-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WNiFSFcm3cTNIyi1RN7VQvLFvkWXMw/zKh4t4xaq3zWtar4jMBUyuLik6iT+1T8S ZZ/hF7ckl+m2STRovLVhWA== 0000950130-98-000011.txt : 19980105 0000950130-98-000011.hdr.sgml : 19980105 ACCESSION NUMBER: 0000950130-98-000011 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 26 CONFORMED PERIOD OF REPORT: 19971218 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19980102 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEALY CORP CENTRAL INDEX KEY: 0000748015 STANDARD INDUSTRIAL CLASSIFICATION: HOUSEHOLD FURNITURE [2510] IRS NUMBER: 363284147 STATE OF INCORPORATION: DE FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-08738 FILM NUMBER: 98500168 BUSINESS ADDRESS: STREET 1: 520 PIKE ST CITY: SEATTLE STATE: WA ZIP: 98101 BUSINESS PHONE: 2066251233 MAIL ADDRESS: STREET 1: 10TH FLR - HALLE BLDG STREET 2: 1228 EUCLID AVE CITY: CLEVELAND STATE: OH ZIP: 44115 FORMER COMPANY: FORMER CONFORMED NAME: OHIO MATTRESS CO /DE/ DATE OF NAME CHANGE: 19900322 8-K 1 FORM 8-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ________________________ FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of report (Date of earliest event reported): December 18, 1997 ------------------------ SEALY CORPORATION - -------------------------------------------------------------------------------- (Exact Name of Registrant as Specified in Charter) Delaware 1-8738 36-3284147 - ------------------------------- ----------------------- --------------------- (State or Other Jurisdiction of (Commission File Number) (I.R.S. Employer Incorporation) Identification Number)
520 Pike Street Seattle, Washington 98101 - -------------------------------------------------------------------------------- (Address of Principal Executive Offices) (Zip code) Registrant's telephone number, including area code: (206) 625-1233 ---------------------------- - -------------------------------------------------------------------------------- (Former Name or Former Address, if Changed Since Last Report ITEM 1. CHANGES IN CONTROL OF REGISTRANT On December 18, 1997, Sealy Corporation (the "Company") 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 the Company. Pursuant to the Merger Agreement, Sandman was merged with and into the Company with the Company being the surviving corporation. Prior to the Merger, the Company converted certain of the existing common stock held by Zell into shares of the Company'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 the Company (the "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) $419.4 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 the Company. 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 the Company's existing indebtedness were funded by: (i) $450.0 million of term loan borrowings by Sealy Mattress Company, a wholly owned subsidiary of the Company ("SMC"), pursuant to the Senior Credit Agreements (as defined below); (ii) $10.0 million of revolving borrowings under the Senior Credit Agreements; (iii) the offerings (the "Offerings") of certain debt securities of SMC (the "Notes"), with aggregate gross proceeds of $200.4 million; (iv) the issuance of the Junior Subordinated Notes to Zell; (v) an equity investment in the Company by funds managed by Bain Capital, Inc., its related investors, including members of management, and other institutional investors (collectively, the "New Investors") of approximately $128.8 million and (vi) a retained equity investment in the Company by Zell with a fair value of approximately $14.3 million (such equity investment, the "Zell Equity"). As a result of the Merger, the New Investors beneficially own approximately 85.3% of the voting securities of the Company. TENDER OFFER AND CONSENT SOLICITATION On November 18, 1997, the Company 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 $197.7 million were tendered and accepted for payment and the related 2 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. SENIOR CREDIT AGREEMENTS Upon consummation of the Merger, SMC 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"). SMC distributed the proceeds of the Term Loan Facility and its initial borrowings under the Revolving Credit Facility to the Company to provide a portion of the funds necessary to consummate the Merger and related transactions. Indebtedness of SMC under the Senior Credit Agreements is secured and guaranteed by the Company and certain of SMC's current and all of SMC'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), liens and encumbrances and other matters customarily restricted in such agreements. THE NOTES Concurrently with the consummation of the Merger, SMC issued the Notes in the Offerings to the initial purchasers thereof, who resold the Notes in reliance upon Rule 144A and Regulation S under the Securities Act of 1933 (the "Securities Act"). The Notes consist of (1) $125.0 million in aggregate principal amount of 9 7/8% Senior Subordinated Notes due December 15, 2007 (the "Senior Subordinated Notes") and (ii) $128.0 million in aggregate principal amount at maturity of 10 7/8% Senior Subordinated Discount Notes due December 15, 2007 (the "Senior Subordinated Discount Notes"), yielding gross proceeds of $75.4 million. SMC's payment obligations under the Notes are jointly and severally guaranteed on a senior subordinated basis (the "Guarantees") by the Company and certain of SMC's current and all of SMC's future U.S. Subsidiaries (the "Subsidiary Guarantors" and, together with the Company, the "Guarantors"). The Notes are not guaranteed by certain other of SMC's U.S. Subsidiaries or by any of its current or future foreign Subsidiaries (the "Non-Guarantor Subsidiaries"). The Guarantees are _______________________________ /1/ "AXELs" is a registered servicemark of Goldman, Sachs & Co. 3 subordinated to the guarantees of Senior Debt issued by the Guarantors under the Senior Credit Agreements. The Notes are general, unsecured senior subordinated obligations of SMC, subordinated in right of payment to all senior debt (as defined herein) of SMC, pari passu with all future senior subordinated debt of SMC and senior in right of payment to all future subordinated debt of SMC. The claims of creditors (including trade creditors) of Non-Guarantor Subsidiaries generally have priority as to the assets of such subsidiaries over the claims of the holders of the Notes. The indenture governing the Senior Subordinated Notes and the indenture governing the Senior Subordinated Discount Notes contain certain covenants that, among other things, limit the ability of SMC and its Subsidiaries to incur additional indebtedness and issue disqualified stock, pay dividends or distributions or make investments or make certain other restricted payments, enter into certain transactions with affiliates, dispose of certain assets, incur liens and engage in mergers and consolidations. Pursuant to a Registration Rights Agreement (the "Registration Rights Agreement") among SMC, the Guarantors and the initial purchasers of the Notes, SMC and the Guarantors have agreed to file a registration statement (the "Exchange Offer Registration Statement") on the appropriate form with respect to an offer to exchange (i) the Senior Subordinated Notes for a new issue of debt securities of SMC and (ii) the Senior Subordinated Discount Notes for a new issue of debt securities of SMC, each of which will be registered under the Securities Act, with terms identical to those of the Senior Subordinated Notes and the Senior Subordinated Discount Notes, as applicable (the "Exchange Offer"). If (i) the Exchange Offer is not permitted by applicable law or (ii) any holder of Transfer Restricted Securities notifies SMC within the specified time period that (A) it alone or together with holders who hold in the aggregate at least $1.0 million in principal amount (or accreted value, as applicable) of Notes is prohibited by law or SEC policy from participating in the Exchange Offer, (B) 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) it is a broker-dealer and owns Notes acquired directly from SMC or an affiliate of SMC, SMC and the Guarantors will be required to provide a shelf registration statement to cover resales of the Notes by the holders thereof. ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS (c) Exhibits. --------- Exhibit No. Exhibit Description ----------- ------------------- 2.1 Agreement and Plan of Merger, dated as of October 30, 1997, by and among the Registrant, Sandman Merger Corporation and Zell/Chilmark Fund, L.P. 4 2.2 First Amendment to the Agreement and Plan of Merger, dated as of December 18, 1997, by and among the Registrant, Sandman Merger Corporation and Zell/Chilmark Fund, L.P. 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. 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 Discount Notes due 2007. 4.3 Second Supplemental Indenture, dated as of December 5, 1997, by and between the Registrant and The Bank of New York, as trustee. 10.1 Dealer Manager Agreement, dated as of November 18, 1997, among Sandman Merger Corporation, the Registrant and Goldman, Sachs & Co. 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. 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. 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. 5 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. 10.7 Employment Agreement, dated as of August 25, 1997, by and between Sealy Corporation and Bruce G. Barman. 10.8 Employment Agreement, dated as of August 12, 1997, by and between Sealy Corporation and Jeffrey C. Claypool. 10.9 Employment agreement, dated as of July 30, 1997, by and between Sealy Corporation and Gary T. Fazio. 10.10 Employment Agreement, dated as of August 25, 1997, by and between Sealy Corporation and Douglas E. Fellmy. 10.11 Employment Agreement, dated as of August 28, 1997, by and between Sealy Corporation and David J. McIlquham. 10.12 Employment Agreement, dated as of August 1, 1997, by and between Sealy Corporation and Lawrence J. Rogers. 10.13 Change of Control Agreement, dated as of September 3, 1997 by and between Sealy Corporation and John G. Bartik. 10.14 Change of Control Agreement, dated as of August 4, 1997, by and between Sealy Corporation and James F. Goughenour. 10.15 Change of Control Agreement, dated as of August 27, by and between Sealy Corporation and Richard F. Sowerby. 6 10.16 Change of Control Agreement, dated as of August 1, 1997, by and between Sealy Corporation and Ronald H. Stolle. 10.17 Change of Control Agreement, dated as of August 11, 1997, by and between Sealy Corporation and Kenneth L. Walker. 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 the Registrant. 10.19 Amendment to Employment Agreements, dated as of December 17, 1997, between the employees named therein and the Registrant. 10.20 Form of Amendment to Change of Control Agreements, dated as of December 17, 1997. 7 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. SEALY CORPORATION By: /s/ Kenneth L. Walker ___________________________ Kenneth L. Walker Vice President - General Counsel Date: December 30, 1997 ---------------------- 8 EXHIBIT INDEX ------------- 2.1 Agreement and Plan of Merger, dated as of October 30, 1997, by and among the Registrant, Sandman Merger Corporation and Zell/Chilmark Fund, L.P. 2.2 First Amendment to the Agreement and Plan of Merger, dated as of December 18, 1997, by and among the Registrant, Sandman Merger Corporation and Zell/Chilmark Fund, L.P. 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, describing the Series A and Series B 9-7/8% Senior Subordinated Notes due 2007 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, describing the Series A and Series B 10-7/8% Senior Subordinated Discount Notes due 2007 4.3 Second Supplemental Indenture, dated as of December 5, 1997, by and between the Registrant and The Bank of New York 10.1 Dealer Manager Agreement, dated as of November 18, 1997, among Sandman Merger Corporation, the Registrant and Goldman, Sachs & Co. 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 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 10.4 Credit Agreement 10.5 AXEL Credit Agreement 10.6 [Change of Control Agreement] EX-2.1 2 AGREEMENT AND PLAN OF MERGER EXHIBIT 2.1 ----------- Execution Copy ================================================================================ AGREEMENT AND PLAN OF MERGER Among Sealy Corporation, Sandman Merger Corporation and Zell/Chilmark Fund, L.P. October 30, 1997 ================================================================================ TABLE OF CONTENTS -----------------
Page ---- ARTICLE I DEFINITIONS........................................................................... 1 ARTICLE II THE MERGER........................................................................... 7 Section 2.01. The Merger................................................................... 7 Section 2.02. Effect of Merger.............................................................. 7 Section 2.03. Additional Actions............................................................ 7 Section 2.04. Certificate of Incorporation, By-laws, Directors and Officers of the Surviving Corporation............................................ 8 ARTICLE III CONVERSION OF COMPANY STOCK......................................................... 8 Section 3.01. Conversion of Shares.......................................................... 8 Section 3.02. Surrender of Company Share Certificates; Payment of Cash Consideration...........................................................10 Section 3.03. Stock Transfer Books..........................................................11 Section 3.04. Shares of Dissenting Stockholders.............................................11 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY........................................12 Section 4.01. Organization..................................................................12 Section 4.02. Subsidiaries..................................................................12 Section 4.03. Capitalization................................................................12 Section 4.04. Authorization.................................................................13 Section 4.05. No Violation..................................................................13 Section 4.06. Approvals.....................................................................13 Section 4.07. Periodic SEC Filings; Financial Statements....................................14 Section 4.08. Absence of Certain Transactions...............................................15 Section 4.09. Taxes.........................................................................17 Section 4.10. Litigation....................................................................19 Section 4.11. Environmental Matters.........................................................20 Section 4.12. Real Property.................................................................21 Section 4.13. Personal Property.............................................................22 Section 4.14. Contracts.....................................................................22 Section 4.15. Employee and Labor Matters and Plans..........................................23 Section 4.16. Insurance Policies............................................................24 Section 4.17. Intellectual Properties.......................................................25 Section 4.18. Permits.......................................................................26 Section 4.19. Compliance with Laws..........................................................26 Section 4.20. Brokerage Fees................................................................26 ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER.....................................27 Section 5.01. Authorization.................................................................27 Section 5.02. No Violation..................................................................27
i Section 5.03. Approvals.....................................................................27 Section 5.04. Ownership of Owned Shares.....................................................27 ARTICLE VI REPRESENTATIONS AND WARRANTIES OF PURCHASER..........................................28 Section 6.01. Organization..................................................................28 Section 6.02. Authorization.................................................................28 Section 6.03. No Violation..................................................................28 Section 6.04. Approvals.....................................................................29 Section 6.05. Litigation....................................................................29 Section 6.06. Financing.....................................................................29 Section 6.07. Brokerage Fees................................................................30 Section 6.08. Purchaser Activities..........................................................30 Section 6.09. Capitalization................................................................30 ARTICLE VII COVENANTS...........................................................................30 Section 7.01. Interim Operations of the Company.............................................30 Section 7.02. Access to Information; Assistance with Financing..............................32 Section 7.03. Acquisition Proposals.........................................................33 Section 7.04. Consents and Approvals........................................................33 Section 7.05. Employment Matters............................................................33 Section 7.06. Publicity.....................................................................34 Section 7.07. Notification of Certain Matters...............................................34 Section 7.08. Directors' and Officers' Indemnification......................................34 Section 7.09. Stockholder Approval..........................................................35 Section 7.10. Consent by Shareholder........................................................35 Section 7.11. Further Assurances............................................................35 Section 7.12. Noncompetition; Nonsolicitation...............................................35 Section 7.13. Warrants......................................................................36 Section 7.14. Information Statement.........................................................37 Section 7.15. Preferred Stock of Purchaser..................................................37 Section 7.16. Assistance with Financing.....................................................37 ARTICLE VIII CONDITIONS.........................................................................38 Section 8.01. Conditions to the Obligations of Each Party...................................38 Section 8.02. Conditions to the Obligations of Purchaser....................................38 Section 8.03. Conditions to the Obligations of the Company and the Shareholder.............................................................41 ARTICLE IX CLOSING; TERMINATION.................................................................41 Section 9.01. Closing.......................................................................41 Section 9.02. Termination...................................................................42 Section 9.03. Effect of Termination.........................................................42 ARTICLE X GENERAL PROVISIONS....................................................................42 Section 10.01. Non-Survival.................................................................42 Section 10.02. Costs and Expenses...........................................................43
ii Section 10.03. Notices......................................................................43 Section 10.04. Counterparts.................................................................44 Section 10.05. Entire Agreement.............................................................44 Section 10.06. Independent Investigation....................................................45 Section 10.07. Governing Law................................................................45 Section 10.08. Third Party Rights; Assignment...............................................45 Section 10.09. Waivers and Amendments.......................................................45 Section 10.10. Schedules....................................................................45
Exhibit A Term Sheet - Junior Subordinated Notes Exhibit B Term Sheet - Stockholders' Agreement Exhibit C Form of Legal Opinion - Company and Shareholder's Counsel Exhibit D Form of Legal Opinion - Purchaser's Counsel iii AGREEMENT AND PLAN OF MERGER AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated October 30, --------- 1997, among Sealy Corporation, a Delaware corporation (the "Company"), Sandman ------- Merger Corporation, a transitory Delaware merger corporation ("Purchaser"), and --------- Zell/Chilmark Fund, L.P., a Delaware limited partnership (the "Shareholder"). ----------- WHEREAS, the Board of Directors of each of Purchaser and the Company have approved the acquisition of the Company by Purchaser; WHEREAS, Purchaser is a new corporation formed by Bain Capital, Inc. ("Bain"), its Affiliates and/or other investors (collectively, the "Investors"); ---- --------- WHEREAS, in furtherance of such acquisition, the Boards of Directors of each of Purchaser and the Company have approved a merger (the "Merger") of ------ Purchaser with and into the Company upon the terms and subject to the conditions set forth in this Agreement, with the Company surviving the Merger; WHEREAS, it is intended that the Merger be recorded as a recapitalization for financial reporting purposes; and WHEREAS, as a condition to its willingness to enter into this Agreement, Purchaser has required that the Shareholder agree, and the Shareholder is willing to agree, to the terms and conditions set forth in this Agreement; NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements of the parties hereto contained herein, and other good and valuable consideration, the receipt and sufficiency of which hereby are acknowledged, and subject to the satisfaction or waiver of the conditions hereof, the parties hereto agree as follows: ARTICLE I DEFINITIONS Section 1.01. Certain Definitions. Certain terms used in this ------------------- Agreement and the Schedules are defined as follows: "Adjusted Equity Value" means US$418.7 million ($418,700,000). --------------------- "Affiliate" shall have the meaning set forth in Rule 12b-2 of the --------- regulations promulgated pursuant to the Exchange Act. "Class A Common Stock" shall mean the Class A Common Stock, $0.01 par -------------------- value per share, of the Company. "Class B Common Stock" shall mean the Class B Common Stock, $0.01 par -------------------- value per share, of the Company. "Closing Date" shall mean the date on which the Closing occurs. ------------ "Code" shall mean the Internal Revenue Code of 1986, as amended. ---- "Common Stock Purchase Price" means the difference of (a) the Adjusted --------------------------- Equity Value minus (b) the Equity Adjustment Amount. ----- "Common Stock Per Share Amount" means (a) the Common Stock Purchase ----------------------------- Price divided by (b) the number of shares of Company Common Stock which would be ---------- converted into the right to receive cash as of the Effective Time pursuant to Section 3.01(a) hereof assuming there are no Dissenting Shares. "Company Common Stock" shall mean the Class A Common Stock and the -------------------- Class B Common Stock. "Company Expenses" means the sum of the following: (a) all fees and ---------------- expenses (including, without limitation, all legal, accounting and investment banking fees and expenses) paid or payable by, or incurred by the Company or any of the Company Subsidiaries in connection with the auction of the Company, the negotiation, execution and delivery of this Agreement and the consummation of the transactions contemplated hereby except those fees and expenses paid, payable or incurred in connection with the tender for the Senior Sub Notes, (b) all fees and expenses (including, without limitation, all legal, accounting and investment banking fees and expenses) paid or payable by, or incurred by the Company or any of the Company Subsidiaries on behalf of the Shareholder in connection with the auction of the Company, the negotiation, execution and delivery of this Agreement and the consummation of the transactions contemplated hereby, (c) all one time bonus payments and change-in-control payments (excluding any severance payments) paid or payable by, or incurred by the Company or any of the Company Subsidiaries in connection with the execution of this Agreement or the consummation of the transactions contemplated hereby including those identified on Schedule 1.01 along with all Taxes and expenses in connection with such payments, and (d) the cost of obtaining the opinion referred to in Section 8.03(e)(ii), if such opinion is required; provided that -------- Company Expenses shall not include any fees and expenses paid or payable by, or incurred by the Company or any of the Company Subsidiaries in connection with Section 7.02(b) or any amount included in the Warrant and Option Charges. As contemplated by Section 10.02 hereof, the parties hereto shall agree to the amount, and timing of payment, of the Company Expenses prior to the Effective Date. The Company and Purchaser shall cooperate to obtain reasonable detail from the Company's service providers as to the nature of services performed. "Company Stock" shall mean all shares of the Company's capital stock ------------- authorized, issued or outstanding prior to the Effective Time, of whatever class or series, including , without limitation, all of the Class A Common Stock, Class B Common Stock and Preference Stock of the Company. 2 "Company Subsidiary" shall mean any Subsidiary of the Company. ------------------ "Effective Time" shall mean the time the Certificate of Merger is -------------- filed with the Secretary of State. "Environmental Law" shall mean any Law of any Governmental Entity as ----------------- in effect on or prior to the date hereof, including all common law, relating to pollution, protection of the environment, waste generation, handling, treatment, storage, disposal or transportation, and exposure to hazardous or toxic substances, and includes without limitation, the terms and conditions of any Environmental Permit, and judicial, administrative, or other regulatory decrees, judgments, orders, and decisions of any Governmental Entity. The term "Environmental Law" shall include, but not be limited to the following statutes ----------------- and the regulations promulgated thereunder: the Clean Air Act, 42 U.S.C. (S)7401 et seq., the Clean Water Act, 33 U.S.C. (S)1251 et seq., the Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C. (S)6901 et seq., the Superfund ---- Amendments and Reauthorization Act, 42 U.S.C. (S)11011 et seq., the Toxic Substances Control Act, 15 U.S.C. (S)2601 et seq., the Safe Drinking Water Act, 42 U.S.C. (S)300 et seq., the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), 42 U.S.C. (S)9601 et seq., and the ------ Emergency Planning and Community Right-to-Know Act, 42 U.S.C. (S)11001 et seq. "Environmental Permit" shall mean any license, permit, registration, -------------------- consent, identification number, authorization or other approval required by any Environmental Law for the operation of the business of the Company or any Company Subsidiary. "Equity Adjustment Amount" means (a) the Company Expenses, plus (b) ------------------------ ---- the Warrant and Option Charges, minus (c) the aggregate exercise price received ----- by the Company on all options and warrants of the Company actually exercised during the period from the date hereof through the Effective Time. "ERISA" shall mean the Employee Retirement Income Security Act of ----- 1974, as amended. "Exchange Act" shall mean the Securities Exchange Act of 1934, as ------------ amended, and the rules and regulations promulgated thereunder. "GAAP" shall mean United States generally accepted accounting ---- principles. "Governmental Entity" shall mean any federal, state, local or foreign ------------------- court, administrative agency or commission or other governmental authority or instrumentality or subdivision thereof. "Hazardous Materials" shall mean any chemical, waste, pollutant, or ------------------- contaminant that is regulated under any Environmental Law and includes but is not limited to: (i) petroleum and petroleum substances, (ii) asbestos, (iii) polychlorinated biphenyls, (iv) any substance designated as a "hazardous substance" pursuant to Section 311 of the Federal Water Pollution Control Act, 33 U.S.C. (S)1251 et seq. (33 U.S.C. (S)1321) or listed pursuant to (S)307 of the Federal Water Pollution Control Act (33 U.S.C. (S)1317), (v) any substance defined as a "hazardous 3 substance" pursuant to Section 101 of CERCLA, and the Emergency Planning and Community Right-to-Know Act, 42 U.S.C. (S)11001 et seq., and (vi) any substance defined as a "solid waste" or a "hazardous waste" pursuant to Section 1004 of RCRA. "HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act ------- of 1976, as amended. "IRS" shall mean the United States Internal Revenue Service, or any --- successor agency thereto. "Judgment" shall mean any and all judgments, orders, writs, -------- directives, rulings, decisions, injunctions (temporary, preliminary or permanent), decrees or awards of any Governmental Entity. "Law" shall mean all laws (whether statutory or otherwise), --- ordinances, rules, regulations and Judgments of all Governmental Entities. "Liabilities" shall mean any known liabilities or obligations of any ----------- nature, whether accrued, absolute, contingent or otherwise, whether due or to become due and whether or not required to be disclosed in the SEC Filings. "Lien" shall mean, with respect to any property or asset, any ---- mortgage, pledge, security interest, lien (statutory or other), charge, encumbrance or other similar restrictions or limitations of any kind or nature whatsoever on or with respect to such property or asset (but specifically excluding any such restrictions or limitations created pursuant to the Company's $275,000,000 Second Restated Secured Credit Agreement dated as of February 25, 1997). "Merger Warrants" shall mean those warrants to purchase Class B Common --------------- Stock outstanding pursuant to that certain Warrant Agreement dated as of August 1, 1989 between The Ohio Mattress Holding Company and First Chicago Trust Company of New York. "Owned Shares" shall mean the 26,143,506 shares of Company Common ------------ Stock owned beneficially and of record by the Shareholder as of the date hereof (as such number may be reduced as a result of the conversion of shares into Preference Stock as contemplated by this Agreement). "Permits" shall mean all franchises, licenses, authorizations, ------- approvals, permits (excluding Environmental Permits), consents or other rights granted by any Governmental Entity and all certificates of convenience or necessity, immunities, privileges, licenses, concessions, consents, grants, ordinances and other rights, of every character whatsoever required for the conduct of business and the use of properties by the Company and the Company Subsidiaries as currently conducted or used. "Person" shall mean any individual, corporation, partnership, limited ------ liability company, joint venture, trust, unincorporated organization or other entity or Governmental Entity. 4 "Preference Stock" shall mean the Preferred Stock, $.01 par value, of ---------------- the Company. "Proceeding" shall mean any action, claim, suit, or legal, ---------- administrative, arbitration or other alternative dispute resolution proceeding or investigation. "Requisite Approvals" shall mean all permits, approvals, filings and ------------------- consents required to be obtained or made, and all waiting periods required or contemplated to expire, prior to the consummation of the Merger under applicable Laws, including without limitation notifications, approvals and filings pursuant to the HSR Act and filings under "transaction-triggered" and "responsible property transfer" Environmental Laws. "Restructure Warrants" shall mean those Series A Warrants and Series B -------------------- Warrants outstanding pursuant to that certain Warrant Agreement dated as of November 6, 1991, between Sealy Corporation and Sealy, Inc. "Rollover Options" means the options to purchase Company Common Stock ---------------- to be rolled-over into stock options of the Surviving Corporation owned by the individuals identified on a list to be provided to Purchaser by the Company (which list must be reasonably acceptable to Purchaser) no later than thirty days before the Closing (which list shall identify the number of such options owned by each such Person). "SEC" shall mean the Securities and Exchange Commission. --- "Securities Act" shall mean the Securities Act of 1933, as amended, -------------- and the rules and regulations promulgated thereunder. "Senior Sub Notes" means the Company's 10- 1/4% Senior Subordinated ---------------- Notes due 2003. "Stockholder Approval" shall mean the affirmative vote of or the -------------------- written consent by the holders of the numbers of outstanding shares of capital stock of the Company or Purchaser, as the case may be, required under the DGCL and the applicable certificate of incorporation to approve this Agreement, the Merger and the transactions contemplated hereby. "Subsidiary" shall mean, in respect of any specified Person, any ---------- company or other entity of which 50% or more of the outstanding share capital or other equity interest is owned, directly or indirectly, by such specified Person. "Surviving Corporation Common Stock" shall mean the Common Stock and ---------------------------------- Class L Common Stock of the Surviving Corporation, as provided in Section 3.01(c). "Warrant and Option Charges" means the sum of (a) the aggregate amount -------------------------- paid or payable by, or incurred by the Company or any of the Company Subsidiaries in connection with the extinguishment of outstanding warrants and options of the Company, plus (b) the aggregate spread on the Merger Warrants ---- that remain outstanding as of the Effective Time, which spread shall be valued as the difference between the cash which a holder of the Merger Warrants would 5 have been entitled to receive in the Merger had such Merger Warrants been exercised immediately prior to the Effective Time minus the exercise price of ----- such Merger Warrants, plus (c) the aggregate spread on the Rollover Options, ---- which spread shall be valued based on the difference between the cash which a holder of the Rollover Option would have been entitled to receive in the Merger had such Rollover Option been exercised immediately prior to the Effective Time minus the exercise price of such Rollover Option, including, in each case, - ----- without limitation, all redemption payments, premiums, penalties, fees and expenses. Section 1.02. Additional Definitions. The following terms shall ---------------------- have the respective meanings specified in the indicated Sections of this Agreement:
Defined Term Section Defined in ------------ ------------------- Affiliated Group 4.09 Agreement Preamble Bain Recitals Certificate of Merger 2.01 Closing 9.01 Commitment Letters 6.06 Company Preamble Company Share Certificate 3.02(b)(i) Company Stockholders 4.04 Contracts 4.14 Covered Party 7.08 Debt Financing 6.06 DGCL 2.02 Dissenting Shares 3.05(a) Employee Plan 4.15 Equity Financing 6.06 First Tier Subsidiary 7.16 Indebtedness 8.02 Information Statement 7.14 Intellectual Property 4.17 Investors Recitals Leases 4.12 Leased Premises 4.12(a) Merger Recitals Multiemployer Plan 4.15(b) Owned Property 4.12(a) Paying Agent 3.02(a) Purchaser Preamble Real Property 4.12 SEC Filings 4.07 Secretary of State 2.01 Shareholder Preamble Surviving Corporation 2.01
6 Tax 4.09 Tax Returns 4.09 Trademarks 4.17 Warrant Losses 7.13
ARTICLE II THE MERGER Section 2.01. The Merger. At the Effective Time, subject to the ---------- terms and conditions of this Agreement, Purchaser shall be merged with and into the Company in accordance with the laws of the State of Delaware, with the Company being the surviving corporation (following the Merger, the "Surviving --------- Corporation"). The Merger shall be effective when a properly executed - ----------- Certificate of Merger, together with any other documents required by the laws of the State of Delaware to effectuate the Merger (collectively, the "Certificate ----------- of Merger"), shall be filed with the Secretary of State of the State of Delaware - --------- (the "Secretary of State"), which filing shall be made as soon as possible after ------------------ the Closing, as provided for in Section 9.01 hereof. Section 2.02. Effect of Merger. By virtue of the Merger, as of the ---------------- Effective Time, all rights, privileges, immunities, powers and purposes of the Company and Purchaser, and all the property, real and personal, including, without limitation, causes of action, and every other asset of the Company and Purchaser, shall vest in the Surviving Corporation, without any further act or deed, and the separate existence of Purchaser shall cease and the corporate existence of the Company as the Surviving Corporation and a corporation organized under the General Corporation Law of the State of Delaware (the "DGCL") shall continue unaffected and unimpaired by the Merger. The Surviving ---- Corporation shall assume and be liable for all the liabilities, obligations and penalties of the Company and Purchaser; no liability or obligation due or to become due, and no claim or demand for any cause of action existing against either the Company or Purchaser, or any stockholder, officer or director thereof, shall be released or impaired by the Merger; and no Proceeding, whether civil or criminal, then pending by or against either the Company or Purchaser or any stockholder, officer or director thereof, shall abate or be discontinued as a result of or by the Merger, but may be enforced, prosecuted, settled or compromised as if the Merger had not occurred, or the Surviving Corporation may be substituted in such Proceeding in place of either the Company or Purchaser. Section 2.03. Additional Actions. If, at any time after the ------------------ Effective Time, the Surviving Corporation shall consider or be advised that any deeds, bills of sale, assignments, assurances or any other actions or things are necessary or desirable to (i) vest, perfect or confirm, of record or otherwise, in the Surviving Corporation, its right, title or interest in, to or under, any of the rights, properties or assets of the Company or Purchaser acquired or to be acquired by the Surviving Corporation as a result of, or in connection with, the Merger or (ii) otherwise carry out the purposes of this Agreement, the Company and its officers and directors and Purchaser and its officers and directors shall be deemed to have granted the Surviving Corporation an irrevocable power of attorney to execute and deliver all such deeds, bills of sale, assignments and assurances and to take and do all such other actions and things as may be necessary or desirable to vest, 7 perfect or confirm any and all rights, title, properties or assets in the Surviving Corporation or to otherwise carry out the purposes of this Agreement; and the officers and directors of the Surviving Corporation are fully authorized in the name of the Company and of Purchaser or otherwise to take any and all such actions. Section 2.04. Certificate of Incorporation, By-laws, Directors and ---------------------------------------------------- Officers of the Surviving Corporation. (a) From and after the Effective Time, - ------------------------------------- the Certificate of Incorporation of Purchaser in effect immediately prior to the Effective Time shall be the Certificate of Incorporation of the Surviving Corporation until altered, amended or repealed in accordance with applicable Law and this Agreement, except that, as of the Effective Time, Article I of such Certificate of Incorporation shall be amended to read as follows: "The name of the Corporation is Sealy Corporation." (b) From and after the Effective Time, the By-laws of Purchaser in effect immediately prior to the Effective Time shall be the By-laws of the Surviving Corporation until altered, amended or repealed in accordance with applicable Law and this Agreement. (c) From and after the Effective Time, the directors of Purchaser immediately prior to the Effective Time shall be the directors of the Surviving Corporation to serve until such time as their successors have been elected and qualified in accordance with the Certificate of Incorporation and By-laws of the Surviving Corporation, applicable Law and this Agreement. (d) From and after the Effective Time, the officers of the Company shall be the officers of the Surviving Corporation to serve until such time as their successors have been elected and qualified in accordance with the Certificate of Incorporation and By-laws of the Surviving Corporation, applicable Law and this Agreement. ARTICLE III CONVERSION OF COMPANY STOCK Section 3.01. Conversion of Shares. (a) Each share of Company -------------------- Common Stock issued and outstanding immediately prior to the Effective Time (other than shares of Company Common Stock to be canceled pursuant to Section 3.01(d) hereof and Dissenting Shares (as defined below)) shall, at the Effective Time, by virtue of the Merger and without any action on the part of the holder thereof, be converted into (as provided in and subject to the limitations set forth in this Article III) the right to receive cash in an amount equal to the Common Stock Per Share Amount payable to the holder thereof, without interest thereon, upon the surrender of the certificate previously representing such share of Company Common Stock. (b) The aggregate Preference Stock issued and outstanding immediately prior to the Effective Time (other than shares of Preference Stock to be canceled pursuant to Section 3.01(d) hereof) shall, at the Effective Time, by virtue of the Merger and without any action on the part of the holder thereof, be converted into (as provided in and subject to the limitations set forth in this Article III) the right to receive (i) that number of fully paid and nonassessable shares of 8 Surviving Corporation Common Stock such that immediately following the Effective Time such holder will own ten percent (10%) of each class of the issued and outstanding Surviving Corporation Common Stock which is intended to represent a number of shares of the Surviving Corporation Common Stock valued at $15 million based on the purchase price of the Surviving Corporation Common Stock to be purchased by the Investors at the Closing (such percentage shall be adequately increased as a result of Rollover Options to the extent necessary to preserve such valuation) and (ii) $25 million principal amount of junior subordinated notes of the Surviving Corporation in form and substance reasonably satisfactory to the Shareholder, containing the terms set forth in the term sheet in Exhibit A hereto, upon the surrender of the certificate previously representing such shares of Preference Stock. (c) Each share of the Common Stock, $0.01 par value per share, of Purchaser, issued and outstanding immediately prior to the Effective Time, shall, at the Effective Time, by virtue of the Merger and without any action on the part of the Investors or any other Person, be converted into one fully paid and nonassessable share of Common Stock, $0.01 par value per share, of the Surviving Corporation. Each share of Class L Common Stock, $0.01 par value per share, of Purchaser, issued and outstanding immediately prior to the Effective Time, shall, at the Effective Time, by virtue of the Merger and without any action on the part of the Investors or any other Person, be converted into one fully paid and nonassessable share of Class L Common Stock, $0.01 par value per share, of the Surviving Corporation. (d) All shares of Company Common Stock and Preference Stock that are owned by the Company as treasury stock shall, at the Effective Time, be canceled and retired and shall cease to exist without any consideration payable therefor. (e) All shares of Company Common Stock deemed "restricted" under any of the Company's incentive plans shall be deemed issued and outstanding for purposes of this Agreement, and the holders of such shares immediately prior to the Effective Time (as set forth in the Company's stock register) shall be entitled to the consideration set forth in Section 3.01(a) hereof in respect of such shares. (f) At and after the Effective Time, holders of certificates which immediately prior to the Effective Time represented outstanding shares of Company Common Stock shall cease to have any rights as stockholders of the Company, except the right to receive the cash into which their shares of Company Common Stock have been converted by the Merger as provided in Section 3.01(a). (g) Notwithstanding any provision to the contrary, the parties agree to amend this Agreement prior to Closing to permit shares of Company Common Stock owned by certain employees of the Company (whether or not such shares are deemed "restricted" under any of the Company's incentive plans) to be rolled over into shares of Surviving Corporation Common Stock with corresponding adjustments to be made to this Section 3.01 and the related definitions. 9 Section 3.02. Surrender of Company Share Certificates; Payment of --------------------------------------------------- Cash Consideration. - ------------------ (a) Prior to the Effective Time, the Company shall select a bank or other financial institution acceptable to Purchaser to serve as the paying agent (the "Paying Agent"). ------------ (b) At the Closing, Purchaser shall deliver: (i) to each Person identified on a list to be provided to Purchaser by the Company no later than five days before the Closing who shall have surrendered to the Company and Purchaser at the Closing one or more certificates which, immediately prior to the Effective Time, represented shares of Company Common Stock (such certificates, "Company ------- Share Certificates"), the amount of cash into which the shares of Company ------------------ Common Stock represented by the Company Share Certificate so surrendered have been converted pursuant to the provisions of this Article III; (ii) to the Shareholder who shall have surrendered to Purchaser at the Closing the certificate which, immediately prior to the Effective Time, represented all of the shares of outstanding Preference Stock, the securities of the Surviving Corporation into which the shares of Preference Stock represented by such certificate have been converted pursuant to the provisions of this Article III; and (iii) to the Paying Agent, for the benefit of holders of Company Common Stock not so listed, funds in the aggregate amount into which such shares of Company Common Stock shall have been converted pursuant to the provisions of this Article III. (c) As soon as practicable after the Effective Time, the Surviving Corporation shall mail to each holder of record (other than the Investors) of Company Common Stock not surrendered pursuant to subsection (b) above (i) a form of letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Company Common Stock shall pass, only upon delivery of the Company Share Certificates to the address specified therein) and (ii) instructions for use in effecting the surrender of Company Share Certificates for payment therefor. Upon surrender of a Company Share Certificate for cancellation to the Paying Agent, together with such letter of transmittal, duly executed, the holder of such Company Share Certificate shall be entitled to receive in payment therefor from the Paying Agent the amount of cash into which the shares of Company Common Stock theretofore represented by the Company Share Certificate so surrendered shall have been converted pursuant to the provisions of this Article III, and the Company Share Certificate so surrendered shall forthwith be canceled. No interest will be paid or accrued on the cash payable upon the surrender of the Company Share Certificate. (d) In the event that any Company Share Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming such Company Share Certificate to be lost, stolen or destroyed, the Surviving Corporation will pay in exchange for such lost, stolen or destroyed Company Share Certificate, the cash payable in respect thereof as determined in accordance with this Article III, except that when authorizing such payment, the Board of Directors of the Surviving Corporation may, in its discretion and as a condition to such 10 payment, require the owner of such Company Share Certificate to give the Surviving Corporation a bond in such amount as it may direct as indemnity against any claim that may be made against the Surviving Corporation with respect to such Company Share Certificate. (e) One year after the Closing Date, all unclaimed cash held by the Paying Agent shall be returned by it to the Surviving Corporation, and thereafter any Company Share Certificates that must be surrendered shall be surrendered to, and payment therefor delivered by, the Surviving Corporation. With respect to any Company Share Certificates which shall not have been surrendered prior to five years after the Closing Date, the unclaimed cash payable in exchange for such Company Share Certificates shall, to the extent permitted by applicable escheat or other Laws, become the property of the Surviving Corporation, free and clear of all claims or interest of any Person previously entitled thereto. Section 3.03. Stock Transfer Books. At the Effective Time, the -------------------- stock transfer books of the Company shall be closed and there shall be no further registration of transfers of shares of Company Common Stock on the records of the Company. If, after the Effective Time, certificates previously representing shares of Company Common Stock are presented to the Surviving Corporation, they shall be canceled and exchanged for cash pursuant to the provisions of this Article III. Section 3.04. Shares of Dissenting Stockholders. (a) --------------------------------- Notwithstanding anything in this Agreement to the contrary, any shares of Company Common Stock that are issued and outstanding as of the Effective Time and that are held by a holder who has properly exercised his or her appraisal rights (the "Dissenting Shares") under the DGCL shall not be converted into the ----------------- right to receive the consideration provided for in this Article III, unless and until such holder shall have failed to perfect, or shall have effectively withdrawn or lost, his or her right to dissent from the Merger under the DGCL and to receive such consideration as may be determined to be due with respect to such Dissenting Shares pursuant to and subject to the requirements of the DGCL. If any such holder shall have so failed to perfect or have effectively withdrawn or lost such right, each share of such holder's Company Common Stock shall thereupon be deemed to have been converted into and to have become, as of the Effective Time, the right to receive, without any interest thereon, the consideration provided for in this Article III. (b) The Company shall give Purchaser (i) prompt notice of any notice or demands for appraisal or payment for shares of Company Common Stock received by the Company and (ii) the opportunity to participate in and direct all negotiations and proceedings with respect to any such demands or notices. The Company shall not, without the prior written consent of Purchaser, make any payment with respect to, or settle, offer to settle or otherwise negotiate, with respect to any such demands. (c) Dissenting Shares, if any, after payments of fair value in respect thereto have been made to the holders thereof pursuant to the DGCL, shall be canceled. 11 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company hereby represents and warrants to Purchaser as follows: Section 4.01. Organization. Each of the Company and each Company ------------ Subsidiary is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has full corporate power and authority to conduct its business as it is now being conducted and to own, operate or lease the properties and assets it currently owns, operates or holds under lease. Each of the Company and each Company Subsidiary is duly qualified or licensed to do business and is in good standing as a foreign corporation in each jurisdiction where such qualification or licensing is necessary, except where the failure to so qualify or be licensed would not have a material adverse effect on the financial condition of the Company and the Company Subsidiaries, taken as a whole. Section 4.02. Subsidiaries. Schedule 4.02 sets forth a list as of ------------ ------------- the date hereof of all corporations and other legal entities of which the Company owns, directly or indirectly, any shares of capital stock or other equity ownership interests. Except as set forth in Schedule 4.02, all ------------- outstanding shares of stock of each Company Subsidiary have been duly authorized and validly issued and are fully paid and non-assessable, and are owned, directly or indirectly, by the Company free and clear of any Liens, and there are no outstanding options, warrants, convertible securities, calls, rights, commitments, preemptive rights or agreements or instruments or understandings of any character, obligating any Company Subsidiary to issue, deliver or sell, or cause to be issued, delivered or sold, contingently or otherwise, additional shares of such Company Subsidiary or any securities or obligations convertible or exchangeable for such shares or to grant, extend or enter into any such option, warrants, convertible security, call, right, commitment, preemptive right or agreement. Section 4.03. Capitalization. The authorized capital stock of the -------------- Company consists of (a) 49,500,000 shares of Class A Common Stock, of which 29,925,287 shares were issued and outstanding as of October 13, 1997, (b) 500,000 shares of Class B Common Stock, of which 11,282 were issued and outstanding as of October 13, 1997, and (c) 10,000,000 shares of Preference Stock, of which no shares are issued and outstanding on the date of this Agreement. All outstanding shares of Company Common Stock have been duly authorized and validly issued and are fully paid and non-assessable. Except as set forth in Schedule 4.03 and as provided in this Agreement, there are no ------------- authorized or outstanding options, warrants, convertible securities, calls, rights, commitments, preemptive rights or agreements or instruments or understandings of any character, to which the Company is a party or by which the Company is bound, obligating the Company to issue, deliver or sell, or cause to be issued, delivered or sold, contingently or otherwise, additional shares of capital stock of the Company or any securities or obligations convertible into or exchangeable for such shares or to grant, extend or enter into any such option, warrant, convertible security, call, right, commitment, preemptive right or agreement. With respect to each type of option or warrant listed on Schedule -------- 4.03, Schedule 4.03 further lists, as of the date of this Agreement, the - ---- ------------- exercise price and the aggregate number of shares of Company Common Stock issuable upon exercise of such type of option or warrant (after giving effect to all 12 applicable anti-dilution provisions). Except as set forth on Schedule 4.03 and ------------- as provided in this Agreement, to the Company's knowledge, there are no shareholders agreements or similar agreements regarding the ownership of equity securities of the Company among any of the holders of any equity securities of the Company. Section 4.04. Authorization. The Company has all requisite ------------- corporate power and authority to enter into this Agreement and to perform its obligations hereunder. The affirmative vote of or written consent by the holders of a majority of the votes entitled to be cast by holders of the Company Stock is the only vote of any holders of Company Stock ("Company Stockholders") -------------------- under the DGCL that is necessary for Stockholder Approval of the Merger, this Agreement and the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly approved by the Board of Directors of the Company and the requisite Company Stockholders and no other corporate proceedings on the part of the Company are necessary to authorize the Merger, this Agreement and the transactions contemplated hereby. This Agreement has been duly executed and delivered by the Company and (assuming due authorization, execution and delivery by Purchaser), constitutes a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as such enforcement may be subject to (i) bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or other similar laws relating to creditors' rights generally and (ii) general principles of equity (whether applied in a proceeding at law or in equity). Section 4.05. No Violation. The execution and delivery of this ------------ Agreement by the Company does not, and the consummation by the Company of the transactions contemplated by this Agreement will not, (i) conflict with, or result in any violation of or default or loss of any benefit under, any provision of the Company's or any Company Subsidiary's Certificate of Incorporation or By-laws; (ii) except as otherwise set forth in Schedule 4.05 ------------- hereto and subject to the matters described in Section 4.06 hereof, conflict with or result in any violation of or default or loss of any benefit under, any Law or Judgment of any Governmental Entity to which the Company or any Company Subsidiary is a party or to which any of its property is subject; or (iii) except as otherwise set forth in Schedule 4.05, conflict with, or result in a ------------- breach or violation of or default or loss of any benefit under, or accelerate the performance required by, the terms of any agreement, contract, indenture or other instrument to which the Company or any Company Subsidiary is a party or to which any of its property is subject, or constitute a default or loss of any right thereunder or any event which, with the lapse of time or notice or both, might result in a default or loss of any right thereunder or the creation of any Lien upon any of the assets or properties of the Company or any Company Subsidiary, except with respect to clauses (ii) and (iii) hereof, where the breach, violation, default, loss of benefit, acceleration or loss of right would not have a material adverse effect on the financial condition of the Company and the Company Subsidiaries, taken as a whole, or on the ability of the parties to consummate the transactions contemplated by this Agreement. Section 4.06. Approvals. The execution and delivery of this --------- Agreement and the consummation of the transactions contemplated by this Agreement by the Company will not require the consent, approval, order or authorization of any Governmental Entity or any other Person under any agreement, indenture or other instrument to which the Company or any 13 Company Subsidiary is a party or to which any of its properties is subject, other than the items disclosed in Schedule 4.06, and no declaration, filing or ------------- registration with any Governmental Entity is required by the Company or any Company Subsidiary in connection with the execution and delivery of this Agreement and the consummation of transactions contemplated by this Agreement, except for (i) the filing of the Certificate of Merger as required by the DGCL and the filing of appropriate documents with the relevant authorities of other states in which the Company or any Company Subsidiary is qualified to do business, (ii) the filing pursuant to the HSR Act, as amended, and the expiration or termination of the applicable waiting period under such Act, (iii) compliance with any applicable requirements of the Securities Act, the Exchange Act or any other applicable securities laws, (iv) those that may be required solely by reason of Purchaser's participation in the transactions contemplated by this Agreement, (v) those the failure of which to obtain would not have a material adverse effect on the financial condition of the Company and the Company Subsidiaries, taken as a whole, or on the ability of the parties to consummate the transactions contemplated by this Agreement, and (vi) filings and notices not required to be made or given until after the Effective Time. Section 4.07. Periodic SEC Filings; Financial Statements. (a) ------------------------------------------ Since December 1, 1994, the Company has timely filed all forms, reports and documents with the SEC that were required to be filed by the Company under the Securities Act and the Exchange Act. As of their respective filing dates, all of such forms, reports and documents (the "SEC Filings") complied in all ----------- material respects with all applicable requirements of the Exchange Act and, where applicable, the Securities Act. As of their respective filing dates, none of the SEC Filings, including without limitation any financial statements or schedules included therein, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, except to the extent that such statements have been modified or superseded by a later filed SEC Filing. (b) The audited consolidated financial statements and unaudited interim consolidated financial statements of the Company included in the Company's Annual Report on Form 10-K for the fiscal year ended December 1, 1996 and its Quarterly Reports on Form 10-Q for the fiscal quarters ended March 2, 1997, June 1, 1997 and August 31, 1997 have been prepared in accordance with GAAP (except, in the case of unaudited statements, as permitted by Form 10-Q of the Exchange Act), applied on a consistent basis during the periods involved (except as may be set forth in the notes thereto), and fairly present in all material respects the consolidated financial position of the Company and the consolidated Company Subsidiaries as at the dates thereof and the consolidated results of their operations and changes in financial position for the periods then ended, subject, in the case of the unaudited interim condensed consolidated financial statements, to normal year-end adjustments and any other adjustments described therein, none of which would have a material effect on such interim financial information. (c) Except as set forth on Schedule 4.07(c), neither the Company nor ------------------- any Company Subsidiary has any Liabilities, other than Liabilities (i) that have been specifically disclosed or provided for in the most recent audited consolidated balance sheet of the Company filed with the SEC, (ii) that have been specifically disclosed or provided for in the most recent consolidated balance sheet of the Company filed with the SEC, (iii) that have been incurred in the 14 ordinary course of business consistent with past practice since the date of the most recent audited consolidated balance sheet of the Company filed with the SEC, (iv) that are not required by GAAP to have been included in the Company's consolidated balance sheet and would not in the aggregate have a material adverse effect on the financial condition of the Company and its Subsidiaries, taken as a whole, or (v) liabilities which in the aggregate are not in excess of $1,000,000. (d) Schedule 4.07(d) sets forth all obligations of the Company and ---------------- the Company Subsidiaries as of the date of this Agreement for borrowed money. (e) Attached hereto as Schedule 4.07(e) is a true and complete copy ---------------- of the latest projections of the consolidated income and cash flows of the Company for the fiscal years ending November 1997, November 1998, November 1999, November 2000 and November 2001. Such projections are based on assumptions which on the whole the Company reasonably believed at the time such projections were prepared to be fair and reasonable in light of the historical financial performance of the Company and the Company Subsidiaries and of current and reasonably foreseeable business conditions. Section 4.08. Absence of Certain Transactions. Except as set forth ------------------------------- in the SEC filings and on Schedule 4.08, and except for actions taken by the ------------- Company in preparation for the transactions contemplated by this Agreement (which actions have been previously disclosed to Purchaser), and except for the execution of this Agreement or as otherwise specifically contemplated or permitted by this Agreement, since December 1, 1996 through the date of this Agreement: (a) Ordinary Course. The Company and each Company Subsidiary --------------- has carried on its business in the usual and ordinary course consistent with past practice. (b) Dividends; Securities. Neither the Company nor any Company --------------------- Subsidiary has (i) declared or paid any dividend or made any other distribution with respect to Company Stock or the capital stock of any Company Subsidiary, (ii) redeemed, purchased, canceled or otherwise acquired, directly or indirectly, any outstanding shares of Company Stock or any shares of capital stock of any Company Subsidiary, (iii) issued additional stock (other than upon the exercise or conversion of outstanding options, warrants or convertible securities), warrants, options or any other similar rights to acquire Company Stock or any shares of capital stock of any Company Subsidiary, or (iv) split, combined or reclassified any shares of Company Stock or any shares of capital stock of any Company Subsidiary or issued or authorized the issuance of any other securities in respect of, in lieu of or in substitution for shares of, shares of Company Stock or any shares of capital stock of any Company Subsidiary. (c) Certain Transactions. Neither the Company nor any Company -------------------- Subsidiary has merged or consolidated, reorganized, restructured, recapitalized, liquidated or filed a voluntary petition in bankruptcy. 15 (d) Indebtedness. Neither the Company nor any Company ------------ Subsidiary has incurred any obligation for borrowed money, incurred any account payable, or entered into or modified any material contract, agreement, commitment or arrangement with respect to the foregoing, except in the ordinary course of business consistent with past practice. (e) Employee Compensation. Neither the Company nor any Company --------------------- Subsidiary has granted any increase in compensation to any salaried employees or paid any bonus, except for increases in salary or wages in the ordinary course of business consistent with past practice. (f) Prohibited Dispositions. Other than provision of services ----------------------- or sales in the ordinary course of business and consistent with past practices, neither the Company nor any Company Subsidiary has (i) sold, leased, licensed, transferred or otherwise disposed of any of its assets or property having a book or market value, individually, in excess of $250,000, or in the aggregate, in excess of $1,000,000, or (ii) entered into, or consented to the entering into of, any agreement granting a preferential right to sell, lease or otherwise dispose of any of such assets. (g) Lines of Business and Capital Expenditures. Neither the ------------------------------------------ Company nor any Company Subsidiary has (i) entered into any new line of business, (ii) changed its investment, liability management or other material policies in any material respect, (iii) incurred or committed to incur any capital expenditures, obligations or liabilities in connection therewith other than capital expenditures, obligations or liabilities that do not exceed, individually, $500,000 or, in the aggregate, $1,000,000, (iv) acquired or agreed to acquire by merging or consolidating with, or acquired or agreed to acquire by purchasing a substantial portion of the assets of, or in any other manner, any business or Person, or (v) otherwise acquired or agreed to acquire any other assets or made any lease commitments for a total individual consideration in excess of $500,000 or in the aggregate in excess of $1,000,000. (h) Accounting Methods. Neither the Company nor any Company ------------------ Subsidiary has changed its methods of accounting or keeping its books of account or accounting practice in effect at December 1, 1996, except as required by GAAP as concurred in by the Company's independent auditors. (i) Miscellaneous. Except as set forth on Schedule 4.08(i), ------------- ---------------- neither the Company nor any Company Subsidiary has (i) made any cancellation or waiver of (A) any right material to the operation of the business of the Company or any Company Subsidiary or (B) any debts or claims against any Affiliate of the Company (other than any Company Subsidiary), (ii) made any disposition of, or failed to keep in effect any material rights in, to or for the use of any material patent, trademark, service mark, trade name, copyright or trade secret of the Company or any Company Subsidiary, or (iii) entered into any agreement, arrangement or transaction with any Affiliate of the Company (other than any Company Subsidiary). 16 Section 4.09. Taxes. ----- (a) Each of the Company and the Company Subsidiaries has timely filed all Tax Returns it was required to file by applicable Law. All such Tax Returns were prepared in compliance with applicable Law, and all such Tax Returns are correct and complete in all material respects, except to the extent modified, superseded or amended by subsequently filed amended Tax Returns. All Taxes owed by any of the Company or the Company Subsidiaries (whether or not shown on a Tax Return) have been paid or reserved on the books of the Company or the relevant Company Subsidiary. Each of the Company and the Company Subsidiaries has withheld or paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, stockholder or other third party. The unpaid Taxes of the Company and the Company Subsidiaries did not, as of August 31, 1997, exceed the reserve for Tax liability (rather than any reserve for deferred Taxes established to reflect timing differences between book and Tax income) set forth on the face of the balance sheet for the quarter ended on that date as referenced in Section 4.07 (rather than in any notes thereto), and do not exceed that reserve as adjusted for the passage of time through the Closing Date in accordance with the past custom and practice of the Company and the Company Subsidiaries in filing their Tax Returns. (b) Except as disclosed on Schedule 4.09 hereto: ------------- (i) none of the Company and the Company Subsidiaries is currently the beneficiary of an extension of time within which to file any Tax Return; (ii) none of the Company and the Company Subsidiaries has waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency; (iii) there is no dispute or claim concerning any Tax liability of the Company and the Company Subsidiaries either (x) claimed or raised by any authority in writing or (y) as to which any of the directors and officers (and employees responsible for Tax matters) of the Company and the Company Subsidiaries has knowledge based upon personal contact with any agent of such authority; (iv) each of the Company and the Company Subsidiaries has disclosed on its federal income Tax Returns all positions taken therein that could give rise to a substantial understatement of federal income Tax within the meaning of Code (S)6662; (v) from December 1, 1994 through the date of this Agreement, no claim that has not been resolved has been made by a taxing authority in a jurisdiction where any of the Company and the Company Subsidiaries does not file Tax Returns that the Company or any Company Subsidiary is or may be subject to taxation in such jurisdiction; (vi) none of the Company and the Company Subsidiaries has filed a consent concerning collapsible corporations under Code (S)341(f) (or any corresponding provision of state, local or foreign income Tax law); 17 (vii) there are no liens on any assets of the Company and the Company Subsidiaries that arose in connection with any failure (or alleged failure) to pay any material Tax: (viii) none of the Company and the Company Subsidiaries will be required as a result of (A) a change in method of accounting for a taxable period ending on or prior to the Closing Date, to include any adjustment in taxable income for any taxable period (or portion thereof) ending after the Closing Date, (B) any "closing agreement", as described in Section 7121 of the Code (or any corresponding provision of state, local or foreign income Tax law), to include any item of income in, or exclude any item of deduction from, taxable income for any taxable period (or portion thereof) ending after the Closing Date, or (C) any deferred intercompany gain described in Treasury Regulation Section 1.1502-13 or any excess loss account described in Treasury Regulation Sections 1.1502-19 (or any corresponding or similar provision or administrative rule of federal, state, local or foreign income tax law), to include any item of income in taxable income for any taxable period (or portion thereof) ending after the Closing Date; (ix) since December 31, 1986, none of the Company and the Company Subsidiaries has been a member of an Affiliated Group other than one of which the Company was the common parent, or filed or been included in a combined, consolidated or unitary income Tax Return other than one filed by the Company; (x) none of the Company and the Company Subsidiaries is a party to or bound by any Tax allocation or Tax sharing agreement or has a current or potential contractual obligation to indemnify any other person with respect to Taxes; (xi) none of the Company and the Company Subsidiaries has made any payments, is obligated to make any payments, or is a party to any agreement that under certain circumstances could obligate it to make any payments that will not be deductible under Code (S) 280G (or any corresponding provision of state, local or foreign income Tax law); and (xii) none of the Company and the Company Subsidiaries owns any interest in real property in the State of New York or in any other jurisdiction in which a Tax (other than a net income or franchise tax) is imposed on the gain on a transfer of an interest in real property. (c) The Company has made available to Purchaser true and correct copies of all federal, state, local and foreign income Tax Returns filed with respect to any of the Company and the Company Subsidiaries for taxable periods ending on or after December 31, 1991. Schedule 4.09 lists those Tax Returns that ------------- are currently being audited. The Company has made available to Purchaser correct and complete copies of all examination reports, and statements of deficiencies assessed against or agreed to by any of the Company and the Company Subsidiaries since December 31, 1991. 18 (d) A certification issued by the Company pursuant to Treasury Regulation Section 1897-2 to the effect that the Company is not a "United States real property holding corporation" as defined in Code (S)897 shall be delivered to Purchaser prior to the Closing. (e) As used in this Agreement, the following terms shall have the following respective meanings. (i) "Affiliated Group" means an affiliated group as defined in Code (S)1504 (or any analogous combined, consolidated or unitary group defined under state, local or foreign income Tax law) of which the Company is or has been a member. (ii) "Tax" means any (A) federal, state, local or foreign income, gross receipts, franchise, estimated, alternative minimum, add-on minimum, sales, use, transfer, registration, value added, excise, natural resources, severance, stamp, occupation, premium, windfall profit, environmental, customs, duties, real property, personal property, capital stock, social security, unemployment, disability, payroll, license, employee or other withholding, or other tax, of any kind whatsoever, whether disputed or not, including any interest, penalties or additions to tax or additional amounts in respect of the foregoing; (B) liability of any of the Company and the Company Subsidiaries for the payment of any amounts of the type described in clause (A) arising as a result of being (or ceasing to be) a member of any Affiliated Group (or being included (or required to be included) in any Tax Return relating thereto); and (C) liability of any of the Company and the Company Subsidiaries for the payment of any amounts of the type described in clause (A) as a transferee or successor by contract (including as a result of any express or implied obligation to indemnify or otherwise assume or succeed to the liability of any other person), or otherwise; and (iii) "Tax Returns" means returns, declarations, reports, claims for refund, information returns or other documents (including any related or supporting schedules, statements or information) filed or required to be filed in connection with the determination, assessment or collection of Taxes of any party or the administration of any laws, regulations or administrative requirements relating to any Taxes. Section 4.10. Litigation. Except as set forth on Schedule 4.10, ---------- ------------- there is no Proceeding pending or, to the knowledge of the Company, threatened against the Company or any Company Subsidiary by or before any Governmental Entity or by any Person, which, if adversely determined, would reasonably be expected to (i) result in a judgment against the Company or one of the Company Subsidiaries in an amount in excess of $250,000, (ii) materially interfere with the conduct of the business of the Company or the Company Subsidiaries or (iii) have a material adverse effect on the financial condition of the Company and the Company Subsidiaries, taken as a whole. Except as set forth on Schedule 4.10, ------------- neither the Company nor any Company Subsidiary is a party to or, to the knowledge of the Company, bound by any Judgment. Schedule 4.10 lists all single ------------- instances of any Proceeding or series of related Proceedings against the Company or any Company Subsidiary or any predecessor (whether arising out of similar facts or circumstances, a consistent or pervasive course of conduct or practice or otherwise) which have been settled (x) in the last five years for settlements which 19 have, or have had, a material adverse effect on the Company and the Company Subsidiaries, taken as a whole, (y) since January 1, 1995, for amounts paid by the Company and the Company Subsidiaries in excess of $500,000, or (z) to the knowledge of the Company, since January 1, 1995, for amounts paid by the Company and the Company Subsidiaries in excess of $100,000. Section 4.11. Environmental Matters. --------------------- (a) Except as set forth on Schedule 4.11(a): (i) to the Company's ---------------- knowledge, the Company and the Company Subsidiaries have been, and are, in material compliance with all applicable Environmental Laws; (ii) to the Company's knowledge, the Company and each Company Subsidiary has obtained all material Environmental Permits necessary for the operation of the business of the Company and the Company Subsidiaries; and (iii) there are no outstanding notices or claims against the Company or any Company Subsidiary for damages, penalties or other obligations or liabilities relating to the presence, generation, transportation, treatment, storage or disposal of Hazardous Materials in, at, under or from any property owned, leased or operated by the Company or any Company Subsidiary. (b) Except as set forth on Schedule 4.11(b), to the Company's ---------------- knowledge, there are no underground storage tanks on any property currently owned or leased by the Company or any Company Subsidiary, or any property formerly owned or leased by the Company or any Company Subsidiary for which either the Company or any Company Subsidiary has responsibility or liability. (c) Except as specified on the various reports and other documents set forth on Schedule 4.11(c), to the Company's knowledge, there is no asbestos ---------------- or asbestos-containing material at, on, or in any real property or improvement currently owned or leased by the Company or any Company Subsidiary, or any property formerly owned or leased by the Company or any Company Subsidiary for which either the Company or any Company Subsidiary has responsibility or liability. (d) Except as set forth on Schedule 4.11(a), to the Company's ---------------- knowledge, neither the Company nor any Company Subsidiary has treated, stored, disposed of, arranged for or permitted the disposal of, transported, handled, or released any Hazardous Materials or owned or operated any property or facility (and no such property or facility is contaminated by any Hazardous Materials) in a manner that has given or will give rise to material liabilities to the Company or any Company Subsidiary, including any material liability for response costs, corrective action costs, personal injury, property damage, natural resources damages or attorney fees, pursuant to CERCLA, RCRA or any other Environmental Law. (e) Except as set forth on Schedule 4.11(a), to the Company's ---------------- knowledge, neither the Company nor any Company Subsidiary has, either expressly or by operation of law, assumed, undertaken or otherwise become subject to any liability of any other Person relating to Environmental Law, including without limitation any obligation for corrective or remedial action. 20 Section 4.12. Real Property. ------------- (a) Schedule 4.12 identifies by street address all real estate ------------- leased, subleased or otherwise occupied pursuant to an agreement (the "Leases") ------ by the Company or any Company Subsidiary (the "Leased Premises") or owned by the --------------- Company or any Company Subsidiary ("Owned Property", and, collectively with the -------------- Leased Premises, the "Real Property"). The Leased Premises are leased to the ------------- Company or such Company Subsidiary pursuant to written leases, copies of which have been made available to Purchaser. With respect to each Lease: (i) the Company or the applicable Company Subsidiary has a good and valid leasehold interest in and to all of the Leased Premises, and, to the Company's knowledge, such leasehold interest is subject to no Liens other than those listed on Schedule 4.12; (ii) each Lease is in full force and effect and is enforceable in - ------------- accordance with its terms and none of the Company or any Company Subsidiary has assigned, transferred, conveyed, mortgaged, deeded in trust, or encumbered any interest in such Lease; (iii) there exists no default or condition which, with the giving of notice, the passage of time or both, could become a default under any Lease; and (iv) no consent, waiver, approval or authorization is required from the landlord under any Lease as a result of the execution of this Agreement or the consummation of the transactions contemplated hereby. Except as set forth on Schedule 4.12, there are no outstanding options or rights of first ------------- refusal to purchase the Owned Property or any portion thereof or interest therein. The Company or a Company Subsidiary has good and marketable title in and to the Owned Property, free and clear of all Liens, except (i) for general real estate taxes and special assessments not yet delinquent, easements, rights of parties in possession, covenants, conditions and restrictions and other matters of record which do not materially impair the occupancy or use of the Real Property for the purposes for which it is currently used in connection with the Company's business, utility easements, building restrictions, zoning restrictions and other easements and restrictions, whether or not recorded, existing generally with respect to properties of a similar character and which are not violated in any material respect by the current use and operation of the Real Property and (ii) as otherwise set forth on Schedule 4.12. ------------- (b) The Real Property constitutes all of the real properly owned, leased, occupied or otherwise utilized in connection with the business of the Company and the Company Subsidiaries. Other than the Company and the Company Subsidiaries, there are no parties in possession or parties having any current or future right to occupy any of the Real Property, except tenants under any leases disclosed on Schedule 4.12 who are in possession of space to which they ------------- are entitled. The Real Property is in good condition and repair (subject to normal wear and tear) and is sufficient and appropriate for the conduct of the Company's and the Company Subsidiaries' business. To the Company's knowledge (i) all permits, licenses and other approvals necessary to the current occupancy and use of the Real Property (excluding Environmental Permits as described in Section 4.11) have been obtained, are in full force and effect and have not been violated in any material respect and (ii) there exists no violation of any material covenant, condition, restriction, easement, agreement or order affecting any portion of the Real Property. All improvements located on the Real Property have direct access to a public road adjoining such Real Property. All facilities located on the Real Property are supplied with adequate utilities and other services necessary for the operation of such facilities, including gas, electricity, water, telephone, sanitary sewer and storm sewer. There is no pending or, to the knowledge of the Company, threatened condemnation proceeding, or material lawsuit or 21 administrative action affecting any portion of the Real Property to which the Company or any of the Company Subsidiaries is a named party. Section 4.13. Personal Property. ----------------- (a) The Company or a Company Subsidiary has good and merchantable title to all personalty of any kind or nature which the Company or a Company Subsidiary purports to own, free and clear of all Liens, except for (i) Liens identified on Schedule 4.13, (ii) Liens for non-delinquent ad valorem taxes and ------------- non-delinquent statutory liens arising other than by reason of default, (iii) statutory Liens of landlords, Liens of carriers, warehousemen, mechanics and materialmen incurred in the ordinary course of business for sums not yet due, (iv) Liens incurred or deposits made in the ordinary course of business in connection with worker's compensation, unemployment insurance and other types of social security, (v) purchase money Liens, and (vi) minor irregularities of title which do not materially detract from the value or use of said personalty. The Company or a Company Subsidiary as lessee has the right under valid and subsisting leases to use, possess and control all personalty leased by and material to the Company or such Company Subsidiary as now used, possessed and controlled by the Company or such Company Subsidiary. (b) All machinery, equipment and other tangible assets currently being used by the Company or any Company Subsidiary which are owned or leased by the Company or any Company Subsidiary are in good operating condition, maintenance and repair, ordinary wear and tear excepted, are usable in the ordinary course of business and are reasonably adequate and suitable for the uses to which they are being put, except where any other condition of any machinery, equipment or other tangible asset would not have a material adverse effect on the financial condition of the Company and the Company Subsidiaries, taken as a whole. Section 4.14. Contracts. Schedule 4.14 is a complete list of all --------- ------------- written agreements of the Company or any Company Subsidiary (other than contracts for the sale in the ordinary course of business of products manufactured by the Company or any Company Subsidiary) that are currently in effect (except for those set forth in clause (x) below) and that are (i) leases, sales contracts and other agreements with respect to any property, real or personal, of the Company and the Company Subsidiaries which provide for the receipt or expenditure by the Company or any Company Subsidiary after the date of this Agreement, of more than $100,000; (ii) contracts or commitments for capital expenditures or acquisitions in excess of $100,000 for one project or set of related projects; (iii) guarantees of third party obligations; (iv) agreements (including non competition agreements) which restrict the kinds of businesses in which the Company or any of the Company Subsidiaries may engage or the geographical area in which any of them may conduct their business; (v) indentures, mortgages, loan agreements or other agreements relating to the borrowing of money, the granting of Liens or lines of credit; (vi) collective bargaining agreements; (vii) material licenses, agreements, assignments or contracts (whether as licensor or licensee, assignor or assignee) relating to any patent and trademark rights; (viii) brokerage or finder's agreements; (ix) joint venture agreements, partnership agreements or similar agreements; (x) stock purchase agreements, asset purchase agreements or other acquisition or divestiture agreements executed within the last five years; (xi) employment, consulting or management agreements; (xii) agreements or other arrangements with any director, officer, 22 employee or shareholder of the Company or any Company Subsidiary or any Affiliate of any of the foregoing (other than customary at will employment arrangements); or (xiii) any agreement or contract which is not of the foregoing type and is material to the Company or any of the Company Subsidiaries (all items required to be identified in Schedule 4.14 being hereinafter referred to ------------- as "Contracts"). True and correct copies of all the Contracts identified in --------- Schedule 4.14 have been made available to Purchaser. Except as set forth on - ------------- Schedule 4.14, (i) all Contracts are valid and subsisting and in full force and - ------------- effect, and the Company and the Company Subsidiaries have duly performed their obligations thereunder in all material respects to the extent such obligations have accrued, and (ii) no breach or default thereunder by the Company or any Company Subsidiary or, to the Company's knowledge, by any other party thereto, has occurred, except where such breach or default would not reasonably be expected to have a material adverse effect on the financial condition of the Company and the Company Subsidiaries, taken as a whole. Section 4.15. Employee and Labor Matters and Plans. ------------------------------------ (a) Schedule 4.15(a) lists each of the following plans and contracts ---------------- which is sponsored, maintained or contributed to by the Company or any Company Subsidiary for the benefit of any current or former employee, director or other personnel: (i) any "employee benefit plan," as such term is defined in Section 3(3) of ERISA, whether or not subject to the provisions of ERISA; and (ii) any other employment, consulting, collective bargaining, stock option, stock bonus, stock purchase, phantom stock, incentive, bonus, deferred compensation, retirement, severance, vacation, medical or dental contract, policy or arrangement which is not an employee benefit plan as defined in Section 3(3) of ERISA (each such plan, contract, policy and arrangement being herein referred to as an "Employee Plan"). ------------- (b) With respect to each Employee Plan, except for any multiemployer plan within the meaning of Section 3(37) of ERISA (a "Multiemployer Plan") and ------------------ except as set forth on Schedule 4.15(b), the Company has made available to ---------------- Purchaser true and complete copies of each contract, plan document, policy statement, summary plan description and other written material governing or describing the Employee Plan (including, without limitation, any related trust agreement or insurance company contract) or, if there are no such written materials, a summary description of the Employee Plan. With respect to each Employee Plan which is a pension plan (as defined in Section 3(2) of ERISA) and also is a Multiemployer Plan, the Company has identified each such plan on Schedule 4.15(b). - ---------------- (c) With respect to each Employee Plan which is an "employee benefit plan" within the meaning of Section 3(3) of ERISA or which is a "plan" within the meaning of Section 4975(e) of the Code, there has occurred no transaction which is prohibited by Section 406 of ERISA or which constitutes a "prohibited transaction" under Section 4975(c) of the Code and with respect to which a prohibited transaction exception has not been granted and is not currently in effect except where such "Prohibited Transaction" would not have a material adverse effect on the financial condition of the Company and the Company Subsidiaries, taken as a whole. (d) Schedule 4.15(d) identifies each funded Employee Plan which is an ---------------- employee pension plan within the meaning of Section 3(2) of ERISA (other than a multiemployer plan 23 within the meaning of Section 3(37) of ERISA). With respect to each such funded Employee Plan: (i) the Employee Plan is a qualified plan under Section 401(a) or 403(a) of the Code, and its related trust is exempt from federal income taxation under Section 501(a) of the Code; (ii) a request for favorable IRS determination letter has been made and, since the date of such request, the Employee Plan has not been amended or operated in a manner which would materially adversely affect its qualified status and no event has occurred which has caused or could cause the loss of such status; (iii) to the knowledge of the Company, there has been no termination or partial termination within the meaning of Section 411(d)(3) of the Code; (iv) no such Employee Plan (other than the Sealy Retirement Plan) is covered by Section 412 of the Code; and (v) no such Employee Plan (other than the Sealy Retirement Plan) is covered by Title IV of ERISA. The Company has not ceased operations at a facility so as to become subject to the provisions of Section 4068(f) of ERISA, withdrawn as a substantial employer so as to become subject to the provisions of Section 4063 of ERISA, withdrawn as a sponsor of a multiemployer plan within the meaning of Section 3(37) of ERISA, or ceased making contributions on or before the Closing Date to any Employee Plan which is a pension plan subject to Section 4064(a) of ERISA. Except as set forth on Schedule 4.15(d), as of October 21, 1997, the Company is not aware of any - ---------------- withdrawal liability claims against the Company or any Company Subsidiary in connection with plant closings or other activity. (e) Except as set forth on Schedule 4.15(e), the consummation of the ---------------- transactions contemplated by this Agreement will not entitle any employee or other person to receive severance or other compensation which would not otherwise be payable absent the consummation of the transactions contemplated by this Agreement or cause the acceleration of the time of payment or vesting of any award or entitlement under any Employee Plan. (f) Except as set forth on Schedule 4.15(f), to the knowledge of the ---------------- Company, since December 1, 1995, there have been no governmental audits of the equal employment opportunity practices of the Company or any Company Subsidiary. There is no unfair labor practice charge or complaint against the Company or any Company Subsidiary pending before the National Labor Relations Board or strike, dispute, slowdown or stoppage pending or, to the knowledge of the Company, threatened against or involving the Company that is likely to have a material adverse effect on the Company and the Company Subsidiaries, taken as a whole, and none has occurred since December 1, 1995. (g) Each Employee Plan (and each related trust or insurance contract) complies in form and in operation in all material respects with the applicable requirements of ERISA, the Code and any other applicable laws. All required reports and descriptions (including Form 5500 Annual Reports, Summary Annual Reports, PBGC-l'S, and Summary Plan Descriptions) have been filed or distributed appropriately with respect to each Employee Plan. All contributions (including all employer contributions and employee salary reduction contributions), premiums, reimbursements and accruals which related to or arise from any period ending on or prior to the Closing Date have been paid or accrued. Section 4.16. Insurance Policies. Schedule 4.16 contains a summary ------------------ ------------- description of all material insurance policies of the Company and the Company Subsidiaries and each such policy is in full force and effect. All premiums with respect to the insurance policies listed on 24 Schedule 4.16 which are due and payable prior to the Effective Time have been - ------------- paid or will be paid prior to the Effective Time, and no written notice of cancellation or termination has been received by the Company with respect to any such policy. To the knowledge of the Company, there are no pending claims against such insurance by the Company or any Company Subsidiary as to which the insurers have denied coverage or otherwise reserved rights. Neither the Company nor any Company Subsidiary has been refused any insurance with respect to its assets or operations during the past five years. The Company's Risk and Investment Guide, which has been made available to Purchaser, describes any self-insurance or risk retention arrangements currently in effect for the Company or any Company Subsidiary other than customary deductibles. Section 4.17. Intellectual Properties. ----------------------- (a) "Intellectual Property" shall mean all patents, patent --------------------- applications and patent disclosures; all inventions (whether or not patentable and whether or not reduced to practice); all trademarks, service marks, trade dress, trade names and all the goodwill associated therewith; all registered and unregistered copyrights; all registrations, applications and renewals for any other foregoing; all trade secrets, confidential information, ideas, formulae, compositions, know-how, manufacturing and production processes and techniques, research information, drawings, specifications, designs, plans, improvements, proposals, technical and computer data, documentation and software, financial, business and marketing plans, customer and supplier lists and related information, marketing materials and all other intellectual property rights. (b) Schedule 4.17 contains a complete list of all domestic and ------------- foreign patents, patent applications, patent licenses, trade names, trademarks and service marks ("Trademarks"), Trademark registrations and applications, ---------- copyright registrations and applications owned (in whole or in part), licensed to any extent or used by the Company or any of the Company Subsidiaries. (c) (i) The Company or a Company Subsidiary, as the case may be, is the owner of or is duly licensed to use pursuant to a valid and enforceable license agreement the Intellectual Property used in the conduct of its business; (ii) each item constituting part of the Intellectual Property in which the Company or a Company Subsidiary has an ownership interest has been, to the extent indicated in Schedule 4.17, duly registered with, filed in or issued by, ------------- as the case may be, the United States Patent and Trademark Office or such other Governmental Entities, domestic or foreign, as are indicated in Schedule 4.17; ------------- and (iii) each Trademark registration, copyright registration and patent owned by the Company or a Company Subsidiary has been maintained in good standing, and remains in full force and effect. (d) No claim of infringement or misappropriation of Intellectual Property of any other Person or contesting the validity, enforceability, use or ownership of any Intellectual Property owned or used by the Company or any Company Subsidiary has been made against the Company or any Company Subsidiary, and neither the Company nor any Company Subsidiary is infringing or misappropriating any Intellectual Property of any other Person. Without limiting the foregoing, except as set forth on Schedule 4.17 no claim is pending ------------- or, to the knowledge of the Company, threatened to the effect that the conduct by the Company or any Company Subsidiary of its business conflicts with or infringes in any way upon any Intellectual Property owned by any 25 other Person that the Company or any Company Subsidiary needs to or should enter into a license arrangement so as to continue the conduct of its business without infringing such other Person's Intellectual Property or that any of the Trademarks set forth on Schedule 4.17 has been abandoned. The Company actively ------------- defends its Intellectual Property from infringement and misappropriation by other Persons. All Intellectual Properly owned or used by the Company or any Company Subsidiary immediately prior to the Closing will be owned or available for use by the Company and the Company Subsidiaries on identical terms and conditions immediately subsequent to the Closing. (e) Without limiting any other provisions hereof, except as set forth on Schedule 4.17, neither the Company nor any Company Subsidiary has granted any ------------- license, franchise or permit to any Person to use any of the Intellectual Property of the Company or the Company Subsidiaries, and no other Person has the right to use the same Trademarks, service marks or trade names owned by the Company or the Company Subsidiaries or any similar trademarks, service marks or trade name in connection with the same or similar applications as those of the Company and the Company Subsidiaries Section 4.18. Permits. The Company and the Company Subsidiaries ------- have all Permits, except for those Permits the failure to have would not, individually or in the aggregate, have a material adverse effect on the Company and the Company Subsidiaries, taken as a whole. Schedule 4.18 contains a ------------- complete list of the material Permits, exclusive of any Environmental Permits and Permits with respect to state or local sales, use or other Taxes. To the knowledge of the Company, all of the Permits are in full force and effect except where the failure to be so in effect would not have a material adverse effect on the financial condition of the Company and the Company Subsidiaries, taken as a whole. No outstanding notice of cancellation or termination has been delivered to the Company or any Company Subsidiary in connection with any such Permit nor, to the knowledge of the Company, has any such cancellation or termination been threatened. To the knowledge of the Company, no application, action or proceeding for the modification of any such Permits is pending or threatened that may result in the revocation, modification, nonrenewal or suspension of any material Permits. Each of the Company and each Company Subsidiary has filed when due all documents required to be filed with any Governmental Entity in connection with such Permits and, at the time of the filing thereof, all such filings were accurate and complete in all material respects. Section 4.19. Compliance with Laws. Except for matters relating to -------------------- Environmental Laws (which are the subject of Section 4.11), neither the Company nor any Company Subsidiary is in violation of or has violated or failed to comply with any Law or Judgment applicable to its business or operations, except for violations and failures to comply that would not, individually or in the aggregate, be reasonably likely to result in a material adverse effect on the financial condition of the Company and the Company Subsidiaries, taken a whole. Section 4.20. Brokerage Fees. Except as set forth on Schedule 4.20, -------------- ------------- neither the Company nor the Shareholder has retained any financial advisor, broker, agent or finder or agreed to pay an financial advisor, broker, agent or finder on account of this Agreement or any transaction contemplated hereby or any transaction of like nature that would give rise to any valid 26 claim against Purchaser for any broker's or finder's fee or similar compensation in connection with the transactions contemplated hereby. ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER The Shareholder hereby represents and warrants to Purchaser as follows: Section 5.01. Authorization. The Shareholder has the requisite ------------- partnership power and authority to enter into this Agreement and to perform its obligations hereunder. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized, and no other partnership proceedings on the part of the Shareholder are necessary to authorize this Agreement and the transactions contemplated hereby. This Agreement has been duly executed and delivered by the Shareholder and (assuming due authorization, execution and delivery by Purchaser) constitutes a legal, valid and binding obligation of the Shareholder, enforceable against the Shareholder in accordance with its terms, except as such enforcement may be subject to (i) bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or other similar laws relating to creditors' rights generally and (ii) general principles of equity (whether applied in a proceeding at law or in equity). Section 5.02. No Violation. The execution and delivery of this ------------ Agreement by the Shareholder do not, and the consummation by the Shareholder of the transactions contemplated hereby will not, (i) conflict with or violate the partnership agreement of the Shareholder, (ii) subject to making the filings and obtaining the approvals identified in Section 5.03, conflict with or violate any Law or Judgment applicable to the Shareholder or by which the Shareholder or any Owned Shares is bound or affected, or (iii) result in any breach of or constitute a default (or an event which with notice or lapse of time or both would become a default) under, result in the loss of a material benefit under, or give to others any right of purchase or sale, or any right of termination, amendment, acceleration, increased payments or cancellation of, or result in the creation of a Lien on any Owned Shares pursuant to any contract, agreement or other instrument or obligation to which the Shareholder is a party or by which the Shareholder or any property or asset of the Shareholder is bound or affected. Section 5.03. Approvals. The execution and delivery of this --------- Agreement by the Shareholder do not, and the performance of this Agreement and the consummation by the Shareholder of the transactions contemplated hereby will not, require any consent, approval, authorization or permit of, or filing with or notification to, any Governmental Entity, except for (i) the filing of the Certificate of Merger as required by the DGCL and the filing of appropriate documents with the relevant authorities of other states in which the Company or any Company Subsidiary is qualified to do business, (ii) applicable requirements, if any, of the Exchange Act and (iii) the notification requirements under the HSR Act. Section 5.04. Ownership of Owned Shares. The Shareholder is the ------------------------- sole record and beneficial owner of the Owned Shares, free and clear of any Liens and free of any other limitation or restriction (including any restriction on the right to vote, sell or otherwise dispose of 27 the Owned Shares or any interest therein) except pursuant to this Agreement. The Owned Shares constitute all of the Company Common Stock owned of record or beneficially (within the meaning of Rule 13d-3 under the Exchange Act) by the Shareholder. ARTICLE VI REPRESENTATIONS AND WARRANTIES OF PURCHASER Purchaser hereby represents and warrants to the Company and the Shareholder as follows: Section 6.01. Organization. Purchaser is a corporation duly ------------ incorporated, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has full corporate power and authority to conduct its business as it is now being conducted and to own, operate or lease the properties and assets it currently owns, operates or holds under lease. Purchaser is duly qualified or licensed to do business and is in good standing as a foreign corporation in each jurisdiction where such qualification or licensing is necessary, except where the failure to so qualify or be licensed would not have a material adverse effect on the financial condition of Purchaser and its Subsidiaries, taken as a whole. Section 6.02 Authorization. Purchaser has all requisite corporate ------------- power and authority to enter into this Agreement and to perform its obligations hereunder. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly approved by the Board of Directors of Purchaser, and by the Investors as the stockholders of Purchaser, and no other corporate proceeding on the part of Purchaser is necessary to authorize the Merger, this Agreement and the transactions contemplated hereby. This Agreement has been duly executed and delivered by Purchaser and (assuming due authorization, execution and delivery by the Company and the Shareholder) constitutes the legal, valid and binding obligation of Purchaser, enforceable against Purchaser in accordance with its terms, except as such enforcement may be subject to (i) bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or other similar laws relating to creditors' rights generally and (ii) general principles of equity (whether applied in a proceeding at law or in equity). Section 6.03. No Violation. The execution and delivery of this ------------ Agreement by Purchaser does not, and the consummation by Purchaser of the transactions contemplated by this Agreement will not, (i) conflict with, or result in any violation of or default or loss of any benefit under, any provision of Purchaser's Certificate of Incorporation or By-laws; (ii) except as otherwise set forth in Schedule 6.03 hereto and subject to the matters described ------------- in Section 6.04 hereof, conflict with or result in any violation of or default or loss of any benefit under, any Law or Judgment of any Governmental Entity to which Purchaser is a party or to which any of its property is subject; or (iii) except as otherwise set forth in Schedule 6.03, conflict with, or result in a ------------- breach or violation of or default or loss of any benefit under, or accelerate the performance required by, the terms of any agreement, contract, indenture or other instrument to which Purchaser is a party or to which any of its property is subject, or constitute a default or loss of any right thereunder or an event which, with the lapse of time or notice or both, might result in a default or loss of any right thereunder or the creation of any lien, charge or encumbrance upon 28 any of the assets or properties of Purchaser, except with respect to clauses (ii) and (iii) hereof, where the breach, violation, default, loss of benefit, acceleration or loss of right would not have a material adverse effect on the financial condition of Purchaser and its Subsidiaries, taken as a whole, or on the ability of the parties to consummate the transactions contemplated by this Agreement. Section 6.04. Approvals. The execution and delivery of this --------- Agreement and the consummation of the transactions contemplated by this Agreement by Purchaser will not require the consent, approval, order or authorization of any Governmental Entity or any other Person under any agreement, indenture or other instrument to which Purchaser is a party or to which any of its properties is subject, other than the items disclosed in Schedule 6.04, and no declaration, filing or registration with any Governmental - ------------- Entity is required by Purchaser in connection with the execution and delivery of this Agreement and the consummation of transactions contemplated by this Agreement, except for (i) the delivery and filing of the Certificate of Merger as required by the DGCL and the filing of appropriate documents with the relevant authorities of other states in which Purchaser is qualified to do business, (ii) the filing pursuant to the HSR Act, and the expiration or termination of the applicable waiting period under such Act, (iii) compliance with any applicable requirements of the Securities Act, the Exchange Act and any other applicable securities laws, (iv) those the failure of which to obtain would not have a material adverse effect on the financial condition of Purchaser and its Subsidiaries, taken as a whole, or on the ability of the parties to consummate the transactions contemplated by this Agreement, and (v) filings and notices not required to be made or given until after the Effective Time. Section 6.05. Litigation. Except as set forth on Schedule 6.05, ---------- ------------- there is no Proceeding pending or, to the knowledge of Purchaser, threatened against Purchaser by or before any Governmental Entity or by any Person, which, if adversely determined, would reasonably be expected to (i) result in a judgment against Purchaser in an amount in excess of $250,000, (ii) materially interfere with the conduct of the business of Purchaser or (iii) have a material adverse effect on the financial condition of Purchaser. Except as set forth on Schedule 6.05, Purchaser is not a party to or, to the knowledge of Purchaser, - ------------- bound by any Judgment. Section 6.06. Financing. Purchaser has received and has furnished to --------- the Company a copy of (i) a commitment letter from Goldman Sachs Credit Partners L.P., dated October 29, 1997, pursuant to which Goldman Sachs Credit Partners L.P. has committed to provide or cause to be provided up to $435 million of term and $50 million of revolving senior debt financing and (ii) a commitment letter from Goldman, Sachs & Co. dated October 29, 1997, pursuant to which Goldman, Sachs & Co. has committed to place or cause to be placed up to $165 million of senior subordinated notes and $75 million of senior subordinated discount debentures (collectively, the "Commitment Letters"). The Commitment Letters are ------------------ in full force and effect on the date of this Agreement and Purchaser believes it will be able to obtain the financing (the "Debt Financing") described in the -------------- Commitment Letters on the terms and conditions provided in the Commitment Letters. The Investors have committed, subject only to the conditions set forth in Sections 8.01 and 8.02 hereof, to capitalize Purchaser with $135 million of equity (the "Equity Financing") which, subject to Section 7.15 hereof, may ---------------- include common and preferred stock in the discretion of the Investors. The Debt Financing and the Equity Financing, if, as and when received, will provide the funds necessary to pay the cash consideration payable in the Merger pursuant to 29 Section 3.01(a) hereof, the Company Expenses, the Warrant and Option Charges and the repayment or refinancing of Indebtedness, including the Senior Sub Notes, and accrued interest thereon, plus expenses incurred in connection therewith. Section 6.07. Brokerage Fees. Except as set forth on Schedule 6.07, -------------- ------------- Purchaser has not retained any financial advisor, broker, agent or finder or agreed to pay any financial advisor, broker, agent or finder on account of this Agreement or any transaction contemplated hereby or any transaction of like nature that would give rise to any valid claim against the Company or the Shareholder for any broker's or finder's fee or similar compensation in connection with the transactions contemplated hereby. Section 6.08. Purchaser Activities. Purchaser was organized solely -------------------- for the purpose of entering into this Agreement and consummating the transactions contemplated hereby and has not engaged in any activities or business, and has incurred no liabilities or obligations whatsoever, in each case, other than those incident to its organization and the execution of this Agreement and the consummation of the transactions contemplated hereby. Section 6.09. Capitalization. On the Closing Date, the authorized -------------- capital stock of Purchaser will consist of shares of Common Stock, par value $0.01 per share, shares of Class L Common Stock, par value $0.01 per share, and shares of blank-check preferred stock. Except as provided in, or contemplated by, this Agreement, there are no authorized or outstanding options, warrants, convertible securities, calls, rights, commitments, preemptive rights or agreements or instruments or understandings of any character, to which Purchaser is a party or by which Purchaser is bound, obligating Purchaser to issue, deliver or sell, or cause to be issued, delivered or sold, contingently or otherwise, additional shares of capital stock of Purchaser or any securities or obligations convertible into or exchangeable for such shares or to grant, extend or enter into any such option, warrant, convertible security, call, right, commitment, preemptive right or agreement. ARTICLE VII COVENANTS Section 7.01. Interim Operations of the Company . During the period --------------------------------- from the date of this Agreement to the Effective Time, except as specifically contemplated by this Agreement (including upon the conversion of Company Common Stock into Preference Stock and the steps taken to extinguish, repurchase or refinance the Indebtedness, options and warrants, all as contemplated hereby) or as set forth on Schedule 7.01 or as otherwise consented to in writing by ------------- Purchaser, the Company will and will cause each Company Subsidiary to: (a) carry on its business in, and only in, the ordinary course in substantially the same manner as heretofore conducted and, to the extent consistent with such business, use all reasonable efforts to (i) preserve intact its present business organization, (ii) keep available the services of its present officers and employees, (iii) preserve its relationships with clients, suppliers, customers, distributors, licensees, licensors and others having 30 business dealings with it, (iv) maintain all assets other than those disposed of in the ordinary course of business in good repair and condition, (v) maintain all insurance, (vi) maintain its books of account and records in the usual, regular and ordinary manner, and (vii) maintain and protect all of their Intellectual Property so as not to affect adversely the validity or enforceability thereof; (b) not amend its Certificate of Incorporation or By-laws or other governing document or agreement; (c) not acquire by merging or consolidating with, or purchasing all or substantially all of the assets of, or otherwise acquiring, any business of any corporation, partnership, association or other business organization or division thereof, in each case for consideration having a value in excess of $1,000,000; (d) not split, combine or reclassify its outstanding capital stock or declare, set aside, make or pay any dividend or other distribution in respect of its capital stock (in cash or otherwise) other than (i) dividends paid by the Company's wholly-owned Subsidiaries to the Company or its wholly-owned Subsidiaries and (ii) the issuance of Preference Stock to the Shareholder (as contemplated by Section 8.02(j)); (e) not issue or sell (or agree to issue or sell) any shares of its capital stock of any class or series, or any options, warrants, conversion or other rights to purchase any such shares or any securities convertible into or exchangeable for such shares (other than upon the exercise or conversion of options, warrants or convertible securities outstanding on the date hereof), or grant, or agree to grant, any such options or modify or alter the terms of any of the above; (f) not, other than in the ordinary course of business, (i) incur any indebtedness for borrowed money or vary the material terms of any existing debt securities, (ii) issue or sell any debt securities, (iii) acquire or dispose of any assets having a book or market value in excess of $500,000, (iv) enter into any material contract, or (v) modify in any material respect or terminate any material Contract; (g) not take any steps to mortgage or pledge to secure any material obligation, or to subject to any material Lien, any of its material properties, other than in the ordinary course of business consistent with prior practice and following prior notice to and consultation with Purchaser; (h) not grant to any director or officer, or, except in the ordinary course of business, consultant or other employee any increase in compensation in any form, or any severance or termination pay, or make any loan to or enter into any employment agreement, collective bargaining agreement or arrangement with any such person, except in each case as may be legally required pursuant to any existing Employee Plan; (i) not adopt, enter into, amend in any material respect, announce any intention to adopt or terminate, any Employee Plan or other employee benefit plan, 31 program or arrangement of general applicability, except as required by applicable Law or as disclosed on any disclosure schedule pursuant to Section 4.15; (j) not discharge or satisfy any material Lien or pay or satisfy any material obligation or Liability (fixed or contingent) except in the ordinary course of business consistent with past practice, or commence any voluntary petition, proceeding or action under any bankruptcy, insolvency or other similar Laws; (k) not make or institute any change in its accounting procedures or practices unless mandated by GAAP; (l) not make any Tax election or settle or compromise any material federal, state, local or foreign income Tax liability; (m) not enter into any transaction which would have been required to be listed on Schedule 4.08 had such transaction occurred during ------------- the period between December 1, 1996 and the date of this Agreement; (n) not enter into any agreement or other arrangement with any director, officer, employee or shareholder of the Company or any Company Subsidiary or any Affiliate of any of the foregoing, except in the ordinary course of business or as disclosed on Schedule 4.08; ------------- (o) not take any action or omit to take any action which would result in a violation of any applicable law or would cause a breach of any agreement, contract or commitment, which violation or breach would have a material adverse effect on the financial condition of the Company and its Subsidiaries, taken as a whole; or (p) not authorize or propose, or agree to take, any of the actions set forth in the foregoing subparagraphs (b) through (o). Section 7.02. Access to Information; Assistance with Financing . (a) ------------------------------------------------ The Company shall (and shall cause each Company Subsidiary to) afford to the officers, employees, accountants, counsel and other representatives of Purchaser, reasonable access, during normal business hours, during the period prior to the Effective Time, to all of the properties, books, contracts, commitments, records, officers, personnel and accountants of the Company and the Company Subsidiaries and will furnish to Purchaser all such documents and copies of documents and financial records and all information with respect to the affairs of the Company and the Company Subsidiaries as Purchaser may reasonably request. Purchaser and such representatives will hold any such information which is non-public in confidence in accordance with the provisions of the existing confidentiality agreement between the Company and Purchaser dated as of August 8, 1997. Notwithstanding the preceding sentence, the Company acknowledges that Purchaser may cause an information memorandum to be prepared and used in connection with the consummation of the Purchaser's financing of the transactions contemplated hereby and agrees to use commercially reasonable efforts to furnish Purchaser with access to, and to permit the use of, all information necessary and to furnish Purchaser with access to, and to cause the cooperation of, 32 all personnel necessary for Purchaser to consummate such financing (it being understood that such financing shall not require the filing of any registration statement with the Securities and Exchange Commission prior to the Closing). In addition, the Company shall request its accountants to consent to the inclusion of their report or reports in, and to issue a comfort letter in connection with, any offering memoranda or filings required by such financing. (b) If required by Purchaser's financing sources, with respect to any parcel of Owned Property, the Company shall use its commercially reasonable efforts to deliver to Purchaser title insurance and/or a survey or surveys for such parcel of Owned Property, in each case, in form and substance reasonably acceptable to Purchaser. If required by Purchaser's financing sources, with respect to each leased parcel of Real Property, the Company shall use its commercially reasonable efforts to deliver to Purchaser a nondisturbance agreement, a consent and waiver and/or an estoppel letter executed by the landlord, lessor, landlord and/or licensor of such leased Real Property, in each case, in form and substance reasonably acceptable to Purchaser. Any fees and expenses paid or payable by, or incurred by the Company or any of the Company Subsidiaries in connection with this Section 7.02(b) shall not be deemed to be Company Expenses. Section 7.03. Acquisition Proposals. The Company and the --------------------- Shareholder shall not, and the Company shall cause the Company Subsidiaries not to, directly or indirectly, (i) solicit, initiate or encourage the submission of any inquiries, discussions or proposals or offers from any other Person relating to a possible disposition of the stock or any material portion of the assets of the Company or any Company Subsidiary, (ii) continue, propose, solicit, initiate, encourage or enter into negotiations or discussions relating to a possible disposition of the stock or any material portion of the assets of the Company or any Company Subsidiary, (iii) enter into or consummate any agreement or understanding providing for the disposition of the stock or any material portion of the assets of the Company or any Company Subsidiary, or (iv) assist, participate in, facilitate or encourage any effort or attempt by any other Person to do or seek any of the foregoing. The Company shall promptly notify Purchaser of, and communicate to Purchaser the terms of, any such inquiry, proposal or request for information received by, or negotiations or discussions sought with, the Company or the Company Subsidiaries. Section 7.04. Consents and Approvals . Each of the Company and ---------------------- Purchaser will take all reasonable actions necessary to comply promptly with all legal requirements which may be imposed on it with respect to this Agreement and the transactions contemplated hereby which actions shall include, without limitation, furnishing all information in connection with Requisite Approvals, and will promptly cooperate with and furnish information to each other in connection with any such requirements imposed upon any of them or any of their Subsidiaries in connection with this Agreement and the transactions contemplated hereby. Each of the Company and Purchaser will, and will cause its Subsidiaries to, take all reasonable actions necessary to obtain any Requisite Approvals. Section 7.05. Employment Matters . (a) After the Effective Time, ------------------ Purchaser shall either continue the existing Employee Plans of the Company and the Company Subsidiaries or shall provide, or cause the Surviving Corporation to provide, benefits to employees of the Company and the Company Subsidiaries that are no less favorable in the aggregate to such 33 employees than the existing Employee Plans of the Company and the Company Subsidiaries and shall remain at existing levels for the one-year period immediately following the Effective Time. For purposes of any such benefit plans: (i) Purchaser and the Surviving Corporation shall grant all employees of the Company credit for all service with the Company and the Company Subsidiaries prior to the Effective Time for all purposes for which such service was recognized by the Company; (ii) any pre-existing conditions shall be waived; and (iii) expenses incurred on or before the Effective Time shall be taken into account for purposes of establishing satisfaction of any applicable deductible, coinsurance and maximum out-of-pocket provisions. (b) From and after the Effective Time, Purchaser shall cause the Surviving Corporation to honor the Company's existing severance plan and severance agreements in accordance with the terms thereof. Section 7.06. Publicity . So long as this Agreement is in effect, --------- none of the Company, Purchaser, the Shareholder or any of their agents shall issue or cause the publication of any press release or other public statement or announcement with respect to this Agreement or the transactions contemplated hereby without the prior written consent of all the parties hereto, except as may be required by Law, and in such case shall use all reasonable efforts to consult with all the parties hereto prior to such release or announcement being issued. Section 7.07. Notification of Certain Matters . The Company and the ------------------------------- Shareholder shall give prompt notice to Purchaser, and Purchaser shall give prompt notice to the Company and the Shareholder, of (i) the occurrence or non- occurrence of any event the occurrence or non-occurrence of which would cause any representation or warranty contained in this Agreement to be untrue or inaccurate in any material respect and (ii) any material failure of the Company, the Shareholder or Purchaser, as the case may be, to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder, in each case, to the extent such event or circumstance is or becomes known to the party required to give such notice. Section 7.08. Directors' and Officers' Indemnification . (a) The ---------------------------------------- Company agrees that, for the six-year period immediately following the Effective Time, it or the Surviving Corporation shall indemnify each Person who is now, or has been at any time prior to the date hereof, a director or officer of the Company or of any Company Subsidiary or a Person entitled to indemnification (individually a "Covered Party," and collectively the "Covered Parties"), to the ------------- --------------- same extent and in the same manner as is now provided in the respective Certificate of Incorporation or By-laws of the Company and such Company Subsidiaries in effect on the date hereof, with respect to any claims and/or Damages (as defined below) based in whole or in part on, or arising in whole or in part out of, any matter existing or occurring at or prior to the Effective Time. (b) The Company agrees that, for the three-year period immediately following the Effective Time, it or the Surviving Corporation shall maintain in effect the director and officer insurance coverage on terms substantially no less advantageous to the insureds than the director and officer insurance coverage currently maintained by the Company for the Covered Parties; provided, -------- however, that in the event the annual premium for such coverage exceeds an - ------- amount equal to twice the aggregate annual premiums currently paid by the Company and the Company 34 Subsidiaries for such coverage, the Surviving Corporation shall notify the Covered Parties who shall then elect as a group either (i) to continue coverage under the policy then maintained by the Surviving Corporation, in which event each of the Covered Parties shall be severally (but not jointly) liable to the Surviving Corporation for their pro rata share of such excess, or (ii) to seek coverage from another carrier, in which event the Surviving Corporation shall reimburse the Covered Parties the cost of such alternate coverage up to an amount equal to twice the aggregate annual premiums currently paid by the Company and the Company Subsidiaries for such coverage. Section 7.09. Stockholder Approval . The Company shall take all -------------------- action necessary in accordance with the DGCL and its Certificate of Incorporation and By-laws to obtain the requisite approval and adoption of this Agreement and the Merger by the Company Stockholders by written consent pursuant to Section 228 of the DGCL and shall take such other actions as may be required by such Section (including giving prompt notice of such written consent to those Company Stockholders who have not consented in writing). Section 7.10. Consent by Shareholder . In accordance with the DGCL, ---------------------- the Shareholder hereby approves this Agreement and the Merger. Section 7.11. Further Assurances . Subject to the terms and ------------------ conditions herein provided, each of the parties hereto (including the Shareholder) agrees to use all commercially reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable, whether under applicable Law (including the HSR Act) or otherwise, or to remove any injunctions or other impediments or delays, legal or otherwise, to consummate and make effective the Merger and the other transactions contemplated by this Agreement, including the taking of all appropriate actions by Purchaser and the Company in furtherance of the consummation of the financing of the transactions contemplated hereby by Purchaser and the refinancing of Indebtedness. Section 7.12. Noncompetition; Nonsolicitation . For a period of ------------------------------- three (3) years from and after the Closing, the Shareholder shall not, directly or indirectly, (i) own, manage, operate, join, control or participate in the ownership, management, operation or control of, as stockholder or partner or any other similar capacity with any business which is in competition with or potential competition with the Company, the Surviving Corporation, any of the Company Subsidiaries or any successor to any of the foregoing, or (ii) solicit, employ, retain as a consultant, interfere with or attempt to entice away from the Company, the Surviving Corporation, any of the Company Subsidiaries or any successor to any of the foregoing, any individual who is, has agreed to be or within one year of such solicitation, employment, retention, interference or enticement has been, employed or retained by the Company, the Surviving Corporation, any of the Company Subsidiaries or any successor to any of the foregoing in a supervisory or more senior capacity. Ownership of not more than 2% of the outstanding stock of any publicly traded company shall not, in and of itself, be a violation of this Section 7.12. The restrictive covenant contained in this Section 7.12 is a covenant independent of any other provision of this Agreement, and the existence of any claim which the Shareholder may allege against Purchaser, the Company, the Surviving Corporation or any of their Affiliates, whether based on this Agreement or otherwise, shall not prevent the enforcement of this covenant. The Shareholder agrees that a breach of this 35 Section 7.12 shall cause irreparable harm to Purchaser, the Company, the Surviving Corporation and their Affiliates, that Purchaser's, the Company's and the Surviving Corporation's remedies at law for any breach or threat of breach of the provisions of this Section 7.l2 shall be inadequate, and that Purchaser, the Company and/or the Surviving Corporation shall be entitled to an injunction or injunctions to prevent breaches of this Section 7.12 and to enforce specifically the terms and provisions hereof, in addition to any other remedy to which Purchaser, the Company and/or the Surviving Corporation may be entitled at law or in equity. The three year period shall be tolled during any period of violation of this Section 7.12 and during any other period required for litigation during which Purchaser, the Company and/or the Surviving Corporation seeks to enforce this covenant. In the event that this Section 7.12 shall be determined by any court of competent jurisdiction to be unenforceable by reason of its extending for too long a period of time or over too large a geographical area or by reason of its being too extensive in any other respect, it shall be interpreted to extend only over the longest period of time for which it may be enforceable, and/or over the largest geographical area as to which it may be enforceable and/or to the maximum extent in all other aspects as to which it may be enforceable, all as determined by such court in such action. Section 7.13. Warrants. (a) The Company shall take such steps as -------- it deems appropriate to extinguish or redeem the Merger Warrants prior to Closing or to cause the Merger Warrants to be exercisable at and after the Closing only for cash in an amount equal to the amount which such holder would have been entitled to receive upon or as a result of the Merger had such warrant been exercised immediately prior to the Effective Time. (b) As soon as reasonably practicable after the date hereof, the Company shall cause the warrant agent under the Warrant Agreement dated November 6, 1991 to deliver an effective notice of redemption to each holder of Restructure Warrants which notice shall contemplate the redemption by the Company of all of the outstanding Restructure Warrants. (c) The Company shall provide to Purchaser (i) a copy of each notice to be delivered to any warrant agent of the Company or to any holder of Merger Warrants or Restructure Warrants two days prior to such delivery and (ii) a copy of any written correspondence received from any holder of Merger Warrants or Restructure Warrants within two days after such receipt. (d) From and after the Effective Time until December 31, 2001, the Shareholder shall indemnify the Surviving Corporation from and against any and all Warrant Losses. "Warrant Losses" shall mean any amounts required to be paid -------------- by the Surviving Corporation (including all legal, accounting and other fees) (i) in excess of the per warrant redemption amount set forth in the notice delivered to such holder pursuant to Section 4.5 of the Warrant Agreement dated November 6, 1991, in connection with the Restructure Warrants, and (ii) in excess of the spread on the Merger Warrants, which spread shall be valued as the difference between the cash that a holder of the Merger Warrants would have been entitled to receive in the Merger had such Merger Warrants been exercised immediately prior to the Effective Time minus the exercise price of such Merger Warrants, in connection with the Merger Warrants. Any such indemnity shall be paid to the Surviving Corporation in cash within 30 days after receipt of notice from the Surviving Corporation (with supporting documentation) that it has suffered a Warrant Loss. 36 (e) In the event that any claim, demand or Proceeding is asserted against the Surviving Corporation which could give rise to Warrant Losses, the Surviving Corporation shall with reasonable promptness send to the Shareholder a written notice specifying the nature of such claim, demand or Proceeding and the amount or estimated amount (and the basis of such estimated amount) of the Warrant Loss; provided that the failure to give such notice shall not affect the -------- indemnification hereunder except to the extent the Shareholder shall have been actually prejudiced as a result of such failure. Following receipt of such notice, the Shareholder shall be entitled to assume and control the defense of such claim, demand or Proceeding with counsel of its choice, in which case the Shareholder shall not be required to pay the fees and disbursements of separate counsel to the Surviving Corporation with regard thereto. If requested by the Shareholder, the Surviving Corporation agrees to cooperate with the Shareholder and its counsel in contesting any claim or demand which the Shareholder defends, or, if appropriate and related to the claim in question, in making any counterclaim against the Person asserting such claim or demand, or any cross- complaint against any Person. No claim, demand or Proceeding for which indemnity is sought hereunder may be settled without the consent of the Shareholder. Section 7.14. Information Statement. The Company will cause a --------------------- notice (the "Information Statement") to be sent within 30 days after the date --------------------- hereof to the stockholders of the Company pursuant to Section 262(d)(2) of the DGCL. The Information Statement shall comply in all respects with the requirements of the DGCL and other applicable law. Section 7.15. Preferred Stock of Purchaser. The parties hereto ---------------------------- acknowledge that the provisions contained herein as of the date hereof with respect to the conversion of Preference Stock into securities of the Surviving Corporation as of the Effective Time assumes that the Equity Financing will consist solely of the issuance of Surviving Corporation Common Stock and/or Rollover Options. Purchaser may determine to issue preferred stock as part of the Equity Financing; provided that in the event preferred stock is included in -------- the Equity Financing, (i) such preferred stock shall be in amounts and on terms reasonably acceptable to the Shareholder, (ii) Purchaser shall not so issue preferred stock unless the parties hereto have amended this Agreement (which amendment the parties agree to negotiate in good faith) in a manner that will maintain the general economic intent of this Agreement as of the date hereof, and (iii) no such amendment shall provide that Bain or any of its Affiliates shall be issued any such preferred stock unless the Shareholder is also issued such preferred stock. Section 7.16. Assistance with Financing. In order to assist ------------------------- Purchaser with its financing of the transactions contemplated hereby, at or prior to Closing, the Company shall take such commercially reasonable steps as are necessary to cause the following to occur: (a) At any time prior to the Closing, Purchaser may request that, at the Closing, the Company shall have only one direct wholly-owned Subsidiary (the "First Tier Subsidiary"). If Purchaser makes such request, then (i) prior to --------------------- the Closing, Purchaser shall select, by written notice to the Company, which of the Company Subsidiaries shall be the First Tier Subsidiary; provided, that the -------- Company Subsidiary selected by Purchaser to be the First Tier Subsidiary must be one of the direct wholly-owned Subsidiaries of the Company as of the date hereof, and (ii) at or immediately prior to the Closing, the Company shall contribute all of the issued and outstanding capital stock of each of the Company Subsidiaries directly owned by the Company 37 (other than the issued and outstanding capital stock of the First Tier Subsidiary) to the capital of the First Tier Subsidiary. (b) At Purchaser's request, the Company shall prepare or shall cause to be prepared prior to the Closing any financial statements required in connection with Purchaser's financing of the transactions contemplated hereby. (c) If requested by Purchaser, the Company shall take all steps necessary to permit a merger of a wholly-owned Subsidiary of Purchaser with the First Tier Subsidiary at the Closing. (d) At Purchaser's request, the Company shall take or cause to be taken any other actions, including a restructuring of the Company Subsidiaries, necessary for Purchaser to consummate its financing of the transactions contemplated hereby. (e) No actions taken by or on behalf of the Company in connection with its obligations under this Section 7.16 or arising as a result of the taking of such action shall constitute a breach of any representation or warranty of the Company contained in this Agreement for any purpose hereunder, including without limitation Sections 8.02(a) and 9.02(iii) of this Agreement. ARTICLE VIII CONDITIONS Section 8.01. Conditions to the Obligations of Each Party. The ------------------------------------------- obligations of each of the Company, the Shareholder and Purchaser to consummate the Merger are subject to the satisfaction (or, if permissible, waiver by the party for whose benefit such conditions exist) of the following conditions: (a) there shall not be any Judgment or Law restraining, enjoining or prohibiting the consummation of the Merger; and (b) all waiting periods under the HSR Act shall have expired or been terminated. Section 8.02. Conditions to the Obligations of Purchaser. The ------------------------------------------ obligations of Purchaser to consummate the Merger are subject to the satisfaction (or waiver by Purchaser) of the following further conditions prior to or concurrent with the Closing: (a) the representations and warranties of the Company contained in this agreement which are qualified as to materiality shall be true and correct and all such representations and warranties that are not qualified as to materiality shall be true and correct in all material respects, in each case when made and at and as of the Closing Date as if made at and as of the Closing Date (except for those representations and warranties that address matters only as of a particular date or only with respect to a specific period of time which need only be true and accurate as of such date or with respect to such period); 38 provided that this paragraph (a) shall be deemed satisfied so long as the -------- failure of all such representations and warranties to be true and correct in the aggregate does not have a material adverse effect on the Company and the Company Subsidiaries, taken as a whole; (b) the Company shall have performed in all material respects its material obligations hereunder required to be performed by it at or prior to the Closing Date; (c) the Company shall have delivered to Purchaser a certificate (dated as of the Closing Date), signed by an officer or officers with authority to bind the Company as to compliance with the conditions set forth in paragraphs (a) and (b) of this Section 8.02 and the Shareholder shall have delivered to Purchaser a certificate (dated as of the Closing Date), signed by an officer with authority to bind the Shareholder, as to compliance with the conditions set forth in paragraphs (d) and (e) of this Section 8.02; (d) the representations and warranties of the Shareholder contained in this agreement which are qualified as to materiality shall be true and correct and all such representations and warranties that are not qualified as to materiality shall be true and correct in all material respects, in each case when made and at and as of the Closing Date as if made at and as of the Closing Date (except for those representations and warranties that address matters only as of a particular date or only with respect to a specific period of time which need only be true and accurate as of such date or with respect to such period); (e) the Shareholder shall have performed in all material respects its material obligations hereunder required to be performed by it at or prior to the Closing Date; (f) the Shareholder shall have executed and delivered a Shareholders Agreement in form and substance reasonably satisfactory to Purchaser, containing the terms set forth in the term sheet annexed hereto as Exhibit B; (g) Purchaser shall have obtained the debt financing described in the Commitment Letters on the terms and conditions set forth therein or otherwise obtained debt financing sufficient to consummate the transactions contemplated hereby on terms reasonably satisfactory to Purchaser; (h) except for the indebtedness for borrowed money listed on Schedule 8.02(h) hereto, (i) all outstanding indebtedness for borrowed ---------------- money of the Company and the Company Subsidiaries ("Indebtedness") shall be ------------ paid in full, (ii) any outstanding letters of credit issued by lenders who hold Indebtedness shall be terminated, and (iii) the Company shall have obtained (x) the release of all Liens on the capital stock of the Company and each of the Company Subsidiaries and all assets securing such Indebtedness and (y) the release of all guarantees with respect to such Indebtedness. At the Closing, the Company shall provide or arrange to be provided to Purchaser all releases and other documents in form and substance reasonably satisfactory to Purchaser demonstrating the release of such Liens and guarantees; 39 (i) since the date of this Agreement, no event shall have occurred which has or which would reasonably be expected to have a material adverse effect on the financial condition or business of the Company and the Company Subsidiaries taken as a whole; (j) of the Company Common Stock owned by Shareholder as of the date of this Agreement, the Shareholder shall have converted into Preference Stock a number of shares equal to the quotient of $40,000,000 divided by the Common Stock Per Share Amount (calculated assuming that the ---------- Common Stock Purchase Price is increased by $40,000,000 and assuming that the Company Common Stock so converted will be converted into the right to receive cash as of the Effective Time pursuant to Section 3.01(a) hereof) which shall be the only Preference Stock outstanding immediately prior to Closing; (k) all outstanding options of the Company (other than the Rollover Options) shall be extinguished and, as of immediately prior to the Closing, the Company shall have no Liabilities with respect to such options; (l) the Company shall have taken such steps as are contemplated by Section 7.13(a) with respect to the Merger Warrants; (m) the Company shall have (i) delivered to the warrant agent under the Warrant Agreement dated November 6, 1991 a certified copy of the Board resolution authorizing the redemption of all warrants issued and outstanding under such Warrant Agreement as contemplated by, and in compliance with, Section 4.3 of such Warrant Agreement and (ii) caused the warrant agent under such Warrant Agreement to have mailed a notice of such redemption at least 30 days prior to Closing to each holder of such warrants as contemplated by, and in compliance with, Section 4.5 of such Warrant Agreement; (n) the Company shall have delivered to Purchaser the opinion of counsel to the Company and the Shareholder reasonably acceptable to Purchaser, with respect to the matters described on Exhibit C hereto in a form reasonably acceptable to Purchaser; (o) the Company shall have obtained all consents, authorizations, approvals and waivers from third parties, in form reasonably acceptable to Purchaser, which are necessary in order to enable (i) the consummation of the transactions contemplated hereby and (ii) the Company and its Subsidiaries to conduct their business in all material respects after the Closing Date on the same basis as conducted prior to the date hereof, in each case except for those the failure of which to obtain would not have a material adverse effect on the financial condition of the Company and the Company Subsidiaries, taken as a whole; and (p) the number of Dissenting Shares shall not exceed five percent (5%) of the total number shares of Company Common Stock outstanding immediately prior to the conversion referred to in paragraph (j) of this Section 8.02. 40 Section 8.03. Conditions to the Obligations of the Company and the ---------------------------------------------------- Shareholder. The obligations of the Company and the Shareholder to consummate - ----------- the Merger are subject to the satisfaction (or waiver by the Company or the Shareholder, as the case may be) of the following further conditions prior to or concurrent with the Closing: (a) the representations and warranties of Purchaser contained in this agreement which are qualified as to materiality shall be true and correct and all such representations and warranties that are not qualified as to materiality shall be true and correct in all material respects, in each case when made and at and as of the Closing Date as if made at and as of the Closing Date (except for those representations and warranties that address matters only as of a particular date or only with respect to a specific period of time which need only be true and accurate as of such date or with respect to such period); (b) Purchaser shall have performed in all material respects all of its material obligations hereunder required to be performed by Purchaser at or prior to the Closing Date; (c) Purchaser shall have delivered to the Company and the Shareholder certificates (dated as of the Closing Date), signed by an officer or officers with authority to bind Purchaser, as to compliance with the conditions set forth in paragraphs (a) and (b) of this Section 8.03; (d) Investors shall have executed and delivered a Shareholders Agreement in form and substance reasonably satisfactory to the Shareholder, containing the terms set forth in the term sheet annexed hereto as Exhibit B; (e) Purchaser shall have provided to the Company and the Shareholder either (i) a copy, addressed to the Company and the Shareholder, of the opinion as to the solvency of the Surviving Corporation as of the Effective Time that is obtained and provided to the lenders in connection with the financing of the transactions contemplated hereby, or (ii) if no such opinion is provided to such Lenders, an opinion, addressed to the Company and the Shareholder, from a nationally recognized valuation firm, which firm and opinion are both reasonably satisfactory to the Company, as to the solvency of the Surviving Corporation as of the Effective Time, and taking into account the transactions contemplated hereby which opinion shall be a Company Expense; and (f) Purchaser shall have delivered to the Company an opinion of counsel reasonably acceptable to the Company with respect to the matters described in Exhibit D hereto in a form reasonably acceptable to the Company. ARTICLE IX CLOSING; TERMINATION Section 9.01. Closing. Unless this Agreement shall have been ------- terminated and the Merger abandoned, the closing of the transactions contemplated hereby (the "Closing") shall take ------- 41 place at the offices of Cleary, Gottlieb, Steen & Hamilton, 153 East 53rd Street, New York, New York, on the third business day following the satisfaction of all conditions precedent to Closing (or at such other place and on such other date as shall be agreed to by the parties hereto). At the Closing, the parties shall exchange the documents referred to in Article VIII hereof and all necessary filings with the Secretary of State to consummate the Merger under the DGCL shall be made. Section 9.02. Termination. Anything herein or elsewhere to the ----------- contrary notwithstanding, this Agreement may be terminated and the Merger contemplated herein may be abandoned at any time prior to the Effective Time: (i) with the consent of each of the parties hereto; (ii) by the Shareholder, the Company or Purchaser if the Merger shall not have occurred on or prior to February 15, 1998; provided, -------- however, that the right to terminate this Agreement and abandon the Merger ------- under this clause (ii) shall not be available to any party whose failure to fulfill any obligation under this Agreement has been the cause of, or resulted in, the failure of the Merger to occur on or prior to such date; (iii) by Purchaser, at any time prior to the Closing, following written notice by Purchaser to the Company or the Shareholder, as the case may be, of a breach of any representation, warranty or covenant of the Company or the Shareholder contained in this Agreement such that the conditions set forth in Section 8.02(a) or Section 8.02(b) cannot be satisfied, if such breach is not cured by the Company or the Shareholder, as the case may be, within thirty (30) days after receiving notice thereof; or (iv) by the Company, at any time prior to the Closing, following written notice by the Company to the Purchaser, as the case may be, of a breach of any representation, warranty or covenant of Purchaser contained in this Agreement such that the condition set forth in Section 8.03(a) or Section 8.03(b) cannot be satisfied, if such breach is not cured by Purchaser within thirty (30) days after receiving notice thereof. Section 9.03. Effect of Termination. In the event of the --------------------- termination of this Agreement as provided in Section 9.02 hereof, written notice thereof shall forthwith be given to the other party or parties specifying the provision hereof pursuant to which such termination is made, and this Agreement shall forthwith become null and void, and there shall be no liability on the part of any of the parties hereto except (i) for fraud or for willful breach of this Agreement and (ii) as set forth in Section 10.02. ARTICLE X GENERAL PROVISIONS Section 10.01. Non-Survival. No representation or warranty ------------ contained in this agreement shall survive the Closing. 42 Section 10.02. Costs and Expenses. Whether or not the transactions ------------------ contemplated by this Agreement are consummated, Purchaser shall bear the costs and expenses incurred by Purchaser and, subject to the calculation of the Common Stock Purchase Price as provided in this Agreement, the Company shall bear the costs and expenses incurred by the Company or the Shareholder in connection with the negotiation, preparation, execution and closing of this Agreement and the transactions contemplated hereby. No later than five days prior to Closing, the Shareholder and the Company shall provide to Purchaser their best estimate of Company Expenses and the parties hereto shall agree, prior to Closing, to the final amount of Company Expenses. Section 10.03. Notices. All notices or other communications required ------- or permitted by this Agreement shall be effective upon receipt and shall be in writing and delivered personally or by overnight courier, or sent by facsimile, as follows: (i) if to Purchaser, to: Sandman Merger Corporation Two Copley Place Boston, MA 02116 Attention: Josh Bekenstein and Paul Edgerley Facsimile: (617) 572-3274 with a copy to: Kirkland & Ellis 153 East 53d Street New York, NY 10022 Attention: Lance C. Balk, Esq. Facsimile: (212) 446-4900 (ii) if to the Company or the Shareholder, to: Sealy Corporation c/o Sealy, Inc. 1228 Euclid Avenue Cleveland, OH 44115 Attention: Ronald Jones Facsimile: (216) 522-1976 43 and to: Zell/Chilmark Fund, L.P. Two North Riverside Plaza Suite 1500 Chicago, IL 60606 Attention: Rod F. Dammeyer Facsimile: (312) 902-1512 with a copy to: Rosenberg & Liebentritt, P.C. Two North Riverside Plaza Suite 1601 Chicago, Illinois 60606 Attention: Alisa Singer, Esq. Facsimile: (312) 454-0335 and to: Calfee, Halter & Griswold, L.L.P. Suite 1800 800 Superior Avenue Cleveland, Ohio 44114 Attention: Lawrence Schultz, Esq. Facsimile: (216) 241-0816 and to: Cleary, Gottlieb, Steen & Hamilton One Liberty Plaza New York, New York 10006 Attention: William A. Groll, Esq. Facsimile: (212) 225-3999 or to such other address as hereafter shall be furnished as provided in this Section 10.03 by any of the parties hereto to the other parties hereto. Section 10.04. Counterparts. This Agreement may be executed in any ------------ number of counterparts, each of which shall be deemed an original, but all of which together shall constitute a single instrument. Section 10.05. Entire Agreement. This Agreement (including the ---------------- Schedules referred to herein), and the Confidentiality Agreement referred to in Section 7.02, sets forth the entire understanding and agreement between the parties as to the matters covered herein and 44 supersedes and replaces any prior understanding, agreement or statement of intent, in each case, written or oral, of any and every nature with respect thereto. Section 10.06. Independent Investigation. Purchaser acknowledges ------------------------- hereby that it has conducted its own independent review and analysis of the Company and the Company Subsidiaries and their assets and businesses and that it has been provided sufficient access to the properties, records and personnel of the Company and the Company Subsidiaries for such purpose. Except for the representations and warranties expressly made by the Company or the Shareholder in this Agreement or in any statement contained in the Schedules hereto or any certificate furnished pursuant to this Agreement, Purchaser acknowledges that there are no representations or warranties, express or implied, as to the financial condition, assets, liabilities, equity, operations, business or prospects of the Company or Company Subsidiaries. Section 10.07. Governing Law. This Agreement shall be governed in ------------- all respects, by the laws of the State of Delaware, including validity, interpretation and effect, without regard to principles of conflicts of law. Section 10.08. Third Party Rights; Assignment. This Agreement is ------------------------------ intended to be solely for the benefit of the parties hereto and is not intended to confer any benefits upon, or create any rights in favor of, any Person other than the parties hereto and shall not be assignable without the prior written consent of the other party; provided, however, that Purchaser may assign its rights and obligations hereunder in whole or in part to any Affiliate of Purchaser and Purchaser and the Company may assign their respective rights and obligations hereunder as collateral security to any Person providing financing to Purchaser and/or the Company. Section 10.09. Waivers and Amendments. No modification of or ---------------------- amendment to this Agreement shall be valid unless in a writing signed by the parties hereto referring specifically to this Agreement and stating the parties' intention to modify or amend the same. Any waiver of any term or condition of this Agreement must be in a writing signed by the party sought to be charged with such waiver referring specifically to the term or condition to be waived, and no such waiver shall be deemed to constitute the waiver of any other breach of the same or of any other term or condition of this Agreement. Section 10.10. Schedules. For purposes of this Agreement, any --------- matter that is clearly disclosed in a Schedule to this Agreement in such a way as to make its relevance to the information called for by another Schedule to this Agreement readily apparent shall be deemed to have been included in such other Schedule, notwithstanding the omission of an appropriate cross-reference thereto. Disclosure of any fact or item in any Schedule shall not necessarily mean that such item or fact is material to the Company or a Company Subsidiary individually or to the Company and the Company Subsidiaries taken as a whole. 45 IN WITNESS WHEREOF, this Agreement has been executed and delivered as of the date first written above. SANDMAN MERGER CORPORATION By:/s/ PAUL EDGERLEY ___________________________________ Name: Paul Edgerley Title: Vice President and Secretary SEALY CORPORATION By:/s/ RONALD L. JONES ___________________________________ Name: Ronald L. Jones Title: President and CEO ZELL/CHILMARK FUND, L.P. By ZC Limited Partnership, general partner By ZC Partnership, general partner By ZC Inc., a partner By:/s/ ROD DAMMEYER ___________________________________ Name: Rod Dammeyer Title: Vice President 46 EX-2.2 3 FIRST AMENDMENT TO THE AGREEMENT AND PLAN OF MERGER EXHIBIT 2.2 ----------- EXECUTION COPY FIRST AMENDMENT TO THE AGREEMENT AND PLAN OF MERGER This First Amendment (this "Amendment"), dated as of December 18, 1997 to --------- the certain Agreement and Plan of Merger (the "Merger Agreement") dated October ---------------- 30, 1997 by and among Sealy Corporation, a Delaware corporation (the "Company"), ------- Sandman Merger Corporation, a transitory Delaware corporation (the "Purchaser") --------- and Zell/Chilmark Fund, L.P., a Delaware limited partnership (the "Shareholder"). ----------- WHEREAS, Purchaser, the Company, and the Shareholder (collectively, the "Parties") desire to amend the Merger Agreement on the terms and conditions set ------- forth herein. NOW THEREFORE, in consideration of the mutual agreements set forth herein, the Parties agree as follows: 1. Capitalized Terms. Capitalized terms used herein without definition ----------------- shall have the meanings ascribed to such terms in the Merger Agreement. 2. Definitions. ----------- (i) The definitions of "Adjusted Equity Value", "Owned Shares", "Preference Stock" and "Surviving Corporation Common Stock" within Section 1.01 of the Merger Agreement shall be amended and restated in their entirety as follows: "Adjusted Equity Value" shall mean US $419.39 million ($419,390,000). --------------------- "Owned Shares" shall mean the 26,143,506 shares of Class A Common ------------ Stock owned beneficially and of record by the Shareholder as of the date hereof (as such number may be reduced as a result of conversion of shares into Preference Stock as contemplated by this Agreement) and the shares of Class B Common Stock issuable upon exercise of the 1,400,000 Merger Warrants owned beneficially and of record by the Shareholder as of the date hereof. "Preference Stock" shall mean the Series A Transitory Preferred Stock, ---------------- the Series B Transitory Preferred Stock and the Preferred Stock, $0.01 par value, of the Company. "Surviving Corporation Common Stock" shall mean the Surviving ---------------------------------- Corporation Class A Common Stock, Surviving Corporation Class B Common Stock, Surviving Corporation Class L Common Stock and Surviving Corporation Class M Common Stock." (ii) The following sentence shall be added as the last sentence to the definition of "Company Expenses": Notwithstanding anything contained herein to the contrary, the special cash bonus paid or payable to Ronald Jones which was approved by the Company's board of directors prior to the consummation of the Merger shall be deemed to be part of the "one time bonus payments" described in (c) above. (iii) The following definitions shall be added to Section 1.01 of the Merger Agreement: "Series A Transitory Preferred Stock"shall mean the Series A ----------------------------------- Transitory Preferred Stock, $0.01 par value per share, of the Company. "Series B Transitory Preferred Stock"shall mean the Series B ----------------------------------- Transitory Preferred Stock, $0.01 par value per share, of the Company. "Surviving Corporation Class A Common Stock" shall mean Class A Common ------------------------------------------ Stock, $0.01 par value per share, of the Surviving Corporation. "Surviving Corporation Class B Common Stock" shall mean Class B Common ------------------------------------------ Stock, $0.01 par value per share, of the Surviving Corporation. "Surviving Corporation Class L Common Stock" shall mean Class L Common ------------------------------------------ Stock, $0.01 par value per share, of the Surviving Corporation. "Surviving Corporation Class M Common Stock" shall mean Class M Common ------------------------------------------ Stock, $0.01 par value per share, of the Surviving Corporation. 3. Conversion of Company Stock. Sections 3.01(b) and (c) of the Merger --------------------------- Agreement are hereby amended in their entirety to read as follows: "(b)(i) The aggregate Series A Transitory Preferred Stock issued and outstanding immediately prior to the Effective Time (other than shares of Series A Transitory Preferred Stock to be canceled pursuant to Section 3.01(d) hereof) shall, at the Effective Time, by virtue of the Merger and without any action on the part of the holder thereof, be converted into (as provided in and subject to the limitations set forth in this Article III) the right to receive (A) 2,862,000 shares of fully paid and nonassessable shares of Surviving Corporation Class A Common Stock and 318,000 shares of fully paid and nonassessable shares of Surviving Corporation Class L Common Stock and (B) $25 million principal amount of junior subordinated notes of the Surviving Corporation in form and substance reasonably satisfactory to the Shareholder, containing the terms set forth in the 2 term sheet in Exhibit A hereto, upon the surrender of the certificate previously representing such shares of Series A Transitory Preferred Stock. (ii) The aggregate Series B Transitory Preferred Stock issued and outstanding immediately prior to the Effective Time (other than shares of Series B Transitory Preferred Stock to be canceled pursuant to Section 3.01(d) hereof) shall, at the Effective Time, by virtue of the Merger and without any action on the part of the holder thereof, be converted into (as provided in and subject to the limitations set forth in this Article III) the right to receive 48,366 shares of fully paid and nonassessable shares of Surviving Corporation Class A Common Stock and 5,374 shares of fully paid and nonassessable shares of Surviving Corporation Class L Common Stock, upon the surrender of the certificate previously representing such shares of Series B Transitory Preferred Stock; and (c) Each share of the Class A Common Stock, $0.01 par value per share, of Purchaser, issued and outstanding immediately prior to the Effective Time, shall at the Effective Time, by virtue of the Merger and without any action on the part of the Investors or any other Person, be converted into one fully paid and nonassessable share of Surviving Corporation Class A Common Stock. Each share of the Class B Common Stock, $0.01 par value per share, of Purchaser, issued and outstanding immediately prior to the Effective Time, shall at the Effective Time, by virtue of the Merger and without any action on the part of the Investors or any other Person, be converted into one fully paid and nonassessable share of Surviving Corporation Class B Common Stock. Each share of the Class L Common Stock, $0.01 par value per share, of Purchaser, issued and outstanding immediately prior to the Effective Time, shall at the Effective Time, by virtue of the Merger and without any action on the part of the Investors or any other Person, be converted into one fully paid and nonassessable share of Surviving Corporation Class L Common Stock. Each share of the Class M Common Stock, $0.01 par value per share, of Purchaser, issued and outstanding immediately prior to the Effective Time, shall at the Effective Time, by virtue of the Merger and without any action on the part of the Investors or any other Person, be converted into one fully paid and nonassessable share of Surviving Corporation Class M Common Stock." 4. Surrender of Company Share Certificates. --------------------------------------- (i) Section 3.02(b)(ii) of the Merger Agreement is hereby amended in its entirety to read as follows: "(ii) to the Shareholder who shall have surrendered to Purchaser at the Closing the certificate which immediately prior to the Effective Time, represented all of the shares of outstanding Series A Transitory Preferred Stock, the securities of the Surviving Corporation into which the shares of Series A Transitory Preferred Stock represented by such certificate have been converted pursuant to the provisions of this Article III;" 3 (ii) The following paragraph shall be added as Section 3.02(b)(iii) of the Merger Agreement: "(iii) to Ronald Jones who shall have surrendered to Purchaser at the Closing the certificate which, immediately prior to the Effective Time, represented all of the shares of outstanding Series B Transitory Preferred Stock, the securities of the Surviving Corporation into which the shares of Series B Transitory Preferred Stock represented by such certificate have been converted pursuant to the provisions of this Article III; and" (iii) Section 3.02(b)(iii) of the Merger Agreement shall be renumbered Section 3.02(b)(iv). 5. Financing. The third sentence of Section 6.06 of the Merger --------- Agreement is hereby amended in its entirety to read as follows: "The Investors have committed, subject only to the conditions set forth in Sections 8.01 and 8.02 hereof, to capitalize Purchaser with at least $120,000,000 of equity (the "Equity Financing") which, subject to ---------------- Section 7.15 hereof, may include common and preferred stock in the discretion of the Investors." 6. Capitalization. The first sentence of Section 6.09 of the Merger -------------- Agreement is hereby amended in its entirety to read as follows: "As of immediately prior to the Effective Time, the authorized capital stock of Purchaser will consist of 600,000,000 shares of Class A Common Stock, par value $0.01 per share, of which 16,471,967 shares will be issued and outstanding, 200,000,000 shares of Class B Common Stock, par value $0.01 per share, of which 7,791,324.644 shares will be issued and outstanding, 6,000,000 shares of Class L Common Stock, par value $0.01 per share, of which 1,830,218.5555 shares will be issued and outstanding, 2,000,000 shares of Class M Common Stock, par value $0.01 per share, of which 865,703.0716 shares will be issued and outstanding, and 100,000,000 shares of Preferred Stock, par value $0.01 per share, of which no shares will be issued and outstanding." 7. Additional Representation. A new Section 6.10 is added to the Merger ------------------------- Agreement to read in its entirety as follows: "Hart-Scott-Rodino Matters. Purchaser, taken together with the ------------------------- "ultimate parent entity" of Purchaser, if any, and all entities which Purchaser and such ultimate parent entity control directly or indirectly, is not a person which has total assets or annual net sales (as such terms are defined under the HSR Act) of $10,000,000 or more for purposes of 15 U.S.C. (S)18(a) of the HSR Act." 4 8. Warrants. A new sentence is added at the end of Section 7.13(e) of -------- the Merger Agreement to read as follows: "The Shareholder shall not enter into any settlement agreement with respect to any such claim, demand or Proceeding for the payment by the Surviving Corporation or any of its subsidiaries of any consideration other than cash without the consent of the Surviving Corporation." 9. Conditions to the Obligations of Purchaser. Section 8.02(j) of the ------------------------------------------ Merger Agreement is hereby amended in its entirety to read as follows: "(j) of the Company Common Stock owned by Shareholder as of the date of this Agreement, the Shareholder shall have converted into Series A Transitory Preferred Stock a number of shares equal to the quotient of $39,310,000 divided by the Common Stock Per Share Amount (calculated assuming that the Common Stock Purchase Price is increased by $39,310,000 and assuming that the Company Common Stock so converted will be converted into the right to receive cash as of the Effective Time pursuant to Section 3.01(a) hereof) which, along with the Series B Transitory Preferred Stock issued to Ronald Jones, shall be the only Preference Stock outstanding immediately prior to Closing;" 10. Consent to Bonus. Purchaser hereby consents, for purposes of Section ---------------- 7.01(h) of the Merger Agreement, to the approval and payment of the special cash bonus to Ronald Jones described in the last sentence of the definition of "Company Expenses" as amended by this Amendment. 11. Waivers. ------- (i) With respect to the definition of "Rollover Options" in Section 1.01 of the Merger Agreement, Purchaser hereby waives the condition that the Company shall have provided to Purchaser no later than thirty days prior to Closing a list of individuals whose options to purchase Company Common Stock are to be rolled over into stock options of the Surviving Corporation. (ii) With respect to Section 8.02(m)(ii) of the Merger Agreement, Purchaser hereby waives the condition that the Company shall have caused the warrant agent under the Warrant Agreement dated November 6, 1991, to have mailed to each holder of the warrants issued thereunder a notice of redemption pursuant to Section 4.5 of such Warrant Agreement at least 30 days prior to Closing. 12. Governing Law. This Amendment shall be governed in all respects, by ------------- the laws of the State of Delaware, including validity, interpretation and effect, without regard to principles of conflicts of law. 5 13. Counterparts. This Amendment may be executed in any number of ------------ counterparts, each of which shall be deemed an original, but all of which together shall constitute a single instrument. 14. Agreement. In all other respects the Agreement is ratified and --------- shall, as so changed by these amendments, continue in full force and effect. 6 IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first set forth above. SANDMAN MERGER CORPORATION By: /s/ PAUL EDGERLEY _______________________ Name: Paul Edgerley Title: Vice President and Secretary SEALY CORPORATION By: /s/ RONALD L. JONES _______________________ Name: Ronald L. Jones Title: President and CEO ZELL/CHILMARK FUND, L.P. By: ZC Limited Partnership, its General Partner By: ZC Partnership, its General Partner By: ZC, Inc., a Partner By: /s/ ROD DAMMEYER _______________________ Name: Rod Dammeyer Title: Vice President EX-4.1 4 INDENTURE BY AND AMONG SEALY AND THE BANK OF NY EXHIBIT 4.1 ----------- EXECUTION COPY ________________________________________________________________________________ Sealy Mattress Company SERIES A AND SERIES B 9-7/8% SENIOR SUBORDINATED NOTES DUE 2007 INDENTURE _____________________________ Dated as of December 18, 1997 _____________________________ THE BANK OF NEW YORK Trustee ______________ ________________________________________________________________________________ CROSS-REFERENCE TABLE*
Act Section Indenture Section 310 (a)(1).................................................. 7.10 (a)(2)...................................................... 7.10 (a)(3)...................................................... N.A. (a)(4)...................................................... N.A. (a)(5)...................................................... 7.10 (i)(b)...................................................... 7.10 (ii)(c)..................................................... N.A. 311(a)...................................................... 7.11 (b)......................................................... 7.11 (iii(c)..................................................... N.A. 312 (a)..................................................... 2.05 (b)......................................................... 11.03 (iv)(c)..................................................... 11.03 313(a)...................................................... 7.06 (b)(2)...................................................... 7.07 (v)(c)...................................................... 7.06; 11.02 (vi)(d)..................................................... 7.06 314(a)...................................................... 4.03; 11.02 (c)(1)...................................................... 11.04 (c)(2)...................................................... 11.04 (c)(3)...................................................... N.A. (vii)(e).................................................... 11.05 (f)......................................................... N.A. 315 (a)..................................................... 7.01 (b)......................................................... 7.05, 11.02 (A)(c)...................................................... 7.01 (d)......................................................... 7.01 (e)......................................................... 6.11 316 (a)(last sentence)...................................... 2.09 (a)(1)(A)................................................... 6.05 (a)(1)(B)................................................... 6.04 (a)(2)...................................................... N.A. (b)......................................................... 6.07 (B)(c)...................................................... 2.12 317 (a)(1).................................................. 6.08 (a)(2)...................................................... 6.09 (b)......................................................... 2.04 318 (a)..................................................... 11.01 (b)......................................................... N.A. (c)......................................................... 11.01
N.A. means not applicable. *This Cross-Reference Table is not part of the Indenture. TABLE OF CONTENTS -----------------
PAGE ---- ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE............................................................ 1 Section 1.01. Definitions....................................................................................... 1 Section 1.02. Other Definitions.................................................................................20 Section 1.03. Trust Indenture Act Definitions...................................................................21 Section 1.04. Rules of Construction.............................................................................21 ARTICLE 2. THE NOTES.............................................................................................21 Section 2.01. Form and Dating...................................................................................21 Section 2.02. Execution and Authentication......................................................................23 Section 2.03. Registrar and Paying Agent........................................................................23 Section 2.04. Paying Agent to Hold Money in Trust...............................................................24 Section 2.05. Holder Lists......................................................................................24 Section 2.06. Transfer and Exchange.............................................................................24 Section 2.07. Replacement Notes.................................................................................35 Section 2.08. Outstanding Notes.................................................................................36 Section 2.09. Treasury Notes....................................................................................36 Section 2.10. Temporary Notes...................................................................................36 Section 2.11. Cancellation......................................................................................36 Section 2.12. Defaulted Interest................................................................................37 ARTICLE 3. REDEMPTION AND PREPAYMENT.............................................................................37 Section 3.01. Notices to Trustee................................................................................37 Section 3.02. Selection of Notes to be Redeemed.................................................................37 Section 3.03. Notice of Redemption..............................................................................38
i Section 3.04. Effect of Notice of Redemption...................................................................... 39 Section 3.05. Deposit of Redemption Price......................................................................... 39 Section 3.06. Notes Redeemed in Part.............................................................................. 39 Section 3.07. Optional Redemption................................................................................. 39 Section 3.08. Mandatory Redemption................................................................................ 40 Section 3.09. Offer to Purchase by Application of Net Proceeds Offer Amount....................................... 40 ARTICLE 4. COVENANTS............................................................................................... 42 Section 4.01. Payment of Notes.................................................................................... 42 Section 4.02. Maintenance of Office or Agency..................................................................... 42 Section 4.03. Reports............................................................................................. 43 Section 4.04. Compliance Certificate.............................................................................. 43 Section 4.05. Taxes............................................................................................... 44 Section 4.06. Stay, Extension and Usury Laws...................................................................... 44 Section 4.07. Restricted Payments................................................................................. 44 Section 4.08. Dividend and Other Payment Restrictions Affecting Subsidiaries...................................... 47 Section 4.09. Incurrence of Indebtedness and Issuance of Preferred Stock.......................................... 47 Section 4.10. Asset Sales......................................................................................... 50 Section 4.11. Transactions with Affiliates........................................................................ 52 Section 4.12. Liens............................................................................................... 53 Section 4.13. Conduct of Business................................................................................. 53 Section 4.14. Corporate Existence................................................................................. 53 Section 4.15. Offer to Repurchase Upon Change of Control.......................................................... 54 Section 4.16. No Senior Subordinated Debt......................................................................... 55 Section 4.17. Additional Note Guarantees.......................................................................... 55 ARTICLE 5. SUCCESSORS.............................................................................................. 55
ii Section 5.01. Merger, Consolidation, or Sale of Assets............................................................ 55 Section 5.02. Successor Corporation Substituted................................................................... 56 ARTICLE 6. DEFAULTS AND REMEDIES................................................................................... 56 Section 6.01. Events of Default................................................................................... 56 Section 6.02. Acceleration........................................................................................ 57 Section 6.03. Other Remedies...................................................................................... 58 Section 6.04. Waiver of Past Defaults............................................................................. 58 Section 6.05. Control by Majority................................................................................. 59 Section 6.06. Limitation on Suits................................................................................. 59 Section 6.07. Rights of Holders of Notes to Receive Payment....................................................... 59 Section 6.08. Collection Suit by Trustee.......................................................................... 59 Section 6.09. Trustee May File Proofs of Claim.................................................................... 60 Section 6.10. Priorities.......................................................................................... 60 Section 6.11. Undertaking for Costs............................................................................... 60 ARTICLE 7. TRUSTEE................................................................................................. 61 Section 7.01. Duties of Trustee................................................................................... 61 Section 7.02. Rights of Trustee................................................................................... 62 Section 7.03. Individual Rights of Trustee........................................................................ 62 Section 7.04. Trustee's Disclaimer................................................................................ 62 Section 7.05. Notice of Defaults.................................................................................. 63 Section 7.06. Reports by Trustee to Holders of the Notes.......................................................... 63 Section 7.07. Compensation and Indemnity.......................................................................... 63 Section 7.08. Replacement of Trustee.............................................................................. 64 Section 7.09. Successor Trustee by Merger, etc.................................................................... 65 Section 7.10. Eligibility; Disqualification....................................................................... 65
iii Section 7.11. Preferential Collection of Claims Against Company................................................... 65 ARTICLE 8. LEGAL DEFEASANCE AND COVENANT DEFEASANCE................................................................ 65 Section 8.01. Option to Effect Legal Defeasance or Covenant Defeasance............................................ 65 Section 8.02. Legal Defeasance and Discharge...................................................................... 65 Section 8.03. Covenant Defeasance................................................................................. 66 Section 8.04. Conditions to Legal or Covenant Defeasance.......................................................... 66 Section 8.05. Deposited Money and Government Securities to be Held in Trust; Other Miscellaneous Provisions....... 68 Section 8.06. Repayment to Company................................................................................ 68 Section 8.07. Reinstatement....................................................................................... 68 ARTICLE 9. AMENDMENT, SUPPLEMENT AND WAIVER........................................................................ 69 Section 9.01. Without Consent of Holders of Notes................................................................. 69 Section 9.02. With Consent of Holders of Notes.................................................................... 70 Section 9.03. Compliance with Trust Indenture Act................................................................. 71 Section 9.04. Revocation and Effect of Consents................................................................... 71 Section 9.05. Notation on or Exchange of Notes.................................................................... 71 Section 9.06. Trustee to Sign Amendments, etc..................................................................... 71 ARTICLE 10. SUBORDINATION.......................................................................................... 72 Section 10.01. Agreement to Subordinate........................................................................... 72 Section 10.02. Certain Definitions................................................................................ 72 Section 10.03. Liquidation; Dissolution; Bankruptcy............................................................... 73 Section 10.04. Default on Designated Senior Debt.................................................................. 73 Section 10.05. Acceleration of Securities......................................................................... 74 Section 10.06. When Distribution Must Be Paid Over................................................................ 74 Section 10.07. Notice by Company.................................................................................. 74
iv Section 10.08. Subrogation........................................................................................ 74 Section 10.09. Relative Rights.................................................................................... 75 Section 10.10. Subordination May Not be Impaired by Company....................................................... 75 Section 10.11. Distribution or Notice to Representative........................................................... 75 Section 10.12. Rights of Trustee and Paying Agent................................................................. 75 Section 10.13. Authorization to Effect Subordination.............................................................. 76 Section 10.14. Amendments......................................................................................... 76 ARTICLE 11. NOTE GUARANTEES...............................................................Error! Bookmark not defined. Section 11.01. Guarantee.......................................................................................... 76 Section 11.02. Subordination of Note Guarantee.................................................................... 77 Section 11.03. Limitation on Guarantor Liability.................................................................. 77 Section 11.04. Execution and Delivery of Note Guarantee........................................................... 78 Section 11.05. Guarantors May Consolidate, etc., on Certain Terms................................................. 78 Section 11.06. Releases Following Sale of Assets.................................................................. 79 ARTICLE 12. MISCELLANEOUS.......................................................................................... 79 Section 12.01. Trust Indenture Act Controls....................................................................... 79 Section 12.02. Notices............................................................................................ 79 Section 12.03. Communication by Holders of Notes with Other Holders of Notes...................................... 81 Section 12.04. Certificate and Opinion as to Conditions Precedent................................................. 81 Section 12.05. Statements Required in Certificate or Opinion...................................................... 81 Section 12.06. Rules by Trustee and Agents........................................................................ 81 Section 12.07. No Personal Liability of Directors, Officers, Employees and Stockholders........................... 82 Section 12.08. Governing Law...................................................................................... 82 Section 12.09. No Adverse Interpretation of Other Agreements...................................................... 82 Section 12.10. Successors......................................................................................... 82
v Section 12.11. Severability....................................................................................... 82 Section 12.12. Counterpart Originals.............................................................................. 82 Section 12.13. Table of Contents, Headings, Etc................................................................... 82
EXHIBITS Exhibit A FORM OF NOTE Exhibit B FORM OF CERTIFICATE OF TRANSFER Exhibit C FORM OF CERTIFICATE OF EXCHANGE Exhibit D FORM OF CERTIFICATE OF ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR Exhibit E FORM OF NOTE GUARANTEE Exhibit F FORM OF SUPPLEMENTAL INDENTURE vi INDENTURE dated as of December 18, 1997 between Sealy Mattress Company, a Ohio corporation (the "Company"), the Guarantors (as herein defined) and The Bank of New York, as trustee (the "Trustee"). The Company, the Guarantors and the Trustee agree as follows for the benefit of each other and for the equal and ratable benefit of the Holders of the 9-7/8% Series A Senior Subordinated Notes due 2007 (the "Series A Notes") and the 9-7/8% Series B Senior Subordinated Notes due 2007 (the "Series B Notes" and, together with the Series A Notes, the "Notes"): ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.01. Definitions. "144A Global Note" means a global note in the form of Exhibit A-1 hereto bearing the Global Note Legend and the Private Placement Legend and deposited with or on behalf of, and registered in the name of, the Depositary or its nominee that will be issued in a denomination equal to the outstanding principal amount of the Notes sold in reliance on Rule 144A. "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. "Additional Notes" means up to $175.0 million in aggregate principal amount of Notes (other than the Initial Notes) issued under this Indenture in accordance with Sections 2.02 and 4.09 hereof. "Affiliate" means a Person who directly or indirectly through one or more intermediaries controls, or controlled by, or is under common control with, the Company. The term "control" means the 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. "Agent" means any Registrar, Paying Agent or co-registrar. "all or substantially all" shall have the meaning given such phrase in the Revised Model Business Corporation Act. "Applicable Premium" means, with respect to any Note on any Redemption Date, the greater of (i) 1.0% of the principal amount of such Note or (ii) the excess of (A) the present value at the Redemption Date of (1) the redemption price of such Note at December 15, 2002 (such redemption price being set forth in Section 3.07 hereof) plus (2) all required interest payments due on such Note through December 15, 2002 (excluding accrued but unpaid interest), computed using a discount rate equal to the 1 Treasury Rate at the Redemption Date plus 75 basis points over (B) the principal amount of such Note, if greater. "Applicable Procedures" means, with respect to any transfer or exchange of or for beneficial interests in any Global Note, the rules and procedures of the Depositary, Euroclear and Cedel that apply to such transfer or exchange. "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 by Section 5.01 hereof 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 Section 4.07 hereof, (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. "Bankruptcy Law" means Title 11, U.S. Code or any similar federal or state law for the relief of debtors. "Board of Directors" means the Board of Directors of the Company, or any authorized committee of the Board of Directors. "Business Day" means any day other than a Legal Holiday. "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. 2 "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. "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 this 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. "Cedel" means Cedel Bank, SA. "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 hereof, 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 hereof); (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 Capital 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 Indenture). "Company" means Sealy Mattress Company, and any and all successors thereto. 3 "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 Restricted Subsidiary's "Year 2000" information systems issue and Emerging Issues Task Force 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 (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 4 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 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 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 Section 4.07 hereof, any amounts included pursuant to clause (c)(iii) of the first paragraph of Section 4.07 hereof, 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 Section 4.07, 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. "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 this 5 Indenture 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. "Corporate Trust Office of the Trustee" shall be at the address of the Trustee specified in Section 12.02 hereof or such other address as to which the Trustee may give notice to the Company. "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. "Definitive Note" means a certificated Note registered in the name of the Holder thereof and issued in accordance with Section 2.06 hereof, in the form of Exhibit A-1 hereto except that such Note shall not bear the Global Note Legend and shall not have the "Schedule of Exchanges of Interests in the Global Note" attached thereto. "Depositary" means, with respect to the Notes issuable or issued in whole or in part in global form, the Person specified in Section 2.03 hereof as the Depositary with respect to the Notes, and any and all successors thereto appointed as depositary hereunder and having become such pursuant to the applicable provision of this Indenture. "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 Section 4.07. "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 Notes mature; provided, however, that any Capital Stock that would constitute Disqualified Stock solely because the holders thereof have the right to 6 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 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 Section 4.07 hereof. "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. "Euroclear" means Morgan Guaranty Trust Company of New York, Brussels office, as operator of the Euroclear system. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Exchange Notes" means the Notes issued in the Exchange Offer pursuant to Section 2.06(f) hereof. "Exchange Offer" has the meaning set forth in the Registration Rights Agreement. "Exchange Offer Registration Statement" has the meaning set forth in the Registration Rights Agreement. "Existing Indebtedness" means Indebtedness of the Company and its Subsidiaries (other than Indebtedness under the Senior Credit Agreements) in existence on the date hereof, 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. "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 hereof. "Global Note Legend" means the legend set forth in Section 2.06(g)(ii), which is required to be placed on all Global Notes issued under this Indenture. "Global Notes" means, individually and collectively, each of the Restricted Global Notes and the Unrestricted Global Notes, in the form of Exhibit A hereto issued in accordance with Section 2.01, 2.06(b)(iv), 2.06(d)(ii) or 2.06(f) hereof. 7 "Government Securities" means direct obligations of, or obligations guaranteed by, the United States of America, and the payment for which the United States pledges its full faith and credit. "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. "Guarantors" means (i) Sealy Corporation, a Delaware corporation, Sealy Mattress Company of Puerto Rico, an Ohio corporation, Ohio--Sealy Mattress Manufacturing Co., Inc. (Randolph), a Massachusetts corporation, Ohio--Sealy Mattress Manufacturing Co.--Ft. Worth, a Texas corporation, Ohio--Sealy Mattress Manufacturing Co., a Georgia corporation, Ohio--Sealy Mattress Manufacturing Co.--Houston, a Texas corporation, Sealy Mattress Company of Michigan, Inc., a Michigan corporation, Sealy Mattress Company of Kansas City, Inc., a Missouri corporation, Sealy of Maryland and Virginia, Inc., a Maryland corporation, Sealy Mattress Company of Illinois, an Illinois corporation, A. Brandwein & Company, an Illinois corporation, Sealy Mattress Company of Albany, Inc., a New York corporation, Sealy of Minnesota, Inc., a Minnesota corporation, Sealy Mattress Company of Memphis, a Tennessee corporation, The Stearns & Foster Bedding Company, a Delaware corporation, The Stearns & Foster Upholstery Furniture Company, an Ohio corporation, Sealy, Inc., an Ohio corporation, The Ohio Mattress Company Licensing and Components Group, a Delaware corporation, Sealy Mattress Manufacturing Company, Inc., a Delaware corporation and (ii) any future U.S. Subsidiary. "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). "Holder" means a Person in whose name a Note is registered. "IAI Global Note" means the global Note in the form of Exhibit A- 1 hereto bearing the Global Note Legend and the Private Placement Legend and deposited with or on behalf of and registered in the name of the Depositary or its nominee that will be issued in a denomination equal to the outstanding principal amount of the Notes sold to Institutional Accredited Investors. "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 Entity outstanding as of any date, the face 8 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. "Indenture" means this Indenture, as amended or supplemented from time to time. "Indirect Participant" means a Person who holds a beneficial interest in a Global Note through a Participant. "Initial Notes" means $125.0 million in aggregate principal amount of Notes issued under this Indenture on the date hereof. "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 SEC 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. "Institutional Accredited Investor" means an institution that is an "accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act, who are not also QIBs. "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 Section 4.07. "Legal Holiday" means a Saturday, a Sunday or a day on which banking institutions in the City of New York or at a place of payment are authorized by law, regulation or executive order to remain closed. If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue on such payment for the intervening period. "Letter of Transmittal" means the letter of transmittal to be prepared by the Company and sent to all Holders of the Notes for use by such Holders in connection with the Exchange Offer. 9 "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). "Liquidated Damages" means all liquidated damages then owing pursuant to Section 5 of the Registration Rights Agreement. "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. "Non-Guarantors" 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. "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-U.S. Person" means a Person who is not a U.S. Person. "Note Custodian" means the Trustee, as custodian with respect to the Notes in global form, or any successor entity thereto. "Note Guarantee" means the Guarantee by each Guarantor of the Company's payment obligations under this Indenture and the Notes, executed pursuant to the provisions of this Indenture. 10 "Notes" has the meaning assigned to it in the preamble to this Indenture. "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. "Offering" means the offering of the Notes by the Company. "Officer" means, with respect to any Person, the Chairman of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the Secretary or any Vice-President of such Person. "Officers' Certificate" means a certificate signed on behalf of the Company by two Officers of the Company, one of whom must be the principal executive officer, the principal financial officer, the treasurer or the principal accounting officer of the Company, that meets the requirements of Section 12.05 hereof. "Opinion of Counsel" means an opinion from legal counsel who is reasonably acceptable to the Trustee, that meets the requirements of Section 12.05 hereof. The counsel may be an employee of or counsel to the Company, any Subsidiary of the Company or the Trustee. "Parent" means Sealy Corporation, a Delaware corporation. "Parent Notes" means the existing 10 1/4% Senior Subordinated Notes due 2003 of Parent. "Parent Note Indenture" means the indenture governing the Parent 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. "Participant" means, with respect to the Depositary, Euroclear or Cedel, a Person who has an account with the Depositary, Euroclear or Cedel, respectively (and, with respect to The Depository Trust Company, shall include Euroclear and Cedel). "Participating Broker-Dealer" has the meaning set forth in the Registration Rights Agreement. "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 this Indenture. "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 Section 4.09 does not exceed $30.0 million; provided that such amount shall increase to $50.0 million upon consummation of an Initial Public Offering. 11 "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 this Indenture 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 this Indenture, (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 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 this 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 Section 4.11 (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 Section 4.10. "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; 12 (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; (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 this 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 Section 4.09; (xiv) Liens securing Acquired Indebtedness incurred in reliance on clause (viii) of the second paragraph of Section 4.09; 13 (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 hereof, together with any Liens securing Indebtedness incurred in reliance on clause (xiv) of the Section 4.09 in order to refinance the Indebtedness secured by Liens existing on the date of this Indenture; 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. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or agency or political subdivision thereof (including any subdivision or ongoing business of any such entity or substantially all of the assets of any such entity, subdivision or business). "Preferred Stock," of any person, means Capital Stock of such Person of any class or series (however designated) that ranks prior, as to payment of dividends or as to the distribution of assets upon any voluntary or involuntary liquidation, dissolution or winding up of such Person, to shares of Capital Stock of any other class or series of such Person. "Principals" means 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 Notes. "Private Placement Legend" means the legend set forth in Section 2.06(g)(i) to be placed on all Notes issued under this Indenture except where otherwise permitted by the provisions of this Indenture. "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 any such Asset Acquisition within six months of the date of the Asset Acquisition and that are supportable and quantifiable by the underlying accounting 14 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. "QIB" means a "qualified institutional buyer" as defined in Rule 144A. "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 an 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. "Registration Rights Agreement" means the Registration Rights Agreement, dated as of December 18, 1997, by and among the Company and the other parties named on the signature pages thereof, as such agreement may be amended, modified or supplemented from time to time and, with respect to any Additional Notes, one or more registration rights agreements between the Company and the other parties thereto, as such agreement(s) may be amended, modified or supplemented from time to time, relating to rights given by the Company to the purchasers of Additional Notes to register such Additional Notes under the Securities Act. "Regulation S" means Regulation S promulgated under the Securities Act. "Regulation S Global Note" means a Regulation S Temporary Global Note or Regulation S Permanent Global Note, as appropriate. "Regulation S Permanent Global Note" means a permanent global Note in the form of Exhibit A-1 hereto bearing the Global Note Legend and the Private Placement Legend and deposited with or on behalf of and registered in the name of the Depositary or its nominee, issued in a denomination equal to the outstanding principal amount of the Regulation S Temporary Global Note upon expiration of the Restricted Period. 15 "Regulation S Temporary Global Note" means a temporary global Note in the form of Exhibit A-2 hereto bearing the Private Placement Legend and deposited with or on behalf of and registered in the name of the Depositary or its nominee, issued in a denomination equal to the outstanding principal amount of the Notes initially sold in reliance on Rule 903 of Regulation S. "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). "Responsible Officer," when used with respect to the Trustee, means any officer within the Corporate Trust Administration of the Trustee (or any successor group of the Trustee) or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "Restricted Definitive Note" means a Definitive Note bearing the Private Placement Legend. "Restricted Global Note" means a Global Note bearing the Private Placement Legend. "Restricted Investment" means an Investment other than a Permitted Investment. "Restricted Period" means the 40-day restricted period as defined in Regulation S. "Restricted Subsidiary" of a Person means any Subsidiary of the referent Person that is not an Unrestricted Subsidiary. "Rule 144" means Rule 144 promulgated under the Securities Act. "Rule 144A" means Rule 144A promulgated under the Securities Act. "Rule 903" means Rule 903 promulgated under the Securities Act. "Rule 904" means Rule 904 promulgated the Securities Act. "SEC" means the Securities and Exchange Commission. "S&P" means Standard & Poor's. "Securities Act" means the Securities Act of 1933, as amended. "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 16 (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 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" means, collectively, (i) that certain Credit Agreement, dated as of December 18, 1997, and (ii) that certain AXEL 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 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. "Senior Subordinated Discount Note Indenture" means the indenture among the Company, the Guarantors and The Bank of New York, as trustee, dated as of December 18, 1997, governing the Company's 10-7/8% Senior Subordinated Discount Notes due 2007. "Senior Subordinated Discount Notes" means the Company's 10-7/8% Senior Subordinated Discount Notes due 2007, issued pursuant to the Senior Subordinated Discount Note Indenture. "Shelf Registration Statement" means the Shelf Registration Statement as defined in the Registration Rights Agreement. "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 Securities Act, as such Regulation is in effect on the date of this Indenture. "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. 17 "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-Guarantors) and (ii) any other subsidiary that executes a Note Guarantee in accordance with the provisions hereof, and their respective successors and assigns. "Tax Allocation Agreement" means that certain tax allocation agreement between Parent and the Company, dated as of December 18, 1997. "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. "TIA" means the Trust Indenture Act of 1939 (15 U.S.C. (S)(S) 77aaa-77bbbb) as in effect on the date on which this Indenture is qualified under the TIA. "Transactions" means concurrent with the consummation of the Offering and the offering of the Senior Subordinated Discount Notes (collectively, the "Offerings"), the Company's consummation of (i) the merger whereby, among other things, funds managed by Bain (the "Bain Funds"), together with other equity investors, including members of management (the "Management Investors" and collectively with the other investors, the "Investors"), acquired an approximate 90% equity stake in Parent (the "Merger"), (ii) the offer to purchase for cash all of the Parent Notes (the "Tender Offer") and the related consent solicitation (the "Consent Solicitation") to modify certain terms of the Parent Note Indenture and (iii) a refinancing (the "Refinancing") whereby the Company entered into and borrowed under the Senior Credit Agreements and Parent indebtedness outstanding under the Existing Credit Agreement. The Merger will be accounted for as a recapitalization. The Offerings, the Merger, the Tender Offer and related Consent Solicitation and the Refinancing are collectively referred to herein as the "Transactions." "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. 18 "Trustee" means the party named as such above until a successor replaces it in accordance with the applicable provisions of this Indenture and thereafter means the successor serving hereunder. "Unrestricted Global Note" means a permanent global Note in the form of Exhibit A-1 attached hereto that bears the Global Note Legend and that has the "Schedule of Exchanges of Interests in the Global Note" attached thereto, and that is deposited with or on behalf of and registered in the name of the Depositary, representing a series of Notes that do not bear the Private Placement Legend. "Unrestricted Definitive Note" means one or more Definitive Notes that do not bear and are not required to bear the Private Placement Legend. "Unrestricted Subsidiary" means any Subsidiary that is designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a resolution of the Board of Directors, 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 Trustee by filing with the Trustee a certified copy of the resolution of the Board of Directors giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing conditions and was permitted by Section 4.07 hereof. 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 this 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 Section 4.09 hereof, 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 Section 4.09 hereof, 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 this Indenture and (iii) no Default or Event of Default would be in existence following such designation. "U.S. Person" means a U.S. person as defined in Rule 902(o) under the Securities Act. "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. 19 "Voting Stock" of any Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person. "Weighted Average Life to Maturity" means, when applied to any Indebtedness 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. Section 1.02. Other Definitions.
