SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
________________________
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): December 18, 1997
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SEALY CORPORATION
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(Exact Name of Registrant as Specified in Charter)
Delaware 1-8738 36-3284147
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(State or Other Jurisdiction of (Commission File Number) (I.R.S. Employer
Incorporation) Identification Number)
520 Pike Street Seattle, Washington 98101
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(Address of Principal Executive Offices) (Zip code)
Registrant's telephone number, including area code: (206) 625-1233
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(Former Name or Former Address, if Changed Since Last Report
ITEM 1. CHANGES IN CONTROL OF REGISTRANT
On December 18, 1997, Sealy Corporation (the "Company") consummated a
merger (the "Merger") pursuant to an agreement and plan of merger, dated as of
October 30, 1997, as amended, (the "Merger Agreement"), with Sandman Merger
Corporation, a transitory Delaware merger corporation ("Sandman"), and
Zell/Chilmark Fund, L.P., a Delaware limited partnership ("Zell"). Prior to the
Merger, Zell beneficially owned approximately 87% of the voting securities of
the Company. Pursuant to the Merger Agreement, Sandman was merged with and into
the Company with the Company being the surviving corporation. Prior to the
Merger, the Company converted certain of the existing common stock held by Zell
into shares of the Company's voting preferred stock (the "Preference Stock").
In connection with the Merger (i) the Preference Stock was converted into $25.0
million in aggregate principal amount of junior subordinated notes of the
Company (the "Junior Subordinated Notes") and the Zell Equity (as defined below)
and (ii) the aggregate issued and outstanding shares of the existing common
stock at the time of the Merger were converted into the right to receive an
aggregate amount of cash equal to (x) $419.4 million minus (y) certain fees and
expenses of the Merger minus (z) certain costs in connection with the
extinguishment of certain outstanding options and warrants of the Company.
The transactions contemplated by the Merger Agreement, including the
Merger, the Tender Offer and related Consent Solicitation (each as defined
below) and the refinancing of the Company's existing indebtedness were funded
by: (i) $450.0 million of term loan borrowings by Sealy Mattress Company, a
wholly owned subsidiary of the Company ("SMC"), pursuant to the Senior Credit
Agreements (as defined below); (ii) $10.0 million of revolving borrowings under
the Senior Credit Agreements; (iii) the offerings (the "Offerings") of certain
debt securities of SMC (the "Notes"), with aggregate gross proceeds of $200.4
million; (iv) the issuance of the Junior Subordinated Notes to Zell; (v) an
equity investment in the Company by funds managed by Bain Capital, Inc., its
related investors, including members of management, and other institutional
investors (collectively, the "New Investors") of approximately $128.8 million
and (vi) a retained equity investment in the Company by Zell with a fair value
of approximately $14.3 million (such equity investment, the "Zell Equity"). As
a result of the Merger, the New Investors beneficially own approximately 85.3%
of the voting securities of the Company.
TENDER OFFER AND CONSENT SOLICITATION
On November 18, 1997, the Company commenced an offer (the "Tender Offer")
to purchase for cash up to all (but not less than a majority in principal amount
outstanding) of its 10 1/4% Senior Subordinated Notes due 2003 (the "Old Notes")
and a related solicitation (the "Consent Solicitation") of consents to modify
certain terms of the indenture under which the Old Notes were issued. The
purchase price paid in respect of validly tendered Old Notes was $1,057.03 per
$1,000 of principal amount tendered and the payment with respect to the Consent
Solicitation was $20 per $1,000 of principal amount tendered prior to the
consent expiration date therefor. Old Notes in the aggregate principal amount
of $197.7 million were tendered and accepted for payment and the related
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consents received. The Tender Offer was consummated concurrently with the
Merger and a supplemental indenture with respect to the Old Notes took effect at
such time.
SENIOR CREDIT AGREEMENTS
Upon consummation of the Merger, SMC entered into the AXELs/*/ credit
agreement (the "Senior AXELs Credit Agreement") and a credit agreement providing
for Tranche A term Loans and revolving borrowings (the "Senior Revolving Credit
Agreement" and, together with the Senior AXELs Credit Agreement, the "Senior
Credit Agreements") with Goldman Sachs Credit Partners L.P., as arranger and
syndication agent, Morgan Guaranty Trust Company of New York, as administrative
agent, and Bankers Trust Company, as documentation agent; and other institutions
party thereto. The Senior Credit Agreements provide for loans of up to $550.0
million, consisting of a $450.0 million term loan facility (the "Term Loan
Facility") and a $100.0 million revolving credit facility (the "Revolving Credit
Facility"). SMC distributed the proceeds of the Term Loan Facility and its
initial borrowings under the Revolving Credit Facility to the Company to provide
a portion of the funds necessary to consummate the Merger and related
transactions. Indebtedness of SMC under the Senior Credit Agreements is secured
and guaranteed by the Company and certain of SMC's current and all of SMC's
future U.S. subsidiaries and will bear interest at a floating rate. The Senior
Credit Agreements require the Company to meet certain financial tests, including
minimum levels of EBITDA, minimum interest coverage and maximum leverage ratio.
