Limited Liability Company Agreement

EXHIBIT 10.34 ===============================================================================


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MATTRESS HOLDINGS INTERNATIONAL, LLC


LIMITED LIABILITY COMPANY AGREEMENT


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Dated as of June 30, 1999


THE MEMBERSHIP INTERESTS REPRESENTED BY THIS AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION THEREUNDER.


THE MEMBERSHIP INTERESTS REPRESENTED BY THIS INSTRUMENT ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFERABILITY AS SET FORTH IN THIS AGREEMENT.


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Table of Contents
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Page
---- ARTICLE 1


GENERAL ....................................................... 1
1.1 Definitions .............................................. 1
-----------
1.2 Construction ............................................. 5
------------


ARTICLE 2


ORGANIZATION .................................................. 5
2.1 Formation ................................................ 5
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2.2 Name ..................................................... 5
----
2.3 Registered Office; Agent ................................. 5
------------------------
2.4 Term ..................................................... 6
----
2.5 Purpose; Powers .......................................... 6
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2.6 Execution of Documents ................................... 6
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ARTICLE 3


MEMBERSHIP .................................................... 6
3.1 Units Generally; Membership Interests .................... 6
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3.2 Authorization and Issuance of Units ...................... 6
-----------------------------------
3.3 Issuance of Units ........................................ 7
-----------------
3.4 New Members from the Issuance of Membership Interests .... 7
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ARTICLE 4


CAPITAL CONTRIBUTIONS AND CAPITAL ACCOUNTS .................... 7
4.1 Capital Contributions .................................... 7
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4.2 Capital Accounts ......................................... 8
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4.3 Negative Capital Accounts ................................ 9
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4.4 No Withdrawal ............................................ 10
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4.5 Loans From Members ....................................... 10
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4.6 Status of Capital Contributions .......................... 10
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ARTICLE 5


ALLOCATIONS OF PROFITS AND LOSSES ............................. 10
5.1 Allocation of Profits and Losses ......................... 10
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5.2 Regulatory and Special Allocations ....................... 10
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5.3 Curative Allocations ..................................... 11
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5.4 Tax Allocations .......................................... 12
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ARTICLE 6


DISTRIBUTIONS ................................................... 13
6.1 Generally ................................................ 13
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6.2 Distributions ............................................ 13
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ARTICLE 7


MANAGEMENT OF THE COMPANY ....................................... 13
7.1 Officers of the Company .................................. 13
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7.2 Performance of Duties; Liability of Officers ............. 14
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7.3 Indemnification .......................................... 15
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ARTICLE 8


MEMBERS; VOTING RIGHTS .......................................... 15
8.1 Voting Rights ............................................ 15
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8.2 Withdrawal; Resignation .................................. 15
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8.3 Authority ................................................ 15
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8.4 Limitation of Liability .................................. 15
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ARTICLE 9


TRANSFER OF MEMBERSHIP INTERESTS ................................ 16
9.1 Restrictions ............................................. 16
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9.2 General Restrictions on Transfer ......................... 16
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9.3 Procedure for Transfers .................................. 16
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9.4 Limitations .............................................. 17
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ARTICLE 10


DISSOLUTION AND LIQUIDATION ..................................... 17
10.1 Dissolution .............................................. 17
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10.2 Liquidation .............................................. 18
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ARTICLE 11


GENERAL/MISCELLANEOUS PROVISIONS ................................ 19
11.1 Notices .................................................. 19
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11.2 Governing Law ............................................ 19
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11.3 Entire Agreement ......................................... 19
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11.4 Amendment or Modification ................................ 19
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11.5 Binding Effect ........................................... 20
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11.6 Counterparts ............................................. 20
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11.7 Severability ............................................. 20
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11.8 Headings ................................................. 20
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11.9 Parties in Interest .................................... 20
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11.10 Further Assurances ..................................... 20
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11.11 No Strict Construction ................................. 20
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11.12 Time of the Essence; Computation of Time ............... 20
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MATTRESS HOLDINGS INTERNATIONAL, LLC


LIMITED LIABILITY COMPANY AGREEMENT
-----------------------------------


This LIMITED LIABILITY COMPANY AGREEMENT of MATTRESS HOLDINGS INTERNATIONAL, LLC (the "Company") is made as of June 30, 1999, by and among
------- each of the Persons executing this Agreement and listed on the Members Schedule (as herein defined).


WHEREAS, the Members wish to form a limited liability company pursuant to the Delaware Limited Liability Company Act, Delaware Code, Title 6, Sections 18-101, et seq., as amended from time to time (the "Delaware Act"), by having a
------------ Certificate of Formation of the Company (the "Certificate of Formation") filed
------------------------ with the Secretary of State of the State of Delaware and entering into this Agreement.


