTS
1. Junior Subordinated Seller Notes
2. Senior Subordinated Note Indenture
3. Senior Subordinated Notes
4. Discount Note Indenture
5. Senior Subordinated Discount Notes
F-1
<PAGE>
SCHEDULE G
GOOD STANDING JURISDICTIONS
1. Sealy Corporation
-----------------
Delaware
2. Sealy Mattress Company
----------------------
Ohio
3. A. Brandwein & Co.
------------------
Illinois
Wisconsin
4. Sealy Mattress Company of Albany, Inc.
--------------------------------------
New York
5. Ohio-Sealy Mattress Manufacturing Co.
-------------------------------------
Georgia
6. Ohio-Sealy Mattress Company of Puerto Rico
------------------------------------------
Ohio
7. Ohio-Sealy Mattress Manufacturing Co., Inc.
-------------------------------------------
Massachusetts
8. Sealy Mattress Company of Michigan, Inc.
----------------------------------------
Michigan
9. Sealy Mattress Company of Memphis
---------------------------------
Louisiana
Tennessee
G-1
<PAGE>
10. Ohio-Sealy Mattress Manufacturing Co. -- Houston
------------------------------------------------
Texas
11. The Ohio Mattress Company Licensing and Components Group
--------------------------------------------------------
Colorado
Delaware
Illinois
Indiana
Ohio
Pennsylvania
12. Sealy of Maryland and Virginia, Inc.
------------------------------------
Maryland
13. Sealy of Minnesota, Inc.
------------------------
Minnesota
14. Ohio-Sealy Mattress Manufacturing Co. -- Fort Worth
---------------------------------------------------
Texas
15. Sealy Mattress Company of Kansas City, Inc.
-------------------------------------------
Kansas
Missouri
16. Sealy Mattress Manufacturing Company, Inc.
------------------------------------------
Arizona
California
Colorado
Delaware
Florida
Hawaii
Iowa
New Jersey
North Carolina
Oregon
Pennsylvania
Utah
G-2
<PAGE>
17. Sealy Mattress Company of Illinois
----------------------------------
Illinois
Wisconsin
18. The Stearns & Foster Bedding Company
------------------------------------
Arizona
California
Delaware
Florida
Georgia
Illinois
New Jersey
Ohio
Texas
19. The Stearns & Foster Upholstery Furniture Company
-------------------------------------------------
Mississippi
Ohio
20. Sealy, Inc.
-----------
Ohio
G-3
<PAGE>
SCHEDULE H
FILING OFFICES
Reflected on Attached Chart
H-1
<PAGE>
CALFEE, HALTER & GRISWOLD LLP
Attorneys at Law
-------------------------------
1400 McDonald Investment Center
800 Superior Avenue Cleveland, Ohio 44114-2688
216/622-8200 Fax 216/241/0816
Direct Dial No. 216/622-8446
December 18, 1997
To the Administrative Agent,
the Syndication Agent, the
Documentation Agent and each
of the Lenders party
to the Credit Agreement or the
AXEL Credit Agreement
Ladies and Gentlemen:
We have acted as counsel to Sealy Mattress Company, an Ohio
corporation (the "Borrower"), in connection with the execution and delivery of
(i) that certain Credit Agreement, dated as of December 18, 1997 (the "Credit
Agreement") and (ii) that certain AXEL Credit Agreement dated, as of December
18, 1997 (the "AXEL Credit Agreement'), each among the Borrower, Sealy
Corporation, a Delaware corporation and shareholder of the Borrower ("Sealy
Corp."), Goldman Sachs Credit Partners, L.P., as arranger and Syndication Agent,
Morgan Guaranty Trust Company of New York, as Administrative Agent, Bankers
Trust Company, as Documentation Agent, and those financial institutions
signatory thereto (the "Lenders"). Except as specified herein to the contrary,
all capitalized terms used in this opinion shall have the meanings given lo them
in the Credit Agreement and the AXEL Credit Agreement.
This opinion is being delivered to you pursuant to and in satisfaction
of subsection 4.1P of the Credit Agreement and subsection 3.1P of the AXEL
Credit Agreement. In connection with this opinion, we have examined originals,
or copies certified or otherwise authenticated to our satisfaction, of the
following documents and records:
(a) the Articles of Incorporation of the Borrower, certified as being
true and correct as of December 17, 1997, by the Secretary of State of
Ohio, and certified as being true and correct as of the date hereof by the
Vice President and General Counsel of the Borrower;
(b) a copy of the Code of Regulations of the Borrower, certified as
being true and correct as of the date hereof by the Vice President and
General Counsel of the Borrower;
<PAGE>
CALFEE, HALTER & GRISWOLD LLP
December 18, 1997
Page 2
(c) a copy of resolutions adopted by the Board of Directors of the
Borrower by written consent on December 18, 1997, authorizing, inter alia,
----- ----
the Borrower's execution and delivery of and performance under each of the
Loan Documents to which the Borrower is a party, certified as being true
and correct as of the date hereof by the Vice President and General Counsel
of the Borrower;
(d) a Certificate from the Secretary of State of the State of Ohio,
dated December 17, 1997, with respect to the status of the Borrower as a
corporation in good standing under the laws of the State of Ohio;
(e) a Certificate executed by the Vice President and General Counsel
of the Borrower, a copy of which Certificate is attached hereto as Exhibit
A (the "General Counsel Certificate");
(f) an executed copy of the Credit Agreement and the AXEL Credit
Agreement;
(g) executed copies of the Notes to be issued on the Closing Date;
(h) an executed copy of the Company Pledge Agreement;
(i) an executed copy of the Company Security Agreement;
(j) an executed copy of the Company Patent and Trademark Security
Agreement;
(k) the Closing Date Mortgage executed by Company;
(l) the Intercreditor Agreement;
(m) each of the Uniform Commercial Code financing statements executed
by the Borrower (as itemized on Schedule I hereto) (the "Financing
Statements"), and filed, respectively, in the offices referred to on such
Financing Statements; and
(n) such other documents and records, and such other certifications or
representations as to factual matters of public officials or officers of
the Borrower as we have deemed necessary to appropriate for the purpose of
rendering this opinion.
<PAGE>
CALFEE, HALTER & GRISWOLD LLP
December 18, 1997
Page 3
The documents, instruments, and financing Statements set forth in
subparagraphs (f) through (m) above are collectively referred to as the "Loan
Documents."
In rendering this opinion we have relied upon the above-described
certified copies of the Articles of Incorporation and Code of Regulations, as
amended, of the Borrower and certified copies of the authorizing resolutions of
the Borrower, and factual good standing certificates with respect to the
Borrower, and, with respect to certain legal matters, the General Counsel
Certificate. Any opinion hereinafter set forth with respect to the
incorporation, existence, qualification to do business or good standing of the
Borrower, is based solely thereon and we have not conducted an independent
review or investigation of the matters set forth therein. Insofar as an opinion
relates to matters set forth in the General Counsel Certificate, we have relied,
with your consent, solely upon such General Counsel Certificate with respect to
the accuracy of the factual matters and legal conclusions contained therein and,
except as specifically set forth in the following sentence of this opinion, we
have not independently verified or established the accuracy of such matters. We
do note that the stock records and corporate records of the Borrower are
incomplete and we are unable to verify the accuracy of certain information
contained in the General Counsel Certificate. However, nothing has come to the
attention of the attorneys in this firm who have directly and substantially
participated in this transaction (consisting of Lawrence N. Schultz, Dale C.
LaPorte, Thomas A. Cicarella, Douglas A. Neary, M. Ann Harlan and Tracy W.
Smirnoff) providing clear evidence that the statements in the General Counsel's
Certificate are incorrect with respect to such matters. Except to the extent
expressly set forth herein, we have not undertaken any independent investigation
with respect to such matters, and no inference as to our knowledge should be
drawn from the fact of our legal representation of the Borrower in connection
with other matters.
In rendering our opinions, we have not conducted an investigation into
the specific types of business and activities in which the Borrower engages or
the manner in which it conducts business as would enable us to render an opinion
(and, accordingly, we express no opinion) as to the applicability of any law or
regulation of the United States or the State of Ohio not of general
applicability to business corporations.
On the basis of and in reliance upon the foregoing, and subject lo the
assumptions, limitations, qualifications and exceptions set forth below, we are
of the opinion that:
1. The Borrower is a corporation validly existing and in good
standing under the laws of the State of Ohio. Based upon our review of the
Articles of Incorporation and Code of Regulations of the Borrower, the Borrower
has the corporate power to own its property and assets of which we are aware and
to transact the business in which, to our actual knowledge, it is
<PAGE>
CALFEE, HALTER & GRISWOLD LLP
December 18, 1997
Page 4
engaged or presently proposes to engage (as such business is described in the
Offering Circular dated December 11, 1997, relating to the Senior Subordinated
Notes and Discount Notes).
2. The Borrower has the corporate power and authority to execute,
deliver and perform the Loan Documents to which it is a party. The Borrower has
duly executed the Loan Documents.
3. The execution, delivery and performance by the Borrower of those
Loan Documents to which it is a party, and its Consummation of the transactions
provided for therein, have been authorized by all necessary corporate action on
behalf of the Borrower.
4. Neither the execution nor the delivery by the Borrower of the Loan
Documents will conflict with, result in a breach or violation of, or constitute
a default under, any of the terms, conditions or provisions of any present
statute, rule or regulation binding on the Borrower.
In rendering the opinions set forth above, we have assumed, without
any independent investigation but without any knowledge to the contrary, that:
(a) all records and documents that have been submitted to us as
originals are authentic, and all records and documents that have been
submitted to us as copies conform to authentic, original records and
documents;
(b) no action has been taken which amends, revokes or otherwise
terminates or affects any of the documents or records which ~ve have
reviewed;
(c) the genuineness of all facsimile signatures;
(d) the conformity to original documents of all documents
submitted to us as certified, conformed, facsimile or photostatic copies;
(e) the authenticity of the originals of such copies; and
(f) all persons executing agreements, instruments or documents
examined or relied upon by us had the capacity to sign such agreements,
instruments or documents, and all such signatures are genuine (other than
with respect to the signatures of officers of the Borrower).
We render no opinion as to whether any of the Loan Documents is the
valid, binding and enforceable obligation of the Borrower.
<PAGE>
CALFEE, HALTER & GRISWOLD LLP
December 18, 1997
Page 5
We are admitted to the practice of law in the State of Ohio and the
opinions expressed herein relate solely to the laws of the State of Ohio, and
the federal laws of the United States, and no opinion is expressed with respect
to any applicable law of any other jurisdiction or with respect to any law not
of general applicability to business corporations which would impact the
opinions provided herein.
The information set forth herein is as of the date hereof. We assume
no obligation to advise you of changes that may thereafter be brought to our
attention. Our opinions are based on statutory laws and judicial decisions that
are in effect on the date hereof, and we express no opinion with respect to any
law, regulation, rule or governmental policy that may be enacted or adopted
after the date hereof nor do we assume any responsibility to advise you of
future changes in our opinions.
A copy of this opinion letter may be delivered by any of you to any
Eligible Assignee (as defined in the Credit Agreement or the AXEL Credit
Agreement, as applicable) in connection with and at the time of any assignment
and delegation by any of you as a Lender to such Eligible Assignee of all or a
portion of your Loans and Commitments in accordance with the provisions of the
Credit Agreement or the AXEL Credit Agreement, and such Eligible Assignee may
rely on the opinions expressed above as if this opinion letter were addressed
and delivered to such Eligible Assignee on the date hereof.
This opinion is limited to the matters expressly stated herein.
Except as set forth in the immediately preceding paragraph, the opinions
expressed herein are solely for use by the Administrative Agent and the Lenders
in connection with the Credit Agreement and may not be used, quoted or relied
upon by you for any other purpose, or by any other person or entity for any
purpose, without our prior written consent.
Very truly yours,
/s/ CALFEE, HALTER & GRISWOLD LLP
CALFEE, HALTER & GRISWOLD LLP
<PAGE>
Schedule I
[Copies of 75 UCC-1 Filings received December 18, 1997--List to be compiled and
supplied post-closing.]
<PAGE>
Exhibit A
CERTIFICATE OF THE VICE PRESIDENT
---------------------------------
AND GENERAL COUNSEL OF SEALY MATTRESS COMPANY
---------------------------------------------
AND SEALY CORPORATION
---------------------
TO: Calfee, Halter & Griswold LLP
I, Kenneth L. Walker, do hereby certify that I am the duly elected and
qualified Vice President and General Counsel of Sealy Mattress Company, an Ohio
corporation (the "Borrower"), and Sealy Corporation, a Delaware corporation
("Sealy Corp."), and that as of the date hereof:
1. Attached hereto as Appendix 1 is a true and correct copy of the
Articles of Incorporation of the Borrower as in effect on the date hereof,
certified as of December 17th, 1997, by the Secretary of State of the State of
----
Ohio.
2. Attached hereto as Appendix 2 is a true and correct copy of the
Code of Regulations, as amended, of the Borrower as in effect on the date
hereof.
3. Attached hereto as Appendix 3 is a true and correct copy of
resolutions duly adopted by the Board of Directors of the Borrower by written
consent on December 18th, 1997 which resolutions have not been modified, revoked
or rescinded and remain in full force and effect on the date hereof.
4. The officers listed below are duly elected officers of the
Borrower, holding the offices indicated opposite their respective names, duly
authorized by the Directors of the Borrower to execute, deliver and perform the
Loan Documents on behalf of the Borrower and to take all further action and to
execute, deliver and perform all other documents as they deem advisable in
connection with the transactions provided for therein, and the signatures set
forth below are the genuine signatures of such officers:
Offices Officer Signature
- ------- ------- ---------
President and Chief Executive Ronald L. Jones --------------
Officer
/s/Ronald H. Stolle
Vice President and Treasurer Ronald H. Stolle -------------------
5. The individuals listed below are the only directors of the
Borrower and have all been duly elected by Sealy Corp., the sole shareholder of
the Borrower:
<PAGE>
December 18, 1997
Page 7
Directors Signature
--------- ---------
Ronald L. Jones
---------------------
Kenneth L. Walker /s/ Kenneth L. Walker
---------------------
Ronald H. Stolle /s/ Ronald H. Stolle
---------------------
6. Sealy Corp. owns 1,000 shares of common stock, par value one
dollar ($1.00) per share (the "Shares"), of the Borrower consisting all of the
issued and outstanding shares of capital stock of the Borrower. All of the
Shares have been fully paid for by Sealy Corp. The Borrower has not issued or
authorized any outstanding options, warrants or similar rights to subscribe for
or purchase any capital stock of the Borrower or outstanding securities
convertible into, exchangeable for, or evidencing the right to subscribe for,
any shares of capital stock or other equity securities of the Borrower.
Please note, however, that the stock records and the corporate records
of the Borrower are incomplete and I am unable to verify the accuracy of certain
of the information including, without limitation, information regarding the
election of directors and the issuance of shares of the Borrower. However,
nothing has come to my attention which leads me to believe the statements set
forth in this certificate are incorrect as to such matters.
All capitalized terms not otherwise defined in this Certificate are used
herein as defined in the opinion of Calfee, Halter & Griswold LLP delivered
pursuant to subsection 4.1P of that Credit Agreement, dated as of December 18,
1997 (the "Credit Agreement") and subsection 3.1P of that certain AXEL Credit
Agreement, dated as of December 18, 1997 (the "AXEL Credit Agreement"). The
undersigned acknowledges and agrees that Calfee, Halter & Griswold LLP intend
to, and may, rely on this Certificate and the matters contained herein, in
rendering opinions in connection with the transactions contemplated by the
Credit Agreement and the AXEL Credit Agreement.
SEALY MATTRESS COMPANY
By: /s/ Kenneth L. Walker
-----------------------
Kenneth L. Walker
Vice President and General Counsel
Effective Date: ,1997
---------
<PAGE>
December 18, 1997
Page 8
SEALY CORPORATION
By: /s/ Kenneth L. Walker
------------------------
Kenneth L. Walker
Vice President and General Counsel
<PAGE>
EXHIBIT X
[FORM OF ASSIGNMENT AGREEMENT]
ASSIGNMENT AGREEMENT
This ASSIGNMENT AGREEMENT (this "AGREEMENT") is entered into by and
between the parties designated as Assignor ("ASSIGNOR") and Assignee
("ASSIGNEE") above the signatures of such parties on the Schedule of Terms
attached hereto and hereby made an integral part hereof (the "SCHEDULE OF
TERMS") and relates to that certain AXEL Credit Agreement described in the
Schedule of Terms (said AXEL Credit Agreement, as amended, supplemented or
otherwise modified to the date hereof and as it may hereafter be amended,
supplemented or otherwise modified from time to time, being the "CREDIT
AGREEMENT", the terms defined therein and not otherwise defined herein being
used herein as therein defined).
IN CONSIDERATION of the agreements, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
SECTION 1. ASSIGNMENT AND ASSUMPTION.
-------------------------
(a) Effective upon the Settlement Date specified in Item 4 of the Schedule
of Terms (the "SETTLEMENT DATE"), Assignor hereby sells and assigns to
Assignee, without recourse, representation or warranty (except as expressly set
forth herein), and Assignee hereby purchases and assumes from Assignor, that
percentage interest in all of Assignor's rights and obligations as a Lender
arising under the AXEL Credit Agreement and the other Loan Documents with
respect to Assignor's Commitments and outstanding Loans, if any, which
represents, as of the Settlement Date, the percentage interest specified in Item
3 of the Schedule of Terms of all rights and obligations of Lenders arising
under the AXEL Credit Agreement and the other Loan Documents with respect to the
Commitments and any outstanding Loans (the "ASSIGNED SHARE").
(b) In consideration of the assignment described above, Assignee hereby
agrees to pay to Assignor, on the Settlement Date, the principal amount of any
outstanding Loans included within the Assigned Share, such payment to be made by
wire transfer of immediately available funds in accordance with the applicable
payment instructions set forth in Item 5 of the Schedule of Terms.
(c) Assignor hereby represents and warrants (i) that Item 3 of the Schedule
of Terms correctly sets forth the amount of the Commitments, the outstanding
AXEL Loans and the Pro Rata Share corresponding to the Assigned Share and (ii)
that the assignment complies with clause (a) or (b), as applicable, of
subsection 9.1B(i).
(d) Assignor and Assignee hereby agree that, upon giving effect to the
assignment and assumption described above, (i) Assignee shall be a party to the
AXELs Credit Agreement and shall have all of the rights and obligations under
the Loan Documents, and shall be deemed
-1-
<PAGE>
to have made all of the covenants and agreements contained in the Loan
Documents, arising out of or otherwise related to the Assigned Share, and (ii)
Assignor shall be absolutely released from any of such obligations, covenants
and agreements assumed or made by Assignee in respect of the Assigned Share.
Assignee hereby acknowledges and agrees that the agreement set forth in this
Section 1(d) is expressly made for the benefit of Company, Agents, Assignor and
the other Lenders and their respective successors and permitted assigns.
(e) Assignor and Assignee hereby acknowledge and confirm their understanding
and intent that (i) this Agreement shall effect the assignment by Assignor and
the assumption by Assignee of Assignor's rights and obligations with respect to
the Assigned Share, (ii) any other assignments by Assignor of a portion of its
rights and obligations with respect to the Commitments and any outstanding Loans
shall have no effect on the Commitments, the outstanding AXEL Loans and the Pro
Rata Share corresponding to the Assigned Share as set forth in Item 3 of the
Schedule of Terms, and (iii) from and after the Settlement Date, Administrative
Agent shall make all payments under the AXEL Credit Agreement in respect of the
Assigned Share (including without limitation all payments of principal and
accrued but unpaid interest and commitment fees with respect thereto) (A) in the
case of any such interest and fees that shall have accrued prior to the
Settlement Date, to Assignor, and (B) in all other cases, to Assignee; provided
--------
that Assignor and Assignee shall make payments directly to each other to the
extent necessary to effect any appropriate adjustments in any amounts
distributed to Assignor and/or Assignee by Administrative Agent under the Loan
Documents in respect of the Assigned Share in the event that, for any reason
whatsoever, the payment of consideration contemplated by Section 1(b) occurs on
a date other than the Settlement Date.
SECTION 2. CERTAIN REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
--------------------------------------------------
(a) Assignor represents and warrants that it is the legal and beneficial
owner of the Assigned Share, free and clear of any adverse claim.
(b) Assignor shall not be responsible to Assignee for the execution,
effectiveness, genuineness, validity, enforceability, collectibility or
sufficiency of any of the Loan Documents or for any representations, warranties,
recitals or statements made therein or made in any written or oral statements or
in any financial or other statements, instruments, reports or certificates or
any other documents furnished or made by Assignor to Assignee or by or on behalf
of Company or any of its Subsidiaries to Assignor or Assignee in connection with
the Loan Documents and the transactions contemplated thereby or for the
financial condition or business affairs of Company or any other Person liable
for the payment of any Obligations, nor shall Assignor be required to ascertain
or inquire as to the performance or observance of any of the terms, conditions,
provisions, covenants or agreements contained in any of the Loan Documents or as
to the use of the proceeds of the Loans or as to the existence or possible
existence of any Event of Default or Potential Event of Default.
(c) Assignee represents and warrants that it is an Eligible Assignee; that
it has experience and expertise in the making of loans such as the Loans; that
it has acquired the Assigned Share for its own account in the ordinary course of
its business and without a view to distribution of the Loans within the meaning
of the Securities Act or the Exchange Act or other
-2-
<PAGE>
federal securities laws (it being understood that, subject to the provisions of
subsection 9.1 of the AXEL Credit Agreement, the disposition of the Assigned
Share or any interests therein shall at all times remain within its exclusive
control); and that it has received, reviewed and approved a copy of the AXEL
Credit Agreement (including all Exhibits and Schedules thereto).
(d) Assignee represents and warrants that it has received from Assignor such
financial information regarding Company and its Subsidiaries as is available to
Assignor and as Assignee has requested, that it has made its own independent
investigation of the financial condition and affairs of Company and its
Subsidiaries in connection with the assignment evidenced by this Agreement, and
that it has made and shall continue to make its own appraisal of the
creditworthiness of Company and its Subsidiaries. Assignor shall have no duty
or responsibility, either initially or on a continuing basis, to make any such
investigation or any such appraisal on behalf of Assignee or to provide Assignee
with any other credit or other information with respect thereto, whether coming
into its possession before the making of the initial Loans or at any time or
times thereafter, and Assignor shall not have any responsibility with respect to
the accuracy of or the completeness of any information provided to Assignee.
(e) Each party to this Agreement represents and warrants to the other party
hereto that it has full power and authority to enter into this Agreement and to
perform its obligations hereunder in accordance with the provisions hereof, that
this Agreement has been duly authorized, executed and delivered by such party
and that this Agreement constitutes a legal, valid and binding obligation of
such party, enforceable against such party in accordance with its terms, except
as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors' rights
generally and by general principles of equity.
SECTION 3. MISCELLANEOUS.
-------------
(a) Each of Assignor and Assignee hereby agrees from time to time, upon
request of the other such party hereto, to take such additional actions and to
execute and deliver such additional documents and instruments as such other
party may reasonably request to effect the transactions contemplated by, and to
carry out the intent of, this Agreement.
(b) Neither this Agreement nor any term hereof may be changed, waived,
discharged or terminated, except by an instrument in writing signed by the party
(including, if applicable, any party required to evidence its consent to or
acceptance of this Agreement) against whom enforcement of such change, waiver,
discharge or termination is sought.
(c) Unless otherwise specifically provided herein, any notice or other
communication herein required or permitted to be given shall be in writing and
may be personally served, telexed or sent by telefacsimile or United States mail
or courier service and shall be deemed to have been given when delivered in
person or by courier service, upon receipt of telefacsimile or telex, or three
Business Days after depositing it in the United States mail with postage prepaid
and properly addressed. For the purposes hereof, the notice address of each of
Assignor and Assignee shall be as set forth on the Schedule of Terms or, as to
either such party, such other address as shall be designated by such party in a
written notice delivered to the other such
-3-
<PAGE>
party. In addition, the notice address of Assignee set forth on the Schedule of
Terms shall serve as the initial notice address of Assignee for purposes of
subsection 9.8 of the AXEL Credit Agreement.
(d) In case any provision in or obligation under this Agreement shall be
invalid, illegal or unenforceable in any jurisdiction, the validity, legality
and enforceability of the remaining provisions or obligations, or of such
provision or obligation in any other jurisdiction, shall not in any way be
affected or impaired thereby.
(e) THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING WITHOUT LIMITATION SECTION
5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD
TO CONFLICTS OF LAWS PRINCIPLES.
(f) This Agreement shall be binding upon, and shall inure to the benefit of,
the parties hereto and their respective successors and assigns.
(g) This Agreement may be executed in one or more counterparts and by
different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all such counterparts
together shall constitute but one and the same instrument; signature pages may
be detached from multiple separate counterparts and attached to a single
counterpart so that all signature pages are physically attached to the same
document.
(h) This Agreement shall become effective upon the date (the "EFFECTIVE
DATE") upon which all of the following conditions are satisfied: (i) the
execution of a counterpart hereof by each of Assignor and Assignee, (ii) the
execution of a counterpart hereof by Company as evidence of its consent hereto
to the extent required under subsection 9.1B(i) of the AXEL Credit Agreement,
(iii) the receipt by Administrative Agent of the processing and recordation fee
referred to in subsection 9.1B(i) of the AXEL Credit Agreement, (iv) in the
event Assignee is a Non-US Lender (as defined in subsection 2.7B(iii)(a) of the
AXEL Credit Agreement), the delivery by Assignee to Administrative Agent of such
forms, certificates or other evidence with respect to United States federal
income tax withholding matters as Assignee may be required to deliver to
Administrative Agent pursuant to said subsection 2.7B(iii)(a), (v) the execution
of a counterpart hereof by Administrative Agent as evidence of its acceptance
hereof in accordance with subsection 9.1B(ii) of the AXEL Credit Agreement, and
(vi) the receipt by Administrative Agent of originals or telefacsimiles of the
counterparts described above and authorization of delivery thereof, and (vii)
the recordation by Administrative Agent in the Register of the pertinent
information regarding the assignment effected hereby in accordance with
subsection 9.1B(ii) of the AXEL Credit Agreement.
[Remainder of page intentionally left blank]
-4-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their respective officers thereunto duly
authorized, such execution being made as of the Effective Date in the
applicable spaces provided on the Schedule of Terms.
-5-
<PAGE>
SCHEDULE OF TERMS
38. BORROWER: Sealy Mattress Company, an Ohio corporation
--------
39. NAME AND DATE OF CREDIT AGREEMENT: AXEL Credit Agreement dated as of
---------------------------------
December 18, 1997 by and among the Borrower, Sealy Corporation, a
Delaware corporation, as guarantor, Goldman Sachs Credit Partners L.P.,
as arranger and syndication agent, the financial institutions listed
therein, Morgan Guaranty Trust Company of New York, as administrative
agent, and Bankers Trust Company, as documentation agent.
40. AMOUNTS: RE:
-------
AXEL RE: AXEL RE: AXEL
SERIES H SERIES B SERIES C
-------- --------- ---------
(a) Aggregate Commitments of all
all Lenders: $_______ $________ $________
(b) Assigned Share/Pro Rata Share: ________% ________% ________%
(c) Amount of Assigned Share of
Commitments: $_______ $________ $________
(d) Amount of Assigned Share of AXELs:
$________
41. SETTLEMENT DATE: ____________, [199 ][200 ]
---------------
42. PAYMENT INSTRUCTIONS:
--------------------
ASSIGNOR: ASSIGNEE:
See Annex A See Annex B
43. NOTICE ADDRESSES:
----------------
ASSIGNOR: ASSIGNEE:
See Annex A See Annex B
-6-
<PAGE>
44. SIGNATURES:
----------
[NAME OF ASSIGNOR], [NAME OF ASSIGNEE],
as Assignor as Assignee
By: _____________________ By:
Name:
Title: Name:
Title:
Consented to and accepted in accordance
with subsections 9.1B(i) and (ii) of the
AXEL Credit Agreement
MORGAN GUARANTY TRUST
COMPANY OF NEW YORK,
as Administrative Agent
By: ____________________
Name:
Title:
[Consented to and accepted in accordance with
subsection 9.1B(i) of the AXEL Credit Agreement
SEALY MATTRESS COMPANY
By: _____________________________
Name:
Title:]
-7-
<PAGE>
ANNEX A
-------
ASSIGNOR PAYMENT INSTRUCTIONS:
- -----------------------------
______________________________
______________________________
______________________________
Attention: ___________________
Reference: ___________________
ASSIGNOR NOTICE ADDRESSES:
- -------------------------
______________________________
______________________________
______________________________
Attention: ___________________
Reference: ___________________
-8-
<PAGE>
ANNEX B
-------
ASSIGNEE PAYMENT INSTRUCTIONS:
- -----------------------------
______________________________
______________________________
______________________________
Attention: ___________________
Reference: ___________________
ASSIGNEE NOTICE ADDRESSES:
- -------------------------
______________________________
______________________________
______________________________
Attention: ___________________
Reference: ___________________
-9-
<PAGE>
EXHIBIT IX
[FORM OF OPINION OF O'MELVENY & MYERS LLP]
[O'M&M Letterhead]
[Date]
1 9 9 7
[file number]
[doc ID]
Goldman Sachs Credit Partners L.P.,
as Arranger and Syndication Agent
Morgan Guaranty Trust Company
of New York,
as Administrative Agent
Bankers Trust Company,
as Documentation Agent
and
The Lenders Party to the Credit
Agreement Referenced Below
Re: Loans to Sealy Mattress Company
-------------------------------
Ladies and Gentlemen:
We have acted as counsel to Goldman Sachs Credit Partners L.P., as
arranger and syndication agent (in such capacity, "Syndication Agent"), and
Morgan Guaranty Trust Company of New York, as administrative agent (in such
capacity, "Administrative Agent"; collectively, Syndication Agent and
Administrative Agent are referred to herein as "Agents"), in connection with
the preparation and delivery of (i) a Credit Agreement dated as of December 18,
1997 (the "Revolver/Tranche A Term Loan Credit Agreement") and (ii) an AXEL
Credit Agreement dated as of December 18, 1997 (the "AXEL Credit Agreement";
together with the
IX-1
<PAGE>
Revolver/Tranche A Term Loan Credit Agreement, the "Credit Agreements"), each
among Sealy Mattress Company, an Ohio corporation ("Company"), Sealy
Corporation, a Delaware corporation ("Holdings"), the financial institutions
listed therein as lenders, Agents and Bankers Trust Company, as documentation
agent, and in connection with the preparation and delivery of certain related
documents.
We have participated in various conferences with representatives of
Company and Agents and conferences and telephone calls with Kirkland & Ellis,
counsel to Company and Holdings, during which the Credit Agreements and related
matters have been discussed, and we have also participated in the meeting held
on the date hereof (the "Closing") incident to the funding of the initial
loans made under the Credit Agreements. We have reviewed the forms of the
Credit Agreements and the respective exhibits thereto, including the forms of
the promissory notes annexed thereto (the "Notes"), and the opinions of
Kirkland & Ellis and Calfee, Halter & Griswold LLP (collectively, the
"Opinions") and the officers' certificates and other documents delivered at
the Closing. We have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals or copies and the due
authority of all persons executing the same, and we have relied as to factual
matters on the documents that we have reviewed.
Although we have not independently considered all of the matters
covered by the Opinions to the extent necessary to enable us to express the
conclusions therein stated, we believe that the Credit Agreements and the
respective exhibits thereto are in substantially acceptable legal form and that
the Opinions and the officers' certificates and other documents delivered in
connection with the execution and delivery of, and as conditions to the making
of the initial loans under, the Credit Agreements and the Notes are
substantially responsive to the respective requirements of the Credit
Agreements.
Respectfully submitted,
IX-2
<PAGE>
EXHIBIT XI
[FORM OF CERTIFICATE RE NON-BANK STATUS]
CERTIFICATE RE NON-BANK STATUS
Reference is hereby made to that certain AXEL Credit Agreement dated as of
December 18, 1997, as amended, supplemented or otherwise modified to the date
hereof (said Credit Agreement, as so amended, supplemented or otherwise
modified, being the ``CREDIT AGREEMENT'', the terms defined therein and not
otherwise defined herein being used herein as therein defined), by and among
Sealy Mattress Company, an Ohio corporation, as borrower, Sealy Corporation, a
Delaware corporation, as guarantor, Goldman Sachs Credit Partners L.P., as
arranger and syndication agent, the financial institutions listed therein as
Lenders, Morgan Guaranty Trust Company of New York, as administrative agent, and
Bankers Trust Company, as documentation agent. Pursuant to subsection 2.7B(iii)
of the Credit Agreement, the undersigned hereby certifies that it is not a
``bank'' or other Person described in Section 881(c)(3) of the Internal Revenue
Code of 1986, as amended.
DATED: __________________________ [NAME OF LENDER]
By: ____________________________________
Name:
Title:
<PAGE>
EXHIBIT XII
[FORM OF FINANCIAL CONDITION CERTIFICATE]
This FINANCIAL CONDITION CERTIFICATE (this ``CERTIFICATE'') is delivered in
connection with that certain Credit Agreement dated as of December 18, 1997 (the
``CREDIT AGREEMENT''), by and among Sealy Mattress Company, an Ohio corporation
(``COMPANY''), Sealy Corporation, a Delaware corporation (``HOLDINGS''), the
financial institutions referred to therein as lenders (the ``CREDIT AGREEMENT
LENDERS''), Goldman Sachs Credit Partners L.P. (``GSCP''), as arranger and
syndication agent, Morgan Guaranty Trust Company of New York (``MORGAN
GUARANTY''), as administrative agent (the ``CA ADMINISTRATIVE AGENT''), and
Bankers Trust Company (``BTCo''), as documentation agent, and that certain AXEL
Credit Agreement dated as of December 18, 1997 (``AXEL CREDIT AGREEMENT'') by
and among Company, Holdings, the financial institutions listed therein as
lenders (the``AXEL LENDERS''), GSCP as arranger and syndication agent, Morgan
Guaranty, as administrative agent (the ``AXEL ADMINISTRATIVE AGENT''), and BTCo,
as documentation agent. Capitalized terms used herein without definition have
the same meanings as in the Credit Agreement.
A. I am, and at all pertinent times mentioned herein have been, the duly
qualified and acting vice president, controller and principal accounting officer
of Holdings. I am familiar with the terms and conditions of the Credit
Agreement and the AXEL Credit Agreement.
B. I have carefully reviewed the contents of this Certificate, and I have
conferred with counsel for Holdings for the purpose of discussing the meaning of
its contents.
C. In connection with preparing for the consummation of the transactions
and financings contemplated by the Credit Agreement and the AXEL Credit
Agreement (the ``PROPOSED TRANSACTIONS''), I have participated in the
preparation of, and I have reviewed, pro forma projections of net income and
cash flows for Holdings and its Subsidiaries for the fiscal years of Holdings
ending November 30, 1998 through November 30, 2008, inclusive (the ``PROJECTED
FINANCIAL STATEMENTS''). The Projected Financial Statements, attached hereto as
Exhibit A, give effect to the consummation of the Proposed Transactions and
- ---------
assume that the debt obligations of Holdings will be paid from the cash flow
generated by the operations of Holdings and its Subsidiaries and other cash
resources. The Projected Financial Statements were prepared on the basis of
information available at August 31, 1997. I know of no facts that have occurred
since such date that would lead me to believe that the Projected Financial
Statements are inaccurate in any material respect. The Projected Financial
Statements do not reflect (i) any potential changes in interest rates from those
assumed in the Projected Financial Statements, (ii) any potential material,
adverse changes in general business conditions, or (iii) any potential changes
in income tax laws.
D. In connection with the preparation of the Projected Financial
Statements, I have made such investigations and inquiries as I have deemed
necessary and prudent therefor and, specifically, have relied on historical
information with respect to revenues, expenses and other relevant items supplied
by the supervisory personnel of Holdings and its Subsidiaries directly
responsible for the various operations involved. The assumptions upon which the
Projected Financial Statements are
<PAGE>
based are stated therein. Although any assumptions and any projections by
necessity involve uncertainties and approximations, I believe, based on my
discussions with other members of management, that the assumptions on which the
Projected Financial Statements are based are reasonable. Based thereon, I
believe that the projections for Holdings and its Subsidiaries, taken as a
whole, reflected in the Projected Financial Statements provide reasonable
estimations of future performance, subject, as stated above, to the
uncertainties and approximations inherent in any projections.
Based on the foregoing, I have, in my capacity as vice president, controller
and principal accounting officer of Holdings, reached the following conclusions:
1. Holdings and its Subsidiaries are not now, nor will the incurrence
of the Obligations under the Credit Agreement and the Obligations (as such
term is defined in the AXEL Credit Agreement) under the AXEL Credit
Agreement, and the incurrence of the other obligations contemplated by the
Proposed Transactions render Holdings and its Subsidiaries ``insolvent'' as
defined in this paragraph 1. The recipients of this Certificate and I have
agreed that, in this context, ``insolvent'' means that the present fair
saleable value of assets (on a going concern basis based on the valuation
procedures performed by Valuation Research Corporation in their letter of
even date herewith (the ``VRC OPINION'')) is less than the amount that will
be required to pay the probable liability on existing debts as they become
absolute and matured. We have also agreed that the term ``debts'' includes
any legal liability, whether matured or unmatured, liquidated or
unliquidated, absolute, fixed or contingent. My conclusion expressed above
is supported by the VRC Opinion. The assumptions on which the VRC Opinion
is based are stated therein. I believe that the assumptions on which the
VRC Opinion is based are reasonable.
2. By the incurrence of the Obligations under the Credit Agreement,
the Obligations (as such term is defined in the AXEL Credit Agreement) under
the AXEL Credit Agreement, and the incurrence of the other obligations
contemplated by the Proposed Transactions, Holdings and its Subsdiaries will
not incur debts beyond its ability to pay as such debts mature. I have
based my conclusion in part on the Projected Financial Statements, which
demonstrate that Holdings and its Subsidiaries will have positive cash flow
after paying all of its scheduled anticipated indebtedness (including
scheduled payments under the Credit Agreement, the AXEL Credit Agreement,
the other obligations contemplated by the Proposed Transactions and other
permitted indebtedness). I have concluded that the realization of current
assets in the ordinary course of business will be sufficient to pay
recurring current debt and short-term and long-term debt service as such
debts mature, and that the cash flow (including earnings plus non-cash
charges to earnings) will be sufficient to provide cash necessary to repay
the Loans and other Obligations under the Credit Agreement and the Loans (as
such term is defined in the AXEL Credit Agreement) and other Obligations (as
such term is defined in the AXEL Credit Agreement) under the AXEL Credit
Agreement, the other obligations contemplated by the Proposed Transactions
and other long-term indebtedness as such debt matures. The foregoing
conclusion also assumes that Holdings and its Subsidiaries will refinance
their outstanding debt in the year in which the Senior Subordinated Notes
and the Discount Notes mature.
XII-2
<PAGE>
3. As of the Closing Date, the incurrence of the Obligations under the
Credit Agreement, the Obligations (as such term is defined in the AXEL
Credit Agreement) under the AXEL Credit Agreement, and the incurrence of the
other obligations contemplated by the Proposed Transactions will not leave
Holdings and its Subsidiaries with property remaining in their hands
constituting ``unreasonably small capital.'' In reaching this conclusion, I
understand that ``unreasonably small capital'' depends upon the nature of
the particular business or businesses conducted or to be conducted, and I
have reached my conclusion based on the needs and anticipated needs for
capital of the businesses conducted or anticipated to be conducted by
Holdings and its Subsidiaries in light of the Projected Financial Statements
and available credit capacity.
4. To the best of my knowledge, Holdings and its Subsidiaries have not
executed the Credit Agreement, the AXEL Credit Agreement, or any documents
mentioned therein, or made any transfer or incurred any obligations
thereunder, with actual intent to hinder, delay or defraud either present or
future creditors.
I understand that Administrative Agent, AXEL Administrative Agent, Credit
Agreement Lenders, and AXEL Lenders are relying on the truth and accuracy of the
foregoing in connection with the extension of credit to Company pursuant to the
Credit Agreement and the AXEL Credit Agreement.
On behalf of Holdings, in my capacity as vice president, controller and
principal accounting officer, I represent the foregoing information to be, to
the best of my knowledge and belief, true and correct and execute this
Certificate this ___ day of December, 1997.
SEALY CORPORATION
By: ____________________________
Name:
Vice President, Controller and
Principal Accounting Officer
XII-3
<PAGE>
EXHIBIT XIII
[FORM OF] INTERCREDITOR AGREEMENT
This Intercreditor Agreement is dated as of December 18, 1997, and
entered into by and among Morgan Guaranty Trust Company of New York, as
administrative agent (in such capacity, the "Revolving Facility Agent") for the
lenders and the issuer of letters of credit under the Revolving Credit Agreement
referred to below, Morgan Guaranty Trust Company of New York, as administrative
agent (in such capacity, the "AXEL Facility Agent") for the lenders under the
AXEL Credit Agreement referred to below, and Morgan Guaranty Trust Company of
New York, as collateral agent (in such capacity, together with its successors in
such capacity, the "Collateral Agent") under each of the Security Documents, the
Subsidiary Guaranty and the Holdings Guaranty dated of even date herewith
referred to below.
RECITALS
WHEREAS, Sealy Mattress Company (the "Company"), as the borrower, the
several lenders from time to time parties thereto (the "Revolving Facility
Lenders"), Goldman Sachs Credit Partners L.P. ("GSCP"), as arranger and
syndication agent, and the Revolving Facility Agent have entered into a Credit
Agreement dated as of December 18, 1997 (said agreement, as it may hereafter be
amended, supplemented or otherwise modified from time to time, being the
"Revolving Credit Agreement"; the terms defined therein and not otherwise
defined herein being used herein as therein defined);
WHEREAS, the Company, the various financial institutions parties
thereto (the "AXEL Facility Lenders"), GSCP, as arranger and syndication agent,
and the AXEL Facility Agent have entered into an AXEL Credit Agreement dated as
of December 18, 1997 (said agreement, as it may hereafter be amended,
supplemented or otherwise modified from time to time, being the "AXEL Credit
Agreement");
WHEREAS, the Company may from time to time enter into one or more
Interest Rate Agreements (collectively, the "Lender Interest Rate Agreements")
with one or more Lenders (in such capacity, collectively, "Interest Rate
Exchangers") in accordance with the terms of the Financing Agreements (as
hereinafter defined);
WHEREAS, the terms of the Revolving Credit Agreement and the AXEL
Credit Agreement require that the Company execute and deliver to the Collateral
Agent the Company Security Agreement, the Company Pledge Agreement and the
Company Patent and Trademark
XIII-1
<PAGE>
Security Agreement securing the Company's obligations to the Revolving Facility
Lenders, the AXEL Facility Lenders, the Revolving Facility Agent and the AXEL
Facility Agent as provided therein;
WHEREAS, the terms of the Revolving Credit Agreement and the AXEL
Credit Agreement also require that all of the Domestic Subsidiaries of the
Company execute and deliver to the Collateral Agent a guaranty (the "Subsidiary
Guaranty") guaranteeing the Company's obligations to the Revolving Facility
Lenders (including the obligations of the Company to the Issuing Lender in
respect of any Letters of Credit), the AXEL Facility Lenders, the Revolving
Facility Agent and the AXEL Facility Agent as provided therein (such Domestic
Subsidiaries and any future Domestic Subsidiaries executing the Subsidiary
Guaranty being referred to herein as the "Subsidiary Guarantors"; the Subsidiary
Guarantors and Holdings collectively being referred to herein as the
"Guarantors"), and that all Domestic Subsidiaries of the Company execute and
deliver to the Collateral Agent the Subsidiary Pledge Agreement, the Subsidiary
Security Agreement and the Subsidiary Patent and Trademark Security Agreement
securing the obligations of such Subsidiaries under the Subsidiary Guaranty;
WHEREAS, the terms of the Revolving Credit Agreement and the AXEL
Credit Agreement also require that Holdings execute and deliver to the
Collateral Agent a guaranty (the "Holdings Guaranty"; together with the
Subsidiary Guaranty, the "Guaranties") guaranteeing the Company's obligations to
the Revolving Facility Lenders (including the obligations of the Company to the
Issuing Lender in respect of any Letters of Credit), the AXEL Facility Lenders,
the Revolving Facility Agent and the AXEL Facility Agent as provided therein,
and that Holdings execute and deliver to the Collateral Agent the Holdings
Pledge Agreement and the Holdings Security Agreement securing the obligations of
Holdings under the Holdings Guaranty (the Holdings Pledge Agreement, the
Holdings Security Agreement, together with the Subsidiary Pledge Agreement, the
Subsidiary Security Agreement, the Subsidiary Patent and Trademark Security
Agreement, the Company Security Agreement, the Company Pledge Agreement and the
Company Patent and Trademark Security Agreement and any other security
agreements, mortgages and deeds of trust entered into by any Loan Party (as
hereinafter defined) for the benefit of any Secured Parties and any other
security agreements, mortgages and deeds of trust entered into by any Loan Party
(as hereinafter defined) for the benefit of any Secured Parties (hereinafter
defined), being collectively referred to herein as the "Security Documents");
WHEREAS, the Revolving Facility Agent, the AXEL Facility Agent and the
Collateral Agent (such parties collectively referred to as the "Parties") desire
to set forth certain provisions regarding the appointment, duties and
responsibilities of the Collateral Agent and to set forth certain other
provisions concerning the obligations of the Company, Holdings and the
Subsidiaries of Holdings executing the Guaranties and the Security Documents
(collectively, the "Loan Parties") to the Parties, the Revolving Facility
Lenders, the AXEL Facility Lenders and any Interest Rate Exchangers
(collectively, together with the Parties, the "Secured Parties") under the
agreements referred to in the foregoing recitals; and
XIII-2
<PAGE>
WHEREAS, the Parties wish to set forth their agreement as to the
decisions relating to the exercise of remedies under the Security
Documents, the Guaranties and certain limitations on the exercise of such
remedies.
NOW, THEREFORE, the Parties and, by their acceptance of the benefits
hereof and of the Guaranties and the Security Documents, the Interest Rate
Exchangers agree as follows:
Appointment As Collateral Agent. The Revolving Facility Agent on behalf
-------------------------------
of the Revolving Facility Lenders, the AXEL Facility Agent on behalf of the AXEL
Facility Lenders, and the Interest Rate Exchangers hereby severally appoint
Morgan Guaranty Trust Company of New York to serve as the Collateral Agent and
representative of the Secured Parties, and each such Party and Interest Rate
Exchanger authorizes the Collateral Agent to act as agent for the Secured
Parties (a) for the purposes of executing and delivering on its behalf the
Security Documents to be executed and delivered by the Loan Parties and, subject
to the provisions of this Agreement, enforcing the Secured Parties' rights in
respect of the Collateral and the obligations of the Loan Parties under the
Security Documents, and (b) for the purpose of enforcing the Secured Parties'
rights under the Guaranties and the obligations of the Guarantors under the
Guaranties. The Collateral Agent hereby accepts such appointment and agrees to
act as Collateral Agent hereunder and to enter into and act as Collateral Agent
under each of the Security Documents and the Guaranties in accordance with the
terms thereof and of this Agreement.
Decisions Relating to Exercise of Remedies Vested in Requisite Obligees.
-----------------------------------------------------------------------
The Collateral Agent agrees to make such demands, to give such notices
and to take such other actions under this Agreement, the Guaranties and the
Security Documents as are expressly required under the terms hereof and thereof
or as Requisite Obligees may request, and to take such action to enforce the
Guaranties and the Security Documents and to foreclose upon, collect and dispose
of the Collateral or any portion thereof as may be expressly required under the
terms of this Agreement, the Guaranties or the Security Documents or as
Collateral Agent may be directed by Requisite Obligees. The Collateral Agent
shall not be required to take any action that is in its opinion contrary to law
or to the terms of this Agreement, any or all of the Security Documents or the
Guaranties or that would in its opinion subject it or any of its officers,
employees, agents or directors to liability, and the Collateral Agent shall not
be required to take any action under this Agreement, any or all of the Security
Documents or the Guaranties unless and until the Collateral Agent shall be
indemnified to its satisfaction by the Secured Parties against any and all loss,
cost, expense or liability in connection therewith.
Each Party executing this Agreement agrees that the Collateral Agent
may act as Requisite Obligees may request (regardless of whether any individual
Party or any other Secured Party agrees, disagrees or abstains with respect to
such request), that the Collateral Agent shall have no liability for acting in
accordance with such request and that no Party or Secured Party shall have any
liability to any other Party or Secured Party for any such request. The
Collateral
XIII-3
<PAGE>
Agent shall give prompt notice to all Parties of actions taken pursuant to the
instructions of Requisite Obligees; provided, however, that the failure to give
-------- -------
any such notice shall not impair the right of the Collateral Agent to take any
such action or the validity or enforceability under this Agreement of the action
so taken.
The Collateral Agent may at any time request directions from
the Requisite Obligees as to any course of action or other matters relating
hereto or to the Security Documents or the Guaranties. Directions given by
Requisite Obligees to the Collateral Agent shall be binding on the Parties, the
Revolving Facility Lenders, the AXEL Facility Lenders and all Secured Parties
for all purposes.
Each Party, on behalf of the Secured Parties, and each Interest Rate
Exchanger, agrees not to take any action whatsoever to enforce any term or
provision of the Security Documents or the Guaranties or to enforce any of its
rights in respect of the Collateral, except through the Collateral Agent in
accordance with this Agreement.
Application of Proceeds of Security, Guaranty Payments, Etc.
-----------------------------------------------------------
The Collateral Agent shall establish and maintain two accounts into
which it shall deposit (i) all amounts received by it in its capacity as the
Collateral Agent in respect of any Security Document or the Guaranties
(including all monies received on account of any sale of or other realization
upon any of the Collateral pursuant to any Security Document or pursuant to
Section 5(b) hereof and all monies received by it on account of the enforcement
of the Guaranties), and (ii) all amounts received by it as a result of payments
described in Section 5(c). One of the two accounts referred to in the preceding
sentence shall be established and maintained for the benefit of all Secured
Parties (other than with respect to L/C Obligations) (the "General Collateral
Account") and the second such account shall be established and maintained solely
for the benefit of the Issuing Lender (the "L/C Collateral Account", and
together with the General Collateral Account, the "Collateral Accounts"). The
Collateral Agent shall have exclusive dominion and control over the Collateral
Accounts.
All amounts which the Collateral Agent is required at any time to
deposit in the respective Collateral Accounts pursuant to Section 3(a) shall be
allocated between, and deposited in, such General Collateral Account and such
L/C Collateral Account, respectively, pro rata in accordance with (i) the
aggregate amount of such Secured Obligations (other than L/C Obligations) then
outstanding and (ii) the aggregate amount of the L/C Obligations then
outstanding. If any amounts are delivered to the Collateral Agent as cash
collateral for the Letters of Credit pursuant to Section 8 of the Revolving
Credit Agreement or as collateral for the liability of the Issuing Lender under
outstanding Letters of Credit, they shall be deposited in the L/C Collateral
Account. If after giving effect to such deposit or at any other time the balance
in the L/C Collateral Account exceeds all L/C Obligations then outstanding, the
excess shall be transferred to the General Collateral Account. After giving
effect to any such deposit to the L/C
XIII-4
<PAGE>
Collateral Account, subsequent allocations pursuant to the first sentence of
this Section 3(b) shall be adjusted to the extent necessary to cause the ratio
of the aggregate amount of the Secured Obligations (other than L/C Obligations)
then outstanding to the balance in the General Collateral Account to be equal to
the ratio of the aggregate amount of the L/C Obligations then outstanding to the
balance in the L/C Collateral Account. Prior to the delivery of a Notice of
Acceleration any amounts deposited in the Collateral Accounts may be disbursed
from the Collateral Accounts only upon the prior written consent of the
Requisite Obligees. After the occurrence of a Notice of Acceleration and until
such Notice is rescinded, the Collateral Agent shall disburse funds from the
Collateral Accounts only as provided in this Section 3.
When a Notice of Acceleration is in effect, all amounts deposited in
the General Collateral Account shall be applied in the following order of
priority:
First, to the extent not theretofore paid by or on behalf of
-----
any Loan Party, to pay all fees, costs, expenses of the Collateral
Agent incurred in connection with the performance of its duties
hereunder or under the Security Documents or the Guaranties, as the
case may be, including reasonable attorneys' fees and expenses and all
Collateral Agent Obligations and any other amounts payable to the
Collateral Agent hereunder or under any of the Security Documents or
the Guaranties in respect of any indemnities or other obligations of
the Loan Parties with such application made pro rata from the General
Collateral Account and the L/C Collateral Account based on the amounts
on deposit therein;
Second, to the other Secured Parties pro rata in accordance
------ --- ----
with the aggregate amount of all Secured Obligations (other than L/C
Obligations) held by such Secured Parties;
Third, if any L/C Obligations shall remain unpaid, to the L/C
-----
Collateral Account to the extent the aggregate amount in such L/C
Collateral Account does not exceed the aggregate amount of such L/C
Obligations; and
Fourth, the balance, if any, to the Company or such other
------
person or persons as are entitled thereto.
When a Notice of Acceleration is in effect, all amounts
deposited in the L/C Collateral Account shall be applied in the following order
of priority (provided that an amount not to exceed all L/C Obligations which are
not then L/C Current Obligations shall not be so applied, and shall instead be
held by Collateral Agent in the L/C Collateral Account as collateral for such
L/C Obligations, until they become L/C Current Obligations):
First, to the extent not theretofore paid by or on behalf of
-----
any Loan Party, to pay all fees, costs, expenses of the Collateral
Agent incurred in connection with the
XIII-5
<PAGE>
performance of its duties hereunder or under the Security Documents or
the Guaranties, as the case may be, including reasonable attorneys'
fees and expenses and all Collateral Agent Obligations and any other
amounts payable to the Collateral Agent hereunder or under any of the
Security Documents or the Guaranties in respect of any indemnities or
other obligations of the Loan Parties with such application made pro
rata from the General Collateral Account and the L/C Collateral Account
based on the amounts on deposit therein;
Second, to the holders of any L/C Current Obligations pro rata
------
in accordance with the aggregate amount of all L/C Current Obligations)
held by them,
Third, if any Secured Obligations (other than L/C Obligations)
-----
shall remain unpaid, to the General Collateral Account to the extent
the aggregate amount in the General Collateral Account does not exceed
the aggregate amount of such Secured Obligations; and
Fourth, the balance, if any, to the Company or such other
------
person or persons as are entitled thereto.
Unless the Collateral Agent shall have received instructions from the
Requisite Obligees as to the times at which any amounts are to be distributed
pursuant to Sections 3(c) or 3(d), all distributions or transfers pursuant to
Sections 3(c) or 3(d) shall be made at such times and as promptly as the
Collateral Agent shall in its good faith discretion determine to be reasonable
and practicable under the circumstances, given the amount available for
distribution or transfer in the relevant Collateral Account, the time at which
the next addition to such Collateral Account is expected to be made, and the
cost of distributing funds to the Secured Parties entitled to receive the same.
The Collateral Agent shall at all times have the right to request distribution
instructions as contemplated by the preceding sentence.
Pending the disbursement thereof pursuant to the terms of this
Agreement, all amounts in the Collateral Accounts shall be invested by the
Collateral Agent in such Cash Equivalents as it shall determine from time to
time or such other investments as shall be approved by Requisite Obligees;
provided that so long as no Event of Default shall have occurred and be
- --------
continuing, the Collateral Agent shall make such other investments at the
direction of the Company. All reasonable commissions and other reasonable costs
and expenses incurred by the Collateral Agent in connection with the acquisition
or disposition by it of Cash Equivalents or such other investments may be
deducted by the Collateral Agent from the income received by the Collateral
Agent with respect thereto.
Payments by the Collateral Agent in respect of the Revolving Credit
Agreement Obligations (other than L/C Obligations) shall be made to the
Revolving Facility Agent for
XIII-6
<PAGE>
distribution to the Revolving Facility Lenders in accordance with the terms of
the Revolving Credit Agreement; payments with respect to the L/C Obligations
shall be made to the Revolving Facility Agent for distribution to the Issuing
Lender in accordance with the terms of the Revolving Credit Agreement; payments
by the Collateral Agent in respect of the AXEL Credit Agreement Obligations
shall be made to the AXEL Facility Agent for distribution to the AXEL
FacilityLenders in accordance with the terms of the AXEL Credit Agreement; and
payments by the Collateral Agent in respect of the Lender Interest Rate
Agreement Obligations shall be distributed to the Interest Rate Exchangers pro
---
rata in accordance with the aggregate amount of Lender Interest Rate Agreement
- ----
Obligations held by such Interest Rate Exchanger.
Information.
-----------
Upon the request of the Collateral Agent, each Party and Interest Rate
Exchanger agrees to promptly inform the Collateral Agent of the existence and
amount of the Secured Obligations owing to such Party or such Interest Rate
Exchanger and such other Secured Parties for whom such Party is acting as agent,
trustee or other representative and of any commitments to extend additional
credit which will constitute Secured Obligations by such Party or other Secured
Parties. Upon request of the Collateral Agent, each Party (other than the
Collateral Agent) and each Interest Rate Exchanger will inform the Collateral
Agent of such payments on the Secured Obligations as may be received from time
to time by such Party and such other Secured Parties for whom such Party is
acting as agent, trustee or other representative.
If, notwithstanding the request of the Collateral Agent, any Party or
Interest Rate Exchanger shall fail or refuse reasonably promptly to certify as
to the existence or amount of any Secured Obligation or such other information
concerning the Secured Obligations as the Collateral Agent may reasonably
request, the Collateral Agent shall be entitled to determine such existence or
amount of such Secured Obligations by such method as the Collateral Agent may,
in its sole discretion, determine in good faith, including by reliance upon a
certificate of an officer of the Company. The Collateral Agent may rely
conclusively, and shall be fully protected in so relying, on any determination
made by it in good faith in accordance with the provisions of this Section (or
as otherwise directed by a court of competent jurisdiction after notice and
hearing on the merits) and, in the absence of gross negligence, shall have no
liability to Company, any Subsidiary, any holder of any Secured Obligation or
any other person as a result of such determination.
If the Collateral Agent receives any Notice of Acceleration or
certificate rescinding a Notice of Acceleration or any request by the Company
for any consent, waiver or amendment with respect hereto or any Security
Document or the Guaranties, it shall give prompt notice thereof to each Party at
the address for such Party provided for in Section 8 hereof.
A Notice of Acceleration shall be deemed to have been given only when
the Notice of Acceleration has actually been received by the Collateral Agent
and to have been rescinded
XIII-7
<PAGE>
when the Collateral Agent has actually received from the creditor or creditor
group which gave such Notice of Acceleration a notice withdrawing such Notice of
Acceleration. A Notice of Acceleration shall be deemed to be outstanding at all
times after such Notice of Acceleration has been given until such time, if any,
as such Notice of Acceleration has been rescinded.
The Collateral Agent shall keep executed counterparts of this
Agreement, the Security Documents and the Guaranties at the Collateral Agent's
address as set forth under Collateral Agent's signature on the signature page to
this Agreement and shall permit any Secured Party to inspect this Agreement, the
Security Documents and the Guaranties upon request and to take copies thereof.
Intercreditor Arrangements.
--------------------------
Each of the Collateral Agent, each of the other Parties (on behalf of
the respective Secured Parties) and each Interest Rate Exchanger hereby agrees,
and each of the Loan Parties hereby acknowledges, that the liens and security
interests granted to the Collateral Agent under the Security Documents shall be
treated as having equal priority and shall at all times be shared by the Secured
Parties as provided herein.
If any Secured Party acquires custody, control or possession of any
Collateral or proceeds therefrom, or payments with respect to the Guaranties,
other than by distribution from the Collateral Agent pursuant to the terms of
this Agreement, such Secured Party shall promptly cause such Collateral,
proceeds or payments to be delivered to or put in the custody, possession or
control of the Collateral Agent for disposition or distribution in accordance
with the provisions of Section 3. Until such time as the provisions of the
immediately preceding sentence have been complied with, such Secured Party shall
be deemed to hold all such Collateral, proceeds and payments in trust for the
parties entitled thereto hereunder. Nothing in this Section shall prevent a
Secured Party from receiving and retaining payments (a) for the provision of
services to any Loan Party, or (b) in connection with any extension of credit or
other financial accommodation to any Loan Party if the obligations of such Loan
Party incurred in connection with such extension of credit or other financial
accommodation do not constitute Secured Obligations, or (c) as security for any
such extension of credit or other financial accommodation if the obligations of
such Loan Party incurred in connection with such services, extension of credit
or other financial accommodation do not constitute Secured Obligations, and if
such obligations are not incurred and such security is not given in breach of
the Financing Agreements (as defined in Section 6).
If (a) at any time after the occurrence of an Acceleration and for so
long as such Acceleration is continuing, any Secured Party shall receive payment
(voluntary or involuntary) on account of any Secured Obligation (i) from or on
behalf of the Company or any Subsidiary or any guarantor of payment or
performance of any of the Secured Obligations, or (ii) pursuant to any turnover
or similar provision contained in any agreement evidencing or relating to
XIII-8
<PAGE>
subordinated indebtedness of the Company or any Loan Party or other obligor, or
(b) at any time any Secured Party shall receive payment (voluntary or
involuntary) on account of any Secured Obligation by way of the exercise of any
right of setoff (or similar right) with respect to any assets (whether or not
such assets shall constitute Collateral) of any Loan Party or as a result of any
counterclaim, purchase of any participation by any Loan Party or otherwise, then
such payment, prepayment or repayment (herein, a "Secured Obligation Payment")
shall be deemed to be the proceeds of Collateral and shall be delivered to or
put in the custody, possession or control of the Collateral Agent by the Secured
Party receiving such Secured Obligation Payment for disposition or distribution
by the Collateral Agent in accordance with Section 3.
Any Secured Party receiving a Secured Obligation Payment that is
required pursuant to this Section to be turned over to the Collateral Agent for
application under Section 3 is deemed to have received such Secured Obligation
Payment solely as agent for the Secured Parties and the Collateral Agent, and
will immediately turn such Secured Obligation Payment, in the form received
except for the endorsement of such receiving party where appropriate, over to
the Collateral Agent, and until so turned over, will hold such Secured
Obligation Payment in trust for the Secured Parties and the Collateral Agent.
Each Party shall execute and deliver such other documents and
instruments, in form and substance reasonably satisfactory to the other Parties,
and shall take such other action, in each case as any other Party may reasonably
have requested (at the cost and expense of the Company which, by countersigning
this Agreement, agrees to pay such reasonable costs and expenses), to effectuate
and carry out the provisions of this Agreement, including by recording or filing
in such places as the requesting party may deem desirable, this Agreement or
such other documents or instruments.
In no event will the Revolving Facility Lenders or the AXEL
Facility Lenders consent to any amendment of the provisions of the Revolving
Credit Agreement or the AXEL Credit Agreement, respectively, or to any payment
consistent with an amendment thereof or a change thereto, or enter into any
other agreement with the Company or any of its Subsidiaries that would have the
effect of (i) changing (to earlier dates) any dates upon which payments of
principal or interest are due on loans or letter of credit reimbursement
obligations, (ii) reducing the percentage specified in the definition of
"Requisite Lenders" in the Revolving Credit Agreement or the AXEL Credit
Agreement, or (iii) changing any mandatory prepayments or commitment reductions
of the Revolving Credit Agreement or the AXEL Credit Agreement in a manner that
disproportionately disadvantages one Class relative to the other Class, or
confers additional rights on one Class which would be adverse to the other
Class, in each case without the prior written consent of Requisite Obligees.
Each Secured Party agrees that to the extent either Credit Agreement is amended
in accordance with the terms of this Agreement and the Credit Agreements to
increase the commitments and/or Secured Obligations outstanding thereunder, such
Secured Obligations shall be entitled to share in the benefits of the Guaranties
and the Security Documents on a pro rata basis.
XIII-9
<PAGE>
The Revolving Facility Agent agrees to deliver to the AXEL Facility
Agent upon execution thereof any amendment, waiver or modification of the
Revolving Credit Agreement, and the AXEL Facility Agent agrees to deliver to the
Revolving Facility Agent any amendment, waiver or modification of the AXEL
Credit Agreement.
Subject to clause (h) below, without further written consent or
authorization from Secured Parties, Collateral Agent may execute any documents
or instruments necessary to (a) release any Lien encumbering any item of
Collateral that is the subject of a sale or other disposition of assets
permitted by the Revolving Credit Agreement and the AXEL Credit Agreement, or to
which Requisite Obligees have otherwise consented, or (b) release any Subsidiary
Guarantor from the Subsidiary Guaranty if all the capital stock of such
Subsidiary Guarantor is sold to any Person pursuant to a sale or other
disposition permitted hereunder or to which Requisite Obligees have otherwise
consented; provided, however, that nothing herein shall require or permit
-------- -------
Collateral Agent to release any such entity which prior to such sale is a
Subsidiary Guarantor from the Subsidiary Guaranty if any of the Financing
Agreements require that such entity be party to the Subsidiary Guaranty after
such sale. Such termination and release shall be without prejudice to the rights
of the Collateral Agent to charge and be reimbursed for any expenditure which it
may incur in connection therewith. The proceeds of any disposition of Collateral
released in accordance with this Section are not required to be delivered to the
Collateral Agent or deposited in the Collateral Accounts pursuant to Section 3.
Any release of the Collateral by the Collateral Agent from the Liens
created by the Security Documents (other than in connection with the exercise of
remedies with respect to such Collateral under a Security Document pursuant to
instructions from Requisite Obligees) that is not permitted pursuant to the
Revolving Credit Agreement and the AXEL Credit Agreement, or any release of a
New Subsidiary by the Collateral Agent from the Subsidiary Guaranty that is not
permitted pursuant to the Revolving Credit Agreement and the AXEL Credit
Agreement, shall require the prior written consent of the Requisite Obligees
(except for the release of all or substantially all of the Collateral, in which
case the prior written consent of all of the Revolving Facility Lenders and all
of the AXEL Facility Lenders are required; it being understood that an increase
in the amount of any Indebtedness of the Company secured ratably by the
Collateral shall not be deemed to be a release of the Collateral).
Each of the Parties on its own behalf and on behalf of other Secured
Parties, and each of the Interest Rate Exchangers, hereby covenants and agrees
that it (a) will not accept any guarantee of any of the Secured Obligations by
any Subsidiary or Affiliate of the Company unless such Subsidiary or Affiliate
guarantees the payment of all the Secured Obligations and (b) will not take any
security interest in or lien on any assets of the Company or any of its
Subsidiaries to secure the payment or performance of any of the Secured
Obligations unless all the Secured Parties are granted a pari passu security
interest in or lien on such assets and the instrument creating such lien becomes
a Security Document for all purposes of this Agreement.
XIII-10
<PAGE>
No Secured Party may require the Collateral Agent to take or refrain
from taking any action hereunder or under any of the Security Documents or with
respect to any of the Collateral except as and to the extent expressly set forth
in this Agreement.
Disclaimers, Indemnity, Etc.
---------------------------
The Collateral Agent shall have no duties or responsibilities to the
Secured Parties except those expressly set forth in this Agreement, the Security
Documents and the Guaranties and the Collateral Agent shall not by reason of
this Agreement, the Security Documents or the Guaranties be a trustee for any
Secured Party or have any other fiduciary obligation to any Secured Party
(including any obligation under the Trust Indenture Act of 1939, as amended).
The Collateral Agent shall not be responsible to any Secured Party for any
recitals, statements, representations or warranties contained in this Agreement,
the Revolving Credit Agreement, the AXEL Credit Agreement and the Loan Documents
(as defined in each of the Revolving Credit Agreement and the AXEL Credit
Agreement; collectively, the "Financing Agreements") or in any certificate or
other document referred to or provided for in, or received by any of them under,
any of the Financing Agreements, or for the value, validity, effectiveness,
genuineness, enforceability or sufficiency of any of the Financing Agreements or
any other document referred to or provided for therein or any Lien under the
Security Documents or the perfection or priority of any such Lien or the value
or condition of the Collateral or the title of the Loan Parties to the
Collateral or for any failure by any Loan Party to perform any of its
obligations under any of the Financing Agreements. The Collateral Agent may
employ agents and attorneys-in-fact and shall not be responsible for the
negligence or misconduct of any such agents or attorneys-in-fact selected by it
with reasonable care. Neither the Collateral Agent nor any of its directors,
officers, employees or agents shall be liable or responsible for any action
taken or omitted to be taken by it or them hereunder or in connection herewith,
except for its or their own gross negligence or willful misconduct.
The Collateral Agent shall be entitled to rely upon any certification,
notice or other communication (including any thereof by telex, telecopy,
telegram or cable) believed by it to be genuine and correct and to have been
signed or sent by or on behalf of the proper Person or Persons, and upon advice
and statements of legal counsel (including counsel to the Company or any
Subsidiary of the Company), independent accountants and other experts selected
by the Collateral Agent. The Collateral Agent shall not be deemed to have
actual, constructive, direct or indirect notice or knowledge of the occurrence
of any Acceleration unless and until the Collateral Agent shall have received a
Notice of Acceleration. The Collateral Agent shall have no obligation whatsoever
either prior to or after receiving a Notice of Acceleration to inquire whether
an Acceleration has, in fact, occurred and shall be entitled to rely
conclusively, and shall be fully protected in so relying, on any Notice of
Acceleration certificate so furnished to it. As to any matters not expressly
provided for by this Agreement, the Collateral Agent shall in all cases be fully
protected in acting, or in refraining from acting, hereunder in accordance with
XIII-11
<PAGE>
instructions signed by Requisite Obligees, and such instructions of Requisite
Obligees, and any action taken or failure to act pursuant thereto, shall be
binding on all of the Secured Parties.
The Revolving Facility Lenders and the AXEL Facility Lenders
(collectively, the "Paying Indemnifying Parties") agree that such Secured
Parties shall indemnify the Collateral Agent, its Affiliates and their
respective directors, officers, employees and agents in its capacity as
Collateral Agent, ratably in accordance with the amount of the Secured
Obligations held by such Secured Parties to the extent neither reimbursed by any
Loan Party nor reimbursed out of any proceeds, recoveries or payments under any
Security Documents or the Guaranties, for any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind and nature whatsoever that may be imposed on, incurred
by or asserted against the Collateral Agent in any way relating to or arising
out of any of the Financing Agreements or any other document contemplated by or
referred to therein or the transactions contemplated thereby or the enforcement
of any of the terms of any thereof; provided, however, that no such Secured
Party shall be liable for any of the foregoing to the extent they arise from the
gross negligence or willful misconduct of the Collateral Agent.
The Collateral Agent shall, notwithstanding anything to the contrary in
Section 6(c) hereof, in all cases be fully justified in failing or refusing to
act hereunder unless it shall be further indemnified to its satisfaction by the
Parties against any and all liability and expense that may be incurred by it by
reason of taking or continuing to take any such action.
The Collateral Agent may deem and treat the payee of any promissory
note or other evidence of indebtedness relating to the Secured Obligations as
the owner thereof for all purposes hereof unless and until a written notice of
the assignment or transfer thereof, signed by such payee and in form
satisfactory to the Collateral Agent, shall have been filed with the Collateral
Agent. 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 such note
or other evidence of indebtedness shall be conclusive and binding on any
subsequent holder, transferee or assignee of such note or other evidence of
indebtedness and of any note or notes or other evidences of indebtedness issued
in exchange therefor.
Except as expressly provided herein, in the Security Documents or in
the Guaranties, the Collateral Agent shall have no duty to take any affirmative
steps with respect to the collection of amounts payable in respect of the
Collateral or under the Guaranties. The Collateral Agent shall incur no
liability (absent gross negligence or willful misconduct) as a result of any
sale of any Collateral at any private sale.
(i) The Collateral Agent may resign at any time by giving at least 30
days notice thereof to the Parties (such resignation to take effect as
hereinafter provided) and the Collateral Agent may be removed as Collateral
Agent at any time by Requisite Obligees. In the event of any such resignation or
removal of the Collateral Agent, Requisite Obligees shall
XIII-12
<PAGE>
thereupon have the right to appoint a successor Collateral Agent which
appointment shall, unless an Event of Default has occurred and is continuing, be
subject to the approval of the Company. If no successor Collateral Agent shall
have been so appointed by Requisite Obligees and shall have accepted such
appointment within 30 days after the notice of the intent of the Collateral
Agent to resign, then the retiring Collateral Agent may, on behalf of the other
Parties, appoint a successor Collateral Agent. Any successor Collateral Agent
appointed pursuant to this clause (i) shall be a bank party to the Revolving
Credit Agreement or the AXEL Credit Agreement or a commercial bank organized
under the laws of the United States of America or any state thereof and having a
combined capital and surplus of at least $250,000,000.
(ii) Upon the acceptance of any appointment as Collateral Agent
hereunder by a successor Collateral Agent, such successor Collateral Agent shall
thereupon succeed to and become vested with all the rights, powers, privileges
and duties of the retiring or removed Collateral Agent, and the retiring or
removed Collateral Agent shall thereupon be discharged from its duties and
obligations hereunder. After any retiring or removed Collateral Agent's
resignation or removal hereunder as Collateral Agent, the provisions of this
Section 6 shall continue in effect for its benefit in respect of any actions
taken or omitted to be taken by it while it was acting as the Collateral Agent.
Definitions.
-----------
"Acceleration" shall mean any of the Revolving Credit Agreement
Obligations or the AXEL Credit Agreement Obligations have been declared, or have
become, immediately due and payable, or the commitments to extend credit of the
Revolving Facility Lenders or the AXEL Facility Lenders shall have been
terminated under Section 8 or Section 7 of the Revolving Credit Agreement or the
AXEL Credit Agreement, respectively.
"Actionable Default" shall mean (i) any failure of the Company to pay
upon its final stated maturity, the Revolving Credit Agreement Obligations or
the AXEL Credit Agreement Obligations or (ii) any breach or default by the
Company under the Revolving Credit Agreement or the AXEL Credit Agreement if the
effect of such breach or default is to cause, or to permit the Revolving
Facility Lenders or the AXEL Facility Lenders then to cause the Revolving Credit
Agreement Obligations or the AXEL Credit Agreement Obligations to become or be
declared due prior to their stated maturity.
"AXEL Credit Agreement Obligations" shall mean all obligations of every
nature of Company and its Subsidiaries from time to time owed to the AXEL
Facility Lenders, the AXEL Facility Agent or any of them under the Loan
Documents (as defined in the AXEL Credit Agreement).
"Class" shall mean each class of lenders under the Revolving Credit
Agreement and the AXEL Credit Agreement, with there being two separate classes
of lenders, i.e., (i) lenders under
----
XIII-13
<PAGE>
the Revolving Credit Agreement and (ii) the lenders under the AXEL Credit
Agreement.
"Collateral" shall mean all the properties and assets of whatever
nature, tangible or intangible, now owned or existing or hereafter acquired or
arising, of any of the Loan Parties on or in which the Collateral Agent has been
granted a Lien pursuant to any of the Security Documents.
"Collateral Agent Obligations" shall mean all indemnity, reimbursement
and payment obligations of the Company and any Subsidiary to the Collateral
Agent under this Agreement, any Security Document or the Guaranties.
"Event of Default" shall mean any "Event of Default" as defined in any
Financing Agreement or the occurrence of an Event of Default in which Company is
the Defaulting Party and which results in the designation of an Early
Termination Date (as such terms are defined in a Master Agreement or an Interest
Rate Swap Agreement or Interest Rate and Currency Exchange Agreement in the form
prepared by the International Swap and Derivatives Association Inc. or a similar
event under any similar swap agreement) under any Lender Interest Rate
Agreement.
"L/C Current Obligations" shall mean, at any time of determination, the
sum of the amounts referred to in clauses (b) and (c) of the definition of L/C
Obligations.
"L/C Obligations" shall mean, at any time of determination, the sum of
(a) the aggregate then undrawn and unexpired amount of then outstanding Letters
of Credit, (b) the aggregate amount of drawings under Letters of Credit which
have not then been reimbursed pursuant to the Revolving Credit Agreement, and
(c) all interest which has accrued in respect of drawings that have been made
under Letters of Credit and which is then unpaid.
"Lender Interest Rate Agreement Obligations" shall mean all obligations
of every nature of Company from time to time owed to Interest Rate Exchangers or
any of them under the Lender Interest Rate Agreements, including without
limitation payments for early termination thereof.
"Letter of Credit" shall mean a letter of credit issued by the Issuing
Lender under the Revolving Credit Agreement.
"Notice of Acceleration" shall mean a notice by the Revolving Facility
Agent in the case of the Revolving Facility Lenders or the AXEL Facility Agent
in case of AXEL Facility Lenders, in each case delivered to the Collateral Agent
stating that an Acceleration has occurred.
"Requisite AXEL Facility Lenders" shall mean "Requisite Lenders" as
defined in the AXEL Credit Agreement.
XIII-14
<PAGE>
"Requisite Obligees" shall mean (i) (A) unless an Acceleration shall
have occurred and be continuing, the Requisite Revolving Facility Lenders and
the Requisite AXEL Facility Lenders, and (B) if an Acceleration has occurred and
is continuing, Secured Parties holding more than 50% in amount of the Revolving
Credit Agreement Obligations and the AXEL Credit Agreement Obligations or (ii)
after payment in full of all Revolving Credit Agreement Obligations and all AXEL
Credit Agreement Obligations, the holders of a majority of the aggregate
notional amount (or, with respect to any Lender Interest Rate Agreement that has
been terminated in accordance with its terms, the amount then due and payable
(exclusive of expenses and similar payments but including any early termination
payments then due) under such Lender Interest Rate Agreement) under all Lender
Interest Rate Agreements..
"Requisite Revolving Facility Lenders" shall mean "Requisite Lenders"
as defined in the Revolving Credit Agreement.
"Revolving Credit Agreement Obligations" shall mean all obligations of
every nature of Company and its Subsidiaries from time to time owed to Revolving
Facility Agent, the Revolving Facility Lenders, the Issuing Lender or any of
them under the Loan Documents (as defined in the Revolving Credit Agreement),
including, without limitation, the L/C Obligations.
"Secured Obligations" shall mean the Revolving Credit Agreement
Obligations, the AXEL Credit Agreement Obligations and the Lender Interest Rate
Agreement Obligations.
Miscellaneous.
-------------
All notices and other communications provided for herein shall
be in writing and may be personally served, telecopied, telexed or sent by
United States mail and shall be deemed to have been given when delivered in
person, upon receipt of telecopy or telex, or four Business Days after deposit
in the United States mail, registered or certified, with postage prepaid and
properly addressed. For the purposes hereof, the addresses of the parties hereto
(until notice of a change thereof is delivered as provided in this Section 8(a))
shall be as set forth under each party's name on the signature pages hereof.
This Agreement, the Security Documents and the Guaranties may be
modified or waived only by an instrument or instruments in writing signed by
Collateral Agent and Requisite Obligees and, if applicable, the Loan Party
signatory to this Agreement or any such Collateral Document.
This Agreement shall be binding upon and inure to the benefit of the
Collateral Agent, each other Party and each Secured Party and their respective
successors and assigns.
This Agreement may be executed in any number of counterparts, all of
which taken together shall constitute one and the same instrument, and any of
the parties hereto may execute
XIII-15
<PAGE>
this Agreement by signing any such counterpart.
This Agreement shall become effective as to the Revolving Facility
Lenders and the Revolving Facility Agent upon execution thereof by Revolving
Facility Agent and as to the AXEL Facility Lenders and the AXEL Facility Agent
upon execution by AXEL Facility Agent thereof.
Upon receipt by the Collateral Agent of evidence satisfactory to it of
the termination of all commitments to extend credit which would constitute
Secured Obligations and the indefeasible payment in full of all Secured
Obligations (including, without limitation, the reasonable compensation,
expenses and disbursements of the Collateral Agent) and expiration or
cancellation of all Letters of Credit, this Agreement shall terminate and the
Collateral Agent, at the request and expense of the Company, will execute and
deliver to the Company a proper instrument or instruments acknowledging the
satisfaction and termination of the Collateral Documents and of this Agreement,
and will duly assign, transfer and deliver to the Company all of the rights and
moneys at the time held by the Collateral Agent under the Collateral Documents
and hereunder, provided that Section 6(c) of this Agreement shall survive, and
--------
remain operative and in full force and effect, regardless of the termination of
this Agreement.
THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS OF LAWS
PRINCIPLES.
By countersigning or otherwise accepting the terms of this Agreement,
the Company and each other Loan Party acknowledges and consents to and agrees to
perform and be bound by each of the provisions hereof stated to be applicable to
it.
ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST ANY LOAN PARTY ARISING
OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY
OBLIGATIONS THEREUNDER, MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF
COMPETENT JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK. BY EXECUTING
AND DELIVERING THIS AGREEMENT, EACH LOAN PARTY, FOR ITSELF AND IN CONNECTION
WITH ITS PROPERTIES, IRREVOCABLY (I) ACCEPTS GENERALLY AND UNCONDITIONALLY THE
NONEXCLUSIVE JURISDICTION AND VENUE OF SUCH COURTS; (II) WAIVES ANY DEFENSE OF
FORUM NON CONVENIENS; (III) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH
PROCEEDING IN ANY SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN
RECEIPT REQUESTED, TO SUCH LOAN PARTY AT ITS ADDRESSES PROVIDED ON THE
APPLICABLE SIGNATURE PAGE HERETO; (IV) AGREES THAT SERVICE AS PROVIDED IN CLAUSE
(III) ABOVE IS SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER SUCH LOAN PARTY
IN ANY SUCH PROCEEDING IN ANY SUCH COURT, AND OTHERWISE
XIII-16
<PAGE>
CONSTITUTES EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT; (V) AGREES THAT
COLLATERAL AGENT RETAINS THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST SUCH LOAN PARTY IN THE COURTS
OF ANY OTHER JURISDICTION; AND (VI) AGREE THAT THE PROVISIONS OF THIS SECTION
8(i) RELATING TO JURISDICTION AND VENUE SHALL BE BINDING AND ENFORCEABLE TO THE
FULLEST EXTENT PERMISSIBLE UNDER NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-
1402 OR OTHERWISE.
EACH LOAN PARTY, COLLATERAL AGENT AND EACH PARTY HEREBY AGREES TO WAIVE
ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON
OR ARISING OUT OF THIS AGREEMENT. The scope of this waiver is intended to be
all-encompassing of any and all disputes that may be filed in any court and that
relate to the subject matter of this transaction, including without limitation
contract claims, tort claims, breach of duty claims and all other common law and
statutory claims. Each Loan Party, Collateral Agent and each Party acknowledges
that this waiver is a material inducement to enter into a business relationship,
that each has already relied on this waiver in entering into this Agreement, and
that each will continue to rely on this waiver in their related future dealings.
Each Loan Party, Collateral Agent and each Party further warrants and represents
that it has reviewed this waiver with its legal counsel and that it knowingly
and voluntarily waives its jury trial rights following consultation with legal
counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER
ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY
REFERRING TO THIS SECTION 8(j) AND EXECUTED BY EACH OF THE PARTIES HERETO), AND
THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR
MODIFICATIONS TO THIS AGREEMENT. In the event of litigation, this Agreement may
be filed as a written consent to a trial by the court.
XIII-17
<PAGE>
Each Loan Party, by its execution of this Agreement in the space
provided below, hereby accepts and agrees to be bound by the foregoing
provisions of this Agreement.
COMPANY:
SEALY MATTRESS COMPANY
By:
Name:
Title:
Notice Address:
HOLDINGS:
SEALY CORPORATION
By:
Name:
Title:
Notice Address:
<PAGE>
SUBSIDIARIES:
[NAME OF SUBSIDIARY]
By:
Name:
Title:
Notice Address:
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK,
as Collateral Agent, Revolving Facility
Agent and AXEL Facility Agent
By:
Name:
Title:
Notice Address:
<PAGE>
EXHIBIT XIV
[FORM OF COMPANY PLEDGE AGREEMENT]
COMPANY PLEDGE AGREEMENT
This COMPANY PLEDGE AGREEMENT (this "AGREEMENT") is dated as of December
18, 1997 and entered into by and between SEALY MATTRESS COMPANY, an Ohio
corporation ("PLEDGOR"), and MORGAN GUARANTY TRUST COMPANY OF NEW YORK
("MORGAN GUARANTY"), as Collateral Agent for and representative of (in such
capacity herein called "COLLATERAL AGENT") the Secured Parties (as hereinafter
defined) and any Interest Rate Exchangers (as hereinafter defined).
RECITALS
A. Pledgor is the legal and beneficial owner of (i) the shares of stock
(the "PLEDGED SHARES") described in Part A of Schedule I annexed hereto and
----------
issued by the corporations named therein and (ii) the indebtedness (the
"PLEDGED DEBT") described in Part B of said Schedule I and issued by the
----------
obligors named therein.
B. Sealy Corporation, a Delaware Corporation ("HOLDINGS"), the financial
institutions from time to time parties thereto (the "CREDIT AGREEMENT
LENDERS"), Goldman Sachs Credit Partners L.P. ("GSCP"), as arranger and
syndication agent (in such capacity, "CA SYNDICATION AGENT"), Morgan Guaranty,
as administrative agent (in such capacity, "CA ADMINISTRATIVE AGENT"), and
Bankers Trust Company ("BTCO"), as documentation agent (in such capacity, "CA
DOCUMENTATION AGENT") have entered into a Credit Agreement dated as of December
18, 1997 (said Credit Agreement, as it may hereafter be amended, restated,
supplemented or otherwise modified from time to time, being the "CREDIT
AGREEMENT") with Pledgor pursuant to which Credit Agreement Lenders have made
certain commitments, subject to the terms and conditions set forth in the Credit
Agreement, to extend certain credit facilities to Pledgor.
C. Pledgor, Holdings, the financial institutions from time to time parties
thereto (the "AXEL LENDERS"), GSCP, as arranger and syndication agent (in such
capacity, "AXEL SYNDICATION AGENT"), Morgan Guaranty, as administrative agent
(in such capacity, "AXEL ADMINISTRATIVE AGENT"), and BTCo., as documentation
agent (in such capacity, "AXEL DOCUMENTATION AGENT") and have entered into an
AXEL Credit Agreement dated as of December 18, 1997 (said AXEL Credit Agreement,
as it may hereafter be amended, restated, supplemented or otherwise modified
from time to time, being the "AXEL CREDIT AGREEMENT"; the Credit Agreement
Lenders, the CA Syndication Agent, the CA Administrative Agent, the CA
Documentation Agent, the AXEL Lenders, the AXEL Syndication Agent, the AXEL
Administrative Agent, and the AXEL Documentation Agent each being a "SECURED
PARTY" and collectively the "SECURED PARTIES") pursuant to which AXEL Lenders
have made certain commitments, subject to
XIV-1
<PAGE>
the terms and conditions set forth in the AXEL Credit Agreement, to extend
certain credit facilities to Pledgor.
D. Pledgor may from time to time enter into one or more Interest Rate
Agreements (collectively, the "LENDER INTEREST RATE AGREEMENTS") with one or
more Credit Agreement Lenders or their Affiliates or AXEL Lenders or their
Affiliates (in such capacity, collectively, "INTEREST RATE EXCHANGERS") in
accordance with the terms of the Financing Agreements (as hereinafter defined),
and it is desired that the obligations of Pledgor under the Lender Interest Rate
Agreements, including without limitation the obligation of Pledgor to make
payments, if any, thereunder in the event of early termination thereof, together
with all obligations of Pledgor under the Financing Agreements and any other
Loan Documents (as hereinafter defined), be secured hereunder.
E. It is a condition precedent to the initial extensions of credit by
Secured Parties under the Financing Agreements that Pledgor shall have granted
the security interests and undertaken the obligations contemplated by this
Agreement.
NOW, THEREFORE, in consideration of the premises and to induce (i) the CA
Administrative Agent, the CA Syndication Agent and the Credit Agreement Lenders
to enter into the Credit Agreement, (ii) the Credit Agreement Lenders to make
their respective loans to, and issue Letters of Credit for the account of, the
Pledgor, (iii) the AXEL Administrative Agent, the AXEL Syndication Agent and the
AXEL Lenders to enter into the AXEL Loan Agreement, (iv) the AXEL Lenders to
make their respective loans to the Pledgor and (v) to induce Interest Rate
Exchangers to enter into the Lender Interest Rate Agreements, and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Pledgor hereby agrees with Collateral Agent as follows:
SECTION 1. DEFINED TERMS
-------------
(a) Unless otherwise defined herein, terms defined in the Credit Agreement
and used herein shall have the meanings given to such terms in the Credit
Agreement;
(b) The following terms shall have the following meanings:
"ACCELERATION" shall mean any of the Credit Agreement Obligations or the
AXEL Credit Agreement Obligations have been declared, or have become,
immediately due and payable, or the commitments to extend credit of the Credit
Agreement Lenders or the AXEL Lenders shall have been terminated under Section 8
of the Credit Agreement or Section 7 of the AXEL Credit Agreement, respectively.
"ADDITIONAL PLEDGED SHARES" has the meaning assigned to that term in
Section 2(c) of this Agreement.
"AGREEMENT" means this Company Pledge Agreement dated as of December 18,
1997, as it may be amended, supplemented or otherwise modified from time to
time.
XIV-2
<PAGE>
"AXEL COMMITMENTS" means the "Commitments" as defined in the AXEL Credit
Agreement.
"AXEL CREDIT AGREEMENT" has the meaning assigned to that term in the
recitals to this Agreement.
"AXEL OBLIGATIONS" shall mean "Obligations" as defined in the AXEL
Credit Agreement.
"COLLATERAL ACCOUNTS" shall mean "Collateral Accounts" as defined in the
Intercreditor Agreement.
"COMMITMENTS" means the Credit Agreement Commitments and the AXEL
Commitments.
"CREDIT AGREEMENT" has the meaning assigned to that term in the recitals
to this Agreement.
"CREDIT AGREEMENT COMMITMENTS" shall mean the "Commitments" as defined
in the Credit Agreement.
"CREDIT AGREEMENT OBLIGATIONS" shall mean the "Obligations" as defined
in the Credit Agreement.
"EVENT OF DEFAULT" means any "Event of Default" as defined in any
Financing Agreement or the occurrence of an Event of Default in which Company is
the Defaulting Party and which results in the designation of an Early
Termination Date (as such terms are defined in a Master Agreement or an Interest
Rate Swap Agreement or Interest Rate and Currency Exchange Agreement in the form
prepared by the International Swap and Derivatives Association Inc. or a similar
event under any similar swap agreement) under any Lender Interest Rate
Agreement.
"FINANCING AGREEMENT" means the Credit Agreement or the AXEL Credit
Agreement, and "Financing Agreements" means the Credit Agreement and the AXEL
Credit Agreement, collectively.
"FINANCING AGREEMENT OBLIGATIONS" means Credit Agreement Obligations and
AXEL Obligations.
"HOLDINGS" has the meaning assigned to that term in the recitals to this
Agreement.
"INTERCREDITOR AGREEMENT" means the Intercreditor Agreement, dated as of
December 18, 1997, by and among CA Administrative Agent, AXEL Administrative
Agent and Collateral Agent.
"INTEREST RATE EXCHANGERS" has the meaning assigned to that term in the
recitals to this Agreement.
XIV-3
<PAGE>
"LENDER INTEREST RATE AGREEMENT" has the meaning assigned to that term in
the recitals to this Agreement.
"LOAN" means any "Loan" as defined in any Financing Agreement, and
"LOANS" means all such Loans collectively.
"LOAN DOCUMENT" means any "Loan Document" as defined in any Financing
Agreement, and "LOAN DOCUMENTS" means all such Loan Documents collectively.
"NEW PLEDGED SHARES" has the meaning assigned to that term in Section 2(e)
of this Agreement.
"PLEDGE AMENDMENT" has the meaning assigned to that term in Section 7 of
this Agreement.
"PLEDGED COLLATERAL" has the meaning assigned to that term in Section 2 of
this Agreement.
"PLEDGED DEBT" has the meaning assigned to that term in the recitals of
this Agreement.
"PLEDGED SHARES" has the meaning assigned to that term in the recitals to
this Agreement.
"PLEDGOR" has the meaning assigned to that term in the introduction of
this Agreement.
"POTENTIAL EVENT OF DEFAULT" means any "Potential Event of Default" as
defined in any Financing Agreement.
"REQUISITE AXEL LENDERS" means "Requisite Lenders" as defined in the
AXEL Credit Agreement.
"REQUISITE CREDIT AGREEMENT LENDERS" means "Requisite Lenders" as
defined in the Credit Agreement.
"REQUISITE LENDERS" means (A) unless an Acceleration shall have occurred
and be continuing, the Requisite Credit Agreement Lenders and the Requisite AXEL
Lenders, and (B) if an Acceleration has occurred and is continuing, Secured
Parties holding more than 50% of the Financing Agreement Obligations.
"REQUISITE OBLIGEES" has the meaning assigned to that term in Section
17(a) of this Agreement.
"SECURED OBLIGATIONS" has the meaning assigned to that term in Section 3
of this Agreement.
"SECURED PARTIES" has the meaning assigned to that term in the recitals to
this Agreement.
XIV-4
<PAGE>
SECTION 2. PLEDGE OF SECURITY
------------------
Pledgor hereby pledges and assigns to Collateral Agent, and hereby grants to
Collateral Agent a security interest in, all of Pledgor's right, title and
interest in and to the following (the "PLEDGED COLLATERAL"):
(a) the Pledged Shares and the certificates representing the Pledged
Shares and any interest of Pledgor in the entries on the books of any
financial intermediary pertaining to the Pledged Shares, and all dividends,
cash, warrants, rights, instruments and other property or proceeds from time
to time received, receivable or otherwise distributed in respect of or in
exchange for any or all of the Pledged Shares; provided, however, that to
-------- -------
the extent the issuer of any of the Pledged Shares is a controlled foreign
corporation (used hereinafter as such term is defined in Section 957(a) or a
successor provision of the Internal Revenue Code), Pledgor shall only be
required to pledge Pledged Shares of, certificates representing Pledged
Shares of, and such interests pertaining to Pledged Shares of such issuer
possessing up to but not exceeding 65% of the voting power of all classes of
capital stock entitled to vote of such issuer, and all dividends, cash,
warrants, rights, instruments and other property or proceeds from time to
time received, receivable or otherwise distributed in respect of or in
exchange for any or all of such Pledged Shares;
(b) the Pledged Debt and the instruments evidencing the Pledged Debt,
and all interest, cash, instruments and other property or proceeds from time
to time received, receivable or otherwise distributed in respect of or in
exchange for any or all of the Pledged Debt;
(c) all additional shares of, and all securities convertible into and
warrants, options and other rights to purchase or otherwise acquire, stock
of any issuer of the Pledged Shares from time to time acquired by Pledgor in
any manner (which shares shall be deemed to be part of the Pledged Shares),
the certificates or other instruments representing such additional shares,
securities, warrants, options or other rights and any interest of Pledgor in
the entries on the books of any financial intermediary pertaining to such
additional shares (all such shares, securities, warrants, options, rights,
certificates, instruments and interests collectively being "ADDITIONAL
PLEDGED SHARES"), and all dividends, cash, warrants, rights, instruments
and other property or proceeds from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of such
Additional Pledged Shares; provided, however, that to the extent that the
-------- -------
issuer of any Additional Pledged Shares is a controlled foreign corporation,
Pledgor shall only be required to pledge Additional Pledged Shares of such
issuer possessing up to but not exceeding 65% of the voting power of all
classes of capital stock entitled to vote of such issuer, and all dividends,
cash, warrants, rights, instruments and other property or proceeds from time
to time received, receivable or otherwise distributed in respect of or in
exchange for any or all of such Additional Pledged Shares;
(d) all additional indebtedness from time to time owed to Pledgor by
any obligor on the Pledged Debt and the instruments evidencing such
indebtedness, and all interest, cash,
XIV-5
<PAGE>
instruments and other property or proceeds from time to time received,
receivable or otherwise distributed in respect of or in exchange for any or
all of such indebtedness;
(e) all shares of, and all securities convertible into and warrants,
options and other rights to purchase or otherwise acquire, stock of any
Person that, after the date of this Agreement, becomes, as a result of any
occurrence, a direct Subsidiary of Pledgor (which shares shall be deemed to
be part of the Pledged Shares), the certificates or other instruments
representing such shares, securities, warrants, options or other rights and
any interest of Pledgor in the entries on the books of any financial
intermediary pertaining to such shares (all such shares, securities,
warrants, options, rights, certificates, instruments and interests
collectively being "NEW PLEDGED SHARES"), and all dividends, cash,
warrants, rights, instruments and other property or proceeds from time to
time received, receivable or otherwise distributed in respect of or in
exchange for any or all of such shares, securities, warrants, options or
other rights; provided, however, that in the event that any such direct
-------- -------
Subsidiary is a controlled foreign corporation, Pledgor shall only be
required to pledge New Pledged Shares of such Subsidiary possessing up to
but not exceeding 65% of the voting power of all classes of capital stock
entitled to vote of such Subsidiary, and all dividends, cash, warrants,
rights, instruments and other property or proceeds from time to time
received, receivable or otherwise distributed in respect of or in exchange
for any or all of such New Pledged Shares;
(f) all indebtedness from time to time owed to Pledgor by any Person
that, after the date of this Agreement, becomes, as a result of any
occurrence, a Subsidiary of Pledgor, and all interest, cash, instruments and
other property or proceeds from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of such
indebtedness; and
(g) to the extent not covered by clauses (a) through (f) above, all
proceeds of any or all of the foregoing Pledged Collateral. For purposes of
this Agreement, the term "PROCEEDS" includes whatever is receivable or
received when Pledged Collateral or proceeds are sold, exchanged, collected
or otherwise disposed of, whether such disposition is voluntary or
involuntary, and includes, without limitation, proceeds of any indemnity or
guaranty payable to Pledgor or Collateral Agent from time to time with
respect to any of the Pledged Collateral.
SECTION 3. SECURITY FOR OBLIGATIONS.
------------------------
This Agreement secures, and the Pledged Collateral is collateral security
for, the prompt payment or performance in full when due, whether at stated
maturity, by required prepayment, declaration, acceleration, demand or otherwise
(including the payment of amounts that would become due but for the operation of
the automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C.
(S)362(a)), of all obligations and liabilities of every nature of Pledgor now or
hereafter existing under or arising out of or in connection with any Financing
Agreements and any other Loan Documents and the Lender Interest Rate Agreements
and all extensions or renewals thereof, whether for principal, interest
(including without limitation interest that, but for the filing of a petition in
bankruptcy with respect to Pledgor, would accrue on such obligations),
reimbursement
XIV-6
<PAGE>
of amounts drawn under Letters of Credit, payments for early termination of
Lender Interest Rate Agreements, fees, expenses, indemnities or otherwise,
whether voluntary or involuntary, direct or indirect, absolute or contingent,
liquidated or unliquidated, whether or not jointly owed with others, and whether
or not from time to time decreased or extinguished and later increased, created
or incurred, and all or any portion of such obligations or liabilities that are
paid, to the extent all or any part of such payment is avoided or recovered
directly or indirectly from Collateral Agent or any Secured Party or Interest
Rate Exchanger as a preference, fraudulent transfer or otherwise, and all
obligations of every nature of Pledgor now or hereafter existing under this
Agreement (all such obligations of Pledgor being the "SECURED OBLIGATIONS").
SECTION 4. DELIVERY OF PLEDGED COLLATERAL.
------------------------------
All certificates or instruments representing or evidencing the Pledged
Collateral shall be delivered to and held by or on behalf of Collateral Agent
pursuant hereto and shall be in suitable form for transfer by delivery or, as
applicable, shall be accompanied by Pledgor's endorsement, where necessary, or
duly executed instruments of transfer or assignment in blank, all in form and
substance reasonably satisfactory to Collateral Agent. Upon the occurrence and
during the continuance of an Event of Default, Collateral Agent shall have the
right, without notice to Pledgor, to transfer to or to register in the name of
Collateral Agent or any of its nominees any or all of the Pledged Collateral,
subject only to the revocable rights specified in Section 8(a). In addition,
upon the occurrence and during the continuance of an Event of Default,
Collateral Agent shall have the right at any time to exchange certificates or
instruments representing or evi dencing Pledged Collateral for certificates or
instruments of smaller or larger denominations.
SECTION 5. REPRESENTATIONS AND WARRANTIES.
------------------------------
Pledgor represents and warrants as follows:
(a) Due Authorization, etc. of Pledged Collateral. All of the
---------------------------------------------
Pledged Shares have been duly authorized and validly issued and are fully
paid and non-assessable. All of the Pledged Debt has been duly authorized,
authenticated or issued, and delivered and is the legal, valid and binding
obligation of the issuers thereof and is not in default.
(b) Description of Pledged Collateral. The Pledged Shares
---------------------------------
constitute the percentage of the issued and outstanding shares of stock of
each issuer thereof set forth on Schedule I annexed hereto, and there are no
----------
outstanding warrants, options or other rights to purchase, or other
agreements outstanding with respect to, or property that is now or hereafter
convertible into, or that requires the issuance or sale of, any Pledged
Shares. The Pledged Debt constitutes all of the issued and outstanding
intercompany indebtedness evidenced by a promissory note of the respective
issuers thereof owing to Pledgor.
(c) Ownership of Pledged Collateral. Pledgor is the legal, record
-------------------------------
and beneficial owner of the Pledged Collateral free and clear of any Lien
except for the security interest created by this Agreement.
SECTION 6. TRANSFERS AND OTHER LIENS; ADDITIONAL PLEDGED COLLATERAL; ETC.
--------------------------------------------------------------
XIV-7
<PAGE>
Pledgor shall:
(a) not, except as expressly permitted by the Financing Agreements, (i)
sell, assign (by operation of law or otherwise) or otherwise dispose of, or
grant any option with respect to, any of the Pledged Collateral, (ii) create
or suffer to exist any Lien upon or with respect to any of the Pledged
Collateral, except for the security interest under this Agreement, or (iii)
permit any issuer of Pledged Shares to merge or consolidate unless all the
outstanding capital stock of the surviving or resulting corporation is, upon
such merger or consolidation, pledged hereunder and no cash, securities or
other property is distributed in respect of the outstanding shares of any
other constituent corporation provided that if the surviving or resulting
--------
corporation upon any such merger or consolidation involving an issuer of
Pledged Shares which is a controlled foreign corporation is a controlled
foreign corporation, then Pledgor shall only be required to pledge
outstanding capital stock of such surviving or resulting corporation
possessing up to but not exceeding 65% of the voting power of all classes of
capital stock of such issuer entitled to vote; provided that in the event
--------
Pledgor makes an Asset Sale permitted by the Financing Agreements and the
assets subject to such Asset Sale are Pledged Shares, Collateral Agent shall
release the Pledged Shares that are the subject of such Asset Sale to
Pledgor free and clear of the lien and security interest under this
Agreement concurrently with the consummation of such Asset Sale; provided,
--------
further that, as a condition precedent to such release, Collateral Agent
-------
shall have received evidence reasonably satisfactory to it that arrangements
reasonably satisfactory to it have been made for delivery to Collateral
Agent of the Net Asset Sale Proceeds of such Asset Sale in the event and to
the extent that all or any portion of such Net Asset Sale Proceeds are
required to be applied to prepay the Loans under the Financing Agreements;
(b) (i) cause each issuer of Pledged Shares not to issue any stock or
other securities in addition to or in substitution for the Pledged Shares
issued by such issuer, except to Pledgor, (ii) pledge hereunder, immediately
upon its acquisition (directly or indirectly) thereof, any and all
additional shares of stock or other securities of each issuer of Pledged
Shares, and (iii) pledge hereunder, immediately upon its acquisition
(directly or indirectly) thereof, any and all shares of stock of any Person
that, after the date of this Agreement, becomes, as a result of any
occurrence, a direct Subsidiary of Pledgor; provided, that notwithstanding
--------
anything contained in this clause (b) to the contrary, Pledgor shall only be
required to pledge the outstanding capital stock of a foreign controlled
corporation possessing up to but not exceeding 65% of the voting power of
all classes of capital stock of such controlled foreign corporation entitled
to vote;
(c) (i) pledge hereunder, immediately upon their issuance, any and all
instruments or other evidences of additional indebtedness from time to time
owed to Pledgor by any obligor on the Pledged Debt, and (ii) pledge
hereunder, immediately upon their issuance, any and all instruments or other
evidences of indebtedness from time to time owed to Pledgor by any Person
that after the date of this Agreement becomes, as a result of any
occurrence, a Subsidiary of Pledgor; and
XIV-8
<PAGE>
(d) pay promptly when due all taxes, assessments and governmental
charges or levies imposed upon, and all claims against, the Pledged
Collateral, except to the extent the validity thereof is being contested in
good faith.
