Separation Agreement - Tempur World Inc. and Jeffrey P. Heath
TWI HOLDINGS, INC.
TEMPUR WORLD, INC.
1713 Jaggie Fox Way
Lexington, KY 40511
July 3, 2003
Jeffrey P. Heath
c/o Tempur World, Inc.
1713 Jaggie Fox Way
Lexington, KY 40511
Re: Separation Agreement
--------------------
Dear Jeff:
You have indicated your interest in continuing as an employee of Tempur
World, Inc. (the "Company") for a period through July 11, 2003, and thereafter
resigning, subject to the execution of a written agreement regarding severance
and other matters, including the status of (a) the shares of capital stock of
TWI Holdings, Inc. ("Holdings") held by you subject to (i) the Stockholder
Agreement dated as of November 1, 2002 (the "Stockholder Agreement") among
Holdings and its stockholders and (ii) the Registration Rights Agreement dated
as of November 1, 2002 (the "Registration Rights Agreement") among Holdings and
its stockholders and (b) the options to purchase shares of capital stock of
Holdings issued to you pursuant to the Stock Option Agreement dated November 1,
2002 (the "Stock Option Agreement") between Holdings and you. Under the terms of
your Amended and Restated Employment Agreement dated as of October 4, 2002 (the
"Employment Agreement") between the Company and you, you are entitled to certain
severance payments in connection with a termination of employment by the Company
without "Cause" (as such term is defined in the Employment Agreement) following
execution of a release and waiver in form satisfactory to the Company. The
Company is willing to offer to you the compensation, severance payments and
other benefits to which you would be entitled under the Employment Agreement in
connection with a termination of employment by the Company without Cause, and
certain additional compensation and benefits, as set forth below in exchange for
your agreement to the following:
1. Interim Employment; Resignation. You hereby resign as an officer and
employee of the Company, as an officer of Holdings, and as an officer and
director of each subsidiary of the Company in which you hold any such office,
effective as of July 11, 2003 (the "Termination Date"). You acknowledge and
agree that such resignation shall not constitute a resignation for "Good
Reason", as such term is used
<PAGE>
2
in the Employment Agreement. The Company and you agree that from the date hereof
through the Termination Date, you will continue to work as an employee of the
Company (and will be subject to the authority of, and report to, the Chief
Executive Officer of the Company), and will continue to receive your current
salary and participate in the Company's group medical and dental insurance
plans. Although you may continue to use your title as Executive Vice President
and Chief Financial Officer of the Company through the Termination Date, from
and after the date hereof, you agree not to enter into any contracts or
obligations on behalf of Holdings, the Company or any subsidiaries of the
Company without the prior approval of the Chief Executive Officer of the
Company. Until the Termination Date, you agree to devote your full time and best
efforts to the performance of your duties as an employee, unless the Chief
Executive Officer of the Company agrees that you may devote less than your full
time to such duties. In accordance with the foregoing, the Company and you agree
that the Employment Agreement is hereby amended by deleting Articles I, II, III
and V therefrom.
2. Accrued Vacation Pay. On or promptly after the Termination Date, the
Company will pay you an amount corresponding to your actual accrued and unused
vacation time (if any) as of the Termination Date, calculated in accordance with
the Company's policies. You acknowledge that any vacation time taken by you
between the date of this Agreement and the Termination Date will reduce the
amount of any such payment.