NOW, THEREFORE, in consideration of the mutual covenants and agreements herein made and other good and valuable consideration, the Members hereby agree as follows:


ARTICLE 1


GENERAL


1.1 Definitions. For purposes of this Agreement, the following terms
----------- shall have the following meanings:


"Adjusted Capital Account Deficit" means, with respect to any Member,
-------------------------------- the deficit balance, if any, in such Member's Capital Account as of the end of the relevant Taxable Year, after giving effect to the following adjustments:


(i) Crediting to such Capital Account any amount which such Member
is obligated to restore or is deemed to be obligated to restore pursuant
to Treasury Regulation Sections 1.704-1(b)(2)(ii)(c), 1.704-2 (g)(1), and
1.704-2(i); and


(ii) Debiting to such Capital Account the items described in Treasury
Regulation Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6).


"Agreement" means this Limited Liability Company Agreement, as
--------- originally executed and as may be amended, modified, supplemented or restated from time to time.


"Bain" means Bain Capital, Inc., a Delaware corporation.
----


"Bain Securities Purchase Agreement" means the Securities Purchase
---------------------------------- Agreement, dated as of the date hereof, between the Company and Bain.


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"Bankruptcy" means, with respect to a Member, (i) that such Member has
---------- (A) made an assignment for the benefit of creditors, (B) filed a voluntary petition in bankruptcy, (C) been adjudged bankrupt or insolvent, or had entered against such Member an order of relief in any bankruptcy or insolvency proceeding, (D) filed a petition or an answer seeking for such Member any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any statute, law or regulation or filed an answer or other pleading admitting or failing to contest the material allegations of a petition filed against such Member in any proceeding of such nature, or (E) sought, consented to, or acquiesced in the appointment of a trustee, receiver or liquidator of such Member or of all or any substantial part of such Member's properties; (ii) 120 days have elapsed after the commencement of any proceeding against such Member seeking reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any statute, law or regulation and such proceeding has not been dismissed; or (iii) 90 days have elapsed since the appointment without such Member's consent or acquiescence of a trustee, receiver or liquidator of such Member or of all or any substantial part of such Member's properties and such appointment has not been vacated or stayed or the appointment is not vacated within 90 days after the expiration of such stay.


"Book Value" means, with respect to any Company property, the
---------- Company's adjusted basis for federal income tax purposes, adjusted from time to time to reflect the adjustments required or permitted by Treasury Regulation Section 1.704-1(b)(2)(iv)(d)--(g); provided that the Book Value of each asset of the Company shall be adjusted as of the date of any Capital Contribution pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(f) in a manner determined by the President or Secretary of the Company so that the aggregate Book Value of the Company's assets (net of the Company's liabilities) as of such date is equal to the aggregate initial Capital Account balances of the Members (immediately after the Member's Capital Contribution is made).


"Capital Account" means the capital account maintained for a Member
--------------- pursuant to Section 4.2.


"Capital Contribution" means the cash and/or agreed fair market value
-------------------- of any asset or property of any nature contributed by a Member to the Company with respect to the Membership Interests held by such Member.


"Certificate" means the Certificate of Formation, as such Certificate
----------- of Formation may be amended, supplemented or restated from time to time.


"Class A Common Unit" means a Unit having the rights and obligations
------------------- specified with respect to Class A Common Units in this Agreement.


"Class B Common Unit" means a Unit having the rights and obligations
------------------- specified with respect to Class B Common Units in this Agreement.


"Code" means the Internal Revenue Code of 1986, as amended from time
---- to time.


"Common Units" means collectively the Class A Common Units and the
------------ Class B Common Units.


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"Company Minimum Gain" has the meaning set forth for "partnership
-------------------- minimum gain" in Treasury Regulation Section 1.704-2(d).


"Contributed Capital Account" means, with respect to any Member at any
--------------------------- time, the aggregate amount of Capital Contributions that such Member has theretofore contributed to the Company pursuant to Section 4.1.


"Liquidating Distribution" means any distribution pursuant to Section
------------------------ 10.2 hereof.


"Majority in Interest" means, as applied to all of the Members,
-------------------- Members whose Pro Rata Voting Percentages, in the aggregate, constitute more than 50% of the Pro Rata Voting Percentages of all of the Members.


"Member Minimum Gain" with respect to each Member Nonrecourse Debt,
------------------- means the amount of Company Minimum Gain (as determined according to Treasury Regulation Section 1.704-2(d)(1)) that would result if such Member Nonrecourse Debt were treated as a nonrecourse liability, determined in accordance with Treasury Regulation Section 1.704-2(i)(3).


