EXHIBIT 10.13


 


EXECUTION COPY


 


STOCKHOLDERS’ AGREEMENT


 


This Stockholders’ Agreement (this “Agreement”), is entered into as of
April 6, 2004 by and among Sealy Corporation, a Delaware corporation (the
“Company”), Bain Capital Fund V, L.P. (which incorporates the former Bain
Capital Fund V-B, L.P.), BCIP Associates, BCIP Trust Associates, L.P., Harvard
Private Capital Holdings, Inc., Sealy Investors 1 LLC, Sealy Investors 2 LLC,
Sealy Investors 3 LLC (each, other than the Company, a “Minority Investor” and
collectively, the “Minority Investors”) and Sealy Holding LLC, a Delaware
limited liability company (the “KKR Investor”).


 


RECITALS


 


WHEREAS, Posturepedic Acquisition Corp., a Delaware corporation
(“Newco”), and the Company have entered into that certain Agreement and Plan of
Merger dated as of March 3, 2004 (the “Merger Agreement”), pursuant to
which Newco, or a permitted assignee of Newco, will merge (the “Merger”) with
and into the Company with the Company continuing as the surviving corporation
after the merger;


 


WHEREAS, pursuant to the terms of the Merger Agreement, the KKR
Investor will acquire approximately 92% of the outstanding shares of class A
common stock, par value $.01 per share, of the Company (the “Common Stock”),
the Minority Investors will retain beneficial ownership of approximately 8% of
the outstanding shares of Common Stock after the Merger; and


 


WHEREAS, the Minority Investor, the KKR Investor and the Company wish
to enter into this Agreement providing for certain rights and obligations of
the Minority Investors, the KKR Investor and the Company.


 


AGREEMENT


 


NOW, THEREFORE, in consideration of the mutual covenants herein
contained and for other good and valuable consideration, the parties hereto
agree as follows:


 


1.             Definitions


 


As used in this Agreement, the following capitalized terms shall have
the following meanings:


 


Affiliate:  When used with respect to a specified
Person, another Person that, either directly or indirectly, through one or more
intermediaries, controls, or is controlled by, or is under common control with,
the Person specified.


 


Bain Investors:  Collectively, Bain Capital Fund V, L.P.,
Bain Capital Fund V-B, L.P., BCIP Associates and BCIP Trust Associates, L.P.


 


Board:  The Board of Directors of the Company.


 


Exempt Transaction:  Has the meaning set forth in
Section 2(c) hereof.


 

















 


KKR Affiliate:  With respect to the KKR Investor shall mean
a Person that directly or indirectly through one or more intermediaries
controls, is controlled by or is under common control with the KKR Investor; provided,
however, that KKR Affiliate shall not in any event include the limited
partners of the members of the KKR Investor.


 


KKR Holder:  The KKR Investor and any Person to whom the
KKR Investor transfers shares of Common Stock and any transferee thereof who is
required by this Agreement to be bound by the provisions of this Agreement.


 


KKR Shares:  As of any date of determination, the shares
of Common Stock then held by the KKR Holders.


 


Minority Investor Group:  Each of (i) the Bain Investors as a
group, together with their respective direct and indirect transferees and
assignees and (ii) each other Minority Investor and its respective direct and
indirect permitted transferees and assignees.


 


Minority Shares:  As of any date of determination, the shares
of Common Stock then held by the Minority Investors.


 


Person:  An individual, partnership, limited
liability company, joint venture, corporation, trust or unincorporated
organization, a government or any department, agency or political subdivision
thereof or other entity.


 


Private Sale:  Any sale of securities other than a sale
made in a public distribution pursuant to an effective registration statement
under the Securities Act.


 


Public Offering:  Any sale of the issued and outstanding
shares of Common Stock made in a public distribution pursuant to an effective
registration statement under the Securities Act (other than a registration
statement on Form S-4 or Form S-8 or any similar or successor forms).


 


Securities Act:  The Securities Act of 1933, as amended from
time to time and the rules and regulations promulgated thereunder.


 


SILLC Investors:  Collectively, Sealy Investors 1 LLC, Sealy
Investors 2 LLC and Sealy Investors 3 LLC.


