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Exhibit 10.29  

          Sealy Corporation  

 Directors' Deferred Compensation Plan  

 
 

Sealy Corporation
  Directors' Deferred Compensation Plan    
    

 
 

Table of Contents    
    

	ARTICLE I	DEFINITIONS	 	1
	

ARTICLE II	

ELECTION TO DEFER	
 	

1
	

ARTICLE III	

DEFERRED COMPENSATION ACCOUNTS	
 	

2
	

ARTICLE IV	

PAYMENT OF DEFERRED COMPENSATION	
 	

2
	

ARTICLE V	

ADMINISTRATION	
 	

3
	

ARTICLE VI	

AMENDMENT OF PLAN; GOVERNING LAW; CHANGE IN CONTROL	
 	

3

  

 
 

ARTICLE I
  
  DEFINITIONS

	1.1.
	"Board"
shall mean the Board of Directors of Sealy Corporation.

	1.2.
	"Director"
shall mean a member of the Board of Directors of the Company who is not an employee of the Company or any of its subsidiaries.

	1.3.
	"Plan"
shall mean this Deferred Compensation Plan for Directors as it may be amended from time to time.

	1.4.
	"Fees"
shall mean amounts earned for serving as a member of the Board, including any committees of the Board.

	1.5.
	"Year"
shall mean calendar year.

	1.6.
	"Common
Stock" shall mean the Common Stock of the Company.

	1.7.
	"Company"
means Sealy Corporation.

	1.8.
	"Stock
Account" shall mean the account created by the Company pursuant to Article III of this Plan.

	1.9.
	"Stock
Value" shall mean, for any given day, the closing price of the Company's Common Stock as reported on the New York Stock Exchange Inc. ("NYSE") Composite
Tape on such day. If the closing price is not available from the NYSE for the Common Stock on a date in question, then the next preceding practicable date for which such closing price is available
shall be used.

	1.10.
	"He",
"Him", or "His" shall apply equally to male and female members of the Board.

	1.11.
	"Change
in Control" means (i) the sale of all or substantially all of the assets of the Company to an Unaffiliated Person (as defined below); (ii) a sale
by the Company, Sealy Holding LLC (the "Investor") or any of their respective affiliates resulting in more than 50% of the voting stock of the Company being held by a person or group (as such terms
are used in the Securities Exchange Act of 1934, as amended) that does not include the Investor or any of their respective affiliates; (iii) a merger, consolidation, recapitalization or
reorganization of the Company with or into an Unaffiliated Person; if and only if any such event listed in clauses (i) through (iii) above
results in the inability of KKR Millennium Fund L.P. ("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
member of the Investor holds, directly or indirectly, a majority of the economic interests in such entity. 

 
 

ARTICLE II
  
  ELECTION TO DEFER

	2.1.
	A
Director may elect, on or before December 31 of any Year, to defer payment of all or a specified part of all Fees earned during the Year following such
election and succeeding Years (until the Director ceases to be a Director or changes his election pursuant to section 2.3 herein). Any person who shall become a Director during any Year, and
who was not a Director of the Company on the preceding December 31, may elect, before the Director's term begins to defer payment of all or a specified part of such Fees earned during the
remainder of such Year and for succeeding Years. 

1

 
	2.2.
	The
election to participate in the Plan and manner of payment shall be designated by submitting a letter in the form attached hereto as Appendix A to the
Secretary of the Company.

	2.3.
	The
election shall continue from Year to Year unless the Director terminates it by written request delivered to the Secretary of the Company prior to the commencement
of the Year for which the termination is first effective. 

 
 

ARTICLE III
  
  DEFERRED COMPENSATION ACCOUNTS

	3.1.
	The
Company shall maintain separate memorandum accounts for the Fees deferred by each Director.

	3.2.
	The
Company shall credit, on the date Fees become payable, the Stock Account of each Director with the number of shares of Common Stock which is equal to the deferred
portion of any Fee due the Director at such time, divided by the Stock Value on the date such fees would otherwise have been paid. For purposes of this section 3.2, the Stock Value shall be
determined on the date fees would otherwise have been paid.