"Member Nonrecourse Debt" has the meaning set forth in Treasury
----------------------- Regulation Section 1.704-2(b)(4), substituting the term "Company" for the term "partnership" and the term "Member" for the term "partner" as the context requires.


"Member Nonrecourse Deduction" has the meaning set forth in Treasury
---------------------------- Regulation Section 1.704-2(i), substituting the term "Member" for the term "partner" as the context requires.


"Members" means each Person identified on the Members Schedule as of
------- the date hereof who has executed this Agreement or a counterpart hereof and each Person who may hereafter be admitted as a Member in accordance with the terms of this Agreement. The Members shall constitute the "members" (as that term is defined in the Delaware Act) of the Company.


"Membership Interest" means the entire interest of a Member (a) to a
------------------- distributive share of Profits, Losses, and other items of income, gain, loss, deduction and credits of the Company, (b) to a distributive share of the assets of the Company, (c) to vote on, consent to or otherwise participate in any decision of the Members, and (d) to any and all other benefits to which such Member may be entitled as provided in this Agreement or the Delaware Act.


"Nonrecourse Deductions" has the meaning set forth in Treasury
---------------------- Regulation Section 1.704-2(b) (substituting the term "Company" for the term "partnership" as the context requires).


"Nonvoting Units" means the Class B Common Units.
---------------


"Person" means an individual, a partnership, a corporation, a limited
------ liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization, a governmental entity or any department, agency or political subdivision thereof or any other entity or organization.


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"Pro Rata Percentage" means, with respect to any Member, the
------------------- percentage determined by dividing the number of Common Units held by that Member by the aggregate number of Common Units held by all Members.


"Pro Rata Voting Percentage" means, with respect to any Member, the
-------------------------- percentage determined by dividing the number of Class A Common Units held by that Member by the aggregate number of Class A Common Units held by all Members.


"Sealy" means Sealy, Inc., an Ohio corporation.
-----


"Sealy Credit Agreement" means credit agreement and/or other agreement
---------------------- or document pursuant to which debt financing is provided to Sealy and/or any of its subsidiaries, as well as any pledge agreement executed in connection therewith.


"Sealy Securities Purchase Agreement" means the Securities Purchase
----------------------------------- Agreement, dated as of the date hereof, between the Company and Sealy.


"Securities Act" means the Securities Act of 1933, as amended from
-------------- time to time.


"Taxable Year" means the Company's taxable year ending on the Sunday
------------ closest to November 30 (or part thereof in the case of the Company's first and last taxable year), or such other year as is (i) required by Section 706 of the Code or (ii) determined by the President or Secretary of the Company (if no year is so required by Section 706 of the Code).


"Transfer" means any direct or indirect sale, transfer, conveyance,
-------- assignment, pledge, hypothecation, gift, delivery or other disposition; provided
-------- that, notwithstanding anything contained herein to the contrary, the pledge by - ---- Sealy of Units owned by Sealy pursuant to the terms of the Sealy Credit Agreement shall not be in a "Transfer" for purposes of this Agreement, but any actual transfer of title pursuant to such pledge shall be a "Transfer" for purposes of this Agreement.


"Treasury Regulations" shall mean, except where the context indicates
-------------------- otherwise, the final, temporary, proposed, or proposed and temporary regulations of the Department of the Treasury under the Code as such regulations may be lawfully changed from time to time.


"Unit" means a fractional part of a Membership Interest, as provided
---- in this Agreement.


"Voting Units" means the Class A Common Units.
------------


1.2 Construction. Whenever the context requires, the gender of all word
------------ used in this Agreement includes the masculine, feminine and neuter and the singular number includes the plural number and vice versa. All references to Articles and Sections refer to articles and sections of this Agreement, and all references to Schedules are to Schedules attached hereto, each of which is made a part hereof for all purposes.


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ARTICLE 2


ORGANIZATION


2.1 Formation.
---------


(a) The Certificate of Formation was prepared, executed and filed with the Secretary of State of the State of Delaware on June 21, 1999, by Cindy Rashed, as an "authorized person" for such purpose within the meaning of the Delaware Act, all of which is hereby authorized and ratified in all respects. The Members hereby constitute the existence of the Company under this Agreement and the Delaware Act. The rights, powers, duties, obligations and liabilities of the Members shall be determined pursuant to the Delaware Act and this Agreement. To the extent that the rights, powers, duties, obligations and liabilities of any Member are different by reason of any provision of this Agreement than they would be in the absence of such provision, this Agreement shall, to the extent permitted by the Delaware Act, control.