 


2.             (a)  “Tag-Along” Right With Respect to Private
Sales by KKR Holders.  (i)  Private Sales of Shares by KKR Holders.  Subject to the last sentence of
Section 3(a), with respect to any proposed Private Sale of any KKR Shares
by a KKR Holder or KKR Holders (collectively, for purposes of this
Section 2, the “KKR Holder”) during the term of this Agreement to a Person
(a “Proposed Purchaser”), other than pursuant to an Exempt Transaction (as
defined in Section 2(c)), each Minority Investor shall have the right and
option, but not the obligation, to participate in such sale, on the same terms
and subject to the same conditions as the sale by the KKR Holder, for the
number of Minority Shares owned by such Minority Investor equaling the number
derived by multiplying the total number of KKR Shares which the KKR Holder
proposes to sell (the “Proposed Number of Shares”) by a fraction, the numerator
of which


 


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is the total number of Minority Shares held by such Minority Investor
and the denominator of which is the sum of (A) the total number of Minority
Shares, (B) the total number of KKR Shares, and (C) the total number of shares
of Common Stock (determined on a fully diluted basis) owned by Persons entitled
to the benefits of any other “tag-along” rights arising as a result of such
sale.


 


(ii)           Notices.  The KKR Holder shall notify, or cause to be
notified, the Minority Investors in writing of each proposed Private Sale
subject to Section 2(a)(i) above. 
Such notice shall set forth:  (A)
the Proposed Number of Shares, (B) the name and address of the Proposed
Purchaser, (C) the proposed amount of consideration, the material terms and
conditions of such sale (and if the proposed consideration is not cash, the
notice shall describe the terms of the proposed consideration) and the proposed
closing date of such sale, (D) the total number of KKR Shares and the total
number of shares of Common Stock (determined on a fully diluted basis) owned by
Persons entitled to the benefits of any other “tag-along” rights arising as a
result of such sale and (D) that the Proposed Purchaser has been informed of
the “tag-along” right provided for in this Section 2(a) and has agreed to
purchase Minority Shares held by the Minority Investors in accordance with the
terms hereof.  The “tag-along” right may
be exercised by each Minority Investor by delivery of a written notice from
such Minority Investor to the KKR Holder (the “Tag-Along Notice”) within 15
days following receipt of the notice specified in the preceding sentence.  The Tag-Along Notice shall state the amount
of Minority Shares that the Minority Investor proposes to include in such sale
to the Proposed Purchaser.  If any
Minority Investor delivers a Tag-Along Notice to the KKR Holder, each Minority
Investor participating in the proposed Private Sale shall (A) prior to closing
of any such sale, execute and deliver (or cause to be executed and delivered)
any purchase agreement or other documentation required by the Proposed
Purchaser to consummate the sale (including without limitation all legal
opinions, cross-receipts and certificates), which purchase agreement and other
documentation shall be on terms no less favorable in respect of any material
term to such Minority Investor than those executed by the KKR Holder and (B) at
the closing of any such sale, deliver to the Proposed Purchaser the certificate
or certificates representing the Minority Shares to be sold pursuant to such
sale by such Minority Investor, duly endorsed for transfer with signatures
guaranteed, against receipt of the purchase price thereof.


 


(iii)          Number
of Shares to be Sold.  If a
Tag-Along Notice is received pursuant to Section 2(a)(ii), each Minority
Investor shall be permitted to sell to the Proposed Purchaser up to the number
of Minority Shares determined as set forth in Section 2(a)(i) above (the
“Proposed Minority Shares”), and the KKR Holder shall be permitted to sell to
the Proposed Purchaser up to a number of shares of Common Stock (the “Proposed
KKR Shares”) equal to the Proposed Number of Shares, less the aggregate number
of Proposed Minority Shares and all other shares of Common Stock being sold to
such Proposed Purchaser in such transaction pursuant to tag-along rights
arising as a result of such sale; provided that the KKR Holder shall
have the right to sell a number of additional shares of Common Stock up to the
excess of the Proposed Number of Shares over the number of Proposed KKR Shares,
if the Proposed Purchaser wants to purchase such additional shares.  If no Tag-Along Notice is received by the
KKR Holder pursuant to Section 2(a)(ii), the KKR Holder shall have the
right to sell to the Proposed Purchaser up to the


 


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Proposed
Number of Shares on terms and conditions no more favorable in any material
respect to the KKR Holder than those stated in the Tag-Along Notice.


 


(b)           Piggyback
Registration Rights With Respect to Public Sales by KKR Holders.  (i)  Public
Offering of Shares by KKR Holders. 
With respect to any proposed Public Offering of any KKR Shares by a KKR
Holder during the term of this Agreement, each Minority Investor shall have the
right and option, but not the obligation, to participate in such public
distribution on the same terms and subject to the same conditions as the sale
by the KKR Holder for a number of Minority Shares up to the total number of
Minority Shares owned by such Minority Investor, subject to
Section 2(b)(iii) below.