SECTION 7. FURTHER ASSURANCES; PLEDGE AMENDMENTS.
-------------------------------------
(a) Pledgor agrees that from time to time, at the expense of Pledgor,
Pledgor will promptly execute and deliver all further instruments and documents,
and take all further action, that Collateral Agent may reasonably request, in
order to perfect and protect any security interest granted or purported to be
granted hereby or to enable Collateral Agent to exercise and enforce its rights
and remedies hereunder with respect to any Pledged Collateral. Without limiting
the generality of the foregoing, Pledgor will: (i) execute and file such
financing or continuation statements, or amendments thereto, and such other
instruments or notices as Collateral Agent may reasonably request, in order to
perfect and preserve the security interests granted or purported to be granted
hereby and (ii) at Collateral Agent's reasonable request, appear in and defend
any action or proceeding that may affect Pledgor's title to or Collateral
Agent's security interest in all or any part of the Pledged Collateral.
(b) Pledgor further agrees that it will, upon obtaining any additional
shares of stock or other securities required to be pledged hereunder as provided
in Section 6(b) or (c), promptly (and in any event within five Business Days)
deliver to Collateral Agent a Pledge Amendment, duly executed by Pledgor, in
substantially the form of Schedule II annexed hereto (a "PLEDGE AMENDMENT"),
-----------
in respect of the additional Pledged Shares or Pledged Debt to be pledged
pursuant to this Agreement. Pledgor hereby authorizes Collateral Agent to
attach each Pledge Amendment to this Agreement and agrees that all Pledged
Shares or Pledged Debt listed on any Pledge Amendment delivered to Collateral
Agent shall for all purposes hereunder be considered Pledged Collateral;
provided that the failure of Pledgor to execute a Pledge Amendment with respect
- --------
to any additional Pledged Shares or Pledged Debt pledged pursuant to this
Agreement shall not impair the security interest of Collateral Agent therein or
otherwise adversely affect the rights and remedies of Collateral Agent hereunder
with respect thereto.
SECTION 8. VOTING RIGHTS; DIVIDENDS; ETC.
------------------------------
(a) So long as no Event of Default shall have occurred and be continuing:
(i) Pledgor shall be entitled to exercise any and all voting and other
consensual rights pertaining to the Pledged Collateral or any part thereof
for any purpose not inconsistent with the terms of this Agreement or the
Financing Agreements;
(ii) Pledgor shall be entitled to receive and retain, and to utilize
free and clear of the lien of this Agreement, any and all dividends and
interest paid in respect of the Pledged Collateral; provided, however, that
-------- -------
any and all dividends and interest paid or payable other than in cash in
respect of, and instruments and other property received, receivable or
otherwise distributed in respect of, or in exchange for, any Pledged
Collateral, shall be, and shall forthwith be delivered to Collateral Agent
to hold as, Pledged Collateral and shall, if received by Pledgor, be
received in trust for the benefit of Collateral Agent, be segregated
XIV-9
<PAGE>
from the other property or funds of Pledgor and be forthwith delivered to
Collateral Agent as Pledged Collateral in the same form as so received (with
all necessary endorsements); provided, that Pledgor shall not be required to
--------
deliver the outstanding capital stock of a foreign controlled corporation
paid as a dividend or interest to the Pledgor, if Collateral Agent would
hold as Pledged Collateral outstanding capital stock of such controlled
foreign corporation possessing greater than 65% of the voting power of all
classes of capital stock of such controlled foreign corporation entitled to
vote; and
(iii) Collateral Agent shall promptly execute and deliver (or cause to
be executed and delivered) to Pledgor all such proxies, dividend payment
orders and other instruments as Pledgor may from time to time reasonably
request for the purpose of enabling Pledgor to exercise the voting and other
consensual rights which it is entitled to exercise pursuant to paragraph (i)
above and to receive the dividends, principal or interest payments which it
is authorized to receive and retain pursuant to paragraph (ii) above.
(b) Upon the occurrence and during the continuation of an Event of Default:
(i) upon written notice from Collateral Agent to Pledgor, all rights of
Pledgor to exercise the voting and other consensual rights which it would
otherwise be entitled to exercise pursuant to Section 8(a)(i) shall cease,
and all such rights shall thereupon become vested in Collateral Agent who
shall thereupon have the sole right to exercise such voting and other
consensual rights;
(ii) all rights of Pledgor to receive the dividends and interest
payments which it would otherwise be authorized to receive and retain
pursuant to Section 8(a)(ii) shall cease, and all such rights shall
thereupon become vested in Collateral Agent who shall thereupon have the
sole right to receive and hold as Pledged Collateral such dividends and
interest payments; and
(iii) all dividends, principal and interest payments which are received
by Pledgor contrary to the provisions of paragraph (ii) of this Section 8(b)
shall be (A) forthwith (and in any event within two Business Days) deposited
by the Pledgor to the exact form received, duly endorsed by the Pledgor to
the Collateral Agent if required, in a Collateral Account maintained under
the sole dominion and control of the Collateral Agent for the account of the
Secured Parties only as provided in Section 15, (B) until so turned over in
accordance with the preceding subsection (A), all such amounts and proceeds
received by Grantor shall be received in trust for the benefit of Collateral
Agent hereunder -- and shall be segregated from other funds of Pledgor.
(c) In order to permit Collateral Agent to exercise the voting and other
consensual rights which it may be entitled to exercise pursuant to Section
8(b)(i) and to receive all dividends and other distributions which it may be
entitled to receive under Section 8(a)(ii) or Section 8(b)(ii), (i) Pledgor
shall promptly execute and deliver (or cause to be executed and delivered) to
Collateral Agent all such proxies, dividend payment orders and other instruments
as Collateral Agent may from time to time reasonably request and (ii) without
limiting the effect of the immediately preceding clause (i), Pledgor hereby
grants to Collateral Agent an irrevocable proxy to vote the Pledged Shares and
to
XIV-10
<PAGE>
exercise all other rights, powers, privileges and remedies to which a holder of
the Pledged Shares would be entitled (including, without limitation, giving or
withholding written consents of shareholders, calling special meetings of
shareholders and voting at such meetings), which proxy shall be effective,
automatically and without the necessity of any action (including any transfer of
any Pledged Shares on the record books of the issuer thereof) by any other
Person (including the issuer of the Pledged Shares or any officer or agent
thereof), upon the occurrence and during the continuance of an Event of Default
and which proxy shall only terminate upon the payment in full of the Secured
Obligations.
SECTION 9. COLLATERAL AGENT APPOINTED ATTORNEY-IN-FACT.
-------------------------------------------
Pledgor hereby irrevocably appoints Collateral Agent as Pledgor's attorney-
in-fact, with full authority in the place and stead of Pledgor and in the name
of Pledgor, Collateral Agent or otherwise, from time to time, upon the
occurrence and during the continuance of an Event of Default, in Collateral
Agent's reasonable discretion to take any action and to execute any instrument
that Collateral Agent may reasonably deem necessary or advisable to accomplish
the purposes of this Agreement, including without limitation:
(a) to file one or more financing or continuation statements, or
amendments thereto, relative to all or any part of the Pledged Collateral
without the signature of Pledgor to the extent allowed under applicable law;
(b) to ask, demand, collect, sue for, recover, compound, receive and
give acquittance and receipts for moneys due and to become due under or in
respect of any of the Pledged Collateral;
(c) to receive, endorse and collect any instruments made payable to
Pledgor representing any dividend, principal or interest payment or other
distribution in respect of the Pledged Collateral or any part thereof and to
give full discharge for the same; and
(d) to file any claims or take any action or institute any proceedings
that Collateral Agent may reasonably deem necessary or desirable for the
collection of any of the Pledged Collateral or otherwise to enforce the
rights of Collateral Agent with respect to any of the Pledged Collateral.
SECTION 10. COLLATERAL AGENT MAY PERFORM.
----------------------------
If Pledgor fails to perform any agreement contained herein, Collateral Agent
may itself perform, or cause performance of, such agreement, and the reasonable
expenses of Collateral Agent incurred in connection therewith shall be payable
by Pledgor under Section 16(b).
SECTION 11. STANDARD OF CARE.
----------------
The powers conferred on Collateral Agent hereunder are solely to protect its
interest in the Pledged Collateral and shall not impose any duty upon it to
exercise any such powers. Except for the exercise of reasonable care in the
custody of any Pledged Collateral in its possession and the
XIV-11
<PAGE>
accounting for moneys actually received by it hereunder, Collateral Agent shall
have no duty as to any Pledged Collateral, it being understood that Collateral
Agent shall have no responsibility for (a) ascertaining or taking action with
respect to calls, conversions, exchanges, maturities, tenders or other matters
relating to any Pledged Collateral, whether or not Collateral Agent has or is
deemed to have knowledge of such matters, (b) taking any necessary steps (other
than steps taken in accordance with the standard of care set forth above to
maintain possession of the Pledged Collateral) to preserve rights against any
parties with respect to any Pledged Collateral, (c) taking any necessary steps
to collect or realize upon the Secured Obligations or any guarantee therefor, or
any part thereof, or any of the Pledged Collateral, or (d) initiating any action
to protect the Pledged Collateral against the possibility of a decline in market
value. Collateral Agent shall be deemed to have exercised reasonable care in the
custody and preservation of Pledged Collateral in its possession if such Pledged
Collateral is accorded treatment substantially equal to that which Collateral
Agent accords its own property consisting of negotiable securities.
XIV-12
<PAGE>
SECTION 12. REMEDIES.
--------
(a) If any Event of Default shall have occurred and be continuing,
Collateral Agent may exercise in respect of the Pledged Collateral, in addition
to all other rights and remedies provided for herein or otherwise available to
it, all the rights and remedies of a secured party on default under the Uniform
Commercial Code as in effect in any relevant jurisdiction (the "CODE")
(whether or not the Code applies to the affected Pledged Collateral), and
Collateral Agent may also in its sole discretion, without notice except as
specified below, sell the Pledged Collateral or any part thereof in one or more
parcels at public or private sale, at any exchange or broker's board or at any
of Collateral Agent's offices or elsewhere, for cash, on credit or for future
delivery, at such time or times and at such price or prices and upon such other
terms as Collateral Agent may deem commercially reasonable, irrespective of the
impact of any such sales on the market price of the Pledged Collateral.
Collateral Agent or any Secured Party or Interest Rate Exchanger may be the
purchaser of any or all of the Pledged Collateral at any such sale and
Collateral Agent, as agent for and representative of Secured Parties and
Interest Rate Exchangers (but not any Secured Party or Secured Parties or
Interest Rate Exchanger or Interest Rate Exchangers in its or their respective
individual capacities unless Requisite Obligees shall otherwise agree in
writing), shall be entitled, for the purpose of bidding and making settlement or
payment of the purchase price for all or any portion of the Pledged Collateral
sold at any such public sale, to use and apply any of the Secured Obligations as
a credit on account of the purchase price for any Pledged Collateral payable by
Collateral Agent at such sale. Each purchaser at any such sale shall hold the
property sold absolutely free from any claim or right on the part of Pledgor,
and Pledgor hereby waives (to the extent permitted by applicable law) all rights
of redemption, stay and/or appraisal which it now has or may at any time in the
future have under any rule of law or statute now existing or hereafter enacted.
Pledgor agrees that, to the extent notice of sale shall be required by law, at
least ten days' notice to Pledgor of the time and place of any public sale or
the time after which any private sale is to be made shall constitute reasonable
notification. Collateral Agent shall not be obligated to make any sale of
Pledged Collateral regardless of notice of sale having been given. Collateral
Agent may adjourn any public or private sale from time to time by announcement
at the time and place fixed therefor, and such sale may, without further notice,
be made at the time and place to which it was so adjourned. Pledgor hereby
waives any claims against Collateral Agent arising by reason of the fact that
the price at which any Pledged Collateral may have been sold at such a private
sale was less than the price which might have been obtained at a public sale,
even if Collateral Agent accepts the first offer received and does not offer
such Pledged Collateral to more than one offeree. If the proceeds of any sale
or other disposition of the Pledged Collateral are insufficient to pay all the
Secured Obligations, Pledgor shall be liable for the deficiency and the
reasonable fees of any attorneys employed by Collateral Agent to collect such
deficiency.
(b) Pledgor recognizes that, by reason of certain prohibitions contained in
the Securities Act and applicable state securities laws, Collateral Agent may be
compelled, with respect to any sale of all or any part of the Pledged Collateral
conducted without prior registration or qualification of such Pledged Collateral
under the Securities Act and/or such state securities laws, to limit purchasers
to those who will agree, among other things, to acquire the Pledged Collateral
for their own account, for investment and not with a view to the distribution or
resale thereof. Pledgor acknowledges that any such private sales may be at
prices and on terms less favorable than those obtainable through a public sale
without such restrictions (including, without limitation, a public
XIV-13
<PAGE>
offering made pursuant to a registration statement under the Securities Act)
and, notwithstanding such circumstances, Pledgor agrees that any such private
sale shall be deemed to have been made in a commercially reasonable manner and
that Collateral Agent shall have no obligation to engage in public sales and no
obligation to delay the sale of any Pledged Collateral for the period of time
necessary to permit the issuer thereof to register it for a form of public sale
requiring registration under the Securities Act or under applicable state
securities laws, even if such issuer would, or should, agree to so register it.
(c) If Collateral Agent determines to exercise its right to sell any or all
of the Pledged Collateral, upon written request, Pledgor shall and shall cause
each issuer of any Pledged Shares to be sold hereunder from time to time to
furnish to Collateral Agent all such information as Collateral Agent may
reasonably request in order to determine the number of shares and other
instruments included in the Pledged Collateral which may be sold by Collateral
Agent in exempt transactions under the Securities Act and the rules and
regulations of the Securities and Exchange Commission thereunder, as the same
are from time to time in effect.
SECTION 13. PROCEEDS TO BE TURNED OVER TO COLLATERAL AGENT.
----------------------------------------------
In addition to the rights of the Collateral Agent and the Secured Parties
specified in Section 8(b) with respect to payment of Accounts, if an Event of
Default shall occur and be continuing, upon request of the Collateral Agent, all
proceeds received by the Pledgor consisting of cash, checks and other near-cash
items shall be held by the Pledgor in trust for the Collateral Agent and the
Secured Parties, segregated from other funds of the Pledgor, and shall,
forthwith upon receipt by the Pledgor, be turned over to the Collateral Agent in
the exact form received by the Pledgor (duly indorsed by the Pledgor to the
Collateral Agent, if required) and held by the Collateral Agent in a Collateral
Account maintained under the Intercreditor Agreement. All proceeds while held
by the Collateral Agent in a Collateral Account (or by the Pledgor in trust for
the Collateral Agent and the Secured Parties) shall continue to be held as
collateral security for all the Secured Obligations and shall not constitute
payment thereof until applied as provided in Section 15.
SECTION 14. APPLICATION OF PROCEEDS.
-----------------------
All proceeds held in any Collateral Account and all other proceeds received
by Collateral Agent in respect of any sale of, collection from, or other
realization upon all or any part of the Pledged Collateral shall be applied as
provided in subsection 3 of the Intercreditor Agreement.
SECTION 15. CONTINUING SECURITY INTEREST; TRANSFER OF LOANS.
-----------------------------------------------
This Agreement shall create a continuing security interest in the Pledged
Collateral and shall (a) remain in full force and effect until the payment in
full of all Secured Obligations (other than inchoate indemnification obligations
with respect to claims, losses or liabilities which have not yet arisen and are
not yet due and payable), the cancellation or termination of the Commitments and
the cancellation or expiration of all outstanding Letters of Credit, (b) be
binding upon Pledgor, its successors and assigns, and (c) inure, together with
the rights and remedies of Collateral Agent
XIV-14
<PAGE>
hereunder, to the benefit of Collateral Agent and its successors, transferees
and assigns. Without limiting the generality of the foregoing clause (c), but
subject to the provisions of subsection 10.1 of the Credit Agreement and
subsection 10.1 of the AXEL Credit Agreement, any Secured Party may assign or
otherwise transfer any Loans held by it to any other Person, and such other
Person shall thereupon become vested with all the benefits in respect thereof
granted to herein or otherwise. Upon the payment in full of all Secured
Obligations (other than inchoate indemnification obligations with respect to
claims, losses or liabilities which have not yet arisen and are not yet due and
payable), the cancellation or termination of the Commitments and the
cancellation or expiration of all outstanding Letters of Credit, the security
interest granted hereby shall terminate and all rights to the Pledged Collateral
shall revert to Pledgor. Upon any such termination Collateral Agent will, at
Pledgor's expense, execute and deliver to Pledgor such documents as Pledgor
shall reasonably request to evidence such termination in accordance with the
terms of the Intercreditor Agreement and Pledgor shall be entitled to the
return, upon its request and at its expense, against receipt and without
recourse to Collateral Agent, of such of the Pledged Collateral as shall not
have been sold or otherwise applied pursuant to the terms hereof.
SECTION 16. COLLATERAL AGENT AS ADMINISTRATIVE AGENT.
----------------------------------------
(a) Collateral Agent has been appointed to act as Collateral Agent hereunder
by CA Administrative Agent on behalf of the Credit Agreement Lenders and AXEL
Administrative Agent on behalf of the AXEL Lenders pursuant to Intercreditor
Agreement and, by their acceptance of the benefits hereof, Interest Rate
Exchangers and shall be entitled to the benefits of the Intercreditor Agreement.
Collateral Agent shall be obligated, and shall have the right hereunder, to make
demands, to give notices, to exercise or refrain from exercising any rights, and
to take or refrain from taking any action (including, without limitation, the
release or substitution of Pledged Collateral), solely in accordance with this
Agreement and the Intercreditor Agreement; provided that Collateral Agent shall
--------
exercise, or refrain from exercising, any remedies provided for in Section 12 in
accordance with the instructions of (i) Requisite Lenders or (ii) after payment
in full of all Financing Agreement Obligations under the Financing Agreements
and any other Loan Documents, the holders of a majority of the aggregate
notional amount (or, with respect to any Lender Interest Rate Agreement that has
been terminated in accordance with its terms, the amount then due and payable
(exclusive of expenses and similar payments but including any early termination
payments then due) under such Lender Interest Rate Agreement) under all Lender
Interest Rate Agreements (Requisite Lenders or, if applicable, such holders
being referred to herein as "REQUISITE OBLIGEES"). In furtherance of the
foregoing provisions of this Section 18(a), each Interest Rate Exchanger, by its
acceptance of the benefits hereof, agrees that it shall have no right
individually to realize upon any of the Pledged Collateral hereunder, it being
understood and agreed by such Interest Rate Exchanger that all rights and
remedies hereunder may be exercised solely by Collateral Agent for the benefit
of and Interest Rate Exchangers in accordance with the terms of this Section
18(a).
(b) Collateral Agent shall at all times be the same Person that is appointed
Collateral Agent under the Intercreditor Agreement. The Collateral Agent may
resign and a successor Collateral Agent may be appointed in the manner provided
in the Intercreditor Agreement. Upon the acceptance of any appointment as
Collateral Agent by a successor Collateral Agent, that successor Collateral
Agent shall thereupon succeed to and become vested with all the rights, powers,
XIV-15
<PAGE>
privileges and duties of the retiring or removed Collateral Agent under this
Agreement, and the retiring or removed Collateral Agent under this Agreement
shall promptly (i) transfer to such successor Collateral Agent all sums,
securities and other items of Collateral held hereunder, together with all
records and other documents necessary or appropriate in connection with the
performance of the duties of the successor Collateral Agent under this
Agreement, and (ii) execute and deliver to such successor Collateral Agent such
amendments to financing statements, and take such other actions, as may be
necessary or appropriate in connection with the assignment to such successor
Collateral Agent of the security interests created hereunder, whereupon such
retiring or removed Collateral Agent shall be discharged from its duties and
obligations under this Agreement. After any retiring or removed Collateral
Agent's resignation or removal hereunder as Collateral Agent, the provisions of
this Agreement shall inure to its benefit as to any actions taken or omitted to
be taken by it under this Agreement while it was Collateral Agent hereunder.
SECTION 17. AMENDMENTS; ETC.
---------------
No amendment, modification, termination or waiver of any provision of this
Agreement, and no consent to any departure by Pledgor therefrom, shall in any
event be effective unless the same shall be in writing and signed by Collateral
Agent and, in the case of any such amendment or modification, by Pledgor. Any
such waiver or consent shall be effective only in the specific instance and for
the specific purpose for which it was given.
SECTION 18. NOTICES.
-------
Any notice or other communication herein required or permitted to be given
shall be in writing and may be personally served, telexed or sent by
telefacsimile or United States mail or courier service and shall be deemed to
have been given when delivered in person or by courier service, upon receipt of
telefacsimile or telex (with received answerback), or three Business Days after
depositing it in the United States mail with postage prepaid and properly
addressed; provided that notices to Collateral Agent or Pledgor shall not be
--------
effective until received. For the purposes hereof, the address of each party
hereto shall be as provided in subsection 10.8 of the Credit Agreement or
subsection 10.8 of the AXEL Credit Agreement, as applicable, or as set forth
under such party's name on the signature pages hereof or such other address as
shall be designated by such party in a written notice delivered to the other
parties hereto.
SECTION 19. SEVERABILITY.
------------
In case any provision in or obligation under this Agreement shall be
invalid, illegal or unenforceable in any jurisdiction, the validity, legality
and enforceability of the remaining provisions or obligations, or of such
provision or obligation in any other jurisdiction, shall not in any way be
affected or impaired thereby.
SECTION 20. HEADINGS.
--------
XIV-16
<PAGE>
Section and subsection headings in this Agreement are included herein for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose or be given any substantive effect.
SECTION 21. GOVERNING LAW; TERMS.
--------------------
THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL
BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE
INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING WITHOUT LIMITATION SECTION 5-
1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO
CONFLICTS OF LAWS PRINCIPLES, EXCEPT TO THE EXTENT THAT THE CODE PROVIDES THAT
THE PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN
RESPECT OF ANY PARTICULAR PLEDGED COLLATERAL ARE GOVERNED BY THE LAWS OF A
JURISDICTION OTHER THAN THE STATE OF NEW YORK. Unless otherwise defined herein
or in the Financing Agreements, terms used in Articles 8 and 9 of the Uniform
Commercial Code in the State of New York are used herein as therein defined.
SECTION 22. COUNTERPARTS.
------------
This Agreement may be executed in one or more counterparts and by different
parties hereto in separate counterparts, each of which when so executed and
delivered shall be deemed an original, but all such counterparts together shall
constitute but one and the same instrument; signature pages may be detached from
multiple separate counterparts and attached to a single counterpart so that all
signature pages are physically attached to the same document.
[Remainder of page intentionally left blank]
XIV-17
<PAGE>
IN WITNESS WHEREOF, Pledgor and Collateral Agent have caused this
Agreement to be duly executed and delivered by their respective officers
thereunto duly authorized as of the date first written above.
SEALY MATTRESS COMPANY
By:
--------------------------------------
Name:
Title:
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK, as Collateral Agent
By:
-------------------------------------
Name:
Title:
XIV-18
<PAGE>
SCHEDULE I
Attached to and forming a part of the Company Pledge Agreement dated as of
December 18, 1997 between Sealy Mattress Company, as Pledgor, and Morgan
Guaranty Trust Company of New York, as Collateral Agent.
PART A
<TABLE>
<CAPTION>
==========================================================================
PERCENTAGE OF
STOCK NUMBER OUTSTANDING
CLASS OF CERTIFICATE PAR OF SHARES
STOCK ISSUER STOCK NOS. VALUE SHARES PLEDGED
==========================================================================
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
==========================================================================
</TABLE>
PART B
<TABLE>
<CAPTION>
======================================================================
AMOUNT OF
DEBT ISSUER INDEBTEDNESS
======================================================================
<S> <C>
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
======================================================================
</TABLE>
XIV-19
<PAGE>
SCHEDULE II
PLEDGE AMENDMENT
This Pledge Amendment, dated ____________, [199_][200_], is delivered
pursuant to Section 6(b) of the Pledge Agreement referred to below. The
undersigned hereby agrees that this Pledge Amendment may be attached to the
Company Pledge Agreement dated as of December 18, 1997, between the undersigned
and Morgan Guaranty Trust Company of New York, as Collateral Agent (the "PLEDGE
AGREEMENT," capitalized terms defined therein being used herein as therein
defined), and that the [Pledged Shares] [Pledged Debt] listed on this Pledge
Amendment shall be deemed to be part of the [Pledged Shares] [Pledged Debt] and
shall become part of the Pledged Collateral and shall secure all Secured
Obligations.
SEALY MATTRESS COMPANY
By:
----------------------------------------
Name:
Title:
<TABLE>
<CAPTION>
=========================================================================
PERCENTAGE OF
CLASS STOCK NUMBER OUTSTANDING
OF CERTIFICATE PAR OF SHARES PLEDGED
STOCK ISSUER STOCK NOS. VALUE SHARES
=========================================================================
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
=========================================================================
</TABLE>
<TABLE>
<CAPTION>
==================================================
AMOUNT OF
DEBT ISSUER INDEBTEDNESS
==================================================
<S> <C>
--------------------------------------------------
--------------------------------------------------
==================================================
</TABLE>
XIV-20
<PAGE>
EXHIBIT XV
[FORM OF COMPANY SECURITY AGREEMENT]
COMPANY SECURITY AGREEMENT
This COMPANY SECURITY AGREEMENT (this "AGREEMENT") is dated as of December
corporation ("GRANTOR"), and MORGAN GUARANTY TRUST COMPANY OF NEW YORK
("MORGAN GUARANTY"), as Collateral Agent for and representative of (in such
capacity, herein called "COLLATERAL AGENT") the Secured Parties (as
hereinafter defined) and any Interest Rate Exchangers (as hereinafter defined).
RECITALS
A. Grantor, Sealy Corporation, a Delaware Corporation ("HOLDINGS") the
financial institutions from time to time parties thereto (the "CREDIT AGREEMENT
LENDERS"), Goldman Sachs Credit Partners L.P. ("GSCP"), as arranger and
syndication agent (in such capacity, "CA SYNDICATION AGENT"), Morgan Guaranty,
as administrative agent (in such capacity, "CA ADMINISTRATIVE AGENT"), and
Bankers Trust Company ("BTCO."), as documentation agent (in such capacity,
"CA DOCUMENTATION AGENT") have entered into a Credit Agreement dated as of
December 18, 1997 (said Credit Agreement, as it may hereafter be amended,
restated, supplemented or otherwise modified from time to time, being the
("CREDIT AGREEMENT") pursuant to which Credit Agreement Lenders have made
certain commitments, subject to the terms and conditions set forth in the Credit
Agreement, to extend certain credit facilities to Grantor.
B. Grantor, Holdings, the financial institutions from time to time parties
thereto (the "AXEL LENDERS"), GSCP, as arranger and syndication agent (in such
capacity the "AXEL SYNDICATION AGENT"), Morgan Guaranty, as administrative
agent (in such capacity "AXEL ADMINISTRATIVE AGENT"), and BTCo., as
documentation agent (in such capacity "AXEL DOCUMENTATION AGENT") have entered
into an AXEL Credit Agreement dated as of December 18, 1997 (said AXEL Credit
Agreement, as it may hereafter be amended, restated, supplemented or otherwise
modified from time to time, being the "AXEL CREDIT AGREEMENT"; the Credit
Agreement Lenders, the CA Syndication Agent, the CA Administrative Agent, the CA
Documentation Agent, the AXEL Lenders, the AXEL Syndication Agent, the AXEL
Administrative Agent, and the AXEL Documentation Agent each being a "SECURED
PARTY" and collectively the "SECURED PARTIES") pursuant to which AXEL Lenders
have made certain commitments, subject to the terms and conditions set forth in
the AXEL Credit Agreement, to extend certain credit facilities to Grantor.
C. Grantor may from time to time enter into one or more Interest Rate
Agreements (collectively, the "LENDER INTEREST RATE AGREEMENTS") with one or
more CA Lenders or their Affiliates or AXEL Lenders or their Affiliates (in such
capacity, collectively, "INTEREST RATE EXCHANGERS") in accordance with the
terms of the Financing Agreements (as hereinafter defined),
XV-1
<PAGE>
and it is desired that the obligations of Grantor under the Lender Interest Rate
Agreements, including without limitation the obligation of Grantor to make
payments, if any, thereunder in the event of early termination thereof, together
with all obligations of Grantor under the Financing Agreements and any other
Loan Documents (as hereinafter defined), be secured hereunder.
D. It is a condition precedent to the initial extensions of credit by
Secured Parties under the Financing Agreements that Grantor shall have granted
the security interests and undertaken the obligations contemplated by this
Agreement.
NOW, THEREFORE, in consideration of the premises and to induce (i) the CA
Administrative Agent, the CA Syndication Agent and the Credit Agreement Lenders
to enter into the Credit Agreement, (ii) the Credit Agreement Lenders to make
their respective loans to, and issue Letters of Credit for the account of, the
Grantor, (iii) the AXEL Administrative Agent, the AXEL Syndication Agent and the
AXEL Lenders to enter into the AXEL Loan Agreement, (iv) the AXEL Lenders to
make their respective loans to the Grantor and (v) to induce Interest Rate
Exchangers to enter into the Lender Interest Rate Agreements and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the Grantor hereby agrees with the Collateral Agent as follows:
1. DEFINED TERMS.
-------------
(a) Unless otherwise defined herein, terms defined in the Credit Agreement
and used herein shall have the meanings given to such terms in the Credit
Agreement;
(b) The following terms shall have the following meanings:
"ACCELERATION" shall mean any of the Credit Agreement Obligations or the
AXEL Credit Agreement Obligations have been declared, or have become,
immediately due and payable, or the commitments to extend credit of the Credit
Agreement Lenders or the AXEL Lenders shall have been terminated under Section 8
of the Credit Agreement or Section 7 of the AXEL Credit Agreement, respectively.
"ACCOUNTS" has the meaning assigned to that term in Section 2 of this
Agreement.
"AGREEMENT" means this Company Security Agreement dated as of December 18,
1997, as it may be amended, supplemented or otherwise modified from time to
time.
"ASSIGNED AGREEMENT" has the meaning assigned to that term in Section 2 of
this Agreement.
"AXEL COMMITMENTS" shall mean the "Commitments" as defined in the AXEL
Credit Agreement.
"AXEL CREDIT AGREEMENT" has the meaning assigned to that term in the
recitals to this Agreement.
XV-2
<PAGE>
"AXEL OBLIGATIONS" shall mean the "Obligations" as defined in the AXEL
Credit Agreement.
"COLLATERAL" has the meaning assigned to that term in Section 2 of this
Agreement.
"COLLATERAL ACCOUNTS" shall mean "Collateral Accounts" as defined in the
Intercreditor Agreement.
"COMMITMENTS" means the Credit Agreement Commitments and the AXEL
Commitments.
"CREDIT AGREEMENT" has the meaning assigned to that term in the recitals
to this Agreement.
"CREDIT AGREEMENT COMMITMENTS" shall mean the "Commitments" as defined
in the Credit Agreement.
"CREDIT AGREEMENT OBLIGATIONS" shall mean the "Obligations" as defined
in the Credit Agreement.
"EQUIPMENT" has the meaning assigned to that term in Section 2 of this
Agreement.
"EVENT OF DEFAULT" means any "Event of Default" as defined in any
Financing Agreement or the occurrence of an Event of Default in which Company is
the Defaulting Party and which results in the designation of an Early
Termination Date (as such terms are defined in a Master Agreement or an Interest
Rate Swap Agreement or Interest Rate and Currency Exchange Agreement in the form
prepared by the International Swap and Derivatives Association Inc. or a similar
event under any similar swap agreement) under any Lender Interest Rate
Agreement.
"FINANCING AGREEMENT" means either the Credit Agreement or the AXEL Credit
Agreement, and "Financing Agreements" means the Credit Agreement and the AXEL
Credit Agreement, collectively.
"FINANCING AGREEMENT OBLIGATIONS" means Credit Agreement Obligations and
AXEL Obligations.
"GRANTOR" has the meaning assigned to that term in the introduction of
this Agreement.
"HOLDINGS" has the meaning assigned to that term in the recitals to this
Agreement.
"INTERCREDITOR AGREEMENT" means the Intercreditor Agreement, dated as of
December 18, 1997, by and among CA Administrative Agent, AXEL Administrative
Agent and Collateral Agent.
"INTEREST RATE EXCHANGERS" has the meaning assigned to that term in the
recitals to this Agreement.
XV-3
<PAGE>
"INVENTORY" has the meaning assigned to that term in Section 2 of this
Agreement.
"LENDER INTEREST RATE AGREEMENT" has the meaning assigned to that term in
the recitals to this Agreement.
"LOAN" means any "Loan" as defined in any Financing Agreement, and
"LOANS" means all such Loans collectively.
"LOAN DOCUMENT" means any "Loan Document" as defined in any Financing
Agreement, and "LOAN DOCUMENTS" means all such Loan Documents collectively.
"NEGOTIABLE DOCUMENT OF TITLE" has the meaning assigned to that term in
Section 2 of this Agreement.
"POTENTIAL EVENT OF DEFAULT" means any "Potential Event of Default" as
defined in any Financing Agreement.
"RELATED CONTRACTS" has the meaning assigned to that term in Section 2 of
this Agreement.
"REQUISITE AXEL LENDERS" means "Requisite Lenders" as defined in the
AXEL Credit Agreement.
"REQUISITE CREDIT AGREEMENT LENDERS" means "Requisite Lenders" as
defined in the Credit Agreement.
"REQUISITE LENDERS" means (A) unless an Acceleration shall have occurred
and be continuing, the Requisite Credit Agreement Lenders and the Requisite AXEL
Lenders, and (B) if an Acceleration has occurred and is continuing, Secured
Parties holding more than 50% of the Financing Agreement Obligations.
"REQUISITE OBLIGEES" has the meaning assigned to that term in Section 23
of this Agreement.
"SECURED OBLIGATIONS" has the meaning assigned to that term in Section 2
of this Agreement.
"SECURED PARTIES" has the meaning assigned to that term in the recitals to
this Agreement.
2. GRANT OF SECURITY.
-----------------
Grantor hereby assigns to Collateral Agent and hereby grants to Collateral
Agent, a security interest in, all of Grantor's right, title and interest in and
to the following, in each case whether now or hereafter existing or in which
Grantor now has or hereafter acquires an interest and wherever the same may be
located (the "COLLATERAL"):
XV-4
<PAGE>
(a) all equipment in all of its forms, all parts thereof and all
accessions thereto (any and all such equipment, parts and accessions being
the "EQUIPMENT");
(b) all inventory in all of its forms (including, but not limited to,
(i) all goods held by Grantor for sale or lease or to be furnished under
contracts of service or so leased or furnished, (ii) all raw materials, work
in process, finished goods, and materials used or consumed in the
manufacture, packing, shipping, advertising, selling, leasing, furnishing or
production of such inventory or otherwise used or consumed in Grantor's
business, (iii) all goods in which Grantor has an interest in mass or a
joint or other interest or right of any kind, and (iv) all goods which are
returned to or repossessed by Grantor) and all accessions thereto and
products thereof (all such inventory, accessions and products being the
"INVENTORY") and all negotiable and non-negotiable documents of title
(including without limitation warehouse receipts, dock receipts and bills of
lading) issued by any Person covering any Inventory (any such negotiable
document of title being a "NEGOTIABLE DOCUMENT OF TITLE");
(c) all accounts, contract rights, chattel paper, documents,
instruments, general intangibles and other rights and obligations of any
kind and all rights in, to and under all security agreements, leases and
other contracts securing or otherwise relating to any such accounts,
contract rights, chattel paper, documents, instruments, general intangibles
or other obligations (any and all such accounts, contract rights, chattel
paper, documents, instruments, general intangibles and other obligations
being the "ACCOUNTS", and any and all such security agreements, leases and
other contracts being the "RELATED CONTRACTS");
(d) all agreements and contracts to which Grantor is a party as of the
date hereof or becomes a party after the date hereof, as each such agreement
may be amended, supplemented or otherwise modified from time to time (said
agreements, as so amended, supplemented or otherwise modified, being
referred to herein individually as an "ASSIGNED AGREEMENT" and collectively
as the "ASSIGNED AGREEMENTS"), including (i) all rights of Grantor to
receive moneys due or to become due under or pursuant to the Assigned
Agreements, (ii) all rights of Grantor to receive proceeds of any insurance,
indemnity, warranty or guaranty with respect to the Assigned Agreements,
(iii) all claims of Grantor for damages arising out of any breach of or
default under the Assigned Agreements, and (iv) all rights of Grantor to
terminate, amend, supplement, modify or exercise rights or options under the
Assigned Agreements, to perform thereunder and to compel performance and
otherwise exercise all remedies thereunder;
(e) all deposit accounts, including without limitation all deposit
accounts maintained with Collateral Agent;
(f) all tradesecrets, licenses, copyrights, registrations and franchise
rights, and all goodwill associated with any of the foregoing;
(g) to the extent not included in any other paragraph of this Section
2, all other general intangibles (including without limitation tax refunds,
rights to payment or
XV-5
<PAGE>
performance, choses in action and judgments taken on any rights or claims
included in the Collateral);
(h) all plant fixtures, business fixtures and other fixtures and
storage and office facilities, and all accessions thereto and products
thereof;
(i) all books, records, ledger cards, files, correspondence, computer
programs, tapes, disks and related data processing software that at any time
evidence or contain information relating to any of the Collateral or are
otherwise necessary or helpful in the collection thereof or realization
thereupon; and
(j) all proceeds, products, rents and profits of or from any and all of
the foregoing Collateral and, to the extent not otherwise included, all
payments under insurance (whether or not Collateral Agent is the loss payee
thereof), or any indemnity, warranty or guaranty, payable by reason of loss
or damage to or otherwise with respect to any of the foregoing Collateral.
For purposes of this Agreement, the term "PROCEEDS" includes whatever is
receivable or received when Collateral or proceeds are sold, exchanged,
collected or otherwise disposed of, whether such disposition is voluntary or
involuntary.
Notwithstanding anything herein to the contrary, in no event shall the
Collateral include, and Grantor shall not be deemed to have granted a security
interest in, any of Grantor's rights or interests in any license, contract or
agreement to which Grantor is a party or any of its rights or interests
thereunder to the extent, but only to the extent, that such a grant would, under
the terms of such license, contract or agreement or otherwise, result in a
breach of the terms of, or constitute a default under any license, contract or
agreement to which Grantor is a party (other than to the extent that any such
term would be rendered ineffective pursuant to Section 9-318(4) of the Uniform
Commercial Code of any relevant jurisdiction or any other applicable law
(including the Bankruptcy Code) or principles of equity); provided, that
--------
immediately upon the ineffectiveness, lapse or termination of any such
provision, the Collateral shall include, and Grantor shall be deemed to have
granted a security interest in, all such rights and interests as if such
provision had never been in effect.
3. SECURITY FOR OBLIGATIONS.
------------------------
This Agreement secures, and the Collateral is collateral security for, the
prompt payment or performance in full when due, whether at stated maturity, by
required prepayment, declaration, acceleration, demand or otherwise (including
the payment of amounts that would become due but for the operation of the
automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C.
(S)362(a)), of all obligations and liabilities of every nature, of Grantor now
or hereafter existing under or arising out of or in connection with any
Financing Agreement and any other Loan Documents and the Lender Interest Rate
Agreements and all extensions or renewals thereof, whether for principal,
interest (including without limitation interest that, but for the filing of a
petition in bankruptcy with respect to Grantor, would accrue on such
obligations), reimbursement of amounts drawn under Letters of Credit, payments
for early termination of Lender Interest Rate Agreements, fees, expenses,
indemnities or otherwise, whether voluntary or involuntary, direct or indirect,
absolute or
XV-6
<PAGE>
contingent, liquidated or unliquidated, whether or not jointly owed with others,
and whether or not from time to time decreased or extinguished and later
increased, created or incurred, and all or any portion of such obligations or
liabilities that are paid, to the extent all or any part of such payment is
avoided or recovered directly or indirectly from Collateral Agent or any Secured
Party or Interest Rate Exchanger as a preference, fraudulent transfer or
otherwise and all obligations of every nature of Grantor now or hereafter
existing under this Agreement (all such obligations of Grantor being the
"SECURED OBLIGATIONS").
4. GRANTOR REMAINS LIABLE.
----------------------
Anything contained herein to the contrary notwithstanding, (a) Grantor shall
remain liable under any contracts and agreements included in the Collateral, to
the extent set forth therein, to perform all of its duties and obligations
thereunder to the same extent as if this Agreement had not been executed, (b)
the exercise by Collateral Agent of any of its rights hereunder shall not
release Grantor from any of its duties or obligations under the contracts and
agreements included in the Collateral, and (c) Collateral Agent shall not have
any obligation or liability under any contracts and agreements included in the
Collateral by reason of this Agreement, nor shall Collateral Agent be obligated
to perform any of the obligations or duties of Grantor thereunder or to take any
action to collect or enforce any claim for payment assigned hereunder.
5. REPRESENTATIONS AND WARRANTIES.
------------------------------
Grantor represents and warrants as follows:
(a) Ownership of Collateral. Except for the security interest created
-----------------------
by this Agreement, Grantor owns the Collateral free and clear of any Lien
subject to Liens permitted by the Financing Agreements.
(b) Location of Equipment and Inventory. All of the Equipment and
-----------------------------------
Inventory is, as of the date hereof, located at the places specified in
Schedule 5(b) annexed hereto.
-------------
(c) Negotiable Documents of Title. No Negotiable Documents of Title
-----------------------------
are outstanding with respect to any of the Inventory (other than in respect
of (i) Inventory with an aggregate value not in excess of $1,000,000 or (ii)
Inventory which, in the ordinary course of business, is in transit either
(A) from a supplier to Grantor, (B) between the locations specified in
Schedule 5(b) hereto, or (C) to customers of Grantor).
-------------
(d) Office Locations; Other Names. The chief place of business, the
-----------------------------
chief executive office and the office where Grantor keeps its records
regarding the Accounts and all originals of all chattel paper that evidence
Accounts is, and has been for the four month period preceding the date
hereof, located at the places indicated on Schedule 5d. Grantor has not in
-----------
the past done, and does not now do, business under any other name (including
any trade-name or fictitious business name) except for those names set forth
on Schedule 5d.
-----------
XV-7
<PAGE>
6. FURTHER ASSURANCES.
------------------
(a) Grantor agrees that from time to time, at the expense of Grantor,
Grantor will promptly execute and deliver all further instruments and documents,
and take all further action, that Collateral Agent may reasonably request, in
order to perfect and protect any security interest granted or purported to be
granted hereby or to enable Collateral Agent to exercise and enforce its rights
and remedies hereunder with respect to any Collateral. Without limiting the
generality of the foregoing, Grantor will: (i) mark conspicuously each item of
chattel paper included in the Accounts, each Related Contract and, at the
reasonable request of Collateral Agent, each of its records pertaining to the
Collateral, with a legend, in form and substance reasonably satisfactory to
Collateral Agent, indicating that such Collateral is subject to the security
interest granted hereby, (ii) at the reasonable request of Collateral Agent,
deliver and pledge to Collateral Agent hereunder all promissory notes and other
instruments (excluding checks) and all original counterparts of chattel paper
constituting Collateral, duly endorsed and accompanied by duly executed
instruments of transfer or assignment, all in form and substance reasonably
satisfactory to Collateral Agent, (iii) execute and file such financing or
continuation statements, or amendments thereto, and such other instruments or
notices, as Collateral Agent may reasonably request, in order to perfect and
preserve the security interests granted or purported to be granted hereby, (iv)
after the acquisition by Grantor of any item of Equipment which is covered by a
certificate of title under a statute of any jurisdiction under the law of which
indication of a security interest on such certificate is required as a condition
of perfection thereof, upon the reasonable request of Collateral Agent, execute
and file with the registrar of motor vehicles or other appropriate authority in
such jurisdiction an application or other document requesting the notation or
other indication of the security interest created hereunder on such certificate
of title, (v) upon the reasonable request of Collateral Agent, deliver to
Collateral Agent copies of all such applications or other documents filed during
such calendar quarter and copies of all such certificates of title issued during
such calendar quarter indicating the security interest created hereunder in the
items of Equipment covered thereby, and (vi) at Collateral Agent's reasonable
request, appear in and defend any action or proceeding that may affect Grantor's
title to or Collateral Agent's security interest in all or any part of the
Collateral.
(b) Grantor hereby authorizes Collateral Agent to file one or more financing
or continuation statements, and amendments thereto, relative to all or any part
of the Collateral without the signature of Grantor to the extent permitted by
applicable law. Grantor agrees that a carbon, photographic or other
reproduction of this Agreement or of a financing statement signed by Grantor
shall be sufficient as a financing statement and may be filed as a financing
statement in any and all jurisdictions.
7. CERTAIN COVENANTS OF GRANTOR.
----------------------------
Grantor shall:
(a) notify Collateral Agent of any change in Grantor's name, identity
or corporate structure within 30 days of such change;
XV-8
<PAGE>
(b) give Collateral Agent 30 days' written notice following any change
in Grantor's chief place of business, chief executive office or residence or
the office where Grantor keeps its records regarding the Accounts and all
originals of all chattel paper that evidence Accounts;
(c) pay promptly when due all property and other taxes, assessments
and governmental charges or levies imposed upon, and all claims (including
claims for labor, materials and supplies) against, the Collateral, except to
the extent the validity thereof is being contested in good faith.
8. SPECIAL COVENANTS WITH RESPECT TO EQUIPMENT AND INVENTORY.
---------------------------------------------------------
Grantor shall:
(a) keep the Equipment and Inventory at the places therefor specified
on Schedule 5(b) annexed hereto or, upon 30 days' written notice to
-------------
Collateral Agent following any change in location, at such other places in
jurisdictions where all action that Collateral Agent may reasonably request,
in order to perfect and protect any security interest granted or purported
to be granted hereby, or to enable Collateral Agent to exercise and enforce
its rights and remedies hereunder, with respect to such Equipment and
Inventory shall have been taken;
(b) cause the Equipment to be maintained and preserved in working
order, ordinary wear and tear and damage by casualty excepted, and in
accordance with Grantor's past practices, and shall forthwith make or cause
to be made all repairs, replacements and other improvements in connection
therewith that are necessary in the Grantor's reasonable business judgment
to such end;
(c) keep correct and accurate records of the Inventory, itemizing and
describing the kind, type and quantity of Inventory, Grantor's cost therefor
and (where applicable) the current list prices for the Inventory;
(d) if any Inventory is in possession or control of any of Grantor's
agents or processors, upon the occurrence of an Event of Default, instruct
such agent or processor to hold all such Inventory for the account of
Collateral Agent and subject to the instructions of Collateral Agent; and
(e) promptly upon the issuance and delivery to Grantor of any
Negotiable Document of Title (other than any one or more Negotiable
Documents of Title covering (i) Inventory with an aggregate value not in
excess of $1,000,000 or (ii) Inventory which, in the ordinary course of
business, is in transit either (A) from a supplier to Grantor, (B) between
the locations specified in Schedule 5(b) hereto, or (C) to customers of
-------------
Grantor), deliver such Negotiable Document of Title to Collateral Agent.
XV-9
<PAGE>
9. INSURANCE.
---------
Grantor shall, at its own expense, maintain insurance with respect to the
Equipment and Inventory in accordance with the terms of the Financing
Agreements.
10. SPECIAL COVENANTS WITH RESPECT TO ACCOUNTS AND RELATED CONTRACTS.
----------------------------------------------------------------
(a) Grantor shall keep its chief place of business and chief executive
office and the office where it keeps its records concerning the Accounts and
Related Contracts, and all originals of all chattel paper that evidence
Accounts, at the location therefor specified in Section 5 or, upon 30 days'
written notice to Collateral Agent following any change in location, at such
other location in a jurisdiction where all action that Collateral Agent may
request, in order to perfect and protect any security interest granted or
purported to be granted hereby, or to enable Collateral Agent to exercise and
enforce its rights and remedies hereunder, with respect to such Accounts and
Related Contracts shall have been taken. Promptly upon the reasonable request
of Collateral Agent, Grantor shall deliver to Collateral Agent complete and
correct copies of each Related Contract.
(b) Grantor shall, maintain (i) complete records of each Account,
including records of all payments received, credits granted and merchandise
returned, and (ii) all documentation relating thereto in accordance with prudent
business practices.
(c) Except as otherwise provided in this subsection (c), Grantor shall
continue to collect, at its own expense, all amounts due or to become due to
Grantor under the Accounts and Related Contracts. In connection with such
collections, Grantor shall take such action as Grantor or Collateral Agent may
deem necessary or advisable to enforce collection of amounts due or to become
due under the Accounts; provided, however, that Collateral Agent shall have the
-------- -------
right at any time, upon the occurrence and during the continuation of an Event
of Default and upon written notice to Grantor of its intention to do so, to
notify the account debtors or obligors under any Accounts of the assignment of
such Accounts to Collateral Agent and to direct such account debtors or obligors
to make payment of all amounts due or to become due to Grantor thereunder
directly to Collateral Agent, to notify each Person maintaining a lockbox or
similar arrangement to which account debtors or obligors under any Accounts have
been directed to make payment to remit all amounts representing collections on
checks and other payment items from time to time sent to or deposited in such
lockbox or other arrangement directly to Collateral Agent and, upon such
notification and at the expense of Grantor, to enforce collection of any such
Accounts and to adjust, settle or compromise the amount or payment thereof, in
the same manner and to the same extent as Grantor might have done. After
receipt by Grantor of the notice from Collateral Agent referred to in the
proviso to the preceding sentence, (i) any payments of Accounts, received by the
- -------
Grantor shall be forthwith (and in any event within two Business Days) deposited
by the Grantor in the exact form received, duly indorsed by the Grantor to the
Collateral Agent if required, in a Collateral Account maintained under the sole
dominion and control of the Collateral Agent, subject to withdrawal by the
Collateral Agent for the account of the Secured Parties only as provided in
Section 21, (ii) until so turned over in accordance with the preceding
subsection (i), all amounts and proceeds (including checks and other
instruments) received by Grantor in respect of the Accounts and the Related
XV-10
<PAGE>
Contracts shall be received in trust for the benefit of Collateral Agent
hereunder and shall be segregated from other funds of Grantor and (iii) Grantor
shall not adjust, settle or compromise the amount or payment of any Account, or
release wholly or partly any account debtor or obligor thereof, or allow any
credit or discount thereon.
11. DEPOSIT ACCOUNTS.
----------------
Upon the occurrence and during the continuation of an Event of Default,
Collateral Agent may exercise dominion and control over, and refuse to permit
further withdrawals (whether of money, securities, instruments or other
property) from any deposit accounts maintained with Collateral Agent
constituting part of the Collateral.
12. LICENSE OF COPYRIGHTS, ETC.
--------------------------
Grantor hereby assigns, transfers and conveys to Collateral Agent,
effective upon the occurrence of any Event of Default, the nonexclusive right
and license to use all copyrights or technical processes owned or used by
Grantor that relate to the Collateral and any other collateral granted by
Grantor as security for the Secured Obligations, together with any goodwill
associated therewith, all to the extent necessary to enable Collateral Agent to
use, possess and realize on the Collateral and to enable any successor or assign
to enjoy the benefits of the Collateral. This right and license shall inure to
the benefit of all successors, assigns and transferees of Collateral Agent and
its successors, assigns and transferees, whether by voluntary conveyance,
operation of law, assignment, transfer, foreclosure, deed in lieu of foreclosure
or otherwise. Such right and license is granted free of charge, without
requirement that any monetary payment whatsoever be made to Grantor.
13. TRANSFERS AND OTHER LIENS.
-------------------------
Grantor shall not:
(a) sell, assign (by operation of law or otherwise) or otherwise
dispose of any of the Collateral, except as permitted by the Financing
Agreements; or
(b) except for the security interest created by this Agreement and
Liens permitted by the Financing Agreements, create or suffer to exist any
Lien upon or with respect to any of the Collateral to secure the
indebtedness or other obligations of any Person.
14. COLLATERAL AGENT APPOINTED ATTORNEY-IN-FACT.
-------------------------------------------
Grantor hereby irrevocably appoints Collateral Agent as Grantor's
attorney-in-fact, with full authority in the place and stead of Grantor and in
the name of Grantor, Collateral Agent or otherwise, from time to time, upon the
occurrence and continuance of an Event of Default, in Collateral Agent's
reasonable discretion to take any action and to execute any instrument that
Collateral Agent may reasonably deem necessary or advisable to accomplish the
purposes of this Agreement, including without limitation:
XV-11
<PAGE>
(a) to obtain and adjust insurance required to be maintained by Grantor
or paid to Collateral Agent pursuant to Section 9;
(b) to ask for, demand, collect, sue for, recover, compound, receive
and give acquittance and receipts for moneys due and to become due under or
in respect of any of the Collateral;
(c) to receive, endorse and collect any drafts or other instruments,
documents and chattel paper in connection with clauses (a) and (b) above;
(d) to file any claims or take any action or institute any proceedings
that Collateral Agent may reasonably deem necessary or desirable for the
collection of any of the Collateral or otherwise to enforce the rights of
Collateral Agent with respect to any of the Collateral;
(e) to pay or discharge taxes or Liens (other than Liens permitted
under this Agreement or the Financing Agreements) levied or placed upon or
threatened against the Collateral, the legality or validity thereof and the
amounts necessary to discharge the same to be determined by Collateral Agent
in its reasonable discretion, any such payments made by Collateral Agent to
become obligations of Grantor to Collateral Agent, due and payable
immediately without demand;
(f) to sign and endorse any invoices, freight or express bills, bills
of lading, storage or warehouse receipts, drafts against debtors,
assignments, verifications and notices in connection with Accounts and other
documents relating to the Collateral; and
(g) upon the occurrence and during the continuation of an Event of
Default, generally to sell, transfer, pledge, make any agreement with
respect to or otherwise deal with any of the Collateral as fully and
completely as though Collateral Agent were the absolute owner thereof for
all purposes, and to do, at Collateral Agent's option and Grantor's expense,
at any time or from time to time, all acts and things that Collateral Agent
reasonably deems necessary to protect, preserve or realize upon the
Collateral and Collateral Agent's security interest therein in order to
effect the intent of this Agreement, all as fully and effectively as Grantor
might do.
15. COLLATERAL AGENT MAY PERFORM.
----------------------------
If Grantor fails to perform any agreement contained herein, Collateral Agent
may itself perform, or cause performance of, such agreement, and the reasonable
expenses of Collateral Agent incurred in connection therewith shall be payable
by Grantor under Section 17.
XV-12
<PAGE>
16. INDEMNITY AND EXPENSES.
----------------------
(a) Grantor agrees to indemnify Collateral Agent, each Secured Party and
each Interest Rate Exchanger from and against any and all claims, losses and
liabilities in any way relating to, growing out of or resulting from this
Agreement and the transactions contemplated hereby (including without limitation
enforcement of this Agreement), except to the extent such claims, losses or
liabilities result from Collateral Agent's or such Secured Party's or Interest
Rate Exchanger's gross negligence or willful misconduct as determined by a court
of competent jurisdiction.
(b) Grantor agrees to pay to Collateral Agent promptly following written
demand the amount of any and all reasonable costs and reasonable expenses,
including the reasonable fees and expenses of its counsel and of any experts and
agents, that Collateral Agent may incur in connection with (i) the
administration of this Agreement, (ii) the custody, preservation, use or
operation of, or the sale of, collection from, or other realization upon, any of
the Collateral, (iii) the exercise or enforcement of any of the rights of
Collateral Agent hereunder, or (iv) the failure by Grantor to perform or observe
any of the provisions hereof.
(c) The obligations of Grantor in this Section 17 shall survive the
termination of this Agreement and the discharge of Grantor's other obligations
under this Agreement, the Interest Rate Agreements, the Financing Agreements and
any other Loan Documents.
17. STANDARD OF CARE.
----------------
The powers conferred on Collateral Agent hereunder are solely to protect
its interest in the Collateral and shall not impose any duty upon it to exercise
any such powers. Except for the exercise of reasonable care in the custody of
any Collateral in its possession and the accounting for moneys actually received
by it hereunder, Collateral Agent shall have no duty as to any Collateral or as
to the taking of any necessary steps to preserve rights against prior parties or
any other rights pertaining to any Collateral. Collateral Agent shall be deemed
to have exercised reasonable care in the custody and preservation of Collateral
in its possession if such Collateral is accorded treatment substantially equal
to that which Collateral Agent accords its own property.
XV-13
<PAGE>
18. REMEDIES.
--------
If any Event of Default shall have occurred and be continuing, Collateral
Agent may exercise in respect of the Collateral, in addition to all other rights
and remedies provided for herein or otherwise available to it, all the rights
and remedies of a secured party on default under the Uniform Commercial Code as
in effect in any relevant jurisdiction (the "CODE") (whether or not the Code
applies to the affected Collateral), and also may (a) require Grantor to, and
Grantor hereby agrees that it will at its expense and upon request of Collateral
Agent forthwith, assemble all or part of the Collateral as directed by
Collateral Agent and make it available to Collateral Agent at a place to be
designated by Collateral Agent that is reasonably convenient to both parties,
(b) enter onto the property where any Collateral is located and take possession
thereof with or without judicial process, (c) prior to the disposition of the
Collateral, store, process, repair or recondition the Collateral or otherwise
prepare the Collateral for disposition in any manner to the extent Collateral
Agent deems appropriate, (d) take possession of Grantor's premises or place
custodians in exclusive control thereof, remain on such premises and use the
same and any of Grantor's equipment for the purpose of completing any work in
process, taking any actions described in the preceding clause (c) and collecting
any Secured Obligation, and (e) without notice except as specified below, sell
the Collateral or any part thereof in one or more parcels at public or private
sale, at any of Collateral Agent's offices or elsewhere, for cash, on credit or
for future delivery, at such time or times and at such price or prices and upon
such other terms as Collateral Agent may deem commercially reasonable.
Collateral Agent or any Secured Party or Interest Rate Exchanger may be the
purchaser of any or all of the Collateral at any such sale and Collateral Agent,
as agent for and representative of Secured Parties and Interest Rate Exchangers
(but not any Secured Party or Secured Parties or Interest Rate Exchanger or
Interest Rate Exchangers in its or their respective individual capacities unless
Requisite Obligees shall otherwise agree in writing), shall be entitled, for the
purpose of bidding and making settlement or payment of the purchase price for
all or any portion of the Collateral sold at any such public sale, to use and
apply any of the Secured Obligations as a credit on account of the purchase
price for any Collateral payable by Collateral Agent at such sale. Each
purchaser at any such sale shall hold the property sold absolutely free from any
claim or right on the part of Grantor, and Grantor hereby waives (to the extent
permitted by applicable law) all rights of redemption, stay and/or appraisal
which it now has or may at any time in the future have under any rule of law or
statute now existing or hereafter enacted. Grantor agrees that, to the extent
notice of sale shall be required by law, at least ten days' notice to Grantor of
the time and place of any public sale or the time after which any private sale
is to be made shall constitute reasonable notification. Collateral Agent shall
not be obligated to make any sale of Collateral regardless of notice of sale
having been given. Collateral Agent may adjourn any public or private sale from
time to time by announcement at the time and place fixed therefor, and such sale
may, without further notice, be made at the time and place to which it was so
adjourned. Grantor hereby waives any claims against Collateral Agent arising by
reason of the fact that the price at which any Collateral may have been sold at
such a private sale was less than the price which might have been obtained at a
public sale, even if Collateral Agent accepts the first offer received and does
not offer such Collateral to more than one offeree. If the proceeds of any sale
or other disposition of the Collateral are insufficient to pay all the Secured
Obligations, Grantor shall be liable for the deficiency and the reasonable fees
of any attorneys employed by Collateral Agent to collect such deficiency.
19. PROCEEDS TO BE TURNED OVER TO COLLATERAL AGENT.
----------------------------------------------
XV-14
<PAGE>
In addition to the rights of the Collateral Agent and the Secured Parties
specified in Section 10 with respect to payments of Accounts, if an Event of
Default shall occur and be continuing, upon request of the Collateral Agent, all
proceeds received by the Grantor consisting of cash, checks and other near-cash
items shall be held by the Grantor in trust for the Collateral Agent and the
Secured Parties, segregated from other funds of the Grantor, and shall,
forthwith upon receipt by the Grantor, be turned over to the Collateral Agent in
the exact form received by the Grantor (duly indorsed by the Grantor to the
Collateral Agent, if required) and held by the Collateral Agent in a Collateral
Account maintained under the Intercreditor Agreement. All proceeds while held
by the Collateral Agent in a Collateral Account (or by the Borrower in trust for
the Collateral Agent and the Secured Parties) shall continue to be held as
collateral security for all the Obligations and shall not constitute payment
thereof until applied as provided in subsection 21.
20. APPLICATION OF PROCEEDS.
-----------------------
Except as expressly provided elsewhere in this Agreement, all proceeds
held in any Collateral Account and all other proceeds received by Collateral
Agent in respect of any sale of, collection from, or other realization upon all
or any part of the Collateral shall be applied as provided in subsection 3 of
the Intercreditor Agreement.
21. CONTINUING SECURITY INTEREST; TRANSFER OF LOANS.
-----------------------------------------------
This Agreement shall create a continuing security interest in the
Collateral and shall (a) remain in full force and effect until the payment in
full of the Secured Obligations (other than inchoate indemnification obligations
with respect to claims, losses or liabilities which have not yet arisen and are
not yet due and payable), the cancellation or termination of the Commitments and
the cancellation or expiration of all outstanding Letters of Credit, (b) be
binding upon Grantor, its successors and assigns, and (c) inure, together with
the rights and remedies of Collateral Agent hereunder, to the benefit of
Collateral Agent and its successors, transferees and assigns. Without limiting
the generality of the foregoing clause (c), but subject to the provisions of
subsection 10.1 of the Credit Agreement and subsection 10.1 of the AXEL Credit
Agreement, any Secured Party may assign or otherwise transfer any Loans held by
it to any other Person, and such other Person shall thereupon become vested with
all the benefits in respect thereof granted to Secured Parties herein or
otherwise. Upon the payment in full of all Secured Obligations (other than
inchoate indemnification obligations with respect to claims, losses or
liabilities which have not yet arisen and are not yet due and payable), the
cancellation or termination of the Commitments and the cancellation or
expiration of all outstanding Letters of Credit, the security interest granted
hereby shall terminate and all rights to the Collateral shall revert to Grantor.
Upon any such termination Collateral Agent will, at Grantor's expense, execute
and deliver to Grantor such documents as Grantor shall reasonably request to
evidence such termination in accordance with the terms of the Intercreditor
Agreement.
XV-15
<PAGE>
22. COLLATERAL AGENT AS ADMINISTRATIVE AGENT.
----------------------------------------
(a) Collateral Agent has been appointed to act as Collateral Agent
hereunder by CA Administrative Agent on behalf of the Credit Agreement Lenders
and AXEL Administrative Agent on behalf of the AXEL Lenders pursuant to the
Intercreditor Agreement and, by their acceptance of the benefits hereof,
Interest Rate Exchangers, and shall be entitled to the benefits of the
Intercreditor Agreement. Collateral Agent shall be obligated, and shall have the
right hereunder, to make demands, to give notices, to exercise or refrain from
exercising any rights, and to take or refrain from taking any action (including,
without limitation, the release or substitution of Collateral), solely in
accordance with this Agreement and the Intercreditor Agreement; provided that
--------
Collateral Agent shall exercise, or refrain from exercising, any remedies
provided for in Section 21 in accordance with the instructions of (i) Requisite
Lenders or (ii) after payment in full of all Financing Agreement Obligations
under the Financing Agreements and any other Loan Documents, the holders of a
majority of the aggregate notional amount (or, with respect to any Lender
Interest Rate Agreement that has been terminated in accordance with its terms,
the amount then due and payable (exclusive of expenses and similar payments but
including any early termination payments then due) under such Lender Interest
Rate Agreement) under all Lender Interest Rate Agreements (Requisite Lenders or,
if applicable, such holders being referred to herein as "REQUISITE OBLIGEES").
In furtherance of the foregoing provisions of this Section 23(a), each Interest
Rate Exchanger, by its acceptance of the benefits hereof, agrees that it shall
have no right individually to realize upon any of the Collateral hereunder, it
being understood and agreed by such Interest Rate Exchanger that all rights and
remedies hereunder may be exercised solely by Collateral Agent for the benefit
of Secured Parties and Interest Rate Exchangers in accordance with the terms of
this Section 23(a).
(b) Collateral Agent shall at all times be the same Person that is
appointed Collateral Agent under the Intercreditor Agreement. The Collateral
Agent may resign and a successor Collateral Agent may be appointed in the manner
provided in the Intercreditor Agreement. Upon the acceptance of any appointment
as Collateral Agent by a successor Collateral Agent, that successor Collateral
Agent shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring or removed Collateral Agent under this
Agreement, and the retiring or removed Collateral Agent under this Agreement
shall promptly (i) transfer to such successor Collateral Agent all sums,
securities and other items of Collateral held hereunder, together with all
records and other documents necessary or appropriate in connection with the
performance of the duties of the successor Collateral Agent under this
Agreement, and (ii) execute and deliver to such successor Collateral Agent such
amendments to financing statements, and take such other actions, as may be
necessary or appropriate in connection with the assignment to such successor
Collateral Agent of the security interests created hereunder, whereupon such
retiring or removed Collateral Agent shall be discharged from its duties and
obligations under this Agreement. After any retiring or removed Collateral
Agent's resignation or removal hereunder as Collateral Agent, the provisions of
this Agreement shall inure to its benefit as to any actions taken or omitted to
be taken by it under this Agreement while it was Collateral Agent hereunder.
XV-16
<PAGE>
23. AMENDMENTS; ETC.
---------------
No amendment, modification, termination or waiver of any provision of this
Agreement, and no consent to any departure by Grantor therefrom, shall in any
event be effective unless the same shall be in writing and signed by Collateral
Agent and, in the case of any such amendment or modification, by Grantor. Any
such waiver or consent shall be effective only in the specific instance and for
the specific purpose for which it was given.
24. NOTICES.
-------
Any notice or other communication herein required or permitted to be given
shall be in writing and may be personally served, telexed or sent by
telefacsimile or United States mail or courier service and shall be deemed to
have been given when delivered in person or by courier service, upon receipt of
telefacsimile or telex (with received answerback), or three Business Days after
depositing it in the United States mail with postage prepaid and properly
addressed; provided that notices to Collateral Agent and Grantor shall not be
--------
effective until received. For the purposes hereof, the address of each party
hereto shall be as provided in subsection 10.8 of the Credit Agreement or
subsection 10.8 of the AXEL Credit Agreement, as applicable, or as set forth
under such party's name on the signature pages hereof or such other address as
shall be designated by such party in a written notice delivered to the other
parties hereto.
25. SEVERABILITY.
------------
In case any provision in or obligation under this Agreement shall be
invalid, illegal or unenforceable in any jurisdiction, the validity, legality
and enforceability of the remaining provisions or obligations, or of such
provision or obligation in any other jurisdiction, shall not in any way be
affected or impaired thereby.
XV-17
<PAGE>
26. HEADINGS.
--------
Section and subsection headings in this Agreement are included herein for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose or be given any substantive effect.
27. GOVERNING LAW; TERMS.
--------------------
THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING WITHOUT LIMITATION SECTION
5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD
TO CONFLICTS OF LAWS PRINCIPLES, EXCEPT TO THE EXTENT THAT THE CODE PROVIDES
THAT THE PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER,
IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A
JURISDICTION OTHER THAN THE STATE OF NEW YORK. Unless otherwise defined herein
or in the Credit Agreement, terms used in Articles 8 and 9 of the Uniform
Commercial Code in the State of New York are used herein as therein defined.
SECTION 26. COUNTERPARTS.
------------
This Agreement may be executed in one or more counterparts and by
different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all such counterparts
together shall constitute but one and the same instrument; signature pages may
be detached from multiple separate counterparts and attached to a single
counterpart so that all signature pages are physically attached to the same
document.
[Remainder of page intentionally left blank]
XV-18
<PAGE>
IN WITNESS WHEREOF, Grantor and Collateral Agent have caused this Agreement
to be duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
SEALY MATTRESS COMPANY
By:
_____________________________
Name:
Title:
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK, as Collateral Agent
By:
_____________________________
Name:
Title:
XV-19
<PAGE>
SCHEDULE 5(b)
TO COMPANY SECURITY AGREEMENT
Locations of Equipment:
Locations of Inventory:
XV-20
<PAGE>
EXHIBIT XVI
[FORM OF COMPANY PATENT AND TRADEMARK SECURITY AGREEMENT]
COMPANY PATENT AND TRADEMARK SECURITY AGREEMENT
This COMPANY PATENT AND TRADEMARK SECURITY AGREEMENT (this "AGREEMENT") is
COMPANY, an Ohio corporation ("COMPANY")(Company being referred to herein as a
"GRANTOR"), and MORGAN GUARANTY TRUST COMPANY OF NEW YORK ("MORGAN GUARANTY"),
as Collateral Agent for and representative of (in such capacity herein called
"COLLATERAL AGENT") the Secured Parties (as hereinafter defined) and any
Interest Rate Exchangers (as hereinafter defined).
RECITALS
(a) Grantor, Sealy Corporation, a Delaware Corporation ("HOLDINGS"), the
financial institutions from time to time parties thereto (the "CREDIT AGREEMENT
LENDERS"), Goldman Sachs Credit Partners L.P. ("GSCP"), as arranger and
syndication agent (in such capacity, "CA SYNDICATION AGENT"), Morgan Guaranty,
as administrative agent (in such capacity, "CA ADMINISTRATIVE AGENT"), and
Bankers Trust Company ("BTCO."), as documentation agent (in such capacity,
"CA DOCUMENTATION AGENT") have entered into a Credit Agreement dated as of
December 18, 1997 (said Credit Agreement, as it may hereafter be amended,
restated, supplemented or otherwise modified from time to time, being the
"CREDIT AGREEMENT") pursuant to which Credit Agreement Lenders have made
certain commitments, subject to the terms and conditions set forth in the Credit
Agreement, to extend certain credit facilities to Grantor.
B. Grantor, Holdings, the financial institutions from time to time parties
thereto (the "AXEL LENDERS"), GSCP, as arranger and syndication agent (in such
capacity, "AXEL SYNDICATION AGENT"), Morgan Guaranty, as administrative agent
(in such capacity, "AXEL ADMINISTRATIVE AGENT"), and BTCo. as documentation
agent (in such capacity, "AXEL DOCUMENTATION AGENT") have entered into an AXEL
Credit Agreement dated as of December 18, 1997 (said AXEL Credit Agreement, as
it may hereafter be amended, restated, supplemented or otherwise modified from
time to time, being the "AXEL CREDIT AGREEMENT"; the Credit Agreement Lenders,
the CA Syndication Agent, the CA Administrative Agent, the CA Documentation
Agent, the AXEL Lenders, the AXEL Syndication Agent, the AXEL Administrative
Agent, and the AXEL Documentation Agent each being a "SECURED PARTY" and
collectively the "SECURED PARTIES") pursuant to which AXEL Lenders have made
certain commitments, subject to the terms and conditions set forth in the AXEL
Credit Agreement, to extend certain credit facilities to Grantor.
C. Company may from time to time enter, or may from time to time have
entered, into one or more Interest Rate Agreements (collectively, the "LENDER
INTEREST RATE AGREEMENTS") with one or more CA Lenders or their Affiliates or
AXEL Lenders or their Affiliates (in such
XVI-1
<PAGE>
capacity, collectively, "INTEREST RATE EXCHANGERS") in accordance with the terms
of the Financing Agreements (as hereinafter defined), and it is desired that the
obligations of Company under the Lender Interest Rate Agreements, including
without limitation the obligation of Company to make payments thereunder in the
event of early termination thereof (all such obligations being the "INTEREST
RATE OBLIGATIONS"), together with all obligations of Company under the Financing
Agreements and any other Loan Documents (as hereinafter defined), be secured
hereunder.
D. Grantor has and may in the future have rights, title and interests in
and to various Patents and other related Collateral (as such terms are
hereinafter defined).
E. Grantor owns and uses in its business, and will in the future adopt and
so use, various intangible assets, including trademarks, service marks, designs,
logos, indicia, tradenames, corporate names, company names, business names,
fictitious business names, trade styles and/or other source and/or business
identifiers and applications pertaining thereto (collectively, the
"TRADEMARKS").
F. Collateral Agent desires Grantor to grant to it a lien on and security
interest in all of Grantor's existing and future Patents, existing and future
Trademarks, all registrations that have been or may hereafter be issued or
applied for thereon in the United States and any state thereof (the
"REGISTRATIONS"), all common law and other rights in and to the Trademarks in
the United States and any state thereof (the "TRADEMARK RIGHTS"), all goodwill
of Grantor's business symbolized by the Trademarks and associated therewith,
including without limitation the documents and things described in Section 2(b)
(the "ASSOCIATED GOODWILL"), any other Collateral and all proceeds of the
Patents, the Trademarks, the Registrations, the Trademark Rights, the Associated
Goodwill and any other Collateral, and Grantor agrees to grant to Collateral
Agent a secured and protected interest in the Trademarks, the Registrations, the
Trademark Rights, the Associated Goodwill, any other Collateral and all the
proceeds thereof as provided herein.
G. Pursuant to the Company Security Agreement, Grantor has granted to
Collateral Agent a lien on and security interest in, among other assets, all
Grantor's equipment, inventory, accounts and general intangibles relating to the
products and services sold or delivered under or in connection with the
Trademarks such that, upon the occurrence and during the continuation of an
Event of Default, Collateral Agent would be able to exercise its remedies
consistent with the Security Agreement, this Agreement and applicable law to
foreclose upon Grantor's business and use the Trademarks, the Registrations and
the Trademark Rights in conjunction with the continued operation of such
business, maintaining substantially the same product and service specifications
and quality as maintained by Grantor, and benefit from the Associated Goodwill.
H. It is a condition precedent to the initial extensions of credit by
Secured Parties under the Credit Agreement that Grantor shall have granted the
security interests and undertaken the obligations contemplated by this
Agreement.
NOW, THEREFORE, in consideration of the premises and to induce (i) the CA
Administrative Agent, the CA Syndication Agent and the Credit Agreement Lenders
to enter into the Credit Agreement, (ii) the Credit Agreement Lenders to make
their respective loans to, and issue Letters of Credit for the account of, the
Grantor, (iii) the AXEL Administrative Agent, the AXEL
XVI-2
<PAGE>
Syndication Agent and the AXEL Lenders to enter into the AXEL Loan Agreement,
(iv) the AXEL Lenders to make their respective loans to the Grantor, and (v) to
induce Interest Rate Exchangers to enter into the Lender Interest Rate
Agreements and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the Grantor hereby agrees with the
Collateral Agent as follows:
I. DEFINED TERMS.
-------------
(a) Unless otherwise defined herein, terms defined in the Credit Agreement
and used herein shall have the meanings given to such terms in the Credit
Agreement;
(b) The following terms shall have the following meanings:
"ACCELERATION" shall mean any of the Credit Agreement Obligations or the
AXEL Credit Agreement Obligations have been declared, or have become,
immediately due and payable, or the commitments to extend credit of the Credit
Agreement Lenders or the AXEL Lenders shall have been terminated under Section 8
of the Credit Agreement or Section 7 of the AXEL Credit Agreement, respectively.
"AGREEMENT" means this Company Security Agreement dated as of December 18,
1997, as it may be amended, supplemented or otherwise modified from time to
time.
"ASSOCIATED GOODWILL" has the meaning assigned to that term in the
recitals to this Agreement.
"AXEL COMMITMENTS" shall mean the "Commitments" as defined in the AXEL
Credit Agreement.
"AXEL CREDIT AGREEMENT" has the meaning assigned to that term in the
recitals to this Agreement.
"AXEL LENDERS" has the meaning assigned to that term in the recitals to
this Agreement.
"AXEL OBLIGATIONS" shall mean the "Obligations" as defined in the AXEL
Credit Agreement.
"AXEL SYNDICATION AGENT" has the meaning assigned to that term in the
recitals to this Agreement.
"COLLATERAL" has the meaning assigned to that term in Section 5 of this
Agreement.
"COLLATERAL ACCOUNTS" shall mean "Collateral Accounts" as defined in the
Intercreditor Agreement.
"COLLATERAL AGENT" has the meaning assigned to that term in the
introduction.
XVI-3
<PAGE>
"COMMITMENTS" means the Credit Agreement Commitments and the AXEL
Commitments.
"CREDIT AGREEMENT" has the meaning assigned to that term in the recitals
to this Agreement.
"CREDIT AGREEMENT COMMITMENTS" shall mean the "Commitments" as defined
in the Credit Agreement.
"CREDIT AGREEMENT OBLIGATIONS" shall mean the "Obligations" as defined
in the Credit Agreement.
"EVENT OF DEFAULT" means any "Event of Default" as defined in any
Financing Agreement or the occurrence of an Event of Default in which Company is
the Defaulting Party and which results in the designation of an Early
Termination Date (as such terms are defined in a Master Agreement or an Interest
Rate Swap Agreement or Interest Rate and Currency Exchange Agreement in the form
prepared by the International Swap and Derivatives Association Inc. or a similar
event under any similar swap agreement) under any Lender Interest Rate
Agreement.
"FINANCING AGREEMENT" means the Credit Agreement or the AXEL Credit
Agreement, and "FINANCING AGREEMENTS" means the Credit Agreement and the AXEL
Credit Agreement, collectively.
"FINANCING AGREEMENT OBLIGATIONS" means Credit Agreement Obligations and
AXEL Obligations.
"GRANTOR" has the meaning assigned to that term in the introduction of
this Agreement.
"HOLDINGS" has the meaning assigned to that term in the recitals to this
Agreement.
"INTERCREDITOR AGREEMENT" means the Intercreditor Agreement, dated as of
December 18, 1997, by and among CA Administrative Agent, AXEL Administrative
Agent and Collateral Agent.
"INTEREST RATE EXCHANGERS" has the meaning assigned to that term in the
recitals to this Agreement.
"INTEREST RATE OBLIGATIONS" has the meaning assigned to that term in the
recitals to this Agreement.
"LENDER INTEREST RATE AGREEMENT" has the meaning assigned to that term in
the recitals to this Agreement.
"LOAN" means any "Loan" as defined in any Financing Agreement, and
"LOANS" means all such Loans collectively.
XVI-4
<PAGE>
"LOAN DOCUMENT" means any "Loan Document" as defined in any Financing
Agreement, and "LOAN DOCUMENTS" means all such Loan Documents collectively.
"MATERIAL PATENT" has the meaning assigned to that term in Section 5 of
this Agreement.
"MATERIAL TRADEMARK PROPERTY" has the meaning assigned to that term in
Section 5 of this Agreement.
"PATENTS" has the meaning assigned to that term in Section 2 of this
Agreement.
"PERMITTED PATENT LIENS" has the meaning assigned to that term in Section
5 of this Agreement.
"PERMITTED TRADEMARK LIENS" has the meaning assigned to that term in
Section 5 of this Agreement.
"POTENTIAL EVENT OF DEFAULT" means any "Potential Event of Default" as
defined in any Financing Agreement.
"REGISTRATIONS" has the meaning assigned to that term in the recitals to
this Agreement.
"REQUISITE AXEL LENDERS" means "Requisite Lenders" as defined in the
AXEL Credit Agreement.
"REQUISITE CREDIT AGREEMENT LENDERS" means "Requisite Lenders" as
defined in the Credit Agreement.
"REQUISITE LENDERS" means (A) unless an Acceleration shall have occurred
and be continuing, the Requisite Credit Agreement Lenders and the Requisite AXEL
Lenders, and (B) if an Acceleration has occurred and is continuing, Secured
Parties holding more than 50% of the Financing Agreement Obligations.
"REQUISITE OBLIGEES" has the meaning assigned to that term in Section 19
of this Agreement.
"SECURED OBLIGATIONS" has the meaning assigned to that term in Section 3
of this Agreement.
"SECURED PARTIES" has the meaning assigned to that term in the recitals to
this Agreement.
"TRADEMARKS" has the meaning assigned to that term in the recitals to this
Agreement.
"TRADEMARK RIGHTS" has the meaning assigned to that term in the recitals
to this Agreement.
XVI-5
<PAGE>
II. GRANT OF SECURITY.
-----------------
Grantor hereby grants to Collateral Agent a security interest in all of
Grantor's right, title and interest in and to the following, in each case
whether now or hereafter existing or in which Grantor now has or hereafter
acquires an interest and wherever the same may be located (the "COLLATERAL"):
A. each of the U.S. Trademarks and rights and interests in Trademarks
which are presently, or in the future may be, owned, held (whether
pursuant to a license or otherwise) or used by Grantor, in whole or in
part (including without limitation the U.S. Trademarks specifically
identified in Schedule I), and including all Trademark Rights with
----------
respect thereto and all federal and state Registrations therefor
heretofore or hereafter granted or applied for, the right (but not the
obligation) to file for registration claims under any state or federal
trademark law or regulation and to apply for, renew and extend the
Trademarks, Registrations and Trademark Rights, the right (but not the
obligation) to sue or bring opposition or cancellation proceedings in the
name of Grantor or in the name of Collateral Agent or otherwise for past,
present and future infringements of the Trademarks, Registrations or
Trademark Rights and all rights (but not obligations) corresponding
thereto in the United States, and the Associated Goodwill; it being
understood that the rights and interests included herein shall include,
without limitation, all rights and interests pursuant to licensing or
other contracts in favor of Grantor pertaining to any Trademarks,
Registrations or Trademark Rights presently or in the future owned, held
or used by third parties but, in the case of third parties which are not
Affiliates of Grantor, only to the extent permitted by such licensing or
other contracts or otherwise permitted by applicable law and, if not so
permitted under any such contracts and applicable law, only with the
consent of such third parties;
B. the following documents and things in Grantor's possession, or
subject to Grantor's right to possession, related to (Y) the production,
sale and delivery by Grantor, or by any Affiliate, licensee or
subcontractor of Grantor, of products or services sold or delivered by or
under the authority of Grantor in connection with the Trademarks,
Registrations or Trademark Rights (which products and services shall, for
purposes of this Agreement, be deemed to include, without limitation,
products and services sold or delivered pursuant to merchandising
operations utilizing any Trademarks, Registrations or Trademark Rights);
or (Z) any retail or other merchandising operations conducted under the
name of or in connection with the Trademarks, Registrations or Trademark
Rights by Grantor or any Affiliate, licensee or subcontractor of Grantor:
1. all lists and ancillary documents that identify and describe
any of Grantor's customers, or those of its Affiliates, licensees or
subcontractors, for products sold and services delivered under or in
connection with the Trademarks or Trademark Rights, including without
limitation any lists and ancillary documents that contain a customer's
name and address, the name and address of any of its warehouses,
branches or other places of business, the identity of the Person or
Persons having the principal responsibility on a customer's behalf for
ordering
XVI-6
<PAGE>
products or services of the kind supplied by Grantor, or the credit,
payment, discount, delivery or other sale terms applicable to such
customer, together with information setting forth the total purchases,
by brand, product, service, style, size or other criteria, and the
patterns of such purchases;
2. all product and service specification documents and
production and quality control manuals used in the manufacture or
delivery of products and services sold or delivered under or in
connection with the Trademarks or Trademark Rights;
3. all documents which reveal the name and address of any
source of supply, and any terms of purchase and delivery, for any and
all materials, components and services used in the production of
products and services sold or delivered under or in connection with the
Trademarks or Trademark Rights; and
4. all documents constituting or concerning the then current or
proposed advertising and promotion by Grantor or its Affiliates,
licensees or subcontractors of products and services sold or delivered
under or in connection with the Trademarks or Trademark Rights
including, without limitation, all documents which reveal the media
used or to be used and the cost for all such advertising conducted
within the described period or planned for such products and services;
and
(c) all patents and patent applications and rights and interests in
U.S. patents and patent applications that are presently, or in the future
may be, owned, held (whether pursuant to a license or otherwise) or used by
Grantor in whole or in part (including, without limitation, the U.S. patents
and patent applications listed in Schedule II annexed hereto, all rights
-----------
(but not obligations) corresponding thereto (including without limitation
the right (but not the obligation) to sue for past, present and future
infringements in the name of Grantor or in the name of Collateral Agent),
and all re-issues, divisions, continuations, renewals, extensions and
continuations-in-part thereof (all of the foregoing being collectively
referred to as the "PATENTS"); it being understood that the rights and
interests granted hereby shall include, without limitation, all rights and
interests pursuant to licensing or other contracts in favor of Grantor
pertaining to any Patent presently or in the future owned, held or used by
third parties but, in the case of third parties which are not Affiliates of
Grantor, only to the extent permitted by such licensing or other contracts
or otherwise permitted by applicable law and, if not so permitted under any
such contracts and applicable law, only with the consent of such third
parties;
(d) all books, records, ledger cards, files, correspondence, computer
programs, tapes, disks and related data processing software that at any time
evidence or contain information relating to any of the Collateral or are
otherwise necessary or helpful in the collection thereof or realization
thereupon;
(e) to the extent not included in the foregoing clauses (a) - (d), all
general intangibles relating to the Collateral; and
XVI-7
<PAGE>
(f) all proceeds, products, and profits (including without limitation
license royalties and proceeds of infringement suits) of or from any and all
of the foregoing Collateral and, to the extent not otherwise included, all
payments under insurance (whether or not Collateral Agent is the loss payee
thereof), or any indemnity, warranty or guaranty, payable by reason of loss
or damage to or otherwise with respect to any of the foregoing Collateral.
For purposes of this Agreement, the term "PROCEEDS" includes whatever is
receivable or received when Collateral or proceeds are sold, exchanged,
collected or otherwise disposed of, whether such disposition is voluntary or
involuntary.
III. SECURITY FOR OBLIGATIONS.
------------------------
This Agreement secures, and the Collateral is collateral security for, the
prompt payment or performance in full when due, whether at stated maturity, by
required prepayment, declaration, acceleration, demand or otherwise (including
without limitation the payment of amounts that would become due but for the
operation of the automatic stay under Section 362(a) of the Bankruptcy Code, 11
U.S.C. (S)362(a)), of all Secured Obligations with respect to Grantor. "SECURED
OBLIGATIONS" means all obligations and liabilities of every nature of Company
now or hereafter existing under or arising out of or in connection with any
Financing Agreements and any other Loan Documents and any Lender Interest Rate
Agreement, and in each case together with all extensions or renewals thereof,
whether for principal, interest (including without limitation interest that, but
for the filing of a petition in bankruptcy with respect to Grantor, would accrue
on such obligations), reimbursement of amounts drawn under Letters of Credit,
payments for early termination of Lender Interest Rate Agreements, fees,
expenses, indemnities or otherwise, whether voluntary or involuntary, direct or
indirect, absolute or contingent, liquidated or unliquidated, whether or not
jointly owed with others, and whether or not from time to time decreased or
extinguished and later increased, created or incurred, and all or any portion of
such obligations or liabilities that are paid, to the extent all or any part of
such payment is avoided or recovered directly or indirectly from Collateral
Agent or any Secured Party or Interest Rate Exchanger as a preference,
fraudulent transfer or otherwise, and all obligations of every nature of Grantor
now or hereafter existing under this Agreement.
IV. GRANTOR REMAINS LIABLE.
----------------------
Anything contained herein to the contrary notwithstanding, (a) Grantor shall
remain liable under any contracts and agreements included in the Collateral, to
the extent set forth therein, to perform all of its duties and obligations
thereunder to the same extent as if this Agreement had not been executed, (b)
the exercise by Collateral Agent of any of its rights hereunder shall not
release Grantor from any of its duties or obligations under the contracts and
agreements included in the Collateral, and (c) Collateral Agent shall not have
any obligation or liability under any contracts and agreements included in the
Collateral by reason of this Agreement, nor shall Collateral Agent be obligated
to perform any of the obligations or duties of Grantor thereunder or to take any
action to collect or enforce any claim for payment assigned hereunder.
XVI-8
<PAGE>
V. REPRESENTATIONS AND WARRANTIES.
------------------------------
Grantor represents and warrants as follows:
(a) OWNERSHIP OF COLLATERAL. Except as expressly permitted by the
Financing Agreements and for the security interest and conditional
assignment created by this Agreement (other than ownership and other rights
reserved by third party owners with respect to each Material Trademark
Property and each Material Patent that Grantor is licensed to use), Grantor
is the legal and beneficial owner of the entire right, title and interest in
and to (i) each Material Trademark Property, free and clear of any Lien
other than Liens of mechanics, materialmen, attorneys and other similar
liens imposed by laws in the ordinary course of business in connection with
the establishment, creation or application for registration of any
Trademarks, Registrations or Trademark Rights for sums not yet delinquent or
being contested in good faith (such Liens being referred to herein as
"PERMITTED TRADEMARK LIENS"), and (ii) each Material Patent, free and
clear of any Lien other than Liens of mechanics, materialmen, attorneys and
other similar liens imposed by law in the ordinary course of business in
connection with the establishment, creation or application for any Patent
for sums not yet delinquent or being contested in good faith (such Liens
being referred to herein as "PERMITTED PATENT LIENS"). Except such as may
have been filed in favor of Collateral Agent relating to this Agreement or
except as permitted by the Financing Agreements, no effective financing
statement or other instrument similar in effect covering all or any part of
the Collateral is on file in any filing or recording office, including the
United States Patent and Trademark Office.
(b) DESCRIPTION OF COLLATERAL. A true and complete list of all
Registrations, tradenames, corporate names, fictitious business names and
Trademark license agreements owned, held (whether pursuant to a license or
otherwise) or used by Grantor, in whole or in part, as of the date of this
Agreement is set forth in Schedule I annexed hereto. Each Registration,
----------
tradename, corporate name, fictitious business name and Trademark license
designated on Schedule I annexed hereto as a Material Trademark Property,
----------
and each other Trademark, Registration or Trademark Right hereafter arising
or otherwise owned, held or used by Grantor that is material to any of
Grantor's business or operations is referred to herein as a "MATERIAL
TRADEMARK PROPERTY". A true and complete list of all Patents owned or held
(whether pursuant to a license or otherwise) by Grantor, in whole or in
part, as of the date of this Agreement is set forth in Schedule II annexed
-----------
hereto. Each Patent designated on Schedule II annexed hereto as a Material
-----------
Patent and each other Patent hereafter arising or otherwise owned or held by
Grantor that is material to any of Grantor's business or operations is
referred to herein as a "MATERIAL PATENT".
(c) VALIDITY AND ENFORCEABILITY OF COLLATERAL. Each Material Trademark
Property and each Material Patent is subsisting and had not been adjudged
invalid or unenforceable, in whole or in part and Grantor is not aware of
any pending or threatened claim by any third party that any Material
Trademark Property or any Material Patent is invalid or unenforceable or
that the use of any Material Trademark Property or any Material Patent
violates the rights of any third person.
XVI-9
<PAGE>
(d) PERFECTION. This Agreement together with the filing of UCC
financing statements naming Grantor as "debtor", naming secured party as
"Collateral Agent" and describing the Collateral in the filing offices set
forth on Schedule III annexed hereto and the recording of this Agreement
------------
with the United States Patent and Trademark Office, creates a valid,
perfected and First Priority security interest in the U.S. Collateral
(subject only to Permitted Patent Liens and Permitted Trademark Liens)
securing the payment of the Secured Obligations, and all filings and other
actions necessary to perfect and protect such security interest under the
laws of the United States or any State thereof have been or will promptly
following execution hereof be duly made or taken.
(e) OTHER INFORMATION. All information hereto, herein or hereafter
supplied to Collateral Agent by or on behalf of Grantor with respect to the
Collateral is accurate and complete in all material respects.
VI. FURTHER ASSURANCES; NEW TRADEMARKS, REGISTRATIONS AND TRADEMARK RIGHTS; NEW
---------------------------------------------------------------------------
PATENTS AND PATENT APPLICATIONS; CERTAIN INSPECTION RIGHTS.
- ----------------------------------------------------------
(a) Grantor agrees that from time to time, at the expense of Grantor,
Grantor will promptly execute and deliver all further instruments and documents,
and take all further action that Collateral Agent may reasonably request, in
order to perfect and protect any security interest or conditional assignment
granted or purported to be granted hereby or to enable Collateral Agent to
exercise and enforce its rights and remedies hereunder with respect to any
Collateral. Without limiting the generality of the foregoing, Grantor will: (i)
at the reasonable request of Collateral Agent, mark conspicuously each of its
records pertaining to the Collateral with a legend, in form and substance
reasonably satisfactory to Collateral Agent indicating that such Collateral is
subject to the security interest granted hereby, (ii) execute and file such
financing or continuation statements, or amendments thereto, and such other
instruments or notices, as Collateral Agent may reasonably request, in order to
perfect and preserve the security interests granted or purported to be granted
hereby, (iii) use its best efforts to obtain any necessary consents of third
parties to the grant and perfection of a security interest to Collateral Agent
with respect to any Collateral, and (iv) at Collateral Agent's request, appear
in and defend any action or proceeding that would reasonably be expected to
affect Grantor's title to or Collateral Agent's security interest in all or any
part of the Collateral.
(b) Grantor hereby authorizes Collateral Agent to file one or more
financing or continuation statements, and amendments thereto, relative to all or
any part of the Collateral without the signature of Grantor to the extent
permitted by applicable law. Grantor agrees that a carbon, photographic or other
reproduction of this Agreement or of a financing statement signed by Grantor
shall be sufficient as a financing statement and may be filed as a financing
statement in any and all jurisdictions.
(c) Grantor will furnish to Collateral Agent from time to time statements
and schedules further identifying and describing the Collateral and such other
reports in connection with the Collateral as Collateral Agent may reasonably
request, all in reasonable detail.
XVI-10
<PAGE>
(d) If Grantor shall obtain rights to any new Trademarks, Registrations or
Trademark Rights, or to any patentable inventions, or become entitled to the
benefit of any U.S. patent application or patent or any reissue, division,
continuation, renewal, extension, or continuation-in-part of any Patent or any
improvement in any Patent, the provisions of this Agreement shall automatically
apply thereto. Once per calendar year, Grantor shall notify Collateral Agent in
writing of any Registrations or Patents acquired by Grantor during such calendar
year and of any Registrations or Patents issued or applications for Registration
or Patents made during such calendar year, which notice shall state whether such
Registration constitutes a Material Trademark Property or whether such Patent
constitutes a Material Patent. Concurrently with the filing of an application
for Registration for any Trademark, or an application for any Patent the Grantor
shall execute, deliver and record in all places where this Agreement is recorded
an appropriate Patent and Trademark Security Agreement, substantially in the
form hereof, with appropriate insertions, or an amendment to this Agreement, in
form and substance reasonably satisfactory to Collateral Agent, pursuant to
which Grantor shall grant a security interest to the extent of its interest in
such Registration or Patent as provided herein to Collateral Agent unless so
doing would, in the reasonable judgment of Grantor, after due inquiry, result in
the grant of a Patent or Registration in the name of Collateral Agent, in which
event Grantor shall give written notice to Collateral Agent as soon as
reasonably practicable and the filing shall instead be undertaken as soon as
practicable but in no case later than immediately following the grant of such
Patent or Registration.
(e) No authorization, approval or other action by, and no notice to or
filing with, any governmental authority or regulatory body is required for
either (i) the grant by Grantor of the security interest and conditional
assignment granted hereby, (ii) the execution, delivery or performance of this
Agreement by grantor, or (iii) the perfection of or the exercise by Collateral
Agent of its rights and remedies hereunder (except as may have been taken by or
at the direction of Grantor).
VII. CERTAIN COVENANTS OF GRANTOR.
----------------------------
Grantor shall:
(a) notify Collateral Agent of any change in Grantor's name, identity
or corporate structure within 30 days of such change;
(b) give Collateral Agent 30 days' written notice following any change
in Grantor's chief place of business or chief executive office or the
office where Grantor keeps its records regarding the Collateral;
(c) pay promptly when due all property and other taxes, assessments and
governmental charges or levies imposed upon, and all claims (including
claims for labor, materials and supplies) against, the Collateral, except
to the extent the validity thereof is being contested in good faith;
(d) not sell, assign (by operation of law or otherwise) or otherwise
dispose of any of the Collateral, except as permitted by the Financing
Agreements;
XVI-11
<PAGE>
(e) except for Permitted Patent Liens and Permitted Trademark Liens and
the security interest and conditional assignment created by this
Agreement, not create or suffer to exist any Lien upon or with respect to
any of the Collateral to secure the indebtedness or other obligations of
any Person other than Liens permitted by the Financing Agreements;
(f) diligently keep reasonable records respecting the Collateral and at
all times keep at least one complete set of its records concerning
substantially all of the Patents and Registrations at its chief executive
office or principal place of business;
(g) take all steps reasonably necessary in Grantor's business judgment
to protect the secrecy of all trade secrets relating to the products and
services sold or delivered under or in connection with the Patents,
Trademarks and Trademark Rights;
(h) use proper statutory notice in connection with its use of each
Material Patent and Material Trademark Property to the extent reasonably
necessary for the protection of such Material Patent or Material
Trademark Property; and
(i) use consistent standards of high quality (which may be consistent
with Grantor's past practices or with Grantor's business judgment) in the
manufacture, sale and delivery of products and services sold or delivered
under or in connection with the Patents, Trademarks, Registrations and
Trademark Rights, including, to the extent applicable, in the operation
and maintenance of its merchandising operations.
VIII. AMOUNTS PAYABLE IN RESPECT OF THE COLLATERAL.
--------------------------------------------
Except as otherwise provided in this Section 8, Grantor shall continue to
collect, at its own expense, all amounts due or to become due to Grantors in
respect of the Collateral or any portion thereof. In connection with such
collections, each Grantor may take (and, at Collateral Agent's direction, shall
take) such action as Grantor may deem necessary or advisable to enforce
collection of such amounts; provided, however, that Collateral Agent shall have
-------- -------
the right at any time, upon the occurrence and during the continuation of an
Event of Default and upon written notice to Grantor of its intention to do so,
to notify the obligors with respect to any such amounts of the existence of the
security interest and the conditional assignment created hereby, and to direct
such obligors to make payment of all such amounts directly to Collateral Agent,
and, upon such notification and at the expense of Grantor, to enforce collection
of any such amounts and to adjust, settle or compromise the amount or payment
thereof, in the same manner and to the same extent as Grantor might have done.
After receipt by Grantor of the notice from Collateral Agent referred to in the
proviso to the preceding sentence, (i) all amounts and proceeds (including
checks and other instruments) received by Grantor in respect of amounts due to
Grantor in respect of Collateral or any portion thereof received by the Grantor
shall be forthwith (and in any event within two Business Days) deposited by the
Grantor in the exact form received, duly indorsed by the Grantor to the
Collateral Agent if required, in a Collateral Account maintained under the sole
dominion and control of the Collateral Agent, subject to withdrawal by the
Collateral Agent for the account of Secured Parties only as provided in Section
16, (ii) until so turned over in accordance with the preceding subsection (i),
all such amounts and proceeds received by Grantor shall be received in trust for
the benefit of Collateral Agent hereunder- and shall be segregated from other
funds of Grantor and (iii) Grantor shall not
XVI-12
<PAGE>
adjust, settle or compromise the amount or payment of any such amount or release
wholly or partly any obligor with respect thereto or allow any credit or
discount thereon.
IX. PATENT OR TRADEMARK APPLICATIONS AND LITIGATION.
-----------------------------------------------
(a) Grantor shall have the duty diligently, to prosecute any trademark
application relating to any Material Trademark Property that is pending as of
the date of this Agreement, to make federal application on any existing or
future registerable but unregistered Material Trademark Property (whenever it is
commercially reasonable in the reasonable judgement of Grantor to do so), and to
file and prosecute opposition and cancellation proceedings, renew Registrations
and do any and all acts which are necessary or desirable to preserve and
maintain all rights in all Material Trademark Properties; provided, however,
-------- -------
that Grantor shall not be obligated to prosecute or apply for registration of
any Trademark or Registration that Grantor determines in its reasonable business
judgment is no longer necessary or desirable in the conduct of its business.
Any expenses incurred in connection therewith shall be borne solely by Grantor.
Grantor shall not abandon any Material Trademark Property; provided, however,
-------- -------
that Grantor shall not be obligated to maintain any Trademark or Registration
that Grantor determines in its reasonable business judgment is no longer
necessary or desirable in the conduct of its business.
(b) Grantor shall have the duty diligently to prosecute any patent
application relating to any Material Patent that is pending as of the date of
this Agreement and to do any and all acts which are necessary or desirable to
preserve and maintain all rights in all Material Patents; provided, however,
-------- -------
that Grantor shall not be obligated to prosecute or maintain any Patent that
Grantor determines in its reasonable business judgment is no longer necessary or
desirable in the conduct of its business. Any expenses incurred in connection
therewith shall be borne solely by Grantor. Grantor shall not, as to any
patentable invention or Patent that constitutes or could constitute a Material
Patent, abandon any pending patent application or any Patent without the prior
written consent of Collateral Agent; provided, however, that Grantor shall not
-------- -------
be obligated to prosecute or maintain any Patent that Grantor determines in its
reasonable business judgment is no longer necessary or desirable in the conduct
of its business.
(c) Except as provided in Section 9(e), Grantor shall have the right to
commence and prosecute in its own name, as real party in interest, for its own
benefit and at its own expense, such suits, proceedings or other actions for
infringement, unfair competition, dilution or other damage as are in its
reasonable business judgment necessary to protect the Collateral. Collateral
Agent shall provide, at Grantor's expense, all reasonable and necessary
cooperation in connection with any such suit, proceeding or action including,
without limitation, joining as a necessary party.
(d) Grantor shall promptly, following its becoming aware thereof, notify
Collateral Agent of the institution of, or of any adverse determination in, any
proceeding (whether in the United States Patent and Trademark Office or any
federal, state, local or foreign court) described in subsection 9(a), 9(b) or
9(c) or regarding Grantor's claim of ownership in or right to use any of the
Trademarks, Registrations or Trademark Rights, its right to register the same,
or its right to keep and maintain such Registration. Grantor shall provide to
Collateral Agent any information with respect thereto requested by Collateral
Agent.
XVI-13
<PAGE>
(e) Anything contained herein to the contrary notwithstanding, upon the
occurrence and during the continuation of an Event of Default, Collateral Agent
shall have the right (but not the obligation) to bring suit, in the name of
Grantor, Collateral Agent or otherwise, to enforce any Patent, Trademark,
Registration, Trademark Right, Associated Goodwill and any license thereunder,
in which event Grantor shall, at the request of Collateral Agent, do any and all
lawful acts and execute any and all documents required by Collateral Agent in
aid of such enforcement and Grantor shall promptly, upon demand, reimburse and
indemnify Collateral Agent as provided in Section 17 in connection with the
exercise of its rights under this Section 9. To the extent that Collateral
Agent shall elect not to bring suit to enforce any Patent, Trademark,
Registration, Trademark Right Associated Goodwill or any license thereunder as
provided in this Section 9(e), Grantor agrees to use all reasonable measures,
whether by action, suit, proceeding or otherwise, to prevent the infringement of
any of the Patents, Trademarks, Registrations, Trademark Rights or Associated
Goodwill by others and for that purpose agrees to diligently maintain in
accordance with reasonable business practice any action, suit or proceeding
against any Person so infringing necessary to prevent such infringement.
X. NON-DISTURBANCE AGREEMENTS, ETC.
--------------------------------
If and to the extent that Grantor is permitted to license the Collateral,
Collateral Agent shall enter into a non-disturbance agreement or other similar
arrangement, at Grantor's request and expense, with Grantor and any licensee of
any Collateral permitted hereunder in form and substance reasonably satisfactory
to Collateral Agent pursuant to which (a) Collateral Agent shall agree not to
disturb or interfere with such licensee's rights under its license agreement
with Grantor so long as such licensee is not in default thereunder and (b) such
licensee shall acknowledge and agree that the Collateral licensed to it is
subject to the security interest and conditional assignment created in favor of
Collateral Agent and the other terms of this Agreement.
