Document:

Exhibit 4.5

FORM OF

MANAGEMENT STOCKHOLDER’S AGREEMENT

This Management
Stockholder’s Agreement (this “Agreement”) is entered into as of ______,
200_ (the “Effective Date”) between Sealy Corporation, a Delaware
corporation (the “Company”), and the undersigned person (the “Management
Stockholder”) (the Company and the Management Stockholder being hereinafter
collectively referred to as the “Parties”).  All capitalized terms not immediately defined are hereinafter
defined in Section 7(b) of this Agreement.

WHEREAS, on March 3, 2004,
Posturepedic Acquisition Corp., a Delaware corporation (“Newco”) and the
Company entered into an Agreement and Plan of Merger (the “Merger Agreement”).  As a result of the transactions contemplated
by the Merger Agreement, Sealy Holding LLC will hold approximately 92% of the
issued and outstanding shares of Class A common stock, par value $.01 per
share, of the Company (the “Common Stock”), as further specified in the
Merger Agreement (the “Merger”) (the date of such Merger, the “Closing
Date”);

WHEREAS, in connection with
the Merger, the Management Stockholder has entered into a Rollover Agreement
with the Company, such agreement dated as of the date hereof (the “Rollover
Agreement”), pursuant to which the Management Stockholder and the Company
agreed that certain options to acquire shares of Common Stock held by the
Management Stockholder and granted pursuant to the Sealy Corporation 1998 Stock
Option Plan (the “1998 Plan”), will be retained by the Management
Stockholder after the Merger (the “Rollover Option”);

WHEREAS, the Management
Stockholder has been selected by the Company to enter into the Rollover
Agreement and to retain the Rollover Option and the Management Stockholder may,
as of the date hereof, receive an option to purchase shares of Common Stock
(the “New Option”, together with the Rollover Option, the “Option”)
pursuant to the terms set forth below and the terms of the 2004 Stock Option
Plan for Key Employees of Sealy Corporation and Its Subsidiaries (the “Option
Plan”) and the Stock Option Agreement dated as of the date hereof, entered
into by and between the Company and the Management Stockholder (the “Stock
Option Agreement”);

WHEREAS, within five days of
the Merger, the Company shall effect a stock split resulting in a Base Price
(as defined below) of $5.00 per share, which $5.00 per share Base Price is
equivalent to the per share consideration payable to the Common Stock in the
Merger; and

WHEREAS, this Agreement is
one of several other agreements (“Other Management Stockholders’ Agreements”)
which have been, or which in the future will be, entered into between the
Company and other individuals who are or will be key employees of the Company
or one of its subsidiaries (collectively, the “Other Management Stockholders”).

NOW THEREFORE, to implement
the foregoing and in consideration of the grant of Options and of the mutual
agreements contained herein, the Parties agree as follows:

1.             Issuance of New Options; Rollover Options.

 

(a)           Subject to the terms and conditions hereinafter set forth
and as set forth in the Option Plan, as of the Effective Date the Company may
issue to the Management Stockholder a New Option to acquire shares of Common
Stock, at an exercise price equal to the per share price paid by Newco in the Merger
(the “Base Price”), and the Parties shall execute and deliver to each
other copies of the Stock Option Agreement concurrently with the issuance of
the New Option.

(b)           Pursuant to the terms of the Rollover Agreement, the
Rollover Option held by the Management Stockholder set forth on Schedule A
hereto shall remain issued and outstanding pursuant to the terms of the 1998
Plan, as modified as described in the Rollover Agreement.  The Management Stockholder hereby agrees to
retain the Rollover Option (which shall hereafter be subject to the terms and
conditions of this Agreement) and not to receive in connection with the Merger
the amount that would otherwise be payable to the Management Stockholder in
respect of such Rollover Option by operation of the provisions of Section
2.11(a) of the Merger Agreement.

(c)           The Company shall have no obligation to issue New Options
to, or enter into a Rollover Agreement with, any person who (i) is a resident
or citizen of a state or other jurisdiction in which the sale of the Common
Stock to him or her would constitute a violation of the securities or “blue
sky” laws of such jurisdiction or (ii) is not an employee of the Company or any
of its subsidiaries on the date hereof.

2.             Management Stockholder’s Representations, Warranties
and Agreements.

(a)           The Management Stockholder agrees and acknowledges that he
will not, directly or indirectly, offer, transfer, sell, assign, pledge,
hypothecate or otherwise dispose of (any of the foregoing acts being referred
to herein as a “transfer”), at the time of exercise, any shares of the
Common Stock issuable upon exercise of the Options (“Option Stock”;
together with any other Common Stock otherwise acquired and/or held by the
Management Stockholder Entities, “Stock”), except as otherwise provided
for herein.  If the Management
Stockholder is a Rule 405 Affiliate, the Management Stockholder also agrees and
acknowledges that he will not transfer any shares of the Stock unless:

(i)  the transfer is pursuant to an effective
registration statement under the Securities Act of 1933, as amended, and the
rules and regulations in effect thereunder (the “Act”), and in
compliance with applicable provisions of state securities laws or

(ii)  (A) counsel for the Management Stockholder
(which counsel shall be reasonably acceptable to the Company) shall have
furnished the Company with an opinion, satisfactory in form and substance to
the Company, that no such registration is required because of the availability
of an exemption from registration under the Act and (B) if the Management
Stockholder is a citizen or resident of any country other than the United
States, or the Management Stockholder desires to effect any transfer in any
such country, counsel for the Management Stockholder (which counsel shall be
reasonably satisfactory to the Company) shall have furnished the Company with
an opinion or other advice reasonably satisfactory in form and substance to the
Company to the effect that such transfer will comply with the securities laws
of such jurisdiction.

 

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Notwithstanding
the foregoing, the Company acknowledges and agrees that any of the following
transfers are deemed to be in compliance with the Act and this Agreement and no
opinion of counsel is required in connection therewith: (x) a transfer made
pursuant to Sections 3, 4, 5 or 6 hereof, (y) a transfer upon the death or
Permanent Disability of the Management Stockholder to the Management
Stockholder’s Estate or a transfer to the executors, administrators,
testamentary trustees, legatees or beneficiaries of a person who has become a
holder of Stock in accordance with the terms of this Agreement; provided
that it is expressly understood that any such transferee shall be bound by the
provisions of this Agreement, and (z) a transfer made after the Effective Date
in compliance with the federal securities laws to a Management Stockholder’s
Trust, provided that such transfer is made expressly subject to this Agreement
and that the transferee agrees in writing to be bound by the terms and
conditions hereof.

 

(b)           The certificate (or certificates) representing the Stock
shall bear the following legend:

“THE
SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED, SOLD, ASSIGNED,
PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS SUCH TRANSFER, SALE,
ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION COMPLIES WITH THE
PROVISIONS OF THE MANAGEMENT STOCKHOLDER’S AGREEMENT DATED AS OF _______, 200_
BETWEEN SEALY CORPORATION (THE “COMPANY”) AND THE MANAGEMENT STOCKHOLDER NAMED
ON THE FACE HEREOF (A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE
COMPANY).”

(c)            The Management Stockholder acknowledges that he has been
advised that (i) the shares of Common Stock underlying the Options have been
registered on Form S-8 under the Act, (ii) a restrictive legend in the form
heretofore set forth shall be placed on the certificates representing the Stock
and (iii) a notation shall be made in the appropriate records of the Company
indicating that the Stock is subject to restrictions on transfer and
appropriate stop transfer restrictions will be issued to the Company’s transfer
agent with respect to the Stock.  If the
Management Stockholder is a Rule 405 Affiliate, the Management Stockholder also
acknowledges that (1) the Stock must be held indefinitely and the Management
Stockholder must continue to bear the economic risk of the investment in the
Stock unless it is subsequently registered under the Act or an exemption from
such registration is available, (2) when and if shares of the Stock may be
disposed of without registration in reliance on Rule 144 of the rules and
regulations promulgated under the Act, such disposition can be made only in
limited amounts in accordance with the terms and conditions of such Rule and
(3) if the Rule 144 exemption is not available, public sale without
registration will require compliance with some other exemption under the Act.

(d)           If any shares of the Stock are to be disposed of in
accordance with Rule 144 under the Act or otherwise, the Management Stockholder
shall promptly notify the Company of such intended disposition and shall
deliver to the Company at or prior to the time of such disposition such
documentation as the Company may reasonably request in connection with such sale
and, in the case of a disposition pursuant to Rule 144, shall deliver 

 

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to the Company an executed copy of any notice on
Form 144 required to be filed with the SEC.

