Senior Unsecured Credit Agreement

Exhibit 10.2


SENIOR UNSECURED CREDIT AGREEMENT


Dated as of April 6, 2004


among

SEALY MATTRESS COMPANY, as Borrower


CERTAIN SUBSIDIARIES OF BORROWER,

as Guarantors

SEALY MATTRESS CORPORATION, as Holdings and a Guarantor

SEALY CORPORATION,

as Parent

The Several Lenders

from Time to Time Parties Hereto


JPMORGAN CHASE BANK,

as Administrative Agent


J.P. MORGAN SECURITIES INC.,

as Joint Lead Arranger and Joint Bookrunner


GOLDMAN SACHS CREDIT PARTNERS L.P.,

as Joint Lead Arranger, Joint Bookrunner and Syndication Agent


TABLE OF CONTENTS

Page


SECTION 1. Definitions 1

1.1. Defined Terms 1

1.2. Exchange Rates 35

SECTION 2. Amount and Terms of Credit 35

2.1. Commitments 35

2.2. Minimum Amount of Each Borrowing; Maximum Number of Borrowings 36

2.3. Notice of Borrowing 36

2.4. Disbursement of Funds 36

2.5. Repayment of Loans; Evidence of Debt 37

2.6. Conversions and Continuations 38

2.7. Pro Rata Borrowings 39

2.8. Interest 39

2.9. Interest Periods 40

2.10. Increased Costs, Illegality, etc. 41

2.11. Compensation 42

2.12. Change of Lending Office 43

2.13. Notice of Certain Costs 43

SECTION 3. [Reserved] 43

SECTION 4. Commitments 43

4.1. Mandatory Termination of Commitments 43

SECTION 5. Payments 43

5.1. Voluntary Prepayments. 43

5.2. Mandatory Prepayments 44

5.3. Method and Place of Payment 45

5.4. Net Payments 46

5.5. Computations of Interest and Fees 48

5.6. Limit on Rate of Interest 48

5.7. Change of Control Offer. 49

SECTION 6. Conditions Precedent to Initial Borrowing 50

6.1. Credit Documents 50

6.2. [Reserved] 50

6.3. Legal Opinions 50

6.4. No Default 51

6.5. Subordinated Notes; Senior Secured Credit Facility 51

6.6. Equity Proceeds 51

6.7. Closing Certificates 51

6.8. Corporate Proceedings of Each Credit Party 51

6.9. Corporate Documents 51

6.10. Fees 51

6.11. Representations and Warranties 52

6.12. Related Agreements 52

6.13. Solvency Certificate 52

6.14. Governmental Authorizations and Consents 52

6.15. Financial Statements 52

6.16. Recapitalization 52

SECTION 7. Additional Conditions Precedent to Credit Events 53

7.1. No Default; Representations and Warranties 53

7.2. Notice of Borrowing 53

SECTION 8. Representations, Warranties and Agreements 53

8.1. Corporate Status 53

8.2. Corporate Power and Authority 53

8.3. No Violation 54

8.4. Litigation 54

8.5. Margin Regulations 54

8.6. Governmental Approvals 54

8.7. Investment Company Act 54

8.8. True and Complete Disclosure 54

8.9. Financial Condition; Financial Statements 55

8.10. Tax Returns and Payments 55

8.11. Compliance with ERISA 55

8.12. Subsidiaries 56

8.13. Patents, etc. 56

8.14. Environmental Laws 56

8.15. Properties 57

SECTION 9. Affirmative Covenants 57

9.1. Information Covenants 57

9.2. Books, Records and Inspections 60

9.3. Maintenance of Insurance 60

9.4. Payment of Taxes 60

9.5. Consolidated Corporate Franchises 60

9.6. Compliance with Statutes, Obligations, etc. 60

9.7. ERISA 60

9.8. Good Repair 61

9.9. Transactions with Affiliates 61

9.10. End of Fiscal Years; Fiscal Quarters 62

9.11. Additional Guarantors 62

9.12. Reserved 63

9.13. Use of Proceeds 63

9.14. Changes in Business 63

9.15. Post-Closing Refinancing. . 63

9.16. Designated Senior Indebtedness 63

SECTION 10. Negative Covenants 63

10.1. Limitation on Indebtedness 63

10.2. Limitation on Liens 64


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10.3. Limitation on Fundamental Changes 65