XI. COLLATERAL AGENT APPOINTED ATTORNEY-IN-FACT.
-------------------------------------------
Grantor hereby irrevocably appoints Collateral Agent as Grantor's
attorney-in-fact, with full authority in the place and stead of Grantor and in
the name of Grantor, Collateral Agent or otherwise, from time to time, upon the
occurrence and during the continuance of an Event of Default, in Collateral
Agent's reasonable discretion to take any action and to execute any instrument
that Collateral Agent may reasonably deem necessary or advisable to accomplish
the purposes of this Agreement, including without limitation:
(a) to endorse Grantor's name on all applications, documents, papers
and instruments necessary for Collateral Agent in the use or maintenance of
the Collateral;
(b) to ask for, demand, collect, sue for, recover, compound, receive
and give acquittance and receipts for moneys due and to become due under or
in respect of any of the Collateral;
(c) to receive, endorse and collect any drafts or other instruments,
documents and chattel paper in connection with clause (b) above;
XVI-14
<PAGE>
(d) to file any claims or take any action or institute any proceedings
that Collateral Agent may reasonably deem necessary or desirable for the
collection of any of the Collateral or otherwise to enforce the rights of
Collateral Agent with respect to any of the Collateral;
(e) to pay or discharge taxes or Liens (other than Liens permitted
under this Agreement or the Financing Agreements) levied or placed upon or
threatened against the Collateral, the legality or validity thereof and the
amounts necessary to discharge the same to be determined by Collateral Agent
in its sole discretion, any such payments made by Collateral Agent to become
obligations of Grantor to Collateral Agent, due and payable immediately
without demand; and
(f) upon the occurrence and during the continuance of an Event of
Default, (i) to execute and deliver any of the assignments or documents
requested by Collateral Agent pursuant to Section 14(b), (ii) to grant or
issue an exclusive or non-exclusive license to the Collateral or any portion
thereof to any Person, and (iii) otherwise generally to sell, transfer,
pledge, make any agreement with respect to or otherwise deal with any of the
Collateral as fully and completely as though Collateral Agent were the
absolute owner thereof for all purposes, and to do, at Collateral Agent's
option and Grantor's expense, at any time or from time to time, all acts and
things that Collateral Agent deems necessary to protect, preserve or realize
upon the Collateral and Collateral Agent's security interest therein in
order to effect the intent of this Agreement, all as fully and effectively
as Grantor might do.
XII. COLLATERAL AGENT MAY PERFORM.
----------------------------
If Grantor fails to perform any agreement contained herein, Collateral
Agent may itself perform, or cause performance of, such agreement, and the
reasonable expenses of Collateral Agent incurred in connection therewith shall
be payable by Grantor under Section 17.
XIII. STANDARD OF CARE.
----------------
The powers conferred on Collateral Agent hereunder are solely to protect
its interest in the Collateral and shall not impose any duty upon it to exercise
any such powers. Except for the exercise of reasonable care in the custody of
any Collateral in its possession and the accounting for monies actually received
by it hereunder, Collateral Agent shall have no duty as to any Collateral or as
to the taking of any necessary steps to preserve rights against prior parties or
any other rights pertaining to any Collateral. Collateral Agent shall be deemed
to have exercised reasonable care in the custody and preservation of any
Collateral in its possession if such Collateral is accorded treatment
substantially equal to that which Collateral Agent accords its own property.
XVI-15
<PAGE>
XIV. REMEDIES.
--------
If any Event of Default shall have occurred and be continuing:
XVI-16
<PAGE>
(a) Collateral Agent may exercise in respect of the Collateral, in
addition to all other rights and remedies provided for herein or otherwise
available to it, all the rights and remedies of a secured party on default
under the Uniform Commercial Code as in effect in any relevant jurisdiction
(the "CODE") (whether or not the Code applies to the affected Collateral),
and also may (i) require Grantor to, and Grantor hereby agrees that it will
at its expense and upon request of Collateral Agent forthwith, assemble all
or part of the Collateral as directed by Collateral Agent and make it
available to Collateral Agent at a place to be designated by Collateral
Agent that is reasonably convenient to both parties, (ii) enter onto the
property where any Collateral is located and take possession thereof with or
without judicial process, (iii) prior to the disposition of the Collateral,
store the Collateral or otherwise prepare the Collateral for disposition in
any manner to the extent Collateral Agent deems appropriate, (iv) take
possession of Grantor's premises or place custodians in exclusive control
thereof, remain on such premises and use the same for the purpose of taking
any actions described in the preceding clause (iii) and collecting any
Secured Obligation, (v) exercise any and all rights and remedies of Grantor
under or in connection with the contracts related to the Collateral or
otherwise in respect of the Collateral, including without limitation any and
all rights of Grantor to demand or otherwise require payment of any amount
under, or performance of any provision of, such contracts, and (vi) without
notice except as specified below, sell the Collateral or any part thereof in
one or more parcels at public or private sale, at any of Collateral Agent's
offices or elsewhere, for cash, on credit or for future delivery, at such
time or times and at such price or prices and upon such other terms as
Collateral Agent may deem commercially reasonable. Collateral Agent or any
Secured Party or Interest Rate Exchanger may be the purchaser of any or all
of the Collateral at any such sale and Collateral Agent, as agent for and
representative of Secured Parties and Interest Rate Exchangers (but not any
Secured Party or Secured Parties or Interest Rate Exchanger or Interest Rate
Exchangers in its or their respective individual capacities unless Requisite
Obligees, (shall otherwise agree in writing), shall be entitled, for the
purpose of bidding and making settlement or payment of the purchase price
for all or any portion of the Collateral sold at any such public sale, to
use and apply any of the Secured Obligations as a credit on account of the
purchase price for any Collateral payable by Collateral Agent at such sale.
Each purchaser at any such sale shall hold the property sold absolutely free
from any claim or right on the part of Grantor, and Grantor hereby waives
(to the extent permitted by applicable law) all rights of redemption, stay
and/or appraisal which it now has or may at any time in the future have
under any rule of law or statute now existing or hereafter enacted. Grantor
agrees that, to the extent notice of sale shall be required by law, at least
ten days' notice to Grantor of the time and place of any public sale or the
time after which any private sale is to be made shall constitute reasonable
notification. Collateral Agent shall not be obligated to make any sale of
Collateral regardless of notice of sale having been given. Collateral Agent
may adjourn any public or private sale from time to time by announcement at
the time and place fixed therefor, and such sale may, without further
notice, be made at the time and place to which it was so adjourned. Grantor
hereby waives any claims against Collateral Agent arising by reason of the
fact that the price at which any Collateral may have been sold at such a
private sale was less than the price which might have been obtained at a
public sale, even if Collateral Agent accepts the first offer received and
does not offer such Collateral to more than one offeree. If the proceeds of
any sale or other disposition of the Collateral are insufficient to pay all
the Secured Obligations, Grantor shall be liable for the
XVI-17
<PAGE>
deficiency and the reasonable fees of any attorneys employed by Collateral
Agent to collect such deficiency.
(b) Upon written demand from Collateral Agent, Grantor shall execute
and deliver to Collateral Agent an assignment or assignments of the Patents,
Trademarks, Registrations, Trademark Rights and the Associated Goodwill and
such other documents as are requested by Collateral Agent. Grantor agrees
that such an assignment and/or recording shall be applied to reduce the
Secured Obligations outstanding only to the extent that Collateral Agent (or
any Secured Party) receives cash proceeds in respect of the sale of, or
other realization upon, the Collateral.
(c) Within five Business Days after written notice from Collateral
Agent, Grantor shall make available to Collateral Agent, to the extent
within Grantor's power and authority, such personnel in Grantor's employ on
the date of such Event of Default as Collateral Agent may reasonably
designate, by name, title or job responsibility, to permit Grantor to
continue, directly or indirectly, to produce, advertise and sell the
products and services sold or delivered by Grantor under or in connection
with the Patents, Trademarks, Registrations and Trademark Rights, such
persons to be available to perform their prior functions on Collateral
Agent's behalf and to be compensated by Collateral Agent at Grantor's
expense on a per diem, pro-rata basis consistent with the salary and benefit
structure applicable to each as of the date of such Event of Default.
XV. PROCEEDS TO BE TURNED OVER TO COLLATERAL AGENT.
----------------------------------------------
In addition to the rights of the Collateral Agent and the Secured Parties
specified in Section 8 with respect to payments of Accounts, if an Event of
Default shall occur and be continuing, upon request of the Collateral Agent, all
proceeds received by the Grantor consisting of cash, checks and other near-cash
items shall be held by the Grantor in trust for the Collateral Agent and the
Secured Parties, segregated from other funds of the Grantor, and shall,
forthwith upon receipt by the Grantor, be turned over to the Collateral Agent in
the exact form received by the Grantor (duly indorsed by the Grantor to the
Collateral Agent, if required) and held by the Collateral Agent in a Collateral
Account maintained under the Intercreditor Agreement. All proceeds while held
by the Collateral Agent in a Collateral Account (or by the Grantor in trust for
the Collateral Agent and the Secured Parties) shall continue to be held as
collateral security for all the Obligations and shall not constitute payment
thereof until applied as provided in Section 16.
XVI. APPLICATION OF PROCEEDS.
-----------------------
Except as expressly provided elsewhere in this Agreement, all proceeds
held in any Collateral Account and all other proceeds received by Collateral
Agent in respect of any sale of, collection from, or other realization upon all
or any part of the Collateral shall be applied as provided in subsection 3 of
the Intercreditor Agreement.
XVI-18
<PAGE>
XVII. INDEMNITY AND EXPENSES.
----------------------
(a) Grantor agrees to indemnify Collateral Agent, each Secured Party and
each Interest Rate Exchanger from and against any and all claims, losses and
liabilities in any way relating to, growing out of or resulting from this
Agreement and the transactions contemplated hereby (including without limitation
enforcement of this Agreement), except to the extent such claims, losses or
liabilities result from Collateral Agent's or such Secured Party's or Interest
Rate Exchanger's gross negligence or willful misconduct as finally determined by
a court of competent jurisdiction.
(b) Grantor agrees to pay to Collateral Agent promptly following written
demand the amount of any and all costs and expenses, including the reasonable
fees and expenses of its counsel and of any experts and agents, that Collateral
Agent may incur in connection with (i) the administration of this Agreement,
(ii) the custody, preservation, use or operation of, or the sale of, collection
from, or other realization upon, any of the Collateral, (iii) the exercise or
enforcement of any of the rights of Collateral Agent hereunder, or (iv) the
failure by Grantor to perform or observe any of the provisions hereof.
(c) The obligations of Grantor in this Section 17 shall survive the
termination of this Agreement and the discharge of Grantor's other obligations
under this Agreement, the Interest Rate Agreements, the Credit Agreement and the
other Loan Documents.
XVIII. CONTINUING SECURITY INTEREST; TRANSFER OF LOANS.
-----------------------------------------------
This Agreement shall create a continuing security interest in, and a
conditional assignment of the Collateral effective upon the occurrence and
during the continuance of an Event of Default and shall (a) remain in full force
and effect until the payment in full of the Secured Obligations (other than
inchoate indemnification obligations with respect to claims, losses or
liabilities which have not yet arisen and are not yet due and payable), the
cancellation or termination of the Commitments and the cancellation or
expiration of all outstanding Letters of Credit, (b) be binding upon Grantor and
its respective successors and assigns, and (c) inure, together with the rights
and remedies of Collateral Agent hereunder, to the benefit of Collateral Agent
and its successors, transferees and assigns. Without limiting the generality of
the foregoing clause (c), but subject to the provisions of subsection 10.1 of
the Credit Agreement and subsection 10.1 of the AXEL Credit Agreement, any
Secured Party may assign or otherwise transfer any Loans held by it to any other
Person, and such other Person shall thereupon become vested with all the
benefits in respect thereof granted to Secured Parties herein or otherwise. Upon
the payment in full of all Secured Obligations (other than inchoate
indemnification obligations with respect to claims, losses or liabilities which
have not yet arisen and are not yet due and payable), the cancellation or
termination of the Commitments and the cancellation or expiration of all
outstanding Letters of Credit, the security interest and conditional assignment
granted hereby shall terminate and all rights to the Collateral shall revert to
Grantor. Upon any such termination Collateral Agent will, at Grantor's expense,
execute and deliver to Grantor such documents as Grantor shall reasonably
request to evidence such termination in accordance with the terms of the
Intercreditor Agreement.
XVI-19
<PAGE>
XX. COLLATERAL AGENT AS ADMINISTRATIVE AGENT.
----------------------------------------
(a) Collateral Agent has been appointed to act as Collateral Agent hereunder
by CA Administrative Agent on behalf of the Credit Agreement Lenders and AXEL
Administrative Agent on behalf of the AXEL Lenders pursuant to the Intercreditor
Agreement and, by their acceptance of the benefits hereof, Interest Rate
Exchangers, and shall be entitled to the benefits of the Intercreditor
Agreement. Collateral Agent shall be obligated, and shall have the right
hereunder, to make demands, to give notices, to exercise or refrain from
exercising any rights, and to take or refrain from taking any action (including
without limitation the release or substitution of Collateral), solely in
accordance with this Agreement and the Intercreditor Agreement; provided that
--------
Collateral Agent shall exercise, or refrain from exercising, any remedies
provided for in Section 14 in accordance with the instructions of (i) Requisite
Lenders or (ii) after payment in full of all Financing Agreement Obligations
under the Financing Agreements and any other Loan Documents, the holders of a
majority of the aggregate notional amount (or, with respect to any Lender
Interest Rate Agreement that has been terminated in accordance with its terms,
the amount then due and payable (exclusive of expenses and similar payments but
including any early termination payments then due) under such Lender Interest
Rate Agreement) under all Lender Interest Rate Agreements (Requisite Lenders or,
if applicable, such holders being referred to herein as "REQUISITE OBLIGEES").
In furtherance of the foregoing provisions of this Section 19(a), each Interest
Rate Exchanger, by its acceptance of the benefits hereof, agrees that it shall
have no right individually to realize upon any of the Collateral hereunder, it
being understood and agreed by such Interest Rate Exchanger that all rights and
remedies hereunder may be exercised solely by Collateral Agent for the benefit
of Secured Parties and Interest Rate Exchangers in accordance with the terms of
this Section 19(a).
(b) Collateral Agent shall at all times be the same Person that is appointed
Collateral Agent under the Intercreditor Agreement. The Collateral Agent may
resign and a successor Collateral Agent may be appointed in the manner provided
in the Intercreditor Agreement. Upon the acceptance of any appointment as
Collateral Agent by a successor Collateral Agent, that successor Collateral
Agent shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring or removed Collateral Agent under this
Agreement, and the retiring or removed Collateral Agent under this Agreement
shall promptly (i) transfer to such successor Collateral Agent all sums,
securities and other items of Collateral held hereunder, together with all
records and other documents necessary or appropriate in connection with the
performance of the duties of the successor Collateral Agent under this
Agreement, and (ii) execute and deliver to such successor Collateral Agent such
amendments to financing statements, and take such other actions, as may be
necessary or appropriate in connection with the assignment to such successor
Collateral Agent of the security interests created hereunder, whereupon such
retiring or removed Collateral Agent shall be discharged from its duties and
obligations under this Agreement. After any retiring or removed Collateral
Agent's resignation or removal hereunder as Collateral Agent, the provisions of
this Agreement shall inure to its benefit as to any actions taken or omitted to
be taken by it under this Agreement while it was Collateral Agent hereunder.
XVI-20
<PAGE>
XX. AMENDMENTS; ETC.
---------------
No amendment, modification, termination or waiver of any provision of
this Agreement, and no consent to any departure by Grantor therefrom, shall in
any event be effective unless the same shall be in writing and signed by
Collateral Agent and, in the case of any such amendment or modification, by
Grantor. Any such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which it was given.
XXI. NOTICES.
-------
Any notice or other communication herein required or permitted to be
given shall be in writing and may be personally served, telexed or sent by
telefacsimile or United States mail or courier service and shall be deemed to
have been given when delivered in person or by courier service, upon receipt of
telefacsimile or telex (with received answerback), or three Business Days after
depositing it in the United States mail with postage prepaid and properly
addressed; provided that notices to Collateral Agent or Grantor shall not be
--------
effective until received. For the purposes hereof, the address of each party
hereto shall be provided in subsection 10.8 of the Credit Agreement or
subsection 10.8 of the AXEL Credit Agreement, as applicable, or as set forth
under such party's name on the signature pages hereof or such other address as
shall be designated by such party in a written notice delivered to the other
parties hereto.
XXII. FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE.
-----------------------------------------------------
No failure or delay on the part of Collateral Agent in the exercise of
any power, right or privilege hereunder shall impair such power, right or
privilege or be construed to be a waiver of any default or acquiescence therein,
nor shall any single or partial exercise of any such power, right or privilege
preclude any other or further exercise thereof or of any other power, right or
privilege. All rights and remedies existing under this Agreement are cumulative
to, and not exclusive of, any rights or remedies otherwise available.
XXIII. SEVERABILITY.
------------
In case any provision in or obligation under this Agreement shall be
invalid, illegal or unenforceable in any jurisdiction, the validity, legality
and enforceability of the remaining provisions or obligations, or of such
provision or obligation in any other jurisdiction, shall not in any way be
affected or impaired thereby.
XXIV. HEADINGS.
--------
Section and subsection headings in this Agreement are included herein for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose or be given any substantive effect.
XVI-21
<PAGE>
XXV. GOVERNING LAW; TERMS.
--------------------
THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING WITHOUT LIMITATION SECTION
5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD
TO CONFLICTS OF LAWS PRINCIPLES, EXCEPT TO THE EXTENT THAT THE CODE PROVIDES
THAT THE PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER,
IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A
JURISDICTION OTHER THAN THE STATE OF NEW YORK. Unless otherwise defined herein
or in the Credit Agreement, terms used in Articles 8 and 9 of the Uniform
Commercial Code in the State of New York are used herein as therein defined.
XXVI. COUNTERPARTS.
------------
This Agreement may be executed in one or more counterparts and by different
parties hereto in separate counterparts, each of which when so executed and
delivered shall be deemed an original, but all such counterparts together shall
constitute but one and the same instrument; signature pages may be detached from
multiple separate counterparts and attached to a single counterpart so that all
signature pages are physically attached to the same document.
[Remainder of page intentionally left blank]
XVI-22
<PAGE>
IN WITNESS WHEREOF, Grantor and Collateral Agent have caused this Agreement
to be duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
SEALY MATTRESS COMPANY
By: ___________________________________
Name: __________________________
Title:____________________________
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK,
as Collateral Agent
By: ___________________________________
Name: __________________________
Title:____________________________
XVI-23
<PAGE>
SCHEDULE I
TO
COMPANY PATENT AND TRADEMARK SECURITY AGREEMENT
REGISTERED UNITED STATES TRADEMARK REGISTRATION REGISTRATION
OWNER DESCRIPTION NUMBER DATE
----- ----------- ------ ----
XVI-24
<PAGE>
SCHEDULE II
TO
COMPANY PATENT AND SECURITY AGREEMENT
PATENTS ISSUED
--------------
Patent No. Issue Date Invention
---------- ---------- ---------
PATENTS PENDING
---------------
Applicant's Date Application
Name Filed No. Invention Inventor
---- ----- ----------- --------- --------
XVI-25
<PAGE>
SCHEDULE III
TO
COMPANY PATENT AND TRADEMARK SECURITY AGREEMENT
FILING OFFICES
--------------
XVI-26
<PAGE>
EXHIBIT XVII
[FORM OF SUBSIDIARY GUARANTY]
SUBSIDIARY GUARANTY
This SUBSIDIARY GUARANTY is entered into as of December 18, 1997 by
THE UNDERSIGNED (each a "GUARANTOR" and collectively, "GUARANTORS") in favor
of and for the benefit of MORGAN GUARANTY TRUST COMPANY OF NEW YORK ("MORGAN
GUARANTY"), as collateral agent for and representative of (in such capacity
herein called "GUARANTIED PARTY") the Secured Parties (as hereinafter defined)
and any Interest Rate Exchangers (as hereinafter defined), and, subject to
subsection 3.12, for the benefit of the other Beneficiaries (as hereinafter
defined).
RECITALS
A. Sealy Mattress Company, an Ohio corporation ("COMPANY"), Sealy
Corporation, a Delaware corporation ("HOLDINGS"), the financial institutions
from time to time parties thereto (the "CREDIT AGREEMENT LENDERS"), Goldman
Sachs Credit Partners L.P. ("GSCP"), as arranger and syndication agent (in
such capacity, "CA SYNDICATION AGENT"), Morgan Guaranty, as administrative
agent (in such capacity, "CA ADMINISTRATIVE AGENT"), and Bankers Trust Company
("BTCo."), as documentation agent (in such capacity, "CA DOCUMENTATION
AGENT") have entered into a Credit Agreement dated as of December 18, 1997
(said Credit Agreement, as it may hereafter be amended, restated, supplemented
or otherwise modified from time to time, being the ("CREDIT AGREEMENT")
pursuant to which Credit Agreement Lenders have made certain commitments,
subject to the terms and conditions set forth in the Credit Agreement, to extend
certain credit facilities to Company.
B. Company, Holdings, the financial institutions from time to time
parties thereto (the "AXEL LENDERS"), GSCP, as arranger and syndication agent
(in such capacity, "AXEL SYNDICATION AGENT"), Morgan Guaranty, as
administrative agent (in such capacity, "AXEL ADMINISTRATIVE AGENT"), and
BTCo., as documentation agent (in such capacity, "AXEL DOCUMENTATION AGENT")
have entered into an AXEL Credit Agreement dated as of December 18, 1997 (said
AXEL Credit Agreement, as it may hereafter be amended, restated, supplemented or
otherwise modified from time to time, being the "AXEL CREDIT AGREEMENT"; the
Credit Agreement Lenders, the CA Syndication Agent, the CA Administrative Agent,
CA Documentation Agent, the AXEL Lenders, the AXEL Syndication Agent, the AXEL
Administrative Agent, and the AXEL Documentation Agent each being a "SECURED
PARTY" and collectively the "SECURED PARTIES") pursuant to which AXEL Lenders
have made certain commitments, subject to the terms and conditions set forth in
the AXEL Credit Agreement, to extend certain credit facilities to Company.
C. Company may from time to time enter, or may from time to time
have entered, into one or more Interest Rate Agreements (collectively, the
"LENDER INTEREST RATE AGREEMENTS") with or one or more Credit Agreement
Lenders or their Affiliates or AXEL Lenders
XVII-1
<PAGE>
or their Affiliates (in such capacity, collectively, "INTEREST RATE EXCHANGERS")
in accordance with the terms of the Financing Agreements (as hereinafter
defined), and it is desired that the obligations of Company under the Lender
Interest Rate Agreements, including without limitation the obligation of Company
to make payments thereunder in the event of early termination thereof (all such
obligations being the "INTEREST RATE OBLIGATIONS"), together with all
obligations of Company under the Financing Agreements and any other Loan
Documents (as hereinafter defined), be guarantied hereunder.
D. A portion of the proceeds of the Loans (as hereinafter defined)
may be advanced to Guarantors and thus the Guarantied Obligations (as
hereinafter defined) are being incurred for and will inure to the benefit of
Guarantors (which benefits are hereby acknowledged).
E. It is a condition precedent to the making of the initial Loans
under the Financing Agreements that Company's obligations thereunder be
guarantied by Guarantors.
F. Guarantors are willing irrevocably and unconditionally to
guaranty such obligations of Company.
NOW, THEREFORE, in consideration of the premises and to induce (i) the
CA Administrative Agent, the CA Syndication Agent and the Credit Agreement
Lenders to enter into the Credit Agreement, (ii) the Credit Agreement Lenders to
make their respective loans to, and issue Letters of Credit for the account of,
the Company, (iii) the AXEL Administrative Agent, the AXEL Syndication Agent and
the AXEL Lenders to enter into the AXEL Loan Agreement and (iv) the AXEL Lenders
to make their respective loans to the Company, and (v) to induce Interest Rate
Exchangers to enter into the Lender Interest Rate Agreements and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the Guarantors hereby agree as follows:
SECTION 1. DEFINITIONS
1.1 CERTAIN DEFINED TERMS.
---------------------
(a) Unless otherwise defined herein, terms defined in the Credit
Agreement and used herein shall have the meanings given to such terms in the
Credit Agreement;
(b) The following terms shall have the following meanings:
"ACCELERATION" shall mean any of the Credit Agreement Obligations or
the AXEL Credit Agreement Obligations have been declared, or have become,
immediately due and payable, or the commitments to extend credit of the Credit
Agreement Lenders or the AXEL Lenders shall have been terminated under Section 8
of the Credit Agreement or Section 7 of the AXEL Credit Agreement, respectively.
XVII-2
<PAGE>
"ADDITIONAL GUARANTOR" has the meaning assigned to that term in
subsection 3.12.
"ADJUSTED MAXIMUM AMOUNT" has the meaning assigned to that term in
subsection 2.2.
"AGGREGATE PAYMENTS" has the meaning assigned to that term in
subsection 2.2.
"AXEL COMMITMENTS" shall mean the "Commitments" as defined in the
AXEL Credit Agreement.
"AXEL CREDIT AGREEMENT" has the meaning assigned to that term in the
recitals to this Agreement.
"AXEL OBLIGATIONS" shall mean the "Obligations" as defined in the
AXEL Credit Agreement.
"BENEFICIARIES" means Guarantied Party, Secured Parties and any
Interest Rate Exchangers.
"COLLATERAL ACCOUNTS" shall mean "Collateral Accounts" as defined
in the Intercreditor Agreement.
"COMMITMENTS" means the Credit Agreement Commitments and the AXEL
Commitments.
"CONTRIBUTING GUARANTORS" has the meaning assigned to that term in
subsection 2.2.
"CREDIT AGREEMENT" has the meaning assigned to that term in the
recitals to this Agreement.
"CREDIT AGREEMENT COMMITMENTS" shall mean the "Commitments" as
defined in the Credit Agreement.
"CREDIT AGREEMENT OBLIGATIONS" shall mean the "Obligations" as
defined in the Credit Agreement.
"EVENT OF DEFAULT" means any "Event of Default" as defined in any
Financing Agreement or the occurrence of an Event of Default in which Company is
the Defaulting Party and which results in the designation of an Early
Termination Date (as such terms are defined in a Master Agreement or an Interest
Rate Swap Agreement or Interest Rate and Currency Exchange Agreement in the form
prepared by the International Swap and Derivatives Association Inc. or a similar
event under any similar swap agreement) under any Lender Interest Rate
Agreement.
XVII-3
<PAGE>
"FAIR SHARE" has the meaning assigned to that term in subsection
2.2.
"FINANCING AGREEMENT" means either the Credit Agreement or the AXEL
Credit Agreement, and "Financing Agreements" means the Credit Agreement and
the AXEL Credit Agreement, collectively.
"FINANCING AGREEMENT OBLIGATIONS" means Credit Agreement Obligations
and AXEL Obligations.
"FRAUDULENT TRANSFER LAWS" has the meaning assigned to that term in
subsection 2.2.
"FAIR SHARE SHORTFALL" has the meaning assigned to that term in
subsection 2.2.
"FUNDING GUARANTOR" has the meaning assigned to that term in
subsection 2.2.
"GUARANTIED OBLIGATIONS" has the meaning assigned to that term in
subsection 2.1.
"GUARANTY" means this Subsidiary Guaranty dated as of December 18,
1997, as it may be amended, supplemented or otherwise modified from time to
time.
"GRANTOR" has the meaning assigned to that term in the introduction
of this Agreement.
"HOLDINGS" has the meaning assigned to that term in the recitals to
this Agreement.
"INTERCREDITOR AGREEMENT" means the Intercreditor Agreement, dated
as of December 18, 1997, by and among CA Administrative Agent, AXEL
Administrative Agent and Collateral Agent.
"INTEREST RATE EXCHANGERS" has the meaning assigned to that term in
the recitals to this Agreement.
"LENDER INTEREST RATE AGREEMENT" has the meaning assigned to that
term in the recitals to this Agreement.
"LOAN" means any "Loan" as defined in any Financing Agreement, and
"LOANS" means all such Loans collectively.
XVII-4
<PAGE>
"LOAN DOCUMENT" means any "Loan Document" as defined in any
Financing Agreement, and "LOAN DOCUMENTS" means all such Loan Documents
collectively.
"POTENTIAL EVENT OF DEFAULT" means any "Potential Event of
Default" as defined in any Financing Agreement.
"REQUISITE AXEL LENDERS" means "Requisite Lenders" as defined in
the AXEL Credit Agreement.
"REQUISITE CREDIT AGREEMENT LENDERS" means "Requisite Lenders" as
defined in the Credit Agreement.
"REQUISITE LENDERS" means (A) unless an Acceleration shall have
occurred and be continuing, the Requisite Credit Agreement Lenders and the
Requisite AXEL Lenders, and (B) if an Acceleration has occurred and is
continuing, Secured Parties holding more than 50% of the Financing Agreement
Obligations.
"REQUISITE OBLIGEES" has the meaning assigned to that term in
subsection 3.14 of this Agreement.
"SECURED PARTIES" has the meaning assigned to that term in the
recitals to this Agreement.
"PAYMENT IN FULL", "PAID IN FULL" or any similar term means
payment in full of the Guarantied Obligations (other than inchoate
indemnification obligations with respect to claims, losses or liabilities which
have not yet arisen and are not yet due and payable), including without
limitation all principal, interest, costs, fees and expenses (including, without
limitation, reasonable legal fees and expenses) of Beneficiaries as required
under the Loan Documents and the Lender Interest Rate Agreements.
1.2 INTERPRETATION. References to "Sections" and "subsections"
--------------
shall be to Sections and subsections, respectively, of this Guaranty unless
otherwise specifically provided.
SECTION 2. THE GUARANTY
2.1 GUARANTY OF THE GUARANTIED OBLIGATIONS. Subject to the
--------------------------------------
provisions of subsection 2.2(a), Guarantors jointly and severally hereby
irrevocably and unconditionally guaranty, as primary obligors and not merely as
sureties, the due and punctual payment in full of all Guarantied Obligations
when the same shall become due, whether at stated maturity, by required
prepayment, declaration, acceleration, demand or otherwise (including amounts
that would become due but for the operation of the automatic stay under Section
362(a) of the Bankruptcy Code, 11 U.S.C. (S) 362(a)). The term "GUARANTIED
OBLIGATIONS" is used herein in its most comprehensive sense and includes:
XVII-5
<PAGE>
(a) any and all Financing Agreement Obligations of Company and any and
all Interest Rate Obligations, in each case now or hereafter made, incurred or
created, whether absolute or contingent, liquidated or unliquidated, whether due
or not due, and however arising under or in connection with any Financing
Agreement and any other Loan Documents and the Lender Interest Rate Agreements,
including those arising under successive borrowing transactions under any
Financing Agreement which shall either continue the Financing Agreement
Obligations of Company or from time to time renew them after they have been
satisfied and including interest which, but for the filing of a petition in
bankruptcy with respect to Company, would have accrued on any Guarantied
Obligations, whether or not a claim is allowed against Company for such interest
in the related bankruptcy proceeding; and
(b) those expenses set forth in subsection 2.9 hereof.
2.2 LIMITATION ON AMOUNT GUARANTIED; CONTRIBUTION BY GUARANTORS. (a)
-----------------------------------------------------------
Anything contained in this Guaranty to the contrary notwithstanding, if any
Fraudulent Transfer Law (as hereinafter defined) is determined by a court of
competent jurisdiction to be applicable to the obligations of any Guarantor
under this Guaranty, such obligations of such Guarantor hereunder shall be
limited to a maximum aggregate amount equal to the largest amount that would not
render its obligations hereunder subject to avoidance as a fraudulent transfer
or conveyance under Section 548 of Title 11 of the United States Code or any
applicable provisions of comparable state law (collectively, the "FRAUDULENT
TRANSFER LAWS"), in each case after giving effect to all other liabilities of
such Guarantor, contingent or otherwise, that are relevant under the Fraudulent
Transfer Laws (specifically excluding, however, any liabilities of such
Guarantor (x) in respect of intercompany indebtedness to Company or other
affiliates of Company to the extent that such indebtedness would be discharged
in an amount equal to the amount paid by such Guarantor hereunder and (y) under
any guaranty of Subordinated Indebtedness which guaranty contains a limitation
as to maximum amount similar to that set forth in this subsection 2.2(a),
pursuant to which the liability of such Guarantor hereunder is included in the
liabilities taken into account in determining such maximum amount) and after
giving effect as assets to the value (as determined under the applicable
provisions of the Fraudulent Transfer Laws) of any rights to subrogation,
reimbursement, indemnification or contribution of such Guarantor pursuant to
applicable law or pursuant to the terms of any agreement (including without
limitation any such right of contribution under subsection 2.2(b) or under the
Holdings Guaranty as contemplated by subsection 2.2(b)).
(b) Guarantors under this Guaranty, and Holdings under the Holdings
Guaranty, together desire to allocate among themselves (collectively, the
"CONTRIBUTING GUARANTORS"), in a fair and equitable manner, their obligations
arising under this Guaranty and the Holdings Guaranty. Accordingly, in the
event any payment or distribution is made on any date by any Guarantor under
this Guaranty or Holdings under the Holdings Guaranty (a "FUNDING GUARANTOR")
that exceeds its Fair Share (as defined below) as of such date, that Funding
Guarantor shall be entitled to a contribution from each of the other
Contributing Guarantors in the amount of such other Contributing Guarantor's
Fair Share Shortfall (as defined below) as of such date, with the result that
all such contributions will cause each Contributing Guarantor's Aggregate
Payments (as defined below) to
XVII-6
<PAGE>
equal its Fair Share as of such date. "FAIR SHARE" means, with respect to a
Contributing Guarantor as of any date of determination, an amount equal to (i)
the ratio of (x) the Adjusted Maximum Amount (as defined below) with respect to
such Contributing Guarantor to (y) the aggregate of the Adjusted Maximum Amounts
with respect to all Contributing Guarantors multiplied by (ii) the aggregate
-------------
amount paid or distributed on or before such date by all Funding Guarantors
under this Guaranty and the Holdings Guaranty in respect of the obligations
guarantied. "FAIR SHARE SHORTFALL" means, with respect to a Contributing
Guarantor as of any date of determination, the excess, if any, of the Fair Share
of such Contributing Guarantor over the Aggregate Payments of such Contributing
Guarantor. "ADJUSTED MAXIMUM AMOUNT" means, with respect to a Contributing
Guarantor as of any date of determination, the maximum aggregate amount of the
obligations of such Contributing Guarantor under this Guaranty or the Holdings
Guaranty, as applicable, determined as of such date, in the case of any
Guarantor, in accordance with subsection 2.2(a); provided that, solely for
--------
purposes of calculating the "Adjusted Maximum Amount" with respect to any
Contributing Guarantor for purposes of this subsection 2.2(b), any assets or
liabilities of such Contributing Guarantor arising by virtue of any rights to
subrogation, reimbursement or indemnification or any rights to or obligations of
contribution hereunder or under subsection 2.2 of the Holdings Guaranty shall
not be considered as assets or liabilities of such Contributing Guarantor.
"AGGREGATE PAYMENTS" means, with respect to a Contributing Guarantor as of any
date of determination, an amount equal to (i) the aggregate amount of all
payments and distributions made on or before such date by such Contributing
Guarantor in respect of this Guaranty or the Holdings Guaranty, as applicable
(including, without limitation, in respect of this subsection 2.2(b) or
subsection 2.2 of the Holdings Guaranty) minus (ii) the aggregate amount of all
-----
payments received on or before such date by such Contributing Guarantor from the
other Contributing Guarantors as contributions under this subsection 2.2(b) or
subsection 2.2 of the Holdings Guaranty. The amounts payable as contributions
hereunder and under subsection 2.2 of the Holdings Guaranty shall be determined
as of the date on which the related payment or distribution is made by the
applicable Funding Guarantor. The allocation among Contributing Guarantors of
their obligations as set forth in this subsection 2.2(b) and subsection 2.2 of
the Holdings Guaranty shall not be construed in any way to limit the liability
of any Contributing Guarantor hereunder or under the Holdings Guaranty. Holdings
is a third party beneficiary to the contribution agreement set forth in this
subsection 2.2(b).
2.3 PAYMENT BY GUARANTORS; APPLICATION OF PAYMENTS. Subject to the
----------------------------------------------
provisions of subsection 2.2(a), Guarantors hereby jointly and severally agree,
in furtherance of the foregoing and not in limitation of any other right which
any Beneficiary may have at law or in equity against any Guarantor by virtue
hereof, that upon the failure of Company to pay any of the Guarantied
Obligations when and as the same shall become due, whether at stated maturity,
by required prepayment, declaration, acceleration, demand or otherwise
(including amounts that would become due but for the operation of the automatic
stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. (S) 362(a)),
Guarantors will promptly following written demand pay, or cause to be paid, in
cash, to Guarantied Party for the ratable benefit of Beneficiaries, an amount
equal to the sum of the unpaid principal amount of all Guarantied Obligations
then due as aforesaid, accrued and unpaid interest on such Guarantied
Obligations (including, without limitation, interest which, but for the filing
of a petition in bankruptcy with respect to Company, would have accrued on such
Guarantied Obligations, whether or not a claim is allowed against Company for
such interest in the related bankruptcy proceeding) and all other Guarantied
Obligations then owed to Beneficiaries as
XVII-7
<PAGE>
aforesaid. All such payments shall be applied promptly from time to time by
Guarantied Party as provided in subsection 3 of the Intercreditor Agreement.
2.4 LIABILITY OF GUARANTORS ABSOLUTE. Each Guarantor agrees that its
--------------------------------
obligations hereunder are irrevocable, absolute, independent and unconditional
and shall not be affected by any circumstance which constitutes a legal or
equitable discharge of a guarantor or surety other than payment in full of the
Guarantied Obligations. In furtherance of the foregoing and without limiting
the generality thereof, each Guarantor agrees as follows:
A. This Guaranty is a guaranty of payment when due and not of
collectibility.
B. The obligations of each Guarantor hereunder are independent of
the obligations of Company under the Loan Documents or the Lender
Interest Rate Agreements and the obligations of any other guarantor
(including any other Guarantor) of the obligations of Company under
the Loan Documents or the Lender Interest Rate Agreements, and a
separate action or actions may be brought and prosecuted against such
Guarantor whether or not any action is brought against Company or any
of such other guarantors and whether or not Company is joined in any
such action or actions.
C. Payment by any Guarantor of a portion, but not all, of the
Guarantied Obligations shall in no way limit, affect, modify or
abridge any Guarantor's liability for any portion of the Guarantied
Obligations which has not been paid. Without limiting the generality
of the foregoing, if Guarantied Party is awarded a judgment in any
suit brought to enforce any Guarantor's covenant to pay a portion of
the Guarantied Obligations, such judgment shall not be deemed to
release such Guarantor from its covenant to pay the portion of the
Guarantied Obligations that is not the subject of such suit, and such
judgment shall not, except to the extent satisfied by such Guarantor,
limit, affect, modify or abridge any other Guarantor's liability
hereunder in respect of the Guarantied Obligations.
D. Any Beneficiary, upon such terms as it deems appropriate,
without notice or demand and without affecting the validity or
enforceability of this Guaranty or giving rise to any reduction,
limitation, impairment, discharge or termination of any Guarantor's
liability hereunder, from time to time may (i) renew, extend,
accelerate, increase the rate of interest on, or otherwise change the
time, place, manner or terms of payment of the Guarantied Obligations,
(ii) settle, compromise, release or discharge, or accept or refuse any
offer of performance with respect to, or substitutions for, the
Guarantied Obligations or any agreement relating thereto and/or
subordinate the payment of the same to the payment of any other
obligations; (iii) request and accept other guaranties of the
Guarantied Obligations and take and hold security for the payment of
this Guaranty or the Guarantied Obligations; (iv) release, surrender,
exchange, substitute, compromise, settle, rescind, waive, alter,
subordinate or modify, with or without consideration, any security for
payment of the Guarantied Obligations, any other guaranties of the
Guarantied
XVII-8
<PAGE>
Obligations, or any other obligation of any Person (including any
other Guarantor) with respect to the Guarantied Obligations; (v)
enforce and apply any security now or hereafter held by or for the
benefit of such Beneficiary in respect of this Guaranty or the
Guarantied Obligations and direct the order or manner of sale thereof,
or exercise any other right or remedy that such Beneficiary may have
against any such security, in each case as such Beneficiary in its
discretion may determine consistent with the applicable Financing
Agreement or the applicable Lender Interest Rate Agreement and any
applicable security agreement, including foreclosure on any such
security pursuant to one or more judicial or nonjudicial sales,
whether or not every aspect of any such sale is commercially
reasonable, and even though such action operates to impair or
extinguish any right of reimbursement or subrogation or other right or
remedy of any Guarantor against Company or any security for the
Guarantied Obligations; and (vi) exercise any other rights available
to it under the Loan Documents or the Lender Interest Rate Agreements.
E. This Guaranty and the obligations of Guarantors hereunder
shall be valid and enforceable and shall not be subject to any
reduction, limitation, impairment, discharge or termination for any
reason (other than payment in full of the Guarantied Obligations),
including without limitation the occurrence of any of the following,
whether or not any Guarantor shall have had notice or knowledge of any
of them: (i) any failure or omission to assert or enforce or agreement
or election not to assert or enforce, or the stay or enjoining, by
order of court, by operation of law or otherwise, of the exercise or
enforcement of, any claim or demand or any right, power or remedy
(whether arising under the Loan Documents or the Lender Interest Rate
Agreements, at law, in equity or otherwise) with respect to the
Guarantied Obligations or any agreement relating thereto, or with
respect to any other guaranty of or security for the payment of the
Guarantied Obligations; (ii) any rescission, waiver, amendment or
modification of, or any consent to departure from, any of the terms or
provisions (including without limitation provisions relating to events
of default) of any Financing Agreement, any of the other Loan
Documents, any of the Lender Interest Rate Agreements or any agreement
or instrument executed pursuant thereto, or of any other guaranty or
security for the Guarantied Obligations, in each case whether or not
in accordance with the terms of such Financing Agreement or such Loan
Document, such Lender Interest Rate Agreement or any agreement
relating to such other guaranty or security; (iii) the application of
payments received from any source (other than payments received
pursuant to the other Loan Documents or any of the Lender Interest
Rate Agreements or from the proceeds of any security for the
Guarantied Obligations, except to the extent such security also serves
as collateral for indebtedness other than the Guarantied Obligations)
to the payment of indebtedness other than the Guarantied Obligations,
even though any Beneficiary might have elected to apply such payment
to any part or all of the Guarantied Obligations; (iv) any
Beneficiary's consent to the change, reorganization or termination of
the corporate structure or existence of Holdings or any of its
Subsidiaries and to any corresponding restructuring of the Guarantied
Obligations; (v) any failure to perfect or continue perfection of a
security interest in any collateral which secures any of the
Guarantied Obligations; (vi) any defenses, set-offs or
XVII-9
<PAGE>
counterclaims which Company may allege or assert against any
Beneficiary in respect of the Guarantied Obligations, including but
not limited to failure of consideration, breach of warranty, payment,
statute of frauds, statute of limitations, accord and satisfaction and
usury; and (vii) any other act or thing or omission, or delay to do
any other act or thing, which may or might in any manner or to any
extent vary the risk of any Guarantor as an obligor in respect of the
Guarantied Obligations.
2.5 WAIVERS BY GUARANTORS. Each Guarantor hereby waives, for the
---------------------
benefit of Beneficiaries:
(a) any right to require any Beneficiary, as a condition of
payment or performance by such Guarantor, to (i) proceed against
Company, any other guarantor (including any other Guarantor) of the
Guarantied Obligations or any other Person, (ii) proceed against or
exhaust any security held from Company, any such other guarantor or
any other Person, (iii) proceed against or have resort to any balance
of any deposit account or credit on the books of any Beneficiary in
favor of Company or any other Person, or (iv) pursue any other remedy
in the power of any Beneficiary whatsoever;
(b) any defense arising by reason of the incapacity, lack of
authority or any disability or other defense of Company including,
without limitation, any defense based on or arising out of the lack of
validity or the unenforceability of the Guarantied Obligations or any
agreement or instrument relating thereto or by reason of the cessation
of the liability of Company from any cause other than payment in full
of the Guarantied Obligations;
(c) any defense based upon any statute or rule of law which
provides that the obligation of a surety must be neither larger in
amount nor in other respects more burdensome than that of the
principal;
(d) any defense based upon any Beneficiary's errors or omissions
in the administration of the Guarantied Obligations, except behavior
which amounts to bad faith, gross negligence or willful misconduct;
(e) (i) any principles or provisions of law, statutory or
otherwise, which are or might be in conflict with the terms of this
Guaranty, (ii) the benefit of any statute of limitations affecting
such Guarantor's liability hereunder or the enforcement hereof, (iii)
any rights to set-offs, recoupments and counterclaims, and (iv)
promptness, diligence and any requirement that any Beneficiary
protect, secure, perfect or insure any security interest or lien or
any property subject thereto; and
(f) notices, demands, presentments, protests, notices of
protest, notices of dishonor and notices of any action or inaction,
including acceptance of this Guaranty, notices of default under the
Financing Agreements, the Lender Interest Rate Agreements or any
agreement or instrument related thereto, notices of any
XVII-10
<PAGE>
renewal, extension or modification of the Guarantied Obligations or
any agreement related thereto, notices of any extension of credit to
Company and notices of any of the matters referred to in subsection
2.4 and any right to consent to any thereof.
2.6 CERTAIN CALIFORNIA LAW WAIVERS. As used in this subsection 2.6,
------------------------------
any reference to "the principal" includes Company, and any reference to "the
creditor" includes each Beneficiary. In accordance with Section 2856 of the
California Civil Code:
(a) each Guarantor agrees (i) to waive any and all rights of
subrogation and reimbursement against Company or against any
collateral or security granted by Company for any of the Guarantied
Obligations and (ii) to withhold the exercise of any and all rights of
contribution against any other guarantor of any of the Guarantied
Obligations and against any collateral or security granted by any such
other guarantor for any of the Guarantied Obligations until the
Guarantied Obligations shall have been paid in full and the
Commitments shall have terminated and all Letters of Credit shall have
expired or been cancelled, all as more fully set forth in subsection
2.7;
(b) each Guarantor waives any and all other rights and defenses
available to such Guarantor by reason of Sections 2787 to 2855,
inclusive, 2899 and 3433 of the California Civil Code, including
without limitation any and all rights or defenses such Guarantor may
have by reason of protection afforded to the principal with respect to
any of the Guarantied Obligations, or to any other guarantor
(including any other Guarantor) of any of the Guarantied Obligations
with respect to any of such guarantor's obligations under its
guaranty, in either case pursuant to the antideficiency or other laws
of the State of California limiting or discharging the principal's
indebtedness or such guarantor's obligations, including without
limitation Section 580a, 580b, 580d, or 726 of the California Code of
Civil Procedure; and
(c) each Guarantor waives all rights and defenses arising out of
an election of remedies by the creditor, even though that election of
remedies, such as a nonjudicial foreclosure with respect to security
for any Guarantied Obligation, has destroyed such Guarantor's rights
of subrogation and reimbursement against the principal by the
operation of Section 580d of the Code of Civil Procedure or otherwise;
and even though that election of remedies by the creditor, such as
nonjudicial foreclosure with respect to security for an obligation of
any other guarantor (including any other Guarantor) of any of the
Guarantied Obligations, has destroyed such Guarantor's rights of
contribution against such other guarantor.
No other provision of this Guaranty shall be construed as limiting the
generality of any of the covenants and waivers set forth in this subsection 2.6.
In accordance with subsection 3.6 below, this Guaranty shall be governed by, and
shall be construed and enforced in accordance with, the internal laws of the
State of New York, without regard to conflicts of laws principles. This
subsection 2.6 is included solely out of an abundance of caution, and shall not
be construed to mean that any of the above-referenced provisions of California
law are in any way applicable to this Guaranty or to any of the Guarantied
Obligations.
XVII-11
<PAGE>
2.7 GUARANTORS' RIGHTS OF SUBROGATION, CONTRIBUTION, ETC. Each
----------------------------------------------------
Guarantor hereby waives any claim, right or remedy, direct or indirect, that
such Guarantor now has or may hereafter have against Company or any of its
assets in connection with this Guaranty or the performance by such Guarantor of
its obligations hereunder, in each case whether such claim, right or remedy
arises in equity, under contract, by statute (including without limitation under
California Civil Code Section 2847, 2848 or 2849), under common law or otherwise
and including without limitation (a) any right of subrogation, reimbursement or
indemnification that such Guarantor now has or may hereafter have against
Company with respect to the Guarantied Obligations, (b) any right to enforce, or
to participate in, any claim, right or remedy that any Beneficiary now has or
may hereafter have against Company, and (c) any benefit of, and any right to
participate in, any collateral or security now or hereafter held by any
Beneficiary. In addition, until the Guarantied Obligations shall have been
indefeasibly paid in full and the Commitments shall have terminated and all
Letters of Credit shall have expired or been cancelled, each Guarantor shall
withhold exercise of any right of contribution such Guarantor may have against
any other guarantor (including any other Guarantor) of the Guarantied
Obligations (including without limitation any such right of contribution under
California Civil Code Section 2848 or under subsection 2.2(b) or under the
Holdings Guaranty as contemplated by subsection 2.2(b). Each Guarantor further
agrees that, to the extent the waiver or agreement to withhold the exercise of
its rights of subrogation, reimbursement, indemnification and contribution as
set forth herein is found by a court of competent jurisdiction to be void or
voidable for any reason, any rights of subrogation, reimbursement or
indemnification such Guarantor may have against Company or against any
collateral or security, and any rights of contribution such Guarantor may have
against any such other guarantor, shall be junior and subordinate to any rights
any Beneficiary may have against Company, to all right, title and interest any
Beneficiary may have in any such collateral or security, and to any right any
Beneficiary may have against such other guarantor. If any amount shall be paid
to any Guarantor on account of any such subrogation, reimbursement,
indemnification or contribution rights at any time when all Guarantied
Obligations shall not have been paid in full, such amount shall be held in trust
for Guarantied Party on behalf of Beneficiaries and shall forthwith be paid over
to Guarantied Party for the benefit of Beneficiaries to be credited and applied
against the Guarantied Obligations, whether matured or unmatured, in accordance
with the terms hereof.
2.8 SUBORDINATION OF OTHER OBLIGATIONS. Any indebtedness of Company
----------------------------------
now or hereafter held by any Guarantor is hereby subordinated in right of
payment to the Guarantied Obligations, and any such indebtedness of Company to
such Guarantor collected or received by such Guarantor after an Event of Default
has occurred and is continuing shall be held in trust for Guarantied Party on
behalf of Beneficiaries and shall forthwith be paid over to Guarantied Party for
the benefit of Beneficiaries to be credited and applied against the Guarantied
Obligations but without affecting, impairing or limiting in any manner the
liability of such Guarantor under any other provision of this Guaranty.
2.9 EXPENSES. Guarantors jointly and severally agree to pay, or
--------
cause to be paid, promptly upon written demand, and to save Beneficiaries
harmless against liability for, any and all reasonable costs and reasonable
expenses (including reasonable fees and reasonable disbursements of counsel and
allocated costs of internal counsel) incurred or expended by any Beneficiary in
connection with the enforcement of or preservation of any rights under this
Guaranty.
XVII-12
<PAGE>
2.10 CONTINUING GUARANTY. This Guaranty is a continuing guaranty and
-------------------
shall remain in effect until all of the Guarantied Obligations shall have been
paid in full and the Commitments shall have terminated and all Letters of Credit
shall have expired or been cancelled. Each Guarantor hereby irrevocably waives
any right (including without limitation any such right arising under California
Civil Code Section 2815) to revoke this Guaranty as to future transactions
giving rise to any Guarantied Obligations.
2.11 AUTHORITY OF GUARANTORS OR COMPANY. It is not necessary for any
----------------------------------
Beneficiary to inquire into the capacity or powers of any Guarantor or Company
or the officers, directors or any agents acting or purporting to act on behalf
of any of them.
2.12 FINANCIAL CONDITION OF COMPANY. Any Loans may be granted to
------------------------------
Company or continued from time to time, and any Lender Interest Rate Agreements
may be entered into from time to time, in each case without notice to or
authorization from any Guarantor regardless of the financial or other condition
of Company at the time of any such grant or continuation or at the time such
Lender Interest Rate Agreement is entered into, as the case may be. No
Beneficiary shall have any obligation to disclose or discuss with any Guarantor
its assessment, or any Guarantor's assessment, of the financial condition of
Company. Each Guarantor has adequate means to obtain information from Company
on a continuing basis concerning the financial condition of Company and its
ability to perform its obligations under the Loan Documents and the Lender
Interest Rate Agreements, and each Guarantor assumes the responsibility for
being and keeping informed of the financial condition of Company and of all
circumstances bearing upon the risk of nonpayment of the Guarantied Obligations.
Each Guarantor hereby waives and relinquishes any duty on the part of any
Beneficiary to disclose any matter, fact or thing relating to the business,
operations or conditions of Company now known or hereafter known by any
Beneficiary.
2.13 RIGHTS CUMULATIVE. The rights, powers and remedies given to
-----------------
Beneficiaries by this Guaranty are cumulative and shall be in addition to and
independent of all rights, powers and remedies given to Beneficiaries by virtue
of any statute or rule of law or in any of the other Loan Documents, any of the
Lender Interest Rate Agreements or any agreement between any Guarantor and any
Beneficiary or Beneficiaries or between Company and any Beneficiary or
Beneficiaries. Any forbearance or failure to exercise, and any delay by any
Beneficiary in exercising, any right, power or remedy hereunder shall not impair
any such right, power or remedy or be construed to be a waiver thereof, nor
shall it preclude the further exercise of any such right, power or remedy.
2.14 BANKRUPTCY; POST-PETITION INTEREST; REINSTATEMENT OF GUARANTY.
-------------------------------------------------------------
(a) So long as any Guarantied Obligations remain outstanding, no Guarantor
shall, without the prior written consent of Guarantied Party acting pursuant to
the instructions of Requisite Obligees (as defined in subsection 3.12), commence
or join with any other Person in commencing any bankruptcy, reorganization or
insolvency proceedings against Company. The obligations of Guarantors under
this Guaranty shall not be reduced, limited, impaired, discharged, deferred,
suspended or terminated by any proceeding, voluntary or involuntary, involving
the bankruptcy, insolvency, receivership, reorganization, liquidation or
arrangement of Company or by any defense which Company may have by reason of the
order, decree or decision of any court or administrative body resulting from any
such proceeding.
XVII-13
<PAGE>
(b) Each Guarantor acknowledges and agrees that any interest on any
portion of the Guarantied Obligations which accrues after the commencement of
any proceeding referred to in clause (a) above (or, if interest on any portion
of the Guarantied Obligations ceases to accrue by operation of law by reason of
the commencement of said proceeding, such interest as would have accrued on such
portion of the Guarantied Obligations if said proceedings had not been
commenced) shall be included in the Guarantied Obligations because it is the
intention of Guarantors and Beneficiaries that the Guarantied Obligations which
are guarantied by Guarantors pursuant to this Guaranty should be determined
without regard to any rule of law or order which may relieve Company of any
portion of such Guarantied Obligations. Guarantors will permit any trustee in
bankruptcy, receiver, debtor in possession, assignee for the benefit of
creditors or similar person to pay Guarantied Party, or allow the claim of
Guarantied Party in respect of, any such interest accruing after the date on
which such proceeding is commenced.
(c) In the event that all or any portion of the Guarantied
Obligations are paid by Company, the obligations of Guarantors hereunder shall
continue and remain in full force and effect or be reinstated, as the case may
be, in the event that all or any part of such payment(s) are rescinded or
recovered directly or indirectly from any Beneficiary as a preference,
fraudulent transfer or otherwise, and any such payments which are so rescinded
or recovered shall constitute Guarantied Obligations for all purposes under this
Guaranty until indefeasibly paid in full.
2.15 SET OFF. In addition to any other rights any Beneficiary may
-------
have under law or in equity, if any amount shall at any time be due and owing by
any Guarantor to any Beneficiary under this Guaranty, such Beneficiary is
authorized at any time or from time to time, without notice (any such notice
being hereby expressly waived), to set off and to appropriate and to apply any
and all deposits (general or special, including but not limited to indebtedness
evidenced by certificates of deposit, whether matured or unmatured) and any
other indebtedness of such Beneficiary owing to such Guarantor and any other
property of such Guarantor held by any Beneficiary to or for the credit or the
account of such Guarantor against and on account of the Guarantied Obligations
and liabilities of such Guarantor to any Beneficiary under this Guaranty.
2.16 DISCHARGE OF GUARANTY UPON SALE OF GUARANTOR. If all of the
--------------------------------------------
stock of any Guarantor or any of its successors in interest under this Guaranty
shall be sold or otherwise disposed of (including by merger or consolidation) in
an Asset Sale not prohibited by subsection 7.7 of the Credit Agreement or
otherwise consented to by Requisite Lenders, the Guaranty of such Guarantor or
such successor in interest, as the case may be, hereunder shall automatically be
discharged and released without any further action by any Beneficiary or any
other Person effective as of the time of such Asset Sale; provided that, as a
--------
condition precedent to such discharge and release, Guarantied Party shall have
received evidence satisfactory to it that arrangements satisfactory to it have
been made for disposition of the applicable Net Asset Sale Proceeds in
accordance with the requirements of the Credit Agreement.
SECTION 3. MISCELLANEOUS
3.1 SURVIVAL OF WARRANTIES. All agreements, representations and
----------------------
warranties made herein shall survive the execution and delivery of this Guaranty
and the other Loan Documents
XVII-14
<PAGE>
and the Lender Interest Rate Agreements and any increase in the Commitments
under any Financing Agreement.
3.2 NOTICES. Any communications between Guarantied Party and any
-------
Guarantor and any notices or requests provided herein to be given may be given
by mailing the same, postage prepaid, or by telex, facsimile transmission or
cable to each such party at its addresses set forth in the Financing Agreements,
on the signature pages hereof or to such other addresses as each such party may
in writing hereafter indicate. Any notice, request or demand to or upon
Guarantied Party or any Guarantor shall not be effective until received.
3.3 SEVERABILITY. In case any provision in or obligation under this
------------
Guaranty shall be invalid, illegal or unenforceable in any jurisdiction, the
validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction, shall
not in any way be affected or impaired thereby.
3.4 AMENDMENTS AND WAIVERS. No amendment, modification, termination
----------------------
or waiver of any provision of this Guaranty, and no consent to any departure by
any Guarantor therefrom, shall in any event be effective without the written
concurrence of Guarantied Party and, in the case of any such amendment or
modification, each Guarantor against whom enforcement of such amendment or
modification is sought. Any such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which it was given.
3.5 HEADINGS. Section and subsection headings in this Guaranty are
--------
included herein for convenience of reference only and shall not constitute a
part of this Guaranty for any other purpose or be given any substantive effect.
3.6 APPLICABLE LAW. THIS GUARANTY AND THE RIGHTS AND OBLIGATIONS OF
--------------
GUARANTORS AND BENEFICIARIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW
YORK (INCLUDING WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW
OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
3.7 SUCCESSORS AND ASSIGNS. This Guaranty is a continuing guaranty
----------------------
and shall be binding upon each Guarantor and its respective successors and
assigns. This Guaranty shall inure to the benefit of Beneficiaries and their
respective successors and assigns. No Guarantor shall assign this Guaranty or
any of the rights or obligations of such Guarantor hereunder without the prior
written consent of all Secured Parties. Any Beneficiary may, without notice or
consent, assign its interest in this Guaranty in whole or in part. The terms
and provisions of this Guaranty shall inure to the benefit of any transferee or
assignee of any Loan, and in the event of such transfer or assignment the rights
and privileges herein conferred upon such Beneficiary shall automatically extend
to and be vested in such transferee or assignee, all subject to the terms and
conditions hereof.
3.8 CONSENT TO JURISDICTION AND SERVICE OF PROCESS. ALL JUDICIAL
----------------------------------------------
PROCEEDINGS BROUGHT AGAINST ANY GUARANTOR ARISING OUT OF OR
XVII-15
<PAGE>
RELATING TO THIS GUARANTY, OR ANY OBLIGATIONS HEREUNDER, MAY BE BROUGHT IN ANY
STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE, COUNTY AND CITY
OF NEW YORK. BY EXECUTING AND DELIVERING THIS AGREEMENT, EACH GUARANTOR, FOR
ITSELF AND IN CONNECTION WITH ITS PROPERTIES, IRREVOCABLY
(I) ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE
JURISDICTION AND VENUE OF SUCH COURTS;
(II) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS;
(III) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY
SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT
REQUESTED, TO SUCH GUARANTOR AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH
SUBSECTION 3.2;
(IV) AGREES THAT SERVICE AS PROVIDED IN CLAUSE (III) ABOVE IS
SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER SUCH GUARANTOR IN ANY SUCH
PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND
BINDING SERVICE IN EVERY RESPECT;
(V) AGREES THAT BENEFICIARIES RETAIN THE RIGHT TO SERVE PROCESS IN ANY
OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST SUCH
GUARANTOR IN THE COURTS OF ANY OTHER JURISDICTION; AND
(VI) AGREES THAT THE PROVISIONS OF THIS SUBSECTION 3.8 RELATING TO
JURISDICTION AND VENUE SHALL BE BINDING AND ENFORCEABLE TO THE FULLEST
EXTENT PERMISSIBLE UNDER NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1402 OR
OTHERWISE.
3.9 WAIVER OF TRIAL BY JURY. EACH GUARANTOR AND, BY ITS ACCEPTANCE OF THE
-----------------------
BENEFITS HEREOF, EACH BENEFICIARY EACH HEREBY AGREES TO WAIVE ITS RESPECTIVE
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF THIS GUARANTY. The scope of this waiver is intended to be all encompassing of
any and all disputes that may be filed in any court and that relate to the
subject matter of this transaction, including without limitation contract
claims, tort claims, breach of duty claims and all other common law and
statutory claims. Each Guarantor and, by its acceptance of the benefits hereof,
each Beneficiary, each (i) acknowledges that this waiver is a material
inducement for such Guarantor and Beneficiaries to enter into a business
relationship, that such Guarantor and Beneficiaries have already relied on this
waiver in entering into this Guaranty or accepting the benefits thereof, as the
case may be, and that each will continue to rely on this waiver in their related
future dealings and (ii) further warrants and
XVII-16
<PAGE>
represents that each has reviewed this waiver with its legal counsel, and that
each knowingly and voluntarily waives its jury trial rights following
consultation with legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY
NOT BE MODIFIED EITHER ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL WRITTEN
WAIVER SPECIFICALLY REFERRING TO THIS SUBSECTION 3.9 AND EXECUTED BY GUARANTIED
PARTY AND EACH GUARANTOR), AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT
AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS GUARANTY. In the
event of litigation, this Guaranty may be filed as a written consent to a trial
by the court.
3.10 NO OTHER WRITING. This writing is intended by Guarantors and
----------------
Beneficiaries as the final expression of this Guaranty and is also intended as a
complete and exclusive statement of the terms of their agreement with respect to
the matters covered hereby. No course of dealing, course of performance or trade
usage, and no parol evidence of any nature, shall be used to supplement or
modify any terms of this Guaranty. There are no conditions to the full
effectiveness of this Guaranty.
3.11 FURTHER ASSURANCES. At any time or from time to time, upon the
------------------
request of Guarantied Party, Guarantors shall execute and deliver such further
documents and do such other acts and things as Guarantied Party may reasonably
request in order to effect fully the purposes of this Guaranty.
3.12 ADDITIONAL GUARANTORS. The initial Guarantors hereunder
---------------------
shall be such of the Subsidiaries of Company as are signatories hereto on the
date hereof. From time to time subsequent to the date hereof, additional
Subsidiaries of Company may become parties hereto, as additional Guarantors
(each an "ADDITIONAL GUARANTOR"), by executing a counterpart of this Guaranty.
Upon delivery of any such counterpart to Collateral Agent, notice of which is
hereby waived by Guarantors, each such Additional Guarantor shall be a Guarantor
and shall be as fully a party hereto as if such Additional Guarantor were an
original signatory hereof. Each Guarantor expressly agrees that its obligations
arising hereunder shall not be affected or diminished by the addition or release
of any other Guarantor hereunder, nor by any election of Collateral Agent not to
cause any Subsidiary of Company to become an Additional Guarantor hereunder.
This Guaranty shall be fully effective as to any Guarantor that is or becomes a
party hereto regardless of whether any other Person becomes or fails to become
or ceases to be a Guarantor hereunder.
3.13 COUNTERPARTS; EFFECTIVENESS. This Guaranty may be executed in
---------------------------
any number of counterparts and by the different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to be
an original for all purposes; but all such counterparts together shall
constitute but one and the same instrument. This Guaranty shall become
effective as to each Guarantor upon the execution of a counterpart hereof by
such Guarantor (whether or not a counterpart hereof shall have been executed by
any other Guarantor) and receipt by Guarantied Party of written or telephonic
notification of such execution and authorization of delivery thereof.
3.14 GUARANTIED PARTY AS COLLATERAL AGENT.
------------------------------------
XVII-17
<PAGE>
(a) Guarantied Party has been appointed to act as Guarantied Party
hereunder by CA Administrative Agent on behalf of the Credit Agreement Lenders
and by AXEL Administrative Agent on behalf of the AXEL Lenders pursuant to the
Intercreditor Agreement, and, by their acceptance of the benefits hereof,
Interest Rate Exchangers and shall be entitled to the benefits of the
Intercreditor Agreement. Guarantied Party shall be obligated, and shall have
the right hereunder, to make demands, to give notices, to exercise or refrain
from exercising any rights, and to take or refrain from taking any action,
solely in accordance with this Guaranty and the Intercreditor Agreements;
provided that Guarantied Party shall exercise, or refrain from exercising, any
- --------
remedies hereunder in accordance with the instructions of (i) Requisite Lenders
or (ii) after payment in full of all Financing Agreement Obligations under the
Financing Agreements and any other Loan Documents, the holders of a majority of
the aggregate notional amount (or, with respect to any Lender Interest Rate
Agreement that has been terminated in accordance with its terms, the amount then
due and payable (exclusive of expenses and similar payments but including any
early termination payments then due) under such Lender Interest Rate Agreement)
under all Lender Interest Rate Agreements (Requisite Lenders or, if applicable,
such holders being referred to herein as "REQUISITE OBLIGEES"). In
furtherance of the foregoing provisions of this subsection 3.14, each Interest
Rate Exchanger, by its acceptance of the benefits hereof, agrees that it shall
have no right individually to enforce this Guaranty, it being understood and
agreed by such Interest Rate Exchanger that all rights and remedies hereunder
may be exercised solely by Guarantied Party for the benefit of Beneficiaries in
accordance with the terms of this subsection 3.14.
(b) Guarantied Party shall at all times be the same Person that is
Collateral Agent under the Intercreditor Agreement. The Collateral Agent may
resign and a successor Collateral Agent may be appointed in the manner provided
in the Intercreditor Agreement. Written notice of resignation by Collateral
Agent pursuant to the Intercreditor Agreement shall also constitute notice of
resignation as Guarantied Party under this Guaranty; removal of Collateral Agent
pursuant to the Intercreditor Agreement shall also constitute removal as
Guarantied Party under this Guaranty; and appointment of a successor Collateral
Agent pursuant to the Intercreditor Agreement shall also constitute appointment
of a successor Guarantied Party under this Guaranty. Upon the acceptance of any
appointment as Collateral Agent by a successor Collateral Agent, that successor
Collateral Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring or removed Guarantied
Party under this Guaranty, and the retiring or removed Guarantied Party under
this Guaranty shall promptly (i) transfer to such successor Guarantied Party all
sums held hereunder, together with all records and other documents necessary or
appropriate in connection with the performance of the duties of the successor
Guarantied Party under this Guaranty, and (ii) take such other actions as may be
necessary or appropriate in connection with the assignment to such successor
Guarantied Party of the rights created hereunder, whereupon such retiring or
removed Guarantied Party shall be discharged from its duties and obligations
under this Guaranty. After any retiring or removed Guarantied Party's
resignation or removal hereunder as Guarantied Party, the provisions of this
Guaranty shall inure to its benefit as to any actions taken or omitted to be
taken by it under this Guaranty while it was Guarantied Party hereunder.
[Remainder of page intentionally left blank]
XVII-18
<PAGE>
IN WITNESS WHEREOF, each of the undersigned Guarantors has caused this
Guaranty to be duly executed and delivered by its officer thereunto duly
authorized as of the date first written above.
[NAMES OF GUARANTORS]
By:
------------------
Name:
Title:
Notice Address:
- ----------------------
- ----------------------
- ----------------------
XVII-19
<PAGE>
IN WITNESS WHEREOF, the undersigned Additional Guarantor has caused
this Guaranty to be duly executed and delivered by its officer thereunto duly
authorized as of ______________, [199_][200_].
[NAME OF ADDITIONAL GUARANTOR]
By:
--------------------------
Name:
Title:
Notice Address:
-----------------------
-----------------------
-----------------------
XVII-20
<PAGE>
EXHIBIT XVIII
[FORM OF SUBSIDIARY PLEDGE AGREEMENT]
SUBSIDIARY PLEDGE AGREEMENT
This SUBSIDIARY PLEDGE AGREEMENT (this "AGREEMENT") is dated as of
INDIRECT SUBSIDIARIES (each of such undersigned Subsidiaries being a "PLEDGOR"
and collectively "PLEDGORS"; provided that after the Closing Date, "Pledgors"
--------
shall be deemed to include any Additional Pledgors (as hereinafter defined)) of
Sealy Mattress Company, an Ohio corporation ("COMPANY"), and MORGAN GUARANTY
TRUST COMPANY OF NEW YORK ("MORGAN GUARANTY"), as Collateral Agent for and
representative of (in such capacity herein called "COLLATERAL AGENT") the
Secured Parties (as hereinafter defined) and any Interest Rate Exchangers (as
hereinafter defined).
RECITALS
A. Pledgors are the legal and beneficial owners of (i) the shares of
stock (the "PLEDGED SHARES") described in Part A of Schedule I annexed hereto
----------
and issued by the corporations named therein and (ii) the indebtedness (the
"PLEDGED DEBT") described in Part B of said Schedule I and issued by the
----------
obligors named therein.
B. Sealy Corporation, a Delaware Corporation ("HOLDINGS"), the
financial institutions from time to time parties thereto (the "CREDIT AGREEMENT
LENDERS"), Goldman Sachs Credit Partners L.P. ("GSCP"), as arranger and
syndication agent (in such capacity, "CA SYNDICATION AGENT"), Morgan Guaranty,
as administrative agent (in such capacity, "CA ADMINISTRATIVE AGENT"), and
Bankers Trust Company ("BTCO."), as documentation agent (in such capacity "CA
DOCUMENTATION AGENT") have entered into a Credit Agreement dated as of December
18, 1997 (said Credit Agreement, as it may hereafter be amended, restated,
supplemented or otherwise modified from time to time, being the "CREDIT
AGREEMENT") with Company pursuant to which Credit Agreement Lenders have made
certain commitments, subject to the terms and conditions set forth in the Credit
Agreement, to extend certain credit facilities to Company.
C. Company, Holdings, the financial institutions from time to time
parties thereto (the "AXEL LENDERS"), GSCP, as arranger and syndication agent
(in such capacity the "AXEL SYNDICATION AGENT"), Morgan Guaranty, as
administrative agent (in such capacity "AXEL ADMINISTRATIVE AGENT"), and
BTCo., as documentation agent (in such capacity, "AXEL DOCUMENTATION
AGENT") have entered into an AXEL Credit Agreement dated as of December 18, 1997
(said AXEL Credit Agreement, as it may hereafter be amended, restated,
supplemented or otherwise modified from time to time, being the "AXEL CREDIT
XVIII-1
<PAGE>
AGREEMENT"; the Credit Agreement Lenders, the CA Syndication Agent, the CA
Administrative Agent, the CA Documentation Agent, the AXEL Lenders, the AXEL
Syndication Agent, the AXEL Administrative Agent, and the AXEL Documentation
Agent each being a "SECURED PARTY" and collectively the "SECURED PARTIES")
pursuant to which AXEL Lenders have made certain commitments, subject to the
terms and conditions set forth in the AXEL Credit Agreement, to extend certain
credit facilities to Company.
D. Company may from time to time enter, or may from time to time
have entered, into one or more Interest Rate Agreements (collectively, the
"LENDER INTEREST RATE AGREEMENTS") with one or more CA Lenders and their
Affiliates or AXEL Lenders and their Affiliates (in such capacity, collectively,
"INTEREST RATE EXCHANGERS").
E. Pledgors have executed and delivered that certain Subsidiary
Guaranty dated as of December 18, 1997 (said Subsidiary Guaranty, as it may
hereafter be amended, supplemented or otherwise modified from time to time,
being the "GUARANTY") in favor of Collateral Agent for the benefit of Secured
Parties and any Interest Rate Exchangers, pursuant to which Pledgors have
guarantied the prompt payment and performance when due of all obligations of
Company under the Financing Agreements and all obligations of Company under the
Lender Interest Rate Agreements, including without limitation the obligation of
Company to make payments, if any, thereunder in the event of early termination
thereof.
F. It is a condition precedent to the initial extensions of credit
by Secured Parties under the Financing Agreements that each Pledgor shall have
granted the security interests and undertaken the obligations contemplated by
this Agreement.
NOW, THEREFORE, in consideration of the premises and to induce (i) the
CA Administrative Agent, the CA Syndication Agent and the Credit Agreement
Lenders to enter into the Credit Agreement, (ii) the Credit Agreement Lenders to
make their respective loans to, and issue Letters of Credit for the account of,
Company, (iii) the AXEL Administrative Agent, the AXEL Syndication Agent and the
AXEL Lenders to enter into the AXEL Loan Agreement, (iv) the AXEL Lenders to
make their respective loans to Company and (v) to induce Interest Rate
Exchangers to enter into the Lender Interest Rate Agreements, and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, each Pledgor hereby agrees with Collateral Agent as follows:
SECTION 1. DEFINED TERMS
-------------
(a) Unless otherwise defined herein, terms defined in the Credit
Agreement and used herein shall have the meanings given to such terms in the
Credit Agreement;
(b) The following terms shall have the following meanings:
"ACCELERATION" shall mean any of the Credit Agreement Obligations or
the AXEL Credit Agreement Obligations have been declared, or have become,
immediately due and payable, or the commitments to extend credit of the Credit
Agreement Lenders or the
XVIII-2
<PAGE>
AXEL Lenders shall have been terminated under Section 8 of the Credit Agreement
or Section 7 of the AXEL Credit Agreement, respectively.
"ADDITIONAL PLEDGED SHARES" has the meaning assigned to that term in
Section 2(c) of this Agreement.
"AGREEMENT" means this Company Pledge Agreement dated as of December
18, 1997, as it may be amended, supplemented or otherwise modified from time to
time.
"AXEL COMMITMENTS" shall mean the "Commitments" as defined in the
AXEL Credit Agreement.
"AXEL CREDIT AGREEMENT" has the meaning assigned to that term in the
recitals to this Agreement.
"AXEL OBLIGATIONS" shall mean "Obligations" as defined in the AXEL
Credit Agreement.
"COLLATERAL ACCOUNTS" shall mean "Collateral Accounts" as defined
in the Intercreditor Agreement.
"COMMITMENTS" means the Credit Agreement Commitments and the AXEL
Commitments.
"CREDIT AGREEMENT" has the meaning assigned to that term in the
recitals to this Agreement.
"CREDIT AGREEMENT COMMITMENTS" shall mean the "Commitments" as
defined in the Credit Agreement.
"CREDIT AGREEMENT OBLIGATIONS" shall mean the "Obligations" as
defined in the Credit Agreement.
"EVENT OF DEFAULT" means any "Event of Default" as defined in any
Financing Agreement or the occurrence of an Event of Default in which the
Company is the Defaulting Party and which results in the designation of an Early
Termination Date (as such terms are defined in a Master Agreement or an Interest
Rate Swap Agreement or Interest Rate and Currency Exchange Agreement in the form
prepared by the International Swap and Derivatives Association Inc. or a similar
event under any similar swap agreement) under any Lender Interest Rate
Agreement.
"FINANCING AGREEMENT" means the Credit Agreement or the AXEL Credit
Agreement, and "Financing Agreements" means the Credit Agreement and the AXEL
Credit Agreement, collectively.
XVIII-3
<PAGE>
"FINANCING AGREEMENT OBLIGATIONS" means Credit Agreement Obligations
and AXEL Obligations.
"HOLDINGS" has the meaning assigned to that term in the recitals to
this Agreement.
"INTERCREDITOR AGREEMENT" means the Intercreditor Agreement, dated
as of December 18, 1997, by and among CA Administrative Agent, AXEL
Administrative Agent and Collateral Agent.
"INTEREST RATE EXCHANGERS" has the meaning assigned to that term in
the recitals to this Agreement.
"LENDER INTEREST RATE AGREEMENT" has the meaning assigned to that
term in the recitals to this Agreement.
"LOAN" means any "Loan" as defined in any Financing Agreement, and
"LOANS" means all such Loans collectively.
"LOAN DOCUMENT" means any "Loan Document" as defined in any
Financing Agreement, and "LOAN DOCUMENTS" means all such Loan Documents
collectively.
"NEW PLEDGED SHARES" has the meaning assigned to that term in
Section 2(e) of this Agreement.
"PLEDGE AMENDMENT" has the meaning assigned to that term in Section
7 of this Agreement.
"PLEDGED COLLATERAL" has the meaning assigned to that term in
Section 2 of this Agreement.
"PLEDGED DEBT" has the meaning assigned to that term in the recitals
to this Agreement.
"PLEDGED SHARES" has the meaning assigned to that term in the
recitals to this Agreement.
"PLEDGOR" has the meaning assigned to that term in the introduction
of this Agreement.
"POTENTIAL EVENT OF DEFAULT" means any "Potential Event of
Default" as defined in any Financing Agreement.
"REQUISITE AXEL LENDERS" means "Requisite Lenders" as defined in
the AXEL Credit Agreement.
XVIII-4
<PAGE>
"REQUISITE CREDIT AGREEMENT LENDERS" means "Requisite Lenders" as
defined in the Credit Agreement.
"REQUISITE LENDERS" means (A) unless an Acceleration shall have
occurred and be continuing, the Requisite Credit Agreement Lenders and the
Requisite AXEL Lenders, and (B) if an Acceleration has occurred and is
continuing, Secured Parties holding more than 50% of the Financing Agreement
Obligations.
"REQUISITE OBLIGEES" has the meaning assigned to that term in
Section 17(a) of this Agreement.
"SECURED OBLIGATIONS" has the meaning assigned to that term in
Section 3 of this Agreement.
"SECURED PARTIES" has the meaning assigned to that term in the
recitals to this Agreement.
SECTION 2. PLEDGE OF SECURITY.
------------------
Each Pledgor hereby pledges and assigns to Collateral Agent, and
hereby grants to Collateral Agent a security interest in, all of such Pledgor's
right, title and interest in and to the following (the "PLEDGED COLLATERAL"):
(a) the Pledged Shares and the certificates representing the
Pledged Shares and any interest of Pledgor in the entries on the
books of any financial intermediary pertaining to the Pledged Shares,
and all dividends, cash, warrants, rights, instruments and other
property or proceeds from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of
the Pledged Shares;
(b) the Pledged Debt and the instruments evidencing the Pledged
Debt, and all interest, cash, instruments and other property or
proceeds from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of the
Pledged Debt;
(c) all additional shares of, and all securities convertible into
and warrants, options and other rights to purchase or otherwise
acquire, stock of any issuer of the Pledged Shares from time to time
acquired by such Pledgor in any manner (which shares shall be deemed
to be part of the Pledged Shares), the certificates or other
instruments representing such additional shares, securities,
warrants, options or other rights and any interest of such Pledgor in
the entries on the books of any financial intermediary pertaining to
such additional shares (all such shares, securities, warrants,
options, rights, certificates, instruments and interests collectively
being "ADDITIONAL PLEDGED SHARES"), and all dividends, cash,
warrants, rights, instruments and other property or proceeds from
time to time received, receivable or otherwise distributed in respect
of or
XVIII-5
<PAGE>
in exchange for any or all of such Additional Pledged Shares;
provided, however, that to the extent that the issuer of any
-------- -------
Additional Pledged Shares is a controlled foreign corporation, such
Pledgor shall only be required to pledge Additional Pledged Shares of
such issuer possessing up to but not exceeding 65% of the voting
power of all classes of capital stock entitled to vote of such
issuer, and all dividends, cash, warrants, rights, instruments and
other property or proceeds from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of
such Additional Pledged Shares;
(d) all additional indebtedness from time to time owed to such
Pledgor by any obligor on the Pledged Debt and the instruments
evidencing such indebtedness, and all interest, cash, instruments and
other property or proceeds from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of
such indebtedness;
(e) all shares of, and all securities convertible into and
warrants, options and other rights to purchase or otherwise acquire,
stock of any Person that, after the date of this Agreement, becomes,
as a result of any occurrence, a direct Subsidiary of such Pledgor
(which shares shall be deemed to be part of the Pledged Shares), the
certificates or other instruments representing such shares (all such
shares, securities, warrants, options, rights, certificates,
instruments and interests collectively being "NEW PLEDGED SHARES"),
securities, warrants, options or other rights and any interest of
such Pledgor in the entries on the books of any financial
intermediary pertaining to such shares, and all dividends, cash,
warrants, rights, instruments and other property or proceeds from
time to time received, receivable or otherwise distributed in respect
of or in exchange for any or all of such shares, securities,
warrants, options or other rights; provided, however, that in the
-------- -------
event that any such direct Subsidiary is a controlled foreign
corporation, such Pledgor shall only be required to pledge New
Pledged Shares of such Subsidiary possessing up to but not exceeding
65% of the voting power of all classes of capital stock entitled to
vote of such Subsidiary, and all dividends, cash, warrants, rights,
instruments and other property or proceeds from time to time
received, receivable or otherwise distributed in respect of or in
exchange for any or all of such New Pledged Shares;
(f) all indebtedness from time to time owed to such Pledgor by
any Person that, after the date of this Agreement, becomes, as a
result of any occurrence, a Subsidiary of such Pledgor, and all
interest, cash, instruments and other property or proceeds from time
to time received, receivable or otherwise distributed in respect of
or in exchange for any or all of such indebtedness; and
(g) to the extent not covered by clauses (a) through (f) above,
all proceeds of any or all of the foregoing Pledged Collateral. For
purposes of this Agreement, the term "PROCEEDS" includes whatever is
receivable or received when Pledged Collateral or proceeds are sold,
exchanged, collected or otherwise
XVIII-6
<PAGE>
disposed of, whether such disposition is voluntary or involuntary,
and includes, without limitation, proceeds of any indemnity or
guaranty payable to such Pledgor or Collateral Agent from time to
time with respect to any of the Pledged Collateral.
SECTION 3. SECURITY FOR OBLIGATIONS.
------------------------
This Agreement secures, and the Pledged Collateral is collateral
security for, the prompt payment or performance in full when due, whether at
stated maturity, by required prepayment, declaration, acceleration, demand or
otherwise (including the payment of amounts that would become due but for the
operation of the automatic stay under Section 362(a) of the Bankruptcy Code, 11
U.S.C. (S)362(a)), of all obligations and liabilities of every nature of
Pledgors now or hereafter existing under or arising out of or in connection with
the Guaranty and all extensions or renewals thereof, whether for principal,
interest (including without limitation interest that, but for the filing of a
petition in bankruptcy with respect to Company, would accrue on such
obligations, whether or not a claim is allowed against Company for such interest
in the related bankruptcy proceeding), reimbursement of amounts drawn under
Letters of Credit, payments for early termination of Lender Interest Rate
Agreements, fees, expenses, indemnities or otherwise, whether voluntary or
involuntary, direct or indirect, absolute or contingent, liquidated or
unliquidated, whether or not jointly owed with others, and whether or not from
time to time decreased or extinguished and later increased, created or incurred,
and all or any portion of such obligations or liabilities that are paid, to the
extent all or any part of such payment is avoided or recovered directly or
indirectly from Collateral Agent or any Secured Party or Interest Rate Exchanger
as a preference, fraudulent transfer or otherwise, and all obligations of every
nature of Pledgors now or hereafter existing under this Agreement (all such
obligations of Pledgors being the "SECURED OBLIGATIONS").
SECTION 4. DELIVERY OF PLEDGED COLLATERAL.
------------------------------
All certificates or instruments representing or evidencing the
Pledged Collateral shall be delivered to and held by or on behalf of Collateral
Agent pursuant hereto and shall be in suitable form for transfer by delivery or,
as applicable, shall be accompanied by the applicable Pledgor's endorsement,
where necessary, or duly executed instruments of transfer or assignment in
blank, all in form and substance reasonably satisfactory to Collateral Agent.
Upon the occurrence and during the continuation of an Event of Default,
Collateral Agent shall have the right, without notice to any Pledgor, to
transfer to or to register in the name of Collateral Agent or any of its
nominees any or all of the Pledged Collateral, subject only to the revocable
rights specified in Section 8(a). In addition, upon the occurrence and during
the continuance of an Event of Default, Collateral Agent shall have the right at
any time to exchange certificates or instruments representing or evidencing
Pledged Collateral for certificates or instruments of smaller or larger
denominations.
SECTION 5. REPRESENTATIONS AND WARRANTIES.
------------------------------
Each Pledgor represents and warrants as follows:
XVIII-7
<PAGE>
(a) Due Authorization, etc. of Pledged Collateral. All of the
---------------------------------------------
Pledged Shares have been duly authorized and validly issued and are
fully paid and non-assessable. All of the Pledged Debt has been duly
authorized, authenticated or issued, and delivered and is the legal,
valid and binding obligation of the issuers thereof and is not in
default.
(b) Description of Pledged Collateral. The Pledged Shares
---------------------------------
constitute the percentage of the issued and outstanding shares of
stock of each issuer thereof set forth on Schedule I annexed hereto,
----------
and there are no outstanding warrants, options or other rights to
purchase, or other agreements outstanding with respect to, or
property that is now or hereafter convertible into, or that requires
the issuance or sale of, any Pledged Shares. The Pledged Debt
constitutes all of the issued and outstanding intercompany
indebtedness evidenced by a promissory note of the respective issuers
thereof owing to Pledgor.
(c) Ownership of Pledged Collateral. Pledgors are the legal,
-------------------------------
record and beneficial owners of the Pledged Collateral free and clear
of any Lien except for the security interest created by this
Agreement.
SECTION 6. TRANSFERS AND OTHER LIENS; ADDITIONAL PLEDGED COLLATERAL; ETC.
--------------------------------------------------------------
Each Pledgor shall:
(a) not, except as expressly permitted by the Financing
Agreements, (i) sell, assign (by operation of law or otherwise) or
otherwise dispose of, or grant any option with respect to, any of the
Pledged Collateral, (ii) create or suffer to exist any Lien upon or
with respect to any of the Pledged Collateral, except for the
security interest under this Agreement, or (iii) permit any issuer of
Pledged Shares to merge or consolidate unless all the outstanding
capital stock of the surviving or resulting corporation is, upon such
merger or consolidation, pledged hereunder and no cash, securities or
other property is distributed in respect of the outstanding shares of
any other constituent corporation; provided that if the surviving or
resulting corporation upon any such merger or consolidation involving
an issuer of Pledged Shares which is a controlled foreign corporation
is a controlled foreign corporation, then such Pledgor shall only be
required to pledge outstanding capital stock of such surviving or
resulting corporation possessing up to but not exceeding 65% of the
voting power of all classes of capital stock of such issuer entitled
to vote; provided that in the event a Pledgor makes an Asset Sale
--------
permitted by the Financing Agreements and the assets subject to such
Asset Sale are Pledged Shares, Collateral Agent shall release the
Pledged Shares that are the subject of such Asset Sale to Pledgor
free and clear of the lien and security interest under this Agreement
concurrently with the consummation of such Asset Sale; provided,
--------
further that, as a condition precedent to such release, Collateral
-------
Agent shall have received evidence reasonably satisfactory to it that
arrangements reasonably satisfactory to it have been made for
delivery to Collateral Agent of the Net Asset Sale Proceeds of
XVIII-8
<PAGE>
such Asset Sale in the event and to the extent that all or any
portion of such Net Asset Sale Proceeds are required to be applied to
prepay the Loans under the Financing Agreements;
(b) (i) cause each issuer of Pledged Shares not to issue any
stock or other securities in addition to or in substitution for the
Pledged Shares issued by such issuer, except to a Pledgor, (ii)
pledge hereunder, immediately upon its acquisition (directly or
indirectly) thereof, any and all additional shares of stock or other
securities of each issuer of Pledged Shares, and (iii) pledge
hereunder, immediately upon its acquisition (directly or indirectly)
thereof, any and all shares of stock of any Person that, after the
date of this Agreement, becomes, as a result of any occurrence, a
direct Subsidiary of such Pledgor; provided, that notwithstanding
--------
anything contained in this clause (b) to the contrary, such Pledgor
shall only be required to pledge the outstanding capital stock of a
foreign controlled corporation possessing up to but not exceeding 65%
of the voting power of all classes of capital stock of such
controlled foreign corporation entitled to vote;
(c) (i) pledge hereunder, immediately upon their issuance, any
and all instruments or other evidences of additional indebtedness
from time to time owed to such Pledgor by any obligor on the Pledged
Debt, and (ii) pledge hereunder, immediately upon their issuance, any
and all instruments or other evidences of indebtedness from time to
time owed to such Pledgor by any Person that after the date of this
Agreement becomes, as a result of any occurrence, a Subsidiary of
such Pledgor; and
(d) pay promptly when due all taxes, assessments and governmental
charges or levies imposed upon, and all claims against, the Pledged
Collateral, except to the extent the validity thereof is being
contested in good faith.
SECTION 7. FURTHER ASSURANCES; PLEDGE AMENDMENTS; ADDITIONAL PLEDGORS.
----------------------------------------------------------
(a) Each Pledgor agrees that from time to time, at the expense of
Pledgors, such Pledgor will promptly execute and deliver all further instruments
and documents, and take all further action that Collateral Agent may reasonably
request, in order to perfect and protect any security interest granted or
purported to be granted hereby or to enable Collateral Agent to exercise and
enforce its rights and remedies hereunder with respect to any Pledged
Collateral. Without limiting the generality of the foregoing, each Pledgor will:
(i) execute and file such financing or continuation statements, or amendments
thereto, and such other instruments or notices as Collateral Agent may
reasonably request, in order to perfect and preserve the security interests
granted or purported to be granted hereby and (ii) at Collateral Agent's
reasonable request, appear in and defend any action or proceeding that may
affect such Pledgor's title to or Collateral Agent's security interest in all or
any part of the Pledged Collateral.
(b) Each Pledgor further agrees that it will, upon obtaining any
additional shares of stock or other securities required to be pledged hereunder
as provided in Section 6(b)
XVIII-9
<PAGE>
or (c), promptly (and in any event within five Business Days) deliver to
Collateral Agent a Pledge Amendment, duly executed by such Pledgor, in
substantially the form of Schedule II annexed hereto (a "PLEDGE AMENDMENT"), in
-----------
respect of the additional Pledged Shares or Pledged Debt to be pledged pursuant
to this Agreement. Each Pledgor hereby authorizes Collateral Agent to attach
each Pledge Amendment to this Agreement and agrees that all Pledged Shares or
Pledged Debt listed on any Pledge Amendment delivered to Collateral Agent shall
for all purposes hereunder be considered Pledged Collateral; provided that the
--------
failure of any Pledgor to execute a Pledge Amendment with respect to any
additional Pledged Shares or Pledged Debt pledged pursuant to this Agreement
shall not impair the security interest of Collateral Agent therein or otherwise
adversely affect the rights and remedies of Collateral Agent hereunder with
respect thereto.
(c) The initial Pledgors hereunder shall be those Subsidiaries of
Company as are signatories hereto on the date hereof. From time to time
subsequent to the date hereof, additional Subsidiaries of Company may become
parties hereto, as additional Pledgors (each an "ADDITIONAL PLEDGOR"), by
executing a counterpart of this Agreement substantially in the form of Schedule
--------
III annexed hereto. Upon delivery of any such counterpart to the Collateral
- ---
Agent, notice of which is hereby waived by the Pledgors, each Additional Pledgor
shall be a Pledgor and shall be as fully a party hereto as if such Additional
Pledgor were an original signatory hereof. Each Pledgor expressly agrees that
its obligations arising hereunder shall not be affected or diminished by the
addition or release of any other Pledgor hereunder, nor by any election of
Collateral Agent not to cause any Subsidiary to become an Additional Pledgor
hereunder. This Agreement shall be fully effective as to any Pledgor that is or
becomes a party hereto regardless of whether any other Person becomes or fails
to become or ceases to be a Pledgor hereunder. Each Additional Pledgor shall
execute and file such financing statements and such other instruments or notices
as may be necessary or desirable, or as Collateral Agent may reasonably request,
in order to perfect the security interests granted or purported to be granted
hereunder.
SECTION 8. VOTING RIGHTS; DIVIDENDS; ETC.
------------------------------
(a) So long as no Event of Default shall have occurred and be
continuing:
(i) Each Pledgor shall be entitled to exercise any and all voting
and other consensual rights pertaining to the Pledged Collateral or
any part thereof for any purpose not inconsistent with the terms of
this Agreement or the Financing Agreements;
(ii) Each Pledgor shall be entitled to receive and retain, and to
utilize free and clear of the lien of this Agreement, any and all
dividends and interest paid in respect of the Pledged Collateral;
provided, however, that any and all dividends and interest paid or
-------- -------
payable other than in cash in respect of, and instruments and other
property received, receivable or otherwise distributed in respect of,
or in exchange for, any Pledged Collateral, shall be, and shall
forthwith be delivered to Collateral Agent to hold as, Pledged
Collateral and shall, if received by such Pledgor, be received in
trust for the benefit of
XVIII-10
<PAGE>
Collateral Agent, be segregated from the other property or funds of
such Pledgor and be forthwith delivered to Collateral Agent as
Pledged Collateral in the same form as so received (with all
necessary endorsements); provided, that such Pledgor shall not be
--------
required to deliver the outstanding capital stock of a foreign
controlled corporation paid as a dividend or interest to such
Pledgor, if Collateral Agent would hold as Pledged Collateral
outstanding capital stock of such controlled foreign corporation
possessing greater than 65% of the voting power of all classes of
capital stock of such controlled foreign corporation entitled to
vote; and
(iii) Collateral Agent shall promptly execute and deliver (or
cause to be executed and delivered) to each Pledgor all such proxies,
dividend payment orders and other instruments as such Pledgor may
from time to time reasonably request for the purpose of enabling such
Pledgor to exercise the voting and other consensual rights which it
is entitled to exercise pursuant to paragraph (i) above and to
receive the dividends, principal or interest payments which it is
authorized to receive and retain pursuant to paragraph (ii) above.
(b) Upon the occurrence and during the continuation of an Event of
Default:
(i) upon written notice from Collateral Agent to a Pledgor,
all rights of such Pledgor to exercise the voting and other
consensual rights which it would otherwise be entitled to exercise
pursuant to Section 8(a)(i) shall cease, and all such rights shall
thereupon become vested in Collateral Agent who shall thereupon have
the sole right to exercise such voting and other consensual rights;
(ii) all rights of such Pledgor to receive the dividends and
interest payments which it would otherwise be authorized to receive
and retain pursuant to Section 8(a)(ii) shall cease, and all such
rights shall thereupon become vested in Collateral Agent who shall
thereupon have the sole right to receive and hold as Pledged
Collateral such dividends and interest payments; and
(iii) all dividends, principal and interest payments which are
received by such Pledgor contrary to the provisions of paragraph (ii)
of this Section 8(b) shall be (A) forthwith (and in any event within
two Business Days) deposited by the Grantor in the exact form
received, duly indorsed by the Pledgor to the Collateral Agent if
required, in a Collateral Account maintained under the sole dominion
and control of the Collateral Agent, subject to withdrawal by the
Collateral Agent for the account of the Secured Parties only as
provided in Section 15, (B) until turned over in accordance with the
preceding subsection (A), all such amounts and proceeds received by
Pledgor shall be received in trust for the benefit of Collateral
Agent hereunder and shall be segregated from other funds of Pledgor.
(c) In order to permit Collateral Agent to exercise the voting and
other consensual rights which it may be entitled to exercise pursuant to Section
8(b)(i) and to receive
XVIII-11
<PAGE>
all dividends and other distributions which it may be entitled to receive under
Section 8(a)(ii) or Section 8(b)(ii), (i) each Pledgor shall promptly execute
and deliver (or cause to be executed and delivered) to Collateral Agent all such
proxies, dividend payment orders and other instruments as Collateral Agent may
from time to time reasonably request and (ii) without limiting the effect of the
immediately preceding clause (i), each Pledgor hereby grants to Collateral Agent
an irrevocable proxy to vote the Pledged Shares and to exercise all other
rights, powers, privileges and remedies to which a holder of the Pledged Shares
would be entitled (including, without limitation, giving or withholding written
consents of shareholders, calling special meetings of shareholders and voting at
such meetings), which proxy shall be effective, automatically and without the
necessity of any action (including any transfer of any Pledged Shares on the
record books of the issuer thereof) by any other Person (including the issuer of
the Pledged Shares or any officer or agent thereof), upon the occurrence and
during the continuance of an Event of Default and which proxy shall only
terminate upon the payment in full of the Secured Obligations.
SECTION 9. COLLATERAL AGENT APPOINTED ATTORNEY-IN-FACT.
-------------------------------------------
Each Pledgor hereby irrevocably appoints Collateral Agent as such
Pledgor's attorney-in-fact, with full authority in the place and stead of such
Pledgor and in the name of such Pledgor, Collateral Agent or otherwise, from
time to time, upon the occurrence and during the continuance of an Event of
Default, in Collateral Agent's reasonable discretion to take any action and to
execute any instrument that Collateral Agent may reasonably deem necessary or
advisable to accomplish the purposes of this Agreement, including without
limitation:
(a) to file one or more financing or continuation statements, or
amendments thereto, relative to all or any part of the Pledged Collateral
without the signature of such Pledgor;
(b) to ask, demand, collect, sue for, recover, compound, receive
and give acquittance and receipts for moneys due and to become due under or in
respect of any of the Pledged Collateral;
(c) to receive, endorse and collect any instruments made payable to
such Pledgor representing any dividend, principal or interest payment or other
distribution in respect of the Pledged Collateral or any part thereof and to
give full discharge for the same; and
(d) to file any claims or take any action or institute any
proceedings that Collateral Agent may reasonably deem necessary or desirable for
the collection of any of the Pledged Collateral or otherwise to enforce the
rights of Collateral Agent with respect to any of the Pledged Collateral.
SECTION 10. COLLATERAL AGENT MAY PERFORM.
----------------------------
If any Pledgor fails to perform any agreement contained herein,
Collateral Agent may itself perform, or cause performance of, such agreement,
and the reasonable expenses of
XVIII-12
<PAGE>
Collateral Agent incurred in connection therewith shall be payable by Pledgors
under Section 16(b).
SECTION 11. STANDARD OF CARE.
----------------
The powers conferred on Collateral Agent hereunder are solely to
protect its interest in the Pledged Collateral and shall not impose any duty
upon it to exercise any such powers. Except for the exercise of reasonable care
in the custody of any Pledged Collateral in its possession and the accounting
for moneys actually received by it hereunder, Collateral Agent shall have no
duty as to any Pledged Collateral, it being understood that Collateral Agent
shall have no responsibility for (a) ascertaining or taking action with respect
to calls, conversions, exchanges, maturities, tenders or other matters relating
to any Pledged Collateral, whether or not Collateral Agent has or is deemed to
have knowledge of such matters, (b) taking any necessary steps (other than steps
taken in accordance with the standard of care set forth above to maintain
possession of the Pledged Collateral) to preserve rights against any parties
with respect to any Pledged Collateral, (c) taking any necessary steps to
collect or realize upon the Secured Obligations or any guarantee therefor, or
any part thereof, or any of the Pledged Collateral, or (d) initiating any action
to protect the Pledged Collateral against the possibility of a decline in market
value. Collateral Agent shall be deemed to have exercised reasonable care in
the custody and preservation of Pledged Collateral in its possession if such
Pledged Collateral is accorded treatment substantially equal to that which
Collateral Agent accords its own property consisting of negotiable securities.
XVIII-13
<PAGE>
SECTION 12. REMEDIES.
--------
(a) If any Event of Default shall have occurred and be continuing,
Collateral Agent may exercise in respect of the Pledged Collateral, in addition
to all other rights and remedies provided for herein or otherwise available to
it, all the rights and remedies of a secured party on default under the Uniform
Commercial Code as in effect in any relevant jurisdiction (the "CODE")
(whether or not the Code applies to the affected Pledged Collateral), and
Collateral Agent may also in its sole discretion, without notice except as
specified below, sell the Pledged Collateral or any part thereof in one or more
parcels at public or private sale, at any exchange or broker's board or at any
of Collateral Agent's offices or elsewhere, for cash, on credit or for future
delivery, at such time or times and at such price or prices and upon such other
terms as Collateral Agent may deem commercially reasonable, irrespective of the
impact of any such sales on the market price of the Pledged Collateral.
Collateral Agent or any Secured Party or Interest Rate Exchanger may be the
purchaser of any or all of the Pledged Collateral at any such sale and
Collateral Agent, as administrative agent for and representative of Secured
Parties and Interest Rate Exchangers (but not any Secured Party or Secured
Parties or Interest Rate Exchanger or Interest Rate Exchangers in its or their
respective individual capacities unless Requisite Obligees shall otherwise agree
in writing), shall be entitled, for the purpose of bidding and making settlement
or payment of the purchase price for all or any portion of the Pledged
Collateral sold at any such public sale, to use and apply any of the Secured
Obligations as a credit on account of the purchase price for any Pledged
Collateral payable by Collateral Agent at such sale. Each purchaser at any such
sale shall hold the property sold absolutely free from any claim or right on the
part of any Pledgor, and each Pledgor hereby waives (to the extent permitted by
applicable law) all rights of redemption, stay and/or appraisal which it now has
or may at any time in the future have under any rule of law or statute now
existing or hereafter enacted. Each Pledgor agrees that, to the extent notice
of sale shall be required by law, at least ten days' notice to such Pledgor of
the time and place of any public sale or the time after which any private sale
is to be made shall constitute reasonable notification. Collateral Agent shall
not be obligated to make any sale of Pledged Collateral regardless of notice of
sale having been given. Collateral Agent may adjourn any public or private sale
from time to time by announcement at the time and place fixed therefor, and such
sale may, without further notice, be made at the time and place to which it was
so adjourned. Each Pledgor hereby waives any claims against Collateral Agent
arising by reason of the fact that the price at which any Pledged Collateral may
have been sold at such a private sale was less than the price which might have
been obtained at a public sale, even if Collateral Agent accepts the first offer
received and does not offer such Pledged Collateral to more than one offeree.
If the proceeds of any sale or other disposition of the Pledged Collateral are
insufficient to pay all the Secured Obligations, Pledgors shall be jointly and
severally liable for the deficiency and the reasonable fees of any attorneys
employed by Collateral Agent to collect such deficiency.
(b) Each Pledgor recognizes that, by reason of certain prohibitions
contained in the Securities Act and applicable state securities laws, Collateral
Agent may be compelled, with respect to any sale of all or any part of the
Pledged Collateral conducted without prior registration or qualification of such
Pledged Collateral under the Securities Act and/or such state securities laws,
to limit purchasers to those who will agree, among other things, to acquire
XVIII-14
<PAGE>
the Pledged Collateral for their own account, for investment and not with a view
to the distribution or resale thereof. Each Pledgor acknowledges that any such
private sales may be at prices and on terms less favorable than those obtainable
through a public sale without such restrictions (including, without limitation,
a public offering made pursuant to a registration statement under the Securities
Act) and, notwithstanding such circumstances, Pledgor agrees that any such
private sale shall be deemed to have been made in a commercially reasonable
manner and that Collateral Agent shall have no obligation to engage in public
sales and no obligation to delay the sale of any Pledged Collateral for the
period of time necessary to permit the issuer thereof to register it for a form
of public sale requiring registration under the Securities Act or under
applicable state securities laws, even if such issuer would, or should, agree to
so register it.
(c) If Collateral Agent determines to exercise its right to sell any
or all of the Pledged Collateral, upon written request, such Pledgor shall and
shall cause each issuer of any Pledged Shares to be sold hereunder from time to
time to furnish to Collateral Agent all such information as Collateral Agent may
reasonably request in order to determine the number of shares and other
instruments included in the Pledged Collateral which may be sold by Collateral
Agent in exempt transactions under the Securities Act and the rules and
regulations of the Securities and Exchange Commission thereunder, as the same
are from time to time in effect.
SECTION 13. PROCEEDS TO BE TURNED OVER TO COLLATERAL AGENT.