(e)            The Management Stockholder agrees that, if any shares of
the Stock are offered to the public pursuant to an effective registration
statement under the Act (other than registration of securities issued under an
employee plan), the Management Stockholder will not effect any public sale or distribution
of any shares of the Stock not covered by such registration statement from the
time of the receipt of a notice from the Company that the Company has filed or
imminently intends to file such registration statement to, or within 180 days
after, the effective date of such registration statement, unless otherwise
agreed to in writing by the Company.

(f)            The Management Stockholder represents and warrants that
(i) with respect to the Stock, he has received and reviewed the available
information relating to the Stock, including having received and reviewed the
documents comprising the Prospectus (the “Prospectus”) relating to the
Options and the documents referred to therein, certain of which documents set
forth the rights, preferences and restrictions relating to the Options and the
Stock underlying the Options and (ii) he has been given the opportunity to
obtain any additional information or documents and to ask questions and receive
answers about such information, the Company and the business and prospects of
the Company which he deems necessary to evaluate the merits and risks related
to his investment in the Stock and to verify the information contained in the
information received as indicated in this Section 2(f), and he has relied
solely on such information.

(g)           The Management Stockholder further represents and warrants
that (i) his financial condition is such that he can afford to bear the
economic risk of holding the Stock for an indefinite period of time and has
adequate means for providing for his current needs and personal contingencies,
(ii) he can afford to suffer a complete loss of his or her investment in the
Stock, (iii) he understands and has taken cognizance of all risk factors
related to the purchase of the Stock and (iv) his knowledge and experience in
financial and business matters are such that he is capable of evaluating the
merits and risks of his purchase of the Stock as contemplated by this
Agreement.

3.             Transferability of Stock.  The Management Stockholder agrees that he
will not transfer any shares of the Stock at any time during the period
commencing on the Effective Date and ending on the fifth anniversary of the
Effective Date; provided, however, that the Management
Stockholder may transfer shares of Stock during such time pursuant to one of
the following exceptions: (a) transfers permitted by clauses (x), (y) and (z)
of Section 2(a); and/or (b) a sale of shares of Common Stock pursuant to an
effective registration statement under the Act filed by the Company (excluding
any registration on Form S-8, S-4 or any successor or similar form) pursuant to
Section 9 of this Agreement; and/or (c) transfers permitted pursuant to the
Sale Participation Agreement (as defined in Section 7).  No transfer of any such shares in violation
hereof shall be made or recorded on the books of the Company and any such
transfer shall be void ab initio and of no effect.  Notwithstanding anything in this Agreement to the contrary, this
Section 3 shall terminate and be of no further force or effect upon the occurrence
of a Change in Control.

4.             Right of First Refusal.  (a)   If, at any time after
the fifth anniversary of the Effective Date and prior to the date of
consummation of a Qualified Public Offering, the Management Stockholder
receives a bona fide offer to purchase any or all of his Stock (the “Third
Party Offer”) from a third party (the “Offeror”), which the
Management 

 

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Stockholder wishes to accept, the Management
Stockholder shall cause the Third Party Offer to be reduced to writing and
shall notify the Company in writing of his wish to accept the Third Party
Offer.  The Management Stockholder’s
notice to the Company shall contain an irrevocable offer to sell such Stock to
the Company (in the manner set forth below) at a purchase price equal to the
price contained in, and on the same terms and conditions of, the Third Party
Offer, and shall be accompanied by a copy of the Third Party Offer (which shall
identify the Offeror).  At any time
within 30 days after the date of the receipt by the Company of the
Management Stockholder’s notice, the Company shall have the right and option to
purchase, or to arrange for a third party to purchase, all of the shares of
Stock covered by the Offer, pursuant to Section 4(b).

(b)           The Company shall have the right and option to purchase,
or to arrange for a third party to purchase, all of the shares of Stock covered
by the Third Party Offer at the same price and on substantially the same terms
and conditions as the Third Party Offer (or, if the Third Party Offer includes
any consideration other than cash, then at the sole option of the Company, at
the equivalent all cash price, determined in good faith by the Company’s
Board), by delivering a certified bank check or checks in the appropriate
amount (or by wire transfer of immediately available funds, if the Management
Stockholder Entities provide to the Company wire transfer instructions) (and
any such non-cash consideration to be paid) to the Management Stockholder at
the principal office of the Company against delivery of certificates or other
instruments representing the shares of Stock so purchased, appropriately
endorsed by the Management Stockholder. 
If at the end of the 30-day period, the Company has not tendered the purchase
price for such shares in the manner set forth above, the Management Stockholder
may, during the succeeding 60-day period, sell not less than all of the shares
of Stock covered by the Third Party Offer, to the Offeror on terms no less
favorable to the Management Stockholder than those contained in the Third Party
Offer.  Promptly after such sale, the
Management Stockholder shall notify the Company of the consummation thereof and
shall furnish such evidence of the completion and time of completion of such
sale and of the terms thereof as may reasonably be requested by the
Company.  If, at the end of 60 days
following the expiration of the 30-day period during which the Company is
entitled hereunder to purchase the Stock, the Management Stockholder has not
completed the sale of such shares of the Stock as aforesaid, all of the
restrictions on sale, transfer or assignment contained in this Agreement shall
again be in effect with respect to such shares of the Stock.

(c)          Notwithstanding anything in this Agreement to the contrary,
this Section 4 shall terminate and be of no further force or effect upon the
occurrence of a Change in Control.

5.                                       The Management
Stockholder’s Right to Resell Stock and Options to the Company.

(a)           Except as otherwise provided herein, if, prior to the
fifth anniversary of the Effective Date, the Management Stockholder is still in
the employ of the Company (and/or, if applicable, its subsidiaries) and the
Management Stockholder’s employment is terminated as a result of the death or Permanent
Disability of the Management Stockholder, then the applicable Management
Stockholder Entity, shall, for one hundred and eighty (180) days (the “Put
Period”) following the date of such death or Permanent Disability, have the
right to:

 

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(i)  With respect to the Stock, sell to the
Company, and the Company shall be required to purchase, on one occasion, all of
the shares of Stock then held by the applicable Management Stockholder
Entities, at a per share price equal to the Fair Market Value Per Share (the “Section
5 Repurchase Price”); and

(ii)  With respect to any outstanding Options,
sell to the Company, and the Company shall be required to purchase, on one
occasion, all of the exercisable Options then held by the applicable Management
Stockholder Entities, at a price equal to the product of (x) the excess, if
any, of the Section 5 Repurchase Price over the Option Exercise Price and (y)
the number of Exercisable Option Shares in respect of the termination of all or
any portion of the outstanding exercisable Options held by the applicable
Management Stockholder Entity.  In the
event the foregoing Option Excess Price is zero or a negative number, all
outstanding exercisable stock options granted to the Management Stockholder
under the Option Plan shall be automatically terminated without any payment in
respect thereof.  In the event that the
Management Stockholder Entities do not exercise the foregoing rights, all exercisable
but unexercised Options shall terminate pursuant to the terms of Section 3.2(b)
of the Stock Option Agreement.  All
unexercisable Options held by the applicable Management Stockholder Entities
shall terminate without payment immediately upon termination of employment.

(b)           In the event the applicable Management Stockholder
Entities intend to exercise their rights pursuant to Section 5(a), such
Entities shall send written notice to the Company, at any time during the Put
Period, of their intention to sell shares of Stock in exchange for the payment
referred in Section 5(a)(i) and/or to terminate such Options in exchange for
the payment referred to in Section 5(a)(ii) and shall indicate the number of
shares of Stock to be sold and the number of Options to be terminated with
payment in respect thereof (the “Redemption Notice”).  The completion of the purchases shall take
place at the principal office of the Company on the tenth business day after
the giving of the Redemption Notice. 
The applicable Repurchase Price and any payment with respect to the
Options as described above shall be paid by delivery to the applicable
Management Stockholder Entities, of a certified bank check or checks in the
appropriate amount payable to the order of each of the applicable Management
Stockholder Entities (or by wire transfer of immediately available funds, if
the Management Stockholder Entities provide to the Company wire transfer
instructions), against delivery of certificates or other instruments
representing the Stock so purchased and appropriate documents cancelling the
Options so terminated appropriately endorsed or executed by the applicable
Management Stockholder Entities or any duly authorized representative.