The Senior Credit Agreements also contain covenants which, among other things,
limit capital expenditures, indebtedness and/or the incurrence of additional
indebtedness, investments, dividends, transactions with affiliates, asset sales,
mergers and consolidations, prepayments of other indebtedness (including the
Notes), liens and encumbrances and other matters customarily restricted in such
agreements.
THE NOTES
Concurrently with the consummation of the Merger, SMC issued the Notes in
the Offerings to the initial purchasers thereof, who resold the Notes in
reliance upon Rule 144A and Regulation S under the Securities Act of 1933 (the
"Securities Act"). The Notes consist of (1) $125.0 million in aggregate
principal amount of 9 7/8% Senior Subordinated Notes due December 15, 2007 (the
"Senior Subordinated Notes") and (ii) $128.0 million in aggregate principal
amount at maturity of 10 7/8% Senior Subordinated Discount Notes due December
15, 2007 (the "Senior Subordinated Discount Notes"), yielding gross proceeds of
$75.4 million.
SMC's payment obligations under the Notes are jointly and severally
guaranteed on a senior subordinated basis (the "Guarantees") by the Company and
certain of SMC's current and all of SMC's future U.S. Subsidiaries (the
"Subsidiary Guarantors" and, together with the Company, the "Guarantors"). The
Notes are not guaranteed by certain other of SMC's U.S. Subsidiaries or by any
of its current or future foreign Subsidiaries (the "Non-Guarantor
Subsidiaries"). The Guarantees are
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/1/ "AXELs" is a registered servicemark of Goldman, Sachs & Co.
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subordinated to the guarantees of Senior Debt issued by the Guarantors under the
Senior Credit Agreements.
The Notes are general, unsecured senior subordinated obligations of SMC,
subordinated in right of payment to all senior debt (as defined herein) of SMC,
pari passu with all future senior subordinated debt of SMC and senior in right
of payment to all future subordinated debt of SMC. The claims of creditors
(including trade creditors) of Non-Guarantor Subsidiaries generally have
priority as to the assets of such subsidiaries over the claims of the holders of
the Notes.
The indenture governing the Senior Subordinated Notes and the indenture
governing the Senior Subordinated Discount Notes contain certain covenants that,
among other things, limit the ability of SMC and its Subsidiaries to incur
additional indebtedness and issue disqualified stock, pay dividends or
distributions or make investments or make certain other restricted payments,
enter into certain transactions with affiliates, dispose of certain assets,
incur liens and engage in mergers and consolidations.
Pursuant to a Registration Rights Agreement (the "Registration Rights
Agreement") among SMC, the Guarantors and the initial purchasers of the Notes,
SMC and the Guarantors have agreed to file a registration statement (the
"Exchange Offer Registration Statement") on the appropriate form with respect to
an offer to exchange (i) the Senior Subordinated Notes for a new issue of debt
securities of SMC and (ii) the Senior Subordinated Discount Notes for a new
issue of debt securities of SMC, each of which will be registered under the
Securities Act, with terms identical to those of the Senior Subordinated Notes
and the Senior Subordinated Discount Notes, as applicable (the "Exchange
Offer"). If (i) the Exchange Offer is not permitted by applicable law or (ii)
any holder of Transfer Restricted Securities notifies SMC within the specified
time period that (A) it alone or together with holders who hold in the aggregate
at least $1.0 million in principal amount (or accreted value, as applicable) of
Notes is prohibited by law or SEC policy from participating in the Exchange
Offer, (B) it may not resell the new notes acquired by it in the Exchange Offer
to the public without delivering a prospectus and the prospectus contained in
the Exchange Offer Registration Statement is not appropriate or available for
such resales or (C) it is a broker-dealer and owns Notes acquired directly from
SMC or an affiliate of SMC, SMC and the Guarantors will be required to provide a
shelf registration statement to cover resales of the Notes by the holders
thereof.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(c) Exhibits.
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Exhibit No. Exhibit Description
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2.1 Agreement and Plan of Merger, dated as
of October 30, 1997, by and among the
Registrant, Sandman Merger Corporation
and Zell/Chilmark Fund, L.P.
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2.2 First Amendment to the Agreement and
Plan of Merger, dated as of December 18,
1997, by and among the Registrant,
Sandman Merger Corporation and
Zell/Chilmark Fund, L.P.
4.1 Indenture, dated as of December 18,
1997, by and among Sealy Mattress
Company, the Guarantors named therein
and The Bank of New York, as trustee,
with respect to the Series A and Series
B 9 7/8% Senior Subordinated Notes due
2007.
4.2 Indenture, dated as of December 18,
1997, by and among Sealy Mattress
Company, the Guarantors named therein
and The Bank of New York, as trustee,
with respect to the Series A and Series
B 10 7/8% Senior Subordinated Discount
Notes due 2007.
4.3 Second Supplemental Indenture, dated as
of December 5, 1997, by and between the
Registrant and The Bank of New York, as
trustee.