----------------------------------------------
In addition to the rights of the Collateral Agent and the Secured
Parties specified in Section 8, if an Event of Default shall occur and be
continuing, upon request of the Collateral Agent, all proceeds received by the
Grantor consisting of cash, checks and other near-cash items shall be held by
the Grantor in trust for the Collateral Agent and the Secured Parties,
segregated from other funds of the Grantor, and shall, forthwith upon receipt by
the Grantor, be turned over to the Collateral Agent in the exact form received
by the Grantor (duly indorsed by the Grantor to the Collateral Agent, if
required) and held by the Collateral Agent in a Collateral Account maintained
under the Intercreditor Agreement. All proceeds while held by the Collateral
Agent in a Collateral Account (or by the Grantor in trust for the Collateral
Agent and the Secured Parties) shall continue to be held as collateral security
for all the Secured Obligations and shall not constitute payment thereof until
applied as provided in Section 15.
SECTION 14. APPLICATION OF PROCEEDS.
-----------------------
All proceeds held in any Collateral Account and all other proceeds
received by Collateral Agent in respect of any sale of, collection from, or
other realization upon all or any part of the Pledged Collateral shall be
applied as provided in subsection 3 of the Intercreditor Agreement.
SECTION 15. INDEMNITY AND EXPENSES.
----------------------
(a) Pledgors jointly and severally agree to indemnify Collateral
Agent, each Lender and each Interest Rate Exchanger from and against any and all
claims, losses and liabilities in any way relating to, growing out of or
resulting from this Agreement and the
XVIII-15
<PAGE>
transactions contemplated hereby (including, without limitation, enforcement of
this Agreement), except to the extent such claims, losses or liabilities result
solely from Collateral Agent's or such Secured Party's or Interest Rate
Exchanger's gross negligence or willful misconduct as finally determined by a
court of competent jurisdiction.
(b) Pledgors jointly and severally agree to pay to Collateral Agent
promptly following written demand the amount of any and all reasonable costs and
reasonable expenses, including the reasonable fees and expenses of its counsel
and of any experts and agents, that Collateral Agent may incur in connection
with (i) the administration of this Agreement, (ii) the custody or preservation
of, or the sale of, collection from, or other realization upon, any of the
Pledged Collateral, (iii) the exercise or enforcement of any of the rights of
Collateral Agent hereunder, or (iv) the failure by any Pledgor to perform or
observe any of the provisions hereof.
SECTION 16. CONTINUING SECURITY INTEREST; TRANSFER OF LOANS.
-----------------------------------------------
This Agreement shall create a continuing security interest in the
Pledged Collateral and shall (a) remain in full force and effect until the
payment in full of all Secured Obligations (other than inchoate indemnification
obligations with respect to claims, losses or liabilities which have not yet
arisen and are not yet due and payable), the cancellation or termination of the
Commitments and the cancellation or expiration of all outstanding Letters of
Credit, (b) be binding upon each Pledgor, its successors and assigns, and (c)
inure, together with the rights and remedies of Collateral Agent hereunder, to
the benefit of Collateral Agent and its successors, transferees and assigns.
Without limiting the generality of the foregoing clause (c), but subject to the
provisions of subsection 10.1 of the Credit Agreement and subsection 10.1 of the
AXEL Credit Agreement, any Secured Party may assign or otherwise transfer any
Loans held by it to any other Person, and such other Person shall thereupon
become vested with all the benefits in respect thereof granted to Lenders herein
or otherwise. Upon the payment in full of all Secured Obligations (other than
inchoate indemnification obligations with respect to claims, losses or
liabilities which have not yet arisen and are not yet due and payable), the
cancellation or termination of the Commitments and the cancellation or
expiration of all outstanding Letters of Credit, the security interest granted
hereby shall terminate and all rights to the Pledged Collateral shall revert to
the applicable Pledgors. Upon any such termination Collateral Agent will, at
the joint and several expense of Pledgors, execute and deliver to Pledgors such
documents as Pledgors shall reasonably request to evidence such termination in
accordance with the terms of the Intercreditor Agreement and Pledgors shall be
entitled to the return, upon its request and at its expense, against receipt and
without recourse to Collateral Agent, of such of the Pledged Collateral as shall
not have been sold or otherwise applied pursuant to the terms hereof.
SECTION 17. COLLATERAL AGENT AS ADMINISTRATIVE AGENT.
----------------------------------------
(a) Collateral Agent has been appointed to act as Collateral Agent
hereunder by CA Administrative Agent on behalf of the Credit Agreement Lenders
and AXEL Administrative Agent on behalf of the AXEL Lenders pursuant to the
Intercreditor Agreement and, by their acceptance of the benefits hereof,
Interest Rate Exchangers and shall be entitled to
XVIII-16
<PAGE>
the benefits of the Intercreditor Agreement. Collateral Agent shall be
obligated, and shall have the right hereunder, to make demands, to give notices,
to exercise or refrain from exercising any rights, and to take or refrain from
taking any action (including, without limitation, the release or substitution of
Pledged Collateral), solely in accordance with this Agreement and the
Intercreditor Agreement; provided that Collateral Agent shall exercise, or
--------
refrain from exercising, any remedies provided for in Section 12 in accordance
with the instructions of (i) Requisite Lenders or (ii) after payment in full of
all Financing Agreement Obligations under the Financing Agreements and any other
Loan Documents, the holders of a majority of the aggregate notional amount (or,
with respect to any Lender Interest Rate Agreement that has been terminated in
accordance with its terms, the amount then due and payable (exclusive of
expenses and similar payments but including any early termination payments then
due) under such Lender Interest Rate Agreement) under all Lender Interest Rate
Agreements (Requisite Lenders or, if applicable, such holders being referred to
herein as "REQUISITE OBLIGEES"). In furtherance of the foregoing provisions of
this Section 18(a), each Interest Rate Exchanger, by its acceptance of the
benefits hereof, agrees that it shall have no right individually to realize upon
any of the Pledged Collateral hereunder, it being understood and agreed by such
Interest Rate Exchanger that all rights and remedies hereunder may be exercised
solely by Collateral Agent for the benefit of Lenders and Interest Rate
Exchangers in accordance with the terms of this Section 18(a).
(b) Collateral Agent shall at all times be the same Person that is
appointed Collateral Agent under the Intercreditor Agreement. The Collateral
Agent may resign and a successor Collateral Agent may be appointed in the manner
provided in the Intercreditor Agreement. Upon the acceptance of any appointment
as Collateral Agent by a successor Collateral Agent, that successor Collateral
Agent shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring or removed Collateral Agent under this
Agreement, and the retiring or removed Collateral Agent under this Agreement
shall promptly (i) transfer to such successor Collateral Agent all sums,
securities and other items of Collateral held hereunder, together with all
records and other documents necessary or appropriate in connection with the
performance of the duties of the successor Collateral Agent under this
Agreement, and (ii) execute and deliver to such successor Collateral Agent such
amendments to financing statements, and take such other actions, as may be
necessary or appropriate in connection with the assignment to such successor
Collateral Agent of the security interests created hereunder, whereupon such
retiring or removed Collateral Agent shall be discharged from its duties and
obligations under this Agreement. After any retiring or removed Collateral
Agent's resignation or removal hereunder as Collateral Agent, the provisions of
this Agreement shall inure to its benefit as to any actions taken or omitted to
be taken by it under this Agreement while it was Collateral Agent hereunder.
SECTION 18. AMENDMENTS; ETC.
---------------
No amendment, modification, termination or waiver of any provision of
this Agreement, and no consent to any departure by any Pledgor therefrom, shall
in any event be effective unless the same shall be in writing and signed by
Collateral Agent and, in the case of any such amendment or modification, by
Pledgors; provided that any Pledge Amendment in the form of Schedule II annexed
-------- -----------
hereto or any amendment hereto pursuant to Section 6(c) shall be
XVIII-17
<PAGE>
effective upon execution by any Pledgor and Pledgors hereby waive any
requirement of notice or of consent to any such Pledge Amendment or amendment.
Any such waiver or consent shall be effective only in the specific instance and
for the specific purpose for which it was given.
SECTION 19. NOTICES.
-------
Any notice or other communication herein required or permitted to be
given shall be in writing and may be personally served, telexed or sent by
telefacsimile or United States mail or courier service and shall be deemed to
have been given when delivered in person or by courier service, upon receipt of
telefacsimile or telex (with received answerback), or three Business Days after
depositing it in the United States mail with postage prepaid and properly
addressed; provided that notices to Collateral Agent and Pledgors shall not be
--------
effective until received. For the purposes hereof, the address of each party
hereto shall be as provided in subsection 10.8 of the Credit Agreement and
subsection 10.8 AXEL Credit Agreement, as applicable, or as set forth under
such party's name on the signature pages hereof or such other address as shall
be designated by such party in a written notice delivered to the other parties
hereto.
SECTION 20. FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE.
-----------------------------------------------------
No failure or delay on the part of Collateral Agent in the exercise of
any power, right or privilege hereunder shall impair such power, right or
privilege or be construed to be a waiver of any default or acquiescence therein,
nor shall any single or partial exercise of any such power, right or privilege
preclude any other or further exercise thereof or of any other power, right or
privilege. All rights and remedies existing under this Agreement are cumulative
to, and not exclusive of, any rights or remedies otherwise available.
SECTION 21. SEVERABILITY.
------------
In case any provision in or obligation under this Agreement shall be
invalid, illegal or unenforceable in any jurisdiction, the validity, legality
and enforceability of the remaining provisions or obligations, or of such
provision or obligation in any other jurisdiction, shall not in any way be
affected or impaired thereby.
SECTION 22. HEADINGS.
--------
Section and subsection headings in this Agreement are included herein
for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose or be given any substantive effect.
SECTION 23. GOVERNING LAW; TERMS. THIS AGREEMENT AND THE RIGHTS AND
--------------------
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW
YORK (INCLUDING WITHOUT
XVIII-18
<PAGE>
LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW
YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES, EXCEPT TO THE EXTENT THAT
THE CODE PROVIDES THAT THE PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR
REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR PLEDGED COLLATERAL ARE GOVERNED
BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK. Unless otherwise
defined herein or in the Financing Agreements, terms used in Articles 8 and 9 of
the Uniform Commercial Code in the State of New York are used herein as therein
defined.
SECTION 24. CONSENT TO JURISDICTION AND SERVICE OF PROCESS.
----------------------------------------------
ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST ANY PLEDGOR ARISING OUT OF OR
RELATING TO THIS AGREEMENT, OR ANY OBLIGATIONS HEREUNDER, MAY BE BROUGHT IN ANY
STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE, COUNTY AND CITY
OF NEW YORK. BY EXECUTING AND DELIVERING THIS AGREEMENT, EACH PLEDGOR, FOR
ITSELF AND IN CONNECTION WITH ITS PROPERTIES, IRREVOCABLY
(I) ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE
JURISDICTION AND VENUE OF SUCH COURTS;
(II) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS;
(III) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING
IN ANY SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN
RECEIPT REQUESTED, TO SUCH PLEDGOR AT ITS ADDRESS PROVIDED IN
ACCORDANCE WITH SECTION 20;
(IV) AGREES THAT SERVICE AS PROVIDED IN CLAUSE (III) ABOVE IS
SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER SUCH PLEDGOR IN ANY
SUCH PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE
AND BINDING SERVICE IN EVERY RESPECT;
(V) AGREES THAT COLLATERAL AGENT RETAINS THE RIGHT TO SERVE
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS
AGAINST SUCH PLEDGOR IN THE COURTS OF ANY OTHER JURISDICTION; AND
(VI) AGREES THAT THE PROVISIONS OF THIS SECTION 25 RELATING TO
JURISDICTION AND VENUE SHALL BE BINDING AND ENFORCEABLE TO THE FULLEST
EXTENT PERMISSIBLE UNDER NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-
1402 OR OTHERWISE.
XVIII-19
<PAGE>
SECTION 25. WAIVER OF JURY TRIAL.
--------------------
EACH PLEDGOR AND COLLATERAL AGENT HEREBY AGREE TO WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS AGREEMENT. The scope of this waiver is intended to be all-
encompassing of any and all disputes that may be filed in any court and that
relate to the subject matter of this transaction, including without limitation
contract claims, tort claims, breach of duty claims, and all other common law
and statutory claims. Pledgors and Collateral Agent each acknowledge that this
waiver is a material inducement for Pledgors and Collateral Agent to enter
into a business relationship, that each Pledgor and Collateral Agent have
already relied on this waiver in entering into this Agreement and that each will
continue to rely on this waiver in their related future dealings. Each Pledgor
and Collateral Agent further warrant and represent that each has reviewed this
waiver with its legal counsel, and that each knowingly and voluntarily waives
its jury trial rights following consultation with legal counsel. THIS WAIVER IS
IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING
(OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY REFERRING TO THIS SECTION 26
AND EXECUTED BY EACH OF THE PARTIES HERETO), AND THIS WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT.
In the event of litigation, this Agreement may be filed as a written consent to
a trial by the court.
SECTION 26. COUNTERPARTS.
------------
This Agreement may be executed in one or more counterparts and by
different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all such counterparts
together shall constitute but one and the same instrument; signature pages may
be detached from multiple separate counterparts and attached to a single
counterpart so that all signature pages are physically attached to the same
document.
[Remainder of page intentionally left blank]
XVIII-20
<PAGE>
IN WITNESS WHEREOF, Pledgors and Collateral Agent have caused this Agreement
to be duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
SEALY, INC.
THE STEARNS & FOSTER
BEDDING COMPANY
THE STEARNS & FOSTER
UPHOLSTERY FURNITURE
COMPANY
ADVANCED SLEEP
PRODUCTS
SEALY MATTRESS
COMPANY OF SAN DIEGO
SEALY MATTRESS
COMPANY OF PUERTO
RICO
OHIO-SEALY MATTRESS
MANUFACTURING CO.
INC.
OHIO-SEALY MATTRESS
MANUFACTURING CO. --
FORT WORTH
OHIO-SEALY MATTRESS
MANUFACTURING CO.
OHIO-SEALY MATTRESS
MANUFACTURING CO. --
HOUSTON
[OTHER PLEDGORS]
By:
__________________
Name:
Title:
Notice Address:
_____________________
_____________________
_____________________
XVIII-21
<PAGE>
MORGAN GUARANTY
TRUST COMPANY OF
NEW YORK
By:
__________________
Name:
Title:
Notice Address:
_____________________
_____________________
_____________________
XVIII-22
<PAGE>
SCHEDULE I
Attached to and forming a part of the Subsidiary Pledge Agreement
dated as of December 18, 1997 between the subsidiaries of Sealy Mattress Company
party thereto from time to time, as Pledgors, and Morgan Guaranty Trust Company
of New York, as Collateral Agent.
PART A
<TABLE>
<CAPTION>
====================================================================================
PERCENTAGE OF
STOCK NUMBER OF OUTSTANDING
CLASS OF CERTIFI- PAR SHARES SHARES
PLEDGOR STOCK ISSUER STOCK CATE VALUE PLEDGED
NOS.
===================================================================================
<S> <C> <C> <C> <C> <C> <C>
___________________________________________________________________________________
___________________________________________________________________________________
___________________________________________________________________________________
===================================================================================
</TABLE>
PART B
==============================================================
AMOUNT OF
PLEDGOR DEBT ISSUER INDEBTEDNESS
==============================================================
______________________________________________________________
______________________________________________________________
______________________________________________________________
==============================================================
XVIII-23
<PAGE>
SCHEDULE II
PLEDGE AMENDMENT
This Pledge Amendment, dated ____________, [199_][200_], is delivered
pursuant to Section 6(b) of the Pledge Agreement referred to below. The
undersigned hereby agrees that this Pledge Amendment may be attached to the
Subsidiary Pledge Agreement dated as of December 18, 1997, between the
undersigned, the other Pledgors party thereto from time to time, and Morgan
Guaranty Trust Company of New York, as Collateral Agent (the "PLEDGE
AGREEMENT," capitalized terms defined therein being used herein as therein
defined), and that the [Pledged Shares] [Pledged Debt] listed on this Pledge
Amendment shall be deemed to be part of the [Pledged Shares] [Pledged Debt] and
shall become part of the Pledged Collateral and shall secure all Secured
Obligations.
[NAME OF PLEDGOR]
By:
____________________
Name:
Title:
<TABLE>
<CAPTION>
===============================================================================
PERCENTAGE OF
STOCK NUM- OUTSTANDING
CLASS OF CERTIFICATE PAR BER OF SHARES PLEDGED
STOCK ISSUER STOCK NOS. VALUE SHARES
===============================================================================
<S> <C> <C> <C> <C> <C>
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
===============================================================================
</TABLE>
====================================================================
AMOUNT OF
DEBT ISSUER INDEBTEDNESS
====================================================================
____________________________________________________________________
____________________________________________________________________
____________________________________________________________________
====================================================================
XVIII-24
<PAGE>
SCHEDULE III
[FORM OF COUNTERPART TO SUBSIDIARY PLEDGE AGREEMENT]
This counterpart, dated ___________, [199_][200_] is delivered
pursuant to Section 6(c) of that certain Subsidiary Pledge Agreement dated as of
December 18, 1997, among the Pledgors party thereto from time to time, and
Morgan Guaranty Trust Company of New York, as Collateral Agent (the "PLEDGE
AGREEMENT," capitalized terms defined therein being used herein as therein
defined). The undersigned hereby agrees (i) that this counterpart may be
attached to the Pledge Agreement, (ii) that the undersigned will comply with all
the terms and conditions of the Pledge Agreement as if it were an original
signatory thereto, and (iii) that the [Pledged Shares] [Pledged Debt] listed
below shall be deemed to be part of the [Pledged Shares] [Pledged Debt] and
shall become part of the Pledged Collateral and shall secure all Secured
Obligations.
[NAME OF ADDITIONAL PLEDGOR]
By:
___________________
Name:
Title:
<TABLE>
<CAPTION>
================================================================================
PERCENTAGE OF
STOCK NUM- OUTSTANDING
CLASS OF CERTIFICATE PAR BER OF SHARES
STOCK ISSUER STOCK NOS. VALUE SHARES PLEDGED
================================================================================
<S> <C> <C> <C> <C> <C>
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
================================================================================
</TABLE>
===================================================================
AMOUNT OF
DEBT ISSUER INDEBTEDNESS
===================================================================
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
====================================================================
XVIII-25
<PAGE>
EXHIBIT XIX
[FORM OF SUBSIDIARY SECURITY AGREEMENT]
SUBSIDIARY SECURITY AGREEMENT
This SUBSIDIARY SECURITY AGREEMENT (this "AGREEMENT") is dated as of
December 18, 1997 and entered into by and among THE UNDERSIGNED DIRECT AND
INDIRECT SUBSIDIARIES (each of such undersigned Subsidiaries being a "GRANTOR"
and collectively "GRANTORS"; provided that after the Closing Date, "Grantors"
--------
shall be deemed to include any Additional Grantors (as hereinafter defined)) of
Sealy Mattress Company, an Ohio corporation ("COMPANY"), and MORGAN GUARANTY
TRUST COMPANY OF NEW YORK ("MORGAN GUARANTY"), as Collateral Agent for and
representative of (in such capacity herein called "COLLATERAL AGENT") the
Secured Parties (as hereinafter defined) and any Interest Rate Exchangers (as
hereinafter defined).
RECITALS
A. Company, Sealy Corporation, a Delaware Corporation
("HOLDINGS"), the financial institutions from time to time parties thereto
(the "CREDIT AGREEMENT LENDERS"), Goldman Sachs Credit Partners L.P.
("GSCP"), as arranger and syndication agent (in such capacity, "CA
SYNDICATION AGENT"), Morgan Guaranty, as administrative agent (in such
capacity, "CA ADMINISTRATIVE AGENT"), and Bankers Trust Company ("BTCO."),
as documentation agent (in such capacity, "CA DOCUMENTATION AGENT") have
entered into a Credit Agreement dated as of December 18, 1997 (said Credit
Agreement, as it may hereafter be amended, restated, supplemented or otherwise
modified from time to time, being the ("CREDIT AGREEMENT") pursuant to which
Credit Agreement Lenders have made certain commitments, subject to the terms and
conditions set forth in the Credit Agreement, to extend certain credit
facilities to Company.
B. Company, Holdings, the financial institutions from time to time
parties thereto (the "AXEL LENDERS"), GSCP, as arranger and syndication agent
(in such capacity, "AXEL SYNDICATION AGENT"), Morgan Guaranty, as
administrative agent (in such capacity, "AXEL ADMINISTRATIVE AGENT"), and
BTCo., as documentation agent (in such capacity, "AXEL DOCUMENTATION AGENT")
have entered into an AXEL Credit Agreement dated as of December 18, 1997 (said
AXEL Credit Agreement, as it may hereafter be amended, restated, supplemented or
otherwise modified from time to time, being the "AXEL CREDIT AGREEMENT"; the
Credit Agreement Lenders, the CA Syndication Agent, the CA Administrative Agent,
the CA Documentation Agent, the AXEL Lenders, the AXEL Syndication Agent, the
AXEL Administrative Agent, and the AXEL Documentation Agent each being a
"SECURED PARTY" and collectively the "SECURED PARTIES") pursuant to which
AXEL Lenders have made certain commitments, subject to the terms and conditions
set forth in the AXEL Credit Agreement, to extend certain credit facilities to
Company.
XIX-1
<PAGE>
C. Company may from time to time enter, or may from time to time
have entered, into one or more Interest Rate Agreements (collectively, the
"LENDER INTEREST RATE AGREEMENTS") with one or more CA Lenders or their
Affiliates or AXEL Lenders or their Affiliates (in such capacity, collectively,
"INTEREST RATE EXCHANGERS").
D. Grantors have executed and delivered that certain Subsidiary
Guaranty dated as of December 18, 1997 (said Subsidiary Guaranty, as it may
hereafter be amended, supplemented or otherwise modified from time to time,
being the "GUARANTY") in favor of Collateral Agent for the benefit of Secured
Parties and any Interest Rate Exchangers, pursuant to which Grantors have
guarantied the prompt payment and performance when due of all obligations of
Company under the Financing Agreements and any other Loan Documents and all
obligations of Company under the Lender Interest Rate Agreements, including
without limitation the obligation of Company to make payments, if any,
thereunder in the event of early termination thereof.
E. It is a condition precedent to the initial extensions of credit
by Secured Parties under the Financing Agreements that each Grantor shall have
granted the security interests and undertaken the obligations contemplated by
this Agreement.
NOW, THEREFORE, in consideration of the premises and to induce (i) the
CA Administrative Agent, the CA Syndication Agent and the Credit Agreement
Lenders to enter into the Credit Agreement, (ii) the Credit Agreement Lenders to
make their respective loans to, and issue Letters of Credit for the account of,
Company, (iii) the AXEL Administrative Agent, the AXEL Syndication Agent and the
AXEL Lenders to enter into the AXEL Loan Agreement, (iv) the AXEL Lenders to
make their respective loans to Company and (v) to induce Interest Rate
Exchangers to enter into the Lender Interest Rate Agreements and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, each Grantor hereby agrees with the Collateral Agent as follows:
1. DEFINED TERMS.
-------------
(a) Unless otherwise defined herein, terms defined in the Credit
Agreement and used herein shall have the meanings given to such terms in the
Credit Agreement;
(b) The following terms shall have the following meanings:
"ACCELERATION" shall mean any of the Credit Agreement Obligations or
the AXEL Credit Agreement Obligations have been declared, or have become,
immediately due and payable, or the commitments to extend credit of the Credit
Agreement Lenders or the AXEL Lenders shall have been terminated under Section 8
of the Credit Agreement or Section 7 of the AXEL Credit Agreement, respectively.
"ACCOUNTS" has the meaning assigned to that term in Section 2 of
this Agreement.
XIX-2
<PAGE>
"AGREEMENT" means this Company Security Agreement dated as of
December 18, 1997, as it may be amended, supplemented or otherwise modified from
time to time.
"ASSIGNED AGREEMENT" has the meaning assigned to that term in
Section 2 of this Agreement.
"AXEL COMMITMENTS" shall mean the "Commitments" as defined in the
AXEL Credit Agreement.
"AXEL CREDIT AGREEMENT" has the meaning assigned to that term in the
recitals to this Agreement.
"AXEL OBLIGATIONS" shall mean the "Obligations" as defined in the
AXEL Credit Agreement.
"COLLATERAL" has the meaning assigned to that term in Section 2 of
this Agreement.
"COLLATERAL ACCOUNTS" shall mean "Collateral Accounts" as defined
in the Intercreditor Agreement.
"COMMITMENTS" means the Credit Agreement Commitments and the AXEL
Commitments.
"CREDIT AGREEMENT" has the meaning assigned to that term in the
recitals to this Agreement.
"CREDIT AGREEMENT COMMITMENTS" shall mean the "Commitments" as
defined in the Credit Agreement.
"CREDIT AGREEMENT OBLIGATIONS" shall mean the "Obligations" as
defined in the Credit Agreement.
"EQUIPMENT" has the meaning assigned to that term in Section 2 of
this Agreement.
"EVENT OF DEFAULT" means any "Event of Default" as defined in any
Financing Agreement or the occurrence of an Event of Default in which Company is
the Defaulting Party and which results in the designation of an Early
Termination Date (as such terms are defined in a Master Agreement or an Interest
Rate Swap Agreement or Interest Rate and Currency Exchange Agreement in the form
prepared by the International Swap and Derivatives Association Inc. or a similar
event under any similar swap agreement) under any Lender Interest Rate
Agreement.
XIX-3
<PAGE>
"FINANCING AGREEMENT" means either the Credit Agreement or the AXEL
Credit Agreement, and "Financing Agreements" means the Credit Agreement and
the AXEL Credit Agreement, collectively.
"FINANCING AGREEMENT OBLIGATIONS" means Credit Agreement Obligations
and AXEL Obligations.
"GRANTOR" has the meaning assigned to that term in the introduction
of this Agreement.
"HOLDINGS" has the meaning assigned to that term in the recitals to
this Agreement.
"INTERCREDITOR AGREEMENT" means the Intercreditor Agreement, dated
as of December 18, 1997, by and among CA Administrative Agent, AXEL
Administrative Agent and Collateral Agent.
"INTEREST RATE EXCHANGERS" has the meaning assigned to that term in
the recitals to this Agreement.
"INVENTORY" has the meaning assigned to that term in Section 2 of
this Agreement.
"LENDER INTEREST RATE AGREEMENT" has the meaning assigned to that
term in the recitals to this Agreement.
"LOAN" means any "Loan" as defined in any Financing Agreement, and
"LOANS" means all such Loans collectively.
"LOAN DOCUMENT" means any "Loan Document" as defined in any
Financing Agreement, and "LOAN DOCUMENTS" means all such Loan Documents
collectively.
"NEGOTIABLE DOCUMENT OF TITLE" has the meaning assigned to that term
in Section 2 of this Agreement.
"POTENTIAL EVENT OF DEFAULT" means any "Potential Event of
Default" as defined in any Financing Agreement.
"RELATED CONTRACTS" has the meaning assigned to that term in Section
2 of this Agreement.
"REQUISITE AXEL LENDERS" means "Requisite Lenders" as defined in
the AXEL Credit Agreement.
"REQUISITE CREDIT AGREEMENT LENDERS" means "Requisite Lenders" as
defined in the Credit Agreement.
XIX-4
<PAGE>
"REQUISITE LENDERS" means (A) unless an Acceleration shall have
occurred and be continuing, the Requisite Credit Agreement Lenders and the
Requisite AXEL Lenders, and (B) if an Acceleration has occurred and is
continuing, Secured Parties holding more than 50% of the Financing Agreement
Obligations.
"REQUISITE OBLIGEES" has the meaning assigned to that term in
Section 23 of this Agreement.
"SECURED OBLIGATIONS" has the meaning assigned to that term in
Section 2 of this Agreement.
"SECURED PARTIES" has the meaning assigned to that term in the
recitals to this Agreement.
SECTION 2. GRANT OF SECURITY.
-----------------
Each Grantor hereby assigns to Collateral Agent, and hereby grants to
Collateral Agent a security interest in, all of such Grantor's right, title and
interest in and to the following, in each case whether now or hereafter existing
or in which such Grantor now has or hereafter acquires an interest and wherever
the same may be located (the "COLLATERAL"):
(a) all equipment in all of its forms, all parts thereof and all
accessions thereto (any and all such equipment, parts and accessions
being the "EQUIPMENT");
(b) all inventory in all of its forms (including, but not limited
to, (i) all goods held by such Grantor for sale or lease or to be
furnished under contracts of service or so leased or furnished, (ii)
all raw materials, work in process, finished goods, and materials
used or consumed in the manufacture, packing, shipping, advertising,
selling, leasing, furnishing or production of such inventory or
otherwise used or consumed in such Grantor's business, (iii) all
goods in which such Grantor has an interest in mass or a joint or
other interest or right of any kind, and (iv) all goods which are
returned to or repossessed by such Grantor) and all accessions
thereto and products thereof (all such inventory, accessions and
products being the "INVENTORY") and all negotiable and non-negotiable
documents of title (including without limitation warehouse receipts,
dock receipts and bills of lading) issued by any Person covering any
Inventory (any such negotiable document of title being a "NEGOTIABLE
DOCUMENT OF TITLE");
(c) all accounts, contract rights, chattel paper, documents,
instruments, general intangibles and other rights and obligations of
any kind and all rights in, to and under all security agreements,
leases and other contracts securing or otherwise relating to any such
accounts, contract rights, chattel paper, documents, instruments,
general intangibles or other obligations (any and all such accounts,
contract rights, chattel paper,
XIX-5
<PAGE>
documents, instruments, general intangibles and other obligations
(any and all such accounts, contract rights, chattel paper,
documents, instruments, general intangibles and other obligations
being the "ACCOUNTS", and any and all such security agreements,
leases and other contracts being the "RELATED CONTRACTS");
(d) all agreements and contracts to which such Grantor is a party
as of the date hereof or becomes a party after the date hereof, as
each such agreement may be amended, supplemented or otherwise
modified from time to time (said agreements, as so amended,
supplemented or otherwise modified, being referred to herein
individually as an "ASSIGNED AGREEMENT" and collectively as the
"ASSIGNED AGREEMENTS"), including (i) all rights of such Grantor to
receive moneys due or to become due under or pursuant to the Assigned
Agreements, (ii) all rights of such Grantor to receive proceeds of
any insurance, indemnity, warranty or guaranty with respect to the
Assigned Agreements, (iii) all claims of such Grantor for damages
arising out of any breach of or default under the Assigned
Agreements, and (iv) all rights of such Grantor to terminate, amend,
supplement, modify or exercise rights or options under the Assigned
Agreements, to perform thereunder and to compel performance and
otherwise exercise all remedies thereunder;
(e) all deposit accounts, including without limitation all
deposit accounts maintained with Collateral Agent;
(f) all tradesecrets, licenses, copyrights, registrations and
franchise rights, and all goodwill associated with any of the
foregoing;
(g) to the extent not included in any other paragraph of this
Section 2, all other general intangibles (including without
limitation tax refunds, rights to payment or performance, choses in
action and judgments taken on any rights or claims included in the
Collateral);
(h) all plant fixtures, business fixtures and other fixtures and
storage and office facilities, and all accessions thereto and
products thereof;
(i) all books, records, ledger cards, files, correspondence,
computer programs, tapes, disks and related data processing software
that at any time evidence or contain information relating to any of
the Collateral or are otherwise necessary or helpful in the
collection thereof or realization thereupon; and
(j) all proceeds, products, rents and profits of or from any and
all of the foregoing Collateral and, to the extent not otherwise
included, all payments under insurance (whether or not Collateral
Agent is the loss payee thereof), or any indemnity, warranty or
guaranty, payable by reason of loss or damage to or otherwise with
respect to any of the foregoing Collateral. For purposes of this
Agreement, the term "PROCEEDS" includes whatever is receivable or
received
XIX-6
<PAGE>
when Collateral or proceeds are sold, exchanged, collected or
otherwise disposed of, whether such disposition is voluntary or
involuntary.
Notwithstanding anything herein to the contrary, in no event shall
the Collateral include, and each Grantor shall not be deemed to have granted a
security interest in, any of such Grantor's rights or interests in any license,
contract or agreement to which such Grantor is a party or any of its rights or
interests thereunder to the extent, but only to the extent, that such a grant
would, under the terms of such license, contract or agreement or otherwise,
result in a breach of the terms of, or constitute a default under any license,
contract or agreement to which such Grantor is a party (other than to the extent
that any such term would be rendered ineffective pursuant to Section 9-318(4) of
the Uniform Commercial Code of any relevant jurisdiction or any other applicable
law (including the Bankruptcy Code) or principles of equity); provided, that
--------
immediately upon the ineffectiveness, lapse or termination of any such
provision, the Collateral shall include, and each Grantor shall be deemed to
have granted a security interest in, all such rights and interests as if such
provision had never been in effect.
SECTION 3. SECURITY FOR OBLIGATIONS.
------------------------
This Agreement secures, and the Collateral is collateral security
for, the prompt payment or performance in full when due, whether at stated
maturity, by required prepayment, declaration, acceleration, demand or otherwise
(including the payment of amounts that would become due but for the operation of
the automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C.
(S)362(a)), of all obligations and liabilities of every nature of Grantors now
or hereafter existing under or arising out of or in connection with the Guaranty
and all extensions or renewals thereof, whether for principal, interest
(including without limitation interest that, but for the filing of a petition in
bankruptcy with respect to Company, would accrue on such obligations, whether or
not a claim is allowed against Company for such interest in the related
bankruptcy proceeding), reimbursement of amounts drawn under Letters of Credit,
payments for early termination of Lender Interest Rate Agreements, fees,
expenses, indemnities or otherwise, whether voluntary or involuntary, direct or
indirect, absolute or contingent, liquidated or unliquidated, whether or not
jointly owed with others, and whether or not from time to time decreased or
extinguished and later increased, created or incurred, and all or any portion of
such obligations or liabilities that are paid, to the extent all or any part of
such payment is avoided or recovered directly or indirectly from Collateral
Agent or any Lender or Interest Rate Exchanger as a preference, fraudulent
transfer or otherwise and all obligations of every nature of Grantors now or
hereafter existing under this Agreement (all such obligations of Grantors being
the "SECURED OBLIGATIONS").
SECTION 4. GRANTORS REMAIN LIABLE.
----------------------
Anything contained herein to the contrary notwithstanding, (a) each
Grantor shall remain liable under any contracts and agreements included in the
Collateral, to the extent set forth therein, to perform all of its duties and
obligations thereunder to the same extent as if this Agreement had not been
executed, (b) the exercise by Collateral Agent of any of its rights hereunder
shall not release Grantor from any of its duties or obligations under the
contracts and
XIX-7
<PAGE>
agreements included in the Collateral, and (c) Collateral Agent shall not have
any obligation or liability under any contracts and agreements included in the
Collateral by reason of this Agreement, nor shall Collateral Agent be obligated
to perform any of the obligations or duties of any Grantor thereunder or to take
any action to collect or enforce any claim for payment assigned hereunder.
SECTION 5. REPRESENTATIONS AND WARRANTIES.
------------------------------
Each Grantor represents and warrants as follows:
(a) Ownership of Collateral. Except for the security interest
-----------------------
created by this Agreement, Grantors own the Collateral free and clear
of any Lien subject to liens permitted by the Financing Agreements.
(b) Location of Equipment and Inventory. All of the Equipment and
-----------------------------------
Inventory is, as of the date hereof, located at the places specified
in Schedule 5(b) annexed hereto.
-------------
(c) Negotiable Documents of Title. No Negotiable Documents of
-----------------------------
Title are outstanding with respect to any of the Inventory (other
than in respect of (i) Inventory with an aggregate value not in
excess of $1,000,000 or (ii) Inventory which, in the ordinary course
of business, is in transit either (A) from a supplier to Grantor, (B)
between the locations specified in Schedule 5(b) hereto, or (C) to
-------------
customers of Grantor).
(d) Office Locations; Other Names. The chief place of business,
-----------------------------
the chief executive office and the office where such Grantor keeps
its records regarding the Accounts and all originals of all chattel
paper that evidence Accounts is, and has been for the four month
period preceding the date hereof, located at the offices set forth on
Schedule 5(d) annexed hereto. Grantors have not in the past done, and
-------------
do not now do, business under any other name (including any trade-
name or fictitious business name) except as set forth on Schedule
--------
5(d) annexed hereto.
----
XIX-8
<PAGE>
SECTION 6. FURTHER ASSURANCES; ADDITIONAL GRANTORS.
---------------------------------------
(a) Each Grantor agrees that from time to time, at the expense of
Grantors, such Grantor will promptly execute and deliver all further instruments
and documents, and take all further action, that Collateral Agent may reasonably
request, in order to perfect and protect any security interest granted or
purported to be granted hereby or to enable Collateral Agent to exercise and
enforce its rights and remedies hereunder with respect to any Collateral.
Without limiting the generality of the foregoing, each Grantor will: (i) mark
conspicuously each item of chattel paper included in the Accounts, each Related
Contract and, at the reasonable request of Collateral Agent, each of its records
pertaining to the Collateral, with a legend, in form and substance reasonable
satisfactory to Collateral Agent, indicating that such Collateral is subject to
the security interest granted hereby, (ii) at the reasonable request of
Collateral Agent, deliver and pledge to Collateral Agent hereunder all
promissory notes and other instruments (excluding checks) and all original
counterparts of chattel paper constituting Collateral, duly endorsed and
accompanied by duly executed instruments of transfer or assignment, all in form
and substance satisfactory to Collateral Agent, (iii) execute and file such
financing or continuation statements, or amendments thereto, and such other
instruments or notices, or as Collateral Agent may reasonably request, in order
to perfect and preserve the security interests granted or purported to be
granted hereby, (iv) after the acquisition by such Grantor of any item of
Equipment which is covered by a certificate of title under a statute of any
jurisdiction under the law of which indication of a security interest on such
certificate is required as a condition of perfection thereof, upon the
reasonable request of Collateral Agent, execute and file with the registrar of
motor vehicles or other appropriate authority in such jurisdiction an
application or other document requesting the notation or other indication of the
security interest created hereunder on such certificate of title, (v) upon the
reasonable request of Collateral Agent, deliver to Collateral Agent copies of
all such applications or other documents filed during such calendar quarter and
copies of all such certificates of title issued during such calendar quarter
indicating the security interest created hereunder in the items of Equipment
covered thereby, and (vi) at Collateral Agent's reasonable request, appear in
and defend any action or proceeding that may affect such Grantor's title to or
Collateral Agent's security interest in all or any part of the Collateral.
(b) Each Grantor hereby authorizes Collateral Agent to file one or
more financing or continuation statements, and amendments thereto, relative to
all or any part of the Collateral without the signature of such Grantor to the
extent permitted by applicable law. Each Grantor agrees that a carbon,
photographic or other reproduction of this Agreement or of a financing statement
signed by such Grantor shall be sufficient as a financing statement and may be
filed as a financing statement in any and all jurisdictions.
XIX-9
<PAGE>
(c) The initial Grantors hereunder shall be those Subsidiaries of
Company as are signatories hereto on the date hereof. From time to time
subsequent to the date hereof, additional Subsidiaries of Company may become
parties hereto, as additional Grantors (each an "ADDITIONAL GRANTOR"), by
executing a counterpart of this Agreement substantially in the form of Schedule
--------
6(d) annexed hereto. Upon delivery of any such counterpart to the Collateral
- ----
Agent, notice of which is hereby waived by the Grantors, each Additional Grantor
shall be a Grantor and shall be as fully a party hereto as if such Additional
Grantor were an original signatory hereof. Each Grantor expressly agrees that
its obligations arising hereunder shall not be affected or diminished by the
addition or release of any other Grantor hereunder, nor by any election of
Collateral Agent not to cause any Subsidiary to become an Additional Grantor
hereunder. This Agreement shall be fully effective as to any Grantor that is or
becomes a party hereto regardless of whether any other Person becomes or fails
to become or ceases to be a Grantor hereunder. Each Additional Grantor shall
execute and file such financing statements and such other instruments or notices
or as Collateral Agent may reasonably request, in order to perfect the security
interests granted or purported to be granted hereunder.
SECTION 7. CERTAIN COVENANTS OF GRANTORS.
-----------------------------
Each Grantor shall:
(a) notify Collateral Agent of any change in such Grantor's
name, identity or corporate structure within 30 days of such change;
(b) give Collateral Agent 30 days' written notice following any
change in such Grantor's chief place of business, chief executive
office or residence or the office where such Grantor keeps its
records regarding the Accounts and all originals of all chattel paper
that evidence Accounts;
(c) pay promptly when due all property and other taxes,
assessments and governmental charges or levies imposed upon, and all
claims (including claims for labor, materials and supplies) against,
the Collateral, except to the extent the validity thereof is being
contested in good faith.
SECTION 8. SPECIAL COVENANTS WITH RESPECT TO EQUIPMENT AND INVENTORY.
---------------------------------------------------------
Each Grantor shall:
(a) keep the Equipment and Inventory at the places therefor
specified on Schedule 5(b) annexed hereto or, upon 30 days' written
-------------
notice to Collateral Agent following any change in location, at such
other places in jurisdictions where all action, or that Collateral
Agent may reasonably request, in order to perfect and protect any
security interest granted or purported to be granted hereby, or to
enable Collateral Agent to exercise and enforce its rights and
remedies hereunder, with respect to such Equipment and Inventory
shall have been taken;
XIX-10
<PAGE>
(b) cause the Equipment to be maintained and preserved working
order as when new, ordinary wear and tear and damage by casualty
excepted, and in accordance with such Grantor's past practices, and
shall forthwith make or cause to be made all repairs, replacements
and other improvements in connection therewith that are necessary in
the Grantor's reasonable business judgment to such end;
(c) keep correct and accurate records of the Inventory, itemizing
and describing the kind, type and quantity of Inventory, such
Grantor's cost therefor and (where applicable) the current list
prices for the Inventory;
(d) if any Inventory is in possession or control of any of such
Grantor's agents or processors, upon the occurrence of an Event of
Default, instruct such agent or processor to hold all such Inventory
for the account of Collateral Agent and subject to the instructions
of Collateral Agent; and
(e) promptly upon the issuance and delivery to such Grantor of
any Negotiable Document of Title (other than any one or more
Negotiable Documents of Title covering (i) Inventory with an
aggregate value not in excess of $1,000,000 or (ii) Inventory which,
in the ordinary course of business, is in transit either (A) from a
supplier to such Grantor, (B) between the locations specified in
Schedule 5(b) hereto, or (C) to customers of such Grantor), deliver
-------------
such Negotiable Document of Title to Collateral Agent.
SECTION 9. SPECIAL COVENANTS WITH RESPECT TO ACCOUNTS AND RELATED CONTRACTS.
----------------------------------------------------------------
(a) Each Grantor shall keep its chief place of business and chief
executive office and the office where it keeps its records concerning the
Accounts and Related Contracts, and all originals of all chattel paper that
evidence Accounts, at the location therefor specified in Section 5 or, upon 30
days' written notice to Collateral Agent following any change in location, at
such other location in a jurisdiction where all action that Collateral Agent may
request, in order to perfect and protect any security interest granted or
purported to be granted hereby, or to enable Collateral Agent to exercise and
enforce its rights and remedies hereunder, with respect to such Accounts and
Related Contracts shall have been taken. Promptly upon the reasonable request
of Collateral Agent, Grantors shall deliver to Collateral Agent complete and
correct copies of each Related Contract.
(b) Grantors shall, maintain (i) complete records of each Account,
including records of all payments received, credits granted and merchandise
returned, and (ii) all documentation relating thereto in accordance with prudent
business practices.
(c) Except as otherwise provided in this subsection (c), each
Grantor shall continue to collect, at its own expense, all amounts due or to
become due to each Grantor under the Accounts and Related Contracts. In
connection with such collections, each Grantor shall
XIX-11
<PAGE>
take such action as such Grantor or Collateral Agent may deem necessary or
advisable to enforce collection of amounts due or to become due under the
Accounts; provided, however, that Collateral Agent shall have the right at any
-------- -------
time, upon the occurrence and during the continuation of an Event of Default and
upon written notice to such Grantor of its intention to do so, to notify the
account debtors or obligors under any Accounts of the assignment of such
Accounts to Collateral Agent and to direct such account debtors or obligors to
make payment of all amounts due or to become due to such Grantor thereunder
directly to Collateral Agent, to notify each Person maintaining a lockbox or
similar arrangement to which account debtors or obligors under any Accounts have
been directed to make payment to remit all amounts representing collections on
checks and other payment items from time to time sent to or deposited in such
lockbox or other arrangement directly to Collateral Agent and, upon such
notification and at the expense of Grantors, to enforce collection of any such
Accounts and to adjust, settle or compromise the amount or payment thereof, in
the same manner and to the same extent as such Grantors might have done. After
receipt by a Grantor of the notice from Collateral Agent referred to in the
proviso to the preceding sentence, (i) any payments of Accounts, received by the
- -------
Grantor shall be forthwith (and in any event within two Business Days) deposited
by the Grantor in the exact form received, duly indorsed by the Grantor to the
Collateral Agent if required, in a Collateral Account maintained under the sole
dominion and control of the Collateral Agent, subject to withdrawal by the
Collateral Agent for the account of the Secured Parties only as provided in
subsection 19, (ii) until so turned over in accordance with the proceeding
subsection (i), all amounts and proceeds (including checks and other
instruments) received by Grantor in respect of the Accounts and the Related
Contracts shall be received in trust for the benefit of Collateral Agent
hereunder and shall be segregated from other funds of Grantor and (iii) Grantor
shall not adjust, settle or compromise the amount or payment of any Account, or
release wholly or partly any account debtor or obligor thereof, or allow any
credit or discount thereon.
SECTION 10. DEPOSIT ACCOUNTS.
----------------
Upon the occurrence and during the continuation of an Event of
Default, Collateral Agent may exercise dominion and control over, and refuse to
permit further withdrawals (whether of money, securities, instruments or other
property) from any deposit accounts maintained with Collateral Agent
constituting part of the Collateral.
SECTION 11. LICENSE OF COPYRIGHTS, ETC.
--------------------------
Each Grantor hereby assigns, transfers and conveys to Collateral
Agent, effective upon the occurrence of any Event of Default, the nonexclusive
right and license to use all copyrights or technical processes owned or used by
such Grantor that relate to the Collateral and any other collateral granted by
such Grantor as security for the Secured Obligations, together with any goodwill
associated therewith, all to the extent necessary to enable Collateral Agent to
use, possess and realize on the Collateral and to enable any successor or assign
to enjoy the benefits of the Collateral. This right and license shall inure to
the benefit of all successors, assigns and transferees of Collateral Agent and
its successors, assigns and transferees, whether by voluntary conveyance,
operation of law, assignment, transfer, foreclosure, deed in lieu of foreclosure
or otherwise. Such right and license is granted free of charge, without
requirement that any monetary payment whatsoever be made to any Grantor.
XIX-12
<PAGE>
SECTION 12. TRANSFERS AND OTHER LIENS.
-------------------------
Each Grantor shall not:
(a) sell, assign (by operation of law or otherwise) or otherwise
dispose of any of the Collateral, except as permitted by the Financing
Agreements; or
(b) except for the security interest created by this Agreement
and Liens permitted by the Financing Agreements, create or suffer to
exist any Lien upon or with respect to any of the Collateral to secure
the indebtedness or other obligations of any Person.
SECTION 13. COLLATERAL AGENT APPOINTED ATTORNEY-IN-FACT.
-------------------------------------------
Each Grantor hereby irrevocably appoints Collateral Agent as such
Grantor's attorney-in-fact, with full authority in the place and stead of such
Grantor and in the name of such Grantor, Collateral Agent or otherwise, from
time to time upon the occurrence and during the continuance of an Event of
Default in Collateral Agent's reasonable discretion to take any action and to
execute any instrument that Collateral Agent may reasonably deem necessary or
advisable to accomplish the purposes of this Agreement, including without
limitation:
(a) to obtain and adjust insurance required to be maintained on
the Collateral or paid to Collateral Agent under the Financing
Agreements;
(b) to ask for, demand, collect, sue for, recover, compound,
receive and give acquittance and receipts for moneys due and to become
due under or in respect of any of the Collateral;
(c) to receive, endorse and collect any drafts or other
instruments, documents and chattel paper in connection with clauses
(a) and (b) above;
(d) to file any claims or take any action or institute any
proceedings that Collateral Agent may reasonably deem necessary or
desirable for the collection of any of the Collateral or otherwise to
enforce the rights of Collateral Agent with respect to any of the
Collateral;
(e) to pay or discharge taxes or Liens (other than Liens
permitted under this Agreement or the Credit Agreement) levied or
placed upon or threatened against the Collateral, the legality or
validity thereof and the amounts necessary to discharge the same to be
determined by Collateral Agent in its reasonable discretion, any such
payments made by Collateral Agent to become obligations of such
Grantor to Collateral Agent, due and payable immediately without
demand;
XIX-13
<PAGE>
(f) to sign and endorse any invoices, freight or express bills,
bills of lading, storage or warehouse receipts, drafts against
debtors, assignments, verifications and notices in connection with
Accounts and other documents relating to the Collateral; and
(g) upon the occurrence and during the continuation of an Event
of Default, generally to sell, transfer, pledge, make any agreement
with respect to or otherwise deal with any of the Collateral as fully
and completely as though Collateral Agent were the absolute owner
thereof for all purposes, and to do, at Collateral Agent's option and
Grantors' expense, at any time or from time to time, all acts and
things that Collateral Agent reasonably deems necessary to protect,
preserve or realize upon the Collateral and Collateral Agent's
security interest therein in order to effect the intent of this
Agreement, all as fully and effectively as any Grantor might do.
SECTION 14. COLLATERAL AGENT MAY PERFORM.
----------------------------
If any Grantor fails to perform any agreement contained herein,
Collateral Agent may itself perform, or cause performance of, such agreement,
and the reasonable expenses of Collateral Agent incurred in connection therewith
shall be payable by Grantors under Section 20.
SECTION 15. STANDARD OF CARE.
----------------
The powers conferred on Collateral Agent hereunder are solely to
protect its interest in the Collateral and shall not impose any duty upon it to
exercise any such powers. Except for the exercise of reasonable care in the
custody of any Collateral in its possession and the accounting for moneys
actually received by it hereunder, Collateral Agent shall have no duty as to any
Collateral or as to the taking of any necessary steps to preserve rights against
prior parties or any other rights pertaining to any Collateral. Collateral
Agent shall be deemed to have exercised reasonable care in the custody and
preservation of Collateral in its possession if such Collateral is accorded
treatment substantially equal to that which Collateral Agent accords its own
property.
SECTION 16. REMEDIES.
--------
If any Event of Default shall have occurred and be continuing,
Collateral Agent may exercise in respect of the Collateral, in addition to all
other rights and remedies provided for herein or otherwise available to it, all
the rights and remedies of a secured party on default under the Uniform
Commercial Code as in effect in any relevant jurisdiction (the "CODE")
(whether or not the Code applies to the affected Collateral), and also may (a)
require Grantors to, and each Grantor hereby agrees that it will at its expense
and upon request of Collateral Agent forthwith, assemble all or part of the
Collateral as directed by Collateral Agent and make it available to Collateral
Agent at a place to be designated by Collateral Agent that is reasonably
convenient to both parties, (b) enter onto the property where any Collateral is
located and take possession thereof with or without judicial process, (c) prior
to the disposition of the Collateral,
XIX-14
<PAGE>
store, process, repair or recondition the Collateral or otherwise prepare the
Collateral for disposition in any manner to the extent Collateral Agent deems
appropriate, (d) take possession of any or each Grantor's premises or place
custodians in exclusive control thereof, remain on such premises and use the
same and any of such Grantor's equipment for the purpose of completing any work
in process, taking any actions described in the preceding clause (c) and
collecting any Secured Obligation, and (e) without notice except as specified
below, sell the Collateral or any part thereof in one or more parcels at public
or private sale, at any of Collateral Agent's offices or elsewhere, for cash, on
credit or for future delivery, at such time or times and at such price or prices
and upon such other terms as Collateral Agent may deem commercially reasonable.
Collateral Agent or any Secured Party or Interest Rate Exchanger may be the
purchaser of any or all of the Collateral at any such sale and Collateral Agent,
as agent for and representative of Secured Parties and Interest Rate Exchangers
(but not any Secured Party or Secured Parties or Interest Rate Exchanger or
Interest Rate Exchangers in its or their respective individual capacities unless
Requisite Obligees shall otherwise agree in writing), shall be entitled, for the
purpose of bidding and making settlement or payment of the purchase price for
all or any portion of the Collateral sold at any such public sale, to use and
apply any of the Secured Obligations as a credit on account of the purchase
price for any Collateral payable by Collateral Agent at such sale. Each
purchaser at any such sale shall hold the property sold absolutely free from any
claim or right on the part of any Grantor, and each Grantor hereby waives (to
the extent permitted by applicable law) all rights of redemption, stay and/or
appraisal which it now has or may at any time in the future have under any rule
of law or statute now existing or hereafter enacted. Each Grantor agrees that,
to the extent notice of sale shall be required by law, at least ten days' notice
to such Grantor of the time and place of any public sale or the time after which
any private sale is to be made shall constitute reasonable notification.
Collateral Agent shall not be obligated to make any sale of Collateral
regardless of notice of sale having been given. Collateral Agent may adjourn any
public or private sale from time to time by announcement at the time and place
fixed therefor, and such sale may, without further notice, be made at the time
and place to which it was so adjourned. Each Grantor hereby waives any claims
against Collateral Agent arising by reason of the fact that the price at which
any Collateral may have been sold at such a private sale was less than the price
which might have been obtained at a public sale, even if Collateral Agent
accepts the first offer received and does not offer such Collateral to more than
one offeree. If the proceeds of any sale or other disposition of the Collateral
are insufficient to pay all the Secured Obligations, Grantors shall be jointly
and severally liable for the deficiency and the reasonable fees of any attorneys
employed by Collateral Agent to collect such deficiency.
SECTION 17. PROCEEDS TO BE TURNED OVER TO COLLATERAL AGENT.
----------------------------------------------
In addition to the rights of the Collateral Agent and the Secured
Parties specified in Section 9 with respect to payments of Accounts, if an Event
of Default shall occur and be continuing, upon request of the Collateral Agent,
all proceeds received by the Grantor consisting of cash, checks and other near-
cash items shall be held by the Grantor in trust for the Collateral Agent and
the Secured Parties, segregated from other funds of the Grantor, and shall,
forthwith upon receipt by the Grantor, be turned over to the Collateral Agent in
the exact form received by the Grantor (duly indorsed by the Grantor to the
Collateral Agent, if required) and held by the Collateral Agent in a Collateral
Account maintained under the Intercreditor
XIX-15
<PAGE>
Agreement. All proceeds while held by the Collateral Agent in a Collateral
Account (or by the Borrower in trust for the Collateral Agent and the Secured
Parties) shall continue to be held as collateral security for all the Secured
Obligations and shall not constitute payment thereof until applied as provided
in Section 19.
SECTION 18. APPLICATION OF PROCEEDS.
-----------------------
Except as expressly provided elsewhere in this Agreement, all proceeds
held in any Collateral Account and all other proceeds received by Collateral
Agent in respect of any sale of, collection from, or other realization upon all
or any part of the Collateral shall be applied as provided in subsection 3 of
the Intercreditor Agreement.
SECTION 19. INDEMNITY AND EXPENSES.
----------------------
(a) Grantors jointly and severally agree to indemnify Collateral
Agent, each Lender and each Interest Rate Exchanger from and against any and all
claims, losses and liabilities in any way relating to, growing out of or
resulting from this Agreement and the transactions contemplated hereby
(including, without limitation, enforcement of this Agreement), except to the
extent such claims, losses or liabilities result from Collateral Agent's or such
Lender's or Interest Rate Exchanger's gross negligence or willful misconduct as
determined by a court of competent jurisdiction.
(b) Grantors jointly and severally agree to pay to Collateral Agent,
promptly following written upon demand the amount of any and all reasonable
costs and reasonable expenses, including the reasonable fees and expenses of its
counsel and of any experts and agents, that Collateral Agent may incur in
connection with (i) the administration of this Agreement, (ii) the custody,
preservation, use or operation of, or the sale of, collection from, or other
realization upon, any of the Collateral, (iii) the exercise or enforcement of
any of the rights of Collateral Agent hereunder, or (iv) the failure by Grantor
to perform or observe any of the provisions hereof.
SECTION 20. CONTINUING SECURITY INTEREST; TRANSFER OF LOANS.
-----------------------------------------------
This Agreement shall create a continuing security interest in the
Collateral and shall (a) remain in full force and effect until the payment in
full of the Secured Obligations (other than inchoate indemnification obligations
with respect to claims, losses or liabilities which have not yet arisen and are
not yet due and payable), the cancellation or termination of the Commitments and
the cancellation or expiration of all outstanding Letters of Credit, (b) be
binding upon each Grantor, its successors and assigns, and (c) inure, together
with the rights and remedies of Collateral Agent hereunder, to the benefit of
Collateral Agent and its successors, transferees and assigns. Without limiting
the generality of the foregoing clause (c), but subject to the provisions of
subsection 10.1 of the Credit Agreement and subsection 10.1 of the AXEL Credit
Agreement, any Secured Party may assign or otherwise transfer any Loans held by
it to any other Person, and such other Person shall thereupon become vested with
all the benefits in respect thereof granted to Secured Parties herein or
otherwise. Upon the payment in full of all Secured Obligations (other than
inchoate indemnification obligations with
XIX-16
<PAGE>
respect to claims, losses or liabilities which have not yet arisen and are not
yet due and payable), the cancellation or termination of the Commitments and the
cancellation or expiration of all outstanding Letters of Credit, the security
interest granted hereby shall terminate and all rights to the Collateral shall
revert to the applicable Grantors. Upon any such termination Collateral Agent
will, at the joint and several expense of Grantors, expense, execute and deliver
to Grantors such documents as Grantors shall reasonably request to evidence such
termination in accordance with the terms of the Intercreditor Agreement.
SECTION 21. COLLATERAL AGENT AS ADMINISTRATIVE AGENT.
----------------------------------------
(a) Collateral Agent has been appointed to act as Collateral Agent
hereunder by CA Administrative Agent on behalf of the Credit Agreement Lenders
and AXEL administrative agent on behalf of the AXEL Lenders pursuant to the
Intercreditor Agreement and, by their acceptance of the benefits hereof,
Interest Rate Exchangers, and shall be entitled to the benefits of the
Intercreditor Agreement. Collateral Agent shall be obligated, and shall have
the right hereunder, to make demands, to give notices, to exercise or refrain
from exercising any rights, and to take or refrain from taking any action
(including, without limitation, the release or substitution of Collateral),
solely in accordance with this Agreement and the Credit Agreement; provided that
--------
Collateral Agent shall exercise, or refrain from exercising, any remedies
provided for in Section 17 in accordance with the instructions of (i) Requisite
Lenders or (ii) after payment in full of all Financing Agreement Obligations
under the Financing Agreements and any other Loan Documents, the holders of a
majority of the aggregate notional amount (or, with respect to any Lender
Interest Rate Agreement that has been terminated in accordance with its terms,
the amount then due and payable (exclusive of expenses and similar payments but
including any early termination payments then due) under such Lender Interest
Rate Agreement) under all Lender Interest Rate Agreements (Requisite Lenders or,
if applicable, such holders being referred to herein as "REQUISITE OBLIGEES").
In furtherance of the foregoing provisions of this Section 22(a), each Interest
Rate Exchanger, by its acceptance of the benefits hereof, agrees that it shall
have no right individually to realize upon any of the Collateral hereunder, it
being understood and agreed by such Interest Rate Exchanger that all rights and
remedies hereunder may be exercised solely by Collateral Agent for the benefit
of Lenders and Interest Rate Exchangers in accordance with the terms of this
Section 22(a).
(b) Collateral Agent shall at all times be the same Person that is
appointed Collateral Agent under the Intercreditor Agreement. The Collateral
Agent may resign and a successor Collateral Agent may be appointed in the manner
provided in the Intercreditor Agreement. Upon the acceptance of any
appointment as Collateral Agent by a successor Collateral Agent, that successor
Collateral Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring or removed Collateral
Agent under this Agreement, and the retiring or removed Collateral Agent under
this Agreement shall promptly (i) transfer to such successor Collateral Agent
all sums, securities and other items of Collateral held hereunder, together with
all records and other documents necessary or appropriate in connection with the
performance of the duties of the successor Collateral Agent under this
Agreement, and (ii) execute and deliver to such successor Collateral Agent such
amendments to financing statements, and take such other actions, as may be
necessary or
XIX-17
<PAGE>
appropriate in connection with the assignment to such successor Collateral Agent
of the security interests created hereunder, whereupon such retiring or removed
Collateral Agent shall be discharged from its duties and obligations under this
Agreement. After any retiring or removed Collateral Agent's resignation or
removal hereunder as Collateral Agent, the provisions of this Agreement shall
inure to its benefit as to any actions taken or omitted to be taken by it under
this Agreement while it was Collateral Agent hereunder.
SECTION 23. AMENDMENTS; ETC.
---------------
No amendment, modification, termination or waiver of any provision of
this Agreement, and no consent to any departure by any Grantor therefrom, shall
in any event be effective unless the same shall be in writing and signed by
Collateral Agent and, in the case of any such amendment or modification, by
Grantors; provided that any amendment hereto pursuant to Section 5(d) shall be
--------
effective upon execution by any Grantor and Grantors hereby waive any
requirement of notice or of consent to any such amendment.
SECTION 23. NOTICES.
-------
Any notice or other communication herein required or permitted to be
given shall be in writing and may be personally served, telexed or sent by
telefacsimile or United States mail or courier service and shall be deemed to
have been given when delivered in person or by courier service, upon receipt of
telefacsimile or telex (with received answerback), or three Business Days after
depositing it in the United States mail with postage prepaid and properly
addressed; provided that notices to Collateral Agent and Grantor shall not be
--------
effective until received. For the purposes hereof, the address of each party
hereto shall be as provided in subsection 10.8 of the Credit Agreement or
subsection 10.8 of the AXEL Credit Agreement, as applicable, or as set forth
under such party's name on the signature pages hereof or such other address as
shall be designated by such party in a written notice delivered to the other
parties hereto.
SECTION 24. FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE.
-----------------------------------------------------
No failure or delay on the part of Collateral Agent in the exercise of
any power, right or privilege hereunder shall impair such power, right or
privilege or be construed to be a waiver of any default or acquiescence therein,
nor shall any single or partial exercise of any such power, right or privilege
preclude any other or further exercise thereof or of any other power, right or
privilege. All rights and remedies existing under this Agreement are cumulative
to, and not exclusive of, any rights or remedies otherwise available.
SECTION 25. SEVERABILITY.
------------
In case any provision in or obligation under this Agreement shall be
invalid, illegal or unenforceable in any jurisdiction, the validity, legality
and enforceability of the remaining provisions or obligations, or of such
provision or obligation in any other jurisdiction, shall not in any way be
affected or impaired thereby.
XIX-18
<PAGE>
SECTION 26. HEADINGS.
--------
Section and subsection headings in this Agreement are included herein
for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose or be given any substantive effect.
SECTION 27. GOVERNING LAW; TERMS.
--------------------
THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING WITHOUT LIMITATION SECTION
5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD
TO CONFLICTS OF LAWS PRINCIPLES, EXCEPT TO THE EXTENT THAT THE CODE PROVIDES
THAT THE PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER,
IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A
JURISDICTION OTHER THAN THE STATE OF NEW YORK. Unless otherwise defined herein
or in the Credit Agreement, terms used in Articles 8 and 9 of the Uniform
Commercial Code in the State of New York are used herein as therein defined.
SECTION 28. CONSENT TO JURISDICTION AND SERVICE OF PROCESS.
----------------------------------------------
ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST ANY GRANTOR ARISING OUT OF OR
RELATING TO THIS AGREEMENT, OR ANY OBLIGATIONS HEREUNDER, MAY BE BROUGHT IN ANY
STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE, COUNTY AND CITY
OF NEW YORK. BY EXECUTING AND DELIVERING THIS AGREEMENT, EACH GRANTOR, FOR
ITSELF AND IN CONNECTION WITH ITS PROPERTIES, IRREVOCABLY
(I) ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE
JURISDICTION AND VENUE OF SUCH COURTS;
(II) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS;
(III) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING
IN ANY SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN
RECEIPT REQUESTED, TO SUCH GRANTOR AT ITS ADDRESS PROVIDED IN
ACCORDANCE WITH SECTION 24;
(IV) AGREES THAT SERVICE AS PROVIDED IN CLAUSE (III) ABOVE IS
SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER SUCH GRANTOR IN ANY
SUCH PROCEEDING IN ANY SUCH
XIX-19
<PAGE>
COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND BINDING SERVICE IN
EVERY RESPECT;
(V) AGREES THAT COLLATERAL AGENT RETAINS THE RIGHT TO SERVE
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS
AGAINST SUCH GRANTOR IN THE COURTS OF ANY OTHER JURISDICTION; AND
(VI) AGREES THAT THE PROVISIONS OF THIS SECTION 29 RELATING TO
JURISDICTION AND VENUE SHALL BE BINDING AND ENFORCEABLE TO THE FULLEST
EXTENT PERMISSIBLE UNDER NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-
1402 OR OTHERWISE.
SECTION 29. WAIVER OF JURY TRIAL.
--------------------
EACH GRANTOR AND COLLATERAL AGENT HEREBY AGREE TO WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS AGREEMENT. The scope of this waiver is intended to be all-
encompassing of any and all disputes that may be filed in any court and that
relate to the subject matter of this transaction, including without limitation
contract claims, tort claims, breach of duty claims, and all other common law
and statutory claims. Grantors and Collateral Agent each acknowledge that this
waiver is a material inducement for Grantors and Collateral Agent to enter into
a business relationship, that each Grantor and Collateral Agent have already
relied on this waiver in entering into this Agreement and that each will
continue to rely on this waiver in their related future dealings. Each Grantor
and Collateral Agent further warrant and represent that each has reviewed this
waiver with its legal counsel, and that each knowingly and voluntarily waives
its jury trial rights following consultation with legal counsel. THIS WAIVER IS
IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING
(OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY REFERRING TO THIS SECTION 28
AND EXECUTED BY EACH OF THE PARTIES HERETO), AND THIS WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT.
In the event of litigation, this Agreement may be filed as a written consent to
a trial by the court.
SECTION 30. COUNTERPARTS.
------------
This Agreement may be executed in one or more counterparts and by
different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all such counterparts
together shall constitute but one and the same instrument; signature pages may
be detached from multiple separate counterparts and attached to a single
counterpart so that all signature pages are physically attached to the same
document.
[Remainder of page intentionally left blank]
XIX-20
<PAGE>
IN WITNESS WHEREOF, Grantors and Collateral Agent have caused this
Agreement to be duly executed and delivered by their respective officers
thereunto duly authorized as of the date first written above.
SEALY, INC.
THE STEARNS & FOSTER
BEDDING COMPANY
THE STEARNS & FOSTER
UPHOLSTERY FURNITURE
COMPANY
ADVANCED SLEEP
PRODUCTS
SEALY MATTRESS
COMPANY OF SAN DIEGO
SEALY MATTRESS
COMPANY OF PUERTO
RICO
OHIO-SEALY MATTRESS
MANUFACTURING CO.
INC.
OHIO-SEALY MATTRESS
MANUFACTURING CO. --
FORT WORTH
OHIO-SEALY MATTRESS
MANUFACTURING CO.
OHIO-SEALY MATTRESS
MANUFACTURING CO. --
HOUSTON
[OTHER GRANTORS]
By:
____________________
Name:
Title:
Notice Address:
_____________________
_____________________
_____________________
XIX-21
<PAGE>
MORGAN GUARANTY
TRUST COMPANY OF
NEW YORK, AS COLLATERAL AGENT
By:
___________________
Name:
Title:
Notice Address:
______________________
______________________
______________________
XIX-22
<PAGE>
SCHEDULE 5(b)
TO SUBSIDIARY SECURITY AGREEMENT
Locations of Equipment:
Locations of Inventory:
XIX-23
<PAGE>
SCHEDULE 5(d)
TO SUBSIDIARY SECURITY AGREEMENT
Office Locations; Other Names
XIX-24
<PAGE>
SCHEDULE 6(d)
TO SUBSIDIARY SECURITY AGREEMENT
[FORM OF COUNTERPART TO SUBSIDIARY SECURITY AGREEMENT]
This counterpart, dated ___________, [199_][200_] is delivered
pursuant to Section 5(d) of that certain Subsidiary Security Agreement dated as
of December 18, 1997, among the Grantors party thereto from time to time, and
Morgan Guaranty Trust Company of New York, as Collateral Agent (the "SECURITY
AGREEMENT," capitalized terms defined therein being used herein as therein
defined). The undersigned hereby agrees (i) that this counterpart may be
attached to the Security Agreement, and (ii) that the undersigned will comply
with all the terms and conditions of the Pledge Agreement as if it were an
original signatory thereto.
[NAME OF ADDITIONAL GRANTOR]
By: _____________________
Name:
Title:
XIX-25
<PAGE>
EXHIBIT XX
[FORM OF SUBSIDIARY PATENT AND TRADEMARK SECURITY AGREEMENT]
SUBSIDIARY PATENT AND TRADEMARK SECURITY AGREEMENT
This SUBSIDIARY PATENT AND TRADEMARK SECURITY AGREEMENT (this
"AGREEMENT") is dated as of December 18, 1997 and entered into by and among
THE UNDERSIGNED DIRECT AND INDIRECT SUBSIDIARIES (each of such undersigned
Subsidiaries being a "GRANTOR" and collectively "GRANTORS"; provided that
--------
after the Closing Date, "Grantors" shall be deemed to include any Additional
Grantors (as hereinafter defined)) of Sealy Mattress Company, an Ohio
corporation ("COMPANY"), and MORGAN GUARANTY TRUST COMPANY OF NEW YORK
("MORGAN GUARANTY"), as Collateral Agent for and representative of (in such
capacity herein called "COLLATERAL AGENT") the Secured Parties (as hereinafter
defined) and any Interest Rate Exchangers (as hereinafter defined).
RECITALS
A. Sealy Corporation, a Delaware Corporation ("HOLDINGS"), the
financial institutions from time to time parties thereto (the "CREDIT AGREEMENT
LENDERS"), Goldman Sachs Credit Partners L.P. ("GSCP"), as arranger and
syndication agent (in such capacity, "CA SYNDICATION AGENT"), Morgan Guaranty,
as administrative agent (in such capacity, "CA ADMINISTRATIVE AGENT"), and
Bankers Trust Company ("BTCO."), as documentation agent (in such capacity,
"CA DOCUMENTATION AGENT") have entered into a Credit Agreement dated as of
December 18, 1997 (said Credit Agreement, as it may hereafter be amended,
restated, supplemented or otherwise modified from time to time, being the
"CREDIT AGREEMENT"), with Company pursuant to which Credit Agreement Lenders
have made certain commitments, subject to the terms and conditions set forth in
the Credit Agreement, to extend certain credit facilities to Company.
B. Company, Holdings, the financial institutions from time to time
parties thereto (the "AXEL LENDERS"), GSCP, as arranger and syndication agent
(in such capacity, "AXEL SYNDICATION AGENT"), Morgan Guaranty, as
administrative agent (in such capacity, "AXEL ADMINISTRATIVE AGENT"), and
BTCo., as documentation agent (in such capacity, "AXEL DOCUMENTATION AGENT")
have entered into an AXEL Credit Agreement dated as of December 18, 1997 (said
AXEL Credit Agreement, as it may hereafter be amended, restated, supplemented or
otherwise modified from time to time, being the "AXEL CREDIT AGREEMENT"; the
Credit Agreement Lenders, the CA Syndication Agent, the CA Administrative Agent,
the CA Documentation Agent, the AXEL Lenders, the AXEL Syndication Agent, the
AXEL Administrative Agent, and the AXEL Documentation Agent each being a
"SECURED PARTY" and collectively the "SECURED PARTIES") pursuant to which
AXEL Lenders have made certain commitments, subject to the terms and conditions
set forth in the AXEL Credit Agreement, to extend certain credit facilities to
Company.
XX-1
<PAGE>
C. Company may from time to time enter, or may from time to time
have entered, into one or more Interest Rate Agreements (collectively, the
"LENDER INTEREST RATE AGREEMENTS") with one or more CA Lenders or their
Affiliates or AXEL Lenders or their Affiliates (in such capacity, collectively,
"INTEREST RATE EXCHANGERS") in accordance with the terms of the Financing
Agreements (as hereinafter defined), and it is desired that the obligations of
Company under the Lender Interest Rate Agreements, including without limitation
the obligation of Company to make payments thereunder in the event of early
termination thereof (all such obligations being the "INTEREST RATE
OBLIGATIONS"), together with all obligations of Company under the Financing
Agreements and the any other Loan Documents, be secured hereunder.
D. Grantors have executed and delivered that certain Subsidiary
Guaranty dated as of December 18, 1997 (said Subsidiary Guaranty, as it may
hereafter be amended, supplemented or otherwise modified from time to time,
being the "SUBSIDIARY GUARANTY") in favor of Collateral Agent for the benefit
of Secured Parties and any Interest Rate Exchangers, pursuant to which Grantors
have guarantied the prompt payment and performance when due of all obligations
of Company under the Financing Agreements and any other Loan Documents and all
obligations of Company under the Lender Interest Rate Agreements, including
without limitation the obligation of Company to make payments thereunder in the
event of early termination thereof.
E. Additional Grantors shall execute and deliver counterparts to the
Subsidiary Guaranty in favor of Collateral Agent for the benefit of Secured
Parties and any Interest Rate Exchangers, pursuant to which each Additional
Grantor shall guaranty the prompt payment and performance when due of all
obligations of Company under the Financing Agreements and any other Loan
Documents and all obligations of Company under the Lender Interest Rate
Agreements, including without limitation the obligation of Company to make
payments thereunder in the event of early termination thereof.
F. Grantors have and may in the future have rights, title and
interests in and to various Patents and other related Collateral (as such terms
are hereinafter defined).
G. Grantors own and use in their business, and will in the future
adopt and so use, various intangible assets, including trademarks, service
marks, designs, logos, indicia, tradenames, corporate names, company names,
business names, fictitious business names, trade styles and/or other source
and/or business identifiers and applications pertaining thereto (collectively,
the "TRADEMARKS").
H. Collateral Agent desires Grantors to grant to it a lien on and
security interest in all of Grantors' existing and future Patents, existing and
future Trademarks, all registrations that have been or may hereafter be issued
or applied for thereon in the United States and any state thereof (the
"REGISTRATIONS"), all common law and other rights in and to the Trademarks in
the United States and any state thereof (the "TRADEMARK RIGHTS"), all goodwill
of Grantors' business symbolized by the Trademarks and associated therewith,
including without limitation the documents and things described in Section 2(b)
(the "ASSO-
XX-2
<PAGE>
CIATED GOODWILL") and any other Collateral, and all proceeds of the Patents,
Trademarks, the Registrations, the Trademark Rights, the Associated Goodwill and
any other Collateral, and Grantors agree to grant to Collateral Agent a secured
and protected interest in the Trademarks, the Registrations, the Trademark
Rights, the Associated Goodwill and all the proceeds thereof as provided herein.
I. Pursuant to the Subsidiary Security Agreement, each Grantor has
granted to Collateral Agent a lien on and security interest in, among other
assets, all Grantors' equipment, inventory, accounts and general intangibles
relating to the products and services sold or delivered under or in connection
with the Trademarks such that, upon the occurrence and during the continuation
of an Event of Default (as hereinafter defined) Collateral Agent would be able
to exercise its remedies consistent with the Security Agreement, this Agreement
and applicable law to foreclose upon Grantors' business and use the Trademarks,
the Registrations and the Trademark Rights in conjunction with the continued
operation of such business, maintaining substantially the same product and
service specifications and quality as maintained by Grantors, and benefit from
the Associated Goodwill.
J. It is a condition precedent to the initial extensions of credit
by Lenders under the Financing Agreements that Grantors shall have granted the
security interests and undertaken the obligations contemplated by this
Agreement.
NOW, THEREFORE, in consideration of the premises and to induce (i) the
CA Administrative Agent, the CA Syndication Agent and the Credit Agreement
Lenders to enter into the Credit Agreement, (ii) the Credit Agreement Lenders to
make their respective loans to, and issue Letters of Credit for the account of,
Company, (iii) the AXEL Administrative Agent, the AXEL Syndication Agent and the
AXEL Lenders to enter into the AXEL Loan Agreement, (iv) the AXEL Lenders to
make their respective loans to Company, and (v) to induce Interest Rate
Exchangers to enter into the Lender Interest Rate Agreements and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, each Grantor hereby agrees with the Collateral Agent as follows:
I. DEFINED TERMS.
-------------
(a) Unless otherwise defined herein, terms defined in the Credit
Agreement and used herein shall have the meanings given to such terms in the
Credit Agreement;
(b) The following terms shall have the following meanings:
"ACCELERATION" shall mean any of the Credit Agreement Obligations or
the AXEL Credit Agreement Obligations have been declared, or have become,
immediately due and payable, or the commitments to extend credit of the Credit
Agreement Lenders or the AXEL Lenders shall have been terminated under Section 8
of the Credit Agreement or Section 7 of the AXEL Credit Agreement, respectively.
"AGREEMENT" means this Company Security Agreement dated as of
December 18, 1997, as it may be amended, supplemented or otherwise modified from
time to time.
XX-3
<PAGE>
"ASSOCIATED GOODWILL" has the meaning assigned to that term in the
recitals to this Agreement.
"AXEL COMMITMENTS" shall mean the "Commitments" as defined in the
AXEL Credit Agreement.
"AXEL CREDIT AGREEMENT" has the meaning assigned to that term in the
recitals to this Agreement.
"AXEL LENDERS" has the meaning assigned to that term in the recitals
to this Agreement.
"AXEL OBLIGATIONS" shall mean "Obligations" as defined in the AXEL
Credit Agreement.
"AXEL SYNDICATION AGENT" has the meaning assigned to that term in
the recitals to this Agreement.
"COLLATERAL" has the meaning assigned to that term in Section 5 of
this Agreement.
"COLLATERAL ACCOUNTS" shall mean "Collateral Accounts" as defined
in the Intercreditor Agreement.
"COLLATERAL AGENT" has the meaning assigned to that term in the
introduction.
"COMMITMENTS" means the Credit Agreement Commitments and the AXEL
Commitments.
"CREDIT AGREEMENT" has the meaning assigned to that term in the
recitals to this Agreement.
"CREDIT AGREEMENT COMMITMENTS" shall mean the "Commitments" as
defined in the Credit Agreement.
"CREDIT AGREEMENT OBLIGATIONS" shall mean the "Obligations" as
defined in the Credit Agreement.
"EVENT OF DEFAULT" means any "Event of Default" as defined in any
Financing Agreement or the occurrence of an Event of Default in which Company in
the Defaulting Party and which results in the designation of an Early
Termination Date (as defined in a Master Agreement or an Interest Rate Swap
Agreement or Interest Rate and Currency Exchange Agreement in the form prepared
by the International Swap and Derivatives Association Inc. or a similar event
under any similar swap agreement) under any Lender Interest Rate Agreement.
XX-4
<PAGE>
"HOLDINGS" has the meaning assigned to that term in the recitals to
this Agreement.
"FINANCING AGREEMENT" means the Credit Agreement or the AXEL Credit
Agreement, and "Financing Agreements" means the Credit Agreement and the AXEL
Credit Agreement, collectively.
"FINANCING AGREEMENT OBLIGATIONS" means "Credit Agreement
Obligations and AXEL Obligations.
"GRANTOR" has the meaning assigned to that term in the introduction
of this Agreement.
"INTERCREDITOR AGREEMENT" means the Intercreditor Agreement, dated
as of December 18, 1997, by and among CA Administrative Agent, AXEL
Administrative Agent and Collateral Agent.
"INTEREST RATE EXCHANGERS" has the meaning assigned to that term in
the recitals to this Agreement.
"INTEREST RATE OBLIGATIONS" has the meaning assigned to that term in
the recitals to this Agreement.
"LENDER INTEREST RATE AGREEMENT" has the meaning assigned to that
term in the recitals to this Agreement.
"LOAN" means any "Loan" as defined in any Financing Agreement, and
"LOANS" means all such Loans collectively.
"LOAN DOCUMENT" means any "Loan Document" as defined in any
Financing Agreement, and "LOAN DOCUMENTS" means all such Loan Documents
collectively.
"MATERIAL PATENT" has the meaning assigned to that term in Section 5
of this Agreement.
"MATERIAL TRADEMARK PROPERTY" has the meaning assigned to that term
in Section 5 of this Agreement.
"PATENTS" has the meaning assigned to that term in Section 2 of this
Agreement.
"PERMITTED PATENT LIENS" has the meaning assigned to that term in
Section 5 of this Agreement.
XX-5
<PAGE>
"PERMITTED TRADEMARK LIENS" has the meaning assigned to that term in
Section 5 of this Agreement.
"POTENTIAL EVENT OF DEFAULT" means any "Potential Event of
Default" as defined in any Financing Agreement.
"REGISTRATIONS" has the meaning assigned to that term in the
recitals to this Agreement.
"REQUISITE AXEL LENDERS" means "Requisite Lenders" as defined in
the AXEL Credit Agreement.
"REQUISITE CREDIT AGREEMENT LENDERS" means "Requisite Lenders" as
defined in the Credit Agreement.
"REQUISITE LENDERS" means (A) unless an Acceleration shall have
occurred and be continuing, the Requisite Credit Agreement Lenders and the
Requisite AXEL Lenders, and (B) if an Acceleration has occurred and is
continuing, Secured Parties holding more than 50% of the Financing Agreement
Obligations.
"REQUISITE OBLIGEES" has the meaning assigned to that term in
Section 19 of this Agreement.
"SECURED OBLIGATIONS" has the meaning assigned to that term in
Section 3 of this Agreement.
"SECURED PARTIES" has the meaning assigned to that term in the
recitals to this Agreement.
"TRADEMARKS" has the meaning assigned to that term in the recitals
to this Agreement.
"TRADEMARK RIGHTS" has the meaning assigned to that term in the
recitals to this Agreement.
II. GRANT OF SECURITY.
-----------------
Each Grantor hereby grants to Collateral Agent a security interest in
all of such Grantor's right, title and interest in and to the following, in each
case whether now or hereafter existing or in which Grantor now has or hereafter
acquires an interest and wherever the same may be located (the "COLLATERAL"):
A. each of the U.S. Trademarks and rights and interests in
Trademarks which are presently, or in the future may be, owned, held
(whether pursuant to a license or otherwise) or used by such Grantor,
in whole or in part (including without limitation the U.S. Trademarks
specifically identified in Schedule I
----------
XX-6
<PAGE>
annexed hereto) and including all Trademark Rights with respect
thereto and all federal and state Registrations heretofore or
hereafter granted or applied for, the right (but not the obligation)
to file for registration claims under any state or federal trademark
law or regulation and to apply for, renew and extend the Trademarks,
Registrations and Trademark Rights, the right (but not the obligation)
to sue or bring opposition or cancellation proceedings in the name of
such Grantor or in the name of Collateral Agent or otherwise for past,
present and future infringements of the Trademarks, Registrations or
Trademark Rights and all rights (but not obligations) corresponding
thereto in the United States, and the Associated Goodwill; it being
understood that the rights and interests included herein shall
include, without limitation, all rights and interests pursuant to
licensing or other contracts in favor of such Grantor pertaining to
any Trademarks, Registrations or Trademark Rights presently or in the
future owned, held or used by third parties but, in the case of third
parties which are not Affiliates of such Grantor, only to the extent
permitted by such licensing or other contracts or otherwise permitted
by applicable law and, if not so permitted under any such contracts
and applicable law, only with the consent of such third parties;
B. the following documents and things in such Grantor's
possession, or subject to such Grantor's right to possession, related
to (Y) the production, sale and delivery by such Grantor, or by any
Affiliate, licensee or subcontractor of such Grantor, of products or
services sold or delivered by or under the authority of such Grantor
in connection with the Trademarks, Registrations or Trademark Rights
(which products and services shall, for purposes of this Agreement, be
deemed to include, without limitation, products and services sold or
delivered pursuant to merchandising operations utilizing any
Trademarks, Registrations or Trademark Rights); or (Z) any retail or
other merchandising operations conducted under the name of or in
connection with the Trademarks, Registrations or Trademark Rights by
such Grantor or any Affiliate, licensee or subcontractor of such
Grantor:
1. all lists and ancillary documents that identify and
describe any of such Grantor's customers, or those of their
Affiliates, licensees or subcontractors, for products sold and
services delivered under or in connection with the Trademarks or
Trademark Rights, including without limitation any lists and
ancillary documents that contain a customer's name and address,
the name and address of any of its warehouses, branches or other
places of business, the identity of the Person or Persons having
the principal responsibility on a customer's behalf for ordering
products or services of the kind supplied by such Grantor, or the
credit, payment, discount, delivery or other sale terms applicable
to such customer, together with information setting forth the
total purchases, by brand, product, service, style, size or other
criteria, and the patterns of such purchases;
XX-7
<PAGE>
2. all product and service specification documents and
production and quality control manuals used in the manufacture or
delivery of products and services sold or delivered under or in
connection with the Trademarks or Trademark Rights;
3. all documents which reveal the name and address of any
source of supply, and any terms of purchase and delivery, for any
and all materials, components and services used in the production
of products and services sold or delivered under or in connection
with the Trademarks or Trademark Rights; and
4. all documents constituting or concerning the then current
or proposed advertising and promotion by such Grantor or its
Affiliates, licensees or subcontractors of products and services
sold or delivered under or in connection with the Trademarks or
Trademark Rights including, without limitation, all documents
which reveal the media used or to be used and the cost for all
such advertising conducted within the described period or planned
for such products and services; and
C. all patents and patent applications and rights and interests in
U.S. patents and patent applications that are presently, or in the
future may be, owned, held (whether pursuant to a license or
otherwise) or used by such Grantor in whole or in part (including,
without limitation, the U.S. patents and patent applications listed in
Schedule II annexed hereto, all rights (but not obligations)
-----------
corresponding thereto (including without limitation the right (but not
the obligation) to sue for past, present and future infringements in
the name of such Grantor or in the name of Secured Party), and all re-
issues, divisions, continuations, renewals, extensions and
continuations-in-part thereof (all of the foregoing being collectively
referred to as the "PATENTS"); it being understood that the rights and
interests granted hereby shall include, without limitation, all rights
and interests pursuant to licensing or other contracts in favor of
such Grantor pertaining to any Patent presently or in the future
owned, held or used by third parties but, in the case of third parties
which are not Affiliates of such Grantor, only to the extent permitted
by such licensing or other contracts or otherwise permitted by
applicable law and, if not so permitted under any such contracts and
applicable law, only with the consent of such third parties;
D. all books, records, ledger cards, files, correspondence,
computer programs, tapes, disks and related data processing software
that at any time evidence or contain information relating to any of
the Collateral or are otherwise necessary or helpful in the collection
thereof or realization thereupon;
E. to the extent not included in the foregoing clauses (a) - (d),
all general intangibles relating to the Collateral; and
XX-8
<PAGE>
F. all proceeds, products, and profits (including without
limitation license royalties and proceeds of infringement suits) of or
from any and all of the foregoing Collateral and, to the extent not
otherwise included, all payments under insurance (whether or not
Collateral Agent is the loss payee thereof), or any indemnity,
warranty or guaranty, payable by reason of loss or damage to or
otherwise with respect to any of the foregoing Collateral. For
purposes of this Agreement, the term "PROCEEDS" includes whatever is
receivable or received when Collateral or proceeds are sold,
exchanged, collected or otherwise disposed of, whether such
disposition is voluntary or involuntary.
III. SECURITY FOR OBLIGATIONS.
------------------------
This Agreement secures, and the Collateral is collateral security for,
the prompt payment or performance in full when due, whether at stated maturity,
by required prepayment, declaration, acceleration, demand or otherwise
(including without limitation the payment of amounts that would become due but
for the operation of the automatic stay under Section 362(a) of the Bankruptcy
Code, 11 U.S.C. (S)362(a)), of all Secured Obligations with respect to such
Grantor. "SECURED OBLIGATIONS" means all obligations and liabilities of every
nature of Grantors now or hereafter existing under or arising out of or in
connection with the Subsidiary Guaranty, in each case together with all
extensions or renewals thereof, whether for principal, interest (including
without limitation interest that, but for the filing of a petition in bankruptcy
with respect to Grantor, would accrue on such obligations), reimbursement of
amounts drawn under Letters of Credit, payments for early termination of Lender
Interest Rate Agreements, fees, expenses, indemnities or otherwise, whether
voluntary or involuntary, direct or indirect, absolute or contingent, liquidated
or unliquidated, whether or not jointly owed with others, and whether or not
from time to time decreased or extinguished and later increased, created or
incurred, and all or any portion of such obligations or liabilities that are
paid, to the extent all or any part of such payment is avoided or recovered
directly or indirectly from Collateral Agent or any Secured Party or Interest
Rate Exchanger as a preference, fraudulent transfer or otherwise, and all
obligations of every nature of Grantors now or hereafter existing under this
Agreement.
IV. GRANTORS REMAINS LIABLE.
-----------------------
Anything contained herein to the contrary notwithstanding, (a) each
Grantor shall remain liable under any contracts and agreements included in the
Collateral, to the extent set forth therein, to perform all of its duties and
obligations thereunder to the same extent as if this Agreement had not been
executed, (b) the exercise by Collateral Agent of any of its rights hereunder
shall not release any Grantor from any of its duties or obligations under the
contracts and agreements included in the Collateral, and (c) Collateral Agent
shall not have any obligation or liability under any contracts and agreements
included in the Collateral by reason of this Agreement, nor shall Collateral
Agent be obligated to perform any of the obligations or duties of any Grantor
thereunder or to take any action to collect or enforce any claim for payment
assigned hereunder.
XX-9
<PAGE>
V. REPRESENTATIONS AND WARRANTIES.
------------------------------
Each Grantor represents and warrants as follows:
(a) OWNERSHIP OF COLLATERAL. Except as expressly permitted by the
Financing Agreements and for the security interest and conditional
assignment created by this Agreement (and other than ownership and
other rights reserved by third party owners with respect to each
Material Trademark Property and each Material Patent that Grantor is
licensed to use), such Grantor is the legal and beneficial owner of
the entire right, title and interest in and to (i) each Material
Trademark Property, free and clear of any Lien other than Liens of
mechanics, materialmen, attorneys and other similar liens imposed by
laws in the ordinary course of business in connection with the
establishment, creation or application for registration of any
Trademarks, Registrations or Trademark Rights for sums not yet
delinquent or being contested in good faith (such Liens being referred
to herein as "PERMITTED TRADEMARK LIENS"), and (ii) each Material
Patent, free and clear of any Lien other than Liens of mechanics,
materialmen, attorneys and other similar liens imposed by law in the
ordinary course of business in connection with the establishment,
creation or application for any Patent for sums not yet delinquent or
being contested in good faith (such Liens being referred to herein as
"PERMITTED PATENT LIENS"). Except such as may have been filed in favor
of Collateral Agent relating to this Agreement except as permitted by
the Financing Agreements, no effective financing statement or other
instrument similar in effect covering all or any part of the
Collateral is on file in any filing or recording office, including the
United States Patent and Trademark Office.
(b) DESCRIPTION OF COLLATERAL. A true and complete list of all
Registrations, trade names, corporate names, fictitious business names
and Trademark license agreements owned, held (whether pursuant to a
license or otherwise) or used by such Grantor, in whole or in part, as
of the date such Grantor has entered into this Agreement is set forth
in Schedule I annexed hereto. Each Registration, trade name,
----------
corporate name, fictitious business name and Trademark license
designated on Schedule I annexed hereto as a Material Trademark
----------
Property, and each other Trademark, Registration or Trademark Right
hereafter arising or otherwise owned, held or used by any Grantor that
is material to any of such Grantor's business or operations is
referred to herein as a "MATERIAL TRADEMARK PROPERTY". A true and
complete list of all Patents owned or held (whether pursuant to a
license or otherwise) by such Grantor, in whole or in part, as of the
date such Grantor has entered into this Agreement is set forth in
Schedule II annexed hereto. Each Patent designated on Schedule II
----------- -----------
annexed hereto as a Material Patent and each other Patent hereafter
arising or otherwise owned or held by such Grantor that is material to
any of such Grantor's business or operations is referred to herein as
a "MATERIAL PATENT".
XX-10
<PAGE>
(c) VALIDITY AND ENFORCEABILITY OF COLLATERAL. Each Material
Trademark Property and each Material Patent is subsisting and has not
been adjudged invalid or unenforceable, in whole or in part, and
Grantor has entered into this Agreement, such Grantor is not aware of
any pending or threatened claim by any third party that any Material
Trademark Property or any Material Patent is invalid or unenforceable
or that the use of any Material Trademark Property or any Material
Patent violates the rights of any third person.
(d) PERFECTION. This Agreement together with the filing of UCC
financing statements naming each Grantor as "debtor", naming
Collateral Agent as "secured party" and describing the U.S. Collateral
in the filing offices set forth on Schedule III annexed hereto and the
------------
recording of this Agreement with the United States Patent and
Trademark Office, creates a valid, perfected and First Priority
security interest in the Collateral (subject only to Permitted Patent
Liens and Permitted Trademark Liens) securing the payment of the
Secured Obligations, and all filings and other actions necessary to
perfect and protect such security interests under the laws of the
United States or any State thereunder have been or will promptly be
following execution hereof duly made or taken.
(e) OTHER INFORMATION. All information hereto, herein or
hereafter supplied to Collateral Agent by or on behalf of each Grantor
with respect to the Collateral is accurate and complete in all
material respects.
VI. FURTHER ASSURANCES; NEW TRADEMARKS, REGISTRATIONS AND
-----------------------------------------------------
TRADEMARK RIGHTS; NEW PATENTS AND PATENT APPLICATIONS; CERTAIN INSPECTION
- -------------------------------------------------------------------------
RIGHTS.
- ------
(a) Each Grantor agrees that from time to time, at the expense of
Grantors, such Grantor will promptly execute and deliver all further instruments
and documents, and take all further action, or that Collateral Agent may
reasonably request, in order to perfect and protect any security interest or
conditional assignment granted or purported to be granted hereby or to enable
Collateral Agent to exercise and enforce its rights and remedies hereunder with
respect to any Collateral. Without limiting the generality of the foregoing,
each Grantor will: (i) at the reasonable request of Collateral Agent, mark
conspicuously each of its records pertaining to the Collateral with a legend, in
form and substance reasonably satisfactory to Collateral Agent indicating that
such Collateral is subject to the security interest granted hereby, (ii) execute
and file such financing or continuation statements, or amendments thereto, and
such other instruments or notices, or as Collateral Agent may reasonably
request, in order to perfect and preserve the security interests granted or
purported to be granted hereby, (iii) use its best efforts to obtain any
necessary consents of third parties to the grant and perfection of a security
interest to Collateral Agent with respect to any Collateral, and (iv) at
Collateral Agent's request, appear in and defend any action or proceeding that
would reasonably be expected to affect such Grantor's title to or Collateral
Agent's security interest in all or any part of the Collateral.
XX-11
<PAGE>
(b) Each Grantor hereby authorizes Collateral Agent to file one or
more financing or continuation statements, and amendments thereto, relative to
all or any part of the Collateral without the signature of any Grantor to the
extent permitted by applicable law. Each Grantor agrees that a carbon,
photographic or other reproduction of this Agreement or of a financing statement
signed by such Grantor shall be sufficient as a financing statement and may be
filed as a financing statement in any and all jurisdictions.
(c) Each Grantor will furnish to Collateral Agent from time to time
statements and schedules further identifying and describing the Collateral and
such other reports in connection with the Collateral as Collateral Agent may
reasonably request, all in reasonable detail.
(d) If any Grantor shall obtain rights to any new Trademarks,
Registrations or Trademark Rights, or to any patentable inventions, or become
entitled to the benefit of any U.S. patent application or patent or any reissue,
division, continuation, renewal, extension, or continuation-in-part of any
Patent or any improvement in any Patent, the provisions of this Agreement shall
automatically apply thereto. Once per calendar year, each Grantor shall notify
Collateral Agent in writing of any Registrations or Patents acquired by such
Grantor during such calendar year and of any Registrations issued or
applications for Registration made during such calendar year, which notice shall
state whether such Registration constitutes a Material Trademark Property or
whether such Patent constitutes a Material Patent. Concurrently with the filing
of an application for Registration for any Trademark, or an application for any
Patent the applicable Grantor shall execute, deliver and record in all places
where this Agreement is recorded an appropriate Patent and Trademark Security
Agreement, substantially in the form hereof, with appropriate insertions, or an
amendment to this Agreement, in form and substance reasonably satisfactory to
Collateral Agent, pursuant to which such Grantor shall grant a security interest
to the extent of its interest in such Registration or Patent as provided herein
to Collateral Agent unless so doing would, in the reasonable judgment of such
Grantor, after due inquiry, result in the grant of a Patent or Registration in
the name of Collateral Agent, in which event such Grantor shall give written
notice to Collateral Agent as soon as reasonably practicable and the filing
shall instead be undertaken as soon as practicable but in no case later than
immediately following the grant of such Patent or Registration.
VII. CERTAIN COVENANTS OF GRANTORS.
-----------------------------
Each Grantor shall:
(a) notify Collateral Agent of any change in such Grantor's name,
identity or corporate structure within 30 days of such change;
(b) give Collateral Agent 30 days' written notice following any
change in such Grantor's chief place of business or chief executive
office or the office where such Grantor keeps its records regarding
the Collateral;
(c) pay promptly when due all property and other taxes,
assessments and governmental charges or levies imposed upon, and all
claims (including
XX-12
<PAGE>
claims for labor, materials and supplies) against, the Collateral,
except to the extent the validity thereof is being contested in good
faith;
(d) not sell, assign (by operation of law or otherwise) or
otherwise dispose of any of the Collateral, except as permitted by the
Financing Agreements;
(e) except for Permitted Patent Liens and Permitted Trademark
Liens and the security interest and conditional assignment created by
this Agreement, not create or suffer to exist any Lien upon or with
respect to any of the Collateral to secure the indebtedness or other
obligations of any Person other than Lien permitted by the Financing
Agreements;
(f) diligently keep reasonable records respecting the Collateral
and at all times keep at least one complete set of its records
concerning substantially all of the Patents and Registrations at its
chief executive office or principal place of business;
(g) take all steps reasonably necessary in such Grantor's business
judgment to protect the secrecy of all trade secrets relating to the
products and services sold or delivered under or in connection with
the Patents, Trademarks and Trademark Rights;
(h) use proper statutory notice in connection with its use of each
Material Patent and Material Trademark Property to the extent
reasonably necessary for the protection of such Material Patent or
Material Trademark Property; and
(i) use consistent standards of high quality (which may be consis
tent with such Grantor's past practices or with such Grantor's
business judgment) in the manufacture, sale and delivery of products
and services sold or delivered under or in connection with the
Trademarks, Registrations and Trademark Rights, including, to the
extent applicable, in the operation and maintenance of its
merchandising operations.
VIII. AMOUNTS PAYABLE IN RESPECT OF THE COLLATERAL.
--------------------------------------------
Except as otherwise provided in this Section 8, each Grantor shall
continue to collect, at its own expense, all amounts due or to become due to
Grantors in respect of the Collateral or any portion thereof. In connection
with such collections, each Grantor may take (and, at Collateral Agent's
direction, shall take) such action as such Grantor may deem necessary or
advisable to enforce collection of such amounts; provided, however, that
-------- -------
Collateral Agent shall have the right at any time, upon the occurrence and
during the continuation of an Event of Default and upon written notice to such
Grantor of its intention to do so, to notify the obligors with respect to any
such amounts of the existence of the security interest and the conditional
assignment created hereby, and to direct such obligors to make
XX-13
<PAGE>
payment of all such amounts directly to Collateral Agent, and, upon such
notification and at the expense of Grantors, to enforce collection of any such
amounts and to adjust, settle or compromise the amount or payment thereof, in
the same manner and to the same extent as such Grantor might have done. After
receipt by such Grantor of the notice from Collateral Agent referred to in the
proviso to the preceding sentence, (i) all amounts and proceeds (including
checks and other instruments) received by such Grantor in respect of amounts due
to such Grantor in respect of the Collateral or any portion thereof shall be
forthwith (and in any event within two Business Days) deposited by the Grantor
in the exact form received, duly indorsed by the Grantor to the Collateral Agent
if required, in a Collateral Account maintained under the sole dominion and
control of the Collateral Agent, subject to withdrawal by the Collateral Agent
for the account of Secured Parties only as provided in Section 16, (ii) until so
turned over in accordance with the preceding subsection (i), all such amounts
and proceeds received by such Grantor shall be received in trust for the benefit
of Collateral Agent hereunder- and shall be segregated from other funds of
Grantor and (iii)such Grantor shall not adjust, settle or compromise the amount
or payment of any such amount or release wholly or partly any obligor with
respect thereto or allow any credit or discount thereon.
IX. PATENT OR TRADEMARK APPLICATIONS AND LITIGATION.
-----------------------------------------------
(a) Each Grantor shall have the duty diligently, to prosecute any
trademark application relating to any Material Trademark Property that is
pending as of the date of this Agreement, to make federal application on any
existing or future registerable but unregistered Material Trademark Property
(whenever it is commercially reasonable in the reasonable judgement of such
Grantor to do so), and to file and prosecute opposition and cancellation
proceedings, renew Registrations and do any and all reasonable acts which are
necessary or desirable to preserve and maintain all rights in all Material
Trademark Properties; provided, however, that Grantor shall not be obligated to
-------- -------
prosecute or apply for registration of any Trademark or Registration that Grant
determines in its reasonable business judgment is no longer necessary or
desirable in the conduct of its business. Any expenses incurred in connection
therewith shall be borne solely by Grantors. No Grantor shall abandon any
Material Trademark Property; provided, however, that Grantor shall not be
-------- -------
obligated to maintain any Trademark or Registration that Grantor determines in
its reasonable business judgment is no longer necessary or desirable in the
conduct of its business.
(b) Each Grantor shall have the duty diligently, through counsel
reasonably acceptable to Collateral Agent, to prosecute any patent application
relating to any Material Patent that is pending as of the date of this Agreement
and to do any and all acts which are necessary or desirable to preserve and
maintain all rights in all Material Patents; provided, however, that Grantor
-------- -------
shall not be obligated to prosecute or maintain any Patent that Grantor
determines in its reasonable business judgment is no longer necessary or
desirable in the conduct of its business. Any expenses incurred in connection
therewith shall be borne solely by Grantors. Each Grantor shall not, as to any
patentable invention or Patent that constitutes or could constitute a Material
Patent, abandon any pending patent application or any Patent without the prior
written consent of Collateral Agent; provided, however, that Grantor shall not
-------- -------
be obligated to prosecute or maintain any Patent that Grantor determines in its
reasonable business judgment is no longer necessary or desirable in the conduct
of its business.
XX-14
<PAGE>
(c) Except as provided in Section 9(e), each Grantor shall have the
right to commence and prosecute in its own name, as real party in interest, for
its own benefit and at its own expense, such suits, proceedings or other actions
for infringement, unfair competition, dilution or other damage as are in its
reasonable business judgment necessary to protect the Collateral. Collateral
Agent shall provide, at Grantor's expense, all reasonable and necessary
cooperation in connection with any such suit, proceeding or action including,
without limitation, joining as a necessary party.
(d) Each Grantor shall promptly, following its becoming aware thereof,
notify Collateral Agent of the institution of, or of any adverse determination
in, any proceeding (whether in the United States Patent and Trademark Office or
any federal, state, local or foreign court) described in subsection 9(a), 9(b)
or 9(c) or regarding such Grantor's claim of ownership in or right to use any of
the Trademarks, Registrations or Trademark Rights, its right to register the
same, or its right to keep and maintain such Registration. Such Grantor shall
provide to Collateral Agent any information with respect thereto requested by
Collateral Agent.
(e) Anything contained herein to the contrary notwithstanding, upon
the occurrence and during the continuation of an Event of Default, Collateral
Agent shall have the right (but not the obligation) to bring suit, in the name
of any Grantor, Collateral Agent or otherwise, to enforce any Patent, Trademark,
Registration, Trademark Right, Associated Goodwill and any license thereunder,
in which event each Grantor shall, at the request of Collateral Agent, do any
and all lawful acts and execute any and all documents required by Collateral
Agent in aid of such enforcement and each Grantor shall promptly, upon demand,
reimburse and indemnify Collateral Agent as provided in Section 17 in connection
with the exercise of its rights under this Section 9. To the extent that
Collateral Agent shall elect not to bring suit to enforce any Patent, Trademark,
Registration, Trademark Right, Associated Goodwill or any license thereunder as
provided in this Section 9(e), each Grantor agrees to use all reasonable
measures, whether by action, suit, proceeding or otherwise, to prevent the
infringement of any of the Patents, Trademarks, Registrations, Trademark Rights
or Associated Goodwill by others and for that purpose agrees to diligently
maintain in accordance with reasonable business practice any action, suit or
proceeding against any Person so infringing necessary to prevent such
infringement.