	3.3.
	The
Company shall credit the Stock Account of each Director with the number of shares of Common Stock equal to any cash dividends (or the fair market value of dividends
paid in property other than dividends payable in Common Stock) payable on the number of shares of Common Stock represented in each Director's Stock Account divided by the Stock Value on the dividend
payment date. Dividends payable in Common Stock will be credited to each Directors Stock Account in the form of the right to receive Common Stock. If adjustments are made to the outstanding shares
Common Stock as a result of split-ups, recapitalizations, mergers, consolidations and the like, an appropriate adjustment also will be made in the number of shares of Common Stock credited
to the Director's Stock Account.

	3.4.
	Common
Stock shall be computed to three decimal places.

	3.5.
	The
right to receive Common Stock at a later date shall not entitle any person to rights of a stockholder with respect to such Common stock unless and until shares of
Common Stock have been issued to such person pursuant to Article IV hereof.

	3.6.
	The
Company shall not be required to acquire, reserve, segregate, or otherwise set aside shares of its Common Stock for the payment if its obligations under the Plan,
but shall make available as and when required a sufficient number of shares of its Common Stock to meet the needs of the Plan.

	3.7.
	Nothing
contained herein shall be deemed to create a trust of any kind or any fiduciary relationship. To the extent that any person acquires a right to receive payments
from the Company under the Plan, such right shall be no greater than the right of any unsecured general creditor of the Company. 

 
 

ARTICLE IV
  
  PAYMENT OF DEFERRED COMPENSATION

	4.1.
	Subject
to the second succeeding sentence, amounts contained in a Director's Stock Account shall be distributed as the Director's election (made pursuant to
Paragraph 2.2 of Article II hereof) shall provide. Distributions from the Director's Stock Account shall be paid in Common Stock or the cash equivalent thereof, at the election of the
Company, and shall begin on either the first day of 

2

 

the
Year following or six months following (whichever is later), the later of the attainment of the Director's retirement date (as indicated in the Director's election) or separation from the Board. 

	4.2.
	Each
Director shall have the right to designate one or more beneficiaries to succeed to his right to receive payments hereunder in the event of his death. Each
designated beneficiary shall receive payments in the same manner as the Director if he had lived. In case of a failure of designation or the death of all designated beneficiaries without any
designated successors, the balance of the amounts contained in the Director's Stock Account shall be payable in accordance with Section 4.1 to the Director's or former Director's estate in full
on the first day of the Year following the Year in which he dies. No beneficiary designation shall be valid unless it is in writing, signed by the Director and filed with the Secretary of the Company. 

 
 

ARTICLE V
  
  ADMINISTRATION

	5.1.
	The
Company shall administer the Plan at its expense. All decisions made by the Company with respect to issues hereunder shall be final and binding on all parties.

	5.2.
	Except
to the extent required by law, the right of any Director or any beneficiary to any benefit or to any payment hereunder shall not be subject in any manner to
attachment or other legal process for the debts of such Director or beneficiary; and any such benefit or payment shall not be subject to alienation, sale, transfer, assignment or encumbrance. 

 
 

ARTICLE VI
  
  AMENDMENT OF PLAN; GOVERNING LAW; CHANGE IN CONTROL

	6.1.
	The
Plan may be amended, suspended or terminated in whole or in part from time to time by the Board except that no amendment, suspension, or termination shall apply to
the payment of any amounts previously credited to a Director's Stock Account.

	6.2.
	The
Plan shall be governed by and construed and enforced in accordance with the laws of the State of Delaware, without regard to principles of conflict of law.

	6.3.
	In
the event of a Change in Control, all amounts contained in each Director's Stock Account shall be distributed (in the same manner which such amounts would have
otherwise been paid as indicated in the Director's election) within thirty (30) days after the occurrence of such Change in Control. 

        Adopted
by Sealy Corporation and effective on the 13th day of December, 2004. 