(c)           Notwithstanding anything in Section 5(a) to the contrary
and subject to Section 10(a), if there exists and is continuing a default or an
event of default on the part of the Company or any subsidiary of the Company
under any loan, guarantee or other agreement under which the Company or any
subsidiary of the Company has borrowed money or if the repurchase referred to
in Section 5(a) would result in a default or an event of default on the part of
the Company or any subsidiary of the Company under any such agreement or if a
repurchase would not be permitted under the Delaware General Corporation Law
(the “DGCL”) or would otherwise violate the DGCL (or if the Company
reincorporates in another state, the business corporation law of such state)
(each such occurrence being an “Event”), the Company shall not be
obligated to repurchase any of the Stock or the Options from the applicable
Management Stockholder Entities, until the first business day which is 10
calendar 

 

6

 

days after all of the foregoing Events have ceased
to exist (the “Repurchase Eligibility Date”); provided, however,
that (i) the number of shares of Stock subject to repurchase under this Section
5(c) shall be that number of shares of Stock, and (ii) in the case of a
repurchase pursuant to Section 5(a)(ii), the number of Exercisable Option Shares
for purposes of calculating the Option Excess Price payable under this Section
5(c) shall be the number of Exercisable Option Shares, specified in the
Redemption Notice and held by the applicable Management Stockholder Entities,
at the time of delivery of a Redemption Notice in accordance with Section 5(b)
hereof.  All Options exercisable as of
the date of a Redemption Notice, in the case of a repurchase pursuant to
Section 5(a), shall continue to be exercisable until the repurchase of such
Options pursuant to such Redemption Notice, provided that to the extent any
Options are exercised after the date of such Redemption Notice, the number of
Exercisable Option Shares for purposes of calculating the Option Excess Price
shall be reduced accordingly.

(d)           Effect of Change in Control.  Notwithstanding anything in this Agreement
to the contrary, except for any payment obligation of the Company, which has
arisen prior to such termination pursuant to this Agreement, this Section 5
shall terminate and be of no further force or effect upon the occurrence of a
Change in Control.

6.                                           The Company’s
Option to Purchase Stock and Options of Management Stockholder Upon Certain
Terminations of Employment.

(a)           Termination for Cause
by the Company, Termination by the Management Stockholder and other Call Events.  Except as otherwise provided herein, if,
prior to the fifth anniversary of the Effective Date, (i) the Management
Stockholder’s active employment with the Company (and/or, if applicable, its
subsidiaries) is terminated by the Company (and/or, if applicable, its
subsidiaries) for Cause, (ii) the Management Stockholder’s active employment
with the Company (and/or, if applicable, its subsidiaries) is terminated by the
Management Stockholder, (iii) the beneficiaries of a Management Stockholder’s
Trust shall include any person or entity other than the Management Stockholder,
his spouse (or ex-spouse) or his lineal descendants (including adopted
children) or (iv) the Management Stockholder shall otherwise effect a transfer of
any of the Stock other than as permitted in this Agreement (other than as may
be required by applicable law or an order of a court having competent
jurisdiction) after notice from the Company of such impermissible transfer and
a reasonable opportunity to cure such transfer (each, a “Section 6(a) Call
Event”):

(A)          With respect to the Stock, the Company may purchase all or
any portion of the shares of the Stock then held by the applicable Management
Stockholder Entities at a per share purchase price equal to the lesser of (x)
the Fair Market Value Per Share and (y) the Book Value Per Share (any such
applicable repurchase price, the “Section 6(a) Repurchase Price”); and

(B)           With respect to the Options in the event of a termination
for Cause by the Company, all Options (whether or not then exercisable) held by
the applicable Management Stockholder Entities will terminate immediately
without payment in respect thereof; and

(C)           With respect to the Options in the
event of a termination by the Management Stockholder, the Company may purchase
all or any portion of the exercisable Options held by the applicable Management
Stockholder Entities for an amount equal to the 

 

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product of (x) the
excess, if any, of the Section 6(a) Repurchase Price over the Option Exercise
Price and (y) the number of Exercisable Option Shares in respect of the
termination of all or any portion of the outstanding exercisable Options held
by the applicable Management Stockholder Entity.  In the event the foregoing Option Excess Price is zero or a
negative number, all outstanding exercisable stock options granted to the
Management Stockholder under the Option Plan shall be automatically terminated
without any payment in respect thereof. 
In the event that the Company does not exercise the foregoing rights all
exercisable but unexercised Options shall terminate pursuant to the terms of
Section 3.2(f) of the Stock Option Agreement. 
All unexercisable Options held by the applicable Management Stockholder
Entities shall also terminate without payment immediately upon termination of
employment, pursuant to the Stock Option Agreement.

 

(b)           Termination for Death
or Disability or Qualified Retirement.  Except as otherwise provided herein, if, prior to the fifth
anniversary of the Effective Date, the Management Stockholder’s employment with
the Company (and/or, if applicable, its subsidiaries) is terminated as a result
of the death or Permanent Disability or the Qualified Retirement of the
Management Stockholder (each a “Section 6(b) Call Event”), then the
Company may:

(A)          With respect to the Stock, purchase all or any portion of
the shares of Stock then held by the applicable Management Stockholder
Entities, at a per share price equal to the Section 5 Repurchase Price; and

(B)           With respect to the Options, purchase all or any portion
of the exercisable Options for an amount equal to the product of (x) the
excess, if any, of the Section 5 Repurchase Price over the Option Exercise
Price and (y) the number of Exercisable Option Shares in respect of the
termination of all or any portion of the outstanding exercisable Options held
by the applicable Management Stockholder Entity.  In the event the foregoing Option Excess Price is zero or a
negative number, all outstanding exercisable stock options granted to the
Management Stockholder under the Option Plan shall be automatically terminated
without any payment in respect thereof. 
In the event that the Company does not exercise the foregoing rights all
exercisable but unexercised Options shall terminate pursuant to the terms of
Section 3.2(b) of the Stock Option Agreement. 
All unexercisable Options held by the applicable Management Stockholder
Entities shall also terminate without payment immediately upon termination of
employment, pursuant to the Stock Option Agreement.

(c)           Call Notice.  The Company shall have a period of sixty
(60) days from the date of any Call Event (or, if later, with respect to a
Section 6(a) Call Event, the date after discovery of, and the applicable cure
period for, an impermissible transfer constituting a Section 6(a) Call Event),
in which to give notice in writing to the Management Stockholder of its
election to exercise its rights and obligations pursuant to this Section 6 (“Repurchase
Notice”).  The completion of the
purchases pursuant to the foregoing shall take place at the principal office of
the Company on the tenth business day after the giving of the Call Notice.  The applicable Repurchase Price and any
payment with respect to the Options as described in this Section 6 shall be
paid by delivery to the applicable Management Stockholder Entities of a
certified bank check or checks in the appropriate amount payable to the order
of each of the applicable Management Stockholder Entities (or by wire transfer
of immediately available funds, if the Management Stockholder Entities provide
to the Company wire transfer instructions) against delivery of certificates or
other instruments representing the Stock so 

 

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purchased and appropriate documents cancelling the
Options so terminated, appropriately endorsed or executed by the applicable
Management Stockholder Entities or its authorized representative.

(d)           Delay of Call.  Notwithstanding any other provision of this
Section 6 to the contrary and subject to Section 10(a), if there exists and is
continuing any Event, the Company shall delay the repurchase of any of the
Stock or the Options (pursuant to a Call Notice timely given in accordance with
Section 6(d) hereof) from the applicable Management Stockholder Entities until
the Repurchase Eligibility Date; provided, however, that (i) the
number of shares of Stock subject to repurchase under this Section 6 shall be
that number of shares of Stock, and (ii) in the case of a repurchase pursuant
to Section 6(b) or Section 6(c), the number of Exercisable Option Shares for
purposes of calculating the Option Excess Price payable under this Section 6
shall be the number of Exercisable Option Shares, held by the applicable
Management Stockholder Entities at the time of delivery of a Call Notice in
accordance with Section 6(d) hereof. 
All Options exercisable as of the date of a Repurchase Notice, in the
case of a repurchase pursuant to Section 6(b) or 6(c), shall continue to be
exercisable until the repurchase of such Options pursuant to such Call Notice,
provided that to the extent that any Options are exercised after the date of
such Call Notice, the number of Exercisable Option Shares for purposes of
calculating the Option Excess Price shall be reduced accordingly.

(e)           Effect of Change in Control.  Notwithstanding anything in this Agreement
to the contrary, this Section 6 shall terminate and be of no further force or
effect upon the occurrence of a Change in Control.