X. NON-DISTURBANCE AGREEMENTS, ETC.
--------------------------------
If and to the extent that any Grantor is permitted to license the
Collateral, Collateral Agent shall enter into a non-disturbance agreement or
other similar arrangement, at Grantors' request and expense, with such Grantor
and any licensee of any Collateral permitted hereunder in form and substance
reasonably satisfactory to Collateral Agent pursuant to which (a) Collateral
Agent shall agree not to disturb or interfere with such licensee's rights under
its license agreement with such Grantor so long as such licensee is not in
default thereunder and (b) such licensee shall acknowledge and agree that the
Collateral licensed to it is subject to the security interest and conditional
assignment created in favor of Collateral Agent and the other terms of this
Agreement.
XX-15
<PAGE>
XI. COLLATERAL AGENT APPOINTED ATTORNEY-IN-FACT.
-------------------------------------------
Each Grantor hereby irrevocably appoints Collateral Agent as such
Grantor's attorney-in-fact, with full authority in the place and stead of such
Grantor and in the name of such Grantor, Collateral Agent or otherwise, from
time to time, upon the occurrence during the continuance of an Event of Default,
in Collateral Agent's reasonable discretion to take any action and to execute
any instrument that Collateral Agent may reasonably deem necessary or advisable
to accomplish the purposes of this Agreement, including without limitation:
A. to endorse such Grantor's name on all applications, documents,
papers and instruments necessary for Collateral Agent in the use or maintenance
of the Collateral;
B. to ask for, demand, collect, sue for, recover, compound, receive
and give acquittance and receipts for moneys due and to become due under or in
respect of any of the Collateral;
C. to receive, endorse and collect any drafts or other instruments,
documents and chattel paper in connection with clause (b) above;
D. upon the occurrence and during the continuance of an Event of
Default, to file any claims or take any action or institute any proceedings that
Collateral Agent may reasonably deem necessary or desirable for the collection
of any of the Collateral or otherwise to enforce the rights of Collateral Agent
with respect to any of the Collateral;
E. to pay or discharge taxes or Liens (other than Liens permitted
under this Agreement or the Financing Agreements) levied or placed upon or
threatened against the Collateral, the legality or validity thereof and the
amounts necessary to discharge the same to be determined by Collateral Agent in
its sole discretion, any such payments made by Collateral Agent to become
obligations of such Grantor to Collateral Agent, due and payable immediately
without demand; and
F. upon the occurrence and during the continuance of an Event of
Default, (i) to execute and deliver any of the assignments or documents
requested by Collateral Agent pursuant to Section 14(b), (ii) to grant or issue
an exclusive or non-exclusive license to the Collateral or any portion thereof
to any Person, and (iii) otherwise generally to sell, transfer, pledge, make any
agreement with respect to or otherwise deal with any of the Collateral as fully
and completely as though Collateral Agent were the absolute owner thereof for
all purposes, and to do, at Collateral Agent's option and Grantors' expense, at
any time or from time to time, all acts and things that Collateral Agent deems
necessary to protect, preserve or realize upon the Collateral and Collateral
Agent's security interest therein in order to effect the intent of this
Agreement, all as fully and effectively as such Grantor might do.
XX-16
<PAGE>
XII. COLLATERAL AGENT MAY PERFORM.
----------------------------
If any Grantor fails to perform any agreement contained herein,
Collateral Agent may itself perform, or cause performance of, such agreement,
and the reasonable expenses of Collateral Agent incurred in connection therewith
shall be payable by such Grantor under Section 17.
XIII. STANDARD OF CARE.
----------------
The powers conferred on Collateral Agent hereunder are solely to
protect its interest in the Collateral and shall not impose any duty upon it to
exercise any such powers. Except for the exercise of reasonable care in the
custody of any Collateral in its possession and the accounting for monies
actually received by it hereunder, Collateral Agent shall have no duty as to any
Collateral or as to the taking of any necessary steps to preserve rights against
prior parties or any other rights pertaining to any Collateral. Collateral
Agent shall be deemed to have exercised reasonable care in the custody and
preservation of any Collateral in its possession if such Collateral is accorded
treatment substantially equal to that which Collateral Agent accords its own
property.
XX-17
<PAGE>
XIV. REMEDIES.
--------
If any Event of Default shall have occurred and be continuing:
XX-18
<PAGE>
A. Collateral Agent may exercise in respect of the Collateral, in
addition to all other rights and remedies provided for herein or otherwise
available to it, all the rights and remedies of a collateral agent on default
under the Uniform Commercial Code as in effect in any relevant jurisdiction (the
"CODE") (whether or not the Code applies to the affected Collateral), and also
may (i) require each Grantor to, and each Grantor hereby agrees that it will at
its expense and upon request of Collateral Agent forthwith, assemble all or part
of the Collateral as directed by Collateral Agent and make it available to
Collateral Agent at a place to be designated by Collateral Agent that is
reasonably convenient to both parties, (ii) enter onto the property where any
Collateral is located and take possession thereof with or without judicial
process, (iii) prior to the disposition of the Collateral, store the Collateral
or otherwise prepare the Collateral for disposition in any manner to the extent
Collateral Agent deems appropriate, (iv) take possession of any Grantor's
premises or place custodians in exclusive control thereof, remain on such
premises and use the same for the purpose of taking any actions described in the
preceding clause (iii) and collecting any Secured Obligation, (v) exercise any
and all rights and remedies of Grantors under or in connection with the
contracts related to the Collateral or otherwise in respect of the Collateral,
including without limitation any and all rights of Grantors to demand or
otherwise require payment of any amount under, or performance of any provision
of, such contracts, and (vi) without notice except as specified below, sell the
Collateral or any part thereof in one or more parcels at public or private sale,
at any of Secured Party's offices or elsewhere, for cash, on credit or for
future delivery, at such time or times and at such price or prices and upon such
other terms as Collateral Agent may deem commercially reasonable. Collateral
Agent or any Secured Party or Interest Rate Exchanger may be the purchaser of
any or all of the Collateral at any such sale and Collateral Agent, as agent for
and representative of Secured Parties and Interest Rate Exchangers (but not any
Secured Party or Secured Parties or Interest Rate Exchanger or Interest Rate
Exchangers in its or their respective individual capacities unless Requisite
Obligees shall otherwise agree in writing), shall be entitled, for the purpose
of bidding and making settlement or payment of the purchase price for all or any
portion of the Collateral sold at any such public sale, to use and apply any of
the Secured Obligations as a credit on account of the purchase price for any
Collateral payable by Collateral Agent at such sale. Each purchaser at any such
sale shall hold the property sold absolutely free from any claim or right on the
part of any Grantor, and each Grantor hereby waives (to the extent permitted by
applicable law) all rights of redemption, stay and/or appraisal which it now has
or may at any time in the future have under any rule of law or statute now
existing or hereafter enacted. Each Grantor agrees that, to the extent notice
of sale shall be required by law, at least ten days' notice to such Grantor of
the time and place of any public sale or the time after which any private sale
is to be made shall constitute reasonable notification. Collateral Agent shall
not be obligated to make any sale of Collateral regardless of notice of sale
having been given. Collateral Agent may adjourn any public or private sale from
time to time by announcement at the
<PAGE>
time and place fixed therefor, and such sale may, without further notice, be
made at the time and place to which it was so adjourned. Each Grantor hereby
waives any claims against Collateral Agent arising by reason of the fact that
the price at which any Collateral may have been sold at such a private sale was
less than the price which might have been obtained at a public sale, even if
Collateral Agent accepts the first offer received and does not offer such
Collateral to more than one offeree. If the proceeds of any sale or other
disposition of the Collateral are insufficient to pay all the Secured
Obligations, Grantors shall be jointly and severally liable for the deficiency
and the reasonable fees of any attorneys employed by Collateral Agent to collect
such deficiency.
B. Upon written demand from Secured Party, each Grantor shall execute
and deliver to Collateral Agent an assignment or assignments of the Patents,
Trademarks, Registrations, Trademark Rights and the Associated Goodwill and such
other documents as are requested by Collateral Agent. Each Grantor agrees that
such an assignment and/or recording shall be applied to reduce the Secured
Obligations outstanding only to the extent that Collateral Agent (or any
Secured) receives cash proceeds in respect of the sale of, or other realization
upon, the Collateral.
C. Within five Business Days after written notice from Collateral
Agent, each Grantor shall make available to Collateral Agent, to the extent
within each applicable Grantor's power and authority, such personnel in such
Grantor's employ on the date of such Event of Default as Collateral Agent may
reasonably designate, by name, title or job responsibility, to permit such
Grantor to continue, directly or indirectly, to produce, advertise and sell the
products and services sold or delivered by such Grantor under or in connection
with the Patents, Trademarks, Registrations and Trademark Rights, such persons
to be available to perform their prior functions on Collateral Agent's behalf
and to be compensated by Collateral Agent at Grantors' expense on a per diem,
pro-rata basis consistent with the salary and benefit structure applicable to
each as of the date of such Event of Default.
XX-20
<PAGE>
XV. PROCEEDS TO BE TURNED OVER TO COLLATERAL AGENT.
----------------------------------------------
In addition to the rights of the Collateral Agent and the Secured
Parties specified in Section 8 with respect to payments of Accounts, if an Event
of Default shall occur and be continuing, upon request of the Collateral Agent,
all proceeds received by the Grantor consisting of cash, checks and other near-
cash items shall be held by the Grantor in trust for the Collateral Agent and
the Secured Parties, segregated from other funds of the Grantor, and shall,
forthwith upon receipt by the Grantor, be turned over to the Collateral Agent in
the exact form received by the Grantor (duly indorsed by the Grantor to the
Collateral Agent, if required) and held by the Collateral Agent in a Collateral
Account maintained under the Intercreditor Agreement. All proceeds while held
by the Collateral Agent in a Collateral Account (or by the Grantor in trust for
the Collateral Agent and the Secured Parties) shall continue to be held as
collateral security for all the Secured Obligations and shall not constitute
payment thereof until applied as provided in Section 16.
XVI. APPLICATION OF PROCEEDS.
-----------------------
Except as expressly provided elsewhere in this Agreement, all proceeds
held in any Collateral Account and all other proceeds received by Collateral
Agent in respect of any sale of, collection from, or other realization upon all
or any part of the Collateral shall be applied as provided in subsection 3 of
the Intercreditor Agreement.
XVII. INDEMNITY AND EXPENSES.
----------------------
(a) Grantors jointly and severally agree to indemnify Collateral
Agent, each Secured Party and each Interest Rate Exchanger from and against any
and all claims, losses and liabilities in any way relating to, growing out of or
resulting from this Agreement and the transactions contemplated hereby
(including without limitation enforcement of this Agreement), except to the
extent such claims, losses or liabilities result solely from Collateral Agent's
or such Secured Party's or Interest Rate Exchanger's gross negligence or willful
misconduct as finally determined by a court of competent jurisdiction.
(b) Grantors jointly and severally agree to pay to Collateral Agent
promptly following written demand the amount of any and all costs and expenses,
including the reasonable fees and expenses of its counsel and of any experts and
agents, that Collateral Agent may incur in connection with (i) the
administration of this Agreement, (ii) the custody, preservation, use or
operation of, or the sale of, collection from, or other realization upon, any of
the Collateral, (iii) the exercise or enforcement of any of the rights of
Collateral Agent hereunder, or (iv) the failure by any Grantor to perform or
observe any of the provisions hereof.
(c) The obligations of Grantors in this Section 17 shall survive the
termination of this Agreement and the discharge of Grantors' other obligations
under this Agreement, the Interest Rate Agreements, the Credit Agreement and the
other Loan Documents.
XX-21
<PAGE>
XVIII. CONTINUING SECURITY INTEREST; TRANSFER OF LOANS.
-----------------------------------------------
This Agreement shall create a continuing security interest in and
conditional assignment of the Collateral effective only upon the occurrence and
during the continuance of an Event of Default and shall (a) remain in full force
and effect until the payment in full of the Secured Obligations (other than
inchoate indemnification obligations with respect to claims, losses or
liabilities which have not yet arisen and are not yet due and payable), the
cancellation or termination of the Commitments and the cancellation or
expiration of all outstanding Letters of Credit, (b) be binding upon Grantors
and their respective successors and assigns, and (c) inure, together with the
rights and remedies of Collateral Agent hereunder, to the benefit of Collateral
Agent and its successors, transferees and assigns. Without limiting the
generality of the foregoing clause (c), but subject to the provisions of
subsection 10.1 of the Credit Agreement and subsection 10.1 of the AXEL Credit
Agreement, any Secured Party may assign or otherwise transfer any Loans held by
it to any other Person, and such other Person shall thereupon become vested with
all the benefits in respect thereof granted to Secured Parties herein or
otherwise. Upon the payment in full of all Secured Obligations (other than
inchoate indemnification obligations with respect to claims, losses or
liabilities which have not yet arisen and are not yet due and payable), the
cancellation or termination of the Commitments and the cancellation or
expiration of all outstanding Letters of Credit, the security interest and
conditional assignment granted hereby shall terminate and all rights to the
Collateral shall revert to the applicable Grantors. Upon any such termination
Collateral Agent will, at Grantors' expense, execute and deliver to Grantors
such documents as Grantors shall reasonably request to evidence such termination
in accordance with the terms of the Intercreditor Agreement.
XX-22
<PAGE>
XIX. COLLATERAL AGENT AS ADMINISTRATIVE AGENT.
----------------------------------------
(a) Collateral Agent has been appointed to act as Collateral Agent
hereunder by CA Administrative Agent on behalf of the Credit Agreement Lenders
and AXEL Administrative Agent on behalf of the AXEL Lenders pursuant to the
Intercreditor Agreement and, by their acceptance of the benefits hereof,
Interest Rate Exchangers, and shall be entitled to the benefits of the
Intercreditor Agreement. Collateral Agent shall be obligated, and shall have
the right hereunder, to make demands, to give notices, to exercise or refrain
from exercising any rights, and to take or refrain from taking any action
(including without limitation the release or substitution of Collateral), solely
in accordance with this Agreement and the Intercreditor Agreement; provided that
--------
Collateral Agent shall exercise, or refrain from exercising, any remedies
provided for in Section 14 in accordance with the instructions of (i) Requisite
Lenders or (ii) after payment in full of all Financing Agreement Obligations
under the Financing Agreements and any other Loan Documents, the holders of a
majority of the aggregate notional amount (or, with respect to any Lender
Interest Rate Agreement that has been terminated in accordance with its terms,
the amount then due and payable (exclusive of expenses and similar payments but
including any early termination payments then due) under such Lender Interest
Rate Agreement) under all Lender Interest Rate Agreements (Requisite Lenders or,
if applicable, such holders being referred to herein as "REQUISITE OBLIGEES").
In furtherance of the foregoing provisions of this Section 19(a), each Interest
Rate Exchanger, by its acceptance of the benefits hereof, agrees that it shall
have no right individually to realize upon any of the Collateral hereunder, it
being understood and agreed by such Interest Rate Exchanger that all rights and
remedies hereunder may be exercised solely by Collateral Agent for the benefit
of Secured Parties and Interest Rate Exchangers in accordance with the terms of
this Section 19(a).
(b) Collateral Agent shall at all times be the same Person that is
appointed Collateral Agent under the Intercreditor Agreement. The Collateral
Agent may resign and a successor Collateral Agent may be appointed in the manner
provided in the Intercreditor Agreement. Upon the acceptance of any appointment
as Collateral Agent by a successor Collateral Agent, that successor Collateral
Agent shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring or removed Collateral Agent under this
Agreement, and the retiring or removed Collateral Agent under this Agreement
shall promptly (i) transfer to such successor Collateral Agent all sums,
securities and other items of Collateral held hereunder, together with all
records and other documents necessary or appropriate in connection with the
performance of the duties of the successor Collateral Agent under this
Agreement, and (ii) execute and deliver to such successor Collateral Agent such
amendments to financing statements, and take such other actions, as may be
necessary or appropriate in connection with the assignment to such successor
Collateral Agent of the security interests created hereunder, whereupon such
retiring or removed Collateral Agent shall be discharged from its duties and
obligations under this Agreement. After any retiring or removed Collateral
Agent's resignation or removal hereunder as Collateral Agent, the provisions of
this Agreement shall inure to its benefit as to any actions taken or omitted to
be taken by it under this Agreement while it was Collateral Agent hereunder.
XX-23
<PAGE>
XX. AMENDMENTS; ETC.
---------------
No amendment, modification, termination or waiver of any provision of
this Agreement, and no consent to any departure by any Grantor therefrom, shall
in any event be effective unless the same shall be in writing and signed by
Collateral Agent and, in the case of any such amendment or modification, by
Grantors; provided that any amendment hereto pursuant to Section 22 or Section
--------
6(c) shall be effective upon execution by any Additional Grantor and Grantors
hereby waive any requirement of notice of or consent to any such amendment. Any
such waiver or consent shall be effective only in the specific instance and for
the specific purpose for which it was given.
XXI. NOTICES.
-------
Any notice or other communication herein required or permitted to be
given shall be in writing and may be personally served, telexed or sent by
telefacsimile or United States mail or courier service and shall be deemed to
have been given when delivered in person or by courier service, upon receipt of
telefacsimile or telex (with received answerback), or three Business Days after
depositing it in the United States mail with postage prepaid and properly
addressed; provided that notices to Collateral Agent or Grantor shall not be
--------
effective until received. For the purposes hereof, the address of each party
hereto shall be provided in subsection 10.8 of the Credit Agreement or
subsection 10.8 of the AXEL Credit Agreement, or as set forth under such party's
name on the signature pages hereof or such other address as shall be designated
by such party in a written notice delivered to the other parties hereto.
XXII. FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE.
-----------------------------------------------------
No failure or delay on the part of Collateral Agent in the exercise of
any power, right or privilege hereunder shall impair such power, right or
privilege or be construed to be a waiver of any default or acquiescence therein,
nor shall any single or partial exercise of any such power, right or privilege
preclude any other or further exercise thereof or of any other power, right or
privilege. All rights and remedies existing under this Agreement are cumulative
to, and not exclusive of, any rights or remedies otherwise available.
XX-24
<PAGE>
XXIII. ADDITIONAL GRANTORS.
-------------------
From time to time subsequent to the date hereof, Subsidiaries of
Company may become parties hereto as additional Grantors (each an "ADDITIONAL
GRANTOR") by executing an acknowledgement to this Agreement substantially in
the form of Schedule IV annexed hereto. Upon delivery of any such
-----------
acknowledgment to Collateral Agent and Secured Party, notice of which is hereby
waived by Grantors, each such Additional Grantor shall be a Grantor and shall be
as fully a party hereto as if such Additional Grantor were an original signatory
hereto. Each Grantor expressly agrees that its obligations arising hereunder
shall not be affected or diminished by the addition or release of any other
Grantor hereunder, nor by any election of Collateral Agent not to cause any
Subsidiary of Company to become an Additional Grantor hereunder. This Agreement
shall be fully effective as to any Grantor that is or becomes a party hereto
regardless of whether any other Person becomes or fails to become or ceases to
be a Grantor hereunder.
XXIV. SEVERABILITY.
------------
In case any provision in or obligation under this Agreement shall be
invalid, illegal or unenforceable in any jurisdiction, the validity, legality
and enforceability of the remaining provisions or obligations, or of such
provision or obligation in any other jurisdiction, shall not in any way be
affected or impaired thereby.
XXV. HEADINGS.
--------
Section and subsection headings in this Agreement are included herein
for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose or be given any substantive effect.
XXVI. GOVERNING LAW; TERMS.
--------------------
THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING WITHOUT LIMITATION SECTION
5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD
TO CONFLICTS OF LAWS PRINCIPLES, EXCEPT TO THE EXTENT THAT THE CODE PROVIDES
THAT THE PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER,
IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A
JURISDICTION OTHER THAN THE STATE OF NEW YORK. Unless otherwise defined herein
or in the Credit Agreement, terms used in Articles 8 and 9 of the Uniform
Commercial Code in the State of New York are used herein as therein defined.
XX-25
<PAGE>
XVII. CONSENT TO JURISDICTION AND SERVICE OF PROCESS.
----------------------------------------------
ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST ANY GRANTOR ARISING OUT OF OR
RELATING TO THIS AGREEMENT, OR ANY OBLIGATIONS HEREUNDER, MAY BE BROUGHT IN ANY
STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE, COUNTY AND CITY
OF NEW YORK. BY EXECUTING AND DELIVERING THIS AGREEMENT, EACH GRANTOR, FOR
ITSELF AND IN CONNECTION WITH ITS PROPERTIES, IRREVOCABLY
a) ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE
JURISDICTION AND VENUE OF SUCH COURTS;
b) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS;
c) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN
ANY SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN
RECEIPT REQUESTED, TO SUCH GRANTOR AT ITS ADDRESS PROVIDED IN
ACCORDANCE WITH SECTION 21;
d) AGREES THAT SERVICE AS PROVIDED IN CLAUSE (III) ABOVE IS
SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER SUCH GRANTOR IN ANY
SUCH PROCEED ING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES
EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT;
e) AGREES THAT COLLATERAL AGENT RETAINS THE RIGHT TO SERVE
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS
AGAINST SUCH GRANTOR IN THE COURTS OF ANY OTHER JURISDICTION; AND
f) AGREES THAT THE PROVISIONS OF THIS SECTION 25 RELATING TO
JURISDICTION AND VENUE SHALL BE BINDING AND ENFORCEABLE TO THE FULLEST
EXTENT PERMISSIBLE UNDER NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-
1402 OR OTHERWISE.
XX-26
<PAGE>
XXVIII. WAIVER OF JURY TRIAL.
--------------------
GRANTORS AND COLLATERAL AGENT HEREBY AGREE TO WAIVE THEIR RESPECTIVE
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF THIS AGREEMENT. The scope of this waiver is intended to be all-encompassing
of any and all disputes that may be filed in any court and that relate to the
subject matter of this transaction, including without limitation contract
claims, tort claims, breach of duty claims, and all other common law and
statutory claims. Each Grantor and Collateral Agent acknowledge that this
waiver is a material inducement for Grantors and Collateral Agent to enter into
a business relationship, that Grantors and Collateral Agent have already relied
on this waiver in entering into this Agreement and that each will continue to
rely on this waiver in their related future dealings. Each Grantor and
Collateral Agent further warrant and represent that each has reviewed this
waiver with its legal counsel, and that each knowingly and voluntarily waives
its jury trial rights following consultation with legal counsel. THIS WAIVER IS
IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING
(OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY REFERRING TO THIS SECTION 28
AND EXECUTED BY EACH OF THE PARTIES HERETO), AND THIS WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT.
In the event of litigation, this Agreement may be filed as a written consent to
a trial by the court.
XXIX. COUNTERPARTS.
------------
This Agreement may be executed in one or more counterparts and by
different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all such counterparts
together shall constitute but one and the same instrument; signature pages may
be detached from multiple separate counterparts and attached to a single
counterpart so that all signature pages are physically attached to the same
document.
[Remainder of page intentionally left blank]
XX-27
<PAGE>
IN WITNESS WHEREOF, Grantors and Collateral Agent have caused this Agreement
to be duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
SEALY, INC.
THE STEARNS & FOSTER
BEDDING COMPANY
THE STEARNS & FOSTER
UPHOLSTERY FURNITURE COMPANY
ADVANCED SLEEP PRODUCTS
SEALY MATTRESS
COMPANY OF SAN DIEGO
SEALY MATTRESS
COMPANY OF PUERTO RICO
OHIO-SEALY MATTRESS
MANUFACTURING CO. INC.
OHIO-SEALY MATTRESS
MANUFACTURING CO. --
FORT WORTH
OHIO-SEALY MATTRESS
MANUFACTURING CO.
OHIO-SEALY MATTRESS
MANUFACTURING CO. --
HOUSTON
[OTHER GRANTORS]
By: ____________________
Name:
Title:
Notice Address:
_____________________
_____________________
_____________________
XX-28
<PAGE>
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK,
as Secured Party
By: ______________________
Name:
Title:
XX-29
<PAGE>
SCHEDULE I
TO
SUBSIDIARY PATENT AND TRADEMARK SECURITY AGREEMENT
<TABLE>
<CAPTION>
REGISTERED UNITED STATES TRADEMARK REGISTRATION REGISTRATION
OWNER DESCRIPTION NUMBER DATE
- ------------- ----------------------- ------------ ------------
<S> <C> <C> <C>
</TABLE>
XX-30
<PAGE>
SCHEDULE II
TO
SUBSIDIARY PATENT AND SECURITY AGREEMENT
PATENTS ISSUED
--------------
Patent No. Issue Date Invention
---------- ---------- ---------
PATENTS PENDING
---------------
Applicant's Date Application
Name Filed No. Invention Inventor
- ----------- ----- ----------- --------- --------
XX-31
<PAGE>
SCHEDULE III
TO
SUBSIDIARY PATENT AND TRADEMARK SECURITY AGREEMENT
FILING OFFICES
--------------
XX-32
<PAGE>
SCHEDULE IV
TO
SUBSIDIARY PATENT AND TRADEMARK SECURITY AGREEMENT
[FORM OF ACKNOWLEDGEMENT]
This Acknowledgement, dated _______________, [199_] [200_], is delivered
pursuant to Section 23 of the Patent and Trademark Security Agreement referred
to below. The undersigned hereby agrees that this Acknowledgement may be
attached to the Patent and Trademark Security Agreement dated December 18, 1996,
by and among the Grantors referred to therein and Morgan Guaranty Trust Company
of New York, as Collateral Agent (the "PATENT AND TRADEMARK SECURITY
AGREEMENT", capitalized terms defined therein being used herein as therein
defined), that the undersigned by executing and delivering this Acknowledgement
hereby becomes a Grantor under the Patent and Trademark Security Agreement in
accordance with Section 20 thereof and agrees to be bound by all of the terms
thereof, and that the Patents, Registrations and Trademark Rights described on
this Acknowledgement shall be deemed to be part of the and shall become part of
the Collateral and shall secure all Secured Obligations.
[NAME OF ADDITIONAL GRANTOR]
By: _________________________________
Name:
Title:
Notice Address:
____________________________
____________________________
____________________________
____________________________
TRADEMARK REGISTRATIONS
-----------------------
REGISTERED TRADEMARK REGISTRATION REGISTRATION
OWNER DESCRIPTION NUMBER DATE JURISDICTION
- ------------- ----------- ------------ ------------ ------------
PATENTS ISSUED
--------------
XX-33
<PAGE>
PATENT NO. ISSUE DATE INVENTION INVENTOR
---------- ---------- --------- --------
PATENTS PENDING
---------------
APPLICANT'S NAME DATE FILED APPLICATION NO. INVENTION INVENTOR
- ---------------- ---------- --------------- --------- --------
XX-34
<PAGE>
EXHIBIT XXI
[FORM OF HOLDINGS GUARANTY]
HOLDINGS GUARANTY
This HOLDINGS GUARANTY is entered into as of December 18, 1997 and
entered into by and between SEALY CORPORATION, a Delaware corporation
("GUARANTOR"), in favor and for the benefit of MORGAN GUARANTY TRUST COMPANY
OF NEW YORK ("MORGAN GUARANTY"), as collateral for and representative of (in
such capacity herein called "GUARANTIED PARTY") the Secured Parties (as
hereinafter defined) and any Interest Rate Exchangers (as hereinafter defined),
and, subject to subsection 3.12, for the benefit of the other Beneficiaries (as
hereinafter defined).
RECITALS
A. Sealy Mattress Company, an Ohio corporation and a wholly-owned
subsidiary of Guarantor ("COMPANY"), Guarantor, the financial institutions
from time to time parties thereto (the "CREDIT AGREEMENT LENDERS"), Goldman
Sachs Credit Partners L.P. ("GSCP"), as arranger and syndication agent (in
such capacity, "CA SYNDICATION AGENT"), Morgan Guaranty, as administrative
agent (in such capacity, "CA ADMINISTRATIVE AGENT"), and Bankers Trust Company
("BTCO."), as documentation agent (in such capacity, "CA DOCUMENTATION
AGENT") have entered into a Credit Agreement dated as of December 18, 1997
(said Credit Agreement, as it may hereafter be amended, restated, supplemented
or otherwise modified from time to time, being the ("CREDIT AGREEMENT")
pursuant to which Credit Agreement Lenders have made certain commitments,
subject to the terms and conditions set forth in the Credit Agreement, to extend
certain credit facilities to Company.
B. Company, Guarantor, the financial institutions from time to time
parties thereto (the "AXEL LENDERS"), GSCP, as arranger and syndication agent
(in such capacity, "AXEL SYNDICATION AGENT"), Morgan Guaranty, as administrative
agent (in such capacity, "AXEL ADMINISTRATIVE AGENT"), and BTCo., as
documentation agent (in such capacity, "AXEL DOCUMENTATION AGENT") have entered
into an AXEL Credit Agreement dated as of December 18, 1997 (said AXEL Credit
Agreement, as it may hereafter be amended, restated, supplemented or otherwise
modified from time to time, being the "AXEL CREDIT AGREEMENT"; the Credit
Agreement Lenders, the CA Syndication Agent, the CA Administrative Agent, the CA
Documentation Agent, the AXEL Lenders, the AXEL Syndication Agent, the AXEL
Administrative Agent, and the AXEL Documentation Agent each being a "SECURED
PARTY" and collectively the "SECURED PARTIES") pursuant to which AXEL Lenders
have made certain commitments, subject to the terms and conditions set forth in
the AXEL Credit Agreement, to extend certain credit facilities to Company.
C. Company may from time to time enter into one or more Interest Rate
Agreements (collectively, the "LENDER INTEREST RATE AGREEMENTS") with or one or
more Credit Agreement Lenders or their Affiliates or AXEL Lenders or their
Affiliates (in such
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capacity, collectively, "INTEREST RATE EXCHANGERS") in accordance with the terms
of the Financing Agreements (as hereinafter defined), and it is desired that the
obligations of Company under the Lender Interest Rate Agreements, including
without limitation the obligation of Company to make payments thereunder in the
event of early termination thereof (all such obligations being the "INTEREST
RATE OBLIGATIONS"), together with all obligations of Company under the Financing
Agreements and any other Loan Documents, be guarantied hereunder.
D. It is a condition precedent to the making of the initial Loans under
the Financing Agreements that Company's obligations thereunder be guarantied by
Guarantor.
E. Guarantor is willing irrevocably and unconditionally to guaranty
such obligations of Company.
NOW, THEREFORE, in consideration of the premises and to induce (i) the CA
Administrative Agent, the CA Syndication Agent and the Credit Agreement Lenders
to enter into the Credit Agreement, (ii) the Credit Agreement Lenders to make
their respective loans to, and issue Letters of Credit for the account of, the
Company, (iii) the AXEL Administrative Agent, the AXEL Syndication Agent and the
AXEL Lenders to enter into the AXEL Loan Agreement and (iv) the AXEL Lenders to
make their respective loans to the Company, and (v) to induce Interest Rate
Exchangers to enter into the Lender Interest Rate Agreements and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the Guarantor hereby agrees as follows:
SECTION 1. DEFINITIONS
(a) Unless otherwise defined herein, terms defined in the Credit
Agreement and used herein shall have the meanings given to such terms in the
Credit Agreement;
(b) The following terms shall have the following meanings:
"ACCELERATION" shall mean any of the Credit Agreement Obligations or
the AXEL Credit Agreement Obligations have been declared, or have become,
immediately due and payable, or the commitments to extend credit of the
Credit Agreement Lenders or the AXEL Lenders shall have been terminated
under Section 8 of the Credit Agreement or Section 7 of the AXEL Credit
Agreement, respectively.
"AGGREGATE PAYMENTS" has the meaning assigned to that term ins
subsection 2.2.
"AXEL COMMITMENTS" shall mean the "Commitments" as defined in the
AXEL Credit Agreement.
"AXEL CREDIT AGREEMENT" has the meaning assigned to that term in the
recitals to this Agreement.
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<PAGE>
"AXEL OBLIGATIONS" shall mean the "Obligations" as defined in the
AXEL Credit Agreement.
"BENEFICIARIES" means Guarantied Party, Secured Parties and any
Interest Rate Exchangers.
"COLLATERAL ACCOUNTS" shall mean "Collateral Accounts" as defined in
the Intercreditor Agreement.
"COMMITMENTS" means the Credit Agreement Commitments and the AXEL
Commitments.
"CONTRIBUTING GUARANTORS" has the meaning assigned to that term ins
subsection 2.2.
"CREDIT AGREEMENT" has the meaning assigned to that term in the
recitals to this Agreement.
"CREDIT AGREEMENT COMMITMENTS" shall mean the "Commitments" as
defined in the Credit Agreement.
"CREDIT AGREEMENT OBLIGATIONS" shall mean the "Obligations" as
defined in the Credit Agreement.
"EVENT OF DEFAULT" means any "Event of Default" as defined in any
Financing Agreement or the occurrence of an Event of Default in which
Company is the Defaulting Party and which results in the designation of an
Early Termination Date (as such terms are defined in a Master Agreement or
an Interest Rate Swap Agreement or Interest Rate and Currency Exchange
Agreement in the form prepared by the International Swap and Derivatives
Association Inc. or a similar event under any similar swap agreement) under
any Lender Interest Rate Agreement.
"FAIR SHARE" has the meaning assigned to that term ins subsection 2.2.
"FAIR SHARE CONTRIBUTION AMOUNT" has the meaning assigned to that term
ins subsection 2.2.
"FINANCING AGREEMENT" means either the Credit Agreement or the AXEL
Credit Agreement, and "Financing Agreements" means the Credit Agreement
and the AXEL Credit Agreement, collectively.
"FINANCING AGREEMENT OBLIGATIONS" means Credit Agreement Obligations
and AXEL Obligations.
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<PAGE>
"FRAUDULENT TRANSFER LAWS" has the meaning assigned to that term ins
subsection 2.2.
"FAIR SHARE SHORTFALL" has the meaning assigned to that term ins
subsection 2.2.
"FUNDING GUARANTOR" has the meaning assigned to that term ins subsection
2.2.
"GUARANTIED OBLIGATIONS" has the meaning assigned to that term in
subsection 2.1.
"GUARANTY" means this Holdings Guaranty dated as of December 18, 1997, as
it may be amended, supplemented or otherwise modified from time to time.
"GRANTOR" has the meaning assigned to that term in the introduction of
this Agreement.
"INTERCREDITOR AGREEMENT" means the Intercreditor Agreement, dated as of
December 18, 1997, by and among CA Administrative Agent, AXEL Administrative
Agent and Collateral Agent.
"INTEREST RATE EXCHANGERS" has the meaning assigned to that term in the
recitals to this Agreement.
"LENDER INTEREST RATE AGREEMENT" has the meaning assigned to that term
in the recitals to this Agreement.
"LOAN" means any "Loan" as defined in any Financing Agreement, and
"LOANS" means all such Loans collectively.
"LOAN DOCUMENT" means any "Loan Document" as defined in any Financing
Agreement, and "LOAN DOCUMENTS" means all such Loan Documents
collectively.
"POTENTIAL EVENT OF DEFAULT" means any "Potential Event of Default" as
defined in any Financing Agreement.
"REQUISITE AXEL LENDERS" means "Requisite Lenders" as defined in the AXEL
Credit Agreement.
"REQUISITE CREDIT AGREEMENT LENDERS" means "Requisite Lenders" as defined
in the Credit Agreement.
"REQUISITE LENDERS" means (A) unless an Acceleration shall have occurred
and be continuing, the Requisite Credit Agreement Lenders and the Requisite
AXEL
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<PAGE>
Lenders, and (B) if an Acceleration has occurred and is continuing, Secured
Parties holding more than 50% of the Financing Agreement Obligations.
"REQUISITE OBLIGEES" has the meaning assigned to that term in
subsection 3.14 of this Agreement.
"SECURED PARTIES" has the meaning assigned to that term in the recitals
to this Agreement.
"PAYMENT IN FULL", "PAID IN FULL" or any similar term means payment
in full of the Guarantied Obligations (other than inchoate indemnification
obligations with respect to claims, losses or liabilities which have not yet
arisen and are not yet due and payable), including without limitation all
principal, interest, costs, fees and expenses (including, without
limitation, reasonable legal fees and expenses) of Beneficiaries as required
under the Loan Documents and the Lender Interest Rate Agreements.
1.2 INTERPRETATION. References to "Sections" and "subsections"
--------------
shall be to Sections and subsections, respectively, of this Guaranty unless
otherwise specifically provided.
SECTION 2. THE GUARANTY
2.1 GUARANTY OF THE GUARANTIED OBLIGATIONS. Guarantor hereby
--------------------------------------
irrevocably and unconditionally guaranties, as primary obligor and not merely as
surety, the due and punctual payment in full of all Guarantied Obligations when
the same shall become due, whether at stated maturity, by required prepayment,
declaration, acceleration, demand or otherwise (including amounts that would
become due but for the operation of the automatic stay under Section 362(a) of
the Bankruptcy Code, 11 U.S.C. (S) 362(a)). The term "GUARANTIED OBLIGATIONS"
is used herein in its most comprehensive sense and includes:
(a) any and all Financing Agreement Obligations of Company and any and
all Interest Rate Obligations, in each case now or hereafter made, incurred
or created, whether absolute or contingent, liquidated or unliquidated,
whether due or not due, and however arising under or in connection with any
Financing Agreement and any other Loan Documents and the Lender Interest
Rate Agreements, including those arising under successive borrowing
transactions under any Financing Agreement which shall either continue the
Financing Agreement Obligations of Company or from time to time renew them
after they have been satisfied and including interest which, but for the
filing of a petition in bankruptcy with respect to Company, would have
accrued on any Guarantied Obligations, whether or not a claim is allowed
against Company for such interest in the related bankruptcy proceeding; and
(b) those expenses set forth in subsection 2.9 hereof.
2.2 CONTRIBUTION BY GUARANTOR. Guarantor under this Guaranty, and each
-------------------------
Subsidiary Guarantor under the Subsidiary Guaranty, together desire to allocate
among
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<PAGE>
themselves (collectively, the "CONTRIBUTING GUARANTORS"), in a fair and
equitable manner, their obligations arising under this Guaranty and the
Subsidiary Guaranty. Accordingly, in the event any payment or distribution is
made on any date by Guarantor under this Guaranty or a Subsidiary Guarantor
under the Subsidiary Guaranty (a "FUNDING GUARANTOR") that exceeds its Fair
Share (as defined below) as of such date, that Funding Guarantor shall be
entitled to a contribution from each of the other Contributing Guarantors in the
amount of such other Contributing Guarantor's Fair Share Shortfall (as defined
below) as of such date, with the result that all such contributions will cause
each Contributing Guarantor's Aggregate Payments (as defined below) to equal its
Fair Share as of such date. "FAIR SHARE" means, with respect to a Contributing
Guarantor as of any date of determination, an amount equal to (i) the ratio of
(x) the Fair Share Contribution Amount (as defined below) with respect to such
Contributing Guarantor to (y) the aggregate of the Fair Share Contribution
Amounts with respect to all Contributing Guarantors multiplied by (ii) the
---------- --
aggregate amount paid or distributed on or before such date by all Funding
Guarantors under this Guaranty and the Subsidiary Guaranty in respect of the
obligations guarantied. "FAIR SHARE SHORTFALL" means, with respect to a
Contributing Guarantor as of any date of determination, the excess, if any, of
the Fair Share of such Contributing Guarantor over the Aggregate Payments of
such Contributing Guarantor. "FAIR SHARE CONTRIBUTION AMOUNT" means, with
respect to a Contributing Guarantor as of any date of determination, the maximum
aggregate amount of the obligations of such Contributing Guarantor under this
Guaranty or the Subsidiary Guaranty, as applicable, that would not render its
obligations hereunder or thereunder subject to avoidance as a fraudulent
transfer or conveyance under Section 548 of Title 11 of the United States Code
or any applicable provisions of comparable state law; provided that, solely for
--------
purposes of calculating the "Fair Share Contribution Amount" with respect to
any Contributing Guarantor for purposes of this subsection 2.2, any assets or
liabilities of such Contributing Guarantor arising by virtue of any rights to
subrogation, reimbursement or indemnification or any rights to or obligations of
contribution hereunder or under subsection 2.2(b) of the Subsidiary Guaranty
shall not be considered as assets or liabilities of such Contributing Guarantor.
"AGGREGATE PAYMENTS" means, with respect to a Contributing Guarantor as of any
date of determination, an amount equal to (i) the aggregate amount of all
payments and distributions made on or before such date by such Contributing
Guarantor in respect of this Guaranty or the Subsidiary Guaranty, as applicable
(including, without limitation, in respect of this subsection 2.2 or subsection
2.2(b) of the Subsidiary Guaranty), minus (ii) the aggregate amount of all
-----
payments received on or before such date by such Contributing Guarantor from the
other Contributing Guarantors as contributions under this subsection 2.2 or
subsection 2.2(b) of the Subsidiary Guaranty. The amounts payable as
contributions hereunder and under subsection 2.2(b) of the Subsidiary Guaranty
shall be determined as of the date on which the related payment or distribution
is made by the applicable Funding Guarantor. The allocation among Contributing
Guarantors of their obligations as set forth in this subsection 2.2 and
subsection 2.2(b) of the Subsidiary Guaranty shall not be construed in any way
to limit the liability of any Contributing Guarantor hereunder or under the
Subsidiary Guaranty. Each Subsidiary Guarantor is a third party beneficiary to
the contribution agreement set forth in this subsection 2.2.
2.3 PAYMENT BY GUARANTOR; APPLICATION OF PAYMENTS. Guarantor hereby
---------------------------------------------
agrees, in furtherance of the foregoing and not in limitation of any other right
which any Beneficiary may have at law or in equity against Guarantor by virtue
hereof, that upon the
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<PAGE>
failure of Company to pay any of the Guarantied Obligations when and as the same
shall become due, whether at stated maturity, by required prepayment,
declaration, acceleration, demand or otherwise (including amounts that would
become due but for the operation of the automatic stay under Section 362(a) of
the Bankruptcy Code, 11 U.S.C. (S) 362(a)), Guarantor will promptly following
written demand pay, or cause to be paid, in cash, to Guarantied Party for the
ratable benefit of Beneficiaries, an amount equal to the sum of the unpaid
principal amount of all Guarantied Obligations then due as aforesaid, accrued
and unpaid interest on such Guarantied Obligations (including, without
limitation, interest which, but for the filing of a petition in bankruptcy with
respect to Company, would have accrued on such Guarantied Obligations, whether
or not a claim is allowed against Company for such interest in the related
bankruptcy proceeding) and all other Guarantied Obligations then owed to
Beneficiaries as aforesaid. All such payments shall be applied promptly from
time to time by Guarantied Party as provided in subsection 3 of the
Intercreditor Agreement.
2.4 LIABILITY OF GUARANTOR ABSOLUTE. Guarantor agrees that its
-------------------------------
obligations hereunder are irrevocable, absolute, independent and unconditional
and shall not be affected by any circumstance which constitutes a legal or
equitable discharge of a guarantor or surety other than payment in full of the
Guarantied Obligations. In furtherance of the foregoing and without limiting
the generality thereof, Guarantor agrees as follows:
(a) This Guaranty is a guaranty of payment when due and not of
collectibility.
(b) The obligations of Guarantor hereunder are independent of the
obligations of Company under the Loan Documents or the Lender Interest Rate
Agreements and the obligations of any other guarantor (including any
Subsidiary Guarantor) of the obligations of Company under the Loan Documents
or the Lender Interest Rate Agreements, and a separate action or actions may
be brought and prosecuted against Guarantor whether or not any action is
brought against Company or any of such other guarantors and whether or not
Company is joined in any such action or actions.
(c) Guarantor's payment of a portion, but not all, of the Guarantied
Obligations shall in no way limit, affect, modify or abridge Guarantor's
liability for any portion of the Guarantied Obligations which has not been
paid. Without limiting the generality of the foregoing, if Guarantied Party
is awarded a judgment in any suit brought to enforce Guarantor's covenant to
pay a portion of the Guarantied Obligations, such judgment shall not be
deemed to release Guarantor from its covenant to pay the portion of the
Guarantied Obligations that is not the subject of such suit.
(d) Any Beneficiary, upon such terms as it deems appropriate, without
notice or demand and without affecting the validity or enforceability of
this Guaranty or giving rise to any reduction, limitation, impairment,
discharge or termination of Guarantor's liability hereunder, from time to
time may (i) renew, extend, accelerate, increase the rate of interest on, or
otherwise change the time, place, manner or terms of payment of the
Guarantied Obligations, (ii) settle, compromise, release or discharge, or
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<PAGE>
accept or refuse any offer of performance with respect to, or substitutions
for, the Guarantied Obligations or any agreement relating thereto and/or
subordinate the payment of the same to the payment of any other obligations;
(iii) request and accept other guaranties of the Guarantied Obligations and
take and hold security for the payment of this Guaranty or the Guarantied
Obligations; (iv) release, surrender, exchange, substitute, compromise,
settle, rescind, waive, alter, subordinate or modify, with or without
consideration, any security for payment of the Guarantied Obligations, any
other guaranties (including the Subsidiary Guaranty) of the Guarantied
Obligations, or any other obligation of any Person with respect to the
Guarantied Obligations; (v) enforce and apply any security now or hereafter
held by or for the benefit of such Beneficiary in respect of this Guaranty
or the Guarantied Obligations and direct the order or manner of sale
thereof, or exercise any other right or remedy that such Beneficiary may
have against any such security, in each case as such Beneficiary in its
discretion may determine consistent with the applicable Financing Agreement
or the applicable Lender Interest Rate Agreement and any applicable security
agreement, including foreclosure on any such security pursuant to one or
more judicial or nonjudicial sales, whether or not every aspect of any such
sale is commercially reasonable, and even though such action operates to
impair or extinguish any right of reimbursement or subrogation or other
right or remedy of Guarantor against Company or any security for the
Guarantied Obligations; and (vi) exercise any other rights available to it
under the Loan Documents or the Lender Interest Rate Agreements.
(e) This Guaranty and the obligations of Guarantor hereunder shall be
valid and enforceable and shall not be subject to any reduction, limitation,
impairment, discharge or termination for any reason (other than payment in
full of the Guarantied Obligations), including without limitation the
occurrence of any of the following, whether or not Guarantor shall have had
notice or knowledge of any of them: (i) any failure or omission to assert
or enforce or agreement or election not to assert or enforce, or the stay or
enjoining, by order of court, by operation of law or otherwise, of the
exercise or enforcement of, any claim or demand or any right, power or
remedy (whether arising under the Loan Documents or the Lender Interest Rate
Agreements, at law, in equity or otherwise) with respect to the Guarantied
Obligations or any agreement relating thereto, or with respect to the
Subsidiary Guaranty or any other guaranty of or security for the payment of
the Guarantied Obligations; (ii) any rescis sion, waiver, amendment or
modification of, or any consent to departure from, any of the terms or
provisions (including without limitation provisions relating to events of
default) of any Financing Agreement, any of the other Loan Documents, any of
the Lender Interest Rate Agreements or any agreement or instrument executed
pursuant thereto, or of the Subsidiary Guaranty or any other guaranty or
security for the Guarantied Obligations, in each case whether or not in
accordance with the terms of such Financing Agreement or such Loan Document,
such Lender Interest Rate Agreement or any agreement relating to the
Subsidiary Guaranty or such other guaranty or security; (iii) the
application of payments received from any source (other than payments
received pursuant to the other Loan Documents or any of the Lender Interest
Rate Agreements or from the proceeds of any security for the Guarantied
Obligations, except to the extent such security also serves as collateral
for indebtedness other than the Guarantied Obligations) to the
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<PAGE>
payment of indebtedness other than the Guarantied Obligations, even though
any Beneficiary might have elected to apply such payment to any part or all
of the Guarantied Obligations; (iv) any Beneficiary's consent to the change,
reorganization or termination of the corporate structure or existence of
Company or any of its Subsidiaries and to any corresponding restructuring of
the Guarantied Obligations; (v) any failure to perfect or continue
perfection of a security interest in any collateral which secures any of the
Guarantied Obligations; (vi) any defenses, set-offs or counterclaims which
Company may allege or assert against any Beneficiary in respect of the
Guarantied Obligations, including but not limited to failure of
consideration, breach of warranty, payment, statute of frauds, statute of
limitations, accord and satisfaction and usury; and (vii) any other act or
thing or omission, or delay to do any other act or thing, which may or might
in any manner or to any extent vary the risk of Guarantor as an obligor in
respect of the Guarantied Obligations.
2.5 WAIVERS BY GUARANTOR. Guarantor hereby waives, for the benefit of
--------------------
Beneficiaries:
(a) any right to require any Beneficiary, as a condition of payment or
performance by Guarantor, to (i) proceed against Company, any other
guarantor (including any Subsidiary Guarantor) of the Guarantied Obligations
or any other Person, (ii) proceed against or exhaust any security held from
Company, any such other guarantor or any other Person, (iii) proceed against
or have resort to any balance of any deposit account or credit on the books
of any Beneficiary in favor of Company or any other Person, or (iv) pursue
any other remedy in the power of any Beneficiary whatsoever;
(b) any defense arising by reason of the incapacity, lack of authority or
any disability or other defense of Company including, without limitation,
any defense based on or arising out of the lack of validity or the
unenforceability of the Guarantied Obligations or any agreement or
instrument relating thereto or by reason of the cessation of the liability
of Company from any cause other than payment in full of the Guarantied
Obligations;
(c) any defense based upon any statute or rule of law which provides that
the obligation of a surety must be neither larger in amount nor in other
respects more burdensome than that of the principal;
(d) any defense based upon any Beneficiary's errors or omissions in the
administration of the Guarantied Obligations, except behavior which amounts
to bad faith, gross negligence or willful misconduct;
(e) (i) any principles or provisions of law, statutory or otherwise,
which are or might be in conflict with the terms of this Guaranty, (ii) the
benefit of any statute of limitations affecting Guarantor's liability
hereunder or the enforcement hereof, (iii) any rights to set-offs,
recoupments and counterclaims, and (iv) promptness,
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<PAGE>
diligence and any requirement that any Beneficiary protect, secure, perfect
or insure any security interest or lien or any property subject thereto; and
(f) notices, demands, presentments, protests, notices of protest, notices
of dishonor and notices of any action or inaction, including acceptance of
this Guaranty, notices of default under the Financing Agreements, the Lender
Interest Rate Agreements or any agreement or instrument related thereto,
notices of any renewal, extension or modification of the Guarantied
Obligations or any agreement related thereto, notices of any extension of
credit to Company and notices of any of the matters referred to in
subsection 2.4 and any right to consent to any thereof.
2.6 CERTAIN CALIFORNIA LAW WAIVERS. As used in this subsection 2.6, any
------------------------------
reference to "the principal" includes Company, and any reference to "the
creditor" includes each Beneficiary. In accordance with Section 2856 of the
California Civil Code:
(a) Guarantor agrees (i) to waive any and all rights of subrogation and
reimbursement against Company or against any collateral or security granted
by Company for any of the Guarantied Obligations and (ii) to withhold the
exercise of any and all rights of contribution against any other guarantor
(including any Subsidiary Guarantor) of any of the Guarantied Obligations
and against any collateral or security granted by any such other guarantor
for any of the Guarantied Obligations until the Guarantied Obligations shall
have been paid in full and the Commitments shall have terminated and all
Letters of Credit shall have expired or been cancelled, all as more fully
set forth in subsection 2.7;
(b) Guarantor waives any and all other rights and defenses available to
Guarantor by reason of Sections 2787 to 2855, inclusive, 2899 and 3433 of
the California Civil Code, including without limitation any and all rights
or defenses Guarantor may have by reason of protection afforded to the
principal with respect to any of the Guarantied Obligations, or to any other
guarantor (including any Subsidiary Guarantor) of any of the Guarantied
Obligations with respect to any of such guarantor's obligations under its
guaranty, in either case pursuant to the antideficiency or other laws of the
State of California limiting or discharging the principal's indebtedness or
such guarantor's obligations, including without limitation Section 580a,
580b, 580d, or 726 of the California Code of Civil Procedure; and
(c) Guarantor waives all rights and defenses arising out of an election
of remedies by the creditor, even though that election of remedies, such as
a nonjudicial foreclosure with respect to security for any Guarantied
Obligation, has destroyed Guarantor's rights of subrogation and
reimbursement against the principal by the operation of Section 580d of the
Code of Civil Procedure or otherwise; and even though that election of
remedies by the creditor, such as nonjudicial foreclosure with respect to
security for an obligation of any other guarantor (including any Subsidiary
Guarantor) of any of the Guarantied Obligations, has destroyed Guarantor's
rights of contribution against such other guarantor.
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No other provision of this Guaranty shall be construed as limiting the
generality of any of the covenants and waivers set forth in this subsection 2.6.
In accordance with subsection 3.6 below, this Guaranty shall be governed by, and
shall be construed and enforced in accordance with, the internal laws of the
State of New York, without regard to conflicts of laws principles. This
subsection 2.6 is included solely out of an abundance of caution, and shall not
be construed to mean that any of the above-referenced provisions of California
law are in any way applicable to this Guaranty or to any of the Guarantied
Obligations.
2.7 GUARANTOR'S RIGHTS OF SUBROGATION, CONTRIBUTION, ETC. Guarantor
----------------------------------------------------
hereby waives any claim, right or remedy, direct or indirect, that Guarantor now
has or may hereafter have against Company or any of its assets in connection
with this Guaranty or the performance by Guarantor of its obligations hereunder,
in each case whether such claim, right or remedy arises in equity, under
contract, by statute (including without limitation under California Civil Code
Section 2847, 2848 or 2849), under common law or otherwise and including without
limitation (a) any right of subrogation, reimbursement or indemnification that
Guarantor now has or may hereafter have against Company with respect to the
Guarantied Obligations, (b) any right to enforce, or to participate in, any
claim, right or remedy that any Beneficiary now has or may hereafter have
against Company, and (c) any benefit of, and any right to participate in, any
collateral or security now or hereafter held by any Beneficiary. In addition,
until the Guarantied Obligations shall have been indefeasibly paid in full and
the Commitments shall have terminated and all Letters of Credit shall have
expired or been cancelled, Guarantor shall withhold exercise of any right of
contribution Guarantor may have against any other guarantor of the Guarantied
Obligations (including without limitation any such right of contribution under
California Civil Code Section 2848 or under the Subsidiary Guaranty as
contemplated by subsection 2.2). Guarantor further agrees that, to the extent
the waiver or agreement to withhold the exercise of its rights of subrogation,
reimbursement, indemnification and contribution as set forth herein is found by
a court of competent jurisdiction to be void or voidable for any reason, any
rights of subrogation, reimbursement or indemnification Guarantor may have
against Company or against any collateral or security, and any rights of
contribution Guarantor may have against any such other guarantor, shall be
junior and subordinate to any rights any Beneficiary may have against Company,
to all right, title and interest any Beneficiary may have in any such collateral
or security, and to any right any Beneficiary may have against such other
guarantor. If any amount shall be paid to Guarantor on account of any such
subrogation, reimbursement, indemnification or contribution rights at any time
when all Guarantied Obligations shall not have been paid in full, such amount
shall be held in trust for Guarantied Party on behalf of Beneficiaries and shall
forthwith be paid over to Guarantied Party for the benefit of Beneficiaries to
be credited and applied against the Guarantied Obligations, whether matured or
unmatured, in accordance with the terms hereof.
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<PAGE>
2.8 SUBORDINATION OF OTHER OBLIGATIONS. Any indebtedness of Company now
----------------------------------
or hereafter held by Guarantor is hereby subordinated in right of payment to the
Guarantied Obligations (except for indebtedness of Company arising from tax
payments made by Guarantor on behalf of Company), and any such indebtedness of
Company to Guarantor collected or received by Guarantor after an Event of
Default has occurred and is continuing shall be held in trust for Guarantied
Party on behalf of Beneficiaries and shall forthwith be paid over to Guarantied
Party for the benefit of Beneficiaries to be credited and applied against the
Guarantied Obligations but without affecting, impairing or limiting in any
manner the liability of Guarantor under any other provision of this Guaranty.
2.9 EXPENSES. Guarantor agrees to pay, or cause to be paid, promptly
--------
upon written demand, and to save Beneficiaries harmless against liability for,
any and all reasonable costs and reasonable expenses (including reasonable fees
and reasonable disbursements of counsel and allocated costs of internal counsel)
incurred or expended by any Beneficiary in connection with the enforcement of or
preservation of any rights under this Guaranty.
2.10 CONTINUING GUARANTY; TERMINATION OF GUARANTY. This Guaranty is a
--------------------------------------------
continuing guaranty and shall remain in effect until all of the Guarantied
Obligations shall have been paid in full and the Commitments shall have
terminated and all Letters of Credit shall have expired or been cancelled.
Guarantor hereby irrevocably waives any right (including without limitation any
such right arising under California Civil Code Section 2815) to revoke this
Guaranty as to future transactions giving rise to any Guarantied Obligations.
2.11 AUTHORITY OF GUARANTOR OR COMPANY. It is not necessary for any
---------------------------------
Beneficiary to inquire into the capacity or powers of Guarantor or Company or
the officers, directors or any agents acting or purporting to act on behalf of
any of them.
2.12 FINANCIAL CONDITION OF COMPANY. Any Loans may be granted to Company
------------------------------
or continued from time to time, and any Lender Interest Rate Agreements may be
entered into from time to time, in each case without notice to or authorization
from Guarantor regardless of the financial or other condition of Company at the
time of any such grant or continuation or at the time such Lender Interest Rate
Agreement is entered into, as the case may be. No Beneficiary shall have any
obligation to disclose or discuss with Guarantor its assessment, or Guarantor's
assessment, of the financial condition of Company. Guarantor has adequate means
to obtain information from Company on a continuing basis concerning the
financial condition of Company and its ability to perform its obligations under
the Loan Documents and the Lender Interest Rate Agreements, and Guarantor
assumes the responsibility for being and keeping informed of the financial
condition of Company and of all circumstances bearing upon the risk of
nonpayment of the Guarantied Obligations. Guarantor hereby waives and
relinquishes any duty on the part of any Beneficiary to disclose any matter,
fact or thing relating to the business, operations or conditions of Company now
known or hereafter known by any Beneficiary.
2.13 RIGHTS CUMULATIVE. The rights, powers and remedies given to
-----------------
Beneficiaries by this Guaranty are cumulative and shall be in addition to and
independent of all rights, powers and remedies given to Beneficiaries by virtue
of any statute or rule of law or in any of the other Loan Documents, any of the
Lender Interest Rate Agreements or any agreement
XXI-12
<PAGE>
between Guarantor and any Beneficiary or Beneficiaries or between Company and
any Beneficiary or Beneficiaries. Any forbearance or failure to exercise, and
any delay by any Beneficiary in exercising, any right, power or remedy hereunder
shall not impair any such right, power or remedy or be construed to be a waiver
thereof, nor shall it preclude the further exercise of any such right, power or
remedy.
2.14 BANKRUPTCY; POST-PETITION INTEREST; REINSTATEMENT OF GUARANTY. (a)
-------------------------------------------------------------
So long as any Guarantied Obligations remain outstanding, Guarantor shall not,
without the prior written consent of Guarantied Party acting pursuant to the
instructions of Requisite Obligees (as defined in subsection 3.12), commence or
join with any other Person in commencing any bankruptcy, reorganization or
insolvency proceedings of or against Company. The obligations of Guarantor
under this Guaranty shall not be reduced, limited, impaired, discharged,
deferred, suspended or terminated by any proceeding, voluntary or involuntary,
involving the bankruptcy, insolvency, receivership, reorganization, liquidation
or arrangement of Company or by any defense which Company may have by reason of
the order, decree or decision of any court or administrative body resulting from
any such proceeding. The agreements of Guarantor in this subsection 2.14(a)
shall not alter or impair its rights as a shareholder of Borrower.
(b) Guarantor acknowledges and agrees that any interest on any portion
of the Guarantied Obligations which accrues after the commencement of any
proceeding referred to in clause (a) above (or, if interest on any portion of
the Guarantied Obligations ceases to accrue by operation of law by reason of the
commencement of said proceeding, such interest as would have accrued on such
portion of the Guarantied Obligations if said proceedings had not been
commenced) shall be included in the Guarantied Obligations because it is the
intention of Guarantor and Beneficiaries that the Guarantied Obligations which
are guarantied by Guarantor pursuant to this Guaranty should be determined
without regard to any rule of law or order which may relieve Company of any
portion of such Guarantied Obligations. Guarantor will permit any trustee in
bankruptcy, receiver, debtor in possession, assignee for the benefit of
creditors or similar person to pay Guarantied Party, or allow the claim of
Guarantied Party in respect of, any such interest accruing after the date on
which such proceeding is commenced.
(c) In the event that all or any portion of the Guarantied Obligations
are paid by Company, the obligations of Guarantor hereunder shall continue and
remain in full force and effect or be reinstated, as the case may be, in the
event that all or any part of such payment(s) are rescinded or recovered
directly or indirectly from any Beneficiary as a preference, fraudulent transfer
or otherwise, and any such payments which are so rescinded or recovered shall
constitute Guarantied Obligations for all purposes under this Guaranty until
indefeasibly paid in full.
2.15 SET OFF. In addition to any other rights any Beneficiary may have
-------
under law or in equity, if any amount shall at any time be due and owing by
Guarantor to any Beneficiary under this Guaranty, such Beneficiary is authorized
at any time or from time to time, without notice (any such notice being hereby
expressly waived), to set off and to appropriate and to apply any and all
deposits (general or special, including but not limited to indebtedness
evidenced by certificates of deposit, whether matured or unmatured) and any
other indebtedness of such Beneficiary owing to Guarantor and any other property
of Guarantor held by any
XXI-13
<PAGE>
Beneficiary to or for the credit or the account of Guarantor against and on
account of the Guarantied Obligations and liabilities of Guarantor to any
Beneficiary under this Guaranty.
SECTION 3. MISCELLANEOUS
3.1 SURVIVAL OF WARRANTIES. All agreements, representations and
----------------------
warranties made herein shall survive the execution and delivery of this Guaranty
and the other Loan Documents and the Lender Interest Rate Agreements and any
increase in the Commitments under any Financing Agreement.
3.2 NOTICES. Any communications between Guarantied Party and Guarantor
-------
and any notices or requests provided herein to be given may be given by mailing
the same, postage prepaid, or by telex, facsimile transmission or cable to each
such party at its addresses set forth in the Financing Agreements, on the
signature pages hereof or to such other addresses as each such party may in
writing hereafter indicate. Any notice, request or demand to or upon Guarantied
Party or Guarantor shall not be effective until received.
3.3 SEVERABILITY. In case any provision in or obligation under this
------------
Guaranty shall be invalid, illegal or unenforceable in any jurisdiction, the
validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction, shall
not in any way be affected or impaired thereby.
3.4 AMENDMENTS AND WAIVERS. No amendment, modification, termination or
----------------------
waiver of any provision of this Guaranty, and no consent to any departure by
Guarantor therefrom, shall in any event be effective without the written
concurrence of Guarantied Party and, in the case of any such amendment or
modification, Guarantor. Any such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which it was given.
3.5 HEADINGS. Section and subsection headings in this Guaranty are
--------
included herein for convenience of reference only and shall not constitute a
part of this Guaranty for any other purpose or be given any substantive effect.
3.6 APPLICABLE LAW. THIS GUARANTY AND THE RIGHTS AND OBLIGATIONS OF
--------------
GUARANTOR AND BENEFICIARIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW
YORK (INCLUDING WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW
OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
3.7 SUCCESSORS AND ASSIGNS. This Guaranty is a continuing guaranty and
----------------------
shall be binding upon Guarantor and its successors and assigns. This Guaranty
shall inure to the benefit of Beneficiaries and their respective successors and
assigns. Guarantor shall not assign this Guaranty or any of the rights or
obligations of Guarantor hereunder without the prior written consent of all
Lenders. Any Beneficiary may, without notice or consent, assign its
XXI-14
<PAGE>
interest in this Guaranty in whole or in part. The terms and provisions of this
Guaranty shall inure to the benefit of any transferee or assignee of any Loan,
and in the event of such transfer or assignment the rights and privileges herein
conferred upon such Beneficiary shall automatically extend to and be vested in
such transferee or assignee, all subject to the terms and conditions hereof.
3.8 NO OTHER WRITING. This writing is intended by Guarantor and
----------------
Beneficiaries as the final expression of this Guaranty and is also intended as a
complete and exclusive statement of the terms of their agreement with respect to
the matters covered hereby. No course of dealing, course of performance or
trade usage, and no parol evidence of any nature, shall be used to supplement or
modify any terms of this Guaranty. There are no conditions to the full
effectiveness of this Guaranty.
3.9 FURTHER ASSURANCES. At any time or from time to time, upon the
------------------
request of Guarantied Party, Guarantor shall execute and deliver such further
documents and do such other acts and things as Guarantied Party may reasonably
request in order to effect fully the purposes of this Guaranty.
3.10 GUARANTIED PARTY AS COLLATERAL AGENT.
------------------------------------
(a) Guarantied Party has been appointed to act as Guarantied Party
hereunder by CA Administrative Agent on behalf of the Credit Agreement Lenders
and by AXEL Administrative Agent on behalf of the AXEL Lenders pursuant to the
Intercreditor Agreement, and by their acceptance of the benefits hereof,
Interest Rate Exchangers and shall be entitled to the benefits of the
Intercreditor Agreement. Guarantied Party shall be obligated, and shall have
the right hereunder, to make demands, to give notices, to exercise or refrain
from exercising any rights, and to take or refrain from taking any action,
solely in accordance with this Guaranty and Intercreditor Agreement; provided
--------
that Guarantied Party shall exercise, or refrain from exercising, any remedies
hereunder in accordance with the instructions of (i) Requisite Lenders or (ii)
after payment in full of all Financing Agreement Obligations under the Financing
Agreements and any other Loan Documents, the holders of a majority of the
aggregate notional amount (or, with respect to any Lender Interest Rate
Agreement that has been terminated in accordance with its terms, the amount then
due and payable (exclusive of expenses and similar payments but including any
early termination payments then due) under such Lender Interest Rate Agreement)
under all Lender Interest Rate Agreements (Requisite Lenders or, if applicable,
such holders being referred to herein as "REQUISITE OBLIGEES"). In
furtherance of the foregoing provisions of this subsection 3.12, each Interest
Rate Exchanger, by its acceptance of the benefits hereof, agrees that it shall
have no right individually to enforce this Guaranty, it being understood and
agreed by such Interest Rate Exchanger that all rights and remedies hereunder
may be exercised solely by Guarantied Party for the benefit of Beneficiaries in
accordance with the terms of this subsection 3.12.
(b) Guarantied Party shall at all times be the same Person that is
Collateral Agent under the Intercreditor Agreement. The Collateral Agent may
resign and a successor Collateral Agent may be appointed in the manner provided
in the Intercreditor Agreement. Written notice of resignation by Collateral
Agent pursuant to the Intercreditor Agreement shall also constitute
XXI-15
<PAGE>
notice of resignation as Guarantied Party under this Guaranty; removal of
Collateral Agent pursuant to the Intercreditor Agreement shall also constitute
removal as Guarantied Party under this Guaranty; and appointment of a successor
Collateral Agent pursuant to the Intercreditor Agreement shall also constitute
appointment of a successor Guarantied Party under this Guaranty. Upon the
acceptance of any appointment as Collateral Agent by a successor Collateral
Agent, that successor Collateral Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring or
removed Guarantied Party under this Guaranty, and the retiring or removed
Guarantied Party under this Guaranty shall promptly (i) transfer to such
successor Guarantied Party all sums held hereunder, together with all records
and other documents necessary or appropriate in connection with the performance
of the duties of the successor Guarantied Party under this Guaranty, and (ii)
take such other actions as may be necessary or appropriate in connection with
the assignment to such successor Guarantied Party of the rights created
hereunder, whereupon such retiring or removed Guarantied Party shall be
discharged from its duties and obligations under this Guaranty. After any
retiring or removed Guarantied Party's resignation or removal hereunder as
Guarantied Party, the provisions of this Guaranty shall inure to its benefit as
to any actions taken or omitted to be taken by it under this Guaranty while it
was Guarantied Party hereunder.
[Remainder of page intentionally left blank]
XXI-16
<PAGE>
IN WITNESS WHEREOF, Guarantor has caused this Guaranty to be duly executed and
delivered by its officer thereunto duly authorized as of the date first written
above.
SEALY CORPORATION
By:
------------------------------------
Name:
Title:
XXI-17
<PAGE>
EXHIBIT XXII
[FORM OF HOLDINGS PLEDGE AGREEMENT]
HOLDINGS PLEDGE AGREEMENT
This HOLDINGS PLEDGE AGREEMENT (this "AGREEMENT") is dated as of
December 18, 1997 and entered into by and between SEALY CORPORATION, a Delaware
corporation ("PLEDGOR"), and MORGAN GUARANTY TRUST COMPANY OF NEW YORK
("MORGAN GUARANTY"), as Collateral Agent for and representative of (in such
capacity herein called "COLLATERAL AGENT") the Secured Parties (as hereinafter
defined) and any Interest Rate Exchangers (as hereinafter defined).
RECITALS
A. Pledgor is the legal and beneficial owner of (i) the shares of stock
(the "PLEDGED SHARES") described in Part A of Schedule I annexed hereto and
----------
issued by the corporations named therein and (ii) the indebtedness (the
"PLEDGED DEBT") described in Part B of said Schedule I and issued by the
----------
obligors named therein.
B. Sealy Mattress Company, an Ohio Corporation ("COMPANY"), Pledgor,
the financial institutions from time to time parties thereto (the "CREDIT
AGREEMENT LENDERS"), Goldman Sachs Credit Partners L.P. ("GSCP"), as arranger
and syndication agent (in such capacity, "CA SYNDICATION AGENT"), Morgan
Guaranty, as administrative agent (in such capacity, "CA ADMINISTRATIVE
AGENT"), and Bankers Trust Company ("BTCO."), as documentation agent (in such
capacity, "CA DOCUMENTATION AGENT") have entered into a Credit Agreement dated
as of December 18, 1997 (said Credit Agreement, as it may hereafter be amended,
restated, supplemented or otherwise modified from time to time, being the
("CREDIT AGREEMENT") pursuant to which Credit Agreement Lenders have made
certain commitments, subject to the terms and conditions set forth in the Credit
Agreement, to extend certain credit facilities to Company.
C. Company, Pledgor, the financial institutions from time to time
parties thereto (the "AXEL LENDERS"), GSCP, as arranger and syndication agent
(in such capacity, "AXEL SYNDICATION AGENT"), Morgan Guaranty, as
administrative agent (in such capacity, "AXEL ADMINISTRATIVE AGENT"), and
BTCo., as documentation agent (in such capacity, "AXEL DOCUMENTATION AGENT")
have entered into an AXEL Credit Agreement dated as of December 18, 1997 (said
AXEL Credit Agreement, as it may hereafter be amended, restated, supplemented or
otherwise modified from time to time, being the "AXEL CREDIT AGREEMENT"; the
Credit Agreement Lenders, the CA Syndication Agent, the CA Administrative Agent,
the CA Documentation Agent, the AXEL Lenders, the AXEL Syndication Agent, the
AXEL Administrative Agent, and the AXEL Documentation Agent each being a
"SECURED PARTY" and collectively the "SECURED PARTIES") pursuant to which
AXEL
XXII-1
<PAGE>
Lenders have made certain commitments, subject to the terms and conditions set
forth in the AXEL Credit Agreement, to extend certain credit facilities to
Company.
D. Company may from time to time enter into one or more Interest Rate
Agreements (collectively, the "LENDER INTEREST RATE AGREEMENTS") with one or
more CA Lenders or their Affiliates or AXEL Lenders or their Affiliates (in such
capacity, collectively, "INTEREST RATE EXCHANGERS").
E. Pledgor has executed and delivered that certain Holdings Guaranty
dated as of December 18, 1997 (said Holdings Guaranty, as it may hereafter be
amended, supplemented or otherwise modified from time to time, being the
"GUARANTY") in favor of Collateral Agent for the benefit of Secured Parties
and any Interest Rate Exchangers, pursuant to which Pledgor has guarantied the
prompt payment and performance when due of all obligations of Company under the
Financing Agreements and all obligations of Company under the Lender Interest
Rate Agreements, including without limitation the obligation of Company to make
payments, if any, thereunder in the event of early termination thereof.
F. It is a condition precedent to the initial extensions of credit by
Secured Parties under the Financing Agreements that Pledgor shall have granted
the security interests and undertaken the obligations contemplated by this
Agreement.
NOW, THEREFORE, in consideration of the premises and to induce (i) the CA
Administrative Agent, the CA Syndication Agent and the Credit Agreement Lenders
to enter into the Credit Agreement, (ii) the Credit Agreement Lenders to make
their respective loans to, and issue Letters of Credit for the account of, the
Company, (iii) the AXEL Administrative Agent, the AXEL Syndication Agent and the
AXEL Lenders to enter into the AXEL Loan Agreement, (iv) the AXEL Lenders to
make their respective loans to the Company and (v) to induce Interest Rate
Exchangers to enter into the Lender Interest Rate Agreements, and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Pledgor hereby agrees with Collateral Agent as follows:
SECTION 1. DEFINED TERMS
-------------
(a) Unless otherwise defined herein, terms defined in the Credit
Agreement and used herein shall have the meanings given to such terms in the
Credit Agreement;
(b) The following terms shall have the following meanings:
"ACCELERATION" shall mean any of the Credit Agreement Obligations or
the AXEL Credit Agreement Obligations have been declared, or have become,
immediately due and payable, or the commitments to extend credit of the Credit
Agreement Lenders or the AXEL Lenders shall have been terminated under Section 8
of the Credit Agreement or Section 7 of the AXEL Credit Agreement, respectively.
XXII-2
<PAGE>
"ADDITIONAL PLEDGED SHARES" has the meaning assigned to that term in
Section 2(c) of this Agreement.
"AGREEMENT" means this Company Pledge Agreement dated as of December
18, 1997, as it may be amended, supplemented or otherwise modified from time to
time.
"AXEL CREDIT AGREEMENT" has the meaning assigned to that term in the
recitals to this Agreement.
"AXEL COMMITMENTS" shall mean "Commitments" as defined in the AXEL
Credit Agreement.
"AXEL OBLIGATIONS" shall mean "Obligations" as defined in the AXEL
Credit Agreement.
"COLLATERAL ACCOUNTS" shall mean "Collateral Accounts" as defined in
the Intercreditor Agreement.
"COMMITMENTS" means the Credit Agreement Commitments and the AXEL
Commitments.
"CREDIT AGREEMENT" has the meaning assigned to that term in the
recitals to this Agreement.
"CREDIT AGREEMENT COMMITMENTS" shall mean the "Commitments" as
defined in the Credit Agreement.
"CREDIT AGREEMENT OBLIGATIONS" shall mean the "Obligations" as
defined in the Credit Agreement.
"EVENT OF DEFAULT" means any "Event of Default" as defined in any
Financing Agreement or the occurrence of an Event of Default in which Company is
the Defaulting Party and which results in the designation of an Early
Termination Date (as such terms are defined in a Master Agreement or an Interest
Rate Swap Agreement or Interest Rate and Currency Exchange Agreement in the form
prepared by the International Swap and Derivatives Association Inc. or a similar
event under any similar swap agreement) under any Lender Interest Rate
Agreement.
"FINANCING AGREEMENT" means the Credit Agreement or the AXEL Credit
Agreement, and "Financing Agreements" means the Credit Agreement and the AXEL
Credit Agreement, collectively.
"FINANCING AGREEMENT OBLIGATIONS" means Credit Agreement Obligations
and AXEL Obligations.
XXII-3
<PAGE>
"INTERCREDITOR AGREEMENT" means the Intercreditor Agreement, dated as
of December 18, 1997, by and among CA Administrative Agent, AXEL Administrative
Agent and Collateral Agent.
"INTEREST RATE EXCHANGERS" has the meaning assigned to that term in the
recitals to this Agreement.
"LENDER INTEREST RATE AGREEMENT" has the meaning assigned to that term
in the recitals to this Agreement.
"LOAN" means any "Loan" as defined in any Financing Agreement, and
"LOANS" means all such Loans collectively.
"LOAN DOCUMENT" means any "Loan Document" as defined in any Financing
Agreement, and "LOAN DOCUMENTS" means all such Loan Documents collectively.
"NEW PLEDGED SHARES" has the meaning assigned to that term in Section
2(e) of this Agreement.
"PLEDGE AMENDMENT" has the meaning assigned to that term in Section 7
of this Agreement.
"PLEDGED COLLATERAL" has the meaning assigned to that term in Section 2
of this Agreement.
"PLEDGED DEBT" has the meaning assigned to that term in the recitals to
this Agreement.
"PLEDGED SHARES" has the meaning assigned to that term in the recitals
to this Agreement.
"PLEDGOR" has the meaning assigned to that term in the introduction of
this Agreement.
"POTENTIAL EVENT OF DEFAULT" means any "Potential Event of Default"
as defined in any Financing Agreement.
"REQUISITE AXEL LENDERS" means "Requisite Lenders" as defined in the
AXEL Credit Agreement.
"REQUISITE CREDIT AGREEMENT LENDERS" means "Requisite Lenders" as
defined in the Credit Agreement.
"REQUISITE LENDERS" means (A) unless an Acceleration shall have
occurred and be continuing, the Requisite Credit Agreement Lenders and the
Requisite AXEL Lenders, and (B)
XXII-4
<PAGE>
if an Acceleration has occurred and is continuing, Secured Parties holding more
than 50% of the Financing Agreement Obligations.
"REQUISITE OBLIGEES" has the meaning assigned to that term in Section
17(a) of this Agreement.
"SECURED OBLIGATIONS" has the meaning assigned to that term in Section
3 of this Agreement.
"SECURED PARTIES" has the meaning assigned to that term in the recitals
to this Agreement.
SECTION 2. PLEDGE OF SECURITY.
------------------
Pledgor hereby pledges and assigns to Secured Party, and hereby grants to
Collateral Agent a security interest in, all of Pledgor's right, title and
interest in and to the following (the "PLEDGED COLLATERAL"):
(a) the Pledged Shares and the certificates representing the Pledged
Shares and any interest of Pledgor in the entries on the books of any
financial intermediary pertaining to the Pledged Shares, and all dividends,
cash, warrants, rights, instruments and other property or proceeds from time
to time received, receivable or otherwise distributed in respect of or in
exchange for any or all of the Pledged Shares;
(b) the Pledged Debt and the instruments evidencing the Pledged Debt, and
all interest, cash, instruments and other property or proceeds from time to
time received, receivable or otherwise distributed in respect of or in
exchange for any or all of the Pledged Debt;
(c) all additional shares of, and all securities convertible into and
warrants, options and other rights to purchase or otherwise acquire, stock
of any issuer of the Pledged Shares from time to time acquired by Pledgor in
any manner (which shares shall be deemed to be part of the Pledged Shares),
the certificates or other instruments representing such additional shares,
securities, warrants, options or other rights and any interest of Pledgor in
the entries on the books of any financial intermediary pertaining to such
additional shares (all such shares, securities, warrants, options, rights,
certificates, instruments and interests collectively being "ADDITIONAL
PLEDGED SHARES"), and all dividends, cash, warrants, rights, instruments
and other property or proceeds from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of such
Additional Pledged Shares;
(d) all additional indebtedness from time to time owed to Pledgor by any
obligor on the Pledged Debt and the instruments evidencing such
indebtedness, and all interest, cash, instruments and other property or
proceeds from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of such indebtedness;
XXII-5
<PAGE>
(e) all shares of, and all securities convertible into and warrants,
options and other rights to purchase or otherwise acquire, stock of any
Person that, after the date of this Agreement, becomes, as a result of any
occurrence, a Subsidiary of Pledgor (which shares shall be deemed to be part
of the Pledged Shares), the certificates or other instruments representing
such shares, securities, warrants, options or other rights and any interest
of Pledgor in the entries on the books of any financial intermediary
pertaining to such shares (all such shares, securities, warrants, options,
rights, certificates, instruments and interests collectively being "NEW
PLEDGED SHARES"), and all dividends, cash, warrants, rights, instruments
and other property or proceeds from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of such
shares, securities, warrants, options or other rights;
(f) all indebtedness from time to time owed to Pledgor by any Person
that, after the date of this Agreement, becomes, as a result of any
occurrence, a Subsidiary of Pledgor, and all interest, cash, instruments and
other property or proceeds from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of such
indebtedness; and
(g) to the extent not covered by clauses (a) through (f) above, all
proceeds of any or all of the foregoing Pledged Collateral. For purposes of
this Agreement, the term "PROCEEDS" includes whatever is receivable or
received when Pledged Collateral or proceeds are sold, exchanged, collected
or otherwise disposed of, whether such disposition is voluntary or
involuntary, and includes, without limitation, proceeds of any indemnity or
guaranty payable to Pledgor or Collateral Agent from time to time with
respect to any of the Pledged Collateral.
SECTION 3. SECURITY FOR OBLIGATIONS.
------------------------
This Agreement secures, and the Pledged Collateral is collateral security
for, the prompt payment or performance in full when due, whether at stated
maturity, by required prepayment, declaration, acceleration, demand or otherwise
(including the payment of amounts that would become due but for the operation of
the automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C.
(S)362(a)), of all obligations and liabilities of every nature of Pledgor now or
hereafter existing under or arising out of or in connection with the Guaranty
and all extensions or renewals thereof, whether for principal, interest
(including without limitation interest that, but for the filing of a petition in
bankruptcy with respect to Company, would accrue on such obligations, whether or
not a claim is allowed against Company for such interest in the related
bankruptcy proceeding), reimbursement of amounts drawn under Letters of Credit,
payments for early termination of Lender Interest Rate Agreements, fees,
expenses, indemnities or otherwise, whether voluntary or involuntary, direct or
indirect, absolute or contingent, liquidated or unliquidated, whether or not
jointly owed with others, and whether or not from time to time decreased or
extinguished and later increased, created or incurred, and all or any portion of
such obligations or liabilities that are paid, to the extent all or any part of
such payment is avoided or recovered directly or indirectly from Collateral
Agent or any Secured Party or Interest Rate Exchanger as a preference,
fraudulent transfer or otherwise, and all
XXII-6
<PAGE>
obligations of every nature of Pledgor now or hereafter existing under this
Agreement (all such obligations of Pledgor being the "SECURED OBLIGATIONS").
SECTION 4. DELIVERY OF PLEDGED COLLATERAL.
------------------------------
All certificates or instruments representing or evidencing the Pledged
Collateral shall be delivered to and held by or on behalf of Collateral Agent
pursuant hereto and shall be in suitable form for transfer by delivery or, as
applicable, shall be accompanied by Pledgor's endorsement, where necessary, or
duly executed instruments of transfer or assignment in blank, all in form and
substance reasonably satisfactory to Collateral Agent. Upon the occurrence and
during the continuation of an Event of Default, Collateral Agent shall have the
right, without notice to Pledgor, to transfer to or to register in the name of
Collateral Agent or any of its nominees any or all of the Pledged Collateral,
subject only to the revocable rights specified in Section 8(a). In addition,
upon the occurrence and during the continuance of an Event of Default,
Collateral Agent shall have the right at any time to exchange certificates or
instruments representing or evidencing Pledged Collateral for certificates or
instruments of smaller or larger denominations.
SECTION 5. REPRESENTATIONS AND WARRANTIES.
------------------------------
Pledgor represents and warrants as follows:
(a) Due Authorization, etc. of Pledged Collateral. All of the Pledged
---------------------------------------------
Shares have been duly authorized and validly issued and are fully paid and
non-assessable. All of the Pledged Debt has been duly authorized,
authenticated or issued, and delivered and is the legal, valid and binding
obligation of the issuers thereof and is not in default.
(b) Description of Pledged Collateral. The Pledged Shares constitute the
---------------------------------
percentage of the issued and outstanding shares of stock of each issuer
thereof set forth on Schedule I annexed hereto, and there are no outstanding
----------
warrants, options or other rights to purchase, or other agreements
outstanding with respect to, or property that is now or hereafter
convertible into, or that requires the issuance or sale of, any Pledged
Shares. The Pledged Debt constitutes all of the issued and outstanding
intercompany indebtedness evidenced by a promissory note of the respective
issuers thereof owing to Pledgor.
(c) Ownership of Pledged Collateral. Pledgor is the legal, record and
-------------------------------
beneficial owner of the Pledged Collateral free and clear of any Lien except
for the security interest created by this Agreement.
XXII-7
<PAGE>
SECTION 6. TRANSFERS AND OTHER LIENS; ADDITIONAL PLEDGED COLLATERAL; ETC.
--------------------------------------------------------------
Pledgor shall:
(a) not, except as expressly permitted by the Financing Agreements (i)
sell, assign (by operation of law or otherwise) or otherwise dispose of, or
grant any option with respect to, any of the Pledged Collateral, (ii) create
or suffer to exist any Lien upon or with respect to any of the Pledged
Collateral, except for the security interest under this Agreement, or (iii)
permit any issuer of Pledged Shares to merge or consolidate;
(b) (i) cause each issuer of Pledged Shares not to issue any stock or
other securities in addition to or in substitution for the Pledged Shares
issued by such issuer, except to Pledgor, (ii) pledge hereunder, immediately
upon its acquisition (directly or indirectly) thereof, any and all
additional shares of stock or other securities of each issuer of Pledged
Shares, and (iii) pledge hereunder, immediately upon its acquisition
(directly or indirectly) thereof, any and all shares of stock of any Person
that, after the date of this Agreement, becomes, as a result of any
occurrence, a direct Subsidiary of Pledgor;
(c) (i) pledge hereunder, immediately upon their issuance, any and all
instruments or other evidences of additional indebtedness from time to time
owed to Pledgor by any obligor on the Pledged Debt, and (ii) pledge
hereunder, immediately upon their issuance, any and all instruments or other
evidences of indebtedness from time to time owed to Pledgor by any Person
that after the date of this Agreement becomes, as a result of any
occurrence, a Subsidiary of Pledgor;
(d) pay promptly when due all taxes, assessments and governmental charges
or levies imposed upon, and all claims against, the Pledged Collateral,
except to the extent the validity thereof is being contested in good faith.
SECTION 7. FURTHER ASSURANCES; PLEDGE AMENDMENTS.
-------------------------------------
(a) Pledgor agrees that from time to time, at the expense of Pledgor,
Pledgor will promptly execute and deliver all further instruments and documents,
and take all further action that Collateral Agent may reasonably request, in
order to perfect and protect any security interest granted or purported to be
granted hereby or to enable Collateral Agent to exercise and enforce its rights
and remedies hereunder with respect to any Pledged Collateral. Without limiting
the generality of the foregoing, Pledgor will: (i) execute and file such
financing or continuation statements, or amendments thereto, and such other
instruments or notices, or as Collateral Agent may reasonably request, in order
to perfect and preserve the security interests granted or purported to be
granted hereby and (ii) at Secured Party's reasonable request, appear in and
defend any action or proceeding that may affect Pledgor's title to or Secured
Party's security interest in all or any part of the Pledged Collateral.
XXII-8
<PAGE>
(b) Pledgor further agrees that it will, upon obtaining any additional
shares of stock or other securities required to be pledged hereunder as provided
in Section 6(b) or (c), promptly (and in any event within five Business Days)
deliver to Collateral Agent a Pledge Amendment, duly executed by Pledgor, in
substantially the form of Schedule II annexed hereto (a "PLEDGE AMENDMENT"),
-----------
in respect of the additional Pledged Shares or Pledged Debt to be pledged
pursuant to this Agreement. Pledgor hereby authorizes Collateral Agent to
attach each Pledge Amendment to this Agreement and agrees that all Pledged
Shares or Pledged Debt listed on any Pledge Amendment delivered to Collateral
Agent shall for all purposes hereunder be considered Pledged Collateral;
provided that the failure of Pledgor to execute a Pledge Amendment with respect
- --------
to any additional Pledged Shares or Pledged Debt pledged pursuant to this
Agreement shall not impair the security interest of Collateral Agent therein or
otherwise adversely affect the rights and remedies of Collateral Agent hereunder
with respect thereto.
SECTION 8. VOTING RIGHTS; DIVIDENDS; ETC.
------------------------------
(a) So long as no Event of Default shall have occurred and be continuing:
(i) Pledgor shall be entitled to exercise any and all voting and other
consensual rights pertaining to the Pledged Collateral or any part thereof
for any purpose not inconsistent with the terms of this Agreement or the
Financing Agreements;
(ii) Pledgor shall be entitled to receive and retain, and to utilize free
and clear of the lien of this Agreement, any and all dividends and interest
paid in respect of the Pledged Collateral; provided, however, that any and
-------- -------
all dividends and interest paid or payable other than in cash in respect of,
and instruments and other property received, receivable or otherwise
distributed in respect of, or in exchange for, any Pledged Collateral, shall
be, and shall forthwith be delivered to Collateral Agent to hold as, Pledged
Collateral and shall, if received by Pledgor, be received in trust for the
benefit of Collateral Agent, be segregated from the other property or funds
of Pledgor and be forthwith delivered to Collateral Agent as Pledged
Collateral in the same form as so received (with all necessary
endorsements); and
(iii) Collateral Agent shall promptly execute and deliver (or cause to
be executed and delivered) to Pledgor all such proxies, dividend payment
orders and other instruments as Pledgor may from time to time reasonably
request for the purpose of enabling Pledgor to exercise the voting and other
consensual rights which it is entitled to exercise pursuant to paragraph (i)
above and to receive the dividends, principal or interest payments which it
is authorized to receive and retain pursuant to paragraph (ii) above.
(b) Upon the occurrence and during the continuation of an Event of
Default:
(i) upon written notice from Collateral Agent to Pledgor, all rights of
Pledgor to exercise the voting and other consensual rights which it would
otherwise be entitled to exercise pursuant to Section 8(a)(i) shall cease,
and all such rights shall
XXII-9
<PAGE>
thereupon become vested in Collateral Agent who shall thereupon have the
sole right to exercise such voting and other consensual rights;
(ii) all rights of Pledgor to receive the dividends and interest payments
which it would otherwise be authorized to receive and retain pursuant to
Section 8(a)(ii) shall cease, and all such rights shall thereupon become
vested in Collateral Agent who shall thereupon have the sole right to
receive and hold as Pledged Collateral such dividends and interest payments;
and
(iii) all dividends, principal and interest payments which are received
by Pledgor contrary to the provisions of paragraph (ii) of this Section 8(b)
shall be (A) forthwith (and in any event within two Business Days) deposited
by the Pledgor to the exact form received, duly endorsed by the Pledgor to
the Collateral Agent if required, in a Collateral Account maintained under
the sole dominion and control of the Collateral Agent for the account of the
Secured Parties only as provided in Section 15, (B) until so turned over in
accordance with the preceding subsection (A), all such amounts and proceeds
received by Grantor shall be received in trust for the benefit of Collateral
Agent hereunder -- and shall be segregated from other funds of Pledgor.
(c) In order to permit Collateral Agent to exercise the voting and other
consensual rights which it may be entitled to exercise pursuant to Section
8(b)(i) and to receive all dividends and other distributions which it may be
entitled to receive under Section 8(a)(ii) or Section 8(b)(ii), (i) Pledgor
shall promptly execute and deliver (or cause to be executed and delivered) to
Collateral Agent all such proxies, dividend payment orders and other instruments
as Collateral Agent may from time to time reasonably request and (ii) without
limiting the effect of the immediately preceding clause (i), Pledgor hereby
grants to Collateral Agent an irrevocable proxy to vote the Pledged Shares and
to exercise all other rights, powers, privileges and remedies to which a holder
of the Pledged Shares would be entitled (including, without limitation, giving
or withholding written consents of shareholders, calling special meetings of
shareholders and voting at such meetings), which proxy shall be effective,
automatically and without the necessity of any action (including any transfer of
any Pledged Shares on the record books of the issuer thereof) by any other
Person (including the issuer of the Pledged Shares or any officer or agent
thereof), upon the occurrence and during the continuance of an Event of Default
and which proxy shall only terminate upon the payment in full of the Secured
Obligations.
SECTION 9. COLLATERAL AGENT APPOINTED ATTORNEY-IN-FACT.
-------------------------------------------
Pledgor hereby irrevocably appoints Collateral Agent as Pledgor's
attorney-in-fact, with full authority in the place and stead of Pledgor and in
the name of Pledgor, Collateral Agent or otherwise, from time to time, upon the
occurrence and during the continuance of an Event of Default, in Collateral
Agents's reasonable discretion to take any action and to execute any instrument
that Collateral Agent may reasonably deem necessary or advisable to accomplish
the purposes of this Agreement, including without limitation:
XXII-10
<PAGE>
(a) to file one or more financing or continuation statements, or
amendments thereto, relative to all or any part of the Pledged Collateral
without the signature of Pledgor;
(b) to ask, demand, collect, sue for, recover, compound, receive and give
acquittance and receipts for moneys due and to become due under or in
respect of any of the Pledged Collateral;
(c) to receive, endorse and collect any instruments made payable to
Pledgor representing any dividend, principal or interest payment or other
distribution in respect of the Pledged Collateral or any part thereof and to
give full discharge for the same; and
(d) to file any claims or take any action or institute any proceedings
that Collateral Agent may reasonably deem necessary or desirable for the
collection of any of the Pledged Collateral or otherwise to enforce the
rights of Collateral Agent with respect to any of the Pledged Collateral.
SECTION 10. COLLATERAL AGENT MAY PERFORM.
----------------------------
If Pledgor fails to perform any agreement contained herein, Collateral
Agent may itself perform, or cause performance of, such agreement, and the
reasonable expenses of Collateral Agent incurred in connection therewith shall
be payable by Pledgor under Section 16(b).
SECTION 11. STANDARD OF CARE.
----------------
The powers conferred on Collateral Agent hereunder are solely to protect
its interest in the Pledged Collateral and shall not impose any duty upon it to
exercise any such powers. Except for the exercise of reasonable care in the
custody of any Pledged Collateral in its possession and the accounting for
moneys actually received by it hereunder, Collateral Agent shall have no duty as
to any Pledged Collateral, it being understood that Collateral Agent shall have
no responsibility for (a) ascertaining or taking action with respect to calls,
conversions, exchanges, maturities, tenders or other matters relating to any
Pledged Collateral, whether or not Collateral Agent has or is deemed to have
knowledge of such matters, (b) taking any necessary steps (other than steps
taken in accordance with the standard of care set forth above to maintain
possession of the Pledged Collateral) to preserve rights against any parties
with respect to any Pledged Collateral, (c) taking any necessary steps to
collect or realize upon the Secured Obligations or any guarantee therefor, or
any part thereof, or any of the Pledged Collateral, or (d) initiating any action
to protect the Pledged Collateral against the possibility of a decline in market
value. Collateral Agent shall be deemed to have exercised reasonable care in
the custody and preservation of Pledged Collateral in its possession if such
Pledged Collateral is accorded treatment substantially equal to that which
Collateral Agent accords its own property consisting of negotiable securities.
XXII-11
<PAGE>
SECTION 12. REMEDIES.
--------
(a) If any Event of Default shall have occurred and be continuing,
Collateral Agent may exercise in respect of the Pledged Collateral, in addition
to all other rights and remedies provided for herein or otherwise available to
it, all the rights and remedies of a secured party on default under the Uniform
Commercial Code as in effect in any relevant jurisdiction (the "CODE")
(whether or not the Code applies to the affected Pledged Collateral), and
Collateral Agent may also in its sole discretion, without notice except as
specified below, sell the Pledged Collateral or any part thereof in one or more
parcels at public or private sale, at any exchange or broker's board or at any
of Collateral Agent's offices or elsewhere, for cash, on credit or for future
delivery, at such time or times and at such price or prices and upon such other
terms as Collateral Agent may deem commercially reasonable, irrespective of the
impact of any such sales on the market price of the Pledged Collateral.
Collateral Agent or any Secured Party or Interest Rate Exchanger may be the
purchaser of any or all of the Pledged Collateral at any such sale and Secured
Party, as agent for and representative of Secured Parties and Interest Rate
Exchangers (but not any Secured Party or Secured Parties or Interest Rate
Exchanger or Interest Rate Exchangers in its or their respective individual
capacities unless Requisite Obligees (shall otherwise agree in writing), shall
be entitled, for the purpose of bidding and making settlement or payment of the
purchase price for all or any portion of the Pledged Collateral sold at any such
public sale, to use and apply any of the Secured Obligations as a credit on
account of the purchase price for any Pledged Collateral payable by Collateral
Agent at such sale. Each purchaser at any such sale shall hold the property
sold absolutely free from any claim or right on the part of Pledgor, and Pledgor
hereby waives (to the extent permitted by applicable law) all rights of
redemption, stay and/or appraisal which it now has or may at any time in the
future have under any rule of law or statute now existing or hereafter enacted.
Pledgor agrees that, to the extent notice of sale shall be required by law, at
least ten days' notice to Pledgor of the time and place of any public sale or
the time after which any private sale is to be made shall constitute reasonable
notification. Collateral Agent shall not be obligated to make any sale of
Pledged Collateral regardless of notice of sale having been given. Collateral
Agent may adjourn any public or private sale from time to time by announcement
at the time and place fixed therefor, and such sale may, without further notice,
be made at the time and place to which it was so adjourned. Pledgor hereby
waives any claims against Collateral Agent arising by reason of the fact that
the price at which any Pledged Collateral may have been sold at such a private
sale was less than the price which might have been obtained at a public sale,
even if Collateral Agent accepts the first offer received and does not offer
such Pledged Collateral to more than one offeree. If the proceeds of any sale
or other disposition of the Pledged Collateral are insufficient to pay all the
Secured Obligations, Pledgor shall be liable for the deficiency and the
reasonable fees of any attorneys employed by Collateral Agent to collect such
deficiency.
(b) Pledgor recognizes that, by reason of certain prohibitions contained
in the Securities Act and applicable state securities laws, Collateral Agent may
be compelled, with respect to any sale of all or any part of the Pledged
Collateral conducted without prior registration or qualification of such Pledged
Collateral under the Securities Act and/or such state securities laws, to limit
purchasers to those who will agree, among other things, to acquire the Pledged
Collateral for their own account, for investment and not with a view to the
XXII-12
<PAGE>
distribution or resale thereof. Pledgor acknowledges that any such private
sales may be at prices and on terms less favorable than those obtainable through
a public sale without such restrictions (including, without limitation, a public
offering made pursuant to a registration statement under the Securities Act)
and, notwithstanding such circumstances and the regis tration rights granted to
Collateral Agent by Pledgor pursuant to Section 13, Pledgor agrees that any such
private sale shall be deemed to have been made in a commercially reasonable
manner and that Collateral Agent shall have no obligation to engage in public
sales and no obligation to delay the sale of any Pledged Collateral for the
period of time necessary to permit the issuer thereof to register it for a form
of public sale requiring registration under the Securities Act or under
applicable state securities laws, even if such issuer would, or should, agree to
so register it.
(c) If Collateral Agent determines to exercise its right to sell any or
all of the Pledged Collateral, upon written request, Pledgor shall and shall
cause each issuer of any Pledged Shares to be sold hereunder from time to time
to furnish to Collateral Agent all such information as Collateral Agent may
reasonably request in order to determine the number of shares and other
instruments included in the Pledged Collateral which may be sold by Collateral
Agent in exempt transactions under the Securities Act and the rules and
regulations of the Securities and Exchange Commission thereunder, as the same
are from time to time in effect.
SECTION 13. REGISTRATION RIGHTS.
-------------------
If Collateral Agent shall determine to exercise its right to sell all or
any of the Pledged Collateral pursuant to Section 12, Pledgor agrees that, upon
request of Collateral Agent (which request may be made by Collateral Agent in
its sole discretion), Pledgor will, at its own expense:
(a) execute and deliver, and cause each issuer of the Pledged Collateral
contemplated to be sold and the directors and officers thereof to execute
and deliver, all such instruments and documents, and do or cause to be done
all such other acts and things, as may be necessary or, in the opinion of
Collateral Agent, advisable to register such Pledged Collateral under the
provisions of the Securities Act and to cause the registration statement
relating thereto to become effective and to remain effective for such period
as prospectuses are required by law to be furnished, and to make all
amendments and supplements thereto and to the related prospectus which, in
the opinion of Collateral Agent, are necessary or advisable, all in
conformity with the requirements of the Securities Act and the rules and
regulations of the Securities and Exchange Commission applicable thereto;
(b) use its best efforts to qualify the Pledged Collateral under all
applicable state securities or "Blue Sky" laws and to obtain all necessary
governmental approvals for the sale of the Pledged Collateral, as requested
by Collateral Agent;
(c) cause each such issuer to make available to its security holders, as
soon as practicable, an earnings statement which will satisfy the provisions
of Section 11(a) of the Securities Act;
XXII-13
<PAGE>
(d) do or cause to be done all such other acts and things as may be
necessary to make such sale of the Pledged Collateral or any part thereof
valid and binding and in compliance with applicable law; and
(e) bear all costs and expenses, including reasonable attorneys' fees, of
carrying out its obligations under this Section 13.
Pledgor further agrees that a breach of any of the covenants contained in
this Section 13 will cause irreparable injury to Collateral Agent, that
Collateral Agent has no adequate remedy at law in respect of such breach and, as
a consequence, that each and every covenant contained in this Section 13 shall
be specifically enforceable against Pledgor, and Pledgor hereby waives and
agrees not to assert any defenses against an action for specific performance of
such covenants except for a defense that no default has occurred giving rise to
the Secured Obligations becoming due and payable prior to their stated
maturities. Nothing in this Section 13 shall in any way alter the rights of
Collateral Agent under Section 13.
SECTION 14. PROCEEDS TO BE TURNED OVER TO COLLATERAL AGENT.
----------------------------------------------
In addition to the rights of the Collateral Agent and the Secured Parties
specified in Section 8(b), if an Event of Default shall occur and be continuing,
upon request of the Collateral Agent, all proceeds received by the Pledgor
consisting of cash, checks and other near-cash items shall be held by the
Pledgor in trust for the Collateral Agent and the Secured Parties, segregated
from other funds of the Pledgor and shall, forthwith upon receipt by the
Pledgor, be turned over to the Collateral Agent in the exact form received by
the Pledgor (duly indorsed by the Pledgor to the Collateral Agent, if required)
and held by the Collateral Agent in a Collateral Account maintained under the
Intercreditor Agreement. All proceeds while held by the Collateral Agent in a
Collateral Account (or by the Pledgor in trust for the Collateral Agent and the
Secured Parties) shall continue to be held as collateral security for all the
Secured Obligations and shall not constitute payment thereof until applied as
provided in Section 15.
SECTION 15. APPLICATION OF PROCEEDS.
-----------------------
All proceeds held in any Collateral Account and all other proceeds
received by Collateral Agent in respect of any sale of, collection from, or
other realization upon all or any part of the Pledged Collateral shall be
applied as provided in subsection 3 of the Intercreditor Agreement.
SECTION 16. INDEMNITY AND EXPENSES.
----------------------
(a) Pledgor agrees to indemnify Collateral Agent, each Secured Party and
each Interest Rate Exchanger from and against any and all claims, losses and
liabilities in any way relating to, growing out of or resulting from this
Agreement and the transactions contemplated hereby (including, without
limitation, enforcement of this Agreement), except to the extent such claims,
losses or liabilities result solely from Collateral Agents's or such Secured
Party's or
XXII-14
<PAGE>
Interest Rate Exchanger's gross negligence or willful misconduct as finally
determined by a court of competent jurisdiction.
(b) Pledgor shall pay to Collateral Agent promptly following written
demand the amount of any and all reasonable costs and reasonable expenses,
including the reasonable fees and expenses of its counsel and of any experts and
agents, that Collateral Agent may incur in connection with (i) the
administration of this Agreement, (ii) the custody or preservation of, or the
sale of, collection from, or other realization upon, any of the Pledged
Collateral, (iii) the exercise or enforcement of any of the rights of Collateral
Agent hereunder, or (iv) the failure by Pledgor to perform or observe any of the
provisions hereof.
(c) In the event of any public sale described in Section 13, Pledgor
agrees to indemnify and hold harmless Collateral Agent, each Secured Party and
each Interest Rate Exchanger and each of their respective directors, officers,
employees and agents (collectively, called the "INDEMNITEES") from and against
any and all Indemnified Liabilities (as hereinafter defined); provided that
Pledgor shall not have an obligation to any Indemnitee hereunder with respect to
any Indemnified Liabilities to the extent such Indemnified Liabilities arise
from the bad faith, gross negligence or wilful misconduct of that Indemnitee as
determined by a final, non-appealable judgement of a court of competent
jurisdiction. This indemnity shall be in addition to any liability which
Pledgor may otherwise have and shall extend upon the same terms and conditions
to each Person, if any, that controls Collateral Agent or such Persons within
the meaning of the Securities Act.
