Exhibit 10.31

 

EXECUTIVE AGREEMENT

 

Parties

 

THIS EXECUTIVE AGREEMENT (the “Agreement”) is made as of April 10, 2002 between
Sealy Corporation, a Delaware corporation (the “Company”) and Ronald L. Jones
(the “Executive”). Certain capitalized terms used in this Agreement have the
meanings set forth in Section 1 or elsewhere herein.

 

Agreement

 

1.    Definitions.    In addition to the terms defined elsewhere in this
Agreement, as used in this Agreement the following terms have the following
meanings.

 

1.1.  The term “Affiliate” means any Person directly or indirectly controlling,
controlled by or under common control with, the Company.

 

1.2.  The term “Cause” means:

 

  (a)   commission by the Executive (evidenced by a conviction or written,
voluntary and freely given confession) of a criminal act constituting a felony;

 

  (b)   commission by the Executive of a material breach or material default of
any of the Executive’s agreements or obligations under any provision of this
Agreement, including, without limitation, the Executive’s agreements and
obligations under Section 3.2 and Sections 6.1 through 6.3 of this Agreement,
which is not cured in all material respects within 30 days after the Board of
Directors of the Company gives written notice thereof to the Executive; or

 

  (c)   commission by the Executive, when carrying out the Executive’s duties
under this Agreement, of acts or the omission of any act, which both: (i)
constitutes gross negligence or willful misconduct and (ii) results in material
economic harm to the Company or has a materially adverse effect on the Company’s
operations, properties or business relationships.

 

1.3.  The term “Confidential Information” means all information of the Company
or the Company’s subsidiaries that is not generally available to and known by
the public. Confidential Information excludes all information that becomes
generally available to and known by the public other than as a result of a
breach by the Executive of his obligations under Section 6.3.

 

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1.4.    The term “Effective Time” means seven days after the Executive has
executed and delivered to the Company a counterpart of the Release of Claims in
the form attached as Exhibit A, if the Executive has not revoked such Executive
Release of Claims as provided therein.

 

1.5.    The term “Good Reason” means the occurrence of (i) any reduction in the
salary of the Executive payable hereunder, (ii) any change in the title of the
Executive after the date hereof except as provided in Section 3.1, (iii) any
material adverse change or reduction in the aggregate “Minimum Benefits,” as
hereinafter defined, provided to the Executive as of the Continuation Date
(provided that any material reduction in such aggregate Minimum Benefits that is
required by law, or is because the Executive does not meet the eligibility
requirements for any Plan as interpreted and administered in good faith by the
Plan administrator and the Company, or applies generally to all employees of the
Company shall not constitute “Good Reason” as defined herein), (iv) any
relocation of the Executive’s principal place of work with the Company to a
place more than 25 miles from the geographical center of Greensboro, North
Carolina, or (v) the material breach or material default by the Company of any
of its agreements or obligations under any provision of this Agreement. As used
in this Section 1.5, a “material adverse change or reduction” in the aggregate
Minimum Benefits shall be deemed to result from any reduction or any series of
reductions (other than reductions of the type described in the proviso to clause
(iii) above) which, in the aggregate, exceeds five percent (5%) of the value of
such aggregate Minimum Benefits determined as of the Continuation Date. As used
in this Section 1.5, “Minimum Benefits” are life insurance, accidental death,
long term disability, short term disability, medical, dental, and vision
benefits and the Company’s expense reimbursement policy. The Executive shall
give written notice to the Company on or before the date of termination of
employment for Good Reason stating that the Executive is terminating employment
with the Company and specifying in detail the reasons for such termination. If
the Company does not object to such notice by notifying the Executive in writing
within five days following the date of the Company’s receipt of the Executive’s
notice of termination, the Company shall be deemed to have agreed that such
termination was for Good Reason.

 

1.6.    The term “Hire” means to engage the services of a Sealy Employee,
whether as an employee, consultant, independent contractor or otherwise, or to
become partners or co-venturers or enter into a similar relationship with any
Sealy Employee.

 

1.7.    The term “Lump Sum Severance Payment” means a lump sum payment in the
amount equal to $3,223,560 minus the sum of (i) the aggregate amount of Salary
Payments and severance payments previously paid to the Executive (calculated
without giving effect to any reduction provided for in the proviso to the first
sentence of Section 4.1) or then payable to the Executive pursuant to Sections
4.1(a)(i) or 4.1(b)(i), and (ii) an amount equal to interest at the rate of 6%
per annum on the remaining Salary Payments that would otherwise be made through
March 31, 2007, such interest to be calculated on each such payment from the
date of termination of the Executive’s employment to the date on which the
payment in question would otherwise be made.

 

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1.8.    The term “Person” means any person, business, corporation, partnership,
joint venture, limited liability company, unincorporated association, trust or
other enterprise or entity.

 

1.9.    The term “Continuation Date” means March 31, 2002.

 

2.    Termination of Employment Agreement.    In accordance with Section 15 of
the Amended and Restated Employment Agreement, dated as of August 1, 1997, by
and between the Company and the Executive (the “Employment Agreement”), the
Employment Agreement is hereby terminated effective as of the Continuation Date.
From and after the Continuation Date, neither party to the Employment Agreement
shall have any obligation thereunder.