3

 
 

APPENDIX A    
    

[Date]

Ken
Walker

Secretary

Sealy Corporation

One Office Parkway

Trinity, North Carolina 27370 

Dear
Mr.                                   : 

        Pursuant
to the Sealy Corporation Directors' Deferred Compensation Plan, dated as of December 13, 2004 (the "Plan"), I hereby elect to defer receipt of all or a portion of my
Director's fees commencing 2005 and for succeeding calendar years in accordance with the percentages indicated below. 

        I
elect to have my director's fees (and committee fees, if any) credited as follows (fill in appropriate percentages for options a and b, below): 

	(a)
	          %
of the aggregate Director's fees shall be credited to my Stock Account as provided for in the Plan;

	(b)
	          %
of the aggregate Director's fees shall not be deferred, but shall be paid to me directly as they accrue. 

        Further,
I elect to receive any future payments to be made from my Stock Account in the following method (check one desired method below): 

                  
in one lump sum; 

                  
in            (insert number) equal annual installments. 

        I
understand that my Stock Account will become payable on either the first day of the Year following or six months following (whichever is later) the later of the attainment of my
"retirement date" (as indicated below) or separation from the Board. For this purpose, 

        I
elect my retirement date to be attainment of age           . 

        I
further understand that, in any event, my Stock Account will become payable in the same manner as elected above within thirty (30) days after the occurrence of a Change in
Control (as defined in the Plan). 

        In
the event of my death prior to receipt of all or any amount of the balance of my Stock Account so accumulated, I designate the following one or more individuals
                                         
                     
                                         
        as my beneficiary or beneficiaries to receive the funds so accumulated, but unpaid.
 

	 	 	Very truly yours,
	

 	
 	

[Name]

[Witness]

QuickLinks

Sealy Corporation Directors' Deferred Compensation Plan

Table of Contents

ARTICLE I DEFINITIONS

ARTICLE II ELECTION TO DEFER

ARTICLE III DEFERRED COMPENSATION ACCOUNTS

ARTICLE IV PAYMENT OF DEFERRED COMPENSATION

ARTICLE V ADMINISTRATION

ARTICLE VI AMENDMENT OF PLAN; GOVERNING LAW; CHANGE IN CONTROL

APPENDIX AExhibit 10.30  

FORM OF

STOCK OPTION AGREEMENT

(LEVEL 16 AND ABOVE)

SPECIAL RETIREMENT  

        THIS AGREEMENT, dated as of the "Grant Date" set forth on the signature page hereof is made by and between Sealy
Corporation, a Delaware corporation (hereinafter referred to as the "Company"), and the individual whose name is set forth on the signature page hereof,
who is an employee of the Company or a Subsidiary or Affiliate of the Company, hereinafter referred to as the "Optionee". Any capitalized terms herein
not otherwise defined in Article I shall have the meaning set forth in the Plan (as hereinafter defined). 

        WHEREAS,
the Company wishes to carry out the Plan, the terms of which are hereby incorporated by reference and made a part of this Agreement; and 

        WHEREAS,
the Committee, appointed to administer the Plan, has determined that it would be to the advantage and best interest of the Company and its shareholders to grant the Option
provided for herein to the Optionee as an incentive for increased efforts during his term of office with the Company or its Subsidiaries or Affiliates, and has advised the Company thereof and
instructed the undersigned officers to issue said Option; 

        NOW,
THEREFORE, in consideration of the mutual covenants herein contained and other good and valuable consideration, receipt of which is hereby acknowledged, the parties hereto do hereby
agree as follows: 

ARTICLE I  

DEFINITIONS

        Whenever
the following terms are used in this Agreement, they shall have the meaning specified below unless the context clearly indicates to the contrary. 

        Section 1.1.    —Cause    

        "Cause"
shall mean "Cause" as such term may be defined in any employment agreement between the Optionee and the Company or any of its Subsidiaries or Affiliates, or, if there is no such
employment agreement, "Cause" shall mean: (a) the Optionee'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 Optionee by the Company (the "Cure Period"), (b) the
willful or intentional engaging by the Optionee in conduct that causes material and demonstrable injury, monetarily or otherwise, to the Company and its Affiliates, (c) the Optionee's
commission of any indictable offense which carries a maximum penalty of imprisonment, or (d) a material breach of the Optionee's Management Stockholder's Agreement or other agreements, if any,
including, without limitation, engaging in any action in breach of the restrictive covenants as set forth therein, which continues beyond the Cure Period (to the extent that, in the Board's reasonable
judgment, such breach can be cured). 