Defined in Term Section "Acceleration Notice"......................... 6.02 "Affiliate Transaction"....................... 4.11 "Asset Sale Offer"............................ 3.09 "Authentication Order"........................ 2.02 "Change of Control Offer"..................... 4.15 "Change of Control Payment"................... 4.15 "Change of Control Payment Date".............. 4.15 "Covenant Defeasance"......................... 8.03 "Event of Default"............................ 6.01 "incur"....................................... 4.09 "Legal Defeasance"............................ 8.02 "Net Proceeds Offer".......................... 4.10 "Net Proceeds Offer Amount"................... 4.10 "Net Proceeds Offer Payment Date"............. 4.10 "Net Proceeds Offer Trigger Date"............. 4.10 "Offer Period"................................ 3.09 "Payment Blockage Notice"..................... 10.04 "Paying Agent"................................ 2.03 "Permitted Indebtedness"...................... 4.09 "Purchase Date"............................... 3.09 "Redemption Date"............................. 3.07 "Refunding Capital Stock"..................... 4.07 "Registrar"................................... 2.03
20 "Restricted Payments"......................... 4.07 "Retired Capital Stock"....................... 4.07
Section 1.03. Trust Indenture Act Definitions Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: "indenture securities" means the Notes; "indenture security Holder" means a Holder of a Note; "indenture to be qualified" means this Indenture; "indenture trustee" or "institutional trustee" means the Trustee; and "obligor" on the Notes and the Note Guarantees means the Company and the Guarantors, respectively, and any successor obligor upon the Notes and the Note Guarantees, respectively. All other terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule under the TIA have the meanings so assigned to them. Section 1.04. Rules of Construction. Unless the context otherwise requires: (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (3) "or" is not exclusive; (4) words in the singular include the plural, and in the plural include the singular; (5) provisions apply to successive events and transactions; and (6) references to sections of or rules under the Securities Act shall be deemed to include substitute, replacement of successor sections or rules adopted by the SEC from time to time. ARTICLE 2. THE NOTES Section 2.01. Form and Dating. (a) General. 21 The Notes and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A hereto. The Notes may have notations, legends or endorsements required by law, stock exchange rule or usage. Each Note shall be dated the date of its authentication. The Notes shall be in denominations of $1,000 and integral multiples thereof. The terms and provisions contained in the Notes shall constitute, and are hereby expressly made, a part of this Indenture and the Company, the Guarantors and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. However, to the extent any provision of any Note conflicts with the express provisions of this Indenture, the provisions of this Indenture shall govern and be controlling. (b) Global Notes. Notes issued in global form shall be substantially in the form of Exhibits A-1 or A-2 attached hereto (including the Global Note Legend thereon and the "Schedule of Exchanges of Interests in the Global Note" attached thereto). Notes issued in definitive form shall be substantially in the form of Exhibit A-1 attached hereto (but without the Global Note Legend thereon and without the "Schedule of Exchanges of Interests in the Global Note" attached thereto). Each Global Note shall represent such of the outstanding Notes as shall be specified therein and each shall provide that it shall represent the aggregate principal amount of outstanding Notes from time to time endorsed thereon and that the aggregate principal amount of outstanding Notes represented thereby may from time to time be reduced or increased, as appropriate, to reflect exchanges and redemptions. Any endorsement of a Global Note to reflect the amount of any increase or decrease in the aggregate principal amount of outstanding Notes represented thereby shall be made by the Trustee or the Note Custodian, at the direction of the Trustee, in accordance with instructions given by the Holder thereof as required by Section 2.06 hereof. (c) Temporary Global Notes. Notes offered and sold in reliance on Regulation S shall be issued initially in the form of the Regulation S Temporary Global Note, which shall be deposited on behalf of the purchasers of the Notes represented thereby with the Trustee, at its New York office, as custodian for the Depositary, and registered in the name of the Depositary or the nominee of the Depositary for the accounts of designated agents holding on behalf of Euroclear or Cedel Bank, duly executed by the Company and authenticated by the Trustee as hereinafter provided. The Restricted Period shall be terminated upon the receipt by the Trustee of (i) a written certificate from the Depositary, together with copies of certificates from Euroclear and Cedel Bank certifying that they have received certification of non-United States beneficial ownership of 100% of the aggregate principal amount of the Regulation S Temporary Global Note (except to the extent of any beneficial owners thereof who acquired an interest therein during the Restricted Period pursuant to another exemption from registration under the Securities Act and who will take delivery of a beneficial ownership interest in a 144A Global Note or an IAI Global Note bearing a Private Placement Legend, all as contemplated by Section 2.06(a)(ii) hereof), and (ii) an Officers' Certificate from the Company. Following the termination of the Restricted Period, beneficial interests in the Regulation S Temporary Global Note shall be exchanged for beneficial interests in Regulation S Permanent Global Notes pursuant to the Applicable Procedures. Simultaneously with the authentication of Regulation S Permanent Global Notes, the Trustee shall cancel the Regulation S Temporary Global Note. The aggregate principal amount of the Regulation S Temporary Global Note and the Regulation S Permanent Global Notes may from time to time be increased or decreased by adjustments made on the records of the Trustee and the Depositary or its nominee, as the case may be, in connection with transfers of interest as hereinafter provided. 22 (d) Euroclear and Cedel Procedures Applicable. The provisions of the "Operating Procedures of the Euroclear System" and "Terms and Conditions Governing Use of Euroclear" and the "General Terms and Conditions of Cedel Bank" and "Customer Handbook" of Cedel Bank shall be applicable to transfers of beneficial interests in the Regulation S Temporary Global Note and the Regulation S Permanent Global Notes that are held by Participants through Euroclear or Cedel Bank. Section 2.02. Execution and Authentication. Two Officers shall sign the Notes for the Company by manual or facsimile signature. If an Officer whose signature is on a Note no longer holds that office at the time a Note is authenticated, the Note shall nevertheless be valid. A Note shall not be valid until authenticated by the manual signature of the Trustee. The signature shall be conclusive evidence that the Note has been authenticated under this Indenture. The Trustee shall, upon a written order of the Company signed by two Officers (an "Authentication Order"), authenticate Notes for original issue up to the aggregate principal amount stated in paragraph 4 of the Notes. The aggregate principal amount of Notes outstanding at any time may not exceed such amount except as provided in Section 2.07 hereof. The Trustee may appoint an authenticating agent acceptable to the Company to authenticate Notes. An authenticating agent may authenticate Notes whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with Holders or an Affiliate of the Company. Section 2.03. Registrar and Paying Agent. The Company shall maintain an office or agency where Notes may be presented for registration of transfer or for exchange ("Registrar") and an office or agency where Notes may be presented for payment ("Paying Agent"). The Registrar shall keep a register of the Notes and of their transfer and exchange. The Company may appoint one or more co-registrars and one or more additional paying agents. The term "Registrar" includes any co-registrar and the term "Paying Agent" includes any additional paying agent. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company shall notify the Trustee in writing of the name and address of any Agent not a party to this Indenture. If the Company fails to appoint or maintain another entity as Registrar or Paying Agent, the Trustee shall act as such. The Company or any of its Subsidiaries may act as Paying Agent or Registrar. The Company initially appoints The Depository Trust Company ("DTC") to act as Depositary with respect to the Global Notes. The Company initially appoints the Trustee to act as the Registrar and Paying Agent and to act as Note Custodian with respect to the Global Notes. 23 Section 2.04. Paying Agent to Hold Money in Trust. The Company shall require each Paying Agent other than the Trustee to agree in writing that the Paying Agent will hold in trust for the benefit of Holders or the Trustee all money held by the Paying Agent for the payment of principal, premium or Liquidated Damages, if any, or interest on the Notes, and will notify the Trustee of any default by the Company in making any such payment. While any such default continues, the Trustee may require a Paying Agent to pay all money held by it to the Trustee. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent (if other than the Company or a Subsidiary) shall have no further liability for the money. If the Company or a Subsidiary acts as Paying Agent, it shall segregate and hold in a separate trust fund for the benefit of the Holders all money held by it as Paying Agent. Upon any bankruptcy or reorganization proceedings relating to the Company, the Trustee shall serve as Paying Agent for the Notes. Section 2.05. Holder Lists. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of all Holders and shall otherwise comply with TIA (S) 312(a). If the Trustee is not the Registrar, the Company shall furnish to the Trustee at least seven Business Days before each interest payment date and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of the Holders of Notes and the Company shall otherwise comply with TIA (S) 312(a). Section 2.06. Transfer and Exchange. (a) Transfer and Exchange of Global Notes. A Global Note may not be transferred as a whole except by the Depositary to a nominee of the Depositary, by a nominee of the Depositary to the Depositary or to another nominee of the Depositary, the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary. All Global Notes will be exchanged by the Company for Definitive Notes if (i) the Company delivers to the Trustee notice from the Depositary that it is unwilling or unable to continue to act as Depositary or that it is no longer a clearing agency registered under the Exchange Act and, in either case, a successor Depositary is not appointed by the Company within 120 days after the date of such notice from the Depositary or (ii) the Company in its sole discretion determines that the Global Notes (in whole but not in part) should be exchanged for Definitive Notes and delivers a written notice to such effect to the Trustee; provided that in no event shall the Regulation S Temporary Global Note be exchanged by the Company for Definitive Notes prior to (x) the expiration of the Restricted Period and (y) the receipt by the Registrar of any certificates required pursuant to Rule 903(c)(3)(ii)(B) under the Securities Act. Upon the occurrence of either of the preceding events in (i) or (ii) above, Definitive Notes shall be issued in such names as the Depositary shall instruct the Trustee. Global Notes also may be exchanged or replaced, in whole or in part, as provided in Sections 2.07 and 2.10 hereof. Every Note authenticated and delivered in exchange for, or in lieu of, a Global Note or any portion thereof, pursuant to this Section 2.06 or Section 2.07 or 2.10 hereof, shall be authenticated and delivered in the form of, and shall be, a Global Note. A Global Note may not be exchanged for another Note other than as provided in this Section 2.06(a), however, beneficial interests in a Global Note may be transferred and exchanged as provided in Section 2.06(b),(c) or (f) hereof. (b) Transfer and Exchange of Beneficial Interests in the Global Notes. 24 The transfer and exchange of beneficial interests in the Global Notes shall be effected through the Depositary, in accordance with the provisions of this Indenture and the Applicable Procedures. Beneficial interests in the Restricted Global Notes shall be subject to restrictions on transfer comparable to those set forth herein to the extent required by the Securities Act. Transfers of beneficial interests in the Global Notes also shall require compliance with either subparagraph (i) or (ii) below, as applicable, as well as one or more of the other following subparagraphs, as applicable: (i) Transfer of Beneficial Interests in the Same Global Note. Beneficial interests in any Restricted Global Note may be transferred to Persons who take delivery thereof in the form of a beneficial interest in the same Restricted Global Note in accordance with the transfer restrictions set forth in the Private Placement Legend; provided, however, that prior to the expiration of the Restricted Period, transfers of beneficial interests in the Temporary Regulation S Global Note may not be made to a U.S. Person or for the account or benefit of a U.S. Person (other than an Initial Purchaser). Beneficial interests in any Unrestricted Global Note may be transferred to Persons who take delivery thereof in the form of a beneficial interest in an Unrestricted Global Note. No written orders or instructions shall be required to be delivered to the Registrar to effect the transfers described in this Section 2.06(b)(i). (ii) All Other Transfers and Exchanges of Beneficial Interests in Global Notes. In connection with all transfers and exchanges of beneficial interests that are not subject to Section 2.06(b)(i) above, the transferor of such beneficial interest must deliver to the Depositary either (A) (1) a written order from a Participant or an Indirect Participant given to the Depositary in accordance with the Applicable Procedures directing the Depositary to credit or cause to be credited a beneficial interest in another Global Note in an amount equal to the beneficial interest to be transferred or exchanged and (2) instructions given in accordance with the Applicable Procedures containing information regarding the Participant account to be credited with such increase or (B) (1) a written order from a Participant or an Indirect Participant given to the Depositary in accordance with the Applicable Procedures directing the Depositary to cause to be issued a Definitive Note in an amount equal to the beneficial interest to be transferred or exchanged and (2) instructions given by the Depositary to the Registrar containing information regarding the Person in whose name such Definitive Note shall be registered to effect the transfer or exchange referred to in (1) above provided that in no event shall Definitive Notes be issued upon the transfer or exchange of beneficial interests in the Regulation S Temporary Global Note prior to (x) the expiration of the Restricted Period and (y) the receipt by the Registrar of any certificates required pursuant to Rule 903 under the Securities Act]. Upon consummation of an Exchange Offer by the Company in accordance with Section 2.06(f) hereof, the requirements of this Section 2.06(b)(ii) shall be deemed to have been satisfied upon receipt by the Registrar of the instructions contained in the Letter of Transmittal delivered by the Holder of such beneficial interests in the Restricted Global Notes. Upon satisfaction of all of the requirements for transfer or exchange of beneficial interests in Global Notes contained in this Indenture and the Notes or otherwise applicable under the Securities Act, the Trustee shall adjust the principal amount of the relevant Global Note(s) pursuant to Section 2.06(h) hereof. (iii) Transfer of Beneficial Interests to Another Restricted Global Note. A beneficial interest in any Restricted Global Note may be transferred to a Person who takes delivery thereof in the form of a beneficial interest in another Restricted Global Note if the transfer complies with the requirements of Section 2.06(b)(ii) above and the Registrar receives the following: 25 (A) if the transferee will take delivery in the form of a beneficial interest in the 144A Global Note, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (1) thereof; (B) if the transferee will take delivery in the form of a beneficial interest in the Regulation S Temporary Global Note or the Regulation S Global Note, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (2) thereof; and (C) if the transferee will take delivery in the form of a beneficial interest in the IAI Global Note, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications and certificates and Opinion of Counsel required by item (3) thereof, if applicable. (iv) Transfer and Exchange of Beneficial Interests in a Restricted Global Note for Beneficial Interests in the Unrestricted Global Note. A beneficial interest in any Restricted Global Note may be exchanged by any holder thereof for a beneficial interest in an Unrestricted Global Note or transferred to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note if the exchange or transfer complies with the requirements of Section 2.06(b)(ii) above and: (A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the holder of the beneficial interest to be transferred, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal or via the Depositary's book-entry system that it is not (1) a broker-dealer, (2) a Person participating in the distribution of the Exchange Notes or (3) a Person who is an affiliate (as defined in Rule 144) of the Company; (B) such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; (C) such transfer is effected by a Participating Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (D) the Registrar receives the following: (1) if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a beneficial interest in an Unrestricted Global Note, a certificate from such holder in the form of Exhibit C hereto, including the certifications in item (1)(a) thereof; or (2) if the holder of such beneficial interest in a Restricted Global Note proposes to transfer such beneficial interest to a Person who shall take delivery thereof in the form of a beneficial interest in an Unrestricted Global Note, a certificate from such holder in the form of Exhibit B hereto, including the certifications in item (4) thereof; 26 and, in each such case set forth in this subparagraph (D), if the Registrar so requests or if the Applicable Procedures so require, an Opinion of Counsel in form reasonably acceptable to the Registrar to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act. If any such transfer is effected pursuant to subparagraph (B) or (D) above at a time when an Unrestricted Global Note has not yet been issued, the Company shall issue and, upon receipt of an Authentication Order in accordance with Section 2.02 hereof, the Trustee shall authenticate one or more Unrestricted Global Notes in an aggregate principal amount equal to the aggregate principal amount of beneficial interests transferred pursuant to subparagraph (B) or (D) above. Beneficial interests in an Unrestricted Global Note cannot be exchanged for, or transferred to Persons who take delivery thereof in the form of, a beneficial interest in a Restricted Global Note. (c) Transfer or Exchange of Beneficial Interests for Definitive Notes. (i) Beneficial Interests in Restricted Global Notes to Restricted Definitive Notes. If any holder of a beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a Restricted Definitive Note or to transfer such beneficial interest to a Person who takes delivery thereof in the form of a Restricted Definitive Note, then, upon receipt by the Registrar of the following documentation: (A) if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a Restricted Definitive Note, a certificate from such holder in the form of Exhibit C hereto, including the certifications in item (2)(a) thereof; (B) if such beneficial interest is being transferred to a QIB in accordance with Rule 144A under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (1) thereof; (C) if such beneficial interest is being transferred to a Non-U.S. Person in an offshore transaction in accordance with Rule 903 or Rule 904 under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (2) thereof; (D) if such beneficial interest is being transferred pursuant to an exemption from the registration requirements of the Securities Act in accordance with Rule 144 under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(a) thereof; (E) if such beneficial interest is being transferred to an Institutional Accredited Investor in reliance on an exemption from the registration requirements of the Securities Act other than those listed in subparagraphs (B) through (D) above, a certificate to the effect set forth in Exhibit B hereto, including the certifications, certificates and Opinion of Counsel required by item (3) thereof, if applicable; 27 (F) if such beneficial interest is being transferred to the Company or any of its Subsidiaries, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(b) thereof; or (G) if such beneficial interest is being transferred pursuant to an effective registration statement under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(c) thereof, the Trustee shall cause the aggregate principal amount of the applicable Global Note to be reduced accordingly pursuant to Section 2.06(h) hereof, and the Company shall execute and the Trustee shall authenticate and deliver to the Person designated in the instructions a Definitive Note in the appropriate principal amount. Any Definitive Note issued in exchange for a beneficial interest in a Restricted Global Note pursuant to this Section 2.06(c) shall be registered in such name or names and in such authorized denomination or denominations as the holder of such beneficial interest shall instruct the Registrar through instructions from the Depositary and the Participant or Indirect Participant. The Trustee shall deliver such Definitive Notes to the Persons in whose names such Notes are so registered. Any Definitive Note issued in exchange for a beneficial interest in a Restricted Global Note pursuant to this Section 2.06(c)(i) shall bear the Private Placement Legend and shall be subject to all restrictions on transfer contained therein. (ii) Notwithstanding Sections 2.06(c)(i)(A) and (C) hereof, a beneficial interest in the Regulation S Temporary Global Note may not be exchanged for a Definitive Note or transferred to a Person who takes delivery thereof in the form of a Definitive Note prior to (x) the expiration of the Restricted Period and (y) the receipt by the Registrar of any certificates required pursuant to Rule 903(c)(3)(ii)(B) under the Securities Act, except in the case of a transfer pursuant to an exemption from the registration requirements of the Securities Act other than Rule 903 or Rule 904. (iii) Beneficial Interests in Restricted Global Notes to Unrestricted Definitive Notes. A holder of a beneficial interest in a Restricted Global Note may exchange such beneficial interest for an Unrestricted Definitive Note or may transfer such beneficial interest to a Person who takes delivery thereof in the form of an Unrestricted Definitive Note only if: (A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the holder of such beneficial interest, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (1) a broker-dealer, (2) a Person participating in the distribution of the Exchange Notes or (3) a Person who is an affiliate (as defined in Rule 144) of the Company; (B) such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; (C) such transfer is effected by a Participating Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (D) the Registrar receives the following: 28 (1) if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a Definitive Note that does not bear the Private Placement Legend, a certificate from such holder in the form of Exhibit C hereto, including the certifications in item (1)(b) thereof; or (2) if the holder of such beneficial interest in a Restricted Global Note proposes to transfer such beneficial interest to a Person who shall take delivery thereof in the form of a Definitive Note that does not bear the Private Placement Legend, a certificate from such holder in the form of Exhibit B hereto, including the certifications in item (4) thereof; and, in each such case set forth in this subparagraph (D), if the Registrar so requests or if the Applicable Procedures so require, an Opinion of Counsel in form reasonably acceptable to the Registrar to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act. (iv) Beneficial Interests in Unrestricted Global Notes to Unrestricted Definitive Notes. If any holder of a beneficial interest in an Unrestricted Global Note proposes to exchange such beneficial interest for a Definitive Note or to transfer such beneficial interest to a Person who takes delivery thereof in the form of a Definitive Note, then, upon satisfaction of the conditions set forth in Section 2.06(b)(ii) hereof, the Trustee shall cause the aggregate principal amount of the applicable Global Note to be reduced accordingly pursuant to Section 2.06(h) hereof, and the Company shall execute and the Trustee shall authenticate and deliver to the Person designated in the instructions a Definitive Note in the appropriate principal amount. Any Definitive Note issued in exchange for a beneficial interest pursuant to this Section 2.06(c)(iii) shall be registered in such name or names and in such authorized denomination or denominations as the holder of such beneficial interest shall instruct the Registrar through instructions from the Depositary and the Participant or Indirect Participant. The Trustee shall deliver such Definitive Notes to the Persons in whose names such Notes are so registered. Any Definitive Note issued in exchange for a beneficial interest pursuant to this Section 2.06(c)(iii) shall not bear the Private Placement Legend. (d) Transfer and Exchange of Definitive Notes for Beneficial Interests. (i) Restricted Definitive Notes to Beneficial Interests in Restricted Global Notes. If any Holder of a Restricted Definitive Note proposes to exchange such Note for a beneficial interest in a Restricted Global Note or to transfer such Restricted Definitive Notes to a Person who takes delivery thereof in the form of a beneficial interest in a Restricted Global Note, then, upon receipt by the Registrar of the following documentation: (A) if the Holder of such Restricted Definitive Note proposes to exchange such Note for a beneficial interest in a Restricted Global Note, a certificate from such Holder in the form of Exhibit C hereto, including the certifications in item (2)(b) thereof; (B) if such Restricted Definitive Note is being transferred to a QIB in accordance with Rule 144A under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (1) thereof; 29 (C) if such Restricted Definitive Note is being transferred to a Non- U.S. Person in an offshore transaction in accordance with Rule 903 or Rule 904 under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (2) thereof; (D) if such Restricted Definitive Note is being transferred pursuant to an exemption from the registration requirements of the Securities Act in accordance with Rule 144 under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(a) thereof; (E) if such Restricted Definitive Note is being transferred to an Institutional Accredited Investor in reliance on an exemption from the registration requirements of the Securities Act other than those listed in subparagraphs (B) through (D) above, a certificate to the effect set forth in Exhibit B hereto, including the certifications, certificates and Opinion of Counsel required by item (3) thereof, if applicable; (F) if such Restricted Definitive Note is being transferred to the Company or any of its Subsidiaries, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(b) thereof; or (G) if such Restricted Definitive Note is being transferred pursuant to an effective registration statement under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(c) thereof, the Trustee shall cancel the Restricted Definitive Note, increase or cause to be increased the aggregate principal amount of, in the case of clause (A) above, the appropriate Restricted Global Note, in the case of clause (B) above, the 144A Global Note, in the case of clause (c) above, the Regulation S Global Note, and in all other cases, the IAI Global Note. (ii) Restricted Definitive Notes to Beneficial Interests in Unrestricted Global Notes. A Holder of a Restricted Definitive Note may exchange such Note for a beneficial interest in an Unrestricted Global Note or transfer such Restricted Definitive Note to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note only if: (A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the Holder, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (1) a broker-dealer, (2) a Person participating in the distribution of the Exchange Notes or (3) a Person who is an affiliate (as defined in Rule 144) of the Company; (B) such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; (C) such transfer is effected by a Participating Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (D) the Registrar receives the following: 30 (1) if the Holder of such Definitive Notes proposes to exchange such Notes for a beneficial interest in the Unrestricted Global Note, a certificate from such Holder in the form of Exhibit C hereto, including the certifications in item (1)(c) thereof; or (2) if the Holder of such Definitive Notes proposes to transfer such Notes to a Person who shall take delivery thereof in the form of a beneficial interest in the Unrestricted Global Note, a certificate from such Holder in the form of Exhibit B hereto, including the certifications in item (4) thereof; and, in each such case set forth in this subparagraph (D), if the Registrar so requests or if the Applicable Procedures so require, an Opinion of Counsel in form reasonably acceptable to the Registrar to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act. Upon satisfaction of the conditions of any of the subparagraphs in this Section 2.06(d)(ii), the Trustee shall cancel the Definitive Notes and increase or cause to be increased the aggregate principal amount of the Unrestricted Global Note. (iii) Unrestricted Definitive Notes to Beneficial Interests in Unrestricted Global Notes. A Holder of an Unrestricted Definitive Note may exchange such Note for a beneficial interest in an Unrestricted Global Note or transfer such Definitive Notes to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note at any time. Upon receipt of a request for such an exchange or transfer, the Trustee shall cancel the applicable Unrestricted Definitive Note and increase or cause to be increased the aggregate principal amount of one of the Unrestricted Global Notes. If any such exchange or transfer from a Definitive Note to a beneficial interest is effected pursuant to subparagraphs (ii)(B), (ii)(D) or (iii) above at a time when an Unrestricted Global Note has not yet been issued, the Company shall issue and, upon receipt of an Authentication Order in accordance with Section 2.02 hereof, the Trustee shall authenticate one or more Unrestricted Global Notes in an aggregate principal amount equal to the principal amount of Definitive Notes so transferred. (e) Transfer and Exchange of Definitive Notes for Definitive Notes. Upon request by a Holder of Definitive Notes and such Holder's compliance with the provisions of this Section 2.06(e), the Registrar shall register the transfer or exchange of Definitive Notes. Prior to such registration of transfer or exchange, the requesting Holder shall present or surrender to the Registrar the Definitive Notes duly endorsed or accompanied by a written instruction of transfer in form satisfactory to the Registrar duly executed by such Holder or by his attorney, duly authorized in writing. In addition, the requesting Holder shall provide any additional certifications, documents and information, as applicable, required pursuant to the following provisions of this Section 2.06(e). (i) Restricted Definitive Notes to Restricted Definitive Notes. Any Restricted Definitive Note may be transferred to and registered in the name of Persons who take delivery thereof in the form of a Restricted Definitive Note if the Registrar receives the following: 31 (A) if the transfer will be made pursuant to Rule 144A under the Securities Act, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (1) thereof; (B) if the transfer will be made pursuant to Rule 903 or Rule 904, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (2) thereof; and (C) if the transfer will be made pursuant to any other exemption from the registration requirements of the Securities Act, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications, certificates and Opinion of Counsel required by item (3) thereof, if applicable. (ii) Restricted Definitive Notes to Unrestricted Definitive Notes. Any Restricted Definitive Note may be exchanged by the Holder thereof for an Unrestricted Definitive Note or transferred to a Person or Persons who take delivery thereof in the form of an Unrestricted Definitive Note if: (A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the Holder, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (1) a broker-dealer, (2) a Person participating in the distribution of the Exchange Notes or (3) a Person who is an affiliate (as defined in Rule 144) of the Company; (B) any such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; (C) any such transfer is effected by a Participating Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (D) the Registrar receives the following: (1) if the Holder of such Restricted Definitive Notes proposes to exchange such Notes for an Unrestricted Definitive Note, a certificate from such Holder in the form of Exhibit C hereto, including the certifications in item (1)(d) thereof; or (2) if the Holder of such Restricted Definitive Notes proposes to transfer such Notes to a Person who shall take delivery thereof in the form of an Unrestricted Definitive Note, a certificate from such Holder in the form of Exhibit B hereto, including the certifications in item (4) thereof; and, in each such case set forth in this subparagraph (D), if the Registrar so requests, an Opinion of Counsel in form reasonably acceptable to the Company to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act. 32 (iii) Unrestricted Definitive Notes to Unrestricted Definitive Notes. A Holder of Unrestricted Definitive Notes may transfer such Notes to a Person who takes delivery thereof in the form of an Unrestricted Definitive Note. Upon receipt of a request to register such a transfer, the Registrar shall register the Unrestricted Definitive Notes pursuant to the instructions from the Holder thereof. (f) Exchange Offer. Upon the occurrence of the Exchange Offer in accordance with the Registration Rights Agreement, the Company shall issue and, upon receipt of an Authentication Order in accordance with Section 2.02, the Trustee shall authenticate (i) one or more Unrestricted Global Notes in an aggregate principal amount equal to the principal amount of the beneficial interests in the Restricted Global Notes tendered for acceptance by Persons that certify in the applicable Letters of Transmittal that (x) they are not broker-dealers, (y) they are not participating in a distribution of the Exchange Notes and (z) they are not affiliates (as defined in Rule 144) of the Company, and accepted for exchange in the Exchange Offer and (ii) Definitive Notes in an aggregate principal amount equal to the principal amount of the Restricted Definitive Notes accepted for exchange in the Exchange Offer. Concurrently with the issuance of such Notes, the Trustee shall cause the aggregate principal amount of the applicable Restricted Global Notes to be reduced accordingly, and the Company shall execute and the Trustee shall authenticate and deliver to the Persons designated by the Holders of Definitive Notes so accepted Definitive Notes in the appropriate principal amount. (g) Legends. The following legends shall appear on the face of all Global Notes and Definitive Notes issued under this Indenture unless specifically stated otherwise in the applicable provisions of this Indenture. (i) Private Placement Legend. (A) Except as permitted by subparagraph (B) below, each Global Note and each Definitive Note (and all Notes issued in exchange therefor or substitution thereof) shall bear the legend in substantially the following form: "THE NOTES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A)(1) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144a UNDER THE SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144a, (2) IN AN OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (3) TO AN INSTITUTIONAL ACCREDITED INVESTOR IN A TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, (4) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE) OR (5) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (B) IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED STATES AND OTHER JURISDICTIONS." 33 (B) Notwithstanding the foregoing, any Global Note or Definitive Note issued pursuant to subparagraphs (b)(iv), (c)(ii), (c)(iii), (d)(ii), (d)(iii), (e)(ii), (e)(iii) or (f) to this Section 2.06 (and all Notes issued in exchange therefor or substitution thereof) shall not bear the Private Placement Legend. (ii) Global Note Legend. Each Global Note shall bear a legend in substantially the following form: "THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.07 OF THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, (III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY." (iii) Regulation S Temporary Global Note Legend. The Regulation S Temporary Global Note shall bear a legend in substantially the following form: "THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED NOTES, ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER NOR THE BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL NOTE SHALL BE ENTITLED TO RECEIVE PAYMENT OF INTEREST HEREON." (h) Cancellation and/or Adjustment of Global Notes. At such time as all beneficial interests in a particular Global Note have been exchanged for Definitive Notes or a particular Global Note has been redeemed, repurchased or canceled in whole and not in part, each such Global Note shall be returned to or retained and canceled by the Trustee in accordance with Section 2.11 hereof. At any time prior to such cancellation, if any beneficial interest in a Global Note is exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Note or for Definitive Notes, the principal amount of Notes represented by such Global Note shall be reduced accordingly and an endorsement shall be made on such Global Note by the Trustee or by the Depositary at the direction of the Trustee to reflect such reduction; and if the beneficial interest is being exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Note, such other Global Note shall be increased accordingly and an endorsement shall be made on such Global Note by the Trustee or by the Depositary at the direction of the Trustee to reflect such increase. (i) General Provisions Relating to Transfers and Exchanges. 34 (i) To permit registrations of transfers and exchanges, the Company shall execute and the Trustee shall authenticate Global Notes and Definitive Notes upon the Company's order or at the Registrar's request. (ii) No service charge shall be made to a holder of a beneficial interest in a Global Note or to a Holder of a Definitive Note for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer taxes or similar governmental charge payable upon exchange or transfer pursuant to Sections 2.10, 3.06, 3.09, 4.10, 4.15 and 9.05 hereof). (iii) The Registrar shall not be required to register the transfer of or exchange any Note selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part. (iv) All Global Notes and Definitive Notes issued upon any registration of transfer or exchange of Global Notes or Definitive Notes shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Global Notes or Definitive Notes surrendered upon such registration of transfer or exchange. (v) The Company shall not be required (A) to issue, to register the transfer of or to exchange any Notes during a period beginning at the opening of business 15 days before the day of the mailing of notice of redemption under Section 3.02 hereof and ending at the close of business on such day, (B) to register the transfer of or to exchange any Note so selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part or (c) to register the transfer of or to exchange a Note between a record date and the next succeeding Interest Payment Date. (vi) Prior to due presentment for the registration of a transfer of any Note, the Trustee, any Agent and the Company may deem and treat the Person in whose name any Note is registered as the absolute owner of such Note for the purpose of receiving payment of principal of and interest on such Notes and for all other purposes, and none of the Trustee, any Agent or the Company shall be affected by notice to the contrary. (vii) The Trustee shall authenticate Global Notes and Definitive Notes in accordance with the provisions of Section 2.02 hereof. (viii) All certifications, certificates and Opinions of Counsel required to be submitted to the Registrar pursuant to this Section 2.06 to effect a registration of transfer or exchange may be submitted by facsimile. Section 2.07. Replacement Notes If any mutilated Note is surrendered to the Trustee or the Company and the Trustee receives evidence to its satisfaction of the destruction, loss or theft of any Note, the Company shall issue and the Trustee, upon receipt of an Authentication Order, shall authenticate a replacement Note if the Trustee's requirements are met. If required by the Trustee or the Company, an indemnity bond must be supplied by the Holder that is sufficient in the judgment of the Trustee and the Company to protect the Company, the Trustee, any Agent and any authenticating agent from any loss that any of them may suffer if a Note is replaced. The Company may charge for its expenses in replacing a Note. 35 Every replacement Note is an additional obligation of the Company and shall be entitled to all of the benefits of this Indenture equally and proportionately with all other Notes duly issued hereunder. Section 2.08. Outstanding Notes. The Notes outstanding at any time are all the Notes authenticated by the Trustee except for those canceled by it, those delivered to it for cancellation, those reductions in the interest in a Global Note effected by the Trustee in accordance with the provisions hereof, and those described in this Section as not outstanding. Except as set forth in Section 2.09 hereof, a Note does not cease to be outstanding because the Company or an Affiliate of the Company holds the Note; however, Notes held by the Company or a Subsidiary of the Company shall not be deemed to be outstanding for purposes of Section 3.07(b) hereof. If a Note is replaced pursuant to Section 2.07 hereof, it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Note is held by a bona fide purchaser. If the principal amount of any Note is considered paid under Section 4.01 hereof, it ceases to be outstanding and interest on it ceases to accrue. If the Paying Agent (other than the Company, a Subsidiary or an Affiliate of any thereof) holds, on a redemption date or maturity date, money sufficient to pay Notes payable on that date, then on and after that date such Notes shall be deemed to be no longer outstanding and shall cease to accrue interest. Section 2.09. Treasury Notes. In determining whether the Holders of the required principal amount of Notes have concurred in any direction, waiver or consent, Notes owned by the Company, or by any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company, shall be considered as though not outstanding, except that for the purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Notes that the Trustee knows are so owned shall be so disregarded. Section 2.10. Temporary Notes Until certificates representing Notes are ready for delivery, the Company may prepare and the Trustee, upon receipt of an Authentication Order, shall authenticate temporary Notes. Temporary Notes shall be substantially in the form of certificated Notes but may have variations that the Company considers appropriate for temporary Notes and as shall be reasonably acceptable to the Trustee. Without unreasonable delay, the Company shall prepare and the Trustee shall authenticate definitive Notes in exchange for temporary Notes. Holders of temporary Notes shall be entitled to all of the benefits of this Indenture. Section 2.11. Cancellation. The Company at any time may deliver Notes to the Trustee for cancellation. The Registrar and Paying Agent shall forward to the Trustee any Notes surrendered to them for registration of 36 transfer, exchange or payment. The Trustee and no one else shall cancel all Notes surrendered for registration of transfer, exchange, payment, replacement or cancellation and shall return canceled Notes to the Company. Certification of the destruction of all canceled Notes shall be delivered to the Company. The Company may not issue new Notes to replace Notes that it has paid or that have been delivered to the Trustee for cancellation. Section 2.12. Defaulted Interest. If the Company defaults in a payment of interest on the Notes, it shall pay the defaulted interest in any lawful manner plus, to the extent lawful, interest payable on the defaulted interest, to the Persons who are Holders on a subsequent special record date, in each case at the rate provided in the Notes and in Section 4.01 hereof. The Company shall notify the Trustee in writing of the amount of defaulted interest proposed to be paid on each Note and the date of the proposed payment. The Company shall fix or cause to be fixed each such special record date and payment date, provided that no such special record date shall be less than 10 days prior to the related payment date for such defaulted interest. At least 15 days before the special record date, the Company (or, upon the written request of the Company, the Trustee in the name and at the expense of the Company) shall mail or cause to be mailed to Holders a notice that states the special record date, the related payment date and the amount of such interest to be paid. Section 2.13. CUSIP Numbers. The Company in issuing the Notes may use "CUSIP" numbers (if then generally in use), and, if so, the Trustee shall use CUSIP numbers in notices of redemption as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Notes or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Notes, and any such redemption shall not be affected by any defect in or the omission of such numbers. The Company will promptly notify the Trustee of any change in the CUSIP numbers. ARTICLE 3. REDEMPTION AND PREPAYMENT Section 3.01. Notices to Trustee. If the Company elects to redeem Notes pursuant to the optional redemption provisions of Section 3.07 hereof, it shall furnish to the Trustee, at least 30 days but not more than 60 days before a redemption date, an Officers' Certificate setting forth (i) the clause of this Indenture pursuant to which the redemption shall occur, (ii) the redemption date, (iii) the principal amount of Notes to be redeemed, (iv) the redemption price, (v) the CUSIP numbers of the Notes to be redeemed. Section 3.02. Selection of Notes to Be Redeemed If less than all of the Notes are to be redeemed or purchased in an offer to purchase at any time, the Trustee shall select the Notes to be redeemed or purchased among the Holders of the Notes in compliance with the requirements of the principal national securities exchange, if any, on which the Notes are listed or, if the Notes are not so listed, on a pro rata basis, by lot or in accordance with any other method the Trustee considers fair and appropriate. In the event of partial redemption by lot, the particular Notes to be redeemed shall be selected, unless otherwise provided herein, not less than 30 nor 37 more than 60 days prior to the redemption date by the Trustee from the outstanding Notes not previously called for redemption. The Trustee shall promptly notify the Company in writing of the Notes selected for redemption and, in the case of any Note selected for partial redemption, the principal amount thereof to be redeemed. Notes and portions of Notes selected shall be in amounts of $1,000 or whole multiples of $1,000; except that if all of the Notes of a Holder are to be redeemed, the entire outstanding amount of Notes held by such Holder, even if not a multiple of $1,000, shall be redeemed. Except as provided in the preceding sentence, provisions of this Indenture that apply to Notes called for redemption also apply to portions of Notes called for redemption. Section 3.03. Notice of Redemption Subject to the provisions of Section 3.09 hereof, at least 30 days but not more than 60 days before a redemption date, the Company shall mail or cause to be mailed, by first class mail, a notice of redemption to each Holder whose Notes are to be redeemed at its registered address. The notice shall identify the Notes to be redeemed, including CUSIP numbers, and shall state: (a) the redemption date; (b) the redemption price; (c) if any Note is being redeemed in part, the portion of the principal amount of such Note to be redeemed and that, after the redemption date upon surrender of such Note, a new Note or Notes in principal amount equal to the unredeemed portion shall be issued upon cancellation of the original Note; (d) the name and address of the Paying Agent; (e) that Notes called for redemption must be surrendered to the Paying Agent to collect the redemption price; (f) that, unless the Company defaults in making such redemption payment, interest on Notes called for redemption ceases to accrue on and after the redemption date; (g) the paragraph of the Notes and/or Section of this Indenture pursuant to which the Notes called for redemption are being redeemed; and (h) that no representation is made as to the correctness or accuracy of the CUSIP number, if any, listed in such notice or printed on the Notes. At the Company's request, the Trustee shall give the notice of redemption in the Company's name and at its expense; provided, however, that the Company shall have delivered to the Trustee, at least 45 days prior to the redemption date, an Officers' Certificate requesting that the Trustee give such notice and setting forth the information to be stated in such notice as provided in the preceding paragraph. 38 Section 3.04. Effect of Notice of Redemption Once notice of redemption is mailed in accordance with Section 3.03 hereof, Notes called for redemption become irrevocably due and payable on the redemption date at the redemption price. A notice of redemption may not be conditional. Section 3.05. Deposit of Redemption Price Prior to 10 a.m. on the redemption date, the Company shall deposit with the Trustee or with the Paying Agent money sufficient to pay the redemption price of and accrued interest on all Notes to be redeemed on that date. The Trustee or the Paying Agent shall promptly return to the Company any money deposited with the Trustee or the Paying Agent by the Company in excess of the amounts necessary to pay the redemption price of, and accrued interest on, all Notes to be redeemed. If the Company complies with the provisions of the preceding paragraph, on and after the redemption date, interest shall cease to accrue on the Notes or the portions of Notes called for redemption. If a Note is redeemed on or after an interest record date but on or prior to the related interest payment date, then any accrued and unpaid interest shall be paid to the Person in whose name such Note was registered at the close of business on such record date. If any Note called for redemption shall not be so paid upon surrender for redemption because of the failure of the Company to comply with the preceding paragraph, interest shall be paid on the unpaid principal, from the redemption date until such principal is paid, and to the extent lawful on any interest not paid on such unpaid principal, in each case at the rate provided in the Notes and in Section 4.01 hereof. Section 3.06. Notes Redeemed in Part. Upon surrender of a Note that is redeemed in part, the Company shall issue and, upon the Company's written request, the Trustee shall authenticate for the Holder at the expense of the Company a new Note equal in principal amount to the unredeemed portion of the Note surrendered. Section 3.07. Optional Redemption. (a) Except as provided below, the Notes will not be redeemable at the Company's option prior to December 15, 2002. Thereafter, the 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:
PERCENTAGE OF PRINCIPAL YEAR Amount ---- ------ 2002....................................... 104.937% 2003....................................... 103.292% 2004....................................... 101.646% 2005 and thereafter........................ 100.000%
39 (b) Notwithstanding the foregoing, during the first 36 months after the date of this Offering Circular, the Company may on any one or more occasions redeem up to 35% of the aggregate principal amount of Notes originally issued under the 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 Notes remain outstanding immediately after the occurrence of such redemption (excluding 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. (c) At any time prior to December 15, 2002, the 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 Applicable Premium as of, and accrued and unpaid interest and Liquidated Damages, if any, to, the date of redemption (the "Redemption Date"). (d) Any redemption pursuant to this Section 3.07 shall be made pursuant to the provisions of Section 3.01 through 3.06 hereof. Section 3.08. Mandatory Redemption. The Company shall not be required to make mandatory redemption payments with respect to the Notes. Section 3.09. Offer to Purchase by Application of Net Proceeds Offer Amount. In the event that, pursuant to Section 4.10 hereof, the Company shall be required to commence a Net Proceeds Offer, it shall follow the procedures specified below. The Net Proceeds Offer shall remain open for a period of 20 Business Days following its commencement and no longer, except to the extent that a longer period is required by applicable law (the "Offer Period"). No later than five Business Days after the termination of the Offer Period (the "Purchase Date"), the Company shall purchase the Net Proceeds Offer Amount or, if less than the Net Proceeds Offer Amount has been tendered, all Notes tendered in response to the Net Proceeds Offer. Payment for any Notes so purchased shall be made in the same manner as interest payments are made. If the Purchase Date is on or after an interest record date and on or before the related interest payment date, any accrued and unpaid interest shall be paid to the Person in whose name a Note is registered at the close of business on such record date, and no additional interest shall be payable to Holders who tender Notes pursuant to the Net Proceeds Offer. Upon the commencement of a Net Proceeds Offer, the Company shall send, by first class mail, a notice to the Trustee and each of the Holders, with a copy to the Trustee. The notice shall contain all instructions and materials necessary to enable such Holders to tender Notes pursuant to the Net Proceeds Offer. The Net Proceeds Offer shall be made to all Holders. The notice, which shall govern the terms of the Net Proceeds Offer, shall state: 40 (a) that the Net Proceeds Offer is being made pursuant to this Section 3.09 and Section 4.10 hereof and the length of time the Net Proceeds Offer shall remain open; (b) the Net Proceeds Offer Amount, the purchase price and the Purchase Date; (c) that any Note not tendered or accepted for payment shall continue to accrete or accrue interest; (d) that, unless the Company defaults in making such payment, any Note accepted for payment pursuant to the Net Proceeds Offer shall cease to accrete or accrue interest after the Purchase Date; (e) that Holders electing to have a Note purchased pursuant to an Net Proceeds Offer may only elect to have all of such Note purchased and may not elect to have only a portion of such Note purchased; (f) that Holders electing to have a Note purchased pursuant to any Net Proceeds Offer shall be required to surrender the Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Note completed, or transfer by book-entry transfer, to the Company, a depositary, if appointed by the Company, or a Paying Agent at the address specified in the notice at least three days before the Purchase Date; (g) that Holders shall be entitled to withdraw their election if the Company, the depositary or the Paying Agent, as the case may be, receives, not later than the expiration of the Offer Period, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Note the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Note purchased; (h) that, if the aggregate principal amount of Notes surrendered by Holders exceeds the Offer Amount, the Company shall select the Notes to be purchased on a pro rata basis (with such adjustments as may be deemed appropriate by the Company so that only Notes in denominations of $1,000, or integral multiples thereof, shall be purchased); and (i) that Holders whose Notes were purchased only in part shall be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered (or transferred by book-entry transfer). On or before 10:00 a.m on the Purchase Date, the Company shall, to the extent lawful, accept for payment, on a pro rata basis to the extent necessary, the Offer Amount of Notes or portions thereof tendered pursuant to the Net Proceeds Offer, or if less than the Offer Amount has been tendered, all Notes tendered, and shall deliver to the Trustee an Officers' Certificate stating that such Notes or portions thereof were accepted for payment by the Company in accordance with the terms of this Section 3.09. The Company, the Depositary or the Paying Agent, as the case may be, shall promptly (but in any case not later than five days after the Purchase Date) mail or deliver to each tendering Holder an amount equal to the purchase price of the Notes tendered by such Holder and accepted by the Company for purchase, and the Company shall promptly issue a new Note, and the Trustee, upon written request from the Company shall authenticate and mail or deliver such new Note to such Holder, in a principal amount equal to any unpurchased portion of the Note surrendered. Any Note not so accepted shall be promptly 41 mailed or delivered by the Company to the Holder thereof. The Company shall publicly announce the results of the Net Proceeds Offer on the Purchase Date. Other than as specifically provided in this Section 3.09, any purchase pursuant to this Section 3.09 shall be made pursuant to the provisions of Sections 3.01 through 3.06 hereof. ARTICLE 4. COVENANTS Section 4.01. Payment of Notes. The Company or a Guarantor shall pay or cause to be paid the principal of, premium, if any, and interest and Liquidated Damages, if any, on the Notes on the dates and in the manner provided in the Notes. Principal, premium, if any, and interest and Liquidated Damages, if any, shall be considered paid on the date due if the Paying Agent, if other than the Company or a Subsidiary thereof, holds as of 10:00 a.m. Eastern Time on the due date money deposited by the Company in immediately available funds and designated for and sufficient to pay all principal, premium, if any, and interest and Liquidated Damages, if any, then due. The Company shall pay all Liquidated Damages, if any, in the same manner on the dates and in the amounts set forth in the Registration Rights Agreement. The Company or a Guarantor shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal at the rate equal to 1% per annum in excess of the then applicable interest rate on the Notes to the extent lawful; it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest and Liquidated Damages (without regard to any applicable grace period) at the same rate to the extent lawful. Section 4.02. Maintenance of Office or Agency. The Company shall maintain in the Borough of Manhattan, the City of New York, an office or agency (which may be an office of the Trustee or an affiliate of the Trustee, Registrar or co-registrar) where Notes may be surrendered for registration of transfer or for exchange and where notices and demands to or upon the Company in respect of the Notes and this Indenture may be served. The Company shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee. The Company may also from time to time designate one or more other offices or agencies where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, the City of New York for such purposes. The Company shall give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. The Company hereby designates the Corporate Trust Office of the Trustee as one such office or agency of the Company in accordance with Section 2.03. 42 Section 4.03. Reports. (a) Whether or not required by the rules and regulations of the SEC, so long as any Notes are outstanding, the Company shall 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 SEC 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 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 SEC on Form 8-K if the Company were required to file such reports, in each case, within the time periods specified in the SEC's rules and regulations. For so long as the Parent is a Guarantor of the Notes, Company may satisfy its obligations in this covenant with respect to 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 consummation of the Exchange Offer, whether or not required by the rules and regulations of the SEC, the Company shall file a copy of all such information and reports with the SEC for public availability within the time periods specified in the SEC's rules and regulations (unless the SEC will not accept such a filing) and make such information available to securities analysts and prospective investors upon request. The Company shall at all times comply with TIA (S) 314(a). (b) For so long as any Notes remain outstanding, the Company and the Guarantors shall 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. Section 4.04. Compliance Certificate. (a) The Company and each Guarantor (to the extent that such Guarantor is so required under the TIA) shall deliver to the Trustee, within 90 days after the end of each fiscal year, an Officers' Certificate stating that a review of the activities of the Company and its Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officers with a view to determining whether the Company has kept, observed, performed and fulfilled its obligations under this Indenture, and further stating, as to each such Officer signing such certificate, that to the best of his or her knowledge the Company has kept, observed, performed and fulfilled each and every covenant contained in this Indenture and is not in default in the performance or observance of any of the terms, provisions and conditions of this Indenture (or, if a Default or Event of Default shall have occurred, describing all such Defaults or Events of Default of which he or she may have knowledge and what action the Company is taking or proposes to take with respect thereto) and that to the best of his or her knowledge no event has occurred and remains in existence by reason of which payments on account of the principal of or interest, if any, on the Notes is prohibited or if such event has occurred, a description of the event and what action the Company is taking or proposes to take with respect thereto. For purposes of this paragraph, such compliance shall be determined without regard to any period of grace or requirement of notice provided under the Indenture. 43 (b) So long as not contrary to the then current recommendations of the American Institute of Certified Public Accountants, the year-end financial statements delivered pursuant to Section 4.03(a) above shall be accompanied by a written statement of the Company's independent public accountants (who shall be a firm of established national reputation) that in making the examination necessary for certification of such financial statements, nothing has come to their attention that would lead them to believe that the Company has violated any provisions of Article 4 or Article 5 hereof or, if any such violation has occurred, specifying the nature and period of existence thereof, it being understood that such accountants shall not be liable directly or indirectly to any Person for any failure to obtain knowledge of any such violation. (c) The Company shall, so long as any of the Notes are outstanding, deliver to the Trustee, forthwith upon any Officer becoming aware of any Default or Event of Default, an Officers' Certificate specifying such Default or Event of Default and what action the Company is taking or proposes to take with respect thereto. Section 4.05. Taxes. The Company shall pay, and shall cause each of its Subsidiaries to pay, prior to delinquency, all material taxes, assessments, and governmental levies except such as are contested in good faith and by appropriate proceedings or where the failure to effect such payment is not adverse in any material respect to the Holders of the Notes. Section 4.06. Stay, Extension and Usury Laws. The Company and each of the Guarantors covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter in force, that may affect the covenants or the performance of this Indenture; and the Company and each of the Guarantors (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it shall not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but shall suffer and permit the execution of every such power as though no such law has been enacted. Section 4.07. Restricted Payments. The Company shall not, and shall 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 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 44 (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 Section 4.09 hereof; 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 this Indenture (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 this Indenture 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 this Indenture 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 Notes in accordance with the optional redemption provisions of the 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 will 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 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 45 or series of Designated Preferred Stock (other than Disqualified Stock) issued after the date of this Indenture (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 this Indenture 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 this Indenture; 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 this Indenture; (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 this 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 Section 4.09 hereof, other Restricted Payments in an aggregate amount not to exceed $12.5 million since the date of this Indenture; (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 and payments with respect to Parent Notes whether made at or subsequent to the date hereof. In determining the aggregate amount of Restricted Payments made subsequent to the date of this Indenture 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 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. 46 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. Section 4.08. Dividend and Other Payment Restrictions Affecting Subsidiaries. The Company shall not, and shall 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 Indenture or the Senior Subordinated Discount Note Indenture; (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 this Indenture (including, without limitation, the Senior Credit Agreements and the Existing 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 this Indenture pursuant to the provisions of Section 4.09; 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. Section 4.09. Incurrence of Indebtedness and Issuance of Preferred Stock. The Company shall not, and shall 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, the Company shall not issue any Disqualified Stock and shall not permit any of its Restricted Subsidiaries to issue any shares of preferred stock; provided, however, that the Company may incur Indebtedness 47 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 will not apply to the incurrence of any of the following items of Indebtedness (collectively, "Permitted Indebtedness"): (i) the Notes, the Senior Subordinated Discount Notes and, in each case, 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 this Indenture 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 this Indenture for so long as such Indebtedness remains outstanding; (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, 48 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 effect at the time of issuance thereof ("Required Premiums") and fees 49 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, substituted, 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. Section 4.10. Asset Sales The Company shall not, and shall 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 Notes) that are assumed by the transferee of any such assets, (b) any notes or other obligations 50 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 Notes equal to the Net Proceeds Offer Amount at a price equal to 100% of the principal amount of the Notes to be purchased, plus accrued and unpaid interest and 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) 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 51 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. To the extent that the provisions of any securities laws or regulations conflict with the Asset Sale provisions of this 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 this Indenture by virtue thereof. Section 4.11. Transactions with Affiliates. (a) The Company shall not, and shall 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. (b) 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 Securitization Transaction; (iv) any agreement as in effect as of the date of this Indenture 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 this Indenture; (v) Restricted Payments permitted by this 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 52 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 this Indenture 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 this Indenture 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, Section 5.01 hereof; 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. Section 4.12. Liens. The Company shall not, and shall 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 Notes, the 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 Notes are equally and ratably secured, except for (A) Liens existing as of the date of this Indenture and any extensions, renewals or replacements thereof, (B) Liens securing Senior Debt, (C) Liens securing the 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 Indenture and the Senior Subordinated Discount Note Indenture that was incurred in accordance with the provisions of the Indenture and the Senior Subordinated Discount Note 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. Section 4.13. Conduct of Business. The Company shall not, and shall 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 this Indenture. Section 4.14. Corporate Existence. Subject to Article 5 hereof, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect (i) its corporate existence, and the corporate, partnership or other existence of each of its Subsidiaries, in accordance with the respective 53 organizational documents (as the same may be amended from time to time) of the Company or any such Subsidiary and (ii) the rights (charter and statutory), licenses and franchises of the Company and its Subsidiaries; provided, however, that the Company shall not be required to preserve any such right, license or franchise, or the corporate, partnership or other existence of any of its Subsidiaries, if the Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and its Subsidiaries, taken as a whole, and that the loss thereof is not adverse in any material respect to the Holders of the Notes. Section 4.15. Offer to Repurchase Upon Change of Control. (a) Upon the occurrence of a Change of Control, each Holder of 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 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. Within ten days following any Change of Control, the Company shall mail a notice to each Holder describing the transaction or transactions that constitute the Change of Control and offering to repurchase 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 shall 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 Notes as a result of a Change of Control. (b) On the Change of Control Payment Date, the Company shall, to the extent lawful, (1) accept for payment all 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 Notes or portions thereof so tendered and (3) deliver or cause to be delivered to the applicable Trustee the Notes so accepted together with an Officers' Certificate stating the aggregate principal amount of Notes or portions thereof being purchased by the Company. The Paying Agent shall promptly mail to each Holder of Notes so tendered the Change of Control Payment for such Notes, and the Trustee shall promptly authenticate and mail (or cause to be transferred by book entry) to each Holder a new Note equal in principal amount to any unpurchased portion of the Notes surrendered, if any; provided that each such new Note will be in a principal amount of $1,000 or an integral multiple thereof. The Company shall publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. Prior to the mailing of any notice required by the Indenture, but in any event within 30 days following any Change of Control, the Company shall (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 Notes pursuant to the provisions described herein. The Company's failure to comply with the immediately preceding sentence shall constitute an Event of Default described in clause (c) and not in clause (b) under "Events of Default" below. 54 (c) Notwithstanding anything to the contrary in this Section 4.15, the Company shall not be required to make a Change of Control Offer upon a Change of Control if (i) 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 this Section 4.15 and Section 3.09 hereof and purchases all Notes validly tendered and not withdrawn under such Change of Control Offer or (ii) the Company exercises its option to purchase all the Notes upon a Change of Control as described in Section 3.07(c). Section 4.16. No Senior Subordinated Debt. Notwithstanding the provisions of Section 4.09 hereof, (i) the Company shall 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 shall 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. Section 4.17. Additional Note Guarantees If the Company or any of its Restricted Subsidiaries shall acquire or create another U.S. Subsidiary after the date of this Indenture, or if any Subsidiary becomes a U.S. Subsidiary after the date of this Indenture, then such newly acquired or created Subsidiary, shall execute a Note Guarantee and deliver an Opinion of Counsel, in accordance with the terms hereof; provided, that all Subsidiaries that have properly been designated as Unrestricted Subsidiaries in accordance herewith shall not be subject to the requirements of this covenant for so long as they continue to constitute Unrestricted Subsidiaries. ARTICLE 5. SUCCESSORS Section 5.01. Merger, Consolidation, or Sale of Assets. The Company shall 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 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 Notes and the Indenture pursuant to a supplemental indenture in form reasonably satisfactory to the 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 55 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 Section 4.09 hereof. Section 5.02. Successor Corporation Substituted. Upon any consolidation or merger, or any sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the assets of the Company in accordance with Section 5.01 hereof, the successor corporation formed by such consolidation or into or with which the Company is merged or to which such sale, assignment, transfer, lease, conveyance or other disposition is made shall succeed to, and be substituted for (so that from and after the date of such consolidation, merger, sale, lease, conveyance or other disposition, the provisions of this Indenture referring to the "Company" shall refer instead to the successor corporation and not to the Company), and may exercise every right and power of the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein; provided, however, that the predecessor Company shall not be relieved from the obligation to pay the principal of and interest on the Notes except in the case of a sale of all of the Company's assets that meets the requirements of Section 5.01 hereof. ARTICLE 6. DEFAULTS AND REMEDIES Section 6.01. Events of Default. "Event of Defaults" are: (a) the failure to pay interest on any 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 Article 10 hereof; (b) the failure to pay the principal on any Notes when such principal becomes due and payable, at maturity, upon redemption or otherwise (including the failure to make a payment to purchase Notes tendered pursuant to a Change of Control Offer or a Net Proceeds Offer), whether or not such payment shall be prohibited by Article 10 hereof; (c) a default in the observance or performance of any other covenant or agreement contained herein 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 Trustee or the Holders of at least 25% of the outstanding principal amount of the Notes; (d) 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; (e) 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; 56 (f) the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary pursuant to or within the meaning of Bankruptcy Law: (i) commences a voluntary case, (ii) consents to the entry of an order for relief against it in an involuntary case, (iii) consents to the appointment of a custodian of it or for all or substantially all of its property, (iv) makes a general assignment for the benefit of its creditors, or (v) generally is not paying its debts as they become due; or (g) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (i) is for relief against the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary in an involuntary case; (ii) appoints a custodian of the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary or for all or substantially all of the property of the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary; or (iii) orders the liquidation of the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary; and the order or decree remains unstayed and in effect for 60 consecutive days; or (h) except as permitted by this Indenture, any Note Guarantee is 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 such Guarantor's Note Guarantee. Section 6.02. Acceleration. If any Event of Default (other than an Event of Default specified in clause (f) or (g) of Section 6.01 hereof with respect to the Company, any Significant Subsidiary or any group of Significant Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary) occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately 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. Notwithstanding the foregoing, if an Event of Default specified in clause (f) or (g) of Section 6.01 hereof occurs with respect to the Company, any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary, all outstanding Notes 57 shall be due and payable immediately without further action or notice. The Holders of a majority in aggregate principal amount of the then outstanding Notes by written notice to the Trustee may on behalf of all of the Holders rescind an acceleration and its consequences if the rescission would not conflict with any judgment or decree and if all existing Events of Default (except nonpayment of principal, interest or premium that has become due solely because of the acceleration) have been cured or waived. If an Event of Default occurs on or after December 15, 2002 by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding payment of the premium that the Company would have had to pay if the Company then had elected to redeem the Notes pursuant to Section 3.07 hereof, then, upon acceleration of the Notes, an equivalent premium shall also become and be immediately due and payable, to the extent permitted by law, anything in this Indenture or in the Notes to the contrary notwithstanding. If an Event of Default occurs prior to December 15, 2002 by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding the prohibition on redemption of the Notes prior to such date, then, upon acceleration of the Notes, an additional premium shall also become and be immediately due and payable in an amount, for each of the years beginning on December 15 of the years set forth below, as set forth below (expressed as a percentage of the aggregate principal amount to the date of payment that would otherwise be due but for the provisions of this sentence):
YEAR PERCENTAGE ---- ---------- 1997........................................ 113.167% 1998........................................ 111.521% 1999........................................ 109.875% 2000........................................ 108.229% 2001........................................ 106.583%
Section 6.03. Other Remedies. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal, premium, if any, and interest and Liquidated Damages, if any, on the Notes or to enforce the performance of any provision of the Notes or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Notes or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder of a Note in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. All remedies are cumulative to the extent permitted by law. Section 6.04. Waiver of Past Defaults. Holders of not less than a majority in aggregate principal amount of the then outstanding Notes by notice to the Trustee may on behalf of the Holders of all of the Notes waive an existing Default or Event of Default and its consequences hereunder, except a continuing Default or Event of Default in the payment of the principal of, premium and Liquidated Damages, if any, or interest on, the Notes (including in connection with an offer to purchase) (provided, however, that the Holders of a majority in aggregate principal amount of the then outstanding Notes may rescind an acceleration and its consequences, including any related payment default that resulted from such acceleration). Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be 58 deemed to have been cured for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon. Section 6.05. Control by Majority. Holders of a majority in principal amount of the then outstanding Notes may direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee or exercising any trust or power conferred on it. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture that the Trustee determines may be unduly prejudicial to the rights of other Holders of Notes or that may involve the Trustee in personal liability. Section 6.06. Limitation on Suits. A Holder of a Note may pursue a remedy with respect to this Indenture or the Notes only if: (a) the Holder of a Note gives to the Trustee written notice of a continuing Event of Default; (b) the Holders of at least 25% in principal amount of the then outstanding Notes make a written request to the Trustee to pursue the remedy; (c) such Holder of a Note or Holders of Notes offer and, if requested, provide to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense; (d) the Trustee does not comply with the request within 60 days after receipt of the request and the offer and, if requested, the provision of indemnity; and (e) during such 60-day period the Holders of a majority in principal amount of the then outstanding Notes do not give the Trustee a direction inconsistent with the request. A Holder of a Note may not use this Indenture to prejudice the rights of another Holder of a Note or to obtain a preference or priority over another Holder of a Note. Section 6.07. Rights of Holders of Notes to Receive Payment. Notwithstanding any other provision of this Indenture, the right of any Holder of a Note to receive payment of principal, premium and Liquidated Damages, if any, and interest on the Note, on or after the respective due dates expressed in the Note (including in connection with an offer to purchase), or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder. Section 6.08. Collection Suit by Trustee. If an Event of Default specified in Section 6.01(a) or (b) occurs and is continuing, the Trustee is authorized to recover judgment in its own name and as trustee of an express trust against the Company for the whole amount of principal of, premium and Liquidated Damages, if any, and interest remaining unpaid on the Notes and interest on overdue principal and, to the extent lawful, interest and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. 59 Section 6.09. Trustee May File Proofs of Claim. The Trustee is authorized to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Holders of the Notes allowed in any judicial proceedings relative to the Company (or any other obligor upon the Notes), its creditors or its property and shall be entitled and empowered to collect, receive and distribute any money or other property payable or deliverable on any such claims and any custodian in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 hereof. To the extent that the payment of any such compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 hereof out of the estate in any such proceeding, shall be denied for any reason, payment of the same shall be secured by a Lien on, and shall be paid out of, any and all distributions, dividends, money, securities and other properties that the Holders may be entitled to receive in such proceeding whether in liquidation or under any plan of reorganization or arrangement or otherwise. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. Section 6.10. Priorities. If the Trustee collects any money pursuant to this Article, it shall pay out the money in the following order: First: to the Trustee, its agents and attorneys for amounts due under Section 7.07 hereof, including payment of all compensation, expense and liabilities incurred, and all advances made, by the Trustee and the costs and expenses of collection; Second: to Holders of Notes for amounts due and unpaid on the Notes for principal, premium and Liquidated Damages, if any, and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes for principal, premium and Liquidated Damages, if any and interest, respectively; and Third: to the Company or to such party as a court of competent jurisdiction shall direct. The Trustee may fix a record date and payment date for any payment to Holders of Notes pursuant to this Section 6.10. Section 6.11. Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as a Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party 60 litigant. This Section does not apply to a suit by the Trustee, a suit by a Holder of a Note pursuant to Section 6.07 hereof, or a suit by Holders of more than 10% in principal amount of the then outstanding Notes. ARTICLE 7. TRUSTEE Section 7.01. Duties of Trustee. (a) If an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in its exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (b) Except during the continuance of an Event of Default: (i) the duties of the Trustee shall be determined solely by the express provisions of this Indenture and the Trustee need perform only those duties that are specifically set forth in this Indenture and no others, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (ii) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture. (c) The Trustee may not be relieved from liabilities for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (i) this paragraph does not limit the effect of paragraph (b) of this Section; (ii) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (iii) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.05 hereof. (d) Whether or not therein expressly so provided, every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b), and (c) of this Section. (e) No provision of this Indenture shall require the Trustee to expend or risk its own funds or incur any liability. The Trustee shall be under no obligation to exercise any of its rights and powers under this Indenture at the request of any Holders, unless such Holder shall have offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense. (f) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. 61 Section 7.02. Rights of Trustee. (a) The Trustee may conclusively rely upon any document believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee need not investigate any fact or matter stated in the document. (b) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officers' Certificate or Opinion of Counsel. The Trustee may consult with counsel of its selection and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection from liability in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon. (c) The Trustee may act through its attorneys and agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care. (d) The Trustee shall not be liable for any action it takes or omits to take in good faith that it believes to be authorized or within the rights or powers conferred upon it by this Indenture. (e) Unless otherwise specifically provided in this Indenture, any demand, request, direction or notice from the Company shall be sufficient if signed by an Officer of the Company. (f) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities that might be incurred by it in compliance with such request or direction. Section 7.03. Individual Rights of Trustee. The Trustee in its individual or any other capacity may become the owner or pledgee of Notes and may otherwise deal with the Company or any Affiliate of the Company with the same rights it would have if it were not Trustee. However, in the event that the Trustee acquires any conflicting interest it must eliminate such conflict within 90 days, apply to the SEC for permission to continue as trustee or resign. Any Agent may do the same with like rights and duties. The Trustee is also subject to Sections 7.10 and 7.11 hereof. Section 7.04. Trustee's Disclaimer. The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture or the Notes, it shall not be accountable for the Company's use of the proceeds from the Notes or any money paid to the Company or upon the Company's direction under any provision of this Indenture, it shall not be responsible for the use or application of any money received by any Paying Agent other than the Trustee, and it shall not be responsible for any statement or recital herein or any statement in the Notes or any other document in connection with the sale of the Notes or pursuant to this Indenture other than its certificate of authentication. 62 Section 7.05. Notice of Defaults. (a) The Trustee shall not be deemed to have notice of any Default or Event of Default unless a Responsible Officer of the Trustee has actual knowledge thereof or unless written notice of any event which is in fact such a default is received by the Trustee at the Corporate Trust Office of the Trustee, and such notice references the Securities and this Indenture. (b) If a Default or Event of Default occurs and is continuing and if it is known to the Trustee, the Trustee shall mail to Holders of Notes a notice of the Default or Event of Default within 90 days after it occurs. Except in the case of a Default or Event of Default in payment of principal of, premium, if any, or interest on any Note, the Trustee may withhold the notice if and so long as a committee of its Responsible Officers in good faith determines that withholding the notice is in the interests of the Holders of the Notes. Section 7.06. Reports by Trustee to Holders of the Notes. Within 60 days after each May 15 beginning with the May 15 following the date of this Indenture, and for so long as Notes remain outstanding, the Trustee shall mail to the Holders of the Notes a brief report dated as of such reporting date that complies with TIA (S) 313(a) (but if no event described in TIA (S) 313(a) has occurred within the twelve months preceding the reporting date, no report need be transmitted). The Trustee also shall comply with TIA (S) 313(b)(2). The Trustee shall also transmit by mail all reports as required by TIA (S) 313(c). A copy of each report at the time of its mailing to the Holders of Notes shall be mailed to the Company and filed with the SEC and each stock exchange on which the Notes are listed in accordance with TIA (S) 313(d). The Company shall promptly notify the Trustee when the Notes are listed on any stock exchange. Section 7.07. Compensation and Indemnity. The Company and the Guarantors shall pay to the Trustee from time to time such compensation for its acceptance of this Indenture and services hereunder as the parties shall agree from time to time. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company and the Guarantors shall reimburse the Trustee promptly upon request for all reasonable disbursements, advances and expenses incurred or made by it in addition to the compensation for its services. Such expenses shall include the reasonable compensation, disbursements and expenses of the Trustee's agents and counsel. The Company and the Guarantors shall indemnify the Trustee against any and all losses, liabilities or expenses incurred by it arising out of or in connection with the acceptance or administration of its duties under this Indenture, including the costs and expenses of enforcing this Indenture against the Company and the Guarantors (including this Section 7.07) and defending itself against any claim (whether asserted by the Company and the Guarantors or any Holder or any other person) or liability in connection with the exercise or performance of any of its powers or duties hereunder, except to the extent any such loss, liability or expense may be attributable to its negligence or bad faith. The Trustee shall notify the Company and the Guarantors promptly of any claim for which it may seek indemnity. Failure by the Trustee to so notify the Company shall not relieve the Company of its obligations hereunder. The Company shall defend the claim and the Trustee shall cooperate in the defense. The Trustee may have separate counsel and the Company shall pay the reasonable fees and expenses of such 63 counsel. The Company and the Guarantors need not pay for any settlement made without its consent, which consent shall not be unreasonably withheld. The obligations of the Company and the Guarantors under this Section 7.07 shall survive the satisfaction and discharge of this Indenture. To secure the Company's and the Guarantors' payment obligations in this Section, the Trustee shall have a Lien prior to the Notes on all money or property held or collected by the Trustee, except that held in trust to pay principal and interest on particular Notes. Such Lien shall survive the satisfaction and discharge of this Indenture. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.01(f) or (g) hereof occurs, the expenses and the compensation for the services (including the fees and expenses of its agents and counsel) are intended to constitute expenses of administration under any Bankruptcy Law. The Trustee shall comply with the provisions of TIA (S) 313(b)(2) to the extent applicable. Section 7.08. Replacement of Trustee. A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee's acceptance of appointment as provided in this Section. The Trustee may resign in writing at any time and be discharged from the trust hereby created by so notifying the Company. The Holders of Notes of a majority in principal amount of the then outstanding Notes may remove the Trustee by so notifying the Trustee and the Company in writing. The Company may remove the Trustee if: (a) the Trustee fails to comply with Section 7.10 hereof; (b) the Trustee is adjudged a bankrupt or an insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law; (c) a custodian or public officer takes charge of the Trustee or its property; or (d) the Trustee becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of the then outstanding Notes may appoint a successor Trustee to replace the successor Trustee appointed by the Company. If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company, or the Holders of Notes of at least 10% in principal amount of the then outstanding Notes may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee, after written request by any Holder of a Note who has been a Holder of a Note for at least six months, fails to comply with Section 7.10, such Holder of a Note may petition any 64 court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to Holders of the Notes. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, provided all sums owing to the Trustee hereunder have been paid and subject to the Lien provided for in Section 7.07 hereof. Notwithstanding replacement of the Trustee pursuant to this Section 7.08, the Company's obligations under Section 7.07 hereof shall continue for the benefit of the retiring Trustee. Section 7.09. Successor Trustee by Merger, etc. If the Trustee consolidates, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the successor corporation without any further act shall be the successor Trustee. Section 7.10. Eligibility; Disqualification. There shall at all times be a Trustee hereunder that is a corporation organized and doing business under the laws of the United States of America or of any state thereof that is authorized under such laws to exercise corporate trustee power, that is subject to supervision or examination by federal or state authorities and that has a combined capital and surplus of at least $100.0 million as set forth in its most recent published annual report of condition. This Indenture shall always have a Trustee who satisfies the requirements of TIA (S) 310(a)(1), (2) and (5). The Trustee is subject to TIA (S) 310(b). Section 7.11. Preferential Collection of Claims Against Company. The Trustee is subject to TIA (S) 311(a), excluding any creditor relationship listed in TIA (S) 311(b). A Trustee who has resigned or been removed shall be subject to TIA (S) 311(a) to the extent indicated therein. ARTICLE 8. LEGAL DEFEASANCE AND COVENANT DEFEASANCE Section 8.01. Option to Effect Legal Defeasance or Covenant Defeasance. The Company may, at the option of its Board of Directors evidenced by a resolution set forth in an Officers' Certificate, at any time, elect to have either Section 8.02 or 8.03 hereof applied to all outstanding Notes upon compliance with the conditions set forth below in this Article Eight. Section 8.02. Legal Defeasance and Discharge. Upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.02, the Company shall, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, be deemed to have been discharged from its obligations with respect to all outstanding Notes on 65 the date the conditions set forth below are satisfied (hereinafter, "Legal Defeasance"). For this purpose, Legal Defeasance means that the Company shall be deemed to have paid and discharged the entire Indebtedness represented by the outstanding Notes, which shall thereafter be deemed to be "outstanding" only for the purposes of Section 8.05 hereof and the other Sections of this Indenture referred to in (a) and (b) below, and to have satisfied all its other obligations under such Notes and this Indenture (and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging the same), except for the following provisions which shall survive until otherwise terminated or discharged hereunder: (a) the rights of Holders of outstanding Notes to receive solely from the trust fund described in Section 8.04 hereof, and as more fully set forth in such Section, payments in respect of the principal of, premium, if any, and interest on such Notes when such payments are due, (b) the Company's obligations with respect to such Notes under Article 2 and Section 4.02 hereof, (c) the rights, powers, trusts, duties and immunities of the Trustee hereunder and the Company's obligations in connection therewith and (d) this Article Eight. Subject to compliance with this Article Eight, the Company may exercise its option under this Section 8.02 notwithstanding the prior exercise of its option under Section 8.03 hereof. Section 8.03. Covenant Defeasance. Upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.03, the Company shall, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, be released from its obligations under the covenants contained in Sections 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.15, 4.16 and 4.17 hereof with respect to the outstanding Notes on and after the date the conditions set forth in Section 8.04 are satisfied (hereinafter, "Covenant Defeasance"), and the Notes shall thereafter be deemed not "outstanding" for the purposes of any direction, waiver, consent or declaration or act of Holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed "outstanding" for all other purposes hereunder (it being understood that such Notes shall not be deemed outstanding for accounting purposes). For this purpose, Covenant Defeasance means that, with respect to the outstanding Notes, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event of Default under Section 6.01 hereof, but, except as specified above, the remainder of this Indenture and such Notes shall be unaffected thereby. In addition, upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.03 hereof, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, Sections 6.01(d) through 6.01(f) hereof shall not constitute Events of Default. Section 8.04. Conditions to Legal or Covenant Defeasance. The following shall be the conditions to the application of either Section 8.02 or 8.03 hereof to the outstanding Notes: In order to exercise either Legal Defeasance or Covenant Defeasance: (a) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders, cash in United States 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 and Liquidated Damages, if any, and interest on the 66 outstanding Notes on the stated date for payment thereof or on the applicable redemption date, as the case may be; (b) in the case of an election under Section 8.02 hereof, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the 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 this 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 Notes 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; (c) in the case of an election under Section 8.03 hereof, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that the Holders of the outstanding Notes 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; (d) 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 incurrence of Indebtedness all or a portion of the proceeds of which will be used to defease the Notes pursuant to this Article Eight concurrently with such incurrence) or insofar as Sections 6.01(f) or 6.01(g) hereof is concerned, at any time in the period ending on the 91st day after the date of deposit; (e) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under, the Senior Credit Agreements or any other material agreement or instrument (other than this Indenture and other than a Default or Event of Default resulting from the incurrence of Indebtedness all or a portion of the proceeds of which will be used to defease the Notes pursuant to this Article Eight concurrently with such incurrence) to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound; (f) the Company shall have delivered to the Trustee an Opinion of Counsel (which may be subject to customary exceptions) to the effect that on 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; (g) the Company shall have delivered to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders over any other creditors of the Company or with the intent of defeating, hindering, delaying or defrauding any other creditors of the Company; and (h) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for or relating to the Legal Defeasance or the Covenant Defeasance have been complied with. 67 Section 8.05. Deposited Money and Government Securities to be Held in Trust; Other Miscellaneous Provisions. Subject to Section 8.06 hereof, all money and non-callable Government Securities (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this Section 8.05, the "Trustee") pursuant to Section 8.04 hereof in respect of the outstanding Notes shall be held in trust and applied by the Trustee, in accordance with the provisions of such Notes and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as Paying Agent) as the Trustee may determine, to the Holders of such Notes of all sums due and to become due thereon in respect of principal, premium, if any, and interest, but such money need not be segregated from other funds except to the extent required by law. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the cash or non-callable Government Securities deposited pursuant to Section 8.04 hereof or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the outstanding Notes. Anything in this Article Eight to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon the request of the Company any money or non-callable Government Securities held by it as provided in Section 8.04 hereof which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee (which may be the opinion delivered under Section 8.04(a) hereof), are in excess of the amount thereof that would then be required to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance. Section 8.06. Repayment to Company. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of, premium, if any, or interest on any Note and remaining unclaimed for two years after such principal, and premium, if any, or interest has become due and payable shall be paid to the Company on its request or (if then held by the Company) shall be discharged from such trust; and the Holder of such Note shall thereafter, as a secured creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in the New York Times and The Wall Street Journal (national edition), notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such notification or publication, any unclaimed balance of such money then remaining will be repaid to the Company. Section 8.07. Reinstatement. If the Trustee or Paying Agent is unable to apply any United States dollars or non-callable Government Securities in accordance with Section 8.02 or 8.03 hereof, as the case may be, by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Company's obligations under this Indenture and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to Section 8.02 or 8.03 hereof until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 8.02 or 8.03 hereof, as the case may be; provided, however, that, if the Company makes any 68 payment of principal of, premium, if any, or interest on any Note following the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Notes to receive such payment from the money held by the Trustee or Paying Agent. Section 8.08. Survival. The Trustee's rights under Article 8 shall survive termination of the Indenture. ARTICLE 9. AMENDMENT, SUPPLEMENT AND WAIVER Section 9.01. Without Consent of Holders of Notes. Notwithstanding Section 9.02 of this Indenture, the Company, the Guarantors and the Trustee may amend or supplement this Indenture, the Note Guarantees or the Notes without the consent of any Holder of a Note: (a) to cure any ambiguity, defect or inconsistency; (b) to provide for uncertificated Notes in addition to or in place of certificated Notes or to alter the provisions of Article 2 hereof (including the related definitions) in a manner that does not materially adversely affect any Holder; (c) to provide for the assumption of the Company's or a Guarantor's obligations to the Holders of the Notes by a successor to the Company or a Guarantor pursuant to Article 5 or Article 11 hereof; (d) to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights hereunder of any Holder of the Note; (e) to comply with requirements of the SEC in order to effect or maintain the qualification of this Indenture under the TIA; (f) to provide for the issuance of Additional Notes in accordance with the limitations set forth in this Indenture as of the date hereof; or (g) to allow any Guarantor to execute a supplemental indenture and/or a Note Guarantee with respect to the Notes. Upon the request of the Company accompanied by a resolution of its Board of Directors authorizing the execution of any such amended or supplemental Indenture, and upon receipt by the Trustee of the documents described in Section 7.02 hereof, the Trustee shall join with the Company and the Guarantors in the execution of any amended or supplemental Indenture authorized or permitted by the terms of this Indenture and to make any further appropriate agreements and stipulations that may be therein contained, but the Trustee shall not be obligated to enter into such amended or supplemental Indenture that affects its own rights, duties or immunities under this Indenture or otherwise. 69 Section 9.02. With Consent of Holders of Notes. Except as provided below in this Section 9.02, the Company and the Trustee may amend or supplement this Indenture (including Section 3.09, 4.10 and 4.15 hereof), the Note Guarantees and the Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the Notes (including Additional Notes, if any) then outstanding voting as a single class (including consents obtained in connection with a tender offer or exchange offer for, or purchase of, the Notes), and, subject to Sections 6.04 and 6.07 hereof, any existing Default or Event of Default (other than a Default or Event of Default in the payment of the principal of, premium, if any, or interest on the Notes, except a payment default resulting from an acceleration that has been rescinded) or compliance with any provision of this Indenture, the Note Guarantees or the Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes (including Additional Notes, if any) voting as a single class (including consents obtained in connection with a tender offer or exchange offer for, or purchase of, the Notes). Without the consent of at least 75% in principal amount of the Notes then outstanding (including consents obtained in connection with a tender offer or exchange offer for, or purchase of, such Notes), no waiver or amendment to this Indenture may make any change in the provisions of Article 10 hereof that adversely affects the rights of any Holder of Notes. Section 2.08 hereof shall determine which Notes are considered to be "outstanding" for purposes of this Section 9.02. Upon the request of the Company accompanied by a resolution of its Board of Directors authorizing the execution of any such amended or supplemental Indenture, and upon the filing with the Trustee of evidence satisfactory to the Trustee of the consent of the Holders of Notes as aforesaid, and upon receipt by the Trustee of the documents described in Section 7.02 hereof, the Trustee shall join with the Company in the execution of such amended or supplemental Indenture unless such amended or supplemental Indenture directly affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such amended or supplemental Indenture. It shall not be necessary for the consent of the Holders of Notes under this Section 9.02 to approve the particular form of any proposed amendment or waiver, but it shall be sufficient if such consent approves the substance thereof. After an amendment, supplement or waiver under this Section becomes effective, the Company shall mail to the Holders of Notes affected thereby a notice briefly describing the amendment, supplement or waiver. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such amended or supplemental Indenture or waiver. Subject to Sections 6.04 and 6.07 hereof, the Holders of a majority in aggregate principal amount of the Notes (including Additional Notes, if any) then outstanding voting as a single class may waive compliance in a particular instance by the Company with any provision of this Indenture or the Notes. However, without the consent of each Holder affected, an amendment or waiver under this Section 9.02 may not (with respect to any Notes held by a non- consenting Holder): (a) reduce the principal amount of Notes whose Holders must consent to an amendment, supplement or waiver; (b) reduce the principal of or change the fixed maturity of any Note or alter or waive any of the provisions with respect to the redemption of the Notes, other than provisions relating to Sections 3.09 or 4.15 hereof; 70 (c) reduce the rate of or change the time for payment of interest, including default interest, on any Note; (d) waive a Default or Event of Default in the payment of principal of or premium, if any, or interest on the Notes (except a rescission of acceleration of the Notes by the Holders of at least a majority in aggregate principal amount of the then outstanding Notes (including Additional Notes, if any) and a waiver of the payment default that resulted from such acceleration; (e) make any Note payable in money other than that stated in the Notes; (f) make any change in the provisions of this Indenture relating to waivers of past Defaults or the rights of Holders of Notes to receive payments of principal of or interest on the Notes; (g) waive a redemption payment with respect to any Note, other than a payment required by Section 3.09 or 4.15; (h) make any change in the foregoing amendment and waiver provisions; or (i) release any Guarantor from any of its obligations under its Note Guarantee or this Indenture, except in accordance with the terms of this Indenture. Section 9.03. Compliance with Trust Indenture Act. Every amendment or supplement to this Indenture or the Notes shall be set forth in a amended or supplemental Indenture that complies with the TIA as then in effect. Section 9.04. Revocation and Effect of Consents. Until an amendment, supplement or waiver becomes effective, a consent to it by a Holder of a Note is a continuing consent by the Holder of a Note and every subsequent Holder of a Note or portion of a Note that evidences the same debt as the consenting Holder's Note, even if notation of the consent is not made on any Note. However, any such Holder of a Note or subsequent Holder of a Note may revoke the consent as to its Note if the Trustee receives written notice of revocation before the date the waiver, supplement or amendment becomes effective. An amendment, supplement or waiver becomes effective in accordance with its terms and thereafter binds every Holder. Section 9.05. Notation on or Exchange of Notes. The Trustee may place an appropriate notation about an amendment, supplement or waiver on any Note thereafter authenticated. The Company in exchange for all Notes may issue and the Trustee shall, upon receipt of an Authentication Order, authenticate new Notes that reflect the amendment, supplement or waiver. Failure to make the appropriate notation or issue a new Note shall not affect the validity and effect of such amendment, supplement or waiver. Section 9.06. Trustee to Sign Amendments, etc. The Trustee shall sign any amended or supplemental Indenture authorized pursuant to this Article Nine if the amendment or supplement does not adversely affect the rights, duties, liabilities 71 or immunities of the Trustee. The Company may not sign an amendment or supplemental Indenture until the Board of Directors approves it. In executing any amended or supplemental indenture, the Trustee shall be entitled to receive and (subject to Section 7.01 hereof) shall be fully protected in relying upon, in addition to the documents required by Section 11.04 hereof, an Officer's Certificate and an Opinion of Counsel stating that the execution of such amended or supplemental indenture is authorized or permitted by this Indenture. ARTICLE 10. SUBORDINATION Section 10.01. Agreement to Subordinate. The Company agrees, and each Holder by accepting a Note agrees, that the Company's Obligations with respect to the Notes are subordinated in right of payment, to the extent and in the manner provided in this Article 10, to the prior payment in full in cash or Cash Equivalents of all Senior Debt (whether outstanding on the date hereof or hereafter created, incurred, assumed or guaranteed), and that the subordination is for the benefit of the holders of Senior Debt. The foregoing provisions regarding subordination are solely for the purpose of defining the relative rights of the holders of the Senior Debt on the one hand and the Holders on the other hand. Such provisions shall be enforceable by the holders of Senior Debt directly against the Holders (and their successors and assigns). This Article 10 shall constitute a continuing offer to all persons who become holders of, or continue to hold, Senior Debt (whether such Senior Debt was created or acquired before or after the issuance of the Notes). Section 10.02. Certain Definitions. "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 hereof (without limiting the generality of the foregoing, such securities shall have no required principal payments until after the final maturity of all Senior Debt). "Representative" means the indenture trustee or other trustee, agent or representative for any 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 this Indenture, unless the instrument under which such Indebtedness is incurred expressly provides that it is on a parity with or subordinated in right of payment to the Notes and (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 this Indenture. 72 A distribution may consist of cash, securities or other property, by set-off or otherwise. Section 10.03. Liquidation; Dissolution; Bankruptcy. 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, in an assignment for the benefit of creditors or any marshalling of the Company's assets and liabilities: (1) holders of Senior Debt shall be entitled to receive payment in full 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 Holders of the Notes shall be entitled to receive any payment with respect to the Notes (except that Holders may receive (i) Permitted Junior Securities and (ii) payments and other distributions made from any defeasance trust created pursuant to Section 8.01 hereof); and (2) until all Obligations with respect to Senior Debt (as provided in subsection (1) above) are paid in full in cash or Cash Equivalents, any distribution to which Holders would be entitled but for this Article 10 shall be made to holders of Senior Debt (except that Holders of Notes may receive (i) Permitted Junior Securities and (ii) payments and other distributions made from any defeasance trust created pursuant to Section 8.01 hereof), as their interests may appear. Section 10.04. Default on Designated Senior Debt. The Company may not make any payment or distribution to the Trustee or any Holder in respect of Obligations with respect to the Notes and may not acquire from the Trustee or any Holder any Notes for cash or property (other than (a) Permitted Junior Securities and (b) payments and other distributions made from any defeasance trust created pursuant to Section 8.01 hereof) until all principal and other Obligations with respect to the Senior Debt have been paid in full if: (i) a default in the payment of any principal or other Obligations with respect to Designated Senior Debt occurs and is continuing beyond any applicable grace period in the agreement, indenture or other document governing such Designated Senior Debt; or (ii) a default, other than a payment default, on Designated Senior Debt occurs and is continuing that then permits holders of the Designated Senior Debt to accelerate its maturity and the Trustee receives a notice of the default (a "Payment Blockage Notice") from the trustee, agent or other representative of the holders of Designated Senior Debt, or the holders of Designated Senior Debt or the Company. If the Trustee receives any such Payment Blockage Notice, no subsequent Payment Blockage Notice shall be effective for purposes of this Section unless and until (i) at least 360 days shall have elapsed since the effectiveness of the immediately prior Payment Blockage Notice and (ii) all scheduled payments of principal, premium, if any, and interest 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 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 Company may and shall resume payments on and distributions in respect of the Notes and may acquire them upon the earlier of: 73 (1) the date upon which the default is cured or waived, or (2) in the case of a default referred to in Section 10.04(ii) hereof, 179 days pass after the Payment Blockage Notice is received if the maturity of such Designated Senior Debt has not been accelerated, if this Article 10 otherwise permits the payment, distribution or acquisition at the time of such payment or acquisition. Section 10.05. Acceleration of Securities. If payment of the Securities is accelerated because of an Event of Default, the Company shall promptly notify holders of Senior Debt of the acceleration. Section 10.06. When Distribution Must Be Paid Over. In the event that the Trustee or any Holder receives any payment of any Obligations with respect to the Notes at a time when the Trustee or such Holder, as applicable, has actual knowledge that such payment is prohibited by Section 10.03 or 10.04 hereof, such payment shall be held by the Trustee or such Holder, in trust for the benefit of, and shall be paid forthwith over and delivered, upon written request, to, the holders of Senior Debt as their interests may appear or their Representative under the indenture or other agreement (if any) pursuant to which such Senior Debt may have been issued, as their respective interests may appear, for application to the payment of all Obligations with respect to Senior Debt remaining unpaid to the extent necessary to pay such Obligations in full in cash or Cash Equivalents in accordance with their terms, after giving effect to any concurrent payment or distribution to or for the holders of Senior Debt. With respect to the holders of Senior Debt, the Trustee undertakes to perform only such obligations on the part of the Trustee as are specifically set forth in this Article 10, and no implied covenants or obligations with respect to the holders of Senior Debt shall be read into this Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Debt, and shall not be liable to any such holders if the Trustee shall pay over or distribute to or on behalf of Holders or the Company or any other Person money or assets to which any holders of Senior Debt shall be entitled by virtue of this Article 10, except if such payment is made as a result of the willful misconduct or gross negligence of the Trustee. Section 10.07. Notice by Company. The Company shall promptly notify the Trustee and the Paying Agent of any facts known to the Company that would cause a payment of any Obligations with respect to the Notes to violate this Article 10, but failure to give such notice shall not affect the subordination of the Notes to the Senior Debt as provided in this Article 10. Section 10.08. Subrogation. After all Senior Debt is paid in full and all commitments to lend thereunder have been terminated and until the Notes are paid in full, Holders of Notes shall be subrogated (equally and ratably with all other Indebtedness pari passu with the Notes) to the rights of holders of Senior Debt to receive distributions applicable to Senior Debt to the extent that distributions otherwise payable to the Holders of 74 Notes have been applied to the payment of Senior Debt. A distribution made under this Article 10 to holders of Senior Debt that otherwise would have been made to Holders of Notes is not, as between the Company and Holders, a payment by the Company on the Notes. Section 10.09. Relative Rights. This Article 10 defines the relative rights of Holders of Notes and holders of Senior Debt. Nothing in this Indenture shall: (1) impair, as between the Company and Holders of Notes, the obligation of the Company, which is absolute and unconditional, to pay principal of and interest on the Notes in accordance with their terms; (2) affect the relative rights of Holders of Notes and creditors of the Company other than their rights in relation to holders of Senior Debt; or (3) prevent the Trustee or any Holder of Notes from exercising its available remedies upon a Default or Event of Default, subject to the rights of holders and owners of Senior Debt to receive distributions and payments otherwise payable to Holders of Notes. If the Company fails because of this Article 10 to pay principal of or interest on a Note on the due date, the failure shall nevertheless be a Default or Event of Default. Section 10.10. Subordination May Not Be Impaired by Company. No right of any holder of Senior Debt to enforce the subordination of the Indebtedness evidenced by the Notes shall be impaired by any act or failure to act by the Company or any Holder or by the failure of the Company or any Holder to comply with this Indenture. Section 10.11. Distribution or Notice to Representative. Whenever a distribution is to be made or a notice given to holders of Senior Debt, the distribution may be made and the notice given to their Representative. Upon any payment or distribution of assets of the Company referred to in this Article 10, the Trustee and the Holders of Notes shall be entitled to rely upon any order or decree made by any court of competent jurisdiction or upon any certificate of such Representative or of the liquidating trustee or agent or other Person making any distribution to the Trustee or to the Holders of Notes for the purpose of ascertaining the Persons entitled to participate in such distribution, the holders of the Senior Debt and other Indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article 10. Section 10.12. Rights of Trustee and Paying Agent. Notwithstanding the provisions of this Article 10 or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts that would prohibit the making of any payment or distribution by the Trustee, and the Trustee and the Paying Agent may continue to make payments on the Notes, unless the Trustee shall have received at its Corporate Trust Office at least five Business Days prior to the date of such payment written notice of facts that would cause the payment of any Obligations with respect to the Notes to violate this Article 10. Only the 75 Company or a Representative may give the notice. Nothing in this Article 10 shall impair the claims of, or payments to, the Trustee under or pursuant to Section 7.07 hereof. Nothing in this Section 10.12 is intended to or shall relieve any Holder of Notes from the obligations imposed under Section 10.06 with respect to other distributions received in violation of the provisions hereof. The Trustee in its individual or any other capacity may hold Senior Debt with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. Section 10.13. Authorization to Effect Subordination. Each Holder of Notes, by the Holder's acceptance thereof, authorizes and directs the Trustee on such Holder's behalf to take such action as may be necessary or appropriate to effectuate the subordination as provided in this Article 10, and appoints the Trustee to act as such Holder's attorney-in-fact for any and all such purposes. If the Trustee does not file a proper proof of claim or proof of debt in the form required in any proceeding referred to in Section 6.09 hereof at least 30 days before the expiration of the time to file such claim, the Representatives are hereby authorized to file an appropriate claim for and on behalf of the Holders of the Notes. Section 10.14. Amendments. The provisions of this Article 10 shall not be amended or modified without the written consent of the majority of the lenders under each of the Senior Credit Agreements. Section 10 15. Changes in Senior Debt. Any holder of Senior Debt may at any time and from time to time without the consent of or notice to any Holder or the Trustee: (a) extend, renew, modify, waive or amend the terms of the Senior Debt; (b) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Senior Debt; (c) release any guarantor or any other person (except the Company) liable in any manner for the Senior Debt or amend or waive the terms of any guaranty of Senior Debt; (d) exercise or refrain from exercising any rights against the Company or any other Person; (e) apply any sums by whomever paid or however realized to Senior Debt; and (f) take any other action which otherwise might be deemed to impair the rights of the holders of Senior Debt without incurring any responsibility to any Holder or the Trustee and without impairing or releasing the obligations of any Holder or the Trustee to the holders of Senior Debt. ARTICLE 11. NOTE GUARANTEES Section 11.01. Guarantee. Subject to this Article 11, each of the Guarantors hereby, jointly and severally, unconditionally guarantees to each Holder of a Note authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, irrespective of the validity and enforceability of this Indenture, the Notes or the obligations of the Company hereunder or thereunder, that: (a) the principal of and interest on the Notes will be promptly paid in full when due, whether at maturity, by acceleration, redemption or otherwise, and interest on the overdue principal of and interest on the Notes, if any, if lawful, and all other obligations of the Company to the Holders or the Trustee hereunder or thereunder will be promptly paid in full or performed, all in accordance with the terms hereof and thereof; and (b) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that 76 same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. Failing payment when due of any amount so guaranteed or any performance so guaranteed for whatever reason, the Guarantors shall be jointly and severally obligated to pay the same immediately. Each Guarantor agrees that this is a guarantee of payment and not a guarantee of collection. The Guarantors hereby agree that their obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Notes or this Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Notes with respect to any provisions hereof or thereof, the recovery of any judgment against the Company, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor. Each Guarantor hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands whatsoever and covenant that this Note Guarantee shall not be discharged except by complete performance of the obligations contained in the Notes and this Indenture. If any Holder or the Trustee is required by any court or otherwise to return to the Company, the Guarantors or any custodian, trustee, liquidator or other similar official acting in relation to either the Company or the Guarantors, any amount paid by either to the Trustee or such Holder, this Note Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect. Each Guarantor agrees that it shall not be entitled to any right of subrogation in relation to the Holders in respect of any obligations guaranteed hereby until payment in full of all obligations guaranteed hereby. Each Guarantor further agrees that, as between the Guarantors, on the one hand, and the Holders and the Trustee, on the other hand, (x) the maturity of the obligations guaranteed hereby may be accelerated as provided in Article 6 hereof for the purposes of this Note Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (y) in the event of any declaration of acceleration of such obligations as provided in Article 6 hereof, such obligations (whether or not due and payable) shall forthwith become due and payable by the Guarantors for the purpose of this Note Guarantee. The Guarantors shall have the right to seek contribution from any non-paying Guarantor so long as the exercise of such right does not impair the rights of the Holders under the Guarantee. Section 11.02. Subordination Of Note Guarantee. The Obligations of each Guarantor under its Note Guarantee pursuant to this Article 11 shall be junior and subordinated to the Senior Debt of such Guarantor on the same basis as the Notes are junior and subordinated to Senior Debt of the Company. For the purposes of the foregoing sentence, the Trustee and the Holders shall have the right to receive and/or retain payments by any of the Guarantors only at such times as they may receive and/or retain payments in respect of the Notes pursuant to this Indenture, including Article 11 hereof. Section 11.03. Limitation On Guarantor Liability. Each Guarantor, and by its acceptance of Notes, each Holder, hereby confirms that it is the intention of all such parties that the Note Guarantee of such Guarantor not constitute a fraudulent transfer or conveyance for purposes of Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar federal or state law to the extent applicable to any Note 77 Guarantee. To effectuate the foregoing intention, the Trustee, the Holders and the Guarantors hereby irrevocably agree that the obligations of such Guarantor under its Note Guarantee and this Article 11 shall be limited to the maximum amount as will, after giving effect to such maximum amount and all other contingent and fixed liabilities of such Guarantor that are relevant under such laws, and after giving effect to any collections from, rights to receive contribution from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under this Article 11, result in the obligations of such Guarantor under its Note Guarantee not constituting a fraudulent transfer or conveyance. Section 11.04. Execution And Delivery Of Note Guarantee. To evidence its Note Guarantee set forth in Section 11.01, each Guarantor hereby agrees that a notation of such Note Guarantee substantially in the form included in Exhibit E shall be endorsed by an Officer of such Guarantor on each Note authenticated and delivered by the Trustee and that this Indenture shall be executed on behalf of such Guarantor by its President or one of its Vice Presidents. Each Guarantor hereby agrees that its Note Guarantee set forth in Section 11.01 shall remain in full force and effect notwithstanding any failure to endorse on each Note a notation of such Note Guarantee. If an Officer whose signature is on this Indenture or on the Note Guarantee no longer holds that office at the time the Trustee authenticates the Note on which a Note Guarantee is endorsed, the Note Guarantee shall be valid nevertheless. The delivery of any Note by the Trustee, after the authentication thereof hereunder, shall constitute due delivery of the Note Guarantee set forth in this Indenture on behalf of the Guarantors. In the event that the Company creates or acquires any new Subsidiaries subsequent to the date of this Indenture, if required by Section 4.17 hereof, the Company shall cause such Subsidiaries to execute supplemental indentures to this Indenture and Note Guarantees in accordance with Section 4.17 hereof and this Article 11, to the extent applicable. Section 11.05. Guarantors May Consolidate, Etc., On Certain Terms. No Guarantor may consolidate with or merge with or into (whether or not such Guarantor is the surviving Person) another Person whether or not affiliated with such Guarantor unless: (a) subject to Section 11.05 hereof, the Person formed by or surviving any such consolidation or merger (if other than a Guarantor or the Company) unconditionally assumes all the obligations of such Guarantor, pursuant to a supplemental indenture in form and substance reasonably satisfactory to the Trustee, under the Notes, the Indenture, the Registration Rights Agreement and the Note Guarantee on the terms set forth herein or therein; (b) immediately after giving effect to such transaction, no Default or Event of Default exists; and (c) the Company would be permitted, 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 first paragraph of Section 4.09 hereof. 78 In case of any such consolidation, merger, sale or conveyance and upon the assumption by the successor Person, by supplemental indenture, executed and delivered to the Trustee and satisfactory in form to the Trustee, of the Note Guarantee endorsed upon the Notes and the due and punctual performance of all of the covenants and conditions of this Indenture to be performed by the Guarantor, such successor Person shall succeed to and be substituted for the Guarantor with the same effect as if it had been named herein as a Guarantor. Such successor Person thereupon may cause to be signed any or all of the Note Guarantees to be endorsed upon all of the Notes issuable hereunder which theretofore shall not have been signed by the Company and delivered to the Trustee. All the Note Guarantees so issued shall in all respects have the same legal rank and benefit under this Indenture as the Note Guarantees theretofore and thereafter issued in accordance with the terms of this Indenture as though all of such Note Guarantees had been issued at the date of the execution hereof. Except as set forth in Articles 4 and 5 hereof, and notwithstanding clauses (a) and (b) above, nothing contained in this Indenture or in any of the Notes shall prevent any consolidation or merger of a Guarantor with or into the Company or another Guarantor, or shall prevent any sale or conveyance of the property of a Guarantor as an entirety or substantially as an entirety to the Company or another Guarantor. Section 11.06. Releases Following Sale Of Assets. In the event of a sale or other disposition of all of the assets of any Guarantor, by way of merger, consolidation or otherwise, or a sale or other disposition of all of the capital stock of any Guarantor, then such Guarantor (in the event of a sale or other disposition, by way of merger, consolidation or otherwise, of all of the capital stock of such Guarantor) or the corporation acquiring the property (in the event of a sale or other disposition of all or substantially all of the assets of such Guarantor) will be released and relieved of any obligations under its Note Guarantee; provided that the Net Proceeds of such sale or other disposition are applied in accordance with the applicable provisions of this Indenture, including without limitation Section 4.10 hereof. Upon delivery by the Company to the Trustee of an Officers' Certificate and an Opinion of Counsel to the effect that such sale or other disposition was made by the Company in accordance with the applicable provisions of this Indenture, including without limitation Section 4.10 hereof, the Trustee shall execute any documents reasonably required in order to evidence the release of any Guarantor from its obligations under its Note Guarantee. Any Guarantor not released from its obligations under its Note Guarantee shall remain liable for the full amount of principal of and interest on the Notes and for the other obligations of any Guarantor under this Indenture as provided in this Article 11. ARTICLE 12. MISCELLANEOUS Section 12.01. Trust Indenture Act Controls. If any provision of this Indenture limits, qualifies or conflicts with the duties imposed by TIA (S) 318(c), the imposed duties shall control. Section 12.02. Notices. Any notice or communication by the Company, any Guarantor or the Trustee to the others is duly given if in writing and delivered in Person or mailed by first class mail (registered or 79 certified, return receipt requested), telex, telecopier or overnight air courier guaranteeing next day delivery, to the others' address: If to the Company and/or any Guarantor: Sealy Mattress Company Halle Building 10th Floor 1228 Euclid Avenue Cleveland, Ohio 44115 Telecopier No.: (216) 522-1366 Attention: General Counsel With a copy to: Kirkland & Ellis 153 East 53rd Street New York, NY 10022 Telecopier No.: (212) 446-4900 Attention: Lance Balk If to the Trustee: The Bank of New York 101 Barclay Street Floor 21 West New York, New York 10286 Telecopier No.:(212) 815-5915 Attention: Corporate Trust Administration The Company, any Guarantor or the Trustee, by notice to the others may designate additional or different addresses for subsequent notices or communications. All notices and communications (other than those sent to Holders) shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when answered back, if telexed; when receipt acknowledged, if telecopied; and the next Business Day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery. Any notice or communication to a Holder shall be mailed by first class mail, certified or registered, return receipt requested, or by overnight air courier guaranteeing next day delivery to its address shown on the register kept by the Registrar. Any notice or communication shall also be so mailed to any Person described in TIA (S) 313(c), to the extent required by the TIA. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. If a notice or communication is mailed in the manner provided above within the time prescribed, it is duly given, whether or not the addressee receives it. 80 If the Company mails a notice or communication to Holders, it shall mail a copy to the Trustee and each Agent at the same time. Section 12.03. Communication By Holders Of Notes With Other Holders Of Notes. Holders may communicate pursuant to TIA (S) 312(b) with other Holders with respect to their rights under this Indenture or the Notes. The Company, the Trustee, the Registrar and anyone else shall have the protection of TIA (S) 312(c). Section 12.04. Certificate And Opinion As To Conditions Precedent. Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee: (a) an Officers' Certificate in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 12.05 hereof) stating that, in the opinion of the signers, all conditions precedent and covenants, if any, provided for in this Indenture relating to the proposed action have been satisfied; and (b) an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 11.05 hereof) stating that, in the opinion of such counsel, all such conditions precedent and covenants have been satisfied. Section 12.05. Statements Required in Certificate or Opinion. Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than a certificate provided pursuant to TIA (S) 314(a)(4)) shall comply with the provisions of TIA (S) 314(e) and shall include: (a) a statement that the Person making such certificate or opinion has read such covenant or condition; (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (c) a statement that, in the opinion of such Person, he or she has or they have made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been satisfied; and (d) a statement as to whether or not, in the opinion of such Person, such condition or covenant has been satisfied. Section 12.06. Rules By Trustee And Agents. The Trustee may make reasonable rules for action by or at a meeting of Holders. The Registrar or Paying Agent may make reasonable rules and set reasonable requirements for its functions. 81 Section 12.07. No Personal Liability Of Directors, Officers, Employees And Stockholders No past, present or future director, officer, employee, incorporator or stockholder of the Company or any Guarantor, as such, shall have any liability for any obligations of the Company or such Guarantor under the Notes, the Note Guarantees, this Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. Section 12.08. Governing Law. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS INDENTURE, THE NOTES AND THE NOTE GUARANTEES WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. Section 12.09. No Adverse Interpretation Of Other Agreements. This Indenture may not be used to interpret any other indenture, loan or debt agreement of the Company or its Subsidiaries or of any other Person. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. Section 12.10. Successors. All agreements of the Company in this Indenture and the Notes shall bind its successors. All agreements of the Trustee in this Indenture shall bind its successors. Section 12.11. Severability. In case any provision in this Indenture or in the Notes shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 12.12. Counterpart Originals. The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. Section 12.13. Table Of Contents, Headings, Etc. The Table of Contents, Cross-Reference Table and Headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part of this Indenture and shall in no way modify or restrict any of the terms or provisions hereof. [Indenture signature pages(s) follow] 82 [Indenture signature pages(s)] Dated as of December 18, 1997 Sealy Mattress Company By: /s/ RONALD H. STOLLE ___________________________________ Name: Ronald H. Stolle Title: Vice President & Treasurer Guarantors: Sealy Corporation By: /s/ RONALD H. STOLLE ___________________________________ Name: Ronald H. Stolle Title: Vice President & Treasurer Sealy Mattress Company Of Puerto Rico By: /s/ RONALD H. STOLLE ___________________________________ Name: Ronald H. Stolle Title: Vice President & Treasurer Ohio-Sealy Mattress Manufacturing Co., Inc. (Randolph) By: /s/ RONALD H. STOLLE ___________________________________ Name: Ronald H. Stolle Title: Vice President & Treasurer Ohio-Sealy Mattress Manufacturing Co. - Ft. Worth By: /s/ RONALD H. STOLLE ___________________________________ Name: Ronald H. Stolle Title: Vice President & Treasurer Ohio-Sealy Mattress Manufacturing Co. By: /s/ RONALD H. STOLLE ___________________________________ Name: Ronald H. Stolle Title: Vice President & Treasurer 83 Ohio-Sealy Mattress Manufacturing Co.- Houston By: /s/ RONALD H. STOLLE ___________________________________ Name: Ronald H. Stolle Title: Vice President & Treasurer Sealy Mattress Company Of Michigan, Inc. By: /s/ RONALD H. STOLLE ___________________________________ Name: Ronald H. Stolle Title: Vice President & Treasurer Sealy Mattress Company Of Kansas City, Inc. By: /s/ RONALD H. STOLLE ___________________________________ Name: Ronald H. Stolle Title: Vice President & Treasurer Sealy Of Maryland And Virginia, Inc. By: /s/ RONALD H. STOLLE ___________________________________ Name: Ronald H. Stolle Title: Vice President & Treasurer Sealy Mattress Company Of Illinois By: /s/ RONALD H. STOLLE ___________________________________ Name: Ronald H. Stolle Title: Vice President & Treasurer A. Brandwein & Company By: /s/ RONALD H. STOLLE ___________________________________ Name: Ronald H. Stolle Title: Vice President & Treasurer 84 Sealy Mattress Company of Albany, Inc. By: /s/ RONALD H. STOLLE ___________________________________ Name: Ronald H. Stolle Title: Vice President & Treasurer Sealy Of Minnesota, Inc. By: /s/ RONALD H. STOLLE ___________________________________ Name: Ronald H. Stolle Title: Vice President & Treasurer Sealy Mattress Company of Memphis By: /s/ RONALD H. STOLLE ___________________________________ Name: Ronald H. Stolle Title: Vice President & Treasurer The Stearns & Foster Bedding Company By: /s/ RONALD H. STOLLE ___________________________________ Name: Ronald H. Stolle Title: Vice President & Treasurer The Stearns & Foster Upholstery Furniture Company By: /s/ RONALD H. STOLLE ___________________________________ Name: Ronald H. Stolle Title: Vice President & Treasurer Sealy, Inc. By: /s/ RONALD H. STOLLE ___________________________________ Name: Ronald H. Stolle Title: Vice President & Treasurer 85 The Ohio Mattress Company Licensing and Components Group By: /s/ RONALD H. STOLLE ___________________________________ Name: Ronald H. Stolle Title: Vice President & Treasurer Sealy Mattress Manufacturing Company, Inc. By: /s/ RONALD H. STOLLE ___________________________________ Name: Ronald H. Stolle Title: Vice President & Treasurer The Bank of New York By: /s/ LUCILLE FIRRINCIELI ___________________________________ Name: Lucille Firrincieli Title: Vice President 86 EXHIBIT A-1 (Face of Note) [INSERT THE GLOBAL NOTE LEGEND, IF APPLICABLE PURSUANT TO THE PROVISIONS OF THE INDENTURE] [INSERT THE PRIVATE PLACEMENT LEGEND, IF APPLICABLE PURSUANT TO THE PROVISIONS OF THE INDENTURE] CUSIP/CINS _________________ 9-7/8% [SERIES A] [SERIES B] SENIOR SUBORDINATED NOTES DUE 2007 No. $ __________________ SEALY MATTRESS COMPANY promises to pay to ________________________________ or registered assigns, the principal sum of__________________________ Dollars on December 15, 2007. Interest Payment Dates: June 15 and December 15. Record Dates: June 1 and December 1. Sealy Mattress Company By:___________________________ Name: Title: By:___________________________ Name: Title: This is one of the Global Notes referred to in the within-mentioned Indenture: THE BANK OF NEW YORK, as Trustee By:________________________ Dated: December 18, 1997 Name: Title: A-1-1 (Back of Note) 9-7/8% [Series A] [Series B] Senior Subordinated Notes due 2007 Capitalized terms used herein shall have the meanings assigned to them in the Indenture referred to below unless otherwise indicated. 1. Interest. Sealy Mattress Company, an Ohio corporation (the "Company"), promises to pay interest on the principal amount of this Note at 9- 7/8% per annum from December 18, 1997 until maturity and shall pay the Liquidated Damages payable pursuant to Section 5 of the Registration Rights Agreement referred to below. The Company shall pay interest and Liquidated Damages semi-annually on June 15 and December 15 of each year, or if any such day is not a Business Day, on the next succeeding Business Day (each an "Interest Payment Date"). Interest on the 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 issuance; provided that if there is no existing Default in the payment of interest, and if this Note is authenticated between a record date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such next succeeding Interest Payment Date; provided, further, that the first Interest Payment Date shall be June 15, 1998. The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal and premium, if any, from time to time on demand at a rate that is 1% per annum in excess of the rate then in effect; it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest and Liquidated Damages (without regard to any applicable grace periods) from time to time on demand at the same rate to the extent lawful. Interest will be computed on the basis of a 360-day year of twelve 30-day months. 2. Method Of Payment. The Company will pay interest on the Notes (except defaulted interest) and Liquidated Damages to the Persons who are registered Holders of Notes at the close of business on the June 1 or December 1 next preceding the Interest Payment Date, even if such Notes are canceled after such record date and on or before such Interest Payment Date, except as provided in Section 2.12 of the Indenture with respect to defaulted interest. The Notes will be payable as to principal, premium and Liquidated Damages, if any, and interest at the office or agency of the Company maintained for such purpose within or without the City and State of New York, or, at the option of the Company, payment of interest and Liquidated Damages may be made by check mailed to the Holders at their addresses set forth in the register of Holders, and provided that payment by wire transfer of immediately available funds will be required with respect to principal of and interest, premium and Liquidated Damages on, all Global Notes and all other Notes the Holders of which shall have provided wire transfer instructions to the Company or the Paying Agent. Such payment shall be in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. 3. Paying Agent And Registrar. Initially, The Bank of New York, the Trustee under the Indenture, will act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company or any of its Subsidiaries may act in any such capacity. 4. Indenture. The Company issued the Notes under an Indenture dated as of December 18, 1997 ("Indenture") between the Company and the Trustee. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code (S)(S) 77aaa-77bbbb). The Notes are subject to all such terms, and A-1-2 Holders are referred to the Indenture and such Act for a statement of such terms. To the extent any provision of this Note conflicts with the express provisions of the Indenture, the provisions of the indenture shall govern and be controlling. The Notes are obligations of the Company limited to $300.0 million in aggregate principal amount. 5. Optional Redemption. (a) Except as set forth in subparagraph (b) of this Paragraph 5, the Notes will not be redeemable at the Company's option prior to December 15, 2002. Thereafter, the 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:
PERCENTAGE OF PRINCIPAL YEAR AMOUNT ---- ------ 2002................................ 104.937% 2003................................ 103.292% 2004................................ 101.646% 2005 and thereafter................. 100.000%
(b) Notwithstanding the provisions of subparagraph (a) of this Paragraph 5, 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 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 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. (c) At any time prior to December 15, 2002, the 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 Applicable Premium as of, and accrued and unpaid interest and Liquidated Damages, if any, to, the date of redemption (the "Redemption Date"). 6. Mandatory Redemption. Except as set forth in paragraph 7 below, the Company shall not be required to make mandatory redemption payments with respect to the Notes. 7. Repurchase At Option Of Holder. A-1-3 (a) If there is a Change of Control, the Company shall be required to make an offer (a "Change of Control Offer") to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of each Holder's Notes at a purchase price 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 (the "Change of Control Payment"). Within 10 days following any Change of Control, the Company shall mail a notice to each Holder setting forth the procedures governing the Change of Control Offer as required by the Indenture. (b) If the Company or a Subsidiary consummates any Asset Sales, within five days of each date on which the aggregate amount of Net Proceeds Offer Amount exceeds $10.0 million, the Company shall commence an offer to all Holders of Notes (as "Net Proceeds Offer") pursuant to Section 3.09 of the Indenture to purchase the maximum principal amount of Notes (including any Additional Notes) that may be purchased out of the Net Proceeds Offer Amount at an offer price in cash in an amount equal to 100% of the principal amount thereof plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the date fixed for the closing of such offer, in accordance with the procedures set forth in the Indenture. To the extent that the aggregate amount of Notes (including any Additional Notes) tendered pursuant to an Net Proceeds Offer is less than the Net Proceeds Offer Amount, the Company (or such Subsidiary) may use such deficiency for general corporate purposes. If the aggregate principal amount of Notes surrendered by Holders thereof exceeds the amount of Net Proceeds Offer Amount, the Trustee shall select the Notes to be purchased on a pro rata basis. Holders of Notes that are the subject of an offer to purchase will receive an Net Proceeds Offer from the Company prior to any related purchase date and may elect to have such Notes purchased by completing the form entitled "Option of Holder to Elect Purchase" on the reverse of the Notes. 8. Notice Of Redemption. Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each Holder whose Notes are to be redeemed at its registered address. Notes in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000, unless all of the Notes held by a Holder are to be redeemed. On and after the redemption date interest ceases to accrue on Notes or portions thereof called for redemption. 9. Denominations, Transfer, Exchange. The Notes are in registered form without coupons in denominations of $1,000 and integral multiples of $1,000. The transfer of Notes may be registered and Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Company need not exchange or register the transfer of any Note or portion of a Note selected for redemption, except for the unredeemed portion of any Note being redeemed in part. Also, the Company need not exchange or register the transfer of any Notes for a period of 15 days before a selection of Notes to be redeemed or during the period between a record date and the corresponding Interest Payment Date. 10. Persons Deemed Owners. The registered Holder of a Note may be treated as its owner for all purposes. 11. Amendment, Supplement And Waiver. Subject to certain exceptions, the Indenture, the Note Guarantees or the Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the then outstanding Notes and Additional Notes, if any, voting as a single class, and any existing default or compliance with any provision of the Indenture, the Note Guarantees or the Notes may be waived with the consent of the Holders of a majority in A-1-4 principal amount of the then outstanding Notes and Additional Notes, if any, voting as a single class. Without the consent of any Holder of a Note, the Indenture, the Note Guarantees or the Notes may be amended or supplemented to cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes in addition to or in place of certificated Notes, to provide for the assumption of the Company's or Guarantor's obligations to Holders of the Notes in case of a merger or consolidation, to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights under the Indenture of any such Holder, to comply with the requirements of the Commission in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act, to provide for the Issuance of Additional Notes in accordance with the limitations set forth in the Indenture, or to allow any Guarantor to execute a supplemental indenture to the Indenture and/or a Note Guarantee with respect to the Notes. 12. Defaults And Remedies. Events of Default include: (i) the failure to pay interest on any 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 Article 10 hereof; (ii)the failure to pay the principal on any Notes when such principal becomes due and payable, at maturity, upon redemption or otherwise (including the failure to make a payment to purchase Notes tendered pursuant to a Change of Control Offer or a Net Proceeds Offer), whether or not such payment shall be prohibited by Article 10 of the Indenture; (iii) a default in the observance or performance of any other covenant or agreement contained herein 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 Trustee or the Holders of at least 25% of the outstanding principal amount of the Notes; (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) certain events of bankruptcy or insolvency with respect to the Company or any of its Material Subsidiaries; and (vii) except as permitted by the Indenture, any Note Guarantee is 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 such Guarantor's Note Guarantee. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, all outstanding Notes will become due and payable without further action or notice. Holders may not enforce the Indenture or the Notes except as provided in the Indenture. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in their interest. The Holders of a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or A-1-5 Event of Default in the payment of interest on, or the principal of, the Notes. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. 13. Trustee Dealings With Company. The Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not the Trustee. 14. No Recourse Against Others. A director, officer, employee, incorporator or stockholder, of the Company, as such, shall not have any liability for any obligations of the Company under the Notes or the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes. 15. Authentication. This Note shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. 16. Abbreviations. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 17. Additional Rights of Holders Of Restricted Global Notes And Restricted Definitive Notes. In addition to the rights provided to Holders of Notes under the Indenture, Holders of Restricted Global Notes and Restricted Definitive Notes shall have all the rights set forth in the A/B Exchange Registration Rights Agreement dated as of December 18, 1997, between the Company and the parties named on the signature pages thereof or, in the case of Additional Notes, Holders of Restricted Global Notes and Restricted Definitive Notes shall have the rights set forth in one or more registration rights agreements, if any, between the Company and the other parties thereto, relating to rights given by the Company to the purchasers of any Additional Notes (collectively, the "Registration Rights Agreement"). 18. CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. A-1-6 The Company will furnish to any Holder upon written request and without charge a copy of the Indenture and/or the Registration Rights Agreement. Requests may be made to: Sealy Mattress Company Halle Building 10th Floor 1228 Euclid Avenue Cleveland, Ohio 44115 Attention: General Counsel A-1-7 ASSIGNMENT FORM To assign this Note, fill in the form below: (I) or (we) assign and transfer this Note to ________________________________________________________________________________ (Insert assignee's soc. sec. or tax I.D. no.) ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (Print or type assignee's name, address and zip code) and irrevocably appoint_________________________________________________________ to transfer this Note on the books of the Company. The agent may substitute another to act for him. ________________________________________________________________________________ Date:________________ Your Signature:___________________________________ (Sign exactly as your name appears on the face of this Note) Tax Identification No:____________________________ SIGNATURE GUARANTEE: ________________________________ Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. A-1-8 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Note purchased by the Company pursuant to Section 4.10 or 4.15 of the Indenture, check the box below: SECTION 4.10 SECTION 4.15 If you want to elect to have only part of the Note purchased by the Company pursuant to Section 4.10 or Section 4.15 of the Indenture, state the amount you elect to have purchased: $________ Date:______________ Your Signature:___________________________________ (Sign exactly as your name appears on the face of this Note) Tax Identification No:____________________________ SIGNATURE GUARANTEE: _________________________________ Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. A-1-9 SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE (1)/ The following exchanges of a part of this Global Note for an interest in another Global Note or for a Definitive Note, or exchanges of a part of another Global Note or Definitive Note for an interest in this Global Note, have been made:
Principal Amount Amount of decrease Amount of increase of this Global Signature of in Principal in Principal Note following authorized officer Amount of this Amount of this such decrease (or of Trustee or Note Date of Exchange Global Note Global Note increase) Custodian - ---------------- ------------------- ------------------ ----------------- -------------------
A-1-10 EXHIBIT A-2 (Face of Regulation S Temporary Global Note) THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED NOTES, ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER NOR THE BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL NOTE SHALL BE ENTITLED TO RECEIVE PAYMENT OF INTEREST HEREON. UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. THE NOTES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A)(1) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144a UNDER THE SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144a, (2) IN AN OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (3) TO AN INSTITUTIONAL ACCREDITED INVESTOR IN A TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, (4) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE) OR (5) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (B) IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED STATES AND OTHER JURISDICTIONS. CUSIP/CINS____________ 9-7/8% SERIES A SENIOR SUBORDINATED NOTES DUE 2007 No.___ $_________ A-2-1 SEALY MATTRESS COMPANY promises to pay to ____________________________________ or registered assigns, the principal sum of ______________________________ Dollars on December 15, 2007. Interest Payment Dates: June 15 and December 15. Record Dates: June 1 and December 1. Sealy Mattress Company By: Name: Title: By: Name: Title: This is one of the Global Notes referred to in the within-mentioned Indenture: THE BANK OF NEW YORK as Trustee By: Dated: December 18, 1997 Name: Title: A-2-2 (Back of Regulation S Temporary Global Note) 9-7/8% Series A Senior Subordinated Notes due 2007 Capitalized terms used herein shall have the meanings assigned to them in the Indenture referred to below unless otherwise indicated. 1. Interest. Sealy Mattress Company, an Ohio corporation (the "Company"), promises to pay interest on the principal amount of this Note at 9- 7/8% per annum from December 18, 1997 until maturity and shall pay the Liquidated Damages payable pursuant to Section 5 of the Registration Rights Agreement referred to below. The Company shall pay interest and Liquidated Damages semi-annually on June 15 and December 15 of each year, or if any such day is not a Business Day, on the next succeeding Business Day (each an "Interest Payment Date"). Interest on the 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 issuance; provided that if there is no existing Default in the payment of interest, and if this Note is authenticated between a record date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such next succeeding Interest Payment Date; provided, further, that the first Interest Payment Date shall be June 15, 1998. The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal and premium, if any, from time to time on demand at a rate that is 1% per annum in excess of the rate then in effect; it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest and Liquidated Damages (without regard to any applicable grace periods) from time to time on demand at the same rate to the extent lawful. Interest will be computed on the basis of a 360-day year of twelve 30-day months. Until this Regulation S Temporary Global Note is exchanged for one or more Regulation S Permanent Global Notes, the Holder hereof shall not be entitled to receive payments of interest hereon; until so exchanged in full, this Regulation S Temporary Global Note shall in all other respects be entitled to the same benefits as other Notes under the Indenture. 2. Method Of Payment. The Company will pay interest on the Notes (except defaulted interest) and Liquidated Damages to the Persons who are registered Holders of Notes at the close of business on the June 1 or December 1 next preceding the Interest Payment Date, even if such Notes are canceled after such record date and on or before such Interest Payment Date, except as provided in Section 2.12 of the Indenture (as herein defined) with respect to defaulted interest. The Notes will be payable as to principal, premium and Liquidated Damages, if any, and interest at the office or agency of the Company maintained for such purpose within or without the City and State of New York, or, at the option of the Company, payment of interest and Liquidated Damages may be made by check mailed to the Holders at their addresses set forth in the register of Holders, and provided that payment by wire transfer of immediately available funds will be required with respect to principal of and interest, premium and Liquidated Damages on, all Global Notes and all other Notes the Holders of which shall have provided wire transfer instructions to the Company or the Paying Agent. Such payment shall be in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. 3. Paying Agent And Registrar. Initially, The Bank of New York, the Trustee under the Indenture, will act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company or any of its Subsidiaries may act in any such capacity. A-2-3 4. Indenture. The Company issued the Notes under an Indenture dated as of December 18, 1997 ("Indenture") between the Company and the Trustee. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code (S)(S) 77aaa-77bbbb). The Notes are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms. The Notes are obligations of the Company limited to $300.0 million in aggregate principal amount. 5. Optional Redemption. (a) Except as set forth in subparagraph (b) of this Paragraph 5, the Notes will not be redeemable at the Company's option prior to December 15, 2002. Thereafter, the 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:
PERCENTAGE OF PRINCIPAL YEAR AMOUNT ---- ------ 2002....................................... 104.937% 2003....................................... 103.292% 2004....................................... 101.646% 2005 and thereafter........................ 100.000%
(b) Notwithstanding the provisions of subparagraph (a) of this Paragraph 5, during the first 36 months after December 11, 1999 the Company may on any one or more occasions redeem up to 35% of the aggregate principal amount of 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 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. (c) At any time prior to December 15, 2002, the 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 Applicable Premium as of, and accrued and unpaid interest and Liquidated Damages, if any, to, the date of redemption (the "Redemption Date"). 6. Mandatory Redemption. Except as set forth in paragraph 7 below, the Company shall not be required to make mandatory redemption payments with respect to the Notes. A-2-4 7. Repurchase at Option of Holder. (a) If there is a Change of Control, the Company shall be required to make an offer (a "Change of Control Offer") to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of each Holder's Notes at a purchase price 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 (the "Change of Control Payment"). Within 10 days following any Change of Control, the Company shall mail a notice to each Holder setting forth the procedures governing the Change of Control Offer as required by the Indenture. (b) If the Company or a Subsidiary consummates any Asset Sales, within five days of each date on which the aggregate amount of Net Proceeds Offer Amount exceeds $10.0 million, the Company shall commence an offer to all Holders of Notes (as "Net Proceeds Offer") pursuant to Section 3.09 of the Indenture to purchase the maximum principal amount of Notes (including any Additional Notes) that may be purchased out of the Net Proceeds Offer Amount at an offer price in cash in an amount equal to 100% of the principal amount thereof plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the date fixed for the closing of such offer, in accordance with the procedures set forth in the Indenture. To the extent that the aggregate amount of Notes (including any Additional Notes) tendered pursuant to an Net Proceeds Offer is less than the Net Proceeds Offer Amount, the Company (or such Subsidiary) may use such deficiency for general corporate purposes. If the aggregate principal amount of Notes surrendered by Holders thereof exceeds the amount of Net Proceeds Offer Amount, the Trustee shall select the Notes to be purchased on a pro rata basis. Holders of Notes that are the subject of an offer to purchase will receive an Net Proceeds Offer from the Company prior to any related purchase date and may elect to have such Notes purchased by completing the form entitled "Option of Holder to Elect Purchase" on the reverse of the Notes. 8. Notice of Redemption. Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each Holder whose Notes are to be redeemed at its registered address. Notes in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000, unless all of the Notes held by a Holder are to be redeemed. On and after the redemption date interest ceases to accrue on Notes or portions thereof called for redemption. 9. Denominations, Transfer, Exchange. The Notes are in registered form without coupons in denominations of $1,000 and integral multiples of $1,000. The transfer of Notes may be registered and Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Company need not exchange or register the transfer of any Note or portion of a Note selected for redemption, except for the unredeemed portion of any Note being redeemed in part. Also, it need not exchange or register the transfer of any Notes for a period of 15 days before a selection of Notes to be redeemed or during the period between a record date and the corresponding Interest Payment Date. This Regulation S Temporary Global Note is exchangeable in whole or in part for one or more Global Notes only (i) on or after the termination of the 40-day restricted period (as defined in Regulation S) and (ii) upon presentation of certificates (accompanied by an Opinion of Counsel, if applicable) required by Article 2 of the Indenture. Upon exchange of this Regulation S Temporary Global Note for one or more Global Notes, the Trustee shall cancel this Regulation S Temporary Global Note. A-2-5 10. Persons Deemed Owners. The registered Holder of a Note may be treated as its owner for all purposes. 11. Amendment, Supplement And Waiver. Subject to certain exceptions, the Indenture or the Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the then outstanding Notes, and any existing default or compliance with any provision of the Indenture or the Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes. Without the consent of any Holder of a Note, the Indenture or the Notes may be amended or supplemented to cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes in addition to or in place of certificated Notes, to provide for the assumption of the Company's obligations to Holders of the Notes in case of a merger or consolidation, to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights under the Indenture of any such Holder, or to comply with the requirements of the Commission in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act. 12. Defaults and Remedies. Events of Default include: (i) the failure to pay interest on any 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 Article 10 hereof; (ii)the failure to pay the principal on any Notes when such principal becomes due and payable, at maturity, upon redemption or otherwise (including the failure to make a payment to purchase Notes tendered pursuant to a Change of Control Offer or a Net Proceeds Offer), whether or not such payment shall be prohibited by Article 10 of the Indenture; (iii) a default in the observance or performance of any other covenant or agreement contained herein 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 Trustee or the Holders of at least 25% of the outstanding principal amount of the Notes; (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) certain events of bankruptcy or insolvency with respect to the Company or any of its Material Subsidiaries; and (vii) except as permitted by the Indenture, any Note Guarantee is 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 such Guarantor's Note Guarantee. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, all outstanding Notes will become due and payable without further action or notice. Holders may not enforce the Indenture or the Notes except as provided in the Indenture. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in their interest. The Holders of a majority in aggregate principal amount of the Notes then A-2-6 outstanding by notice to the Trustee may on behalf of the Holders of all of the Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest on, or the principal of, the Notes. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. 13. Trustee Dealings with Company. The Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not the Trustee. 14. No Recourse Against Others. A director, officer, employee, incorporator or stockholder, of the Company or any of the Guarantors, as such, shall not have any liability for any obligations of the Company or such Guarantor under the Notes, the Note Guarantees or the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes. 15. Authentication. This Note shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. 16. Abbreviations. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 17. Additional Rights of Holders of Restricted Global Notes and Restricted Definitive Notes. In addition to the rights provided to Holders of Notes under the Indenture, Holders of Restricted Global Notes and Restricted Definitive Notes shall have all the rights set forth in the A/B Exchange Registration Rights Agreement dated as of December 18, 1997, between the Company and the parties named on the signature pages thereof or, in the case of Additional Notes, Holders of Restricted Global Notes and Restricted Definitive Notes shall have the rights set forth in one or more registration rights agreements, if any, between the Company and the other parties thereto, relating to rights given by the Company to the purchasers of any Additional Notes (collectively, the "Registration Rights Agreement"). 18. CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. The Company will furnish to any Holder upon written request and without charge a copy of the Indenture and/or the Registration Rights Agreement. Requests may be made to: Sealy Mattress Company Halle Building 10th Floor A-2-7 1228 Euclid Avenue Cleveland, Ohio 44115 Attention: General Counsel A-2-8 ASSIGNMENT FORM To assign this Note, fill in the form below: (I) or (we) assign and transfer this Note to (Insert assignee's soc. sec. or tax I.D. no.) (Print or type assignee's name, address and zip code) and irrevocably appoint to transfer this Note on the books of the Company. The agent may substitute another to act for him. Date:_________________ Your Signature:___________________________________ (Sign exactly as your name appears on the face of this Note) Tax Identification No:____________________________ SIGNATURE GUARANTEE: _________________________________ Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. A-2-9 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Note purchased by the Company pursuant to Section 4.10 or 4.15 of the Indenture, check the appropriate box below: [_] Section 4.10 [_] Section 4.15 If you want to elect to have only part of the Note purchased by the Company pursuant to Section 4.10 or Section 4.15 of the Indenture, state the amount you elect to have purchased: $___________ ________________________________________________________________________________ Date:___________ Your Signature:___________________________________ (Sign exactly as your name appears on the face of this Note) Tax Identification No:____________________________ SIGNATURE GUARANTEE: _________________________________ Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. A-2-10 SCHEDULE OF EXCHANGES OF REGULATION S TEMPORARY GLOBAL NOTE The following exchanges of a part of this Regulation S Temporary Global Note for an interest in another Global Note, or of other Restricted Global Notes for an interest in this Regulation S Temporary Global Note, have been made:
Principal Amount Amount of Amount of increase of this Global Note Signature of decrease in in Principal following such authorized officer Principal Amount Amount of this decrease (or of Trustee or Note Date of Exchange of this Global Note Global Note increase) Custodian - ---------------- ------------------- ----------------- ------------------ ------------------
A-2-11 EXHIBIT B FORM OF CERTIFICATE OF TRANSFER Sealy Mattress Company Halle Building 10th Floor 1228 Euclid Avenue Cleveland, Ohio 44115 Attention: General Counsel The Bank of New York 101 Barclay Street Floor 21 West New York, New York 10286 Attention: Corporate Trust Administration Re: 9-7/8% Senior Subordinated Notes due 2007 ----------------------------------------- Reference is hereby made to the Indenture, dated as of December 18, 1997 (the "Indenture"), between Sealy Mattress Company, as issuer (the "Company"), and The Bank of New York, as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture. ______________, (the "Transferor") owns and proposes to transfer the Note[s] or interest in such Note[s] specified in Annex A hereto, in the principal amount of $___________ in such Note[s] or interests (the "Transfer"), to __________ (the "Transferee"), as further specified in Annex A hereto. In connection with the Transfer, the Transferor hereby certifies that: [CHECK ALL THAT APPLY] 1. CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE ---------------------------------------------------------------------- 144A GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO RULE 144A. The Transfer is - ----------------------------------------------------------- being effected pursuant to and in accordance with Rule 144A under the United States Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, the Transferor hereby further certifies that the beneficial interest or Definitive Note is being transferred to a Person that the Transferor reasonably believed and believes is purchasing the beneficial interest or Definitive Note for its own account, or for one or more accounts with respect to which such Person exercises sole investment discretion, and such Person and each such account is a "qualified institutional buyer" within the meaning of Rule 144A in a transaction meeting the requirements of Rule 144A and such Transfer is in compliance with any applicable blue sky securities laws of any state of the United States. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the 144A Global Note and/or the Definitive Note and in the Indenture and the Securities Act. 2. CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE ---------------------------------------------------------------------- TEMPORARY REGULATION S GLOBAL NOTE, THE REGULATION S GLOBAL NOTE OR A DEFINITIVE - -------------------------------------------------------------------------------- NOTE PURSUANT TO REGULATION S. The Transfer is being effected pursuant to and - ----------------------------- in accordance with Rule 903 or Rule 904 B-1 under the Securities Act and, accordingly, the Transferor hereby further certifies that (i) the Transfer is not being made to a person in the United States and (x) at the time the buy order was originated, the Transferee was outside the United States or such Transferor and any Person acting on its behalf reasonably believed and believes that the Transferee was outside the United States or (y) the transaction was executed in, on or through the facilities of a designated offshore securities market and neither such Transferor nor any Person acting on its behalf knows that the transaction was prearranged with a buyer in the United States, (ii) no directed selling efforts have been made in contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S under the Securities Act, (iii) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act and (iv) if the proposed transfer is being made prior to the expiration of the Restricted Period, the transfer is not being made to a U.S. Person or for the account or benefit of a U.S. Person (other than an Initial Purchaser). Upon consummation of the proposed transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will be subject to the restrictions on Transfer enumerated in the Private Placement Legend printed on the Regulation S Global Note, the Temporary Regulation S Global Note and/or the Definitive Note and in the Indenture and the Securities Act. 3. [_] CHECK AND COMPLETE IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL ------------------------------------------------------------------- INTEREST IN THE IAI GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO ANY PROVISION - ------------------------------------------------------------------------------ OF THE SECURITIES ACT OTHER THAN RULE 144A OR REGULATION S. The Transfer is - ---------------------------------------------------------- being effected in compliance with the transfer restrictions applicable to beneficial interests in Restricted Global Notes and Restricted Definitive Notes and pursuant to and in accordance with the Securities Act and any applicable blue sky securities laws of any state of the United States, and accordingly the Transferor hereby further certifies that (check one): (a) [_] such Transfer is being effected pursuant to and in accordance with Rule 144 under the Securities Act; or (b) [_] such Transfer is being effected to the Company or a subsidiary thereof; or (c) [_] such Transfer is being effected pursuant to an effective registration statement under the Securities Act and in compliance with the prospectus delivery requirements of the Securities Act; or (d) [_] such Transfer is being effected to an Institutional Accredited Investor and pursuant to an exemption from the registration requirements of the Securities Act other than Rule 144A, Rule 144 or Rule 904, and the Transferor hereby further certifies that it has not engaged in any general solicitation within the meaning of Regulation D under the Securities Act and the Transfer complies with the transfer restrictions applicable to beneficial interests in a Restricted Global Note or Restricted Definitive Notes and the requirements of the exemption claimed, which certification is supported by (1) a certificate executed by the Transferee in the form of Exhibit D to the Indenture and (2) if such Transfer is in respect of a principal amount of Notes at the time of transfer of less than $250,000, an Opinion of Counsel provided by the Transferor or the Transferee (a copy of which the Transferor has attached to this certification), to the effect that such Transfer is in compliance with the Securities Act. Upon B-2 consummation of the proposed transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the IAI Global Note and/or the Definitive Notes and in the Indenture and the Securities Act. 4. [_] Check if Transferee will take delivery of a beneficial interest in an Unrestricted Global Note or of an Unrestricted Definitive Note. (a) [_] CHECK IF TRANSFER IS PURSUANT TO RULE 144. (i) The Transfer is being effected pursuant to and in accordance with Rule 144 under the Securities Act and in compliance with the transfer restrictions contained in the Indenture and any applicable blue sky securities laws of any state of the United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will no longer be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Notes, on Restricted Definitive Notes and in the Indenture. (b) [_] CHECK IF TRANSFER IS PURSUANT TO REGULATION S. (i) The Transfer is being effected pursuant to and in accordance with Rule 903 or Rule 904 under the Securities Act and in compliance with the transfer restrictions contained in the Indenture and any applicable blue sky securities laws of any state of the United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will no longer be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Notes, on Restricted Definitive Notes and in the Indenture. (c) [_] CHECK IF TRANSFER IS PURSUANT TO OTHER EXEMPTION. (i) The Transfer is being effected pursuant to and in compliance with an exemption from the registration requirements of the Securities Act other than Rule 144, Rule 903 or Rule 904 and in compliance with the transfer restrictions contained in the Indenture and any applicable blue sky securities laws of any State of the United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will not be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Notes or Restricted Definitive Notes and in the Indenture. This certificate and the statements contained herein are made for your benefit and the benefit of the Company. ________________________________ [Insert Name of Transferor] By:_____________________________ Name: Title: Dated: __________, ____ B-3 ANNEX A TO CERTIFICATE OF TRANSFER 1. The Transferor owns and proposes to transfer the following: [CHECK ONE OF (a) OR (b)] (a) [_] a beneficial interest in the: (i) [_] 144A Global Note (CUSIP ________), or (ii) [_] Regulation S Global Note (CUSIP ________), or (iii) [_] IAI Global Note (CUSIP _______); or (b) [_] a Restricted Definitive Note. 2. After the Transfer the Transferee will hold: [CHECK ONE] (a) [_] a beneficial interest in the: (i) [_] 144A Global Note (CUSIP _______), or (ii) [_] Regulation S Global Note (CUSIP _______), or (iii) [_] IAI Global Note (CUSIP _______); or (iv) [_] Unrestricted Global Note (CUSIP _______); or (b) [_] a Restricted Definitive Note; or (c) [_] an Unrestricted Definitive Note, in accordance with the terms of the Indenture. B-4 EXHIBIT C FORM OF CERTIFICATE OF EXCHANGE Sealy Mattress Company Halle Building 10th Floor 1228 Euclid Avenue Cleveland, Ohio 44115 Attention: General Counsel The Bank of New York 101 Barclay Street Floor 21 West New York, New York 10286 Attention: Corporate Trust Department Re: 9-7/8% Senior Subordinated Notes due 2007 ----------------------------------------- (CUSIP ______________) Reference is hereby made to the Indenture, dated as of December 18, 1997 (the "Indenture"), between Sealy Mattress Company, as issuer (the "Company"), and The Bank of New York, as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture. ____________, (the "Owner") owns and proposes to exchange the Note[s] or interest in such Note[s] specified herein, in the principal amount of $____________ in such Note[s] or interests (the "Exchange"). In connection with the Exchange, the Owner hereby certifies that: 1. EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN A RESTRICTED GLOBAL NOTE FOR UNRESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN AN UNRESTRICTED GLOBAL NOTE (a) [_] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A -------------------------------------------------- RESTRICTED GLOBAL NOTE TO BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE. In - ---------------------------------------------------------------------------- connection with the Exchange of the Owner's beneficial interest in a Restricted Global Note for a beneficial interest in an Unrestricted Global Note in an equal principal amount, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Global Notes and pursuant to and in accordance with the United States Securities Act of 1933, as amended (the "Securities Act"), (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the beneficial interest in an Unrestricted Global Note is being acquired in compliance with any applicable blue sky securities laws of any state of the United States. (b) [_] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A -------------------------------------------------- RESTRICTED GLOBAL NOTE TO UNRESTRICTED DEFINITIVE NOTE. In connection with the - ------------------------------------------------------ Exchange of the Owner's beneficial interest in a Restricted Global Note for an Unrestricted Definitive Note, the Owner hereby certifies (i) the Definitive Note is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Restricted Global Notes C-1 and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the Definitive Note is being acquired in compliance with any applicable blue sky securities laws of any state of the United States. (c) [_] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO ------------------------------------------------------- BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE. In connection with the - -------------------------------------------------- Owner's Exchange of a Restricted Definitive Note for a beneficial interest in an Unrestricted Global Note, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to Restricted Definitive Notes and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the beneficial interest is being acquired in compliance with any applicable blue sky securities laws of any state of the United States . (d) [_] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO ------------------------------------------------------- UNRESTRICTED DEFINITIVE NOTE. In connection with the Owner's Exchange of a - ---------------------------- Restricted Definitive Note for an Unrestricted Definitive Note, the Owner hereby certifies (i) the Unrestricted Definitive Note is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to Restricted Definitive Notes and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the Unrestricted Definitive Note is being acquired in compliance with any applicable blue sky securities laws of any state of the United States. 2. EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN RESTRICTED GLOBAL NOTES FOR RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN RESTRICTED GLOBAL NOTES (a) [_] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A -------------------------------------------------- RESTRICTED GLOBAL NOTE TO RESTRICTED DEFINITIVE NOTE. In connection with the - ---------------------------------------------------- Exchange of the Owner's beneficial interest in a Restricted Global Note for a Restricted Definitive Note with an equal principal amount, the Owner hereby certifies that the Restricted Definitive Note is being acquired for the Owner's own account without transfer. Upon consummation of the proposed Exchange in accordance with the terms of the Indenture, the Restricted Definitive Note issued will continue to be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Definitive Note and in the Indenture and the Securities Act. (b) [_] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO ------------------------------------------------------- BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE. In connection with the - ----------------------------------------------- Exchange of the Owner's Restricted Definitive Note for a beneficial interest in the [CHECK ONE] 144A Global Note, Regulation S Global Note, IAI Global Note with an equal principal amount, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner's own account without transfer and (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Restricted Global Notes and pursuant to and in accordance with the Securities Act, and in compliance with any applicable blue sky securities laws of any state of the United States. Upon consummation of the proposed Exchange in accordance with the terms of the Indenture, the beneficial interest issued will be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the relevant Restricted Global Note and in the Indenture and the Securities Act. C-2 This certificate and the statements contained herein are made for your benefit and the benefit of the Company. ___________________________________ [Insert Name of Owner] By:________________________________ Name: Title: Dated: __________, ____ C-3 EXHIBIT D FORM OF CERTIFICATE FROM ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR Sealy Mattress Company Halle Building 10th Floor 1228 Euclid Avenue Cleveland, Ohio 44115 Attention: General Counsel The Bank of New York 101 Barclay Street Floor 21 West New York, New York 10286 Attention: Corporate Trust Administration Re: 9-7/8% Senior Subordinated Notes due 2007 ----------------------------------------- Reference is hereby made to the Indenture, dated as of December 18, 1997 (the "Indenture"), between Sealy Mattress Company, as issuer (the "Company"), and The Bank of New York, as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture. In connection with our proposed purchase of $____________ aggregate principal amount of: (a) [_] a beneficial interest in a Global Note, or (b) [_] a Definitive Note, we confirm that: 1. We understand that any subsequent transfer of the Notes or any interest therein is subject to certain restrictions and conditions set forth in the Indenture and the undersigned agrees to be bound by, and not to resell, pledge or otherwise transfer the Notes or any interest therein except in compliance with, such restrictions and conditions and the United States Securities Act of 1933, as amended (the "Securities Act"). 2. We understand that the offer and sale of the Notes have not been registered under the Securities Act, and that the Notes and any interest therein may not be offered or sold except as permitted in the following sentence. We agree, on our own behalf and on behalf of any accounts for which we are acting as hereinafter stated, that if we should sell the Notes or any interest therein, we will do so only (A) to the Company or any subsidiary thereof, (B) in accordance with Rule 144A under the Securities Act to a "qualified institutional buyer" (as defined therein), (c) to an institutional "accredited investor" (as defined below) that, prior to such transfer, furnishes (or has furnished on its behalf by a U.S. broker-dealer) to you and to the Company a signed letter substantially in the form of this letter and, D-1 if such transfer is in respect of a principal amount of Notes, at the time of transfer of less than $250,000, an Opinion of Counsel in form reasonably acceptable to the Company to the effect that such transfer is in compliance with the Securities Act, (D) outside the United States in accordance with Rule 904 of Regulation S under the Securities Act, (E) pursuant to the provisions of Rule 144(k) under the Securities Act or (F) pursuant to an effective registration statement under the Securities Act, and we further agree to provide to any person purchasing the Definitive Note or beneficial interest in a Global Note from us in a transaction meeting the requirements of clauses (A) through (E) of this paragraph a notice advising such purchaser that resales thereof are restricted as stated herein. 3. We understand that, on any proposed resale of the Notes or beneficial interest therein, we will be required to furnish to you and the Company such certifications, legal opinions and other information as you and the Company may reasonably require to confirm that the proposed sale complies with the foregoing restrictions. We further understand that the Notes purchased by us will bear a legend to the foregoing effect. We further understand that any subsequent transfer by us of the Notes or beneficial interest therein acquired by us must be effected through one of the Placement Agents. 4. We are an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of our investment in the Notes, and we and any accounts for which we are acting are each able to bear the economic risk of our or its investment. 5. We are acquiring the Notes or beneficial interest therein purchased by us for our own account or for one or more accounts (each of which is an institutional "accredited investor") as to each of which we exercise sole investment discretion. You and the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. __________________________________________ [Insert Name of Accredited Investor] By:_______________________________ Name: Title: Dated: __________________, ____ D-2 EXHIBIT E FORM OF NOTATION OF GUARANTEE For value received, each Guarantor (which term includes any successor Person under the Indenture) has, jointly and severally, unconditionally guaranteed, to the extent set forth in the Indenture and subject to the provisions in the Indenture dated as of December 18, 1997 (the "Indenture") among Sealy Mattress Company, the Guarantors listed on Schedule I thereto and The Bank of New York, as trustee (the "Trustee"), (a) the due and punctual payment of the principal of, premium, if any, and interest on the Notes (as defined in the Indenture), whether at maturity, by acceleration, redemption or otherwise, the due and punctual payment of interest on overdue principal and premium, and, to the extent permitted by law, interest, and the due and punctual performance of all other obligations of the Company to the Holders or the Trustee all in accordance with the terms of the Indenture and (b) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. The obligations of the Guarantors to the Holders of Notes and to the Trustee pursuant to the Note Guarantee and the Indenture are expressly set forth in Article 11 of the Indenture and reference is hereby made to the Indenture for the precise terms of the Note Guarantee. Each Holder of a Note, by accepting the same, (a) agrees to and shall be bound by such provisions, (b) authorizes and directs the Trustee, on behalf of such Holder, to take such action as may be necessary or appropriate to effectuate the subordination as provided in the Indenture and (c) appoints the Trustee attorney-in-fact of such Holder for such purpose; provided, however, that the Indebtedness evidenced by this Note Guarantee shall cease to be so subordinated and subject in right of payment upon any defeasance of this Note in accordance with the provisions of the Indenture. [Name of Guarantor(s)] By:________________________________ Name: Title: E-1 EXHIBIT F FORM OF SUPPLEMENTAL INDENTURE TO BE DELIVERED BY SUBSEQUENT GUARANTORS Supplemental Indenture (this "Supplemental Indenture"), dated as of ________________, among __________________ (the "Guaranteeing Subsidiary"), a subsidiary of Sealy Mattress Company (or its permitted successor), an Ohio corporation (the "Company"), the Company, the other Guarantors (as defined in the Indenture referred to herein) and The Bank of New York, as trustee under the indenture referred to below (the "Trustee"). W I T N E S S E T H WHEREAS, the Company has heretofore executed and delivered to the Trustee an indenture (the "Indenture"), dated as of December 18, 1997 providing for the issuance of an aggregate principal amount of up to $300.0 million of 9- 7/8% Senior Subordinated Notes due 2007 (the "Notes"); WHEREAS, the Indenture provides that under certain circumstances the Guaranteeing Subsidiary shall execute and deliver to the Trustee a supplemental indenture pursuant to which the Guaranteeing Subsidiary shall unconditionally guarantee all of the Company's Obligations under the Notes and the Indenture on the terms and conditions set forth herein (the "Note Guarantee"); and WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is authorized to execute and deliver this Supplemental Indenture. NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Guaranteeing Subsidiary and the Trustee mutually covenant and agree for the equal and ratable benefit of the Holders of the Notes as follows: 1. Capitalized Terms. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture. 2. Agreement To Guarantee. The Guaranteeing Subsidiary hereby agrees as follows: (a) Along with all Guarantors named in the Indenture, to jointly and severally Guarantee to each Holder of a Note authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, irrespective of the validity and enforceability of the Indenture, the Notes or the obligations of the Company hereunder or thereunder, that: (i) the principal of and interest on the Notes will be promptly paid in full when due, whether at maturity, by acceleration, redemption or otherwise, and interest on the overdue principal of and interest on the Notes, if any, if lawful, and all other obligations of the Company to the Holders or the Trustee hereunder or thereunder will be promptly paid in full or performed, all in accordance with the terms hereof and thereof; and F-1 (ii) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. Failing payment when due of any amount so guaranteed or any performance so guaranteed for whatever reason, the Guarantors shall be jointly and severally obligated to pay the same immediately. (b) The obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Notes or the Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Notes with respect to any provisions hereof or thereof, the recovery of any judgment against the Company, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor. (c) The following is hereby waived: diligence presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands whatsoever. (d) This Note Guarantee shall not be discharged except by complete performance of the obligations contained in the Notes and the Indenture. (e) If any Holder or the Trustee is required by any court or otherwise to return to the Company, the Guarantors, or any custodian, Trustee, liquidator or other similar official acting in relation to either the Company or the Guarantors, any amount paid by either to the Trustee or such Holder, this Note Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect. (f) The Guaranteeing Subsidiary shall not be entitled to any right of subrogation in relation to the Holders in respect of any obligations guaranteed hereby until payment in full of all obligations guaranteed hereby. (g) As between the Guarantors, on the one hand, and the Holders and the Trustee, on the other hand, (x) the maturity of the obligations guaranteed hereby may be accelerated as provided in Article 6 of the Indenture for the purposes of this Note Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (y) in the event of any declaration of acceleration of such obligations as provided in Article 6 of the Indenture, such obligations (whether or not due and payable) shall forthwith become due and payable by the Guarantors for the purpose of this Note Guarantee. (h) The Guarantors shall have the right to seek contribution from any non-paying Guarantor so long as the exercise of such right does not impair the rights of the Holders under the Guarantee. F-2 (i) Pursuant to Section 11.02 of the Indenture, after giving effect to any maximum amount and any other contingent and fixed liabilities that are relevant under any applicable Bankruptcy or fraudulent conveyance laws, and after giving effect to any collections from, rights to receive contribution from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under Article 11 of the Indenture shall result in the obligations of such Guarantor under its Note Guarantee not constituting a fraudulent transfer or conveyance. 3 Execution And Delivery. Each Guaranteeing Subsidiary agrees that the Note Guarantees shall remain in full force and effect notwithstanding any failure to endorse on each Note a notation of such Note Guarantee. 4. Guaranteeing Subsidiary May Consolidate, Etc. On Certain Terms. (a) The Guaranteeing Subsidiary may not consolidate with or merge with or into (whether or not such Guarantor is the surviving Person) another corporation, Person or entity whether or not affiliated with such Guarantor unless: (i) subject to Section 11.05 of the Indenture, the Person formed by or surviving any such consolidation or merger (if other than a Guarantor or the Company) unconditionally assumes all the obligations of such Guarantor, pursuant to a supplemental indenture in form and substance reasonably satisfactory to the Trustee, under the Notes, the Indenture and the Note Guarantee on the terms set forth herein or therein; and (ii) immediately after giving effect to such transaction, no Default or Event of Default exists. (b) In case of any such consolidation, merger, sale or conveyance and upon the assumption by the successor corporation, by supplemental indenture, executed and delivered to the Trustee and satisfactory in form to the Trustee, of the Note Guarantee endorsed upon the Notes and the due and punctual performance of all of the covenants and conditions of the Indenture to be performed by the Guarantor, such successor corporation shall succeed to and be substituted for the Guarantor with the same effect as if it had been named herein as a Guarantor. Such successor corporation thereupon may cause to be signed any or all of the Note Guarantees to be endorsed upon all of the Notes issuable hereunder which theretofore shall not have been signed by the Company and delivered to the Trustee. All the Note Guarantees so issued shall in all respects have the same legal rank and benefit under the Indenture as the Note Guarantees theretofore and thereafter issued in accordance with the terms of the Indenture as though all of such Note Guarantees had been issued at the date of the execution hereof. (c) Except as set forth in Articles 4 and 5 of the Indenture, and notwithstanding clauses (a) and (b) above, nothing contained in the Indenture or in any of the Notes shall prevent any consolidation or merger of a Guarantor with or into the Company or another Guarantor, or shall prevent any sale or conveyance of the property of a Guarantor as an entirety or substantially as an entirety to the Company or another Guarantor. F-3 5. Releases. (a) In the event of a sale or other disposition of all of the assets of any Guarantor, by way of merger, consolidation or otherwise, or a sale or other disposition of all to the capital stock of any Guarantor, then such Guarantor (in the event of a sale or other disposition, by way of merger, consolidation or otherwise, of all of the capital stock of such Guarantor) or the corporation acquiring the property (in the event of a sale or other disposition of all or substantially all of the assets of such Guarantor) will be released and relieved of any obligations under its Note Guarantee; provided that the Net Proceeds of such sale or other disposition are applied in accordance with the applicable provisions of the Indenture, including without limitation Section 4.10 of the Indenture. Upon delivery by the Company to the Trustee of an Officers' Certificate and an Opinion of Counsel to the effect that such sale or other disposition was made by the Company in accordance with the provisions of the Indenture, including without limitation Section 4.10 of the Indenture, the Trustee shall execute any documents reasonably required in order to evidence the release of any Guarantor from its obligations under its Note Guarantee. (b) Any Guarantor not released from its obligations under its Note Guarantee shall remain liable for the full amount of principal of and interest on the Notes and for the other obligations of any Guarantor under the Indenture as provided in Article 10 of the Indenture. 6. No Recourse Against Others. No past, present or future director, officer, employee, incorporator, stockholder or agent of the Guaranteeing Subsidiary, as such, shall have any liability for any obligations of the Company or any Guaranteeing Subsidiary under the Notes, any Note Guarantees, the Indenture or this Supplemental Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of the Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the 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. 7. New York Law To Govern. The Internal Law Of The State Of New York Shall Govern And Be Used To Construe This Supplemental Indenture But Without Giving Effect To Applicable Principles Of Conflicts Of Law To The Extent That The Application Of The Laws Of Another Jurisdiction Would Be Required Thereby. 8. Counterparts The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. 9. Effect Of Headings. The Section headings herein are for convenience only and shall not affect the construction hereof. 10 The Trustee. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made solely by the Guaranteeing Subsidiary and the Company. IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed and attested, all as of the date first above written. Dated: _______________, ____ [Guaranteeing Subsidiary] By:___________________________ Name: Title: THE BANK OF NEW YORK as Trustee By:___________________________ Name: Title: SCHEDULE I SCHEDULE OF GUARANTORS The following schedule lists each Guarantor under the Indenture as of the Issue Date: 1. Sealy Corporation, a Delaware corporation. 2. Sealy Mattress Company of Puerto Rico, an Ohio corporation. 3. Ohio--Sealy Mattress Manufacturing Co., Inc. (Randolph), a Massachusetts corporation. 4. Ohio--Sealy Mattress Manufacturing Co.--Ft. Worth, a Texas corporation. 5. Ohio--Sealy Mattress Manufacturing Co., a Georgia corporation. 6. Ohio--Sealy Mattress Manufacturing Co.--Houston, a Texas corporation. 7. Sealy Mattress Company of Michigan, Inc., a Michigan corporation. 8. Sealy Mattress Company of Kansas City, Inc., a Missouri corporation. 9. Sealy of Maryland and Virginia, Inc., a Maryland corporation. 10. Sealy Mattress Company of Illinois, an Illinois corporation. 11. A. Brandwein & Company, an Illinois corporation. 12. Sealy Mattress Company of Albany, Inc., a New York corporation. 13. Sealy of Minnesota, Inc., a Minnesota corporation. 14. Sealy Mattress Company of Memphis, a Tennessee corporation. 15. The Stearns & Foster Bedding Company, a Delaware corporation. 16. The Stearns & Foster Upholstery Furniture Company, an Ohio corporation. 17. Sealy, Inc., an Ohio corporation 18. The Ohio Mattress Company Licensing and Components Group, a Delaware corporation. 19. Sealy Mattress Manufacturing Company, Inc., a Delaware corporation. EX-4.2 5 INDENTURE BY AND AMONG SEALY AND THE BANK OF NY EXHIBIT 4.2 EXECUTION COPY ================================================================================ Sealy Mattress Company SERIES A AND SERIES B 10-7/8% SENIOR SUBORDINATED DISCOUNT NOTES DUE 2007 INDENTURE _____________________________ Dated as of December 18, 1997 _____________________________ THE BANK OF NEW YORK Trustee ______________ ================================================================================ CROSS-REFERENCE TABLE*
Act Section Indenture Section 310 (a)(1).................................7.10 (a)(2).....................................7.10 (a)(3).....................................N.A. (a)(4).....................................N.A. (a)(5).....................................7.10 (i)(b).....................................7.10 (ii)(c)....................................N.A. 311 (a)....................................7.11 (b)........................................7.11 (iii(c)....................................N.A. 312 (a)....................................2.05 (b).......................................11.03 (iv)(c)...................................11.03 313 (a)....................................7.06 (b)(2).....................................7.07 (v)(c)....................................7.06; 11.02 (vi)(d)....................................7.06 314 (a)....................................4.03; 11.02 (c)(1)....................................11.04 (c)(2)....................................11.04 (c)(3).....................................N.A. (vii)(e)..................................11.05 (f)....................................... N.A. 315 (a)....................................7.01 (b)........................................7.05, 11.02 (A)(c).....................................7.01 (d)........................................7.01 (e)........................................6.11 316 (a)(last sentence).....................2.09 (a)(1)(A)..................................6.05 (a)(1)(B)..................................6.04 (a)(2).....................................N.A. (b)........................................6.07 (B)(c).....................................2.12 317 (a)(1).................................6.08 (a)(2).....................................6.09 (b)........................................2.04 318 (a)...................................11.01 (b)........................................N.A. (c).......................................11.01 N.A. means not applicable.
*This Cross-Reference Table is not part of the Indenture. TABLE OF CONTENTS -----------------
PAGE ---- ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE......................................................... 1 Section 1.01. Definitions.................................................................................... 1 Section 1.02. Other Definitions.............................................................................. 20 Section 1.03. Trust Indenture Act Definitions................................................................ 21 Section 1.04. Rules of Construction.......................................................................... 21 ARTICLE 2. THE NOTES.......................................................................................... 22 Section 2.01. Form and Dating................................................................................ 22 Section 2.02. Execution and Authentication................................................................... 23 Section 2.03. Registrar and Paying Agent..................................................................... 23 Section 2.04. Paying Agent to Hold Money in Trust............................................................ 24 Section 2.05. Holder Lists................................................................................... 24 Section 2.06. Transfer and Exchange.......................................................................... 24 Section 2.07. Replacement Notes.............................................................................. 36 Section 2.08. Outstanding Notes.............................................................................. 36 Section 2.09. Treasury Notes................................................................................. 36 Section 2.10. Temporary Notes................................................................................ 37 Section 2.11. Cancellation................................................................................... 37 Section 2.12. Defaulted Interest............................................................................. 37 ARTICLE 3. REDEMPTION AND PREPAYMENT.......................................................................... 38 Section 3.01. Notices to Trustee............................................................................. 38 Section 3.02. Selection of Notes to Be Redeemed.............................................................. 38 Section 3.03. Notice of Redemption........................................................................... 38
i Section 3.04. Effect of Notice of Redemption................................................................. 39 Section 3.05. Deposit of Redemption Price.................................................................... 39 Section 3.06. Notes Redeemed in Part......................................................................... 39 Section 3.07. Optional Redemption............................................................................ 40 Section 3.08. Mandatory Redemption........................................................................... 40 Section 3.09. Offer to Purchase by Application of Net Proceeds Offer Amount.................................. 40 Article 4. Covenants.......................................................................................... 42 Section 4.01. Payment of Notes............................................................................... 42 Section 4.02. Maintenance of Office or Agency................................................................ 42 Section 4.03. Reports........................................................................................ 43 Section 4.04. Compliance Certificate......................................................................... 44 Section 4.05. Taxes.......................................................................................... 44 Section 4.06. Stay, Extension and Usury Laws................................................................. 45 Section 4.07. Restricted Payments............................................................................ 45 Section 4.08. Dividend and Other Payment Restrictions Affecting Subsidiaries................................. 47 Section 4.09. Incurrence of Indebtedness and Issuance of Preferred Stock..................................... 48 Section 4.10. Asset Sales.................................................................................... 51 Section 4.11. Transactions with Affiliates................................................................... 52 Section 4.12. Liens.......................................................................................... 54 Section 4.13. Conduct of Business............................................................................ 54 Section 4.14. Corporate Existence............................................................................ 54 Section 4.15. Offer to Repurchase Upon Change of Control..................................................... 54 Section 4.16. No Senior Subordinated Debt.................................................................... 55 Section 4.17. Additional Note Guarantees..................................................................... 56 Article 5. Successors......................................................................................... 56
ii SECTION 5.01. MERGER, CONSOLIDATION, OR SALE OF ASSETS....................................................... 56 SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED.............................................................. 56 ARTICLE 6. DEFAULTS AND REMEDIES.............................................................................. 57 SECTION 6.01. EVENTS OF DEFAULT.............................................................................. 57 SECTION 6.02. ACCELERATION................................................................................... 58 SECTION 6.03. OTHER REMEDIES................................................................................. 59 SECTION 6.04. WAIVER OF PAST DEFAULTS........................................................................ 59 SECTION 6.05. CONTROL BY MAJORITY............................................................................ 60 SECTION 6.06. LIMITATION ON SUITS............................................................................ 60 SECTION 6.07. RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT.................................................. 60 SECTION 6.08. COLLECTION SUIT BY TRUSTEE..................................................................... 60 SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM............................................................... 61 SECTION 6.10. PRIORITIES..................................................................................... 61 SECTION 6.11. UNDERTAKING FOR COSTS.......................................................................... 61 ARTICLE 7. TRUSTEE............................................................................................ 62 SECTION 7.01. DUTIES OF TRUSTEE.............................................................................. 62 SECTION 7.02. RIGHTS OF TRUSTEE.............................................................................. 63 SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE................................................................... 63 SECTION 7.04. TRUSTEE'S DISCLAIMER........................................................................... 63 SECTION 7.05. NOTICE OF DEFAULTS............................................................................. 64 SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES..................................................... 64 SECTION 7.07. COMPENSATION AND INDEMNITY..................................................................... 64 SECTION 7.08. REPLACEMENT OF TRUSTEE......................................................................... 65 SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC............................................................... 66 SECTION 7.10. ELIGIBILITY; DISQUALIFICATION.................................................................. 66
iii SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.............................................. 66 ARTICLE 8. LEGAL DEFEASANCE AND COVENANT DEFEASANCE........................................................... 66 SECTION 8.01. OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE....................................... 66 SECTION 8.02. LEGAL DEFEASANCE AND DISCHARGE................................................................. 66 SECTION 8.03. COVENANT DEFEASANCE............................................................................ 67 SECTION 8.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE..................................................... 67 SECTION 8.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST; OTHER MISCELLANEOUS PROVISIONS....................................................................... 69 SECTION 8.06. REPAYMENT TO COMPANY........................................................................... 69 SECTION 8.07. REINSTATEMENT.................................................................................. 69 ARTICLE 9. AMENDMENT, SUPPLEMENT AND WAIVER................................................................... 70 SECTION 9.01. WITHOUT CONSENT OF HOLDERS OF NOTES............................................................ 70 SECTION 9.02. WITH CONSENT OF HOLDERS OF NOTES............................................................... 71 SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT............................................................ 72 SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS.............................................................. 72 SECTION 9.05. NOTATION ON OR EXCHANGE OF NOTES............................................................... 72 SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC................................................................ 73 ARTICLE 10. SUBORDINATION..................................................................................... 73 SECTION 10.01. AGREEMENT TO SUBORDINATE...................................................................... 73 SECTION 10.02. CERTAIN DEFINITIONS........................................................................... 73 SECTION 10.03. LIQUIDATION; DISSOLUTION; BANKRUPTCY.......................................................... 74 SECTION 10.04. DEFAULT ON DESIGNATED SENIOR DEBT............................................................. 74 SECTION 10.05. ACCELERATION OF SECURITIES.................................................................... 75 SECTION 10.06. WHEN DISTRIBUTION MUST BE PAID OVER........................................................... 75 SECTION 10.07. NOTICE BY COMPANY............................................................................. 75
iv Section 10.08. Subrogation................................................................................... 76 Section 10.09. Relative Rights............................................................................... 76 Section 10.10. Subordination May Not be Impaired by Company.................................................. 76 Section 10.11. Distribution or Notice to Representative...................................................... 76 Section 10.12. Rights of Trustee and Paying Agent............................................................ 77 Section 10.13. Authorization to Effect Subordination......................................................... 77 Section 10.14. Amendments.................................................................................... 77 ARTICLE 11. NOTE GUARANTEES................................................................................... 78 Section 11.01. Guarantee..................................................................................... 78 Section 11.02. Subordination of Note Guarantee............................................................... 79 Section 11.03. Limitation on Guarantor Liability............................................................. 79 Section 11.04. Execution and Delivery of Note Guarantee...................................................... 79 Section 11.05. Guarantors May Consolidate, Etc., on Certain Terms............................................ 80 Section 11.06. Releases Following Sale of Assets............................................................. 80 ARTICLE 12. MISCELLANEOUS..................................................................................... 81 Section 12.01. Trust Indenture Act Controls.................................................................. 81 Section 12.02. Notices....................................................................................... 81 Section 12.03. Communication by Holders of Notes With Other Holders of Notes................................. 82 Section 12.04. Certificate and Opinion as to Conditions Precedent............................................ 82 Section 12.05. Statements Required in Certificate or Opinion................................................. 82 Section 12.06. Rules by Trustee and Agents................................................................... 83 Section 12.07. No Personal Liability of Directors, Officers, Employees and Stockholders...................... 83 Section 12.08. Governing Law................................................................................. 83 Section 12.09. No Adverse Interpretation of Other Agreements................................................. 83 Section 12.10. Successors.................................................................................... 83
V SECTION 12.11. SEVERABILITY.................................................................................. 83 SECTION 12.12. COUNTERPART ORIGINALS......................................................................... 84 SECTION 12.13. TABLE OF CONTENTS, HEADINGS, ETC.............................................................. 84
EXHIBITS Exhibit A FORM OF NOTE Exhibit B FORM OF CERTIFICATE OF TRANSFER Exhibit C FORM OF CERTIFICATE OF EXCHANGE Exhibit D FORM OF CERTIFICATE OF ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR Exhibit E FORM OF NOTE GUARANTEE Exhibit F FORM OF SUPPLEMENTAL INDENTURE vi INDENTURE dated as of December 18, 1997 between Sealy Mattress Company, a Ohio corporation (the "Company"), the Guarantors (as herein defined) and The Bank of New York, as trustee (the "Trustee"). The Company, the Guarantors and the Trustee agree as follows for the benefit of each other and for the equal and ratable benefit of the Holders of the 10-7/8% Series A Senior Subordinated Discount Notes due 2007 (the "Series A Notes") and the 10-7/8% Series B Senior Subordinated Discount Notes due 2007 (the "Series B Notes" and, together with the Series A Notes, the "Notes"): ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.01. Definitions. "144A Global Note" means a global note in the form of Exhibit A-1 hereto bearing the Global Note Legend and the Private Placement Legend and deposited with or on behalf of, and registered in the name of, the Depositary or its nominee that will be issued in a denomination equal to the outstanding principal amount at maturity of the Notes sold in reliance on Rule 144A. "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 Note and (b) the portion of the excess of the principal amount of each 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 Notes, compounded semi-annually on each June 15 and December 15 from the date of issuance of the Notes through the date of determination; provided that, on and after the Full Accretion Date, the Accreted Value of each Note shall be equal to the principal amount of such 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. "Additional Notes" means up to $147.0 million in aggregate principal amount at maturity of Notes (other than the Initial Notes) issued under this Indenture in accordance with Sections 2.02 and 4.09 hereof. "Affiliate" means a Person who directly or indirectly through one or more intermediaries controls, or controlled by, or is under common control with, the Company. The term "control" means the 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. "Agent" means any Registrar, Paying Agent or co-registrar. 1 "all or substantially all" shall have the meaning given such phrase in the Revised Model Business Corporation Act. "Applicable Premium" means, with respect to any Note on any Redemption Date, the greater of (i) 1.0% of the Accreted Value of such Note or (ii) the excess of (A) the present value at the Redemption Date of (1) the redemption price of such Note at December 15, 2002 (such redemption price being set forth in Section 3.07 hereof) plus (2) all Accreted Value on such Note through December 15, 2002, computed using a discount rate equal to the Treasury Rate at the Redemption Date plus 75 basis points over (B) the Accreted Value of such Note as of such Redemption Date, if greater. "Applicable Procedures" means, with respect to any transfer or exchange of or for beneficial interests in any Global Note, the rules and procedures of the Depositary, Euroclear and Cedel that apply to such transfer or exchange. "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 by Section 5.01 hereof 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 Section 4.07 hereof, (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. "Bankruptcy Law" means Title 11, U.S. Code or any similar federal or state law for the relief of debtors. "Board of Directors" means the Board of Directors of the Company, or any authorized committee of the Board of Directors. 2 "Business Day" means any day other than a Legal Holiday. "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. "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 this 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. "Cedel" means Cedel Bank, SA. "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 hereof, 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 hereof); (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 Capital 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 3 outstanding Equity Interests of the Company (other than as a result of a Merger of the Company and Parent permitted by Indenture). "Company" means Sealy Mattress Company, and any and all successors thereto. "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 Restricted Subsidiary's "Year 2000" information systems issue and Emerging Issues Task Force 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 (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 4 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 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 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 Section 4.07 hereof, any amounts included pursuant to clause (c)(iii) of the first paragraph of Section 4.07 hereof, 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 Section 4.07, 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 5 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. "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 this Indenture 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. "Corporate Trust Office of the Trustee" shall be at the address of the Trustee specified in Section 12.02 hereof or such other address as to which the Trustee may give notice to the Company. "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. "Definitive Note" means a certificated Note registered in the name of the Holder thereof and issued in accordance with Section 2.06 hereof, in the form of Exhibit A-1 hereto except that such Note shall not bear the Global Note Legend and shall not have the "Schedule of Exchanges of Interests in the Global Note" attached thereto. "Depositary" means, with respect to the Notes issuable or issued in whole or in part in global form, the Person specified in Section 2.03 hereof as the Depositary with respect to the Notes, and any and all successors thereto appointed as depositary hereunder and having become such pursuant to the applicable provision of this Indenture. "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 Section 4.07. 6 "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 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 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 Section 4.07 hereof. "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. "Euroclear" means Morgan Guaranty Trust Company of New York, Brussels office, as operator of the Euroclear system. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Exchange Notes" means the Notes issued in the Exchange Offer pursuant to Section 2.06(f) hereof. "Exchange Offer" has the meaning set forth in the Registration Rights Agreement. "Exchange Offer Registration Statement" has the meaning set forth in the Registration Rights Agreement. "Existing Indebtedness" means Indebtedness of the Company and its Subsidiaries (other than Indebtedness under the Senior Credit Agreements) in existence on the date hereof, 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 7 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 hereof. "Global Note Legend" means the legend set forth in Section 2.06(g)(ii), which is required to be placed on all Global Notes issued under this Indenture. "Global Notes" means, individually and collectively, each of the Restricted Global Notes and the Unrestricted Global Notes, in the form of Exhibit A hereto issued in accordance with Section 2.01, 2.06(b)(iv), 2.06(d)(ii) or 2.06(f) hereof. "Government Securities" means direct obligations of, or obligations guaranteed by, the United States of America, and the payment for which the United States pledges its full faith and credit. "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. "Guarantors" means (i) Sealy Corporation, a Delaware corporation, Sealy Mattress Company of Puerto Rico, an Ohio corporation, Ohio--Sealy Mattress Manufacturing Co., Inc. (Randolph), a Massachusetts corporation, Ohio--Sealy Mattress Manufacturing Co.--Ft. Worth, a Texas corporation, Ohio--Sealy Mattress Manufacturing Co., a Georgia corporation, Ohio--Sealy Mattress Manufacturing Co.--Houston, a Texas corporation, Sealy Mattress Company of Michigan, Inc., a Michigan corporation, Sealy Mattress Company of Kansas City, Inc., a Missouri corporation, Sealy of Maryland and Virginia, Inc., a Maryland corporation, Sealy Mattress Company of Illinois, an Illinois corporation, A. Brandwein & Company, an Illinois corporation, Sealy Mattress Company of Albany, Inc., a New York corporation, Sealy of Minnesota, Inc., a Minnesota corporation, Sealy Mattress Company of Memphis, a Tennessee corporation, The Stearns & Foster Bedding Company, a Delaware corporation, The Stearns & Foster Upholstery Furniture Company, an Ohio corporation, Sealy, Inc., an Ohio corporation, The Ohio Mattress Company Licensing and Components Group, a Delaware corporation, Sealy Mattress Manufacturing Company, Inc., a Delaware corporation and (ii) any future U.S. Subsidiary. "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). "Holder" means a Person in whose name a Note is registered. "IAI Global Note" means the global Note in the form of Exhibit A-1 hereto bearing the Global Note Legend and the Private Placement Legend and deposited with or on behalf of and registered in the name of the Depositary or its nominee that will be issued in a denomination equal to the outstanding principal amount at maturity of the Notes sold to Institutional Accredited Investors. "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 8 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 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. "Indenture" means this Indenture, as amended or supplemented from time to time. "Indirect Participant" means a Person who holds a beneficial interest in a Global Note through a Participant. "Initial Notes" means $128.0 million in aggregate principal amount at maturity of Notes issued under this Indenture on the date hereof. "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 SEC 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. "Institutional Accredited Investor" means an institution that is an "accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act, who are not also QIBs. "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 9 Equity Interests of such Subsidiary not sold or disposed of in an amount determined as provided in the final paragraph of Section 4.07. "Legal Holiday" means a Saturday, a Sunday or a day on which banking institutions in the City of New York or at a place of payment are authorized by law, regulation or executive order to remain closed. If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue on such payment for the intervening period. "Letter of Transmittal" means the letter of transmittal to be prepared by the Company and sent to all Holders of the Notes for use by such Holders in connection with the Exchange Offer. "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). "Liquidated Damages" means all liquidated damages then owing pursuant to Section 5 of the Registration Rights Agreement. "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. "Non-Guarantors" 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. "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 10 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-U.S. Person" means a Person who is not a U.S. Person. "Note Custodian" means the Trustee, as custodian with respect to the Notes in global form, or any successor entity thereto. "Note Guarantee" means the Guarantee by each Guarantor of the Company's payment obligations under this Indenture and the Notes, executed pursuant to the provisions of this Indenture. "Notes" has the meaning assigned to it in the preamble to this Indenture. "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. "Offering" means the offering of the Notes by the Company. "Officer" means, with respect to any Person, the Chairman of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the Secretary or any Vice-President of such Person. "Officers' Certificate" means a certificate signed on behalf of the Company by two Officers of the Company, one of whom must be the principal executive officer, the principal financial officer, the treasurer or the principal accounting officer of the Company, that meets the requirements of Section 12.05 hereof. "Opinion of Counsel" means an opinion from legal counsel who is reasonably acceptable to the Trustee, that meets the requirements of Section 12.05 hereof. The counsel may be an employee of or counsel to the Company, any Subsidiary of the Company or the Trustee. "Parent" means Sealy Corporation, a Delaware corporation. "Parent Notes" means the existing 10 1/4% Senior Subordinated Notes due 2003 of Parent. "Parent Note Indenture" means the indenture governing the Parent 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. "Participant" means, with respect to the Depositary, Euroclear or Cedel, a Person who has an account with the Depositary, Euroclear or Cedel, respectively (and, with respect to The Depository Trust Company, shall include Euroclear and Cedel). "Participating Broker-Dealer" has the meaning set forth in the Registration Rights Agreement. 11 "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 this Indenture. "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 Section 4.09 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 this Indenture 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 this Indenture, (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 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 this 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 Section 4.11 (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 Section 4.10. "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. 12 "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; (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; 13 (xi) Liens securing Interest Swap Obligations which Interest Swap Obligations relate to Indebtedness that is otherwise permitted under this 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 Section 4.09; (xiv) Liens securing Acquired Indebtedness incurred in reliance on clause (viii) of the second paragraph of Section 4.09; (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 hereof, together with any Liens securing Indebtedness incurred in reliance on clause (xiv) of the Section 4.09 in order to refinance the Indebtedness secured by Liens existing on the date of this Indenture; 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. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or agency or political subdivision thereof (including any subdivision or ongoing business of any such entity or substantially all of the assets of any such entity, subdivision or business). "Preferred Stock," of any person, means Capital Stock of such Person of any class or series (however designated) that ranks prior, as to payment of dividends or as to the distribution of assets upon any voluntary or involuntary liquidation, dissolution or winding up of such Person, to shares of Capital Stock of any other class or series of such Person. "Principals" means 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 Notes. 14 "Private Placement Legend" means the legend set forth in Section 2.06(g)(i) to be placed on all Notes issued under this Indenture except where otherwise permitted by the provisions of this Indenture. "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 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. "QIB" means a "qualified institutional buyer" as defined in Rule 144A. "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 an 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. "Registration Rights Agreement" means the Registration Rights Agreement, dated as of December 18, 1997, by and among the Company and the other parties named on the signature pages thereof, as such agreement may be amended, modified or supplemented from time to time and, with respect to any Additional Notes, one or more registration rights agreements between the Company and the other parties thereto, as such agreement(s) may be amended, modified or supplemented from time to time, relating to rights given by the Company to the purchasers of Additional Notes to register such Additional Notes under the Securities Act. "Regulation S" means Regulation S promulgated under the Securities Act. 15 "Regulation S Global Note" means a Regulation S Temporary Global Note or Regulation S Permanent Global Note, as appropriate. "Regulation S Permanent Global Note" means a permanent global Note in the form of Exhibit A-1 hereto bearing the Global Note Legend and the Private Placement Legend and deposited with or on behalf of and registered in the name of the Depositary or its nominee, issued in a denomination equal to the outstanding principal amount at maturity of the Regulation S Temporary Global Note upon expiration of the Restricted Period. "Regulation S Temporary Global Note" means a temporary global Note in the form of Exhibit A-2 hereto bearing the Private Placement Legend and deposited with or on behalf of and registered in the name of the Depositary or its nominee, issued in a denomination equal to the outstanding principal amount at maturity of the Notes initially sold in reliance on Rule 903 of Regulation S. "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). "Responsible Officer," when used with respect to the Trustee, means any officer within the Corporate Trust Administration of the Trustee (or any successor group of the Trustee) or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "Restricted Definitive Note" means a Definitive Note bearing the Private Placement Legend. "Restricted Global Note" means a Global Note bearing the Private Placement Legend. "Restricted Investment" means an Investment other than a Permitted Investment. "Restricted Period" means the 40-day restricted period as defined in Regulation S. "Restricted Subsidiary" of a Person means any Subsidiary of the referent Person that is not an Unrestricted Subsidiary. "Rule 144" means Rule 144 promulgated under the Securities Act. "Rule 144A" means Rule 144A promulgated under the Securities Act. "Rule 903" means Rule 903 promulgated under the Securities Act. "Rule 904" means Rule 904 promulgated the Securities Act. "SEC" means the Securities and Exchange Commission. "S&P" means Standard & Poor's. 16 "Securities Act" means the Securities Act of 1933, as amended. "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 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" means, collectively, (i) that certain Credit Agreement, dated as of December 18, 1997, and (ii) that certain AXEL 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 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. "Senior Subordinated Note Indenture" means the indenture among the Company, the Guarantors and The Bank of New York, as trustee, dated as of December 18, 1997, governing the Company's 9-7/8% Senior Subordinated Notes due 2007. "Senior Subordinated Notes" means the Company's 9-7/8% Senior Subordinated Notes due 2007, issued pursuant to the Senior Subordinated Note Indenture. "Shelf Registration Statement" means the Shelf Registration Statement as defined in the Registration Rights Agreement. 17 "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 Securities Act, as such Regulation is in effect on the date of this Indenture. "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-Guarantors) and (ii) any other subsidiary that executes a Note Guarantee in accordance with the provisions hereof, and their respective successors and assigns. "Tax Allocation Agreement" means that certain tax allocation agreement between Parent and the Company, dated as of December 18, 1997. "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. "TIA" means the Trust Indenture Act of 1939 (15 U.S.C. (S)(S) 77aaa- 77bbbb) as in effect on the date on which this Indenture is qualified under the TIA. "Transactions" means concurrent with the consummation of the Offering and the offering of the Senior Subordinated Discount Notes (collectively, the "Offerings"), the Company's consummation of (i) the merger whereby, among other things, funds managed by Bain (the "Bain Funds"), together with other equity investors, including members of management (the "Management Investors" and collectively with the other investors, the "Investors"), acquired an approximate 90% equity stake in Parent (the "Merger"), (ii) the offer to purchase for cash all of the Parent Notes (the "Tender Offer") and the related consent solicitation (the "Consent Solicitation") to modify certain terms of the Parent Note Indenture and (iii) a refinancing (the "Refinancing") whereby the Company entered into and borrowed under the Senior Credit Agreements and Parent indebtedness outstanding under the Existing Credit Agreement. The Merger will be accounted for as a recapitalization. The Offerings, the Merger, the Tender Offer and related Consent Solicitation and the Refinancing are collectively referred to herein as the "Transactions." 18 "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. "Trustee" means the party named as such above until a successor replaces it in accordance with the applicable provisions of this Indenture and thereafter means the successor serving hereunder. "Unrestricted Global Note" means a permanent global Note in the form of Exhibit A-1 attached hereto that bears the Global Note Legend and that has the "Schedule of Exchanges of Interests in the Global Note" attached thereto, and that is deposited with or on behalf of and registered in the name of the Depositary, representing a series of Notes that do not bear the Private Placement Legend. "Unrestricted Definitive Note" means one or more Definitive Notes that do not bear and are not required to bear the Private Placement Legend. "Unrestricted Subsidiary" means any Subsidiary that is designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a resolution of the Board of Directors, 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 Trustee by filing with the Trustee a certified copy of the resolution of the Board of Directors giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing conditions and was permitted by Section 4.07 hereof. 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 this 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 Section 4.09 hereof, 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 Section 4.09 hereof, 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 19 Guarantee and deliver an Opinion of Counsel, in accordance with the terms of this Indenture and (iii) no Default or Event of Default would be in existence following such designation. "U.S. Person" means a U.S. person as defined in Rule 902(o) under the Securities Act. "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. "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. Section 1.02. Other Definitions.
Defined in Term Section "Acceleration Notice"............................. 6.02 "Affiliate Transaction"........................... 4.11 "Asset Sale Offer"................................ 3.09 "Authentication Order"............................ 2.02 "Change of Control Offer"......................... 4.15 "Change of Control Payment"....................... 4.15 "Change of Control Payment Date".................. 4.15 "Covenant Defeasance"............................. 8.03 "Event of Default"................................ 6.01 "incur"........................................... 4.09 "Legal Defeasance"................................ 8.02 "Net Proceeds Offer".............................. 4.10 "Net Proceeds Offer Amount"....................... 4.10 "Net Proceeds Offer Payment Date"................. 4.10
20 "Net Proceeds Offer Trigger Date"................. 4.10 "Offer Period".................................... 3.09 "Payment Blockage Notice".........................10.04 "Paying Agent".................................... 2.03 "Permitted Indebtedness".......................... 4.09 "Purchase Date"................................... 3.09 "Redemption Date"................................. 3.07 "Refunding Capital Stock"......................... 4.07 "Registrar"....................................... 2.03 "Restricted Payments"............................. 4.07 "Retired Capital Stock"........................... 4.07
Section 1.03. Trust Indenture Act Definitions Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: "indenture securities" means the Notes; "indenture security Holder" means a Holder of a Note; "indenture to be qualified" means this Indenture; "indenture trustee" or "institutional trustee" means the Trustee; and "obligor" on the Notes and the Note Guarantees means the Company and the Guarantors, respectively, and any successor obligor upon the Notes and the Note Guarantees, respectively. All other terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule under the TIA have the meanings so assigned to them. Section 1.04. Rules of Construction. Unless the context otherwise requires: (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (3) "or" is not exclusive; (4) words in the singular include the plural, and in the plural include the singular; (5) provisions apply to successive events and transactions; and 21 (6) references to sections of or rules under the Securities Act shall be deemed to include substitute, replacement of successor sections or rules adopted by the SEC from time to time. ARTICLE 2. THE NOTES Section 2.01. Form and Dating. (a) General. The Notes and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A hereto. The Notes may have notations, legends or endorsements required by law, stock exchange rule or usage. Each Note shall be dated the date of its authentication. The Notes shall be in denominations of $1,000 and integral multiples thereof. The terms and provisions contained in the Notes shall constitute, and are hereby expressly made, a part of this Indenture and the Company, the Guarantors and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. However, to the extent any provision of any Note conflicts with the express provisions of this Indenture, the provisions of this Indenture shall govern and be controlling. (b) Global Notes. Notes issued in global form shall be substantially in the form of Exhibits A-1 or A-2 attached hereto (including the Global Note Legend thereon and the "Schedule of Exchanges of Interests in the Global Note" attached thereto). Notes issued in definitive form shall be substantially in the form of Exhibit A-1 attached hereto (but without the Global Note Legend thereon and without the "Schedule of Exchanges of Interests in the Global Note" attached thereto). Each Global Note shall represent such of the outstanding Notes as shall be specified therein and each shall provide that it shall represent the aggregate principal amount at maturity of outstanding Notes from time to time endorsed thereon and that the aggregate principal amount at maturity of outstanding Notes represented thereby may from time to time be reduced or increased, as appropriate, to reflect exchanges and redemptions. Any endorsement of a Global Note to reflect the amount of any increase or decrease in the aggregate principal amount at maturity of outstanding Notes represented thereby shall be made by the Trustee or the Note Custodian, at the direction of the Trustee, in accordance with instructions given by the Holder thereof as required by Section 2.06 hereof. (c) Temporary Global Notes. Notes offered and sold in reliance on Regulation S shall be issued initially in the form of the Regulation S Temporary Global Note, which shall be deposited on behalf of the purchasers of the Notes represented thereby with the Trustee, at its New York office, as custodian for the Depositary, and registered in the name of the Depositary or the nominee of the Depositary for the accounts of designated agents holding on behalf of Euroclear or Cedel Bank, duly executed by the Company and authenticated by the Trustee as hereinafter provided. The Restricted Period shall be terminated upon the receipt by the Trustee of (i) a written certificate from the Depositary, together with copies of certificates from Euroclear and Cedel Bank certifying that they have received certification of non-United States beneficial ownership of 100% of the aggregate principal amount at maturity of the Regulation S Temporary Global Note (except to the extent of any beneficial owners thereof who acquired an interest therein during the Restricted Period pursuant to another exemption from registration under the Securities Act and who will take delivery of a beneficial ownership interest in a 144A Global Note or an IAI Global Note bearing a 22 Private Placement Legend, all as contemplated by Section 2.06(a)(ii) hereof), and (ii) an Officers' Certificate from the Company. Following the termination of the Restricted Period, beneficial interests in the Regulation S Temporary Global Note shall be exchanged for beneficial interests in Regulation S Permanent Global Notes pursuant to the Applicable Procedures. Simultaneously with the authentication of Regulation S Permanent Global Notes, the Trustee shall cancel the Regulation S Temporary Global Note. The aggregate principal amount at maturity of the Regulation S Temporary Global Note and the Regulation S Permanent Global Notes may from time to time be increased or decreased by adjustments made on the records of the Trustee and the Depositary or its nominee, as the case may be, in connection with transfers of interest as hereinafter provided. (d) Euroclear and Cedel Procedures Applicable. The provisions of the "Operating Procedures of the Euroclear System" and "Terms and Conditions Governing Use of Euroclear" and the "General Terms and Conditions of Cedel Bank" and "Customer Handbook" of Cedel Bank shall be applicable to transfers of beneficial interests in the Regulation S Temporary Global Note and the Regulation S Permanent Global Notes that are held by Participants through Euroclear or Cedel Bank. Section 2.02. Execution and Authentication. Two Officers shall sign the Notes for the Company by manual or facsimile signature. If an Officer whose signature is on a Note no longer holds that office at the time a Note is authenticated, the Note shall nevertheless be valid. A Note shall not be valid until authenticated by the manual signature of the Trustee. The signature shall be conclusive evidence that the Note has been authenticated under this Indenture. The Trustee shall, upon a written order of the Company signed by two Officers (an "Authentication Order"), authenticate Notes for original issue up to the aggregate principal amount at maturity stated in paragraph 4 of the Notes. The aggregate principal amount at maturity of Notes outstanding at any time may not exceed such amount except as provided in Section 2.07 hereof. The Trustee may appoint an authenticating agent acceptable to the Company to authenticate Notes. An authenticating agent may authenticate Notes whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with Holders or an Affiliate of the Company. Section 2.03. Registrar and Paying Agent. The Company shall maintain an office or agency where Notes may be presented for registration of transfer or for exchange ("Registrar") and an office or agency where Notes may be presented for payment ("Paying Agent"). The Registrar shall keep a register of the Notes and of their transfer and exchange. The Company may appoint one or more co-registrars and one or more additional paying agents. The term "Registrar" includes any co-registrar and the term "Paying Agent" includes any additional paying agent. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company shall notify the Trustee in writing of the name and address of any Agent not a party to this Indenture. If the Company fails to appoint or maintain another entity as Registrar or Paying 23 Agent, the Trustee shall act as such. The Company or any of its Subsidiaries may act as Paying Agent or Registrar. The Company initially appoints The Depository Trust Company ("DTC") to act as Depositary with respect to the Global Notes. The Company initially appoints the Trustee to act as the Registrar and Paying Agent and to act as Note Custodian with respect to the Global Notes. Section 2.04. Paying Agent to Hold Money in Trust. The Company shall require each Paying Agent other than the Trustee to agree in writing that the Paying Agent will hold in trust for the benefit of Holders or the Trustee all money held by the Paying Agent for the payment of principal, premium or Liquidated Damages, if any, or interest on the Notes, and will notify the Trustee of any default by the Company in making any such payment. While any such default continues, the Trustee may require a Paying Agent to pay all money held by it to the Trustee. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent (if other than the Company or a Subsidiary) shall have no further liability for the money. If the Company or a Subsidiary acts as Paying Agent, it shall segregate and hold in a separate trust fund for the benefit of the Holders all money held by it as Paying Agent. Upon any bankruptcy or reorganization proceedings relating to the Company, the Trustee shall serve as Paying Agent for the Notes. Section 2.05. Holder Lists. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of all Holders and shall otherwise comply with TIA (S) 312(a). If the Trustee is not the Registrar, the Company shall furnish to the Trustee at least seven Business Days before each interest payment date and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of the Holders of Notes and the Company shall otherwise comply with TIA (S) 312(a). Section 2.06. Transfer and Exchange. (a) Transfer and Exchange of Global Notes. A Global Note may not be transferred as a whole except by the Depositary to a nominee of the Depositary, by a nominee of the Depositary to the Depositary or to another nominee of the Depositary, the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary. All Global Notes will be exchanged by the Company for Definitive Notes if (i) the Company delivers to the Trustee notice from the Depositary that it is unwilling or unable to continue to act as Depositary or that it is no longer a clearing agency registered under the Exchange Act and, in either case, a successor Depositary is not appointed by the Company within 120 days after the date of such notice from the Depositary or (ii) the Company in its sole discretion determines that the Global Notes (in whole but not in part) should be exchanged for Definitive Notes and delivers a written notice to such effect to the Trustee; provided that in no event shall the Regulation S Temporary Global Note be exchanged by the Company for Definitive Notes prior to (x) the expiration of the Restricted Period and (y) the receipt by the Registrar of any certificates required pursuant to Rule 903(c)(3)(ii)(B) under the Securities Act. Upon the occurrence of either of the preceding events in (i) or (ii) above, Definitive 24 Notes shall be issued in such names as the Depositary shall instruct the Trustee. Global Notes also may be exchanged or replaced, in whole or in part, as provided in Sections 2.07 and 2.10 hereof. Every Note authenticated and delivered in exchange for, or in lieu of, a Global Note or any portion thereof, pursuant to this Section 2.06 or Section 2.07 or 2.10 hereof, shall be authenticated and delivered in the form of, and shall be, a Global Note. A Global Note may not be exchanged for another Note other than as provided in this Section 2.06(a), however, beneficial interests in a Global Note may be transferred and exchanged as provided in Section 2.06(b),(c) or (f) hereof. (b) Transfer and Exchange of Beneficial Interests in the Global Notes. The transfer and exchange of beneficial interests in the Global Notes shall be effected through the Depositary, in accordance with the provisions of this Indenture and the Applicable Procedures. Beneficial interests in the Restricted Global Notes shall be subject to restrictions on transfer comparable to those set forth herein to the extent required by the Securities Act. Transfers of beneficial interests in the Global Notes also shall require compliance with either subparagraph (i) or (ii) below, as applicable, as well as one or more of the other following subparagraphs, as applicable: (i) Transfer of Beneficial Interests in the Same Global Note. Beneficial interests in any Restricted Global Note may be transferred to Persons who take delivery thereof in the form of a beneficial interest in the same Restricted Global Note in accordance with the transfer restrictions set forth in the Private Placement Legend; provided, however, that prior to the expiration of the Restricted Period, transfers of beneficial interests in the Temporary Regulation S Global Note may not be made to a U.S. Person or for the account or benefit of a U.S. Person (other than an Initial Purchaser). Beneficial interests in any Unrestricted Global Note may be transferred to Persons who take delivery thereof in the form of a beneficial interest in an Unrestricted Global Note. No written orders or instructions shall be required to be delivered to the Registrar to effect the transfers described in this Section 2.06(b)(i). (ii) All Other Transfers and Exchanges of Beneficial Interests in Global Notes. In connection with all transfers and exchanges of beneficial interests that are not subject to Section 2.06(b)(i) above, the transferor of such beneficial interest must deliver to the Depositary either (A) (1) a written order from a Participant or an Indirect Participant given to the Depositary in accordance with the Applicable Procedures directing the Depositary to credit or cause to be credited a beneficial interest in another Global Note in an amount equal to the beneficial interest to be transferred or exchanged and (2) instructions given in accordance with the Applicable Procedures containing information regarding the Participant account to be credited with such increase or (B) (1) a written order from a Participant or an Indirect Participant given to the Depositary in accordance with the Applicable Procedures directing the Depositary to cause to be issued a Definitive Note in an amount equal to the beneficial interest to be transferred or exchanged and (2) instructions given by the Depositary to the Registrar containing information regarding the Person in whose name such Definitive Note shall be registered to effect the transfer or exchange referred to in (1) above provided that in no event shall Definitive Notes be issued upon the transfer or exchange of beneficial interests in the Regulation S Temporary Global Note prior to (x) the expiration of the Restricted Period and (y) the receipt by the Registrar of any certificates required pursuant to Rule 903 under the Securities Act]. Upon consummation of an Exchange Offer by the Company in accordance with Section 2.06(f) hereof, the requirements of this Section 2.06(b)(ii) shall be deemed to have been satisfied upon receipt by the Registrar of the instructions contained in the Letter of Transmittal delivered by the Holder of such beneficial interests in the Restricted Global Notes. Upon satisfaction of all of the requirements for transfer or exchange of beneficial interests in Global Notes contained in this 25 Indenture and the Notes or otherwise applicable under the Securities Act, the Trustee shall adjust the principal amount at maturity of the relevant Global Note(s) pursuant to Section 2.06(h) hereof. (iii) Transfer of Beneficial Interests to Another Restricted Global Note. A beneficial interest in any Restricted Global Note may be transferred to a Person who takes delivery thereof in the form of a beneficial interest in another Restricted Global Note if the transfer complies with the requirements of Section 2.06(b)(ii) above and the Registrar receives the following: (A) if the transferee will take delivery in the form of a beneficial interest in the 144A Global Note, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (1) thereof; (B) if the transferee will take delivery in the form of a beneficial interest in the Regulation S Temporary Global Note or the Regulation S Global Note, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (2) thereof; and (C) if the transferee will take delivery in the form of a beneficial interest in the IAI Global Note, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications and certificates and Opinion of Counsel required by item (3) thereof, if applicable. (iv) Transfer and Exchange of Beneficial Interests in a Restricted Global Note for Beneficial Interests in the Unrestricted Global Note. A beneficial interest in any Restricted Global Note may be exchanged by any holder thereof for a beneficial interest in an Unrestricted Global Note or transferred to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note if the exchange or transfer complies with the requirements of Section 2.06(b)(ii) above and: (A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the holder of the beneficial interest to be transferred, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal or via the Depositary's book-entry system that it is not (1) a broker-dealer, (2) a Person participating in the distribution of the Exchange Notes or (3) a Person who is an affiliate (as defined in Rule 144) of the Company; (B) such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; (C) such transfer is effected by a Participating Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (D) the Registrar receives the following: (1) if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a beneficial interest in an Unrestricted 26 Global Note, a certificate from such holder in the form of Exhibit C hereto, including the certifications in item (1)(a) thereof; or (2) if the holder of such beneficial interest in a Restricted Global Note proposes to transfer such beneficial interest to a Person who shall take delivery thereof in the form of a beneficial interest in an Unrestricted Global Note, a certificate from such holder in the form of Exhibit B hereto, including the certifications in item (4) thereof; and, in each such case set forth in this subparagraph (D), if the Registrar so requests or if the Applicable Procedures so require, an Opinion of Counsel in form reasonably acceptable to the Registrar to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act. If any such transfer is effected pursuant to subparagraph (B) or (D) above at a time when an Unrestricted Global Note has not yet been issued, the Company shall issue and, upon receipt of an Authentication Order in accordance with Section 2.02 hereof, the Trustee shall authenticate one or more Unrestricted Global Notes in an aggregate principal amount at maturity equal to the aggregate principal amount at maturity of beneficial interests transferred pursuant to subparagraph (B) or (D) above. Beneficial interests in an Unrestricted Global Note cannot be exchanged for, or transferred to Persons who take delivery thereof in the form of, a beneficial interest in a Restricted Global Note. (c) Transfer or Exchange of Beneficial Interests for Definitive Notes. (i) Beneficial Interests in Restricted Global Notes to Restricted Definitive Notes. If any holder of a beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a Restricted Definitive Note or to transfer such beneficial interest to a Person who takes delivery thereof in the form of a Restricted Definitive Note, then, upon receipt by the Registrar of the following documentation: (A) if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a Restricted Definitive Note, a certificate from such holder in the form of Exhibit C hereto, including the certifications in item (2)(a) thereof; (B) if such beneficial interest is being transferred to a QIB in accordance with Rule 144A under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (1) thereof; (C) if such beneficial interest is being transferred to a Non-U.S. Person in an offshore transaction in accordance with Rule 903 or Rule 904 under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (2) thereof; (D) if such beneficial interest is being transferred pursuant to an exemption from the registration requirements of the Securities Act in accordance with Rule 144 27 under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(a) thereof; (E) if such beneficial interest is being transferred to an Institutional Accredited Investor in reliance on an exemption from the registration requirements of the Securities Act other than those listed in subparagraphs (B) through (D) above, a certificate to the effect set forth in Exhibit B hereto, including the certifications, certificates and Opinion of Counsel required by item (3) thereof, if applicable; (F) if such beneficial interest is being transferred to the Company or any of its Subsidiaries, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(b) thereof; or (G) if such beneficial interest is being transferred pursuant to an effective registration statement under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(c) thereof, the Trustee shall cause the aggregate principal amount at maturity of the applicable Global Note to be reduced accordingly pursuant to Section 2.06(h) hereof, and the Company shall execute and the Trustee shall authenticate and deliver to the Person designated in the instructions a Definitive Note in the appropriate principal amount at maturity. Any Definitive Note issued in exchange for a beneficial interest in a Restricted Global Note pursuant to this Section 2.06(c) shall be registered in such name or names and in such authorized denomination or denominations as the holder of such beneficial interest shall instruct the Registrar through instructions from the Depositary and the Participant or Indirect Participant. The Trustee shall deliver such Definitive Notes to the Persons in whose names such Notes are so registered. Any Definitive Note issued in exchange for a beneficial interest in a Restricted Global Note pursuant to this Section 2.06(c)(i) shall bear the Private Placement Legend and shall be subject to all restrictions on transfer contained therein. (ii) Notwithstanding Sections 2.06(c)(i)(A) and (C) hereof, a beneficial interest in the Regulation S Temporary Global Note may not be exchanged for a Definitive Note or transferred to a Person who takes delivery thereof in the form of a Definitive Note prior to (x) the expiration of the Restricted Period and (y) the receipt by the Registrar of any certificates required pursuant to Rule 903(c)(3)(ii)(B) under the Securities Act, except in the case of a transfer pursuant to an exemption from the registration requirements of the Securities Act other than Rule 903 or Rule 904. (iii) Beneficial Interests in Restricted Global Notes to Unrestricted Definitive Notes. A holder of a beneficial interest in a Restricted Global Note may exchange such beneficial interest for an Unrestricted Definitive Note or may transfer such beneficial interest to a Person who takes delivery thereof in the form of an Unrestricted Definitive Note only if: (A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the holder of such beneficial interest, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (1) a broker-dealer, (2) a Person participating in the distribution of the Exchange Notes or (3) a Person who is an affiliate (as defined in Rule 144) of the Company; 28 (B) such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; (C) such transfer is effected by a Participating Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (D) the Registrar receives the following: (1) if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a Definitive Note that does not bear the Private Placement Legend, a certificate from such holder in the form of Exhibit C hereto, including the certifications in item (1)(b) thereof; or (2) if the holder of such beneficial interest in a Restricted Global Note proposes to transfer such beneficial interest to a Person who shall take delivery thereof in the form of a Definitive Note that does not bear the Private Placement Legend, a certificate from such holder in the form of Exhibit B hereto, including the certifications in item (4) thereof; and, in each such case set forth in this subparagraph (D), if the Registrar so requests or if the Applicable Procedures so require, an Opinion of Counsel in form reasonably acceptable to the Registrar to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act. (iv) Beneficial Interests in Unrestricted Global Notes to Unrestricted Definitive Notes. If any holder of a beneficial interest in an Unrestricted Global Note proposes to exchange such beneficial interest for a Definitive Note or to transfer such beneficial interest to a Person who takes delivery thereof in the form of a Definitive Note, then, upon satisfaction of the conditions set forth in Section 2.06(b)(ii) hereof, the Trustee shall cause the aggregate principal amount at maturity of the applicable Global Note to be reduced accordingly pursuant to Section 2.06(h) hereof, and the Company shall execute and the Trustee shall authenticate and deliver to the Person designated in the instructions a Definitive Note in the appropriate principal amount at maturity. Any Definitive Note issued in exchange for a beneficial interest pursuant to this Section 2.06(c)(iii) shall be registered in such name or names and in such authorized denomination or denominations as the holder of such beneficial interest shall instruct the Registrar through instructions from the Depositary and the Participant or Indirect Participant. The Trustee shall deliver such Definitive Notes to the Persons in whose names such Notes are so registered. Any Definitive Note issued in exchange for a beneficial interest pursuant to this Section 2.06(c)(iii) shall not bear the Private Placement Legend. (d) Transfer and Exchange of Definitive Notes for Beneficial Interests. (i) Restricted Definitive Notes to Beneficial Interests in Restricted Global Notes. If any Holder of a Restricted Definitive Note proposes to exchange such Note for a beneficial interest in a Restricted Global Note or to transfer such Restricted Definitive Notes to a Person who takes delivery thereof in the form of a beneficial interest in a Restricted Global Note, then, upon receipt by the Registrar of the following documentation: 29 (A) if the Holder of such Restricted Definitive Note proposes to exchange such Note for a beneficial interest in a Restricted Global Note, a certificate from such Holder in the form of Exhibit C hereto, including the certifications in item (2)(b) thereof; (B) if such Restricted Definitive Note is being transferred to a QIB in accordance with Rule 144A under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (1) thereof; (C) if such Restricted Definitive Note is being transferred to a Non- U.S. Person in an offshore transaction in accordance with Rule 903 or Rule 904 under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (2) thereof; (D) if such Restricted Definitive Note is being transferred pursuant to an exemption from the registration requirements of the Securities Act in accordance with Rule 144 under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(a) thereof; (E) if such Restricted Definitive Note is being transferred to an Institutional Accredited Investor in reliance on an exemption from the registration requirements of the Securities Act other than those listed in subparagraphs (B) through (D) above, a certificate to the effect set forth in Exhibit B hereto, including the certifications, certificates and Opinion of Counsel required by item (3) thereof, if applicable; (F) if such Restricted Definitive Note is being transferred to the Company or any of its Subsidiaries, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(b) thereof; or (G) if such Restricted Definitive Note is being transferred pursuant to an effective registration statement under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(c) thereof, the Trustee shall cancel the Restricted Definitive Note, increase or cause to be increased the aggregate principal amount at maturity of, in the case of clause (A) above, the appropriate Restricted Global Note, in the case of clause (B) above, the 144A Global Note, in the case of clause (c) above, the Regulation S Global Note, and in all other cases, the IAI Global Note. (ii) Restricted Definitive Notes to Beneficial Interests in Unrestricted Global Notes. A Holder of a Restricted Definitive Note may exchange such Note for a beneficial interest in an Unrestricted Global Note or transfer such Restricted Definitive Note to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note only if: (A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the Holder, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (1) a broker-dealer, (2) a Person participating in the distribution of the Exchange Notes or (3) a Person who is an affiliate (as defined in Rule 144) of the Company; 30 (B) such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; (C) such transfer is effected by a Participating Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (D) the Registrar receives the following: (1) if the Holder of such Definitive Notes proposes to exchange such Notes for a beneficial interest in the Unrestricted Global Note, a certificate from such Holder in the form of Exhibit C hereto, including the certifications in item (1)(c) thereof; or (2) if the Holder of such Definitive Notes proposes to transfer such Notes to a Person who shall take delivery thereof in the form of a beneficial interest in the Unrestricted Global Note, a certificate from such Holder in the form of Exhibit B hereto, including the certifications in item (4) thereof; and, in each such case set forth in this subparagraph (D), if the Registrar so requests or if the Applicable Procedures so require, an Opinion of Counsel in form reasonably acceptable to the Registrar to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act. Upon satisfaction of the conditions of any of the subparagraphs in this Section 2.06(d)(ii), the Trustee shall cancel the Definitive Notes and increase or cause to be increased the aggregate principal amount at maturity of the Unrestricted Global Note. (iii) Unrestricted Definitive Notes to Beneficial Interests in Unrestricted Global Notes. A Holder of an Unrestricted Definitive Note may exchange such Note for a beneficial interest in an Unrestricted Global Note or transfer such Definitive Notes to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note at any time. Upon receipt of a request for such an exchange or transfer, the Trustee shall cancel the applicable Unrestricted Definitive Note and increase or cause to be increased the aggregate principal amount at maturity of one of the Unrestricted Global Notes. If any such exchange or transfer from a Definitive Note to a beneficial interest is effected pursuant to subparagraphs (ii)(B), (ii)(D) or (iii) above at a time when an Unrestricted Global Note has not yet been issued, the Company shall issue and, upon receipt of an Authentication Order in accordance with Section 2.02 hereof, the Trustee shall authenticate one or more Unrestricted Global Notes in an aggregate principal amount at maturity equal to the principal amount at maturity of Definitive Notes so transferred. (e) Transfer and Exchange of Definitive Notes for Definitive Notes. Upon request by a Holder of Definitive Notes and such Holder's compliance with the provisions of this Section 2.06(e), the Registrar shall register the transfer or exchange of Definitive Notes. Prior to such registration of transfer or exchange, the requesting Holder shall present or surrender to the Registrar the Definitive Notes duly endorsed or accompanied by a written instruction of transfer in form 31 satisfactory to the Registrar duly executed by such Holder or by his attorney, duly authorized in writing. In addition, the requesting Holder shall provide any additional certifications, documents and information, as applicable, required pursuant to the following provisions of this Section 2.06(e). (i) Restricted Definitive Notes to Restricted Definitive Notes. Any Restricted Definitive Note may be transferred to and registered in the name of Persons who take delivery thereof in the form of a Restricted Definitive Note if the Registrar receives the following: (A) if the transfer will be made pursuant to Rule 144A under the Securities Act, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (1) thereof; (B) if the transfer will be made pursuant to Rule 903 or Rule 904, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (2) thereof; and (C) if the transfer will be made pursuant to any other exemption from the registration requirements of the Securities Act, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications, certificates and Opinion of Counsel required by item (3) thereof, if applicable. (ii) Restricted Definitive Notes to Unrestricted Definitive Notes. Any Restricted Definitive Note may be exchanged by the Holder thereof for an Unrestricted Definitive Note or transferred to a Person or Persons who take delivery thereof in the form of an Unrestricted Definitive Note if: (A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the Holder, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (1) a broker-dealer, (2) a Person participating in the distribution of the Exchange Notes or (3) a Person who is an affiliate (as defined in Rule 144) of the Company; (B) any such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; (C) any such transfer is effected by a Participating Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (D) the Registrar receives the following: (1) if the Holder of such Restricted Definitive Notes proposes to exchange such Notes for an Unrestricted Definitive Note, a certificate from such Holder in the form of Exhibit C hereto, including the certifications in item (1)(d) thereof; or (2) if the Holder of such Restricted Definitive Notes proposes to transfer such Notes to a Person who shall take delivery thereof in the form of an Unrestricted Definitive Note, a certificate from such Holder in the form of Exhibit B hereto, including the certifications in item (4) thereof; 32 and, in each such case set forth in this subparagraph (D), if the Registrar so requests, an Opinion of Counsel in form reasonably acceptable to the Company to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act. (iii) Unrestricted Definitive Notes to Unrestricted Definitive Notes. A Holder of Unrestricted Definitive Notes may transfer such Notes to a Person who takes delivery thereof in the form of an Unrestricted Definitive Note. Upon receipt of a request to register such a transfer, the Registrar shall register the Unrestricted Definitive Notes pursuant to the instructions from the Holder thereof. (f) Exchange Offer. Upon the occurrence of the Exchange Offer in accordance with the Registration Rights Agreement, the Company shall issue and, upon receipt of an Authentication Order in accordance with Section 2.02, the Trustee shall authenticate (i) one or more Unrestricted Global Notes in an aggregate principal amount at maturity equal to the principal amount at maturity of the beneficial interests in the Restricted Global Notes tendered for acceptance by Persons that certify in the applicable Letters of Transmittal that (x) they are not broker- dealers, (y) they are not participating in a distribution of the Exchange Notes and (z) they are not affiliates (as defined in Rule 144) of the Company, and accepted for exchange in the Exchange Offer and (ii) Definitive Notes in an aggregate principal amount at maturity equal to the principal amount at maturity of the Restricted Definitive Notes accepted for exchange in the Exchange Offer. Concurrently with the issuance of such Notes, the Trustee shall cause the aggregate principal amount at maturity of the applicable Restricted Global Notes to be reduced accordingly, and the Company shall execute and the Trustee shall authenticate and deliver to the Persons designated by the Holders of Definitive Notes so accepted Definitive Notes in the appropriate principal amount at maturity. g) Legends. The following legends shall appear on the face of all Global Notes and Definitive Notes issued under this Indenture unless specifically stated otherwise in the applicable provisions of this Indenture. (i) Private Placement Legend. (A) Except as permitted by subparagraph (B) below, each Global Note and each Definitive Note (and all Notes issued in exchange therefor or substitution thereof) shall bear the legend in substantially the following form: "THE NOTES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A)(1) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144a UNDER THE SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144a, (2) IN AN OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (3) TO AN INSTITUTIONAL ACCREDITED INVESTOR IN A TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, (4) PURSUANT TO AN 33 EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE) OR (5) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (B) IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED STATES AND OTHER JURISDICTIONS." (B) Notwithstanding the foregoing, any Global Note or Definitive Note issued pursuant to subparagraphs (b)(iv), (c)(ii), (c)(iii), (d)(ii), (d)(iii), (e)(ii), (e)(iii) or (f) to this Section 2.06 (and all Notes issued in exchange therefor or substitution thereof) shall not bear the Private Placement Legend. (ii) Global Note Legend. Each Global Note shall bear a legend in substantially the following form: "THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.07 OF THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, (III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY." (iii) Regulation S Temporary Global Note Legend. The Regulation S Temporary Global Note shall bear a legend in substantially the following form: "THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED NOTES, ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER NOR THE BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL NOTE SHALL BE ENTITLED TO RECEIVE PAYMENT OF INTEREST HEREON." (iv) Original Issue Discount Legend. Each Note shall bear a legend in substantially the following form: "FOR THE PURPOSES OF SECTIONS 1272, 1273 AND 1275 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, THE NOTES ARE BEING ISSUED WITH ORIGINAL ISSUE DISCOUNT: FOR EACH $1,000 PRINCIPAL AMOUNT OF THE NOTES, THE ISSUE PRICE IS $589.43, THE AMOUNT OF ORIGINAL ISSUE DISCOUNT IS $410.57, THE ISSUE DATE IS DECEMBER 18, 1997 AND THE YIELD TO MATURITY IS 10-7/8% PER ANNUM." (h) Cancellation and/or Adjustment of Global Notes. 34 At such time as all beneficial interests in a particular Global Note have been exchanged for Definitive Notes or a particular Global Note has been redeemed, repurchased or canceled in whole and not in part, each such Global Note shall be returned to or retained and canceled by the Trustee in accordance with Section 2.11 hereof. At any time prior to such cancellation, if any beneficial interest in a Global Note is exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Note or for Definitive Notes, the principal amount at maturity of Notes represented by such Global Note shall be reduced accordingly and an endorsement shall be made on such Global Note by the Trustee or by the Depositary at the direction of the Trustee to reflect such reduction; and if the beneficial interest is being exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Note, such other Global Note shall be increased accordingly and an endorsement shall be made on such Global Note by the Trustee or by the Depositary at the direction of the Trustee to reflect such increase. (i) General Provisions Relating to Transfers and Exchanges. (i) To permit registrations of transfers and exchanges, the Company shall execute and the Trustee shall authenticate Global Notes and Definitive Notes upon the Company's order or at the Registrar's request. (ii) No service charge shall be made to a holder of a beneficial interest in a Global Note or to a Holder of a Definitive Note for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer taxes or similar governmental charge payable upon exchange or transfer pursuant to Sections 2.10, 3.06, 3.09, 4.10, 4.15 and 9.05 hereof). (iii) The Registrar shall not be required to register the transfer of or exchange any Note selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part. (iv) All Global Notes and Definitive Notes issued upon any registration of transfer or exchange of Global Notes or Definitive Notes shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Global Notes or Definitive Notes surrendered upon such registration of transfer or exchange. (v) The Company shall not be required (A) to issue, to register the transfer of or to exchange any Notes during a period beginning at the opening of business 15 days before the day of the mailing of notice of redemption under Section 3.02 hereof and ending at the close of business on such day, (B) to register the transfer of or to exchange any Note so selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part or (c) to register the transfer of or to exchange a Note between a record date and the next succeeding Interest Payment Date. (vi) Prior to due presentment for the registration of a transfer of any Note, the Trustee, any Agent and the Company may deem and treat the Person in whose name any Note is registered as the absolute owner of such Note for the purpose of receiving payment of principal of and interest on such Notes and for all other purposes, and none of the Trustee, any Agent or the Company shall be affected by notice to the contrary. (vii) The Trustee shall authenticate Global Notes and Definitive Notes in accordance with the provisions of Section 2.02 hereof. 35 (viii) All certifications, certificates and Opinions of Counsel required to be submitted to the Registrar pursuant to this Section 2.06 to effect a registration of transfer or exchange may be submitted by facsimile. Section 2.07. Replacement Notes If any mutilated Note is surrendered to the Trustee or the Company and the Trustee receives evidence to its satisfaction of the destruction, loss or theft of any Note, the Company shall issue and the Trustee, upon receipt of an Authentication Order, shall authenticate a replacement Note if the Trustee's requirements are met. If required by the Trustee or the Company, an indemnity bond must be supplied by the Holder that is sufficient in the judgment of the Trustee and the Company to protect the Company, the Trustee, any Agent and any authenticating agent from any loss that any of them may suffer if a Note is replaced. The Company may charge for its expenses in replacing a Note. Every replacement Note is an additional obligation of the Company and shall be entitled to all of the benefits of this Indenture equally and proportionately with all other Notes duly issued hereunder. Section 2.08. Outstanding Notes. The Notes outstanding at any time are all the Notes authenticated by the Trustee except for those canceled by it, those delivered to it for cancellation, those reductions in the interest in a Global Note effected by the Trustee in accordance with the provisions hereof, and those described in this Section as not outstanding. Except as set forth in Section 2.09 hereof, a Note does not cease to be outstanding because the Company or an Affiliate of the Company holds the Note; however, Notes held by the Company or a Subsidiary of the Company shall not be deemed to be outstanding for purposes of Section 3.07(b) hereof. If a Note is replaced pursuant to Section 2.07 hereof, it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Note is held by a bona fide purchaser. If the principal amount at maturity or Accreted Value, as applicable, of any Note is considered paid under Section 4.01 hereof, it ceases to be outstanding and interest on it ceases to accrue. If the Paying Agent (other than the Company, a Subsidiary or an Affiliate of any thereof) holds, on a redemption date or maturity date, money sufficient to pay Notes payable on that date, then on and after that date such Notes shall be deemed to be no longer outstanding and shall cease to accrue interest. Section 2.09. Treasury Notes. In determining whether the Holders of the required principal amount at maturity of Notes have concurred in any direction, waiver or consent, Notes owned by the Company, or by any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company, shall be considered as though not outstanding, except that for the purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Notes that the Trustee knows are so owned shall be so disregarded. 36 Section 2.10. Temporary Notes Until certificates representing Notes are ready for delivery, the Company may prepare and the Trustee, upon receipt of an Authentication Order, shall authenticate temporary Notes. Temporary Notes shall be substantially in the form of certificated Notes but may have variations that the Company considers appropriate for temporary Notes and as shall be reasonably acceptable to the Trustee. Without unreasonable delay, the Company shall prepare and the Trustee shall authenticate definitive Notes in exchange for temporary Notes. Holders of temporary Notes shall be entitled to all of the benefits of this Indenture. Section 2.11. Cancellation. The Company at any time may deliver Notes to the Trustee for cancellation. The Registrar and Paying Agent shall forward to the Trustee any Notes surrendered to them for registration of transfer, exchange or payment. The Trustee and no one else shall cancel all Notes surrendered for registration of transfer, exchange, payment, replacement or cancellation and shall return canceled Notes to the Company. Certification of the destruction of all canceled Notes shall be delivered to the Company. The Company may not issue new Notes to replace Notes that it has paid or that have been delivered to the Trustee for cancellation. Section 2.12. Defaulted Interest. If the Company defaults in a payment of interest on the Notes, it shall pay the defaulted interest in any lawful manner plus, to the extent lawful, interest payable on the defaulted interest, to the Persons who are Holders on a subsequent special record date, in each case at the rate provided in the Notes and in Section 4.01 hereof. The Company shall notify the Trustee in writing of the amount of defaulted interest proposed to be paid on each Note and the date of the proposed payment. The Company shall fix or cause to be fixed each such special record date and payment date, provided that no such special record date shall be less than 10 days prior to the related payment date for such defaulted interest. At least 15 days before the special record date, the Company (or, upon the written request of the Company, the Trustee in the name and at the expense of the Company) shall mail or cause to be mailed to Holders a notice that states the special record date, the related payment date and the amount of such interest to be paid. Section 2.13. CUSIP Numbers. The Company in issuing the Notes may use "CUSIP" numbers (if then generally in use), and, if so, the Trustee shall use CUSIP numbers in notices of redemption as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Notes or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Notes, and any such redemption shall not be affected by any defect in or the omission of such numbers. The Company will promptly notify the Trustee of any change in the CUSIP numbers. 37 ARTICLE 3. REDEMPTION AND PREPAYMENT Section 3.01. Notices to Trustee. If the Company elects to redeem Notes pursuant to the optional redemption provisions of Section 3.07 hereof, it shall furnish to the Trustee, at least 30 days but not more than 60 days before a redemption date, an Officers' Certificate setting forth (i) the clause of this Indenture pursuant to which the redemption shall occur, (ii) the redemption date, (iii) the Accreted Value of Notes to be redeemed, (iv) the redemption price, (v) the CUSIP numbers of the Notes to be redeemed. Section 3.02. Selection of Notes to Be Redeemed If less than all of the Notes are to be redeemed or purchased in an offer to purchase at any time, the Trustee shall select the Notes to be redeemed or purchased among the Holders of the Notes in compliance with the requirements of the principal national securities exchange, if any, on which the Notes are listed or, if the Notes are not so listed, on a pro rata basis, by lot or in accordance with any other method the Trustee considers fair and appropriate. In the event of partial redemption by lot, the particular Notes to be redeemed shall be selected, unless otherwise provided herein, not less than 30 nor more than 60 days prior to the redemption date by the Trustee from the outstanding Notes not previously called for redemption. The Trustee shall promptly notify the Company in writing of the Notes selected for redemption and, in the case of any Note selected for partial redemption, the principal amount or Accreted Value, as applicable thereof to be redeemed. Notes and portions of Notes selected shall be in amounts of $1,000 or whole multiples of $1,000; except that if all of the Notes of a Holder are to be redeemed, the entire outstanding amount of Notes held by such Holder, even if not a multiple of $1,000, shall be redeemed. Except as provided in the preceding sentence, provisions of this Indenture that apply to Notes called for redemption also apply to portions of Notes called for redemption. Section 3.03. Notice of Redemption Subject to the provisions of Section 3.09 hereof, at least 30 days but not more than 60 days before a redemption date, the Company shall mail or cause to be mailed, by first class mail, a notice of redemption to each Holder whose Notes are to be redeemed at its registered address. The notice shall identify the Notes to be redeemed, including CUSIP numbers, and shall state: (a) the redemption date; (b) the redemption price; (c) if any Note is being redeemed in part, the portion of the principal amount at maturity of such Note to be redeemed and that, after the redemption date upon surrender of such Note, a new Note or Notes in principal amount at maturity equal to the unredeemed portion shall be issued upon cancellation of the original Note; (d) the name and address of the Paying Agent; 38 (e) that Notes called for redemption must be surrendered to the Paying Agent to collect the redemption price; (f) that, unless the Company defaults in making such redemption payment, interest on Notes called for redemption ceases to accrue on and after the redemption date; (g) the paragraph of the Notes and/or Section of this Indenture pursuant to which the Notes called for redemption are being redeemed; and (h) that no representation is made as to the correctness or accuracy of the CUSIP number, if any, listed in such notice or printed on the Notes. At the Company's request, the Trustee shall give the notice of redemption in the Company's name and at its expense; provided, however, that the Company shall have delivered to the Trustee, at least 45 days prior to the redemption date, an Officers' Certificate requesting that the Trustee give such notice and setting forth the information to be stated in such notice as provided in the preceding paragraph. Section 3.04. Effect of Notice of Redemption Once notice of redemption is mailed in accordance with Section 3.03 hereof, Notes called for redemption become irrevocably due and payable on the redemption date at the redemption price. A notice of redemption may not be conditional. Section 3.05. Deposit of Redemption Price Prior to 10 a.m. on the redemption date, the Company shall deposit with the Trustee or with the Paying Agent money sufficient to pay the redemption price of and accrued interest on all Notes to be redeemed on that date. The Trustee or the Paying Agent shall promptly return to the Company any money deposited with the Trustee or the Paying Agent by the Company in excess of the amounts necessary to pay the redemption price of, and accrued interest on, all Notes to be redeemed. If the Company complies with the provisions of the preceding paragraph, on and after the redemption date, interest shall cease to accrete or accrue, as the case may be, on the Notes or the portions of Notes called for redemption. If a Note is redeemed on or after an interest record date but on or prior to the related interest payment date, then any accrued and unpaid interest shall be paid to the Person in whose name such Note was registered at the close of business on such record date. If any Note called for redemption shall not be so paid upon surrender for redemption because of the failure of the Company to comply with the preceding paragraph, interest shall be paid on the unpaid principal, from the redemption date until such principal is paid, and to the extent lawful on any interest not paid on such unpaid principal, in each case at the rate provided in the Notes and in Section 4.01 hereof. Section 3.06. Notes Redeemed in Part. Upon surrender of a Note that is redeemed in part, the Company shall issue and, upon the Company's written request, the Trustee shall authenticate for the Holder at the expense of the Company a new Note equal in principal amount at maturity to the unredeemed portion of the Note surrendered. 39 Section 3.07. Optional Redemption. (a) Except as provided below, the Notes will not be redeemable at the Company's option prior to December 15, 2002. Thereafter, the 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:
PERCENTAGE OF PRINCIPAL YEAR AMOUNT ---- ------------- 2002.................................... 105.437% 2003.................................... 103.625% 2004.................................... 101.812% 2005 and thereafter..................... 100.000%