 


(ii)           Notices.  The KKR Holder shall notify, or cause to be
notified, the Minority Investors in writing (a “Notice”) of each proposed
Public Offering (a “Proposed Registration”). 
Such notice may be given before the filing of such registration
statement and need not specify any price or other terms or conditions of such
sale.  If within 10 days of the delivery
of such Notice to the Minority Investors, the KKR Holder receives from any
Minority Investor a written request (a “Request”) to register shares of Common
Stock held by such Minority Investor (which Request will be irrevocable),
shares of Common Stock will be so registered as and to the extent provided in
this Section 2(b) if KKR Shares are so registered.  If a Minority Investor delivers a Request to
the KKR Holder, such Minority Investor will participate in such public
distribution, if any, at the same price and on the same terms and conditions as
the KKR Holder, which price and other terms and conditions will be determined
on behalf of the KKR Holder and the Minority Investor by the KKR Holder in its
sole discretion.  Nothing in this
Agreement shall create any obligation on the part of the KKR Holder to cause a
registration statement to become effective under the Securities Act or to sell
any shares of Common Stock pursuant to an effective registration statement
under the Securities Act.


 


(iii)          Number
of Shares to be Sold.  If a
registration pursuant to this Section 2(b) involves an underwritten
offering and the managing underwriter advises the Company in writing that, in
its opinion, the number of shares of Common Stock requested to be included in
such registration exceeds the number of shares of Common Stock which can be
sold in such offering, so as to be likely to have an adverse effect on the
price, timing or distribution of the shares of Common Stock offered in such
offering as contemplated by the Company or that the inclusion of additional
selling stockholders is likely to have such an adverse effect, then the Company
will include in such registration (A) the number of shares of Common Stock held
by each Minority Investor equal to the number derived by multiplying the total
number of shares which, in the opinion of such managing underwriter, can be
sold without having the adverse effect referred to above (the “Piggyback
Aggregate Registration Number”) by a fraction, the numerator of which is the
total number of Minority Shares held by such Minority Investor and the
denominator of which is the sum of (i) the total number of Minority Shares,
(ii) the total number of KKR Shares, and (iii) the total number of shares of
Common Stock (determined on a fully diluted basis) held by Persons entitled to
the benefits of any other piggyback registration rights arising as a result of
such registration and (B) the number of shares of Common Stock held by the KKR
Holder equal to the Piggyback Aggregate Registration Number, less the aggregate
number of Minority Shares and all other shares of Common Stock being registered
in such transaction pursuant to piggyback registration rights arising as a
result of such registration;


 


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provided
that in the event the aggregate number of shares of Common Stock to be sold in
any such public distribution is increased or decreased, then the number of
Minority Shares which such Minority Investor shall sell in such public
distribution shall be increased or decreased by the product of (i) the number
of shares of Common Stock by which the total number of shares of Common Stock
in such public distribution is increased or decreased and (ii) a fraction the
numerator of which equals the number of Minority Shares held by such Minority
Investor originally so registered and the denominator of which is the total
number of shares of Common Stock originally so registered.


 


(iv)          Custody
Agreement and Power of Attorney. 
Upon delivery of a Request, the participating Minority Investors will,
if requested by the KKR Holder, execute and deliver to the KKR Holder a custody
agreement and power of attorney in form and substance reasonably satisfactory
to the KKR Holder with respect to the shares of Common Stock to be registered
pursuant to this Section 2(b) (a “Custody Agreement and Power of
Attorney”).  The custodian and
attorney-in-fact under the Custody Agreement and Power of Attorney will be the
KKR Holder or its designee.  The Custody
Agreement and Power of Attorney will provide, among other things, that such
Minority Investor will deliver to and deposit in custody with the custodian and
attorney-in-fact named therein a certificate or certificates representing such
shares of Common Stock (duly endorsed in blank by the registered owner or
owners thereof or accompanied by duly executed stock powers in blank) and
irrevocably appoint said custodian and attorney-in-fact as such Minority
Investor’s agent and attorney-in-fact with full power and authority to act
under the Custody Agreement and Power of Attorney on such Minority Investor’s
behalf with respect to the matters specified therein (including without
limitation executing an underwriting agreement and cross-receipts).


 


(v)           Holdback
Agreement.  (A) In connection with
the initial Public Offering, each Minority Investor agrees not to effect any
public sale or distribution, including any sale pursuant to Rule 144 (or any
successor provision) under the Securities Act, of any shares of Common Stock
(other than dispositions made pursuant to the piggyback registration rights
described in this Section 2(b)), within 7 days before or 180 days (or such
lesser period as the managing underwriters may permit) after the effective date
of such registration, and (B) in connection with each subsequent Public
Offering, each Minority Investor agrees not to effect any public sale or
distribution, including any sale pursuant to Rule 144 (or any successor
provision) under the Securities Act, of any shares of Common Stock (other than
dispositions made pursuant to the piggyback registration rights described in
this Section 2(b) and, subject to the consent of the managing
underwriters, dispositions by any Minority Investor Group owning less than 1%
of the outstanding Common Stock), within 7 days before and a number of days
after to be determined by the managing underwriter and the KKR Investor; provided
however, that such restrictions will be no more restrictive than those
applicable to the KKR Investor for each such Public Offering.