7.             Adjustment of Repurchase Price; Definitions.

(a)           Adjustment of
Repurchase Price.  In
determining the applicable repurchase price of the Stock and Options, as
provided for in Sections 5 and 6, above, appropriate adjustments shall be made
for any stock dividends, splits, combinations, recapitalizations or any other
adjustment in the number of outstanding shares of Stock in order to maintain,
as nearly as practicable, the intended operation of the provisions of Sections
5 and 6.

(b)           Definitions.  All capitalized terms used in this Agreement
and not defined herein shall have such meaning as such terms are defined in the
Option Plan.  Terms used herein and as
listed below shall be defined as follows:

“Act”
shall have the meaning set forth in Section 2(a)(i) hereof.

“Agreement”
shall have the meaning set forth in the introductory paragraph.

“Base Price” shall have the meaning set forth
in Section 1(a) hereof.

“Board” shall mean the board of directors of the
Company.

“Book Value Per Share” shall mean (a) (i) the
Base Price plus (b) the quotient of (A)(i) the aggregate net income of
the Company from and after the Closing Date (as decreased by any net losses
from and after the Closing Date) excluding any one time costs and expenses
charged to income associated with the Merger and any related transactions plus
(ii) the aggregate dollar amount contributed to (or credited to common
stockholders’ equity 

 

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of) the Company after the
Closing Date as equity of the Company (including consideration that would be
received upon the exercise of all outstanding stock options and other rights to
acquire Common Stock and the conversion of all securities convertible into
Common Stock and other stock equivalents) plus (iii) to the extent
reflected as deductions to Book Value Per Share in clause (i) above, unusual or
other items recognized by the Company (including, without limitation,
extraordinary charges, and one time or accelerated write-offs of good will, net
of the related impact on the provision for income taxes), in each case, if and
to the extent determined in good faith by the Board, plus (iv) the amortization
of purchase accounting adjustments occurring as a result of the Merger, minus
(vi) to the extent reflected as additions to Book Value Per Share in clause
(i) above, unusual or other items recognized by the Company, in each case, if
and to the extent determined in good faith by the Board, minus (vi) the
aggregate dollar amount of any dividends paid by the Company after the Closing
Date, divided by (B) the sum of the number of shares of Common Stock
then outstanding and the number of shares of Common Stock issuable upon the
exercise of all outstanding stock options and other rights to acquire Common
Stock.  The items referred to in the
calculations set forth in clauses (b)(A)(i) through (vi) of the immediately
preceding sentence shall be determined in good faith, and to the extent
possible, in accordance with generally accepted accounting principles applied
on a basis consistent with any prior periods as reflected in the consolidated
financial statements of the Company.

“Call Events” shall mean, collectively, Section
6(a) Call Events, Section 6(b) Call Events, and Section 6(c) Call Events.

“Call Notice” shall have the meaning set forth in
Section 6(d) hereof.

“Cause”
shall mean “Cause” as such term may be defined in any employment agreement
between the Management Stockholder and the Company or any of its Subsidiaries
or Affiliates, or, if there is no such employment agreement, “Cause” shall mean
(i) the Management Stockholder’s willful and continued failure to perform
his or her material duties with respect to the Company or it subsidiaries which
continues beyond 10 days after a written demand for substantial performance is delivered
to the Management Stock holder by the Company (the “Cure Period”), (ii)
the willful or intentional engaging by the Management Stockholder in conduct
that causes material and demonstrable injury, monetarily or otherwise, to the
Company, the Investor and its Affiliates, (iii) the Management Stockholder’s
commission of any indictable offense which carries a maximum penalty of
imprisonment or (iv) a material breach of by the Management Stockholder of this
Agreement or other agreements with the Company and/or the Investor, if any,
including, without limitation, engaging in any action in breach of the
restrictive covenants as set forth herein, which continues beyond the Cure
Period (to the extent that, in the Board’s reasonable judgment, such breach can
be cured).

“Change
in Control” means (i) the sale of all or substantially all of the assets of the
Company to an Unaffiliated Person; (ii) a sale resulting in more than 50% of
the voting stock of the Company being held by an Unaffiliated Person; (iii) a
merger, consolidation, recapitalization or reorganization of the Company with
or into another Unaffiliated Person; if and
only if any such event listed in clauses (i) through (iii) above
results in the inability of KKR, the Investor, or any member or members of the
Investor, to designate or elect a majority of the Board (or the board of
directors of the resulting entity or its parent company).  For purposes of this definition, the term “Unaffiliated
Person” means any Person or Group who is not (x) KKR, the Investor or any
member of the Investor, (y) an Affiliate of KKR, the Investor or any member of
the Investor, or (z) an entity in which KKR, the Investor, or any 

 

10

 

member of the Investor
holds, directly or indirectly, a majority of the economic interests in such
entity.

“Closing
Date” shall have the meaning set forth in the first “whereas” paragraph.

“Common
Stock” shall have the meaning set forth in the first “whereas” paragraph.

“Company”
shall have the meaning set forth in the introductory paragraph.

“Confidential
Information” shall mean all non-public information concerning trade secret,
know-how, software, developments, inventions, processes, technology, designs,
the financial data, strategic business plans or any proprietary or confidential
information, documents or materials in any form or media, including any of the
foregoing relating to research, operations, finances, current and proposed
products and services, vendors, customers, advertising and marketing, and other
non-public, proprietary, and confidential information of the Restricted Group.

“Custody
Agreement and Power of Attorney” shall have the meaning set forth in Section 9
hereof.

“DGCL”
shall have the meaning set forth in Section 5(c) hereof.

“Event”
shall have the meaning set forth in Section 5(c) hereof.

“Exchange
Act” shall mean the Securities Exchange Act of 1934, as amended (or any
successor section thereto).

“Exercisable
Option Shares” shall mean the shares of Common Stock that, at the Repurchase
Calculation Date, could be purchased by the Management Stockholder upon
exercise of his or her outstanding and exercisable Options.

“Fair
Market Value Per Share” shall mean, on the Repurchase Calculation Date, the
price per share equal to (i) the average of the last sale price of the Common
Stock for the five trading days ending on the Repurchase Calculation Date on
each stock exchange on which the Common Stock may at the time be listed or,
(ii) if there shall have been no sales on any such exchanges on the Repurchase
Calculation Date on any given day, the average of the closing bid and asked
prices on each such exchange for the five trading days ending on the Repurchase
Calculation Date or, (iii) if there is no such bid and asked price on the Repurchase
Calculation Date, on the next preceding date when such bid and asked price
occurred or, (iv) if the Common Stock shall not be so listed, the average of
the closing sales prices as reported by NASDAQ for the five trading days ending
on the Repurchase Calculation Date in the over-the-counter market or, (v) if
there have been no such sales, bid or asked prices, or if there has been no
Public Offering, the fair market value of the Common Stock as determined in the
good faith discretion of the Board.

“Group”
shall mean “group,” as such term is used for purposes of Section 13(d) or 14(d)
of the Exchange Act.

“Investor”
shall mean Sealy Holding LLC.

“KKR”
shall mean the KKR Millennium Fund L.P.

 

11

 

“Management
Stockholder” shall have the meaning set forth in the introductory paragraph.

“Management
Stockholder Entities” shall mean the Management Stockholder’s Trust, the
Management Stockholder and the Management Stockholder’s Estate, collectively.

“Management
Stockholder’s Estate” shall mean the conservators, guardians, executors,
administrators, testamentary trustees, legatees or beneficiaries of the
Management Stockholder.

“Management
Stockholder’s Trust” shall mean a limited partnership, limited liability company,
trust or custodianship, the beneficiaries of which may include only the
Management Stockholder, his spouse (or ex-spouse) or his lineal descendants
(including adopted) or, if at any time after any such transfer there shall be
no then living spouse or lineal descendants, then to the ultimate beneficiaries
of any such trust or to the estate of a deceased beneficiary.

“Maximum
Repurchase Amount” shall have the meaning set forth in Section 10(a) hereof.

“Notice”
shall have the meaning set forth in Section 9(b) hereof.

“Offeror”
shall have the meaning set forth in Section 4 hereof.

“Option
Excess Price” shall mean the aggregate amount paid by the Company in respect of
Exercisable Option Shares pursuant to Section 5 or 6, as applicable.

“Option
Exercise Price” shall mean the exercise price of the shares of Common Stock
covered by the applicable Option.

“Option”
shall have the meaning set forth in the third “whereas” paragraph.

“Option
Plan” shall have the meaning set forth in the third “whereas” paragraph.

“Option
Stock” shall have the meaning set forth in Section 2(a) hereof.  

“Other
Management Stockholders” shall have the meaning set forth in the fourth
“whereas” paragraph.