(b) Notwithstanding the foregoing, during the first 36 months after the date of this Offering Circular, the Company may on any one or more occasions redeem up to 35% of the Accreted Value of Notes originally issued under the Indenture at a redemption price of 110.875% of the Accreted Value thereof, 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 Notes remain outstanding immediately after the occurrence of such redemption (excluding 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. (c) At any time prior to December 15, 2002, the 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 Applicable Premium as of, and accrued and unpaid interest and Liquidated Damages, if any, to, the date of redemption (the "Redemption Date"). (d) Any redemption pursuant to this Section 3.07 shall be made pursuant to the provisions of Section 3.01 through 3.06 hereof. Section 3.08. Mandatory Redemption. The Company shall not be required to make mandatory redemption payments with respect to the Notes. Section 3.09. Offer to Purchase by Application of Net Proceeds Offer Amount. In the event that, pursuant to Section 4.10 hereof, the Company shall be required to commence a Net Proceeds Offer, it shall follow the procedures specified below. 40 The Net Proceeds Offer shall remain open for a period of 20 Business Days following its commencement and no longer, except to the extent that a longer period is required by applicable law (the "Offer Period"). No later than five Business Days after the termination of the Offer Period (the "Purchase Date"), the Company shall purchase the Net Proceeds Offer Amount or, if less than the Net Proceeds Offer Amount has been tendered, all Notes tendered in response to the Net Proceeds Offer. Payment for any Notes so purchased shall be made in the same manner as interest payments are made. If the Purchase Date is on or after an interest record date and on or before the related interest payment date, any accrued and unpaid interest shall be paid to the Person in whose name a Note is registered at the close of business on such record date, and no additional interest shall be payable to Holders who tender Notes pursuant to the Net Proceeds Offer. Upon the commencement of a Net Proceeds Offer, the Company shall send, by first class mail, a notice to the Trustee and each of the Holders, with a copy to the Trustee. The notice shall contain all instructions and materials necessary to enable such Holders to tender Notes pursuant to the Net Proceeds Offer. The Net Proceeds Offer shall be made to all Holders. The notice, which shall govern the terms of the Net Proceeds Offer, shall state: (a) that the Net Proceeds Offer is being made pursuant to this Section 3.09 and Section 4.10 hereof and the length of time the Net Proceeds Offer shall remain open; (b) the Net Proceeds Offer Amount, the purchase price and the Purchase Date; (c) that any Note not tendered or accepted for payment shall continue to accrete or accrue interest; (d) that, unless the Company defaults in making such payment, any Note accepted for payment pursuant to the Net Proceeds Offer shall cease to accrete or accrue interest after the Purchase Date; (e) that Holders electing to have a Note purchased pursuant to an Net Proceeds Offer may only elect to have all of such Note purchased and may not elect to have only a portion of such Note purchased; (f) that Holders electing to have a Note purchased pursuant to any Net Proceeds Offer shall be required to surrender the Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Note completed, or transfer by book-entry transfer, to the Company, a depositary, if appointed by the Company, or a Paying Agent at the address specified in the notice at least three days before the Purchase Date; (g) that Holders shall be entitled to withdraw their election if the Company, the depositary or the Paying Agent, as the case may be, receives, not later than the expiration of the Offer Period, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount at maturity of the Note the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Note purchased; (h) that, if the aggregate principal amount (or Accreted Value, as applicable) of Notes surrendered by Holders exceeds the Offer Amount, the Company shall select the Notes to be purchased 41 on a pro rata basis (with such adjustments as may be deemed appropriate by the Company so that only Notes in denominations of $1,000, or integral multiples thereof, shall be purchased); and (i) that Holders whose Notes were purchased only in part shall be issued new Notes equal in principal amount at maturity to the unpurchased portion of the Notes surrendered (or transferred by book-entry transfer). On or before 10:00 a.m. on the Purchase Date, the Company shall, to the extent lawful, accept for payment, on a pro rata basis to the extent necessary, the Offer Amount of Notes or portions thereof tendered pursuant to the Net Proceeds Offer, or if less than the Offer Amount has been tendered, all Notes tendered, and shall deliver to the Trustee an Officers' Certificate stating that such Notes or portions thereof were accepted for payment by the Company in accordance with the terms of this Section 3.09. The Company, the Depositary or the Paying Agent, as the case may be, shall promptly (but in any case not later than five days after the Purchase Date) mail or deliver to each tendering Holder an amount equal to the purchase price of the Notes tendered by such Holder and accepted by the Company for purchase, and the Company shall promptly issue a new Note, and the Trustee, upon written request from the Company shall authenticate and mail or deliver such new Note to such Holder, in a principal amount at maturity equal to any unpurchased portion of the Note surrendered. Any Note not so accepted shall be promptly mailed or delivered by the Company to the Holder thereof. The Company shall publicly announce the results of the Net Proceeds Offer on the Purchase Date. Other than as specifically provided in this Section 3.09, any purchase pursuant to this Section 3.09 shall be made pursuant to the provisions of Sections 3.01 through 3.06 hereof. ARTICLE 4. COVENANTS Section 4.01. Payment of Notes. The Company or a Guarantor shall pay or cause to be paid the principal amount or Accreted Value of, premium, if any, and interest and Liquidated Damages, if any, on the Notes on the dates and in the manner provided in the Notes. Principal amount or Accreted Value of, premium, if any, and interest and Liquidated Damages, if any, shall be considered paid on the date due if the Paying Agent, if other than the Company or a Subsidiary thereof, holds as of 10:00 a.m. Eastern Time on the due date money deposited by the Company in immediately available funds and designated for and sufficient to pay all principal amount or Accreted Value of, premium, if any, and interest and Liquidated Damages, if any, then due. The Company shall pay all Liquidated Damages, if any, in the same manner on the dates and in the amounts set forth in the Registration Rights Agreement. The Company or a Guarantor shall pay interest (including post- petition interest in any proceeding under any Bankruptcy Law) on overdue principal at the rate equal to 1% per annum in excess of the then applicable interest rate on the Notes to the extent lawful; it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest and Liquidated Damages (without regard to any applicable grace period) at the same rate to the extent lawful. Section 4.02. Maintenance of Office or Agency. The Company shall maintain in the Borough of Manhattan, the City of New York, an office or agency (which may be an office of the Trustee or an affiliate of the Trustee, Registrar or 42 co-registrar) where Notes may be surrendered for registration of transfer or for exchange and where notices and demands to or upon the Company in respect of the Notes and this Indenture may be served. The Company shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee. The Company may also from time to time designate one or more other offices or agencies where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, the City of New York for such purposes. The Company shall give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. The Company hereby designates the Corporate Trust Office of the Trustee as one such office or agency of the Company in accordance with Section 2.03. Section 4.03. Reports. (a) Whether or not required by the rules and regulations of the SEC, so long as any Notes are outstanding, the Company shall 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 SEC 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 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 SEC on Form 8-K if the Company were required to file such reports, in each case, within the time periods specified in the SEC's rules and regulations. For so long as the Parent is a Guarantor of the Notes, Company may satisfy its obligations in this covenant with respect to 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 consummation of the Exchange Offer, whether or not required by the rules and regulations of the SEC, the Company shall file a copy of all such information and reports with the SEC for public availability within the time periods specified in the SEC's rules and regulations (unless the SEC will not accept such a filing) and make such information available to securities analysts and prospective investors upon request. The Company shall at all times comply with TIA (S) 314(a). (b) For so long as any Notes remain outstanding, the Company and the Guarantors shall 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. 43 Section 4.04. Compliance Certificate. (a) The Company and each Guarantor (to the extent that such Guarantor is so required under the TIA) shall deliver to the Trustee, within 90 days after the end of each fiscal year, an Officers' Certificate stating that a review of the activities of the Company and its Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officers with a view to determining whether the Company has kept, observed, performed and fulfilled its obligations under this Indenture, and further stating, as to each such Officer signing such certificate, that to the best of his or her knowledge the Company kept, observed, performed and fulfilled each and every covenant contained in this Indenture and is not in default in the performance or observance of any of the terms, provisions and conditions of this Indenture (or, if a Default or Event of Default shall have occurred, describing all such Defaults or Events of Default of which he or she may have knowledge and what action the Company is taking or proposes to take with respect thereto) and that to the best of his or her knowledge no event has occurred and remains in existence by reason of which payments on account of the principal of or interest, if any, on the Notes is prohibited or if such event has occurred, a description of the event and what action the Company is taking or proposes to take with respect thereto. For purposes of this paragraph, such compliance shall be determined without regard to any period of grace or requirement of notice provided under the Indenture. (b) So long as not contrary to the then current recommendations of the American Institute of Certified Public Accountants, the year-end financial statements delivered pursuant to Section 4.03(a) above shall be accompanied by a written statement of the Company's independent public accountants (who shall be a firm of established national reputation) that in making the examination necessary for certification of such financial statements, nothing has come to their attention that would lead them to believe that the Company has violated any provisions of Article 4 or Article 5 hereof or, if any such violation has occurred, specifying the nature and period of existence thereof, it being understood that such accountants shall not be liable directly or indirectly to any Person for any failure to obtain knowledge of any such violation. (c) The Company shall, so long as any of the Notes are outstanding, deliver to the Trustee, forthwith upon any Officer becoming aware of any Default or Event of Default, an Officers' Certificate specifying such Default or Event of Default and what action the Company is taking or proposes to take with respect thereto. (d) The Company and each Guarantor (to the extent that such Guarantor is so required under the TIA) shall deliver to the Trustee, within 90 days after the end of each fiscal year, an Officers' Certificate stating the amount of original issue discount (including daily rates and accrual periods) accrued on the Notes as of the end of such fiscal year and such other information relating to such original issue discount as may then be relevant under the Internal Revenue Code of 1986, as amended from time to time. The obligation to deliver such Officer's Certificate shall cease at December 15, 2002. Section 4.05. Taxes. The Company shall pay, and shall cause each of its Subsidiaries to pay, prior to delinquency, all material taxes, assessments, and governmental levies except such as are contested in good faith and by appropriate proceedings or where the failure to effect such payment is not adverse in any material respect to the Holders of the Notes. 44 Section 4.06. Stay, Extension and Usury Laws. The Company and each of the Guarantors covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter in force, that may affect the covenants or the performance of this Indenture; and the Company and each of the Guarantors (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it shall not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but shall suffer and permit the execution of every such power as though no such law has been enacted. Section 4.07. Restricted Payments. The Company shall not, and shall 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 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 Section 4.09 hereof; 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 this Indenture (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 this Indenture 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 this Indenture 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 45 Equity Offering or capital contribution to the extent used to redeem Notes in accordance with the optional redemption provisions of the 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 will 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 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 this Indenture (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 this Indenture 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 this Indenture; 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 this Indenture; (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 46 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 this 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 Section 4.09 hereof, other Restricted Payments in an aggregate amount not to exceed $12.5 million since the date of this Indenture; (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 and payments with respect to Parent Notes whether made at or subsequent to the date hereof. In determining the aggregate amount of Restricted Payments made subsequent to the date of this Indenture 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 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. Section 4.08. Dividend and Other Payment Restrictions Affecting Subsidiaries. The Company shall not, and shall 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 Indenture or the Senior Subordinated Note Indenture; (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 this Indenture (including, without limitation, the Senior Credit Agreements and the Existing Note Indenture); (6) restrictions on the transfer of assets subject to 47 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 this Indenture pursuant to the provisions of Section 4.09; 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. Section 4.09. Incurrence of Indebtedness and Issuance of Preferred Stock. The Company shall not, and shall 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, the Company shall not issue any Disqualified Stock and shall 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 will not apply to the incurrence of any of the following items of Indebtedness (collectively, "Permitted Indebtedness"): (i) the Notes, the Senior Subordinated Notes and, in each case, 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 48 this Indenture 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 this Indenture for so long as such Indebtedness remains outstanding; (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 49 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 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, substituted, 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 50 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. Section 4.10. Asset Sales The Company shall not, and shall 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 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 51 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 Notes equal to the Net Proceeds Offer Amount at a price equal to 100% of the Accreted Value thereon on the date fixed for the closing of such offer plus accrued and unpaid Liquidated Damages thereon, if any (if prior to the Full Accretion Date), or 100% of the principal amount of the Notes to be purchased, plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the date of purchase (if after the Full Accretion Date); provided, however, that if at any time any non-cash consideration (including any Designated Noncash Consideration) 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. To the extent that the provisions of any securities laws or regulations conflict with the Asset Sale provisions of this 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 this Indenture by virtue thereof. Section 4.11. Transactions with Affiliates. (a) The Company shall not, and shall 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 52 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. (b) 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 Securitization Transaction; (iv) any agreement as in effect as of the date of this Indenture 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 this Indenture; (v) Restricted Payments permitted by this 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 this Indenture 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 this Indenture 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, Section 5.01 hereof; 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 53 management thereof, or are on terms at least as favorable as might reasonably have been obtained at such time from an unaffiliated party. Section 4.12. Liens. The Company shall not, and shall 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 Notes, the 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 Notes are equally and ratably secured, except for (A) Liens existing as of the date of this Indenture and any extensions, renewals or replacements thereof, (B) Liens securing Senior Debt, (C) Liens securing the 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 Indenture and the Senior Subordinated Note Indenture that was incurred in accordance with the provisions of the Indenture and the Senior Subordinated Note 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. Section 4.13. Conduct of Business. The Company shall not, and shall 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 this Indenture. Section 4.14. Corporate Existence. Subject to Article 5 hereof, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect (i) its corporate existence, and the corporate, partnership or other existence of each of its Subsidiaries, in accordance with the respective organizational documents (as the same may be amended from time to time) of the Company or any such Subsidiary and (ii) the rights (charter and statutory), licenses and franchises of the Company and its Subsidiaries; provided, however, that the Company shall not be required to preserve any such right, license or franchise, or the corporate, partnership or other existence of any of its Subsidiaries, if the Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and its Subsidiaries, taken as a whole, and that the loss thereof is not adverse in any material respect to the Holders of the Notes. Section 4.15. Offer to Repurchase Upon Change of Control. (a) Upon the occurrence of a Change of Control, each Holder of 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 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 Accreted Value thereof on the date of purchase (if prior to the Full Accretion Date), or 101% of the aggregate principal amount thereof plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the date of purchase (if after the Full Accretion Date). Within ten days following any Change of Control, the Company shall mail a 54 notice to each Holder describing the transaction or transactions that constitute the Change of Control and offering to repurchase 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 shall 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 Notes as a result of a Change of Control. (b) On the Change of Control Payment Date, the Company shall, to the extent lawful, (1) accept for payment all 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 Notes or portions thereof so tendered and (3) deliver or cause to be delivered to the applicable Trustee the Notes so accepted together with an Officers' Certificate stating the aggregate principal amount at maturity of Notes or portions thereof being purchased by the Company. The Paying Agent shall promptly mail to each Holder of Notes so tendered the Change of Control Payment for such Notes, and the Trustee shall promptly authenticate and mail (or cause to be transferred by book entry) to each Holder a new Note equal in principal amount at maturity to any unpurchased portion of the Notes surrendered, if any; provided that each such new Note will be in a principal amount at maturity of $1,000 or an integral multiple thereof. The Company shall publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. Prior to the mailing of any notice required by the Indenture, but in any event within 30 days following any Change of Control, the Company shall (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 Notes pursuant to the provisions described herein. The Company's failure to comply with the immediately preceding sentence shall constitute an Event of Default described in clause (c) and not in clause (b) under "Events of Default" below. (c) Notwithstanding anything to the contrary in this Section 4.15, the Company shall not be required to make a Change of Control Offer upon a Change of Control if (i) 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 this Section 4.15 and Section 3.09 hereof and purchases all Notes validly tendered and not withdrawn under such Change of Control Offer or (ii) the Company exercises its option to purchase all the Notes upon a Change of Control as described in Section 3.07(c). Section 4.16. No Senior Subordinated Debt. Notwithstanding the provisions of Section 4.09 hereof, (i) the Company shall 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 shall 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. 55 Section 4.17. Additional Note Guarantees If the Company or any of its Restricted Subsidiaries shall acquire or create another U.S. Subsidiary after the date of this Indenture, or if any Subsidiary becomes a U.S. Subsidiary after the date of this Indenture, then such newly acquired or created Subsidiary, shall execute a Note Guarantee and deliver an Opinion of Counsel, in accordance with the terms hereof; provided, that all Subsidiaries that have properly been designated as Unrestricted Subsidiaries in accordance herewith shall not be subject to the requirements of this covenant for so long as they continue to constitute Unrestricted Subsidiaries. ARTICLE 5. SUCCESSORS Section 5.01. Merger, Consolidation, or Sale of Assets. The Company shall 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 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 Notes and the Indenture pursuant to a supplemental indenture in form reasonably satisfactory to the 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 Section 4.09 hereof. Section 5.02. Successor Corporation Substituted. Upon any consolidation or merger, or any sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the assets of the Company in accordance with Section 5.01 hereof, the successor corporation formed by such consolidation or into or with which the Company is merged or to which such sale, assignment, transfer, lease, conveyance or other disposition is made shall succeed to, and be substituted for (so that from and after the date of such consolidation, merger, sale, lease, conveyance or other disposition, the provisions of this Indenture referring to the "Company" shall refer instead to the successor corporation and not to the Company), and may exercise every right and power of the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein; provided, however, that the predecessor Company shall not be relieved from the obligation to pay the principal amount at maturity or Accreted Value of and interest on the Notes except in the case of a sale of all of the Company's assets that meets the requirements of Section 5.01 hereof. 56 ARTICLE 6. DEFAULTS AND REMEDIES Section 6.01. Events of Default. "Event of Defaults" are: (a) the failure to pay interest on any 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 Article 10 hereof; (b) the failure to pay the principal on any Notes when such principal becomes due and payable, at maturity, upon redemption or otherwise (including the failure to make a payment to purchase Notes tendered pursuant to a Change of Control Offer or a Net Proceeds Offer), whether or not such payment shall be prohibited by Article 10 hereof; (c) a default in the observance or performance of any other covenant or agreement contained herein 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 Trustee or the Holders of at least 25% of the outstanding principal amount of the Notes; (d) 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; (e) 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; (f) the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary pursuant to or within the meaning of Bankruptcy Law: (i) commences a voluntary case, (ii) consents to the entry of an order for relief against it in an involuntary case, (iii) consents to the appointment of a custodian of it or for all or substantially all of its property, (iv) makes a general assignment for the benefit of its creditors, or (v) generally is not paying its debts as they become due; or 57 (g) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (i) is for relief against the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary in an involuntary case; (ii) appoints a custodian of the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary or for all or substantially all of the property of the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary; or (iii) orders the liquidation of the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary; and the order or decree remains unstayed and in effect for 60 consecutive days; or (h) except as permitted by this Indenture, any Note Guarantee is 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 such Guarantor's Note Guarantee. Section 6.02. Acceleration. If any Event of Default (other than an Event of Default specified in clause (f) or (g) of Section 6.01 hereof with respect to the Company, any Significant Subsidiary or any group of Significant Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary) occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount at maturity of the then outstanding Notes may declare all the Notes to be due and payable immediately 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. Upon such declaration, all principal of and accrued interest and Liquidated Damages, if any, on (if on or after the Full Accretion Date) or Accreted Value of and Liquidated Damages, if any, on (if prior to the Full Accretion Date the Notes shall be due and payable immediately. Notwithstanding the foregoing, if an Event of Default specified in clause (f) or (g) of Section 6.01 hereof occurs with respect to the Company, any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary, all outstanding Notes shall be due and payable immediately without further action or notice. The Holders of a majority in aggregate principal amount at maturity of the then outstanding Notes by written notice to the Trustee may on behalf of all of the Holders rescind an acceleration and its consequences if the rescission would not conflict with any judgment or decree and if all existing Events of Default (except nonpayment of principal, interest or premium that has become due solely because of the acceleration) have been cured or waived. If an Event of Default occurs on or after December 15, 2002 by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding payment of the premium that the Company would have had to pay if the Company then had elected to redeem the Notes pursuant to Section 3.07 hereof, then, upon acceleration of the Notes, an equivalent premium shall also become and be immediately due and payable, to the extent permitted by law, 58 anything in this Indenture or in the Notes to the contrary notwithstanding. If an Event of Default occurs prior to December 15, 2002 by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding the prohibition on redemption of the Notes prior to such date, then, upon acceleration of the Notes, an additional premium shall also become and be immediately due and payable in an amount, for each of the years beginning on December 15 of the years set forth below, as set forth below (expressed as a percentage of the Accreted Value to the date of payment that would otherwise be due but for the provisions of this sentence): YEAR PERCENTAGE ---- ---------- 1997............................................ 114.500% 1998............................................ 112.687% 1999............................................ 110.875% 2000............................................ 109.062% 2001............................................ 107.250% Section 6.03. Other Remedies. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal, premium, if any, and interest and Liquidated Damages, if any, on the Notes or to enforce the performance of any provision of the Notes or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Notes or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder of a Note in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. All remedies are cumulative to the extent permitted by law. Section 6.04. Waiver of Past Defaults. Holders of not less than a majority in aggregate principal amount at maturity of the then outstanding Notes by notice to the Trustee may on behalf of the Holders of all of the Notes waive an existing Default or Event of Default and its consequences hereunder, except a continuing Default or Event of Default in the payment of the principal of, premium and Liquidated Damages, if any, or interest on, the Notes (including in connection with an offer to purchase) (provided, however, that the Holders of a majority in aggregate principal amount at maturity of the then outstanding Notes may rescind an acceleration and its consequences, including any related payment default that resulted from such acceleration). Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon. Section 6.05. Control by Majority. Holders of a majority in principal amount at maturity of the then outstanding Notes may direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee or exercising any trust or power conferred on it. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture that the Trustee determines may be unduly prejudicial to the rights of other Holders of Notes or that may involve the Trustee in personal liability. 59 Section 6.06. Limitation on Suits. A Holder of a Note may pursue a remedy with respect to this Indenture or the Notes only if: (a) the Holder of a Note gives to the Trustee written notice of a continuing Event of Default; (b) the Holders of at least 25% in principal amount at maturity of the then outstanding Notes make a written request to the Trustee to pursue the remedy; (c) such Holder of a Note or Holders of Notes offer and, if requested, provide to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense ; (d) the Trustee does not comply with the request within 60 days after receipt of the request and the offer and, if requested, the provision of indemnity; and (e) during such 60-day period the Holders of a majority in principal amount at maturity of the then outstanding Notes do not give the Trustee a direction inconsistent with the request. A Holder of a Note may not use this Indenture to prejudice the rights of another Holder of a Note or to obtain a preference or priority over another Holder of a Note. Section 6.07. Rights of Holders of Notes to Receive Payment. Notwithstanding any other provision of this Indenture, the right of any Holder of a Note to receive payment of principal, premium and Liquidated Damages, if any, and interest on the Note, on or after the respective due dates expressed in the Note (including in connection with an offer to purchase), or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder. Section 6.08. Collection Suit by Trustee. If an Event of Default specified in Section 6.01(a) or (b) occurs and is continuing, the Trustee is authorized to recover judgment in its own name and as trustee of an express trust against the Company for the whole amount of principal amount or Accreted Value, as applicable, of, premium and Liquidated Damages, if any, and interest remaining unpaid on the Notes and interest on overdue principal and, to the extent lawful, interest and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. Section 6.09. Trustee May File Proofs of Claim. The Trustee is authorized to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Holders of the Notes allowed in any judicial proceedings relative to the Company (or any other obligor upon the Notes), its creditors or its property and shall be entitled and empowered to collect, receive and distribute any money or other property payable or deliverable on any such claims and any custodian in any such judicial proceeding is hereby authorized by each Holder to make such payments to 60 the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 hereof. To the extent that the payment of any such compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 hereof out of the estate in any such proceeding, shall be denied for any reason, payment of the same shall be secured by a Lien on, and shall be paid out of, any and all distributions, dividends, money, securities and other properties that the Holders may be entitled to receive in such proceeding whether in liquidation or under any plan of reorganization or arrangement or otherwise. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. Section 6.10. Priorities. If the Trustee collects any money pursuant to this Article, it shall pay out the money in the following order: First: to the Trustee, its agents and attorneys for amounts due under Section 7.07 hereof, including payment of all compensation, expense and liabilities incurred, and all advances made, by the Trustee and the costs and expenses of collection; Second: to Holders of Notes for amounts due and unpaid on the Notes for principal amount or Accreted Value, as applicable, premium and Liquidated Damages, if any, and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes for principal amount or Accreted Value, as applicable, premium and Liquidated Damages, if any and interest, respectively; and Third: to the Company or to such party as a court of competent jurisdiction shall direct. The Trustee may fix a record date and payment date for any payment to Holders of Notes pursuant to this Section 6.10. Section 6.11. Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as a Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section does not apply to a suit by the Trustee, a suit by a Holder of a Note pursuant to Section 6.07 hereof, or a suit by Holders of more than 10% in principal amount at maturity of the then outstanding Notes. 61 ARTICLE 7. TRUSTEE Section 7.01. Duties of Trustee. (a) If an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in its exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (b) Except during the continuance of an Event of Default: (i) the duties of the Trustee shall be determined solely by the express provisions of this Indenture and the Trustee need perform only those duties that are specifically set forth in this Indenture and no others, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (ii) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture. (c) The Trustee may not be relieved from liabilities for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (i) this paragraph does not limit the effect of paragraph (b) of this Section; (ii) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (iii) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.05 hereof. (d) Whether or not therein expressly so provided, every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b), and (c) of this Section. (e) No provision of this Indenture shall require the Trustee to expend or risk its own funds or incur any liability. The Trustee shall be under no obligation to exercise any of its rights and powers under this Indenture at the request of any Holders, unless such Holder shall have offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense. (f) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. 62 Section 7.02. Rights of Trustee. (a) The Trustee may conclusively rely upon any document believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee need not investigate any fact or matter stated in the document. (b) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officers' Certificate or Opinion of Counsel. The Trustee may consult with counsel of its selection and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection from liability in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon. (c) The Trustee may act through its attorneys and agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care. (d) The Trustee shall not be liable for any action it takes or omits to take in good faith that it believes to be authorized or within the rights or powers conferred upon it by this Indenture. (e) Unless otherwise specifically provided in this Indenture, any demand, request, direction or notice from the Company shall be sufficient if signed by an Officer of the Company. (f) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities that might be incurred by it in compliance with such request or direction. Section 7.03. Individual Rights of Trustee. The Trustee in its individual or any other capacity may become the owner or pledgee of Notes and may otherwise deal with the Company or any Affiliate of the Company with the same rights it would have if it were not Trustee. However, in the event that the Trustee acquires any conflicting interest it must eliminate such conflict within 90 days, apply to the SEC for permission to continue as trustee or resign. Any Agent may do the same with like rights and duties. The Trustee is also subject to Sections 7.10 and 7.11 hereof. Section 7.04. Trustee's Disclaimer. The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture or the Notes, it shall not be accountable for the Company's use of the proceeds from the Notes or any money paid to the Company or upon the Company's direction under any provision of this Indenture, it shall not be responsible for the use or application of any money received by any Paying Agent other than the Trustee, and it shall not be responsible for any statement or recital herein or any statement in the Notes or any other document in connection with the sale of the Notes or pursuant to this Indenture other than its certificate of authentication. 63 Section 7.05. Notice of Defaults. (a) The Trustee shall not be deemed to have notice of any Default or Event of Default unless a Responsible Officer of the Trustee has actual knowledge thereof or unless written notice of any event which is in fact such a default is received by the Trustee at the Corporate Trust Office of the Trustee, and such notice references the Securities and this Indenture. (b) If a Default or Event of Default occurs and is continuing and if it is known to the Trustee, the Trustee shall mail to Holders of Notes a notice of the Default or Event of Default within 90 days after it occurs. Except in the case of a Default or Event of Default in payment of principal of, premium, if any, or interest on any Note, the Trustee may withhold the notice if and so long as a committee of its Responsible Officers in good faith determines that withholding the notice is in the interests of the Holders of the Notes. Section 7.06. Reports by Trustee to Holders of the Notes. Within 60 days after each May 15 beginning with the May 15 following the date of this Indenture, and for so long as Notes remain outstanding, the Trustee shall mail to the Holders of the Notes a brief report dated as of such reporting date that complies with TIA (S) 313(a) (but if no event described in TIA (S) 313(a) has occurred within the twelve months preceding the reporting date, no report need be transmitted). The Trustee also shall comply with TIA (S) 313(b)(2). The Trustee shall also transmit by mail all reports as required by TIA (S) 313(c). A copy of each report at the time of its mailing to the Holders of Notes shall be mailed to the Company and filed with the SEC and each stock exchange on which the Notes are listed in accordance with TIA (S) 313(d). The Company shall promptly notify the Trustee when the Notes are listed on any stock exchange. Section 7.07. Compensation and Indemnity. The Company and the Guarantors shall pay to the Trustee from time to time such compensation for its acceptance of this Indenture and services hereunder as the parties shall agree from time to time. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company and the Guarantors shall reimburse the Trustee promptly upon request for all reasonable disbursements, advances and expenses incurred or made by it in addition to the compensation for its services. Such expenses shall include the reasonable compensation, disbursements and expenses of the Trustee's agents and counsel. The Company and the Guarantors shall indemnify the Trustee against any and all losses, liabilities or expenses incurred by it arising out of or in connection with the acceptance or administration of its duties under this Indenture, including the costs and expenses of enforcing this Indenture against the Company and the Guarantors (including this Section 7.07) and defending itself against any claim (whether asserted by the Company and the Guarantors or any Holder or any other person) or liability in connection with the exercise or performance of any of its powers or duties hereunder, except to the extent any such loss, liability or expense may be attributable to its negligence or bad faith. The Trustee shall notify the Company and the Guarantors promptly of any claim for which it may seek indemnity. Failure by the Trustee to so notify the Company shall not relieve the Company of its obligations hereunder. The Company shall defend the claim and the Trustee shall cooperate in the defense. The Trustee may have separate counsel and the Company shall pay the reasonable fees and expenses of such 64 counsel. The Company and the Guarantors need not pay for any settlement made without its consent, which consent shall not be unreasonably withheld. The obligations of the Company and the Guarantors under this Section 7.07 shall survive the satisfaction and discharge of this Indenture. To secure the Company's and the Guarantors' payment obligations in this Section, the Trustee shall have a Lien prior to the Notes on all money or property held or collected by the Trustee, except that held in trust to pay principal and interest on particular Notes. Such Lien shall survive the satisfaction and discharge of this Indenture. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.01(f) or (g) hereof occurs, the expenses and the compensation for the services (including the fees and expenses of its agents and counsel) are intended to constitute expenses of administration under any Bankruptcy Law. The Trustee shall comply with the provisions of TIA (S) 313(b)(2) to the extent applicable. Section 7.08. Replacement of Trustee. A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee's acceptance of appointment as provided in this Section. The Trustee may resign in writing at any time and be discharged from the trust hereby created by so notifying the Company. The Holders of Notes of a majority in principal amount of the then outstanding Notes may remove the Trustee by so notifying the Trustee and the Company in writing. The Company may remove the Trustee if: (a) the Trustee fails to comply with Section 7.10 hereof; (b) the Trustee is adjudged a bankrupt or an insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law; (c) a custodian or public officer takes charge of the Trustee or its property; or (d) the Trustee becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount at maturity of the then outstanding Notes may appoint a successor Trustee to replace the successor Trustee appointed by the Company. If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company, or the Holders of Notes of at least 10% in principal amount at maturity of the then outstanding Notes may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee, after written request by any Holder of a Note who has been a Holder of a Note for at least six months, fails to comply with Section 7.10, such Holder of a Note may petition any 65 court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to Holders of the Notes. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, provided all sums owing to the Trustee hereunder have been paid and subject to the Lien provided for in Section 7.07 hereof. Notwithstanding replacement of the Trustee pursuant to this Section 7.08, the Company's obligations under Section 7.07 hereof shall continue for the benefit of the retiring Trustee. Section 7.09. Successor Trustee by Merger, etc. If the Trustee consolidates, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the successor corporation without any further act shall be the successor Trustee. Section 7.10. Eligibility; Disqualification. There shall at all times be a Trustee hereunder that is a corporation organized and doing business under the laws of the United States of America or of any state thereof that is authorized under such laws to exercise corporate trustee power, that is subject to supervision or examination by federal or state authorities and that has a combined capital and surplus of at least $100.0 million as set forth in its most recent published annual report of condition. This Indenture shall always have a Trustee who satisfies the requirements of TIA (S) 310(a)(1), (2) and (5). The Trustee is subject to TIA (S) 310(b). Section 7.11. Preferential Collection of Claims Against Company. The Trustee is subject to TIA (S) 311(a), excluding any creditor relationship listed in TIA (S) 311(b). A Trustee who has resigned or been removed shall be subject to TIA (S) 311(a) to the extent indicated therein. ARTICLE 8. LEGAL DEFEASANCE AND COVENANT DEFEASANCE Section 8.01. Option to Effect Legal Defeasance or Covenant Defeasance. The Company may, at the option of its Board of Directors evidenced by a resolution set forth in an Officers' Certificate, at any time, elect to have either Section 8.02 or 8.03 hereof applied to all outstanding Notes upon compliance with the conditions set forth below in this Article Eight. Section 8.02. Legal Defeasance and Discharge. Upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.02, the Company shall, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, be deemed to have been discharged from its obligations with respect to all outstanding Notes on 66 the date the conditions set forth below are satisfied (hereinafter, "Legal Defeasance"). For this purpose, Legal Defeasance means that the Company shall be deemed to have paid and discharged the entire Indebtedness represented by the outstanding Notes, which shall thereafter be deemed to be "outstanding" only for the purposes of Section 8.05 hereof and the other Sections of this Indenture referred to in (a) and (b) below, and to have satisfied all its other obligations under such Notes and this Indenture (and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging the same), except for the following provisions which shall survive until otherwise terminated or discharged hereunder: (a) the rights of Holders of outstanding Notes to receive solely from the trust fund described in Section 8.04 hereof, and as more fully set forth in such Section, payments in respect of the principal amount at maturity or Accreted Value (as applicable) of, premium, if any, and interest on such Notes when such payments are due, (b) the Company's obligations with respect to such Notes under Article 2 and Section 4.02 hereof, (c) the rights, powers, trusts, duties and immunities of the Trustee hereunder and the Company's obligations in connection therewith and (d) this Article Eight. Subject to compliance with this Article Eight, the Company may exercise its option under this Section 8.02 notwithstanding the prior exercise of its option under Section 8.03 hereof. Section 8.03. Covenant Defeasance. Upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.03, the Company shall, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, be released from its obligations under the covenants contained in Sections 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.15, 4.16 and 4.17 hereof with respect to the outstanding Notes on and after the date the conditions set forth in Section 8.04 are satisfied (hereinafter, "Covenant Defeasance"), and the Notes shall thereafter be deemed not "outstanding" for the purposes of any direction, waiver, consent or declaration or act of Holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed "outstanding" for all other purposes hereunder (it being understood that such Notes shall not be deemed outstanding for accounting purposes). For this purpose, Covenant Defeasance means that, with respect to the outstanding Notes, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event of Default under Section 6.01 hereof, but, except as specified above, the remainder of this Indenture and such Notes shall be unaffected thereby. In addition, upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.03 hereof, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, Sections 6.01(d) through 6.01(f) hereof shall not constitute Events of Default. Section 8.04. Conditions to Legal or Covenant Defeasance. The following shall be the conditions to the application of either Section 8.02 or 8.03 hereof to the outstanding Notes: In order to exercise either Legal Defeasance or Covenant Defeasance: (a) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders, cash in United States 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 amount at maturity or Accreted Value (as applicable) of, premium and 67 Liquidated Damages, if any, and interest on the outstanding Notes on the stated date for payment thereof or on the applicable redemption date, as the case may be; (b) in the case of an election under Section 8.02 hereof, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the 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 this 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 Notes 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; (c) in the case of an election under Section 8.03 hereof, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that the Holders of the outstanding Notes 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; (d) 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 incurrence of Indebtedness all or a portion of the proceeds of which will be used to defease the Notes pursuant to this Article Eight concurrently with such incurrence) or insofar as Sections 6.01(f) or 6.01(g) hereof is concerned, at any time in the period ending on the 91st day after the date of deposit; (e) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under, the Senior Credit Agreements or any other material agreement or instrument (other than this Indenture and other than a Default or Event of Default resulting from the incurrence of Indebtedness all or a portion of the proceeds of which will be used to defease the Notes pursuant to this Article Eight concurrently with such incurrence) to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound; (f) the Company shall have delivered to the Trustee an Opinion of Counsel (which may be subject to customary exceptions) to the effect that on 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; (g) the Company shall have delivered to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders over any other creditors of the Company or with the intent of defeating, hindering, delaying or defrauding any other creditors of the Company; and (h) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for or relating to the Legal Defeasance or the Covenant Defeasance have been complied with. 68 Section 8.05. Deposited Money and Government Securities to be Held in Trust; Other Miscellaneous Provisions. Subject to Section 8.06 hereof, all money and non-callable Government Securities (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this Section 8.05, the "Trustee") pursuant to Section 8.04 hereof in respect of the outstanding Notes shall be held in trust and applied by the Trustee, in accordance with the provisions of such Notes and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as Paying Agent) as the Trustee may determine, to the Holders of such Notes of all sums due and to become due thereon in respect of principal amount or Accreted Value, as applicable, premium, if any, and interest, but such money need not be segregated from other funds except to the extent required by law. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the cash or non-callable Government Securities deposited pursuant to Section 8.04 hereof or the principal and amount or Accreted Value, as applicable, interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the outstanding Notes. Anything in this Article Eight to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon the request of the Company any money or non-callable Government Securities held by it as provided in Section 8.04 hereof which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee (which may be the opinion delivered under Section 8.04(a) hereof), are in excess of the amount thereof that would then be required to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance. Section 8.06. Repayment to Company. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal amount or Accreted Value, as applicable, of, premium, if any, or interest on any Note and remaining unclaimed for two years after such principal, amount or Accreted Value, as applicable, and premium, if any, or interest has become due and payable shall be paid to the Company on its request or (if then held by the Company) shall be discharged from such trust; and the Holder of such Note shall thereafter, as a secured creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in the New York Times and The Wall Street Journal (national edition), notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such notification or publication, any unclaimed balance of such money then remaining will be repaid to the Company. Section 8.07. Reinstatement. If the Trustee or Paying Agent is unable to apply any United States dollars or non-callable Government Securities in accordance with Section 8.02 or 8.03 hereof, as the case may be, by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Company's obligations under this Indenture and the 69 Notes shall be revived and reinstated as though no deposit had occurred pursuant to Section 8.02 or 8.03 hereof until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 8.02 or 8.03 hereof, as the case may be; provided, however, that, if the Company makes any payment of principal of, premium, if any, or interest on any Note following the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Notes to receive such payment from the money held by the Trustee or Paying Agent. Section 8.08. Survival. The Trustee's rights under Article 8 shall survive termination of the Indenture. ARTICLE 9. AMENDMENT, SUPPLEMENT AND WAIVER Section 9.01. Without Consent of Holders of Notes. Notwithstanding Section 9.02 of this Indenture, the Company, the Guarantors and the Trustee may amend or supplement this Indenture, the Note Guarantees or the Notes without the consent of any Holder of a Note: (a) to cure any ambiguity, defect or inconsistency; (b) to provide for uncertificated Notes in addition to or in place of certificated Notes or to alter the provisions of Article 2 hereof (including the related definitions) in a manner that does not materially adversely affect any Holder; (c) to provide for the assumption of the Company's or a Guarantor's obligations to the Holders of the Notes by a successor to the Company or a Guarantor pursuant to Article 5 or Article 11 hereof; (d) to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights hereunder of any Holder of the Note; (e) to comply with requirements of the SEC in order to effect or maintain the qualification of this Indenture under the TIA; (f) to provide for the issuance of Additional Notes in accordance with the limitations set forth in this Indenture as of the date hereof; or (g) to allow any Guarantor to execute a supplemental indenture and/or a Note Guarantee with respect to the Notes. Upon the request of the Company accompanied by a resolution of its Board of Directors authorizing the execution of any such amended or supplemental Indenture, and upon receipt by the Trustee of the documents described in Section 7.02 hereof, the Trustee shall join with the Company and the Guarantors in the execution of any amended or supplemental Indenture authorized or permitted by the terms of this Indenture and to make any further appropriate agreements and stipulations that may be therein contained, but the Trustee shall not be obligated to enter into such amended or supplemental Indenture that affects its own rights, duties or immunities under this Indenture or otherwise. 70 Section 9.02. With Consent of Holders of Notes. Except as provided below in this Section 9.02, the Company and the Trustee may amend or supplement this Indenture (including Section 3.09, 4.10 and 4.15 hereof), the Note Guarantees and the Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount at maturity of the Notes (including Additional Notes, if any) then outstanding voting as a single class (including consents obtained in connection with a tender offer or exchange offer for, or purchase of, the Notes), and, subject to Sections 6.04 and 6.07 hereof, any existing Default or Event of Default (other than a Default or Event of Default in the payment of the principal of, premium, if any, or interest on the Notes, except a payment default resulting from an acceleration that has been rescinded) or compliance with any provision of this Indenture, the Note Guarantees or the Notes may be waived with the consent of the Holders of a majority in principal amount at maturity of the then outstanding Notes (including Additional Notes, if any) voting as a single class (including consents obtained in connection with a tender offer or exchange offer for, or purchase of, the Notes). Without the consent of at least 75% in principal amount at maturity of the Notes then outstanding (including consents obtained in connection with a tender offer or exchange offer for, or purchase of, such Notes), no waiver or amendment to this Indenture may make any change in the provisions of Article 10 hereof that adversely affects the rights of any Holder of Notes. Section 2.08 hereof shall determine which Notes are considered to be "outstanding" for purposes of this Section 9.02. Upon the request of the Company accompanied by a resolution of its Board of Directors authorizing the execution of any such amended or supplemental Indenture, and upon the filing with the Trustee of evidence satisfactory to the Trustee of the consent of the Holders of Notes as aforesaid, and upon receipt by the Trustee of the documents described in Section 7.02 hereof, the Trustee shall join with the Company in the execution of such amended or supplemental Indenture unless such amended or supplemental Indenture directly affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such amended or supplemental Indenture. It shall not be necessary for the consent of the Holders of Notes under this Section 9.02 to approve the particular form of any proposed amendment or waiver, but it shall be sufficient if such consent approves the substance thereof. After an amendment, supplement or waiver under this Section becomes effective, the Company shall mail to the Holders of Notes affected thereby a notice briefly describing the amendment, supplement or waiver. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such amended or supplemental Indenture or waiver. Subject to Sections 6.04 and 6.07 hereof, the Holders of a majority in aggregate principal amount at maturity of the Notes (including Additional Notes, if any) then outstanding voting as a single class may waive compliance in a particular instance by the Company with any provision of this Indenture or the Notes. However, without the consent of each Holder affected, an amendment or waiver under this Section 9.02 may not (with respect to any Notes held by a non-consenting Holder): (a) reduce the principal amount at maturity of Notes whose Holders must consent to an amendment, supplement or waiver; (b) reduce the principal of or change the fixed maturity of any Note or alter or waive any of the provisions with respect to the redemption of the Notes, other than provisions relating to Sections 3.09 71 or 4.15 hereof or amend or modify the calculation of Accreted Value so as to reduce the amount of Accreted Value of the Notes; (c) reduce the rate of or change the time for payment of interest, including default interest, on any Note; (d) waive a Default or Event of Default in the payment of principal of or premium, if any, or interest on the Notes (except a rescission of acceleration of the Notes by the Holders of at least a majority in aggregate principal amount at maturity of the then outstanding Notes (including Additional Notes, if any) and a waiver of the payment default that resulted from such acceleration; (e) make any Note payable in money other than that stated in the Notes; (f) make any change in the provisions of this Indenture relating to waivers of past Defaults or the rights of Holders of Notes to receive payments of principal of or interest on the Notes; (g) waive a redemption payment with respect to any Note, other than a payment required by Section 3.09 or 4.15; (h) make any change in the foregoing amendment and waiver provisions; or (i) release any Guarantor from any of its obligations under its Note Guarantee or this Indenture, except in accordance with the terms of this Indenture. Section 9.03. Compliance with Trust Indenture Act. Every amendment or supplement to this Indenture or the Notes shall be set forth in a amended or supplemental Indenture that complies with the TIA as then in effect. Section 9.04. Revocation and Effect of Consents. Until an amendment, supplement or waiver becomes effective, a consent to it by a Holder of a Note is a continuing consent by the Holder of a Note and every subsequent Holder of a Note or portion of a Note that evidences the same debt as the consenting Holder's Note, even if notation of the consent is not made on any Note. However, any such Holder of a Note or subsequent Holder of a Note may revoke the consent as to its Note if the Trustee receives written notice of revocation before the date the waiver, supplement or amendment becomes effective. An amendment, supplement or waiver becomes effective in accordance with its terms and thereafter binds every Holder. Section 9.05. Notation on or Exchange of Notes. The Trustee may place an appropriate notation about an amendment, supplement or waiver on any Note thereafter authenticated. The Company in exchange for all Notes may issue and the Trustee shall, upon receipt of an Authentication Order, authenticate new Notes that reflect the amendment, supplement or waiver. Failure to make the appropriate notation or issue a new Note shall not affect the validity and effect of such amendment, supplement or waiver. 72 Section 9.06. Trustee to Sign Amendments, etc. The Trustee shall sign any amended or supplemental Indenture authorized pursuant to this Article Nine if the amendment or supplement does not adversely affect the rights, duties, liabilities or immunities of the Trustee. The Company may not sign an amendment or supplemental Indenture until the Board of Directors approves it. In executing any amended or supplemental indenture, the Trustee shall be entitled to receive and (subject to Section 7.01 hereof) shall be fully protected in relying upon, in addition to the documents required by Section 11.04 hereof, an Officer's Certificate and an Opinion of Counsel stating that the execution of such amended or supplemental indenture is authorized or permitted by this Indenture. ARTICLE 10. SUBORDINATION Section 10.01. Agreement to Subordinate. The Company agrees, and each Holder by accepting a Note agrees, that the Company's Obligations with respect to the Notes are subordinated in right of payment, to the extent and in the manner provided in this Article 10, to the prior payment in full in cash or Cash Equivalents of all Senior Debt (whether outstanding on the date hereof or hereafter created, incurred, assumed or guaranteed), and that the subordination is for the benefit of the holders of Senior Debt. The foregoing provisions regarding subordination are solely for the purpose of defining the relative rights of the holders of the Senior Debt on the one hand and the Holders on the other hand. Such provisions shall be enforceable by the holders of Senior Debt directly against the Holders (and their successors and assigns). This Article 10 shall constitute a continuing offer to all persons who become holders of, or continue to hold, Senior Debt (whether such Senior Debt was created or acquired before or after the issuance of the Notes). Section 10.02. Certain Definitions. "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 hereof (without limiting the generality of the foregoing, such securities shall have no required principal payments until after the final maturity of all Senior Debt). "Representative" means the indenture trustee or other trustee, agent or representative for any 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 this Indenture, unless the instrument under which such Indebtedness is incurred expressly provides that it is on a parity with or subordinated in right of payment to the Notes and (iii) all Obligations with respect to the foregoing. 73 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 this Indenture. A distribution may consist of cash, securities or other property, by set-off or otherwise. Section 10.03. Liquidation; Dissolution; Bankruptcy. 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, in an assignment for the benefit of creditors or any marshalling of the Company's assets and liabilities: (1) holders of Senior Debt shall be entitled to receive payment in full 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 Holders of the Notes shall be entitled to receive any payment with respect to the Notes (except that Holders may receive (i) Permitted Junior Securities and (ii) payments and other distributions made from any defeasance trust created pursuant to Section 8.01 hereof); and (2) until all Obligations with respect to Senior Debt (as provided in subsection (1) above) are paid in full in cash or Cash Equivalents, any distribution to which Holders would be entitled but for this Article 10 shall be made to holders of Senior Debt (except that Holders of Notes may receive (i) Permitted Junior Securities and (ii) payments and other distributions made from any defeasance trust created pursuant to Section 8.01 hereof), as their interests may appear. Section 10.04. Default on Designated Senior Debt. The Company may not make any payment or distribution to the Trustee or any Holder in respect of Obligations with respect to the Notes and may not acquire from the Trustee or any Holder any Notes for cash or property (other than (a) Permitted Junior Securities and (b) payments and other distributions made from any defeasance trust created pursuant to Section 8.01 hereof) until all principal and other Obligations with respect to the Senior Debt have been paid in full if: (i) a default in the payment of any principal or other Obligations with respect to Designated Senior Debt occurs and is continuing beyond any applicable grace period in the agreement, indenture or other document governing such Designated Senior Debt; or (ii) a default, other than a payment default, on Designated Senior Debt occurs and is continuing that then permits holders of the Designated Senior Debt to accelerate its maturity and the Trustee receives a notice of the default (a "Payment Blockage Notice") from the trustee, agent or other representative of the holders of Designated Senior Debt, or the holders of Designated Senior Debt or the Company. If the Trustee receives any such Payment Blockage Notice, no subsequent Payment Blockage Notice shall be effective for purposes of this Section unless and until (i) at least 360 days shall have elapsed since the effectiveness of the immediately prior Payment Blockage Notice and (ii) all scheduled payments of principal, premium, if any, and interest 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 Trustee shall be, or be made, the basis 74 for a subsequent Payment Blockage Notice unless such default shall have been waived for a period of not less than 180 days. The Company may and shall resume payments on and distributions in respect of the Notes and may acquire them upon the earlier of: (1) the date upon which the default is cured or waived, or (2) in the case of a default referred to in Section 10.04(ii) hereof, 179 days pass after the Payment Blockage Notice is received if the maturity of such Designated Senior Debt has not been accelerated, if this Article 10 otherwise permits the payment, distribution or acquisition at the time of such payment or acquisition. Section 10.05. Acceleration of Securities. If payment of the Securities is accelerated because of an Event of Default, the Company shall promptly notify holders of Senior Debt of the acceleration. Section 10.06. When Distribution Must be Paid Over. In the event that the Trustee or any Holder receives any payment of any Obligations with respect to the Notes at a time when the Trustee or such Holder, as applicable, has actual knowledge that such payment is prohibited by Section 10.03 or 10.04 hereof, such payment shall be held by the Trustee or such Holder, in trust for the benefit of, and shall be paid forthwith over and delivered, upon written request, to, the holders of Senior Debt as their interests may appear or their Representative under the indenture or other agreement (if any) pursuant to which such Senior Debt may have been issued, as their respective interests may appear, for application to the payment of all Obligations with respect to Senior Debt remaining unpaid to the extent necessary to pay such Obligations in full in cash or Cash Equivalents in accordance with their terms, after giving effect to any concurrent payment or distribution to or for the holders of Senior Debt. With respect to the holders of Senior Debt, the Trustee undertakes to perform only such obligations on the part of the Trustee as are specifically set forth in this Article 10, and no implied covenants or obligations with respect to the holders of Senior Debt shall be read into this Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Debt, and shall not be liable to any such holders if the Trustee shall pay over or distribute to or on behalf of Holders or the Company or any other Person money or assets to which any holders of Senior Debt shall be entitled by virtue of this Article 10, except if such payment is made as a result of the willful misconduct or gross negligence of the Trustee. Section 10.07. Notice by Company. The Company shall promptly notify the Trustee and the Paying Agent of any facts known to the Company that would cause a payment of any Obligations with respect to the Notes to violate this Article 10, but failure to give such notice shall not affect the subordination of the Notes to the Senior Debt as provided in this Article 10. 75 Section 10.08. Subrogation. After all Senior Debt is paid in full and all commitments to lend thereunder have been terminated and until the Notes are paid in full, Holders of Notes shall be subrogated (equally and ratably with all other Indebtedness pari passu with the Notes) to the rights of holders of Senior Debt to receive distributions applicable to Senior Debt to the extent that distributions otherwise payable to the Holders of Notes have been applied to the payment of Senior Debt. A distribution made under this Article 10 to holders of Senior Debt that otherwise would have been made to Holders of Notes is not, as between the Company and Holders, a payment by the Company on the Notes. Section 10.09. Relative Rights. This Article 10 defines the relative rights of Holders of Notes and holders of Senior Debt. Nothing in this Indenture shall: (1) impair, as between the Company and Holders of Notes, the obligation of the Company, which is absolute and unconditional, to pay principal of and interest on the Notes in accordance with their terms; (2) affect the relative rights of Holders of Notes and creditors of the Company other than their rights in relation to holders of Senior Debt; or (3) prevent the Trustee or any Holder of Notes from exercising its available remedies upon a Default or Event of Default, subject to the rights of holders and owners of Senior Debt to receive distributions and payments otherwise payable to Holders of Notes. If the Company fails because of this Article 10 to pay principal of or interest on a Note on the due date, the failure shall nevertheless be a Default or Event of Default. Section 10.10. Subordination May Not be Impaired by Company. No right of any holder of Senior Debt to enforce the subordination of the Indebtedness evidenced by the Notes shall be impaired by any act or failure to act by the Company or any Holder or by the failure of the Company or any Holder to comply with this Indenture. Section 10.11. Distribution or Notice to Representative. Whenever a distribution is to be made or a notice given to holders of Senior Debt, the distribution may be made and the notice given to their Representative. Upon any payment or distribution of assets of the Company referred to in this Article 10, the Trustee and the Holders of Notes shall be entitled to rely upon any order or decree made by any court of competent jurisdiction or upon any certificate of such Representative or of the liquidating trustee or agent or other Person making any distribution to the Trustee or to the Holders of Notes for the purpose of ascertaining the Persons entitled to participate in such distribution, the holders of the Senior Debt and other Indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article 10. 76 Section 10.12. Rights of Trustee and Paying Agent. Notwithstanding the provisions of this Article 10 or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts that would prohibit the making of any payment or distribution by the Trustee, and the Trustee and the Paying Agent may continue to make payments on the Notes, unless the Trustee shall have received at its Corporate Trust Office at least five Business Days prior to the date of such payment written notice of facts that would cause the payment of any Obligations with respect to the Notes to violate this Article 10. Only the Company or a Representative may give the notice. Nothing in this Article 10 shall impair the claims of, or payments to, the Trustee under or pursuant to Section 7.07 hereof. Nothing in this Section 10.12 is intended to or shall relieve any Holder of Notes from the obligations imposed under Section 10.06 with respect to other distributions received in violation of the provisions hereof. The Trustee in its individual or any other capacity may hold Senior Debt with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. Section 10.13. Authorization to Effect Subordination. Each Holder of Notes, by the Holder's acceptance thereof, authorizes and directs the Trustee on such Holder's behalf to take such action as may be necessary or appropriate to effectuate the subordination as provided in this Article 10, and appoints the Trustee to act as such Holder's attorney-in-fact for any and all such purposes. If the Trustee does not file a proper proof of claim or proof of debt in the form required in any proceeding referred to in Section 6.09 hereof at least 30 days before the expiration of the time to file such claim, the Representatives are hereby authorized to file an appropriate claim for and on behalf of the Holders of the Notes. Section 10.14. Amendments. The provisions of this Article 10 shall not be amended or modified without the written consent of the majority of the lenders under each of the Senior Credit Agreements. Section 10.15. Changes in Senior Debt. Any holder of Senior Debt may at any time and from time to time without the consent of or notice to any Holder or the Trustee: (a) extend, renew, modify, waive or amend the terms of the Senior Debt; (b) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Senior Debt; (c) release any guarantor or any other person (except the Company) liable in any manner for the Senior Debt or amend or waive the terms of any guaranty of Senior Debt; (d) exercise or refrain from exercising any rights against the Company or any other Person; (e) apply any sums by whomever paid or however realized to Senior Debt; and (f) take any other action which otherwise might be deemed to impair the rights of the holders of Senior Debt without incurring any responsibility to any Holder or the Trustee and without impairing or releasing the obligations of any Holder or the Trustee to the holders of Senior Debt. 77 ARTICLE 11. NOTE GUARANTEES Section 11.01. Guarantee. Subject to this Article 11, each of the Guarantors hereby, jointly and severally, unconditionally guarantees to each Holder of a Note authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, irrespective of the validity and enforceability of this Indenture, the Notes or the obligations of the Company hereunder or thereunder, that: (a) the principal of and interest on the Notes will be promptly paid in full when due, whether at maturity, by acceleration, redemption or otherwise, and interest on the overdue principal of and interest on the Notes, if any, if lawful, and all other obligations of the Company to the Holders or the Trustee hereunder or thereunder will be promptly paid in full or performed, all in accordance with the terms hereof and thereof; and (b) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. Failing payment when due of any amount so guaranteed or any performance so guaranteed for whatever reason, the Guarantors shall be jointly and severally obligated to pay the same immediately. Each Guarantor agrees that this is a guarantee of payment and not a guarantee of collection. The Guarantors hereby agree that their obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Notes or this Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Notes with respect to any provisions hereof or thereof, the recovery of any judgment against the Company, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor. Each Guarantor hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands whatsoever and covenant that this Note Guarantee shall not be discharged except by complete performance of the obligations contained in the Notes and this Indenture. If any Holder or the Trustee is required by any court or otherwise to return to the Company, the Guarantors or any custodian, trustee, liquidator or other similar official acting in relation to either the Company or the Guarantors, any amount paid by either to the Trustee or such Holder, this Note Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect. Each Guarantor agrees that it shall not be entitled to any right of subrogation in relation to the Holders in respect of any obligations guaranteed hereby until payment in full of all obligations guaranteed hereby. Each Guarantor further agrees that, as between the Guarantors, on the one hand, and the Holders and the Trustee, on the other hand, (x) the maturity of the obligations guaranteed hereby may be accelerated as provided in Article 6 hereof for the purposes of this Note Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (y) in the event of any declaration of acceleration of such obligations as provided in Article 6 hereof, such obligations (whether or not due and payable) shall forthwith become due and payable by the Guarantors for the purpose of this Note Guarantee. The Guarantors shall have the right to seek contribution from any non-paying Guarantor so long as the exercise of such right does not impair the rights of the Holders under the Guarantee. 78 Section 11.02. Subordination of Note Guarantee. The Obligations of each Guarantor under its Note Guarantee pursuant to this Article 11 shall be junior and subordinated to the Senior Debt of such Guarantor on the same basis as the Notes are junior and subordinated to Senior Debt of the Company. For the purposes of the foregoing sentence, the Trustee and the Holders shall have the right to receive and/or retain payments by any of the Guarantors only at such times as they may receive and/or retain payments in respect of the Notes pursuant to this Indenture, including Article 11 hereof. Section 11.03. Limitation on Guarantor Liability. Each Guarantor, and by its acceptance of Notes, each Holder, hereby confirms that it is the intention of all such parties that the Note Guarantee of such Guarantor not constitute a fraudulent transfer or conveyance for purposes of Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar federal or state law to the extent applicable to any Note Guarantee. To effectuate the foregoing intention, the Trustee, the Holders and the Guarantors hereby irrevocably agree that the obligations of such Guarantor under its Note Guarantee and this Article 11 shall be limited to the maximum amount as will, after giving effect to such maximum amount and all other contingent and fixed liabilities of such Guarantor that are relevant under such laws, and after giving effect to any collections from, rights to receive contribution from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under this Article 11, result in the obligations of such Guarantor under its Note Guarantee not constituting a fraudulent transfer or conveyance. Section 11.04. Execution and Delivery of Note Guarantee. To evidence its Note Guarantee set forth in Section 11.01, each Guarantor hereby agrees that a notation of such Note Guarantee substantially in the form included in Exhibit E shall be endorsed by an Officer of such Guarantor on each Note authenticated and delivered by the Trustee and that this Indenture shall be executed on behalf of such Guarantor by its President or one of its Vice Presidents. Each Guarantor hereby agrees that its Note Guarantee set forth in Section 11.01 shall remain in full force and effect notwithstanding any failure to endorse on each Note a notation of such Note Guarantee. If an Officer whose signature is on this Indenture or on the Note Guarantee no longer holds that office at the time the Trustee authenticates the Note on which a Note Guarantee is endorsed, the Note Guarantee shall be valid nevertheless. The delivery of any Note by the Trustee, after the authentication thereof hereunder, shall constitute due delivery of the Note Guarantee set forth in this Indenture on behalf of the Guarantors. In the event that the Company creates or acquires any new Subsidiaries subsequent to the date of this Indenture, if required by Section 4.17 hereof, the Company shall cause such Subsidiaries to execute supplemental indentures to this Indenture and Note Guarantees in accordance with Section 4.17 hereof and this Article 11, to the extent applicable. 79 Section 11.05. Guarantors May Consolidate, etc., on Certain Terms. No Guarantor may consolidate with or merge with or into (whether or not such Guarantor is the surviving Person) another Person whether or not affiliated with such Guarantor unless: (a) subject to Section 11.05 hereof, the Person formed by or surviving any such consolidation or merger (if other than a Guarantor or the Company) unconditionally assumes all the obligations of such Guarantor, pursuant to a supplemental indenture in form and substance reasonably satisfactory to the Trustee, under the Notes, the Indenture, the Registration Rights Agreement and the Note Guarantee on the terms set forth herein or therein; (b) immediately after giving effect to such transaction, no Default or Event of Default exists; and (c) the Company would be permitted, 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 first paragraph of Section 4.09 hereof. In case of any such consolidation, merger, sale or conveyance and upon the assumption by the successor Person, by supplemental indenture, executed and delivered to the Trustee and satisfactory in form to the Trustee, of the Note Guarantee endorsed upon the Notes and the due and punctual performance of all of the covenants and conditions of this Indenture to be performed by the Guarantor, such successor Person shall succeed to and be substituted for the Guarantor with the same effect as if it had been named herein as a Guarantor. Such successor Person thereupon may cause to be signed any or all of the Note Guarantees to be endorsed upon all of the Notes issuable hereunder which theretofore shall not have been signed by the Company and delivered to the Trustee. All the Note Guarantees so issued shall in all respects have the same legal rank and benefit under this Indenture as the Note Guarantees theretofore and thereafter issued in accordance with the terms of this Indenture as though all of such Note Guarantees had been issued at the date of the execution hereof. Except as set forth in Articles 4 and 5 hereof, and notwithstanding clauses (a) and (b) above, nothing contained in this Indenture or in any of the Notes shall prevent any consolidation or merger of a Guarantor with or into the Company or another Guarantor, or shall prevent any sale or conveyance of the property of a Guarantor as an entirety or substantially as an entirety to the Company or another Guarantor. Section 11.06. Releases Following Sale of Assets. In the event of a sale or other disposition of all of the assets of any Guarantor, by way of merger, consolidation or otherwise, or a sale or other disposition of all of the capital stock of any Guarantor, then such Guarantor (in the event of a sale or other disposition, by way of merger, consolidation or otherwise, of all of the capital stock of such Guarantor) or the corporation acquiring the property (in the event of a sale or other disposition of all or substantially all of the assets of such Guarantor) will be released and relieved of any obligations under its Note Guarantee; provided that the Net Proceeds of such sale or other disposition are applied in accordance with the applicable provisions of this Indenture, including without limitation Section 4.10 hereof. Upon delivery by the Company to the Trustee of an Officers' Certificate and an Opinion of Counsel to the effect that such sale or other disposition was made by the Company in accordance with the applicable provisions of this Indenture, 80 including without limitation Section 4.10 hereof, the Trustee shall execute any documents reasonably required in order to evidence the release of any Guarantor from its obligations under its Note Guarantee. Any Guarantor not released from its obligations under its Note Guarantee shall remain liable for the full amount of principal of and interest on the Notes and for the other obligations of any Guarantor under this Indenture as provided in this Article 11. ARTICLE 12. MISCELLANEOUS Section 12.01. Trust Indenture Act Controls. If any provision of this Indenture limits, qualifies or conflicts with the duties imposed by TIA (S) 318(c), the imposed duties shall control. Section 12.02. Notices. Any notice or communication by the Company, any Guarantor or the Trustee to the others is duly given if in writing and delivered in Person or mailed by first class mail (registered or certified, return receipt requested), telex, telecopier or overnight air courier guaranteeing next day delivery, to the others' address: If to the Company and/or any Guarantor: Sealy Mattress Company Halle Building 10th Floor 1228 Euclid Avenue Cleveland, Ohio 44115 Telecopier No.: (216) 522-1366 Attention: General Counsel With a copy to: Kirkland & Ellis 153 East 53rd Street New York, NY 10022 Telecopier No.: (212) 446-4900 Attention: Lance Balk If to the Trustee: The Bank of New York 101 Barclay Street Floor 21 West New York, New York 10286 Telecopier No.:(212) 815-5915 Attention: Corporate Trust Administration 81 The Company, any Guarantor or the Trustee, by notice to the others may designate additional or different addresses for subsequent notices or communications. All notices and communications (other than those sent to Holders) shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when answered back, if telexed; when receipt acknowledged, if telecopied; and the next Business Day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery. Any notice or communication to a Holder shall be mailed by first class mail, certified or registered, return receipt requested, or by overnight air courier guaranteeing next day delivery to its address shown on the register kept by the Registrar. Any notice or communication shall also be so mailed to any Person described in TIA (S) 313(c), to the extent required by the TIA. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. If a notice or communication is mailed in the manner provided above within the time prescribed, it is duly given, whether or not the addressee receives it. If the Company mails a notice or communication to Holders, it shall mail a copy to the Trustee and each Agent at the same time. Section 12.03. Communication by Holders of Notes with Other Holders of Notes. Holders may communicate pursuant to TIA (S) 312(b) with other Holders with respect to their rights under this Indenture or the Notes. The Company, the Trustee, the Registrar and anyone else shall have the protection of TIA (S) 312(c). Section 12.04. Certificate and Opinion as to Conditions Precedent. Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee: (a) an Officers' Certificate in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 12.05 hereof) stating that, in the opinion of the signers, all conditions precedent and covenants, if any, provided for in this Indenture relating to the proposed action have been satisfied; and (b) an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 12.05 hereof) stating that, in the opinion of such counsel, all such conditions precedent and covenants have been satisfied. Section 12.05. Statements Required in Certificate or Opinion. Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than a certificate provided pursuant to TIA (S) 314(a)(4)) shall comply with the provisions of TIA (S) 314(e) and shall include: (a) a statement that the Person making such certificate or opinion has read such covenant or condition; 82 (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (c) a statement that, in the opinion of such Person, he or she has or they have made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been satisfied; and (d) a statement as to whether or not, in the opinion of such Person, such condition or covenant has been satisfied. Section 12.06. Rules by Trustee and Agents. The Trustee may make reasonable rules for action by or at a meeting of Holders. The Registrar or Paying Agent may make reasonable rules and set reasonable requirements for its functions. Section 12.07. No Personal Liability of Directors, Officers, Employees and Stockholders. No past, present or future director, officer, employee, incorporator or stockholder of the Company or any Guarantor, as such, shall have any liability for any obligations of the Company or such Guarantor under the Notes, the Note Guarantees, this Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. Section 12.08. Governing Law. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS INDENTURE, THE NOTES AND THE NOTE GUARANTEES WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. Section 12.09. No Adverse Interpretation of Other Agreements. This Indenture may not be used to interpret any other indenture, loan or debt agreement of the Company or its Subsidiaries or of any other Person. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. Section 12.10. Successors. All agreements of the Company in this Indenture and the Notes shall bind its successors. All agreements of the Trustee in this Indenture shall bind its successors. Section 12.11. Severability. In case any provision in this Indenture or in the Notes shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 83 Section 12.12. Counterpart Originals. The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. Section 12.13. Table of Contents, Headings, etc. The Table of Contents, Cross-Reference Table and Headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part of this Indenture and shall in no way modify or restrict any of the terms or provisions hereof. [Indenture signature pages(s) follow] 84 [Indenture signature pages(s)] Dated as of December 18, 1997 Sealy Mattress Company By: /s/ RONALD H. STOLLE _________________________________ Name: Ronald H. Stolle Title: Vice President & Treasurer Guarantors: Sealy Corporation By: /s/ RONALD H. STOLLE _________________________________ Name: Ronald H. Stolle Title: Vice President & Treasurer Sealy Mattress Company of Puerto Rico By: /s/ RONALD H. STOLLE _________________________________ Name: Ronald H. Stolle Title: Vice President & Treasurer Ohio-Sealy Mattress Manufacturing Co., Inc. (Randolph) By: /s/ RONALD H. STOLLE _________________________________ Name: Ronald H. Stolle Title: Vice President & Treasurer Ohio-Sealy Mattress Manufacturing Co. - Ft. Worth By: /s/ RONALD H. STOLLE _________________________________ Name: Ronald H. Stolle Title: Vice President & Treasurer Ohio-Sealy Mattress Manufacturing Co. By: /s/ RONALD H. STOLLE _________________________________ Name: Ronald H. Stolle Title: Vice President & Treasurer 85 Ohio-Sealy Mattress Manufacturing Co.- Houston By: /s/ RONALD H. STOLLE _________________________________ Name: Ronald H. Stolle Title: Vice President & Treasurer Sealy Mattress Company of Michigan, Inc. By: /s/ RONALD H. STOLLE _________________________________ Name: Ronald H. Stolle Title: Vice President & Treasurer Sealy Mattress Company of Kansas City, Inc. By: /s/ RONALD H. STOLLE _________________________________ Name: Ronald H. Stolle Title: Vice President & Treasurer Sealy of Maryland and Virginia, Inc. By: /s/ RONALD H. STOLLE _________________________________ Name: Ronald H. Stolle Title: Vice President & Treasurer Sealy Mattress Company of Illinois By: /s/ RONALD H. STOLLE _________________________________ Name: Ronald H. Stolle Title: Vice President & Treasurer A. Brandwein & Company By: /s/ RONALD H. STOLLE _________________________________ Name: Ronald H. Stolle Title: Vice President & Treasurer 86 Sealy Mattress Company of Albany, Inc. By: /s/ RONALD H. STOLLE _________________________________ Name: Ronald H. Stolle Title: Vice President & Treasurer Sealy of Minnesota, Inc. By: /s/ RONALD H. STOLLE _________________________________ Name: Ronald H. Stolle Title: Vice President & Treasurer Sealy Mattress Company of Memphis By: /s/ RONALD H. STOLLE _________________________________ Name: Ronald H. Stolle Title: Vice President & Treasurer The Stearns & Foster Bedding Company By: /s/ RONALD H. STOLLE _________________________________ Name: Ronald H. Stolle Title: Vice President & Treasurer The Stearns & Foster Upholstery Furniture Company By: /s/ RONALD H. STOLLE _________________________________ Name: Ronald H. Stolle Title: Vice President & Treasurer Sealy, Inc. By: /s/ RONALD H. STOLLE _________________________________ Name: Ronald H. Stolle Title: Vice President & Treasurer 87 The Ohio Mattress Company Licensing and Components Group By: /s/ RONALD H. STOLLE _________________________________ Name: Ronald H. Stolle Title: Vice President & Treasurer Sealy Mattress Manufacturing Company, Inc. By: /s/ RONALD H. STOLLE _________________________________ Name: Ronald H. Stolle Title: Vice President & Treasurer The Bank of New York By: /s/ LUCILLE FIRRINCIELI _________________________________ Name: Lucille Firrincieli Title: Vice President 88 EXHIBIT A-1 (Face of Note) [INSERT THE GLOBAL NOTE LEGEND, IF APPLICABLE PURSUANT TO THE PROVISIONS OF THE INDENTURE] [INSERT THE PRIVATE PLACEMENT LEGEND, IF APPLICABLE PURSUANT TO THE PROVISIONS OF THE INDENTURE] FOR THE PURPOSES OF SECTIONS 1272, 1273 AND 1275 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, THE NOTES ARE BEING ISSUED WITH ORIGINAL ISSUE DISCOUNT: FOR EACH $1,000 PRINCIPAL AMOUNT OF THE NOTES, THE ISSUE PRICE IS $589.43, THE AMOUNT OF ORIGINAL ISSUE DISCOUNT IS $410.57, THE ISSUE DATE IS DECEMBER 18, 1997 AND THE YIELD TO MATURITY IS 10-7/8% PER ANNUM. CUSIP/CINS ___________ 10-7/8% [SERIES A] [SERIES B] SENIOR SUBORDINATED DISCOUNT NOTES DUE 2007 No. _____ $ _________ SEALY MATTRESS COMPANY promises to pay to __________________________________________________ or registered assigns, the principal sum of ___________________________________________ Dollars on December 15, 2007. Interest Payment Dates: June 15 and December 15. Record Dates: June 1 and December 1. Sealy Mattress Company By: ___________________________ Name: Title: By: ___________________________ Name: Title: This is one of the Global Notes referred to in the within-mentioned Indenture: THE BANK OF NEW YORK, as Trustee By: __________________________ Dated: December 18, 1997 Name: Title: A-1-1 (Back of Note) 10-7/8% [Series A] [Series B] Senior Subordinated Discount Notes due 2007 Capitalized terms used herein shall have the meanings assigned to them in the Indenture referred to below unless otherwise indicated. 1. Interest. Sealy Mattress Company, an Ohio corporation (the "Company"), promises to pay interest on the principal amount of this Note at 10- 7/8% per annum and shall pay the Liquidated Damages payable pursuant to Section 5 of the Registration Rights Agreement referred to below. Interest will not accrue prior to December 15, 2002. Thereafter, the Company shall pay interest semi-annually, if any, on June 15 and December 15, commencing on June 15, 2003, or if any such day is not a Business Day, on the next succeeding Business Day (each an "Interest Payment Date"). Interest on the Notes shall accrue from the most recent date to which interest has been paid or, if no interest has been paid, from December 15, 2002; provided that if there is no existing Default in the payment of interest, and if this Note is authenticated between a record date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such next succeeding Interest Payment Date; provided, further, that the first Interest Payment Date shall be June 15, 2003. The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal and premium, if any, from time to time on demand at a rate that is 1% per annum in excess of the rate then in effect; it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest and Liquidated Damages (without regard to any applicable grace periods) from time to time on demand at the same rate to the extent lawful. Interest will be computed on the basis of a 360-day year of twelve 30-day months. 2. Method of Payment. The Company will pay interest on the Notes (except defaulted interest) and Liquidated Damages to the Persons who are registered Holders of Notes at the close of business on the June 1 or December 1 next preceding the Interest Payment Date, even if such Notes are canceled after such record date and on or before such Interest Payment Date, except as provided in Section 2.12 of the Indenture with respect to defaulted interest. The Notes will be payable as to principal, premium and Liquidated Damages, if any, and interest at the office or agency of the Company maintained for such purpose within or without the City and State of New York, or, at the option of the Company, payment of interest and Liquidated Damages may be made by check mailed to the Holders at their addresses set forth in the register of Holders, and provided that payment by wire transfer of immediately available funds will be required with respect to principal of and interest, premium and Liquidated Damages on, all Global Notes and all other Notes the Holders of which shall have provided wire transfer instructions to the Company or the Paying Agent. Such payment shall be in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. 3. Paying Agent and Registrar. Initially, The Bank of New York, the Trustee under the Indenture, will act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company or any of its Subsidiaries may act in any such capacity. 4. Indenture. The Company issued the Notes under an Indenture dated as of December 18, 1997 ("Indenture") between the Company and the Trustee. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code (S)(S) 77aaa-77bbbb). The Notes are subject to all such terms, and A-1-2 Holders are referred to the Indenture and such Act for a statement of such terms. To the extent any provision of this Note conflicts with the express provisions of the Indenture, the provisions of the indenture shall govern and be controlling. The Notes are obligations of the Company limited to $275.0 million in aggregate principal amount at maturity. 5. Optional Redemption. (a) Except as set forth in subparagraph (b) of this Paragraph 5, the Notes will not be redeemable at the Company's option prior to December 15, 2002. Thereafter, the 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:
PERCENTAGE OF PRINCIPAL YEAR AMOUNT ---- ------ 2002............................................ 105.437% 2003............................................ 103.625% 2004............................................ 101.812% 2005 and thereafter............................. 100.000%
(b) Notwithstanding the provisions of subparagraph (a) of this Paragraph 5, 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 Notes originally issued under the Indenture at a redemption price of 110.875% of the Accreted Value 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 $50.0 million in aggregate Accreted Value of 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. (c) At any time prior to December 15, 2002, the 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 Applicable Premium as of, and accrued and unpaid interest and Liquidated Damages, if any, to, the date of redemption (the "Redemption Date"). 6. Mandatory Redemption. Except as set forth in paragraph 7 below, the Company shall not be required to make mandatory redemption payments with respect to the Notes. 7. Repurchase at Option of Holder. A-1-3 (a) If there is a Change of Control, the Company shall be required to make an offer (a "Change of Control Offer") to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of each Holder's Notes at a purchase price equal to 101% of the Accreted Value thereof on the date of purchase (if prior to the Full Accretion Date), or 101% of the aggregate principal amount thereof plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the date of purchase (if after the Full Accretion Date) (the "Change of Control Payment"). Within 10 days following any Change of Control, the Company shall mail a notice to each Holder setting forth the procedures governing the Change of Control Offer as required by the Indenture. (b) If the Company or a Subsidiary consummates any Asset Sales, within five days of each date on which the aggregate amount of Net Proceeds Offer Amount exceeds $10.0 million, the Company shall commence an offer to all Holders of Notes (as "Net Proceeds Offer") pursuant to Section 3.09 of the Indenture to purchase the maximum principal amount of Notes (including any Additional Notes) that may be purchased out of the Net Proceeds Offer Amount at an offer price in cash in an amount equal to 100% of the Accreted Value on the date fixed for the closing of such offer plus accrued and unpaid Liquidated Damages thereon, if any (if prior to the Full Accretion Date), or 100% of the principal amount thereof plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the date fixed for the closing of such offer (if after the Full Accretion Date), in accordance with the procedures set forth in the Indenture. To the extent that the aggregate amount of Notes (including any Additional Notes) tendered pursuant to an Net Proceeds Offer is less than the Net Proceeds Offer Amount, the Company (or such Subsidiary) may use such deficiency for general corporate purposes. If the aggregate principal amount of Notes surrendered by Holders thereof exceeds the amount of Net Proceeds Offer Amount, the Trustee shall select the Notes to be purchased on a pro rata basis. Holders of Notes that are the subject of an offer to purchase will receive an Net Proceeds Offer from the Company prior to any related purchase date and may elect to have such Notes purchased by completing the form entitled "Option of Holder to Elect Purchase" on the reverse of the Notes. 8. Notice of Redemption. Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each Holder whose Notes are to be redeemed at its registered address. Notes in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000, unless all of the Notes held by a Holder are to be redeemed. On and after the redemption date interest ceases to accrue on Notes or portions thereof called for redemption. 9. Denominations, Transfer, Exchange. The Notes are in registered form without coupons in denominations of $1,000 and integral multiples of $1,000. The transfer of Notes may be registered and Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Company need not exchange or register the transfer of any Note or portion of a Note selected for redemption, except for the unredeemed portion of any Note being redeemed in part. Also, the Company need not exchange or register the transfer of any Notes for a period of 15 days before a selection of Notes to be redeemed or during the period between a record date and the corresponding Interest Payment Date. 10. Persons Deemed Owners. The registered Holder of a Note may be treated as its owner for all purposes. 11. Amendment, Supplement and Waiver. Subject to certain exceptions, the Indenture, the Note Guarantees or the Notes may be amended or supplemented with the consent of the A-1-4 Holders of at least a majority in principal amount at maturity of the then outstanding Notes and Additional Notes, if any, voting as a single class, and any existing default or compliance with any provision of the Indenture, the Note Guarantees or the Notes may be waived with the consent of the Holders of a majority in principal amount at maturity of the then outstanding Notes and Additional Notes, if any, voting as a single class. Without the consent of any Holder of a Note, the Indenture, the Note Guarantees or the Notes may be amended or supplemented to cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes in addition to or in place of certificated Notes, to provide for the assumption of the Company's or Guarantor's obligations to Holders of the Notes in case of a merger or consolidation, to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights under the Indenture of any such Holder, to comply with the requirements of the Commission in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act, to provide for the Issuance of Additional Notes in accordance with the limitations set forth in the Indenture, or to allow any Guarantor to execute a supplemental indenture to the Indenture and/or a Note Guarantee with respect to the Notes. 12. Defaults and Remedies. Events of Default include: (i) the failure to pay interest on any 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 Article 10 hereof; (ii) the failure to pay the principal on any Notes when such principal becomes due and payable, at maturity, upon redemption or otherwise (including the failure to make a payment to purchase Notes tendered pursuant to a Change of Control Offer or a Net Proceeds Offer), whether or not such payment shall be prohibited by Article 10 of the Indenture; (iii) a default in the observance or performance of any other covenant or agreement contained herein 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 Trustee or the Holders of at least 25% of the outstanding principal amount of the Notes; (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) certain events of bankruptcy or insolvency with respect to the Company or any of its Material Subsidiaries; and (vii) except as permitted by the Indenture, any Note Guarantee is 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 such Guarantor's Note Guarantee. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount at maturity of the then outstanding Notes may declare all the Notes to be due and payable. Upon any acceleration of maturity of the Notes, all principal of and accrued interest and Liquidated Damages, if any, on (if on or after the Full Accretion Date) or Accreted Value of and Liquidated Damages, if any, on (if prior to the Full Accretion Date) the Notes shall be due and payable immediately. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, all outstanding Notes will become due and payable without further action or notice. Holders may not enforce the Indenture or the Notes except as provided in the Indenture. Subject to certain limitations, Holders of a majority in principal amount at maturity of the A-1-5 then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in their interest. The Holders of a majority in aggregate principal amount at maturity of the Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest on, or the principal of, the Notes. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. 13. Trustee Dealings with Company. The Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not the Trustee. 14. No Recourse Against Others. A director, officer, employee, incorporator or stockholder, of the Company, as such, shall not have any liability for any obligations of the Company under the Notes or the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes. 15. Authentication. This Note shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. 16. Abbreviations. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 17. Additional Rights of Holders of Restricted Global Notes and Restricted Definitive Notes. In addition to the rights provided to Holders of Notes under the Indenture, Holders of Restricted Global Notes and Restricted Definitive Notes shall have all the rights set forth in the A/B Exchange Registration Rights Agreement dated as of December 18, 1997, between the Company and the parties named on the signature pages thereof or, in the case of Additional Notes, Holders of Restricted Global Notes and Restricted Definitive Notes shall have the rights set forth in one or more registration rights agreements, if any, between the Company and the other parties thereto, relating to rights given by the Company to the purchasers of any Additional Notes (collectively, the "Registration Rights Agreement"). 18. CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. A-1-6 The Company will furnish to any Holder upon written request and without charge a copy of the Indenture and/or the Registration Rights Agreement. Requests may be made to: Sealy Mattress Company Halle Building 10th Floor 1228 Euclid Avenue Cleveland, Ohio 44115 Attention: General Counsel A-1-7 ASSIGNMENT FORM To assign this Note, fill in the form below: (I) or (we) assign and transfer this Note to ________________________________________________________________________________ (Insert assignee's soc. sec. or tax I.D. no.) ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (Print or type assignee's name, address and zip code) and irrevocably appoint_________________________________________________________ to transfer this Note on the books of the Company. The agent may substitute another to act for him. ________________________________________________________________________________ Date: ________________ Your Signature:___________________________________ (Sign exactly as your name appears on the face of this Note) Tax Identification No:____________________________ SIGNATURE GUARANTEE: _________________________________ Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. A-1-8 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Note purchased by the Company pursuant to Section 4.10 or 4.15 of the Indenture, check the box below: [_] Section 4.10 [_] Section 4.15 If you want to elect to have only part of the Note purchased by the Company pursuant to Section 4.10 or Section 4.15 of the Indenture, state the amount you elect to have purchased: $________ Date: _______________ Your Signature:___________________________________ (Sign exactly as your name appears on the face of this Note) Tax Identification No:____________________________ SIGNATURE GUARANTEE: _________________________________ Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. A-1-9 SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE /I// The following exchanges of a part of this Global Note for an interest in another Global Note or for a Definitive Note, or exchanges of a part of another Global Note or Definitive Note for an interest in this Global Note, have been made:
Principal Amount at Amount of Amount of increase Maturity of this decrease in in Principal Global Note Signature of Principal Amount Amount at Maturity following such authorized officer at Maturity of this of this Global decrease (or of Trustee or Note Date of Exchange Global Note Note increase) Custodian - ---------------- ----------- --------- ----------- -----------
________________________ /I/ This should be included only if the Debenture is issued in global form. A-1-10 EXHIBIT A-2 (Face of Regulation S Temporary Global Note) THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED NOTES, ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER NOR THE BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL NOTE SHALL BE ENTITLED TO RECEIVE PAYMENT OF INTEREST HEREON. UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. THE NOTES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A)(1) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144a UNDER THE SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144a, (2) IN AN OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (3) TO AN INSTITUTIONAL ACCREDITED INVESTOR IN A TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, (4) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE) OR (5) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (B) IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED STATES AND OTHER JURISDICTIONS. FOR THE PURPOSES OF SECTIONS 1272, 1273 AND 1275 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, THE NOTES ARE BEING ISSUED WITH ORIGINAL ISSUE DISCOUNT: FOR EACH $1,000 PRINCIPAL AMOUNT OF THE NOTES, THE ISSUE PRICE IS $589.43, THE AMOUNT OF ORIGINAL ISSUE DISCOUNT IS $410.57, THE ISSUE DATE IS DECEMBER 18, 1997 AND THE YIELD TO MATURITY IS 10-7/8% PER ANNUM. A-2-1 CUSIP/CINS _______________ 10-7/8% SERIES A SENIOR SUBORDINATED DISCOUNT NOTES DUE 2007 No._____ $____________ SEALY MATTRESS COMPANY promises to pay to_________________________________________________ or registered assigns, the principal sum of__________________________________________ Dollars on December 15, 2007. Interest Payment Dates: June 15 and December 15 Record Dates: June 1 and December 15 Sealy Mattress Company By:__________________________ Name: Title: By:__________________________ Name: Title: This is one of the Global Notes referred to in the within-mentioned Indenture: THE BANK OF NEW YORK as Trustee By: _________________________ Dated: December 18, 1997 Name: Title: A-2-2 (Back of Regulation S Temporary Global Note) 10-7/8% Series A Senior Subordinated Discount Notes due 2007 Capitalized terms used herein shall have the meanings assigned to them in the Indenture referred to below unless otherwise indicated. 1. Interest. Sealy Mattress Company, an Ohio corporation (the "Company"), promises to pay interest on the principal amount of this Note at 10- 7/8% per annum and shall pay the Liquidated Damages payable pursuant to Section 5 of the Registration Rights Agreement referred to below. Interest will not accrue prior to December 15, 2002. Thereafter, the Company shall pay interest semi-annually, if any, on June 15 and December 15, commencing on June 15, 2003, or if any such day is not a Business Day, on the next succeeding Business Day (each an "Interest Payment Date"). Interest on the Notes shall accrue from the most recent date to which interest has been paid or, if no interest has been paid, from December 15, 2002; provided that if there is no existing Default in the payment of interest, and if this Note is authenticated between a record date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such next succeeding Interest Payment Date; provided, further, that the first Interest Payment Date shall be June 15, 2003. The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal and premium, if any, from time to time on demand at a rate that is 1% per annum in excess of the rate then in effect; it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest and Liquidated Damages (without regard to any applicable grace periods) from time to time on demand at the same rate to the extent lawful. Interest will be computed on the basis of a 360-day year of twelve 30-day months. Until this Regulation S Temporary Global Note is exchanged for one or more Regulation S Permanent Global Notes, the Holder hereof shall not be entitled to receive payments of interest hereon; until so exchanged in full, this Regulation S Temporary Global Note shall in all other respects be entitled to the same benefits as other Notes under the Indenture. 2. Method of Payment. The Company will pay interest on the Notes (except defaulted interest) and Liquidated Damages to the Persons who are registered Holders of Notes at the close of business on the June 1 or December 1 next preceding the Interest Payment Date, even if such Notes are canceled after such record date and on or before such Interest Payment Date, except as provided in Section 2.12 of the Indenture (as herein defined) with respect to defaulted interest. The Notes will be payable as to principal, premium and Liquidated Damages, if any, and interest at the office or agency of the Company maintained for such purpose within or without the City and State of New York, or, at the option of the Company, payment of interest and Liquidated Damages may be made by check mailed to the Holders at their addresses set forth in the register of Holders, and provided that payment by wire transfer of immediately available funds will be required with respect to principal of and interest, premium and Liquidated Damages on, all Global Notes and all other Notes the Holders of which shall have provided wire transfer instructions to the Company or the Paying Agent. Such payment shall be in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. 3. Paying Agent and Registrar. Initially, The Bank of New York, the Trustee under the Indenture, will act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company or any of its Subsidiaries may act in any such capacity. A-2-3 4. Indenture. The Company issued the Notes under an Indenture dated as of December 18, 1997 ("Indenture") between the Company and the Trustee. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code (S)(S) 77aaa-77bbbb). The Notes are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms. The Notes are obligations of the Company limited to $275.0 million in aggregate principal amount at maturity. 5. Optional Redemption. (a) Except as set forth in subparagraph (b) of this Paragraph 5, the Notes will not be redeemable at the Company's option prior to December 15, 2002. Thereafter, the 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:
PERCENTAGE OF PRINCIPAL YEAR AMOUNT ---- ------ 2002......................................... 105.437% 2003......................................... 103.625% 2004......................................... 101.812% 2005 and thereafter.......................... 100.000%
(b) Notwithstanding the provisions of subparagraph (a) of this Paragraph 5, during the first 36 months after December 11, 1999 the Company may on any one or more occasions redeem up to 35% of the Accreted Value of Notes originally issued under the Indenture at a redemption price of 110.875% of the Accreted Value thereof, 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 principal amount of 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. (c) At any time prior to December 15, 2002, the 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 Applicable Premium as of, and accrued and unpaid interest and Liquidated Damages, if any, to, the date of redemption (the "Redemption Date"). 6. Mandatory Redemption. Except as set forth in paragraph 7 below, the Company shall not be required to make mandatory redemption payments with respect to the Notes. A-2-4 7. Repurchase at Option of Holder. (a) If there is a Change of Control, the Company shall be required to make an offer (a "Change of Control Offer") to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of each Holder's Notes at a purchase price equal to 101% of the Accreted Value thereof on the date of purchase (if prior to the Full Accretion Date) or 101% of the aggregate principal amount thereof plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the date of purchase (if after the Full Accretion Date) (the "Change of Control Payment"). Within 10 days following any Change of Control, the Company shall mail a notice to each Holder setting forth the procedures governing the Change of Control Offer as required by the Indenture. (b) If the Company or a Subsidiary consummates any Asset Sales, within five days of each date on which the aggregate amount of Net Proceeds Offer Amount exceeds $10.0 million, the Company shall commence an offer to all Holders of Notes (as "Net Proceeds Offer") pursuant to Section 3.09 of the Indenture to purchase the maximum principal amount of Notes (including any Additional Notes) that may be purchased out of the Net Proceeds Offer Amount at an offer price in cash in an amount equal to 100% of the Accreted Value on the date fixed for the closing of such offer plus accrued and unpaid Liquidated Damages thereon, if any (if prior to the Full Accretion Date), or 100% of the principal amount thereof plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the date fixed for the closing of such offer (if after the Full Accretion Date), in accordance with the procedures set forth in the Indenture. To the extent that the aggregate amount of Notes (including any Additional Notes) tendered pursuant to an Net Proceeds Offer is less than the Net Proceeds Offer Amount, the Company (or such Subsidiary) may use such deficiency for general corporate purposes. If the aggregate principal amount of Notes surrendered by Holders thereof exceeds the amount of Net Proceeds Offer Amount, the Trustee shall select the Notes to be purchased on a pro rata basis. Holders of Notes that are the subject of an offer to purchase will receive an Net Proceeds Offer from the Company prior to any related purchase date and may elect to have such Notes purchased by completing the form entitled "Option of Holder to Elect Purchase" on the reverse of the Notes. 8. Notice of Redemption. Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each Holder whose Notes are to be redeemed at its registered address. Notes in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000, unless all of the Notes held by a Holder are to be redeemed. On and after the redemption date interest ceases to accrue on Notes or portions thereof called for redemption. 9. Denominations, Transfer, Exchange. The Notes are in registered form without coupons in denominations of $1,000 and integral multiples of $1,000. The transfer of Notes may be registered and Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Company need not exchange or register the transfer of any Note or portion of a Note selected for redemption, except for the unredeemed portion of any Note being redeemed in part. Also, it need not exchange or register the transfer of any Notes for a period of 15 days before a selection of Notes to be redeemed or during the period between a record date and the corresponding Interest Payment Date. This Regulation S Temporary Global Note is exchangeable in whole or in part for one or more Global Notes only (i) on or after the termination of the 40-day restricted period (as defined in Regulation S) and (ii) upon presentation of certificates (accompanied by an Opinion of Counsel, if applicable) required by Article 2 of the Indenture. Upon exchange of this Regulation S Temporary A-2-5 Global Note for one or more Global Notes, the Trustee shall cancel this Regulation S Temporary Global Note. 10. Persons Deemed Owners. The registered Holder of a Note may be treated as its owner for all purposes. 11. Amendment, Supplement and Waiver. Subject to certain exceptions, the Indenture or the Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount at maturity of the then outstanding Notes, and any existing default or compliance with any provision of the Indenture or the Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes. Without the consent of any Holder of a Note, the Indenture or the Notes may be amended or supplemented to cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes in addition to or in place of certificated Notes, to provide for the assumption of the Company's obligations to Holders of the Notes in case of a merger or consolidation, to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights under the Indenture of any such Holder, or to comply with the requirements of the Commission in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act. 12. Defaults and Remedies. Events of Default include: (i) the failure to pay interest on any 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 Article 10 hereof; (ii) the failure to pay the principal on any Notes when such principal becomes due and payable, at maturity, upon redemption or otherwise (including the failure to make a payment to purchase Notes tendered pursuant to a Change of Control Offer or a Net Proceeds Offer), whether or not such payment shall be prohibited by Article 10 of the Indenture; (iii) a default in the observance or performance of any other covenant or agreement contained herein 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 Trustee or the Holders of at least 25% of the outstanding principal amount of the Notes; (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) certain events of bankruptcy or insolvency with respect to the Company or any of its Material Subsidiaries; and (vii) except as permitted by the Indenture, any Note Guarantee is 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 such Guarantor's Note Guarantee. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount at maturity of the then outstanding Notes may declare all the Notes to be due and payable. Upon any acceleration of maturity of the Notes, all principal of and accrued interest and Liquidated Damages, if any, on (if on or after the Full Accretion Date) or Accreted Value of and Liquidates Damages, if any, on (if prior to the Full Accretion Date) the Notes shall be due and payable immediately. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, all outstanding Notes will become due and payable without A-2-6 further action or notice. Holders may not enforce the Indenture or the Notes except as provided in the Indenture. Subject to certain limitations, Holders of a majority in principal amount at maturity of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in their interest. The Holders of a majority in aggregate principal amount at maturity of the Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest on, or the principal of, the Notes. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. 13. Trustee Dealings with Company. The Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not the Trustee. 14. No Recourse Against Others. A director, officer, employee, incorporator or stockholder, of the Company or any of the Guarantors, as such, shall not have any liability for any obligations of the Company or such Guarantor under the Notes, the Note Guarantees or the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes. 15. Authentication. This Note shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. 16. Abbreviations. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 17. Additional Rights of Holders of Restricted Global Notes and Restricted Definitive Notes. In addition to the rights provided to Holders of Notes under the Indenture, Holders of Restricted Global Notes and Restricted Definitive Notes shall have all the rights set forth in the A/B Exchange Registration Rights Agreement dated as of December 18, 1997, between the Company and the parties named on the signature pages thereof or, in the case of Additional Notes, Holders of Restricted Global Notes and Restricted Definitive Notes shall have the rights set forth in one or more registration rights agreements, if any, between the Company and the other parties thereto, relating to rights given by the Company to the purchasers of any Additional Notes (collectively, the "Registration Rights Agreement"). 18. CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. A-2-7 The Company will furnish to any Holder upon written request and without charge a copy of the Indenture and/or the Registration Rights Agreement. Requests may be made to: Sealy Mattress Company Halle Building 10th Floor 1228 Euclid Avenue Cleveland, Ohio 44115 Attention: General Counsel A-2-8 ASSIGNMENT FORM To assign this Note, fill in the form below: (I) or (we) assign and transfer this Note to ________________________________________________________________________________ (Insert assignee's soc. sec. or tax I.D. no.) ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (Print or type assignee's name, address and zip code) and irrevocably appoint_________________________________________________________ to transfer this Note on the books of the Company. The agent may substitute another to act for him. ________________________________________________________________________________ Date: _________________ Your Signature: __________________________________ (Sign exactly as your name appears on the face of this Note) Tax Identification No:____________________________ SIGNATURE GUARANTEE: _________________________________ Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. A-2-9 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Note purchased by the Company pursuant to Section 4.10 or 4.15 of the Indenture, check the appropriate box below: [_] Section 4.10 [_] Section 4.15 If you want to elect to have only part of the Note purchased by the Company pursuant to Section 4.10 or Section 4.15 of the Indenture, state the amount you elect to have purchased: $___________ ________________________________________________________________________________ Date: _______________ Your Signature:___________________________________ (Sign exactly as your name appears on the face of this Note) Tax Identification No:____________________________ SIGNATURE GUARANTEE: _________________________________ Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. A-2-10 SCHEDULE OF EXCHANGES OF REGULATION S TEMPORARY GLOBAL NOTE The following exchanges of a part of this Regulation S Temporary Global Note for an interest in another Global Note, or of other Restricted Global Notes for an interest in this Regulation S Temporary Global Note, have been made:
Principal Amount at Amount of Amount of increase Maturity of this decrease in in Principal Global Note Signature of Principal Amount Amount at Maturity following such authorized officer at Maturity of this of this Global decrease (or of Trustee or Note Date of Exchange Global Note Note increase) Custodian - ---------------- ----------- ---- --------- ---------
A-2-11 EXHIBIT B FORM OF CERTIFICATE OF TRANSFER Sealy Mattress Company Halle Building 10th Floor 1228 Euclid Avenue Cleveland, Ohio 44115 Attention: General Counsel The Bank of New York 101 Barclay Street Floor 21 West New York, New York 10286 Attention: Corporate Trust Administration Re: 10-7/8% Senior Subordinated Discount Notes due 2007 --------------------------------------------------- Reference is hereby made to the Indenture, dated as of December 18, 1997 (the "Indenture"), between Sealy Mattress Company, as issuer (the "Company"), and The Bank of New York, as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture. ______________, (the "Transferor") owns and proposes to transfer the Note[s] or interest in such Note[s] specified in Annex A hereto, in the principal amount at maturity of $___________ in such Note[s] or interests (the "Transfer"), to __________ (the "Transferee"), as further specified in Annex A hereto. In connection with the Transfer, the Transferor hereby certifies that: [CHECK ALL THAT APPLY] 1. [_] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE ---------------------------------------------------------------------- 144A GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO RULE 144A. The Transfer is - ----------------------------------------------------------- being effected pursuant to and in accordance with Rule 144A under the United States Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, the Transferor hereby further certifies that the beneficial interest or Definitive Note is being transferred to a Person that the Transferor reasonably believed and believes is purchasing the beneficial interest or Definitive Note for its own account, or for one or more accounts with respect to which such Person exercises sole investment discretion, and such Person and each such account is a "qualified institutional buyer" within the meaning of Rule 144A in a transaction meeting the requirements of Rule 144A and such Transfer is in compliance with any applicable blue sky securities laws of any state of the United States. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the 144A Global Note and/or the Definitive Note and in the Indenture and the Securities Act. 2. [_] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE ---------------------------------------------------------------------- TEMPORARY REGULATION S GLOBAL NOTE, THE REGULATION S GLOBAL NOTE OR A DEFINITIVE - -------------------------------------------------------------------------------- NOTE PURSUANT TO - ---------------- B-1 REGULATION S. The Transfer is being effected pursuant to and in accordance with - ------------ Rule 903 or Rule 904 under the Securities Act and, accordingly, the Transferor hereby further certifies that (i) the Transfer is not being made to a person in the United States and (x) at the time the buy order was originated, the Transferee was outside the United States or such Transferor and any Person acting on its behalf reasonably believed and believes that the Transferee was outside the United States or (y) the transaction was executed in, on or through the facilities of a designated offshore securities market and neither such Transferor nor any Person acting on its behalf knows that the transaction was prearranged with a buyer in the United States, (ii) no directed selling efforts have been made in contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S under the Securities Act, (iii) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act and (iv) if the proposed transfer is being made prior to the expiration of the Restricted Period, the transfer is not being made to a U.S. Person or for the account or benefit of a U.S. Person (other than an Initial Purchaser). Upon consummation of the proposed transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will be subject to the restrictions on Transfer enumerated in the Private Placement Legend printed on the Regulation S Global Note, the Temporary Regulation S Global Note and/or the Definitive Note and in the Indenture and the Securities Act. 3. [_] CHECK AND COMPLETE IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL ------------------------------------------------------------------- INTEREST IN THE IAI GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO ANY PROVISION - ------------------------------------------------------------------------------ OF THE SECURITIES ACT OTHER THAN RULE 144A OR REGULATION S. The Transfer is - ---------------------------------------------------------- being effected in compliance with the transfer restrictions applicable to beneficial interests in Restricted Global Notes and Restricted Definitive Notes and pursuant to and in accordance with the Securities Act and any applicable blue sky securities laws of any state of the United States, and accordingly the Transferor hereby further certifies that (check one): (a) [_] such Transfer is being effected pursuant to and in accordance with Rule 144 under the Securities Act; or (b) [_] such Transfer is being effected to the Company or a subsidiary thereof; or (c) [_] such Transfer is being effected pursuant to an effective registration statement under the Securities Act and in compliance with the prospectus delivery requirements of the Securities Act; or (d) [_] such Transfer is being effected to an Institutional Accredited Investor and pursuant to an exemption from the registration requirements of the Securities Act other than Rule 144A, Rule 144 or Rule 904, and the Transferor hereby further certifies that it has not engaged in any general solicitation within the meaning of Regulation D under the Securities Act and the Transfer complies with the transfer restrictions applicable to beneficial interests in a Restricted Global Note or Restricted Definitive Notes and the requirements of the exemption claimed, which certification is supported by (1) a certificate executed by the Transferee in the form of Exhibit D to the Indenture and (2) if such Transfer is in respect of a principal amount of Notes at the time of transfer of less than $250,000, an Opinion of Counsel provided by the Transferor or the Transferee (a copy of which the Transferor has attached to this B-2 certification), to the effect that such Transfer is in compliance with the Securities Act. Upon consummation of the proposed transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the IAI Global Note and/or the Definitive Notes and in the Indenture and the Securities Act. 4. [_] Check if Transferee will take delivery of a beneficial interest in an Unrestricted Global Note or of an Unrestricted Definitive Note. (a) [_] CHECK IF TRANSFER IS PURSUANT TO RULE 144. (i) The Transfer is being effected pursuant to and in accordance with Rule 144 under the Securities Act and in compliance with the transfer restrictions contained in the Indenture and any applicable blue sky securities laws of any state of the United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will no longer be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Notes, on Restricted Definitive Notes and in the Indenture. (b) [_] CHECK IF TRANSFER IS PURSUANT TO REGULATION S. (i) The Transfer is being effected pursuant to and in accordance with Rule 903 or Rule 904 under the Securities Act and in compliance with the transfer restrictions contained in the Indenture and any applicable blue sky securities laws of any state of the United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will no longer be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Notes, on Restricted Definitive Notes and in the Indenture. (c) [_] CHECK IF TRANSFER IS PURSUANT TO OTHER EXEMPTION. (i) The Transfer is being effected pursuant to and in compliance with an exemption from the registration requirements of the Securities Act other than Rule 144, Rule 903 or Rule 904 and in compliance with the transfer restrictions contained in the Indenture and any applicable blue sky securities laws of any State of the United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will not be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Notes or Restricted Definitive Notes and in the Indenture. This certificate and the statements contained herein are made for your benefit and the benefit of the Company. _______________________________ [Insert Name of Transferor] By:____________________________ Name: Title: B-3 Dated:_________, ________ B-4 ANNEX A TO CERTIFICATE OF TRANSFER 1. The Transferor owns and proposes to transfer the following: [CHECK ONE OF (a) OR (b)] (a) [_] a beneficial interest in the: (i) [_] 144A Global Note (CUSIP ________), or (ii) [_] Regulation S Global Note (CUSIP ________), or (iii) [_] IAI Global Note (CUSIP _______); or (b) [_] a Restricted Definitive Note. 2. After the Transfer the Transferee will hold: [CHECK ONE] (a) [_] a beneficial interest in the: (i) [_] 144A Global Note (CUSIP _______), or (ii) [_] Regulation S Global Note (CUSIP _______), or (iii) [_] IAI Global Note (CUSIP _______); or (iv) [_] Unrestricted Global Note (CUSIP _______); or (b) [_] a Restricted Definitive Note; or (c) [_] an Unrestricted Definitive Note, in accordance with the terms of the Indenture. B-5 EXHIBIT C FORM OF CERTIFICATE OF EXCHANGE Sealy Mattress Company Halle Building 10th Floor 1228 Euclid Avenue Cleveland, Ohio 44115 Attention: General Counsel The Bank of New York 101 Barclay Street Floor 21 West New York, New York 10286 Attention: Corporate Trust Department Re: 10-7/8% Senior Subordinated Discount Notes due 2007 --------------------------------------------------- (CUSIP ______________) Reference is hereby made to the Indenture, dated as of December 18, 1997 (the "Indenture"), between Sealy Mattress Company, as issuer (the "Company"), and The Bank of New York, as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture. ____________, (the "Owner") owns and proposes to exchange the Note[s] or interest in such Note[s] specified herein, in the principal amount at maturity of $____________ in such Note[s] or interests (the "Exchange"). In connection with the Exchange, the Owner hereby certifies that: 1. EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN A RESTRICTED GLOBAL NOTE FOR UNRESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN AN UNRESTRICTED GLOBAL NOTE (a) [_] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RESTRICTED ------------------------------------------------------------- GLOBAL NOTE TO BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE. In - ----------------------------------------------------------------- connection with the Exchange of the Owner's beneficial interest in a Restricted Global Note for a beneficial interest in an Unrestricted Global Note in an equal principal amount, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Global Notes and pursuant to and in accordance with the United States Securities Act of 1933, as amended (the "Securities Act"), (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the beneficial interest in an Unrestricted Global Note is being acquired in compliance with any applicable blue sky securities laws of any state of the United States. (b) [_] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RESTRICTED ------------------------------------------------------------- GLOBAL NOTE TO UNRESTRICTED DEFINITIVE NOTE. In connection with the Exchange of - ------------------------------------------- the Owner's beneficial interest in a Restricted Global Note for an Unrestricted Definitive Note, the Owner hereby certifies (i) the Definitive Note is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Restricted Global Notes C-1 and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the Definitive Note is being acquired in compliance with any applicable blue sky securities laws of any state of the United States. (c) [_] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO ------------------------------------------------------- BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE. In connection with the - -------------------------------------------------- Owner's Exchange of a Restricted Definitive Note for a beneficial interest in an Unrestricted Global Note, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to Restricted Definitive Notes and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the beneficial interest is being acquired in compliance with any applicable blue sky securities laws of any state of the United States. (d) [_] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO ------------------------------------------------------- UNRESTRICTED DEFINITIVE NOTE. In connection with the Owner's Exchange of a - ---------------------------- Restricted Definitive Note for an Unrestricted Definitive Note, the Owner hereby certifies (i) the Unrestricted Definitive Note is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to Restricted Definitive Notes and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the Unrestricted Definitive Note is being acquired in compliance with any applicable blue sky securities laws of any state of the United States. 2. EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN RESTRICTED GLOBAL NOTES FOR RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN RESTRICTED GLOBAL NOTES (a) [_] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RESTRICTED ------------------------------------------------------------- GLOBAL NOTE TO RESTRICTED DEFINITIVE NOTE. In connection with the Exchange of - ----------------------------------------- the Owner's beneficial interest in a Restricted Global Note for a Restricted Definitive Note with an equal principal amount, the Owner hereby certifies that the Restricted Definitive Note is being acquired for the Owner's own account without transfer. Upon consummation of the proposed Exchange in accordance with the terms of the Indenture, the Restricted Definitive Note issued will continue to be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Definitive Note and in the Indenture and the Securities Act. (b) [_] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO ------------------------------------------------------- BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE. In connection with the - ----------------------------------------------- Exchange of the Owner's Restricted Definitive Note for a beneficial interest in the [CHECK ONE] [_] 144A Global Note, [_] Regulation S Global Note, [_] IAI Global Note with an equal principal amount, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner's own account without transfer and (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Restricted Global Notes and pursuant to and in accordance with the Securities Act, and in compliance with any applicable blue sky securities laws of any state of the United States. Upon consummation of the proposed Exchange in accordance with the terms of the Indenture, the beneficial interest issued will be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the relevant Restricted Global Note and in the Indenture and the Securities Act. C-2 This certificate and the statements contained herein are made for your benefit and the benefit of the Company. _____________________________ [Insert Name of Owner] By:__________________________ Name: Title: Dated: __________, ____ C-3 EXHIBIT D FORM OF CERTIFICATE FROM ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR Sealy Mattress Company Halle Building 10th Floor 1228 Euclid Avenue Cleveland, Ohio 44115 Attention: General Counsel The Bank of New York 101 Barclay Street Floor 21 West New York, New York 10286 Attention: Corporate Trust Administration Re: 10-7/8% Senior Subordinated Discount Notes due 2007 --------------------------------------------------- Reference is hereby made to the Indenture, dated as of December 18, 1997 (the "Indenture"), between Sealy Mattress Company, as issuer (the "Company"), and The Bank of New York, as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture. In connection with our proposed purchase of $____________ aggregate principal amount at maturity of: (a) [_] a beneficial interest in a Global Note, or (b) [_] a Definitive Note, we confirm that: 1. We understand that any subsequent transfer of the Notes or any interest therein is subject to certain restrictions and conditions set forth in the Indenture and the undersigned agrees to be bound by, and not to resell, pledge or otherwise transfer the Notes or any interest therein except in compliance with, such restrictions and conditions and the United States Securities Act of 1933, as amended (the "Securities Act"). 2. We understand that the offer and sale of the Notes have not been registered under the Securities Act, and that the Notes and any interest therein may not be offered or sold except as permitted in the following sentence. We agree, on our own behalf and on behalf of any accounts for which we are acting as hereinafter stated, that if we should sell the Notes or any interest therein, we will do so only (A) to the Company or any subsidiary thereof, (B) in accordance with Rule 144A under the Securities Act to a "qualified institutional buyer" (as defined therein), (c) to an institutional "accredited investor" (as defined below) that, prior to such transfer, furnishes (or has furnished on its behalf by a U.S. broker-dealer) to you and to the Company a signed letter substantially in the form of this letter and, D-1 if such transfer is in respect of a principal amount of Notes, at the time of transfer of less than $250,000, an Opinion of Counsel in form reasonably acceptable to the Company to the effect that such transfer is in compliance with the Securities Act, (D) outside the United States in accordance with Rule 904 of Regulation S under the Securities Act, (E) pursuant to the provisions of Rule 144(k) under the Securities Act or (F) pursuant to an effective registration statement under the Securities Act, and we further agree to provide to any person purchasing the Definitive Note or beneficial interest in a Global Note from us in a transaction meeting the requirements of clauses (A) through (E) of this paragraph a notice advising such purchaser that resales thereof are restricted as stated herein. 3. We understand that, on any proposed resale of the Notes or beneficial interest therein, we will be required to furnish to you and the Company such certifications, legal opinions and other information as you and the Company may reasonably require to confirm that the proposed sale complies with the foregoing restrictions. We further understand that the Notes purchased by us will bear a legend to the foregoing effect. We further understand that any subsequent transfer by us of the Notes or beneficial interest therein acquired by us must be effected through one of the Placement Agents. 4. We are an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of our investment in the Notes, and we and any accounts for which we are acting are each able to bear the economic risk of our or its investment. 5. We are acquiring the Notes or beneficial interest therein purchased by us for our own account or for one or more accounts (each of which is an institutional "accredited investor") as to each of which we exercise sole investment discretion. You and the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. __________________________________________ [Insert Name of Accredited Investor] By: _______________________________ Name: Title: Dated: __________________, ____ D-2 EXHIBIT E FORM OF NOTATION OF GUARANTEE For value received, each Guarantor (which term includes any successor Person under the Indenture) has, jointly and severally, unconditionally guaranteed, to the extent set forth in the Indenture and subject to the provisions in the Indenture dated as of December 18, 1997 (the "Indenture") among Sealy Mattress Company, the Guarantors listed on Schedule I thereto and The Bank of New York, as trustee (the "Trustee"), (a) the due and punctual payment of the principal amount at maturity or Accreted Value, as applicable, of, premium, if any, and interest on the Notes (as defined in the Indenture), whether at maturity, by acceleration, redemption or otherwise, the due and punctual payment of interest on overdue principal and premium, and, to the extent permitted by law, interest, and the due and punctual performance of all other obligations of the Company to the Holders or the Trustee all in accordance with the terms of the Indenture and (b) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. The obligations of the Guarantors to the Holders of Notes and to the Trustee pursuant to the Note Guarantee and the Indenture are expressly set forth in Article 11 of the Indenture and reference is hereby made to the Indenture for the precise terms of the Note Guarantee. Each Holder of a Note, by accepting the same, (a) agrees to and shall be bound by such provisions, (b) authorizes and directs the Trustee, on behalf of such Holder, to take such action as may be necessary or appropriate to effectuate the subordination as provided in the Indenture and (c) appoints the Trustee attorney-in-fact of such Holder for such purpose; provided, however, that the Indebtedness evidenced by this Note Guarantee shall cease to be so subordinated and subject in right of payment upon any defeasance of this Note in accordance with the provisions of the Indenture. [Name of Guarantor(s)] By: ________________________________ Name: Title: E-1 EXHIBIT F FORM OF SUPPLEMENTAL INDENTURE TO BE DELIVERED BY SUBSEQUENT GUARANTORS Supplemental Indenture (this "Supplemental Indenture"), dated as of ________________, among __________________ (the "Guaranteeing Subsidiary"), a subsidiary of Sealy Mattress Company (or its permitted successor), an Ohio corporation (the "Company"), the Company, the other Guarantors (as defined in the Indenture referred to herein) and The Bank of New York, as trustee under the indenture referred to below (the "Trustee"). W I T N E S S E T H WHEREAS, the Company has heretofore executed and delivered to the Trustee an indenture (the "Indenture"), dated as of December 18, 1997 providing for the issuance of an aggregate principal amount of up to $275.0 million of 10- 7/8% Senior Subordinated Discount Notes due 2007 (the "Notes"); WHEREAS, the Indenture provides that under certain circumstances the Guaranteeing Subsidiary shall execute and deliver to the Trustee a supplemental indenture pursuant to which the Guaranteeing Subsidiary shall unconditionally guarantee all of the Company's Obligations under the Notes and the Indenture on the terms and conditions set forth herein (the "Note Guarantee"); and WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is authorized to execute and deliver this Supplemental Indenture. NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Guaranteeing Subsidiary and the Trustee mutually covenant and agree for the equal and ratable benefit of the Holders of the Notes as follows: 1. Capitalized Terms. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture. 2. Agreement to Guarantee. The Guaranteeing Subsidiary hereby agrees as follows: (a) Along with all Guarantors named in the Indenture, to jointly and severally Guarantee to each Holder of a Note authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, irrespective of the validity and enforceability of the Indenture, the Notes or the obligations of the Company hereunder or thereunder, that: (i) the principal of and interest on the Notes will be promptly paid in full when due, whether at maturity, by acceleration, redemption or otherwise, and interest on the overdue principal of and interest on the Notes, if any, if lawful, and all other obligations of the Company to the Holders or the Trustee hereunder or thereunder will be promptly paid in full or performed, all in accordance with the terms hereof and thereof; and F-1 (ii) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. Failing payment when due of any amount so guaranteed or any performance so guaranteed for whatever reason, the Guarantors shall be jointly and severally obligated to pay the same immediately. (b) The obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Notes or the Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Notes with respect to any provisions hereof or thereof, the recovery of any judgment against the Company, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor. (c) The following is hereby waived: diligence presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands whatsoever. (d) This Note Guarantee shall not be discharged except by complete performance of the obligations contained in the Notes and the Indenture. (e) If any Holder or the Trustee is required by any court or otherwise to return to the Company, the Guarantors, or any custodian, Trustee, liquidator or other similar official acting in relation to either the Company or the Guarantors, any amount paid by either to the Trustee or such Holder, this Note Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect. (f) The Guaranteeing Subsidiary shall not be entitled to any right of subrogation in relation to the Holders in respect of any obligations guaranteed hereby until payment in full of all obligations guaranteed hereby. (g) As between the Guarantors, on the one hand, and the Holders and the Trustee, on the other hand, (x) the maturity of the obligations guaranteed hereby may be accelerated as provided in Article 6 of the Indenture for the purposes of this Note Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (y) in the event of any declaration of acceleration of such obligations as provided in Article 6 of the Indenture, such obligations (whether or not due and payable) shall forthwith become due and payable by the Guarantors for the purpose of this Note Guarantee. (h) The Guarantors shall have the right to seek contribution from any non-paying Guarantor so long as the exercise of such right does not impair the rights of the Holders under the Guarantee. F-2 (i) Pursuant to Section 11.02 of the Indenture, after giving effect to any maximum amount and any other contingent and fixed liabilities that are relevant under any applicable Bankruptcy or fraudulent conveyance laws, and after giving effect to any collections from, rights to receive contribution from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under Article 11 of the Indenture shall result in the obligations of such Guarantor under its Note Guarantee not constituting a fraudulent transfer or conveyance. 3 Execution and Delivery. Each Guaranteeing Subsidiary agrees that the Note Guarantees shall remain in full force and effect notwithstanding any failure to endorse on each Note a notation of such Note Guarantee. 4. Guaranteeing Subsidiary May Consolidate, Etc. on Certain Terms. (a) The Guaranteeing Subsidiary may not consolidate with or merge with or into (whether or not such Guarantor is the surviving Person) another corporation, Person or entity whether or not affiliated with such Guarantor unless: (i) subject to Section 11.05 of the Indenture, the Person formed by or surviving any such consolidation or merger (if other than a Guarantor or the Company) unconditionally assumes all the obligations of such Guarantor, pursuant to a supplemental indenture in form and substance reasonably satisfactory to the Trustee, under the Notes, the Indenture and the Note Guarantee on the terms set forth herein or therein; and (ii) immediately after giving effect to such transaction, no Default or Event of Default exists. (b) In case of any such consolidation, merger, sale or conveyance and upon the assumption by the successor corporation, by supplemental indenture, executed and delivered to the Trustee and satisfactory in form to the Trustee, of the Note Guarantee endorsed upon the Notes and the due and punctual performance of all of the covenants and conditions of the Indenture to be performed by the Guarantor, such successor corporation shall succeed to and be substituted for the Guarantor with the same effect as if it had been named herein as a Guarantor. Such successor corporation thereupon may cause to be signed any or all of the Note Guarantees to be endorsed upon all of the Notes issuable hereunder which theretofore shall not have been signed by the Company and delivered to the Trustee. All the Note Guarantees so issued shall in all respects have the same legal rank and benefit under the Indenture as the Note Guarantees theretofore and thereafter issued in accordance with the terms of the Indenture as though all of such Note Guarantees had been issued at the date of the execution hereof. (c) Except as set forth in Articles 4 and 5 of the Indenture, and notwithstanding clauses (a) and (b) above, nothing contained in the Indenture or in any of the Notes shall prevent any consolidation or merger of a Guarantor with or into the Company or another Guarantor, or shall prevent any sale or conveyance of the property of a Guarantor as an entirety or substantially as an entirety to the Company or another Guarantor. F-3 5. Releases. (a) In the event of a sale or other disposition of all of the assets of any Guarantor, by way of merger, consolidation or otherwise, or a sale or other disposition of all to the capital stock of any Guarantor, then such Guarantor (in the event of a sale or other disposition, by way of merger, consolidation or otherwise, of all of the capital stock of such Guarantor) or the corporation acquiring the property (in the event of a sale or other disposition of all or substantially all of the assets of such Guarantor) will be released and relieved of any obligations under its Note Guarantee; provided that the Net Proceeds of such sale or other disposition are applied in accordance with the applicable provisions of the Indenture, including without limitation Section 4.10 of the Indenture. Upon delivery by the Company to the Trustee of an Officers' Certificate and an Opinion of Counsel to the effect that such sale or other disposition was made by the Company in accordance with the provisions of the Indenture, including without limitation Section 4.10 of the Indenture, the Trustee shall execute any documents reasonably required in order to evidence the release of any Guarantor from its obligations under its Note Guarantee. (b) Any Guarantor not released from its obligations under its Note Guarantee shall remain liable for the full amount of principal of and interest on the Notes and for the other obligations of any Guarantor under the Indenture as provided in Article 10 of the Indenture. 6. No Recourse Against Others. No past, present or future director, officer, employee, incorporator, stockholder or agent of the Guaranteeing Subsidiary, as such, shall have any liability for any obligations of the Company or any Guaranteeing Subsidiary under the Notes, any Note Guarantees, the Indenture or this Supplemental Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of the Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the 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. 7. NEW YORK LAW TO GOVERN. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS SUPPLEMENTAL INDENTURE BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. 8. Counterparts The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. 9. Effect of Headings. The Section headings herein are for convenience only and shall not affect the construction hereof. 10 The Trustee. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made solely by the Guaranteeing Subsidiary and the Company. F-4 IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed and attested, all as of the date first above written. Dated: _______________, ____ [Guaranteeing Subsidiary] By:___________________________________ Name: Title: THE BANK OF NEW YORK as Trustee By:___________________________________ Name: Title: SCHEDULE I SCHEDULE OF GUARANTORS The following schedule lists each Guarantor under the Indenture as of the Issue Date: 1. Sealy Corporation, a Delaware corporation. 2. Sealy Mattress Company of Puerto Rico, an Ohio corporation. 3. Ohio--Sealy Mattress Manufacturing Co., Inc. (Randolph), a Massachusetts corporation. 4. Ohio--Sealy Mattress Manufacturing Co.--Ft. Worth, a Texas corporation. 5. Ohio--Sealy Mattress Manufacturing Co., a Georgia corporation. 6. Ohio--Sealy Mattress Manufacturing Co.--Houston, a Texas corporation. 7. Sealy Mattress Company of Michigan, Inc., a Michigan corporation. 8. Sealy Mattress Company of Kansas City, Inc., a Missouri corporation. 9. Sealy of Maryland and Virginia, Inc., a Maryland corporation. 10. Sealy Mattress Company of Illinois, an Illinois corporation. 11. A. Brandwein & Company, an Illinois corporation. 12. Sealy Mattress Company of Albany, Inc., a New York corporation. 13. Sealy of Minnesota, Inc., a Minnesota corporation. 14. Sealy Mattress Company of Memphis, a Tennessee corporation. 15. The Stearns & Foster Bedding Company, a Delaware corporation. 16. The Stearns & Foster Upholstery Furniture Company, an Ohio corporation. 17. Sealy, Inc., an Ohio corporation 18. The Ohio Mattress Company Licensing and Components Group, a Delaware corporation. 19. Sealy Mattress Manufacturing Company, Inc., a Delaware corporation. EX-4.3 6 SECOND SUPPLEMENTAL INDENTURE EXHIBIT 4.3 ----------- ================================================================================ Sealy Corporation, as Issuer, $200,000,000 10 1/4% SENIOR SUBORDINATED NOTES DUE 2003 _________________________________ _________________ SECOND SUPPLEMENTAL INDENTURE Dated as of December 5, 1997 _________________ _________________ The Bank Of New York _________________ Successor Trustee to Mellon Bank, F.S.B. =============================================================================== SECOND SUPPLEMENTAL INDENTURE dated as of December 5, 1997 between Sealy Corporation., a Delaware corporation (the "Company"), as issuer, and The Bank of New York, as successor trustee (the "Trustee") to Mellon Bank, F.S.B., to the INDENTURE, dated as of May 7, 1993 between the Company and the Trustee, as supplemented by the FIRST SUPPLEMENTAL INDENTURE, dated as of February 19, 1997 between the Company and the Trustee (as so supplemented, the "Indenture"). Section 1. Waiver of Certain Restrictive Covenants and Events of Default. The ------------------------------------------------------------- application of Section 4.03 - "Limitation on Debt", Section 4.04 - "Limitation on Debt and Preferred Stock of Subsidiary", Section 4.05 - "Limitation on Restricted Payments", of the Indenture are hereby waived with respect to the Offer, the Solicitation and the other Transactions (each as defined in the Company's Offer to Purchase and Consent Solicitation Statement (the "Statement"), dated November 18, 1997 with respect to the Notes) and any Event of Default under Section 6.01 of the Indenture which has occurred or may occur in connection with the Refinancing is hereby waived. Section 2. Amendments to the Indenture --------------------------- (a) The following covenants and all references thereto are hereby deleted from the Indenture: Sections 4.03, 4.04, 4.05, 4.06, 4.07, 4.08, 4.09, and 5.01. (b) Section 4.02 is modified to provide that following completion of a registered exchange offer for any securities issued by Sealy Mattress Company, as described in the Preliminary Offering Circular, dated as of November 26, 1997, the Company may satisfy its obligations to Securityholders by delivery of periodic reports filed with the SEC by either the Company or Sealy Mattress Company. (c) The definition of "Permitted Holder" in Section 1.01 is amended to include all persons who will beneficially own 5% or more of the equity of the Company upon consummation of the Transactions. (d) The following Events of Default and all references thereto are hereby deleted from the Indenture: clauses (3) and (4) (as it relates to compliance with the covenants listed in (a) above). (e) All definitions in the Indenture which are used exclusively in the Sections and clauses deleted pursuant to (a), (b), (c) and (d) above are hereby deleted. Section 3. Effectiveness; Operativeness ---------------------------- (a) This Second Supplemental Indenture will become effective and binding upon the Company, the Trustee and the Securityholders as of the day and year first above written and (b) Section 2 of this Second Supplemental Indenture will become operative on the Acceptance Date (as defined in the Statement). 1 Section 4. Reference to and Effect on the Indenture ---------------------------------------- (a) On and after the effective date of this Second Supplemental Indenture, each reference in the Indenture to "this Indenture," "hereunder," "hereof," or "herein" shall mean and be a reference to the Indenture as supplemented by this Second Supplemental Indenture unless the context otherwise requires. (b) Except as specifically amended above, the Indenture shall remain in full force and effect and is hereby ratified and confirmed. Section 5. Governing Law ------------- This Second Supplemental Indenture shall be construed and enforced in accordance with the laws of the State of New York. Section 6. Defined Terms ------------- Unless otherwise indicated, capitalized terms used herein and not defined shall have the respective meanings given such terms in the Indenture. Section 7. Counterparts and Method of Execution ------------------------------------ This Second Supplemental Indenture may be executed in several counterparts, all of which together shall constitute one agreement binding on all parties hereto, notwithstanding that all the parties have not signed the same counterpart. Section 8. Titles ------ Section titles are for descriptive purposes only and shall not control or alter the meaning of this Second Supplemental Indenture as set forth in the text. 2 IN WITNESS WHEREOF, the parties hereto have caused this Second Supplemental Indenture to be executed as of the day and year first above written. Sealy Corporation By: /s/ RONALD STOLLE _________________________________ Its: Vice President and Treasurer The Bank of New York as Trustee By: /s/ MARY JANE MORRISSEY _________________________________ Its: Vice President 3 EX-10.1 7 DEALER MANAGER AGREEMENT EXHIBIT 10.1 DEALER MANAGER AGREEMENT ------------------------ November 18, 1997 Goldman, Sachs & Co. As Dealer Manager 85 Broad Street New York, New York 10004 Ladies and Gentlemen: Sealy Corporation, (the "Company"), in connection with the merger of Sandman Merger Corporation (the "Purchaser") with and into the Company, plans to make a tender offer (the "Tender Offer") for any and all of the 10-1/4% Senior Subordinated Notes due 2003 (the "Bonds") of the Company and engage in a related solicitation of consents from holders of Bonds to certain amendments to the indenture under which the Bonds were issued (the "Indenture") (such tender offer and consent solicitation being collectively referred to herein as the "Tender Offer"), upon the terms and subject to the conditions set forth in the tender offer and consent solicitation material (the "Offer Material") which the Company has caused to be prepared and furnished to you for use in connection with the Tender Offer, including (a) the offer to purchase and consent solicitation statement dated the date hereof (the "Launch Date") and appendices thereto (the "Offer to Purchase") (b) the consent and letter of transmittal to be used by holders to consent and tender Bonds and delivering consents pursuant to the Tender Offer (the "Letter of Transmittal"), (c) the notice of guaranteed delivery to be used by holders tendering Bonds and delivering consents pursuant to the Tender Offer, (d) the letter to brokers, securities dealers, commercial banks, trust companies and nominees, (e) any newspaper advertisements relating to the Tender Offer and (f) any press releases relating to the Tender Offer. Any other offering materials and information relating to the Tender Offer that the Purchaser may prepare or approve for use in connection with the Tender Offer shall be called "Additional Material." 1. Appointment of Dealer Manager ----------------------------- The Purchaser and the Company hereby appoint you as Dealer Manager in connection with the Tender Offer (the "Dealer Manager") and authorize you to act on their behalf in accordance with this agreement and the terms of the Offer Material and Additional Material. The Purchaser and the Company have approved the Offer Material and the Additional Material and authorize you and any other securities dealer or any commercial bank or trust company to use the Offer Material and Additional Material in connection with the solicitation of tenders and consents. In soliciting tenders and consents, you, as Dealer Manager, shall act as independent contractors and shall not be deemed to act as agents of the Purchaser or the Company, and the Purchaser and the Company shall not be deemed to act as agents of the Dealer Manager. 2. Mailing of Offer Material ------------------------- The Purchaser and the Company shall cause to be mailed on the Launch Date to each registered holder of any Bonds a copy of the Offer to Purchase and other appropriate Page 1 Offer Material and Additional Material, together with a return envelope. Thereafter, to the extent practicable until the expiration of the Tender Offer, the Purchaser and the Company shall use their best efforts to cause copies of such material and a return envelope to be mailed to each person who becomes a holder of record of any Bonds. 3. Solicitation of Tenders ----------------------- (a) You agree to use your best efforts to solicit tenders and consents of Bonds pursuant to the Tender Offer. You shall have no liability in tort, contract or otherwise to either the Purchaser or the Company or any person related to either the Purchaser or the Company for any act or omission on the part of any securities broker or dealer (other than yourselves), commercial bank or trust company that may solicit tenders and consents, and you shall have no liability in tort, contract or otherwise hereunder except for your own gross negligence, bad faith or willful misconduct. (b) Each of the Purchaser and the Company agrees to furnish to you as many copies as you may reasonably request of the Offer Material and Additional Material in final form for use by you in connection with the Tender Offer. Neither the Purchaser nor the Company shall amend or supplement the Offer Material, nor prepare or approve any Additional Material for use in connection with the Tender Offer, without your consent, which consent shall not be unreasonably withheld. (c) Each of the Purchaser and the Company agrees to advise you promptly of the occurrence of any event which could cause the Purchaser or the Company to withdraw, rescind or modify the Tender Offer or to amend or supplement the Offer Material or Additional Material. (d) Neither the Purchaser nor the Company will use or publish any material in connection with the Tender Offer, or refer to you in any such material, without first consulting you. Each of the Purchaser and the Company will promptly inform you of any litigation or administrative action with respect to the Tender Offer. (e) Each of the Purchaser and the Company agrees to furnish to you, to the extent the same is available to either the Purchaser or the Company, cards or lists or copies thereof showing the names and addresses of, and principal amount of Bonds held by, the registered holders of Bonds as of a recent date, and shall use their best efforts to advise you from day to day during the period of the Tender Offer as to any transfers of record of Bonds. You agree to use such information only in connection with the Tender Offer and not to furnish such information to any other person except in connection with the Tender Offer. (f) Each of the Purchaser and the Company shall arrange for the depositary named in the Letter of Transmittal orally to inform you during each business day during the Tender Offer (to be followed on a daily basis by written confirmation) as to the principal amount of Bonds that have been tendered pursuant to the Tender Offer during the interval since its previous daily report to you under this Page 2 provision, and the names and addresses of any registered holder tendering $50,000 or more aggregate principal amount of Bonds. 4. Compensation and Expenses ------------------------- (a) The Purchaser and the Company jointly and severely agree to pay to you, as compensation for your services as Dealer Manager, a fee of $250,000.00. Such fee shall be payable concurrently with the payment for Bonds by the Company under the Tender Offer (the "Closing Date") or other termination of the Tender Offer. (b) Whether or not any Bonds are tendered pursuant to the Tender Offer, the Purchaser and the Company shall pay all expenses of the preparation, printing, mailing and publishing of the Offer Material and Additional Material, all fees payable to securities dealers (including you), commercial banks, trust companies and nominees as reimbursement of their customary mailing and handling expenses incurred in forwarding the Offer Material and Additional Material to their customers, all fees and expenses of the depositary referred to above, the trustee under the Indenture, any forwarding agent and any information agent, all advertising charges, any applicable transfer taxes payable by the Purchaser or the Company in connection with the Tender Offer and all other expenses in connection with the Tender Offer and shall reimburse you for all expenses incurred by you in connection with your serving as Dealer Manager, including, (i) your reasonable expenses and the reasonable fees and the disbursements of your counsel, and (ii) any expenses incurred as a result of presenting testimony or evidence, or preparing to present testimony or evidence, in connection with any court or administrative proceeding arising out of the Tender Offer or in connection with any other acquisition of Bonds. 5. Representations and Warranties by the Purchaser and the Company ---------------------------------------------------------------- Each of the Purchaser and the Company represents and warrants to you that: (a) The Purchaser and the Company have each been duly incorporated and are validly existing as a corporation in good standing under the laws of the State of Delaware. (b) Each of the Purchaser and the Company have duly taken all necessary corporate actions to authorize the making and consummation of the Tender Offer (including any related borrowings or other provisions for the payment for Bonds by the Purchaser and the Company), the execution and delivery of the supplemental indenture enacting the proposed amendments described in the Offer Material (the "Supplemental Indenture") and the performance of the Indenture as supplemented thereby, and the execution, delivery and performance of this agreement and the consummation of the transactions contemplated herein; and this agreement has been duly authorized, executed and delivered by, and constitutes a valid and binding agreement of, the Purchaser or the Company, as the case may be, enforceable in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization Page 3 and other laws of general applicability relating to or affecting creditors' rights and to general equity principles. (c) The Offer Material and Additional Material complies and (as amended or supplemented, if amended or supplemented) will comply in all material respects with all applicable requirements of the federal securities laws; and the Offer Material and Additional Material does not and (as amended or supplemented, if amended or supplemented) will not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading. (d) The making and consummation of the Tender Offer (including any related borrowings or other provisions for the payment for Bonds by the Purchaser and the Company), the execution and delivery of the Supplemental Indenture and the performance of the Indenture as supplemented thereby, the execution, delivery and performance by the Purchaser and the Company of this agreement and the consummation of the transactions contemplated herein do not and will not conflict with, or result in the acceleration of any obligation under or in a breach of, or constitute a default under, any of the provisions of any indenture, agreement or undertaking to which the Purchaser or the Company or any of their respective subsidiaries, as the case may be, is a party or by which they are bound or to which any of their property or assets are subject, nor will such action result in any violation of their Certificates of Incorporation or By-laws, as amended as of the date hereof, and do not and will not contravene any United States federal, state or local law, rule or regulation or any order applicable to the Purchaser or the Company or any of their respective subsidiaries, as the case may be, of any court or of any other governmental agency or instrumentality having jurisdiction over it or any of its property. (e) Each of the Purchaser and the Company has obtained all consents, approvals, authorizations and orders of, and has duly made all registrations, qualifications and filings with, any court or regulatory authority or other governmental agency or instrumentality required in connection with the making and consummation of the Tender Offer (including any related borrowings or other provisions for the payment for Bonds by the Purchaser and the Company), the execution and delivery of the Supplemental Indenture and the performance of the Indenture as supplemented thereby, the execution, delivery and performance of this agreement and the consummation of the transactions contemplated herein. (f) Upon execution and delivery thereof, (i) the Supplemental Indenture will conform in all material respects to the description thereof in the Offer Material and the Additional Material and may be entered into upon the consent of the Holders of a majority of the aggregate outstanding principal amount of the Bonds (excluding those owned by the Company and its affiliates) pursuant to the provisions of the Indenture and, together with the Offer Material and the Additional Material, complies in all material respects with the requirements of such Indenture and (ii) the Supplemental Indenture will constitute a valid and binding agreement of the Company, enforceable in accordance with its terms, subject, as to enforcement, to (x) bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors' rights, (y) to general equity Page 4 principles (regardless of whether such enforcement is considered in a proceeding in equity or at law) and (z) the unenforcability under certain circumstances under laws or court decisions of provisions for the indemnification of or contribution to a party with respect to a liability where such indemnification or contribution is contrary to public policy. (g) There is no action, suit, order, investigation or proceeding before or by any government, governmental instrumentality or court (domestic or foreign) now pending or, to the knowledge of the Purchaser or the Company, threatened against or affecting the Purchaser, the Company or any of their subsidiaries or any of their respective properties that seeks to restrain, enjoin, prevent the consummation of or otherwise challenge the consummation of any of the transactions contemplated by this agreement or the Offer Material and Additional Material, or that questions the legality or validity of this agreement or any such transactions or seeks to recover damages or obtain other relief in connection with any such transactions. (h) Except as contemplated by the Transactions (as defined in the Offer Material and Additional Material), since the date of its most recent audited financial statements included in the Offer Material and Additional Material, there has not been (i) any material adverse change in the condition, financial or otherwise, or the earnings, business affairs or business prospects of the Company and its subsidiaries and considered as one enterprise, whether or not arising in the ordinary course of business, (ii) any transaction entered into by the Company or any of its subsidiaries other than in the ordinary course of business, that is material to the condition, financial or otherwise, or the earnings, business affairs or business prospects of the Company and its subsidiaries and considered as one enterprise or (iii) any dividend or distribution of any kind declared, paid or made by the Company on its capital stock. (i) The Company has or will have available funds, and is authorized to use such funds under applicable law, to pay the full purchase price of the Bonds that it may become committed to purchase pursuant to the Tender Offer and all related fees and expenses. (j) Each of the Purchaser and the Company agrees to pay promptly, in accordance with the terms and subject to the conditions of the Offer Material and Additional Material, such full purchase price and all related fees and expenses. Each of the Purchaser and the Company has made appropriate arrangements with The Depository Trust Company, Pacific Securities Depository Trust Company, the Midwest Securities Trust Company, the Philadelphia Depository Trust Company and any other "qualified" registered securities depository to allow for the book- entry movement of tendered Bonds between depository participants and the depository referred to above. If the Dealer Manager (acting as riskless principal on behalf of and at the request of the Purchaser and the Company) purchase any Bonds pursuant to the Tender Offer, each of the Purchaser and the Company will, concurrently with the settlement of such purchase (or at such later time as the parties may agree), purchase and pay for such Bonds at the same full purchase price as paid for such Bonds by the Dealer Manager pursuant to the Tender Offer (plus, if payment for such Bonds by the Dealer Manager is not Page 5 concurrent with payment for such Bonds by the Purchaser or the Company, interest thereon at such interest rate as the parties may agree). 6. Agreements of the Purchaser and the Company ------------------------------------------- (a) The Purchaser, the Company and their respective subsidiaries will comply in all material respects with the Securities Exchange Act of 1934, as amended, and the applicable rules and regulations of the Securities and Exchange Commission (the "Commission") thereunder (the "Exchange Act"), the Securities Act of 1933, as amended, and the applicable rules and regulations of the Commission thereunder (the "Securities Act") and the Trust Indenture Act of 1939, as amended, and the applicable rules and regulations of the Commission thereunder (the "Trust Indenture Act") in connection with the Offer Material and Additional Material, the Offer to Purchase, the Supplemental Indenture and the transactions contemplated hereby and thereby. If at any time when any of the Offer Material and Additional Material are required to be delivered in connection with the Offer to Purchase, any event shall occur or condition exist as a result of which it shall be necessary, in the reasonable opinion of your counsel or counsel for the Purchaser or the Company, to amend or supplement any of the Offer Material and Additional Material in order that such Offer Material and Additional Material will not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances existing at the time such Offer Material and Additional Material are delivered to a Holder, not misleading, or if it shall be necessary, in the reasonable opinion of any of such counsel, at any time to amend or supplement any of the Offer Material and Additional Material in order to comply with the requirements of the Exchange Act or the Securities Act, the Purchaser or the Company, as applicable, shall promptly prepare and furnish copies to you of, and, if necessary, file with the Commission, such amendment or supplement as may be necessary to correct such untrue statement or omission or to make such Offer Material and Additional Material comply with such requirements. (b) The Purchaser, the Company and each of their subsidiaries shall promptly file any report or other document required to be filed by it with the Commission pursuant to Section 13 of the Exchange Act during the period of time from the date hereof to the termination or expiration of the Offer to Purchase; provided, however, that neither the Purchaser nor the Company shall or shall permit any of its subsidiaries to file any such report or other document unless you shall have previously been advised that such filing is contemplated and given a reasonable opportunity to comment thereon. Promptly following any such filing, the Purchaser or the Company shall deliver to you, without charge, such number of copies of such report or other document as you may reasonably request. 7. Conditions of Obligation ------------------------ Your obligation to act as Dealer Manager hereunder shall at all times be subject, in your discretion, to the conditions that: Page 6 (a) All representations, warranties and other statements of the Purchaser and the Company contained herein are now, and at all times during the Tender Offer will be, true and correct in all material respects. (b) Each of the Purchaser and the Company at all times during the Tender Offer shall have performed all of its obligations hereunder therefore required to have been performed. (c) Kirkland & Ellis, counsel to the Purchaser and the Company and Kenneth L. Walker, General Counsel of the Company, shall have furnished to you on each of the Launch Date, the date that the Supplemental Indenture is executed (the "Consent Date") and the Closing Date, as Dealer Manager, their opinions, dated the date of the Launch Date, the Consent Date or the Closing Date, as the case may be, in each case substantially in the form of Exhibit A-1, Exhibit A-2, Exhibit A-3, Exhibit B-1 or Exhibit B-2, respectfully. (d) The Company shall have furnished or caused to be furnished to you a certificate of the Vice President and Treasurer and the General Counsel of the Company satisfactory to you identifying all material indentures, agreements and instruments to which the Company or any of its subsidiaries is a party or by which any of them is bound or to which any of their respective property or assets are subject. (e) The Company shall have caused all of its subsidiaries that are providing guarantees of any indebtedness of the Company (the "Guarantors") to become jointly and severally liable with the Company and the Purchaser to you under Section 8 hereof. 8. Indemnity and Survival of Certain Provisions -------------------------------------------- (a) Each of the Purchaser, the Company and the Guarantors jointly and severally agrees (i) to indemnify and hold you harmless against any loss, damage, expense, liability or claim (or action in respect thereof) (A) which arises out of or is based upon any untrue statement or alleged untrue statement of a material fact contained in the Offer Material, Additional Material or any of the documents referred to therein or in any amendment or supplement to any of the foregoing, or which arises out of or is based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, (B) which arises out of or is based upon any breach by the Purchaser, the Company or the Guarantors of any representation or warranty or failure to comply with any of the agreements set forth herein or (C) which arises out of or is based upon a withdrawal, rescission, termination or modification of or a failure to make or consummate the Tender Offer; and (ii) to indemnify and hold you harmless against any other loss, damage, expense, liability or claim (or action in respect thereof) which otherwise arises out of or is based upon or asserted against you in connection with your acting as Dealer Manager in connection with the Tender Offer or rendering any financial advisory services to the Purchaser, the Company or the Guarantors or which arises in connection with any other matter referred to in this agreement, except to the Page 7 extent that any such loss, damage, expense, liability or claim referred to in clause (ii) of this Section 8(a) results from your gross negligence, bad faith or willful misconduct in performing the services that are the subject of this agreement. The indemnity provided by the preceding sentence, to the extent it applies in accordance with its terms to any loss, damage, expense, liability or claim (or action in respect thereof), shall apply without regard to your exclusive or contributory negligence. In the event that you become involved in any capacity in any action, proceeding or investigation brought by or against any person, including stockholders of the Purchaser or the Company, in connection with any matter referred to in this agreement, each of the Purchaser, the Company and the Guarantors also agrees periodically to reimburse you for your legal and other expenses (including the cost of any investigation and preparation) incurred in connection therewith. Each of the Purchaser, the Company and the Guarantors also agrees that neither you nor any of your affiliates, nor any partners, directors, agents, employees or controlling persons (if any), as the case may be, of you or any such affiliates, shall have any liability to any of the Purchaser, the Company and the Guarantors or any person asserting claims on behalf of or in right of any of the Purchaser, the Company and the Guarantors for or in connection with any matter referred to in this agreement except to the extent that any loss, damage, expense, liability or claim incurred by any of the Purchaser, the Company and the Guarantors results from your gross negligence, bad faith or willful misconduct in performing the services that are the subject of this agreement. (b) Promptly after receipt by you of notice of your involvement in any action, proceeding or investigation, you shall, if a claim in respect thereof is to be made against the Purchaser, the Company or the Guarantors under subsection (a) of this Section 8, notify the Purchaser, the Company and the Guarantors either in writing of such involvement, but the omission so to notify the Purchaser, the Company and the Guarantors shall not relieve either of them from any liability which they may otherwise have to you. In case any such action, proceeding or investigation shall be brought against or otherwise involve you and you shall notify the Purchaser, the Company and the Guarantors of the commencement thereof or your involvement therein, the Purchaser, the Company and the Guarantors shall be entitled to participate therein, but the defense of such action, proceeding or investigation shall be conducted by your counsel unless you shall consent to a request by the Purchaser, the Company and the Guarantors to assume the defense thereof with counsel satisfactory to you (who shall not, except with your additional consent, be counsel to the Purchaser, the Company or the Guarantors). Upon assumption by the Purchaser, the Company and the Guarantors of the defense of such action, proceeding or investigation, you shall have the right to participate in such action, proceeding or investigation and to retain your own counsel, but the Purchaser, the Company and the Guarantors shall not be liable to you under this subsection (b) of this Section 8 for any legal expenses of other counsel or any other expenses, in each case subsequently incurred by you, in connection with the defense thereof other than reasonable costs of investigation and preparation, unless the Purchaser, the Company, the Guarantors and you are named parties to any such action, proceeding or investigation (including any impleaded parties) and representation of both parties Page 8 by the same counsel would be inappropriate due to actual or potential differing interests between them. (c) If for any reason the indemnification provided for in subsection (a) of this Section 8 is unavailable or insufficient to hold you harmless, then the Purchaser, the Company and the Guarantors shall contribute to the amount paid or payable by you as a result of such loss, damage, expense, liability or claim (or actions in respect thereof) referred to therein in such proportion as is appropriate to reflect the relative benefits of the Purchaser, the Company and the Guarantors and their respective stockholders on the one hand and you on the other hand in the matters contemplated by this agreement as well as the relative fault of the Purchaser, the Company, the Guarantors and you with respect to such loss, damage, expense, liability or claim (or actions in respect thereof) and any other relevant equitable considerations. The relative benefits of the Purchaser, the Company, the Guarantors and their respective stockholders on the one hand and you on the other hand in the matters contemplated by this agreement shall be deemed to be in the same proportion as the maximum aggregate value of the consideration proposed to be paid by the Purchaser, the Company and the Guarantors to acquire Bonds pursuant to the Tender Offer bears to the maximum aggregate fee proposed to be paid to you pursuant to Section 4(a) of this agreement as a result of such acquisition of Bonds. The relative fault of the Purchaser, the Company, the Guarantors and you shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by, or relating to, Purchaser, the Company, the Guarantors and their respective affiliates or you and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Purchaser, the Company, the Guarantors and you agree that it would not be just and equitable if contribution pursuant to this subsection (c) of this Section 8 were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in this subsection (c) of this Section 8. (d) The agreements contained in Section 4 and in this Section 8 and the representations and warranties of the Purchaser and the Company set forth in Section 5 hereof shall survive any termination or cancellation of this agreement, any completion of the engagement provided by this agreement or any investigation made by or on behalf of you and any of your officers or partners or any person controlling you and shall survive any acquisition of Bonds, whether pursuant to the Tender Offer or otherwise. (e) The reimbursement, indemnity and contribution obligations of the Purchaser, the Company and the Guarantors under this Section 8 shall be in addition to any liability that the Purchaser, the Company or the Guarantors may otherwise have, shall extend upon the same terms and conditions to your affiliates and the partners, directors, agents, employees and controlling persons (if any), as the case may be, of you and any such affiliate, and shall be binding upon and inure to the benefit of any successors, assigns, heirs and personal representatives of the Purchaser, the Company, the Guarantors, you, any such affiliate and any Page 9 such person. If the obligations of the Purchaser, the Company and the Guarantors set forth in this Section 8 are not assumed by operation of law or by contract by a party or parties satisfactory to you, the Purchaser, the Company and the Guarantors agree to arrange alternative means of providing for such obligations, including providing insurance or creating an escrow, in each case in an amount and upon terms and conditions satisfactory to you. 9. Miscellaneous ------------- (a) This agreement is made solely for the benefit of you, the Purchaser, the Company and any partner, director, agent, employee, controlling person or affiliate referred to in Section 8 hereof, and their respective successors, assigns, and legal representatives, and no other person shall acquire or have any right under or by virtue or this agreement. (b) In the event that any provision hereof shall be determined to be invalid or unenforceable in any respect, such determination shall not affect such provision in any other respect or any other provision hereof, which shall remain in full force and effect. (c) Except as otherwise expressly provided in this agreement, whenever notice is required by the provisions of this agreement to be given to (i) the Purchaser, such notice shall be in writing addressed to the Purchaser, c/o Bain Capital, Inc. at its office at Two Copley Place, Boston Massachusetts 02116, facsimile number (617) 572-3274, Attention: Josh Bekenstein and Paul Edgerley; (ii) the Company, such notice shall be in writing addressed to the Company, at its office at 1228 Euclid Avenue, Cleveland, Ohio 44115, facsimile number (216) 522-1366, Attention: General Counsel; and (iii) you, such notice shall be in writing addressed to you, at 85 Broad Street, New York, New York 10004, facsimile number (212) 902-4103, Attention: Registration Department. (d) This agreement contains the entire understanding of the parties with respect to your acting as Dealer Manager of the Tender Offer, superseding all prior agreements, understandings and negotiations with respect to such activities by you. This agreement shall be governed by and construed in accordance with the laws of the State of New York without regard to principles of conflict of laws. This agreement may be executed in any number of counterparts, each of which shall be an original, but all such counterparts shall together constitute one and the same agreement. [Dealer Manager Agreement signature page follows] Page 10 Please sign and return to us a duplicate of this letter, whereupon it will become a binding agreement. Very truly yours, Sandman Merger Corporation By: /s/ MICHAEL KRUPKA ----------------------------- Name: Michael A. Krupka Title: Vice President Sealy Corporation By:/s/ RONALD L. JONES ------------------------------- Name: Ronald L. Jones Title: President/C.E.O. The undersigned hereby confirms that the foregoing letter, as of the date thereof, correctly sets forth the agreement between the Purchaser, the Company and the undersigned. /s/ GOLDMAN, SACHS & CO. - ---------------------------------- (Goldman, Sachs & Co.) Dealer Manager Agreement Signature Page To be executed on the Closing Date: The undersigned hereby confirms that the foregoing letter, as of the date thereof, correctly sets forth the agreement between the Purchaser, the Company, the Dealer Manager and the undersigned SEALY CORPORATION By: /s/ KENNETH L. WALKER --------------------------------- Name: Kenneth L. Walker Title: Vice President, General Counsel & Secretary SEALY MATTRESS COMPANY OF PUERTO RICO By: /s/ KENNETH L. WALKER --------------------------------- Name: Kenneth L. Walker Title: Vice President, General Counsel & Secretary OHIO-SEALY MATTRESS MANUFACTURING CO., INC. (RANDOLPH) By: /s/ KENNETH L. WALKER --------------------------------- Name: Kenneth L. Walker Title: Vice President, General Counsel & Secretary OHIO-SEALY MATTRESS MANUFACTURING CO. - FT. WORTH By: /s/ KENNETH L. WALKER --------------------------------- Name: Kenneth L. Walker Title: Vice President, General Counsel & Secretary OHIO-SEALY MATTRESS MANUFACTURING CO. By: /s/ KENNETH L. WALKER --------------------------------- Name: Kenneth L. Walker Title: Vice President, General Counsel & Secretary Assumption of the Dealer Manager Agreement by Guarantors Signature Pages - 1 OHIO-SEALY MATTRESS MANUFACTURING CO.- HOUSTON By: /s/ KENNETH L. WALKER --------------------------------- Name: Kenneth L. Walker Title: Vice President, General Counsel & Secretary SEALY MATTRESS COMPANY OF MICHIGAN, INC. By: /s/ KENNETH L. WALKER --------------------------------- Name: Kenneth L. Walker Title: Vice President, General Counsel & Secretary SEALY MATTRESS COMPANY OF KANSAS CITY, INC. By: /s/ KENNETH L. WALKER --------------------------------- Name: Kenneth L. Walker Title: Vice President, General Counsel & Secretary SEALY OF MARYLAND AND VIRGINIA, INC. By: /s/ KENNETH L. WALKER --------------------------------- Name: Kenneth L. Walker Title: Vice President, General Counsel & Secretary SEALY MATTRESS COMPANY OF ILLINOIS By: /s/ KENNETH L. WALKER --------------------------------- Name: Kenneth L. Walker Title: Vice President, General Counsel & Secretary A. BRANDWEIN & COMPANY By: /s/ KENNETH L. WALKER --------------------------------- Name: Kenneth L. Walker Title: Vice President, General Counsel & Secretary Assumption of the Dealer Manager Agreement by Guarantors Signature Pages - 2 SEALY MATTRESS COMPANY OF ALBANY, INC. By: /s/ KENNETH L. WALKER --------------------------------- Name: Kenneth L. Walker Title: Vice President, General Counsel & Secretary SEALY OF MINNESOTA, INC. By: /s/ KENNETH L. WALKER --------------------------------- Name: Kenneth L. Walker Title: Vice President, General Counsel & Secretary SEALY MATTRESS COMPANY OF MEMPHIS By: /s/ KENNETH L. WALKER --------------------------------- Name: Kenneth L. Walker Title: Vice President, General Counsel & Secretary THE STEARNS & FOSTER BEDDING COMPANY By: /s/ KENNETH L. WALKER --------------------------------- Name: Kenneth L. Walker Title: Vice President, General Counsel & Secretary THE STEARNS & FOSTER UPHOLSTERY FURNITURE COMPANY By: /s/ KENNETH L. WALKER --------------------------------- Name: Kenneth L. Walker Title: Vice President, General Counsel & Secretary SEALY, INC. By: /s/ KENNETH L. WALKER --------------------------------- Name: Kenneth L. Walker Title: Vice President, General Counsel & Secretary Assumption of the Dealer Manager Agreement by Guarantors Signature Pages - 3 THE OHIO MATTRESS COMPANY LICENSING AND COMPONENTS GROUP By: /s/ KENNETH L. WALKER --------------------------------- Name: Kenneth L. Walker Title: Vice President, General Counsel & Secretary SEALY MATTRESS MANUFACTURING COMPANY, INC. By: /s/ KENNETH L. WALKER --------------------------------- Name: Kenneth L. Walker Title: Vice President, General Counsel & Secretary Assumption of the Dealer Manager Agreement by Guarantors Signature Pages - 4 EX-10.2 8 PURCHASE AGREEMENT EXHIBIT 10.2 ------------ Sealy Mattress Company $125,000,000 9-7/8% Senior Subordinated Notes due 2007 $128,000,000 10-7/8% Senior Subordinated Discount Notes due 2007 Purchase Agreement ------------------ December 11, 1997 Goldman, Sachs & Co., J.P. Morgan Securities Inc. BT Alex. Brown Incorporated c/o Goldman, Sachs & Co., 85 Broad Street, New York, New York 10004 Ladies and Gentlemen: Sealy Mattress Company, an Ohio corporation (the "Company"), proposes, subject to the terms and conditions stated herein, to issue and sell to the Purchasers named in Schedule I hereto (the "Purchasers") an aggregate of $125,000,000 principal amount of the Senior Subordinated Notes due 2007 (the "Senior Subordinated Notes") and $128,000,000 principal amount of the Senior Subordinated Discount Notes due 2007 (the "Senior Subordinated Discount Notes", and, together with the Senior Subordinated Notes, the "Securities"), in each case, of the Company. The Company is a wholly-owned subsidiary of Sealy Corporation, a Delaware Corporation ("Parent"). The Company's obligations under the Securities will be jointly and severally guaranteed on a senior subordinated basis (the "Guarantees") by Parent and certain of the Company's U.S. subsidiaries (the "Subsidiary Guarantors", and, together with Parent, the "Guarantors"). When used herein, the term "Subsidiaries" shall mean all subsidiaries of the Company existing as of the date hereof. Pursuant to an agreement (the "Merger Agreement") dated October 30, 1997, among Parent, the Sandman Merger Corporation, a transitory Delaware merger corporation (the "Bain Entity"), and Zell/Chilmark Fund, L.P., a Delaware limited partnership ("Zell"), (i) the Bain entity will be merged with and into Parent, with Parent being the surviving corporation, (ii) the Bain Entity and certain other persons will acquire approximately 90% of the common stock of Parent (the "New Parent Common Stock"), and (iii) Zell will receive, in exchange for its old common stock of Parent (the "Old Parent Common Stock"), $418.7 million in cash (minus (a) certain fees and expenses of the merger and (b) certain costs in connection with the extinguishment of certain outstanding options and warrants of Parent), a $25.0 million junior subordinated note of Parent (the "Parent Junior Subordinated Note") and approximately 10% of the New Parent Common Stock to be outstanding following the transaction (all such transactions being referred to herein as the "Recapitalization"). Concurrent with the issuance of the Securities, the Company will enter into the Senior Credit Agreements (as defined in the Offering Circular), which will be used to fund a portion of the costs of the Recapitalization, including the repayment existing indebtedness. The Parent has also executed an indenture (the "Supplemental Indenture"), which amended the terms of an indenture Page 1 previously executed between the Parent and The Bank of New York, as trustee, dated as of May 7, 1993. 1. The Company and each of the Guarantors represent and warrant to, and agree with, each of the Purchasers that: (a) A preliminary offering circular, dated November 26, 1997 (the "Preliminary Offering Circular") and an offering circular, dated December 11, 1997 (the "Offering Circular") have been prepared in connection with the offering of the Securities. Any reference to the Preliminary Offering Circular or the Offering Circular shall be deemed to refer to and include (i) any documents filed by the Parent or the Company with the United States Securities and Exchange Commission (the "Commission") pursuant to Section 13(a), 13(c) or 15(d) of the United States Securities Exchange Act of 1934, as amended (the "Exchange Act") after the date of the Preliminary Offering Circular or the Offering Circular, as the case may be, and (ii) any Additional Issuer Information (as defined in Section 5(f)) furnished by the Parent or the Company prior to the completion of the distribution of the Securities; and all documents filed under the Exchange Act and so deemed to be included in the Preliminary Offering Circular or the Offering Circular, as the case may be, or any amendment or supplement thereto are hereinafter called the "Exchange Act Reports". The Exchange Act Reports, when they were or are filed with the Commission, conformed or will conform in all material respects to the applicable requirements of the Exchange Act and the applicable rules and regulations of the Commission thereunder. The Preliminary Offering Circular or the Offering Circular and any amendments or supplements thereto and the Exchange Act Reports did not and will not, as of their respective dates, contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Company by a Purchaser through Goldman, Sachs & Co. expressly for use therein; (b) Neither the Parent, the Company nor any of the Subsidiaries has sustained since the date of the latest audited financial statements included in the Offering Circular any material loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth or contemplated in the Offering Circular; and, since the respective dates as of which information is given in the Offering Circular, there has not been any change in the capital stock or long-term debt of the Parent, the Company or any of the Subsidiaries or any material adverse change, or any development involving a prospective material adverse change, in or affecting the general affairs, management, financial position, stockholders' equity or results of operations of the Parent, the Company and the Subsidiaries, otherwise than as set forth or contemplated in the Offering Circular; (c) The Parent, the Company and the Subsidiaries have good and marketable title in fee simple to all real property and good and marketable title to all personal property owned by them, in each case free and clear of all liens, encumbrances and defects except such as are described in the Offering Circular or such as do not materially affect the value of such property and do not interfere with the use made and proposed to be made of such property by the Parent, the Company and the Subsidiaries; and any real property and buildings held under lease by the Parent, the Company and the Subsidiaries are held by them Page 2 under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and buildings by the Parent, the Company and the Subsidiaries; (d) The Parent has been duly incorporated and is validly existing as a corporation in good standing under the laws of Delaware, with power and authority to own its properties and conduct its business as described in the Offering Circular, and has been duly qualified as a foreign corporation for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties or conducts any business so as to require such qualification, or is subject to no material liability or disability by reason of the failure to be so qualified in any such jurisdiction. (e) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of Ohio, with power and authority to own its properties and conduct its business as described in the Offering Circular, and has been duly qualified as a foreign corporation for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties or conducts any business so as to require such qualification, or is subject to no material liability or disability by reason of the failure to be so qualified in any such jurisdiction; and each Subsidiary of the Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation; (f) The Parent has an authorized capitalization as set forth in the Offering Circular, and all of the issued shares of capital stock of the Parent have been duly and validly authorized and issued and are fully paid and non-assessable; and all of the issued shares of capital stock of the Company (except for directors' qualifying shares and except as otherwise set forth in the Offering Circular) are owned directly by the Parent, free and clear of all liens, encumbrances, equities or claims; (g) The Company has an authorized capitalization as set forth in the Offering Circular, and all of the issued shares of capital stock of the Company have been duly and validly authorized and issued and are fully paid and non-assessable; and all of the issued shares of capital stock of each Subsidiary of the Company have been duly and validly authorized and issued, are fully paid and non-assessable and (except for directors' qualifying shares and except as otherwise set forth in the Offering Circular) are owned directly or indirectly by the Company, free and clear of all liens, encumbrances, equities or claims; (h) This Agreement has been duly authorized, executed and delivered by the Parent, the Company and the Subsidiaries; (i) The Senior Subordinated Notes have been duly authorized and, when issued and delivered pursuant to this Agreement, will have been duly executed, authenticated, issued and delivered and will constitute valid and legally binding obligations of the Company and the Guarantors, entitled to the benefits provided by the indenture to be dated as of December 18, 1997 (the "Senior Subordinated Notes Indenture") between the Company, the Guarantors and The Bank of New York, as trustee (the "Senior Subordinated Notes Trustee"), under which they are to be issued, which will be substantially in the form previously delivered to you; the Senior Subordinated Notes Indenture has been duly authorized and, when executed and delivered by the Company, the Guarantors and the Senior Subordinated Trustee, the Senior Subordinated Notes Indenture will constitute a valid and legally binding Page 3 instrument, enforceable in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors' rights and to general equity principles; and the Senior Subordinated Notes and the Senior Subordinated Notes Indenture will conform to the descriptions thereof in the Offering Circular and will be in substantially the form previously delivered to you; (j) The Senior Subordinated Discount Notes have been duly authorized and, when issued and delivered pursuant to this Agreement, will have been duly executed, authenticated, issued and delivered and will constitute valid and legally binding obligations of the Company and the Guarantors entitled to the benefits provided by the indenture to be dated as of December 18, 1997 (the "Senior Subordinated Discount Notes Indenture", and, together with the Senior Subordinated Notes Indenture, the "Indentures") between the Company, the Guarantors and The Bank of New York, as trustee (the "Senior Subordinated Discount Notes Trustee"), under which they are to be issued, which will be substantially in the form previously delivered to you; the Senior Subordinated Discount Notes Indenture has been duly authorized and, when executed and delivered by the Company, the Guarantors and the Senior Subordinated Discount Notes Trustee, the Senior Subordinated Discount Notes Indenture will constitute a valid and legally binding instrument, enforceable in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors' rights and to general equity principles; and the Senior Subordinated Discount Notes and the Senior Subordinated Discount Notes Indenture will conform to the descriptions thereof in the Offering Circular and will be in substantially the form previously delivered to you; (k) The Guarantees have been duly authorized by the Guarantors, and when executed, authenticated, issued and delivered pursuant to this Agreement and the applicable Indenture, will constitute valid and legally binding obligations of the Guarantors entitled to the benefits provided by the applicable Indenture, as the case may be, enforceable in accordance with their terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors' rights and to general equity principles. The Guarantees will conform to the descriptions thereof in the Offering Circular; (l) The registration rights agreement (the "Registration Rights Agreement") has been duly authorized by the Company and the Guarantors, and when executed, authenticated, issued and delivered by the Company and the Guarantors, will constitute the valid and legally binding obligation of the Company and the Guarantors, enforceable in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors' rights and to general equity principles. Pursuant to the Registration Rights Agreement, the Company will agree to file with the Commission, under the circumstances set forth therein, (i) a registration statement under the United States Securities Act of 1933, as amended (the "Act") relating to (a) another series of debt securities of the Company with terms substantially identical to the Senior Subordinated Notes (the "Exchange Senior Subordinated Notes") to be offered in exchange for the Senior Subordinated Notes and (b) another series of debt securities of the Company substantially identical to the Senior Subordinated Discount Notes (the "Exchange Senior Subordinated Discount Notes", and, together with the Exchange Senior Subordinated Notes, the "Exchange Securities") to be offered in exchange for the Senior Subordinated Discount Notes (the "Exchange Offer"), and (ii) to the extent required by the Registration Rights Agreement, a shelf registration statement Page 4 pursuant to Rule 415 of the Act relating to the resale by certain holders of the Securities, and in each case, to use its best efforts to cause such registration statements to be declared effective. The Exchange Securities have been duly authorized for issuance by the Company, and when issued and authenticated in accordance with the terms of the applicable Indenture, as the case may be, will be the valid and legally binding obligations of the Company, entitled to the benefits provided by the applicable Indenture, as the case may be, enforceable in accordance with their terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors' rights and to general equity principles. (m) The guarantees of the Company's obligations under the Securities to be issued with terms substantially identical to the Guarantees (the "Exchange Guarantees") to be offered in exchange for the Guarantees in the Exchange Offer have been duly authorized by the Guarantors, and when executed, authenticated, issued and delivered pursuant to this Agreement and the applicable Indenture, as the case may be; will constitute valid and legally binding obligations of the Guarantors entitled to the benefits provided by the applicable Indenture, as the case may be, enforceable in accordance with their terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors' rights and to general equity principles. The Exchange Guarantees will conform to the descriptions thereof in the Offering Circular; (n) The Supplemental Indenture has been duly authorized, executed, authenticated, issued and delivered by the Parent, and constitutes the valid and legally binding obligation of the Parent, enforceable in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors' rights and to general equity principles; (o) The Senior Credit Agreements (as defined in the Offering Circular) have been duly authorized by the Company and the Guarantors, and when executed, authenticated, issued and delivered by the Company and the Guarantors, will constitute the valid and legally binding obligation of the Company and the Guarantors, enforceable in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors' rights and to general equity principles; (p) None of the transactions contemplated by this Agreement (including, without limitation, the use of the proceeds from the sale of the Securities) will violate or result in a violation of Section 7 of the Exchange Act, or any regulation promulgated thereunder, including, without limitation, Regulations G, T, U, and X of the Board of Governors of the Federal Reserve System; (q) Prior to the date hereof, neither the Parent, the Company nor any of its affiliates has taken any action which is designed to or which has constituted or which might have been expected to cause or result in stabilization or manipulation of the price of any security of the Company in connection with the offering of the Securities; (r) The issue and sale of the Securities and the compliance by the Company with all of the provisions of the Securities, the Indentures, the Registration Rights Agreement and this Agreement and the consummation of the transactions herein and therein contemplated will not conflict with or result in a breach or violation of any of the terms or Page 5 provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument material to the Parent, the Company and the Subsidiaries, taken as a whole, to which the Parent, the Company or any of the Subsidiaries is a party or by which the Parent, the Company or any of the Subsidiaries is bound or to which any of the property or assets of the Parent, the Company or any of the Subsidiaries is subject, nor will such action result in any violation of the provisions of the Certificate of Incorporation or By-laws of the Parent, the Company or any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Parent, the Company or any of the Subsidiaries or any of their properties; and no consent, approval, authorization, order, registration or qualification of or with any such court or governmental agency or body is required for the issue and sale of the Securities or the consummation by the Parent and the Company of the transactions contemplated by this Agreement or the Indentures, except for the filing of a registration statement by the Company with the Commission pursuant to the Act pursuant to Section 5(l) hereof and such consents, approvals, authorizations, registrations or qualifications as may be required under state securities or Blue Sky laws in connection with the purchase and distribution of the Securities by the Underwriters; (s) Neither the Parent, the Company nor any of the Subsidiaries is in violation of its Certificate of Incorporation or By-laws or in default in the performance or observance of any material obligation, covenant or condition contained in any indenture, mortgage, deed of trust, loan agreement, lease or other agreement or instrument to which it is a party or by which it or any of its properties may be bound; (t) The statements set forth in the Offering Circular under the caption "Description of Notes", insofar as they purport to constitute a summary of the terms of the Securities, and under the caption "Certain Federal Income Tax Considerations", insofar as they purport to describe the provisions of the laws and documents referred to therein, are accurate, complete and fair; (u) Other than as set forth in the Offering Circular, there are no legal or governmental proceedings pending to which the Parent, the Company or any of the Subsidiaries is a party or of which any property of the Parent, the Company or any of the Subsidiaries is the subject which, if determined adversely to the Parent, the Company or any of the Subsidiaries, would individually or in the aggregate have a material adverse effect on the current or future financial position, shareholders' equity or results of operations of the Parent, the Company and the Subsidiaries; and, to the best of the Company's knowledge, no such proceedings are threatened or contemplated by governmental authorities or threatened by others; (v) When the Securities and Guarantees are issued and delivered pursuant to this Agreement, the Securities and Guarantees will not be of the same class (within the meaning of Rule 144A under the Act) as securities or guarantees which are listed on a national securities exchange registered under Section 6 of the Exchange Act or quoted in a U.S. automated inter-dealer quotation system; (w) The Parent is subject to Section 13 or 15(d) of the Exchange Act; (x) None of Parent, the Company or the Subsidiaries is, or after giving effect to the offering and sale of the Securities will be, an "investment company", or an entity Page 6 "controlled" by an "investment company", as such terms are defined in the United States Investment Company Act of 1940, as amended (the "Investment Company Act"); (y) Neither the Parent, the Company, any of the Subsidiaries, nor any person acting on its or their behalf has offered or sold the Securities by means of any general solicitation or general advertising within the meaning of Rule 502(c) under the Act or, with respect to Securities sold outside the United States to non-U.S. persons (as defined in Rule 902 under the Act), by means of any directed selling efforts within the meaning of Rule 902 under the Act and the Parent, the Company, any affiliate of the Parent, any affiliate of the Company and any person acting on its or their behalf has complied with and will implement the "offering restriction" within the meaning of such Rule 902; (z) Within the preceding six months, neither the Parent, the Company nor any other person acting on behalf of the Parent or the Company has offered or sold to any person any Securities, or any securities of the same or a similar class as the Securities, other than Securities offered or sold to the Purchasers hereunder. The Parent and the Company will take reasonable precautions designed to insure that any offer or sale, direct or indirect, in the United States or to any U.S. person (as defined in Rule 902 under the Act) of any Securities or any substantially similar security issued by the Parent or the Company, within six months subsequent to the date on which the distribution of the Securities has been completed (as notified to the Company by Goldman, Sachs & Co.), is made under restrictions and other circumstances reasonably designed not to affect the status of the offer and sale of the Securities in the United States and to U.S. persons contemplated by this Agreement as transactions exempt from the registration provisions of the Act; (aa) Neither the Parent, the Company nor any of their respective affiliates does business with the government of Cuba or with any person or affiliate located in Cuba within the meaning of Section 517.075, Florida Statutes; (bb) KPMG Peat Marwick, who have certified certain financial statements of the Parent, the Company and the Subsidiaries, are independent public accountants as required by the Act and the rules and regulations of the Commission thereunder; (cc) The Parent, the Company and each of the Subsidiaries has complied in all respects with all laws, regulations and orders applicable to it or its businesses the violation of which would have a material adverse effect upon the business, properties, financial condition, earnings, or prospects of the Parent, the Company or any of the Subsidiaries (a "Material Adverse Effect"); and (dd) The Parent, the Company and each of the Subsidiaries owns or possesses or has the right to use the patents, patent rights, licenses, inventions, copyrights, know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures), trademarks, service marks and trade names (collectively, the "Intellectual Property") presently employed by it in connection with, and material to, collectively or in the aggregate, the operation of the businesses now operated by it, and, except as defined in the Offering Circular, none of the Parent, the Company or the Subsidiaries has received any notice of infringement of or conflict with asserted rights of others with respect to the foregoing which, individually or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would result in a Material Adverse Effect. Page 7 2. (a) Subject to the terms and conditions herein set forth, the Company agrees to issue and sell to each of the Purchasers, and each of the Purchasers agrees, severally and not jointly, to purchase from the Company, at a purchase price of 97.250% of the principal amount thereof, plus accrued interest, if any, from December 18, 1997 to the Time of Delivery hereunder, the principal amount of Senior Subordinated Notes set forth opposite the name of such Purchaser in Schedule I hereto. (b) Subject to the terms and conditions herein set forth, the Company agrees to issue and sell to each of the Purchasers, and each of the Purchasers agrees, severally and not jointly, to purchase from the Company, at a purchase price of 57.175% of the principal amount thereof, plus accreted value, if any, from December 18, 1997 to the Time of Delivery hereunder, the principal amount of Senior Subordinated Discount Notes set forth opposite the name of such Purchaser in Schedule I hereto. 3. Upon the authorization by you of the release of the Securities, the several Purchasers propose to offer the Securities for sale upon the terms and conditions set forth in this Agreement and the Offering Circular and each Purchaser hereby represents and warrants to, and agrees with the Company that: (a) It will offer and sell the Securities only to:(i) persons who it reasonably believes are "qualified institutional buyers" ("QIBs") within the meaning of Rule 144A under the Act in transactions meeting the requirements of Rule 144A or, (ii) upon the terms and conditions set forth in Annex I to this Agreement; (b) It is an Institutional Accredited Investor; and (c) It will not offer or sell the Securities by any form of general solicitation or general advertising, including but not limited to the methods described in Rule 502(c) under the Act. 4. (a) The Securities to be purchased by each Purchaser hereunder will be represented by one or more definitive global Securities in book- entry form which will be deposited by or on behalf of the Company with The Depository Trust Company ("DTC") or its designated custodian. The Company will deliver the Securities to Goldman, Sachs & Co., for the account of each Purchaser, against payment by or on behalf of such Purchaser of the purchase price therefor by certified or official bank check or checks, payable to the order of the Company in Federal (same day) funds, by causing DTC to credit the Securities to the account of Goldman, Sachs & Co. at DTC. The Company will cause the certificates representing the Securities to be made available to Goldman, Sachs & Co. for checking at least twenty-four hours prior to the Time of Delivery (as defined below) at the office of DTC or its designated custodian (the "Designated Office"). The time and date of such delivery and payment shall be 9:30 a.m., New York City time, on December 18, 1997 or such other time and date as Goldman, Sachs & Co. and the Company may agree upon in writing. Such time and date are herein called the "Time of Delivery". Page 8 (b) The documents to be delivered at the Time of Delivery by or on behalf of the parties hereto pursuant to Section 7 hereof, including the cross-receipt for the Securities and any additional documents requested by the Purchasers pursuant to Section 7(j) hereof, will be delivered at such time and date at the offices of Latham & Watkins, 885 Third Avenue, New York, NY 10022 (the "Closing Location"), and the Securities will be delivered at the Designated Office, all at the Time of Delivery. A meeting will be held at the Closing Location at 12:00 noon, New York City time, on the New York Business Day next preceding the Time of Delivery, at which meeting the final drafts of the documents to be delivered pursuant to the preceding sentence will be available for review by the parties hereto. For the purposes of this Section 4, "New York Business Day" shall mean each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in New York are generally authorized or obligated by law or executive order to close. 5. The Company and each of the Guarantors agrees with each of the Purchasers: (a) To prepare the Offering Circular in a form approved by you; to make no amendment or any supplement to the Offering Circular which shall be disapproved by you promptly after reasonable notice thereof; and to furnish you with copies thereof; (b) Promptly from time to time to take such action as you may reasonably request to qualify the Securities for offering and sale under the securities laws of such jurisdictions as you may request and to comply with such laws so as to permit the continuance of sales and dealings therein in such jurisdictions for as long as may be necessary to complete the distribution of the Securities, provided that in connection therewith the Company shall not be required to qualify as a foreign corporation or to file a general consent to service of process in any jurisdiction; (c) To furnish the Purchasers with copies of the Offering Circular and each amendment or supplement thereto signed by an authorized officer of the Company with the independent accountants' report(s) in the Offering Circular, and any amendment or supplement containing amendments to the financial statements covered by such report(s), signed by the accountants, and additional copies thereof in such quantities as you may from time to time reasonably request, and if, at any time prior to the expiration of nine months after the date of the Offering Circular, any event shall have occurred as a result of which the Offering Circular as then amended or supplemented would include an untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made when such Offering Circular is delivered, not misleading, or, if for any other reason it shall be necessary or desirable during such same period to amend or supplement the Offering Circular, to notify you and upon your request to prepare and furnish without charge to each Purchaser and to any dealer in securities as many copies as you may from time to time reasonably request of an amended Offering Circular or a supplement to the Offering Circular which will correct such statement or omission or effect such compliance; (d) During the period beginning from the date hereof and continuing until the date six months after the Time of Delivery, not to offer, sell contract to sell or otherwise dispose of, except as provided hereunder, any securities of the Company that are substantially similar to the Securities; Page 9 (e) Not to be or become, at any time prior to the expiration of three years after the Time of Delivery, an open-end investment company, unit investment trust, closed-end investment company or face-amount certificate company that is or is required to be registered under Section 8 of the Investment Company Act; (f) At any time when the Company is not subject to Section 13 or 15(d) of the Exchange Act, for the benefit of holders from time to time of Securities, to furnish at its expense, upon request, to holders of Securities and prospective purchasers of securities information (the "Additional Issuer Information") satisfying the requirements of subsection (d)(4)(i) of Rule 144A under the Act; (g) If requested by you, to use its best efforts to cause such Securities to be eligible for the PORTAL trading system of the National Association of Securities Dealers, Inc.; (h) to file with the Commission, not later than 15 days after the Time of Delivery, five copies of a notice on Form D under the Act (one of which will be manually signed by a person duly authorized by the Company); to otherwise comply with the requirements of Rule 503 under the Act; and to furnish promptly to you evidence of each such required timely filing (including a copy thereof); (i) Until such time as the Company has Consummated (as defined in the Registration Rights Agreement) an Exchange Offer (as defined in the Registration Rights Agreement), to furnish to the holders of the Securities as soon as practicable after the end of each fiscal year an annual report (including a balance sheet and statements of income, shareholders' equity and cash flows of the Parent, the Company and the Subsidiaries certified by independent public accountants) and, as soon as practicable after the end of each of the first three quarters of each fiscal year (beginning with the fiscal quarter ending after the date of the Offering Circular), consolidated summary financial information of the Parent, the Company and the Subsidiaries for such quarter in reasonable detail; (j) Until such time as the Company has Consummated an Exchange Offer, during a period of five years from the date of the Offering Circular, to furnish to you copies of all reports or other communications (financial or other) furnished to shareholders of the Parent or the Company, and to deliver to you (i) as soon as they are available, copies of any reports and financial statements furnished to or filed with the Commission or any securities exchange on which the Securities or any class of securities of the Parent or the Company is listed; and (ii) such additional information concerning the business and financial condition of the Parent or the Company as you may from time to time reasonably request (such financial statements to be on a consolidated basis to the extent the accounts of the Parent, the Company and the Subsidiaries are consolidated in reports furnished to the stockholders generally or to the Commission); (k) Until such time as the Company has Consummated an Exchange Offer, during the period of two years after the Time of Delivery, the Company will not, and will not permit any of its "affiliates" (as defined in Rule 144 under the Act) to, resell any of the Securities which constitute "restricted securities" under Rule 144 that have been reacquired by any of them; and Page 10 (l) To use the net proceeds received by it from the sale of the Securities pursuant to this Agreement in the manner specified in the Offering Circular under the caption "Use of Proceeds". 6. The Company and each of the Guarantors covenant and agree with the several Purchasers that the Company will pay or cause to be paid the following: (i) the fees, disbursements and expenses of the Company's counsel and accountants in connection with the issue of the Securities and all other expenses in connection with the preparation, printing and filing of the Preliminary Offering Circular and the Offering Circular and any amendments and supplements thereto and the mailing and delivering of copies thereof to the Purchasers and dealers; (ii) the cost of printing or producing any Agreement among Purchasers, this Agreement, each of the Indentures, the Blue Sky Memoranda, closing documents (including any compilations thereof) and any other documents in connection with the offering, purchase, sale and delivery of the Securities; (iii) all expenses in connection with the qualification of the Securities for offering and sale under state securities laws as provided in Section 5(b) hereof, including the fees and disbursements of counsel for the Purchasers in connection with such qualification and in connection with the Blue Sky and legal investment surveys; (iv) any fees charged by securities rating services for rating the Securities; (v) the cost of preparing the Securities; (vi) the fees and expenses of the Trustee and any agent of the Trustee and the fees and disbursements of counsel for the Trustee in connection with the Indentures and the Securities and (vii) all other costs and expenses incident to the performance of its obligations hereunder which are not otherwise specifically provided for in this Section. It is understood, however, that, except as provided in this Section, and Sections 8 and 11 hereof, the Purchasers will pay all of their own costs and expenses, including the fees of their counsel, transfer taxes on resale of any of the Securities by them, and any advertising expenses connected with any offers they may make. 7. The obligations of the Purchasers hereunder shall be subject, in their discretion, to the condition that all representations and warranties and other statements of the Parent, the Company and the Subsidiaries herein are, at and as of the Time of Delivery, true and correct, the condition that the Parent, the Company and the Subsidiaries shall have performed all of their obligations hereunder theretofore to be performed, and the following additional conditions: (a) Latham & Watkins, counsel for the Purchasers, shall have furnished to you such opinion or opinions, dated the Time of Delivery, with respect to such matters as you may reasonably request, and such counsel shall have received such papers and information as they may reasonably request to enable them to pass upon such matters; (b) Kirkland & Ellis, counsel for the Company, shall have furnished to you their written opinion, dated the Time of Delivery, substantially in the form of Exhibit A hereto; (c) On the date of the Offering Circular prior to the execution of this Agreement and also at the Time of Delivery, KPMG Peat Marwick shall have furnished to you a letter or letters, dated the respective dates of delivery thereof, in form and substance satisfactory to you; (d) Neither the Parent, the Company nor any of the Subsidiaries shall have sustained since the date of the latest audited financial statements included in the Offering Circular any loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth or contemplated in the Offering Circular, and (ii) since the respective dates as of which information is given in the Offering Circular Page 11 there shall not have been any change in the capital stock or long-term debt of the Company or any of the Subsidiaries or any change, or any development involving a prospective change, in or affecting the general affairs, management, financial position, stockholders' equity or results of operations of the Parent, the Company and the Subsidiaries, otherwise than as set forth or contemplated in the Offering Circular, the effect of which, in any such case described in clause (i) or (ii), is in the judgment of the Purchasers so material and adverse as to make it impracticable or inadvisable to proceed with the offering or the delivery of the Securities on the terms and in the manner contemplated in this Agreement and in the Offering Circular; (e) On or after the date hereof (i) no downgrading shall have occurred in the rating accorded the Parent's or the Company's debt securities by any "nationally recognized statistical rating organization", as that term is defined by the Commission for purposes of Rule 436(g)(2) under the Act, and (ii) no such organization shall have publicly announced that it has under surveillance or review, with possible negative implications, its rating of any of the Parent's or the Company's debt securities; (f) On or after the date hereof there shall not have occurred any of the following: (i) a suspension or material limitation in trading in securities generally on the New York Stock Exchange; (ii) a general moratorium on commercial banking activities declared by either Federal or New York State authorities; (iii) the outbreak or escalation of hostilities involving the United States or the declaration by the United States of a national emergency or war, if the effect of any such event specified in this Clause (iii) in the judgment of the Purchasers makes it impracticable or inadvisable to proceed with the public offering or the delivery of the Securities on the terms and in the manner contemplated in the Offering Circular; or (iv) the occurrence of any material adverse change in the existing financial, political or economic conditions in the United States or elsewhere, which, in the judgment of the Purchasers, would materially and adversely affect the financial markets or the markets for the Securities and other debt securities; (g) The Securities shall have been designated for trading on PORTAL; (h) The Company and the Guarantors shall have furnished or caused to be furnished to you at the Time of Delivery certificates of officers of the Company and the Guarantors satisfactory to you as to the accuracy of the representations and warranties of the Company and the Guarantors herein at and as of such Time of Delivery, as to the performance by the Company and the Guarantors of all of their obligations hereunder to be performed at or prior to such Time of Delivery, as to the matters set forth in subsections (e) and (f) of this Section and as to such other matters as you may reasonably request; (i) The Merger (as defined in the Offering Circular) shall have been consummated and evidence as to such, satisfactory to the Purchasers and their counsel, shall have been delivered to you; (j) All of the assets of Parent shall have been contributed to the common equity capital of the Company, including, without limitation, the 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, and evidence as to such, satisfactory to the Purchasers and their counsel, shall have been delivered to you; Page 12 (k) The Company and the Guarantors shall have entered into the Registration Rights Agreement and you shall have received executed counterparts thereof; (l) The Tender Offer and Consent Solicitation (each as defined in the Offering Circular) shall have been consummated and evidence as to such, satisfactory to the Purchasers and their counsel, shall have been delivered to you; (m) The Parent shall have executed the Supplemental Indenture and you shall have received executed counterparts thereof; (n) The Company shall have entered into the Senior Credit Agreements and you shall have received executed counterparts thereof; (o) The Parent shall have terminated the Existing Credit Agreement, repaid all borrowings thereunder and evidence as to such, satisfactory to the Purchasers and their counsel, shall have been delivered to you; (p) You shall have been permitted to rely upon an opinion, addressed to the Purchasers, as to the solvency of the Company after giving effect to the Recapitalization (as defined in the Offering Circular). 8. (a) The Company and each of the Guarantors will indemnify and hold harmless each Purchaser against any losses, claims, damages or liabilities, joint or several, to which such Purchaser may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any Preliminary Offering Circular or the Offering Circular, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact necessary to make the statements therein not misleading, and will reimburse each Purchaser for any legal or other expenses reasonably incurred by such Purchaser in connection with investigating or defending any such action or claim as such expenses are incurred; provided, however, that the Company and each of the Guarantors shall not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in any Preliminary Offering Circular or the Offering Circular or any such amendment or supplement in reliance upon and in conformity with written information furnished to the Company by any Purchaser through Goldman, Sachs & Co. expressly for use therein. (b) Each Purchaser will indemnify and hold harmless the Company and each of the Guarantors against any losses, claims, damages or liabilities to which the Company or any of the Guarantors may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any Preliminary Offering Circular or the Offering Page 13 Circular, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in any Preliminary Offering Circular or the Offering Circular or any such amendment or supplement in reliance upon and in conformity with written information furnished to the Company by such Purchaser through Goldman, Sachs & Co. expressly for use therein; and will reimburse the Company or any of the Guarantors for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such action or claim as such expenses are incurred. (c) Promptly after receipt by an indemnified party under subsection (a) or (b) above of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under such subsection, notify the indemnifying party in writing of the commencement thereof; but the omission so to notify the indemnifying party shall not relieve it from any liability which it may have to any indemnified party otherwise than under such subsection. In case any such action shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and, after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party under such subsection for any legal expenses of other counsel or any other expenses, in each case subsequently incurred by such indemnified party, in connection with the defense thereof other than reasonable costs of investigation. No indemnifying party shall, without the written consent of the indemnified party, effect the settlement or compromise of, or consent to the entry of any judgment with respect to, any pending or threatened action or claim in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified party is an actual or potential party to such action or claim) unless such settlement, compromise or judgment (i) includes an unconditional release of the indemnified party from all liability arising out of such action or claim and (ii) does not include a statement as to, or an admission of, fault, culpability or a failure to act, by or on behalf of any indemnified party. (d) If the indemnification provided for in this Section 8 is unavailable to or insufficient to hold harmless an indemnified party under subsection (a) or (b) above in respect of any losses, claims, damages or liabilities (or actions in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative benefits received by the Company and each of the Guarantors on the one hand and the Purchasers on the other from the offering of the Securities. If, however, the allocation provided by the immediately preceding sentence is not permitted by applicable law or if the indemnified party failed to give the notice required under subsection (c) above, then each indemnifying party shall contribute to such amount paid or payable by such indemnified party in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Company and each of the Guarantors on the one hand and the Purchasers on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. The relative benefits received by the Company and each of the Guarantors on the one hand and the Purchasers on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company bear to the Page 14 total underwriting discounts and commissions received by the Purchasers, in each case as set forth in the Offering Circular. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company and each of the Guarantors on the one hand or the Purchasers on the other and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and each of the Guarantors and the Purchasers agree that it would not be just and equitable if contribution pursuant to this subsection (d) were determined by pro rata allocation (even if the Purchasers were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above in this subsection (d). The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above in this subsection (d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this subsection (d), no Purchaser shall be required to contribute any amount in excess of the amount by which the total price at which the Securities underwritten by it and distributed to investors were offered to investors exceeds the amount of any damages which such Purchaser has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. The Purchasers' obligations in this subsection (d) to contribute are several in proportion to their respective underwriting obligations and not joint. (e) The obligations of the Company and each of the Guarantors under this Section 8 shall be in addition to any liability which the Company and each of the Guarantors may otherwise have and shall extend, upon the same terms and conditions, to each person, if any, who controls any Purchaser within the meaning of the Act; and the obligations of the Purchasers under this Section 8 shall be in addition to any liability which the respective Purchasers may otherwise have and shall extend, upon the same terms and conditions, to each officer and director of the Parent and to each person, if any, who controls the Parent within the meaning of the Act. 9. (a) If any Purchaser shall default in its obligation to purchase the Securities which it has agreed to purchase hereunder, you may in your discretion arrange for you or another party or other parties to purchase such Securities on the terms contained herein. If within thirty-six hours after such default by any Purchaser you do not arrange for the purchase of such Securities, then the Company shall be entitled to a further period of thirty-six hours within which to procure another party or other parties satisfactory to you to purchase such Securities on such terms. In the event that, within the respective prescribed periods, you notify the Company that you have so arranged for the purchase of such Securities, or the Company notifies you that it has so arranged for the purchase of such Securities, you or the Company shall have the right to postpone the Time of Delivery for a period of not more than seven days, in order to effect whatever changes may thereby be made necessary in the Offering Circular, or in any other documents or arrangements, and the Company agrees to prepare promptly any amendments to the Offering Circular which in your opinion may thereby be made necessary. The term "Purchaser" as used in this Agreement shall include any person substituted under this Section with like effect as if such person had originally been a party to this Agreement with respect to such Securities. Page 15 (b) If, after giving effect to any arrangements for the purchase of the Securities of a defaulting Purchaser or Purchasers by you and the Company as provided in subsection (a) above, the aggregate principal amount of such Securities which remains unpurchased does not exceed one-eleventh of the aggregate principal amount of all the Securities, then the Company shall have the right to require each non-defaulting Purchaser to purchase the principal amount of Securities which such Purchaser agreed to purchase hereunder and, in addition, to require each non-defaulting Purchaser to purchase its pro rata share (based on the principal amount of Securities which such Purchaser agreed to purchase hereunder) of the Securities of such defaulting Purchaser or Purchasers for which such arrangements have not been made; but nothing herein shall relieve a defaulting Purchaser from liability for its default. (c) If, after giving effect to any arrangements for the purchase of the Securities of a defaulting Purchaser or Purchasers by you and the Company as provided in subsection (a) above, the aggregate principal amount of Securities which remains unpurchased exceeds one-eleventh of the aggregate principal amount of all the Securities, or if the Company shall not exercise the right described in subsection (b) above to require non- defaulting Purchasers to purchase Securities of a defaulting Purchaser or Purchasers, then this Agreement shall thereupon terminate, without liability on the part of any non-defaulting Purchaser or the Company, except for the expenses to be borne by the Company and the Purchasers as provided in Section 6 hereof and the indemnity and contribution agreements in Section 8 hereof; but nothing herein shall relieve a defaulting Purchaser from liability for its default. 10. The respective indemnities, agreements, representations, warranties and other statements of the Company, the Guarantors and the several Purchasers, as set forth in this Agreement or made by or on behalf of them, respectively, pursuant to this Agreement, shall remain in full force and effect, regardless of any investigation (or any statement as to the results thereof) made by or on behalf of any Purchaser or any controlling person of any Purchaser, or the Parent or the Company or any of the Subsidiaries, or any officer or director or controlling person of the Parent or the Company or any of the Subsidiaries, and shall survive delivery of and payment for the Securities. 11. If this Agreement shall be terminated pursuant to Section 9 hereof, the Company and the Guarantors shall not then be under any liability to any Purchaser except as provided in Sections 6 and 8 hereof; but, if for any other reason, the Securities or the Guarantees are not delivered by or on behalf of the Company and the Guarantors as provided herein, the Company will reimburse the Purchasers through you for all out-of-pocket expenses approved in writing by you, including fees and disbursements of counsel, reasonably incurred by the Purchasers in making preparations for the purchase, sale and delivery of the Securities, but the Company and the Guarantors shall then be under no further liability to any Purchaser except as provided in Sections 6 and 8 hereof. 12. In all dealings hereunder, you shall act on behalf of each of the Purchasers, and the parties hereto shall be entitled to act and rely upon any statement, request, notice or agreement on behalf of any Purchaser made or given by you. All statements, requests, notices and agreements hereunder shall be in writing, and if to the Purchasers shall be delivered or sent by mail, telex or facsimile transmission to you in care of Goldman, Sachs & Co., 85 Broad Street, New York, New York 10004, Attention: Registration Department; and if to the Company shall be delivered or sent by mail, telex or facsimile transmission Page 16 to the address of the Company set forth in the Offering Circular, Attention: Secretary; provided, however, that any notice to a Purchaser pursuant to Section 8(c) hereof shall be delivered or sent by mail, telex or facsimile transmission to such Purchaser at its address set forth in its Purchasers' Questionnaire, or telex constituting such Questionnaire, which address will be supplied to the Company by you upon request. Any such statements, requests, notices or agreements shall take effect upon receipt thereof. 13. This Agreement shall be binding upon, and inure solely to the benefit of, the Purchasers, the Parent, the Company, the Subsidiaries and, to the extent provided in Sections 8 and 10 hereof, the officers and directors of the Parent and each person who controls the Parent or any Purchaser, and their respective heirs, executors, administrators, successors and assigns, and no other person shall acquire or have any right under or by virtue of this Agreement. No purchaser of any of the Securities from any Purchaser shall be deemed a successor or assign by reason merely of such purchase. 14. Time shall be of the essence of this Agreement. 15. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York. 16. This Agreement may be executed by any one or more of the parties hereto in any number of counterparts, each of which shall be deemed to be an original, but all such respective counterparts shall together constitute one and the same instrument. If the foregoing is in accordance with your understanding, please sign and return to us one for the Company and each of the Purchasers plus one for each counsel counterparts hereof, and upon the acceptance hereof by you, on behalf of each of the Purchasers, this letter and such acceptance hereof shall constitute a binding agreement between each of the Purchasers and the Company. It is understood that your acceptance of this letter on behalf of each of the Purchasers is pursuant to the authority set forth in a form of Agreement among Purchasers, the form of which shall be submitted to the Company for examination upon request, but without warranty on your part as to the authority of the signers thereof. [Purchase Agreement Signature Page(s) Follow] Page 17 Very truly yours, Issuer: SEALY MATTRESS COMPANY By: /s/ RONALD H. STOLLE -------------------------------- Name: Ronald H. Stolle Title: Vice President & Treasurer Guarantors: SEALY CORPORATION By: /s/ RONALD H. STOLLE -------------------------------- Name: Ronald H. Stolle Title: Vice President & Treasurer SEALY MATTRESS COMPANY OF PUERTO RICO By: /s/ RONALD H. STOLLE -------------------------------- Name: Ronald H. Stolle Title: Vice President & Treasurer OHIO-SEALY MATTRESS MANUFACTURING CO., INC. (RANDOLPH) By: /s/ RONALD H. STOLLE -------------------------------- Name: Ronald H. Stolle Title: Vice President & Treasurer OHIO-SEALY MATTRESS MANUFACTURING CO. - FT. WORTH By: /s/ RONALD H. STOLLE -------------------------------- Name: Ronald H. Stolle Title: Vice President & Treasurer Purchase Agreement Signature Page 1 OHIO-SEALY MATTRESS MANUFACTURING CO. By: /s/ RONALD H. STOLLE -------------------------------- Name: Ronald H. Stolle Title: Vice President & Treasurer OHIO-SEALY MATTRESS MANUFACTURING CO.- HOUSTON By: /s/ RONALD H. STOLLE -------------------------------- Name: Ronald H. Stolle Title: Vice President & Treasurer SEALY MATTRESS COMPANY OF MICHIGAN, INC. By: /s/ RONALD H. STOLLE -------------------------------- Name: Ronald H. Stolle Title: Vice President & Treasurer SEALY MATTRESS COMPANY OF KANSAS CITY, INC. By: /s/ RONALD H. STOLLE -------------------------------- Name: Ronald H. Stolle Title: Vice President & Treasurer SEALY OF MARYLAND AND VIRGINIA, INC. By: /s/ RONALD H. STOLLE -------------------------------- Name: Ronald H. Stolle Title: Vice President & Treasurer SEALY MATTRESS COMPANY OF ILLINOIS By: /s/ RONALD H. STOLLE -------------------------------- Name: Ronald H. Stolle Title: Vice President & Treasurer Purchase Agreement Signature Page 2 A. BRANDWEIN & COMPANY By: /s/ RONALD H. STOLLE -------------------------------- Name: Ronald H. Stolle Title: Vice President & Treasurer SEALY MATTRESS COMPANY OF ALBANY, INC. By: /s/ RONALD H. STOLLE -------------------------------- Name: Ronald H. Stolle Title: Vice President & Treasurer SEALY OF MINNESOTA, INC. By: /s/ RONALD H. STOLLE -------------------------------- Name: Ronald H. Stolle Title: Vice President & Treasurer SEALY MATTRESS COMPANY OF MEMPHIS By: /s/ RONALD H. STOLLE -------------------------------- Name: Ronald H. Stolle Title: Vice President & Treasurer THE STEARNS & FOSTER BEDDING COMPANY By: /s/ RONALD H. STOLLE -------------------------------- Name: Ronald H. Stolle Title: Vice President & Treasurer THE STEARNS & FOSTER UPHOLSTERY FURNITURE COMPANY By: /s/ RONALD H. STOLLE -------------------------------- Name: Ronald H. Stolle Title: Vice President & Treasurer Purchase Agreement Signature Page 3 SEALY, INC. By: /s/ RONALD H. STOLLE -------------------------------- Name: Ronald H. Stolle Title: Vice President & Treasurer THE OHIO MATTRESS COMPANY LICENSING AND COMPONENTS GROUP By: /s/ RONALD H. STOLLE -------------------------------- Name: Ronald H. Stolle Title: Vice President & Treasurer SEALY MATTRESS MANUFACTURING COMPANY, INC. By: /s/ RONALD H. STOLLE -------------------------------- Name: Ronald H. Stolle Title: Vice President & Treasurer Purchase Agreement Signature Page 4 Accepted as of the date hereof: GOLDMAN, SACHS & CO. J.P. MORGAN SECURITIES INC. BT ALEX. BROWN INCORPORATED By: /s/ GOLDMAN, SACHS & CO. --------------------------------- (Goldman, Sachs & Co.) Purchase Agreement Signature Page 5 SCHEDULE I
Principal Amount of Senior Subordinated Notes to be Purchaser Purchased - --------- Goldman, Sachs & Co........................................................ $ 78,125,000 J.P. Morgan Securities Inc................................................. 34,375,000 BT Alex. Brown Incorporated................................................ 12,500,000 ----------------------------------- Total................................................................. $125,000,000 =================================== Principal Amount of Senior Subordinated Discount Notes to Purchaser be Purchased Goldman, Sachs & Co........................................................ $ 80,000,000 J.P. Morgan Securities Inc................................................. 35,200,000 BT Alex. Brown Incorporated................................................ 12,800,000 ----------------------------------- Total................................................................. $128,000,000 ===================================
Schedule I-1 ANNEX I (1) The Securities have not been and will not be registered under the Act and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except in accordance with Regulation S under the Act or pursuant to an exemption from the registration requirements of the Act. Each Purchaser represents that it has offered and sold the Securities, and will offer and sell the Securities (i) as part of their distribution at any time and (ii) otherwise until 40 days after the later of the commencement of the offering and the Time of Delivery, only in accordance with Rule 903 of Regulation S , Rule 144A or pursuant to Paragraph 2 of this Annex I under the Act. Accordingly, each Purchaser agrees that neither it, its affiliates nor any persons acting on its or their behalf has engaged or will engage in any directed selling efforts with respect to the Securities, and it and they have complied and will comply with the offering restrictions requirement of Regulation S. Each Purchaser agrees that, at or prior to confirmation of sale of Securities (other than a sale pursuant to Rule 144A) or pursuant to Paragraph 2 of this Annex I, it will have sent to each distributor, dealer or person receiving a selling concession, fee or other remuneration that purchases Securities from it during the restricted period a confirmation or notice to substantially the following effect: "The Securities covered hereby have not been registered under the U.S. Securities Act of 1933 (the "Securities Act") and may not be offered and sold within the United States or to, or for the account or benefit of, U.S. persons (i) as part of their distribution at any time or (ii) otherwise until 40 days after the later of the commencement of the offering and the closing date, except in either case in accordance with Regulation S (or Rule 144A if available) under the Securities Act. Terms used above have the meaning given to them by Regulation S." Terms used in this paragraph have the meanings given to them by Regulation S. Each Purchaser further agrees that it has not entered and will not enter into any contractual arrangement with respect to the distribution or delivery of the Securities, except with its affiliates or with the prior written consent of the Company. (2) Notwithstanding the foregoing, Securities in registered form may be offered, sold and delivered by the Purchasers in the United States and to U.S. persons pursuant to Section 3 of this Agreement without delivery of the written statement required by paragraph (1) above. (3) Each Purchaser further represents and agrees that (i) it has not offered or sold and prior to the date six months after the date of issue of the Securities will not offer or sell any Securities to persons in the United Kingdom except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995, (b) it has complied, and will comply, with all applicable provisions of the Financial Services Act of 1986 of Great Britain with respect to anything done by it in relation to the Securities in, from or otherwise involving the United Kingdom, and (c) it has only issued or passed on and will only issue or pass on in the United Kingdom any document received by it in connection with the issuance of the Securities to a person who is of a kind described in Article 11(3) of the Financial Services Act 1986 Annex I-1 (Investment Advertisements) (Exemptions) Order 1996 of Great Britain or is a person to whom the document may otherwise lawfully be issued or passed on. (4) Each Purchaser agrees that it will not offer, sell or deliver any of the Securities in any jurisdiction outside the United States except under circumstances that will result in compliance with the applicable laws thereof, and that it will take at its own expense whatever action is required to permit its purchase and resale of the Securities in such jurisdictions. Each Purchaser understands that no action has been taken to permit a public offering in any jurisdiction outside the United States where action would be required for such purpose. Each Purchaser agrees not to cause any advertisement of the Securities to be published in any newspaper or periodical or posted in any public place and not to issue any circular relating to the Securities, except in any such case with Goldman, Sachs & Co.'s express written consent and then only at its own risk and expense. Annex I-2 EX-10.3 9 REGISTRATION RIGHTS AGREEMENT EXHIBIT 10.3 EXECUTION COPY REGISTRATION RIGHTS AGREEMENT Dated as of December 18, 1997 by and among SEALY MATTRESS COMPANY, The Guarantors Named on the Signature Pages Hereto, and GOLDMAN, SACHS & CO., J.P. MORGAN SECURITIES INC. AND BT ALEX. BROWN INCORPORATED This Registration Rights Agreement (this "Agreement") is made and entered into as of December 18, 1997, by and among Sealy Mattress Company, an Ohio corporation (the "Company"), the guarantors named on the signature pages hereto (the "Guarantors") and Goldman, Sachs & Co., J.P. Morgan Securities Inc. and BT Alex. Brown Incorporated (each an "Initial Purchaser" and, collectively, the "Initial Purchasers"), each of whom has agreed to purchase the Company's (i) 9- 7/8% Senior Subordinated Notes due 2007 (the "Senior Subordinated Notes") and (ii) 10-7/8% Senior Subordinated Discount Notes due 2007 (the "Senior Subordinated Discount Notes," and together with the Senior Subordinated Notes, the "Notes") pursuant to the Purchase Agreement (as defined below). This Agreement is made pursuant to the Purchase Agreement, dated December 11, 1997, (the "Purchase Agreement," by and among the Company, the Guarantors and the Initial Purchasers. In order to induce the Initial Purchasers to purchase the Notes, the Company and the Guarantors have agreed to provide the registration rights set forth in this Agreement. The execution and delivery of this Agreement is a condition to the obligations of the Initial Purchasers set forth in Section 7 of the Purchase Agreement. Capitalized terms used herein and not otherwise defined are used as defined in either of the Indentures (as defined herein). The parties hereby agree as follows: SECTION 1. DEFINITIONS As used in this Agreement, the following capitalized terms shall have the following meanings: Accreted Value: As defined in the Senior Subordinated Discount Notes Indenture. Act: The Securities Act of 1933, as amended. Affiliate: As defined in Rule 144 of the Act. Broker-Dealer: Any broker or dealer registered under the Exchange Act. Closing Date: The date hereof. Commission: The Securities and Exchange Commission. Consummate: An Exchange Offer shall be deemed "Consummated" for purposes of this Agreement upon the occurrence of (i) the filing and effectiveness under the Act of the Exchange Offer Registration Statement relating to the Exchange Notes to be issued in the Exchange Offer, (ii) the maintenance of such Exchange Offer Registration Statement continuously effective and the keeping of the Exchange Offer open for a period not less than the minimum period required pursuant to Section 3(b) hereof and (iii) the delivery by the Company to the Registrar under the applicable Indenture of Exchange Notes in the same aggregate principal amount as the aggregate principal amount of Notes tendered by Holders thereof pursuant to the Exchange Offer. Effectiveness Deadline: As defined in Section 3(a) and 4(a) hereof. Exchange Act: The Securities Exchange Act of 1934, as amended. Page 1 Exchange Notes: Both the Company's (i) 9-7/8% Senior Subordinated Notes due 2007 and (ii) 10-7/8% Senior Subordinated Discount Notes due 2007, in each case, to be issued pursuant to the applicable Indenture : (x) in the Exchange Offer or (y) as contemplated by Section 4 hereof. Exchange Offer: The exchange and issuance by the Company of a principal amount at maturity of Exchange Notes (which shall be registered pursuant to the Exchange Offer Registration Statement) equal to the outstanding principal amount at maturity of the Notes that are tendered by such Holders in connection with such exchange and issuance. Exchange Offer Registration Statement: The Registration Statement relating to an Exchange Offer, including the related Prospectus. Filing Deadline: As defined in Section 3(a) and 4(a) hereof. Guarantors: The Guarantors defined in the preamble hereto and any Person which becomes a guarantor of either series of Notes, in each case after the date hereof pursuant to the terms of either of the Indentures. Holders: As defined in Section 2 hereof. Indemnified Holder: As defined in Section 8(a) hereof. Indentures: The Senior Subordinated Notes Indenture and the Senior Subordinated Discount Notes Indenture. Participating Broker-Dealer: Any Broker-Dealer that holds Exchange Notes that were acquired in the Exchange Offer in exchange for Notes that such Broker- Dealer acquired for its own account as a result of market making activities or other trading activities (other than Notes acquired directly from the Company or any of its affiliates) Person: An individual, partnership, limited liability company, corporation, trust, unincorporated organization, or a government or agency or political subdivision thereof. Prospectus: The prospectus included in a Registration Statement at the time such Registration Statement is declared effective, as amended or supplemented by any prospectus supplement and by all other amendments thereto, including post- effective amendments, and all material incorporated by reference into such Prospectus. Recommencement Date: As defined in Section 6(d) hereof. Registration Default: As defined in Section 5 hereof. Registration Statement: Any registration statement of the Company and the Guarantors relating to (a) an offering of any Exchange Notes (including guarantees thereof by the Guarantors) pursuant to an Exchange Offer or (b) the registration for resale of Transfer Restricted Securities pursuant to the Shelf Registration Statement, in each case, (i) that is filed pursuant to the provisions of this Agreement and (ii) including the Prospectus included therein, all amendments and supplements thereto (including post-effective amendments) and all exhibits and material incorporated by reference therein. Regulation S: Regulation S promulgated under the Act. Page 2 Rule 144: Rule 144 promulgated under the Act. Securities: The Notes and the Exchange Notes (including guarantees thereof by the Guarantors). Senior Subordinated Discount Notes Indenture: The indenture, dated the Closing Date, among the Company, the Guarantors and The Bank of New York, as trustee (the "Senior Subordinated Discount Notes Trustee"), pursuant to which the Senior Subordinated Discount Notes are to be issued, as such indenture is amended or supplemented from time to time in accordance with the terms thereof. Senior Subordinated Notes Indenture: The indenture, dated the Closing Date, among the Company, the Guarantors and The Bank of New York, as trustee (the "Senior Subordinated Notes Trustee"), pursuant to which the Senior Subordinated Notes are to be issued, as such indenture is amended or supplemented from time to time in accordance with the terms thereof. Shelf Registration Statement: As defined in Section 4 hereof. Suspension Notice: As defined in Section 6(d) hereof. TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-77bbbb) as in effect on the date of the Indentures. Transfer Restricted Securities: Each Security, until the earliest to occur of (a) the date on which such Security is exchanged in an Exchange Offer and entitled to be resold to the public by the Holder thereof without complying with the prospectus delivery requirements of the Act, (b) the date on which such Security has been disposed of in accordance with a Shelf Registration Statement, (c) the date on which such Security is disposed of by a Broker-Dealer pursuant to the "Plan of Distribution" contemplated by an Exchange Offer Registration Statement (including delivery of the Prospectus contained therein) or (d) the date on which such Security is distributed to the public pursuant to Rule 144 under the Act. SECTION 2. HOLDERS A Person is deemed to be a holder of Transfer Restricted Securities (each, a "Holder") whenever such Person owns Transfer Restricted Securities. SECTION 3. REGISTERED EXCHANGE OFFER (a) Unless the Exchange Offer shall not be permitted by applicable federal law or policy of the Commission (after the procedures set forth in Section 6(a)(i) below have been complied with), the Company and the Guarantors shall (i) cause the Exchange Offer Registration Statement to be filed with the Commission as soon as practicable after the Closing Date (the "Exchange Offer Filing Date"), but in no event later than 90 days after the Closing Date (such 90th day being the "Filing Deadline"), (ii) use its best efforts to cause such Exchange Offer Registration Statement to become effective at the earliest possible time, but in no event later than 150 days after the Closing Date (such 150th day being the "Effectiveness Deadline"), (iii) in connection with the foregoing, (A) file all pre-effective amendments to such Exchange Offer Registration Statement as may be necessary in order to cause it to become effective, (B) file, if applicable, a post-effective amendment to such Exchange Offer Registration Statement pursuant to Rule 430A under the Act and (C) cause all necessary filings, if any, in connection with the registration and qualification of the Exchange Notes to be made under the Blue Sky laws of such jurisdictions as are necessary to permit Consummation of the Exchange Offer, and (iv) upon the effectiveness of such Exchange Offer Registration Statement, use its best efforts to commence and Page 3 Consummate the Exchange Offer. The Exchange Offer shall be on the appropriate form permitting registration of the Exchange Notes to be offered in exchange for the Notes that are Transfer Restricted Securities and to permit resales of Exchange Notes by Broker-Dealers that tendered into the Exchange Offer for Notes that such Broker-Dealer acquired for its own account as a result of market making activities or other trading activities (other than Notes acquired directly from the Company or any of its Affiliates) as contemplated by Section 3(c) below. (b) The Company and the Guarantors shall use their respective best efforts to cause the Exchange Offer Registration Statement to be effective continuously, and shall keep the Exchange Offer open for a period of not less than the minimum period required under applicable federal and state securities laws to Consummate the Exchange Offer; provided, however, that in no event shall such period be less than 20 Business Days. The Company and the Guarantors shall cause the Exchange Offer to comply with all applicable federal and state securities laws. No securities other than the Exchange Notes shall be included in the Exchange Offer Registration Statement. The Company and the Guarantors shall use their respective best efforts to cause the Exchange Offer to be Consummated on the earliest practicable date after the Exchange Offer Registration Statement has become effective, but in no event later than 30 Business Days thereafter. (c) The Company and the Guarantors shall include a "Plan of Distribution" section in the Prospectus contained in the Exchange Offer Registration Statement and indicate therein that any Broker-Dealer who holds Transfer Restricted Securities that were acquired for the account of such Broker-Dealer as a result of market-making activities or other trading activities (other than Transfer Restricted Securities acquired directly from the Company or any Affiliate of the Company), may exchange such Transfer Restricted Securities pursuant to the Exchange Offer; however, such Broker-Dealer may be deemed to be an "underwriter" within the meaning of the Act and must, therefore, deliver a prospectus meeting the requirements of the Act in connection with its initial sale of any Exchange Notes received by such Broker-Dealer in the Exchange Offer and that the Prospectus contained in the Exchange Offer Registration Statement may be used to satisfy such prospectus delivery requirement. Such "Plan of Distribution" section shall also contain all other information with respect to such sales by such Broker-Dealers that the Commission may require in order to permit such sales pursuant thereto, but such "Plan of Distribution" shall not name any such Broker-Dealer or disclose the amount of Transfer Restricted Securities held by any such Broker-Dealer, except to the extent required by the Commission as a result of a change in policy, rules or regulations after the date of this Agreement. To the extent necessary to ensure that the Exchange Offer Registration Statement is available for sales of Exchange Notes by Broker-Dealers, the Company and the Guarantors agree to use their respective best efforts to keep the Exchange Offer Registration Statement continuously effective, supplemented and amended as required by the provisions of Section 6(c) hereof and in conformity with the requirements of this Agreement, the Act and the policies, rules and regulations of the Commission as announced from time to time, for a period of 180 days from the date on which the Exchange Offer is Consummated, or such shorter period as will terminate when all Transfer Restricted Securities covered by such Registration Statement have been sold pursuant thereto. The Company and the Guarantors shall promptly provide sufficient copies of the latest version of such Prospectus to such Broker-Dealers promptly upon request, and in no event later than one day after such request, at any time during such period. Page 4 SECTION 4. SHELF REGISTRATION (a) Shelf Registration. If (i) the Exchange Offer is not permitted by ------------------- applicable law or policy of the Commission (after the Company and the Guarantors have complied with the procedures set forth in Section 6(a)(i) below) or (ii) any Holder of Transfer Restricted Securities shall notify the Company in writing within 20 Business Days following the Consummation of the Exchange Offer that (A) such Holder was prohibited by law or Commission policy from participating in the Exchange Offer or (B) such Holder may not resell the Exchange 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 by such Holder or (C) such Holder is a Broker-Dealer and holds Notes acquired directly from the Company or any of its Affiliates, then the Company and the Guarantors shall: (x) cause to be filed, on or prior to 45 days after the earlier of (i) the date on which the Company determines that the Exchange Offer Registration Statement cannot be filed as a result of clause (a)(i) above and (ii) the date on which the Company receives the notice specified in clause (a) (ii) above, (such earlier date, the "Filing Deadline"), a shelf registration statement pursuant to Rule 415 under the Act (which may be an amendment to the Exchange Offer Registration Statement (the "Shelf Registration Statement")), relating to all Transfer Restricted Securities, and (y) shall use their respective best efforts to cause such Shelf Registration Statement to become effective on or prior to 90 days after the Filing Deadline (such 90th day the "Effectiveness Deadline"). If, after the Company has filed an Exchange Offer Registration Statement that satisfies the requirements of Section 3(a) above, the Company is required to file and make effective a Shelf Registration Statement solely because the Exchange Offer is not permitted under applicable federal law or policy of the Commission, then the filing of the Exchange Offer Registration Statement shall be deemed to satisfy the requirements of clause (x) above; provided that, in such event, the Company shall remain obligated to meet the Effectiveness Deadline set forth in clause (y). The Company and the Guarantors shall use their respective best efforts to keep any Shelf Registration Statement required by this Section 4(a) continuously effective, supplemented and amended as required by and subject to the provisions of Sections 6(b) and (c) hereof to the extent necessary to ensure that it is available for sales of Transfer Restricted Securities by the Holders thereof entitled to the benefit of this Section 4(a), and to ensure that it conforms with the requirements of this Agreement, the Act and the policies, rules and regulations of the Commission as announced from time to time, for a period of at least two years (as extended pursuant to Section 6(c)(i)) following the date on which such Shelf Registration Statement first becomes effective under the Act, or such shorter period as will terminate when all Transfer Restricted Securities covered by such Registration Statement have been sold pursuant thereto. (b) Provision by Holders of Certain Information in Connection with the ------------------------------------------------------------------ Shelf Registration Statement. No Holder of Transfer Restricted Securities may - ---------------------------- include any of its Transfer Restricted Securities in any Shelf Registration Statement pursuant to this Agreement unless and until such Holder furnishes to the Company in writing, within 20 days after receipt of a request therefor, the information specified in Item 507 or 508 of Regulation S-K, as applicable, of the Act for use in connection with any Shelf Registration Statement or Prospectus or preliminary Prospectus included therein. No Holder of Transfer Restricted Securities shall be entitled to liquidated damages pursuant to Section 5 hereof unless and until such Holder shall have provided all such information. Each selling Holder agrees to promptly Page 5 furnish additional information required to be disclosed in order to make the information previously furnished to the Company by such Holder not materially misleading. SECTION 5. LIQUIDATED DAMAGES If (i) any Registration Statement required by this Agreement is not filed with the Commission on or prior to the applicable Filing Deadline, (ii) any such Registration Statement has not been declared effective by the Commission on or prior to the applicable Effectiveness Deadline, (iii) the Exchange Offer has not been Consummated within 30 Business Days after the Exchange Offer Registration Statement is first declared effective by the Commission or (iv) any Registration Statement required by this Agreement is filed and declared effective but shall thereafter cease to be effective or fail to be usable for its intended purpose without being succeeded immediately by a post-effective amendment to such Registration Statement that cures such failure and that is itself declared effective immediately (each such event referred to in clauses (i) through (iv), a "Registration Default"), then the Company and the Guarantors hereby jointly and severally agree to pay to each Holder of Transfer Restricted Securities affected thereby liquidated damages in an amount equal to $.05 per week per $1,000 in (x) principal amount of Transfer Restricted Securities, if such Securities are Senior Subordinated Notes, and (y) Accreted Value of Transfer Restricted Securities, if such Securities are Senior Subordinated Discount Notes, held by such Holder for each week or portion thereof that the Registration Default continues for the first 90-day period immediately following the occurrence of such Registration Default. The amount of the liquidated damages shall increase by an additional $.05 per week per $1,000 in principal amount or Accreted Value, as applicable, of Transfer Restricted Securities with respect to each subsequent 90-day period until all Registration Defaults have been cured, up to a maximum amount of liquidated damages of $.50 per week per $1,000 in principal amount or Accreted Value, as applicable, of Transfer Restricted Securities; provided that the Company and the Guarantors shall in no event be required to pay liquidated damages for more than one Registration Default at any given time. Notwithstanding anything to the contrary set forth herein, (1) upon filing of the Exchange Offer Registration Statement (and/or, if applicable, the Shelf Registration Statement), in the case of (i) above, (2) upon the effectiveness of the Exchange Offer Registration Statement (and/or, if applicable, the Shelf Registration Statement), in the case of (ii) above, (3) upon Consummation of the Exchange Offer, in the case of (iii) above, or (4) upon the filing of a post-effective amendment to the Registration Statement or an additional Registration Statement that causes the Exchange Offer Registration Statement (and/or, if applicable, the Shelf Registration Statement) to again be declared effective or made usable in the case of (iv) above, the liquidated damages payable with respect to the Transfer Restricted Securities as a result of such clause (i), (ii), (iii) or (iv), as applicable, shall cease. All accrued liquidated damages shall be paid to the Holders entitled thereto, in the manner provided for the payment of interest in the Senior Subordinated Notes Indenture or Senior Subordinated Discount Notes Indenture, as applicable, on each respective Interest Payment Date, as more fully set forth in each of the Indentures and the Securities. All obligations of the Company and the Guarantors set forth in the preceding paragraph that are outstanding with respect to any Transfer Restricted Security at the time such security ceases to be a Transfer Restricted Security shall survive until such time as all such obligations with respect to such Security shall have been satisfied in full. SECTION 6. REGISTRATION PROCEDURES (a) Exchange Offer Registration Statement. In connection with the Exchange ------------------------------------- Offer, the Company and the Guarantors shall comply with all applicable provisions of Section 6(c) below, shall use their respective best efforts to effect such exchange and to permit the resale of Exchange Notes by Page 6 Broker-Dealers that tendered in the Exchange Offer Notes that such Broker-Dealer acquired for its own account as a result of its market making activities or other trading activities (other than Notes acquired directly from the Company or any of its Affiliates) being sold in accordance with the intended method or methods of distribution thereof, and shall comply with all of the following provisions : (i) If, following the date hereof there has been announced a change in Commission policy with respect to exchange offers such as the Exchange Offer, that in the reasonable opinion of counsel to the Company raises a substantial question as to whether the Exchange Offer is permitted by applicable federal law, the Company and the Guarantors hereby agree to seek a no-action letter or other favorable decision from the Commission allowing the Company and the Guarantors to Consummate an Exchange Offer for such Transfer Restricted Securities. The Company and the Guarantors hereby agree to pursue the issuance of such a decision to the Commission staff level. In connection with the foregoing, the Company and the Guarantors hereby agree to take all such other actions as may be requested by the Commission or otherwise required in connection with the issuance of such decision, including without limitation (A) participating in telephonic conferences with the Commission, (B) delivering to the Commission staff an analysis prepared by counsel to the Company setting forth the legal bases, if any, upon which such counsel has concluded that such an Exchange Offer should be permitted and (C) diligently pursuing a resolution (which need not be favorable) by the Commission staff. (ii) As a condition to its participation in the Exchange Offer, each Holder of Transfer Restricted Securities (including, without limitation, any Holder who is a Broker Dealer) shall furnish, upon the request of the Company, prior to the Consummation of the Exchange Offer, a written representation to the Company and the Guarantors (which may be contained in the letter of transmittal contemplated by the Exchange Offer Registration Statement) to the effect that (A) it is not an Affiliate of the Company, (B) it is not engaged in, and does not intend to engage in, and has no arrangement or understanding with any person to participate in, a distribution of the Exchange Notes to be issued in the Exchange Offer and (C) it is acquiring the Exchange Notes in its ordinary course of business. Each Holder using the Exchange Offer to participate in a distribution of the Exchange Notes hereby acknowledges and agrees that, if the resales are of Exchange Notes obtained by such Holder in exchange for Notes acquired directly from the Company or an Affiliate thereof, it (1) could not, under Commission policy as in effect on the date of this Agreement, rely on the position of the Commission enunciated in Morgan Stanley and Co., Inc. ---------------------------- (available June 5, 1991) and Exxon Capital Holdings Corporation (available ---------------------------------- May 13, 1988), as interpreted in the Commission's letter to Shearman & ---------- Sterling dated July 2, 1993, and similar no-action letters (including, if -------- applicable, any no-action letter obtained pursuant to clause (i) above), and (2) must comply with the registration and prospectus delivery requirements of the Act in connection with a secondary resale transaction and that such a secondary resale transaction must be covered by an effective registration statement containing the selling security holder information required by Item 507 or 508, as applicable, of Regulation S-K. (iii) Prior to effectiveness of the Exchange Offer Registration Statement, the Company and the Guarantors shall provide a supplemental letter to the Commission (A) stating that the Company and the Guarantors are registering the Exchange Offer in reliance on the position of the Commission enunciated in Exxon Capital Holdings Corporation (available May ---------------------- 13, 1988), Morgan Stanley and Co., Inc. (available June 5, 1991) as ---------------------------- interpreted in the Commission's letter to Shearman & Sterling dated July 2, ------------------- 1993, and, if applicable, any no-action letter obtained pursuant to clause (i) above, (B) including a representation that neither the Page 7 Company nor any Guarantor has entered into any arrangement or understanding with any Person to distribute the Exchange Notes to be received in the Exchange Offer and that, to the best of the Company's and each Guarantor's information and belief, each Holder participating in the Exchange Offer is acquiring the Exchange Notes in its ordinary course of business and has no arrangement or understanding with any Person to participate in the distribution of the Exchange Notes received in the Exchange Offer and (C) any other undertaking or representation required by the Commission as set forth in any no-action letter obtained pursuant to clause (i) above, if applicable. (b) Shelf Registration Statement. In connection with the Shelf Registration Statement, the Company and the Guarantors shall comply with all the provisions of Section 6(c) below and shall use their respective best efforts to effect such registration to permit the sale of the Transfer Restricted Securities being sold in accordance with the intended method or methods of distribution thereof (as indicated in the information furnished to the Company pursuant to Section 4(b) hereof), and pursuant thereto the Company and the Guarantors will prepare and file with the Commission a Registration Statement relating to the registration on any appropriate form under the Act, which form shall be available for the sale of the Transfer Restricted Securities in accordance with the intended method or methods of distribution thereof within the time periods and otherwise in accordance with the provisions hereof. (c) General Provisions. In connection with any Registration Statement and any related Prospectus required by this Agreement, the Company and the Guarantors shall : (i) use their respective best efforts to keep such Registration Statement continuously effective and provide all requisite financial statements for the period specified in Section 3 or 4 of this Agreement, as applicable. Upon the occurrence of any event that would cause any such Registration Statement or the Prospectus contained therein (A) to contain a material misstatement or omission or (B) not to be effective and usable for resale of Transfer Restricted Securities during the period required by this Agreement, the Company and the Guarantors shall file promptly an appropriate amendment to such Registration Statement curing such defect, and, if Commission review is required, use their respective best efforts to cause such amendment to be declared effective as soon as practicable. (ii) prepare and file with the Commission such amendments and post-effective amendments to the applicable Registration Statement as may be necessary to keep such Registration Statement effective for the applicable period set forth in Section 3 or 4 hereof, as the case may be; cause the Prospectus to be supplemented by any required Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 under the Act, and to comply fully with Rules 424, 430A and 462, as applicable, under the Act in a timely manner; and comply with the provisions of the Act with respect to the disposition of all securities covered by such Registration Statement during the applicable period in accordance with the intended method or methods of distribution by the sellers thereof set forth in such Registration Statement or supplement to the Prospectus; (iii) advise the selling Holders promptly and, if requested by such Persons, confirm such advice in writing, (A) when the Prospectus or any Prospectus supplement or post-effective amendment has been filed, and, with respect to any applicable Registration Statement or any post-effective amendment thereto, when the same has become effective, (B) of any request by the Commission for amendments to the Registration Statement or amendments or supplements to Page 8 the Prospectus or for additional information relating thereto, (C) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement under the Act or of the suspension by any state securities commission of the qualification of the Transfer Restricted Securities for offering or sale in any jurisdiction, or the initiation of any proceeding for any of the preceding purposes, (D) of the existence of any fact or the happening of any event that makes any statement of a material fact made in the Registration Statement, the Prospectus, any amendment or supplement thereto or any document incorporated by reference therein untrue, or that requires the making of any additions to or changes in the Registration Statement in order to make the statements therein not misleading, or that requires the making of any additions to or changes in the Prospectus in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. If at any time the Commission shall issue any stop order suspending the effectiveness of the Registration Statement, or any state securities commission or other regulatory authority shall issue an order suspending the qualification or exemption from qualification of the Transfer Restricted Securities under state securities or Blue Sky laws, the Company and the Guarantors shall use their respective best efforts to obtain the withdrawal or lifting of such order at the earliest possible time; (iv) subject to Section 6(c)(i), if any fact or event contemplated by Section 6(c)(iii)(D) above shall exist or have occurred, prepare a supplement or post-effective amendment to the Registration Statement or related Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of Transfer Restricted Securities, the Prospectus will not contain an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; (v) furnish to the Initial Purchasers and each selling Holder named in any Registration Statement or Prospectus in connection with such sale, if any, before filing with the Commission, copies of any Registration Statement or any Prospectus included therein or any amendments or supplements to any such Registration Statement or Prospectus (including all documents incorporated by reference after the initial filing of such Registration Statement), which documents will be subject to the review and comment of such Holders in connection with such sale, if any, for a period of at least five Business Days, and the Company will not file any such Registration Statement or Prospectus or any amendment or supplement to any such Registration Statement or Prospectus (including all such documents incorporated by reference) to which the selling Holders of the Transfer Restricted Securities covered by such Registration Statement in connection with such sale, if any, shall reasonably object within five Business Days after the receipt thereof. A selling Holder shall be deemed to have reasonably objected to such filing if such Registration Statement, amendment, Prospectus or supplement, as applicable, as proposed to be filed, contains a material misstatement or omission or fails to comply with the applicable requirements of the Act; (vi) promptly prior to the filing of any document that is to be incorporated by reference into a Registration Statement or Prospectus, provide copies of such document to the selling Holders in connection with such sale, if any, make the Company's and the Guarantors' representatives available for discussion of such document and other customary due diligence matters, and include such information in such document prior to the filing thereof as such selling Holders may reasonably request; Page 9 (vii) make available at reasonable times for inspection by the selling Holders participating in any disposition pursuant to such Registration Statement and any attorney or accountant retained by such selling Holders, all financial and other records, pertinent corporate documents of the Company and the Guarantors and cause the Company's and the Guarantors' officers, directors and employees to supply all information reasonably requested by any such selling Holder, attorney or accountant in connection with such Registration Statement or any post-effective amendment thereto subsequent to the filing thereof and prior to its effectiveness; (viii) if requested by any selling Holders in connection with such sale, if any, promptly include in any Registration Statement or Prospectus, pursuant to a supplement or post-effective amendment if necessary, such information as such selling Holders may reasonably request to have included therein, including, without limitation, information relating to the "Plan of Distribution" of the Transfer Restricted Securities; and make all required filings of such Prospectus supplement or post-effective amendment as soon as practicable after the Company is notified of the matters to be included in such Prospectus supplement or post-effective amendment; (ix) furnish to each selling Holder in connection with such sale, if any, without charge, at least one copy of the Registration Statement, as first filed with the Commission, and of each amendment thereto, including all documents incorporated by reference therein and all exhibits (including exhibits incorporated therein by reference); (x) deliver to each selling Holder, without charge, as many copies of the Prospectus (including each preliminary prospectus) and any amendment or supplement thereto as such Persons reasonably may request; the Company and the Guarantors hereby consent to the use (in accordance with law) of the Prospectus and any amendment or supplement thereto by each of the selling Holders in connection with the offering and the sale of the Transfer Restricted Securities covered by the Prospectus or any amendment or supplement thereto; (xi) upon the request of any selling Holder, enter into such agreements (including underwriting agreements) and make such representations and warranties and take all such other actions in connection therewith in order to expedite or facilitate the disposition of the Transfer Restricted Securities pursuant to any applicable Registration Statement contemplated by this Agreement as may be reasonably requested by any Holder of Transfer Restricted Securities in connection with any sale or resale pursuant to any applicable Registration Statement and in such connection, the Company and the Guarantors shall: (A) upon request of any selling Holder, furnish (or in the case of paragraphs (2) and (3), use its best efforts to cause to be furnished) to each selling Holder, upon the effectiveness of the Shelf Registration Statement or upon Consummation of the Exchange Offer, as the case may be: (1) (1) a certificate, dated such date, signed on behalf of the Company and each Guarantor by (x) the President or any Vice President and (y) a principal financial or accounting officer of the Company and such Guarantor, confirming, as of the date thereof, the matters set forth in Section 7(h) of the Purchase Agreement and such other similar matters as the selling Holders may reasonably request; Page 10 (2) an opinion, dated the date of Consummation of the Exchange Offer, or the date of effectiveness of the Shelf Registration Statement, as the case may be, of counsel for the Company and the Guarantors covering matters similar to those set forth in Section 7(b) of the Purchase Agreement and such other matter as the selling Holders may reasonably request, and in any event including a statement to the effect that such counsel has participated in conferences with officers and other representatives of the Company and the Guarantors, representatives of the independent public accountants for the Company and the Guarantors and have considered the matters required to be stated therein and the statements contained therein, although such counsel has not independently verified the accuracy, completeness or fairness of such statements; and that such counsel advises that, on the basis of the foregoing (relying as to materiality to the extent such counsel deems appropriate upon the statements of officers and other representatives of the Company and the Guarantors), no facts came to such counsel's attention that caused such counsel to believe that the applicable Registration Statement, at the time such Registration Statement or any post-effective amendment thereto became effective and, in the case of the Exchange Offer Registration Statement, as of the date of Consummation of the Exchange Offer, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or that the Prospectus contained in such Registration Statement as of its date and, in the case of the opinion dated the date of Consummation of the Exchange Offer, as of the date of Consummation, contained an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. Without limiting the foregoing, such counsel may state further that such counsel assumes no responsibility for, and has not independently verified, the accuracy, completeness or fairness of the financial statements, notes and schedules and other financial data included in any Registration Statement contemplated by this Agreement or the related Prospectus; and (3) a customary comfort letter, dated the date of Consummation of the Exchange Offer, or as of the date of effectiveness of the Shelf Registration Statement, as the case may be, from the Company's independent accountants, in the customary form and covering matters of the type customarily covered in comfort letters to underwriters in connection with underwritten offerings, and affirming the matters set forth in the comfort letters delivered pursuant to Section 7(c) of the Purchase Agreement; (B) set forth in full or incorporated by reference in the underwriting agreement, if any, the indemnification provisions and procedures of Section 8 hereof with respect to all parties to be indemnified pursuant to said Section; and (C) deliver such other documents and certificates as may be reasonably requested by the selling Holders to evidence compliance with clause (A) above and with any customary conditions contained in the any agreement entered into by the Company and the Guarantors pursuant to this clause (xi). If at any time the representations and warranties of the Company and each of the Guarantors set forth in the certificate contemplated in clause (A)(1) above cease to be true and correct, the Company shall so advise the Initial Purchasers and the underwriters, if any, and each selling Holder promptly and, if requested by such Persons, shall confirm such advice in writing; Page 11 (xii) prior to any public offering of Transfer Restricted Securities, cooperate with the selling Holders and their counsel in connection with the registration and qualification of the Transfer Restricted Securities under the securities or Blue Sky laws of such jurisdictions as the selling Holders may request and do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of the Transfer Restricted Securities covered by the applicable Registration Statement; provided, however, that neither the Company nor any Guarantor shall be required to register or qualify as a foreign corporation where it is not now so qualified or to take any action that would subject it to the service of process in suits or to taxation, other than as to matters and transactions relating to the Registration Statement, in any jurisdiction where it is not now so subject; (xiii) issue, upon the request of any Holder of Notes covered by any Shelf Registration Statement contemplated by this Agreement, Exchange Notes having an aggregate principal amount or Accreted Value equal to the aggregate principal amount or Accreted Value of Senior Subordinated Notes or Senior Subordinated Discount Notes, respectively, surrendered to the Company by such Holder in exchange therefor or being sold by such Holder; such Exchange Notes to be registered in the name of such Holder or in the name of the purchasers of such Exchange Notes, as the case may be; in return, the Notes held by such Holder shall be surrendered to the Company for cancellation; (xiv) in connection with any sale of Transfer Restricted Securities that will result in such securities no longer being Transfer Restricted Securities, cooperate with the selling Holders to facilitate the timely preparation and delivery of certificates representing Transfer Restricted Securities to be sold and not bearing any restrictive legends; and to register such Transfer Restricted Securities in such denominations and such names as the selling Holders may request at least two Business Days prior to such sale of Transfer Restricted Securities; (xv) use their respective best efforts to cause the disposition of the Transfer Restricted Securities covered by the Registration Statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the seller or sellers thereof to consummate the disposition of such Transfer Restricted Securities, subject to the proviso contained in clause (xii) above; (xvi) provide a CUSIP number for all Transfer Restricted Securities not later than the effective date of a Registration Statement covering such Transfer Restricted Securities and provide the Senior Subordinated Notes Trustee and the Senior Subordinated Discount Notes Trustee under Indentures with printed certificates for the Transfer Restricted Securities which are in a form eligible for deposit with the Depository Trust Company; (xvii) otherwise use their respective best efforts to comply with all applicable rules and regulations of the Commission, and make generally available to its security holders with regard to any applicable Registration Statement, as soon as practicable, a consolidated earnings statement meeting the requirements of Rule 158 (which need not be audited) covering a twelve-month period beginning after the effective date of the Registration Statement (as such term is defined in paragraph (c) of Rule 158 under the Act); (xviii) make appropriate officers of the Company available to the selling Holders for meetings with prospective purchasers of the Transfer Restricted Securities and prepare and Page 12 present to potential investors customary "road show" material in a manner consistent with other new issuances of other securities similar to the Transfer Restricted Securities; and (viii) cause the Indentures to be qualified under the TIA not later than the effective date of the first Registration Statement required by this Agreement and, in connection therewith, cooperate with the Trustee and the Holders to effect such changes to the Indentures as may be required for such Indentures to be so qualified in accordance with the terms of the TIA; and execute and use its best efforts to cause the Trustee to execute, all documents that may be required to effect such changes and all other forms and documents required to be filed with the Commission to enable such Indentures to be so qualified in a timely manner; and (ix) provide promptly to each Holder upon request each document filed with the Commission pursuant to the requirements of Section 13 or Section 15(d) of the Exchange Act. (d) Restrictions on Holders. Each Holder agrees by acquisition of a ----------------------- Transfer Restricted Security that, upon receipt of the notice referred to in Section 6(c)(i) or any notice from the Company of the existence of any fact of the kind described in Section 6(c)(iii)(D) hereof (in each case, a "Suspension Notice"), such Holder will forthwith discontinue disposition of Transfer Restricted Securities pursuant to the applicable Registration Statement until (i) such Holder has received copies of the supplemented or amended Prospectus contemplated by Section 6(c)(iv) hereof, or (ii) such Holder is advised in writing by the Company that the use of the Prospectus may be resumed, and has received copies of any additional or supplemental filings that are incorporated by reference in the Prospectus (in each case, the "Recommencement Date"). Each Holder receiving a Suspension Notice hereby agrees that it will either (i) destroy any Prospectuses, other than permanent file copies, then in such Holder's possession which have been replaced by the Company with more recently dated Prospectuses or (ii) deliver to the Company (at the Company's expense) all copies, other than permanent file copies, then in such Holder's possession of the Prospectus covering such Transfer Restricted Securities that was current at the time of receipt of the Suspension Notice. The time period regarding the effectiveness of such Registration Statement set forth in Section 3 or 4 hereof, as applicable, shall be extended by a number of days equal to the number of days in the period from and including the date of delivery of the Suspension Notice to the date of delivery of the Recommencement Date. SECTION 7. REGISTRATION EXPENSES (a) All expenses incident to the Company's and the Guarantors' performance of or compliance with this Agreement will be borne by the Company, regardless of whether a Registration Statement becomes effective, including without limitation: (i) all registration and filing fees and expenses; (ii) all fees and expenses of compliance with federal securities and state Blue Sky or securities laws; (iii) all expenses of printing (including printing certificates for the Exchange Notes to be issued in the Exchange Offer and printing of Prospectuses), messenger and delivery services and telephone; (iv) all fees and disbursements of counsel for the Company and the Guarantors; (v) all application and filing fees in connection with listing the Exchange Notes on a national securities exchange or automated quotation system pursuant to the requirements hereof; and (vi) all fees and disbursements of independent certified public accountants of the Company and the Guarantors (including the expenses of any special audit and comfort letters required by or incident to such performance). The Company will, in any event, bear its and the Guarantors' internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting Page 13 duties), the expenses of any annual audit and the fees and expenses of any Person, including special experts, retained by the Company or the Guarantors. (b) In connection with any Registration Statement required by this Agreement (including, without limitation, the Exchange Offer Registration Statement and the Shelf Registration Statement), the Company and the Guarantors will reimburse the Purchasers and the Holders of Transfer Restricted Securities being tendered in the Exchange Offer and/or resold pursuant to the "Plan of Distribution" contained in the Exchange Offer Registration Statement or registered pursuant to the Shelf Registration Statement, as applicable, for the reasonable fees and disbursements of not more than one counsel (not to exceed $25,000), who shall be Latham & Watkins, unless another firm shall be chosen by the Holders of a majority in principal amount (or Accreted Value, as the case may be) of the Transfer Restricted Securities for whose benefit such Registration Statement is being prepared. Such Holders shall be responsible for any and all other out-of-pocket expenses of the Holders incurred in connection with the registration of the Securities. SECTION 8. INDEMNIFICATION (a) The Company and the Guarantors, jointly and severally, agree to indemnify and hold harmless (i) each Holder and (ii) each person, if any, who controls (within the meaning of Section 15 of the Act or Section 20 of the Exchange Act) any Holder (any of the persons referred to in this clause (ii) being hereinafter referred to as a "controlling person") and (iii) the respective officers, directors, partners, employees, representatives and agents of any Holder or any controlling person (any person referred to in clause (i), (ii) or (iii) may hereinafter be referred to as an "Indemnified Holder"), from and against any and all losses, claims, damages, liabilities, judgments, (including without limitation, any legal or other expenses incurred in connection with investigating or defending any matter, including any action that could give rise to any such losses, claims, damages, liabilities or judgments) caused by any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement, preliminary prospectus or Prospectus (or any amendment or supplement thereto) provided by the Company to any holder or any prospective purchaser of Exchange Notes, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages, liabilities or judgments are caused by an untrue statement or omission or alleged untrue statement or omission that is based upon information relating to any of the Holders furnished in writing to the Company by any of the Holders. (b) Each Holder of Transfer Restricted Securities agrees, severally and not jointly, to indemnify and hold harmless the Company and the Guarantors, and their respective directors and officers, and each person, if any, who controls (within the meaning of Section 15 of the Act or Section 20 of the Exchange Act) the Company or the Guarantors, to the same extent as the foregoing indemnity from the Company and the Guarantors to each of the Indemnified Holders, but only with reference to information relating to such Indemnified Holder furnished in writing to the Company by such Indemnified Holder expressly for use in any Registration Statement. In no event shall any Indemnified Holder be liable or responsible for any amount in excess of the amount by which the total amount received by such Indemnified Holder with respect to its sale of Transfer Restricted Securities pursuant to a Registration Statement exceeds the amount paid by such Indemnified Holder for such Transfer Restricted Securities. (c) In case any action shall be commenced involving any person in respect of which indemnity may be sought pursuant to Section 8(a) or 8(b) hereof (the "indemnified party"), the Page 14 indemnified party shall promptly notify the person against whom such indemnity may be sought (the "indemnifying person") in writing and the indemnifying party shall assume the defense of such action, including the employment of counsel reasonably satisfactory to the indemnified party and the payment of all fees and expenses of such counsel, as incurred (except that in the case of any action in respect of which indemnity may be sought pursuant to both Sections 8(a) and 8(b), an Indemnified Holder shall not be required to assume the defense of such action pursuant to this Section 8(c), but may employ separate counsel and participate in the defense thereof, but the fees and expenses of such counsel, except as provided below, shall be at the expense of the Indemnified Holder). Any indemnified party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of the indemnified party unless (i) the employment of such counsel shall have been specifically authorized in writing by the indemnifying party, (ii) the indemnifying party shall have failed to assume the defense of such action or employ counsel reasonably satisfactory to the indemnified party or (iii) the named parties to any such action (including any impleaded parties) include both the indemnified party and the indemnifying party, and the indemnified party shall have been advised by such counsel that there may be one or more legal defenses available to it which are different from or additional to those available to the indemnifying party (in which case the indemnifying party shall not have the right to assume the defense of such action on behalf of the indemnified party). In any such case, the indemnifying party shall not, in connection with any one action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one separate firm of attorneys (in addition to any local counsel) for all indemnified parties and all such fees and expenses shall be reimbursed as they are incurred. Such firm shall be designated in writing by a majority of the Indemnified Holders, in the case of the parties indemnified pursuant to Section 8(a), and by the Company, in the case of parties indemnified pursuant to Section 8(b). The indemnifying party shall indemnify and hold harmless the indemnified party from and against any and all losses, claims, damages, liabilities and judgments by reason of any settlement of any action (i) effected with its written consent or (ii) effected without its written consent if the settlement is entered into more than twenty business days after the indemnifying party shall have received a request from the indemnified party for reimbursement for the fees and expenses of counsel (in any case where such fees and expenses are at the expense of the indemnifying party) and, prior to the date of such settlement, the indemnifying party shall have failed to comply with such reimbursement request. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement or compromise of, or consent to the entry of judgment with respect to, any pending or threatened action in respect of which the indemnified party is or could have been a party and indemnity or contribution may be or could have been sought hereunder by the indemnified party, unless such settlement, compromise or judgment (i) includes an unconditional release of the indemnified party from all liability on claims that are or could have been the subject matter of such action and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act, by or on behalf of the indemnified party. (d) To the extent that the indemnification provided for in this Section 8 is unavailable to an indemnified party in respect of any losses, claims, damages, liabilities or judgments referred to therein, then each indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or judgments (i) in such proportion as is appropriate to reflect the relative benefits received by the Company and the Guarantors, on the one hand, and the Holders, on the other hand, from their sale of Transfer Restricted Securities or (ii) if the allocation provided by clause 8(d)(i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause 8(d)(i) above but also the relative fault of the Company and the Guarantors, on the one hand, and of the Indemnified Holder, on the other hand, in connection with the statements or omissions which Page 15 resulted in such losses, claims, damages, liabilities or judgments, as well as any other relevant equitable considerations. The relative fault of the Company and the Guarantors, on the one hand, and of the Indemnified Holder, on the other hand, shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or such Guarantor, on the one hand, or by the Indemnified Holder, on the other hand, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and judgments referred to above shall be deemed to include, subject to the limitations set forth in the second paragraph of Section 8(a), any legal or other fees or expenses reasonably incurred by such party in connection with investigating or defending any action or claim. The Company, the Guarantors and each Holder agree that it would not be just and equitable if contribution pursuant to this Section 8(d) were determined by pro rata allocation (even if the Holders were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an indemnified party as a result of the losses, claims, damages, liabilities or judgments referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any matter, including any action that could have given rise to such losses, claims, damages, liabilities or judgments. Notwithstanding the provisions of this Section 8, no Holder or its related Indemnified Holders shall be required to contribute, in the aggregate, any amount in excess of the amount by which the total received by such Holder with respect to the sale of its Transfer Restricted Securities pursuant to a Registration Statement exceeds the sum of (A) the amount paid by such Holder for such Transfer Restricted Securities plus (B) the amount of any damages which such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Holders' obligations to contribute pursuant to this Section 8(c) are several in proportion to the respective principal amount or Accreted Value, as applicable, of Transfer Restricted Securities held by each of the Holders hereunder and not joint. SECTION 9. RULE 144A The Company and each Guarantor hereby agrees with each Holder, for so long as any Transfer Restricted Securities remain outstanding and during any period in which the Company or such Guarantor is not subject to Section 13 or 15(d) of the Exchange Act, to make available, upon request of any Holder of Transfer Restricted Securities, to any Holder or beneficial owner of Transfer Restricted Securities in connection with any sale thereof and any prospective purchaser of such Transfer Restricted Securities designated by such Holder or beneficial owner, the information required by Rule 144A(d)(4) under the Act in order to permit resales of such Transfer Restricted Securities pursuant to Rule 144A. SECTION 10. MISCELLANEOUS (a) Remedies. The Company and the Guarantors acknowledge and agree that -------- any failure by the Company and/or the Guarantors to comply with their respective obligations under Sections 3 and 4 hereof may result in material irreparable injury to the Initial Purchasers or the Holders for which there is no adequate remedy at law, that it will not be possible to measure damages for such injuries precisely and that, in the event of any such failure, the Initial Purchasers or any Holder may obtain such relief as Page 16 may be required to specifically enforce the Company's and the Guarantor's obligations under Sections 3 and 4 hereof. The Company and the Guarantors further agree to waive the defense in any action for specific performance that a remedy at law would be adequate. (b) No Inconsistent Agreements. Neither the Company nor any Guarantor -------------------------- will, on or after the date of this Agreement, enter into any agreement with respect to its securities that is inconsistent with the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof. Neither the Company nor any Guarantor has previously entered into any agreement granting any registration rights with respect to its securities to any Person. The rights granted to the Holders hereunder do not in any way conflict with and are not inconsistent with the rights granted to the holders of the Company's and the Guarantors' securities under any agreement in effect on the date hereof. (c) Adjustments Affecting the Notes. Neither the Company nor any of ------------------------------- the Guarantors shall take any action, or permit any change to occur, with respect to the Notes that would materially and adversely affect the ability of the Holders to Consummate any Exchange Offer. (d) Amendments and Waivers. The provisions of this Agreement may not ---------------------- be amended, modified or supplemented, and waivers or consents to or departures from the provisions hereof may not be given unless (i) in the case of Section 5 hereof and this Section 10(d)(i), the Company has obtained the written consent of Holders of all outstanding Transfer Restricted Securities and (ii) in the case of all other provisions hereof, the Company has obtained the written consent of Holders of a majority of the outstanding principal amount of Transfer Restricted Securities (excluding Transfer Restricted Securities held by the Company of its Affiliates). Notwithstanding the foregoing, a waiver or consent to departure from the provisions hereof that relates exclusively to the rights of Holders whose securities are being tendered pursuant to the Exchange Offer and that does not affect directly or indirectly the rights of other Holders whose securities are not being tendered pursuant to such Exchange Offer may be given by the Holders of a majority of the outstanding principal amount of Transfer Restricted Securities subject to such Exchange Offer. (e) Third Party Beneficiary. The Holders shall be third party ----------------------- beneficiaries to the agreements made hereunder between the Company and the Guarantors, on the one hand, and the Initial Purchasers, on the other hand, and shall have the right to enforce such agreements directly to the extent they may deem such enforcement necessary or advisable to protect its rights or the rights of Holders hereunder. (f) Notices. All notices and other communications provided for or ------- permitted hereunder shall be made in writing by hand-delivery, first-class mail (registered or certified, return receipt requested), telex, telecopier, or air courier guaranteeing overnight delivery: (i) if to a Holder, at the address set forth on the records of the Registrar under the Indentures, with a copy to the Registrar under the Indentures; and (ii) if to the Company or the Guarantors: Sealy Mattress Company Halle Building, 10th Floor 1228 Euclid Avenue Cleveland, Ohio 44115 Telecopier No.: (216) 522-1310 Page 17 Attention: Ken Walker With a copy to: Kirkland & Ellis 153 East 53rd Street New York, NY 10022 Telecopier No.: (212) 446-4800 Attention: Lance Balk, Esq. All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when receipt acknowledged, if telecopied; and on the next business day, if timely delivered to an air courier guaranteeing overnight delivery. Copies of all such notices, demands or other communications shall be concurrently delivered by the Person giving the same to the Trustee at the address specified in the Indenture. Upon the date of filing of the Exchange Offer or a Shelf Registration Statement, as the case may be, notice shall be delivered to Goldman, Sachs & Co., on behalf of the Initial Purchasers (in the form attached hereto as Exhibit A) and shall be addressed to: Attention: Matthew Leavitt (Special Execution), 85 Broad Street, New York, NY 10004. (g) Successors and Assigns. This Agreement shall inure to the benefit ---------------------- of and be binding upon the successors and assigns of each of the parties, including without limitation and without the need for an express assignment, subsequent Holders of Transfer Restricted Securities; provided, that nothing herein shall be deemed to permit any assignment, transfer or other disposition of Transfer Restricted Securities in violation of the terms hereof or of the Purchase Agreement or the Indenture. If any transferee of any Holder shall acquire Transfer Restricted Securities in any manner, whether by operation of law or otherwise, such Transfer Restricted Securities shall be held subject to all of the terms of this Agreement, and by taking and holding such Transfer Restricted Securities such Person shall be conclusively deemed to have agreed to be bound by and to perform all of the terms and provisions of this Agreement, including the restrictions on resale set forth in this Agreement and, if applicable, the Purchase Agreement, and such Person shall be entitled to receive the benefits hereof. (h) Counterparts. This Agreement may be executed in any number of ------------ counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (i) Headings. The headings in this Agreement are for convenience of -------- reference only and shall not limit or otherwise affect the meaning hereof. (j) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED ------------- IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE CONFLICT OF LAW RULES THEREOF. (k) Severability. In the event that any one or more of the provisions ------------ contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and Page 18 enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby. (l) Entire Agreement. This Agreement is intended by the parties as a ---------------- final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein with respect to the registration rights granted with respect to the Transfer Restricted Securities. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. [Registration Rights Agreement Signature Page(s) Follow] Page 19 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. Company: SEALY MATTRESS COMPANY By: /s/ KENNETH L. WALKER -------------------------------- Name: Kenneth L. Walker Title: Vice President, General Counsel & Secretary Guarantors: SEALY CORPORATION By: /s/ KENNETH L. WALKER -------------------------------- Name: Kenneth L. Walker Title: Vice President, General Counsel & Secretary SEALY MATTRESS COMPANY OF PUERTO RICO By: /s/ KENNETH L. WALKER -------------------------------- Name: Kenneth L. Walker Title: Vice President, General Counsel & Secretary OHIO-SEALY MATTRESS MANUFACTURING CO., INC. (RANDOLPH) By: /s/ KENNETH L. WALKER -------------------------------- Name: Kenneth L. Walker Title: Vice President, General Counsel & Secretary Registration Rights Agreement Signature Pages S-1 OHIO-SEALY MATTRESS MANUFACTURING CO. - FT. WORTH By: /s/ KENNETH L. WALKER -------------------------------- Name: Kenneth L. Walker Title: Vice President, General Counsel & Secretary OHIO-SEALY MATTRESS MANUFACTURING CO. By: /s/ KENNETH L. WALKER -------------------------------- Name: Kenneth L. Walker Title: Vice President, General Counsel & Secretary OHIO-SEALY MATTRESS MANUFACTURING CO.- HOUSTON By: /s/ KENNETH L. WALKER -------------------------------- Name: Kenneth L. Walker Title: Vice President, General Counsel & Secretary SEALY MATTRESS COMPANY OF MICHIGAN, INC. By: /s/ KENNETH L. WALKER -------------------------------- Name: Kenneth L. Walker Title: Vice President, General Counsel & Secretary SEALY MATTRESS COMPANY OF KANSAS CITY, INC. By: /s/ KENNETH L. WALKER -------------------------------- Name: Kenneth L. Walker Title: Vice President, General Counsel & Secretary SEALY OF MARYLAND AND VIRGINIA, INC. By: /s/ KENNETH L. WALKER -------------------------------- Name: Kenneth L. Walker Title: Vice President, General Counsel & Secretary Registration Rights Agreement Signature Pages S-2 SEALY MATTRESS COMPANY OF ILLINOIS By: /S/ KENNETH L. WALKER -------------------------------- Name: Kenneth L. Walker Title: Vice President, General Counsel & Secretary A. BRANDWEIN & COMPANY By: /S/ KENNETH L. WALKER -------------------------------- Name: Kenneth L. Walker Title: Vice President, General Counsel & Secretary SEALY MATTRESS COMPANY OF ALBANY, INC. By: /S/ KENNETH L. WALKER -------------------------------- Name: Kenneth L. Walker Title: Vice President, General Counsel & Secretary SEALY OF MINNESOTA, INC. By: /S/ KENNETH L. WALKER -------------------------------- Name: Kenneth L. Walker Title: Vice President, General Counsel & Secretary SEALY MATTRESS COMPANY OF MEMPHIS By: /S/ KENNETH L. WALKER -------------------------------- Name: Kenneth L. Walker Title: Vice President, General Counsel & Secretary THE STEARNS & FOSTER BEDDING COMPANY By: /S/ KENNETH L. WALKER -------------------------------- Name: Kenneth L. Walker Title: Vice President, General Counsel & Secretary Registration Rights Agreement Signature Pages S-3 THE STEARNS & FOSTER UPHOLSTERY FURNITURE COMPANY By: /s/ KENNETH L. WALKER -------------------------------- Name: Kenneth L. Walker Title: Vice President, General Counsel & Secretary SEALY, INC. By: /s/ KENNETH L. WALKER -------------------------------- Name: Kenneth L. Walker Title: Vice President, General Counsel & Secretary THE OHIO MATTRESS COMPANY LICENSING AND COMPONENTS GROUP By: /s/ KENNETH L. WALKER -------------------------------- Name: Kenneth L. Walker Title: Vice President, General Counsel & Secretary SEALY MATTRESS MANUFACTURING COMPANY, INC. By: /s/ KENNETH L. WALKER -------------------------------- Name: Kenneth L. Walker Title: Vice President, General Counsel & Secretary Registration Rights Agreement Signature Pages S-4 Initial Purchasers: GOLDMAN, SACHS & CO. J.P. MORGAN SECURITIES INC. BT ALEX. BROWN INCORPORATED By: /s/ GOLDMAN, SACHS & CO. -------------------------------- (Goldman, Sachs & Co.) Registration Rights Agreement Signature Pages S-5 EXHIBIT A NOTICE OF FILING OF EXCHANGE OFFER REGISTRATION STATEMENT To: Goldman, Sachs & Co. Special Executions 85 Broad Street New York, NY 10004 Attn: Matthew Leavitt Fax: (212) 357-4451 From: Sealy Mattress Company Halle Building, 10th Floor 1228 Euclid Avenue Cleveland, OH 44115 Re: 9-7/8% Senior Subordinated Notes due 2007 10-7/8% Senior Subordinated Discount Notes due 2007 Date: _______, 199_ For your information only (NO ACTION REQUIRED): Today, ______, 199_, we filed [an Exchange Registration Statement/a Shelf Registration Statement] with the Securities and Exchange Commission. We currently expect this registration statement to be declared effective within ____ business days of the date hereof. EX-10.4 10 CREDIT AGREEMENT EXHIBIT 10.4 ------------ EXECUTION ================================================================================ CREDIT AGREEMENT DATED AS OF DECEMBER 18, 1997 AMONG SEALY MATTRESS COMPANY, AS BORROWER, SEALY CORPORATION, AS GUARANTOR, THE LENDERS LISTED HEREIN, AS 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 ================================================================================ SEALY MATTRESS COMPANY CREDIT AGREEMENT TABLE OF CONTENTS -----------------
Page ---- SECTION 1. DEFINITIONS......................................... 2 1.1 Certain Defined Terms............................................................ 2 1.2 Accounting Terms; Utilization of GAAP for Purposes of Calculations Under Agreement.................................................................. 41 1.3 Other Definitional Provisions and Rules of Construction.......................... 42 1.4 Changes in GAAP.................................................................. 42 SECTION 2. AMOUNTS AND TERMS OF COMMITMENTS AND LOANS........................ 42 2.1 Commitments; Making of Loans; the Register; Notes................................ 42 2.2 Interest on the Loans............................................................ 50 2.3 Fees............................................................................. 53 2.4 Repayments, Prepayments and Reductions in Revolving Loan Commitments; General Provisions Regarding Payments; Application of Proceeds of Collateral and Payments Under Guaranties................................................................. 54 2.5 Use of Proceeds.................................................................. 65 2.6 Special Provisions Governing Eurodollar Rate Loans............................... 65 2.7 Increased Costs; Taxes; Capital Adequacy......................................... 68 2.8 Obligation of Lenders and Issuing Lenders to Mitigate............................ 72 2.9 Defaulting Lenders............................................................... 72 2.10 Removal or Replacement of a Lender............................................... 74 SECTION 3. LETTERS OF CREDIT...................................... 75 3.1 Issuance of Letters of Credit and Lenders' Purchase of Participations Therein.... 75 3.2 Letter of Credit Fees............................................................ 79 3.3 Drawings and Reimbursement of Amounts Paid Under Letters of Credit............... 80 3.4 Obligations Absolute............................................................. 82 3.5 Indemnification; Nature of Issuing Lenders' Duties............................... 83 3.6 Increased Costs and Taxes Relating to Letters of Credit.......................... 84 SECTION 4. CONDITIONS TO LOANS AND LETTERS OF CREDIT......................... 85
(i)
Page ---- 4.1 Conditions to Tranche A Term Loans and Recapitalization Revolving Loans.......... 85 4.2 Conditions to All Loans.......................................................... 95 4.3 Conditions to Letters of Credit.................................................. 96 SECTION 5. HOLDINGS' AND COMPANY'S REPRESENTATIONS AND WARRANTIES................ 97 5.1 Organization, Powers, Qualification, Good Standing, Business and Subsidiaries..................................................................... 97 5.2 Authorization of Borrowing, etc.................................................. 98 5.3 Financial Condition.............................................................. 99 5.4 No Material Adverse Change.......................................................100 5.5 Title to Properties; Liens; Real Property........................................100 5.6 Litigation; Adverse Facts........................................................101 5.7 Payment of Taxes.................................................................101 5.8 Performance of Agreements; Materially Adverse Agreements.........................101 5.9 Governmental Regulation..........................................................102 5.10 Securities Activities............................................................102 5.11 Employee Benefit Plans...........................................................102 5.12 Certain Fees.....................................................................103 5.13 Environmental Protection.........................................................103 5.14 Employee Matters.................................................................104 5.15 Solvency.........................................................................104 5.16 Matters Relating to Collateral...................................................104 5.17 Related Agreements...............................................................105 5.18 Disclosure.......................................................................106 5.19 Subordination of Seller Notes and Shareholder Subordinated Notes.................106 SECTION 6. HOLDINGS' AND COMPANY'S AFFIRMATIVE COVENANTS.....................106 6.1 Financial Statements and Other Reports...........................................106 6.2 Corporate Existence, etc.........................................................112 6.3 Payment of Taxes and Claims; Tax Consolidation...................................112 6.4 Maintenance of Properties; Insurance; Application of Net Insurance/Condemnation Proceeds..................................................112 6.5 Inspection Rights; Audits of Inventory and Accounts Receivable; Lender Meeting...................................................................114 6.6 Compliance with Laws, etc........................................................115 6.7 Environmental Review and Investigation, Disclosure, Etc.; Company's Actions Regarding Hazardous Materials Activities, Environmental Claims and Violations of Environmental Laws......................................115 6.8 Execution of Subsidiary Guaranty and Personal Property Collateral Documents by Future Subsidiaries.................................................118
(ii)
Page ---- 6.9 Conforming Leasehold Interests; Matters Relating to Additional Real Property Collateral..............................................................119 6.10 Interest Rate Protection.........................................................121 6.11 Additional Foreign Subsidiary Collateral.........................................122 6.12 Post-Closing Deliveries..........................................................122 SECTION 7. HOLDINGS' AND COMPANY'S NEGATIVE COVENANTS.......................122 7.1 Indebtedness.....................................................................123 7.2 Liens and Related Matters........................................................126 7.3 Investments; Joint Ventures......................................................128 7.4 Contingent Obligations...........................................................130 7.5 Restricted Junior Payments.......................................................131 7.6 Financial Covenants..............................................................132 7.7 Restriction on Fundamental Changes; Asset Sales and Recapitalizations............135 7.8 Consolidated Capital Expenditures................................................138 7.9 Sales and Lease-Backs............................................................140 7.10 Sale or Discount of Receivables..................................................140 7.11 Transactions with Shareholders and Affiliates....................................140 7.12 Disposal of Subsidiary Stock.....................................................141 7.13 Conduct of Business..............................................................141 7.14 Amendments or Waivers of Certain Agreements; Amendments of Documents Relating to Subordinated Indebtedness; Designation of "Designated Senior Debt "..........141 7.15 Fiscal Year......................................................................142 SECTION 8. EVENTS OF DEFAULT.................................143 8.1 Failure to Make Payments When Due................................................143 8.2 Default in Other Agreements......................................................143 8.3 Breach of Certain Covenants......................................................143 8.4 Breach of Warranty...............................................................143 8.5 Other Defaults Under Loan Documents..............................................144 8.6 Involuntary Bankruptcy; Appointment of Receiver, etc.............................144 8.7 Voluntary Bankruptcy; Appointment of Receiver, etc...............................144 8.8 Judgments and Attachments........................................................145 8.9 Dissolution......................................................................145 8.10 Employee Benefit Plans...........................................................145 8.11 Change in Control................................................................145 8.12 Invalidity of Guaranties; Failure of Security; Repudiation of Obligations........146 8.13 Failure to Consummate Recapitalization or Merger.................................146
(iii)
Page ---- SECTION 9. AGENTS.........................................147 9.1 Appointment......................................................................147 9.2 Powers and Duties; General Immunity..............................................149 9.3 Representations and Warranties; No Responsibility For Appraisal of Creditworthiness.................................................................150 9.4 Right to Indemnity...............................................................151 9.5 Successor Administrative Agent and Swing Line Lender.............................151 9.6 Collateral Documents and Guaranty................................................152 SECTION 10. MISCELLANEOUS.....................................153 10.1 Assignments and Participations in Loans and Letters of Credit....................153 10.2 Expenses.........................................................................156 10.3 Indemnity........................................................................157 10.4 Set-Off; Security Interest in Deposit Accounts...................................158 10.5 Ratable Sharing..................................................................158 10.6 Amendments and Waivers...........................................................159 10.7 Independence of Covenants........................................................161 10.8 Notices..........................................................................161 10.9 Survival of Representations, Warranties and Agreements...........................161 10.10 Failure or Indulgence Not Waiver; Remedies Cumulative............................161 10.11 Marshalling; Payments Set Aside..................................................162 10.12 Severability.....................................................................162 10.13 Obligations Several; Independent Nature of Lenders' Rights.......................162 10.14 Headings.........................................................................162 10.15 Applicable Law...................................................................162 10.16 Successors and Assigns...........................................................163 10.17 Consent to Jurisdiction and Service of Process...................................163 10.18 Waiver of Jury Trial.............................................................164 10.19 Confidentiality..................................................................164 10.20 Counterparts; Effectiveness......................................................165 Signature pages S-1
(iv) EXHIBITS I FORM OF NOTICE OF BORROWING II FORM OF NOTICE OF CONVERSION/CONTINUATION III FORM OF NOTICE OF ISSUANCE OF LETTER OF CREDIT IV FORM OF TRANCHE A TERM NOTE V FORM OF REVOLVING NOTE VI FORM OF SWING LINE NOTE VII FORM OF COMPLIANCE CERTIFICATE VIII FORM OF OPINIONS OF COUNSEL TO LOAN PARTIES IX FORM OF OPINION OF O'MELVENY & MYERS LLP X FORM OF ASSIGNMENT AGREEMENT XI FORM OF CERTIFICATE RE NON-BANK STATUS XII FORM OF FINANCIAL CONDITION CERTIFICATE XIII FORM OF INTERCREDITOR AGREEMENT XIV FORM OF COMPANY PLEDGE AGREEMENT XV FORM OF COMPANY SECURITY AGREEMENT XVI FORM OF COMPANY PATENT AND TRADEMARK SECURITY AGREEMENT XVII FORM OF SUBSIDIARY GUARANTY XVIII FORM OF SUBSIDIARY PLEDGE AGREEMENT XIX FORM OF SUBSIDIARY SECURITY AGREEMENT XX FORM OF SUBSIDIARY PATENT AND TRADEMARK SECURITY AGREEMENT XXI FORM OF HOLDINGS GUARANTY XXII FORM OF HOLDINGS PLEDGE AGREEMENT XXIII FORM OF HOLDINGS SECURITY AGREEMENT XXIV FORM OF MORTGAGE XXV FORM OF COLLATERAL ACCESS AGREEMENT XXVI FORM OF SUBORDINATION PROVISIONS (v) SCHEDULES 1.1(i) ADDBACKS TO EBITDA 1.1(ii) RECAPITALIZATION TRANSACTIONS 2.1 LENDERS' COMMITMENTS AND PRO RATA SHARES 4.1C CORPORATE AND CAPITAL STRUCTURE; OWNERSHIP 4.1I CLOSING DATE MORTGAGED PROPERTIES 4.1K CLOSING DATE ENVIRONMENTAL REPORTS 5.1 SUBSIDIARIES OF COMPANY 5.5 REAL PROPERTY 5.12 CERTAIN FEES 5.13 ENVIRONMENTAL MATTERS 6.12 POST-CLOSING DELIVERIES 7.1(v) EXISTING FOREIGN SUBSIDIARY INTERCOMPANY INDEBTEDNESS 7.1(xv) CERTAIN EXISTING INDEBTEDNESS 7.3(vii) CERTAIN EXISTING INVESTMENTS 7.3(xiii) EXISTING FOREIGN SUBSIDIARY CAPITAL CONTRIBUTIONS 7.3(xviii) CERTAIN PROPOSED INVESTMENTS 7.4 CERTAIN EXISTING CONTINGENT OBLIGATIONS 7.9 SALE-LEASEBACK TRANSACTIONS (vi) SEALY MATTRESS COMPANY CREDIT AGREEMENT This CREDIT AGREEMENT is dated as of December 18, 1997 and entered into by and among SEALY MATTRESS COMPANY, an Ohio corporation ("Company"), SEALY CORPORATION, a Delaware corporation ("Holdings"), GOLDMAN SACHS CREDIT PARTNERS L.P. ("GSCP"), as arranger and syndication agent (in such capacity, "Syndi cation Agent"), THE FINANCIAL INSTITUTIONS LISTED ON THE SIGNATURE PAGES HEREOF (each individually referred to herein as a "Lender" and collectively as "Lenders"), MORGAN GUARANTY TRUST COMPANY OF NEW YORK ("Morgan Guaranty"), as administrative agent for Lenders (in such capacity, "Administrative Agent"), and BANKERS TRUST COMPANY ("BTCo."), as documentation agent (in such capacity, "Documentation Agent"). R E C I T A L S - - - - - - - - WHEREAS, Bain and the Other Investors have formed Sandman Merger Corporation, a Delaware corporation ("Merger Corp."), for the purpose of engaging with Holdings and Company in a series of Recapitalization Transactions, including the Merger (capitalized terms used herein having the meanings assigned to those terms in subsection 1.1), whereby Bain and the Other Investors will acquire not less than 75% of the aggregate voting power of all outstanding capital stock of Holdings; WHEREAS, Company, a wholly owned subsidiary of Holdings, has requested Lenders to extend, and Lenders have agreed to extend, certain credit facilities in an aggregate principal amount of $220,000,000 to Company, the proceeds of which will be used (i) in the aggregate principal amount of $130,400,000, together with (a) the proceeds of $330,000,000 in aggregate principal amount of borrowings under the AXEL Credit Agreement, (b) $128,700,000 in proceeds of the Equity Contribution, (c) not less than $125,000,000 in cash proceeds of the issuance and sale of the Senior Subordinated Notes, (d) not less than $75,000,000 in cash proceeds of the issuance and sale of the Discount Notes, and (e) the issuance of $25,000,000 in aggregate principal amount of Junior Subordinated Seller Notes, to permit consummation of the Merger, to refinance certain existing Indebtedness of Holdings, to repurchase certain existing Indebtedness of Holdings pursuant to the Debt Tender Offer, and to pay related fees and expenses, and (ii) to provide financing for working capital and other general corporate purposes of Company and its Subsidiaries; WHEREAS, pursuant to the Recapitalization Transactions, (i) Merger Corp. will merge with and into Holdings, with Holdings being the surviving corporation and the owner of 100% 1 of the outstanding capital stock of Company, and (ii) the capital stock of each direct Subsidiary of Holdings (other than Company) immediately prior to the Closing Date will be contributed to the capital of Company so that following such contribution, Company shall be the only direct Subsidiary of Holdings; WHEREAS, Company desires to secure all of the Obligations hereunder and under the other Loan Documents by granting to Administrative Agent, on behalf of Lenders, a First Priority Lien on substantially all of its real, personal and mixed property, including a pledge of all of the capital stock of each of its Domestic Subsidiaries and 65% of the capital stock of each of its Foreign Subsidiaries which is directly owned by Company; and WHEREAS, Holdings and all Subsidiaries of Company other than the Excluded Subsidiaries desire to guarantee the Obligations hereunder and under the other Loan Documents and to secure their guaranties by granting to Administrative Agent, on behalf of Lenders, a First Priority Lien on substantially all of their respective real, personal and mixed property, including (i) a pledge of all of the capital stock of Company and (ii) a pledge of all of the capital stock of each Domestic Subsidiary and 65% of the capital stock of each Foreign Subsidiary which is directly owned by a Subsidiary Guarantor: NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, Company, Holdings, Lenders and Agents agree as follows: SECTION 1. DEFINITIONS 1.1 Certain Defined Terms. --------------------- The following terms used in this Agreement shall have the following meanings: "Acquired LTM Revenue" has the meaning assigned to that term in subsection 7.8. "Acquisition Loan Commitments" means a portion of the Revolving Loan Commitments initially equal to $50,000,000. Any reduction of the Acquisition Loan Commitments shall reduce the Revolving Loan Commitments in an equal amount. "Acquisition Loans" means any Swing Line Loans or Revolving Loans the proceeds of which are applied for the purposes set forth in subsection 2.5B(ii). "Additional Mortgage" has the meaning assigned to that term in subsection 6.9. "Additional Mortgaged Property" has the meaning assigned to that term in subsection 6.9. 2 "Adjusted Eurodollar Rate" means, for any Interest Rate Determination Date with respect to an Interest Period for a Eurodollar Rate Loan, the rate per annum obtained by dividing (i) the arithmetic average -------- (rounded upward to the nearest 1/16 of one percent) of the offered quotations, if any, to first class banks in the interbank Eurodollar market by Reference Lenders for U.S. dollar deposits of amounts in same day funds comparable to the respective principal amounts of the Eurodollar Rate Loans of Reference Lenders for which the Adjusted Eurodollar Rate is then being determined (which principal amount shall be deemed to be $1,000,000 in the case of any Reference Lender not making, converting to or continuing such a Eurodollar Rate Loan) with maturities comparable to such Interest Period as of approximately 10:00 A.M. (New York time) on such Interest Rate Determination Date by (ii) a percentage equal to 100% minus the stated -- ----- maximum rate of all reserve requirements (including any marginal, emergency, supplemental, special or other reserves) applicable on such Interest Rate Determination Date to any member bank of the Federal Reserve System in respect of "Eurocurrency liabilities" as defined in Regulation D (or any successor category of liabilities under Regulation D); provided -------- that if any Reference Lender fails to provide Administrative Agent with its aforementioned quotation then the Adjusted Eurodollar Rate shall be determined based on the quotation(s) provided to Administrative Agent by the other Reference Lender(s). "Administrative Agent" has the meaning assigned to that term in the introduction to this Agreement and also means and includes any successor Administrative Agent appointed pursuant to subsection 9.5A. "Affected Lender" has the meaning assigned to that term in subsection 2.6C. "Affiliate", as applied to any Person, means any other Person directly or indirectly controlling, controlled by, or under common control with, that Person. For the purposes of this definition, "control" (including, with correlative meanings, the terms "controlling", "controlled by" and "under common control with"), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that Person, whether through the ownership of voting securities or by contract or otherwise. "Agent" means, individually, each of Syndication Agent, Administrative Agent and Documentation Agent, and for the purposes of Section 9 only (except as expressly noted), Collateral Agent, and "Agents" means Syndication Agent, Administrative Agent and Documentation Agent, and for the purposes of Section 9 only (except as expressly noted), Collateral Agent, collectively. "Agreement" means this Credit Agreement dated as of December 18, 1997, as it may be amended, supplemented or otherwise modified from time to time. "Applicable Commitment Fee Percentage" means, (a) for the period from the Closing Date up to (but excluding) the date of commencement of the first Pricing Period, 3 1/2 of 1% per annum and (b) at any date of determination thereafter, a rate per annum equal to the percentage set forth below opposite the Applicable Leverage Ratio in effect as of such date of determination, any change in the Applicable Commitment Fee Percentage to be effective on the date of any corresponding change in the Applicable Leverage Ratio:
========================================================= APPLICABLE APPLICABLE COMMITMENT LEVERAGE RATIO FEE PERCENTAGE --------------------------------------------------------- greater than or equal to .500% 5.25:1.00 --------------------------------------------------------- less than 5.25:1.00 but greater .375% than or equal to 4.25:1.00 --------------------------------------------------------- less than 4.25:1.00 .250% =========================================================
"Applicable Leverage Ratio" means, with respect to any date of determination, the Leverage Ratio set forth in the Pricing Certificate (as defined below) in effect for the Pricing Period (as defined below) in which such date of determination occurs. For purposes of this definition, (i) "Pricing Certificate" means an Officer's Certificate of Company certifying as to the Leverage Ratio as of the last day of any Fiscal Quarter and setting forth the calculation of such Leverage Ratio in reasonable detail, which Officer's Certificate may be delivered to Administrative Agent at any time on or after the date of delivery by Company of the Compliance Certificate (the "Related Compliance Certificate") with respect to the period ending on the last day of such Fiscal Quarter pursuant to subsection 6.1(iv), and (ii) "Pricing Period" means each period commencing on the first Business Day after the delivery to Administrative Agent of a Pricing Certificate and ending on the first Business Day after the next Pricing Certificate is delivered to Administrative Agent; provided that, anything contained in this definition -------- to the contrary notwithstanding, (a) the first Pricing Period for purposes of calculating the Applicable Leverage Ratio shall commence no earlier than the date which is nine months after the Closing Date, and the Pricing Certificate in respect of such first Pricing Period may be delivered at any time on or after such nine-month anniversary date and shall relate to the most recent financial statements delivered by Company to Administrative Agent prior to such date pursuant to subsection 6.1(ii) or 6.1(iii), (b) the Applicable Leverage Ratio for the period from the Closing Date to but excluding the date of commencement of such first Pricing Period shall be deemed to be 6.4:1.00 for purposes of making the relevant calculation referred to above, and (c) in the event that, after the commencement of such first Pricing Period, (X) Company fails to deliver a Pricing Certificate to Administrative Agent setting forth the Leverage Ratio as of the last day of any Fiscal Quarter on or before the last day on which Company is required to deliver the Related Compliance Certificate (such last day being the "Cutoff Date") and (Y) Administrative Agent determines (each such determination being an "Agent 4 Determination") on or after the Cutoff Date (on the basis of the Related Compliance Certificate or a Pricing Certificate delivered after the Cutoff Date) that the Applicable Leverage Ratio that would have been in effect if Company had delivered a Pricing Certificate on the Cutoff Date is greater than the Leverage Ratio set forth in the most recent Pricing Certificate actually delivered by Company, then (1) the Applicable Leverage Ratio in effect for purposes of making the relevant calculation referred to above for the period from the Cutoff Date to the date of delivery by Company of the next Pricing Certificate (or, if earlier, the next date on which an Agent Determination is made) shall be the Leverage Ratio determined pursuant to the Agent Determination and (2) on the first Business Day after Administrative Agent delivers written notice to Company of any Agent Determination, Company shall pay to Administrative Agent, for distribution (as appropriate) to Lenders, an aggregate amount equal to the additional interest, letter of credit fees and commitment fees Company would have been required to pay in respect of all applicable Loans, Letters of Credit or Commitments in respect of which any interest or fees have been paid by Company during the period from the Cutoff Date to the date such notice is given by Administrative Agent to Company if the amount of such interest and fees had been calculated using the Applicable Leverage Ratio based on such Agent Determination. "Applicable Base Rate Margin" means (a) for the period from the Closing Date up to (but excluding) the date of commencement of the first Pricing Period, 1.25% per annum, and (b) for any date thereafter, a rate per annum equal to the percentage set forth below opposite the Applicable Leverage Ratio in effect as of such date of determination, any change in any such Applicable Base Rate Margin to be effective on the date of any corresponding change in the Applicable Leverage Ratio.
========================================================= APPLICABLE APPLICABLE LEVERAGE RATIO BASE RATE MARGIN ========================================================= greater than or equal to 1.25% 5.75:1.00 --------------------------------------------------------- less than 5.75:1.00 but 1.00% greater than or equal to 5.25:1.00 --------------------------------------------------------- less than 5.25:1.00 but 0.75% greater than or equal to 4.75:1.00 --------------------------------------------------------- less than 4.75:1.00 but 0.50% greater than or equal to 4.25:1.00 ---------------------------------------------------------
5 --------------------------------------------------------- less than 4.25:1.00 but 0.25% greater than or equal to 3.75:1.00 --------------------------------------------------------- less than 3.75:1.00 0.00% =========================================================
"Applicable Eurodollar Rate Margin" means (a) for the period from the Closing Date up to (but excluding) the date of commencement of the first Pricing Period, 2.25% per annum, and (b) for any date thereafter, a rate per annum equal to the percentage set forth below opposite the Applicable Leverage Ratio in effect as of such date of determination, any change in any such Applicable Eurodollar Rate Margin to be effective on the date of any corresponding change in the Applicable Leverage Ratio.