 


(vi)          Additional
Agreements.  Each Minority Investor
agrees that it will execute and deliver or cause to be executed and delivered
such other agreements and other documents (such as legal opinions,
cross-receipts and certificates) as the KKR Holder itself is delivering or as
the KKR Holder may otherwise reasonably request to implement the provisions of
this Section 2(b);


 


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provided
that such additional agreements will be on terms and conditions reasonably
acceptable to the Minority Investors.


 


(c)           Exempt
Transaction Defined.  As used
herein, the term “Exempt Transaction” shall mean (i) sales by the KKR Investor
to any KKR Affiliates, (ii) sales by any KKR Affiliate to another KKR Affiliate
or to the KKR Investor, (iii) transfers by the KKR Investor and its KKR
Affiliates to its partners or members (and any subsequent sales by such
partners or members) in the form of dividends or distributions (whether upon
liquidation or otherwise), or (iv) sales by any KKR Holders made in a Public
Offering; provided that in the case of clauses (i) and (iii) above that
such buyer or member agrees in writing to be bound by the provisions of this
Agreement, including this paragraph (c).


 


3.             “Drag-Along”
Right with Respect to Minority Shares. 
(a)  Sales by KKR Holders.  In the event that the KKR Holders determine,
during the term of this Agreement, to transfer more than 50% of the KKR Shares
to a Proposed Purchaser not affiliated with the KKR Holders, other than in an
Exempt Transaction (a “Drag-Along Sale”), then upon the request of the KKR
Holders, each Minority Investor will transfer to such Proposed Purchaser at the
same price and upon the same terms and conditions as such transfer by the KKR
Holders the number of Minority Shares equaling the number derived by
multiplying the total number of Minority Shares owned by such Minority Investor
by a fraction, the numerator of which is the total number of KKR Shares that
the KKR Holder has determined to transfer to such Proposed Purchaser and the
denominator of which is the total number of KKR Shares.  In the event that the KKR Holders have
signed an agreement (a “Transaction Agreement”), with respect to KKR Shares, to
vote in favor of or tender in connection with a business combination
transaction entered into by the Company, then, upon the request of the KKR
Holders, the Minority Investors will execute a Transaction Agreement with the
same terms and conditions as the Transaction Agreement signed by the KKR
Holder. In the event that both Sections 2(a) and 3 hereto apply to a single
transaction, the “drag-along” rights set forth in this Section 3 will have
priority over the “tag-along” rights set forth in Section 2(a) above, and
the “tag-along” rights set forth in Section 2 will become exercisable by
the Minority Investors following a determination by the KKR Holder not to
exercise its rights under this Section 3.


 


(b)           Notice.  Prior to making any Drag-Along Sale, the KKR
Holders shall, if they determine in their sole discretion that the Minority
Investors should participate in such transfer, provide each Minority Investor
with written notice (the “Drag-Along Notice”) not less than 5 business days
prior to the proposed date of the Drag-Along Sale (the “Drag-Along Sale Date”).  The Drag-Along Notice shall set forth:  (i) the name and address of the Proposed
Purchaser; (ii) the number of shares of Common Stock to be sold to the Proposed
Purchaser, (iii) the proposed amount and form of consideration to be paid per
share of Common Stock and the material terms and conditions of the transfer;
(iv) the Drag-Along Sale Date and the date upon which the Minority Investors
shall deliver to the KKR Holders the certificates representing the Minority
Shares, duly endorsed, and the power of attorney referred to below; and (v)
that the Proposed Purchaser has been informed of the Drag-Along Sale rights and
has agreed to purchase the Minority Shares held by the Minority Investors in
accordance with the terms hereof.  The
Minority Investors shall (i) prior to closing of any such transfer, execute any
purchase agreement or other documentation required by the Proposed Purchaser to
consummate the transfer, which


 


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purchase
agreement and other documentation shall be on terms no less favorable in
respect of any material term to the Minority Investors than those executed by
the KKR Holders, and (ii) at the closing of any such transfer, deliver to the
Proposed Purchaser the certificate or certificates representing the Minority
Shares, duly endorsed for transfer with signatures guaranteed, against receipt
of the purchase price thereof.  Prior to
entering into a Transaction Agreement, the KKR Holders shall, if they determine
in their sole discretion that the Minority Investors should execute a
Transaction Agreement, provide the Minority Investors with written notice (the
“Transaction Agreement Notice”) not less than 5 business days prior to the
proposed date of the execution of the Transaction Agreement (the “Transaction
Agreement Date”).  The Transaction
Agreement Notice shall set forth:  (i)
the name and address of the counter-parties to the Transaction Agreement; (ii)
the proposed form of Transaction Agreement; and (iii) the material terms and
conditions of the business combination with the Company to which the
Transaction Agreement relates.  The
Minority Investors shall, at the signing and closing of such Transaction
Agreement, execute and deliver all other documentation required by such
Transaction Agreement, which documents shall be on terms no less favorable in
respect of any material term to the Minority Investors than those executed by
the KKR Holder.