“Other
Management Stockholders’ Agreements” shall have the meaning set forth in the
fourth “whereas” paragraph.

“Parties”
shall have the meaning set forth in the introductory paragraph.

“Permanent
Disability” shall mean the Management Stockholder becomes physically or
mentally incapacitated and is therefore unable for a period of six (6) consecutive
months to perform substantially all of the material elements of the Management
Stockholder’s duties with the Company or any Subsidiary or Affiliate
thereof.  Any question as to the
existence of the Permanent Disability of the Management Stockholder as to which
the Management Stockholder and the Company cannot agree shall be determined in
writing by a qualified independent physician mutually acceptable to the
Management Stockholder and the Company. 
If the Management Stockholder and the Company cannot agree as to a
qualified independent physician, each 

 

12

 

shall appoint such a
physician and those two physicians shall select a third who shall make such
determination in writing.  The
determination of Permanent Disability made in writing to the Company and the
Management Stockholder shall be final and conclusive for all purposes of this
Agreement (such inability is hereinafter referred to as “Permanent
Disability”).

“Person”
shall mean “person,” as such term is used for purposes of Section 13(d) or
14(d) of the Exchange Act.

“Proposed
Registration” shall have the meaning set forth in Section 9(b) hereof.

“Public
Offering” shall mean the sale of shares of Common Stock to the public
subsequent to the date hereof pursuant to a registration statement under the
Act which has been declared effective by the SEC (other than a registration
statement on Form S-4, Form S-8 or any other similar form).

“Qualified
Public Offering” shall mean a Public Offering, which results in an active
trading market of 25% or more of the Common Stock.

“Qualified
Retirement” shall mean a retirement from the Company meeting all of the
following criteria: (a) the Management Stockholder has been continually
employed by the Company from the date hereof through May 1, 2006, (b) the
Management Stockholder has notified the Company of such retirement at least one
year prior to such retirement, (c) the Management Stockholder is at least 58
years of age and (d) the Management Stockholder has reached a total
combined years of age and service (since such Management Stockholder’s most
recent hire date) which totals at least 74 (calculated on a monthly basis).

“Repurchase
Calculation Date” shall mean the last day of the month preceding the later of
(i) the month in which the event giving rise to the right to repurchase occurs
and (ii) the month in which the Repurchase Eligibility Date occurs.

“Repurchase
Eligibility Date” shall have the meaning set forth in Section 5(c) hereof.

“Repurchase
Price” shall mean the amount to be paid in respect of the Stock and Options to
be purchased by the Company pursuant to Section 5(a), Section 6(a), 6(b), or
6(c), as applicable.

“Request”
shall have the meaning set forth in Section 9(b) hereof.

“Restricted
Group” shall mean, collectively, the Company, its Subsidiaries, the members of
the Investor Group and their respective Affiliates.

“Rule
405 Affiliate” shall mean an affiliate of the Company as defined under Rule 405
of the rules and regulations promulgated under the Act, and as interpreted by
the Board.

“Sale
Participation Agreement” shall mean that certain sale participation agreement
entered into by and between the Management Stockholder and Sealy Holding LLC
dated as of the date hereof.

“SEC”
shall mean the Securities and Exchange Commission.

“Stock”
shall have the meaning set forth in Section 2(a) hereof.

 

13

 

“Stock
Option Agreement” shall have the meaning set forth in the third “whereas”
paragraph.

“Third
Party Offer” shall have the meaning set forth in Section 4(a) hereof.

8.             The Company’s Representations and Warranties.

(a)           The Company represents and warrants to the Management
Stockholder that (i) this Agreement has been duly authorized, executed and
delivered by the Company and is enforceable against the Company in accordance
with its terms and (ii) the Stock, when issued and delivered in accordance with
the terms hereof, will be duly and validly issued, fully paid and
nonassessable.

(b)           If the Company becomes subject to the reporting
requirements of Section 12 of the Exchange Act, the Company will file the
reports required to be filed by it under the Act and the Exchange Act and the
rules and regulations adopted by the SEC thereunder, to the extent required
from time to time to enable the Management Stockholder to sell shares of Stock
without registration under the Exchange Act within the limitations of the
exemptions provided by (A) Rule 144 under the Act, as such Rule may be amended
from time to time, or (B) any similar rule or regulation hereafter adopted by
the SEC, subject to the transfer restrictions set forth in Section 3.  Notwithstanding anything contained in this
Section 9(b), the Company may de-register under Section 12 of the Exchange Act
if it is then permitted to do so pursuant to the Exchange Act and the rules and
regulations thereunder and, in such circumstances, shall not be required hereby
to file any reports which may be necessary in order for Rule 144 or any similar
rule or regulation under the Act to be available.  Nothing in this Section 8(b) shall be deemed to limit in any
manner the restrictions on sales of Stock contained in this Agreement.

9.             “Piggyback” Registration Rights.  Until the later of (i) the first occurrence
of a Qualified Public Offering and (ii) the fifth anniversary of the Effective
Date:

(a)           The Management Stockholder hereby agrees to be bound by
all of the terms, conditions and obligations of the piggyback registration
rights contained in Section 2 of the Registration Rights Agreement (the “Registration
Rights Agreement”) entered into by and among the Company and investors
party thereto (the “Piggyback Registration Rights”), as in effect on the
date hereof (subject to any amendments thereto to which the Management
Stockholder has agreed to be bound), and shall have all of the rights and
privileges of the Piggyback Registration Rights, in each case as if the
Management Stockholder were an original party (other than the Company) to the
Registration Rights Agreement, subject to applicable and customary underwriter
restrictions; provided, however, that at no time shall the
Management Stockholder have any rights to request registration under the
Piggyback Registration Rights; and provided  further, that the
Management Stockholder shall not be bound by any amendments to the Piggyback
Registration Rights unless the Management Stockholder consents thereto provided
that such consent will not be unreasonably withheld.  All Stock purchased or held by the applicable Management
Stockholder Entities pursuant to this Agreement shall be deemed to be
“Registrable Securities” as defined in the Registration Rights Agreement.

(b)           In the event of a sale of Common Stock by the Investor in
accordance with the terms of the Piggyback Registration Rights, the Company
will promptly notify the Management Stockholder in writing (a “Notice”)
of any proposed registration (a “Proposed 

 

14

 

Registration”).  If within 15 days of the receipt by the
Management Stockholder of such Notice, the Company receives from the applicable
Management Stockholder Entities a written request (a “Request”) to
register shares of Stock held by the applicable Management Stockholder Entities
(which Request will be irrevocable unless otherwise mutually agreed to in
writing by the Management Stockholder and the Company), shares of Stock will be
so registered as provided in this Section 9; provided, however,
that for each such registration statement only one Request, which shall be
executed by the applicable Management Stockholder Entities, may be submitted
for all Registrable Securities held by the applicable Management Stockholder
Entities.

(c)           The maximum number of shares of Stock which will be
registered pursuant to a Request will be the lowest of (i) the number of shares
of Stock then held by the Management Stockholder Entities, including all shares
of Stock which the Management Stockholder Entities are then entitled to acquire
under an unexercised Option to the extent then exercisable, multiplied by a
fraction, the numerator of which is the number of shares of Stock being sold by
the Investor and any affiliated or unaffiliated investment partnerships and
investment limited liability companies investing with the Investor and the
denominator of which is the aggregate number of shares of Stock owned by the
Investor and any investment partnerships and investment limited liability
companies investing with the Investor or (ii) the maximum number of shares of
Stock which the Company can register in the Proposed Registration without
adverse effect on the offering in the view of the managing underwriters
(reduced pro rata with all Other Management Stockholders) as more fully
described in subsection (d) of this Section 9 or (iii) the maximum number of shares
which the Management Stockholder (pro rata based upon the aggregate number of
shares of Stock the Management Stockholder and all Other Management
Stockholders have requested to be registered) is permitted to register under
the Piggyback Registration Rights.

(d)           If a Proposed Registration involves an underwritten
offering and the managing underwriter advises the Company in writing that, in
its opinion, the number of shares of Stock requested to be included in the
Proposed Registration exceeds the number 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 Stock offered in such Public Offering as contemplated by the
Company, then the Company will include in the Proposed Registration (i) first,
100% of the shares of Stock the Company proposes to sell and (ii) second, to
the extent of the number of shares of Stock requested to be included in such
registration which, in the opinion of such managing underwriter, can be sold
without having the adverse effect referred to above, the number of shares of
Stock which the Investor and any affiliated or unaffiliated investment
partnerships and investment limited liability companies investing with the
Investor, the Management Stockholder, and all Other Management Stockholders
(together, the “Holders”) have requested to be included in the Proposed
Registration, such amount to be allocated pro rata among all requesting Holders
on the basis of the relative number of shares of Stock then held by each such
Holder (including the exercisable Options) (provided that any shares thereby
allocated to any such Holder that exceed such Holder’s request will be
reallocated among the remaining requesting Holders in like manner).