 

3.    Employment Relationship.

 

3.1.    Title.    Effective as of the Continuation Date, the Executive shall
continue to serve as Chairman of the Board of Directors of the Company (the
“Board”) or, at the election of the Board, as Vice Chairman of the Board until
the earliest of (a) March 31, 2007, (b) the Executive’s resignation from the
position of Chairman or Vice Chairman, as the case may be, (c) the date the
Executive ceases to be an employee of the Company, and (d) the occurrence of a
Change of Control; provided, however, that the Board shall not elect that the
Executive serve as Vice Chairman prior to March 31, 2004 unless it makes a good
faith determination that such election would facilitate attraction or retention
of a senior officer of the Company or otherwise be in the best interests of the
Company. Also, effective as of the Continuation Date, the Executive hereby
resigns all other positions and offices he currently occupies with the Company
and its subsidiaries, including without limitation as Chief Executive Officer of
the Company and as a director and officer of each of the Company’s subsidiaries,
except as a director and employee of the Company. The term “Change of Control”
shall have the meaning ascribed to such term in the Employment Agreement as
originally in effect, without giving effect to the amendment thereto dated
December 17, 1997 or the termination of the Employment Agreement as provided for
herein; provided, however, that whenever the term “Zell/Chilmark Fund, L.P.”
appears in such definition, such term shall be replaced in such definition with
the phrase “Bain Capital Fund V, L.P., Bain Capital Fund V-B, L.P., BCIP
Associates, BCIP Trust Associates, L.P., Sealy Investors 1, LLC, Sealy Investors
2, LLC, Sealy Investors 3, LLC and Harvard Private Capital Holdings, Inc.”

 

3.2.    Continued Employment.

 

  (a)   From and after the Continuation Date, through and including March 31,
2007, the Company shall employ the Executive, and the Executive shall serve the
Company, as provided herein. The Executive shall have those duties and
responsibilities as may be assigned to the Executive from time to time by the
Chief Executive Officer or the Board, shall adhere to such reasonable written
policies and directives, and such reasonable unwritten policies and directives
as are of common knowledge to executive officers of the Company, as may be
promulgated from time to time by the Board

 

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      and which are applicable to executive officers of the Company, shall
invest in the Company only in accordance with any insider trading policy of the
Company in effect at the time of the investment, and shall neither directly nor
indirectly act as an employee of, or render any business, commercial or
professional services to, any other Person, for compensation, without the prior
written approval of the Board; provided, however, that nothing in this Agreement
shall preclude the Executive from devoting time to charitable and community
activities or management of the Executive’s assets, or from serving on the
boards of directors of up to two non-competing companies. The Executive will
have no power or authority to act for or commit the Company or any of its
subsidiaries except as specifically authorized by the Chief Executive Officer or
the Board.

 

  (b)   Notwithstanding the foregoing, (i) the Company may terminate the
Executive’s employment hereunder effective upon thirty (30) days written notice
of such termination to the Executive, and the Executive may terminate his
employment hereunder effective upon thirty (30) days written notice of such
termination to the Company, in each case at any time and for any reason, with or
without cause, (ii) the Company may terminate the Executive’s employment
hereunder for Cause, and (iii) the Executive may terminate his employment
hereunder for Good Reason. In the event of the Executive’s death prior to March
31, 2007, the Executive’s employment with the Company shall immediately and
automatically terminate. If the Executive’s employment terminates prior to March
31, 2007, the Executive agrees to make himself available to the Company upon
reasonable notice during normal business hours to provide advice and consulting
services without further compensation up to a maximum of one day per month until
the earlier of (i) six months from the date of termination, and (ii) March 31,
2007.

 

4.    Continuation Salary; Deferred Compensation; Executive Stock Options; Etc.

 

4.1.    Continuation Salary.    Subject to Section 6.5., the Company will pay
the Executive a salary through March 31, 2007 at the rate of $53,726 per month
(the “Salary Payments”) for a total of $3,223,560; provided, however, that the
Company shall reduce the Salary Payments by the amount contributed on behalf of
the Executive to the Company’s Profit Sharing Plan and Trust and the Company’s
Benefits Equalization Plan after the Continuation Date. In the event that the
Executive ceases to be employed by the Company for any reason pursuant to
Section 3.2(b), then the Company shall discontinue making Salary Payments to the
Executive and, subject to Section 6.5:

 

  (a)   if the Executive ceases to be employed by the Company prior to March 31,
2007 because the Company has terminated the Executive’s employment other than
for Cause or because the Executive has terminated his employment for Good
Reason, the Company shall (i) pay the Salary

 

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      Payments accrued to the date of termination but not yet paid, (ii) pay the
Executive the Lump Sum Severance Payment, (iii) continue to pay the Executive
the automobile and personal financial planning allowances set forth in Section
5.2 for two years from the date of termination, (iv) pay for executive
outplacement services for the Executive for a one year period commencing on the
date of termination of employment from a nationally recognized executive
outplacement firm at the level provided for the most senior executives, and (v)
to the extent permitted under the Plans, continue to provide the benefits under
the Plans contemplated by Section 5.1 for the two year period following the date
of termination of employment. If at any time during such two year period
continued participation under any Plan is not permitted, the Company will
promptly upon written request by the Executive reimburse the Executive for the
greater of (i) in the case of Plans for which continuation coverage is available
under COBRA, the premiums or other costs paid by the Executive to continue any
such benefits for himself and his eligible dependents pursuant to COBRA or (ii)
the costs incurred by the Executive to purchase whatever benefits he selects for
himself and his eligible dependents in lieu of participation in such Plan in an
amount not to exceed 125% of the out-of-pocket expense that would otherwise have
been incurred by the Company to include the Executive and his eligible
dependents in such Plan, computed at an annual rate equal to the annual cost
(the “Married Employee Rate”) of including married employees with dependents in
such Plan from time to time;

 

  (b)   if the Executive ceases to be employed by the Company prior to March 31,
2007 because he has died, the Company shall pay to the Executive’s designated
beneficiary or, if no beneficiary has been designated by the Executive, to his
estate, (i) the Salary Payments accrued to the date of termination but not yet
paid and (ii) the Lump Sum Severance Payment;