APPLICABLE APPLICABLE LEVERAGE RATIO EURODOLLAR RATE MARGIN ========================================================= greater than or equal to 2.25% 5.75:1.00 --------------------------------------------------------- less than 5.75:1.00 but 2.00% greater than or equal to 5.25:1.00 --------------------------------------------------------- less than 5.25:1.00 but 1.75% greater than or equal to 4.75:1.00 --------------------------------------------------------- less than 4.75:1.00 but 1.50% greater than or equal to 4.25:1.00 --------------------------------------------------------- less than 4.25:1.00 but 1.25% greater than or equal to 3.75:1.00 --------------------------------------------------------- less than 3.75:1.00 but 1.00% greater than or equal to 3.25:1.00 --------------------------------------------------------- less than 3.25:1.00 0.75% =========================================================
"Asset Sale" means the sale by Holdings or any of its Subsidiaries to any Person other than Holdings or any of its wholly owned Subsidiaries of (i) any of the stock of any 6 of Holdings' Subsidiaries, (ii) substantially all of the assets of any division or line of business of Holdings or any of its Subsidiaries, or (iii) any other assets (whether tangible or intangible) of Holdings or any of its Subsidiaries (other than (a) inventory sold in the ordinary course of business and (b) any such other assets to the extent that the aggregate fair market value of such assets (at the time of sale thereof) sold in any single transaction or related series of transactions is equal to $500,000 or less); provided, however, that Asset Sales shall not include (1) any -------- ------- 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, (2) any sale or exchange of specific items of equipment, so long as the purpose of each such sale or exchange is to acquire (and results within 90 days of such sale or exchange in the acquisition of) replacement items of equipment which are the functional equivalent of the item of equipment so sold or exchanged, (3) the leasing (pursuant to operating leases in the ordinary course of business) or licensing of real or personal property, including intellectual property, or (4) disposals of obsolete, uneconomical, negligible, worn out or surplus property in the ordinary course of business. "Assignment Agreement" means an Assignment Agreement in substantially the form of Exhibit X annexed hereto. --------- "AXEL(SM) Credit Agreement" means that certain AXEL Credit Agreement dated as of even date herewith, by and among Company, Holdings, GSCP, as arranger and syndication agent, Morgan Guaranty, as administrative agent, and BTCo., as documentation agent, as such AXEL Credit Agreement may be amended, supplemented, refinanced, renewed, extended or otherwise modified from time to time to the extent permitted under subsection 7.14C. "AXEL Credit Documents" means the AXEL Credit Agreement, the promissory notes issued thereunder and each other document executed in connection with the AXEL Credit Agreement. "AXELs" means the senior secured term loans of Company under the AXEL Credit Agreement in the original principal amount of $330,000,000. "Bain" means Bain Capital, Inc. and/or one or more of its Affiliates. "Bain Advisory Services Agreement" means that certain Advisory Services Agreement by and among Company, Holdings and Bain, in the form delivered to Syndication Agent and Administrative Agent prior to the Closing Date and as such agreement may thereafter be amended, supplemented or otherwise modified from time to time to the extent permitted under subsection 7.14A. - ------------------------- * AXEL is a registered service mark of Goldman, Sachs & Co. 7 "Bain Management Fees" means the fees (including one-time fees payable in connection with acquisitions, divestitures and financings) and expenses payable by Holdings to Bain pursuant to the Bain Advisory Services Agreement. "Bankruptcy Code" means Title 11 of the United States Code entitled "Bankruptcy", as now and hereafter in effect, or any successor statute. "Base Rate" means a fluctuating interest rate per annum in effect from time to time, which rate per annum shall at all times be equal to the higher of: (i) the rate of interest announced publicly by Morgan Guaranty in New York, New York, from time to time, as Morgan Guaranty's base rate; and (ii) 1/2 of 1% per annum above the Federal Funds Effective Rate. "Base Rate Loans" means Loans bearing interest at rates determined by reference to the Base Rate as provided in subsection 2.2A. "BTCo." has the meaning assigned to that term in the introduction to this Agreement. "Business Day" means any day excluding Saturday, Sunday and any day which is a legal holiday under the laws of the State of New York or is a day on which banking institutions located in such state are authorized or required by law or other governmental action to close, and (ii) with respect to all notices, determinations, fundings and payments in connection with the Adjusted Eurodollar Rate or any Eurodollar Rate Loans, any day that is a Business Day described in clause (i) above and that is also a day for trading by and between banks in Dollar deposits in the London interbank market. "Capital Lease", as applied to any Person, means any lease of any property (whether real, personal or mixed) by that Person as lessee that, in conformity with GAAP, would be required to be accounted for as a capital lease on the balance sheet of that Person. "Carryforward" has the meaning assigned to that term in subsection 7.8. "Cash" means money, currency or a credit balance in a Deposit Account. "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 8 ratings obtainable from either Standard & Poor's Ratings Group ("S&P") or Moody's Investors Service, Inc. ("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-l 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 $200,000,000; (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 of their assets in securities of the types described in clauses (i) through (v) above. "Certificate of Merger" means the Certificate of Merger dated as of December 18, 1997 by and between Merger Corp. and Holdings, in the form delivered to Syndication Agent, Administrative Agent and Lenders prior to or concurrently with their execution of this Agreement and as such Certificate of Merger may be amended from time to time thereafter to the extent permitted under subsection 7.14A. "Certificate re Non-Bank Status" means a certificate substantially in the form of Exhibit XI annexed hereto delivered by a Lender to ---------- Administrative Agent pursuant to subsection 2.7B(iii). "Class" means, as applied to Lenders, each of the following classes of Lenders: (i) Lenders having Tranche A Term Loan Exposure and (ii) Lenders having Revolving Loan Exposure. "Closing Date" means the date on or before February 16, 1998, on which the initial Loans are made. "Closing Date Mortgage" has the meaning assigned to that term in subsection 4.1I. "Closing Date Mortgaged Property" has the meaning assigned to that term in subsection 4.1I. "Collateral" means, collectively, all of the real, personal and mixed property (including capital stock) in which Liens are purported to be granted pursuant to the Collateral Documents as security for the Obligations. "Collateral Agent" means Morgan Guaranty acting in its capacity as collateral agent under the applicable Collateral Documents on behalf of the Lenders and the Persons party to the Intercreditor Agreement (other than Holdings and its Subsidiaries), 9 and also means and includes any successor collateral agent appointed pursuant to the Intercreditor Agreement. "Collateral Access Agreement" means any landlord waiver, mortgagee waiver, bailee letter or any similar acknowledgement or agreement of any landlord or mortgagee in respect of any Real Property Asset where any Collateral is located or any warehouseman or processor in possession of any Inventory of any Loan Party, substantially in the form of Exhibit XXV ----------- annexed hereto with such changes thereto as may be agreed to by Administrative Agent in the reasonable exercise of its discretion. "Collateral Documents" means the Holdings Security Agreement, the Holdings Pledge Agreement, the Company Pledge Agreement, the Company Security Agreement, the Company Patent and Trademark Security Agreement, the Intercreditor Agreement, the Subsidiary Pledge Agreement, the Subsidiary Security Agreement, the Subsidiary Patent and Trademark Security Agreement, the Mortgages and all other instruments or documents delivered by any Loan Party pursuant to this Agreement or any of the other Loan Documents in order to grant to Collateral Agent, on behalf of Lenders, a Lien on any real, personal or mixed property of that Loan Party as security for the Obligations. "Commercial Letter of Credit" means any letter of credit or similar instrument issued for the purpose of providing the primary payment mechanism in connection with the purchase of any materials, goods or services by Company or any of its Subsidiaries in the ordinary course of business of Company or such Subsidiary. "Commitments" means the commitments of Lenders to make Loans as set forth in subsection 2.1A. "Company" has the meaning assigned to such term in the introduction to this Agreement. "Company Patent and Trademark Security Agreement" means the Company Patent and Trademark Security Agreement executed and delivered by Company and Collateral Agent on the Closing Date, substantially in the form of Exhibit XVI annexed hereto, as such Company Patent and Trademark Security ----------- Agreement may thereafter be amended, supplemented or otherwise modified from time to time as permitted thereunder and hereunder. "Company Pledge Agreement" means the Company Pledge Agreement executed and delivered by Company and Collateral Agent on the Closing Date, substantially in the form of Exhibit XIV annexed hereto, as such Company ----------- Pledge Agreement may thereafter be amended, supplemented or otherwise modified from time to time as permitted thereunder and hereunder. "Company Security Agreement" means the Company Security Agreement executed and delivered by Company and Collateral Agent on the Closing Date, 10 substantially in the form of Exhibit XV annexed hereto, as such Company ---------- Security Agreement may thereafter be amended, supplemented or otherwise modified from time to time as permitted thereunder and hereunder. "Compliance Certificate" means a certificate substantially in the form of Exhibit X annexed hereto delivered to Administrative Agent by --------- Company pursuant to subsection 6.1(iv). "Confidential Information Memorandum" means that certain Confidential Information Memorandum prepared by Goldman, Sachs & Co. and JP Morgan relating to the AXELs, the Tranche A Term Loans and Revolving Loans dated November 1997. "Conforming Leasehold Interest" means any Recorded Leasehold Interest as to which the lessor has substantially agreed in writing for the benefit of Administrative Agent (which writing has been delivered to Administrative Agent), whether under the terms of the applicable lease, under the terms of a Landlord Consent and Estoppel, or otherwise, to the matters described in the definition of "Landlord Consent and Estoppel," which interest, if a subleasehold or sub-subleasehold interest, is not subject to any contrary restrictions contained in a superior lease or sublease. "Consent Solicitation" means the solicitation by Holdings, from the holders of outstanding Existing Subordinated Notes, of consents to certain amendments to the Existing Subordinated Note Indenture in accordance with the terms of the Debt Tender Offer Materials. "Consolidated Adjusted EBITDA" means, for any period, the sum of the amounts for such period of (i) Consolidated Net Income, (ii) Consolidated Interest Expense, together with any non-cash interest expense with respect to the Junior Subordinated Seller Notes not included in Consolidated Interest Expense, (iii) provisions for taxes based on income (including, without duplication, foreign withholding taxes), (iv) total depreciation expense, (v) total amortization expense, (vi) other non-cash items reducing Consolidated Net Income less other non-cash items increasing Consolidated ---- Net Income, (vii) to the extent deducted in determining Consolidated Net Income, those items described on Schedule 1.1(i) annexed hereto, and (viii) --------------- the cumulative effect of accounting changes to the extent such changes result in a reduction of Consolidated Net Income less the cumulative effect ---- of accounting changes to the extent such changes result in an increase in Consolidated Net Income, all of the foregoing as determined on a consolidated basis for Holdings and its Subsidiaries in conformity with GAAP. "Consolidated Capital Expenditures" means, for any period, the sum of (i) the aggregate of all expenditures (whether paid in cash or other consideration or accrued as a liability and including that portion of Capital Leases which is capitalized on the consolidated balance sheet of Holdings and its Subsidiaries) by Holdings and its Subsidiaries during that period that, in conformity with GAAP, are included in "purchases of property, plant or equipment" or comparable items reflected in the consolidated 11 statement of cash flows of Holdings and its Subsidiaries; provided, -------- however, that the following shall in any event be excluded from the ------- definition of Consolidated Capital Expenditures: (a) any such expenditures made with, or subsequently reimbursed out of, the proceeds of insurance, condemnation awards (or payments in lieu thereof), indemnity payments or payments in respect of judgments or settlements received from third parties for purposes of replacing or repairing the assets in respect of which such proceeds, awards or payments were received, so long as such expenditures are commenced within 270 days of the later of the occurrence of the damage to or loss of the assets being replaced or repaired and the receipt of such proceeds, awards or payments in respect thereof and (b) any such expenditures constituting the reinvestment of proceeds from the sales of assets in equipment or other productive assets of Company and its Subsidiaries, so long as such expenditures are commenced within 270 days of the receipt of such proceeds; and provided further, however, that -------- ------- ------- Consolidated Capital Expenditures shall not include any expenditures made by Company or any of its Subsidiaries to acquire in a Permitted Acquisition the business, property or fixed assets of any Person, or the stock or other evidence of beneficial ownership of any Person that, as a result of such acquisition, becomes a Subsidiary of Company or a Joint Venture to which Company or any of its Subsidiaries is a party. "Consolidated Cash Interest Expense" means, for any period, Consolidated Interest Expense for such period excluding, however, any --------- ------- interest expense not payable in Cash (including interest expense paid in kind and amortization of discount, of deferred financing fees, of premiums paid on Hedge Agreements and of debt issuance costs). "Consolidated Current Assets" means, as at any date of determination, the total assets of Holdings and its Subsidiaries on a consolidated basis which may properly be classified as current assets in conformity with GAAP, excluding Cash, Cash Equivalents and deferred income taxes to the extent otherwise included in current assets. "Consolidated Current Liabilities" means, as at any date of determination, the total liabilities of Holdings and its Subsidiaries on a consolidated basis which may properly be classified as current liabilities in conformity with GAAP, excluding the current portions of Funded Debt --------- (including accrued but unpaid interest) and any Revolving Loans and deferred income taxes to the extent otherwise included in current liabilities. "Consolidated Excess Cash Flow" means, for any period, an amount (if positive) equal to (i) the sum, without duplication, of the amounts for such period of (a) Consolidated Adjusted EBITDA, (b) the Consolidated Working Capital Adjustment and (c) payments made to Holdings or any of its Subsidiaries as an adjustment to purchase price after the Closing Date under the Recapitalization Agreement, minus (ii) the sum, without ----- duplication, of the amounts for such period (to the extent not financed with the proceeds of related financings) of (a) voluntary and scheduled repayments of Consolidated Total Debt (excluding repayments of Revolving Loans except to the extent the Revolving Loan Commitments are permanently reduced in connection with such 12 repayments), (b) Consolidated Capital Expenditures (net of any proceeds of any related financings with respect to such expenditures) plus (or minus, ---- ----- if negative) the Carryforward for such period to be carried forward to the next period less the Carryforward (if any) for the preceding period carried ---- forward to the current period, (c) Consolidated Cash Interest Expense, (d) payments made by Holdings and its Subsidiaries as an adjustment to purchase price after the Closing Date under the Recapitalization Agreement, (e) any cash payments made during such period with respect to items set forth on Schedule 1.1(i) annexed hereto, and (f) the provision for current taxes --------------- based on income of Holdings and its Subsidiaries and payable in cash with respect to such period, including taxes payable in cash within 90 days following the end of such period, (g) non-cash charges added in calculating Consolidated Adjusted EBITDA in a prior period to the extent such non-cash charges are paid in cash in the current period, and (h) to the extent not otherwise deducted in determining Consolidated Excess Cash Flow, tender payments, fees and expenses paid during such period in connection with the exchange of the Senior Subordinated Notes and the Discount Notes, cash payments made during such period with respect to non-current liabilities and cash payments made during such period with respect to restructuring reserves and expenditures with respect to Permitted Acquisitions. "Consolidated Interest Expense" means, for any period, total cash and non-cash interest expense (including that portion attributable to Capital Leases in accordance with GAAP and capitalized interest) of Holdings and its Subsidiaries on a consolidated basis in accordance with GAAP with respect to all outstanding Indebtedness of Holdings and its Subsidiaries, including all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing, net costs under Interest Rate Agreements, commitment fees accrued under subsection 2.3A and any administrative agent's fees payable to Administrative Agent, but excluding, however, any amounts referred to in --------- ------- subsection 2.3 payable to Agents and Lenders on or before the Closing Date and any non-cash interest expense with respect to the Junior Subordinated Seller Notes. "Consolidated Net Income" means, for any period, the net income (or loss) of Holdings and its Subsidiaries on a consolidated basis for such period taken as a single accounting period determined in conformity with GAAP; provided that there shall be excluded (i) the income (or loss) of any -------- Person (other than a Subsidiary of Holdings) in which any other Person (other than Holdings or any of its Subsidiaries) has a joint interest, except to the extent of the amount of dividends or other distributions actually paid to Holdings or any of its Subsidiaries by such Person during such period, (ii) the income (or loss) of any Person accrued prior to the date it becomes a Subsidiary of Holdings or is merged into or consolidated with Holdings or any of its Subsidiaries or that Person's assets are acquired by Holdings or any of its Subsidiaries, (iii) the income of any Subsidiary of Holdings to the extent that the declaration or payment of dividends or similar distributions by that Subsidiary of that income is not at the time permitted by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary, (iv) any 13 after-tax gains or losses attributable to Asset Sales or returned surplus assets of any Pension Plan, and (v) (to the extent not included in clauses (i) through (iv) above) any net extraordinary gains or net extraordinary losses. "Consolidated Rental Payments" means, for any period, the aggregate amount of all rents paid or payable by Holdings and its Subsidiaries on a consolidated basis during that period under all Capital Leases and Operating Leases to which Holdings or any of its Subsidiaries is a party as lessee. "Consolidated Total Debt" means, as at any date of determination, the aggregate stated balance sheet amount of all Indebtedness of Holdings and its Subsidiaries, determined on a consolidated basis in accordance with GAAP, excluding, however, the principal amount (including paid-in-kind --------- ------- interest) of the Junior Subordinated Seller Notes. "Consolidated Working Capital" means, as at any date of determination, the excess of Consolidated Current Assets over Consolidated Current Liabilities. "Consolidated Working Capital Adjustment" means, for any period on a consolidated basis, the amount (which may be a negative number) by which Consolidated Working Capital as of the beginning of such period exceeds (or is less than) Consolidated Working Capital as of the end of such period. "Contingent Obligation", as applied to any Person, means any direct or indirect liability, contingent or otherwise, of that Person (i) with respect to any Indebtedness, lease, dividend or other obligation of another if the primary purpose or intent thereof by the Person incurring the Contingent Obligation is to provide assurance to the obligee of such obligation of another that such obligation of another will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such obligation will be protected (in whole or in part) against loss in respect thereof, (ii) with respect to any letter of credit issued for the account of that Person or as to which that Person is otherwise liable for reimbursement of drawings, or (iii) under Hedge Agreements. Contingent Obligations shall include (a) the direct or indirect guaranty, endorsement (otherwise than for collection or deposit in the ordinary course of business), co-making, discounting with recourse or sale with recourse by such Person of the obligation of another, (b) the obligation to make take-or-pay or similar payments if required regardless of non-performance by any other party or parties to an agreement, and (c) any liability of such Person for the obligation of another through any agreement (contingent or otherwise) (X) to purchase, repurchase or otherwise acquire such obligation or any security therefor, or to provide funds for the payment or discharge of such obligation (whether in the form of loans, advances, stock purchases, capital contributions or otherwise) or (Y) to maintain the solvency or any balance sheet item, level of income or financial condition of another if, in the case of any agreement described under subclauses (X) or (Y) of this sentence, the primary purpose or intent thereof is as described in the preceding sentence. The amount of any Contingent 14 Obligation shall be equal to (A) the amount of the obligation so guaranteed or otherwise supported or, if less, the amount to which such Contingent Obligation is specifically limited, or (B) if neither amount in clause (A) is stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such Person is required to perform) as determined by such Person in good faith. Contingent Obligations shall not include standard contractual indemnities entered into in the ordinary course of business. "Continuing Director" shall mean, as of any date of determination, any member of the Board of Directors of Company who (i) was a member of such Board of Directors on the Closing Date or (ii) was nominated for election or elected to such Board of Directors with the affirmative vote of Bain and the Other Investors. "Contractual Obligation", as applied to any Person, means any provision of any Security issued by that Person or of any material indenture, mortgage, deed of trust, con tract, undertaking, agreement or other instrument to which that Person is a party or by which it or any of its properties is bound or to which it or any of its properties is subject. "Currency Agreement" means any foreign exchange contract, currency swap agreement, futures contract, option contract, synthetic cap or other similar agreement or arrangement to which Holdings or any of its Subsidiaries is a party. "Debt Tender Offer" means the offer by Holdings to repurchase up to 100% of its outstanding Existing Subordinated Notes pursuant to the Debt Tender Offer Materials. "Debt Tender Offer Materials" means the Offer to Purchase and Consent Solicitation Statement dated November 18, 1997 relating to the Debt Tender Offer and the accompanying Consent and Letter of Transmittal. "Deposit Account" means a demand, time, savings, passbook or like account with a bank, savings and loan association, credit union or like organization, other than an account evidenced by a negotiable certificate of deposit. "Discount Note Indenture" means the indenture pursuant to which the Discount Notes are issued, as such indenture may be amended from time to time to the extent permitted under subsection 7.14B. "Discount Notes" means the $128,000,000 in aggregate principal amount of 10-7/8% Senior Subordinated Discount Notes due December 15, 2007 of Company issued pursuant to the Discount Note Indenture. "Documentation Agent" has the meaning assigned to that term in the introduction to this Agreement. 15 "Dollars" and the sign "$" mean the lawful money of the United States of America. "Domestic Subsidiary" means any Subsidiary of Company which is organized under the laws of the United States or any state thereof. "EITF 97-13 Expenditures" means expenses associated with reengineering efforts in connection with Company's MIS projects. "Eligible Assignee" means (A) (i) a commercial bank organized under the laws of the United States or any state thereof; (ii) a savings and loan association or savings bank organized under the laws of the United States or any state thereof; (iii) a commercial bank organized under the laws of any other country or a political subdivision thereof; provided that (x) -------- such bank is acting through a branch or agency located in the United States or (y) such bank is organized under the laws of a country that is a member of the Organization for Economic Cooperation and Development or a political subdivision of such country; and (iv) any other entity which is an "accredited investor" (as defined in Regulation D under the Securities Act) which extends credit or buys loans as one of its businesses including insurance companies, funds, investment companies and lease financing companies; and (B) any Lender, any Affiliate of any Lender and, with respect to any Lender that is an investment fund that invests in commercial loans, any other investment fund that invests in commercial loans and that is managed or advised by the same investment advisor as such Lender or by an Affiliate of such investment advisor; provided that no Affiliate of -------- Holdings shall be an Eligible Assignee. "Employee Benefit Plan" means any "employee benefit plan" as defined in Section 3(3) of ERISA which is or was maintained or contributed to by Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates. "Employment Agreement" means the Employment Agreement between Company and Ron Jones providing for his exclusive employment by Company, in the form provided to Syndication Agent and Administrative Agent pursuant to subsection 4.1C on or prior to the Closing Date. "Environmental Claim" means any investigation, notice, notice of violation, claim, action, suit, proceeding, demand, abatement order or other order or directive (conditional or otherwise), by any governmental authority or any other Person, arising (i) pursuant to or in connection with any actual or alleged violation of any Environmental Law, (ii) in connection with any Hazardous Materials or any actual or alleged Hazardous Materials Activity, or (iii) in connection with any actual or alleged damage, injury, threat or harm to health, safety, natural resources or the environment. "Environmental Laws" means any and all current or future statutes, ordinances, orders, rules, regulations, judgments, Governmental Authorizations, or any other requirements of governmental authorities relating to (i) environmental matters, including 16 those relating to any Hazardous Materials Activity, (ii) the generation, use, storage, transportation or disposal of Hazardous Materials, or (iii) occupational safety and health, industrial hygiene, land use or the protection of human, plant or animal health or welfare from environmental hazards (including Hazardous Materials), in any manner applicable to Holdings or any of its Subsidiaries or any Facility, including the Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C. (S) 9601 et seq.), the Hazardous Materials Transportation Act (49 -- --- U.S.C. (S) 1801 et seq.), the Resource Conservation and Recovery Act (42 -- --- U.S.C. (S) 6901 et seq.), the Federal Water Pollution Control Act (33 -- --- U.S.C. (S) 1251 et seq.), the Clean Air Act (42 U.S.C. (S) 7401 et seq.), -- --- -- --- the Toxic Substances Control Act (15 U.S.C. (S) 2601 et seq.), the Federal -- --- Insecticide, Fungicide and Rodenticide Act (7 U.S.C. (S)136 et seq.), the -- --- Occupational Safety and Health Act (29 U.S.C. (S) 651 et seq.), the Oil -- --- Pollution Act (33 U.S.C. (S) 2701 et seq.) and the Emergency Planning and -- --- Community Right-to-Know Act (42 U.S.C. (S) 11001 et seq.), each as amended -- --- or supplemented, any analogous present or future state or local statutes or laws, and any regulations promulgated pursuant to any of the foregoing. "Equity Contribution" means, collectively, (i) the contribution by Bain and the Other Investors to Merger Corp. of cash in exchange for all of the outstanding common stock of Merger Corp and (ii) the rollover equity contribution by the Management Investors, in the aggregate amount of $128,700,000. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any successor thereto, and the regulations promulgated and rulings issued thereunder. "ERISA Affiliate" means, as applied to any Person, (i) any corporation which is a member of a controlled group of corporations within the meaning of Section 414(b) of the Internal Revenue Code of which that Person is a member; (ii) any trade or business (whether or not incorporated) which is a member of a group of trades or businesses under common control within the meaning of Section 414(c) of the Internal Revenue Code of which that Person is a member; and (iii) any member of an affiliated service group within the meaning of Section 414(m) or (o) of the Internal Revenue Code of which that Person, any corporation described in clause (i) above or any trade or business described in clause (ii) above is a member. Any former ERISA Affiliate of Holdings or any of its Subsidiaries shall continue to be considered an ERISA Affiliate of Holdings or such Subsidiary within the meaning of this definition with respect to the period such entity was an ERISA Affiliate of Holdings or such Subsidiary and with respect to liabilities arising after such period for which Holdings or such Subsidiary could be liable under the Internal Revenue Code or ERISA. "ERISA Event" means (i) a "reportable event" within the meaning of Section 4043 of ERISA and the regulations issued thereunder with respect to any Pension Plan (excluding those for which the provision for 30-day notice to the PBGC has been waived by regulation); (ii) the failure to meet the minimum funding standard of Section 412 of the Internal Revenue Code with respect to any Pension Plan (whether or not waived in 17 accordance with Section 412(d) of the Internal Revenue Code) or the failure to make by its due date a required installment under Section 412(m) of the Internal Revenue Code with respect to any Pension Plan or the failure to make any required contribution to a Multiemployer Plan; (iii) the provision by the administrator of any Pension Plan pursuant to Section 4041(a)(2) of ERISA of a notice of intent to terminate such plan in a distress termination described in Section 4041(c) of ERISA; (iv) the withdrawal by Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates from any Pension Plan with two or more contributing sponsors or the termination of any such Pension Plan resulting in liability pursuant to Section 4063 or 4064 of ERISA; (v) the institution by the PBGC of proceedings to terminate any Pension Plan, or the occurrence of any event or condition which might constitute grounds under ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan; (vi) the imposition of liability on Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates pursuant to Section 4062(e) or 4069 of ERISA or by reason of the application of Section 4212(c) of ERISA; (vii) the withdrawal of Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates in a complete or partial withdrawal (within the meaning of Sections 4203 and 4205 of ERISA) from any Multiemployer Plan if there is any potential liability therefor, or the receipt by Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates of notice from any Multiemployer Plan that it is in reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA, or that it intends to terminate or has terminated under Section 4041A or 4042 of ERISA; (viii) the occurrence of an act or omission which could give rise to the imposition on Holdings or any of its Subsidiaries of fines, penalties, taxes or related charges under Chapter 43 of the Internal Revenue Code or under Section 409, Section 502(c), (i) or (l), or Section 4071 of ERISA in respect of any Employee Benefit Plan; (ix) the assertion of a material claim (other than routine claims for benefits) against any Employee Benefit Plan other than a Multiemployer Plan or the assets thereof, or against Holdings or any of its Subsidiaries in connection with any Employee Benefit Plan; (x) receipt from the Internal Revenue Service of notice of the failure of any Pension Plan (or any other Employee Benefit Plan intended to be qualified under Section 401(a) of the Internal Revenue Code) to qualify under Section 401(a) of the Internal Revenue Code, or the failure of any trust forming part of any Pension Plan to qualify for exemption from taxation under Section 501(a) of the Internal Revenue Code; or (xi) the imposition of a Lien pursuant to Section 401(a)(29) or 412(n) of the Internal Revenue Code or pursuant to ERISA with respect to any Pension Plan. "Eurodollar Rate Loans" means Loans bearing interest at rates determined by reference to the Adjusted Eurodollar Rate as provided in subsection 2.2A. "Event of Default" means each of the events set forth in Section 8. "Excess Proceeds Amount" shall initially be $0, which amount shall be (i) increased (a) on the date of delivery in any Fiscal Year of an --------- Officer's Certificate setting forth the calculation of Consolidated Excess Cash Flow for the preceding Fiscal Year pursuant to subsection 2.4B(iii)(g) (each such date being a "Excess Cash Payment 18 Date"), so long as any prepayment required pursuant to subsection 2.4B(iii)(f) has been made, by an amount equal to the amount of such Consolidated Excess Cash Flow which is not so prepaid, and (b) on the date of the receipt by Holdings of any Net Equity Proceeds or up to $25,000,000 of proceeds from the issuance of equity Securities of Holdings to Bain and the Other Investors after the Closing Date, so long as any prepayment required pursuant to subsection 2.4B(iii)(e) has been made, by an amount equal to such Net Equity Proceeds and such other proceeds which are not so prepaid, and (ii) reduced (a) on each Excess Cash Payment Date where ------- Consolidated Excess Cash Flow for the immediately preceding Fiscal Year is a negative number, by such amount, (b) at the time any Consolidated Capital Expenditure is made pursuant to subsection 7.8C, by the amount of such expenditure, (c) at the time any intercompany loan is made pursuant to the second proviso to subsection 7.1(v), by the principal amount of such loan, and (d) at the time any Investment is made pursuant to subsection 7.3(xx), by the amount of such Investment, it being understood that the Excess Proceeds Amount may be reduced to an amount below $0 after giving effect to the reductions enumerated in clause (ii)(a) above. "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time, and any successor statute. "Exchange Rate" means, on any date when an amount expressed in a currency other than Dollars is to be determined with respect to any Letter of Credit, the nominal rate of exchange of the applicable Issuing Lender in the New York foreign exchange market for the purchase by such Issuing Lender (by cable transfer) of such currency in exchange for Dollars at 12:00 noon (New York time) one Business Day prior to such date, expressed as a number of units of such currency per one Dollar. "Excluded Subsidiaries" means, collectively, (i) all Foreign Subsidiaries which are not Subsidiary Guarantors 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; provided, -------- however, that no Domestic Subsidiary shall be an Excluded Subsidiary if, ------- after the Closing Date, it acquires assets with a fair market value in excess of $1,000,000 in the aggregate. "Existing Credit Agreement" means that certain Second Restated Credit Agreement dated as of February 25, 1997, by and among Holdings, as borrower, certain financial institutions, Banque Paribas, as documentation agent, Nationsbank, N.A., as syndication agent, and Bank of America Illinois, as administrative agent, as amended prior to the Closing Date. "Existing Subordinated Note Indenture" means the indenture pursuant to which the Existing Subordinated Notes were issued, as amended pursuant to the Consent 19 Solicitation and as such indenture may be further amended from time to time to the extent permitted under subsection 7.14B. "Existing Subordinated Notes" means Holdings's $200,000,000 in aggregate principal amount of 10-1/4% Senior Subordinated Notes due 2003. "Facilities" means any and all real property (including all buildings, fixtures or other improvements located thereon) now, hereafter or heretofore owned, leased, operated or used by Holdings or any of its Subsidiaries or any of their respective predecessors or Affiliates. "Federal Funds Effective Rate" means, for any period, a fluctuating interest rate equal for each day during such period to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by Administrative Agent from three Federal funds brokers of recognized standing selected by Administrative Agent. "Financial Plan" has the meaning assigned to that term in subsection 6.1(xiii). "First Priority" means, with respect to any Lien purported to be created in any Collateral pursuant to any Collateral Document, that (i) such Lien has priority over any other Lien on such Collateral (other than Liens permitted pursuant to subsection 7.2A(iii) or 7.2A(iv)) and (ii) such Lien is the only Lien (other than Permitted Encumbrances and Liens permitted pursuant to subsection 7.2) to which such Collateral is subject. "Fiscal Quarter" means a fiscal quarter of any Fiscal Year. "Fiscal Year" means the fiscal year of Holdings and its Subsidiaries ending on the Sunday nearest to November 30th of each calendar year. For purposes of this Agreement, any particular Fiscal Year shall be designated by reference to the calendar year in which such Fiscal Year ends. "Flood Hazard Property" means a Mortgaged Property located in an area designated by the Federal Emergency Management Agency as having special flood or mud slide hazards. "Foreign Borrowing Base Amount" means, at any time, the sum of (i) 85% of the book value of all accounts receivable of all Foreign Subsidiaries of Holdings and (ii) 60% of the book value of all inventory of all Foreign Subsidiaries of Holdings. 20 "Foreign Cash Equivalents" means certificates of deposit or bankers acceptances of any bank organized under the laws of Canada, Japan or any country that is a member of the European Economic Community whose short- term commercial paper rating from S&P is at least A-2 or the equivalent thereof or from Moody's is at least P-2 or the equivalent thereof, in each case with maturities of not more than one year from the date of acquisition. "Foreign Subsidiary" means a Subsidiary of Company other than a Domestic Subsidiary. "Foreign Subsidiary Working Capital Indebtedness" has the meaning assigned to that term in subsection 7.1. "Funded Debt", as applied to any Person, means all Indebtedness of that Person which by its terms or by the terms of any instrument or agreement relating thereto matures more than one year from, or is directly renewable or extendable at the option of that Person to a date more than one year from (including an option of that Person under a revolving credit or similar agreement obligating the lender or lenders to extend credit over a period of one year or more from), the date of the creation thereof. "Funding and Payment Office" means (i) the office of Administrative Agent and Swing Line Lender located at 500 Station Christiana Road, Newark, Delaware or (ii) such other office of Administrative Agent and Swing Line Lender as may from time to time hereafter be designated as such in a written notice delivered by Administrative Agent and Swing Line Lender to Company and each Lender. "Funding Date" means the date of the funding of a Loan. "GAAP" means, subject to the limitations on the application thereof set forth in subsections 1.2 and 1.4, generally accepted accounting principles set forth in 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 may be approved by a significant segment of the accounting profession, in each case as the same are applicable to the circumstances as of the date of determination. "Guaranties" means the Holdings Guaranty and the Subsidiary Guaranty. "Governmental Authorization" means any permit, license, authorization, plan, directive, consent order or consent decree of or from any federal, state or local governmental authority, agency or court. "GSCP" has the meaning assigned to that term in the introduction to this Agreement. 21 "Harvard Advisory Services Agreement" means that certain Management Services Agreement by and between Holdings and Harvard Private Capital Holdings, Inc., in the form delivered to Syndication Agent and Administrative Agent prior to the Closing Date and as such agreement may thereafter be amended, supplemented or otherwise modified from time to time to the extent permitted under subsection 7.14A. "Harvard Management Fees" means the fees and expenses payable by Holdings to Harvard Private Capital Holdings, Inc. pursuant to the Harvard Advisory Services Agreement. "Hazardous Materials" means (i) any chemical, material or substance at any time defined in any statute or regulation as or included in the definition in any statute or regulation of "hazardous substances", "hazardous wastes", "hazardous materials", "extremely hazardous waste", "acutely hazardous waste", "radioactive waste", "biohazardous waste", "pollutant", "toxic pollutant", "contaminant", "restricted hazardous waste", "infectious waste", "toxic substances", or any other term or expression intended to define, list or classify substances by reason of properties harmful to health, safety or the indoor or outdoor environment (including harmful properties such as ignitability, corrosivity, reactivity, carcinogenicity, toxicity, reproductive toxicity, "TCLP toxicity" or "EP toxicity" or words of similar meaning and regulatory effect under any applicable Environmental Laws); (ii) any oil, petroleum, petroleum fraction or petroleum derived substance; (iii) any drilling fluids, produced waters and other wastes associated with the exploration, development or production of crude oil, natural gas or geothermal resources; (iv) any flammable substances or explosives; (v) any radioactive materials; (vi) any asbestos-containing materials; (vii) urea formaldehyde foam insulation; (viii) polychlorinated biphenyls, including any oil or dielectric fluid containing polychlorinated biphenyls; (ix) pesticides; and (x) any other chemical, material or substance which could pose a hazard to the health and safety of the owners, occupants or any Persons in the vicinity of any Facility or to the indoor or outdoor environment. "Hazardous Materials Activity" means any past, present or future activity, event or occurrence involving any Hazardous Materials, including the use, manufacture, possession, storage, holding, migration, Release, threatened Release, discharge, placement, generation, transportation, processing, treatment, abatement, removal, remediation, disposal, disposition or handling of any Hazardous Materials, and any corrective action or response action with respect to any of the foregoing. "Hedge Agreement" means an Interest Rate Agreement or a Currency Agreement designed to hedge against fluctuations in interest rates or currency values, respectively. "Holdings" has the meaning assigned to that term in the recitals of this Agreement. 22 "Holdings Common Stock" means, collectively, (i) the Class A Common Stock of Holdings, par value $.01 per share, (ii) the Class B Common Stock of Holdings, par value $.01 per share, (iii) the Class L Common Stock of Holdings, par value $.01 per share, and (iv) the Class M Common Stock of Holdings, par value $.01 per share. "Holdings Guaranty" means the Holdings Guaranty executed and delivered by Holdings on the Closing Date, substantially in the form of Exhibit XXI annexed hereto, as such Holdings Guaranty may thereafter be ----------- amended, supplemented or otherwise modified from time to time as permitted thereunder and hereunder. "Holdings Pledge Agreement" means the Holdings Pledge Agreement executed and delivered by Holdings and Collateral Agent on the Closing Date, substantially in the form of Exhibit XXII annexed hereto, as such ------------ Holdings Pledge Agreement may thereafter be amended, supplemented or otherwise modified from time to time as permitted thereunder and hereunder. "Holdings Security Agreement" means the Holdings Security Agreement executed and delivered by Holdings and Collateral Agent on the Closing Date, substantially in the form of Exhibit XXIII annexed hereto, as such ------------- Holdings Security Agreement may thereafter be amended, supplemented or otherwise modified from time to time as permitted thereunder and hereunder. "Immaterial Subsidiaries" means, with respect to any Person, any Subsidiary or Subsidiaries of such Person the assets of which constitute, individually or in the aggregate, less than 5% of the total assets of such Person and its Subsidiaries. "Indebtedness", as applied to any Person, means (i) all indebtedness for borrowed money, (ii) that portion of obligations with respect to Capital Leases that is properly classified as a liability on a balance sheet in conformity with GAAP, (iii) notes payable and drafts accepted representing extensions of credit whether or not representing obligations for borrowed money, (iv) any obligation owed for all or any part of the deferred purchase price of property or services (excluding any such obligations incurred under ERISA and any accrued expenses or trade payables), (a) which obligation in accordance with GAAP would be shown as a liability on the balance sheet of such Person or (b) which purchase price is evidenced by a note or similar written instrument, and (v) all indebtedness secured by any Lien on any property or asset owned or held by that Person regardless of whether the indebtedness secured thereby shall have been assumed by that Person or is nonrecourse to the credit of that Person. The amount of any Indebtedness which is non-recourse to the obligor thereunder or to any other obligor and for which recourse is limited to an identified asset or assets shall be equal to the lesser of (1) the stated amount of such obligation and (2) the fair market value of such asset or assets. Obligations under Interest Rate Agreements and Currency Agreements constitute (X) in the case of Hedge Agreements, Contingent Obligations, and (Y) in all other cases, Investments, and in neither case constitute Indebtedness. 23 "Indemnitee" has the meaning assigned to that term in subsection 10.3. "Independent Public Accountant" means any of the five largest public accounting firms in the United States selected by Holdings. "Initial Period" means the period commencing on and including the Closing Date and ending on (but excluding) the earlier of (i) the date on which Syndication Agent notifies Company that it has concluded its primary syndication of the Loans and Commitments and (ii) the date which is 30 days after the Closing Date. "Intellectual Property" means all patents, trademarks, tradenames, copyrights, technology, know-how and processes which are used in the conduct of the business of Holdings and its Subsidiaries as currently conducted that are material to the condition (financial or otherwise), business or operations of Holdings and its Subsidiaries, taken as a whole. "Intercreditor Agreement" means that certain Intercreditor Agreement executed and delivered by Administrative Agent, Morgan Guaranty, as administrative agent for lenders under the AXEL Credit Agreement, and Collateral Agent on the Closing Date, substantially in the form of Exhibit ------- XIII annexed hereto, as such Intercreditor Agreement may thereafter be ---- amended, supplemented or otherwise modified from time to time as permitted thereunder and hereunder. "Interest Payment Date" means (i) with respect to any Base Rate Loan, each February 28, May 31, August 31 and November 30 of each year, commencing on the first such date to occur after the Closing Date, and (ii) with respect to any Eurodollar Rate Loan, the last day of each Interest Period applicable to such Loan; provided that in the case of each Interest -------- Period of longer than three months, "Interest Payment Date" shall also include each date that is three months, or an integral multiple thereof, after the commencement of such Interest Period. "Interest Period" has the meaning assigned to that term in subsection 2.2B. "Interest Rate Agreement" means any interest rate swap agreement, interest rate cap agreement, interest rate collar agreement or other similar agreement or arrangement to which Holdings or any of its Subsidiaries is a party. "Interest Rate Determination Date" means, with respect to any Interest Period, the second Business Day prior to the first day of such Interest Period. "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended to the date hereof and from time to time hereafter, and any successor statute, and the regulations promulgated by the Internal Revenue Service thereunder. 24 "Inventory" means, with respect to any Person as of any date of determination, all goods, merchandise and other personal property which are then held by such Person for sale or lease, including raw materials and work in process. "Investment" means (i) any direct or indirect purchase or other acquisition by Holdings or any of its Subsidiaries of, or of a beneficial interest in, any Securities of any other Person (including any Subsidiary of Holdings), (ii) any direct or indirect redemption, retirement, purchase or other acquisition for value, by any Subsidiary of Holdings from any Person other than Holdings or any of its Subsidiaries, of any equity Securities of such Subsidiary, (iii) any direct or indirect loan, advance (other than advances to employees for moving, entertainment and travel expenses, drawing accounts and similar expenditures in the ordinary course of business) or capital contribution by Holdings or any of its Subsidiaries to any other Person, including all indebtedness and accounts receivable from that other Person that are not current assets or did not arise from sales to that other Person in the ordinary course of business, or (iv) Interest Rate Agreements or Currency Agreements not constituting Hedge Agreements. The amount of any Investment shall be the original cost of such Investment plus the cost of all additions thereto, without any adjustments for increases or decreases in value, or write-ups, write-downs or write- offs with respect to such Investment. "IP Collateral" means, collectively, the Collateral under the Company Patent and Trademark Security Agreement and the Subsidiary Patent and Trademark Security Agreement. "Issuing Lender" means, with respect to any Letter of Credit, the Lender which agrees or is otherwise obligated to issue such Letter of Credit, determined as provided in subsection 3.1B(ii). "Joint Venture" means a joint venture, partnership or other similar arrangement, whether in corporate, partnership or other legal form; provided that in no event shall any corporate Subsidiary of any Person be -------- considered to be a Joint Venture to which such Person is a party. "Junior Subordinated Seller Notes" means the Junior Subordinated Seller Notes issued in the initial principal amount of $25,000,000 on the Closing Date by Holdings in favor of Zell, and any additional amount of such notes as are permitted to be issued hereunder, as such notes may be amended from time to time to the extent permitted under subsection 7.14C. "Landlord Consent and Estoppel" means, with respect to any Leasehold Property, a letter, certificate or other instrument in writing from the lessor under the related lease, reasonably satisfactory in form and substance to Administrative Agent, pursuant to which such lessor substantially agrees, for the benefit of Administrative Agent, (i) that without any further consent of such lessor or any further action on the part of the Loan Party holding such Leasehold Property, such Leasehold Property may be 25 encumbered pursuant to a Mortgage and may be assigned to the purchaser at a foreclosure sale or in a transfer in lieu of such a sale (and to a subsequent third party assignee if Administrative Agent, any Lender, or an Affiliate of either so acquires such Leasehold Property), (ii) that such lessor shall not terminate such lease as a result of a default by such Loan Party thereunder without first giving Administrative Agent notice of such default and at least 60 days (or, if such default cannot reasonably be cured by Administrative Agent within such period, such longer period as may reasonably be required) to cure such default, (iii) to the matters contained in a Collateral Access Agreement, and (iv) to such other matters relating to such Leasehold Property as Administrative Agent may reasonably request; provided, however, that Administrative Agent may determine in its -------- ------- reasonable discretion that any one or more of the agreements set forth in clauses (i) through (iv) are not required to be included in a Landlord Consent and Estoppel with respect to a particular Leasehold Property. "Leasehold Property" means any leasehold interest of any Loan Party as lessee under any lease of real property, other than any such leasehold interest designated from time to time by Administrative Agent in its reasonable discretion as not being required to be included in the Collateral. "Lender" and "Lenders" means the persons identified as "Lenders" and listed on the signature pages of this Agreement, together with their successors and permitted assigns pursuant to subsection 10.1, and the term "Lenders" shall include Swing Line Lender unless the context otherwise requires; provided that the term "Lenders", when used in the context of a -------- particular Commitment, shall mean Lenders having that Commitment. "Letter of Credit" or "Letters of Credit" means Commercial Letters of Credit and Standby Letters of Credit issued or to be issued by Issuing Lenders for the account of Company pursuant to subsection 3.1. "Letter of Credit Usage" means, as at any date of determination, the sum of (i) the maximum aggregate amount which is or at any time thereafter may become available for drawing under all Letters of Credit then outstanding plus (ii) the aggregate amount of all drawings under Letters of ---- Credit honored by Issuing Lenders and not theretofore reimbursed by Company (including any such reimbursement out of the proceeds of Revolving Loans pursuant to subsection 3.3B). For purposes of this definition, any amount described in clause (i) or (ii) of the preceding sentence which is denominated in a currency other than Dollars shall be valued based on the applicable Exchange Rate for such currency as of the applicable date of determination. "Leverage Ratio" means the ratio of (i) Consolidated Total Debt as of the last day of any Fiscal Quarter to (ii) Consolidated Adjusted EBITDA for the four-Fiscal Quarter period then ended, in each case as set forth in the most recent Compliance Certificate delivered by Company to Administrative Agent pursuant to clause (iv) of subsection 6.1; provided, -------- however, that with respect to any period during which a ------- 26 Permitted Acquisition occurs, for purposes of calculating the Leverage Ratio under subsections 2.4B(iii)(a), (b), (e) and (f) and in the definition of Applicable Leverage Ratio, Consolidated Adjusted EBITDA shall be determined in accordance with the provisions of subsection 7.6D, except that any cost savings that would otherwise be given effect in calculating Consolidated Adjusted EBITDA as a result of such provisions shall not be given effect until such cost savings are actually realized. "Lien" means any lien, mortgage, pledge, assignment, security interest, charge or encumbrance of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof, and any agreement to give any security interest) and any option, trust or other preferential arrangement having the practical effect of any of the foregoing. "Loan" or "Loans" means one or more of the Tranche A Term Loans, Revolving Loans or Swing Line Loans or any combination thereof. "Loan Documents" means this Agreement, the Notes, the Letters of Credit (and any applications for, or reimbursement agreements or other documents or certificates executed by Company in favor of an Issuing Lender relating to, the Letters of Credit), the Guaranties and the Collateral Documents. "Loan Party" means each of Holdings, Company and any of Company's Subsidiaries from time to time executing a Loan Document, and "Loan Parties" means all such Persons, collectively. "Management Investors" means certain management officers and employees of Holdings and its Subsidiaries disclosed to Syndication Agent and Administrative Agent. "Margin Stock" has the meaning assigned to that term in Regulation U of the Board of Governors of the Federal Reserve System as in effect from time to time. "Material Adverse Effect" means (i) a material adverse effect upon the business, operations, properties, assets, condition (financial or otherwise) or prospects of Holdings and its Subsidiaries, taken as a whole, or (ii) the impairment of the ability of any Loan Party to perform, or of Administrative Agent, Collateral Agent or Lenders to enforce, the Obligations; provided that consummation of the Recapitalization -------- Transactions in accordance with the terms of the Recapitalization Agreement shall not be deemed to have a Material Adverse Effect for purposes of subsection 5.4. "Material Contract" means any contract or arrangement to which Holdings or any of its Subsidiaries is a party (other than the Loan Documents) for which breach, nonperformance, cancellation or failure to renew would reasonably be expected to have a Material Adverse Effect. 27 "Material Leasehold Property" means a Leasehold Property reasonably determined by Administrative Agent to be of material value as Collateral or of material importance to the operations of Holdings or any of its Subsidiaries; provided, however, that, excepting any such Leasehold -------- ------- Properties set forth on Schedule 4.1I annexed hereto, no Leasehold Property ------------- with respect to which the aggregate amount of all rents payable during any one Fiscal Year never exceeds $250,000 shall be a "Material Leasehold Property". "Merger" means the merger of Merger Corp. with and into Holdings in accordance with the terms of the Recapitalization Agreement and the Certificate of Merger, with Holdings being the surviving corporation in such merger. "Merger Corp." has the meaning assigned to that term in the recitals of this Agreement. "MIS Upgrade Expenditures" means expenditures relating to the upgrade of Company's MIS systems to the extent these expenditures would have been capitalized by Holdings and its Subsidiaries in accordance with their accounting policies in effect on the Closing Date. "Morgan Guaranty" has the meaning assigned to that term in the introduction to this Agreement. "Mortgage" means (i) a security instrument (whether designated as a deed of trust or a mortgage or by any similar title) executed and delivered by any Loan Party, substantially in the form of Exhibit XXIV annexed hereto ------------ or in such other form as may be approved by Administrative Agent in its reasonable discretion, in each case with such changes thereto as may be recommended by Administrative Agent's local counsel based on local laws or customary local mortgage or deed of trust practices, or (ii) at Administrative Agent's option, in the case of an Additional Mortgaged Property, an amendment to an existing Mortgage, in form reasonably satisfactory to Administrative Agent, adding such Additional Mortgaged Property to the Real Property Assets encumbered by such existing Mortgage, in either case as such security instrument or amendment may be amended, supplemented or otherwise modified from time to time. "Mortgages" means all such instruments, including the Closing Date Mortgages and any Additional Mortgages, collectively. "Mortgaged Property" means a Closing Date Mortgaged Property or an Additional Mortgaged Property. "Multiemployer Plan" means any Employee Benefit Plan which is a "multiemployer plan" as defined in Section 3(37) of ERISA. "NAIC" means the National Association of Insurance Commissioners. 28 "Net Asset Sale Proceeds" means, with respect to any Asset Sale, Cash payments (including any Cash received by way of deferred payment pursuant to, or by monetization of, a note receivable or otherwise, but only as and when so received) received from such Asset Sale, net of any bona fide costs incurred in connection with such Asset Sale, including (i) income taxes reasonably estimated to be actually payable within two years of the date of such Asset Sale as a result of any gain recognized in connection with such Asset Sale and (ii) payment of the outstanding principal amount of, premium or penalty, if any, and interest on any Indebtedness (other than the Loans) that is secured by a Lien on the stock or assets in question and that is repaid as a result of such Asset Sale. "Net Insurance/Condemnation Proceeds" means any Cash payments or proceeds received by Holdings or any of its Subsidiaries (i) under any business interruption or casualty insurance policy in respect of a covered loss thereunder or (ii) as a result of the taking of any assets of Holdings or any of its Subsidiaries by any Person pursuant to the power of eminent domain, condemnation or otherwise, or pursuant to a sale of any such assets to a purchaser with such power under threat of such a taking, in each case net of any actual and documented costs incurred by Holdings or any of its Subsidiaries in connection with the adjustment or settlement of any claims of Holdings or such Subsidiary in respect thereof. "New Business" means any assets or business acquired by Company or any of its Subsidiaries in a Permitted Acquisition. "New Business EBITDA" means Consolidated Adjusted EBITDA attributable to any New Business for the twelve-month period most recently preceding the date of such acquisition. Consolidated Adjusted EBITDA shall, for purposes of this definition, (i) be calculated with respect to such twelve-month period and the acquired Subsidiaries, assets or businesses on a pro forma basis (including pro forma adjustments (x) arising out of events which are directly attributable to a specific transaction, are factually supportable and are expected to have a continuing impact, in each case determined on a basis consistent with Article 11 of Regulation S-X promulgated under the Securities Act, as interpreted by the staff of the Securities and Exchange Commission as of January 1, 1997, which would include cost savings resulting from head count reduction, closure of facilities and similar restructuring charges, and (y) similar cost savings resulting from actions taken by management of the New Business during the six-month period immediately preceding such acquisition that are supportable and quantifiable by the underlying accounting records of such business, which pro forma adjustments shall be certified by the principal financial officer or principal accounting officer of Company) using the historical financial statements of all entities or assets so acquired or to be acquired, which shall be reformulated (a) as if such acquisition and any Indebtedness or other liabilities incurred in connection with such acquisition had been consummated or incurred at the beginning of such period (and assuming that such Indebtedness bears interest during any portion of the applicable measurement period prior to the relevant acquisition at the weighted average of the interest rates applicable to outstanding Loans 29 during such period), and (b) otherwise in conformity with certain procedures to be agreed upon between Administrative Agent and Company, all such calculations to be in form and substance reasonably satisfactory to Administrative Agent, and (ii) be calculated with respect to such New Business as if all references to Holdings and its Subsidiaries in the definitions of Consolidated Adjusted EBITDA and its components were references to such New Business for such period. "New Sub Debt Indentures" means, collectively, the Senior Subordinated Note Indenture and the Discount Note Indenture. "Notes" means one or more of the Tranche A Term Notes, Revolving Notes or Swing Line Note or any combination thereof. "Notice of Borrowing" means a notice substantially in the form of Exhibit I annexed hereto delivered by Company to Administrative Agent --------- pursuant to subsection 2.1B with respect to a proposed borrowing. "Notice of Conversion/Continuation" means a notice substantially in the form of Exhibit II annexed hereto delivered by Company to ---------- Administrative Agent pursuant to subsection 2.2D with respect to a proposed conversion or continuation of the applicable basis for determining the interest rate with respect to the Loans specified therein. "Notice of Issuance of Letter of Credit" means a notice substantially in the form of Exhibit III annexed hereto delivered by ----------- Company to Administrative Agent pursuant to subsection 3.1B(i) with respect to the proposed issuance of a Letter of Credit. "Obligations" means all obligations of every nature of each Loan Party from time to time owed to Agents, Lenders or their respective Affiliates or any of them under the Loan Documents, whether for principal, interest, reimbursement of amounts drawn under Letters of Credit, fees, expenses, indemnification or otherwise. "Officers" Certificate" means, as applied to any corporation, a certificate executed on behalf of such corporation by its chairman of the board (if an officer) or its president or one of its vice presidents and by its principal financial officer or principal accounting officer or its treasurer; provided that every Officers' Certificate with respect to the -------- compliance with a condition precedent to the making of any Loans hereunder shall include (i) a statement that the officer or officers making or giving such Officers' Certificate have read such condition and any definitions or other provisions contained in this Agreement relating thereto, (ii) a statement that, in the opinion of the signers, they have made or have caused to be made such examination or investigation as is necessary to enable them to express an informed opinion as to whether or not such condition has been complied with, and (iii) a statement as to whether, in the opinion of the signers, such condition has been complied with. 30 "Operating Lease" means, as applied to any Person, any lease (including leases that may be terminated by the lessee at any time) of any property (whether real, personal or mixed) that is not a Capital Lease other than any such lease under which that Person is the lessor. "Other Investors" means Harvard Private Capital Holdings, Inc., BancBoston Investments, Inc., Chase Equity Associates, L.P. and CIBC WG Argosy Merchant Fund 2, L.L.C.. "Other MIS Expenditures" means all expenditures, other than MIS Upgrade Expenditures, EITF 97-13 Expenditures and Year 2000 Expenditures, relating to Holdings' and its Subsidiaries' MIS systems. "PBGC" means the Pension Benefit Guaranty Corporation or any successor thereto. "Pension Plan" means any Employee Benefit Plan, other than a Multiemployer Plan, which is subject to Section 412 of the Internal Revenue Code or Section 302 of ERISA. "Permitted Acquisition" means the acquisition of assets or a business effected in accordance with the provisions of subsection 7.7(xiv). "Permitted Encumbrances" means the following types of Liens (excluding any such Lien imposed pursuant to Section 401(a)(29) or 412(n) of the Internal Revenue Code or by ERISA, any such Lien relating to or imposed in connection with any Environmental Claim, and any such Lien expressly prohibited by any applicable terms of any of the Collateral Documents): (i) Liens for taxes, assessments or governmental charges or claims the payment of which is not, at the time, required by subsection 6.3; (ii) statutory Liens of landlords, statutory Liens of banks and rights of set-off, statutory Liens of carriers, warehousemen, mechanics, repairmen, workmen and materialmen, and other Liens imposed by law, in each case incurred in the ordinary course of business (a) for amounts not yet overdue or (b) for amounts that are overdue and that (in the case of any such amounts overdue for a period in excess of 5 days) are being contested in good faith by appropriate proceedings, so long as (1) such reserves or other appropriate provisions, if any, as shall be required by GAAP shall have been made for any such contested amounts, and (2) in the case of a Lien with respect to any portion of the Collateral, such contest proceedings conclusively operate to stay the sale of any portion of the Collateral on account of such Lien; 31 (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, or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, government contracts, trade contracts, performance and return-of-money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money), so long as no foreclosure, sale or similar proceedings have been commenced with respect to any portion of the Collateral on account thereof; (iv) any attachment or judgment Lien not constituting an Event of Default under subsection 8.8; (v) leases or subleases granted to third parties in accordance with any applicable terms of the Collateral Documents and not interfering in any material respect with the ordinary conduct of the business of Holdings or any of its Subsidiaries or resulting in a material diminution in the value of any Collateral as security for the Obligations; (vi) easements, rights-of-way, restrictions, encroachments, and other defects or irregularities in title, in each case which do not and will not interfere in any material respect with the ordinary conduct of the business of Holdings or any of its Subsidiaries or result in a material diminution in the value of any Collateral as security for the Obligations; (vii) any (a) interest or title of a lessor or sublessor under any lease permitted by subsection 7.8, (b) restriction or encumbrance that the interest or title of such lessor or sublessor may be subject to, or (c) subordination of the interest of the lessee or sublessee under such lease to any restriction or encumbrance referred to in the preceding clause (b), so long as the holder of such restriction or encumbrance agrees to recognize the rights of such lessee or sublessee under such lease; (viii) Liens arising from filing UCC financing statements relating solely to leases permitted by this Agreement; (ix) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods; (x) any zoning or similar law or right reserved to or vested in any governmental office or agency to control or regulate the use of any real property; (xi) Liens securing obligations (other than obligations representing Indebtedness for borrowed money) under operating, reciprocal easement or 32 similar agreements entered into in the ordinary course of business of Holdings and its Subsidiaries; (xii) licenses of patents, trademarks and other intellectual property rights granted by Holdings or any of its Subsidiaries in the ordinary course of business and not interfering in any material respect with the ordinary conduct of the business of Holdings or such Subsidiary; and (xiii) Liens existing on the Closing Date and described in the Closing Date Mortgage Policies. "Permitted Seller Note" means a promissory note containing subordination provisions in substantially the form of, or no less favorable to Lenders (in the reasonable judgment of Administrative Agent) than the subordination provisions contained in, Exhibit XXVI annexed hereto, ------------ representing any Indebtedness of Company incurred in connection with any Permitted Acquisition payable to the seller in connection therewith, as such note may be amended, supplemented or otherwise modified from time to time to the extent permitted under subsection 7.14B; provided that no -------- Permitted Seller Note shall (i) be guarantied by any Subsidiary of Company or secured by any property of Company or any of its Subsidiaries or (ii) bear cash interest at a rate no greater than 15% per annum; and provided further, that no Permitted Seller Note shall provide for any -------- ------- prepayment or repayment of all or any portion of the principal thereof prior to the date of the final scheduled installment of principal of any of the Loans. "Person" means and includes natural persons, corporations, limited partnerships, general partnerships, limited liability companies, limited liability partnerships, joint stock companies, Joint Ventures, associations, companies, trusts, banks, trust companies, land trusts, business trusts or other organizations, whether or not legal entities, and governments (whether federal, state or local, domestic or foreign, and including political subdivisions thereof) and agencies or other administrative or regulatory bodies thereof. "Pledged Collateral" means, collectively, the "Pledged Collateral" as defined in the Holdings Pledge Agreement, the Company Pledge Agreement and the Subsidiary Pledge Agreement. "Potential Event of Default" means a condition or event that, after notice or lapse of time or both, would constitute an Event of Default. "Pro Rata Share" means (i) with respect to all payments, computations and other matters relating to the Tranche A Term Loan Commitment or the Tranche A Term Loan of any Lender, the percentage obtained by dividing -------- (x) the Tranche A Term Loan Exposure of that Lender by (y) the aggregate -- Tranche A Term Loan Exposure of all Lenders, (ii) with respect to all payments, computations and other matters relating to the Revolving Loan Commitment or the Revolving Loans of any Lender or any Letters of Credit issued or participations therein purchased by any Lender or any participations in 33 any Swing Line Loans purchased by any Lender, the percentage obtained by dividing (x) the Revolving Loan Exposure of that Lender by (y) the -------- -- aggregate Revolving Loan Exposure of all Lenders, and (iii) for all other purposes with respect to each Lender, the percentage obtained by dividing -------- (x) the sum of the Tranche A Term Loan Exposure of that Lender plus the ---- Revolving Loan Exposure of that Lender by (y) the aggregate Tranche A Term -- Loan Exposure of all Lenders plus the aggregate Revolving Loan Exposure of ---- all Lenders, in any such case as the applicable percentage may be adjusted by assignments permitted pursuant to subsection 10.1. The initial Pro Rata Share of each Lender for purposes of each of clauses (i), (ii) and (iii) of the preceding sentence is set forth opposite the name of that Lender in Schedule 2.1 annexed hereto. ------------ "PTO" means the United States Patent and Trademark Office or any successor or substitute office in which filings are necessary in order to create or perfect Liens on any IP Collateral. "Real Property Asset" means, at any time of determination, any interest then owned by any Loan Party in any real property. "Recapitalization Agreement" means that certain Agreement and Plan of Merger dated as of October 30, 1997, by and among Holdings, Merger Corp. and Zell, in the form delivered to Syndication Agent, Administrative Agent and Lenders prior to their execution of this Agreement and as such agreement may be amended from time to time thereafter to the extent permitted under subsection 7.14A. "Recapitalization Financing Requirements" means the aggregate of all amounts necessary to finance the Recapitalization Transactions. "Recapitalization Revolving Loans" has the meaning assigned to that term in subsection 2.5A. "Recapitalization Transactions" means the series of transactions described in Schedule 1.1(ii) annexed hereto, together with (i) the ---------------- contribution by Holdings to Company of the capital stock of each of the Subsidiaries of Holdings indicated on such Schedule, (ii) the repurchase of the Existing Subordinated Notes pursuant to the Debt Tender Offer and the repayment of all amounts outstanding under the Existing Credit Agreement, (iii) the amendment of the Existing Subordinated Note Indenture pursuant to the Consent Solicitation, (iv) the Merger, and (v) the payment of Transaction Costs and the other transactions contemplated by the Recapitalization Agreement. "Recorded Leasehold Interest" means a Leasehold Property with respect to which a Record Document (as hereinafter defined) has been recorded in all places necessary or desirable, in Administrative Agent's reasonable judgment, to give constructive notice of such Leasehold Property to third-party purchasers and encumbrancers of the affected real property. For purposes of this definition, the term "Record Document" means, with respect to any Leasehold Property, (a) the lease 34 evidencing such Leasehold Property or a memorandum thereof, executed and acknowledged by the owner of the affected real property, as lessor, or (b) if such Leasehold Property was acquired or subleased from the holder of a Recorded Leasehold Interest, the applicable assignment or sublease document, executed and acknowledged by such holder, in each case in form sufficient to give such constructive notice upon recordation and otherwise in form reasonably satisfactory to Administrative Agent. "Reference Lenders" means Morgan Guaranty and BTCo. "Refunded Swing Line Loans" has the meaning assigned to that term in subsection 2.1A(iii). "Register" has the meaning assigned to that term in subsection 2.1D. "Regulation D" means Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Reimbursement Date" has the meaning assigned to that term in subsection 3.3B. "Related Agreements" means, collectively, the Recapitalization Agreement, the Certificate of Merger, the Stockholders Agreement, the Junior Subordinated Seller Notes, the New Sub Debt Indentures, the Discount Notes, the Senior Subordinated Notes, the Existing Subordinated Note Indenture, the Existing Subordinated Notes and the Debt Tender Offer Materials. "Release" means any release, spill, emission, leaking, pumping, pouring, injection, escaping, deposit, disposal, discharge, dispersal, dumping, leaching or migration of Hazardous Materials into the indoor or outdoor environment (including the abandonment or disposal of any barrels, containers or other closed receptacles containing any Hazardous Materials), including the migration of any Hazardous Materials through the air, soil, surface water or groundwater. "Requisite Class Lenders" means, at any time of determination (i) for the Class of Lenders having Tranche A Term Loan Exposure, Lenders having or holding at least 51% of the sum of the aggregate Tranche A Term Loan Exposure of all Lenders, and (ii) for the Class of Lenders having Revolving Loan Exposure, Lenders having or holding at least 51% of the sum of the aggregate Revolving Loan Exposure of all Lenders. "Requisite Lenders" means Lenders having or holding more than 50% of the sum of the aggregate Tranche A Term Loan Exposure of all Lenders plus ---- the aggregate Revolving Loan Exposure of all Lenders. "Responsible Officer" means any of the chairman of the board (if an officer), the president, any senior or executive vice president, the general counsel, its principal 35 financial officer or principal accounting officer, the secretary or the treasurer of Holdings or, as applicable, any Subsidiary of Holdings. "Restricted Junior Payment" means (i) any dividend or other distribution, direct or indirect, on account of any shares of any class of stock of Holdings or Company now or hereafter outstanding, except a dividend payable solely in shares of that class of stock to the holders of that class, (ii) any redemption, retirement, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of any shares of any class of stock of Holdings or Company now or hereafter outstanding, (iii) any payment made to retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire shares of any class of stock of Holdings or Company now or hereafter outstanding, and (iv) any payment or prepayment of principal of, premium, if any, or interest on, or redemption, purchase, retirement, defeasance (including in- substance or legal defeasance), sinking fund or similar payment with respect to, any Subordinated Indebtedness. "Revolving Loan Commitment" means the commitment of a Lender to make Revolving Loans to Company pursuant to subsection 2.1A(ii), and "Revolving Loan Commitments" means such commitments of all Lenders in the aggregate. "Revolving Loan Commitment Termination Date" means the earlier of (i) December 15, 2002 and (ii) the date of termination in whole of the Revolving Loan Commitments pursuant to subsection 2.4B or Section 8. "Revolving Loan Exposure" means, with respect to any Lender as of any date of determination (i) prior to the termination of the Revolving Loan Commitments, that Lender's Revolving Loan Commitment plus the ---- outstanding principal amount of any Acquisition Loans of that Lender and (ii) after the termination of the Revolving Loan Commitments, the sum of (a) the aggregate outstanding principal amount of the Revolving Loans of that Lender plus (b) in the event that Lender is an Issuing Lender, the ---- aggregate Letter of Credit Usage in respect of all Letters of Credit issued by that Lender (in each case net of any participations purchased by other Lenders in such Letters of Credit or any unreimbursed drawings thereunder) plus (c) the aggregate amount of all participations purchased by that ---- Lender in any outstanding Letters of Credit or any unreimbursed drawings under any Letters of Credit plus (d) in the case of Swing Line Lender, the ---- aggregate outstanding principal amount of all Swing Line Loans (net of any participations therein purchased by other Lenders) plus (e) the aggregate ---- amount of all participations purchased by that Lender in any outstanding Swing Line Loans. "Revolving Loans" means the Loans made by Lenders to Company pursuant to subsection 2.1A(ii). "Revolving Notes" means any promissory notes of Company issued pursuant to subsection 2.1E to evidence the Revolving Loans of any Lenders, substantially in the 36 form of Exhibit VIII annexed hereto, as they may be amended, supplemented ------------ or otherwise modified from time to time. "Secured Parties" has the meaning assigned to that term in the Intercreditor Agreement. "Securities" means any stock, shares, partnership interests, voting trust certificates, certificates of interest or participation in any profit-sharing agreement or arrangement, options, warrants, bonds, debentures, notes, or other evidences of indebted ness, secured or unsecured, convertible, subordinated or otherwise, or in general any instruments commonly known as "securities" or any certificates of interest, shares or participations in temporary or interim certificates for the purchase or acquisition of, or any right to subscribe to, purchase or acquire, any of the foregoing. "Securities Act" means the Securities Act of 1933, as amended from time to time, and any successor statute. "Senior Subordinated Note Indenture" means the indenture pursuant to which the Senior Subordinated Notes are issued, as such indenture may be amended from time to time to the extent permitted under subsection 7.14B. "Senior Subordinated Notes" means the $125,000,000 in aggregate principal amount of 9-7/8% Senior Subordinated Notes due December 15, 2007 of Company issued pursuant to the Senior Subordinated Note Indenture. "Shareholder Subordinated Note" shall mean an unsecured junior subordinated note issued by Holdings (and not guaranteed or supported in any way by Company or any of its Subsidiaries) containing subordination provisions substantially in the form of, or no less favorable to Lenders (in the reasonable judgment of Administrative Agent) than the subordination provisions contained in Exhibit XXVI annexed hereto, as such note may be ------------ amended, supplemented or otherwise modified from time to time to the extent permitted under subsection 7.14B. "Solvent" means, with respect to any Person, that as of the date of determination both (A) (i) the then fair saleable value of the property (sold as a going concern) of such Person is (y) greater than the total amount of liabilities (including contingent liabilities) of such Person and (z) not less than the amount that will be required to pay the probable liabilities on such Person's then existing debts as they become absolute and matured considering all financing alternatives and potential asset sales reasonably available to such Person; (ii) such Person's capital is not unreasonably small in relation to its business or any contemplated or undertaken transaction; and (iii) such Person does not intend to incur, or believe (nor should it reasonably believe) that it will incur, debts beyond its ability to pay such debts as they become due; and (B) such Person is "solvent" within the meaning given that term and similar terms under applicable laws relating to fraudulent transfers and conveyances. For purposes of this definition, the amount of any 37 contingent liability at any time shall be computed as the amount that, in light of all of the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability. "Standby Letter of Credit" means any standby letter of credit or similar instrument issued for the purpose of supporting (i) Indebtedness of Holdings or any of its Subsidiaries in respect of industrial revenue or development bonds or financings, (ii) workers' compensation liabilities of Holdings or any of its Subsidiaries, (iii) the obligations of third party insurers of Holdings or any of its Subsidiaries arising by virtue of the laws of any jurisdiction requiring third party insurers, (iv) obligations with respect to Capital Leases or Operating Leases of Holdings or any of its Subsidiaries, (v) performance, payment, deposit or surety obligations of Holdings or any of its Subsidiaries, in any case if required by law or governmental rule or regulation or in accordance with custom and practice in the industry, and (vi) such other obligations of Company and its Subsidiaries as are reasonably acceptable to Administrative Agent and the Issuing Lender and otherwise permitted to exist pursuant to the terms of this Agreement; provided that Standby Letters of Credit may not be issued -------- for the purpose of supporting (a) trade payables or (b) any Indebtedness constituting "antecedent debt" (as that term is used in Section 547 of the Bankruptcy Code). "Stockholders Agreement" means that certain Stockholders Agreement by and among Holdings, Bain, the Other Investors, Zell and the Management Investors, in the form delivered to Syndication Agent, Administrative Agent and Lenders prior to their execution of this Agreement and as such agreement may be amended from time to time thereafter to the extent permitted under subsection 7.14A. "Subordinated Indebtedness" means (i) the Indebtedness of Company evidenced by the Senior Subordinated Notes and the Discount Notes, (ii) the Indebtedness of Holdings evidenced by the Junior Subordinated Seller Notes and any Existing Subordinated Notes not tendered pursuant to the Debt Tender Offer, (iii) the Indebtedness of Company evidenced by any Permitted Seller Notes and Shareholder Subordinated Notes, and (iv) any other Indebtedness of Holdings, Company or any of their Subsidiaries subordinated in right of payment to the Obligations pursuant to documentation containing maturities, amortization schedules, covenants, defaults, remedies, subordination provisions and other material terms in form and substance reasonably satisfactory to Administrative Agent and Requisite Lenders. "Subsidiary" means, with respect to any Person, any corporation, partnership, limited liability company, association, joint venture or other business entity of which more than 50% of the total voting power of shares of stock or other ownership interests entitled (without regard to the occurrence of any contingency) to vote in the election of the Person or Persons (whether directors, managers, trustees or other Persons performing similar functions) having the power to direct or cause the direction of the management and policies thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof. 38 "Subsidiary Guarantor" means any Subsidiary of Holdings, other than Company, that executes and delivers a counterpart of the Subsidiary Guaranty on the Closing Date or from time to time thereafter pursuant to subsection 6.8. "Subsidiary Guaranty" means the Subsidiary Guaranty executed and delivered by all Subsidiaries of Holdings (other than Company and the Excluded Subsidiaries) on the Closing Date and to be executed and delivered by additional Subsidiaries of Holdings from time to time thereafter in accordance with subsection 6.8, substantially in the form of Exhibit XVII ------------ annexed hereto, as such Subsidiary Guaranty may hereafter be amended, supplemented or otherwise modified from time to time as permitted thereunder and hereunder. "Subsidiary Patent and Trademark Security Agreement" means each Subsidiary Patent and Trademark Security Agreement executed and delivered by each existing Subsidiary Guarantor and Collateral Agent on the Closing Date and executed and delivered by any additional Subsidiary Guarantor from time to time thereafter in accordance with subsection 6.8, substantially in the form of Exhibit XX annexed hereto, as such Subsidiary Patent and ---------- Trademark Security Agreement may be amended, supplemented or otherwise modified from time to time as permitted thereunder and hereunder. "Subsidiary Pledge Agreement" means the Subsidiary Pledge Agreement executed and delivered by each existing Subsidiary Guarantor and Collateral Agent on the Closing Date and executed and delivered by any additional Subsidiary Guarantor from time to time thereafter in accordance with subsection 6.8, substantially in the form of Exhibit XVIII annexed hereto, ------------- as such Subsidiary Pledge Agreement may be amended, supplemented or otherwise modified from time to time as permitted thereunder and hereunder. "Subsidiary Security Agreement" means the Subsidiary Security Agreement executed and delivered by each existing Subsidiary Guarantor and Collateral Agent on the Closing Date or executed and delivered by any additional Subsidiary Guarantor from time to time thereafter in accordance with subsection 6.8, substantially in the form of Exhibit XIX annexed ----------- hereto, as such Subsidiary Security Agreement may be amended, supplemented or otherwise modified from time to time as permitted thereunder and hereunder. "Supplemental Collateral Agent" has the meaning assigned to that term in subsection 9.1D. "Swing Line Lender" means Morgan Guaranty, or any Person serving as a successor Administrative Agent hereunder, in its capacity as Swing Line Lender hereunder. 39 "Swing Line Loan Commitment" means the commitment of Swing Line Lender to make Swing Line Loans to Company pursuant to subsection 2.1A(iii). "Swing Line Loans" means the Loans made by Swing Line Lender to Company pursuant to subsection 2.1A(iii). "Swing Line Note" means any promissory note of Company issued pursuant to subsection 2.1E to evidence the Swing Line Loans of Swing Line Lender, substantially in the form of Exhibit IX annexed hereto, as it may ---------- be amended, supplemented or otherwise modified from time to time. "Syndication Agent" has the meaning assigned to that term in the introduction to this Agreement. "Tax" or "Taxes" means any present or future tax, levy, impost, duty, charge, fee, deduction or withholding of any nature and whatever called, by whomsoever, on whomsoever and wherever imposed, levied, collected, withheld or assessed; provided that "Tax on the overall net -------- income" of a Person shall be construed as a reference to a tax imposed by the jurisdiction in which that Person is organized or in which that Person's principal office (and/or, in the case of a Lender, its lending office) is located or in which that Person (and/or, in the case of a Lender, its lending office) is deemed to be doing business on all or part of the net income, profits or gains (whether worldwide, or only insofar as such income, profits or gains are considered to arise in or to relate to a particular jurisdiction, or otherwise) of that Person (and/or, in the case of a Lender, its lending office). "Title Company" means, collectively, Chicago Title Insurance Company and/or one or more other title insurance companies reasonably satisfactory to Syndication Agent and Administrative Agent. "Total Utilization of Revolving Loan Commitments" means, as at any date of determination, the sum of (i) the aggregate principal amount of all outstanding Revolving Loans (other than Revolving Loans made for the purpose of repaying any Refunded Swing Line Loans or reimbursing the applicable Issuing Lender for any amount drawn under any Letter of Credit but not yet so applied) plus (ii) the aggregate principal amount of all ---- outstanding Swing Line Loans plus (iii) the Letter of Credit Usage. ---- "Tranche A Term Loan" means a Loan made by a Lender to Company as a term loan pursuant to subsection 2.1A(i), and "Tranche A Term Loans" means any such Loan or Loans, collectively. "Tranche A Term Loan Commitment" means the commitment of a Lender to make a Tranche A Term Loan to Company pursuant to subsection 2.1A(i), and "Tranche A Term Loan Commitments" means such commitments of all Lenders in the aggregate. 40 "Tranche A Term Loan Exposure" means, with respect to any Lender as of any date of determination (i) prior to the funding of the Tranche A Term Loans, that Lender's Tranche A Term Loan Commitment and (ii) after the funding of the Tranche A Term Loans, the outstanding principal amount of the Tranche A Term Loan of that Lender. "Tranche A Term Notes" means any promissory notes of Company issued pursuant to subsection 2.1E to evidence the Tranche A Term Loans of any Lenders, substantially in the form of Exhibit IV annexed hereto, as they ---------- may be amended, supplemented or otherwise modified from time to time. "Transaction Costs" means the fees, costs and expenses payable by Holdings and Company in connection with the transactions contemplated by the Loan Documents, the AXEL Credit Documents and the Related Agreements. "UCC" means the Uniform Commercial Code (or any similar or equivalent legislation) as in effect in any applicable jurisdiction. "Year 2000 Expenditures" means expenditures related to addressing Holdings' and its Subsidiaries' Year 2000 Manbase software systems issues. "Zell" means Zell/Chilmark Fund, L.P. 1.2 Accounting Terms; Utilization of GAAP for Purposes of Calculations Under ------------------------------------------------------------------------ Agreement. --------- Except as otherwise expressly provided in this Agreement, all accounting terms not otherwise defined herein shall have the meanings assigned to them in conformity with GAAP. Financial statements and other information required to be delivered by Company to Lenders pursuant to clauses (i), (ii), (iii) and (xiii) of subsection 6.1 shall be prepared in accordance with GAAP as in effect at the time of such preparation (and delivered together with the reconciliation statements provided for in subsection 6.1(v)). Calculations in connection with the definitions, covenants and other provisions of this Agreement shall utilize accounting principles and policies in conformity with those used to prepare the financial statements referred to in subsection 5.3. Notwithstanding the foregoing, except as otherwise specifically provided herein, all computations determining compliance with subsection 2.4 and Section 7, including the definitions used therein, shall utilize accounting principles and policies in effect at the time of the preparation of, and in conformity with those used to prepare, the November 30, 1996 financial statements of Holdings and its Subsidiaries delivered to the Lenders, but shall not give effect to purchase accounting adjustments required or permitted by APB 16 and its interpretations (including non-cash write-ups and non-cash charges relating to inventory, fixed assets and in-process research and development, in each case arising in connection with any Permitted Acquisitions) and APB 17 and its interpretations (including non-cash charges relating to intangibles and goodwill arising in connection with any Permitted Acquisitions). 41 1.3 Other Definitional Provisions and Rules of Construction. ------------------------------------------------------- A. Any of the terms defined herein may, unless the context otherwise requires, be used in the singular or the plural, depending on the reference. B. References to "Sections" and "subsections" shall be to Sections and subsections, respectively, of this Agreement unless otherwise specifically provided. C. The use herein of the word "include" or "including", when following any general statement, term or matter, shall not be construed to limit such statement, term or matter to the specific items or matters set forth immediately following such word or to similar items or matters, whether or not nonlimiting language (such as "without limitation" or "but not limited to" or words of similar import) is used with reference thereto, but rather shall be deemed to refer to all other items or matters that fall within the broadest possible scope of such general statement, term or matter. D. Each reference to a "Fiscal Quarter period" of a specified number of Fiscal Quarters shall be a reference to a period of consecutive Fiscal Quarters of such number. 1.4 Changes in GAAP. --------------- In the event that a change in GAAP or other accounting principles and policies after the date hereof affects in any material respect the calculations of the compliance by Holdings and its Subsidiaries with the covenants contained herein, Lenders, Company and Holdings agree to negotiate in good faith to amend the affected covenants (and related definitions) to compensate for the effect of such changes so that the restrictions, limitations and performance standards effectively imposed by such covenants, as so amended, are substantially identical to the restrictions, limitations and performance standards imposed by such covenants as in effect on the date hereof; provided that if Requisite -------- Lenders, Company and Holdings fail to reach agreement with respect to such amendment within a reasonable period of time following the date of effectiveness of any such change, calculation of compliance by Holdings and its Subsidiaries with the covenants contained herein shall be determined in accordance with GAAP as in effect immediately prior to such change. SECTION 2. AMOUNTS AND TERMS OF COMMITMENTS AND LOANS 2.1 Commitments; Making of Loans; the Register; Notes. ------------------------------------------------- A. Commitments. Subject to the terms and conditions of this Agreement and in reliance upon the representations and warranties of Holdings and Company herein set forth, each Lender hereby severally agrees to make the Loans described in subsections 2.1A(i) and 2.1A(ii) and Swing Line Lender hereby agrees to make the Loans described in subsection 2.1A(iii). 42 (i) Tranche A Term Loans. Each Lender severally agrees to lend to -------------------- Company on the Closing Date an amount not exceeding its Pro Rata Share of the aggregate amount of the Tranche A Term Loan Commitments to be used for the purposes identified in subsection 2.5A. The amount of each Lender's Tranche A Term Loan Commitment is set forth opposite its name on Schedule 2.1 annexed hereto and the aggregate amount of the Tranche A Term ------------ Loan Commitments is $120,000,000; provided that the Tranche A Term Loan Commitments of Lenders shall be adjusted to give effect to any assignments of the Tranche A Term Loan Commitments pursuant to subsection 10.1B. Each Lender's Tranche A Term Loan Commitment shall expire immediately and without further action on February 16, 1998 if the Tranche A Term Loans are not made on or before that date. Company may make only one borrowing under the Tranche A Term Loan Commitments. Amounts borrowed under this subsection 2.1A(i) and subsequently repaid or prepaid may not be reborrowed. (ii) Revolving Loans. Each Lender severally agrees, subject to the --------------- limitations set forth below with respect to the maximum amount of Revolving Loans permitted to be outstanding from time to time, to lend to Company from time to time during the period from the Closing Date to but excluding the Revolving Loan Commitment Termination Date an aggregate amount not exceeding its Pro Rata Share of the aggregate amount of the Revolving Loan Commitments to be used for the purposes identified in subsection 2.5B. The original amount of each Lender's Revolving Loan Commitment is set forth opposite its name on Schedule 2.1 annexed hereto and the aggregate original ------------ amount of the Revolving Loan Commitments is $100,000,000; provided that the -------- Revolving Loan Commitments of Lenders shall be adjusted to give effect to any assignments of the Revolving Loan Commitments pursuant to subsection 10.1B; and provided, further that the amount of the Revolving Loan -------- ------- Commitments shall be reduced from time to time by the amount of any reductions thereto made pursuant to subsections 2.4B(ii) and 2.4B(iii). Each Lender's Revolving Loan Commitment shall expire on the Revolving Loan Commitment Termination Date and all Revolving Loans and all other amounts owed hereunder with respect to the Revolving Loans and the Revolving Loan Commitments shall be paid in full no later than that date; provided that -------- each Lender's Revolving Loan Commitment shall expire immediately and without further action on February 16, 1998 if the Tranche A Term Loans are not made on or before that date. Amounts borrowed under this subsection 2.1A(ii) which are not Acquisition Loans may be repaid and reborrowed to but excluding the Revolving Loan Commitment Termination Date. All Acquisition Loans borrowed under this subsection 2.1A(ii) and subsequently repaid or prepaid may not be reborrowed (and the Revolving Loan Commitments shall be reduced by the principal amount of any Acquisition Loans borrowed). Anything contained in this Agreement to the contrary notwithstanding, the Revolving Loans and the Revolving Loan Commitments shall be subject to the following limitations in the amounts and during the periods indicated: (a) in no event shall the Total Utilization of Revolving Loan Commitments at any time exceed the Revolving Loan Commitments then in effect; and 43 (b) for 30 consecutive days during each consecutive twelve- month period, the sum of (1) the aggregate outstanding principal amount of all Revolving Loans plus (2) the aggregate outstanding ---- principal amount of all Swing Line Loans minus (3) the aggregate ----- outstanding principal amount of all Acquisition Loans, shall not exceed $25,000,000. (iii) Swing Line Loans. Swing Line Lender hereby agrees, subject to ---------------- the limitations set forth below with respect to the maximum amount of Swing Line Loans permitted to be outstanding from time to time, to make a portion of the Revolving Loan Commitments available to Company from time to time during the period from the Closing Date to but excluding the Revolving Loan Commitment Termination Date by making Swing Line Loans to Company in an aggregate amount not exceeding the amount of the Swing Line Loan Commitment to be used for the purposes identified in subsection 2.5B, notwithstanding the fact that such Swing Line Loans, when aggregated with Swing Line Lender's outstanding Revolving Loans and Swing Line Lender's Pro Rata Share of the Letter of Credit Usage then in effect, may exceed Swing Line Lender's Revolving Loan Commitment. The original amount of the Swing Line Loan Commitment is $10,000,000; provided that any reduction of the -------- Revolving Loan Commitments made pursuant to subsection 2.4B(ii) or 2.4B(iii) which reduces the aggregate Revolving Loan Commitments to an amount less than the then current amount of the Swing Line Loan Commitment shall result in an automatic corresponding reduction of the Swing Line Loan Commitment to the amount of the Revolving Loan Commitments, as so reduced, without any further action on the part of Company, Administrative Agent or Swing Line Lender. The Swing Line Loan Commitment shall expire on the Revolving Loan Commitment Termination Date and all Swing Line Loans and all other amounts owed hereunder with respect to the Swing Line Loans shall be paid in full no later than that date; provided that the Swing Line Loan -------- Commitment shall expire immediately and without further action on February 16, 1998 if the Tranche A Term Loans are not made on or before that date. Amounts borrowed under this subsection 2.1A(iii) may be repaid and reborrowed to but excluding the Revolving Loan Commitment Termination Date. Anything contained in this Agreement to the contrary notwithstanding, the Swing Line Loans and the Swing Line Loan Commitment shall be subject to the following limitations in the amounts and during the periods indicated: (a) in no event shall the Total Utilization of Revolving Loan Commit ments at any time exceed the Revolving Loan Commitments then in effect; and (b) for 30 consecutive days during each consecutive twelve- month period, the sum of (1) the aggregate outstanding principal amount of all Revolving Loans plus (2) the aggregate outstanding ---- principal amount of all Swing Line Loans minus (3) the aggregate ----- outstanding principal amount of all Acquisition Loans, shall not exceed $25,000,000. 44 With respect to any Swing Line Loans which have not been voluntarily prepaid by Company pursuant to subsection 2.4B(i), Swing Line Lender may, at any time in its sole and absolute discretion, deliver to Administrative Agent (with a copy to Company), no later than 11:00 A.M. (New York City time) on the first Business Day in advance of the proposed Funding Date, a notice (which shall be deemed to be a Notice of Borrowing given by Company) requesting Lenders to make Revolving Loans that are Base Rate Loans on such Funding Date in an amount equal to the amount of such Swing Line Loans (the "Refunded Swing Line Loans") outstanding on the date such notice is given which Swing Line Lender requests Lenders to prepay. Anything contained in this Agreement to the contrary notwithstanding, (i) the proceeds of such Revolving Loans made by Lenders other than Swing Line Lender shall be immediately delivered by Administrative Agent to Swing Line Lender (and not to Company) and applied to repay a corresponding portion of the Refunded Swing Line Loans and (ii) on the day such Revolving Loans are made, Swing Line Lender's Pro Rata Share of the Refunded Swing Line Loans shall be deemed to be paid with the proceeds of a Revolving Loan made by Swing Line Lender, and such portion of the Swing Line Loans deemed to be so paid shall no longer be outstanding as Swing Line Loans and shall no longer be due under the Swing Line Note, if any, of Swing Line Lender but shall instead constitute part of Swing Line Lender's outstanding Revolving Loans and shall be due under the Revolving Note, if any, of Swing Line Lender. Company hereby authorizes Administrative Agent and Swing Line Lender to charge Company's accounts with Administrative Agent and Swing Line Lender (up to the amount available in each such account) in order to immediately pay Swing Line Lender the amount of the Refunded Swing Line Loans to the extent the proceeds of such Revolving Loans made by Lenders, including the Revolving Loan deemed to be made by Swing Line Lender, are not sufficient to repay in full the Refunded Swing Line Loans. If any portion of any such amount paid (or deemed to be paid) to Swing Line Lender should be recovered by or on behalf of Company from Swing Line Lender in bankruptcy, by assignment for the benefit of creditors or otherwise, the loss of the amount so recovered shall be ratably shared among all Lenders in the manner contemplated by subsection 10.5. If for any reason (a) Revolving Loans are not made upon the request of Swing Line Lender as provided in the immediately preceding paragraph in an amount sufficient to repay any amounts owed to Swing Line Lender in respect of any outstanding Swing Line Loans or (b) the Revolving Loan Commitments are terminated at a time when any Swing Line Loans are outstanding, each Lender shall be deemed to, and hereby agrees to, have purchased a participation in such outstanding Swing Line Loans in an amount equal to its Pro Rata Share (calculated, in the case of the foregoing clause (b), immediately prior to such termination of the Revolving Loan Commitments) of the unpaid amount of such Swing Line Loans together with accrued interest thereon. Upon one Business Day's notice from Swing Line Lender, each Lender shall deliver to Swing Line Lender an amount equal to its respective participation in same day funds at the Funding and Payment Office. In order to further evidence such participation (and without prejudice to the effectiveness of the participation provisions set forth above), each Lender agrees to enter into a separate participation agreement at the request of Swing Line 45 Lender in form and substance reasonably satisfactory to Swing Line Lender. In the event any Lender fails to make available to Swing Line Lender the amount of such Lender's participation as provided in this paragraph, Swing Line Lender shall be entitled to recover such amount on demand from such Lender together with interest thereon at the rate customarily used by Swing Line Lender for the correction of errors among banks for three Business Days and thereafter at the Base Rate. In the event Swing Line Lender receives a payment of any amount in which other Lenders have purchased participations as provided in this paragraph, Swing Line Lender shall promptly distribute to each such other Lender its Pro Rata Share of such payment. Anything contained herein to the contrary notwithstanding, each Lender's obligation to make Revolving Loans for the purpose of repaying any Refunded Swing Line Loans pursuant to the second preceding paragraph and each Lender's obligation to purchase a participation in any unpaid Swing Line Loans pursuant to the immediately preceding paragraph shall be absolute and unconditional and shall not be affected by any circumstance, including (a) any set-off, counterclaim, recoupment, defense or other right which such Lender may have against Swing Line Lender, Company or any other Person for any reason whatsoever; (b) the occurrence or continuation of an Event of Default or a Potential Event of Default; (c) any adverse change in the business, operations, properties, assets, condition (financial or otherwise) or prospects of Holdings or any of its Subsidiaries; (d) any breach of this Agreement or any other Loan Document by any party thereto; or (e) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing; provided that such obligations of each -------- Lender are subject to the condition that (X) Swing Line Lender believed in good faith that all conditions under Section 4 to the making of the applicable Refunded Swing Line Loans or other unpaid Swing Line Loans, as the case may be, were satisfied at the time such Refunded Swing Line Loans or unpaid Swing Line Loans were made or (Y) the satisfaction of any such condition not satisfied had been waived in accordance with subsection 10.6 prior to or at the time such Refunded Swing Line Loans or other unpaid Swing Line Loans were made. B. Borrowing Mechanics. Tranche A Term Loans or Revolving Loans made on any Funding Date (other than Revolving Loans made pursuant to a request by Swing Line Lender pursuant to subsection 2.1A(iii) for the purpose of repaying any Refunded Swing Line Loans or Revolving Loans made pursuant to subsection 3.3B for the purpose of reimbursing any Issuing Lender for the amount of a drawing under a Letter of Credit issued by it) shall be in an aggregate minimum amount of $500,000 and integral multiples of $100,000 in excess of that amount; provided that Tranche A Term Loans or Revolving Loans made on any Funding Date - -------- as Eurodollar Rate Loans with a particular Interest Period shall be in an aggregate minimum amount of $1,000,000 and integral multiples of $100,000 in excess of that amount. Swing Line Loans made on any Funding Date shall be in an aggregate minimum amount of $100,000 and integral multiples of $100,000 in excess of that amount. Whenever Company desires that Lenders make Tranche A Term Loans or Revolving Loans it shall deliver to Administrative Agent a Notice of Borrowing no later than 12:00 Noon (New York City time) at least three Business Days in advance of the proposed Funding Date (in the case of a Eurodollar Rate Loan) 46 or at least one Business Day in advance of the proposed Funding Date (in the case of a Base Rate Loan). Whenever Company desires that Swing Line Lender make a Swing Line Loan, it shall deliver to Administrative Agent a Notice of Borrowing no later than 12:00 Noon (New York City time) on the proposed Funding Date. The Notice of Borrowing shall specify (i) the proposed Funding Date (which shall be a Business Day), (ii) the amount and type of Loans requested, (iii) in the case of Swing Line Loans, that such Loans shall be Base Rate Loans, (iv) in the case of any Revolving Loans, whether such Loans shall be Base Rate Loans or Eurodollar Rate Loans, and (v) in the case of any Loans requested to be made as Eurodollar Rate Loans, the initial Interest Period requested therefor. Tranche A Term Loans and Revolving Loans may be continued as or converted into Base Rate Loans and Eurodollar Rate Loans in the manner provided in subsection 2.2D. In lieu of delivering the above-described Notice of Borrowing, Company may give Administrative Agent telephonic notice by the required time of any proposed borrowing under this subsection 2.1B; provided that such notice shall -------- be promptly confirmed in writing by delivery of a Notice of Borrowing to Administrative Agent on or before the applicable Funding Date. Neither Administrative Agent nor any Lender shall incur any liability to Company in acting upon any telephonic notice referred to above that Administrative Agent believes in good faith to have been given by a duly authorized officer or other person authorized to borrow on behalf of Company or for otherwise acting in good faith under this subsection 2.1B, and upon funding of Loans by Lenders in accordance with this Agreement pursuant to any such telephonic notice Company shall have effected Loans hereunder. Company shall notify Administrative Agent prior to the funding of any Loans in the event that any of the matters to which Company is required to certify in the applicable Notice of Borrowing is no longer true and correct as of the applicable Funding Date, and the acceptance by Company of the proceeds of any Loans shall constitute a re-certification by Company, as of the applicable Funding Date, as to the matters to which Company is required to certify in the applicable Notice of Borrowing. Except as otherwise provided in subsections 2.6B, 2.6C and 2.6G, a Notice of Borrowing for a Eurodollar Rate Loan (or telephonic notice in lieu thereof) shall be irrevocable on and after the related Interest Rate Determination Date, and Company shall be bound to make a borrowing in accordance therewith. C. Disbursement of Funds. All Tranche A Term Loans and Revolving Loans under this Agreement shall be made by Lenders simultaneously and proportionately to their respective Pro Rata Shares, it being understood that no Lender shall be responsible for any default by any other Lender in that other Lender's obligation to make a Loan requested hereunder nor shall the Commitment of any Lender to make the particular type of Loan requested be increased or decreased as a result of a default by any other Lender in that other Lender's obligation to make a Loan requested hereunder. Promptly after receipt by Administrative Agent of a Notice of Borrowing pursuant to subsection 2.1B (or telephonic notice in lieu thereof), Administrative Agent shall notify each Lender or Swing Line Lender, as the case may be, of the proposed borrowing. Each Lender shall make the amount of its Loan available to Administrative Agent 47 not later than 1:00 P.M. (New York City time) on the applicable Funding Date, and Swing Line Lender shall make the amount of its Swing Line Loan available to Administrative Agent not later than 2:00 P.M. (New York City time) on the applicable Funding Date, in each case in same day funds in Dollars, at the Funding and Payment Office. Except as provided in subsection 2.1A(iii) or subsection 3.3B with respect to Revolving Loans used to repay Refunded Swing Line Loans or to reimburse any Issuing Lender for the amount of a drawing under a Letter of Credit issued by it, upon satisfaction or waiver of the conditions precedent specified in subsections 4.1 (in the case of Loans made on the Closing Date) and 4.2 (in the case of all Loans), Administrative Agent shall make the proceeds of such Loans available to Company on the applicable Funding Date by causing an amount of same day funds in Dollars equal to the proceeds of all such Loans received by Administrative Agent from Lenders or Swing Line Lender, as the case may be, to be credited to the account of Company at the Funding and Payment Office. Unless Administrative Agent shall have been notified by any Lender prior to the Funding Date for any Loans that such Lender does not intend to make available to Administrative Agent the amount of such Lender's Loan requested on such Funding Date, Administrative Agent may assume that such Lender has made such amount available to Administrative Agent on such Funding Date and Administrative Agent may, in its sole discretion, but shall not be obligated to, make available to Company a corresponding amount on such Funding Date. If such corresponding amount is not in fact made available to Administrative Agent by such Lender, Administrative Agent shall be entitled to recover such corresponding amount on demand from such Lender together with interest thereon, for each day from such Funding Date until the date such amount is paid to Administrative Agent, at the customary rate set by Administrative Agent for the correction of errors among banks for three Business Days and thereafter at the Base Rate. If such Lender does not pay such corresponding amount forthwith upon Administrative Agent's demand therefor, Administrative Agent shall promptly notify Company and Company shall immediately pay such corresponding amount to Administrative Agent together with interest thereon, for each day from such Funding Date until the date such amount is paid to Administrative Agent, at the rate payable under this Agreement for Base Rate Loans. Nothing in this subsection 2.1C shall be deemed to relieve any Lender from its obligation to fulfill its Commitments hereunder or to prejudice any rights that Company may have against any Lender as a result of any default by such Lender hereunder. D. The Register. (i) Administrative Agent shall maintain, at its address referred to in subsection 10.8, a register for the recordation of the names and addresses of Lenders and the Commitments and Loans of each Lender from time to time (the "Register"). The Register shall be available for inspection by Company or any Lender at any reasonable time and from time to time upon reasonable prior notice. (ii) Administrative Agent shall record in the Register the Tranche A Term Loan Commitment and Revolving Loan Commitment and the Tranche A Term Loan and Revolving Loans from time to time of each Lender, the Swing Line Loan Commitment and the Swing Line Loans from time to time of Swing Line Lender, and each repayment 48 or prepayment in respect of the principal amount of the Tranche A Term Loan or Revolving Loans of each Lender or the Swing Line Loans of Swing Line Lender. Any such recordation shall be conclusive and binding on Company and each Lender, absent manifest error; provided that failure to make any -------- such recordation, or any error in such recordation, shall not affect any Lender's Commitments or Company's Obligations in respect of any applicable Loans. (iii) Each Lender shall record on its internal records (including the Notes held by such Lender) the amount of any Tranche A Term Loan and each Revolving Loan made by it and each payment in respect thereof. Any such recordation shall be conclusive and binding on Company, absent manifest error; provided that failure to make any such recordation, or any -------- error in such recordation, shall not affect any Lender's Commitments or Company's Obligations in respect of any applicable Loans; and provided, -------- further that in the event of any inconsistency between the Register and any ------- Lender's records, the recordations in the Register shall govern and be conclusive and binding on such Lender, absent manifest error. (iv) Company, Administrative Agent and Lenders shall deem and treat the Persons listed as Lenders in the Register as the holders and owners of the corresponding Commitments and Loans listed therein for all purposes hereof, and no assignment or transfer of any such Commitment or Loan shall be effective, in each case unless and until an Assignment Agreement effecting the assignment or transfer thereof shall have been accepted by Administrative Agent and recorded in the Register as provided in subsection 10.1B(ii). Prior to such recordation, all amounts owed with respect to the applicable Commitment or Loan shall be owed to the Lender listed in the Register as the owner thereof, and any request, authority or consent of any Person who, at the time of making such request or giving such authority or consent, is listed in the Register as a Lender shall be conclusive and binding on any subsequent holder, assignee or transferee of the corresponding Commitments or Loans. (v) Company hereby designates Morgan Guaranty to serve as Company's agent solely for purposes of maintaining the Register as provided in this subsection 2.1D, and Company hereby agrees that, to the extent Morgan Guaranty serves in such capacity, Morgan Guaranty and its officers, directors, employees, agents and affiliates shall constitute Indemnitees for all purposes under subsection 10.3. E. Optional Notes. If so requested by any Lender by written notice to Company (with a copy to Administrative Agent) at least two Business Days prior to the Closing Date or at any time thereafter, Company shall execute and deliver to such Lender (and/or, if applicable and if so specified in such notice, to any Person who is an assignee of such Lender pursuant to subsection 10.1) on the Closing Date (or, if such notice is delivered after the Closing Date, promptly after Company's receipt of such notice) a promissory note or promissory notes to evidence such Lender's Tranche A Term Loan, Revolving Loans or Swing Line Loans, substantially in the form of Exhibit IV, Exhibit V or Exhibit VI annexed hereto, ---------- --------- ---------- respectively, with appropriate insertions. 49 2.2 Interest on the Loans. --------------------- A. Rate of Interest. Subject to the provisions of subsections 2.6 and 2.7, each Tranche A Term Loan and each Revolving Loan shall bear interest on the unpaid principal amount thereof from the date made through maturity (whether by acceleration or otherwise) at a rate determined by reference to the Base Rate or the Adjusted Eurodollar Rate. Subject to the provisions of subsection 2.7, each Swing Line Loan shall bear interest on the unpaid principal amount thereof from the date made through maturity (whether by acceleration or otherwise) at a rate determined by reference to the Base Rate. The applicable basis for determining the rate of interest with respect to any Tranche A Term Loan or any Revolving Loan shall be selected by Company initially at the time a Notice of Borrowing is given with respect to such Loan pursuant to subsection 2.1B. The basis for determining the interest rate with respect to any Tranche A Term Loan or any Revolving Loan may be changed from time to time pursuant to subsection 2.2D. If on any day a Tranche A Term Loan or Revolving Loan is outstanding with respect to which notice has not been delivered to Administrative Agent in accordance with the terms of this Agreement specifying the applicable basis for determining the rate of interest, then for that day that Loan shall bear interest determined by reference to the Base Rate. (i) Subject to the provisions of subsections 2.2E and 2.7, the Tranche A Term Loans and the Revolving Loans shall bear interest through maturity as follows: (a) if a Base Rate Loan, then at the sum of the Base Rate plus ---- the Applicable Base Rate Margin; or (b) if a Eurodollar Rate Loan, then at the sum of the Adjusted Eurodollar Rate plus the Applicable Eurodollar Rate Margin. ---- (ii) Subject to the provisions of subsections 2.2E and 2.7, the Swing Line Loans shall bear interest through maturity at the sum of the Base Rate plus the Applicable Base Rate Margin for Tranche A Term Loans. ---- B. Interest Periods. In connection with each Eurodollar Rate Loan, Company may, pursuant to the applicable Notice of Borrowing or Notice of Conversion/Continuation, as the case may be, select an interest period (each an "Interest Period") to be applicable to such Loan, which Interest Period shall be, at Company's option, either a one-, two-, three- or six-month period or, if deposits in the interbank Eurodollar market are generally available for such period (as determined by each Lender making, converting to or continuing such Eurodollar Rate Loan), a two-week or twelve-month period; provided that: -------- (i) the initial Interest Period for any Eurodollar Rate Loan shall commence on the Funding Date in respect of such Loan, in the case of a Loan initially made as a Eurodollar Rate Loan, or on the date specified in the applicable Notice of Conversion/Continuation, in the case of a Loan converted to a Eurodollar Rate Loan; 50 (ii) in the case of immediately successive Interest Periods applicable to a Eurodollar Rate Loan continued as such pursuant to a Notice of Conversion/Continuation, each successive Interest Period shall commence on the day on which the next preceding Interest Period expires; (iii) if an Interest Period would otherwise expire on a day that is not a Business Day, such Interest Period shall expire on the next succeeding Business Day; provided that, if any Interest Period would -------- otherwise expire on a day that is not a Business Day but is a day of the month after which no further Business Day occurs in such month, such Interest Period shall expire on the next preceding Business Day; (iv) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall, subject to clause (v) of this subsection 2.2B, end on the last Business Day of a calendar month; (v) no Interest Period with respect to any portion of the Tranche A Term Loans shall extend beyond December 15, 2002, and no Interest Period with respect to any portion of the Revolving Loans shall extend beyond the Revolving Loan Commitment Termination Date; (vi) no Interest Period with respect to any portion of the Tranche A Term Loans shall extend beyond a date on which Company is required to make a scheduled payment of principal of the Tranche A Term Loans unless the sum of (a) the aggregate principal amount of Tranche A Term Loans that are Base Rate Loans plus (b) the aggregate principal amount of Tranche A ---- Term Loans that are Eurodollar Rate Loans with Interest Periods expiring on or before such date equals or exceeds the principal amount required to be paid on the Tranche A Term Loans on such date; (vii) Company shall not select an Interest Period of longer than one month prior to the end of the Initial Period; (viii) there shall be no more than twelve (12) Interest Periods outstanding at any time; and (ix) in the event Company fails to specify an Interest Period for any Eurodollar Rate Loan in the applicable Notice of Borrowing or Notice of Conversion/Continuation, Company shall be deemed to have selected an Interest Period of one month. C. Interest Payments. Subject to the provisions of subsection 2.2E, interest on each Loan shall be payable in arrears on and to each Interest Payment Date applicable to that Loan, upon any prepayment of that Loan (to the extent accrued on the amount being prepaid) and at maturity (including final maturity); provided that in the event any Swing Line Loans or any Revolving -------- Loans that are Base Rate Loans are prepaid pursuant to subsection 2.4B(i), interest accrued on such Swing Line Loans or Revolving Loans through the date of such prepayment 51 shall be payable on the next succeeding Interest Payment Date applicable to Base Rate Loans (or, if earlier, at final maturity). D. Conversion or Continuation. Subject to the provisions of subsection 2.6, Company shall have the option (i) to convert at any time all or any part of its outstanding Tranche A Term Loans or Revolving Loans equal to $500,000 and integral multiples of $100,000 in excess of that amount from Loans bearing interest at a rate determined by reference to one basis to Loans bearing interest at a rate determined by reference to an alternative basis or (ii) upon the expiration of any Interest Period applicable to a Eurodollar Rate Loan, to continue all or any portion of such Loan equal to $1,000,000 and integral multiples of $100,000 in excess of that amount as a Eurodollar Rate Loan; provided, however, that a Eurodollar Rate Loan may only be converted into a Base - -------- ------- Rate Loan on the expiration date of an Interest Period applicable thereto; and provided further, however, that Loans may not be continued as or converted to - -------- ------- ------- Eurodollar Rate Loans with an Interest Period longer than one month prior to the end of the Initial Period. Company shall deliver a Notice of Conversion/Continuation at any time after the Closing Date to Administrative Agent no later than 12:00 Noon (New York City time) at least one Business Day in advance of the proposed conversion date (in the case of a conversion to a Base Rate Loan) and at least three Business Days in advance of the proposed conversion/continuation date (in the case of a conversion to, or a continuation of, a Eurodollar Rate Loan). A Notice of Conversion/Continuation shall specify (i) the proposed conversion/continuation date (which shall be a Business Day), (ii) the amount and type of the Loan to be converted/continued, (iii) the nature of the proposed conversion/continuation, (iv) in the case of a conversion to, or a continuation of, a Eurodollar Rate Loan, the requested Interest Period, and (v) in the case of a conversion to, or a continuation of, a Eurodollar Rate Loan, that no Potential Event of Default or Event of Default has occurred and is continuing. In lieu of delivering the above-described Notice of Conversion/Continuation, Company may give Administrative Agent telephonic notice by the required time of any proposed conversion/continuation under this subsection 2.2D; provided that such notice -------- shall be promptly confirmed in writing by delivery of a Notice of Conversion/Continuation to Administrative Agent on or before the proposed conversion/continuation date. Upon receipt of written or telephonic notice of any proposed conversion/continuation under this subsection 2.2D, Administrative Agent shall promptly transmit such notice by telefacsimile or telephone to each Lender. Neither Administrative Agent nor any Lender shall incur any liability to Company in acting upon any telephonic notice referred to above that Administrative Agent believes in good faith to have been given by a duly authorized officer or other person authorized to act on behalf of Company or for otherwise acting in good faith under this subsection 2.2D, and upon conversion or continuation of the applicable basis for determining the interest rate with respect to any Loans in accordance with this Agreement pursuant to any such telephonic notice Company shall have effected a conversion or continuation, as the case may be, hereunder. Except as otherwise provided in subsections 2.6B, 2.6C and 2.6G, a Notice of Conversion/Continuation for conversion to, or continuation of, a Eurodollar Rate Loan (or telephonic 52 notice in lieu thereof) shall be irrevocable on and after the related Interest Rate Determination Date, and Company shall be bound to effect a conversion or continuation in accordance there with. E. Post-Maturity Interest. Any principal payments on the Loans not paid when due and, to the extent permitted by applicable law, any interest payments on the Loans or any fees or other amounts owed hereunder not paid when due, in each case whether at stated maturity, by notice of prepayment, by acceleration or otherwise, shall, if Requisite Lenders so elect in writing, thereafter bear interest (including post-petition interest in any proceeding under the Bankruptcy Code or other applicable bankruptcy laws) payable on demand at a rate which is 2% per annum in excess of the interest rate otherwise payable at maturity under this Agreement with respect to the applicable Loans (or, in the case of any such fees and other amounts, at a rate which is 2% per annum in excess of the interest rate otherwise payable under this Agreement for Base Rate Loans); provided that, in the case of Eurodollar Rate Loans, upon the expiration -------- of the Interest Period in effect at the time any such increase in interest rate is effective such Eurodollar Rate Loans shall thereupon become Base Rate Loans and shall thereafter bear interest payable upon demand at a rate which is 2% per annum in excess of the interest rate otherwise payable under this Agreement for Base Rate Loans. Payment or acceptance of the increased rates of interest provided for in this subsection 2.2E is not a permitted alternative to timely payment and shall not constitute a waiver of any Event of Default or otherwise prejudice or limit any rights or remedies of Administrative Agent or any Lender. F. Computation of Interest. Interest on the Loans shall be computed (i) in the case of Base Rate Loans, on the basis of a 365-day or 366-day year, as the case may be, and (ii) in the case of Eurodollar Rate Loans, on the basis of a 360-day year, in each case for the actual number of days elapsed in the period during which it accrues. In computing interest on any Loan, the date of the making of such Loan or the first day of an Interest Period applicable to such Loan or, with respect to a Base Rate Loan being converted from a Eurodollar Rate Loan, the date of conversion of such Eurodollar Rate Loan to such Base Rate Loan, as the case may be, shall be included, and the date of payment of such Loan or the expiration date of an Interest Period applicable to such Loan or, with respect to a Base Rate Loan being converted to a Eurodollar Rate Loan, the date of conversion of such Base Rate Loan to such Eurodollar Rate Loan, as the case may be, shall be excluded; provided that if a Loan is repaid on the same -------- day on which it is made, one day's interest shall be paid on that Loan. 2.3 Fees. ---- A. Commitment Fees. Company agrees to pay to Administrative Agent, for distribution to each Lender in proportion to that Lender's Pro Rata Share, commitment fees for the period from and including the Closing Date to and excluding the Revolving Loan Commitment Termination Date equal to the average of the daily excess of the Revolving Loan Commitments over the sum of (i) the aggregate principal amount of outstanding Revolving Loans (but not any outstanding Swing Line Loans) plus (ii) the Letter of Credit Usage multiplied by ---- ------------- the Applicable Commitment Fee Percentage, such commitment fees to be calculated on the basis of a 360-day year and the actual number of days elapsed and to be payable quarterly in arrears 53 on February 28, May 31, August 31 and November 30 of each year, commencing on the first such date to occur after the Closing Date, and on the Revolving Loan Commitment Termination Date. B. Other Fees. Company agrees to pay to Syndication Agent and Administrative Agent such fees in the amounts and at the times separately agreed upon between Company, Syndication Agent and Administrative Agent. 2.4 Repayments, Prepayments and Reductions in Revolving Loan Commitments; --------------------------------------------------------------------- General Provisions Regarding Payments; Application of Proceeds of ----------------------------------------------------------------- Collateral and Payments Under Guaranties. ---------------------------------------- A. Scheduled Payments of Tranche A Term Loans. Company shall make principal payments on the Tranche A Term Loans in installments on the dates and in the amounts set forth below:
SCHEDULED REPAYMENT DATE OF TRANCHE A TERM LOANS ============================================================= March 15, 1999 $ 2,500,000 ------------------------------------------------------------- June 15, 1999 $ 2,500,000 ------------------------------------------------------------- September 15, 1999 $ 2,500,000 ------------------------------------------------------------- December 15, 1999 $ 2,500,000 ------------------------------------------------------------- March 15, 2000 $ 6,750,000 ------------------------------------------------------------- June 15, 2000 $ 6,750,000 ------------------------------------------------------------- September 15, 2000 $ 6,750,000 ------------------------------------------------------------- December 15, 2000 $ 6,750,000 ------------------------------------------------------------- March 15, 2001 $ 9,500,000 ------------------------------------------------------------- June 15, 2001 $ 9,500,000 ------------------------------------------------------------- September 15, 2001 $ 9,500,000 ------------------------------------------------------------- December 15, 2001 $ 9,500,000 ------------------------------------------------------------- March 15, 2002 $11,250,000 ------------------------------------------------------------- June 15, 2002 $11,250,000 ------------------------------------------------------------- September 15, 2002 $11,250,000 ------------------------------------------------------------- December 15, 2002 $11,250,000 =============================================================
; provided that the scheduled installments of principal of the Tranche A Term -------- Loans set forth above shall be reduced in connection with any voluntary or mandatory prepayments of the 54 Tranche A Term Loans in accordance with subsection 2.4B(iv); and provided, -------- further that the Tranche A Term Loans and all other amounts owed hereunder with - ------- respect to the Tranche A Term Loans shall be paid in full no later than December 15, 2002, and the final installment payable by Company in respect of the Tranche A Term Loans on such date shall be in an amount, if such amount is different from that specified above, sufficient to repay all amounts owing by Company under this Agreement with respect to the Tranche A Term Loans. B. Prepayments and Reductions in Revolving Loan Commitments. (i) Voluntary Prepayments. Company may, upon written or telephonic --------------------- notice to Administrative Agent on or prior to 12:00 Noon (New York City time) on the date of prepayment, which notice, if telephonic, shall be promptly confirmed in writing, at any time and from time to time prepay any Swing Line Loan on any Business Day in whole or in part in an aggregate minimum amount of $100,000 and integral multiples of $100,000 in excess of that amount. Company may, upon written or telephonic notice on the date of prepayment, in the case of Base Rate Loans, and three Business Days' prior written or telephonic notice, in the case of Eurodollar Rate Loans, in each case given to Administrative Agent by 12:00 Noon (New York City time) on the date required and, if given by telephone, promptly confirmed in writing to Administrative Agent (which original written or telephonic notice Administrative Agent will promptly transmit by telefacsimile or telephone to each Lender), at any time and from time to time prepay any Tranche A Term Loans or Revolving Loans on any Business Day in whole or in part in an aggregate minimum amount of $500,000 and integral multiples of $100,000 in excess of that amount. Notice of prepayment having been given as aforesaid, the principal amount of the Loans specified in such notice shall become due and payable on the prepayment date specified therein. Any such voluntary prepayment shall be applied as specified in subsection 2.4B(iv). (ii) Voluntary Reductions of Revolving Loan Commitments. Company may, -------------------------------------------------- upon not less than three Business Days' prior written or telephonic notice confirmed in writing to Administrative Agent (which original written or telephonic notice Administrative Agent will promptly transmit by telefacsimile or telephone to each Lender), at any time and from time to time terminate in whole or permanently reduce in part, without premium or penalty, the Revolving Loan Commitments in an amount up to the amount by which the Revolving Loan Commitments exceed the Total Utilization of Revolving Loan Commitments at the time of such proposed termination or reduction; provided that any such partial reduction of the Revolving Loan -------- Commitments shall be in an aggregate minimum amount of $5,000,000 and integral multiples of $1,000,000 in excess of that amount; provided, -------- however, that Company may not reduce the Revolving Loan Commitments ------- pursuant to this subsection to an amount less than $25,000,000 until after the Tranche A Term Loans shall have been repaid to the full extent thereof. Company's notice to Administrative Agent shall designate the date (which shall be a Business Day) of such termination or reduction and the amount of any partial reduction, and such termination or reduction of the Revolving Loan Commitments shall be effective 55 on the date specified in Company's notice and shall reduce the Revolving Loan Commitment of each Lender proportionately to its Pro Rata Share. (iii) Mandatory Prepayments and Mandatory Reductions of Revolving ----------------------------------------------------------- Loan Commitments. The Loans shall be prepaid and/or the Revolving Loan ---------------- Commitments shall be permanently reduced in the amounts and under the circumstances set forth below, all such prepayments and/or reductions to be applied as set forth below or as more specifically provided in subsection 2.4B(iv). (a) Prepayments and Reductions From Net Asset Sale Proceeds. No ------------------------------------------------------- later than the fifth Business Day following the date of receipt by Company or any of its Subsidiaries of any Net Asset Sale Proceeds in respect of any Asset Sale, Company shall prepay the Loans and/or the Revolving Loan Commitments shall be permanently reduced in an aggregate amount equal to such Net Asset Sale Proceeds; provided, -------- however, that upon receipt by Company or any of its Subsidiaries of ------- any such Net Asset Sale Proceeds, so long as no Event of Default shall have occurred and be continuing and to the extent that the aggregate amount of Net Asset Sale Proceeds and Net Insurance/Condemnation Proceeds from the Closing Date through the date of determination does not exceed $25,000,000, Company may deliver to Administrative Agent an Officers' Certificate setting forth (1) that portion of such Net Asset Sale Proceeds (such portion being the "Proposed Asset Sale Reinvestment Proceeds") that Company or such Subsidiary intends to reinvest (or enter into a contract to reinvest) in equipment or other productive assets of the general type used in the business (including capital stock of a corporation engaged in such business) of Company and its Subsidiaries (such equipment and other assets being "Eligible Assets") within 270 days of such date of receipt and (2) the proposed use of such Proposed Asset Sale Reinvestment Proceeds and such other information with respect to such reinvestment as Administrative Agent may reasonably request, and Company shall, or shall cause one or more of its Subsidiaries to, promptly and diligently apply such Proposed Asset Sale Reinvestment Proceeds to such reinvestment purposes; provided, however, that at Company's option, such Proposed Asset Sale -------- ------- Reinvestment Proceeds may be applied to prepay outstanding Revolving Loans (without a reduction in Revolving Loan Commitments) to the full extent thereof. In addition, Company shall, no later than 270 days after receipt of such Proposed Asset Sale Reinvestment Proceeds that have not theretofore been applied to the Obligations, make an additional prepayment of the Loans (and/or the Revolving Loan Commitments shall be reduced) in the full amount of all such Proposed Asset Sale Reinvestment Proceeds that have not theretofore been so reinvested in Eligible Assets; provided that Company shall not be -------- required to make any prepayment of the Loans to the extent that the sum of Net Asset Sale Proceeds plus Net Insurance/Condemnation ---- Proceeds from the Closing Date through the date of determination does not exceed $5,000,000. Notwithstanding the foregoing, if at the time of any required prepayment under this subsection the Leverage Ratio is not more than 4.0 to 1.0, Company shall only be required to 56 prepay 75% of the amount which it would otherwise be required to prepay hereunder; provided, however, that if Company is required to -------- ------- apply any portion of Net Asset Sale Proceeds to prepay Indebtedness evidenced by the AXELs under the AXEL Credit Agreement or the Senior Subordinated Notes or the Discount Notes (under the terms of the New Sub Debt Indentures), then notwithstanding anything contained in this Agreement to the contrary (but subject to subsection 2.4B(iv)(d) hereof), Company shall apply such Net Asset Sale Proceeds to the prepayment of the Tranche A Term Loans and the AXELs pro rata according to the respective outstanding principal amount, if any, of each, then to the prepayment of Revolving Loans and/or the reduction of Revolving Loan Commitments, in each case so as to eliminate or minimize any obligation to prepay any such Indebtedness evidenced by the Senior Subordinated Notes or the Discount Notes. (b) Prepayments and Reductions from Net Insurance/Condemnation ---------------------------------------------------------- Proceeds. No later than the tenth Business Day following the date of -------- receipt by Administrative Agent or by Company or any of its Subsidiaries of any Net Insurance/Condemnation Proceeds that are required to be applied to prepay the Loans and/or reduce the Revolving Loan Commitments pursuant to the provisions of subsection 6.4C, Company shall prepay the Loans and/or the Revolving Loan Commitments shall be permanently reduced in an aggregate amount equal to the amount of such Net Insurance/Condemnation Proceeds minus (if (1) no ----- Event of Default shall have occurred and be continuing and (2) Company shall have delivered to Administrative Agent, on or before such tenth Business Day, the Officers' Certificate described in subsection 6.4C(ii)), any Proposed Insurance Reinvestment Proceeds; provided, -------- however, that at Company's option, such Proposed Insurance ------- Reinvestment Proceeds may be applied to prepay outstanding Revolving Loans (without a reduction in Revolving Loan Commitments) to the full extent thereof. In addition, no later than 270 days after receipt of any Proposed Insurance Reinvestment Proceeds, Company shall prepay the Loans and/or the Revolving Loan Commitments shall be permanently reduced in an amount equal to the amount of any such Proposed Insurance Reinvestment Proceeds that have not theretofore been applied to the costs of repairing, restoring or replacing the applicable assets of Company or its Subsidiaries or reinvested in Eligible Assets; provided that Company shall not be required to make any -------- prepayment of the Loans to the extent that the sum of Net Asset Sale Proceeds plus Net Insurance/Condemnation Proceeds from the Closing ---- Date through the date of determination does not exceed $5,000,000. Notwithstanding the foregoing, if at the time of any required prepayment under this subsection the Leverage Ratio is not more than 4.0 to 1.0, Company shall only be required to prepay 75% of the amount which it would otherwise be required to prepay hereunder; provided, -------- however, that if Company is required to apply any portion of Net ------- Insurance/ Condemnation Proceeds to prepay Indebtedness evidenced by the AXELs under the AXEL Credit Agreement or the Senior Subordinated Notes or the Discount Notes (under the terms of the New Sub Debt Indentures), then 57 notwithstanding anything contained in this Agreement to the contrary (but subject to subsection 2.4B(iv)(d) hereof), Company shall apply such Net Insurance/Condemnation Proceeds to the prepayment of the Tranche A Term Loans and the AXELs pro rata according to the respective outstanding principal amount, if any, of each, then to the prepayment of Revolving Loans and/or the reduction of Revolving Loan Commitments, in each case so as to eliminate or minimize any obligation to prepay any such Indebtedness evidenced by the Senior Subordinated Notes or the Discount Notes. (c) Prepayments and Reductions Due to Reversion of Surplus Assets ------------------------------------------------------------- of Pension Plans. On the date of reversion to Company or any of its ---------------- Subsidiaries of any surplus assets of any pension plan of Company or any of its Subsidiaries, Company shall prepay the Loans and/or the Revolving Loan Commitments shall be permanently reduced in an aggregate amount (such amount being the "Net Pension Proceeds") equal to 100% of such returned surplus assets, net of transaction costs and expenses incurred in obtaining such return, including incremental taxes payable as a result thereof. If Company is required to apply any portion of Net Pension Proceeds to prepay Indebtedness evidenced by the AXELs under the AXEL Credit Agreement or the Senior Subordinated Notes or the Discount Notes (under the terms of the New Sub Debt Indentures), then notwithstanding anything contained in this Agreement to the contrary (but subject to subsection 2.4B(iv)(d) hereof), Company shall apply such Net Pension Proceeds to the prepayment of the Tranche A Term Loans and the AXELs pro rata according to the respective outstanding principal amount, if any, of each, then to the prepayment of Revolving Loans and/or the reduction of Revolving Loan Commitments, in each case so as to eliminate or minimize any obligation to prepay any such Indebtedness evidenced by the Senior Subordinated Notes or the Discount Notes. (d) Prepayments and Reductions Due to Issuance of Debt. On the -------------------------------------------------- date of receipt by Holdings, Company or any of their respective Subsidiaries of the Cash proceeds of any Indebtedness, including debt Securities of Holdings, Company or any of their respective Subsidiaries (other than the Loans and any other Indebtedness permitted under subsections 7.1(i) through (xvii) (such proceeds, net of underwriting discounts and commissions and other reasonable costs and expenses associated therewith, including reasonable legal fees and expenses, being the "Net Indebtedness Proceeds")), Company shall prepay the Loans and/or the Revolving Loan Commitments shall be permanently reduced in an aggregate amount equal to such Net Indebtedness Proceeds; provided, however, that payment or acceptance -------- ------- of the amounts provided for in this subsection 2.4B(iii)(d) shall not constitute a waiver of any Event of Default resulting from the incurrence of such Indebtedness or otherwise prejudice any rights or remedies of Agents or Lenders. If Company is required to apply any portion of Net Indebtedness Proceeds to prepay Indebtedness evidenced by the AXELs under the AXEL Credit Agreement or the Senior Subordinated Notes or 58 the Discount Notes (under the terms of the New Sub Debt Indentures), then notwithstanding anything contained in this Agreement to the contrary (but subject to subsection 2.4B(iv)(d) hereof), Company shall apply such Net Indebtedness Proceeds to the prepayment of the Tranche A Term Loans and the AXELs pro rata according to the respective outstanding principal amount, if any, of each, then to the prepayment of Revolving Loans and/or the reduction of Revolving Loan Commitments, in each case so as to eliminate or minimize any obligation to prepay any such Indebtedness evidenced by the Senior Subordinated Notes or the Discount Notes. (e) Prepayments and Reductions Due to Issuance of Equity ---------------------------------------------------- Securities. On the date of receipt by Holdings or Company of Cash ---------- proceeds (any such proceeds, net of underwriting discounts and commissions and other reasonable costs and expenses associated therewith, including reasonable legal fees and expenses, being "Net Equity Proceeds") from the issuance of any equity Securities of Holdings or Company after the Closing Date (other than (A) capital contributions by Holdings and Company, and (B) issuances of Holdings Common Stock (x) to employees, officers, directors and consultants of Holdings and its Subsidiaries to the extent such Holdings Common Stock constitutes compensation to such individuals, (y) to Bain or the Other Investors to the extent the Cash proceeds thereof are not in excess of $25,000,000, and (z) as payment of all or any portion of the purchase price of a business or assets in a Permitted Acquisition), Company shall prepay the Loans and/or the Revolving Loan Commitments shall be permanently reduced in an aggregate amount equal to: (i) 50% (or, if the Leverage Ratio is not more than 4.0 to 1.0 on the date such Net Equity Proceeds are received, 25%) of such Net Equity Proceeds if such Net Equity Proceeds are derived from a non-public sale of equity Securities of Holdings or Company or (ii) 75% (or, if the Leverage Ratio is not more than 4.0 to 1.0 on the date such Net Equity Proceeds are received, 50%) of such Net Equity Proceeds if such Net Equity Proceeds are derived from the sale of equity Securities of Holdings or Company through a public offering. If Company is required to apply any portion of Net Equity Proceeds to prepay Indebtedness evidenced by the AXELs under the AXEL Credit Agreement or the Senior Subordinated Notes or the Discount Notes (under the terms of the New Sub Debt Indentures), then notwithstanding anything contained in this Agreement to the contrary (but subject to subsection 2.4B(iv)(d) hereof), Company shall apply such Net Equity Proceeds to the prepayment of the Tranche A Term Loans and the AXELs pro rata according to the respective outstanding principal amount, if any, of each, then to the prepayment of Revolving Loans and/or the reduction of Revolving Loan Commitments, in each case so as to eliminate or minimize any obligation to prepay any such Indebtedness evidenced by the Senior Subordinated Notes or the Discount Notes. (f) Prepayments and Reductions from Consolidated Excess Cash -------------------------------------------------------- Flow. In the event that there shall be Consolidated Excess Cash Flow ---- for any Fiscal 59 Year (commencing with Fiscal Year 1998), Company shall, no later than 90 days after the end of such Fiscal Year, prepay the Loans and/or the Revolving Loan Commitments shall be permanently reduced in an aggregate amount equal to 75% (or, if the Leverage Ratio is not more than 4.0 to 1.0 on the last day of any such Fiscal Year, 50%) of such Consolidated Excess Cash Flow. If Company is required to apply any portion of Consolidated Excess Cash Flow to prepay Indebtedness evidenced by the AXELs under the AXEL Credit Agreement or the Senior Subordinated Notes or the Discount Notes (under the terms of the New Sub Debt Indentures), then notwithstanding anything contained in this Agreement to the contrary (but subject to subsection 2.4B(iv)(d) hereof), Company shall apply such Consolidated Excess Cash Flow first, ----- to the prepayment of the Tranche A Term Loans and second, to the AXELs ------ pro rata according to the respective outstanding principal amount, if any, of each, then to the prepayment of Revolving Loans and/or the reduction of Revolving Loan Commitments, in each case so as to eliminate or minimize any obligation to prepay any such Indebtedness evidenced by the Senior Subordinated Notes or the Discount Notes. (g) Calculations of Net Proceeds Amounts; Additional Prepayments ------------------------------------------------------------ and Reductions Based on Subsequent Calculations. Concurrently with ----------------------------------------------- any prepayment of the Loans and/or reduction of the Revolving Loan Commitments pursuant to subsections 2.4B(iii)(a)-(f), Company shall deliver to Administrative Agent an Officers' Certificate demonstrating the calculation of the amount (the "Net Proceeds Amount") of the applicable Net Asset Sale Proceeds, Net Insurance/Condemnation Proceeds, Net Pension Proceeds, Net Indebtedness Proceeds or Net Equity Proceeds (as such terms are defined in subsections 2.4B(iii)(a), (b), (c), (d) and (e), respectively) or the applicable Consolidated Excess Cash Flow, as the case may be, that gave rise to such prepayment and/or reduction. In the event that Company shall subsequently determine that the actual Net Proceeds Amount was greater than the amount set forth in such Officers' Certificate, Company shall promptly make an additional prepayment of the Loans (and/or, if applicable, the Revolving Loan Commitments shall be permanently reduced) in an amount equal to the amount of such excess, and Company shall concurrently therewith deliver to Administrative Agent an Officers' Certificate demonstrating the derivation of the additional Net Proceeds Amount resulting in such excess. (h) Prepayments Due to Reductions or Restrictions of Revolving ---------------------------------------------------------- Loan Commitments. Company shall from time to time prepay first the ---------------- ----- Swing Line Loans and second the Revolving Loans to the extent ------ necessary so that the Total Utilization of Revolving Loan Commitments shall not at any time exceed the Revolving Loan Commitments then in effect. 60 (iv) Application of Prepayments. -------------------------- (a) Application of Voluntary Prepayments by Type of Loans and --------------------------------------------------------- Order of Maturity. Any voluntary prepayments pursuant to subsection ----------------- 2.4B(i) shall be applied as specified by Company in the applicable notice of prepayment; provided that in the event Company fails to -------- specify the Loans to which any such prepayment shall be applied, such prepayment shall be applied first to repay outstanding Swing Line ----- Loans to the full extent thereof, second to repay outstanding ------ Revolving Loans (applied first to Acquisition Loans, then to other Revolving Loans) to the full extent thereof, and third to repay ----- outstanding Tranche A Term Loans to the full extent thereof. Any voluntary prepayments of the Tranche A Term Loans pursuant to subsection 2.4B(i) shall be applied to reduce the scheduled installments of principal of the Tranche A Term Loans set forth in subsection 2.4A on a pro rata basis (in accordance with the respective outstanding principal amounts thereof). Any voluntary prepayment of Acquisition Loans pursuant to subsection 2.4B(i) shall reduce both the Acquisition Loan Commitments and the Revolving Loan Commitments in the amount of such prepayment. Any voluntary reduction of Revolving Loan Commitments pursuant to subsection 2.4B(ii) shall be applied as specified by Company in the applicable notice of reduction; provided -------- that in the event Company fails to specify the manner in which any such prepayment shall be applied, such prepayment shall be applied first, to reduce the Acquisition Loan Commitments to the full extent ----- thereof, and second, to reduce the remaining Revolving Loan ------ Commitments in the amount of such reduction, to the full extent thereof. Notwithstanding anything to the contrary in this subsection, so long as any AXELs are outstanding, any prepayment of the Tranche A Term Loans pursuant to subsection 2.4B(i) shall be applied to the repayment of the AXELs and the Tranche A Term Loans on a pro rata basis according to the respective outstanding principal amounts thereof. (b) Application of Mandatory Prepayments by Type of Loans. Any ----------------------------------------------------- amount (the "Applied Amount") required to be applied as a mandatory prepayment of the Loans and/or a reduction of the Revolving Loan Commitments pursuant to subsections 2.4B(iii)(a)-(f) shall be applied first to prepay the Tranche A Term Loans to the full extent thereof ----- (provided, however, that Company shall apply any such amounts which --------- ------- are also required to be applied to repayment of the AXELs under the AXEL Credit Agreement to the Tranche A Term Loans and the AXELs pro rata according to the respective outstanding principal amounts thereof, subject to the provisions of subsection 2.4B(iv)(d)), second, ------ to the extent of any remaining portion of the Applied Amount, to prepay the Swing Line Loans to the full extent thereof and to permanently reduce the Revolving Loan Commitments by the amount of such prepayment, third, to the extent of any remaining portion of the ----- Applied Amount, to prepay the Revolving Loans to the full extent thereof and to further permanently reduce the Revolving Loan Commitments by the amount of such prepayment, and fourth, to the ------ extent of any 61 remaining portion of the Applied Amount, to further permanently reduce the Revolving Loan Commitments to the full extent thereof. (c) Application of Mandatory Prepayments of Tranche A Term Loans ------------------------------------------------------------ to the Scheduled Installments of Principal Thereof. Any mandatory -------------------------------------------------- prepayments of the Tranche A Term Loans pursuant to subsection 2.4B(iii) shall be applied on a pro rata basis (in accordance with the respective outstanding principal amounts thereof) to each scheduled installment of principal of the Tranche A Term Loans set forth in subsection 2.4A that is unpaid at the time of such prepayment. (d) Waiver of Certain Mandatory Prepayments. Anything contained --------------------------------------- herein to the contrary notwithstanding, so long as any Tranche A Term Loans are outstanding, that portion of any Waivable Mandatory Prepayment (as defined in the AXEL Credit Agreement) which would otherwise be payable (in the absence of such an election) to those Lenders that have elected to exercise the option under the AXEL Credit Agreement to waive such prepayments shall be applied to prepay the Tranche A Term Loans (which prepayment shall be applied to the scheduled installments of principal of the Tranche A Term Loans in accordance with subsection 2.4B(iv)(c)). (e) Application of Mandatory Prepayments to Revolving Loans and ----------------------------------------------------------- Revolving Loan Commitments. Any mandatory prepayments of the -------------------------- Revolving Loans pursuant to subsection 2.4B(iv)(b) shall be applied first to repay outstanding Acquisition Loans to the full extent ----- thereof and to permanently reduce the Revolving Loan Commitments by the amount of such prepayment, and second to repay other outstanding ------ Revolving Loans to the full extent thereof and to permanently reduce the Revolving Loan Commitments by the amount of such prepayment. Any reduction of the Revolving Loan Commitments pursuant to subsection 2.4B(iv)(b) (but not pursuant to the preceding sentence) shall be applied first to reduce Acquisition Loan Commitments to the full ----- extent thereof, and second to reduce the remaining Revolving Loan ------ Commitments to the full extent thereof. (f) Application of Prepayments to Base Rate Loans and Eurodollar ------------------------------------------------------------ Rate Loans. Considering Tranche A Term Loans and Revolving Loans ---------- being prepaid separately, any prepayment thereof shall be applied first to Base Rate Loans to the full extent thereof before application to Eurodollar Rate Loans, in each case in a manner which minimizes the amount of any payments required to be made by Company pursuant to subsection 2.6D. C. General Provisions Regarding Payments. (i) Manner and Time of Payment. All payments by Company of principal, -------------------------- interest, fees and other Obligations hereunder and under the Notes shall be made in Dollars in same day funds, without defense, setoff or counterclaim, free of any 62 restriction or condition, and delivered to Administrative Agent not later than 1:00 P.M. (New York City time) on the date due at the Funding and Payment Office for the account of Lenders; funds received by Administrative Agent after that time on such due date shall be deemed to have been paid by Company on the next succeeding Business Day. Company hereby authorizes Administrative Agent to charge its accounts with Administrative Agent in order to cause timely payment to be made to Administrative Agent of all principal, interest, fees and expenses due hereunder (subject to sufficient funds being available in its accounts for that purpose). (ii) Application of Payments to Principal and Interest. Except as ------------------------------------------------- provided in subsection 2.2C, all payments in respect of the principal amount of any Loan shall include payment of accrued interest on the principal amount being repaid or prepaid, and all such payments (and, in any event, any payments in respect of any Loan on a date when interest is due and payable with respect to such Loan) shall be applied to the payment of interest before application to principal. (iii) Apportionment of Payments. Aggregate principal and interest ------------------------- payments in respect of Tranche A Term Loans and Revolving Loans shall be apportioned among all outstanding Loans to which such payments relate, in each case proportionately to Lenders' respective Pro Rata Shares. Administrative Agent shall promptly distribute to each Lender, at its primary address set forth below its name on the appropriate signature page hereof or at such other address as such Lender may request, its Pro Rata Share of all such payments received by Administrative Agent and the commitment fees of such Lender when received by Administrative Agent pursuant to subsection 2.3. Notwithstanding the foregoing provisions of this subsection 2.4C(iii), if, pursuant to the provisions of subsection 2.6C, any Notice of Conversion/Continuation is withdrawn as to any Affected Lender or if any Affected Lender makes Base Rate Loans in lieu of its Pro Rata Share of any Eurodollar Rate Loans, Administrative Agent shall give effect thereto in apportioning payments received thereafter. (iv) Payments on Business Days. Whenever any payment to be made ------------------------- hereunder shall be stated to be due on a day that 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 hereunder or of the commitment fees hereunder, as the case may be. (v) Notation of Payment. Each Lender agrees that before disposing ------------------- of any Note held by it, or any part thereof (other than by granting participations therein), that Lender will make a notation thereon of all Loans evidenced by that Note and all principal payments previously made thereon and of the date to which interest thereon has been paid; provided -------- that the failure to make (or any error in the making of) a notation of any Loan made under such Note shall not limit or otherwise affect the obligations of Company hereunder or under such Note with respect to any Loan or any payments of principal or interest on such Note. 63 D. Application of Proceeds of Collateral and Payments Under Guaranties. (i) Application of Proceeds of Collateral. Except as provided in ------------------------------------- subsections 2.4B(iii)(a) and 2.4B(iii)(b) with respect to prepayments from Net Asset Sale Proceeds and Net Insurance/Condemnation Proceeds, all proceeds received by Administrative Agent in respect of any sale of, collection from, or other realization upon all or any part of the Collateral under any Collateral Document may, in the discretion of Administrative Agent, be held by Administrative Agent as Collateral for, and/or (then or at any time thereafter) applied in full or in part by Administrative Agent against, the applicable Secured Obligations (as defined in such Collateral Document) in the following order of priority: (a) To the payment of all costs and expenses of such sale, collection or other realization, including all expenses, liabilities and advances made or incurred by Administrative Agent and its agents and counsel in connection therewith, and all amounts for which Administrative Agent is entitled to indemnification under such Collateral Document and all advances made by Administrative Agent thereunder for the account of the applicable Loan Party, and to the payment of all costs and expenses paid or incurred by Administrative Agent in connection with the exercise of any right or remedy under such Collateral Document, all in accordance with the terms of this Agreement and such Collateral Document; (b) thereafter, to the extent of any excess such proceeds, to the payment of all other such Secured Obligations then due and owing for the ratable benefit of the holders thereof; and (c) thereafter, to the extent of any excess such proceeds, to the payment to or upon the order of such Loan Party or to whosoever may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct. (ii) Application of Payments Under Guaranties. All payments received ---------------------------------------- by Administrative Agent under either Guaranty shall be applied promptly from time to time by Administrative Agent in the following order of priority: (a) To the payment of the costs and expenses of any collection or other realization under such the Guaranty, including all expenses, liabilities and advances made or incurred by Administrative Agent and its agents and counsel in connection therewith, all in accordance with the terms of this Agreement and Guaranty; (b) thereafter, to the extent of any excess such payments, to the payment of all other Guarantied Obligations (as defined in such Guaranty) for the ratable benefit of the holders thereof; and 64 (c) thereafter, to the extent of any excess such payments, to the payment to Holdings or the applicable Subsidiary Guarantor or to whosoever may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct. 2.5 Use of Proceeds. --------------- A. Tranche A Term Loans and Initial Revolving Loans. The Tranche A Term Loans and up to $10,400,000 in aggregate principal amount of Revolving Loans made on the Closing Date (the "Recapitalization Revolving Loans"), together with the proceeds of up to $330,000,000 in aggregate principal amount of AXELs made on the Closing Date under the AXEL Credit Agreement and the proceeds of the debt and equity capitalization of Holdings and Company described in subsections 4.1D(i), (iii) and (iv), shall be applied by Holdings and Company to fund the Recapitalization Financing Requirements. B. Post Closing Date Revolving Loans and Swing Line Loans. (i) Revolving Loans and Swing Line Loans made after the Closing Date in an aggregate amount not to exceed $75,000,000 at any time outstanding may be used by Company for working capital and general corporate purposes, which may include the making of intercompany loans to any of Company's wholly owned Subsidiaries, in accordance with subsection 7.1(iv) or 7.1(v), for their own working capital and general corporate purposes and the making of intercompany loans to Company's Joint Ventures to the extent such Indebtedness is permitted hereunder, for their own working capital and general corporate purposes. (ii) Revolving Loans and Swing Line Loans made after the Closing Date in an aggregate amount not to exceed $50,000,000 at any time outstanding may be used by Company or its Subsidiaries to finance Permitted Acquisitions and other expenditures which are included in the definition of Consolidated Capital Expenditures. C. Margin Regulations. No portion of the proceeds of any borrowing under this Agreement shall be used by Holdings or any of its Subsidiaries in any manner that might cause the borrowing or the application of such proceeds to violate Regulation G, Regulation U, Regulation T or Regulation X of the Board of Governors of the Federal Reserve System or any other regulation of such Board or to violate the Exchange Act, in each case as in effect on the date or dates of such borrowing and such use of proceeds. 2.6 Special Provisions Governing Eurodollar Rate Loans. -------------------------------------------------- Notwithstanding any other provision of this Agreement to the contrary, the following provisions shall govern with respect to Eurodollar Rate Loans as to the matters covered: A. Determination of Applicable Interest Rate. As soon as practicable after 10:00 A.M. (New York City time) on each Interest Rate Determination Date, Administrative Agent 65 shall determine (which determination shall, absent manifest error, be final, conclusive and binding upon all parties) the interest rate that shall apply to the Eurodollar Rate Loans for which an interest rate is then being determined for the applicable Interest Period and shall promptly give notice thereof (in writing or by telephone confirmed in writing) to Company and each Lender. B. Inability to Determine Applicable Interest Rate. In the event that Administrative Agent shall have determined (which determination shall be final and conclusive and binding upon all parties hereto), on any Interest Rate Determination Date with respect to any Eurodollar Rate Loans, that by reason of circumstances affecting the interbank Eurodollar market adequate and fair means do not exist for ascertaining the interest rate applicable to such Loans on the basis provided for in the definition of Adjusted Eurodollar Rate, Administrative Agent shall on such date give notice (by telefacsimile or by telephone confirmed in writing) to Company and each Lender of such determination, whereupon (i) no Loans may be made as, or converted to, Eurodollar Rate Loans until such time as Administrative Agent notifies Company and Lenders that the circumstances giving rise to such notice no longer exist and (ii) any Notice of Borrowing or Notice of Conversion/Continuation given by Company with respect to the Loans in respect of which such determination was made shall be deemed to be rescinded by Company. C. Illegality or Impracticability of Eurodollar Rate Loans. In the event that on any date any Lender shall have determined (which determination shall be final and conclusive and binding upon all parties hereto but shall be made only after consultation with Company and Administrative Agent) that the making, maintaining or continuation of its Eurodollar Rate Loans (i) has become unlawful as a result of compliance by such Lender in good faith with any law, treaty, governmental rule, regulation, guideline or order (or would conflict with any such treaty, governmental rule, regulation, guideline or order not having the force of law even though the failure to comply therewith would not be unlawful) or (ii) has become impracticable, or would cause such Lender material hardship, as a result of contingencies occurring after the date of this Agreement which materially and adversely affect the interbank Eurodollar market or the position of such Lender in that market, then, and in any such event, such Lender shall be an "Affected Lender" and it shall on that day give notice (by telefacsimile or by telephone confirmed in writing) to Company and Administrative Agent of such determination (which notice Administrative Agent shall promptly transmit to each other Lender). Thereafter (a) the obligation of the Affected Lender to make Loans as, or to convert Loans to, Eurodollar Rate Loans shall be suspended until such notice shall be withdrawn by the Affected Lender, (b) to the extent such determination by the Affected Lender relates to a Eurodollar Rate Loan then being requested by Company pursuant to a Notice of Borrowing or a Notice of Conversion/Continuation, the Affected Lender shall make such Loan as (or convert such Loan to, as the case may be) a Base Rate Loan, (c) the Affected Lender's obligation to maintain its outstanding Eurodollar Rate Loans (the "Affected Loans") shall be terminated at the earlier to occur of the expiration of the Interest Period then in effect with respect to the Affected Loans or when required by law, and (d) the Affected Loans shall automatically convert into Base Rate Loans on the date of such termination. Notwithstanding the foregoing, to the extent a determination by an Affected Lender as described above relates to a Eurodollar Rate Loan then being requested by Company pursuant to a Notice of Borrowing or a Notice of Conversion/Continuation, 66 Company shall have the option, subject to the provisions of subsection 2.6D, to rescind such Notice of Borrowing or Notice of Conversion/Continuation as to all Lenders by giving notice (by telefacsimile or by telephone confirmed in writing) to Administrative Agent of such rescission on the date on which the Affected Lender gives notice of its determination as described above (which notice of rescission Administrative Agent shall promptly transmit to each other Lender). Except as provided in the immediately preceding sentence, nothing in this subsection 2.6C shall affect the obligation of any Lender other than an Affected Lender to make or maintain Loans as, or to convert Loans to, Eurodollar Rate Loans in accordance with the terms of this Agreement. D. Compensation For Breakage or Non-Commencement of Interest Periods. Company shall compensate each Lender, promptly upon written request by that Lender (which request shall set forth the basis for requesting such amounts), for all reasonable losses, expenses and liabilities (including any interest paid by that Lender to lenders of funds borrowed by it to make or carry its Eurodollar Rate Loans and any loss, expense or liability sustained by that Lender in connection with the liquidation or re-employment of such funds) which that Lender may sustain: (i) if for any reason (other than a default by that Lender) a borrowing of any Eurodollar Rate Loan does not occur on a date specified therefor in a Notice of Borrowing or a telephonic request for borrowing, or a conversion to or continuation of any Eurodollar Rate Loan does not occur on a date specified therefor in a Notice of Conversion/Continuation or a telephonic request for conversion or continuation, (ii) if any prepayment (including any prepayment pursuant to subsection 2.4B(i)) or other principal payment or any conversion of any of its Eurodollar Rate Loans occurs on a date prior to the last day of an Interest Period applicable to that Loan, (iii) if any prepayment of any of its Eurodollar Rate Loans is not made on any date specified in a notice of prepayment given by Company, or (iv) as a consequence of any other default by Company in the repayment of its Eurodollar Rate Loans when required by the terms of this Agreement. E. Booking of Eurodollar Rate Loans. Subject to its obligations under subsection 2.8, any Lender may make, carry or transfer Eurodollar Rate Loans at, to, or for the account of any of its branch offices or the office of an Affiliate of that Lender. F. Assumptions Concerning Funding of Eurodollar Rate Loans. Calculation of all amounts payable to a Lender under this subsection 2.6 and under subsection 2.7A shall be made as though that Lender had actually funded each of its relevant Eurodollar Rate Loans through the purchase of a Eurodollar deposit bearing interest at the rate obtained pursuant to clause (i) of the definition of Adjusted Eurodollar Rate in an amount equal to the amount of such Eurodollar Rate Loan and having a maturity comparable to the relevant Interest Period and through the transfer of such Eurodollar deposit from an offshore office of that Lender to a domestic office of that Lender in the United States of America; provided, however, that each Lender may fund each of its Eurodollar Rate Loans - -------- ------- in any manner it sees fit and the foregoing assumptions shall be utilized only for the purposes of calculating amounts payable under this subsection 2.6 and under subsection 2.7A. 67 G. Eurodollar Rate Loans After Default. After the occurrence of and during the continuation of an Event of Default, (i) Company may not elect to have a Loan be made or maintained as, or converted to, a Eurodollar Rate Loan after the expiration of any Interest Period then in effect for that Loan and (ii) subject to the provisions of subsection 2.6D, any Notice of Borrowing or Notice of Conversion/Continuation given by Company with respect to a requested borrowing or conversion/continuation that has not yet occurred shall be deemed to be rescinded by Company. 2.7 Increased Costs; Taxes; Capital Adequacy. ---------------------------------------- A. Compensation for Increased Costs and Taxes. Subject to the provisions of subsection 2.7B (which shall be controlling with respect to the matters covered thereby), in the event that any Lender shall determine (which determination shall, absent manifest error, be final and conclusive and binding upon all parties hereto) that any law, treaty or governmental rule, regulation or order, or any change therein or in the interpretation, administration or application thereof (including the introduction of any new law, treaty or governmental rule, regulation or order), or any determination of a court or governmental authority, in each case that becomes effective after the date hereof, or compliance by such Lender with any guideline, request or directive issued or made after the date hereof by any central bank or other governmental or quasi-governmental authority (whether or not having the force of law): (i) subjects such Lender (or its applicable lending office) to any additional Tax (other than any Tax on the overall net income of such Lender) with respect to this Agreement or any of its obligations hereunder or any payments to such Lender (or its applicable lending office) of principal, interest, fees or any other amount payable hereunder; (ii) imposes, modifies or holds applicable any reserve (including any marginal, emergency, supplemental, special or other reserve), special deposit, compulsory loan, FDIC insurance or similar requirement against assets held by, or deposits or other liabilities in or for the account of, or advances or loans by, or other credit extended by, or any other acquisition of funds by, any office of such Lender (other than any such reserve or other requirements with respect to Eurodollar Rate Loans that are reflected in the definition of Adjusted Eurodollar Rate); or (iii) imposes any other condition (other than with respect to a Tax matter) on or affecting such Lender (or its applicable lending office) or its obligations hereunder or the interbank Eurodollar market; and the result of any of the foregoing is to increase the cost to such Lender of agreeing to make, making or maintaining Loans hereunder or to reduce any amount received or receivable by such Lender (or its applicable lending office) with respect thereto; then, in any such case, Company shall promptly pay to such Lender, upon receipt of the statement referred to in the next sentence, such additional amount or amounts (in the form of an increased rate of, or a different method of calculating, interest or otherwise as such Lender in its sole discretion shall determine) as may 68 be necessary to compensate such Lender for any such increased cost or reduction in amounts received or receivable hereunder. Such Lender shall deliver to Company (with a copy to Administrative Agent) a written statement, setting forth in reasonable detail the basis for calculating the additional amounts owed to such Lender under this subsection 2.7A, which statement shall be conclusive and binding upon all parties hereto absent manifest error. B. Withholding of Taxes. (i) Payments to Be Free and Clear. All sums payable by Company under ----------------------------- this Agreement and the other Loan Documents shall (except to the extent required by law) be paid free and clear of, and without any deduction or withholding on account of, any Tax (other than a Tax on the overall net income of any Lender) imposed, levied, collected, withheld or assessed by or within the United States of America or any political subdivision in or of the United States of America or any other jurisdiction from or to which a payment is made by or on behalf of Company or by any federation or organization of which the United States of America or any such jurisdiction is a member at the time of payment. (ii) Grossing-up of Payments. If Company or any other Person is ----------------------- required by law to make any deduction or withholding on account of any such Tax from any sum paid or payable by Company to Administrative Agent or any Lender under any of the Loan Documents: (a) Company shall notify Administrative Agent of any such requirement or any change in any such requirement as soon as Company becomes aware of it; (b) Company shall pay any such Tax before the date on which penalties attach thereto, such payment to be made (if the liability to pay is imposed on Company) for its own account or (if that liability is imposed on Administrative Agent or such Lender, as the case may be) on behalf of and in the name of Administrative Agent or such Lender; (c) the sum payable by Company in respect of which the relevant deduction, withholding or payment is required shall be increased to the extent necessary to ensure that, after the making of that deduction, withholding or payment, Administrative Agent or such Lender, as the case may be, receives on the due date a net sum equal to what it would have received had no such deduction, withholding or payment been required or made; and (d) within 30 days after paying any sum from which it is required by law to make any deduction or withholding, and within 30 days after the due date of payment of any Tax which it is required by clause (b) above to pay, Company shall deliver to Administrative Agent evidence satisfactory to the other affected 69 parties of such deduction, withholding or payment and of the remittance thereof to the relevant taxing or other authority; provided that no such additional amount shall be required to be paid to any -------- Lender under clause (c) above except to the extent that any change after the date hereof (in the case of each Lender listed on the signature pages hereof) or after the date of the Assignment Agreement pursuant to which such Lender became a Lender (in the case of each other Lender) in any such requirement for a deduction, withholding or payment as is mentioned therein shall result in an increase in the rate of such deduction, withholding or payment from that in effect at the date of this Agreement or at the date of such Assignment Agreement, as the case may be, in respect of payments to such Lender. (iii) Evidence of Exemption from U.S. Withholding Tax. ----------------------------------------------- (a) Each Lender that is organized under the laws of any jurisdiction other than the United States or any state or other political subdivision thereof (for purposes of this subsection 2.7B(iii), a "Non-US Lender") shall deliver to Administrative Agent for transmission to Company, on or prior to the Closing Date (in the case of each Lender listed on the signature pages hereof) or on or prior to the date of the Assignment Agreement pursuant to which it becomes a Lender (in the case of each other Lender), and at such other times as may be necessary in the determination of Company or Administrative Agent (each in the reasonable exercise of its discretion), (1) two original copies of Internal Revenue Service Form 1001 or 4224 (or any successor forms), properly completed and duly executed by such Lender, together with any other certificate or statement of exemption required under the Internal Revenue Code or the regulations issued thereunder to establish that such Lender is not subject to deduction or withholding of United States federal income tax with respect to any payments to such Lender of principal, interest, fees or other amounts payable under any of the Loan Documents or (2) if such Lender is not a "bank" or other Person described in Section 881(c)(3) of the Internal Revenue Code and cannot deliver either Internal Revenue Service Form 1001 or 4224 pursuant to clause (1) above, a Certificate re Non-Bank Status together with two original copies of Internal Revenue Service Form W-8 (or any successor form), properly completed and duly executed by such Lender, together with any other certificate or statement of exemption required under the Internal Revenue Code or the regulations issued thereunder to establish that such Lender is not subject to deduction or withholding of United States federal income tax with respect to any payments to such Lender of interest payable under any of the Loan Documents. (b) Each Lender required to deliver any forms, certificates or other evidence with respect to United States federal income tax withholding matters pursuant to subsection 2.7B(iii)(a) hereby agrees, from time to time after the initial delivery by such Lender of such forms, certificates or other evidence, whenever a lapse in time or change in circumstances renders such forms, 70 certificates or other evidence obsolete or inaccurate in any material respect, that such Lender shall promptly (1) deliver to Administrative Agent for transmission to Company two new original copies of Internal Revenue Service Form 1001 or 4224, or a Certificate re Non-Bank Status and two original copies of Internal Revenue Service Form W-8, as the case may be, properly completed and duly executed by such Lender, together with any other certificate or statement of exemption required in order to confirm or establish that such Lender is not subject to deduction or withholding of United States federal income tax with respect to payments to such Lender under the Loan Documents or (2) notify Administrative Agent and Company of its inability to deliver any such forms, certificates or other evidence. (c) Company shall not be required to pay any additional amount to any Non-US Lender under clause (c) of subsection 2.7B(ii) if such Lender shall have failed to satisfy the requirements of clause (a) or (b)(1) of this subsection 2.7B(iii); provided that if such Lender -------- shall have satisfied the requirements of subsection 2.7B(iii)(a) on the Closing Date (in the case of each Lender listed on the signature pages hereof) or on the date of the Assignment Agreement pursuant to which it became a Lender (in the case of each other Lender), nothing in this subsection 2.7B(iii)(c) shall relieve Company of its obligation to pay any additional amounts pursuant to clause (c) of subsection 2.7B(ii) in the event that, as a result of any change in any applicable law, treaty or governmental rule, regulation or order, or any change in the interpretation, administration or application thereof, such Lender is no longer properly entitled to deliver forms, certificates or other evidence at a subsequent date establishing the fact that such Lender is not subject to withholding as described in subsection 2.7B(iii)(a). C. Capital Adequacy Adjustment. If any Lender shall have determined that the adoption, effectiveness, phase-in or applicability after the date hereof of any law, rule or regulation (or any provision thereof) regarding capital adequacy, or any change therein or in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender (or its applicable lending office) with any guideline, request or directive regarding capital adequacy (whether or not having the force of law) of any such governmental authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on the capital of such Lender or any corporation controlling such Lender as a consequence of, or with reference to, such Lender's Loans or Commitments or Letters of Credit or participations therein or other obligations hereunder with respect to the Loans or the Letters of Credit to a level below that which such Lender or such controlling corporation could have achieved but for such adoption, effectiveness, phase-in, applicability, change or compliance (taking into consideration the policies of such Lender or such controlling corporation with regard to capital adequacy), then from time to time, within five Business Days after receipt by Company from such Lender of the statement referred to in the next sentence, Company shall pay to such Lender such additional amount or amounts as will compensate such Lender or such controlling corporation on an after-tax basis for such reduction. Such Lender shall deliver to Company (with 71 a copy to Administrative Agent) a written statement, setting forth in reasonable detail the basis of the calculation of such additional amounts, which statement shall be conclusive and binding upon all parties hereto absent manifest error. 2.8 Obligation of Lenders and Issuing Lenders to Mitigate. ----------------------------------------------------- Each Lender and Issuing Lender agrees that, as promptly as practicable after the officer of such Lender or Issuing Lender responsible for administering the Loans or Letters of Credit of such Lender or Issuing Lender, as the case may be, becomes aware of the occurrence of an event or the existence of a condition that would cause such Lender to become an Affected Lender or that would entitle such Lender or Issuing Lender to receive payments under subsection 2.7 or subsection 3.6, it will, to the extent not inconsistent with the internal policies of such Lender or Issuing Lender and any applicable legal or regulatory restrictions, use reasonable efforts (i) to make, issue, fund or maintain the Commitments of such Lender or the affected Loans or Letters of Credit of such Lender or Issuing Lender through another lending or letter of credit office of such Lender or Issuing Lender, or (ii) take such other measures as such Lender or Issuing Lender may deem reasonable, if as a result thereof the circumstances which would cause such Lender to be an Affected Lender would cease to exist or the additional amounts which would otherwise be required to be paid to such Lender or Issuing Lender pursuant to subsection 2.7 or subsection 3.6 would be materially reduced and if, as determined by such Lender or Issuing Lender in its sole discretion, the making, issuing, funding or maintaining of such Commitments or Loans or Letters of Credit through such other lending or letter of credit office or in accordance with such other measures, as the case may be, would not otherwise materially adversely affect such Commitments or Loans or Letters of Credit or the interests of such Lender or Issuing Lender; provided that such -------- Lender or Issuing Lender will not be obligated to utilize such other lending or letter of credit office pursuant to this subsection 2.8 unless Company agrees to pay all incremental expenses incurred by such Lender or Issuing Lender as a result of utilizing such other lending or letter of credit office as described in clause (i) above. A certificate as to the amount of any such expenses payable by Company pursuant to this subsection 2.8 (setting forth in reasonable detail the basis for requesting such amount) submitted by such Lender or Issuing Lender to Company (with a copy to Administrative Agent) shall be conclusive absent manifest error. 2.9 Defaulting Lenders. ------------------ Anything contained herein to the contrary notwithstanding, in the event that any Lender (a "Defaulting Lender") defaults (a "Funding Default") in its obligation to fund any Revolving Loan (a "Defaulted Revolving Loan") in accordance with subsection 2.1 as a result of the appointment of a receiver or conservator with respect to such Lender at the direction or request of any regulatory agency or authority, then (i) during any Default Period (as defined below) with respect to such Defaulting Lender, such Defaulting Lender shall be deemed not to be a "Lender" for purposes of voting on any matters (including the granting of any consents or waivers) with respect to any of the Loan Documents, (ii) to the extent permitted by applicable law, until such time as the Default Excess (as defined below) with respect to such Defaulting Lender shall have been reduced to zero, (a) any voluntary prepayment of the Revolving Loans 72 pursuant to subsection 2.4B(i) shall, if Company so directs at the time of making such voluntary prepayment, be applied to the Revolving Loans of other Lenders as if such Defaulting Lender had no Revolving Loans outstanding and the Revolving Loan Exposure of such Defaulting Lender were zero, and (b) any mandatory prepayment of the Revolving Loans pursuant to subsection 2.4B(iii) shall, if Company so directs at the time of making such mandatory prepayment, be applied to the Revolving Loans of other Lenders (but not to the Revolving Loans of such Defaulting Lender) as if such Defaulting Lender had funded all Defaulted Revolving Loans of such Defaulting Lender, it being understood and agreed that Company shall be entitled to retain any portion of any mandatory prepayment of the Revolving Loans that is not paid to such Defaulting Lender solely as a result of the operation of the provisions of this clause (b), (iii) such Defaulting Lender's Revolving Loan Commitment and outstanding Revolving Loans and such Defaulting Lender's Pro Rata Share of the Letter of Credit Usage shall be excluded for purposes of calculating the commitment fee payable to Lenders pursuant to subsection 2.3A in respect of any day during any Default Period with respect to such Defaulting Lender, and such Defaulting Lender shall not be entitled to receive any commitment fee pursuant to subsection 2.3A with respect to such Defaulting Lender's Revolving Loan Commitment in respect of any Default Period with respect to such Defaulting Lender, and (iv) the Total Utilization of Revolving Loan Commitments as at any date of determination shall be calculated as if such Defaulting Lender had funded all Defaulted Revolving Loans of such Defaulting Lender. For purposes of this Agreement, (I) "Default Period" means, with respect to any Defaulting Lender, the period commencing on the date of the applicable Funding Default and ending on the earliest of the following dates: (A) the date on which all Revolving Loan Commitments are cancelled or terminated and/or the Obligations are declared or become immediately due and payable, (B) the date on which (1) the Default Excess with respect to such Defaulting Lender shall have been reduced to zero (whether by the funding by such Defaulting Lender of any Defaulted Revolving Loans of such Defaulting Lender or by the non-pro rata application of any voluntary or mandatory prepayments of the Revolving Loans in accordance with the terms of this subsection 2.9 or by a combination thereof) and (2) such Defaulting Lender shall have delivered to Company and Administrative Agent a written reaffirmation of its intention to honor its obligations under this Agreement with respect to its Revolving Loan Commitment, and (C) the date on which Company, Administrative Agent and Requisite Lenders waive all Funding Defaults of such Defaulting Lender in writing, and (II) "Default Excess" means, with respect to any Defaulting Lender, the excess, if any, of such Defaulting Lender's Pro Rata Share of the aggregate outstanding principal amount of Revolving Loans of all Lenders (calculated as if all Defaulting Lenders (other than such Defaulting Lender) had funded all of their respective Defaulted Revolving Loans) over the aggregate outstanding principal amount of Revolving Loans of such Defaulting Lender. No Commitment of any Lender shall be increased or otherwise affected, and, except as otherwise expressly provided in this subsection 2.9, performance by Company of its obligations under this Agreement and the other Loan Documents shall not be excused or otherwise modified, as a result of any Funding Default or the operation of this subsection 2.9. The rights and remedies against a Defaulting Lender under this subsection 2.9 are in addition to other rights 73 and remedies which Company may have against such Defaulting Lender with respect to any Funding Default and which Administrative Agent or any Lender may have against such Defaulting Lender with respect to any Funding Default. 2.10 Removal or Replacement of a Lender. ---------------------------------- A. Anything contained in this Agreement to the contrary notwithstanding, in the event that: (i) (a) any Lender (an "Increased-Cost Lender") shall give notice to Company that such Lender is an Affected Lender or that such Lender is entitled to receive payments under subsection 2.7 or subsection 3.6, (b) the circumstances which have caused such Lender to be an Affected Lender or which entitle such Lender to receive such payments shall remain in effect, and (c) such Lender shall fail to withdraw such notice within five Business Days after Company's request for such withdrawal; or (ii) (a) any Lender shall become a Defaulting Lender, (b) the Default Period for such Defaulting Lender shall remain in effect, and (c) such Defaulting Lender shall fail to cure the default as a result of which it has become a Defaulting Lender within five Business Days after Company's request that it cure such default; or (iii) (a) in connection with any proposed amendment, modification, termination, waiver or consent with respect to any of the provisions of this Agreement as contemplated by clauses (i) through (v) of the first provision to subsection 10.6A, the consent of Requisite Lenders shall have been obtained but the consent of one or more of such other Lenders (each a "Non-Consenting Lender") whose consent is required shall not have been obtained, and (b) the failure to obtain Non-Consenting Lenders' consents does not result solely from the exercise of Non-Consenting Lenders' rights (and the withholding of any required consents by Non-Consenting Lenders) pursuant to the second provision to subsection 10.6A; then, and in each such case, Company shall have the right, at its option, to remove or replace the applicable Increased-Cost Lender, Defaulting Lender or Non-Consenting Lender (the "Terminated Lender") to the extent permitted by subsection 2.10B. B. Company may, by giving written notice to Administrative Agent and any Terminated Lender of its election to do so: (i) elect to (a) terminate the Revolving Loan Commitment, if any, of such Terminated Lender upon receipt by such Terminated Lender of such notice and (b) prepay on the date of such termination any outstanding Loans made by such Terminated Lender, together with accrued and unpaid interest thereon and any other amounts payable to such Terminated Lender hereunder pursuant to subsection 2.3, subsection 2.6, subsection 2.7 or subsection 3.6 or otherwise; provided that, in the event such Terminated Lender has -------- any Loans outstanding at the time of such termination, the written 74 consent of Administrative Agent and Requisite Lenders (which consent shall not be unreasonably withheld or delayed) shall be required in order for Company to make the election set forth in this clause (i); or (ii) elect to cause such Terminated Lender (and such Terminated Lender hereby irrevocably agrees) to assign its outstanding Loans and its Revolving Loan Commitment, if any, in full to one or more Eligible Assignees (each a "Replacement Lender") in accordance with the provisions of subsection 10.1B; provided that (a) on the date of such assignment, -------- Company shall pay any amounts payable to such Terminated Lender pursuant to subsection 2.3, subsection 2.6, subsection 2.7 or subsection 3.6 or otherwise as if it were a prepayment and (b) in the event such Terminated Lender is a Non-Consenting Lender, each Replacement Lender shall consent, at the time of such assignment, to each matter in respect of which such Terminated Lender was a Non-Consenting Lender; provided that (X) Company may not make either of the elections set forth in - -------- clauses (i) or (ii) above with respect to any Non-Consenting Lender unless Company also makes one of such elections with respect to each other Terminated Lender which is a Non-Consenting Lender and (Y) Company may not make either of such elections with respect to any Terminated Lender that is an Issuing Lender unless, prior to the effectiveness of such election, Company shall have caused each outstanding Letter of Credit issued by such Issuing Lender to be cancelled. C. Upon the prepayment of all amounts owing to any Terminated Lender and the termination of such Terminated Lender's Revolving Loan Commitment, if any, pursuant to clause (i) of subsection 2.10B, (i) Schedule 2.1 shall be deemed ------------ modified to reflect any corresponding changes in the Revolving Loan Commitments and (ii) such Terminated Lender shall no longer constitute a "Lender" for purposes of this Agreement; provided that any rights of such Terminated Lender -------- to indemnification under this Agreement (including under subsections 2.6D, 2.7, 3.6, 10.2 and 10.3) shall survive as to such Terminated Lender. SECTION 3. LETTERS OF CREDIT 3.1 Issuance of Letters of Credit and Lenders' Purchase of Participations --------------------------------------------------------------------- Therein. ------- A. Letters of Credit. In addition to Company requesting that Lenders make Revolving Loans pursuant to subsection 2.1A(ii) and that Swing Line Lender make Swing Line Loans pursuant to subsection 2.1A(iii), Company may request, in accordance with the provisions of this subsection 3.1, from time to time during the period from the Closing Date to but excluding the Revolving Loan Commitment Termination Date, that one or more Lenders issue Letters of Credit for the account of Company for the purposes specified in the definitions of Commercial Letters of Credit and Standby Letters of Credit; provided that all such -------- Commercial Letters of Credit shall provide for sight drawings. Subject to the terms and conditions of this Agreement and in reliance upon the representations and warranties of Company herein set forth, 75 any one or more Lenders may, but (except as provided in subsection 3.1B(ii)) shall not be obligated to, issue such Letters of Credit in accordance with the provisions of this subsection 3.1; provided that Company shall not request that -------- any Lender issue (and no Lender shall issue): (i) any Letter of Credit if, after giving effect to such issuance, the Total Utilization of Revolving Loan Commitments would exceed the Revolving Loan Commitments then in effect; (ii) any Letter of Credit if, after giving effect to such issuance, the Letter of Credit Usage would exceed $20,000,000; (iii) any Standby Letter of Credit having an expiration date later than the earlier of (a) five Business Days prior to the Revolving Loan Commitment Termination Date and (b) the date which is one year from the date of issuance of such Standby Letter of Credit; provided that the -------- immediately preceding clause (b) shall not prevent any Issuing Lender from agreeing that a Standby Letter of Credit will automatically be extended for one or more successive periods not to exceed one year each unless such Issuing Lender elects not to extend for any such additional period; and provided, further that such Issuing Lender shall elect not to extend such -------- ------- Standby Letter of Credit if it has knowledge that an Event of Default has occurred and is continuing (and has not been waived in accordance with subsection 10.6) at the time such Issuing Lender must elect whether or not to allow such extension; provided, however, that notwithstanding clause (a) -------- ------- but subject to the other restrictions of this subsection, Company may request the issuance (on a date prior to five Business Days prior to the Revolving Loan Commitment Termination Date) of a Standby Letter of Credit having an expiration date later than five Business Days prior to the Revolving Loan Commitment Termination Date if Company, at the time of such request, makes arrangements in form and substance satisfactory to the Issuing Lender thereof to cash collateralize such Letter of Credit, provided that Issuing Lender shall be under no obligation to issue such a -------- Letter of Credit if it shall reasonably determine that such cash collateralization arrangements could reasonably be expected to be less favorable to Issuing Lender than the reimbursement arrangements hereunder with respect to other Letters of Credit; or (iv) any Commercial Letter of Credit having an expiration date (a) later than the earlier of (X) the date which is 30 days prior to the Revolving Loan Commitment Termination Date and (Y) the date which is 180 days from the date of issuance (on a date prior to 30 days prior to the Revolving Loan Commitment Termination Date) of such Commercial Letter of Credit or (b) that is otherwise unacceptable to the applicable Issuing Lender in its reasonable discretion; provided, however, that -------- ------- notwithstanding clause (X) but subject to the other restrictions of this subsection, Company may request the issuance (on a date prior to 30 days prior to the Revolving Loan Commitment Termination Date) of a Commercial Letter of Credit having an expiration date later than the time set forth in clause (X) if Company, at the time of such request, makes arrangements in form and substance satisfactory to the Issuing Lender thereof to cash collateralize such Letter of Credit, provided that Issuing Lender shall be -------- under no 76 obligation to issue such a Letter of Credit if it shall reasonably determine that such cash collateralization arrangements could reasonably be expected to be less favorable to Issuing Lender than the reimbursement arrangements hereunder with respect to other Letters of Credit. B. Mechanics of Issuance. (i) Notice of Issuance. Whenever Company desires the issuance of a ------------------ Letter of Credit, it shall deliver to Administrative Agent a Notice of Issuance of Letter of Credit substantially in the form of Exhibit III ----------- annexed hereto no later than 11:00 A.M. (New York City time) at least three Business Days (in the case of Standby Letters of Credit) or five Business Days (in the case of Commercial Letters of Credit), or in each case such shorter period as may be agreed to by the Issuing Lender in any particular instance, in advance of the proposed date of issuance. The Notice of Issuance of Letter of Credit shall specify (a) the proposed date of issuance (which shall be a Business Day), (b) whether the Letter of Credit is to be a Standby Letter of Credit or a Commercial Letter of Credit, (c) the face amount of the Letter of Credit, (d) in the case of a Letter of Credit which Company requests to be denominated in a currency other than Dollars, the currency in which Company requests such Letter of Credit to be issued, (e) the expiration date of the Letter of Credit, (f) the name and address of the beneficiary, and (g) either the verbatim text of the proposed Letter of Credit or the proposed terms and conditions thereof, 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 the Letter of Credit, would require the Issuing Lender to make payment under the Letter of Credit; provided that the Issuing Lender, in -------- its reasonable discretion, may require changes in the text of the proposed Letter of Credit or any such documents; and provided, further that no -------- ------- Letter of Credit shall require payment against a conforming draft to be made thereunder on the same business day (under the laws of the jurisdiction in which the office of the Issuing Lender to which such draft is required to be presented is located) that such draft is presented if such presentation is made after 10:00 A.M. (in the time zone of such office of the Issuing Lender) on such business day. Company shall notify the applicable Issuing Lender (and Administrative Agent, if Administrative Agent is not such Issuing Lender) prior to the issuance of any Letter of Credit in the event that any of the matters to which Company is required to certify in the applicable Notice of Issuance of Letter of Credit is no longer true and correct as of the proposed date of issuance of such Letter of Credit, and upon the issuance of any Letter of Credit Company shall be deemed to have re-certified, as of the date of such issuance, as to the matters to which Company is required to certify in the applicable Notice of Issuance of Letter of Credit. (ii) Determination of Issuing Lender. Upon receipt by ------------------------------- Administrative Agent of a Notice of Issuance of Letter of Credit pursuant to subsection 3.1B(i) requesting the issuance of a Letter of Credit, in the event Administrative Agent elects to issue such Letter of Credit, Administrative Agent shall promptly so notify Company, and 77 Administrative Agent shall be the Issuing Lender with respect thereto. In the event that Administrative Agent, in its sole discretion, elects not to issue such Letter of Credit, Administrative Agent shall promptly so notify Company, whereupon Company may request any other Lender to issue such Letter of Credit by delivering to such Lender a copy of the applicable Notice of Issuance of Letter of Credit. Any Lender so requested to issue such Letter of Credit shall promptly notify Company and Administrative Agent whether or not, in its sole discretion, it has elected to issue such Letter of Credit, and any such Lender which so elects to issue such Letter of Credit shall be the Issuing Lender with respect thereto. In the event that all other Lenders shall have declined to issue such Letter of Credit, notwithstanding the prior election of Administrative Agent not to issue such Letter of Credit, Administrative Agent shall be obligated to issue such Letter of Credit and shall be the Issuing Lender with respect thereto, notwithstanding the fact that the Letter of Credit Usage with respect to such Letter of Credit and with respect to all other Letters of Credit issued by Administrative Agent, when aggregated with Administrative Agent's outstanding Revolving Loans and Swing Line Loans, may exceed Administrative Agent's Revolving Loan Commitment then in effect; provided that -------- Administrative Agent shall not be obligated to issue any Letter of Credit denominated in a foreign currency which in the judgment of Administrative Agent is not readily and freely available. (iii) Issuance of Letter of Credit. Upon satisfaction or waiver (in ---------------------------- accordance with subsection 10.6) of the conditions set forth in subsection 4.3, the Issuing Lender shall issue the requested Letter of Credit in accordance with the Issuing Lender's standard operating procedures. (iv) Notification to Lenders. Upon the issuance of any Letter of ----------------------- Credit the applicable Issuing Lender shall promptly notify Administrative Agent and each other Lender of such issuance, which notice shall be accompanied by a copy of such Letter of Credit. Promptly after receipt of such notice (or, if Administrative Agent is the Issuing Lender, together with such notice), Administrative Agent shall notify each Lender of the amount of such Lender's respective participation in such Letter of Credit, determined in accordance with subsection 3.1C. (v) Reports to Lenders. Within 15 days after the end of each ------------------ calendar quarter ending after the Closing Date, so long as any Letter of Credit shall have been outstanding during such calendar quarter, each Issuing Lender shall deliver to each other Lender a report setting forth for such calendar quarter the daily aggregate amount available to be drawn under the Letters of Credit issued by such Issuing Lender that were outstanding during such calendar quarter. C. Lenders' Purchase of Participations in Letters of Credit. Immediately upon the issuance of each Letter of Credit, each Lender having a Revolving Loan Commitment shall be deemed to, and hereby agrees to, have irrevocably purchased from the Issuing Lender a participation in such Letter of Credit and any drawings honored thereunder in an amount equal to such Lender's Pro Rata Share (with respect to the Revolving Loan Commitments) of the 78 maximum amount which is or at any time may become available to be drawn thereunder. On the Revolving Loan Commitment Termination Date, the Issuing Lender shall be deemed to, and hereby agrees to, irrevocably repurchase from each Lender such Lender's participation in the Letters of Credit issued by such Issuing Lender pursuant to the last proviso to subsection 3.1A(iii) or the last proviso to subsection 3.1a(iv) to the extent any such Letter of Credit remains outstanding and any amounts remain undrawn thereunder. 3.2 Letter of Credit Fees. --------------------- Company agrees to pay the following amounts with respect to Letters of Credit issued hereunder: (i) with respect to each Standby Letter of Credit, (a) a fronting fee, payable directly to the applicable Issuing Lender for its own account, equal to 1/8 of 1% per annum of the daily amount available to be drawn under such Standby Letter of Credit and (b) a letter of credit fee, payable to Administrative Agent for the account of Lenders having Revolving Loan Exposure, equal to the product of (x) the Applicable Eurodollar Rate Margin and (y) the daily amount available to be drawn under such Standby Letter of Credit, each such fronting fee or letter of credit fee to be payable in arrears on and to (but excluding) each February 28, May 31, August 31 and November 30 of each year and computed on the basis of a 360-day year for the actual number of days elapsed; (ii) with respect to each Commercial Letter of Credit, (a) a fronting fee, payable directly to the applicable Issuing Lender for its own account, equal to 1/8 of 1% per annum of the daily amount available to be drawn under such Commercial Letter of Credit and (b) a letter of credit fee, payable to Administrative Agent for the account of Lenders having Revolving Loan Exposure, equal to the product of (x) the Applicable Eurodollar Rate Margin and (y) the daily amount available to be drawn under such Commercial Letter of Credit, each such fronting fee or letter of credit fee to be payable in arrears on and to (but excluding) each February 28, May 31, August 31 and November 30 of each year and computed on the basis of a 360-day year for the actual number of days elapsed; and (iii) with respect to the issuance, amendment or transfer of each Letter of Credit and each payment of a drawing made thereunder (without duplication of the fees payable under clauses (i) and (ii) above), documentary and processing charges payable directly to the applicable Issuing Lender for its own account in accordance with such Issuing Lender's standard schedule for such charges in effect at the time of such issuance, amendment, transfer or payment, as the case may be. For purposes of calculating any fees payable under clauses (i) and (ii) of this subsection 3.2, (1) the daily amount available to be drawn under any Letter of Credit shall be determined as of the close of business on any date of determination and (2) any amount described in such clauses which is denominated in a currency other than Dollars shall be valued based on the applicable Exchange Rate for such currency as of the applicable date of determination. Promptly upon 79 receipt by Administrative Agent of any amount described in clause (i)(b) or (ii)(b) of this subsection 3.2, Administrative Agent shall distribute to each Lender its Pro Rata Share of such amount. 3.3 Drawings and Reimbursement of Amounts Paid Under Letters of Credit. ------------------------------------------------------------------ A. Responsibility of Issuing Lender With Respect to Drawings. In determining whether to honor any drawing under any Letter of Credit by the beneficiary thereof, the Issuing Lender shall be responsible only to examine the documents delivered under such Letter of Credit with reasonable care so as to ascertain whether they appear on their face to be in accordance with the terms and conditions of such Letter of Credit. B. Reimbursement by Company of Amounts Paid Under Letters of Credit. In the event an Issuing Lender has determined to honor a drawing under a Letter of Credit issued by it, such Issuing Lender shall immediately notify Company and Administrative Agent, and Company shall reimburse such Issuing Lender on or before the Business Day immediately following the date on which such drawing is honored (the "Reimbursement Date") in an amount in Dollars (which amount, in the case of a drawing under a Letter of Credit which is denominated in a currency other than Dollars, shall be calculated by reference to the applicable Exchange Rate) and in same day funds equal to the amount of such honored drawing; provided that, anything contained in this Agreement to the contrary -------- notwithstanding, (i) unless Company shall have notified Administrative Agent and such Issuing Lender prior to 11:00 A.M. (New York City time) on the date such drawing is honored that Company intends to reimburse such Issuing Lender for the amount of such honored drawing with funds other than the proceeds of Revolving Loans, Company shall be deemed to have given a timely Notice of Borrowing to Administrative Agent requesting Lenders to make Revolving Loans that are Base Rate Loans on the Reimbursement Date in an amount in Dollars (which amount, in the case of a drawing under a Letter of Credit which is denominated in a currency other than Dollars, shall be calculated by reference to the applicable Exchange Rate) equal to the amount of such honored drawing and (ii) subject to satisfaction or waiver of the conditions specified in subsection 4.2B, Lenders shall, on the Reimbursement Date, make Revolving Loans that are Base Rate Loans in the amount of such honored drawing, the proceeds of which shall be applied directly by Administrative Agent to reimburse such Issuing Lender for the amount of such honored drawing; and provided, further that if for any reason proceeds -------- ------- of Revolving Loans are not received by such Issuing Lender on the Reimbursement Date in an amount equal to the amount of such honored drawing, Company shall reimburse such Issuing Lender, on demand, in an amount in same day funds equal to the excess of the amount of such honored drawing over the aggregate amount of such Revolving Loans, if any, which are so received. Nothing in this subsection 3.3B shall be deemed to relieve any Lender from its obligation to make Revolving Loans on the terms and conditions set forth in this Agreement, and Company shall retain any and all rights it may have against any Lender resulting from the failure of such Lender to make such Revolving Loans under this subsection 3.3B. 80 C. Payment by Lenders of Unreimbursed Amounts Paid Under Letters of Credit. (i) Payment by Lenders. In the event that Company shall fail for ------------------ any reason to reimburse any Issuing Lender as provided in subsection 3.3B in an amount (calculated, in the case of a drawing under a Letter of Credit denominated in a currency other than Dollars, by reference to the applicable Exchange Rate) equal to the amount of any drawing honored by such Issuing Lender under a Letter of Credit issued by it, such Issuing Lender shall promptly notify each other Lender of the unreimbursed amount of such honored drawing and of such other Lender's respective participation therein based on such Lender's Pro Rata Share of the Revolving Loan Commitments. Each Lender shall make available to such Issuing Lender an amount equal to its respective participation, in Dollars and in same day funds, at the office of such Issuing Lender specified in such notice, not later than 12:00 Noon (New York City time) on the first business day (under the laws of the jurisdiction in which such office of such Issuing Lender is located) after the date notified by such Issuing Lender. In the event that any Lender fails to make available to such Issuing Lender on such business day the amount of such Lender's participation in such Letter of Credit as provided in this subsection 3.3C, such Issuing Lender shall be entitled to recover such amount on demand from such Lender together with interest thereon at the rate customarily used by such Issuing Lender for the correction of errors among banks for three Business Days and thereafter at the Base Rate. Nothing in this subsection 3.3C shall be deemed to prejudice the right of any Lender to recover from any Issuing Lender any amounts made available by such Lender to such Issuing Lender pursuant to this subsection 3.3C in the event that it is determined by the final judgment of a court of competent jurisdiction that the payment with respect to a Letter of Credit by such Issuing Lender in respect of which payment was made by such Lender constituted gross negligence or willful misconduct on the part of such Issuing Lender. (ii) Distribution to Lenders of Reimbursements Received From ------------------------------------------------------- Company. In the event any Issuing Lender shall have been reimbursed by ------- other Lenders pursuant to subsection 3.3C(i) for all or any portion of any drawing honored by such Issuing Lender under a Letter of Credit issued by it, such Issuing Lender shall distribute to each other Lender which has paid all amounts payable by it under subsection 3.3C(i) with respect to such honored drawing such other Lender's Pro Rata Share of all payments subsequently received by such Issuing Lender from Company in reimbursement of such honored drawing when such payments are received. Any such distribution shall be made to a Lender at its primary address set forth below its name on the appropriate signature page hereof or at such other address as such Lender may request. D. Interest on Amounts Paid Under Letters of Credit. (i) Payment of Interest by Company. Company agrees to pay to each ------------------------------ Issuing Lender, with respect to drawings honored under any Letters of Credit issued by it, interest on the amount paid by such Issuing Lender in respect of each such honored drawing from the date such drawing is honored to but excluding the date such amount 81 is reimbursed by Company (including any such reimbursement out of the proceeds of Revolving Loans pursuant to subsection 3.3B) at a rate equal to (a) for the period from the date such drawing is honored to but excluding the Reimbursement Date, the Base Rate plus the Applicable Base Rate Margin ---- for Revolving Loans and (b) thereafter, a rate which is 2% per annum in excess of the rate of interest otherwise payable under this Agreement with respect to Revolving Loans that are Base Rate Loans. Interest payable pursuant to this subsection 3.3D(i) shall be computed on the basis of a 365-day or 366-day year, as the case may be, for the actual number of days elapsed in the period during which it accrues and shall be payable on demand or, if no demand is made, on the date on which the related drawing under a Letter of Credit is reimbursed in full. (ii) Distribution of Interest Payments by Issuing Lender. Promptly --------------------------------------------------- upon receipt by any Issuing Lender of any payment of interest pursuant to subsection 3.3D(i) with respect to a drawing honored under a Letter of Credit issued by it, (a) such Issuing Lender shall distribute to each other Lender, out of the interest received by such Issuing Lender in respect of the period from the date such drawing is honored to but excluding the date on which such Issuing Lender is reimbursed for the amount of such drawing (including any such reimbursement out of the proceeds of Revolving Loans pursuant to subsection 3.3B), the amount that such other Lender would have been entitled to receive in respect of the letter of credit fee that would have been payable in respect of such Letter of Credit for such period pursuant to subsection 3.2 if no drawing had been honored under such Letter of Credit, and (b) in the event such Issuing Lender shall have been reimbursed by other Lenders pursuant to subsection 3.3C(i) for all or any portion of such honored drawing, such Issuing Lender shall distribute to each other Lender which has paid all amounts payable by it under subsection 3.3C(i) with respect to such honored drawing such other Lender's Pro Rata Share of any interest received by such Issuing Lender in respect of that portion of such honored drawing so reimbursed by other Lenders for the period from the date on which such Issuing Lender was so reimbursed by other Lenders to but excluding the date on which such portion of such honored drawing is reimbursed by Company. Any such distribution shall be made to a Lender at its primary address set forth below its name on the appropriate signature page hereof or at such other address as such Lender may request. 3.4 Obligations Absolute. -------------------- The obligation of Company to reimburse each Issuing Lender for drawings honored under the Letters of Credit issued by it and to repay any Revolving Loans made by Lenders pursuant to subsection 3.3B and the obligations of Lenders under subsection 3.3C(i) shall be unconditional and irrevocable and shall be paid strictly in accordance with the terms of this Agreement under all circumstances including any of the following circumstances: (i) any lack of validity or enforceability of any Letter of Credit; (ii) the existence of any claim, set-off, defense or other right which Company or any Lender may have at any time against a beneficiary or any transferee of any Letter 82 of Credit (or any Persons for whom any such transferee may be acting), any Issuing Lender or other Lender or any other Person or, in the case of a Lender, against Company, whether in connection with this Agreement, the transactions contemplated herein or any unrelated transaction (including any underlying transaction between Holdings or one of its Subsidiaries and the beneficiary for which any Letter of Credit was procured); (iii) any draft or other document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (iv) any adverse change in the business, operations, properties, assets, condition (financial or otherwise) or prospects of Holdings or any of its Subsidiaries; (v) any breach of this Agreement or any other Loan Document by any party thereto; (vi) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing; or (vii) the fact that an Event of Default or a Potential Event of Default shall have occurred and be continuing; provided, in each case, that payment by the applicable Issuing Lender under the - -------- applicable Letter of Credit shall not have constituted bad faith, gross negligence or willful misconduct of such Issuing Lender under the circumstances in question (as determined by a final judgment of a court of competent jurisdiction). 3.5 Indemnification; Nature of Issuing Lenders' Duties. -------------------------------------------------- A. Indemnification. In addition to amounts payable as provided in subsection 3.6, Company hereby agrees to protect, indemnify, pay and save harmless each Issuing Lender from and against any and all claims, demands, liabilities, damages, losses, costs, charges and expenses (including reasonable fees, expenses and disbursements of counsel and allocated costs of internal counsel) which such Issuing Lender may incur or be subject to as a consequence, direct or indirect, of (i) the issuance of any Letter of Credit by such Issuing Lender, other than as a result of (a) the bad faith, gross negligence or willful misconduct of such Issuing Lender as determined by a final judgment of a court of competent jurisdiction or (b) subject to the following clause (ii), the wrongful dishonor by such Issuing Lender of a proper demand for payment made under any Letter of Credit issued by it or (ii) the failure of such Issuing Lender to honor a drawing under any such Letter of Credit as a result of any act or omission, whether rightful or wrongful, of any present or future de jure or de facto government or governmental authority (all such acts or omissions herein called "Governmental Acts"). 83 B. Nature of Issuing Lenders' Duties. As between Company and any Issuing Lender, Company assumes all risks of the acts and omissions of, or misuse of the Letters of Credit issued by such Issuing Lender by, the respective beneficiaries of such Letters of Credit. In furtherance and not in limitation of the foregoing, such Issuing Lender shall not be responsible for: (i) the form, validity, sufficiency, accuracy, genuineness or legal effect of any document submitted by any party in connection with the application for and issuance of any such Letter of Credit, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (ii) the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign any such Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason; (iii) so long as such Issuing Lender complies with its responsibilities under subsection 3.3A, failure of the beneficiary of any such Letter of Credit to comply fully with any conditions required in order to draw upon such Letter of Credit; (iv) errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex or otherwise, whether or not they be in cipher; (v) errors in interpretation of technical terms; (vi) any loss or delay in the transmission or otherwise of any document required in order to make a drawing under any such Letter of Credit or of the proceeds thereof; (vii) the misapplication by the beneficiary of any such Letter of Credit of the proceeds of any drawing under such Letter of Credit; or (viii) any consequences arising from causes beyond the control of such Issuing Lender, including any Governmental Acts, and none of the above shall affect or impair, or prevent the vesting of, any of such Issuing Lender's rights or powers hereunder. In furtherance and extension and not in limitation of the specific provisions set forth in the first paragraph of this subsection 3.5B, any action taken or omitted by any Issuing Lender under or in connection with the Letters of Credit issued by it or any documents and certificates delivered thereunder, if taken or omitted in good faith, shall not put such Issuing Lender under any resulting liability to Company. Notwithstanding anything to the contrary contained in this subsection 3.5, Company shall retain any and all rights it may have against any Issuing Lender for any liability arising out of the bad faith, gross negligence or willful misconduct of such Issuing Lender, as determined by a final judgment of a court of competent jurisdiction. 3.6 Increased Costs and Taxes Relating to Letters of Credit. ------------------------------------------------------- Subject to the provisions of subsection 2.7B (which shall be controlling with respect to the matters covered thereby), in the event that any Issuing Lender or Lender shall determine (which determination shall, absent manifest error, be final and conclusive and binding upon all parties hereto) that any law, treaty or governmental rule, regulation or order, or any change therein or in the interpretation, administration or application thereof (including the introduction of any new law, treaty or governmental rule, regulation or order), or any determination of a court or governmental authority, in each case that becomes effective after the date hereof, or compliance by any Issuing Lender or Lender with any guideline, request or directive issued or made after the date hereof by any central bank or other governmental or quasi-governmental authority (whether or not having the force of law): 84 (i) subjects such Issuing Lender or Lender (or its applicable lending or letter of credit office) to any additional Tax (other than any Tax on the overall net income of such Issuing Lender or Lender) with respect to the issuing or maintaining of any Letters of Credit or the purchasing or maintaining of any participations therein or any other obligations under this Section 3, whether directly or by such being imposed on or suffered by any particular Issuing Lender; (ii) imposes, modifies or holds applicable any reserve (including any marginal, emergency, supplemental, special or other reserve), special deposit, compulsory loan, FDIC insurance or similar requirement in respect of any Letters of Credit issued by any Issuing Lender or participations therein purchased by any Lender; or (iii) imposes any other condition (other than with respect to a Tax matter) on or affecting such Issuing Lender or Lender (or its applicable lending or letter of credit office) regarding this Section 3 or any Letter of Credit or any participation therein; and the result of any of the foregoing is to increase the cost to such Issuing Lender or Lender of agreeing to issue, issuing or maintaining any Letter of Credit or agreeing to purchase, purchasing or maintaining any participation therein or to reduce any amount received or receivable by such Issuing Lender or Lender (or its applicable lending or letter of credit office) with respect thereto; then, in any case, Company shall promptly pay to such Issuing Lender or Lender, upon receipt of the statement referred to in the next sentence, such additional amount or amounts as may be necessary to compensate such Issuing Lender or Lender for any such increased cost or reduction in amounts received or receivable hereunder. Such Issuing Lender or Lender shall deliver to Company a written statement, setting forth in reasonable detail the basis for calculating the additional amounts owed to such Issuing Lender or Lender under this subsection 3.6, which statement shall be conclusive and binding upon all parties hereto absent manifest error. SECTION 4. CONDITIONS TO LOANS AND LETTERS OF CREDIT The obligations of Lenders to make Loans and the issuance of Letters of Credit hereunder are subject to the satisfaction of the following conditions. 4.1 Conditions to Tranche A Term Loans and Recapitalization Revolving Loans. ----------------------------------------------------------------------- The obligations of Lenders to make the Tranche A Term Loans and any Revolving Loans to be made on the Closing Date are, in addition to the conditions precedent specified in subsection 4.2, subject to prior or concurrent satisfaction of the following conditions: A. Loan Party Documents. On or before the Closing Date, Company shall, and shall cause each other Loan Party to, deliver to Lenders (or to Administrative Agent for Lenders 85 with sufficient originally executed copies, where appropriate, for each Lender and its counsel) the following with respect to Company or such Loan Party, as the case may be, each, unless otherwise noted, dated the Closing Date: (i) Certified copies of the Certificate or Articles of Incorporation of such Person, together with a good standing certificate from the Secretary of State of its jurisdiction of incorporation and each other state in which such Person is qualified as a foreign corporation to do business (except, with respect to Loan Parties other than Company, any such other state or states in which failure to be qualified could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect (provided that no such state shall be a state in which real -------- property of the applicable Loan Party is located)) and, to the extent generally available, a certificate or other evidence of good standing as to payment of any applicable franchise or similar taxes from the appropriate taxing authority of each of such jurisdictions, each dated a recent date prior to the Closing Date; (ii) Copies of the Bylaws of such Person, certified as of the Closing Date by such Person's corporate secretary or an assistant secretary; (iii) Resolutions of the Board of Directors of such Person approving and authorizing the execution, delivery and performance of the Loan Documents and Related Agreements to which it is a party, certified as of the Closing Date by the corporate secretary or an assistant secretary of such Person as being in full force and effect without modification or amendment; (iv) Signature and incumbency certificates of the officers of such Person executing the Loan Documents to which it is a party; (v) Executed originals of the Loan Documents to which such Person is a party; and (vi) Such other documents as Syndication Agent or Administrative Agent may reasonably request. B. No Material Adverse Effect. Since August 31, 1997, no Material Adverse Effect (in the opinion of Syndication Agent and Administrative Agent) shall have occurred. C. Corporate and Capital Structure, Ownership, Management, Etc. (i) Corporate Structure. The corporate organizational structure of ------------------- Holdings and its Subsidiaries, after giving effect to the Recapitalization Transactions, shall be as set forth on Schedule 4.1C annexed hereto. ------------- (ii) Capital Structure and Ownership. The capital structure and ------------------------------- ownership of Holdings and its Subsidiaries, after giving effect to the Recapitalization Transactions, 86 shall be reasonably satisfactory to Syndication Agent and Administrative Agent in all respects and as set forth on Schedule 4.1C annexed hereto. ------------- (iii) Employment Agreement. Syndication Agent and Administrative -------------------- Agent shall have received a duly executed copy of, and shall be reasonably satisfied with the form and substance of, the Employment Agreement. D. Proceeds of Debt and Equity Capitalization of Merger Corp., Holdings and Company. (i) Equity Capitalization. On or before the Closing Date, Bain, --------------------- the Other Investors and the Management Investors shall have made the Equity Contribution. (ii) AXELs. On the Closing Date, Company shall have borrowed ----- $330,000,000 in aggregate principal amount of AXELs under the AXEL Credit Agreement. (iii) Senior Subordinated Notes. On or before the Closing Date, ------------------------- Company shall have issued and sold for Cash not less than $125,000,000 in aggregate principal amount of Senior Subordinated Notes providing net Cash proceeds to Company of not less than $125,000,000. (iv) Discount Notes. On or before the Closing Date, Company shall -------------- have issued and sold for Cash Discount Notes providing net Cash proceeds to Company of not less than $75,000,000. (v) Use of Proceeds. Company shall have provided evidence --------------- reasonably satisfactory to Syndication Agent and Administrative Agent that the proceeds of the debt and equity capitalization of Merger Corp. and Company described in the immediately preceding clauses (i), (ii), (iii) and (iv) have been irrevocably committed, prior to the application of the proceeds of the Recapitalization Revolving Loans, to the payment of a portion of the Recapitalization Financing Requirements. E. Related Agreements; AXEL Credit Documents. (i) The Bain Advisory Services Agreement, the Harvard Advisory Services Agreement and the Related Agreements shall each be reasonably satisfactory in form and substance to Syndication Agent and Administrative Agent. (ii) Syndication Agent and Administrative Agent shall each have received a fully executed or conformed copy of the Bain Advisory Services Agreement, the Harvard Advisory Services Agreement and each Related Agreement and any documents executed in connection therewith, and the Bain Advisory Services Agreement, the Harvard Advisory Services Agreement and each Related Agreement shall be in full force and effect and no provision thereof related to payments thereunder shall have been modified 87 or waived in any respect determined by Syndication Agent or Administrative Agent to be material, in each case without the consent of Syndication Agent and Administrative Agent. (iii) Syndication Agent and Administrative Agent shall each have received a fully executed or conformed copy of the AXEL Credit Documents, including the AXEL Credit Agreement (and all exhibits and schedules thereto), any promissory notes evidencing the AXELs and the Intercreditor Agreement, each of which shall be in form and substance reasonably satisfactory to Syndication Agent and Administrative Agent, and each such agreement and promissory note shall be in full force and effect. F. Matters Relating to Existing Indebtedness of Holdings and its Subsidiaries. (i) Termination of Existing Credit Agreement and Related Liens; ----------------------------------------------------------- Existing Letters of Credit. On the Closing Date, Holdings and its -------------------------- Subsidiaries shall have (a) repaid in full all Indebtedness outstanding under the Existing Credit Agreement, (b) terminated any commitments to lend or make other extensions of credit thereunder, (c) delivered to Syndication Agent and Administrative Agent all documents or instruments necessary to release all Liens securing Indebtedness or other obligations of Holdings and its Subsidiaries thereunder, and (d) made arrangements reasonably satisfactory to Syndication Agent and Administrative Agent with respect to the cancellation of any letters of credit outstanding thereunder or the issuance of Letters of Credit to support the obligations of Holdings and its Subsidiaries with respect thereto. (ii) Consent Solicitation. Pursuant to the Consent Solicitation, -------------------- Holdings shall have obtained all such consents and amendments with respect to the Existing Subordinated Note Indenture as may be required to permit the consummation of the Recapitalization Transactions, the related financings (including the incurrence of the Obligations hereunder) and the other transactions contemplated by the Loan Documents. (iii) Consummation of Debt Tender Offer. Holdings shall have --------------------------------- repurchased all of the Existing Subordinated Notes tendered in the Debt Tender Offer for cash consideration in an aggregate amount not to exceed $220,000,000 plus any accrued and unpaid interest on such Existing ---- Subordinated Notes. (iv) No Existing Indebtedness to Remain Outstanding. Syndication ---------------------------------------------- Agent and Administrative Agent shall have received an Officers' Certificate of Company stating that, after giving effect to the transactions described in this subsection 4.1F, the Loan Parties shall have no Indebtedness outstanding to Persons other than the Loan Parties other than Indebtedness under the Loan Documents, the Senior Subordinated Notes, the Discount Notes and the Junior Subordinated Seller Notes, Indebtedness with respect to Existing Subordinated Notes not tendered in the Debt Tender Offer, and Indebtedness set forth on Schedule 7.1 annexed hereto. ------------ 88 G. Necessary Governmental Authorizations and Consents; Expiration of Waiting Periods, Etc. Holdings and Company shall have obtained all Governmental Authorizations and all consents of other Persons, in each case that are necessary in connection with the Recapitalization Transactions, the Merger and the other transactions contemplated by the Loan Documents and the Related Agreements, and the continued operation of the business conducted by Holdings and its Subsidiaries in substantially the same manner as conducted prior to the consummation of the Recapitalization Transactions and the Merger, and each of the foregoing shall be in full force and effect, in each case other than those the failure to obtain or maintain which, either individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect. All applicable waiting periods shall have expired without any action being taken or threatened by any competent authority which would restrain, prevent or otherwise impose adverse conditions on the Recapitalization Transactions or the Merger or the financing thereof. No action, request for stay, petition for review or rehearing, reconsideration, or appeal with respect to any of the foregoing shall be pending, and the time for any applicable agency to take action to set aside its consent on its own motion shall have expired. H. Consummation of Recapitalization Transactions and Merger. (i) All conditions to the Recapitalization Transactions shall have been satisfied pursuant to documentation, including, without limitation, the Recapitalization Agreement and the Certificate of Merger, reasonably satisfactory to Syndication Agent or the fulfillment of such conditions shall have been waived with the consent of Syndication Agent, such consent not to be unreasonably withheld; (ii) The aggregate cash consideration paid to the holders of equity interests in Holdings in respect of such equity interests in connection with the Merger shall not exceed $415,100,000; (iii) the Merger shall have become effective in accordance with the terms of the Recapitalization Agreement, the Certificate of Merger and the laws of the State of Delaware; (iv) Holdings shall have issued not more than $25,000,000 in aggregate principal amount of Junior Subordinated Seller Notes in exchange for all preferred stock of Holdings outstanding immediately prior to the Closing Date; (v) Transaction Costs shall not exceed $32,000,000; and (vi) Syndication Agent and Administrative Agent shall have received an Officers' Certificate of Company and Holdings to the effect set forth in clauses (i)-(v) above and stating that Company and Holdings will proceed to consummate the Recapitalization Transactions immediately upon the making of the initial Tranche A Term Loans. 89 I. Closing Date Mortgages; Closing Date Mortgage Policies; Etc. Agents shall have received from Holdings, Company and each applicable Subsidiary Guarantor: (i) Closing Date Mortgages. Fully executed and notarized Mortgages ---------------------- (each a "Closing Date Mortgage" and, collectively, the "Closing Date Mortgages"), in proper form for recording in all appropriate places in all applicable jurisdictions, encumbering each Real Property Asset listed in Schedule 4.1I annexed hereto (each a "Closing Date Mortgaged Property" ------------- and, collectively, the "Closing Date Mortgaged Properties"); (ii) Opinions of Local Counsel. An opinion of counsel (which ------------------------- counsel shall be reasonably satisfactory to Syndication Agent and Administrative Agent) in each state in which a Closing Date Mortgaged Property is located with respect to the enforceability of the form(s) of Closing Date Mortgages to be recorded in such state and such other matters as Syndication Agent and Administrative Agent may reasonably request, in each case in form and substance reasonably satisfactory to Syndication Agent and Administrative Agent; provided, however, that Syndication Agent -------- ------- and Administrative Agent may determine in their reasonable discretion that an opinion of counsel in any one or more of such states shall not be required hereunder; (iii) Landlord Consents and Estoppels; Recorded Leasehold Interests. ------------------------------------------------------------- In the case of each Closing Date Mortgaged Property consisting of a Leasehold Property, (a) a Landlord Consent and Estoppel with respect thereto and (b) evidence that such Leasehold Property is a Recorded Leasehold Interest; (iv) Title Insurance. (a) ALTA mortgagee title insurance policies --------------- or unconditional commitments therefor (the "Closing Date Mortgage Policies") issued by the Title Company with respect to the Closing Date Mortgaged Properties listed in Part A of Schedule 4.1I annexed hereto, in ------------- amounts not less than the respective amounts designated therein with respect to any particular Closing Date Mortgaged Properties, insuring fee simple title to, or a valid leasehold interest in, each such Closing Date Mortgaged Property vested in such Loan Party and assuring Administrative Agent that the applicable Closing Date Mortgages create valid and enforceable First Priority mortgage Liens on the respective Closing Date Mortgaged Properties encumbered thereby, which Closing Date Mortgage Policies (1) shall include an endorsement for mechanics' liens, for future advances (in each case, if available) under this Agreement and for any other matters reasonably requested by Syndication Agent or Administrative Agent and (2) shall provide for affirmative insurance and such reinsurance as Administrative Agent may reasonably request, all of the foregoing in form and substance reasonably satisfactory to Syndication Agent and Administrative Agent; and (b) evidence reasonably satisfactory to Syndication Agent and Administrative Agent that such Loan Party has (i) delivered to the Title Company all certificates and affidavits required by the Title Company in connection with the issuance of the Closing Date Mortgage Policies and (ii) paid to the Title Company or to the appropriate governmental authorities all expenses and premiums of the Title Company in connection with the issuance of the 90 Closing Date Mortgage Policies and all recording and stamp taxes (including mortgage recording and intangible taxes) payable in connection with recording the Closing Date Mortgages in the appropriate real estate records; (v) Copies of Documents Relating to Title Exceptions. Copies of all ------------------------------------------------ recorded documents listed as exceptions to title or otherwise referred to in the Closing Date Mortgage Policies or in the title reports delivered pursuant to subsection 4.1I(iv); and (vi) Matters Relating to Flood Hazard Properties. (a) Evidence, which ------------------------------------------- may be in the form of a surveyor's note on a survey or a report from a flood hazard search firm, as to whether (1) any Closing Date Mortgaged Property is a Flood Hazard Property and (2) the community in which any such Flood Hazard Property is located is participating in the National Flood Insurance Program, (b) if there are any such Flood Hazard Properties, such Loan Party's written acknowledgement of receipt of written notification from Administrative Agent (1) as to the existence of each such Flood Hazard Property and (2) as to whether the community in which each such Flood Hazard Property is located is participating in the National Flood Insurance Program, and (c) in the event any such Flood Hazard Property is located in a community that participates in the National Flood Insurance Program, evidence that Company has obtained flood insurance in respect of such Flood Hazard Property to the extent required under the applicable regulations of the Board of Governors of the Federal Reserve System. J. Security Interests in Personal and Mixed Property. To the extent not otherwise satisfied pursuant to subsection 4.1I, each of Syndication Agent and Administrative Agent shall have received evidence satisfactory to it that Holdings, Company and Subsidiary Guarantors shall have taken or caused to be taken all such actions, executed and delivered or caused to be executed and delivered all such agreements, documents and instruments, and made or caused to be made all such filings and recordings (other than the filing or recording of items described in clauses (iii), (iv) and (v) below) that may be necessary or, in the reasonable opinion of Syndication Agent and Administrative Agent, desirable in order to create in favor of Administrative Agent, for the benefit of Lenders, a valid and (upon such filing and recording) perfected First Priority security interest in the entire personal and mixed property Collateral. Such actions shall include the following: (i) Schedules to Collateral Documents. Delivery to Administrative --------------------------------- Agent of accurate and complete schedules to all of the applicable Collateral Documents. (ii) Stock Certificates and Instruments. Delivery to Administrative ---------------------------------- Agent of (a) certificates (which certificates shall be accompanied by irrevocable undated stock powers, duly endorsed in blank and otherwise satisfactory in form and substance to Administrative Agent) representing all capital stock pledged pursuant to the Holdings Pledge Agreement, Company Pledge Agreement and Subsidiary Pledge Agreement and (b) all promissory notes or other instruments (duly endorsed, where appropriate, in a manner satisfactory to Administrative Agent) evidencing any Collateral; 91 (iii) Lien Searches and UCC Termination Statements. Delivery to -------------------------------------------- Syndication Agent and Administrative Agent of (a) the results of a recent 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 any Loan Party, together with copies of all such filings disclosed by such search, and (b) 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 such search (other than any such financing statements or fixture filings in respect of Liens permitted to remain outstanding pursuant to the terms of this Agreement). (iv) UCC Financing Statements and Fixture Filings. Delivery to -------------------------------------------- Administrative Agent of UCC financing statements and, where appropriate, fixture filings, duly executed by each applicable Loan Party with respect to all personal and mixed property Collateral of such Loan Party, for filing in all jurisdictions as may be necessary or, in the opinion of Syndication Agent and Administrative Agent, desirable to perfect the security interests created in such Collateral pursuant to the Collateral Documents; (v) PTO Cover Sheets, Etc. Delivery to Administrative Agent of all --------------------- cover sheets or other documents or instruments required to be recorded with the PTO in order to create or perfect Liens in respect of any U.S. patents, federally registered trademarks or copyrights, or applications for any of the foregoing, included among the IP Collateral; and (vi) Opinions of Local Counsel. Delivery to Syndication Agent and ------------------------- Administrative Agent of an opinion of counsel under the laws of each jurisdiction for which an opinion is delivered under subsection 4.1I(ii) and in which any Loan Party or any personal or mixed property Collateral is located with respect to the creation and perfection of the security interests in favor of Administrative Agent in such Collateral and such other matters governed by the laws of such jurisdiction regarding such security interests as Syndication Agent and Administrative Agent may reasonably request, in each case in form and substance reasonably satisfactory to Syndication Agent and Administra tive Agent. K. Environmental Reports. Syndication Agent and Administrative Agent shall have received (i) a Phase I environmental assessment for each of the Facilities listed in Schedule 4.1K annexed hereto (collectively, the "Phase I ------------- Report") which (a) substantially complies with the ASTM Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process, E 1527, and (b) was conducted no more than six months prior to the Closing Date by ENSR or one or more environmental consulting firms reasonably satisfactory to Administrative Agent and (ii) a summary prepared by ENVIRON Corporation (or another firm reasonably satisfactory to Administrative Agent) of all such Phase I Reports. 92 L. Financial Statements; Pro Forma Balance Sheet. On or before the Closing Date, Lenders shall have received from Company (i) audited consolidated financial statements of Holdings and its Subsidiaries for Fiscal Years 1995 and 1996 and unaudited consolidated financial statements of Holding and its Subsidiaries for Fiscal Year 1994, consisting of consolidated balance sheets and the related consolidated statements of income, stockholders' equity and cash flows for such Fiscal Years, (ii) unaudited consolidated financial statements of Holdings and its Subsidiaries for each fiscal month and Fiscal Quarter ended subsequent to the date of the most recent financial statements delivered pursuant to clause (i), consisting of consolidated balance sheets and the related consolidated statements of income, stockholders' equity and cash flows for such periods (except for statements of cash flows for each such monthly period), all in reasonable detail and certified by the principal financial officer or principal accounting officer of Holdings that they fairly present, in all material respects, the financial condition of Holdings and its Subsidiaries as at the dates indicated and the results of their operations and their cash flows for the periods indicated, subject to changes resulting from audit and normal year-end adjustments and the absence of footnotes, and (iii) pro forma consolidated balance sheets of Holdings and its Subsidiaries as at the date of the most recent consolidated balance sheet delivered pursuant to clause (ii), prepared in accordance with GAAP and reflecting the consummation of the Recapitalization Transactions and the Merger, the related financings and the other transactions contemplated by the Loan Documents and the Related Agreements as if such transactions had occurred on such date, which pro forma financial statements shall be in form and substance reasonably satisfactory to Lenders. M. Financial Projections. Lenders shall have received financial projections reasonably satisfactory in form and substance to Syndication Agent and Lenders for Holdings and its Subsidiaries for the period from the Closing Date through November 2007. N. Solvency Assurances. On the Closing Date, Syndication Agent, Administrative Agent and Lenders shall have received (i) a letter from Valuation Research Corporation, dated the Closing Date and addressed to Syndication Agent, Administrative Agent and Lenders, in form and substance reasonably satisfactory to Syndication Agent and Administrative Agent and with appropriate attachments, and (ii) a Financial Condition Certificate dated the Closing Date, substantially in the form of Exhibit XII annexed hereto (with such changes thereto as shall be ----------- approved by Administrative Agent and Syndication Agent in the exercise of their reasonable discretion) and with appropriate attachments, in each case demonstrating that, after giving effect to the consummation of the Recapitalization Transactions and the Merger, the related financings and the other transactions contemplated by the Loan Documents and the Related Agreements, Holdings and its Subsidiaries will be Solvent. O. Evidence of Insurance. Syndication Agent and Administrative Agent shall have received a certificate from Company's insurance broker or other evidence satisfactory to it that all insurance required to be maintained pursuant to subsection 6.4 is in full force and effect and that Administrative Agent on behalf of Lenders has been named as additional insured and/or loss payee thereunder to the extent required under subsection 6.4. 93 P. Opinions of Counsel to Loan Parties. Lenders and their respective counsel shall have received (i) originally executed copies of one or more favorable written opinions of Kirkland & Ellis, counsel for Loan Parties, and of Calfee, Halter & Griswold LLP, special Ohio counsel for Loan Parties, in form and substance reasonably satisfactory to Administrative Agent and Syndication Agent and its counsel, dated as of the Closing Date and setting forth substantially the matters in the opinions designated in Exhibit VIII annexed ------------ hereto and as to such other matters as or Syndication Agent and acting on behalf of Lenders may reasonably request and (ii) evidence satisfactory to Syndication Agent that Company has requested such counsel to deliver such opinions to Lenders. Q. Opinions of Syndication Agent's Counsel. Lenders shall have received originally executed copies of one or more favorable written opinions of O'Melveny & Myers LLP, counsel to Syndication Agent, dated as of the Closing Date, substantially in the form of Exhibit IX annexed hereto and as to such ---------- other matters as Syndication Agent may reasonably request. R. Opinions of Counsel Delivered Under Related Agreements. Administrative Agent and Syndication Agent and its counsel shall have received copies of each of the opinions of counsel delivered to the parties under the Related Agreements, together with a letter from each such counsel (to the extent not inconsistent with such counsel's established internal policies) authorizing Lenders to rely upon such opinion to the same extent as though it were addressed to Lenders. S. Fees and Expenses. Company shall have paid to Syndication Agent and Administrative Agent, for distribution (as appropriate) to Syndication Agent, Administrative Agent and Lenders, the fees payable on the Closing Date referred to in subsection 2.3 and all reasonable expenses for which invoices have been presented on or before the Closing Date. T. Representations and Warranties; Performance of Agreements. Company shall have delivered to Syndication Agent and Administrative Agent an Officers' Certificate, in form and substance reasonably satisfactory to Syndication Agent and Administrative Agent, to the effect that the representations and warranties in Section 5 hereof are true, correct and complete in all material respects on and as of the Closing Date to the same extent as though made on and as of that date (or, to the extent such representations and warranties specifically relate to an earlier date, that such representations and warranties were true, correct and complete in all material respects on and as of such earlier date) and that Holdings and Company shall have performed in all material respects all agreements and satisfied all conditions which this Agreement provides shall be performed or satisfied by them on or before the Closing Date except as otherwise disclosed to and agreed to in writing by Syndication Agent, Administrative Agent and Requisite Lenders. U. Completion of Proceedings. All corporate and other proceedings taken or to be taken in connection with the transactions contemplated hereby and all documents incidental thereto not previously found acceptable by Administrative Agent, acting on behalf of Lenders, or Syndication Agent and its counsel shall be reasonably satisfactory in form and substance to 94 Administrative Agent and Syndication Agent and such counsel, and Administrative Agent, Syndication Agent and such counsel shall have received all such counterpart originals or certified copies of such documents as Administrative Agent or Syndication Agent may reasonably request. Notwithstanding anything herein to the contrary, it is understood and agreed that the documents and other items set forth on Schedule 6.12 annexed ------------- hereto shall be delivered after the Closing Date in accordance with and to the extent required under subsection 6.12. Each Lender, by delivering its signature page to this Agreement and funding its Tranche A Term Loan Commitment and Recapitalization Revolving Loan on the Closing Date, shall be deemed to have acknowledged receipt of, and consented to and approved (as long as substantially in the form delivered to Lenders including any changed pages thereto delivered to Lenders), each Loan Document and each other document required to be approved by Requisite Lenders or Lenders, as applicable. 4.2 Conditions to All Loans. ----------------------- The obligations of Lenders to make Loans on each Funding Date are subject to the following further conditions precedent: A. Administrative Agent shall have received on or before that Funding Date, in accordance with the provisions of subsection 2.1B, an originally executed Notice of Borrowing, in each case signed by the chief executive officer, the principal financial officer, the principal accounting officer or the treasurer of Company or by any authorized employee of Company designated by any of the above-described officers on behalf of Company in a writing delivered to Administrative Agent. B. As of that Funding Date: (i) The representations and warranties contained herein and in the other Loan Documents shall be true, correct and complete in all material respects on and as of that Funding Date to the same extent as though made on and as of that date, except to the extent such representations and warranties specifically relate to an earlier date, in which case such representations and warranties shall have been true, correct and complete in all material respects on and as of such earlier date; (ii) No event shall have occurred and be continuing or would result from the consummation of the borrowing contemplated by such Notice of Borrowing that would constitute an Event of Default or a Potential Event of Default; (iii) No order, judgment or decree of any court, arbitrator or governmental authority shall purport to enjoin or restrain any Lender from making the Loans to be made by it on that Funding Date; 95 (iv) The making of the Loans requested on such Funding Date shall not violate any law including Regulation G, Regulation T, Regulation U or Regulation X of the Board of Governors of the Federal Reserve System; and (v) There shall not be pending or, to the knowledge of Holdings or Company, threatened, any action, suit, proceeding, governmental investigation or arbitration against or affecting Holdings or any of its Subsidiaries or any property of Holdings or any of its Subsidiaries that has not been disclosed by Holdings or Company in writing pursuant to subsection 5.6 or 6.1(x) prior to the making of the last preceding Loans (or, in the case of the initial Loans, prior to the execution of this Agreement), and there shall have occurred no development not so disclosed in any such action, suit, proceeding, governmental investigation or arbitration so disclosed, that, in either event, in the reasonable opinion of Administrative Agent or of Requisite Lenders, would be expected to have a Material Adverse Effect or be inconsistent with the financial statements, balance sheets or financial projections delivered in accordance with subsection 4.1L or 4.1M; and no injunction or other restraining order shall have been issued and no hearing to cause an injunction or other restraining order to be issued shall be pending or noticed with respect to any action, suit or proceeding seeking to enjoin or otherwise prevent the consummation of, or to recover any damages or obtain relief as a result of, the transactions contemplated by this Agreement or the making of Loans hereunder. 4.3 Conditions to Letters of Credit. ------------------------------- The issuance of any Letter of Credit hereunder (whether or not the applicable Issuing Lender is obligated to issue such Letter of Credit) is subject to the following conditions precedent: A. On or before the date of issuance of the initial Letter of Credit pursuant to this Agreement, the initial Loans shall have been made. B. On or before the date of issuance of such Letter of Credit, Administrative Agent shall have received, in accordance with the provisions of subsection 3.1B(i), an originally executed Notice of Issuance of Letter of Credit, in each case signed by the chief executive officer, the principal financial officer, the principal accounting officer or the treasurer of Company or by any authorized employee of Company designated by any of the above-described officers on behalf of Company in a writing delivered to Administrative Agent, together with all other information specified in subsection 3.1B(i) and such other documents or information as the applicable Issuing Lender may reasonably require in connection with the issuance of such Letter of Credit. C. On the date of issuance of such Letter of Credit, all conditions precedent described in subsection 4.2B shall be satisfied to the same extent as if the issuance of such Letter of Credit were the making of a Loan and the date of issuance of such Letter of Credit were a Funding Date. 96 SECTION 5. HOLDINGS' AND COMPANY'S REPRESENTATIONS AND WARRANTIES In order to induce Lenders to enter into this Agreement and to make the Loans, to induce Issuing Lenders to issue Letters of Credit and to induce other Lenders to purchase participations therein, Holdings and Company represent and warrant to each Lender, on the date of this Agreement, on each Funding Date and on the date of issuance of each Letter of Credit, that the following statements are true, correct and complete: 5.1 Organization, Powers, Qualification, Good Standing, Business and ---------------------------------------------------------------- Subsidiaries. ------------ A. Organization and Powers. Each Loan Party is a corporation organized, validly existing and in good standing under the laws of its jurisdiction of incorporation as specified in Schedule 5.1 annexed hereto. Each Loan Party has ------------ all requisite corporate power and authority to own and operate its properties, to carry on its business as now conducted and as proposed to be conducted, to enter into the Loan Documents and Related Agreements to which it is a party and to carry out the transactions contemplated thereby. B. Qualification and Good Standing. Each Loan Party is qualified to do business and in good standing in every jurisdiction where its assets are located and wherever necessary to carry out its business and operations, except in jurisdictions where the failure to be so qualified or in good standing has not had and will not have a Material Adverse Effect. C. Conduct of Business. Holdings and its Subsidiaries are engaged only in the businesses permitted to be engaged in pursuant to subsection 7.13. D. Subsidiaries. All of the Subsidiaries of Holdings as of the Closing Date are identified in Schedule 5.1 annexed hereto. The capital stock of each ------------ of Holdings' Subsidiaries any portion of the capital stock of which is pledged under the Collateral Documents is duly authorized, validly issued, fully paid and nonassessable and none of such capital stock constitutes Margin Stock. Each of the Subsidiaries of Holdings is a corporation organized, validly existing and in good standing under the laws of its respective jurisdiction of incorporation, has all requisite corporate power and authority to own and operate its properties and to carry on its business as now conducted and as proposed to be conducted, and is qualified to do business and in good standing in every jurisdiction where its assets are located and wherever necessary to carry out its business and operations, in each case except where failure to be so qualified or in good standing or a lack of such corporate power and authority has not had and will not have a Material Adverse Effect. Schedule 5.1 annexed ------------ hereto (as so supplemented) correctly sets forth, as of the Closing Date, the ownership interest of Holdings and each of its Subsidiaries in each of the Subsidiaries of Holdings identified therein. 97 5.2 Authorization of Borrowing, etc. -------------------------------- A. Authorization of Borrowing. The execution, delivery and performance of the Loan Documents and the Related Agreements have been duly authorized by all necessary corporate action on the part of each Loan Party that is a party thereto. B. No Conflict. The execution, delivery and performance by Loan Parties of the Loan Documents and the Related Agreements to which they are parties and the consummation of the transactions contemplated by the Loan Documents and such Related Agreements do not (i) violate any provision of any law or any governmental rule or regulation applicable to Holdings or any of its Subsidiaries, the Certificate or Articles of Incorporation or Bylaws of Holdings or any of its Subsidiaries or any order, judgment or decree of any court or other agency of government binding on Holdings or any of its Subsidiaries, (ii) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any Contractual Obligation of Holdings or any of its Subsidiaries, (iii) result in or require the creation or imposition of any Lien upon any of the properties or assets of Holdings or any of its Subsidiaries (other than any Liens created under any of the Loan Documents in favor of Administrative Agent on behalf of Lenders), or (iv) require any approval of stockholders or any approval or consent of any Person under any Contractual Obligation of Holdings or any of its Subsidiaries, except for such approvals or consents which will be obtained on or before the Closing Date and disclosed in writing to Lenders. C. Governmental Consents. The execution, delivery and performance by Loan Parties of the Loan Documents to which they are parties and the consummation of the transactions contemplated by the Loan Documents do not require any registration with, consent or approval of, or notice to, or other action to, with or by, any federal, state or other govern mental authority or regulatory body except to the extent obtained or made and except for those filings made to perfect Liens under the Collateral Documents. The execution, delivery and performance by Loan Parties of the Related Agreements to which they are parties and the consummation of the transactions contemplated by the such Related Agreements do not require any registration with, consent or approval of, or notice to, or other action to, with or by, any federal, state or other governmental authority or regulatory body except (i) to the extent obtained or made or (ii) where the failure to obtain or make any of the foregoing, individually or in the aggregate, is not reasonably likely to have a Material Adverse Effect. D. Binding Obligation. Each of the Loan Documents and Related Agreements has been duly executed and delivered by each Loan Party that is a party thereto and is the legally valid and binding obligation of such Loan Party, enforceable against such Loan Party in accordance with its respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally or by equitable principles relating to enforceability. 98 E. Valid Issuance of Holdings Capital Stock, Senior Subordinated Notes, Discount Notes, and Junior Subordinated Seller Notes. (i) Holdings Common Stock. Holdings Common Stock issued on the --------------------- Closing Date after giving effect to the Merger, when issued and delivered, will be duly and validly issued, fully paid and nonassessable. The issuance and sale of such Holdings Common Stock, upon such issuance and sale, will either (a) have been registered or qualified under applicable federal and state securities laws or (b) be exempt therefrom. (ii) Senior Subordinated Notes and Discount Notes. Company has the -------------------------------------------- corporate power and authority to issue the Senior Subordinated Notes and the Discount Notes. The Senior Subordinated Notes and the Discount Notes, when issued and paid for, will be the legally valid and binding obligations of Company, enforceable against Company in accordance with their respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally or by equitable principles relating to enforceability. The subordination provisions of the Senior Subordinated Notes and the Discount Notes will be enforceable against the holders thereof, and the Loans and all other monetary Obligations hereunder are and will be within the definition of "Senior Debt" included in such provisions. The Senior Subordinated Notes and the Discount Notes, when issued and sold, will either (a) have been registered or qualified under applicable federal and state securities laws or (b) be exempt therefrom. (iii) Junior Subordinated Seller Notes. Holdings has the corporate -------------------------------- power and authority to issue the Junior Subordinated Seller Notes. The Junior Subordinated Seller Notes, when issued and paid for, will be the legally valid and binding obligations of Holdings, enforceable against Holdings in accordance with their terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally or by equitable principles relating to enforceability. The subordination provisions of the Junior Subordinated Seller Notes will be enforceable against the holders thereof, and the Loans and all other monetary Obligations hereunder are and will be within the definition of "Senior Debt" included in such provisions. The Junior Subordinated Seller Notes, when issued and sold, will either (a) have been registered or qualified under applicable federal and state securities laws or (b) be exempt therefrom. 5.3 Financial Condition. ------------------- Company has heretofore delivered to Lenders, at Lenders' request, the following financial statements and information: (i) the audited consolidated balance sheets of Holdings and its Subsidiaries for each of Fiscal Years 1996 and 1995, the unaudited consolidated balance sheet of Holdings and its Subsidiaries for Fiscal Year 1994 and the related consolidated statements of income, stockholders' equity and cash flows of Holdings and its Subsidiaries for each such Fiscal Year and (ii) the unaudited consolidated and consolidating balance sheets of Holdings and its Subsidiaries for each fiscal month and Fiscal Quarter ended subsequent to the date of the most 99 recent financial statements referred to in clause (i) and the related unaudited consolidated statements of income, stockholders' equity and cash flows of Holdings and its Subsidiaries for each such period (except for statements of cash flows for each such monthly period). All such statements were prepared in conformity with GAAP and fairly present, in all material respects, the financial position (on a consolidated basis) of the entities described in such financial statements as at the respective dates thereof and the results of operations and cash flows (on a consolidated basis) of the entities described therein for each of the periods then ended, subject, in the case of any such unaudited financial statements, to changes resulting from audit and normal year-end adjustments and the absence of footnotes. On the Closing Date, Holdings and Company do not (and will not following the funding of the initial Loans) have any Contingent Obligation, contingent liability or liability for taxes, long-term lease or unusual forward or long-term commitment that is not reflected in the foregoing financial statements or the notes thereto and which in any such case is material in relation to the business, operations, properties, assets, condition (financial or otherwise) or prospects of Holdings or any of its Subsidiaries. 5.4 No Material Adverse Change. -------------------------- Since August 31, 1997, no event or change has occurred that has caused or evidences, either in any case or in the aggregate, a Material Adverse Effect. 5.5 Title to Properties; Liens; Real Property. ----------------------------------------- A. Title to Properties; Liens. Holdings and its Subsidiaries have (i) good, sufficient and legal title to (in the case of fee interests in real property), (ii) valid leasehold interests in (in the case of leasehold interests in real or personal property), (iii) valid licenses in (in the case of licensed intangible properties), or (iv) good title to (in the case of all other personal property), all of their respective properties and assets reflected in the most recent financial statements referred to in subsection 5.3 or in the most recent financial statements delivered pursuant to subsection 6.1, in each case subject to Permitted Encumbrances and Liens permitted under subsection 7.2 and except for assets disposed of since the date of such financial statements in the ordinary course of business or as otherwise permitted under subsection 7.7. Except as otherwise permitted by this Agreement, all such properties and assets are free and clear of Liens. B. Real Property. As of the Closing Date, Schedule 5.5 annexed hereto ------------ contains a true, accurate and complete list of (i) all Real Property Assets owned in fee simple by any Loan Party and (ii) all leases, subleases or assignments of leases (together with all amendments, modifications, supplements, renewals or extensions of any thereof) affecting each Real Property Asset of any Loan Party, regardless of whether such Loan Party is the landlord or tenant (whether directly or as an assignee or successor in interest) under such lease, sublease or assignment. As of the Closing Date, except as specified in Schedule -------- 5.5 annexed hereto, each agreement referenced in clause (ii) of the immediately - --- preceding sentence is in full force and effect and Holdings and Company do not have knowledge of any default that has occurred and is continuing thereunder (except where the consequences, direct or indirect, of such default or defaults, if any, would not reasonably be expected to have a Material Adverse Effect), and each such agreement constitutes the legally valid and binding obligation of each applicable Loan 100 Party, enforceable against such Loan Party in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally or by equitable principles. 5.6 Litigation; Adverse Facts. ------------------------- There are no actions, suits, proceedings, arbitrations or governmental investigations (whether or not purportedly on behalf of Holdings or any of its Subsidiaries) at law or in equity, or before or by any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign (including any Environmental Claims) that are pending or, to the knowledge of Holdings or Company, threatened against or affecting Holdings or any of its Subsidiaries or any property of Holdings or any of its Subsidiaries and that, individually or in the aggregate, would reasonably be expected to result in a Material Adverse Effect. Neither Holdings nor any of its Subsidiaries (i) is in violation of any applicable laws (including Environmental Laws) that, individually or in the aggregate, would reasonably be expected to result in a Material Adverse Effect, or (ii) is subject to or in default with respect to any final judgments, writs, injunctions, decrees, rules or regulations of any court or any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, that, individually or in the aggregate, would reasonably be expected to result in a Material Adverse Effect. 5.7 Payment of Taxes. ---------------- Except to the extent permitted by subsection 6.3, all federal, state and other material tax returns and reports of Holdings and its Subsidiaries required to be filed by any of them have been timely filed, and all taxes shown on such tax returns to be due and payable and all assessments, fees and other governmental charges upon Holdings and its Subsidiaries and upon their respective properties, assets, income, businesses and franchises which are due and payable have been paid when due and payable. Holdings and Company know of no proposed material tax assessment against Holdings or any of its Subsidiaries which is not being actively contested by Holdings or such Subsidiary in good faith and by appropriate proceedings; provided that such reserves or other -------- appropriate provisions, if any, as shall be required in conformity with GAAP shall have been made or provided therefor. 5.8 Performance of Agreements; Materially Adverse Agreements. -------------------------------------------------------- A. Neither Holdings nor any of its Subsidiaries is in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any of its Contractual Obligations, and no condition exists that, with the giving of notice or the lapse of time or both, would constitute such a default, except where the consequences, direct or indirect, of such default or defaults, if any, would not have a Material Adverse Effect. B. Neither Holdings nor any of its Subsidiaries is a party to or is otherwise subject to any agreements or instruments or any charter or other internal restrictions which, individually 101 or in the aggregate, compliance with which could reasonably be expected to result in a Material Adverse Effect. 5.9 Governmental Regulation. ----------------------- Neither Holdings nor any of its Subsidiaries is subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act or the Investment Company Act of 1940 or under any other federal or state statute or regulation which may limit its ability to incur Indebtedness or which may otherwise render all or any portion of the Obligations unenforceable. 5.10 Securities Activities. --------------------- A. Neither Holdings nor any of its Subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying any Margin Stock. B. Following application of the proceeds of each Loan, not more than 25% of the value of the assets (either of Holdings only or of Holdings and its Subsidiaries on a consolidated basis) subject to the provisions of subsection 7.2 or 7.7 or subject to any restriction contained in any agreement or instrument, between Company and any Lender or any Affiliate of any Lender, relating to Indebtedness and within the scope of subsection 8.2, will be Margin Stock. 5.11 Employee Benefit Plans. ---------------------- A. Holdings and each of its Subsidiaries are in compliance in all material respects with all applicable provisions and requirements of ERISA and the regulations and published interpretations thereunder with respect to each Employee Benefit Plan, and have performed all their obligations under each Employee Benefit Plan. Each Employee Benefit Plan which is intended to qualify under Section 401(a) of the Internal Revenue Code is so qualified. B. No ERISA Event has occurred or is reasonably expected to occur which has or would reasonably be expected to result in a liability to Holdings or any of its Subsidiaries in excess of $7,500,000. C. Except to the extent required under Section 4980B of the Internal Revenue Code, the aggregate liabilities with respect to health or welfare benefits (through the purchase of insurance or otherwise) provided or promised for any retired or former employee of Holdings or any of its Subsidiaries do not exceed $10,000,000. D. As of the most recent valuation date for any Pension Plan, the amount of unfunded benefit liabilities (as defined in Section 4001(a)(18) of ERISA), individually or in the aggregate for all Pension Plans, does not exceed $10,000,000. 102 E. As of the most recent valuation date for each Multiemployer Plan for which the actuarial report is available, the potential liability of Holdings, its Subsidiaries and their respective ERISA Affiliates for a complete withdrawal from such Multiemployer Plan (within the meaning of Section 4203 of ERISA), when aggregated with such potential liability for a complete withdrawal from all Multiemployer Plans, based on information available pursuant to Section 4221(e) of ERISA, does not exceed $10,000,000. 5.12 Certain Fees. ------------ Except as set forth on Schedule 5.12 annexed hereto, no broker's or ------------- finder's fee or commission will be payable with respect to this Agreement or any of the transactions contemplated hereby, and Holdings and Company hereby indemnifies Lenders against, and agrees that it will hold Lenders harmless from, any claim, demand or liability for any such broker's or finder's fees alleged to have been incurred in connection herewith or therewith and any expenses (including reasonable fees, expenses and disbursements of counsel) arising in connection with any such claim, demand or liability. 5.13 Environmental Protection. ------------------------ Except as set forth on Schedule 5.13 annexed hereto: ------------- (i) Neither Holdings nor any of its Subsidiaries nor any of their respective Facilities or operations are subject to any outstanding written order, consent decree or settlement agreement with any Person relating to (a) any Environmental Law, (b) any Environmental Claim, or (c) any Hazardous Materials Activity that, in the case of (a), (b) or (c), individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect; (ii) Neither Holdings nor any of its Subsidiaries has received any letter or written request for information from any governmental agency under Section 104 of the Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C. (S) 9604) or any comparable state law; (iii) To Holdings' and Company's knowledge, there are no and have been no conditions, occurrences, or Hazardous Materials Activities which could reasonably be expected to form the basis of an Environmental Claim against Holdings or any of its Subsidiaries that, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect; (iv) Holdings maintains an environmental management system designed to maintain compliance with Environmental Laws and correct any incidents of non-compliance; 103 (v) Compliance with all current or reasonably foreseeable future requirements pursuant to or under Environmental Laws would not, individually or in the aggregate, reasonably be expected to give rise to a Material Adverse Effect; and (vi) No event or condition has occurred or is occurring with respect to Holdings or any of its Subsidiaries relating to any Environmental Law, any Release of Hazardous Materials, or any Hazardous Materials Activity which individually or in the aggregate has had or would reasonably be expected to have a Material Adverse Effect. 5.14 Employee Matters. ---------------- There is no strike or work stoppage in existence or threatened involving Holdings or any of its Subsidiaries that could reasonably be expected to have a Material Adverse Effect. 5.15 Solvency. -------- Each Loan Party is and, upon the incurrence of any Obligations by such Loan Party on any date on which this representation is made, will be, Solvent. 5.16 Matters Relating to Collateral. ------------------------------ A. Creation, Perfection and Priority of Liens. The execution and delivery of the Collateral Documents by Loan Parties, together with (i) the actions taken on or prior to the date hereof pursuant to subsections 4.1I, 4.1J, 6.8 and 6.9 and (ii) the delivery to Collateral Agent of any Pledged Collateral not delivered to Collateral Agent at the time of execution and delivery of the applicable Collateral Document (all of which Pledged Collateral has been so delivered) are effective to create in favor of Collateral Agent for the benefit of Lenders, as security for the respective Secured Obligations (as defined in the applicable Collateral Document in respect of any Collateral), a valid and perfected First Priority Lien on all of the Collateral, and all filings and other actions necessary or desirable to perfect and maintain the perfection and First Priority status of such Liens have been duly made or taken and remain in full force and effect, other than the filing of any UCC financing statements delivered to Collateral Agent for filing (but not yet filed) and the periodic filing of UCC continuation statements in respect of UCC financing statements filed by or on behalf of Collateral Agent. B. Governmental Authorizations. 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 pledge or grant by any Loan Party of the Liens purported to be created in favor of Collateral Agent pursuant to any of the Collateral Documents or (ii) the exercise by Collateral Agent of any rights or remedies in respect of any Collateral (whether specifically granted or created pursuant to any of the Collateral Documents or created or provided for by applicable law), except for filings or recordings contemplated by subsection 5.16A and except as may be required, in connection with the disposition of any Pledged Collateral, by laws generally affecting the offering and sale of securities. 104 C. Absence of Third-Party Filings. Except such as may have been filed in favor of Collateral Agent as contemplated by subsection 5.16A, (i) no effective UCC financing statement, fixture filing or other instrument similar in effect covering all or any part of the Collateral is on file in any filing or recording office, except with respect to Permitted Encumbrances and Liens permitted under subsection 7.2A, and (ii) no effective filing covering all or any part of the IP Collateral is on file in the PTO. D. Margin Regulations. The pledge of the Pledged Collateral pursuant to the Collateral Documents does not violate Regulation G, T, U or X of the Board of Governors of the Federal Reserve System. E. Information Regarding Collateral. All information supplied to Administrative Agent or Collateral Agent by or on behalf of any Loan Party with respect to any of the Collateral (in each case taken as a whole with respect to any particular Collateral) is accurate and complete in all material respects. 5.17 Related Agreements. ------------------ A. Delivery of Related Agreements. Company has delivered to Lenders complete and correct copies of each Related Agreement and of all exhibits and schedules thereto. B. Seller's Warranties. Except to the extent otherwise set forth herein or in the schedules hereto, each of the representations and warranties given by Holdings and Zell to Merger Corp. in the Recapitalization Agreement is true and correct as of the date hereof (or as of any earlier date to which such representation and warranty specifically relates) and will be true and correct as of the Closing Date (or as of such earlier date, as the case may be), in each case subject to the qualifications set forth in the schedules to the Recapitalization Agreement, in each case except to the extent that the cause of any failure of any such representation or warranty to be true and correct, either individually or in the aggregate with the causes of the failures of any other such representations and warranties to be true and correct, would not reasonably be expected to have a Material Adverse Effect. C. Warranties of Merger Corp. Subject to the qualifications set forth therein, each of the representations and warranties given by Merger Corp. to Holdings and Zell in the Recapitalization Agreement is true and correct as of the date hereof and will be true and correct as of the Closing Date, in each case except to the extent that the cause of any failure of any such representation or warranty to be true and correct, either individually or in the aggregate with the causes of the failures of any other such representations and warranties to be true and correct, would not reasonably be expected to have a Material Adverse Effect. D. Survival. Notwithstanding anything in the Recapitalization Agreement to the contrary, the representations and warranties of Holdings and Company set forth in subsections 5.17B and 5.17C shall, solely for purposes of this Agreement, survive the Closing Date for the benefit of Lenders. 105 5.18 Disclosure. ---------- All representations and warranties of Holdings or any of its Subsidiaries and all information contained in the Confidential Information Memorandum or in any Loan Document or Related Agreement or in any other document, certificate or written statement furnished to Lenders by or on behalf of Holdings or any of its Subsidiaries for use in connection with the transactions contemplated by this Agreement, taken as a whole, are true and correct in all material respects and do not omit to state a material fact (known to Holdings or Company, in the case of any document not furnished by it) necessary in order to make the statements contained herein or therein (taken as a whole) not misleading in light of the circumstances in which the same were made. Any projections and pro forma financial information contained in such materials are based upon good faith estimates and assumptions believed by Holdings and Company to be reasonable at the time made, it being recognized by Lenders that such projections as to future events are not to be viewed as facts and that actual results during the period or periods covered by any such projections may differ from the projected results. There are no facts known (or which should upon the reasonable exercise of diligence be known) to Holdings or Company (other than matters of a general economic nature) that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect and that have not been disclosed herein or in such other documents, certificates and statements furnished to Lenders for use in connection with the transactions contemplated hereby. 5.19 Subordination of Seller Notes and Shareholder Subordinated Notes. ---------------------------------------------------------------- The subordination provisions of any Permitted Seller Notes and Shareholder Subordinated Notes are enforceable against the holders thereof, and the Loans and other Obligations hereunder are and will be within the definition of "Senior Indebtedness" or "Senior Debt", as applicable, included in such provisions. SECTION 6. HOLDINGS' AND COMPANY'S AFFIRMATIVE COVENANTS Holdings and Company covenant and agree that, so long as any of the Commitments hereunder shall remain in effect and until payment in full of all of the Loans and other 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) and the cancellation or expiration of all Letters of Credit, unless Requisite Lenders shall otherwise give prior written consent, Holdings and Company shall perform, and shall cause each of their Subsidiaries to perform, all covenants in this Section 6. 