 


(c)           Effect
of Drag-Along Sale.  If the Minority
Investors receive their proportionate share of the purchase price from a
Drag-Along Sale, but have failed to deliver certificates representing their
shares of Common Stock as described in this Section 3, they shall for all
purposes be deemed no longer to be stockholders of the Company, shall have no
voting rights, shall not be entitled to any dividends or other distributions
with respect to the Common Stock held by them, and shall have no other rights
or privileges granted to stockholders under law or this Agreement.


 


4.             Preemptive
Rights on Certain Issuances. 
(a)  If at any time the Company
proposes to sell or issue to the KKR Holders, or any of their Affiliates, for
cash any shares of Common Stock, securities of the Company convertible into, or
exchangeable or exercisable for, shares of Common Stock, or options warrants or
other rights to acquire shares of Common Stock (collectively, “Equity
Securities”), the Company shall grant to each Minority Investor, the right to
purchase at the same price and upon the same terms and conditions as such sale
or issuance to the KKR Holders or such Affiliates the number of Equity
Securities equaling the number derived by multiplying the total number of such
Equity Securities proposed to be sold or issued to the KKR Holders or such
Affiliates by a fraction, the numerator of which is the number of Minority Shares
held by such Minority Investor and the denominator of which is the total number
of outstanding shares of Common Stock (the “Equity Purchase Shares”).  The equity purchase right provided in this
Section 4(a) shall apply at the time of issuance of any right, warrant or
option or convertible or exchangeable security and not to the conversion,
exchange or exercise thereof.


 


(b)           The
Company shall give written notice of a proposed issuance or sale described in
Section 4(a) to the Minority Investors not less than 10 business days
prior to the proposed issuance or sale. 
Such notice (the “Issuance Notice”) shall set forth the material
terms and conditions of such proposed sale or issuance and the number of Equity
Securities proposed to be sold or issued. 
At any time during the 10-day period following the receipt of an
Issuance Notice, each Minority Investor shall have the right to irrevocably
elect to purchase all or a portion of the number of the Equity Purchase Shares
as determined pursuant to, and in


 


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accordance
with, Section 4(a) and upon the other terms and conditions specified in
the Issuance Notice by delivering a written notice to the Company.  Except as provided in the following
sentence, such purchase shall be consummated concurrently with the consummation
of the issuance or sale described in the Issuance Notice.  The closing of any purchase by any Minority
Investor may be extended beyond the closing of the transaction described in the
Issuance Notice to the extent necessary to obtain required governmental
approvals and other required approvals and the Company and the Minority
Investors shall use their respective commercially reasonable efforts to obtain
such approvals.


 


(c)           If
any Minority Investor fails to exercise fully the Equity Purchase Right within
the period described above, the Company shall be free to complete the proposed
issuance or sale of the Equity Securities described in the Issuance Notice to
the KKR Holders with respect to which such Minority Investor failed to exercise
the option set forth in this Section 4 on terms no less favorable to the
Company than those set forth in the Issuance Notice (except that the amount of
securities to be issued or sold by the Company may be reduced).


 


5.             Other
Rights.  (a)  Election of Director.  Until the second anniversary of the date
hereof, so long as the Minority Investors own in the aggregate at least 5% of
the outstanding shares of Common Stock, then one representative of the Bain
Investors, who shall be either Steven Barnes or Josh Bekenstein, or in the
event that both Steven Barnes and Josh Bekenstein are not affiliated with the
Bain Investors or are permanently disabled, another individual selected by the
Bain Investors who is reasonably acceptable to the Company and the KKR Holders,
shall (i) be nominated by the Company for election to the Board and (ii) have
the KKR Shares voted in favor of his election to the Board.  Upon the earlier of (i) the second anniversary
of the date hereof and (ii) the first date on which the Investors no longer own
in the aggregate at least 5% of the outstanding shares of Common Stock (the
“Information Date”), the Minority Investors will, upon notice to the Bain
Investors from the Company’s board of directors, cause their nominee to resign
from the Board.