 

  (c)   if the Executive ceases to be employed by the Company prior to March 31,
2007 because the Company has terminated his employment due to disability (within
the meaning of any Plan providing for disability payments), the Salary Payments
shall be continued through March 31, 2007, except that each Salary Payment shall
be reduced by any such disability payments actually received by the Executive
under the Plan (multiplied by 1.66 to the extent nontaxable to the Executive)
during the time period in question; and

 

  (d)   if the Executive ceases to be employed by the Company prior to March 31,
2007 because the Company has terminated his employment for Cause or because the
Executive terminates his employment other than for Good Reason, the Executive
shall not be entitled to further compensation or benefits under this Section 4.1
or Section 5 following the date of such termination other than payment of Salary
Payments (reduced as described

 

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      in the first sentence of this Section 4.1) accrued to the date of
termination but not yet paid.

 

All payments pursuant to this Section 4.1 (except the Lump Sum Severance
Payment) will be paid semi-monthly in accordance with the Company’s normal
payroll practices, and all payments under this Agreement will be reduced by all
amounts customarily withheld in accordance with such practices, including all
tax or other amounts required to be withheld under applicable law. Except as
expressly and specifically otherwise provided in this Agreement, the Company
shall have no payment or other obligations to the Executive, including without
limitation under the Company’s Annual Bonus Plan.

 

In the event of any termination of the Executive’s employment hereunder, the
Executive shall be under no obligation to seek other employment. Amounts due to
the Executive hereunder shall not be offset by any remuneration attributable to
any subsequent employment he may obtain.

 

4.2.    Deferred Compensation.    Upon the written request of the Executive but
not earlier than July 1, 2002, the Company shall pay to the Executive as accrued
deferred compensation $1,114,537.50 (the “Deferred Compensation”). Such payment
shall be in complete satisfaction of all deferred compensation amounts owing by
the Company or any of its Affiliates to the Executive. Notwithstanding anything
to the contrary in this Agreement, the Company’s obligation to pay the Deferred
Compensation upon the written request of the Executive on or after July 1, 2002
shall be absolute and unconditional, and the Company’s failure to promptly pay
the Deferred Compensation upon the written request of the Executive on or after
July 1, 2002 shall constitute Good Reason for the Executive to terminate his
employment hereunder.

 

4.3.    Executive Stock Options.    All options of the Executive entitling him
to purchase equity securities of the Company, regardless of the original terms
thereof and regardless of the plan or other agreement pursuant to which they
were issued, are hereby cancelled and will no longer be exercisable; provided,
however, that the Executive shall retain options (the “Options”) to purchase (i)
150,000 shares of the Company’s Class A common stock, $0.01 par value per share
(the “Class A Common”), at the exercise price of $0.50 per share and (ii)
234,000 shares of Class A Common at the exercise price of $4.18 per share, minus
in each case any Options exercised by the Executive on or after April 1, 2002,
subject to the terms and conditions of the Sealy Corporation Agreement
Evidencing a Grant of a Nonqualified Stock Option Under 1998 Stock Option Plan,
dated as of March 18, 1998, between the Company and the Executive (the “1998
Option Agreement”) and of the Sealy Corporation 1998 Stock Option Plan (the
“1998 Stock Option Plan”); and provided further that the Executive may exercise
the Options, at any time on or before March 31, 2007, at which time the Options
will expire and no longer be exercisable, unless the Executive’s employment with
the Company is terminated by the Company for Cause or by the Executive other
than for Good Reason in which case the Executive may exercise the Options at any
time on or before the sixtieth day after the date of such termination (but not
later than March 31, 2007), at which time the Options

 

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will expire and no longer be exercisable. The Executive shall surrender all
certificates or other instruments evidencing options to the Company for
reissuance of new certificates or other instruments evidencing the terms of the
Options provided for above.

 

4.4.    Right to Call Executive Stock.    The Company shall not exercise any
rights to repurchase stock or options in the Company held by the Executive (the
“Repurchase Options”), including without limitation its rights pursuant to the
1998 Option Agreement and Sealy Corporation Executive Stock Agreement, dated as
of March 31, 1999, between the Company and the Executive (the “1999 Stock
Agreement”) to repurchase the Issued Stock (as such term is defined in the 1998
Option Agreement) and the Executive Stock (as such term is defined in the 1999
Stock Agreement) of the Executive, and the Executive Stock and Option Agreement
dated as of December 18, 1997 (the “1997 Stock Agreement”), in each case until
after the Trigger Date. For all purposes of the Repurchase Options, the
Termination Date (as such term is defined in the 1998 Option Agreement, in the
1997 Stock Agreement, and in the 1999 Stock Agreement) will be deemed to be the
Trigger Date, so that the commencement of the period during which the Repurchase
Options are exercisable shall be deferred until the Trigger Date. The term
“Trigger Date” means the earliest of (a) March 31, 2007, (b) the date on which
the Executive voluntarily terminates his employment with the Company other than
for Good Reason or (c) the date on which the Company terminates the Executive’s
employment with the Company for Cause.

 

4.5.    Right to Put Class L Common Stock.    The Executive shall have the right
(the “Put Right”) to require the Company to purchase all (but not less than all)
of the 104,444 shares of Class L common stock of the Company (the “Class L
Common”) currently owned by the Executive that are held by the Executive at the
time of exercise of the Put Right. The Executive may exercise the Put Right in
whole by written notice (the “Put Notice”) to the Company at any time after June
30, 2003. The Class L Common purchased pursuant to the Put Right shall be
purchased by the Company at a price per share (the “Repurchase Share Price”)
equal to (a) the fair market value per share of such Class L Common as of the
date that the Executive delivers the Put Notice to the Company as determined by
the Board in good faith, provided that in no event shall the Repurchase Share
Price of such Class L Common be less than $46.60 per share or greater than
$64.14 per share, minus (b) the amount of any distributions by the Company with
respect to the Class L Common after the date of the Put Notice and before the
Company acquires such Class L Common.