        Section 1.2.    —Change in Control    

        "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 by the Company, the Investor or any
of their respective affiliates resulting in more than 50% of the voting stock of the Company being held by a person or group (as such terms are used in the Securities Exchange Act of 1934, as amended)
that does not include the Investor or any of their respective affiliates; (iii) a merger, consolidation, recapitalization or reorganization of the Company with or into an 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 member of the Investor holds, directly or indirectly, a majority of the economic interests in
such entity. 

        Section 1.3.    —Committee    

        "Committee"
shall mean the Human Resources Committee of the Board of Directors of the Company. 

        Section 1.4.    —Fiscal Year    

        "Fiscal
Year" shall mean each fiscal year of the Company (which, for the avoidance of doubt, ends on or about November 30 of any given calendar year). 

        Section 1.5.    —Good Reason    

        "Good
Reason" shall mean "Good Reason" as defined in any employment agreement between the Optionee and the Company or any of its Subsidiaries or Affiliates, or, if there is no such
employment agreement, "Good Reason" shall mean without the Optionee's consent: (A) a reduction in the Optionee's base salary (other than a general reduction in base salary that affects all
members of senior management equally); (B) a substantial reduction in the Optionee's duties and responsibilities; and (C) a transfer of the Optionee's primary workplace by more than
fifty (50) miles from the current workplace; and provided, further, that "Good Reason" shall
cease to exist for an event on the 60th day following the later of its occurrence or the Optionee's knowledge thereof, unless the Optionee has given the Company written notice thereof
prior to such date. 

        Section 1.6.    —Investor    

        "Investor"
means Sealy Holding LLC. 

        Section 1.7.    —KKR    

        "KKR"
means the KKR Millennium Fund L.P. 

        Section 1.8.    —Management Stockholder's Agreement    

        "Management
Stockholder's Agreement" shall mean that certain Management Stockholder's Agreement between the Optionee and the Company which is dated as indicated on the signature page
hereof. 

        Section 1.9.    —Option    

        "Option"
shall mean the aggregate of the Time Option and the Performance Option granted under Section 2.1 of this Agreement. 

        Section 1.10.    —Permanent Disability    

        "Permanent
Disability" shall mean the Optionee 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 Optionee's duties with the Company or any Subsidiary or Affiliate thereof. Any question as to the existence of the Permanent Disability of the
Optionee as to which the Optionee and the Company cannot agree shall be determined in writing by a qualified independent physician mutually acceptable to the Optionee and the Company. If the Optionee
and the Company cannot agree as to a qualified independent physician, each 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 Optionee shall be final and conclusive for all 

2

 

purposes
of this Agreement (such inability is hereinafter referred to as "Permanent Disability" or being "Permanently Disabled"). 

        Section 1.11.    —Performance Option    

        "Performance
Option" shall mean the right and option to purchase, on the terms and conditions set forth herein, all or any part of an aggregate of the number of shares of Common Stock
set forth on the signature page hereof opposite the term Performance Option. 

        Section 1.12.    —Plan    

        "Plan"
shall mean the 2004 Stock Option Plan for Key Employees of Sealy Corporation and Its Subsidiaries. 

        Section 1.13.    —Qualified Retirement    

        Qualified
Retirement shall mean a retirement from the Company meeting all of the following criteria: (a) the Optionee has been continually employed by the Company from the date
hereof through April 1, 2006, and (b) the Optionee has notified the Company of such retirement at least one year prior to such retirement. 

        Section 1.14.    —Secretary    

        "Secretary"
shall mean the Secretary of the Company. 

        Section 1.15.    —Time Option    

        "Time
Option" shall mean the right and option to purchase, on the terms and conditions set forth herein, all or any part of an aggregate of the number of shares of Common Stock set forth
on the signature page hereof opposite the term Time Option. 