 


(b)           Information
Rights.  Prior to the initial Public
Offering, each Minority Investor owning at least 50% of the shares of Common
Stock originally retained by such Minority Investor in connection with the
transactions contemplated by the Merger Agreement shall have the right to
receive a copy of quarterly reports, if any, provided to the KKR Holders and
the management of the Company.  If a
Bain Investors’ representative is not at such time a member of the Board, then
during the period after the Information Date and prior to the fifth anniversary
of the date hereof, the Company will provide to the Bain Investors internal
Board materials and Board books as distributed to the members of the Board,
subject to the Bain Investors entering into customary confidentiality
agreements with respect to such materials.


 


(c)           Confidentiality.  Each such Minority Investor agrees to hold
any such information concerning the Company that it receives pursuant to its
rights under this Agreement in strict confidence and agrees not to disclose
such information to any party. In addition, each such Minority Investor agrees
not to purchase any equity or debt securities of the Company unless such
purchase complies with the Securities Act and the rules and regulations
thereunder and the state securities laws of any applicable state.


 


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6.             Transfer;
Right of First Offer.  (a)  Until the  second  anniversary of the date of this Agreement,
except for transfers made pursuant to Sections 2 or 3, each Minority Investor
agrees not to transfer, sell, assign, pledge, hypothecate or otherwise dispose
of (“Transfer”) any of its shares of Common Stock; provided that any
Minority Investor may Transfer its shares of Common Stock to an Affiliate of
such Minority Investor or a member of such Minority Investor, so long as such
transferee agrees in writing to be bound by the provisions of this Agreement.


 


(b)           Prior
to and in order to effect any Transfer, except for transfers made pursuant to
Sections 2 or 3, after the second anniversary and prior to the fifth
anniversary of the date hereof, each Minority Investor shall first give written
notice (a “Sale Notice”) to the KKR Investor stating such Minority Investor’s
intention to effect such a Transfer, the number of shares of Common Stock
subject to such Transfer (the “Offered Securities”), the price and terms which
such Minority Investor proposes to be paid for the Offered Securities (the
“First Offer Price”) and the other material terms upon which such Transfer is
proposed.  Upon receipt of the Sale
Notice, the KKR Investor will have an irrevocable non-transferable option to
purchase all of the Offered Securities at the First Offer Price and otherwise
on the terms and conditions described in the Sale Notice (the “First
Offer”).  The KKR Investor shall, within
15 days from receipt of the Sale Notice, indicate if it has accepted the First
Offer by sending irrevocable written notice of any such acceptance to the
applicable Minority Investor (the “Acceptance Notice”), and the KKR Investor
shall then be obligated to purchase all such Offered Securities on the terms
and conditions set forth in the Sale Notice. 
If the KKR Investor declines to exercise such option, the Minority
Investor shall have the option to enter into definitive agreements to Transfer
the Offered Securities as to which such options are not exercised to a
transferee for consideration having a value not less than 100% of the First
Offer Price; provided that any such definitive agreement provides for
the consummation of such Transfer to take place within two months from the date
of such definitive agreement and is otherwise on terms not more favorable to
the transferee in any material respect than were contained in the Sale
Notice.  If the KKR Investor does not
exercise its option to purchase all of the Offered Securities at the First
Offer Price and the Minority Investor has not entered into a definitive
agreement described above within two months from the date the Acceptance
Notices was due to be received by the Minority Investor, or the Minority
Investor has entered into such an agreement but has not consummated the sale of
such securities within two months from the date of such definitive agreement,
then the provisions of this Section 6(b) shall again apply, and such
selling Minority Investor shall not Transfer or offer to Transfer such Equity
Securities not so Transferred without again complying with this
Section 6(b).


 


(c)           Each
Minority Investor agrees not to offer or Transfer any of its shares of Common
Stock unless such offer or Transfer complies with the Securities Act and the
rules and regulations thereunder and the state securities laws of any
applicable state.


 


(d)           Any
transferee of a Minority Investor (other than a transferee pursuant to the
provisions of Section 6(a)) will not acquire any rights under this
Agreement.


 


7.             Miscellaneous.  (a)  Termination
of Agreement.  The provisions of
this Agreement (other than Section 2(b)) shall terminate automatically
without further action by the


 


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parties hereto (i) on the first date on which at least 35% of the
Common Stock is tradeable on a national securities exchange pursuant to an
effective registration statement under the Securities Exchange Act of 1934, as
amended (the “Termination Date”) or (ii) with respect to any Minority Investor
Group, if earlier than the date described in clause (i) above, at such time
following an initial Public Offering that such Minority Investor Group owns
less than 1% of the outstanding Common Stock. 
Section 2(b) of this Agreement shall terminate (i) on the earlier
of (A) the first date following the fifth anniversary of this Agreement on
which any Minority Investor may sell any shares of Common Stock pursuant to,
and in accordance with, Rule 144 (or any successor provision) under the
Securities Act or (B) the first date following the Termination Date on which
any Minority Investor may sell any shares of Common Stock pursuant to, and in
accordance with, Rule 144 (or any successor provision) under the Securities Act
or (ii) with respect to any Minority Investor Group, if earlier than the date
described in clause (i) above, at such time following an initial Public
Offering that such Minority Investor Group owns less than 1% of the outstanding
Common Stock.  Notwithstanding the
second immediately preceding sentence, this Section 7 and the last
sentence of Section 4(a) shall survive the termination of this Agreement.