 

If within two years of the date on which the Executive delivers the Put Notice
to the Company, there occurs (i) an underwritten initial public offering (a
“Public Offering”) of the shares of Common Stock of the Company pursuant to an
effective Registration Statement in which selling stockholders of the Company
receive cash or (ii) the Company becomes party to any merger, consolidation or
similar corporate action involving the sale of all or substantially all of the
assets of the Company and its subsidiaries, or the Company sells all or
substantially all of the assets of the Company and its subsidiaries (the events
described in this clause (ii) being referred to collectively as a “Sale”), and
in connection therewith the stockholders of the Company receive cash

 

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in exchange for their shares, then (x) the Repurchase Share Price shall be
adjusted to equal, if higher, the net proceeds per share to selling stockholders
in the Public Offering, after deduction of underwriting discounts and expenses,
or the net proceeds per share to stockholders in the Sale, provided that in no
event shall the Repurchase Share Price be greater than $64.14, and (y) the
Company shall pay the Executive the excess, if any, of such adjusted Repurchase
Share Price over the Repurchase Share Price paid in connection with initial
exercise of the Put Right. Once a payment in full has been made pursuant to this
paragraph, this paragraph shall thereafter terminate and be null and void. The
term “Registration Statement” means a registration statement filed by the
Company with the Securities and Exchange Commission for a public offering and
sale of securities of the Company (other than a registration statement on Form
S-8 or Form S-4, or their successors, or any other form for a similar limited
purpose, or any registration statement covering only securities proposed to be
issued in exchange for securities or assets of another corporation). All per
share amounts referred to in this Section 4.5 shall be appropriately adjusted
for stock splits, reverse stock splits, stock dividends, conversion of Class L
Common into Class A Common and the like.

 

The closing of the transactions contemplated by this Section 4.5 will take place
on a date designated by the Company, which date will be not more than 60 days
after the later of (a) the date of delivery of the Put Notice, and (b) the
earliest date that the Company is permitted to pay for the Class L Common
pursuant to Delaware General Corporation Law and any senior debt financing
agreements to which the Company or any of its subsidiaries is subject. If any
such restrictions prohibit the repurchase of some or all of the Class L Common,
the Company shall (i) pay the Executive as much of the repurchase amount as
permitted under such restrictions, (ii) pay the Executive interest on a monthly
basis on the balance of the repurchase amount at the prevailing “prime rate”
published from time to time in the Wall Street Journal, and (iii) make or
complete such repurchase as soon as it is permitted under such restrictions. The
Company’s obligations to pay the Executive pursuant to this Section 4.5 will be
subordinate to the Company’s “Senior Debt” (as defined in the 1999 Stock
Agreement) but not subordinate to any other creditor of the Company. The
Executive will make customary representations and warranties regarding the sale,
including but not limited to a representation that he has good and marketable
title to the Class L Common to be transferred free and clear of all liens,
claims and other encumbrances. The provisions of this Section 4.5 will terminate
at the time of a Public Offering or Sale.

 

Except as specifically provided in this Section 4.5, and except as expressly
provided in the 1999 Stock Agreement with respect to the 101,036.4120 shares of
Class A Common and 11,226.2680 shares of Class L Common currently owned by the
Executive (which provisions of the 1999 Stock Agreement with respect to such
Class A Common and Class L Common shall survive and shall not be affected by
this Agreement), neither the Executive nor any Person acquiring stock from the
Executive shall have any right to require the Company or any Affiliate to
purchase or repurchase any shares of stock or options now or hereafter owned by
the Executive or any such Person. The Executive agrees that neither he nor any
such Person shall exercise any such

 

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right, and any portion of any plan or agreement providing for any such right is
hereby terminated and shall hereafter be null and void.

 

In the event of any dispute over any Fair Market Value determination, such
dispute will be resolved by and through an arbitration proceeding to be
conducted under the auspices of the American Arbitration Association (or any
like organization successor thereto) at Greensboro, North Carolina. Such
arbitration proceeding will be conducted in as expedited a manner as is then
permitted by the commercial arbitration rules (formal or informal) of the
American Arbitration Association, and the arbitrator or arbitrators in any such
arbitration will be individuals who are expert in the subject matter of the
dispute. The arbitration will be conducted before a panel of arbitrators
selected in accordance with the rules of the American Arbitration Association.
The costs of such arbitrators and the arbitration will be borne equally by the
parties to the arbitration. Both the foregoing provisions to arbitrate any and
all such disputes, and the results, determination, finding, judgment and/or
award rendered through such arbitration, will be final and binding on all
applicable parties and may be specifically enforced by legal proceedings.

 

5.    Health and Other Benefits.

 

5.1.    Medical, Life Insurance, and Other Benefits.    Except as otherwise
provided in Section 4.1, to the extent permitted by the benefit plans of the
Company (collectively, the “Plans” and individually a “Plan”) as interpreted and
administered in good faith by the Plan administrator and the Company, the
Executive will continue to participate in all current Plans and will participate
in all future Plans that the Company may adopt from time to time, and in which
the Company’s executive officers, or employees in general, are eligible to
participate, but not including the Executive Severance Benefit Plan, the
Company’s Annual Bonus Plan, any other bonus plan, or any stock, option or other
equity benefit plan, until the earlier of (i) March 31, 2007 and (ii) such time
as the Executive becomes eligible for comparable coverage under the applicable
plan(s) of another employer. The Company will not preclude the Executive, while
he is an employee of the Company, from working, if he desires, the minimum
number of hours, if any, required for continued eligibility under the Plans, or
to the extent consistent with the terms of this Agreement from fulfilling any
other of the Plans’ requirements for continued eligibility. To the extent
benefits under any Plan are provided by insurance (and not self-insured by the
Company), the Executive and his beneficiaries shall have no right to payment
under such Plan, this Agreement or otherwise, except to the extent of payments
actually made by the insurer with respect to the Executive or his eligible
dependents.