ARTICLE II  

GRANT OF OPTIONS

        Section 2.1.    —Grant of Options    

        For
good and valuable consideration, on and as of the date hereof the Company irrevocably grants to the Optionee (i) a Time Option to purchase any part or all of an aggregate of
the number of shares set forth on the signature page hereof of its Common Stock upon the terms and conditions set forth in this Agreement and (ii) a Performance Option to purchase any part or
all of an aggregate of the number of shares set forth on the signature page hereof of its Common Stock upon the terms and conditions set forth in this Agreement. The Option shall consist of a Time
Option and a Performance Option. 

        Section 2.2.    —Exercise Price    

        Subject
to Section 2.4, the exercise price of the shares of Common Stock covered by the Option shall be the price per share set forth on the signature page hereof (the
"Base Price") without commission or other charge (which is the Fair Market Value per share of the Common Stock on the Grant Date). 

        Section 2.3.    —No Guarantee of Employment    

        Nothing
in this Agreement or in the Plan shall confer upon the Optionee any right to continue in the employ of the Company or any Subsidiary or Affiliate or shall interfere with or
restrict in any way the rights of the Company and its Subsidiaries or Affiliates, which are hereby expressly reserved, to terminate the employment of the Optionee at any time for any reason
whatsoever, with or without 

3

 

cause,
subject to the applicable provisions of, if any, the Optionee's employment agreement with the Company or offer letter provided by the Company to the Optionee. 

        Section 2.4.    —Adjustments to Option    

        Subject
to Sections 8 and 9 of the Plan, in the event that the outstanding shares of the stock subject to the Option, are, from time to time, changed into or exchanged for a different
number or kind of shares of the Company or other securities by reason of a merger, consolidation, recapitalization, reclassification, stock split, spin-off, stock dividend, combination of
shares, or other corporate event, the Committee shall make, as appropriate and equitable, an adjustment in the number and kind of shares and/or the amount of consideration as to which or for which, as
the case may be, such Option, or portions thereof then unexercised, shall be exercisable, and the Committee may, as it deems appropriate and equitable, pay to the Optionee an amount in respect of the
shares of Common Stock subject to the Option, with such conditions or limitations as the Committee may deem reasonable and necessary to preserve the economic value of the Option. Any such adjustment
made by the Committee shall be final and binding upon the Optionee, the Company and all other interested persons. 

ARTICLE III  

PERIOD OF EXERCISABILITY

        Section 3.1.    —Commencement of Exercisability    

        (a)   So
long as the Optionee continues to be employed by the Company or any of its Subsidiaries or Affiliates, the Option shall become exercisable pursuant to the following
schedules: 

        (i)    Time Option. The Time Option, unless otherwise specifically provided on the signature page hereof, shall become vested
and exercisable ratably on a monthly basis for the five-year period, beginning on the Grant Date. 

        (ii)   Performance Option. The Performance Option, unless otherwise specifically provided on the signature page hereof, shall
become vested and exercisable as to 100% of the shares subject to such option on the eighth anniversary of the Grant Date; provided,  however, that the
exercisability of the Performance Option will be accelerated as to the number of shares of Common Stock subject to such Option at the
end of each of the Fiscal Years specifically indicated on the signature page hereof, if and only if the Company achieves the EBITDA performance targets
set forth on signature page hereof (each, an "Annual Performance Target"). In the event that an Annual Performance Target is not achieved in a
particular Fiscal Year, the vesting of the Performance Option shall accelerate if the subsequent Annual Performance Target(s) are achieved, such that the Performance Option shall vest as if all prior
Annual Performance Targets had been met. 

        (b)   Notwithstanding
the foregoing, (i) the Time Option shall become immediately exercisable as to 100% of the shares of Common Stock subject to such option
immediately prior to a Change in Control (but only to the extent such option has not otherwise terminated or become exercisable) and (ii) the Performance Option shall become immediately
exercisable as to 100% of the shares of Common Stock subject to such option immediately prior to a Change in Control (but only to the extent such option has not otherwise terminated or become
exercisable) if (x) the Annual Performance Targets have been achieved for each of the prior Fiscal Years or on a "catch-up" basis or (y) as a result of the Change in Control,
(A) the Investor achieves a gross internal rate of return of not less than 22.5% (on a fully diluted basis, assuming the inclusion of all shares of Common Stock underlying all Options as
determined in the sole discretion of the Company) as determined by the Investor and (B) the Investor earns at least 2.75 times the Base Price for each share of Common Stock held (directly or
indirectly) by it. If a Change in Control occurs during a Fiscal Year, the board of directors of the Company will 

4

 

determine
in good faith what percentage will become vested based upon quarterly performance targets measuring EBITDA over the trailing twelve month period. 