10.4. Limitation on Sale of Assets 67

10.5. Reserved 70

10.6. Limitation on Restricted Payments. 70

10.7. Limitations on Debt Payments and Amendments; Unpaid Refinancing Amount 77

10.8. Limitations on Sale Leasebacks 77

SECTION 11. Events of Default 77

11.1. Payments 77

11.2. Representations, etc. 77

11.3. Covenants 78

11.4. Default Under Other Agreements 78

11.5. Bankruptcy, etc. 78

11.6. ERISA 79

11.7. Guarantee 79

11.8. Subordination 79

11.9. Judgments 79

SECTION 12. The Administrative Agent 80

12.1. Appointment 80

12.2. Delegation of Duties 80

12.3. Exculpatory Provisions 80

12.4. Reliance by Administrative Agent 81

12.5. Notice of Default 81

12.6. Non-Reliance on Administrative Agent and Other Lenders 82

12.7. Indemnification 82

12.8. Administrative Agent in its Individual Capacity 83

12.9. Successor Agent 83

12.10. Withholding Tax 83

SECTION 13. Reserved. 84

SECTION 14. Miscellaneous. 84

14.1. Amendments and Waivers 84

14.2. Notices 84

14.3. No Waiver; Cumulative Remedies 85

14.4. Survival of Representations and Warranties 86

14.5. Payment of Expenses and Taxes 86

14.6. Successors and Assigns; Participations and Assignments 86

14.7. Replacements of Lenders under Certain Circumstances 90

14.8. Adjustments; Set-off 90

14.9. Counterparts 91

14.10. Severability 91

14.11. Integration 91

14.12. GOVERNING LAW 92

14.13. Submission to Jurisdiction; Waivers 92

14.14. Acknowledgments 92


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14.15. WAIVERS OF JURY TRIAL 93

14.16. Confidentiality 93

14.17. Judgment Currency 94

14.18. USA PATRIOT Act 94


SCHEDULES

Schedule 1.1 (c) Commitments and Addresses of Lenders

Schedule 1.1(d) EBITDA Add-Backs

Schedule 1.1(e) Excluded Subsidiaries

Schedule 8.12 Subsidiaries

Schedule 10.1 Closing Date Indebtedness

Schedule 10.2 Closing Date Liens

Schedule 10.5 Closing Date Investments

EXHIBITS

Exhibit A Form of Guarantee

Exhibit B-1 Form of Legal Opinion of Simpson Thacher & Bartlett LLP

Exhibit B-2 Form of Legal Opinion of general counsel

Exhibit C Form of Closing Certificate

Exhibit D Form of Assignment and Acceptance

Exhibit E Form of Promissory Note


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CREDIT AGREEMENT dated as of April 6, 2004, among SEALY MATTRESS COMPANY, an Ohio corporation (the " Borrower" ), SEALY MATTRESS CORPORATION, a Delaware corporation (" Holdings" ) and SEALY CORPORATION, a Delaware corporation (" Parent" ), the lending institutions from time to time parties hereto (each a " Lender" and, collectively, the " Lenders" ), J.P. MORGAN SECURITIES INC., as Joint Lead Arranger and Joint Bookrunner, GOLDMAN SACHS CREDIT PARTNERS L.P., as Joint Lead Arranger, Joint Bookrunner and Syndication Agent, and JPMORGAN CHASE BANK, as Administrative Agent (such term and each other capitalized term used but not defined in this introductory statement having the meaning provided in Section 1).