 

5.2.     Automobile and Financial Planning.    Except as otherwise provided in
Section 4.1, the Executive will continue to receive from the Company the
automobile allowance at the rate of $7,500 per year and personal financial
planning allowance at the rate of $5,000 per year provided to the Executive
immediately prior to the Continuation Date, both of which shall be provided
through March 31, 2007.

 

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5.3.    Vacation.

 

  (a)   Promptly after the Effective Time, the Company shall pay the Executive
$13,654 in payment of Executive’s accrued vacation through March 31, 2002.

 

  (b)   The Executive will be entitled during each one-year period he is
employed by the Company, commencing on April 1, 2002, to take vacation time
equal to the greater of (i) four weeks and (ii) the amount of vacation time to
which the Executive is entitled under the Company’s vacation policy applicable
to its executive officers. Notwithstanding the foregoing or anything to the
contrary contained in this Agreement or any of the Company’s policies, in no
event shall the Executive be entitled to any payment in respect of accrued but
unused vacation from and after April 1, 2002.

 

6.    Non-Solicitation/Non-Hire; Non-Competition; Confidentiality.

 

6.1.    Non-Solicitation/Non-Hire.    The Executive agrees that while he is
employed by the Company and until the one year anniversary of the date on which
he ceases to be employed by the Company (or if the Executive terminates his
employment with the Company other than for Good Reason, until March 31, 2007)
(a) he will not Hire or solicit or attempt to Hire any person employed by the
Company or any of its subsidiaries on January 1, 2002 or at any time thereafter
(a “Sealy Employee”), whether or not such person would commit any breach of his
or her contract of service in leaving such employment, until such person’s
employment with the Company has ceased for at least twelve (12) months, and (b)
he will not directly or indirectly encourage or assist any other Person to Hire
or solicit or attempt to Hire any Sealy Employee or seek to persuade any Sealy
Employee to discontinue his or her employment with the Company. For purposes of
clause (b) of the preceding sentence, the term “solicit” shall not include
placing general advertisements not targeting specific individuals, whether in
newspapers, over the internet or in other media of general circulation.

 

6.2.    Non-Competition.    The Executive agrees that while he is employed by
the Company and until the one year anniversary of the date on which he ceases to
be employed by the Company (or if the Executive terminates his employment with
the Company other than for Good Reason, until March 31, 2007) the Executive
shall not act as a proprietor, investor, director, officer, employee,
substantial stockholder, consultant, or partner in any business engaged to a
material extent in the manufacture or sale of (a) mattresses or other bedding
products or (b) any other products which constitute more than ten percent (10%)
of the Company’s revenues at the time in competition with the Company in any
market. The Executive understands that the foregoing restrictions may limit the
Executive’s ability to engage in certain business pursuits during the period
provided for above, but acknowledges that the Executive will receive
remuneration and other benefits from the Company under this Agreement sufficient
to justify such restriction. The Executive acknowledges that the Executive
understands the effect of the

 

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provisions of this Section 6.2, and that the Executive has had reasonable time
to consider the effect of these provisions, and that the Executive was
encouraged to and had an opportunity to consult an attorney with respect to
theses provisions. The Company and the Executive consider the restrictions
contained in this Section 6.2 to be reasonable and necessary.

 

6.3.    Confidentiality.    The Executive agrees that he will not, directly or
indirectly, use or disclose any Confidential Information except as may be
required for the proper performance of the Executive’s duties to the Company. In
the event that the Executive becomes legally compelled (by deposition,
interrogatory, request for documents, subpoena, civil investigative demand or
similar process) to disclose any of the Confidential Information, the Executive
will use his reasonable efforts to provide the Company with prompt prior written
notice of such requirement so that the Company may seek a protective order or
other appropriate remedy and/or waive compliance with the terms of this Section
6.3. In the event that such protective order or other remedy is not obtained, or
that the Company waives compliance with the provisions hereof, the Executive
agrees that only that portion of the Confidential Information which the
Executive is advised by his counsel is legally required to be furnished shall be
furnished, and that he will exercise his reasonable efforts at the Company’s
expense to obtain assurances that confidential treatment will be accorded such
Confidential Information.

 

6.4.    Release.    The Executive shall execute and deliver to the Company a
counterpart of the Release of Claims in the form attached as Exhibit A.

 

6.5.    Breach of Executive’s Obligations.    Notwithstanding anything contained
in this Agreement to the contrary, if the Executive breaches any of the
Executive’s obligations under Section 6 hereof, then no further benefits or
other amounts will be owed or payable to the Executive under Sections 4 (other
than Section 4.2), 5 or 7 hereof.

 

6.6.    Enforceability; Injunction.    If any aspect of the restrictions
contained in this Section 6 is found to be unreasonable or otherwise
unenforceable by a court of competent jurisdiction, the parties intend for such
restrictions to be modified by such court so as to be reasonable and enforceable
and, as so modified by the court, to be fully enforced. In the event of a breach
or threatened breach of any provision of this Section 6 by the Executive, the
Company will be entitled to preliminary and permanent injunctive relief, without
bond or security, sufficient to enforce the provisions hereof and the Company
will be entitled to pursue such other remedies at law or in equity which it
deems appropriate.