        (c)   Notwithstanding
the foregoing, in the event of a termination of the Optionee's employment by reason of death or Permanent Disability, all unvested Options will become
immediately exercisable. 

        (d)   Notwithstanding
the foregoing, no Option shall become exercisable as to any additional shares of Common Stock (which does not otherwise become exercisable in accordance
with Section 3.1(a), (b) or (c) above) following the termination of employment of the Optionee for any reason and any Option, which is unexercisable as of the Optionee's
termination of employment, shall be immediately cancelled without payment therefor. 

        Section 3.2.    —Expiration of Option    

        Except
as otherwise provided in Section 5 or 6 of the Management Stockholder's Agreement, the Optionee may not exercise the Option to any extent after the first to occur of the
following events: 

        (a)   The
tenth anniversary of the Grant Date; or 

        (b)   The
first anniversary of the date of the Optionee's termination of employment, if the Optionee's employment is terminated by reason of death or Permanent Disability
(unless earlier terminated as provided in Section 3.2(e) below); or 

        (c)   Immediately
upon the date of the Optionee's termination of employment by the Company or its Subsidiaries or Affiliates for Cause; or 

        (d)   Thirty
(30) days after the date of an Optionee's termination of employment by the Company or any of its Subsidiaries or Affiliates without Cause (for any reason
other than as set forth in Section 3.2(b)) or by the Optionee for Good Reason (in either case unless earlier terminated as provided in Section 3.2(e) below); or 

        (e)   The
date the Option is terminated pursuant to Section 5 or 6 of the Management Stockholder's Agreement; or 

        (f)    Thirty
(30) days after the date of an Optionee's termination of employment by the Optionee without Good Reason; or 

        (g)   One
Hundred and Eighty (180) days after the date of an Optionee's Qualified Retirement from the Company or any of its Subsidiaries; or 

        (h)   At
the discretion of the Company, if the Committee so determines pursuant to Section 9 of the Plan, the effective date of either the merger or consolidation of
the Company into another Person, or the exchange or acquisition by another Person of all or substantially all of the Company's assets or 80% or more of its then outstanding voting stock, or the
recapitalization, reclassification, liquidation, dissolution or other corporate event of the Company after (x) ten (10) days prior written notice to the Optionee that the Company intends
to exercise such discretion and an opportunity for the Optionee to exercise his Options, (y) payment to the Optionee in respect of the termination of his Options, or (z) an opportunity
for the Executive to rollover his Options into new stock options, in connection with such transaction. 

5

 

ARTICLE IV  

EXERCISE OF OPTION

        Section 4.1.    —Person Eligible to Exercise    

        Except
as otherwise provided in the Management Stockholder's Agreement, during the lifetime of the Optionee, only he may exercise an Option or any portion thereof. After the death of the
Optionee, any exercisable portion of an Option may, prior to the time when an Option becomes unexercisable under Section 3.2, be exercised by his personal representative or by any person
empowered to do so under the Optionee's will or under the then applicable laws of descent and distribution. 

        Section 4.2.    —Partial Exercise    

        Any
exercisable portion of an Option or the entire Option, if then wholly exercisable, may be exercised in whole or in part at any time prior to the time when the Option or portion
thereof becomes unexercisable under Section 3.2; provided, however, that any partial exercise
shall be for whole shares of Common Stock only. 

