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EXHIBIT 10.14
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CHANGE OF CONTROL AGREEMENT
THIS CHANGE OF CONTROL AGREEMENT is entered into as of the 4th day of
August, 1997, by and between SEALY CORPORATION, a Delaware corporation (the
"Company"), and JAMES F. GOUGHENOUR (the "Employee").
W I T N E S S E T H:
WHEREAS, the Company and the Employee (collectively "the Parties") desire
to enter into this Change of Control Agreement (the "Agreement") as hereinafter
set forth;
NOW, THEREFORE, the Company and Employee agree as follows:
1. PROTECTED PERIOD.
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(a) This Agreement is intended to provide the Employee with certain
special benefits and to grant certain special protections so that
the Employee may more fully focus on the issues related to a
"Change of Control," as hereinafter defined, and to reward the
Employee for the substantial extra effort involved in a Change of
Control.
(b) In order to provide the protections deemed necessary and
appropriate by the Parties, the Parties agree to the
establishment of a period during which such protections apply.
Such period shall be referred to in this Agreement as the
"Protected Period." The Protected Period shall be as follows:
(i) The Protected Period shall be the one (1) year period
commencing on the date a Change of Control occurs and ending
on the first anniversary thereof; and
(ii) Provided that, if the Employee's employment terminates prior
to a Change of Control, but such termination is "In
Connection With a Change of Control," as hereinafter
defined, the termination shall be deemed to have occurred
during the Protected Period and the Employee shall be
entitled to the benefits and protections set forth in this
Agreement.
(c) For purposes of this Agreement, and particularly Subsection 1(b)
hereof, a termination shall be deemed to be "In Connection With a
Change of Control" if:
(i) Such termination is at the request of the purchaser in the
Change of Control transaction; or
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(ii) Such termination is by the Company other than for Cause or
is by the Employee for Good Reason and reflects an intent by
the Company to avoid payment of benefits under this
Agreement notwithstanding the Employee's compliance with
Section 2 hereof;
provided, however, that a termination otherwise defined in this
Subsection 1(c) as In Connection With a Change of Control will
not be deemed In Connection With a Change of Control unless a
Change of Control occurs within six (6) months after the date of
the Employee's termination of employment with the Company.
(d) The Parties agree that this Agreement is an agreement dealing
only with benefits, rights and duties of the Parties during a
Protected Period. The Parties specifically agree that this
Agreement is not intended to be and is not an employment
agreement. The Employee is, as of the date of this Agreement,
and will remain, an employee at will, but subject to those
special provisions herein set forth.
2. POSITION, DUTIES, AND RESPONSIBILITIES. At all times during the
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Protected Period, the Employee shall:
(a) Hold either (i) the position with the Company that the Employee
holds at the commencement of the Protected Period or (ii) a
position with the Company of greater duties, responsibilities and
authority than the position with the Company that the Employee
holds at the commencement of the Protected Period;
(b) Have those duties and responsibilities, and the authority,
customarily possessed by an employee of a major corporation in
the position of the Employee and such additional duties as may be
assigned to the Employee from time to time by the Board of
Directors of the Company (the "Board") or the Chief Executive
Officer of the Company (the "Chief Executive Officer") or the
Employee's superior(s) which are consistent with the Employee's
position;
(c) Adhere to such reasonable policies and directives as may be
promulgated from time to time by the Board or the Chief Executive
Officer and which are applicable to employees at the Employee's
level with the Company;
(d) Invest in the Company only in accordance with any insider trading
policy of the Company in effect at the time of the investment;
and
(e) Devote the Employee's entire business time, energy, and talent to
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the business, and to the furtherance of the purposes and
objectives, of the Company, and neither directly nor indirectly
act as an employee of or render any business, commercial, or
professional services to any other person, firm or organization
for compensation, without the prior written approval of the Board
or the Chief Executive Officer.
Nothing in this Agreement shall preclude the Employee from devoting
reasonable periods of time to charitable and community activities or the
management of the Employee's investment assets, provided such activities do not
interfere with the performance by the Employee of the Employee's duties
hereunder.
3. SALARY, BONUS AND BENEFITS. For services rendered by the Employee on
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behalf of the Company during the Protected Period, the following salary, bonus
and benefits shall be provided to the Employee by the Company:
(a) The Company shall pay to the Employee, in equal installments,
according to the Company's then current practice for paying its
employees at the level of the Employee in effect from time to
time during the Protected Period, an annual base salary at a rate
not less than that in effect at the commencement of the Protected
Period.
(b) The Employee shall participate in the Sealy Corporation Annual
Bonus Plan (the "Bonus Plan") in accordance with the provisions
of that Plan as in effect as of the date of this Agreement with a
Target annual bonus as determined under the Bonus Plan as of the
commencement of the Protected Period equal to the applicable
percentage (his "Target Annual Bonus Percentage") of annual base
salary with a range as in effect as of such date.