6.1 Financial Statements and Other Reports. -------------------------------------- Holdings will maintain, and cause each of its Subsidiaries to maintain, a system of accounting established and administered in accordance with sound business practices to permit preparation of financial statements in conformity with GAAP. Company will deliver to 106 Administrative Agent, with sufficient copies for each Lender (and Administrative Agent will, after receipt thereof, deliver to each Lender): (i) Monthly Financials: as soon as available and in any event ------------------ within 30 days after the end of each month ending after the date which is six months after the Closing Date, the consolidated balance sheet of Holdings and its Subsidiaries as at the end of such month and the related consolidated statements of income, stockholders' equity and cash flows of Holdings and its Subsidiaries for such month and for the period from the beginning of the then current Fiscal Year to the end of such month, setting forth in each case in comparative form the corresponding figures for the corresponding periods of the previous Fiscal Year and the corresponding figures from the Financial Plan for the current Fiscal Year, to the extent prepared on a monthly basis, all in reasonable detail and certified by the principal financial officer or principal accounting officer of Holdings that they fairly present, in all material respects, the financial condition of Holdings and its Subsidiaries as at the dates indicated and the results of their operations and their cash flows for the periods indicated, subject to changes resulting from audit and normal year-end adjustments and the absence of footnotes; (ii) Quarterly Financials: as soon as available and in any event -------------------- within 50 days after the end of each Fiscal Quarter, (a) the consolidated balance sheet of Holdings and its Subsidiaries as at the end of such Fiscal Quarter and the related consolidated statements of income, stockholders' equity and cash flows of Holdings and its Subsidiaries for such Fiscal Quarter and for the period from the beginning of the then current Fiscal Year to the end of such Fiscal Quarter, setting forth in each case in comparative form the corresponding figures for the corresponding periods of the previous Fiscal Year and the corresponding figures from the Financial Plan for the current Fiscal Year, all in reasonable detail and certified by the principal financial officer or principal accounting officer of Holdings that they fairly present, in all material respects, the financial condition of Holdings and its Subsidiaries as at the dates indicated and the results of their operations and their cash flows for the periods indicated, subject to changes resulting from audit and normal year-end adjustments and the absence of footnotes, and (b) a narrative report describing the operations of Holdings and its Subsidiaries in the form prepared for presentation to senior management for such Fiscal Quarter and for the period from the beginning of the then current Fiscal Year to the end of such Fiscal Quarter; provided, however, that Company may deliver to Administrative -------- ------- Agent in lieu of such narrative report copies of the unaudited quarterly report filed by Holdings with the Securities and Exchange Commission on Form 10-Q in respect of such Fiscal Quarter; (iii) Year-End Financials: as soon as available and in any event ------------------- within 95 days after the end of each Fiscal Year, (a) the consolidated balance sheet of Holdings and its Subsidiaries as at the end of such Fiscal Year and the related consolidated statements of income, stockholders' equity and cash flows of Holdings and its Subsidiaries for such Fiscal Year, setting forth in each case in comparative form the corresponding figures for the previous Fiscal Year and the corresponding figures from the Financial Plan for the 107 Fiscal Year covered by such financial statements, all in reasonable detail and certified by the principal financial officer or principal accounting officer of Holdings that they fairly present, in all material respects, the financial condition of Holdings and its Subsidiaries as at the dates indicated and the results of their operations and their cash flows for the periods indicated, (b) a narrative report describing the operations of Holdings and its Subsidiaries in the form prepared for presentation to senior management for such Fiscal Year, provided, however, that Company may -------- ------- deliver to Administrative Agent in lieu of such narrative report copies of the report filed by Holdings with the Securities and Exchange Commission on Form 10-K in respect of such Fiscal Year, and (c) in the case of such consolidated financial statements, a report thereon of an Independent Public Accountant, which report shall be unqualified, shall express no doubts about the ability of Holdings and its Subsidiaries to continue as a going concern, and shall state that such consolidated financial statements fairly present, in all material respects, the consolidated financial position of Holdings and its Subsidiaries as at the dates indicated and the results of their operations and their cash flows for the periods indicated in conformity with GAAP applied on a basis consistent with prior years (except as otherwise disclosed in such financial statements) and that the examination by such accountants in connection with such consolidated financial statements has been made in accordance with generally accepted auditing standards; (iv) Officers' and Compliance Certificates: together with each ------------------------------------- delivery of financial statements of Holdings and its Subsidiaries pursuant to subdivisions (i), (ii) and (iii) above, (a) an Officers' Certificate of Holdings stating that the signers have reviewed the terms of this Agreement and have made, or caused to be made under their super vision, a review in reasonable detail of the transactions and condition of Holdings and its Subsidiaries during the accounting period covered by such financial statements and that such review has not disclosed the existence during or at the end of such accounting period, and that the signers do not have knowledge of the existence as at the date of such Officers' Certificate, of any condition or event that constitutes an Event of Default or Potential Event of Default, or, if any such condition or event existed or exists, specifying the nature and period of existence thereof and what action Holdings has taken, is taking and proposes to take with respect thereto; and (b) a Compliance Certificate demonstrating in reasonable detail compliance during and at the end of the applicable accounting periods with the restrictions contained in Section 7, in each case to the extent compliance with such restrictions is required to be tested at the end of the applicable accounting period; (v) Reconciliation Statements; MIS Accounting Changes: (a) if, ------------------------------------------------- as a result of any change in accounting principles and policies from those used in the preparation of the audited financial statements referred to in subsection 5.3, the consolidated financial statements of Holdings and its Subsidiaries delivered pursuant to subdivisions (i), (ii), (iii) or (xiii) of this subsection 6.1 will differ in any material respect from the consolidated financial statements that would have been delivered pursuant to such subdivisions had no such change in accounting principles and policies been made, then (1) together with the first delivery of financial statements pursuant to subdivision (i), (ii), (iii) or (xiii) of this subsection 6.1 following such change, consolidated financial 108 statements of Holdings and its Subsidiaries for (y) the current Fiscal Year to the effective date of such change and (z) the two full Fiscal Years immediately preceding the Fiscal Year in which such change is made, in each case prepared on a pro forma basis as if such change had been in effect during such periods, and (2) together with each delivery of financial statements pursuant to subdivision (i), (ii), (iii) or (xiii) of this subsection 6.1 following such change, a written statement of the principal accounting officer or principal financial officer of Holdings setting forth the differences (including any differences that would affect any calculations relating to the financial covenants set forth in subsection 7.6) which would have resulted if such financial statements had been prepared without giving effect to such change; and (b) if Company changes its method of accounting for Year 2000 Expenditures, MIS Upgrade Expenditures, EITF 97-13 Expenditures or Other MIS Expenditures, then, together with each Compliance Certificate delivered pursuant to subdivision (iv) of this subsection 6.1 following such change, a schedule setting forth in reasonable detail (1) the adjustments to the calculation of Consolidated Adjusted EBITDA and Consolidated Capital Expenditures due to such accounting change and (2) the effect of such accounting changes on the calculation of compliance with the covenants in subsections 7.6C and 7.8; (vi) Accountants' Certification: together with each delivery of -------------------------- consolidated financial statements of Holdings and its Subsidiaries pursuant to subdivision (iii) above, a written statement by the independent certified public accountants giving the report thereon (a) stating that their audit examination has included a review of the terms of this Agreement and the other Loan Documents as they relate to accounting matters, (b) stating whether, in connection with their audit examination, any condition or event that constitutes an Event of Default or Potential Event of Default of a financial nature has come to their attention and, if such a condition or event has come to their attention, specifying the nature and period of existence thereof; provided that such accountants -------- shall not be liable by reason of any failure to obtain knowledge of any such Event of Default or Potential Event of Default that would not be disclosed in the course of their audit examination, and (c) stating that based on their audit examination nothing has come to their attention that causes them to believe either or both that the information contained in the certificates delivered therewith pursuant to subdivision (iv) above is not correct or that the matters set forth in the Compliance Certificates delivered therewith pursuant to clause (b) of subdivision (iv) above for the applicable Fiscal Year are not stated in accordance with the terms of this Agreement; (vii) Accountants' Reports: promptly upon receipt thereof (unless -------------------- restricted by applicable professional standards), copies of all reports submitted to Holdings by independent certified public accountants in connection with each annual, interim or special audit of the financial statements of Holdings and its Subsidiaries made by such accountants, including any comment letter submitted by such accountants to management in connection with their annual audit; (viii) SEC Filings and Press Releases: promptly upon their becoming ------------------------------ available, copies of (a) all financial statements, reports, notices and proxy statements sent or made 109 available generally by Holdings to analysts or its security holders or by any Subsidiary of Holdings to analysts or its security holders other than Holdings or another Subsidiary of Holdings, (b) all regular and periodic reports and all registration statements (other than on Form S-8 or a similar form) and prospectuses, if any, filed by Holdings or any of its Subsidiaries with any securities exchange or with the Securities and Exchange Commission or any governmental or private regulatory authority, and (c) all press releases and other written, publicly announced notices by Holdings or any of its Subsidiaries concerning material developments in the business of Holdings or any of its Subsidiaries; (ix) Events of Default, etc.: promptly upon any Responsible Officer ----------------------- of Holdings or Company obtaining knowledge (a) of any condition or event that constitutes an Event of Default or Potential Event of Default, or becoming aware that any Lender has given any notice (other than to Administrative Agent) or taken any other action with respect to a claimed Event of Default or Potential Event of Default, (b) that any Person has given any notice to Holdings or any of its Subsidiaries or taken any other action with respect to a claimed default or event or condition of the type referred to in subsection 8.2, (c) of any condition or event that would be required to be disclosed in a current report filed by Holdings or Company with the Securities and Exchange Commission on Form 8-K (Items 1, 2, 4, 5 and 6 of such Form as in effect on the date hereof) if Holdings or Company were required to file such reports under the Exchange Act, or (d) of the occurrence of any event or change that has caused or evidences, either in any case or in the aggregate, a Material Adverse Effect, an Officers' Certificate specifying the nature and period of existence of such condition, event or change, or specifying the notice given or action taken by any such Person and the nature of such claimed Event of Default, Potential Event of Default, default, event or condition, and what action Holdings or Company has taken, is taking and proposes to take with respect thereto; (x) Litigation or Other Proceedings: promptly upon any Responsible ------------------------------- Officer of Holdings or Company obtaining knowledge of (a) the institution of, or non-frivolous threat of, any action, suit, proceeding (whether administrative, judicial or otherwise), governmental investigation or arbitration against or affecting Holdings or any of its Subsidiaries or any property of Holdings or any of its Subsidiaries (collectively, ``Proceedings'') not previously disclosed in writing by Holdings or Company to Lenders or (b) any material development in any Proceeding that, in any case: (1) if adversely determined, has a reasonable possibility of giving rise to a Material Adverse Effect; or (2) seeks to enjoin or otherwise prevent the consummation of, or to recover any damages or obtain relief as a result of, the transactions contemplated hereby; 110 written notice thereof together with such other information as may be reasonably available to Holdings or Company to enable Lenders and their counsel to evaluate such matters; (xi) ERISA Events: promptly upon becoming aware of the occurrence ------------ of or forthcoming occurrence of any ERISA Event, a written notice specifying the nature thereof, what action Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates has taken, is taking or proposes to take with respect thereto and, when known, any action taken or threatened by the Internal Revenue Service, the Department of Labor or the PBGC with respect thereto; (xii) ERISA Notices: with reasonable promptness, copies of (a) each ------------- Schedule B (Actuarial Information) to the annual report (Form 5500 Series) filed by Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates with the Internal Revenue Service with respect to each Pension Plan, as Administrative Agent shall reasonably request; (b) all notices received by Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates from a Multiemployer Plan sponsor concerning an ERISA Event; and (c) copies of such other documents or governmental reports or filings relating to any Employee Benefit Plan as Administrative Agent shall reasonably request; (xiii) Financial Plans: as soon as practicable and in any event no --------------- later than 30 days after the beginning of each Fiscal Year, a consolidated plan and financial forecast for such Fiscal Year and the next succeeding Fiscal Year (the ``Financial Plan'' for such Fiscal Years), including (a) a forecasted consolidated balance sheet and forecasted consolidated statements of income and cash flows of Holdings and its Subsidiaries for each such Fiscal Year, together with a pro forma Compliance Certificate for --- ----- the first such Fiscal Year and an explanation of the assumptions on which such forecasts are based, and (b) such other information regarding such projections as Administrative Agent may reasonably request; (xiv) Insurance: as soon as practicable and in any event by the last --------- day of each Fiscal Year, a report in form and substance satisfactory to Administrative Agent outlining all material changes made to insurance coverage maintained as of the Closing Date or the date of the most recent such report by Holdings and its Subsidiaries; (xv) New Subsidiaries: promptly upon any Person becoming a Subsidiary ---------------- of Holdings, a written notice setting forth with respect to such Person (a) the date on which such Person became a Subsidiary of Holdings and (b) the ownership and debt and equity capitalization of such Subsidiary; (xvi) Material Contracts: promptly, and in any event within ten ------------------ Business Days after any Material Contract of Holdings or any of its Subsidiaries is terminated or amended in a manner that is materially adverse to Holdings or such Subsidiary, as the case may be, or any new Material Contract is entered into, a written statement describing 111 such event with copies of such material amendments or new contracts, and an explanation of any actions being taken with respect thereto; and (xvii) Other Information: with reasonable promptness, such other ----------------- information and data with respect to Holdings or any of its Subsidiaries as from time to time may be reasonably requested by Administrative Agent. 6.2 Corporate Existence, etc. ------------------------- Except as permitted under subsection 7.7, Holdings will, and will cause each of its Subsidiaries to, at all times preserve and keep in full force and effect its corporate existence and all rights and franchises material to its business; provided, however that neither Holdings nor any of its Subsidiaries -------- ------- shall be required to preserve any such right or franchise if the Board of Directors of Holdings or such Subsidiary shall determine that the preservation thereof is no longer desirable in the conduct of the business of Holdings or such Subsidiary, as the case may be, and that the loss thereof is not disadvantageous in any material respect to Holdings, such Subsidiary or Lenders. 6.3 Payment of Taxes and Claims; Tax Consolidation. ---------------------------------------------- A. Holdings will, and will cause each of its Subsidiaries to, pay all federal, state and other material taxes, assessments and other governmental charges imposed upon it or any of its properties or assets or in respect of any of its income, businesses or franchises before any penalty accrues thereon, and all claims (including claims for labor, services, materials and supplies) for sums that have become due and payable and that by law have or may become a Lien upon any of its properties or assets, prior to the time when any penalty or fine shall be incurred with respect thereto; provided that no such charge or claim -------- need be paid if it is being contested in good faith by appropriate proceedings promptly instituted and diligently conducted, so long as (1) such reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made therefor and (2) in the case of a charge or claim which has or may become a Lien against any of the Collateral, such contest proceedings conclusively operate to stay the sale of any portion of the Collateral to satisfy such charge or claim. B. Holdings will not, nor will it permit any of its Subsidiaries to, file or consent to the filing of any consolidated income tax return with any Person (other than Holdings or any of its Subsidiaries). 6.4 Maintenance of Properties; Insurance; Application of Net -------------------------------------------------------- Insurance/Condemnation Proceeds. ------------------------------- A. Maintenance of Properties. Company will, and will cause each of its Subsidiaries to, maintain or cause to be maintained in good repair, working order and condition, ordinary wear and tear and damage by casualty excepted, all material properties used or useful in the business of Company and its Subsidiaries (including all Intellectual Property) and from 112 time to time will make or cause to be made all repairs, renewals and replacements thereof which are useful, customary or appropriate for companies in similar businesses. B. Insurance. Company will maintain or cause to be maintained, with financially sound and reputable insurers, such public liability insurance, third party property damage insurance, business interruption insurance and casualty insurance with respect to liabilities, losses or damage in respect of the assets, properties and businesses of Company and its Subsidiaries as may customarily be carried or maintained under similar circumstances by corporations of established reputation engaged in similar businesses, in each case in such amounts (giving effect to self-insurance), with such deductibles, covering such risks and otherwise on such terms and conditions as shall be customary for corporations similarly situated in the industry. Without limiting the generality of the foregoing, Company will maintain or cause to be maintained (i) flood insurance with respect to each Flood Hazard Property that is located in a community that participates in the National Flood Insurance Program, in each case in compliance with any applicable regulations of the Board of Governors of the Federal Reserve System, and (ii) replacement value property insurance on the Collateral under such policies of insurance, with such insurance companies, in such amounts, with such deductibles, and covering such risks as are in accordance with normal industry practice. Each such policy of insurance related to property damage, casualty or business interruption shall (a) name Administrative Agent for the benefit of Lenders as an additional insured thereunder as its interests may appear and (b) in the case of each business interruption and casualty insurance policy, contain a loss payable clause or endorsement, reasonably satisfactory in form and substance to Administrative Agent, that names Administrative Agent for the benefit of Lenders as the loss payee thereunder for any covered loss in excess of $1,000,000 and provides for at least 30 days prior written notice to Administrative Agent of any modification or cancellation of such policy. C. Application of Net Insurance/Condemnation Proceeds. (i) Business Interruption Insurance. Upon receipt by Company or ------------------------------- any of its Subsidiaries of any business interruption insurance proceeds constituting Net Insurance/Condemnation Proceeds, (a) so long as no Event of Default shall have occurred and be continuing, Company or such Subsidiary may retain and apply such Net Insurance/Condemnation Proceeds for working capital purposes, and (b) if an Event of Default shall have occurred and be continuing, Company shall within ten Business Days of the receipt thereof apply an amount equal to such Net Insurance/Condemnation Proceeds to prepay the Loans (and/or the Revolving Loan Commitments shall be reduced) as provided in subsection 2.4B(iii)(b); (ii) Casualty Insurance/Condemnation Proceeds. Within ten Business ---------------------------------------- Days of receipt by Company or any of its Subsidiaries of any Net Insurance/Condemnation Proceeds other than from business interruption insurance, (a) so long as no Event of Default shall have occurred and be continuing and so long as the aggregate amount of Net Asset Sale Proceeds and Net Insurance/Condemnation Proceeds received from the Closing Date to the date of determination does not exceed $25,000,000, Company may deliver to Administrative Agent an Officers' Certificate setting forth (1) that portion of 113 such Net Insurance/Condemnation Proceeds (the "Proposed Insurance Reinvestment Proceeds") that Company or such Subsidiary intends to use (or enter into a contract to use) within 270 days of such date of receipt to pay or reimburse the costs of repairing, restoring or replacing the assets in respect of which such Net Insurance/Condemnation Proceeds were received or to reinvest in Eligible Assets and (2) the proposed use of the Proposed Insurance Reinvestment Proceeds and such other information with respect to such proposed use as Administrative Agent may reasonably request, and Company shall, or shall cause one or more of its Subsidiaries to, promptly and diligently apply such Proposed Insurance Reinvestment Proceeds to pay or reimburse the costs of repairing, restoring or replacing the assets in respect of which such Proposed Insurance Reinvestment Proceeds were received or to reinvestment in Eligible Assets or, to the extent the aggregate amount of Net Asset Proceeds and Net Insurance/Condemnation Proceeds received from the Closing Date to the date of determination exceed $5,000,000 and are not so applied, to prepay the Loans (and/or the Revolving Loan Commitments shall be reduced) as provided in subsection 2.4B(iii)(b), and (b) if an Event of Default shall have occurred and be continuing, Company shall apply an amount equal to such Net Insurance/ Condemnation Proceeds to prepay the Loans (and/or the Revolving Loan Commitments shall be reduced) as provided in subsection 2.4B(iii)(b). (iii) Net Insurance/Condemnation Proceeds Received by Administrative -------------------------------------------------------------- Agent. Within ten Business Days of receipt by Administrative Agent of any ----- Net Insurance/Condemnation Proceeds as loss payee, (a) if and to the extent Company or Company would have been required to apply such Net Insurance/Condemnation Proceeds (if it had received them directly) to prepay the Loans and/or reduce the Revolving Loan Commitments, Administrative Agent shall, and Company hereby authorizes Administrative Agent to, apply such Net Insurance/Condemnation Proceeds to prepay the Loans (and/or the Revolving Loan Commitments shall be reduced) as provided in subsection 2.4B(iii)(b), and (b) to the extent the foregoing clause (a) does not apply, Administrative Agent shall deliver such Net Insurance/Condemnation Proceeds to Company, and Company shall, or shall cause one or more of its Subsidiaries to, promptly apply such Net Insurance/Condemnation Proceeds to the costs of repairing, restoring, or replacing the assets in respect of which such Net Insurance/Condemnation Proceeds were received or to reinvestment in Eligible Assets. 6.5 Inspection Rights; Audits of Inventory and Accounts Receivable; Lender ---------------------------------------------------------------------- Meeting. ------- A. Inspection Rights. Holdings shall, and shall cause each of its Subsidiaries to, permit any authorized representatives designated by any Lender to visit and inspect any of the properties of Holdings or of any of its Subsidiaries, to inspect, copy and take extracts from its and their financial and accounting records, and to discuss its and their affairs, finances and accounts with its and their officers and independent public accountants (provided that Holdings or Company may, if they so choose, be present at or participate in any such discussion), all upon reasonable notice and at such reasonable times during normal business hours and as often as may reasonably be requested; provided, however, that each Lender shall coordinate with -------- ------- 114 Administrative Agent the frequency and timing of such visits and inspections so as to reasonably minimize the burden imposed on Holdings and its Subsidiaries. B. Audits of Inventory and Accounts Receivable. Holdings shall, and shall cause each of its Subsidiaries to, permit any authorized representatives designated by Administrative Agent to conduct one audit of all Inventory and accounts receivable of Loan Parties during each twelve-month period after the Closing Date, each such audit to be in scope and substance reasonably satisfactory to Syndication Agent and Administrative Agent, all upon reasonable notice and at such reasonable times during normal business hours as may reasonably be requested. C. Lender Meeting. Company will, upon the request of Syndication Agent, Administrative Agent or Requisite Lenders, participate in a meeting of Administrative Agent and Lenders once during each Fiscal Year to be held at Company's corporate offices (or at such other location as may be agreed to by Holdings and Administrative Agent) at such time as may be agreed to by Company and Administrative Agent. 6.6 Compliance with Laws, etc. -------------------------- Holdings shall comply, and shall cause each of its Subsidiaries to comply, with the requirements of all applicable laws, rules, regulations and orders of any governmental authority (including all Environmental Laws), except where noncompliance would not reasonably be expected to cause, individually or in the aggregate, a Material Adverse Effect. 6.7 Environmental Review and Investigation, Disclosure, Etc.; Company's Actions --------------------------------------------------------------------------- Regarding Hazardous Materials Activities, Environmental Claims and ------------------------------------------------------------------ Violations of Environmental Laws. -------------------------------- A. Environmental Review and Investigation. Holdings and Company agree that Administrative Agent may, (i) at any time a fact, event or condition arises that, in Administrative Agent's reasonable discretion, Administrative Agent determines could give rise to environmental liabilities that would materially adversely affect any material Facility, retain, at Company's expense, an independent professional consultant to review any environmental audits, investigations, analyses and reports relating to Hazardous Materials at such Facility prepared by or for Company and (ii) in the event (a) Administrative Agent reasonably believes that Company or Holdings has breached any representation, warranty or covenant contained in subsection 5.6, 5.13, 6.6 or 6.7 or that there has been a material violation of Environmental Laws at any Facility or by Holdings or any of its Subsidiaries at any other location conduct its own investigation of such breach or violation or (b) an Event of Default has occurred and is continuing, conduct its own investigation of any Facility; provided that, in the case of any Facility no longer owned, leased, operated or - -------- used by Holdings or any of its Subsidiaries, Company and Holdings shall only be obligated to use their reasonable best efforts to obtain permission for Administrative Agent's professional consultant to conduct an investigation of such Facility. For purposes of conducting an investigation pursuant to clause (ii) of the preceding sentence, Company and Holdings hereby grant to Administrative Agent and its agents, 115 employees, consultants and contractors the right to enter into or onto any Facilities currently owned, leased, operated or used by Holdings or any of its Subsidiaries and to perform such tests on such property (including taking samples of soil, groundwater and suspected asbestos-containing materials) as are reasonably necessary in connection therewith (to the extent, at any Facility leased by Holdings or any of its Subsidiaries, such actions are permitted by the owner of such Facility). Any such investigation of any Facility shall be conducted, unless otherwise agreed to by Holdings and Administrative Agent, during normal business hours and, to the extent reasonably practicable, shall be conducted so as not to interfere with the ongoing operations at such Facility or to cause any damage or loss to any property at such Facility. Holdings, Company and Administrative Agent hereby acknowledge and agree that any report of any investigation conducted at the request of Administrative Agent pursuant to this subsection 6.7A will be obtained and shall be used by Administrative Agent and Lenders for the purposes of Lenders' internal credit decisions, to monitor and police the Loans and to protect Lenders' security interests, if any, created by the Loan Documents. Administrative Agent agrees to deliver a copy of any such report to Company with the understanding that Company and Holdings acknowledge and agree that (x) they will indemnify and hold harmless Administrative Agent and each Lender from any costs, losses or liabilities relating to Holdings' or Company's use of or reliance on such report, (y) neither Administrative Agent nor any Lender makes any representation or warranty with respect to such report, and (z) by delivering such report to Company, neither Administrative Agent nor any Lender is requiring or recommending the implementation of any suggestions or recommendations contained in such report. B. Environmental Disclosure. Company will deliver to Administrative Agent, with sufficient copies for each Lender (and Administrative Agent will, after receipt thereof, deliver to each Lender): (i) Environmental Audits and Reports. As soon as practicable -------------------------------- following receipt thereof, copies of all material environmental audits, investigations, analyses and reports of any kind or character, whether prepared by personnel of Holdings or any of its Subsidiaries or by independent consultants, governmental authorities or any other Persons, with respect to environmental matters at any Facility that could reasonably be expected to have a Material Adverse Effect. (ii) Notice of Certain Releases, Remedial Actions, Etc. Promptly upon -------------------------------------------------- the occurrence thereof, written notice describing in reasonable detail (a) any Release required to be reported to any federal, state or local governmental or regulatory agency under any applicable Environmental Laws unless such Release could not reasonably be expected to result in a Material Adverse Effect, (b) any remedial action taken by Company, Holdings or any other Person in response to (1) any Hazardous Materials Activities the existence of which would reasonably be expected to result in one or more Environmental Claims having, individually or in the aggregate, a Material Adverse Effect, or (2) any Environmental Claims of which Holdings or any of its Subsidiaries has notice that, individually or in the aggregate, would reasonably be expected to result in a Material Adverse Effect, and (c) Company's or Holdings' discovery of any occurrence or condition on any real property adjoining or in the vicinity of any Facility that would 116 reasonably be expected to cause such Facility or any part thereof to be subject to any material restrictions on the ownership, occupancy, transferability or use thereof under any Environmental Laws. (iii) Written Communications Regarding Environmental Claims, ------------------------------------------------------ Releases, Etc. As soon as practicable following the sending or receipt -------------- thereof by Holdings or any of its Subsidiaries, a copy of any and all written communications with respect to (a) any Environmental Claims that, individually or in the aggregate, would reasonably be expected to give rise to a Material Adverse Effect, (b) any Release required to be reported to any federal, state or local governmental or regulatory agency unless such Release could not reasonably be expected to result in a Material Adverse Effect, and (c) any request for information from any governmental agency that suggests such agency is investigating whether Holdings or any of its Subsidiaries may be potentially responsible for any Hazardous Materials Activity unless such Hazardous Materials Activity could not reasonably be expected to have a Material Adverse Effect. (iv) Notice of Certain Proposed Actions Having Environmental Impact. -------------------------------------------------------------- Prompt written notice describing in reasonable detail (a) any proposed acquisition of stock, assets, or property by Holdings or any of its Subsidiaries that could reasonably be expected to (1) expose Holdings or any of its Subsidiaries to, or result in, Environmental Claims that could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect or (2) affect the ability of Holdings or any of its Subsidiaries to maintain in full force and effect all material Governmental Authorizations required under any Environmental Laws for their respective operations and (b) any proposed action to be taken by Holdings or any of its Subsidiaries to modify current operations in a manner that would reasonably be expected to subject Holdings or any of its Subsidiaries to any material additional obligations or requirements under any Environmental Laws where such obligations or reimbursements would reasonably be expected to have a Material Adverse Effect. (v) Other Information. With reasonable promptness, such other ----------------- documents and information as from time to time may be reasonably requested by Administrative Agent in relation to any matters disclosed pursuant to this subsection 6.7. C. Holdings' and Company's Actions Regarding Hazardous Materials Activities, Environmental Claims and Violations of Environmental Laws. (i) Remedial Actions Relating to Hazardous Materials Activities. ----------------------------------------------------------- Holdings shall promptly undertake, and shall cause each of its Subsidiaries promptly to undertake, any and all investigations, studies, sampling, testing, abatement, cleanup, removal, remediation or other response actions necessary to remove, remediate, clean up or abate any Hazardous Materials Activity on, under or about any Facility that is in violation of any Environmental Laws or that presents a material risk of giving rise to an Environmental Claim that would, in either case, reasonably be expected to have a Material Adverse Effect. In the event Holdings or any of its Subsidiaries undertakes any 117 such action with respect to any Hazardous Materials, Holdings or such Subsidiary shall conduct and complete such action in material compliance with all applicable Environmental Laws and in accordance an all material respects with the policies, orders and directives of all federal, state and local governmental authorities except when, and only to the extent that, Holdings' or such Subsidiary's liability with respect to such Hazardous Materials Activity is being contested in good faith by Holdings or such Subsidiary. (ii) Actions with Respect to Environmental Claims and Violations of -------------------------------------------------------------- Environmental Laws. Holdings shall promptly take, and shall cause each of ------------------ its Subsidiaries promptly to take, any and all actions necessary to (i) cure any violation of applicable Environmental Laws by Holdings or its Subsidiaries where such violation would reasonably be expected to have a Material Adverse Effect and (ii) make an appropriate response to any Environmental Claim against Holdings or any of its Subsidiaries (of which Holdings or any of its Subsidiaries has notice) where such Environmental Claim would reasonably be expected to have a Material Adverse Effect, and discharge any obligations it may have to any Person thereunder. 6.8 Execution of Subsidiary Guaranty and Personal Property Collateral Documents --------------------------------------------------------------------------- by Future Subsidiaries. ---------------------- A. Execution of Subsidiary Guaranty and Personal Property Collateral Documents. In the event that any Domestic Subsidiary which is an Excluded Subsidiary as of the Closing Date ceases to be an Excluded Subsidiary or any Person becomes a Domestic Subsidiary of Company after the date hereof, Company will promptly notify Administrative Agent of that fact and cause such Subsidiary to execute and deliver to Collateral Agent counterparts of the Subsidiary Guaranty, Subsidiary Pledge Agreement, Subsidiary Security Agreement and Subsidiary Patent and Trademark Security Agreement and to take all such further actions and execute all such further documents and instruments (including actions, documents and instruments comparable to those described in subsection 4.1J) as may be reasonably necessary or, in the reasonable opinion of Administrative Agent, desirable to create in favor of Collateral Agent, for the benefit of Lenders, a valid and perfected First Priority Lien on all of the personal and mixed property assets of such Subsidiary described in the applicable forms of Collateral Documents. B. Subsidiary Charter Documents, Legal Opinions, Etc. Company shall deliver to Administrative Agent, together with such Loan Documents, (i) certified copies of such Subsidiary's Certificate or Articles of Incorporation, together with a good standing certificate from the Secretary of State of the jurisdiction of its incorporation and each other state in which such Person is qualified as a foreign corporation to do business and, to the extent generally available, a certificate or other evidence of good standing as to payment of any applicable franchise or similar taxes from the appropriate taxing authority of each of such jurisdictions, each to be dated a recent date prior to their delivery to Administrative Agent, (ii) a copy of such Subsidiary's Bylaws, certified by its corporate secretary or an assistant secretary as of a recent date prior to their delivery to Administrative Agent, (iii) a certificate executed by the secretary 118 or an assistant secretary of such Subsidiary as to (a) the fact that the attached resolutions of the Board of Directors of such Subsidiary approving and authorizing the execution, delivery and performance of such Loan Documents are in full force and effect and have not been modified or amended and (b) the incumbency and signatures of the officers of such Subsidiary executing such Loan Documents, and (iv) to the extent requested by Administrative Agent, a favorable opinion of counsel to such Subsidiary, in form and substance reasonably satisfactory to Administrative Agent and its counsel, as to (a) the due organization and good standing of such Subsidiary, (b) the due authorization, execution and delivery by such Subsidiary of such Loan Documents, (c) the enforceability of such Loan Documents against such Subsidiary, (d) such other matters (including matters relating to the creation and perfection of Liens in any Collateral pursuant to such Loan Documents) as Administrative Agent may reasonably request, all of the foregoing to be reasonably satisfactory in form and substance to Administrative Agent and its counsel. 6.9 Conforming Leasehold Interests; Matters Relating to Additional Real ------------------------------------------------------------------- Property Collateral. ------------------- A. Conforming Leasehold Interests. If Holdings or any of its Subsidiaries acquires any Material Leasehold Property, Holdings shall, use commercially reasonable efforts to, or shall cause such Subsidiary to use commercially reasonable efforts to, cause such Leasehold Property to be a Conforming Leasehold Interest. B. Additional Mortgages, Etc. From and after the Closing Date, in the event that (i) Holdings or any Subsidiary Guarantor acquires any fee interest in real property or any Material Leasehold Property or (ii) at the time any Person becomes a Subsidiary Guarantor, such Person owns or holds any fee interest in real property or any Material Leasehold Property, in either case excluding any such Real Property Asset the encumbrancing of which requires the consent of any applicable lessor or (in the case of clause (ii) above) then-existing senior lienholder, where Holdings and its Subsidiaries are unable, after exercising commercially reasonable efforts, to obtain such lessor's or senior lienholder's consent (any such non-excluded Real Property Asset described in the foregoing clause (i) or (ii) being an "Additional Mortgaged Property"), Holdings or such Subsidiary Guarantor shall deliver to Administrative Agent, as soon as practicable after such Person acquires such Additional Mortgaged Property or becomes a Subsidiary Guarantor, as the case may be, the following: (i) Additional Mortgage. A fully executed and notarized Mortgage (an ------------------- "Additional Mortgage"), in proper form for recording in all appropriate places in all applicable jurisdictions, encumbering the interest of such Loan Party in such Additional Mortgaged Property; (ii) Opinions of Counsel. (a) A favorable opinion of counsel to such ------------------- Loan Party, in form and substance satisfactory to Administrative Agent and its counsel, as to the due authorization, execution and delivery by such Loan Party of such Additional Mortgage and such other matters as Administrative Agent may reasonably request, and (b) if required by Administrative Agent, an opinion of counsel (which counsel shall be 119 reasonably satisfactory to Administrative Agent) in the state in which such Additional Mortgaged Property is located with respect to the enforceability of such Additional Mortgage and such other matters (including any matters governed by the laws of such state regarding personal property security interests in respect of any Collateral related to such Additional Mortgaged Property) as Administrative Agent may reasonably request, in each case in form and substance reasonably satisfactory to Administrative Agent; (iii) Landlord Consent and Estoppel; Recorded Leasehold Interest. In ---------------------------------------------------------- the case of an Additional Mortgaged Property consisting of a Leasehold Property, (a) a Landlord Consent and Estoppel and (b) evidence that such Leasehold Property is a Recorded Leasehold Interest; (iv) Title Insurance. (a) If required by Administrative Agent, an --------------- ALTA mortgagee title insurance policy or an unconditional commitment therefor (an "Additional Mortgage Policy") issued by the Title Company with respect to such Additional Mortgaged Property, in an amount reasonably satisfactory to Administrative Agent, insuring fee simple title to, or a valid leasehold interest in, such Additional Mortgaged Property vested in such Loan Party and assuring Administrative Agent that such Additional Mortgage creates a valid and enforceable First Priority mortgage Lien on such Additional Mortgaged Property, subject only to a standard survey exception, which Additional Mortgage Policy (1) shall include an endorsement for mechanics' liens, for future advances (in each case, if available) under this Agreement and for any other matters reasonably requested by Administrative Agent and (2) shall provide for affirmative insurance and such reinsurance as Administrative Agent may reasonably request, all of the foregoing in form and substance reasonably satisfactory to Administrative Agent; and (b) evidence satisfactory to Administrative Agent that such Loan Party has (i) delivered to the Title Company all certificates and affidavits required by the Title Company in connection with the issuance of the Additional Mortgage Policy and (ii) paid to the Title Company or to the appropriate governmental authorities all expenses and premiums of the Title Company in connection with the issuance of the Additional Mortgage Policy and all recording and stamp taxes (including mortgage recording and intangible taxes) payable in connection with recording the Additional Mortgage in the appropriate real estate records; provided, however, that Administrative Agent shall allow for such reasonable revisions to the applicable Mortgage and shall otherwise take such steps as are reasonable and customary to minimize recording, mortgage recording, stamp, documentary and intangible taxes, at Company's cost; (v) Title Report. If no Additional Mortgage Policy is required ------------ with respect to such Additional Mortgaged Property, a title report issued by the Title Company with respect thereto, last updated not more than 30 days prior to the date such Additional Mortgage is to be recorded and reasonably satisfactory in form and substance to Administrative Agent; 120 (vi) Copies of Documents Relating to Title Exceptions. Copies of all ------------------------------------------------ recorded documents listed as exceptions to title or otherwise referred to in the Additional Mortgage Policy or title report delivered pursuant to clause (iv) or (v) above; (vii) Matters Relating to Flood Hazard Properties. (a) Evidence, ------------------------------------------- which may be in the form of a surveyor's note on a survey or a report from a flood hazard search firm, as to (1) whether such Additional Mortgaged Property is a Flood Hazard Property and (2) if so, whether the community in which such Flood Hazard Property is located is participating in the National Flood Insurance Program, (b) if such Additional Mortgaged Property is a Flood Hazard Property, such Loan Party's written acknowledgement of receipt of written notification from Administrative Agent (1) that such Additional Mortgaged Property is a Flood Hazard Property and (2) as to whether the community in which such Flood Hazard Property is located is participating in the National Flood Insurance Program, and (c) in the event such Additional Mortgaged Property is a Flood Hazard Property that is located in a community that participates in the National Flood Insurance Program, evidence that Holdings or Company has obtained flood insurance in respect of such Flood Hazard Property to the extent required under the applicable regulations of the Board of Governors of the Federal Reserve System; and (viii) Environmental Audit. If required by Administrative Agent, ------------------- reports and other information, in form, scope and substance reasonably satisfactory to Administrative Agent and prepared by environmental consultants reasonably satisfactory to Administrative Agent, concerning any environmental hazards or liabilities to which Holdings or any of its Subsidiaries may be subject with respect to such Additional Mortgaged Property. C. Real Estate Appraisals. Holdings shall, and shall cause each of its Subsidiaries to, permit an independent real estate appraiser satisfactory to Administrative Agent, upon reasonable notice, to visit and inspect any Additional Mortgaged Property for the purpose of preparing an appraisal of such Additional Mortgaged Property satisfying the requirements of any applicable laws and regulations (in each case to the extent required under such laws and regulations as determined by Administrative Agent in its discretion). 6.10 Interest Rate Protection. ------------------------ At all times after the date which is 60 days after the Closing Date, Company shall maintain in effect one or more Interest Rate Agreements with respect to the Loans, each such Interest Rate Agreement to be for a term and in form and substance reasonably satisfactory to Syndication Agent, which Interest Rate Agreements shall effectively limit the Unadjusted Eurodollar Rate Component (as hereinafter defined) of the interest costs to Company with respect to an aggregate notional principal amount of not less than 50% of the aggregate principal amount of the Tranche A Term Loans outstanding from time to time (based on the assumption that such notional principal amount was a Eurodollar Rate Loan with an Interest Period of three months) to a rate equal to not more than 8.0% per annum. For purposes of this subsection 6.10, the term "Unadjusted Eurodollar Rate Component" means that component of the interest 121 costs to Company in respect of a Eurodollar Rate Loan that is based upon the rate obtained pursuant to clause (i) of the definition of Adjusted Eurodollar Rate. 6.11 Additional Foreign Subsidiary Collateral. ---------------------------------------- If, following a change in the relevant provisions of the Internal Revenue Code, counsel for Company acceptable to Administrative Agent does not within 30 days after a request from Administrative Agent or Requisite Lenders deliver evidence, in form and substance satisfactory to Administrative Agent with respect to any Foreign Subsidiary which has not already had all of its capital stock pledged pursuant to the Collateral Documents, that (i) a pledge of 66-2/3% or more of the total combined voting power of all classes of capital stock of such Foreign Subsidiary entitled to vote, and of any promissory note issued by such Foreign Subsidiary to Holdings or any of its Domestic Subsidiaries, and (ii) the entering into by such Foreign Subsidiary of a guaranty in substantially the form of the Subsidiary Guaranty, in any such case would cause the undistributed earnings of such Foreign Subsidiary as determined for Federal income tax purposes to be treated as a deemed dividend to such Foreign Subsidiary's United States parent for Federal income tax purposes, then: in the case of a failure to deliver the evidence described in clause (i) above, that portion of such Foreign Subsidiary's outstanding capital stock or any promissory notes so issued by such Foreign Subsidiary, in each case not theretofore pledged pursuant to the Collateral Documents, shall be pledged to Collateral Agent pursuant to the Collateral Documents (or another pledge agreement in substantially similar form, if necessary), and in the case of a failure to deliver the evidence described in clause (ii) above, such Foreign Subsidiary shall execute and deliver the Subsidiary Guaranty and other Collateral Documents (or other guaranty and security agreements in substantially similar form, if necessary), granting Collateral Agent a security interest in all of such Foreign Subsidiary's real, mixed and personal property and securing the Obligations, in each case to the extent that such pledge of capital stock and notes and entry into such guaranty and related documents is permitted by the laws of the applicable foreign jurisdictions. 6.12 Post-Closing Deliveries. ----------------------- Company shall cause any actions set forth on Schedule 6.12 annexed hereto ------------- to be taken within the time period(s) specified on such Schedule 6.12 and in ------------- form and substance reasonably satisfactory to Administrative Agent and Syndication Agent. SECTION 7. HOLDINGS' AND COMPANY'S NEGATIVE COVENANTS Holdings and Company covenant and agree that, so long as any of the Commitments hereunder shall remain in effect and until payment in full of all of the Loans and other 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) and the cancellation or expiration of all Letters of Credit, unless Requisite Lenders shall otherwise give prior written 122 consent, Holdings and Company shall perform, and shall cause each of their Subsidiaries to perform, all covenants in this Section 7. 7.1 Indebtedness. ------------ Holdings shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create, incur, assume or guaranty, or otherwise become or remain directly or indirectly liable with respect to, any Indebtedness, except: (i) Company may become and remain liable with respect to the Obligations; (ii) Holdings and its Subsidiaries may become and remain liable with respect to Contingent Obligations permitted by subsection 7.4 and, upon any matured obligations actually arising pursuant thereto, the Indebtedness corresponding to the Contingent Obligations so extinguished; (iii) Company and its Subsidiaries may become and remain liable with respect to (a) Indebtedness in respect of Capital Leases and (b) Indebtedness secured by Liens permitted under subsection 7.2A(iv), provided -------- that the aggregate amount of Indebtedness described in clauses (a) and (b), together with the amount of any purchase money Indebtedness and Capital Lease obligations of the type permitted under subsection 7.1(xiii), shall not exceed $20,000,000 at any time outstanding; (iv) Company may become and remain liable with respect to Indebtedness to any wholly owned Domestic Subsidiary, and any wholly owned Domestic Subsidiary may become and remain liable with respect to Indebtedness to Company or any other wholly owned Domestic Subsidiary; provided that (a) all such intercompany Indebtedness shall be evidenced by -------- promissory notes, (b) all such intercompany Indebtedness owed by Company to any such Subsidiary shall be subordinated in right of payment to the payment in full of the Obligations pursuant to the terms of the applicable promissory notes or an intercompany subordination agreement, and (c) any payment by any such Subsidiary of Company under any guaranty of the Obligations shall result in a pro tanto reduction of the amount of any --- ----- intercompany Indebtedness owed by such Subsidiary to Company or to any of such Subsidiary Guarantors for whose benefit such payment is made; (v) (a) Company and any wholly owned Subsidiary of Company may become and remain liable with respect to Indebtedness to any wholly owned Foreign Subsidiary, and (b) any wholly owned Foreign Subsidiary (x) may remain liable with respect to Indebtedness to Company or to any of the Subsidiary Guarantors set forth on Schedule 7.1(v) annexed hereto in --------------- amounts not to exceed the respective amounts set forth on such Schedule and (y) may become and remain liable with respect to additional Indebtedness to Company or any Subsidiary Guarantor so long as the aggregate outstanding amount of such Indebtedness under this clause (y), plus the aggregate ---- amount of Investments of the type permitted under subsection 7.3(xiii), does not exceed (1) $15,000,000 at any 123 time from the Closing Date through Fiscal Year 1998, (2) $25,000,000 at any time during Fiscal Year 1999, or (3) $30,000,000 at any time during Fiscal Year 2000 and thereafter; provided that (1) all intercompany Indebtedness -------- described in clause (b) shall be evidenced by promissory notes, and (2) all intercompany Indebtedness described in clause (a) owed by Company or any Subsidiary Guarantor to any wholly owned Foreign Subsidiary shall be subordinated in right of payment to the payment in full of the Obligations pursuant to the terms of the applicable promissory notes or an intercompany subordination agreement; provided further, however, that Company or any -------- ------- ------- Subsidiary Guarantor may make additional intercompany loans in excess of such amounts to any wholly owned Foreign Subsidiary so long as the conditions in clause (1) of the preceding proviso are met and the Excess Proceeds Amount immediately prior to the making of such loan equals or exceeds the principal amount of such loan; (vi) Holdings and its Subsidiaries may become and remain liable with respect to Indebtedness evidenced by the AXEL Credit Documents; (vii) Company may become and remain liable with respect to Indebtedness evidenced by the Senior Subordinated Notes and the Discount Notes; (viii) Holdings may become and remain liable with respect to Indebtedness evidenced by the Junior Subordinated Seller Notes issued by Holdings on the Closing Date and any additional Junior Subordinated Seller Notes issued in lieu of the payment of cash interest thereon in accordance with the terms thereof; (ix) Company may become and remain liable with respect to Permitted Seller Notes issued as consideration in Permitted Acquisitions; provided -------- that the aggregate principal amount of Permitted Seller Notes shall not exceed $5,000,000 at any time outstanding; (x) Holdings may remain liable with respect to any portion of the Existing Subordinated Notes not tendered pursuant to the Debt Tender Offer; (xi) Holdings may become and remain liable with respect to Shareholder Subordinated Notes issued in lieu of cash payments permitted under subsection 7.5(x) to repurchase capital stock of Holdings held by terminated employees and officers, provided that the aggregate principal -------- amount of Shareholder Subordinated Notes shall not exceed $3,000,000 at any time outstanding; (xii) Foreign Subsidiaries of Holdings may become and remain liable with respect to Indebtedness under lines of credit extended after the Closing Date to any such Foreign Subsidiary by Persons other than Holdings or any or its Subsidiaries, the proceeds of which Indebtedness are used for such Foreign Subsidiary's working capital purposes, provided that the -------- aggregate principal amount of all such Indebtedness outstanding at any time for all such Foreign Subsidiaries (such Indebtedness being the "Foreign Subsidiary Working Capital Indebtedness") shall not exceed the Foreign 124 Borrowing Base Amount in effect at such time minus the amount of any ----- outstanding Contingent Obligations of the type permitted under subsection 7.4(viii); (xiii) Subject to the applicable restrictions of subsections 7.1(iii) and 7.1(xvi), Company or any Subsidiary of Company acquired pursuant to a Permitted Acquisition may become or remain liable with respect to Indebtedness of a Subsidiary of Company existing at the time of acquisition by Company or a Subsidiary of a Subsidiary or assets pursuant to a Permitted Acquisition, provided that (a) such Indebtedness was not incurred -------- in connection with or in anticipation of such Permitted Acquisition, (b) such Indebtedness does not constitute debt for borrowed money (other than debt for borrowed money incurred in connection with industrial revenue or industrial development bond financings), it being understood and agreed that Capital Lease obligations and purchase money Indebtedness shall not constitute debt for borrowed money for purposes of this clause (xiii), and (c) at the time of such Permitted Acquisition such Indebtedness does not exceed 10% of the total value of the assets of the Subsidiary so acquired, or of the assets so acquired, as the case may be; provided, however, that -------- ------- (a) the aggregate amount of any such Capital Lease obligations and purchase money Indebtedness, together with the aggregate amount of other Indebtedness of the type permitted under subsection 7.1(iii), in each case at any time outstanding, shall not exceed the maximum amount set forth in such subsection, and (ii) the aggregate amount of any such Indebtedness other than Capital Lease obligations and purchase money Indebtedness, together with other Indebtedness of the type permitted under subsection 7.1(xvi), in each case at any time outstanding, shall not exceed the maximum amount set forth in such subsection; (xiv) Company and its Subsidiaries may become and remain liable with respect to Indebtedness consisting of the financing in the ordinary course of business of insurance premiums with respect to coverage required to be maintained under subsection 6.4; (xv) Company and its Subsidiaries, as applicable, may remain liable with respect to Indebtedness described in Schedule 7.1(xv) annexed hereto; ---------------- (xvi) Company and its Subsidiaries may become and remain liable with respect to Indebtedness not otherwise permitted under this subsection; provided that the aggregate principal amount of such Indebtedness, together -------- with (a) the maximum aggregate liability, contingent or otherwise, with respect to Contingent Obligations incurred pursuant to subsection 7.4(viii) and (b) the amount of any Indebtedness of the type permitted under subsection 7.1(xiii) (other than Capital Lease obligations and purchase money Indebtedness), shall not exceed $20,000,000 at any time outstanding; and (xvii) Subsidiaries of Company may become and remain liable with respect to Indebtedness consisting of a converted equity Investment by Company or another Subsidiary of Company in such Subsidiaries, provided -------- that the underlying equity Investment was permitted hereunder at the time of such conversion. 125 7.2 Liens and Related Matters. ------------------------- A. Prohibition on Liens. Holdings shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create, incur, assume or permit to exist any Lien on or with respect to any property or asset of any kind (including any document or instrument in respect of goods or accounts receivable) of Holdings or any of its Subsidiaries, whether now owned or hereafter acquired, or any income or profits therefrom, or file or permit the filing of, or permit to remain in effect, any financing statement or other similar notice of any Lien with respect to any such property, asset, income or profits under the Uniform Commercial Code of any State or under any similar recording or notice statute, except: (i) Permitted Encumbrances; (ii) Liens created pursuant to the Collateral Documents in favor of the Collateral Agent for the benefit of the Lenders and/or the lenders under the AXEL Credit Agreement securing Loan Parties' obligations under this Agreement, the AXEL Credit Agreement and/or under Interest Rate Agreements with any such Lenders and/or lenders or their respective affiliates; provided that such Liens for the benefit of the lenders under -------- the AXEL Credit Agreement shall at all times secure the Obligations; (iii) Liens arising in connection with Capital Leases permitted under subsection 7.1(iii)(a); provided that no such Lien shall extend to or cover -------- any Collateral or assets other than the assets subject to such Capital Leases; (iv) Liens securing Indebtedness permitted by subsection 7.1(iii)(b) incurred (a) to finance the acquisition, construction or improvement of any real property or tangible personal property assets acquired or held by Company or any of its Subsidiaries in the ordinary course of business; provided that (1) such Liens shall be created within 180 days after the -------- acquisition, construction or improvement of such assets, and (2) the principal amount of Indebtedness secured by any such Liens shall at no time exceed 100%, and the proceeds of such Indebtedness shall be used to provide not less than 75%, of the original purchase price of such asset or the amount expended to construct or improve such asset, as the case may be; or (b) to renew, extend or refinance any Indebtedness described in clause (a); provided that the amount of any such Indebtedness does not exceed the -------- amount of Indebtedness so renewed, extended or refinanced which is unpaid and outstanding immediately prior to such renewal, extension or refinancing; and provided further, that in the case of clause (a) or (b), -------- ------- (1) such Liens attach solely to the assets financed with such Indebtedness, (2) no recourse may be had under the Indebtedness secured by such Lien against any Person other than the borrower of such Indebtedness for the payment of principal, interest, fees, costs or premium on such Indebtedness or for any claim based thereon, and (3) the financial covenants under any Indebtedness secured by such Liens are, in each case, no more restrictive than those set forth in this Agreement; 126 (v) Liens on real property or personal property assets of Foreign Subsidiaries of Holdings securing Indebtedness of such Foreign Subsidiaries (other than Indebtedness of the type permitted to be incurred pursuant to subsection 7.1(v)) permitted under this Agreement; and (vi) Other Liens securing Indebtedness in an aggregate amount not to exceed $5,000,000 at any time outstanding. B. Equitable Lien in Favor of Lenders. If Holdings or any of its Subsidiaries shall create or assume any Lien upon any of its properties or assets, whether now owned or hereafter acquired, other than Liens excepted by the provisions of subsection 7.2A, it shall make or cause to be made effective provision whereby the Obligations will be secured by such Lien equally and ratably with any and all other Indebtedness secured thereby as long as any such Indebtedness shall be so secured; provided that, notwithstanding the foregoing, -------- this covenant shall not be construed as a consent by Requisite Lenders to the creation or assumption of any such Lien not permitted by the provisions of subsection 7.2A. C. No Further Negative Pledges. Except with respect to specific property encumbered to secure payment of particular Indebtedness or to be sold pursuant to an executed agreement with respect to an Asset Sale, neither Holdings nor any of its Subsidiaries shall enter into any agreement (other than the New Sub Debt Indentures, the Junior Subordinated Seller Notes or any other agreement prohibiting only the creation of Liens securing Subordinated Indebtedness) prohibiting the creation or assumption of any Lien upon any of its properties or assets, whether now owned or hereafter acquired. D. No Restrictions on Subsidiary Distributions to Holdings or Other Subsidiaries. Except as provided herein, Holdings will not, and will not permit any of its Subsidiaries to, create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction of any kind on the ability of any such Subsidiary to (i) pay dividends or make any other distributions on any of such Subsidiary's capital stock owned by Holdings or any other Subsidiary of Holdings, (ii) repay or prepay any Indebtedness owed by such Subsidiary to Holdings or any other Subsidiary of Holdings, (iii) make loans or advances to Holdings or any other Subsidiary of Holdings, or (iv) transfer any of its property or assets to Holdings or any other Subsidiary of Holdings, except for such encumbrances or restrictions existing under or by reason of (a) applicable law, (b) this Agreement and the other Credit Documents, (c) customary provisions restricting subletting or assignment of any lease governing a leasehold interest of Company or any of its Subsidiaries, (d) customary provisions restricting assignment of any licensing agreement entered into by Company or any of its Subsidiaries in the ordinary course of business, (e) the New Sub Debt Indentures and the AXEL Credit Documents, (f) customary provisions restricting the transfer of assets subject to Liens permitted under subsections 7.2A(iii) and 7.2A(iv), and (g) any document or instrument evidencing Foreign Subsidiary Working Capital Indebtedness permitted under subsection 7.1(xii) so long as such encumbrance or restriction only applies to the Foreign Subsidiary of Holdings incurring such Indebtedness. 127 7.3 Investments; Joint Ventures. --------------------------- Holdings shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, make or own any Investment in any Person, including any Joint Venture, except: (i) Holdings and its Subsidiaries may make and own Investments in Cash Equivalents; (ii) Foreign Subsidiaries of Holdings may make and own Investments in Foreign Cash Equivalents; (iii) Holdings may continue to own the Investments owned by it as of the Closing Date in Company, and Company and its Subsidiaries may continue to own the Investments owned by them as of the Closing Date in any Subsidiaries of Company and make additional Investments in such Subsidiaries that are Subsidiary Guarantors; (iv) Holdings and its Subsidiaries may own Investments in their respective Subsidiaries to the extent that such Investments reflect an increase in the value of such Subsidiaries; (v) Company and its Subsidiaries may make intercompany loans to the extent permitted under subsections 7.1(iv) and 7.1(v); (vi) Company and its Subsidiaries may make Consolidated Capital Expenditures permitted by subsection 7.8; (vii) Company and its Subsidiaries may continue to own the Investments owned by them and described in Schedule 7.3(vii) annexed ----------------- hereto; (viii) Company and its Subsidiaries may make loans and advances to employees, officers, executives or consultants to Company and its Subsidiaries in the ordinary course of business of Company and its Subsidiaries as presently conducted for the purpose of purchasing capital stock of Holdings so long as no cash is paid by Holdings or any of its Subsidiaries in connection with the acquisition of such capital stock; (ix) Company and its Subsidiaries may acquire and hold receivables owing to it, if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms (including the dating of receivables) of Company or any such Subsidiary; (x) Company and its Subsidiaries may acquire and own Investments (including debt obligations) received in connection with the bankruptcy or reorganization of suppliers and customers and in settlement of delinquent obligations of, and other disputes with, customers and suppliers arising in the ordinary course of business; 128 (xi) Company and its Subsidiaries may make and own Investments consisting of deposits made in the ordinary course of business consistent with past practices to secure the performance of leases; (xii) Holdings may make equity contributions to the capital of Company; (xiii) Company and its Domestic Subsidiaries may make and own Investments consisting of cash capital contributions (in addition to cash contributions made prior to the Closing Date and set forth on Schedule -------- 7.3(xiii) annexed hereto) to Foreign Subsidiaries of Company, or the --------- capitalization or forgiveness of any Indebtedness owed to them by a Foreign Subsidiary and outstanding under subsection 7.1(v); provided that the sum -------- of (x) aggregate amount of such contributions, capitalization and forgiveness made after the Closing Date, plus (y) the aggregate outstanding ---- principal amount of Indebtedness of the type permitted under subsection 7.1(v), shall not exceed the amounts set forth in subsection 7.1(v) at the times set forth therein; (xiv) Company and its Subsidiaries may make and own Investments in Subsidiaries acquired pursuant to Permitted Acquisitions under subsection 7.7(xiv); (xv) Company and its Subsidiaries may make and own Investments consisting of notes received in connection with any Asset Sale limited to 20% of the total sale price of the assets sold in such Asset Sale; provided -------- that the aggregate principal amount of such notes at any time outstanding shall not exceed $5,000,000; (xvi) Company and its Subsidiaries may make and own Investments in any Person which (a) (1) result in the creation of an account arising in the ordinary course of Company's or such Subsidiary's business or (2) result from the restructure, reorganization or similar composition of trade account obligations which arose in the ordinary course of business and which are owing to Company or such Subsidiary from financially distressed debtors, and (b) are, in each case, subject to the Lien in favor of Collateral Agent under the Collateral Documents; (xvii) Holdings and its Subsidiaries may make and own Investments permitted under subsection 7.7(xi), 7.7(xii) and 7.7(xiii); (xviii) Company and its Subsidiaries may make and own the Investments described in Schedule 7.3(xviii) annexed hereto; provided that the ------------------- -------- aggregate amount of such Investments shall not exceed $5,000,000; (xix) Company and its Subsidiaries may make and own Investments in wholly owned Domestic Subsidiaries of Company consisting of intercompany Indebtedness of such Subsidiaries converted to equity Investments, provided -------- that the underlying intercompany Indebtedness was permitted hereunder at the time of such conversion; 129 (xx) Company and its Subsidiaries may make and own Investments not otherwise permitted under this subsection 7.3 so long as immediately prior to the making of each such Investment the Excess Proceeds Amount exceeds the amount of such Investment being made; and (xxi) Company and its Subsidiaries may make and own other Investments in an aggregate amount not to exceed at any time $10,000,000. 7.4 Contingent Obligations. ---------------------- Holdings shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create or become or remain liable with respect to any Contingent Obligation, except: (i) Subsidiaries of Company may become and remain liable with respect to Contingent Obligations in respect of the Subsidiary Guaranty, and Holdings may become and remain liable with respect to Contingent Obligations in respect of the Holdings Guaranty; (ii) Company may become and remain liable with respect to Contingent Obligations in respect of Letters of Credit; (iii) Company may become and remain liable with respect to Contingent Obligations under Hedge Agreements required under subsection 6.10; (iv) Company and its Subsidiaries may become and remain liable with respect to Contingent Obligations in respect of (a) customary indemnification and purchase price adjustment obligations incurred in connection with Asset Sales or other sales of assets, (b) endorsements of instruments for deposit or collection in the ordinary course of business, and (c) standard contractual indemnities entered into in the ordinary course of business; (v) Company and its Subsidiaries may become and remain liable with respect to Contingent Obligations under guarantees in the ordinary course of business of the obligations of suppliers, customers, franchisees and licensees of Holdings and its Subsidiaries; (vi) Holdings and its Subsidiaries, as applicable, may remain liable with respect to Contingent Obligations described in Schedule 7.4 annexed ------------ hereto; (vii) Subsidiary Guarantors may become and remain liable with respect to Contingent Obligations arising under their subordinated guaranties of the Senior Subordinated Notes and the Discount Notes as set forth in the New Sub Debt Indentures; (viii) Subject to the limitations set forth in subsection 7.1(xii), Company and its Subsidiaries may become and remain liable with respect to Contingent Obligations 130 consisting of guaranties by Company of Foreign Subsidiary Working Capital Indebtedness (including letters of credit issued for the account of Company and its Subsidiaries and in favor of lenders in respect of any such Foreign Subsidiary Working Capital Indebtedness); (ix) Company and its Subsidiaries may become and remain liable with respect to Contingent Obligations consisting of guarantees of obligations of any Subsidiary of Company under any worker's compensation self-insurance program of such Subsidiary administered in accordance with applicable law relating to worker's compensation; (x) Holdings and its Subsidiaries may become and remain liable with respect to Contingent Obligations consisting of (a) guarantees by Holdings and its Subsidiaries of Indebtedness, leases and other contractual obligations permitted to be incurred by Company or its wholly owned Domestic Subsidiaries and (b) guarantees by Foreign Subsidiaries of Holdings of Indebtedness, leases and other contractual obligations permitted to be incurred by other wholly owned Foreign Subsidiaries of Holdings; and (xi) Company and its Subsidiaries may become and remain liable with respect to Contingent Obligations not otherwise permitted under this subsection; provided that the maximum aggregate liability, contingent or -------- otherwise, of Company and its Subsidiaries in respect of all such Contingent Obligations, together with the aggregate principal amount of Indebtedness of Company and its Subsidiaries incurred pursuant to subsection 7.1(ix), shall at no time exceed $20,000,000. 7.5 Restricted Junior Payments. -------------------------- Holdings and Company shall not, and shall not permit any of their respective Subsidiaries to, directly or indirectly, declare, order, pay, make or set apart any sum for any Restricted Junior Payment; provided that (i) any -------- Subsidiary of Company can pay dividends to Company or any wholly owned Subsidiary of Company, (ii) Company may make dividends to Holdings necessary to consummate the Recapitalization Transactions on the Closing Date, (iii) Holdings and Company may make any Restricted Junior Payments in accordance with the terms of, and only to the extent required by, the Recapitalization Agreement, (iv) Company may make (x) regularly scheduled payments of interest in respect of the Senior Subordinated Notes and the Discount Notes in accordance with the terms of, and only to the extent required by, and subject to the subordination provisions contained in, the Senior Subordinated Notes or the Discount Notes, respectively, and the applicable New Sub Debt Indenture, and (y) so long as (1) no Event of Default or Potential Event of Default shall have occurred and be continuing or shall be caused thereby, (2) Holdings and Company shall be in compliance, on a pro forma basis giving effect thereto, with the covenants set forth in subsection 7.6 hereof and (3) the ratio of Consolidated Adjusted EBITDA to Consolidated Cash Interest Expense (after giving effect thereto) shall equal or exceed 3.5:1.00 (and Company shall have delivered to Administrative Agent an Officer's Certificate (together with supporting information therefor), in form and substance reasonably satisfactory to Administrative Agent, certifying to the effect of clauses (1), (2) and (3)), regularly scheduled payments of interest accruing after delivery of such certificate in 131 respect of the Junior Subordinated Seller Notes in accordance with the terms of, and only to the extent required by, and subject to the subordination provisions contained in, the Junior Subordinated Seller Notes, (v) Company may make Restricted Junior Payments to Holdings to the extent required for Holdings to make, and Holdings may make, regularly scheduled payments of interest in respect of the Shareholder Subordinated Notes in accordance with the terms of, and only to the extent required by, and subject to the subordination provisions contained in, such Shareholder Subordinated Notes, as applicable, (vi) Company may make scheduled interest payments in respect of Permitted Seller Notes permitted under subsection 7.1(ix) in accordance with the terms of such Permitted Seller Notes; (vii) so long as no Event of Default or Potential Event of Default has occurred and is continuing or would be caused thereby, Company may make Restricted Junior Payments of amounts to the extent required for Holdings to, and Holdings may, repurchase, redeem, defease or otherwise prepay or retire any Existing Subordinated Notes not tendered pursuant to the Debt Tender Offer on terms (set forth in the Existing Subordinated Note Indenture or otherwise) no less favorable in any material respect to Holdings, Company and Lenders than the terms of the Debt Tender Offer, (viii) Company may make Restricted Junior Payments to Holdings, and Holdings may make Restricted Junior Payments, (a) in an aggregate amount not to exceed $1,500,000 in any Fiscal Year, to the extent necessary to permit Holdings to pay general administrative costs and expenses and (b) to the extent necessary to permit Holdings to discharge the consolidated tax liabilities of Holdings and its Subsidiaries, (ix) so long as no Potential Event of Default or Event of Default shall have occurred and be continuing, Company may make Restricted Junior Payments to Holdings, and Holdings may make Restricted Junior Payments, (a) to permit the payment of the Bain Management Fees under the Bain Advisory Services Agreement and (b) to permit the payment of the Harvard Management Fees under the Harvard Advisory Services Agreement, and (x) Company may make Restricted Junior Payments to Holdings to the extent required for Holdings to make, and Holdings may make, Restricted Junior Payments in an aggregate amount not to exceed $12,500,000 in any Fiscal Year to the extent necessary to make repurchases of capital stock (and options or warrants to purchase such capital stock) of Holdings from employees (a) upon termination (including by reason of death, disability or retirement) of such employees or (b) pursuant to a contractual obligation of Holdings or any of its Subsidiaries, provided that such amount shall be reduced by the aggregate amount of all - -------- principal and interest payments made on any Shareholder Subordinated Notes permitted under subsection 7.1(xi) in such Fiscal Year; and, provided further, -------- ------- that any Restricted Junior Payments by Company to Holdings permitted under this subsection shall be applied by Holdings for the purposes specified in this subsection. 7.6 Financial Covenants. ------------------- A. Minimum Interest Coverage Ratio. Holdings and Company shall not permit the ratio of (i) Consolidated Adjusted EBITDA to (ii) Consolidated Interest Expense (excluding therefrom, for purposes of this subsection 7.6A --------- only, the amount of any amortization of deferred financing costs, interest on deferred compensation or payments made to obtain Interest Rate Agreements which would otherwise be included in Consolidated Interest Expense) for any four- Fiscal Quarter period ending during any of the periods set forth below to be less than the correlative ratio indicated: 132
=============================================== Minimum Interest Coverage Period Ratio =============================================== Closing Date - 8/15/00 1.5:1 ----------------------------------------------- 8/16/00 - 5/15/01 1.6:1 ----------------------------------------------- 5/16/01 - 2/15/02 1.7:1 ----------------------------------------------- 2/16/02 - 11/15/02 1.8:1 ----------------------------------------------- 11/16/02 and thereafter 1.9:1 ===============================================
B. Maximum Leverage Ratio. Holdings and Company shall not permit the Leverage Ratio of the last day of any Fiscal Quarter ending during any of the periods set forth below to exceed the correlative ratio indicated:
=============================================== Maximum Period Leverage Ratio =============================================== Closing Date - 11/15/98 7.4:1 ----------------------------------------------- 11/16/98 - 2/15/99 7.3:1 ----------------------------------------------- 2/16/99 - 8/15/99 7.0:1 ----------------------------------------------- 8/16/99 - 11/15/99 6.9:1 ----------------------------------------------- 11/16/99 - 2/15/00 6.8:1 ----------------------------------------------- 2/16/00 - 5/15/00 6.7:1 ----------------------------------------------- 5/16/00 - 8/15/00 6.6:1 ----------------------------------------------- 8/16/00 - 11/15/00 6.5:1 ----------------------------------------------- 11/16/00 - 5/15/01 6.1:1 ----------------------------------------------- 5/16/01 - 8/15/01 6.0:1 ----------------------------------------------- 8/16/01 - 11/15/01 5.9:1 ----------------------------------------------- 11/16/01 - 2/15/02 5.6:1 ----------------------------------------------- 2/16/02 - 8/15/02 5.5:1 ----------------------------------------------- 8/16/02 - 11/15/02 5.4:1 ----------------------------------------------- 11/16/02 and thereafter 5.1:1 ===============================================
133 C. Minimum Consolidated Adjusted EBITDA. Holdings and Company shall not permit Consolidated Adjusted EBITDA for any four-Fiscal Quarter period ending during any period set forth below to be less than the correlative amount indicated:
================================================ Minimum Consolidated Adjusted Period EBITDA ================================================ Closing Date - 2/15/99 $ 92,500,000 ------------------------------------------------ 2/16/99 - 5/15/99 $ 95,000,000 ------------------------------------------------ 5/16/99 - 8/15/99 $ 97,000,000 ------------------------------------------------ 8/16/99 - 2/15/00 $ 97,500,000 ------------------------------------------------ 2/16/00 - 5/15/00 $ 99,500,000 ------------------------------------------------ 5/16/00 - 8/15/00 $101,000,000 ------------------------------------------------ 8/16/00 - 11/15/00 $104,000,000 ------------------------------------------------ 11/16/00 - 2/15/01 $105,000,000 ------------------------------------------------ 2/16/01 - 5/15/01 $107,500,000 ------------------------------------------------ 5/16/01 - 8/15/01 $109,000,000 ------------------------------------------------ 8/16/01 - 11/15/01 $111,500,000 ------------------------------------------------ 11/16/01 - 2/15/02 $113,000,000 ------------------------------------------------ 2/16/02 - 5/15/02 $115,000,000 ------------------------------------------------ 5/16/02 - 8/15/02 $116,000,000 ------------------------------------------------ 8/16/02 - 11/15/02 $118,000,000 ------------------------------------------------ 11/16/02 and thereafter $120,000,000 ================================================
D. Certain Calculations. With respect to any period during which a Permitted Acquisition occurs, for purposes of determining compliance with the financial covenants set forth in this subsection 7.6, Consolidated Adjusted EBITDA and Consolidated Interest Expense shall be calculated with respect to such periods and such New Business on a pro forma basis (including pro forma adjustments arising out of events which are directly attributable to a specific transaction, are factually supportable and are expected to have a continuing impact, in each case determined on a basis consistent with Article 11 of Regulation S-X promulgated under the Securities Act and as interpreted by the staff of the Securities and Exchange Commission as of January 1, 1997, which would include cost savings resulting from head count reduction, closure of facilities and similar restructuring charges whether (x) resulting from decisions made 134 by Company or (y) implemented by the management of the New Business within the six-month period immediately preceding the closing of such Permitted Acquisition (provided that the cost savings described in clause (y) are supportable and quantifiable by the underlying accounting records of such business), which pro forma adjustments shall be certified by the principal financial officer or principal accounting officer of Company) using the historical financial statements of the New Business so acquired or to be acquired and the consolidated financial statements of Holdings and its Subsidiaries which shall be reformulated (i) as if such Permitted Acquisition, and any acquisitions which have been consummated during such period, and any Indebtedness or other liabilities incurred in connection with any such acquisition had been consummated or incurred at the beginning of such period (and assuming that such Indebtedness bears interest during any portion of the applicable measurement period prior to the relevant acquisition at the weighted average of the interest rates applicable to outstanding Loans during such period), and (ii) otherwise in conformity with certain procedures to be agreed upon between Administrative Agent and Company, all such calculations to be in form and substance reasonably satisfactory to Administrative Agent. 7.7 Restriction on Fundamental Changes; Asset Sales and Recapitalizations. --------------------------------------------------------------------- Holdings shall not, and shall not permit any of its Subsidiaries to, alter the corporate, capital or legal structure of Holdings or any of its Subsidiaries, or enter into any transaction of merger or consolidation, or liquidate, wind-up or dissolve itself (or suffer any liquidation or dissolution), or convey, sell, lease or sub-lease (as lessor or sublessor), transfer or otherwise dispose of, in one transaction or a series of transactions, all or any part of its business, property or assets, whether now owned or hereafter acquired, or acquire by purchase or otherwise all or substantially all the business, property or fixed assets of, or stock or other evidence of beneficial ownership of, any Person or any division or line of business of any Person, except: (i) any Subsidiary of Company may be merged with or into Company or any wholly owned Subsidiary Guarantor, or be liquidated, wound up or dissolved, or all or any part of its business, property or assets may be conveyed, sold, leased, transferred or otherwise disposed of, in one transaction or a series of transactions, to Company or any wholly owned Subsidiary Guarantor; provided that, in the case of such a merger involving -------- Company, Company shall be the continuing or surviving corporation, and in the case of any other such merger, such wholly owned Subsidiary Guarantor shall be the continuing or surviving corporation; (ii) any Foreign Subsidiary of Company may be merged with or into any wholly owned Foreign Subsidiary, or be liquidated, wound up or dissolved, or all or any part of its business, property or assets may be conveyed, sold, leased, transferred or otherwise disposed of, in one transaction or a series of transactions, to any wholly owned Foreign Subsidiary; provided -------- that (i) in the case of such a merger, such wholly owned Foreign Subsidiary shall be the continuing or surviving corporation and (ii) in each case, the stock of such wholly owned Foreign Subsidiary is pledged pursuant to, and to the extent required under, the Collateral Documents; 135 (iii) Company and its Subsidiaries may make Consolidated Capital Expenditures permitted under subsection 7.8; (iv) Company and its Subsidiaries may dispose of obsolete, uneconomical, negligible, worn out or surplus property (including Intellectual Property) in the ordinary course of business; (v) Company and its Subsidiaries may sell or otherwise dispose of assets in transactions that do not constitute Asset Sales; provided that -------- the consideration received for such assets shall be in an amount at least equal to the fair market value thereof; (vi) subject to subsection 7.12, Company and its Subsidiaries may make Asset Sales of assets having a fair market value not in excess of $20,000,000; provided that (x) the consideration received for such assets -------- shall be in an amount at least equal to the fair market value thereof; (y) not less than 80% of the consideration received shall be cash; and (z) the proceeds of such Asset Sales shall be applied as required by subsection 2.4B(iii)(a); (vii) Company and its Subsidiaries may sell or discount, in each case without recourse, accounts receivable arising in the ordinary course of business, but only in connection with the compromise or collection thereof; provided that the aggregate amount of such accounts receivable sold -------- pursuant to this clause (vii) shall not exceed in any Fiscal Year 10% of the accounts receivable of Company and its Subsidiaries recorded for the preceding Fiscal Year; (viii) Company and its Subsidiaries may sell or exchange specific items of equipment, so long as the purpose of each such sale or exchange is to acquire (and results within 90 days of such sale or exchange in the acquisition of) replacement items of equipment which are the functional equivalent of the item of equipment so sold or exchanged; (ix) Company and its Subsidiaries may, in the ordinary course of business, license as licensee or licensor patents, trademarks, copyrights and know-how to or from third Persons, so long as any such license by Company or any of its Subsidiaries in its capacity as licensor is permitted to be assigned pursuant to the Collateral Documents (to the extent that a security interest in such patents, trademarks, copyrights and know-how is granted thereunder) and does not otherwise prohibit the granting of a Lien by Company or any of its Subsidiaries pursuant to the Collateral Documents in the Intellectual Property covered by such license; (x) Company and its Subsidiaries may sell or otherwise transfer inventory to their respective Subsidiaries for resale by such Subsidiaries, and Subsidiaries of Company may sell or otherwise transfer inventory to Company for resale by Company so long as the security interest granted to the Collateral Agent pursuant to the Collateral Documents 136 in the inventory so transferred shall remain in full force and effect and perfected (to at least the same extent as in effect immediately prior to such transfer); (xi) Company may contribute cash to one or more wholly owned Domestic Subsidiaries formed after the Closing Date, so long as the aggregate amount of such cash so contributed to each such Domestic Subsidiary does not exceed $1,000,000; (xii) Company and its Domestic Subsidiaries may transfer assets (other than inventory) to wholly owned Foreign Subsidiaries so long as (x) the aggregate fair market value of all such assets (other than intellectual property) so transferred (determined in good faith by the Board of Directors or senior management of Company) to all such Foreign Subsidiaries on and after the Closing Date does not exceed $2,000,000 and (y) the aggregate fair market value of all Intellectual Property so transferred (determined in good faith by the Board of Directors or senior management of Company) to all such Foreign Subsidiaries on and after the Closing Date does not exceed $1,000,000; (xiii) any Domestic Subsidiary of Company may transfer assets (other than accounts receivable and inventory) to Company or to any other wholly owned Domestic Subsidiary of Company so long as the security interests granted to Collateral Agent of Lenders pursuant to the Collateral Documents in the assets so transferred shall remain in full force and effect and perfected (to at least the same extent as in effect immediately prior to such transfer); and (xiv) Company or any Subsidiary of Company may make acquisitions of assets and businesses (including acquisitions of the capital stock or other equity interests of another Person), provided that: -------- (a) immediately prior to and after giving effect to any such acquisition, Company and its Subsidiaries shall be in compliance with the provisions of subsection 7.13 hereof; (b) if such acquisition is structured as a stock acquisition, then either (A) the Person so acquired becomes a wholly owned Subsidiary of Company or (B) such Person is merged with and into Company or a wholly owned Subsidiary of Company (with Company or such wholly owned Subsidiary being the surviving corporation in such merger), and in any case, all of the provisions of subsection 6.8 have been complied with in respect of such Person; (c) the only consideration paid in connection with such Permitted Acquisition shall consist of cash, Holdings Common Stock or Permitted Seller Notes; (d) (1) Company shall be in compliance, on a pro forma basis giving effect to the proposed acquisition, with the covenants set forth in subsection 7.6 hereof, (2) the ratio (calculated on a pro forma basis giving effect to the proposed 137 acquisition) of (x) the principal amount of any Revolving Loans borrowed to finance such acquisition to (y) the New Business EBITDA of the acquired business shall not exceed 3.5 to 1.0, (3) the ratio (calculated on a pro forma basis giving effect to the proposed acquisition) of (x) the principal amount of all Indebtedness incurred by Holdings and its Subsidiaries to finance such acquisition plus all ---- Indebtedness of such New Business existing at the time of such acquisition for which Holdings or any of its Subsidiaries shall be liable immediately following such acquisition, to (y) the New Business EBITDA of the acquired business shall not exceed 5.5 to 1.0, and (4) no Event of Default or Potential Event of Default shall have occurred and be continuing at the time of such acquisition or shall be caused thereby; and Company shall have delivered to Administrative Agent an Officer's Certificate (together with supporting information therefor), in form and substance reasonably satisfactory to Administrative Agent, certifying as to the foregoing; and (e) any assets acquired pursuant to such acquisition shall be subject to a First Priority Lien in favor of Collateral Agent on behalf of Lenders pursuant to the Collateral Documents; (xv) Holdings and its Subsidiaries may consummate the Recapitalization Transactions: (xvi) Holdings may issue Holdings Common Stock to the extent otherwise not prohibited under the provisions hereof. 7.8 Consolidated Capital Expenditures. --------------------------------- A. Holdings and Company shall not, and shall not permit their respective Subsidiaries to, make or incur Consolidated Capital Expenditures, in any Fiscal Year indicated below, in an aggregate amount in excess of the corresponding amount (as adjusted in accordance with the provisos hereto, the "Maximum Consolidated Capital Expenditures Amount") set forth below opposite such Fiscal Year; provided that the Maximum Consolidated Capital Expenditures Amount for any -------- Fiscal Year shall be increased by an amount equal to the lesser of (x) the excess, if any, of the Maximum Consolidated Capital Expenditures Amount for the previous Fiscal Year (prior to adjustment in accordance with this proviso) over the actual amount of Consolidated Capital Expenditures for such previous Fiscal Year and (y) 50% of the Maximum Consolidated Capital Expenditures Amount (prior to adjustment in accordance with this proviso) for such previous Fiscal Year (the amount of such increase described in this proviso being the "Carryforward" from such preceding Fiscal Year): 138
===================================================== Maximum Consolidated Fiscal Year Capital Expenditures ===================================================== 1998 $25,500,000 ----------------------------------------------------- 1999 $19,000,000 ----------------------------------------------------- 2000 $18,500,000 ----------------------------------------------------- 2001 $20,500,000 ----------------------------------------------------- 2002 and thereafter $23,000,000 =====================================================
; and provided further, that the Maximum Consolidated Capital Expenditures -------- ------- Amount for each Fiscal Year shall be increased upon the consummation of the acquisition of a New Business as follows: (i) for the Fiscal Year during which such acquisition is consummated, the Maximum Consolidated Capital Expenditures Amount shall be increased by an amount equal to the product of (a) a fraction obtained by dividing the number of days remaining in such Fiscal Year (following such acquisition) by 365, multiplied by (b) 2.0% of the actual historical revenues of the New ------------- Business for the most recently ended twelve-month period (the "Acquired LTM Revenue") prior to such acquisition; and (ii) for each Fiscal Year thereafter, the Maximum Consolidated Capital Expenditures Amount shall be increased by an amount equal to 2.0% of the Acquired LTM Revenue of such New Business. Notwithstanding anything to the contrary contained herein, to the extent any EITF 97-13 Expenditures, Year 2000 Expenditures or Other MIS Expenditures are added back to Consolidated Adjusted EBITDA by virtue of Schedule 1.1(i), --------------- such amounts added in calculating Consolidated Adjusted EBITDA shall be added to Consolidated Capital Expenditures for purposes of determining compliance with this subsection 7.8A. B. Company and its Subsidiaries may make additional Consolidated Capital Expenditures consisting of MIS Upgrade Expenditures at any time during Fiscal Years 1998 through 2001 in an aggregate amount for all such Fiscal Years not to exceed $12,000,000, and in an aggregate amount for any such Fiscal Year not to exceed 75% of such amount (it being understood that MIS Upgrade Expenditures may exceed the amounts set forth in this subsection 7.8B so long as Consolidated Capital Expenditures, including any such excess, do not exceed the limitations set forth in subsection 7.8A). C. Notwithstanding anything in this subsection to the contrary, so long as no Event of Default or Potential Event of Default shall have occurred and be continuing or shall be caused thereby, Company and its Subsidiaries may make Consolidated Capital Expenditures at any time in an aggregate amount equal to the Excess Proceeds Amount at such time (which Consolidated 139 Capital Expenditures shall not be included in any determination of Consolidated Capital Expenditures under subsection 7.8A). 7.9 Sales and Lease-Backs. --------------------- Except for the transactions described on Schedule 7.9 annexed hereto, ------------ Holdings shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, become or remain liable as lessee or as a guarantor or other surety with respect to any lease, whether an Operating Lease or a Capital Lease, of any property (whether real, personal or mixed), whether now owned or hereafter acquired, (i) which Holdings or any of its Subsidiaries has sold or transferred or is to sell or transfer to any other Person (other than Holdings or any of its Subsidiaries) or (ii) which Holdings or any of its Subsidiaries intends to use for substantially the same purpose as any other property which has been or is to be sold or transferred by Holdings or any of its Subsidiaries to any Person (other than Holdings or any of its Subsidiaries) in connection with such lease. Notwithstanding anything herein to the contrary, only 85% of the Net Asset Sale Proceeds of the sale-leaseback transaction described on Schedule 7.9 shall be ------------ applied as required by subsection 2.4B(iii)(a). 7.10 Sale or Discount of Receivables. ------------------------------- Holdings shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, sell with recourse, or discount or otherwise sell for less than the face value thereof, any of its notes or accounts receivable; provided, however, that Company and its Subsidiaries may, in the exercise of - -------- ------- their reasonable business judgment in connection with efforts to collect amounts owed thereunder, discount or sell (to the extent permitted under subsection 7.7(vii)) for less than the face value thereof any accounts receivable. 7.11 Transactions with Shareholders and Affiliates. --------------------------------------------- Holdings shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, enter into or permit to exist any transaction (including the purchase, sale, lease or exchange of any property or the rendering of any service) with any holder of 5% or more of any class of equity Securities of Holdings or with any Affiliate of Holdings or of any such holder, on terms that are less favorable to Holdings or that Subsidiary, as the case may be, than those that might be obtained at the time from Persons who are not such a holder or Affiliate; provided that the foregoing restriction shall not apply to (i) any -------- transaction between Holdings and any of its wholly owned Subsidiaries or between any of its wholly owned Subsidiaries, (ii) any payment from Company to Holdings expressly permitted under subsection 7.5, (iii) the payment of Management Fees to Bain under the Bain Advisory Services Agreement, (iv) the payment of Harvard Management Fees under the Harvard Advisory Services Agreement, (v) any employment agreement entered into by Holdings or any of its Subsidiaries in the ordinary course of business, (vi) any issuance of capital stock of Holdings in connection with employment arrangements, stock options and stock ownership plans of Holdings or any of its Subsidiaries entered into in the ordinary course of business, (vii) any of the Recapitalization Transactions, 140 or (viii) reasonable and customary fees paid to members of the Boards of Directors of Holdings and its Subsidiaries. 7.12 Disposal of Subsidiary Stock. ---------------------------- Except for any sale of 100% of the capital stock or other equity Securities of any of its Subsidiaries in compliance with the provisions of subsection 7.7(vi), Holdings shall not: (i) directly or indirectly sell, assign, pledge or otherwise encumber or dispose of any shares of capital stock or other equity Securities of any of its Subsidiaries, except to qualify directors if required by applicable law; or (ii) permit any of its Subsidiaries directly or indirectly to sell, assign, pledge or otherwise encumber or dispose of any shares of capital stock or other equity Securities of any of its Subsidiaries (including such Subsidiary), except to Company, another Subsidiary of Holdings (subject to the restrictions on such disposition otherwise imposed hereinunder), or to qualify directors if required by applicable law. 7.13 Conduct of Business. ------------------- From and after the Closing Date, Company shall not, and shall not permit any of its Subsidiaries to, engage in any business other than (i) the businesses engaged in by Company and its Subsidiaries on the Closing Date and similar or related or supportive businesses and (ii) such other lines of business as may be consented to by Requisite Lenders. Holdings shall engage in no business and have no assets (including Intellectual Property) other than (i) owning the stock of Company, (ii) the issuance of and activities related to the maintenance and servicing of the Junior Subordinated Seller Notes and Shareholder Subordinated Notes as permitted hereunder, (iii) the entering into, and the performance of its obligations under, the Holdings Guaranty, the Holdings Pledge Agreement, the Holdings Security Agreement, the Related Agreements to which it is a party, the Bain Advisory Services Agreement and the AXEL Credit Documents, (iv) the receipt of Cash dividends or Cash distributions from Company in accordance with the provisions hereof, and (v) activities associated with expenses paid with any dividends paid to Holdings which are permitted under subsection 7.5. Notwithstanding the foregoing, Holdings may engage in activities incidental to (a) the maintenance of its corporate existence in compliance with applicable law, (b) legal, tax and accounting matters in connection with any of the foregoing activities and (c) entering into, and performing its obligations under, this Agreement and the Loan Documents to which it is a party. 7.14 Amendments or Waivers of Certain Agreements; Amendments of Documents -------------------------------------------------------------------- Relating to Subordinated Indebtedness; "Designated Senior Debt". --------------------------------------------------------------- A. Amendments or Waivers of Certain Agreements. None of Holdings, Company nor any of their respective Subsidiaries will agree to any amendment to, or waive any of its rights under, the Bain Advisory Services Agreement, the Harvard Advisory Services Agreement or any Related Agreement (other than any Related Agreement evidencing or governing any 141 Subordinated Indebtedness) after the Closing Date if any such amendment or waiver would, individually or in the aggregate, reasonably be expected to be materially adverse to Lenders without in each case obtaining the prior written consent of Requisite Lenders to such amendment or waiver. B. Amendments of Documents Relating to Subordinated Indebtedness. Holdings and Company shall not, and shall not permit any of their respective Subsidiaries to, amend or otherwise change the terms of any Subordinated Indebtedness, or make any payment consistent with an amendment thereof or change thereto, if the effect of such amendment or change is to increase the interest rate on such Subordinated Indebtedness, change (to earlier dates) any dates upon which payments of principal or interest are due thereon, change any event of default or condition to an event of default with respect thereto (other than to eliminate any such event of default or increase any grace period related thereto), change the redemption, prepayment or defeasance provisions thereof, change the subordination provisions of such Subordinated Indebtedness (or of any guaranty thereof), or change any collateral therefor (other than to release such collateral), or if the effect of such amendment or change, together with all other amendments or changes made, is to increase materially the obligations of the obligor thereunder or to confer any additional rights on the holders of such Subordinated Indebtedness (or a trustee or other representative on their behalf) which would be materially adverse to Holdings, Company or Lenders. C. Amendments of AXEL Credit Documents. Holdings and Company shall not, and shall not permit any of their respective Subsidiaries to, amend or otherwise change the terms of any of the AXEL Credit Documents, or make any payment consistent with an amendment thereof or a change thereto, that would have the effect of (i) changing (to earlier dates) any dates upon which payments of principal or interest are due on the AXELs, (ii) reducing the percentage specified in the definition of "Requisite Lenders" in the AXEL Credit Agreement, or (iii) changing the prepayment provisions of the AXEL Credit Agreement in a manner that disproportionately disadvantages the Lenders relative to the lenders under the AXEL Credit Agreement or confers additional rights on the lenders under the AXEL Credit Agreement which would be adverse to Lenders, without the prior written consent of Requisite Lenders under this Agreement. D. Designation of "Designated Senior Debt". Holdings and Company shall not designate any Indebtedness as "Designated Senior Debt" (as defined in the New Sub Debt Indentures or the Junior Subordinated Seller Notes) for purposes of the New Sub Debt Indentures or the Junior Subordinated Seller Notes without the prior written consent of Requisite Lenders. 7.15 Fiscal Year ----------- Holdings and Company shall not change their Fiscal Year-end from the Sunday nearest to November 30. 142 SECTION 8. EVENTS OF DEFAULT If any of the following conditions or events ("Events of Default") shall occur: 8.1 Failure to Make Payments When Due. --------------------------------- Failure by Company to pay any installment of principal of any Loan when due, whether at stated maturity, by acceleration, by notice of voluntary prepayment, by mandatory prepayment or otherwise; failure by Company to pay when due any amount payable to an Issuing Lender in reimbursement of any drawing under a Letter of Credit; or failure by Company to pay any interest on any Loan or any fee or any other amount due under this Agreement within three days after the date due; or 8.2 Default in Other Agreements. --------------------------- (i) Failure of Holdings or any of its Subsidiaries to pay when due any principal of or interest on or any other amount payable in respect of one or more items of Indebtedness (other than Indebtedness referred to in subsection 8.1) or Contingent Obligations in an individual principal amount of $5,000,000 or more or with an aggregate principal amount of $10,000,000 or more, in each case beyond the end of any grace period provided therefor; or (ii) breach or default by Holdings or any of its Subsidiaries with respect to any other material term of (a) one or more items of Indebtedness or Contingent Obligations in the individual or aggregate principal amounts referred to in clause (i) above or (b) any loan agreement, mortgage, indenture or other agreement relating to such item(s) of Indebtedness or Contingent Obligation(s), if the effect of such breach or default is to cause, or to permit the holder or holders of that Indebtedness or Contingent Obligation(s) (or a trustee on behalf of such holder or holders) to cause, that Indebtedness or Contingent Obligation(s) to become or be declared due and payable prior to its stated maturity or the stated maturity of any underlying obligation, as the case may be (upon the giving or receiving of notice, lapse of time, both, or otherwise); or 8.3 Breach of Certain Covenants. --------------------------- Failure of Holdings or Company to perform or comply with any term or condition contained in subsection 2.5 or 6.2 or Section 7 of this Agreement; provided, however, that such failure with respect to the covenants contained in - -------- ------- subsections 7.1, 7.2, 7.3 and 7.4 shall not constitute an Event of Default for ten days after such failure so long as Company is diligently pursuing the cure of such failure; or 8.4 Breach of Warranty. ------------------ Any representation, warranty, certification or other statement made by Holdings or any of its Subsidiaries in any Loan Document or in any statement or certificate at any time given by Holdings or any of its Subsidiaries in writing pursuant hereto or thereto or in connection herewith or therewith shall be false in any material respect on the date as of which made; or 143 8.5 Other Defaults Under Loan Documents. ----------------------------------- Any Loan Party shall default in the performance of or compliance with any term contained in this Agreement or any of the other Loan Documents, other than any such term referred to in any other subsection of this Section 8, and such default shall not have been remedied or waived within 30 days after the earlier of (i) an officer of Holdings, Company or such Loan Party becoming aware of such default or (ii) receipt by Holdings, Company and such Loan Party of notice from Administrative Agent or any Lender of such default; or 8.6 Involuntary Bankruptcy; Appointment of Receiver, etc. ----------------------------------------------------- (i) A court having jurisdiction in the premises shall enter a decree or order for relief in respect of Holdings or any of its Subsidiaries (other than Immaterial Subsidiaries) in an involuntary case under the Bankruptcy Code or under any other applicable bankruptcy, insolvency or similar law now or hereafter in effect, which decree or order is not stayed; or any other similar relief shall be granted under any applicable federal or state law; or (ii) an involuntary case shall be commenced against Holdings or any of its Subsidiaries (other than Immaterial Subsidiaries) under the Bankruptcy Code or under any other applicable bankruptcy, insolvency or similar law now or hereafter in effect; or a decree or order of a court having jurisdiction in the premises for the appointment of a receiver, liquidator, sequestrator, trustee, custodian or other officer having similar powers over Holdings or any of its Subsidiaries (other than Immaterial Subsidiaries), or over all or a substantial part of its property, shall have been entered; or there shall have occurred the involuntary appointment of an interim receiver, trustee or other custodian of Holdings or any of its Subsidiaries (other than Immaterial Subsidiaries) for all or a substantial part of its property; or a warrant of attachment, execution or similar process shall have been issued against any substantial part of the property of Holdings or any of its Subsidiaries (other than Immaterial Subsidiaries), and any such event described in this clause (ii) shall continue for 60 days unless dismissed, bonded or discharged; or 8.7 Voluntary Bankruptcy; Appointment of Receiver, etc. --------------------------------------------------- (i) Holdings or any of its Subsidiaries (other than Immaterial Subsidiaries) shall have an order for relief entered with respect to it or commence a voluntary case under the Bankruptcy Code or under any other applicable bankruptcy, insolvency or similar law now or hereafter in effect, or shall consent to the entry of an order for relief in an involuntary case, or to the conversion of an involuntary case to a voluntary case, under any such law, or shall consent to the appointment of or taking possession by a receiver, trustee or other custodian for all or a substantial part of its property; or Holdings or any of its Subsidiaries (other than Immaterial Subsidiaries) shall make any assignment for the benefit of creditors; or (ii) Holdings or any of its Subsidiaries (other than Immaterial Subsidiaries) shall be unable, or shall fail generally, or shall admit in writing its inability, to pay its debts as such debts become due; or the Board of Directors of Holdings or any of its Subsidiaries (or any committee thereof) shall adopt any resolution or otherwise authorize any action to approve any of the actions referred to in clause (i) above or this clause (ii); or 144 8.8 Judgments and Attachments. ------------------------- Any money judgment, writ or warrant of attachment or similar process involving (i) in any individual case an amount in excess of $5,000,000 or (ii) in the aggregate at any time an amount in excess of $10,000,000 (in either case not adequately covered by insurance as to which a solvent and unaffiliated insurance company has acknowledged coverage) shall be entered or filed against Holdings or any of its Subsidiaries or any of their respective assets and shall remain undischarged, unvacated, unbonded or unstayed for a period of 60 days (or in any event later than five days prior to the date of any proposed sale thereunder); or 8.9 Dissolution. ----------- Any order, judgment or decree shall be entered against Holdings or any of its Subsidiaries decreeing the dissolution or split up of Holdings or that Subsidiary and such order shall remain undischarged or unstayed for a period in excess of 30 days; or 8.10 Employee Benefit Plans. ---------------------- There shall occur one or more ERISA Events which individually or in the aggregate results in or might reasonably be expected to result in liability of Holdings or any of its Subsidiaries in excess of $7,500,000 during the term of this Agreement; or 8.11 Change in Control. ----------------- (i) Holdings shall cease to own 100% of the capital stock of Company; or (ii) Bain and the Other Investors shall cease to have a presently exercisable right to vote at least 51% of all issued and outstanding equity Securities of Holdings entitled (without regard to the occurrence of any contingency) to vote for the election of members of the Board of Directors of Holdings; or (iii) Bain and the Other Investors shall cease to beneficially own at least 51% of the economic value of Holdings; or (iv) a majority of the members of the Board of Directors of Company shall not be Continuing Directors; or (v) Bain shall (a) cease to have a presently exercisable right to vote more of the issued and outstanding equity Securities of Holdings entitled (without regard to the occurrence of any contingency) to vote for the election of members of the Board of Directors of Holdings than any one of the Other Investors, or (b) cease to beneficially own a greater percentage of the economic value of Holdings than the percentage beneficially owned by any one of the Other Investors; or (vi) the ratio of (a) either (x) the percentage of the issued and outstanding equity Securities of Holdings or (y) the percentage of the economic value of Holdings, in each case held by Bain at any time, to (b) either (x) the percentage of the issued and outstanding equity Securities of Holdings or (y) the percentage of the economic value of Holdings, in each case held by Bain on the Closing Date after giving effect to the Recapitalization Transactions, shall at any time be less than .50:1.0; or (vii) a "Change of Control" under either of the New Sub Debt Indentures shall occur; or 145 8.12 Invalidity of Guaranties; Failure of Security; Repudiation of Obligations. ------------------------------------------------------------------------- At any time after the execution and delivery thereof, (i) any Guaranty for any reason, other than the satisfaction in full of all 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), shall cease to be in full force and effect (other than in accordance with its terms) or shall be declared to be null and void, (ii) any Collateral Document shall cease to be in full force and effect (other than by reason of a release of Collateral thereunder in accordance with the terms hereof or thereof, the satisfaction in full of the 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) or any other termination of such Collateral Document in accordance with the terms hereof or thereof) or shall be declared null and void, or Administrative Agent shall not have or shall cease to have a valid and perfected First Priority Lien in any Collateral purported to be covered thereby having a fair market value, individually or in the aggregate, exceeding $2,000,000, in each case for any reason other than the failure of Administrative Agent or any Lender to take any action within its control, or (iii) any Loan Party shall contest the validity or enforceability of any Loan Document in writing or deny in writing that it has any further liability, including with respect to future advances by Lenders, under any Loan Document to which it is a party; or 8.13 Failure to Consummate Recapitalization or Merger. ------------------------------------------------ The Recapitalization Transactions or the Merger shall not be consummated in accordance with this Agreement and the applicable Related Agreements on the Closing Date, or the Recapitalization Transactions or the Merger shall be unwound, reversed or otherwise rescinded in whole or in part for any reason: THEN (i) upon the occurrence of any Event of Default described in subsection 8.6 or 8.7, each of (a) the unpaid principal amount of and accrued interest on the Loans, (b) an amount equal to the maximum amount that may at any time be drawn under all Letters of Credit then outstanding (whether or not any beneficiary under any such Letter of Credit shall have presented, or shall be entitled at such time to present, the drafts or other documents or certificates required to draw under such Letter of Credit), and (c) all other Obligations shall automatically become immediately due and payable, without presentment, demand, protest or other requirements of any kind, all of which are hereby expressly waived by Holdings and Company, and the obligation of each Lender to make any Loan, the obligation of Administrative Agent to issue any Letter of Credit and the right of any Lender to issue any Letter of Credit hereunder shall thereupon terminate, and (ii) upon the occurrence and during the continuation of any other Event of Default, Administrative Agent shall, upon the written request or with the written consent of Requisite Lenders, by written notice to Company, declare all or any portion of the amounts described in clauses (a) through (c) above to be, and the same shall forthwith become, immediately due and payable, and the obligation of each Lender to make any Loan, the obligation of Administrative Agent to issue any Letter of Credit and the right of any Lender to issue any Letter of Credit hereunder shall thereupon terminate; provided that the -------- foregoing shall not affect 146 in any way the obligations of Lenders under subsection 3.3C(i) or the obligations of Lenders to purchase participations in any unpaid Swing Line Loans as provided in subsection 2.1A(iii). Any amounts described in clause (b) above, when received by Administrative Agent, shall be held by Collateral Agent pursuant to the terms of the Intercreditor Agreement and shall be applied as therein provided. Notwithstanding anything contained in the second preceding paragraph, if at any time within 60 days after an acceleration of the Loans pursuant to clause (ii) of such paragraph Company shall pay all arrears of interest and all payments on account of principal which shall have become due otherwise than as a result of such acceleration (with interest on principal and, to the extent permitted by law, on overdue interest, at the rates specified in this Agreement) and all Events of Default and Potential Events of Default (other than non- payment of the principal of and accrued interest on the Loans, in each case which is due and payable solely by virtue of acceleration) shall be remedied or waived pursuant to subsection 10.6, then Requisite Lenders, by written notice to Company, may at their option rescind and annul such acceleration and its consequences; but such action shall not affect any subsequent Event of Default or Potential Event of Default or impair any right consequent thereon. The provisions of this paragraph are intended merely to bind Lenders to a decision which may be made at the election of Requisite Lenders and are not intended, directly or indirectly, to benefit Holdings or Company, and such provisions shall not at any time be construed so as to grant Holdings or Company the right to require Lenders to rescind or annul any acceleration hereunder or to preclude Administrative Agent or Lenders from exercising any of the rights or remedies available to them under any of the Loan Documents, even if the conditions set forth in this paragraph are met. SECTION 9. AGENTS 9.1 Appointment. ----------- A. Appointment of Agents. GSCP is hereby appointed Syndication Agent hereunder, and each Lender hereby authorizes Syndication Agent to act as its agent in accordance with the terms of this Agreement and the other Loan Documents. Morgan Guaranty is hereby appointed Administrative Agent hereunder and under the other Loan Documents and each Lender hereby authorizes Administrative Agent to act as its agent in accordance with the terms of this Agreement and the other Loan Documents. BTCo. is hereby appointed Documentation Agent hereunder. Each Lender hereby authorizes and confirms the appointment by Administrative Agent of Morgan Guaranty as Collateral Agent under the Intercreditor Agreement and each Lender hereby authorizes Collateral Agent to act as its agent in accordance with the terms of the Intercreditor Agreement and the other Loan Documents. Each Agent hereby agrees to act upon the express conditions contained in this Agreement and the other Loan Documents, as applicable. The provisions of this Section 9 are solely for the benefit of Agents and Lenders and Company shall have no rights as a third party beneficiary of any of the provisions thereof. In performing its functions and duties under this Agreement, each Agent 147 shall act solely as an agent of Lenders and does not assume and shall not be deemed to have assumed any obligation towards or relationship of agency or trust with or for Holdings or any of its Subsidiaries. Each of Syndication Agent, without consent of or notice to any party hereto, may assign any and all of its rights or obligations hereunder to any of its Affiliates. As of the date on which Syndication Agent notifies Company that it has concluded its primary syndication of the Loans and Commitments, all obligations of GSCP, in its capacity as Syndication Agent hereunder, shall terminate. BTCo., in its capacity as Documentation Agent, shall have no obligations hereunder. B. Appointment of Supplemental Collateral Agents. It is the purpose of this Agreement and the other Loan Documents that there shall be no violation of any law of any jurisdiction denying or restricting the right of banking corporations or associations to transact business as agent or trustee in such jurisdiction. It is recognized that in case of litigation under this Agreement or any of the other Loan Documents, and in particular in case of the enforcement of any of the Loan Documents, or in case Administrative Agent deems that by reason of any present or future law of any jurisdiction it may not exercise any of the rights, powers or remedies granted herein or in any of the other Loan Documents or take any other action which may be desirable or necessary in connection therewith, it may be necessary that Administrative Agent appoint an additional individual or institution as a separate trustee, co-trustee, collateral agent or collateral co-agent (any such additional individual or institution being referred to herein individually as a "Supplemental Collateral Agent" and collectively as "Supplemental Collateral Agents"). In the event that Administrative Agent appoints a Supplemental Collateral Agent with respect to any Collateral, (i) each and every right, power, privilege or duty expressed or intended by this Agreement or any of the other Loan Documents to be exercised by or vested in or conveyed to Administrative Agent with respect to such Collateral shall be exercisable by and vest in such Supplemental Collateral Agent to the extent, and only to the extent, necessary to enable such Supplemental Collateral Agent to exercise such rights, powers and privileges with respect to such Collateral and to perform such duties with respect to such Collateral, and every covenant and obligation contained in the Loan Documents and necessary to the exercise or performance thereof by such Supplemental Collateral Agent shall run to and be enforceable by either Administrative Agent or such Supplemental Collateral Agent, and (ii) the provisions of this Section 9 and of subsections 10.2 and 10.3 that refer to Administrative Agent shall inure to the benefit of such Supplemental Collateral Agent and all references therein to Administrative Agent shall be deemed to be references to Administrative Agent and/or such Supplemental Collateral Agent, as the context may require. Should any instrument in writing from Holdings, Company or any other Loan Party be required by any Supplemental Collateral Agent so appointed by Administrative Agent for more fully and certainly vesting in and confirming to him or it such rights, powers, privileges and duties, Holdings or Company shall, or shall cause such Loan Party to, execute, acknowledge and deliver any and all such instruments promptly upon request by Administrative Agent. In case any Supplemental Collateral Agent, or a successor thereto, shall die, become incapable of acting, resign or be removed, all the rights, powers, privileges and duties of such Supplemental 148 Collateral Agent, to the extent permitted by law, shall vest in and be exercised by Administrative Agent until the appointment of a new Supplemental Collateral Agent. 9.2 Powers and Duties; General Immunity. ----------------------------------- A. Powers; Duties Specified. Each Lender irrevocably authorizes each Agent to take such action on such Lender's behalf and to exercise such powers, rights and remedies hereunder and under the other Loan Documents as are specifically delegated or granted to such Agent by the terms hereof and thereof, together with such powers, rights and remedies as are reasonably incidental thereto. Each Agent shall have only those duties and responsibilities that are expressly specified in this Agreement and the other Loan Documents. Each Agent may exercise such powers, rights and remedies and perform such duties by or through its agents or employees. No Agent shall have, by reason of this Agreement or any of the other Loan Documents, a fiduciary relationship in respect of any Lender; and nothing in this Agreement or any of the other Loan Documents, expressed or implied, is intended to or shall be so construed as to impose upon any Agent any obligations in respect of this Agreement or any of the other Loan Documents except as expressly set forth herein or therein. B. No Responsibility for Certain Matters. No Agent shall be responsible to any Lender for the execution, effectiveness, genuineness, validity, enforceability, collectibility or sufficiency of this Agreement or any other Loan Document or for any representations, warranties, recitals or statements made herein or 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 any of Agent to Lenders or by or on behalf of Holdings or Company to any Agent or any Lender in connection with the Loan Documents and the transactions contemplated thereby or for the financial condition or business affairs of Holdings or Company or any other Person liable for the payment of any Obligations, nor shall any Agent 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. Anything contained in this Agreement to the contrary notwithstanding, Administrative Agent shall not have any liability arising from confirmations of the amount of outstanding Loans or the Letter of Credit Usage or the component amounts thereof. C. Exculpatory Provisions. None of Agents nor any of their respective officers, partners, directors, employees or agents shall be liable to Lenders for any action taken or omitted by any Agent under or in connection with any of the Loan Documents except to the extent caused by such Agent's gross negligence or willful misconduct. Each Agent shall be entitled to refrain from any act or the taking of any action (including the failure to take an action) in connection with this Agreement or any of the other Loan Documents or from the exercise of any power, discretion or authority vested in it hereunder or thereunder unless and until such Agent, in the case of any Agent other than the Collateral Agent, shall have received instructions in respect thereof from Requisite Lenders (or such other Lenders as may be required to give such instructions under subsection 10.6) or, in the case of the Collateral Agent, in 149 accordance with the Intercreditor Agreement, and, upon receipt of such instructions from Requisite Lenders (or such other Lenders, as the case may be) or in accordance with the Intercreditor Agreement, as the case may be, such Agent shall be entitled to act or (where so instructed) refrain from acting, or to exercise such power, discretion or authority, in accordance with such instructions. Without prejudice to the generality of the foregoing, (i) each Agent shall be entitled to rely, and shall be fully protected in relying, upon any communication, instrument or document believed by it to be genuine and correct and to have been signed or sent by the proper person or persons, and shall be entitled to rely and shall be protected in relying on opinions and judgments of attorneys (who may be attorneys for Holdings and its Subsidiaries), accountants, experts and other professional advisors selected by it; and (ii) no Lender shall have any right of action whatsoever against any Agent as a result of such Agent acting or (where so instructed) refraining from acting under this Agreement or any of the other Loan Documents, in the case of any Agent other than the Collateral Agent, in accordance with the instructions of Requisite Lenders (or such other Lenders as may be required to give such instructions under subsection 10.6) or, in the case of the Collateral Agent, in accordance with the Intercreditor Agreement. D. Agent Entitled to Act as Lender. The agency hereby created shall in no way impair or affect any of the rights and powers of, or impose any duties or obligations upon, any Agent in its individual capacity as a Lender hereunder. With respect to its participation in the Loans and the Letters of Credit, each Agent shall have the same rights and powers hereunder as any other Lender and may exercise the same as though it were not performing the duties and functions delegated to it hereunder, and the term "Lender" or "Lenders" or any similar term shall, unless the context clearly otherwise indicates, include each Agent in its individual capacity. Any Agent and its Affiliates may accept deposits from, lend money to and generally engage in any kind of banking, trust, financial advisory or other business with Holdings, Company or any of their Affiliates as if it were not performing the duties specified herein, and may accept fees and other consideration from Holdings and Company for services in connection with this Agreement and otherwise without having to account for the same to Lenders. 9.3 Representations and Warranties; No Responsibility For Appraisal of Credit ------------------------------------------------------------------------- worthiness. ---------- Each Lender represents and warrants that it has made its own independent investigation of the financial condition and affairs of Holdings and its Subsidiaries in connection with the making of the Loans and the issuance of Letters of Credit hereunder and that it has made and shall continue to make its own appraisal of the creditworthiness of Holdings and its Subsidiaries. No Agent shall have any duty or responsibility, either initially or on a continuing basis, to make any such investigation or any such appraisal on behalf of Lenders or to provide any Lender with any credit or other information with respect thereto, whether coming into its possession before the making of the Loans or at any time or times thereafter, and no Agent shall have any responsibility with respect to the accuracy of or the completeness of any information provided to Lenders. 150 9.4 Right to Indemnity. ------------------ Each Lender, in proportion to its Pro Rata Share, severally agrees to indemnify each Agent, to the extent that such Agent shall not have been reimbursed by Company or Holdings, for and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses (including counsel fees and disbursements) or disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against such Agent in exercising its powers, rights and remedies or performing its duties hereunder or under the other Loan Documents or otherwise in its capacity as such Agent in any way relating to or arising out of this Agreement or the other Loan Documents; provided that no Lender shall be liable for any portion of -------- such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from such Agent's gross negligence or willful misconduct. If any indemnity furnished to any Agent for any purpose shall, in the opinion of such Agent, be insufficient or become impaired, such Agent may call for additional indemnity and cease, or not commence, to do the acts indemnified against until such additional indemnity is furnished; provided that in no event shall this sentence require any Lender to -------- indemnify any Agent against any liability, obligation, loss, damage, penalty, action, judgment, suit, cost, expense or disbursement in excess of such Lender's Pro Rata Share thereof; and provided, further, that this sentence shall not be -------- deemed to require any Lender to indemnify any Agent against any liability, obligation, loss, damage, penalty, action, judgment, suit, cost, expense or disbursement described in the proviso to the immediately preceding sentence. 9.5 Successor Administrative Agent and Swing Line Lender. ---------------------------------------------------- A. Successor Administrative Agent. Administrative Agent may resign at any time by giving 30 days' prior written notice thereof to Lenders and Company, and Administrative Agent may be removed at any time with or without cause by an instrument or concurrent instruments in writing delivered to Company and Administrative Agent and signed by Requisite Lenders. Upon any such notice of resignation or any such removal, Requisite Lenders shall have the right, upon five Business Days' notice to Company, to appoint a successor Administrative Agent with the consent of Company (which consent shall not be unreasonably withheld). Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent, that successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring or removed Administrative Agent and the retiring or removed Administrative Agent shall be discharged from its duties and obligations under this Agreement. After any retiring or removed Administrative Agent's resignation or removal hereunder as Administrative Agent, the provisions of this Section 9 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement. B. Successor Swing Line Lender. Any resignation or removal of Administrative Agent pursuant to subsection 9.5A shall also constitute the resignation or removal of Morgan Guaranty or its successor as Swing Line Lender, and any successor Administrative Agent appointed pursuant to subsection 9.5A shall, upon its acceptance of such appointment, become the successor Swing Line Lender for all purposes hereunder. In such event (i) Company shall 151 prepay any outstanding Swing Line Loans made by the retiring or removed Agent in its capacity as Swing Line Lender, (ii) upon such prepayment, the retiring or removed Administrative Agent and Swing Line Lender shall surrender any Swing Line Note held by it to Company for cancellation, and (iii) if so requested by the successor Administrative Agent and Swing Line Lender in accordance with subsection 2.1E, Company shall issue a new Swing Line Note to the successor Administrative Agent and Swing Line Lender substantially in the form of Exhibit ------- IX annexed hereto, in the principal amount of the Swing Line Loan Commitment - -- then in effect and with other appropriate insertions. 9.6 Collateral Documents and Guaranty. --------------------------------- Each Lender hereby further authorizes Administrative Agent, on behalf of and for the benefit of Lenders, to enter into the Intercreditor Agreement, and each Lender agrees to be bound by the terms of the Intercreditor Agreement; provided that Administrative Agent shall not enter into or consent to any - -------- material amendment, modification, termination or waiver of the Intercreditor Agreement without the prior consent of Requisite Lenders (or such other Lenders as may be required to give such instructions under subsection 10.6). Each Lender hereby further authorizes Collateral Agent (and under the terms of the Intercreditor Agreement Collateral Agent is authorized), on behalf of and for the benefit of Lenders, to enter into each Collateral Document as secured party and to be the agent for and representative of the Lenders under the Guaranties, and each Lender agrees to be bound by the terms of each Collateral Document and each Guaranty; provided that Collateral Agent shall not enter into or consent to -------- any material amendment, modification, termination or waiver of the Intercreditor Agreement without the prior consent of Requisite Lenders (or such other Lenders as may be required to give such instructions under subsection 10.6) ; provided -------- further, however, that, without further written consent or authorization from - ------- ------- Lenders, 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 this Agreement or as permitted or required under the Intercreditor Agreement or the Collateral Documents or to which Requisite Lenders (or such other Lenders as may be required to give such consent under subsection 10.6) have otherwise consented or (b) release any Subsidiary Guarantor from the Subsidiary Guaranty if all of the capital stock of such Subsidiary Guarantor is sold to any Person pursuant to a sale or other disposition permitted hereunder or as permitted under the Intercreditor Agreement or to which Requisite Lenders (or such other Lenders as may be required to give such consent under subsection 10.6) have otherwise consented; provided, however, that nothing in this subsection shall require consent to - -------- ------- release from the Subsidiary Guaranty any Person which, immediately after such sale, shall be a Domestic Subsidiary of Holdings which is obligated to and will enter into the Subsidiary Guaranty. Anything contained in any of the Loan Documents to the contrary notwithstanding, Company, Administrative Agent, Collateral Agent and each Lender hereby agree that (X) no Lender shall have any right individually to realize upon any of the Collateral under any Collateral Document or to enforce the Subsidiary Guaranty, it being understood and agreed that all powers, rights and remedies under the Collateral Documents and the Guaranties may be exercised solely by Collateral Agent for the benefit of Secured Parties in accordance with the terms thereof, and (Y) in the event of a foreclosure by Collateral Agent on any of the Collateral pursuant to a public or private sale, Collateral Agent or any Secured Party may be 152 the purchaser of any or all of such Collateral at any such sale and Collateral Agent, as agent for and representative of Secured Parties (but not any Secured Party or Secured Parties in its or their respective individual capacities unless Requisite Lenders 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 Obligations as a credit on account of the purchase price for any collateral payable by Collateral Agent at such sale. SECTION 10. MISCELLANEOUS 10.1 Assignments and Participations in Loans and Letters of Credit. ------------------------------------------------------------- A. General. Subject to subsection 10.1B, each Lender shall have the right at any time to (i) sell, assign or transfer to any Eligible Assignee, or (ii) sell participations to any Person in, all or any part of its Commitments or any Loan or Loans made by it or its Letters of Credit or participations therein or any other interest herein or in any other Obligations owed to it; provided -------- that no such sale, assignment, transfer or participation shall, without the consent of Company, require Company to file a registration statement with the Securities and Exchange Commission or apply to qualify such sale, assignment, transfer or participation under the securities laws of any state; provided, -------- further that no such sale, assignment or transfer described in clause (i) above - ------- shall be effective unless and until an Assignment Agreement effecting such sale, assignment or transfer shall have been accepted by Administrative Agent and recorded in the Register as provided in subsection 10.1B(ii); provided, further -------- ------- that no such sale, assignment, transfer or participation of any Letter of Credit or any participation therein may be made separately from a sale, assignment, transfer or participation of a corresponding interest in the Revolving Loan Commitment and the Revolving Loans of the Lender effecting such sale, assignment, transfer or participation; and provided, further that, anything -------- ------- contained herein to the contrary notwithstanding, the Swing Line Loan Commitment and the Swing Line Loans of Swing Line Lender may not be sold, assigned or transferred as described in clause (i) above to any Person other than a successor Administrative Agent and Swing Line Lender to the extent contemplated by subsection 9.5. Except as otherwise provided in this subsection 10.1, no Lender shall, as between Company and such Lender, be relieved of any of its obligations hereunder as a result of any sale, assignment or transfer of, or any granting of participations in, all or any part of its Commitments or the Loans, the Letters of Credit or participations therein, or the other Obligations owed to such Lender. B. Assignments. (i) Amounts and Terms of Assignments. Each Commitment, Loan, Letter -------------------------------- of Credit or participation therein, or other Obligation may (a) be assigned in any amount to another Lender, or to an Affiliate of the assigning Lender or another Lender, with the giving of notice to Company and Administrative Agent, or (b) be assigned in an aggregate amount of not less than $5,000,000 (or such lesser amount as shall constitute 153 the aggregate amount of the Commitments, Loans, Letters of Credit and participations therein, and other Obligations of the assigning Lender) to any other Eligible Assignee with the consent of Company and Administrative Agent (which consent of Company and Administrative Agent shall not be unreasonably withheld or delayed); provided that, unless otherwise agreed -------- to in writing by Company and Administrative Agent, the assigning Lender shall have, immediately after giving effect to such assignment, not less than an aggregate amount of $5,000,000 in Commitments, Loans and Letter of Credit; and provided further, however, that (x) upon the occurrence and -------- ------- ------- during the continuance of an Event of Default, or (y) in the case of assignments by GSCP or Morgan Guaranty, or (z) in the case of an assignment of a funded Tranche A Term Loan, an assignment in accordance with this clause (b) may be made without the consent of Company or Administrative Agent, upon the giving of notice to Company and Administrative Agent. To the extent of any such assignment in accordance with either clause (a) or (b) above, the assigning Lender shall be relieved of its obligations with respect to its Commitments, Loans, Letters of Credit or participations therein, or other Obligations or the portion thereof so assigned. The parties to each such assignment shall execute and deliver to Administrative Agent, for its acceptance and recording in the Register, an Assignment Agreement, together with a processing and recordation fee of $500 in the case of assignments pursuant to clause (a) above and assignments by GSCP or Morgan Guaranty, and $2000 in the case of all other assignments and such forms, certificates or other evidence, if any, with respect to United States federal income tax withholding matters as the assignee under such Assignment Agreement may be required to deliver to Administrative Agent pursuant to subsection 2.7B(iii)(a). Upon such execution, delivery, acceptance and recordation, from and after the effective date specified in such Assignment Agreement, (y) the assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment Agreement, shall have the rights and obligations of a Lender hereunder and (z) the assigning Lender thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment Agreement, relinquish its rights (other than any rights which survive the termination of this Agreement under subsection 10.9B) and be released from its obligations under this Agreement (and, in the case of an Assignment Agreement covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto; provided that, anything contained in any of the Loan Documents to -------- the contrary notwithstanding, if such Lender is the Issuing Lender with respect to any outstanding Letters of Credit such Lender shall continue to have all rights and obligations of an Issuing Lender with respect to such Letters of Credit until the cancellation or expiration of such Letters of Credit and the reimbursement of any amounts drawn thereunder). The Commitments hereunder shall be modified to reflect the Commitment of such assignee and any remaining Commitment of such assigning Lender and, if any such assignment occurs after the issuance of any Notes hereunder, the assigning Lender shall, upon the effectiveness of such assignment or as promptly thereafter as practicable, surrender its applicable Notes, if any, to Administrative Agent for cancellation, and thereupon new Notes shall, if so requested by the assignee and/or the assigning Lenders in accordance with Subsection 2.1E, be issued to the assignee and/or to the assigning 154 Lender, substantially in the form of Exhibit IV, Exhibit V or Exhibit VI ---------- --------- ---------- annexed hereto, as the case may be, with appropriate insertions, to reflect the new Commitments and/or outstanding Tranche A Term Loan, as the case may be, of the assignee and/or the assigning Lender. (ii) Acceptance by Administrative Agent; Recordation in Register. ----------------------------------------------------------- Upon its receipt of an Assignment Agreement executed by an assigning Lender and an assignee representing that it is an Eligible Assignee, together with the processing and recordation fee referred to in subsection 10.1B(i) and any forms, certificates or other evidence with respect to United States federal income tax withholding matters that such assignee may be required to deliver to Administrative Agent pursuant to subsection 2.7B(iii)(a), Administrative Agent shall, if Administrative Agent has and Company have consented to the assignment evidenced thereby (in each case to the extent such consent is required pursuant to subsection 10.1B(i)), (a) accept such Assignment Agreement by executing a counterpart thereof as provided therein (which acceptance shall evidence any required consent of Administrative Agent to such assignment), (b) record the information contained therein in the Register, and (c) give prompt notice thereof to Company. Administrative Agent shall maintain a copy of each Assignment Agreement delivered to and accepted by it as provided in this subsection 10.1B(ii). C. Participations. The holder of any participation, other than an Affiliate of the Lender granting such participation, shall not be entitled to require such Lender to take or omit to take any action hereunder except action directly affecting (i) the extension of the scheduled final maturity date of any Loan allocated to such participation or (ii) a reduction of the principal amount of or the rate of interest or fees payable on any Loan allocated to such participation, and all amounts payable by Company hereunder (including amounts payable to such Lender pursuant to subsections 2.6D, 2.7 and 3.6) shall be determined as if such Lender had not sold such participation. Company and each Lender hereby acknowledge and agree that, solely for purposes of subsections 10.4 and 10.5, (a) any participation will give rise to a direct obligation of Company to the participant and (b) the participant shall be considered to be a "Lender". D. Assignments to Federal Reserve Banks and Fund Trustees. In addition to the assignments and participations permitted under the foregoing provisions of this subsection 10.1, any Lender may assign and pledge all or any portion of its Loans, the other Obligations owed to such Lender, and its Notes to any Federal Reserve Bank as collateral security pursuant to Regulation A of the Board of Governors of the Federal Reserve System and any operating circular issued by such Federal Reserve Bank, and with the consent of Company and Administrative Agent any Lender which is an investment fund may pledge all or any portion of its Notes or Loans to its trustee in support of its obligations to such trustee; provided that (i) no Lender shall, as between Company and such -------- Lender, be relieved of any of its obligations hereunder as a result of any such assignment and pledge and (ii) in no event shall such Federal Reserve Bank or trustee be considered to be a "Lender" or be entitled to require the assigning Lender to take or omit to take any action hereunder. 155 E. Information. Each Lender may furnish any information concerning Company and its Subsidiaries in the possession of that Lender from time to time to assignees and participants (including prospective assignees and participants), subject to subsection 10.19. F. Representations of Lenders. Each Lender listed on the signature pages hereof hereby represents and warrants (i) that it is an Eligible Assignee described in clause (A) of the definition thereof; (ii) that it has experience and expertise in the making of loans such as the Loans; and (iii) that it will make its Loans for its own account in the ordinary course of its business and without a view to distribution of such 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 this subsection 10.1, the disposition of such Loans or any interests therein shall at all times remain within its exclusive control). Each Lender that becomes a party hereto pursuant to an Assignment Agreement shall be deemed to agree that the representations and warranties of such Lender contained in Section 2(c) of such Assignment Agreement are incorporated herein by this reference. 10.2 Expenses. -------- Whether or not the transactions contemplated hereby are consummated, Company agrees to pay promptly (i) all the actual and reasonable costs and expenses of preparation of the Loan Documents and any consents, amendments (requested by or for the benefit of Company), waivers or other modifications thereto; (ii) all the costs of furnishing all opinions by counsel for Company (including any opinions requested by Lenders as to any legal matters arising hereunder) and of Company's performance of and compliance with all agreements and conditions on its part to be performed or complied with under this Agreement and the other Loan Documents including with respect to confirming compliance with environmental, insurance and solvency requirements; (iii) the reasonable fees, expenses and disbursements of counsel to Syndication Agent and counsel to Administrative Agent (in each case including allocated costs of internal counsel) in connection with the negotiation, preparation, execution and administration of the Loan Documents and any consents, amendments (requested by or for the benefit of Company), waivers or other modifications thereto and any other documents or matters requested by Company; (iv) all the reasonable costs and reasonable expenses of creating and perfecting Liens in favor of Collateral Agent on behalf of Lenders pursuant to any Collateral Document, including filing and recording fees, expenses and taxes, stamp or documentary taxes, search fees, title insurance premiums, and reasonable fees, expenses and disbursements of counsel to Syndication Agent, counsel to Administrative Agent and counsel to Collateral Agent and of counsel providing any opinions that Syndication Agent, Administrative Agent, Collateral Agent or Requisite Lenders may request in respect of the Collateral Documents or the Liens created pursuant thereto; (v) all the reasonable costs and reasonable expenses (including the reasonable fees, expenses and disbursements of any auditors, accountants or appraisers and any environmental or other consultants, advisors and agents employed or retained by Administrative Agent or Syndication Agent and their respective counsel) of obtaining and reviewing any appraisals provided for under subsection 6.9C, any environmental audits or reports provided for under subsection 4.1K or 6.9B(ix) and any audits or reports provided for under subsection 6.5B with respect to Inventory and accounts receivable of Holdings and its Subsidiaries; (vi) all the 156 reasonable costs and reasonable expenses (including the reasonable fees, expenses and disbursements of any consultants, advisors and agents employed or retained by Administrative Agent or Collateral Agent and its counsel) in connection with the custody or preservation of any of the Collateral; (vii) all other reasonable costs and expenses incurred by Syndication Agent or Administrative Agent in connection with the syndication of the Commitments and the negotiation, preparation and execution of the Loan Documents and any consents, amendments (requested by or for the benefit of Company), waivers or other modifications thereto and the transactions contemplated thereby; and (viii) after the occurrence of an Event of Default, all costs and expenses, including reasonable attorneys' fees (including allocated costs of internal counsel) and costs of settlement, incurred by Syndication Agent, Administrative Agent and Lenders in enforcing any Obligations of or in collecting any payments due from any Loan Party hereunder or under the other Loan Documents by reason of such Event of Default (including in connection with the sale of, collection from, or other realization upon any of the Collateral or the enforcement of the Guaranties Subsidiary Guaranty) or in connection with any refinancing or restructuring of the credit arrangements provided under this Agreement in the nature of a "work-out" or pursuant to any insolvency or bankruptcy proceedings. 10.3 Indemnity. --------- In addition to the payment of expenses pursuant to subsection 10.2, whether or not the transactions contemplated hereby are consummated, Company agrees to defend (subject to Indemnitees' selection of counsel), indemnify, pay and hold harmless Agents (including Collateral Agent) and Lenders, and the officers, partners, directors, trustees, employees, agents and affiliates of any of Agents (including Collateral Agent) and Lenders (collectively called the "Indemnitees"), from and against any and all Indemnified Liabilities (as hereinafter defined); provided that Company shall not have any obligation to any -------- Indemnitee hereunder with respect to any Indemnified Liabilities to the extent such Indemnified Liabilities arise from the gross negligence, bad faith or willful misconduct of that Indemnitee as determined by a final, non-appealable judgment of a court of competent jurisdiction. As used herein, "Indemnified Liabilities" means, collectively, any and all liabilities, obligations, losses, damages (including natural resource damages), penalties, actions, judgments, suits, claims (including Environmental Claims), costs (including the costs of any investigation, study, sampling, testing, abatement, cleanup, removal, remediation or other response action necessary to remove, remediate, clean up or abate any Hazardous Materials Activity), expenses and disbursements of any kind or nature whatsoever (including the reasonable fees and disburse disbursements of counsel for Indemnitees in connection with any investigative, administrative or judicial proceeding commenced or threatened by any Person, whether or not any such Indemnitee shall be designated as a party or a potential party thereto, and any fees or expenses incurred by Indemnitees in enforcing this indemnity), whether direct, indirect or consequential and whether based on any federal, state or foreign laws, statutes, rules or regulations (including securities and commercial laws, statutes, rules or regulations and Environmental Laws), on common law or equitable cause or on contract or otherwise, that may be imposed on, incurred by, or asserted against any such Indemnitee, in any manner relating to or arising out of (i) this Agreement or the other Loan Documents or the Related Agreements or the transactions contemplated hereby 157 or thereby (including Lenders' agreement to make the Loans hereunder or the use or intended use of the proceeds thereof or the issuance of Letters of Credit hereunder or the use or intended use of any thereof, or any enforcement of any of the Loan Documents (including any sale of, collection from, or other realization upon any of the Collateral or the enforcement of the Guaranties)), (ii) the statements contained in the commitment letter delivered by any Lender to Company with respect thereto, or (iii) any Environmental Claim or any Hazardous Materials Activity relating to or arising from, directly or indirectly, any past or present activity, operation, land ownership, or practice of Holdings or any of its Subsidiaries. To the extent that the undertakings to defend, indemnify, pay and hold harmless set forth in this subsection 10.3 may be unenforceable in whole or in part because they are violative of any law or public policy, Company shall contribute the maximum portion that it is permitted to pay and satisfy under applicable law to the payment and satisfaction of all Indemnified Liabilities incurred by Indemnitees or any of them. 10.4 Set-Off; Security Interest in Deposit Accounts. ---------------------------------------------- In addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, upon the occurrence and during the continuance of any Event of Default each Lender is hereby authorized by Company at any time or from time to time subject to the consent of Collateral Agent, without notice to Company or to any other Person (other than Collateral Agent), any such notice being hereby expressly waived, to set off and to appropriate and to apply any and all deposits (general or special, including Indebtedness evidenced by certificates of deposit, whether matured or unmatured, but not including trust accounts or payroll accounts) and any other Indebtedness at any time held or owing by that Lender to or for the credit or the account of Company against and on account of the obligations and liabilities of Company which are then due and payable to that Lender under this Agreement, the Letters of Credit and participations therein and the other Loan Documents, including all claims of any nature or description arising out of or connected with this Agreement, the Letters of Credit and participations therein or any other Loan Document, irrespective of whether or not that Lender shall have made any demand hereunder which are then due and payable. Company hereby further grants to Collateral Agent and each Lender a security interest in all deposits and accounts maintained with Collateral Agent or such Lender as security for the Obligations. Company, the Lenders and Administrative Agent hereby acknowledge and agree that the provisions of this subsection 10.4 are subject to the provisions of the Intercreditor Agreement. To the extent that any Lender is required pursuant to the provisions of the Intercreditor Agreement to turn over to the Collateral Agent any payments otherwise subject to the provisions of this subsection 10.4, such payments shall not be subject to the provisions of this subsection 10.4. 10.5 Ratable Sharing. --------------- Lenders hereby agree among themselves that if any of them shall, whether by voluntary payment (other than a voluntary prepayment of Loans made and applied in accordance with the 158 terms of this Agreement), by realization upon security, through the exercise of any right of set-off or banker's lien, by counterclaim or cross action or by the enforcement of any right under the Loan Documents or otherwise, or as adequate protection of a deposit treated as cash collateral under the Bankruptcy Code, receive payment or reduction of a proportion of the aggregate amount of principal, interest, amounts payable in respect of Letters of Credit, fees and other amounts then due and owing to that Lender hereunder or under the other Loan Documents (collectively, the "Aggregate Amounts Due" to such Lender) which is greater than the proportion received by any other Lender in respect of the Aggregate Amounts Due to such other Lender, then the Lender receiving such proportionately greater payment shall (i) notify Administrative Agent and each other Lender of the receipt of such payment and (ii) apply a portion of such payment to purchase participations (which it shall be deemed to have purchased from each seller of a participation simultaneously upon the receipt by such seller of its portion of such payment) in the Aggregate Amounts Due to the other Lenders so that all such recoveries of Aggregate Amounts Due shall be shared by all Lenders in proportion to the Aggregate Amounts Due to them; provided that if -------- all or part of such proportionately greater payment received by such purchasing Lender is thereafter recovered from such Lender upon the bankruptcy or reorganization of Company or otherwise, those purchases shall be rescinded and the purchase prices paid for such participations shall be returned to such purchasing Lender ratably to the extent of such recovery, but without interest. Company expressly consents to the foregoing arrangement and agrees that any holder of a participation so purchased may exercise any and all rights of banker's lien, set-off or counterclaim with respect to any and all monies owing by Company to that holder with respect thereto as fully as if that holder were owed the amount of the participation held by that holder. Company, the Lenders and Administrative Agent hereby acknowledge and agree that the provisions of this subsection 10.5 are subject to the provisions of the Intercreditor Agreement. To the extent that any Lender is required pursuant to the provisions of the Intercreditor Agreement to turn over to the Collateral Agent any payments otherwise subject to the provisions of this subsection 10.5, such payments shall not be subject to the provisions of this subsection 10.5. 10.6 Amendments and Waivers. ---------------------- A. No amendment, modification, termination or waiver of any provision of the Loan Documents, or consent to any departure by Company therefrom, shall in any event be effective without the written concurrence of Requisite Lenders; provided that no such amendment, modification, termination, waiver or consent - -------- shall, without the consent of each Lender (with Obligations directly affected in the case of the following clause (i)): (i) extend the scheduled final maturity of any Loan or Note, or waive, reduce or postpone any scheduled repayment set forth in subsection 2.4A, or extend the stated expiration date of any Letter of Credit beyond the Revolving Loan Commitment Termination Date, or reduce the rate of interest on any Loan (other than any waiver of any increase in the interest rate applicable to any Loan pursuant to subsection 2.2E) or any commitment fees or letter of credit fees payable hereunder, or extend the time for payment of any such interest or fees, or reduce the principal amount of any Loan or any reimbursement obligation in respect of any Letter of Credit, (ii) amend, modify, 159 terminate or waive any provision of this subsection 10.6, (iii) reduce the percentage specified in the definition of "Requisite Lenders" (it being understood that, with the consent of Requisite Lenders, additional extensions of credit pursuant to this Agreement may be included in the determination of "Requisite Lenders" on substantially the same basis as the Tranche A Term Loan Commitments, the Tranche A Term Loans, the Revolving Loan Commitments and the Revolving Loans are included on the Closing Date), (iv) release all or substantially all of the Collateral or Holdings from the Holdings Guaranty all or substantially all of the Subsidiary Guarantors from the Subsidiary Guaranty except as expressly provided in the Loan Documents, or (v) consent to the assignment or transfer by Company of any of its rights and obligations under this Agreement; provided, further that no such amendment, modification, -------- ------- termination or waiver shall (1) increase the Commitments of any Lender over the amount thereof then in effect, or extend the duration thereof, without the consent of such Lender (it being understood that no amendment, modification or waiver of any condition precedent, covenant, Potential Event of Default or Event of Default shall constitute an increase or extension in the Commitment of any Lender, and that no increase in the available portion of any Commitment of any Lender shall constitute an increase in such Commitment of such Lender); (2) amend, modify, terminate or waive any provision of subsection 2.1A(iii) or any other provision of this Agreement relating to the Swing Line Loan Commitment or the Swing Line Loans without the consent of Swing Line Lender; (3) amend the definition of "Requisite Class Lenders" without the consent of Requisite Class Lenders of each Class, or alter the required application of any repayments or prepayments as between Classes pursuant to subsection 2.4B(iv) without the consent of Requisite Class Lenders of each Class which is being allocated a lesser repayment or prepayment as a result thereof (although Requisite Lenders may waive, in whole or in part, any mandatory prepayment so long as the application, as between Classes, of any portion of such prepayment which is still required to be made is not altered); (4) amend, modify, terminate or waive any obligation of Lenders relating to the purchase of participations in Letters of Credit as provided in subsection 3.1C without the written concurrence of Administrative Agent and of each Issuing Lender which has a Letter of Credit then outstanding or which has not been reimbursed for a drawing under a Letter of Credit issued it; or (5) amend, modify, terminate or waive any provision of Section 9 as the same applies to any Agent (including the Collateral Agent), or any other provision of this Agreement as the same applies to the rights or obligations of any Agent (including the Collateral Agent), in each case without the consent of such Agent (including the Collateral Agent). B. Administrative Agent may, but shall have no obligation to, with the concurrence of any Lender, execute amendments, modifications, waivers or consents on behalf of that Lender. 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 Company in any case shall entitle Company to any other or further notice or demand in similar or other circumstances. Any amendment, modification, termination, waiver or consent effected in accordance with this subsection 10.6 shall be binding upon each Lender at the time outstanding, each future Lender and, if signed by Company, on Company. 160 10.7 Independence of Covenants. ------------------------- All covenants hereunder shall be given independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or would otherwise be within the limitations of, another covenant shall not avoid the occurrence of an Event of Default or Potential Event of Default if such action is taken or condition exists. 10.8 Notices. ------- 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; provided that notices to Syndication Agent or -------- Administrative Agent 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 (i) as to Holdings, Company and Administrative Agent, such other address as shall be designated by such Person in a written notice delivered to the other parties hereto and (ii) as to each other party, such other address as shall be designated by such party in a written notice delivered to Administrative Agent. 10.9 Survival of Representations, Warranties and Agreements. ------------------------------------------------------ A. All representations, warranties and agreements made herein shall survive the execution and delivery of this Agreement and the making of the Loans and the issuance of the Letters of Credit hereunder. B. Notwithstanding anything in this Agreement or implied by law to the contrary, the agreements of Company and Holdings set forth in subsections 2.6D, 2.7, 3.5A, 3.6, 10.2, 10.3 and 10.4 and the agreements of Lenders set forth in subsections 9.2C, 9.4 and 10.5 shall survive the payment of the Loans, the cancellation or expiration of the Letters of Credit and the reimbursement of any amounts drawn thereunder, and the termination of this Agreement. 10.10 Failure or Indulgence Not Waiver; Remedies Cumulative. ----------------------------------------------------- No failure or delay on the part of Administrative Agent or any Lender in the exercise of any power, right or privilege hereunder or under any other Loan Document 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 other or further exercise thereof or of any other power, right or privilege. All rights and remedies existing under this Agreement and the other Loan Documents are cumulative to, and not exclusive of, any rights or remedies otherwise available. 161 10.11 Marshalling; Payments Set Aside. ------------------------------- Neither Administrative Agent nor any Lender shall be under any obligation to marshal any assets in favor of Company or any other party or against or in payment of any or all of the Obligations. To the extent that Company makes a payment or payments to Administrative Agent or Lenders (or to Administrative Agent for the benefit of Lenders), or Administrative Agent or Lenders enforce any security interests or exercise their rights of setoff, and such payment or payments or the proceeds of such enforcement or setoff or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, any other state or federal law, common law or any equitable cause, then, to the extent of such recovery, the obligation or part thereof originally intended to be satisfied, and all Liens, rights and remedies therefor or related thereto, shall be revived and continued in full force and effect as if such payment or payments had not been made or such enforcement or setoff had not occurred. 10.12 Severability. ------------ In case any provision in or obligation under this Agreement or the Notes 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. 10.13 Obligations Several; Independent Nature of Lenders' Rights. ---------------------------------------------------------- The obligations of Lenders hereunder are several and no Lender shall be responsible for the obligations or Commitments of any other Lender hereunder. Nothing contained herein or in any other Loan Document, and no action taken by Lenders pursuant hereto or thereto, shall be deemed to constitute Lenders as a partnership, an association, a joint venture or any other kind of entity. The amounts payable at any time hereunder to each Lender shall be a separate and independent debt, and each Lender shall be entitled to protect and enforce its rights arising out of this Agreement and it shall not be necessary for any other Lender to be joined as an additional party in any proceeding for such purpose. 10.14 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. 10.15 Applicable Law. -------------- 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 SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW 162 OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES. 10.16 Successors and Assigns. ---------------------- This Agreement shall be binding upon the parties hereto and their respective successors and assigns and shall inure to the benefit of the parties hereto and the successors and assigns of Lenders (it being understood that Lenders' rights of assignment are subject to subsection 10.1). Neither Holdings' or Company's rights or obligations hereunder nor any interest therein may be assigned or delegated by Holdings or Company without the prior written consent of all Lenders. 10.17 Consent to Jurisdiction and Service of Process. ---------------------------------------------- ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST COMPANY OR HOLDINGS 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, COMPANY AND HOLDINGS, FOR THEMSELVES AND IN CONNECTION WITH ITS PROPERTIES, IRREVOCABLY (I) ACCEPT GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE JURISDICTION AND VENUE OF SUCH COURTS; (II) WAIVE ANY DEFENSE OF FORUM NON CONVENIENS; (III) AGREE 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 HOLDINGS AND COMPANY AT THEIR ADDRESSES PROVIDED IN ACCORDANCE WITH SUBSECTION 10.8; (IV) AGREE THAT SERVICE AS PROVIDED IN CLAUSE (III) ABOVE IS SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER COMPANY IN ANY SUCH PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT; (V) AGREE THAT LENDERS RETAIN THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST COMPANY IN THE COURTS OF ANY OTHER JURISDICTION; AND (VI) AGREE THAT THE PROVISIONS OF THIS SUBSECTION 10.17 RELATING TO JURISDICTION AND VENUE SHALL BE BINDING AND 163 ENFORCEABLE TO THE FULLEST EXTENT PERMISSIBLE UNDER NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1402 OR OTHERWISE. 10.18 Waiver of Jury Trial. -------------------- EACH OF THE PARTIES TO THIS AGREEMENT 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 OR ANY OF THE OTHER LOAN DOCUMENTS OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS LOAN TRANSACTION OR THE LENDER/BORROWER RELATIONSHIP THAT IS BEING ESTABLISHED. 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 Agreement, 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 SUBSECTION 10.18 AND EXECUTED BY EACH OF THE PARTIES HERETO), AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE LOANS MADE HEREUNDER. In the event of litigation, this Agreement may be filed as a written consent to a trial by the court. 10.19 Confidentiality. --------------- Each Lender shall hold all non-public information obtained pursuant to the requirements of this Agreement which has been identified as confidential by Company in accordance with such Lender's customary procedures for handling confidential information of this nature and in accordance with prudent lending or investing practices, it being understood and agreed by Company and Holdings that in any event a Lender may make disclosures to Affiliates of such Lender or disclosures reasonably required by any bona fide assignee, transferee or participant in connection with the contemplated assignment or transfer by such Lender of any Loans or any participations therein or by any direct or indirect contractual counterparties (or the professional advisors thereto) in swap agreements (provided that such swap counterparties and advisors are advised of -------- and agree to be bound by the provisions of this subsection 10.19) or disclosures required or requested by any governmental agency or representative thereof or by the NAIC or pursuant to legal process; provided that, unless specifically -------- prohibited by applicable law or court order, each Lender shall notify Company of any request by any governmental agency or representative thereof (other than any such request in connection with any examination of the financial 164 condition of such Lender by such governmental agency) for disclosure of any such non-public information prior to disclosure of such information; and provided, -------- further that in no event shall any Lender be obligated or required to return any - ------- materials furnished by Holdings or any of its Subsidiaries. 10.20 Counterparts; Effectiveness. --------------------------- This Agreement and any amendments, waivers, consents or supplements hereto or in connection herewith may be executed 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 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. This Agreement shall become effective upon the execution of a counterpart hereof by each of the parties hereto and receipt by Company and Administrative Agent of written or telephonic notification of such execution and authorization of delivery thereof. [Remainder of page intentionally left blank] 165 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above. COMPANY: SEALY MATTRESS COMPANY By: /s/ RONALD H. STOLLE --------------------------------------------- Name: Title: HOLDINGS: SEALY CORPORATION By: /s/ RONALD H. STOLLE --------------------------------------------- Name: Title: Notice Address: Sealy Corporation Halle Building, 10th Floor 1228 Euclid Avenue Cleveland, Ohio 44115 Attention: Ronald Stolle Telephone: (216) 522-1310 Facsimile: (216) 736-8172 with a copy to: Bain Capital, Inc. Two Copley Place Boston, MA 02116 Attention: Michael Krupka Paige Daly Telephone: (617) 572-2753 (617) 572-3261 Facsimile: (617) 572-3274 and: Kirkland & Ellis 200 East Randolph Drive Chicago, IL 60601 Attention: Linda Riley Myers Telephone: (312) 861-2322 Facsimile: (312) 861-2200 S-1 AGENTS AND LENDERS: GOLDMAN SACHS CREDIT PARTNERS L.P., individually and as Syndication Agent By: -------------------------------- Authorized Signatory Notice Address: Goldman Sachs Credit Partners L.P. c/o Goldman, Sachs & Co. 85 Broad Street New York, New York 10004 Attention: Douglas Hitchner Telephone: 212-902-2004 Telecopy: 212-357-1500 S-2 MORGAN GUARANTY TRUST COMPANY OF NEW YORK, individually and as Administrative Agent By: ------------------------------------- Name: Title: Notice Address: Morgan Guaranty of New York 60 Wall Street New York, New York 10260 Attention: Steve Hannan Vice President Telephone: (212) 648-7679 Telecopy: (212) 648-5005 with a copy to: Morgan Guaranty of New York c/o J.P. Morgan Services Inc. 500 Stanton Christiana Road Newark, DE 19713 Attention: Nicole Pedicone Credit Administrator Telephone: (302) 634-1912 Telecopy: (302) 634-4300 S-3 BANKERS TRUST COMPANY, individually and as Documentation Agent By: /s/ MARY KAY COYLE ----------------------------------------- Name: Title: Notice Address: Bankers Trust 130 Liberty Street New York, NY 10006 Attention: Mary Kay Coyle Telephone: (212) 250-9074 Facsimile: (212) 250-7218 S-4 SCHEDULE 1.1(i) Addbacks to EBITDA ------------------ 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 1.1(i)-1 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. EX-10.5 11 AXEL CREDIT AGREEMENT EXHIBIT 10.5 ------------ EXECUTION ================================================================================ AXEL(SM*) CREDIT AGREEMENT DATED AS OF DECEMBER 18, 1997 AMONG SEALY MATTRESS COMPANY, AS BORROWER, SEALY CORPORATION, AS GUARANTOR, THE LENDERS LISTED HEREIN, AS 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 ================================================================================ * AXEL is a registered service mark of Goldman, Sachs & Co. SEALY MATTRESS COMPANY AXEL CREDIT AGREEMENT TABLE OF CONTENTS -----------------
Page SECTION 1. DEFINITIONS................................ 2 1.1 Certain Defined Terms.................................................. 2 1.2 Accounting Terms; Utilization of GAAP for Purposes of Calculations Under Agreement........................................ 49 1.3 Other Definitional Provisions and Rules of Construction........................................................... 49 1.4 Changes in GAAP........................................................ 50 SECTION 2. AMOUNTS AND TERMS OF COMMITMENTS AND LOANS................. 50 2.1 Commitments; Making of Loans; the Register; Notes...................... 50 2.2 Interest on the Loans.................................................. 54 2.3 Fees................................................................... 58 2.4 Repayments and Prepayments; General Provisions Regarding Payments; Application of Proceeds of Collateral and Payments Under Guaranties............................................................. 58 2.5 Use of Proceeds........................................................ 71 2.6 Special Provisions Governing Eurodollar Rate Loans..................... 72 2.7 Increased Costs; Taxes; Capital Adequacy............................... 74 2.8 Obligation of Lenders to Mitigate...................................... 78 2.9 Removal or Replacement of a Lender..................................... 78 SECTION 3. CONDITIONS TO LOANS............................ 80 3.1 Conditions to Loans.................................................... 80 SECTION 4. HOLDINGS' AND COMPANY'S REPRESENTATIONS AND WARRANTIES........... 90 4.1 Organization, Powers, Qualification, Good Standing, Business and Subsidiaries........................................................... 90 4.2 Authorization of Borrowing, etc........................................ 91 4.3 Financial Condition.................................................... 93 4.4 No Material Adverse Change............................................. 93 4.5 Title to Properties; Liens; Real Property.............................. 93 4.6 Litigation; Adverse Facts.............................................. 94 4.7 Payment of Taxes....................................................... 94 4.8 Performance of Agreements; Materially Adverse Agreements............... 95 4.9 Governmental Regulation................................................ 95
(i)
Page ---- 4.10 Securities Activities................................................. 95 4.11 Employee Benefit Plans................................................ 95 4.12 Certain Fees.......................................................... 96 4.13 Environmental Protection.............................................. 96 4.14 Employee Matters...................................................... 97 4.15 Solvency.............................................................. 97 4.16 Matters Relating to Collateral........................................ 97 4.17 Related Agreements.................................................... 98 4.18 Disclosure............................................................ 99 4.19 Subordination of Seller Notes and Shareholder Subordinated Notes.................................................... 99 SECTION 5. HOLDINGS' AND COMPANY'S AFFIRMATIVE COVENANTS............... 99 5.1 Financial Statements and Other Reports................................ 100 5.2 Corporate Existence, etc.............................................. 105 5.3 Payment of Taxes and Claims; Tax Consolidation........................ 105 5.4 Maintenance of Properties; Insurance; Application of Net Insurance/Condemnation Proceeds....................................... 106 5.5 Inspection Rights; Audits of Inventory and Accounts Receivable; Lender Meeting........................................................ 107 5.6 Compliance with Laws, etc............................................. 108 5.7 Environmental Review and Investigation, Disclosure, Etc.; Company's Actions Regarding Hazardous Materials Activities, Environmental Claims and Violations of Environmental Laws........................... 108 5.8 Execution of Subsidiary Guaranty and Personal Property Collateral Documents by Future Subsidiaries...................................... 111 5.9 Conforming Leasehold Interests; Matters Relating to Additional Real Property Collateral................................................... 112 5.10 Interest Rate Protection.............................................. 114 5.11 Additional Foreign Subsidiary Collateral.............................. 115 SECTION 6. COMPANY'S NEGATIVE COVENANTS........................ 115 6.1 Restricted Payments................................................... 116 6.2 Dividend and Other Payment Restrictions Affecting Subsidiaries.......................................................... 119 6.3 Incurrence of Indebtedness and Issuance of Preferred Stock............ 120 6.4 Asset Sales........................................................... 123 6.5 Transactions with Affiliates.......................................... 123 6.6 Liens................................................................. 125 6.7 Conduct of Business................................................... 126 6.8 Consolidation, Merger and Sale of Assets.............................. 126 6.9 Successor Corporation................................................. 127
(ii)
Page ---- 6.10 Amendments or Waivers of Certain Agreements; Amendments of Documents Relating to Subordinated Indebtedness; Designation of "Designated Senior Debt".............................................. 127 SECTION 7. EVENTS OF DEFAULT............................. 128 7.1 Failure to Make Interest Payments When Due............................ 128 7.2 Failure to Make Principal Payments When Due........................... 128 7.3 Other Defaults Under Loan Documents; Breach of Warranty............... 129 7.4 Default in Other Agreements........................................... 129 7.5 Judgments and Attachments............................................. 129 7.6 Voluntary Bankruptcy; Appointment of Receiver, etc.................... 130 7.7 Involuntary Bankruptcy; Appointment of Receiver, etc.................. 130 7.8 Change in Control..................................................... 130 7.9 Invalidity of Guaranties; Failure of Security; Repudiation of Obligations........................................................... 131 SECTION 8. AGENTS................................... 132 8.1 Appointment........................................................... 132 8.2 Powers and Duties; General Representations and Warranties; No Immunity.............................................................. 134 8.3 Responsibility For Appraisal of Creditworthiness...................... 135 8.4 Right to Indemnity.................................................... 135 8.5 Successor Administrative Agent........................................ 136 8.6 Collateral Documents and Guaranty..................................... 136 SECTION 9. MISCELLANEOUS............................... 137 9.1 Assignments and Participations in Loans............................... 137 9.2 Expenses.............................................................. 140 9.3 Indemnity............................................................. 141 9.4 Set-Off; Security Interest in Deposit Accounts........................ 142 9.5 Ratable Sharing....................................................... 143 9.6 Amendments and Waivers................................................ 143 9.7 Independence of Covenants............................................. 144 9.8 Notices............................................................... 145 9.9 Survival of Representations, Warranties and Agreements................ 145 9.10 Failure or Indulgence Not Waiver; Remedies Cumulative................. 145 9.11 Marshalling; Payments Set Aside....................................... 145 9.12 Severability.......................................................... 146 9.13 Obligations Several; Independent Nature of Lenders' Rights............ 146 9.14 Headings.............................................................. 146
(iii)
Page ---- 9.15 Applicable Law........................................................ 146 9.16 Successors and Assigns................................................ 146 9.17 Consent to Jurisdiction and Service of Process........................ 147 9.18 Waiver of Jury Trial.................................................. 147 9.19 Confidentiality....................................................... 148 9.20 Counterparts; Effectiveness........................................... 148 Signature pages S-1
(iv) EXHIBITS I FORM OF NOTICE OF BORROWING II FORM OF NOTICE OF CONVERSION/CONTINUATION III [INTENTIONALLY OMITTED] IV FORM OF AXEL SERIES B NOTE V FORM OF AXEL SERIES C NOTE VI FORM OF AXEL SERIES D NOTE VII FORM OF COMPLIANCE CERTIFICATE VIII FORM OF OPINIONS OF COUNSEL TO LOAN PARTIES IX FORM OF OPINION OF O'MELVENY & MYERS LLP X FORM OF ASSIGNMENT AGREEMENT XI FORM OF CERTIFICATE RE NON-BANK STATUS XII FORM OF FINANCIAL CONDITION CERTIFICATE XIII FORM OF INTERCREDITOR AGREEMENT XIV FORM OF COMPANY PLEDGE AGREEMENT XV FORM OF COMPANY SECURITY AGREEMENT XVI FORM OF COMPANY PATENT AND TRADEMARK SECURITY AGREEMENT XVII FORM OF SUBSIDIARY GUARANTY XVIII FORM OF SUBSIDIARY PLEDGE AGREEMENT XIX FORM OF SUBSIDIARY SECURITY AGREEMENT XX FORM OF SUBSIDIARY PATENT AND TRADEMARK SECURITY AGREEMENT XXI FORM OF HOLDINGS GUARANTY XXII FORM OF HOLDINGS PLEDGE AGREEMENT XXIII FORM OF HOLDINGS SECURITY AGREEMENT XXIV FORM OF MORTGAGE XXV FORM OF COLLATERAL ACCESS AGREEMENT XXVI FORM OF SUBORDINATION PROVISIONS (v) SCHEDULES 1.1(i) ADDBACKS TO EBITDA 1.1(ii) RECAPITALIZATION TRANSACTIONS 2.1 LENDERS' COMMITMENTS AND PRO RATA SHARES 3.1C CORPORATE AND CAPITAL STRUCTURE; OWNERSHIP 3.1F CERTAIN EXISTING INDEBTEDNESS 3.1I CLOSING DATE MORTGAGED PROPERTIES 3.1K CLOSING DATE ENVIRONMENTAL REPORTS 4.1 SUBSIDIARIES OF COMPANY 4.5 REAL PROPERTY 4.12 CERTAIN FEES 4.13 ENVIRONMENTAL MATTERS 5.12 POST-CLOSING DELIVERIES (vi) SEALY MATTRESS COMPANY AXEL(SM)* CREDIT AGREEMENT This AXEL CREDIT AGREEMENT is dated as of December 18, 1997 and entered into by and among SEALY MATTRESS COMPANY, an Ohio corporation ("Company"), SEALY CORPORATION, a Delaware corporation ("Holdings"), GOLDMAN SACHS CREDIT PARTNERS L.P. ("GSCP"), as arranger and syndication agent (in such capacity, "Syndication Agent"), THE FINANCIAL INSTITUTIONS LISTED ON THE SIGNATURE PAGES HEREOF (each individually referred to herein as a "Lender" and collectively as "Lenders"), MORGAN GUARANTY TRUST COMPANY OF NEW YORK ("Morgan Guaranty"), as administrative agent for Lenders (in such capacity, "Administrative Agent"), and BANKERS TRUST COMPANY ("BTCo."), as documentation agent (in such capacity, "Documentation Agent"). R E C I T A L S - - - - - - - - WHEREAS, Bain and the Other Investors have formed Sandman Merger Corporation, a Delaware corporation ("Merger Corp."), for the purpose of engaging with Holdings and Company in a series of Recapitalization Transactions, including the Merger (capitalized terms used herein having the meanings assigned to those terms in subsection 1.1), whereby Bain and the Other Investors will acquire not less than 75% of the aggregate voting power of all outstanding capital stock of Holdings; WHEREAS, Company, a wholly owned subsidiary of Holdings, has requested Lenders to extend, and Lenders have agreed to extend, certain credit facilities in an aggregate principal amount of $330,000,000 to Company, the proceeds of which will be used, together with (i) the proceeds of $130,400,000 in aggregate principal amount of borrowings under the Revolving Credit Agreement, (ii) $128,700,000 in proceeds of the Equity Contribution, (iii) not less than $125,000,000 in cash proceeds of the issuance and sale of the Senior Subordinated Notes, (iv) not less than $75,000,000 in cash proceeds of the issuance and sale of the Discount Notes, and (v) the issuance of $25,000,000 in aggregate principal amount of Junior Subordinated Seller Notes, to permit consummation of the Merger, to refinance certain existing Indebtedness of Holdings, to repurchase certain existing Indebtedness of Holdings pursuant to the Debt Tender Offer, and to pay related fees and expenses; WHEREAS, pursuant to the Recapitalization Transactions, (i) Merger Corp. will merge with and into Holdings, with Holdings being the surviving corporation and the owner of 100% of the outstanding capital stock of Company, and (ii) the capital stock of each direct Subsidiary - -------------------- * AXEL is a registered service mark of Goldman, Sachs & Co. of Holdings (other than Company) immediately prior to the Closing Date will be contributed to the capital of Company so that following such contribution, Company shall be the only direct Subsidiary of Holdings; WHEREAS, Company desires to secure all of the Obligations hereunder and under the other Loan Documents by granting to Administrative Agent, on behalf of Lenders, a First Priority Lien on substantially all of its real, personal and mixed property, including a pledge of all of the capital stock of each of its Domestic Subsidiaries and 65% of the capital stock of each of its Foreign Subsidiaries which is directly owned by Company; and WHEREAS, Holdings and all Subsidiaries of Company other than the Excluded Subsidiaries desire to guarantee the Obligations hereunder and under the other Loan Documents and to secure their guaranties by granting to Administrative Agent, on behalf of Lenders, a First Priority Lien on substantially all of their respective real, personal and mixed property, including (i) a pledge of all of the capital stock of Company and (ii) a pledge of all of the capital stock of each Domestic Subsidiary and 65% of the capital stock of each Foreign Subsidiary which is directly owned by a Subsidiary Guarantor: NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, Company, Holdings, Lenders and Agents agree as follows: SECTION 1. DEFINITIONS 1.1 Certain Defined Terms. --------------------- The following terms used in this Agreement shall have the following meanings: "Acquired Indebtedness" means Indebtedness of a Person or any of its Subsidiaries existing at the time such Person becomes a Restricted Subsidiary of Company or that is assumed by 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 Company or such acquisition. "Acquired Subsidiary Debt" means Indebtedness of Company or any Subsidiary of Company incurred or assumed in connection with a Permitted Acquisition existing at the time of acquisition by Company or a Subsidiary of a Subsidiary or assets pursuant to a Permitted Acquisition, provided -------- that (i) such Indebtedness was not incurred in connection with or in anticipation of such Permitted Acquisition, (ii) such Indebtedness does not constitute debt for borrowed money (other than debt for borrowed money incurred in connection with industrial revenue or industrial development bond financings), it being understood and agreed that Capital Lease Obligations and purchase 2 money Indebtedness shall not constitute debt for borrowed money for purposes of this definition, and (iii) at the time of such Permitted Acquisition such Indebtedness does not exceed 10% of the total value of the assets of the Subsidiary so acquired, or of the assets so acquired, as the case may be. "Additional Mortgage" has the meaning assigned to that term in subsection 5.9. "Additional Mortgaged Property" has the meaning assigned to that term in subsection 5.9. "Adjusted Eurodollar Rate" means, for any Interest Rate Determination Date with respect to an Interest Period for a Eurodollar Rate Loan, the rate per annum obtained by dividing (i) the arithmetic average -------- (rounded upward to the nearest 1/16 of one percent) of the offered quotations, if any, to first class banks in the interbank Eurodollar market by Reference Lenders for U.S. dollar deposits of amounts in same day funds comparable to the respective principal amounts of the Eurodollar Rate Loans of Reference Lenders for which the Adjusted Eurodollar Rate is then being determined (which principal amount shall be deemed to be $1,000,000 in the case of any Reference Lender not making, converting to or continuing such a Eurodollar Rate Loan) with maturities comparable to such Interest Period as of approximately 10:00 A.M. (New York time) on such Interest Rate Determination Date by (ii) a percentage equal to 100% minus the stated -- ----- maximum rate of all reserve requirements (including any marginal, emergency, supplemental, special or other reserves) applicable on such Interest Rate Determination Date to any member bank of the Federal Reserve System in respect of "Eurocurrency liabilities" as defined in Regulation D (or any successor category of liabilities under Regulation D); provided -------- that if any Reference Lender fails to provide Administrative Agent with its aforementioned quotation then the Adjusted Eurodollar Rate shall be determined based on the quotation(s) provided to Administrative Agent by the other Reference Lender(s). "Administrative Agent" has the meaning assigned to that term in the introduction to this Agreement and also means and includes any successor Administrative Agent appointed pursuant to subsection 8.5. "Affected Lender" has the meaning assigned to that term in subsection 2.6C. "Affiliate" means a Person who directly or indirectly through one or more intermediaries controls, or controlled by, or is under common control with, such Person. The term "control" means the 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 Company or any Subsidiary of Company) in whom a Securitization Entity makes an Investment in connection with a Qualified Securitization Transaction shall be deemed to be an Affiliate of Company or any of its Subsidiaries solely by reason of such Investment. 3 "Agent" means, individually, each of Syndication Agent, Administrative Agent and Documentation Agent, and for the purposes of Section 8 only (except as expressly noted), Collateral Agent, and "Agents" means Syndication Agent, Administrative Agent and Documentation Agent, and for the purposes of Section 8 only (except as expressly noted), Collateral Agent, collectively. "Agreement" means this AXEL Credit Agreement dated as of December 18, 1997, as it may be amended, supplemented or otherwise modified from time to time. "Applicable Leverage Ratio" means, with respect to any date of determination, the Leverage Ratio set forth in the Pricing Certificate (as defined below) in effect for the Pricing Period (as defined below) in which such date of determination occurs. For purposes of this definition, (i) "Pricing Certificate" means an Officer's Certificate of Company certifying as to the Leverage Ratio as of the last day of any Fiscal Quarter and setting forth the calculation of such Leverage Ratio in reasonable detail, which Officer's Certificate may be delivered to Administrative Agent at any time on or after the date of delivery by Company of the Compliance Certificate (the "Related Compliance Certificate") with respect to the period ending on the last day of such Fiscal Quarter pursuant to subsection 5.1(iv), and (ii) "Pricing Period" means each period commencing on the first Business Day after the delivery to Administrative Agent of a Pricing Certificate and ending on the first Business Day after the next Pricing Certificate is delivered to Administrative Agent; provided that, anything contained in this definition -------- to the contrary notwithstanding, (a) the first Pricing Period for purposes of calculating the Applicable Leverage Ratio shall commence no earlier than the date which is nine months after the Closing Date, and the Pricing Certificate in respect of such first Pricing Period may be delivered at any time on or after such nine-month anniversary date and shall relate to the most recent financial statements delivered by Company to Administrative Agent prior to such date pursuant to subsection 5.1(ii) or 5.1(iii), (b) the Applicable Leverage Ratio for the period from the Closing Date to but excluding the date of commencement of such first Pricing Period shall be deemed to be 6.4:1.00 for purposes of making the relevant calculation referred to above, and (c) in the event that, after the commencement of such first Pricing Period, (X) Company fails to deliver a Pricing Certificate to Administrative Agent setting forth the Leverage Ratio as of the last day of any Fiscal Quarter on or before the last day on which Company is required to deliver the Related Compliance Certificate (such last day being the "Cutoff Date") and (Y) Administrative Agent determines (each such determination being an "Agent Determination") on or after the Cutoff Date (on the basis of the Related Compliance Certificate or a Pricing Certificate delivered after the Cutoff Date) that the Applicable Leverage Ratio that would have been in effect if Company had delivered a Pricing Certificate on the Cutoff Date is greater than the Leverage Ratio set forth in the most recent Pricing Certificate actually delivered by Company, then (1) the Applicable Leverage Ratio in effect for purposes of making the relevant calculation referred to above for the period from the Cutoff Date to the date of delivery by Company of the next Pricing Certificate (or, if earlier, the next date on which an Agent Determination is made) shall be the Leverage Ratio determined pursuant to the Agent Determination and 4 (2) on the first Business Day after Administrative Agent delivers written notice to Company of any Agent Determination, Company shall pay to Administrative Agent, for distribution (as appropriate) to Lenders, an aggregate amount equal to the additional interest, letter of credit fees and commitment fees Company would have been required to pay in respect of all applicable Loans, Letters of Credit or Commitments in respect of which any interest or fees have been paid by Company during the period from the Cutoff Date to the date such notice is given by Administrative Agent to Company if the amount of such interest and fees had been calculated using the Applicable Leverage Ratio based on such Agent Determination. "Applicable Base Rate Margin" means (a) for the period from the Closing Date up to (but excluding) the date of commencement of the first Pricing Period, 1.50% per annum for AXELs Series B, 1.75% per annum for AXELs Series C and 2.00% per annum for AXELs Series D, and (b) for any date thereafter, a rate per annum equal to the percentage set forth below opposite the Applicable Leverage Ratio in effect as of such date of determination, any change in any such Applicable Base Rate Margin to be effective on the date of any corresponding change in the Applicable Leverage Ratio.
========================================================== APPLICABLE APPLICABLE APPLICABLE APPLICABLE LEVERAGE BASE RATE BASE RATE BASE RATE RATIO MARGIN FOR MARGIN FOR MARGIN AXELS AXELS FOR AXELS SERIES B SERIES C SERIES D ========================================================== greater than or 1.50% 1.75% 2.00% equal to 5.75:1.00 ---------------------------------------------------------- less than 1.25% 1.50% 1.75% 5.75:1.00 but greater than or equal to 5.25:1.00 ---------------------------------------------------------- less than 1.00% 1.25% 1.50% 5.25:1.00 ==========================================================
"Applicable Eurodollar Rate Margin" means (a) for the period from the Closing Date up to (but excluding) the date of commencement of the first Pricing Period, 2.50% per annum for AXELs Series B, 2.75% per annum for AXELs Series C and 3.00% per annum for AXELs Series D, and (b) for any date thereafter, a rate per annum equal to the percentage set forth below opposite the Applicable Leverage Ratio in effect as of such date of determination, any change in any such Applicable Eurodollar Rate 5 Margin to be effective on the date of any corresponding change in the Applicable Leverage Ratio.
============================================================= APPLICABLE APPLICABLE APPLICABLE APPLICABLE LEVERAGE EURO- EURO- EURO- RATIO DOLLAR DOLLAR DOLLAR RATE RATE RATE MARGIN FOR MARGIN FOR MARGIN AXELS AXELS FOR AXELS SERIES B SERIES C SERIES D ============================================================= greater than or 2.50% 2.75% 3.00% equal to 5.75:1.00 ------------------------------------------------------------- less than 2.25% 2.50% 2.75% 5.75:1.00 but greater than or equal to 5.25:1.00 ------------------------------------------------------------- less than 2.00% 2.25% 2.50% 5.25:1.00 =============================================================
"Asset Acquisition" means (a) an Investment by Company or any Restricted Subsidiary of Company in any other Person if, as a result of such Investment, such Person shall become a Restricted Subsidiary of Company, or shall be merged with or into Company or any Restricted Subsidiary of Company, or (b) the acquisition by Company or any Restricted Subsidiary of 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 the sale by Holdings or any of its Subsidiaries to any Person other than Holdings or any of its wholly owned Subsidiaries of (i) any of the stock of any of Holdings' Subsidiaries, (ii) substantially all of the assets of any division or line of business of Holdings or any of its Subsidiaries, or (iii) any other assets (whether tangible or intangible) of Holdings or any of its Subsidiaries (other than (a) inventory sold in the ordinary course of business and (b) any such other assets to the extent that the aggregate fair market value of such assets (at the time of sale thereof) sold in any single transaction or related series of transactions is equal to $500,000 or less); provided, -------- however, that Asset Sales shall not include (1) any 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, (2) any sale or exchange of specific items of equipment, so long as the purpose of each such sale or exchange is to acquire (and 6 results within 90 days of such sale or exchange in the acquisition of) replacement items of equipment which are the functional equivalent of the item of equipment so sold or exchanged, (3) the leasing (pursuant to operating leases in the ordinary course of business) or licensing of real or personal property, including intellectual property, or (4) disposals of obsolete, uneconomical, negligible, worn out or surplus property in the ordinary course of business. Notwithstanding the foregoing, for purposes of Section 6 only (and any other defined terms as and to the extent used in Section 6), "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 Company or any of its Restricted Subsidiaries to any Person other than Company or a Restricted Subsidiary of Company of (a) any Capital Stock of any Restricted Subsidiary of Company or (b) any other property or assets of Company or any Restricted Subsidiary of 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 Company or its Restricted Subsidiaries receive aggregate consideration of less than $1,000,000, (ii) the sale, lease, conveyance, disposition or other transfer of all substantially all of the assets of Company as permitted by subsection 6.8 hereof 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 Company or any Restricted Subsidiary of assets or property to one or more Restricted Subsidiaries in connection with Investments permitted by subsection 6.1 hereof, and (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. "Assignment Agreement" means an Assignment Agreement in substantially the form of Exhibit X annexed hereto. --------- "AXEL Series B" means a Loan made by a Lender to Company as an amortization extended loan pursuant to subsection 2.1A(i), and "AXELs Series B" means any such Loan or Loans, collectively. "AXEL Series B Commitment" means the commitment of a Lender to make an AXEL Series B to Company pursuant to subsection 2.1A(i), and "AXEL Series B Commitments" means such commitments of all Lenders in the aggregate. 7 "AXEL Series B Exposure" means, with respect to any Lender as of any date of determination (i) prior to the funding of the AXELs Series B, that Lender's AXEL Series B Commitment and (ii) after the funding of the AXELs Series B, the outstanding principal amount of the AXEL Series B of that Lender. "AXEL Series B Lender" means a Lender holding an outstanding AXEL Series B or having an AXEL Series B Commitment, and "AXEL Series B Lenders" means any such Lender or Lenders, collectively. "AXEL Series B Notes" means any promissory notes of Company issued pursuant to subsection 2.1E to evidence the AXELs Series B of any Lenders, substantially in the form of Exhibit IV annexed hereto, as they may be ---------- amended, supplemented or otherwise modified from time to time. "AXEL Series C" means a Loan made by a Lender to Company as an amortization extended loan pursuant to subsection 2.1A(ii), and "AXELs Series C" means any such Loan or Loans, collectively. "AXEL Series C Commitment" means the commitment of a Lender to make an AXEL Series C to Company pursuant to subsection 2.1A(ii), and "AXEL Series C Commitments" means such commitments of all Lenders in the aggregate. "AXEL Series C Exposure" means, with respect to any Lender as of any date of determination (i) prior to the funding of the AXELs Series C, that Lender's AXEL Series C Commitment and (ii) after the funding of the AXELs Series C, the outstanding principal amount of the AXEL Series C of that Lender. "AXEL Series C Lender" means a Lender holding an outstanding AXEL Series C or having an AXEL Series C Commitment, and "AXEL Series C Lenders" means any such Lender or Lenders, collectively. "AXEL Series C Notes" means any promissory notes of Company issued pursuant to subsection 2.1E to evidence the AXELs Series C of any Lenders, substantially in the form of Exhibit V annexed hereto, as they may be --------- amended, supplemented or otherwise modified from time to time. "AXEL Series D" means a Loan made by a Lender to Company as an amortization extended loan pursuant to subsection 2.1A(iii), and "AXELs Series D" means any such Loan or Loans, collectively. "AXEL Series D Commitment" means the commitment of a Lender to make an AXEL Series D to Company pursuant to subsection 2.1A(iii), and "AXEL Series D Commitments" means such commitments of all Lenders in the aggregate. 8 "AXEL Series D Exposure" means, with respect to any Lender as of any date of determination (i) prior to the funding of the AXELs Series D, that Lender's AXEL Series D Commitment and (ii) after the funding of the AXELs Series D, the outstanding principal amount of the AXEL Series D of that Lender. "AXEL Series D Lender" means a Lender holding an outstanding AXEL Series D or having an AXEL Series D Commitment, and "AXEL Series D Lenders" means any such Lender or Lenders, collectively. "AXEL Series D Notes" means any promissory notes of Company issued pursuant to subsection 2.1E to evidence the AXELs Series D of any Lenders, substantially in the form of Exhibit VI annexed hereto, as they may be ---------- amended, supplemented or otherwise modified from time to time. "Bain" means Bain Capital, Inc. and/or one or more of its Affiliates. "Bain Advisory Services Agreement" means that certain Advisory Services Agreement by and among Company, Holdings and Bain, in the form delivered to Syndication Agent and Administrative Agent prior to the Closing Date and as such agreement may thereafter be amended, supplemented or otherwise modified from time to time to the extent permitted under subsection 6.10A. "Bain Management Fees" means the fees (including one-time fees payable in connection with acquisitions, divestitures and financings) and expenses payable by Holdings to Bain pursuant to the Bain Advisory Services Agreement. "Bankruptcy Code" means Title 11 of the United States Code entitled "Bankruptcy", as now and hereafter in effect, or any successor statute. "Bankruptcy Law" means the Bankruptcy Code or any similar federal or state law for the relief of debtors. "Base Rate" means a fluctuating interest rate per annum in effect from time to time, which rate per annum shall at all times be equal to the higher of: (i) the rate of interest announced publicly by Morgan Guaranty in New York, New York, from time to time, as Morgan Guaranty's base rate; and (ii) 1/2 of 1% per annum above the Federal Funds Effective Rate. "Base Rate Loans" means Loans bearing interest at rates determined by reference to the Base Rate as provided in subsection 2.2A. "Board of Directors" means the Board of Directors of the Company or any authorized committee of the Board of Directors. 9 "BTCo." has the meaning assigned to that term in the introduction to this Agreement. "Business Day" means any day excluding Saturday, Sunday and any day which is a legal holiday under the laws of the State of New York or is a day on which banking institutions located in such state are authorized or required by law or other governmental action to close, and (ii) with respect to all notices, determinations, fundings and payments in connection with the Adjusted Eurodollar Rate or any Eurodollar Rate Loans, any day that is a Business Day described in clause (i) above and that is also a day for trading by and between banks in Dollar deposits in the London interbank market. "Capital Lease", as applied to any Person, means any lease of any property (whether real, personal or mixed) by that Person as lessee that, in conformity with GAAP, would be required to be accounted for as a capital lease on the balance sheet of that Person. "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. "Carryforward" has the meaning assigned to that term in the Revolving Credit Agreement. "Cash" means money, currency or a credit balance in a Deposit Account. "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 Standard & Poor's Ratings Group ("S&P") or Moody's Investors Service, Inc. ("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-l 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 10 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 $200,000,000; (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 of their assets in securities of the types described in clauses (i) through (v) above. "Certificate of Merger" means the Certificate of Merger dated as of December 18, 1997 by and between Merger Corp. and Holdings, in the form delivered to Syndication Agent, Administrative Agent and Lenders prior to or concurrently with their execution of this Agreement and as such Certificate of Merger may be amended from time to time thereafter to the extent permitted under subsection 6.10A. "Certificate re Non-Bank Status" means a certificate substantially in the form of Exhibit XI annexed hereto delivered by a Lender to ---------- Administrative Agent pursuant to subsection 2.7B(iii). "Class" means, as applied to Lenders, each of the following classes of Lenders: (i) Lenders having AXEL Series B Exposure, (ii) Lenders having AXEL Series C Exposure, and (iii) Lenders having AXEL Series D Exposure. "Closing Date" means the date on or before February 16, 1998, on which the initial Loans are made. "Closing Date Mortgage" has the meaning assigned to that term in subsection 3.1I. "Closing Date Mortgaged Property" has the meaning assigned to that term in subsection 3.1I. "Collateral" means, collectively, all of the real, personal and mixed property (including capital stock) in which Liens are purported to be granted pursuant to the Collateral Documents as security for the Obligations. "Collateral Access Agreement" means any landlord waiver, mortgagee waiver, bailee letter or any similar acknowledgement or agreement of any landlord or mortgagee in respect of any Real Property Asset where any Collateral is located or any warehouseman or processor in possession of any Inventory of any Loan Party, substantially in the form of Exhibit XXV ----------- annexed hereto with such changes thereto as may be agreed to by Administrative Agent in the reasonable exercise of its discretion. 11 "Collateral Agent" means Morgan Guaranty acting in its capacity as collateral agent under the applicable Collateral Documents on behalf of the Lenders and the Persons party to the Intercreditor Agreement (other than Holdings and its Subsidiaries), and also means and includes any successor collateral agent appointed pursuant to the Intercreditor Agreement. "Collateral Documents" means the Holdings Security Agreement, the Holdings Pledge Agreement, the Company Pledge Agreement, the Company Security Agreement, the Company Patent and Trademark Security Agreement, the Intercreditor Agreement, the Subsidiary Pledge Agreement, the Subsidiary Security Agreement, the Subsidiary Patent and Trademark Security Agreement, the Mortgages and all other instruments or documents delivered by any Loan Party pursuant to this Agreement or any of the other Loan Documents in order to grant to Collateral Agent, on behalf of Lenders, a Lien on any real, personal or mixed property of that Loan Party as security for the Obligations. "Commercial Letter of Credit" means any letter of credit or similar instrument issued for the purpose of providing the primary payment mechanism in connection with the purchase of any materials, goods or services by Company or any of its Subsidiaries in the ordinary course of business of Company or such Subsidiary. "Commitments" means the commitments of Lenders to make Loans as set forth in subsection 2.1A. "Company" has the meaning assigned to such term in the introduction to this Agreement. "Company Patent and Trademark Security Agreement" means the Company Patent and Trademark Security Agreement executed and delivered by Company and Collateral Agent on the Closing Date, substantially in the form of Exhibit XVI annexed hereto, as such Company Patent and Trademark Security ----------- Agreement may thereafter be amended, supplemented or otherwise modified from time to time as permitted thereunder and hereunder. "Company Pledge Agreement" means the Company Pledge Agreement executed and delivered by Company and Collateral Agent on the Closing Date, substantially in the form of Exhibit XIV annexed hereto, as such Company ----------- Pledge Agreement may thereafter be amended, supplemented or otherwise modified from time to time as permitted thereunder and hereunder. "Company Security Agreement" means the Company Security Agreement executed and delivered by Company and Collateral Agent on the Closing Date, substantially in the form of Exhibit XV annexed hereto, as such Company ---------- Security Agreement may thereafter be amended, supplemented or otherwise modified from time to time as permitted thereunder and hereunder. 12 "Compliance Certificate" means a certificate substantially in the form of Exhibit X annexed hereto delivered to Administrative Agent by --------- Company pursuant to subsection 5.1(iv). "Confidential Information Memorandum" means that certain Confidential Information Memorandum prepared by Goldman, Sachs & Co. and JP Morgan relating to the Loans, the Tranche A Term Loans and Revolving Loans dated November 1997. "Conforming Leasehold Interest" means any Recorded Leasehold Interest as to which the lessor has substantially agreed in writing for the benefit of Administrative Agent (which writing has been delivered to Administrative Agent), whether under the terms of the applicable lease, under the terms of a Landlord Consent and Estoppel, or otherwise, to the matters described in the definition of "Landlord Consent and Estoppel," which interest, if a subleasehold or sub-subleasehold interest, is not subject to any contrary restrictions contained in a superior lease or sublease. "Consent Solicitation" means the solicitation by Holdings, from the holders of outstanding Existing Subordinated Notes, of consents to certain amendments to the Existing Subordinated Note Indenture in accordance with the terms of the Debt Tender Offer Materials. "Consolidated Capital Expenditures" means, for any period, the sum of (i) the aggregate of all expenditures (whether paid in cash or other consideration or accrued as a liability and including that portion of Capital Leases which is capitalized on the consolidated balance sheet of Holdings and its Subsidiaries) by Holdings and its Subsidiaries during that period that, in conformity with GAAP, are included in "purchases of property, plant or equipment" or comparable items reflected in the consolidated statement of cash flows of Holdings and its Subsidiaries; provided, however, that the following shall in any event be excluded from -------- ------- the definition of Consolidated Capital Expenditures: (a) any such expenditures made with, or subsequently reimbursed out of, the proceeds of insurance, condemnation awards (or payments in lieu thereof), indemnity payments or payments in respect of judgments or settlements received from third parties for purposes of replacing or repairing the assets in respect of which such proceeds, awards or payments were received, so long as such expenditures are commenced within 270 days of the later of the occurrence of the damage to or loss of the assets being replaced or repaired and the receipt of such proceeds, awards or payments in respect thereof and (b) any such expenditures constituting the reinvestment of proceeds from the sales of assets in equipment or other productive assets of Company and its Subsidiaries, so long as such expenditures are commenced within 270 days of the receipt of such proceeds; and provided further, however, that -------- ------- ------- Consolidated Capital Expenditures shall not include any expenditures made by Company or any of its Subsidiaries to acquire in a Permitted Acquisition the business, property or fixed assets of any Person, or the stock or other evidence of beneficial ownership of any Person that, as a result of such acquisition, becomes a Subsidiary of Company or a Joint Venture to which Company or any of its Subsidiaries is a party. 13 "Consolidated Cash Interest Expense" means, for any period, IR Consolidated Interest Expense for such period excluding, however, any --------- ------- interest expense not payable in Cash (including interest expense paid in kind and amortization of discount, of deferred financing fees, of premiums paid on Hedge Agreements and of debt issuance costs). "Consolidated Current Assets" means, as at any date of determination, the total assets of Holdings and its Subsidiaries on a consolidated basis which may properly be classified as current assets in conformity with GAAP, excluding Cash, Cash Equivalents and deferred income taxes to the extent otherwise included in current assets. "Consolidated Current Liabilities" means, as at any date of determination, the total liabilities of Holdings and its Subsidiaries on a consolidated basis which may properly be classified as current liabilities in conformity with GAAP, excluding the current portions of Funded Debt --------- (including accrued but unpaid interest) and any Revolving Loans and deferred income taxes to the extent otherwise included in current liabilities. "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 Recapitalization Transactions, (E) any payments related to addressing the Company's or any Restricted Subsidiary's "Year 2000" information systems issue, (F) all bad debt and factoring losses incurred specifically with respect to the bankruptcy of Montgomery Ward and (G) EITF 97-13 Expenditures. "Consolidated Excess Cash Flow" means, for any period, an amount (if positive) equal to (i) the sum, without duplication, of the amounts for such period of (a) IR Consolidated Adjusted EBITDA, (b) the Consolidated Working Capital Adjustment and (c) payments made to Holdings or any of its Subsidiaries as an adjustment to purchase price after the Closing Date under the Recapitalization Agreement, minus (ii) the sum, without ----- duplication, of the amounts for such period (to the extent not financed with the proceeds of related financings) of (a) voluntary and scheduled repayments of IR Consolidated Total Debt (excluding repayments of the Revolving Loans except to the extent the Revolving Loan Commitments are permanently reduced in connection with such repayments), (b) Consolidated Capital Expenditures (net of any proceeds of any related financings with respect to such expenditures) plus (or minus, if negative), so long as the ---- ----- Revolving Credit Agreement is in effect, the Carryforward for such period to be carried forward to the next period less the Carryforward (if any) for ---- the preceding period carried forward to the current period, (c) Consolidated Cash Interest Expense, (d) payments made by Holdings and its Subsidiaries as an adjustment to purchase price after the Closing Date under the Recapitalization Agreement, (e) any payments made during such period with respect to items set forth on Schedule 1.1(i) --------------- 14 annexed hereto, and (f) the provision for current taxes based on income of Holdings and its Subsidiaries and payable in cash with respect to such period, including taxes payable in cash within 90 days following the end of such period, (g) non-cash charges added in calculating Consolidated Adjusted EBITDA in a prior period to the extent such non-cash charges are paid in cash in the current period, and (h) to the extent not otherwise deducted in determining Consolidated Excess Cash Flow, tender payments, fees and expenses paid during such period in connection with the exchange of the Senior Subordinated Notes and the Discount Notes, cash payments made during such period with respect to non-current liabilities and cash payments made during such period with respect to restructuring reserves and expenditures with respect to Permitted Acquisitions. "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 (including the incurrence of, or assumption of 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 15 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 Senior Subordinated Notes and the Discount 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 Capital 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 Company means, for any period, the aggregate net income (or loss) of 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 $1,000,000 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 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 Company or is merged or consolidated with Company or any Restricted Subsidiary of Company, (e) the net income of any 16 Restricted Subsidiary of Company to the extent that the declaration of dividends or similar distributions by that Restricted Subsidiary of Company of that income is restricted by contract, operation, operation of law or otherwise, (f) the net loss of any Person, other than a Restricted Subsidiary of Company, (g) the net income of any Person, other than a Restricted Subsidiary of Company, except to the extent of cash dividends or distributions paid to Company or a Restricted Subsidiary of Company by such Person, (h) only for purposes of clause (c)(i) of the first paragraph of subsection 6.1, any amounts included pursuant to clause (c)(iii) of the first paragraph of subsection 6.1, 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 subsection 6.1, 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. "Consolidated Working Capital" means, as at any date of determination, the excess of Consolidated Current Assets over Consolidated Current Liabilities. "Consolidated Working Capital Adjustment" means, for any period on a consolidated basis, the amount (which may be a negative number) by which Consolidated Working Capital as of the beginning of such period exceeds (or is less than) Consolidated Working Capital as of the end of such period. "Contingent Obligation", as applied to any Person, means any direct or indirect liability, contingent or otherwise, of that Person (i) with respect to any Indebtedness, lease, dividend or other obligation of another if the primary purpose or intent thereof by the Person incurring the Contingent Obligation is to provide assurance to the obligee of such obligation of another that such obligation of another will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such obligation will be protected (in whole or in part) against loss in respect thereof, (ii) with respect to any letter of credit issued for the account of that Person or as to which that Person is otherwise liable for reimbursement of drawings, or (iii) under Hedge Agreements. Contingent Obligations shall include (a) the direct or indirect guaranty, endorsement (otherwise than for collection or deposit in the ordinary course of business), co-making, discounting with recourse or sale with recourse by such Person of the obligation of another, (b) the obligation to make take-or-pay or similar payments if required regardless of non-performance by any other party or parties to an agreement, and (c) any liability of such Person for the obligation of another through any agreement (contingent or otherwise) (X) to purchase, repurchase or otherwise acquire such obligation or any security therefor, or to provide funds for the payment or discharge of 17 such obligation (whether in the form of loans, advances, stock purchases, capital contributions or otherwise) or (Y) to maintain the solvency or any balance sheet item, level of income or financial condition of another if, in the case of any agreement described under subclauses (X) or (Y) of this sentence, the primary purpose or intent thereof is as described in the preceding sentence. The amount of any Contingent Obligation shall be equal to (A) the amount of the obligation so guaranteed or otherwise supported or, if less, the amount to which such Contingent Obligation is specifically limited, or (B) if neither amount in clause (A) is stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such Person is required to perform) as determined by such Person in good faith. Contingent Obligations shall not include standard contractual indemnities entered into in the ordinary course of business. "Continuing Director" shall mean, as of any date of determination, any member of the Board of Directors of Company who (i) was a member of such Board of Directors on the Closing Date or (ii) was nominated for election or elected to such Board of Directors with the affirmative vote of Bain and the Other Investors. "Contractual Obligation", as applied to any Person, means any provision of any Security issued by that Person or of any material indenture, mortgage, deed of trust, contract, undertaking, agreement or other instrument to which that Person is a party or by which it or any of its properties is bound or to which it or any of its properties is subject. "Credit Facilities" means one or more debt facilities (including this Agreement and the Revolving Credit Agreement) 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 Company or any Restricted Subsidiary of Company against fluctuations in currency values. "Debt Tender Offer" means the offer by Holdings to repurchase up to 100% of its outstanding Existing Subordinated Notes pursuant to the Debt Tender Offer Materials. "Debt Tender Offer Materials" means the Offer to Purchase and Consent Solicitation Statement dated November 18, 1997 relating to the Debt Tender Offer and the accompanying Consent and Letter of Transmittal. "Deposit Account" means a demand, time, savings, passbook or like account with a bank, savings and loan association, credit union or like organization, other than an account evidenced by a negotiable certificate of deposit. 18 "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 $10,000,000. "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 subsection 6.1. "Discount Note Indenture" means the indenture pursuant to which the Discount Notes are issued, as such indenture may be amended from time to time to the extent permitted under subsection 6.10B. "Discount Notes" means the $128,000,000 in aggregate principal amount of 10-7/8% Senior Subordinated Discount Notes due December 15, 2007 of Company issued pursuant to the Discount Note Indenture. "Disqualified Stock" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible, or for which it is exchangeable, at the option of the holder thereof), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder thereof, in whole or in part, on or prior to the date that is 91 days after the date on which the Senior Subordinated Notes mature; provided, however, that any Capital Stock that would constitute Disqualified Stock solely because the holders thereof have the right to require Company to repurchase such Capital Stock upon the occurrence of a Change of Control (as defined in the New Sub Debt Indentures) or an Asset Sale shall not constitute Disqualified Stock if the terms of such Capital Stock provide that Company may not repurchase or redeem any such Capital Stock pursuant to such provisions unless such repurchase or redemption complies with subsection 6.1. "Documentation Agent" has the meaning assigned to that term in the introduction to this Agreement. "Dollars" and the sign "$" mean the lawful money of the United States of America. "Domestic Subsidiary" means any Subsidiary of Company which is organized under the laws of the United States or any state thereof. 19 "EITF 97-13 Expenditures" means expenses associated with reengineering efforts in connection with Company's MIS projects. "Eligible Assignee" means (A) (i) a commercial bank organized under the laws of the United States or any state thereof; (ii) a savings and loan association or savings bank organized under the laws of the United States or any state thereof; (iii) a commercial bank organized under the laws of any other country or a political subdivision thereof; provided that (x) -------- such bank is acting through a branch or agency located in the United States or (y) such bank is organized under the laws of a country that is a member of the Organization for Economic Cooperation and Development or a political subdivision of such country; and (iv) any other entity which is an "accredited investor" (as defined in Regulation D under the Securities Act) which extends credit or buys loans as one of its businesses including insurance companies, funds, investment companies and lease financing companies; and (B) any Lender, any Affiliate of any Lender and, with respect to any Lender that is an investment fund that invests in commercial loans, any other investment fund that invests in commercial loans and that is managed or advised by the same investment advisor as such Lender or by an Affiliate of such investment advisor; provided that no Affiliate of -------- Holdings shall be an Eligible Assignee. "Employee Benefit Plan" means any "employee benefit plan" as defined in Section 3(3) of ERISA which is or was maintained or contributed to by Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates. "Employment Agreement" means the Employment Agreement between Company and Ron Jones providing for his exclusive employment by Company, in the form provided to Syndication Agent and Administrative Agent pursuant to subsection 3.1C on or prior to the Closing Date. "Environmental Claim" means any investigation, notice, notice of violation, claim, action, suit, proceeding, demand, abatement order or other order or directive (conditional or otherwise), by any governmental authority or any other Person, arising (i) pursuant to or in connection with any actual or alleged violation of any Environmental Law, (ii) in connection with any Hazardous Materials or any actual or alleged Hazardous Materials Activity, or (iii) in connection with any actual or alleged damage, injury, threat or harm to health, safety, natural resources or the environment. "Environmental Laws" means any and all current or future statutes, ordinances, orders, rules, regulations, judgments, Governmental Authorizations, or any other requirements of governmental authorities relating to (i) environmental matters, including those relating to any Hazardous Materials Activity, (ii) the generation, use, storage, transportation or disposal of Hazardous Materials, or (iii) occupational safety and health, industrial hygiene, land use or the protection of human, plant or animal health or welfare from environmental hazards (including Hazardous Materials), in any manner applicable to Holdings or any of its Subsidiaries or any Facility, including the Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C. (S) 9601 et seq.), -- --- 20 the Hazardous Materials Transportation Act (49 U.S.C. (S) 1801 et seq.), -- --- the Resource Conservation and Recovery Act (42 U.S.C. (S) 6901 et seq.), -- --- the Federal Water Pollution Control Act (33 U.S.C. (S) 1251 et seq.), the -- --- Clean Air Act (42 U.S.C. (S) 7401 et seq.), the Toxic Substances Control -- --- Act (15 U.S.C. (S) 2601 et seq.), the Federal Insecticide, Fungicide and -- --- Rodenticide Act (7 U.S.C. (S)136 et seq.), the Occupational Safety and -- --- Health Act (29 U.S.C. (S) 651 et seq.), the Oil Pollution Act (33 U.S.C. -- --- (S) 2701 et seq.) and the Emergency Planning and Community Right-to-Know -- --- Act (42 U.S.C. (S) 11001 et seq.), each as amended or supplemented, any -- --- analogous present or future state or local statutes or laws, and any regulations promulgated pursuant to any of the foregoing. "Equity Contribution" means, collectively, (i) the contribution by Bain and the Other Investors to Merger Corp. of cash in exchange for all of the outstanding common stock of Merger Corp. and (ii) the rollover equity contribution by the Management Investors, in the aggregate amount of $128,700,000. "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). "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any successor thereto, and the regulations promulgated and rulings issued thereunder. "ERISA Affiliate" means, as applied to any Person, (i) any corporation which is a member of a controlled group of corporations within the meaning of Section 414(b) of the Internal Revenue Code of which that Person is a member; (ii) any trade or business (whether or not incorporated) which is a member of a group of trades or businesses under common control within the meaning of Section 414(c) of the Internal Revenue Code of which that Person is a member; and (iii) any member of an affiliated service group within the meaning of Section 414(m) or (o) of the Internal Revenue Code of which that Person, any corporation described in clause (i) above or any trade or business described in clause (ii) above is a member. Any former ERISA Affiliate of Holdings or any of its Subsidiaries shall continue to be considered an ERISA Affiliate of Holdings or such Subsidiary within the meaning of this definition with respect to the period such entity was an ERISA Affiliate of Holdings or such Subsidiary and with respect to liabilities arising after such period for which Holdings or such Subsidiary could be liable under the Internal Revenue Code or ERISA. "ERISA Event" means (i) a "reportable event" within the meaning of Section 4043 of ERISA and the regulations issued thereunder with respect to any Pension Plan (excluding those for which the provision for 30-day notice to the PBGC has been waived by regulation); (ii) the failure to meet the minimum funding standard of Section 412 of the Internal Revenue Code with respect to any Pension Plan (whether or not waived in accordance with Section 412(d) of the Internal Revenue Code) or the failure to make by its due date a required installment under Section 412(m) of the Internal Revenue Code 21 with respect to any Pension Plan or the failure to make any required contribution to a Multiemployer Plan; (iii) the provision by the administrator of any Pension Plan pursuant to Section 4041(a)(2) of ERISA of a notice of intent to terminate such plan in a distress termination described in Section 4041(c) of ERISA; (iv) the withdrawal by Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates from any Pension Plan with two or more contributing sponsors or the termination of any such Pension Plan resulting in liability pursuant to Section 4063 or 4064 of ERISA; (v) the institution by the PBGC of proceedings to terminate any Pension Plan, or the occurrence of any event or condition which might constitute grounds under ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan; (vi) the imposition of liability on Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates pursuant to Section 4062(e) or 4069 of ERISA or by reason of the application of Section 4212(c) of ERISA; (vii) the withdrawal of Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates in a complete or partial withdrawal (within the meaning of Sections 4203 and 4205 of ERISA) from any Multiemployer Plan if there is any potential liability therefor, or the receipt by Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates of notice from any Multiemployer Plan that it is in reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA, or that it intends to terminate or has terminated under Section 4041A or 4042 of ERISA; (viii) the occurrence of an act or omission which could give rise to the imposition on Holdings or any of its Subsidiaries of fines, penalties, taxes or related charges under Chapter 43 of the Internal Revenue Code or under Section 409, Section 502(c), (i) or (l), or Section 4071 of ERISA in respect of any Employee Benefit Plan; (ix) the assertion of a material claim (other than routine claims for benefits) against any Employee Benefit Plan other than a Multiemployer Plan or the assets thereof, or against Holdings or any of its Subsidiaries in connection with any Employee Benefit Plan; (x) receipt from the Internal Revenue Service of notice of the failure of any Pension Plan (or any other Employee Benefit Plan intended to be qualified under Section 401(a) of the Internal Revenue Code) to qualify under Section 401(a) of the Internal Revenue Code, or the failure of any trust forming part of any Pension Plan to qualify for exemption from taxation under Section 501(a) of the Internal Revenue Code; or (xi) the imposition of a Lien pursuant to Section 401(a)(29) or 412(n) of the Internal Revenue Code or pursuant to ERISA with respect to any Pension Plan. "Eurodollar Rate Loans" means Loans bearing interest at rates determined by reference to the Adjusted Eurodollar Rate as provided in subsection 2.2A. "Event of Default" means each of the events set forth in Section 7. "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time, and any successor statute. "Excluded Subsidiaries" means, collectively, (i) all Foreign Subsidiaries which are not Subsidiary Guarantors and (ii) Advanced Sleep Products, a California corporation, Sealy Components--Pads, Inc., a Delaware corporation, Sealy Mattress 22 Company of San Diego, a California corporation, Sealy Connecticut, Inc., a Connecticut corporation, and Sealy Mattress Company of S.W. Virginia, a Virginia corporation; provided, however, that no Domestic Subsidiary shall -------- ------- be an Excluded Subsidiary if, after the Closing Date, it acquires assets with a fair market value in excess of $1,000,000 in the aggregate. "Existing Credit Agreement" means that certain Second Restated Credit Agreement dated as of February 25, 1997, by and among Holdings, as borrower, certain financial institutions, Banque Paribas, as documentation agent, Nationsbank, N.A., as syndication agent, and Bank of America Illinois, as administrative agent, as amended prior to the Closing Date. "Existing Subordinated Note Indenture" means the indenture pursuant to which the Existing Subordinated Notes were issued, as amended pursuant to the Consent Solicitation and as such indenture may be further amended from time to time to the extent permitted under subsection 6.10B. "Existing Subordinated Notes" means Holdings's $200,000,000 in aggregate principal amount of 10-1/4% Senior Subordinated Notes due 2003. "Facilities" means any and all real property (including all buildings, fixtures or other improvements located thereon) now, hereafter or heretofore owned, leased, operated or used by Holdings or any of its Subsidiaries or any of their respective predecessors or Affiliates. "Federal Funds Effective Rate" means, for any period, a fluctuating interest rate equal for each day during such period to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by Administrative Agent from three Federal funds brokers of recognized standing selected by Administrative Agent. "Financial Plan" has the meaning assigned to that term in subsection 5.1(xiii). "First Priority" means, with respect to any Lien purported to be created in any Collateral pursuant to any Collateral Document, that (i) such Lien has priority over any other Lien on such Collateral (other than Liens permitted under subsection 6.6(iii) or 6.6(iv)) and (ii) such Lien is the only Lien (other than Permitted Encumbrances and Liens permitted pursuant to subsection 6.6) to which such Collateral is subject. "Fiscal Quarter" means a fiscal quarter of any Fiscal Year. 23 "Fiscal Year" means the fiscal year of Holdings and its Subsidiaries ending on the Sunday nearest to November 30th of each calendar year. For purposes of this Agreement, any particular Fiscal Year shall be designated by reference to the calendar year in which such Fiscal Year ends. "Flood Hazard Property" means a Mortgaged Property located in an area designated by the Federal Emergency Management Agency as having special flood or mud slide hazards. "Foreign Subsidiary" means a Subsidiary of Company other than a Domestic Subsidiary. "Four-Quarter Period" has the meaning specified in the definition of Consolidated Fixed Charge Coverage Ratio. "Funded Debt", as applied to any Person, means all Indebtedness of that Person which by its terms or by the terms of any instrument or agreement relating thereto matures more than one year from, or is directly renewable or extendable at the option of that Person to a date more than one year from (including an option of that Person under a revolving credit or similar agreement obligating the lender or lenders to extend credit over a period of one year or more from), the date of the creation thereof. "Funding and Payment Office" means (i) the office of Administrative Agent located at 500 Station Christiana Road, Newark, Delaware or (ii) such other office of Administrative Agent as may from time to time hereafter be designated as such in a written notice delivered by Administrative Agent to Company and each Lender. "GAAP" means, subject to the limitations on the application thereof set forth in subsections 1.2 and 1.4, generally accepted accounting principles set forth in 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 may be approved by a significant segment of the accounting profession, in each case as the same are applicable to the circumstances as of the date of determination. "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. "Guaranties" means the Holdings Guaranty and the Subsidiary Guaranty. 24 "Governmental Authorization" means any permit, license, authorization, plan, directive, consent order or consent decree of or from any federal, state or local governmental authority, agency or court. "GSCP" has the meaning assigned to that term in the introduction to this Agreement. "Harvard Advisory Services Agreement" means that certain Management Services Agreement by and between Holdings and Harvard Private Capital Holdings, Inc., in the form delivered to Syndication Agent and Administrative Agent prior to on the Closing Date and as such agreement may thereafter be amended, supplemented or otherwise modified from time to time to the extent permitted under subsection 6.10A. "Harvard Management Fees" means the fees and expenses payable by Holdings to Harvard Private Capital Holdings, Inc. pursuant to the Harvard Advisory Services Agreement. "Hazardous Materials" means (i) any chemical, material or substance at any time defined in any statute or regulation as or included in the definition in any statute or regulation of "hazardous substances", "hazardous wastes", "hazardous materials", "extremely hazardous waste", "acutely hazardous waste", "radioactive waste", "biohazardous waste", "pollutant", "toxic pollutant", "contaminant", "restricted hazardous waste", "infectious waste", "toxic substances", or any other term or expression intended to define, list or classify substances by reason of properties harmful to health, safety or the indoor or outdoor environment (including harmful properties such as ignitability, corrosivity, reactivity, carcinogenicity, toxicity, reproductive toxicity, "TCLP toxicity" or "EP toxicity" or words of similar meaning and regulatory effect under any applicable Environmental Laws); (ii) any oil, petroleum, petroleum fraction or petroleum derived substance; (iii) any drilling fluids, produced waters and other wastes associated with the exploration, development or production of crude oil, natural gas or geothermal resources; (iv) any flammable substances or explosives; (v) any radioactive materials; (vi) any asbestos-containing materials; (vii) urea formaldehyde foam insulation; (viii) polychlorinated biphenyls, including any oil or dielectric fluid containing polychlorinated biphenyls; (ix) pesticides; and (x) any other chemical, material or substance which could pose a hazard to the health and safety of the owners, occupants or any Persons in the vicinity of any Facility or to the indoor or outdoor environment. "Hazardous Materials Activity" means any past, present or future activity, event or occurrence involving any Hazardous Materials, including the use, manufacture, possession, storage, holding, migration, Release, threatened Release, discharge, placement, generation, transportation, processing, treatment, abatement, removal, remediation, disposal, disposition or handling of any Hazardous Materials, and any corrective action or response action with respect to any of the foregoing. 25 "Hedge Agreement" means an Interest Rate Agreement or a Currency Agreement designed to hedge against fluctuations in interest rates or currency values, respectively. "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). "Holdings" has the meaning assigned to that term in the recitals of this Agreement. "Holdings Common Stock" means, collectively, (i) the Class A Common Stock of Holdings, par value $.01 per share, (ii) the Class B Common Stock of Holdings, par value $.01 per share, (iii) the Class L Common Stock of Holdings, par value $.01 per share, and (iv) the Class M Common Stock of Holdings, par value $.01 per share. "Holdings Guaranty" means the Holdings Guaranty executed and delivered by Holdings on the Closing Date, substantially in the form of Exhibit XXI ----------- annexed hereto, as such Holdings Guaranty may thereafter be amended, supplemented or otherwise modified from time to time as permitted thereunder and hereunder. "Holdings Pledge Agreement" means the Holdings Pledge Agreement executed and delivered by Holdings and Collateral Agent on the Closing Date, substantially in the form of Exhibit XXII annexed hereto, as such ------------ Holdings Pledge Agreement may thereafter be amended, supplemented or otherwise modified from time to time as permitted thereunder and hereunder. "Holdings Security Agreement" means the Holdings Security Agreement executed and delivered by Holdings and Collateral Agent on the Closing Date, substantially in the form of Exhibit XXIII annexed hereto, as such ------------- Holdings Security Agreement may thereafter be amended, supplemented or otherwise modified from time to time as permitted thereunder and hereunder. "Indebtedness", as applied to any Person, means (i) all indebtedness for borrowed money, (ii) that portion of obligations with respect to Capital Leases that is properly classified as a liability on a balance sheet in conformity with GAAP, (iii) notes payable and drafts accepted representing extensions of credit whether or not representing obligations for borrowed money, (iv) any obligation owed for all or any part of the deferred purchase price of property or services (excluding any such obligations incurred under ERISA and any accrued expenses or trade payables), (a) which obligation in accordance with GAAP would be shown as a liability on the balance sheet of such Person or (b) which purchase price is evidenced by a note or similar written instrument, and (v) all indebtedness secured by any Lien on any property or asset owned or held by that 26 Person regardless of whether the indebtedness secured thereby shall have been assumed by that Person or is nonrecourse to the credit of that Person. The amount of any Indebtedness which is non-recourse to the obligor thereunder or to any other obligor and for which recourse is limited to an identified asset or assets shall be equal to the lesser of (1) the stated amount of such obligation and (2) fair market value of such asset or assets. Obligations under Interest Rate Agreements and Currency Agreements constitute (X) in the case of Hedge Agreements, Contingent Obligations, and (Y) in all other cases, Investments, and in neither case constitute Indebtedness. Notwithstanding the foregoing, for purposes of Section 6 only (and any other defined terms as and to the extent used in Section 6), "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 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. "Indemnitee" has the meaning assigned to that term in subsection 9.3. "Independent Public Accountant" means any of the five largest public accounting firms in the United States selected by Holdings. "Initial Period" means the period commencing on and including the Closing Date and ending on (but excluding) the earlier of (i) the date on which Syndication Agent notifies Company that it has concluded its primary syndication of the Loans and Commitments and (ii) the date which is 30 days after the Closing Date. "Initial Public Offering" means the first underwritten public offering of Qualified Capital Stock by either Holdings or Company pursuant to a registration statement filed with the Securities and Exchange Commission in accordance with the 27 Securities Act for aggregate net cash proceeds of a least $50,000,000; provided that in the event the Initial Public Offering is consummated by Holdings, Holdings contributes to the common equity capital of Company at least $50,000,000 of the net cash proceeds of the Initial Public Offering. "Intellectual Property" means all patents, trademarks, tradenames, copyrights, technology, know-how and processes which are used in the conduct of the business of Holdings and its Subsidiaries as currently conducted that are material to the condition (financial or otherwise), business or operations of Holdings and its Subsidiaries, taken as a whole. "Intercreditor Agreement" means that certain Intercreditor Agreement executed and delivered by Administrative Agent, Morgan Guaranty, as administrative agent for lenders under the Revolving Credit Agreement, and Collateral Agent on the Closing Date, substantially in the form of Exhibit ------- XIII annexed hereto, as such Intercreditor Agreement may thereafter be ---- amended, supplemented or otherwise modified from time to time as permitted thereunder and hereunder. "Interest Payment Date" means (i) with respect to any Base Rate Loan, each February 28, May 31, August 31 and November 30 of each year, commencing on the first such date to occur after the Closing Date, and (ii) with respect to any Eurodollar Rate Loan, the last day of each Interest Period applicable to such Loan; provided that in the case of each Interest -------- Period of longer than three months, "Interest Payment Date" shall also include each date that is three months, or an integral multiple thereof, after the commencement of such Interest Period. "Interest Period" has the meaning assigned to that term in subsection 2.2B. "Interest Rate Agreement" means any interest rate swap agreement, interest rate cap agreement, interest rate collar agreement or other similar agreement or arrangement to which Holdings or any of its Subsidiaries is a party. "Interest Rate Determination Date" means, with respect to any Interest Period, the second Business Day prior to the first day of such Interest Period. "Interest Swap Obligation" 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. "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended to the date hereof and from time to time hereafter, and any successor statute, and the regulations promulgated by the Internal Revenue Service thereunder. 28 "Inventory" means, with respect to any Person as of any date of determination, all goods, merchandise and other personal property which are then held by such Person for sale or lease, including raw materials and work in process. "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 Company or any Subsidiary of Company sells or otherwise disposes of any Equity Interests of any direct or indirect Subsidiary of Company such that, after giving effect to any such sale or disposition, such Person is no longer a Subsidiary of Company, 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 subsection 6.1. "IP Collateral" means, collectively, the Collateral under the Company Patent and Trademark Security Agreement and the Subsidiary Patent and Trademark Security Agreement. "IR Consolidated Adjusted EBITDA" means, for any period, the sum of the amounts for such period of (i) IR Consolidated Net Income, (ii) IR Consolidated Interest Expense, together with any non-cash interest expense with respect to the Junior Subordinated Seller Notes not included in IR Consolidated Interest Expense, (iii) provisions for taxes based on income (including, without duplication, foreign withholding taxes), (iv) total depreciation expense, (v) total amortization expense, (vi) other non-cash items reducing IR Consolidated Net Income less other non-cash items ---- increasing IR Consolidated Net Income, (vii) to the extent deducted in determining IR Consolidated Net Income, those items described on Schedule -------- 1.1(i) annexed hereto, and (viii) the cumulative effect of accounting ------ changes to the extent such changes result in a reduction of IR Consolidated Net Income less the cumulative effect of accounting changes to the extent ---- such changes result in an increase in IR Consolidated Net Income, all of the foregoing as determined on a consolidated basis for Holdings and its Subsidiaries in conformity with GAAP. "IR Consolidated Interest Expense" means, for any period, total cash and non-cash interest expense (including that portion attributable to Capital Leases in accordance with GAAP and capitalized interest) of Holdings and its Subsidiaries on a consolidated basis in accordance with GAAP with respect to all outstanding Indebtedness of Holdings and its Subsidiaries, including all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing, net costs under Interest Rate Agreements, commitment fees accrued under subsection 2.3A and any 29 administrative agent's fees payable to Administrative Agent, but excluding, --------- however, any amounts referred to in subsection 2.3 payable to Agents and ------- Lenders on or before the Closing Date and any non-cash interest expense with respect to the Junior Subordinated Seller Notes. "IR Consolidated Net Income" means, for any period, the net income (or loss) of Holdings and its Subsidiaries on a consolidated basis for such period taken as a single accounting period determined in conformity with GAAP; provided that there shall be excluded (i) the income (or loss) of any -------- Person (other than a Subsidiary of Holdings) in which any other Person (other than Holdings or any of its Subsidiaries) has a joint interest, except to the extent of the amount of dividends or other distributions actually paid to Holdings or any of its Subsidiaries by such Person during such period, (ii) the income (or loss) of any Person accrued prior to the date it becomes a Subsidiary of Holdings or is merged into or consolidated with Holdings or any of its Subsidiaries or that Person's assets are acquired by Holdings or any of its Subsidiaries, (iii) the income of any Subsidiary of Holdings to the extent that the declaration or payment of dividends or similar distributions by that Subsidiary of that income is not at the time permitted by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary, (iv) any after-tax gains or losses attributable to Asset Sales or returned surplus assets of any Pension Plan, and (v) (to the extent not included in clauses (i) through (iv) above) any net extraordinary gains or net extraordinary losses. "IR Consolidated Total Debt" means, as at any date of determination, the aggregate stated balance sheet amount of all Indebtedness of Holdings and its Subsidiaries, determined on a consolidated basis in accordance with GAAP, excluding, however, the principal amount (including paid-in-kind --------- ------- interest) of the Junior Subordinated Seller Notes. "Joint Venture" means a joint venture, partnership or other similar arrangement, whether in corporate, partnership or other legal form; provided that in no event shall any corporate Subsidiary of any Person be -------- considered to be a Joint Venture to which such Person is a party. "Junior Subordinated Seller Notes" means the Junior Subordinated Seller Notes issued in the initial principal amount of $25,000,000 on the Closing Date by Holdings in favor of Zell, and any additional amount of such notes as are permitted to be issued hereunder, as such notes may be amended from time to time to the extent permitted under subsection 6.10C. "Landlord Consent and Estoppel" means, with respect to any Leasehold Property, a letter, certificate or other instrument in writing from the lessor under the related lease, reasonably satisfactory in form and substance to Administrative Agent, pursuant to which such lessor substantially agrees, for the benefit of Administrative Agent, (i) that without any further consent of such lessor or any further action on the part 30 of the Loan Party holding such Leasehold Property, such Leasehold Property may be encumbered pursuant to a Mortgage and may be assigned to the purchaser at a foreclosure sale or in a transfer in lieu of such a sale (and to a subsequent third party assignee if Administrative Agent, any Lender, or an Affiliate of either so acquires such Leasehold Property), (ii) that such lessor shall not terminate such lease as a result of a default by such Loan Party thereunder without first giving Administrative Agent notice of such default and at least 60 days (or, if such default cannot reasonably be cured by Administrative Agent within such period, such longer period as may reasonably be required) to cure such default, (iii) to the matters contained in a Collateral Access Agreement, and (iv) to such other matters relating to such Leasehold Property as Administrative Agent may reasonably request; provided, however, that Administrative Agent may -------- ------- determine in its reasonable discretion that any one or more of the agreements set forth in clauses (i) through (iv) are not required to be included in a Landlord Consent and Estoppel with respect to a particular Leasehold Property. "Leasehold Property" means any leasehold interest of any Loan Party as lessee under any lease of real property, other than any such leasehold interest designated from time to time by Administrative Agent in its reasonable discretion as not being required to be included in the Collateral. "Lender" and "Lenders" means the persons identified as "Lenders" and listed on the signature pages of this Agreement, together with their successors and permitted assigns pursuant to subsection 9.1; provided that -------- the term "Lenders", when used in the context of a particular Commitment, shall mean Lenders having that Commitment. "Leverage Ratio" means the ratio of (i) IR Consolidated Total Debt as of the last day of any Fiscal Quarter to (ii) IR Consolidated Adjusted EBITDA for the four-Fiscal Quarter period then ended, in each case as set forth in the most recent Compliance Certificate delivered by Company to Administrative Agent pursuant to clause (iv) of subsection 5.1.; provided, -------- however, that with respect to any period during which a Permitted ------- Acquisition occurs, for purposes of calculating the Leverage Ratio, IR Consolidated Adjusted EBITDA shall, for purposes of this definition, (i) be calculated with respect to such four-Fiscal Quarter period and the acquired New Business on a pro forma basis (including pro forma adjustments arising out of events which are directly attributable to a specific transaction, are factually supportable and are expected to have a continuing impact, in each case determined on a basis consistent with Article 11 of Regulation S- X promulgated under the Securities Act, as interpreted by the staff of the Securities and Exchange Commission as of January 1, 1997, which would include cost savings resulting from head count reduction, closure of facilities and similar restructuring charges whether (x) resulting from decisions made by Company or (y) implemented by the management of the New Business within the six-month period immediately preceding the closing of such Permitted Acquisition (provided that the cost savings described in -------- clause (y) are supportable and quantifiable by the underlying accounting records of such business), which pro forma adjustments shall be certified by the principal financial officer or principal accounting officer of Company) using the historical financial statements of 31 all entities or assets so acquired or to be acquired, which shall be reformulated (a) as if such acquisition and any Indebtedness or other liabilities incurred in connection with such acquisition had been consummated or incurred at the beginning of such period (and assuming that such Indebtedness bears interest during any portion of the applicable measurement period prior to the relevant acquisition at the weighted average of the interest rates applicable to outstanding Loans during such period), and (b) otherwise in conformity with certain procedures to be agreed upon between Administrative Agent and Company, all such calculations to be in form and substance reasonably satisfactory to Administrative Agent, and (ii) be calculated with respect to such New Business as if all references to Holdings and its Subsidiaries in the definitions of IR Consolidated Adjusted EBITDA and its components were references to such New Business for such period; provided, however, that any cost savings which -------- ------- would otherwise be given effect as a result of the foregoing shall not be given effect until such cost savings are actually realized. "Lien" means any lien, mortgage, pledge, assignment, security interest, charge or encumbrance of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof, and any agreement to give any security interest) and any option, trust or other preferential arrangement having the practical effect of any of the foregoing. "Loan" or "Loans" means one or more of the AXELs Series B, AXELs Series C or AXELs Series D or any combination thereof. "Loan Documents" means this Agreement, the Notes, the Guaranties and the Collateral Documents. "Loan Party" means each of Holdings, Company and any of Company's Subsidiaries from time to time executing a Loan Document, and "Loan Parties" means all such Persons, collectively. "Management Investors" means certain management officers and employees of Holdings and its Subsidiaries disclosed to Syndication Agent and Administrative Agent. "Margin Stock" has the meaning assigned to that term in Regulation U of the Board of Governors of the Federal Reserve System as in effect from time to time. "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. "Material Adverse Effect" means (i) a material adverse effect upon the business, operations, properties, assets, condition (financial or otherwise) or prospects of Holdings and its Subsidiaries, taken as a whole, or (ii) the impairment of the ability 32 of any Loan Party to perform, or of Administrative Agent, Collateral Agent or Lenders to enforce, the Obligations; provided that consummation of the -------- Recapitalization Transactions in accordance with the terms of the Recapitalization Agreement shall not be deemed to have a Material Adverse Effect for purposes of subsection 4.4. "Material Contract" means any contract or arrangement to which Holdings or any of its Subsidiaries is a party (other than the Loan Documents) for which breach, nonperformance, cancellation or failure to renew would reasonably be expected to have a Material Adverse Effect. "Material Leasehold Property" means a Leasehold Property reasonably determined by Administrative Agent to be of material value as Collateral or of material importance to the operations of Holdings or any of its Subsidiaries; provided, however, that, excepting any such Leasehold -------- ------- Properties set forth on Schedule 4.1I annexed hereto, no Leasehold Property ------------- with respect to which the aggregate amount of all rents payable during any one Fiscal Year never exceeds $250,000 shall be a "Material Leasehold Property". "Merger" means the merger of Merger Corp. with and into Holdings in accordance with the terms of the Recapitalization Agreement and the Certificate of Merger, with Holdings being the surviving corporation in such merger. "Merger Corp." has the meaning assigned to that term in the recitals of this Agreement. "MIS Upgrade Expenditures" means expenditures relating to the upgrade of Company's MIS systems to the extent these expenditures would have been capitalized by Holdings and its Subsidiaries in accordance with their accounting policies in effect on the Closing Date. "Morgan Guaranty" has the meaning assigned to that term in the introduction to this Agreement. "Mortgage" means (i) a security instrument (whether designated as a deed of trust or a mortgage or by any similar title) executed and delivered by any Loan Party, substantially in the form of Exhibit XXIV annexed hereto ------------ or in such other form as may be approved by Administrative Agent in its reasonable discretion, in each case with such changes thereto as may be recommended by Administrative Agent's local counsel based on local laws or customary local mortgage or deed of trust practices, or (ii) at Administrative Agent's option, in the case of an Additional Mortgaged Property, an amendment to an existing Mortgage, in form reasonably satisfactory to Administrative Agent, adding such Additional Mortgaged Property to the Real Property Assets encumbered by such existing Mortgage, in either case as such security instrument or amendment may be amended, supplemented or otherwise modified from time to time. 33 "Mortgages" means all such instruments, including the Closing Date Mortgages and any Additional Mortgages, collectively. "Mortgaged Property" means a Closing Date Mortgaged Property or an Additional Mortgaged Property. "Multiemployer Plan" means any Employee Benefit Plan which is a "multiemployer plan" as defined in Section 3(37) of ERISA. "NAIC" means the National Association of Insurance Commissioners. "Net Asset Sale Proceeds" means, with respect to any Asset Sale, Cash payments (including any Cash received by way of deferred payment pursuant to, or by monetization of, a note receivable or otherwise, but only as and when so received) received from such Asset Sale, net of any bona fide costs incurred in connection with such Asset Sale, including (i) income taxes reasonably estimated to be actually payable within two years of the date of such Asset Sale as a result of any gain recognized in connection with such Asset Sale and (ii) payment of the outstanding principal amount of, premium or penalty, if any, and interest on any Indebtedness (other than the Loans) that is secured by a Lien on the stock or assets in question and that is repaid as a result of such Asset Sale. "Net Insurance/Condemnation Proceeds" means any Cash payments or proceeds received by Holdings or any of its Subsidiaries (i) under any business interruption or casualty insurance policy in respect of a covered loss thereunder or (ii) as a result of the taking of any assets of Holdings or any of its Subsidiaries by any Person pursuant to the power of eminent domain, condemnation or otherwise, or pursuant to a sale of any such assets to a purchaser with such power under threat of such a taking, in each case net of any actual and documented costs incurred by Holdings or any of its Subsidiaries in connection with the adjustment or settlement of any claims of Holdings or such Subsidiary in respect thereof. "New Business" means any assets or business acquired by Company or any of its Subsidiaries in a Permitted Acquisition. "New Sub Debt Indentures" means, collectively, the Senior Subordinated Note Indenture and the Discount Note Indenture. "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 34 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. "Notes" means one or more of the AXEL Series B Notes, AXEL Series C Notes or AXEL Series D Notes or any combination thereof. "Notice of Borrowing" means a notice substantially in the form of Exhibit I annexed hereto delivered by Company to Administrative Agent --------- pursuant to subsection 2.1B with respect to a proposed borrowing. "Notice of Conversion/Continuation" means a notice substantially in the form of Exhibit II annexed hereto delivered by Company to ---------- Administrative Agent pursuant to subsection 2.2D with respect to a proposed conversion or continuation of the applicable basis for determining the interest rate with respect to the Loans specified therein. "Obligations" means all obligations of every nature of each Loan Party from time to time owed to Agents, Lenders or their respective Affiliates or any of them under the Loan Documents, whether for principal, interest, fees, expenses, indemnification or otherwise. "Officers' Certificate" means, as applied to any corporation, a certificate executed on behalf of such corporation by its chairman of the board (if an officer) or its president or one of its vice presidents and by its principal financial officer or principal accounting officer or its treasurer; provided that every Officers' Certificate with respect to the -------- compliance with a condition precedent to the making of any Loans hereunder shall include (i) a statement that the officer or officers making or giving such Officers' Certificate have read such condition and any definitions or other provisions contained in this Agreement relating thereto, (ii) a statement that, in the opinion of the signers, they have made or have caused to be made such examination or investigation as is necessary to enable them to express an informed opinion as to whether or not such condition has been complied with, and (iii) a statement as to whether, in the opinion of the signers, such condition has been complied with. "Operating Lease" means, as applied to any Person, any lease (including leases that may be terminated by the lessee at any time) of any property (whether real, personal or mixed) that is not a Capital Lease other than any such lease under which that Person is the lessor. "Other Investors" means Harvard Private Capital Holdings, Inc., BancBoston Investments, Inc., Chase Equity Associates, L.P. and CIBC WG Argosy Merchant Fund 2, L.L.C.. 35 "Other MIS Expenditures" means all expenditures, other than MIS Upgrade Expenditures, EITF 97-13 Expenditures and Year 2000 Expenditures, relating to Holdings' and its Subsidiaries' MIS systems. "PBGC" means the Pension Benefit Guaranty Corporation or any successor thereto. "Pension Plan" means any Employee Benefit Plan, other than a Multiemployer Plan, which is subject to Section 412 of the Internal Revenue Code or Section 302 of ERISA. "Permitted Acquisition" has the meaning assigned to that term in the Revolving Credit Agreement; provided, however, that after the Revolving -------- ------- Credit Agreement ceases to be in effect, "Permitted Acquisition" shall mean any acquisition of a business or all or substantially all of the assets of a business permitted at the time of such acquisition under the Revolving Credit Agreement and any acquisition thereafter permitted under this Agreement. "Permitted Business" means any business 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 this Agreement. "Permitted Domestic Subsidiary Preferred Stock" means any series of Preferred Stock of a domestic Restricted Subsidiary of 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 Company and its Restricted Subsidiaries incurred pursuant to clause (xvi) of subsection 6.4 does not exceed $30,000,000; provided that such amount shall increase to $50,000,000 upon consummation of an Initial Public Offering. "Permitted Encumbrances" means the following types of Liens (excluding any such Lien imposed pursuant to Section 401(a)(29) or 412(n) of the Internal Revenue Code or by ERISA, any such Lien relating to or imposed in connection with any Environmental Claim, and any such Lien expressly prohibited by any applicable terms of any of the Collateral Documents): (i) Liens for taxes, assessments or governmental charges or claims the payment of which is not, at the time, required by subsection 5.3; (ii) statutory Liens of landlords, statutory Liens of banks and rights of set-off, statutory Liens of carriers, warehousemen, mechanics, repairmen, workmen and materialmen, and other Liens imposed by law, in each case incurred in the ordinary course of business (a) for amounts not yet overdue or (b) 36 for amounts that are overdue and that (in the case of any such amounts overdue for a period in excess of 5 days) are being contested in good faith by appropriate proceedings, so long as (1) such reserves or other appropriate provisions, if any, as shall be required by GAAP shall have been made for any such contested amounts, and (2) in the case of a Lien with respect to any portion of the Collateral, such contest proceedings conclusively operate to stay the sale of any portion of the Collateral on account of such Lien; (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, or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, government contracts, trade contracts, performance and return-of-money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money), so long as no foreclosure, sale or similar proceedings have been commenced with respect to any portion of the Collateral on account thereof; (iv) any attachment or judgment Lien not constituting (a) an Event of Default under subsection 8.8 of the Revolving Credit Agreement or (b) after the Revolving Credit Agreement ceases to be in full force and effect, an Event of Default hereunder; (v) leases or subleases granted to third parties in accordance with any applicable terms of the Collateral Documents and not interfering in any material respect with the ordinary conduct of the business of Holdings or any of its Subsidiaries or resulting in a material diminution in the value of any Collateral as security for the Obligations; (vi) easements, rights-of-way, restrictions, encroachments, and other defects or irregularities in title, in each case which do not and will not interfere in any material respect with the ordinary conduct of the business of Holdings or any of its Subsidiaries or result in a material diminution in the value of any Collateral as security for the Obligations; (vii) any (a) interest or title of a lessor or sublessor under any lease permitted by the Revolving Credit Agreement or, after the Revolving Credit Agreement ceases to be in full force and effect, by this Agreement, (b) restriction or encumbrance that the interest or title of such lessor or sublessor may be subject to, or (c) subordination of the interest of the lessee or sublessee under such lease to any restriction or encumbrance referred to in the preceding clause (b), so long as the holder of such restriction or encumbrance agrees to recognize the rights of such lessee or sublessee under such lease; (viii) Liens arising from filing UCC financing statements relating solely to leases permitted by this Agreement; 37 (ix) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods; (x) any zoning or similar law or right reserved to or vested in any governmental office or agency to control or regulate the use of any real property; (xi) Liens securing obligations (other than obligations representing Indebtedness for borrowed money) under operating, reciprocal easement or similar agreements entered into in the ordinary course of business of Holdings and its Subsidiaries; (xii) licenses of patents, trademarks and other intellectual property rights granted by Holdings or any of its Subsidiaries in the ordinary course of business and not interfering in any material respect with the ordinary conduct of the business of Holdings or such Subsidiary; and (xiii) Liens existing on the Closing Date and described in the Closing Date Mortgage Policies. "Permitted Foreign Subsidiary Preferred Stock" means any series of Preferred Stock of a foreign Restricted Subsidiary of 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 Company incurred pursuant to clause (iii) of the definition of Permitted Indebtedness, does not exceed $15,000,000; provided that such amount shall -------- increase to $30,000,000 million upon consummation of an Initial Public Offering. "Permitted Investments" means (i) Investments by Company or any Restricted Subsidiary of Company in any Restricted Subsidiary of Company (whether existing on the date of this Indenture 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 Company that is a Subsidiary Guarantor or a Foreign Subsidiary and Investments in Company by any Restricted Subsidiary of Company, (ii) cash and Cash Equivalents, (iii) Investments existing on the date hereof, (iv) loans and advances to employees and officers of 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 Company's businesses and otherwise in compliance with this Agreement, (vii) Investments in Unrestricted Subsidiaries in an amount at any one time outstanding not to exceed $20,000,000; (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 Company of Indebtedness otherwise permitted to be incurred by Restricted Subsidiaries of Company under this Agreement, (x) additional 38 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 Company or a Subsidiary of 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 subsection 6.5 (other than transactions described in clause (v) of such clause (b)), (xiii) Investments the payment for which consists exclusively of Qualified Capital Stock of Company and (xiv) Investments received by 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 subsection 6.4. "Permitted Seller Note" means any promissory note of Company or any of its Subsidiaries constituting a "Permitted Seller Note" under the Revolving Credit Agreement. "Person" means and includes natural persons, corporations, limited partnerships, general partnerships, limited liability companies, limited liability partnerships, joint stock companies, Joint Ventures, associations, companies, trusts, banks, trust companies, land trusts, business trusts or other organizations, whether or not legal entities, and governments (whether federal, state or local, domestic or foreign, and including political subdivisions thereof) and agencies or other administrative or regulatory bodies thereof. "Pledged Collateral" means, collectively, the "Pledged Collateral" as defined in the Holdings Pledge Agreement, the Company Pledge Agreement and the Subsidiary Pledge Agreement. "Potential Event of Default" means a condition or event that, after notice or lapse of time or both, would constitute an Event of Default. "Preferred Stock" of a Person means Capital Stock of such Person of any class or series (however designated) that ranks prior, as to payment of dividends or as to the distribution of assets upon any voluntary or involuntary liquidation, dissolution or winding up of such Person, to shares of Capital Stock of any other class or series of such Person. "Principals" means Bain and any other stockholder of Holdings that owns at least 10% of the outstanding Equity Interests of Holdings as of the date hereof. "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 39 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 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. "Pro Rata Share" means (i) with respect to all payments, computations and other matters relating to the AXEL Series B Commitment or the AXEL Series B of any Lender, the percentage obtained by dividing (x) -------- the AXEL Series B Exposure of that Lender by (y) the aggregate AXEL Series -- B Exposure of all Lenders, (ii) with respect to all payments, computations and other matters relating to the AXEL Series C Commitment or the AXEL Series C of any Lender, the percentage obtained by dividing (x) the AXEL -------- Series C Exposure of that Lender by (y) the aggregate AXEL Series C -- Exposure of all Lenders, (iii) with respect to all payments, computations and other matters relating to the AXEL Series D Commitment or the AXEL Series D of any Lender, the percentage obtained by dividing (x) the AXEL -------- Series D Exposure of that Lender by (y) the aggregate AXEL Series D -- Exposure of all Lenders, and (iv) for all other purposes with respect to each Lender, the percentage obtained by dividing (x) the sum of the AXEL -------- Series B Exposure of that Lender plus the AXEL Series C Exposure of that ---- Lender plus the AXEL Series D Exposure of that Lender by (y) the sum of the ---- -- aggregate AXEL Series B Exposure of all Lenders plus the aggregate AXEL ---- Series C Exposure of all Lenders plus the aggregate AXEL Series D Exposure ---- of all Lenders, in any such case as the applicable percentage may be adjusted by assignments permitted pursuant to subsection 9.1. The initial Pro Rata Share of each Lender for purposes of each of clauses (i), (ii), (iii) and (iv) of the preceding sentence is set forth opposite the name of that Lender in Schedule 2.1 annexed hereto. ------------ "PTO" means the United States Patent and Trademark Office or any successor or substitute office in which filings are necessary in order to create or perfect Liens on any IP Collateral. "Purchase Money Note" means a promissory note of a Securitization Entity evidencing a line of credit, which may be irrevocable, from Company or any Restricted Subsidiary of 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. 40 "Qualified Securitization Transaction" means any transaction or series of transactions pursuant to which 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 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 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 of 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. "Real Property Asset" means, at any time of determination, any interest then owned by any Loan Party in any real property. "Recapitalization Agreement" means that certain Agreement and Plan of Merger dated as of October 30, 1997, by and among Holdings, Merger Corp. and Zell, in the form delivered to Syndication Agent, Administrative Agent and Lenders prior to their execution of this Agreement and as such agreement may be amended from time to time thereafter to the extent permitted under subsection 6.10A. "Recapitalization Financing Requirements" means the aggregate of all amounts necessary to finance the Recapitalization Transactions. "Recapitalization Revolving Loans" has the meaning assigned to that term in subsection 2.5A. "Recapitalization Transactions" means the series of transactions described in Schedule 1.1(ii) annexed hereto, together with (i) the ---------------- contribution by Holdings to Company of the capital stock of each of the Subsidiaries of Holdings indicated on such Schedule, (ii) the repurchase of the Existing Subordinated Notes pursuant to the Debt Tender Offer and the repayment of all amounts outstanding under the Existing Credit Agreement, (iii) the amendment of the Existing Subordinated Note Indenture pursuant to the Consent Solicitation, (iv) the Merger, and (v) the payment of Transaction Costs and the other transactions contemplated by the Recapitalization Agreement. "Recorded Leasehold Interest" means a Leasehold Property with respect to which a Record Document (as hereinafter defined) has been recorded in all places necessary or desirable, in Administrative Agent's reasonable judgment, to give constructive notice of such Leasehold Property to third-party purchasers and encumbrancers of the affected real property. For purposes of this definition, the term "Record Document" means, with respect to any Leasehold Property, (a) the lease evidencing such Leasehold Property or a memorandum thereof, executed and 41 acknowledged by the owner of the affected real property, as lessor, or (b) if such Leasehold Property was acquired or subleased from the holder of a Recorded Leasehold Interest, the applicable assignment or sublease document, executed and acknowledged by such holder, in each case in form sufficient to give such constructive notice upon recordation and otherwise in form reasonably satisfactory to Administrative Agent. "Reference Lenders" means Morgan Guaranty and BTCo. "Register" has the meaning assigned to that term in subsection 2.1D. "Regulation D" means Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Related Agreements" means, collectively, the Recapitalization Agreement, the Certificate of Merger, the Stockholders Agreement, the Junior Subordinated Seller Notes, the New Sub Debt Indentures, the Discount Notes, the Senior Subordinated Notes, the Existing Subordinated Note Indenture, the Existing Subordinated Notes and the Debt Tender Offer Materials. "Release" means any release, spill, emission, leaking, pumping, pouring, injection, escaping, deposit, disposal, discharge, dispersal, dumping, leaching or migration of Hazardous Materials into the indoor or outdoor environment (including the abandonment or disposal of any barrels, containers or other closed receptacles containing any Hazardous Materials), including the migration of any Hazardous Materials through the air, soil, surface water or groundwater. "Requisite Class Lenders" means, at any time of determination (i) for the Class of Lenders having AXEL Series B Exposure, Lenders having or holding at least 51% of the aggregate AXEL Series B Exposure of all Lenders, (ii) for the Class of Lenders having AXEL Series C Exposure, Lenders having or holding at least 51% of the aggregate AXEL Series C Exposure of all Lenders, and (iii) for the Class of Lenders having AXEL Series D Exposure, Lenders having or holding at least 51% of the aggregate AXEL Series D Exposure of all Lenders. "Requisite Lenders" means Lenders having or holding more than 50% of the sum of the aggregate AXEL Series B Exposure of all Lenders plus the ---- aggregate AXEL Series C Exposure of all Lenders plus the aggregate AXEL ---- Series D Exposure of all Lenders. "Responsible Officer" means any of the chairman of the board (if an officer), the president, any senior or executive vice president, the general counsel, its principal financial officer or principal accounting officer, the secretary or the treasurer of Holdings or, as applicable, any Subsidiary of Holdings. 42 "Restricted Investment" means an Investment other than a Permitted Investment. "Restricted Junior Payment" means (i) any dividend or other distribution, direct or indirect, on account of any shares of any class of stock of Holdings or Company now or hereafter outstanding, except a dividend payable solely in shares of that class of stock to the holders of that class, (ii) any redemption, retirement, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of any shares of any class of stock of Holdings or Company now or hereafter outstanding, (iii) any payment made to retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire shares of any class of stock of Holdings or Company now or hereafter outstanding, and (iv) any payment or prepayment of principal of, premium, if any, or interest on, or redemption, purchase, retirement, defeasance (including in- substance or legal defeasance), sinking fund or similar payment with respect to, any Subordinated Indebtedness. "Restricted Subsidiary" of a Person means any Subsidiary of the referent Person that is not an Unrestricted Subsidiary. "Revolving Credit Agreement" means that certain Credit Agreement dated as of even date herewith, by and among Company, Holdings, GSCP, as arranger and syndication agent, Morgan Guaranty, as administrative agent, and BTCo., as documentation agent, as such Credit Agreement may be amended, supplemented, refinanced, renewed, extended or otherwise modified from time to time to the extent permitted under subsection 6.10C. "Revolving Credit Documents" means the Revolving Credit Agreement, the promissory notes issued thereunder and each other document executed in connection with the Revolving Credit Agreement. "Revolving Loan Commitments" has the meaning assigned to that term in the Revolving Credit Agreement. "Revolving Loans" means the senior secured revolving loans of Company made from time to time under the Revolving Credit Agreement. "Secured Parties" has the meaning assigned to that term in the Intercreditor Agreement. "Securities" means any stock, shares, partnership interests, voting trust certificates, certificates of interest or participation in any profit-sharing agreement or arrangement, options, warrants, bonds, debentures, notes, or other evidences of indebted ness, secured or unsecured, convertible, subordinated or otherwise, or in general any instruments commonly known as "securities" or any certificates of interest, shares or 43 participations in temporary or interim certificates for the purchase or acquisition of, or any right to subscribe to, purchase or acquire, any of the foregoing. "Securities Act" means the Securities Act of 1933, as amended from time to time, and any successor statute. "Securitization Entity" means a Wholly Owned Subsidiary of Company (or another Person in which Company or any Subsidiary of Company makes an Investment and to which Company or any Subsidiary of 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 (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 Company or any Restricted Subsidiary of 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 Company or any Restricted Subsidiary of Company in any way other than pursuant to Standard Securitization Undertakings or (iii) subjects any property or asset of Company or any Restricted Subsidiary of Company, directly or indirectly, contingently or otherwise, to the satisfaction thereof, other than pursuant to Standard Securitization Undertakings, (B) with which neither Company nor any Restricted Subsidiary of Company has any material contract, agreement, arrangement or understanding other than on terms no less favorable to Company or such Restricted Subsidiary than those that might be obtained at the time from Persons that are not Affiliates of Company, other than fees payable in the ordinary course of business in connection with servicing receivables of such entity, and (c) to which neither Company nor any Restricted Subsidiary of 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 shall be evidenced to Administrative Agent by filing with Administrative Agent a certified copy of the resolution of the Board of Directors giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing conditions. "Senior Subordinated Note Indenture" means the indenture pursuant to which the Senior Subordinated Notes are issued, as such indenture may be amended from time to time to the extent permitted under subsection 6.10B. "Senior Subordinated Notes" means the $125,000,000 in aggregate principal amount of 9-7/8% Senior Subordinated Notes due December 15, 2007 of Company issued pursuant to the Senior Subordinated Note Indenture. "Shareholder Subordinated Note" means any promissory note of Holdings or Company constituting a "Shareholder Subordinated Note" under the Revolving Credit Agreement. 44 "Significant Subsidiary" means any Subsidiary that would be a "significant subsidiary" as defined in Article I, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect on the date of this Agreement. "Solvent" means, with respect to any Person, that as of the date of determination both (A) (i) the then fair saleable value of the property (sold as a going concern) of such Person is (y) greater than the total amount of liabilities (including contingent liabilities) of such Person and (z) not less than the amount that will be required to pay the probable liabilities on such Person's then existing debts as they become absolute and matured considering all financing alternatives and potential asset sales reasonably available to such Person; (ii) such Person's capital is not unreasonably small in relation to its business or any contemplated or undertaken transaction; and (iii) such Person does not intend to incur, or believe (nor should it reasonably believe) that it will incur, debts beyond its ability to pay such debts as they become due; and (B) such Person is "solvent" within the meaning given that term and similar terms under applicable laws relating to fraudulent transfers and conveyances. For purposes of this definition, the amount of any contingent liability at any time shall be computed as the amount that, in light of all of the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability. "Standard Securitization Undertakings" means representations, warranties, covenants and indemnities entered into by Company or any Subsidiary of Company that are reasonably customary in an accounts receivable or equipment transactions. "Stockholders Agreement" means that certain Stockholders Agreement by and among Holdings, Bain, the Other Investors, Zell and the Management Investors, in the form delivered to Syndication Agent, Administrative Agent and Lenders prior to their execution of this Agreement and as such agreement may be amended from time to time thereafter to the extent permitted under subsection 6.10A. "Subordinated Indebtedness" means (i) the Indebtedness of Company evidenced by the Senior Subordinated Notes and the Discount Notes, (ii) the Indebtedness of Holdings evidenced by the Junior Subordinated Seller Notes and any Existing Subordinated Notes not tendered pursuant to the Debt Tender Offer, (iii) the Indebtedness of Company evidenced by any Permitted Seller Notes and Shareholder Subordinated Notes, and (iv) any other Indebtedness of Holdings, Company or any of their Subsidiaries subordinated in right of payment to the Obligations pursuant to documentation containing maturities, amortization schedules, covenants, defaults, remedies, subordination provisions and other material terms in form and substance reasonably satisfactory to Administrative Agent and Requisite Lenders. "Subsidiary" means, with respect to any Person, any corporation, partnership, limited liability company, association, joint venture or other business entity of which more than 50% of the total voting power of shares of stock or other ownership interests entitled (without regard to the occurrence of any contingency) to vote in the election of 45 the Person or Persons (whether directors, managers, trustees or other Persons performing similar functions) having the power to direct or cause the direction of the management and policies thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof. "Subsidiary Guarantor" means any Subsidiary of Holdings, other than Company, that executes and delivers a counterpart of the Subsidiary Guaranty on the Closing Date or from time to time thereafter pursuant to subsection 5.8. "Subsidiary Guaranty" means the Subsidiary Guaranty executed and delivered by all Subsidiaries of Holdings (other than Company and the Excluded Subsidiaries) on the Closing Date and to be executed and delivered by additional Subsidiaries of Holdings from time to time thereafter in accordance with subsection 5.8, substantially in the form of Exhibit XVII ------------ annexed hereto, as such Subsidiary Guaranty may hereafter be amended, supplemented or otherwise modified from time to time as permitted thereunder and hereunder. "Subsidiary Patent and Trademark Security Agreement" means each Subsidiary Patent and Trademark Security Agreement executed and delivered by each existing Subsidiary Guarantor and Collateral Agent on the Closing Date and executed and delivered by any additional Subsidiary Guarantor from time to time thereafter in accordance with subsection 5.8, substantially in the form of Exhibit XX annexed hereto, as such Subsidiary Patent and ---------- Trademark Security Agreement may be amended, supplemented or otherwise modified from time to time as permitted thereunder and hereunder. "Subsidiary Pledge Agreement" means the Subsidiary Pledge Agreement executed and delivered by each existing Subsidiary Guarantor and Collateral Agent on the Closing Date and executed and delivered by any additional Subsidiary Guarantor from time to time thereafter in accordance with subsection 5.8, substantially in the form of Exhibit XVIII annexed hereto, ------------- as such Subsidiary Pledge Agreement may be amended, supplemented or otherwise modified from time to time as permitted thereunder and hereunder. "Subsidiary Security Agreement" means the Subsidiary Security Agreement executed and delivered by each existing Subsidiary Guarantor and Collateral Agent on the Closing Date or executed and delivered by any additional Subsidiary Guarantor from time to time thereafter in accordance with subsection 5.8, substantially in the form of Exhibit XIX annexed ----------- hereto, as such Subsidiary Security Agreement may be amended, supplemented or otherwise modified from time to time as permitted thereunder and hereunder. "Supplemental Collateral Agent" has the meaning assigned to that term in subsection 8.1D. 46 "Syndication Agent" has the meaning assigned to that term in the introduction to this Agreement. "Tax" or "Taxes" means any present or future tax, levy, impost, duty, charge, fee, deduction or withholding of any nature and whatever called, by whomsoever, on whomsoever and wherever imposed, levied, collected, withheld or assessed; provided that "Tax on the overall net -------- income" of a Person shall be construed as a reference to a tax imposed by the jurisdiction in which that Person is organized or in which that Person's principal office (and/or, in the case of a Lender, its lending office) is located or in which that Person (and/or, in the case of a Lender, its lending office) is deemed to be doing business on all or part of the net income, profits or gains (whether worldwide, or only insofar as such income, profits or gains are considered to arise in or to relate to a particular jurisdiction, or otherwise) of that Person (and/or, in the case of a Lender, its lending office). "Tax Allocation Agreement" means that certain tax allocation agreement entered into by Company and the other Persons named therein, dated as of December 18, 1997. "Title Company" means, collectively, Chicago Title Insurance Company and/or one or more other title insurance companies reasonably satisfactory to Syndication Agent and Administrative Agent. "Tranche A Term Loans" means the senior secured term loans made as Tranche A Term Loans under the Revolving Credit Agreement, in the initial aggregate principal amount of $120,000,000. "Transaction Costs" means the fees, costs and expenses payable by Holdings and Company in connection with the transactions contemplated by the Loan Documents, the Revolving Credit Documents and the Related Agreements. "UCC" means the Uniform Commercial Code (or any similar or equivalent legislation) as in effect in any applicable jurisdiction. "Unrestricted Subsidiary" means any Subsidiary that is designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a resolution of the Board of Directors, 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 Company or any Restricted Subsidiary of Company unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to Company or such Restricted Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of Company; (c) is a Person with respect to which neither 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 47 credit support for any Indebtedness of 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 Company or any of its Restricted Subsidiaries and has at least one executive officer that is not a director or executive officer of Company or any of its Restricted Subsidiaries. Any such designation by the Board of Directors shall be evidenced to Administrative Agent by filing with the Administrative Agent a certified copy of the resolution of the Board of Directors giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing conditions and was permitted by subsection 6.1. 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 this Agreement and any Indebtedness of such Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of Company as of such date (and, if such Indebtedness is not permitted to be incurred as of such date under subsection 6.1, Company shall be in default of such covenant). The Board of Directors 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 Company of any outstanding Indebtedness of such Unrestricted Subsidiary and such designation shall only be permitted if (i) such Indebtedness is permitted under subsection 6.1, 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 comply with subsection 6.8 and (iii) no Potential Event of Default or Event of Default would be in existence following such designation. "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. "Year 2000 Expenditures" means expenditures related to addressing Holdings' and its Subsidiaries' Year 2000 Manbase software systems issues. 48 "Zell" means Zell/Chilmark Fund, L.P. 1.2 Accounting Terms; Utilization of GAAP for Purposes of Calculations Under ------------------------------------------------------------------------ Agreement. --------- Except as otherwise expressly provided in this Agreement, all accounting terms not otherwise defined herein shall have the meanings assigned to them in conformity with GAAP. Financial statements and other information required to be delivered by Company to Lenders pursuant to clauses (i), (ii), (iii) and (xiii) of subsection 5.1 shall be prepared in accordance with GAAP as in effect at the time of such preparation (and delivered together with the reconciliation statements provided for in subsection 5.1(v)). Calculations in connection with the definitions, covenants and other provisions of this Agreement shall utilize accounting principles and policies in conformity with those used to prepare the financial statements referred to in subsection 4.3. Notwithstanding the foregoing, except as otherwise specifically provided herein, all computations determining compliance with subsection 2.4 and Section 7, including the definitions used therein, shall utilize accounting principles and policies in effect at the time of the preparation of, and in conformity with those used to prepare, the November 30, 1996 financial statements of Holdings and its Subsidiaries delivered to the Lenders, but shall not give effect to purchase accounting adjustments required or permitted by APB 16 and its interpretations (including non-cash write-ups and non-cash charges relating to inventory, fixed assets and in-process research and development, in each case arising in connection with any Permitted Acquisitions) and APB 17 and its interpretations (including non-cash charges relating to intangibles and goodwill arising in connection with any Permitted Acquisitions). 1.3 Other Definitional Provisions and Rules of Construction. ------------------------------------------------------- A. Any of the terms defined herein may, unless the context otherwise requires, be used in the singular or the plural, depending on the reference. B. References to "Sections" and "subsections" shall be to Sections and subsections, respectively, of this Agreement unless otherwise specifically provided. C. The use herein of the word "include" or "including", when following any general statement, term or matter, shall not be construed to limit such statement, term or matter to the specific items or matters set forth immediately following such word or to similar items or matters, whether or not nonlimiting language (such as "without limitation" or "but not limited to" or words of similar import) is used with reference thereto, but rather shall be deemed to refer to all other items or matters that fall within the broadest possible scope of such general statement, term or matter. D. Each reference to a "Fiscal Quarter period" of a specified number of Fiscal Quarters shall be a reference to a period of consecutive Fiscal Quarters of such number. 1.4 Changes in GAAP. --------------- 49 In the event that a change in GAAP or other accounting principles and policies after the date hereof affects in any material respect the calculations of the compliance by Holdings and its Subsidiaries with the covenants contained herein, Lenders, Company and Holdings agree to negotiate in good faith to amend the affected covenants (and related definitions) to compensate for the effect of such changes so that the restrictions, limitations and performance standards effectively imposed by such covenants, as so amended, are substantially identical to the restrictions, limitations and performance standards imposed by such covenants as in effect on the date hereof; provided that if Requisite -------- Lenders, Company and Holdings fail to reach agreement with respect to such amendment within a reasonable period of time following the date of effectiveness of any such change, calculation of compliance by Holdings and its Subsidiaries with the covenants contained herein shall be determined in accordance with GAAP as in effect immediately prior to such change. SECTION 2. AMOUNTS AND TERMS OF COMMITMENTS AND LOANS 2.1 Commitments; Making of Loans; the Register; Notes. ------------------------------------------------- A. Commitments. Subject to the terms and conditions of this Agreement and in reliance upon the representations and warranties of Holdings and Company herein set forth, each Lender hereby severally agrees to make the Loans described in subsections 2.1A(i), 2.1A(ii) and 2.1A(iii). (i) AXELs Series B. Each Lender severally agrees to lend to Company -------------- on the Closing Date an amount not exceeding its Pro Rata Share of the aggregate amount of the AXEL Series B Commitments to be used for the purposes identified in subsection 2.5A. The amount of each Lender"s AXEL Series B Commitment is set forth opposite its name on Schedule 2.1 annexed ------------ hereto and the aggregate amount of the AXEL Series B Commitments is $125,000,000; provided that the AXEL Series B Commitments of Lenders shall -------- be adjusted to give effect to any assignments of the AXEL Series B Commitments pursuant to subsection 9.1B. Each Lender's AXEL Series B Commitment shall expire immediately and without further action on February 16, 1998 if the AXELs Series B are not made on or before that date. Company may make only one borrowing under the AXEL Series B Commitments. Amounts borrowed under this subsection 2.1A(i) and subsequently repaid or prepaid may not be reborrowed. (ii) AXELs Series C. Each Lender severally agrees to lend to Company -------------- on the Closing Date an amount not exceeding its Pro Rata Share of the aggregate amount of the AXEL Series C Commitments to be used for the purposes identified in subsection 2.5A. The amount of each Lender's AXEL Series C Commitment is set forth opposite its name on Schedule 2.1 annexed ------------ hereto and the aggregate amount of the AXEL Series C Commitments is $90,000,000; provided that the AXEL Series C Commitments of Lenders shall -------- be adjusted to give effect to any assignments of the AXEL Series C Commitments pursuant to subsection 9.1B. Each Lender's AXEL Series C Commitment 50 shall expire immediately and without further action on February 16, 1998 if the AXELs Series C are not made on or before that date. Company may make only one borrowing under the AXEL Series C Commitments. Amounts borrowed under this subsection 2.1A(ii) and subsequently repaid or prepaid may not be reborrowed. (iii) AXELs Series D. Each Lender severally agrees to lend to -------------- Company on the Closing Date an amount not exceeding its Pro Rata Share of the aggregate amount of the AXEL Series D Commitments to be used for the purposes identified in subsection 2.5A. The amount of each Lender's AXEL Series D Commitment is set forth opposite its name on Schedule 2.1 annexed ------------ hereto and the aggregate amount of the AXEL Series D Commitments is $115,000,000; provided that the AXEL Series D Commitments of Lenders shall -------- be adjusted to give effect to any assignments of the AXEL Series D Commitments pursuant to subsection 9.1B. Each Lender's AXEL Series D Commitment shall expire immediately and without further action on February 16, 1998 if the AXELs Series D are not made on or before that date. Company may make only one borrowing under the AXEL Series D Commitments. Amounts borrowed under this subsection 2.1A(iii) and subsequently repaid or prepaid may not be reborrowed. B. Borrowing Mechanics. Loans shall be in an aggregate minimum amount of $500,000 and integral multiples of $100,000 in excess of that amount; provided -------- that Loans made as Eurodollar Rate Loans with a particular Interest Period shall be in an aggregate minimum amount of $1,000,000 and integral multiples of $100,000 in excess of that amount. Company shall deliver to Administrative Agent a Notice of Borrowing no later than 12:00 Noon (New York City time) at least three Business Days in advance of the proposed Closing Date. The Notice of Borrowing shall specify (i) the proposed Closing Date (which shall be a Business Day), (ii) the amount of each type of Loan requested, (iii) whether such Loans shall be Base Rate Loans or Eurodollar Rate Loans, and (iv) in the case of any Loans requested to be made as Eurodollar Rate Loans, the initial Interest Period requested therefor. Loans may be continued as or converted into Base Rate Loans and Eurodollar Rate Loans in the manner provided in subsection 2.2D. In lieu of delivering the above-described Notice of Borrowing, Company may give Administrative Agent telephonic notice by the required time of the proposed borrowing under this subsection 2.1B; provided that such notice shall -------- be promptly confirmed in writing by delivery of a Notice of Borrowing to Administrative Agent on or before the Closing Date. Neither Administrative Agent nor any Lender shall incur any liability to Company in acting upon any telephonic notice referred to above that Administrative Agent believes in good faith to have been given by a duly authorized officer or other person authorized to borrow on behalf of Company or for otherwise acting in good faith under this subsection 2.1B, and upon funding of Loans by Lenders in accordance with this Agreement pursuant to any such telephonic notice Company shall have effected Loans hereunder. Company shall notify Administrative Agent prior to the funding of the Loans in the event that any of the matters to which Company is required to certify in the applicable Notice of Borrowing is no longer true and correct as of the Closing Date, and the acceptance by Company 51 of the proceeds of any Loans shall constitute a re-certification by Company, as of the Closing Date, as to the matters to which Company is required to certify in the Notice of Borrowing. Except as otherwise provided in subsections 2.6B, 2.6C and 2.6G, a Notice of Borrowing for a Eurodollar Rate Loan (or telephonic notice in lieu thereof) shall be irrevocable on and after the related Interest Rate Determination Date, and Company shall be bound to make a borrowing in accordance therewith. C. Disbursement of Funds. All Loans under this Agreement shall be made by Lenders simultaneously and proportionately to their respective Pro Rata Shares, it being under stood that no Lender shall be responsible for any default by any other Lender in that other Lender's obligation to make a Loan requested hereunder nor shall the Commitment of any Lender to make the particular type of Loan requested be increased or decreased as a result of a default by any other Lender in that other Lender's obligation to make a Loan requested hereun der. Promptly after receipt by Administrative Agent of the Notice of Borrowing pursuant to subsection 2.1B (or telephonic notice in lieu thereof), Administrative Agent shall notify each Lender of the proposed borrowing. Each Lender shall make the amount of its Loan available to Administrative Agent not later than 1:00 P.M. (New York City time) on the Closing Date, in same day funds in Dollars, at the Funding and Payment Office. Upon satisfaction or waiver of the conditions precedent specified in subsection 3.1, Administrative Agent shall make the proceeds of such Loans available to Company on the Closing Date by causing an amount of same day funds in Dollars equal to the proceeds of all such Loans received by Administrative Agent from Lenders, to be credited to the account of Company at the Funding and Payment Office. Unless Administrative Agent shall have been notified by any Lender prior to the Closing Date that such Lender does not intend to make available to Administrative Agent the amount of such Lender's Loan requested on the Closing Date, Administrative Agent may assume that such Lender has made such amount available to Administrative Agent on the Closing Date and Administrative Agent may, in its sole discretion, but shall not be obligated to, make available to Company a corresponding amount on the Closing Date. If such corresponding amount is not in fact made available to Administrative Agent by such Lender, Administrative Agent shall be entitled to recover such corresponding amount on demand from such Lender together with interest thereon, for each day from the Closing Date until the date such amount is paid to Administrative Agent, at the customary rate set by Administrative Agent for the correction of errors among banks for three Business Days and thereafter at the Base Rate. If such Lender does not pay such corresponding amount forthwith upon Administrative Agent's demand therefor, Administrative Agent shall promptly notify Company and Company shall immediately pay such corresponding amount to Administrative Agent together with interest thereon, for each day from the Closing Date until the date such amount is paid to Administrative Agent, at the rate payable under this Agreement for Base Rate Loans. Nothing in this subsection 2.1C shall be deemed to relieve any Lender from its obligation to fulfill its Commitments hereunder or to prejudice any rights that Company may have against any Lender as a result of any default by such Lender hereunder. 52 D. The Register. (i) Administrative Agent shall maintain, at its address referred to in subsection 9.8, a register for the recordation of the names and addresses of Lenders and the Commitments and Loans of each Lender from time to time (the "Register"). The Register shall be available for inspection by Company or any Lender at any reasonable time and from time to time upon reasonable prior notice. (ii) Administrative Agent shall record in the Register the AXEL Series B Commitment, AXEL Series C Commitment and AXEL Series D Commitment and the AXEL Series B, AXEL Series C, AXEL Series D from time to time of each Lender, and each repayment or prepayment in respect of the principal amount of the AXEL Series B, AXEL Series C or AXEL Series D of each Lender. Any such recordation shall be conclusive and binding on Company and each Lender, absent manifest error; provided that failure to make any such -------- recordation, or any error in such recordation, shall not affect any Lender's Commitments or Company's Obligations in respect of any applicable Loans. (iii) Each Lender shall record on its internal records (including the Notes held by such Lender) the amount of any AXEL Series B, AXEL Series C and AXEL Series D made by it and each payment in respect thereof. Any such recordation shall be conclusive and binding on Company, absent manifest error; provided that failure to make any such recordation, or any -------- error in such recordation, shall not affect any Lender's Commitments or Company's Obligations in respect of any applicable Loans; and provided, -------- further that in the event of any inconsistency between the Register and any ------- Lender's records, the recordations in the Register shall govern and be conclusive and binding on such Lender, absent manifest error. (iv) Company, Administrative Agent and Lenders shall deem and treat the Persons listed as Lenders in the Register as the holders and owners of the corresponding Commitments and Loans listed therein for all purposes hereof, and no assignment or transfer of any such Commitment or Loan shall be effective, in each case unless and until an Assignment Agreement effecting the assignment or transfer thereof shall have been accepted by Administrative Agent and recorded in the Register as provided in subsection 9.1B(ii). Prior to such recordation, all amounts owed with respect to the applicable Commitment or Loan shall be owed to the Lender listed in the Register as the owner thereof, and any request, authority or consent of any Person who, at the time of making such request or giving such authority or consent, is listed in the Register as a Lender shall be conclusive and binding on any subsequent holder, assignee or transferee of the corresponding Commitments or Loans. (v) Company hereby designates Morgan Guaranty to serve as Company's agent solely for purposes of maintaining the Register as provided in this subsection 2.1D, and Company hereby agrees that, to the extent Morgan Guaranty serves in such capacity, 53 Morgan Guaranty and its officers, directors, employees, agents and affiliates shall constitute Indemnitees for all purposes under subsection 9.3. E. Optional Notes. If so requested by any Lender by written notice to Company (with a copy to Administrative Agent) at least two Business Days prior to the Closing Date or at any time thereafter, Company shall execute and deliver to such Lender (and/or, if applicable and if so specified in such notice, to any Person who is an assignee of such Lender pursuant to subsection 9.1) on the Closing Date (or, if such notice is delivered after the Closing Date, promptly after Company's receipt of such notice) a promissory note or promissory notes to evidence such Lender's AXEL Series B, AXEL Series C or AXEL Series D, substantially in the form of Exhibit IV, Exhibit V or Exhibit VI annexed hereto, ---------- --------- ---------- respectively, with appropriate insertions. 2.2 Interest on the Loans. --------------------- A. Rate of Interest. Subject to the provisions of subsections 2.6 and 2.7, each Loan shall bear interest on the unpaid principal amount thereof from the date made through maturity (whether by acceleration or otherwise) at a rate determined by reference to the Base Rate or the Adjusted Eurodollar Rate. The basis for determining the interest rate with respect to any Loan may be changed from time to time pursuant to subsection 2.2D. If on any day a Loan is outstanding with respect to which notice has not been delivered to Administrative Agent in accordance with the terms of this Agreement specifying the applicable basis for determining the rate of interest, then for that day that Loan shall bear interest determined by reference to the Base Rate. (i) Subject to the provisions of subsections 2.2E and 2.7, the AXELs Series B shall bear interest through maturity as follows: (a) if a Base Rate Loan, then at the sum of the Base Rate plus ---- the Applicable Base Rate Margin for AXELs Series B; or (b) if a Eurodollar Rate Loan, then at the sum of the Adjusted Eurodollar Rate plus the Applicable Eurodollar Rate Margin for AXELs ---- Series B. (ii) Subject to the provisions of subsections 2.2E and 2.7, the AXELs Series C shall bear interest through maturity as follows: (a) if a Base Rate Loan, then at the sum of the Base Rate plus ---- the Applicable Base Rate Margin for AXELs Series C; or (b) if a Eurodollar Rate Loan, then at the sum of the Adjusted Eurodollar Rate plus the Applicable Eurodollar Rate Margin for AXELs ---- Series C. 54 (iii) Subject to the provisions of subsections 2.2E and 2.7, the AXELs Series D shall bear interest through maturity as follows: (a) if a Base Rate Loan, then at the sum of the Base Rate plus ---- the Applicable Base Rate Margin for AXELs Series D; or (b) if a Eurodollar Rate Loan, then at the sum of the Adjusted Eurodollar Rate plus the Applicable Eurodollar Rate Margin for AXELs ---- Series D. B. Interest Periods. In connection with each Eurodollar Rate Loan, ----------------- Company may, pursuant to the applicable Notice of Borrowing or Notice of Conversion/Continuation, select an interest period (each an "Interest Period") to be applicable to such Loan, which Interest Period shall be, at Company"s option, either a one-, two-, three- or six-month period or, if deposits in the interbank Eurodollar market are generally available for such period (as determined by each Lender making, converting to or continuing such Eurodollar Rate Loan), a two-week or twelve-month period; provided that: -------- (i) the initial Interest Period for any Eurodollar Rate Loan shall commence on the Closing Date, in the case of a Loan initially made as a Eurodollar Rate Loan, or on the date specified in the applicable Notice of Conversion/Continuation, in the case of a Loan converted to a Eurodollar Rate Loan; (ii) in the case of immediately successive Interest Periods applicable to a Eurodollar Rate Loan continued as such pursuant to a Notice of Conversion/Continuation, each successive Interest Period shall commence on the day on which the next preceding Interest Period expires; (iii) if an Interest Period would otherwise expire on a day that is not a Business Day, such Interest Period shall expire on the next succeeding Business Day; provided that, if any Interest Period would -------- otherwise expire on a day that is not a Business Day but is a day of the month after which no further Business Day occurs in such month, such Interest Period shall expire on the next preceding Business Day; (iv) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall, subject to clause (v) of this subsection 2.2B, end on the last Business Day of a calendar month; (v) no Interest Period with respect to any portion of the AXELs Series B shall extend beyond December 15, 2004, no Interest Period with respect to any portion of the AXELs Series C shall extend beyond December 15, 2005, and no Interest Period with respect to any portion of the AXELs Series D shall extend beyond December 15, 2006; 55 (vi) no Interest Period with respect to any portion of the AXELs Series B, AXELs Series C or AXELs Series D shall extend beyond a date on which Company is required to make a scheduled payment of principal of the AXELs Series B, AXELs Series C or AXELs Series D, as the case may be, unless the sum of (a) the aggregate principal amount of AXELs Series B, AXELs Series C or AXELs Series D, as the case may be, that are Base Rate Loans plus (b) the aggregate principal amount of AXELs Series B, AXELs ---- Series C or AXELs Series D as the case may be, that are Eurodollar Rate Loans with Interest Periods expiring on or before such date equals or exceeds the principal amount required to be paid on the AXELs Series B, AXELs Series C or AXELs Series D, as the case may be, on such date; (vii) Company shall not select an Interest Period of longer than one month prior to the end of the Initial Period; (viii) there shall be no more than twelve (12) Interest Periods outstanding at any time; and (ix) in the event Company fails to specify an Interest Period for any Eurodollar Rate Loan in the applicable Notice of Borrowing or Notice of Conversion/Continuation, Company shall be deemed to have selected an Interest Period of one month. C. Interest Payments. Subject to the provisions of subsection 2.2E, interest on each Loan shall be payable in arrears on and to each Interest Payment Date applicable to that Loan, upon any prepayment of that Loan (to the extent accrued on the amount being prepaid) and at maturity (including final maturity). D. Conversion or Continuation. Subject to the provisions of subsection 2.6, Company shall have the option (i) to convert at any time all or any part of its outstanding Loans equal to $500,000 and integral multiples of $100,000 in excess of that amount from Loans bearing interest at a rate determined by reference to one basis to Loans bearing interest at a rate determined by reference to an alternative basis or (ii) upon the expiration of any Interest Period applicable to a Eurodollar Rate Loan, to continue all or any portion of such Loan equal to $1,000,000 and integral multiples of $100,000 in excess of that amount as a Eurodollar Rate Loan; provided, however, that a Eurodollar Rate -------- ------- Loan may only be converted into a Base Rate Loan on the expiration date of an Interest Period applicable thereto; and provided further, however, that Loans -------- ------- ------- may not be continued as or converted to Eurodollar Rate Loans with an Interest Period longer than one month prior to the end of the Initial Period. Company shall deliver a Notice of Conversion/Continuation at any time after the Closing Date to Administrative Agent no later than 12:00 Noon (New York City time) at least one Business Day in advance of the proposed conversion date (in the case of a conversion to a Base Rate Loan) and at least three Business Days in advance of the proposed conversion/continuation date (in the case of a conversion to, or a continuation of, a Eurodollar Rate Loan). A Notice of Conversion/Continuation shall specify (i) the proposed conversion/continuation date (which shall be a Business Day), (ii) the amount and type of the Loan to be converted/continued, 56 (iii) the nature of the proposed conversion/continuation, (iv) in the case of a conversion to, or a continuation of, a Eurodollar Rate Loan, the requested Interest Period, and (v) in the case of a conversion to, or a continuation of, a Eurodollar Rate Loan, that no Potential Event of Default or Event of Default has occurred and is continuing. In lieu of delivering the above-described Notice of Conversion/Continuation, Company may give Administrative Agent telephonic notice by the required time of any proposed conversion/continuation under this subsection 2.2D; provided that such notice shall be promptly confirmed in -------- writing by delivery of a Notice of Conversion/Continuation to Administrative Agent on or before the proposed conversion/continuation date. Upon receipt of written or telephonic notice of any proposed conversion/continuation under this subsection 2.2D, Administrative Agent shall promptly transmit such notice by telefacsimile or telephone to each Lender. Neither Administrative Agent nor any Lender shall incur any liability to Company in acting upon any telephonic notice referred to above that Administrative Agent believes in good faith to have been given by a duly authorized officer or other person authorized to act on behalf of Company or for otherwise acting in good faith under this subsection 2.2D, and upon conversion or continuation of the applicable basis for determining the interest rate with respect to any Loans in accordance with this Agreement pursuant to any such telephonic notice Company shall have effected a conversion or continuation, as the case may be, hereunder. Except as otherwise provided in subsections 2.6B, 2.6C and 2.6G, a Notice of Conversion/Continuation for conversion to, or continuation of, a Eurodollar Rate Loan (or telephonic notice in lieu thereof) shall be irrevocable on and after the related Interest Rate Determination Date, and Company shall be bound to effect a conversion or continuation in accordance therewith. E. Post-Maturity Interest. Any principal payments on the Loans not paid when due and, to the extent permitted by applicable law, any interest payments on the Loans or any fees or other amounts owed hereunder not paid when due, in each case whether at stated maturity, by notice of prepayment, by acceleration or otherwise, shall, if Requisite Lenders so elect in writing, thereafter bear interest (including post-petition interest in any proceeding under the Bankruptcy Code or other applicable bankruptcy laws) payable on demand at a rate which is 2% per annum in excess of the interest rate otherwise payable at maturity under this Agreement with respect to the applicable Loans (or, in the case of any such fees and other amounts, at a rate which is 2% per annum in excess of the interest rate otherwise payable under this Agreement for Base Rate Loans); provided that, in the case of Eurodollar Rate Loans, upon the expiration -------- of the Interest Period in effect at the time any such increase in interest rate is effective such Eurodollar Rate Loans shall thereupon become Base Rate Loans and shall thereafter bear interest payable upon demand at a rate which is 2% per annum in excess of the interest rate otherwise payable under this Agreement for Base Rate Loans. Payment or acceptance of the increased rates of interest provided for in this subsection 2.2E is not a permitted alternative to timely payment and shall not constitute a waiver of any Event of Default or otherwise prejudice or limit any rights or remedies of Administrative Agent or any Lender. 57 F. Computation of Interest. Interest on the Loans shall be computed (i) in the case of Base Rate Loans, on the basis of a 365-day or 366-day year, as the case may be, and (ii) in the case of Eurodollar Rate Loans, on the basis of a 360-day year, in each case for the actual number of days elapsed in the period during which it accrues. In computing interest on any Loan, the date of the making of such Loan or the first day of an Interest Period applicable to such Loan or, with respect to a Base Rate Loan being converted from a Eurodollar Rate Loan, the date of conversion of such Eurodollar Rate Loan to such Base Rate Loan, as the case may be, shall be included, and the date of payment of such Loan or the expiration date of an Interest Period applicable to such Loan or, with respect to a Base Rate Loan being converted to a Eurodollar Rate Loan, the date of conversion of such Base Rate Loan to such Eurodollar Rate Loan, as the case may be, shall be excluded; provided that if a Loan is repaid on the same -------- day on which it is made, one day's interest shall be paid on that Loan. 2.3 Fees. ---- Company agrees to pay to Syndication Agent and Administrative Agent such fees in the amounts and at the times separately agreed upon between Company, Syndication Agent and Administrative Agent. 2.4 Repayments and Prepayments; General Provisions Regarding Payments; ------------------------------------------------------------------ Application of Proceeds of Collateral and Payments Under Guaranties. ------------------------------------------------------------------- A. Scheduled Payments of Loans. (i) Scheduled Payments of AXELs Series B. Company shall make ------------------------------------ principal payments on the AXELs Series B in installments on the dates and in the amounts set forth below:
========================================= SCHEDULED REPAYMENT DATE OF AXELS SERIES B ================================================== March 15, 1998 $ 150,000 -------------------------------------------------- June 15, 1998 $ 150,000 -------------------------------------------------- September 15, 1998 $ 150,000 -------------------------------------------------- December 15, 1998 $ 150,000 -------------------------------------------------- March 15, 1999 $ 150,000 -------------------------------------------------- June 15, 1999 $ 150,000 -------------------------------------------------- September 15, 1999 $ 150,000 -------------------------------------------------- December 15, 1999 $ 150,000 -------------------------------------------------- March 15, 2000 $ 150,000 -------------------------------------------------- June 15, 2000 $ 150,000 --------------------------------------------------
58
================================================== SCHEDULED REPAYMENT DATE OF AXELS SERIES B September 15, 2000 $ 150,000 ================================================== December 15, 2000 $ 150,000 -------------------------------------------------- March 15, 2001 $ 150,000 -------------------------------------------------- June 15, 2001 $ 150,000 -------------------------------------------------- September 15, 2001 $ 150,000 -------------------------------------------------- December 15, 2001 $ 150,000 -------------------------------------------------- March 15, 2002 $ 150,000 -------------------------------------------------- June 15, 2002 $ 150,000 -------------------------------------------------- September 15, 2002 $ 150,000 -------------------------------------------------- December 15, 2002 $ 150,000 -------------------------------------------------- March 15, 2003 $ 7,500,000 -------------------------------------------------- June 15, 2003 $ 7,500,000 -------------------------------------------------- September 15, 2003 $ 7,500,000 -------------------------------------------------- December 15, 2003 $ 7,500,000 -------------------------------------------------- March 15, 2004 $23,000,000 -------------------------------------------------- June 15, 2004 $23,000,000 -------------------------------------------------- September 15, 2004 $23,000,000 -------------------------------------------------- December 15, 2004 $23,000,000 ==================================================
; provided that the scheduled installments of principal of the AXELs Series -------- B set forth above shall be reduced in connection with any voluntary or mandatory prepayments of the AXELs Series B in accordance with subsection 2.4B(iii); and provided, further that the AXELs Series B and all other -------- ------- amounts owed hereunder with respect to the AXELs Series B shall be paid in full no later than December 15, 2004, and the final installment payable by Company in respect of the AXELs Series B on such date shall be in an amount, if such amount is different from that specified above, sufficient to repay all amounts owing by Company under this Agreement with respect to the AXELs Series B. (ii) Scheduled Payments of AXELs Series C. Company shall make ------------------------------------ principal payments on the AXELs Series C in installments on the dates and in the amounts set forth below: 59
================================================ SCHEDULED REPAYMENT DATE OF AXELS SERIES C ================================================ March 15, 1998 $ 100,000 ------------------------------------------------ June 15, 1998 $ 100,000 ------------------------------------------------ September 15, 1998 $ 100,000 ------------------------------------------------ December 15, 1998 $ 100,000 ------------------------------------------------ March 15, 1999 $ 100,000 ------------------------------------------------ June 15, 1999 $ 100,000 ------------------------------------------------ September 15, 1999 $ 100,000 ------------------------------------------------ December 15, 1999 $ 100,000 ------------------------------------------------ March 15, 2000 $ 100,000 ------------------------------------------------ June 15, 2000 $ 100,000 ------------------------------------------------ September 15, 2000 $ 100,000 ------------------------------------------------ December 15, 2000 $ 100,000 ------------------------------------------------ March 15, 2001 $ 100,000 ------------------------------------------------ June 15, 2001 $ 100,000 ------------------------------------------------ September 15, 2001 $ 100,000 ------------------------------------------------ December 15, 2001 $ 100,000 ------------------------------------------------ March 15, 2002 $ 100,000 ------------------------------------------------ June 15, 2002 $ 100,000 ------------------------------------------------ September 15, 2002 $ 100,000 ------------------------------------------------ December 15, 2002 $ 100,000 ------------------------------------------------ March 15, 2003 $ 100,000 ------------------------------------------------ June 15, 2003 $ 100,000 ------------------------------------------------ September 15, 2003 $ 100,000 ------------------------------------------------ December 15, 2003 $ 100,000 ------------------------------------------------ March 15, 2004 $ 100,000 ------------------------------------------------ June 15, 2004 $ 100,000 ------------------------------------------------ September 15, 2004 $ 100,000 ------------------------------------------------ December 15, 2004 $ 100,000 ------------------------------------------------ March 15, 2005 $21,800,000 ------------------------------------------------ June 15, 2005 $21,800,000 ------------------------------------------------ September 15, 2005 $21,800,000 ------------------------------------------------
60
================================================== SCHEDULED REPAYMENT DATE IF AXELS SERIES C ================================================== December 15, 2005 $21,800,000 ==================================================
; provided that the scheduled installments of principal of the AXELs Series -------- C set forth above shall be reduced in connection with any voluntary or mandatory prepayments of the AXELs Series C in accordance with subsection 2.4B(iii); and provided, further that the AXELs Series C and all other -------- ------- amounts owed hereunder with respect to the AXELs Series C shall be paid in full no later than December 15, 2005, and the final installment payable by Company in respect of the AXELs Series C on such date shall be in an amount, if such amount is different from that specified above, sufficient to repay all amounts owing by Company under this Agreement with respect to the AXELs Series C. (iii) Scheduled Payments of AXELs Series D. Company shall make ------------------------------------ principal payments on the AXELs Series D in installments on the dates and in the amounts set forth below:
================================================== SCHEDULED REPAYMENT DATE OF AXELS SERIES D ================================================== March 15, 1998 $ 125,000 -------------------------------------------------- June 15, 1998 $ 125,000 -------------------------------------------------- September 15, 1998 $ 125,000 -------------------------------------------------- December 15, 1998 $ 125,000 -------------------------------------------------- March 15, 1999 $ 125,000 -------------------------------------------------- June 15, 1999 $ 125,000 -------------------------------------------------- September 15, 1999 $ 125,000 -------------------------------------------------- December 15, 1999 $ 125,000 -------------------------------------------------- March 15, 2000 $ 125,000 -------------------------------------------------- June 15, 2000 $ 125,000 -------------------------------------------------- September 15, 2000 $ 125,000 -------------------------------------------------- December 15, 2000 $ 125,000 -------------------------------------------------- March 15, 2001 $ 125,000 -------------------------------------------------- June 15, 2001 $ 125,000 -------------------------------------------------- September 15, 2001 $ 125,000 -------------------------------------------------- December 15, 2001 $ 125,000 -------------------------------------------------- March 15, 2002 $ 125,000 -------------------------------------------------- June 15, 2002 $ 125,000 --------------------------------------------------
61
================================================== SCHEDULED REPAYMENT DATE OF AXELS SERIES D ================================================== September 15, 2002 $ 125,000 -------------------------------------------------- December 15, 2002 $ 125,000 -------------------------------------------------- March 15, 2003 $ 125,000 -------------------------------------------------- June 15, 2003 $ 125,000 -------------------------------------------------- September 15, 2003 $ 125,000 -------------------------------------------------- December 15, 2003 $ 125,000 -------------------------------------------------- March 15, 2004 $ 125,000 -------------------------------------------------- June 15, 2004 $ 125,000 -------------------------------------------------- September 15, 2004 $ 125,000 -------------------------------------------------- December 15, 2004 $ 125,000 -------------------------------------------------- March 15, 2005 $ 125,000 -------------------------------------------------- June 15, 2005 $ 125,000 -------------------------------------------------- September 15, 2005 $ 125,000 -------------------------------------------------- December 15, 2005 $ 125,000 -------------------------------------------------- March 15, 2006 $27,750,000 -------------------------------------------------- June 15, 2006 $27,750,000 -------------------------------------------------- September 15, 2006 $27,750,000 -------------------------------------------------- December 15, 2006 $27,750,000 ==================================================
; provided that the scheduled installments of principal of the AXELs Series -------- D set forth above shall be reduced in connection with any voluntary or mandatory prepayments of the AXELs Series D in accordance with subsection 2.4B(iii); and provided, further that the AXELs Series D and all other -------- ------- amounts owed hereunder with respect to the AXELs Series D shall be paid in full no later than December 15, 2006, and the final installment payable by Company in respect of the AXELs Series D on such date shall be in an amount, if such amount is different from that specified above, sufficient to repay all amounts owing by Company under this Agreement with respect to the AXELs Series D. B. Prepayments. (i) Voluntary Prepayments. --------------------- (a) Notice of Prepayment. Company may, upon written or -------------------- telephonic notice on the date of prepayment, in the case of Base Rate Loans, and three Business Days prior written or telephonic notice, in the case of Eurodollar Rate Loans, in each case given to Administrative Agent by 12:00 Noon (New York 62 City time) on the date required and, if given by telephone, promptly confirmed in writing to Administrative Agent (which original written or telephonic notice Administrative Agent will promptly transmit by telefacsimile or telephone to each Lender), at any time and from time to time prepay any Loans on any Business Day in whole or in part in an aggregate minimum amount of $500,000 and integral multiples of $100,000 in excess of that amount. Notice of prepayment having been given as aforesaid, the principal amount of the Loans specified in such notice shall become due and payable on the prepayment date specified therein. Any such voluntary prepayment shall be applied as specified in subsection 2.4B(iii). (b) Prepayment Fees. If any portion of the AXELs Series B, --------------- AXELs Series C or AXELs Series D is prepaid (1) pursuant to clause (a) of subsection 2.4B(i), or (2) pursuant to clause (a), (b), (c), (d), (e) or (g) of subsection 2.4B(ii), in any such case within eighteen months after the Closing Date, Company shall pay to Administrative Agent, for distribution to the holders of the Loans so prepaid, in accordance with their applicable Pro Rata Shares, a fee equal to 1% of the principal amount of Loans so prepaid during the period commencing on the Closing Date and ending eighteen months after the Closing Date. (ii) Mandatory Prepayments. The Loans shall be prepaid in the --------------------- amounts and under the circumstances set forth below, all such prepayments to be applied as set forth below or as more specifically provided in subsection 2.4B(iii). (a) Prepayments From Net Asset Sale Proceeds. No later than ---------------------------------------- the fifth Business Day following the date of receipt by Company or any of its Subsidiaries of any Net Asset Sale Proceeds in respect of any Asset Sale, Company shall prepay the Loans in an aggregate amount equal to such Net Asset Sale Proceeds; provided, however, that upon -------- ------- receipt by Company or any of its Subsidiaries of any such Net Asset Sale Proceeds, so long as no Event of Default shall have occurred and be continuing and to the extent that the aggregate amount of Net Asset Sale Proceeds and Net Insurance/Condemnation Proceeds from the Closing Date through the date of determination does not exceed $25,000,000, Company may deliver to Administrative Agent an Officers' Certificate setting forth (1) that portion of such Net Asset Sale Proceeds (such portion being the "Proposed Asset Sale Reinvestment Proceeds") that Company or such Subsidiary intends to reinvest (or enter into a contract to reinvest) in equipment or other productive assets of the general type used in the business (including capital stock of a corporation engaged in such business) of Company and its Subsidiaries (such equipment and other assets being "Eligible Assets") within 270 days of such date of receipt and (2) the proposed use of such Proposed Asset Sale Reinvestment Proceeds and such other information with respect to such reinvestment as Administrative Agent may reasonably request, and Company shall, or shall cause one or more of its Subsidiaries to, promptly and diligently 63 apply such Proposed Asset Sale Reinvestment Proceeds to such reinvestment purposes; provided, however, that at Company's option, -------- ------- such Proposed Asset Sale Reinvestment Proceeds may be applied to prepay outstanding Revolving Loans (without a reduction in Revolving Loan Commitments) to the full extent thereof. In addition, Company shall, no later than 270 days after receipt of such Proposed Asset Sale Reinvestment Proceeds that have not theretofore been applied to the Obligations, make an additional prepayment of the Loans in the full amount of all such Proposed Asset Sale Reinvestment Proceeds that have not theretofore been so reinvested in Eligible Assets; provided -------- that Company shall not be required to make any prepayment of the Loans to the extent that the sum of Net Asset Sale Proceeds plus Net ---- Insurance/Condemnation Proceeds from the Closing Date through the date of determination does not exceed $5,000,000. Notwithstanding the foregoing, if at the time of any required prepayment under this subsection the Leverage Ratio is not more than 4.0 to 1.0, Company shall only be required to prepay 75% of the amount which it would otherwise be required to prepay hereunder; provided, however, that if -------- ------- Company is required to apply any portion of Net Asset Sale Proceeds to prepay Indebtedness under the Revolving Credit Agreement or the Senior Subordinated Notes or the Discount Notes (under the terms of the New Sub Debt Indentures), then notwithstanding anything contained in this Agreement to the contrary (but subject to subsection 2.4B(iii)(c) hereof), Company shall apply such Net Asset Sale Proceeds to the prepayment of the Tranche A Term Loans and the Loans pro rata according to the respective outstanding principal amount, if any, of each, then to the prepayment of Revolving Loans and/or the reduction of Revolving Loan Commitments in accordance with the provisions of the Revolving Credit Agreement, in each case so as to eliminate or minimize any obligation to prepay any such Indebtedness evidenced by the Senior Subordinated Notes or the Discount Notes. (b) Prepayments from Net Insurance/Condemnation Proceeds. No ---------------------------------------------------- later than the tenth Business Day following the date of receipt by Administrative Agent or by Company or any of its Subsidiaries of any Net Insurance/Condemnation Proceeds that are required to be applied to prepay the Loans pursuant to the provisions of subsection 5.4C, Company shall prepay the Loans in an aggregate amount equal to the amount of such Net Insurance/Condemnation Proceeds minus (if (1) no ----- Event of Default shall have occurred and be continuing and (2) Company shall have delivered to Administrative Agent, on or before such tenth Business Day, the Officers' Certificate described in subsection 5.4C(ii)), any Proposed Insurance Reinvestment Proceeds; provided, -------- however, that at Company's option, such Proposed Insurance ------- Reinvestment Proceeds may be applied to prepay outstanding Revolving Loans (without a reduction in Revolving Loan Commitments) to the full extent thereof. In addition, no later than 270 days after receipt of any Proposed Insurance Reinvestment Proceeds, Company shall prepay the Loans in an amount equal to the amount of any such Proposed Insurance Reinvestment Proceeds that have not theretofore been applied to the costs of repairing, restoring or replacing the applicable assets of Company or its 64 Subsidiaries or reinvested in Eligible Assets; provided that Company -------- shall not be required to make any prepayment of the Loans to the extent that the sum of Net Asset Sale Proceeds plus Net ---- Insurance/Condemnation Proceeds from the Closing Date through the date of determination does not exceed $5,000,000. Notwithstanding the foregoing, if at the time of any required prepayment under this subsection the Leverage Ratio is not more than 4.0 to 1.0, Company shall only be required to prepay 75% of the amount which it would otherwise be required to prepay hereunder; provided, however, that if -------- ------- Company is required to apply any portion of Net Insurance/Condemnation Proceeds to prepay Indebtedness under the Revolving Credit Agreement or the Senior Subordinated Notes or the Discount Notes (under the terms of the New Sub Debt Indentures), then notwithstanding anything contained in this Agreement to the contrary (but subject to subsection 2.4B(iii)(c) hereof), Company shall apply such Net Insurance/Condemnation Proceeds to the prepayment of the Tranche A Term Loans and the Loans pro rata according to the respective outstanding principal amount, if any, of each, then to the prepayment of Revolving Loans and/or the reduction of Revolving Loan Commitments in accordance with the provisions of the Revolving Credit Agreement, in each case so as to eliminate or minimize any obligation to prepay any such Indebtedness evidenced by the Senior Subordinated Notes or the Discount Notes. (c) Prepayments Due to Reversion of Surplus Assets of Pension --------------------------------------------------------- Plans. On the date of reversion to Company or any of its Subsidiaries ----- of any surplus assets of any pension plan of Company or any of its Subsidiaries, Company shall prepay the Loans in an aggregate amount (such amount being the "Net Pension Proceeds") equal to 100% of such returned surplus assets, net of transaction costs and expenses incurred in obtaining such return, including incremental taxes payable as a result thereof. If Company is required to apply any portion of Net Pension Proceeds to prepay Indebtedness under the Revolving Credit Agreement or the Senior Subordinated Notes or the Discount Notes (under the terms of the New Sub Debt Indentures), then notwithstanding anything contained in this Agreement to the contrary (but subject to subsection 2.4B(iii)(c) hereof), Company shall apply such Net Pension Proceeds to the prepayment of the Tranche A Term Loans and the Loans pro rata according to the respective outstanding principal amount, if any, of each, then to the prepayment of Revolving Loans and/or the reduction of Revolving Loan Commitments in accordance with the provisions of the Revolving Credit Agreement, in each case so as to eliminate or minimize any obligation to prepay any such Indebtedness evidenced by the Senior Subordinated Notes or the Discount Notes. (d) Prepayments Due to Issuance of Debt. On the date of ----------------------------------- receipt by Holdings, Company or any of their respective Subsidiaries of the Cash proceeds of any Indebtedness, including debt Securities of Holdings, Company or any of their respective Subsidiaries (other than the Loans and any other Indebtedness permitted under subsection 7.1 of the Revolving Credit Agreement (such 65 proceeds, net of underwriting discounts and commissions and other reasonable costs and expenses associated therewith, including reasonable legal fees and expenses, being the "Net Indebtedness Proceeds")), Company shall prepay the Loans in an aggregate amount equal to such Net Indebtedness Proceeds; provided, however, that -------- ------- payment or acceptance of the amounts provided for in this subsection 2.4B(ii)(d) shall not constitute a waiver of any Event of Default resulting from the incurrence of such Indebtedness or otherwise prejudice any rights or remedies of Agents or Lenders. If Company is required to apply any portion of Net Indebtedness Proceeds to prepay Indebtedness under the Revolving Credit Agreement or the Senior Subordinated Notes or the Discount Notes (under the terms of the New Sub Debt Indentures), then notwithstanding anything contained in this Agreement to the contrary (but subject to subsection 2.4B(iii)(c) hereof), Company shall apply such Net Indebtedness Proceeds to the prepayment of the Tranche A Term Loans and the Loans pro rata according to the respective outstanding principal amount, if any, of each, then to the prepayment of Revolving Loans and/or the reduction of Revolving Loan Commitments in accordance with the provisions of the Revolving Credit Agreement, in each case so as to eliminate or minimize any obligation to prepay any such Indebtedness evidenced by the Senior Subordinated Notes or the Discount Notes. (e) Prepayments Due to Issuance of Equity Securities. On the ------------------------------------------------ date of receipt by Holdings or Company of Cash proceeds (any such proceeds, net of underwriting discounts and commissions and other reasonable costs and expenses associated therewith, including reasonable legal fees and expenses, being "Net Equity Proceeds") from the issuance of any equity Securities of Holdings or Company after the Closing Date (other than (A) capital contributions by Holdings and Company, and (B) issuances of Holdings Common Stock (x) to employees, officers, directors and consultants of Holdings and its Subsidiaries to the extent such Holdings Common Stock constitutes compensation to such individuals, (y) to Bain or the Other Investors to the extent the Cash proceeds thereof are not in excess of $25,000,000, and (z) as payment of all or any portion of the purchase price of a business or assets in a Permitted Acquisition), Company shall prepay the Loans in an aggregate amount equal to: (i) 50% (or, if the Leverage Ratio is not more than 4.0 to 1.0 on the date such Net Equity Proceeds are received, 25%) of such Net Equity Proceeds if such Net Equity Proceeds are derived from a non-public sale of equity Securities of Holdings or Company or (ii) 75% (or, if the Leverage Ratio is not more than 4.0 to 1.0 on the date such Net Equity Proceeds are received, 50%) of such Net Equity Proceeds if such Net Equity Proceeds are derived from the sale of equity Securities of Holdings or Company through a public offering. If Company is required to apply any portion of Net Equity Proceeds to prepay Indebtedness under the Revolving Credit Agreement or the Senior Subordinated Notes or the Discount Notes (under the terms of the New Sub Debt Indentures), then notwithstanding anything contained in this Agreement to the contrary (but subject to subsection 2.4B(iii)(c) hereof), Company shall apply such Net Equity Proceeds to the prepayment of the Tranche 66 A Term Loans and the Loans pro rata according to the respective outstanding principal amount, if any, of each, then to the prepayment of Revolving Loans and/or the reduction of Revolving Loan Commitments in accordance with the provisions of the Revolving Credit Agreement, in each case so as to eliminate or minimize any obligation to prepay any such Indebtedness evidenced by the Senior Subordinated Notes or the Discount Notes. (f) Prepayments from Consolidated Excess Cash Flow. In the ---------------------------------------------- event that there shall be Consolidated Excess Cash Flow for any Fiscal Year (commencing with Fiscal Year 1998), Company shall, no later than 90 days after the end of such Fiscal Year, prepay the Loans in an aggregate amount equal to 75% (or, if the Leverage Ratio is not more than 4.0 to 1.0 on the last day of any such Fiscal Year, 50%) of such Consolidated Excess Cash Flow. If Company is required to apply any portion of Consolidated Excess Cash Flow to prepay Indebtedness under the Revolving Credit Agreement or the Senior Subordinated Notes or the Discount Notes (under the terms of the New Sub Debt Indentures), then notwithstanding anything contained in this Agreement to the contrary (but subject to subsection 2.4B(iii)(c) hereof), Company shall apply such portion of Consolidated Excess Cash Flow first, to the prepayment ----- of the Tranche A Term Loans to the full extent thereof, and second, to ------ the Loans pro rata according to the respective outstanding principal amount, if any, of each, then to the prepayment of Revolving Loans and/or the reduction of Revolving Loan Commitments in accordance with the provisions of the Revolving Credit Agreement, in each case so as to eliminate or minimize any obligation to prepay any such Indebtedness evidenced by the Senior Subordinated Notes or the Discount Notes. (g) Calculations of Net Proceeds Amounts; Additional ------------------------------------------------ Prepayments Based on Subsequent Calculations. Concurrently with any -------------------------------------------- prepayment of the Loans pursuant to subsections 2.4B(ii)(a)-(f), Company shall deliver to Administrative Agent an Officers' Certificate demonstrating the calculation of the amount (the "Net Proceeds Amount") of the applicable Net Asset Sale Proceeds, Net Insurance/Condemnation Proceeds, Net Pension Proceeds, Net Indebtedness Proceeds or Net Equity Proceeds (as such terms are defined in subsections 2.4B(ii)(a), (b), (c), (d) and (e), respectively) or the applicable Consolidated Excess Cash Flow, as the case may be, that gave rise to such prepayment and/or reduction. In the event that Company shall subsequently determine that the actual Net Proceeds Amount was greater than the amount set forth in such Officers' Certificate, Company shall promptly make an additional prepayment of the Loans in an amount equal to the amount of such excess, and Company shall concurrently therewith deliver to Administrative Agent an Officers' Certificate demonstrating the derivation of the additional Net Proceeds Amount resulting in such excess. 67 (iii) Application of Prepayments. -------------------------- (a) Application of Voluntary Prepayments by Type of Loans and --------------------------------------------------------- Order of Maturity. Any voluntary prepayments of the Loans pursuant to ----------------- subsection 2.4B(i) shall be applied to prepay the AXELs Series B, the AXELs Series C and the AXELs Series D on a pro rata basis (in accordance with the respective outstanding principal amounts thereof) and to reduce the scheduled installments of principal of the AXELs Series B, the AXELs Series C and the AXELs Series D set forth in subsections 2.4A(i), 2.4A(ii) and 2.4A(iii) on a pro rata basis (in accordance with the respective outstanding principal amounts thereof); provided, however, that so long as any Tranche A Term Loans are -------- ------- outstanding, any prepayment of the Loans pursuant to subsection 2.4B(i) shall be applied to the repayment of the Tranche A Term Loans and the Loans on a pro rata basis according to the respective outstanding principal amounts thereof. (b) Application of Mandatory Prepayments of Loans to AXELs ------------------------------------------------------ Series B, AXELs Series C and AXELs Series D and the Scheduled ------------------------------------------------------------- Installments of Principal Thereof. Any mandatory prepayments of the --------------------------------- Loans pursuant to subsection 2.4B(ii) shall be applied to prepay the AXELs Series B, the AXELs Series C and the AXELs Series D on a pro rata basis (in accordance with the respective outstanding principal amounts thereof) and shall be applied on a pro rata basis (in accordance with the respective outstanding principal amounts thereof) to each scheduled installment of principal of the AXELs Series B, the AXELs Series C or the AXELs Series D, as the case may be, set forth in subsection 2.4A(i), 2.4A(ii) or 2.4A(iii), respectively, that is unpaid at the time of such prepayment. (c) Waiver of Certain Mandatory Prepayments. Anything --------------------------------------- contained herein to the contrary notwithstanding, so long as any Tranche A Term Loans are outstanding, in the event Company is required to make any mandatory prepayment (a "Waivable Mandatory Prepayment") of the AXELs Series B, AXELs Series C and/or AXELs Series D pursuant to subsection 2.4B(ii), (X) not less than three Business Days prior to the date (the "Required Prepayment Date") on which Company is required to make such Waivable Mandatory Prepayment, Company shall notify Administrative Agent of the amount of such prepayment, and Administrative Agent will promptly thereafter notify each Lender holding an outstanding AXEL Series B, AXEL Series C or AXEL Series D of the amount of such Lender's Pro Rata Share of such Waivable Mandatory Prepayment and such Lender's option to refuse such amount, (Y) each such Lender may exercise such option by giving written notice to Company and Administrative Agent of its election to do so on or before the first Business Day (the "Cutoff Date") prior to the Required Prepayment Date (it being understood that any Lender which does not notify Company and Administrative Agent of its election to exercise such option on or before the Cutoff Date shall be deemed to have elected, as of the Cutoff Date, not to exercise such option), and (Z) on the 68 Required Prepayment Date, Company shall pay to Administrative Agent the amount of the Waivable Mandatory Prepayment, which amount shall be applied (1) in an amount equal to that portion of the Waivable Mandatory Prepayment payable to those Lenders that have elected not to exercise such option, to prepay the AXELs Series B, AXELs Series C and/or AXELs Series D of such Lenders (which prepayment shall be applied to the scheduled installments of principal of the AXELs Series B, AXELs Series C and AXELs Series D in accordance with subsection 2.4B(iii)(b)) and (2) in an amount equal to that portion of the Waivable Mandatory Prepayment otherwise payable to those Lenders that have elected to exercise such option, to prepay the Tranche A Term Loans in accordance with the terms of the Revolving Credit Agreement. (d) Application of Prepayments to Base Rate Loans and ------------------------------------------------- Eurodollar Rate Loans. Considering AXELs Series B, AXELs Series C and --------------------- AXELs Series D being prepaid separately, any prepayment thereof shall be applied first to Base Rate Loans to the full extent thereof before application to Eurodollar Rate Loans, in each case in a manner which minimizes the amount of any payments required to be made by Company pursuant to subsection 2.6D. C. General Provisions Regarding Payments. (i) Manner and Time of Payment. All payments by Company of -------------------------- principal, interest, fees and other Obligations hereunder and under the Notes shall be made in Dollars in same day funds, without defense, setoff or counterclaim, free of any restriction or condition, and delivered to Administrative Agent not later than 1:00 P.M. (New York City time) on the date due at the Funding and Payment Office for the account of Lenders; funds received by Administrative Agent after that time on such due date shall be deemed to have been paid by Company on the next succeeding Business Day. Company hereby authorizes Administrative Agent to charge its accounts with Administrative Agent in order to cause timely payment to be made to Administrative Agent of all principal, interest, fees and expenses due hereunder (subject to sufficient funds being available in its accounts for that purpose). (ii) Application of Payments to Principal and Interest. All ------------------------------------------------- payments in respect of the principal amount of any Loan shall include payment of accrued interest on the principal amount being repaid or prepaid, and all such payments (and, in any event, any payments in respect of any Loan on a date when interest is due and payable with respect to such Loan) shall be applied to the payment of interest before application to principal. (iii) Apportionment of Payments. Aggregate principal and interest ------------------------- payments in respect of the Loans shall be apportioned among all outstanding Loans to which such payments relate, in each case proportionately to Lenders' respective Pro Rata Shares. Administrative Agent shall promptly distribute to each Lender, at its primary address set forth below its name on the appropriate signature page hereof or at such other address as such Lender may request, its Pro Rata Share of all such payments received by 69 Administrative Agent and the commitment fees of such Lender when received by Administrative Agent pursuant to subsection 2.3. Notwithstanding the foregoing provisions of this subsection 2.4C(iii), if, pursuant to the provisions of subsection 2.6C, any Notice of Conversion/Continuation is withdrawn as to any Affected Lender or if any Affected Lender makes Base Rate Loans in lieu of its Pro Rata Share of any Eurodollar Rate Loans, Administrative Agent shall give effect thereto in apportioning payments received thereafter. (iv) Payments on Business Days. Whenever any payment to be made ------------------------- hereunder shall be stated to be due on a day that 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 hereunder or of the commitment fees hereunder, as the case may be. (v) Notation of Payment. Each Lender agrees that before disposing ------------------- of any Note held by it, or any part thereof (other than by granting participations therein), that Lender will make a notation thereon of all Loans evidenced by that Note and all principal payments previously made thereon and of the date to which interest thereon has been paid; provided -------- that the failure to make (or any error in the making of) a notation of any Loan made under such Note shall not limit or otherwise affect the obligations of Company hereunder or under such Note with respect to any Loan or any payments of principal or interest on such Note. D. Application of Proceeds of Collateral and Payments Under Guaranties. (i) Application of Proceeds of Collateral. Except as provided in ------------------------------------- subsections 2.4B(ii)(a) and 2.4B(ii)(b) with respect to prepayments from Net Asset Sale Proceeds and Net Insurance/Condemnation Proceeds, all proceeds received by Administrative Agent in respect of any sale of, collection from, or other realization upon all or any part of the Collateral under any Collateral Document may, in the discretion of Administrative Agent, be held by Administrative Agent as Collateral for, and/or (then or at any time thereafter) applied in full or in part by Administrative Agent against, the applicable Secured Obligations (as defined in such Collateral Document) in the following order of priority: (a) To the payment of all costs and expenses of such sale, collection or other realization, including all expenses, liabilities and advances made or incurred by Administrative Agent and its agents and counsel in connection therewith, and all amounts for which Administrative Agent is entitled to indemnification under such Collateral Document and all advances made by Administrative Agent thereunder for the account of the applicable Loan Party, and to the payment of all costs and expenses paid or incurred by Administrative Agent in connection with the exercise of any right or remedy under such Collateral Document, all in accordance with the terms of this Agreement and such Collateral Document; 70 (b) thereafter, to the extent of any excess such proceeds, to the payment of all other such Secured Obligations then due and owing for the ratable benefit of the holders thereof; and (c) thereafter, to the extent of any excess such proceeds, to the payment to or upon the order of such Loan Party or to whosoever may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct. (ii) Application of Payments Under Guaranties. All payments ---------------------------------------- received by Administrative Agent under either Guaranty shall be applied promptly from time to time by Administrative Agent in the following order of priority: (a) To the payment of the costs and expenses of any collection or other realization under such the Guaranty, including all expenses, liabilities and advances made or incurred by Administrative Agent and its agents and counsel in connection therewith, all in accordance with the terms of this Agreement and Guaranty; (b) thereafter, to the extent of any excess such payments, to the payment of all other Guarantied Obligations (as defined in such Guaranty) for the ratable benefit of the holders thereof; and (c) thereafter, to the extent of any excess such payments, to the payment to Holdings or the applicable Subsidiary Guarantor or to whosoever may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct. 2.5 Use of Proceeds. --------------- A. Recapitalization Financing Requirements. The Loans, $120,000,000 in principal amount of Tranche A Term Loans and up to $10,400,000 in aggregate principal amount of Revolving Loans made under the Revolving Credit Agreement on the Closing Date (the "Recapitalization Revolving Loans"), together with the proceeds of the debt and equity capitalization of Holdings and Company described in subsections 3.1D(i), (iii) and (iv) shall be applied by Holdings and Company to fund the Recapitalization Financing Requirements. B. Margin Regulations. No portion of the proceeds of any borrowing under this Agreement shall be used by Holdings or any of its Subsidiaries in any manner that might cause the borrowing or the application of such proceeds to violate Regulation G, Regulation U, Regulation T or Regulation X of the Board of Governors of the Federal Reserve System or any other regulation of such Board or to violate the Exchange Act, in each case as in effect on the date or dates of such borrowing and such use of proceeds. 71 2.6 Special Provisions Governing Eurodollar Rate Loans. -------------------------------------------------- Notwithstanding any other provision of this Agreement to the contrary, the following provisions shall govern with respect to Eurodollar Rate Loans as to the matters covered: A. Determination of Applicable Interest Rate. As soon as practicable after 10:00 A.M. (New York City time) on each Interest Rate Determination Date, Administrative Agent shall determine (which determination shall, absent manifest error, be final, conclusive and binding upon all parties) the interest rate that shall apply to the Eurodollar Rate Loans for which an interest rate is then being determined for the applicable Interest Period and shall promptly give notice thereof (in writing or by telephone confirmed in writing) to Company and each Lender. B. Inability to Determine Applicable Interest Rate. In the event that Administrative Agent shall have determined (which determination shall be final and conclusive and binding upon all parties hereto), on any Interest Rate Determination Date with respect to any Eurodollar Rate Loans, that by reason of circumstances affecting the interbank Eurodollar market adequate and fair means do not exist for ascertaining the interest rate applicable to such Loans on the basis provided for in the definition of Adjusted Eurodollar Rate, Administrative Agent shall on such date give notice (by telefacsimile or by telephone confirmed in writing) to Company and each Lender of such determination, whereupon (i) no Loans may be made as, or converted to, Eurodollar Rate Loans until such time as Administrative Agent notifies Company and Lenders that the circumstances giving rise to such notice no longer exist and (ii) any Notice of Conversion/Continuation given by Company with respect to the Loans in respect of which such determination was made shall be deemed to be rescinded by Company. C. Illegality or Impracticability of Eurodollar Rate Loans. In the event that on any date any Lender shall have determined (which determination shall be final and conclusive and binding upon all parties hereto but shall be made only after consultation with Company and Administrative Agent) that the making, maintaining or continuation of its Eurodollar Rate Loans (i) has become unlawful as a result of compliance by such Lender in good faith with any law, treaty, governmental rule, regulation, guideline or order (or would conflict with any such treaty, governmental rule, regulation, guideline or order not having the force of law even though the failure to comply therewith would not be unlawful) or (ii) has become impracticable, or would cause such Lender material hardship, as a result of contingencies occurring after the date of this Agreement which materially and adversely affect the interbank Eurodollar market or the position of such Lender in that market, then, and in any such event, such Lender shall be an "Affected Lender" and it shall on that day give notice (by telefacsimile or by telephone confirmed in writing) to Company and Administrative Agent of such determination (which notice Administrative Agent shall promptly transmit to each other Lender). Thereafter (a) the obligation of the Affected Lender to make Loans as, or to convert Loans to, Eurodollar Rate Loans shall be suspended until such notice shall be withdrawn by the Affected Lender, (b) to the extent such determination by the Affected Lender relates to a Eurodollar Rate Loan then being requested by Company pursuant to a Notice of Borrowing or a Notice of Conversion/Continuation, the Affected Lender shall make such Loan as (or convert such Loan to, as the case 72 may be) a Base Rate Loan, (c) the Affected Lender's obligation to maintain its outstanding Eurodollar Rate Loans (the "Affected Loans") shall be terminated at the earlier to occur of the expiration of the Interest Period then in effect with respect to the Affected Loans or when required by law, and (d) the Affected Loans shall automatically convert into Base Rate Loans on the date of such termination. Notwithstanding the foregoing, to the extent a determination by an Affected Lender as described above relates to a Eurodollar Rate Loan then being requested by Company pursuant to a Notice of Borrowing or a Notice of Conversion/Continuation, Company shall have the option, subject to the provisions of subsection 2.6D, to rescind such Notice of Borrowing or Notice of Conversion/Continuation as to all Lenders by giving notice (by telefacsimile or by telephone confirmed in writing) to Administrative Agent of such rescission on the date on which the Affected Lender gives notice of its determination as described above (which notice of rescission Administrative Agent shall promptly transmit to each other Lender). Except as provided in the immediately preceding sentence, nothing in this subsection 2.6C shall affect the obligation of any Lender other than an Affected Lender to make or maintain Loans as, or to convert Loans to, Eurodollar Rate Loans in accordance with the terms of this Agreement. D. Compensation For Breakage or Non-Commencement of Interest Periods. Company shall compensate each Lender, promptly upon written request by that Lender (which request shall set forth the basis for requesting such amounts), for all reasonable losses, expenses and liabilities (including any interest paid by that Lender to lenders of funds borrowed by it to make or carry its Eurodollar Rate Loans and any loss, expense or liability sustained by that Lender in connection with the liquidation or re-employment of such funds) which that Lender may sustain: (i) if for any reason (other than a default by that Lender) a borrowing of any Eurodollar Rate Loan does not occur on a date specified therefor in a Notice of Borrowing or a telephonic request for borrowing, or a conversion to or continuation of any Eurodollar Rate Loan does not occur on a date specified therefor in a Notice of Conversion/Continuation or a telephonic request for conversion or continuation, (ii) if any prepayment (including any prepayment pursuant to subsection 2.4B(i)) or other principal payment or any conversion of any of its Eurodollar Rate Loans occurs on a date prior to the last day of an Interest Period applicable to that Loan, (iii) if any prepayment of any of its Eurodollar Rate Loans is not made on any date specified in a notice of prepayment given by Company, or (iv) as a consequence of any other default by Company in the repayment of its Eurodollar Rate Loans when required by the terms of this Agreement. E. Booking of Eurodollar Rate Loans. Subject to its obligations under subsection 2.8, any Lender may make, carry or transfer Eurodollar Rate Loans at, to, or for the account of any of its branch offices or the office of an Affiliate of that Lender. F. Assumptions Concerning Funding of Eurodollar Rate Loans. Calculation of all amounts payable to a Lender under this subsection 2.6 and under subsection 2.7A shall be made as though that Lender had actually funded each of its relevant Eurodollar Rate Loans through the purchase of a Eurodollar deposit bearing interest at the rate obtained pursuant to clause (i) of the definition of Adjusted Eurodollar Rate in an amount equal to the amount of such Eurodollar Rate Loan and having a maturity comparable to the relevant Interest Period and 73 through the transfer of such Eurodollar deposit from an offshore office of that Lender to a domestic office of that Lender in the United States of America; provided, however, that each Lender may fund each of its Eurodollar Rate Loans - -------- ------- in any manner it sees fit and the foregoing assumptions shall be utilized only for the purposes of calculating amounts payable under this subsection 2.6 and under subsection 2.7A. G. Eurodollar Rate Loans After Default. After the occurrence of and during the continuation of an Event of Default, (i) Company may not elect to have a Loan be made or maintained as, or converted to, a Eurodollar Rate Loan after the expiration of any Interest Period then in effect for that Loan and (ii) subject to the provisions of subsection 2.6D, any Notice of Borrowing or Notice of Conversion/Continuation given by Company with respect to a requested borrowing or conversion/continuation that has not yet occurred shall be deemed to be rescinded by Company. 2.7 Increased Costs; Taxes; Capital Adequacy. ---------------------------------------- A. Compensation for Increased Costs and Taxes. Subject to the provisions of subsection 2.7B (which shall be controlling with respect to the matters covered thereby), in the event that any Lender shall determine (which determination shall, absent manifest error, be final and conclusive and binding upon all parties hereto) that any law, treaty or governmental rule, regulation or order, or any change therein or in the interpretation, administration or application thereof (including the introduction of any new law, treaty or governmental rule, regulation or order), or any determination of a court or governmental authority, in each case that becomes effective after the date hereof, or compliance by such Lender with any guideline, request or directive issued or made after the date hereof by any central bank or other governmental or quasi-governmental authority (whether or not having the force of law): (i) subjects such Lender (or its applicable lending office) to any additional Tax (other than any Tax on the overall net income of such Lender) with respect to this Agreement or any of its obligations hereunder or any payments to such Lender (or its applicable lending office) of principal, interest, fees or any other amount payable hereunder; (ii) imposes, modifies or holds applicable any reserve (including any marginal, emergency, supplemental, special or other reserve), special deposit, compulsory loan, FDIC insurance or similar requirement against assets held by, or deposits or other liabilities in or for the account of, or advances or loans by, or other credit extended by, or any other acquisition of funds by, any office of such Lender (other than any such reserve or other requirements with respect to Eurodollar Rate Loans that are reflected in the definition of Adjusted Eurodollar Rate); or (iii) imposes any other condition (other than with respect to a Tax matter) on or affecting such Lender (or its applicable lending office) or its obligations hereunder or the interbank Eurodollar market; 74 and the result of any of the foregoing is to increase the cost to such Lender of agreeing to make, making or maintaining Loans hereunder or to reduce any amount received or receivable by such Lender (or its applicable lending office) with respect thereto; then, in any such case, Company shall promptly pay to such Lender, upon receipt of the statement referred to in the next sentence, such additional amount or amounts (in the form of an increased rate of, or a different method of calculating, interest or otherwise as such Lender in its sole discretion shall determine) as may be necessary to compensate such Lender for any such increased cost or reduction in amounts received or receivable hereunder. Such Lender shall deliver to Company (with a copy to Administrative Agent) a written statement, setting forth in reasonable detail the basis for calculating the additional amounts owed to such Lender under this subsection 2.7A, which statement shall be conclusive and binding upon all parties hereto absent manifest error. B. Withholding of Taxes. (i) Payments to Be Free and Clear. All sums payable by Company ----------------------------- under this Agreement and the other Loan Documents shall (except to the extent required by law) be paid free and clear of, and without any deduction or withholding on account of, any Tax (other than a Tax on the overall net income of any Lender) imposed, levied, collected, withheld or assessed by or within the United States of America or any political subdivision in or of the United States of America or any other jurisdiction from or to which a payment is made by or on behalf of Company or by any federation or organization of which the United States of America or any such jurisdiction is a member at the time of payment. (ii) Grossing-up of Payments. If Company or any other Person is ----------------------- required by law to make any deduction or withholding on account of any such Tax from any sum paid or payable by Company to Administrative Agent or any Lender under any of the Loan Documents: (a) Company shall notify Administrative Agent of any such requirement or any change in any such requirement as soon as Company becomes aware of it; (b) Company shall pay any such Tax before the date on which penalties attach thereto, such payment to be made (if the liability to pay is imposed on Company) for its own account or (if that liability is imposed on Administrative Agent or such Lender, as the case may be) on behalf of and in the name of Administrative Agent or such Lender; (c) the sum payable by Company in respect of which the relevant deduction, withholding or payment is required shall be increased to the extent necessary to ensure that, after the making of that deduction, withholding or payment, Administrative Agent or such Lender, as the case may be, receives on the due date a net sum equal to what it would have received had no such deduction, withholding or payment been required or made; and 75 (d) within 30 days after paying any sum from which it is required by law to make any deduction or withholding, and within 30 days after the due date of payment of any Tax which it is required by clause (b) above to pay, Company shall deliver to Administrative Agent evidence satisfactory to the other affected parties of such deduction, withholding or payment and of the remittance thereof to the relevant taxing or other authority; provided that no such additional amount shall be required to be paid to any -------- Lender under clause (c) above except to the extent that any change after the date hereof (in the case of each Lender listed on the signature pages hereof) or after the date of the Assignment Agreement pursuant to which such Lender became a Lender (in the case of each other Lender) in any such requirement for a deduction, withholding or payment as is mentioned therein shall result in an increase in the rate of such deduction, withholding or payment from that in effect at the date of this Agreement or at the date of such Assignment Agreement, as the case may be, in respect of payments to such Lender. (iii) Evidence of Exemption from U.S. Withholding Tax. ----------------------------------------------- (a) Each Lender that is organized under the laws of any jurisdiction other than the United States or any state or other political subdivision thereof (for purposes of this subsection 2.7B(iii), a "Non-US Lender") shall deliver to Administrative Agent for transmission to Company, on or prior to the Closing Date (in the case of each Lender listed on the signature pages hereof) or on or prior to the date of the Assignment Agreement pursuant to which it becomes a Lender (in the case of each other Lender), and at such other times as may be necessary in the determination of Company or Administrative Agent (each in the reasonable exercise of its discretion), (1) two original copies of Internal Revenue Service Form 1001 or 4224 (or any successor forms), properly completed and duly executed by such Lender, together with any other certificate or statement of exemption required under the Internal Revenue Code or the regulations issued thereunder to establish that such Lender is not subject to deduction or withholding of United States federal income tax with respect to any payments to such Lender of principal, interest, fees or other amounts payable under any of the Loan Documents or (2) if such Lender is not a "bank" or other Person described in Section 881(c)(3) of the Internal Revenue Code and cannot deliver either Internal Revenue Service Form 1001 or 4224 pursuant to clause (1) above, a Certificate re Non-Bank Status together with two original copies of Internal Revenue Service Form W-8 (or any successor form), properly completed and duly executed by such Lender, together with any other certificate or statement of exemption required under the Internal Revenue Code or the regulations issued thereunder to establish that such Lender is not subject to deduction or withholding of United States federal income tax with respect to any payments to such Lender of interest payable under any of the Loan Documents. 76 (b) Each Lender required to deliver any forms, certificates or other evidence with respect to United States federal income tax withholding matters pursuant to subsection 2.7B(iii)(a) hereby agrees, from time to time after the initial delivery by such Lender of such forms, certificates or other evidence, whenever a lapse in time or change in circumstances renders such forms, certificates or other evidence obsolete or inaccurate in any material respect, that such Lender shall promptly (1) deliver to Administrative Agent for transmission to Company two new original copies of Internal Revenue Service Form 1001 or 4224, or a Certificate re Non-Bank Status and two original copies of Internal Revenue Service Form W-8, as the case may be, properly completed and duly executed by such Lender, together with any other certificate or statement of exemption required in order to confirm or establish that such Lender is not subject to deduction or withholding of United States federal income tax with respect to payments to such Lender under the Loan Documents or (2) notify Administrative Agent and Company of its inability to deliver any such forms, certificates or other evidence. (c) Company shall not be required to pay any additional amount to any Non-US Lender under clause (c) of subsection 2.7B(ii) if such Lender shall have failed to satisfy the requirements of clause (a) or (b)(1) of this subsection 2.7B(iii); provided that if such Lender shall have satisfied the requirements of subsection 2.7B(iii)(a) on the Closing Date (in the case of each Lender listed on the signature pages hereof) or on the date of the Assignment Agreement pursuant to which it became a Lender (in the case of each other Lender), nothing in this subsection 2.7B(iii)(c) shall relieve Company of its obligation to pay any additional amounts pursuant to clause (c) of subsection 2.7B(ii) in the event that, as a result of any change in any applicable law, treaty or governmental rule, regulation or order, or any change in the interpretation, administration or application thereof, such Lender is no longer properly entitled to deliver forms, certificates or other evidence at a subsequent date establishing the fact that such Lender is not subject to withholding as described in subsection 2.7B(iii)(a). C. Capital Adequacy Adjustment. If any Lender shall have determined that the adoption, effectiveness, phase-in or applicability after the date hereof of any law, rule or regulation (or any provision thereof) regarding capital adequacy, or any change therein or in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender (or its applicable lending office) with any guideline, request or directive regarding capital adequacy (whether or not having the force of law) of any such governmental authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on the capital of such Lender or any corporation controlling such Lender as a consequence of, or with reference to, such Lender's Loans or Commitments or other obligations hereunder with respect to the Loans to a level below that which such Lender or such controlling corporation could have achieved but for such adoption, effectiveness, phase-in, applicability, change or compliance (taking into consideration the policies of such Lender or such controlling corporation 77 with regard to capital adequacy), then from time to time, within five Business Days after receipt by Company from such Lender of the statement referred to in the next sentence, Company shall pay to such Lender such additional amount or amounts as will compensate such Lender or such controlling corporation on an after-tax basis for such reduction. Such Lender shall deliver to Company (with a copy to Administrative Agent) a written statement, setting forth in reasonable detail the basis of the calculation of such additional amounts, which statement shall be conclusive and binding upon all parties hereto absent manifest error. 2.8 Obligation of Lenders to Mitigate. --------------------------------- Each Lender agrees that, as promptly as practicable after the officer of such Lender responsible for administering the Loans of such Lender becomes aware of the occurrence of an event or the existence of a condition that would cause such Lender to become an Affected Lender or that would entitle such Lender to receive payments under subsection 2.7, it will, to the extent not inconsistent with the internal policies of such Lender and any applicable legal or regulatory restrictions, use reasonable efforts (i) to make, issue, fund or maintain the Commitments of such Lender or the affected Loans of such Lender through another lending office of such Lender, or (ii) take such other measures as such Lender may deem reasonable, if as a result thereof the circumstances which would cause such Lender to be an Affected Lender would cease to exist or the additional amounts which would otherwise be required to be paid to such Lender pursuant to subsection 2.7 would be materially reduced and if, as determined by such Lender in its sole discretion, the making, issuing, funding or maintaining of such Commitments or Loans through such other lending office or in accordance with such other measures, as the case may be, would not otherwise materially adversely affect such Commitments or Loans or the interests of such Lender; provided that such Lender will not be obligated to utilize such other lending - -------- office pursuant to this subsection 2.8 unless Company agrees to pay all incremental expenses incurred by such Lender as a result of utilizing such other lending office as described in clause (i) above. A certificate as to the amount of any such expenses payable by Company pursuant to this subsection 2.8 (setting forth in reasonable detail the basis for requesting such amount) submitted by such Lender to Company (with a copy to Administrative Agent) shall be conclusive absent manifest error. 2.9 Removal or Replacement of a Lender. ---------------------------------- A. Anything contained in this Agreement to the contrary notwithstanding, in the event that: (i) (a) any Lender (an "Increased-Cost Lender") shall give notice to Company that such Lender is an Affected Lender or that such Lender is entitled to receive payments under subsection 2.7, (b) the circumstances which have caused such Lender to be an Affected Lender or which entitle such Lender to receive such payments shall remain in effect, and (c) such Lender shall fail to withdraw such notice within five Business Days after Company's request for such withdrawal; or 78 (ii) (a) in connection with any proposed amendment, modification, termination, waiver or consent with respect to any of the provisions of this Agreement as contemplated by clauses (i) through (v) of the first provision to subsection 9.6A, the consent of Requisite Lenders shall have been obtained but the consent of one or more of such other Lenders (each a "Non-Consenting Lender") whose consent is required shall not have been obtained, and (b) the failure to obtain Non-Consenting Lenders' consents does not result solely from the exercise of Non-Consenting Lenders' rights (and the withholding of any required consents by Non-Consenting Lenders) pursuant to the second provision to subsection 9.6A; then, and in each such case, Company shall have the right, at its option, to remove or replace the applicable Increased-Cost Lender or Non-Consenting Lender (the "Terminated Lender") to the extent permitted by subsection 2.9B. B. Company may, by giving written notice to Administrative Agent and any Terminated Lender of its election to do so: (i) elect to prepay any outstanding Loans made by such Terminated Lender, together with accrued and unpaid interest thereon and any other amounts payable to such Terminated Lender hereunder pursuant to subsection 2.6 or subsection 2.7 or otherwise; provided that the written consent of -------- Administrative Agent and Requisite Lenders (which consent shall not be unreasonably withheld or delayed) shall be required in order for Company to make the election set forth in this clause (i); or (ii) elect to cause such Terminated Lender (and such Terminated Lender hereby irrevocably agrees) to assign its outstanding Loans in full to one or more Eligible Assignees (each a "Replacement Lender") in accordance with the provisions of subsection 9.1B; provided that (a) on the -------- date of such assignment, Company shall pay any amounts payable to such Terminated Lender pursuant to subsection 2.6 or subsection 2.7 or otherwise as if it were a prepayment and (b) in the event such Terminated Lender is a Non-Consenting Lender, each Replacement Lender shall consent, at the time of such assignment, to each matter in respect of which such Terminated Lender was a Non-Consenting Lender; provided that Company may not make either of the elections set forth in clauses - -------- (i) or (ii) above with respect to any Non-Consenting Lender unless Company also makes one of such elections with respect to each other Terminated Lender which is a Non-Consenting Lender. C. Upon the prepayment of all amounts owing to any Terminated Lender pursuant to clause (i) of subsection 2.9B, such Terminated Lender shall no longer constitute a "Lender" for purposes of this Agreement; provided that any -------- rights of such Terminated Lender to indemnification under this Agreement (including under subsections 2.6D, 2.7, 9.2 and 9.3) shall survive as to such Terminated Lender. 79 SECTION 3. CONDITIONS TO LOANS The obligations of Lenders to make Loans are subject to the satisfaction of the following conditions. 3.1 Conditions to Loans. ------------------- The obligations of Lenders to make the Loans are subject to prior or concurrent satisfaction of the following conditions: A. Loan Party Documents. On or before the Closing Date, Company shall, and shall cause each other Loan Party to, deliver to Lenders (or to Administrative Agent for Lenders with sufficient originally executed copies, where appropriate, for each Lender and its counsel) the following with respect to Company or such Loan Party, as the case may be, each, unless otherwise noted, dated the Closing Date: (i) Certified copies of the Certificate or Articles of Incorporation of such Person, together with a good standing certificate from the Secretary of State of its jurisdiction of incorporation and each other state in which such Person is qualified as a foreign corporation to do business (except, with respect to Loan Parties other than Company, any such other state or states in which failure to be qualified could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect (provided that no such state shall be a state in which real -------- property of the applicable Loan Party is located)) and, to the extent generally available, a certificate or other evidence of good standing as to payment of any applicable franchise or similar taxes from the appropriate taxing authority of each of such jurisdictions, each dated a recent date prior to the Closing Date; (ii) Copies of the Bylaws of such Person, certified as of the Closing Date by such Person's corporate secretary or an assistant secretary; (iii) Resolutions of the Board of Directors of such Person approving and authorizing the execution, delivery and performance of the Loan Documents and Related Agreements to which it is a party, certified as of the Closing Date by the corporate secretary or an assistant secretary of such Person as being in full force and effect without modification or amendment; (iv) Signature and incumbency certificates of the officers of such Person executing the Loan Documents to which it is a party; (v) Executed originals of the Loan Documents to which such Person is a party; and 80 (vi) Such other documents as Syndication Agent or Administrative Agent may reasonably request. B. No Material Adverse Effect. Since August 31, 1997, no Material Adverse Effect (in the opinion of Syndication Agent and Administrative Agent) shall have occurred. C. Corporate and Capital Structure, Ownership, Management, Etc. (i) Corporate Structure. The corporate organizational structure -------------------- of Holdings and its Subsidiaries, after giving effect to the Recapitalization Transactions, shall be as set forth on Schedule 4.1C annexed hereto. ------------- (ii) Capital Structure and Ownership. The capital structure and ------------------------------- ownership of Holdings and its Subsidiaries, after giving effect to the Recapitalization Transactions, shall be reasonably satisfactory to Syndication Agent and Administrative Agent in all respects and as set forth on Schedule 4.1C annexed hereto. ------------- (iii) Employment Agreement. Syndication Agent and Administrative -------------------- Agent shall have received a duly executed copy of, and shall be reasonably satisfied with the form and substance of, the Employment Agreement. D. Proceeds of Debt and Equity Capitalization of Merger Corp., Holdings and Company. (i) Equity Capitalization. On or before the Closing Date, Bain, ---------------------- the Other Investors and the Management Investors shall have made the Equity Contribution. (ii) Tranche A Term Loans and Recapitalization Revolving Loans. On ---------------------------------------------------------- the Closing Date, Company shall have borrowed $120,000,000 in aggregate principal amount of Tranche A Term Loans and $10,400,000 in aggregate principal amount of Revolving Loans under the Revolving Credit Agreement. (iii) Senior Subordinated Notes. On or before the Closing Date, ------------------------- Company shall have issued and sold for Cash not less than $125,000,000 in aggregate principal amount of Senior Subordinated Notes providing net Cash proceeds to Company of not less than $125,000,000. (iv) Discount Notes. On or before the Closing Date, Company shall -------------- have issued and sold for Cash Discount Notes providing net Cash proceeds to Company of not less than $75,000,000. (v) Use of Proceeds. Company shall have provided evidence ---------------- reasonably satisfactory to Syndication Agent and Administrative Agent that the proceeds of the debt and equity capitalization of Merger Corp. and Company described in the immediately preceding clauses (i), (ii), (iii) and (iv) have been irrevocably committed, prior to the 81 application of the proceeds of the Recapitalization Revolving Loans, to the payment of a portion of the Recapitalization Financing Requirements. E. Related Agreements; AXEL Credit Documents. (i) The Bain Advisory Services Agreement, the Harvard Advisory Services Agreement and the Related Agreements shall each be reasonably satisfactory in form and substance to Syndication Agent and Administrative Agent. (ii) Syndication Agent and Administrative Agent shall each have received a fully executed or conformed copy of the Bain Advisory Services Agreement, the Harvard Advisory Services Agreement and each Related Agreement and any documents executed in connection therewith, and the Bain Advisory Services Agreement, the Harvard Advisory Services Agreement and each Related Agreement shall be in full force and effect and no provision thereof related to payments thereunder shall have been modified or waived in any respect determined by Syndication Agent or Administrative Agent to be material, in each case without the consent of Syndication Agent and Administrative Agent. (iii) Syndication Agent and Administrative Agent shall each have received a fully executed or conformed copy of the Revolving Credit Documents, including the Revolving Credit Agreement (and all exhibits and schedules thereto), any promissory notes evidencing the Loans and the Intercreditor Agreement, each of which shall be in form and substance reasonably satisfactory to Syndication Agent and Administrative Agent, and each such agreement and promissory note shall be in full force and effect. F. Matters Relating to Existing Indebtedness of Holdings and its Subsidiaries. (i) Termination of Existing Credit Agreement and Related Liens; ----------------------------------------------------------- Existing Letters of Credit. On the Closing Date, Holdings and its -------------------------- Subsidiaries shall have (a) repaid in full all Indebtedness outstanding under the Existing Credit Agreement, (b) terminated any commitments to lend or make other extensions of credit thereunder, (c) delivered to Syndication Agent and Administrative Agent all documents or instruments necessary to release all Liens securing Indebtedness or other obligations of Holdings and its Subsidiaries thereunder, and (d) made arrangements reasonably satisfactory to Syndication Agent and Administrative Agent with respect to the cancellation of any letters of credit outstanding thereunder or the issuance of letters of credit under the Revolving Credit Agreement to support the obligations of Holdings and its Subsidiaries with respect thereto. (ii) Consent Solicitation. Pursuant to the Consent Solicitation, -------------------- Holdings shall have obtained all such consents and amendments with respect to the Existing Subordinated Note Indenture as may be required to permit the consummation of the Recapitalization Transactions, the related financings (including the incurrence of the Obligations hereunder) and the other transactions contemplated by the Loan Documents. 82 (iii) Consummation of Debt Tender Offer. Holdings shall have ---------------------------------- repurchased all of the Existing Subordinated Notes tendered in the Debt Tender Offer for cash consideration in an aggregate amount not to exceed $220,000,000 plus any accrued and unpaid interest on such Existing ---- Subordinated Notes. (iv) No Existing Indebtedness to Remain Outstanding. Syndication ---------------------------------------------- Agent and Administrative Agent shall have received an Officers' Certificate of Company stating that, after giving effect to the transactions described in this subsection 3.1F, the Loan Parties shall have no Indebtedness outstanding to Persons other than the Loan Parties other than Indebtedness under the Loan Documents, the Senior Subordinated Notes, the Discount Notes and the Junior Subordinated Seller Notes, Indebtedness with respect to Existing Subordinated Notes not tendered in the Debt Tender Offer, and Indebtedness set forth on Schedule 3.1F annexed hereto. ------------- G. Necessary Governmental Authorizations and Consents; Expiration of Waiting Periods, Etc. Holdings and Company shall have obtained all Governmental Authorizations and all consents of other Persons, in each case that are necessary in connection with the Recapitalization Transactions, the Merger and the other transactions contemplated by the Loan Documents and the Related Agreements, and the continued operation of the business conducted by Holdings and its Subsidiaries in substantially the same manner as conducted prior to the consummation of the Recapitalization Transactions and the Merger, and each of the foregoing shall be in full force and effect, in each case other than those the failure to obtain or maintain which, either individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect. All applicable waiting periods shall have expired without any action being taken or threatened by any competent authority which would restrain, prevent or otherwise impose adverse conditions on the Recapitalization Transactions or the Merger or the financing thereof. No action, request for stay, petition for review or rehearing, reconsideration, or appeal with respect to any of the foregoing shall be pending, and the time for any applicable agency to take action to set aside its consent on its own motion shall have expired. H. Consummation of Recapitalization Transactions and Merger. (i) All conditions to the Recapitalization Transactions shall have been satisfied pursuant to documentation, including, without limitation, the Recapitalization Agreement and the Certificate of Merger, reasonably satisfactory to Syndication Agent or the fulfillment of such conditions shall have been waived with the consent of Syndication Agent, such consent not to be unreasonably withheld; (ii) The aggregate cash consideration paid to the holders of equity interests in Holdings in respect of such equity interests in connection with the Merger shall not exceed $415,100,000; (iii) the Merger shall have become effective in accordance with the terms of the Recapitalization Agreement, the Certificate of Merger and the laws of the State of Delaware; 83 (iv) Holdings shall have issued not more than $25,000,000 in aggregate principal amount of Junior Subordinated Seller Notes in exchange for all preferred stock of Holdings outstanding immediately prior to the Closing Date; (v) Transaction Costs shall not exceed $32,000,000; and (vi) Syndication Agent and Administrative Agent shall have received an Officers' Certificate of Company and Holdings to the effect set forth in clauses (i)-(v) above and stating that Company and Holdings will proceed to consummate the Recapitalization Transactions immediately upon the making of the initial Tranche A Term Loans. I. Closing Date Mortgages; Closing Date Mortgage Policies; Etc. Agents shall have received from Holdings, Company and each applicable Subsidiary Guarantor: (i) Closing Date Mortgages. Fully executed and notarized ----------------------- Mortgages (each a "Closing Date Mortgage" and, collectively, the "Closing Date Mortgages"), in proper form for recording in all appropriate places in all applicable jurisdictions, encumbering each Real Property Asset listed in Schedule 3.1I annexed hereto (each a "Closing ------------- Date Mortgaged Property" and, collectively, the "Closing Date Mortgaged Properties"); (ii) Opinions of Local Counsel. An opinion of counsel (which -------------------------- counsel shall be reasonably satisfactory to Syndication Agent and Administrative Agent) in each state in which a Closing Date Mortgaged Property is located with respect to the enforceability of the form(s) of Closing Date Mortgages to be recorded in such state and such other matters as Syndication Agent and Administrative Agent may reasonably request, in each case in form and substance reasonably satisfactory to Syndication Agent and Administrative Agent; provided, however, that Syndication Agent -------- ------- and Administrative Agent in their reasonable discretion that an opinion of counsel in any one or more of such states shall not be required hereunder; (iii) Landlord Consents and Estoppels; Recorded Leasehold --------------------------------------------------- Interests. In the case of each Closing Date Mortgaged Property consisting ---------- of a Leasehold Property, (a) a Landlord Consent and Estoppel with respect thereto and (b) evidence that such Leasehold Property is a Recorded Leasehold Interest; (iv) Title Insurance. (a) ALTA mortgagee title insurance policies ---------------- or unconditional commitments therefor (the "Closing Date Mortgage Policies") issued by the Title Company with respect to the Closing Date Mortgaged Properties listed in Part A of Schedule 3.1I annexed hereto, in ------------- amounts not less than the respective amounts designated therein with respect to any particular Closing Date Mortgaged Properties, insuring fee simple title to, or a valid leasehold interest in, each such Closing Date Mortgaged Property vested in such Loan Party and assuring Administrative Agent that the applicable Closing Date Mortgages create valid and enforceable First Priority mortgage Liens on the respective Closing Date Mortgaged Properties encumbered 84 thereby, which Closing Date Mortgage Policies (1) shall include an endorsement for mechanics' liens, for future advances (in each case, if available) under this Agreement and for any other matters reasonably requested by Syndication Agent or Administrative Agent and (2) shall provide for affirmative insurance and such reinsurance as Administrative Agent may reasonably request, all of the foregoing in form and substance reasonably satisfactory to Syndication Agent and Administrative Agent; and (b) evidence reasonably satisfactory to Syndication Agent and Administrative Agent that such Loan Party has (i) delivered to the Title Company all certificates and affidavits required by the Title Company in connection with the issuance of the Closing Date Mortgage Policies and (ii) paid to the Title Company or to the appropriate governmental authorities all expenses and premiums of the Title Company in connection with the issuance of the Closing Date Mortgage Policies and all recording and stamp taxes (including mortgage recording and intangible taxes) payable in connection with recording the Closing Date Mortgages in the appropriate real estate records; (v) Copies of Documents Relating to Title Exceptions. Copies of ------------------------------------------------- all recorded documents listed as exceptions to title or otherwise referred to in the Closing Date Mortgage Policies or in the title reports delivered pursuant to subsection 3.1I(iv); and (vi) Matters Relating to Flood Hazard Properties. (a) Evidence, -------------------------------------------- which may be in the form of a surveyor's note on a survey or a report from a flood hazard search firm, as to whether (1) any Closing Date Mortgaged Property is a Flood Hazard Property and (2) the community in which any such Flood Hazard Property is located is participating in the National Flood Insurance Program, (b) if there are any such Flood Hazard Properties, such Loan Party's written acknowledgement of receipt of written notification from Administrative Agent (1) as to the existence of each such Flood Hazard Property and (2) as to whether the community in which each such Flood Hazard Property is located is participating in the National Flood Insurance Program, and (c) in the event any such Flood Hazard Property is located in a community that participates in the National Flood Insurance Program, evidence that Company has obtained flood insurance in respect of such Flood Hazard Property to the extent required under the applicable regulations of the Board of Governors of the Federal Reserve System. J. Security Interests in Personal and Mixed Property. To the extent not otherwise satisfied pursuant to subsection 3.1I, each of Syndication Agent and Administrative Agent shall have received evidence satisfactory to it that Holdings, Company and Subsidiary Guarantors shall have taken or caused to be taken all such actions, executed and delivered or caused to be executed and delivered all such agreements, documents and instruments, and made or caused to be made all such filings and recordings (other than the filing or recording of items described in clauses (iii), (iv) and (v) below) that may be necessary or, in the reasonable opinion of Syndication Agent and Administrative Agent, desirable in order to create in favor of Administrative Agent, for the benefit of Lenders, a valid and (upon such filing and recording) perfected First Priority security interest in the entire personal and mixed property Collateral. Such actions shall include the following: 85 (i) Schedules to Collateral Documents. Delivery to Administrative ---------------------------------- Agent of accurate and complete schedules to all of the applicable Collateral Documents. (ii) Stock Certificates and Instruments. Delivery to ----------------------------------- Administrative Agent of (a) certificates (which certificates shall be accompanied by irrevocable undated stock powers, duly endorsed in blank and otherwise satisfactory in form and substance to Administrative Agent) representing all capital stock pledged pursuant to the Holdings Pledge Agreement, Company Pledge Agreement and Subsidiary Pledge Agreement and (b) all promissory notes or other instruments (duly endorsed, where appropriate, in a manner satisfactory to Administrative Agent) evidencing any Collateral; (iii) Lien Searches and UCC Termination Statements. Delivery to -------------------------------------------- Syndication Agent and Administrative Agent of (a) the results of a recent 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 any Loan Party, together with copies of all such filings disclosed by such search, and (b) 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 such search (other than any such financing statements or fixture filings in respect of Liens permitted to remain outstanding pursuant to the terms of this Agreement). (iv) UCC Financing Statements and Fixture Filings. Delivery to -------------------------------------------- Administrative Agent of UCC financing statements and, where appropriate, fixture filings, duly executed by each applicable Loan Party with respect to all personal and mixed property Collateral of such Loan Party, for filing in all jurisdictions as may be necessary or, in the opinion of Syndication Agent and Administrative Agent, desirable to perfect the security interests created in such Collateral pursuant to the Collateral Documents; (v) PTO Cover Sheets, Etc. Delivery to Administrative Agent of ---------------------- all cover sheets or other documents or instruments required to be recorded with the PTO in order to create or perfect Liens in respect of any U.S. patents, federally registered trademarks or copyrights, or applications for any of the foregoing, included among the IP Collateral; and (vi) Opinions of Local Counsel. Delivery to Syndication Agent and ------------------------- Administrative Agent of an opinion of counsel under the laws of each jurisdiction for which an opinion is delivered under subsection 3.1I(ii) and in which any Loan Party or any personal or mixed property Collateral is located with respect to the creation and perfection of the security interests in favor of Administrative Agent in such Collateral and such other matters governed by the laws of such jurisdiction regarding such security interests as Syndication Agent and Administrative Agent may reasonably request, in each case in form and substance reasonably satisfactory to Syndication Agent and Administrative Agent. 86 K. Environmental Reports. Syndication Agent and Administrative Agent shall have received (i) a Phase I environmental assessment for each of the Facilities listed in Schedule 3.1K annexed hereto (collectively, the "Phase I ------------- Report") which (a) substantially complies with the ASTM Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process, E 1527, and (b) was conducted no more than six months prior to the Closing Date by ENSR or one or more environmental consulting firms reasonably satisfactory to Administrative Agent and (ii) a summary prepared by ENVIRON Corporation (or another firm reasonably satisfactory to Administrative Agent) of all such Phase I Reports. L. Financial Statements; Pro Forma Balance Sheet. On or before the Closing Date, Lenders shall have received from Company (i) audited consolidated financial statements of Holdings and its Subsidiaries for Fiscal Years 1995 and 1996 and unaudited consolidated financial statements of Holding and its Subsidiaries for Fiscal Year 1994, consisting of consolidated balance sheets and the related consolidated statements of income, stockholders' equity and cash flows for such Fiscal Years, (ii) unaudited consolidated financial statements of Holdings and its Subsidiaries for each fiscal month and Fiscal Quarter ended subsequent to the date of the most recent financial statements delivered pursuant to clause (i), consisting of consolidated balance sheets and the related consolidated statements of income, stockholders' equity and cash flows for such periods (except for statements of cash flows for each such monthly period), all in reasonable detail and certified by the principal financial officer or principal accounting officer of Holdings that they fairly present, in all material respects, the financial condition of Holdings and its Subsidiaries as at the dates indicated and the results of their operations and their cash flows for the periods indicated, subject to changes resulting from audit and normal year-end adjustments and the absence of footnotes, and (iii) pro forma consolidated balance sheets of Holdings and its Subsidiaries as at the date of the most recent consolidated balance sheet delivered pursuant to clause (ii), prepared in accordance with GAAP and reflecting the consummation of the Recapitalization Transactions and the Merger, the related financings and the other transactions contemplated by the Loan Documents and the Related Agreements as if such transactions had occurred on such date, which pro forma financial statements shall be in form and substance reasonably satisfactory to Lenders. M. Financial Projections. Lenders shall have received financial projections reasonably satisfactory in form and substance to Syndication Agent and Lenders for Holdings and its Subsidiaries for the period from the Closing Date through November 2007. N. Solvency Assurances. On the Closing Date, Syndication Agent, Administrative Agent and Lenders shall have received (i) a letter from Valuation Research Corporation, dated the Closing Date and addressed to Syndication Agent, Administrative Agent and Lenders, in form and substance reasonably satisfactory to Syndication Agent and Administrative Agent and with appropriate attachments, and (ii) a Financial Condition Certificate dated the Closing Date, substantially in the form of Exhibit XII annexed hereto (with such changes thereto as shall be ----------- approved by Administrative Agent and Syndication Agent in the exercise of their reasonable discretion) and with appropriate attachments, in each case demonstrating that, after giving effect to the consummation of the Recapitalization Transactions and the Merger, the related financings 87 and the other transactions contemplated by the Loan Documents and the Related Agreements, Holdings and its Subsidiaries will be Solvent. O. Evidence of Insurance. Syndication Agent and Administrative Agent shall have received a certificate from Company's insurance broker or other evidence satisfactory to it that all insurance required to be maintained pursuant to subsection 5.4 is in full force and effect and that Administrative Agent on behalf of Lenders has been named as additional insured and/or loss payee thereunder to the extent required under subsection 5.4. P. Opinions of Counsel to Loan Parties. Lenders and their respective counsel shall have received (i) originally executed copies of one or more favorable written opinions of Kirkland & Ellis, counsel for Loan Parties, and of Calfee, Halter & Griswold LLP, special Ohio counsel for Loan Parties, in form and substance reasonably satisfactory to Administrative Agent and Syndication Agent and its counsel, dated as of the Closing Date and setting forth substantially the matters in the opinions designated in Exhibit VIII annexed ------------ hereto and as to such other matters as or Syndication Agent and acting on behalf of Lenders may reasonably request and (ii) evidence satisfactory to Syndication Agent that Company has requested such counsel to deliver such opinions to Lenders. Q. Opinions of Syndication Agent's Counsel. Lenders shall have received originally executed copies of one or more favorable written opinions of O'Melveny & Myers LLP, counsel to Syndication Agent, dated as of the Closing Date, substantially in the form of Exhibit IX annexed hereto and as to such ---------- other matters as Syndication Agent may reasonably request. R. Opinions of Counsel Delivered Under Related Agreements. Administrative Agent and Syndication Agent and its counsel shall have received copies of each of the opinions of counsel delivered to the parties under the Related Agreements, together with a letter from each such counsel (to the extent not inconsistent with such counsel's established internal policies) authorizing Lenders to rely upon such opinion to the same extent as though it were addressed to Lenders. S. Fees and Expenses. Company shall have paid to Syndication Agent and Administrative Agent, for distribution (as appropriate) to Syndication Agent, Administrative Agent and Lenders, the fees payable on the Closing Date referred to in subsection 2.3 and all reasonable expenses for which invoices have been presented on or before the Closing Date. T. Representations and Warranties; Performance of Agreements. Company shall have delivered to Syndication Agent and Administrative Agent an Officers' Certificate, in form and substance reasonably satisfactory to Syndication Agent and Administrative Agent, to the effect that the representations and warranties in Section 5 hereof are true, correct and complete in all material respects on and as of the Closing Date to the same extent as though made on and as of that date (or, to the extent such representations and warranties specifically relate to an earlier date, that such representations and warranties were true, correct and complete in all material respects on and as of such earlier date) and that Holdings and Company shall have 88 performed in all material respects all agreements and satisfied all conditions which this Agreement provides shall be performed or satisfied by them on or before the Closing Date except as otherwise disclosed to and agreed to in writing by Syndication Agent, Administrative Agent and Requisite Lenders. U. Completion of Proceedings. All corporate and other proceedings taken or to be taken in connection with the transactions contemplated hereby and all documents incidental thereto not previously found acceptable by Administrative Agent, acting on behalf of Lenders, or Syndication Agent and its counsel shall be reasonably satisfactory in form and substance to Administrative Agent and Syndication Agent and such counsel, and Administrative Agent, Syndication Agent and such counsel shall have received all such counterpart originals or certified copies of such documents as Administrative Agent or Syndication Agent may reasonably request. V. Notice of Borrowing. Administrative Agent shall have received before the Closing Date, in accordance with the provisions of subsection 2.1B, an originally executed Notice of Borrowing, in each case signed by the chief executive officer, principal financial officer, principal accounting officer or the treasurer of Company or by any authorized employee of Company designated by any of the above-described officers on behalf of Company in a writing delivered to Administrative Agent. W. Other Conditions. As of the Closing Date: (i) No event shall have occurred and be continuing or would result from the consummation of the borrowing contemplated by such Notice of Borrowing that would constitute an Event of Default or a Potential Event of Default; (ii) No order, judgment or decree of any court, arbitrator or governmental authority shall purport to enjoin or restrain any Lender from making the Loans to be made by it on the Closing Date; (iii) The making of the Loans requested on the Closing Date shall not violate any law including Regulation G, Regulation T, Regulation U or Regulation X of the Board of Governors of the Federal Reserve System; and (iv) There shall not be pending or, to the knowledge of Holdings or Company, threatened, any action, suit, proceeding, governmental investigation or arbitration against or affecting Holdings or any of its Subsidiaries or any property of Holdings or any of its Subsidiaries that has not been disclosed by Holdings or Company in writing pursuant to subsection 4.6 or 6.1(x) prior to the making of the last preceding Loans (or, in the case of the initial Loans, prior to the execution of this Agreement), and there shall have occurred no development not so disclosed in any such action, suit, proceeding, governmental investigation or arbitration so disclosed, that, in either event, in the reasonable opinion of Administrative Agent or of Requisite Lenders, would be expected to have a Material Adverse Effect or be inconsistent with the financial statements, balance sheets or financial projections delivered in accordance with subsection 3.1L or 89 3.1M; and no injunction or other restraining order shall have been issued and no hearing to cause an injunction or other restraining order to be issued shall be pending or noticed with respect to any action, suit or proceeding seeking to enjoin or otherwise prevent the consummation of, or to recover any damages or obtain relief as a result of, the transactions contemplated by this Agreement or the making of Loans hereunder. Notwithstanding anything herein to the contrary, it is understood and agreed that the documents and other items set forth on Schedule 5.12 annexed ------------- hereto shall be delivered after the Closing Date in accordance with and to the extent required under subsection 5.12. Each Lender, by delivering its signature page to this Agreement and funding its Commitments on the Closing Date, shall be deemed to have acknowledged receipt of, and consented to and approved (as long as substantially in the form delivered to Lenders including any changed pages thereto delivered to Lenders), each Loan Document and each other document required to be approved by Requisite Lenders or Lenders, as applicable. SECTION 4. HOLDINGS' AND COMPANY'S REPRESENTATIONS AND WARRANTIES In order to induce Lenders to enter into this Agreement and to make the Loans, Holdings and Company represent and warrant to each Lender, on the date of this Agreement and on the Closing Date, that the following statements are true, correct and complete: 4.1 Organization, Powers, Qualification, Good Standing, Business and ---------------------------------------------------------------- Subsidiaries. ------------ A. Organization and Powers. Each Loan Party is a corporation organized, validly existing and in good standing under the laws of its jurisdiction of incorporation as specified in Schedule 4.1 annexed hereto. Each Loan Party has ------------ all requisite corporate power and authority to own and operate its properties, to carry on its business as now conducted and as proposed to be conducted, to enter into the Loan Documents and Related Agreements to which it is a party and to carry out the transactions contemplated thereby. B. Qualification and Good Standing. Each Loan Party is qualified to do business and in good standing in every jurisdiction where its assets are located and wherever necessary to carry out its business and operations, except in jurisdictions where the failure to be so qualified or in good standing has not had and will not have a Material Adverse Effect. C. Conduct of Business. Holdings and its Subsidiaries are engaged only in the businesses permitted to be engaged in pursuant to subsection 6.13. D. Subsidiaries. All of the Subsidiaries of Holdings as of the Closing Date are identified in Schedule 4.1 annexed hereto. The capital stock of each ------------ of Holdings' Subsidiaries any portion of the capital stock of which is pledged under the Collateral Documents is duly authorized, validly issued, fully paid and nonassessable and none of such capital stock constitutes 90 Margin Stock. Each of the Subsidiaries of Holdings is a corporation organized, validly existing and in good standing under the laws of its respective jurisdiction of incorporation, has all requisite corporate power and authority to own and operate its properties and to carry on its business as now conducted and as proposed to be conducted, and is qualified to do business and in good standing in every jurisdiction where its assets are located and wherever necessary to carry out its business and operations, in each case except where failure to be so qualified or in good standing or a lack of such corporate power and authority has not had and will not have a Material Adverse Effect. Schedule -------- 4.1 annexed hereto (as so supplemented) correctly sets forth, as of the Closing - --- Date, the ownership interest of Holdings and each of its Subsidiaries in each of the Subsidiaries of Holdings identified therein. 4.2 Authorization of Borrowing, etc. -------------------------------- A. Authorization of Borrowing. The execution, delivery and performance of the Loan Documents and the Related Agreements have been duly authorized by all necessary corporate action on the part of each Loan Party that is a party thereto. B. No Conflict. The execution, delivery and performance by Loan Parties of the Loan Documents and the Related Agreements to which they are parties and the consummation of the transactions contemplated by the Loan Documents and such Related Agreements do not (i) violate any provision of any law or any governmental rule or regulation applicable to Holdings or any of its Subsidiaries, the Certificate or Articles of Incorporation or Bylaws of Holdings or any of its Subsidiaries or any order, judgment or decree of any court or other agency of government binding on Holdings or any of its Subsidiaries, (ii) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any Contractual Obligation of Holdings or any of its Subsidiaries, (iii) result in or require the creation or imposition of any Lien upon any of the properties or assets of Holdings or any of its Subsidiaries (other than any Liens created under any of the Loan Documents in favor of Administrative Agent on behalf of Lenders), or (iv) require any approval of stockholders or any approval or consent of any Person under any Contractual Obligation of Holdings or any of its Subsidiaries, except for such approvals or consents which will be obtained on or before the Closing Date and disclosed in writing to Lenders. C. Governmental Consents. The execution, delivery and performance by Loan Parties of the Loan Documents to which they are parties and the consummation of the transactions contemplated by the Loan Documents do not require any registration with, consent or approval of, or notice to, or other action to, with or by, any federal, state or other governmental authority or regulatory body except to the extent obtained or made and except for those filings made to perfect Liens under the Collateral Documents. The execution, delivery and performance by Loan Parties of the Related Agreements to which they are parties and the consummation of the transactions contemplated by the such Related Agreements do not require any registration with, consent or approval of, or notice to, or other action to, with or by, any federal, state or other governmental authority or regulatory body except (i) to the extent obtained or made or (ii) where the failure to obtain or make any of the foregoing, individually or in the aggregate, is not reasonably likely to have a Material Adverse Effect. 91 D. Binding Obligation. Each of the Loan Documents and Related Agreements has been duly executed and delivered by each Loan Party that is a party thereto and is the legally valid and binding obligation of such Loan Party, enforceable against such Loan Party in accordance with its respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally or by equitable principles relating to enforceability. E. Valid Issuance of Holdings Capital Stock, Senior Subordinated Notes, Discount Notes, and Junior Subordinated Seller Notes. (i) Holdings Common Stock. Holdings Common Stock issued on the --------------------- Closing Date after giving effect to the Merger, when issued and delivered, will be duly and validly issued, fully paid and nonassessable. The issuance and sale of such Holdings Common Stock, upon such issuance and sale, will either (a) have been registered or qualified under applicable federal and state securities laws or (b) be exempt therefrom. (ii) Senior Subordinated Notes and Discount Notes. Company has the -------------------------------------------- corporate power and authority to issue the Senior Subordinated Notes and the Discount Notes. The Senior Subordinated Notes and the Discount Notes, when issued and paid for, will be the legally valid and binding obligations of Company, enforceable against Company in accordance with their respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally or by equitable principles relating to enforceability. The subordination provisions of the Senior Subordinated Notes and the Discount Notes will be enforceable against the holders thereof, and the Loans and all other monetary Obligations hereunder are and will be within the definition of "Senior Debt" included in such provisions. The Senior Subordinated Notes and the Discount Notes, when issued and sold, will either (a) have been registered or qualified under applicable federal and state securities laws or (b) be exempt therefrom. (iii) Junior Subordinated Seller Notes. Holdings has the corporate -------------------------------- power and authority to issue the Junior Subordinated Seller Notes. The Junior Subordinated Seller Notes, when issued and paid for, will be the legally valid and binding obligations of Holdings, enforceable against Holdings in accordance with their terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally or by equitable principles relating to enforceability. The subordination provisions of the Junior Subordinated Seller Notes will be enforceable against the holders thereof, and the Loans and all other monetary Obligations hereunder are and will be within the definition of "Senior Debt" included in such provisions. The Junior Subordinated Seller Notes, when issued and sold, will either (a) have been registered or qualified under applicable federal and state securities laws or (b) be exempt therefrom. 92 4.3 Financial Condition. ------------------- Company has heretofore delivered to Lenders, at Lenders' request, the following financial statements and information: (i) the audited consolidated balance sheets of Holdings and its Subsidiaries for each of Fiscal Years 1996 and 1995, the unaudited consolidated balance sheet of Holdings and its Subsidiaries for Fiscal Year 1994 and the related consolidated statements of income, stockholders' equity and cash flows of Holdings and its Subsidiaries for each such Fiscal Year and (ii) the unaudited consolidated and consolidating balance sheets of Holdings and its Subsidiaries for each fiscal month and Fiscal Quarter ended subsequent to the date of the most recent financial statements referred to in clause (i) and the related unaudited consolidated statements of income, stockholders' equity and cash flows of Holdings and its Subsidiaries for each such period (except for statements of cash flows for each such monthly period). All such statements were prepared in conformity with GAAP and fairly present, in all material respects, the financial position (on a consolidated basis) of the entities described in such financial statements as at the respective dates thereof and the results of operations and cash flows (on a consolidated basis) of the entities described therein for each of the periods then ended, subject, in the case of any such unaudited financial statements, to changes resulting from audit and normal year-end adjustments and the absence of footnotes. On the Closing Date, Holdings and Company do not (and will not following the funding of the initial Loans) have any Contingent Obligation, contingent liability or liability for taxes, long-term lease or unusual forward or long-term commitment that is not reflected in the foregoing financial statements or the notes thereto and which in any such case is material in relation to the business, operations, properties, assets, condition (financial or otherwise) or prospects of Holdings or any of its Subsidiaries. 4.4 No Material Adverse Change. -------------------------- Since August 31, 1997, no event or change has occurred that has caused or evidences, either in any case or in the aggregate, a Material Adverse Effect. 4.5 Title to Properties; Liens; Real Property. ----------------------------------------- A. Title to Properties; Liens. Holdings and its Subsidiaries have (i) good, sufficient and legal title to (in the case of fee interests in real property), (ii) valid leasehold interests in (in the case of leasehold interests in real or personal property), (iii) valid licenses in (in the case of licensed intangible properties), or (iv) good title to (in the case of all other personal property), all of their respective properties and assets reflected in the most recent financial statements referred to in subsection 4.3 or in the most recent financial statements delivered pursuant to subsection 5.1, in each case subject to Permitted Encumbrances and Liens permitted under subsection 6.6 and except for assets disposed of since the date of such financial statements in the ordinary course of business or as otherwise permitted under subsection 6.7. Except as otherwise permitted by this Agreement, all such properties and assets are free and clear of Liens. B. Real Property. As of the Closing Date, Schedule 4.5 annexed hereto ------------ contains a true, accurate and complete list of (i) all Real Property Assets owned in fee simple by any Loan Party and (ii) all leases, subleases or assignments of leases (together with all amendments, 93 modifications, supplements, renewals or extensions of any thereof) affecting each Real Property Asset of any Loan Party, regardless of whether such Loan Party is the landlord or tenant (whether directly or as an assignee or successor in interest) under such lease, sublease or assignment. As of the Closing Date, except as specified in Schedule 4.5 annexed hereto, each agreement referenced in ------------ clause (ii) of the immediately preceding sentence is in full force and effect and Holdings and Company do not have knowledge of any default that has occurred and is continuing thereunder (except where the consequences, direct or indirect, of such default or defaults, if any, would not reasonably be expected to have a Material Adverse Effect), and each such agreement constitutes the legally valid and binding obligation of each applicable Loan Party, enforceable against such Loan Party in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally or by equitable principles. 4.6 Litigation; Adverse Facts. ------------------------- There are no actions, suits, proceedings, arbitrations or governmental investigations (whether or not purportedly on behalf of Holdings or any of its Subsidiaries) at law or in equity, or before or by any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign (including any Environmental Claims) that are pending or, to the knowledge of Holdings or Company, threatened against or affecting Holdings or any of its Subsidiaries or any property of Holdings or any of its Subsidiaries and that, individually or in the aggregate, would reasonably be expected to result in a Material Adverse Effect. Neither Holdings nor any of its Subsidiaries (i) is in violation of any applicable laws (including Environmental Laws) that, individually or in the aggregate, would reasonably be expected to result in a Material Adverse Effect, or (ii) is subject to or in default with respect to any final judgments, writs, injunctions, decrees, rules or regulations of any court or any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, that, individually or in the aggregate, would reasonably be expected to result in a Material Adverse Effect. 4.7 Payment of Taxes. ---------------- Except to the extent permitted by subsection 5.3, all federal, state and other material tax returns and reports of Holdings and its Subsidiaries required to be filed by any of them have been timely filed, and all taxes shown on such tax returns to be due and payable and all assessments, fees and other governmental charges upon Holdings and its Subsidiaries and upon their respective properties, assets, income, businesses and franchises which are due and payable have been paid when due and payable. Holdings and Company know of no proposed material tax assessment against Holdings or any of its Subsidiaries which is not being actively contested by Holdings or such Subsidiary in good faith and by appropriate proceedings; provided that such reserves or other -------- appropriate provisions, if any, as shall be required in conformity with GAAP shall have been made or provided therefor. 94 4.8 Performance of Agreements; Materially Adverse Agreements. -------------------------------------------------------- A. Neither Holdings nor any of its Subsidiaries is in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any of its Contractual Obligations, and no condition exists that, with the giving of notice or the lapse of time or both, would constitute such a default, except where the consequences, direct or indirect, of such default or defaults, if any, would not have a Material Adverse Effect. B. Neither Holdings nor any of its Subsidiaries is a party to or is otherwise subject to any agreements or instruments or any charter or other internal restrictions which, individually or in the aggregate, compliance with which could reasonably be expected to result in a Material Adverse Effect. 4.9 Governmental Regulation. ----------------------- Neither Holdings nor any of its Subsidiaries is subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act or the Investment Company Act of 1940 or under any other federal or state statute or regulation which may limit its ability to incur Indebtedness or which may otherwise render all or any portion of the Obligations unenforceable. 4.10 Securities Activities. --------------------- A. Neither Holdings nor any of its Subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying any Margin Stock. B. Following application of the proceeds of each Loan, not more than 25% of the value of the assets (either of Holdings only or of Holdings and its Subsidiaries on a consolidated basis) subject to the provisions of subsection 6.2 or 6.7 or subject to any restriction contained in any agreement or instrument, between Company and any Lender or any Affiliate of any Lender, relating to Indebtedness and within the scope of subsection 7.2, will be Margin Stock. 4.11 Employee Benefit Plans. ---------------------- A. Holdings and each of its Subsidiaries are in compliance in all material respects with all applicable provisions and requirements of ERISA and the regulations and published interpretations thereunder with respect to each Employee Benefit Plan, and have performed all their obligations under each Employee Benefit Plan. Each Employee Benefit Plan which is intended to qualify under Section 401(a) of the Internal Revenue Code is so qualified. B. No ERISA Event has occurred or is reasonably expected to occur which has or would reasonably be expected to result in a liability to Holdings or any of its Subsidiaries in excess of $7,500,000. 95 C. Except to the extent required under Section 4980B of the Internal Revenue Code, the aggregate liabilities with respect to health or welfare benefits (through the purchase of insurance or otherwise) provided or promised for any retired or former employee of Holdings or any of its Subsidiaries do not exceed $10,000,000. D. As of the most recent valuation date for any Pension Plan, the amount of unfunded benefit liabilities (as defined in Section 4001(a)(18) of ERISA), individually or in the aggregate for all Pension Plans, does not exceed $10,000,000. E. As of the most recent valuation date for each Multiemployer Plan for which the actuarial report is available, the potential liability of Holdings, its Subsidiaries and their respective ERISA Affiliates for a complete withdrawal from such Multiemployer Plan (within the meaning of Section 4203 of ERISA), when aggregated with such potential liability for a complete withdrawal from all Multiemployer Plans, based on information available pursuant to Section 4221(e) of ERISA, does not exceed $10,000,000. 4.12 Certain Fees. ------------ Except as set forth on Schedule 4.12 annexed hereto, no broker's or ------------- finder's fee or commission will be payable with respect to this Agreement or any of the transactions contemplated hereby, and Holdings and Company hereby indemnifies Lenders against, and agrees that it will hold Lenders harmless from, any claim, demand or liability for any such broker's or finder's fees alleged to have been incurred in connection herewith or therewith and any expenses (including reasonable fees, expenses and disbursements of counsel) arising in connection with any such claim, demand or liability. 4.13 Environmental Protection. ------------------------ Except as set forth on Schedule 4.13 annexed hereto: ------------- (i) Neither Holdings nor any of its Subsidiaries nor any of their respective Facilities or operations are subject to any outstanding written order, consent decree or settlement agreement with any Person relating to (a) any Environmental Law, (b) any Environmental Claim, or (c) any Hazardous Materials Activity that, in the case of (a), (b) or (c), individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect; (ii) Neither Holdings nor any of its Subsidiaries has received any letter or written request for information from any governmental agency under Section 104 of the Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C. (S) 9604) or any comparable state law; (iii) To Holdings' and Company's knowledge, there are no and have been no conditions, occurrences, or Hazardous Materials Activities which could reasonably be expected to form the basis of an Environmental Claim against Holdings or any of its 96 Subsidiaries that, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect; (iv) Holdings maintains an environmental management system designed to maintain compliance with Environmental Laws and correct any incidents of non-compliance; (v) Compliance with all current or reasonably foreseeable future requirements pursuant to or under Environmental Laws would not, individually or in the aggregate, reasonably be expected to give rise to a Material Adverse Effect; and (vi) No event or condition has occurred or is occurring with respect to Holdings or any of its Subsidiaries relating to any Environmental Law, any Release of Hazardous Materials, or any Hazardous Materials Activity which individually or in the aggregate has had or would reasonably be expected to have a Material Adverse Effect. 4.14 Employee Matters. ---------------- There is no strike or work stoppage in existence or threatened involving Holdings or any of its Subsidiaries that could reasonably be expected to have a Material Adverse Effect. 4.15 Solvency. -------- Each Loan Party is and, upon the incurrence of any Obligations by such Loan Party on any date on which this representation is made, will be, Solvent. 4.16 Matters Relating to Collateral. ------------------------------ A. Creation, Perfection and Priority of Liens. The execution and delivery of the Collateral Documents by Loan Parties, together with (i) the actions taken on or prior to the date hereof pursuant to subsections 3.1I, 3.1J, 5.8 and 5.9 and (ii) the delivery to Collateral Agent of any Pledged Collateral not delivered to Collateral Agent at the time of execution and delivery of the applicable Collateral Document (all of which Pledged Collateral has been so delivered) are effective to create in favor of Collateral Agent for the benefit of Lenders, as security for the respective Secured Obligations (as defined in the applicable Collateral Document in respect of any Collateral), a valid and perfected First Priority Lien on all of the Collateral, and all filings and other actions necessary or desirable to perfect and maintain the perfection and First Priority status of such Liens have been duly made or taken and remain in full force and effect, other than the filing of any UCC financing statements delivered to Collateral Agent for filing (but not yet filed) and the periodic filing of UCC continuation statements in respect of UCC financing statements filed by or on behalf of Collateral Agent. B. Governmental Authorizations. 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 pledge or grant by any Loan Party of the Liens purported to be created in favor 97 of Collateral Agent pursuant to any of the Collateral Documents or (ii) the exercise by Collateral Agent of any rights or remedies in respect of any Collateral (whether specifically granted or created pursuant to any of the Collateral Documents or created or provided for by applicable law), except for filings or recordings contemplated by subsection 4.16A and except as may be required, in connection with the disposition of any Pledged Collateral, by laws generally affecting the offering and sale of securities. C. Absence of Third-Party Filings. Except such as may have been filed in favor of Collateral Agent as contemplated by subsection 4.16A, (i) no effective UCC financing statement, fixture filing or other instrument similar in effect covering all or any part of the Collateral is on file in any filing or recording office, except with respect to Permitted Encumbrances and Liens permitted under subsection 6.2A, and (ii) no effective filing covering all or any part of the IP Collateral is on file in the PTO. D. Margin Regulations. The pledge of the Pledged Collateral pursuant to the Collateral Documents does not violate Regulation G, T, U or X of the Board of Governors of the Federal Reserve System. E. Information Regarding Collateral. All information supplied to Administrative Agent or Collateral Agent by or on behalf of any Loan Party with respect to any of the Collateral (in each case taken as a whole with respect to any particular Collateral) is accurate and complete in all material respects. 4.17 Related Agreements. ------------------ A. Delivery of Related Agreements. Company has delivered to Lenders complete and correct copies of each Related Agreement and of all exhibits and schedules thereto. B. Seller's Warranties. Except to the extent otherwise set forth herein or in the schedules hereto, each of the representations and warranties given by Holdings and Zell to Merger Corp. in the Recapitalization Agreement is true and correct as of the date hereof (or as of any earlier date to which such representation and warranty specifically relates) and will be true and correct as of the Closing Date (or as of such earlier date, as the case may be), in each case subject to the qualifications set forth in the schedules to the Recapitalization Agreement, in each case except to the extent that the cause of any failure of any such representation or warranty to be true and correct, either individually or in the aggregate with the causes of the failures of any other such representations and warranties to be true and correct, would not reasonably be expected to have a Material Adverse Effect. C. Warranties of Merger Corp. Subject to the qualifications set forth therein, each of the representations and warranties given by Merger Corp. to Holdings and Zell in the Recapitalization Agreement is true and correct as of the date hereof and will be true and correct as of the Closing Date, in each case except to the extent that the cause of any failure of any such representation or warranty to be true and correct, either individually or in the aggregate with the 98 causes of the failures of any other such representations and warranties to be true and correct, would not reasonably be expected to have a Material Adverse Effect. D. Survival. Notwithstanding anything in the Recapitalization Agreement to the contrary, the representations and warranties of Holdings and Company set forth in subsections 4.17B and 4.17C shall, solely for purposes of this Agreement, survive the Closing Date for the benefit of Lenders. 4.18 Disclosure. ---------- All representations and warranties of Holdings or any of its Subsidiaries and all information contained in the Confidential Information Memorandum or in any Loan Document or Related Agreement or in any other document, certificate or written statement furnished to Lenders by or on behalf of Holdings or any of its Subsidiaries for use in connection with the transactions contemplated by this Agreement, taken as a whole, are true and correct in all material respects and do not omit to state a material fact (known to Holdings or Company, in the case of any document not furnished by it) necessary in order to make the statements contained herein or therein (taken as a whole) not misleading in light of the circumstances in which the same were made. Any projections and pro forma financial information contained in such materials are based upon good faith estimates and assumptions believed by Holdings and Company to be reasonable at the time made, it being recognized by Lenders that such projections as to future events are not to be viewed as facts and that actual results during the period or periods covered by any such projections may differ from the projected results. There are no facts known (or which should upon the reasonable exercise of diligence be known) to Holdings or Company (other than matters of a general economic nature) that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect and that have not been disclosed herein or in such other documents, certificates and statements furnished to Lenders for use in connection with the transactions contemplated hereby. 4.19 Subordination of Seller Notes and Shareholder Subordinated Notes. ---------------------------------------------------------------- The subordination provisions of any Permitted Seller Notes and Shareholder Subordinated Notes are enforceable against the holders thereof, and the Loans and other Obligations hereunder are and will be within the definition of "Senior Indebtedness" or "Senior Debt", as applicable, included in such provisions. SECTION 5. HOLDINGS' AND COMPANY'S AFFIRMATIVE COVENANTS Holdings and Company covenant and agree that, so long as any of the Commitments hereunder shall remain in effect and until payment in full of all of the Loans and other 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), unless Requisite Lenders 99 shall otherwise give prior written consent, Holdings and Company shall perform, and shall cause each of their Subsidiaries to perform, all covenants in this Section 5. 5.1 Financial Statements and Other Reports. -------------------------------------- Holdings will maintain, and cause each of its Subsidiaries to maintain, a system of accounting established and administered in accordance with sound business practices to permit preparation of financial statements in conformity with GAAP. Company will deliver to Administrative Agent, with sufficient copies for each Lender (and Administrative Agent will, after receipt thereof, deliver to each Lender): (i) Monthly Financials: as soon as available and in any event ------------------ within 30 days after the end of each month ending after the date which is six months after the Closing Date, the consolidated balance sheet of Holdings and its Subsidiaries as at the end of such month and the related consolidated statements of income, stockholders' equity and cash flows of Holdings and its Subsidiaries for such month and for the period from the beginning of the then current Fiscal Year to the end of such month, setting forth in each case in comparative form the corresponding figures for the corresponding periods of the previous Fiscal Year and the corresponding figures from the Financial Plan for the current Fiscal Year, to the extent prepared on a monthly basis, all in reasonable detail and certified by the principal financial officer or principal accounting officer of Holdings that they fairly present, in all material respects, the financial condition of Holdings and its Subsidiaries as at the dates indicated and the results of their operations and their cash flows for the periods indicated, subject to changes resulting from audit and normal year-end adjustments and the absence of footnotes; (ii) Quarterly Financials: as soon as available and in any event -------------------- within 50 days after the end of each Fiscal Quarter, (a) the consolidated balance sheet of Holdings and its Subsidiaries as at the end of such Fiscal Quarter and the related consolidated statements of income, stockholders' equity and cash flows of Holdings and its Subsidiaries for such Fiscal Quarter and for the period from the beginning of the then current Fiscal Year to the end of such Fiscal Quarter, setting forth in each case in comparative form the corresponding figures for the corresponding periods of the previous Fiscal Year and the corresponding figures from the Financial Plan for the current Fiscal Year, all in reasonable detail and certified by the principal financial officer or principal accounting officer of Holdings that they fairly present, in all material respects, the financial condition of Holdings and its Subsidiaries as at the dates indicated and the results of their operations and their cash flows for the periods indicated, subject to changes resulting from audit and normal year-end adjustments and the absence of footnotes, and (b) a narrative report describing the operations of Holdings and its Subsidiaries in the form prepared for presentation to senior management for such Fiscal Quarter and for the period from the beginning of the then current Fiscal Year to the end of such Fiscal Quarter; provided, however, that Company may deliver to Administrative -------- ------- Agent in lieu of such narrative report copies of the unaudited quarterly report filed by 100 Holdings with the Securities and Exchange Commission on Form 10-Q in respect of such Fiscal Quarter; (iii) Year-End Financials: as soon as available and in any event ------------------- within 95 days after the end of each Fiscal Year, (a) the consolidated balance sheet of Holdings and its Subsidiaries as at the end of such Fiscal Year and the related consolidated statements of income, stockholders' equity and cash flows of Holdings and its Subsidiaries for such Fiscal Year, setting forth in each case in comparative form the corresponding figures for the previous Fiscal Year and the corresponding figures from the Financial Plan for the Fiscal Year covered by such financial statements, all in reasonable detail and certified by the principal financial officer or principal accounting officer of Holdings that they fairly present, in all material respects, the financial condition of Holdings and its Subsidiaries as at the dates indicated and the results of their operations and their cash flows for the periods indicated, (b) a narrative report describing the operations of Holdings and its Subsidiaries in the form prepared for presentation to senior management for such Fiscal Year, provided, however, that Company may deliver to Administrative Agent in lieu -------- ------- of such narrative report copies of the report filed by Holdings with the Securities and Exchange Commission on Form 10-K in respect of such Fiscal Year, and (c) in the case of such consolidated financial statements, a report thereon of an Independent Public Accountant, which report shall be unqualified, shall express no doubts about the ability of Holdings and its Subsidiaries to continue as a going concern, and shall state that such consolidated financial statements fairly present, in all material respects, the consolidated financial position of Holdings and its Subsidiaries as at the dates indicated and the results of their operations and their cash flows for the periods indicated in conformity with GAAP applied on a basis consistent with prior years (except as otherwise disclosed in such financial statements) and that the examination by such accountants in connection with such consolidated financial statements has been made in accordance with generally accepted auditing standards; (iv) Officers' and Compliance Certificates: together with each ------------------------------------- delivery of financial statements of Holdings and its Subsidiaries pursuant to subdivisions (i), (ii) and (iii) above, (a) an Officers' Certificate of Holdings stating that the signers have reviewed the terms of this Agreement and have made, or caused to be made under their super vision, a review in reasonable detail of the transactions and condition of Holdings and its Subsidiaries during the accounting period covered by such financial statements and that such review has not disclosed the existence during or at the end of such accounting period, and that the signers do not have knowledge of the existence as at the date of such Officers' Certificate, of any condition or event that constitutes an Event of Default or Potential Event of Default, or, if any such condition or event existed or exists, specifying the nature and period of existence thereof and what action Holdings has taken, is taking and proposes to take with respect thereto; and (b) a Compliance Certificate demonstrating in reasonable detail compliance during and at the end of the applicable accounting periods with the restrictions contained in Section 6, in each case to the extent compliance with such restrictions is required to be tested at the end of the applicable accounting period; 101 (v) Reconciliation Statements; MIS Accounting Changes: (a) if, ------------------------------------------------- as a result of any change in accounting principles and policies from those used in the preparation of the audited financial statements referred to in subsection 4.3, the consolidated financial statements of Holdings and its Subsidiaries delivered pursuant to subdivisions (i), (ii), (iii) or (xiii) of this subsection 5.1 will differ in any material respect from the consolidated financial statements that would have been delivered pursuant to such subdivisions had no such change in accounting principles and policies been made, then (1) together with the first delivery of financial statements pursuant to subdivision (i), (ii), (iii) or (xiii) of this subsection 5.1 following such change, consolidated financial statements of Holdings and its Subsidiaries for (y) the current Fiscal Year to the effective date of such change and (z) the two full Fiscal Years immediately preceding the Fiscal Year in which such change is made, in each case prepared on a pro forma basis as if such change had been in effect during such periods, and (2) together with each delivery of financial statements pursuant to subdivision (i), (ii), (iii) or (xiii) of this subsection 5.1 following such change, a written statement of the principal accounting officer or principal financial officer of Holdings setting forth the differences (including any differences that would affect any calculations relating to the financial covenants set forth in subsection 6) which would have resulted if such financial statements had been prepared without giving effect to such change; and (b) if Company changes its method of accounting for Year 2000 Expenditures, MIS Upgrade Expenditures, EITF 97-13 Expenditures or Other MIS Expenditures, then, together with each Compliance Certificate delivered pursuant to subdivision (iv) of this subsection 5.1 following such change, a schedule setting forth in reasonable detail the adjustments to the calculation of IR Consolidated Adjusted EBITDA due to such accounting change. (vi) Accountants' Certification: together with each delivery of -------------------------- consolidated financial statements of Holdings and its Subsidiaries pursuant to subdivision (iii) above, a written statement by the independent certified public accountants giving the report thereon (a) stating that their audit examination has included a review of the terms of this Agreement and the other Loan Documents as they relate to accounting matters, (b) stating whether, in connection with their audit examination, any condition or event that constitutes an Event of Default or Potential Event of Default of a financial nature has come to their attention and, if such a condition or event has come to their attention, specifying the nature and period of existence thereof; provided that such accountants -------- shall not be liable by reason of any failure to obtain knowledge of any such Event of Default or Potential Event of Default that would not be disclosed in the course of their audit examination, and (c) stating that based on their audit examination nothing has come to their attention that causes them to believe either or both that the information contained in the certificates delivered therewith pursuant to subdivision (iv) above is not correct or that the matters set forth in the Compliance Certificates delivered therewith pursuant to clause (b) of subdivision (iv) above for the applicable Fiscal Year are not stated in accordance with the terms of this Agreement; (vii) Accountants' Reports: promptly upon receipt thereof (unless -------------------- restricted by applicable professional standards), copies of all reports submitted to Holdings by inde- 102 pendent certified public accountants in connection with each annual, interim or special audit of the financial statements of Holdings and its Subsidiaries made by such accountants, including any comment letter submitted by such accountants to management in connection with their annual audit; (viii) SEC Filings and Press Releases: promptly upon their becoming ------------------------------ available, copies of (a) all financial statements, reports, notices and proxy statements sent or made available generally by Holdings to analysts or its security holders or by any Subsidiary of Holdings to analysts or its security holders other than Holdings or another Subsidiary of Holdings, (b) all regular and periodic reports and all registration statements (other than on Form S-8 or a similar form) and prospectuses, if any, filed by Holdings or any of its Subsidiaries with any securities exchange or with the Securities and Exchange Commission or any governmental or private regulatory authority, and (c) all press releases and other written, publicly announced notices by Holdings or any of its Subsidiaries concerning material developments in the business of Holdings or any of its Subsidiaries; (ix) Events of Default, etc.: promptly upon any Responsible Officer ----------------------- of Holdings or Company obtaining knowledge (a) of any condition or event that constitutes an Event of Default or Potential Event of Default, or becoming aware that any Lender has given any notice (other than to Administrative Agent) or taken any other action with respect to a claimed Event of Default or Potential Event of Default, (b) that any Person has given any notice to Holdings or any of its Subsidiaries or taken any other action with respect to a claimed default or event or condition of the type referred to in subsection 7.2, (c) of any condition or event that would be required to be disclosed in a current report filed by Holdings or Company with the Securities and Exchange Commission on Form 8-K (Items 1, 2, 4, 5 and 6 of such Form as in effect on the date hereof) if Holdings or Company were required to file such reports under the Exchange Act, or (d) of the occurrence of any event or change that has caused or evidences, either in any case or in the aggregate, a Material Adverse Effect, an Officers' Certificate specifying the nature and period of existence of such condition, event or change, or specifying the notice given or action taken by any such Person and the nature of such claimed Event of Default, Potential Event of Default, default, event or condition, and what action Holdings or Company has taken, is taking and proposes to take with respect thereto; (x) Litigation or Other Proceedings: promptly upon any Responsible ------------------------------- Officer of Holdings or Company obtaining knowledge of (a) the institution of, or non-frivolous threat of, any action, suit, proceeding (whether administrative, judicial or otherwise), governmental investigation or arbitration against or affecting Holdings or any of its Subsidiaries or any property of Holdings or any of its Subsidiaries (collectively, "Proceedings") not previously disclosed in writing by Holdings or Company to Lenders or (b) any material development in any Proceeding that, in any case: (1) if adversely determined, has a reasonable possibility of giving rise to a Material Adverse Effect; or 103 (2) seeks to enjoin or otherwise prevent the consummation of, or to recover any damages or obtain relief as a result of, the transactions contemplated hereby; written notice thereof together with such other information as may be reasonably available to Holdings or Company to enable Lenders and their counsel to evaluate such matters; (xi) ERISA Events: promptly upon becoming aware of the occurrence ------------ of or forthcoming occurrence of any ERISA Event, a written notice specifying the nature thereof, what action Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates has taken, is taking or proposes to take with respect thereto and, when known, any action taken or threatened by the Internal Revenue Service, the Department of Labor or the PBGC with respect thereto; (xii) ERISA Notices: with reasonable promptness, copies of (a) each ------------- Schedule B (Actuarial Information) to the annual report (Form 5500 Series) filed by Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates with the Internal Revenue Service with respect to each Pension Plan, as Administrative Agent shall reasonably request; (b) all notices received by Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates from a Multiemployer Plan sponsor concerning an ERISA Event; and (c) copies of such other documents or governmental reports or filings relating to any Employee Benefit Plan as Administrative Agent shall reasonably request; (xiii) Financial Plans: as soon as practicable and in any event no --------------- later than 30 days after the beginning of each Fiscal Year, a consolidated plan and financial forecast for such Fiscal Year and the next succeeding Fiscal Year (the "Financial Plan" for such Fiscal Years), including (a) a forecasted consolidated balance sheet and forecasted consolidated statements of income and cash flows of Holdings and its Subsidiaries for each such Fiscal Year, together with a pro forma Compliance Certificate for --- ----- the first such Fiscal Year and an explanation of the assumptions on which such forecasts are based, and (b) such other information regarding such projections as Administrative Agent may reasonably request; (xiv) Insurance: as soon as practicable and in any event by the last --------- day of each Fiscal Year, a report in form and substance satisfactory to Administrative Agent outlining all material changes made to insurance coverage maintained as of the Closing Date or the date of the most recent such report by Holdings and its Subsidiaries; (xv) New Subsidiaries: promptly upon any Person becoming a ---------------- Subsidiary of Holdings, a written notice setting forth with respect to such Person (a) the date on which such Person became a Subsidiary of Holdings and (b) the ownership and debt and equity capitalization of such Subsidiary; 104 (xvi) Material Contracts: promptly, and in any event within ten ------------------ Business Days after any Material Contract of Holdings or any of its Subsidiaries is terminated or amended in a manner that is materially adverse to Holdings or such Subsidiary, as the case may be, or any new Material Contract is entered into, a written statement describing such event with copies of such material amendments or new contracts, and an explanation of any actions being taken with respect thereto; and (xvii) Other Information: with reasonable promptness, such other ----------------- information and data with respect to Holdings or any of its Subsidiaries as from time to time may be reasonably requested by Administrative Agent. 5.2 Corporate Existence, etc. ------------------------- Except as permitted under subsection 6.7, Holdings will, and will cause each of its Subsidiaries to, at all times preserve and keep in full force and effect its corporate existence and all rights and franchises material to its business; provided, however that neither Holdings nor any of its Subsidiaries -------- ------- shall be required to preserve any such right or franchise if the Board of Directors of Holdings or such Subsidiary shall determine that the preservation thereof is no longer desirable in the conduct of the business of Holdings or such Subsidiary, as the case may be, and that the loss thereof is not disadvantageous in any material respect to Holdings, such Subsidiary or Lenders. 5.3 Payment of Taxes and Claims; Tax Consolidation. ---------------------------------------------- A. Holdings will, and will cause each of its Subsidiaries to, pay all federal, state and other material taxes, assessments and other governmental charges imposed upon it or any of its properties or assets or in respect of any of its income, businesses or franchises before any penalty accrues thereon, and all claims (including claims for labor, services, materials and supplies) for sums that have become due and payable and that by law have or may become a Lien upon any of its properties or assets, prior to the time when any penalty or fine shall be incurred with respect thereto; provided that no such charge or claim -------- need be paid if it is being contested in good faith by appropriate proceedings promptly instituted and diligently conducted, so long as (1) such reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made therefor and (2) in the case of a charge or claim which has or may become a Lien against any of the Collateral, such contest proceedings conclusively operate to stay the sale of any portion of the Collateral to satisfy such charge or claim. B. Holdings will not, nor will it permit any of its Subsidiaries to, file or consent to the filing of any consolidated income tax return with any Person (other than Holdings or any of its Subsidiaries). 105 5.4 Maintenance of Properties; Insurance; Application of Net -------------------------------------------------------- Insurance/Condemnation Proceeds. ------------------------------- A. Maintenance of Properties. Company will, and will cause each of its Subsidiaries to, maintain or cause to be maintained in good repair, working order and condition, ordinary wear and tear and damage by casualty excepted, all material properties used or useful in the business of Company and its Subsidiaries (including all Intellectual Property) and from time to time will make or cause to be made all repairs, renewals and replacements thereof which are useful, customary or appropriate for companies in similar businesses. B. Insurance. Company will maintain or cause to be maintained, with financially sound and reputable insurers, such public liability insurance, third party property damage insurance, business interruption insurance and casualty insurance with respect to liabilities, losses or damage in respect of the assets, properties and businesses of Company and its Subsidiaries as may customarily be carried or maintained under similar circumstances by corporations of established reputation engaged in similar businesses, in each case in such amounts (giving effect to self-insurance), with such deductibles, covering such risks and otherwise on such terms and conditions as shall be customary for corporations similarly situated in the industry. Without limiting the generality of the foregoing, Company will maintain or cause to be maintained (i) flood insurance with respect to each Flood Hazard Property that is located in a community that participates in the National Flood Insurance Program, in each case in compliance with any applicable regulations of the Board of Governors of the Federal Reserve System, and (ii) replacement value property insurance on the Collateral under such policies of insurance, with such insurance companies, in such amounts, with such deductibles, and covering such risks as are in accordance with normal industry practice. Each such policy of insurance related to property damage, casualty or business interruption shall (a) name Administrative Agent for the benefit of Lenders as an additional insured thereunder as its interests may appear and (b) in the case of each business interruption and casualty insurance policy, contain a loss payable clause or endorsement, reasonably satisfactory in form and substance to Administrative Agent, that names Administrative Agent for the benefit of Lenders as the loss payee thereunder for any covered loss in excess of $1,000,000 and provides for at least 30 days prior written notice to Administrative Agent of any modification or cancellation of such policy. C. Application of Net Insurance/Condemnation Proceeds. (i) Business Interruption Insurance. Upon receipt by Company or any ------------------------------- of its Subsidiaries of any business interruption insurance proceeds constituting Net Insurance/Condemnation Proceeds, (a) so long as no Event of Default shall have occurred and be continuing, Company or such Subsidiary may retain and apply such Net Insurance/Condemnation Proceeds for working capital purposes, and (b) if an Event of Default shall have occurred and be continuing, within ten Business Days of the receipt thereof Company shall apply an amount equal to such Net Insurance/Condemnation Proceeds to prepay the Loans as provided in subsection 2.4B(ii)(b); 106 (ii) Casualty Insurance/Condemnation Proceeds. Within ten Business ---------------------------------------- Days of receipt by Company or any of its Subsidiaries of any Net Insurance/Condemnation Proceeds other than from business interruption insurance, (a) so long as no Event of Default shall have occurred and be continuing and so long as the aggregate amount of Net Asset Sale Proceeds and Net Insurance/Condemnation Proceeds received from the Closing Date to the date of determination does not exceed $25,000,000, Company may deliver to Administrative Agent an Officers' Certificate setting forth (1) that portion of such Net Insurance/Condemnation Proceeds (the "Proposed Insurance Reinvestment Proceeds") that Company or such Subsidiary intends to use (or enter into a contract to use) within 270 days of such date of receipt to pay or reimburse the costs of repairing, restoring or replacing the assets in respect of which such Net Insurance/Condemnation Proceeds were received or to reinvest in Eligible Assets and (2) the proposed use of the Proposed Insurance Reinvestment Proceeds and such other information with respect to such proposed use as Administrative Agent may reasonably request, and Company shall, or shall cause one or more of its Subsidiaries to, promptly and diligently apply such Proposed Insurance Reinvestment Proceeds to pay or reimburse the costs of repairing, restoring or replacing the assets in respect of which such Proposed Insurance Reinvestment Proceeds were received or to reinvestment in Eligible Assets or, to the extent the aggregate amount of Net Asset Proceeds and Net Insurance/Condemnation Proceeds received from the Closing Date to the date of determination exceed $5,000,000 and are not so applied, to prepay the Loans as provided in subsection 2.4B(ii)(b), and (b) if an Event of Default shall have occurred and be continuing, Company shall apply an amount equal to such Net Insurance/ Condemnation Proceeds to prepay the Loans as provided in subsection 2.4B(ii)(b). (iii) Net Insurance/Condemnation Proceeds Received by Administrative -------------------------------------------------------------- Agent. Upon receipt by Administrative Agent of any Net ----- Insurance/Condemnation Proceeds as loss payee, (a) if and to the extent Company or Company would have been required to apply such Net Insurance/Condemnation Proceeds (if it had received them directly) to prepay the Loans, Administrative Agent shall, and Company hereby authorizes Administrative Agent to, apply such Net Insurance/Condemnation Proceeds within ten Business Days of receipt thereof to prepay the Loans as provided in subsection 2.4B(ii)(b), and (b) to the extent the foregoing clause (a) does not apply, Administrative Agent shall deliver such Net Insurance/Condemnation Proceeds to Company, and Company shall, or shall cause one or more of its Subsidiaries to, promptly apply such Net Insurance/Condemnation Proceeds to the costs of repairing, restoring, or replacing the assets in respect of which such Net Insurance/Condemnation Proceeds were received or to reinvestment in Eligible Assets. 5.5 Inspection Rights; Audits of Inventory and Accounts Receivable; Lender ---------------------------------------------------------------------- Meeting. ------- A. Inspection Rights. Holdings shall, and shall cause each of its Subsidiaries to, permit any authorized representatives designated by any Lender to visit and inspect any of the properties of Holdings or of any of its Subsidiaries, to inspect, copy and take extracts from its and their financial and accounting records, and to discuss its and their affairs, finances and 107 accounts with its and their officers and independent public accountants (provided that Holdings or Company may, if they so choose, be present at or participate in any such discussion), all upon reasonable notice and at such reasonable times during normal business hours and as often as may reasonably be requested; provided, however, that each Lender shall coordinate with -------- ------- Administrative Agent the frequency and timing of such visits and inspections so as to reasonably minimize the burden imposed on Holdings and its Subsidiaries. B. Audits of Inventory and Accounts Receivable. Holdings shall, and shall cause each of its Subsidiaries to, permit any authorized representatives designated by Administrative Agent to conduct one audit of all Inventory and accounts receivable of Loan Parties during each twelve-month period after the Closing Date, each such audit to be in scope and substance reasonably satisfactory to Syndication Agent and Administrative Agent, all upon reasonable notice and at such reasonable times during normal business hours as may reasonably be requested. C. Lender Meeting. Company will, upon the request of Syndication Agent, Administrative Agent or Requisite Lenders, participate in a meeting of Administrative Agent and Lenders once during each Fiscal Year to be held at Company's corporate offices (or at such other location as may be agreed to by Holdings and Administrative Agent) at such time as may be agreed to by Company and Administrative Agent. 5.6 Compliance with Laws, etc. -------------------------- Holdings shall comply, and shall cause each of its Subsidiaries to comply, with the requirements of all applicable laws, rules, regulations and orders of any governmental authority (including all Environmental Laws), except where noncompliance would not reasonably be expected to cause, individually or in the aggregate, a Material Adverse Effect. 5.7 Environmental Review and Investigation, Disclosure, Etc.; Company's Actions --------------------------------------------------------------------------- Regarding Hazardous Materials Activities, Environmental Claims and ------------------------------------------------------------------ Violations of Environmental Laws. -------------------------------- A. Environmental Review and Investigation. Holdings and Company agree that Administrative Agent may, (i) at any time a fact, event or condition arises that, in Administrative Agent's reasonable discretion, Administrative Agent determines could give rise to environmental liabilities that would materially adversely affect any material Facility, retain, at Company's expense, an independent professional consultant to review any environmental audits, investigations, analyses and reports relating to Hazardous Materials at such Facility prepared by or for Company and (ii) in the event (a) Administrative Agent reasonably believes that Company or Holdings has breached any representation, warranty or covenant contained in subsection 4.6, 4.13, 5.6 or 5.7 or that there has been a material violation of Environmental Laws at any Facility or by Holdings or any of its Subsidiaries at any other location conduct its own investigation of such breach or violation or (b) an Event of Default has occurred and is continuing, conduct its own investigation of any Facility; provided that, in the case of any Facility no longer owned, leased, operated or - -------- used by Holdings or any of its Subsidiaries, 108 Company and Holdings shall only be obligated to use their reasonable best efforts to obtain permission for Administrative Agent's professional consultant to conduct an investigation of such Facility. For purposes of conducting an investigation pursuant to clause (ii) of the preceding sentence, Company and Holdings hereby grant to Administrative Agent and its agents, employees, consultants and contractors the right to enter into or onto any Facilities currently owned, leased, operated or used by Holdings or any of its Subsidiaries and to perform such tests on such property (including taking samples of soil, groundwater and suspected asbestos-containing materials) as are reasonably necessary in connection therewith (to the extent, at any Facility leased by Holdings or any of its Subsidiaries, such actions are permitted by the owner of such Facility). Any such investigation of any Facility shall be conducted, unless otherwise agreed to by Holdings and Administrative Agent, during normal business hours and, to the extent reasonably practicable, shall be conducted so as not to interfere with the ongoing operations at such Facility or to cause any damage or loss to any property at such Facility. Holdings, Company and Administrative Agent hereby acknowledge and agree that any report of any investigation conducted at the request of Administrative Agent pursuant to this subsection 5.7A will be obtained and shall be used by Administrative Agent and Lenders for the purposes of Lenders' internal credit decisions, to monitor and police the Loans and to protect Lenders' security interests, if any, created by the Loan Documents. Administrative Agent agrees to deliver a copy of any such report to Company with the understanding that Company and Holdings acknowledge and agree that (x) they will indemnify and hold harmless Administrative Agent and each Lender from any costs, losses or liabilities relating to Holdings' or Company's use of or reliance on such report, (y) neither Administrative Agent nor any Lender makes any representation or warranty with respect to such report, and (z) by delivering such report to Company, neither Administrative Agent nor any Lender is requiring or recommending the implementation of any suggestions or recommendations contained in such report. B. Environmental Disclosure. Company will deliver to Administrative Agent, with sufficient copies for each Lender (and Administrative Agent will, after receipt thereof, deliver to each Lender): (i) Environmental Audits and Reports. As soon as practicable -------------------------------- following receipt thereof, copies of all material environmental audits, investigations, analyses and reports of any kind or character, whether prepared by personnel of Holdings or any of its Subsidiaries or by independent consultants, governmental authorities or any other Persons, with respect to environmental matters at any Facility that could reasonably be expected to have a Material Adverse Effect. (ii) Notice of Certain Releases, Remedial Actions, Etc. Promptly upon -------------------------------------------------- the occurrence thereof, written notice describing in reasonable detail (a) any Release required to be reported to any federal, state or local governmental or regulatory agency under any applicable Environmental Laws unless such Release could not reasonably be expected to result in a Material Adverse Effect, (b) any remedial action taken by Company, Holdings or any other Person in response to (1) any Hazardous Materials Activities the existence of which would reasonably be expected to result in one or more Environmental Claims having, individually or in the aggregate, a Material Adverse Effect, or (2) any 109 Environmental Claims of which Holdings or any of its Subsidiaries has notice that, individually or in the aggregate, would reasonably be expected to result in a Material Adverse Effect, and (c) Company's or Holdings' discovery of any occurrence or condition on any real property adjoining or in the vicinity of any Facility that would reasonably be expected to cause such Facility or any part thereof to be subject to any material restrictions on the ownership, occupancy, transferability or use thereof under any Environmental Laws. (iii) Written Communications Regarding Environmental Claims, ------------------------------------------------------ Releases, Etc. As soon as practicable following the sending or receipt -------------- thereof by Holdings or any of its Subsidiaries, a copy of any and all written communications with respect to (a) any Environmental Claims that, individually or in the aggregate, would reasonably be expected to give rise to a Material Adverse Effect, (b) any Release required to be reported to any federal, state or local governmental or regulatory agency unless such Release could not reasonably be expected to result in a Material Adverse Effect, and (c) any request for information from any governmental agency that suggests such agency is investigating whether Holdings or any of its Subsidiaries may be potentially responsible for any Hazardous Materials Activity unless such Hazardous Materials Activity could not reasonably be expected to have a Material Adverse Effect. (iv) Notice of Certain Proposed Actions Having Environmental Impact. -------------------------------------------------------------- Prompt written notice describing in reasonable detail (a) any proposed acquisition of stock, assets, or property by Holdings or any of its Subsidiaries that could reasonably be expected to (1) expose Holdings or any of its Subsidiaries to, or result in, Environmental Claims that could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect or (2) affect the ability of Holdings or any of its Subsidiaries to maintain in full force and effect all material Governmental Authorizations required under any Environmental Laws for their respective operations and (b) any proposed action to be taken by Holdings or any of its Subsidiaries to modify current operations in a manner that would reasonably be expected to subject Holdings or any of its Subsidiaries to any material additional obligations or requirements under any Environmental Laws where such obligations or reimbursements would reasonably be expected to have a Material Adverse Effect. (v) Other Information. With reasonable promptness, such other ----------------- documents and information as from time to time may be reasonably requested by Administrative Agent in relation to any matters disclosed pursuant to this subsection 5.7. C. Holdings' and Company's Actions Regarding Hazardous Materials Activities, Environmental Claims and Violations of Environmental Laws. (i) Remedial Actions Relating to Hazardous Materials Activities. ----------------------------------------------------------- Holdings shall promptly undertake, and shall cause each of its Subsidiaries promptly to undertake, any and all investigations, studies, sampling, testing, abatement, cleanup, removal, remediation or other response actions necessary to remove, remediate, clean up or abate 110 any Hazardous Materials Activity on, under or about any Facility that is in violation of any Environmental Laws or that presents a material risk of giving rise to an Environmental Claim that would, in either case, reasonably be expected to have a Material Adverse Effect. In the event Holdings or any of its Subsidiaries undertakes any such action with respect to any Hazardous Materials, Holdings or such Subsidiary shall conduct and complete such action in material compliance with all applicable Environmental Laws and in accordance an all material respects with the policies, orders and directives of all federal, state and local governmental authorities except when, and only to the extent that, Holdings' or such Subsidiary's liability with respect to such Hazardous Materials Activity is being contested in good faith by Holdings or such Subsidiary. (ii) Actions with Respect to Environmental Claims and Violations of -------------------------------------------------------------- Environmental Laws. Holdings shall promptly take, and shall cause each of ------------------ its Subsidiaries promptly to take, any and all actions necessary to (i) cure any violation of applicable Environmental Laws by Holdings or its Subsidiaries where such violation would reasonably be expected to have a Material Adverse Effect and (ii) make an appropriate response to any Environmental Claim against Holdings or any of its Subsidiaries (of which Holdings or any of its Subsidiaries has notice) where such Environmental Claim would reasonably be expected to have a Material Adverse Effect, and discharge any obligations it may have to any Person thereunder. 5.8 Execution of Subsidiary Guaranty and Personal Property Collateral Documents --------------------------------------------------------------------------- by Future Subsidiaries. ---------------------- A. Execution of Subsidiary Guaranty and Personal Property Collateral Documents. In the event that any Domestic Subsidiary which is an Excluded Subsidiary as of the Closing Date ceases to be an Excluded Subsidiary or any Person becomes a Domestic Subsidiary of Company after the date hereof, Company will promptly notify Administrative Agent of that fact and cause such Subsidiary to execute and deliver to Collateral Agent counterparts of the Subsidiary Guaranty, Subsidiary Pledge Agreement, Subsidiary Security Agreement and Subsidiary Patent and Trademark Security Agreement and to take all such further actions and execute all such further documents and instruments (including actions, documents and instruments comparable to those described in subsection 3.1J) as may be reasonably necessary or, in the reasonable opinion of Administrative Agent, desirable to create in favor of Collateral Agent, for the benefit of Lenders, a valid and perfected First Priority Lien on all of the personal and mixed property assets of such Subsidiary described in the applicable forms of Collateral Documents. B. Subsidiary Charter Documents, Legal Opinions, Etc. Company shall deliver to Administrative Agent, together with such Loan Documents, (i) certified copies of such Subsidiary's Certificate or Articles of Incorporation, together with a good standing certificate from the Secretary of State of the jurisdiction of its incorporation and each other state in which such Person is qualified as a foreign corporation to do business and, to the extent generally 111 available, a certificate or other evidence of good standing as to payment of any applicable franchise or similar taxes from the appropriate taxing authority of each of such jurisdictions, each to be dated a recent date prior to their delivery to Administrative Agent, (ii) a copy of such Subsidiary's Bylaws, certified by its corporate secretary or an assistant secretary as of a recent date prior to their delivery to Administrative Agent, (iii) a certificate executed by the secretary or an assistant secretary of such Subsidiary as to (a) the fact that the attached resolutions of the Board of Directors of such Subsidiary approving and authorizing the execution, delivery and performance of such Loan Documents are in full force and effect and have not been modified or amended and (b) the incumbency and signatures of the officers of such Subsidiary executing such Loan Documents, and (iv) to the extent requested by Administrative Agent, a favorable opinion of counsel to such Subsidiary, in form and substance reasonably satisfactory to Administrative Agent and its counsel, as to (a) the due organization and good standing of such Subsidiary, (b) the due authorization, execution and delivery by such Subsidiary of such Loan Documents, (c) the enforceability of such Loan Documents against such Subsidiary, (d) such other matters (including matters relating to the creation and perfection of Liens in any Collateral pursuant to such Loan Documents) as Administrative Agent may reasonably request, all of the foregoing to be reasonably satisfactory in form and substance to Administrative Agent and its counsel. 5.9 Conforming Leasehold Interests; Matters Relating to Additional Real ------------------------------------------------------------------- Property Collateral. ------------------- A. Conforming Leasehold Interests. If Holdings or any of its Subsidiaries acquires any Material Leasehold Property, Holdings shall use commercially reasonable efforts to, or shall cause such Subsidiary to use commercially reasonable efforts to, cause such Leasehold Property to be a Conforming Leasehold Interest. B. Additional Mortgages, Etc. From and after the Closing Date, in the event that (i) Holdings or any Subsidiary Guarantor acquires any fee interest in real property or any Material Leasehold Property or (ii) at the time any Person becomes a Subsidiary Guarantor, such Person owns or holds any fee interest in real property or any Material Leasehold Property, in either case excluding any such Real Property Asset the encumbrancing of which requires the consent of any applicable lessor or (in the case of clause (ii) above) then-existing senior lienholder, where Holdings and its Subsidiaries are unable, after exercising commercially reasonable efforts, to obtain such lessor's or senior lienholder's consent (any such non-excluded Real Property Asset described in the foregoing clause (i) or (ii) being an "Additional Mortgaged Property"), Holdings or such Subsidiary Guarantor shall deliver to Administrative Agent, as soon as practicable after such Person acquires such Additional Mortgaged Property or becomes a Subsidiary Guarantor, as the case may be, the following: (i) Additional Mortgage. A fully executed and notarized Mortgage (an ------------------- "Additional Mortgage"), in proper form for recording in all appropriate places in all applicable jurisdictions, encumbering the interest of such Loan Party in such Additional Mortgaged Property; 112 (ii) Opinions of Counsel. (a) A favorable opinion of counsel to ------------------- such Loan Party, in form and substance reasonably satisfactory to Administrative Agent and its counsel, as to the due authorization, execution and delivery by such Loan Party of such Additional Mortgage and such other matters as Administrative Agent may reasonably request, and (b) if required by Administrative Agent, an opinion of counsel (which counsel shall be reasonably satisfactory to Administrative Agent) in the state in which such Additional Mortgaged Property is located with respect to the enforceability of such Additional Mortgage and such other matters (including any matters governed by the laws of such state regarding personal property security interests in respect of any Collateral related to the Additional Mortgaged Property) as Administrative Agent may reasonably request, in each case in form and substance reasonably satisfactory to Administrative Agent; (iii) Landlord Consent and Estoppel; Recorded Leasehold Interest. In ---------------------------------------------------------- the case of an Additional Mortgaged Property consisting of a Leasehold Property, (a) a Landlord Consent and Estoppel and (b) evidence that such Leasehold Property is a Recorded Leasehold Interest; (iv) Title Insurance. (a) If required by Administrative Agent, an --------------- ALTA mortgagee title insurance policy or an unconditional commitment therefor (an "Additional Mortgage Policy") issued by the Title Company with respect to such Additional Mortgaged Property, in an amount reasonably satisfactory to Administrative Agent, insuring fee simple title to, or a valid leasehold interest in, such Additional Mortgaged Property vested in such Loan Party and assuring Administrative Agent that such Additional Mortgage creates a valid and enforceable First Priority mortgage Lien on such Additional Mortgaged Property, subject only to a standard survey exception, which Additional Mortgage Policy (1) shall include an endorsement for mechanics' liens, for future advances (in each case, if available) under this Agreement and for any other matters reasonably requested by Administrative Agent and (2) shall provide for affirmative insurance and such reinsurance as Administrative Agent may reasonably request, all of the foregoing in form and substance reasonably satisfactory to Administrative Agent; and (b) evidence satisfactory to Administrative Agent that such Loan Party has (i) delivered to the Title Company all certificates and affidavits required by the Title Company in connection with the issuance of the Additional Mortgage Policy and (ii) paid to the Title Company or to the appropriate governmental authorities all expenses and premiums of the Title Company in connection with the issuance of the Additional Mortgage Policy and all recording and stamp taxes (including mortgage recording and intangible taxes) payable in connection with recording the Additional Mortgage in the appropriate real estate records; provided, however, that Administrative Agent shall allow for such -------- ------- reasonable revisions to the applicable Mortgage and shall otherwise take such steps as are reasonable and customary to minimize recording, mortgage recording, stamp, documentary and intangible taxes, at Company's cost; (v) Title Report. If no Additional Mortgage Policy is required ------------ with respect to such Additional Mortgaged Property, a title report issued by the Title Company with 113 respect thereto, last updated not more than 30 days prior to the date such Additional Mortgage is to be recorded and reasonably satisfactory in form and substance to Administrative Agent; (vi) Copies of Documents Relating to Title Exceptions. Copies of all ------------------------------------------------ recorded documents listed as exceptions to title or otherwise referred to in the Additional Mortgage Policy or title report delivered pursuant to clause (iv) or (v) above; (vii) Matters Relating to Flood Hazard Properties. (a) Evidence, ------------------------------------------- which may be in the form of a surveyor's note on a survey or a report from a flood hazard search firm, as to (1) whether such Additional Mortgaged Property is a Flood Hazard Property and (2) if so, whether the community in which such Flood Hazard Property is located is participating in the National Flood Insurance Program, (b) if such Additional Mortgaged Property is a Flood Hazard Property, such Loan Party's written acknowledgement of receipt of written notification from Administrative Agent (1) that such Additional Mortgaged Property is a Flood Hazard Property and (2) as to whether the community in which such Flood Hazard Property is located is participating in the National Flood Insurance Program, and (c) in the event such Additional Mortgaged Property is a Flood Hazard Property that is located in a community that participates in the National Flood Insurance Program, evidence that Holdings or Company has obtained flood insurance in respect of such Flood Hazard Property to the extent required under the applicable regulations of the Board of Governors of the Federal Reserve System; and (viii) Environmental Audit. If required by Administrative Agent, ------------------- reports and other information, in form, scope and substance reasonably satisfactory to Administrative Agent and prepared by environmental consultants reasonably satisfactory to Administrative Agent, concerning any environmental hazards or liabilities to which Holdings or any of its Subsidiaries may be subject with respect to such Additional Mortgaged Property. C. Real Estate Appraisals. Holdings shall, and shall cause each of its Subsidiaries to, permit an independent real estate appraiser satisfactory to Administrative Agent, upon reasonable notice, to visit and inspect any Additional Mortgaged Property for the purpose of preparing an appraisal of such Additional Mortgaged Property satisfying the requirements of any applicable laws and regulations (in each case to the extent required under such laws and regulations as determined by Administrative Agent in its discretion). 5.10 Interest Rate Protection. ------------------------ At all times after the date which is 60 days after the Closing Date, Company shall maintain in effect one or more Interest Rate Agreements with respect to the Loans, each such Interest Rate Agreement to be for a term and in form and substance reasonably satisfactory to Syndication Agent, which Interest Rate Agreements shall effectively limit the Unadjusted Eurodollar Rate Component (as hereinafter defined) of the interest costs to Company with respect to an aggregate notional principal amount of not less than 50% of the aggregate principal 114 amount of the Tranche A Term Loans outstanding from time to time (based on the assumption that such notional principal amount was a Eurodollar Rate Loan with an Interest Period of three months) to a rate equal to not more than 8.0% per annum. For purposes of this subsection 5.10, the term "Unadjusted Eurodollar Rate Component" means that component of the interest costs to Company in respect of a Eurodollar Rate Loan that is based upon the rate obtained pursuant to clause (i) of the definition of Adjusted Eurodollar Rate. 5.11 Additional Foreign Subsidiary Collateral. ---------------------------------------- If, following a change in the relevant provisions of the Internal Revenue Code, counsel for Company acceptable to Administrative Agent does not within 30 days after a request from Administrative Agent or Requisite Lenders deliver evidence, in form and substance satisfactory to Administrative Agent with respect to any Foreign Subsidiary which has not already had all of its capital stock pledged pursuant to the Collateral Documents, that (i) a pledge of 66-2/3% or more of the total combined voting power of all classes of capital stock of such Foreign Subsidiary entitled to vote, and of any promissory note issued by such Foreign Subsidiary to Holdings or any of its Domestic Subsidiaries, and (ii) the entering into by such Foreign Subsidiary of a guaranty in substantially the form of the Subsidiary Guaranty, in any such case would cause the undistributed earnings of such Foreign Subsidiary as determined for Federal income tax purposes to be treated as a deemed dividend to such Foreign Subsidiary's United States parent for Federal income tax purposes, then: in the case of a failure to deliver the evidence described in clause (i) above, that portion of such Foreign Subsidiary's outstanding capital stock or any promissory notes so issued by such Foreign Subsidiary, in each case not theretofore pledged pursuant to the Collateral Documents, shall be pledged to Collateral Agent pursuant to the Collateral Documents (or another pledge agreement in substantially similar form, if necessary), and in the case of a failure to deliver the evidence described in clause (ii) above, such Foreign Subsidiary shall execute and deliver the Subsidiary Guaranty and other Collateral Documents (or other guaranty and security agreements in substantially similar form, if necessary), granting Collateral Agent a security interest in all of such Foreign Subsidiary's real, mixed and personal property and securing the Obligations, in each case to the extent that such pledge of capital stock and notes and entry into such guaranty and related documents is permitted by the laws of the applicable foreign jurisdictions. 5.12 Post-Closing Deliveries. ----------------------- Company shall cause any actions set forth on Schedule 5.12 annexed hereto ------------- to be taken within the time period(s) specified on such Schedule 5.12 and in ------------- form and substance reasonably satisfactory to Administrative Agent and Syndication Agent. SECTION 6. COMPANY'S NEGATIVE COVENANTS Company covenants and agrees that, so long as any of the Commitments hereunder shall remain in effect and until payment in full of all of the Loans and other Obligations (other than 115 inchoate indemnification obligations with respect to claims, losses or liabilities which have not yet arisen and are not yet due and payable), unless Requisite Lenders shall otherwise give prior written consent, Company shall perform, and shall cause each of its Subsidiaries to perform, all covenants in this Section 6. 6.1 Restricted Payments. ------------------- Company shall not, and shall 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 Company's Equity Interests (including, without limitation, any payment in connection with any merger or consolidation involving Company) or to the direct or indirect holders of Company's Equity Interests in their capacity as such (other than dividends or distributions payable in Qualified Capital Stock of Company); (ii) purchase, redeem or otherwise acquire or retire for value (including, without limitation, in connection with any merger or consolidation involving Company) any Equity Interests of Company or any direct or indirect parent of 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 Potential Event of Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; and (b) 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 subsection 6.3 hereof; and (c) such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by Company and its Restricted Subsidiaries after the date of this Agreement (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 Company for the period (taken as one accounting period) from the beginning of the first Fiscal Quarter commencing after the date of this Agreement to the end of 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 Company since the date of this Agreement as a contribution to its common equity capital (other than from a Subsidiary or that were financed with loans from 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 Company (excluding any net proceeds from an Equity Offering or capital contribution to the extent used to repay 116 Loans in accordance with the optional prepayment provisions hereunder) or from the issue or sale of Disqualified Stock or debt securities of 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 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 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 will 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 Company (the "Retired Capital Stock"), either (i) solely in exchange for shares of Qualified Capital Stock of 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 Company) of shares of Qualified Capital Stock of Company, and, in the case of subclause (i) of this clause (2), if immediately prior to the 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 Potential Event of Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; (3) if no Potential Event of 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 this Agreement (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, 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 Holdings for the purpose of permitting, and in an amount equal to the amount required to permit, Holdings to redeem or repurchase Holdings'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 $12,500,000 (which amount shall be increased by the amount of any net cash proceeds received from the sale since the date of this Agreement of Equity Interests (other than Disqualified Stock) to members of 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 117 "key-man" life insurance policies which are used to make such redemptions or repurchases) in the aggregate since the date of this Agreement; provided -------- further, that the cancellation of Indebtedness owing to Company from members of - ------- management of Company or any of its Restricted Subsidiaries in connection with such a repurchase of Capital Stock of Holdings will not be deemed to constitute a Restricted Payment under this Agreement; (5) the making of distributions, loans or advances to Holdings in an amount not to exceed $1,500,000 per annum in order to permit Holdings to pay the ordinary operating expenses of Holdings (including, without limitation, directors' fees, indemnification obligations, professional fees and expenses, but excluding any payments on or repurchases of Junior Subordinated Seller Notes); (6) payments to Holdings in respect of taxes pursuant to the terms of the Tax Allocation Agreement as in effect on the date of this Agreement and as amended from time to time pursuant to amendments that do not increase the amounts payable by Company or any of its Restricted Subsidiaries thereunder; (7) if no Potential Event of Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof and Company would be permitted to incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) in compliance with subsection 6.3 hereof, other Restricted Payments in an aggregate amount not to exceed $12,500,000 since the date of this Agreement; (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; (9) distributions to Holdings to fund the Recapitalization Transactions; and (10) if no Potential Event of Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof, payments or distributions to Holdings to the extent required for Holdings to repurchase, redeem, defease or otherwise prepay any Existing Subordinated Notes not tendered pursuant to the Debt Tender Offer on terms (set forth in the Existing Subordinated Note Indenture or otherwise) no less favorable in any material respect to Holdings, Company and Lenders than the terms of the Debt Tender Offer. In determining the aggregate amount of Restricted Payments made subsequent to the date of this Agreement 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 Company from any "key-man" life insurance policies and (b) amounts expended pursuant to clauses (3), (5), (6), (8), (9) or (10) 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 Potential Event of Default. For purposes of making such determination, all outstanding Investments by 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. 118 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 Company or such Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment. 6.2 Dividend and Other Payment Restrictions Affecting Subsidiaries. -------------------------------------------------------------- Company shall not, and shall 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 Company or any other Restricted Subsidiary of Company or (c) transfer any of its property or assets to Company or any other Restricted Subsidiary of Company, except for such encumbrances or restrictions existing under or by reason of: (1) applicable law; (2) the Loan Documents or the New Sub Debt Indentures; (3) nonassignment 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 this Agreement (including, without limitation, the Revolving Credit Agreement and the Existing Subordinated 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 this Agreement 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 Company or a Restricted Subsidiary of 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 Company that was permitted by this Agreement to be incurred; (11) other Indebtedness or Domestic Subsidiary Preferred Stock permitted to be incurred subsequent to the date of this Agreement pursuant to the provisions of subsection 6.3; 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 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. 119 6.3 Incurrence of Indebtedness and Issuance of Preferred Stock. ---------------------------------------------------------- Company shall not, and shall 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 Company shall not issue any Disqualified Stock and shall not permit any of its Restricted Subsidiaries to issue any shares of Preferred Stock; provided, however, that Company may incur -------- ------- Indebtedness or issue shares of Disqualified Stock if (i) no Potential Event of 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 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 will not apply to the incurrence of any of the following items of Indebtedness (collectively, "Permitted Indebtedness"): (i) the Senior Subordinated Notes, the Discount Notes and, in each case, the guarantees thereof required thereunder; (ii) Indebtedness incurred pursuant to the Revolving Credit Agreement and the other Revolving Credit Documents 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 Company and its Subsidiaries thereunder) not to exceed $220,000,000 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 of the Tranche A Term Loans actually made by Company or any of its Restricted Subsidiaries since the date of this Agreement (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 the Revolving Credit Agreement that are accompanied by a corresponding commitment reduction thereunder; (iii) the incurrence of Indebtedness and/or the issuance of Permitted Foreign Subsidiary Preferred Stock by Foreign Subsidiaries of 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 $15,000,000 at any one time outstanding; provided -------- that such amount shall increase to $30,000,000 upon the consummation of an Initial Public Offering; (iv) other Indebtedness of Company and its Subsidiaries outstanding on the date of this Agreement for so long as such Indebtedness remains outstanding; 120 (v) Interest Swap Obligations of Company covering Indebtedness of 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 Company, to protect Company from fluctuation in interest rates on its outstanding Indebtedness; (vi) Indebtedness of Company under Currency Agreements; (vii) the incurrence by Company or any of its Restricted Subsidiaries of intercompany Indebtedness between or among Company and any of its Restricted Subsidiaries; provided, however, that (i) if Company is the -------- ------- obligor on such Indebtedness, such Indebtedness is expressly subordinated to the prior payment in full in cash of all Obligations and (ii) (A) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being held by a Person other than Company or a Subsidiary thereof and (B) any sale or other transfer of any such Indebtedness to a Person that is not either Company or a Restricted Subsidiary thereof shall be deemed, in each case, to constitute an incurrence of such Indebtedness by 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 Company to the extent 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 Company and the Guarantors of each other's Indebtedness; provided that such Indebtedness is permitted to be incurred -------- under this Agreement and the New Sub Debt Indentures; (x) Indebtedness (including Capital Lease Obligations) incurred by 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); (xi) Indebtedness incurred by 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 Company or a Restricted Subsidiary of Company providing for indemnification, adjustment of purchase price, earn out or other similar obligations, in each case, incurred or assumed in connection with the 121 disposition of any business, assets or a Restricted Subsidiary of 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 Company and its Restricted Subsidiaries in connection with such disposition; (xiii) obligations in respect of performance and surety bonds and completion guarantees provided by Company or any Restricted Subsidiary of 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 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 hereunder) of 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, substituted, 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 Company and its other Restricted Subsidiaries (except for Standard Securitization Undertakings); (xvi) the incurrence of additional Indebtedness by Company or any of its Restricted Subsidiaries and/or the issuance of Permitted Domestic Subsidiary Preferred Stock by Company's Domestic Subsidiaries or other Subsidiary Guarantors 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 $30,000,000 at any one time outstanding; provided that such amount shall increase to -------- $50,000,000 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 122 described in clauses (i) through (xvi) above or is entitled to be incurred pursuant to the first paragraph of this covenant, 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 Company as accrued. 6.4 Asset Sales. ----------- Company shall not, and shall not permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless (i) 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 Board of Directors), (ii) at least 75% of the consideration received by 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 Company's or such - -------- Restricted Subsidiary's most recent balance sheet) of Company or any such Restricted Subsidiary (other than liabilities that are by their terms subordinated to the Loans) that are assumed by the transferee of any such assets, (b) any notes or other obligations received by Company or any such Restricted Subsidiary from such transferee that are immediately converted by Company or such Restricted Subsidiary into cash (to the extent of the cash received) and (c) any Designated Noncash Consideration received by 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, Company shall apply, or cause such Restricted Subsidiary to apply, the Net Asset Sale Proceeds relating to such Asset Sale in accordance with subsection 2.4B(ii)(a). 6.5 Transactions with Affiliates. ---------------------------- A. Company shall not, and shall 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 $2,500,000 (an "Affiliate Transaction"), other than (x) Affiliate Transactions permitted under subsection 6.5B 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 Company; provided, however, that for a transaction or series of related -------- ------- transactions 123 with an aggregate value of $7,500,000 or more, at Company's option, either (i) a majority of the disinterested members of the Board of Directors of 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 Company or (ii) the Board of Directors of 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 Company; and provided, further, that for an Affiliate Transaction with an aggregate value -------- ------- of $10,000,000 or more the Board of Directors of 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 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 Company. B. 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 Company or any Subsidiary as determined in good faith by Company's Board of Directors or senior management; (ii) transactions exclusively between or among 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 Securitization Transaction; (iv) any agreement as in effect as of the date of this Agreement 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 Lenders in any material respect than the original agreement as in effect on the date of this Agreement; (v) Restricted Payments permitted by this Agreement; (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 in connection with acquisitions or divestitures which are approved by the Board of Directors of 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 Company in good faith, (ix) the existence of, or the performance by 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 this Agreement and any similar agreements which it may enter into thereafter; provided, however, that -------- ------- the existence of, or the performance by 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 this Agreement 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 Lenders in any material respect; (x) transactions permitted by, and complying with, subsection 6.8 hereof; and (xi) transactions with customers, clients, suppliers, joint venture partners or purchasers or sellers of 124 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 hereof which are fair to Company or its Restricted Subsidiaries, in the reasonable determination of the Board of Directors of 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. 6.6 Liens. ----- A. Prohibition on Liens. Company shall not, and shall 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, except: (i) Permitted Encumbrances; (ii) Liens created pursuant to the Collateral Documents in favor of the Collateral Agent for the benefit of the Lenders and/or the lenders under the Revolving Credit Agreement securing Loan Parties' obligations under this Agreement, the Revolving Credit Agreement and/or under Interest Rate Agreements with any such Lenders and/or lenders or their respective affiliates; provided that such Liens for the benefit of the lenders under -------- the Revolving Credit Agreement shall at all times secure the Obligations; (iii) Liens arising in connection with Capital Leases; provided that -------- no such Lien shall extend to or cover any Collateral or assets other than the assets subject to such Capital Leases; (iv) Liens securing Indebtedness incurred (a) to finance the acquisition, construction or improvement of any real property or tangible personal property assets acquired or held by Company or any of its Subsidiaries in the ordinary course of business; provided that (1) such -------- Liens shall be created within 180 days after the acquisition, construction or improvement of such assets, and (2) the principal amount of Indebtedness secured by any such Liens shall at no time exceed 100%, and the proceeds of such Indebtedness shall be used to provide not less than 75%, of the original purchase price of such asset or the amount expended to construct or improve such asset, as the case may be; or (b) to renew, extend or refinance any Indebtedness described in clause (a); provided that the -------- amount of any such Indebtedness does not exceed the amount of Indebtedness so renewed, extended or refinanced which is unpaid and outstanding immediately prior to such renewal, extension or refinancing; and provided -------- further, that in the case of clause (a) or (b), (1) such Liens attach ------- solely to the assets financed with such Indebtedness, (2) no recourse may be had under the Indebtedness secured by such Lien against any Person other than the borrower of such Indebtedness for the payment of principal, interest, fees, costs or premium on such Indebtedness or for any claim based thereon, and (3) the financial covenants under any Indebtedness secured by such Liens are, in each case, no more restrictive than those set forth in the Revolving Credit 125 Agreement (for so long as the Revolving Credit Agreement is in full force and effect) and this Agreement; (v) Liens on real property or personal property assets of Foreign Subsidiaries of Holdings securing Indebtedness of such Foreign Subsidiaries (other than intercompany Indebtedness) permitted under the Revolving Credit Agreement (for so long as the Revolving Credit Agreement is in full force and effect) and this Agreement; and (vi) other Liens securing Indebtedness in an aggregate amount not to exceed $5,000,000 at any time outstanding. Notwithstanding anything in the foregoing to the contrary, the amount of Indebtedness in respect of Capital Leases and purchase money Indebtedness secured by Liens permitted under clauses (iii) and (iv) above shall not exceed at any time outstanding (A) $20,000,000 minus (B) the amount of any Acquired ----- Subsidiary Debt. B. Equitable Lien in Favor of Lenders. If Holdings or any of its Subsidiaries shall create or assume any Lien upon any of its properties or assets, whether now owned or hereafter acquired, other than Liens excepted by the provisions of subsection 6.6A, it shall make or cause to be made effective provision whereby the Obligations will be secured by such Lien equally and ratably with any and all other Indebtedness secured thereby as long as any such Indebtedness shall be so secured; provided that, notwithstanding the foregoing, -------- this covenant shall not be construed as a consent by Requisite Lenders to the creation or assumption of any such Lien not permitted by the provisions of subsection 6.6A. 6.7 Conduct of Business. ------------------- Company shall not, and shall 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 Company and its Restricted Subsidiaries are engaged on the date of this Agreement. 6.8 Consolidation, Merger and Sale of Assets. ---------------------------------------- Company shall not consolidate or merge with or into (whether or not 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 another corporation, Person or entity unless (i) Company is the surviving corporation or the entity or the Person formed by or surviving any such consolidation or merger (if other than 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 Company) or the entity or Person to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made assumes all 126 the obligations of Company under this Agreement and the other Loan Documents pursuant to a instruments in form reasonably satisfactory to Administrative Agent; (iii) immediately after such transaction no Potential Event of Default or Event of Default exists; and (iv) except in the case of a merger of Company with or into a Wholly Owned Subsidiary of Company and except in the case of a merger entered into solely for the purpose of reincorporating Company in another jurisdiction, Company or the entity or Person formed by or surviving any such consolidation or merger (if other than 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 subsection 6.3. 6.9 Successor Corporation. --------------------- Upon any consolidation or merger, or any sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the assets of Company in accordance with subsection 6.8 hereof, the successor corporation formed by such consolidation or into or with which Company is merged or to which such sale, assignment, transfer, lease, conveyance or other disposition is made shall succeed to, and be substituted for (so that from and after the date of such consolidation, merger, sale, lease, conveyance or other disposition, the provisions of this Agreement and the other Loan Documents referring to "Company" shall refer instead to the successor corporation and not to Company), and may exercise every right and power of Company under this Agreement and the Loan Documents with the same effect as if such successor Person had been named as Company herein; provided, however, that the predecessor Company shall not be -------- ------- relieved from its obligation to pay the Obligations except in the case of a sale of all of Company's assets that meets the requirements of subsection 6.8. 6.10 Amendments or Waivers of Certain Agreements; Amendments of Documents -------------------------------------------------------------------- Relating to Subordinated Indebtedness; Designation of "Designated Senior ------------------------------------------------------------------------ Debt". ----- A. Amendments or Waivers of Certain Agreements. None of Holdings, Company nor any of their respective Subsidiaries will agree to any amendment to, or waive any of its rights under, the Bain Advisory Services Agreement, the Harvard Advisory Services Agreement or any Related Agreement (other than any Related Agreement evidencing or governing any Subordinated Indebtedness) after the Closing Date if any such amendment or waiver would, individually or in the aggregate, reasonably be expected to be materially adverse to Lenders without in each case obtaining the prior written consent of Requisite Lenders to such amendment or waiver. B. Amendments of Documents Relating to Subordinated Indebtedness. Holdings and Company shall not, and shall not permit any of their respective Subsidiaries to, amend or otherwise change the terms of any Subordinated Indebtedness, or make any payment consistent with an amendment thereof or change thereto, if the effect of such amendment or change is to increase the interest rate on such Subordinated Indebtedness, change (to earlier dates) any dates 127 upon which payments of principal or interest are due thereon, change any event of default or condition to an event of default with respect thereto (other than to eliminate any such event of default or increase any grace period related thereto), change the redemption, prepayment or defeasance provisions thereof, change the subordination provisions of such Subordinated Indebtedness (or of any guaranty thereof), or change any collateral therefor (other than to release such collateral), or if the effect of such amendment or change, together with all other amendments or changes made, is to increase materially the obligations of the obligor thereunder or to confer any additional rights on the holders of such Subordinated Indebtedness (or a trustee or other representative on their behalf) which would be materially adverse to Holdings, Company or Lenders. C. Amendments of Revolving Credit Documents. Holdings and Company shall not, and shall not permit any of their respective Subsidiaries to, amend or otherwise change the terms of any of the Revolving Credit Documents, or make any payment consistent with an amendment thereof or a change thereto, that would have the effect of (i) changing (to earlier dates) any dates upon which payments of principal or interest are due on the loans under the Revolving Credit Agreement or requiring the earlier payment of letter of credit reimbursement obligations, (ii) reducing the percentage specified in the definition of "Requisite Lenders" in the Revolving Credit Agreement, or (iii) changing the prepayment provisions of the Revolving Credit Agreement in a manner that disproportionately disadvantages the Lenders relative to the lenders under the Revolving Credit Agreement or confers additional rights on the lenders under the Revolving Credit Agreement which would be adverse to Lenders, without the prior written consent of Requisite Lenders under this Agreement. D. Designation of "Designated Senior Debt". Holdings and Company shall not designate any Indebtedness as "Designated Senior Debt" (as defined in the New Sub Debt Indentures or the Junior Subordinated Seller Notes) for purposes of the New Sub Debt Indentures or the Junior Subordinated Seller Notes without the prior written consent of Requisite Lenders. SECTION 7. EVENTS OF DEFAULT If any of the following conditions or events ("Events of Default") shall occur: 7.1 Failure to Make Interest Payments When Due. ------------------------------------------ Failure to pay interest or fees on any Loans when the same becomes due and payable if the default continues for a period of three (3) days; or 7.2 Failure to Make Principal Payments When Due. ------------------------------------------- Failure to pay the principal of any Loans when such principal becomes due and payable, at maturity, as a result of mandatory prepayment or otherwise; or 128 7.3 Other Defaults Under Loan Documents; Breach of Warranty. ------------------------------------------------------- A default in the observance or performance of any other covenant or agreement contained herein or in the Loan Documents if the default continues for a period of 30 days after Company receives written notice specifying the default (and demanding that such default be remedied) from Administrative Agent or from Requisite Lenders; or any representation, warranty, certification or other statement made by Holdings or any of its Subsidiaries in any Loan Document or in any statement or certificate at any time given by Holdings or any of its Subsidiaries in writing pursuant hereto or thereto or in connection herewith or therewith shall be false in any material respect on the date as of which made; or 7.4 Default in Other Agreements. --------------------------- (i) Failure of Holdings or any of its Subsidiaries to pay when due any principal of or interest on or any other amount payable in respect of the Revolving Credit Agreement or one or more items of Indebtedness (other than the Loans) or Contingent Obligations in an individual principal amount of $5,000,000 or more or with an aggregate principal amount of $10,000,000 or more, in each case beyond the end of any grace period provided therefor; or (ii) breach or default by Holdings or any of its Subsidiaries with respect to any other material term of (a) the Revolving Credit Agreement, (b) one or more items of Indebtedness or Contingent Obligations in the individual or aggregate principal amounts referred to in clause (i) above or (c) any loan agreement, mortgage, indenture or other agreement relating to such item(s) of Indebtedness or Contingent Obligation(s), if the effect of such breach or default is to cause, or to permit the holder or holders of that Indebtedness or Contingent Obligation(s) (or a trustee on behalf of such holder or holders) to cause, that Indebtedness or Contingent Obligation(s) to become or be declared due and payable prior to its stated maturity or the stated maturity of any underlying obligation, as the case may be (upon the giving or receiving of notice, lapse of time, both, or otherwise), and either (X) such default or breach under clause (i) or (ii) continues for a period of twenty (20) Business Days and remains uncured and unwaived for such period or (Y) such Indebtedness or Contingent Obligation is either already at its final maturity in accordance with its terms or has been accelerated; or (iii) failure to pay at final stated maturity (giving effect to any extensions thereof) the principal amount of any Indebtedness of 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 $20,000,000 or more at any time; or 7.5 Judgments and Attachments. ------------------------- One or more judgments in an aggregate amount in excess of $20,000,000 shall have been rendered against 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; or 129 7.6 Voluntary Bankruptcy; Appointment of Receiver, etc. --------------------------------------------------- Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary pursuant to or within the meaning of Bankruptcy Law: (i) commences a voluntary case; (ii) consents to the entry of an order for relief against it in an involuntary case; (iii) consents to the appointment of a Custodian of it or for all or substantially all of its property; (iv) makes a general assignment for the benefit of its creditors; or (v) generally is not paying its debts as they become due; or 7.7 Involuntary Bankruptcy; Appointment of Receiver, etc. ----------------------------------------------------- A court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (i) is for relief against Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary in an involuntary case; (ii) appoints a Custodian of Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary or for all or substantially all of the property of Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary; or (iii) orders the liquidation of Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary, and the order or decree remains unstayed and in effect for 60 consecutive days; or 7.8 Change in Control. ----------------- (i) Holdings shall cease to own 100% of the capital stock of Company; or (ii) Bain and the Other Investors shall cease to have a presently exercisable right to vote at least 51% of all issued and outstanding equity Securities of Holdings entitled (without regard to the occurrence of any contingency) to vote for the election of members of the Board of Directors of Holdings; or (iii) Bain and the Other Investors shall cease to beneficially own at least 51% of the economic value of Holdings; or (iv) a majority of the members of the Board of Directors of Company shall 130 not be Continuing Directors; or (v) Bain shall (a) cease to have a presently exercisable right to vote more of the issued and outstanding equity Securities of Holdings entitled (without regard to the occurrence of any contingency) to vote for the election of members of the Board of Directors of Holdings than any one of the Other Investors, or (b) cease to beneficially own a greater percentage of the economic value of Holdings than the percentage beneficially owned by any one of the Other Investors; or (vi) the ratio of (a) either (x) the percentage of the issued and outstanding equity Securities of Holdings or (y) the percentage of the economic value of Holdings, in each case held by Bain at any time, to (b) either (x) the percentage of the issued and outstanding equity Securities of Holdings or (y) the percentage of the economic value of Holdings, in each case held by Bain on the Closing Date after giving effect to the Recapitalization Transactions, shall at any time be less than .50:1.0; or (vii) a "Change of Control" under either of the New Sub Debt Indentures shall occur; or 7.9 Invalidity of Guaranties; Failure of Security; Repudiation of Obligations. ------------------------------------------------------------------------- At any time after the execution and delivery thereof, (i) any Guaranty for any reason, other than the satisfaction in full of all 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), shall cease to be in full force and effect (other than in accordance with its terms) or shall be declared to be null and void, (ii) any Collateral Document shall cease to be in full force and effect (other than by reason of a release of Collateral thereunder in accordance with the terms hereof or thereof, the satisfaction in full of the 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) or any other termination of such Collateral Document in accordance with the terms hereof or thereof) or shall be declared null and void, or Administrative Agent shall not have or shall cease to have a valid and perfected First Priority Lien in any Collateral purported to be covered thereby having a fair market value, individually or in the aggregate, exceeding $2,000,000, in each case for any reason other than the failure of Administrative Agent or any Lender to take any action within its control, or (iii) any Loan Party shall contest the validity or enforceability of any Loan Document in writing or deny in writing that it has any further liability, including with respect to future advances by Lenders, under any Loan Document to which it is a party; THEN (i) upon the occurrence of any Event of Default described in subsection 7.6 or 7.7, each of (a) the unpaid principal amount of and accrued interest on the Loans, and (b) all other Obligations shall automatically become immediately due and payable, without presentment, demand, protest or other requirements of any kind, all of which are hereby expressly waived by Holdings and Company, and the obligation of each Lender to make any Loan, shall thereupon terminate, and (ii) upon the occurrence and during the continuation of any other Event of Default, Administrative Agent shall, upon the written request or with the written consent of Requisite Lenders, by written notice to Company, declare all or any portion of the amounts described in clauses (a) and (b) above to be, and the same shall forthwith become, immediately due and payable. 131 Notwithstanding anything contained in the preceding paragraph, if at any time within 60 days after an acceleration of the Loans pursuant to clause (ii) of such paragraph Company shall pay all arrears of interest and all payments on account of principal which shall have become due otherwise than as a result of such acceleration (with interest on principal and, to the extent permitted by law, on overdue interest, at the rates specified in this Agreement) and all Events of Default and Potential Events of Default (other than non- payment of the principal of and accrued interest on the Loans, in each case which is due and payable solely by virtue of acceleration) shall be remedied or waived pursuant to subsection 9.6, then Requisite Lenders, by written notice to Company, may at their option rescind and annul such acceleration and its consequences; but such action shall not affect any subsequent Event of Default or Potential Event of Default or impair any right consequent thereon. The provisions of this paragraph are intended merely to bind Lenders to a decision which may be made at the election of Requisite Lenders and are not intended, directly or indirectly, to benefit Holdings or Company, and such provisions shall not at any time be construed so as to grant Holdings or Company the right to require Lenders to rescind or annul any acceleration hereunder or to preclude Administrative Agent or Lenders from exercising any of the rights or remedies available to them under any of the Loan Documents, even if the conditions set forth in this paragraph are met. SECTION 8. AGENTS 8.1 Appointment. ----------- A. Appointment of Agents. GSCP is hereby appointed Syndication Agent hereunder, and each Lender hereby authorizes Syndication Agent to act as its agent in accordance with the terms of this Agreement and the other Loan Documents. Morgan Guaranty is hereby appointed Administrative Agent hereunder and under the other Loan Documents and each Lender hereby authorizes Administrative Agent to act as its agent in accordance with the terms of this Agreement and the other Loan Documents. BTCo. is hereby appointed Documentation Agent hereunder. Each Lender hereby authorizes and confirms the appointment by Administrative Agent of Morgan Guaranty as Collateral Agent under the Intercreditor Agreement and each Lender hereby authorizes Collateral Agent to act as its agent in accordance with the terms of the Intercreditor Agreement and the other Loan Documents. Each Agent hereby agrees to act upon the express conditions contained in this Agreement and the other Loan Documents, as applicable. The provisions of this Section 9 are solely for the benefit of Agents and Lenders and Company shall have no rights as a third party beneficiary of any of the provisions thereof. In performing its functions and duties under this Agreement, each Agent shall act solely as an agent of Lenders and does not assume and shall not be deemed to have assumed any obligation towards or relationship of agency or trust with or for Holdings or any of its Subsidiaries. Each of Syndication Agent, without consent of or notice to any party hereto, may assign any and all of its rights or obligations hereunder to any of its Affiliates. As of the date on which Syndication Agent notifies Company that it has concluded its primary syndication of the Loans and Commitments, all obligations of GSCP, in its capacity as Syndication Agent 132 hereunder, shall terminate. BTCo., in its capacity as Documentation Agent, shall have no obligations hereunder. B. Appointment of Supplemental Collateral Agents. It is the purpose of this Agreement and the other Loan Documents that there shall be no violation of any law of any jurisdiction denying or restricting the right of banking corporations or associations to transact business as agent or trustee in such jurisdiction. It is recognized that in case of litigation under this Agreement or any of the other Loan Documents, and in particular in case of the enforcement of any of the Loan Documents, or in case Administrative Agent deems that by reason of any present or future law of any jurisdiction it may not exercise any of the rights, powers or remedies granted herein or in any of the other Loan Documents or take any other action which may be desirable or necessary in connection therewith, it may be necessary that Administrative Agent appoint an additional individual or institution as a separate trustee, co-trustee, collateral agent or collateral co-agent (any such additional individual or institution being referred to herein individually as a "Supplemental Collateral Agent" and collectively as "Supplemental Collateral Agents"). In the event that Administrative Agent appoints a Supplemental Collateral Agent with respect to any Collateral, (i) each and every right, power, privilege or duty expressed or intended by this Agreement or any of the other Loan Documents to be exercised by or vested in or conveyed to Administrative Agent with respect to such Collateral shall be exercisable by and vest in such Supplemental Collateral Agent to the extent, and only to the extent, necessary to enable such Supplemental Collateral Agent to exercise such rights, powers and privileges with respect to such Collateral and to perform such duties with respect to such Collateral, and every covenant and obligation contained in the Loan Documents and necessary to the exercise or performance thereof by such Supplemental Collateral Agent shall run to and be enforceable by either Administrative Agent or such Supplemental Collateral Agent, and (ii) the provisions of this Section 8 and of subsections 9.2 and 9.3 that refer to Administrative Agent shall inure to the benefit of such Supplemental Collateral Agent and all references therein to Administrative Agent shall be deemed to be references to Administrative Agent and/or such Supplemental Collateral Agent, as the context may require. Should any instrument in writing from Holdings, Company or any other Loan Party be required by any Supplemental Collateral Agent so appointed by Administrative Agent for more fully and certainly vesting in and confirming to him or it such rights, powers, privileges and duties, Holdings or Company shall, or shall cause such Loan Party to, execute, acknowledge and deliver any and all such instruments promptly upon request by Administrative Agent. In case any Supplemental Collateral Agent, or a successor thereto, shall die, become incapable of acting, resign or be removed, all the rights, powers, privileges and duties of such Supplemental Collateral Agent, to the extent permitted by law, shall vest in and be exercised by Administrative Agent until the appointment of a new Supplemental Collateral Agent. 133 8.2 Powers and Duties; General Immunity. ----------------------------------- A. Powers; Duties Specified. Each Lender irrevocably authorizes each Agent to take such action on such Lender's behalf and to exercise such powers, rights and remedies hereunder and under the other Loan Documents as are specifically delegated or granted to such Agent by the terms hereof and thereof, together with such powers, rights and remedies as are reasonably incidental thereto. Each Agent shall have only those duties and responsibilities that are expressly specified in this Agreement and the other Loan Documents. Each Agent may exercise such powers, rights and remedies and perform such duties by or through its agents or employees. No Agent shall have, by reason of this Agreement or any of the other Loan Documents, a fiduciary relationship in respect of any Lender; and nothing in this Agreement or any of the other Loan Documents, expressed or implied, is intended to or shall be so construed as to impose upon any Agent any obligations in respect of this Agreement or any of the other Loan Documents except as expressly set forth herein or therein. B. No Responsibility for Certain Matters. No Agent shall be responsible to any Lender for the execution, effectiveness, genuineness, validity, enforceability, collectibility or sufficiency of this Agreement or any other Loan Document or for any representations, warranties, recitals or statements made herein or 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 any of Agent to Lenders or by or on behalf of Holdings or Company to any Agent or any Lender in connection with the Loan Documents and the transactions contemplated thereby or for the financial condition or business affairs of Holdings or Company or any other Person liable for the payment of any Obligations, nor shall any Agent 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. Anything contained in this Agreement to the contrary notwithstanding, Administrative Agent shall not have any liability arising from confirmations of the amount of outstanding Loans or the component amounts thereof. C. Exculpatory Provisions. None of Agents nor any of their respective officers, partners, directors, employees or agents shall be liable to Lenders for any action taken or omitted by any Agent under or in connection with any of the Loan Documents except to the extent caused by such Agent's gross negligence or willful misconduct. Each Agent shall be entitled to refrain from any act or the taking of any action (including the failure to take an action) in connection with this Agreement or any of the other Loan Documents or from the exercise of any power, discretion or authority vested in it hereunder or thereunder unless and until such Agent, in the case of any Agent other than the Collateral Agent, shall have received instructions in respect thereof from Requisite Lenders (or such other Lenders as may be required to give such instructions under subsection 9.6) or, in the case of the Collateral Agent, in accordance with the Intercreditor Agreement, and, upon receipt of such instructions from Requisite Lenders (or such other Lenders, as the case may be) or in accordance with the Intercreditor Agreement, as the case may be, such Agent shall be entitled to act or (where so instructed) refrain from acting, or to exercise such power, discretion or authority, in accordance 134 with such instructions. Without prejudice to the generality of the foregoing, (i) each Agent shall be entitled to rely, and shall be fully protected in relying, upon any communication, instrument or document believed by it to be genuine and correct and to have been signed or sent by the proper person or persons, and shall be entitled to rely and shall be protected in relying on opinions and judgments of attorneys (who may be attorneys for Holdings and its Subsidiaries), accountants, experts and other professional advisors selected by it; and (ii) no Lender shall have any right of action whatsoever against any Agent as a result of such Agent acting or (where so instructed) refraining from acting under this Agreement or any of the other Loan Documents, in the case of any Agent other than the Collateral Agent, in accordance with the instructions of Requisite Lenders (or such other Lenders as may be required to give such instructions under subsection 9.6) or, in the case of the Collateral Agent, in accordance with the Intercreditor Agreement. D. Agent Entitled to Act as Lender. The agency hereby created shall in no way impair or affect any of the rights and powers of, or impose any duties or obligations upon, any Agent in its individual capacity as a Lender hereunder. With respect to its participation in the Loans, each Agent shall have the same rights and powers hereunder as any other Lender and may exercise the same as though it were not performing the duties and functions delegated to it hereunder, and the term "Lender" or "Lenders" or any similar term shall, unless the context clearly otherwise indicates, include each Agent in its individual capacity. Any Agent and its Affiliates may accept deposits from, lend money to and generally engage in any kind of banking, trust, financial advisory or other business with Holdings, Company or any of their Affiliates as if it were not performing the duties specified herein, and may accept fees and other consideration from Holdings and Company for services in connection with this Agreement and otherwise without having to account for the same to Lenders. 8.3 Representations and Warranties; No Responsibility For Appraisal of Credit ------------------------------------------------------------------------- worthiness. ---------- Each Lender represents and warrants that it has made its own independent investigation of the financial condition and affairs of Holdings and its Subsidiaries in connection with the making of the Loans and that it has made and shall continue to make its own appraisal of the creditworthiness of Holdings and its Subsidiaries. No Agent shall have any duty or responsibility, either initially or on a continuing basis, to make any such investigation or any such appraisal on behalf of Lenders or to provide any Lender with any credit or other information with respect thereto, whether coming into its possession before the making of the Loans or at any time or times thereafter, and no Agent shall have any responsibility with respect to the accuracy of or the completeness of any information provided to Lenders. 8.4 Right to Indemnity. ------------------ Each Lender, in proportion to its Pro Rata Share, severally agrees to indemnify each Agent, to the extent that such Agent shall not have been reimbursed by Company or Holdings, for and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses (including counsel fees and disbursements) or disbursements of any kind 135 or nature whatsoever which may be imposed on, incurred by or asserted against such Agent in exercising its powers, rights and remedies or performing its duties hereunder or under the other Loan Documents or otherwise in its capacity as such Agent in any way relating to or arising out of this Agreement or the other Loan Documents; provided that no Lender shall be liable for any portion of -------- such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from such Agent's gross negligence or willful misconduct. If any indemnity furnished to any Agent for any purpose shall, in the opinion of such Agent, be insufficient or become impaired, such Agent may call for additional indemnity and cease, or not commence, to do the acts indemnified against until such additional indemnity is furnished; provided that in no event shall this sentence require any Lender to -------- indemnify any Agent against any liability, obligation, loss, damage, penalty, action, judgment, suit, cost, expense or disbursement in excess of such Lender's Pro Rata Share thereof; and provided, further, that this sentence shall not be -------- deemed to require any Lender to indemnify any Agent against any liability, obligation, loss, damage, penalty, action, judgment, suit, cost, expense or disbursement described in the proviso to the immediately preceding sentence. 8.5 Successor Administrative Agent. ------------------------------ Administrative Agent may resign at any time by giving 30 days' prior written notice thereof to Lenders and Company, and Administrative Agent may be removed at any time with or without cause by an instrument or concurrent instruments in writing delivered to Company and Administrative Agent and signed by Requisite Lenders. Upon any such notice of resignation or any such removal, Requisite Lenders shall have the right, upon five Business Days' notice to Company, to appoint a successor Administrative Agent with the consent of Company (which consent shall not be unreasonably withheld). Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent, that successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring or removed Administrative Agent and the retiring or removed Administrative Agent shall be discharged from its duties and obligations under this Agreement. After any retiring or removed Administrative Agent's resignation or removal hereunder as Administrative Agent, the provisions of this Section 8 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement. 8.6 Collateral Documents and Guaranty. --------------------------------- Each Lender hereby further authorizes Administrative Agent, on behalf of and for the benefit of Lenders, to enter into the Intercreditor Agreement, and each Lender agrees to be bound by the terms of the Intercreditor Agreement; provided that Administrative Agent shall not enter into or consent to any - -------- material amendment, modification, termination or waiver of the Intercreditor Agreement without the prior consent of Requisite Lenders (or such other Lenders as may be required to give such instructions under subsection 9.6). Each Lender hereby further authorizes Collateral Agent (and under the terms of the Intercreditor Agreement Collateral Agent is authorized), on behalf of and for the benefit of Lenders, to enter into each Collateral Document as secured party and to be the agent for and representative of the Lenders under the 136 Guaranties, and each Lender agrees to be bound by the terms of each Collateral Document and each Guaranty; provided that Collateral Agent shall not enter into -------- or consent to any material amendment, modification, termination or waiver of the Intercreditor Agreement without the prior consent of Requisite Lenders (or such other Lenders as may be required to give such instructions under subsection 9.6); provided further, however, that, without further written consent or -------- ------- ------- authorization from Lenders, 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 this Agreement or as permitted or required under the Intercreditor Agreement or the Collateral Documents or to which Requisite Lenders (or such other Lenders as may be required to give such consent under subsection 9.6) have otherwise consented or (b) release any Subsidiary Guarantor from the Subsidiary Guaranty if all of the capital stock of such Subsidiary Guarantor is sold to any Person pursuant to a sale or other disposition permitted hereunder or as permitted under the Intercreditor Agreement or to which Requisite Lenders (or such other Lenders as may be required to give such consent under subsection 9.6) have otherwise consented; provided, however, that nothing in this subsection shall require -------- ------- consent to release from the Subsidiary Guaranty any Person which, immediately after such sale, shall be a Domestic Subsidiary of Holdings which is obligated to and will enter into the Subsidiary Guaranty. Anything contained in any of the Loan Documents to the contrary notwithstanding, Company, Administrative Agent, Collateral Agent and each Lender hereby agree that (X) no Lender shall have any right individually to realize upon any of the Collateral under any Collateral Document or to enforce the Subsidiary Guaranty, it being understood and agreed that all powers, rights and remedies under the Collateral Documents and the Guaranties may be exercised solely by Collateral Agent for the benefit of Secured Parties in accordance with the terms thereof, and (Y) in the event of a foreclosure by Collateral Agent on any of the Collateral pursuant to a public or private sale, Collateral Agent or any Secured Party may be the purchaser of any or all of such Collateral at any such sale and Collateral Agent, as agent for and representative of Secured Parties (but not any Secured Party or Secured Parties in its or their respective individual capacities unless Requisite Lenders 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 Obligations as a credit on account of the purchase price for any collateral payable by Collateral Agent at such sale. SECTION 9. MISCELLANEOUS 9.1 Assignments and Participations in Loans. --------------------------------------- A. General. Subject to subsection 9.1B, each Lender shall have the right at any time to (i) sell, assign or transfer to any Eligible Assignee, or (ii) sell participations to any Person in, all or any part of its Commitments or any Loan or Loans made by it or any other interest herein or in any other Obligations owed to it; provided that no such sale, assignment, transfer or -------- participation shall, without the consent of Company, require Company to file a registration statement with the Securities and Exchange Commission or apply to qualify such sale, assignment, transfer or participation under the securities laws of any state; provided, further that -------- ------- 137 no such sale, assignment or transfer described in clause (i) above shall be effective unless and until an Assignment Agreement effecting such sale, assignment or transfer shall have been accepted by Administrative Agent and recorded in the Register as provided in subsection 9.1B(ii). Except as otherwise provided in this subsection 9.1, no Lender shall, as between Company and such Lender, be relieved of any of its obligations hereunder as a result of any sale, assignment or transfer of all or any part of its Commitments or the Loans or the other Obligations owed to such Lender. B. Assignments. (i) Amounts and Terms of Assignments. Each Commitment, Loan or -------------------------------- other Obligation may (a) be assigned in any amount to another Lender, or to an Affiliate of the assigning Lender or another Lender, with the giving of notice to Company and Administrative Agent, or (b) be assigned in an aggregate amount of not less than $5,000,000 (or such lesser amount as shall constitute the aggregate amount of the Commitments, Loans and other Obligations of the assigning Lender) to any other Eligible Assignee with the consent of Company and Administrative Agent (which consent of Company and Administrative Agent shall not be unreasonably withheld or delayed); provided that, unless otherwise agreed to in writing by Company and -------- Administrative Agent, the assigning Lender shall have, immediately after giving effect to such assignment, not less than an aggregate amount of $5,000,000 in Commitments and Loans; and provided further, however, that -------- ------- ------- (x) upon the occurrence and during the continuance of an Event of Default, or (y) in the case of assignments by GSCP or Morgan Guaranty, or (z) in the case of an assignment of a funded Loan, an assignment in accordance with this clause (b) may be made without the consent of Company or Administrative Agent, upon the giving of notice to Company and Administrative Agent. To the extent of any such assignment in accordance with either clause (a) or (b) above, the assigning Lender shall be relieved of its obligations with respect to its Commitments, Loans, Letters of Credit or participations therein, or other Obligations or the portion thereof so assigned. The parties to each such assignment shall execute and deliver to Administrative Agent, for its acceptance and recording in the Register, an Assignment Agreement, together with a processing and recordation fee of $500 in the case of assignments pursuant to clause (a) above and assignments by GSCP or Morgan Guaranty, and $2000 in the case of all other assignments and such forms, certificates or other evidence, if any, with respect to United States federal income tax withholding matters as the assignee under such Assignment Agreement may be required to deliver to Administrative Agent pursuant to subsection 2.7B(iii)(a). Upon such execution, delivery, acceptance and recordation, from and after the effective date specified in such Assignment Agreement, (y) the assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment Agreement, shall have the rights and obligations of a Lender hereunder and (z) the assigning Lender thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment Agreement, relinquish its rights (other than any rights which survive the termination of this Agreement under subsection 9.9B) and be released from its obligations under this Agreement (and, in the 138 case of an Assignment Agreement covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto). The Commitments hereunder shall be modified to reflect the Commitment of such assignee and any remaining Commitment of such assigning Lender and, if any such assignment occurs after the issuance of any Notes hereunder, the assigning Lender shall, upon the effectiveness of such assignment or as promptly thereafter as practicable, surrender its applicable Notes, if any, to Administrative Agent for cancellation, and thereupon new Notes shall, if so requested by the assignee and/or the assigning Lenders in accordance with Subsection 2.1E, be issued to the assignee and/or to the assigning Lender, substantially in the form of Exhibit IV, Exhibit V or Exhibit VI annexed ---------- --------- ---------- hereto, as the case may be, with appropriate insertions, to reflect the new Commitments and/or outstanding Loans, as the case may be, of the assignee and/or the assigning Lender. (ii) Acceptance by Administrative Agent; Recordation in Register. ----------------------------------------------------------- Upon its receipt of an Assignment Agreement executed by an assigning Lender and an assignee representing that it is an Eligible Assignee, together with the processing and recordation fee referred to in subsection 9.1B(i) and any forms, certificates or other evidence with respect to United States federal income tax withholding matters that such assignee may be required to deliver to Administrative Agent pursuant to subsection 2.7B(iii)(a), Administrative Agent shall, if Administrative Agent has and Company have consented to the assignment evidenced thereby (in each case to the extent such consent is required pursuant to subsection 9.1B(i)), (a) accept such Assignment Agreement by executing a counterpart thereof as provided therein (which acceptance shall evidence any required consent of Administrative Agent to such assignment), (b) record the information contained therein in the Register, and (c) give prompt notice thereof to Company. Administrative Agent shall maintain a copy of each Assignment Agreement delivered to and accepted by it as provided in this subsection 9.1B(ii). C. Participations. The holder of any participation, other than an Affiliate of the Lender granting such participation, shall not be entitled to require such Lender to take or omit to take any action hereunder except action directly affecting (i) the extension of the scheduled final maturity date of any Loan allocated to such participation or (ii) a reduction of the principal amount of or the rate of interest or fees payable on any Loan allocated to such participation, and all amounts payable by Company hereunder (including amounts payable to such Lender pursuant to subsections 2.6D and 2.7) shall be determined as if such Lender had not sold such participation. Company and each Lender hereby acknowledge and agree that, solely for purposes of subsections 9.4 and 9.5, (a) any participation will give rise to a direct obligation of Company to the participant and (b) the participant shall be considered to be a "Lender". D. Assignments to Federal Reserve Banks and Fund Trustees. In addition to the assignments and participations permitted under the foregoing provisions of this subsection 9.1, any Lender may assign and pledge all or any portion of its Loans, the other Obligations owed to such Lender, and its Notes to any Federal Reserve Bank as collateral security pursuant to Regulation A of the Board of Governors of the Federal Reserve System and any operating circular issued by such Federal Reserve Bank, and with the consent of Company and 139 Administrative Agent any Lender which is an investment fund may pledge all or any portion of its Notes or Loans to its trustee in support of its obligations to such trustee; provided that (i) no Lender shall, as between Company and such -------- Lender, be relieved of any of its obligations hereunder as a result of any such assignment and pledge and (ii) in no event shall such Federal Reserve Bank or trustee be considered to be a "Lender" or be entitled to require the assigning Lender to take or omit to take any action hereunder. E. Information. Each Lender may furnish any information concerning Company and its Subsidiaries in the possession of that Lender from time to time to assignees and participants (including prospective assignees and participants), subject to subsection 9.19. F. Representations of Lenders. Each Lender listed on the signature pages hereof hereby represents and warrants (i) that it is an Eligible Assignee described in clause (A) of the definition thereof; (ii) that it has experience and expertise in the making of loans such as the Loans; and (iii) that it will make its Loans for its own account in the ordinary course of its business and without a view to distribution of such 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 this subsection 9.1, the disposition of such Loans or any interests therein shall at all times remain within its exclusive control). Each Lender that becomes a party hereto pursuant to an Assignment Agreement shall be deemed to agree that the representations and warranties of such Lender contained in Section 2(c) of such Assignment Agreement are incorporated herein by this reference. 9.2 Expenses. -------- Whether or not the transactions contemplated hereby are consummated, Company agrees to pay promptly (i) all the actual and reasonable costs and expenses of preparation of the Loan Documents and any consents, amendments (requested by or for the benefit of Company), waivers or other modifications thereto; (ii) all the costs of furnishing all opinions by counsel for Company (including any opinions requested by Lenders as to any legal matters arising hereunder) and of Company's performance of and compliance with all agreements and conditions on its part to be performed or complied with under this Agreement and the other Loan Documents including with respect to confirming compliance with environmental, insurance and solvency requirements; (iii) the reasonable fees, expenses and disbursements of counsel to Syndication Agent and counsel to Administrative Agent (in each case including allocated costs of internal counsel) in connection with the negotiation, preparation, execution and administration of the Loan Documents and any consents, amendments (requested by or for the benefit of Company), waivers or other modifications thereto and any other documents or matters requested by Company; (iv) all the reasonable costs and reasonable expenses of creating and perfecting Liens in favor of Collateral Agent on behalf of Lenders pursuant to any Collateral Document, including filing and recording fees, expenses and taxes, stamp or documentary taxes, search fees, title insurance premiums, and reasonable fees, expenses and disbursements of counsel to Syndication Agent, counsel to Administrative Agent and counsel to Collateral Agent and of counsel providing any opinions that Syndication Agent, Administrative Agent, Collateral Agent or Requisite Lenders may request in respect of the Collateral Documents or the Liens created 140 pursuant thereto; (v) all the reasonable costs and reasonable expenses (including the reasonable fees, expenses and disbursements of any auditors, accountants or appraisers and any environmental or other consultants, advisors and agents employed or retained by Administrative Agent or Syndication Agent and their respective counsel) of obtaining and reviewing any appraisals provided for under subsection 5.9C, any environmental audits or reports provided for under subsection 3.1K or 5.9B(ix) and any audits or reports provided for under subsection 5.5B with respect to Inventory and accounts receivable of Holdings and its Subsidiaries; (vi) all the reasonable costs and reasonable expenses (including the reasonable fees, expenses and disbursements of any consultants, advisors and agents employed or retained by Administrative Agent or Collateral Agent and its counsel) in connection with the custody or preservation of any of the Collateral; (vii) all other reasonable costs and expenses incurred by Syndication Agent or Administrative Agent in connection with the syndication of the Commitments and the negotiation, preparation and execution of the Loan Documents and any consents, amendments (requested by or for the benefit of Company), waivers or other modifications thereto and the transactions contemplated thereby; and (viii) after the occurrence of an Event of Default, all costs and expenses, including reasonable attorneys' fees (including allocated costs of internal counsel) and costs of settlement, incurred by Syndication Agent, Administrative Agent and Lenders in enforcing any Obligations of or in collecting any payments due from any Loan Party hereunder or under the other Loan Documents by reason of such Event of Default (including in connection with the sale of, collection from, or other realization upon any of the Collateral or the enforcement of the Guaranties) or in connection with any refinancing or restructuring of the credit arrangements provided under this Agreement in the nature of a "work-out" or pursuant to any insolvency or bankruptcy proceedings. 9.3 Indemnity. --------- In addition to the payment of expenses pursuant to subsection 9.2, whether or not the transactions contemplated hereby are consummated, Company agrees to defend (subject to Indemnitees' selection of counsel), indemnify, pay and hold harmless Agents (including Collateral Agent) and Lenders, and the officers, partners, directors, trustees, employees, agents and affiliates of any of Agents (including Collateral Agent) and Lenders (collectively called the "Indemnitees"), from and against any and all Indemnified Liabilities (as hereinafter defined); provided that Company shall not have any obligation to any -------- Indemnitee hereunder with respect to any Indemnified Liabilities to the extent such Indemnified Liabilities arise from the gross negligence, bad faith or willful misconduct of that Indemnitee as determined by a final, non-appealable judgment of a court of competent jurisdiction. As used herein, "Indemnified Liabilities" means, collectively, any and all liabilities, obligations, losses, damages (including natural resource damages), penalties, actions, judgments, suits, claims (including Environmental Claims), costs (including the costs of any investigation, study, sampling, testing, abatement, cleanup, removal, remediation or other response action necessary to remove, remediate, clean up or abate any Hazardous Materials Activity), expenses and disbursements of any kind or nature whatsoever (including the reasonable fees and disbursements of counsel for Indemnitees in connection with any investigative, administrative or judicial proceeding commenced or threatened by any Person, whether or not any such Indemnitee shall 141 be designated as a party or a potential party thereto, and any fees or expenses incurred by Indemnitees in enforcing this indemnity), whether direct, indirect or consequential and whether based on any federal, state or foreign laws, statutes, rules or regulations (including securities and commercial laws, statutes, rules or regulations and Environmental Laws), on common law or equitable cause or on contract or otherwise, that may be imposed on, incurred by, or asserted against any such Indemnitee, in any manner relating to or arising out of (i) this Agreement or the other Loan Documents or the Related Agreements or the transactions contemplated hereby or thereby (including Lenders' agreement to make the Loans hereunder or the use or intended use of the proceeds thereof, or any enforcement of any of the Loan Documents (including any sale of, collection from, or other realization upon any of the Collateral or the enforcement of the Guaranties)), (ii) the statements contained in the commitment letter delivered by any Lender to Company with respect thereto, or (iii) any Environmental Claim or any Hazardous Materials Activity relating to or arising from, directly or indirectly, any past or present activity, operation, land ownership, or practice of Holdings or any of its Subsidiaries. To the extent that the undertakings to defend, indemnify, pay and hold harmless set forth in this subsection 9.3 may be unenforceable in whole or in part because they are violative of any law or public policy, Company shall contribute the maximum portion that it is permitted to pay and satisfy under applicable law to the payment and satisfaction of all Indemnified Liabilities incurred by Indemnitees or any of them. 9.4 Set-Off; Security Interest in Deposit Accounts. ---------------------------------------------- In addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, upon the occurrence and during the continuance of any Event of Default each Lender is hereby authorized by Company at any time or from time to time subject to the consent of Collateral Agent, without notice to Company or to any other Person (other than Collateral Agent), any such notice being hereby expressly waived, to set off and to appropriate and to apply any and all deposits (general or special, including Indebtedness evidenced by certificates of deposit, whether matured or unmatured, but not including trust accounts or payroll accounts) and any other Indebtedness at any time held or owing by that Lender to or for the credit or the account of Company against and on account of the obligations and liabilities of Company which are then due and payable to that Lender under this Agreement and the other Loan Documents, including all claims of any nature or description arising out of or connected with this Agreement or any other Loan Document, irrespective of whether or not that Lender shall have made any demand hereunder which are then due and payable. Company hereby further grants to Collateral Agent and each Lender a security interest in all deposits and accounts maintained with Collateral Agent or such Lender as security for the Obligations. Company, the Lenders and Administrative Agent hereby acknowledge and agree that the provisions of this subsection 9.4 are subject to the provisions of the Intercreditor Agreement. To the extent that any Lender is required pursuant to the provisions of the Intercreditor Agreement to turn over to the Collateral Agent any payments otherwise subject to the provisions of this subsection 9.4, such payments shall not be subject to the provisions of this subsection 9.4. 142 9.5 Ratable Sharing. --------------- Lenders hereby agree among themselves that if any of them shall, whether by voluntary payment (other than a voluntary prepayment of Loans made and applied in accordance with the terms of this Agreement), by realization upon security, through the exercise of any right of set-off or banker's lien, by counterclaim or cross action or by the enforcement of any right under the Loan Documents or otherwise, or as adequate protection of a deposit treated as cash collateral under the Bankruptcy Code, receive payment or reduction of a proportion of the aggregate amount of principal, interest, amounts payable in respect of Letters of Credit, fees and other amounts then due and owing to that Lender hereunder or under the other Loan Documents (collectively, the "Aggregate Amounts Due" to such Lender) which is greater than the proportion received by any other Lender in respect of the Aggregate Amounts Due to such other Lender, then the Lender receiving such proportionately greater payment shall (i) notify Administrative Agent and each other Lender of the receipt of such payment and (ii) apply a portion of such payment to purchase participations (which it shall be deemed to have purchased from each seller of a participation simultaneously upon the receipt by such seller of its portion of such payment) in the Aggregate Amounts Due to the other Lenders so that all such recoveries of Aggregate Amounts Due shall be shared by all Lenders in proportion to the Aggregate Amounts Due to them; provided that if all or part of such proportionately greater payment -------- received by such purchasing Lender is thereafter recovered from such Lender upon the bankruptcy or reorganization of Company or otherwise, those purchases shall be rescinded and the purchase prices paid for such participations shall be returned to such purchasing Lender ratably to the extent of such recovery, but without interest. Company expressly consents to the foregoing arrangement and agrees that any holder of a participation so purchased may exercise any and all rights of banker's lien, set-off or counterclaim with respect to any and all monies owing by Company to that holder with respect thereto as fully as if that holder were owed the amount of the participation held by that holder. Company, the Lenders and Administrative Agent hereby acknowledge and agree that the provisions of this subsection 9.5 are subject to the provisions of the Intercreditor Agreement. To the extent that any Lender is required pursuant to the provisions of the Intercreditor Agreement to turn over to the Collateral Agent any payments otherwise subject to the provisions of this subsection 9.5, such payments shall not be subject to the provisions of this subsection 9.5. 9.6 Amendments and Waivers. ---------------------- A. No amendment, modification, termination or waiver of any provision of the Loan Documents, or consent to any departure by Company therefrom, shall in any event be effective without the written concurrence of Requisite Lenders; provided that no such amendment, modification, termination, waiver or consent - -------- shall, without the consent of each Lender (with Obligations directly affected in the case of the following clause (i)): (i) extend the scheduled final maturity of any Loan or Note, waive, reduce or postpone any scheduled repayment set forth in subsection 2.4A(i), 2.4(A)(ii) or 2.4A(iii), or reduce the rate of interest on any Loan (other than any waiver of any increase in the interest rate applicable to any Loan pursuant to 143 subsection 2.2E) or any fees payable hereunder, or extend the time for payment of any such interest or fees, or reduce the principal amount of any Loan, (ii) amend, modify, terminate or waive any provision of this subsection 9.6, (iii) reduce the percentage specified in the definition of "Requisite Lenders" (it being understood that, with the consent of Requisite Lenders, additional extensions of credit pursuant to this Agreement may be included in the determination of "Requisite Lenders" on substantially the same basis as the AXEL Series B Commitments, AXELs Series B, AXEL Series C Commitments, AXELs Series C, AXEL Series D Commitments and AXELs Series D are included on the Closing Date), (iv) release all or substantially all of the Collateral or Holdings from the Holdings Guaranty or all or substantially all of the Subsidiary Guarantors from the Subsidiary Guaranty except as expressly provided in the Loan Documents, or (v) consent to the assignment or transfer by Company of any of its rights and obligations under this Agreement; provided, further -------- ------- that no such amendment, modification, termination or waiver shall (1) increase the Commitments of any Lender over the amount thereof then in effect, or extend the duration thereof, without the consent of such Lender (it being understood that no amendment, modification or waiver of any condition precedent, covenant, Potential Event of Default or Event of Default shall constitute an increase or extension in the Commitment of any Lender, and that no increase in the available portion of any Commitment of any Lender shall constitute an increase in such Commitment of such Lender); (2) amend the definition of "Requisite Class Lenders" without the consent of Requisite Class Lenders of each Class, or alter the required application of any repayments or prepayments as between Classes pursuant to subsection 2.4B(iii) without the consent of Requisite Class Lenders of each Class which is being allocated a lesser repayment or prepayment as a result thereof (although Requisite Lenders may waive, in whole or in part, any mandatory prepayment so long as the application, as between Classes, of any portion of such prepayment which is still required to be made is not altered); or (3) amend, modify, terminate or waive any provision of Section 8 as the same applies to any Agent (including the Collateral Agent), or any other provision of this Agreement as the same applies to the rights or obligations of any Agent (including the Collateral Agent), in each case without the consent of such Agent (including the Collateral Agent). B. Administrative Agent may, but shall have no obligation to, with the concurrence of any Lender, execute amendments, modifications, waivers or consents on behalf of that Lender. 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 Company in any case shall entitle Company to any other or further notice or demand in similar or other circumstances. Any amendment, modification, termination, waiver or consent effected in accordance with this subsection 9.6 shall be binding upon each Lender at the time outstanding, each future Lender and, if signed by Company, on Company. 9.7 Independence of Covenants. ------------------------- All covenants hereunder shall be given independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or would otherwise be within the limitations of, another covenant shall not avoid the occurrence of an Event of Default or Potential Event of Default if such action is taken or condition exists. 144 9.8 Notices. ------- 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; provided that notices to Syndication Agent or -------- Administrative Agent 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 (i) as to Holdings, Company and Administrative Agent, such other address as shall be designated by such Person in a written notice delivered to the other parties hereto and (ii) as to each other party, such other address as shall be designated by such party in a written notice delivered to Administrative Agent. 9.9 Survival of Representations, Warranties and Agreements. ------------------------------------------------------ A. All representations, warranties and agreements made herein shall survive the execution and delivery of this Agreement and the making of the Loans and the issuance of the Letters of Credit hereunder. B. Notwithstanding anything in this Agreement or implied by law to the contrary, the agreements of Company and Holdings set forth in subsections 2.6D, 2.7, 9.2, 9.3 and 9.4 and the agreements of Lenders set forth in subsections 8.2C, 8.4 and 9.5 shall survive the payment of the Loans and the termination of this Agreement. 9.10 Failure or Indulgence Not Waiver; Remedies Cumulative. ----------------------------------------------------- No failure or delay on the part of Administrative Agent or any Lender in the exercise of any power, right or privilege hereunder or under any other Loan Document 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 other or further exercise thereof or of any other power, right or privilege. All rights and remedies existing under this Agreement and the other Loan Documents are cumulative to, and not exclusive of, any rights or remedies otherwise available. 9.11 Marshalling; Payments Set Aside. ------------------------------- Neither Administrative Agent nor any Lender shall be under any obligation to marshal any assets in favor of Company or any other party or against or in payment of any or all of the Obligations. To the extent that Company makes a payment or payments to Administrative Agent or Lenders (or to Administrative Agent for the benefit of Lenders), or Administrative Agent or Lenders enforce any security interests or exercise their rights of setoff, and such payment or payments or the proceeds of such enforcement or setoff or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to 145 a trustee, receiver or any other party under any bankruptcy law, any other state or federal law, common law or any equitable cause, then, to the extent of such recovery, the obligation or part thereof originally intended to be satisfied, and all Liens, rights and remedies therefor or related thereto, shall be revived and continued in full force and effect as if such payment or payments had not been made or such enforcement or setoff had not occurred. 9.12 Severability. ------------ In case any provision in or obligation under this Agreement or the Notes 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. 9.13 Obligations Several; Independent Nature of Lenders' Rights. ---------------------------------------------------------- The obligations of Lenders hereunder are several and no Lender shall be responsible for the obligations or Commitments of any other Lender hereunder. Nothing contained herein or in any other Loan Document, and no action taken by Lenders pursuant hereto or thereto, shall be deemed to constitute Lenders as a partnership, an association, a joint venture or any other kind of entity. The amounts payable at any time hereunder to each Lender shall be a separate and independent debt, and each Lender shall be entitled to protect and enforce its rights arising out of this Agreement and it shall not be necessary for any other Lender to be joined as an additional party in any proceeding for such purpose. 9.14 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. 9.15 Applicable Law. -------------- 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 SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES. 9.16 Successors and Assigns. ---------------------- This Agreement shall be binding upon the parties hereto and their respective successors and assigns and shall inure to the benefit of the parties hereto and the successors and assigns of Lenders (it being understood that Lenders' rights of assignment are subject to subsection 9.1). Neither Holdings' or Company's rights or obligations hereunder nor any interest therein may 146 be assigned or delegated by Holdings or Company without the prior written consent of all Lenders. 9.17 Consent to Jurisdiction and Service of Process. ---------------------------------------------- ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST COMPANY OR HOLDINGS 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, COMPANY AND HOLDINGS, FOR THEMSELVES AND IN CONNECTION WITH ITS PROPERTIES, IRREVOCABLY (I) ACCEPT GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE JURISDICTION AND VENUE OF SUCH COURTS; (II) WAIVE ANY DEFENSE OF FORUM NON CONVENIENS; (III) AGREE 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 HOLDINGS AND COMPANY AT THEIR ADDRESSES PROVIDED IN ACCORDANCE WITH SUBSECTION 9.8; (IV) AGREE THAT SERVICE AS PROVIDED IN CLAUSE (III) ABOVE IS SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER COMPANY IN ANY SUCH PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT; (V) AGREE THAT LENDERS RETAIN THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST COMPANY IN THE COURTS OF ANY OTHER JURISDICTION; AND (VI) AGREE THAT THE PROVISIONS OF THIS SUBSECTION 9.17 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. 9.18 Waiver of Jury Trial. -------------------- EACH OF THE PARTIES TO THIS AGREEMENT 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 OR ANY OF THE OTHER LOAN DOCUMENTS OR ANY DEALINGS BETWEEN THEM RELATING 147 TO THE SUBJECT MATTER OF THIS LOAN TRANSACTION OR THE LENDER/BORROWER RELATIONSHIP THAT IS BEING ESTABLISHED. 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 Agreement, 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 SUBSECTION 9.18 AND EXECUTED BY EACH OF THE PARTIES HERETO), AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE LOANS MADE HEREUNDER. In the event of litigation, this Agreement may be filed as a written consent to a trial by the court. 9.19 Confidentiality. --------------- Each Lender shall hold all non-public information obtained pursuant to the requirements of this Agreement which has been identified as confidential by Company in accordance with such Lender's customary procedures for handling confidential information of this nature and in accordance with prudent lending or investing practices, it being understood and agreed by Company and Holdings that in any event a Lender may make disclosures to Affiliates of such Lender or disclosures reasonably required by any bona fide assignee, transferee or participant in connection with the contemplated assignment or transfer by such Lender of any Loans or any participations therein or by any direct or indirect contractual counterparties (or the professional advisors thereto) in swap agreements (provided that such swap counterparties and advisors are advised of -------- and agree to be bound by the provisions of this subsection 9.19) or disclosures required or requested by any governmental agency or representative thereof or by the NAIC or pursuant to legal process; provided that, unless specifically -------- prohibited by applicable law or court order, each Lender shall notify Company of any request by any governmental agency or representative thereof (other than any such request in connection with any examination of the financial condition of such Lender by such governmental agency) for disclosure of any such non- public information prior to disclosure of such information; and provided, -------- further that in no event shall any Lender be obligated or required to return any - ------- materials furnished by Holdings or any of its Subsidiaries. 9.20 Counterparts; Effectiveness. --------------------------- This Agreement and any amendments, waivers, consents or supplements hereto or in connection herewith may be executed in any number of counterparts and by different parties 148 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. This Agreement shall become effective upon the execution of a counterpart hereof by each of the parties hereto and receipt by Company and Administrative Agent of written or telephonic notification of such execution and authorization of delivery thereof. [Remainder of page intentionally left blank] 149 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above. COMPANY: SEALY MATTRESS COMPANY By: /s/ RONALD H. STOLLE -------------------------------------------------- Name: Ronald H. Stolle Title: HOLDINGS: SEALY CORPORATION By: /s/ RONALD H. STOLLE -------------------------------------------------- Name: Ronald H. Stolle Title: Notice Address: Sealy Corporation Halle Building, 10th Floor 1228 Euclid Avenue Cleveland, Ohio 44115 Attention: Ronald Stolle Telephone: (216) 522-1310 Facsimile: (216) 736-8172 with a copy to: Bain Capital, Inc. Two Copley Place Boston, MA 02116 Attention: Michael Krupka Paige Daly Telephone: (617) 572-2753 (617) 572-3261 Facsimile: (617) 572-3274 and: Kirkland & Ellis 200 East Randolph Drive Chicago, IL 60601 Attention: Linda Riley Myers Telephone: (312) 861-2322 Facsimile: (312) 861-2200 S-1 AGENTS AND LENDERS: GOLDMAN SACHS CREDIT PARTNERS L.P., individually and as Syndication Agent By: ------------------------------------------------- Authorized Signatory Notice Address: Goldman Sachs Credit Partners L.P. c/o Goldman, Sachs & Co. 85 Broad Street New York, New York 10004 Attention: Telecopy: S-2 MORGAN GUARANTY TRUST COMPANY OF NEW YORK, individually and as Administrative Agent By: ------------------------------------------------ Name: Title: Notice Address: Morgan Guaranty of New York 60 Wall Street New York, New York 10260 Attention: Steve Hannan Vice President Telephone: (212) 648-7679 Telecopy: (212) 648-5005 with a copy to: Morgan Guaranty of New York c/o J.P. Morgan Services Inc. 500 Stanton Christiana Road Newark, DE 19713 Attention: Nicole Pedicone Credit Administrator Telephone: (302) 634-1912 Telecopy: (302) 634-4300 S-3 BANKERS TRUST COMPANY, individually and as Documentation Agent By: /s/ MARY KAY COYLE ------------------------------------------------- Name: Title: Notice Address: Bankers Trust ------------------------------------------------- 130 Liberty Street ------------------------------------------------- New York, NY 10006 ------------------------------------------------- Attention: Mary Kay Coyle ------------------------------------------------- Telephone: (212) 250-9094 ------------------------------------------------- Facsimile: (212) 250-7218 ------------------------------------------------ S-4 SCHEDULE 1.1(i) Addbacks to EBITDA ------------------ 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 EXHIBIT INDEX ------------- 2.1 Agreement and Plan of Merger, dated as of October 30, 1997, by and among the Registrant, Sandman Merger Corporation and Zell/Chilmark Fund, L.P. 2.2 First Amendment to the Agreement and Plan of Merger, dated as of December 18, 1997, by and among the Registrant, Sandman Merger Corporation and Zell/Chilmark Fund, L.P. 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, describing the Series A and Series B 9-7/8% Senior Subordinated Notes due 2007 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, describing the Series A and Series B 10-7/8% Senior Subordinated Discount Notes due 2007 4.3 Second Supplemental Indenture, dated as of December 5, 1997, by and between the Registrant and The Bank of New York 10.1 Dealer Manager Agreement, dated as of November 18, 1997, among Sandman Merger Corporation, the Registrant and Goldman, Sachs & Co. 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 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 10.4 Credit Agreement 10.5 AXEL Credit Agreement 10.6 [Change of Control Agreement] EX-10.6 12 AMENDED AND RESTATED EMPLOYMENT AGREEMENT - -------------------------------------------------------------------------------- Page 1 - -------------------------------------------------------------------------------- EXHIBIT 10.6 AMENDED AND RESTATED EMPLOYMENT AGREEMENT THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT is entered into as of the 1st day of August, 1997, by and between SEALY CORPORATION, a Delaware corporation (the "Company"), and RONALD L. JONES (the "Employee"). WITNESSETH: WHEREAS, the Company and the Employee (collectively "the Parties") desire to enter into this Amended and Restated Employment Agreement (the "Agreement") as hereinafter set forth; NOW, THEREFORE, the Company and Employee agree as follows: 1. EMPLOYMENT TERM. --------------- (a) During the period specified in Subsection l(b) hereof (the "Employment Term"), the Company shall employ the Employee, and the Employee shall serve the Company, as President and Chief Executive Officer, based on the terms and subject to the conditions set forth herein. This Agreement replaces that certain letter employment agreement between the Parties dated as of March 4, 1996. Such letter employment agreement is hereby terminated effective as of the date hereof. (b) The Employment Term shall commence on the date of this Agreement. Thereafter it shall end as follows: (i) there shall be an initial period ending on the third (3rd) anniversary of the date of this Agreement, subject to the provision of Subsection 1(b)(ii) below; (ii) after the first anniversary of the date of this Agreement, the Employment Term shall be extended one calendar day for each calendar day that the Employee is employed by the Company after such first anniversary so that the remaining Employment Term after such first anniversary shall always be two (2) years; and (iii) provided that the Employment Term may terminate prior to the date specified above in this Subsection 1(b) as provided in Section 4 hereof. 2. POSITION, DUTIES, AND RESPONSIBILITIES. At all times during the -------------------------------------- Employment Term, the Employee shall: - -------------------------------------------------------------------------------- Page 2 - -------------------------------------------------------------------------------- (a) Hold the position of President and Chief Executive Officer of the Company reporting to the Board of Directors of the Company (the "Board"); (b) Have those duties and responsibilities, and the authority, customarily possessed by the Chief Executive Officer of a major corporation and such additional duties as may be assigned to the Employee from time to time by the Board which are consistent with the position of Chief Executive Officer of a major corporation; (c) Adhere to such reasonable written policies and directives, and such reasonable unwritten policies and directives as are of common knowledge to executive officers of the Company, as may be promulgated from time to time by the Board and which are applicable to executive officers of the Company; (d) Invest in the Company only in accordance with any insider trading policy of the Company in effect at the time of the investment; and (e) Devote the Employee's entire business time, energy, and talent to the business, and to the furtherance of the purposes and objectives, of the Company, and neither directly nor indirectly act as an employee of or render any business, commercial, or professional services to any other person, firm or organization for compensation, without the prior written approval of the Board. Nothing in this Agreement shall preclude the Employee from devoting reasonable periods of time to charitable and community activities or the management of the Employee's investment assets, provided such activities do not interfere with the performance by the Employee of the Employee's duties hereunder. Furthermore, service by the Employee on the boards of directors of up to two noncompeting companies shall not be deemed to be a violation of this agreement, provided such service does not interfere with the performance of the Employee's duties hereunder. 3. SALARY, BONUS AND BENEFITS. For services rendered by the Employee -------------------------- on behalf of the Company during the Employment Term, the following salary, bonus and benefits shall be provided to the Employee by the Company: (a) The Company shall pay to the Employee, in equal installments, according to the Company's then current practice for paying its executive officers in effect from time to time during the Employment Term, an annual base salary at the initial rate of Five Hundred Thirty Thousand Dollars ($530,000.00). This salary shall be subject to annual review, in December of each year commencing in December 1997, by the Human Resources Committee of the Board - -------------------------------------------------------------------------------- Page 3 - -------------------------------------------------------------------------------- (the "Committee) and may be increased, but not decreased, to the extent, if any, that the Committee may determine. (b) The Employee shall participate in the Sealy Corporation Annual Bonus Plan (the "Bonus Plan") in accordance with the provisions of the Bonus Plan as in effect as of the date of this Agreement. The Employee's Target annual bonus, as established by the Committee under the Bonus Plan as of the date of this Agreement, will be eighty percent (80%) (his "Target Annual Bonus Percentage") of annual base salary, with a range of zero percent (0%) to one hundred and twenty percent (120%) of annual base salary. (c) The Employee shall be eligible for participation in such other benefit plans, including, but not limited to, the Company's Profit Sharing Plan and Trust, Executive Severance Benefit Plan, Benefit Equalization Plan, Short-Term and Long Term Disability Plans, Group Term Life Insurance Plan, Medical Plan or PPO, Dental Plan, the 401(k) feature of the Profit Sharing Plan, the 1996 Transitional Restricted Stock Plan and the 1997 Stock Option Plan, as the Board may adopt from time to time and in which the Company's executive officers, or employees in general, are eligible to participate. This Subsection 3(c) shall not be deemed to prevent participation in any special plan or arrangement providing special benefits to the Employee which are not available to other employees. Such participation shall be subject to the terms and conditions set forth in the applicable plan documents. As is more fully set forth in Section 7 hereof, the Employee shall not be entitled to duplicative payments under this Agreement and the Executive Severance Benefit Plan. (d) Without limiting the generality of Subsection 3(c) above, for so long as such coverage shall be available to the executive officers of the Company, the Employee shall be eligible to participate in the Company's Group Term Life Insurance Plan with a death benefit to be provided at the level of one and one half (1 1/2) times annual base salary at Company expense, plus extended coverage with a death benefit to be provided of at least the level in effect on the date of this Agreement for the Employee under such Plan at the Employee's discretion and expense. (e) The Employee shall be entitled to take, during each one-year period commencing with December 1, 1996, during the Employment Term, vacation time equal to the greater of (i) four weeks, or (ii) the amount of vacation time to which the Employee is entitled under the Company's vacation policy applicable to its executive officers. - -------------------------------------------------------------------------------- Page 4 - -------------------------------------------------------------------------------- (f) The Employee shall be entitled to an automobile allowance of not less than Seven Thousand Five Hundred Dollars ($7,500.00) per year and a personal financial planning allowance of not less than Five Thousand Dollars ($5,000.00) per year. (g) In addition, the Parties do hereby further confirm the Employee's entitlement to sixty seven thousand six hundred and thirty-five (67,635) restricted shares of Class A Common Stock of the Company ("Class A Shares") pursuant to the Restricted Stock Grant Agreement dated as of March 4, 1996, between the Parties (the "Restricted Stock Agreement") and options to purchase five hundred and eighty-seven thousand three hundred and forty-two (587,342) additional Class A Shares at the exercise price of Seven and 23/100 Dollars ($7.23) per Class A Share, all vesting at a rate of twenty-five percent (25%) per year (unless accelerated as hereinafter provided) commencing March 4, 1996, pursuant to that Stock Option Agreement dated as of March 4, 1996, between the Parties (the "First Option Agreement"). The Parties also do hereby confirm the grant of options to purchase seventy-five thousand (75,000) additional Class A Shares at an exercise price of Nine and 60/100 Dollars ($9.60) under the Company's 1997 Stock Option Plan, pursuant to that certain Stock Option Agreement dated as of December 4, 1996, between the Parties (the "Second Option Agreement"). The Parties agree that (a) such restricted Class A Shares and such options are in addition to, and not in lieu of, any shares or options which may be granted under any other plan or arrangement of the Company after the date of this Agreement, and (b) the Restricted Stock Agreement, the First Option Agreement, the Second Option Agreement, and the related Stockholder Agreement (the "Stockholder Agreement") dated as of March 4, 1996, between the Parties (such four (4) agreements being hereinafter referred to collectively as the "Pre-existing Agreements"), all remain in full force and effect except as otherwise provided herein. Notwithstanding the foregoing, to the extent that any provision contained herein is inconsistent with the terms of any of the Pre- existing Agreements, the terms of this Agreement shall be controlling. 