In connection with the Recapitalization, (a)(i) an investment entity controlled by KKR will contribute an amount that, together with the equity of the Permitted Investors (as defined below), is not less than 29% of the capitalization required for the consummation transactions contemplated by the Recapitalization (the " Equity Proceeds" ) in cash to Sealy Acquisition Corp. (" SAC" ) as common equity, (ii) the Management Investors and certain other investors will retain certain of their common stock in Holdings (together with KKR, the " Permitted Investors" ) and (iii) SAC will merge with and into Parent (collectively, the " Merger" );

(b) the Borrower will issue not less than $390,000,000 in aggregate principal amount of its senior subordinated notes (the " Subordinated Notes" ) in a public offering or in a Rule 144A or other private placement; and


(c) the Borrower will enter into the Senior Secured Credit Facility providing for term loans and revolving credit loans in aggregate amount of no less than $685,000,000.

(d) substantially concurrent with the Recapitalization and immediately after distribution and payments of the proceeds of the financings of the Borrower as consideration for the Merger, the Parent will contribute all of its equity interest in the Borrower to Holdings, its newly formed wholly-owned Subsidiary, after which Holdings shall be the immediate parent of the Borrower.


In connection with the foregoing, the Borrower has requested the Lenders to extend credit in the form of Term Loans, in an aggregate principal amount of $100,000,000. The proceeds of the Term Loans will be used by the Borrower, together with (a) the net proceeds of the issuance of the Subordinated Notes, (b) the proceeds of the term loans and a portion of the revolving credit loans under the Senior Secured Credit Facility and (c) the net proceeds of the Equity Proceeds, on the Closing Date solely to effect the Recapitalization and to pay Transaction Expenses.


The parties hereto hereby agree as follows:


SECTION 1. Definitions


1.1. Defined Terms . (a) As used herein, the following terms shall have the meanings specified in this Section 1.1 unless the context otherwise requires (it being understood that defined terms in this Agreement shall include in the singular number the plural and in the plural the singular):


" ABR" shall mean, for any day, a rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greatest of (a) the Prime Rate in effect on such day and (b) the Federal Funds Effective Rate in effect on such day plus bd of 1%. Any change in the ABR due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective as of the opening of business on the effective day of such change in the Prime Rate or the Federal Funds Effective Rate, respectively.

" ABR Loan" shall mean each Loan bearing interest at the rate provided in Section 2.8(a).


" Acquired EBITDA" shall mean, with respect to any Acquired Entity or Business, any Converted Restricted Subsidiary, any Sold Entity or Business or any Converted Unrestricted Subsidiary (any of the foregoing, a " Pro Forma Entity" ) for any period, the amount for such period of Consolidated EBITDA of such Pro Forma Entity (determined using such definitions as if references to Holdings and its Subsidiaries therein were to such Pro Forma Entity and its Subsidiaries), all as determined on a consolidated basis for such Pro Forma Entity in accordance with GAAP.


" Acquired Entity or Business" shall have the meaning provided in the definition of the term " Consolidated EBITDA" .

" Acquired Indebtedness" means, with respect to any specified Person, (1) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Restricted Subsidiary of such specified Person, including, without limitation, Indebtedness incurred in connection with, or in contemplation of, such other Person merging with or into or becoming a Restricted Subsidiary of such specified Person, and (2) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person.

" Adjusted Total Commitment" shall mean at any time the Total Commitment less the Term Loan Commitments of all Defaulting Lenders.


" Administrative Agent" shall mean JPMorgan Chase Bank, together with its affiliates, as the arranger of the Commitments and as the administrative agent for the Lenders under this Agreement and the other Credit Documents.


" Administrative Agent' s Office" shall mean the office of the Administrative Agent located at 270 Park Avenue, 5th Floor, New York, NY 10017, or such other office as the Administrative Agent may hereafter designate in writing as such to the other parties hereto.


" Affiliate" shall mean, with respect to any Person, any other Person directly or indirectly controlling, controlled by, or under direct or indirect common control with such Person. A Person shall be deemed to control a corporation if such Person possesses, directly or indirectly, the power (a) to vote 10% or more of the

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securities having ordinary voting power for the election of directors of such corporation or (b) to direct or cause the direction of the management and policies of such corporation, whether through the ownership of voting securities, by contract or otherwise.

" Agents" shall mean each Joint Lead Arranger, the Administrative Agent and the Syndication Agent.