(e)           Upon delivering a Request the Management Stockholder will,
if requested by the Company, execute and deliver a custody agreement and power
of attorney in form and substance satisfactory to the Company with respect to
the shares of Stock to be registered pursuant to this Section 9 (a “Custody
Agreement and Power of Attorney”). 
The Custody Agreement and Power of Attorney will provide, among other
things, that the 

 

15

 

Management Stockholder will deliver to and deposit
in custody with the custodian and attorney-in-fact named therein a certificate
or certificates representing such shares of 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
the Management Stockholder’s agent and attorney-in-fact with full power and
authority to act under the Custody Agreement and Power of Attorney on the
Management Stockholder’s behalf with respect to the matters specified therein.

(f)            The Management Stockholder agrees that he or she will
execute such other agreements as the Company may reasonably request to further
evidence the provisions of this Section.

10.           Pro Rata Repurchases; Dividends.  (a) 
Notwithstanding anything to the contrary contained in Section 4, 5 or 6,
if at any time consummation of any purchase or payment to be made by the
Company pursuant to this Agreement and the Other Management Stockholders
Agreements would result in an Event, then the Company shall make purchases
from, and payments to, the Management Stockholder and Other Management
Stockholders pro rata (on the basis of the proportion of the number of shares
of Stock each such Management Stockholder and all Other Management Stockholders
have elected or are required to sell to the Company) for the maximum number of
shares of Stock permitted without resulting in an Event (the “Maximum
Repurchase Amount”).  The provisions
of Section 5(c) and 6(e) shall apply in their entirety to payments and
repurchases with respect to shares of Stock which may not be made due to the
limits imposed by the Maximum Repurchase Amount under this Section 10(a).  Until all of such Stock is purchased and
paid for by the Company, the Management Stockholder and the Other Management
Stockholders whose Stock is not purchased in accordance with this Section 10(a)
shall have priority, on a pro rata basis, over other purchases of Stock by the
Company pursuant to this Agreement and Other Management Stockholders’
Agreements.

(b)           In the event any dividends are paid with respect to the
Stock, the Management Stockholder will be treated pari  passu with
all Other Management Stockholders with respect to shares of Stock then owned by
the Management Stockholder, and, with respect to any Options held by the
Management Stockholder, in accordance, as applicable, with Section 2.4 of the
Stock Option Agreement.

11.           Rights to Negotiate Repurchase Price.  Nothing in this Agreement shall be deemed to
restrict or prohibit the Company from purchasing, redeeming or otherwise
acquiring for value shares of Stock or Options from the Management Stockholder,
at any time, upon such terms and conditions, and for such price, as may be
mutually agreed upon between the Parties, whether or not at the time of such purchase,
redemption or acquisition circumstances exist which specifically grant the
Company the right to purchase shares of Stock or any Options under the terms of
this Agreement; provided that no such purchase, redemption or
acquisition shall be consummated, and no agreement with respect to any such
purchase, redemption or acquisition shall be entered into, without the prior
approval of the Board.

12.           Covenant Regarding 83(b) Election.  Except as set forth in the Restricted Stock
Agreement or as the Company may otherwise agree in writing, the Management
Stockholder hereby covenants and agrees that he will make an election provided
pursuant to Treasury Regulation 1.83-2 with respect to the Stock, including
without limitation, the Stock to be acquired upon each exercise of the
Management Stockholder’s 

 

16

 

Options and any grant of restricted Stock; and
Management Stockholder further covenants and agrees that he will furnish the
Company with copies of the forms of election the Management Stockholder files
within 30 days after the date hereof, and within 30 days after each exercise of
Management Stockholder’s Options and with evidence that each such election has
been filed in a timely manner.

13.           Notice of Change of Beneficiary.  Immediately prior to any transfer of Stock
to a Management Stockholder’s Trust, the Management Stockholder shall provide
the Company with a copy of the instruments creating the Management
Stockholder’s Trust and with the identity of the beneficiaries of the
Management Stockholder’s Trust.  The
Management Stockholder shall notify the Company as soon as practicable prior to
any change in the identity of any beneficiary of the Management Stockholder’s
Trust.

14.           Recapitalizations, etc.  The provisions of this Agreement shall apply, to the full extent
set forth herein with respect to the Stock or the Options, to any and all
shares of capital stock of the Company or any capital stock, partnership units
or any other security evidencing ownership interests in any successor or assign
of the Company (whether by merger, consolidation, sale of assets or otherwise)
which may be issued in respect of, in exchange for, or substitution of the
Stock or the Option, by reason of any stock dividend, split, reverse split,
combination, recapitalization, liquidation, reclassification, merger,
consolidation or otherwise.

15.           Management Stockholder’s Employment by the Company.  Nothing contained in this Agreement or in
any other agreement entered into by the Company and the Management Stockholder
contemporaneously with the execution of this Agreement (subject to the
applicable provisions of any offer letter or letter of employment provided to
the Management Stockholder by the Company or any employment agreement entered by
and between the Management Stockholder and the Company) (i) obligates the
Company or any subsidiary of the Company to employ the Management Stockholder
in any capacity whatsoever or (ii) prohibits or restricts the Company (or any
such subsidiary) from terminating the employment of the Management Stockholder
at any time or for any reason whatsoever, with or without Cause, and the
Management Stockholder hereby acknowledges and agrees that neither the Company
nor any other person has made any representations or promises whatsoever to the
Management Stockholder concerning the Management Stockholder’s employment or
continued employment by the Company or any subsidiary of the Company.

16.           Binding Effect. 
The provisions of this Agreement shall be binding upon and accrue to the
benefit of the parties hereto and their respective heirs, legal
representatives, successors and assigns. 
In the case of a transferee permitted under Section 2(a) or
Section 3 hereof, such transferee shall be deemed the Management
Stockholder hereunder; provided, however, that no transferee
(including without limitation, transferees referred to in Section 2(a) or
Section 3 hereof) shall derive any rights under this Agreement unless and until
such transferee has delivered to the Company a valid undertaking and becomes
bound by the terms of this Agreement.

17.           Amendment. 
This Agreement may be amended only by a written instrument signed by the
Parties hereto.

18.           Closing. 
Except as otherwise provided herein, the closing of each purchase and
sale of shares of Stock, pursuant to this Agreement shall take place at the 

 

17

 

principal office of the Company on the tenth
business day following delivery of the notice by either Party to the other of
its exercise of the right to purchase or sell such Stock hereunder.

19.           Applicable Law; Jurisdiction; Arbitration; Legal Fees.

(a)           The laws of the State of New York shall govern the
interpretation, validity and performance of the terms of this Agreement, regardless
of the law that might be applied under principles of conflicts of law.

(b)           In the event of any controversy among the parties hereto
arising out of, or relating to, this Agreement which cannot be settled amicably
by the parties, such controversy shall be finally, exclusively and conclusively
settled by mandatory arbitration conducted expeditiously in accordance with the
American Arbitration Association rules, by a single independent
arbitrator.  Such arbitration process
shall take place within 100 miles of the New York City metropolitan area.  The decision of the arbitrator shall be
final and binding upon all parties hereto and shall be rendered pursuant to a
written decision, which contains a detailed recital of the arbitrator’s
reasoning.  Judgment upon the award
rendered may be entered in any court having jurisdiction thereof.

(c)           Notwithstanding the foregoing, the Management Stockholder
acknowledges and agrees that the Company, its Subsidiaries, any member of the
Investor Group and any of their respective Affiliates shall be entitled to
injunctive or other relief in order to enforce the covenant not to compete,
covenant not to solicit and/or confidentiality covenants as set forth in
Section 24(a) of this Agreement.

(d)           In the event of any arbitration or other disputes with
regard to this Agreement or any other document or agreement referred to herein,
each Party that shall pay its own legal fees and expenses, unless otherwise
determined by the arbitrator.

20.           Assignability of Certain Rights by the Company.  The Company shall have the right to assign
any or all of its rights or obligations to purchase shares of Stock pursuant to
Sections 4, 5 and 6 hereof.