4. TERMINATION OF EMPLOYMENT. As indicated in Subsection 1(b)(iii), ------------------------- the Employment Term may terminate prior to the date specified in Subsections 1(b)(i) and 1(b)(ii) as follows: (a) The Employee's employment hereunder will terminate without further notice upon the death of the Employee. - -------------------------------------------------------------------------------- Page 5 - -------------------------------------------------------------------------------- (b) The Company may terminate the Employee's employment hereunder effective immediately upon giving written notice of such termination for "Cause". For these purposes, "Cause" shall mean the following: (i) Commission by the Employee (evidenced by a conviction or written, voluntary and freely given confession) of a criminal act constituting a felony; (ii) Commission by the Employee of a material breach or material default of any of the Employee's agreements or obligations under any provision of this Agreement, including, without limitation, the Employee's agreements and obligations under Subsections 2(a) through 2(e) and Sections 9 and 10 of this Agreement, which is not cured in all material respects within thirty (30) days after the Board gives written notice thereof to the Employee; or (iii) Commission by the Employee, when carrying out the Employee's duties under this Agreement, of acts or the omission of any act, which both: (A) constitutes gross negligence or willful misconduct and (B) results in material economic harm to the Company or has a materially adverse effect on the Company's operations, properties or business relationships. (c) The Employee's employment hereunder may be terminated by the Company upon the Employee's disability, if the Employee is prevented from performing the Employee's duties hereunder by reason of physical or mental incapacity for a period of one hundred eighty (180) consecutive days in any period of two consecutive fiscal years of the Company, but the Employee shall be entitled to full compensation and benefits hereunder until the close of such one hundred and eighty (180) day period. (d) The Company may terminate the Employee's employment hereunder without Cause at any time upon thirty (30) days written notice. (e) The Employee may terminate employment hereunder effective immediately upon giving written notice of such termination for "Good Reason", as defined in Subsection 4(g) below. (f) The Employee may terminate employment hereunder without Good Reason at any time upon thirty (30) days written notice. - -------------------------------------------------------------------------------- Page 6 - -------------------------------------------------------------------------------- (g) For purposes of this Agreement, "Good Reason" means the occurrence of (i) any reduction in either the annual base salary of the Employee or the Target Annual Bonus Percentage or maximum annual bonus percentage applicable to the Employee under the Bonus Plan, (ii) any reduction in the position, authority or office of the Employee, (iii) any material reduction in the Employee's responsibilities or duties for the Company, (iv) any material adverse change or reduction in the aggregate "Minimum Benefits," as hereinafter defined, provided to the Employee as of the date of this Agreement (provided that any material reduction in such aggregate Minimum Benefits that is required by law or applies generally to all employees of the Company shall not constitute "Good Reason" as defined hereunder), (v) any change in the Employee's reporting relationship, (vi) any relocation of the Employee's principal place of work with the Company to a place more than twenty- five (25) miles from the geographical center of Cleveland, Ohio, other than a relocation to a location which is within twenty-five (25) miles from the geographical center of Greensboro, North Carolina, or (vii) the material breach or material default by the Company of any of its agreements or obligations under any provision of this Agreement. As used in this Subsection 4(g), an "adverse change or material reduction" in the aggregate Minimum Benefits shall be deemed to result from any reduction or any series of reductions which, in the aggregate, exceeds five percent (5%) of the value of such aggregate Minimum Benefits determined as of the date of this Agreement. As used in this Subsection 4(g), Minimum Benefits are life insurance, accidental death, long term disability, short term disability, medical, dental, and vision benefits and the Company's expense reimbursement policy. The Employee shall give written notice to the Company on or before the date of termination of employment for Good Reason stating that the Employee is terminating employment with the Company and specifying in detail the reasons for such termination. If the Company does not object to such notice by notifying the Employee in writing within five (5) days following the date of the Company's receipt of the Employee's notice of termination, the Company shall be deemed to have agreed that such termination was for Good Reason. The parties agree that "Good Reason" will not be deemed to have occurred merely because the Company becomes a subsidiary or division of another entity following a "Change of Control," as hereinafter defined, provided the Employee continues to serve as the Chief Executive Officer of such subsidiary or division and such subsidiary or division is comparable in size to the organization consisting of the Company and its subsidiaries. The parties further agree that "Good Reason" will be deemed to have occurred if the purchaser, in a Change of Control transaction, does not assume this - -------------------------------------------------------------------------------- Page 7 - -------------------------------------------------------------------------------- Agreement in accordance with Section 12 hereof. 5. SEVERANCE COMPENSATION. If the Employee's employment is ---------------------- terminated, the following severance provisions will apply: (a) If the Employee's employment is terminated by the Company other than for Cause or is terminated by the Employee for Good Reason, then, through the remaining Employment Term as specified in Subsection 1 (b) hereof, determined without regard to Subsection 1(b)(iii) hereof, (such remaining Employment Term calculated without regard to Subsection 1(b)(iii), and without regard to whether the Employee elects accelerated payments of the Employee's annual base salary and bonus in accordance with Subsection 5(a)(vi), is hereinafter referred to as the "Payment Term") the Company shall: (i) continue to pay the Employee's annual base salary in the then prevailing amount and at the times specified in Subsection 3(a) hereof, or if such annual base salary has decreased during the one year period ending on the Employee's termination of employment, at the highest rate in effect during such one year period; (ii) continue the Employee's participation in the Bonus Plan as provided in Subsection 3(b) hereof provided that the Company will: (A) pay the Employee a bonus under the Bonus Plan for the partial year period ending on the date of the Employee's termination of employment calculated as if the Employee had continued to be employed for the entire year except that the Employee's bonus percentage (calculated at the time and in the manner customary as of the date of this Agreement, but disregarding the termination of employment of the Employee) shall be applied to the Employee's annual base salary payable in accordance with Subsection 3(a) hereof for the partial year period ending on the Employee's termination of employment; and (B) thereafter, during the remainder of the Payment Term, a bonus equal to the Employee's Target Annual Bonus Percentage, multiplied by the Employee's annual base salary in the amount specified in Subsection 5(a)(i) payable during the year - -------------------------------------------------------------------------------- Page 8 - -------------------------------------------------------------------------------- (or portion thereof) for which the bonus is being calculated; with such amounts being payable when bonuses under the Bonus Plan are customarily payable, except that the final bonus shall be payable with the final payment of the annual base salary under Subsection 5(a)(i) hereof; (iii) continue in effect the medical and dental coverage, long and short-term disability protection, and any life insurance protection (including life insurance protection being paid for by the Employee), being provided to the Employee immediately prior to the Employee's termination of employment, or if any of such benefits have decreased during the one year period ending on the Employee's termination of employment, at the highest level in effect during such one year period; (iv) continue to pay the automobile allowance and the personal financial planning allowance as provided in Subsection 3(f) hereof; (v) pay for executive outplacement services for the Employee from a nationally recognized executive outplacement firm at the level provided for the most senior executives, provided that such outplacement services will be provided for a one year period commencing on the date of termination of employment regardless of the Payment Term. (vi) In lieu of the payments described in Subsections 5(a)(i) and 5(a)(ii) hereof, at the Employee's request, submitted in writing to the Company within five (5) business days after the date of the Employee's termination of employment: (A) the Company will pay the total of the Employee's annual base salary payments described in Subsection 5(a)(i) in a single sum within thirty (30) days following the Employee's termination of employment; and (B) his Bonus Plan payments described in Subsection 5(a)(ii) shall be made at the same time as the Employee's payment under Subsection 5(a)(vi)(A) but shall be calculated using the Employee's Target Annual Bonus Percentage for all calculation purposes. (b) If the Employee's employment hereunder terminates due to the - -------------------------------------------------------------------------------- Page 9 - -------------------------------------------------------------------------------- Employee's death, disability, termination by the Company for Cause or termination by the Employee other than for Good Reason, then no further compensation or benefits will be provided to the Employee by the Company under this Agreement following the date of such termination of employment other than payment of compensation earned to the date of termination of employment but not yet paid. As more fully and generally provided in Section 16 hereof, this Subsection 5(b) shall not be interpreted to deny the Employee any benefits to which he may be entitled under any plan or arrangement of the Company applicable to the Employee. Likewise, this Subsection 5(b) shall not be interpreted to entitle the Employee to a bonus under the Bonus Plan following the Employee's termination of employment except as provided in the Bonus Plan which requires employment on the last day of the Company's taxable year as a condition to receipt of a bonus thereunder for such year except in the cases of death, disability or retirement at or after either age 62 with ten years of service or age 65. (c) Notwithstanding anything contained in this Agreement to the contrary, other than Section 16 hereof, if the Employee breaches any of the Employee's obligations under Section 9 or 10 hereof, no further severance payments or other benefits will be payable to the Employee under this Section 5. 6. CHANGE OF CONTROL. ----------------- (a) In General. In the event of a Change of Control as defined in ---------- this Section 6, the Employee shall become entitled to certain special benefits and shall have certain special protections so that he may more fully focus on the issues related to such a Change of Control, and to reward the Employee for the substantial additional effort involved in a Change of Control. The special benefits and protections are set forth in this Section 6. (b) Transaction Bonus. In the event of a Change of Control, then ----------------- subject to the requirements set forth in this Subsection 6(b), the Employee will receive a cash transaction bonus (the "Transaction Bonus") calculated and payable as follows: (i) If the Employee is employed by the Company on the date of the Change of Control, the total amount of the Transaction Bonus shall be calculated as follows: (A) The value of the Employee's equity consideration referred to in Subsections 6(c)(i) and 6(c)(ii) - -------------------------------------------------------------------------------- Page 10 - -------------------------------------------------------------------------------- represented by the value of Employee's restricted Class A Shares and the "spread" (the difference between the fair market value of the Shares underlying the options and the exercise price) of the Employee's options for the Class A Shares shall be calculated as of the date of the Change of Control based on the per Class A Share "Change of Control Valuation" (as hereinafter defined) paid in (or implicit in) the Change of Control transaction (and irrespective of any subsequent increases or decreases in such value of the equity consideration) (the "Equity Value"); (B) If the Employee's Equity Value is less than Three Million Five Hundred Thousand Dollars ($3,500,000.00), the Transaction Bonus will equal Three Million Five Hundred Thousand Dollars ($3,500,000.00) minus the Equity Value; (C) If the Employee's Equity Value is Three Million Five Hundred Thousand Dollars ($3,500,000.00) or more, no Transaction Bonus shall be payable to the Employee; and (D) If the Employee's Equity Value is greater than Four Million Seven Hundred Thousand Dollars ($4,700,000.00), the Employee shall not receive the portion of such Equity Value, allocated as the Employee shall elect among his equity interests, in whatever form the Employee shall determine (including by way of example only, the termination of a portion of the Employee's options), in excess of Four Million Seven Hundred Thousand Dollars ($4,700,000.00). (ii) If the Employee is employed by the Company on the date of the Change of Control and either is employed by the Company on the first anniversary thereof or is not employed by the Company on such first anniversary due to the Employee's death or disability, the Transaction Bonus shall be payable as follows: (A) If the Employee is employed by the Company on the day of the Change of Control, one-half (1/2) of the Transaction Bonus shall be payable to the Employee on such date; and - -------------------------------------------------------------------------------- Page 11 - -------------------------------------------------------------------------------- (B) If the Employee is employed by the Company on the first anniversary of the Change of Control, the other one-half (1/2) of the Transaction Bonus shall be payable to the Employee on such date. (C) Furthermore, if the Employee is employed by the Company on the date of the Change of Control but, due to the Employee's death or disability, the Employee is no longer employed by the Company on the first anniversary thereof, the Employee (or the Employee's beneficiary in the event of the Employee's death) shall nonetheless be entitled to the other one-half (1/2) of the Transaction Bonus, which amount shall be payable on such first anniversary. (iii) If the Employee is not employed by the Company on the date of the Change of Control or the date of the first anniversary thereof due to the Employee's termination by the Company other than for Cause or due to the Employee's termination of employment for Good Reason, but if the Employee's Payment Term includes either or both such dates, the Employee shall nonetheless be entitled to a Transaction Bonus even though the Employee is no longer then employed by the Company. Any Transaction Bonus payable in accordance with this Subsection 6(b)(iii) shall be in an amount, and shall be payable on a date, determined in accordance with Subsection 6(b)(iv) or 6(b)(v), whichever is applicable. (iv) If the Employee is not employed by the Company on the date of the Change of Control, but a Transaction Bonus is payable to the Employee in accordance with Subsection 6(b)(iii) hereof, the following shall apply: (A) The Transaction Bonus shall be Three Million Five Hundred Thousand Dollars ($3,500,000.00); (B) The Transaction Bonus shall be paid in full to the Employee (or the Employee's beneficiary in the event of the Employee's death) on the date of the Change of Control; and (C) Upon receipt of the Transaction Bonus, the Employee (or the Employee's personal representative or - -------------------------------------------------------------------------------- Page 12 - -------------------------------------------------------------------------------- beneficiary in the event of the Employee's death) shall assign to the Company the Employee's restricted Class A Shares and the Employee's stock options for Class A Shares and any other Class A Shares or equity interest in the Company which the Employee may then own, regardless of how the Employee may have acquired such restricted stock, options, Class A Shares or equity interest. (v) If the Employee is employed by the Company on the date of the Change of Control but not on the first anniversary thereof, but a Transaction Bonus is payable to the Employee in accordance with Subsection 6(b)(iii) hereof, the following shall apply: (A) The Transaction Bonus shall be in the amount calculated in accordance with Subsection 6(b)(i); and (B) The portion of the Transaction Bonus remaining unpaid upon the Employee's termination of employment with the Company shall be paid to the Employee (or the Employee's beneficiary in the event of the Employee's death) within ten (10) days following such termination of employment. (vi) Notwithstanding anything contained in this Agreement to the contrary, if the Employee breaches any of the Employee's obligations under Section 9 or 10 hereof, no further Transaction Bonus payments will be payable to the Employee. (c) Equity Considerations. If the Employee is employed by the --------------------- Company on the day of the Change of Control, the Employee shall receive the following equity considerations: (i) all restricted stock of the Company, owned by the Employee on the date of the Change of Control, regardless of whether acquired under the 1996 Transitional Restricted Stock Plan or under an individual agreement with the Company or otherwise, will become and remain one hundred percent (100%) vested; (ii) all stock options for Class A Shares of the Company, owned by the Employee on the date of the Change of Control, regardless of whether acquired under the 1989, 1992 or 1997 Stock Option Plan or under an individual agreement with the Company or otherwise, will immediately become - -------------------------------------------------------------------------------- Page 13 - -------------------------------------------------------------------------------- and remain throughout the full remaining term of such options one hundred percent (100%) vested and fully exercisable, and such exercise then and thereafter shall be available on a cashless basis such that the Employee may receive the net value of the Employee's options (represented by the amount by which the fair market value of the Class A Shares exceeds the exercise price) in cash or Class A Shares as the Employee shall elect, without outlay of cash but net of all applicable withholding taxes, which taxes shall be remitted by the Company to the proper taxing authorities; (iii) upon any such Change of Control transaction, all limitations, restrictions or conditions relating to the Employee's rights to receive, vote, own and/or transfer any Class A Shares contained in any of the Pre-existing Agreements or contained in any other document, agreement or plan shall terminate and shall be of no further force and effect, except for any registration rights in effect; and (iv) if permitted by the purchaser in the Change of Control transaction (the "Purchaser"), the Company will provide for the Employee the opportunity to convert all or a portion, as he shall elect, of the Employee's options to purchase Class A Shares as well as Class A Shares then owned by the Employee, into an equity investment in the entity resulting from Purchaser's transaction (the "Successor") on a tax favored basis. The amount available for such investment shall be an amount calculated on the basis of the per Share price paid in the Change of Control transaction or series of transactions or implicit in the valuation of the Change of Control transaction, including all elements of consideration paid or payable (the "Change of Control Valuation"). (v) If the Purchaser permits the Employee to convert all (or a portion) of the Employee's options to purchase Class A Shares, as well as Class A Shares then owned by the Employee, into such an equity investment in the Successor, and if the Employee makes such an investment derived from all or a portion of such options and/or Class A Shares (the "Investment"), then the Employee shall, after the Change of Control, have the right, at any time, upon notice to the Successor, to sell the Investment to the Successor for a cash payment equal to the greater of (x) the fair market value of the Investment as of the date of the notice or (y) the initial value of the Investment determined on the basis of the - -------------------------------------------------------------------------------- Page 14 - -------------------------------------------------------------------------------- Change of Control Valuation. (vi) If the purchaser in the Change of Control transaction does not permit the Employee to convert (or the Employee chooses not to convert) all (or a portion) of the Employee's options to purchase Class A Shares and Class A Shares then owned by the Employee into equity in the Successor, then the Employee shall exercise, at the time of the Change of Control, all options the Employee holds for Class A Shares (such exercise to provide cash rather than Class A Shares to the Employee in accordance with the exercise procedure described in Subsection 6(c)(ii) hereof), and to sell to the Company at the time of the Change of Control all Class A Shares then owned by the Employee, to the extent such options or Class A Shares are not converted into equity in the Successor. Such exercise of options and sale of Class A Shares shall yield an amount to the Employee determined by the Class A Share Change of Control Valuation. (d) Change of Control. For purposes of this Agreement, the words ------------------ "Change of Control" means a change in control of the Company of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended, as in effect on the date of this Agreement (the "Exchange Act"), whether or not the Company is then subject to such reporting requirements; provided, that, without limitation, a Change of Control shall be deemed to have occurred if: (i) any "person" (as defined in Sections 13(d) and 14(d) of the Exchange Act), other than Zell/Chilmark Fund, L.P., becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing twenty percent (20%) or more of the combined voting power of the Company's then outstanding securities; provided that a Change in Control shall not be deemed to occur under this clause (i) by reason of (A) the acquisition of securities by the Company or an employee benefit plan (or any trust funding such a plan) maintained by the Company, or (B) while Zell/Chilmark Fund, L.P. continues to beneficially own more than fifty percent (50%) of the combined voting power of the Company's then outstanding securities; (ii) during any period of one (1) year there shall cease to be a majority of the Board comprised of "Continuing Directors" as - -------------------------------------------------------------------------------- Page 15 - -------------------------------------------------------------------------------- hereinafter defined; or (iii) there occurs (A) a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than eighty percent (80%) of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or (B) the approval by the stockholders of the Company of a plan of complete liquidation of the Company, or (C) the sale or disposition of the components manufacturing business which is maintained by the Company and its subsidiaries as of the date of this Agreement, or (D) the sale or disposition by the Company of more than fifty percent (50%) of the Company's assets. For purposes of this Subsection 6(d)(iii), a sale of more than fifty percent (50%) of the Company's assets includes a sale of more than fifty percent (50%) of the aggregate value of the assets of the Company and its subsidiaries or the sale of stock of one or more of the Company's subsidiaries with an aggregate value in excess of fifty percent (50%) of the aggregate value of the Company and its subsidiaries or any combination methods by which more than fifty percent (50%) of the aggregate value of the Company and its subsidiaries is sold. (iv) For purposes of this Agreement, a "Change of Control" will be deemed to occur: (A) on the day on which a twenty percent (20%) or greater ownership interest described in Subsection 6(d)(i) is acquired or, if later, the day on which the Zell/Chilmark Fund, L.P. ceases to beneficially own more than fifty percent (50%) of the combined voting power of the Company's then outstanding securities, provided that a subsequent increase in such ownership interest after it first equals or exceeds twenty percent (20%) shall not be deemed a separate Change of Control; (B) on the day on which "Continuing Directors," as hereinafter defined, cease to be a majority of the Board as described in Subsection 6(d)(ii); - -------------------------------------------------------------------------------- Page 16 - -------------------------------------------------------------------------------- (C) on the day of a merger, consolidation, sale of the components manufacturing business or sale of assets as described in Subsection 6(d)(iii); or (D) on the day of the approval of a plan of complete liquidation as described in Subsection 6(d)(iii). (v) For purposes of this Subsection 6(d), the word "Company" means Sealy Corporation, and, any other corporation or business organization in an unbroken chain of corporations or business organization ending with Sealy Corporation that owns, directly or indirectly, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock of Sealy Corporation other than Zell/Chilmark Fund, L.P. (vi) For purposes of this Subsection 6(d), the words "Continuing Directors" mean individuals who at the beginning of any period (not including any period prior to the date of this Agreement) of one (1) year constitute the Board and any new director(s) whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least a majority of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved. (e) Section 280G Protection. The Company shall make a cash payment ----------------------- to the Employee at the time set forth below equal to the amount of excise taxes (i.e., the "excise tax gross-up payment") which Employee would be required to pay pursuant to Section 4999 of the Internal Revenue Code of 1986, as amended ("Code"), as a result of any payments made by or on behalf of the Company or any successor thereto resulting in an "excess parachute payment" within the meaning of Section 280G(b) of the Code. In addition to the foregoing, the cash payment due to the Employee under this Subsection 6(e) shall be increased by the aggregate of the amount of federal, state and local income and excise taxes for which the Employee will be liable on account of the cash payment to be made under this Subsection 6(e), such that the Employee will receive the excise tax gross-up payment net of all income and excise taxes imposed on the Employee on account of the receipt of the excise tax gross-up payment. The computation of this payment shall be determined, at the expense of the Company, by an independent accounting, actuarial or consulting firm selected by the Company. - -------------------------------------------------------------------------------- Page 17 - -------------------------------------------------------------------------------- Payment of the cash amount set forth above shall be made at such time as the Company shall determine, in its sole discretion, but in no event later than the date five (5) business days before the due date, without regard to any extension, for filing the Employee's federal income tax return for the calendar year which includes the date as of which the aforementioned "excess parachute payments" are determined. Notwithstanding the foregoing, there shall be no duplication of payments by the Company under this Subsection 6(e) in respect of excise taxes under Section 4999 of the Code to the extent the Company is making cash payments in respect of such excise taxes for any other arrangement with the Employee. In the event that the Employee is ultimately assessed with excise taxes under Section 4999 of the Code as a result of payments made by the Company or any successor thereto which exceed the amount of excise taxes used in computing the Employee's payment under this Subsection 6(e), the Company or its successor shall indemnify the Employee for such additional excise taxes plus any additional excise taxes, income taxes, interest and penalties resulting from the additional excise taxes and the indemnity hereunder. (f) Section 16 Protection. If the Employee is subject to Section 16 --------------------- of the Securities Exchange Act of 1934 ("Section 16"), then to the extent the Employee would be deprived of the benefits of the equity considerations described herein or under any of the Pre- existing Agreements or under the 1989, 1992 or 1997 Stock Option Plan or the 1996 Transitional Restricted Stock Plan, as described above, or any other plan or arrangement regarding stock of the Company, by reason of such Section 16 or the Rules issued thereunder, the Employee shall be provided with the alternative of receiving a cash payment approximating the loss of such benefits under a cash compensation plan implemented by the Company. The Company agrees to have this Agreement, and specifically this Section 6 approved by the Board in compliance with Section 16 and Rule 16b-3 thereunder to ensure its enforceability. 7. SEVERANCE PLAN. It is the intention of the Parties that this Agreement -------------- provide special benefits to the Employee. If at any time the Company's Executive Severance Benefit Plan would provide better cash severance benefits to the Employee than this Agreement, the Employee may elect to receive such better cash severance benefits in lieu of the cash severance benefits provided under Subsections 5(a)(i) and 5(a)(ii), or Subsection 5(a)(vi), of this Agreement, whichever is applicable, while continuing to receive any other benefits or coverages available under this Agreement. If this Agreement would provide better cash severance benefits to the Employee than the Company's Executive Severance Benefit Plan, the Employee shall receive the cash severance benefits under this Agreement, as well as any other benefits or coverages available under this - -------------------------------------------------------------------------------- Page 18 - -------------------------------------------------------------------------------- Agreement. In such case, the cash severance benefits under this Agreement shall be in lieu of the cash severance benefits payable under the Company's Executive Severance Benefit Plan. 8. PLAN AMENDMENTS. To the extent any provisions of this Agreement modify --------------- the terms of any existing plan, policy or arrangement affecting the compensation or benefits of the Employee, as appropriate, (a) such modification as set forth herein shall be deemed an amendment to such plan, policy or arrangement as to the Employee, and both the Company and the Employee hereby consent to such amendment, (b) the Company will appropriately modify such plan, policy or arrangement to correspond to this Agreement with respect to the Employee, or (c) the Company will provide an "Alternative Benefit," as defined in Section 14 hereof, to or on behalf of the Employee in accordance with the provisions of such Section 14. 9. CONFIDENTIAL INFORMATION. The Employee agrees that the Employee will ------------------------ not, during the Employment Term or at any time thereafter, either directly or indirectly, disclose or make known to any other person, firm, or corporation any confidential information, trade secret or proprietary information of the Company that the Employee may acquire in the performance of the Employee's duties hereunder (except in good faith in the ordinary course of business for the Company to a person who will be advised by the Employee to keep such information confidential) or make use of any of such confidential information except in the performance of the Employee's duties or when required to do so by legal process, by any governmental agency having supervisory authority over the business of the Company or by any administrative or legislative body (including a committee thereof) that requires the Employee to divulge, disclose or make accessible such information. In the event that the Employee is so ordered, the Employee shall so advise the Company in order to allow the Company the opportunity to object to or otherwise resist such order. Upon the termination of the Employee's employment with the Company, the Employee agrees to deliver forthwith to the Company any and all proprietary literature, documents, correspondence, and other proprietary materials and records furnished to or acquired by the Employee during the course of such employment. In the event of a breach or threatened breach of this Section 9 by the Employee, the Company will be entitled to preliminary and permanent injunctive relief, without bond or security, sufficient to enforce the provisions hereof and the Company will be entitled to pursue such other remedies at law or in equity which it deems appropriate. 10. NON-COMPETITION. In consideration of this Agreement, the Employee --------------- agrees that, during the Employment Term, and for one year thereafter, the Employee shall not act as a proprietor, investor, director, officer, employee, substantial stockholder, consultant, or partner in any business engaged to a material extent in the manufacture or sale of (a) mattresses or other bedding products or (b) any other products which constitute more than ten percent (10%) of the Company's revenues at the time in direct competition with the Company in any market. The Employee understands that the foregoing restrictions may limit the Employee's ability to engage in certain business pursuits during the period provided for above, but acknowledges that - -------------------------------------------------------------------------------- Page 19 - -------------------------------------------------------------------------------- the Employee will receive sufficiently higher remuneration and other benefits from the Company hereunder than the Employee would otherwise receive to justify such restriction. The Employee acknowledges that the Employee understands the effect of the provisions of this Section 10, and that the Employee has had reasonable time to consider the effect of these provisions, and that the Employee was encouraged to and had an opportunity to consult an attorney with respect to these provisions. The Company and the Employee consider the restrictions contained in this Section 10 to be reasonable and necessary. Nevertheless, if any aspect of these restrictions is found to be unreasonable or otherwise unenforceable by a court of competent jurisdiction, the Parties intend for such restrictions to be modified by such court so as to be reasonable and enforceable and, as so modified by the court, to be fully enforced. In the event of a breach or threatened breach of this Section 10 by the Employee, the Company will be entitled to preliminary and permanent injunctive relief, without bond or security, sufficient to enforce the provisions hereof and the Company will be entitled to pursue such other remedies at law or in equity which it deems appropriate. 11. NOTICES. For purposes of this Agreement, all communications ------- provided for herein shall be in writing and shall be deemed to have been duly given when hand delivered or mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows: (a) If the notice is to the Company: Chairman of the Board Sealy Corporation 1228 Euclid Avenue - Tenth Floor Cleveland, Ohio 44115 - 1886 (b) If the notice is to the Employee: Mr. Ronald L. Jones 26600 George Zeiger Drive Beachwood, OH 44122 or to such other address as either party may have furnished to the other in writing and in accordance herewith; except that notices of change of address shall be effective only upon receipt. 12. ASSIGNMENT; BINDING EFFECT. This Agreement shall be binding upon -------------------------- and inure to the benefit of the parties to this Agreement and their respective successors, heirs (in the case of the Employee) and permitted assigns. No rights or obligations of the Company under this Agreement may be assigned or transferred by the Company except that such rights or obligations may be assigned or transferred in connection with the sale or transfer of all or substantially all of the assets of the Company, provided that the assignee or transferee is the successor to all or substantially all of the assets of the Company and such assignee or transferee - -------------------------------------------------------------------------------- Page 20 - -------------------------------------------------------------------------------- expressly assumes the liabilities, obligations and duties of the Company, as contained in this Agreement, either contractually or as a matter of law. The Company further agrees that, in the event of a sale or transfer of assets as described in the preceding sentence, it shall be a condition precedent to the consummation of any such transaction that the assignee or transferee expressly assumes the liabilities, obligations and duties of the Company hereunder. No rights or obligations of the Employee under this Agreement may be assigned or transferred by the Employee other than the Employee's rights to compensation and benefits, which may be transferred only by will or operation of law, except as provided in this Section 12. The Employee shall be entitled, to the extent permitted under any applicable law, to select and change a beneficiary or beneficiaries to receive any compensation or benefits payable hereunder following the Employee's death by giving the Company written notice thereof. In the absence of such a selection, any compensation or benefit payable under this Agreement following the death of the Employee shall be payable to the Employee's spouse, or if such spouse shall not survive the Employee, to the Employee's estate. In the event of the Employee's death or a judicial determination of the Employee's incompetence, reference in this Agreement to the Employee shall be deemed, where appropriate, to refer to the Employee's beneficiary, estate or other legal representative. 13. INVALID PROVISIONS. Any provision of this Agreement that is ------------------ prohibited or unenforceable shall be ineffective to the extent, but only to the extent, of such prohibition or unenforceability without invalidating the remaining portions hereof and such remaining portions of this Agreement shall continue to be in full force and effect. In the event that any provision of this Agreement shall be determined to be invalid or unenforceable, the Parties will negotiate in good faith to replace such provision with another provision that will be valid or enforceable and that is as close as practicable to the provisions held invalid or unenforceable. 14. ALTERNATIVE SATISFACTION OF COMPANY'S OBLIGATIONS. In the event ------------------------------------------------- this Agreement provides for payments or benefits to or on behalf of the Employee which cannot be provided under the Company's benefit plans, policies or arrangements either because such plans, policies or arrangements no longer exist or no longer provide such benefits or because provision of such benefits to the Employee would adversely affect the tax qualified or tax advantaged status of such plans, policies or arrangements for the Employee or other participants therein, the Company may provide the Employee with an "Alternative Benefit," as defined in this Section 14, in lieu thereof. The Alternative Benefit is a benefit or payment which places the Employee and the Employee's dependents in at least as good of an economic position as if the benefit promised by this Agreement (a) were provided exactly as called for by this Agreement, and (b) had the favorable economic, tax and legal characteristics customary for plans, policies or arrangements of that type. Furthermore, if such adverse consequence would affect the Employee or the Employee's dependents, the Employee shall have the right to require that the Company provide such an Alternative Benefit. - -------------------------------------------------------------------------------- Page 21 - -------------------------------------------------------------------------------- 15. ENTIRE AGREEMENT, MODIFICATION. Subject to the provisions of ------------------------------ Section 16 hereof, this Agreement contains the entire agreement between the Parties with respect to the employment of the Employee by the Company and supersedes all prior and contemporaneous agreements, representations, and understandings of the Parties, whether oral or written. No modification, amendment, or waiver of any of the provisions of this Agreement shall be effective unless in writing, specifically referring hereto, and signed by both Parties. 16. NON-EXCLUSIVITY OF RIGHTS. Notwithstanding the foregoing ------------------------- provisions of Section 15, nothing in this Agreement shall prevent or limit the Employee's continuing or future participation in any benefit, bonus, incentive or other plan, program, policy or practice provided by the Company for its executive officers, nor shall anything herein limit or otherwise affect such rights as the Employee has or may have under any stock option, restricted stock or other agreements with the Company or any of its subsidiaries. Amounts which the Employee or the Employee's dependents or beneficiaries are otherwise entitled to receive under any such plan, policy, practice or program shall not be reduced by this Agreement except as provided in Section 7 hereof with respect to payments under the Executive Severance Benefit Plan if cash payments of annual base salary are made hereunder. 17. WAIVER OF BREACH. The failure at any time to enforce any of the ---------------- provisions of this Agreement or to require performance by the other party of any of the provisions of this Agreement shall in no way be construed to be a waiver of such provisions or to affect either the validity of this Agreement or any part of this Agreement or the right of either party thereafter to enforce each and every provision of this Agreement in accordance with the terms of this Agreement. 18. GOVERNING LAW. This Agreement has been made in, and shall be ------------- governed and construed in accordance with the laws of, the State of Ohio. The Parties agree that this Agreement is not an "employee benefit plan" or part of an "employee benefit plan" which is subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended. 19. TAX WITHHOLDING. The Company may withhold from any amounts --------------- payable under this Agreement such federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. Where withholding applies to Class A Shares, the Company shall make cashless withholding available to the Employee. 20. EXPENSE OF ENFORCEMENT. The Company shall reimburse reasonable ---------------------- attorney fees and expenses incurred by the Employee to enforce the provisions of this Agreement, even if his claims are not successful, provided they are not ultimately determined by the court to be frivolous. 21. REPRESENTATION. The Company represents and warrants that it is -------------- fully authorized and empowered to enter into this Agreement and that the performance - -------------------------------------------------------------------------------- Page 22 - -------------------------------------------------------------------------------- of its obligations under this Agreement will not violate any agreement between it and any other person, firm or organization. 22. SUBSIDIARIES AND AFFILIATES. Notwithstanding any contrary --------------------------- provision of this Agreement, to the extent it does not adversely affect the Employee, the Company may provide the compensation and benefits to which the Employee is entitled hereunder through one or more subsidiaries or affiliates, including, without limitation, Sealy, Inc. 23. NO MITIGATION OR OFFSET. In the event of any termination of ----------------------- employment, the Employee shall be under no obligation to seek other employment. Amounts due the Employee under this Agreement shall not be offset by any remuneration attributable to any subsequent employment he may obtain. 24. SOLE REMEDY. The Parties agree that the remedies of each against ----------- the other for breach of this Agreement shall be limited to enforcement of this Agreement and recovery of the amounts and remedies provided for herein. The Parties, however, further agree that such limitation shall not prevent either Party from proceeding against the other to recover for a claim other than under this Agreement. IN WITNESS WHEREOF, the Company and the Employee have executed this Agreement as of the day and year first above written. SEALY CORPORATION By: /s/ KENNETH L. WALKER --------------------------------------- Kenneth L. Walker Vice President, General Counsel & Secretary EMPLOYEE /s/ RONALD L. JONES --------------------------------------- Ronald L. Jones EX-10.7 13 EMPLOYMENT AGREEMENT (B. BARMAN) - -------------------------------------------------------------------------------- Page 1 - -------------------------------------------------------------------------------- EXHIBIT 10.7 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT is entered into as of the 25th day of August, 1997, by and between SEALY CORPORATION, a Delaware corporation (the "Company"), and BRUCE G. BARMAN (the "Employee"). W I T N E S S E T H: WHEREAS, the Company and the Employee (collectively "the Parties") desire to enter into this Employment Agreement (the "Agreement") as hereinafter set forth; NOW, THEREFORE, the Company and Employee agree as follows: 1. EMPLOYMENT TERM. --------------- (a) During the period specified in Subsection l(b) hereof (the "Employment Term"), the Company shall employ the Employee, and the Employee shall serve the Company, as Vice President, -------------- R & D, based on the terms and subject to the conditions set ----- forth herein. (b) The Employment Term shall commence on the date of this Agreement. Thereafter it shall end as follows: (i) there shall be an initial period ending on the second (2nd) anniversary of the date of this Agreement, subject to the provision of Subsection 1(b)(ii) below; (ii) after the first anniversary of the date of this Agreement, the Employment Term shall be extended one calendar day for each calendar day that the Employee is employed by the Company after such first anniversary so that the remaining Employment Term after such first anniversary shall always be one (1) year; and (iii) provided that the Employment Term may terminate prior to the date specified above in this Subsection 1(b) as provided in Section 4 hereof. 2. POSITION, DUTIES, AND RESPONSIBILITIES. At all times during the -------------------------------------- Employment Term, the Employee shall: (a) Hold the position of Vice President, R & D reporting to --------------------- the Chief Executive Officer of the Company (the "Chief Executive - -------------------------------------------------------------------------------- Page 2 - -------------------------------------------------------------------------------- Officer"); (b) Have those duties and responsibilities, and the authority, customarily possessed by the Vice President, R & D of a --------------------- major corporation and such additional duties as may be assigned to the Employee from time to time by the Board of Directors of the Company (the "Board") or the Chief Executive Officer which are consistent with the position of Vice President, R & D of a major corporation; --------------------- (c) Adhere to such reasonable written policies and directives, and such reasonable unwritten policies and directives as are of common knowledge to executive officers of the Company, as may be promulgated from time to time by the Board or the Chief Executive Officer and which are applicable to executive officers of the Company; (d) Invest in the Company only in accordance with any insider trading policy of the Company in effect at the time of the investment; and (e) Devote the Employee's entire business time, energy, and talent to the business, and to the furtherance of the purposes and objectives, of the Company, and neither directly nor indirectly act as an employee of or render any business, commercial, or professional services to any other person, firm or organization for compensation, without the prior written approval of the Board or the Chief Executive Officer. Nothing in this Agreement shall preclude the Employee from devoting reasonable periods of time to charitable and community activities or the management of the Employee's investment assets, provided such activities do not interfere with the performance by the Employee of the Employee's duties hereunder. 3. SALARY, BONUS AND BENEFITS. For services rendered by the Employee -------------------------- on behalf of the Company during the Employment Term, the following salary, bonus and benefits shall be provided to the Employee by the Company: (a) The Company shall pay to the Employee, in equal installments, according to the Company's then current practice for paying its executive officers in effect from time to time during the Employment Term, an annual base salary at the initial rate of One Hundred Seventy-One Thousand Five Hundred Dollars --------------------------------------------- ($171,500.00). This salary shall be subject to annual review, ---------- in December of each year commencing in December 1997, by the Human Resources Committee of the Board (the "Committee) and may be increased, but not decreased, to the extent, if any, that the Committee may - -------------------------------------------------------------------------------- Page 3 - -------------------------------------------------------------------------------- determine. (b) The Employee shall participate in the Sealy Corporation Annual Bonus Plan (the "Bonus Plan") in accordance with the provisions of that Plan as in effect as of the date of this Agreement. The Employee's Target annual bonus, as established by the Committee under the Bonus Plan as of the date of this Agreement, is thirty-five percent (35%) (his "Target Annual Bonus Percentage") of annual base salary, with a range of zero percent (0%) to seventy percent (70%) of annual base salary. (c) The Employee shall be eligible for participation in such other benefit plans, including, but not limited to, the Company's Profit Sharing Plan and Trust, Executive Severance Benefit Plan, Benefit Equalization Plan, Short-Term and Long Term Disability Plans, Group Term Life Insurance Plan, Medical Plan or PPO, Dental Plan, the 401(k) feature of the Profit Sharing Plan, the 1996 Transitional Restricted Stock Plan and the 1997 Stock Option Plan, as the Board may adopt from time to time and in which the Company's executive officers are eligible to participate. Such participation shall be subject to the terms and conditions set forth in the applicable plan documents. As is more fully set forth in Section 7 hereof, the Employee shall not be entitled to duplicative payments under this Agreement and the Executive Severance Benefit Plan. (d) Without limiting the generality of Subsection 3(c) above, for so long as such coverage shall be available to the executive officers of the Company, the Employee shall be eligible to participate in the Company's Group Term Life Insurance Plan with a death benefit to be provided at the level of one and one half (1 1/2) times annual base salary at Company expense, plus extended coverage with a death benefit to be provided of at least the level in effect on the date of this Agreement for the Employee under such Plan at the Employee's discretion and expense. (e) The Employee shall be entitled to take, during each one-year period commencing with December 1, 1996, during the Employment Term, vacation time equal to at least the greater of (i) the amount of vacation time to which the Employee is entitled per year as of the date of this Agreement, or (ii) the amount of vacation time to which the Employee would have become entitled if the Company's vacation policy in effect as of the date of this Agreement and which is applicable to its executive officers remained in effect throughout the Employment Term. (f) In addition, the Parties do hereby further confirm the Employee's - -------------------------------------------------------------------------------- Page 4 - -------------------------------------------------------------------------------- entitlement to a number of restricted shares of Class A Common Stock of the Company ("Class A Shares"), as well as options to purchase additional Class A Shares pursuant to various benefit plans or agreements with the Company. The Parties agree that (a) such restricted Class A Shares and such options are in addition to, and not in lieu of, any shares or options which may be granted under any other plan or arrangement of the Company after the date of this Agreement, and (b) the various restricted stock agreements and stock option agreements, and any related Stockholder Agreement (the "Stockholder Agreement") between the Parties (such agreements being hereinafter referred to collectively as the "Pre-existing Agreements"), all remain in full force and effect except as otherwise provided herein. Notwithstanding the foregoing, to the extent that any provision contained herein is inconsistent with the terms of any of the Pre-existing Agreements, the terms of this Agreement shall be controlling. 4. TERMINATION OF EMPLOYMENT. As indicated in Subsection 1(b)(iii), ------------------------- the Employment Term may terminate prior to the date specified in Subsections 1(b)(i) and 1(b)(ii) as follows: (a) The Employee's employment hereunder will terminate without further notice upon the death of the Employee. (b) The Company may terminate the Employee's employment hereunder effective immediately upon giving written notice of such termination for "Cause". For these purposes, "Cause" shall mean the following: (i) Commission by the Employee (evidenced by a conviction or written, voluntary and freely given confession) of a criminal act constituting a felony; (ii) Commission by the Employee of a material breach or material default of any of the Employee's agreements or obligations under any provision of this Agreement, including, without limitation, the Employee's agreements and obligations under Subsections 2(a) through 2(e) and Sections 9 and 10 of this Agreement, which is not cured in all material respects within thirty (30) days after the Chief Executive Officer or the designee thereof gives written notice thereof to the Employee; or (iii) Commission by the Employee, when carrying out the Employee's duties under this Agreement, of acts or the omission of any act, which both: (A) constitutes gross negligence or willful misconduct and (B) results in material - -------------------------------------------------------------------------------- Page 5 - -------------------------------------------------------------------------------- economic harm to the Company or has a materially adverse effect on the Company's operations, properties or business relationships. (c) The Employee's employment hereunder may be terminated by the Company upon the Employee's disability, if the Employee is prevented from performing the Employee's duties hereunder by reason of physical or mental incapacity for a period of one hundred eighty (180) consecutive days in any period of two consecutive fiscal years of the Company, but the Employee shall be entitled to full compensation and benefits hereunder until the close of such one hundred and eighty (180) day period. (d) The Company may terminate the Employee's employment hereunder without Cause at any time upon thirty (30) days written notice. (e) The Employee may terminate employment hereunder effective immediately upon giving written notice of such termination for "Good Reason", as defined in Subsection 4(g) below. (f) The Employee may terminate employment hereunder without Good Reason at any time upon thirty (30) days written notice. (g) For purposes of this Agreement, "Good Reason" means the occurrence of (i) any reduction in either the annual base salary of the Employee or the Target Annual Bonus Percentage or maximum annual bonus percentage applicable to the Employee under the Bonus Plan, (ii) any material reduction in the position, authority or office of the Employee, (iii) any material reduction in the Employee's responsibilities or duties for the Company, (iv) any material adverse change or reduction in the aggregate "Minimum Benefits," as hereinafter defined, provided to the Employee as of the date of this Agreement (provided that any material reduction in such aggregate Minimum Benefits that is required by law or applies generally to all employees of the Company shall not constitute "Good Reason" as defined hereunder), (v) any relocation of the Employee's principal place of work with the Company to a place more than twenty-five (25) miles from the geographical center of Cleveland, Ohio, other than a relocation to a location which is within twenty-five (25) miles from the geographic center of Greensboro, North Carolina, or (vi) the material breach or material default by the Company of any of its agreements or obligations under any provision of this Agreement. As used in this Subsection 4(g), an "adverse change or material reduction" in the aggregate Minimum Benefits shall be deemed to result from any reduction or any series of reductions which, in the aggregate, exceeds five - -------------------------------------------------------------------------------- Page 6 - -------------------------------------------------------------------------------- percent (5%) of the value of such aggregate Minimum Benefits determined as of the date of this Agreement. As used in this Subsection 4(g), Minimum Benefits are life insurance, accidental death, long term disability, short term disability, medical, dental, and vision benefits and the Company's expense reimbursement policy. The Employee shall give written notice to the Company on or before the date of termination of employment for Good Reason stating that the Employee is terminating employment with the Company and specifying in detail the reasons for such termination. If the Company does not object to such notice by notifying the Employee in writing within five (5) days following the date of the Company's receipt of the Employee's notice of termination, the Company shall be deemed to have agreed that such termination was for Good Reason. The parties agree that "Good Reason" will not be deemed to have occurred merely because the Company becomes a subsidiary or division of another entity following a "Change of Control," as hereinafter defined, provided the Employee continues to serve as the Vice President, R & D of such subsidiary or --------------------- division and such subsidiary or division is comparable in size to the organization consisting of the Company and its subsidiaries. The parties further agree that "Good Reason" will be deemed to have occurred if the purchaser, in a Change of Control transaction, does not assume this Agreement in accordance with Section 12 hereof. 5. SEVERANCE COMPENSATION. If the Employee's employment is ---------------------- terminated, the following severance provisions will apply: (a) If the Employee's employment is terminated by the Company other than for Cause or is terminated by the Employee for Good Reason, then, through the remaining Employment Term as specified in Subsection 1(b) hereof, determined without regard to Subsection 1(b)(iii) hereof, (such remaining Employment Term calculated without regard to Subsection 1(b)(iii), and without regard to whether the Employee elects accelerated payments of the Employee's annual base salary and bonus in accordance with Subsection 5(a)(v), is hereinafter referred to as the "Payment Term") the Company shall: (i) continue to pay the Employee's annual base salary in the then prevailing amount and at the times specified in Subsection 3(a) hereof, or if such annual base salary has decreased during the one year period ending on the Employee's termination of employment, at the highest rate in effect during such one year period; (ii) continue the Employee's participation in the Bonus Plan as - -------------------------------------------------------------------------------- Page 7 - -------------------------------------------------------------------------------- provided in Subsection 3(b) hereof provided that the Company will: (A) pay the Employee a bonus under the Bonus Plan for the partial year period ending on the date of the Employee's termination of employment calculated as if the Employee had continued to be employed for the entire year except that the Employee's bonus percentage (calculated at the time and in the manner customary as of the date of this Agreement, but disregarding the termination of employment of the Employee) shall be applied to the Employee's annual base salary payable in accordance with Subsection 3(a) hereof for the partial year period ending on the Employee's termination of employment; and (B) thereafter, during the remainder of the Payment Term, a bonus equal to the Employee's Target Annual Bonus Percentage, multiplied by the Employee's annual base salary in the amount specified in Subsection 5(a)(i) payable during the year (or portion thereof) for which the bonus is being calculated; with such amounts being payable when bonuses under the Bonus Plan are customarily payable, except that the final bonus shall be payable with the final payment of the annual base salary under Subsection 5(a)(i) hereof; (iii) continue in effect the medical and dental coverage, long and short-term disability protection, and any life insurance protection (including life insurance protection being paid for by the Employee), being provided to the Employee immediately prior to the Employee's termination of employment, or if any of such benefits have decreased during the one year period ending on the Employee's termination of employment, at the highest level in effect during such one year period; (iv) pay for executive outplacement services for the Employee from a nationally recognized executive outplacement firm at the level provided for vice- presidents of major corporations, provided that such outplacement services will be provided for a one year period commencing on the date of termination of employment regardless of the Payment Term; and (v) In lieu of the payments described in Subsections 5(a)(i) and - -------------------------------------------------------------------------------- Page 8 - -------------------------------------------------------------------------------- 5(a)(ii) hereof, at the Employee's request, submitted in writing to the Company within five (5) business days after the date of the Employee's termination of employment: (A) the Company will pay the total of the Employee's annual base salary payments described in Subsection 5(a)(i) in a single sum within thirty (30) days following the Employee's termination of employment; and (B) his Bonus Plan payments described in Subsection 5(a)(ii) shall be made at the same time as the Employee's payment under Subsection 5(a)(vi)(A) but shall be calculated using the Employee's Target Annual Bonus Percentage for all calculation purposes. (b) If the Employee's employment hereunder terminates due to the Employee's death, disability, termination by the Company for Cause or termination by the Employee other than for Good Reason, then no further compensation or benefits will be provided to the Employee by the Company under this Agreement following the date of such termination of employment other than payment of compensation earned to the date of termination of employment but not yet paid. As more fully and generally provided in Section 16 hereof, this Subsection 5(b) shall not be interpreted to deny the Employee any benefits to which he may be entitled under any plan or arrangement of the Company applicable to the Employee. Likewise, this Subsection 5(b) shall not be interpreted to entitle the Employee to a bonus under the Bonus Plan following his termination of employment except as provided in the Bonus Plan which requires employment on the last day of the Company's taxable year as a condition to receipt of a bonus thereunder for such year except in the cases of death, disability or retirement at or after either age 62 with ten years of service or age 65. (c) Notwithstanding anything contained in this Agreement to the contrary, other than Section 16 hereof, if the Employee breaches any of the Employee's obligations under Section 9 or 10 hereof, no further severance payments or other benefits will be payable to the Employee under this Section 5. 6. CHANGE OF CONTROL. ----------------- (a) In General. In the event of a Change of Control as defined in ---------- this Section 6, the Employee shall become entitled to certain special benefits and shall have certain special protections so that he may - -------------------------------------------------------------------------------- Page 9 - -------------------------------------------------------------------------------- more fully focus on the issues related to such a Change of Control, and to reward the Employee for the substantial additional effort involved in a Change of Control. The special benefits and protections are set forth in this Section 6. (b) Transaction Bonus. In the event of a Change of Control, then ----------------- subject to the requirements set forth in this Subsection 6(b), the Employee will receive a cash transaction bonus (the "Transaction Bonus") calculated and payable as follows: (i) If the Employee is employed by the Company on the date of the Change of Control, the total amount of the Transaction Bonus shall be equal to one hundred and fifty percent (150%) of his annual base salary in the then prevailing amount specified in Subsection 3(a) hereof, or if such annual base salary has decreased during the one year period ending on his termination of employment, at the highest rate in effect during such one year period; and (ii) If the Employee is employed by the Company on the date of the Change of Control and either is employed by the Company on the first anniversary thereof or is not employed by the Company on such first anniversary due to the Employee's death or disability, the Transaction Bonus shall be payable as follows: (A) If the Employee is employed by the Company on the day of the Change of Control, one-half (1/2) of the Transaction Bonus shall be payable to the Employee on such date; and (B) If the Employee is employed by the Company on the first anniversary of the Change of Control, the other one-half (1/2) of the Transaction Bonus shall be payable to the Employee on such date. (C) Furthermore, if the Employee is employed by the Company on the date of the Change of Control but, due to the Employee's death or disability, the Employee is no longer employed by the Company on the first anniversary thereof, the Employee (or the Employee's beneficiary in the event of the Employee's death) shall nonetheless be entitled to the other one-half (1/2) of the Transaction Bonus, which amount shall be payable on such first anniversary. - -------------------------------------------------------------------------------- Page 10 - -------------------------------------------------------------------------------- (iii) If the Employee is not employed by the Company on either or both of the date of the Change of Control and the date of the first anniversary thereof due to the Employee's termination by the Company other than for Cause or due to the Employee's termination of employment for Good Reason, but if the Employee's Payment Term includes either or both such dates, the Employee shall nonetheless be entitled to the Transaction Bonus which would otherwise be payable on the date or dates which are included in such Payment Term even though the Employee is no longer then employed by the Company. Any Transaction Bonus payable in accordance with this Subsection 6(b)(iii) shall be in an amount, and shall be payable on a date, determined in accordance with Subsection 6(b)(iv) or 6(b)(v), whichever is applicable. (iv) If the Employee is not employed by the Company on the date of the Change of Control, but a Transaction Bonus is payable to the Employee in accordance with Subsection 6(b)(iii) hereof, the following shall apply: (A) The Transaction Bonus shall be in the amount calculated in accordance with Subsection 6(b)(i); (B) The Transaction Bonus shall be paid in full to the Employee (or the Employee's beneficiary in the event of the Employee's death) on the date of the Change of Control; and (C) On the date of the Change of Control, the Employee (or the Employee's personal representative or beneficiary in the event of the Employee's death) shall assign to the Company the Employee's restricted Class A Shares and the Employee's stock options for Class A Shares and any other Class A Shares or equity interest in the Company which the Employee may then own, regardless of how the Employee may have acquired such restricted stock, options, Class A Shares or equity interest. In exchange therefore, the Company shall pay to the Employee (or the Employee's beneficiary in the event of the Employee's death), on such date, an amount equal to the value of the Employee's restricted Class A Shares and the Employee's stock options for Class A Shares, to the extent such options are exercisable and such restricted stock is vested, and any other Class A Shares or equity interest in the Company - -------------------------------------------------------------------------------- Page 11 - -------------------------------------------------------------------------------- which the Employee may then own. Such value shall be calculated using the Class A Share Change of Control Valuation as hereinafter defined. The value of the exercisable stock options for this purpose shall be the amount by which the value of the Class A Shares, as so determined, exceeds the exercise price. (v) If the Employee is employed by the Company on the date of the Change of Control but not on the first anniversary thereof, but a Transaction Bonus is payable to the Employee in accordance with Subsection 6(b)(iii) hereof, the following shall apply: (A) The Transaction Bonus shall be in the amount calculated in accordance with Subsection 6(b)(i); and (B) The portion of the Transaction Bonus remaining unpaid upon the Employee's termination of employment with the Company shall be paid to the Employee (or the Employee's beneficiary in the event of the Employee's death) within ten (10) days following such termination of employment. (vi) Notwithstanding anything contained in this Agreement to the contrary, if the Employee breaches any of the Employee's obligations under Section 9 or 10 hereof, no further Transaction Bonus payments will be payable to the Employee. (c) Equity Considerations. If the Employee is employed by the --------------------- Company on the day of the Change of Control, the Employee shall receive the following equity considerations: (i) all restricted stock of the Company, owned by the Employee on the date of the Change of Control, regardless of whether acquired under the 1996 Transitional Restricted Stock Plan or under an individual agreement with the Company or otherwise, will become and remain one hundred percent (100%) vested; (ii) all stock options for Class A Shares of the Company, owned by the Employee on the date of the Change of Control, regardless of whether acquired under the 1989, 1992 or 1997 Stock Option Plan or under an individual agreement with the Company or otherwise, will immediately become and remain throughout the full remaining term of such - -------------------------------------------------------------------------------- Page 12 - -------------------------------------------------------------------------------- options one hundred percent (100%) vested and fully exercisable, and such exercise then and thereafter shall be available on a cashless basis such that the Employee may receive the net value of the Employee's options (represented by the amount by which the fair market value of the Class A Shares exceeds the exercise price) in cash or Class A Shares as the Employee shall elect, without outlay of cash but net of all applicable withholding taxes, which taxes shall be remitted by the Company to the proper taxing authorities; (iii) upon any such Change of Control transaction, all limitations, restrictions or conditions relating to the Employee's rights to receive, vote, own and/or transfer any Class A Shares contained in any of the Pre-existing Agreements or contained in any other document, agreement or plan shall terminate and shall be of no further force and effect, except for any registration rights in effect; and (iv) if permitted by the purchaser in the Change of Control transaction (the "Purchaser"), the Company will provide for the Employee the opportunity to convert all or a portion, as he shall elect, of the Employee's options to purchase Class A Shares as well as Class A Shares then owned by the Employee, into an equity investment in the entity resulting from Purchaser's transaction (the "Successor") on a tax favored basis. The amount available for such investment shall be an amount calculated on the basis of the per Share price paid in the Change of Control transaction or series of transactions or implicit in the valuation of the Change of Control transaction, including all elements of consideration paid or payable (the "Change of Control Valuation"). (v) If the Purchaser in the Change of Control transaction does not permit the Employee to convert (or the Employee chooses not to convert) all (or a portion) of the Employee's options to purchase Class A Shares and Class A Shares then owned by the Employee into equity in the Successor, then the Employee shall exercise, at the time of the Change of Control, all options the Employee holds for Class A Shares (such exercise to provide cash rather than Class A Shares to the Employee in accordance with the exercise procedure described in Subsection 6(c)(ii) hereof), and shall sell to the Company at the time of the Change of Control all Class A Shares then owned by the Employee, to the extent such options or Class A Shares are not converted into equity - -------------------------------------------------------------------------------- Page 13 - -------------------------------------------------------------------------------- in the Successor. Such exercise of options and sale of Class A Shares shall yield an amount to the Employee determined by the Class A Share Change of Control Valuation. (d) Change of Control. For purposes of this Agreement, the words ------------------ "Change of Control" means a change in control of the Company of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended, as in effect on the date of this Agreement (the "Exchange Act"), whether or not the Company is then subject to such reporting requirements; provided, that, without limitation, a Change of Control shall be deemed to have occurred if: (i) any "person" (as defined in Sections 13(d) and 14(d) of the Exchange Act), other than Zell/Chilmark Fund, L.P., is or becomes the "beneficial owner" (as defined in Rule 13d- 3 under the Exchange Act), directly or indirectly, of securities of the Company representing twenty percent (20%) or more of the combined voting power of the Company's then outstanding securities; provided that a Change in Control shall not be deemed to occur under this clause (i) by reason of (A) the acquisition of securities by the Company or an employee benefit plan (or any trust funding such a plan) maintained by the Company, or (B) while Zell/Chilmark Fund, L.P. continues to beneficially own more than fifty percent (50%) of the combined voting power of the Company's then outstanding securities; (ii) during any period of one (1) year there shall cease to be a majority of the Board comprised of "Continuing Directors" as hereinafter defined; or (iii) the stockholders of the Company (A) approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than eighty percent (80%) of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or (B) approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of more than fifty percent (50%) of the Company's assets. - -------------------------------------------------------------------------------- Page 14 - -------------------------------------------------------------------------------- For purposes of this Subsection 6(d)(iii), a sale of more than fifty percent (50%) of the Company's assets includes a sale of more than fifty percent (50%) of the aggregate value of the assets of the Company and its subsidiaries or the sale of stock of one or more of the Company's subsidiaries with an aggregate value in excess of fifty percent (50%) of the aggregate value of the Company and its subsidiaries or any combination of methods by which more than fifty percent (50%) of the aggregate value of the Company and its subsidiaries is sold. (iv) For purposes of this Agreement, a "Change of Control" will be deemed to occur: (A) on the day on which a twenty percent (20%) or greater ownership interest described in Subsection 6(d)(i) is acquired or, if later, the day on which the Zell/Chilmark Fund, L.P. ceases to beneficially own more than fifty percent (50%) of the combined voting power of the Company's then outstanding securities, provided that a subsequent increase in such ownership interest after it first equals or exceeds twenty percent (20%) shall not be deemed a separate Change of Control; (B) on the day on which "Continuing Directors," as hereinafter defined, cease to be a majority of the Board as described in Subsection 6(d)(ii); (C) on the day of a merger, consolidation or sale or disposition of assets as described in Subsection 6(d)(iii); or (D) on the day of the approval of a plan of complete liquidation as described in Subsection 6(d)(iii). (v) For purposes of this Subsection 6(d), the word "Company" means Sealy Corporation, and, any other corporation or business organization in an unbroken chain of corporations or business organization ending with Sealy Corporation that owns, directly or indirectly, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock of Sealy Corporation other than Zell/Chilmark Fund, L.P. (vi) For purposes of this Subsection 6(d), the words "Continuing Directors" mean individuals who at the beginning of any - -------------------------------------------------------------------------------- Page 15 - -------------------------------------------------------------------------------- period (not including any period prior to the date of this Agreement) of one (1) year constitute the Board and any new director(s) whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least a majority of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved. (e) Section 16 Protection. If the Employee is subject to Section 16 --------------------- of the Securities Exchange Act of 1934 ("Section 16"), then to the extent the Employee would be deprived of the benefits of the equity considerations described herein or under any of the Pre- existing Agreements or under the 1989, 1992 or 1997 Stock Option Plan or the 1996 Transitional Restricted Stock Plan, as described above, or any other plan or arrangement regarding stock of the Company, by reason of such Section 16 or the Rules issued thereunder, the Employee shall be provided with the alternative of receiving a cash payment approximating the loss of such benefits under a cash compensation plan implemented by the Company. The Company agrees to have this Agreement, and specifically this Section 6 approved by the Board in compliance with Section 16 and Rule 16b-3 thereunder to ensure its enforceability. 7. SEVERANCE PLAN. It is the intention of the Parties that this -------------- Agreement provide special benefits to the Employee. If at any time the Company's Executive Severance Benefit Plan would provide better cash severance benefits to the Employee than this Agreement, the Employee may elect to receive such better cash severance benefits in lieu of the cash severance benefits provided under Subsections 5(a)(i) and 5(a)(ii), or Subsection 5(a)(v), of this Agreement, whichever is applicable, while continuing to receive any other benefits or coverages available under this Agreement. If this Agreement would provide better cash severance benefits to the Employee than the Company's Executive Severance Benefit Plan, the Employee shall receive the cash severance benefits under this Agreement, as well as any other benefits or coverages available under this Agreement. In such case, the cash severance benefits under this Agreement shall be in lieu of the cash severance benefits payable under the Company's Executive Severance Benefit Plan. 8. PLAN AMENDMENTS. To the extent any provisions of this Agreement --------------- modify the terms of any existing plan, policy or arrangement affecting the compensation or benefits of the Employee, as appropriate, (a) such modification as set forth herein shall be deemed an amendment to such plan, policy or arrangement as to the Employee, and both the Company and the Employee hereby consent to such amendment, (b) the Company will appropriately modify such plan, policy or arrangement to correspond to this Agreement with respect to the Employee, or (c) the Company will provide an "Alternative Benefit," as defined in Section 14 hereof, to or on - -------------------------------------------------------------------------------- Page 16 - -------------------------------------------------------------------------------- behalf of the Employee in accordance with the provisions of such Section 14. 9. CONFIDENTIAL INFORMATION. The Employee agrees that the Employee ------------------------ will not, during the Employment Term or at any time thereafter, either directly or indirectly, disclose or make known to any other person, firm, or corporation any confidential information, trade secret or proprietary information of the Company that the Employee may acquire in the performance of the Employee's duties hereunder (except in good faith in the ordinary course of business for the Company to a person who will be advised by the Employee to keep such information confidential) or make use of any of such confidential information except in the performance of the Employee's duties or when required to do so by legal process, by any governmental agency having supervisory authority over the business of the Company or by any administrative or legislative body (including a committee thereof) that requires the Employee to divulge, disclose or make accessible such information. In the event that the Employee is so ordered, the Employee shall so advise the Company in order to allow the Company the opportunity to object to or otherwise resist such order. Upon the termination of the Employee's employment with the Company, the Employee agrees to deliver forthwith to the Company any and all proprietary literature, documents, correspondence, and other proprietary materials and records furnished to or acquired by the Employee during the course of such employment. In the event of a breach or threatened breach of this Section 9 by the Employee, the Company will be entitled to preliminary and permanent injunctive relief, without bond or security, sufficient to enforce the provisions hereof and the Company will be entitled to pursue such other remedies at law or in equity which it deems appropriate. 10. NON-COMPETITION. In consideration of this Agreement, the Employee --------------- agrees that, during the Employment Term, and for one year thereafter, unless the Employee has waived the Transaction Bonus and the equity considerations described in Subsections 6(b) and 6(c), the Employee shall not act as a proprietor, investor, director, officer, employee, substantial stockholder, consultant, or partner in any business engaged to a material extent in the manufacture or sale of (a) mattresses or other bedding products or (b) any other products which constitute more than ten percent (10%) of the Company's revenues at the time in direct competition with the Company in any market. If, however, the Employee has waived the Transaction Bonus and the equity considerations described in Subsections 6(b) and 6(c), this covenant not to compete shall be void upon the Employee's termination of employment. The Employee understands that the foregoing restrictions may limit the Employee's ability to engage in certain business pursuits during the period provided for above, but acknowledges that the Employee will receive sufficiently higher remuneration and other benefits from the Company hereunder than the Employee would otherwise receive to justify such restriction. The Employee acknowledges that the Employee understands the effect of the provisions of this Section 10, and that the Employee has had reasonable time to consider the effect of these provisions, and that the Employee was encouraged to and had an opportunity to consult an attorney with respect to these provisions. The Company and the Employee consider the restrictions contained in this Section 10 to be reasonable and necessary. Nevertheless, if any aspect of these restrictions is found to be unreasonable or otherwise unenforceable by a court of - -------------------------------------------------------------------------------- Page 17 - -------------------------------------------------------------------------------- competent jurisdiction, the Parties intend for such restrictions to be modified by such court so as to be reasonable and enforceable and, as so modified by the court, to be fully enforced. In the event of a breach or threatened breach of this Section 10 by the Employee, the Company will be entitled to preliminary and permanent injunctive relief, without bond or security, sufficient to enforce the provisions hereof and the Company will be entitled to pursue such other remedies at law or in equity which it deems appropriate. During the ten (10) day period ending on the date of a Change of Control, the Employee may, by written notice to the Company, elect to waive his Transaction Bonus and the equity considerations described in Subsections 6(b) and 6(c). Such waiver shall be irrevocable. In the event of such a waiver, the Employee's agreement not to compete with the Company as set forth in this Section 10 shall be void upon his termination of employment. 11. NOTICES. For purposes of this Agreement, all communications ------- provided for herein shall be in writing and shall be deemed to have been duly given when hand delivered or mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows: (a) If the notice is to the Company: Mr. Ronald L. Jones Chief Executive Officer Sealy Corporation 1228 Euclid Avenue - Tenth Floor Cleveland, Ohio 44115-1886 With a copy to: Kenneth Walker, Esq. Vice President and General Counsel Sealy Corporation 1228 Euclid Avenue - Tenth Floor Cleveland, Ohio 44115-1886 (b) If the notice is to the Employee: Dr. Bruce G. Barman 8702 Scenic View Drive Broadview Heights, Ohio 44147 or to such other address as either party may have furnished to the other in writing and in accordance herewith; except that notices of change of address shall be effective only upon receipt. 12. ASSIGNMENT; BINDING EFFECT. This Agreement shall be binding upon -------------------------- and inure to the benefit of the parties to this Agreement and their respective - -------------------------------------------------------------------------------- Page 18 - -------------------------------------------------------------------------------- successors, heirs (in the case of the Employee) and permitted assigns. No rights or obligations of the Company under this Agreement may be assigned or transferred by the Company except that such rights or obligations may be assigned or transferred in connection with the sale or transfer of all or substantially all of the assets of the Company, provided that the assignee or transferee is the successor to all or substantially all of the assets of the Company and such assignee or transferee expressly assumes the liabilities, obligations and duties of the Company, as contained in this Agreement, either contractually or as a matter of law. The Company further agrees that, in the event of a sale or transfer of assets as described in the preceding sentence, it shall be a condition precedent to the consummation of any such transaction that the assignee or transferee expressly assumes the liabilities, obligations and duties of the Company hereunder. No rights or obligations of the Employee under this Agreement may be assigned or transferred by the Employee other than the Employee's rights to compensation and benefits, which may be transferred only by will or operation of law, except as provided in this Section 12. The Employee shall be entitled, to the extent permitted under any applicable law, to select and change a beneficiary or beneficiaries to receive any compensation or benefits payable hereunder following the Employee's death by giving the Company written notice thereof. In the absence of such a selection, any compensation or benefit payable under this Agreement following the death of the Employee shall be payable to the Employee's spouse, or if such spouse shall not survive the Employee, to the Employee's estate. In the event of the Employee's death or a judicial determination of his incompetence, reference in this Agreement to the Employee shall be deemed, where appropriate, to refer to the Employee's beneficiary, estate or other legal representative. 13. INVALID PROVISIONS. Any provision of this Agreement that is ------------------ prohibited or unenforceable shall be ineffective to the extent, but only to the extent, of such prohibition or unenforceability without invalidating the remaining portions hereof and such remaining portions of this Agreement shall continue to be in full force and effect. In the event that any provision of this Agreement shall be determined to be invalid or unenforceable, the Parties will negotiate in good faith to replace such provision with another provision that will be valid or enforceable and that is as close as practicable to the provisions held invalid or unenforceable. 14. ALTERNATIVE SATISFACTION OF COMPANY'S OBLIGATIONS. In the event ------------------------------------------------- this Agreement provides for payments or benefits to or on behalf of the Employee which cannot be provided under the Company's benefit plans, policies or arrangements either because such plans, policies or arrangements no longer exist or no longer provide such benefits or because provision of such benefits to the Employee would adversely affect the tax qualified or tax advantaged status of such plans, policies or arrangements for the Employee or other participants therein, the Company may provide the Employee with an "Alternative Benefit," as defined in this Section 14, in lieu thereof. The Alternative Benefit is a benefit or payment which places the Employee and the Employee's dependents in at least as good of an economic position as if the benefit promised by this Agreement (a) were provided exactly as called for by this Agreement, - -------------------------------------------------------------------------------- Page 19 - -------------------------------------------------------------------------------- and (b) had the favorable economic, tax and legal characteristics customary for plans, policies or arrangements of that type. Furthermore, if such adverse consequence would affect the Employee or the Employee's dependents, the Employee shall have the right to require that the Company provide such an Alternative Benefit. 15. ENTIRE AGREEMENT, MODIFICATION. Subject to the provisions of ------------------------------ Section 16 hereof, this Agreement contains the entire agreement between the Parties with respect to the employment of the Employee by the Company and supersedes all prior and contemporaneous agreements, representations, and understandings of the Parties, whether oral or written. No modification, amendment, or waiver of any of the provisions of this Agreement shall be effective unless in writing, specifically referring hereto, and signed by both Parties. 16. NON-EXCLUSIVITY OF RIGHTS. Notwithstanding the foregoing ------------------------- provisions of Section 15, nothing in this Agreement shall prevent or limit the Employee's continuing or future participation in any benefit, bonus, incentive or other plan, program, policy or practice provided by the Company for its executive officers, nor shall anything herein limit or otherwise affect such rights as the Employee has or may have under any stock option, restricted stock or other agreements with the Company or any of its subsidiaries. Amounts which the Employee or the Employee's dependents or beneficiaries are otherwise entitled to receive under any such plan, policy, practice or program shall not be reduced by this Agreement except as provided in Section 7 hereof with respect to payments under the Executive Severance Benefit Plan if cash payments of annual base salary are made hereunder. 17. WAIVER OF BREACH. The failure at any time to enforce any of the ---------------- provisions of this Agreement or to require performance by the other party of any of the provisions of this Agreement shall in no way be construed to be a waiver of such provisions or to affect either the validity of this Agreement or any part of this Agreement or the right of either party thereafter to enforce each and every provision of this Agreement in accordance with the terms of this Agreement. 18. GOVERNING LAW. This Agreement has been made in, and shall be ------------- governed and construed in accordance with the laws of, the State of Ohio. The Parties - -------------------------------------------------------------------------------- Page 20 - -------------------------------------------------------------------------------- agree that this Agreement is not an "employee benefit plan" or part of an "employee benefit plan" which is subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended. 19. TAX WITHHOLDING. The Company may withhold from any amounts --------------- payable under this Agreement such federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. Where withholding applies to Class A Shares, the Company shall make cashless withholding available to the Employee. 20. EXPENSE OF ENFORCEMENT. The Company shall reimburse reasonable ---------------------- attorney fees and expenses incurred by the Employee to enforce the provisions of this Agreement, even if his claims are not successful, provided they are not ultimately determined by the court to be frivolous. 21. REPRESENTATION. The Company represents and warrants that it is -------------- fully authorized and empowered to enter into this Agreement and that the performance of its obligations under this Agreement will not violate any agreement between it and any other person, firm or organization. 22. SUBSIDIARIES AND AFFILIATES. Notwithstanding any contrary --------------------------- provision of this Agreement, to the extent it does not adversely affect the Employee, the Company may provide the compensation and benefits to which the Employee is entitled hereunder through one or more subsidiaries or affiliates, including, without limitation, Sealy, Inc. 23. NO MITIGATION OR OFFSET. In the event of any termination of ----------------------- employment, the Employee shall be under no obligation to seek other employment. Amounts due the Employee under this Agreement shall not be offset by any remuneration attributable to any subsequent employment he may obtain. 24. SOLE REMEDY. The Parties agree that the remedies of each against ----------- the other for breach of this Agreement shall be limited to enforcement of this Agreement and recovery of the amounts and remedies provided for herein. The Parties, however, further agree that such limitation shall not prevent either Party from proceeding against the other to recover for a claim other than under this Agreement. IN WITNESS WHEREOF, the Company and the Employee have executed this Agreement as of the day and year first above written. SEALY CORPORATION By: /s/ RONALD L. JONES ----------------------- President & Chief Executive Officer EMPLOYEE /s/ BRUCE G. BARMAN ----------------------- Vice President, R & D, 8/25/97 EX-10.8 14 EMPLOYMENT AGREEMENT (J. CLAYPOOL) - -------------------------------------------------------------------------------- Page 1 - -------------------------------------------------------------------------------- EXHIBIT 10.8 ------------ EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT is entered into as of the 12th day of August, 1997, by and between SEALY CORPORATION, a Delaware corporation (the "Company"), and JEFFREY C. CLAYPOOL (the "Employee"). W I T N E S S E T H: WHEREAS, the Company and the Employee (collectively "the Parties") desire to enter into this Employment Agreement (the "Agreement") as hereinafter set forth; NOW, THEREFORE, the Company and Employee agree as follows: 1. EMPLOYMENT TERM. --------------- (a) During the period specified in Subsection l(b) hereof (the "Employment Term"), the Company shall employ the Employee, and the Employee shall serve the Company, as Vice President, Human --------------------- Resources, based on the terms and subject to the conditions set --------- forth herein. (b) The Employment Term shall commence on the date of this Agreement. Thereafter it shall end as follows: (i) there shall be an initial period ending on the second (2nd) anniversary of the date of this Agreement, subject to the provision of Subsection 1(b)(ii) below; (ii) after the first anniversary of the date of this Agreement, the Employment Term shall be extended one calendar day for each calendar day that the Employee is employed by the Company after such first anniversary so that the remaining Employment Term after such first anniversary shall always be one (1) year; and (iii) provided that the Employment Term may terminate prior to the date specified above in this Subsection 1(b) as provided in Section 4 hereof. 2. POSITION, DUTIES, AND RESPONSIBILITIES. At all times during the -------------------------------------- Employment Term, the Employee shall: (a) Hold the position of Vice President, Human Resources reporting to ------------------------------- the Chief Executive Officer of the Company (the "Chief Executive - -------------------------------------------------------------------------------- Page 2 - -------------------------------------------------------------------------------- Officer"); (b) Have those duties and responsibilities, and the authority, customarily possessed by the Vice President, Human Resources of a ------------------------------- major corporation and such additional duties as may be assigned to the Employee from time to time by the Board of Directors of the Company (the "Board") or the Chief Executive Officer which are consistent with the position of Vice President, Human --------------------- Resources of a major corporation; --------- (c) Adhere to such reasonable written policies and directives, and such reasonable unwritten policies and directives as are of common knowledge to executive officers of the Company, as may be promulgated from time to time by the Board or the Chief Executive Officer and which are applicable to executive officers of the Company; (d) Invest in the Company only in accordance with any insider trading policy of the Company in effect at the time of the investment; and (e) Devote the Employee's entire business time, energy, and talent to the business, and to the furtherance of the purposes and objectives, of the Company, and neither directly nor indirectly act as an employee of or render any business, commercial, or professional services to any other person, firm or organization for compensation, without the prior written approval of the Board or the Chief Executive Officer. Nothing in this Agreement shall preclude the Employee from devoting reasonable periods of time to charitable and community activities or the management of the Employee's investment assets, provided such activities do not interfere with the performance by the Employee of the Employee's duties hereunder. 3. SALARY, BONUS AND BENEFITS. For services rendered by the Employee on -------------------------- behalf of the Company during the Employment Term, the following salary, bonus and benefits shall be provided to the Employee by the Company: (a) The Company shall pay to the Employee, in equal installments, according to the Company's then current practice for paying its executive officers in effect from time to time during the Employment Term, an annual base salary at the initial rate of One Hundred Eighty Five Thousand Dollars ($185,000.00). This -------------------------------- ---------- salary shall be subject to annual review, in December of each year commencing in December 1997, by the Human Resources Committee of the Board (the "Committee) and may be increased, but not decreased, to the extent, if any, that the Committee may - -------------------------------------------------------------------------------- Page 3 - -------------------------------------------------------------------------------- determine. (b) The Employee shall participate in the Sealy Corporation Annual Bonus Plan (the "Bonus Plan") in accordance with the provisions of that Plan as in effect as of the date of this Agreement. The Employee's Target annual bonus, as established by the Committee under the Bonus Plan as of the date of this Agreement, is thirty- five percent (35%) (his "Target Annual Bonus Percentage") of annual base salary, with a range of zero percent (0%) to seventy percent (70%) of annual base salary. (c) The Employee shall be eligible for participation in such other benefit plans, including, but not limited to, the Company's Profit Sharing Plan and Trust, Executive Severance Benefit Plan, Benefit Equalization Plan, Short-Term and Long Term Disability Plans, Group Term Life Insurance Plan, Medical Plan or PPO, Dental Plan, the 401(k) feature of the Profit Sharing Plan, the 1996 Transitional Restricted Stock Plan and the 1997 Stock Option Plan, as the Board may adopt from time to time and in which the Company's executive officers are eligible to participate. Such participation shall be subject to the terms and conditions set forth in the applicable plan documents. As is more fully set forth in Section 7 hereof, the Employee shall not be entitled to duplicative payments under this Agreement and the Executive Severance Benefit Plan. (d) Without limiting the generality of Subsection 3(c) above, for so long as such coverage shall be available to the executive officers of the Company, the Employee shall be eligible to participate in the Company's Group Term Life Insurance Plan with a death benefit to be provided at the level of one and one half (1 1/2) times annual base salary at Company expense, plus extended coverage with a death benefit to be provided of at least the level in effect on the date of this Agreement for the Employee under such Plan at the Employee's discretion and expense. (e) The Employee shall be entitled to take, during each one-year period commencing with December 1, 1996, during the Employment Term, vacation time equal to at least the greater of (i) the amount of vacation time to which the Employee is entitled per year as of the date of this Agreement, or (ii) the amount of vacation time to which the Employee would have become entitled if the Company's vacation policy in effect as of the date of this Agreement and which is applicable to its executive officers remained in effect throughout the Employment Term. (f) In addition, the Parties do hereby further confirm the Employee's - -------------------------------------------------------------------------------- Page 4 - -------------------------------------------------------------------------------- entitlement to a number of restricted shares of Class A Common Stock of the Company ("Class A Shares"), as well as options to purchase additional Class A Shares pursuant to various benefit plans or agreements with the Company. The Parties agree that (a) such restricted Class A Shares and such options are in addition to, and not in lieu of, any shares or options which may be granted under any other plan or arrangement of the Company after the date of this Agreement, and (b) the various restricted stock agreements and stock option agreements, and any related Stockholder Agreement (the "Stockholder Agreement") between the Parties (such agreements being hereinafter referred to collectively as the "Pre-existing Agreements"), all remain in full force and effect except as otherwise provided herein. Notwithstanding the foregoing, to the extent that any provision contained herein is inconsistent with the terms of any of the Pre-existing Agreements, the terms of this Agreement shall be controlling. 4. TERMINATION OF EMPLOYMENT. As indicated in Subsection 1(b)(iii), the ------------------------- Employment Term may terminate prior to the date specified in Subsections 1(b)(i) and 1(b)(ii) as follows: (a) The Employee's employment hereunder will terminate without further notice upon the death of the Employee. (b) The Company may terminate the Employee's employment hereunder effective immediately upon giving written notice of such termination for "Cause". For these purposes, "Cause" shall mean the following: (i) Commission by the Employee (evidenced by a conviction or written, voluntary and freely given confession) of a criminal act constituting a felony; (ii) Commission by the Employee of a material breach or material default of any of the Employee's agreements or obligations under any provision of this Agreement, including, without limitation, the Employee's agreements and obligations under Subsections 2(a) through 2(e) and Sections 9 and 10 of this Agreement, which is not cured in all material respects within thirty (30) days after the Chief Executive Officer or the designee thereof gives written notice thereof to the Employee; or (iii) Commission by the Employee, when carrying out the Employee's duties under this Agreement, of acts or the omission of any act, which both: (A) constitutes gross negligence or willful misconduct and (B) results in material - -------------------------------------------------------------------------------- Page 5 - -------------------------------------------------------------------------------- economic harm to the Company or has a materially adverse effect on the Company's operations, properties or business relationships. (c) The Employee's employment hereunder may be terminated by the Company upon the Employee's disability, if the Employee is prevented from performing the Employee's duties hereunder by reason of physical or mental incapacity for a period of one hundred eighty (180) consecutive days in any period of two consecutive fiscal years of the Company, but the Employee shall be entitled to full compensation and benefits hereunder until the close of such one hundred and eighty (180) day period. (d) The Company may terminate the Employee's employment hereunder without Cause at any time upon thirty (30) days written notice. (e) The Employee may terminate employment hereunder effective immediately upon giving written notice of such termination for "Good Reason", as defined in Subsection 4(g) below. (f) The Employee may terminate employment hereunder without Good Reason at any time upon thirty (30) days written notice. (g) For purposes of this Agreement, "Good Reason" means the occurrence of (i) any reduction in either the annual base salary of the Employee or the Target Annual Bonus Percentage or maximum annual bonus percentage applicable to the Employee under the Bonus Plan, (ii) any material reduction in the position, authority or office of the Employee, (iii) any material reduction in the Employee's responsibilities or duties for the Company, (iv) any material adverse change or reduction in the aggregate "Minimum Benefits," as hereinafter defined, provided to the Employee as of the date of this Agreement (provided that any material reduction in such aggregate Minimum Benefits that is required by law or applies generally to all employees of the Company shall not constitute "Good Reason" as defined hereunder), (v) any relocation of the Employee's principal place of work with the Company to a place more than twenty-five (25) miles from the geographical center of Cleveland, Ohio, other than a relocation to a location which is within twenty-five (25) miles from the geographic center of Greensboro, North Carolina, or (vi) the material breach or material default by the Company of any of its agreements or obligations under any provision of this Agreement. As used in this Subsection 4(g), an "adverse change or material reduction" in the aggregate Minimum Benefits shall be deemed to result from any reduction or any series of reductions which, in the aggregate, exceeds five - -------------------------------------------------------------------------------- Page 6 - -------------------------------------------------------------------------------- percent (5%) of the value of such aggregate Minimum Benefits determined as of the date of this Agreement. As used in this Subsection 4(g), Minimum Benefits are life insurance, accidental death, long term disability, short term disability, medical, dental, and vision benefits and the Company's expense reimbursement policy. The Employee shall give written notice to the Company on or before the date of termination of employment for Good Reason stating that the Employee is terminating employment with the Company and specifying in detail the reasons for such termination. If the Company does not object to such notice by notifying the Employee in writing within five (5) days following the date of the Company's receipt of the Employee's notice of termination, the Company shall be deemed to have agreed that such termination was for Good Reason. The parties agree that "Good Reason" will not be deemed to have occurred merely because the Company becomes a subsidiary or division of another entity following a "Change of Control," as hereinafter defined, provided the Employee continues to serve as the Vice President, Human Resources of such subsidiary or division and such subsidiary or division is comparable in size to the organization consisting of the Company and its subsidiaries. The parties further agree that "Good Reason" will be deemed to have occurred if the purchaser, in a Change of Control transaction, does not assume this Agreement in accordance with Section 12 hereof. 5. SEVERANCE COMPENSATION. If the Employee's employment is terminated, ---------------------- the following severance provisions will apply: (a) If the Employee's employment is terminated by the Company other than for Cause or is terminated by the Employee for Good Reason, then, through the remaining Employment Term as specified in Subsection 1(b) hereof, determined without regard to Subsection 1(b)(iii) hereof, (such remaining Employment Term calculated without regard to Subsection 1(b)(iii), and without regard to whether the Employee elects accelerated payments of the Employee's annual base salary and bonus in accordance with Subsection 5(a)(v), is hereinafter referred to as the "Payment Term") the Company shall: (i) continue to pay the Employee's annual base salary in the then prevailing amount and at the times specified in Subsection 3(a) hereof, or if such annual base salary has decreased during the one year period ending on the Employee's termination of employment, at the highest rate in effect during such one year period; (ii) continue the Employee's participation in the Bonus Plan as - -------------------------------------------------------------------------------- Page 7 - -------------------------------------------------------------------------------- provided in Subsection 3(b) hereof provided that the Company will: (A) pay the Employee a bonus under the Bonus Plan for the partial year period ending on the date of the Employee's termination of employment calculated as if the Employee had continued to be employed for the entire year except that the Employee's bonus percentage (calculated at the time and in the manner customary as of the date of this Agreement, but disregarding the termination of employment of the Employee) shall be applied to the Employee's annual base salary payable in accordance with Subsection 3(a) hereof for the partial year period ending on the Employee's termination of employment; and (B) thereafter, during the remainder of the Payment Term, a bonus equal to the Employee's Target Annual Bonus Percentage, multiplied by the Employee's annual base salary in the amount specified in Subsection 5(a)(i) payable during the year (or portion thereof) for which the bonus is being calculated; with such amounts being payable when bonuses under the Bonus Plan are customarily payable, except that the final bonus shall be payable with the final payment of the annual base salary under Subsection 5(a)(i) hereof; (iii) continue in effect the medical and dental coverage, long and short-term disability protection, and any life insurance protection (including life insurance protection being paid for by the Employee), being provided to the Employee immediately prior to the Employee's termination of employment, or if any of such benefits have decreased during the one year period ending on the Employee's termination of employment, at the highest level in effect during such one year period; (iv) pay for executive outplacement services for the Employee from a nationally recognized executive outplacement firm at the level provided for vice-presidents of major corporations, provided that such outplacement services will be provided for a one year period commencing on the date of termination of employment regardless of the Payment Term; and (v) In lieu of the payments described in Subsections 5(a)(i) and - -------------------------------------------------------------------------------- Page 8 - -------------------------------------------------------------------------------- 5(a)(ii) hereof, at the Employee's request, submitted in writing to the Company within five (5) business days after the date of the Employee's termination of employment: (A) the Company will pay the total of the Employee's annual base salary payments described in Subsection 5(a)(i) in a single sum within thirty (30) days following the Employee's termination of employment; and (B) his Bonus Plan payments described in Subsection 5(a)(ii) shall be made at the same time as the Employee's payment under Subsection 5(a)(vi)(A) but shall be calculated using the Employee's Target Annual Bonus Percentage for all calculation purposes. (b) If the Employee's employment hereunder terminates due to the Employee's death, disability, termination by the Company for Cause or termination by the Employee other than for Good Reason, then no further compensation or benefits will be provided to the Employee by the Company under this Agreement following the date of such termination of employment other than payment of compensation earned to the date of termination of employment but not yet paid. As more fully and generally provided in Section 16 hereof, this Subsection 5(b) shall not be interpreted to deny the Employee any benefits to which he may be entitled under any plan or arrangement of the Company applicable to the Employee. Likewise, this Subsection 5(b) shall not be interpreted to entitle the Employee to a bonus under the Bonus Plan following his termination of employment except as provided in the Bonus Plan which requires employment on the last day of the Company's taxable year as a condition to receipt of a bonus thereunder for such year except in the cases of death, disability or retirement at or after either age 62 with ten years of service or age 65. (c) Notwithstanding anything contained in this Agreement to the contrary, other than Section 16 hereof, if the Employee breaches any of the Employee's obligations under Section 9 or 10 hereof, no further severance payments or other benefits will be payable to the Employee under this Section 5. 6. CHANGE OF CONTROL. ----------------- (a) In General. In the event of a Change of Control as defined in ---------- this Section 6, the Employee shall become entitled to certain special benefits and shall have certain special protections so that he may - -------------------------------------------------------------------------------- Page 9 - -------------------------------------------------------------------------------- more fully focus on the issues related to such a Change of Control, and to reward the Employee for the substantial additional effort involved in a Change of Control. The special benefits and protections are set forth in this Section 6. (b) Transaction Bonus. In the event of a Change of Control, then ----------------- subject to the requirements set forth in this Subsection 6(b), the Employee will receive a cash transaction bonus (the "Transaction Bonus") calculated and payable as follows: (i) If the Employee is employed by the Company on the date of the Change of Control, the total amount of the Transaction Bonus shall be equal to one hundred and fifty percent (150%) of his annual base salary in the then prevailing amount specified in Subsection 3(a) hereof, or if such annual base salary has decreased during the one year period ending on his termination of employment, at the highest rate in effect during such one year period; and (ii) If the Employee is employed by the Company on the date of the Change of Control and either is employed by the Company on the first anniversary thereof or is not employed by the Company on such first anniversary due to the Employee's death or disability, the Transaction Bonus shall be payable as follows: (A) If the Employee is employed by the Company on the day of the Change of Control, one-half (1/2) of the Transaction Bonus shall be payable to the Employee on such date; and (B) If the Employee is employed by the Company on the first anniversary of the Change of Control, the other one-half (1/2) of the Transaction Bonus shall be payable to the Employee on such date. (C) Furthermore, if the Employee is employed by the Company on the date of the Change of Control but, due to the Employee's death or disability, the Employee is no longer employed by the Company on the first anniversary thereof, the Employee (or the Employee's beneficiary in the event of the Employee's death) shall nonetheless be entitled to the other one-half (1/2) of the Transaction Bonus, which amount shall be payable on such first anniversary. - -------------------------------------------------------------------------------- Page 10 - -------------------------------------------------------------------------------- (iii) If the Employee is not employed by the Company on either or both of the date of the Change of Control and the date of the first anniversary thereof due to the Employee's termination by the Company other than for Cause or due to the Employee's termination of employment for Good Reason, but if the Employee's Payment Term includes either or both such dates, the Employee shall nonetheless be entitled to the Transaction Bonus which would otherwise be payable on the date or dates which are included in such Payment Term even though the Employee is no longer then employed by the Company. Any Transaction Bonus payable in accordance with this Subsection 6(b)(iii) shall be in an amount, and shall be payable on a date, determined in accordance with Subsection 6(b)(iv) or 6(b)(v), whichever is applicable. (iv) If the Employee is not employed by the Company on the date of the Change of Control, but a Transaction Bonus is payable to the Employee in accordance with Subsection 6(b)(iii) hereof, the following shall apply: (A) The Transaction Bonus shall be in the amount calculated in accordance with Subsection 6(b)(i); (B) The Transaction Bonus shall be paid in full to the Employee (or the Employee's beneficiary in the event of the Employee's death) on the date of the Change of Control; and (C) On the date of the Change of Control, the Employee (or the Employee's personal representative or beneficiary in the event of the Employee's death) shall assign to the Company the Employee's restricted Class A Shares and the Employee's stock options for Class A Shares and any other Class A Shares or equity interest in the Company which the Employee may then own, regardless of how the Employee may have acquired such restricted stock, options, Class A Shares or equity interest. In exchange therefore, the Company shall pay to the Employee (or the Employee's beneficiary in the event of the Employee's death), on such date, an amount equal to the value of the Employee's restricted Class A Shares and the Employee's stock options for Class A Shares, to the extent such options are exercisable and such restricted stock is vested, and any other Class A Shares or equity interest in the Company - -------------------------------------------------------------------------------- Page 11 - -------------------------------------------------------------------------------- which the Employee may then own. Such value shall be calculated using the Class A Share Change of Control Valuation as hereinafter defined. The value of the exercisable stock options for this purpose shall be the amount by which the value of the Class A Shares, as so determined, exceeds the exercise price. (v) If the Employee is employed by the Company on the date of the Change of Control but not on the first anniversary thereof, but a Transaction Bonus is payable to the Employee in accordance with Subsection 6(b)(iii) hereof, the following shall apply: (A) The Transaction Bonus shall be in the amount calculated in accordance with Subsection 6(b)(i); and (B) The portion of the Transaction Bonus remaining unpaid upon the Employee's termination of employment with the Company shall be paid to the Employee (or the Employee's beneficiary in the event of the Employee's death) within ten (10) days following such termination of employment. (vi) Notwithstanding anything contained in this Agreement to the contrary, if the Employee breaches any of the Employee's obligations under Section 9 or 10 hereof, no further Transaction Bonus payments will be payable to the Employee. (c) Equity Considerations. If the Employee is employed by the --------------------- Company on the day of the Change of Control, the Employee shall receive the following equity considerations: (i) all restricted stock of the Company, owned by the Employee on the date of the Change of Control, regardless of whether acquired under the 1996 Transitional Restricted Stock Plan or under an individual agreement with the Company or otherwise, will become and remain one hundred percent (100%) vested; (ii) all stock options for Class A Shares of the Company, owned by the Employee on the date of the Change of Control, regardless of whether acquired under the 1989, 1992 or 1997 Stock Option Plan or under an individual agreement with the Company or otherwise, will immediately become and remain throughout the full remaining term of such - -------------------------------------------------------------------------------- Page 12 - -------------------------------------------------------------------------------- options one hundred percent (100%) vested and fully exercisable, and such exercise then and thereafter shall be available on a cashless basis such that the Employee may receive the net value of the Employee's options (represented by the amount by which the fair market value of the Class A Shares exceeds the exercise price) in cash or Class A Shares as the Employee shall elect, without outlay of cash but net of all applicable withholding taxes, which taxes shall be remitted by the Company to the proper taxing authorities; (iii) upon any such Change of Control transaction, all limitations, restrictions or conditions relating to the Employee's rights to receive, vote, own and/or transfer any Class A Shares contained in any of the Pre-existing Agreements or contained in any other document, agreement or plan shall terminate and shall be of no further force and effect, except for any registration rights in effect; and (iv) if permitted by the purchaser in the Change of Control transaction (the "Purchaser"), the Company will provide for the Employee the opportunity to convert all or a portion, as he shall elect, of the Employee's options to purchase Class A Shares as well as Class A Shares then owned by the Employee, into an equity investment in the entity resulting from Purchaser's transaction (the "Successor") on a tax favored basis. The amount available for such investment shall be an amount calculated on the basis of the per Share price paid in the Change of Control transaction or series of transactions or implicit in the valuation of the Change of Control transaction, including all elements of consideration paid or payable (the "Change of Control Valuation"). (v) If the Purchaser in the Change of Control transaction does not permit the Employee to convert (or the Employee chooses not to convert) all (or a portion) of the Employee's options to purchase Class A Shares and Class A Shares then owned by the Employee into equity in the Successor, then the Employee shall exercise, at the time of the Change of Control, all options the Employee holds for Class A Shares (such exercise to provide cash rather than Class A Shares to the Employee in accordance with the exercise procedure described in Subsection 6(c)(ii) hereof), and shall sell to the Company at the time of the Change of Control all Class A Shares then owned by the Employee, to the extent such options or Class A Shares are not converted into equity - -------------------------------------------------------------------------------- Page 13 - -------------------------------------------------------------------------------- in the Successor. Such exercise of options and sale of Class A Shares shall yield an amount to the Employee determined by the Class A Share Change of Control Valuation. (d) Change of Control. For purposes of this Agreement, the words ------------------ "Change of Control" means a change in control of the Company of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended, as in effect on the date of this Agreement (the "Exchange Act"), whether or not the Company is then subject to such reporting requirements; provided, that, without limitation, a Change of Control shall be deemed to have occurred if: (i) any "person" (as defined in Sections 13(d) and 14(d) of the Exchange Act), other than Zell/Chilmark Fund, L.P., is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing twenty percent (20%) or more of the combined voting power of the Company's then outstanding securities; provided that a Change in Control shall not be deemed to occur under this clause (i) by reason of (A) the acquisition of securities by the Company or an employee benefit plan (or any trust funding such a plan) maintained by the Company, or (B) while Zell/Chilmark Fund, L.P. continues to beneficially own more than fifty percent (50%) of the combined voting power of the Company's then outstanding securities; (ii) during any period of one (1) year there shall cease to be a majority of the Board comprised of "Continuing Directors" as hereinafter defined; or (iii) the stockholders of the Company (A) approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than eighty percent (80%) of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or (B) approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of more than fifty percent (50%) of the Company's assets. - -------------------------------------------------------------------------------- Page 14 - -------------------------------------------------------------------------------- For purposes of this Subsection 6(d)(iii), a sale of more than fifty percent (50%) of the Company's assets includes a sale of more than fifty percent (50%) of the aggregate value of the assets of the Company and its subsidiaries or the sale of stock of one or more of the Company's subsidiaries with an aggregate value in excess of fifty percent (50%) of the aggregate value of the Company and its subsidiaries or any combination of methods by which more than fifty percent (50%) of the aggregate value of the Company and its subsidiaries is sold. (iv) For purposes of this Agreement, a "Change of Control" will be deemed to occur: (A) on the day on which a twenty percent (20%) or greater ownership interest described in Subsection 6(d)(i) is acquired or, if later, the day on which the Zell/Chilmark Fund, L.P. ceases to beneficially own more than fifty percent (50%) of the combined voting power of the Company's then outstanding securities, provided that a subsequent increase in such ownership interest after it first equals or exceeds twenty percent (20%) shall not be deemed a separate Change of Control; (B) on the day on which "Continuing Directors," as hereinafter defined, cease to be a majority of the Board as described in Subsection 6(d)(ii); (C) on the day of a merger, consolidation or sale or disposition of assets as described in Subsection 6(d)(iii); or (D) on the day of the approval of a plan of complete liquidation as described in Subsection 6(d)(iii). (v) For purposes of this Subsection 6(d), the word "Company" means Sealy Corporation, and, any other corporation or business organization in an unbroken chain of corporations or business organization ending with Sealy Corporation that owns, directly or indirectly, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock of Sealy Corporation other than Zell/Chilmark Fund, L.P. (vi) For purposes of this Subsection 6(d), the words "Continuing Directors" mean individuals who at the beginning of any - -------------------------------------------------------------------------------- Page 15 - -------------------------------------------------------------------------------- period (not including any period prior to the date of this Agreement) of one (1) year constitute the Board and any new director(s) whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least a majority of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved. (e) Section 16 Protection. If the Employee is subject to Section 16 --------------------- of the Securities Exchange Act of 1934 ("Section 16"), then to the extent the Employee would be deprived of the benefits of the equity considerations described herein or under any of the Pre- existing Agreements or under the 1989, 1992 or 1997 Stock Option Plan or the 1996 Transitional Restricted Stock Plan, as described above, or any other plan or arrangement regarding stock of the Company, by reason of such Section 16 or the Rules issued thereunder, the Employee shall be provided with the alternative of receiving a cash payment approximating the loss of such benefits under a cash compensation plan implemented by the Company. The Company agrees to have this Agreement, and specifically this Section 6 approved by the Board in compliance with Section 16 and Rule 16b-3 thereunder to ensure its enforceability. 7. SEVERANCE PLAN. It is the intention of the Parties that this -------------- Agreement provide special benefits to the Employee. If at any time the Company's Executive Severance Benefit Plan would provide better cash severance benefits to the Employee than this Agreement, the Employee may elect to receive such better cash severance benefits in lieu of the cash severance benefits provided under Subsections 5(a)(i) and 5(a)(ii), or Subsection 5(a)(v), of this Agreement, whichever is applicable, while continuing to receive any other benefits or coverages available under this Agreement. If this Agreement would provide better cash severance benefits to the Employee than the Company's Executive Severance Benefit Plan, the Employee shall receive the cash severance benefits under this Agreement, as well as any other benefits or coverages available under this Agreement. In such case, the cash severance benefits under this Agreement shall be in lieu of the cash severance benefits payable under the Company's Executive Severance Benefit Plan. 8. PLAN AMENDMENTS. To the extent any provisions of this Agreement --------------- modify the terms of any existing plan, policy or arrangement affecting the compensation or benefits of the Employee, as appropriate, (a) such modification as set forth herein shall be deemed an amendment to such plan, policy or arrangement as to the Employee, and both the Company and the Employee hereby consent to such amendment, (b) the Company will appropriately modify such plan, policy or arrangement to correspond to this Agreement with respect to the Employee, or (c) the Company will provide an "Alternative Benefit," as defined in Section 14 hereof, to or on - -------------------------------------------------------------------------------- Page 16 - -------------------------------------------------------------------------------- behalf of the Employee in accordance with the provisions of such Section 14. 9. CONFIDENTIAL INFORMATION. The Employee agrees that the Employee will ------------------------ not, during the Employment Term or at any time thereafter, either directly or indirectly, disclose or make known to any other person, firm, or corporation any confidential information, trade secret or proprietary information of the Company that the Employee may acquire in the performance of the Employee's duties hereunder (except in good faith in the ordinary course of business for the Company to a person who will be advised by the Employee to keep such information confidential) or make use of any of such confidential information except in the performance of the Employee's duties or when required to do so by legal process, by any governmental agency having supervisory authority over the business of the Company or by any administrative or legislative body (including a committee thereof) that requires the Employee to divulge, disclose or make accessible such information. In the event that the Employee is so ordered, the Employee shall so advise the Company in order to allow the Company the opportunity to object to or otherwise resist such order. Upon the termination of the Employee's employment with the Company, the Employee agrees to deliver forthwith to the Company any and all proprietary literature, documents, correspondence, and other proprietary materials and records furnished to or acquired by the Employee during the course of such employment. In the event of a breach or threatened breach of this Section 9 by the Employee, the Company will be entitled to preliminary and permanent injunctive relief, without bond or security, sufficient to enforce the provisions hereof and the Company will be entitled to pursue such other remedies at law or in equity which it deems appropriate. 10. NON-COMPETITION. In consideration of this Agreement, the Employee --------------- agrees that, during the Employment Term, and for one year thereafter, unless the Employee has waived the Transaction Bonus and the equity considerations described in Subsections 6(b) and 6(c), the Employee shall not act as a proprietor, investor, director, officer, employee, substantial stockholder, consultant, or partner in any business engaged to a material extent in the manufacture or sale of (a) mattresses or other bedding products or (b) any other products which constitute more than ten percent (10%) of the Company's revenues at the time in direct competition with the Company in any market. If, however, the Employee has waived the Transaction Bonus and the equity considerations described in Subsections 6(b) and 6(c), this covenant not to compete shall be void upon the Employee's termination of employment. The Employee understands that the foregoing restrictions may limit the Employee's ability to engage in certain business pursuits during the period provided for above, but acknowledges that the Employee will receive sufficiently higher remuneration and other benefits from the Company hereunder than the Employee would otherwise receive to justify such restriction. The Employee acknowledges that the Employee understands the effect of the provisions of this Section 10, and that the Employee has had reasonable time to consider the effect of these provisions, and that the Employee was encouraged to and had an opportunity to consult an attorney with respect to these provisions. The Company and the Employee consider the restrictions contained in this Section 10 to be reasonable and necessary. Nevertheless, if any aspect of these restrictions is found to be unreasonable or otherwise unenforceable by a court of - -------------------------------------------------------------------------------- Page 17 - -------------------------------------------------------------------------------- competent jurisdiction, the Parties intend for such restrictions to be modified by such court so as to be reasonable and enforceable and, as so modified by the court, to be fully enforced. In the event of a breach or threatened breach of this Section 10 by the Employee, the Company will be entitled to preliminary and permanent injunctive relief, without bond or security, sufficient to enforce the provisions hereof and the Company will be entitled to pursue such other remedies at law or in equity which it deems appropriate. During the ten (10) day period ending on the date of a Change of Control, the Employee may, by written notice to the Company, elect to waive his Transaction Bonus and the equity considerations described in Subsections 6(b) and 6(c). Such waiver shall be irrevocable. In the event of such a waiver, the Employee's agreement not to compete with the Company as set forth in this Section 10 shall be void upon his termination of employment. 11. NOTICES. For purposes of this Agreement, all communications provided ------- for herein shall be in writing and shall be deemed to have been duly given when hand delivered or mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows: (a) If the notice is to the Company: Mr. Ronald L. Jones Chief Executive Officer Sealy Corporation 1228 Euclid Avenue - Tenth Floor Cleveland, Ohio 44115-1886 With a copy to: Kenneth Walker, Esq. Vice President and General Counsel Sealy Corporation 1228 Euclid Avenue - Tenth Floor Cleveland, Ohio 44115-1886 (b) If the notice is to the Employee: Jeff Claypool 2226 Fairfield Lane Hudson, Ohio 44236 or to such other address as either party may have furnished to the other in writing and in accordance herewith; except that notices of change of address shall be effective only upon receipt. 12. ASSIGNMENT; BINDING EFFECT. This Agreement shall be binding upon and -------------------------- inure to the benefit of the parties to this Agreement and their respective - -------------------------------------------------------------------------------- Page 18 - -------------------------------------------------------------------------------- successors, heirs (in the case of the Employee) may be permitted assigns. No rights or obligations of the Company under this Agreement may be assigned or transferred by the Company except that such rights or obligations may be assigned or transferred in connection with the sale or transfer of all or substantially all of the assets of the Company, provided that the assignee or transferee is the successor to all or substantially all of the assets of the Company and such assignee or transferee expressly assumes the liabilities, obligations and duties of the Company, as contained in this Agreement, either contractually or as a matter of law. The Company further agrees that, in the event of a sale or transfer of assets as described in the preceding sentence, it shall be a condition precedent to the consummation of any such transaction that the assignee or transferee expressly assumes the liabilities, obligations and duties of the Company hereunder. No rights or obligations of the Employee under this Agreement may be assigned or transferred by the Employee other than the Employee's rights to compensation and benefits, which may be transferred only by will or operation of law, except as provided in this Section 12. The Employee shall be entitled, to the extent permitted under any applicable law, to select and change a beneficiary or beneficiaries to receive any compensation or benefits payable hereunder following the Employee's death by giving the Company written notice thereof. In the absence of such a selection, any compensation or benefit payable under this Agreement following the death of the Employee shall be payable to the Employee's spouse, or if such spouse shall not survive the Employee, to the Employee's estate. In the event of the Employee's death or a judicial determination of his incompetence, reference in this Agreement to the Employee shall be deemed, where appropriate, to refer to the Employee's beneficiary, estate or other legal representative. 13. INVALID PROVISIONS. Any provision of this Agreement that is ------------------ prohibited or unenforceable shall be ineffective to the extent, but only to the extent, of such prohibition or unenforceability without invalidating the remaining portions hereof and such remaining portions of this Agreement shall continue to be in full force and effect. In the event that any provision of this Agreement shall be determined to be invalid or unenforceable, the Parties will negotiate in good faith to replace such provision with another provision that will be valid or enforceable and that is as close as practicable to the provisions held invalid or unenforceable. 14. ALTERNATIVE SATISFACTION OF COMPANY'S OBLIGATIONS. In the event this ------------------------------------------------- Agreement provides for payments or benefits to or on behalf of the Employee which cannot be provided under the Company's benefit plans, policies or arrangements either because such plans, policies or arrangements no longer exist or no longer provide such benefits or because provision of such benefits to the Employee would adversely affect the tax qualified or tax advantaged status of such plans, policies or arrangements for the Employee or other participants therein, the Company may provide the Employee with an "Alternative Benefit," as defined in this Section 14, in lieu thereof. The Alternative Benefit is a benefit or payment which places the Employee and the Employee's dependents in at least as good of an economic position as if the benefit promised by this Agreement (a) were provided exactly as called for by this Agreement, - -------------------------------------------------------------------------------- Page 19 - -------------------------------------------------------------------------------- and (b) had the favorable economic, tax and legal characteristics customary for plans, policies or arrangements of that type. Furthermore, if such adverse consequence would affect the Employee or the Employee's dependents, the Employee shall have the right to require that the Company provide such an Alternative Benefit. 15. ENTIRE AGREEMENT, MODIFICATION. Subject to the provisions of Section ------------------------------ 16 hereof, this Agreement contains the entire agreement between the Parties with respect to the employment of the Employee by the Company and supersedes all prior and contemporaneous agreements, representations, and understandings of the Parties, whether oral or written. No modification, amendment, or waiver of any of the provisions of this Agreement shall be effective unless in writing, specifically referring hereto, and signed by both Parties. 16. NON-EXCLUSIVITY OF RIGHTS. Notwithstanding the foregoing provisions ------------------------- of Section 15, nothing in this Agreement shall prevent or limit the Employee's continuing or future participation in any benefit, bonus, incentive or other plan, program, policy or practice provided by the Company for its executive officers, nor shall anything herein limit or otherwise affect such rights as the Employee has or may have under any stock option, restricted stock or other agreements with the Company or any of its subsidiaries. Amounts which the Employee or the Employee's dependents or beneficiaries are otherwise entitled to receive under any such plan, policy, practice or program shall not be reduced by this Agreement except as provided in Section 7 hereof with respect to payments under the Executive Severance Benefit Plan if cash payments of annual base salary are made hereunder. 17. WAIVER OF BREACH. The failure at any time to enforce any of the ---------------- provisions of this Agreement or to require performance by the other party of any of the provisions of this Agreement shall in no way be construed to be a waiver of such provisions or to affect either the validity of this Agreement or any part of this Agreement or the right of either party thereafter to enforce each and every provision of this Agreement in accordance with the terms of this Agreement. 18. GOVERNING LAW. This Agreement has been made in, and shall be governed ------------- and construed in accordance with the laws of, the State of Ohio. The Parties agree that this Agreement is not an "employee benefit plan" or part of an "employee benefit plan" which is subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended. 19. TAX WITHHOLDING. The Company may withhold from any amounts payable --------------- under this Agreement such federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. Where withholding applies to Class A Shares, the Company shall make cashless withholding available to the Employee. 20. EXPENSE OF ENFORCEMENT. The Company shall reimburse reasonable ---------------------- attorney fees and expenses incurred by the Employee to enforce the provisions of this Agreement, even if his claims are not successful, provided they are - -------------------------------------------------------------------------------- Page 20 - -------------------------------------------------------------------------------- not ultimately determined by the court to be frivolous. 21. REPRESENTATION. The Company represents and warrants that it is fully -------------- authorized and empowered to enter into this Agreement and that the performance of its obligations under this Agreement will not violate any agreement between it and any other person, firm or organization. 22. SUBSIDIARIES AND AFFILIATES. Notwithstanding any contrary provision --------------------------- of this Agreement, to the extent it does not adversely affect the Employee, the Company may provide the compensation and benefits to which the Employee is entitled hereunder through one or more subsidiaries or affiliates, including, without limitation, Sealy, Inc. 23. NO MITIGATION OR OFFSET. In the event of any termination of ----------------------- employment, the Employee shall be under no obligation to seek other employment. Amounts due the Employee under this Agreement shall not be offset by any remuneration attributable to any subsequent employment he may obtain. 24. SOLE REMEDY. The Parties agree that the remedies of each against the ----------- other for breach of this Agreement shall be limited to enforcement of this Agreement and recovery of the amounts and remedies provided for herein. The Parties, however, further agree that such limitation shall not prevent either Party from proceeding against the other to recover for a claim other than under this Agreement. IN WITNESS WHEREOF, the Company and the Employee have executed this Agreement as of the day and year first above written. SEALY CORPORATION By:/s/ KENNETH L. WALKER ------------------------ Kenneth L. Walker Vice President, General Counsel & Secretary EMPLOYEE /s/ JEFFREY C. CLAYPOOL --------------------------- EX-10.9 15 EMPLOYMENT AGREEMENT (G. FAZIO) - -------------------------------------------------------------------------------- Page 1 - -------------------------------------------------------------------------------- EXHIBIT 10.9 ------------ EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT is entered into as of the 30th day of July, 1997, by and between SEALY CORPORATION, a Delaware corporation (the "Company"), and GARY T. FAZIO (the "Employee"). W I T N E S S E T H: WHEREAS, the Company and the Employee (collectively "the Parties") desire to enter into this Employment Agreement (the "Agreement") as hereinafter set forth; NOW, THEREFORE, the Company and Employee agree as follows: 1. EMPLOYMENT TERM. --------------- (a) During the period specified in Subsection l(b) hereof (the "Employment Term"), the Company shall employ the Employee, and the Employee shall serve the Company, as Vice President of Sales ----------------------- based on the terms and subject to the conditions set forth herein. (b) The Employment Term shall commence on the date of this Agreement. Thereafter it shall end as follows: (i) there shall be an initial period ending on the second (2nd) anniversary of the date of this Agreement, subject to the provision of Subsection 1(b)(ii) below; (ii) after the first anniversary of the date of this Agreement, the Employment Term shall be extended one calendar day for each calendar day that the Employee is employed by the Company after such first anniversary so that the remaining Employment Term after such first anniversary shall always be one (1) year; and (iii) provided that the Employment Term may terminate prior to the date specified above in this Subsection 1(b) as provided in Section 4 hereof. 2. POSITION, DUTIES, AND RESPONSIBILITIES. At all times during the -------------------------------------- Employment Term, the Employee shall: (a) Hold the position of Vice President of Sales reporting to the ----------------------- Chief Executive Officer of the Company (the "Chief Executive - -------------------------------------------------------------------------------- Page 2 - -------------------------------------------------------------------------------- Officer"); (b) Have those duties and responsibilities, and the authority, customarily possessed by the Vice President of Sales of a major ----------------------- corporation and such additional duties as may be assigned to the Employee from time to time by the Board of Directors of the Company (the "Board") or the Chief Executive Officer which are consistent with the position of Vice President of Sales of a ----------------------- major corporation; (c) Adhere to such reasonable written policies and directives, and such reasonable unwritten policies and directives as are of common knowledge to executive officers of the Company, as may be promulgated from time to time by the Board or the Chief Executive Officer and which are applicable to executive officers of the Company; (d) Invest in the Company only in accordance with any insider trading policy of the Company in effect at the time of the investment; and (e) Devote the Employee's entire business time, energy, and talent to the business, and to the furtherance of the purposes and objectives, of the Company, and neither directly nor indirectly act as an employee of or render any business, commercial, or professional services to any other person, firm or organization for compensation, without the prior written approval of the Board or the Chief Executive Officer. Nothing in this Agreement shall preclude the Employee from devoting reasonable periods of time to charitable and community activities or the management of the Employee's investment assets, provided such activities do not interfere with the performance by the Employee of the Employee's duties hereunder. 3. SALARY, BONUS AND BENEFITS. For services rendered by the Employee on -------------------------- behalf of the Company during the Employment Term, the following salary, bonus and benefits shall be provided to the Employee by the Company: (a) The Company shall pay to the Employee, in equal installments, according to the Company's then current practice for paying its executive officers in effect from time to time during the Employment Term, an annual base salary at the initial rate of Two --- Hundred Four Thousand, Five Hundred Dollars and Sixteen Cents ------------------------------------------------------------- ($204,500.16). This salary shall be subject to annual review, in ---------- December of each year commencing in December 1997, by the Human Resources Committee of the Board (the "Committee) and may be increased, but not decreased, to the extent, if any, that the Committee may - -------------------------------------------------------------------------------- Page 3 - -------------------------------------------------------------------------------- determine. (b) The Employee shall participate in the Sealy Corporation Annual Bonus Plan (the "Bonus Plan") in accordance with the provisions of that Plan as in effect as of the date of this Agreement. The Employee's Target annual bonus, as established by the Committee under the Bonus Plan as of the date of this Agreement, is thirty- five percent (35%) (his "Target Annual Bonus Percentage") of annual base salary, with a range of zero percent (0%) to seventy percent (70%) of annual base salary. (c) The Employee shall be eligible for participation in such other benefit plans, including, but not limited to, the Company's Profit Sharing Plan and Trust, Executive Severance Benefit Plan, Benefit Equalization Plan, Short-Term and Long Term Disability Plans, Group Term Life Insurance Plan, Medical Plan or PPO, Dental Plan, the 401(k) feature of the Profit Sharing Plan, the 1996 Transitional Restricted Stock Plan and the 1997 Stock Option Plan, as the Board may adopt from time to time and in which the Company's executive officers are eligible to participate. Such participation shall be subject to the terms and conditions set forth in the applicable plan documents. As is more fully set forth in Section 7 hereof, the Employee shall not be entitled to duplicative payments under this Agreement and the Executive Severance Benefit Plan. (d) Without limiting the generality of Subsection 3(c) above, for so long as such coverage shall be available to the executive officers of the Company, the Employee shall be eligible to participate in the Company's Group Term Life Insurance Plan with a death benefit to be provided at the level of one and one half (1 1/2) times annual base salary at Company expense, plus extended coverage with a death benefit to be provided of at least the level in effect on the date of this Agreement for the Employee under such Plan at the Employee's discretion and expense. (e) The Employee shall be entitled to take, during each one-year period commencing with December 1, 1996, during the Employment Term, vacation time equal to at least the greater of (i) the amount of vacation time to which the Employee is entitled per year as of the date of this Agreement, or (ii) the amount of vacation time to which the Employee would have become entitled if the Company's vacation policy in effect as of the date of this Agreement and which is applicable to its executive officers remained in effect throughout the Employment Term. (f) In addition, the Parties do hereby further confirm the Employee's - -------------------------------------------------------------------------------- Page 4 - -------------------------------------------------------------------------------- entitlement to a number of restricted shares of Class A Common Stock of the Company ("Class A Shares"), as well as options to purchase additional Class A Shares pursuant to various benefit plans or agreements with the Company. The Parties agree that (a) such restricted Class A Shares and such options are in addition to, and not in lieu of, any shares or options which may be granted under any other plan or arrangement of the Company after the date of this Agreement, and (b) the various restricted stock agreements and stock option agreements, and any related Stockholder Agreement (the "Stockholder Agreement") between the Parties (such agreements being hereinafter referred to collectively as the "Pre-existing Agreements"), all remain in full force and effect except as otherwise provided herein. Notwithstanding the foregoing, to the extent that any provision contained herein is inconsistent with the terms of any of the Pre-existing Agreements, the terms of this Agreement shall be controlling. 4. TERMINATION OF EMPLOYMENT. As indicated in Subsection 1(b)(iii), the ------------------------- Employment Term may terminate prior to the date specified in Subsections 1(b)(i) and 1(b)(ii) as follows: (a) The Employee's employment hereunder will terminate without further notice upon the death of the Employee. (b) The Company may terminate the Employee's employment hereunder effective immediately upon giving written notice of such termination for "Cause". For these purposes, "Cause" shall mean the following: (i) Commission by the Employee (evidenced by a conviction or written, voluntary and freely given confession) of a criminal act constituting a felony; (ii) Commission by the Employee of a material breach or material default of any of the Employee's agreements or obligations under any provision of this Agreement, including, without limitation, the Employee's agreements and obligations under Subsections 2(a) through 2(e) and Sections 9 and 10 of this Agreement, which is not cured in all material respects within thirty (30) days after the Chief Executive Officer or the designee thereof gives written notice thereof to the Employee; or (iii) Commission by the Employee, when carrying out the Employee's duties under this Agreement, of acts or the omission of any act, which both: (A) constitutes gross negligence or willful misconduct and (B) results in material - -------------------------------------------------------------------------------- Page 5 - -------------------------------------------------------------------------------- economic harm to the Company or has a materially adverse effect on the Company's operations, properties or business relationships. (c) The Employee's employment hereunder may be terminated by the Company upon the Employee's disability, if the Employee is prevented from performing the Employee's duties hereunder by reason of physical or mental incapacity for a period of one hundred eighty (180) consecutive days in any period of two consecutive fiscal years of the Company, but the Employee shall be entitled to full compensation and benefits hereunder until the close of such one hundred and eighty (180) day period. (d) The Company may terminate the Employee's employment hereunder without Cause at any time upon thirty (30) days written notice. (e) The Employee may terminate employment hereunder effective immediately upon giving written notice of such termination for "Good Reason", as defined in Subsection 4(g) below. (f) The Employee may terminate employment hereunder without Good Reason at any time upon thirty (30) days written notice. (g) For purposes of this Agreement, "Good Reason" means the occurrence of (i) any reduction in either the annual base salary of the Employee or the Target Annual Bonus Percentage or maximum annual bonus percentage applicable to the Employee under the Bonus Plan, (ii) any material reduction in the position, authority or office of the Employee, (iii) any material reduction in the Employee's responsibilities or duties for the Company, (iv) any material adverse change or reduction in the aggregate "Minimum Benefits," as hereinafter defined, provided to the Employee as of the date of this Agreement (provided that any material reduction in such aggregate Minimum Benefits that is required by law or applies generally to all employees of the Company shall not constitute "Good Reason" as defined hereunder), (v) any relocation of the Employee's principal place of work with the Company to a place more than twenty-five (25) miles from the geographical center of Cleveland, Ohio, other than a relocation to a location which is within twenty-five (25) miles from the geographic center of Greensboro, North Carolina, or (vi) the material breach or material default by the Company of any of its agreements or obligations under any provision of this Agreement. As used in this Subsection 4(g), an "adverse change or material reduction" in the aggregate Minimum Benefits shall be deemed to result from any reduction or any series of reductions which, in the aggregate, exceeds five - -------------------------------------------------------------------------------- Page 6 - -------------------------------------------------------------------------------- percent (5%) of the value of such aggregate Minimum Benefits determined as of the date of this Agreement. As used in this Subsection 4(g), Minimum Benefits are life insurance, accidental death, long term disability, short term disability, medical, dental, and vision benefits and the Company's expense reimbursement policy. The Employee shall give written notice to the Company on or before the date of termination of employment for Good Reason stating that the Employee is terminating employment with the Company and specifying in detail the reasons for such termination. If the Company does not object to such notice by notifying the Employee in writing within five (5) days following the date of the Company's receipt of the Employee's notice of termination, the Company shall be deemed to have agreed that such termination was for Good Reason. The parties agree that "Good Reason" will not be deemed to have occurred merely because the Company becomes a subsidiary or division of another entity following a "Change of Control," as hereinafter defined, provided the Employee continues to serve as the Vice President of Sales of ----------------------- such subsidiary or division and such subsidiary or division is comparable in size to the organization consisting of the Company and its subsidiaries. The parties further agree that "Good Reason" will be deemed to have occurred if the purchaser, in a Change of Control transaction, does not assume this Agreement in accordance with Section 12 hereof. 5. SEVERANCE COMPENSATION. If the Employee's employment is terminated, ---------------------- the following severance provisions will apply: (a) If the Employee's employment is terminated by the Company other than for Cause or is terminated by the Employee for Good Reason, then, through the remaining Employment Term as specified in Subsection 1(b) hereof, determined without regard to Subsection 1(b)(iii) hereof, (such remaining Employment Term calculated without regard to Subsection 1(b)(iii), and without regard to whether the Employee elects accelerated payments of the Employee's annual base salary and bonus in accordance with Subsection 5(a)(v), is hereinafter referred to as the "Payment Term") the Company shall: (i) continue to pay the Employee's annual base salary in the then prevailing amount and at the times specified in Subsection 3(a) hereof, or if such annual base salary has decreased during the one year period ending on the Employee's termination of employment, at the highest rate in effect during such one year period; (ii) continue the Employee's participation in the Bonus Plan as - -------------------------------------------------------------------------------- Page 7 - -------------------------------------------------------------------------------- provided in Subsection 3(b) hereof provided that the Company will: (A) pay the Employee a bonus under the Bonus Plan for the partial year period ending on the date of the Employee's termination of employment calculated as if the Employee had continued to be employed for the entire year except that the Employee's bonus percentage (calculated at the time and in the manner customary as of the date of this Agreement, but disregarding the termination of employment of the Employee) shall be applied to the Employee's annual base salary payable in accordance with Subsection 3(a) hereof for the partial year period ending on the Employee's termination of employment; and (B) thereafter, during the remainder of the Payment Term, a bonus equal to the Employee's Target Annual Bonus Percentage, multiplied by the Employee's annual base salary in the amount specified in Subsection 5(a)(i) payable during the year (or portion thereof) for which the bonus is being calculated; with such amounts being payable when bonuses under the Bonus Plan are customarily payable, except that the final bonus shall be payable with the final payment of the annual base salary under Subsection 5(a)(i) hereof; (iii) continue in effect the medical and dental coverage, long and short-term disability protection, and any life insurance protection (including life insurance protection being paid for by the Employee), being provided to the Employee immediately prior to the Employee's termination of employment, or if any of such benefits have decreased during the one year period ending on the Employee's termination of employment, at the highest level in effect during such one year period; (iv) pay for executive outplacement services for the Employee from a nationally recognized executive outplacement firm at the level provided for vice-presidents of major corporations, provided that such outplacement services will be provided for a one year period commencing on the date of termination of employment regardless of the Payment Term; and (v) In lieu of the payments described in Subsections 5(a)(i) and - -------------------------------------------------------------------------------- Page 8 - -------------------------------------------------------------------------------- 5(a)(ii) hereof, at the Employee's request, submitted in writing to the Company within five (5) business days after the date of the Employee's termination of employment: (A) the Company will pay the total of the Employee's annual base salary payments described in Subsection 5(a)(i) in a single sum within thirty (30) days following the Employee's termination of employment; and (B) his Bonus Plan payments described in Subsection 5(a)(ii) shall be made at the same time as the Employee's payment under Subsection 5(a)(vi)(A) but shall be calculated using the Employee's Target Annual Bonus Percentage for all calculation purposes. (b) If the Employee's employment hereunder terminates due to the Employee's death, disability, termination by the Company for Cause or termination by the Employee other than for Good Reason, then no further compensation or benefits will be provided to the Employee by the Company under this Agreement following the date of such termination of employment other than payment of compensation earned to the date of termination of employment but not yet paid. As more fully and generally provided in Section 16 hereof, this Subsection 5(b) shall not be interpreted to deny the Employee any benefits to which he may be entitled under any plan or arrangement of the Company applicable to the Employee. Likewise, this Subsection 5(b) shall not be interpreted to entitle the Employee to a bonus under the Bonus Plan following his termination of employment except as provided in the Bonus Plan which requires employment on the last day of the Company's taxable year as a condition to receipt of a bonus thereunder for such year except in the cases of death, disability or retirement at or after either age 62 with ten years of service or age 65. (c) Notwithstanding anything contained in this Agreement to the contrary, other than Section 16 hereof, if the Employee breaches any of the Employee's obligations under Section 9 or 10 hereof, no further severance payments or other benefits will be payable to the Employee under this Section 5. 6. CHANGE OF CONTROL. ----------------- (a) In General. In the event of a Change of Control as defined in ---------- this Section 6, the Employee shall become entitled to certain special benefits and shall have certain special protections so that he may - -------------------------------------------------------------------------------- Page 9 - -------------------------------------------------------------------------------- more fully focus on the issues related to such a Change of Control, and to reward the Employee for the substantial additional effort involved in a Change of Control. The special benefits and protections are set forth in this Section 6. (b) Transaction Bonus. In the event of a Change of Control, then ----------------- subject to the requirements set forth in this Subsection 6(b), the Employee will receive a cash transaction bonus (the "Transaction Bonus") calculated and payable as follows: (i) If the Employee is employed by the Company on the date of the Change of Control, the total amount of the Transaction Bonus shall be equal to one hundred and fifty percent (150%) of his annual base salary in the then prevailing amount specified in Subsection 3(a) hereof, or if such annual base salary has decreased during the one year period ending on his termination of employment, at the highest rate in effect during such one year period; and (ii) If the Employee is employed by the Company on the date of the Change of Control and either is employed by the Company on the first anniversary thereof or is not employed by the Company on such first anniversary due to the Employee's death or disability, the Transaction Bonus shall be payable as follows: (A) If the Employee is employed by the Company on the day of the Change of Control, one-half (1/2) of the Transaction Bonus shall be payable to the Employee on such date; and (B) If the Employee is employed by the Company on the first anniversary of the Change of Control, the other one-half (1/2) of the Transaction Bonus shall be payable to the Employee on such date. (C) Furthermore, if the Employee is employed by the Company on the date of the Change of Control but, due to the Employee's death or disability, the Employee is no longer employed by the Company on the first anniversary thereof, the Employee (or the Employee's beneficiary in the event of the Employee's death) shall nonetheless be entitled to the other one-half (1/2) of the Transaction Bonus, which amount shall be payable on such first anniversary. - -------------------------------------------------------------------------------- Page 10 - -------------------------------------------------------------------------------- (iii) If the Employee is not employed by the Company on either or both of the date of the Change of Control and the date of the first anniversary thereof due to the Employee's termination by the Company other than for Cause or due to the Employee's termination of employment for Good Reason, but if the Employee's Payment Term includes either or both such dates, the Employee shall nonetheless be entitled to the Transaction Bonus which would otherwise be payable on the date or dates which are included in such Payment Term even though the Employee is no longer then employed by the Company. Any Transaction Bonus payable in accordance with this Subsection 6(b)(iii) shall be in an amount, and shall be payable on a date, determined in accordance with Subsection 6(b)(iv) or 6(b)(v), whichever is applicable. (iv) If the Employee is not employed by the Company on the date of the Change of Control, but a Transaction Bonus is payable to the Employee in accordance with Subsection 6(b)(iii) hereof, the following shall apply: (A) The Transaction Bonus shall be in the amount calculated in accordance with Subsection 6(b)(i); (B) The Transaction Bonus shall be paid in full to the Employee (or the Employee's beneficiary in the event of the Employee's death) on the date of the Change of Control; and (C) On the date of the Change of Control, the Employee (or the Employee's personal representative or beneficiary in the event of the Employee's death) shall assign to the Company the Employee's restricted Class A Shares and the Employee's stock options for Class A Shares and any other Class A Shares or equity interest in the Company which the Employee may then own, regardless of how the Employee may have acquired such restricted stock, options, Class A Shares or equity interest. In exchange therefore, the Company shall pay to the Employee (or the Employee's beneficiary in the event of the Employee's death), on such date, an amount equal to the value of the Employee's restricted Class A Shares and the Employee's stock options for Class A Shares, to the extent such options are exercisable and such restricted stock is vested, and any other Class A Shares or equity interest in the Company - -------------------------------------------------------------------------------- Page 11 - -------------------------------------------------------------------------------- which the Employee may then own. Such value shall be calculated using the Class A Share Change of Control Valuation as hereinafter defined. The value of the exercisable stock options for this purpose shall be the amount by which the value of the Class A Shares, as so determined, exceeds the exercise price. (v) If the Employee is employed by the Company on the date of the Change of Control but not on the first anniversary thereof, but a Transaction Bonus is payable to the Employee in accordance with Subsection 6(b)(iii) hereof, the following shall apply: (A) The Transaction Bonus shall be in the amount calculated in accordance with Subsection 6(b)(i); and (B) The portion of the Transaction Bonus remaining unpaid upon the Employee's termination of employment with the Company shall be paid to the Employee (or the Employee's beneficiary in the event of the Employee's death) within ten (10) days following such termination of employment. (vi) Notwithstanding anything contained in this Agreement to the contrary, if the Employee breaches any of the Employee's obligations under Section 9 or 10 hereof, no further Transaction Bonus payments will be payable to the Employee. (c) Equity Considerations. If the Employee is employed by the --------------------- Company on the day of the Change of Control, the Employee shall receive the following equity considerations: (i) all restricted stock of the Company, owned by the Employee on the date of the Change of Control, regardless of whether acquired under the 1996 Transitional Restricted Stock Plan or under an individual agreement with the Company or otherwise, will become and remain one hundred percent (100%) vested; (ii) all stock options for Class A Shares of the Company, owned by the Employee on the date of the Change of Control, regardless of whether acquired under the 1989, 1992 or 1997 Stock Option Plan or under an individual agreement with the Company or otherwise, will immediately become and remain throughout the full remaining term of such - -------------------------------------------------------------------------------- Page 12 - -------------------------------------------------------------------------------- options one hundred percent (100%) vested and fully exercisable, and such exercise then and thereafter shall be available on a cashless basis such that the Employee may receive the net value of the Employee's options (represented by the amount by which the fair market value of the Class A Shares exceeds the exercise price) in cash or Class A Shares as the Employee shall elect, without outlay of cash but net of all applicable withholding taxes, which taxes shall be remitted by the Company to the proper taxing authorities; (iii) upon any such Change of Control transaction, all limitations, restrictions or conditions relating to the Employee's rights to receive, vote, own and/or transfer any Class A Shares contained in any of the Pre-existing Agreements or contained in any other document, agreement or plan shall terminate and shall be of no further force and effect, except for any registration rights in effect; and (iv) if permitted by the purchaser in the Change of Control transaction (the "Purchaser"), the Company will provide for the Employee the opportunity to convert all or a portion, as he shall elect, of the Employee's options to purchase Class A Shares as well as Class A Shares then owned by the Employee, into an equity investment in the entity resulting from Purchaser's transaction (the "Successor") on a tax favored basis. The amount available for such investment shall be an amount calculated on the basis of the per Share price paid in the Change of Control transaction or series of transactions or implicit in the valuation of the Change of Control transaction, including all elements of consideration paid or payable (the "Change of Control Valuation"). (v) If the Purchaser in the Change of Control transaction does not permit the Employee to convert (or the Employee chooses not to convert) all (or a portion) of the Employee's options to purchase Class A Shares and Class A Shares then owned by the Employee into equity in the Successor, then the Employee shall exercise, at the time of the Change of Control, all options the Employee holds for Class A Shares (such exercise to provide cash rather than Class A Shares to the Employee in accordance with the exercise procedure described in Subsection 6(c)(ii) hereof), and shall sell to the Company at the time of the Change of Control all Class A Shares then owned by the Employee, to the extent such options or Class A Shares are not converted into equity - -------------------------------------------------------------------------------- Page 13 - -------------------------------------------------------------------------------- in the Successor. Such exercise of options and sale of Class A Shares shall yield an amount to the Employee determined by the Class A Share Change of Control Valuation. (d) Change of Control. For purposes of this Agreement, the words ------------------ "Change of Control" means a change in control of the Company of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended, as in effect on the date of this Agreement (the "Exchange Act"), whether or not the Company is then subject to such reporting requirements; provided, that, without limitation, a Change of Control shall be deemed to have occurred if: (i) any "person" (as defined in Sections 13(d) and 14(d) of the Exchange Act), other than Zell/Chilmark Fund, L.P., is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing twenty percent (20%) or more of the combined voting power of the Company's then outstanding securities; provided that a Change in Control shall not be deemed to occur under this clause (i) by reason of (A) the acquisition of securities by the Company or an employee benefit plan (or any trust funding such a plan) maintained by the Company, or (B) while Zell/Chilmark Fund, L.P. continues to beneficially own more than fifty percent (50%) of the combined voting power of the Company's then outstanding securities; (ii) during any period of one (1) year there shall cease to be a majority of the Board comprised of "Continuing Directors" as hereinafter defined; or (iii) the stockholders of the Company (A) approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than eighty percent (80%) of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or (B) approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of more than fifty percent (50%) of the Company's assets. - -------------------------------------------------------------------------------- Page 14 - -------------------------------------------------------------------------------- For purposes of this Subsection 6(d)(iii), a sale of more than fifty percent (50%) of the Company's assets includes a sale of more than fifty percent (50%) of the aggregate value of the assets of the Company and its subsidiaries or the sale of stock of one or more of the Company's subsidiaries with an aggregate value in excess of fifty percent (50%) of the aggregate value of the Company and its subsidiaries or any combination of methods by which more than fifty percent (50%) of the aggregate value of the Company and its subsidiaries is sold. (iv) For purposes of this Agreement, a "Change of Control" will be deemed to occur: (A) on the day on which a twenty percent (20%) or greater ownership interest described in Subsection 6(d)(i) is acquired or, if later, the day on which the Zell/Chilmark Fund, L.P. ceases to beneficially own more than fifty percent (50%) of the combined voting power of the Company's then outstanding securities, provided that a subsequent increase in such ownership interest after it first equals or exceeds twenty percent (20%) shall not be deemed a separate Change of Control; (B) on the day on which "Continuing Directors," as hereinafter defined, cease to be a majority of the Board as described in Subsection 6(d)(ii); (C) on the day of a merger, consolidation or sale or disposition of assets as described in Subsection 6(d)(iii); or (D) on the day of the approval of a plan of complete liquidation as described in Subsection 6(d)(iii). (v) For purposes of this Subsection 6(d), the word "Company" means Sealy Corporation, and, any other corporation or business organization in an unbroken chain of corporations or business organization ending with Sealy Corporation that owns, directly or indirectly, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock of Sealy Corporation other than Zell/Chilmark Fund, L.P. (vi) For purposes of this Subsection 6(d), the words "Continuing Directors" mean individuals who at the beginning of any - -------------------------------------------------------------------------------- Page 15 - -------------------------------------------------------------------------------- period (not including any period prior to the date of this Agreement) of one (1) year constitute the Board and any new director(s) whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least a majority of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved. (e) Section 16 Protection. If the Employee is subject to Section 16 --------------------- of the Securities Exchange Act of 1934 ("Section 16"), then to the extent the Employee would be deprived of the benefits of the equity considerations described herein or under any of the Pre- existing Agreements or under the 1989, 1992 or 1997 Stock Option Plan or the 1996 Transitional Restricted Stock Plan, as described above, or any other plan or arrangement regarding stock of the Company, by reason of such Section 16 or the Rules issued thereunder, the Employee shall be provided with the alternative of receiving a cash payment approximating the loss of such benefits under a cash compensation plan implemented by the Company. The Company agrees to have this Agreement, and specifically this Section 6 approved by the Board in compliance with Section 16 and Rule 16b-3 thereunder to ensure its enforceability. 7. SEVERANCE PLAN. It is the intention of the Parties that this -------------- Agreement provide special benefits to the Employee. If at any time the Company's Executive Severance Benefit Plan would provide better cash severance benefits to the Employee than this Agreement, the Employee may elect to receive such better cash severance benefits in lieu of the cash severance benefits provided under Subsections 5(a)(i) and 5(a)(ii), or Subsection 5(a)(v), of this Agreement, whichever is applicable, while continuing to receive any other benefits or coverages available under this Agreement. If this Agreement would provide better cash severance benefits to the Employee than the Company's Executive Severance Benefit Plan, the Employee shall receive the cash severance benefits under this Agreement, as well as any other benefits or coverages available under this Agreement. In such case, the cash severance benefits under this Agreement shall be in lieu of the cash severance benefits payable under the Company's Executive Severance Benefit Plan. 8. PLAN AMENDMENTS. To the extent any provisions of this Agreement --------------- modify the terms of any existing plan, policy or arrangement affecting the compensation or benefits of the Employee, as appropriate, (a) such modification as set forth herein shall be deemed an amendment to such plan, policy or arrangement as to the Employee, and both the Company and the Employee hereby consent to such amendment, (b) the Company will appropriately modify such plan, policy or arrangement to correspond to this Agreement with respect to the Employee, or (c) the Company will provide an "Alternative Benefit," as defined in Section 14 hereof, to or on - -------------------------------------------------------------------------------- Page 16 - -------------------------------------------------------------------------------- behalf of the Employee in accordance with the provisions of such Section 14. 9. CONFIDENTIAL INFORMATION. The Employee agrees that the Employee will ------------------------ not, during the Employment Term or at any time thereafter, either directly or indirectly, disclose or make known to any other person, firm, or corporation any confidential information, trade secret or proprietary information of the Company that the Employee may acquire in the performance of the Employee's duties hereunder (except in good faith in the ordinary course of business for the Company to a person who will be advised by the Employee to keep such information confidential) or make use of any of such confidential information except in the performance of the Employee's duties or when required to do so by legal process, by any governmental agency having supervisory authority over the business of the Company or by any administrative or legislative body (including a committee thereof) that requires the Employee to divulge, disclose or make accessible such information. In the event that the Employee is so ordered, the Employee shall so advise the Company in order to allow the Company the opportunity to object to or otherwise resist such order. Upon the termination of the Employee's employment with the Company, the Employee agrees to deliver forthwith to the Company any and all proprietary literature, documents, correspondence, and other proprietary materials and records furnished to or acquired by the Employee during the course of such employment. In the event of a breach or threatened breach of this Section 9 by the Employee, the Company will be entitled to preliminary and permanent injunctive relief, without bond or security, sufficient to enforce the provisions hereof and the Company will be entitled to pursue such other remedies at law or in equity which it deems appropriate. 10. NON-COMPETITION. In consideration of this Agreement, the Employee --------------- agrees that, during the Employment Term, and for one year thereafter, unless the Employee has waived the Transaction Bonus and the equity considerations described in Subsections 6(b) and 6(c), the Employee shall not act as a proprietor, investor, director, officer, employee, substantial stockholder, consultant, or partner in any business engaged to a material extent in the manufacture or sale of (a) mattresses or other bedding products or (b) any other products which constitute more than ten percent (10%) of the Company's revenues at the time in direct competition with the Company in any market. If, however, the Employee has waived the Transaction Bonus and the equity considerations described in Subsections 6(b) and 6(c), this covenant not to compete shall be void upon the Employee's termination of employment. The Employee understands that the foregoing restrictions may limit the Employee's ability to engage in certain business pursuits during the period provided for above, but acknowledges that the Employee will receive sufficiently higher remuneration and other benefits from the Company hereunder than the Employee would otherwise receive to justify such restriction. The Employee acknowledges that the Employee understands the effect of the provisions of this Section 10, and that the Employee has had reasonable time to consider the effect of these provisions, and that the Employee was encouraged to and had an opportunity to consult an attorney with respect to these provisions. The Company and the Employee consider the restrictions contained in this Section 10 to be reasonable and necessary. Nevertheless, if any aspect of these restrictions is found to be unreasonable or otherwise unenforceable by a court of - -------------------------------------------------------------------------------- Page 17 - -------------------------------------------------------------------------------- competent jurisdiction, the Parties intend for such restrictions to be modified by such court so as to be reasonable and enforceable and, as so modified by the court, to be fully enforced. In the event of a breach or threatened breach of this Section 10 by the Employee, the Company will be entitled to preliminary and permanent injunctive relief, without bond or security, sufficient to enforce the provisions hereof and the Company will be entitled to pursue such other remedies at law or in equity which it deems appropriate. During the ten (10) day period ending on the date of a Change of Control, the Employee may, by written notice to the Company, elect to waive his Transaction Bonus and the equity considerations described in Subsections 6(b) and 6(c). Such waiver shall be irrevocable. In the event of such a waiver, the Employee's agreement not to compete with the Company as set forth in this Section 10 shall be void upon his termination of employment. 11. NOTICES. For purposes of this Agreement, all communications provided ------- for herein shall be in writing and shall be deemed to have been duly given when hand delivered or mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows: (a) If the notice is to the Company: Mr. Ronald L. Jones Chief Executive Officer Sealy Corporation 1228 Euclid Avenue - Tenth Floor Cleveland, Ohio 44115-1886 With a copy to: Kenneth Walker, Esq. Vice President and General Counsel Sealy Corporation 1228 Euclid Avenue - Tenth Floor Cleveland, Ohio 44115-1886 (b) If the notice is to the Employee: Gary T. Fazio 6900 W. Hunting Hollow Hudson, Ohio 44236 or to such other address as either party may have furnished to the other in writing and in accordance herewith; except that notices of change of address shall be effective only upon receipt. 12. ASSIGNMENT; BINDING EFFECT. This Agreement shall be binding upon and -------------------------- inure to the benefit of the parties to this Agreement and their respective - -------------------------------------------------------------------------------- Page 18 - -------------------------------------------------------------------------------- successors, heirs (in the case of the Employee) may be permitted assigns. No rights or obligations of the Company under this Agreement may be assigned or transferred by the Company except that such rights or obligations may be assigned or transferred in connection with the sale or transfer of all or substantially all of the assets of the Company, provided that the assignee or transferee is the successor to all or substantially all of the assets of the Company and such assignee or transferee expressly assumes the liabilities, obligations and duties of the Company, as contained in this Agreement, either contractually or as a matter of law. The Company further agrees that, in the event of a sale or transfer of assets as described in the preceding sentence, it shall be a condition precedent to the consummation of any such transaction that the assignee or transferee expressly assumes the liabilities, obligations and duties of the Company hereunder. No rights or obligations of the Employee under this Agreement may be assigned or transferred by the Employee other than the Employee's rights to compensation and benefits, which may be transferred only by will or operation of law, except as provided in this Section 12. The Employee shall be entitled, to the extent permitted under any applicable law, to select and change a beneficiary or beneficiaries to receive any compensation or benefits payable hereunder following the Employee's death by giving the Company written notice thereof. In the absence of such a selection, any compensation or benefit payable under this Agreement following the death of the Employee shall be payable to the Employee's spouse, or if such spouse shall not survive the Employee, to the Employee's estate. In the event of the Employee's death or a judicial determination of his incompetence, reference in this Agreement to the Employee shall be deemed, where appropriate, to refer to the Employee's beneficiary, estate or other legal representative. 13. INVALID PROVISIONS. Any provision of this Agreement that is ------------------ prohibited or unenforceable shall be ineffective to the extent, but only to the extent, of such prohibition or unenforceability without invalidating the remaining portions hereof and such remaining portions of this Agreement shall continue to be in full force and effect. In the event that any provision of this Agreement shall be determined to be invalid or unenforceable, the Parties will negotiate in good faith to replace such provision with another provision that will be valid or enforceable and that is as close as practicable to the provisions held invalid or unenforceable. 14. ALTERNATIVE SATISFACTION OF COMPANY'S OBLIGATIONS. In the event this ------------------------------------------------- Agreement provides for payments or benefits to or on behalf of the Employee which cannot be provided under the Company's benefit plans, policies or arrangements either because such plans, policies or arrangements no longer exist or no longer provide such benefits or because provision of such benefits to the Employee would adversely affect the tax qualified or tax advantaged status of such plans, policies or arrangements for the Employee or other participants therein, the Company may provide the Employee with an "Alternative Benefit," as defined in this Section 14, in lieu thereof. The Alternative Benefit is a benefit or payment which places the Employee and the Employee's dependents in at least as good of an economic position as if the benefit promised by this Agreement (a) were provided exactly as called for by this Agreement, - -------------------------------------------------------------------------------- Page 19 - -------------------------------------------------------------------------------- and (b) had the favorable economic, tax and legal characteristics customary for plans, policies or arrangements of that type. Furthermore, if such adverse consequence would affect the Employee or the Employee's dependents, the Employee shall have the right to require that the Company provide such an Alternative Benefit. 15. ENTIRE AGREEMENT, MODIFICATION. Subject to the provisions of Section ------------------------------ 16 hereof, this Agreement contains the entire agreement between the Parties with respect to the employment of the Employee by the Company and supersedes all prior and contemporaneous agreements, representations, and understandings of the Parties, whether oral or written. No modification, amendment, or waiver of any of the provisions of this Agreement shall be effective unless in writing, specifically referring hereto, and signed by both Parties. 16. NON-EXCLUSIVITY OF RIGHTS. Notwithstanding the foregoing provisions ------------------------- of Section 15, nothing in this Agreement shall prevent or limit the Employee's continuing or future participation in any benefit, bonus, incentive or other plan, program, policy or practice provided by the Company for its executive officers, nor shall anything herein limit or otherwise affect such rights as the Employee has or may have under any stock option, restricted stock or other agreements with the Company or any of its subsidiaries. Amounts which the Employee or the Employee's dependents or beneficiaries are otherwise entitled to receive under any such plan, policy, practice or program shall not be reduced by this Agreement except as provided in Section 7 hereof with respect to payments under the Executive Severance Benefit Plan if cash payments of annual base salary are made hereunder. 17. WAIVER OF BREACH. The failure at any time to enforce any of the ---------------- provisions of this Agreement or to require performance by the other party of any of the provisions of this Agreement shall in no way be construed to be a waiver of such provisions or to affect either the validity of this Agreement or any part of this Agreement or the right of either party thereafter to enforce each and every provision of this Agreement in accordance with the terms of this Agreement. 18. GOVERNING LAW. This Agreement has been made in, and shall be governed ------------- and construed in accordance with the laws of, the State of Ohio. The Parties agree that this Agreement is not an "employee benefit plan" or part of an "employee benefit plan" which is subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended. 19. TAX WITHHOLDING. The Company may withhold from any amounts payable --------------- under this Agreement such federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. Where withholding applies to Class A Shares, the Company shall make cashless withholding available to the Employee. 20. EXPENSE OF ENFORCEMENT. The Company shall reimburse reasonable ---------------------- attorney fees and expenses incurred by the Employee to enforce the provisions of this Agreement, even if his claims are not successful, provided they are - -------------------------------------------------------------------------------- Page 20 - -------------------------------------------------------------------------------- not ultimately determined by the court to be frivolous. 21. REPRESENTATION. The Company represents and warrants that it is fully -------------- authorized and empowered to enter into this Agreement and that the performance of its obligations under this Agreement will not violate any agreement between it and any other person, firm or organization. 22. SUBSIDIARIES AND AFFILIATES. Notwithstanding any contrary provision --------------------------- of this Agreement, to the extent it does not adversely affect the Employee, the Company may provide the compensation and benefits to which the Employee is entitled hereunder through one or more subsidiaries or affiliates, including, without limitation, Sealy, Inc. 23. NO MITIGATION OR OFFSET. In the event of any termination of ----------------------- employment, the Employee shall be under no obligation to seek other employment. Amounts due the Employee under this Agreement shall not be offset by any remuneration attributable to any subsequent employment he may obtain. 24. SOLE REMEDY. The Parties agree that the remedies of each against the ----------- other for breach of this Agreement shall be limited to enforcement of this Agreement and recovery of the amounts and remedies provided for herein. The Parties, however, further agree that such limitation shall not prevent either Party from proceeding against the other to recover for a claim other than under this Agreement. IN WITNESS WHEREOF, the Company and the Employee have executed this Agreement as of the day and year first above written. SEALY CORPORATION By: /s/ KENNETH L. WALKER ------------------------ Kenneth L. Walker Vice President, General Counsel & Secretary EMPLOYEE /s/ GARY T. FAZIO --------------------------- EX-10.10 16 EMPLOYMENT AGREEMENT (FELLMY) - -------------------------------------------------------------------------------- Page 1 - -------------------------------------------------------------------------------- EXHIBIT 10.10 ------------- EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT is entered into as of the 25th day of August, 1997, by and between SEALY CORPORATION, a Delaware corporation (the "Company"), and DOUGLAS E. FELLMY (the "Employee"). W I T N E S S E T H: WHEREAS, the Company and the Employee (collectively "the Parties") desire to enter into this Employment Agreement (the "Agreement") as hereinafter set forth; NOW, THEREFORE, the Company and Employee agree as follows: 1. EMPLOYMENT TERM. --------------- (a) During the period specified in Subsection l(b) hereof (the "Employment Term"), the Company shall employ the Employee, and the Employee shall serve the Company, as VP, Operations, based on the terms and subject to the conditions set forth herein. (b) The Employment Term shall commence on the date of this Agreement. Thereafter it shall end as follows: (i) there shall be an initial period ending on the second (2nd) anniversary of the date of this Agreement, subject to the provision of Subsection 1(b)(ii) below; (ii) after the first anniversary of the date of this Agreement, the Employment Term shall be extended one calendar day for each calendar day that the Employee is employed by the Company after such first anniversary so that the remaining Employment Term after such first anniversary shall always be one (1) year; and (iii) provided that the Employment Term may terminate prior to the date specified above in this Subsection 1(b) as provided in Section 4 hereof. 2. POSITION, DUTIES, AND RESPONSIBILITIES. At all times during the -------------------------------------- Employment Term, the Employee shall: (a) Hold the position of VP, Operations reporting to the Chief Executive Officer of the Company (the "Chief Executive - -------------------------------------------------------------------------------- Page 2 - -------------------------------------------------------------------------------- Officer"); (b) Have those duties and responsibilities, and the authority, customarily possessed by the VP, Operations of a major corporation and such additional duties as may be assigned to the Employee from time to time by the Board of Directors of the Company (the "Board") or the Chief Executive Officer which are consistent with the position of VP, Operations of a major corporation; (c) Adhere to such reasonable written policies and directives, and such reasonable unwritten policies and directives as are of common knowledge to executive officers of the Company, as may be promulgated from time to time by the Board or the Chief Executive Officer and which are applicable to executive officers of the Company; (d) Invest in the Company only in accordance with any insider trading policy of the Company in effect at the time of the investment; and (e) Devote the Employee's entire business time, energy, and talent to the business, and to the furtherance of the purposes and objectives, of the Company, and neither directly nor indirectly act as an employee of or render any business, commercial, or professional services to any other person, firm or organization for compensation, without the prior written approval of the Board or the Chief Executive Officer. Nothing in this Agreement shall preclude the Employee from devoting reasonable periods of time to charitable and community activities or the management of the Employee's investment assets, provided such activities do not interfere with the performance by the Employee of the Employee's duties hereunder. 3. SALARY, BONUS AND BENEFITS. For services rendered by the Employee -------------------------- on behalf of the Company during the Employment Term, the following salary, bonus and benefits shall be provided to the Employee by the Company: (a) The Company shall pay to the Employee, in equal installments, according to the Company's then current practice for paying its executive officers in effect from time to time during the Employment Term, an annual base salary at the initial rate of One Hundred Ninety-Eight Thousand Dollars ($198,000.00). This salary shall be subject to annual review, in December of each year commencing in December 1997, by the Human Resources Committee of the Board (the "Committee) and may be increased, but not decreased, to the extent, if any, that the Committee may - -------------------------------------------------------------------------------- Page 3 - -------------------------------------------------------------------------------- determine. (b) The Employee shall participate in the Sealy Corporation Annual Bonus Plan (the "Bonus Plan") in accordance with the provisions of that Plan as in effect as of the date of this Agreement. The Employee's Target annual bonus, as established by the Committee under the Bonus Plan as of the date of this Agreement, is thirty- five percent (35%) (his "Target Annual Bonus Percentage") of annual base salary, with a range of zero percent (0%) to seventy percent (70%) of annual base salary. (c) The Employee shall be eligible for participation in such other benefit plans, including, but not limited to, the Company's Profit Sharing Plan and Trust, Executive Severance Benefit Plan, Benefit Equalization Plan, Short-Term and Long Term Disability Plans, Group Term Life Insurance Plan, Medical Plan or PPO, Dental Plan, the 401(k) feature of the Profit Sharing Plan, the 1996 Transitional Restricted Stock Plan and the 1997 Stock Option Plan, as the Board may adopt from time to time and in which the Company's executive officers are eligible to participate. Such participation shall be subject to the terms and conditions set forth in the applicable plan documents. As is more fully set forth in Section 7 hereof, the Employee shall not be entitled to duplicative payments under this Agreement and the Executive Severance Benefit Plan. (d) Without limiting the generality of Subsection 3(c) above, for so long as such coverage shall be available to the executive officers of the Company, the Employee shall be eligible to participate in the Company's Group Term Life Insurance Plan with a death benefit to be provided at the level of one and one half (1 1/2) times annual base salary at Company expense, plus extended coverage with a death benefit to be provided of at least the level in effect on the date of this Agreement for the Employee under such Plan at the Employee's discretion and expense. (e) The Employee shall be entitled to take, during each one-year period commencing with December 1, 1996, during the Employment Term, vacation time equal to at least the greater of (i) the amount of vacation time to which the Employee is entitled per year as of the date of this Agreement, or (ii) the amount of vacation time to which the Employee would have become entitled if the Company's vacation policy in effect as of the date of this Agreement and which is applicable to its executive officers remained in effect throughout the Employment Term. (f) In addition, the Parties do hereby further confirm the Employee's - -------------------------------------------------------------------------------- Page 4 - -------------------------------------------------------------------------------- entitlement to a number of restricted shares of Class A Common Stock of the Company ("Class A Shares"), as well as options to purchase additional Class A Shares pursuant to various benefit plans or agreements with the Company. The Parties agree that (a) such restricted Class A Shares and such options are in addition to, and not in lieu of, any shares or options which may be granted under any other plan or arrangement of the Company after the date of this Agreement, and (b) the various restricted stock agreements and stock option agreements, and any related Stockholder Agreement (the "Stockholder Agreement") between the Parties (such agreements being hereinafter referred to collectively as the "Pre-existing Agreements"), all remain in full force and effect except as otherwise provided herein. Notwithstanding the foregoing, to the extent that any provision contained herein is inconsistent with the terms of any of the Pre-existing Agreements, the terms of this Agreement shall be controlling. 4. TERMINATION OF EMPLOYMENT. As indicated in Subsection 1(b)(iii), ------------------------- the Employment Term may terminate prior to the date specified in Subsections 1(b)(i) and 1(b)(ii) as follows: (a) The Employee's employment hereunder will terminate without further notice upon the death of the Employee. (b) The Company may terminate the Employee's employment hereunder effective immediately upon giving written notice of such termination for "Cause". For these purposes, "Cause" shall mean the following: (i) Commission by the Employee (evidenced by a conviction or written, voluntary and freely given confession) of a criminal act constituting a felony; (ii) Commission by the Employee of a material breach or material default of any of the Employee's agreements or obligations under any provision of this Agreement, including, without limitation, the Employee's agreements and obligations under Subsections 2(a) through 2(e) and Sections 9 and 10 of this Agreement, which is not cured in all material respects within thirty (30) days after the Chief Executive Officer or the designee thereof gives written notice thereof to the Employee; or (iii) Commission by the Employee, when carrying out the Employee's duties under this Agreement, of acts or the omission of any act, which both: (A) constitutes gross negligence or willful misconduct and (B) results in material - -------------------------------------------------------------------------------- Page 5 - -------------------------------------------------------------------------------- economic harm to the Company or has a materially adverse effect on the Company's operations, properties or business relationships. (c) The Employee's employment hereunder may be terminated by the Company upon the Employee's disability, if the Employee is prevented from performing the Employee's duties hereunder by reason of physical or mental incapacity for a period of one hundred eighty (180) consecutive days in any period of two consecutive fiscal years of the Company, but the Employee shall be entitled to full compensation and benefits hereunder until the close of such one hundred and eighty (180) day period. (d) The Company may terminate the Employee's employment hereunder without Cause at any time upon thirty (30) days written notice. (e) The Employee may terminate employment hereunder effective immediately upon giving written notice of such termination for "Good Reason", as defined in Subsection 4(g) below. (f) The Employee may terminate employment hereunder without Good Reason at any time upon thirty (30) days written notice. (g) For purposes of this Agreement, "Good Reason" means the occurrence of (i) any reduction in either the annual base salary of the Employee or the Target Annual Bonus Percentage or maximum annual bonus percentage applicable to the Employee under the Bonus Plan, (ii) any material reduction in the position, authority or office of the Employee, (iii) any material reduction in the Employee's responsibilities or duties for the Company, (iv) any material adverse change or reduction in the aggregate "Minimum Benefits," as hereinafter defined, provided to the Employee as of the date of this Agreement (provided that any material reduction in such aggregate Minimum Benefits that is required by law or applies generally to all employees of the Company shall not constitute "Good Reason" as defined hereunder), (v) any relocation of the Employee's principal place of work with the Company to a place more than twenty-five (25) miles from the geographical center of Cleveland, Ohio, other than a relocation to a location which is within twenty-five (25) miles from the geographic center of Greensboro, North Carolina, or (vi) the material breach or material default by the Company of any of its agreements or obligations under any provision of this Agreement. As used in this Subsection 4(g), an "adverse change or material reduction" in the aggregate Minimum Benefits shall be deemed to result from any reduction or any series of reductions which, in the aggregate, exceeds five - -------------------------------------------------------------------------------- Page 6 - -------------------------------------------------------------------------------- percent (5%) of the value of such aggregate Minimum Benefits determined as of the date of this Agreement. As used in this Subsection 4(g), Minimum Benefits are life insurance, accidental death, long term disability, short term disability, medical, dental, and vision benefits and the Company's expense reimbursement policy. The Employee shall give written notice to the Company on or before the date of termination of employment for Good Reason stating that the Employee is terminating employment with the Company and specifying in detail the reasons for such termination. If the Company does not object to such notice by notifying the Employee in writing within five (5) days following the date of the Company's receipt of the Employee's notice of termination, the Company shall be deemed to have agreed that such termination was for Good Reason. The parties agree that "Good Reason" will not be deemed to have occurred merely because the Company becomes a subsidiary or division of another entity following a "Change of Control," as hereinafter defined, provided the Employee continues to serve as the VP, Operations of such subsidiary or division and such subsidiary or division is comparable in size to the organization consisting of the Company and its subsidiaries. The parties further agree that "Good Reason" will be deemed to have occurred if the purchaser, in a Change of Control transaction, does not assume this Agreement in accordance with Section 12 hereof. 5. SEVERANCE COMPENSATION. If the Employee's employment is ---------------------- terminated, the following severance provisions will apply: (a) If the Employee's employment is terminated by the Company other than for Cause or is terminated by the Employee for Good Reason, then, through the remaining Employment Term as specified in Subsection 1(b) hereof, determined without regard to Subsection 1(b)(iii) hereof, (such remaining Employment Term calculated without regard to Subsection 1(b)(iii), and without regard to whether the Employee elects accelerated payments of the Employee's annual base salary and bonus in accordance with Subsection 5(a)(v), is hereinafter referred to as the "Payment Term") the Company shall: (i) continue to pay the Employee's annual base salary in the then prevailing amount and at the times specified in Subsection 3(a) hereof, or if such annual base salary has decreased during the one year period ending on the Employee's termination of employment, at the highest rate in effect during such one year period; (ii) continue the Employee's participation in the Bonus Plan as - -------------------------------------------------------------------------------- Page 7 - -------------------------------------------------------------------------------- provided in Subsection 3(b) hereof provided that the Company will: (A) pay the Employee a bonus under the Bonus Plan for the partial year period ending on the date of the Employee's termination of employment calculated as if the Employee had continued to be employed for the entire year except that the Employee's bonus percentage (calculated at the time and in the manner customary as of the date of this Agreement, but disregarding the termination of employment of the Employee) shall be applied to the Employee's annual base salary payable in accordance with Subsection 3(a) hereof for the partial year period ending on the Employee's termination of employment; and (B) thereafter, during the remainder of the Payment Term, a bonus equal to the Employee's Target Annual Bonus Percentage, multiplied by the Employee's annual base salary in the amount specified in Subsection 5(a)(i) payable during the year (or portion thereof) for which the bonus is being calculated; with such amounts being payable when bonuses under the Bonus Plan are customarily payable, except that the final bonus shall be payable with the final payment of the annual base salary under Subsection 5(a)(i) hereof; (iii) continue in effect the medical and dental coverage, long and short-term disability protection, and any life insurance protection (including life insurance protection being paid for by the Employee), being provided to the Employee immediately prior to the Employee's termination of employment, or if any of such benefits have decreased during the one year period ending on the Employee's termination of employment, at the highest level in effect during such one year period; (iv) pay for executive outplacement services for the Employee from a nationally recognized executive outplacement firm at the level provided for vice-presidents of major corporations, provided that such outplacement services will be provided for a one year period commencing on the date of termination of employment regardless of the Payment Term; and (v) In lieu of the payments described in Subsections 5(a)(i) and - -------------------------------------------------------------------------------- Page 8 - -------------------------------------------------------------------------------- 5(a)(ii) hereof, at the Employee's request, submitted in writing to the Company within five (5) business days after the date of the Employee's termination of employment: (A) the Company will pay the total of the Employee's annual base salary payments described in Subsection 5(a)(i) in a single sum within thirty (30) days following the Employee's termination of employment; and (B) his Bonus Plan payments described in Subsection 5(a)(ii) shall be made at the same time as the Employee's payment under Subsection 5(a)(vi)(A) but shall be calculated using the Employee's Target Annual Bonus Percentage for all calculation purposes. (b) If the Employee's employment hereunder terminates due to the Employee's death, disability, termination by the Company for Cause or termination by the Employee other than for Good Reason, then no further compensation or benefits will be provided to the Employee by the Company under this Agreement following the date of such termination of employment other than payment of compensation earned to the date of termination of employment but not yet paid. As more fully and generally provided in Section 16 hereof, this Subsection 5(b) shall not be interpreted to deny the Employee any benefits to which he may be entitled under any plan or arrangement of the Company applicable to the Employee. Likewise, this Subsection 5(b) shall not be interpreted to entitle the Employee to a bonus under the Bonus Plan following his termination of employment except as provided in the Bonus Plan which requires employment on the last day of the Company's taxable year as a condition to receipt of a bonus thereunder for such year except in the cases of death, disability or retirement at or after either age 62 with ten years of service or age 65. (c) Notwithstanding anything contained in this Agreement to the contrary, other than Section 16 hereof, if the Employee breaches any of the Employee's obligations under Section 9 or 10 hereof, no further severance payments or other benefits will be payable to the Employee under this Section 5. 6. CHANGE OF CONTROL. ----------------- (a) In General. In the event of a Change of Control as defined in ---------- this Section 6, the Employee shall become entitled to certain special benefits and shall have certain special protections so that he may - -------------------------------------------------------------------------------- Page 9 - -------------------------------------------------------------------------------- more fully focus on the issues related to such a Change of Control, and to reward the Employee for the substantial additional effort involved in a Change of Control. The special benefits and protections are set forth in this Section 6. (b) Transaction Bonus. In the event of a Change of Control, then ----------------- subject to the requirements set forth in this Subsection 6(b), the Employee will receive a cash transaction bonus (the "Transaction Bonus") calculated and payable as follows: (i) If the Employee is employed by the Company on the date of the Change of Control, the total amount of the Transaction Bonus shall be equal to one hundred and fifty percent (150%) of his annual base salary in the then prevailing amount specified in Subsection 3(a) hereof, or if such annual base salary has decreased during the one year period ending on his termination of employment, at the highest rate in effect during such one year period; and (ii) If the Employee is employed by the Company on the date of the Change of Control and either is employed by the Company on the first anniversary thereof or is not employed by the Company on such first anniversary due to the Employee's death or disability, the Transaction Bonus shall be payable as follows: (A) If the Employee is employed by the Company on the day of the Change of Control, one-half (1/2) of the Transaction Bonus shall be payable to the Employee on such date; and (B) If the Employee is employed by the Company on the first anniversary of the Change of Control, the other one-half (1/2) of the Transaction Bonus shall be payable to the Employee on such date. (C) Furthermore, if the Employee is employed by the Company on the date of the Change of Control but, due to the Employee's death or disability, the Employee is no longer employed by the Company on the first anniversary thereof, the Employee (or the Employee's beneficiary in the event of the Employee's death) shall nonetheless be entitled to the other one-half (1/2) of the Transaction Bonus, which amount shall be payable on such first anniversary. - -------------------------------------------------------------------------------- Page 10 - -------------------------------------------------------------------------------- (iii) If the Employee is not employed by the Company on either or both of the date of the Change of Control and the date of the first anniversary thereof due to the Employee's termination by the Company other than for Cause or due to the Employee's termination of employment for Good Reason, but if the Employee's Payment Term includes either or both such dates, the Employee shall nonetheless be entitled to the Transaction Bonus which would otherwise be payable on the date or dates which are included in such Payment Term even though the Employee is no longer then employed by the Company. Any Transaction Bonus payable in accordance with this Subsection 6(b)(iii) shall be in an amount, and shall be payable on a date, determined in accordance with Subsection 6(b)(iv) or 6(b)(v), whichever is applicable. (iv) If the Employee is not employed by the Company on the date of the Change of Control, but a Transaction Bonus is payable to the Employee in accordance with Subsection 6(b)(iii) hereof, the following shall apply: (A) The Transaction Bonus shall be in the amount calculated in accordance with Subsection 6(b)(i); (B) The Transaction Bonus shall be paid in full to the Employee (or the Employee's beneficiary in the event of the Employee's death) on the date of the Change of Control; and (C) On the date of the Change of Control, the Employee (or the Employee's personal representative or beneficiary in the event of the Employee's death) shall assign to the Company the Employee's restricted Class A Shares and the Employee's stock options for Class A Shares and any other Class A Shares or equity interest in the Company which the Employee may then own, regardless of how the Employee may have acquired such restricted stock, options, Class A Shares or equity interest. In exchange therefore, the Company shall pay to the Employee (or the Employee's beneficiary in the event of the Employee's death), on such date, an amount equal to the value of the Employee's restricted Class A Shares and the Employee's stock options for Class A Shares, to the extent such options are exercisable and such restricted stock is vested, and any other Class A Shares or equity interest in the Company - -------------------------------------------------------------------------------- Page 11 - -------------------------------------------------------------------------------- which the Employee may then own. Such value shall be calculated using the Class A Share Change of Control Valuation as hereinafter defined. The value of the exercisable stock options for this purpose shall be the amount by which the value of the Class A Shares, as so determined, exceeds the exercise price. (v) If the Employee is employed by the Company on the date of the Change of Control but not on the first anniversary thereof, but a Transaction Bonus is payable to the Employee in accordance with Subsection 6(b)(iii) hereof, the following shall apply: (A) The Transaction Bonus shall be in the amount calculated in accordance with Subsection 6(b)(i); and (B) The portion of the Transaction Bonus remaining unpaid upon the Employee's termination of employment with the Company shall be paid to the Employee (or the Employee's beneficiary in the event of the Employee's death) within ten (10) days following such termination of employment. (vi) Notwithstanding anything contained in this Agreement to the contrary, if the Employee breaches any of the Employee's obligations under Section 9 or 10 hereof, no further Transaction Bonus payments will be payable to the Employee. (c) Equity Considerations. If the Employee is employed by the --------------------- Company on the day of the Change of Control, the Employee shall receive the following equity considerations: (i) all restricted stock of the Company, owned by the Employee on the date of the Change of Control, regardless of whether acquired under the 1996 Transitional Restricted Stock Plan or under an individual agreement with the Company or otherwise, will become and remain one hundred percent (100%) vested; (ii) all stock options for Class A Shares of the Company, owned by the Employee on the date of the Change of Control, regardless of whether acquired under the 1989, 1992 or 1997 Stock Option Plan or under an individual agreement with the Company or otherwise, will immediately become and remain throughout the full remaining term of such - -------------------------------------------------------------------------------- Page 12 - -------------------------------------------------------------------------------- options one hundred percent (100%) vested and fully exercisable, and such exercise then and thereafter shall be available on a cashless basis such that the Employee may receive the net value of the Employee's options (represented by the amount by which the fair market value of the Class A Shares exceeds the exercise price) in cash or Class A Shares as the Employee shall elect, without outlay of cash but net of all applicable withholding taxes, which taxes shall be remitted by the Company to the proper taxing authorities; (iii) upon any such Change of Control transaction, all limitations, restrictions or conditions relating to the Employee's rights to receive, vote, own and/or transfer any Class A Shares contained in any of the Pre-existing Agreements or contained in any other document, agreement or plan shall terminate and shall be of no further force and effect, except for any registration rights in effect; and (iv) if permitted by the purchaser in the Change of Control transaction (the "Purchaser"), the Company will provide for the Employee the opportunity to convert all or a portion, as he shall elect, of the Employee's options to purchase Class A Shares as well as Class A Shares then owned by the Employee, into an equity investment in the entity resulting from Purchaser's transaction (the "Successor") on a tax favored basis. The amount available for such investment shall be an amount calculated on the basis of the per Share price paid in the Change of Control transaction or series of transactions or implicit in the valuation of the Change of Control transaction, including all elements of consideration paid or payable (the "Change of Control Valuation"). (v) If the Purchaser in the Change of Control transaction does not permit the Employee to convert (or the Employee chooses not to convert) all (or a portion) of the Employee's options to purchase Class A Shares and Class A Shares then owned by the Employee into equity in the Successor, then the Employee shall exercise, at the time of the Change of Control, all options the Employee holds for Class A Shares (such exercise to provide cash rather than Class A Shares to the Employee in accordance with the exercise procedure described in Subsection 6(c)(ii) hereof), and shall sell to the Company at the time of the Change of Control all Class A Shares then owned by the Employee, to the extent such options or Class A Shares are not converted into equity - -------------------------------------------------------------------------------- Page 13 - -------------------------------------------------------------------------------- in the Successor. Such exercise of options and sale of Class A Shares shall yield an amount to the Employee determined by the Class A Share Change of Control Valuation. (d) Change of Control. For purposes of this Agreement, the words ------------------ "Change of Control" means a change in control of the Company of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended, as in effect on the date of this Agreement (the "Exchange Act"), whether or not the Company is then subject to such reporting requirements; provided, that, without limitation, a Change of Control shall be deemed to have occurred if: (i) any "person" (as defined in Sections 13(d) and 14(d) of the Exchange Act), other than Zell/Chilmark Fund, L.P., is or becomes the "beneficial owner" (as defined in Rule 13d- 3 under the Exchange Act), directly or indirectly, of securities of the Company representing twenty percent (20%) or more of the combined voting power of the Company's then outstanding securities; provided that a Change in Control shall not be deemed to occur under this clause (i) by reason of (A) the acquisition of securities by the Company or an employee benefit plan (or any trust funding such a plan) maintained by the Company, or (B) while Zell/Chilmark Fund, L.P. continues to beneficially own more than fifty percent (50%) of the combined voting power of the Company's then outstanding securities; (ii) during any period of one (1) year there shall cease to be a majority of the Board comprised of "Continuing Directors" as hereinafter defined; or (iii) the stockholders of the Company (A) approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than eighty percent (80%) of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or (B) approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of more than fifty percent (50%) of the Company's assets. - -------------------------------------------------------------------------------- Page 14 - -------------------------------------------------------------------------------- For purposes of this Subsection 6(d)(iii), a sale of more than fifty percent (50%) of the Company's assets includes a sale of more than fifty percent (50%) of the aggregate value of the assets of the Company and its subsidiaries or the sale of stock of one or more of the Company's subsidiaries with an aggregate value in excess of fifty percent (50%) of the aggregate value of the Company and its subsidiaries or any combination of methods by which more than fifty percent (50%) of the aggregate value of the Company and its subsidiaries is sold. (iv) For purposes of this Agreement, a "Change of Control" will be deemed to occur: (A) on the day on which a twenty percent (20%) or greater ownership interest described in Subsection 6(d)(i) is acquired or, if later, the day on which the Zell/Chilmark Fund, L.P. ceases to beneficially own more than fifty percent (50%) of the combined voting power of the Company's then outstanding securities, provided that a subsequent increase in such ownership interest after it first equals or exceeds twenty percent (20%) shall not be deemed a separate Change of Control; (B) on the day on which "Continuing Directors," as hereinafter defined, cease to be a majority of the Board as described in Subsection 6(d)(ii); (C) on the day of a merger, consolidation or sale or disposition of assets as described in Subsection 6(d)(iii); or (D) on the day of the approval of a plan of complete liquidation as described in Subsection 6(d)(iii). (v) For purposes of this Subsection 6(d), the word "Company" means Sealy Corporation, and, any other corporation or business organization in an unbroken chain of corporations or business organization ending with Sealy Corporation that owns, directly or indirectly, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock of Sealy Corporation other than Zell/Chilmark Fund, L.P. (vi) For purposes of this Subsection 6(d), the words "Continuing Directors" mean individuals who at the beginning of any - -------------------------------------------------------------------------------- Page 15 - -------------------------------------------------------------------------------- period (not including any period prior to the date of this Agreement) of one (1) year constitute the Board and any new director(s) whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least a majority of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved. (e) Section 16 Protection. If the Employee is subject to Section 16 --------------------- of the Securities Exchange Act of 1934 ("Section 16"), then to the extent the Employee would be deprived of the benefits of the equity considerations described herein or under any of the Pre- existing Agreements or under the 1989, 1992 or 1997 Stock Option Plan or the 1996 Transitional Restricted Stock Plan, as described above, or any other plan or arrangement regarding stock of the Company, by reason of such Section 16 or the Rules issued thereunder, the Employee shall be provided with the alternative of receiving a cash payment approximating the loss of such benefits under a cash compensation plan implemented by the Company. The Company agrees to have this Agreement, and specifically this Section 6 approved by the Board in compliance with Section 16 and Rule 16b-3 thereunder to ensure its enforceability. 7. SEVERANCE PLAN. It is the intention of the Parties that this -------------- Agreement provide special benefits to the Employee. If at any time the Company's Executive Severance Benefit Plan would provide better cash severance benefits to the Employee than this Agreement, the Employee may elect to receive such better cash severance benefits in lieu of the cash severance benefits provided under Subsections 5(a)(i) and 5(a)(ii), or Subsection 5(a)(v), of this Agreement, whichever is applicable, while continuing to receive any other benefits or coverages available under this Agreement. If this Agreement would provide better cash severance benefits to the Employee than the Company's Executive Severance Benefit Plan, the Employee shall receive the cash severance benefits under this Agreement, as well as any other benefits or coverages available under this Agreement. In such case, the cash severance benefits under this Agreement shall be in lieu of the cash severance benefits payable under the Company's Executive Severance Benefit Plan. 8. PLAN AMENDMENTS. To the extent any provisions of this Agreement --------------- modify the terms of any existing plan, policy or arrangement affecting the compensation or benefits of the Employee, as appropriate, (a) such modification as set forth herein shall be deemed an amendment to such plan, policy or arrangement as to the Employee, and both the Company and the Employee hereby consent to such amendment, (b) the Company will appropriately modify such plan, policy or arrangement to correspond to this Agreement with respect to the Employee, or (c) the Company will provide an "Alternative Benefit," as defined in Section 14 hereof, to or on - -------------------------------------------------------------------------------- Page 16 - -------------------------------------------------------------------------------- behalf of the Employee in accordance with the provisions of such Section 14. 9. CONFIDENTIAL INFORMATION. The Employee agrees that the Employee ------------------------ will not, during the Employment Term or at any time thereafter, either directly or indirectly, disclose or make known to any other person, firm, or corporation any confidential information, trade secret or proprietary information of the Company that the Employee may acquire in the performance of the Employee's duties hereunder (except in good faith in the ordinary course of business for the Company to a person who will be advised by the Employee to keep such information confidential) or make use of any of such confidential information except in the performance of the Employee's duties or when required to do so by legal process, by any governmental agency having supervisory authority over the business of the Company or by any administrative or legislative body (including a committee thereof) that requires the Employee to divulge, disclose or make accessible such information. In the event that the Employee is so ordered, the Employee shall so advise the Company in order to allow the Company the opportunity to object to or otherwise resist such order. Upon the termination of the Employee's employment with the Company, the Employee agrees to deliver forthwith to the Company any and all proprietary literature, documents, correspondence, and other proprietary materials and records furnished to or acquired by the Employee during the course of such employment. In the event of a breach or threatened breach of this Section 9 by the Employee, the Company will be entitled to preliminary and permanent injunctive relief, without bond or security, sufficient to enforce the provisions hereof and the Company will be entitled to pursue such other remedies at law or in equity which it deems appropriate. 10. NON-COMPETITION. In consideration of this Agreement, the --------------- Employee agrees that, during the Employment Term, and for one year thereafter, unless the Employee has waived the Transaction Bonus and the equity considerations described in Subsections 6(b) and 6(c), the Employee shall not act as a proprietor, investor, director, officer, employee, substantial stockholder, consultant, or partner in any business engaged to a material extent in the manufacture or sale of (a) mattresses or other bedding products or (b) any other products which constitute more than ten percent (10%) of the Company's revenues at the time in direct competition with the Company in any market. If, however, the Employee has waived the Transaction Bonus and the equity considerations described in Subsections 6(b) and 6(c), this covenant not to compete shall be void upon the Employee's termination of employment. The Employee understands that the foregoing restrictions may limit the Employee's ability to engage in certain business pursuits during the period provided for above, but acknowledges that the Employee will receive sufficiently higher remuneration and other benefits from the Company hereunder than the Employee would otherwise receive to justify such restriction. The Employee acknowledges that the Employee understands the effect of the provisions of this Section 10, and that the Employee has had reasonable time to consider the effect of these provisions, and that the Employee was encouraged to and had an opportunity to consult an attorney with respect to these provisions. The Company and the Employee consider the restrictions contained in this Section 10 to be reasonable and necessary. Nevertheless, if any aspect of these restrictions is found to be unreasonable or otherwise unenforceable by a court of - -------------------------------------------------------------------------------- Page 17 - -------------------------------------------------------------------------------- competent jurisdiction, the Parties intend for such restrictions to be modified by such court so as to be reasonable and enforceable and, as so modified by the court, to be fully enforced. In the event of a breach or threatened breach of this Section 10 by the Employee, the Company will be entitled to preliminary and permanent injunctive relief, without bond or security, sufficient to enforce the provisions hereof and the Company will be entitled to pursue such other remedies at law or in equity which it deems appropriate. During the ten (10) day period ending on the date of a Change of Control, the Employee may, by written notice to the Company, elect to waive his Transaction Bonus and the equity considerations described in Subsections 6(b) and 6(c). Such waiver shall be irrevocable. In the event of such a waiver, the Employee's agreement not to compete with the Company as set forth in this Section 10 shall be void upon his termination of employment. 11. NOTICES. For purposes of this Agreement, all communications ------- provided for herein shall be in writing and shall be deemed to have been duly given when hand delivered or mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows: (a) If the notice is to the Company: Mr. Ronald L. Jones Chief Executive Officer Sealy Corporation 1228 Euclid Avenue - Tenth Floor Cleveland, Ohio 44115-1886 With a copy to: Kenneth Walker, Esq. Vice President and General Counsel Sealy Corporation 1228 Euclid Avenue - Tenth Floor Cleveland, Ohio 44115-1886 (b) If the notice is to the Employee: __________________________ __________________________ __________________________ or to such other address as either party may have furnished to the other in writing and in accordance herewith; except that notices of change of address shall be effective only upon receipt. 12. ASSIGNMENT; BINDING EFFECT. This Agreement shall be binding upon -------------------------- and inure to the benefit of the parties to this Agreement and their respective - -------------------------------------------------------------------------------- Page 18 - -------------------------------------------------------------------------------- successors, heirs (in the case of the Employee) and permitted assigns. No rights or obligations of the Company under this Agreement may be assigned or transferred by the Company except that such rights or obligations may be assigned or transferred in connection with the sale or transfer of all or substantially all of the assets of the Company, provided that the assignee or transferee is the successor to all or substantially all of the assets of the Company and such assignee or transferee expressly assumes the liabilities, obligations and duties of the Company, as contained in this Agreement, either contractually or as a matter of law. The Company further agrees that, in the event of a sale or transfer of assets as described in the preceding sentence, it shall be a condition precedent to the consummation of any such transaction that the assignee or transferee expressly assumes the liabilities, obligations and duties of the Company hereunder. No rights or obligations of the Employee under this Agreement may be assigned or transferred by the Employee other than the Employee's rights to compensation and benefits, which may be transferred only by will or operation of law, except as provided in this Section 12. The Employee shall be entitled, to the extent permitted under any applicable law, to select and change a beneficiary or beneficiaries to receive any compensation or benefits payable hereunder following the Employee's death by giving the Company written notice thereof. In the absence of such a selection, any compensation or benefit payable under this Agreement following the death of the Employee shall be payable to the Employee's spouse, or if such spouse shall not survive the Employee, to the Employee's estate. In the event of the Employee's death or a judicial determination of his incompetence, reference in this Agreement to the Employee shall be deemed, where appropriate, to refer to the Employee's beneficiary, estate or other legal representative. 13. INVALID PROVISIONS. Any provision of this Agreement that is ------------------ prohibited or unenforceable shall be ineffective to the extent, but only to the extent, of such prohibition or unenforceability without invalidating the remaining portions hereof and such remaining portions of this Agreement shall continue to be in full force and effect. In the event that any provision of this Agreement shall be determined to be invalid or unenforceable, the Parties will negotiate in good faith to replace such provision with another provision that will be valid or enforceable and that is as close as practicable to the provisions held invalid or unenforceable. 14. ALTERNATIVE SATISFACTION OF COMPANY'S OBLIGATIONS. In the event ------------------------------------------------- this Agreement provides for payments or benefits to or on behalf of the Employee which cannot be provided under the Company's benefit plans, policies or arrangements either because such plans, policies or arrangements no longer exist or no longer provide such benefits or because provision of such benefits to the Employee would adversely affect the tax qualified or tax advantaged status of such plans, policies or arrangements for the Employee or other participants therein, the Company may provide the Employee with an "Alternative Benefit," as defined in this Section 14, in lieu thereof. The Alternative Benefit is a benefit or payment which places the Employee and the Employee's dependents in at least as good of an economic position as if the benefit promised by this Agreement (a) were provided exactly as called for by this Agreement, - -------------------------------------------------------------------------------- Page 19 - -------------------------------------------------------------------------------- and (b) had the favorable economic, tax and legal characteristics customary for plans, policies or arrangements of that type. Furthermore, if such adverse consequence would affect the Employee or the Employee's dependents, the Employee shall have the right to require that the Company provide such an Alternative Benefit. 15. ENTIRE AGREEMENT, MODIFICATION. Subject to the provisions of ------------------------------ Section 16 hereof, this Agreement contains the entire agreement between the Parties with respect to the employment of the Employee by the Company and supersedes all prior and contemporaneous agreements, representations, and understandings of the Parties, whether oral or written. No modification, amendment, or waiver of any of the provisions of this Agreement shall be effective unless in writing, specifically referring hereto, and signed by both Parties. 16. NON-EXCLUSIVITY OF RIGHTS. Notwithstanding the foregoing ------------------------- provisions of Section 15, nothing in this Agreement shall prevent or limit the Employee's continuing or future participation in any benefit, bonus, incentive or other plan, program, policy or practice provided by the Company for its executive officers, nor shall anything herein limit or otherwise affect such rights as the Employee has or may have under any stock option, restricted stock or other agreements with the Company or any of its subsidiaries. Amounts which the Employee or the Employee's dependents or beneficiaries are otherwise entitled to receive under any such plan, policy, practice or program shall not be reduced by this Agreement except as provided in Section 7 hereof with respect to payments under the Executive Severance Benefit Plan if cash payments of annual base salary are made hereunder. 17. WAIVER OF BREACH. The failure at any time to enforce any of the ---------------- provisions of this Agreement or to require performance by the other party of any of the provisions of this Agreement shall in no way be construed to be a waiver of such provisions or to affect either the validity of this Agreement or any part of this Agreement or the right of either party thereafter to enforce each and every provision of this Agreement in accordance with the terms of this Agreement. 18. GOVERNING LAW. This Agreement has been made in, and shall be ------------- governed and construed in accordance with the laws of, the State of Ohio. The Parties agree that this Agreement is not an "employee benefit plan" or part of an "employee benefit plan" which is subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended. 19. TAX WITHHOLDING. The Company may withhold from any amounts --------------- payable under this Agreement such federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. Where withholding applies to Class A Shares, the Company shall make cashless withholding available to the Employee. 20. EXPENSE OF ENFORCEMENT. The Company shall reimburse reasonable ---------------------- attorney fees and expenses incurred by the Employee to enforce the provisions of this Agreement, even if his claims are not successful, provided they are - -------------------------------------------------------------------------------- Page 20 - -------------------------------------------------------------------------------- not ultimately determined by the court to be frivolous. 21. REPRESENTATION. The Company represents and warrants that it is -------------- fully authorized and empowered to enter into this Agreement and that the performance of its obligations under this Agreement will not violate any agreement between it and any other person, firm or organization. 22. SUBSIDIARIES AND AFFILIATES. Notwithstanding any contrary --------------------------- provision of this Agreement, to the extent it does not adversely affect the Employee, the Company may provide the compensation and benefits to which the Employee is entitled hereunder through one or more subsidiaries or affiliates, including, without limitation, Sealy, Inc. 23. NO MITIGATION OR OFFSET. In the event of any termination of ----------------------- employment, the Employee shall be under no obligation to seek other employment. Amounts due the Employee under this Agreement shall not be offset by any remuneration attributable to any subsequent employment he may obtain. 24. SOLE REMEDY. The Parties agree that the remedies of each against ----------- the other for breach of this Agreement shall be limited to enforcement of this Agreement and recovery of the amounts and remedies provided for herein. The Parties, however, further agree that such limitation shall not prevent either Party from proceeding against the other to recover for a claim other than under this Agreement. IN WITNESS WHEREOF, the Company and the Employee have executed this Agreement as of the day and year first above written. SEALY CORPORATION By: /s/ KENNETH L. WALKER _______________________ KENNETH L. WALKER Vice President, General Counsel & Secretary EMPLOYEE /s/ DOUGLAS FELLMY _______________________ EX-10.11 17 EMPLOYMENT AGREEMENT (D. MC ILQUHAM) - -------------------------------------------------------------------------------- Page 1 - -------------------------------------------------------------------------------- EXHIBIT 10.11 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT is entered into as of the 28th day of August, 1997, by and between SEALY CORPORATION, a Delaware corporation (the "Company"), and DAVID J. MCILQUHAM (the "Employee"). W I T N E S S E T H: WHEREAS, the Company and the Employee (collectively "the Parties") desire to enter into this Employment Agreement (the "Agreement") as hereinafter set forth; NOW, THEREFORE, the Company and Employee agree as follows: 1. EMPLOYMENT TERM. --------------- (a) During the period specified in Subsection l(b) hereof (the "Employment Term"), the Company shall employ the Employee, and the Employee shall serve the Company, as VP, Marketing, based on the terms and subject to the conditions set forth herein. (b) The Employment Term shall commence on the date of this Agreement. Thereafter it shall end as follows: (i) there shall be an initial period ending on the second (2nd) anniversary of the date of this Agreement, subject to the provision of Subsection 1(b)(ii) below; (ii) after the first anniversary of the date of this Agreement, the Employment Term shall be extended one calendar day for each calendar day that the Employee is employed by the Company after such first anniversary so that the remaining Employment Term after such first anniversary shall always be one (1) year; and (iii) provided that the Employment Term may terminate prior to the date specified above in this Subsection 1(b) as provided in Section 4 hereof. 2. POSITION, DUTIES, AND RESPONSIBILITIES. At all times during the -------------------------------------- Employment Term, the Employee shall: (a) Hold the position of VP, Marketing reporting to the Chief Executive Officer of the Company (the "Chief Executive - -------------------------------------------------------------------------------- Page 2 - -------------------------------------------------------------------------------- Officer"); (b) Have those duties and responsibilities, and the authority, customarily possessed by the VP, Marketing of a major corporation and such additional duties as may be assigned to the Employee from time to time by the Board of Directors of the Company (the "Board") or the Chief Executive Officer which are consistent with the position of VP, Marketing of a major corporation; (c) Adhere to such reasonable written policies and directives, and such reasonable unwritten policies and directives as are of common knowledge to executive officers of the Company, as may be promulgated from time to time by the Board or the Chief Executive Officer and which are applicable to executive officers of the Company; (d) Invest in the Company only in accordance with any insider trading policy of the Company in effect at the time of the investment; and (e) Devote the Employee's entire business time, energy, and talent to the business, and to the furtherance of the purposes and objectives, of the Company, and neither directly nor indirectly act as an employee of or render any business, commercial, or professional services to any other person, firm or organization for compensation, without the prior written approval of the Board or the Chief Executive Officer. Nothing in this Agreement shall preclude the Employee from devoting reasonable periods of time to charitable and community activities or the management of the Employee's investment assets, provided such activities do not interfere with the performance by the Employee of the Employee's duties hereunder. 3. SALARY, BONUS AND BENEFITS. For services rendered by the Employee on -------------------------- behalf of the Company during the Employment Term, the following salary, bonus and benefits shall be provided to the Employee by the Company: (a) The Company shall pay to the Employee, in equal installments, according to the Company's then current practice for paying its executive officers in effect from time to time during the Employment Term, an annual base salary at the initial rate of Two Hundred Thousand Dollars ($200,000.00). This salary shall be subject to annual review, in December of each year commencing in December 1997, by the Human Resources Committee of the Board (the "Committee) and may be increased, but not decreased, to the extent, if any, that the Committee may - -------------------------------------------------------------------------------- Page 3 - -------------------------------------------------------------------------------- determine. (b) The Employee shall participate in the Sealy Corporation Annual Bonus Plan (the "Bonus Plan") in accordance with the provisions of that Plan as in effect as of the date of this Agreement. The Employee's Target annual bonus, as established by the Committee under the Bonus Plan as of the date of this Agreement, is thirty- five percent (35%) (his "Target Annual Bonus Percentage") of annual base salary, with a range of zero percent (0%) to seventy percent (70%) of annual base salary. (c) The Employee shall be eligible for participation in such other benefit plans, including, but not limited to, the Company's Profit Sharing Plan and Trust, Executive Severance Benefit Plan, Benefit Equalization Plan, Short-Term and Long Term Disability Plans, Group Term Life Insurance Plan, Medical Plan or PPO, Dental Plan, the 401(k) feature of the Profit Sharing Plan, the 1996 Transitional Restricted Stock Plan and the 1997 Stock Option Plan, as the Board may adopt from time to time and in which the Company's executive officers are eligible to participate. Such participation shall be subject to the terms and conditions set forth in the applicable plan documents. As is more fully set forth in Section 7 hereof, the Employee shall not be entitled to duplicative payments under this Agreement and the Executive Severance Benefit Plan. (d) Without limiting the generality of Subsection 3(c) above, for so long as such coverage shall be available to the executive officers of the Company, the Employee shall be eligible to participate in the Company's Group Term Life Insurance Plan with a death benefit to be provided at the level of one and one half (1 1/2) times annual base salary at Company expense, plus extended coverage with a death benefit to be provided of at least the level in effect on the date of this Agreement for the Employee under such Plan at the Employee's discretion and expense. (e) The Employee shall be entitled to take, during each one-year period commencing with December 1, 1996, during the Employment Term, vacation time equal to at least the greater of (i) the amount of vacation time to which the Employee is entitled per year as of the date of this Agreement, or (ii) the amount of vacation time to which the Employee would have become entitled if the Company's vacation policy in effect as of the date of this Agreement and which is applicable to its executive officers remained in effect throughout the Employment Term. (f) In addition, the Parties do hereby further confirm the Employee's - -------------------------------------------------------------------------------- Page 4 - -------------------------------------------------------------------------------- entitlement to a number of restricted shares of Class A Common Stock of the Company ("Class A Shares"), as well as options to purchase additional Class A Shares pursuant to various benefit plans or agreements with the Company. The Parties agree that (a) such restricted Class A Shares and such options are in addition to, and not in lieu of, any shares or options which may be granted under any other plan or arrangement of the Company after the date of this Agreement, and (b) the various restricted stock agreements and stock option agreements, and any related Stockholder Agreement (the "Stockholder Agreement") between the Parties (such agreements being hereinafter referred to collectively as the "Pre-existing Agreements"), all remain in full force and effect except as otherwise provided herein. Notwithstanding the foregoing, to the extent that any provision contained herein is inconsistent with the terms of any of the Pre-existing Agreements, the terms of this Agreement shall be controlling. 4. TERMINATION OF EMPLOYMENT. As indicated in Subsection 1(b)(iii), the ------------------------- Employment Term may terminate prior to the date specified in Subsections 1(b)(i) and 1(b)(ii) as follows: (a) The Employee's employment hereunder will terminate without further notice upon the death of the Employee. (b) The Company may terminate the Employee's employment hereunder effective immediately upon giving written notice of such termination for "Cause". For these purposes, "Cause" shall mean the following: (i) Commission by the Employee (evidenced by a conviction or written, voluntary and freely given confession) of a criminal act constituting a felony; (ii) Commission by the Employee of a material breach or material default of any of the Employee's agreements or obligations under any provision of this Agreement, including, without limitation, the Employee's agreements and obligations under Subsections 2(a) through 2(e) and Sections 9 and 10 of this Agreement, which is not cured in all material respects within thirty (30) days after the Chief Executive Officer or the designee thereof gives written notice thereof to the Employee; or (iii) Commission by the Employee, when carrying out the Employee's duties under this Agreement, of acts or the omission of any act, which both: (A) constitutes gross negligence or willful misconduct and (B) results in material - -------------------------------------------------------------------------------- Page 5 - -------------------------------------------------------------------------------- economic harm to the Company or has a materially adverse effect on the Company's operations, properties or business relationships. (c) The Employee's employment hereunder may be terminated by the Company upon the Employee's disability, if the Employee is prevented from performing the Employee's duties hereunder by reason of physical or mental incapacity for a period of one hundred eighty (180) consecutive days in any period of two consecutive fiscal years of the Company, but the Employee shall be entitled to full compensation and benefits hereunder until the close of such one hundred and eighty (180) day period. (d) The Company may terminate the Employee's employment hereunder without Cause at any time upon thirty (30) days written notice. (e) The Employee may terminate employment hereunder effective immediately upon giving written notice of such termination for "Good Reason", as defined in Subsection 4(g) below. (f) The Employee may terminate employment hereunder without Good Reason at any time upon thirty (30) days written notice. (g) For purposes of this Agreement, "Good Reason" means the occurrence of (i) any reduction in either the annual base salary of the Employee or the Target Annual Bonus Percentage or maximum annual bonus percentage applicable to the Employee under the Bonus Plan, (ii) any material reduction in the position, authority or office of the Employee, (iii) any material reduction in the Employee's responsibilities or duties for the Company, (iv) any material adverse change or reduction in the aggregate "Minimum Benefits," as hereinafter defined, provided to the Employee as of the date of this Agreement (provided that any material reduction in such aggregate Minimum Benefits that is required by law or applies generally to all employees of the Company shall not constitute "Good Reason" as defined hereunder), (v) any relocation of the Employee's principal place of work with the Company to a place more than twenty-five (25) miles from the geographical center of Cleveland, Ohio, other than a relocation to a location which is within twenty-five (25) miles from the geographic center of Greensboro, North Carolina, or (vi) the material breach or material default by the Company of any of its agreements or obligations under any provision of this Agreement. As used in this Subsection 4(g), an "adverse change or material reduction" in the aggregate Minimum Benefits shall be deemed to result from any reduction or any series of reductions which, in the aggregate, exceeds five - -------------------------------------------------------------------------------- Page 6 - -------------------------------------------------------------------------------- percent (5%) of the value of such aggregate Minimum Benefits determined as of the date of this Agreement. As used in this Subsection 4(g), Minimum Benefits are life insurance, accidental death, long term disability, short term disability, medical, dental, and vision benefits and the Company's expense reimbursement policy. The Employee shall give written notice to the Company on or before the date of termination of employment for Good Reason stating that the Employee is terminating employment with the Company and specifying in detail the reasons for such termination. If the Company does not object to such notice by notifying the Employee in writing within five (5) days following the date of the Company's receipt of the Employee's notice of termination, the Company shall be deemed to have agreed that such termination was for Good Reason. The parties agree that "Good Reason" will not be deemed to have occurred merely because the Company becomes a subsidiary or division of another entity following a "Change of Control," as hereinafter defined, provided the Employee continues to serve as the VP, Marketing of such subsidiary or division and such subsidiary or division is comparable in size to the organization consisting of the Company and its subsidiaries. The parties further agree that "Good Reason" will be deemed to have occurred if the purchaser, in a Change of Control transaction, does not assume this Agreement in accordance with Section 12 hereof. 5. SEVERANCE COMPENSATION. If the Employee's employment is terminated, ---------------------- the following severance provisions will apply: (a) If the Employee's employment is terminated by the Company other than for Cause or is terminated by the Employee for Good Reason, then, through the remaining Employment Term as specified in Subsection 1(b) hereof, determined without regard to Subsection 1(b)(iii) hereof, (such remaining Employment Term calculated without regard to Subsection 1(b)(iii), and without regard to whether the Employee elects accelerated payments of the Employee's annual base salary and bonus in accordance with Subsection 5(a)(v), is hereinafter referred to as the "Payment Term") the Company shall: (i) continue to pay the Employee's annual base salary in the then prevailing amount and at the times specified in Subsection 3(a) hereof, or if such annual base salary has decreased during the one year period ending on the Employee's termination of employment, at the highest rate in effect during such one year period; (ii) continue the Employee's participation in the Bonus Plan as - -------------------------------------------------------------------------------- Page 7 - -------------------------------------------------------------------------------- provided in Subsection 3(b) hereof provided that the Company will: (A) pay the Employee a bonus under the Bonus Plan for the partial year period ending on the date of the Employee's termination of employment calculated as if the Employee had continued to be employed for the entire year except that the Employee's bonus percentage (calculated at the time and in the manner customary as of the date of this Agreement, but disregarding the termination of employment of the Employee) shall be applied to the Employee's annual base salary payable in accordance with Subsection 3(a) hereof for the partial year period ending on the Employee's termination of employment; and (B) thereafter, during the remainder of the Payment Term, a bonus equal to the Employee's Target Annual Bonus Percentage, multiplied by the Employee's annual base salary in the amount specified in Subsection 5(a)(i) payable during the year (or portion thereof) for which the bonus is being calculated; with such amounts being payable when bonuses under the Bonus Plan are customarily payable, except that the final bonus shall be payable with the final payment of the annual base salary under Subsection 5(a)(i) hereof; (iii) continue in effect the medical and dental coverage, long and short-term disability protection, and any life insurance protection (including life insurance protection being paid for by the Employee), being provided to the Employee immediately prior to the Employee's termination of employment, or if any of such benefits have decreased during the one year period ending on the Employee's termination of employment, at the highest level in effect during such one year period; (iv) pay for executive outplacement services for the Employee from a nationally recognized executive outplacement firm at the level provided for vice-presidents of major corporations, provided that such outplacement services will be provided for a one year period commencing on the date of termination of employment regardless of the Payment Term; and (v) In lieu of the payments described in Subsections 5(a)(i) and - -------------------------------------------------------------------------------- Page 8 - -------------------------------------------------------------------------------- 5(a)(ii) hereof, at the Employee's request, submitted in writing to the Company within five (5) business days after the date of the Employee's termination of employment: (A) the Company will pay the total of the Employee's annual base salary payments described in Subsection 5(a)(i) in a single sum within thirty (30) days following the Employee's termination of employment; and (B) his Bonus Plan payments described in Subsection 5(a)(ii) shall be made at the same time as the Employee's payment under Subsection 5(a)(vi)(A) but shall be calculated using the Employee's Target Annual Bonus Percentage for all calculation purposes. (b) If the Employee's employment hereunder terminates due to the Employee's death, disability, termination by the Company for Cause or termination by the Employee other than for Good Reason, then no further compensation or benefits will be provided to the Employee by the Company under this Agreement following the date of such termination of employment other than payment of compensation earned to the date of termination of employment but not yet paid. As more fully and generally provided in Section 16 hereof, this Subsection 5(b) shall not be interpreted to deny the Employee any benefits to which he may be entitled under any plan or arrangement of the Company applicable to the Employee. Likewise, this Subsection 5(b) shall not be interpreted to entitle the Employee to a bonus under the Bonus Plan following his termination of employment except as provided in the Bonus Plan which requires employment on the last day of the Company's taxable year as a condition to receipt of a bonus thereunder for such year except in the cases of death, disability or retirement at or after either age 62 with ten years of service or age 65. (c) Notwithstanding anything contained in this Agreement to the contrary, other than Section 16 hereof, if the Employee breaches any of the Employee's obligations under Section 9 or 10 hereof, no further severance payments or other benefits will be payable to the Employee under this Section 5. 6. CHANGE OF CONTROL. ----------------- (a) In General. In the event of a Change of Control as defined in ---------- this Section 6, the Employee shall become entitled to certain special benefits and shall have certain special protections so that he may - -------------------------------------------------------------------------------- Page 9 - -------------------------------------------------------------------------------- more fully focus on the issues related to such a Change of Control, and to reward the Employee for the substantial additional effort involved in a Change of Control. The special benefits and protections are set forth in this Section 6. (b) Transaction Bonus. In the event of a Change of Control, then ----------------- subject to the requirements set forth in this Subsection 6(b), the Employee will receive a cash transaction bonus (the "Transaction Bonus") calculated and payable as follows: (i) If the Employee is employed by the Company on the date of the Change of Control, the total amount of the Transaction Bonus shall be equal to one hundred and fifty percent (150%) of his annual base salary in the then prevailing amount specified in Subsection 3(a) hereof, or if such annual base salary has decreased during the one year period ending on his termination of employment, at the highest rate in effect during such one year period; and (ii) If the Employee is employed by the Company on the date of the Change of Control and either is employed by the Company on the first anniversary thereof or is not employed by the Company on such first anniversary due to the Employee's death or disability, the Transaction Bonus shall be payable as follows: (A) If the Employee is employed by the Company on the day of the Change of Control, one-half (1/2) of the Transaction Bonus shall be payable to the Employee on such date; and (B) If the Employee is employed by the Company on the first anniversary of the Change of Control, the other one-half (1/2) of the Transaction Bonus shall be payable to the Employee on such date. (C) Furthermore, if the Employee is employed by the Company on the date of the Change of Control but, due to the Employee's death or disability, the Employee is no longer employed by the Company on the first anniversary thereof, the Employee (or the Employee's beneficiary in the event of the Employee's death) shall nonetheless be entitled to the other one-half (1/2) of the Transaction Bonus, which amount shall be payable on such first anniversary. - -------------------------------------------------------------------------------- Page 10 - -------------------------------------------------------------------------------- (iii) If the Employee is not employed by the Company on either or both of the date of the Change of Control and the date of the first anniversary thereof due to the Employee's termination by the Company other than for Cause or due to the Employee's termination of employment for Good Reason, but if the Employee's Payment Term includes either or both such dates, the Employee shall nonetheless be entitled to the Transaction Bonus which would otherwise be payable on the date or dates which are included in such Payment Term even though the Employee is no longer then employed by the Company. Any Transaction Bonus payable in accordance with this Subsection 6(b)(iii) shall be in an amount, and shall be payable on a date, determined in accordance with Subsection 6(b)(iv) or 6(b)(v), whichever is applicable. (iv) If the Employee is not employed by the Company on the date of the Change of Control, but a Transaction Bonus is payable to the Employee in accordance with Subsection 6(b)(iii) hereof, the following shall apply: (A) The Transaction Bonus shall be in the amount calculated in accordance with Subsection 6(b)(i); (B) The Transaction Bonus shall be paid in full to the Employee (or the Employee's beneficiary in the event of the Employee's death) on the date of the Change of Control; and (C) On the date of the Change of Control, the Employee (or the Employee's personal representative or beneficiary in the event of the Employee's death) shall assign to the Company the Employee's restricted Class A Shares and the Employee's stock options for Class A Shares and any other Class A Shares or equity interest in the Company which the Employee may then own, regardless of how the Employee may have acquired such restricted stock, options, Class A Shares or equity interest. In exchange therefore, the Company shall pay to the Employee (or the Employee's beneficiary in the event of the Employee's death), on such date, an amount equal to the value of the Employee's restricted Class A Shares and the Employee's stock options for Class A Shares, to the extent such options are exercisable and such restricted stock is vested, and any other Class A Shares or equity interest in the Company - -------------------------------------------------------------------------------- Page 11 - -------------------------------------------------------------------------------- which the Employee may then own. Such value shall be calculated using the Class A Share Change of Control Valuation as hereinafter defined. The value of the exercisable stock options for this purpose shall be the amount by which the value of the Class A Shares, as so determined, exceeds the exercise price. (v) If the Employee is employed by the Company on the date of the Change of Control but not on the first anniversary thereof, but a Transaction Bonus is payable to the Employee in accordance with Subsection 6(b)(iii) hereof, the following shall apply: (A) The Transaction Bonus shall be in the amount calculated in accordance with Subsection 6(b)(i); and (B) The portion of the Transaction Bonus remaining unpaid upon the Employee's termination of employment with the Company shall be paid to the Employee (or the Employee's beneficiary in the event of the Employee's death) within ten (10) days following such termination of employment. (vi) Notwithstanding anything contained in this Agreement to the contrary, if the Employee breaches any of the Employee's obligations under Section 9 or 10 hereof, no further Transaction Bonus payments will be payable to the Employee. (c) Equity Considerations. If the Employee is employed by the --------------------- Company on the day of the Change of Control, the Employee shall receive the following equity considerations: (i) all restricted stock of the Company, owned by the Employee on the date of the Change of Control, regardless of whether acquired under the 1996 Transitional Restricted Stock Plan or under an individual agreement with the Company or otherwise, will become and remain one hundred percent (100%) vested; (ii) all stock options for Class A Shares of the Company, owned by the Employee on the date of the Change of Control, regardless of whether acquired under the 1989, 1992 or 1997 Stock Option Plan or under an individual agreement with the Company or otherwise, will immediately become and remain throughout the full remaining term of such - -------------------------------------------------------------------------------- Page 12 - -------------------------------------------------------------------------------- options one hundred percent (100%) vested and fully exercisable, and such exercise then and thereafter shall be available on a cashless basis such that the Employee may receive the net value of the Employee's options (represented by the amount by which the fair market value of the Class A Shares exceeds the exercise price) in cash or Class A Shares as the Employee shall elect, without outlay of cash but net of all applicable withholding taxes, which taxes shall be remitted by the Company to the proper taxing authorities; (iii) upon any such Change of Control transaction, all limitations, restrictions or conditions relating to the Employee's rights to receive, vote, own and/or transfer any Class A Shares contained in any of the Pre-existing Agreements or contained in any other document, agreement or plan shall terminate and shall be of no further force and effect, except for any registration rights in effect; and (iv) if permitted by the purchaser in the Change of Control transaction (the "Purchaser"), the Company will provide for the Employee the opportunity to convert all or a portion, as he shall elect, of the Employee's options to purchase Class A Shares as well as Class A Shares then owned by the Employee, into an equity investment in the entity resulting from Purchaser's transaction (the "Successor") on a tax favored basis. The amount available for such investment shall be an amount calculated on the basis of the per Share price paid in the Change of Control transaction or series of transactions or implicit in the valuation of the Change of Control transaction, including all elements of consideration paid or payable (the "Change of Control Valuation"). (v) If the Purchaser in the Change of Control transaction does not permit the Employee to convert (or the Employee chooses not to convert) all (or a portion) of the Employee's options to purchase Class A Shares and Class A Shares then owned by the Employee into equity in the Successor, then the Employee shall exercise, at the time of the Change of Control, all options the Employee holds for Class A Shares (such exercise to provide cash rather than Class A Shares to the Employee in accordance with the exercise procedure described in Subsection 6(c)(ii) hereof), and shall sell to the Company at the time of the Change of Control all Class A Shares then owned by the Employee, to the extent such options or Class A Shares are not converted into equity - -------------------------------------------------------------------------------- Page 13 - -------------------------------------------------------------------------------- in the Successor. Such exercise of options and sale of Class A Shares shall yield an amount to the Employee determined by the Class A Share Change of Control Valuation. (d) Change of Control. For purposes of this Agreement, the words ------------------ "Change of Control" means a change in control of the Company of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended, as in effect on the date of this Agreement (the "Exchange Act"), whether or not the Company is then subject to such reporting requirements; provided, that, without limitation, a Change of Control shall be deemed to have occurred if: (i) any "person" (as defined in Sections 13(d) and 14(d) of the Exchange Act), other than Zell/Chilmark Fund, L.P., is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing twenty percent (20%) or more of the combined voting power of the Company's then outstanding securities; provided that a Change in Control shall not be deemed to occur under this clause (i) by reason of (A) the acquisition of securities by the Company or an employee benefit plan (or any trust funding such a plan) maintained by the Company, or (B) while Zell/Chilmark Fund, L.P. continues to beneficially own more than fifty percent (50%) of the combined voting power of the Company's then outstanding securities; (ii) during any period of one (1) year there shall cease to be a majority of the Board comprised of "Continuing Directors" as hereinafter defined; or (iii) the stockholders of the Company (A) approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than eighty percent (80%) of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or (B) approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of more than fifty percent (50%) of the Company's assets. - -------------------------------------------------------------------------------- Page 14 - -------------------------------------------------------------------------------- For purposes of this Subsection 6(d)(iii), a sale of more than fifty percent (50%) of the Company's assets includes a sale of more than fifty percent (50%) of the aggregate value of the assets of the Company and its subsidiaries or the sale of stock of one or more of the Company's subsidiaries with an aggregate value in excess of fifty percent (50%) of the aggregate value of the Company and its subsidiaries or any combination of methods by which more than fifty percent (50%) of the aggregate value of the Company and its subsidiaries is sold. (iv) For purposes of this Agreement, a "Change of Control" will be deemed to occur: (A) on the day on which a twenty percent (20%) or greater ownership interest described in Subsection 6(d)(i) is acquired or, if later, the day on which the Zell/Chilmark Fund, L.P. ceases to beneficially own more than fifty percent (50%) of the combined voting power of the Company's then outstanding securities, provided that a subsequent increase in such ownership interest after it first equals or exceeds twenty percent (20%) shall not be deemed a separate Change of Control; (B) on the day on which "Continuing Directors," as hereinafter defined, cease to be a majority of the Board as described in Subsection 6(d)(ii); (C) on the day of a merger, consolidation or sale or disposition of assets as described in Subsection 6(d)(iii); or (D) on the day of the approval of a plan of complete liquidation as described in Subsection 6(d)(iii). (v) For purposes of this Subsection 6(d), the word "Company" means Sealy Corporation, and, any other corporation or business organization in an unbroken chain of corporations or business organization ending with Sealy Corporation that owns, directly or indirectly, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock of Sealy Corporation other than Zell/Chilmark Fund, L.P. (vi) For purposes of this Subsection 6(d), the words "Continuing Directors" mean individuals who at the beginning of any - -------------------------------------------------------------------------------- Page 15 - -------------------------------------------------------------------------------- period (not including any period prior to the date of this Agreement) of one (1) year constitute the Board and any new director(s) whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least a majority of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved. (e) Section 16 Protection. If the Employee is subject to Section 16 --------------------- of the Securities Exchange Act of 1934 ("Section 16"), then to the extent the Employee would be deprived of the benefits of the equity considerations described herein or under any of the Pre- existing Agreements or under the 1989, 1992 or 1997 Stock Option Plan or the 1996 Transitional Restricted Stock Plan, as described above, or any other plan or arrangement regarding stock of the Company, by reason of such Section 16 or the Rules issued thereunder, the Employee shall be provided with the alternative of receiving a cash payment approximating the loss of such benefits under a cash compensation plan implemented by the Company. The Company agrees to have this Agreement, and specifically this Section 6 approved by the Board in compliance with Section 16 and Rule 16b-3 thereunder to ensure its enforceability. 7. SEVERANCE PLAN. It is the intention of the Parties that this Agreement -------------- provide special benefits to the Employee. If at any time the Company's Executive Severance Benefit Plan would provide better cash severance benefits to the Employee than this Agreement, the Employee may elect to receive such better cash severance benefits in lieu of the cash severance benefits provided under Subsections 5(a)(i) and 5(a)(ii), or Subsection 5(a)(v), of this Agreement, whichever is applicable, while continuing to receive any other benefits or coverages available under this Agreement. If this Agreement would provide better cash severance benefits to the Employee than the Company's Executive Severance Benefit Plan, the Employee shall receive the cash severance benefits under this Agreement, as well as any other benefits or coverages available under this Agreement. In such case, the cash severance benefits under this Agreement shall be in lieu of the cash severance benefits payable under the Company's Executive Severance Benefit Plan. 8. PLAN AMENDMENTS. To the extent any provisions of this Agreement modify --------------- the terms of any existing plan, policy or arrangement affecting the compensation or benefits of the Employee, as appropriate, (a) such modification as set forth herein shall be deemed an amendment to such plan, policy or arrangement as to the Employee, and both the Company and the Employee hereby consent to such amendment, (b) the Company will appropriately modify such plan, policy or arrangement to correspond to this Agreement with respect to the Employee, or (c) the Company will provide an "Alternative Benefit," as defined in Section 14 hereof, to or on - -------------------------------------------------------------------------------- Page 16 - -------------------------------------------------------------------------------- behalf of the Employee in accordance with the provisions of such Section 14. 9. CONFIDENTIAL INFORMATION. The Employee agrees that the Employee will ------------------------ not, during the Employment Term or at any time thereafter, either directly or indirectly, disclose or make known to any other person, firm, or corporation any confidential information, trade secret or proprietary information of the Company that the Employee may acquire in the performance of the Employee's duties hereunder (except in good faith in the ordinary course of business for the Company to a person who will be advised by the Employee to keep such information confidential) or make use of any of such confidential information except in the performance of the Employee's duties or when required to do so by legal process, by any governmental agency having supervisory authority over the business of the Company or by any administrative or legislative body (including a committee thereof) that requires the Employee to divulge, disclose or make accessible such information. In the event that the Employee is so ordered, the Employee shall so advise the Company in order to allow the Company the opportunity to object to or otherwise resist such order. Upon the termination of the Employee's employment with the Company, the Employee agrees to deliver forthwith to the Company any and all proprietary literature, documents, correspondence, and other proprietary materials and records furnished to or acquired by the Employee during the course of such employment. In the event of a breach or threatened breach of this Section 9 by the Employee, the Company will be entitled to preliminary and permanent injunctive relief, without bond or security, sufficient to enforce the provisions hereof and the Company will be entitled to pursue such other remedies at law or in equity which it deems appropriate. 10. NON-COMPETITION. In consideration of this Agreement, the Employee --------------- agrees that, during the Employment Term, and for one year thereafter, unless the Employee has waived the Transaction Bonus and the equity considerations described in Subsections 6(b) and 6(c), the Employee shall not act as a proprietor, investor, director, officer, employee, substantial stockholder, consultant, or partner in any business engaged to a material extent in the manufacture or sale of (a) mattresses or other bedding products or (b) any other products which constitute more than ten percent (10%) of the Company's revenues at the time in direct competition with the Company in any market. If, however, the Employee has waived the Transaction Bonus and the equity considerations described in Subsections 6(b) and 6(c), this covenant not to compete shall be void upon the Employee's termination of employment. The Employee understands that the foregoing restrictions may limit the Employee's ability to engage in certain business pursuits during the period provided for above, but acknowledges that the Employee will receive sufficiently higher remuneration and other benefits from the Company hereunder than the Employee would otherwise receive to justify such restriction. The Employee acknowledges that the Employee understands the effect of the provisions of this Section 10, and that the Employee has had reasonable time to consider the effect of these provisions, and that the Employee was encouraged to and had an opportunity to consult an attorney with respect to these provisions. The Company and the Employee consider the restrictions contained in this Section 10 to be reasonable and necessary. Nevertheless, if any aspect of these restrictions is found to be unreasonable or otherwise unenforceable by a court of - -------------------------------------------------------------------------------- Page 17 - -------------------------------------------------------------------------------- competent jurisdiction, the Parties intend for such restrictions to be modified by such court so as to be reasonable and enforceable and, as so modified by the court, to be fully enforced. In the event of a breach or threatened breach of this Section 10 by the Employee, the Company will be entitled to preliminary and permanent injunctive relief, without bond or security, sufficient to enforce the provisions hereof and the Company will be entitled to pursue such other remedies at law or in equity which it deems appropriate. During the ten (10) day period ending on the date of a Change of Control, the Employee may, by written notice to the Company, elect to waive his Transaction Bonus and the equity considerations described in Subsections 6(b) and 6(c). Such waiver shall be irrevocable. In the event of such a waiver, the Employee's agreement not to compete with the Company as set forth in this Section 10 shall be void upon his termination of employment. 11. NOTICES. For purposes of this Agreement, all communications provided ------- for herein shall be in writing and shall be deemed to have been duly given when hand delivered or mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows: (a) If the notice is to the Company: Mr. Ronald L. Jones Chief Executive Officer Sealy Corporation 1228 Euclid Avenue - Tenth Floor Cleveland, Ohio 44115-1886 With a copy to: Kenneth Walker, Esq. Vice President and General Counsel Sealy Corporation 1228 Euclid Avenue - Tenth Floor Cleveland, Ohio 44115-1886 (b) If the notice is to the Employee: _________________________________ _________________________________ _________________________________ or to such other address as either party may have furnished to the other in writing and in accordance herewith; except that notices of change of address shall be effective only upon receipt. 12. ASSIGNMENT; BINDING EFFECT. This Agreement shall be binding upon and -------------------------- inure to the benefit of the parties to this Agreement and their respective - -------------------------------------------------------------------------------- Page 18 - -------------------------------------------------------------------------------- successors, heirs (in the case of the Employee) and permitted assigns. No rights or obligations of the Company under this Agreement may be assigned or transferred by the Company except that such rights or obligations may be assigned or transferred in connection with the sale or transfer of all or substantially all of the assets of the Company, provided that the assignee or transferee is the successor to all or substantially all of the assets of the Company and such assignee or transferee expressly assumes the liabilities, obligations and duties of the Company, as contained in this Agreement, either contractually or as a matter of law. The Company further agrees that, in the event of a sale or transfer of assets as described in the preceding sentence, it shall be a condition precedent to the consummation of any such transaction that the assignee or transferee expressly assumes the liabilities, obligations and duties of the Company hereunder. No rights or obligations of the Employee under this Agreement may be assigned or transferred by the Employee other than the Employee's rights to compensation and benefits, which may be transferred only by will or operation of law, except as provided in this Section 12. The Employee shall be entitled, to the extent permitted under any applicable law, to select and change a beneficiary or beneficiaries to receive any compensation or benefits payable hereunder following the Employee's death by giving the Company written notice thereof. In the absence of such a selection, any compensation or benefit payable under this Agreement following the death of the Employee shall be payable to the Employee's spouse, or if such spouse shall not survive the Employee, to the Employee's estate. In the event of the Employee's death or a judicial determination of his incompetence, reference in this Agreement to the Employee shall be deemed, where appropriate, to refer to the Employee's beneficiary, estate or other legal representative. 13. INVALID PROVISIONS. Any provision of this Agreement that is ------------------ prohibited or unenforceable shall be ineffective to the extent, but only to the extent, of such prohibition or unenforceability without invalidating the remaining portions hereof and such remaining portions of this Agreement shall continue to be in full force and effect. In the event that any provision of this Agreement shall be determined to be invalid or unenforceable, the Parties will negotiate in good faith to replace such provision with another provision that will be valid or enforceable and that is as close as practicable to the provisions held invalid or unenforceable. 14. ALTERNATIVE SATISFACTION OF COMPANY'S OBLIGATIONS. In the event this ------------------------------------------------- Agreement provides for payments or benefits to or on behalf of the Employee which cannot be provided under the Company's benefit plans, policies or arrangements either because such plans, policies or arrangements no longer exist or no longer provide such benefits or because provision of such benefits to the Employee would adversely affect the tax qualified or tax advantaged status of such plans, policies or arrangements for the Employee or other participants therein, the Company may provide the Employee with an "Alternative Benefit," as defined in this Section 14, in lieu thereof. The Alternative Benefit is a benefit or payment which places the Employee and the Employee's dependents in at least as good of an economic position as if the benefit promised by this Agreement (a) were provided exactly as called for by this Agreement, - -------------------------------------------------------------------------------- Page 19 - -------------------------------------------------------------------------------- and (b) had the favorable economic, tax and legal characteristics customary for plans, policies or arrangements of that type. Furthermore, if such adverse consequence would affect the Employee or the Employee's dependents, the Employee shall have the right to require that the Company provide such an Alternative Benefit. 15. ENTIRE AGREEMENT, MODIFICATION. Subject to the provisions of Section ------------------------------ 16 hereof, this Agreement contains the entire agreement between the Parties with respect to the employment of the Employee by the Company and supersedes all prior and contemporaneous agreements, representations, and understandings of the Parties, whether oral or written. No modification, amendment, or waiver of any of the provisions of this Agreement shall be effective unless in writing, specifically referring hereto, and signed by both Parties. 16. NON-EXCLUSIVITY OF RIGHTS. Notwithstanding the foregoing provisions ------------------------- of Section 15, nothing in this Agreement shall prevent or limit the Employee's continuing or future participation in any benefit, bonus, incentive or other plan, program, policy or practice provided by the Company for its executive officers, nor shall anything herein limit or otherwise affect such rights as the Employee has or may have under any stock option, restricted stock or other agreements with the Company or any of its subsidiaries. Amounts which the Employee or the Employee's dependents or beneficiaries are otherwise entitled to receive under any such plan, policy, practice or program shall not be reduced by this Agreement except as provided in Section 7 hereof with respect to payments under the Executive Severance Benefit Plan if cash payments of annual base salary are made hereunder. 17. WAIVER OF BREACH. The failure at any time to enforce any of the ---------------- provisions of this Agreement or to require performance by the other party of any of the provisions of this Agreement shall in no way be construed to be a waiver of such provisions or to affect either the validity of this Agreement or any part of this Agreement or the right of either party thereafter to enforce each and every provision of this Agreement in accordance with the terms of this Agreement. 18. GOVERNING LAW. This Agreement has been made in, and shall be governed ------------- and construed in accordance with the laws of, the State of Ohio. The Parties agree that this Agreement is not an "employee benefit plan" or part of an "employee benefit plan" which is subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended. 19. TAX WITHHOLDING. The Company may withhold from any amounts payable --------------- under this Agreement such federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. Where withholding applies to Class A Shares, the Company shall make cashless withholding available to the Employee. 20. EXPENSE OF ENFORCEMENT. The Company shall reimburse reasonable ---------------------- attorney fees and expenses incurred by the Employee to enforce the provisions of this Agreement, even if his claims are not successful, provided they are - -------------------------------------------------------------------------------- Page 20 - -------------------------------------------------------------------------------- not ultimately determined by the court to be frivolous. 21. REPRESENTATION. The Company represents and warrants that it is fully -------------- authorized and empowered to enter into this Agreement and that the performance of its obligations under this Agreement will not violate any agreement between it and any other person, firm or organization. 22. SUBSIDIARIES AND AFFILIATES. Notwithstanding any contrary provision --------------------------- of this Agreement, to the extent it does not adversely affect the Employee, the Company may provide the compensation and benefits to which the Employee is entitled hereunder through one or more subsidiaries or affiliates, including, without limitation, Sealy, Inc. 23. NO MITIGATION OR OFFSET. In the event of any termination of ----------------------- employment, the Employee shall be under no obligation to seek other employment. Amounts due the Employee under this Agreement shall not be offset by any remuneration attributable to any subsequent employment he may obtain. 24. SOLE REMEDY. The Parties agree that the remedies of each against the ----------- other for breach of this Agreement shall be limited to enforcement of this Agreement and recovery of the amounts and remedies provided for herein. The Parties, however, further agree that such limitation shall not prevent either Party from proceeding against the other to recover for a claim other than under this Agreement. IN WITNESS WHEREOF, the Company and the Employee have executed this Agreement as of the day and year first above written. SEALY CORPORATION By: /s/ KENNETH L. WALKER _______________________ KENNETH L. WALKER Vice President, General Counsel & Secretary EMPLOYEE /s/ D. MCILQUHAM _______________________ EX-10.12 18 EMPLOYMENT AGREEMENT (L. ROGERS) - -------------------------------------------------------------------------------- Page 1 - -------------------------------------------------------------------------------- EXHIBIT 10.12 ------------- EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT is entered into as of the 1st day of August, 1997, by and between SEALY CORPORATION, a Delaware corporation (the "Company"), and Lawrence J. Rogers (the "Employee"). W I T N E S S E T H: WHEREAS, the Company and the Employee (collectively "the Parties") desire to enter into this Employment Agreement (the "Agreement") as hereinafter set forth; NOW, THEREFORE, the Company and Employee agree as follows: 1. EMPLOYMENT TERM. --------------- (a) During the period specified in Subsection l(b) hereof (the "Employment Term"), the Company shall employ the Employee, and the Employee shall serve the Company, as Vice President, International, based on the terms and subject to the conditions set forth herein. (b) The Employment Term shall commence on the date of this Agreement. Thereafter it shall end as follows: (i) there shall be an initial period ending on the second (2nd) anniversary of the date of this Agreement, subject to the provision of Subsection 1(b)(ii) below; (ii) after the first anniversary of the date of this Agreement, the Employment Term shall be extended one calendar day for each calendar day that the Employee is employed by the Company after such first anniversary so that the remaining Employment Term after such first anniversary shall always be one (1) year; and (iii) provided that the Employment Term may terminate prior to the date specified above in this Subsection 1(b) as provided in Section 4 hereof. 2. POSITION, DUTIES, AND RESPONSIBILITIES. At all times during the -------------------------------------- Employment Term, the Employee shall: (a) Hold the position of Vice President, International reporting to the Chief Executive Officer of the Company (the "Chief Executive - -------------------------------------------------------------------------------- Page 2 - -------------------------------------------------------------------------------- Officer"); (b) Have those duties and responsibilities, and the authority, customarily possessed by the Vice President, International of a major corporation and such additional duties as may be assigned to the Employee from time to time by the Board of Directors of the Company (the "Board") or the Chief Executive Officer which are consistent with the position of Vice President, International of a major corporation; (c) Adhere to such reasonable written policies and directives, and such reasonable unwritten policies and directives as are of common knowledge to executive officers of the Company, as may be promulgated from time to time by the Board or the Chief Executive Officer and which are applicable to executive officers of the Company; (d) Invest in the Company only in accordance with any insider trading policy of the Company in effect at the time of the investment; and (e) Devote the Employee's entire business time, energy, and talent to the business, and to the furtherance of the purposes and objectives, of the Company, and neither directly nor indirectly act as an employee of or render any business, commercial, or professional services to any other person, firm or organization for compensation, without the prior written approval of the Board or the Chief Executive Officer. Nothing in this Agreement shall preclude the Employee from devoting reasonable periods of time to charitable and community activities or the management of the Employee's investment assets, provided such activities do not interfere with the performance by the Employee of the Employee's duties hereunder. 3. SALARY, BONUS AND BENEFITS. For services rendered by the Employee -------------------------- on behalf of the Company during the Employment Term, the following salary, bonus and benefits shall be provided to the Employee by the Company: (a) The Company shall pay to the Employee, in equal installments, according to the Company's then current practice for paying its executive officers in effect from time to time during the Employment Term, an annual base salary at the initial rate of Two Hundred Forty - Nine Thousand Five Hundred Canadian Dollars (CDN $249,500). This salary shall be subject to annual review, in December of each year commencing in December 1997, by the Human Resources Committee of the Board (the "Committee) and may be increased, but not decreased, to the extent, if any, that the Committee may - -------------------------------------------------------------------------------- Page 3 - -------------------------------------------------------------------------------- determine. (b) The Employee shall participate in the Sealy Corporation Annual Bonus Plan (the "Bonus Plan") in accordance with the provisions of that Plan as in effect as of the date of this Agreement. The Employee's Target annual bonus, as established by the Committee under the Bonus Plan as of the date of this Agreement, is thirty- five percent (35%) (his "Target Annual Bonus Percentage") of annual base salary, with a range of zero percent (0%) to seventy percent (70%) of annual base salary. (c) The Employee shall be eligible for participation in such other benefit plans, including, but not limited to, the Company's Profit Sharing Plan and Trust, Executive Severance Benefit Plan, Benefit Equalization Plan, Short-Term and Long Term Disability Plans, Group Term Life Insurance Plan, Medical Plan or PPO, Dental Plan, the 401(k) feature of the Profit Sharing Plan, the 1996 Transitional Restricted Stock Plan and the 1997 Stock Option Plan, as the Board may adopt from time to time and in which the Company's executive officers are eligible to participate. Such participation shall be subject to the terms and conditions set forth in the applicable plan documents. As is more fully set forth in Section 7 hereof, the Employee shall not be entitled to duplicative payments under this Agreement and the Executive Severance Benefit Plan. (d) Without limiting the generality of Subsection 3(c) above, for so long as such coverage shall be available to the executive officers of the Company, the Employee shall be eligible to participate in the Company's Group Term Life Insurance Plan with a death benefit to be provided at the level of one and one half (1 1/2) times annual base salary at Company expense, plus extended coverage with a death benefit to be provided of at least the level in effect on the date of this Agreement for the Employee under such Plan at the Employee's discretion and expense. (e) The Employee shall be entitled to take, during each one-year period commencing with December 1, 1996, during the Employment Term, vacation time equal to at least the greater of (i) the amount of vacation time to which the Employee is entitled per year as of the date of this Agreement, or (ii) the amount of vacation time to which the Employee would have become entitled if the Company's vacation policy in effect as of the date of this Agreement and which is applicable to its executive officers remained in effect throughout the Employment Term. (f) In addition, the Parties do hereby further confirm the Employee's - -------------------------------------------------------------------------------- Page 4 - -------------------------------------------------------------------------------- entitlement to a number of restricted shares of Class A Common Stock of the Company ("Class A Shares"), as well as options to purchase additional Class A Shares pursuant to various benefit plans or agreements with the Company. The Parties agree that (a) such restricted Class A Shares and such options are in addition to, and not in lieu of, any shares or options which may be granted under any other plan or arrangement of the Company after the date of this Agreement, and (b) the various restricted stock agreements and stock option agreements, and any related Stockholder Agreement (the "Stockholder Agreement") between the Parties (such agreements being hereinafter referred to collectively as the "Pre-existing Agreements"), all remain in full force and effect except as otherwise provided herein. Notwithstanding the foregoing, to the extent that any provision contained herein is inconsistent with the terms of any of the Pre-existing Agreements, the terms of this Agreement shall be controlling. 