(b) Any officer of the Company as an "authorized person" within the meaning of the Delaware Act, shall, at any time he becomes aware that any statement in the Certificate was false when made, or that any matter described therein has changed making the Certificate false in any material respect, promptly execute, deliver and file any and all amendments thereto and restatements thereof in accordance with the Delaware Act.


(c) At the time the Company has more than one Member, the Company shall be treated as a partnership for federal, foreign and, if applicable, state and local income tax purposes, and each Member and the Company shall file all tax returns and shall otherwise take all tax and financial reporting positions in a manner consistent with such treatment. The Company shall not be deemed a partnership or joint venture for any other purpose.


2.2 Name. The name of the limited liability company constituted by this
---- Agreement is Mattress Holdings International, LLC or such other name or names as the President or Secretary of the Company may from time to time designate; provided, that the name shall always contain the words "Limited Liability Company", "LLC" or "L.L.C."


2.3 Registered Office; Agent. The Company shall maintain a registered
------------------------ office in the State of Delaware at c/o Corporation Service Company, 1013 Centre Road, Wilmington, New Castle County, Delaware 19805 or at such other place within Delaware as the President or Secretary of the Company may designate. The name and address of the Company's registered agent for service of process on the Company in the State of Delaware is Corporation Service Company, 1013 Centre Road, Wilmington, New Castle County, Delaware 19805 or such other agent as the President or Secretary of the Company may from time to time designate.


2.4 Term. The term of the Company shall continue perpetually unless
---- terminated in accordance with the provisions of this Agreement.


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2.5 Purpose; Powers. The purposes and character of the business of the
--------------- Company shall be to transact any or all lawful business for which limited liability companies may be organized under the Delaware Act. The Company shall have any and all powers which are necessary or desirable to carry out the purposes and business of the Company, to the extent the same may be legally exercised by limited liability companies under the Delaware Act. The Company shall carry out the foregoing activities pursuant to the arrangements set forth in this Agreement. Notwithstanding anything herein to the contrary, nothing set forth herein shall be construed as authorizing the Company to possess any purpose or power, or to do any act or thing, forbidden by law to a limited liability company organized under the laws of the State of Delaware.


2.6 Execution of Documents. On June 22, 1999, E. Lee Wyatt, as an
---------------------- "authorized person" of the Company, executed, on behalf of the Company, that certain Stock Purchase Agreement ("Purchase Agreement"), between the Company and
------------------ Malachi Mattress America, Inc., a Delaware corporation ("MMA"), pursuant to
--- which the Company agreed to purchase common stock and preferred stock of MMA, all of which is hereby authorized and ratified in all respects. On June 28, 1999, Kenneth L. Walker, as an "authorized person" of the Company, executed, on behalf of the Company, that certain the Stockholders Agreement, between MMA, the Company and the other stockholders of MMA, and other documents contemplated by the Purchase Agreement, all of which is hereby authorized and ratified in all respects.


ARTICLE 3


MEMBERSHIP


3.1 Units Generally; Membership Interests. The Membership Interests of
------------------------------------- the Members shall be represented by issued and outstanding Units, which may be divided into one or more types of classes, with each type or class having the rights and privileges, including voting rights, if any, set forth in this Agreement. As of the date hereof, the Members of the Company are the Persons whose names are set forth on the signature pages hereto and listed on the Members Schedule (as herein defined) as in effect on the date hereof. The Secretary of the Company shall maintain a schedule of all Members from time to time, their respective mailing addresses, the Contributed Capital Account, the number and class of Common Units, and the Pro Rata Percentages for each such Member (as the same may be amended, modified or supplemented from time to time, the "Members Schedule"), a copy of which as of the date hereof is attached
---------------- hereto as Schedule A. The Members shall have no interest in the Company other than the interests conferred by this Agreement.


3.2 Authorization and Issuance of Units.
-----------------------------------


(a) Class A Common Units. The Company hereby authorizes the
-------------------- issuance of Class A Common Units; 10 of which are outstanding as of the date hereof as set forth on the Members Schedule (as in effect on the date hereof).


(b) Class B Common Units. The Company hereby authorizes the
-------------------- issuance of Class B Common Units; 273,900 of which are outstanding as of the date hereof as set forth on the Members Schedule (as in effect on the date hereof).


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(c) Additional Units. Except as expressly provided by this
---------------- Agreement, the Company shall not authorize, issue or sell, or cause to be authorized, issued or sold, any Units.


3.3 Issuance of Units. Subject to the limitations contained in Section
----------------- 9.4 hereof, the Company (with the approval of the Board) shall have the right to issue any authorized but unissued Units; provided, that the Company shall not ...