3. Severance Benefits. In exchange for your agreement to the terms and
conditions of this Agreement, the Company agrees to make severance payments to
you equivalent to (i) one year of salary payments (constituting a total of
$180,000), (ii) the maximum amount of the performance bonus payment you would be
eligible to receive under the Employment Agreement during the fiscal year ending
December 31, 2003 (constituting a total of $54,000) and (iii) an automobile
allowance of $600 per month (collectively, the "Severance Amount") during the
one year period after the Termination Date ending on July 10, 2004 (such period
hereinafter referred to as the "Severance Period"), in accordance with the
Company's regular payroll schedule. As additional consideration to you under
this Agreement, the Severance Amount includes the full amount of the maximum
performance bonus payment which you would be entitled to receive under the
Employment Agreement if you remained employed by the Company through December
31, 2003, instead of the pro-rated portion of such bonus payment which would be
payable under the Employment Agreement in connection with a termination of
employment without Cause. The obligation of the Company to pay the Severance
Amount shall terminate in the event of any Benefit Termination Event. As used in
this Agreement, "Benefit Termination Event" shall mean (a) any breach by you of
the terms of Article IV of the Employment Agreement, regardless of the validity
of all or part of such Article IV or of the other provisions of the Employment
Agreement or (b) any breach by you of your obligations under this Agreement
(including, without limitation, your obligation to continue to work as an
employee of the Company during the period prior to the
<PAGE>
3
Termination Date and your obligation to execute and deliver the reaffirmation
agreement referred to in the last sentence of Section 13(a) below) or any other
written agreement between you and Holdings or the Company. The foregoing
severance payments are in lieu of any other severance payments under the
Employment Agreement.
4. Outplacement Services. To assist you in your search for a new
position, the Company will pay for up to six months of outplacement services by
an outplacement firm selected by the Company in connection with your search for
a new position. The obligation of the Company to pay for such services shall
terminate in the event of a Benefit Termination Event.
5. Health Insurance. On or after the Termination Date, the Company will
issue you a notice of your rights to continue medical and dental insurance
benefits under the law known as "COBRA." If you make a timely election of such
benefits and timely pay the initial premium, such COBRA coverage will be
retroactive to the date you would otherwise have lost coverage under the
Company's group medical and dental plans, and shall continue for a period of 18
months thereafter. Notwithstanding anything to the contrary in the notice of
COBRA rights, provided that a Benefit Termination Event has not occurred prior
to the Termination Date, your premium obligation for such coverage shall be
limited to the share of such premiums charged to active employees for the same
coverage. Your premium obligation may, at the Company's option, be deducted from
the Severance Amount. As additional consideration to you under this Agreement,
the premium obligation coverage under COBRA will continue for the full 18 month
period of COBRA coverage, instead of the one year period provided for under the
Employment Agreement in connection with a termination of employment without
Cause.
6. Promissory Note; Common Stock. TWI is the holder of a Stockholder Note
dated November 1, 2002 in the principal amount of $23,017.21 payable by you (the
"Note"), which is secured by a pledge of 202.23 shares of Class B-1 Voting
Common Stock of Holdings (the Class B-1 Common Shares") held by you. As an
additional severance payment to you, provided that a Benefit Termination Event
does not occur prior to the Termination Date, upon the Termination Date, all
amounts owed by you under the Note shall be forgiven, the Note shall be
cancelled, and the pledge of the Class B-1 Common Shares shall be released. You
will be responsible for any income taxes on any income deemed to be recognized
by you in connection with such forgiveness of indebtedness. You acknowledge and
agree that the Class B-1 Common Shares are subject to the restrictions on
transfer set forth in the Stockholder Agreement, and that such restrictions
shall remain in effect following the Termination Date.
7. Stock Options. Under the Stock Option Agreement, options for 1,180
shares of Class B-1 Voting Common Stock (the "Options") have been granted to
you, all of which are unvested. The exercise price for the Options is $800.00
per share.
<PAGE>
4
Provided that a Benefit Termination Event does not occur prior to the
Termination Date, upon the Termination Date, the vesting of Options for 295
shares (the "Vested Options"), representing the Options that would have become
vested had you remained employed by the Company through November 1, 2003, shall
become vested and exercisable. As additional consideration to you under this
Agreement, the acceleration of vesting of the Options will constitute a full
year of vesting of the Options, instead of the pro-rated portion of such
one-year period as provided for under the Employment Agreement and the Stock
Option Agreement in connection with a termination without Cause.