 

7.    Special Bonus.    If the Company determines to treat its repurchase of
891,630 Class A Common Shares (the “Shares”) in January 2001 (the “Repurchase”)
as a compensatory transfer of property to the Executive for federal income tax
purposes under Section 83 of the Internal Revenue Code (in lieu of treating the
original issuance of such Shares pursuant to the Executive’s exercise of his
call option in October 1998 as a compensatory event under Section 83) with the
result being that the Executive is deemed to have received ordinary compensation
income in 2001 as a result of the Repurchase instead of recognizing long-term

 

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capital gain, the Company will pay the Executive a gross-up bonus sufficient to
cause the after-tax amount received by the Executive to be the same as if the
Repurchase were not treated as a compensatory event but instead were treated as
a sale of a capital asset with a long-term holding period to the Company in
January 2001. In determining the amount of the gross-up bonus, the Company shall
determine the tax effect on the Executive of treating the Repurchase as a
compensatory event by (a) taking into account both federal and applicable state
and local income taxes imposed on the compensation income attributable to the
Repurchase and on the gross-up bonus itself, (b) assuming the maximum combined
marginal individual tax rates, (c) disregarding any other tax attributes of the
Executive (other than the deductibility of state and local income taxes for
federal income tax purposes) and (d) assuming the Executive’s basis in the
Shares was fair market value (as used by the parties in determining the 1998 tax
consequences of the option exercise) as of the date the Shares were acquired by
the Executive. In addition, the Company shall also include in the gross-up bonus
the amount of any payroll taxes and underpayment of estimated tax penalties
imposed on the Executive as a result of the additional compensation income he is
treated as receiving as a result of the Repurchase and the receipt of the
gross-up bonus. The Company shall pay the gross-up bonus to the Executive
promptly after any such determination to treat the Repurchase as a compensatory
event is made. The foregoing protections to the Executive shall apply equally to
any future repurchase of shares by the Company occasioned by the exercise of any
Put Right by the Executive pursuant to Section 4.5 herein.

 

8.    Certain Matters of Construction.    In addition to the definitions set
forth or referred to in this Agreement:

 

  (a)   The words “hereof”, “herein”, “hereunder” and words of similar import
shall refer to this Agreement as a whole and not to any particular Section or
provision of this Agreement, and reference to a particular Section of this
Agreement shall include all subsections thereof;

 

  (b)   Definitions shall be equally applicable to both the singular and plural
forms of the terms defined;

 

  (c)   The masculine, feminine and neuter genders shall each include the other,
as the context requires; and

 

  (d)   The headings in this Agreement are for convenience of reference only and
shall not alter or affect the meaning hereof.

 

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9.    Notices.    Any notices and other communications required or permitted in
this Agreement shall be effective if in writing and (a) delivered personally,
(b) sent by Federal Express or by certified mail, postage prepaid or (c) sent by
telecopy and confirmed by delivery by Federal Express or certified mail postage
prepaid, in each case, addressed as follows:

 

If to the Executive:

 

Mr. Ronald L. Jones

3102 Cabarrus Drive

Greensboro, NC 27407

Telecopy: 336-852-5863

 

with copies to:

 

King & Spalding

191 Peachtree Street

Atlanta, GA 30303

Attention: Michael Eric Ross

Telecopy: 404-572-5144

 

If to the Company:

 

General Counsel

Sealy Corporation

One Office Parkway

Trinity, NC 27370

Telecopy: 336-861-3786

 

with copies to:

 

Bain Capital Partners, LLC

111 Huntington Avenue

Boston, MA 02199

Attention: Mr. Steven W. Barnes

Telecopy: 617-516-2010

 

Ropes & Gray

One International Place

Boston, MA 02110

Attention: Ann L. Milner

Telecopy: 617-951-7050

 

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Unless otherwise specified herein, such notices or other communications shall be
deemed effective (a) on the date received, if personally delivered or sent by
telecopy, (b) one business day after being sent by Federal Express or (c) five
business days after being sent by certified mail. Each of the parties hereto
shall be entitled to specify a different address by giving notice as aforesaid.

 

10.    Amendments, Etc.

 

10.1.    This Agreement may be amended only with the written consent of each of
the parties hereto.

 

10.2.    No amendment, modification, supplement or waiver of or to any term or
provision of this Agreement or the subject matter hereof, nor any consent to any
departure therefrom, shall be effective unless the same is in writing,
specifically states that it is such an amendment, modification, supplement,
waiver or consent, and is signed by or on behalf of each of the parties (or in
the case of a waiver, by the party waiving such provision). No oral amendment,
modification, supplement, waiver or consent shall be effective for any purpose
whatsoever.

 

10.3.    The failure of any party to insist upon the strict performance of any
provision of this Agreement, or to exercise any right, power, privilege,
discretion or remedy contained in this Agreement, shall not be construed as a
modification, limitation, waiver or relinquishment thereof for the future. No
prior, current or subsequent practice or course of conduct by any party or any
of its Affiliates shall be construed as a modification, limitation, waiver or
relinquishment of any right, power, privilege, discretion or remedy contained in
this Agreement.