(c) The Employee shall be eligible for participation in such other
benefit plans, including, but not limited to, the Company's
Profit Sharing Plan and Trust, Executive Severance Benefit Plan,
Benefit Equalization Plan, Short-Term and Long Term Disability
Plans, Group Term Life Insurance Plan, Medical Plan or PPO,
Dental Plan, the 401(k) feature of the Profit Sharing Plan, the
1996 Transitional Restricted Stock Plan and/or the 1997 Stock
Option Plan, as the Board may adopt from time to time and in
which the Company's employees at the level comparable to the
Employee are eligible to participate. Such participation shall
be subject to the terms and conditions set forth in the
applicable plan documents. As is more fully set forth in Section
7 hereof, the Employee shall not be entitled to duplicative
payments in this Agreement and the Executive Severance Plan.
(d) The Employee shall be entitled to take, during the Protected
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Period, at least the amount of vacation time to which the
Employee is entitled as of the date of this Agreement under the
Company's vacation policy applicable to employees at the level
comparable to the Employee or would have become entitled as of
the applicable time if such vacation policy were still in effect
throughout the Protected Period.
(e) In addition, the Parties do hereby further confirm that the
Employee may be entitled to a number of restricted shares of
Class A Common Stock of the Company ("Class A Shares"), as well
as options to purchase additional Class A Shares pursuant to
various benefit plans or agreements with the Company. The
Parties agree that (a) such restricted Class A Shares and such
options are in addition to, and not in lieu of, any shares or
options which may be granted under any other plan or arrangement
of the Company after the date of this Agreement, and (b) the
various restricted stock agreements and stock option agreements,
and any related Stockholder Agreement (the "Stockholder
Agreement") between the Parties (such agreements being
hereinafter referred to collectively as the "Pre-existing
Agreements"), all remain in full force and effect except as
otherwise provided herein. Notwithstanding the foregoing, to the
extent that any provision contained herein is inconsistent with
the terms of any of the Pre-existing Agreements, the terms of
this Agreement shall be controlling.
4. TERMINATION OF EMPLOYMENT. During a "Protected Period," the
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Employee's employment may be terminated as follows:
(a) The Employee's employment hereunder will terminate without
further notice upon the death of the Employee.
(b) The Company may terminate the Employee's employment hereunder
effective immediately upon giving written notice of such
termination for "Cause". For these purposes, "Cause" shall mean
the following:
(i) Commission by the Employee (evidenced by a conviction or
written, voluntary and freely given confession) of a
criminal act constituting a felony;
(ii) Commission by the Employee of a material breach or material
default of any of the Employee's agreements or obligations
under any provision of this Agreement, including, without
limitation, the Employee's agreements and obligations under
Subsections 2(a) through 2(e) and Sections 9 and 10 of this
Agreement, which is not cured in
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all material respects within thirty (30) days after the
Chief Executive Officer or the designee thereof gives
written notice thereof to the Employee; or
(iii) Commission by the Employee, when carrying out the Employee's
duties under this Agreement, of acts or the omission of any
act, which both: (A) constitutes gross negligence or willful
misconduct and (B) results in material economic harm to the
Company or has a materially adverse effect on the Company's
operations, properties or business relationships.
(c) The Employee's employment hereunder may be terminated upon
disability, if the Employee is prevented from performing the
Employee's duties hereunder by reason of physical or mental
incapacity for a period of one hundred eighty (180) consecutive
days in any period of two consecutive fiscal years of the
Company, but the Employee shall be entitled to full compensation
and benefits hereunder until the close of such one hundred and
eighty (180) day period.
(d) The Company may terminate the Employee's employment hereunder
without Cause at any time upon thirty (30) days written notice.
(e) The Employee may terminate employment hereunder effective
immediately upon giving written notice of such termination for
"Good Reason", as defined in Subsection 4(g) below.
(f) The Employee may terminate employment hereunder without Good
Reason at any time upon thirty (30) days written notice.