Section 4(a)(iv) of the Stock Option Agreement provides that the Vested
Options will terminate on the 90/th/ day following the Termination Date. As
additional consideration to you under this Agreement, provided that a Benefit
Termination Event does not occur prior to the Termination Agreement, Holdings
agrees that the Stock Option Agreement is hereby amended as of the Termination
Date to provide that the Vested Options shall terminate on the earliest to occur
of (i) November 1, 2012 and (ii) the date after the completion of the first
Disposition Event (as defined in the Stock Option Agreement) (other than a
Qualified Public Offering (as defined in the Stock Option Agreement)) to occur
after the Termination Date. You acknowledge and agree that as a result of such
amendment, the Vested Options will not be treated as "incentive stock options"
within the meaning of Section 422 of the Internal Revenue Code.
In accordance with Section 4(b) of the Stock Option Agreement, Holdings and
you acknowledge and agree that all of Options other than the Vested Options
(constituting Options for a total of 885 shares) shall irrevocably expire and
terminate with effect from the Termination Date, without any payment or
consideration to you, and you shall have no further rights in respect of such
Options.
The provisions of this Section 7 shall be deemed to be an amendment to the
terms of the Stock Option Agreement, and the Vested Options shall remain subject
to the terms of the Stock Option Agreement, as amended by this Section 7;
provided, that in the event of any conflict between this Section 7 and the Stock
Option Agreement, the terms of this Section 7 shall be controlling.
8. Return of Documents. Immediately upon the Termination Date, you shall
return to the Company, and so certify in writing to the Company, all of
Holdings', the Company's or any of its subsidiaries' papers, documents and
things, including information stored for use in or with computers and software
applicable to Holdings', the Company's and its subsidiaries' business (and all
copies thereof), which are in your possession or under your control, regardless
of whether such papers, documents or things contain Confidential Information or
Trade Secrets (as such terms are defined in the Employment Agreement).
<PAGE>
5
9. Confidentiality. You acknowledge and agree that you shall remain
subject to all of the provisions of Section 4.1 of the Employment Agreement.
10. Non-Competition. You hereby (a) reaffirm your non-competition and
non-solicitation agreements contained in Sections 4.2 and 4.3 of the Employment
Agreement, (b) acknowledge and agree that you will be subject to such
non-competition and non-solicitation agreements for a period of two (2) years
after the Termination Date and (c) acknowledge and agree that the severance
payments, the continuation of insurance benefits and other benefits referred to
above are being paid to you in partial consideration of such non-competition and
non-solicitation obligations. You acknowledge and agree that you shall also
remain subject to the provisions of Sections 4.4, 4.5, 4.6 and 4.7 of the
Employment Agreement.
11. Waiver. You acknowledge that the agreement of Holdings to maintain the
effectiveness of the Vested Options and the agreement of the Company to pay you
the accrued vacation time and severance, bonus and other payments and benefits
referred to above are being made in satisfaction of all claims which you may
have against Holdings, the Company and the Company Affiliates (as defined below)
with respect to the termination of your employment.
12. Confidentiality; Non-Disparagement; Reference. Each of the parties
hereto agrees to keep all of the terms and provisions of this Agreement
confidential and to not disclose any of the terms or provisions hereof to any
third party without the prior written consent of the other parties hereto;
provided, however, that the terms and provisions hereof may be disclosed by you
to any of your professional advisors who need to know such information (it being
understood that (i) you shall inform such professional advisors of the
confidential nature of such information and shall direct them to treat such
information confidentially in accordance with the terms hereof and (ii) you
shall be responsible for any breach of the confidentiality obligations hereunder
by your professional advisors). You agree that from and after the date hereof,
you shall not make any remarks, statements or comments to any person disparaging
the integrity or reputation of Holdings, the Company or any of the Company
Affiliates (as defined below). Holdings and the Company agree that from and
after the date hereof, (i) they shall not authorize the making of any remarks,
statements or comments to any person disparaging your integrity or reputation
and (ii) the Company's Director of Human Resources, to whom you agree to direct
all requests for references for you, will respond to any such request for a
written reference by providing a copy of the letter attached hereto as
Attachment A, and will respond to any such request for an oral reference by
providing information consistent with the letter attached hereto as Attachment
A.