 

11.    Consent to Jurisdiction; Waiver of Jury Trial; Governing Law.

 

11.1.    Jurisdiction.    Each party by such party’s execution hereof hereby (i)
irrevocably submits to the jurisdiction of the state courts of the State of
North Carolina and to the jurisdiction of the United States District Court for
the District of North Carolina for the purpose of any suit, action or other
proceeding arising out of or based upon this Agreement or relating to the
Company or to the subject matter hereof, except as otherwise set forth in
Section 4.5(b), and (ii) waives to the extent not prohibited by applicable law,
and agrees not to assert by way of motion, as a defense or otherwise, in any
such proceeding, any claim that such party is not subject personally to the
jurisdiction of the above-named courts, that such party is immune from
extraterritorial injunctive relief or other injunctive relief that might be
awarded by one of the above-named courts, that such party’s property is exempt
or immune from attachment or execution by any of the above-named courts, that
any such proceeding may not be properly brought or maintained in one of the
above-named courts, that any such proceeding brought or maintained in the
above-named courts should be dismissed on grounds of forum non conveniens,
should be transferred to any court other than the above-named courts, or should
be stayed or enjoined by (or by reason of the pendency of some other proceeding
in) any court other than the above-named courts, or that this

 

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Agreement or the subject matter hereof may not be enforced in or by any of the
above-named courts. Provided that the proceeding in question has not been
brought or maintained in violation of the preceding sentence, and so long as
such proceeding is and remains pending before one of the above-named courts,
each party hereby consents to service of process in any such proceeding in any
manner permitted by North Carolina or federal law, agrees that service of
process by registered or certified mail, return receipt requested, either to
such agent or to such party at such party’s notice address determined pursuant
to this Agreement is reasonably calculated to give actual notice of any such
proceeding and constitutes sufficient service of process in any such proceeding,
and waives and agrees not to assert in any such proceeding (by way of motion, as
a defense or otherwise) any claim that service of process made in accordance
with this sentence does not constitute good and sufficient service of process.

 

11.2.    WAIVER OF JURY TRIAL.    TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW
WHICH CANNOT BE WAIVED, EACH PARTY HEREBY WAIVES, AND COVENANTS THAT SUCH PARTY
WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE), ANY RIGHT TO
TRIAL BY JURY IN ANY FORUM IN RESPECT OF ANY ISSUE, CLAIM, DEMAND, ACTION OR
CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT OR RELATING TO THE
COMPANY OR TO THE SUBJECT MATTER HEREOF, IN EACH CASE WHETHER NOW EXISTING OR
HEREAFTER ARISING AND WHETHER IN CONTRACT OR TORT OR OTHERWISE; PROVIDED,
HOWEVER, THAT THIS PARAGRAPH IS FOR THE BENEFIT OF PARTIES ONLY, AND MAY NOT BE
ASSERTED BY THIRD PARTIES.

 

11.3.    Governing Law.    This Agreement, together with any claim or defense
arising out of or based upon this Agreement or relating to the subject matter
hereof, shall in all respects be governed by, interpreted, and construed in
accordance with, and all rights and remedies hereunder shall be governed by, the
laws of the State of North Carolina (without regard to its conflict of law
provisions).

 

12.    Assignment.    This Agreement shall be binding on and inure to the
benefit of the executors, administrators, estates, heirs, legal and personal
representatives, successors and assigns of the parties, provided that no party
may assign his or its obligations hereunder and that the Executive may not
assign any of his rights hereunder, except that the Executive’s rights hereunder
(a) may by operation of the Executive’s will or another instrument taking effect
upon his death or the laws of descent be assigned without consideration to his
heirs and beneficiaries, and (b) may otherwise be assigned if approved by the
Company in its sole discretion.

 

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13.    Expenses.

 

  (a)   Each party will bear its own expenses in connection with the negotiation
and documentation of this Agreement and the transactions contemplated hereby,
including all disputes leading up to this Agreement; provided, however, that the
Company will, within 30 days of the Effective Time, reimburse reasonable
attorney fees and expenses incurred by the Executive in an amount not to exceed
$40,000.

 

  (b)   Except as to the costs of arbitrators and arbitration as otherwise
provided in Section 4.5 or, in the case of the Repurchase Options, except as to
the costs of arbitrators and arbitration as otherwise provided in the agreements
governing the Repurchase Options, the Company shall reimburse the Executive for
reasonable attorneys fees and expenses incurred by the Executive to enforce the
provisions of this Agreement, even if his claims are not successful, provided
they are not ultimately determined by the court to be frivolous; provided,
however, that the Company shall not be obligated to reimburse the Executive for
any such fees and expenses to the extent that they relate to any cause of action
or claim alleging that any provision of this Agreement is invalid or should not
be enforced in accordance with its express terms.

 

14.    Effectiveness/Release.    This Agreement shall become effective at the
Effective Time, but not before. If the Effective Time has not occurred within
eight days after this Agreement has been executed and delivered by the Executive
to the Company, this Agreement will be null and void and of no further force or
effect. At the Effective Time, if the Effective Time occurs, the Company will
immediately deliver to the Executive a Release of Claims in the form attached
hereto as Exhibit B dated as of the date the Executive’s Release of Claims is
signed by the Executive and delivered to the Company.

 

15.    Miscellaneous.    If any portion or provision of this Agreement shall to
any extent be declared illegal or unenforceable by a court of competent
jurisdiction, then the remainder of this Agreement, or the application of such
portion or provision in circumstances other than those as to which it is so
declared illegal or unenforceable, shall not be affected thereby except as
explicitly contemplated hereby, and each portion and provision of this Agreement
shall be valid and enforceable to the fullest extent permitted by law.

 

In the event any ambiguity or question of intent or interpretation arises under
this Agreement, this Agreement shall be construed as if drafted jointly by the
parties and no presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any of the provisions of
this Agreement.

 

This Agreement may be executed in multiple counterparts, each of which shall be
deemed an original, but all of which taken together shall constitute one
instrument.