        Section 4.3.    —Manner of Exercise    

        An
Option, or any exercisable portion thereof, may be exercised solely by delivering to the Secretary or his office all of the following prior to the time when the Option or such portion
becomes unexercisable under Section 3.2: 

        (a)   Notice
in writing signed by the Optionee or the other person then entitled to exercise the Option or portion thereof, stating that the Option or portion thereof is
thereby exercised, such notice complying with all applicable rules established by the Committee; 

        (b)   Full
payment (in cash or by check or by a combination thereof) for the shares with respect to which such Option or portion thereof is exercised;  provided that, in the case of an Optionee's termination of
employment by the Company or any of its Subsidiaries or Affiliates without Cause or by the
Optionee for Good Reason, or by the Optionee as a result of a Qualified Retirement payment for the shares with respect to which such Option or portion
thereof is exercised may be made on a net basis, such that without the exchange of any funds, such Optionee receives that number of shares that would otherwise be issuable upon a cash exercise of such
Options less that number of shares having a Fair Market Value equal to the aggregate exercise price that would otherwise have been paid by such Optionee for the number of shares with respect to which
such Option is being excercised; 

        (c)   A
bona fide written representation and agreement, in a form satisfactory to the Committee, signed by the Optionee or other person then entitled to exercise such Option
or portion thereof, stating that the shares of Common Stock are being acquired for his own account, for investment and without any present intention of distributing or reselling said shares or any of
them except as may be permitted under the Securities Act of 1933, as amended (the "Act"), and then applicable rules and regulations thereunder, and that
the Optionee or other person then entitled to exercise such Option or portion thereof will indemnify the Company against and hold it free and harmless from any loss, damage, expense or liability
resulting to the Company if any sale or distribution of the shares by such person is contrary to the representation and agreement referred to above;  provided, however, that the Committee may, in its reasonable discretion, take whatever additional
actions it deems reasonably necessary to ensure the observance and performance of such representation and agreement and to effect compliance with the Act and any other federal or state securities laws
or regulations; 

6

 

        (d)   Full
payment to the Company of all amounts which, under federal, state or local law, it is required to withhold upon exercise of the Option; and 

        (e)   In
the event the Option or portion thereof shall be exercised pursuant to Section 4.1 by any person or persons other than the Optionee, appropriate proof of the
right of such person or persons to exercise the option. 

Without
limiting the generality of the foregoing, the Committee may require an opinion of counsel acceptable to it to the effect that any subsequent transfer of shares acquired on exercise of an
Option does not violate the Act, and may issue stop-transfer orders covering such shares. Share certificates evidencing stock issued on exercise of this Option shall bear an appropriate
legend referring to the provisions of subsection (c) above and the agreements herein. The written representation and agreement referred to in subsection (c) above shall, however, not be
required if the shares to be issued pursuant to such exercise have been registered under the Act, and such registration is then effective in respect of such shares. 

        Section 4.4.    —Conditions to Issuance of Stock Certificates    

        The
shares of stock deliverable upon the exercise of an Option, or any portion thereof, may be either previously authorized but unissued shares or issued shares, which have then been
reacquired by the Company. Such shares shall be fully paid and nonassessable. The Company shall not be required to issue or deliver any certificate or certificates for shares of stock purchased upon
the exercise of an Option or portion thereof prior to fulfillment of all of the following conditions: 

        (a)   The
obtaining of approval or other clearance from any state or federal governmental agency which the Committee shall, in its reasonable and good faith discretion,
determine to be necessary or advisable; and 

        (b)   The
lapse of such reasonable period of time following the exercise of the Option as the Committee may from time to time establish for reasons of administrative
convenience or as may otherwise be required by applicable law. 

        Section 4.5.    —Rights as Stockholder    

        Except
as otherwise provided in Section 2.4 of this Agreement, the holder of an Option shall not be, nor have any of the rights or privileges of, a stockholder of the Company in
respect of any shares purchasable upon the exercise of the Option or any portion thereof unless and until certificates representing such shares shall have been issued by the Company to such holder. 

ARTICLE V  

MISCELLANEOUS

        Section 5.1.    —Administration    

        The
Committee shall have the power to interpret the Plan and this Agreement and to adopt such rules for the administration, interpretation and application of the Plan as are consistent
therewith and to interpret or revoke any such rules. All actions taken and all interpretations and determinations made by the Committee shall be final and binding upon the Optionee, the Company and
all other interested persons. No member of the Committee shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or the Option. In its
absolute discretion, the Board may at any time and from time to time exercise any and all rights and duties of the Committee under the Plan and this Agreement. 