21.           Miscellaneous.

(a)           In this Agreement all references to “dollars” or “$” are
to United States dollars and the masculine pronoun shall include the feminine
and neuter, and the singular the plural, where the context so indicates

(b)           If any provision of this Agreement shall be declared
illegal, void or unenforceable by any court of competent jurisdiction, the
other provisions shall not be affected, but shall remain in full force and
effect.

22.           Withholding. 
The Company or its Subsidiaries shall have the right to deduct from any
cash payment made under this Agreement to the applicable Management Stockholder
Entities any minimum federal, state or 
local income or other taxes required by law to be withheld with respect
to such payment.

23.           Notices. 
All notices and other communications provided for herein shall be in
writing and shall be deemed to have been duly given if delivered by hand
(whether by overnight courier or otherwise) or sent by registered or certified
mail, return receipt 

 

18

 

requested, postage prepaid, or by overnight delivery
or telecopy, to the Party to whom it is directed:

(a)           If to the Company, to it at the following address:

Sealy
Corporation

One Office Parkway

Trinity,
North Carolina  27370

Attention:              Kenneth
Walker

 

with
copies to:

Kohlberg Kravis Roberts & Co.

9 West 57th Street

New York, New York 10019

Attention:  Brian Carroll

and

Simpson Thacher &
Bartlett LLP

425 Lexington Avenue

New York, New York 10017

Attention:              David J. Sorkin,
Esq.

Sean
D. Rodgers, Esq.

Telecopy:              (212) 455-2502

(b)           If to the Management Stockholder, to him at the address
set forth below under his signature;

or at such other address as either party shall have
specified by notice in writing to the other.

24.           Confidential Information; Covenant Not to Compete.

(a)           In consideration of the Company entering into this Agreement
with the Management Stockholder, the Management Stockholder hereby agrees
effective as of the date of the Management Stockholder’s commencement of
employment with the Company or its Subsidiaries, without the Company’s prior
written consent, the Management Stockholder shall not, directly or indirectly,
(i) at any time during or after the Management Stockholder’s employment with
the Company or its Subsidiaries, disclose any Confidential Information
pertaining to the business of the Company or any of its Subsidiaries, except
when required to perform his or her duties to the Company or one of its
Subsidiaries, by law or judicial process; or (ii) at any time during the
Management Stockholder’s employment with the Company or its Subsidiaries and
for a period of eighteen months thereafter, directly or indirectly (A) act as a
proprietor, investor, director, officer, employee, substantial stockholder,
consultant, or partner in any of the following mattress manufacturing companies
in the United States or their mattress manufacturing or mattress wholesaling
affiliates: Simmons, Serta, Spring Air, Kingsdown, Select Comfort and
Tempur-Pedic or any of their successors or any other mattress manufacturing
company or its mattress manufacturing or mattress wholesaling affiliate which
represents 10% or more of the mattress market in the United States, (B) solicit
customers or clients of the Company or any of its Subsidiaries to terminate
their relationship with the Company or any of its Subsidiaries or otherwise
solicit such customers or clients to compete 

 

19

 

with any business of the Company or any of its
Subsidiaries or (C) solicit or offer employment to any person who has been
employed by the Company or any of its Subsidiaries at any time during the
twelve months immediately preceding the termination of the Management
Stockholder’s employment.  If the
Management Stockholder is bound by any other agreement with the Company
regarding the use or disclosure of confidential information, the provisions of
this Agreement shall be read in such a way as to further restrict and not to
permit any more extensive use or disclosure of confidential information.

(b)           Notwithstanding clause (a) above, if at any time a court
holds that the restrictions stated in such clause (a) are unreasonable or
otherwise unenforceable under circumstances then existing, the parties hereto
agree that the maximum period, scope or geographic area determined to be
reasonable under such circumstances by such court will be substituted for the
stated period, scope or area.  Because
the Management Stockholder’s services are unique and because the Management
Stockholder has had access to Confidential Information, the parties hereto
agree that money damages will be an inadequate remedy for any breach of this
Agreement.  In the event of a breach or
threatened breach of this Agreement, the Company or its successors or assigns
may, in addition to other rights and remedies existing in their favor, apply to
any court of competent jurisdiction for specific performance and/or injunctive
relief in order to enforce, or prevent any violations of, the provisions hereof
(without the posting of a bond or other security).

(c)           In the event that the Management
Stockholder breaches any of the provisions of Section 24(a), in addition to all
other remedies that may be available to the Company, such Management
Stockholder shall be required to pay to the Company any amounts actually paid
to him or her by the Company in respect of any repurchase by the Company of the
New Option or shares of Common Stock underlying the New Option held by such
Management Stockholder.

 

[Signatures on next page.]

 

20

 

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

 

	
   

  	
  SEALY CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
   

  
	
   

  	
  Title:

  	
   

  
					

 

21

 

	
   

  	
  MANAGEMENT STOCKHOLDER:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  /s/

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  ADDRESS:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  

 

 

22Exhibit 4.6

 

FORM OF

SALE PARTICIPATION AGREEMENT

 

_______,
200_

 

 

To: The Person whose name is 

      set forth on the signature page
hereof

 

 

Dear Sir or Madam:

You have entered into a
Management Stockholder’s Agreement, dated as of the date hereof between Sealy
Corporation, a Delaware corporation (the “Company”), and you (the “Stockholder’s
Agreement”) relating to the granting to you by the Company of an Option (as
defined in the Stockholder’s Agreement) to purchase shares of Class A common
stock, par value $0.01 per share, of the Company (the “Common Stock”).  The undersigned, Sealy Holding LLC, a
Delaware limited liability company (the “Investor”) hereby agrees with
you as follows, effective upon such grant of Option:

1.     In the event that at any time the Investor
(together with any of its respective affiliates, to the extent provided for in
Paragraph 8 hereof, the “Selling Investors”) proposes to sell for cash
or any other consideration any shares of Common Stock owned by it, in any
transaction other than a Public Offering (as defined in the Stockholder’s
Agreement) or a sale to an affiliate of the Selling Investors, the Selling
Investor(s) will notify you or your Management Stockholder’s Estate or
Management Stockholder’s Trust (as such terms are defined in Section 2 of the
Stockholder’s Agreement, and collectively with you, the “Management
Stockholder Entities”), as the case may be, in writing (a “Notice”)
of such proposed sale (a “Proposed Sale”) and the material terms of the
Proposed Sale as of the date of the Notice (the “Material Terms”)
promptly, and in any event not less than 15 days prior to the consummation of
the Proposed Sale and not more than 5 days after the execution of the
definitive agreement relating to the Proposed Sale, if any (the “Sale
Agreement”).  If, within 10 days
after the Management Stockholder Entities’ receipt of such Notice, the Selling
Investor receives from the Management Stockholder Entities a written request (a
“Request”) to include Common Stock held by the Management Stockholder
Entities in the Proposed Sale (which Request shall be irrevocable unless (a)
there shall be a material adverse change in the Material Terms or (b) if
otherwise mutually agreed to in writing by the Management Stockholder Entities,
and the Selling Investor), the Common Stock held by you will be so included as
provided herein; provided that only one Request, which shall be executed by the
Management Stockholder Entities, may be delivered with respect to any Proposed
Sale for Common Stock held by the Management Stockholder Entities.  Promptly after the execution of the Sale
Agreement, the Selling Investors will furnish the Management Stockholder
Entities with a copy of the Sale Agreement, if any.

2.     (a) The number of shares of Common Stock
which the Management Stockholder Entities will be permitted to include in a
Proposed Sale pursuant to a Management Stockholder Request will be the lesser
of (i) the sum of the number of shares of Common Stock then actually owned (or
deemed owned) by the Management Stockholder Entities plus all shares

 

of Common Stock which you
are then entitled to acquire under any unexercised portion of the Option, to
the extent such Option is then exercisable or would become exercisable as a
result of the consummation of the Proposed Sale and (ii) the sum of the shares
of Common Stock then actually owned (or deemed owned) by the Management
Stockholder Entities plus all shares of Common Stock which you are
entitled to acquire under any unexercised portion of the Option, whether or not
fully exercisable, multiplied by a fraction (x) the numerator of which shall be
the aggregate number of shares of Common Stock which a Selling Investor or the
Selling Investors propose to sell in the Proposed Sale (after giving effect to
the applicable provisions of the Management Stockholders’ Agreement and any
other written agreement between the Selling Investors and any holder of shares
of Common Stock that gives the right to such holder to participate in the
Proposed Sale (an “Eligible Holder”) and (y) the denominator of which
shall be the total number of shares of Common Stock owned by such Selling
Investor or the Selling Investors, as the case may be.