 

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This Agreement (including the exhibits hereto, any closing documents executed in
connection herewith, and any other instruments contemplated hereby and the
provisions of the 1997 Stock Agreement, the 1998 Option Agreement, the 1998
Stock Option Plan, and the 1999 Stock Agreement expressly contemplated by
Section 4) constitutes the entire agreement among the parties and supersedes any
prior communications, agreements and understandings, written or oral, with
respect to the subject matter hereof. No agreement or representation, written or
oral, express or implied, has been made by any Person, or is being relied upon
by any party, which is not set forth expressly in this Agreement.

 

The Company warrants and represents to the Executive that its undersigned
representative is fully authorized by the Company to enter into this Agreement
on its behalf.

 

 

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Execution

 

Intending to be legally bound hereby, each of the undersigned has duly executed
and delivered this Agreement as of the date first above written.

 

SEALY CORPORATION

By:

 

/s/    Kenneth L. Walker

--------------------------------------------------------------------------------

   

Kenneth L. Walker

EXECUTIVE

/s/    Ronald L. Jones

--------------------------------------------------------------------------------

Ronald L. Jones

 

 

 

 

 

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Exhibit A

 

RELEASE OF CLAIMS

 

FOR AND IN CONSIDERATION OF the benefits to be provided me as set forth in the
Executive Agreement between me and Sealy Corporation (the “Company”) dated as of
April 10, 2002 (the “Agreement”), which are subject to my signing of this
Release of Claims and to which I am not otherwise entitled, and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, I, on my own behalf and on behalf of my heirs, executives,
administrators, beneficiaries, representatives and assigns, and all others
connected with me, hereby release and forever discharge the Company, its
subsidiaries and other affiliates and all of their respective past, present and
future officers, directors, trustees, shareholders, employees, agents, general
and limited partners, members, managers, joint venturers, representatives,
successors and assigns, or any employee benefit plan maintained by the Company
or any of its subsidiaries or other affiliates and any and all trustees and plan
administrators of any such plans, and all others connected with any of the
foregoing, both individually and in their official capacities, from any and all
causes of action, rights and claims of any type or description, known or
unknown, which I have had in the past, now have, or might now have, through the
date of my signing of this Release of Claims, in any way resulting from, arising
out of or connected with my employment by the Company or any of its subsidiaries
or other affiliates, or its continuation on the terms, for the time period and
subject to the conditions of the Agreement, or pursuant to any federal, state or
local law, regulation or other requirement (including without limitation Title
VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act,
the Americans with Disabilities Act, and the fair employment practices laws of
the state or states in which I have been employed by the Company or any of its
subsidiaries or other affiliates, each as amended from time to time).

 

Excluded from the scope of this Release of Claims are (i) any claim arising
under the terms of the Agreement after my signing of this Release of Claim and
(ii) any right of indemnification or contribution that I have pursuant to the
certificate of incorporation or by-laws of the Company or any of its
subsidiaries or other affiliates, or any state law.

 

In signing this Release of Claims, I acknowledge that I have had at least
twenty-one (21) days to consider this Release of Claims. I also acknowledge that
I have sought the advice of an attorney prior to signing this Release of Claims,
and that I am signing this Release of Claims voluntarily and with a full
understanding of its terms.

 

I further acknowledge that, in signing this Release of Claims, I have not relied
on any promises or representations, express or implied, that are not set forth
expressly in the Agreement. I understand that I may revoke this Release of
Claims at any time within seven (7) days of the date of my signing by written
notice to the General Counsel of the Company and that this

 

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Release of Claims will take effect only upon the expiration of such seven-day
revocation period and only if I have not timely revoked it.

 

Intending to be legally bound, I have signed this Release of Claims as of the
date written below.

 

Signature:                                         
                               

 

Name (please print):               Ronald L. Jones            

 

Date Signed:                                                                   

 

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Exhibit B

 

RELEASE OF CLAIMS

 

FOR AND IN CONSIDERATION OF the benefits to be provided to the Sealy Corporation
(the “Company”) as set forth in the Executive Agreement between the Company and
Ronald L. Jones (the “Executive”) dated as of April 10, 2002 (the “Agreement”),
and for other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the Company, on its own behalf and on behalf of
its subsidiaries and other affiliates, and any employee benefit plan maintained
by the Company or any of its subsidiaries, and all of their respective
successors and assigns (collectively, the “Releasors”), hereby releases and
forever discharges the Executive and his heirs, executives, administrators,
beneficiaries, representatives and assigns (collectively, the “Releasees”), from
any and all causes of action, rights and claims of any type or description, that
are known as of the date hereof by Dave McIlquaham, President of the Company, by
Ken Walker, General Counsel of the Company, or by any of Steve Barnes, Josh
Bekenstein, Paul Edgerley or Andrew Janower, each of whom is a director of the
Company (or which should have been known as of the date hereof by any such
persons in light of documents and other communications actually received by them
and meetings actually attended by them, whether in person or telephonically, but
without having made any special or other inquiry), which the Company has had in
the past, now have, or might now have, through the date of its signing of this
Release of Claims, in any way resulting from, arising out of or connected with
the Executive’s employment by the Company or any of its subsidiaries or other
affiliates.

 

Excluded from the scope of this Release of Claims are (i) any claim arising
under the terms of the Agreement after the effective date of this Release of
Claim and (ii) any right to indemnification or contribution in favor of any
Releasor with respect to any cause of action, right or claim asserted against
such Releasor by any person who is not a Releasor.

 

This Release of Claims shall not be deemed to be given by or on behalf of
Releasor or entity who is also a Releasee.

 

Intending to be legally bound, the undersigned has executed this Release of
Claims as of the date written below.

 

        SEALY CORPORATION

 

        By:                                         
                                                          

 

        Name (please print):                                          
                       

 

        Title:                                         
                                                      

 

        Date Signed:                                            
                                   

 

 

 

 

 

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