(g) For purposes of this Agreement, "Good Reason" means the
occurrence of (i) any reduction in either the annual base salary
of the Employee or the Target Annual Bonus Percentage or maximum
annual bonus percentage applicable to the Employee under the
Bonus Plan, (ii) any material reduction in the position,
authority or office of the Employee, (iii) any material reduction
in the Employee's responsibilities or duties for the Company,
(iv) any material adverse change or reduction in the aggregate
"Minimum Benefits," as hereinafter defined, provided to the
Employee as of the date of this Agreement (provided that any
material reduction in such aggregate Minimum Benefits that is
required by law or applies generally to all employees of the
Company shall not constitute "Good Reason" as defined hereunder),
(v) any relocation of the Employee's principal place of work with
the Company to a place more than twenty-five (25) miles from the
geographical center of
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Cleveland, Ohio, or (vi) the material breach or material default
by the Company of any of its agreements or obligations under any
provision of this Agreement. As used in this Subsection 4(g), an
"adverse change or material reduction" in the aggregate Minimum
Benefits shall be deemed to result from any reduction or any
series of reductions which, in the aggregate, exceeds five
percent (5%) of the value of such aggregate Minimum Benefits
determined as of the date of this Agreement. As used in this
Subsection 4(g), Minimum Benefits are life insurance, accidental
death, long term disability, short term disability, medical,
dental, and vision benefits and the Company's expense
reimbursement policy. The Employee shall give written notice to
the Company on or before the date of termination of employment
for Good Reason stating that the Employee is terminating
employment with the Company and specifying in detail the reasons
for such termination. If the Company does not object to such
notice by notifying the Employee in writing within five (5) days
following the date of the Company's receipt of the Employee's
notice of termination, the Company shall be deemed to have agreed
that such termination was for Good Reason. The parties agree that
"Good Reason" will not be deemed to have occurred merely because
the Company becomes a subsidiary or division of another entity
following a "Change of Control," as hereinafter defined, provided
the Employee continues to serve in the same capacity with such
subsidiary or division as his capacity with the Company at the
beginning of the Protected Period and such subsidiary or division
is comparable in size to the organization consisting of the
Company and its subsidiaries. The parties further agree that
"Good Reason" will be deemed to have occurred if the purchaser,
in a Change of Control transaction, does not assume this
Agreement in accordance with Section 12 hereof.
5. SEVERANCE COMPENSATION. If the Employee's employment is terminated
----------------------
during a Protected Period, the following severance provisions will apply:
(a) If the Employee's employment is terminated by the Company other
than for Cause or is terminated by the Employee for Good Reason,
then, through the one year period commencing on the date of the
Employee's termination of employment (the "Payment Term") the
Company shall:
(i) continue to pay the Employee's annual base salary in the
then prevailing amount and at the times specified in
Subsection 3(a) hereof, or if such annual base salary has
decreased during the one year period ending on the
Employee's termination of employment, at the highest rate in
effect during such one year period;
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(ii) continue the Employee's participation in the Bonus Plan as
provided in Subsection 3(b) hereof provided that the
Company will:
(A) pay the Employee a bonus under the Bonus Plan for the
partial year period ending on the date of the
Employee's termination of employment calculated as if
the Employee had continued to be employed for the
entire year except that the Employee's bonus percentage
(calculated at the time and in the manner customary as
of the date of this Agreement, but disregarding the
termination of employment of the Employee) shall be
applied to the Employee's annual base salary payable in
accordance with Subsection 3(a) hereof for the partial
year period ending on the Employee's termination of
employment; and
(B) thereafter, during the remainder of the Payment Term, a
bonus equal to the Employee's Target Annual Bonus
Percentage, multiplied by the Employee's annual base
salary in the amount specified in Subsection 5(a)(i)
payable during the year (or portion thereof) for which
the bonus is being calculated; with such amounts being
payable when bonuses under the Bonus Plan are
customarily payable, except that the final bonus shall
be payable with the final payment of the annual base
salary under Subsection 5(a)(i) hereof;
(iii) pay for executive outplacement services for the Employee
from a nationally recognized executive outplacement firm at
a level consistent with the employee's position, provided
that such outplacement services will be provided for a six
(6) month period commencing on the date of termination of
employment regardless of the Payment Term; and
(iv) In lieu of the payments described in Subsections 5(a)(i)
and 5(a)(ii) hereof, at the Employee's request, submitted
in writing to the Company within five (5) business days
after the date of the Employee's termination of employment:
(A) the Company will pay the total of the Employee's annual
base salary payments described in Subsection 5(a)(i) in
a single sum within thirty (30) days following the
Employee's termination of
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employment; and
(B) his Bonus Plan payments described in Subsection
5(a)(ii) shall be made at the same time as the
Employee's payment under Subsection 5(a)(vi)(A) but
shall be calculated using the Employee's Target Annual
Bonus Percentage for all calculation purposes.
(b) If the Employee's employment hereunder terminates due to the
Employee's death, disability, termination by the Company for
Cause or termination by the Employee other than for Good Reason,
then no further compensation or benefits will be provided to the
Employee by the Company under this Agreement following the date
of such termination of employment other than payment of
compensation earned to the date of termination of employment but
not yet paid. As more fully and generally provided in Section
16 hereof, this Subsection 5(b) shall not be interpreted to deny
the Employee any benefits to which he may be entitled under any
plan or arrangement of the Company applicable to the Employee.
Likewise, this Subsection 5(b) shall not be interpreted to
entitle the Employee to a bonus under the Bonus Plan following
his termination of employment except as provided in the Bonus
Plan which requires employment on the last day of the Company's
taxable year as a condition to receipt of a bonus thereunder for
such year except in the cases of death, disability or retirement
at or after either age 62 with ten years of service or age 65.
(c) Notwithstanding anything contained in this Agreement to the
contrary, other than Section 16 hereof, if the Employee breaches
any of his obligations under Section 9 or 10 hereof, no further
severance payments or other benefits will be payable to the
Employee under this Section 5.