(b) If one or more
Eligible Holders elect not to include the maximum number of shares of Common
Stock which such holders would have been permitted to include in a Proposed
Sale pursuant to Paragraph 2(a) (such non-included shares, the “Eligible
Shares”), then each of the Selling Investors, or the remaining Eligible
Holders, or any of them, will have the right to sell in the Proposed Sale a
number of additional shares of their Common Stock equal to their pro rata
portion of the number of Eligible Shares, based on the relative number of
shares of Common Stock then actually held (or deemed held) by each such holder,
and such additional shares of Common Stock which any such holder or holders
propose to sell shall be included in any calculation made pursuant to this
Paragraph 2 for the purpose of determining the number of shares of Common Stock
which the Management Stockholder Entities will be permitted to include in a
Proposed Sale.  The Selling Investors,
or any of them, will have the right to sell in the Proposed Sale additional
shares of Common Stock owned by them equal to the number, if any, of remaining
Eligible Shares which will not be included in the Proposed Sale pursuant to the
foregoing.

3.     Except as may otherwise be provided herein,
shares of Common Stock subject to a Request will be included in a Proposed Sale
pursuant hereto and in any agreements with purchasers relating thereto on the
same terms and subject to the same conditions applicable to the shares of
Common Stock which the Selling Investor proposes to sell in the Proposed
Sale.  Such terms and conditions shall
include, without limitation:  the pro
rata reduction of the number of shares of Common Stock to be included in the
Proposed Sale if required by the party proposing such Sale, the sale price; the
payment of fees, commissions and expenses; the provision of, and representation
and warranty as to, information reasonably requested by the Selling Investor
covering matters regarding the Management Stockholder Entities’ ownership of
shares; and the provision of requisite indemnification; provided that
any indemnification provided by the Management Stockholder Entities shall be
pro rata in proportion with the number of shares of Common Stock to be sold.

4.     Upon delivering a Request, the Management
Stockholder Entities, will, if requested by the Selling Investor, execute and
deliver a custody agreement and power of attorney in form and substance
satisfactory to the Selling Investor with respect to the shares of Common Stock
which are to be sold by the Management Stockholder Entities, pursuant hereto (a
“Custody Agreement and Power of Attorney”).  The Custody Agreement and Power of Attorney will

 

2

 

provide, among other
things, that the Management Stockholder Entities 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) and irrevocably appoint said
custodian and attorney-in-fact as the Management Stockholder Entities’ agent
and attorney-in-fact with full power and authority to act under the Custody
Agreement and Power of Attorney on the Management Stockholder Entities’ behalf
with respect to the matters specified therein.

5.     The Management Stockholder Entities’ right
pursuant hereto to participate in a Proposed Sale shall be contingent on the
Management Stockholder Entities’ strict compliance with each of the provisions
hereof and the Management Stockholder Entities’ respective willingness to
execute such documents in connection therewith as may be reasonably requested
by the Selling Investor.

6.     (a) In the event of a Proposed Sale
pursuant to Section 1 hereof, the Selling Investors may elect, by so specifying
in the Notice, to require the Management Stockholder Entities to, and the
Management Stockholder Entities shall, participate in such Proposed Sale to the
same extent calculated pursuant to Section 2(a) above, in accordance with the
terms and provisions of Section 3 hereof; provided, however, that
in such event, the order in which the shares of Common Stock held by as the
Management Stockholder Entities, shall be required to be sold shall be: first,
any shares of Common Stock then held by the Management Stockholder Entities;
and second, any shares of Common Stock acquired pursuant to the exercise of any
exercisable Options.

(b) In the event of a
transaction which results in a Change in Control (as defined in the
Stockholder’s Agreement) but is not a Proposed Sale (a “Proposed Transaction”),
you agree on behalf of the Management Stockholder Entities, to bear your pro
rata share of any fees, commissions, adjustments to purchase price, expenses or
indemnities borne by the relevant Selling Investor(s).

(c) Your pro rata share
of any amount to be paid pursuant to Paragraphs 3 or 6(b) shall be based upon
the number of shares of Common Stock actually held (or deemed held) by the
Management Stockholder Entities plus the number of shares of Common Stock you
would have the right to acquire under any unexercised portion of the Option
which is then vested or would become vested as a result of the Proposed Sale or
Proposed Transaction.

 

7.     The obligations of the Selling Investors
hereunder shall extend only to the Management Stockholder Entities, and none of
the Management Stockholder Entities’ successors or assigns shall have any
rights pursuant hereto.

8.     If the Selling Investors or any of them
transfer any of their interests in the Company to an affiliate of any of the
Selling Investors, such affiliate shall assume the obligations hereunder of the
Selling Investors.

9.     This Agreement shall terminate and be of no
further force and effect on the fifth anniversary of the first occurrence of a
Public Offering (as defined in the Stockholder’s Agreement).

 

3

 

 

10.   All notices and other communications provided
for herein shall be in writing and shall be deemed to have been duly given when
delivered to the party to whom it is directed:

	
   

  	
  If to the
  Selling Investors, to them at the following address:

  
	
   

  	
   

  
	
   

  	
   

  	
  Sealy
  Holding LLC

  
	
   

  	
   

  	
  c/o
  Kohlberg Kravis Roberts & Co. L.P.

  
	
   

  	
   

  	
  9
  West 57th Street

  
	
   

  	
   

  	
  New
  York, New York  10019

  
	
   

  	
   

  	
  Attn:  Brian Carroll

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  with a copy to:

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Simpson Thacher &
  Bartlett LLP

  
	
   

  	
   

  	
  425 Lexington Avenue

  
	
   

  	
   

  	
  New York, New York  10017

  
	
   

  	
   

  	
  Attn:

  	
  David Sorkin, Esq.

  
	
   

  	
   

  	
   

  	
  Sean Rodgers, Esq.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  If to the
  Company, at the following address:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Sealy
  Corporation

  
	
   

  	
   

  	
  One
  Office Parkway

  
	
   

  	
   

  	
  Trinity,
  North Carolina  27370

  
	
   

  	
   

  	
  Attn:

  	
  Kenneth
  L. Walker

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  with a copy to:

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Simpson Thacher &
  Bartlett LLP

  
	
   

  	
   

  	
  425 Lexington Avenue

  
	
   

  	
   

  	
  New York, New York  10017

  
	
   

  	
   

  	
  Attn:

  	
  David Sorkin, Esq.

  
	
   

  	
   

  	
   

  	
  Sean Rodgers, Esq.

  
						

 

If to you, to you at the
address first set forth above herein;

If to your Management
Stockholder’s Estate or Management Stockholder’s Trust, at the address provided
to the Company by such entity;

or at such other address as
any of the above shall have specified by notice in writing delivered to the
others by certified mail.

11.   The laws of the State of Delaware (or if the
Company reincorporates in another state, of that state) shall govern the
interpretation, validity and performance of the terms of this Agreement.  In the event of any controversy among the
parties hereto arising out of, or relating to, this Agreement which cannot be
settled amicably by the parties, such controversy 

 

4

 

shall be finally,
exclusively and conclusively settled by mandatory arbitration conducted
expeditiously in accordance with the American Arbitration Association rules, by
a single independent arbitrator.  Such
arbitration process shall take place within 100 miles of the New York City
metropolitan area.  The decision of the
arbitrator shall be final and binding upon all parties hereto and shall be
rendered pursuant to a written decision, which contains a detailed recital of
the arbitrator’s reasoning.  Judgment
upon the award rendered may be entered in any court having jurisdiction
thereof.  Each party shall bear its own
legal fees and expenses, unless otherwise determined by the arbitrator.  You hereby irrevocably waive any right that
you may have had to bring an action in any court, domestic or foreign, or
before any similar domestic or foreign authority with respect to this
Agreement.

12.   This Agreement may be executed in
counterparts, and by different parties on separate counterparts, each of which
shall be deemed an original, but all such counterparts shall together
constitute one and the same instrument.

13.   It is the understanding of the undersigned
that you are aware that no Proposed Sale presently is contemplated and that
such a sale may never occur.

[Signatures on next page.]

 

5

 

 

If
the foregoing accurately sets forth our agreement, please acknowledge your
acceptance thereof in the space provided below for that purpose.

	
   

  	
  Very truly yours,

  
	
   

  	
   

  	
   

  
	
   

  	
  SEALY HOLDING LLC

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
				

 

6

 

 

 

	
  Accepted and agreed this
  _____ day of

  	
   

  
	
   

  	
   

  
	
  _________ 200_.

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  /s/

  	
   

  
	
   

  	
   

  

 

7

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