13. Mutual Releases.
(a) You agree that the benefits to be provided to you under this Agreement
shall be in complete and final settlement of, and release Holdings, the Company
and
<PAGE>
6
their respective subsidiaries and affiliates, and all of their respective past
and present directors, trustees, officers, shareholders, employees, agents,
insurers, successors and assigns, and all others connected with any of them,
both individually and in their official capacities (collectively, the "Company
Affiliates"), from, any and all causes of action, rights or claims that you have
had in the past, now have or might now have for the time period up to and
including the Effective Date (as defined in Section 14), including any such
causes of action, rights or claims which are in any way related to, connected
with or arising out of your employment and its termination, pursuant to The Age
Discrimination in Employment Act (as amended by the Older Workers Benefit
Protection Act of 1990), Title VII of the Civil Rights Act of 1964, the
Americans with Disabilities Act, the Employee Retirement Income Security Act of
1974, or any other federal, state or local employment law, regulation or other
requirement or common law, or pursuant to any written or oral contract,
agreement or understanding between you and Holdings, the Company or any of the
Company Affiliates, other than any causes of action, rights or claims arising
against Holdings or the Company to enforce this Agreement, the Stock Option
Agreement, the Stockholder Agreement or the Registration Rights Agreement. You
also (i) agree not to file a lawsuit or initiate an arbitration proceeding
asserting any such claims and (ii) represent and warrant to Holdings and the
Company that you have not assigned any such claims. In addition, on the
Termination Date, you agree to execute and deliver to the Company a written
agreement in form and substance satisfactory to the Company reaffirming the
provisions of this Section 13(a) with respect to the time period up to and
including the Termination Date.
(b) Holdings and the Company each agree that the agreements contained in
this Agreement shall be in complete and final settlement of, and release you
from, any and all causes of action, rights or claims that Holdings, the Company
or any of their subsidiaries have had in the past, now have or might now have
for the time period up to and including the Effective Date (as defined in
Section 14), including any such causes of action, rights or claims which are in
any way related to, connected with or arising out of your status as a
stockholder, officer, director or employee of Holdings or the Company or any of
their subsidiaries, or pursuant to any written or oral contract, agreement or
understanding between you and Holdings or the Company, other than any causes of
action, rights or claims arising against you to enforce this Agreement, Articles
IV or VI of the Employment Agreement, the Stock Option Agreement, the
Stockholder Agreement or the Registration Rights Agreement. Holdings and the
Company, on their own behalf and on behalf of their subsidiaries, also (i) agree
not to file a lawsuit or initiate an arbitration proceeding asserting any such
claims and (ii) represent and warrant to you that they have not assigned any
such claims. In addition, on the Termination Date, Holdings and the Company
agree to execute and deliver to you a written agreement in form and substance
satisfactory to you reaffirming the provisions of this Section 13(b) with
respect to the time period up to and including the Termination Date.
<PAGE>
7
14. Acknowledgment. The offer contained in this Agreement is made without
prejudice and without any admission of liability. This is an important legal
document, and you may wish to consult with an attorney of your own choice in
deciding whether to accept the offer contained in this Agreement. You
acknowledge that you are entering into this Agreement voluntarily in order to
receive the payments described above, and that you have read and understand this
Agreement and the release contained herein. You understand that the Company
would not make the payments referred to herein without your voluntary consent to
this Agreement. You acknowledge that you were given a period of at least 21 days
in which to consider this Agreement. If you sign this Agreement in less than 21
days, you acknowledge that you have done so voluntarily. For the seven day
period following the execution of this Agreement, you may revoke this Agreement
by written notice to the Company. If you revoke this Agreement, all terms of
this Agreement shall be void and of no effect, and you agree to return to the
Company any consideration paid to you under this Agreement at the time you
deliver your notice of revocation. This Agreement shall not become effective or
enforceable until the seven day revocation period has expired. If you do not
revoke this Agreement, then, at the expiration of such seven day period (the
"Effective Date"), this Agreement shall take effect as a legally binding
agreement among you, Holdings and the Company. Nothing in this Agreement shall
be construed to affect the Equal Employment Opportunity Commission's independent
right and responsibility to enforce the law or to interfere with your right to
file a charge or participate in an investigation or proceeding conducted by the
Equal Employment Opportunity Commission or any similar state or local government
agency (the "Commission"). You acknowledge that you understand, however, that
while this Agreement does not affect your right to file a charge or participate
in an investigation or proceeding conducted by the Commission, it does bar any
claim you might have to receive monetary damages in connection with any
Commission proceeding or action concerning matters covered by this Agreement.