4. TERMINATION OF EMPLOYMENT. As indicated in Subsection 1(b)(iii), ------------------------- the Employment Term may terminate prior to the date specified in Subsections 1(b)(i) and 1(b)(ii) as follows: (a) The Employee's employment hereunder will terminate without further notice upon the death of the Employee. (b) The Company may terminate the Employee's employment hereunder effective immediately upon giving written notice of such termination for "Cause". For these purposes, "Cause" shall mean the following: (i) Commission by the Employee (evidenced by a conviction or written, voluntary and freely given confession) of a criminal act constituting a felony; (ii) Commission by the Employee of a material breach or material default of any of the Employee's agreements or obligations under any provision of this Agreement, including, without limitation, the Employee's agreements and obligations under Subsections 2(a) through 2(e) and Sections 9 and 10 of this Agreement, which is not cured in all material respects within thirty (30) days after the Chief Executive Officer or the designee thereof gives written notice thereof to the Employee; or (iii) Commission by the Employee, when carrying out the Employee's duties under this Agreement, of acts or the omission of any act, which both: (A) constitutes gross negligence or willful misconduct and (B) results in material - -------------------------------------------------------------------------------- Page 5 - -------------------------------------------------------------------------------- economic harm to the Company or has a materially adverse effect on the Company's operations, properties or business relationships. (c) The Employee's employment hereunder may be terminated by the Company upon the Employee's disability, if the Employee is prevented from performing the Employee's duties hereunder by reason of physical or mental incapacity for a period of one hundred eighty (180) consecutive days in any period of two consecutive fiscal years of the Company, but the Employee shall be entitled to full compensation and benefits hereunder until the close of such one hundred and eighty (180) day period. (d) The Company may terminate the Employee's employment hereunder without Cause at any time upon thirty (30) days written notice. (e) The Employee may terminate employment hereunder effective immediately upon giving written notice of such termination for "Good Reason", as defined in Subsection 4(g) below. (f) The Employee may terminate employment hereunder without Good Reason at any time upon thirty (30) days written notice. (g) For purposes of this Agreement, "Good Reason" means the occurrence of (i) any reduction in either the annual base salary of the Employee or the Target Annual Bonus Percentage or maximum annual bonus percentage applicable to the Employee under the Bonus Plan, (ii) any material reduction in the position, authority or office of the Employee, (iii) any material reduction in the Employee's responsibilities or duties for the Company, (iv) any material adverse change or reduction in the aggregate "Minimum Benefits," as hereinafter defined, provided to the Employee as of the date of this Agreement (provided that any material reduction in such aggregate Minimum Benefits that is required by law or applies generally to all employees of the Company shall not constitute "Good Reason" as defined hereunder), (v) any relocation of the Employee's principal place of work with the Company to a place more than twenty-five (25) miles from the geographical center of Cleveland, Ohio, other than a relocation to a location which is within twenty-five (25) miles from the geographic center of Greensboro, North Carolina, or (vi) the material breach or material default by the Company of any of its agreements or obligations under any provision of this Agreement. As used in this Subsection 4(g), an "adverse change or material reduction" in the aggregate Minimum Benefits shall be deemed to result from any reduction or any series of reductions which, in the aggregate, exceeds five - -------------------------------------------------------------------------------- Page 6 - -------------------------------------------------------------------------------- percent (5%) of the value of such aggregate Minimum Benefits determined as of the date of this Agreement. As used in this Subsection 4(g), Minimum Benefits are life insurance, accidental death, long term disability, short term disability, medical, dental, and vision benefits and the Company's expense reimbursement policy. The Employee shall give written notice to the Company on or before the date of termination of employment for Good Reason stating that the Employee is terminating employment with the Company and specifying in detail the reasons for such termination. If the Company does not object to such notice by notifying the Employee in writing within five (5) days following the date of the Company's receipt of the Employee's notice of termination, the Company shall be deemed to have agreed that such termination was for Good Reason. The parties agree that "Good Reason" will not be deemed to have occurred merely because the Company becomes a subsidiary or division of another entity following a "Change of Control," as hereinafter defined, provided the Employee continues to serve as the Vice President, International of such subsidiary or division and such subsidiary or division is comparable in size to the organization consisting of the Company and its subsidiaries. The parties further agree that "Good Reason" will be deemed to have occurred if the purchaser, in a Change of Control transaction, does not assume this Agreement in accordance with Section 12 hereof. 5. SEVERANCE COMPENSATION. If the Employee's employment is terminated, ---------------------- the following severance provisions will apply: (a) If the Employee's employment is terminated by the Company other than for Cause or is terminated by the Employee for Good Reason, then, through the remaining Employment Term as specified in Subsection 1(b) hereof, determined without regard to Subsection 1(b)(iii) hereof, (such remaining Employment Term calculated without regard to Subsection 1(b)(iii), and without regard to whether the Employee elects accelerated payments of the Employee's annual base salary and bonus in accordance with Subsection 5(a)(v), is hereinafter referred to as the "Payment Term") the Company shall: (i) continue to pay the Employee's annual base salary in the then prevailing amount and at the times specified in Subsection 3(a) hereof, or if such annual base salary has decreased during the one year period ending on the Employee's termination of employment, at the highest rate in effect during such one year period; (ii) continue the Employee's participation in the Bonus Plan as - -------------------------------------------------------------------------------- Page 7 - -------------------------------------------------------------------------------- provided in Subsection 3(b) hereof provided that the Company will: (A) pay the Employee a bonus under the Bonus Plan for the partial year period ending on the date of the Employee's termination of employment calculated as if the Employee had continued to be employed for the entire year except that the Employee's bonus percentage (calculated at the time and in the manner customary as of the date of this Agreement, but disregarding the termination of employment of the Employee) shall be applied to the Employee's annual base salary payable in accordance with Subsection 3(a) hereof for the partial year period ending on the Employee's termination of employment; and (B) thereafter, during the remainder of the Payment Term, a bonus equal to the Employee's Target Annual Bonus Percentage, multiplied by the Employee's annual base salary in the amount specified in Subsection 5(a)(i) payable during the year (or portion thereof) for which the bonus is being calculated; with such amounts being payable when bonuses under the Bonus Plan are customarily payable, except that the final bonus shall be payable with the final payment of the annual base salary under Subsection 5(a)(i) hereof; (iii) continue in effect the medical and dental coverage, long and short-term disability protection, and any life insurance protection (including life insurance protection being paid for by the Employee), being provided to the Employee immediately prior to the Employee's termination of employment, or if any of such benefits have decreased during the one year period ending on the Employee's termination of employment, at the highest level in effect during such one year period; (iv) pay for executive outplacement services for the Employee from a nationally recognized executive outplacement firm at the level provided for vice-presidents of major corporations, provided that such outplacement services will be provided for a one year period commencing on the date of termination of employment regardless of the Payment Term; and (v) In lieu of the payments described in Subsections 5(a)(i) and - -------------------------------------------------------------------------------- Page 8 - -------------------------------------------------------------------------------- 5(a)(ii) hereof, at the Employee's request, submitted in writing to the Company within five (5) business days after the date of the Employee's termination of employment: (A) the Company will pay the total of the Employee's annual base salary payments described in Subsection 5(a)(i) in a single sum within thirty (30) days following the Employee's termination of employment; and (B) his Bonus Plan payments described in Subsection 5(a)(ii) shall be made at the same time as the Employee's payment under Subsection 5(a)(vi)(A) but shall be calculated using the Employee's Target Annual Bonus Percentage for all calculation purposes. (b) If the Employee's employment hereunder terminates due to the Employee's death, disability, termination by the Company for Cause or termination by the Employee other than for Good Reason, then no further compensation or benefits will be provided to the Employee by the Company under this Agreement following the date of such termination of employment other than payment of compensation earned to the date of termination of employment but not yet paid. As more fully and generally provided in Section 16 hereof, this Subsection 5(b) shall not be interpreted to deny the Employee any benefits to which he may be entitled under any plan or arrangement of the Company applicable to the Employee. Likewise, this Subsection 5(b) shall not be interpreted to entitle the Employee to a bonus under the Bonus Plan following his termination of employment except as provided in the Bonus Plan which requires employment on the last day of the Company's taxable year as a condition to receipt of a bonus thereunder for such year except in the cases of death, disability or retirement at or after either age 62 with ten years of service or age 65. (c) Notwithstanding anything contained in this Agreement to the contrary, other than Section 16 hereof, if the Employee breaches any of the Employee's obligations under Section 9 or 10 hereof, no further severance payments or other benefits will be payable to the Employee under this Section 5. 6. CHANGE OF CONTROL. ----------------- (a) In General. In the event of a Change of Control as defined in ---------- this Section 6, the Employee shall become entitled to certain special benefits and shall have certain special protections so that he may - -------------------------------------------------------------------------------- Page 9 - -------------------------------------------------------------------------------- more fully focus on the issues related to such a Change of Control, and to reward the Employee for the substantial additional effort involved in a Change of Control. The special benefits and protections are set forth in this Section 6. (b) Transaction Bonus. In the event of a Change of Control, then ----------------- subject to the requirements set forth in this Subsection 6(b), the Employee will receive a cash transaction bonus (the "Transaction Bonus") calculated and payable as follows: (i) If the Employee is employed by the Company on the date of the Change of Control, the total amount of the Transaction Bonus shall be equal to one hundred and fifty percent (150%) of his annual base salary in the then prevailing amount specified in Subsection 3(a) hereof, or if such annual base salary has decreased during the one year period ending on his termination of employment, at the highest rate in effect during such one year period; and (ii) If the Employee is employed by the Company on the date of the Change of Control and either is employed by the Company on the first anniversary thereof or is not employed by the Company on such first anniversary due to the Employee's death or disability, the Transaction Bonus shall be payable as follows: (A) If the Employee is employed by the Company on the day of the Change of Control, one-half (1/2) of the Transaction Bonus shall be payable to the Employee on such date; and (B) If the Employee is employed by the Company on the first anniversary of the Change of Control, the other one- half (1/2) of the Transaction Bonus shall be payable to the Employee on such date. (C) Furthermore, if the Employee is employed by the Company on the date of the Change of Control but, due to the Employee's death or disability, the Employee is no longer employed by the Company on the first anniversary thereof, the Employee (or the Employee's beneficiary in the event of the Employee's death) shall nonetheless be entitled to the other one-half (1/2) of the Transaction Bonus, which amount shall be payable on such first anniversary. - -------------------------------------------------------------------------------- Page 10 - -------------------------------------------------------------------------------- (iii) If the Employee is not employed by the Company on either or both of the date of the Change of Control and the date of the first anniversary thereof due to the Employee's termination by the Company other than for Cause or due to the Employee's termination of employment for Good Reason, but if the Employee's Payment Term includes either or both such dates, the Employee shall nonetheless be entitled to the Transaction Bonus which would otherwise be payable on the date or dates which are included in such Payment Term even though the Employee is no longer then employed by the Company. Any Transaction Bonus payable in accordance with this Subsection 6(b)(iii) shall be in an amount, and shall be payable on a date, determined in accordance with Subsection 6(b)(iv) or 6(b)(v), whichever is applicable. (iv) If the Employee is not employed by the Company on the date of the Change of Control, but a Transaction Bonus is payable to the Employee in accordance with Subsection 6(b)(iii) hereof, the following shall apply: (A) The Transaction Bonus shall be in the amount calculated in accordance with Subsection 6(b)(i); (B) The Transaction Bonus shall be paid in full to the Employee (or the Employee's beneficiary in the event of the Employee's death) on the date of the Change of Control; and (C) On the date of the Change of Control, the Employee (or the Employee's personal representative or beneficiary in the event of the Employee's death) shall assign to the Company the Employee's restricted Class A Shares and the Employee's stock options for Class A Shares and any other Class A Shares or equity interest in the Company which the Employee may then own, regardless of how the Employee may have acquired such restricted stock, options, Class A Shares or equity interest. In exchange therefore, the Company shall pay to the Employee (or the Employee's beneficiary in the event of the Employee's death), on such date, an amount equal to the value of the Employee's restricted Class A Shares and the Employee's stock options for Class A Shares, to the extent such options are exercisable and such restricted stock is vested, and any other Class A Shares or equity interest in the Company - -------------------------------------------------------------------------------- Page 11 - -------------------------------------------------------------------------------- which the Employee may then own. Such value shall be calculated using the Class A Share Change of Control Valuation as hereinafter defined. The value of the exercisable stock options for this purpose shall be the amount by which the value of the Class A Shares, as so determined, exceeds the exercise price. (v) If the Employee is employed by the Company on the date of the Change of Control but not on the first anniversary thereof, but a Transaction Bonus is payable to the Employee in accordance with Subsection 6(b)(iii) hereof, the following shall apply: (A) The Transaction Bonus shall be in the amount calculated in accordance with Subsection 6(b)(i); and (B) The portion of the Transaction Bonus remaining unpaid upon the Employee's termination of employment with the Company shall be paid to the Employee (or the Employee's beneficiary in the event of the Employee's death) within ten (10) days following such termination of employment. (vi) Notwithstanding anything contained in this Agreement to the contrary, if the Employee breaches any of the Employee's obligations under Section 9 or 10 hereof, no further Transaction Bonus payments will be payable to the Employee. (c) Equity Considerations. If the Employee is employed by the --------------------- Company on the day of the Change of Control, the Employee shall receive the following equity considerations: (i) all restricted stock of the Company, owned by the Employee on the date of the Change of Control, regardless of whether acquired under the 1996 Transitional Restricted Stock Plan or under an individual agreement with the Company or otherwise, will become and remain one hundred percent (100%) vested; (ii) all stock options for Class A Shares of the Company, owned by the Employee on the date of the Change of Control, regardless of whether acquired under the 1989, 1992 or 1997 Stock Option Plan or under an individual agreement with the Company or otherwise, will immediately become and remain throughout the full remaining term of such - -------------------------------------------------------------------------------- Page 12 - -------------------------------------------------------------------------------- options one hundred percent (100%) vested and fully exercisable, and such exercise then and thereafter shall be available on a cashless basis such that the Employee may receive the net value of the Employee's options (represented by the amount by which the fair market value of the Class A Shares exceeds the exercise price) in cash or Class A Shares as the Employee shall elect, without outlay of cash but net of all applicable withholding taxes, which taxes shall be remitted by the Company to the proper taxing authorities; (iii) upon any such Change of Control transaction, all limitations, restrictions or conditions relating to the Employee's rights to receive, vote, own and/or transfer any Class A Shares contained in any of the Pre-existing Agreements or contained in any other document, agreement or plan shall terminate and shall be of no further force and effect, except for any registration rights in effect; and (iv) if permitted by the purchaser in the Change of Control transaction (the "Purchaser"), the Company will provide for the Employee the opportunity to convert all or a portion, as he shall elect, of the Employee's options to purchase Class A Shares as well as Class A Shares then owned by the Employee, into an equity investment in the entity resulting from Purchaser's transaction (the "Successor") on a tax favored basis. The amount available for such investment shall be an amount calculated on the basis of the per Share price paid in the Change of Control transaction or series of transactions or implicit in the valuation of the Change of Control transaction, including all elements of consideration paid or payable (the "Change of Control Valuation"). (v) If the Purchaser in the Change of Control transaction does not permit the Employee to convert (or the Employee chooses not to convert) all (or a portion) of the Employee's options to purchase Class A Shares and Class A Shares then owned by the Employee into equity in the Successor, then the Employee shall exercise, at the time of the Change of Control, all options the Employee holds for Class A Shares (such exercise to provide cash rather than Class A Shares to the Employee in accordance with the exercise procedure described in Subsection 6(c)(ii) hereof), and shall sell to the Company at the time of the Change of Control all Class A Shares then owned by the Employee, to the extent such options or Class A Shares are not converted into equity - -------------------------------------------------------------------------------- Page 13 - -------------------------------------------------------------------------------- in the Successor. Such exercise of options and sale of Class A Shares shall yield an amount to the Employee determined by the Class A Share Change of Control Valuation. (d) Change of Control. For purposes of this Agreement, the words ------------------ "Change of Control" means a change in control of the Company of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended, as in effect on the date of this Agreement (the "Exchange Act"), whether or not the Company is then subject to such reporting requirements; provided, that, without limitation, a Change of Control shall be deemed to have occurred if: (i) any "person" (as defined in Sections 13(d) and 14(d) of the Exchange Act), other than Zell/Chilmark Fund, L.P., is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing twenty percent (20%) or more of the combined voting power of the Company's then outstanding securities; provided that a Change in Control shall not be deemed to occur under this clause (i) by reason of (A) the acquisition of securities by the Company or an employee benefit plan (or any trust funding such a plan) maintained by the Company, or (B) while Zell/Chilmark Fund, L.P. continues to beneficially own more than fifty percent (50%) of the combined voting power of the Company's then outstanding securities; (ii) during any period of one (1) year there shall cease to be a majority of the Board comprised of "Continuing Directors" as hereinafter defined; or (iii) the stockholders of the Company (A) approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than eighty percent (80%) of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or (B) approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of more than fifty percent (50%) of the Company's assets. - -------------------------------------------------------------------------------- Page 14 - -------------------------------------------------------------------------------- For purposes of this Subsection 6(d)(iii), a sale of more than fifty percent (50%) of the Company's assets includes a sale of more than fifty percent (50%) of the aggregate value of the assets of the Company and its subsidiaries or the sale of stock of one or more of the Company's subsidiaries with an aggregate value in excess of fifty percent (50%) of the aggregate value of the Company and its subsidiaries or any combination of methods by which more than fifty percent (50%) of the aggregate value of the Company and its subsidiaries is sold. (iv) For purposes of this Agreement, a "Change of Control" will be deemed to occur: (A) on the day on which a twenty percent (20%) or greater ownership interest described in Subsection 6(d)(i) is acquired or, if later, the day on which the Zell/Chilmark Fund, L.P. ceases to beneficially own more than fifty percent (50%) of the combined voting power of the Company's then outstanding securities, provided that a subsequent increase in such ownership interest after it first equals or exceeds twenty percent (20%) shall not be deemed a separate Change of Control; (B) on the day on which "Continuing Directors," as hereinafter defined, cease to be a majority of the Board as described in Subsection 6(d)(ii); (C) on the day of a merger, consolidation or sale or disposition of assets as described in Subsection 6(d)(iii); or (D) on the day of the approval of a plan of complete liquidation as described in Subsection 6(d)(iii). (v) For purposes of this Subsection 6(d), the word "Company" means Sealy Corporation, and, any other corporation or business organization in an unbroken chain of corporations or business organization ending with Sealy Corporation that owns, directly or indirectly, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock of Sealy Corporation other than Zell/Chilmark Fund, L.P. (vi) For purposes of this Subsection 6(d), the words "Continuing Directors" mean individuals who at the beginning of any - -------------------------------------------------------------------------------- Page 15 - -------------------------------------------------------------------------------- period (not including any period prior to the date of this Agreement) of one (1) year constitute the Board and any new director(s) whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least a majority of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved. (e) Section 16 Protection. If the Employee is subject to Section 16 --------------------- of the Securities Exchange Act of 1934 ("Section 16"), then to the extent the Employee would be deprived of the benefits of the equity considerations described herein or under any of the Pre- existing Agreements or under the 1989, 1992 or 1997 Stock Option Plan or the 1996 Transitional Restricted Stock Plan, as described above, or any other plan or arrangement regarding stock of the Company, by reason of such Section 16 or the Rules issued thereunder, the Employee shall be provided with the alternative of receiving a cash payment approximating the loss of such benefits under a cash compensation plan implemented by the Company. The Company agrees to have this Agreement, and specifically this Section 6 approved by the Board in compliance with Section 16 and Rule 16b-3 thereunder to ensure its enforceability. 7. SEVERANCE PLAN. It is the intention of the Parties that this -------------- Agreement provide special benefits to the Employee. If at any time the Company's Executive Severance Benefit Plan would provide better cash severance benefits to the Employee than this Agreement, the Employee may elect to receive such better cash severance benefits in lieu of the cash severance benefits provided under Subsections 5(a)(i) and 5(a)(ii), or Subsection 5(a)(v), of this Agreement, whichever is applicable, while continuing to receive any other benefits or coverages available under this Agreement. If this Agreement would provide better cash severance benefits to the Employee than the Company's Executive Severance Benefit Plan, the Employee shall receive the cash severance benefits under this Agreement, as well as any other benefits or coverages available under this Agreement. In such case, the cash severance benefits under this Agreement shall be in lieu of the cash severance benefits payable under the Company's Executive Severance Benefit Plan. 8. PLAN AMENDMENTS. To the extent any provisions of this Agreement --------------- modify the terms of any existing plan, policy or arrangement affecting the compensation or benefits of the Employee, as appropriate, (a) such modification as set forth herein shall be deemed an amendment to such plan, policy or arrangement as to the Employee, and both the Company and the Employee hereby consent to such amendment, (b) the Company will appropriately modify such plan, policy or arrangement to correspond to this Agreement with respect to the Employee, or (c) the Company will provide an "Alternative Benefit," as defined in Section 14 hereof, to or on - -------------------------------------------------------------------------------- Page 16 - -------------------------------------------------------------------------------- behalf of the Employee in accordance with the provisions of such Section 14. 9. CONFIDENTIAL INFORMATION. The Employee agrees that the Employee ------------------------ will not, during the Employment Term or at any time thereafter, either directly or indirectly, disclose or make known to any other person, firm, or corporation any confidential information, trade secret or proprietary information of the Company that the Employee may acquire in the performance of the Employee's duties hereunder (except in good faith in the ordinary course of business for the Company to a person who will be advised by the Employee to keep such information confidential) or make use of any of such confidential information except in the performance of the Employee's duties or when required to do so by legal process, by any governmental agency having supervisory authority over the business of the Company or by any administrative or legislative body (including a committee thereof) that requires the Employee to divulge, disclose or make accessible such information. In the event that the Employee is so ordered, the Employee shall so advise the Company in order to allow the Company the opportunity to object to or otherwise resist such order. Upon the termination of the Employee's employment with the Company, the Employee agrees to deliver forthwith to the Company any and all proprietary literature, documents, correspondence, and other proprietary materials and records furnished to or acquired by the Employee during the course of such employment. In the event of a breach or threatened breach of this Section 9 by the Employee, the Company will be entitled to preliminary and permanent injunctive relief, without bond or security, sufficient to enforce the provisions hereof and the Company will be entitled to pursue such other remedies at law or in equity which it deems appropriate. 10. NON-COMPETITION. In consideration of this Agreement, the Employee --------------- agrees that, during the Employment Term, and for one year thereafter, unless the Employee has waived the Transaction Bonus and the equity considerations described in Subsections 6(b) and 6(c), the Employee shall not act as a proprietor, investor, director, officer, employee, substantial stockholder, consultant, or partner in any business engaged to a material extent in the manufacture or sale of (a) mattresses or other bedding products or (b) any other products which constitute more than ten percent (10%) of the Company's revenues at the time in direct competition with the Company in any market. If, however, the Employee has waived the Transaction Bonus and the equity considerations described in Subsections 6(b) and 6(c), this covenant not to compete shall be void upon the Employee's termination of employment. The Employee understands that the foregoing restrictions may limit the Employee's ability to engage in certain business pursuits during the period provided for above, but acknowledges that the Employee will receive sufficiently higher remuneration and other benefits from the Company hereunder than the Employee would otherwise receive to justify such restriction. The Employee acknowledges that the Employee understands the effect of the provisions of this Section 10, and that the Employee has had reasonable time to consider the effect of these provisions, and that the Employee was encouraged to and had an opportunity to consult an attorney with respect to these provisions. The Company and the Employee consider the restrictions contained in this Section 10 to be reasonable and necessary. Nevertheless, if any aspect of these restrictions is found to be unreasonable or otherwise unenforceable by a court of - -------------------------------------------------------------------------------- Page 17 - -------------------------------------------------------------------------------- competent jurisdiction, the Parties intend for such restrictions to be modified by such court so as to be reasonable and enforceable and, as so modified by the court, to be fully enforced. In the event of a breach or threatened breach of this Section 10 by the Employee, the Company will be entitled to preliminary and permanent injunctive relief, without bond or security, sufficient to enforce the provisions hereof and the Company will be entitled to pursue such other remedies at law or in equity which it deems appropriate. During the ten (10) day period ending on the date of a Change of Control, the Employee may, by written notice to the Company, elect to waive his Transaction Bonus and the equity considerations described in Subsections 6(b) and 6(c). Such waiver shall be irrevocable. In the event of such a waiver, the Employee's agreement not to compete with the Company as set forth in this Section 10 shall be void upon his termination of employment. 11. NOTICES. For purposes of this Agreement, all communications ------- provided for herein shall be in writing and shall be deemed to have been duly given when hand delivered or mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows: (a) If the notice is to the Company: Mr. Ronald L. Jones Chief Executive Officer Sealy Corporation 1228 Euclid Avenue - Tenth Floor Cleveland, Ohio 44115-1886 With a copy to: Kenneth Walker, Esq. Vice President and General Counsel Sealy Corporation 1228 Euclid Avenue - Tenth Floor Cleveland, Ohio 44115-1886 (b) If the notice is to the Employee: 2113 Grenville Drive Oakville, Ontario Canada, LGH 347 or to such other address as either party may have furnished to the other in writing and in accordance herewith; except that notices of change of address shall be effective only upon receipt. 12. ASSIGNMENT; BINDING EFFECT. This Agreement shall be binding upon -------------------------- and inure to the benefit of the parties to this Agreement and their respective - -------------------------------------------------------------------------------- Page 18 - -------------------------------------------------------------------------------- successors, heirs (in the case of the Employee) and permitted assigns. No rights or obligations of the Company under this Agreement may be assigned or transferred by the Company except that such rights or obligations may be assigned or transferred in connection with the sale or transfer of all or substantially all of the assets of the Company, provided that the assignee or transferee is the successor to all or substantially all of the assets of the Company and such assignee or transferee expressly assumes the liabilities, obligations and duties of the Company, as contained in this Agreement, either contractually or as a matter of law. The Company further agrees that, in the event of a sale or transfer of assets as described in the preceding sentence, it shall be a condition precedent to the consummation of any such transaction that the assignee or transferee expressly assumes the liabilities, obligations and duties of the Company hereunder. No rights or obligations of the Employee under this Agreement may be assigned or transferred by the Employee other than the Employee's rights to compensation and benefits, which may be transferred only by will or operation of law, except as provided in this Section 12. The Employee shall be entitled, to the extent permitted under any applicable law, to select and change a beneficiary or beneficiaries to receive any compensation or benefits payable hereunder following the Employee's death by giving the Company written notice thereof. In the absence of such a selection, any compensation or benefit payable under this Agreement following the death of the Employee shall be payable to the Employee's spouse, or if such spouse shall not survive the Employee, to the Employee's estate. In the event of the Employee's death or a judicial determination of his incompetence, reference in this Agreement to the Employee shall be deemed, where appropriate, to refer to the Employee's beneficiary, estate or other legal representative. 13. INVALID PROVISIONS. Any provision of this Agreement that is ------------------ prohibited or unenforceable shall be ineffective to the extent, but only to the extent, of such prohibition or unenforceability without invalidating the remaining portions hereof and such remaining portions of this Agreement shall continue to be in full force and effect. In the event that any provision of this Agreement shall be determined to be invalid or unenforceable, the Parties will negotiate in good faith to replace such provision with another provision that will be valid or enforceable and that is as close as practicable to the provisions held invalid or unenforceable. 14. ALTERNATIVE SATISFACTION OF COMPANY'S OBLIGATIONS. In the event ------------------------------------------------- this Agreement provides for payments or benefits to or on behalf of the Employee which cannot be provided under the Company's benefit plans, policies or arrangements either because such plans, policies or arrangements no longer exist or no longer provide such benefits or because provision of such benefits to the Employee would adversely affect the tax qualified or tax advantaged status of such plans, policies or arrangements for the Employee or other participants therein, the Company may provide the Employee with an "Alternative Benefit," as defined in this Section 14, in lieu thereof. The Alternative Benefit is a benefit or payment which places the Employee and the Employee's dependents in at least as good of an economic position as if the benefit promised by this Agreement (a) were provided exactly as called for by this Agreement, - -------------------------------------------------------------------------------- Page 19 - -------------------------------------------------------------------------------- and (b) had the favorable economic, tax and legal characteristics customary for plans, policies or arrangements of that type. Furthermore, if such adverse consequence would affect the Employee or the Employee's dependents, the Employee shall have the right to require that the Company provide such an Alternative Benefit. 15. ENTIRE AGREEMENT, MODIFICATION. Subject to the provisions of ------------------------------ Section 16 hereof, this Agreement contains the entire agreement between the Parties with respect to the employment of the Employee by the Company and supersedes all prior and contemporaneous agreements, representations, and understandings of the Parties, whether oral or written. No modification, amendment, or waiver of any of the provisions of this Agreement shall be effective unless in writing, specifically referring hereto, and signed by both Parties. 16. NON-EXCLUSIVITY OF RIGHTS. Notwithstanding the foregoing provisions ------------------------- of Section 15, nothing in this Agreement shall prevent or limit the Employee's continuing or future participation in any benefit, bonus, incentive or other plan, program, policy or practice provided by the Company for its executive officers, nor shall anything herein limit or otherwise affect such rights as the Employee has or may have under any stock option, restricted stock or other agreements with the Company or any of its subsidiaries. Amounts which the Employee or the Employee's dependents or beneficiaries are otherwise entitled to receive under any such plan, policy, practice or program shall not be reduced by this Agreement except as provided in Section 7 hereof with respect to payments under the Executive Severance Benefit Plan if cash payments of annual base salary are made hereunder. 17. WAIVER OF BREACH. The failure at any time to enforce any of the ---------------- provisions of this Agreement or to require performance by the other party of any of the provisions of this Agreement shall in no way be construed to be a waiver of such provisions or to affect either the validity of this Agreement or any part of this Agreement or the right of either party thereafter to enforce each and every provision of this Agreement in accordance with the terms of this Agreement. 18. GOVERNING LAW. This Agreement has been made in, and shall be ------------- governed and construed in accordance with the laws of, the State of Ohio. The Parties agree that this Agreement is not an "employee benefit plan" or part of an "employee benefit plan" which is subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended. 19. TAX WITHHOLDING. The Company may withhold from any amounts payable --------------- under this Agreement such federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. Where withholding applies to Class A Shares, the Company shall make cashless withholding available to the Employee. 20. EXPENSE OF ENFORCEMENT. The Company shall reimburse reasonable ---------------------- attorney fees and expenses incurred by the Employee to enforce the provisions of this Agreement, even if his claims are not successful, provided they are PAGE> - -------------------------------------------------------------------------------- Page 20 - -------------------------------------------------------------------------------- not ultimately determined by the court to be frivolous. 21. REPRESENTATION. The Company represents and warrants that it is -------------- fully authorized and empowered to enter into this Agreement and that the performance of its obligations under this Agreement will not violate any agreement between it and any other person, firm or organization. 22. SUBSIDIARIES AND AFFILIATES. Notwithstanding any contrary --------------------------- provision of this Agreement, to the extent it does not adversely affect the Employee, the Company may provide the compensation and benefits to which the Employee is entitled hereunder through one or more subsidiaries or affiliates, including, without limitation, Sealy, Inc. 23. NO MITIGATION OR OFFSET. In the event of any termination of ----------------------- employment, the Employee shall be under no obligation to seek other employment. Amounts due the Employee under this Agreement shall not be offset by any remuneration attributable to any subsequent employment he may obtain. 24. SOLE REMEDY. The Parties agree that the remedies of each against ----------- the other for breach of this Agreement shall be limited to enforcement of this Agreement and recovery of the amounts and remedies provided for herein. The Parties, however, further agree that such limitation shall not prevent either Party from proceeding against the other to recover for a claim other than under this Agreement. IN WITNESS WHEREOF, the Company and the Employee have executed this Agreement as of the day and year first above written. SEALY CORPORATION By:/s/ Kenneth L. Walker _______________________ Kenneth L. Walker Vice President, General Counsel & Secretary EMPLOYEE /s/ L. J. Rogers ---------------- EX-10.13 19 EMPLOYMENT AGREEMENT (J. BARTIK) - -------------------------------------------------------------------------------- Page 1 - -------------------------------------------------------------------------------- EXHIBIT 10.13 ------------- CHANGE OF CONTROL AGREEMENT THIS CHANGE OF CONTROL AGREEMENT is entered into as of the 3rd day of September, 1997, by and between SEALY CORPORATION, a Delaware corporation (the "Company"), and JOHN G. BARTIK (the "Employee"). W I T N E S S E T H: WHEREAS, the Company and the Employee (collectively "the Parties") desire to enter into this Change of Control Agreement (the "Agreement") as hereinafter set forth; NOW, THEREFORE, the Company and Employee agree as follows: 1. PROTECTED PERIOD. ---------------- (a) This Agreement is intended to provide the Employee with certain special benefits and to grant certain special protections so that the Employee may more fully focus on the issues related to a "Change of Control," as hereinafter defined, and to reward the Employee for the substantial extra effort involved in a Change of Control. (b) In order to provide the protections deemed necessary and appropriate by the Parties, the Parties agree to the establishment of a period during which such protections apply. Such period shall be referred to in this Agreement as the "Protected Period." The Protected Period shall be as follows: (i) The Protected Period shall be the one (1) year period commencing on the date a Change of Control occurs and ending on the first anniversary thereof; and (ii) Provided that, if the Employee's employment terminates prior to a Change of Control, but such termination is "In Connection With a Change of Control," as hereinafter defined, the termination shall be deemed to have occurred during the Protected Period and the Employee shall be entitled to the benefits and protections set forth in this Agreement. (c) For purposes of this Agreement, and particularly Subsection 1(b) hereof, a termination shall be deemed to be "In Connection With a Change of Control" if: (i) Such termination is at the request of the purchaser in the Change of Control transaction; or - -------------------------------------------------------------------------------- Page 2 - -------------------------------------------------------------------------------- (ii) Such termination is by the Company other than for Cause or is by the Employee for Good Reason and reflects an intent by the Company to avoid payment of benefits under this Agreement notwithstanding the Employee's compliance with Section 2 hereof; provided, however, that a termination otherwise defined in this Subsection 1(c) as In Connection With a Change of Control will not be deemed In Connection With a Change of Control unless a Change of Control occurs within six (6) months after the date of the Employee's termination of employment with the Company. (d) The Parties agree that this Agreement is an agreement dealing only with benefits, rights and duties of the Parties during a Protected Period. The Parties specifically agree that this Agreement is not intended to be and is not an employment agreement. The Employee is, as of the date of this Agreement, and will remain, an employee at will, but subject to those special provisions herein set forth. 2. POSITION, DUTIES, AND RESPONSIBILITIES. At all times during the -------------------------------------- Protected Period, the Employee shall: (a) Hold either (i) the position with the Company that the Employee holds at the commencement of the Protected Period or (ii) a position with the Company of greater duties, responsibilities and authority than the position with the Company that the Employee holds at the commencement of the Protected Period; (b) Have those duties and responsibilities, and the authority, customarily possessed by an employee of a major corporation in the position of the Employee and such additional duties as may be assigned to the Employee from time to time by the Board of Directors of the Company (the "Board") or the Chief Executive Officer of the Company (the "Chief Executive Officer") or the Employee's superior(s) which are consistent with the Employee's position; (c) Adhere to such reasonable policies and directives as may be promulgated from time to time by the Board or the Chief Executive Officer and which are applicable to employees at the Employee's level with the Company; (d) Invest in the Company only in accordance with any insider trading policy of the Company in effect at the time of the investment; and (e) Devote the Employee's entire business time, energy, and talent to - -------------------------------------------------------------------------------- Page 3 - -------------------------------------------------------------------------------- the business, and to the furtherance of the purposes and objectives, of the Company, and neither directly nor indirectly act as an employee of or render any business, commercial, or professional services to any other person, firm or organization for compensation, without the prior written approval of the Board or the Chief Executive Officer. Nothing in this Agreement shall preclude the Employee from devoting reasonable periods of time to charitable and community activities or the management of the Employee's investment assets, provided such activities do not interfere with the performance by the Employee of the Employee's duties hereunder. 3. SALARY, BONUS AND BENEFITS. For services rendered by the Employee on -------------------------- behalf of the Company during the Protected Period, the following salary, bonus and benefits shall be provided to the Employee by the Company: (a) The Company shall pay to the Employee, in equal installments, according to the Company's then current practice for paying its employees at the level of the Employee in effect from time to time during the Protected Period, an annual base salary at a rate not less than that in effect at the commencement of the Protected Period. (b) The Employee shall participate in the Sealy Corporation Annual Bonus Plan (the "Bonus Plan") in accordance with the provisions of that Plan as in effect as of the date of this Agreement with a Target annual bonus as determined under the Bonus Plan as of the commencement of the Protected Period equal to the applicable percentage (his "Target Annual Bonus Percentage") of annual base salary with a range as in effect as of such date. (c) The Employee shall be eligible for participation in such other benefit plans, including, but not limited to, the Company's Profit Sharing Plan and Trust, Executive Severance Benefit Plan, Benefit Equalization Plan, Short-Term and Long Term Disability Plans, Group Term Life Insurance Plan, Medical Plan or PPO, Dental Plan, the 401(k) feature of the Profit Sharing Plan, the 1996 Transitional Restricted Stock Plan and/or the 1997 Stock Option Plan, as the Board may adopt from time to time and in which the Company's employees at the level comparable to the Employee are eligible to participate. Such participation shall be subject to the terms and conditions set forth in the applicable plan documents. As is more fully set forth in Section 7 hereof, the Employee shall not be entitled to duplicative payments in this Agreement and the Executive Severance Plan. (d) The Employee shall be entitled to take, during the Protected - -------------------------------------------------------------------------------- Page 4 - -------------------------------------------------------------------------------- Period, at least the amount of vacation time to which the Employee is entitled as of the date of this Agreement under the Company's vacation policy applicable to employees at the level comparable to the Employee or would have become entitled as of the applicable time if such vacation policy were still in effect throughout the Protected Period. (e) In addition, the Parties do hereby further confirm that the Employee may be entitled to a number of restricted shares of Class A Common Stock of the Company ("Class A Shares"), as well as options to purchase additional Class A Shares pursuant to various benefit plans or agreements with the Company. The Parties agree that (a) such restricted Class A Shares and such options are in addition to, and not in lieu of, any shares or options which may be granted under any other plan or arrangement of the Company after the date of this Agreement, and (b) the various restricted stock agreements and stock option agreements, and any related Stockholder Agreement (the "Stockholder Agreement") between the Parties (such agreements being hereinafter referred to collectively as the "Pre-existing Agreements"), all remain in full force and effect except as otherwise provided herein. Notwithstanding the foregoing, to the extent that any provision contained herein is inconsistent with the terms of any of the Pre-existing Agreements, the terms of this Agreement shall be controlling. 4. TERMINATION OF EMPLOYMENT. During a "Protected Period," the Employee's ------------------------- employment may be terminated as follows: (a) The Employee's employment hereunder will terminate without further notice upon the death of the Employee. (b) The Company may terminate the Employee's employment hereunder effective immediately upon giving written notice of such termination for "Cause". For these purposes, "Cause" shall mean the following: (i) Commission by the Employee (evidenced by a conviction or written, voluntary and freely given confession) of a criminal act constituting a felony; (ii) Commission by the Employee of a material breach or material default of any of the Employee's agreements or obligations under any provision of this Agreement, including, without limitation, the Employee's agreements and obligations under Subsections 2(a) through 2(e) and Sections 9 and 10 of this Agreement, which is not cured in - -------------------------------------------------------------------------------- Page 5 - -------------------------------------------------------------------------------- all material respects within thirty (30) days after the Chief Executive Officer or the designee thereof gives written notice thereof to the Employee; or (iii) Commission by the Employee, when carrying out the Employee's duties under this Agreement, of acts or the omission of any act, which both: (A) constitutes gross negligence or willful misconduct and (B) results in material economic harm to the Company or has a materially adverse effect on the Company's operations, properties or business relationships. (c) The Employee's employment hereunder may be terminated upon disability, if the Employee is prevented from performing the Employee's duties hereunder by reason of physical or mental incapacity for a period of one hundred eighty (180) consecutive days in any period of two consecutive fiscal years of the Company, but the Employee shall be entitled to full compensation and benefits hereunder until the close of such one hundred and eighty (180) day period. (d) The Company may terminate the Employee's employment hereunder without Cause at any time upon thirty (30) days written notice. (e) The Employee may terminate employment hereunder effective immediately upon giving written notice of such termination for "Good Reason", as defined in Subsection 4(g) below. (f) The Employee may terminate employment hereunder without Good Reason at any time upon thirty (30) days written notice. (g) For purposes of this Agreement, "Good Reason" means the occurrence of (i) any reduction in either the annual base salary of the Employee or the Target Annual Bonus Percentage or maximum annual bonus percentage applicable to the Employee under the Bonus Plan, (ii) any material reduction in the position, authority or office of the Employee, (iii) any material reduction in the Employee's responsibilities or duties for the Company, (iv) any material adverse change or reduction in the aggregate "Minimum Benefits," as hereinafter defined, provided to the Employee as of the date of this Agreement (provided that any material reduction in such aggregate Minimum Benefits that is required by law or applies generally to all employees of the Company shall not constitute "Good Reason" as defined hereunder), (v) any relocation of the Employee's principal place of work with the Company to a place more than twenty-five (25) miles from the geographical center of - -------------------------------------------------------------------------------- Page 6 - -------------------------------------------------------------------------------- Cleveland, Ohio, or (vi) the material breach or material default by the Company of any of its agreements or obligations under any provision of this Agreement. As used in this Subsection 4(g), an "adverse change or material reduction" in the aggregate Minimum Benefits shall be deemed to result from any reduction or any series of reductions which, in the aggregate, exceeds five percent (5%) of the value of such aggregate Minimum Benefits determined as of the date of this Agreement. As used in this Subsection 4(g), Minimum Benefits are life insurance, accidental death, long term disability, short term disability, medical, dental, and vision benefits and the Company's expense reimbursement policy. The Employee shall give written notice to the Company on or before the date of termination of employment for Good Reason stating that the Employee is terminating employment with the Company and specifying in detail the reasons for such termination. If the Company does not object to such notice by notifying the Employee in writing within five (5) days following the date of the Company's receipt of the Employee's notice of termination, the Company shall be deemed to have agreed that such termination was for Good Reason. The parties agree that "Good Reason" will not be deemed to have occurred merely because the Company becomes a subsidiary or division of another entity following a "Change of Control," as hereinafter defined, provided the Employee continues to serve in the same capacity with such subsidiary or division as his capacity with the Company at the beginning of the Protected Period and such subsidiary or division is comparable in size to the organization consisting of the Company and its subsidiaries. The parties further agree that "Good Reason" will be deemed to have occurred if the purchaser, in a Change of Control transaction, does not assume this Agreement in accordance with Section 12 hereof. 5. SEVERANCE COMPENSATION. If the Employee's employment is terminated ---------------------- during a Protected Period, the following severance provisions will apply: (a) If the Employee's employment is terminated by the Company other than for Cause or is terminated by the Employee for Good Reason, then, through the one year period commencing on the date of the Employee's termination of employment (the "Payment Term") the Company shall: (i) continue to pay the Employee's annual base salary in the then prevailing amount and at the times specified in Subsection 3(a) hereof, or if such annual base salary has decreased during the one year period ending on the Employee's termination of employment, at the highest rate in effect during such one year period; - -------------------------------------------------------------------------------- Page 7 - -------------------------------------------------------------------------------- (ii) continue the Employee's participation in the Bonus Plan as provided in Subsection 3(b) hereof provided that the Company will: (A) pay the Employee a bonus under the Bonus Plan for the partial year period ending on the date of the Employee's termination of employment calculated as if the Employee had continued to be employed for the entire year except that the Employee's bonus percentage (calculated at the time and in the manner customary as of the date of this Agreement, but disregarding the termination of employment of the Employee) shall be applied to the Employee's annual base salary payable in accordance with Subsection 3(a) hereof for the partial year period ending on the Employee's termination of employment; and (B) thereafter, during the remainder of the Payment Term, a bonus equal to the Employee's Target Annual Bonus Percentage, multiplied by the Employee's annual base salary in the amount specified in Subsection 5(a)(i) payable during the year (or portion thereof) for which the bonus is being calculated; with such amounts being payable when bonuses under the Bonus Plan are customarily payable, except that the final bonus shall be payable with the final payment of the annual base salary under Subsection 5(a)(i) hereof; (iii) pay for executive outplacement services for the Employee from a nationally recognized executive outplacement firm at a level consistent with the employee's position, provided that such outplacement services will be provided for a six (6) month period commencing on the date of termination of employment regardless of the Payment Term; and (iv) In lieu of the payments described in Subsections 5(a)(i) and 5(a)(ii) hereof, at the Employee's request, submitted in writing to the Company within five (5) business days after the date of the Employee's termination of employment: (A) the Company will pay the total of the Employee's annual base salary payments described in Subsection 5(a)(i) in a single sum within thirty (30) days following the Employee's termination of - -------------------------------------------------------------------------------- Page 8 - -------------------------------------------------------------------------------- employment; and (B) his Bonus Plan payments described in Subsection 5(a)(ii) shall be made at the same time as the Employee's payment under Subsection 5(a)(vi)(A) but shall be calculated using the Employee's Target Annual Bonus Percentage for all calculation purposes. (b) If the Employee's employment hereunder terminates due to the Employee's death, disability, termination by the Company for Cause or termination by the Employee other than for Good Reason, then no further compensation or benefits will be provided to the Employee by the Company under this Agreement following the date of such termination of employment other than payment of compensation earned to the date of termination of employment but not yet paid. As more fully and generally provided in Section 16 hereof, this Subsection 5(b) shall not be interpreted to deny the Employee any benefits to which he may be entitled under any plan or arrangement of the Company applicable to the Employee. Likewise, this Subsection 5(b) shall not be interpreted to entitle the Employee to a bonus under the Bonus Plan following his termination of employment except as provided in the Bonus Plan which requires employment on the last day of the Company's taxable year as a condition to receipt of a bonus thereunder for such year except in the cases of death, disability or retirement at or after either age 62 with ten years of service or age 65. (c) Notwithstanding anything contained in this Agreement to the contrary, other than Section 16 hereof, if the Employee breaches any of his obligations under Section 9 or 10 hereof, no further severance payments or other benefits will be payable to the Employee under this Section 5. 6. CHANGE OF CONTROL. ----------------- (a) In General. In the event of a Change of Control as defined in ---------- this Section 6, the Employee shall become entitled to certain special benefits and shall have certain special protections so that he may more fully focus on the issues related to such a Change of Control, and to reward the Employee for the substantial additional effort involved in a Change of Control. The special benefits and protections are set forth in this Section 6. (b) Transaction Bonus. In the event of a Change of Control, then ----------------- subject to the requirements set forth in this Subsection 6(b), the Employee will receive a cash transaction bonus (the "Transaction - -------------------------------------------------------------------------------- Page 9 - -------------------------------------------------------------------------------- Bonus") calculated and payable as follows: (i) If the Employee is employed by the Company on the date of the Change of Control, the total amount of the Transaction Bonus shall be equal to fifty percent (50%) of his annual base salary in the then prevailing amount specified in Subsection 3(a) hereof, or if such annual base salary has decreased during the one year period ending on his termination of employment, at the highest rate in effect during such one year period; and. (ii) If the Employee is employed by the Company on the date of the Change of Control and either is employed by the Company on the first anniversary thereof or is not employed by the Company on such first anniversary due to the Employee's death or disability, the Transaction Bonus shall be payable as follows: (A) If the Employee is employed by the Company on the day of the Change of Control, one-half (1/2) of the Transaction Bonus shall be payable to the Employee on such date; and (B) If the Employee is employed by the Company on the first anniversary of the Change of Control, the other one-half (1/2) of the Transaction Bonus shall be payable to the Employee on such date. (C) Furthermore, if the Employee is employed by the Company on the date of the Change of Control but, due to the Employee's death or disability, the Employee is no longer employed by the Company on the first anniversary thereof, the Employee (or the Employee's beneficiary in the event of the Employee's death) shall nevertheless be entitled to the other one-half (1/2) of the Transaction Bonus, which amount shall be payable on such first anniversary. (iii) If the Employee is not employed by the Company on either or both of the date of the Change of Control and the date of the first anniversary thereof due to the Employee's termination by the Company other than for Cause or due to the Employee's termination of employment for Good Reason, but if the Employee's Payment Term includes either or both such dates, the Employee shall nonetheless be entitled to the Transaction Bonus which would otherwise be - -------------------------------------------------------------------------------- Page 10 - -------------------------------------------------------------------------------- payable on the date or dates which are included in such Payment Term even though the Employee is no longer then employed by the Company. Any Transaction Bonus payable in accordance with this Subsection 6(b)(iii) shall be in an amount, and shall be payable on a date, determined in accordance with Subsection 6(b)(iv) or 6(b)(v), whichever is applicable. (iv) If the Employee is not employed by the Company on the date of the Change of Control, but a Transaction Bonus is payable to the Employee in accordance with Subsection 6(b)(iii) hereof, the following shall apply: (A) The Transaction Bonus shall be in the amount calculated in accordance with Subsection 6(b)(i); (B) The Transaction Bonus shall be paid in full to the Employee (or the Employee's beneficiary in the event of the Employee's death) on the date of the Change of Control; and (C) On the date of the Change of Control, the Employee (or the Employee's personal representative or beneficiary in the event of the Employee's death) shall assign to the Company the Employee's restricted Class A Shares and the Employee's stock options for Class A Shares and any other Class A Shares or equity interest in the Company which the Employee may then own, regardless of how the Employee may have acquired such restricted stock, options, Class A Shares, or equity interest. In exchange therefore, the Company shall pay to the Employee (or the Employee's beneficiary in the event of the Employee's death), on such date, an amount equal to the value of the Employee's restricted Class A Shares and the Employee's stock options for Class A Shares, to the extent such options are exercisable and such restricted stock is vested, and any other Class A Shares or equity interest in the Company which the Employee may then own. Such value shall be calculated using the Class A Share Change of Control Valuation as hereinafter defined. The value of the exercisable stock options for this purpose shall be the amount by which the value of the Class A Shares, as so determined, exceeds the exercise price. - -------------------------------------------------------------------------------- Page 11 - -------------------------------------------------------------------------------- (v) If the Employee is employed by the Company on the date of the Change of Control but not on the first anniversary thereof, but a Transaction Bonus is payable to the Employee in accordance with Subsection 6(b)(iii) hereof, the following shall apply: (A) The Transaction Bonus shall be in the amount calculated in accordance with Subsection 6(b)(i); and (B) The portion of the Transaction Bonus remaining unpaid upon the Employee's termination of employment with the Company shall be paid to the Employee (or the Employee's beneficiary in the event of the Employee's death) within ten (10) days following such termination of employment. (vi) Notwithstanding anything contained in this Agreement to the contrary, if the Employee breaches any of the Employee's obligations under Section 9 or 10 hereof, no further Transaction Bonus payments will be payable to the Employee. (c) Equity Considerations. If the Employee is employed by the --------------------- Company on the day of the Change of Control, the Employee shall receive the following equity considerations: (i) all restricted stock of the Company, owned by the Employee on the date of the Change of Control, regardless of whether acquired under the 1996 Transitional Restricted Stock Plan or under an individual agreement with the Company or otherwise, will become and remain one hundred percent (100%) vested; (ii) all stock options for Class A Shares of the Company, owned by the Employee on the date of the Change of Control, regardless of whether acquired under the 1989, 1992 or 1997 Stock Option Plan or under an individual agreement with the Company or otherwise, will immediately become and remain throughout the full remaining term of such options one hundred percent (100%) vested and fully exercisable, and such exercise then and thereafter shall be available on a cashless basis such that the Employee may receive the net value of the Employee's options (represented by the amount by which the fair market value of the Class A Shares exceeds the exercise price) in cash or Class A Shares as the Employee shall elect, without outlay of cash but net of all applicable withholding taxes, which - -------------------------------------------------------------------------------- Page 12 - -------------------------------------------------------------------------------- taxes shall be remitted by the Company to the proper taxing authorities; (iii) upon any such Change of Control transaction, all limitations, restrictions or conditions relating to the Employee's rights to receive, vote, own and/or transfer any Class A Shares contained in any of the Pre-existing Agreements or contained in any other document, agreement or plan shall terminate and shall be of no further force and effect, except for any registration rights in effect; (iv) if permitted by the purchaser in the Change of Control transaction (the "Purchaser"), the Company will provide for the Employee the opportunity to convert all or a portion, as he shall elect, of the Employee's options to purchase Class A Shares as well as Class A Shares then owned by the Employee, into an equity investment in the entity resulting from Purchaser's transaction (the "Successor") on a tax favored basis. The amount available for such investment shall be an amount calculated on the basis of the per Share price paid in the Change of Control transaction or series of transactions or implicit in the valuation of the Change of Control transaction, including all elements of consideration paid or payable (the "Change of Control Valuation"). (v) If the Purchaser in the Change of Control transaction does not permit the Employee to convert (or the Employee chooses not to convert) all (or a portion) of the Employee's options to purchase Class A Shares and Class A Shares then owned by the Employee into equity in the Successor, then the Employee shall exercise, at the time of the Change of Control, all options the Employee holds for Class A Shares (such exercise to provide cash rather than Class A Shares to the Employee in accordance with the exercise procedure described in Subsection 6(c)(ii) hereof), and shall sell to the Company at the time of the Change of Control all Class A Shares then owned by the Employee, to the extent such options or Class A Shares are not converted into equity in the Successor. Such exercise of options and sale of Class A Shares shall yield an amount to the Employee determined by the Class A Share Change of Control Valuation. (d) Change of Control. For purposes of this Agreement, the words ------------------ "Change of Control" means a change in control of the Company of a nature that would be required to be reported in response to Item - -------------------------------------------------------------------------------- Page 13 - -------------------------------------------------------------------------------- 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended, as in effect on the date of this Agreement (the "Exchange Act"), whether or not the Company is then subject to such reporting requirements; provided, that, without limitation, a Change of Control shall be deemed to have occurred if: (i) any "person" (as defined in Sections 13(d) and 14(d) of the Exchange Act), other than Zell/Chilmark Fund, L.P., is or becomes the "beneficial owner" (as defined in Rule 13d- 3 under the Exchange Act), directly or indirectly, of securities of the Company representing twenty percent (20%) or more of the combined voting power of the Company's then outstanding securities; provided that a Change in Control shall not be deemed to occur under this clause (i) by reason of (A) the acquisition of securities by the Company or an employee benefit plan (or any trust funding such a plan) maintained by the Company, or (B) while Zell/Chilmark Fund, L.P. continues to beneficially own more than fifty percent (50%) of the combined voting power of the Company's then outstanding securities; (ii) during any period of one (1) year there shall cease to be a majority of the Board comprised of "Continuing Directors" as hereinafter defined; or (iii) the stockholders of the Company (A) approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than eighty percent (80%) of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or (B) approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of more than fifty percent (50%) of the Company's assets. For purposes of this Subsection 6(d)(iii), a sale of more than fifty percent (50%) of the Company's assets includes a sale of more than fifty percent (50%) of the aggregate value of the assets of the Company and its subsidiaries or the sale of stock of one or more of the Company's subsidiaries with an aggregate value in excess of fifty percent (50%) of the aggregate value of the Company and its subsidiaries or any combination of methods by which more than fifty percent - -------------------------------------------------------------------------------- Page 14 - -------------------------------------------------------------------------------- (50%) of the aggregate value of the Company and its subsidiaries is sold. (iv) For purposes of this Agreement, a "Change of Control" will be deemed to occur: (A) on the day on which a twenty percent (20%) or greater ownership interest described in Subsection 6(d)(i) is acquired or, if later, the day on which the Zell/Chilmark Fund, L.P. ceases to beneficially own more than fifty percent (50%) of the combined voting power of the Company's then outstanding securities, provided that a subsequent increase in such ownership interest after it first equals or exceeds twenty percent (20%) shall not be deemed a separate Change of Control; (B) on the day on which "Continuing Directors," as hereinafter defined, cease to be a majority of the Board as described in Subsection 6(d)(ii); (C) on the day of a merger, consolidation or sale or disposition of assets as described in Subsection 6(d)(iii); or (D) on the day of the approval of a plan of complete liquidation as described in Subsection 6(d)(iii). (v) For purposes of this Subsection 6(d), the word "Company" means Sealy Corporation, and, any other corporation or business organization in an unbroken chain of corporations or business organization ending with Sealy Corporation that owns, directly or indirectly, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock of Sealy Corporation other than Zell/Chilmark Fund, L.P. (vi) For purposes of this Subsection 6(d), the words "Continuing Directors" mean individuals who at the beginning of any period (not including any period prior to the date of this Agreement) of one (1) year constitute the Board and any new director(s) whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least a majority of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so - -------------------------------------------------------------------------------- Page 15 - -------------------------------------------------------------------------------- approved. (e) Section 16 Protection. If the Employee is subject to Section 16 --------------------- of the Securities Exchange Act of 1934 ("Section 16"), then to the extent the Employee would be deprived of the benefits of the equity considerations described herein or under any of the Pre- existing Agreements or under the 1989, 1992 or 1997 Stock Option Plan or the 1996 Transitional Restricted Stock Plan, as described above, or any other plan or arrangement regarding stock of the Company, by reason of such Section 16 or the Rules issued thereunder, the Employee shall be provided with the alternative of receiving a cash payment approximating the loss of such benefits under a cash compensation plan implemented by the Company. The Company agrees to have this Agreement, and specifically this Section 6 approved by the Board in compliance with Section 16 and Rule 16b-3 thereunder to ensure its enforceability. 7. SEVERANCE PLAN. It is the intention of the Parties that this -------------- Agreement provide special benefits to the Employee. If at any time the Company's Executive Severance Benefit Plan would provide better cash severance benefits to the Employee than this Agreement, the Employee may elect to receive such better cash severance benefits in lieu of the cash severance benefits provided under Subsections 5(a)(i) and 5(a)(ii), or Subsection 5(a)(v), of this Agreement, whichever is applicable, while continuing to receive any other benefits or coverages available under this Agreement. If this Agreement would provide better cash severance benefits to the Employee than the Company's Executive Severance Benefit Plan, the Employee shall receive the cash severance benefits under this Agreement, as well as any other benefits or coverages available under this Agreement. In such case, the cash severance benefits under this Agreement shall be in lieu of the cash severance benefits payable under the Company's Executive Severance Benefit Plan. 8. PLAN AMENDMENTS. To the extent any provisions of this Agreement --------------- modify the terms of any existing plan, policy or arrangement affecting the compensation or benefits of the Employee, as appropriate, (a) such modification as set forth herein shall be deemed an amendment to such plan, policy or arrangement as to the Employee, and both the Company and the Employee hereby consent to such amendment, (b) the Company will appropriately modify such plan, policy or arrangement to correspond to this Agreement with respect to the Employee, or (c) the Company will provide an "Alternative Benefit," as defined in Section 14 hereof, to or on behalf of the Employee in accordance with the provisions of such Section 14. 9. CONFIDENTIAL INFORMATION. The Employee agrees that the Employee will ------------------------ not, during the Protected Period or at any time thereafter, either directly or indirectly, disclose or make known to any other person, firm, or corporation any confidential information, trade secret or proprietary information of the Company that the Employee may acquire in the performance of the Employee's duties hereunder (except in good faith in the ordinary course of business for the Company to a person who will be - -------------------------------------------------------------------------------- Page 16 - -------------------------------------------------------------------------------- advised by the Employee to keep such information confidential) or make use of any of such confidential information except in the performance of the Employee's duties or when required to do so by legal process, by any governmental agency having supervisory authority over the business of the Company or by any administrative or legislative body (including a committee thereof) that requires the Employee to divulge, disclose or make accessible such information. In the event that the Employee is so ordered, the Employee shall so advise the Company in order to allow the Company the opportunity to object to or otherwise resist such order. Upon the termination of the Employee's employment with the Company, the Employee agrees to deliver forthwith to the Company any and all proprietary literature, documents, correspondence, and other proprietary materials and records furnished to or acquired by the Employee during the course of such employment. In the event of a breach or threatened breach of this Section 9 by the Employee, the Company will be entitled to preliminary and permanent injunctive relief, without bond or security, sufficient to enforce the provisions hereof and the Company will be entitled to pursue such other remedies at law or in equity which it deems appropriate. 10. NON-COMPETITION. In consideration of this Agreement, the Employee --------------- agrees that, while employed during the Protected Period, and for one year after the Employee's termination of employment, unless the Employee has waived the Transaction Bonus and the equity consideration described in Subsections 6(b) and 6(c), the Employee shall not act as a proprietor, investor, director, officer, employee, substantial stockholder, consultant, or partner in any business engaged to a material extent in the manufacture or sale of (a) mattresses or other bedding products or (b) any other products which constitute more than ten percent (10%) of the Company's revenues at the time in direct competition with the Company in any market. If, however, the Employee has waived the Transaction Bonus and the equity consideration described in Subsections 6(b) and 6(c), this covenant not to compete shall be void upon the Employee's termination of employment. The Employee understands that the foregoing restrictions may limit the Employee's ability to engage in certain business pursuits during the period provided for above, but acknowledges that the Employee will receive sufficiently higher remuneration and other benefits from the Company hereunder than the Employee would otherwise receive to justify such restriction. The Employee acknowledges that the Employee understands the effect of the provisions of this Section 10, and the Employee has had reasonable time to consider the effect of these provisions, and that the Employee was encouraged to and had an opportunity to consult an attorney with respect to these provisions. The Company and the Employee consider the restrictions contained in this Section 10 to be reasonable and necessary. Nevertheless, if any aspect of these restrictions is found to be unreasonable or otherwise unenforceable by a court of competent jurisdiction, the Parties intend for such restrictions to be modified by such court so as to be reasonable and enforceable and, as so modified by the court, to be fully enforced. In the event of a breach or threatened breach of this Section 10 by the Employee, the Company will be entitled to preliminary and permanent injunctive relief, without bond or security, sufficient to enforce the provisions hereof and the Company will be entitled to pursue such other remedies at law or in equity which it deems appropriate. - -------------------------------------------------------------------------------- Page 17 - -------------------------------------------------------------------------------- During the ten (10) day period ending on the date of a Change of Control, the Employee may, by written notice to the Company, elect to waive his Transaction Bonus and the equity considerations described in Subsections 6(b) and 6(c). Such waiver shall be irrevocable. In the event of such a waiver, the Employee's agreement not to compete with the Company as set forth in this Section 10 shall be void upon his termination of employment. 11. NOTICES. For purposes of this Agreement, all communications provided ------- for herein shall be in writing and shall be deemed to have been duly given when hand delivered or mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows: (a) If the notice is to the Company: Mr. Ronald L. Jones Chief Executive Officer Sealy Corporation 1228 Euclid Avenue - Tenth Floor Cleveland, Ohio 44115-1886 With a copy to: Kenneth Walker, Esq. Vice President and General Counsel Sealy Corporation 1228 Euclid Avenue - Tenth Floor Cleveland, Ohio 44115-1886 (b) If the notice is to the Employee: John G. Bartik 6822 Glenella Drive Seven Hills, Ohio 44131 or to such other address as either party may have furnished to the other in writing and in accordance herewith; except that notices of change of address shall be effective only upon receipt. 12. ASSIGNMENT; BINDING EFFECT. This Agreement shall be binding upon and -------------------------- inure to the benefit of the parties to this Agreement and their respective successors, heirs (in the case of the Employee) and permitted assigns. No rights or obligations of the Company under this Agreement may be assigned or transferred by the Company except that such rights or obligations may be assigned or transferred in connection with the sale or transfer of all or substantially all of the assets of the Company, provided that the assignee or transferee is the successor to all or substantially all of the assets of the Company and such assignee or transferee expressly assumes the liabilities, obligations and duties of the Company, as contained in this Agreement, either contractually or as a matter of law. The Company further - -------------------------------------------------------------------------------- Page 18 - -------------------------------------------------------------------------------- agrees that, in the event of a sale or transfer of assets as described in the preceding sentence, it shall be a condition precedent to the consummation of any such transaction that the assignee or transferee expressly assumes the liabilities, obligations and duties of the Company hereunder. No rights or obligations of the Employee under this Agreement may be assigned or transferred by the Employee other than the Employee's rights to compensation and benefits, which may be transferred only by will or operation of law, except as provided in this Section 12. The Employee shall be entitled, to the extent permitted under any applicable law, to select and change a beneficiary or beneficiaries to receive any compensation or benefits payable hereunder following the Employee's death by giving the Company written notice thereof. In the absence of such a selection, any compensation or benefit payable under this Agreement following the death of the Employee shall be payable to the Employee's spouse, or if such spouse shall not survive the Employee, to the Employee's estate. In the event of the Employee's death or a judicial determination of his incompetence, reference in this Agreement to the Employee shall be deemed, where appropriate, to refer to the Employee's beneficiary, estate or other legal representative. 13. INVALID PROVISIONS. Any provision of this Agreement that is ------------------ prohibited or unenforceable shall be ineffective to the extent, but only to the extent, of such prohibition or unenforceability without invalidating the remaining portions hereof and such remaining portions of this Agreement shall continue to be in full force and effect. In the event that any provision of this Agreement shall be determined to be invalid or unenforceable, the Parties will negotiate in good faith to replace such provision with another provision that will be valid or enforceable and that is as close as practicable to the provisions held invalid or unenforceable. 14. ALTERNATIVE SATISFACTION OF COMPANY'S OBLIGATIONS. In the event this ------------------------------------------------- Agreement provides for payments or benefits to or on behalf of the Employee which cannot be provided under the Company's benefit plans, policies or arrangements either because such plans, policies or arrangements no longer exist or no longer provide such benefits or because provision of such benefits to the Employee would adversely affect the tax qualified or tax advantaged status of such plans, policies or arrangements for the Employee or other participants therein, the Company may provide the Employee with an "Alternative Benefit," as defined in this Section 14, in lieu thereof. The Alternative Benefit is a benefit or payment which places the Employee and the Employee's dependents in at least as good of an economic position as if the benefit promised by this Agreement (a) were provided exactly as called for by this Agreement, and (b) had the favorable economic, tax and legal characteristics customary for plans, policies or arrangements of that type. Furthermore, if such adverse consequence would affect the Employee or the Employee's dependents, the Employee shall have the right to require that the Company provide such an Alternative Benefit. 15. ENTIRE AGREEMENT, MODIFICATION. Subject to the provisions of Section ------------------------------ 16 hereof, this Agreement contains the entire agreement between the Parties with respect to the employment of the Employee by the Company and supersedes all - -------------------------------------------------------------------------------- Page 19 - -------------------------------------------------------------------------------- prior and contemporaneous agreements, representations, and understandings of the Parties, whether oral or written. No modification, amendment, or waiver of any of the provisions of this Agreement shall be effective unless in writing, specifically referring hereto, and signed by both Parties. 16. NON-EXCLUSIVITY OF RIGHTS. Notwithstanding the foregoing provisions ------------------------- of Section 15, nothing in this Agreement shall prevent or limit the Employee's continuing or future participation in any benefit, bonus, incentive or other plan, program, policy or practice provided by the Company for its executive officers, nor shall anything herein limit or otherwise affect such rights as the Employee has or may have under any stock option, restricted stock or other agreements with the Company or any of its subsidiaries. Amounts which the Employee or the Employee's dependents or beneficiaries are otherwise entitled to receive under any such plan, policy, practice or program shall not be reduced by this Agreement except as provided for in Section 7 hereof with respect to payments under the Executive Severance Benefit Plan if cash payments of annual base salary are made hereunder. 17. WAIVER OF BREACH. The failure at any time to enforce any of the ---------------- provisions of this Agreement or to require performance by the other party of any of the provisions of this Agreement shall in no way be construed to be a waiver of such provisions or to affect either the validity of this Agreement or any part of this Agreement or the right of either party thereafter to enforce each and every provision of this Agreement in accordance with the terms of this Agreement. 18. GOVERNING LAW. This Agreement has been made in, and shall be governed ------------- and construed in accordance with the laws of, the State of Ohio. The Parties agree that this Agreement is not an "employee benefit plan" or part of an "employee benefit plan" which is subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended. 19. TAX WITHHOLDING. The Company may withhold from any amounts payable --------------- under this Agreement such federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. Where withholding applies to Class A Shares, the Company shall make cashless withholding available to the Employee. 20. REPRESENTATION. The Company represents and warrants that it is fully -------------- authorized and empowered to enter into this Agreement and that the performance of its obligations under this Agreement will not violate any agreement between it and any other person, firm or organization. 21. SUBSIDIARIES AND AFFILIATES. Notwithstanding any contrary provision --------------------------- of this Agreement, to the extent it does not adversely affect the Employee, the Company may provide the compensation and benefits to which the Employee is entitled hereunder through one or more subsidiaries or affiliates, including, without limitation, Sealy, Inc. - -------------------------------------------------------------------------------- Page 20 - -------------------------------------------------------------------------------- 22. SOLE REMEDY. The Parties agree that the remedies of each against ----------- the other for breach of this Agreement shall be limited to enforcement of this Agreement and recovery of the amounts and remedies provided for herein. The Parties, however, further agree that such limitation shall not prevent either Party from proceeding against the other to recover for a claim other than under this Agreement. IN WITNESS WHEREOF, the Company and the Employee have executed this Agreement as of the day and year first above written. SEALY CORPORATION By: /s/ KENNETH L. WALKER _______________________ KENNETH L. WALKER Vice President, General Counsel & Secretary EMPLOYEE /s/ JOHN G. BARTIK _______________________ 9/3/97 EX-10.14 20 EMPLOYMENT AGREEMENT (J. GOUGHENOUR) - -------------------------------------------------------------------------------- Page 1 - -------------------------------------------------------------------------------- EXHIBIT 10.14 ------------- CHANGE OF CONTROL AGREEMENT THIS CHANGE OF CONTROL AGREEMENT is entered into as of the 4th day of August, 1997, by and between SEALY CORPORATION, a Delaware corporation (the "Company"), and JAMES F. GOUGHENOUR (the "Employee"). W I T N E S S E T H: WHEREAS, the Company and the Employee (collectively "the Parties") desire to enter into this Change of Control Agreement (the "Agreement") as hereinafter set forth; NOW, THEREFORE, the Company and Employee agree as follows: 1. PROTECTED PERIOD. ---------------- (a) This Agreement is intended to provide the Employee with certain special benefits and to grant certain special protections so that the Employee may more fully focus on the issues related to a "Change of Control," as hereinafter defined, and to reward the Employee for the substantial extra effort involved in a Change of Control. (b) In order to provide the protections deemed necessary and appropriate by the Parties, the Parties agree to the establishment of a period during which such protections apply. Such period shall be referred to in this Agreement as the "Protected Period." The Protected Period shall be as follows: (i) The Protected Period shall be the one (1) year period commencing on the date a Change of Control occurs and ending on the first anniversary thereof; and (ii) Provided that, if the Employee's employment terminates prior to a Change of Control, but such termination is "In Connection With a Change of Control," as hereinafter defined, the termination shall be deemed to have occurred during the Protected Period and the Employee shall be entitled to the benefits and protections set forth in this Agreement. (c) For purposes of this Agreement, and particularly Subsection 1(b) hereof, a termination shall be deemed to be "In Connection With a Change of Control" if: (i) Such termination is at the request of the purchaser in the Change of Control transaction; or - -------------------------------------------------------------------------------- Page 2 - -------------------------------------------------------------------------------- (ii) Such termination is by the Company other than for Cause or is by the Employee for Good Reason and reflects an intent by the Company to avoid payment of benefits under this Agreement notwithstanding the Employee's compliance with Section 2 hereof; provided, however, that a termination otherwise defined in this Subsection 1(c) as In Connection With a Change of Control will not be deemed In Connection With a Change of Control unless a Change of Control occurs within six (6) months after the date of the Employee's termination of employment with the Company. (d) The Parties agree that this Agreement is an agreement dealing only with benefits, rights and duties of the Parties during a Protected Period. The Parties specifically agree that this Agreement is not intended to be and is not an employment agreement. The Employee is, as of the date of this Agreement, and will remain, an employee at will, but subject to those special provisions herein set forth. 2. POSITION, DUTIES, AND RESPONSIBILITIES. At all times during the -------------------------------------- Protected Period, the Employee shall: (a) Hold either (i) the position with the Company that the Employee holds at the commencement of the Protected Period or (ii) a position with the Company of greater duties, responsibilities and authority than the position with the Company that the Employee holds at the commencement of the Protected Period; (b) Have those duties and responsibilities, and the authority, customarily possessed by an employee of a major corporation in the position of the Employee and such additional duties as may be assigned to the Employee from time to time by the Board of Directors of the Company (the "Board") or the Chief Executive Officer of the Company (the "Chief Executive Officer") or the Employee's superior(s) which are consistent with the Employee's position; (c) Adhere to such reasonable policies and directives as may be promulgated from time to time by the Board or the Chief Executive Officer and which are applicable to employees at the Employee's level with the Company; (d) Invest in the Company only in accordance with any insider trading policy of the Company in effect at the time of the investment; and (e) Devote the Employee's entire business time, energy, and talent to - -------------------------------------------------------------------------------- Page 3 - -------------------------------------------------------------------------------- the business, and to the furtherance of the purposes and objectives, of the Company, and neither directly nor indirectly act as an employee of or render any business, commercial, or professional services to any other person, firm or organization for compensation, without the prior written approval of the Board or the Chief Executive Officer. Nothing in this Agreement shall preclude the Employee from devoting reasonable periods of time to charitable and community activities or the management of the Employee's investment assets, provided such activities do not interfere with the performance by the Employee of the Employee's duties hereunder. 3. SALARY, BONUS AND BENEFITS. For services rendered by the Employee on -------------------------- behalf of the Company during the Protected Period, the following salary, bonus and benefits shall be provided to the Employee by the Company: (a) The Company shall pay to the Employee, in equal installments, according to the Company's then current practice for paying its employees at the level of the Employee in effect from time to time during the Protected Period, an annual base salary at a rate not less than that in effect at the commencement of the Protected Period. (b) The Employee shall participate in the Sealy Corporation Annual Bonus Plan (the "Bonus Plan") in accordance with the provisions of that Plan as in effect as of the date of this Agreement with a Target annual bonus as determined under the Bonus Plan as of the commencement of the Protected Period equal to the applicable percentage (his "Target Annual Bonus Percentage") of annual base salary with a range as in effect as of such date. (c) The Employee shall be eligible for participation in such other benefit plans, including, but not limited to, the Company's Profit Sharing Plan and Trust, Executive Severance Benefit Plan, Benefit Equalization Plan, Short-Term and Long Term Disability Plans, Group Term Life Insurance Plan, Medical Plan or PPO, Dental Plan, the 401(k) feature of the Profit Sharing Plan, the 1996 Transitional Restricted Stock Plan and/or the 1997 Stock Option Plan, as the Board may adopt from time to time and in which the Company's employees at the level comparable to the Employee are eligible to participate. Such participation shall be subject to the terms and conditions set forth in the applicable plan documents. As is more fully set forth in Section 7 hereof, the Employee shall not be entitled to duplicative payments in this Agreement and the Executive Severance Plan. (d) The Employee shall be entitled to take, during the Protected - -------------------------------------------------------------------------------- Page 4 - -------------------------------------------------------------------------------- Period, at least the amount of vacation time to which the Employee is entitled as of the date of this Agreement under the Company's vacation policy applicable to employees at the level comparable to the Employee or would have become entitled as of the applicable time if such vacation policy were still in effect throughout the Protected Period. (e) In addition, the Parties do hereby further confirm that the Employee may be entitled to a number of restricted shares of Class A Common Stock of the Company ("Class A Shares"), as well as options to purchase additional Class A Shares pursuant to various benefit plans or agreements with the Company. The Parties agree that (a) such restricted Class A Shares and such options are in addition to, and not in lieu of, any shares or options which may be granted under any other plan or arrangement of the Company after the date of this Agreement, and (b) the various restricted stock agreements and stock option agreements, and any related Stockholder Agreement (the "Stockholder Agreement") between the Parties (such agreements being hereinafter referred to collectively as the "Pre-existing Agreements"), all remain in full force and effect except as otherwise provided herein. Notwithstanding the foregoing, to the extent that any provision contained herein is inconsistent with the terms of any of the Pre-existing Agreements, the terms of this Agreement shall be controlling. 4. TERMINATION OF EMPLOYMENT. During a "Protected Period," the ------------------------- Employee's employment may be terminated as follows: (a) The Employee's employment hereunder will terminate without further notice upon the death of the Employee. (b) The Company may terminate the Employee's employment hereunder effective immediately upon giving written notice of such termination for "Cause". For these purposes, "Cause" shall mean the following: (i) Commission by the Employee (evidenced by a conviction or written, voluntary and freely given confession) of a criminal act constituting a felony; (ii) Commission by the Employee of a material breach or material default of any of the Employee's agreements or obligations under any provision of this Agreement, including, without limitation, the Employee's agreements and obligations under Subsections 2(a) through 2(e) and Sections 9 and 10 of this Agreement, which is not cured in - -------------------------------------------------------------------------------- Page 5 - -------------------------------------------------------------------------------- all material respects within thirty (30) days after the Chief Executive Officer or the designee thereof gives written notice thereof to the Employee; or (iii) Commission by the Employee, when carrying out the Employee's duties under this Agreement, of acts or the omission of any act, which both: (A) constitutes gross negligence or willful misconduct and (B) results in material economic harm to the Company or has a materially adverse effect on the Company's operations, properties or business relationships. (c) The Employee's employment hereunder may be terminated upon disability, if the Employee is prevented from performing the Employee's duties hereunder by reason of physical or mental incapacity for a period of one hundred eighty (180) consecutive days in any period of two consecutive fiscal years of the Company, but the Employee shall be entitled to full compensation and benefits hereunder until the close of such one hundred and eighty (180) day period. (d) The Company may terminate the Employee's employment hereunder without Cause at any time upon thirty (30) days written notice. (e) The Employee may terminate employment hereunder effective immediately upon giving written notice of such termination for "Good Reason", as defined in Subsection 4(g) below. (f) The Employee may terminate employment hereunder without Good Reason at any time upon thirty (30) days written notice. (g) For purposes of this Agreement, "Good Reason" means the occurrence of (i) any reduction in either the annual base salary of the Employee or the Target Annual Bonus Percentage or maximum annual bonus percentage applicable to the Employee under the Bonus Plan, (ii) any material reduction in the position, authority or office of the Employee, (iii) any material reduction in the Employee's responsibilities or duties for the Company, (iv) any material adverse change or reduction in the aggregate "Minimum Benefits," as hereinafter defined, provided to the Employee as of the date of this Agreement (provided that any material reduction in such aggregate Minimum Benefits that is required by law or applies generally to all employees of the Company shall not constitute "Good Reason" as defined hereunder), (v) any relocation of the Employee's principal place of work with the Company to a place more than twenty-five (25) miles from the geographical center of - -------------------------------------------------------------------------------- Page 6 - -------------------------------------------------------------------------------- Cleveland, Ohio, or (vi) the material breach or material default by the Company of any of its agreements or obligations under any provision of this Agreement. As used in this Subsection 4(g), an "adverse change or material reduction" in the aggregate Minimum Benefits shall be deemed to result from any reduction or any series of reductions which, in the aggregate, exceeds five percent (5%) of the value of such aggregate Minimum Benefits determined as of the date of this Agreement. As used in this Subsection 4(g), Minimum Benefits are life insurance, accidental death, long term disability, short term disability, medical, dental, and vision benefits and the Company's expense reimbursement policy. The Employee shall give written notice to the Company on or before the date of termination of employment for Good Reason stating that the Employee is terminating employment with the Company and specifying in detail the reasons for such termination. If the Company does not object to such notice by notifying the Employee in writing within five (5) days following the date of the Company's receipt of the Employee's notice of termination, the Company shall be deemed to have agreed that such termination was for Good Reason. The parties agree that "Good Reason" will not be deemed to have occurred merely because the Company becomes a subsidiary or division of another entity following a "Change of Control," as hereinafter defined, provided the Employee continues to serve in the same capacity with such subsidiary or division as his capacity with the Company at the beginning of the Protected Period and such subsidiary or division is comparable in size to the organization consisting of the Company and its subsidiaries. The parties further agree that "Good Reason" will be deemed to have occurred if the purchaser, in a Change of Control transaction, does not assume this Agreement in accordance with Section 12 hereof. 5. SEVERANCE COMPENSATION. If the Employee's employment is terminated ---------------------- during a Protected Period, the following severance provisions will apply: (a) If the Employee's employment is terminated by the Company other than for Cause or is terminated by the Employee for Good Reason, then, through the one year period commencing on the date of the Employee's termination of employment (the "Payment Term") the Company shall: (i) continue to pay the Employee's annual base salary in the then prevailing amount and at the times specified in Subsection 3(a) hereof, or if such annual base salary has decreased during the one year period ending on the Employee's termination of employment, at the highest rate in effect during such one year period; - -------------------------------------------------------------------------------- Page 7 - -------------------------------------------------------------------------------- (ii) continue the Employee's participation in the Bonus Plan as provided in Subsection 3(b) hereof provided that the Company will: (A) pay the Employee a bonus under the Bonus Plan for the partial year period ending on the date of the Employee's termination of employment calculated as if the Employee had continued to be employed for the entire year except that the Employee's bonus percentage (calculated at the time and in the manner customary as of the date of this Agreement, but disregarding the termination of employment of the Employee) shall be applied to the Employee's annual base salary payable in accordance with Subsection 3(a) hereof for the partial year period ending on the Employee's termination of employment; and (B) thereafter, during the remainder of the Payment Term, a bonus equal to the Employee's Target Annual Bonus Percentage, multiplied by the Employee's annual base salary in the amount specified in Subsection 5(a)(i) payable during the year (or portion thereof) for which the bonus is being calculated; with such amounts being payable when bonuses under the Bonus Plan are customarily payable, except that the final bonus shall be payable with the final payment of the annual base salary under Subsection 5(a)(i) hereof; (iii) pay for executive outplacement services for the Employee from a nationally recognized executive outplacement firm at a level consistent with the employee's position, provided that such outplacement services will be provided for a six (6) month period commencing on the date of termination of employment regardless of the Payment Term; and (iv) In lieu of the payments described in Subsections 5(a)(i) and 5(a)(ii) hereof, at the Employee's request, submitted in writing to the Company within five (5) business days after the date of the Employee's termination of employment: (A) the Company will pay the total of the Employee's annual base salary payments described in Subsection 5(a)(i) in a single sum within thirty (30) days following the Employee's termination of - -------------------------------------------------------------------------------- Page 8 - -------------------------------------------------------------------------------- employment; and (B) his Bonus Plan payments described in Subsection 5(a)(ii) shall be made at the same time as the Employee's payment under Subsection 5(a)(vi)(A) but shall be calculated using the Employee's Target Annual Bonus Percentage for all calculation purposes. (b) If the Employee's employment hereunder terminates due to the Employee's death, disability, termination by the Company for Cause or termination by the Employee other than for Good Reason, then no further compensation or benefits will be provided to the Employee by the Company under this Agreement following the date of such termination of employment other than payment of compensation earned to the date of termination of employment but not yet paid. As more fully and generally provided in Section 16 hereof, this Subsection 5(b) shall not be interpreted to deny the Employee any benefits to which he may be entitled under any plan or arrangement of the Company applicable to the Employee. Likewise, this Subsection 5(b) shall not be interpreted to entitle the Employee to a bonus under the Bonus Plan following his termination of employment except as provided in the Bonus Plan which requires employment on the last day of the Company's taxable year as a condition to receipt of a bonus thereunder for such year except in the cases of death, disability or retirement at or after either age 62 with ten years of service or age 65. (c) Notwithstanding anything contained in this Agreement to the contrary, other than Section 16 hereof, if the Employee breaches any of his obligations under Section 9 or 10 hereof, no further severance payments or other benefits will be payable to the Employee under this Section 5. 6. CHANGE OF CONTROL. ----------------- (a) In General. In the event of a Change of Control as defined in ---------- this Section 6, the Employee shall become entitled to certain special benefits and shall have certain special protections so that he may more fully focus on the issues related to such a Change of Control, and to reward the Employee for the substantial additional effort involved in a Change of Control. The special benefits and protections are set forth in this Section 6. (b) Transaction Bonus. In the event of a Change of Control, then ----------------- subject to the requirements set forth in this Subsection 6(b), the Employee will receive a cash transaction bonus (the "Transaction - -------------------------------------------------------------------------------- Page 9 - -------------------------------------------------------------------------------- Bonus") calculated and payable as follows: (i) If the Employee is employed by the Company on the date of the Change of Control, the total amount of the Transaction Bonus shall be equal to fifty percent (50%) of his annual base salary in the then prevailing amount specified in Subsection 3(a) hereof, or if such annual base salary has decreased during the one year period ending on his termination of employment, at the highest rate in effect during such one year period; and. (ii) If the Employee is employed by the Company on the date of the Change of Control and either is employed by the Company on the first anniversary thereof or is not employed by the Company on such first anniversary due to the Employee's death or disability, the Transaction Bonus shall be payable as follows: (A) If the Employee is employed by the Company on the day of the Change of Control, one-half (1/2) of the Transaction Bonus shall be payable to the Employee on such date; and (B) If the Employee is employed by the Company on the first anniversary of the Change of Control, the other one-half (1/2) of the Transaction Bonus shall be payable to the Employee on such date. (C) Furthermore, if the Employee is employed by the Company on the date of the Change of Control but, due to the Employee's death or disability, the Employee is no longer employed by the Company on the first anniversary thereof, the Employee (or the Employee's beneficiary in the event of the Employee's death) shall nevertheless be entitled to the other one-half (1/2) of the Transaction Bonus, which amount shall be payable on such first anniversary. (iii) If the Employee is not employed by the Company on either or both of the date of the Change of Control and the date of the first anniversary thereof due to the Employee's termination by the Company other than for Cause or due to the Employee's termination of employment for Good Reason, but if the Employee's Payment Term includes either or both such dates, the Employee shall nonetheless be entitled to the Transaction Bonus which would otherwise be - -------------------------------------------------------------------------------- Page 10 - -------------------------------------------------------------------------------- payable on the date or dates which are included in such Payment Term even though the Employee is no longer then employed by the Company. Any Transaction Bonus payable in accordance with this Subsection 6(b)(iii) shall be in an amount, and shall be payable on a date, determined in accordance with Subsection 6(b)(iv) or 6(b)(v), whichever is applicable. (iv) If the Employee is not employed by the Company on the date of the Change of Control, but a Transaction Bonus is payable to the Employee in accordance with Subsection 6(b)(iii) hereof, the following shall apply: (A) The Transaction Bonus shall be in the amount calculated in accordance with Subsection 6(b)(i); (B) The Transaction Bonus shall be paid in full to the Employee (or the Employee's beneficiary in the event of the Employee's death) on the date of the Change of Control; and (C) On the date of the Change of Control, the Employee (or the Employee's personal representative or beneficiary in the event of the Employee's death) shall assign to the Company the Employee's restricted Class A Shares and the Employee's stock options for Class A Shares and any other Class A Shares or equity interest in the Company which the Employee may then own, regardless of how the Employee may have acquired such restricted stock, options, Class A Shares, or equity interest. In exchange therefore, the Company shall pay to the Employee (or the Employee's beneficiary in the event of the Employee's death), on such date, an amount equal to the value of the Employee's restricted Class A Shares and the Employee's stock options for Class A Shares, to the extent such options are exercisable and such restricted stock is vested, and any other Class A Shares or equity interest in the Company which the Employee may then own. Such value shall be calculated using the Class A Share Change of Control Valuation as hereinafter defined. The value of the exercisable stock options for this purpose shall be the amount by which the value of the Class A Shares, as so determined, exceeds the exercise price. - -------------------------------------------------------------------------------- Page 11 - -------------------------------------------------------------------------------- (v) If the Employee is employed by the Company on the date of the Change of Control but not on the first anniversary thereof, but a Transaction Bonus is payable to the Employee in accordance with Subsection 6(b)(iii) hereof, the following shall apply: (A) The Transaction Bonus shall be in the amount calculated in accordance with Subsection 6(b)(i); and (B) The portion of the Transaction Bonus remaining unpaid upon the Employee's termination of employment with the Company shall be paid to the Employee (or the Employee's beneficiary in the event of the Employee's death) within ten (10) days following such termination of employment. (vi) Notwithstanding anything contained in this Agreement to the contrary, if the Employee breaches any of the Employee's obligations under Section 9 or 10 hereof, no further Transaction Bonus payments will be payable to the Employee. (c) Equity Considerations. If the Employee is employed by the --------------------- Company on the day of the Change of Control, the Employee shall receive the following equity considerations: (i) all restricted stock of the Company, owned by the Employee on the date of the Change of Control, regardless of whether acquired under the 1996 Transitional Restricted Stock Plan or under an individual agreement with the Company or otherwise, will become and remain one hundred percent (100%) vested; (ii) all stock options for Class A Shares of the Company, owned by the Employee on the date of the Change of Control, regardless of whether acquired under the 1989, 1992 or 1997 Stock Option Plan or under an individual agreement with the Company or otherwise, will immediately become and remain throughout the full remaining term of such options one hundred percent (100%) vested and fully exercisable, and such exercise then and thereafter shall be available on a cashless basis such that the Employee may receive the net value of the Employee's options (represented by the amount by which the fair market value of the Class A Shares exceeds the exercise price) in cash or Class A Shares as the Employee shall elect, without outlay of cash but net of all applicable withholding taxes, which - -------------------------------------------------------------------------------- Page 12 - -------------------------------------------------------------------------------- taxes shall be remitted by the Company to the proper taxing authorities; (iii) upon any such Change of Control transaction, all limitations, restrictions or conditions relating to the Employee's rights to receive, vote, own and/or transfer any Class A Shares contained in any of the Pre-existing Agreements or contained in any other document, agreement or plan shall terminate and shall be of no further force and effect, except for any registration rights in effect; (iv) if permitted by the purchaser in the Change of Control transaction (the "Purchaser"), the Company will provide for the Employee the opportunity to convert all or a portion, as he shall elect, of the Employee's options to purchase Class A Shares as well as Class A Shares then owned by the Employee, into an equity investment in the entity resulting from Purchaser's transaction (the "Successor") on a tax favored basis. The amount available for such investment shall be an amount calculated on the basis of the per Share price paid in the Change of Control transaction or series of transactions or implicit in the valuation of the Change of Control transaction, including all elements of consideration paid or payable (the "Change of Control Valuation"). (v) If the Purchaser in the Change of Control transaction does not permit the Employee to convert (or the Employee chooses not to convert) all (or a portion) of the Employee's options to purchase Class A Shares and Class A Shares then owned by the Employee into equity in the Successor, then the Employee shall exercise, at the time of the Change of Control, all options the Employee holds for Class A Shares (such exercise to provide cash rather than Class A Shares to the Employee in accordance with the exercise procedure described in Subsection 6(c)(ii) hereof), and shall sell to the Company at the time of the Change of Control all Class A Shares then owned by the Employee, to the extent such options or Class A Shares are not converted into equity in the Successor. Such exercise of options and sale of Class A Shares shall yield an amount to the Employee determined by the Class A Share Change of Control Valuation. (d) Change of Control. For purposes of this Agreement, the words ------------------ "Change of Control" means a change in control of the Company of a nature that would be required to be reported in response to Item - -------------------------------------------------------------------------------- Page 13 - -------------------------------------------------------------------------------- 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended, as in effect on the date of this Agreement (the "Exchange Act"), whether or not the Company is then subject to such reporting requirements; provided, that, without limitation, a Change of Control shall be deemed to have occurred if: (i) any "person" (as defined in Sections 13(d) and 14(d) of the Exchange Act), other than Zell/Chilmark Fund, L.P., is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing twenty percent (20%) or more of the combined voting power of the Company's then outstanding securities; provided that a Change in Control shall not be deemed to occur under this clause (i) by reason of (A) the acquisition of securities by the Company or an employee benefit plan (or any trust funding such a plan) maintained by the Company, or (B) while Zell/Chilmark Fund, L.P. continues to beneficially own more than fifty percent (50%) of the combined voting power of the Company's then outstanding securities; (ii) during any period of one (1) year there shall cease to be a majority of the Board comprised of "Continuing Directors" as hereinafter defined; or (iii) the stockholders of the Company (A) approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than eighty percent (80%) of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or (B) approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of more than fifty percent (50%) of the Company's assets. For purposes of this Subsection 6(d)(iii), a sale of more than fifty percent (50%) of the Company's assets includes a sale of more than fifty percent (50%) of the aggregate value of the assets of the Company and its subsidiaries or the sale of stock of one or more of the Company's subsidiaries with an aggregate value in excess of fifty percent (50%) of the aggregate value of the Company and its subsidiaries or any combination of methods by which more than fifty percent - -------------------------------------------------------------------------------- Page 14 - -------------------------------------------------------------------------------- (50%) of the aggregate value of the Company and its subsidiaries is sold. (iv) For purposes of this Agreement, a "Change of Control" will be deemed to occur: (A) on the day on which a twenty percent (20%) or greater ownership interest described in Subsection 6(d)(i) is acquired or, if later, the day on which the Zell/Chilmark Fund, L.P. ceases to beneficially own more than fifty percent (50%) of the combined voting power of the Company's then outstanding securities, provided that a subsequent increase in such ownership interest after it first equals or exceeds twenty percent (20%) shall not be deemed a separate Change of Control; (B) on the day on which "Continuing Directors," as hereinafter defined, cease to be a majority of the Board as described in Subsection 6(d)(ii); (C) on the day of a merger, consolidation or sale or disposition of assets as described in Subsection 6(d)(iii); or (D) on the day of the approval of a plan of complete liquidation as described in Subsection 6(d)(iii). (v) For purposes of this Subsection 6(d), the word "Company" means Sealy Corporation, and, any other corporation or business organization in an unbroken chain of corporations or business organization ending with Sealy Corporation that owns, directly or indirectly, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock of Sealy Corporation other than Zell/Chilmark Fund, L.P. (vi) For purposes of this Subsection 6(d), the words "Continuing Directors" mean individuals who at the beginning of any period (not including any period prior to the date of this Agreement) of one (1) year constitute the Board and any new director(s) whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least a majority of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so - -------------------------------------------------------------------------------- Page 15 - -------------------------------------------------------------------------------- approved. (e) Section 16 Protection. If the Employee is subject to Section 16 --------------------- of the Securities Exchange Act of 1934 ("Section 16"), then to the extent the Employee would be deprived of the benefits of the equity considerations described herein or under any of the Pre- existing Agreements or under the 1989, 1992 or 1997 Stock Option Plan or the 1996 Transitional Restricted Stock Plan, as described above, or any other plan or arrangement regarding stock of the Company, by reason of such Section 16 or the Rules issued thereunder, the Employee shall be provided with the alternative of receiving a cash payment approximating the loss of such benefits under a cash compensation plan implemented by the Company. The Company agrees to have this Agreement, and specifically this Section 6 approved by the Board in compliance with Section 16 and Rule 16b-3 thereunder to ensure its enforceability. 7. SEVERANCE PLAN. It is the intention of the Parties that this -------------- Agreement provide special benefits to the Employee. If at any time the Company's Executive Severance Benefit Plan would provide better cash severance benefits to the Employee than this Agreement, the Employee may elect to receive such better cash severance benefits in lieu of the cash severance benefits provided under Subsections 5(a)(i) and 5(a)(ii), or Subsection 5(a)(v), of this Agreement, whichever is applicable, while continuing to receive any other benefits or coverages available under this Agreement. If this Agreement would provide better cash severance benefits to the Employee than the Company's Executive Severance Benefit Plan, the Employee shall receive the cash severance benefits under this Agreement, as well as any other benefits or coverages available under this Agreement. In such case, the cash severance benefits under this Agreement shall be in lieu of the cash severance benefits payable under the Company's Executive Severance Benefit Plan. 8. PLAN AMENDMENTS. To the extent any provisions of this Agreement --------------- modify the terms of any existing plan, policy or arrangement affecting the compensation or benefits of the Employee, as appropriate, (a) such modification as set forth herein shall be deemed an amendment to such plan, policy or arrangement as to the Employee, and both the Company and the Employee hereby consent to such amendment, (b) the Company will appropriately modify such plan, policy or arrangement to correspond to this Agreement with respect to the Employee, or (c) the Company will provide an "Alternative Benefit," as defined in Section 14 hereof, to or on behalf of the Employee in accordance with the provisions of such Section 14. 9. CONFIDENTIAL INFORMATION. The Employee agrees that the Employee will ------------------------ not, during the Protected Period or at any time thereafter, either directly or indirectly, disclose or make known to any other person, firm, or corporation any confidential information, trade secret or proprietary information of the Company that the Employee may acquire in the performance of the Employee's duties hereunder (except in good faith in the ordinary course of business for the Company to a person who will be - -------------------------------------------------------------------------------- Page 16 - -------------------------------------------------------------------------------- advised by the Employee to keep such information confidential) or make use of any of such confidential information except in the performance of the Employee's duties or when required to do so by legal process, by any governmental agency having supervisory authority over the business of the Company or by any administrative or legislative body (including a committee thereof) that requires the Employee to divulge, disclose or make accessible such information. In the event that the Employee is so ordered, the Employee shall so advise the Company in order to allow the Company the opportunity to object to or otherwise resist such order. Upon the termination of the Employee's employment with the Company, the Employee agrees to deliver forthwith to the Company any and all proprietary literature, documents, correspondence, and other proprietary materials and records furnished to or acquired by the Employee during the course of such employment. In the event of a breach or threatened breach of this Section 9 by the Employee, the Company will be entitled to preliminary and permanent injunctive relief, without bond or security, sufficient to enforce the provisions hereof and the Company will be entitled to pursue such other remedies at law or in equity which it deems appropriate. 10. NON-COMPETITION. In consideration of this Agreement, the Employee --------------- agrees that, while employed during the Protected Period, and for one year after the Employee's termination of employment, unless the Employee has waived the Transaction Bonus and the equity consideration described in Subsections 6(b) and 6(c), the Employee shall not act as a proprietor, investor, director, officer, employee, substantial stockholder, consultant, or partner in any business engaged to a material extent in the manufacture or sale of (a) mattresses or other bedding products or (b) any other products which constitute more than ten percent (10%) of the Company's revenues at the time in direct competition with the Company in any market. If, however, the Employee has waived the Transaction Bonus and the equity consideration described in Subsections 6(b) and 6(c), this covenant not to compete shall be void upon the Employee's termination of employment. The Employee understands that the foregoing restrictions may limit the Employee's ability to engage in certain business pursuits during the period provided for above, but acknowledges that the Employee will receive sufficiently higher remuneration and other benefits from the Company hereunder than the Employee would otherwise receive to justify such restriction. The Employee acknowledges that the Employee understands the effect of the provisions of this Section 10, and the Employee has had reasonable time to consider the effect of these provisions, and that the Employee was encouraged to and had an opportunity to consult an attorney with respect to these provisions. The Company and the Employee consider the restrictions contained in this Section 10 to be reasonable and necessary. Nevertheless, if any aspect of these restrictions is found to be unreasonable or otherwise unenforceable by a court of competent jurisdiction, the Parties intend for such restrictions to be modified by such court so as to be reasonable and enforceable and, as so modified by the court, to be fully enforced. In the event of a breach or threatened breach of this Section 10 by the Employee, the Company will be entitled to preliminary and permanent injunctive relief, without bond or security, sufficient to enforce the provisions hereof and the Company will be entitled to pursue such other remedies at law or in equity which it deems appropriate. - -------------------------------------------------------------------------------- Page 17 - -------------------------------------------------------------------------------- During the ten (10) day period ending on the date of a Change of Control, the Employee may, by written notice to the Company, elect to waive his Transaction Bonus and the equity considerations described in Subsections 6(b) and 6(c). Such waiver shall be irrevocable. In the event of such a waiver, the Employee's agreement not to compete with the Company as set forth in this Section 10 shall be void upon his termination of employment. 11. NOTICES. For purposes of this Agreement, all communications provided ------- for herein shall be in writing and shall be deemed to have been duly given when hand delivered or mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows: (a) If the notice is to the Company: Mr. Ronald L. Jones Chief Executive Officer Sealy Corporation 1228 Euclid Avenue - Tenth Floor Cleveland, Ohio 44115-1886 With a copy to: Kenneth Walker, Esq. Vice President and General Counsel Sealy Corporation 1228 Euclid Avenue - Tenth Floor Cleveland, Ohio 44115-1886 (b) If the notice is to the Employee: ___________________________________ ___________________________________ ___________________________________ or to such other address as either party may have furnished to the other in writing and in accordance herewith; except that notices of change of address shall be effective only upon receipt. 12. ASSIGNMENT; BINDING EFFECT. This Agreement shall be binding upon and -------------------------- inure to the benefit of the parties to this Agreement and their respective successors, heirs (in the case of the Employee) and permitted assigns. No rights or obligations of the Company under this Agreement may be assigned or transferred by the Company except that such rights or obligations may be assigned or transferred in connection with the sale or transfer of all or substantially all of the assets of the Company, provided that the assignee or transferee is the successor to all or substantially all of the assets of the Company and such assignee or transferee expressly assumes the liabilities, obligations and duties of the Company, as contained in this Agreement, either contractually or as a matter of law. The Company further - -------------------------------------------------------------------------------- Page 18 - -------------------------------------------------------------------------------- agrees that, in the event of a sale or transfer of assets as described in the preceding sentence, it shall be a condition precedent to the consummation of any such transaction that the assignee or transferee expressly assumes the liabilities, obligations and duties of the Company hereunder. No rights or obligations of the Employee under this Agreement may be assigned or transferred by the Employee other than the Employee's rights to compensation and benefits, which may be transferred only by will or operation of law, except as provided in this Section 12. The Employee shall be entitled, to the extent permitted under any applicable law, to select and change a beneficiary or beneficiaries to receive any compensation or benefits payable hereunder following the Employee's death by giving the Company written notice thereof. In the absence of such a selection, any compensation or benefit payable under this Agreement following the death of the Employee shall be payable to the Employee's spouse, or if such spouse shall not survive the Employee, to the Employee's estate. In the event of the Employee's death or a judicial determination of his incompetence, reference in this Agreement to the Employee shall be deemed, where appropriate, to refer to the Employee's beneficiary, estate or other legal representative. 13. INVALID PROVISIONS. Any provision of this Agreement that is ------------------ prohibited or unenforceable shall be ineffective to the extent, but only to the extent, of such prohibition or unenforceability without invalidating the remaining portions hereof and such remaining portions of this Agreement shall continue to be in full force and effect. In the event that any provision of this Agreement shall be determined to be invalid or unenforceable, the Parties will negotiate in good faith to replace such provision with another provision that will be valid or enforceable and that is as close as practicable to the provisions held invalid or unenforceable. 14. ALTERNATIVE SATISFACTION OF COMPANY'S OBLIGATIONS. In the event this ------------------------------------------------- Agreement provides for payments or benefits to or on behalf of the Employee which cannot be provided under the Company's benefit plans, policies or arrangements either because such plans, policies or arrangements no longer exist or no longer provide such benefits or because provision of such benefits to the Employee would adversely affect the tax qualified or tax advantaged status of such plans, policies or arrangements for the Employee or other participants therein, the Company may provide the Employee with an "Alternative Benefit," as defined in this Section 14, in lieu thereof. The Alternative Benefit is a benefit or payment which places the Employee and the Employee's dependents in at least as good of an economic position as if the benefit promised by this Agreement (a) were provided exactly as called for by this Agreement, and (b) had the favorable economic, tax and legal characteristics customary for plans, policies or arrangements of that type. Furthermore, if such adverse consequence would affect the Employee or the Employee's dependents, the Employee shall have the right to require that the Company provide such an Alternative Benefit. 15. ENTIRE AGREEMENT, MODIFICATION. Subject to the provisions of Section ------------------------------ 16 hereof, this Agreement contains the entire agreement between the Parties with respect to the employment of the Employee by the Company and supersedes all - -------------------------------------------------------------------------------- Page 19 - -------------------------------------------------------------------------------- prior and contemporaneous agreements, representations, and understandings of the Parties, whether oral or written. No modification, amendment, or waiver of any of the provisions of this Agreement shall be effective unless in writing, specifically referring hereto, and signed by both Parties. 16. NON-EXCLUSIVITY OF RIGHTS. Notwithstanding the foregoing provisions ------------------------- of Section 15, nothing in this Agreement shall prevent or limit the Employee's continuing or future participation in any benefit, bonus, incentive or other plan, program, policy or practice provided by the Company for its executive officers, nor shall anything herein limit or otherwise affect such rights as the Employee has or may have under any stock option, restricted stock or other agreements with the Company or any of its subsidiaries. Amounts which the Employee or the Employee's dependents or beneficiaries are otherwise entitled to receive under any such plan, policy, practice or program shall not be reduced by this Agreement except as provided for in Section 7 hereof with respect to payments under the Executive Severance Benefit Plan if cash payments of annual base salary are made hereunder. 17. WAIVER OF BREACH. The failure at any time to enforce any of the ---------------- provisions of this Agreement or to require performance by the other party of any of the provisions of this Agreement shall in no way be construed to be a waiver of such provisions or to affect either the validity of this Agreement or any part of this Agreement or the right of either party thereafter to enforce each and every provision of this Agreement in accordance with the terms of this Agreement. 18. GOVERNING LAW. This Agreement has been made in, and shall be governed ------------- and construed in accordance with the laws of, the State of Ohio. The Parties agree that this Agreement is not an "employee benefit plan" or part of an "employee benefit plan" which is subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended. 19. TAX WITHHOLDING. The Company may withhold from any amounts payable --------------- under this Agreement such federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. Where withholding applies to Class A Shares, the Company shall make cashless withholding available to the Employee. 20. REPRESENTATION. The Company represents and warrants that it is fully -------------- authorized and empowered to enter into this Agreement and that the performance of its obligations under this Agreement will not violate any agreement between it and any other person, firm or organization. 21. SUBSIDIARIES AND AFFILIATES. Notwithstanding any contrary provision --------------------------- of this Agreement, to the extent it does not adversely affect the Employee, the Company may provide the compensation and benefits to which the Employee is entitled hereunder through one or more subsidiaries or affiliates, including, without limitation, Sealy, Inc. - -------------------------------------------------------------------------------- Page 20 - -------------------------------------------------------------------------------- 22. SOLE REMEDY. The Parties agree that the remedies of each against ----------- the other for breach of this Agreement shall be limited to enforcement of this Agreement and recovery of the amounts and remedies provided for herein. The Parties, however, further agree that such limitation shall not prevent either Party from proceeding against the other to recover for a claim other than under this Agreement. IN WITNESS WHEREOF, the Company and the Employee have executed this Agreement as of the day and year first above written. SEALY CORPORATION By: /s/ KENNETH L. WALKER _______________________ KENNETH L. WALKER Vice President, General Counsel & Secretary EMPLOYEE /s/ JIM GOUGHENOUR _______________________ 8/4/97 EX-10.15 21 EMPLOYMENT AGREEMENT (R. SOWERBY) - -------------------------------------------------------------------------------- Page 1 - -------------------------------------------------------------------------------- EXHIBIT 10.15 ------------- CHANGE OF CONTROL AGREEMENT THIS CHANGE OF CONTROL AGREEMENT is entered into as of the 27th day of August, 1997, by and between SEALY CORPORATION, a Delaware corporation (the "Company"), and RICHARD F. SOWERBY (the "Employee"). W I T N E S S E T H: WHEREAS, the Company and the Employee (collectively "the Parties") desire to enter into this Change of Control Agreement (the "Agreement") as hereinafter set forth; NOW, THEREFORE, the Company and Employee agree as follows: 1. PROTECTED PERIOD. ---------------- (a) This Agreement is intended to provide the Employee with certain special benefits and to grant certain special protections so that the Employee may more fully focus on the issues related to a "Change of Control," as hereinafter defined, and to reward the Employee for the substantial extra effort involved in a Change of Control. (b) In order to provide the protections deemed necessary and appropriate by the Parties, the Parties agree to the establishment of a period during which such protections apply. Such period shall be referred to in this Agreement as the "Protected Period." The Protected Period shall be as follows: (i) The Protected Period shall be the one (1) year period commencing on the date a Change of Control occurs and ending on the first anniversary thereof; and (ii) Provided that, if the Employee's employment terminates prior to a Change of Control, but such termination is "In Connection With a Change of Control," as hereinafter defined, the termination shall be deemed to have occurred during the Protected Period and the Employee shall be entitled to the benefits and protections set forth in this Agreement. (c) For purposes of this Agreement, and particularly Subsection 1(b) hereof, a termination shall be deemed to be "In Connection With a Change of Control" if: (i) Such termination is at the request of the purchaser in the Change of Control transaction; or - -------------------------------------------------------------------------------- Page 2 - -------------------------------------------------------------------------------- (ii) Such termination is by the Company other than for Cause or is by the Employee for Good Reason and reflects an intent by the Company to avoid payment of benefits under this Agreement notwithstanding the Employee's compliance with Section 2 hereof; provided, however, that a termination otherwise defined in this Subsection 1(c) as In Connection With a Change of Control will not be deemed In Connection With a Change of Control unless a Change of Control occurs within six (6) months after the date of the Employee's termination of employment with the Company. (d) The Parties agree that this Agreement is an agreement dealing only with benefits, rights and duties of the Parties during a Protected Period. The Parties specifically agree that this Agreement is not intended to be and is not an employment agreement. The Employee is, as of the date of this Agreement, and will remain, an employee at will, but subject to those special provisions herein set forth. 2. POSITION, DUTIES, AND RESPONSIBILITIES. At all times during the -------------------------------------- Protected Period, the Employee shall: (a) Hold either (i) the position with the Company that the Employee holds at the commencement of the Protected Period or (ii) a position with the Company of greater duties, responsibilities and authority than the position with the Company that the Employee holds at the commencement of the Protected Period; (b) Have those duties and responsibilities, and the authority, customarily possessed by an employee of a major corporation in the position of the Employee and such additional duties as may be assigned to the Employee from time to time by the Board of Directors of the Company (the "Board") or the Chief Executive Officer of the Company (the "Chief Executive Officer") or the Employee's superior(s) which are consistent with the Employee's position; (c) Adhere to such reasonable policies and directives as may be promulgated from time to time by the Board or the Chief Executive Officer and which are applicable to employees at the Employee's level with the Company; (d) Invest in the Company only in accordance with any insider trading policy of the Company in effect at the time of the investment; and (e) Devote the Employee's entire business time, energy, and talent to - -------------------------------------------------------------------------------- Page 3 - -------------------------------------------------------------------------------- the business, and to the furtherance of the purposes and objectives, of the Company, and neither directly nor indirectly act as an employee of or render any business, commercial, or professional services to any other person, firm or organization for compensation, without the prior written approval of the Board or the Chief Executive Officer. Nothing in this Agreement shall preclude the Employee from devoting reasonable periods of time to charitable and community activities or the management of the Employee's investment assets, provided such activities do not interfere with the performance by the Employee of the Employee's duties hereunder. 3. SALARY, BONUS AND BENEFITS. For services rendered by the Employee on -------------------------- behalf of the Company during the Protected Period, the following salary, bonus and benefits shall be provided to the Employee by the Company: (a) The Company shall pay to the Employee, in equal installments, according to the Company's then current practice for paying its employees at the level of the Employee in effect from time to time during the Protected Period, an annual base salary at a rate not less than that in effect at the commencement of the Protected Period. (b) The Employee shall participate in the Sealy Corporation Annual Bonus Plan (the "Bonus Plan") in accordance with the provisions of that Plan as in effect as of the date of this Agreement with a Target annual bonus as determined under the Bonus Plan as of the commencement of the Protected Period equal to the applicable percentage (his "Target Annual Bonus Percentage") of annual base salary with a range as in effect as of such date. (c) The Employee shall be eligible for participation in such other benefit plans, including, but not limited to, the Company's Profit Sharing Plan and Trust, Executive Severance Benefit Plan, Benefit Equalization Plan, Short-Term and Long Term Disability Plans, Group Term Life Insurance Plan, Medical Plan or PPO, Dental Plan, the 401(k) feature of the Profit Sharing Plan, the 1996 Transitional Restricted Stock Plan and/or the 1997 Stock Option Plan, as the Board may adopt from time to time and in which the Company's employees at the level comparable to the Employee are eligible to participate. Such participation shall be subject to the terms and conditions set forth in the applicable plan documents. As is more fully set forth in Section 7 hereof, the Employee shall not be entitled to duplicative payments in this Agreement and the Executive Severance Plan. (d) The Employee shall be entitled to take, during the Protected - -------------------------------------------------------------------------------- Page 4 - -------------------------------------------------------------------------------- Period, at least the amount of vacation time to which the Employee is entitled as of the date of this Agreement under the Company's vacation policy applicable to employees at the level comparable to the Employee or would have become entitled as of the applicable time if such vacation policy were still in effect throughout the Protected Period. (e) In addition, the Parties do hereby further confirm that the Employee may be entitled to a number of restricted shares of Class A Common Stock of the Company ("Class A Shares"), as well as options to purchase additional Class A Shares pursuant to various benefit plans or agreements with the Company. The Parties agree that (a) such restricted Class A Shares and such options are in addition to, and not in lieu of, any shares or options which may be granted under any other plan or arrangement of the Company after the date of this Agreement, and (b) the various restricted stock agreements and stock option agreements, and any related Stockholder Agreement (the "Stockholder Agreement") between the Parties (such agreements being hereinafter referred to collectively as the "Pre-existing Agreements"), all remain in full force and effect except as otherwise provided herein. Notwithstanding the foregoing, to the extent that any provision contained herein is inconsistent with the terms of any of the Pre-existing Agreements, the terms of this Agreement shall be controlling. 4. TERMINATION OF EMPLOYMENT. During a "Protected Period," the Employee's ------------------------- employment may be terminated as follows: (a) The Employee's employment hereunder will terminate without further notice upon the death of the Employee. (b) The Company may terminate the Employee's employment hereunder effective immediately upon giving written notice of such termination for "Cause". For these purposes, "Cause" shall mean the following: (i) Commission by the Employee (evidenced by a conviction or written, voluntary and freely given confession) of a criminal act constituting a felony; (ii) Commission by the Employee of a material breach or material default of any of the Employee's agreements or obligations under any provision of this Agreement, including, without limitation, the Employee's agreements and obligations under Subsections 2(a) through 2(e) and Sections 9 and 10 of this Agreement, which is not cured in - -------------------------------------------------------------------------------- Page 5 - -------------------------------------------------------------------------------- all material respects within thirty (30) days after the Chief Executive Officer or the designee thereof gives written notice thereof to the Employee; or (iii) Commission by the Employee, when carrying out the Employee's duties under this Agreement, of acts or the omission of any act, which both: (A) constitutes gross negligence or willful misconduct and (B) results in material economic harm to the Company or has a materially adverse effect on the Company's operations, properties or business relationships. (c) The Employee's employment hereunder may be terminated upon disability, if the Employee is prevented from performing the Employee's duties hereunder by reason of physical or mental incapacity for a period of one hundred eighty (180) consecutive days in any period of two consecutive fiscal years of the Company, but the Employee shall be entitled to full compensation and benefits hereunder until the close of such one hundred and eighty (180) day period. (d) The Company may terminate the Employee's employment hereunder without Cause at any time upon thirty (30) days written notice. (e) The Employee may terminate employment hereunder effective immediately upon giving written notice of such termination for "Good Reason", as defined in Subsection 4(g) below. (f) The Employee may terminate employment hereunder without Good Reason at any time upon thirty (30) days written notice. (g) For purposes of this Agreement, "Good Reason" means the occurrence of (i) any reduction in either the annual base salary of the Employee or the Target Annual Bonus Percentage or maximum annual bonus percentage applicable to the Employee under the Bonus Plan, (ii) any material reduction in the position, authority or office of the Employee, (iii) any material reduction in the Employee's responsibilities or duties for the Company, (iv) any material adverse change or reduction in the aggregate "Minimum Benefits," as hereinafter defined, provided to the Employee as of the date of this Agreement (provided that any material reduction in such aggregate Minimum Benefits that is required by law or applies generally to all employees of the Company shall not constitute "Good Reason" as defined hereunder), (v) any relocation of the Employee's principal place of work with the Company to a place more than twenty-five (25) miles from the geographical center of - -------------------------------------------------------------------------------- Page 6 - -------------------------------------------------------------------------------- Cleveland, Ohio, or (vi) the material breach or material default by the Company of any of its agreements or obligations under any provision of this Agreement. As used in this Subsection 4(g), an "adverse change or material reduction" in the aggregate Minimum Benefits shall be deemed to result from any reduction or any series of reductions which, in the aggregate, exceeds five percent (5%) of the value of such aggregate Minimum Benefits determined as of the date of this Agreement. As used in this Subsection 4(g), Minimum Benefits are life insurance, accidental death, long term disability, short term disability, medical, dental, and vision benefits and the Company's expense reimbursement policy. The Employee shall give written notice to the Company on or before the date of termination of employment for Good Reason stating that the Employee is terminating employment with the Company and specifying in detail the reasons for such termination. If the Company does not object to such notice by notifying the Employee in writing within five (5) days following termination, the Company shall be deemed to have agreed that such termination was for Good Reason. The parties agree that "Good Reason" will not be deemed to have occurred merely because the Company becomes a subsidiary or division of another entity following a "Change of Control," as hereinafter defined, provided the Employee continues to serve in the same capacity with such subsidiary or division as his capacity with the Company at the beginning of the Protected Period and such subsidiary or division is comparable in size to the organization consisting of the Company and its subsidiaries. The parties further agree that "Good Reason" will be deemed to have occurred if the purchaser, in a Change of Control transaction, does not assume this Agreement in accordance with Section 12 hereof. 5. SEVERANCE COMPENSATION. If the Employee's employment is terminated ---------------------- during a Protected Period, the following severance provisions will apply: (a) If the Employee's employment is terminated by the Company other than for Cause or is terminated by the Employee for Good Reason, then, through the one year period commencing on the date of the Employee's termination of employment (the "Payment Term") the Company shall: (i) continue to pay the Employee's annual base salary in the then prevailing amount and at the times specified in Subsection 3(a) hereof, or if such annual base salary has decreased during the one year period ending on the Employee's termination of employment, at the highest rate in effect during such one year period; - -------------------------------------------------------------------------------- Page 7 - -------------------------------------------------------------------------------- (ii) continue the Employee's participation in the Bonus Plan as provided in Subsection 3(b) hereof provided that the Company will: (A) pay the Employee a bonus under the Bonus Plan for the partial year period ending on the date of the Employee's termination of employment calculated as if the Employee had continued to be employed for the entire year except that the Employee's bonus percentage (calculated at the time and in the manner customary as of the date of this Agreement, but disregarding the termination of employment of the Employee) shall be applied to the Employee's annual base salary payable in accordance with Subsection 3(a) hereof for the partial year period ending on the Employee's termination of employment; and (B) thereafter, during the remainder of the Payment Term, a bonus equal to the Employee's Target Annual Bonus Percentage, multiplied by the Employee's annual base salary in the amount specified in Subsection 5(a)(i) payable during the year (or portion thereof) for which the bonus is being calculated; with such amounts being payable when bonuses under the Bonus Plan are customarily payable, except that the final bonus shall be payable with the final payment of the annual base salary under Subsection 5(a)(i) hereof; (iii) pay for executive outplacement services for the Employee from a nationally recognized executive outplacement firm at a level consistent with the employee's position, provided that such outplacement services will be provided for a six (6) month period commencing on the date of termination of employment regardless of the Payment Term; and (iv) In lieu of the payments described in Subsections 5(a)(i) and 5(a)(ii) hereof, at the Employee's request, submitted in writing to the Company within five (5) business days after the date of the Employee's termination of employment: (A) the Company will pay the total of the Employee's annual base salary payments described in Subsection 5(a)(i) in a single sum within thirty (30) days following the Employee's termination of - -------------------------------------------------------------------------------- Page 8 - -------------------------------------------------------------------------------- employment; and (B) his Bonus Plan payments described in Subsection 5(a)(ii) shall be made at the same time as the Employee's payment under Subsection 5(a)(vi)(A) but shall be calculated using the Employee's Target Annual Bonus Percentage for all calculation purposes. (b) If the Employee's employment hereunder terminates due to the Employee's death, disability, termination by the Company for Cause or termination by the Employee other than for Good Reason, then no further compensation or benefits will be provided to the Employee by the Company under this Agreement following the date of such termination of employment other than payment of compensation earned to the date of termination of employment but not yet paid. As more fully and generally provided in Section 16 hereof, this Subsection 5(b) shall not be interpreted to deny the Employee any benefits to which he may be entitled under any plan or arrangement of the Company applicable to the Employee. Likewise, this Subsection 5(b) shall not be interpreted to entitle the Employee to a bonus under the Bonus Plan following his termination of employment except as provided in the Bonus Plan which requires employment on the last day of the Company's taxable year as a condition to receipt of a bonus thereunder for such year except in the cases of death, disability or retirement at or after either age 62 with ten years of service or age 65. (c) Notwithstanding anything contained in this Agreement to the contrary, other than Section 16 hereof, if the Employee breaches any of his obligations under Section 9 or 10 hereof, no further severance payments or other benefits will be payable to the Employee under this Section 5. 6. CHANGE OF CONTROL. ----------------- (a) In General. In the event of a Change of Control as defined in ---------- this Section 6, the Employee shall become entitled to certain special benefits and shall have certain special protections so that he may more fully focus on the issues related to such a Change of Control, and to reward the Employee for the substantial additional effort involved in a Change of Control. The special benefits and protections are set forth in this Section 6. (b) Transaction Bonus. In the event of a Change of Control, then ----------------- subject to the requirements set forth in this Subsection 6(b), the Employee will receive a cash transaction bonus (the "Transaction - -------------------------------------------------------------------------------- Page 9 - -------------------------------------------------------------------------------- Bonus") calculated and payable as follows: (i) If the Employee is employed by the Company on the date of the Change of Control, the total amount of the Transaction Bonus shall be equal to fifty percent (50%) of his annual base salary in the then prevailing amount specified in Subsection 3(a) hereof, or if such annual base salary has decreased during the one year period ending on his termination of employment, at the highest rate in effect during such one year period; and . (ii) If the Employee is employed by the Company on the date of the Change of Control and either is employed by the Company on the first anniversary thereof or is not employed by the Company on such first anniversary due to the Employee's death or disability, the Transaction Bonus shall be payable as follows: (A) If the Employee is employed by the Company on the day of the Change of Control, one-half (1/2) of the Transaction Bonus shall be payable to the Employee on such date; and (B) If the Employee is employed by the Company on the first anniversary of the Change of Control, the other one- half (1/2) of the Transaction Bonus shall be payable to the Employee on such date. (C) Furthermore, if the Employee is employed by the Company on the date of the Change of Control but, due to the Employee's death or disability, the Employee is no longer employed by the Company on the first anniversary thereof, the Employee (or the Employee's beneficiary in the event of the Employee's death) shall nevertheless be entitled to the other one-half (1/2) of the Transaction Bonus, which amount shall be payable on such first anniversary. (iii) If the Employee is not employed by the Company on either or both of the date of the Change of Control and the date of the first anniversary thereof due to the Employee's termination by the Company other than for Cause or due to the Employee's termination of employment for Good Reason, but if the Employee's Payment Term includes either or both such dates, the Employee shall nonetheless be entitled to the Transaction Bonus which would otherwise be - -------------------------------------------------------------------------------- Page 10 - -------------------------------------------------------------------------------- payable on the date or dates which are included in such Payment Term even though the Employee is no longer then employed by the Company. Any Transaction Bonus payable in accordance with this Subsection 6(b)(iii) shall be in an amount, and shall be payable on a date, determined in accordance with Subsection 6(b)(iv) or 6(b)(v), whichever is applicable. (iv) If the Employee is not employed by the Company on the date of the Change of Control, but a Transaction Bonus is payable to the Employee in accordance with Subsection 6(b)(iii) hereof, the following shall apply: (A) The Transaction Bonus shall be in the amount calculated in accordance with Subsection 6(b)(i); (B) The Transaction Bonus shall be paid in full to the Employee (or the Employee's beneficiary in the event of the Employee's death) on the date of the Change of Control; and (C) On the date of the Change of Control, the Employee (or the Employee's personal representative or beneficiary in the event of the Employee's death) shall assign to the Company the Employee's restricted Class A Shares and the Employee's stock options for Class A Shares and any other Class A Shares or equity interest in the Company which the Employee may then own, regardless of how the Employee may have acquired such restricted stock, options, Class A Shares, or equity interest. In exchange therefore, the Company shall pay to the Employee (or the Employee's beneficiary in the event of the Employee's death), on such date, an amount equal to the value of the Employee's restricted Class A Shares and the Employee's stock options for Class A Shares, to the extent such options are exercisable and such restricted stock is vested, and any other Class A Shares or equity interest in the Company which the Employee may then own. Such value shall be calculated using the Class A Share Change of Control Valuation as hereinafter defined. The value of the exercisable stock options for this purpose shall be the amount by which the value of the Class A Shares, as so determined, exceeds the exercise price. - -------------------------------------------------------------------------------- Page 11 - -------------------------------------------------------------------------------- (v) If the Employee is employed by the Company on the date of the Change of Control but not on the first anniversary thereof, but a Transaction Bonus is payable to the Employee in accordance with Subsection 6(b)(iii) hereof, the following shall apply: (A) The Transaction Bonus shall be in the amount calculated in accordance with Subsection 6(b)(i); and (B) The portion of the Transaction Bonus remaining unpaid upon the Employee's termination of employment with the Company shall be paid to the Employee (or the Employee's beneficiary in the event of the Employee's death) within ten (10) days following such termination of employment. (vi) Notwithstanding anything contained in this Agreement to the contrary, if the Employee breaches any of the Employee's obligations under Section 9 or 10 hereof, no further Transaction Bonus payments will be payable to the Employee. (c) Equity Considerations. If the Employee is employed by the --------------------- Company on the day of the Change of Control, the Employee shall receive the following equity considerations: (i) all restricted stock of the Company, owned by the Employee on the date of the Change of Control, regardless of whether acquired under the 1996 Transitional Restricted Stock Plan or under an individual agreement with the Company or otherwise, will become and remain one hundred percent (100%) vested; (ii) all stock options for Class A Shares of the Company, owned by the Employee on the date of the Change of Control, regardless of whether acquired under the 1989, 1992 or 1997 Stock Option Plan or under an individual agreement with the Company or otherwise, will immediately become and remain throughout the full remaining term of such options one hundred percent (100%) vested and fully exercisable, and such exercise then and thereafter shall be available on a cashless basis such that the Employee may receive the net value of the Employee's options (represented by the amount by which the fair market value of the Class A Shares exceeds the exercise price) in cash or Class A Shares as the Employee shall elect, without outlay of cash but net of all applicable withholding taxes, which - -------------------------------------------------------------------------------- Page 12 - -------------------------------------------------------------------------------- taxes shall be remitted by the Company to the proper taxing authorities; (iii) upon any such Change of Control transaction, all limitations, restrictions or conditions relating to the Employee's rights to receive, vote, own and/or transfer any Class A Shares contained in any of the Pre-existing Agreements or contained in any other document, agreement or plan shall terminate and shall be of no further force and effect, except for any registration rights in effect; (iv) if permitted by the purchaser in the Change of Control transaction (the "Purchaser"), the Company will provide for the Employee the opportunity to convert all or a portion, as he shall elect, of the Employee's options to purchase Class A Shares as well as Class A Shares then owned by the Employee, into an equity investment in the entity resulting from Purchaser's transaction (the "Successor") on a tax favored basis. The amount available for such investment shall be an amount calculated on the basis of the per Share price paid in the Change of Control transaction or series of transactions or implicit in the valuation of the Change of Control transaction, including all elements of consideration paid or payable (the "Change of Control Valuation"). (v) If the Purchaser in the Change of Control transaction does not permit the Employee to convert (or the Employee chooses not to convert) all (or a portion) of the Employee's options to purchase Class A Shares and Class A Shares then owned by the Employee into equity in the Successor, then the Employee shall exercise, at the time of the Change of Control, all options the Employee holds for Class A Shares (such exercise to provide cash rather than Class A Shares to the Employee in accordance with the exercise procedure described in Subsection 6(c)(ii) hereof), and shall sell to the Company at the time of the Change of Control all Class A Shares then owned by the Employee, to the extent such options or Class A Shares are not converted into equity in the Successor. Such exercise of options and sale of Class A Shares shall yield an amount to the Employee determined by the Class A Share Change of Control Valuation. (d) Change of Control. For purposes of this Agreement, the words ------------------ "Change of Control" means a change in control of the Company of a nature that would be required to be reported in response to Item - -------------------------------------------------------------------------------- Page 13 - -------------------------------------------------------------------------------- 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended, as in effect on the date of this Agreement (the "Exchange Act"), whether or not the Company is then subject to such reporting requirements; provided, that, without limitation, a Change of Control shall be deemed to have occurred if: (i) any "person" (as defined in Sections 13(d) and 14(d) of the Exchange Act), other than Zell/Chilmark Fund, L.P., is or becomes the "beneficial owner" (as defined in Rule 13d- 3 under the Exchange Act), directly or indirectly, of securities of the Company representing twenty percent (20%) or more of the combined voting power of the Company's then outstanding securities; provided that a Change in Control shall not be deemed to occur under this clause (i) by reason of (A) the acquisition of securities by the Company or an employee benefit plan (or any trust funding such a plan) maintained by the Company, or (B) while Zell/Chilmark Fund, L.P. continues to beneficially own more than fifty percent (50%) of the combined voting power of the Company's then outstanding securities; (ii) during any period of one (1) year there shall cease to be a majority of the Board comprised of "Continuing Directors" as hereinafter defined; or (iii) the stockholders of the Company (A) approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than eighty percent (80%) of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or (B) approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of more than fifty percent (50%) of the Company's assets. For purposes of this Subsection 6(d)(iii), a sale of more than fifty percent (50%) of the Company's assets includes a sale of more than fifty percent (50%) of the aggregate value of the assets of the Company and its subsidiaries or the sale of stock of one or more of the Company's subsidiaries with an aggregate value in excess of fifty percent (50%) of the aggregate value of the Company and its subsidiaries or any combination of methods by which more than fifty percent - -------------------------------------------------------------------------------- Page 14 - -------------------------------------------------------------------------------- (50%) of the aggregate value of the Company and its subsidiaries is sold. (iv) For purposes of this Agreement, a "Change of Control" will be deemed to occur: (A) on the day on which a twenty percent (20%) or greater ownership interest described in Subsection 6(d)(i) is acquired or, if later, the day on which the Zell/Chilmark Fund, L.P. ceases to beneficially own more than fifty percent (50%) of the combined voting power of the Company's then outstanding securities, provided that a subsequent increase in such ownership interest after it first equals or exceeds twenty percent (20%) shall not be deemed a separate Change of Control; (B) on the day on which "Continuing Directors," as hereinafter defined, cease to be a majority of the Board as described in Subsection 6(d)(ii); (C) on the day of a merger, consolidation or sale or disposition of assets as described in Subsection 6(d)(iii); or (D) on the day of the approval of a plan of complete liquidation as described in Subsection 6(d)(iii). (v) For purposes of this Subsection 6(d), the word "Company" means Sealy Corporation, and, any other corporation or business organization in an unbroken chain of corporations or business organization ending with Sealy Corporation that owns, directly or indirectly, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock of Sealy Corporation other than Zell/Chilmark Fund, L.P. (vi) For purposes of this Subsection 6(d), the words "Continuing Directors" mean individuals who at the beginning of any period (not including any period prior to the date of this Agreement) of one (1) year constitute the Board and any new director(s) whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least a majority of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so - -------------------------------------------------------------------------------- Page 15 - -------------------------------------------------------------------------------- approved. (e) Section 16 Protection. If the Employee is subject to Section 16 --------------------- of the Securities Exchange Act of 1934 ("Section 16"), then to the extent the Employee would be deprived of the benefits of the equity considerations described herein or under any of the Pre- existing Agreements or under the 1989, 1992 or 1997 Stock Option Plan or the 1996 Transitional Restricted Stock Plan, as described above, or any other plan or arrangement regarding stock of the Company, by reason of such Section 16 or the Rules issued thereunder, the Employee shall be provided with the alternative of receiving a cash payment approximating the loss of such benefits under a cash compensation plan implemented by the Company. The Company agrees to have this Agreement, and specifically this Section 6 approved by the Board in compliance with Section 16 and Rule 16b-3 thereunder to ensure its enforceability. 7. SEVERANCE PLAN. It is the intention of the Parties that this Agreement -------------- provide special benefits to the Employee. If at any time the Company's Executive Severance Benefit Plan would provide better cash severance benefits to the Employee than this Agreement, the Employee may elect to receive such better cash severance benefits in lieu of the cash severance benefits provided under Subsections 5(a)(i) and 5(a)(ii), or Subsection 5(a)(v), of this Agreement, whichever is applicable, while continuing to receive any other benefits or coverages available under this Agreement. If this Agreement would provide better cash severance benefits to the Employee than the Company's Executive Severance Benefit Plan, the Employee shall receive the cash severance benefits under this Agreement, as well as any other benefits or coverages available under this Agreement. In such case, the cash severance benefits under this Agreement shall be in lieu of the cash severance benefits payable under the Company's Executive Severance Benefit Plan. 8. PLAN AMENDMENTS. To the extent any provisions of this Agreement modify --------------- the terms of any existing plan, policy or arrangement affecting the compensation or benefits of the Employee, as appropriate, (a) such modification as set forth herein shall be deemed an amendment to such plan, policy or arrangement as to the Employee, and both the Company and the Employee hereby consent to such amendment, (b) the Company will appropriately modify such plan, policy or arrangement to correspond to this Agreement with respect to the Employee, or (c) the Company will provide an "Alternative Benefit," as defined in Section 14 hereof, to or on behalf of the Employee in accordance with the provisions of such Section 14. 9. CONFIDENTIAL INFORMATION. The Employee agrees that the Employee will ------------------------ not, during the Protected Period or at any time thereafter, either directly or indirectly, disclose or make known to any other person, firm, or corporation any confidential information, trade secret or proprietary information of the Company that the Employee may acquire in the performance of the Employee's duties hereunder (except in good faith in the ordinary course of business for the Company to a person who will be - -------------------------------------------------------------------------------- Page 16 - -------------------------------------------------------------------------------- advised by the Employee to keep such information confidential) or make use of any of such confidential information except in the performance of the Employee's duties or when required to do so by legal process, by any governmental agency having supervisory authority over the business of the Company or by any administrative or legislative body (including a committee thereof) that requires the Employee to divulge, disclose or make accessible such information. In the event that the Employee is so ordered, the Employee shall so advise the Company in order to allow the Company the opportunity to object to or otherwise resist such order. Upon the termination of the Employee's employment with the Company, the Employee agrees to deliver forthwith to the Company any and all proprietary literature, documents, correspondence, and other proprietary materials and records furnished to or acquired by the Employee during the course of such employment. In the event of a breach or threatened breach of this Section 9 by the Employee, the Company will be entitled to preliminary and permanent injunctive relief, without bond or security, sufficient to enforce the provisions hereof and the Company will be entitled to pursue such other remedies at law or in equity which it deems appropriate. 10. NON-COMPETITION. In consideration of this Agreement, the Employee --------------- agrees that, while employed during the Protected Period, and for one year after the Employee's termination of employment, unless the Employee has waived the Transaction Bonus and the equity consideration described in Subsections 6(b) and 6(c), the Employee shall not act as a proprietor, investor, director, officer, employee, substantial stockholder, consultant, or partner in any business engaged to a material extent in the manufacture or sale of (a) mattresses or other bedding products or (b) any other products which constitute more than ten percent (10%) of the Company's revenues at the time in direct competition with the Company in any market. If, however, the Employee has waived the Transaction Bonus and the equity consideration described in Subsections 6(b) and 6(c), this covenant not to compete shall be void upon the Employee's termination of employment. The Employee understands that the foregoing restrictions may limit the Employee's ability to engage in certain business pursuits during the period provided for above, but acknowledges that the Employee will receive sufficiently higher remuneration and other benefits from the Company hereunder than the Employee would otherwise receive to justify such restriction. The Employee acknowledges that the Employee understands the effect of the provisions of this Section 10, and the Employee has had reasonable time to consider the effect of these provisions, and that the Employee was encouraged to and had an opportunity to consult an attorney with respect to these provisions. The Company and the Employee consider the restrictions contained in this Section 10 to be reasonable and necessary. Nevertheless, if any aspect of these restrictions is found to be unreasonable or otherwise unenforceable by a court of competent jurisdiction, the Parties intend for such restrictions to be modified by such court so as to be reasonable and enforceable and, as so modified by the court, to be fully enforced. In the event of a breach or threatened breach of this Section 10 by the Employee, the Company will be entitled to preliminary and permanent injunctive relief, without bond or security, sufficient to enforce the provisions hereof and the Company will be entitled to pursue such other remedies at law or in equity which it deems appropriate. - -------------------------------------------------------------------------------- Page 17 - -------------------------------------------------------------------------------- During the ten (10) day period ending on the date of a Change of Control, the Employee may, by written notice to the Company, elect to waive his Transaction Bonus and the equity considerations described in Subsections 6(b) and 6(c). Such waiver shall be irrevocable. In the event of such a waiver, the Employee's agreement not to compete with the Company as set forth in this Section 10 shall be void upon his termination of employment. 11. NOTICES. For purposes of this Agreement, all communications provided ------- for herein shall be in writing and shall be deemed to have been duly given when hand delivered or mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows: (a) If the notice is to the Company: Mr. Ronald L. Jones Chief Executive Officer Sealy Corporation 1228 Euclid Avenue - Tenth Floor Cleveland, Ohio 44115-1886 With a copy to: Kenneth Walker, Esq. Vice President and General Counsel Sealy Corporation 1228 Euclid Avenue - Tenth Floor Cleveland, Ohio 44115-1886 (b) If the notice is to the Employee: --------------------------------- --------------------------------- --------------------------------- or to such other address as either party may have furnished to the other in writing and in accordance herewith; except that notices of change of address shall be effective only upon receipt. 12. ASSIGNMENT; BINDING EFFECT. This Agreement shall be binding upon and -------------------------- inure to the benefit of the parties to this Agreement and their respective successors, heirs (in the case of the Employee) and permitted assigns. No rights or obligations of the Company under this Agreement may be assigned or transferred by the Company except that such rights or obligations may be assigned or transferred in connection with the sale or transfer of all or substantially all of the assets of the Company, provided that the assignee or transferee is the successor to all or substantially all of the assets of the Company and such assignee or transferee expressly assumes the liabilities, obligations and duties of the Company, as contained in this Agreement, either contractually or as a matter of law. The Company further - -------------------------------------------------------------------------------- Page 18 - -------------------------------------------------------------------------------- agrees that, in the event of a sale or transfer of assets as described in the preceding sentence, it shall be a condition precedent to the consummation of any such transaction that the assignee or transferee expressly assumes the liabilities, obligations and duties of the Company hereunder. No rights or obligations of the Employee under this Agreement may be assigned or transferred by the Employee other than the Employee's rights to compensation and benefits, which may be transferred only by will or operation of law, except as provided in this Section 12. The Employee shall be entitled, to the extent permitted under any applicable law, to select and change a beneficiary or beneficiaries to receive any compensation or benefits payable hereunder following the Employee's death by giving the Company written notice thereof. In the absence of such a selection, any compensation or benefit payable under this Agreement following the death of the Employee shall be payable to the Employee's spouse, or if such spouse shall not survive the Employee, to the Employee's estate. In the event of the Employee's death or a judicial determination of his incompetence, reference in this Agreement to the Employee shall be deemed, where appropriate, to refer to the Employee's beneficiary, estate or other legal representative. 13. INVALID PROVISIONS. Any provision of this Agreement that is ------------------ prohibited or unenforceable shall be ineffective to the extent, but only to the extent, of such prohibition or unenforceability without invalidating the remaining portions hereof and such remaining portions of this Agreement shall continue to be in full force and effect. In the event that any provision of this Agreement shall be determined to be invalid or unenforceable, the Parties will negotiate in good faith to replace such provision with another provision that will be valid or enforceable and that is as close as practicable to the provisions held invalid or unenforceable. 14. ALTERNATIVE SATISFACTION OF COMPANY'S OBLIGATIONS. In the event this ------------------------------------------------- Agreement provides for payments or benefits to or on behalf of the Employee which cannot be provided under the Company's benefit plans, policies or arrangements either because such plans, policies or arrangements no longer exist or no longer provide such benefits or because provision of such benefits to the Employee would adversely affect the tax qualified or tax advantaged status of such plans, policies or arrangements for the Employee or other participants therein, the Company may provide the Employee with an "Alternative Benefit," as defined in this Section 14, in lieu thereof. The Alternative Benefit is a benefit or payment which places the Employee and the Employee's dependents in at least as good of an economic position as if the benefit promised by this Agreement (a) were provided exactly as called for by this Agreement, and (b) had the favorable economic, tax and legal characteristics customary for plans, policies or arrangements of that type. Furthermore, if such adverse consequence would affect the Employee or the Employee's dependents, the Employee shall have the right to require that the Company provide such an Alternative Benefit. 15. ENTIRE AGREEMENT, MODIFICATION. Subject to the provisions of Section ------------------------------ 16 hereof, this Agreement contains the entire agreement between the Parties with respect to the employment of the Employee by the Company and supersedes all - -------------------------------------------------------------------------------- Page 19 - -------------------------------------------------------------------------------- prior and contemporaneous agreements, representations, and understandings of the Parties, whether oral or written. No modification, amendment, or waiver of any of the provisions of this Agreement shall be effective unless in writing, specifically referring hereto, and signed by both Parties. 16. NON-EXCLUSIVITY OF RIGHTS. Notwithstanding the foregoing provisions ------------------------- of Section 15, nothing in this Agreement shall prevent or limit the Employee's continuing or future participation in any benefit, bonus, incentive or other plan, program, policy or practice provided by the Company for its executive officers, nor shall anything herein limit or otherwise affect such rights as the Employee has or may have under any stock option, restricted stock or other agreements with the Company or any of its subsidiaries. Amounts which the Employee or the Employee's dependents or beneficiaries are otherwise entitled to receive under any such plan, policy, practice or program shall not be reduced by this Agreement except as provided for in Section 7 hereof with respect to payments under the Executive Severance Benefit Plan if cash payments of annual base salary are made hereunder. 17. WAIVER OF BREACH. The failure at any time to enforce any of the ---------------- provisions of this Agreement or to require performance by the other party of any of the provisions of this Agreement shall in no way be construed to be a waiver of such provisions or to affect either the validity of this Agreement or any part of this Agreement or the right of either party thereafter to enforce each and every provision of this Agreement in accordance with the terms of this Agreement. 18. GOVERNING LAW. This Agreement has been made in, and shall be governed ------------- and construed in accordance with the laws of, the State of Ohio. The Parties agree that this Agreement is not an "employee benefit plan" or part of an "employee benefit plan" which is subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended. 19. TAX WITHHOLDING. The Company may withhold from any amounts payable --------------- under this Agreement such federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. Where withholding applies to Class A Shares, the Company shall make cashless withholding available to the Employee. 20. REPRESENTATION. The Company represents and warrants that it is fully -------------- authorized and empowered to enter into this Agreement and that the performance of its obligations under this Agreement will not violate any agreement between it and any other person, firm or organization. 21. SUBSIDIARIES AND AFFILIATES. Notwithstanding any contrary provision --------------------------- of this Agreement, to the extent it does not adversely affect the Employee, the Company may provide the compensation and benefits to which the Employee is entitled hereunder through one or more subsidiaries or affiliates, including, without limitation, Sealy, Inc. - -------------------------------------------------------------------------------- Page 20 - -------------------------------------------------------------------------------- 22. SOLE REMEDY. The Parties agree that the remedies of each against the ----------- other for breach of this Agreement shall be limited to enforcement of this Agreement and recovery of the amounts and remedies provided for herein. The Parties, however, further agree that such limitation shall not prevent either Party from proceeding against the other to recover for a claim other than under this Agreement. IN WITNESS WHEREOF, the Company and the Employee have executed this Agreement as of the day and year first above written. SEALY CORPORATION By: /s/ KENNETH L. WALKER _______________________ Kenneth L. Walker Vice President, General Counsel & Secretary EMPLOYEE /s/ RICHARD F. SOWERBY _______________________ EX-10.16 22 EMPLOYMENT AGREEMENT (R. STOLLE) - -------------------------------------------------------------------------------- Page 1 - -------------------------------------------------------------------------------- EXHIBIT 10.16 ------------- CHANGE OF CONTROL AGREEMENT THIS CHANGE OF CONTROL AGREEMENT is entered into as of the 1st day of August, 1997, by and between SEALY CORPORATION, a Delaware corporation (the "Company"), and RONALD H. STOLLE (the "Employee"). W I T N E S S E T H: WHEREAS, the Company and the Employee (collectively "the Parties") desire to enter into this Change of Control Agreement (the "Agreement") as hereinafter set forth; NOW, THEREFORE, the Company and Employee agree as follows: 1. PROTECTED PERIOD. ---------------- (a) This Agreement is intended to provide the Employee with certain special benefits and to grant certain special protections so that the Employee may more fully focus on the issues related to a "Change of Control," as hereinafter defined, and to reward the Employee for the substantial extra effort involved in a Change of Control. (b) In order to provide the protections deemed necessary and appropriate by the Parties, the Parties agree to the establishment of a period during which such protections apply. Such period shall be referred to in this Agreement as the "Protected Period." The Protected Period shall be as follows: (i) The Protected Period shall be the one (1) year period commencing on the date a Change of Control occurs and ending on the first anniversary thereof; and (ii) Provided that, if the Employee's employment terminates prior to a Change of Control, but such termination is "In Connection With a Change of Control," as hereinafter defined, the termination shall be deemed to have occurred during the Protected Period and the Employee shall be entitled to the benefits and protections set forth in this Agreement. (c) For purposes of this Agreement, and particularly Subsection 1(b) hereof, a termination shall be deemed to be "In Connection With a Change of Control" if: (i) Such termination is at the request of the purchaser in the Change of Control transaction; or - -------------------------------------------------------------------------------- Page 2 - -------------------------------------------------------------------------------- (ii) Such termination is by the Company other than for Cause or is by the Employee for Good Reason and reflects an intent by the Company to avoid payment of benefits under this Agreement notwithstanding the Employee's compliance with Section 2 hereof; provided, however, that a termination otherwise defined in this Subsection 1(c) as In Connection With a Change of Control will not be deemed In Connection With a Change of Control unless a Change of Control occurs within six (6) months after the date of the Employee's termination of employment with the Company. (d) The Parties agree that this Agreement is an agreement dealing only with benefits, rights and duties of the Parties during a Protected Period. The Parties specifically agree that this Agreement is not intended to be and is not an employment agreement. The Employee is, as of the date of this Agreement, and will remain, an employee at will, but subject to those special provisions herein set forth. 2. POSITION, DUTIES, AND RESPONSIBILITIES. At all times during the -------------------------------------- Protected Period, the Employee shall: (a) Hold either (i) the position with the Company that the Employee holds at the commencement of the Protected Period or (ii) a position with the Company of greater duties, responsibilities and authority than the position with the Company that the Employee holds at the commencement of the Protected Period; (b) Have those duties and responsibilities, and the authority, customarily possessed by an employee of a major corporation in the position of the Employee and such additional duties as may be assigned to the Employee from time to time by the Board of Directors of the Company (the "Board") or the Chief Executive Officer of the Company (the "Chief Executive Officer") or the Employee's superior(s) which are consistent with the Employee's position; (c) Adhere to such reasonable policies and directives as may be promulgated from time to time by the Board or the Chief Executive Officer and which are applicable to employees at the Employee's level with the Company; (d) Invest in the Company only in accordance with any insider trading policy of the Company in effect at the time of the investment; and (e) Devote the Employee's entire business time, energy, and talent to - -------------------------------------------------------------------------------- Page 3 - -------------------------------------------------------------------------------- the business, and to the furtherance of the purposes and objectives, of the Company, and neither directly nor indirectly act as an employee of or render any business, commercial, or professional services to any other person, firm or organization for compensation, without the prior written approval of the Board or the Chief Executive Officer. Nothing in this Agreement shall preclude the Employee from devoting reasonable periods of time to charitable and community activities or the management of the Employee's investment assets, provided such activities do not interfere with the performance by the Employee of the Employee's duties hereunder. 3. SALARY, BONUS AND BENEFITS. For services rendered by the Employee on -------------------------- behalf of the Company during the Protected Period, the following salary, bonus and benefits shall be provided to the Employee by the Company: (a) The Company shall pay to the Employee, in equal installments, according to the Company's then current practice for paying its employees at the level of the Employee in effect from time to time during the Protected Period, an annual base salary at a rate not less than that in effect at the commencement of the Protected Period. (b) The Employee shall participate in the Sealy Corporation Annual Bonus Plan (the "Bonus Plan") in accordance with the provisions of that Plan as in effect as of the date of this Agreement with a Target annual bonus as determined under the Bonus Plan as of the commencement of the Protected Period equal to the applicable percentage (his "Target Annual Bonus Percentage") of annual base salary with a range as in effect as of such date. (c) The Employee shall be eligible for participation in such other benefit plans, including, but not limited to, the Company's Profit Sharing Plan and Trust, Executive Severance Benefit Plan, Benefit Equalization Plan, Short-Term and Long Term Disability Plans, Group Term Life Insurance Plan, Medical Plan or PPO, Dental Plan, the 401(k) feature of the Profit Sharing Plan, the 1996 Transitional Restricted Stock Plan and/or the 1997 Stock Option Plan, as the Board may adopt from time to time and in which the Company's employees at the level comparable to the Employee are eligible to participate. Such participation shall be subject to the terms and conditions set forth in the applicable plan documents. As is more fully set forth in Section 7 hereof, the Employee shall not be entitled to duplicative payments in this Agreement and the Executive Severance Plan. (d) The Employee shall be entitled to take, during the Protected - -------------------------------------------------------------------------------- Page 4 - -------------------------------------------------------------------------------- Period, at least the amount of vacation time to which the Employee is entitled as of the date of this Agreement under the Company's vacation policy applicable to employees at the level comparable to the Employee or would have become entitled as of the applicable time if such vacation policy were still in effect throughout the Protected Period. (e) In addition, the Parties do hereby further confirm that the Employee may be entitled to a number of restricted shares of Class A Common Stock of the Company ("Class A Shares"), as well as options to purchase additional Class A Shares pursuant to various benefit plans or agreements with the Company. The Parties agree that (a) such restricted Class A Shares and such options are in addition to, and not in lieu of, any shares or options which may be granted under any other plan or arrangement of the Company after the date of this Agreement, and (b) the various restricted stock agreements and stock option agreements, and any related Stockholder Agreement (the "Stockholder Agreement") between the Parties (such agreements being hereinafter referred to collectively as the "Pre-existing Agreements"), all remain in full force and effect except as otherwise provided herein. Notwithstanding the foregoing, to the extent that any provision contained herein is inconsistent with the terms of any of the Pre-existing Agreements, the terms of this Agreement shall be controlling. 4. TERMINATION OF EMPLOYMENT. During a "Protected Period," the Employee's ------------------------- employment may be terminated as follows: (a) The Employee's employment hereunder will terminate without further notice upon the death of the Employee. (b) The Company may terminate the Employee's employment hereunder effective immediately upon giving written notice of such termination for "Cause". For these purposes, "Cause" shall mean the following: (i) Commission by the Employee (evidenced by a conviction or written, voluntary and freely given confession) of a criminal act constituting a felony; (ii) Commission by the Employee of a material breach or material default of any of the Employee's agreements or obligations under any provision of this Agreement, including, without limitation, the Employee's agreements and obligations under Subsections 2(a) through 2(e) and Sections 9 and 10 of this Agreement, which is not cured in - -------------------------------------------------------------------------------- Page 5 - -------------------------------------------------------------------------------- all material respects within thirty (30) days after the Chief Executive Officer or the designee thereof gives written notice thereof to the Employee; or (iii) Commission by the Employee, when carrying out the Employee's duties under this Agreement, of acts or the omission of any act, which both: (A) constitutes gross negligence or willful misconduct and (B) results in material economic harm to the Company or has a materially adverse effect on the Company's operations, properties or business relationships. (c) The Employee's employment hereunder may be terminated upon disability, if the Employee is prevented from performing the Employee's duties hereunder by reason of physical or mental incapacity for a period of one hundred eighty (180) consecutive days in any period of two consecutive fiscal years of the Company, but the Employee shall be entitled to full compensation and benefits hereunder until the close of such one hundred and eighty (180) day period. (d) The Company may terminate the Employee's employment hereunder without Cause at any time upon thirty (30) days written notice. (e) The Employee may terminate employment hereunder effective immediately upon giving written notice of such termination for "Good Reason", as defined in Subsection 4(g) below. (f) The Employee may terminate employment hereunder without Good Reason at any time upon thirty (30) days written notice. (g) For purposes of this Agreement, "Good Reason" means the occurrence of (i) any reduction in either the annual base salary of the Employee or the Target Annual Bonus Percentage or maximum annual bonus percentage applicable to the Employee under the Bonus Plan, (ii) any material reduction in the position, authority or office of the Employee, (iii) any material reduction in the Employee's responsibilities or duties for the Company, (iv) any material adverse change or reduction in the aggregate "Minimum Benefits," as hereinafter defined, provided to the Employee as of the date of this Agreement (provided that any material reduction in such aggregate Minimum Benefits that is required by law or applies generally to all employees of the Company shall not constitute "Good Reason" as defined hereunder), (v) any relocation of the Employee's principal place of work with the Company to a place more than twenty-five (25) miles from the geographical center of - -------------------------------------------------------------------------------- Page 6 - -------------------------------------------------------------------------------- Cleveland, Ohio, or (vi) the material breach or material default by the Company of any of its agreements or obligations under any provision of this Agreement. As used in this Subsection 4(g), an "adverse change or material reduction" in the aggregate Minimum Benefits shall be deemed to result from any reduction or any series of reductions which, in the aggregate, exceeds five percent (5%) of the value of such aggregate Minimum Benefits determined as of the date of this Agreement. As used in this Subsection 4(g), Minimum Benefits are life insurance, accidental death, long term disability, short term disability, medical, dental, and vision benefits and the Company's expense reimbursement policy. The Employee shall give written notice to the Company on or before the date of termination of employment for Good Reason stating that the Employee is terminating employment with the Company and specifying in detail the reasons for such termination. If the Company does not object to such notice by notifying the Employee in writing within five (5) days following the date of the Company's receipt of the Employee's notice of termination, the Company shall be deemed to have agreed that such termination was for Good Reason. The parties agree that "Good Reason" will not be deemed to have occurred merely because the Company becomes a subsidiary or division of another entity following a "Change of Control," as hereinafter defined, provided the Employee continues to serve in the same capacity with such subsidiary or division as his capacity with the Company at the beginning of the Protected Period and such subsidiary or division is comparable in size to the organization consisting of the Company and its subsidiaries. The parties further agree that "Good Reason" will be deemed to have occurred if the purchaser, in a Change of Control transaction, does not assume this Agreement in accordance with Section 12 hereof. 5. SEVERANCE COMPENSATION. If the Employee's employment is terminated ---------------------- during a Protected Period, the following severance provisions will apply: (a) If the Employee's employment is terminated by the Company other than for Cause or is terminated by the Employee for Good Reason, then, through the one year period commencing on the date of the Employee's termination of employment (the "Payment Term") the Company shall: (i) continue to pay the Employee's annual base salary in the then prevailing amount and at the times specified in Subsection 3(a) hereof, or if such annual base salary has decreased during the one year period ending on the Employee's termination of employment, at the highest rate in effect during such one year period; - -------------------------------------------------------------------------------- Page 7 - -------------------------------------------------------------------------------- (ii) continue the Employee's participation in the Bonus Plan as provided in Subsection 3(b) hereof provided that the Company will: (A) pay the Employee a bonus under the Bonus Plan for the partial year period ending on the date of the Employee's termination of employment calculated as if the Employee had continued to be employed for the entire year except that the Employee's bonus percentage (calculated at the time and in the manner customary as of the date of this Agreement, but disregarding the termination of employment of the Employee) shall be applied to the Employee's annual base salary payable in accordance with Subsection 3(a) hereof for the partial year period ending on the Employee's termination of employment; and (B) thereafter, during the remainder of the Payment Term, a bonus equal to the Employee's Target Annual Bonus Percentage, multiplied by the Employee's annual base salary in the amount specified in Subsection 5(a)(i) payable during the year (or portion thereof) for which the bonus is being calculated; with such amounts being payable when bonuses under the Bonus Plan are customarily payable, except that the final bonus shall be payable with the final payment of the annual base salary under Subsection 5(a)(i) hereof; (iii) pay for executive outplacement services for the Employee from a nationally recognized executive outplacement firm at a level consistent with the employee's position, provided that such outplacement services will be provided for a six (6) month period commencing on the date of termination of employment regardless of the Payment Term; and (iv) In lieu of the payments described in Subsections 5(a)(i) and 5(a)(ii) hereof, at the Employee's request, submitted in writing to the Company within five (5) business days after the date of the Employee's termination of employment: (A) the Company will pay the total of the Employee's annual base salary payments described in Subsection 5(a)(i) in a single sum within thirty (30) days following the Employee's termination of - -------------------------------------------------------------------------------- Page 8 - -------------------------------------------------------------------------------- employment; and (B) his Bonus Plan payments described in Subsection 5(a)(ii) shall be made at the same time as the Employee's payment under Subsection 5(a)(vi)(A) but shall be calculated using the Employee's Target Annual Bonus Percentage for all calculation purposes. (b) If the Employee's employment hereunder terminates due to the Employee's death, disability, termination by the Company for Cause or termination by the Employee other than for Good Reason, then no further compensation or benefits will be provided to the Employee by the Company under this Agreement following the date of such termination of employment other than payment of compensation earned to the date of termination of employment but not yet paid. As more fully and generally provided in Section 16 hereof, this Subsection 5(b) shall not be interpreted to deny the Employee any benefits to which he may be entitled under any plan or arrangement of the Company applicable to the Employee. Likewise, this Subsection 5(b) shall not be interpreted to entitle the Employee to a bonus under the Bonus Plan following his termination of employment except as provided in the Bonus Plan which requires employment on the last day of the Company's taxable year as a condition to receipt of a bonus thereunder for such year except in the cases of death, disability or retirement at or after either age 62 with ten years of service or age 65. (c) Notwithstanding anything contained in this Agreement to the contrary, other than Section 16 hereof, if the Employee breaches any of his obligations under Section 9 or 10 hereof, no further severance payments or other benefits will be payable to the Employee under this Section 5. 6. CHANGE OF CONTROL. ----------------- (a) In General. In the event of a Change of Control as defined in ---------- this Section 6, the Employee shall become entitled to certain special benefits and shall have certain special protections so that he may more fully focus on the issues related to such a Change of Control, and to reward the Employee for the substantial additional effort involved in a Change of Control. The special benefits and protections are set forth in this Section 6. (b) Transaction Bonus. In the event of a Change of Control, then ----------------- subject to the requirements set forth in this Subsection 6(b), the Employee will receive a cash transaction bonus (the "Transaction - -------------------------------------------------------------------------------- Page 9 - -------------------------------------------------------------------------------- Bonus") calculated and payable as follows: (i) If the Employee is employed by the Company on the date of the Change of Control, the total amount of the Transaction Bonus shall be equal to fifty percent (50%) of his annual base salary in the then prevailing amount specified in Subsection 3(a) hereof, or if such annual base salary has decreased during the one year period ending on his termination of employment, at the highest rate in effect during such one year period; and. (ii) If the Employee is employed by the Company on the date of the Change of Control and either is employed by the Company on the first anniversary thereof or is not employed by the Company on such first anniversary due to the Employee's death or disability, the Transaction Bonus shall be payable as follows: (A) If the Employee is employed by the Company on the day of the Change of Control, one-half (1/2) of the Transaction Bonus shall be payable to the Employee on such date; and (B) If the Employee is employed by the Company on the first anniversary of the Change of Control, the other one-half (1/2) of the Transaction Bonus shall be payable to the Employee on such date. (C) Furthermore, if the Employee is employed by the Company on the date of the Change of Control but, due to the Employee's death or disability, the Employee is no longer employed by the Company on the first anniversary thereof, the Employee (or the Employee's beneficiary in the event of the Employee's death) shall nevertheless be entitled to the other one-half (1/2) of the Transaction Bonus, which amount shall be payable on such first anniversary. (iii) If the Employee is not employed by the Company on either or both of the date of the Change of Control and the date of the first anniversary thereof due to the Employee's termination by the Company other than for Cause or due to the Employee's termination of employment for Good Reason, but if the Employee's Payment Term includes either or both such dates, the Employee shall nonetheless be entitled to the Transaction Bonus which would otherwise be - -------------------------------------------------------------------------------- Page 10 - -------------------------------------------------------------------------------- payable on the date or dates which are included in such Payment Term even though the Employee is no longer then employed by the Company. Any Transaction Bonus payable in accordance with this Subsection 6(b)(iii) shall be in an amount, and shall be payable on a date, determined in accordance with Subsection 6(b)(iv) or 6(b)(v), whichever is applicable. (iv) If the Employee is not employed by the Company on the date of the Change of Control, but a Transaction Bonus is payable to the Employee in accordance with Subsection 6(b)(iii) hereof, the following shall apply: (A) The Transaction Bonus shall be in the amount calculated in accordance with Subsection 6(b)(i); (B) The Transaction Bonus shall be paid in full to the Employee (or the Employee's beneficiary in the event of the Employee's death) on the date of the Change of Control; and (C) On the date of the Change of Control, the Employee (or the Employee's personal representative or beneficiary in the event of the Employee's death) shall assign to the Company the Employee's restricted Class A Shares and the Employee's stock options for Class A Shares and any other Class A Shares or equity interest in the Company which the Employee may then own, regardless of how the Employee may have acquired such restricted stock, options, Class A Shares, or equity interest. In exchange therefore, the Company shall pay to the Employee (or the Employee's beneficiary in the event of the Employee's death), on such date, an amount equal to the value of the Employee's restricted Class A Shares and the Employee's stock options for Class A Shares, to the extent such options are exercisable and such restricted stock is vested, and any other Class A Shares or equity interest in the Company which the Employee may then own. Such value shall be calculated using the Class A Share Change of Control Valuation as hereinafter defined. The value of the exercisable stock options for this purpose shall be the amount by which the value of the Class A Shares, as so determined, exceeds the exercise price. - -------------------------------------------------------------------------------- Page 11 - -------------------------------------------------------------------------------- (v) If the Employee is employed by the Company on the date of the Change of Control but not on the first anniversary thereof, but a Transaction Bonus is payable to the Employee in accordance with Subsection 6(b)(iii) hereof, the following shall apply: (A) The Transaction Bonus shall be in the amount calculated in accordance with Subsection 6(b)(i); and (B) The portion of the Transaction Bonus remaining unpaid upon the Employee's termination of employment with the Company shall be paid to the Employee (or the Employee's beneficiary in the event of the Employee's death) within ten (10) days following such termination of employment. (vi) Notwithstanding anything contained in this Agreement to the contrary, if the Employee breaches any of the Employee's obligations under Section 9 or 10 hereof, no further Transaction Bonus payments will be payable to the Employee. (c) Equity Considerations. If the Employee is employed by the --------------------- Company on the day of the Change of Control, the Employee shall receive the following equity considerations: (i) all restricted stock of the Company, owned by the Employee on the date of the Change of Control, regardless of whether acquired under the 1996 Transitional Restricted Stock Plan or under an individual agreement with the Company or otherwise, will become and remain one hundred percent (100%) vested; (ii) all stock options for Class A Shares of the Company, owned by the Employee on the date of the Change of Control, regardless of whether acquired under the 1989, 1992 or 1997 Stock Option Plan or under an individual agreement with the Company or otherwise, will immediately become and remain throughout the full remaining term of such options one hundred percent (100%) vested and fully exercisable, and such exercise then and thereafter shall be available on a cashless basis such that the Employee may receive the net value of the Employee's options (represented by the amount by which the fair market value of the Class A Shares exceeds the exercise price) in cash or Class A Shares as the Employee shall elect, without outlay of cash but net of all applicable withholding taxes, which - -------------------------------------------------------------------------------- Page 12 - -------------------------------------------------------------------------------- taxes shall be remitted by the Company to the proper taxing authorities; (iii) upon any such Change of Control transaction, all limitations, restrictions or conditions relating to the Employee's rights to receive, vote, own and/or transfer any Class A Shares contained in any of the Pre-existing Agreements or contained in any other document, agreement or plan shall terminate and shall be of no further force and effect, except for any registration rights in effect; (iv) if permitted by the purchaser in the Change of Control transaction (the "Purchaser"), the Company will provide for the Employee the opportunity to convert all or a portion, as he shall elect, of the Employee's options to purchase Class A Shares as well as Class A Shares then owned by the Employee, into an equity investment in the entity resulting from Purchaser's transaction (the "Successor") on a tax favored basis. The amount available for such investment shall be an amount calculated on the basis of the per Share price paid in the Change of Control transaction or series of transactions or implicit in the valuation of the Change of Control transaction, including all elements of consideration paid or payable (the "Change of Control Valuation"). (v) If the Purchaser in the Change of Control transaction does not permit the Employee to convert (or the Employee chooses not to convert) all (or a portion) of the Employee's options to purchase Class A Shares and Class A Shares then owned by the Employee into equity in the Successor, then the Employee shall exercise, at the time of the Change of Control, all options the Employee holds for Class A Shares (such exercise to provide cash rather than Class A Shares to the Employee in accordance with the exercise procedure described in Subsection 6(c)(ii) hereof), and shall sell to the Company at the time of the Change of Control all Class A Shares then owned by the Employee, to the extent such options or Class A Shares are not converted into equity in the Successor. Such exercise of options and sale of Class A Shares shall yield an amount to the Employee determined by the Class A Share Change of Control Valuation. (d) Change of Control. For purposes of this Agreement, the words ------------------ "Change of Control" means a change in control of the Company of a nature that would be required to be reported in response to Item - -------------------------------------------------------------------------------- Page 13 - -------------------------------------------------------------------------------- 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended, as in effect on the date of this Agreement (the "Exchange Act"), whether or not the Company is then subject to such reporting requirements; provided, that, without limitation, a Change of Control shall be deemed to have occurred if: (i) any "person" (as defined in Sections 13(d) and 14(d) of the Exchange Act), other than Zell/Chilmark Fund, L.P., is or becomes the "beneficial owner" (as defined in Rule 13d- 3 under the Exchange Act), directly or indirectly, of securities of the Company representing twenty percent (20%) or more of the combined voting power of the Company's then outstanding securities; provided that a Change in Control shall not be deemed to occur under this clause (i) by reason of (A) the acquisition of securities by the Company or an employee benefit plan (or any trust funding such a plan) maintained by the Company, or (B) while Zell/Chilmark Fund, L.P. continues to beneficially own more than fifty percent (50%) of the combined voting power of the Company's then outstanding securities; (ii) during any period of one (1) year there shall cease to be a majority of the Board comprised of "Continuing Directors" as hereinafter defined; or (iii) the stockholders of the Company (A) approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than eighty percent (80%) of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or (B) approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of more than fifty percent (50%) of the Company's assets. For purposes of this Subsection 6(d)(iii), a sale of more than fifty percent (50%) of the Company's assets includes a sale of more than fifty percent (50%) of the aggregate value of the assets of the Company and its subsidiaries or the sale of stock of one or more of the Company's subsidiaries with an aggregate value in excess of fifty percent (50%) of the aggregate value of the Company and its subsidiaries or any combination of methods by which more than fifty percent - -------------------------------------------------------------------------------- Page 14 - -------------------------------------------------------------------------------- (50%) of the aggregate value of the Company and its subsidiaries is sold. (iv) For purposes of this Agreement, a "Change of Control" will be deemed to occur: (A) on the day on which a twenty percent (20%) or greater ownership interest described in Subsection 6(d)(i) is acquired or, if later, the day on which the Zell/Chilmark Fund, L.P. ceases to beneficially own more than fifty percent (50%) of the combined voting power of the Company's then outstanding securities, provided that a subsequent increase in such ownership interest after it first equals or exceeds twenty percent (20%) shall not be deemed a separate Change of Control; (B) on the day on which "Continuing Directors," as hereinafter defined, cease to be a majority of the Board as described in Subsection 6(d)(ii); (C) on the day of a merger, consolidation or sale or disposition of assets as described in Subsection 6(d)(iii); or (D) on the day of the approval of a plan of complete liquidation as described in Subsection 6(d)(iii). (v) For purposes of this Subsection 6(d), the word "Company" means Sealy Corporation, and, any other corporation or business organization in an unbroken chain of corporations or business organization ending with Sealy Corporation that owns, directly or indirectly, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock of Sealy Corporation other than Zell/Chilmark Fund, L.P. (vi) For purposes of this Subsection 6(d), the words "Continuing Directors" mean individuals who at the beginning of any period (not including any period prior to the date of this Agreement) of one (1) year constitute the Board and any new director(s) whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least a majority of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so - -------------------------------------------------------------------------------- Page 15 - -------------------------------------------------------------------------------- approved. (e) Section 16 Protection. If the Employee is subject to Section 16 --------------------- of the Securities Exchange Act of 1934 ("Section 16"), then to the extent the Employee would be deprived of the benefits of the equity considerations described herein or under any of the Pre- existing Agreements or under the 1989, 1992 or 1997 Stock Option Plan or the 1996 Transitional Restricted Stock Plan, as described above, or any other plan or arrangement regarding stock of the Company, by reason of such Section 16 or the Rules issued thereunder, the Employee shall be provided with the alternative of receiving a cash payment approximating the loss of such benefits under a cash compensation plan implemented by the Company. The Company agrees to have this Agreement, and specifically this Section 6 approved by the Board in compliance with Section 16 and Rule 16b-3 thereunder to ensure its enforceability. 7. SEVERANCE PLAN. It is the intention of the Parties that this Agreement -------------- provide special benefits to the Employee. If at any time the Company's Executive Severance Benefit Plan would provide better cash severance benefits to the Employee than this Agreement, the Employee may elect to receive such better cash severance benefits in lieu of the cash severance benefits provided under Subsections 5(a)(i) and 5(a)(ii), or Subsection 5(a)(v), of this Agreement, whichever is applicable, while continuing to receive any other benefits or coverages available under this Agreement. If this Agreement would provide better cash severance benefits to the Employee than the Company's Executive Severance Benefit Plan, the Employee shall receive the cash severance benefits under this Agreement, as well as any other benefits or coverages available under this Agreement. In such case, the cash severance benefits under this Agreement shall be in lieu of the cash severance benefits payable under the Company's Executive Severance Benefit Plan. 8. PLAN AMENDMENTS. To the extent any provisions of this Agreement --------------- modify the terms of any existing plan, policy or arrangement affecting the compensation or benefits of the Employee, as appropriate, (a) such modification as set forth herein shall be deemed an amendment to such plan, policy or arrangement as to the Employee, and both the Company and the Employee hereby consent to such amendment, (b) the Company will appropriately modify such plan, policy or arrangement to correspond to this Agreement with respect to the Employee, or (c) the Company will provide an "Alternative Benefit," as defined in Section 14 hereof, to or on behalf of the Employee in accordance with the provisions of such Section 14. 9. CONFIDENTIAL INFORMATION. The Employee agrees that the Employee will ------------------------ not, during the Protected Period or at any time thereafter, either directly or indirectly, disclose or make known to any other person, firm, or corporation any confidential information, trade secret or proprietary information of the Company that the Employee may acquire in the performance of the Employee's duties hereunder (except in good faith in the ordinary course of business for the Company to a person who will be - -------------------------------------------------------------------------------- Page 16 - -------------------------------------------------------------------------------- advised by the Employee to keep such information confidential) or make use of any of such confidential information except in the performance of the Employee's duties or when required to do so by legal process, by any governmental agency having supervisory authority over the business of the Company or by any administrative or legislative body (including a committee thereof) that requires the Employee to divulge, disclose or make accessible such information. In the event that the Employee is so ordered, the Employee shall so advise the Company in order to allow the Company the opportunity to object to or otherwise resist such order. Upon the termination of the Employee's employment with the Company, the Employee agrees to deliver forthwith to the Company any and all proprietary literature, documents, correspondence, and other proprietary materials and records furnished to or acquired by the Employee during the course of such employment. In the event of a breach or threatened breach of this Section 9 by the Employee, the Company will be entitled to preliminary and permanent injunctive relief, without bond or security, sufficient to enforce the provisions hereof and the Company will be entitled to pursue such other remedies at law or in equity which it deems appropriate. 10. NON-COMPETITION. In consideration of this Agreement, the Employee --------------- agrees that, while employed during the Protected Period, and for one year after the Employee's termination of employment, unless the Employee has waived the Transaction Bonus and the equity consideration described in Subsections 6(b) and 6(c), the Employee shall not act as a proprietor, investor, director, officer, employee, substantial stockholder, consultant, or partner in any business engaged to a material extent in the manufacture or sale of (a) mattresses or other bedding products or (b) any other products which constitute more than ten percent (10%) of the Company's revenues at the time in direct competition with the Company in any market. If, however, the Employee has waived the Transaction Bonus and the equity consideration described in Subsections 6(b) and 6(c), this covenant not to compete shall be void upon the Employee's termination of employment. The Employee understands that the foregoing restrictions may limit the Employee's ability to engage in certain business pursuits during the period provided for above, but acknowledges that the Employee will receive sufficiently higher remuneration and other benefits from the Company hereunder than the Employee would otherwise receive to justify such restriction. The Employee acknowledges that the Employee understands the effect of the provisions of this Section 10, and the Employee has had reasonable time to consider the effect of these provisions, and that the Employee was encouraged to and had an opportunity to consult an attorney with respect to these provisions. The Company and the Employee consider the restrictions contained in this Section 10 to be reasonable and necessary. Nevertheless, if any aspect of these restrictions is found to be unreasonable or otherwise unenforceable by a court of competent jurisdiction, the Parties intend for such restrictions to be modified by such court so as to be reasonable and enforceable and, as so modified by the court, to be fully enforced. In the event of a breach or threatened breach of this Section 10 by the Employee, the Company will be entitled to preliminary and permanent injunctive relief, without bond or security, sufficient to enforce the provisions hereof and the Company will be entitled to pursue such other remedies at law or in equity which it deems appropriate. - -------------------------------------------------------------------------------- Page 17 - -------------------------------------------------------------------------------- During the ten (10) day period ending on the date of a Change of Control, the Employee may, by written notice to the Company, elect to waive his Transaction Bonus and the equity considerations described in Subsections 6(b) and 6(c). Such waiver shall be irrevocable. In the event of such a waiver, the Employee's agreement not to compete with the Company as set forth in this Section 10 shall be void upon his termination of employment. 11. NOTICES. For purposes of this Agreement, all communications provided ------- for herein shall be in writing and shall be deemed to have been duly given when hand delivered or mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows: (a) If the notice is to the Company: Mr. Ronald L. Jones Chief Executive Officer Sealy Corporation 1228 Euclid Avenue - Tenth Floor Cleveland, Ohio 44115-1886 With a copy to: Kenneth Walker, Esq. Vice President and General Counsel Sealy Corporation 1228 Euclid Avenue - Tenth Floor Cleveland, Ohio 44115-1886 (b) If the notice is to the Employee: ------------------------ ------------------------ ------------------------ or to such other address as either party may have furnished to the other in writing and in accordance herewith; except that notices of change of address shall be effective only upon receipt. 12. ASSIGNMENT; BINDING EFFECT. This Agreement shall be binding upon and -------------------------- inure to the benefit of the parties to this Agreement and their respective successors, heirs (in the case of the Employee) and permitted assigns. No rights or obligations of the Company under this Agreement may be assigned or transferred by the Company except that such rights or obligations may be assigned or transferred in connection with the sale or transfer of all or substantially all of the assets of the Company, provided that the assignee or transferee is the successor to all or substantially all of the assets of the Company and such assignee or transferee expressly assumes the liabilities, obligations and duties of the Company, as contained in this Agreement, either contractually or as a matter of law. The Company further - -------------------------------------------------------------------------------- Page 18 - -------------------------------------------------------------------------------- agrees that, in the event of a sale or transfer of assets as described in the preceding sentence, it shall be a condition precedent to the consummation of any such transaction that the assignee or transferee expressly assumes the liabilities, obligations and duties of the Company hereunder. No rights or obligations of the Employee under this Agreement may be assigned or transferred by the Employee other than the Employee's rights to compensation and benefits, which may be transferred only by will or operation of law, except as provided in this Section 12. The Employee shall be entitled, to the extent permitted under any applicable law, to select and change a beneficiary or beneficiaries to receive any compensation or benefits payable hereunder following the Employee's death by giving the Company written notice thereof. In the absence of such a selection, any compensation or benefit payable under this Agreement following the death of the Employee shall be payable to the Employee's spouse, or if such spouse shall not survive the Employee, to the Employee's estate. In the event of the Employee's death or a judicial determination of his incompetence, reference in this Agreement to the Employee shall be deemed, where appropriate, to refer to the Employee's beneficiary, estate or other legal representative. 13. INVALID PROVISIONS. Any provision of this Agreement that is ------------------ prohibited or unenforceable shall be ineffective to the extent, but only to the extent, of such prohibition or unenforceability without invalidating the remaining portions hereof and such remaining portions of this Agreement shall continue to be in full force and effect. In the event that any provision of this Agreement shall be determined to be invalid or unenforceable, the Parties will negotiate in good faith to replace such provision with another provision that will be valid or enforceable and that is as close as practicable to the provisions held invalid or unenforceable. 14. ALTERNATIVE SATISFACTION OF COMPANY'S OBLIGATIONS. In the event this ------------------------------------------------- Agreement provides for payments or benefits to or on behalf of the Employee which cannot be provided under the Company's benefit plans, policies or arrangements either because such plans, policies or arrangements no longer exist or no longer provide such benefits or because provision of such benefits to the Employee would adversely affect the tax qualified or tax advantaged status of such plans, policies or arrangements for the Employee or other participants therein, the Company may provide the Employee with an "Alternative Benefit," as defined in this Section 14, in lieu thereof. The Alternative Benefit is a benefit or payment which places the Employee and the Employee's dependents in at least as good of an economic position as if the benefit promised by this Agreement (a) were provided exactly as called for by this Agreement, and (b) had the favorable economic, tax and legal characteristics customary for plans, policies or arrangements of that type. Furthermore, if such adverse consequence would affect the Employee or the Employee's dependents, the Employee shall have the right to require that the Company provide such an Alternative Benefit. 15. ENTIRE AGREEMENT, MODIFICATION. Subject to the provisions of Section ------------------------------ 16 hereof, this Agreement contains the entire agreement between the Parties with respect to the employment of the Employee by the Company and supersedes all - -------------------------------------------------------------------------------- Page 19 - -------------------------------------------------------------------------------- prior and contemporaneous agreements, representations, and understandings of the Parties, whether oral or written. No modification, amendment, or waiver of any of the provisions of this Agreement shall be effective unless in writing, specifically referring hereto, and signed by both Parties. 16. NON-EXCLUSIVITY OF RIGHTS. Notwithstanding the foregoing provisions ------------------------- of Section 15, nothing in this Agreement shall prevent or limit the Employee's continuing or future participation in any benefit, bonus, incentive or other plan, program, policy or practice provided by the Company for its executive officers, nor shall anything herein limit or otherwise affect such rights as the Employee has or may have under any stock option, restricted stock or other agreements with the Company or any of its subsidiaries. Amounts which the Employee or the Employee's dependents or beneficiaries are otherwise entitled to receive under any such plan, policy, practice or program shall not be reduced by this Agreement except as provided for in Section 7 hereof with respect to payments under the Executive Severance Benefit Plan if cash payments of annual base salary are made hereunder. 17. WAIVER OF BREACH. The failure at any time to enforce any of the ---------------- provisions of this Agreement or to require performance by the other party of any of the provisions of this Agreement shall in no way be construed to be a waiver of such provisions or to affect either the validity of this Agreement or any part of this Agreement or the right of either party thereafter to enforce each and every provision of this Agreement in accordance with the terms of this Agreement. 18. GOVERNING LAW. This Agreement has been made in, and shall be governed ------------- and construed in accordance with the laws of, the State of Ohio. The Parties agree that this Agreement is not an "employee benefit plan" or part of an "employee benefit plan" which is subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended. 19. TAX WITHHOLDING. The Company may withhold from any amounts payable --------------- under this Agreement such federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. Where withholding applies to Class A Shares, the Company shall make cashless withholding available to the Employee. 20. REPRESENTATION. The Company represents and warrants that it is fully -------------- authorized and empowered to enter into this Agreement and that the performance of its obligations under this Agreement will not violate any agreement between it and any other person, firm or organization. 21. SUBSIDIARIES AND AFFILIATES. Notwithstanding any contrary provision --------------------------- of this Agreement, to the extent it does not adversely affect the Employee, the Company may provide the compensation and benefits to which the Employee is entitled hereunder through one or more subsidiaries or affiliates, including, without limitation, Sealy, Inc. - -------------------------------------------------------------------------------- Page 20 - -------------------------------------------------------------------------------- 22. SOLE REMEDY. The Parties agree that the remedies of each against ----------- the other for breach of this Agreement shall be limited to enforcement of this Agreement and recovery of the amounts and remedies provided for herein. The Parties, however, further agree that such limitation shall not prevent either Party from proceeding against the other to recover for a claim other than under this Agreement. IN WITNESS WHEREOF, the Company and the Employee have executed this Agreement as of the day and year first above written. SEALY CORPORATION By: /s/ KENNETH L. WALKER _______________________ kenneth L. Walker Vice President, General Counsel & Secretary EMPLOYEE /s/ RONALD H. STOLLE _______________________ Ronald H. Stolle EX-10.17 23 EMPLOYMENT AGREEMENT (K. WALKER) - -------------------------------------------------------------------------------- Page 1 - -------------------------------------------------------------------------------- EXHIBIT 10.17 ------------- CHANGE OF CONTROL AGREEMENT THIS CHANGE OF CONTROL AGREEMENT is entered into as of the 11th day of August, 1997, by and between SEALY CORPORATION, a Delaware corporation (the "Company"), and KENNETH L. WALKER (the "Employee"). W I T N E S S E T H: WHEREAS, the Company and the Employee (collectively "the Parties") desire to enter into this Change of Control Agreement (the "Agreement") as hereinafter set forth; NOW, THEREFORE, the Company and Employee agree as follows: 1. PROTECTED PERIOD. ---------------- (a) This Agreement is intended to provide the Employee with certain special benefits and to grant certain special protections so that the Employee may more fully focus on the issues related to a "Change of Control," as hereinafter defined, and to reward the Employee for the substantial extra effort involved in a Change of Control. (b) In order to provide the protections deemed necessary and appropriate by the Parties, the Parties agree to the establishment of a period during which such protections apply. Such period shall be referred to in this Agreement as the "Protected Period." The Protected Period shall be as follows: (i) The Protected Period shall be the one (1) year period commencing on the date a Change of Control occurs and ending on the first anniversary thereof; and (ii) Provided that, if the Employee's employment terminates prior to a Change of Control, but such termination is "In Connection With a Change of Control," as hereinafter defined, the termination shall be deemed to have occurred during the Protected Period and the Employee shall be entitled to the benefits and protections set forth in this Agreement. (c) For purposes of this Agreement, and particularly Subsection 1(b) hereof, a termination shall be deemed to be "In Connection With a Change of Control" if: (i) Such termination is at the request of the purchaser in the Change of Control transaction; or - -------------------------------------------------------------------------------- Page 2 - -------------------------------------------------------------------------------- (ii) Such termination is by the Company other than for Cause or is by the Employee for Good Reason and reflects an intent by the Company to avoid payment of benefits under this Agreement notwithstanding the Employee's compliance with Section 2 hereof; provided, however, that a termination otherwise defined in this Subsection 1(c) as In Connection With a Change of Control will not be deemed In Connection With a Change of Control unless a Change of Control occurs within six (6) months after the date of the Employee's termination of employment with the Company. (d) The Parties agree that this Agreement is an agreement dealing only with benefits, rights and duties of the Parties during a Protected Period. The Parties specifically agree that this Agreement is not intended to be and is not an employment agreement. The Employee is, as of the date of this Agreement, and will remain, an employee at will, but subject to those special provisions herein set forth. 2. POSITION, DUTIES, AND RESPONSIBILITIES. At all times during the -------------------------------------- Protected Period, the Employee shall: (a) Hold either (i) the position with the Company that the Employee holds at the commencement of the Protected Period or (ii) a position with the Company of greater duties, responsibilities and authority than the position with the Company that the Employee holds at the commencement of the Protected Period; (b) Have those duties and responsibilities, and the authority, customarily possessed by an employee of a major corporation in the position of the Employee and such additional duties as may be assigned to the Employee from time to time by the Board of Directors of the Company (the "Board") or the Chief Executive Officer of the Company (the "Chief Executive Officer") or the Employee's superior(s) which are consistent with the Employee's position; (c) Adhere to such reasonable policies and directives as may be promulgated from time to time by the Board or the Chief Executive Officer and which are applicable to employees at the Employee's level with the Company; (d) Invest in the Company only in accordance with any insider trading policy of the Company in effect at the time of the investment; and (e) Devote the Employee's entire business time, energy, and talent to - -------------------------------------------------------------------------------- Page 3 - -------------------------------------------------------------------------------- the business, and to the furtherance of the purposes and objectives, of the Company, and neither directly nor indirectly act as an employee of or render any business, commercial, or professional services to any other person, firm or organization for compensation, without the prior written approval of the Board or the Chief Executive Officer. Nothing in this Agreement shall preclude the Employee from devoting reasonable periods of time to charitable and community activities or the management of the Employee's investment assets, provided such activities do not interfere with the performance by the Employee of the Employee's duties hereunder. 3. SALARY, BONUS AND BENEFITS. For services rendered by the Employee on -------------------------- behalf of the Company during the Protected Period, the following salary, bonus and benefits shall be provided to the Employee by the Company: (a) The Company shall pay to the Employee, in equal installments, according to the Company's then current practice for paying its employees at the level of the Employee in effect from time to time during the Protected Period, an annual base salary at a rate not less than that in effect at the commencement of the Protected Period. (b) The Employee shall participate in the Sealy Corporation Annual Bonus Plan (the "Bonus Plan") in accordance with the provisions of that Plan as in effect as of the date of this Agreement with a Target annual bonus as determined under the Bonus Plan as of the commencement of the Protected Period equal to the applicable percentage (his "Target Annual Bonus Percentage") of annual base salary with a range as in effect as of such date. (c) The Employee shall be eligible for participation in such other benefit plans, including, but not limited to, the Company's Profit Sharing Plan and Trust, Executive Severance Benefit Plan, Benefit Equalization Plan, Short-Term and Long Term Disability Plans, Group Term Life Insurance Plan, Medical Plan or PPO, Dental Plan, the 401(k) feature of the Profit Sharing Plan, the 1996 Transitional Restricted Stock Plan and/or the 1997 Stock Option Plan, as the Board may adopt from time to time and in which the Company's employees at the level comparable to the Employee are eligible to participate. Such participation shall be subject to the terms and conditions set forth in the applicable plan documents. As is more fully set forth in Section 7 hereof, the Employee shall not be entitled to duplicative payments in this Agreement and the Executive Severance Plan. (d) The Employee shall be entitled to take, during the Protected - -------------------------------------------------------------------------------- Page 4 - -------------------------------------------------------------------------------- Period, at least the amount of vacation time to which the Employee is entitled as of the date of this Agreement under the Company's vacation policy applicable to employees at the level comparable to the Employee or would have become entitled as of the applicable time if such vacation policy were still in effect throughout the Protected Period. (e) In addition, the Parties do hereby further confirm that the Employee may be entitled to a number of restricted shares of Class A Common Stock of the Company ("Class A Shares"), as well as options to purchase additional Class A Shares pursuant to various benefit plans or agreements with the Company. The Parties agree that (a) such restricted Class A Shares and such options are in addition to, and not in lieu of, any shares or options which may be granted under any other plan or arrangement of the Company after the date of this Agreement, and (b) the various restricted stock agreements and stock option agreements, and any related Stockholder Agreement (the "Stockholder Agreement") between the Parties (such agreements being hereinafter referred to collectively as the "Pre-existing Agreements"), all remain in full force and effect except as otherwise provided herein. Notwithstanding the foregoing, to the extent that any provision contained herein is inconsistent with the terms of any of the Pre-existing Agreements, the terms of this Agreement shall be controlling. 4. TERMINATION OF EMPLOYMENT. During a "Protected Period," the Employee's ------------------------- employment may be terminated as follows: (a) The Employee's employment hereunder will terminate without further notice upon the death of the Employee. (b) The Company may terminate the Employee's employment hereunder effective immediately upon giving written notice of such termination for "Cause". For these purposes, "Cause" shall mean the following: (i) Commission by the Employee (evidenced by a conviction or written, voluntary and freely given confession) of a criminal act constituting a felony; (ii) Commission by the Employee of a material breach or material default of any of the Employee's agreements or obligations under any provision of this Agreement, including, without limitation, the Employee's agreements and obligations under Subsections 2(a) through 2(e) and Sections 9 and 10 of this Agreement, which is not cured in - -------------------------------------------------------------------------------- Page 5 - -------------------------------------------------------------------------------- all material respects within thirty (30) days after the Chief Executive Officer or the designee thereof gives written notice thereof to the Employee; or (iii) Commission by the Employee, when carrying out the Employee's duties under this Agreement, of acts or the omission of any act, which both: (A) constitutes gross negligence or willful misconduct and (B) results in material economic harm to the Company or has a materially adverse effect on the Company's operations, properties or business relationships. (c) The Employee's employment hereunder may be terminated upon disability, if the Employee is prevented from performing the Employee's duties hereunder by reason of physical or mental incapacity for a period of one hundred eighty (180) consecutive days in any period of two consecutive fiscal years of the Company, but the Employee shall be entitled to full compensation and benefits hereunder until the close of such one hundred and eighty (180) day period. (d) The Company may terminate the Employee's employment hereunder without Cause at any time upon thirty (30) days written notice. (e) The Employee may terminate employment hereunder effective immediately upon giving written notice of such termination for "Good Reason", as defined in Subsection 4(g) below. (f) The Employee may terminate employment hereunder without Good Reason at any time upon thirty (30) days written notice. (g) For purposes of this Agreement, "Good Reason" means the occurrence of (i) any reduction in either the annual base salary of the Employee or the Target Annual Bonus Percentage or maximum annual bonus percentage applicable to the Employee under the Bonus Plan, (ii) any material reduction in the position, authority or office of the Employee, (iii) any material reduction in the Employee's responsibilities or duties for the Company, (iv) any material adverse change or reduction in the aggregate "Minimum Benefits," as hereinafter defined, provided to the Employee as of the date of this Agreement (provided that any material reduction in such aggregate Minimum Benefits that is required by law or applies generally to all employees of the Company shall not constitute "Good Reason" as defined hereunder), (v) any relocation of the Employee's principal place of work with the Company to a place more than twenty-five (25) miles from the geographical center of - -------------------------------------------------------------------------------- Page 6 - -------------------------------------------------------------------------------- Cleveland, Ohio, or (vi) the material breach or material default by the Company of any of its agreements or obligations under any provision of this Agreement. As used in this Subsection 4(g), an "adverse change or material reduction" in the aggregate Minimum Benefits shall be deemed to result from any reduction or any series of reductions which, in the aggregate, exceeds five percent (5%) of the value of such aggregate Minimum Benefits determined as of the date of this Agreement. As used in this Subsection 4(g), Minimum Benefits are life insurance, accidental death, long term disability, short term disability, medical, dental, and vision benefits and the Company's expense reimbursement policy. The Employee shall give written notice to the Company on or before the date of termination of employment for Good Reason stating that the Employee is terminating employment with the Company and specifying in detail the reasons for such termination. If the Company does not object to such notice by notifying the Employee in writing within five (5) days following the date of the Company's receipt of the Employee's notice of termination, the Company shall be deemed to have agreed that such termination was for Good Reason. The parties agree that "Good Reason" will not be deemed to have occurred merely because the Company becomes a subsidiary or division of another entity following a "Change of Control," as hereinafter defined, provided the Employee continues to serve in the same capacity with such subsidiary or division as his capacity with the Company at the beginning of the Protected Period and such subsidiary or division is comparable in size to the organization consisting of the Company and its subsidiaries. The parties further agree that "Good Reason" will be deemed to have occurred if the purchaser, in a Change of Control transaction, does not assume this Agreement in accordance with Section 12 hereof. 5. SEVERANCE COMPENSATION. If the Employee's employment is terminated ---------------------- during a Protected Period, the following severance provisions will apply: (a) If the Employee's employment is terminated by the Company other than for Cause or is terminated by the Employee for Good Reason, then, through the one year period commencing on the date of the Employee's termination of employment (the "Payment Term") the Company shall: (i) continue to pay the Employee's annual base salary in the then prevailing amount and at the times specified in Subsection 3(a) hereof, or if such annual base salary has decreased during the one year period ending on the Employee's termination of employment, at the highest rate in effect during such one year period; - -------------------------------------------------------------------------------- Page 7 - -------------------------------------------------------------------------------- (ii) continue the Employee's participation in the Bonus Plan as provided in Subsection 3(b) hereof provided that the Company will: (A) pay the Employee a bonus under the Bonus Plan for the partial year period ending on the date of the Employee's termination of employment calculated as if the Employee had continued to be employed for the entire year except that the Employee's bonus percentage (calculated at the time and in the manner customary as of the date of this Agreement, but disregarding the termination of employment of the Employee) shall be applied to the Employee's annual base salary payable in accordance with Subsection 3(a) hereof for the partial year period ending on the Employee's termination of employment; and (B) thereafter, during the remainder of the Payment Term, a bonus equal to the Employee's Target Annual Bonus Percentage, multiplied by the Employee's annual base salary in the amount specified in Subsection 5(a)(i) payable during the year (or portion thereof) for which the bonus is being calculated; with such amounts being payable when bonuses under the Bonus Plan are customarily payable, except that the final bonus shall be payable with the final payment of the annual base salary under Subsection 5(a)(i) hereof; (iii) pay for executive outplacement services for the Employee from a nationally recognized executive outplacement firm at a level consistent with the employee's position, provided that such outplacement services will be provided for a six (6) month period commencing on the date of termination of employment regardless of the Payment Term; and (iv) In lieu of the payments described in Subsections 5(a)(i) and 5(a)(ii) hereof, at the Employee's request, submitted in writing to the Company within five (5) business days after the date of the Employee's termination of employment: (A) the Company will pay the total of the Employee's annual base salary payments described in Subsection 5(a)(i) in a single sum within thirty (30) days following the Employee's termination of - -------------------------------------------------------------------------------- Page 8 - -------------------------------------------------------------------------------- employment; and (B) his Bonus Plan payments described in Subsection 5(a)(ii) shall be made at the same time as the Employee's payment under Subsection 5(a)(vi)(A) but shall be calculated using the Employee's Target Annual Bonus Percentage for all calculation purposes. (b) If the Employee's employment hereunder terminates due to the Employee's death, disability, termination by the Company for Cause or termination by the Employee other than for Good Reason, then no further compensation or benefits will be provided to the Employee by the Company under this Agreement following the date of such termination of employment other than payment of compensation earned to the date of termination of employment but not yet paid. As more fully and generally provided in Section 16 hereof, this Subsection 5(b) shall not be interpreted to deny the Employee any benefits to which he may be entitled under any plan or arrangement of the Company applicable to the Employee. Likewise, this Subsection 5(b) shall not be interpreted to entitle the Employee to a bonus under the Bonus Plan following his termination of employment except as provided in the Bonus Plan which requires employment on the last day of the Company's taxable year as a condition to receipt of a bonus thereunder for such year except in the cases of death, disability or retirement at or after either age 62 with ten years of service or age 65. (c) Notwithstanding anything contained in this Agreement to the contrary, other than Section 16 hereof, if the Employee breaches any of his obligations under Section 9 or 10 hereof, no further severance payments or other benefits will be payable to the Employee under this Section 5. 6. CHANGE OF CONTROL. ----------------- (a) In General. In the event of a Change of Control as defined in ---------- this Section 6, the Employee shall become entitled to certain special benefits and shall have certain special protections so that he may more fully focus on the issues related to such a Change of Control, and to reward the Employee for the substantial additional effort involved in a Change of Control. The special benefits and protections are set forth in this Section 6. (b) Transaction Bonus. In the event of a Change of Control, then ----------------- subject to the requirements set forth in this Subsection 6(b), the Employee will receive a cash transaction bonus (the "Transaction - -------------------------------------------------------------------------------- Page 9 - -------------------------------------------------------------------------------- Bonus") calculated and payable as follows: (i) If the Employee is employed by the Company on the date of the Change of Control, the total amount of the Transaction Bonus shall be equal to fifty percent (50%) of his annual base salary in the then prevailing amount specified in Subsection 3(a) hereof, or if such annual base salary has decreased during the one year period ending on his termination of employment, at the highest rate in effect during such one year period; and. (ii) If the Employee is employed by the Company on the date of the Change of Control and either is employed by the Company on the first anniversary thereof or is not employed by the Company on such first anniversary due to the Employee's death or disability, the Transaction Bonus shall be payable as follows: (A) If the Employee is employed by the Company on the day of the Change of Control, one-half (1/2) of the Transaction Bonus shall be payable to the Employee on such date; and (B) If the Employee is employed by the Company on the first anniversary of the Change of Control, the other one-half (1/2) of the Transaction Bonus shall be payable to the Employee on such date. (C) Furthermore, if the Employee is employed by the Company on the date of the Change of Control but, due to the Employee's death or disability, the Employee is no longer employed by the Company on the first anniversary thereof, the Employee (or the Employee's beneficiary in the event of the Employee's death) shall nevertheless be entitled to the other one-half (1/2) of the Transaction Bonus, which amount shall be payable on such first anniversary. (iii) If the Employee is not employed by the Company on either or both of the date of the Change of Control and the date of the first anniversary thereof due to the Employee's termination by the Company other than for Cause or due to the Employee's termination of employment for Good Reason, but if the Employee's Payment Term includes either or both such dates, the Employee shall nonetheless be entitled to the Transaction Bonus which would otherwise be - -------------------------------------------------------------------------------- Page 10 - -------------------------------------------------------------------------------- payable on the date or dates which are included in such Payment Term even though the Employee is no longer then employed by the Company. Any Transaction Bonus payable in accordance with this Subsection 6(b)(iii) shall be in an amount, and shall be payable on a date, determined in accordance with Subsection 6(b)(iv) or 6(b)(v), whichever is applicable. (iv) If the Employee is not employed by the Company on the date of the Change of Control, but a Transaction Bonus is payable to the Employee in accordance with Subsection 6(b)(iii) hereof, the following shall apply: (A) The Transaction Bonus shall be in the amount calculated in accordance with Subsection 6(b)(i); (B) The Transaction Bonus shall be paid in full to the Employee (or the Employee's beneficiary in the event of the Employee's death) on the date of the Change of Control; and (C) On the date of the Change of Control, the Employee (or the Employee's personal representative or beneficiary in the event of the Employee's death) shall assign to the Company the Employee's restricted Class A Shares and the Employee's stock options for Class A Shares and any other Class A Shares or equity interest in the Company which the Employee may then own, regardless of how the Employee may have acquired such restricted stock, options, Class A Shares, or equity interest. In exchange therefore, the Company shall pay to the Employee (or the Employee's beneficiary in the event of the Employee's death), on such date, an amount equal to the value of the Employee's restricted Class A Shares and the Employee's stock options for Class A Shares, to the extent such options are exercisable and such restricted stock is vested, and any other Class A Shares or equity interest in the Company which the Employee may then own. Such value shall be calculated using the Class A Share Change of Control Valuation as hereinafter defined. The value of the exercisable stock options for this purpose shall be the amount by which the value of the Class A Shares, as so determined, exceeds the exercise price. - -------------------------------------------------------------------------------- Page 11 - -------------------------------------------------------------------------------- (v) If the Employee is employed by the Company on the date of the Change of Control but not on the first anniversary thereof, but a Transaction Bonus is payable to the Employee in accordance with Subsection 6(b)(iii) hereof, the following shall apply: (A) The Transaction Bonus shall be in the amount calculated in accordance with Subsection 6(b)(i); and (B) The portion of the Transaction Bonus remaining unpaid upon the Employee's termination of employment with the Company shall be paid to the Employee (or the Employee's beneficiary in the event of the Employee's death) within ten (10) days following such termination of employment. (vi) Notwithstanding anything contained in this Agreement to the contrary, if the Employee breaches any of the Employee's obligations under Section 9 or 10 hereof, no further Transaction Bonus payments will be payable to the Employee. (c) Equity Considerations. If the Employee is employed by the --------------------- Company on the day of the Change of Control, the Employee shall receive the following equity considerations: (i) all restricted stock of the Company, owned by the Employee on the date of the Change of Control, regardless of whether acquired under the 1996 Transitional Restricted Stock Plan or under an individual agreement with the Company or otherwise, will become and remain one hundred percent (100%) vested; (ii) all stock options for Class A Shares of the Company, owned by the Employee on the date of the Change of Control, regardless of whether acquired under the 1989, 1992 or 1997 Stock Option Plan or under an individual agreement with the Company or otherwise, will immediately become and remain throughout the full remaining term of such options one hundred percent (100%) vested and fully exercisable, and such exercise then and thereafter shall be available on a cashless basis such that the Employee may receive the net value of the Employee's options (represented by the amount by which the fair market value of the Class A Shares exceeds the exercise price) in cash or Class A Shares as the Employee shall elect, without outlay of cash but net of all applicable withholding taxes, which - -------------------------------------------------------------------------------- Page 12 - -------------------------------------------------------------------------------- taxes shall be remitted by the Company to the proper taxing authorities; (iii) upon any such Change of Control transaction, all limitations, restrictions or conditions relating to the Employee's rights to receive, vote, own and/or transfer any Class A Shares contained in any of the Pre-existing Agreements or contained in any other document, agreement or plan shall terminate and shall be of no further force and effect, except for any registration rights in effect; (iv) if permitted by the purchaser in the Change of Control transaction (the "Purchaser"), the Company will provide for the Employee the opportunity to convert all or a portion, as he shall elect, of the Employee's options to purchase Class A Shares as well as Class A Shares then owned by the Employee, into an equity investment in the entity resulting from Purchaser's transaction (the "Successor") on a tax favored basis. The amount available for such investment shall be an amount calculated on the basis of the per Share price paid in the Change of Control transaction or series of transactions or implicit in the valuation of the Change of Control transaction, including all elements of consideration paid or payable (the "Change of Control Valuation"). (v) If the Purchaser in the Change of Control transaction does not permit the Employee to convert (or the Employee chooses not to convert) all (or a portion) of the Employee's options to purchase Class A Shares and Class A Shares then owned by the Employee into equity in the Successor, then the Employee shall exercise, at the time of the Change of Control, all options the Employee holds for Class A Shares (such exercise to provide cash rather than Class A Shares to the Employee in accordance with the exercise procedure described in Subsection 6(c)(ii) hereof), and shall sell to the Company at the time of the Change of Control all Class A Shares then owned by the Employee, to the extent such options or Class A Shares are not converted into equity in the Successor. Such exercise of options and sale of Class A Shares shall yield an amount to the Employee determined by the Class A Share Change of Control Valuation. (d) Change of Control. For purposes of this Agreement, the words ------------------ "Change of Control" means a change in control of the Company of a nature that would be required to be reported in response to Item - -------------------------------------------------------------------------------- Page 13 - -------------------------------------------------------------------------------- 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended, as in effect on the date of this Agreement (the "Exchange Act"), whether or not the Company is then subject to such reporting requirements; provided, that, without limitation, a Change of Control shall be deemed to have occurred if: (i) any "person" (as defined in Sections 13(d) and 14(d) of the Exchange Act), other than Zell/Chilmark Fund, L.P., is or becomes the "beneficial owner" (as defined in Rule 13d- 3 under the Exchange Act), directly or indirectly, of securities of the Company representing twenty percent (20%) or more of the combined voting power of the Company's then outstanding securities; provided that a Change in Control shall not be deemed to occur under this clause (i) by reason of (A) the acquisition of securities by the Company or an employee benefit plan (or any trust funding such a plan) maintained by the Company, or (B) while Zell/Chilmark Fund, L.P. continues to beneficially own more than fifty percent (50%) of the combined voting power of the Company's then outstanding securities; (ii) during any period of one (1) year there shall cease to be a majority of the Board comprised of "Continuing Directors" as hereinafter defined; or (iii) the stockholders of the Company (A) approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than eighty percent (80%) of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or (B) approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of more than fifty percent (50%) of the Company's assets. For purposes of this Subsection 6(d)(iii), a sale of more than fifty percent (50%) of the Company's assets includes a sale of more than fifty percent (50%) of the aggregate value of the assets of the Company and its subsidiaries or the sale of stock of one or more of the Company's subsidiaries with an aggregate value in excess of fifty percent (50%) of the aggregate value of the Company and its subsidiaries or any combination of methods by which more than fifty percent - -------------------------------------------------------------------------------- Page 14 - -------------------------------------------------------------------------------- (50%) of the aggregate value of the Company and its subsidiaries is sold. (iv) For purposes of this Agreement, a "Change of Control" will be deemed to occur: (A) on the day on which a twenty percent (20%) or greater ownership interest described in Subsection 6(d)(i) is acquired or, if later, the day on which the Zell/Chilmark Fund, L.P. ceases to beneficially own more than fifty percent (50%) of the combined voting power of the Company's then outstanding securities, provided that a subsequent increase in such ownership interest after it first equals or exceeds twenty percent (20%) shall not be deemed a separate Change of Control; (B) on the day on which "Continuing Directors," as hereinafter defined, cease to be a majority of the Board as described in Subsection 6(d)(ii); (C) on the day of a merger, consolidation or sale or disposition of assets as described in Subsection 6(d)(iii); or (D) on the day of the approval of a plan of complete liquidation as described in Subsection 6(d)(iii). (v) For purposes of this Subsection 6(d), the word "Company" means Sealy Corporation, and, any other corporation or business organization in an unbroken chain of corporations or business organization ending with Sealy Corporation that owns, directly or indirectly, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock of Sealy Corporation other than Zell/Chilmark Fund, L.P. (vi) For purposes of this Subsection 6(d), the words "Continuing Directors" mean individuals who at the beginning of any period (not including any period prior to the date of this Agreement) of one (1) year constitute the Board and any new director(s) whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least a majority of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so - -------------------------------------------------------------------------------- Page 15 - -------------------------------------------------------------------------------- approved. (e) Section 16 Protection. If the Employee is subject to Section 16 --------------------- of the Securities Exchange Act of 1934 ("Section 16"), then to the extent the Employee would be deprived of the benefits of the equity considerations described herein or under any of the Pre- existing Agreements or under the 1989, 1992 or 1997 Stock Option Plan or the 1996 Transitional Restricted Stock Plan, as described above, or any other plan or arrangement regarding stock of the Company, by reason of such Section 16 or the Rules issued thereunder, the Employee shall be provided with the alternative of receiving a cash payment approximating the loss of such benefits under a cash compensation plan implemented by the Company. The Company agrees to have this Agreement, and specifically this Section 6 approved by the Board in compliance with Section 16 and Rule 16b-3 thereunder to ensure its enforceability. 7. SEVERANCE PLAN. It is the intention of the Parties that this Agreement -------------- provide special benefits to the Employee. If at any time the Company's Executive Severance Benefit Plan would provide better cash severance benefits to the Employee than this Agreement, the Employee may elect to receive such better cash severance benefits in lieu of the cash severance benefits provided under Subsections 5(a)(i) and 5(a)(ii), or Subsection 5(a)(v), of this Agreement, whichever is applicable, while continuing to receive any other benefits or coverages available under this Agreement. If this Agreement would provide better cash severance benefits to the Employee than the Company's Executive Severance Benefit Plan, the Employee shall receive the cash severance benefits under this Agreement, as well as any other benefits or coverages available under this Agreement. In such case, the cash severance benefits under this Agreement shall be in lieu of the cash severance benefits payable under the Company's Executive Severance Benefit Plan. 8. PLAN AMENDMENTS. To the extent any provisions of this Agreement modify --------------- the terms of any existing plan, policy or arrangement affecting the compensation or benefits of the Employee, as appropriate, (a) such modification as set forth herein shall be deemed an amendment to such plan, policy or arrangement as to the Employee, and both the Company and the Employee hereby consent to such amendment, (b) the Company will appropriately modify such plan, policy or arrangement to correspond to this Agreement with respect to the Employee, or (c) the Company will provide an "Alternative Benefit," as defined in Section 14 hereof, to or on behalf of the Employee in accordance with the provisions of such Section 14. 9. CONFIDENTIAL INFORMATION. The Employee agrees that the Employee will ------------------------ not, during the Protected Period or at any time thereafter, either directly or indirectly, disclose or make known to any other person, firm, or corporation any confidential information, trade secret or proprietary information of the Company that the Employee may acquire in the performance of the Employee's duties hereunder (except in good faith in the ordinary course of business for the Company to a person who will be - -------------------------------------------------------------------------------- Page 16 - -------------------------------------------------------------------------------- advised by the Employee to keep such information confidential) or make use of any of such confidential information except in the performance of the Employee's duties or when required to do so by legal process, by any governmental agency having supervisory authority over the business of the Company or by any administrative or legislative body (including a committee thereof) that requires the Employee to divulge, disclose or make accessible such information. In the event that the Employee is so ordered, the Employee shall so advise the Company in order to allow the Company the opportunity to object to or otherwise resist such order. Upon the termination of the Employee's employment with the Company, the Employee agrees to deliver forthwith to the Company any and all proprietary literature, documents, correspondence, and other proprietary materials and records furnished to or acquired by the Employee during the course of such employment. In the event of a breach or threatened breach of this Section 9 by the Employee, the Company will be entitled to preliminary and permanent injunctive relief, without bond or security, sufficient to enforce the provisions hereof and the Company will be entitled to pursue such other remedies at law or in equity which it deems appropriate. 10. NON-COMPETITION. In consideration of this Agreement, the Employee --------------- agrees that, while employed during the Protected Period, and for one year after the Employee's termination of employment, unless the Employee has waived the Transaction Bonus and the equity consideration described in Subsections 6(b) and 6(c), the Employee shall not act as a proprietor, investor, director, officer, employee, substantial stockholder, consultant, or partner in any business engaged to a material extent in the manufacture or sale of (a) mattresses or other bedding products or (b) any other products which constitute more than ten percent (10%) of the Company's revenues at the time in direct competition with the Company in any market. If, however, the Employee has waived the Transaction Bonus and the equity consideration described in Subsections 6(b) and 6(c), this covenant not to compete shall be void upon the Employee's termination of employment. The Employee understands that the foregoing restrictions may limit the Employee's ability to engage in certain business pursuits during the period provided for above, but acknowledges that the Employee will receive sufficiently higher remuneration and other benefits from the Company hereunder than the Employee would otherwise receive to justify such restriction. The Employee acknowledges that the Employee understands the effect of the provisions of this Section 10, and the Employee has had reasonable time to consider the effect of these provisions, and that the Employee was encouraged to and had an opportunity to consult an attorney with respect to these provisions. The Company and the Employee consider the restrictions contained in this Section 10 to be reasonable and necessary. Nevertheless, if any aspect of these restrictions is found to be unreasonable or otherwise unenforceable by a court of competent jurisdiction, the Parties intend for such restrictions to be modified by such court so as to be reasonable and enforceable and, as so modified by the court, to be fully enforced. In the event of a breach or threatened breach of this Section 10 by the Employee, the Company will be entitled to preliminary and permanent injunctive relief, without bond or security, sufficient to enforce the provisions hereof and the Company will be entitled to pursue such other remedies at law or in equity which it deems appropriate. - -------------------------------------------------------------------------------- Page 17 - -------------------------------------------------------------------------------- During the ten (10) day period ending on the date of a Change of Control, the Employee may, by written notice to the Company, elect to waive his Transaction Bonus and the equity considerations described in Subsections 6(b) and 6(c). Such waiver shall be irrevocable. In the event of such a waiver, the Employee's agreement not to compete with the Company as set forth in this Section 10 shall be void upon his termination of employment. 11. NOTICES. For purposes of this Agreement, all communications provided ------- for herein shall be in writing and shall be deemed to have been duly given when hand delivered or mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows: (a) If the notice is to the Company: Mr. Ronald L. Jones Chief Executive Officer Sealy Corporation 1228 Euclid Avenue - Tenth Floor Cleveland, Ohio 44115-1886 With a copy to: Kenneth Walker, Esq. Vice President and General Counsel Sealy Corporation 1228 Euclid Avenue - Tenth Floor Cleveland, Ohio 44115-1886 (b) If the notice is to the Employee: Ken Walker 2889 Glengary Road Shaker Heights, Ohio 44120 or to such other address as either party may have furnished to the other in writing and in accordance herewith; except that notices of change of address shall be effective only upon receipt. 12. ASSIGNMENT; BINDING EFFECT. This Agreement shall be binding upon and -------------------------- inure to the benefit of the parties to this Agreement and their respective successors, heirs (in the case of the Employee) and permitted assigns. No rights or obligations of the Company under this Agreement may be assigned or transferred by the Company except that such rights or obligations may be assigned or transferred in connection with the sale or transfer of all or substantially all of the assets of the Company, provided that the assignee or transferee is the successor to all or substantially all of the assets of the Company and such assignee or transferee expressly assumes the liabilities, obligations and duties of the Company, as contained in this Agreement, either contractually or as a matter of law. The Company further - -------------------------------------------------------------------------------- Page 18 - -------------------------------------------------------------------------------- agrees that, in the event of a sale or transfer of assets as described in the preceding sentence, it shall be a condition precedent to the consummation of any such transaction that the assignee or transferee expressly assumes the liabilities, obligations and duties of the Company hereunder. No rights or obligations of the Employee under this Agreement may be assigned or transferred by the Employee other than the Employee's rights to compensation and benefits, which may be transferred only by will or operation of law, except as provided in this Section 12. The Employee shall be entitled, to the extent permitted under any applicable law, to select and change a beneficiary or beneficiaries to receive any compensation or benefits payable hereunder following the Employee's death by giving the Company written notice thereof. In the absence of such a selection, any compensation or benefit payable under this Agreement following the death of the Employee shall be payable to the Employee's spouse, or if such spouse shall not survive the Employee, to the Employee's estate. In the event of the Employee's death or a judicial determination of his incompetence, reference in this Agreement to the Employee shall be deemed, where appropriate, to refer to the Employee's beneficiary, estate or other legal representative. 13. INVALID PROVISIONS. Any provision of this Agreement that is ------------------ prohibited or unenforceable shall be ineffective to the extent, but only to the extent, of such prohibition or unenforceability without invalidating the remaining portions hereof and such remaining portions of this Agreement shall continue to be in full force and effect. In the event that any provision of this Agreement shall be determined to be invalid or unenforceable, the Parties will negotiate in good faith to replace such provision with another provision that will be valid or enforceable and that is as close as practicable to the provisions held invalid or unenforceable. 14. ALTERNATIVE SATISFACTION OF COMPANY'S OBLIGATIONS. In the event this ------------------------------------------------- Agreement provides for payments or benefits to or on behalf of the Employee which cannot be provided under the Company's benefit plans, policies or arrangements either because such plans, policies or arrangements no longer exist or no longer provide such benefits or because provision of such benefits to the Employee would adversely affect the tax qualified or tax advantaged status of such plans, policies or arrangements for the Employee or other participants therein, the Company may provide the Employee with an "Alternative Benefit," as defined in this Section 14, in lieu thereof. The Alternative Benefit is a benefit or payment which places the Employee and the Employee's dependents in at least as good of an economic position as if the benefit promised by this Agreement (a) were provided exactly as called for by this Agreement, and (b) had the favorable economic, tax and legal characteristics customary for plans, policies or arrangements of that type. Furthermore, if such adverse consequence would affect the Employee or the Employee's dependents, the Employee shall have the right to require that the Company provide such an Alternative Benefit. 15. ENTIRE AGREEMENT, MODIFICATION. Subject to the provisions of Section ------------------------------ 16 hereof, this Agreement contains the entire agreement between the Parties with respect to the employment of the Employee by the Company and supersedes all - -------------------------------------------------------------------------------- Page 19 - -------------------------------------------------------------------------------- prior and contemporaneous agreements, representations, and understandings of the Parties, whether oral or written. No modification, amendment, or waiver of any of the provisions of this Agreement shall be effective unless in writing, specifically referring hereto, and signed by both Parties. 16. NON-EXCLUSIVITY OF RIGHTS. Notwithstanding the foregoing provisions ------------------------- of Section 15, nothing in this Agreement shall prevent or limit the Employee's continuing or future participation in any benefit, bonus, incentive or other plan, program, policy or practice provided by the Company for its executive officers, nor shall anything herein limit or otherwise affect such rights as the Employee has or may have under any stock option, restricted stock or other agreements with the Company or any of its subsidiaries. Amounts which the Employee or the Employee's dependents or beneficiaries are otherwise entitled to receive under any such plan, policy, practice or program shall not be reduced by this Agreement except as provided for in Section 7 hereof with respect to payments under the Executive Severance Benefit Plan if cash payments of annual base salary are made hereunder. 17. WAIVER OF BREACH. The failure at any time to enforce any of the ---------------- provisions of this Agreement or to require performance by the other party of any of the provisions of this Agreement shall in no way be construed to be a waiver of such provisions or to affect either the validity of this Agreement or any part of this Agreement or the right of either party thereafter to enforce each and every provision of this Agreement in accordance with the terms of this Agreement. 18. GOVERNING LAW. This Agreement has been made in, and shall be governed ------------- and construed in accordance with the laws of, the State of Ohio. The Parties agree that this Agreement is not an "employee benefit plan" or part of an "employee benefit plan" which is subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended. 19. TAX WITHHOLDING. The Company may withhold from any amounts payable --------------- under this Agreement such federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. Where withholding applies to Class A Shares, the Company shall make cashless withholding available to the Employee. 20. REPRESENTATION. The Company represents and warrants that it is fully -------------- authorized and empowered to enter into this Agreement and that the performance of its obligations under this Agreement will not violate any agreement between it and any other person, firm or organization. 21. SUBSIDIARIES AND AFFILIATES. Notwithstanding any contrary provision --------------------------- of this Agreement, to the extent it does not adversely affect the Employee, the Company may provide the compensation and benefits to which the Employee is entitled hereunder through one or more subsidiaries or affiliates, including, without limitation, Sealy, Inc. - -------------------------------------------------------------------------------- Page 20 - -------------------------------------------------------------------------------- 22. SOLE REMEDY. The Parties agree that the remedies of each against the ----------- other for breach of this Agreement shall be limited to enforcement of this Agreement and recovery of the amounts and remedies provided for herein. The Parties, however, further agree that such limitation shall not prevent either Party from proceeding against the other to recover for a claim other than under this Agreement. IN WITNESS WHEREOF, the Company and the Employee have executed this Agreement as of the day and year first above written. SEALY CORPORATION By: /s/ RONALD L. JONES _______________________ RON JONES President & CEO EMPLOYEE /s/ KENNETH L. WALKER _______________________ KENNETH L. WALKER EX-10.18 24 AMENDMENT TO AMENDED & RESTATED EMPLOYMENT AGREEMENT EXHIBIT 10.18 ------------- EXECUTION COPY AMENDMENT TO AMENDED AND RESTATED EMPLOYMENT AGREEMENT ------------------------------------------------------ AND --- TERMINATION OF STOCKHOLDERS AGREEMENT ------------------------------------- Reference is hereby made to the Agreement and Plan of Merger dated October 30, 1997, as amended, among Sealy Corporation, a Delaware corporation (the "Company"), Sandman Merger Corporation, a transitory Delaware merger ------- corporation ("Purchaser"), and Zell/Chilmark Fund, L.P., a Delaware limited --------- partnership, pursuant to which Purchaser will be merged with and into the Company with the Company being the surviving corporation (the "Merger"). ------ Effective as of March 4, 1996, Ronald L. Jones (the "Executive") --------- entered into a Stockholders Agreement with the Company (the "Stockholders ------------ Agreement"). - --------- Effective as of August 1, 1997, the Executive entered into an Amended and Restated Employment Agreement with the Company (the "Employment Agreement"). -------------------- NOW, THEREFORE, in consideration of the provisions contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties, conditioned on the consummation of the Merger, hereto agree as follows: A. Jones hereby acknowledges and agrees that the consummation of the Merger will be a "Change of Control" for purposes of the Employment Agreement. B. Jones and the Company hereby agree that, effective as of the consummation of the Merger, the Employment Agreement shall be amended as follows: 1. The phrase "the 1996 Transitional Restricted Stock Plan and the 1997 Stock Option Plan" contained in subsection 3(c) is deleted in its entirety. 2. Subsection 3(g) is deleted in its entirety. 3. Subsection 6(d) is amended and restated in its entirety as follows: "(d) Change of Control. For purposes of this Agreement, the ----------------- words "Change of Control" means the merger (the "Merger") of Sandman Merger Corporation, a Delaware Corporation ("Sandman"), with and into the Company pursuant to the terms of the Agreement and Plan of Merger dated October 30, 1997, as amended, among the Company, Sandman and Zell/Chilmark Fund, L.P. Notwithstanding anything contained herein to the contrary, other than the Merger, no event or occurrence before, at or after the consummation of the Merger shall be deemed a "Change of Control" for purposes of this Agreement." 4. Subsection 6(f) is deleted in its entirety. 5. A new section 25 is added as follows: "25. OPTION PLANS AND RESTRICTED STOCK PLANS. The Employee --------------------------------------- hereby acknowledges that in connection with the Merger, (i) the Company will terminate (the "Termination of the Plans") the 1989 Stock Option Plan, the 1992 Stock Option Plan, the 1997 Stock Option Plan and the 1996 Transitional Restricted Stock Plan (collectively, the "Plans") and accordingly, after the consummation of the Merger, the Employee shall no longer be eligible to participate in the Plans and (ii) the Company and the Employee will terminate (the "Termination of Agreements") the Stock Option Agreement dated as of March 4, 1996 between the Company and the Employee, the Restricted Stock Grant Agreement effective March 4, 1996 between the Company and the Employee, the Stockholders Agreement dated as of March 4, 1996 between the Company and the Employee, and the Nonqualified Stock Option Agreement dated July 21, 1997 between the Company and the Employee. The Employee hereby agrees that, notwithstanding anything contained herein to the contrary, the Termination of Plans and the Termination of Agreements (in each case, as well as each action, omission or occurrence in connection therewith or related thereto) is not a breach of this Agreement and is not and will not be a "Good Reason" for purposes of this Agreement as such term is defined in Subsection 4(g) hereof. C. Effective as of the consummation of the Merger, the Stockholders Agreement is hereby terminated. 2 IN WITNESS WHEREOF, the parties hereto have executed this Amendment to Amended and Restated Employment Agreement and Termination of Stockholders Agreement as of December 17, 1997. /s/ RONALD L. JONES _____________________________________ Ronald L. Jones SEALY CORPORATION By:_________________________________ Name: Title: 3 EX-10.19 25 AMENDMENT TO EMPLOYMENT AGREEMENTS EXHIBIT 10.19 ------------- AMENDMENT TO EMPLOYMENT AGREEMENTS ---------------------------------- WHEREAS, prior to the date hereof, each of the undersigned individuals (the "Executives") entered into an Employment Agreement with Sealy Corporation, a ---------- Delaware corporation (the "Company") (collectively, the "Employment ------- ---------- Agreements"); - ---------- WHEREAS, on October 30, 1997, the Company entered into an Agreement and Plan of Merger with Sandman Merger Corporation, a transitory Delaware merger corporation ("Purchaser") and Zell/Chilmark Fund, L.P., a Delaware limited --------- partnership, pursuant to which Purchaser will be merged with and into the Company with the Company being the surviving corporation (the "Merger"); ------ NOW, THEREFORE, in consideration of the provisions contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, CONDITIONED ON THE CONSUMMATION OF THE MERGER, agree as follows: A. The consummation of the Merger shall be a "Change of Control" for purposes of the Employment Agreements and upon consummation of the Merger ("Closing") Subsection 6(d) thereof shall automatically be amended and restated ------- in its entirety as follows: "(d) Change of Control. For purposes of this Agreement, the ----------------- words "Change of Control" means the merger (the "Merger") of Sandman Merger Corporation, a Delaware Corporation ("Sandman"), with and into the Company pursuant to the terms of the Agreement and Plan of Merger dated October 30, 1997, as amended, among the Company, Sandman and Zell/Chilmark Fund, L.P. Notwithstanding anything contained herein to the contrary, other than the Merger, no event or occurrence before, at or after the consummation of the Merger shall be deemed a "Change of Control" for purposes of this Agreement." B. Each of the Executives upon the Closing shall be paid the Transaction Bonus (as such term is defined in their Employment Agreement) pursuant to the terms, extent and conditions provided in their individual Employment Agreement. C. All stock options of the Company and all restricted stock of the Company held by Executives shall fully vest and be paid out to the Executives by the Company as of the Closing. D. Upon payout of the stock options and restricted stock provided above Subsection 6(e) of the Employment Agreement (relating to SEC Section 16 protection for stock based benefits) shall automatically be deleted in its entirety and Subsection 3(f) of the Employment Agreement shall automatically be amended and restated in its entirety as follows: "OPTIONS AND RESTRICTED STOCK PLANS. The Employee hereby ---------------------------------- acknowledges that in connection with the Merger, the Company will terminate (the "Termination of the Plans") the 1989 Stock Option Plan, the 1992 Stock Option Plan, the 1997 Stock Option Plan an the 1996 Transitional Restricted Stock Plan (collectively, the "Plans") and accordingly, after the consummation of the Merger, the Employee shall no longer be eligible to participate in the Plans. The Employee hereby agrees that, notwithstanding anything contained herein to the contrary, the Termination of the Plans (as well as each action, omission or occurrence in connection therewith or related thereto) is not a breach of this Agreement and is not and will not be a "Good Reason" for purposes of this Agreement as such term is defined in Subsection 4(g) hereof." IN WITNESS WHEREOF, the parties hereto have executed this Amendment to Employment Agreements as of December 17, 1997. /s/ BRUCE BARMAN /s/ JEFFREY CLAYPOOL ______________________________________ _______________________________________ Bruce Barman Jeffrey Claypool /s/ GARY FAZIO /s/ DOUGLAS FELLMY ______________________________________ _______________________________________ Gary Fazio Douglas Fellmy /s/ DAVE MCILQUHAM /s/ LARRY ROGERS ______________________________________ _______________________________________ Dave McIlquham Larry Rogers SEALY CORPORATION By: /s/ KENNETH L. WALKER _____________________________ Name: Kenneth L. Walker Title: Vice President-General Counsel 2 EX-10.20 26 AMENDMENT TO EMPLOYMENT AGREEMENTS EXHIBIT 10.20 ------------- AMENDMENT TO EMPLOYMENT AGREEMENTS ---------------------------------- WHEREAS, prior to the date hereof, each of the undersigned individual (the "Executives") entered into a Change of Control Agreement with Sealy Corporation, ---------- a Delaware corporation (the "Company") (collectively, the "Change of Control ------- ----------------- Agreement"); - --------- WHEREAS, on October 30, 1997, the Company entered into an Agreement and Plan of Merger with Sandman Merger Corporation, a transitory Delaware merger corporation ("Purchaser") and Zell/Chilmark Fund, L.P., a Delaware limited --------- partnership, pursuant to which Purchaser will be merged with and into the Company with the Company being the surviving corporation (the "Merger"); ------ NOW, THEREFORE, in consideration of the provisions contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, CONDITIONED ON THE CONSUMMATION OF THE MERGER, agree as follows: A. The consummation of the Merger shall be a "Change of Control" for purposes of the Change of Control Agreement and upon consummation of the Merger ("Closing") Subsection 6(d) thereof shall automatically be amended and restated ------- in its entirety as follows: "(d) Change of Control. For purposes of this Agreement, the words ----------------- "Change of Control" means the merger (the "Merger") of Sandman Merger Corporation, a Delaware Corporation ("Sandman"), with and into the Company pursuant to the terms of the Agreement and Plan of Merger dated October 30, 1997, as amended, among the Company, Sandman and Zell/Chilmark Fund, L.P. Notwithstanding anything contained herein to the contrary, other than the Merger, no event or occurrence before, at or after the consummation of the Merger shall be deemed a "Change of Control" for purposes of this Agreement." B. Upon the Closing, Executive shall be paid the Transaction Bonus (as such term is defined in the Change of Control Agreement) pursuant to the terms, extent and conditions provided in their individual Employment Agreement. C. The Protection Period (as such term is defined in the Change of Control Agreement) shall start to run on the date of the Closing. D. All stock options of the Company and all restricted stock of the Company held by Executives shall fully vest and be paid out to the Executives by the Company as of the Closing. E. Upon payout of the stock options and restricted stock provided above, Subsection 6(e) of the Change of Control Agreement (relating to SEC Section 16 protection for stock based benefits) shall automatically be deleted in its entirety and Subsection 3(e) of the Change of Control Agreement shall automatically be amended and restated in its entirety as follows: "(e) OPTIONS AND RESTRICTED STOCK PLANS. The Employee hereby ---------------------------------- acknowledges that in connection with the Merger, the Company will terminate (the "Termination of the Plans") the 1989 Stock Option Plan, the 1992 Stock Option Plan, the 1997 Stock Option Plan an the 1996 Transitional Restricted Stock Plan (collectively, the "Plans") and accordingly, after the consummation of the Merger, the Employee shall no longer be eligible to participate in the Plans. The Employee hereby agrees that, notwithstanding anything contained herein to the contrary, the Termination of the Plans (as well as each action, omission or occurrence in connection therewith or related thereto) is not a breach of this Agreement and is not and will not be a "Good Reason" for purposes of this Agreement as such term is defined in Subsection 4(g) hereof." IN WITNESS WHEREOF, the parties hereto have executed this Amendment to Employment Agreements as of December 17, 1997. SEALY CORPORATION By: _____________________________ Name: Title: Executive ______________________________ Name: 2 -----END PRIVACY-ENHANCED MESSAGE-----