<PAGE> 1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 3, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________
Commission file number 1-8738
------
SEALY CORPORATION *
-------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 36-3284147
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
520 PIKE STREET, SEATTLE, WASHINGTON 98101
- ----------------------------------------- -----
(Address of principal executive offices)* (Zip Code)
Registrant's telephone number, including area code (206) 625-1233
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
------ ------
The number of shares of the registrant's common stock outstanding as of April
10, 1996 was 29,349,739. -----
- -------- ----------
* All Corporate and administrative services are provided by Sealy, Inc., 10th
Floor Halle Building, 1228 Euclid Avenue, Cleveland, Ohio 44115.
================================================================================
<PAGE> 2
PART I. FINANCIAL INFORMATION
--------------------------------
Item 1 - Financial Statements
SEALY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended Quarter Ended
March 3, February 28,
1996 1995
--------------- ---------------
<S> <C> <C>
Net Sales $159,475 $149,895
-------- --------
Cost and expenses:
Cost of goods sold 89,892 83,945
Selling, general and administrative 51,972 52,738
Amortization of intangibles 3,515 3,515
Interest expense, net 7,537 7,939
--------- ---------
152,916 148,137
------- -------
Income before income tax 6,559 1,758
Income tax 3,705 1,974
--------- --------
Net income $ 2,854 $ (216)
========= ==========
Earnings per common share $ 0.09 $ (0.01)
Weighted average number of
common shares and equivalents
outstanding during period 30,192 30,971
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE> 3
SEALY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
March 3, November 30,
1996 1995
------------------ -----------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 10,082 $ 17,348
Accounts receivable, less allowance for doubtful
accounts (1996 - $7,816; 1995 - $7,475) 84,711 82,288
Inventories 38,320 35,356
Prepaid expenses and deferred taxes 15,989 13,424
---------- ----------
149,102 148,416
Property, plant and equipment - at cost 161,647 159,699
Less: accumulated depreciation (27,771) (25,161)
----------- -----------
133,876 134,538
Other assets:
Goodwill and other intangibles - net of
accumulated amortization
(1996 - $43,467; 1995 - $39,871) 475,342 478,938
Debt issuance costs and other assets 13,486 14,289
---------- ---------
488,828 493,227
-------------- --------------
$771,806 $776,181
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
SEALY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
March 3, November 30,
1996 1995
---------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Current portion of long-term obligations $ 17,912 $ 17,488
Accounts payable 34,036 37,037
Accrued interest payable 6,627 1,694
Accrued incentives and advertising 18,714 25,579
Other accrued expenses 34,230 34,524
-------- --------
111,519 116,322
Long-term obligations 266,347 269,449
Other noncurrent liabilities 30,595 30,554
Deferred income taxes 29,326 28,975
Stockholders' equity:
Common stock 295 295
Additional paid-in capital 258,780 258,336
Retained earnings 76,241 73,387
Foreign currency translation adjustment (1,297) (1,137)
---------- ----------
334,019 330,881
Commitments and contingencies -- --
--------- ---------
$771,806 $776,181
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
SEALY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended Quarter Ended
March 3, February 28,
1996 1995
---------------- ------------------
<S> <C> <C>
Net cash provided by (used in) operating activities ($2,632) $ 5,742
Net cash provided by (used in) investing activities:
Property, plant and equipment, net (1,956) 1,468
Net cash used in financing activities:
Repayment of long-term obligations, net (2,678) (7,772)
-------- --------
Change in cash and cash equivalents (7,266) (562)
Cash and cash equivalents:
Beginning of period 17,348 21,309
------- --------
End of period $10,082 $20,747
======= =======
Supplemental disclosures:
- -------------------------
Taxes paid, net $ 4,125 $ 1,558
Cash interest paid $ 1,887 $ 2,519
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
SEALY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED MARCH 3, 1996 AND FEBRUARY 28, 1995
================================================================================
NOTE A -- BASIS OF PRESENTATION
This report covers Sealy Corporation and its subsidiaries (collectively,
the "Company").
The accompanying unaudited condensed consolidated financial statements
should be read together with the Company's Annual Report on Form 10-K for the
year ended November 30, 1995.
The accompanying unaudited condensed consolidated financial statements
contain all adjustments which, in the opinion of management, are necessary to
present fairly the financial position of the Company at March 3, 1996, and its
results of operations and cash flows for the periods presented herein. All
adjustments in the periods presented herein are normal and recurring in nature.
In 1995, the Company changed its fiscal year to a 52-53 week fiscal year
ending on the Sunday closest to November 30 for years beginning December 1,
1995 and thereafter. As a result, the first quarter of fiscal 1996 ended on
March 3, 1996 as compared to February 28, 1995 for the first quarter of fiscal
1995. The impact on the current quarter of three additional calendar days was
not material.
Certain prior year amounts have been reclassified to conform with the
current year presentation. In particular, $794,000 of expenses included in
selling, general and administrative expenses for the first quarter of fiscal
1995 are now included in cost of goods sold.
NOTE B -- INVENTORIES
The major components of inventories were as follows:
<TABLE>
<CAPTION>
March 3, November 30,
1996 1995
---------- ----------------
(IN THOUSANDS)
<S> <C> <C>
Raw materials $21,279 $19,861
Work in process 11,889 11,195
Finished goods 5,152 4,300
------ ------
$38,320 $35,356
======= =======
</TABLE>
6
<PAGE> 7
SEALY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED MARCH 3, 1996 AND FEBRUARY 28, 1995
================================================================================
NOTE C -- LONG-TERM OBLIGATIONS
<TABLE>
<CAPTION>
March 3, November 30,
1996 1995
------------ ----------------
(IN THOUSANDS)
<S> <C> <C>
Secured Credit Agreement:
Revolving Credit Facility $ 5,000 $ --
Term Loan Facility 79,000 85,000
9 1/2% Senior Subordinated Notes Due 2003 200,000 200,000
Other 259 1,937
------------ -----------
284,259 286,937
Less current portion 17,912 17,488
---------- ----------
$266,347 $269,449
======== ========
</TABLE>
The Secured Credit Agreement provides for loans of up to $204 million as
of March 3, 1996, and consists of the $125 million Revolving Credit Facility
and the $79 million Term Loan Facility. The Revolving Credit Facility is
inclusive of a $30 million discretionary letter of credit facility ("Letters of
Credit") and a discretionary swing loan facility of up to $5 million. The
Revolving Credit Facility terminates and is due and payable on November 30,
1999.
The Term Loan Facility is a $79 million term loan as of March 3,1996, with
a final maturity of November 30, 1999 and amortizes in fiscal quarterly
principal payments. As a result of prepayments by the Company applied pro rata
over the remaining mandatory payments, the current amortization schedule is as
follows:
<TABLE>
<CAPTION>
Fiscal year ending Principal Payment
- ------------------ -----------------
(in thousands)
<S> <C>
12/01/96 $15,948
11/30/97 18,545
11/29/98 13,352
11/28/99 22,254
12/03/00 8,901
-----
$79,000
=======
</TABLE>
Under terms of the Secured Credit Agreement, the Company is obligated to
pay a commitment fee rate of 0.375% per annum on the unused portion of the
Revolving Credit Facility. The fee, which is payable quarterly in arrears, is
reduced or increased depending on certain financial ratios. Two separate
interest rate options exist under the Secured Credit Agreement and are
available to the Company at its option as follows:
(a) A Floating Rate which is the greater of
(i) A Corporate Base Rate plus a margin, if applicable, or
(ii) A Federal Funds Rate plus 0.25% plus a margin, if
applicable, or
(b) A Eurodollar Rate plus an applicable margin.
The applicable margin is zero for the Floating Rate option and 1.25% for
the Eurodollar Rate option.
7
<PAGE> 8
SEALY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED MARCH 3, 1996 AND FEBRUARY 28, 1995
================================================================================
The applicable margin is reduced or increased depending on certain financial
ratios.
During the quarter ended March 3, 1996, the maximum amount outstanding
under the Revolving Credit Facility, excluding Letters of Credit, was $5
million. At March 3, 1996, the Company had approximately $109 million
available under the Revolving Credit Facility, with Letters of Credit issued
totaling approximately $11 million.
All obligations of the Company under the Secured Credit Agreement are
jointly and severally guaranteed by each direct and indirect domestic
subsidiary of the Company and secured by first priority liens on and security
interests in substantially all of the assets of the Company and its domestic
subsidiaries and by first priority pledges of substantially all of the capital
stock of most of the subsidiaries of the Company.
NOTE D -- CONTINGENCIES
In accordance with procedures established under the Environmental Cleanup
Responsibility Act (now known as the Industrial Site Recovery Act), Sealy and
one of its subsidiaries are parties to an Administrative Consent Order ("ACO")
issued by the New Jersey Department of Environmental Protection ("DEP")
pursuant to which the Company and such subsidiary agreed to conduct soil and
ground water sampling to determine the extent of environmental contamination at
the plant owned by the subsidiary in South Brunswick, New Jersey. The Company
does not believe that its manufacturing processes were a source of the
contaminants found to exist above regulatorily acceptable levels in the
groundwater. As the current owners of the facility, however, the Company and
its subsidiary are primarily responsible for the investigation and any
necessary clean up plan approved by the DEP under the terms of the ACO. In
March, 1994, the Company filed a claim in the U.S. District Court for the
District of New Jersey against former owners of the site and their lenders
under the Comprehensive Environmental Response, Compensation and Liability Act
seeking contribution for site investigation and remedial costs.
In March, 1995, the DEP approved the Company's soil/remediation plans and
in June, 1995, the Company's groundwater remediation plans, which include
additional monitoring by the Company and, depending upon the results of such
monitoring, the possible installation of a groundwater containment system. By
a November 15, 1993 letter, DEP postponed any required activity by the Company
to delineate and/or remediate contaminants in the fractured bedrock located on
the site, which DEP previously had requested the Company to undertake, and
which DEP could attempt to impose in the future. Because of the nature of
certain of the contaminants, their geological location in and porosity of the
fractured bedrock, the Company and its consultant are unaware of any accepted
technology for successfully remediating the contamination either in the shallow
groundwater or the fractured bedrock. Thus, the groundwater remediation plan
proposes no remedial activity regarding groundwater in the fractured bedrock.
While the Company cannot predict the ultimate timing or cost to remediate
this facility based on facts currently known, management believes the
previously established accrual for site investigation and remediation costs is
adequate to cover the Company's probable liability. If additional remediation
is required, however, such as the installation of a groundwater containment
system, management estimates it could cost the Company up to an additional $3
million. Management does not believe that resolution of this matter will have
a material adverse effect on the Company's financial position or future
operations.
8
<PAGE> 9
SEALY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED MARCH 3, 1996 AND FEBRUARY 28, 1995
================================================================================
NOTE E -- SUBSEQUENT EVENT
On April 2, 1996, the Company's Board of Directors authorized the
payment of a dividend to all stockholders and holders of Merger Warrants (on an
as-if exercised basis) of record as of May 7, 1996. Based on the number of
shares and warrants outstanding as of April 2, 1996, the dividend amounts to
approximately $35.5 million, or $1.20 per share and approximates the maximum
amount allowable under the provisions of the Senior Subordinated Notes
Indenture. Payment of the dividend is contingent upon amendment of the Secured
Credit Agreement. The Company expects to pay the dividend on or about May 17,
1996.
9
<PAGE> 10
Item 2 - SEALY CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
QUARTER ENDED MARCH 3, 1996 AND FEBRUARY 28, 1995
NET SALES Net sales increased $9.6 million, or 6.4% for the quarter
ended March 3, 1996, as compared to the first quarter of fiscal 1995. The
increase is attributable to an $8.9 million increase in conventional bedding
sales and a net $0.7 million increase in sales of other products.
The bedding sales increase represents a $6.4 million, or 3.8% increase in
conventional bedding unit shipments, along with a $2.5 million, or 2.8%
increase in the average unit selling price. The increase in bedding shipments
was primarily due to a $2.8 million, or 32% increase in domestic shipments of
the Stearns & Foster line, a $2.3 million, or 29% increase in Sealy brand
shipments in Canada, and sales into South Korea of $0.9 million. In the U.S.
market, shipments of the Sealy brand were approximately the same as in the
first quarter of fiscal 1995. Management attributes the strong performance of
the Stearns & Foster line to an increase in customer base, along with increased
volume from existing customers. Canadian sales have improved as a result of
the introduction of a new Sealy Posturepedic(R) brand line of bedding that has
been well received by Canadian retailers. As a result of the 1993 expiration
of the Korean license agreement, the Company began marketing its Sealy brand in
South Korea in June, 1995. Shipments of Sealy brand products into South Korea
have been met with competitive reactions.
The increase in sales of other products is due to a $2.9 million, or 20.2%
increase in sales of wood bedroom furniture, partially offset by the
elimination of sleep sofa sales of $2.2 million. Wood bedroom furniture, sold
under the Samuel Lawrence brand, represents 11% of total Company sales.
Increased sales volume has resulted from new bedroom furniture collections and
increased distribution. The decline in sleep sofa sales is due to the
Company's decision in March, 1995 to close this business unit.
COST OF GOODS SOLD Cost of goods sold for the quarter ended March 3,
1996, as a percentage of net sales, increased 0.4 percentage point to 56.4%.
This increase is primarily attributable to increased labor costs as a result of
increased hourly wage rates.
SELLING, GENERAL, AND ADMINISTRATIVE Selling, general, and
administrative expenses decreased $0.8 million from the first quarter of fiscal
1995 primarily due to decreases in marketing spending, $3.0 million, and
Performance Share Plan ("Plan") expense, $1.1 million, partially offset by an
increase in other selling, general and administrative expenses of $3.3 million.
The decrease in marketing spending is due primarily to a reduction in national
advertising, partially offset by an increase in sales promotion expenses. The
decrease in Plan expense is primarily due to lower estimates of the ultimate
value of the Plan. A description of the Performance Share Plan is provided in
Note 11 to the consolidated financial statements contained in the Company's
Form 10-K for the year ended November 30, 1995. The increase in other selling,
general and administrative expenses is primarily due to executive severance,
administrative support expenses for international expansion and increased
selling expenses.
INTEREST EXPENSE Interest expense, net of interest income, decreased
$0.4 million primarily as a result of lower average debt levels in 1996.
INCOME TAX The Company's provision for income taxes increased $1.7
million, primarily as a result of increased pretax income. The effective
income tax rate differs from the Federal statutory rate as a result of the
application of purchase accounting, certain foreign tax rate differentials, and
state and local taxes. The effective income tax rate for 1996 is approximately
56.5%.
NET INCOME For the reasons set forth above, the Company recorded net
income of $2.9 million for the quarter ended March 3, 1996 versus a loss of
$0.2 million for the first quarter of fiscal 1995.
10
<PAGE> 11
SEALY CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal source of funds are cash flows from operations.
During the quarter ended March 3, 1996, net cash used in operating activities
amounted to $2.6 million due primarily to the timing of payments on expenses
accrued at the prior year end. The Company's principal use of funds consists
of payments of principal, interest, and capital expenditures. Capital
expenditures totaled $2.1 million for the three months ended March 3, 1996.
Management believes that annual capital expenditure limitations in its Secured
Credit Agreement will not significantly inhibit the Company from meeting its
ongoing capital needs. At March 3, 1996, the Company had approximately $109
million available under its Revolving Credit Facility with Letters of Credit
issued totaling approximately $11 million. At March 3, 1996, the weighted
average interest rate on the Revolving Credit and Term Loan Facilities was
6.8%.
On April 2, 1996, the Company's Board of Directors authorized the payment
of a dividend to all stockholders and holders of Merger Warrants of record as
of May 7, 1996. The dividend amounts to approximately $35.5 million, or $1.20
per share and will be financed primarily through borrowings under the Revolving
Credit Facility. The dividend approximates the maximum amount allowable under
the provisions of the Senior Subordinated Notes Indenture. Payment of the
dividend is contingent upon amendment of the Secured Credit Agreement. In
addition, the Company intends to amend the Secured Credit Agreement to allow
for the repurchase of Senior Subordinated Notes at the Company's discretion.
Management believes that the Company will have the necessary liquidity for
the next several years to fund its expected capital expenditures, the proposed
dividend payment, obligations under its credit agreement and subordinated note
indenture, environmental liabilities, and for other needs required to manage
and operate its business, through cash flow from operations, and availability
under the Revolving Credit Facility.
11
<PAGE> 12
PART II. OTHER INFORMATION
-----------------------------
Item 1. Legal Proceedings.
See Note D to the Condensed Consolidated Financial Statements, Part I,
Item 1 included herein.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
*10.6 Severance Agreement dated March 1, 1996, by and between
Sealy Corporation and Lyman M. Beggs.
*10.15 Employment Agreement dated March 4, 1996, by and between
Sealy Corporation and Ronald L. Jones.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K:
A Form 8-K was filed March 14, 1996 reporting that Mr. Ronald L.
Jones had been appointed President and Chief Executive Officer of the Company,
replacing Lyman M. Beggs. Mr. Jones previously served as President of Masco
Home Furnishings since October, 1988. Mr. Jones is a member of the Board of
Directors of the North Carolina Museum of Art, the Board of Trustees of High
Point Regional Health Systems, the Board of Excellence for the University of
North Carolina, the Board of Trustees of High Point University, and is Vice
President of the International Home Furnishings Marketing Association.
* Management contract or compensatory plan or arrangement.
12
<PAGE> 13
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Sealy Corporation has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SEALY CORPORATION
Signature Title
--------- -----
By: /s/ Ronald L. Jones President and Chief Executive Officer
------------------------ (Principal Executive Officer)
Ronald L. Jones
By: /s/ Jesse E. Hogan Senior Vice President and Chief Financial Officer
------------------------ (Principal Accounting Officer)
Jesse E. Hogan
Date: April 15, 1996
13
<PAGE> 1
EXHIBIT 10.6
SEALY CORPORATION
c/o Sealy, Inc.
1228 Euclid Avenue
10th Floor
Cleveland, Ohio 44115
March 1, 1996
Mr. Lyman M. Beggs
3150 Topping Lane
Hunting Valley, Ohio 44022
Dear John:
I am writing to set forth our agreement for the termination of your employment
with the Sealy Corporation.
The provisions of this agreement are to supersede the provisions of all prior
agreements, including, but not limited to, your Employment and Stockholder
Agreements of October 31, 1992, except to the extent expressly provided in this
agreement, and are in lieu of all other obligations including, but not limited
to, the Company's severance plan and its performance share plan.
Your employment will terminate on March 15, 1996. An amount equal to your
salary will continue to be paid to you twice monthly based on the current gross
amount of $21,902 until November 30, 1997. You may continue your life
insurance on the terms available to senior management employees until the
earlier of your accepting other employment or November 30, 1997. Sealy will
waive the premium otherwise payable by you for the medical coverage provided by
COBRA for the entire 18 months. (Any insurance provided by any third party
will, however, be primary.) On January 1, 1997, you will be paid a bonus of 60%
of your salary payments for the period December 1, 1995 to March 15, 1996.
The remaining balance of $40,000 on your loan from Sealy is forgiven and Sealy
shall pay to you or to the Federal and state taxing authorities as withholding
taxes, an amount necessary to offset any tax liability which you incur as a
result of such forgiveness of indebtedness and the tax liabilty payment.
You will promptly transfer to Sealy the 110,000 shares you already have and
upon such transfer you will be paid $1,169,300 for these shares and an
additional $956,700 for the 90,000 shares that would otherwise have been issued
to you.
You will be vested in 800,000 of your 1,000,000 Performance Shares in the
Performance Share Plan. Instead of converting these Vested Performance Shares
into Common Stock after the conclusion of the current fiscal year in accordance
with the terms of the plan, the Company will pay you for them an amount
determined by multiplying the number of shares of Common Stock into which the
Performance Shares would have been converted by the higher of (a) the per share
value as of November 30, 1996 as determined by Duff & Phelps or (b) $10.63 plus
interest at 6% per annum from March 15, 1996 to the date of payment.
Applicable withholding and other taxes (except as provided above for the
forgiveness of indebtedness) may be subtracted from the above payments.
Prior to March 15, 1996:
- You may arrange for Sealy's interest in your company car to be
transferred to you in exchange for the fair market value of
that interest and Sealy will have no further responsibilty in
regard thereto.
- You will assist Sealy in providing for the transfer to Sealy's
designee of any of your club memberships paid for by Sealy.
<PAGE> 2
Mr. Lyman M. Beggs
March 1, 1996
Page Two of Two
- ------------------
- You will return to Sealy any equipment you may have which was
paid for by Sealy.
- You will arrange for the cancellation of any of your credit
cards, telephone cards or accounts for which Sealy is
responsibile.
- You will resign as an officer and director of the Company and
its subsidiaries.
You will be entitled to whatever rights you may have in Sealy's funded and
unfunded defined contribution plans which are vested as of March 15, 1996.
Sealy will reimburse you up to $5,000 per year for any financial consulting
expenses you incurred in 1995 which have not been reimbursed and for any such
expenses you may incur in 1996.
You will continue to be subject to the confidentiality and non-competition
provisions of your Employment Agreement of October 31, 1992 (Sections 8-10).
The attached addendum sets forth the payments and deliveries to be made
pursuant to the above provisions.
Please indicate your agreement by signing and returning to me the enclosed copy
of this letter agreement.
Sincerely,
/s/ Rod Dammeyer
Rod Dammeyer
on behalf of the
Board of Directors Agreed
of Sealy Corporation
/s/ Lyman M. Beggs
RD/lm ------------------
Lyman M. Beggs
<PAGE> 3
ADDENDUM
--------
<TABLE>
<CAPTION>
Cash Payments to John Date(s)
--------------------- -------
<S> <C> <C>
1. $21,902 with no deduction for health care twice monthly
premiums; Company will continue standard until 11-30-97
withholding, excluding insurance and 401(k).
2. $1,169,300 in exchange for 110,000 shares 3-15-96
currently in John's name. First 100,000
shares taxed as capital gain (basis of
$7.52/sh) as a result of prior section 83(b)
election. John has already paid taxes, so
Company will not withhold. Next 10,000
shares also taxed as capital transaction.
Basis is amount of taxable income recognized
by John upon issuance. No section 83(b)
election was made; John has already paid
taxes so Company will not withhold.
3. $956,700 in exchange for 90,000 shares 3-15-96
issuable to John. Taxed as ordinary income
and Company will withhold.
4. 60% of salary from 12-1-95 through 3-15-96; 1-1-97
Company will withhold per item 1 above.
5. Formula conversion of Performance Shares, Later of (a) or
multiplied by the higher of (a) the per share (b) of Section
value as of November 30, 1996 as determined 2.23 of Plan
by Duff & Phelps, or (b) $10.63 plus interest
at 6% per annum from March 15, 1996 to date
of payment; taxed as ordinary income; Company
will withhold.
6. $5,000 for 1996 financial advice has already N/A
been paid.
Deliveries by John
------------------
1. Stock certificates for 110,000 shares. 3-15-96
2. One-line resignation (on form to be prepared 3-15-96
by Company).
3. Equipment/Club Memberships. N/A
4. Cancellation of credit cards, telephone cards ASAP
or accounts for which Sealy is responsible.
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
Other Date(s)
----- -------
<S> <C> <C>
1. $40,000 loan forgiveness, grossed up pursuant 3-15-96
to existing formula. Cash payment made to
John, if doesn't violate tax rules.
2. Life insurance and health insurance to be N/A
continued per March 1, 1996 letter.
/s/ Rod Dammeyer /s/ Lyman M. Beggs
- -------------------------------------- -------------------------------
Rod Dammeyer on behalf Lyman M. Beggs
of the Board of Directors of
Sealy Corporation
</TABLE>
<PAGE> 1
EXHIBIT 10.15
SEALY CORPORATION
1228 Euclid Avenue
10th Floor
Cleveland, Ohio 44115
March 4, 1996
Mr. Ron L. Jones
3102 Cabarrus Drive
Greensboro, North Carolina 27407
Dear Ron:
I am writing on behalf of the Board of Directors of Sealy Corporation to set
forth our agreement for your employment as the President and Chief Executive of
Sealy.
We share and understand your concern that you leave your current employer in an
orderly manner. At the same time we are, and I am sure you are too, anxious for
you to assume the leadership of Sealy as soon as possible. Accordingly, you
may begin on a full or part time basis as soon as you are ready, with the
understanding that you will be full time no later than March 31, 1996.
Your annual salary will be $500,000. Your bonus target will be 80% of your
salary, with a range of zero to 120% of salary. You will be guaranteed a
minimum bonus of 40% or your salary payments for the fiscal year ending
November 30, 1996.
You will be granted 60,000 restricted Class A shares and options to purchase
400,000 additional Class A shares. Your exercise price will be $10.63 per
share, the recently completed valuation. The shares and options will vest at
the rate of 25% each anniversary. Copies of the form of the restricted stock
agreement, stock option agreement and stockholder agreement which must be
executed by you have been furnished to you separately.
You will be paid a sign-on bonus of $250,000 upon commencing full time
employment.
You will receive whatever perquistes are extended from time to time to other
senior executives of the company.
This agreement will be for an initial term of approximately three years, ending
March 31, 1999, and will continue on a year to year basis thereafter, until
your normal retirement age, subject to termination by either party after
completion of the intial term and upon written notice of at least 90 days.
<PAGE> 2
Mr. Ron Jones
March 4, 1996
Page Two of Two
- -----------------
During the period of this agreement and for one year thereafter, you will not
be involved (other than in the ownership of publicly traded stock) with any
manufacturer or seller of (a) mattresses or other bedding products or (b) any
other products which constitute more than 10% of Sealy's revenues at the time
of termination of your employment.
To evidence your agreement to the above, please sign and return to me the
enclosed copy of this letter.
I am very excited about our future under your leadership.
Sincerely,
/s/ Rod Dammeyer
Rod Dammeyer,
Director
Agreed:
/s/ Ron L. Jones
- ----------------
Ron L. Jones
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