As used herein, "INDEMNIFIED LIABILITIES" means, collectively any
and all liabilities, obligations, losses, fees, costs, expenses, damages, or
claims, joint or several, to which any such Indemnitee may become subject or for
which any Indemnitee may be liable, under the Securities Act or otherwise,
insofar as such losses, fees, costs, expenses, damages, liabilities or claims
(or any litigation commenced or threatened in respect thereof) arise out of or
are based upon an untrue statement or alleged untrue statement of a material
fact made by Pledgor or its Subsidiaries or based on information provided by
Pledgor or its Subsidiaries, contained in any preliminary prospectus,
registration statement, prospectus or other such document published or filed in
connection with such public sale, or any amendment or supplement thereto, or
arise out of or are based upon an omission or alleged omission by Pledgor or its
Subsidiaries or caused by the inaction of Pledgor or its Subsidiaries to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and any legal or other expenses reasonably
incurred by any Indemnitee in connection with any litigation, of any nature
whatsoever, commenced or threatened in respect thereof (including without
limitation any and all fees, costs and expenses whatsoever reasonably incurred
by any Indemnitee and counsel for any Indemnitee in investigating, preparing
for, defending against or providing evidence, producing documents or taking any
other action in respect of, any such commenced or threatened litigation or any
claims asserted).
SECTION 17. CONTINUING SECURITY INTEREST; TRANSFER OF LOANS.
-----------------------------------------------
This Agreement shall create a continuing security interest in the Pledged
Collateral and shall (a) remain in full force and effect until the payment in
full of all Secured Obligations
XXII-15
<PAGE>
(other than inchoate indemnification obligations with respect to claims, losses
or liabilities which have not yet arisen and are not yet due and payable), the
cancellation or termination of the Commitments and the cancellation or
expiration of all outstanding Letters of Credit, (b) be binding upon Pledgor,
its successors and assigns, and (c) inure, together with the rights and remedies
of Collateral Agent hereunder, to the benefit of Collateral Agent and its
successors, transferees and assigns. Without limiting the generality of the
foregoing clause (c), but subject to the provisions of subsection 10.1 of the
Credit Agreement and subsection 10.1 of the AXEL Credit Agreement, any Secured
Party may assign or otherwise transfer any Loans held by it to any other Person,
and such other Person shall thereupon become vested with all the benefits in
respect thereof granted to Lenders herein or otherwise. Upon the payment in full
of all Secured Obligations (other than inchoate indemnification obligations with
respect to claims, losses or liabilities which have not yet arisen and are not
yet due and payable), the cancellation or termination of the Commitments and the
cancellation or expiration of all outstanding Letters of Credit, the security
interest granted hereby shall terminate and all rights to the Pledged Collateral
shall revert to Pledgor. Upon any such termination Collateral Agent will, at
Pledgor's expense, execute and deliver to Pledgor such documents as Pledgor
shall reasonably request to evidence such termination in accordance with the
terms of the Intercreditor Agreement and Pledgor shall be entitled to the
return, upon its request and at its expense, against receipt and without
recourse to Collateral Agent, of such of the Pledged Collateral as shall not
have been sold or otherwise applied pursuant to the terms hereof.
SECTION 18. COLLATERAL AGENT AS ADMINISTRATIVE AGENT.
----------------------------------------
(a) Collateral Agent has been appointed to act as Collateral Agent
hereunder by CA Administrative Agent on behalf of the Credit Agreement Lenders
and AXEL Administrative Agent on behalf of the AXEL Lenders pursuant to
Intercreditor Agreement and, by their acceptance of the benefits hereof,
Interest Rate Exchangers and shall be entitled to the benefits of the
Intercreditor Agreement. Collateral Agent shall be obligated, and shall have
the right hereunder, to make demands, to give notices, to exercise or refrain
from exercising any rights, and to take or refrain from taking any action
(including, without limitation, the release or substitution of Pledged
Collateral), solely in accordance with this Agreement and the Intercreditor
Agreement; provided that Collateral Agent shall exercise, or refrain from
--------
exercising, any remedies provided for in Section 12 in accordance with the
instructions of (i) Requisite Lenders or (ii) after payment in full of all
Financing Agreement Obligations under the Financing Agreements and any other
Loan Documents, the holders of a majority of the aggregate notional amount (or,
with respect to any Lender Interest Rate Agreement that has been terminated in
accordance with its terms, the amount then due and payable (exclusive of
expenses and similar payments but including any early termination payments then
due) under such Lender Interest Rate Agreement) under all Lender Interest Rate
Agreements (Requisite Lenders or, if applicable, such holders being referred to
herein as "REQUISITE OBLIGEES"). In furtherance of the foregoing provisions
of this Section 18(a), each Interest Rate Exchanger, by its acceptance of the
benefits hereof, agrees that it shall have no right individually to realize upon
any of the Pledged Collateral hereunder, it being understood and agreed by such
Interest Rate Exchanger that all rights and remedies hereunder may be exercised
solely by Collateral Agent for the benefit of Secured Parties and Interest Rate
Exchangers in accordance with the terms of this Section 18(a).
XXII-16
<PAGE>
(b) Collateral Agent shall at all times be the same Person that is
appointed Collateral Agent under the Intercreditor Agreement. The Collateral
Agent may resign and a successor Collateral Agent may be appointed in the manner
provided in the Intercreditor Agreement. Upon the acceptance of any appointment
as Collateral Agent by a successor Collateral Agent, that successor Collateral
Agent shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring or removed Collateral Agent under this
Agreement, and the retiring or removed Collateral Agent under this Agreement
shall promptly (i) transfer to such successor Collateral Agent all sums,
securities and other items of Collateral held hereunder, together with all
records and other documents necessary or appropriate in connection with the
performance of the duties of the successor Collateral Agent under this
Agreement, and (ii) execute and deliver to such successor Collateral Agent such
amendments to financing statements, and take such other actions, as may be
necessary or appropriate in connection with the assignment to such successor
Collateral Agent of the security interests created hereunder, whereupon such
retiring or removed Collateral Agent shall be discharged from its duties and
obligations under this Agreement. After any retiring or removed Collateral
Agent's resignation or removal hereunder as Collateral Agent, the provisions of
this Agreement shall inure to its benefit as to any actions taken or omitted to
be taken by it under this Agreement while it was Collateral Agent hereunder.
SECTION 19. AMENDMENTS; ETC.
---------------
No amendment, modification, termination or waiver of any provision of
this Agreement, and no consent to any departure by Pledgor therefrom, shall in
any event be effective unless the same shall be in writing and signed by
Collateral Agent and, in the case of any such amendment or modification, by
Pledgor. Any such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which it was given.
SECTION 20. NOTICES.
-------
Any notice or other communication herein required or permitted to be
given shall be in writing and may be personally served, telexed or sent by
telefacsimile or United States mail or courier service and shall be deemed to
have been given when delivered in person or by courier service, upon receipt of
telefacsimile or telex, or three Business Days after depositing it in the United
States mail with postage prepaid and properly addressed; provided that notice to
--------
Collateral Agent and Pledgor shall not be effective until received. For the
purposes hereof, the address of each party hereto shall be as set forth under
such party's name on the signature pages hereof or, as to either party, such
other address as shall be designated by such party in a written notice delivered
to the other party hereto.
SECTION 21. FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE.
-----------------------------------------------------
No failure or delay on the part of Collateral Agent in the exercise of
any power, right or privilege hereunder shall impair such power, right or
privilege or be construed to be a waiver of any default or acquiescence therein,
nor shall any single or partial exercise of any such power, right or privilege
preclude any other or further exercise thereof or of any other
XXII-17
<PAGE>
power, right or privilege. All rights and remedies existing under this Agreement
are cumulative to, and not exclusive of, any rights or remedies otherwise
available.
SECTION 22. SEVERABILITY.
------------
In case any provision in or obligation under this Agreement shall be
invalid, illegal or unenforceable in any jurisdiction, the validity, legality
and enforceability of the remaining provisions or obligations, or of such
provision or obligation in any other jurisdiction, shall not in any way be
affected or impaired thereby.
SECTION 23. HEADINGS.
--------
Section and subsection headings in this Agreement are included herein for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose or be given any substantive effect.
SECTION 24. GOVERNING LAW; TERMS.
--------------------
THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING WITHOUT LIMITATION SECTION
5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD
TO CONFLICTS OF LAWS PRINCIPLES, EXCEPT TO THE EXTENT THAT THE CODE PROVIDES
THAT THE PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER,
IN RESPECT OF ANY PARTICULAR PLEDGED COLLATERAL ARE GOVERNED BY THE LAWS OF A
JURISDICTION OTHER THAN THE STATE OF NEW YORK. Unless otherwise defined herein
or in the Credit Agreement, terms used in Articles 8 and 9 of the Uniform
Commercial Code in the State of New York are used herein as therein defined.
SECTION 25. COUNTERPARTS.
------------
This Agreement may be executed in one or more counterparts and by
different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all such counterparts
together shall constitute but one and the same instrument; signature pages may
be detached from multiple separate counterparts and attached to a single
counterpart so that all signature pages are physically attached to the same
document.
[Remainder of page intentionally left blank]
XXII-18
<PAGE>
IN WITNESS WHEREOF, Pledgor and Collateral Agent have caused this Agreement
to be duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
SEALY CORPORATION
By:
---------------------------------
Name:
Title:
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK, as Collateral Agent
By:
---------------------------------
Name:
Title:
XXII-19
<PAGE>
SCHEDULE I
Attached to and forming a part of the Holdings Pledge Agreement dated as
of December 18, 1997 between Sealy Corporation, as Pledgor, and Morgan Guaranty
Trust Company of New York, as Collateral Agent.
PART A
<TABLE>
<CAPTION>
===========================================================================
PERCENTAGE OF
STOCK NUMBER OUTSTANDING
CLASS OF CERTIFICATE PAR OF SHARES
STOCK ISSUER STOCK NOS. VALUE SHARES PLEDGED
===========================================================================
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
===========================================================================
</TABLE>
PART B
<TABLE>
<CAPTION>
=============================================================
AMOUNT OF
DEBT ISSUER INDEBTEDNESS
=============================================================
<S> <C>
-------------------------------------------------------------
-------------------------------------------------------------
-------------------------------------------------------------
=============================================================
</TABLE>
XXII-20
<PAGE>
SCHEDULE II
PLEDGE AMENDMENT
This Pledge Amendment, dated ____________, [199_][200_], is delivered
pursuant to Section 6(b) of the Pledge Agreement referred to below. The
undersigned hereby agrees that this Pledge Amendment may be attached to the
Holdings Pledge Agreement dated as of December 18, 1997, between the undersigned
and Morgan Guaranty Trust Company of New York, as Collateral Agent (the "PLEDGE
AGREEMENT," capitalized terms defined therein being used herein as therein
defined), and that the [Pledged Shares] [Pledged Debt] listed on this Pledge
Amendment shall be deemed to be part of the [Pledged Shares] [Pledged Debt] and
shall become part of the Pledged Collateral and shall secure all Secured
Obligations.
SEALY CORPORATION
By:
-------------------------------
Name:
Title:
<TABLE>
<CAPTION>
==========================================================================
CLASS STOCK NUMBER PERCENTAGE OF
OF CERTIFICATE PAR OF OUTSTANDING
STOCK ISSUER STOCK NOS. VALUE SHARES SHARES PLEDGED
==========================================================================
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
==========================================================================
</TABLE>
XXII-21
<PAGE>
EXHIBIT XXIII
[FORM OF HOLDINGS SECURITY AGREEMENT]
HOLDINGS SECURITY AGREEMENT
This HOLDINGS SECURITY AGREEMENT (this "AGREEMENT") is dated as of
December 18, 1997 and entered into by and between SEALY CORPORATION, a Delaware
corporation ("GRANTOR"), and MORGAN GUARANTY TRUST COMPANY OF NEW YORK
("MORGAN GUARANTY"), as Collateral Agent, for and representative of (in such
capacity herein called "COLLATERAL AGENT") the Secured Parties (as hereinafter
defined) and any Interest Rate Exchangers (as hereinafter defined).
RECITALS
A. Sealy Mattress Company, an Ohio Corporation ("COMPANY"), Grantor,
the financial institutions from time to time parties thereto (the "CREDIT
AGREEMENT LENDERS"), Goldman Sachs Credit Partners L.P. ("GSCP"), as arranger
and syndication agent (in such capacity, "CA SYNDICATION AGENT"), Morgan
Guaranty, as administrative agent (in such capacity, "CA ADMINISTRATIVE
AGENT"), and Bankers Trust Company ("BTCO."), as documentation agent (in
such capacity, "CA DOCUMENTATION AGENT") have entered into a Credit Agreement
dated as of December 18, 1997 (said Credit Agreement, as it may hereafter be
amended, restated, supplemented or otherwise modified from time to time, being
the "CREDIT AGREEMENT") pursuant to which Credit Agreement Lenders have made
certain commitments, subject to the terms and conditions set forth in the Credit
Agreement, to extend certain credit facilities to Company.
B. Company, Grantor, the financial institutions from time to time
parties thereto (the "AXEL LENDERS"), GSCP, as arranger and syndication agent
(in such capacity, "AXEL SYNDICATION AGENT"), Morgan Guaranty, as
administrative agent (in such capacity, "AXEL ADMINISTRATIVE AGENT"), and
BTCo., as documentation agent (in such capacity, "AXEL DOCUMENTATION AGENT")
have entered into an AXEL Credit Agreement dated as of December 18, 1997 (said
AXEL Credit Agreement, as it may hereafter be amended, restated, supplemented or
otherwise modified from time to time, being the "AXEL CREDIT AGREEMENT"; the
Credit Agreement Lenders, the CA Syndication Agent, the CA Administrative Agent,
the CA Documentation Agent, the AXEL Lenders, the AXEL Syndication Agent, the
AXEL Administrative Agent, and the AXEL Documentation Agent each being a
"SECURED PARTY" and collectively the "SECURED PARTIES") pursuant to which
AXEL Lenders have made certain commitments, subject to the terms and conditions
set forth in the AXEL Credit Agreement, to extend certain credit facilities to
Company.
C. Company may from time to time enter, or may from time to time have
entered, into one or more Interest Rate Agreements (collectively, the "LENDER
INTEREST RATE
XXIII-1
<PAGE>
AGREEMENTS") with one or more CA Lenders or their Affiliates or AXEL Lenders or
their Affiliates (in such capacity, collectively, "INTEREST RATE EXCHANGERS").
D. Grantor has executed and delivered that certain Holdings Guaranty
dated as of December 18, 1997 (said Holdings Guaranty, as it may hereafter be
amended, supplemented or otherwise modified from time to time, being the
"GUARANTY") in favor of Collateral Agent for the benefit of Secured Parties
and any Interest Rate Exchangers, pursuant to which Grantor has guarantied the
prompt payment and performance when due of all obligations of Company under the
Finance Agreements and any other Loan Documents and all obligations of Company
under the Lender Interest Rate Agreements, including without limitation the
obligation of Company to make payments, if any, thereunder in the event of early
termination thereof.
E. It is a condition precedent to the initial extensions of credit by
Secured Parties under the Financing Agreements that Grantor shall have granted
the security interests and undertaken the obligations contemplated by this
Agreement.
NOW, THEREFORE, in consideration of the premises and to induce (i) the CA
Administrative Agent, the CA Syndication Agent and the Credit Agreement Lenders
to enter into the Credit Agreement, (ii) the Credit Agreement Lenders to make
their respective loans to, and issue Letters of Credit for the account of
Company, (iii) the AXEL Administrative Agent, the AXEL Syndication Agent and the
AXEL Lenders to enter into the AXEL Loan Agreement, (iv) the AXEL Lenders to
make their respective loans to Company and (v) to induce Interest Rate
Exchangers to enter into the Lender Interest Rate Agreements and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the Grantor hereby agrees with the Collateral Agent as follows:
SECTION 1. DEFINED TERMS.
-------------
(a) Unless otherwise defined herein, terms defined in the Credit
Agreement and used herein shall have the meanings given to such terms in the
Credit Agreement;
(b) The following terms shall have the following meanings:
"ACCELERATION" shall mean any of the Credit Agreement Obligations or
the AXEL Credit Agreement Obligations have been declared, or have become,
immediately due and payable, or the commitments to extend credit of the Credit
Agreement Lenders or the AXEL Lenders shall have been terminated under Section 8
of the Credit Agreement or Section 7 of the AXEL Credit Agreement, respectively.
"ACCOUNTS" has the meaning assigned to that term in Section 2 of this
Agreement.
"AGREEMENT" means this Company Security Agreement dated as of December
18, 1997, as it may be amended, supplemented or otherwise modified from time to
time.
XXIII-2
<PAGE>
"ASSIGNED AGREEMENT" has the meaning assigned to that term in Section 2
of this Agreement.
"AXEL COMMITMENTS" shall mean the "Commitments" as defined in the
AXEL Credit Agreement.
"AXEL CREDIT AGREEMENT" has the meaning assigned to that term in the
recitals to this Agreement.
"AXEL OBLIGATIONS" shall mean the "Obligations" as defined in the
AXEL Credit Agreement.
"COLLATERAL" has the meaning assigned to that term in Section 2 of this
Agreement.
"COLLATERAL ACCOUNTS" shall mean "Collateral Accounts" as defined in
the Intercreditor Agreement.
"COMMITMENTS" means the Credit Agreement Commitments and the AXEL
Commitments.
"CREDIT AGREEMENT" has the meaning assigned to that term in the
recitals to this Agreement.
"CREDIT AGREEMENT COMMITMENTS" shall mean the "Commitments" as
defined in the Credit Agreement.
"CREDIT AGREEMENT OBLIGATIONS" shall mean the "Obligations" as
defined in the Credit Agreement.
"EQUIPMENT" has the meaning assigned to that term in Section 2 of this
Agreement.
"EVENT OF DEFAULT" means any "Event of Default" as defined in any
Financing Agreement or the occurrence of an Event of Default in which Company is
the Defaulting Party and which results in the designation of an Early
Termination Date (as such terms are defined in a Master Agreement or an Interest
Rate Swap Agreement or Interest Rate and Currency Exchange Agreement in the form
prepared by the International Swap and Derivatives Association Inc. or a similar
event under any similar swap agreement) under any Lender Interest Rate
Agreement.
"FINANCING AGREEMENT" means either the Credit Agreement or the AXEL
Credit Agreement, and "Financing Agreements" means the Credit Agreement and
the AXEL Credit Agreement, collectively.
"FINANCING AGREEMENT OBLIGATIONS" means Credit Agreement Obligations
and AXEL Obligations.
XXIII-3
<PAGE>
"GRANTOR" has the meaning assigned to that term in the introduction of
this Agreement.
"HOLDINGS" has the meaning assigned to that term in the recitals to
this Agreement.
"INTERCREDITOR AGREEMENT" means the Intercreditor Agreement, dated as
of December 18, 1997, by and among CA Administrative Agent, AXEL Administrative
Agent and Collateral Agent.
"INTEREST RATE EXCHANGERS" has the meaning assigned to that term in the
recitals to this Agreement.
"INVENTORY" has the meaning assigned to that term in Section 2 of this
Agreement.
"LENDER INTEREST RATE AGREEMENT" has the meaning assigned to that term
in the recitals to this Agreement.
"LOAN" means any "Loan" as defined in any Financing Agreement, and
"LOANS" means all such Loans collectively.
"LOAN DOCUMENT" means any "Loan Document" as defined in any Financing
Agreement, and "LOAN DOCUMENTS" means all such Loan Documents collectively.
"NEGOTIABLE DOCUMENT OF TITLE" has the meaning assigned to that term in
Section 2 of this Agreement.
"POTENTIAL EVENT OF DEFAULT" means any "Potential Event of Default"
as defined in any Financing Agreement.
"RELATED CONTRACTS" has the meaning assigned to that term in Section 2
of this Agreement.
"REQUISITE AXEL LENDERS" means "Requisite Lenders" as defined in the
AXEL Credit Agreement.
"REQUISITE CREDIT AGREEMENT LENDERS" means "Requisite Lenders" as
defined in the Credit Agreement.
"REQUISITE LENDERS" means (A) unless an Acceleration shall have
occurred and be continuing, the Requisite Credit Agreement Lenders and the
Requisite AXEL Lenders, and (B) if an Acceleration has occurred and is
continuing, Secured Parties holding more than 50% of the Financing Agreement
Obligations.
XXIII-4
<PAGE>
"REQUISITE OBLIGEES" has the meaning assigned to that term in Section
23 of this Agreement.
"SECURED OBLIGATIONS" has the meaning assigned to that term in Section
2 of this Agreement.
"SECURED PARTIES" has the meaning assigned to that term in the recitals
to this Agreement.
SECTION 2. GRANT OF SECURITY.
-----------------
Grantor hereby assigns to Collateral Agent, and hereby grants to
Collateral Agent a security interest in, all of Grantor's right, title and
interest in and to the following, in each case whether now or hereafter existing
or in which Grantor now has or hereafter acquires an interest and wherever the
same may be located (the "COLLATERAL"):
(a) all equipment in all of its forms, all parts thereof and all
accessions thereto (any and all such equipment, parts and accessions being
the "EQUIPMENT");
(b) all inventory in all of its forms (including, but not limited to, (i)
all goods held by Grantor for sale or lease or to be furnished under
contracts of service or so leased or furnished, (ii) all raw materials, work
in process, finished goods, and materials used or consumed in the
manufacture, packing, shipping, advertising, selling, leasing, furnishing or
production of such inventory or otherwise used or consumed in Grantor's
business, (iii) all goods in which Grantor has an interest in mass or a
joint or other interest or right of any kind, and (iv) all goods which are
returned to or repossessed by Grantor) and all accessions thereto and
products thereof (all such inventory, accessions and products being the
"INVENTORY") and all negotiable and non-negotiable documents of title
(including without limitation warehouse receipts, dock receipts and bills of
lading) issued by any Person covering any Inventory (any such negotiable
document of title being a "NEGOTIABLE DOCUMENT OF TITLE");
(c) all accounts, contract rights, chattel paper, documents, instruments,
general intangibles and other rights and obligations of any kind and all
rights in, to and under all security agreements, leases and other contracts
securing or otherwise relating to any such accounts, contract rights,
chattel paper, documents, instruments, general intangibles or other
obligations (any and all such accounts, contract rights, chattel paper,
documents, instruments, general intangibles and other obligations being the
"ACCOUNTS", and any and all such security agreements, leases and other
contracts being the "RELATED CONTRACTS");
(d) all agreements and contracts to which Grantor is a party as of the
date hereof or becomes a party after the date hereof, as each such agreement
may be amended, supplemented or otherwise modified from time to time (said
agreements, as so amended, supplemented or otherwise modified, being
referred to herein individually as an "ASSIGNED AGREEMENT" and collectively
as the "ASSIGNED AGREEMENTS"), including
<PAGE>
(i) all rights of Grantor to receive moneys due or to become due under or
pursuant to the Assigned Agreements, (ii) all rights of Grantor to receive
proceeds of any insurance, indemnity, warranty or guaranty with respect to
the Assigned Agreements, (iii) all claims of Grantor for damages arising out
of any breach of or default under the Assigned Agreements, and (iv) all
rights of Grantor to terminate, amend, supplement, modify or exercise rights
or options under the Assigned Agreements, to perform thereunder and to
compel performance and otherwise exercise all remedies thereunder;
(e) all deposit accounts, including without limitation all deposit
accounts maintained with Collateral Agent;
(f) all trademarks, tradenames, tradesecrets, business names, patents,
patent applications, licenses, copyrights, registrations and franchise
rights, and all goodwill associated with any of the foregoing;
(g) to the extent not included in any other paragraph of this Section 2,
all other general intangibles (including without limitation tax refunds,
rights to payment or performance, choses in action and judgments taken on
any rights or claims included in the Collateral);
(h) all plant fixtures, business fixtures and other fixtures and storage
and office facilities, and all accessions thereto and products thereof;
(i) all books, records, ledger cards, files, correspondence, computer
programs, tapes, disks and related data processing software that at any time
evidence or contain information relating to any of the Collateral or are
otherwise necessary or helpful in the collection thereof or realization
thereupon; and
(j) all proceeds, products, rents and profits of or from any and all of
the foregoing Collateral and, to the extent not otherwise included, all
payments under insurance (whether or not Collateral Agent is the loss payee
thereof), or any indemnity, warranty or guaranty, payable by reason of loss
or damage to or otherwise with respect to any of the foregoing Collateral.
For purposes of this Agreement, the term "PROCEEDS" includes whatever is
receivable or received when Collateral or proceeds are sold, exchanged,
collected or otherwise disposed of, whether such disposition is voluntary or
involuntary.
Notwithstanding anything herein to the contrary, in no event shall the
Collateral include, and Grantor shall not be deemed to have granted a security
interest in, any of Grantor's rights or interests in any license, contract or
agreement to which Grantor is a party or any of its rights or interests
thereunder to the extent, but only to the extent, that such a grant would, under
the terms of such license, contract or agreement or otherwise, result in a
breach of the terms of, or constitute a default under any license, contract or
agreement to which Grantor is a party (other than to the extent that any such
term would be rendered ineffective pursuant to Section 9-318(4) of the Uniform
Commercial Code of any relevant jurisdiction or any other applicable law
(including the Bankruptcy Code) or principles of equity); provided,
--------
XXIII-6
<PAGE>
that immediately upon the ineffectiveness, lapse or termination of any such
provision, the Collateral shall include, and Grantor shall be deemed to have
granted a security interest in, all such rights and interests as if such
provision had never been in effect.
SECTION 3. SECURITY FOR OBLIGATIONS.
------------------------
This Agreement secures, and the Collateral is collateral security for,
the prompt payment or performance in full when due, whether at stated maturity,
by required prepayment, declaration, acceleration, demand or otherwise
(including the payment of amounts that would become due but for the operation of
the automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C.
(S)362(a)), of all obligations and liabilities of every nature of Grantor now or
hereafter existing under or arising out of or in connection with the Guaranty
and all extensions or renewals thereof, whether for principal, interest
(including without limitation interest that, but for the filing of a petition in
bankruptcy with respect to Company, would accrue on such obligations, whether or
not a claim is allowed against Company for such interest in the related
bankruptcy proceeding), reimbursement of amounts drawn under Letters of Credit,
payments for early termination of Lender Interest Rate Agreements, fees,
expenses, indemnities or otherwise, whether voluntary or involuntary, direct or
indirect, absolute or contingent, liquidated or unliquidated, whether or not
jointly owed with others, and whether or not from time to time decreased or
extinguished and later increased, created or incurred, and all or any portion of
such obligations or liabilities that are paid, to the extent all or any part of
such payment is avoided or recovered directly or indirectly from Collateral
Agent or any Lender or Interest Rate Exchanger as a preference, fraudulent
transfer or otherwise and all obligations of every nature of Grantor now or
hereafter existing under this Agreement (all such obligations of Grantor being
the "SECURED OBLIGATIONS").
SECTION 4. GRANTOR REMAINS LIABLE.
----------------------
Anything contained herein to the contrary notwithstanding, (a) Grantor
shall remain liable under any contracts and agreements included in the
Collateral, to the extent set forth therein, to perform all of its duties and
obligations thereunder to the same extent as if this Agreement had not been
executed, (b) the exercise by Collateral Agent of any of its rights hereunder
shall not release Grantor from any of its duties or obligations under the
contracts and agreements included in the Collateral, and (c) Collateral Agent
shall not have any obligation or liability under any contracts and agreements
included in the Collateral by reason of this Agreement, nor shall Collateral
Agent be obligated to perform any of the obligations or duties of Grantor
thereunder or to take any action to collect or enforce any claim for payment
assigned hereunder.
SECTION 5. REPRESENTATIONS AND WARRANTIES.
------------------------------
Grantor represents and warrants as follows:
(a) Ownership of Collateral. Except for the security interest created by
-----------------------
this Agreement, Grantor owns the Collateral free and clear of any Lien
subject to Liens permitted by the Financing Agreements.
XXIII-7
<PAGE>
(b) Location of Equipment and Inventory. All of the Equipment and
-----------------------------------
Inventory is, as of the date hereof, located at the places specified in
Schedule 5(b) annexed hereto.
-------------
(c) Negotiable Documents of Title. No Negotiable Documents of Title are
-----------------------------
outstanding with respect to any of the Inventory (other than in respect of
(i) Inventory with an aggregate value not in excess of $1,000,000 or (ii)
Inventory which, in the ordinary course of business, is in transit either
(A) from a supplier to Grantor, (B) between the locations specified in
Schedule 5(b) hereto, or (C) to customers of Grantor).
-------------
(d) Office Locations; Other Names. The chief place of business, the
-----------------------------
chief executive office and the office where Grantor keeps its records
regarding the Accounts and all originals of all chattel paper that evidence
Accounts is, and has been for the four month period preceding the date
hereof, located at the places indicated on Schedule 5d. Grantor has not in
-----------
the past done, and does not now do, business under any other name (including
any trade-name or fictitious business name) except for those names set forth
on Schedule 5d.
-----------
XXIII-8
<PAGE>
SECTION 6. FURTHER ASSURANCES.
------------------
(a) Grantor agrees that from time to time, at the expense of Grantor,
Grantor will promptly execute and deliver all further instruments and documents,
and take all further action, that Collateral Agent may reasonably request, in
order to perfect and protect any security interest granted or purported to be
granted hereby or to enable Collateral Agent to exercise and enforce its rights
and remedies hereunder with respect to any Collateral. Without limiting the
generality of the foregoing, Grantor will: (i) mark conspicuously each item of
chattel paper included in the Accounts, each Related Contract and, at the
reasonable request of Collateral Agent, each of its records pertaining to the
Collateral, with a legend, in form and substance reasonably satisfactory to
Collateral Agent, indicating that such Collateral is subject to the security
interest granted hereby, (ii) at the reasonable request of Collateral Agent,
deliver and pledge to Collateral Agent hereunder all promissory notes and other
instruments (excluding checks) and all original counterparts of chattel paper
constituting Collateral, duly endorsed and accompanied by duly executed
instruments of transfer or assignment, all in form and substance reasonably
satisfactory to Collateral Agent, (iii) execute and file such financing or
continuation statements, or amendments thereto, and such other instruments or
notices, or as Collateral Agent may reasonably request, in order to perfect and
preserve the security interests granted or purported to be granted hereby, (iv)
after the acquisition by Grantor of any item of Equipment which is covered by a
certificate of title under a statute of any jurisdiction under the law of which
indication of a security interest on such certificate is required as a condition
of perfection thereof, upon the reasonable request of Collateral Agent, execute
and file with the registrar of motor vehicles or other appropriate authority in
such jurisdiction an application or other document requesting the notation or
other indication of the security interest created hereunder on such certificate
of title, (v) upon the reasonable request of Collateral Agent, deliver to
Collateral Agent copies of all such applications or other documents filed during
such calendar quarter and copies of all such certificates of title issued during
such calendar quarter indicating the security interest created hereunder in the
items of Equipment covered thereby, and (vi) at Collateral Agent's reasonable
request, appear in and defend any action or proceeding that may affect Grantor's
title to or Collateral Agent's security interest in all or any part of the
Collateral.
(b) Grantor hereby authorizes Collateral Agent to file one or more
financing or continuation statements, and amendments thereto, relative to all or
any part of the Collateral without the signature of Grantor to the extent
permitted by applicable law. Grantor agrees that a carbon, photographic or
other reproduction of this Agreement or of a financing statement signed by
Grantor shall be sufficient as a financing statement and may be filed as a
financing statement in any and all jurisdictions.
SECTION 7. CERTAIN COVENANTS OF GRANTOR.
----------------------------
Grantor shall:
(a) notify Collateral Agent of any change in Grantor's name, identity
or corporate structure within 30 days of such change;
XXIII-9
<PAGE>
(b) give Collateral Agent 30 days' written notice following any change
in Grantor's chief place of business, chief executive office or residence or
the office where Grantor keeps its records regarding the Accounts and all
originals of all chattel paper that evidence Accounts;
(c) pay promptly when due all property and other taxes, assessments
and governmental charges or levies imposed upon, and all claims (including
claims for labor, materials and supplies) against, the Collateral, except to
the extent the validity thereof is being contested in good faith.
SECTION 8. SPECIAL COVENANTS WITH RESPECT TO EQUIPMENT AND INVENTORY.
---------------------------------------------------------
Grantor shall:
(a) keep the Equipment and Inventory at the places therefor
specified on Schedule 5(b) annexed hereto or, upon 30 days' written notice
-------------
to Collateral Agent following any change in location, at such other places
in jurisdictions where all action that Collateral Agent may reasonably
request, in order to perfect and protect any security interest granted or
purported to be granted hereby, or to enable Collateral Agent to exercise
and enforce its rights and remedies hereunder, with respect to such
Equipment and Inventory shall have been taken;
(b) cause the Equipment to be maintained and preserved in working
order, ordinary wear and tear and damage by casualty excepted, and in
accordance with Grantor's past practices, and shall forthwith make or cause
to be made all repairs, replacements and other improvements in connection
therewith that are necessary in the Grantor's reasonable business judgment
to such end.
(c) keep correct and accurate records of the Inventory, itemizing
and describing the kind, type and quantity of Inventory, Grantor's cost
therefor and (where applicable) the current list prices for the Inventory;
(d) if any Inventory is in possession or control of any of Grantor's
agents or processors, upon the occurrence of an Event of Default, instruct
such agent or processor to hold all such Inventory for the account of
Collateral Agent and subject to the instructions of Collateral Agent; and
(e) promptly upon the issuance and delivery to Grantor of any
Negotiable Document of Title (other than any one or more Negotiable
Documents of Title covering (i) Inventory with an aggregate value not in
excess of $1,000,000 or (ii) Inventory which, in the ordinary course of
business, is in transit either (A) from a supplier to Grantor, (B) between
the locations specified in Schedule 5(b) hereto, or (C) to customers of
-------------
Grantor), deliver such Negotiable Document of Title to Collateral Agent.
SECTION 9. INSURANCE.
---------
XXIII-10
<PAGE>
Grantor shall, at its own expense, maintain insurance with respect to the
Equipment and Inventory in accordance with the terms of the Financing
Agreements.
SECTION 10. SPECIAL COVENANTS WITH RESPECT TO ACCOUNTS AND RELATED CONTRACTS.
----------------------------------------------------------------
(a) Grantor shall keep its chief place of business and chief executive
office and the office where it keeps its records concerning the Accounts and
Related Contracts, and all originals of all chattel paper that evidence
Accounts, at the location therefor specified in Section 4 or, upon 30 days'
written notice to Collateral Agent following any change in location, at such
other location in a jurisdiction where all action that Collateral Agent may
request, in order to perfect and protect any security interest granted or
purported to be granted hereby, or to enable Collateral Agent to exercise and
enforce its rights and remedies hereunder, with respect to such Accounts and
Related Contracts shall have been taken. Promptly upon the reasonable request of
Collateral Agent, Grantor shall deliver to Collateral Agent complete and correct
copies of each Related Contract.
(b) Grantor shall, maintain (i) complete records of each Account,
including records of all payments received, credits granted and merchandise
returned, and (ii) all documentation relating thereto in accordance with prudent
business practices.
(c) Except as otherwise provided in this subsection (c), Grantor shall
continue to collect, at its own expense, all amounts due or to become due to
Grantor under the Accounts and Related Contracts. In connection with such
collections, Grantor shall take such action as Grantor or Collateral Agent may
deem necessary or advisable to enforce collection of amounts due or to become
due under the Accounts; provided, however, that Collateral Agent shall have the
-------- -------
right at any time, upon the occurrence and during the continuation of an Event
of Default and upon written notice to Grantor of its intention to do so, to
notify the account debtors or obligors under any Accounts of the assignment of
such Accounts to Collateral Agent and to direct such account debtors or obligors
to make payment of all amounts due or to become due to Grantor thereunder
directly to Collateral Agent, to notify each Person maintaining a lockbox or
similar arrangement to which account debtors or obligors under any Accounts have
been directed to make payment to remit all amounts representing collections on
checks and other payment items from time to time sent to or deposited in such
lockbox or other arrangement directly to Collateral Agent and, upon such
notification and at the expense of Grantor, to enforce collection of any such
Accounts and to adjust, settle or compromise the amount or payment thereof, in
the same manner and to the same extent as Grantor might have done. After
receipt by Grantor of the notice from Collateral Agent referred to in the
proviso to the preceding sentence, (i) any payments of Accounts, received by the
- -------
Grantor shall be forthwith (and in any event within two Business Days) deposited
by the Grantor in the exact form received, duly indorsed by the Grantor to the
Collateral Agent if required, in a Collateral Account maintained under the sole
dominion and control of the Collateral Agent, subject to withdrawal by the
Collateral Agent for the account of the Secured Parties only as provided in
Section 20, (ii) until so turned over in accordance with the proceeding
subsection (i), all amounts and proceeds (including checks and other
instruments) received by Grantor in respect of the Accounts and the Related
Contracts shall be received in trust for the benefit of Collateral Agent
hereunder and shall be segregated from other funds of Grantor and (iii) Grantor
shall not
XXIII-11
<PAGE>
adjust, settle or compromise the amount or payment of any Account, or release
wholly or partly any account debtor or obligor thereof, or allow any credit or
discount thereon.
SECTION 11. DEPOSIT ACCOUNTS.
----------------
Upon the occurrence and during the continuation of an Event of Default,
Collateral Agent may exercise dominion and control over, and refuse to permit
further withdrawals (whether of money, securities, instruments or other
property) from any deposit accounts maintained with Collateral Agent
constituting part of the Collateral.
SECTION 12. LICENSE OF PATENTS, TRADEMARKS, COPYRIGHTS, ETC.
-----------------------------------------------
Grantor hereby assigns, transfers and conveys to Collateral Agent,
effective upon the occurrence of any Event of Default, the nonexclusive right
and license to use all trademarks, tradenames, copyrights, patents or technical
processes owned or used by Grantor that relate to the Collateral and any other
collateral granted by Grantor as security for the Secured Obligations, together
with any goodwill associated therewith, all to the extent necessary to enable
Collateral Agent to use, possess and realize on the Collateral and to enable any
successor or assign to enjoy the benefits of the Collateral. This right and
license shall inure to the benefit of all successors, assigns and transferees of
Collateral Agent and its successors, assigns and transferees, whether by
voluntary conveyance, operation of law, assignment, transfer, foreclosure, deed
in lieu of foreclosure or otherwise. Such right and license is granted free of
charge, without requirement that any monetary payment whatsoever be made to
Grantor.
SECTION 13. TRANSFERS AND OTHER LIENS.
-------------------------
Grantor shall not:
(a) sell, assign (by operation of law or otherwise) or otherwise dispose
of any of the Collateral, except as permitted by the Financing Agreements;
or
(b) except for the security interest created by this Agreement and Liens
permitted by the Financing Agreements, create or suffer to exist any Lien
upon or with respect to any of the Collateral to secure the indebtedness or
other obligations of any Person.
SECTION 14. COLLATERAL AGENT APPOINTED ATTORNEY-IN-FACT.
-------------------------------------------
Grantor hereby irrevocably appoints Collateral Agent as Grantor's
attorney-in-fact, with full authority in the place and stead of Grantor and in
the name of Grantor, Collateral Agent or otherwise, from time to time, upon the
occurrence and during the continuance of an Event of Default, in Collateral
Agent's reasonable discretion to take any action and to execute any instrument
that Collateral Agent may reasonably deem necessary or advisable to accomplish
the purposes of this Agreement, including without limitation:
XXIII-12
<PAGE>
(a) to obtain and adjust insurance required to be maintained by Grantor
or paid to Collateral Agent pursuant to Section 9;
(b) to ask for, demand, collect, sue for, recover, compound, receive and
give acquittance and receipts for moneys due and to become due under or in
respect of any of the Collateral;
(c) to receive, endorse and collect any drafts or other instruments,
documents and chattel paper in connection with clauses (a) and (b) above;
(d) to file any claims or take any action or institute any proceedings
that Collateral Agent may reasonably deem necessary or desirable for the
collection of any of the Collateral or otherwise to enforce the rights of
Collateral Agent with respect to any of the Collateral;
(e) to pay or discharge taxes or Liens (other than Liens permitted under
this Agreement or the Credit Agreements) levied or placed upon or threatened
against the Collateral, the legality or validity thereof and the amounts
necessary to discharge the same to be determined by Collateral Agent in its
reasonable discretion, any such payments made by Collateral Agent to become
obligations of Grantor to Collateral Agent, due and payable immediately
without demand;
(f) to sign and endorse any invoices, freight or express bills, bills of
lading, storage or warehouse receipts, drafts against debtors, assignments,
verifications and notices in connection with Accounts and other documents
relating to the Collateral; and
(g) upon the occurrence and during the continuation of an Event of
Default, generally to sell, transfer, pledge, make any agreement with
respect to or otherwise deal with any of the Collateral as fully and
completely as though Collateral Agent were the absolute owner thereof for
all purposes, and to do, at Collateral Agent's option and Grantor's expense,
at any time or from time to time, all acts and things that Collateral Agent
reasonably deems necessary to protect, preserve or realize upon the
Collateral and Collateral Agent's security interest therein in order to
effect the intent of this Agreement, all as fully and effectively as Grantor
might do.
SECTION 15. COLLATERAL AGENT MAY PERFORM.
----------------------------
If Grantor fails to perform any agreement contained herein, Collateral
Agent may itself perform, or cause performance of, such agreement, and the
reasonable expenses of Collateral Agent incurred in connection therewith shall
be payable by Grantor under Section 21.
XXIII-13
<PAGE>
SECTION 16. STANDARD OF CARE.
----------------
The powers conferred on Collateral Agent hereunder are solely to protect
its interest in the Collateral and shall not impose any duty upon it to exercise
any such powers. Except for the exercise of reasonable care in the custody of
any Collateral in its possession and the accounting for moneys actually received
by it hereunder, Collateral Agent shall have no duty as to any Collateral or as
to the taking of any necessary steps to preserve rights against prior parties or
any other rights pertaining to any Collateral. Collateral Agent shall be deemed
to have exercised reasonable care in the custody and preservation of Collateral
in its possession if such Collateral is accorded treatment substantially equal
to that which Collateral Agent accords its own property.
SECTION 17. REMEDIES.
--------
If any Event of Default shall have occurred and be continuing, Collateral
Agent may exercise in respect of the Collateral, in addition to all other rights
and remedies provided for herein or otherwise available to it, all the rights
and remedies of a secured party on default under the Uniform Commercial Code as
in effect in any relevant jurisdiction (the "CODE") (whether or not the Code
applies to the affected Collateral), and also may (a) require Grantor to, and
Grantor hereby agrees that it will at its expense and upon request of Collateral
Agent forthwith, assemble all or part of the Collateral as directed by
Collateral Agent and make it available to Collateral Agent at a place to be
designated by Collateral Agent that is reasonably convenient to both parties,
(b) enter onto the property where any Collateral is located and take possession
thereof with or without judicial process, (c) prior to the disposition of the
Collateral, store, process, repair or recondition the Collateral or otherwise
prepare the Collateral for disposition in any manner to the extent Collateral
Agent deems appropriate, (d) take possession of Grantor's premises or place
custodians in exclusive control thereof, remain on such premises and use the
same and any of Grantor's equipment for the purpose of completing any work in
process, taking any actions described in the preceding clause (c) and collecting
any Secured Obligation, and (e) without notice except as specified below, sell
the Collateral or any part thereof in one or more parcels at public or private
sale, at any of Collateral Agent's offices or elsewhere, for cash, on credit or
for future delivery, at such time or times and at such price or prices and upon
such other terms as Collateral Agent may deem commercially reasonable.
Collateral Agent or any Secured Party or Interest Rate Exchanger may be the
purchaser of any or all of the Collateral at any such sale and Collateral Agent,
as agent for and representative of Secured Parties and Interest Rate Exchangers
(but not any Secured Party or Secured Parties or Interest Rate Exchanger or
Interest Rate Exchangers in its or their respective individual capacities unless
Requisite Obligees shall otherwise agree in writing), shall be entitled, for the
purpose of bidding and making settlement or payment of the purchase price for
all or any portion of the Collateral sold at any such public sale, to use and
apply any of the Secured Obligations as a credit on account of the purchase
price for any Collateral payable by Collateral Agent at such sale. Each
purchaser at any such sale shall hold the property sold absolutely free from any
claim or right on the part of Grantor, and Grantor hereby waives (to the extent
permitted by applicable law) all rights of redemption, stay and/or appraisal
which it now has or may at any time in the future have under any rule of law or
statute now existing or hereafter enacted. Grantor agrees that, to the extent
notice of sale shall be required by law, at least ten
XXIII-14
<PAGE>
days' notice to Grantor of the time and place of any public sale or the time
after which any private sale is to be made shall constitute reasonable
notification. Collateral Agent shall not be obligated to make any sale of
Collateral regardless of notice of sale having been given. Collateral Agent may
adjourn any public or private sale from time to time by announcement at the time
and place fixed therefor, and such sale may, without further notice, be made at
the time and place to which it was so adjourned. Grantor hereby waives any
claims against Collateral Agent arising by reason of the fact that the price at
which any Collateral may have been sold at such a private sale was less than the
price which might have been obtained at a public sale, even if Collateral Agent
accepts the first offer received and does not offer such Collateral to more than
one offeree. If the proceeds of any sale or other disposition of the Collateral
are insufficient to pay all the Secured Obligations, Grantor shall be liable for
the deficiency and the reasonable fees of any attorneys employed by Collateral
Agent to collect such deficiency.
SECTION 18. PROCEEDS TO BE TURNED OVER TO COLLATERAL AGENT.
----------------------------------------------
In addition to the rights of the Collateral Agent and the Secured Parties
specified in Section 10 with respect to payments of Accounts, if an Event of
Default shall occur and be continuing, upon request of the Collateral Agent, all
proceeds received by the Grantor consisting of cash, checks and other near-cash
items shall be held by the Grantor in trust for the Collateral Agent and the
Secured Parties, segregated from other funds of the Grantor, and shall,
forthwith upon receipt by the Grantor, be turned over to the Collateral Agent in
the exact form received by the Grantor (duly indorsed by the Grantor to the
Collateral Agent, if required) and held by the Collateral Agent in a Collateral
Account maintained under the Intercreditor Agreement. All proceeds while held
by the Collateral Agent in a Collateral Account (or by the Grantor in trust for
the Collateral Agent and the Secured Parties) shall continue to be held as
collateral security for all the Secured Obligations and shall not constitute
payment thereof until applied as provided in Section 20.
SECTION 19. APPLICATION OF PROCEEDS.
-----------------------
Except as expressly provided elsewhere in this Agreement, all proceeds
held in any Collateral Account and all other proceeds received by Collateral
Agent in respect of any sale of, collection from, or other realization upon all
or any part of the Collateral shall be applied as provided in subsection 3 of
the Intercreditor Agreement.
SECTION 20. INDEMNITY AND EXPENSES.
----------------------
(a) Grantor agrees to indemnify Collateral Agent, each Secured Party
Lender and each Interest Rate Exchanger from and against any and all claims,
losses and liabilities in any way relating to, growing out of or resulting from
this Agreement and the transactions contemplated hereby (including, without
limitation, enforcement of this Agreement), except to the extent such claims,
losses or liabilities result from Collateral Agent's or such Secured Party's or
Interest Rate Exchanger's gross negligence or willful misconduct as finally
determined by a court of competent jurisdiction.
XXIII-15
<PAGE>
(b) Grantor shall pay to Collateral Agent promptly following written
demand the amount of any and all reasonable costs and reasonable expenses,
including the reasonable fees and reasonable expenses of its counsel and of any
experts and agents, that Collateral Agent may incur in connection with (i) the
administration of this Agreement, (ii) the custody, preservation, use or
operation of, or the sale of, collection from, or other realization upon, any of
the Collateral, (iii) the exercise or enforcement of any of the rights of
Collateral Agent hereunder, or (iv) the failure by Grantor to perform or observe
any of the provisions hereof.
SECTION 21. CONTINUING SECURITY INTEREST; TRANSFER OF LOANS.
-----------------------------------------------
This Agreement shall create a continuing security interest in the
Collateral and shall (a) remain in full force and effect until the payment in
full of the Secured Obligations (other than inchoate indemnification obligations
with respect to claims, losses or liabilities which have not yet arisen and are
not yet due and payable), the cancellation or termination of the Commitments and
the cancellation or expiration of all outstanding Letters of Credit, (b) be
binding upon Grantor, its successors and assigns, and (c) inure, together with
the rights and remedies of Collateral Agent hereunder, to the benefit of
Collateral Agent and its successors, transferees and assigns. Without limiting
the generality of the foregoing clause (c), but subject to the provisions of
subsection 10.1 of the Credit Agreement and subsection 10.1 of the AXEL Credit
Agreement, any Secured Party may assign or otherwise transfer any Loans held by
it to any other Person, and such other Person shall thereupon become vested with
all the benefits in respect thereof granted to Secured Parties herein or
otherwise. Upon the payment in full of all Secured Obligations (other than
inchoate indemnification obligations with respect to claims, losses or
liabilities which have not yet arisen and are not yet due and payable), the
cancellation or termination of the Commitments and the cancellation or
expiration of all outstanding Letters of Credit, the security interest granted
hereby shall terminate and all rights to the Collateral shall revert to Grantor.
Upon any such termination Collateral Agent will, at Grantor's expense, execute
and deliver to Grantor such documents as Grantor shall reasonably request to
evidence such termination in accordance with the terms of the Intercreditor
Agreement.
SECTION 22. COLLATERAL AGENT AS ADMINISTRATIVE AGENT.
----------------------------------------
(a) Collateral Agent has been appointed to act as Collateral Agent
hereunder by CA Administrative Agent on behalf of the Credit Agreement Lenders
and AXEL Administrative Agent on behalf of the AXEL Lenders pursuant to the
Intercreditor Agreement and, by their acceptance of the benefits hereof,
Interest Rate Exchangers, and shall be entitled to the benefits of the
Intercreditor Agreement. Collateral Agent shall be obligated, and shall have
the right hereunder, to make demands, to give notices, to exercise or refrain
from exercising any rights, and to take or refrain from taking any action
(including, without limitation, the release or substitution of Collateral),
solely in accordance with this Agreement and the Intercreditor Agreement;
provided that Collateral Agent shall exercise, or refrain from exercising, any
- --------
remedies provided for in Section 18 in accordance with the instructions of (i)
Requisite Lenders or (ii) after payment in full of all Financing Agreement
Obligations under the Financing Agreements and any other Loan Documents, the
holders of a majority of the aggregate notional amount (or, with respect to any
Lender Interest Rate Agreement that has been terminated in accordance with its
terms, the amount then due and payable (exclusive of expenses and similar
XXIII-16
<PAGE>
payments but including any early termination payments then due) under such
Lender Interest Rate Agreement) under all Lender Interest Rate Agreements
(Requisite Lenders or, if applicable, such holders being referred to herein as
"REQUISITE OBLIGEES"). In furtherance of the foregoing provisions of this
Section 23(a), each Interest Rate Exchanger, by its acceptance of the benefits
hereof, agrees that it shall have no right individually to realize upon any of
the Collateral hereunder, it being understood and agreed by such Interest Rate
Exchanger that all rights and remedies hereunder may be exercised solely by
Collateral Agent for the benefit of Secured Parties and Interest Rate Exchangers
in accordance with the terms of this Section 23(a).
(b) Collateral Agent shall at all times be the same Person that is
appointed Collateral Agent under the Intercreditor Agreement. The Collateral
Agent may resign and a successor Collateral Agent may be appointed in the manner
provided in the Intercreditor Agreement. Upon the acceptance of any
appointment as Collateral Agent by a successor Collateral Agent, that successor
Collateral Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring or removed Collateral
Agent under this Agreement, and the retiring or removed Collateral Agent under
this Agreement shall promptly (i) transfer to such successor Collateral Agent
all sums, securities and other items of Collateral held hereunder, together with
all records and other documents necessary or appropriate in connection with the
performance of the duties of the successor Collateral Agent under this
Agreement, and (ii) execute and deliver to such successor Collateral Agent such
amendments to financing statements, and take such other actions, as may be
necessary or appropriate in connection with the assignment to such successor
Collateral Agent of the security interests created hereunder, whereupon such
retiring or removed Collateral Agent shall be discharged from its duties and
obligations under this Agreement. After any retiring or removed Collateral
Agent's resignation or removal hereunder as Collateral Agent, the provisions of
this Agreement shall inure to its benefit as to any actions taken or omitted to
be taken by it under this Agreement while it was Collateral Agent hereunder.
SECTION 23. AMENDMENTS; ETC.
---------------
No amendment, modification, termination or waiver of any provision of
this Agreement, and no consent to any departure by Grantor therefrom, shall in
any event be effective unless the same shall be in writing and signed by
Collateral Agent and, in the case of any such amendment or modification, by
Grantor. Any such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which it was given.
XXIII-17
<PAGE>
SECTION 24. NOTICES.
-------
Any notice or other communication herein required or permitted to be
given shall be in writing and may be personally served, telexed or sent by
telefacsimile or United States mail or courier service and shall be deemed to
have been given when delivered in person or by courier service, upon receipt of
telefacsimile or telex, or three Business Days after depositing it in the United
States mail with postage prepaid and properly addressed; provided that notices
--------
to Collateral Agent and Grantor shall not be effective until received. For the
purposes hereof, the address of each party hereto shall be as set forth under
such party's name on the signature pages hereof or, as to either party, such
other address as shall be designated by such party in a written notice delivered
to the other party hereto.
SECTION 25. FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE.
-----------------------------------------------------
No failure or delay on the part of Collateral Agent in the exercise of
any power, right or privilege hereunder shall impair such power, right or
privilege or be construed to be a waiver of any default or acquiescence therein,
nor shall any single or partial exercise of any such power, right or privilege
preclude any other or further exercise thereof or of any other power, right or
privilege. All rights and remedies existing under this Agreement are cumulative
to, and not exclusive of, any rights or remedies otherwise available.
SECTION 26. SEVERABILITY.
------------
In case any provision in or obligation under this Agreement shall be
invalid, illegal or unenforceable in any jurisdiction, the validity, legality
and enforceability of the remaining provisions or obligations, or of such
provision or obligation in any other jurisdiction, shall not in any way be
affected or impaired thereby.
SECTION 27. HEADINGS.
--------
Section and subsection headings in this Agreement are included herein for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose or be given any substantive effect.
SECTION 28. GOVERNING LAW; TERMS.
--------------------
THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING WITHOUT LIMITATION SECTION
5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD
TO CONFLICTS OF LAWS PRINCIPLES, EXCEPT TO THE EXTENT THAT THE CODE PROVIDES
THAT THE PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER,
IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A
JURISDICTION OTHER THAN THE STATE OF NEW YORK. Unless otherwise defined
XXIII-18
<PAGE>
herein or in the Credit Agreement, terms used in Articles 8 and 9 of the Uniform
Commercial Code in the State of New York are used herein as therein defined.
SECTION 29. COUNTERPARTS.
------------
This Agreement may be executed in one or more counterparts and by
different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all such counterparts
together shall constitute but one and the same instrument; signature pages may
be detached from multiple separate counterparts and attached to a single
counterpart so that all signature pages are physically attached to the same
document.
[Remainder of page intentionally left blank]
XXIII-19
<PAGE>
IN WITNESS WHEREOF, Grantor and Collateral Agent have caused this
Agreement to be duly executed and delivered by their respective officers
thereunto duly authorized as of the date first written above.
SEALY CORPORATION
By: ________________________________
Name:
Title:
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK, as Collateral Agent
By: ________________________________
Name:
Title:
XXIII-20
<PAGE>
SCHEDULE 5(b)
TO HOLDINGS SECURITY AGREEMENT
Locations of Equipment:
Locations of Inventory:
XXIII-21
<PAGE>
EXHIBIT XXIV
[FORM OF MORTGAGE]
--------------------------------------------------------
MORTGAGE, ASSIGNMENT OF RENTS AND LEASES,
SECURITY AGREEMENT AND FIXTURE FILING
([**STATE**])
made from
[** SEALY OWNERSHIP ENTITY **],
"Mortgagor"
to
MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent,
"Mortgagee"
Date: As of December 18, 1997
--------------------------------------------------------
PREPARED BY, RECORDING REQUESTED BY,
AND WHEN RECORDED MAIL TO:
O'Melveny & Myers LLP
153 East 53rd Street
New York, New York 10022-4611
Attention: Francis J. Burgweger, Esq.
File #317,790-084[1]
- -------------------
[16]NOTE: If this Mortgage or the Notes which this Mortgage secures are in
your possession, DO NOT DESTROY THEM. State law may require presentation of
this Mortgage and/or the Notes in order to obtain a termination or release of
this Mortgage upon satisfaction of the indebtedness secured hereby. The
termination or release must be recorded in the city, town, county or parish
records for the jurisdiction in which the land described in the Exhibit A is
---------
located.
XXIV-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Definition of Mortgaged Property,
Granting Clauses......................................................................... 1
SECTION 1
OBLIGATIONS OF BORROWER UNDER THE CREDIT AGREEMENT.......................... 8
SECTION 2
COVENANTS AND AGREEMENTS OF MORTGAGOR....................................... 8
2.1 Payment and Performance of Obligations......................................... 8
2.2 Assignment of Policies Upon Foreclosure........................................ 8
2.3 Inspections.................................................................... 9
2.4 Actions by Mortgagee To Preserve Mortgaged Property............................ 10
2.5 Action by Mortgagee to Protect Interests; Subrogation; Waiver of Offset........ 11
2.6 Restrictions on Transfer of Mortgaged Property by Mortgagor.................... 12
2.7 Incorporation by Reference; Full Performance Required; Survival of Warranties.. 13
2.8 Additional Security............................................................ 13
2.9 Further Acts................................................................... 13
2.10 Offsite Improvements........................................................... 14
2.11 Utilities...................................................................... 15
2.12 Leasehold Estate............................................................... 15
SECTION 3
ASSIGNMENT OF RENTS AND LEASES.............................................. 22
3.1 Assignment of Rents and Leases................................................. 22
</TABLE>
XXIV-i
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
3.2 No Limitation of Rights......................................................... 22
3.3 Sale of Mortgaged Property...................................................... 23
3.4 Term of Assignment.............................................................. 23
3.5 Perfection Upon Recordation..................................................... 24
3.6 Bankruptcy Provisions........................................................... 24
SECTION 4
SECURITY AGREEMENT.......................................................... 24
4.1 Grant of Security; Incorporation by Reference................................... 24
4.2 Fixture Filing Financing Statements............................................. 25
4.3 Mortgagee as Secured Party...................................................... 25
SECTION 5
DEFAULTS AND REMEDIES....................................................... 25
5.1 Events of Default............................................................... 25
5.2 Fixtures........................................................................ 26
5.3 Remedies........................................................................ 26
5.4 Costs and Expenses.............................................................. 32
5.5 Additional Rights of Mortgagee.................................................. 32
5.6 Application of Proceeds......................................................... 32
SECTION 6
INDEMNIFICATION............................... 33
SECTION 7
TERMINATION................................... 33
</TABLE>
XXIV-ii
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 8
MISCELLANEOUS COVENANTS AND AGREEMENTS...................................... 34
8.1 Cumulative Rights; Waivers; Modifications....................................... 34
8.2 Partial Releases................................................................ 34
8.3 Severability.................................................................... 34
8.4 Subrogation..................................................................... 35
8.5 Mortgagee's Powers.............................................................. 35
8.6 Enforceability of Mortgage...................................................... 36
8.7 Interest........................................................................ 36
8.8 Choice of Law................................................................... 36
8.9 Counterparts.................................................................... 36
8.10 Recording References............................................................ 37
8.11 Notices......................................................................... 37
8.12 Successors and Assigns.......................................................... 37
8.13 Expenses........................................................................ 38
8.14 Nonforeign Entity............................................................... 38
8.15 Purpose of the Loans............................................................ 38
8.16 No Joint Venture or Partnership................................................. 39
8.17 Amendments and Waivers.......................................................... 39
8.18 Covenants and Agreements Run with Land.......................................... 39
</TABLE>
XXIV-iii
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
8.19 Statements by Mortgagor......................................................... 39
8.20 Non-Waiver...................................................................... 39
8.21 Survival of Obligations......................................................... 40
8.22 Consent to Jurisdiction and Service of Process.................................. 40
8.23 Waiver of Jury Trial............................................................ 41
</TABLE>
EXHIBIT A - LEGAL DESCRIPTION OF LAND
EXHIBIT B - DESCRIPTION OF ADDITIONAL MORTGAGED
PROPERTY
EXHIBIT C - UCC INFORMATION
SCHEDULE I - MORTGAGEE'S ADDITIONAL RIGHTS
XXIV-iv
<PAGE>
MORTGAGE, ASSIGNMENT OF RENTS AND LEASES,
SECURITY AGREEMENT AND FIXTURE FILING ([**STATE**])
THIS MORTGAGE, ASSIGNMENT OF RENTS AND LEASES, SECURITY AGREEMENT AND
FIXTURE FILING ([**STATE**]) (this "MORTGAGE") is dated as of December 18, 1997,
from [** SEALY OWNERSHIP ENTITY **], a _________ corporation ("MORTGAGOR"),
whose address is [** ________ **], to MORGAN GUARANTY TRUST COMPANY OF NEW YORK,
a [** ________ **] corporation, as Administrative Agent for the Lenders listed
in the Credit Agreement (as hereinafter defined), having an address at [** _____
**] and all successors and assigns as agents (in such capacity, "AGENT"; Agent,
together with its successors and assigns, "MORTGAGEE").
All capitalized terms used but not otherwise defined herein shall have
the same meanings ascribed to such terms in the Credit Agreement.
MORTGAGOR IS THE OWNER OF THE RECORD INTEREST IN THE PARCELS OF LAND AS
INDICATED IN EXHIBIT A HERETO.
---------
THIS MORTGAGE COVERS GOODS WHICH ARE OR ARE TO BECOME AFFIXED TO OR FIXTURES ON
THE LAND DESCRIBED IN EXHIBIT A HERETO. THIS MORTGAGE IS A FIXTURE FILING AND
---------
IS TO BE INDEXED, AMONG OTHER PLACES, IN THE REAL ESTATE RECORDS OF EACH COUNTY
(OR, TO THE EXTENT SIMILAR RECORDS ARE MAINTAINED AT THE CITY OR TOWN LEVEL
INSTEAD OF THE COUNTY LEVEL, EACH SUCH CITY OR TOWN) IN WHICH SAID LAND OR ANY
PORTION THEREOF IS LOCATED.
NOW, THEREFORE, for good and valuable consideration, the receipt and
legal sufficiency of which are hereby acknowledged, and the mutual covenants
herein contained, and in order to secure the Obligations (as hereinafter
defined), MORTGAGOR HEREBY COVENANTS AND AGREES WITH AND REPRESENTS AND WARRANTS
TO MORTGAGEE AS FOLLOWS:
LVII. GRANTING CLAUSES. Mortgagor hereby:
(i) grants, bargains, sells, assigns, pledges, transfers, mortgages
and conveys, as security for the Obligations, those portions of the following
described Mortgaged Property (as hereinafter defined) that constitute real
property under the laws of the State wherein located to Mortgagee, WITH POWER OF
SALE, pursuant to this Mortgage and Applicable Law, but subject to the Security
Agreement (as hereinafter defined) and the assignment made in paragraph (iii)
---------------
below, and subject to the Permitted Encumbrances, TO HAVE AND TO HOLD such
portions of the Mortgaged Property, to Mortgagee and its successors and assigns
forever, subject to all of the terms, conditions, covenants and agreements
herein set forth, for the security and benefit of Mortgagee and its successors
and assigns; and
<PAGE>
(ii) grants, as security for the Obligations, a security interest to
Mortgagee in that portion of the Mortgaged Property constituting fixtures or
personal property; and
(iii) assigns and transfers to Mortgagee, as security for the
Obligations, all of the Leases (as defined in Exhibit B) and all of the Rents
---------
(as hereinafter defined) and other benefits derived from any Leases, whether now
existing or hereafter created.
All of Mortgagor's right, title and interest in and to the following described
property now or hereafter located upon the Premises (as hereinafter defined), or
appurtenant thereto, or used or to be used in connection with the present or
future use, construction upon, leasing, sale, operation or occupancy of the
Premises is herein collectively referred to as the "MORTGAGED PROPERTY":
GRANTING CLAUSE FIRST
LAND
1. The parcel of land located at ______________ in the City
of_______________, County of _______________________ and State of
_________________, as more particularly described in Exhibit A attached hereto
---------
and by this reference incorporated herein, together with all strips and gores
within or adjoining such property, all estate, right, title, interest, claim or
demand whatsoever of Mortgagor in the streets, roads, sidewalks, alleys, and
ways adjacent thereto (whether or not vacated and whether public or private and
whether open or proposed), all vaults or chutes adjoining such land, all of the
tenements, hereditaments, easements, reciprocal easement agreements, rights
pursuant to any trackage agreement, rights to the use of common drive entries,
rights-of-way and other rights, privileges and appurtenances thereunto belonging
or in any way pertaining thereto, all reversions, remainders, dower and right of
dower, curtesy and right of curtesy, all of the air space and right to use said
air space above such property, all transferable development rights arising
therefrom or transferred thereto, all water and water rights (whether riparian,
appropriative or otherwise, and whether or not appurtenant) and shares of stock
evidencing the same, all mineral, mining, gravel, oil, gas, hydrocarbon
substances and other rights to produce or share in the production of anything
related to such property, all drainage, crop, timber, agricultural, and
horticultural rights with respect to such property, and all other appurtenances
appurtenant to such property, including without limitation, any now or hereafter
belonging or in anywise appertaining thereto, and all claims or demands of
Mortgagor, either at law or in equity, in possession or expectancy, now or
hereafter acquired, of, in or to the same (all of the foregoing being referred
to herein, collectively, as the "LAND");
GRANTING CLAUSE SECOND
IMPROVEMENTS
2. The Improvements described in Exhibit B attached hereto and by this
---------
reference incorporated herein. The Land and the Improvements are referred to
herein, collectively, as the "PREMISES";
XXIV-2
<PAGE>
GRANTING CLAUSE THIRD
RENTS, LEASES AND LEASE PROVISIONS
3. The Rents, Leases and Lease Provisions described in Exhibit B
---------
attached hereto and by this reference incorporated herein, and that certain
Subsidiary Pledge Agreement dated as of even date herewith from Mortgagor and
the other pledgors listed on the signature pages thereof, as debtors, to
Mortgagee, as secured party and as executed by any additional Subsidiary
Guarantor from time to time thereafter as the same may hereafter be amended,
modified, supplemented, restated or renewed (such Subsidiary Pledge Agreement,
together with any and all amendments, modifications, supplements, restatements,
extensions, renewals or replacements thereof are collectively referred to herein
as the "SUBSIDIARY PLEDGE AGREEMENT" and that certain Subsidiary Security
Agreement dated as of even date herewith from Mortgagor and the other grantors
listed on the signature pages thereof, as debtors, to Mortgagee, as secured
party, as the same may hereafter be amended, modified, supplemented, restated or
renewed (such Subsidiary Security Agreement, together with any and all
amendments, modifications, supplements, restatements, extensions, renewals or
replacements thereof are collectively referred to herein as the "SUBSIDIARY
SECURITY AGREEMENT") (the Subsidiary Pledge Agreement and the Subsidiary
Security Agreement are collectively referred to as the "SECURITY AGREEMENT");
GRANTING CLAUSE FOURTH
VARIOUS COLLATERAL
4. The Equipment, Materials, Specifications, Security Deposits,
Financing Commitments, Inventory, Negotiable Documents of Title, Rolling Stock,
Payment Rights, Accounts, Related Contracts, Assigned Related Agreements,
Deposit Accounts, Deposit Account Collateral, Intellectual Property and General
Intangibles described in Exhibit B attached hereto and by this reference
---------
incorporated herein and any other property described in Exhibit B and not
---------
described in any other Granting Clause (collectively, the "VARIOUS COLLATERAL"),
subject to the terms and provisions of the Security Agreement;
GRANTING CLAUSE FIFTH
REFUNDS
5. The Refunds described in Exhibit B attached hereto and by this
---------
reference incorporated herein, subject to the terms and provisions of the
Security Agreement;
GRANTING CLAUSE SIXTH
INSURANCE/CONDEMNATION PROCEEDS
6. The Insurance/Condemnation Proceeds described in Exhibit B
---------
attached hereto and by this reference incorporated herein, subject to the terms
and provisions of the Security Agreement and Section 6.11 of the Credit
------------
Agreement;
XXIV-3
<PAGE>
GRANTING CLAUSE SEVENTH
RECORDS AND PERMITS
7. The Records and Permits described in Exhibit B attached hereto and
---------
by this reference incorporated herein, subject to the terms and provisions of
the Security Agreement;
GRANTING CLAUSE EIGHTH
OPTIONS
8. The Options described in Exhibit B attached hereto and by this
---------
reference incorporated herein, subject to the terms and provisions of the
Security Agreement;
GRANTING CLAUSE NINTH
PROCEEDING RIGHTS
9. The Proceeding Rights described in Exhibit B attached hereto and by
---------
this reference incorporated herein, subject to the terms and provisions of the
Security Agreement;
GRANTING CLAUSE TENTH
ENCUMBRANCE RIGHTS
10. The Encumbrance Rights described in Exhibit B attached hereto and by
---------
this reference incorporated herein, subject to the terms and provisions of
the Security Agreement;
GRANTING CLAUSE ELEVENTH
GREATER ESTATE RIGHTS
11. The Greater Estate Rights described in Exhibit B attached hereto and
---------
by this reference incorporated herein, subject to the terms and provisions of
the Security Agreement;
GRANTING CLAUSE TWELFTH
AFTER ACQUIRED PROPERTY
12. All property hereafter acquired or constructed by Mortgagor of the
type described in the foregoing Granting Clauses and located upon the Premises,
or appurtenant thereto, or used or to be used in connection with the present or
future use, construction upon, leasing, sale, operation or occupancy of the
Premises, which shall forthwith, upon acquisition or construction thereof by
Mortgagor and without any act or deed by Mortgagor or Mortgagee, become subject
to the lien and security interest of this Mortgage as if such property were now
owned by Mortgagor and were specifically described in this Mortgage and were
specifically conveyed or encumbered hereby; and
XXIV-4
<PAGE>
GRANTING CLAUSE THIRTEENTH
ACCESSIONS AND PROCEEDS
13. All accessions, additions, replacements, substitutions, renewals
or attachments to, and proceeds of, any of the foregoing,
TO HAVE AND TO HOLD the Mortgaged Property unto Mortgagee and its
successors and assigns, for the uses and purposes set forth herein, forever.
B. OBLIGATIONS.
This Mortgage is given to secure ratably and equally the payment and
performance of the following obligations (collectively referred to as the
"OBLIGATIONS"):
1. Payment of and performance of (a) all "Guarantied Obligations" (the
"GUARANTIED OBLIGATIONS") of Mortgagor under, and as defined in, that
certain Subsidiary Guaranty dated as of even date herewith (the "SUBSIDIARY
GUARANTY") from Mortgagor and other subsidiaries of Company and Holdings
(Company and Holdings collectively, "BORROWER") in favor of and for the
benefit of Mortgagee, pursuant to which Mortgagor is unconditionally and
irrevocably, as a primary obligor and not merely as a surety, guarantying
the due and punctual payment in full of the "Obligations" of Borrower under
and as defined in that certain Credit Agreement dated as of even date
herewith by and among Borrower, as borrower, Goldman Sachs Credit Partners,
as syndication agent and arranger, the financial institutions listed on the
signature pages thereof (each individually referred to herein as a "LENDER"
and collectively as "LENDERS") and Mortgagee, and any and all amendments,
modifications, supplements, restatements, extensions, renewals or
replacements thereof (such Senior Secured Revolving Credit Agreement and
any and all amendments, modifications, supplements, restatements,
extensions, renewals or replacements thereof are collectively referred to
herein as the "CREDIT AGREEMENT"); and (b) all obligations of Mortgagor
under, with respect to or arising in connection with this Mortgage,
including, without limitation, all obligations to Mortgagee for fees, costs
and expenses (including attorneys' fees and disbursements) as provided
therein and herein;
2. Payment and performance of all obligations of Mortgagor to the
Lenders and/or Mortgagee for fees, costs and expenses required to be paid
by Mortgagor under the other Loan Documents including, without limitation
fees, costs and expenses (including attorneys' fees and disbursements), all
becoming due as provided therein;
XXIV-5
<PAGE>
3. Payment of all sums advanced by the Lenders or Mortgagee in
accordance with the provisions of this Mortgage or the other Loan Documents
to protect the Mortgaged Property, with interest thereon at the rate
specified in Section 2.2.E of the Credit Agreement (the "AGREED RATE");
-------------
4. Payment of all sums advanced and costs and expenses incurred by the
Lenders or Mortgagee in accordance with the terms of the Loan Documents in
connection with the Obligations or any part thereof, any renewal, extension
or change of or substitution for the Obligations or any part thereof, or
the acquisition or perfection of the security therefor, whether such
advances, costs and expenses were made or incurred at the request of
Borrower, Mortgagor, Mortgagee or any Lender;
5. Payment of all other sums, with interest thereon, which may
hereafter be loaned to Mortgagor, or its successors or assigns, by the
Lenders or Mortgagee, or their respective successors or assigns, or by the
holder of any of the Notes, pursuant to an agreement that recites that the
repayment of such sums and Mortgagor's other obligations under such
agreement are secured by this Mortgage;
6. Payment of all sums with respect to the Obligations that would
become due but for the operation of the automatic stay under Section 362(a)
of the Bankruptcy Code, 11 U.S.C. (S)362(a), including, without limitation,
interest, fees and other charges that, but for the filing of a petition in
bankruptcy with respect to Mortgagor would accrue on the Obligations,
whether or not a claim is alleged against Mortgagor for such sums in any
such bankruptcy proceeding;
7. Due, prompt and complete performance of every obligation, covenant
and agreement of Mortgagor contained in any agreement now or hereafter
executed by Mortgagor which recites that the obligations thereunder are
secured by this Mortgage from and after the date on which all mortgage
recording taxes, general intangible taxes or other taxes payable in respect
of obligations have been paid; and
8. All renewals, extensions, amendments, modifications and changes and
supplements of, or substitutions or replacements for, all or any part of
the items described in Paragraphs 1 through 7 above.
----------------------
C. FUTURE ADVANCES.
In addition to all other indebtedness secured by this Mortgage, this
Mortgage shall also secure and constitute a first Lien on the Mortgaged Property
for:
XXIV-6
<PAGE>
1. Mortgagor's guaranty of all future advances (including all
extensions, renewals and modifications of such future advances) that relate
directly or indirectly to the Credit Agreement (including advances pursuant
to Section 2.1 thereof) or to this Mortgage and are made as provided in any
-----------
of the Loan Documents by the Lenders or Mortgagee to Borrower or Mortgagor
or otherwise as provided in any of the Loan Documents for any purpose so
related after the date of this Mortgage, and Mortgagor acknowledges that
the irrevocable and unconditional guaranty of such future advances is among
the Obligations; and
2. all sums advanced or paid pursuant to the terms of this Mortgage
by Mortgagee upon a default or Event of Default under the terms of this
Mortgage (a) for real estate taxes, charges and assessments that may be
imposed by law upon the Premises, (b) for premiums on insurance policies
covering the Premises, (c) for expenses incurred in upholding the Lien of
this Mortgage, including but not limited to the expenses of any litigation
to prosecute or defend the rights and Lien created by this Mortgage, (d) to
which Mortgagee becomes subrogated, upon payment, under recognized
principles of law or equity, or under express statutory authority or (e)
for any other purpose, in each case, with interest thereon at the Agreed
Rate; and
3. all other sums expended by Mortgagee in accordance with the terms
of this Mortgage (including without limitation the amounts advanced
pursuant to Sections 2.3, 2.4, 2.5 and 5.5 hereof),
------------ --- --- ---
just as if such advances were made on the date of this Mortgage. Any future
advances may be made in accordance with the terms of the Credit Agreement, or at
the option of Mortgagee, as provided herein or in the other Loan Documents. The
total amount of the indebtedness that may be secured by this Mortgage may
increase or decrease from time to time.
D. DEFINITIONS AND INTERPRETATION.
Supplementing the definitions listed below in this Paragraph D, the
-----------
definitions set forth in Section 1.1 of the Credit Agreement and the provisions
-----------
with respect to interpretation and construction of the Loan Documents as set
forth in Sections 1.3 and 9.16 of the Credit Agreement are hereby incorporated
------------ ----
by reference into this Mortgage with the same effect as if set forth in full
herein. The following terms used in this Mortgage shall have the following
meanings:
"APPLICABLE LAW" means, collectively, all statutes, laws, rules,
regulations, ordinances, orders, decisions, writs, judgments, decrees and
injunctions of governmental authorities (including Environmental Laws) affecting
Borrower or the Collateral or any part thereof (including the acquisition,
development, construction, renovation, occupancy, use, improvement, alteration,
management, operation, maintenance, repair or restoration thereof), whether now
or hereafter enacted and in force, and all authorizations relating thereto, and
all covenants, conditions and restrictions contained in any instruments, either
of record or known to Borrower, at any time in
XXIV-7
<PAGE>
force affecting any Property or any part thereof, including any such covenants,
conditions and restrictions which may (i) require improvements, repairs or
alterations in or to such Property or any part thereof or (ii) in any way limit
the use and enjoyment thereof; for purposes of usury, Applicable Law means the
law of the State of New York applicable to maximum rates of interest.
"SECURED PARTY" means Mortgagee, in its capacity as administrative agent
for and representative of the Lenders and any Interest Rate Exchangers (as
defined in the Security Agreement (defined below)).
"SECURITY AGREEMENT" means the Security Agreement executed and delivered
by Borrower and the Mortgagee on or before the Closing Date, pursuant to which
Borrower will pledge and grant a security interest in the Collateral described
therein to Mortgagee for the benefit of the Mortgagee and the Lenders, as such
Security Agreement may be amended, restated, supplemented or otherwise modified
from time to time in accordance with the terms thereof and hereof.
"TRANSFER" means any conveyance, assignment, sale, mortgaging,
encumbrance, pledging, hypothecation, granting of a security interest in,
granting of options with respect to or other disposition of (directly or
indirectly, voluntarily or involuntarily, by operation of law or otherwise, and
whether or not for consideration or of record) all or any portion of any legal
or beneficial interest (i) in all or any portion of any Property or (ii) in any
other assets of Borrower or any of Borrower's subsidiaries.
Section 1
OBLIGATIONS OF BORROWER UNDER THE CREDIT AGREEMENT
The "Obligations" of Borrower under and as defined in the Credit
Agreement include, without limitation: (a) the due and punctual payment of the
indebtedness, together with interest thereon and other amounts payable with
respect thereto, owed under the Notes up to the maximum aggregate principal
amount set forth in Section 2.1 of the Credit Agreement; (b) the due and
-----------
punctual payment of all reimbursement obligations in respect of Letters of
Credit together with interest thereon and other amounts payable with respect
thereto; and (c) the due and punctual payment of any fee payable in accordance
with Section 2.4 of the Credit Agreement (together with interest thereon and
-----------
other amounts payable with respect thereto).
XXIV-8
<PAGE>
Section 2
COVENANTS AND AGREEMENTS OF MORTGAGOR
2.1 PAYMENT AND PERFORMANCE OF OBLIGATIONS.
--------------------------------------
Mortgagor shall pay when due and perform the Obligations, including,
without limitation, all amounts payable under and with respect to the Subsidiary
Guaranty (including interest thereon as provided in the Subsidiary Guaranty);
all charges, fees and other sums (including, without limitation, attorneys' fees
and disbursements, late charges, prepayment charges and other amounts and all
costs of collection) to be paid by Mortgagor as provided in this Mortgage or in
the other Loan Documents; the principal and interest on any future advances
secured by this Mortgage; and the principal of and interest on any other
indebtedness secured by this Mortgage.
2.2 ASSIGNMENT OF POLICIES UPON FORECLOSURE.
---------------------------------------
In the event of foreclosure of this Mortgage or other transfer of
title or assignment of the Mortgaged Property, the acceptance by Mortgagee (or a
nominee of Mortgagee) of a deed to any part of the Mortgaged Property in lieu of
foreclosure of this Mortgage or in connection with a plan of reorganization
filed under Chapter 11 of the Bankruptcy Code, or the exercise by Mortgagee of
any remedy set forth herein, in extinguishment, in whole or in part, of the debt
secured hereby or upon the acceptance by Mortgagee (or a nominee of Mortgagee)
of a deed to any part of the Mortgaged Property in lieu of foreclosure of this
Mortgage but not in extinguishment, in whole or in part, of the debt secured
hereby, all right, title and interest of Mortgagor in and to all policies of
insurance required pursuant to Section 6.4 of the Credit Agreement shall inure
-----------
to the benefit of and pass to the successor in interest to Mortgagor or the
purchaser or grantee of the Mortgaged Property.
XXIV-9
<PAGE>
2.3 INSPECTIONS.
-----------
Mortgagee and its agents, representatives and employees are authorized
to enter, at any reasonable time and upon reasonable prior notice to Mortgagor,
upon or in any part of the Mortgaged Property as set forth in the Credit
Agreement for the purpose of inspecting the same and for the purpose of
performing any of the acts they are authorized to perform hereunder or under the
terms of the Loan Documents, including performing any architectural,
environmental and engineering audits and assessments. Mortgagee agrees that
employees of Mortgagor shall be entitled to accompany Mortgagee and its agents,
representatives and employees during any such inspection or other entry upon the
Mortgaged Property, and Mortgagee and its agents, representatives and employees
shall use reasonable efforts not to interfere with Mortgagor's operations at the
Premises in connection with such inspection or other entry. Mortgagor shall, at
Mortgagor's sole expense, conduct and complete all environmental investigations
(including Phase I, Phase II and Phase III environmental investigations),
inspections, monitoring, studies, sampling, testing, boring, reporting, clean
up, containment, remediation and/or removal of any Hazardous Materials as and
when required, and if the same are not timely conducted and completed by
Mortgagor due to the fault of Mortgagor or any of its employees, then Mortgagee
shall have the right to do so (at Mortgagee's option and without any obligation
to do so) on Mortgagor's behalf and at Mortgagor's expense. Mortgagor hereby
grants Mortgagee and its employees and agents an irrevocable and non-exclusive
royalty-free license, to enter the Mortgaged Property and to investigate
(including conducting Phase I, Phase II and Phase III environmental
investigations), inspect, monitor, study, sample, test and conduct borings, to
make such reports of the findings as may be required by Applicable Law, and to
clean up, contain, remediate and/or remove Hazardous Materials (but Mortgagee
shall have no obligation to do so). Without limitation of any other rights or
remedies of Mortgagee, Mortgagor hereby irrevocably appoints and constitutes
Mortgagee as its lawful attorney-in-fact, coupled with an interest and with full
power of substitution, for the purpose of taking any of the actions described in
the immediately preceding sentence and all acts incidental thereto. The costs
of any investigation, inspection, monitoring, studying, sampling, testing,
boring, clean-up, containment, remediation and/or removal shall be paid by
Mortgagor and shall be secured by this Mortgage. Notwithstanding the foregoing,
Mortgagee shall have no duty to make any inspection of the Mortgaged Property
(including, without limitation, any environmental inspection) and shall not
incur any liability for making or not making any such inspection, and shall not
be required to report the results of any such inspection to Mortgagor.
XXIV-10
<PAGE>
2.4 ACTIONS BY MORTGAGEE TO PRESERVE MORTGAGED PROPERTY.
---------------------------------------------------
From and after the occurrence of an Event of Default, Mortgagee may,
without obligation so to do and without releasing Mortgagor from any Obligation,
make any payment or perform any act required to be paid or performed by
Mortgagor under the terms of any of the Loan Documents, if Mortgagee in its sole
discretion shall deem such payment or act necessary or proper to protect the
security hereof. In connection therewith (without limiting its general and
other powers, whether conferred herein, in any other Loan Document or by law),
Mortgagee shall have and is hereby given the right (without limiting the rights
otherwise available to Mortgagee under any of the other Loan Documents or any
other provisions of this Mortgage), but not the obligation, after Mortgagor's
failure to cure within the period described above, and upon the occurrence and
during the continuance of an Event of Default: (a) to enter upon and take
possession of the Mortgaged Property, (b) to make additions, alterations,
repairs and improvements to the Mortgaged Property which Mortgagee may consider
necessary or proper to keep the Mortgaged Property in good condition and repair,
(c) to appear and participate in any action or proceeding affecting or which may
affect the security hereof or the rights or powers of Mortgagee, (d) to pay,
purchase, contest or compromise any claim, charge, Lien or debt which in the
judgment of Mortgagee may materially and adversely affect or appears to
materially and adversely affect the security of this Mortgage or to be prior or
superior hereto except for any claims, charges, Liens or debts being diligently
contested in good faith by Mortgagor in appropriate proceedings in accordance
with the terms of Sections 6.3 or 6.6 of the Credit Agreement, (e) to pay any
Impositions except those Impositions being diligently contested in good faith by
Mortgagor in appropriate proceedings in accordance with the terms of Section 6.3
of the Credit Agreement and to procure, maintain and pay premiums on the
insurance policies referred to herein, and (f) in exercising such powers, to pay
necessary expenses, including fees and disbursements of counsel or other
necessary and desirable consultants. No such advance or performance shall be
deemed to have cured any or Event of Default. Mortgagor shall, within ten (10)
days after Mortgagee's written demand therefor, pay to Mortgagee an amount equal
to all costs and expenses actually incurred by Mortgagee in accordance with the
provisions set forth herein and in the other Loan Documents in connection with
the exercise by Mortgagee of the foregoing rights including, without limitation,
costs of evidence of title and of endorsements to the Closing Date Mortgage
Policies, court costs, architectural or engineering studies, appraisals, surveys
and architect's, engineer's, accountant's, receiver's, trustee's and attorneys'
fees, together with interest thereon from the date of such expenditures at the
Agreed Rate. All sums advanced and all expenses incurred by Mortgagee in
accordance with the provisions set forth herein and in the other Loan Documents
in connection with such advances or actions and all other sums advanced or
expenses incurred by Mortgagee hereunder in accordance with the provisions set
forth herein and in the other Loan Documents (whether required or optional and
whether indemnified hereunder or not) shall be deemed Obligations owing by
Mortgagor and shall bear interest from the date incurred or paid by Mortgagee
until paid by Mortgagor at the Agreed Rate. All such amounts advanced or
incurred, and all such interest thereon, shall be a part of the Obligations and
shall be secured by this Mortgage. Mortgagee, upon making such advance, shall be
subrogated to all of the rights of the person receiving such advance.
XXIV-11
<PAGE>
2.5 ACTION BY MORTGAGEE TO PROTECT INTERESTS; SUBROGATION; WAIVER OF
----------------------------------------------------------------
OFFSET.
------
1. ACTION BY MORTGAGEE TO PROTECT INTERESTS. If the title,
interest or Lien, as the case may be, of Mortgagor or Mortgagee in and to the
Mortgaged Property or any part thereof, or the security of this Mortgage, or the
rights or powers of Mortgagee or Mortgagor hereunder, shall be attacked, either
directly or indirectly, or if any legal proceedings are commenced involving
Mortgagor (which proceedings require notice to Agent or the Lenders pursuant to
Section 6.1(x) of the Credit Agreement), Mortgagee or the Mortgaged Property,
Mortgagor shall promptly upon obtaining knowledge of the same give written
notice thereof to Mortgagee and at Mortgagor's own expense shall take all
reasonable steps diligently to defend against any such attack or proceedings,
employing attorneys reasonably acceptable to Mortgagee; and if an Event of
Default shall have occurred and be continuing, Mortgagee may take such
independent action in connection therewith as it may in its discretion deem
advisable, and all reasonable costs and expenses, including, without limitation,
reasonable attorneys' fees and disbursements, actually incurred by Mortgagee in
connection therewith shall be an Obligation owing by Mortgagor and payable to
Mortgagee, within ten (10) days of Mortgagee's written demand for payment, and
shall bear interest at the Agreed Rate. Mortgagor agrees that, if Mortgagor
fails to perform any act which Mortgagor is required to perform under this
Section 2.5A, Mortgagee may (after ten (10) days' written notice to Mortgagor),
- ------------
but shall not be obligated to, perform or cause to be performed such act, and
any expense actually incurred by Mortgagee in connection therewith shall be an
Obligation owing by Mortgagor and payable to Mortgagee within ten (10) days of
Mortgagee's written demand for payment, and shall bear interest at the Agreed
Rate, and shall be secured by this Mortgage, and Mortgagee shall be subrogated
to all of the rights of the party receiving such payment. The liabilities of
Mortgagor as set forth in this Section 2.5 shall survive the termination of this
-----------
Mortgage or of any other Loan Document.
2. SUBROGATION. Mortgagor hereby waives any and all right to
claim or recover against Mortgagee and the Lenders, and their respective
officers, employees, agents and representatives, for loss of or damage to
Mortgagor, the Mortgaged Property, Mortgagor's other property or the property of
others under Mortgagor's control from any cause insured against or required to
be insured against by the provisions of this Mortgage.
3. WAIVER OF OFFSET. All sums payable by Mortgagor pursuant to
this Mortgage shall be paid (except as otherwise expressly provided herein or in
any other Loan Document) without notice, demand, counterclaim, setoff, deduction
or defense and without abatement, suspension, deferment, diminution or
reduction, and the Obligations and liabilities of Mortgagor hereunder shall in
no way be released, discharged or otherwise affected (except as otherwise
expressly provided herein) by reason of: (i) any damage to or destruction of or
any condemnation or similar taking of the Mortgaged Property or any part
thereof; (ii) any restriction or prevention of or interference by any third
party with any use of the Mortgaged Property or any part thereof; (iii) any
title defect or encumbrance or any eviction from the Premises or any part
thereof by title paramount or otherwise; (iv) any bankruptcy, insolvency,
reorganization,
XXIV-12
<PAGE>
composition, adjustment, dissolution, liquidation or other like proceeding
relating to Mortgagee or the Lenders, or any action taken with respect to this
Mortgage by any trustee or receiver of Mortgagee, or by any court, in any such
proceeding; (v) any claim which Mortgagor has or might have against Mortgagee;
(vi) any default or failure on the part of Mortgagee to perform or comply with
any of the terms hereof or of any other agreement with Mortgagor; or (vii) any
other occurrence whatsoever, whether or not Mortgagor shall have notice or
knowledge of any of the foregoing. Except as expressly provided herein,
Mortgagor waives all rights now or hereafter conferred by statute or otherwise
to any abatement, suspension, deferment, diminution or reduction of any sum
secured hereby and payable by Mortgagor.
2.6 RESTRICTIONS ON TRANSFER OF MORTGAGED PROPERTY BY MORTGAGOR.
-----------------------------------------------------------
The financial stability and managerial and operational ability of
Mortgagor are substantial and material considerations to Mortgagee and the
Lenders in their agreement to accept the Notes from Borrower and other Loan
Documents from Mortgagor and Borrower and to enter into the transactions
contemplated thereby. Mortgagor understands and acknowledges that a Transfer of
the Mortgaged Property may significantly and materially alter and reduce
Mortgagee's security for the Obligations. Therefore, in order to induce
Mortgagee and the Lenders to make the loans secured hereby, Mortgagor agrees
that, except as expressly permitted under the terms of the Credit Agreement,
Mortgagor will not Transfer the Mortgaged Property, or any portion thereof,
without the prior written consent of Mortgagee. In the event of any Transfer of
the Mortgaged Property, or any portion thereof, that is not expressly permitted
under the terms of the Credit Agreement, or consented to by Mortgagee in
writing, Mortgagee shall have the absolute right at its option, without prior
demand or notice, to declare all of the Obligations immediately due and payable.
Consent to one such Transfer shall not be deemed to be a waiver of the right to
require consent to future or successive Transfers. If consent should be given
to a Transfer and if this Mortgage is not released to the extent of the
transferred portion of the Mortgaged Property by a writing signed by Mortgagee,
as required by Applicable Law, and recorded in the proper city, town, county or
parish records, then (unless otherwise provided in the Credit Agreement) any
such Transfer shall be subject to this Mortgage and any such transferee shall
assume all obligations hereunder and agree to be bound by all provisions
contained herein. Any such assumption shall not, however, release Mortgagor or
any maker or guarantor of the Obligations from any liability thereunder without
the prior written consent of Mortgagee. This covenant shall run with the land
and remain in full force and effect until all of the Obligations are fully paid
(or this Mortgage is released of record), and Mortgagee may, without notice to
Mortgagor, deal with any transferees with reference to the Obligations in the
same manner as Mortgagor, without in any way altering or discharging Mortgagor's
liability or the liability of any guarantor of Mortgagor with respect thereto.
The provisions of this Section 2.6 shall apply to each and every Transfer of the
-----------
Mortgaged Property or any portion thereof, regardless of whether or not
Mortgagee has consented to or waived, by its action or inaction, its rights with
respect to any previous Transfer.
XXIV-13
<PAGE>
2.7 INCORPORATION BY REFERENCE; FULL PERFORMANCE REQUIRED; SURVIVAL OF
------------------------------------------------------------------
WARRANTIES.
----------
Mortgagor hereby makes to Mortgagee all of the affirmative and
negative covenants relating to the Mortgaged Property that are set forth in
Sections 6 and 7 of the Credit Agreement, which affirmative and negative
- ---------- -
covenants are incorporated herein by reference as of the date hereof. All
representations, warranties and covenants of Mortgagor made to Mortgagee in the
Loan Documents or incorporated by reference therein shall run to the benefit of
Mortgagee, shall survive the execution and delivery of this Mortgage and shall
remain continuing obligations, warranties and representations of Mortgagor so
long as any portion of the Obligations has accrued and remains outstanding and
Mortgagor shall fully and faithfully satisfy and perform all such Obligations,
representations, warranties and covenants as required by the terms of the Loan
Documents. In the event of a conflict between the provisions of this Mortgage
and the Credit Agreement, it is the intention of Mortgagor and Mortgagee that
both such documents shall be read together and construed, to the fullest extent
possible, to be in concert with each other. In the event of a conflict that
cannot be resolved as aforesaid, the provisions of the Credit Agreement shall
control and govern and Mortgagor shall comply therewith.
2.8 ADDITIONAL SECURITY.
-------------------
No other security now existing, or hereafter taken, to secure the
Obligations shall be impaired or affected by the execution of this Mortgage; and
all additional security shall be taken, considered and held as cumulative. The
taking of additional security, execution of partial releases of the security, or
any extension of the time of payment or performance of the Obligations shall not
diminish the force, effect or Lien of this Mortgage and shall not affect or
impair the liability of any maker, surety, guarantor or endorser for the payment
or performance of said Obligations. Neither the acceptance of this Mortgage nor
its enforcement, whether by court action or pursuant to the power of sale or
other powers herein contained, shall prejudice or in any manner affect
Mortgagee's right, to realize upon or enforce any other security now or
hereafter held by Mortgagee, it being agreed that Mortgagee shall be entitled to
enforce this Mortgage and any other security now or hereafter held by Mortgagee
in such order and manner as it may in its absolute discretion determine.
XXIV-14
<PAGE>
2.9 FURTHER ACTS.
------------
XXIV-15
<PAGE>
Mortgagor shall do and perform all acts as required under Section 7.2
-----------
of the Credit Agreement or as necessary to keep valid and effective the Lien
hereof and to carry into effect its objective and purposes, in order to protect
the lawful owner and holder of this Mortgage and the other Obligations.
Promptly upon request, from time to time, of Mortgagee and at Mortgagor's
expense, Mortgagor shall execute, acknowledge and deliver to Mortgagee such
other and further instruments and do such other acts as in the reasonable
opinion of Mortgagee may be necessary or reasonably requested by Mortgagee to
(a) grant to Mortgagee a first priority perfected Lien on all of the Mortgaged
Property to secure all of the Obligations, (b) grant to Mortgagee, to the
fullest extent permitted by Applicable Law, the right to foreclose on the
Mortgaged Property nonjudicially, upon the occurrence and during the continuance
of an Event of Default, (c) correct any defect or error which may be discovered
in the contents of this Mortgage (including, without limitation, all exhibits
and/or schedules hereto) or any other Loan Document or in the recording or
filing of this Mortgage or any other Loan Document, (d) identify more fully and
subject to the Liens created hereby and by the other Loan Documents any property
intended by the terms hereof and of the other Loan Documents to be covered
hereby and thereby (including any renewals, additions, substitutions,
replacements or appurtenances to the Mortgaged Property), (e) assure the first
priority of this Mortgage and of such Liens, and (f) otherwise effectuate the
intent of this Mortgage. In the event of the acquisition by Mortgagor or any
affiliate of Mortgagor of any greater estate in the Premises or in any other
part of the Mortgaged Property or the acquisition by Mortgagor of any after
acquired property as described in Granting Clause Twelfth, Mortgagor shall
-----------------------
notify Mortgagee and, concurrently with the consummation of such acquisition,
shall execute and record (and shall cause Grantor's affiliate, as the case may
be, to execute and record) an instrument sufficient in Mortgagee's sole
discretion to extend and spread the Lien of this Mortgage to encumber such
acquired interest or after acquired interest as a first priority mortgage Lien.
To the full extent permitted under Applicable Law and in accordance with the
grants made by Mortgagor in Granting Clause Eleventh and Granting Clause Twelfth
------------------------ -----------------------
whether or not Mortgagor has executed and recorded the instrument described in
the preceding sentence, this Mortgage shall automatically be a Lien on such
acquired interest or after acquired interest. Upon request by Mortgagee,
Mortgagor shall supply evidence of fulfillment of each of the covenants herein
contained concerning which a request for such evidence has been made. Mortgagor
hereby irrevocably appoints Mortgagee as its attorney-in-fact, coupled with an
interest and with full power of substitution, to take the above actions and to
perform such obligations on behalf of Mortgagor, at Mortgagor's sole expense, if
Mortgagor fails to fully comply with Mortgagor's obligations under this Section
-------
2.9. Without limiting the generality of the foregoing, Mortgagor shall promptly
- ---
and, insofar as not contrary to Applicable Law, at Mortgagor's own expense,
record, rerecord, file and refile in such offices, at such times and as often as
may be necessary, this Mortgage, additional mortgages, deeds of trust and deeds
to secure debt, and every other instrument in addition or supplemental hereto,
including applicable financing statements, as may be necessary to create,
perfect, maintain and preserve the Liens (and priority thereof) intended to be
created hereby and by the other Loan Documents and the rights and remedies of
Mortgagee hereunder and thereunder. Upon request by Mortgagee, Mortgagor shall
supply evidence reasonably satisfactory to Mortgagee of fulfillment of each of
the covenants herein contained concerning which a request for such evidence has
been made.
XXIV-16
<PAGE>
2.10 OFFSITE IMPROVEMENTS.
--------------------
Mortgagor shall not construct or install improvements or Equipment (as
defined in Exhibit B hereto) necessary or desirable for the operation of the
---------
Premises on real property or any interest in real property (for example, an
easement, license or lease) that is not subject to the Lien of this Mortgage
without the prior written consent of Mortgagee (which consent may be granted or
withheld in Mortgagee's sole discretion), but only to the extent that: (a) the
construction or installation of such improvements or Equipment on such other
real property is commercially reasonable when compared to, and commercially
preferable to, construction or installation on the real property that is subject
to the Lien of this Mortgage; and (b) Mortgagor grants Mortgagee rights
(including, but not limited to, easements or reciprocal easement agreements)
with respect to such improvements, Equipment and land that are appurtenant to
the Land encumbered by this Mortgage and are sufficient in Mortgagee's judgment
(i) to enable Mortgagee and any future owner or holder of Mortgagor's interest
in the Premises to enjoy the full and unrestricted use of such improvements and
Equipment and (ii) to continue Mortgagee's first priority Lien on any such
Equipment. Mortgagor's obligations under this Section 2.10 shall be full
------------
recourse obligations of Mortgagor and shall survive any assignment or
foreclosure of this Mortgage, the acceptance by Mortgagee (or a nominee of
Mortgagee) of a deed to any part of the Mortgaged Property in lieu of
foreclosure or in connection with a plan of reorganization filed under Chapter
11 of the Bankruptcy Code, or the exercise by Mortgagee of any remedy set forth
herein.
2.11 UTILITIES.
---------
Mortgagor shall pay or cause to be paid prior to becoming delinquent
all utility charges which are incurred for the benefit of the Mortgaged Property
or which may become a Lien against the Mortgaged Property for gas, steam,
electricity, telephone, water, sewer services and all other utilities furnished
to the Mortgaged Property and all other assessments or charges of a similar
nature, whether public or private, affecting or related to the Mortgaged
Property or any portion thereof, whether or not such taxes, assessments or
charges are or may become Liens thereon.
2.12 HAZARDOUS MATERIALS AND ENVIRONMENTAL LAWS.
------------------------------------------
Mortgagor shall exercise all due diligence in order to comply with any
and all applicable Environmental Laws. Without limiting the foregoing,
Mortgagor shall comply with the provisions of Section 6.7 of the Credit
-----------
Agreement.
2.13 LEASEHOLD ESTATE.
----------------
This Section 2.13 shall apply only if Mortgagor's interest in either
------------
the Land or the Improvements is as the tenant under a leasehold estate at the
Premises (the "SUBJECT LEASE"). If Mortgagor is a tenant under a Subject Lease,
Mortgagor hereby covenants, represents and warrants to Mortgagee with respect to
the Subject Lease as follows:
XXIV-17
<PAGE>
A. No default by Mortgagor as lessee has occurred and is
continuing under the Subject Lease and no event has occurred which, with
the passage of time or service of notice, or both would constitute an event
of default under the Subject Lease. The Subject Lease is in full force and
effect. Mortgagor has obtained from the lessor with respect to the Subject
Lease all consents to this Mortgage required to be obtained from such
lessor and Mortgagor has provided (or within 5 days from the date hereof
shall provide) such lessor with all notices required to be given to such
lessor with respect to this Mortgage together with copies of all documents
required to be delivered to such lessor with respect to this Mortgage under
the terms of the Subject Lease.
B. All rents, additional rents, percentage rents and all other
charges due and payable under the Subject Lease have been fully paid
through a date no earlier than 30 days before the date hereof.
C. The Subject Lease covers 100% of that part of the Land and
Improvements that are not owned in fee by Mortgagor, and Mortgagor is the
owner of the entire lessee's interest in and under the Subject Lease and
has the right and authority under the Subject Lease to execute this
Mortgage and to encumber Mortgagor's interest therein.
D. Mortgagor shall, at its sole cost and expense, promptly and
timely perform and observe all the terms, covenants and conditions required
to be performed and observed by Mortgagor as lessee under the Subject Lease
(including, but not limited to, the payment of all rent, additional rent,
percentage rent and other charges required to be paid under the Subject
Lease).
E. If Mortgagor shall violate any of the covenants specified in
Section 2.13D above, Mortgagor grants Mortgagee the right (but not the
-------------
obligation), to take any action as may be necessary to prevent or cure any
default of Mortgagor under the Subject Lease, if necessary to protect
Mortgagee's interest hereunder, and Mortgagee shall have the right to enter
all or any portion of the Premises at such times and in such manner as
Mortgagee deems necessary, in order to prevent or to cure any such default.
Mortgagee may exercise its rights under this Section 2.12E at any time
-------------
after, but only after, Mortgagor shall have (i) received from the lessor
under the Subject Lease or any other Person notice of such default, and
(ii) failed to promptly commence curing such default.
F. No action taken or payment or made by Mortgagee to prevent any
default by Mortgagor under the Subject Lease shall remove or waive, as
between Mortgagor and Mortgagee, the default which occurred hereunder by
virtue of the default by Mortgagor under the Subject Lease. All sums
actually expended by Mortgagee in accordance with the terms of this Section
-------
2.13 in order to cure any such default shall be paid by Mortgagor to
----
Mortgagee, within ten (10) days of Mortgagee's written demand, with
interest thereon at the Agreed Rate. All such indebtedness shall be deemed
to be secured by this Mortgage.
XXIV-18
<PAGE>
G. Mortgagor shall, promptly upon obtaining knowledge of the
following events, notify Mortgagee in writing of (i) the occurrence of any
material default by the lessor under the Subject Lease or the occurrence of
any event which, with the passage of time or service of notice, or both,
would constitute a material default by the lessor under the Subject Lease,
and (ii) the receipt by Mortgagor of any notice (written or otherwise) from
the lessor under the Subject Lease noting or claiming the occurrence of any
default by Mortgagor under the Subject Lease or the occurrence of any event
which, with the passage of time or service of notice, or both, would
constitute a default by Mortgagor under the Subject Lease. Mortgagor shall
deliver to Mortgagee a copy of any such written notice of default.