15. Withholding. All payments by the Company described in this Agreement
will be reduced by all taxes and other amounts that the Company is required to
withhold under applicable law.
16. Entire Agreement. This Agreement (together with the Stock Option
Agreement, the Stockholder Agreement, the Registration Rights Agreement and
Articles IV and VI of the Employment Agreement) sets forth the entire
understanding of the parties hereto with respect to the subject matter hereof
and supersedes all other prior agreements and understandings, whether written or
oral.
17. Equitable Remedies. You hereby acknowledge and agree that upon any
breach by you of your obligations under Sections 8, 9 or 10 hereof, the Company
will have no adequate remedy at law, and accordingly will be entitled to
specific performance and other appropriate injunctive and equitable relief.
<PAGE>
8
18. Severability. The parties hereto agree that if any provision of this
Agreement is or becomes invalid, illegal or unenforceable in any respect under
any applicable law, the validity, legality and enforceability of the remaining
provisions hereof shall not in any way be affected or impaired.
19. Further Assurances. Each party shall execute and deliver all such
further documents and instruments and do all acts and things as the other
parties may after the date hereof reasonably require to carry out or better
evidence or perfect the full intent and meaning of this Agreement. In addition,
if requested by the Company after the date hereof, you agree to cooperate fully
in any litigation or arbitration proceeding involving Holdings, the Company or
any of its subsidiaries which relates to the period during which you were
employed by the Company.
20. Successors and Assigns. This Agreement shall be binding upon, and
inure to the benefit of, the parties hereto and their respective heirs, personal
representatives, successors and assigns.
21. Governing Law. This Agreement shall be construed and enforced in
accordance with the substantive laws of the State of Delaware.
22. Amendments, Waivers, Etc. No modification of or amendment to this
Agreement shall be valid or binding unless set forth in writing and fully
executed by the parties hereto, and no waiver of any breach of any term or
provision of this Agreement shall be effective or binding unless made in writing
and signed by the party purporting to give the same and, unless otherwise
provided, shall be limited to the specific breach waived.
23. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
<PAGE>
9
Please indicate your agreement to the foregoing by signing a counterpart of
this letter and returning it to us.
Sincerely,
TWI HOLDINGS, INC.
By:/s/ Robert B. Trussell, Jr.
-------------------------------------
Title: President and CEO
TEMPUR WORLD, INC.
By:/s/ Robert B. Trussell, Jr.
-------------------------------------
Title: President and CEO
I, the undersigned, having had the time to reflect, freely accept the above
settlement and agree to the terms of this Agreement. I acknowledge and agree
that no representative of Holdings or the Company has made any representation to
or agreement with me relating to this Agreement which is not contained in the
express terms of this Agreement. I acknowledge and agree that my execution and
delivery of this Agreement is based upon my independent review of this
Agreement, and I hereby expressly waive any and all claims or defenses by me
against the enforcement of this Agreement which are based upon allegations or
representations, projections, estimates, understandings or agreements by
Holdings, the Company or any of their representatives that are not contained in
the express terms of this Agreement.
/s/ Jeffrey P. Heath 7/14/03
------------------------- ------------------------
Jeffrey P. Heath (Date)