7

 

        Section 5.2.    —Option Not Transferable    

        Except
as provided in the Management Stockholder's Agreement, neither the Option nor any interest or right therein or part thereof shall be liable for the debts, contracts or engagements
of the Optionee or his successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means whether such disposition be
voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof
shall be null and void and of no effect; provided, however, that this Section 5.2 shall not prevent transfers by will or by the applicable laws of descent and distribution. 

        Section 5.3.    —Notices    

        Any
notice to be given under the terms of this Agreement to the Company shall be addressed to the Company in care of its Secretary, and any notice to be given to the Optionee shall be
addressed to him at the address given beneath his signature hereto. By a notice given pursuant to this Section 5.3, either party may hereafter designate a different address for notices to be
given to him. Any notice, which is required to be given to the Optionee, shall, if the Optionee is then deceased, be given to the Optionee's personal representative if such representative has
previously informed the Company of his status and address by written notice under this Section 5.3. Any notice shall have been deemed duly given when enclosed in a properly sealed envelope or
wrapper addressed as aforesaid, deposited (with postage prepaid) in a post office or branch post office regularly maintained by the United States Postal Service. 

        Section 5.4.    —Titles; Pronouns    

        Titles
are provided herein for convenience only and are not to serve as a basis for interpretation or construction of this Agreement. The masculine pronoun shall include the feminine and
neuter, and the singular the plural, where the context so indicates. 

        Section 5.5.    —Applicability of Plan and Management Stockholder's Agreement    

        The
Option and the shares of Common Stock issued to the Optionee upon exercise of the Option shall be subject to all of the terms and provisions of the Plan and the Management
Stockholder's Agreement, to the extent applicable to the Option and such shares. In the event of any conflict between this Agreement and the Plan, the terms of the Plan shall control. In the event of
any conflict between this Agreement or the Plan and the Management Stockholder's Agreement, the terms of the Management Stockholder's Agreement shall control. 

        Section 5.6.    —Amendment    

        This
Agreement may be amended only by a writing executed by the parties hereto, which specifically states that it is amending this Agreement. 

        Section 5.7.    —Governing Law    

        The
laws of the State of Delaware 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 laws. 

        Section 5.8.    —Arbitration    

        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 

8

 

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. 

        [Signatures on next page.] 

9

 

        IN WITNESS WHEREOF, this Agreement has been executed and delivered by the parties hereto.

	SEALY CORPORATION	 	OPTIONEE:
	

By:	
 	

 	
 	

 
	 	 	
	 	

	Jeffrey C. Claypool

Senior Vice President, Human Resources	 	Bruce Barman

MAJOR TERMS  

	•
	Time Options: 181,323 shares of Common Stock are covered by the Time Option granted hereunder.

	•
	Time Option Vesting: At the Grant date 5% (five
percent) of the Time Options hereunder shall be vested and the balance of the Time Options shall vest ratably on a monthly basis for the  57 month period, beginning on the Grant
date.

	•
	Performance Options: 212,500 shares of Common Stock are covered by the Performance Option granted
hereunder

	•
	Base Price: $ 4.39 per share

	•
	Grant Date: July 20, 2004

	•
	Annual Performance Targets: The Annual Performance Targets are based on the Company's achievement of the following EBITDA
targets for the following Fiscal Years which will result in the vesting of the indicated Performance Options: 

	Fiscal Year
 
	 	EBITDA Target
	 	Performance Options Vesting

	2004:	 	$	180.0 million	 	42,500
	2005:	 	$	202.4 million	 	42,500
	2006:	 	$	221.8 million	 	42,500
	2007:	 	$	240.3 million	 	42,500
	2008:	 	$	258.0 million	 	42,500

        Annual
Performance Targets will be adjusted by the Board of Directors, in consultation with management, for any acquisitions, divestitures or major capital investment programs not
contemplated in the Initial Management Plan. 

10

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