6. CHANGE OF CONTROL.
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(a) In General. In the event of a Change of Control as defined in
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this Section 6, the Employee shall become entitled to certain
special benefits and shall have certain special protections so
that he may more fully focus on the issues related to such a
Change of Control, and to reward the Employee for the substantial
additional effort involved in a Change of Control. The special
benefits and protections are set forth in this Section 6.
(b) Transaction Bonus. In the event of a Change of Control, then
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subject to the requirements set forth in this Subsection 6(b),
the Employee will receive a cash transaction bonus (the
"Transaction
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Bonus") calculated and payable as follows:
(i) If the Employee is employed by the Company on the date of
the Change of Control, the total amount of the Transaction
Bonus shall be equal to fifty percent (50%) of his annual
base salary in the then prevailing amount specified in
Subsection 3(a) hereof, or if such annual base salary has
decreased during the one year period ending on his
termination of employment, at the highest rate in effect
during such one year period; and.
(ii) If the Employee is employed by the Company on the date of
the Change of Control and either is employed by the Company
on the first anniversary thereof or is not employed by the
Company on such first anniversary due to the Employee's
death or disability, the Transaction Bonus shall be payable
as follows:
(A) If the Employee is employed by the Company on the day
of the Change of Control, one-half (1/2) of the
Transaction Bonus shall be payable to the Employee on
such date; and
(B) If the Employee is employed by the Company on the
first anniversary of the Change of Control, the other
one-half (1/2) of the Transaction Bonus shall be
payable to the Employee on such date.
(C) Furthermore, if the Employee is employed by the
Company on the date of the Change of Control but, due
to the Employee's death or disability, the Employee is
no longer employed by the Company on the first
anniversary thereof, the Employee (or the Employee's
beneficiary in the event of the Employee's death)
shall nevertheless be entitled to the other one-half
(1/2) of the Transaction Bonus, which amount shall be
payable on such first anniversary.
(iii) If the Employee is not employed by the Company on either or
both of the date of the Change of Control and the date of
the first anniversary thereof due to the Employee's
termination by the Company other than for Cause or due to
the Employee's termination of employment for Good Reason,
but if the Employee's Payment Term includes either or both
such dates, the Employee shall nonetheless be entitled to
the Transaction Bonus which would otherwise be
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payable on the date or dates which are included in such
Payment Term even though the Employee is no longer then
employed by the Company. Any Transaction Bonus payable in
accordance with this Subsection 6(b)(iii) shall be in an
amount, and shall be payable on a date, determined in
accordance with Subsection 6(b)(iv) or 6(b)(v), whichever is
applicable.
(iv) If the Employee is not employed by the Company on the date
of the Change of Control, but a Transaction Bonus is payable
to the Employee in accordance with Subsection 6(b)(iii)
hereof, the following shall apply:
(A) The Transaction Bonus shall be in the amount calculated
in accordance with Subsection 6(b)(i);
(B) The Transaction Bonus shall be paid in full to the
Employee (or the Employee's beneficiary in the event of
the Employee's death) on the date of the Change of
Control; and
(C) On the date of the Change of Control, the Employee (or
the Employee's personal representative or beneficiary
in the event of the Employee's death) shall assign to
the Company the Employee's restricted Class A Shares
and the Employee's stock options for Class A Shares and
any other Class A Shares or equity interest in the
Company which the Employee may then own, regardless of
how the Employee may have acquired such restricted
stock, options, Class A Shares, or equity interest. In
exchange therefore, the Company shall pay to the
Employee (or the Employee's beneficiary in the event of
the Employee's death), on such date, an amount equal to
the value of the Employee's restricted Class A Shares
and the Employee's stock options for Class A Shares, to
the extent such options are exercisable and such
restricted stock is vested, and any other Class A
Shares or equity interest in the Company which the
Employee may then own. Such value shall be calculated
using the Class A Share Change of Control Valuation as
hereinafter defined. The value of the exercisable stock
options for this purpose shall be the amount by which
the value of the Class A Shares, as so determined,
exceeds the exercise price.
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(v) If the Employee is employed by the Company on the date of
the Change of Control but not on the first anniversary
thereof, but a Transaction Bonus is payable to the Employee
in accordance with Subsection 6(b)(iii) hereof, the
following shall apply:
(A) The Transaction Bonus shall be in the amount calculated
in accordance with Subsection 6(b)(i); and
(B) The portion of the Transaction Bonus remaining unpaid
upon the Employee's termination of employment with the
Company shall be paid to the Employee (or the
Employee's beneficiary in the event of the Employee's
death) within ten (10) days following such termination
of employment.
(vi) Notwithstanding anything contained in this Agreement to the
contrary, if the Employee breaches any of the Employee's
obligations under Section 9 or 10 hereof, no further
Transaction Bonus payments will be payable to the Employee.
(c) Equity Considerations. If the Employee is employed by the
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Company on the day of the Change of Control, the Employee shall
receive the following equity considerations:
(i) all restricted stock of the Company, owned by the Employee
on the date of the Change of Control, regardless of whether
acquired under the 1996 Transitional Restricted Stock Plan
or under an individual agreement with the Company or
otherwise, will become and remain one hundred percent (100%)
vested;
(ii) all stock options for Class A Shares of the Company, owned
by the Employee on the date of the Change of Control,
regardless of whether acquired under the 1989, 1992 or 1997
Stock Option Plan or under an individual agreement with the
Company or otherwise, will immediately become and remain
throughout the full remaining term of such options one
hundred percent (100%) vested and fully exercisable, and
such exercise then and thereafter shall be available on a
cashless basis such that the Employee may receive the net
value of the Employee's options (represented by the amount
by which the fair market value of the Class A Shares exceeds
the exercise price) in cash or Class A Shares as the
Employee shall elect, without outlay of cash but net of all
applicable withholding taxes, which
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taxes shall be remitted by the Company to the proper taxing
authorities;
(iii) upon any such Change of Control transaction, all
limitations, restrictions or conditions relating to the
Employee's rights to receive, vote, own and/or transfer any
Class A Shares contained in any of the Pre-existing
Agreements or contained in any other document, agreement or
plan shall terminate and shall be of no further force and
effect, except for any registration rights in effect;
(iv) if permitted by the purchaser in the Change of Control
transaction (the "Purchaser"), the Company will provide for
the Employee the opportunity to convert all or a portion,
as he shall elect, of the Employee's options to purchase
Class A Shares as well as Class A Shares then owned by the
Employee, into an equity investment in the entity resulting
from Purchaser's transaction (the "Successor") on a tax
favored basis. The amount available for such investment
shall be an amount calculated on the basis of the per Share
price paid in the Change of Control transaction or series
of transactions or implicit in the valuation of the Change
of Control transaction, including all elements of
consideration paid or payable (the "Change of Control
Valuation").
(v) If the Purchaser in the Change of Control transaction does
not permit the Employee to convert (or the Employee chooses
not to convert) all (or a portion) of the Employee's
options to purchase Class A Shares and Class A Shares then
owned by the Employee into equity in the Successor, then
the Employee shall exercise, at the time of the Change of
Control, all options the Employee holds for Class A Shares
(such exercise to provide cash rather than Class A Shares
to the Employee in accordance with the exercise procedure
described in Subsection 6(c)(ii) hereof), and shall sell to
the Company at the time of the Change of Control all Class
A Shares then owned by the Employee, to the extent such
options or Class A Shares are not converted into equity in
the Successor. Such exercise of options and sale of Class A
Shares shall yield an amount to the Employee determined by
the Class A Share Change of Control Valuation.
(d) Change of Control. For purposes of this Agreement, the words
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"Change of Control" means a change in control of the Company of a
nature that would be required to be reported in response to Item
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6(e) of Schedule 14A of Regulation 14A promulgated under the
Securities Exchange Act of 1934, as amended, as in effect on the
date of this Agreement (the "Exchange Act"), whether or not the
Company is then subject to such reporting requirements; provided,
that, without limitation, a Change of Control shall be deemed to
have occurred if:
(i) any "person" (as defined in Sections 13(d) and 14(d) of the
Exchange Act), other than Zell/Chilmark Fund, L.P., is or
becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of
securities of the Company representing twenty percent (20%)
or more of the combined voting power of the Company's then
outstanding securities; provided that a Change in Control
shall not be deemed to occur under this clause (i) by
reason of (A) the acquisition of securities by the Company
or an employee benefit plan (or any trust funding such a
plan) maintained by the Company, or (B) while Zell/Chilmark
Fund, L.P. continues to beneficially own more than fifty
percent (50%) of the combined voting power of the Company's
then outstanding securities;
(ii) during any period of one (1) year there shall cease to be a
majority of the Board comprised of "Continuing Directors"
as hereinafter defined; or
(iii) the stockholders of the Company (A) approve a merger or
consolidation of the Company with any other corporation,
other than a merger or consolidation which would result in
the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either
by remaining outstanding or by being converted into voting
securities of the surviving entity) more than eighty
percent (80%) of the combined voting power of the voting
securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation,
or (B) approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the
Company of more than fifty percent (50%) of the Company's
assets. For purposes of this Subsection 6(d)(iii), a sale
of more than fifty percent (50%) of the Company's assets
includes a sale of more than fifty percent (50%) of the
aggregate value of the assets of the Company and its
subsidiaries or the sale of stock of one or more of the
Company's subsidiaries with an aggregate value in excess of
fifty percent (50%) of the aggregate value of the Company
and its subsidiaries or any combination of methods by which
more than fifty percent
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(50%) of the aggregate value of the Company and its
subsidiaries is sold.
(iv) For purposes of this Agreement, a "Change of Control" will
be deemed to occur:
(A) on the day on which a twenty percent (20%) or greater
ownership interest described in Subsection 6(d)(i) is
acquired or, if later, the day on which the
Zell/Chilmark Fund, L.P. ceases to beneficially own
more than fifty percent (50%) of the combined voting
power of the Company's then outstanding securities,
provided that a subsequent increase in such ownership
interest after it first equals or exceeds twenty
percent (20%) shall not be deemed a separate Change of
Control;
(B) on the day on which "Continuing Directors," as
hereinafter defined, cease to be a majority of the
Board as described in Subsection 6(d)(ii);
(C) on the day of a merger, consolidation or sale or
disposition of assets as described in Subsection
6(d)(iii); or
(D) on the day of the approval of a plan of complete
liquidation as described in Subsection 6(d)(iii).
(v) For purposes of this Subsection 6(d), the word "Company"
means Sealy Corporation, and, any other corporation or
business organization in an unbroken chain of corporations
or business organization ending with Sealy Corporation that
owns, directly or indirectly, stock possessing fifty percent
(50%) or more of the total combined voting power of all
classes of stock of Sealy Corporation other than
Zell/Chilmark Fund, L.P.
(vi) For purposes of this Subsection 6(d), the words "Continuing
Directors" mean individuals who at the beginning of any
period (not including any period prior to the date of this
Agreement) of one (1) year constitute the Board and any new
director(s) whose election by the Board or nomination for
election by the Company's stockholders was approved by a
vote of at least a majority of the directors then still in
office who either were directors at the beginning of the
period or whose election or nomination for election was
previously so
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approved.
(e) Section 16 Protection. If the Employee is subject to Section 16
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of the Securities Exchange Act of 1934 ("Section 16"), then to
the extent the Employee would be deprived of the benefits of the
equity considerations described herein or under any of the Pre-
existing Agreements or under the 1989, 1992 or 1997 Stock Option
Plan or the 1996 Transitional Restricted Stock Plan, as described
above, or any other plan or arrangement regarding stock of the
Company, by reason of such Section 16 or the Rules issued
thereunder, the Employee shall be provided with the alternative
of receiving a cash payment approximating the loss of such
benefits under a cash compensation plan implemented by the
Company. The Company agrees to have this Agreement, and
specifically this Section 6 approved by the Board in compliance
with Section 16 and Rule 16b-3 thereunder to ensure its
enforceability.
7. SEVERANCE PLAN. It is the intention of the Parties that this
--------------
Agreement provide special benefits to the Employee. If at any time the
Company's Executive Severance Benefit Plan would provide better cash severance
benefits to the Employee than this Agreement, the Employee may elect to receive
such better cash severance benefits in lieu of the cash severance benefits
provided under Subsections 5(a)(i) and 5(a)(ii), or Subsection 5(a)(v), of this
Agreement, whichever is applicable, while continuing to receive any other
benefits or coverages available under this Agreement. If this Agreement would
provide better cash severance benefits to the Employee than the Company's
Executive Severance Benefit Plan, the Employee shall receive the cash severance
benefits under this Agreement, as well as any other benefits or coverages
available under this Agreement. In such case, the cash severance benefits under
this Agreement shall be in lieu of the cash severance benefits payable under the
Company's Executive Severance Benefit Plan.
8. PLAN AMENDMENTS. To the extent any provisions of this Agreement
---------------
modify the terms of any existing plan, policy or arrangement affecting the
compensation or benefits of the Employee, as appropriate, (a) such modification
as set forth herein shall be deemed an amendment to such plan, policy or
arrangement as to the Employee, and both the Company and the Employee hereby
consent to such amendment, (b) the Company will appropriately modify such plan,
policy or arrangement to correspond to this Agreement with respect to the
Employee, or (c) the Company will provide an "Alternative Benefit," as defined
in Section 14 hereof, to or on behalf of the Employee in accordance with the
provisions of such Section 14.
9. CONFIDENTIAL INFORMATION. The Employee agrees that the Employee will
------------------------
not, during the Protected Period or at any time thereafter, either directly or
indirectly, disclose or make known to any other person, firm, or corporation any
confidential information, trade secret or proprietary information of the Company
that the Employee may acquire in the performance of the Employee's duties
hereunder (except in good faith in the ordinary course of business for the
Company to a person who will be
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advised by the Employee to keep such information confidential) or make use of
any of such confidential information except in the performance of the Employee's
duties or when required to do so by legal process, by any governmental agency
having supervisory authority over the business of the Company or by any
administrative or legislative body (including a committee thereof) that requires
the Employee to divulge, disclose or make accessible such information. In the
event that the Employee is so ordered, the Employee shall so advise the Company
in order to allow the Company the opportunity to object to or otherwise resist
such order. Upon the termination of the Employee's employment with the Company,
the Employee agrees to deliver forthwith to the Company any and all proprietary
literature, documents, correspondence, and other proprietary materials and
records furnished to or acquired by the Employee during the course of such
employment. In the event of a breach or threatened breach of this Section 9 by
the Employee, the Company will be entitled to preliminary and permanent
injunctive relief, without bond or security, sufficient to enforce the
provisions hereof and the Company will be entitled to pursue such other remedies
at law or in equity which it deems appropriate.
10. NON-COMPETITION. In consideration of this Agreement, the Employee
---------------
agrees that, while employed during the Protected Period, and for one year after
the Employee's termination of employment, unless the Employee has waived the
Transaction Bonus and the equity consideration described in Subsections 6(b) and
6(c), the Employee shall not act as a proprietor, investor, director, officer,
employee, substantial stockholder, consultant, or partner in any business
engaged to a material extent in the manufacture or sale of (a) mattresses or
other bedding products or (b) any other products which constitute more than ten
percent (10%) of the Company's revenues at the time in direct competition with
the Company in any market. If, however, the Employee has waived the Transaction
Bonus and the equity consideration described in Subsections 6(b) and 6(c), this
covenant not to compete shall be void upon the Employee's termination of
employment. The Employee understands that the foregoing restrictions may limit
the Employee's ability to engage in certain business pursuits during the period
provided for above, but acknowledges that the Employee will receive sufficiently
higher remuneration and other benefits from the Company hereunder than the
Employee would otherwise receive to justify such restriction. The Employee
acknowledges that the Employee understands the effect of the provisions of this
Section 10, and the Employee has had reasonable time to consider the effect of
these provisions, and that the Employee was encouraged to and had an opportunity
to consult an attorney with respect to these provisions. The Company and the
Employee consider the restrictions contained in this Section 10 to be reasonable
and necessary. Nevertheless, if any aspect of these restrictions is found to be
unreasonable or otherwise unenforceable by a court of competent jurisdiction,
the Parties intend for such restrictions to be modified by such court so as to
be reasonable and enforceable and, as so modified by the court, to be fully
enforced. In the event of a breach or threatened breach of this Section 10 by
the Employee, the Company will be entitled to preliminary and permanent
injunctive relief, without bond or security, sufficient to enforce the
provisions hereof and the Company will be entitled to pursue such other remedies
at law or in equity which it deems appropriate.
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During the ten (10) day period ending on the date of a Change of Control,
the Employee may, by written notice to the Company, elect to waive his
Transaction Bonus and the equity considerations described in Subsections 6(b)
and 6(c). Such waiver shall be irrevocable. In the event of such a waiver, the
Employee's agreement not to compete with the Company as set forth in this
Section 10 shall be void upon his termination of employment.
11. NOTICES. For purposes of this Agreement, all communications provided
-------
for herein shall be in writing and shall be deemed to have been duly given when
hand delivered or mailed by United States registered or certified mail, return
receipt requested, postage prepaid, addressed as follows:
(a) If the notice is to the Company:
Mr. Ronald L. Jones
Chief Executive Officer
Sealy Corporation
1228 Euclid Avenue - Tenth Floor
Cleveland, Ohio 44115-1886
With a copy to:
Kenneth Walker, Esq.
Vice President and General Counsel
Sealy Corporation
1228 Euclid Avenue - Tenth Floor
Cleveland, Ohio 44115-1886
(b) If the notice is to the Employee:
___________________________________
___________________________________
___________________________________
or to such other address as either party may have furnished to the other in
writing and in accordance herewith; except that notices of change of address
shall be effective only upon receipt.
12. ASSIGNMENT; BINDING EFFECT. This Agreement shall be binding upon and
--------------------------
inure to the benefit of the parties to this Agreement and their respective
successors, heirs (in the case of the Employee) and permitted assigns. No
rights or obligations of the Company under this Agreement may be assigned or
transferred by the Company except that such rights or obligations may be
assigned or transferred in connection with the sale or transfer of all or
substantially all of the assets of the Company, provided that the assignee or
transferee is the successor to all or substantially all of the assets of the
Company and such assignee or transferee expressly assumes the liabilities,
obligations and duties of the Company, as contained in this Agreement, either
contractually or as a matter of law. The Company further
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agrees that, in the event of a sale or transfer of assets as described in the
preceding sentence, it shall be a condition precedent to the consummation of any
such transaction that the assignee or transferee expressly assumes the
liabilities, obligations and duties of the Company hereunder. No rights or
obligations of the Employee under this Agreement may be assigned or transferred
by the Employee other than the Employee's rights to compensation and benefits,
which may be transferred only by will or operation of law, except as provided in
this Section 12.
The Employee shall be entitled, to the extent permitted under any
applicable law, to select and change a beneficiary or beneficiaries to receive
any compensation or benefits payable hereunder following the Employee's death by
giving the Company written notice thereof. In the absence of such a selection,
any compensation or benefit payable under this Agreement following the death of
the Employee shall be payable to the Employee's spouse, or if such spouse shall
not survive the Employee, to the Employee's estate. In the event of the
Employee's death or a judicial determination of his incompetence, reference in
this Agreement to the Employee shall be deemed, where appropriate, to refer to
the Employee's beneficiary, estate or other legal representative.
13. INVALID PROVISIONS. Any provision of this Agreement that is
------------------
prohibited or unenforceable shall be ineffective to the extent, but only to the
extent, of such prohibition or unenforceability without invalidating the
remaining portions hereof and such remaining portions of this Agreement shall
continue to be in full force and effect. In the event that any provision of
this Agreement shall be determined to be invalid or unenforceable, the Parties
will negotiate in good faith to replace such provision with another provision
that will be valid or enforceable and that is as close as practicable to the
provisions held invalid or unenforceable.
14. ALTERNATIVE SATISFACTION OF COMPANY'S OBLIGATIONS. In the event this
-------------------------------------------------
Agreement provides for payments or benefits to or on behalf of the Employee
which cannot be provided under the Company's benefit plans, policies or
arrangements either because such plans, policies or arrangements no longer exist
or no longer provide such benefits or because provision of such benefits to the
Employee would adversely affect the tax qualified or tax advantaged status of
such plans, policies or arrangements for the Employee or other participants
therein, the Company may provide the Employee with an "Alternative Benefit," as
defined in this Section 14, in lieu thereof. The Alternative Benefit is a
benefit or payment which places the Employee and the Employee's dependents in at
least as good of an economic position as if the benefit promised by this
Agreement (a) were provided exactly as called for by this Agreement, and (b) had
the favorable economic, tax and legal characteristics customary for plans,
policies or arrangements of that type. Furthermore, if such adverse consequence
would affect the Employee or the Employee's dependents, the Employee shall have
the right to require that the Company provide such an Alternative Benefit.
15. ENTIRE AGREEMENT, MODIFICATION. Subject to the provisions of Section
------------------------------
16 hereof, this Agreement contains the entire agreement between the Parties with
respect to the employment of the Employee by the Company and supersedes all
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prior and contemporaneous agreements, representations, and understandings of the
Parties, whether oral or written. No modification, amendment, or waiver of any
of the provisions of this Agreement shall be effective unless in writing,
specifically referring hereto, and signed by both Parties.
16. NON-EXCLUSIVITY OF RIGHTS. Notwithstanding the foregoing provisions
-------------------------
of Section 15, nothing in this Agreement shall prevent or limit the Employee's
continuing or future participation in any benefit, bonus, incentive or other
plan, program, policy or practice provided by the Company for its executive
officers, nor shall anything herein limit or otherwise affect such rights as the
Employee has or may have under any stock option, restricted stock or other
agreements with the Company or any of its subsidiaries. Amounts which the
Employee or the Employee's dependents or beneficiaries are otherwise entitled to
receive under any such plan, policy, practice or program shall not be reduced by
this Agreement except as provided for in Section 7 hereof with respect to
payments under the Executive Severance Benefit Plan if cash payments of annual
base salary are made hereunder.
17. WAIVER OF BREACH. The failure at any time to enforce any of the
----------------
provisions of this Agreement or to require performance by the other party of any
of the provisions of this Agreement shall in no way be construed to be a waiver
of such provisions or to affect either the validity of this Agreement or any
part of this Agreement or the right of either party thereafter to enforce each
and every provision of this Agreement in accordance with the terms of this
Agreement.
18. GOVERNING LAW. This Agreement has been made in, and shall be governed
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and construed in accordance with the laws of, the State of Ohio. The Parties
agree that this Agreement is not an "employee benefit plan" or part of an
"employee benefit plan" which is subject to the provisions of the Employee
Retirement Income Security Act of 1974, as amended.
19. TAX WITHHOLDING. The Company may withhold from any amounts payable
---------------
under this Agreement such federal, state or local taxes as shall be required to
be withheld pursuant to any applicable law or regulation. Where withholding
applies to Class A Shares, the Company shall make cashless withholding available
to the Employee.
20. REPRESENTATION. The Company represents and warrants that it is fully
--------------
authorized and empowered to enter into this Agreement and that the performance
of its obligations under this Agreement will not violate any agreement between
it and any other person, firm or organization.
21. SUBSIDIARIES AND AFFILIATES. Notwithstanding any contrary provision
---------------------------
of this Agreement, to the extent it does not adversely affect the Employee, the
Company may provide the compensation and benefits to which the Employee is
entitled hereunder through one or more subsidiaries or affiliates, including,
without limitation, Sealy, Inc.
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22. SOLE REMEDY. The Parties agree that the remedies of each against
-----------
the other for breach of this Agreement shall be limited to enforcement of this
Agreement and recovery of the amounts and remedies provided for herein. The
Parties, however, further agree that such limitation shall not prevent either
Party from proceeding against the other to recover for a claim other than under
this Agreement.
IN WITNESS WHEREOF, the Company and the Employee have executed this
Agreement as of the day and year first above written.
SEALY CORPORATION
By: /s/ KENNETH L. WALKER
_______________________
KENNETH L. WALKER
Vice President, General Counsel & Secretary
EMPLOYEE
/s/ JIM GOUGHENOUR
_______________________
8/4/97