10.1 Dealer Manager Agreement, dated as of
November 18, 1997, among Sandman Merger
Corporation, the Registrant and Goldman,
Sachs & Co.
10.2 Purchase Agreement, dated as of December
11, 1997, by and among Sealy Mattress
Company, the Guarantors named therein,
Goldman, Sachs & Co., J.P. Morgan
Securities Inc. and BT Alex. Brown
Incorporated.
10.3 Registration Rights Agreement, dated as
of December 18, 1997, by and among Sealy
Mattress Company, the Guarantors named
therein, Goldman, Sachs & Co., J.P.
Morgan Securities Inc. and BT Alex.
Brown Incorporated.
10.4 Credit Agreement, dated as of December
18, 1997, among Sealy Mattress Company,
the Guarantors named therein, Goldman
Sachs Credit Partners L.P., as arranger
and syndication agent, Morgan Guaranty
Trust Company of New York, as
administrative agent, Bankers Trust
Company, as documentation agent, and the
other institutions named therein.
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10.5 AXEL Credit Agreement, dated as of
December 18, 1997, among Sealy Mattress
Company, the Guarantors named therein,
Goldman Sachs Credit Partners L.P., as
arranger and syndication agent, Morgan
Guaranty Trust Company of New York, as
administrative agent, Bankers Trust
Company, as documentation agent, and the
other institutions named therein.
10.6 Amended and Restated Employment
Agreement, dated as of August 1, 1997,
by and between Sealy Corporation and
Ronald L. Jones.
10.7 Employment Agreement, dated as of August
25, 1997, by and between Sealy
Corporation and Bruce G. Barman.
10.8 Employment Agreement, dated as of August
12, 1997, by and between Sealy
Corporation and Jeffrey C. Claypool.
10.9 Employment agreement, dated as of July
30, 1997, by and between Sealy
Corporation and Gary T. Fazio.
10.10 Employment Agreement, dated as of August
25, 1997, by and between Sealy
Corporation and Douglas E. Fellmy.
10.11 Employment Agreement, dated as of August
28, 1997, by and between Sealy
Corporation and David J. McIlquham.
10.12 Employment Agreement, dated as of August
1, 1997, by and between Sealy
Corporation and Lawrence J. Rogers.
10.13 Change of Control Agreement, dated as of
September 3, 1997 by and between Sealy
Corporation and John G. Bartik.
10.14 Change of Control Agreement, dated as of
August 4, 1997, by and between Sealy
Corporation and James F. Goughenour.
10.15 Change of Control Agreement, dated as of
August 27, by and between Sealy
Corporation and Richard F. Sowerby.
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10.16 Change of Control Agreement, dated as of
August 1, 1997, by and between Sealy
Corporation and Ronald H. Stolle.
10.17 Change of Control Agreement, dated as of
August 11, 1997, by and between Sealy
Corporation and Kenneth L. Walker.
10.18 Amendment to Amended and Restated
Employment Agreement and Termination of
Stockholders Agreement, dated as of
December 17, 1997, between Ronald L.
Jones and the Registrant.
10.19 Amendment to Employment Agreements,
dated as of December 17, 1997, between
the employees named therein and the
Registrant.
10.20 Form of Amendment to Change of Control
Agreements, dated as of December 17,
1997.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SEALY CORPORATION
By: /s/ Kenneth L. Walker
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Kenneth L. Walker
Vice President - General
Counsel
Date: December 30, 1997
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EXHIBIT INDEX
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2.1 Agreement and Plan of Merger, dated as of October 30, 1997, by and among
the Registrant, Sandman Merger Corporation and Zell/Chilmark Fund, L.P.
2.2 First Amendment to the Agreement and Plan of Merger, dated as of December
18, 1997, by and among the Registrant, Sandman Merger Corporation and
Zell/Chilmark Fund, L.P.
4.1 Indenture, dated as of December 18, 1997, by and among Sealy Mattress
Company, the Guarantors named therein and The Bank of New York,
describing the Series A and Series B 9-7/8% Senior Subordinated Notes due
2007
4.2 Indenture, dated as of December 18, 1997, by and among Sealy Mattress
Company, the Guarantors named therein and The Bank of New York,
describing the Series A and Series B 10-7/8% Senior Subordinated Discount
Notes due 2007
4.3 Second Supplemental Indenture, dated as of December 5, 1997, by and
between the Registrant and The Bank of New York
10.1 Dealer Manager Agreement, dated as of November 18, 1997, among Sandman
Merger Corporation, the Registrant and Goldman, Sachs & Co.
10.2 Purchase Agreement, dated as of December 11, 1997, by and among Sealy
Mattress Company, the Guarantors named therein, Goldman, Sachs & Co.,
J.P. Morgan Securities Inc. and BT Alex. Brown Incorporated
10.3 Registration Rights Agreement, dated as of December 18, 1997, by and
among Sealy Mattress Company, the Guarantors named therein, Goldman,
Sachs & Co., J.P. Morgan Securities Inc. and BT Alex. Brown Incorporated
10.4 Credit Agreement
10.5 AXEL Credit Agreement
10.6 [Change of Control Agreement]