 


(b)           Representation
and Warranty.  The Minority
Investors own, of record or beneficially, no shares of Common Stock or
securities convertible or exchangeable for shares of Common Stock, other than
the Minority Shares subject to this Agreement.


 


(c)           Assignment,
Binding Effect.  This Agreement
shall not be assignable by the parties hereto, except to any Person who in
connection with a transfer of KKR Shares or Minority Shares is required by this
Agreement, in connection with such transfer, to agree to be bound by the
provisions of this Agreement.  Subject
to the foregoing, this Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective legal representatives, heirs,
legatees, successors and permitted assigns.


 


(d)           Costs
and Expenses.  All costs and expenses
incurred in connection with this Agreement and the consummation of any of the
transactions contemplated hereby shall be paid by the party incurring such
expenses; provided  however that the Company will reimburse the
Minority Investors for the reasonable fees and expenses incurred in any
underwritten registration by one legal counsel acting on behalf of all Minority
Investors.


 


(e)           Amendments.  The provision of this Agreement, including
the provisions of this sentence, may be amended, modified or supplemented only
by a written instrument executed by (i) holders of at least a majority of the
KKR Shares, (ii) holders of at least a majority of the Minority Shares and
(iii) the Company.  Notwithstanding the
foregoing sentence, a majority of the Minority Shares may not agree to amend
this Agreement in a way that adversely affects any Minority Investor without
such Minority Investor’s consent.


 


(f)            Governing
Law.  This Agreement shall be
governed by and construed in accordance with the internal laws of the State of
New York.  Each of the parties hereto
agrees to submit to the jurisdiction of the courts of the State of New York in
any action or proceeding arising out of or relating to this Agreement.


 


10

















 


(g)           Interpretation.  The headings of the sections contained in
this Agreement are solely for the purpose of reference, are not part of the
agreement of the parties and shall not affect the meaning or interpretation of
this Agreement.


 


(h)           Notices.  All notices and other communications
required or permitted to be given under this Agreement shall be in writing and
shall be deemed to have been given if delivered personally or by telecopy or
seven days after having been sent by certified mail, return receipt requested,
postage prepaid, to the parties to this Agreement at the following address or
to such other address as any party to this Agreement shall specify by notice to
the other parties:


 


(1)           If
to the KKR Investor or a KKR Holder, to it in care of:


 


Kohlberg Kravis Roberts & Co.

9 West 57th Street

New York, New York 10019

Attention: Brian Carroll


 


with a copy to:


 


Simpson Thacher & Bartlett LLP


425 Lexington Avenue


New York, New York 10017


Attention: 
David J. Sorkin

Sean D. Rodgers


 


(2)           If to the Bain Investors, to them in care
of:

Bain Capital Partners LLC


 


111 Huntington Avenue


Boston, MA 02199


Attention: 
Josh Bekenstein


 


with a copy to:


 


Kirkland & Ellis LLP


153 East 53rd Street


New York, NY 10022


Attention: 
Lance Balk


 


11

















 


(3)           If
to Harvard Private Capital Holdings, Inc., to it in care of:


 


Harvard Private Capital Holdings, Inc.


600 Atlantic Avenue


26th Floor


Boston, MA 02210


Attention: 
Andrew Janower


 


with a copy to:


 


[                    ]


[                    ]


[                    ]


Attention: 
[                    ]


 


(4)           If
to the SILLC Investors, to them in care of:


 


Bain Capital Partners V., L.P.


111 Huntington Avenue


Boston, MA 02199


Attention: 
Josh Bekenstein


 


with a copy to:


 


Kirkland & Ellis LLP


153 East 53rd Street


New York, NY 10022


Attention: 
Lance Balk


 


(5)           If
to the Company, to it in care of:


 


Sealy Corporation


One Office Parkway


Trinity, North Carolina 27370


Attention: 
Kenneth Walker


 


with a copy to:


 


Kohlberg Kravis Roberts & Co.