H. Promptly upon demand by Mortgagee from time to time, Mortgagor
shall use reasonable efforts (other than payment to the lessor) to obtain
from the lessor under the Subject Lease and furnish to Mortgagee the
estoppel certificate of such lessor stating the date through which rent has
been paid and whether or not there are any defaults under its lease and
specifying the nature of such claimed defaults, if any, and stating any
other information that the lessor is obligated to provide.
I. Mortgagor shall promptly notify Mortgagee, in writing, of any
request made by either party to the Subject Lease for arbitration or
appraisal proceedings pursuant to the Subject Lease and of the institution
of any arbitration or appraisal proceedings, as well as of all proceedings
thereunder, and shall promptly deliver to Mortgagee a copy of the
determination of the arbitrators or appraisers in each such arbitration or
appraisal proceeding. Mortgagee shall have the right (but not the
obligation), following the delivery of written notice by Mortgagor, to
participate in the appointment of any arbitrator or appraiser to be
appointed by Mortgagor and (to the extent permitted under the Subject
Lease) to participate (at Mortgagee's expense unless an Event of Default
shall have occurred and be continuing, in which case at Mortgagor's
expense) in such arbitration or appraisal proceedings in association with
Mortgagor or on its own behalf as an interested party. Mortgagor shall
promptly notify Mortgagee, in writing, upon learning of the institution of
any legal proceedings involving obligations under the Subject Lease.
Mortgagee may intervene (at Mortgagee's expense unless an Event of Default
shall have occurred and be continuing, in which case at Mortgagor's
expense) in any such legal proceedings and be made a party to them.
Mortgagor shall promptly provide Mortgagee with a copy of any decision
rendered in connection with such proceedings.
J. Mortgagor shall promptly execute, acknowledge and deliver to
Mortgagee such instruments as may reasonably be required to permit
Mortgagee (subject to the provisions of Section 2.13E above) (i) to cure
-------------
any default under the Subject Lease or (ii) to take such other action
required to enable Mortgagee to cure or remedy the matter in default and
preserve the security interest of Mortgagee under this Mortgage with
respect to the Subject Lease. Mortgagor hereby irrevocably appoints
Mortgagee as its true and lawful
XXIV-19
<PAGE>
attorney-in-fact, coupled with an interest and with full power of
substitution, to do, in its name or otherwise, any and all acts and to
execute any and all documents (in each case only upon Mortgagor's failure
or refusal to do so) which are necessary to preserve any rights of
Mortgagor under or with respect to the Subject Lease, including, without
limitation, the right to effectuate any extension or renewal of the Subject
Lease, or to preserve any rights of Mortgagor whatsoever in respect of any
part of the Subject Lease.
K. Mortgagor shall not, without Mortgagee's prior written
consent, surrender, terminate, forfeit, or suffer or permit the surrender,
termination or forfeiture of, or change, modify or amend in a material or
adverse manner, the Subject Lease. Consent to one amendment, change,
agreement or modification shall not be deemed to be a waiver of the right
to require consent to other, future or successive amendments, changes,
agreements or modifications. The acquisition by Mortgagor or any affiliate
of Mortgagor of any lessor's interest in the Subject Lease or of any fee
holder's interest in the property subject to the Subject Lease shall not
require Mortgagee's consent and shall not be a breach of the covenants set
forth in this Section 2.13K provided that: (i) such acquisition is
-------------
accomplished by Mortgagor in such a manner so as to avoid a merger of the
interests of lessor and lessee in the Subject Lease; and (ii) Mortgagor,
concurrently with the consummation of such acquisition, executes and
records an instrument sufficient in Mortgagee's sole discretion to extend
and spread the Lien of this Mortgage to encumber such acquired interest as
a first priority mortgage Lien. To the full extent permitted under
Applicable Law and in accordance with the grant made by Mortgagor in
Granting Clause Twelfth, whether or not Mortgagor has executed and recorded
-----------------------
the instrument described in the preceding sentence, this Mortgage shall
automatically be a Lien on such acquired interest.
L. Notwithstanding anything to the contrary herein contained
with respect to the Subject Lease:
(i) The Lien of this Mortgage attaches to all of Mortgagor's
rights and remedies at any time arising under or pursuant to
Subsection 365(h) of the Bankruptcy Code, including, without
limitation, all of Mortgagor's rights to remain in possession of the
Land.
(ii) Mortgagor shall not, without Mortgagee's written consent,
elect to treat the Subject Lease as terminated under Subsection
365(h)(1) of the Bankruptcy Code. Any such election made without
Mortgagee's prior written consent shall be void. If any lessor of the
Subject Lease rejects the Subject Lease under Section 365 of the
Bankruptcy Code, Mortgagor shall remain in possession of the Premises.
Neither the Lien of this Mortgage nor Mortgagee's rights with respect
to the Subject Lease shall be affected or impaired by any lessor's
rejection of the Subject Lease under Section 365 of the Bankruptcy
Code.
XXIV-20
<PAGE>
(iii) As security for the Obligations, Mortgagor hereby
unconditionally assigns, transfers and sets over to Mortgagee all of
Mortgagor's claims and rights to the payment of damages arising from
any rejection by any lessor of the Subject Lease under the Bankruptcy
Code. Mortgagee and Mortgagor shall proceed jointly or in the name of
Mortgagor (and Mortgagor hereby irrevocably appoints Mortgagee as its
attorney-in-fact, coupled with an interest and with full power of
substitution, from and after the occurrence of an Event of Default, to
proceed in the name of Mortgagor and to otherwise take such actions as
Mortgagee may deem necessary or desirable) in respect of any claim,
suit, action or proceeding relating to the rejection of the Subject
Lease, including, without limitation, the right to file and prosecute
any proofs of claim, complaints, motions, applications, notices and
other documents in any case in respect of such lessor under the
Bankruptcy Code. This assignment constitutes a present, irrevocable
and unconditional assignment of the foregoing claims, rights and
remedies, and shall continue in effect until this Mortgage has been
released of record or all of the Obligations secured by this Mortgage
shall have been satisfied and discharged in full. Any amounts
received by Mortgagee or Mortgagor as damages arising out of the
rejection of the Subject Lease as aforesaid shall be applied first to
all reasonable costs and expenses of Mortgagee (including, without
limitation, attorneys' fees and costs) incurred in connection with the
exercise of any of its rights or remedies under this Section 2.13L and
-------------
then in accordance with the other applicable provisions of this
Mortgage.
(iv) If, pursuant to Subsection 365(h)(2) of the Bankruptcy
Code, Mortgagor seeks to offset, against the rent reserved in the
Subject Lease, the amount of any damages caused by the nonperformance
by the lessor thereunder of any of such lessor's obligations under the
Subject Lease after the rejection by lessor of the Subject Lease under
the Bankruptcy Code, Mortgagor shall, prior to effecting such offset,
notify Mortgagee in writing of its intent so to do, setting forth the
amounts proposed to be so offset, and, in the event Mortgagee objects,
Mortgagor shall not effect any offset of the amounts so objected to by
Mortgagee. If Mortgagee has failed to object as aforesaid within ten
(10) days after notice from Mortgagor in accordance with the first
sentence of this Section 2.13L(iv), Mortgagor may proceed to offset
-----------------
the amounts set forth in Mortgagor's notice.
(v) If any action, proceeding, motion or notice shall be
commenced or filed in respect of any lessor or the Land or any portion
thereof in connection with any case under the Bankruptcy Code,
Mortgagee and Mortgagor shall cooperatively conduct and control any
such litigation (provided that after the occurrence and during the
continuance of an Event of Default, Mortgagee shall have the exclusive
right (but not the obligation) to control such litigation, and
Mortgagor hereby irrevocably appoints Mortgagee as its attorney-in-
fact, coupled with an interest and with full power of substitution for
such purpose) with counsel agreed upon between
XXIV-21
<PAGE>
Mortgagor and Mortgagee (or, if an Event of Default shall then have
occurred and be continuing, counsel selected by Mortgagee) in
connection therewith. Within ten (10) days after Mortgagee's written
demand upon Mortgagor, Mortgagor shall pay to Mortgagee, as
applicable, all reasonable costs and expenses (including reasonable
attorneys' fees and costs) actually paid or incurred by Mortgagee in
connection with the cooperative prosecution or conduct of any such
proceedings. All such costs and expenses shall be secured by the Lien
of this Mortgage.
(vi) Mortgagor shall promptly, after obtaining knowledge
thereof, notify Mortgagee orally of any filing by or against any
lessor of a petition under the Bankruptcy Code. Mortgagor shall
thereafter promptly give written notice of such filing to Mortgagee,
setting forth any information available to Mortgagor as to the date of
such filing, the court in which such petition was filed, and the
relief sought therein. Mortgagor shall promptly deliver to Mortgagee,
following its receipt thereof, copies of any and all notices,
summonses, pleadings, applications and other documents received by
Mortgagor in connection with any such petition and any proceedings
relating thereto.
M. The occurrence of any of the following events shall, at
Mortgagee's option, constitute an "Event of Default" hereunder in which
event Mortgagee shall have all of the rights and remedies available to it
under Section 5 hereof:
---------
(i) A breach or default under any material condition or
obligation contained in the Subject Lease which is not cured within
any applicable cure period provided therein to Mortgagor (provided,
--------
however, that upon the occurrence and during the continuance of any
-------
breach or default under any condition or obligation contained in the
Subject Lease, and prior to the expiration of all applicable cure
periods, Mortgagee shall have the cure rights set forth in Section
-------
2.13E of this Mortgage);
-----
(ii) The occurrence of any event or condition which gives the
lessor under the Subject Lease a right to terminate or cancel, as
against Mortgagor, the Subject Lease and the expiration of any notice,
grace or cure period with respect thereto; or
(iii) Mortgagor's failure to permit Mortgagee and/or its
representatives at all reasonable times upon reasonable prior written
notice to make investigation or examination concerning Mortgagor's
performance and observance of the terms, covenants and conditions of
the Subject Lease.
N. To the extent permitted by Applicable Law, the price payable
by Mortgagor or any other party in the exercise of the right of redemption,
if any (which right Mortgagor has waived), from any sale under or decree of
foreclosure of this Mortgage shall include all rents and other amounts paid
and other sums advanced by Mortgagee on behalf of
XXIV-22
<PAGE>
Mortgagor as the lessee under the Subject Lease in accordance with the
provisions of this Mortgage and the other Loan Documents.
O. Mortgagor hereby grants and assigns to Mortgagee a security
interest in all prepaid rent and security deposits and all other security
which the lessor under the Subject Lease may hold now or later for the
performance of Mortgagor's obligations as the lessee under the Subject
Lease.
P. Mortgagor shall not, without Mortgagee's written consent,
fail to exercise any option or right to renew or extend the term of the
Subject Lease if such renewal or extension is necessary to extend the term
of the Subject Lease to a date which is at least twelve (12) months after
the Maturity Date (any such renewal or extension, a "REQUIRED EXTENSION").
Mortgagor shall effect each Required Extension at least six (6) months (or
the earliest date permitted under the Subject Lease, if later) prior to the
date of termination of any such option or right, shall give immediate
written notice thereof to Mortgagee, and shall execute, acknowledge,
deliver and record any document reasonably requested by Mortgagee to
evidence the Lien of this Mortgage on such extended or renewed lease term;
provided, however, Mortgagor shall not be required to effect any
-------- -------
particular Required Extension to the extent Mortgagor shall have received
the prior written consent of Mortgagee (which consent may be withheld by
Mortgagee in its sole and absolute discretion) allowing Mortgagor to forego
effecting such Required Extension. If Mortgagor shall fail to exercise any
such option or right to effect any Required Extension as aforesaid,
Mortgagee may exercise the option or right to effect any Required Extension
(provided that unless an Event of Default shall have occurred and be
continuing, Mortgagee shall have no right to determine the amount of rent
payable under the Subject Lease during any such extension period without
Mortgagor's prior written consent thereto, which consent shall not be
unreasonably withheld or delayed) as Mortgagor's agent and attorney-in-fact
pursuant to Section 2.13J of this Mortgage, or in Mortgagee's own name or
-------------
in the name of and on behalf of a nominee of Mortgagee, as Mortgagee may
determine in the exercise of its sole and absolute discretion.
Q. Subject to the provisions of the Credit Agreement, Mortgagor
shall not assign its interest in the Subject Lease or sublease all or any
of the Mortgaged Property without the prior written consent of Mortgagee,
which consent may be withheld by Mortgagee in its sole discretion. All
subleases entered into by Mortgagor after the date of this Mortgage shall
provide, and Mortgagor shall use reasonable efforts to ensure that all
existing subleases modified, amended or renewed by Mortgagor after the date
of this Mortgage shall provide, that such subleases are, at the option and
election of Mortgagee, subordinate to the Lien of this Mortgage and any
extensions, replacements and modifications of this Mortgage and the
Obligations and that if Mortgagee forecloses under this Mortgage or enters
into a new lease with the lessor under the Subject Lease whether or not
pursuant to the provisions for a new lease, if any, contained in the
Subject Lease, then the sublessee shall attorn to Mortgagee or its
assignee(s) and the sublease will remain in full
XXIV-23
<PAGE>
force and effect in accordance with its terms notwithstanding the
termination of the Subject Lease.
R. Mortgagor hereby represents that the Subject Lease has not
been amended, modified, extended, renewed, substituted or assigned except
as described in Exhibit A-2 hereto and that Mortgagor has delivered to
-----------
Mortgagee true, accurate and complete copies of all items noted on Exhibit
-------
A-2. Upon the request of Mortgagee, Mortgagor shall deposit with Mortgagee
---
the tenant's original fully executed copy of the Subject Lease, as further
security to Mortgagee, until this Mortgage is released of record or all of
the Obligations are fully paid and performed. Mortgagor hereby represents
that the Subject Lease or a legally valid memorandum thereof has been
properly filed or recorded in the city, town, county or parish records (as
appropriate) in which the Land covered thereby is located and that the
filing and recording data for the same is accurately set forth in Exhibit
-------
A-2 hereto.
---
S. Mortgagor shall not waive, excuse, condone or in any way
release or discharge the lessor under the Subject Lease of or from such
lessor's material obligations, covenants and/or conditions under the
Subject Lease without the prior written consent of Mortgagee.
The generality of the provisions of this Section 2.13 relating to the Subject
------------
Lease shall not be limited by other provisions of this Mortgage setting forth
particular obligations of Mortgagor which are also required of Mortgagor with
respect to the Subject Lease or the Premises.
XXIV-24
<PAGE>
Section 3
ASSIGNMENT OF RENTS AND LEASES
3.1. ASSIGNMENT OF RENTS AND LEASES.
------------------------------
In furtherance of and in addition to the assignment made by Mortgagor
in Granting Clause Third of this Mortgage, Mortgagor hereby absolutely and
---------------------
unconditionally assigns, sells, transfers and conveys to Mortgagee all of its
right, title and interest in and to all Leases, whether now existing or
hereafter entered into, and all of its right, title and interest in and to all
Rents. It is the intention of Mortgagor and Mortgagee that this assignment be
treated and construed as an absolute assignment and not an assignment for
additional security only. So long as no Event of Default shall have occurred
and be continuing, Mortgagor shall have a revocable license from Mortgagee to
exercise all rights extended to the landlord under the Leases, including the
right to observe, perform, comply with and discharge all of the obligations of
the landlord thereunder, the right to demand and receive performance under the
Leases, the right to enforce all rights and exercise all remedies under the
Leases, the right to terminate or amend any Lease and the right to receive and
collect all Rents and to hold the Rents in trust for use in the payment and
performance of the Obligations and to otherwise use the same; provided, however,
-------- -------
that such rights may be exercised by Mortgagor only to the extent they are not
restricted under Section 7.9 of the Credit Agreement. The foregoing license is
granted subject to the conditional limitation that no Event of Default shall
have occurred and be continuing. Upon the occurrence and during the continuance
of an Event of Default, whether or not legal proceedings have commenced, and
without regard to waste, adequacy of security for the Obligations or solvency of
Mortgagor, the license herein granted shall automatically expire and terminate,
without notice by Mortgagee (any such notice being hereby expressly waived by
Mortgagor).
3.2. NO LIMITATION OF RIGHTS.
-----------------------
The assignment of Rents and Leases herein made shall not be construed
to limit in any way Mortgagee's other rights hereunder, including the right to
accelerate the Obligations upon an Event of Default. Monies received under the
assignments herein made shall not be deemed to have been applied in payment of
any portion of the Obligations unless and until such monies actually are applied
thereto by Mortgagee.
3.3. SALE OF MORTGAGED PROPERTY.
--------------------------
A. FREE AND CLEAR OF ASSIGNMENTS. Upon any sale of any of the
Mortgaged Property by or for the benefit of Mortgagee pursuant to Section 5
---------
hereof, the Rents attributable to the part of the Mortgaged Property so sold
shall be included in such sale and shall pass to the purchaser free and clear of
(i) the assignment by Mortgagor in Granting Clause Third of this Mortgage and
---------------------
(ii) the provisions of this Section 3.
---------
XXIV-25
<PAGE>
B. NO OBLIGATIONS ON MORTGAGEE. It is neither the intent nor the
effect of this Mortgage nor the other Loan Documents (other than any
Subordination, Non-Disturbance and Attornment Agreement between Mortgagee and
any Tenant) to impose any obligation on Mortgagee, including (i) any liability
under the covenant of quiet enjoyment contained in any Lease or contained in any
Applicable Law, in the event of a sale of the Mortgaged Property or any part
thereof pursuant to this Mortgage or (ii) any liability to any Tenant arising
(whether in connection with the elimination of such Tenant's equity of
redemption in the Mortgaged Property or otherwise) out of (A) the naming of such
Tenant as a party defendant in any action to foreclose this Mortgage, or (B) the
sale of the Mortgaged Property pursuant to the power of sale reserved to
Mortgagee herein. Notwithstanding anything herein to the contrary, under no
circumstances shall Mortgagee be subject to any offsets, claims or defenses
which a Tenant might have against Mortgagor or any prior landlord with respect
to any Lease, whether or not Mortgagee shall have succeeded to the interests of
landlord under any such Lease.
3.4. TERM OF ASSIGNMENT.
------------------
The assignment and grant made in Granting Clause Third of this
---------------------
Mortgage and in this Section 3 shall continue in effect until release of this
---------
Mortgage of record or indefeasible payment in full of the Obligations. The
execution of this Mortgage constitutes and evidences the irrevocable consent of
Mortgagor to the entry upon and the taking possession of the Premises, or any
part thereof, by Mortgagee pursuant to such grant in accordance with the terms
set forth in this Mortgage and the terms hereof whether by foreclosure or other
remedy and at Mortgagee's option and election, with or without application for a
receiver. Mortgagor represents and warrants to Mortgagee that Mortgagee has
taken all actions necessary to obtain, and Mortgagee shall (upon recordation of
this Mortgage) have, as and to the extent permitted under Applicable Law, a
valid and fully perfected, first priority, present assignment of the Rents
arising out of the Leases and all security for such Leases, including cash or
securities deposited as security under such Leases subject to the prior right of
the Tenants making such deposits. Mortgagee has no obligation whatsoever in
respect of security for any Leases except and only to the extent such security
is actually delivered to Mortgagee, whether or not Mortgagor now has or
previously had possession of such security.
3.5. PERFECTION UPON RECORDATION.
---------------------------
Mortgagor acknowledges and agrees that, upon recordation of this
Mortgage, Mortgagee's interest in the Rents shall be deemed to be fully
perfected, ``choate" and enforced as to Mortgagor and all third parties,
including, without limitation, any subsequently appointed trustee in any case
under the Bankruptcy Code, without the necessity of (a) commencing a foreclosure
action with respect to this Mortgage, (b) furnishing notice to Mortgagor or
Tenants under the Leases, (c) making formal demand for the Rents, (d) taking
possession of the Premises as a lender-in-possession, (e) obtaining the
appointment of a receiver of the rents and profits of the Premises, (f)
sequestering or impounding the Rents or (g) taking any other affirmative action.
XXIV-26
<PAGE>
3.6. BANKRUPTCY PROVISIONS.
---------------------
Without limitation of the provisions of Section 4 hereof or the
---------
absolute nature of the assignment of the Rents hereunder, Mortgagor and
Mortgagee agree that (a) this Mortgage shall constitute a "security agreement"
for purposes of Section 552(b) of the Bankruptcy Code, (b) the security interest
created by this Mortgage extends to property of Mortgagor acquired before the
commencement of a case in bankruptcy and to all amounts paid as Rents and (c)
such security interest shall extend to all Rents acquired by the estate after
the commencement of any case in bankruptcy. Without limitation of the absolute
nature of the assignment of the Rents hereunder, to the extent Mortgagor (or
Mortgagor's bankruptcy estate) shall be deemed to hold any interest in the Rents
after the commencement of a voluntary or involuntary bankruptcy case, Mortgagor
hereby acknowledges and agrees that such Rents are and shall be deemed to be
"cash collateral" under Section 363 of the Bankruptcy Code. Mortgagor may not
use the cash collateral without the consent of Mortgagee and/or an order of any
bankruptcy court pursuant to 11 U.S.C. 363(c)(2), and Mortgagor hereby waives
any right it may have to assert that such Rents do not constitute cash
collateral. No consent by Mortgagee to the use of cash collateral by Mortgagor
shall be deemed to constitute Mortgagee's approval, as the case may be, of the
purpose for which such cash collateral was expended.
XXIV-27
<PAGE>
Section 4
SECURITY AGREEMENT
4.1. GRANT OF SECURITY; INCORPORATION BY REFERENCE.
---------------------------------------------
This Mortgage shall, in addition to constituting a mortgage Lien as to
those parts of the Mortgaged Property classified as real property (including
fixtures to the extent they are real property), constitute a security agreement
within the meaning of the Uniform Commercial Code or within the meaning of the
common law with respect to those parts of the Mortgaged Property classified as
personal property (including fixtures to the extent they are personal property).
Mortgagor hereby grants Mortgagee a security interest in and to those parts of
the Mortgaged Property classified as personal property (including (a) fixtures
to the extent they are personal property and (b) personal property and fixtures
that are leased, but only to the extent Mortgagor can grant to Mortgagee a
security interest therein without breaching the terms of such lease)
(collectively, the "PERSONAL PROPERTY COLLATERAL") for the benefit of
Mortgagee to further secure the payment and performance of the Obligations and
the performance of all of Mortgagor's Obligations, covenants and agreements
under the other Loan Documents. Mortgagee shall have all rights granted to the
Secured Party pursuant to the Security Agreement. The provisions set forth in
the Security Agreement are hereby incorporated by reference into this Mortgage
with the same effect as if set forth in full herein. In the event of a conflict
between the provisions of Section 4 of this Mortgage and the Security Agreement,
---------
it is the intention of Mortgagor and Mortgagee that both such documents shall be
read together and construed, to the fullest extent possible, to be in concert
with each other. In the event of a conflict that cannot be resolved as
aforesaid, the provisions of the Security Agreement shall control and govern and
Mortgagor shall comply therewith.
4.2. FIXTURE FILING FINANCING STATEMENTS.
-----------------------------------
Portions of the Mortgaged Property are goods which are or are to
become fixtures, and the real estate concerned is described in Exhibit A hereto,
---------
Mortgagor expressly covenants and agrees that the filing of this Mortgage in the
real property records of the county where the Premises is located shall operate,
at the time of filing therein, as a financing statement filed as a fixture
filing in accordance with Section 9-401(1)(b) of the Uniform Commercial Code of
the state in which the Premises is located. The address of Mortgagor (the
debtor) and the address of Mortgagee (the secured party) appear in Exhibit C
---------
attached to this Mortgage. The name of the record owner of the Land appears in
Exhibit A attached hereto.
- ---------
4.3. MORTGAGEE AS SECURED PARTY.
--------------------------
If and to the extent that Mortgagee shall act as the secured party for
any security interest created in the Mortgaged Property, Mortgagor acknowledges
and agrees that Mortgagee may do so. As such, Mortgagee shall have all the
rights of the secured party, and shall observe all of the requirements of the
secured party, contained in this Section 4 and the Security Agreement.
---------
XXIV-28
<PAGE>
Section 5
DEFAULTS AND REMEDIES
5.1. EVENTS OF DEFAULT.
-----------------
The occurrence of any of the following events ("EVENTS OF DEFAULT")
shall, as provided in the Credit Agreement, make all amounts then remaining
unpaid on the Obligations due and payable, all without further demand,
presentment, notice or other requirements of any kind, all of which are hereby
expressly waived by Mortgagor, and this Mortgage and the Lien evidenced or
created hereby shall be subject to foreclosure and may be foreclosed or the
Mortgaged Property may be sold pursuant to the power of sale reserved to
Mortgagee herein, in any manner provided for herein or provided for by law:
(A) Any "Event of Default" as defined in the Credit Agreement
shall occur (after giving effect to any applicable notice or grace periods
provided therein), including, without limitation, any such event caused by a
failure to pay when due any fee due under the Credit Agreement or any
installment of principal of or interest on the Obligations; or
(B) Any "Event of Default" described in Section 2.12M hereof
-------------
shall occur, if Mortgagor is the tenant under a Subject Lease.
5.2. FIXTURES.
--------
Upon the occurrence and during the continuance of any of the Events of
Default, Mortgagee may, to the extent permitted under Applicable Law, elect to
treat the fixtures included in the Mortgaged Property either as real property or
as personal property, or both, and proceed to exercise such rights as apply
thereto. With respect to any sale of real property included in the Mortgaged
Property made under the powers of sale herein granted and conferred, Mortgagee
may, to the extent permitted by Applicable Law, include in such sale any
personal property and fixtures included in the Mortgaged Property and relating
to such real property.
XXIV-29
<PAGE>
5.3. REMEDIES.
--------
A. RIGHTS OF MORTGAGEE; RIGHTS OF ENTRY; RIGHTS OF SALE. Upon the
occurrence and during the continuance of any of the Events of Default, in
addition to all other powers, rights and remedies herein granted or by law or at
equity conferred, Mortgagee, in its sole discretion and at its sole election and
without further demand, may do any one or more of the following in any order or
manner that Mortgagee elects, it being expressly understood that no remedy
provided herein is intended to be exclusive of any other remedy provided herein
or in any of the other Loan Documents, but each and every such remedy shall be
cumulative and shall be in addition to every other remedy given herein or now or
hereafter existing under Applicable Law (including all rights and remedies
provided under the applicable provisions of the laws of the state in which the
Premises is located):
(i) Mortgagee may either foreclose upon all or any portion
of the Mortgaged Property or sell all or any portion of the Mortgaged
Property pursuant to the power of sale granted to Mortgagee herein (the
power of sale permitted and provided by applicable statute being hereby
expressly granted by Mortgagor to Mortgagee) with respect to all or any
portion of the Mortgaged Property, provided that Mortgagee may proceed
--------
as to both real and personal property in accordance with its and their
rights and remedies as to real property as required by Applicable Law, and
no such sale shall affect any other rights which Mortgagee may have or
enjoy at law or pursuant to this Mortgage, including, without limitation,
the right to seek a personal or deficiency judgment against Mortgagor. And
in addition Mortgagee shall have all of the rights and remedies of a
mortgagee under a mortgage granted, conferred or permitted by Applicable
Law, and shall, to the extent permitted by Applicable Law, have the right
and power, but not the obligation, to enter upon and take immediate
possession of the Premises or any part thereof, without interference from
Mortgagor to exclude Mortgagor therefrom, to hold, use, operate, manage and
control such real property, to make all such repairs, replacements,
additions and improvements to the same as Mortgagee in its sole discretion
deems necessary, and to demand, collect and retain the Rents as provided in
Section 3 hereof.
---------
(ii) Mortgagee, with respect to any or all of the Mortgaged
Property, in lieu of or in addition to exercising any other power, right or
remedy herein granted or by law or equity conferred, may, without notice,
demand or declaration of default, which are hereby waived by Mortgagor, and
without regard to the solvency of Mortgagor and without regard to the then
value of the Mortgaged Property or waste, proceed by an action or actions
in equity or at law for the seizure and sale of the Mortgaged Property or
any part thereof, for the specific performance of any covenant or agreement
herein contained or in aid of the execution of any power, right or remedy
herein granted or by law or equity conferred, for the foreclosure or sale
of the Mortgaged Property or any part thereof under the judgment or decree
of any court of competent jurisdiction, for the appointment of a receiver
(without any requirement to post a receiver's bond and without regard to
the value of the Mortgaged
XXIV-30
<PAGE>
Property or solvency of Mortgagor) pending any foreclosure hereunder or the
sale of any Mortgaged Property or any part thereof or for the enforcement
of any other appropriate equitable or legal remedy. Such receiver shall
have the power to collect the rents, issues, profits, earnings, and income
from the Mortgaged Property and shall have all other powers which may be
necessary or usual in such cases for the protection, possession, control,
management and operation of the Mortgaged Property. Such receiver may apply
the net income from the Mortgaged Property as payment of the Obligations
secured hereby in the manner and order set forth in the applicable Loan
Documents. Mortgagor agrees that a receiver may be appointed without any
notice to Mortgagor whatsoever and hereby waives notice.
(iii) Mortgagee shall have all of the rights and remedies of an
assignee and secured party granted by Applicable Law, including the Uniform
Commercial Code, and shall, to the extent permitted by Applicable Law, have
the right and power, but not the obligation, to take possession of the
Personal Property Collateral, and for that purpose Mortgagee may enter upon
any premises on which any or all of the Personal Property Collateral is
located and take possession of and operate such Personal Property
Collateral or remove the same therefrom. Mortgagee, pursuant to Section 9-
501(4) of the Uniform Commercial Code, as such Section is currently
constituted or may be hereafter amended, shall have the option of
proceeding under the Uniform Commercial Code as to that portion of the
Mortgaged Property constituting personal property or of proceeding as to
the Mortgaged Property and without regard to the adequacy of Mortgagee's
security for the Obligations, or any part or component thereof, including
both the real and personal property, in accordance with Mortgagee's rights
and remedies in respect of the real property. Mortgagee may require
Mortgagor to assemble the Personal Property Collateral and make it
available to Mortgagee at a place to be designated by Mortgagee which is
reasonably convenient to both parties. The following presumptions shall
exist and shall be deemed conclusive with regard to the exercise by
Mortgagee of any of its remedies with respect to the Personal Property
Collateral:
XXIV-31
<PAGE>
(a) If notice is required by Applicable Law, ten (10) days'
prior written notice of the time and place of any public sale or of
the time after which any private sale or any other intended
disposition thereof is to be made shall be reasonable notice to
Mortgagor. No such notice is necessary if such property is
perishable, threatens to decline speedily in value or is of a type
customarily sold on a recognized market.
(b) Without in any way limiting the right and authority of
Mortgagee to sell or otherwise dispose of Personal Property Collateral
in a commercially reasonable manner, the following, or any of them,
shall be considered commercially reasonable: (1) Mortgagee may hold a
public sale of the Personal Property Collateral in New York, New York
or in the city, town or county where the Personal Property Collateral
is located or in the city, town or county where the Premises to which
such Personal Property Collateral relates, if any, is located, after
having provided Mortgagor with ten (10) days' notice of such sale and
after having published notice of such sale by an advertisement not
less than three inches in height and one column in width in a
newspaper of general circulation where the Personal Property
Collateral is located or where the Premises to which such Personal
Property Collateral relates, if any, is located, as Mortgagee
determines to be appropriate (which advertisement may be placed in the
"classified" section), for a period of not less than five issues
commencing not more than ten days prior to the sale; (2) the Personal
Property Collateral may be sold for cash; and (3) Mortgagee or any
other person owning, directly or indirectly, any interest in any of
the Obligations may be a purchaser at such sale.
(c) If Mortgagee in good faith believes that the Securities
Act of 1933 or any other state or Federal law prohibits or restricts
the customary manner of sale or distribution of any of such property,
Mortgagee may sell such property privately in a commercially
reasonable manner or in any other commercially reasonable manner
deemed advisable by Mortgagee at such price or prices as Mortgagee
determines in the sole discretion of Mortgagee. Mortgagor recognizes
that such prohibition or restriction may cause such property to have
less value than it otherwise would have and that, consequently, such
sale or disposition by Mortgagee may result in a lower sales price
than if the sale were otherwise held.
(iv) Mortgagee shall, subject to any mandatory requirements of
Applicable Law, sell or have sold the Mortgaged Property or interests
therein or any part thereof at one or more sales, as an entirety or in
separate parcels, at such place or places and otherwise in such manner and
upon such notice as may be required by law or by this Mortgage, or, in the
absence of any such requirement, as Mortgagee may deem appropriate.
Mortgagee shall make a conveyance to the purchaser or purchasers thereof
without, to the extent permitted by Applicable Law, any warranties express
or implied. Subject to Applicable
XXIV-32
<PAGE>
Law, Mortgagee may postpone the sale of such Mortgaged Property or
interests therein or any part thereof by public announcement at the time
and place of such sale, and from time to time thereafter may further
postpone such sale by public announcement made at the time of sale fixed by
the preceding postponement. Sale of a part of the Mortgaged Property or
interests therein or any defective or irregular sale hereunder will not
exhaust the power of sale, and sales may be made from time to time until
all such property is sold without defect or irregularity or the Obligations
are paid and performed in full. Mortgagee shall have the right to appoint
one or more auctioneers or attorneys-in-fact to act in conducting the
foreclosure sale and executing a deed to the purchaser. It shall not be
necessary for any of the Mortgaged Property at any such sale to be
physically present or constructively in the possession of Mortgagee and,
subject to Applicable Law, Mortgagor shall deliver all of the Mortgaged
Property to the purchaser at such sale. If it should be impossible or
impracticable to take actual delivery of the Mortgaged Property, then the
title and right of possession to the Mortgaged Property shall pass to the
purchaser at such sale as completely as if the same had been actually
present and delivered.
(v) Mortgagee may, personally or by its agents or attorneys,
take such steps to protect and enforce its rights whether by action, suit
or proceeding in equity or at law for the specific performance of any
covenant, condition or agreement in the Subsidiary Guaranty, in this
Mortgage or in any of the other Loan Documents or in aid of the execution
of any power herein or therein granted, or sale of the Mortgaged Property
as herein permitted or for any foreclosure hereunder, or for the
enforcement of any other appropriate legal or equitable remedy or otherwise
as Mortgagee shall elect.
(vi) In the event Mortgagor shall fail to pay any amounts due
and owing in accordance with the terms of this Mortgage, the Subsidiary
Guaranty or the other Loan Documents, Mortgagee, at its right and option,
may institute an action or proceeding at law or in equity for the
collection of any sums due and unpaid and may prosecute any such action or
proceeding to judgment or final decree. Mortgagee may enforce any such
judgment or final decree against Mortgagor as provided in this Mortgage,
and against any guarantor of the Obligations, as provided in any guarantee.
Mortgagee may collect moneys adjudged or decreed to be payable to Mortgagee
and shall be entitled to recover such judgment either before, after or
during the pendency of any proceeding for the enforcement of the provisions
of this Mortgage or any such guarantee. The right of Mortgagee to recover
such judgment shall not be affected by any entry or sale, by the exercise
of any other right, power or remedy provided by and for the enforcement of
the provisions of this Mortgage or of the Loan Documents or the foreclosure
of the Lien hereof or sale of the Mortgaged Property hereunder. In case of
insolvency or bankruptcy proceedings against Mortgagor or any
reorganization or liquidation proceedings, Mortgagee shall be entitled to
prove the whole amount of Obligations due and owing under this Mortgage and
any of the other Loan Documents without deducting therefrom any proceeds
obtained from the sale of the whole or any part of the Mortgaged Property;
provided, however, that in no instance shall Mortgagee receive a greater
-------- -------
amount than the Obligations and any other payments,
XXIV-33
<PAGE>
charges or costs due and owing to Mortgagee under any of the Loan Documents
from the aggregate amount of the proceeds of the sale of the Mortgaged
Property and the distribution from the estates of Mortgagor.
B. RIGHT TO PURCHASE. Mortgagee (or any other person owning,
directly or indirectly, any interest in any of the Obligations) and its agents
and attorneys shall have the right to become the purchaser at any sale made
pursuant to the provisions of this Section 5.3 and shall have the right to
-----------
credit upon the amount of the bid made therefor the amount payable to it out of
the net proceeds of such sale. All other sales shall be, to the extent
permitted by Applicable Law, on a cash basis. Recitals contained in any
conveyance to any purchaser at any sale made hereunder will conclusively
establish the truth and accuracy of the matters therein stated, including
without limitation nonpayment of the Obligations and advertisement and conduct
of such sale in the manner provided herein or provided by law. Mortgagor does
hereby ratify and confirm all legal acts that Mortgagee may do in carrying out
the provisions of this Mortgage.
C. CONVEYANCE OF TITLE UPON SALE. Any sale of the Mortgaged
Property or any part thereof in accordance with the provisions of this Section
-------
5.3 will operate to divest all right, title, interest, claim and demand of
- ---
Mortgagor in and to the property sold and will be a perpetual bar against
Mortgagor. Nevertheless, if requested by Mortgagee so to do, Mortgagor shall
join in the execution, acknowledgement and delivery of all proper conveyances,
assignments and transfers of the property so sold. Subject to Applicable Law,
any purchaser at a foreclosure sale will receive immediate possession of the
property purchased, and Mortgagor agrees that if Mortgagor retains possession of
the property or any part thereof subsequent to such sale, Mortgagor will be
considered a tenant at sufferance of the purchaser, and will, if Mortgagor
remains in possession after demand to remove, be guilty of forcible detainer and
will be subject to eviction and removal, forcible or otherwise, with or without
process of law, and all damages to Mortgagor by reason thereof are hereby
expressly waived by Mortgagor.
D. WAIVER OF RIGHTS AND DEFENSES. Mortgagor acknowledges that it
is aware of and has had the advice of counsel of its choice with respect to its
rights under Applicable Law with respect to this Mortgage, the Obligations and
the Mortgaged Property. Nevertheless, Mortgagor hereby (i) waives and
relinquishes (to the maximum extent permitted by Applicable Law) and (ii) agrees
that Mortgagor shall not (subject to any mandatory requirements of Applicable
Law) at any time hereafter have or assert, any right under any Applicable Law
pertaining to: marshalling, whether of assets or Liens, the sale of property in
the inverse order of alienation, the exemption of homesteads, the administration
of estates of decedents, appraisement, valuation, stay, extension, redemption,
statutory right of redemption, the maturing or declaring due of the whole or any
part of the Obligations, notice of intention of such maturing or declaring due,
other notice (whether of defaults, advances, the creation, existence, extension
or renewal of any of the Obligations or otherwise, except for rights to notices
expressly granted in the Credit Agreement, herein or in the other Loan
Documents), subrogation, or abatement, suspension, deferment, diminution or
reduction of any of the Obligations (including, without limitation, set-off),
now or hereafter in force.
XXIV-34
<PAGE>
E. RIGHT TO SUBORDINATE. Mortgagee, at its option, is authorized
to foreclose this Mortgage or sell the Mortgaged Property or any portion
thereof, subject to the rights of any tenants of the Premises, and the failure
to make any such tenants parties to any such foreclosure or sale proceedings and
to foreclose their rights will not be, nor be asserted by Mortgagor to be, a
defense to any proceedings instituted by Mortgagee to collect the Obligations.
F. RIGHT TO PRESERVE OBLIGATIONS. Mortgagee shall, to the extent
permitted by Applicable Law, have the option to proceed with foreclosure or to
exercise the power of sale in satisfaction of any installment or part of the
Obligations that has not been paid or performed without declaring the whole of
the Obligations as immediately mature, and such foreclosure or sale may be made
subject to the unmatured part of the Obligations, and it is agreed that such
foreclosure, if so made, shall not in any manner affect the unmatured part of
the Obligations, but as to such unmatured part of the Obligations, this
Mortgage, the Subsidiary Guaranty and the Credit Agreement shall remain in full
force and effect just as though no foreclosure or sale had been made. Several
foreclosures or sales may be made without exhausting the right of foreclosure or
the power of sale for any unmatured part of the Obligations, it being the
purpose to provide for a foreclosure and sale of the security for any matured
portion of the Obligations without exhausting the power of foreclosure and the
power to sell the Mortgaged Property for any other part of the Obligations.
G. NO WAIVER. No delay or omission of Mortgagee to exercise any
right or power accruing upon any Event of Default shall impair any such right or
power, or shall be construed to be a waiver of any such right or power or any
such Event of Default or an acquiescence thereto. Every power and remedy
provided by this Mortgage may be exercised, from time to time, as often as may
be deemed expedient by Mortgagee. Nothing in this Mortgage, the Subsidiary
Guaranty or any of the other Loan Documents shall affect the obligation of
Mortgagor to pay and perform the Obligations in the manner and at the time and
place, respectively, expressed therein.
H. RIGHT TO DISCONTINUE PROCEEDINGS. If Mortgagee shall have
proceeded to enforce any right or remedy under this Mortgage by foreclosure,
entry or otherwise and such proceedings shall have been discontinued or
abandoned for any reason or such proceedings shall have resulted in a final
determination adverse to Mortgagee, then and in every such case Mortgagor and
Mortgagee shall be restored to their former positions and rights hereunder, and
all rights, power and remedies of Mortgagee shall continue as if no such
proceedings had occurred or had been taken.
XXIV-35
<PAGE>
I. NOTICES TO THIRD PARTIES. Mortgagee shall have the right, but
not the obligation, to notify franchisors or ground lessors of any Event of
Default or any exercise of remedies by Mortgagee hereunder, and Mortgagee shall
have the right, but not the obligation, to notify other third parties of any
Event of Default or exercise of remedies by Mortgagee hereunder, whether or not
Mortgagee has agreed with any franchisor, ground lessor or other third party to
provide such notice.
5.4. COSTS AND EXPENSES.
------------------
All costs and expenses (including, without limitation, reasonable
attorneys' fees, legal expenses, title premiums, title report and work charges,
filing fees, general intangible taxes and mortgage, mortgage registration,
transfer, stamp and other excise taxes) actually incurred by Mortgagee in
perfecting, protecting, or enforcing its rights hereunder, whether or not an
Event of Default shall have occurred, shall be payable by Mortgagor within ten
(10) days after written demand by Mortgagee accompanied by (upon Mortgagor's
request) such reasonable documentation of such costs and expenses as is
reasonably available to Mortgagee, as the case may be, and shall bear interest
at the Agreed Rate from the date such cost or expense is incurred until the date
of payment. All such costs, expenses and interest, shall be part of the
Obligations and shall be secured by this Mortgage.
5.5. ADDITIONAL RIGHTS OF MORTGAGEE.
------------------------------
Mortgagee shall have the right, at its election, to exercise any and
all other remedies in the Subsidiary Guaranty, in the Credit Agreement or in any
of the Loan Documents or available at law or in equity, including, but not
limited to, the additional rights if any set forth on Schedule I attached hereto
----------
and by this reference incorporated herein.
5.6. APPLICATION OF PROCEEDS.
-----------------------
A. The proceeds of any sale of the Mortgaged Property or any part
thereof made pursuant to this Section 5 shall be applied as follows:
---------
FIRST: to the payment of all costs and expenses incident to the
enforcement of this Mortgage, including, a reasonable
compensation to the agents, attorneys and in-house counsel of
Mortgagee;
SECOND: to the payment or prepayment of the Obligations, in such order as
Mortgagee shall elect; and
THIRD: the remainder, if any, after full and final payment of the
Obligations shall be paid to Mortgagor or such other person or
persons as may be entitled thereto by law;
XXIV-36
<PAGE>
provided, however, that if Applicable Law require such proceeds to be paid or
- -------- -------
applied in a manner other than as set forth above in this Section 5.6A, then
------------
such proceeds shall be paid or applied in accordance with such Applicable Law.
B. Upon any sale made under the powers of sale herein granted
and conferred, the receipt of Mortgagee will be sufficient discharge to the
purchaser or purchasers at any sale for the purchase money, and such purchaser
or purchasers and the heirs, devisees, personal representatives, successors and
assigns thereof will not, after paying such purchase money and receiving such
receipt of Mortgagee, be obligated to see to the application thereof or be in
any way answerable for any loss, misapplication or non-application thereof.
Section 6
INDEMNIFICATION
Pursuant to and in accordance with the provisions set forth more fully
in Section 10.3 of the Credit Agreement, Mortgagor shall defend, indemnify, pay
and hold harmless Mortgagee and the other Indemnitees (as defined in the Credit
Agreement) from and against any and all claims, liabilities, losses, damages,
penalties, fines, forfeitures, judgments, and expenses or other Obligations of
any kind or nature whatsoever (including reasonable fees and disbursements of
counsel to such Indemnitees) incurred on account of any matter or thing or
alleged action or failure to act by Mortgagee, whether in suit or not, arising
out of the operation, leasing, management, maintenance, repair, use or occupancy
of the Premises (should Mortgagee elect to enter upon and assume the same upon
an Event of Default), the construction of Improvements on or about the Premises,
any accident, injury, death or damage to any Person or property occurring in, on
or about the Premises or any street, drive, sidewalk, curb or passageway
adjacent thereto, any misappropriation by Mortgagor of any prepayments of Rent
or Security Deposits paid or payable by Mortgagor pursuant to this Mortgage,
prior to payment in full of the Obligations of Mortgagor to Mortgagee or in
connection therewith, except to the extent that such suit, claim or damage is
caused by the gross negligence or willful misconduct of Mortgagee.
XXIV-37
<PAGE>
Section 7
TERMINATION
If all of the Obligations shall be paid in full pursuant to the terms
and conditions of this Mortgage and the other Loan Documents, or if this
Mortgage shall be released of record in accordance with the provisions of the
Credit Agreement or the other Loan Documents, then Mortgagee shall, promptly
after the request of Mortgagor, execute, acknowledge and deliver to Mortgagor
proper instruments evidencing the termination and release of this Mortgage.
Mortgagor shall pay all reasonable legal fees and other expenses incurred by
Mortgagee for preparing and reviewing such instruments and the execution and
delivery thereof, and Mortgagee may require payment of the same prior to
delivery of such instruments. Upon the receipt by Mortgagor of terminations or
releases signed by Mortgagee, and in recordable form and evidencing the
termination of this Mortgage, Mortgagor shall promptly and at its own expense
record or file such terminations or releases in each of the cities, towns,
counties and parishes, as appropriate, in which portions of the Mortgaged
Property may be located, in such a manner so as to effect a release of all of
the Mortgaged Property of record. Upon the request of Mortgagee, Mortgagor
shall promptly deliver to Mortgagee evidence reasonably satisfactory to
Mortgagee of such recordation or filing. The obligations of Mortgagor under this
Section 7 shall survive the termination of this Mortgage.
- ---------
Section 8
MISCELLANEOUS COVENANTS AND AGREEMENTS
8.1. CUMULATIVE RIGHTS; WAIVERS; MODIFICATIONS.
-----------------------------------------
Each and every right, power and remedy hereby granted to Mortgagee
shall be cumulative and not exclusive, and each and every right, power and
remedy whether specifically hereby granted or otherwise existing may be
exercised from time to time and as often and in such order as may be deemed
expedient by Mortgagee, and the exercise of any such right, power or remedy will
not be deemed a waiver of the right to exercise, at the same time or thereafter,
any other right, power or remedy. No delay or omission by Mortgagee in the
exercise of any right, power or remedy will impair any such right, power or
remedy or operate as a waiver thereof or of any other right, power or remedy
then or thereafter existing. All changes to and modifications of this Mortgage
must be in writing and signed by Mortgagor and Mortgagee.
8.2. PARTIAL RELEASES.
----------------
No release from the Lien of this Mortgage of any part of the Mortgaged
Property by Mortgagee shall in any way alter, vary or diminish the force or
effect of this Mortgage on the balance of the Mortgaged Property or the priority
of the Lien of this Mortgage on the balance of the Mortgaged Property.
XXIV-38
<PAGE>
8.3. SEVERABILITY.
------------
In case any provision in or obligation under this Mortgage shall be
invalid, illegal or unenforceable in any jurisdiction or under any set of
circumstances, the validity, legality and enforceability of the remaining
provisions or obligations, or of such provision or obligation in any other
jurisdiction or under any other set of circumstances, shall not in any way be
affected or impaired thereby. If any Lien evidenced or created by this Mortgage
is invalid or unenforceable, in whole or in part, as to any part of the
Obligations, or is invalid or unenforceable, in whole or in part, as to any part
of the Mortgaged Property, such portion, if any, of the Obligations as is not
secured by all of the Mortgaged Property hereunder shall be paid prior to the
payment of the portion of the Obligations secured by all of the Mortgaged
Property, and all payments made on the Obligations (including, without
limitation, cash and/or property received in connection with sales of Mortgaged
Property pursuant to Section 5 hereof) shall, unless prohibited by Applicable
---------
Law or unless Mortgagee, in its sole and absolute discretion, otherwise elects,
be deemed to have been first paid on and applied to payment in full of the
unsecured or partially secured portion of the Obligations, and the remainder to
the secured portion of the Obligations.
8.4. SUBROGATION.
-----------
This Mortgage is made with full substitution and subrogation of
Mortgagee in and to all covenants and warranties by others heretofore given or
made in respect of the Mortgaged Property or any part thereof. If any or all of
the proceeds of the indebtedness secured hereby have been used to extinguish,
extend or renew any indebtedness heretofore existing against all or any portion
of the Mortgaged Property or to satisfy any indebtedness or obligation secured
by a Lien of any kind (including Liens securing the payment of any taxes), such
proceeds have been advanced by Mortgagee at Mortgagor's request and, to the
extent of such funds so used, the indebtedness and obligations in this Mortgage
shall be subrogated to and extend to all of the rights, claim, Liens, titles and
interests heretofore existing against the Mortgaged Property (or such portion
thereof) to secure the indebtedness or obligation so extinguished, paid,
extended or renewed, and the former rights, claims, Liens, titles and interests,
if any, shall not be waived but rather shall be continued in full force and
effect and in favor of Mortgagee and shall be merged with the Lien created
herein as cumulative security for the repayment of the indebtedness and
satisfaction of the Obligations, but the terms of the Loan Documents shall
govern and control the relationship between Mortgagor and Mortgagee.
XXIV-39
<PAGE>
8.5. MORTGAGEE'S POWERS.
------------------
Without affecting the liability of any other Person liable for the
payment of any obligations herein mentioned and without affecting the Lien of
this Mortgage upon any portion of the Mortgaged Property not then or theretofore
released as security for the full amount of all unpaid Obligations, from time to
time, regardless of consideration and without notice to or consent by the holder
of any subordinate Lien, right, title or interest in or to the Mortgaged
Property, Mortgagee may, (a) release any persons liable, (b) extend the maturity
or alter any of the terms of any such Obligation, (c) modify the interest rate
payable on the principal balance of the Obligations, (d) grant other
indulgences, (e) release or reconvey, or cause to be released or reconveyed at
any time at Mortgagee's option any parcel, portion or all of the Mortgaged
Property, (f) take or release any other or additional security for any
obligations herein mentioned, or (g) make compositions or other arrangements
with debtors in relation thereto.
8.6. ENFORCEABILITY OF MORTGAGE.
--------------------------
This Mortgage is deemed to be and may be enforced from time to time as
an assignment, chattel mortgage, contract, deed of trust, deed to secure debt,
financing statement, real estate mortgage, or security agreement, and from time
to time as any one or more thereof, as is appropriate under Applicable Law. A
carbon, photographic or other reproduction of this Mortgage or any financing
statement in connection herewith shall be sufficient as a financing statement
for any and all purposes.
8.7. INTEREST.
--------
NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED HEREIN, THE AMOUNT
OF INTEREST REQUIRED HEREUNDER OR UNDER THE CREDIT AGREEMENT, THE NOTES OR ANY
OF THE OTHER LOAN DOCUMENTS SHALL BE LIMITED TO THE MAXIMUM AMOUNT IN ACCORDANCE
WITH SECTION [** _____ **] OF THE CREDIT AGREEMENT. ONE OF THE PURPOSES OF THIS
PARAGRAPH IS TO PROVIDE RECORD NOTICE OF THE RIGHT OF MORTGAGEE TO INCREASE OR
DECREASE THE INTEREST RATE ON ANY OF THE OBLIGATIONS IN ACCORDANCE WITH THE
TERMS OF THE LOAN DOCUMENTS WHERE THE TERMS AND PROVISIONS OF SUCH LOAN
DOCUMENTS PROVIDE FOR A VARIABLE INTEREST RATE.
XXIV-40
<PAGE>
8.8. CHOICE OF LAW.
-------------
Insofar as permitted by otherwise Applicable Law, this Mortgage and
the Obligations shall be and the other Loan Documents provide that they are to
be construed under and governed by the laws of the State of New York without
regard to conflict of law rules and principles; provided, however, that the laws
-------- -------
of the place in which the Mortgaged Property is located shall apply to the
extent, and only to the extent, necessary to permit Mortgagor to create the Lien
of this Mortgage and to permit Mortgagee to perfect the Lien of this Mortgage
and to enforce or realize upon their rights and remedies hereunder with respect
to such Mortgaged Property.
8.9. COUNTERPARTS.
------------
This Mortgage and any amendments, waivers, consents or supplements
hereto or in connection herewith may be executed and acknowledged in any number
of counterparts and by different parties hereto in separate counterparts, each
of which when so executed and delivered shall be deemed an original, but all
such counterparts together shall constitute but one and the same instrument;
signature and acknowledgement pages may be detached from multiple separate
counterparts and attached to a single counterpart so that all signature and
acknowledgement pages are physically attached to the same document. Mortgagee
shall also have the option to exercise all rights and remedies available to
Mortgagee hereunder and under Applicable Law as though each counterpart hereof
were a separate mortgage, deed of trust, deed to secure debt, chattel mortgage
or other security instrument covering only the portions of the Mortgaged
Property located in the city, town, county or parish wherein such counterpart is
recorded.
8.10. RECORDING REFERENCES.
--------------------
Unless otherwise specified in Exhibit A hereto, all recording
---------
references in Exhibit A are to the official real property records of the city,
---------
town, county or parish, as appropriate, in which the Land is located.
XXIV-41
<PAGE>
8.11. NOTICES.
-------
All notices, requests and demands to be made hereunder shall be made
in accordance with Section 10.8 of the Credit Agreement.
8.12. SUCCESSORS AND ASSIGNS.
----------------------
This Mortgage shall be the joint and several obligation of Mortgagor
and all of its heirs, devisees, representatives, trustees, successors and
assigns, including successors in interest of Mortgagor in and to any part of the
Mortgaged Property, and all references in this Mortgage to Mortgagor shall be
deemed to include all of the foregoing Persons. This Mortgage shall be
assignable by Mortgagee in accordance with the provisions for assignment of the
Loans set forth in the Credit Agreement and shall inure to the benefit of
Mortgagee, and all of its heirs, successors, substitutes and assigns including,
without limitation, (a) any other Eligible Assignee under the terms of the
Credit Agreement, and (b) any and all other banks, lending institutions and
parties which may participate in the indebtedness evidenced by the Notes or any
of them (all such banks, lending institutions and parties who participate in the
indebtedness evidenced by the Notes or any of them being referred to herein as
the "PARTICIPANTS"). The Participants may, by agreement among them, provide
for and regulate the exercise of their rights and remedies hereunder, but
Mortgagor and all others shall be entitled to rely on the releases, waivers,
consents, approvals, notifications and other acts of Mortgagee, without inquiry
into any such agreements or the existence of required consents or approvals of
the Participants therefor. As used herein, the term "MORTGAGEE" shall mean, at
any particular time, any Person holding any interest of Mortgagee hereunder (as
provided in and subject to the provisions of Sections 9.5 and 10.1 of the
Credit Agreement) at that time including, without limitation, any Eligible
Assignee designated as Agent under the Credit Agreement. Any waiver, consent,
approval, notification or other action required or permitted to be obtained from
or taken by Mortgagee may be obtained from or taken by the agent or agents of
Mortgagee appointed from time to time for that purpose. Mortgagor and all
others shall be entitled to rely on the waivers, consents, approvals,
notifications and other acts of Mortgagee. As of the date of this Mortgage,
Mortgagee is the Person identified as Mortgagee in the introductory paragraph of
this Mortgage. Notwithstanding any other provision contained herein, if any
property interest granted by this Mortgage does not vest on the execution and
delivery of this Mortgage, it shall vest, if at all, no later than 20 years and
364 days after the death of the last surviving descendant of Joseph P. Kennedy
(the late father of the former President of the United States) who is alive on
the execution and delivery of this Mortgage.
8.13. EXPENSES.
--------
The provisions set forth in Section 10.2 of the Credit Agreement are
incorporated herein by this reference and shall apply with the same force and
effect as if the terms of such section was set forth herein in full.
XXIV-42
<PAGE>
8.14. NONFOREIGN ENTITY.
-----------------
Section 1445 of the Internal Revenue Code of 1986, as amended (the
"INTERNAL REVENUE CODE") provides that a transferee of a U.S. real property
interest must withhold tax if the transferor is a foreign person. To inform
Mortgagee that the withholding of tax will not be required in the event of the
disposition of the Premises, or any portion thereof, pursuant to the terms of
this Mortgage, Mortgagor hereby certifies, under penalty of perjury, that:
(i) Mortgagor is not a foreign corporation, foreign partnership,
foreign trust or foreign estate, as those terms are defined in the Internal
Revenue Code and the regulations promulgated thereunder; and
(ii) Mortgagor's U.S. employer identification number is
_______________; and
(iii) Mortgagor's principal place of business is [** _______ **].
It is understood that Mortgagee may disclose the contents of this certification
to the Internal Revenue Service and that any false statement contained herein
could be punished by fine, imprisonment or both. Mortgagor covenants and agrees
to execute such further certificates, which shall be signed under penalty of
perjury, as Mortgagee shall reasonably require. The covenant set forth herein
shall survive the foreclosure of the Lien of this Mortgage or acceptance of a
deed in lieu thereof.
8.15. PURPOSE OF THE LOANS.
--------------------
Mortgagor hereby represents and agrees that the Loans evidenced or
guaranteed by the Loan Documents and secured by this Mortgage are being obtained
for business or commercial purposes, and the proceeds thereof will not be used
for personal, family, residential, household or agricultural purposes.
8.16. NO JOINT VENTURE OR PARTNERSHIP.
-------------------------------
The relationship created hereunder or under the other Loan Documents
is that of creditor/debtor. The Lenders individually and collectively, do not
owe any fiduciary or special obligation to Mortgagor and/or any of Borrower's
partners, agents, or representatives. Nothing herein or in any other Loan
Document is intended to create a joint venture, partnership, tenancy-in-common,
or joint tenancy relationship between Mortgagor, any other Loan Party or
Subsidiary thereof and Agent and the Lenders nor to grant the Agent or the
Lenders any interest in the Mortgaged Property other than that of mortgagee or
lender.
XXIV-43
<PAGE>
8.17. AMENDMENTS AND WAIVERS.
----------------------
No amendment, modification, termination or waiver of any provision of
this Mortgage or consent to any departure by any Loan Party therefrom, shall in
any event be effective without the written concurrence of Mortgagee. Any waiver
or consent shall be effective only in the specific instance and for the specific
purpose for which it was given. No notice to or demand on Mortgagor in any case
shall entitle Mortgagor to any other or further notice or demand in similar or
other circumstances.
8.18. COVENANTS AND AGREEMENTS RUN WITH LAND.
--------------------------------------
All of Mortgagor's covenants and agreements hereunder shall run with
the land.
8.19. STATEMENTS BY MORTGAGOR.
-----------------------
Mortgagor shall, within ten (10) days after written notice thereof
from Mortgagee, deliver to Mortgagee a written statement stating the outstanding
principal amount of the Guarantied Obligations under the Subsidiary Guaranty,
any accrued and unpaid interest thereon and any other amounts secured by this
Mortgage and stating whether any offset or defense then known to Mortgagor after
inquiry exists against such principal and interest.
8.20. NON-WAIVER.
----------
A. CERTAIN ACTIONS NOT A RELEASE OF MORTGAGOR. Mortgagor shall not
be relieved of Mortgagor's obligation to pay and perform the Obligations at the
time and in the manner provided in the Subsidiary Guaranty and the other Loan
Documents by reason of, and the rights of Mortgagee hereunder shall not be
affected by, (i) any failure of Mortgagee to comply with any request of
Mortgagor or any guarantor to take any action to foreclose this Mortgage or
otherwise enforce any of the provisions of the Subsidiary Guaranty, the Credit
Agreement or any other Loan Document, (ii) any release, regardless of
consideration, of the whole or any part of the Mortgaged Property or any other
security for the Obligations, (iii) any alteration, extension, renewal, change,
modification, release, amendment, compromise or cancellation, in whole or in
part, of any term, covenant or provision of any of the Loan Documents, including
any increase or decrease in the principal amount of the Obligations or any
increase or decrease in the rate of interest applicable thereto or any extension
of time for payment thereof, or (iv) any agreement or stipulation between
Mortgagee and any subsequent owner or owners of the Mortgaged Property or other
Person extending the time of payment or otherwise modifying or supplementing the
terms of this Mortgage, the Subsidiary Guaranty, the Credit Agreement or any
other Loan Document, without first having obtained the consent of Mortgagor, and
in the latter event, Mortgagor shall continue to be obligated to pay and perform
the Obligations at the time and in the manner provided in the Subsidiary
Guaranty and the other Loan Documents, as so extended, modified and
supplemented, unless expressly released and discharged from such obligation by
Mortgagee in writing.
XXIV-44
<PAGE>
B. PRIORITY OVER SUBORDINATE LIENS. Without affecting the liability
of any other Person liable for the payment and performance of the Obligations
and without affecting the Lien of this Mortgage or of any other Loan Document
upon any portion of the Mortgaged Property not then or theretofore released as
security for the payment and performance in full of all of the Obligations, from
time to time, regardless of consideration and without notice to or consent by
the holder of any subordinate Lien, encumbrance, right, title or interest in or
to the Mortgaged Property, Mortgagee may, (i) release any persons liable for the
payment or performance of the Obligations, (ii) extend the maturity or alter any
of the terms of any of the Obligations as provided in the Loan Documents, (iii)
modify the interest rate payable on the principal balance of the Obligations as
provided in the Loan Documents, (iv) grant other indulgences, (v) release or
reconvey, or cause to be released or reconveyed at any time at Mortgagee's
option any parcel, portion or all of the Mortgaged Property, (vi) take or
release any other or additional security for the Obligations herein mentioned,
or (vii) make compositions or other arrangements with debtors in relation
thereto.
8.21. SURVIVAL OF OBLIGATIONS.
-----------------------
This Mortgage shall continue to secure the entire Obligations until
the entire Obligations are paid in full or until this Mortgage has been released
of record by Mortgagee pursuant to the terms of the Credit Agreement or any of
the other Loan Documents.
8.22. CONSENT TO JURISDICTION AND SERVICE OF PROCESS.
----------------------------------------------
ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST MORTGAGOR ARISING OUT OF OR
RELATING TO THE SUBSIDIARY GUARANTY, THIS MORTGAGE OR ANY OTHER LOAN DOCUMENT,
OR ANY OBLIGATIONS THEREUNDER, MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF
COMPETENT JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK. BY EXECUTING
AND DELIVERING THIS MORTGAGE, MORTGAGOR, FOR ITSELF AND IN CONNECTION WITH ITS
PROPERTIES, IRREVOCABLY:
(i) ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE
JURISDICTION AND VENUE OF SUCH COURTS;
(ii) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS;
(iii) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN
ANY SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT
REQUESTED, TO MORTGAGOR AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH SECTION
10.8 OF THE CREDIT AGREEMENT;
XXIV-45
<PAGE>
d. AGREES THAT SERVICE AS PROVIDED IN CLAUSE (III) ABOVE IS
SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER MORTGAGOR IN ANY SUCH
PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND
BINDING SERVICE IN EVERY RESPECT;
e. AGREES THAT MORTGAGEE RETAINS THE RIGHT TO SERVE PROCESS IN ANY
OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST MORTGAGOR IN
THE COURTS OF ANY OTHER JURISDICTION; AND
f. AGREES THAT THE PROVISIONS OF THIS SECTION 8.22 RELATING TO
------------
JURISDICTION AND VENUE SHALL BE BINDING AND ENFORCEABLE TO THE FULLEST
EXTENT PERMISSIBLE UNDER NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1402 OR
OTHERWISE.
8.23 WAIVER OF JURY TRIAL.
--------------------
EACH OF THE PARTIES TO THIS MORTGAGE HEREBY AGREES TO WAIVE ITS
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THE SUBSIDIARY GUARANTY, THIS MORTGAGE OR ANY OTHER LOAN DOCUMENT
OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS LOAN
TRANSACTION OR THE LENDER/GUARANTOR RELATIONSHIP THAT IS BEING ESTABLISHED
HEREBY AND THEREBY. The scope of this waiver is intended to be all-encompassing
of any and all disputes that may be filed in any court and that relate to the
subject matter of this transaction, including contract claims, tort claims,
breach of duty claims and all other common law and statutory claims. Each party
hereto acknowledges that this waiver is a material inducement to enter into a
business relationship, that each has already relied on this waiver in entering
into this Mortgage and the other Loan Documents, and that each will continue to
rely on this waiver in their related future dealings. Each party hereto further
warrants and represents that it has reviewed this waiver with its legal counsel
and that it knowingly and voluntarily waives its jury trial rights following
consultation with legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT
MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL WRITTEN
WAIVER SPECIFICALLY REFERRING TO THIS SECTION 8.23 AND EXECUTED BY EACH OF THE
------------
PARTIES HERETO), AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS MORTGAGE OR ANY OF THE OTHER LOAN
DOCUMENTS OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE LOANS MADE
UNDER THE CREDIT AGREEMENT OR GUARANTIED UNDER THE SUBSIDIARY GUARANTY. In the
event of litigation, this Mortgage may be filed as a written consent to a trial
by the court.
XXIV-46
<PAGE>
8.24 MORTGAGEE'S ADDITIONAL RIGHTS.
-----------------------------
The provisions of Schedule I attached hereto are made a part hereof.
----------
Section 9
MISCELLANEOUS COVENANTS AND AGREEMENTS
[TO COME.]
[ THE REMAINDER OF THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY ]
XXIV-47
<PAGE>
IN WITNESS WHEREOF, Mortgagor has on the date set forth in the
acknowledgement hereto, effective as of the date first above written, caused
this instrument to be duly EXECUTED AND DELIVERED.
Mortgagor:
---------
[** SEALY OWNERSHIP ENTITY **],
a _____________
By:
By:
By:______________________________________
Name:
Title:
S-1
<PAGE>
STATE OF NEW YORK )
) SS.:
COUNTY OF NEW YORK )
ON THE ____ DAY OF ___________ IN THE YEAR 1997 BEFORE ME, THE UNDERSIGNED,
A NOTARY PUBLIC IN AND FOR SAID STATE, PERSONALLY APPEARED
__________________, PERSONALLY KNOWN TO ME OR PROVED TO ME ON THE BASIS OF
SATISFACTORY EVIDENCE TO BE THE INDIVIDUALS WHOSE NAMES ARE SUBSCRIBED TO
THE WITHIN INSTRUMENT AND ACKNOWLEDGED TO ME THAT THEY EXECUTED THE SAME IN
THEIR CAPACITIES, AND THAT BY THEIR SIGNATURES ON THE INSTRUMENT, THE
INDIVIDUALS EXECUTED THE INSTRUMENT.
__________________________________________________
(SIGNATURE AND OFFICE OF INDIVIDUAL TAKING
ACKNOWLEDGEMENT)
STATE OF NEW YORK )
) SS.:
COUNTY OF NEW YORK )
ON THE ____ DAY OF __________ IN THE YEAR 1997 BEFORE ME, THE UNDERSIGNED,
A NOTARY PUBLIC IN AND FOR SAID STATE, PERSONALLY APPEARED ______________,
PERSONALLY KNOWN TO ME OR PROVED TO ME ON THE BASIS OF SATISFACTORY
EVIDENCE TO BE THE INDIVIDUAL WHOSE NAME IS SUBSCRIBED TO THE WITHIN
INSTRUMENT AND ACKNOWLEDGED TO ME THAT HE EXECUTED THE SAME IN HIS
CAPACITY, AND THAT BY HIS SIGNATURE ON THE INSTRUMENT, THE INDIVIDUAL
EXECUTED THE INSTRUMENT.
__________________________________________________
(SIGNATURE AND OFFICE OF INDIVIDUAL TAKING
N-1
<PAGE>
EXHIBIT A
---------
LEGAL DESCRIPTION OF LAND
The Name of the Record Owner of the Land is [** SEALY OWNERSHIP ENTITY. **]
[See Attached Page(s) for Legal Description]
Exh. A-1
<PAGE>
EXHIBIT B
---------
DESCRIPTION OF ADDITIONAL MORTGAGED PROPERTY
All of Mortgagor's right, title and interest in and to the following, in each
case whether now or hereafter existing or in which Mortgagor now has or
hereafter acquires an interest, now or hereafter located upon or attached to or
to be incorporated in (regardless of where located) the Premises or appurtenant
thereto, or used or to be used in connection with the present or future use,
construction upon, leasing, sale, operation or occupancy of the Premises:
(1) all right, title and interest of Mortgagor in and to all buildings,
structures, fixtures, tenant improvements and other improvements of every
kind and description now or hereafter located in or on the Premises,
including all Materials, water, sanitary and storm sewers, drainage,
electricity, steam, gas, telephone and other utility facilities, parking
areas, roads, driveways, walks and other site improvements; and all additions
and betterments thereto and all renewals, substitutions and replacements
thereof, owned or to be owned by Mortgagor or in which Mortgagor has or shall
acquire an interest, to the extent of Mortgagor's interest therein (all of
the foregoing being referred to herein, collectively, as the
"IMPROVEMENTS");
(2) all supplies and materials in which Mortgagor has an interest
arising in conjunction with Mortgagor's ownership or operation of the
Premises, including any supplies or materials intended for incorporation or
installation in the Improvements, prior to the time the same are so
incorporated or installed, including building materials and components (all
of the foregoing being referred to herein, collectively, as the
"MATERIALS");
(3) all equipment, machinery, apparatus, fittings, fixtures, furniture,
furnishings and articles of personal property of every kind and nature
whatsoever owned or leased (but only to the extent Mortgagor can grant to
Mortgagee a security interest therein without breaching the terms of such
lease) now or in the future by Mortgagor, and either located upon the
Premises, or any part thereof, or used in connection with the present use,
maintenance, operation or occupancy of the Improvements as a manufacturing
plant and/or warehouse or any other future occupancy or use of the
Improvements, including all heating, lighting, laundry, incinerating,
compacting, loading, unloading, landscaping, garage and power equipment and
supplies, tools, engines, pipes, pumps, tanks, motors, generators, conduits,
switchboards, plumbing, fittings, lifting, cleaning, fire prevention, fire
extinguishing, refrigerating, ventilating, and communications apparatus, rack
and shelving systems, air cooling and air conditioning apparatus, elevators,
escalators, shades, awnings, screens, storm doors and windows, carpeting,
computers, software, telephone switchboards, partitions, ducts, compressors,
cables, boilers, stokers, furnaces, tables, desks, chairs, telephones,
bathroom fixtures, cleaning equipment and supplies, and all additions,
substitutions and
Exh. B-1
<PAGE>
replacements thereof, wherever located, together with all attachments,
components, parts, equipment and accessories installed thereon or affixed
thereto and all of Mortgagor's present and future "goods", "equipment" and
"fixtures" (as such terms are defined in the Uniform Commercial Code) and
other personal property, including without limitation any such personal
property and fixtures which are leased (but only to the extent Mortgagor can
grant to Mortgagee a security interest therein without breaching the terms of
such lease), and all repairs, attachments, betterments, renewals,
replacements, substitutions and accessions thereof and thereto (all of the
foregoing being referred to herein, collectively, as the "EQUIPMENT");
Exh. B-2
<PAGE>
(4) all right, title and interest now owned or hereafter acquired by
Mortgagor in and to all options and rights of first refusal to purchase or
lease any Mortgaged Property or any portion thereof or interest therein, and
in and to any greater estate in the Premises or any other part of any
Mortgaged Property including, but not limited to all rights of first refusal
to purchase the fee estate in the Land (all of the foregoing being referred
to herein as the "OPTIONS");
(5) all the right, in the name and on behalf of Mortgagor, to appear in
and defend any action or proceeding brought with respect to any Mortgaged
Property, and to commence any action or proceeding to protect the interest of
Mortgagor in any Mortgaged Property (collectively, the "PROCEEDING
RIGHTS");
(6) subject to the terms of the Credit Agreement, all of Mortgagor's
right and power to encumber further any Mortgaged Property or any part
thereof (the "ENCUMBRANCE RIGHTS");
(7) all rights, titles, interests, estates or other claims, both in law
and in equity, which Mortgagor now has or may hereafter acquire in the
Premises or in and to any greater estate in the Premises or in and to any
greater estate in any Mortgaged Property (the "GREATER ESTATE RIGHTS");
(8) all prepaid rent and security deposits and all other security which
the lessor under any ground lease may hold now or later for the performance
of Mortgagor's obligations as the lessee under any such ground lease
("SECURITY DEPOSITS");
(9) subject to the terms of Section 6.4 of the Credit Agreement, all
insurance policies and the proceeds thereof, now or hereafter in effect with
respect to the Premises or any other Mortgaged Property, including, without
limitation, any and all title insurance proceeds, and all unearned premiums
and premium refunds, accrued, accruing or to accrue under insurance policies,
and all awards made for any taking of or damage to all or any part of the
Premises or any other Mortgaged Property by eminent domain, or by any
purchase in lieu thereof, and all awards resulting from a change of grade of
streets or for severance damages, and all other proceeds of the conversion,
voluntary or involuntary, of any Mortgaged Property into cash or other
liquidated claims, and all judgments, damages, awards, settlements and
compensation (including interest thereon) heretofore or hereafter made to the
present and all subsequent owners of any Mortgaged Property or any part
thereof for any injury to or decrease in the value thereof for any reason
(collectively, the "INSURANCE/CONDEMNATION PROCEEDS");
(10) all right, title and interest of Mortgagor as landlord in and to
all leaseholds and all leases, subleases, licenses, franchises, concessions
or grants of other possessory interests, tenancies, and any other agreements
affecting the use, possession or occupancy of the Premises (or any other part
of any Mortgaged Property) or any part thereof, whether now or
Exh. B-3
<PAGE>
hereafter existing or entered into (including, without limitation, any use or
occupancy arrangements created pursuant to Section 365(d) of the Bankruptcy
Code or otherwise in connection with the commencement or continuance of any
bankruptcy, reorganization, arrangement, insolvency, dissolution,
receivership or similar proceedings, or any assignment for the benefit of
creditors, in respect of any tenant or occupant of any portion of the
Premises (or any other part of any Mortgaged Property)) and all amendments,
modifications, supplements, extensions or renewals thereof, and all
guaranties thereof or of leasing commissions, whether now or hereafter
existing and all amendments, modifications, supplements, extensions or
renewals thereof, (all of the foregoing being collectively referred to as the
"LEASES"), and all rents, issues, profits, royalties (including all oil and
gas or other hydrocarbon substances), earnings, receipts, revenues, accounts,
accounts receivable, security deposits and other deposits (subject to the
prior right of the tenants making such deposits) and income, including,
without limitation, fixed, additional and percentage rents, vending receipts,
service charges, telephone charges, and all other fees, charges, accounts and
other payments for the use or occupancy of facilities and/or the services
rendered and goods provided in connection therewith, and all operating
expense reimbursements, reimbursements for increases in taxes, sums paid by
tenants to Mortgagor to reimburse Mortgagor for amounts originally paid or to
be paid by Mortgagor or Mortgagor's agents or affiliates for which such
tenants were liable, as, for example, tenant improvements costs in excess of
any work letter, lease takeover costs, moving expenses and tax and operating
expense pass-throughs for which a tenant is solely liable, parking,
maintenance, common area, tax, insurance, utility and service charges and
contributions, proceeds of sale of electricity, gas, heating, air-
conditioning and other utilities and services, deficiency rents and
liquidated damages, and other benefits now or hereafter derived from any
portion of the Premises or otherwise due and payable or to become due and
payable as a result of any ownership, use, possession, occupancy or operation
thereof and/or services rendered, goods provided and business conducted in
connection therewith (including any payments received pursuant to Section
502(b) of the Bankruptcy Code or otherwise in connection with the
commencement or continuance of any bankruptcy, reorganization, arrangement,
insolvency, dissolution, receivership or similar proceedings, or any
assignment for the benefit of creditors, in respect of any tenant or other
occupants of any portion of the Premises and all claims as a creditor in
connection with any of the foregoing) and all cash or security deposits,
advance rentals, and all deposits or payments of a similar nature relating
thereto, now or hereafter, including during any period of redemption, derived
from the Premises or any other portion of any Mortgaged Property and all
proceeds from the cancellation, surrender, sale or other disposition of the
Leases (all of the foregoing being referred to collectively, as the
"RENTS") and the right to receive and apply the Rents to the payment of the
Obligations, subject to the right hereinafter given to Mortgagor to collect
the Rents;
(11) the right to enforce, whether at law or in equity or by any other
means, all terms, covenants and provisions of the Leases (collectively, the
"LEASE PROVISIONS");
Exh. B-4
<PAGE>
(12) all impounds paid by Mortgagor pursuant to the provisions of the
Mortgage and all refunds or rebates of real and personal property taxes or
charges in lieu of taxes, heretofore or now or hereafter assessed or levied
against the Premises or any other part of any Mortgaged Property, including
interest thereon, and the right to receive the same, whether such refunds or
rebates relate to fiscal periods before or during the term hereof
(collectively, the "REFUNDS");
(13) any loan commitment for financing of the Improvements, including
refinancing of any existing loans, and all amounts to be advanced to or on
behalf of Mortgagor thereunder (collectively, the "FINANCING COMMITMENTS");
(14) all motor vehicle equipment in all of its forms, wherever located,
now or hereafter existing (including, but not limited to, all trucks,
tractors, trailers, forklifts and automobiles), and all parts thereof
(whether or not at any time of determination incorporated or installed
therein or attached thereto, and including, without limitation, spare parts
and tires), and all additions and accessions to, and replacements for, any of
the foregoing Mortgaged Property (any and all such motor vehicle equipment,
parts, additions, accessions and replacements being the "ROLLING STOCK");
(15) any and all accounts receivable and rights to payment for use or
occupancy of space or for goods sold or leased or for services rendered,
whether or not yet earned by performance, arising from the operation of the
Improvements (including the use or occupancy thereof) or any other facility
on the Premises, including, without limitation, (a) all accounts arising from
the operation of any Improvements (specifically including any accounts
receivable) and (b) all rights to receive payment under Leases, all
substitutions therefor, proceeds thereof (whether cash or non-cash, movable
or immovable, tangible or intangible) received upon the sale, exchange,
transfer, collection or other disposition or substitution thereof and any and
all of the foregoing and proceeds therefrom (all of the foregoing being
referred to herein, collectively, as the "PAYMENT RIGHTS");
(16) subject to the terms of the Credit Agreement, all accounts, goods,
contract rights, chattel paper, documents, instruments, general intangibles,
accounts receivable, other rights to payment of any nature and other rights
and obligations of any kind and all rights in, to and under all security
agreements, pledges, chattel mortgages, leases and other contracts securing
or otherwise relating to any such accounts, goods, contract rights, chattel
paper, documents, instruments, general intangibles, accounts receivable,
other rights to payment of any nature or other obligations (any and all such
accounts, goods, contract rights, chattel paper, documents, instruments,
general intangibles, accounts receivable, other rights to payment of any
nature and other obligations, together with the Payment Rights being the
"ACCOUNTS", and any and all such security agreements, pledges, chattel
mortgages, leases and other contracts being the "RELATED CONTRACTS");
Exh. B-5
<PAGE>
(17) all franchise agreements, management agreements, agreements for the
acquisition of the Mortgaged Property or any portion thereof, license
agreements and all similar future agreements, as each such agreement may be
amended, supplemented, replaced or otherwise modified from time to time (said
agreements, as so amended, supplemented, replaced or otherwise modified,
being referred to herein individually as an "ASSIGNED RELATED AGREEMENT" and
collectively as the "ASSIGNED RELATED AGREEMENTS"), including without
limitation (i) all rights of Mortgagor to receive moneys due or to become due
under or pursuant to the Assigned Related Agreements, (ii) all rights of
Mortgagor to receive proceeds of any insurance, indemnity, warranty or
guaranty with respect to the Assigned Related Agreements, (iii) all claims of
Mortgagor for damages arising out of any breach of or default under the
Assigned Related Agreements, and (iv) all rights of Mortgagor to terminate,
amend, supplement, modify or exercise rights or options under the Assigned
Related Agreements, to perform thereunder and to compel performance and
otherwise exercise all remedies thereunder;
(18) all abstracts of title, plans, specifications, operating manuals,
computer programs, computer data, maps, surveys, studies, reports,
appraisals, architectural, engineering and construction drawings and
contracts, or whatever kind or character, whether now or hereafter existing,
relating to the Premises (all of the foregoing being referred to herein as
the "SPECIFICATIONS");
(19) all books, records, ledger cards, files, correspondence, computer
programs, tapes, disks and related data processing software that at any time
evidence or contain information relating to any of the Mortgaged Property or
are otherwise necessary or helpful in the collection thereof or realization
thereupon (collectively, the "RECORDS");
(20) at such times and to the extent the granting of a security interest
therein is permitted by Applicable Law, all approvals, authorizations,
building permits, certifications, entitlements, exemptions, franchises,
licenses, orders, variances, plat plan approvals, environmental approvals
(including, without limitation, an environmental impact statement or report
if required under Applicable Law), air pollution authorities to construct and
permits to operate, sewer and waste discharge permits, national pollutant
discharge elimination system permits, water permits, zoning and land use
entitlements and all other permits, whether now existing or hereafter issued
to or obtained by or on behalf of Mortgagor, that relate to or concern in any
way the Premises and are given or issued by any governmental or quasi-
governmental authority, whether now existing or hereafter created (as the
same may be amended, modified, renewed or extended from time to time, and
including all substitutions and replacements therefor) (collectively, the
"PERMITS");
(21) subject to the terms of the Credit Agreement, all proceeds,
products, rents and profits of or from any and all of the foregoing Mortgaged
Property and, to the extent not
Exh. B-6
<PAGE>
otherwise included, all payments under insurance (whether or not Mortgagee is
the loss payee thereof), or any indemnity, warranty or guaranty, payable by
reason of loss or damage to or otherwise with respect to any of the foregoing
Mortgaged Property. For purposes hereof, the term "PROCEEDS" includes
whatever is receivable or received when Mortgaged Property or proceeds are
sold, exchanged, collected or otherwise disposed of, whether such disposition
is voluntary or involuntary;
provided, however, that in no event shall the Mortgaged Property include, and no
- -------- -------
Mortgagor shall be deemed to have granted a security interest in, any of
Mortgagor's rights or interests in any agreement to which Mortgagor is a party
or any of its rights or interests thereunder to the extent but only to the
extent that such a grant would result in a breach of the terms of, or constitute
a default under, any such agreement, and the other party to such agreement has
not consented to the granting of such security interest in such agreement (other
than to the extent that any such term would be rendered ineffective pursuant to
Section 9-318(4) of the Uniform Commercial Code of any relevant jurisdiction or
any other Applicable Law (including the Bankruptcy Code) or principles of
equity); and provided further, that immediately upon the ineffectiveness, lapse
-------- -------
or termination of any such provision, the Mortgaged Property shall include and
Mortgagor shall be deemed to have granted a security interest in, all such
rights or interests in the applicable Mortgaged Property as if such provision
had never been in effect.
The term "Premises" means the Premises described in the Mortgage to which this
Exhibit B is attached.
- ---------
Exh. B-7
<PAGE>
EXHIBIT C
---------
UCC INFORMATION
DEBTOR:
- ------
Name: [** Sealy Ownership Entity **]
Corporate Structure:
Notice Address:
Principal Place of Business:
SECURED PARTY:
- -------------
Secured Party acts as Agent for the Lenders (the "LENDERS") party from time to
time to the Credit Agreement dated as of even date herewith among [** _____ **]
the Lenders and Secured Party, as it may hereafter be amended, restated,
replaced, supplemented or otherwise modified from time to time. Information
regarding the security interest held by the Lenders, for which Secured Party
acts as Agent, may be obtained by contacting Secured Party at the address set
forth above.
Exh. C-1
<PAGE>
SCHEDULE I
MORTGAGEE'S ADDITIONAL RIGHTS
[To Come]
Sch.I-1
<PAGE>
EXHIBIT XXV
[FORM OF COLLATERAL ACCESS AGREEMENT]
RECORDING REQUESTED BY:
O'Melveny & Myers LLP
AND WHEN RECORDED MAIL TO:
O'Melveny & Myers LLP
153 East 53rd Street
New York, New York 10022
Attn: _____________________
Re: [Name of Company]
- --------------------------------------------------------------------------------
Space above this line for recorder's use only
REAL PROPERTY HOLDER'S WAIVER AND CONSENT AGREEMENT
This REAL PROPERTY HOLDER'S WAIVER AND CONSENT AGREEMENT (this
"AGREEMENT") is dated as of ___________, [199 ][200 ] and entered into by
_________________________, a ____________________ ("REAL PROPERTY HOLDER"), to
and for the benefit of MORGAN GUARANTY TRUST COMPANY OF NEW YORK, a
___________________ having offices at ______________________________
("ADMINISTRATIVE AGENT"), as administrative agent for the financial
institutions ("LENDERS") which are or may hereafter become parties to the
Credit Agreement (as hereinafter defined).
R E C I T A L S
---------------
9.1. ____________________, a _______________
corporation ("COMPANY"), has possession of and occupies all or a portion of
the property described on Exhibit A annexed hereto (the "PREMISES").
---------
9.2. Company's interest in the Premises [arises under
the lease agreement (the "LEASE")][is subject to the [mortgage][deed of trust]
(the "MORTGAGE")] more particularly described on Exhibit B annexed hereto,
---------
pursuant to which Real Property Holder has rights, upon the terms and conditions
set forth therein, to take possession of, and otherwise assert control over, the
Premises.
Sch.I-1
<PAGE>
9.3. Administrative Agent and Lenders have entered
into that certain Credit Agreement dated as of December 18, 1997 (said Credit
Agreement, as amended, supplemented or otherwise modified from time to time,
being the "CREDIT AGREEMENT") with [Company], [Sealy Mattress Company, an
Ohio corporation of which Company is a subsidiary ("BORROWER")], Sealy
Corporation, a Delaware corporation ("HOLDINGS"), and Company has executed [a
guaranty,] a security agreement and other collateral documents in relation to
the Credit Agreement.
9.4. [Company's guaranty of] the extensions of credit
made by Lenders to [Company] [Borrower] under the Credit Agreement will be
secured, in part, by all raw materials, work-in-process and finished goods
inventory of Company (including, without limitation, all inventory of Company
now or hereafter located on the Premises (the "INVENTORY")) and all equipment,
machinery and other goods used in Company's business (including, without
limitation, all equipment of Company now or hereafter located on the Premises
(the "EQUIPMENT" and, together with the Inventory, the "COLLATERAL")).
9.5. Administrative Agent has requested that Real
Property Holder execute this Agreement as a condition to the extension of credit
to [Company] [Borrower] under the Credit Agreement.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Real Property Holder hereby represents and warrants to, and
covenants and agrees with, Administrative Agent as follows:
1. Real Property Holder hereby (a) waives and releases unto
Administrative Agent and its successors and assigns any and all rights granted
by or under any present or future laws to levy or distraint for rent or any
other charges which may be due to Real Property Holder against the Collateral,
and any and all other claims, liens and demands of every kind which it now has
or may hereafter have against the Collateral, and (b) agrees that any rights it
may have in or to the Collateral, no matter how arising (to the extent not
effectively waived pursuant to clause (a) of this paragraph 1), shall be second
and subordinate to the rights of Administrative Agent in respect thereof. Real
Property Holder acknowledges that the Collateral is and will remain personal
property and not fixtures even though it may be affixed to or placed on the
Premises.
2. Real Property Holder certifies that (a) Real Property Holder is the
[landlord under the Lease][beneficiary under the Mortgage], (b) the
[Lease][Mortgage] is in full force and effect and has not been amended,
modified, or supplemented except as set forth on Exhibit B annexed hereto, (c)
---------
there is no defense, offset, claim or counterclaim by or in favor of Real
Property Holder against Company under the [Lease][Mortgage] or against the
obligations of Real Property Holder under the [Lease][Mortgage], (d) no notice
of default has been given under or in connection with the [Lease][Mortgage]
which has not been cured, and Real Property Holder has no knowledge of
Sch.I-2
<PAGE>
the occurrence of any other default under or in connection with the
[Lease][Mortgage], and (e) except as disclosed to Administrative Agent, no
portion of the Premises is encumbered in any way by any deed of trust or
mortgage lien or ground or superior lease.
3. Real Property Holder consents to the installation or placement of the
Collateral on the Premises, and Real Property Holder grants to Administrative
Agent a license to enter upon and into the Premises to do any or all of the
following with respect to the Collateral: assemble, have appraised, display,
remove, maintain, prepare for sale or lease, repair, transfer, or sell (at
public or private sale). In entering upon or into the Premises, Administrative
Agent hereby agrees to indemnify, defend and hold Real Property Holder harmless
from and against any and all claims, judgments, liabilities, costs and expenses
incurred by Real Property Holder caused solely by Administrative Agent's
entering upon or into the Premises and taking any of the foregoing actions with
respect to the Collateral. Such costs shall include, without limitation, any
damage to the Premises made by Administrative Agent in severing and/or removing
the Collateral therefrom.
4. Real Property Holder agrees that it will not prevent Administrative
Agent or its designee from entering upon the Premises at all reasonable times to
inspect or remove the Collateral. In the event that Real Property Holder has
the right to, and desires to, obtain possession of the Premises [(either through
expiration of the Lease or termination thereof due to the default of Company
thereunder)] [(through the exercise of its rights under the Mortgage upon a
default by Company thereunder)], Real Property Holder will deliver notice (the
"REAL PROPERTY HOLDER'S NOTICE") to Administrative Agent to that effect.
Within the 45 day period after Administrative Agent receives the Real Property
Holder's Notice, Administrative Agent shall have the right, but not the
obligation, to cause the Collateral to be removed from the Premises. During
such 45 day period, Real Property Holder will not remove the Collateral from the
Premises nor interfere with Administrative Agent's actions in removing the
Collateral from the Premises or Administrative Agent's actions in otherwise
enforcing its security interest in the Collateral. Notwithstanding anything to
the contrary in this paragraph, Administrative Agent shall at no time have any
obligation to remove the Collateral from the Premises.
5. Real Property Holder shall send to Administrative Agent a copy of any
notice of default under the [Lease][Mortgage] sent by Real Property Holder to
Company. In addition, Real Property Holder shall send to Administrative Agent a
copy of any notice received by Real Property Holder of a breach or default under
any other lease, mortgage, deed of trust, security agreement or other instrument
to which Real Property Holder is a party which may affect Company's rights in,
or possession of, the Premises.
6. All notices to Administrative Agent under this Agreement shall be in
writing and sent to Administrative Agent at its address set forth on the
signature page hereof by telefacsimile, by United States mail, or by overnight
delivery service.
Sch.I-3
<PAGE>
7. The provisions of this Agreement shall continue in effect until Real
Property Holder shall have received Administrative Agent's written certification
that all amounts advanced under the Credit Agreement have been paid in full.
8. This Agreement and the rights and obligations of the parties
hereunder shall be governed by, and shall be construed and enforced in
accordance with, the internal laws of the State of ___________, without regard
to conflicts of laws principles.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be duly
executed and delivered as of the day and year first set forth above.
[NAME OF REAL PROPERTY HOLDER]
By: _______________________________
Name:
Title:
By its acceptance hereof, as of the day and year first set forth above,
Administrative Agent agrees to be bound by the provisions hereof.
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK, as Administrative Agent
By: _______________________________
Name:
Title:
Sch.I-4
<PAGE>
EXHIBIT A
---------
LEGAL DESCRIPTION OF PREMISES
Sch.I-5
<PAGE>
EXHIBIT B
---------
DESCRIPTION OF [LEASE] [MORTGAGE]
Sch.I-6
<PAGE>
EXHIBIT XXV
[FORM OF COLLATERAL ACCESS AGREEMENT]
RECORDING REQUESTED BY:
O'Melveny & Myers LLP
AND WHEN RECORDED MAIL TO:
O'Melveny & Myers LLP
153 East 53rd Street
New York, New York 10022
Attn: _____________________
Re: [Name of Company]
- -------------------------------------------------------------------------------
Space above this line for recorder's use only
REAL PROPERTY HOLDER'S WAIVER AND CONSENT AGREEMENT
This REAL PROPERTY HOLDER'S WAIVER AND CONSENT AGREEMENT (this
"AGREEMENT") is dated as of ___________, [199_][200_] and entered into by
_________________________, a ____________________ ("REAL PROPERTY HOLDER"), to
and for the benefit of MORGAN GUARANTY TRUST COMPANY OF NEW YORK, a
___________________ having offices at ______________________________
("ADMINISTRATIVE AGENT"), as administrative agent for the financial
institutions ("LENDERS") which are or may hereafter become parties to the
Credit Agreement (as hereinafter defined).
R E C I T A L S
- - - - - - - -
9.1 ____________________, a _______________ corporation
("COMPANY"), has possession of and occupies all or a portion of the property
described on Exhibit A annexed hereto (the "PREMISES").
---------
9.2 Company's interest in the Premises [arises under the lease
agreement (the "LEASE")][is subject to the [mortgage][deed of trust] (the
"MORTGAGE")] more particularly described on Exhibit B annexed hereto,
---------
pursuant to which Real Property Holder has rights, upon the terms and conditions
set forth therein, to take possession of, and otherwise assert control over, the
Premises.
9.3 Administrative Agent and Lenders have entered into that
certain Credit Agreement dated as of December 18, 1997 (said Credit Agreement,
as amended, supplemented
XXV-1
<PAGE>
or otherwise modified from time to time, being the "CREDIT AGREEMENT") with
[Company], [Sealy Mattress Company, an Ohio corporation of which Company is a
subsidiary ("BORROWER")], Sealy Corporation, a Delaware corporation
("HOLDINGS"), and Company has executed [a guaranty,] a security agreement and
other collateral documents in relation to the Credit Agreement.
9.4 [Company's guaranty of] the extensions of credit made by
Lenders to [Company] [Borrower] under the Credit Agreement will be secured, in
part, by all raw materials, work-in-process and finished goods inventory of
Company (including, without limitation, all inventory of Company now or
hereafter located on the Premises (the "INVENTORY")) and all equipment,
machinery and other goods used in Company's business (including, without
limitation, all equipment of Company now or hereafter located on the Premises
(the "EQUIPMENT" and, together with the Inventory, the "COLLATERAL")).
9.5 Administrative Agent has requested that Real Property Holder
execute this Agreement as a condition to the extension of credit to [Company]
[Borrower] under the Credit Agreement.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Real Property Holder hereby represents and warrants to, and
covenants and agrees with, Administrative Agent as follows:
1. Real Property Holder hereby (a) waives and releases unto
Administrative Agent and its successors and assigns any and all rights granted
by or under any present or future laws to levy or distraint for rent or any
other charges which may be due to Real Property Holder against the Collateral,
and any and all other claims, liens and demands of every kind which it now has
or may hereafter have against the Collateral, and (b) agrees that any rights it
may have in or to the Collateral, no matter how arising (to the extent not
effectively waived pursuant to clause (a) of this paragraph 1), shall be second
and subordinate to the rights of Administrative Agent in respect thereof. Real
Property Holder acknowledges that the Collateral is and will remain personal
property and not fixtures even though it may be affixed to or placed on the
Premises.
2. Real Property Holder certifies that (a) Real Property Holder is the
[landlord under the Lease][beneficiary under the Mortgage], (b) the
[Lease][Mortgage] is in full force and effect and has not been amended,
modified, or supplemented except as set forth on Exhibit B annexed hereto, (c)
---------
there is no defense, offset, claim or counterclaim by or in favor of Real
Property Holder against Company under the [Lease][Mortgage] or against the
obligations of Real Property Holder under the [Lease][Mortgage], (d) no notice
of default has been given under or in connection with the [Lease][Mortgage]
which has not been cured, and Real Property Holder has no knowledge of the
occurrence of any other default under or in connection with the
[Lease][Mortgage], and (e) except as disclosed to Administrative Agent, no
portion of the Premises is encumbered in any way by any deed of trust or
mortgage lien or ground or superior lease.
XXV-2
<PAGE>
3. Real Property Holder consents to the installation or placement of the
Collateral on the Premises, and Real Property Holder grants to Administrative
Agent a license to enter upon and into the Premises to do any or all of the
following with respect to the Collateral: assemble, have appraised, display,
remove, maintain, prepare for sale or lease, repair, transfer, or sell (at
public or private sale). In entering upon or into the Premises, Administrative
Agent hereby agrees to indemnify, defend and hold Real Property Holder harmless
from and against any and all claims, judgments, liabilities, costs and expenses
incurred by Real Property Holder caused solely by Administrative Agent's
entering upon or into the Premises and taking any of the foregoing actions with
respect to the Collateral. Such costs shall include, without limitation, any
damage to the Premises made by Administrative Agent in severing and/or removing
the Collateral therefrom.
4. Real Property Holder agrees that it will not prevent Administrative
Agent or its designee from entering upon the Premises at all reasonable times to
inspect or remove the Collateral. In the event that Real Property Holder has
the right to, and desires to, obtain possession of the Premises [(either through
expiration of the Lease or termination thereof due to the default of Company
thereunder)] [(through the exercise of its rights under the Mortgage upon a
default by Company thereunder)], Real Property Holder will deliver notice (the
"REAL PROPERTY HOLDER'S NOTICE") to Administrative Agent to that effect.
Within the 45 day period after Administrative Agent receives the Real Property
Holder's Notice, Administrative Agent shall have the right, but not the
obligation, to cause the Collateral to be removed from the Premises. During
such 45 day period, Real Property Holder will not remove the Collateral from the
Premises nor interfere with Administrative Agent's actions in removing the
Collateral from the Premises or Administrative Agent's actions in otherwise
enforcing its security interest in the Collateral. Notwithstanding anything to
the contrary in this paragraph, Administrative Agent shall at no time have any
obligation to remove the Collateral from the Premises.
5. Real Property Holder shall send to Administrative Agent a copy of any
notice of default under the [Lease][Mortgage] sent by Real Property Holder to
Company. In addition, Real Property Holder shall send to Administrative Agent a
copy of any notice received by Real Property Holder of a breach or default under
any other lease, mortgage, deed of trust, security agreement or other instrument
to which Real Property Holder is a party which may affect Company's rights in,
or possession of, the Premises.
6. All notices to Administrative Agent under this Agreement shall be in
writing and sent to Administrative Agent at its address set forth on the
signature page hereof by telefacsimile, by United States mail, or by overnight
delivery service.
7. The provisions of this Agreement shall continue in effect until Real
Property Holder shall have received Administrative Agent's written certification
that all amounts advanced under the Credit Agreement have been paid in full.
8. This Agreement and the rights and obligations of the parties
hereunder shall be governed by, and shall be construed and enforced in
accordance with, the internal laws of the State of ___________, without regard
to conflicts of laws principles.
XXV-3
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be duly
executed and delivered as of the day and year first set forth above.
[NAME OF REAL PROPERTY HOLDER]
By:
-----------------------------
Name:
Title:
By its acceptance hereof, as of the day and year first set forth above,
Administrative Agent agrees to be bound by the provisions hereof.
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Administrative Agent
By:
-----------------------------
Name:
Title:
XXV-4
<PAGE>
EXHIBIT A
---------
LEGAL DESCRIPTION OF PREMISES
XXV-5
<PAGE>
EXHIBIT B
---------
DESCRIPTION OF [LEASE] [MORTGAGE]
XXV-6
<PAGE>
EXHIBIT 10.4.XXVI
EXHIBIT XXVI
[FORM OF SUBORDINATION PROVISIONS]
"INDEBTEDNESS" means (i) all obligations for borrowed money or for the
deferred purchase price of property or services (including, without limitation,
all obligations contingent or otherwise in connection with acceptance, letter of
credit or similar facilities, but excluding any such obligations incurred under
ERISA and any accrued expenses or trade payables, (ii) all obligations evidenced
by bonds, notes, debentures or other similar instruments, (iii) all indebtedness
created or arising under any sale and leaseback arrangement, conditional sale or
other title retention agreement with respect to property owned or acquired
(whether or not the rights and remedies of the seller or lender under such
agreement in the event of default are limited to repossession or sale of such
property), (iv) all rental obligations under capital leases to the extent not
included in clause (iii) above to the extent properly classified as a liability
on a balance sheet in conformity with GAAP, (v) all guarantees (direct or
indirect) to the extent properly classified as a liability on a balance sheet in
conformity with GAAP, all contingent reimbursement obligations under undrawn
letters of credit and all other contingent obligations in respect of, or
obligations to purchase or otherwise acquire or to assure payment of,
Indebtedness of others and (vi) indebtedness of others secured by any lien upon
property, whether or not assumed, but only to the extent of the lesser of such
property's fair market value and the stated amount of such obligation.
"PERSON" means an individual, a partnership, a corporation, an association,
a limited liability company, a joint stock company, a trust, a joint venture, an
unincorporated organization and a governmental entity or any department, agency
or political subdivision thereof.
"SENIOR AGENT" shall mean Morgan Guaranty Trust Company of New York, as
Administrative Agent for the Lenders under the Senior Credit Agreements, and its
successors in such capacity, or if there is then no acting Administrative Agent
under the Senior Credit Agreements, financial institutions holding a majority in
principal amount of the Senior Debt outstanding thereunder.
"SENIOR CREDIT AGREEMENTS" shall mean, collectively, (i) the Credit
Agreement dated as of December 18, 1997 and (ii) the AXEL Credit Agreement dated
as of December 18, 1997, in each case by and among the Borrower, Sealy
Corporation, the financial institutions listed therein as Lenders, Senior Agent,
Goldman Sachs Credit Partners L.P., as Syndication Agent, and Bankers Trust
Company, as Documentation Agent, as each such agreement has heretofore been and
may hereafter be amended, restated, modified or supplemented from time to time,
together with any credit agreement or similar document from time to time
executed by the Borrower to evidence any Refinancing (as defined in the
definition of Senior Indebtedness) or successive Refinancings.
<PAGE>
"SENIOR DEBT DOCUMENTS" shall mean the Senior Credit Agreements and all
other documents and instruments delivered or filed in connection with the
creation or incurrence of any Senior Indebtedness (including, without
limitation, the promissory notes, guaranties, security agreements, pledge
agreements and mortgages executed and delivered by the Borrower, Sealy
Corporation and the subsidiaries of the Borrower in respect of the Obligations
under the Senior Credit Agreements).
"SENIOR INDEBTEDNESS" shall mean (i) all Obligations (as defined in the
Senior Credit Agreements) now or hereafter incurred pursuant to and in
accordance with the terms of the Senior Debt Documents, (ii) any additional
Indebtedness incurred under or pursuant to the Senior Credit Agreements and the
other Senior Debt Documents whether such Obligations or additional Indebtedness
involve principal prepayment charges, interest (including, without limitation,
interest accruing after the filing of a petition initiating any proceeding under
the Bankruptcy Code, whether or not allowed as a claim in such proceeding),
indemnities (other than inchoate indemnification obligations with respect to
claims, losses or liabilities which have not yet arisen after all other
Obligations have been repaid in full and all commitments to lend thereunder have
terminated) or reimbursement of fees, expenses or other amounts, and (iii) any
indebtedness incurred (other than those not due and payable when all other
Obligations have been repaid and Commitments are terminated) for the purpose of
refinancing, restructuring, extending or renewing (collectively, "Refinancing")
the obligations of the Borrower under the Senior Credit Agreements as set forth
in clauses (i) and (ii) above.
"SENIOR LENDERS" shall mean the financial institutions party to either of
the Senior Credit Agreements as "Lenders" from time to time.
1. SUBORDINATION.
-------------
(a) Agreement to Subordinate. The Borrower and, by its acceptance hereof,
------------------------
each Holder agree that the indebtedness of the Borrower evidenced by this Note,
whether for principal, interest on any other amount payable under or in respect
hereof and all rights or claims arising out of or associated with such
Indebtedness (the "Subordinated Obligations"), shall be junior and subordinate
in right of payment to the prior payment in full in cash of all Senior
Indebtedness, in accordance with the provisions of this Section X. Each holder
of Senior Indebtedness shall be deemed to have acquired Senior Indebtedness in
reliance upon the agreements of the Borrower and the holder of this Note
contained in this Section X. The provisions of this Section X shall be
reinstated if at any time any payment of any of the Senior Indebtedness is
rescinded or must otherwise be returned by any holder of Senior Indebtedness or
any representative of such holder upon the insolvency, bankruptcy or
reorganization of the Borrower. Any provision of this Note to the contrary
notwithstanding, the Borrower shall not make, and no Holder shall accept, any
payment or prepayment of principal, or prepayment of other amounts due
thereunder, of any kind whatsoever (including without limitation by distribution
of assets, set off, exchange or any other manner) with respect to the
Subordinated Obligations at any time when any of the Senior Indebtedness remains
outstanding. Holder may receive interest payments in respect of the Subordinated
Obligations in accordance with the
2
<PAGE>
terms of this Note except to the extent and at the times prohibited or
restricted by the provisions of this Section X. In no event shall the Holder
commence any action or proceeding to contest the provisions of this Section X or
the priority of the Liens (as defined in the Senior Credit Agreements) granted
to the holders of the Senior Indebtedness by the Borrower. No Holder shall take,
accept or receive any collateral security from the Borrower for the payment of
the Subordinated Obligations.
(b) Liquidation Dissolution. Bankruptcy. In the event of any insolvency,
-----------------------
bankruptcy, dissolution, winding up, liquidation, arrangement, reorganization,
marshalling of assets or liabilities, composition, assignment for the benefit of
creditors or other similar proceedings relating to the Borrower, its debts, its
property or its operations, whether voluntary or involuntary, including, without
limitation the filing of any petition or the taking of any action to commence
any of the foregoing (which, in the case of action by a third party, is not
dismissed within 60 days) (a "Bankruptcy Event"), all Senior Indebtedness shall
first be paid in full in cash or other immediately available funds before Holder
shall be entitled to receive or retain any payment or distribution of assets of
the Borrower with respect to any Subordinated Obligations. In the event of any
such Bankruptcy Event, any payment or distribution of assets to which Holder
would be entitled if the Subordinated Obligations were not subordinated to the
Senior Indebtedness in accordance with this Section X, whether in cash,
property, securities or otherwise, shall be paid or delivered by the debtor,
custodian, trustee or agent or other Person making such payment or distribution,
or by the Holder if received by it, directly to the Senior Agent on behalf of
the holders of the Senior Indebtedness for application to the payment of the
Senior Indebtedness remaining unpaid, to the extent necessary to make payment in
full in cash or other immediately available funds of all Senior Indebtedness
remaining unpaid, after giving effect to any concurrent payment or distribution
to or for the holders of the Senior Indebtedness.
(c) No Payments with Respect to Subordinated Obligations in Certain
---------------------------------------------------------------
Circumstances.
- -------------
(i) In circumstances in which Section X(b) is not applicable, no
payment of any nature (including, without limitation, any distribution of
assets) in respect of the Subordinated Obligations (including, without
limitation, pursuant to any judgment with respect thereto or on account of
the purchase or redemption or other acquisition of Subordinated
Obligations, by set off, prepayment exchange or other manner) shall be made
by or on behalf of the Borrower if, at the time of such payment:
(A) a default in the payment when due (whether at the maturity
thereof, or upon acceleration of maturity or otherwise and without giving
effect to any applicable grace periods) of all or any portion of the Senior
Indebtedness (whether of principal, interest or any other amount with
respect thereto) shall have occurred, and such default shall not have been
cured or waived in accordance with the terms of the Senior Debt Documents;
or
(B) subject to the last sentence of this Section X(c), (x) the
Borrower shall have received notice from the Senior Agent or the Lenders of
the occurrence
3
<PAGE>
of one or more Events of Default (as defined in either of the Senior Credit
Agreement) in respect of any Senior Indebtedness (other than payment
defaults described in Section X(c)(i)(A) above), (y) each such Event of
Default shall not have been cured or waived in accordance with the terms of
the Senior Debt Documents, and (z) 180 days shall not have elapsed since
the date such notice was received.
The Borrower may resume payments (and may make any payments missed due
to the application of Section X(c)(i) in respect of the Subordinated
Obligations or any judgment with respect thereto:
(A) in the case of a default referred to in clause (A) of this
Section X(c)(i), upon a cure or waiver thereof in accordance with the terms
of the Senior Debt Documents; or
(B) in the case of an Event of Default or Events of Default
referred to in clause (B) of this Section X(c)(i), upon the earlier to
occur of (1) the cure or waiver of all such Events of Default in accordance
with the terms of the Senior Debt Documents, or (2) the expiration of such
period of 180 days.
(ii) Following any acceleration of the maturity of any Senior
Indebtedness and as long as such acceleration shall continue unrescinded
and unannulled, such Senior Indebtedness shall first be paid in full in
cash, or provision for such payment shall be made in a manner reasonably
satisfactory to the holders of the Senior Indebtedness, before any payment
is made on account of or applied on the Subordinated Obligations.
(iii) The Borrower shall give prompt written notice to the Holder of
(i) any default in respect of Senior Obligations referred to in Section
X(c)(i)(A) and (ii) any notice of the type described in Section X(c)(i)(B)
from the Senior Agent.
(d) When Distribution Must Be Paid Over. In the event that Holder shall
-----------------------------------
receive any payment or distribution of assets that Holder is not entitled to
receive or retain under the provisions of this Note, Holder shall hold any
amount so received in trust for the holders of Senior Indebtedness, shall
segregate such assets from other assets held by Holder and shall forthwith turn
over such payment or distribution (without liability for interest thereon) to
the Senior Agent on behalf of the holders of Senior Indebtedness in the form
received (with any necessary endorsement) to be applied to Senior Indebtedness.
(e) Exercise of Remedies. So long as any Senior Indebtedness is
--------------------
outstanding (including any loans, any letters of credit, any commitments to lend
or any lender guarantees), Holder (solely in its capacity as a holder of this
Note) shall not exercise any rights or remedies with respect to an Event of
Default under this Note, including, without limitation, any action (l) to demand
or sue for collection of amounts payable hereunder, (2) to accelerate the
principal of this Note, or (3) to commence or join with any other creditor
(other than the holder of a majority
4
<PAGE>
in principal amount of the Senior Indebtedness) in commencing any proceeding in
connection with or premised on the occurrence of a Bankruptcy Event prior to the
earlier of:
(A) the payment in full in cash or other immediately available funds
of all Senior Indebtedness;
(B) the initiation of a proceeding (other than a proceeding prohibited
by clause (3) of this Section X(e)) in connection with or premised upon the
occurrence of a Bankruptcy Event;
(C) the expiration of 180 days immediately following the receipt by
the Senior Agent of notice of the occurrence of such Event of Default from
the Holder; and
(D) the acceleration of the maturity of the Senior Indebtedness;
provided, however, that if, with respect to (B) and (D) above, such proceeding
- -------- -------
or acceleration, respectively, is rescinded, or with respect to (C) above,
during such 180-day period such Event of Default has been cured or waived, the
prohibition against taking the actions described in this Section X(e) shall
automatically be reinstated as of the date of the rescission, cure or waiver, as
applicable. In all events, unless an event described in clause (A), (B) or (D)
above has occurred and not been rescinded, the Holder shall give thirty (30)
days prior written notice to the Senior Agent before taking any action described
in this Section X(e), which notice shall describe with specificity the action
that the Holder in good faith intends to take.
(f) Acceleration of Payment of Note. If this Note is declared due and
-------------------------------
payable prior to the Maturity Date, no direct or indirect payment that is due
solely by reason of such declaration shall be made, nor shall application be
made of any distribution of assets of the Borrower (whether by set off or in any
other manner, including, without limitation, from or by way of collateral) to
the payment, purchase or other acquisition or retirement of this Note, unless,
in either case, (i) all amounts due or to become due on or in respect of the
Senior Indebtedness (including with respect to any outstanding letters of
credit) shall have been previously paid in full in cash or other immediately
available funds or in any other manner satisfactory to all holders of such
Senior Indebtedness, (ii) all commitments to lend under Senior Indebtedness
shall have been terminated and (iii) all guarantees constituting Senior
Indebtedness shall have been terminated.
(g) Proceedings Against Borrower. So long as any Senior Indebtedness is
----------------------------
outstanding (including any loans, any commitments to lend or open lender
guarantees or any lender guarantees, Holder (solely in its capacity as a holder
of this Note) shall not commence any bankruptcy, insolvency, reorganization or
other similar proceeding against Borrower.
(h) Amending Senior Indebtedness. Any holder of Senior Indebtedness may,
----------------------------
at any time and from time to time, without the consent of or notice to Holder
(i) modify or amend the terms of the Senior Indebtedness, (ii) sell, exchange,
release, fail to perfect a lien on or a security
5
<PAGE>
interest in or otherwise in any manner deal with or apply any property pledged
or mortgaged to secure, or otherwise securing, Senior Indebtedness, (iii)
release any guarantor or any other person liable in any manner for the Senior
Indebtedness, (iv) exercise or refrain from exercising any rights against
Borrower or any other person, (v) apply any sums by whomever paid or however
realized to Senior Indebtedness or (vi) take any other action that might be
deemed to impair in any way the rights of the holder of this Note. Any and all
of such actions may be taken by the holders of Senior Indebtedness without
incurring responsibility to Holder and without impairing or releasing the
obligations of Holder to the holders of Senior Indebtedness.
(i) Certain Rights in Bankruptcy. Holder hereby irrevocably authorizes and
----------------------------
empowers each holder of Senior Indebtedness (and its representative or
representatives) to demand, sue for, collect and receive all payments and
distributions under the terms of this Note, to file and prove all claims
(including claims in bankruptcy) relating to this Note, to exercise any right to
vote arising with respect to this Note and any claims hereunder in any
bankruptcy, insolvency or similar proceeding and take any and all other actions
in the name of Holder (solely in its capacity as a holder of this Note), as such
holder of Senior Indebtedness determines to be necessary or appropriate.
(j) Subrogation. No payment or distribution to any holder of Senior
-----------
Indebtedness pursuant to the provisions of this Note shall entitle Holder to
exercise any right of subrogation in respect thereof until (i)(x) all Senior
Indebtedness shall have been paid in full in cash or other immediately available
funds or in any other manner satisfactory to all holders of Senior Indebtedness,
(y) all commitments to lend under Senior Indebtedness shall have been terminated
and (z) all guarantees constituting Senior Indebtedness shall have been
terminated or (ii) all holders of Senior Indebtedness have consented in writing
to the taking of such action.
(k) Relative Rights. The provisions of this Section X are for the benefit
---------------
of the holders of Senior Indebtedness (and their successors and assigns) and
shall be enforceable by them directly against Holder. Holder acknowledges and
agrees that any breach of the provisions of this Section X will cause
irreparable harm for which the payment of monetary damages may be inadequate.
For this reason, Holder agrees that, in addition to any remedies at law or
equity to which a holder of the Senior Indebtedness may be entitled, a holder of
the Senior Indebtedness will be entitled to an injunction or other equitable
relief to prevent breaches of the provisions of this Section X and/or to compel
specific performance of such provisions. The provisions of this Section X shall
continue to be effective or be reinstated, as the case may be, if at any time
any payment of Senior Indebtedness is rescinded or must otherwise be returned by
any holder of Senior Indebtedness upon the occurrence of a Bankruptcy Event or
otherwise, all as though such payment had not been made. The provisions of this
Section X are not intended to impair and shall not impair as between Borrower
and Holder, the obligation of Borrower, which is absolute and unconditional, to
pay Holder all amounts owing under this Note.
(l) Reliance on Orders and Decrees. Subject to the provisions of Section
------------------------------
X(d) hereof, upon any payment or distribution of assets of Borrower, whether in
cash, property, securities or otherwise, Holder shall be entitled to rely upon
any order or decree entered by any
6
<PAGE>
court of competent jurisdiction in which any insolvency, bankruptcy,
receivership, liquidation, reorganization, dissolution, winding up or similar
case or proceeding is pending, or a certificate of the trustee in bankruptcy,
receiver, liquidating trustee, custodian, assignee for the benefit of creditors,
agent or other Person making such payment or distribution, delivered to Holder
for the purpose of ascertaining the Persons entitled to participate in such
payment or distribution, the holders of Senior Indebtedness, the amount thereof
or payable thereon, the amount or amounts paid or distributed thereon and all
other facts pertinent thereto or to this Section X.
7
<PAGE>
SCHEDULE 1.1(I)
Addbacks to EBITIDA
-------------------
Without duplication:
(i) MIS Upgrade Expenditures, Year 2000 Expenditures, EITF 97-13
Expenditures and Other MIS Expenditures, in each case to the extent
deducted in determining Consolidated Net Income;
(ii) any bad debt and factoring losses incurred specifically with respect to
the bankruptcy of Montgomery Ward;
(iii) items classified as unusual or nonrecurring gains and losses (including
restructuring costs, severance and relocation costs, any one-time
expenses related to (or resulting from) any merger, recapitalization or
Permitted Acquisition);
(iv) one-time compensation charges, including any arising from any
recapitalization of Holdings' special bonus program or existing stock
options, performance share or restricted stock plans resulting from any
merger or recapitalization transaction or expensed in any period prior
to the consummation of the Merger;
(v) non-recurring cash restructuring charges incurred in connection with the
Recapitalization Transactions and related transactions to the extent
deducted in determining Consolidated Net Income; provided that such
--------
charges are incurred on or before December 18, 1998 and do not exceed in
the aggregate the sum of (a) premiums paid in connection with the Debt
Tender Offer plus (b) $1,000,000;
----
(vi) non-recurring cash restructuring charges incurred in connection with
Permitted Acquisitions to the extent deducted in determining
Consolidated Net Income; and
(vii) Bain Management Fees (excluding any portion thereof representing
---------
reimbursement of expenses or fees for acquisitions, financings or
divestitures) paid during such period under the Bain Advisory Services
Agreement, and any Harvard Management Fees (excluding any portion
---------
thereof representing reimbursement of expenses paid during such period);
(viii) non-recurring cash charges incurred prior to June 18, 1999 in
connection with the relocation of any of Company's facilities and
transition expenses related thereto, but only to the extent that such
non-recurring charges do not exceed $6,000,000; and
(ix) to the extent deducted in determining Consolidated Net Income, premiums
and transaction costs on Existing Subordinated Notes not tendered in the
Debt Tender Offer.
<PAGE>
SCHEDULE 1.1(II)
Recapitalization Transactions
Immediately prior to the Closing Date, Holdings will contribute (the
"Capital Contribution") all of the issued and outstanding capital stock of
Sealy, Inc., an Ohio corporation, The Stearns & Foster Bedding Company, a
Delaware corporation, Advanced Sleep Products, a California corporation, Sealy
Components-Pads, Inc., a Delaware corporation, and Sealy Mattress Company of San
Diego, a California corporation, to the capital of the Company. Immediately
after the Capital Contribution, Company will be the only direct subsidiary of
Holdings and will own 100% of the operations of Holdings. On the Closing Date
Merger Corp. will be merged with and into Holdings with Holdings being the
surviving corporation.
2
<PAGE>
SCHEDULE 2.1
Lenders' Commitments, Loans and Pro Rata Shares
<TABLE>
<CAPTION>
LENDER REVOLVING PRO RATA SHARE TRANCHE A PRO RATA PRO RATA
LOAN RE REVOLVING TERM LOANS SHARE RE SHARE RE ALL
COMMITMENT LOAN TRANCHE A LOANS
COMMITMENT TERM LOANS
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Goldman Sachs Credit Partners $5,227,270 5.2% $6,272,730 5.2% 32.6%
L.P.
- ----------------------------------------------------------------------------------------------------------------
Morgan Guaranty Trust Company $5,227,270 5.2% $6,272,730 5.2% 6.8%
of New York
- ----------------------------------------------------------------------------------------------------------------
Bankers Trust Company $7,727,273 7.7% $9,272,727 7.7% 4.0%
- ----------------------------------------------------------------------------------------------------------------
General Electric Capital $7,727,273 7.7% $9,272,727 7.7% 4.0%
Corporation
- ----------------------------------------------------------------------------------------------------------------
Merita Bank Ltd. $6,818,182 6.8% $8,181,818 6.8% 3.3%
- ----------------------------------------------------------------------------------------------------------------
Royal Bank of Canada $6,818,182 6.8% $8,181 818 6.8% 3.3%
- ----------------------------------------------------------------------------------------------------------------
The Sakura Bank, Limited $6,818,182 6.8% $8,181 818 6.8% 2.7%
- ----------------------------------------------------------------------------------------------------------------
Southern Pacific Bank $6,818,182 6.8% $8,181,818 6.8% 2.7%
- ----------------------------------------------------------------------------------------------------------------
Wells Fargo Bank $6,818,182 6.8% $8,181,818 6.8% 3.3%
- ----------------------------------------------------------------------------------------------------------------
BankBoston, N.A. $3,636,364 3.6% $4,363,636 3.6% 2.4%
- ----------------------------------------------------------------------------------------------------------------
C1BC Inc. $3,636,364 3.6% $4,363,636 3.6% 1.5%
- ----------------------------------------------------------------------------------------------------------------
City National Bank $3,636,364 3.6% $4,363,636 3.6% 1.5%
- ----------------------------------------------------------------------------------------------------------------
Comerica Bank $3,636,364 3.6% $4,363,636 3.6% 1.5%
- ----------------------------------------------------------------------------------------------------------------
Commerzbank AG $3,636,364 3.6% $4,363,636 3.6% 2.2%
- ----------------------------------------------------------------------------------------------------------------
Credit Agricole Indosuez $3,636,364 3.6% $4,383,636 3.6% 2.2%
- ----------------------------------------------------------------------------------------------------------------
Creditanstalt Corporate Finance, $3,636,364 3.6% $4,363,636 3.6% 1.5%
Inc.
- ----------------------------------------------------------------------------------------------------------------
National Bank of Canada $3,636,364 3.6% $4,363,636 3.6% 1.5%
- ----------------------------------------------------------------------------------------------------------------
Sanwa Business Credit $3,636,364 3.6% $4,363,636 3.6% 1.5%
Corporation
- ----------------------------------------------------------------------------------------------------------------
Skandinaviska Enskilda Banken, $3,636,364 3.6% $4,363,636 3.6% 2.0%
New York Branch
- ----------------------------------------------------------------------------------------------------------------
Summit Bank $3,636,364 3.6% $4,363,636 3.6% 1.5%
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
SCHEDULE 4.1C
Corporate and Capital Structure; Ownership
<TABLE>
<CAPTION>
Company Ownership/1/
- ---------------------------------------------------------- --------------------------------------------
<S> <C>
Sealy Corporation Bain Funds (49%)/2/
Sealy Investors LLC (17%)
Harvard Private Capital Holdings, Inc.(l 9%)
ZelUChilmark Fund, L.P. (14%)
Sealy Mattress Company Sealy Corporation
The Sealy Mattress Company of Puerto Rico Sealy Mattress Company
Ohio-Sealy Mattress Manufacturing Co., Inc. - Randolph Sealy Mattress Company
Ohio-Sealy Mattress Manufacturing Co. -- Fort Worth Sealy Mattress Company
Ohio-Sealy Mattress Manufacturing Co. Sealy Mattress Company
Ohio-Sealy Mattress Manufacturing Co. -- Houston Sealy Mattress Company
Sealy Mattress Company of Michigan, Inc. Sealy Mattress Company
Sealy Mattress Company of S.W. Virginia Sealy Mattress Company
Sealy Connecticut, Inc. Sealy Mattress Company
Sealy Mattress Company of Kansas City, Inc. Sealy Mattress Company
Sealy of Maryland and Virginia, Inc. Sealy Mattress Company
Sealy Mattress Company of Illinois Sealy Mattress Company
A. Brandwein & Company Sealy Mattress Company of Illinois
Sealy Mattress Company of Albany, Inc. Sealy Mattress Company
Sealy of Minnesota, Inc. Sealy Mattress Company
Sealy Mattress Company of Memphis Sealy Mattress Company
The Ohio Mattress Company Licensing and Components Group Sealy Mattress Company
</TABLE>
1. The stock records of the Subsidiaries are incomplete. During the decade or
more that Holdings has owned the Subsidiaries, however, to the knowledge of
Holdings, no third party has made any claim with respect to its ownership of
stock of any of the Subsidiaries.
2. The percentage ownership of Sealy Corporation are rough estimates.
4
<PAGE>
<TABLE>
<CAPTION>
Company Ownership
- --------------------------------------------------- -------------------------------------
<S> <C>
Sealy Mattress Manufacturing Company, Inc. Ohio Mattress Company Licensing and
Components Group
Sealy Canada, Ltd. Ohio Mattress Company Licensing and
Components Group
Gestion Centurion, Inc. Sealy Canada, Ltd.
Sealy Descanso S.A. Ohio Mattress Company Licensing and
Components Group
Sealy, Inc. Sealy Mattress Company
Sealy Mattress Company Mexico S. de R.L. de C.V. Sealy, Inc./3/
The Stearns & Foster Bedding Company Sealy Mattress Company
The Stearns & Foster Upholstery Furniture Company The Stearns &: Foster Bedding Company
Advanced Sleep Products Sealy Mattress Company
Sealy Components - Pads, Inc. Sealy Mattress Company
Sealy Mattress Company of San Diego Sealy Mattress Company
</TABLE>
3. 999 shares held by Sealy Inc.; 1 share by the Ohio Mattress Licensing and
Components Group.
5
<PAGE>
SCHEDULE 4.11
Closing Date Mortgaged Properties
THE STEARNS & FOSTER BEDDING COMPANY
- ------------------------------------
4802 West Van Buren Street
Phoenix, AZ 85043
1705 Rockdale Ind. Blvd.
Conyers, GA 30207
SEALY MATTRESS COMPANY
- ----------------------
1070 Lake Road
Medina, OH 44258
THE SEALY MATTRESS COMPANY OF PUERTO RICO
- -----------------------------------------
El Comandante Industrial Center
#1 San Marcos
Carolina, Puerto Rico 00982
OHIO-SEALY MATTRESS MANUFACTURING CO., INC.- RANDOLPH
- -----------------------------------------------------
671 North Street One Posturepedic Drive
Randolph, MA 02368
OHIO-SEALY MATTRESS MANUFACTURING CO., INC. -- FORT WORTH
- ---------------------------------------------------------
6550 Wuliger Way North
Richland Hills, TX 76180
OHIO-SEALY MATTRESS MANUFACTURING CO., INC. - HOUSTON
- -----------------------------------------------------
Highway Loop 290
Brenham, TX 77833
SEALY MATTRESS COMPANY OF CONNECTICUT. INC.
- -------------------------------------------
100 Canal Street
Putnam, CT. 06260
SEALY MATTRESS COMPANY OF ALBANY, INC.
- --------------------------------------
99 Railroad Avenue
Albany, NY 12205
SEALY OF MINNESOTA. INC.
- ------------------------
825 Transfer Road
St. Paul, MN. 55114
6
<PAGE>
SEALY MATTRESS COMPANY OF MEMPHIS, INC.
- ---------------------------------------
4120 Air Trans Road
Memphis, TN 38118
THE OHIO MATTRESS COMPANY LICENSING AND COMPONENTS GROUP
- --------------------------------------------------------
6275 Lake Shore Court
Colorado Springs, CO 80915
1132 North Cullen Street
Rensselaer, IN 47978
1133 North Cullen Street
Rensselaer, IN 47978
Magic Industrial Park
Delano, PA 18220
SEALY MATTRESS MANUFACTURING COMPANY, INC.
- ------------------------------------------
1130 Seventh Street
Richmond, CA 94801
4361 East Firestone Blvd.
South Gate, CA. 90280
12555 East ,9th Avenue
Denver. CO. 80239
11220 Space Blvd.
Regency Industrial Park
Orlando, FL 32821
700 South State St. at 7th Avenue
Lexington, NC 27293
13635 N. Lombard Rivergate Industrial Dis.
Portland, OR 97203
RD# I, Rt. 322
Clarion, PA. 16214
SEALY MATTRESS COMPANY OF KANSAS CITY, INC.
- -------------------------------------------
3100 Fairfax Traffic Way
Kansas City, KS 66115
7
<PAGE>
SCHEDULE 4.1K
Closing Date Environmental Report
1. 4802 West Van Buren Street
Phoenix, AZ 85043
2. 1130 Seventh Street
Richmond, CA 94801
3. 4361 East Firestone Blvd.
South Gate, CA. 90280
4. 6275 Lake Shore Court
Colorado Springs, CO 80915
5. 12555 East 39th Avenue
Denver, CO. 80239
6. 100 Canal Street
Putnam, CT. 06260
7. 11220 Space Blvd.
Regency Industrial Park
Orlando, FL 32821
8. 1705 Rockdale Ind. Blvd.
Conyers, GA 30207
9. 1030 East Fabyan Parkway
Batavia. IL
10. 1132 & 1133 North Cullen Street
Rensselaer, IN 47978
11. 3100 Fairfax Traffic Way
Kansas City, KS
12. 16114 Elliot Parkway
70-81 Industrial Park
Williamsport, MD
8
<PAGE>
13. 671 North Street
One Posturepedic Drive
Randolph, MA 02368
14. 21450 Trolley Industrial Drive
Taylor, Ml
15. 825 Transfer Road
St. Paul, MN 55114
16. 99 Railroad Avenue
Albany, NY 12205
17. 700 South State St.
at 7th Avenue
Lexington, NC 27293
18. 1070 Lake Road
Medina, OH 44258
19. 13635 N. Lombard
Rivergate Industrial Dis.
Portland, OR 97203
20. RD#I, Rt. 322
Clarion, PA. 16214
21. Magic Industrial Park
Delano, PA 18220
22. 4120 Air Trans Road
Memphis, TN 38118
23. Highway Loop 290
Brenham. TX 77833
24. 6550 Wuliger Way
North Richland Hills, TX 76180
25. 14550 112th Avenue, NW
Edmonton, Alberta, Canada
9
<PAGE>
26. 555 Rue Panneton
St. Narcisse, Quebec, Canada
27. 685 Warden Avenue
Toronto, Ontario, Canada
28. Lots 17 & 18 Exportec 11 industrial Park
Toluca, Mexico
29. El Comandante Industrial Center
# I San Marcos
Carolina, Puerto Rico 00982
10
<PAGE>
SCHEDULE 5.1
Subsidiaries
<TABLE>
<CAPTION>
SUBSIDIARY DIRECT OWNER OF SUBSIDIARY/4/ JURISDICTION OF INCORPORATION
- ------------------------------------ ---------------------------------- -----------------------------
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Sealy Mattress Company Sealy Corporation Ohio
The Sealy Mattress Company of Sealy Mattress Company Ohio
Puerto Rico
Ohio-Sealy Mattress Manufacturing Sealy Mattress Company Massachusetts
Co., Inc. - Randolph
Ohio-Sealy Mattress Manufacturing Sealy Mattress Company Texas
Co. -- Fort Worth
Ohio-Sealy Mattress Manufacturing Sealy Mattress Company Georgia
Co.
Ohio-Sealy Mattress Manufacturing Sealy Mattress Company Texas
Co. -- Houston
Sealy Mattress Company of Sealy Mattress Company Michigan
Michigan, Inc.
Sealy Mattress Company of S.W. Sealy Mattress Company Virginia
Virginia
Sealy Connecticut, Inc. Sealy Mattress Company Connecticut
Sealy Mattress Company of Kansas Sealy Mattress Company Missouri
City, Inc.
Sealy of Maryland and Virginia, Sealy Mattress Company Maryland
Inc.
Sealy Mattress Company of Illinois Sealy Mattress Company Illinois
A. Brandwein & Company Sealy Mattress Company of Illinois Illinois
Sealy Mattress Company of Sealy Mattress Company New York
Albany, Inc.
Sealy of Minnesota, Inc. Sealy Mattress Company Minnesota
</TABLE>
4. The stock records of the Subsidiaries are incomplete. During the decade or
more that Holdings has owned the Subsidiaries, however, to the knowledge of
Holdings, no third party has made any claim with respect to its ownership of
stock of any of the Subsidiaries. All ownership interests are 100%, except as
indicated.
11
<PAGE>
<TABLE>
<CAPTION>
SUBSIDIARY DIRECT OWNER OF SUBSIDIARY JURISDICTION OF INCORPORATION
- ----------------------------------------------------------------- -----------------------------
<S> <C> <C>
Sealy Mattress Company of Sealy Mattress Company Tennessee
Memphis
The Ohio Mattress Company Sealy Mattress Company Delaware
Licensing and Components Group
Sealy Mattress Manufacturing Ohio Mattress Company Licensing Delaware
Sealy Mattress Manufacturing Ohio Mattress Company Licensing Delaware
Company, Inc. and Components
Group
Sealy Canada, Ltd. Ohio Mattress Company Alberta
Licensing
and Components Group
Gestion Centurion, Inc. Sealy Canada, Ltd. Quebec
Sealy Descanso S.A. Ohio Mattress Company Spain
Licensing
and Components Group
Sealy, Inc. Sealy Mattress Company Ohio
Sealy Mattress Company Mexico S. Sealy, Inc. Mexico
de R.L. de C.V.
The Stearns & Foster Bedding Sealy Mattress Company Delaware
Company
The Stearns &: Foster Upholstery The Stearns & Foster Bedding Ohio
Furniture Company Company
Advanced Sleep Products Sealy Mattress Company California
Sealy Components - Pads. Inc. Sealy Mattress Company Delaware
Sealy Mattress Company of San Sealy Mattress Company California
Diego
</TABLE>
- -------------
/5/ 999 shares held by Sealy Inc.; I share by The Ohio Mattress Licensing and
Components Group.
12
<PAGE>
SCHEDULE 5.5
Real Property
COMPANY LOCATION LEASED/OWNED TENANT/LANDLORD
- ------------------------------------------------------------------------------
SEALY, INC.
- ------------
International Home Leased Tenant
Furnishings Center
High Point, NC 27261
10th Floor/4th Floor, Halle Bldg. Leased Tenant
1228 Euclid Avenue
Cleveland, OH 44115
12th Floor Storage, Halle Bldg. Leased Tenant
1228 Euclid Avenue
Cleveland, OH 44115
17500 Engle Lake Dr. Leased Tenant
Middleburg Hts., OH 44130
17520 Engle Lake Dr. Leased Tenant
Middleburg Hts., OH 44190
THE STEARNS & FOSTER BEDDING COMPANY
- -------------------------------------
4802 West Van Buren Street Owned
Phoenix, AZ 85043
1705 Rockdale Ind. Blvd. Owned
Conyers, GA 30207
1030 Fabyan Parkway Leased Tenant (with
Batavia. IL 60510 100,000 square
feet subleased to
Legget & Platt)
ADVANCED SLEEP PRODUCTS
- ------------------------
1261 Industrial Parkway North Leased Tenant
Brunswick, OH 44212
SEALY MATTRESS COMPANY
- ----------------------
1070 Lake Road Owned Leased Tenant
Medina, OH 44258
18-22 Main Street Extension Tenant
Plymouth, MA
4100 Spring Valley Rd. Leased
Suite 800
Dallas, TX 75244
13
<PAGE>
COMPANY LOCATION LEASED/OWNED TENANT/LANDLORD
- -----------------------------------------------------------------------------
SEALY MATTRESS COMPANY
- ----------------------
48 South Service Road Leased Tenant
Melville, NY 11747
200 CenterPort Drive Leased Tenant
Greensboro, NC 27409
THE SEALY MATTRESS COMPANY OF PUERTO RICO
- -----------------------------------------
El Comandante Industrial Center Owned
# 1 San Marcos
Carolina, Puerto Rico 00982
OHIO-SEALY MATTRESS MANUFACTURING CO., INC. - RANDOLPH
- -------------------------------------------------------
One Posturepedic Drive Owned
Randolph, MA 02368
OHIO-SEALY MATTRESS MANUFACTURING CO., INC. -- FORT WORTH
- ---------------------------------------------------------
6550 Wuliger Way Owned
North Richland Hills, TX 76180
6400-J Wuliger Way Leased Tenant
North Richland Hills, TX 76180
OHIO-SEALY MATTRESS MANUFACTURING CO.. INC.-- HOUSTON
- ------------------------------------------------------
Highway Loop 290 Owned
Brenham, TX 77833
13111 Westheimer Suite 118 Leased Tenant
Houston, TX 77077
SEALY MATTRESS COMPANY OF MICHIGAN. INC.
- -----------------------------------------
21450 Trolley Industrial Drive Leased Tenant
Taylor, MI 48180
SEALY MATTRESS COMPANY OF CONNECTICUT' INC.
- --------------------------------------------
25 Hillside Avenue Owned Leased to private
Oakville, CT 06779 family
31 Hillside Avenue Owned Leased to private
Oakville, CT 06779 family
I 00 Canal Street Owned Leased to Nutmeg
Putnam, CT 06260 Realty Co.
SEALY MATTRESS COMPANY OF KANSAS CITY, INC.
- --------------------------------------------
3100 Fairfax Traffic Way Leased Tenant
Kansas City, KS 66115
14
<PAGE>
COMPANY LOCATION LEASED/OWNED TENANT/LANDLORD
- ------------------------------------------------------------------------------
SEALY OF MARYLAND AND VIRGINIA, INC.
- ------------------------------------
70-81 Industrial Park Leased Tenant
Williamsport, MD 21795
11606 Greencastle Pike Leased Tenant
Hagerstown, MD 21740
16121 Business Parkway Leased Tenant
Hagerstown, MD 21740
Topflight Air Park Leased Tenant
18450 Showalter Rd.
Hagerstown, MD 21740
SEALY MATTRESS COMPANY OF ILLINOIS
- -----------------------------------
1130 Lake Cook Rd. #170 Leased Tenant
Buffalo Grove, IL 60089
SEALY MATTRESS COMPANY OF ALBANY. INC.
- --------------------------------------
99 Railroad Avenue Owned
(Railroad Avenue & Brown Road)
Albany, NY 12205
45 Railroad Avenue Leased Tenant
Colonie, NY
SEALY OF MINNESOTA, INC.
- ---------------------------
825 Transfer Road Owned
St. Paul, MN 55114
SEALY MATTRESS COMPANY OF MEMPHIS
- ---------------------------------
4120 Air Trans Road Owned
Memphis, TN 38118
4401 N. Roman Street Leased Tenant
New Orleans, La
THE OHIO MATTRESS COMPANY LICENSING AND COMPONENTS GROUP
- --------------------------------------------------------
6275 Lake Shore Court Owned
Colorado Springs, CO 80915
Vapor Trail Bldg. Leased Tenant
Colorado Springs, CO 80915
525 West Monroe Leased Assigned to
Chicago, IL 60606 Katten,
Muchin & Zavis
15
<PAGE>
COMPANY LOCATION LEASED/OWNED TENANT/LANDLORD
- ------------------------------------------------------------------------------
111 N. Canal Street Leased Tenant
Chicago, IL 60606
1132 North Cullen Street Owned
Rensselaer, IN 47978
1133 North Cullen Street Owned
Rensselaer, IN 47978
Magic Industrial Park Owned
Delano, PA 18220
Rt. 54 & 309 Leased Tenant
Hometown, PA
SEALY MATTRESS MANUFACTURING COMPANY, INC.
1130 7th Street Owned
Richmond, CA 94801
4361 East Firestone Blvd. Owned
South Gate, CA 90280
12555 East 39th Avenue Owned
Denver, CO 80239
11220 Space Blvd. Owned
Regency Industrial Park
Orlando, FL 32821
1440 Central Florida Parkway Leased Tenant
Orlando, FL 32821
700 S. State St. Owned
at 7th Avenue
Lexington, NC 27293
3 East First Street Leased Tenant
Lexington, NC 27293
Industrial Drive Leased Tenant
Welcome, NC
8th Ave./State Street Leased Tenant
Lexington
13635 N. Lombard Owned
Rivergate Industrial Dis.
Portland, OR 97203
(U.S. Route 322 & Owned
Washington Avenue)
R.D. #I Rte. 322
Clarion, PA 16214
16
<PAGE>
COMPANY LOCATION LEASED/OWNED TENANT/LANDLORD
- ------------------------------------------------------------------------------
R.D. #1, Rt. 32 Leased Tenant
Clarion, PA 16214
San Francisco Mart Leased Tenant
San Francisco, CA
17291 Irvine Road Leased Tenant
Tustin, CA 92680
1930 E. Mariton Pike Leased Tenant
Cherry Hill, NJ
SEALY CANADA, LTD.
- ------------------
685 Warden Avenue Leased Tenant
Scarborough, Ontario M I L 3Z5
1 4550 11 2th Avenue Owned
Edmonton, Alberta TSM 2VI
431 Thames Avenue Leased Tenant
Winnipeg, Manitoba
14550-112 Ave. Leased Tenant
Edmonton, Alberta TSM 2V 1
SEALY MATTRESS COMPANY (MEXICO)
- -------------------------------
Lot 18 Owned
Industrial Park Exportec 11
Toulcam Mexico
17
<PAGE>
SCHEDULE 5.12
Certain Fees
1. Approximately $5,600,000 fee to Merrill Lynch for representation in the
sale of Holdings.
2. Approximately $250,000 fee to NationsBanc Montgomery Securities, Inc. for
warrant valuation.
3. Approximately $251,550 fee to ABN Ambro for warrant valuation.
4. Approximately $3,663,830 in payments made to certain employees as a result
of the change in control caused by the Recapitalization Transactions.
18
<PAGE>
SCHEDULE 5.13
Environmental Matters
South Brunswick. NJ. A Holdings subsidiary is the former owner of a
- -------------------
commercial/industrial facility in Monmouth Junction (South Brunswick Township),
New Jersey ("Property"). Prior to 1953, the Property was used as a horse farm.
In 1953, the original portion of the current main building was constructed and
thereafter operated until 1979 by Stop-Fire, Inc., a fire extinguisher
manufacturer. The Property was purchased in 1979 by The Stearns & Foster Bedding
Company (which was acquired by Holdings in 1983) and the Property was used as a
mattress assembly facility until 1991. After being vacant for four (4) years,
Holdings reopened the Property as a mattress pad manufacturing facility in 1995.
In 1997, Holdings sold the business and Property to Leggett & Platt which has
continued to use the Property for pad manufacturing.
Holdings believes that operation/disposal practices by Stop-Fire at the Property
resulted in the release of volatile organic compounds to the soil and
groundwater. Solvents used to clean factory machinery and degrease fire
extinguisher casings prior to painting were reportedly disposed on-site in a
large area south of the secondary building and in the area outside the exit door
at the former paint room. Paint sludge was also reportedly disposed through a
wooded area at the Property near the large spent solvent disposal area.
Holdings's environmental consultant has indicated that spent solvents were
disposed at a rate of three to four 55 gallon drums per month over a 25 year
period.
In 1989, as the result of a leveraged buyout, a "triggering event" under New
Jersey environmental law (Environmental Cleanup Responsibility Act; "ECRA", now
known as the Industrial Site Recovery Act; "ISRA") the New Jersey Department of
Environmental Protection ("NJDEP") required Holdings to conduct certain soil and
groundwater testing activities that resulted in the discovery of volatile
organic compounds in the impacted soil disposal areas and the groundwater.
Pursuant to Administrative Consent Order ("ACO") signed by Holdings and its
subsidiary, environmental investigation and focused remediation activities have
continued at the facility through 1996.
In 1995, NJDEP approved Holdings's soil remediation plan. As of July, 1997,
Holdings completed required soil remediation at the Property. In August, 1997,
NJDEP approved Holdings's interim groundwater remediation plan involving a pilot
test program for groundwater containment and recycling of a portion of the
contaminant plume with natural attenuation of the remaining plume. Installation
of the pilot system is scheduled to begin in September, 1997 with full
implementation planned for November or December, 1997.
In January, 1997, Holdings settled a New Jersey U.S. District Court cost
recovery litigation filed in March, 1994 against former owners of the Property
and their lenders. Holdings is currently prosecuting a cost recovery action in
New Jersey state court against certain insurance companies of The Steams &
Foster Bedding Company. Holdings is also defending a declaratory judgment action
filed in Ohio state court by the same insurance companies which seeks a
determination of
19
<PAGE>
non-liability under the policies. It is conceivable that NJ DEP may seek to
intervene in the insurance cost recovery action and/or pursue a portion of the
cost recovery award Holdings obtained in early 1997.
Oakville. CT. Holdings is the owner of commercial/industrial property in
- ------------
Oakville, Connecticut at which two vacant buildings are located ("Property").
Until 1993, Holdings used one of the buildings to assemble mattresses. The other
building was used by various manufacturing companies as tenants ("Tenants")
until 1991. None of the Tenants were affiliated with Holdings. There is soil and
groundwater contamination at the Property under the Tenants' building which
Holdings believes is attributable to the Tenants' metal plating operations which
involved the use of various metals and organic chemical solvents. There is also
possible PCB and PAH soil contamination at the transformer areas and parking lot
areas of the Property resulting from historical use practices.
As owner, Holdings has developed a remediation plan for both soil and
groundwater that has been reviewed and approved by the Connecticut Department of
Environmental Protection. The plan anticipates the demolition of the Tenants'
building with the exception of the floor slab; the further delineation of
impacted areas under the floor slab; and the removal of contaminated soils and
the dewatering of areas with impacted groundwater. Demolition is scheduled for
October, 1997. Additional delineation activities are planned for early Spring,
1998.
Holdings has filed a cost recovery action in the Connecticut U.S. District Court
seeking to require the Tenants to complete the remediation and/or reimburse
Holdings for all site investigation and remedial costs.
Oakville CT. In 1993, a Holdings subsidiary was identified as a Potential
- -----------
Responsible Party ("PRP") at a municipal landfill in Naugatuck, Connecticut at
which solid, non-hazardous waste from the Oakville plant was previously
deposited. The landfill had been identified as a Superfund Site by U.S. EPA at
the time of the notice. Holdings has received no further correspondence and is
aware of no further activity on this matter since 1993.
Lockland. OH. In 1991, Holdings received notice from U.S. EPA that a landfill
- ------------
in West Chester, Ohio ("Skinner Landfill") - previously used by a textile and
upholstered furniture manufacturing company purchased by Holdings in 1983 - had
been identified as a Superfund Site. Holdings responded to U.S. EPA's CERCLA
inquiry in 1991 and advised the former seller of U.S. EPA's interest and
involvement in the Landfill. Since then, Holdings has heard nothing about this
matter from either the U.S. EPA or the seller. On September 12, 1997, Holdings,
Inc. was named as a defendant to a cost recovery action by certain Potential
Responsible Parties ("PRP's") that had, by order of the U.S. EPA, commenced
clean-up of the Skinner Landfill. Holdings intends to vigorously defend the
action.
St. Paul, MN. In 1994, a Holdings subsidiary was identified as a Potentially
- ------------
Responsible Party ("PRP") at a municipal landfill in Minneapolis, MN at which
solid, non-hazardous waste from
20
<PAGE>
the St. Paul plant was previously deposited. In 1994, the landfill was
identified as subject to the Minnesota Landfill Clean-up Act under which the
State takes responsibility for the cleanup. As part of this State program,
Holdings recently responded to an information request by the Minnesota
Department of Environmental Protection as to prior use of the landfill by
Holdings's subsidiary.
St. Paul, MN. A 1997 environmental report indicated that the Pine Bend Sanitary
- ------------
Landfill in Inver Grove Heights used by the plant in 1993 is on the Natural
Priorities List ("NPL"). The plant has confirmed that it has not used this
landfill since 1994 and has to present used scrap metal dealers as an
alternative disposal method.
Rensselaer, IN. A 1997 environmental report revealed that the Rensselaer
- --------------
facility leased by Holdings (from October, 1995 to October, 1997 when the site
was purchased by Holdings) was previously used as an amusement train
manufacturing plant from 1947 through 1957. Such activities routinely involve
hazardous materials such as paints, solvents and metal waste which may serve as
the basis for possible subsurface contamination.
Rensselaer, IN. A 1995 environmental report revealed that the Rensselaer
- --------------
facility leased by Holdings was previously used as a porcelain fixture and wood
cabinet manufacturing plant from 1954 to 1994. Such activities routinely involve
hazardous materials such as paints. solvents, acetone, toluene (and perhaps
other flammable solids) and dichloromethane, i.e., methylene chloride which may
serve as a basis for possible subsurface contamination.
Rensselaer, IN. A 1997 environmental report suggested that certain chemical
- --------------
constituents of the isocyanate and resin compounds used at the newly-purchased
plant location for the manufacture of foam encased mattress units may be present
in quantities at or above the specified reporting threshold levels in SARA Title
III (Sections 312 and 313). Purchase and production information was reviewed and
the 312/313 reporting forms for the years 1995 and 1996 as required by SARA
Title III were submitted to the appropriate agencies.
Colorado Springs, CO. A 1997 environmental report reflected the fact that the
- --------------------
Holdings property abuts railroad property used as a railcar dismantling area and
that approximately one (1) acre of the Holdings site was previously owned by the
railroad. The report noted that railcar facilities generally deal with a wide
assortment of hazardous materials and suggested the potential of railcar-related
contamination issues. The 1997 report also noted that prior to 1987, Holdings
stored incoming raw materials and waste outdoors on paved areas now used for
parking, shipping and receiving. Although no spills or releases were identified,
the report suggested the potential of subsurface contamination. Finally, the
1997 report noted the existence of oil stains on soil resulting from the past
unprotected discharge of oil from the Holdings plant air compressor. Soil
aeration on-site is being employed to address this air compressor discharge
matter.
Delano, PA. A 1993 environmental report noted that three (3) waste disposal
- ----------
facilities used by
21
<PAGE>
the Holdings plant for waste oil disposal listed on the Comprehensive
Environmental Response, Compensation and Liability Information System (CERCLIS)
database. Of these, one facility (and the then transporter utilized by the
Holdings plant) have been designated as requiring no further action. At the
second facility, an environmental investigation begun in 1986, continued in
1990, and remained ongoing in 1993. The third disposal facility underwent
initial site investigation in February, 1992. The Holdings plant no longer
utilizes any of these CERCLIS landfills and no notice of a possible recovery
action based upon past use has been received. The 1993 report also noted minor
areas of oil-stained soil which have since been addressed.
Richmond, CA. A 1997 environmental report indicated that prior to Holdings's
- ------------
purchase of the property in 1973, a variety of operations were conducted at the
plant including the manufacture of plumbing fixtures and. later, steel bath
tubs. No spills or releases were identified. A prior 1993 report also noted the
abutting property as being owned and operated by a registered hazardous waste
transfer/hazardous material handling company. Although neither the 1993 or 1997
database search revealed any documented spills or releases, the Holdings plant
manager recalls an acid release in the area in 1993 which resulted in a cloud
cast over the Holdings plant and the neighboring area. The plant manager also
recalls: (a) a mercaptan drum spill in either 1989 or 1990 which caused a strong
odor to be present for some time; and (b) a diesel fuel spill of approximately 5
gallons a few years ago from a storage tanker in the driveway of the plant. The
diesel fuel spill was immediately contained and the area cleaned by the adjacent
hazardous material handling company. The 1997 environmental report also
suggested that certain chemical constituents of the isocyanate and resin
components used at the facility for the manufacture of foam encased mattress
units may be present in quantities at or above the specified reporting threshold
levels in SARA Title III, Section 313. Purchase and production information was
reviewed and the 313 reporting forms for the years 1994, 1995 and 1996 as
required by SARA Title III were submitted to the appropriate agency.
Southgate, CA. A 1997 environmental report indicated that prior to Holdings's
- -------------
purchase of the property in 1973, the plant was owned by the Holley division of
Lear Sigler Co., which manufactured air conditioner units. A prior 1993 report
also noted that a former tenant of Holdings at the plant, Hall Metals Company,
used the leased area as an engine and scrap metal storage site. When the
business failed, Holdings evicted the tenant and cleared the leased area of the
stored engines, scrap metal and various other materials, including some
unidentified chemicals. The 1993 and 1997 reports suggested that these
historical activities could have resulted in possible subsurface contamination.
Convers, GA. The rear portion of the Holdings plant was leased to a urethane
- -----------
foam manufacturer from 1980 to 1997. A 1997 environmental report noted that the
tenants' facility was listed on the CERCLIS database and the Toxic Release
Inventory System ("TRIS") database, and that the U.S. EPA had designated the
site as requiring no further action after three (3) site assessments in 1980,
1985 and 1989. The TRIS report noted the release of dichloromethane, toluene-2,
6-diisocyanate and toluene-2, 4-diisucyanate. Recent testing by the tenant as
part of its cessation of business at the property and the termination of the
lease revealed
22
<PAGE>
no adverse environmental conditions.
Orlando, FL. A urethane foam manufacturer owns and operates the property to the
- -----------
rear of the Holdings plant. A spill in 1992 at the foam manufacturer's property
resulted in the commencement of environmental investigation under a consent
order with the Florida Department of Environmental Protection which
investigation, over the past four (4) years, has confirmed the migration of
groundwater contamination in the form of 1,1 dichloroethylene, vinyl chloride,
acetone, 2-butanone, formaldehyde, toluene and 1,2, dichlorethane under the
Holdings property. In 1997, Holdings requested the foam manufacturer to advise
Holdings of its future investigation and remediation plan before Holdings allows
continued access to Holdings's property.
Clarion, PA. A 1997 environmental report revealed that the property was owned
- -----------
and operated by a trailer and mobile home manufacturer from 1968 to 1983.
Although such an operation was noted to have likely made use of hazardous
materials, the 1997 report indicated no spills or other contamination problems.
Carolina, Puerto Rico. A 1997 environmental report revealed that of the three
- ---------------------
(3 ) buildings presently occupied by Holdings at this location, one building was
used previously as a printing shop and another was used as a machine shop and as
an office and warehouse for an air conditioner service company. The third
building had no significant prior use history. The 1997 report noted that while
these operations commonly handle hazardous materials, no report of environmental
problems were revealed by an environmental database search.
Ft. Worth, TX. A diesel fuel spill occurred on June 8, 1996 as the result of a
- -------------
vehicle accident involving a Holdings delivery truck in Longview, Texas. The
authorities were notified and the spill area cleaned. The resultant report was
submitted to Texas authorities. Holdings is awaiting a no further action letter.
Batavia, IL. A diesel fuel spill occurred on May 21, 1996 as the result of a
- -----------
vehicle accident involving a Holdings delivery truck in Sturtevant, Wisconsin.
The authorities were notified and the spill area cleaned. The resultant report
was submitted to Wisconsin authorities. A no further action letter was issued on
August 19, 1996.
Randolph, MA. A diesel fuel spill occurred on June 30, 1994 as the result of a
- ------------
fuel tank rupture at Holdings's Randolph plant. The authorities were notified
and the spill area was cleaned. A 1997 database review confirmed the matter was
closed by Massachusetts authorities.
Randolph, MA. In 1996, the asbestos containing material in the Holdings plant
- ------------
boiler room was removed as part of the boiler decommission and overflow tank
removal. Beginning June 1996 and continuing to completion in 1997, the outside
above ground 20,000 storage tank for #2 heating oil to power the boiler was
decommissioned; the 10,000 outside above ground diesel fuel tank and fuel pump
were removed: and the associated lines closed in place. Random and isolated
23
<PAGE>
oil stained areas were addressed by soil removal as part of these environmental
activities.
Kansas City, KS. A 1997 environmental report indicated the possible migration
- ---------------
of subsurface contamination from an automobile manufacturing facility one-
quarter mile north of the plant. The manufacturing site is listed on multiple
environmental databases and both soil and groundwater contamination has been
confirmed to exist at the manufacturing site at concentrations above regulatory
action levels.
Putnam, CT. Environmental reports from 1993 and 1994 revealed that the Holdings
- ----------
property in Putnam, Connecticut was used in the 1920's by a manufacturer of
fabric inserts for rubber tires and from the late 1940's to the 1970's (until
purchased by Holdings) by a safety material manufacturer, i.e., safety goggle,
glove and helmet assembly. The 1994 report noted that the use of chemicals and
the generation of wastes by the first manufacturer was unknown. The same report
also stated that while no industrial wastes were generated by the second
manufacturer, trichloroethylene was used as a degreasing solvent on site. A 1992
environmental report revealed that land adjacent to the Putnam property was used
as a steel manufacturing facility and that waste from metal working processes
and/or process wastewater of steel pickling may have discharged to the
groundwater and may potentially impact the Holdings property. A 1997
environmental report revealed no additional information regarding the site.
Phoenix, AZ. The Arizona Department of Environmental Quality (ADEQ) is
- -----------
conducting a groundwater contamination study in a roughly 45 square mile area
that includes the Holdings plant. The effort is known as the West Van Buren
Study. Several contaminated wells have been identified including one well
located approximately one-quarter mile south of the Holdings plant. Using 1994
data, the groundwater contamination plume has been identified by ADEQ on an
isoconcentration map which shows a PCE plume at the boundary line of the plant
and moving in a westerly direction under the plant site. Numerous sources of
groundwater contamination have been identified although neither Holdings nor the
plant has been listed as a contributor to the contamination. Other principal
contaminants are 1,1, DCE; TCA; TCE and their breakdown products. These
compounds are not consistent with materials used at the plant.
Woodstuff Manufacturing Oak/Pine Plants: Phoenix, AZ. In 1997, Holdings sold
- ----------------------------------------------------
the assets of its furniture manufacturing subsidiary, Woodstuff Manufacturing,
Inc., to Sammy, Inc. Holdings agreed to indemnify Sammy from:
All Losses (including reasonable legal and accounting fees, resulting from
or arising out of (1 ) limitations, reductions or other adverse changes in the
permissible level of emissions or other terms and conditions of the Original
Pine Plant Permit (as such term is defined in Section 7.3(k) above) as in effect
-------------
as of the Closing if such changes (a) result from violations of Air Quality
Regulations by the Company of the Seller prior to the Closing and (b) are
imposed in connection with the Company's original application for a Title 5
Permit for the Pine Plant or the processing thereof or any related review by the
Maricopa County Environmental Services Department of Air Pollution Control (the
"Company's Original Title 5 Application"), or (2)
24
<PAGE>
violations of Air Quality Regulations by the Company or the Seller prior to the
Closing, or government or private actions or suits alleging such violations,
which violations are alleged or asserted in connection with the Company's
Original Title 5 Application or any related review by the Maricopa County
Environmental Services Department of Air Pollution Control; provided, however,
-------- -------
that this Section 8.1 (iv) shall not cover any Losses resulting from or arising
---------------
out of any changes in the terms, application or interpretation of any Air
Quality Regulations that become effective after the Closing.
Environmental investigations and resultant reports conducted in 1997 revealed
the existence of the West Van Buren Study and the location of one contaminated
well approximately one-half mile north of the Oak plant and one mile north of
the Pine plant. Subsurface investigations at both the Pine and Oak plants did
not reveal petroleum hydrocarbons or volatile organic compounds at
concentrations above regulatory action levels.
As of the 1997 divestment, the following Hazardous Substances have been used by
or located at the Company's Oak plant: ethyl benzene; toluene; xylene; 1,1,1 -
trichloroethane (1, 1,1 TCA); freon 11 (TCFM). freon 113 (TCFE); benzene,
dibromochloromethane; and methyl tert butyl ether.
As of the 1997 divestment, the following Hazardous Substances have not, to
Holdings's knowledge, been used by or located at the Company's Oak plant:
tetrachloroethene (PCE); trichloroethene (TCE); 1,1-dichloroethane (1,1 DCA);
1,2-dichloroethane (1,2 DCA); ,1 dichloroethene (l,lI DCE); 1,2-dichloroethene
(1,2 DCE); bromodichloromethane (BDCM); carbon tetrachloride; chloroform; 1,1,2
trichloroethane (1,1,2 TCA); and vinyl chloride.
The current management of Woodstuff Manufacturing intends to file the Title V
Permit Application in early October, 1997. The State of Arizona is under no time
obligation to act upon the Application, however, the current management has
indicated that it intends to seek an expedited conclusion.
Lexinoton, NC. In 1997, Holdings conducted soil and groundwater investigation
- -------------
for petroleum hydrocarbon contamination at three (3) former UST removal areas at
the Lexington plant. Groundwater analytical data indicated contamination. Soil
analytical data revealed only one of six samples to contain total petroleum
hydrocarbons at 1500 ppm, 300 ppm in excess of the 1200 ppm State standard.
Holdings's environmental consultant concluded that this isolated reading is not
representative of a contamination problem and Holdings has requested a no
further action determination from North Carolina.
Lexington, NC. A 1997 environmental report indicated the possible migration of
- -------------
subsurface contamination from three (3) upgradient sites listed as active LUST
(Leaking Underground Storage Tank) sites with the North Carolina authorities.
Southgate, CA. In 1994, the three (3) underground storage tanks located under
- -------------
the area leased to
25
<PAGE>
a tenant of Holdings were removed. Soil contamination caused by gasoline, diesel
fuel and waste oil releases at the tank pit area was addressed by the removal of
the soil. Groundwater contamination involving the same contaminants is being
addressed first by the passive removal of free products pending approval of a
natural attenuation program by Los Angeles County.
Renssealer, IN: A 1997 environmental report notes the possible existence of a
- --------------
UST of approximately 1,000 gallons abandoned by prior owner. Possible
underground storage tank abandoned by the prior owner.
Toronto, Canada: A 1997 environmental report notes the possible existence of an
- ---------------
abandoned UST, size not specified, previously used to power the facility boiler.
Quebec, Canada: A 1997 environmental report confirms that the facility boiler
- --------------
is currently powered with heating fuel contained in existing 1,000 gallon UST.
Edmonton, Canada: A 1997 environmental report notes the possible migration of
- ----------------
subsurface contamination from two USTs (one for diesel fuel; the other for
either gasoline or lubricating oil) removed by the City of Edmonton from its
Public Works Department Facility in 1988. The report recommended that the matter
be further investigated to determine what the City of Edmonton has done since a
1990 environmental report to the City recommended further investigation at the
former UST location.
Toronto, Canada: A 1997 environmental report indicated the existence of thermal
- ---------------
system insolation at the facility which, because of its age, may be asbestos-
containing. The report recommends that an asbestos inspection be conducted.
Quebec, Canada: A 1997 environmental report indicated the existence of spray-
- --------------
applied fire proofing at the Facility which, because of its age, may be
asbestors-containing. The report recommended that an asbestos inspection be
conducted.
Matters set forth in the report titled "Environmental Review of Sealy
Corporation," prepared by ENVIRON Corporation, dated December 1997, and the
Memorandum to File from Mark Grummer, Kirkland & Ellis, Regarding "Scaly
Environmental Liabilities: Offsite and Former Facility," copies of which have
been provided to Agent, are incorporated herein by reference and are deemed set
forth on this Schedule 5.13.
26
<PAGE>
SCHEDULE 6.12
POST-CLOSING DELIVERIES
-----------------------
A. Company shall deliver, and shall cause its Subsidiaries to deliver, each of
the following items to Administrative Agent no later than 30 days after the
Closing Date, in each case in form and substance reasonably satisfactory to
Administrative Agent:
1. A Mortgage, in proper form for recording, encumbering the following Real
Property Assets:
. El Comandante Industrial Center, #1 San Marcos, Carolina, Puerto
Rico
. Additional Properties at 11220 Space Blvd., Regency Industrial
Park, Orlando, Florida
. Highway Loop 290, Brenham, Texas (satisfactory survey not yet
received)
. 100 Canal Street, Putnam, Connecticut (title being transferred to
another Subsidiary Guarantor)
2. A Closing Date Mortgage Policy for each of the Closing Date Mortgaged
Properties described in paragraph A.1 above.
3. The results of a recent search (and copies of all such filings disclosed
by such search), by a Person reasonably satisfactory to Syndication
Agent and Administrative Agent, of all effective UCC financing
statements and fixture filings and all judgment and tax lien filings
which may have been made with respect to any personal or mixed property
of the Loan Parties listed below in the jurisdictions set forth on Annex
A hereto.
4. Any UCC termination statements, duly executed by all applicable Persons
for filing in all applicable jurisdictions as may be necessary to
terminate any effective UCC financing statements or fixture filings
disclosed in any search described in paragraph A.3 above (other than any
such financing statements or fixture filings in respect of Liens
permitted to remain outstanding pursuant to the terms of this
Agreement).
5. Executed fixture filings with respect to all mixed property Collateral
of The Sealy Mattress Company of Puerto Rico, for filing in Puerto Rico.
6. Executed fixture filings with respect to all mixed property Collateral
of Sealy Mattress Manufacturing Company, Inc. at the Orlando, Florida
additional
27
<PAGE>
properties described in paragraph A.1 above, for filing in Orange
County, Florida.
B. Company shall use, and shall cause its Subsidiaries to use, commercially
reasonable efforts to deliver each of the following items to Administrative
Agent no later than 30 days after the Closing Date, in each case in form
and substance reasonably satisfactory to Administrative Agent:
1. At least one original of a memorandum of lease for the property at 3100
Fairfax Traffic Way, Kansas City, Kansas, in a form acceptable for
recording in the applicable jurisdiction.
2. A Mortgage, in proper form for recording, encumbering the leasehold
Closing Date Mortgaged Property described in paragraph B.1 above.
3. A Closing Date Mortgage Policy containing a survey exception in the form
set forth in the Global Title Letter for the Closing Date Mortgaged
Property described in paragraph B.2 above.
4. A Collateral Access Agreement with respect to the properties at
Industrial Drive, Welcome, North Carolina.
Notwithstanding the foregoing, if Company fails to deliver any of the
foregoing items to Administrative Agent within such 30 day period,
Administrative Agent may (but shall not be obligated to) (i) consent to an
additional period of time for such delivery, in the case of failure to
deliver an item described in any of paragraphs A.1 through A.6, or (ii)
consent to an additional period of time for such delivery or waive the
delivery requirement as set forth in this Schedule, in the case of failure
to deliver an item described in any of paragraphs B.1 through B.4.
C. In the event that Company and its Subsidiaries shall fail to sell the 31
Hillside Avenue, Oakville, Connecticut property to a third party by
November 30, 1998, Company shall no later than December 1, 1998 deliver, or
shall cause its applicable Subsidiary to deliver, each of the items set
forth in subsection 6.9 of the Credit Agreement with respect to such
properties as if they were an Additional Mortgaged Properties as defined in
such subsection.
D. Company shall, and shall cause its Subsidiaries to, use commercially
reasonable efforts to commence and consummate such corporate and other
proceedings as Company and its counsel shall determine to be advisable to
ratify the issuances of outstanding capital stock of Company and its
Subsidiaries as set forth in the applicable Schedules to the Holdings
Pledge Agreement, the Company Pledge Agreement and the Subsidiary Pledge
Agreement.
28
<PAGE>
ENTITIES & JURISDICTIONS
NOT SEARCHED
Sealy of Maryland and Virginia Inc.
- -----------------------------------
State of Delaware State of Virginia
Independent City of Richmond
Ohio Sealy Mattress Manufacturing Co. Inc.
- ------------------------------------------
State of Connecticut
The Stearns & Foster Beddine Company
- ------------------------------------
DeKalb County, Georgia
Hall County, Georgia
Richmond County, Georgia
Dougherty County, Georgia
Chatham County, Georgia
Fulton County, Georgia
State of Florida
State of Alabama
State of Tennessee
Sealy Mattress Manufacturing Company, Inc.
- ------------------------------------------
Mecklenburg County, North Carolina
Forsyth County, North Carolina
New Hanover County, North Carolina
State of South Carolina
State of Virginia
Independent City of Chesapeake
State of Florida
State of Hawaii
State of Washington
State of Utah
Sealy Mattress Company of Kansas City. Inc.
- -------------------------------------------
State of Missouri
Independent City of St. Louis
Ohio-Sealy Mattress Manufacturing Co. - Fort Worth
- --------------------------------------------------
State of Louisiana
- -------------------------------
/6/ Clerk's Cooperative was searched. No records found.
29
<PAGE>
Sealy Mattress Company of Memphis
- ---------------------------------
State of Mississippi
Madison County, Mississippi
State of Alabama
State of Arkansas Pulaski County, Arkansas
Jefferson County, Arkansas
State of Florida
State of Kentucky
30
<PAGE>
SCHEDULE 7.1(V)
Existing Foreign Subsidiary Intercompany Indebtedness
None
31
<PAGE>
SCHEDULE 7.1(XV)
Certain Existing Indebtedness
1. Note by The Sealy Mattress Company Licensing and Components Group payable
to Jose Ades Tawil, a former licensee, with an outstanding principal
balance of $1,200,000.
2. Note from The Sealy Mattress Company of Puerto Rico to Sealy Corporation
with an outstanding principal balance of $2,500,000.
3. Letters of Credit issued by Banque Paribas for Sealy Corporation:
BENEFICIARY LC NUMBER AMOUNT EFFECTIVE DATE MATURITY TRUE
- --------------- --------- -------------- -------------- -------- -------
- -----------------------------------------------------------------------------
Lumbermen's 21365/93 $ 426,994.00 517/93 5/6/98 Standby
Mutual
- -----------------------------------------------------------------------------
Hartford Fire 21369/93 $54,739,577.00 6/1/93 6/2/98 Standby
Insurance
- -----------------------------------------------------------------------------
Hartford Fire 21375/94 $ 3,360,423.00 8/18/94 8/19/98 Standby
Insurance
- -----------------------------------------------------------------------------
Transconti 21404/96 $ 382,000.00 9/20/96 9/19/98 Standby
nental Tech.
- -----------------------------------------------------------------------------
Continental 21405/96 $ 2,831,000.00 9/20/96 9/19/98 Standby
Casualty
- -----------------------------------------------------------------------------
32
<PAGE>
SCHEDULE 7.3(VII)
Certain Existing Investments
OWNER INVESTMENT
- --------------------------- --------------------------------------------
Gestion Centurion, Inc. One-third ownership of outstanding
stock of Alpha Springs, Ltd.
The Ohio Mattress Company 14 shares of Southwest Ohio Water
Class "A" common stock
Sealy, Inc. Ownership of personal residences in
connection with corporate relocation program
33
<PAGE>
SCHEDULE 7.3(XIII)
Existing Foreign Subsidiary Capital Contributions
CONTRIBUTOR AMOUNT FOREIGN SUBSIDIARY
- --------------------------------- ----------- ------------------
The Ohio Mattress Company $31,000,000 Sealy Canada, Ltd.
Licensing and Components Group
34
<PAGE>
SCHEDULE 7.3(XVIII)
Certain Proposed Investments
1. The Ohio Mattress Company Licensing and Components Group and Kurlon Limited
executed a letter of intent dated October 20, 1997 for a joint venture in India
to produce and market inner-spring mattresses under the Sealy brand name.
35
<PAGE>
SCHEDULE 7.4
Certain Existing Contingent Obligations
None
36
<PAGE>
SCHEDULE 7.9
Sale-Leaseback Transactions
Proposed relocation of certain of Sealy Mattress Company's assets may involve
the purchase of an existing facility, with the subsequent sale and leaseback of
the same facility.
37
<PAGE>
EXHIBIT 10.51
PURCHASE AGREEMENT
(Commercial Property)
THIS AGREEMENT, dated JANUARY 1, 1998 , between
--------------------------------
HOLLINGSWORTH AND STOUT ENTERPRISES, LLC ,(the
- ------------------------------------------------------------------------
"Seller"), whose address is 1 OFFICE PARKWAY, TRINITY, NC 27370
--------------------------------------------
and SEALY, INC.
- ------ --------------------------------------------------------------
,(the "Buyer"), whose address is C/O KEZIAH, GATES & SAMET,
- ---- --------------------------
POST OFFICE BOX 2608, HIGH POINT, NC 27261;
- -------------------------------------------
WITNESSETH THAT:
WHEREAS, Seller is the owner in fee simple of certain real property known as
DAR/RAN PLANT AND OFFICES, 1 OFFICE PARKWAY, TRINITY, North Carolina (the
- ------------------------------------------- -------
"Land") CONSISTING OF APPROXIMATELY 68.51 ACRES, and more particularly described
in A SURVEY PREPARED BY MARK TERRY & ASSOCIATES DATED FEBRUARY 4, 1994,
DESIGNATED JOB NO. 3585-51-02 AND IN A DEED RECORDED AT DEED BOOK 1390, PAGE 606
IN THE OFFICE OF THE REGISTER OF DEEDS FOR RANDOLPH COUNTY, NORTH CAROLINA ,
WHICH IS INCORPORATED BY REFERENCE IN THIS AGREEMENT. Seller has agreed to sell
and Buyer has agreed to purchase the Land, the improvements located on the Land,
WHICH IMPROVEMENTS CONSIST OF A MANUFACTURING PLANT CONTAINING APPROXIMATELY
165,240 SQUARE FEET AND AN OFFICE BUILDING CONTAINING APPROXIMATELY 28,450
SQUARE FEET, and certain other property upon the terms and conditions stated in
this agreement.
NOW, THEREFORE, in consideration of their mutual promises contained in this
agreement, the parties agree as follows:
PURCHASE AND SALE. Seller agrees to sell to Buyer and Buyer agrees to
purchase, upon the terms and conditions stated in this agreement, the following
(collectively, the "Property"):
a. the Land;
b. all buildings or other improvements located on the Land (the "Improvements)";
c. all personal property owned by Seller and located on and used in connection
with the operation of the buildings on the Land, including but not limited to
all apparatus, machinery, equipment, motors, elevators, fittings, radiators,
built-in appliances, signs, awnings, shades, screens, blinds, carpeting, and all
plumbing, heating, lighting, ventilating, air conditioning and sprinkler
equipment USED IN CONNECTION WITH THE OPERATION OF THE IMPROVEMENTS, whether or
not attached to the Land and improvements, AND SPECIFICALLY INCLUDING ALL
EXISTING ELECTRICAL PANELS, BUS DUCTS AND WIRING WHICH HAVE BEEN INSTALLED TO
PROVIDE POWER TO SELLER'S MANUFACTURING EQUIPMENT AND MACHINERY (the "Personal
Property"), BUT EXCLUDING SELLER'S FURNITURE MANUFACTURING MACHINERY AND
---------
EQUIPMENT;
d. all right, title and interest of Seller in and to any right of access,
street, roadway or alley abutting or adjoining the Land; and
e. all other rights, permits (including without limitation all density,
watershed and other development rights or permits), privileges, appurtenances,
easements and rights of way owned by the Seller and appurtenant to or used in
connection with the Land, the Improvements or the Personal Property.
2. PURCHASE PRICE. The Purchase Price for the Property is
$8,250,000.00.
- -------------
The Purchase Price is payable as follows:
2.1 DEPOSIT.
a. Buyer has paid to SELLER the sum of $25,000.00 (the "Deposit"),
----------
to be held in escrow and applied in accordance with the terms of this
agreement.
b. The Deposit shall be applied as a credit against the Purchase Price at
Closing.
c. If this transaction does not close, the Deposit will be applied as
provided in Paragraph 12.
2.2 BALANCE OF PURCHASE PRICE. Buyer will pay the balance of the Purchase
Price, after crediting the Deposit and subject to all adjustments and prorations
provided for in this Agreement, to Seller at Closing as provided in Section
11.3.
3. ACCEPTANCE BY SELLER. This Agreement shall be void unless Seller delivers to
Buyer a duplicate original counterpart of this Agreement, properly executed by
Seller, at or prior to 5:00 p.m. on JANUARY 9, 1998.
---------------
4. INVESTIGATIONS BY BUYER.
4.1 RIGHT OF ENTRY. Seller grants to Buyer and Buyer's agents,
representatives, or designees, the right to enter upon the Property, at any time
this agreement is in force, to inspect, examine, survey and test the Property as
Buyer deems necessary or desirable, including without limitation, environmental
studies and soils tests. Buyer agrees (i) to repair any damages to the Property
resulting from, and restore the Property as nearly as possible to its condition
prior, to Buyer's tests and inspections; and (ii) to defend, indemnify and hold
harmless Seller from and against any claim, damage or liability incurred by or
asserted against the Seller as a result of such activities on the Property
pursuant to this Section.
4.2 INVESTIGATION PERIOD. During the period (the "Investigation Period")
beginning on the date upon which this agreement has been executed by both
parties and a fully executed original counterpart returned to Buyer (the
"Effective Date") and ending at 4:00 p.m. on the day which is 60 days
--
after the Effective Date, Buyer may seek commitments for financing satisfactory
to Buyer, and may conduct such tests, studies and analyses as Buyer deems
necessary or desirable in order to determine, in Buyer's sole discretion,
whether the Property is suitable for Buyer's intended use of the Property (the
"Intended Use") as A BEDDING MANUFACTURING PLANT AND OFFICE BUILDING and
-------------------------------------------------
otherwise satisfactory to Buyer. Buyer shall have the right to review and
inspect all leases, contracts, or other agreements affecting or relating to the
Property, and all pertinent records of Seller relating to the operation or
maintenance of the Property.
4.3 BUYER'S TERMINATION RIGHT. If, at any time prior to the close of the
Investigation Period, Buyer, in Buyer's sole discretion, determines that
satisfactory financing cannot be obtained or that the Property is unsuitable for
Buyer's Intended Use, Buyer, by giving notice to Seller at any time prior to the
Investigation Period, may elect to terminate this agreement, in which case the
Seller will immediately disburse the Deposit as provided in Paragraph 12.1, and
this agreement will terminate.
4.4 AS-IS SALE. Except as expressly otherwise provided in this agreement,
Seller expressly disclaims any and all warranties, express or implied, of any
nature with respect to the condition of the Property, including without
limitation any warranties of merchantability, habitability or fitness, whether
express or implied, and whether in regard to the improvements, the personal
property or any other portion of the Property. If Buyer does not properly
terminate this agreement as provided in the preceding Section, then Buyer will
be conclusively deemed to have represented and warranted to Seller that:
a. Buyer has had full opportunity to make such investigations of the
condition of the Property as Buyer has deemed necessary; and
b. Buyer is relying solely upon such investigations and has decided to
purchase and will accept the Property in an "AS IS" condition, with no
representations or warranties, except as expressly otherwise provided for in
this agreement.
5. TITLE.
5.1 SELLER'S TITLE INFORMATION. Seller agrees to deliver to Buyer promptly
after the Effective Date copies of all deeds, title insurance policies, and
surveys relating to the Property in Seller's possession or readily available to
Seller.
5.2 TITLE. Seller must convey title to Buyer at Closing by general
warranty deed (the "Deed") in form and content satisfactory to Buyer's counsel,
conveying to Buyer good and marketable indefeasible fee simple title to the
Property, its appurtenances and improvements, insurable both as to fee and
marketability at regular rates by a national title insurance company, selected
by Buyer (the "Title Insurance Company"), without exception, other than the
Permitted Exceptions as provided for in the following Section. The title
insurance policy must provide full coverage against mechanics' or materialmen's
liens and contain such other special endorsements as Buyer may reasonably
require, including full survey coverage if Buyer obtains a Survey of the Land as
provided for in Paragraph 6.
5.3 PERMITTED EXCEPTIONS. Seller must convey title to the Property to
Buyer at Closing free and clear of all liens and encumbranc-
<PAGE>
es, subject only to the following exceptions (the "Permitted Exceptions"):
a. public utility easements (water, sewer, electric, gas and telephone) of
record in customary form to serve the Property which do not impair its use by
the Buyer for the Intended Use;
b. rights of way for public streets abutting the Land;
c. applicable zoning ordinances of the zoning jurisdiction in which the
Property is located, provided such ordinances do not prohibit or limit the use
of the Property by Buyer for the Intended Use;
d. ad valorem real property taxes on the Property for the calendar year in
which the Closing Date occurs, which taxes shall be prorated on a calendar year
basis up through the Closing Date; and
e. such other exceptions as Buyer may approve in writing, or as are added
pursuant to the provisions of the following Sections.
5.4 SPECIAL ASSESSMENTS. If, at the time of Closing, all or any part of the
Property is affected by any special assessment payable in installments, or of
which the first installment is then a charge or a lien, or has been paid, then
for the purposes of this agreement, all unpaid installments of any such
assessment, including those which are to become due and payable after the
Closing, will be conclusively deemed to be due and payable and to be liens
against the Property and must be paid by Seller at Closing.
5.5 TITLE OBJECTIONS. Buyer, at any time until one week prior to the Closing
Date, may furnish Seller a written statement of objections to the title to the
Property, if any, other than the Permitted Exceptions, which statement must be
accompanied by a copy of Buyer's title report and any other materials disclosing
such objections to title to the Property. Except for objections arising
subsequent to the earlier of the effective date of Buyer's title report or one
week prior to the Closing Date, Buyer shall be deemed to have waived all other
objections to title which would be disclosed by an examination of title and
which Buyer has not furnished to Seller as provided in this Section, and such
objections shall be included in the Permitted Exceptions.
5.6 ADDITIONAL OBJECTIONS. Buyer may, at any time prior to the Closing,
present Seller with a further statement of objections to title to the Property,
provided, however, that any such statement of objections must be limited solely
to matters arising after the earlier of the effective date of Buyer's title
report or one week prior to the Closing Date.
5.7 SELLER'S OBLIGATIONS. Seller must pay or satisfy at or before Closing
all liens, judgements mortgages, deeds of trust or other liens or encumbrances
which can be satisfied by payment of a liquidated amount (the "Monetary
Claims"). Seller shall not be required to cure other title objections. Seller,
on or before the Closing Date, must notify Buyer of such title objections other
than Monetary Claims that Seller will not satisfy prior to or at Closing (the
"Unsatisfied Objections"). If Seller gives such notice to Buyer, then Buyer, at
Buyer's election, by notice to Seller at any time prior to the Closing, will be
entitled either to:
a. waive the Unsatisfied Objections and proceed to close the purchase of
the Property and accept the Property subject to the Unsatisfied Objections with
no reduction in the Purchase Price, in which case the Unsatisfied Objections
shall be included in the Permitted Exceptions; or
b. terminate this agreement, in which case Buyer shall be entitled to a
refund of the Deposit, as Buyer's sole remedy.
6. SURVEY.
6.1 SELLER'S SURVEY. Promptly after the Effective Date, Seller agrees to
deliver to Buyer a copy of any survey in Seller's possession or readily
available to Seller.
6.2 BUYER'S SURVEY. Buyer shall have the right to obtain a survey (the
"Survey") of the Land prepared by a land surveyor or engineer, who must be
registered and licensed in the State of North Carolina and approved by Seller in
writing prior to commencement of the survey work (the "Surveyor"), such approval
not to be unreasonably withheld or delayed, and to furnish a copy of the Survey
to Seller. The Survey must depict boundaries, easements, improvements, if any,
and rights-of-way adjoining or crossing the Property and shall contain a
computation of the acreage of the Property to the nearest one-hundredth of an
acre, certified by the Surveyor.
6.3 LEGAL DESCRIPTION. Prior to the Closing, Buyer may deliver to the
Seller for Seller's review and approval, not to be unreasonably withheld or
delayed, a copy of a legal description of the Property based upon the Survey.
Unless objected to by Seller prior to Closing, this description, together with
the Survey, will become a part of this agreement without the necessity of any
further action by either of the parties.
6.4 SURVEY OBJECTIONS. If the Survey shows any encroachment on the Land,
or that any improvement located on the Land encroaches on the land of others, or
if the Survey shows any other defect which would affect the marketability of
title to the Property, or material deviation from the boundaries as described in
the deed by which Seller acquired title, and such defect is unacceptable to
Buyer, Buyer must notify Seller of such defect within the time Buyer must give
notice of title defects pursuant to Paragraph 5, and such encroachment or defect
shall be treated in the same manner as title defects are treated under this
agreement. Buyer shall be deemed to have waived any survey defects unless Buyer
gives notice of such defects to Seller as provided in this Section, and such
defects shall be included in the Permitted Exceptions.
7. WARRANTIES AND REPRESENTATIONS OF SELLER. Seller represents, warrants and
covenants that:
a. Seller has full right, power and authority to enter into this agreement
and to consummate this transaction.
b. The execution by Seller of, and the consummation of the transaction
contemplated by, this agreement will not result in a breach of, or constitute a
default (whether immediately or after the giving of notice or lapse of any time
period) under, any indenture, agreement, instrument or obligation to which
Seller is a party or by which Seller or the Property is bound and will not
violate any order, rule or regulation of any court or any federal, state or
municipal regulatory body or agency having jurisdiction over Seller or the
Property.
c. Seller owns and will convey title to the Property at Closing in accordance
with the requirements of Paragraph 5.
d. There are no parties other than Seller in possession of any portion of the
Land or improvements as lessees, tenants at sufferance or trespassers, OTHER
THAN DAR/RAN FURNITURE INDUSTRIES, INC., WHICH TENANCY WILL BE TERMINATED AT OR
PRIOR TO CLOSING.
e. There is no action or proceeding pending, or, to the knowledge of the
Seller, threatened, against or affecting the Property, or relating to or arising
out of the ownership of the Property.
f. Seller has not received any notice of any pending or threatened eminent
domain or zoning proceeding with respect to or affecting the Property, or any
proposed change with respect to access from, or change of grade of, abutting
public streets.
g. Seller has conducted Seller's activities on the Property, and, to the
best of Seller's knowledge, all Seller's tenants and all prior occupants of the
Property have conducted their activities on the Property, in compliance with all
applicable environmental laws and regulations. To the best of Seller's
knowledge, there are no underground storage tanks, transformers or other
devices containing PCB'S, or other hazardous substances of any kind, located on
the Property (including subsurface strata and ground water beneath the
Property).
8. WARRANTIES AND REPRESENTATIONS OF BUYER. Buyer represents, warrants and
covenants that:
a. UPON AND SUBJECT TO APPROVAL BY BUYER'S BOARD OF DIRECTORS, AS PROVIDED
FOR IN SECTION 19.1, Buyer has full right, power and authority to enter into
this agreement and to consummate this transaction.
b. The execution by Buyer of, and the consummation of the transaction
contemplated by, this agreement will not result in a breach of, or constitute a
default (whether immediately or after the giving of notice or lapse of any time
period) under, any indenture, agreement, instrument or obligation to which the
Buyer is a party or by which Buyer is bound and will not violate any order, rule
or regulation of any court or any federal, state or municipal regulatory body or
agency having jurisdiction over Buyer.
9. CONDITIONS TO OBLIGATION OF BUYER.
9.1 CONDITIONS. The obligation of Buyer to close this transaction is
subject to the following conditions, any of which may be waived by Buyer at or
prior to the Closing:
a. All of the representations and warranties of Seller set forth in this
agreement must be true as of the Closing Date, as though made at that time.
b. Seller shall have delivered, performed and complied with all items and
obligations required to be delivered, performed or complied with by Seller at or
before the Closing.
c. The Property must be in the same condition as existing on the Effective
Date, in all material respects.
9.2 SELLER'S DEFAULT. If Seller fails or is unable to satisfy any of the
foregoing conditions as the result of any act or omission of Seller, such
failure shall constitute a default of Seller unless waived by Buyer and shall
entitle Buyer to exercise Buyer's remedies upon default as stated in Section
12.2.
9.3 BUYER'S ELECTION. If Seller fails or is unable to satisfy any of the
foregoing conditions and such failure is not the result of any act or omission
of Seller, Buyer, at Buyer's option, may either:
a. waive such nonperformance as Seller is unable to cure and proceed to
clo se the purchase of the Property and accept the Property subject to such
nonperformance with no reduction in the Purchase Price; or
b. terminate this agreement, in which case Buyer shall be entitled to a
refund of the Deposit, as Buyer's sole remedy.
10. CONDITIONS TO OBLIGATION OF SELLER.
10.1 CONDITIONS. The obligation of Seller to close this transaction is
subject to the following conditions, any of which may be waived by Seller at or
prior to the Closing:
a. All of the representations and warranties of Buyer set forth
2
<PAGE>
in this agreement must be true as of the Closing Date, as though made
at that time.
b. Buyer shall have delivered, performed and complied with all of the
terms and obligations required to be delivered, performed or complied with by
Buyer at or before the Closing.
10.2 BUYER'S DEFAULT. If Buyer fails or is unable to satisfy any of the
foregoing conditions, such failure shall constitute a default of Buyer unless
waived by Seller and shall entitle Seller to exercise Seller's remedies upon
default as stated in Section 12.3.
11. CLOSING.
11.1 CLOSING DATE. Closing is defined as the delivery in escrow of all
closing documents and funds to Buyer's attorney, and the subsequent recording of
the Deed. The Closing shall take place at a time and place in the City of HIGH
-------
POINT, NC set by Buyer, on or before 30 DAYS AFTER THE CLOSE OF THE
- --------- ------------------------------
INVESTIGATION PERIOD (the "Closing Date"). The Closing Date may be extended up
- --------------------
to 15 days in order to permit Seller to cure any title objections which Seller
has elected to cure; provided however, that Seller must give notice to Buyer of
such extension prior to the Closing Date.
11.2 SELLER'S CLOSING DELIVERIES. At the Closing the Seller must deliver
to the Buyer:
a. the Deed, dated as of the Closing Date, duly executed and
acknowledged by Seller, conveying title to the Property to the Buyer in
accordance with Paragraph 5, subject only to the Permitted Exceptions, and in
form and substance acceptable to counsel for Buyer;
b. if requested by Buyer, a Bill of Sale, in form and substance
satisfactory to Buyer conveying to Buyer good and marketable title, subject only
to the Permitted Exceptions, to any part of the Property which is not, in
Buyer's opinion, satisfactorily conveyed by the Deed;
c. an affidavit and indemnity agreement acceptable to the Title Insurance
Company showing that all labor and materials (other than any labor or materials
ordered by Buyer), if any, furnished to the Property within 120 days prior to
the Closing Date have been paid for and agreeing to indemnify Buyer and the
Title Insurance Company against all loss from any cause or claim arising from
any mechanics' or materialmens' liens;
d. an affidavit or qualifying statement of Seller's non-foreign status, in
form and substance satisfactory to Buyer's counsel.
e. exclusive possession of the Property, WHICH MUST BE DELIVERED IN BROOM
CLEAN CONDITION, WITH ALL PROPERTY OF SELLER (OR SELLER'S TENANT) NOT
CONSTITUTING A PART OF THE PROPERTY, AND ALL TRASH AND REFUSE, REMOVED FROM THE
PREMISES;
f. a survey affidavit satisfactory and acceptable to the Title Insurance
Company, showing no changes to the Property since the last survey; and
g. such other instruments and documents as Buyer may reasonably require to
carry out the terms of this agreement.
11.3 BUYER'S CLOSING DELIVERIES. At the Closing, Buyer must deliver to the
Seller:
a. the unpaid balance of the Purchase Price, subject to all adjustments
and prorations provided for in this Agreement, in cash or immediately available
funds; and
b. such other instruments and documents as Seller may reasonably require
to carry out the terms of this agreement.
11.4 PRORATIONS. Ad valorem real property taxes applicable to the Property
will be prorated on a calendar year basis as of the Closing Date. Any other ad
valorem taxes or interest or penalties which constitute a lien on any part of
the Property must be paid by Seller or credited to Buyer as of the date of
Closing. All rents will be adjusted and prorated as of the Closing Date.
11.5 EXPENSES. Seller will pay for preparation of the Deed, the excise tax
(documentary stamps) required by law and Seller's brokers' commissions,
attorneys' fees and any other expenses incurred by Seller. Buyer will pay
recording fees for the Deed, title examination expenses, title insurance
premiums, survey costs, the cost of the Survey, Buyer's investigations and
tests, Buyer's attorneys' fees, and any other expenses incurred by Buyer.
12. DEFAULT AND REMEDIES.
12.1 TERMINATION BY BUYER. If Buyer elects to terminate this agreement
pursuant to a right of Buyer to do so pursuant to Paragraphs 4, 5, 9, 13 or 14
of this agreement, the entire Deposit shall be refunded to Buyer, as Buyer's
sole remedy.
12.2 SELLER'S FAILURE TO CLOSE. If Seller fails to close this transaction
for any reason other than Buyer's default or an election by Buyer, pursuant to
the terms of Paragraphs 4, 5, 9, 13 or 14 of this agreement, to terminate it,
Buyer shall be entitled to an immediate refund of the Deposit, without prejudice
to any other right or remedy Buyer may have at law or in equity by reason of
Seller's failure to close, including, but not limited to, the right to recover
damages or seek specific performance, and including Buyer's reasonable
attorneys' fees and costs of litigation.
12.3 BUYER'S FAILURE TO CLOSE. If Buyer fails to close this transaction
for any reason other than Seller's default, or Buyer's election, pursuant to the
terms of Paragraphs 4, 5, 9 13 or 14 of this agreement, to terminate it, Seller,
as Seller's sole remedy, shall be entitled to terminate this agreement and
retain the Deposit as liquidated damages.
13. FIRE OR CASUALTY. The risk of loss prior to Closing shall be on the
Seller. If, prior to the Closing, all of the Property (or such portion as will
materially adversely affect Buyer's ability to use the Property for Buyer's
Intended Use) is destroyed or damaged by fire or other casualty, Buyer, at
Buyer's option may, by notice to Seller on or before the earlier of (i) the
Closing Date or (ii) the date 20 days after the date of the casualty, elect to:
a. terminate this agreement, in which case the Buyer will be entitled to a
refund of the Deposit, and this agreement will terminate; or
b. accept the Property in its damaged condition and proceed to closing, in
which case:
(1) the proceeds of all applicable insurance payable with respect to
such casualty, together with the amount of all applicable policy deductibles or
coinsurance, will be assigned or credited to Buyer at closing; and
(2) Buyer will be entitled to extend the Closing Date to allow for
appraisals of the damage and the amount of applicable insurance proceeds, policy
deductibles and coinsurance to be determined.
14. EMINENT DOMAIN.
14.1 BUYER'S RIGHT TO TERMINATE. If, prior to the Closing, all of the
Property (or such portion as will materially adversely affect Buyer's ability to
use the Property for Buyer's Intended Use) is taken or appropriated by reason of
eminent domain, or sold under threat of such taking, Buyer may terminate this
agreement by notice to Seller within 5 days after the earlier of the date on
which title passes under the taking or sale or the date on which Seller notifies
Buyer that the taking or sale will occur, in which event Buyer shall be entitled
to a refund of the Deposit and this agreement shall terminate.
14.2 NONEXERCISE OF BUYER'S TERMINATION RIGHT. If Buyer does not elect to
terminate this agreement, it shall remain in full force and effect, and:
a. Seller will convey the Property to Buyer at Closing, less any
interest or portion taken or sold as provided in the preceding Section;
b. Seller will assign or pay the proceeds of the taking or sale in lieu
thereof to Buyer at Closing; and
c. Seller will permit Buyer to participate in the condemnation
proceedings or negotiations as if Buyer were an owner of the Property.
15. NOTICES. All notices required or permitted by the terms of this agreement
shall be deemed given by personal delivery or when deposited in the United
States Registered or Certified Mail, postage prepaid, or, with verification of
delivery, by telegram, cable, telex, commercial courier or any other generally
accepted means of business communication, to either party, at their respective
addresses set forth on the signature page of this agreement. Either party may
change the address to which notices must be sent by giving notice to the other
party in accordance with this Section.
16. BROKERAGE COMMISSIONS. Each party warrants to the other that such party
has not dealt with any broker in connection with this transaction, and agrees
to indemnify and hold harmless the other party from and against any other
claims, demands or liabilities, including reasonable attorneys' fees and
expenses of litigation, arising out of any other alleged brokerage commission or
fee claimed in connection with this transaction based upon any other agreement
alleged to have been made or other action alleged to have been taken by the
indemnifying party.
17. RECORDING. Buyer and Seller agree that this instrument may not be
recorded; however, at Buyer's option, the parties will execute a Memorandum of
Agreement and Buyer, but not Seller, may record the Memorandum of Agreement at
Buyer's sole expense and discretion. Buyer agrees, upon the expiration or
termination of this agreement by Buyer, but subject to performance of Seller's
obligations upon such termination, to execute and deliver to Seller a recordable
document provided by Seller at Seller's expense in form reasonably acceptable to
Buyer evidencing such expiration or termination by Buyer, and Buyer will
indemnify and save harmless Seller from any loss or damage suffered by Seller as
a result of Buyer's failure to do so.
18. MISCELLANEOUS.
18.1 INTERPRETATION. This agreement (i) contains the entire understanding
of the parties and there are no conditions precedent to its effectiveness or
collateral understandings with respect to its subject
3
<PAGE>
matter; (ii) may not be modified except by a writing signed by both parties; and
(iii) binds the parties and their respective heirs, personal representatives,
successors and permitted assigns. Where the context requires, the singular
includes the plural and the masculine includes the feminine and the neuter.
18.2 TIME OF ESSENCE. Except as specifically otherwise provided,
time is of the essence in every particular in the performance of the
obligations of the parties under this agreement.
18.3 SURVIVAL OF WARRANTIES AND REPRESENTATIONS. All warranties and
representations contained in this agreement shall, as applica ble, survive the
Closing, the delivery of the Deed, and any investigation by Buyer.
- -------------------------------------------------------------------------------
19. ADDITIONAL PROVISIONS:
19.1 APPROVAL BY BUYER'S BOARD OF DIRECTORS. BUYER'S EXECUTION OF THIS
--------------------------------------
AGREEMENT IS SUBJECT TO APPROVAL OF BUYER'S BOARD OF DIRECTORS WITHIN 10 DAYS
AFTER THE EFFECTIVE DATE. IF BUYER FAILS TO NOTIFY SELLER OF THE APPROVAL OF
THIS AGREEMENT BY BUYER'S BOARD OF DIRECTORS WITHIN SUCH TIME, THEN THE SELLER
WILL RETURN THE DEPOSIT TO BUYER, AND THIS AGREEMENT WILL BE VOID.
19.2 ELECTION TO PURCHASE OFFICE IN FURNISHED CONDITION. BUYER, AT BUYER'S
--------------------------------------------------
OPTION, MAY ELECT TO PURCHASE THE OFFICE BUILDING IN ITS FURNISHED STATE (AS
EXISTS ON THE DATE OF THIS AGREEMENT), INCLUDING WITHOUT LIMITATION
APPROXIMATELY 5 SOFAS, 150 CHAIRS, ALL WOOD CASE GOODS SHOWN TO BUYER DURING
BUYER'S INITIAL VISUAL INSPECTION OF THE OFFICES, AND ALL WINDOW DRESSINGS,
BLINDS, SHADES AND HARDWARE, AND ALL FLOOR COVERINGS, BUT EXCLUDING ALL
REMOVABLE OPEN OFFICE SYSTEM PARTITIONS. BUYER MUST GIVE NOTICE OF SUCH ELECTION
WITHIN 10 DAYS AFTER THE CLOSE OF THE INVESTIGATION PERIOD. IF BUYER ELECTS TO
PURCHASE THE OFFICE BUILDING IN SUCH FURNISHED STATE, THE PURCHASE PRICE AS
STATED IN PARAGRAPH 2 WILL BE INCREASED TO $8,375,000.00.
19.3 CONVERSION OF HVAC SYSTEM. NOTWITHSTANDING ANYTHING TO THE CONTRARY
-------------------------
ELSEWHERE CONTAINED IN THIS AGREEMENT, SELLER WILL PAY AT CLOSING THE ESTIMATED
COST, IF ANY, TO IMPLEMENT ANY RECOMMENDATION OF BUYER'S ENGINEERS THAT BUYER
CONVERT THE EXISTING HVAC SYSTEM (WHICH BUYER HAS BEEN ADVISED UTILIZES "R-22"
REFRIGERANT) TO THE USE OF AN APPROVED REFRIGERANT WHICH WOULD NOW BE REQUIRED
FOR HVAC SYSTEMS IN CONNECTION WITH THE CONSTRUCTION OF NEW MANUFACTURING AND
OFFICE FACILITIES COMPARABLE TO THE IMPROVEMENTS. BUYER WILL NOTIFY SELLER OF
SUCH RECOMMENDATION, AND FURNISH SELLER WITH AN ESTIMATE OF THE COST OF SUCH
CONVERSION FROM A REPUTABLE HVAC CONTRACTOR DOING BUSINESS IN THE HIGH POINT
AREA PRIOR TO CLOSING.
19.4 CONFIDENTIALITY. SELLER AGREES TO KEEP IN STRICT CONFIDENCE THIS
---------------
AGREEMENT AND THE TRANSACTION CONTEMPLATED BY THIS AGREEMENT AT ALL TIMES PRIOR
TO AND AFTER THE CLOSING, UNTIL SUCH TIME AS BUYER HAS MADE A PUBLIC
ANNOUNCEMENT OF BUYER'S ACQUISITION OF THE PROPERTY. SELLER WILL NOT DISCLOSE
THE EXISTENCE OF THIS AGREEMENT, NOR ANY INFORMATION RELATING TO THE TRANSACTION
CONTEMPLATED BY THIS AGREEMENT TO ANYONE OTHER THAN SELLER'S OFFICERS AND
EMPLOYEES WHO HAVE A NEED FOR SUCH KNOWLEDGE BASED UPON THEIR DUTIES AND
RESPONSIBILITIES, SELLER'S PROFESSIONAL ADVISORS AND ANY PERSON OR AGENCY TO
WHOM DISCLOSURE IS REQUIRED BY LAW. SELLER WILL USE SELLER'S BEST EFFORTS TO
CAUSE ALL SUCH PERSONS TO MAINTAIN IN STRICT CONFIDENCE ALL SUCH INFORMATION
DISCLOSED TO THEM.
20. ADDENDA. List here any addenda that are attached to and made a part of this
agreement:
NONE.
IN WITNESS WHEREOF, the parties have executed this agreement as a sealed
instrument, as of the date first stated above.
SELLER: BUYER:
HOLLINGSWORTH AND STOUT ENTERPRISES, LLC (Seal) SEALY, INC.
By: (Seal) By:
----------------------------- -----------------------------
Member/Manager President
4
<PAGE>
AMENDMENT TO PURCHASE AGREEMENT AND ESCROW AGREEMENT
The Purchase Agreement dated January 1, 1998 between Hollingsworth & Stout
Enterprises, L.L.C. ("Seller") and Sealy, Inc. ("Buyer") as amended by Letter
Agreement dated March 9, 1998 from Seller to Buyer is hereby amended further as
follows:
1.Closing: Closing shall be held at the offices of Buyer's counsel, Gilbert
"Skipper" Gates, Esq. Keziah, Gates & Samet, L.L.P., 400 High Point
Bank Bldg., 300 North Main Street, High Point, NC 27261-2608 on
Monday, April 13, 1998 at 1:30 p.m. ("Closing Date").
2.Purchase Price and Escrow of Funds:
(a) On the Closing Date, Buyer shall cause the net amount due as noted on the
Closing Statement, said amount being sum of $8,340,395.97 to be sent by
wire transfer to the Trust Account of Buyer's Counsel using the following
wire transfer instructions: High Point Bank & Trust Company; High Point,
North Carolina - ABA No. 053100685 for credit to Keziah, Gates & Samet,
L.L.P., Real Estate Trust Account No. 040107892.
(b) Provided all obligations of Seller under the Purchase Agreement have been
satisfied by Seller as of the Closing Date, including the delivery of the
Deed to Buyer, the sum of $3,312,299.34 shall be delivered to Seller after
satisfaction of the outstanding mortgage liens on the Property and Seller
shall be entitled to possession of the $25,000 Deposit.
(c) The sum of $375,000 remaining in the Trust Account shall be trans ferred
by Buyer's counsel to an escrow account bearing interest in favor of Buyer
which sum (less interest and other deductions noted below) shall be paid
to Seller by Buyer's counsel, as escrow agent, in accordance with the
requirements noted below:
(i) On April 22, 1998, the sum of $125,000 provided:
(a) Seller and Buyer shall agree no later than April 20, 1998 either
(1) as to the office furnishings and furniture which Buyer has
agreed to buy and Seller has agreed to sell under Paragraph 19.2
of the Purchase Agreement ("Purchased Furniture") for the sum of
$125,000; or (2) as to the amount by which the $125,000 sum shall
be reduced to reflect the value of office furnishings and
furniture which Seller shall not convey to Buyer (''Purchase Sum")
in which event the amount in excess of the Purchase Sum shall be
returned to Buyer; and
(b) Seller delivers to Buyer a Bill of Sale transferring unencumbered
title to and delivers possession of the Purchased Furni ture to
Buyer.
(ii) On May 4, 1998, the sum of $125,000 provided Dar-Ran furniture and
Seller have vacated and delivered to Buyer possession of the
manufacturing building located at the Property in its entirety as of
5:00 p.m. May 3, 1998 in the condition required by Paragraph 11.2 of
the Purchase Agreement. In the event Seller fails to meet the May 3,
1998 deadline and later vacates and delivers possession of the
manufacturing building to Buyer, the sum of $125,000 due Seller
hereunder shall be reduced in accordance with Paragraph 3 below.
(iii) On May 18, 1998, the sum of $125,000 provided Dar-Ran Furniture and
Seller have vacated and delivered to Buyer possession of the office
building located at the Property in its entirety as of 5:00 p.m. May
17, 1998 in the condition required by Paragraph 11.2 of the Purchase
Agreement. In the event Seller fails to meet the May 17, 1998
deadline and later vacates and delivers possession of the existing
office building to Buyer, the sum due Seller hereunder shall be
further reduced in accordance with Paragraph 3 below.
<PAGE>
(iv) Notwithstanding the foregoing, Seller shall not be obligated to
address by clean-up or otherwise any changes to the Property or
alterations to either the manufacturing or office building caused by
Buyer's contractors.
3. Liquidated Damages. Failure of Dar-Ran Furniture and/or Seller to vacate
the manufacturing building and/or the office building by the dates and/or
and/or in the manner required by Paragraphs 2(c) (ii) and/or (iii) shall
result in Seller being liable to Buyer in the amount of $1,250 per day for
the manufacturing building and $242 per day for the office building (based
upon a lease rate of $3.00 per square foot) until possession and/or
condition of the building or buildings not so delivered is delivered to
Buyer. Such sums due to Buyer hereunder shall first be deducted from the
amounts to be paid to Seller under Paragraph 2 (c) (ii) and/or (iii) with
any balance being due and payable to Buyer within ten (10) business days
after possession and/or condition is so delivered and shall bear interest
at the rate of ten percent (10%) per annum until paid.
IN WITNESS WHEREOF, Buyer and Seller have signed this Amendment to Purchase
Agreement and Escrow Agreement as of April 13, 1998.
HOLLINGSWORTH & STOUT ENTERPRISES, SEALY, INC. ("Buyer")
L.L.C. ("Seller")
By: ____________________________ By: _____________________________
Title: _________________________ Title: __________________________
<PAGE>
EXHIBIT 12.1
Registration Under The Securities Act of 1933 Section 2500
Ratio of Earnings to Fixed Charges
Sealy Corporation
Computation of Ratio of Earnings to Fixed Charges
(dollars in thousands)
<TABLE>
<CAPTION>
Proforma
---------------
Two Ten Three
Months Months Three Months Ended Months
Ended Ended Fiscal Year -------------------- Fiscal Ended
Jan. 31, Nov. 30, ------------------------------------- Mar. 2, Mar. 1, Year Mar. 1,
1993 1993 1994 1995 1996 1997 1997 1998 1997 1998
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Pre-tax income from
continuing operations $2,637 $48,711 $56,090 $43,042 $24,773 $40,611 $ 6,352 $(18,512) $ 6,495 $(652)
Fixed charges:
Interest expense and
amortization of debt
discount and premium on
all indebtedness 6,675 31,218 33,454 31,018 28,797 31,396 10,184 15,530 63,976 16,442
Rentals-33% (b) 551 2,757 3,295 3,265 3,523 3,470 767 1,010 3,470 1,010
------- -------- -------- -------- -------- -------- ------- -------- ------- -------
Total fixed charges 7,226 33,975 36,749 34,283 32,320 34,866 10,951 16,540 67,446 17,452
------- -------- -------- -------- -------- -------- ------- -------- ------- -------
Earnings before income
taxes and fixed charges $9,863 $82,686 $92,839 $77,325 $57,093 $75,477 $17,303 $ (1,972) $73,941 $16,800
======== ========= ======== ======== ======== ========= ======== ========= ======= =======
Ratio of earnings to fixed
charges 1.4x 2.4x 2.5x 2.3x 1.8x 2.2x 1.6x (a) 1.1x 1.0x
======== ========= ======== ======== ======== ========= ======== ========= ======= =======
</TABLE>
(a) Earnings for the quarter ended March 1, 1998 were insufficient to cover
fixed charges by $18.5 million.
(b) The precent of rent included in the calculation is a reasonable
approximation of the interest factor in the Company's operating leases.
<PAGE>
EXHIBIT 23.1
The Board of Directors
Sealy Corporation:
We consent to the use of our report included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
KPMG Peat Marwick LLP
Cleveland, Ohio
June 3, 1998