" Agreement" shall mean this Credit Agreement, as the same may be amended, supplemented or otherwise modified from time to time.


" Approved Fund" shall have the meaning provided in Section 14.6.


" Asset Sale" means (1) the sale, conveyance, transfer or other disposition, whether in a single transaction or a series of related transactions, of property or assets (including by way of a sale and leaseback) of the Borrower or any Restricted Subsidiary (each referred to in this definition as a " disposition" ) or (2) the issuance or sale of Equity Interests of any Restricted Subsidiary, whether in a single transaction or a series of related transactions, in each case, other than: (a) a disposition of Cash Equivalents or Investment Grade Securities or obsolete or worn out equipment in the ordinary course of business or inventory or goods held for sale in the ordinary course of business; (b) the disposition of all or substantially all of the assets of the Borrower in a manner permitted pursuant to Section 10.4 or any disposition that constitutes a Change of Control; (c) the making of any Restricted Payment or Permitted Investment that is permitted to be made, and is made, under Section 10.6; (d) any disposition of assets or issuance or sale of Equity Interests of any Restricted Subsidiary in any transaction or series of transactions with an aggregate fair market value of less than $2,500,000; (e) any disposition of property or assets or issuance of securities by a Restricted Subsidiary to the Borrower or by the Borrower or a Restricted Subsidiary to a Restricted Subsidiary; (f) to the extent allowable under Section 1031 of the Internal Revenue Code of 1986, any exchange of like property (excluding any boot thereon) for use in a Similar Business; (g) the lease, assignment or sub-lease of any real or personal property in the ordinary course of business; (h) foreclosures on assets; (i) sales of accounts receivable, or participations therein, in connection with any Receivables Facility; and (j) any financing transaction with respect to property built or acquired by the Borrower or any Restricted Subsidiary after the Closing Date, including, without limitation, sale leasebacks and asset securitizations permitted by this Agreement.

" Assignment and Acceptance" shall mean an assignment and acceptance substantially in the form of Exhibit D.

" Authorized Officer" shall mean the Chairman of the Board, the President, the Chief Financial Officer, the Treasurer or any other senior officer of the Borrower designated as such in writing to the Administrative Agent by the Borrower.


" Bankruptcy Code" shall have the meaning provided in Section 11.5.

" Board" shall mean the Board of Governors of the Federal Reserve System of the United States (or any successor).


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" Borrower" shall have the meaning provided in the preamble to this Agreement.


" Borrowing" shall mean and include the incurrence of one Type of Term Loan on the Closing Date (or resulting from conversions on a given date after the Closing Date) having, in the case of Eurodollar Term Loans, the same Interest Period ( provided that ABR Loans incurred pursuant to Section 2.10(b) shall be considered part of any related Borrowing of Eurodollar Term Loans).

" Business Day" shall mean any day excluding Saturday, Sunday and any day that shall be in The City of New York a legal holiday or a day on which banking institutions are authorized by law or other governmental actions to close.


" Canadian Dollars" and " C$" shall mean the lawful money of Canada.

" Capital Lease" shall mean, as applied to any Person, any lease of any property (whether real, personal or mixed) by that Person as lessee that, in conformity with GAAP, is, or is required to be, accounted for as a capital lease on the balance sheet of that Person.

" Capital Stock" means (1) in the case of a corporation, corporate stock, (2) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock, (3) in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited), and (4) 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.


" Capitalized Lease Obligations" shall mean, as applied to any Person, all obligations under Capital Leases of such Person or any of its Subsidiaries, in each case taken at the amount thereof accounted for as liabilities in accordance with GAAP.

" Cash Equivalents" means (1) United States dollars, (2) pounds sterling, (3) (a) euro, or any national currency of any participating member state in the European Union or, (b) in the case of any Foreign Subsidiary that is a Restricted Subsidiary, such local currencies held by them from time to time in the ordinary course of business, (4) securities issued or directly and fully and unconditionally guaranteed or insured by the United States government or any agency or instrumentality thereof the securities of which are unconditionally guaranteed as a full faith and credit obligation of such government with maturities of 24 months or less from the date of acquisition, (5) certificates of deposit, time deposits and eurodollar time deposits with maturities of one year or less from the date of acquisition, bankers' acceptances with maturities not exceeding one year and overnight bank deposits, in each case with any commercial bank having capital and surplus in excess of $500,000,000, (6) repurchase obligations for underlying securities of the types described in clauses (4) and (5) entered into with any financial institution meeting the qualifications specified in clause (5) above, (7) commercial paper rated at least P-1 by Moody' s or at least A-1 by S&P and in each case maturing within 12 months after the date of creation thereof,


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(8) investment funds investing 95% of their assets in securities of the types described in clauses (1) through (7) above, (9) readily marketable direct obligations issued by any state of the United States of America or any political subdivision thereof having one of the two highest rating categories obtainable from either Moody' s or S&P with maturities of 24 months or less from the date of acquisition and (10) Indebtedness or preferred stock issued by Persons with a rating of " A" or higher from S&P or " A2" or higher from Moody' s with maturities of 12 months or less from the date of acquisition. Notwithstanding the foregoing, Cash Equivalents shall include amounts denominated in currencies other than those set forth in clauses (1) through (3) above, provided that such amounts are converted into any currency listed in clauses (1) through (3) as promptly as practicable and in any event within ten Business Days following the receipt of such amounts.

" Change of Control" shall mean the occurrence of (x) the sale, lease or transfer, in one or a series of related transactions, of all or substantially all of the assets of the Borrower and its Subsidiaries, taken as a whole, to any Person other than a Permitted Investor, or (y) the Borrower becomes aware of (by way of a report or any other filing pursuant to Section 13(d) of the Exchange Act, proxy, vote, written notice or otherwise) the acquisition by any Person or group (within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act, or any successor provision), including any group acting for the purpose of acquiring, holding or disposing of securities (within the meaning of Rule 13d-5(b)(1) under the Exchange Act), other than the Permitted Investors, in a single transaction or in a related series of transactions, by way of merger, consolidation or other business combination or purchase of beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act, or any successor provision) of 50% or more of the total voting power of the Voting Stock of Holdings or any of its direct or indirect parent entities.


" Change of Control Offer" as defined in Section 5.7.


" Closing Date" shall mean the date of the initial Borrowing hereunder.


" Code" shall mean the Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated and rulings issued thereunder. Section references to the Code are to the Code, as in effect at the date of this Agreement, and any subsequent provisions of the Code, amendatory thereof, supplemental thereto or substituted therefor.

" Commitments" shall mean, with respect to each Lender, such Lender' s Term Loan Commitment.

" Confidential Information" shall have the meaning provided in Section 14.16.


" Confidential Information Memorandum" shall mean the Confidential Information Memorandum of the Borrower dated March, 2004, delivered to the Lenders in connection with this Agreement.


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" Consolidated Earnings" shall mean, for any period, " income (loss) before the deduction of income taxes" of Holdings, the Borrower and the Restricted Subsidiaries, excluding extraordinary items, for such period, determined in a manner consistent with the manner in which such amount was determined in accordance with the audited financial statements referred to in Section 9.1(a).