9 West 57th Street


New York, New York 10019


Attention: 
Brian Carroll


 


and


 


12

















 


Simpson Thacher & Bartlett LLP


425 Lexington Avenue


New York, New York 10017


Attention: 
David J. Sorkin

Sean D. Rodgers


 


(i)            Waiver
and Consent.  No action taken
pursuant to this Agreement, including, without limitation, any investigation by
or on behalf of any party, shall be deemed to constitute a waiver by the party
taking such action of compliance with any representations, warranties, covenants
or agreements contained herein.  The
waiver by any party hereto of a breach of any provision of this Agreement shall
not operate or be construed as waiver of any preceding or succeeding breach and
no failure by any party to exercise any right or privilege hereunder shall be
deemed a waiver of such party’s rights or privileges hereunder or shall be
deemed a waiver of such party’s rights to exercise the same at any subsequent
time or times hereunder.  Each party
hereto, in addition to being entitled to exercise all rights provided herein,
in the charter or granted by law, including recovery of damages, will be
entitled to specific performance of its rights under this Agreement.  Each party hereto agrees that monetary
damages would not be adequate compensation for any loss incurred by reason of a
breach by it of the provisions of this Agreement and hereby agrees to waive the
defense in any action for specific performance that a remedy at law would be
adequate.


 


(j)            Inspection.  Copies of this Agreement will be available
for inspection or copying by any party at the offices of the Company through
the Secretary of the Company.


 


(k)           Counterparts.  This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original and all of
which together shall be deemed to constitute one and the same agreement.


 


(l)            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
enforceability of any such provision in every other respect and of the
remaining provisions contained herein shall not be affected or impaired
thereby.


 


(m)          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 rights of the Minority Investors
herein.  This Agreement supersedes all
prior agreements and understandings between the parties with respect to such
subject matters.


 


(n)           Limited
Liability of Partners. 
Notwithstanding anything that may be expressed or implied in this
Agreement, each KKR Holder and each Minority Investor, by its acceptance of the
benefits of this Agreement, covenants, agrees and acknowledges that,
notwithstanding that the KKR Holders and certain of the Minority Investors are
partnerships, no recourse under this Agreement or any documents or instruments
delivered in connection with this Agreement shall be had against any officer,
agent or employee of any KKR Holder or any Minority Investor, against any
partner of any KKR Holder or Minority Investor or any director,


 


13

















 


officer, employee,
partner, affiliate or assignee of any of the foregoing, whether by the
enforcement of any assessment or by any legal or equitable proceeding, or by
virtue of any statute, regulation or other applicable law, it being expressly
agreed and acknowledged that no personal liability whatsoever shall attach to,
be imposed on or otherwise be incurred by an officer, agent or employee of any
KKR Holder or any Minority Investor or any partner of any KKR Holder or any
Minority Investor or any director, officer, employee, partner, affiliate or
assignee of any of the foregoing, as such for any obligations of any KKR Holder
or Minority Investor under this Agreement or any documents or instruments
delivered in connection with this Agreement or for any claim based on, in
respect of or by reason of such obligations or their creation.


 


[signature page follows]


 


14

















 


IN WITNESS WHEREOF, the parties have executed this Stockholders’
Agreement as of the date first above written.


 


	
   

  	
  SEALY CORPORATION

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Kenneth L. Walker

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  SEALY HOLDING LLC

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Brian F. Carroll

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  BAIN CAPITAL FUND V, L.P.

  
	
   

  	
   

  	
   

  
	
   

  	
  By: Bain Capital Partners V,
  L.P., its General

  Partner

  
	
   

  	
   

  	
   

  
	
   

  	
  By: Bain Capital Investors V.,
  Inc., its General

  Partner

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Steven Barnes

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  BCIP ASSOCIATES

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Steven Barnes

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  BCIP TRUST ASSOCIATES, L.P.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Steven Barnes

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
					



 

















 


	
   

  	
  HARVARD PRIVATE CAPITAL
  HOLDINGS,

  INC.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Andrew S. Janower

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  SEALY INVESTORS 1, LLC

  
	
   

  	
   

  	
   

  
	
   

  	
  By: Bain Capital Partners V,
  L.P., its

  Administrative Member

  
	
   

  	
   

  	
   

  
	
   

  	
  By: Bain Capital Investors V.,
  Inc., its General

  Partner

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Steven Barnes

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  



 

















 


	
   

  	
  SEALY INVESTORS 2, LLC

  
	
   

  	
   

  	
   

  
	
   

  	
  By: Bain Capital Partners V,
  L.P., its

  Administrative Member

  
	
   

  	
   

  	
   

  
	
   

  	
  By: Bain Capital Investors V.,
  Inc., its General

  Partner

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Steven Barnes

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  SEALY INVESTORS 3, LLC

  
	
   

  	
   

  	
   

  
	
   

  	
  By: Bain Capital Partners V, L.P., its

  Administrative Member

  
	
   

  	
   

  	
   

  
	
   

  	
  By: Bain Capital Investors V., Inc., its

  General Partner

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Steven Barnes

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title: