AMENDED EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is entered into as of the 14th day of January, 2005, by and between SEALY CORPORATION, a Delaware corporation (the “Company”), and DavidJ. McIlquham (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 Employment Agreement (the “Agreement”) as hereinafter set forth;
NOW,THEREFORE, the Company and Employee agree as follows:
1. EMPLOYMENT TERM.
- Duringthe period specified in Subsection l(b) hereof (the “Employment Term”), the Company shall employ the Employee, and the Employee shall serve the Company, as President and ChiefExecutive Officer, based on the terms and subject to the conditions set forth herein.
- TheEmployment Term shall:
- befor an initial two (2) year term commencing on the date of this Agreement, which term shall automatically be extended one calendar day for each calendar daythat the Employee is employed by the Company after the date of this Agreement so that the remaining Employment Term shall always be two (2) years;
- providedthat the Employment Term may terminate prior to the date specified above in this Subsection 1(b) as provided in Section 4 hereof.
2. POSITION, DUTIES, AND RESPONSIBILITIES. At all times during the Employment Term, the Employee shall:
- Holdthe position of President and Chief Executive Officer (the “Chief Executive Officer”) reporting to the Board of Directors of the Company;
- Havethose duties and responsibilities, and the authority, customarily possessed by the Chief Executive Officer of a major corporation and such additional duties as may be assigned tothe Employee from time to time by the Board of Directors of the Company (the “Board”) which are consistent with the position of the Chief Executive Officer of a major corporation;
- Adhereto such reasonable written policies and directives, and such reasonable unwritten policies and directives as are of common knowledge to executive officers of the Company, asmay be promulgated from time to time by the Board and which are applicable to executive officers of the Company;
- Investin the Company only in accordance with any insider trading policy of the Company in effect at the time of the investment; and
- Devotethe Employee’s entire business time, energy, and talent to the business, and to the furtherance of the purposes and objectives, of the Company, and neither directly norindirectly 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 theBoard.
Nothingin this Agreement shall preclude the Employee from devoting reasonable periods of time to charitable and community activities or the management of the Employee’s investmentassets, or from
servingin the boards of directors of up to two non-competing companies, 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 behalf of the Company during theEmployment Term, the following salary, bonus and benefits shall be provided to the Employee by the Company:
- TheCompany shall pay to the Employee, in equal installments, according to the Company’s then current practice for paying its executive officers in effect from time to during theEmployment Term, an annual base salary at the initial rate of Six Hundred Twenty-five Thousand Dollars ($625,000). This salary shall be subject to annual review by the Human ResourcesCommittee of the Board (the “Committee) and may be increased, but not decreased, to the extent, if any, that the Committee may determine.
- TheEmployee 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 thisAgreement. The Employee’s Target annual bonus, as established by the Committee under the Bonus Plan as of the date of this Agreement, is sixty percent (60%) (his “Target Annual Bonus Percentage”) ofannual base salary, with a range of zero percent (0%) to one hundred twenty percent (120%) of annual base salary.
- TheEmployee 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 BenefitPlan, 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 Planand the 1998 Stock Option Plan, as the Board may adopt from time to time and in which the Company’s executive officers are eligible to participate. Such participation shall be subject to the terms andconditions set forth in the applicable plan documents. As is more fully set forth in Section 6 hereof, the Employee shall not be entitled to duplicative payments under this Agreement and theExecutive Severance Benefit Plan.
- Withoutlimiting the generality of Subsection 3(c) above, for so long as such coverage shall be available to the executive officers of the Company, the Employee shall be eligible toparticipate in the Company’s Group Term Life Insurance Plan with a death benefit to be provided at the level of one and one half (11/2) times annual base salary at Company expense, plusextended coverage with a death benefit to be provided of at least the level in effect on the date of this Agreement for the Employee under such Plan at the Employee’s discretion and expense.
- TheEmployee shall be entitled to take, during each calendar year period during the Employment Term, vacation time equal to four weeks per year.
- Inaddition, the Parties do hereby further confirm that any shares of Class A Common Stock of the Company (“Class A Shares”), and any options to purchase additionalClass A Shares previously granted to Employee 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 thedate of this Agreement, and (b) the various stock agreements and stock option agreements, and any related Stockholder Agreement (the “Stockholder Agreement”) between the Parties (suchagreements being hereinafter referred to collectively as the “Pre-existing Agreements”), all remain in full force and effect except as otherwise provided herein. Notwithstanding theforegoing, 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. As indicated in Subsection 1(b)(ii), the Employment Term may terminate prior tothe date specified in Subsection 1(b)(i) as follows:
- TheEmployee’s employment hereunder will terminate without further notice upon the death of the Employee.
- TheCompany may terminate the Employee’s employment hereunder effective immediately upon giving written notice of such termination for “Cause”. For these purposes, “Cause” shall meanthe following:
- Commissionby the Employee (evidenced by a conviction or written, voluntary and freely given confession) of a criminal act constituting a felony;
- Commissionby 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 8 and 9 of this Agreement, which is not cured in all material respects within thirty(30) days after the Chief Executive Officer or the designee thereof gives written notice thereof to the Employee; or
- Commissionby the Employee, when carrying out the Employee’s duties under this Agreement, of acts or the omission of any act, which both: (A) constitutes grossnegligence 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.
- TheEmployee’s employment hereunder may be terminated by the Company upon the Employee’s disability, if the Employee is prevented from performing the Employee’s duties hereunder byreason 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 beentitled to full compensation and benefits hereunder until the close of such one hundred and eighty (180) day period.
- TheCompany may terminate the Employee’s employment hereunder without Cause at any time upon thirty (30) days written notice.
- TheEmployee may terminate employment hereunder effective immediately upon giving written notice of such termination for “Good Reason”, as defined in Subsection 4(g) below.
- TheEmployee may terminate employment hereunder without Good Reason at any time upon thirty (30) days written notice.
- Forpurposes 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 Percentageor 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 materialreduction 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 tothe 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 Companyshall 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 Greensboro, North Carolina, (vi) the material breach or material default by the Company of any of its agreements or obligations under any
provisionof this Agreement. As used in this Subsection 4(g), an “adverse change or material reduction” in the aggregate Minimum Benefits shall bedeemed 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 thisAgreement. 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’sexpense 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 terminatingemployment 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) daysfollowing 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 further agreethat “Good Reason” will be deemed to have occurred if the purchaser, in connection with the sale or transfer of all or substantially all of the assets of the Company, does not assume this Agreement inaccordance with Section 11 hereof.
5. SEVERANCE COMPENSATION. If the Employee’s employment is terminated, the following severance provisions willapply:
- Ifthe Employee’s employment is terminated by the Company other than for Cause or is terminated by the Employee for Good Reason, then, through the remaining Employment Term asspecified in Subsection 1(b) hereof, determined without regard to Subsection 1(b)(ii) hereof, (such remaining Employment Term calculated without regard to Subsection 1(b)(ii) ishereinafter referred to as the “Payment Term”) the Company shall:
- continueto 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 hasdecreased during the one year period ending on the Employee’s termination of employment, at the highest rate in effect during such one year period;
- continuethe Employee’s participation in the Bonus Plan as provided in Subsection 3(b) hereof provided that the Company will:
- paythe 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 Employeehad 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 thetermination 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’stermination of employment; and
- 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 inthe 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 BonusPlan 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;
- continuein effect the medical and dental coverage, long and short-term disability protection, and any life insurance protection (including life insuranceprotection being paid for by the Employee), being provided to the Employee immediately prior to the Employee’s termination of employment, or if any of such benefits have
- payfor executive outplacement services for the Employee from a nationally recognized executive outplacement firm at the level provided for vice-presidentsof major corporations, provided that such outplacement services will be provided for a one year period commencing on the date of termination of employment regardless of the Payment Term.
- Ifthe 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 GoodReason, 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 ofcompensation earned to the date of termination of employment but not yet paid. As more fully and generally provided in Section 15 hereof, this Subsection 5(b) shall not be interpreted to denythe 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 theEmployee 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 acondition to receipt of a bonus thereunder for such year except in the cases of death, disability or retirement at or after either age 58.
- Notwithstandinganything contained in this Agreement to the contrary, other than Section 15 hereof, if the Employee breaches any of the Employee’s obligations underSection 8 or 9 hereof, no further severance payments or other benefits will be payable to the Employee under this Section 5.
decreasedduring the one year period ending on the Employee’s termination of employment, at the highest level in effect during such one year period;
6. SEVERANCE PLAN. It is the intention of the Parties that this Agreement provide special benefits to theEmployee. 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 bettercash 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, whilecontinuing 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 ExecutiveSeverance 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 cashseverance benefits under this Agreement shall be in lieu of the cash severance benefits payable under the Company’s Executive Severance Benefit Plan.
7. PLAN AMENDMENTS. To the extent any provisions of this Agreement modify the terms of any existing plan, policyor 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 arrangementas 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 thisAgreement with respect to the Employee, or (c) the Company will provide an”Alternative Benefit,” as defined in Section 13 hereof, to or on behalf of the Employee in accordance with the provisions of such Section 13.
8. CONFIDENTIAL INFORMATION. The Employee agrees that the Employee will not, during the Employment Term or atany 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 theCompany 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
whowill be 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 doso 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 requiresthe 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 theopportunity 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 allproprietary 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 breachor threatened breach of this Section 8 by the Employee, the Company will be entitled to preliminary and permanent injunctive relief, without bond or security, sufficient to enforce theprovisions hereof and the Company will be entitled to pursue such other remedies at law or in equity which it deems appropriate.
9. NON-COMPETITION. In consideration of this Agreement, the Employee agrees that, during theEmployment Term, and for one year thereafter, the Employee shall not act as a proprietor, investor, director, officer, employee, substantial stockholder, consultant, or partner in any business engagedto amaterial extent in the manufacrture or sale of (a) mattresses or other bedding products (including, without limitation, Serta, Simmons, Spring Air and Kingsdown) or (b) any otherproducts which constitute more than ten percent (10%) of the Company’s revenues at the time in direct competition with the Company in any market. The Employee understands that the foregoingrestrictions 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 higherremuneration 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 ofthe provisions of this Section 9, and that the Employee has had reasonable time to consider the effect of these provisions, and that the Employee was encouraged to and had an opportunity toconsult an attorney with respect to these provisions. The Company and the Employee consider the restrictions contained in this Section 9 to be reasonable and necessary. Nevertheless, if anyaspect 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 tobe 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 9 by the Employee, the Company will beentitled 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 orin equity which it deems appropriate.
10. NOTICES. For purposes of this Agreement, all communications provided for herein shall be in writing andshall 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:
If the notice is to the Company:
|Mr. Kenneth Walker
Vice President and General Counsel
One Office Parkway
Trinity, North Carolina 27370
|(b)||If the notice is to the Employee:|
|Mr. David McIlquham
Chief Executive Officer
One Office Parkway
Trinity, North Carolina 27370
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 onlyupon receipt.
11. ASSIGNMENT; BINDING EFFECT. This Agreement shall be binding upon and inure to the benefit of the parties tothis 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 transferredby 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 theassignee 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 theCompany, as contained in this Agreement, either contractually or as a matter of law. The Company further agrees that, in the event of a sale or transfer of assets as described in the precedingsentence, 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 Companyhereunder. 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 betransferred only by will or operation of law, except as provided in this Section 11.
TheEmployee 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 payablehereunder 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 deathof 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 determinationof 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.
12. INVALID PROVISIONS. Any provision of this Agreement that is prohibited or unenforceable shall be ineffectiveto 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 infull 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 withanother provision that will be valid or enforceable and that is as close as practicable to the provisions held invalid or unenforceable.
13. ALTERNATIVE SATISFACTION OF COMPANY’S OBLIGATIONS. In the event this Agreement provides for payments orbenefits 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 nolonger 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 theEmployee or other participants therein, the Company may provide the Employee with an “Alternative Benefit,” as defined in this Section 13, in lieu thereof. The Alternative Benefit is a benefitor 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 calledfor by this Agreement, and (b) had the favorable economic, tax and legal
characteristicscustomary 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 theright to require that the Company provide such an Alternative Benefit.
14. ENTIRE AGREEMENT, MODIFICATION. Subject to the provisions of Section 15 hereof, this Agreementcontains the entire agreement between the Parties with respect to the employment of the Employee by the Company and supersedes all prior and contemporaneous agreements, representations, andunderstandings 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 referringhereto, and signed by both Parties.
15. NON-EXCLUSIVITY OF RIGHTS. Notwithstanding the foregoing provisions of Section 14,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 Companyfor 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 theCompany 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 shallnot be reduced by this Agreement except as provided in Section 6 hereof with respect to payments under the Executive Severance Benefit Plan if cash payments of annual base salary are madehereunder.
16. WAIVER OF BREACH. The failure at any time to enforce any of the provisions of this Agreement or to requireperformance 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 partof 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.
17. GOVERNING LAW. This Agreement has been made in, and shall be governed and construed in accordance with thelaws 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 theEmployee Retirement Income Security Act of 1974, as amended.
18. TAX WITHHOLDING. The Company may withhold from any amounts payable under this Agreement such federal, stateor 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 withholdingavailable to the Employee.
19. EXPENSE OF ENFORCEMENT. The Company shall reimburse reasonable attorney fees and expenses incurred by theEmployee to enforce the provisions of this Agreement, even if his claims are not successful, provided they are not ultimately determined by the court to be frivolous.
20. REPRESENTATION. The Company represents and warrants that it is fully authorized and empowered to enter intothis 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 doesnot 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, withoutlimitation, Sealy, Inc.
22. NO MITIGATION OR OFFSET. In the event of any termination of employment, the Employee shall be under noobligation to seek other employment. Amounts due the Employee under this Agreement shall not be offset by any remuneration attributable to any subsequent employment he may obtain.
23. SOLE REMEDY. The Parties agree that the remedies of each against the other for breach
ofthis 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 notprevent either Party from proceeding against the other to recover for a claim other than under this Agreement.
INWITNESS WHEREOF, the Company and the Employee have executed this Agreement as of the day and year first above written.
Kenneth L. Walker
Senior Vice President, General Counsel
David J. McIlquham