" Consolidated EBITDA" shall mean, for any period, the sum, without duplication, of the amounts for such period of (a) Consolidated Earnings and to the extent already deducted in arriving at Consolidated Earnings: (b) Consolidated Interest Expense, (c) depreciation expense, (d) amortization expense, including amortization of deferred financing fees, (e) extraordinary losses and unusual or non-recurring charges (including severance, relocation costs and one-time compensation charges), (f) non-cash charges (provided that if any such non-cash charges represent an accrual or reserve for potential cash items in any future period, the cash payment in respect thereof in such future period shall be subtracted from Consolidated EBITDA to such extent, and excluding amortization of a prepaid cash item that was paid in a prior period), (g) losses on asset sales, (h) restructuring charges or reserves (including costs related to closure of facilities), (i) in the case of any period that includes a period ending during the fiscal year ending November 28, 2004, Transaction Expenses, to the extent deducted in determining Consolidated Earnings, (j) any expenses or charges incurred in connection with any issuance of debt, equity securities or any refinancing transaction, (k) any fees and expenses related to Permitted Acquisitions, (l) any deduction for minority interest expense, (m) the amount of management, monitoring, consulting and advisory fees and related expenses paid to KKR and (n) those items described on Schedule 1.1(d) annexed hereto, less the sum of the amounts for such period of (o) extraordinary gains and non-recurring gains, (p) non-cash gains (excluding any such non-cash gain to the extent it represents the reversal of an accrual or reserve for potential cash item in any prior period) and (q) gains on asset sales, all as determined on a consolidated basis for Holdings, the Borrower and the Restricted Subsidiaries in accordance with GAAP, provided that (i) except as provided in clause (iv) below, there shall be excluded from Consolidated Earnings for any period the income from continuing operations before income taxes and extraordinary items of all Unrestricted Subsidiaries for such period to the extent otherwise included in Consolidated Earnings, except to the extent actually received in cash by Holdings, the Borrower or its Restricted Subsidiaries during such period through dividends or other distributions, (ii) there shall be excluded from Consolidated Earnings for any period the income from continuing operations before income taxes and extraordinary items of each Foreign Joint Venture for such period corresponding to the percentage of capital stock or other equity interests in such Foreign Joint Venture not owned by the Borrower or its Restricted Subsidiaries (other than Foreign Joint Ventures), (iii) there shall be excluded in determining Consolidated EBITDA non-operating currency transaction gains and losses and (iv) (x) there shall be included in determining Consolidated EBITDA for any period (A) the Acquired EBITDA of any Person, property, business or asset (other than an Unrestricted Subsidiary) acquired to the extent not subsequently sold, transferred or otherwise disposed of (but not including the Acquired EBITDA of any related Person, property, business or assets to the extent not so acquired) by the Borrower or any Restricted Subsidiary during such period and (y) for purposes of determining the Senior Leverage Ratio and the Fixed Charge Coverage Ratio only, there


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shall be excluded in determining Consolidated EBITDA for any period the Acquired EBITDA of any Person, property, business or asset (other than an Unrestricted Subsidiary) sold, transferred or otherwise disposed of, closed or classified as discontinued operations by the Borrower or any Restricted Subsidiary during such period (each such Person, property, business or asset acquired and not subsequently so disposed of, an " Acquired Entity or Business" ), and the Acquired EBITDA of any Unrestricted Subsidiary that is converted into a Restricted Subsidiary during such period (each, a " Converted Restricted Subsidiary" ), in each case based on the actual Acquired EBITDA of such Acquired Entity or Business or Converted Restricted Subsidiary for such period (including the portion thereof occurring prior to such acquisition or conversion) and (B) for the purposes of the definition of the term " Permitted Acquisition" and Section 10.3, an adjustment in respect of each Acquired Entity or Business equal to the amount of the Pro Forma Adjustment with respect to such Acquired Entity or Business for such period (including the portion thereof occurring prior to such acquisition or conversion) as specified in the Pro Forma Adjustment Certificate delivered to the Lenders and the Administrative Agent (each such Person, property, business or asset so sold or disposed of, a " Sold Entity or Business" ), and the Acquired EBITDA of any Restricted Subsidiary that is converted into an Unrestricted Subsidiary during such period (each, a " Converted Unrestricted Subsidiary" ), in each case based on the actual Acquired EBITDA of such Sold Entity or Business or Converted Unrestricted Subsidiary for such period (including the portion thereof occurring prior to such sale, transfer, disposition or conversion). Notwithstanding anything to the contrary contained herein, Consolidated EBITDA shall be deemed to be $49,900,000, $47,300,000 and $47,500,000, respectively, for the fiscal quarters ended August 31, 2003, November 30, 2003, and February 29, 2004.


" Consolidated Interest Expense" shall mean, for any period, the cash interest expense (including that attributable to Capital Leases in accordance with GAAP), net of cash interest income, of Holdings, the Borrower and the Restr ...